Spiteri v Lindholm [2003] VSC 42

6. Spiteri is the sole director, secretary and shareholder of Waleri and Econ. Both Spiteri and Econ claim to be creditors of Waleri.

9. Spiteri is also the sole director, secretary and shareholder of Valecave Pty Ltd ("Valecave") and Pineoak Pty Ltd ("Pineoak"), to which I refer below.

12. Waleri, Spiteri and some of his other companies, including Valecave, had banking facilities with the National Australia Bank Ltd ("NAB"). The security for Waleri's facility included a debenture granted by Waleri on 16 February 2000, a guarantee for a basic liability of $450,000 given by Spiteri and Valecave, and a first registered mortgage given by Valecave.

15. Waleri fell into financial difficulty. In July 2002 the NAB demanded that Waleri pay its outstanding debts of $972,924.95. A little later in July, the NAB demanded that Spiteri and Valecave, under their guarantee, pay the sum of $486,675, and that Valecave pay the same sum under its mortgage. On 2 August 2002 Valecave paid the amount demanded of it. The difference between that amount and the amount demanded of Waleri was $486,249.95.

18. On 2 August 2002 the NAB, acting pursuant to the debenture, appointed Georges and Lindholm as administrators of the company. The first meeting of creditors was duly convened and held on 8 August 2002. Spiteri did not attend the meeting. The attendees were Lindholm, who chaired the meeting, a representative of the NAB, Spiteri's solicitor Peter Guy of Kennedy Guy, Michael Louros of Knott, Jones & Associates ("Knott Jones"), and Ray Dimech for Spiteri, Econ and Smack Enterprises Pty Ltd ("Smack"). Knott Jones were the accountants for Waleri and Spiteri. It seems that Smack was a company associated with Dimech. Lindholm was provided with proofs of debt by:

(a) The NAB for a secured debt of $486,249.95,

(b) Kennedy Guy for an unsecured debt of $1,282.60, for services provided,

(c) Knott Jones for an unsecured debt of $1,375, for accounting fees,

(d) Spiteri for an unsecured debt of $400,000, for loans to Waleri,

(e) Econ for an unsecured debt of $173,382, for "moneys collected on behalf of concrete pump", and

(f) Smack for an unsecured debt of $205,590, for consultancy fees.

Guy said he acted for Spiteri and proposed that the NAB, as to whose claimed debt there was a pre-existing dispute, should not be admitted to vote at all. Lindholm disagreed, and allowed the NAB to vote in respect of the amount claimed. However, by reason of a lack of supporting documentation, Lindholm admitted Spiteri's proof of debt for $1 only, for voting purposes. He admitted all of the other proofs of debt to vote in the amount claimed. The meeting considered motions to appoint a committee of creditors and to appoint another person as administrator. The NAB voted against, and the other creditors voted in favour of, each motion. Each motion was lost.

24. The administrators, by notice dated 21 August 2002, convened the second meeting of creditors for 29 August 2002. In his report to creditors accompanying the notice Lindholm advised the creditors of relevant matters. I provided a summary of the report in my judgment in the proceeding referred to in the next paragraph. I said:

"[43] In the report to creditors, Lindholm set out a brief chronology of actions, commencing with his visits to several business premises on 2 August 2002, and including the letter from Kennedy Guy dated 7 August disputing the amount owed to the NAB by Waleri, the resolutions of the first meeting of creditors, and Kennedy Guy's letter dated 14 August 2002 contending that the NAB was owed less than $200,000 and that Waleri proposed to pay the NAB in full under a deed of company arrangement. Lindholm stated that he had not received a report as to affairs from Spiteri as required by the Corporations Act, and that he had not gained access to the books and records of Waleri. [44] Then, on the matter of voidable transactions, Lindholm stated that from his investigations "to date" it "appeared" that the business and assets of Waleri "may" have been transferred to Econo-Mix Pty Ltd ("Econo-Mix"). He set out the matters giving rise to his concerns in that respect; namely, the date of registration of Econo-Mix, Spiteri was the sole director of Econo-Mix, Waleri and Econo-Mix shared the same registered office, and Econo-Mix was Waleri's previous trading name. He said that if Waleri went into liquidation, any transfer or sale of its assets to another entity for no consideration would be an uncommercial and insolvent transaction pursuant to ss 588FB and 588FC of the Corporations Act and, on that basis, voidable. As he had not been able to gain access to the books and records of Waleri he had not been able to ascertain whether there were any additional transactions that appeared to be voidable in respect of which a liquidator might be able to make a recovery. He had also been unable to determine whether the books and records had been properly maintained in accordance with s 286, and stated that he would be pleased to receive such information from the creditors. He then listed fifteen vehicles registered in Waleri's name (the information being obtained from a search with Vic Roads) and noted that six were sighted at the Deer Park premises on 2 August 2002. [45] The next section of the report concerned creditors. He noted those present at the first meeting, and that the Australian Taxation Office ("ATO") had subsequently confirmed that it was a creditor owed $21,149.39. He was not aware of any other creditors. [46] Lindholm concluded the report with a summary of the options available to creditors. In the discussion, he noted that Waleri was no longer trading. He concluded that, due to the lack of information, he was not in a position to make an informed recommendation to creditors. He recommended that it was in the creditors' best interests to adjourn the meeting for a period to be agreed. That would provide an opportunity for the NAB and the company to resolve their dispute with the possibility of an acceptable deed of company arrangement being proposed."

28. As it happened, by an originating process filed on 21 August 2002, Spiteri and Econ sought an order that Lindholm's decision to admit the NAB's proof of debt for voting purposes be set aside, an order as to the amount for which the NAB's proof of debt ought to be admitted by the administrators (and in that respect, a finding that Waleri was not indebted to the NAB for any amount at all), and an order removing Georges and Lindholm as administrators. The defendants to the proceeding were the administrators and the NAB. The proceeding was contested. The second meeting of creditors was deferred pending the determination of the proceeding. I heard the application and gave judgment on 7 November 2002.[1] I dismissed the proceeding and, pursuant to s 447A of the Corporations Act, ordered that Part 5.3 of the Act operate in relation to Waleri so that the second meeting convened for 29 August 2002 be taken to have been adjourned until 20 November 2002. On a subsequent application by the administrators, I made an order which adjourned the meeting to 13 December 2002.

32. By a circular letter to creditors of Waleri dated 9 December 2002, Lindholm forwarded a notice of meeting for 13 December 2002, an informal claim form for voting purposes, and a proxy form. He also enclosed a copy of my judgment. The circular letter referred to his previous report to creditors dated 21 August 2002, and advised as follows:

"1. Update on progress Since my last report, I have received draft financial accounts at 30 June 2002 for Waleri. The draft balance sheet indicates a deficiency of assets to liabilities of $691,672. The draft balance sheet includes loans and advances from related parties detailed in the amount of $672,621. A copy of the draft financial accounts received is attached. On 30 November 2002, I received an email from Mr Ray Dimech providing a further breakdown of the related party loan balances. A copy of this email is also attached. 2. Books and Records The draft financial accounts referred to above are the only documents I have received from Waleri pertaining to the company's financial position. To date, I have not received the company's books and records. 3. Related Party Claims I am not able to independently verify the amounts detailed in the draft balance sheet as owing to related parties without access to the company's books and records. Without having the opportunity to review Waleri's books and records and independently verify the balances claimed by related parties, it is my current intention to reject claims made by related parties for voting purposes at the forthcoming meeting scheduled for 13 December 2002. 4. Summary of Options Available to Creditors and Recommendation of Administrator The following options are available to creditors at the forthcoming meeting, namely: a. Bring the Voluntary Administration to an end; b. Place the company into Liquidation; or c. Have the company enter into a Deed of Company Arrangement. After taking account of the issues raised in my report to creditors dated 21 August 2002 and the financial position of the company at 30 June 2002 as portrayed in the draft financial accounts provided to me, it is my recommendation that creditors resolve that Waleri be placed into Liquidation."

36. For the purpose of the second meeting Lindholm received the following informal proof of debt forms:

(a) Australian Taxation Office ("ATO") - $21,149.30,

(b) Econ - $173,382,

(c) Kennedy Guy - $1,282.60,

(d) Knott Jones - $1,375,

(e) Spiteri - $65,000,

(f) NAB - $1,031,710,

(g) Pineoak - $300,000,

(h) Valecave - $636,675.

Spiteri attended the meeting for himself and as proxy for Econ, Pineoak and Valecave. Guy attended as proxy for Kennedy Guy and Knott Jones. The NAB was represented, and Dimech attended as an observer.

42. Lindholm, as chairman of the meeting, made the following decisions concerning the proofs of debt. He accepted the proofs from the ATO, Kennedy Guy and Knott Jones. He rejected the proofs from Econ, Spiteri and Pineoak on the basis, as stated in the minutes (which are accepted as being correct):

"... that although the proofs contain some minimal draft financial statements, without Waleri's books and records (which had yet to be delivered after numerous requests) he was unable to verify the figures contained within these related party proofs. [And, after being questioned by Guy] The chairman again stated that he had advised in his report that unless the books and records of the company were delivered, he would not be in a position to verify these related party proofs."

46. Lindholm then dealt with the Valecave proof. This too was a related party, but the position with Valecave was different as it had paid $486,675 to the NAB. Lindholm admitted the proof in that amount but did not admit it for the balance of $150,000 claimed as being owed by Waleri. That fell into the category of a related party claim which Lindholm could not verify in the absence of Waleri's books and records.

49. Lindholm then dealt with the NAB's proof. It was for a greater amount than claimed in the bank's proof at the first meeting. Lindholm asked for, and received, supporting documentation in the form of account statements. He reduced the bank's claim by the amount of $486,675 paid by Valecave and an amount in related interest, so as to avoid a double claim by creditors, and on the basis that it was appropriate for Valecave to claim the sum, and admitted the NAB's claim for $529,622 in accordance with two of the statements produced.

52. The meeting proceeded. Lindholm tabled his reports to creditors and there was discussion of them. Lindholm invited questions. In response to a question from the NAB's representative, Lindholm advised that Spiteri had not provided the books and records of the company "despite repeated requests". Guy stated that the meeting should be adjourned until further information could be gathered. Lindholm responded that he did not believe that this would achieve anything, given the time which had elapsed since he first requested the books and records and the numerous subsequent attempts he had made to obtain them. He then advised the creditors of the possible courses of action available to them under s 439C. The NAB's representative then moved that the company be wound up. Lindholm, as proxy for the ATO, seconded the motion. The motion was put and the votes were:

Lindholm exercised his casting vote in favour of the motion, and declared it carried. He advised the creditors that pursuant to s 446A(4) the administrators were now the liquidators.

65. Lindholm then called for nominations for a committee of inspection; there were none, and he stated that a committee would not be formed. The NAB's representative then moved motions for the remuneration of the administrator and the liquidator. The votes were the same as above, other than that no vote was recorded for the ATO. Lindholm stated that as the motions concerned his remuneration he would not exercise the ATO proxy and nor would he exercise his casting vote. Accordingly, the motions were not carried.

69. The originating process in the present proceeding was filed on 23 December 2002. It was returnable before me on 14 February 2003, when I heard argument and reserved my decision. The plaintiffs are Spiteri and Econ, and the sole defendant is Lindholm. Affidavits in support were sworn by Spiteri and Dimech. Lindholm swore an affidavit in opposition. In his affidavit Lindholm referred to the affidavits he swore in the earlier proceeding and exhibited them. As previously mentioned, my judgment in the earlier proceeding was enclosed with Lindholm's letter to creditors dated 9 December 2002 and, as such, was exhibited to Lindholm's affidavit. The judgment is a convenient point of reference to many relevant facts and circumstances. Counsel referred to various passages and findings in the judgment in the course of their submissions. There was some cross-examination of Lindholm, but Spiteri and Dimech were not cross-examined.

72. The NAB appeared, and sought leave to intervene as a creditor. In an affidavit in support of that application there was reference to a covenant in the Valecave guarantee that Valecave would not, without the bank's consent, prove for any amount against the customer (Waleri) in competition with the bank in respect of any payment made by Valecave under the guarantee. It was stated that the bank had not consented to Valecave lodging its proof of debt for the amount of $486,675, and, accordingly, that Valecave had not been entitled to lodge the proof for that amount. If the motion to wind up had been lost, the bank would have applied to the court to have the vote set aside on that ground. Counsel for Spiteri and Econ sought an adjournment to consider the matters raised in the bank's affidavit, and to enable material to be filed in relation to it. It was suggested that "expert evidence or forensic evidence" might be filed in response to the affidavit, and it was later said that "there may be some issue with the signatures to" the guarantee. I granted leave to the NAB to intervene, but refused the application to adjourn the proceeding on the basis that counsel for the bank did not seek to advance a submission concerning the covenant in the guarantee, and I would not consider that matter, unless Lindholm failed in his opposition to the application. The hearing proceeded accordingly.

75. The originating process sought a range of orders and declarations. It sought an order that Lindholm's decision to reject the proofs of debt of the plaintiffs for the purpose of voting at the meeting be set aside. It also sought a declaration that the resolution to wind up be set aside, a declaration that Waleri not be wound up or that the winding up be terminated, a declaration that the meeting was a nullity, and an order that the meeting be reconvened and, at such meeting, the proofs of debt of the plaintiffs be admitted for the purpose of voting.

78. The scope of the relief sought was narrowed by counsel for the plaintiffs. He conducted the case as an appeal under s 1321 (or reg 5.6.26(3) of the Corporations Regulations 2001) against Lindholm's decision to reject the proofs of debt of the plaintiffs. On that basis, the relevant orders sought are those setting aside Lindholm's decision to reject the plaintiffs' proofs, and those reconvening the second meeting.

81. It should be emphasised that the only attack made by the plaintiffs was upon Lindholm's decision to reject the proofs of the plaintiffs. No other decision of Lindholm was challenged. The plaintiffs did not challenge his decisions in relation to the admission or otherwise of the other proofs of debt, and nor did they challenge his conduct generally. Thus, Lindholm's decisions in relation to the proofs of debt of Pineoak, Valecave and the NAB were not challenged, and nor was Lindholm's exercise of his casting vote on the resolution to wind up.

85. In his letter to creditors dated 9 December 2002, and at the meeting on 13 December 2002, Lindholm stated that he had not been provided with the books and records of Waleri. Despite requests that he do so, Spiteri had not delivered up the books and records. Nor had Spiteri, or any person on his behalf, advised Lindholm of the location of the books and records.

88. I referred to Lindholm's requests to Spiteri for production of Waleri's books and records, and Spiteri's failure to produce them or advise Lindholm of their location, in my earlier judgment.[2] The first request was made on 2 August 2002, the day when the administrators were appointed. The next request was made to Knott Jones on 5 August 2002. The first meeting of creditors was held on 8 August 2002, but without the books and records of the company having been made available to the administrator. In his letter to creditors dated 21 August 2002, Lindholm stated that he had not gained access to the books and records, or received a report as to affairs from Spiteri, as required by the Corporations Act. In that letter he asked whether the books and records had been properly maintained, and stated that due to the lack of information provided to him he was not in a position to make an informed recommendation to creditors. During the hearing before me in September 2002, neither Spiteri nor his counsel indicated when the books and records would be delivered up or where they were located. I found that the failure to comply with Lindholm's requests to deliver up the books and records:

"[51] ... was a deliberate tactic. The conclusion is irresistible that the tactic was employed because it was considered to be in Waleri's interest, in its struggle against the NAB and the attempt to remove the administrators, that the administrators not have access to Waleri's books and records, and information from Spiteri as to relevant matters. The books and records and such advice as the questionnaire required would, among other things, contain information bearing upon the matters of the NAB debt, voidable transactions, and the identity of creditors and amounts owed to creditors. [52] As Lindholm understandably stated, until he has the books and records he is forced to rely on the information provided to him by the creditors for the purpose of valuing their claims for voting in the administration. ... [53] Lindholm remains concerned about the possibility of a transfer of the business and assets of Waleri for no consideration. His view is that in the absence of the books and records, and an explanation from Spiteri in response to his concerns, as well as a proposal for a deed of company arrangement, and the ability to compare any proposed deed of company arrangement with a liquidation (due to the absence of the books and records), the only course open to him, consistent with his duty to all creditors, is to recommend that the creditors resolve that Waleri be wound up, so that these matters can be investigated and any necessary recovery action taken."

" Spiteri withheld from the administrators information which must, one would suppose, have shed light on the identity of creditors and the amounts owed. Without assistance and information from Spiteri, what information did Lindholm have to rely on for the purpose of valuing claims for voting purposes?"

94. Between the delivery of that judgment on 7 November 2002 and the meeting on 13 December 2002, Dimech, acting as a consultant to Spiteri and his companies, had communications with Lindholm in the course of which he provided Lindholm with financial information relating to Waleri. This information, provided on 26 November 2002, took the form of draft balance sheets, income and expenditure statements, profit and loss appropriation statements (for the years ended 30 June 2001 and 2002), and a list of fixed assets sold during the year ended 30 June 2002. On 30 November 2002 Dimech provided a document which purported to detail various related party loan accounts, those parties being Valecave, Econ, Spiteri and Pineoak. There were subsequent communications between Lindholm and Dimech.

97. In his affidavit, Dimech stated that Lindholm led him to believe that on the basis of the information he provided, Lindholm would accept the claim by the related parties for the purpose of voting at the second creditors' meeting. That is inconsistent with Lindholm's letter dated 9 December 2002, and his position stated at the meeting on 13 December 2002. I had the benefit of seeing Lindholm cross-examined. He impressed me as an honest, reasonable and careful person, attentive to his responsibilities as administrator. The conversations he had with Dimech occurred in a context, as he said in evidence, in which he had been told that he was not going to get the books and records. He said he had "made numerous requests for [the] books and records" and that at the first creditors' meeting it was indicated that they were not going to be given to him. I have no hesitation in accepting Lindholm's evidence, even allowing for the fact that Dimech was not cross-examined. Lindholm's evidence, and the earlier findings I have made concerning the non-production of the books and records, provide the context in which Dimech's evidence, and that of Lindholm, is to be considered. Lindholm was seeking to obtain all of the information he could notwithstanding the continued refusal of Spiteri to comply with the lawful obligation upon him, in response to Lindholm's request, to deliver up Waleri's books and records and provide information as to their location. The circumstances are characterised by a continued and deliberate failure to provide the company's books and records. I find that Dimech's approach to Lindholm was consistent with the objective of seeking to avoid disclosure of the books and records and, in achieving that objective, of seeking to persuade Lindholm to accept the information provided and cease pressing for delivery of the books and records. The combined votes of Spiteri and the related parties, with the assistance provided by the votes of Kennedy Guy and Knott Jones, would then outvote the NAB and the ATO. It is all too obvious in my view. Not only is it a matter of the failure to produce the books and records, but there is also Lindholm's concern as to the occurrence of voidable transactions involving the disposal of Waleri's assets. Regarding the matter in its entirety, Spiteri and his allies have pursued a consistent pattern of conduct in seeking to avoid production of the books and records of Waleri. I reject Dimech's evidence.

100. Lindholm's affidavit was sworn on 10 February. He stated that he had still not been provided with the books and records of the company in response to his request to Spiteri on 2 August 2002. Nor had he been advised by Spiteri or Dimech as to where the books and records of the company were located.

103. In his affidavit, which was sworn on 13 February (the day before the hearing), Dimech made the first disclosure of the location of Waleri's books and records. He stated that the books and records "were handed to me in or about April 2002 and have been retained by me since that date". He said that he was a consultant to Spiteri, and companies associated with Spiteri, and that he had been asked to assist in the preparation of accounts for Waleri and the reconciliation of bank statements issued by the NAB to Waleri. He had undertaken a reconciliation of the overdraft account. He stated that, based on his reconciliation, Waleri did not owe the NAB any amount, rather the NAB owed Waleri approximately $40,000. He had also assisted Knott Jones in preparing accounts for Waleri. These were the draft financial documents he had provided to Lindholm on 2 November 2002. He asserted that Spiteri and Econ were creditors of Waleri as they had claimed in their proofs of debt. He said that he had retained Waleri's books and records to enable him to complete the reconciliation of the overdraft account with the NAB and to finalise the accounts. He could not have completed that work, and obtained a true and correct assessment of the company's assets and liabilities, without the books and records.

106. At an early stage in the hearing on 14 February I was informed by counsel that 20 boxes of documents, purportedly Waleri's books and records, were delivered to Lindholm at 3.30 pm on the previous afternoon. Lindholm had not had time to look at the documents.

110. As I have mentioned, counsel for the plaintiffs conducted the case as an appeal from Lindholm's decision to reject the plaintiffs' proofs of debt. Counsel proceeded on the basis that such an appeal is to be approached and determined in the manner stated in Vincent, White & Associates Pty Ltd v Vouris[3] by Hodgson CJ in Eq who said (at 100), in part quoting Street CJ in Eq in Re Mineral Securities Australia Ltd (in liq) that:[4]

"... the ultimate question is whether the administrator's action 'has such importance, and can be seen to have such defects, as to justify the court exercising its supervisory power.'"

114. Counsel for the plaintiffs submitted that the materials before Lindholm at the second meeting sufficiently verified the claims. He pointed out that at the first creditors' meeting Lindholm had accepted Econ's proof of debt, and allowed it to vote for the amount it claimed, $173,382. Econ's proof for the second meeting was for the same amount and was supported by further documentation. Of course, Spiteri's proof for $65,000 was for a lesser amount than that lodged at the first meeting, and (unlike the first proof) it was supported by documentation. The documentation provided included bank statements, a draft balance sheet of Waleri, a document setting out related party loans, and in Econ's case, other documents concerning the transactions giving rise to the debt. It was submitted that these documents were "from" the books and records of Waleri, and were evidence of the debts owed to each plaintiff. They enabled Lindholm to verify the debts. Having regard to the information before him, Lindholm should have accepted the proofs. If he had done so, the resolution to wind up would have been lost, as the plaintiffs would have voted against the motion to wind up and, consequently, would have produced a majority in value and number against that motion. This information established the importance of the application, and warranted the setting aside of Lindholm's decision.

117. Even if Lindholm had some doubt about the proofs he could not reasonably have rejected them outright. At most he could only have had some doubt as to whether they should be admitted or rejected and, in that situation, he should have followed the course prescribed in reg 5.6.26(2). That is, he should have marked the proofs as objected to, and allowed the plaintiffs to vote. The correctness of the decision to admit the proofs could then have been tested on appeal pursuant to s 1321 or reg 5.6.26(3).

120. Counsel for the plaintiffs further submitted that Lindholm's decisions rejecting certain proofs and allowing others were logically flawed. It was illogical to reject some proofs on the basis that he needed the books and records and accept other proofs without those books and records. The lack of logic is emphasised by the fact that the NAB debt is disputed.

123. Counsel for Lindholm submitted that Lindholm was justified, and had acted correctly, in rejecting the plaintiffs' proofs for voting purposes. Counsel relied on evidence of Lindholm, in his affidavit, that he rejected the proofs of debt of the plaintiffs and Pineoak:

"... on the basis that I had not been provided with the company's books and records by the director of the company, Mr Spiteri (despite numerous requests of him to do so) and was therefore unable to verify the accuracy of the debts referred to in the informal proofs lodged by those related parties."

Lindholm had foreshadowed in his letter to creditors dated 9 December 2002 that he would take that course for that reason. The continuing failure to provide the books and records, notwithstanding Lindholm's advice as to the course he would take, meant that the circumstances had not changed. The information he required to enable him to verify the proofs continued to be withheld from him. In this situation he did not doubt whether to admit or reject the proofs. Accordingly, it was not appropriate to proceed in the manner provided for in reg 5.6.26(2). In such circumstances, it was not open to make a just estimate of the debts pursuant to reg 5.6.23(2). Confronted as he was with limited information, indeed the calculated and deliberate withholding of information contrary to the law, which could only have been designed to suit the ends of Spiteri and the related parties, it is unreasonable to contend that Lindholm was required to, and should, in exercising his judgment, accept the proofs of Spiteri and the related parties as reasonable and sufficient evidence of the claimed debts.

129. It is convenient to commence by referring to the provisions of the Regulations concerning voting at a meeting of creditors. Regulation 5.6.23(1) provides that a person is not entitled to vote as a creditor unless his or her debt or claim has been admitted in whole or in part by the administrator, or he or she has lodged with the chairperson of the meeting particulars of the debt or claim or a formal proof of that debt or claim. Regulation 5.6.23(2) provides that:

"A creditor must not vote in respect of: (a) an unliquidated debt; or (b) a contingent debt; or (c) an unliquidated or a contingent claim; or (d) a debt the value of which is not established; unless a just estimate of its value has been made."

"5.6.26(1) [Chairperson may admit or reject] The chairperson of a meeting has power to admit or reject a proof of debt or claim for the purposes of voting. 5.6.26(2) [Cases of doubt] If the chairperson is in doubt whether a proof of debt or claim should be admitted or rejected, he or she must mark that proof as objected to and allow the creditor to vote, subject to the vote being declared invalid if the objection is sustained. 5.6.26(3) [Appeal] A decision by the chairperson to admit or reject a proof of debt or claim for the purposes of voting may be appealed against to the Court within 14 days after the decision."

135. In Re Oriel Homes Pty Ltd Thomas J considered the interpretation of reg 5.6.23(1) and (2) and reg 5.6.26. Counsel for the plaintiffs relied on this interpretation. Thomas J said:

"I interpret the effect of these rules as follows: Under Reg 5.6.26(1) the power to admit includes the power to admit in part. If the position is clear, the chairperson should make a just estimate of the value of the debt. If, however, he or she is in genuine doubt, the claim must be allowed at the amount that the creditor has claimed and should thereupon be marked as "objected to". The creditor should then be allowed to vote at that value. Any error, and any effect that the error may have on the result, may be corrected in due course by an appeal to the Court under Reg 5.6.26(3)."[5]

139. In the following year in Vincent, White & Associates, Hodgson CJ in Eq considered the interpretation and operation of these regulations and the view of Thomas J expressed in the above passage. Hodgson CJ in Eq said of that passage that:

"I do not interpret Thomas J as saying that wherever there is genuine doubt as to the correct amount of the debt, the chairperson must allow the creditor to vote in the amount claimed. Such a view would, in my opinion, be contrary to the intention of Pt 5.3A and the regulations, and in particular to reg 5.6.23(2)."[6]

143. A little further in his judgment Hodgson CJ in Eq said:

"Now wherever the amount of a debt is not established, there will ipso facto be some doubt about its amount; and if reg 5.6.26(2) meant that wherever the chairperson was in doubt about the amount of a debt, he or she must allow the creditor to vote for the full amount claimed, this would render nugatory the requirement of a just estimate, as well as promoting unreasonable outcomes, delay, and litigation. In fact, the doubt referred to in reg 5.6.26(2) is not doubt as to the existence or amount of the debt, but doubt as to "whether a proof of debt or claim should be admitted or rejected". And in my opinion, in cases where the value of a debt is not established and a just estimate has been made, the doubt in question must be a doubt as to whether the creditor should be allowed to vote on the basis of the just estimate. If the chairperson has such a doubt, then the creditor should be allowed to vote on the basis of the just estimate, and the proof marked as objected to. However, if no just estimate of the debt can be made at all, then in my opinion reg 5.6.23(2) requires that the creditor not be permitted to vote at all, and reg 5.6.26(2) has no application. If and in so far as Thomas J suggests in Re Oriel Homes that reg 5.6.26(2) overrides reg 5.6.23(2), to the extent of requiring the chairperson to permit voting by a creditor the value of whose debt has not been established, even though a just estimate of its value cannot be made, I must respectfully disagree."[7]

147. In Young v Sherman[8] Austin J considered a submission that an administrator (as chairman of a meeting of creditors) should have followed the procedure in reg 5.6.26(2) and marked an informal proof of debt, allowing the plaintiffs to vote in respect of the amount claimed in it. Austin J (at [91]) pointed out that the regulation only applied if the chairman is "in doubt whether a proof of debt or claim should be admitted or rejected". Austin J said:

"A chairman who concludes that a claimant has failed to provide particulars of the claim is not, by virtue of that conclusion alone, "in doubt" whether the claim should be admitted or rejected. It is rationally open to a chairman in such a position to decide to reject the claim for the purpose of voting at the meeting, without further investigation. That is what the chairman did on this occasion. To the extent that his decision was based upon the lack of adequate particulars, there is nothing in the evidence to indicate that he was in fact in doubt, or should as a reasonable person have been in doubt, about whether to admit or reject the claim."

151. Austin J went on, at [93], to consider the approach which a chairman might take when he or she is informed that there is a genuine dispute about the existence or amount of a debt claimed by a creditor. There are, Austin J said, "at least three possible approaches that can be taken". Austin J identified those approaches at [94]. The second is:

"... where the chairman receives a claim that has not been adequately particularised, and believes that the claim (whatever precisely it may be) is disputed, the correct approach may be to reject the claim for voting purposes on the ground of lack of particulars."

155. More recently, in Kirwan v Cresvale Far East Ltd (in liq)[9] Giles JA and Young CJ in Eq, in separate judgments in the New South Wales Court of Appeal, referred to these authorities. In his judgment Giles JA referred, at [229], to Vincent White with evident approval of the point made by Hodgson CJ in Eq that "admission or rejection of a proof of debt or claim comes before any question of making a just estimate of value of an unqualified debt or claim once the proof of debt or claim has been admitted". In his judgment at [397] Young CJ in Eq referred to the views of Hodgson CJ in Eq in Vincent, White & Associates at 101 and (at [400]) to the statement of Thomas J in Re Oriel Homes quoted above. While seeming to prefer the interpretation in Re Oriel Homes, Young CJ in Eq said that on the facts in Kirwan there "should have been no difficulty in assessing" the claims, and that "[i]t was not open to decline to assess a just value on the claim and to reject it altogether". On this basis, Kirwan would not seem to have required resolution of the differing interpretations. Meagher JA expressed no view on these matters.

158. I agree with the interpretation in Vincent, White & Associates. It seems to me, with respect, to be attended with much common sense and to better allow for the infinite variety of circumstances in which a chairperson might have to consider whether to admit or reject a proof of debt. It is also an interpretation that caters for such circumstances as those in the present case. These are circumstances of a deliberate, tactical and wrongful refusal to comply with the lawful request of an administrator, made pursuant to the Corporations Act, to produce the books and records of a company in administration and which refusal meant that the administrator was denied the ability to verify the claimed debts by reference to such books and records. I find that this refusal was made for purposes which prevented the administrators from performing that verification. That the refusal continued in light of my findings on the first application merely served to further frustrate the administrators in the exercise of their duties. At the least, it must have tended to excite an ever increasing suspicion as to that which was concealed, and doubt as to that which was provided. In this regard, the list of fixed assets sold during the year ended 30 June 2002, which Dimech provided on 26 November 2002, would have confirmed the administrators' concern as to the company's entry into voidable transactions.

161. As a result of Spiteri's conduct, Lindholm had no records of the company to enable him to check the debts claimed by Spiteri and the related parties (in relation to each of which, including Waleri, Spiteri was the sole director and shareholder). Spiteri had not spoken to Lindholm. In my view, Lindholm was entitled to take the view that the refusal to produce the books and records and the selective submission of materials through Dimech lacked credibility to the extent that, save for the amount of $486,675 paid by Valecave to the NAB, he should not accept the proofs of Spiteri and the related parties in the absence of the books and records enabling him to verify the proofs. He warned that he would take that course, and he did. I conclude that Spiteri, Econ, and the other related parties, on advice, determined to run the risk of Lindholm doing what he said he would do. In so acting, Spiteri was seeking to take advantage of his own wrongful conduct in refusing to comply with the lawful requests of Lindholm to deliver up the books and records of the company. It is obvious that the ultimate goal was to control the votes at the meeting, defeat any motion to wind up the company, and (absent a deed of company arrangement) have the company return to Spiteri's control. In my view it was open to Lindholm to reject the proofs of Spiteri and Econ. I conclude that he acted reasonably and properly in doing so. Indeed, it is questionable how he could have acted otherwise, considering the possibility that the books and records may not have verified the claimed debts and, furthermore, the possibility that they may have confirmed the existence of voidable transactions.

164. But the relevant circumstances confronting Lindholm were not merely those concerning the failure to produce the books and records. From time to time there were changes in the identity of Waleri's creditors, and in the amounts claimed, and the plaintiff's proofs were open to criticism. I can deal with these points briefly.

167. At the first meeting of creditors Lindholm received the proofs of debt referred to at [6]. In the report as to affairs of Waleri, signed by Spiteri and dated 30 August 2002, and received by Lindholm that day, there was a list of unsecured creditors. I referred to the report in my earlier judgment at [49] and [50]. The ATO was referred to as a creditor, but in an amount that was stated to be "Unknown". The other unsecured creditors were:

" In each case the report states the amount is admitted as owing. It is to be noted that with the exception of the amounts claimed for Knott Jones and Kennedy Guy, the list differs from the claims provided to Lindholm at the first meeting. Spiteri's debt has reduced from $400,000.00 to $65,000, Econ's debt has fallen from $173,382.00 to $157,621.00, and Smack is not included. But Valecave and Pine Oak have been brought in; each is a Spiteri or Spiteri-related company."

178. The proofs received at the second meeting differed from that list in that Econ claimed a debt of $173,382, which was the amount claimed in its proof lodged at the first meeting of creditors. In addition, the ATO's proof identified the amount owed.

181. As to the plaintiffs' proofs provided for the second meeting, the following may be said. Spiteri's proof of debt form claimed a debt of $65,000 as an unsecured loan. No details of the facts and circumstances of the loan were given. Attached to the proof was a draft balance sheet of Waleri as at 30 June 1992, the list of related party loans which Dimech had provided to Lindholm, and two bank statements of Waleri. The balance sheet recorded a liability to Spiteri of $65,000 under the heading "Loans and advances". The bank statements included a deposit of $5,000 on 5 October 2001, and $260,000 on 20 October 2001, but did not refer to Spiteri as the source. In unidentified handwriting on the statement for the latter date "$200,000 Pineoak, $60,000 Mario Spiteri" is written, presumably indicating a division of the $260,000. The list of related party loans sets out, in relation to Spiteri, the relevant dates and amounts of the $5,000 and $60,000. The balance sheet is stamped "Draft", and neither it nor the list of related party loans bears the certificate or endorsement of an accountant or other person. Furthermore, Spiteri did not include as part of his proof, and still has not, any cheque butt or deposit slip in relation to these amounts, or any other record at all, pertaining to or evidencing the loan.

184. Econ's proof was for $173,382 owing as moneys collected on behalf of Econ. The same draft balance sheet and list of related party loans was attached to the proof. The balance sheet recorded a loan or advance to Econ of $73,234 at 30 June 2001 and $157,621 at 30 June 2002. Also attached was an invoice, and a series of "orders" and bank statements. The list itemised a series of payments which totalled $157,621, and not the amount claimed in the proof. Counsel for the plaintiff said that the difference was attributable to GST which was shown on the documents, and that appears to be so. This had not been explained. The orders, which purport to have been issued by Econ to Waleri, are from a book and consecutively numbered, although issued at various times, which might not have been expected for a trading company. The amounts identified in the bank statements are not the amounts in the list, and they do not correlate with the amounts shown as deposits in Waleri's bank accounts. How are the amounts to be related? As counsel observed, one would assume that there are relevant documents in Waleri's books and records that might explain the matter, but which have not been produced.

187. Lindholm was entitled to take such matters into account, in addition to the absence of the books and records, in considering whether there was such a lack of particularity or supporting material that the plaintiff's proof of debt should be rejected.

193. If I had concluded that Lindholm had erred in rejecting the plaintiffs' proofs of debt it would have been necessary to give consideration to the appropriate resolution of the proceeding in view of the following matters. The company is not trading, it is insolvent, and there is, in Lindholm's opinion, a need to investigate the disposition of the company's fixed assets, which may constitute voidable transactions. It was having regard to these circumstances, and the fact that there is no proposal for a deed of company arrangement, that Lindholm was, and remains, of the opinion that the proper course is for the company to be wound up.

[1] Spiteri v Georges [2002] VSC 473.

[2] Ibid at [26] and [27], [36], [43] and [44], [51], [58], [82] and [83], [88], [91], [96] and [97], [100] and [105].

[3] (1998) 28 ACSR 93.

[4] [1973] 2 NSWLR 207 at 231.

[5] Re Oriel Homes Pty Ltd (1997) 15 ACLC 564 at 565.

[6] Vincent, White & Associates Pty Ltd v Vouris (1998) 28 ACSR 93 at 100.

[8] [2001] NSWSC 1020; (2001) 40 ACSR 12.

[9] [2002] NSWCA 395.