Wells v Wily & Anor

1 This application arises out of the liquidation of a company, Galimore Holdings Pty Limited ("Galimore"), which by one means or another undertook management of the financial affairs of the Wells family. The members of the family who feature in the case are the Plaintiff, Jonathan Wells, his brother Peter Wells, and Jonathan Wells' wife, Charlotte Wells. For ease of identification and without intending any disrespect I will refer to the family members as Jonathan, Peter and Charlotte. The First Defendant, Mr Wily, is the liquidator of Galimore and was formerly its administrator. 2 I have said that Galimore undertook the management of the Wells family affairs by one means or another because the controversy in this case concerns what the company did and in what capacity. Although the company was registered in November 1996, became trustee of the Wells Family Trust by a deed dated 15 March 1997, and engaged in substantial real estate transactions and other financial dealings until it was placed in voluntary administration in September 2003, its financial records and the records of the Wells Family Trust did not exist in any meaningful sense until they were brought into existence by its accountant, Mr A. Alexandrou, after the appointment of the voluntary administrators and at their insistence. It is the lack of any properly maintained financial records of the company and of the Trust and the lack of any sufficient primary source material which should have been available to support those financial records which have given rise to this litigation. 3 Galimore was placed in liquidation at an adjourned meeting of creditors held in accordance with s.439A of the Corporations Act 2001 (Cth) on 29 October 2003 in circumstances to which I will come. Jonathan alleges that Galimore should not have been placed in liquidation. He says that the meeting should have been adjourned to allow creditors further time to consider a proposal for a Deed of Company Arrangement which he had put forward. 4 By his Originating Process filed on 31 October 2003 Jonathan seeks the following relief pursuant to s.447A, s.600A, s.600B, s.600C, s.131(9) and s.131(1) of the Corporations Act : "1. An order reversing or modifying the acceptance and rejections of the proofs of debts of creditors made by the First Respondent pursuant to Section 1321 Corporations Act 2001.

2. An order setting aside the said resolutions voted on pursuant to such acceptances and rejections, removing the liquidator and reinstating him as administrator.

3. An order that the First Respondent as administrator convene a further meeting of creditors for the purpose of considering and voting on the proposed Deed of Company Arrangement referred to in the Notice of Meeting of creditors of the Second Respondent dated 30 September 2003 and that the First Respondent be directed to rule as follows in conducting any vote on the resolution:

(i) To accept the Applicant's Proof of Debt for the amount of $1.00

(ii) To accept the Peter Wells' Proof of Debt for the amount of $1.00

(iii) To accept Mother's Imports Proof of Debt for the amount of $1.00

(iv) To prepare an adequate circular to creditors including an estimate of dividend under the Deed of Company Arrangement compared with liquidation and a draft Deed of Company Arrangement and for such documents to be circulated to creditors at least 7 days before the meeting

and/or such directions as this Honourable Court thinks fit." 5 Further relief is sought by way of a declaration that the Wells Family Trust was created by a trust deed dated 15 March 1997. However, it is now common ground between the parties, and is recorded in the transcript, that the liquidator concedes that the Wells Family Trust was indeed constituted by a trust deed dated the 15 March 1997, so there is no utility in a declaration to that effect. 6 Paragraphs 5 and 6 of the Originating Process concern the validity of the appointment under the terms of the Wells Family Trust Deed of a new trustee in place of Galimore. That matter has not really been argued in these proceedings and the resolution of the dispute, if there is one, does not turn upon the facts and circumstances which surround the placing of the company in liquidation. It seems to me that if there is a dispute as to the validity of the appointment of a new trustee these are not the appropriate proceedings in which to resolve that dispute. In any event, as I have been informed by Mr J. Chippindall, who appears for the Defendants, and Mr C.J. Hockey, who appears for the Plaintiff, the liquidator has not taken the position that the appointment of a new trustee is invalid. Accordingly, I do not think that it is appropriate in these proceedings to entertain any of the relief sought in paragraphs 5 and 6 of the Originating Process.

7 It is convenient to deal with the relevant facts as I consider each of the remaining prayers for relief in the Originating Process. I will deal first with Mr Wily's rulings on the admission of Proofs of Debt. 8 At the creditors' meeting held on 29 October 2003 the First Defendant, Mr Wily, gave the following rulings: " 1. Johnathan Wells Proof of Debt $50,400 for 'unpaid fees under contract ending 6 August 2013'. No contract has been provided. The claim for 336 hours at $150 per hour from 6 August to 9 September 2003 has not been substantiated. Decision of Administrator : Proof of Debt not admitted.

2. Charlotte Wells The Proof of Debt for $673,315 relies on a Deed of Release with Galimore Holdings Pty Ltd dated 25 March 2002. The Administrator wrote to Ms Wells requesting further information to support contentions in the Deed that moneys had been 'invested in and/or lent' to Galimore and to support a claim for an entitlement to share of profits and interest. The response from Ms Wells does not provide substantiation of the debt. The Administrator received the draft accounts of the Wells Family Trust and of Galimore for the years 1998 to 2003 on 28 October 2003. At this time, in the opinion of the Administrator these draft accounts cannot be relied upon to support a claim from Ms Wells. As the value of the debt has not been established to the satisfaction of the Administrator, he proposed a just estimate of the debt, for voting purposes, of $1.00. Decision of Administrator : Proof of Debt admitted, but due to present uncertainties, admitted in the amount of $1.00.

3. Peter Wells The Proof of Debt for $341,560 relies on a default judgment in favour of Peter Wells in the District Court. Full documentation, affidavits and the judgment have been provided to support the claim. Decision of Administrator : Proof of Debt admitted for $341,560.

7. Richard Marsden The Proof of Debt for $7,450 described as 'For services performed from 1/3/03 to 1/9/03' is not particularised or supported by evidence of work done. The Administrator wrote to Mr Marsden seeking further information and no response was received. Mr Marsden is apparently the brother of Ms Charlotte Wells. Decision of Administrator : Proof of Debt not admitted.

8. Anthony Alexandrou The Proof of Debt for $27,500 is for 'unpaid fees'. The Administrator wrote to Mr Alexandrou requesting supporting documentation and no response was received. Decision of Administrator : Proof of Debt not admitted.

9. Resicom Australia The Proof of Debt for $297 is for 'out of pocket expenses'. The Administrator requested supporting documentation, which has not been received. Decision of Administrator : Proof of Debt not admitted.

12 The Wells Family Trust The Proof of Debt for $140,667 for 'Funds advanced over a period of seven years' is not supported by any documentation to substantiate the claim. The Proof of Debt is signed by Johnathan Wells and therefore incorrectly executed, as it is Galimore Holdings Pty Ltd that is the Trustee of the Wells Family Trust, not Mr Wells. Decision of Administrator : Proof of Debt not admitted." 9 In my opinion, no ground has been shown to interfere with Mr Wily's rulings on these Proofs of Debt. My reasons are as follows. 10 Jonathan became a director of Galimore on 14 July 1999. He was made bankrupt on 10 July 2000. Mr Alexandrou, who had been the family's accountant for some considerable time previously, was appointed as director, so he says, in a caretaker capacity. Due to ill health Mr Alexandrou resigned as director on 6 August 2003 and Jonathan was appointed in his stead. Jonathan continued as sole director of the company for just over one month until 9 or 10 September 2003, when Galimore was placed under administration. 11 Jonathan's ultimate Proof of Debt was a claim for $50,400 for fees as a director for doing work for the company between 6 August and 9 or 10 September 2003. Mr Wily explained his reasons for rejecting this proof in paragraph 43 of his affidavit of 17 December 2003: "In respect of the proof of debt of Jonathan Wells I decided to reject it, as the claim by him for consultancy fees had not, in my view, been substantiated. For the first meeting, he had sent a proof of debt of $250,000, which I consider to be an unsubstantiated ambit claim. It was totally unsupported. The Proof of Debt of $50,400 which I was required to adjudicate on, while being more modest in amount, did not, in my view, provide supporting evidence of the nature of services provided, whether they were commercially justifiable and whether they were reasonable in terms of time and amount charged. The hours claimed, over many consecutive days, in my view lacked any commercial realism. The hourly rate claimed was in my view unacceptable. There had been no attempt to justify or explain the purpose of the charge for 'consulting services'." 12 Jonathan gave evidence in the proceedings which added nothing at all to his claim by way of substantiation. His evidence, if anything, led me to believe that he was prone to exaggeration. Mr Wily's evidence in paragraph 44 of his affidavit was not challenged or otherwise shown to be unreasonably founded. In my view, Jonathan's Proof of Debt was rightly rejected for the amount which he claimed therein. 13 In paragraph 44 of his affidavit, Mr Wily gave his reasons for rejecting the Proof of Debt lodged by Charlotte: "In respect of the Proof of Debt of Charlotte Wells, it relied solely on a Deed of Release entered into by Galimore and her in 2002. It presupposed there were advances to the company by Charlotte of $390,000 and that her share of profits and interest was $210,000. I had not seen any documentation or records of the company at that time and I was aware from Peter Blythe that he still had to meet with Tony Alexandrou to take possession of the books and records. There was also uncertainty in my mind at the time of adjudication of the Proof of Debt as to whether the claim by Charlotte was owing by the Wells Family Trust, or by Galimore in its own right. The background to this uncertainty is referred to in paragraph 74 of this affidavit. The first Proof of Debt received, for the first meeting of creditors, was for $970,000, with no supporting documentation. The second Proof of Debt, upon which I was now to adjudicate, was for $673,315. This added to my state of uncertainty about the claim of Charlotte Wells. With this background and the unsatisfactory response from Charlotte Wells, when asked to provide supporting evidence, led to me deciding to admit the debt, but at $1, for voting purposes." 14 Charlotte did not give evidence. Mr Wily's evidence in paragraph 44 was not challenged or otherwise shown to be unreasonably founded. Indeed, the evidence which Mr Alexandrou gave about how the deed of release between Galimore and Charlotte came to be executed and how he arrived at the figure stated in that Deed as owing by Galimore to Charlotte shows that it would have been very wrong of Mr Wily to have admitted Charlotte's debt in the amount claimed. 15 Mr Alexandrou said that his understanding at the time that he executed the deed of release was that the substantial majority of the money paid to Galimore and shown in the Wells Family Trust accounts as owing to Charlotte was in fact money belonging to Jonathan's children and derived from their deceased mother's estate. He did not know whether Charlotte was trustee of the money for the children. He did not know how much of the money paid to the company was owed to any particular child. He thought that it was in order to execute the deed of release whereby all the money was repayable to Charlotte alone because he assumed that she was the children's guardian. This highly unsatisfactory state of affairs seems to be typical of the way in which the company has been administered prior to being placed in administration. 16 Mr Wily's reasons for his rulings on the Proofs of Debt lodged by Peter Wells, Mother's Imports Pty. Limited, Richard Marsden, Mr Alexandrou, Mr Alexandrou's company, Resicom and the Wells Family Trust are given in paragraphs 45 to 49 of his affidavit. 17 I am satisfied that the reason given by Mr Wily for his admission of debt of Mother's Import is a sufficient one in the circumstances as they were then presented to him. He has given unchallenged evidence that his examination of the preference claim against Galimore by Mother's Imports appeared to be a substantial one, although doubtless it would have been defended. In those circumstances, where a claim is made which requires to be adjudicated upon by a Court, an administrator or liquidator is justified in making an estimate of that claim for the purposes of admission of proof. That is what Mr Wily did in the present case and no ground has been shown to interfere with his judgment in that respect. 18 I think I need say little about the rejection of the Proofs of Debt of Mr Marsden, Mr Alexandrou and Resicom. The rejection was not substantially argued in these proceedings. It is quite clear that Mr Wily sought particulars and substantiation of the claims made and that that substantiation was not provided. It seems to me that Mr Wily's reasons for rejecting the proofs in those circumstances are quite supportable. 19 There were two bases for Mr Wily's rejection of the Proof of Debt purported to be lodged on behalf of the Wells Family Trust. The first was that the proof had not been properly executed by the trustee. The trustee was at that time Galimore and Galimore certainly had not lodged a Proof of Debt on behalf of the Trust. On that ground alone Mr Wily's decision was supportable. 20 A second reason for Mr Wily's rejection of the Proof was that the claim was founded upon Trust records which he had not then seen. As I have said, the Trust records did not come into existence, just as the company's financial records did not come into existence, until after the appointment of Mr Wily. 21 Mr Alexandrou freely admitted that he had endeavoured to reconstruct the company's financial records and the Trust account records for a number of years by reference to such limited financial documents and primary source material as he had, but mostly by reference to what his understanding was, gleaned from conversations with Peter and with Jonathan. Those financial accounts, both for the company and for the Trust have rightly been regarded by Mr Wily as unreliable, to say the least 22 I share that view for two reasons. The first is because the accounts were compiled at a time when it was in the interests of Jonathan and Mr Alexandrou to structure them in such a way as would serve the arguments which they were seeking to advance. Second, the accounts are on their face inconsistent in a number of respects. I give just two examples, but they are significant ones. The accounts for Galimore as at 30 June 2004 show as non-current assets loans to Mother's Imports of $285,004.62. Mr Alexandrou, as I have said, prepared these accounts but what is there shown is inconsistent with Mr Alexandrou's own evidence. At T49-50, Mr Alexandrou said, in effect, that the company's only source of money was investment in and from the Wells Family Trust together with management fees that it charged the Trust. Those were the only two sources of income identified by Mr Alexandrou. He said that the company managed the affairs of the Trust and lent it money. He said: " Q. The whole of its activities were managing the trust assets, as far as you understood it? A. Managing the trust and lending the money.

Q. The assets it held as trustee of the trust, is that right? A. The trustee of the trust, yes.

His Honour: Q. So I can understand, did the company in its own right, as distinct from as trustee, engage in any income earning activity for its own benefit? A. It didn't sell shares or buy shares, no. Its only main income producing activity was trust related, yes.

Q. Did it have an activity in its own right, that was, managing the trust? A. And spending the money to manage the trust, yes.

Q. So, it received, in effect, a fee from the trust for being trustee, for acting as trustee? A. And spending money to act as trustee.

Q. Right. So, its business, really, was acting as trustee in return for a consideration or fee and in order to earn that income, it had to spend money? A. In its own right.

Q. If it had other expenses? A. Yes and also, it borrowed money from Peter Wells.

Q. It borrowed money from Peter Wells and did what with that money? A. It used that money to invest into New Orleans; lent it to the trust.

Q. Lent it to the trust? A. Yes and got it repaid.

Q. The only other activity was, as it were, being a conduit pipe for loans to the trust? A. Yes, I think that would sum it up." 23 The evidence of Mr Alexandrou would indicate that the company was a conduit for loans to the Trust from people such as Peter. If that evidence is right then one would expect to see in the accounts of Galimore that its assets included not loans to any particular company but loans to the Wells Family Trust. As I have said, what the accounts show is a loan or loans to Mother's Imports, not a loan to the Trust. 24 Because of this inconsistency and because of what was said by Mr Alexandrou, it seems to me far more probable that what happened was that Galimore received loans in its capacity as trustee and lent money, if it lent any money, as trustee. In other words, it did not receive money from any member of the family in its own right and then on-lend that money to the Trust, as Mr Alexandrou seems to suggest. If the company had received money in its own right and then on-lent money to the Trust or other entities one would have expected to see brought to account some item of income derived from these loans, but the only income which the accounts show is income in the form of management fees. 25 A second and important example of the inaccuracy of the accounts for the Trust is evidenced by the ledgers prepared by Mr Alexandrou showing that Charlotte Wells was a creditor of the Trust. For the reasons I have given, the money lent to the Trust was not all lent by Charlotte. According to Mr Alexandrou, most of the money came from the children. 26 This is a serious defect in the accounting records of the Trust. It must undermine any confidence that anyone can legitimately have in the accuracy of the Trust account records and, indeed, in the way in which the reconstituted accounts for the Trust and the company have been prepared by Mr Alexandrou. It seems to me that for all of those reasons Mr Wily was quite correct to reject the Proof of Debt put forward on behalf of the Wells Family Trust. 27 Clearly, the debt said to be owing by the company to Peter Wells was in a very different position from the debt claimed either by Charlotte or by Jonathan. As Mr Wily explained, Peter's debt was the subject of a default judgment obtained in the District Court. That judgment had been founded on evidence placed before the Court which had justified the Court in making the order. However, no satisfactory evidence at all of Jonathan's claim had been provided to Mr Wily after a request and, as I have observed, it would have been very wrong indeed of Mr Wily to have admitted Charlotte's Proof of Debt in the circumstances that I have recounted. 28 Accordingly, no reason has been shown, in my opinion, to interfere with Mr Wily's ruling in respect of Peter's Proof of Debt.

29 I turn now to the submission on behalf of Jonathan that Peter should be excluded from voting on the resolution to place Galimore in liquidation on the ground that Peter is a related creditor within s.600A(1) of the Corporations Act . Under that section, the Court may set aside a resolution at a creditors' meeting if it was procured by the vote of a related creditor in the circumstances required by the section. It has to be demonstrated that the passing of a proposed resolution - in the present case with the support of the vote of Peter Wells - is contrary to the interests of the creditors as a whole, or any class of creditors as a whole, or otherwise satisfies the requirements set out in s.600A(1)(c)(ii). 30 Both sides in this case agree that as at the date of the meeting of 29 October 2003 Galimore was insolvent. The issue as to whether a Deed of Company Arrangement should have been considered is one to which I will come in a moment, but it does not seem to me that there is any evidence to support the assertion that the vote or participation of Peter in the meeting based upon the admission of his Proof of Debt satisfies any of the requirements for exclusion under s.600A so as to justify any order being made under (2).

31 I come now to what is probably the major issue in contention between the parties: whether Mr Wily ought to have procured the adjournment of the creditors' meeting held on the 29 October in order to permit what is said to be a necessary consideration of a proposal for a Deed of Arrangement which had been put forward by Jonathan. 32 The proposal was contained in a letter dated 7 October 2003 and was provided to Mr Wily by Jonathan on that date. That was the date of a second adjourned meeting of creditors pursuant to s.439A of the Act. The proposal was in the simplest possible terms. It is as follows: "I refer to the current administration and advise that the following Deed of Company Arrangement is submitted for the consideration of creditors. I ask that it be circulated to creditors and voted on in 10 days.

An amount of $50,000 (of which $9,900 has already been deposited) will be placed into your trust account within 7 days of approval and signing of the Deed of Company Arrangement to be held subject to the Deed of Company Arrangement.

The amount of $50,000 will be lent by me to create a fund out which you can meet the costs of the administration and pay out a dividend rateably to satisfy in full the claims of creditors.

In reference to the Wells Family Trust it is a condition of the offer that a list of trust creditors and non trust creditors be settled and that only non trust creditors shall be entitled to received distribution from the fund.

It is a further condition of the offer that the list be settled on the basis of the correct facts namely that the only trust creditor is Magney Mortgages Limited.

Within 7 days of the amount of $50,000 being paid to you as Deed Administrator you agree to retire as administrator and cause the company to retire as trustee of the Wells Family Trust." 33 It will be seen that the proposal is entirely devoid of any detail. It simply provides that $50,000 will be provided by Jonathan "to pay for costs of administration and pay non-trust creditors only" . There is no identification made by Jonathan in this proposal of the amount said to be owing to non-Trust creditors. All that is said is that he contends that the only creditor of the Wells Family Trust is Magney Mortgages Limited, the mortgagee holding a security over Jonathan's family home at Avalon, which is conceded on all sides to be an asset of the Trust. The proposal otherwise seems to assert that all other liabilities incurred by the company were incurred not as trustee in its own right. The amount of those creditors is not identified but, from a Statement as to Affairs which had been provided by Jonathan, it appears that creditors said to be non-Trust creditors totalled well in excess of a million dollars. 34 Jonathan makes a number of complaints about the conduct of Mr Wily upon receipt of this proposal. Firstly, he says that Mr Wily is in breach of s.439A(4)(c) of the Corporations Act in that he did not send out a notice of the meeting of creditors which had been adjourned to 29 October 2003 accompanied by "a statement setting out details of the proposed deed" of company arrangement in accordance with his obligations under s.439A(4)(c). 35 The fact is that Mr Wily sent a notice to creditors of the meeting to be held on 29 October and attached to that notice a copy of Jonathan's letter of 7 October 2003. Mr Hockey says that Mr Wily was obliged under the section to do a great deal more than that. He says that Mr Wily should have prepared a statement on his own initiative in which he set out such details as the assets held by Galimore, the liabilities of Galimore, the assets and liabilities of the Wells Family Trust, the proposal put by Jonathan, a calculation of the return to creditors, the cost of defending District Court Proceedings by Mother's Imports and how the cost was proposed to be funded, the costs of setting aside Peter Wells' District Court judgment and how it was proposed to be funded. 36 Mr Hockey submits that, on the true construction of s.439A(4)(c), if a director informs an administrator merely that he proposes to pay a certain sum of money to fund a Deed of Company Arrangement, it is then incumbent upon the administrator, with no more than that information, to work out for himself or herself what exactly the proposal entails, what are the terms to be incorporated in a Deed of Company Arrangement, how that proposal might affect the creditors, and its advantages and disadvantages. 37 Mr Hockey was not able to cite any authority in support of that proposition and I cannot accept it. It seems to me that the statement setting out details of the proposed deed which is referred to in s.439A(4)(c) is a statement which is essentially founded upon the information given to Mr Wily by the proponent of the deed. In the present case Jonathan had provided such vestigial details of his proposal that Mr Wily could usefully do nothing more than lay the whole of the terms of that proposal before the creditors for their consideration. I think that it would have been an entirely unwarranted expense to incur if Mr Wily had set out drawing up for himself not only the Deed of Company Arrangement but fleshing out in great particularity how that proposal might have worked. 38 The next complaint is that the meeting which was held on 29 October should have been adjourned in order to give Mr Wily and the creditors more time to consider the implications of the proposed Deed of Company Arrangement in the light of the accounts for the company and for the Trust which had just been prepared by Mr Alexandrou and given to Mr Wily on the preceding day. Mr Wily informed the meeting that he had received those accounts and regarded them as unsatisfactory in a number of respects. He said that a great deal more investigation would have to be done before the accuracy of the accounts could be commented upon any further. 39 Whether the creditors' meeting under s.439A should be adjourned and held a fourth time was put to the vote. The number of creditors in favour of an adjournment, I think, was four; the number against was two. Those in favour were Jonathan and the interests which he represented. Those against were external creditors. The value of external creditors' debts outweighed by hundreds of thousands of dollars the value of the debts of Jonathan and his associated interests. 40 Mr Wily, as chairman of the meeting, exercised a casting vote against a further adjournment of the meeting. Consequent upon that refusal of an adjournment the meeting again voted upon whether the company should be placed in liquidation. The same division in voting occurred and again Mr Wily, as chairman, exercised a casting vote in favour of placing the company in liquidation. 41 Mr Wily in his evidence, both in affidavit and in the witness box, said that the essential reason why he did not consider any further purpose would be served by adjourning the meeting again to consider either the proposal or the proposal in the light of further investigation of the accounts was that he regarded that exercise as essentially pointless. His view, in essence, was that the accounts which he had just seen seemed on their face to be so suspect that, bearing in mind the manner in which they had come to be prepared, it was unlikely that any further light would be thrown by them upon the reality of the company's financial position and the Trust's financial position. 42 Bearing in mind that the accounts demonstrated inaccuracies and inconsistencies, that they were reconstructions without all the requisite source material, that the meeting was now considering the fate of the company for the third time, and that the proposal which had been put forward by Jonathan for a Deed of Company Arrangement was devoid of any particularity, I can see nothing which would justify this Court in exercising its discretion to interfere with either what the creditors did or what Mr Wily, as Chairman, did at the meeting in refusing to adjourn the meeting further. 43 In those circumstances, I can see no basis for granting any of the relief sought in paragraphs 1, 2 and 3 of the Originating Process. The Originating Process will therefore be dismissed.

44 Mr Wily seeks an order for costs against Jonathan on an indemnity basis. Mr Chippindall puts the argument on two grounds. First, he says that the threadbare nature of Jonathan's case and the way in which it had been conducted suggests that appointing an administrator and propounding nothing more than a token Deed of Company Arrangement was an exercise engaged in by Jonathan for the purpose of frustrating his brother's attempt to wind up the company. In other words, he says that this whole proceeding has been the product of an ulterior purpose on the part of Jonathan, so as to constitute an abuse of process. 45 The second basis upon which he seeks the order is that, in effect, there was no justifiable case to advance on the part of Jonathan, and the creditors should not be further taxed with any part of the costs of defending that case. 46 Mr Hockey, on the other hand, says there is no evidence to suggest that the proceedings were the result of ulterior motive and were prosecuted as an abuse of process. He says that there were disputes between Jonathan and Peter, but Jonathan has simply endeavoured to prosecute what he conceived to be his rights against Mr Wily arising out of the way in which the administration was carried on. He says that there is no evidence of ill will against Mr Wily. As to the second ground, he says that there was a sufficient basis for making the application. 47 I do not think that it is right for me to infer in the circumstances of this case that the proceedings were instigated by Jonathan with an ulterior purpose, nor that they were motivated by ill will either against Mr Wily or against Peter. It was never put to Jonathan in cross-examination that he was bringing these proceedings for an ulterior purpose. 48 However, I am satisfied that there was no proper basis for the making of Jonathan's claim. His assertions, and indeed his whole case, were founded upon dereliction and deficiencies in his own conduct and in the conduct of his immediate predecessors as officers of the company. The first dereliction, and the most notable, was the failure on the part of the company to maintain proper records in accordance with its statutory obligations. 49 I cannot assume that Jonathan was entirely unaware of this state of affairs. He had been a director for a year or so before he resigned due to his bankruptcy. He was obviously in contact fairly consistently with Mr Alexandrou while Mr Alexandrou was the company's director. It is quite apparent that no one having anything to do with the administration of Galimore thought that maintenance of proper records was a matter of the slightest concern. Even after the company went into administration it obviously took a great deal of effort on the part of Mr Wily to procure somebody responsible for the company's affairs to prepare some accounts and a statement of affairs. 50 Jonathan's case has been founded almost entirely on what appears in accounts prepared by Mr Alexandrou after the company went into administration and clearly, in my view, for the purposes of demonstrating a financial state of affairs which would salvage as much for Jonathan and his family out of the ruins as was possible. The accounts, as I have indicated in my judgment, were materially inconsistent with Mr Alexandrou's own evidence. 51 The second major deficiency in Jonathan's conduct upon which he erects the structure of this case is the manner in which he presented to Mr Wily a proposal for a Deed of Company Arrangement. The terms in which the proposal were couched were, if I may say so, almost derisory. The company had incurred debts of well over a million dollars: to offer $50,000 in such an uninformative way was not worthy, in my opinion, of any serious consideration either by Mr Wily or by the creditors. As Mr Chippindall has pointed out, by 29 October 2003 Mr Wily had incurred fees, approved by the creditors at that meeting, which consumed almost the entirety of the $50,000 offered by Jonathan. In my opinion, the proposal for a Deed of Company Arrangement was treated by Mr Wily and by the creditors as it fully deserved to be treated. The attempt in these proceedings, based upon the accounts prepared by Mr Alexandrou, to represent that proposal as one worthy of serious consideration was without any substance or reasonable justification. 52 In those circumstances I think it would be grossly unjust to burden the administration of this company and its creditors with any part of the costs of this litigation. I am satisfied that in those circumstances an indemnity costs order should be made. 53 The orders of the Court are:

-- the applicant is to pay the respondent's costs on an indemnity basis;

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