(2) Whether the plaintiffs should have been allowed to vote for the full amount of their claim at the meeting of 23 March 2001, or alternatively whether the meeting should have been adjourned to enable the first defendant to investigate the claim
77 The plaintiffs proposed a motion for adjournment, but the chairman declined to put that motion, on the ground that it had not been seconded. The defendants have criticised this ruling, saying that the seconding of the motion was not necessary and the motion should have been put to the meeting. They pointed out that other resolutions were passed at the meeting for which no seconder was required.
78 In my opinion it is within the discretion of the chairman of a meeting to refuse to take a motion for adjournment (which is a procedural motion for which, typically, no notice is given), provided the chairman acts in good faith, reasonably and for proper purposes. The primary task of a chairman is to ascertain the will of the meeting on the matters for which it has been convened, and therefore the meeting should be conducted, in a procedural sense, with that objective in mind. While a seconder is strictly not required as a precondition to the chairman putting a procedural motion before the meeting (in the absence of a special constitutional or other requirement), it is open to the chairman to regard the absence of a seconder as a consideration relevant to the exercise of his or her discretion.
79 In the present case, it does not appear that any other creditors present at the meeting expressed any support for the plaintiffs' proposed adjournment. The meeting had been convened within the strict time limits set up for creditors' meetings under Part 5.3A, and had already been adjourned once. Clearly there was a general need to move on to a decision about the future of the company.
80 The representative of the plaintiffs sought an adjournment so that the plaintiffs' offer to settle the dispute could be further explored. In my opinion, however, it was not unreasonable for the chairman to proceed to a decision about the proposed DOCA rather than to pursue negotiations, in view of major unresolved issues about intellectual property and director guarantees in the plaintiff's' proposal.
81 The plaintiffs also say that an adjournment was warranted so that the first defendant could properly investigate the plaintiffs' debts claimed in the invoices of 22 March 2001. In my view it was not unreasonable for the chairman to reject the plaintiffs' claim based on those invoices, given the lack of particulars in the invoices and the fact that he had already investigated the dispute between the plaintiffs and the second defendant and had taken legal advice on it.
82 The evidence before me provides no basis for legitimate concern that the first defendant's decision about adjournment was taken in bad faith or for improper purposes. My conclusion, therefore, is that there is no basis for concluding that the chairman wrongfully exercised his discretion by not putting the plaintiffs' adjournment motion to the meeting.
83 The plaintiffs also challenge the chairman's decision to admit them for voting purposes only as regards the claims made in the first three invoices (the invoices dated 7 February 2001) and not in relation to the two invoices dated 22 March 2001.
84 The convening and conduct of, and voting at, a meeting convened under Part 5.3A is governed by regulations 5.6.12 to 5.6.36A of the Corporations Regulations: see reg 5.6.11 (2). According to reg 5.6.23 (1), a person is not entitled to vote as a creditor unless his or her debt or claim has been admitted wholly or in part by the administrator, or he or she has lodged with the chairman particulars of the debt or a formal proof of debt. A creditor must not vote in respect of an unliquidated or contingent debt or claim, or a debt of a value which is not established, unless a just estimate of its value has been made: reg 5.6.23 (2). By reg 5.6.26 (1) the chairman has the power to admit or reject a proof of debt for the purposes of voting. If the chairman is in doubt whether a proof of debt or claim should be admitted or rejected, he or she is required by reg 5.6.26 (2) to mark the proof as objected to and allow the creditor to vote, subject to the vote being declared invalid if the objection is sustained. A decision by the chairman 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: reg 5.6.26 (3).
85 In the present case the first defendant did not call for formal proofs of debt to be lodged prior to the second meeting of creditors. Therefore persons claiming to be creditors were required to provide "particulars": see reg 5.6.23 (1) (b).
86 In my opinion the invoices of 22 March 2001 and the informal proof of debt lodged by the plaintiffs on that day fell well short of providing adequate particulars of the plaintiffs' claim. They gave scant information about the amounts claimed. There was, in each case, nothing more than a very broad generic description of the work followed by an assigned amount, and then a GST calculation. The lack of specificity is striking given the amounts claimed, $1,924,462.10 and $475,116.40 respectively. They did not indicate what work was done, nor identify or give the number of the personnel employed to do the work, or their hourly rates, nor disclose the amount of time spent by the relevant personnel in carrying out the work. The out-of-pocket expenses, claimed on both invoices (for $175,917 and $14,558), were simply described as "out-of-pocket expenses" and were not itemised.
87 I do not mean to suggest that it was necessary to list every task carried out, or to list the destination of every dollar expended. The amount of detail will depend on the circumstances. As Beaumont J in remarked in the analogous bankruptcy context in Zantiotis v Andrew (No 2) (1988) 80 ALR 299, 302-3, the requirement that the creditor supply particulars of the debt "is a practical safeguard designed to ensure that, for instance, frivolous claims cannot give any right to vote." But by any standard, the invoices in the present case were inadequate. It is relevant that there had not previously been interim invoices or memoranda of account to which reference might have been made by the first defendant, and the very fact that the invoices were rendered the afternoon before the adjourned meeting, for work done no later than the end of January 2001, provided grounds for legitimate suspicion.
88 The first defendant had been investigating the dispute between the plaintiffs and the second defendant, and had been given information by the directors. It is likely that he had the various letters of engagement issued by the plaintiffs, and the draft consultancy agreement. He had obtained legal advice. But the evidence does not enable me to conclude that the information in the first defendant's possession was sufficient to fill in the gaps in the "particulars" of the plaintiffs' claim. It would be wrong in principle to suggest that the directors of a company in administration have a duty to complete the particulars omitted by the claimant. At least as a general proposition, and as a proposition adequate for the purposes of this case, it is up to the claimant to provide sufficient particulars before the meeting, to enable the chairman to decide whether to accept or reject the claim for voting purposes.
89 The first defendant rejected the invoices for voting purposes for three reasons, according to the minutes of the meeting and his affidavit evidence. The first reason, that the invoices of 22 March 2001 were addressed to Mr Crawford in a manner that might suggest that they were lodged as a debt of the administration, would not be a satisfactory reason for rejecting the invoices if it were considered in isolation. Although the invoices were directed to Mr Crawford, there cannot have been any real doubt that they related to work done before the administration commenced, having regard to the amounts claimed and the general descriptions given. There is no suggestion that the first defendant had any dealings with the plaintiffs that might have been construed as a retainer. At most, the fact that the invoices were addressed to Mr Crawford, considered in light of the fact that they were lodged the afternoon before the adjourned meeting and were for very large amounts, tended to confirm their irregularity.
90 The first defendant's second reason was that the informal proof of debt and invoices were not submitted with sufficient supporting information to enable him to determine how the amounts claimed had been calculated and whether the amounts reflected arrangements in place between the plaintiffs and the second defendant. I agree with this reason. It was open to the first defendant to conclude, for the purpose of voting at the adjourned meeting, that "particulars" of the claim in the invoices of 22 March 2001 sufficient for the purposes of reg 5.6.23 (1) (b) had not been given, and therefore that the regulations prohibited the plaintiffs from voting as a creditor in respect of the amount claimed.
91 The plaintiffs contend that the first defendant should have followed the procedure in reg 5.6.26 (2) by marking the informal proof of debt and allowing them to vote in respect of the whole amount claimed. However, that regulation applies only if the chairman is "in doubt whether a proof of debt or claim should be admitted or rejected". 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.
92 The first defendant's third reason for rejecting the plaintiffs' claim was that he was aware of the dispute between the plaintiffs and the second defendant, which he had been investigating and upon which he had obtained legal advice. He had formed the view that because a "significant dispute" existed between the plaintiffs and the second defendant, the plaintiffs' claim was contingent upon the resolution of the dispute.
93 In my opinion the fact that a debt is disputed does not make it, ipso facto, a "contingent" debt for the purposes of reg 5.6.23 (2). It is not open to the debtor company to prohibit a creditor from voting in respect of a debt simply by contesting it. Where the chairman is informed that there is a genuine dispute about the existence or amount of a debt claimed by creditor, it seems to me there are at least three possible approaches that can be taken.
94 First, the existence of a genuine, unresolved dispute about a debt of which the creditor has given particulars will frequently provide reasonable grounds for doubt as to whether the creditor's claim should be admitted or rejected. Where that is so, the proper approach for the chairman will normally be to mark the proof as objected to and allow the creditor to vote, under reg 5.6.26 (2). Secondly, 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. Finally, it may happen, though probably much less frequently, that the chairman recognises the existence of a genuine dispute but decides on reasonable grounds that he or she is in a position to form a view as to the merits of the dispute, in which case the proper approach may be to admit the proof for the amount (if any) which the chairman believes is the correct amount.
95 In the present case, it appears on the evidence before me that the directors' complaint is wholly or principally that they have causes of action in damages against the plaintiffs, for breach of duty, breach of contract and under the Trade Practices Act. The evidence does not indicate that the directors claim not to have retained the plaintiffs to work for them on the matters which are the subjects of the invoices, or that the plaintiffs did not do substantial work on the second defendant's behalf. Indeed, such evidence as there is suggests that Mr Mackay may have agreed with the plaintiffs' proposals to undertake work without imposing any particular limits on the amount to be expended, his principal concern being that recovery of the plaintiffs' fees should be deferred until funds had been raised. That is to say, the evidence indicates that, subject to any legitimate set-off or cross-claim, the plaintiffs had a claim to recover payment for services provided, the only real dispute being as to the quantum of the debt and the amount of the alleged cross-claim. In Re Dingle; Westpac Banking Corporation v Worrell (1993) 47 FCR 478, the Full Federal Court accepted that it was appropriate, in the analogous bankruptcy context, to make an allowance for an established cross-claim in calculating the amount of the creditor's debt for voting purposes.
96 In these circumstances, although the first defendant had access to a great deal of information about the dispute, I very much doubt that he was in a position to resolve the uncertainty about the amount of the debt and the cross-claim, by determining an amount for voting purposes. If he had received adequate particulars of the matter, the correct approach for him would probably have been to admit and mark the plaintiffs' informal proof of debt under reg 5.6.26 (2). But in my opinion the plaintiffs had failed to give particulars of their claim, for the purposes of reg 5.6.23, at least as regards the invoices of 22 March 2001. That being so, it was open to the first defendant to reject their claim in respect of those invoices. The first defendant's second reason for his decision on the plaintiffs' claim was, in effect, the lack of particulars. In my opinion he was right to base his decision on this ground, but not on the ground of "significant dispute"
97 The plaintiffs submit that the first defendant acted inconsistently by accepting the claim in the first three invoices at the first meeting of creditors, and again at the second meeting, while rejecting the claim in the other two invoices. I agree that there was an element of inconsistency in the first defendant's actions. However, given his explanation of his conduct, his inconsistency provides no adequate ground for me to interfere with the exercise of his discretions. It is probable that the first defendant would have been entitled to reject the plaintiffs' claim in respect of the other three invoices at those meetings, since those invoices were also uninformative and lacking in particularity. He decided, however, that (having admitted the plaintiffs for voting purposes with respect to those invoices at the first meeting of creditors) to do so would only antagonise the plaintiffs and could disrupt proper consideration of the proposed DOCA. I regard this decision as reasonable in the circumstances.
98 I therefore conclude that the first defendant's decision to reject the invoices and informal proof of debt of 22 March 2001 for voting purposes at the adjourned second meeting was a valid exercise of his discretion as chairman of the meeting under reg 5.6.26 (1), which should not be overturned by the Court. I note that if I had reached the conclusion that his decision was invalid or should be overturned, my conclusion would not affect the outcome of the votes on the motions to enter into the DOCA and to replace the first defendant as deed administrator. This is because the first defendant has given evidence, which I accept, that he would have exercised his casting vote in the same way on each of those motions, even if the plaintiffs had been admitted to vote for their full claim.