Glenfyne International Holding Limited v Glenfyne Farms International AU Pty Ltd (in liq); Glenfyne International Limited v GI Commercial Pty Ltd (in liq) [2019] NSWCA 304

Court of Appeal Supreme Court New South Wales Medium Neutral Citation: Glenfyne International Holding Limited v Glenfyne Farms International AU Pty Ltd (in liq); Glenfyne International Limited v GI Commercial Pty Ltd (in liq) [2019] NSWCA 304 Hearing dates: 14 August 2019 Date of orders: 11 December 2019 Decision date: 11 December 2019 Before: Bathurst CJ at [1]; Bell P at [2]; Macfarlan JA at [76] Decision: In proceedings 2019/96083: 1. Allow the appeal. 2. Set aside the orders of the primary judge in proceedings 2018/357721. 3. Order that the resolution proposed at the meeting of creditors of Glenfyne Farms International AU Pty Ltd on 9 October 2018 that Jason Lloyd Porter and Fabian Kane Micheletto be appointed as joint and several liquidators of Glenfyne Farms International AU Pty Ltd be taken to have been passed at the meeting. 4. No order as to costs. In proceedings 2019/96084: 1. Allow the appeal. 2. Set aside order 2 made on 8 March 2019 in proceedings 2018/357706 and in lieu thereof, order that pursuant to s 472(1) of the Corporations Act 2001 (Cth) Jason Lloyd Porter and Fabian Kane Micheletto be appointed as joint and several liquidators of GI Commercial Pty Ltd (in liq). 3. No order as to costs. Catchwords: CORPORATIONS – Insolvency – second meeting of creditors resolves to place company into liquidation – substantial creditors' motion for appointment of liquidator fails – former administrator as person presiding at meeting exercises casting vote against resolution – proper characterisation of resolution – whether or not resolution to appoint liquidator was a resolution to remove an external administrator within the meaning of s 75-115 of Insolvency Practice Rules – whether Court should have ordered that proposed resolution to appoint liquidators should have been taken to have been passed at meeting within meaning of s 75-43(4)(a) of the Insolvency Practice Schedule – relevant considerations.

CORPORATIONS – Insolvency – company in administration – s 90-15 of the Insolvency Practice Schedule – whether a source of power to order that resolution to appoint liquidators be ordered to have been taken to have been passed at creditors' meeting – whether general power to make orders or only engaged where failure or default on part of administrator Legislation Cited: Corporations Act 2001 (Cth) ss 435C, 439C(c), 459A, 461, 472, 499(2A), Sch 2 – ss 75-43, 90-15 Insolvency Practice Rules (Corporations) 2016 s 75-115 Cases Cited: Borg v de Vries (Trustee), in the matter of the Bankrupt Estate of David Morton Bertram [2018] FCA 2116 Cresvale Far East Ltd (In Liq) v Cresvale Securities Ltd [2001] NSWSC 89; (2001) 37 ACSR 394 Deputy Commissioner of Taxation v Alternative Business Solutions (Aust) Pty Ltd [2006] FCA 400 FAI General Insurance Co Ltd v Southern Cross Exploration N.L. (1988) 165 CLR 268; [1988] HCA 13 Haulotte Australia Pty Ltd v All Area Rentals Pty Ltd [2012] FCA 615; (2012) 90 ACSR 177 Knight v FP Special Assets Ltd (1992) 174 CLR 178; [1992] HCA 28 Owners of the Ship "Shin Kobe Maru" v Empire Shipping Company Inc (1994) 181 CLR 404; [1994] HCA 54 Wade v Burns (1966) 115 CLR 537; [1966] HCA 35 Category: Principal judgment Parties: In proceedings 2019/96083:

Glenfyne International Holding Limited (First Appellant) Kam Wah Tai (Second Appellant) Glenfyne Farms International AU Pty Ltd (in liq) (First Respondent) Steven Arthur Gladman (Second Respondent)

In proceedings 2019/96084:

Glenfyne International Limited (Appellant) GI Commercial Pty Ltd (in liq) (First Respondent) Steven Arthur Gladman (Second Respondent) Representation: Counsel: Mr D W Rayment (Appellants)

Solicitors: Louie Legal (Appellants) Mr C Wilkinson (submitting appearance) (Respondents) File Number(s): 2019/96083 and 2019/96084 Publication restriction: N/A Decision under appeal Court or tribunal: Supreme Court of New South Wales Jurisdiction: Equity – Corporations List Citation: [2019] NSWSC 161 Date of Decision: 27 February 2019 Before: Rees J File Number(s): 2018/357706 and 2018/357721

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

Headnote

[This headnote is not to be read as part of the judgment] These appeals relate to a failed attempt by Glenfyne International Holding Limited (Glenfyne International), a Hong Kong company, to have its preferred liquidators appointed as joint liquidators of Glenfyne Farms International AU Pty Ltd (Glenfyne Farms) at a second meeting of the creditors of Glenfyne Farms. After a vote was passed to place Glenfyne Farms into liquidation, a resolution (the Resolution) to appoint Messrs Porter and Micheletto as joint liquidators was put. However, a result was not reached on the poll, and thus Mr Gladman, as the person presiding at the meeting, exercised his casting vote pursuant to s 75-115 of the Insolvency Practice Rules (Corporations) 2016 (IPR), to vote against the resolution. By operation of s 499(2A) of the Corporations Act 2001 (Cth), Mr Gladman was consequently appointed as liquidator of Glenfyne Farms. Glenfyne International sought orders in the Supreme Court of New South Wales that the resolution proposed at the creditors' meeting, seeking to appoint its preferred liquidators, be taken to have been passed at the meeting. In separate proceedings, similar orders were also sought by Glenfyne International Limited against GI Commercial Pty Ltd (GI Commercial). However, the primary judge refused to grant the relief sought, holding that s 75-43 of the Insolvency Practice Schedule (Corporations), Sch 2 to the Corporations Act (Insolvency Practice Schedule), being that identified as the source of the Court's power to make the order sought, was not engaged. The primary judge held that, irrespective of this and in any event, she was not minded to grant the relief sought. The principal issues on appeal were: 1. Whether the primary judge erred in finding that s 75-115 of the IPR prevented Mr Gladman from exercising his casting vote against the resolution; 2. Whether the primary judge erred in holding that the Court did not have power to make an order pursuant to s 75-43 of the Insolvency Practice Schedule; 3. Whether the Court's power under s 90-15 of the Insolvency Practice Schedule to make such orders as it thinks fit in relation to the external administration of a company depended, for its exercise, on whether a liquidator or administrator had failed in the exercise of his or her duties. The Court held (Bell P, Bathurst CJ and Macfarlan JA agreeing), allowing the appeal: 1. The primary judge erred in finding that s 75-115 of the IPR prevented Mr Gladman from exercising his casting vote against the resolution. This section only applied to resolutions relating to "the removal of the external administrator of a company", whereas the Resolution put was for the appointment of joint liquidators: [1] (Bathurst CJ); [51]-[52] (Bell P); [76] (Macfarlan JA). 2. Mr Gladman had ceased to be the administrator of Glenfyne Farms at the time the Resolution was put: [1] (Bathurst CJ); [53]-[54] (Bell P); [76] (Macfarlan JA). 3. The primary judge erred in finding that s 75-43 of the Insolvency Practice Schedule was not engaged. As the casting vote was the cause of the resolution not being passed, s 75-43 relevantly applied, and the Court was empowered to make orders pursuant to 75-43(4)(a), to order that the resolution be "taken to have been passed": [1] (Bathurst CJ); [55]-[57] (Bell P); [76] (Macfarlan JA). 4. In the circumstances, it was appropriate to make those orders: [1] (Bathurst CJ); [73] (Bell P); [76] (Macfarlan JA). 5. The Court's general power under s 90-15(1) of the Insolvency Practice Schedule to make such orders as it thinks fit in relation to the external administration of a company does not depend upon there being some failure on the part of an administrator or liquidator to attend to his or her duties: [1] (Bathurst CJ); [59] (Bell P); [76] (Macfarlan JA).

Judgment 1. BATHURST CJ: I agree with the orders proposed by the President and with his Honour's reasons. 2. BELL P: These appeals relate to a failed attempt by Glenfyne International Holding Limited (Glenfyne International), a Hong Kong company, to have its preferred liquidators, Messrs Porter and Micheletto, appointed as joint liquidators of Glenfyne Farms International AU Pty Ltd (Glenfyne Farms or the Company) at a second meeting of the creditors of the Company. 3. The second creditors' meeting had been convened by the Company's then voluntary administrator, Mr Steven Gladman (Mr Gladman), on 9 October 2018. After a vote was passed to place the Company into liquidation, a resolution (the Resolution) to appoint Messrs Porter and Micheletto was put. A result was not reached on a poll being taken. Mr Gladman, as the person presiding at the meeting, exercised his casting vote against the Resolution, which accordingly failed. Mr Gladman had authority to exercise the casting vote by virtue of s 75-115 of the Insolvency Practice Rules (Corporations) 2016 (IPR), the relevant terms of which are set out at [38] below. 4. By operation of s 499(2A) of the Corporations Act 2001 (Cth), Mr Gladman became the liquidator of Glenfyne Farms. 5. Some six weeks after the second creditors' meeting, proceedings were commenced in the Corporations List of the Equity Division of this Court by Glenfyne International, seeking the following orders: "1. An order that the resolution proposed at the meeting of the First Defendant's creditors on 9 October 2018, that Jason Lloyd Porter and Fabian Kane Micheletto be appointed as joint and several liquidators of the First Defendant, be taken to have been passed at the meeting. 2. In the alternative: a. An order that the First Defendant be wound up on the basis that it is just and equitable to do so; and b. An order that Jason Lloyd Porter and Fabian Kane Micheletto be appointed as the joint and several liquidators of the First Defendant. 3. In the further alternative: a. An order that the First Defendant be wound up in insolvency; and b. An order that Jason Lloyd Porter and Fabian Kane Micheletto be appointed as joint and several liquidators of the First Defendant." 1. The application was said to have been made "under subsection 75-43 of the Insolvency Practice Schedule of the Corporations Act 2001 (Cth) or in the alternative [ss] 459A or 461 and 472 of the Corporations Act." In written submissions at first instance, the Appellants also sought to call in aid s 90-15 of the Insolvency Practice Schedule (Corporations), Sch 2 to the Corporations Act (Insolvency Practice Schedule), to support the relief sought. That section provides that "[t]he Court may make such orders as it thinks fit in relation to the external administration of a company." 2. On the same day as the proceedings were filed, Glenfyne International Limited, also a Hong Kong company, also commenced proceedings in the Corporations List of the Equity Division of this Court against GI Commercial Pty Ltd (GI Commercial), seeking orders that GI Commercial be wound up on the just and equitable ground and that Messrs Porter and Micheletto also be appointed to GI Commercial as joint and several liquidators. 3. It was common ground in both sets of proceedings which were heard together by Rees J (the primary judge) that the same liquidators should be appointed to both Glenfyne Farms and GI Commercial. As such, the principal focus, both at first instance and on appeal, related to the first matter under appeal, namely that involving Glenfyne Farms and the failed resolution at the second creditors' meeting to have Messrs Porter and Micheletto appointed as joint and several liquidators. 4. Mr Gladman, in his capacity as liquidator of Glenfyne Farms, did not participate in the hearing of the matter either at first instance or on appeal, other than for the purpose of making a submitting appearance, save as to costs. Mr and Mrs Flynn, the majority shareholders in Glenfyne Farms and GI Commercial, who were not parties to the appeals, did not seek to be heard. 5. Glenfyne International's argument, both at first instance and on appeal, was that Mr Gladman, as the person presiding at the meeting, exercised his casting vote so as to cause the Resolution not to be passed within the meaning of s 75-43(1) of the Insolvency Practice Schedule. As such, it was contended that Glenfyne International, on whose behalf the Resolution was put, was entitled to apply to the Court for an order under s 75-43(4)(a) that the proposed Resolution be "taken to have been passed" at that meeting. 6. The consequence of such an order, if made, would be that Glenfyne International's preferred liquidators would be appointed as joint and several liquidators of Glenfyne Farms. As noted at [8] above, at a practical level, this would also result in their being appointed as joint and several liquidators of GI Commercial. 7. The primary judge, for reasons that will be explained, did not consider that s 75-43 was engaged but held that, even if it had been, she would not have been minded to grant the relief sought: at [40]-[41]. The primary judge also rejected the application put in the alternative, pursuant to ss 459A, 461 or 472 of the Corporations Act, for the appointment of the preferred joint liquidators: at [49]. Her Honour also indicated that, to the extent that reliance was sought to be placed on s 90-15 of the Insolvency Practice Schedule providing that the Court may make such orders as it thinks fit in relation to the external administration of the Company, she would not make an order replacing Mr Gladman as a liquidator pursuant to that section: at [53]. 8. It is from those decisions of the primary judge that the appeals are brought. 9. It is first necessary to set out some further background to the matter. I do so, drawing heavily upon the primary judge's summary of the background facts.

Background 1. Glenfyne Farms and GI Commercial, the First Respondents to the respective appeals, were companies in which the effective shareholdings were, as to 51%, held by or by interests associated with Mr and Mrs Flynn and, as to 49%, held by Mr Kam Wah Tai (Mr Tai), through Glenfyne International and Glenfyne International Ltd. Mr Tai is the Second Appellant in the first appeal. 2. As explained by the primary judge, Mr Tai and Mr and Mrs Flynn proposed to make use of Glenfyne Farms and GI Commercial to fatten beef cattle on a property at Narrandera, New South Wales, for export to China. 3. As the primary judge recorded, in 2013, Mr Tai, Mr Flynn and their respective companies entered into a Joint Venture Deed under which it was proposed that Glenfyne Farms would purchase land and water rights and commence a farming and grazing business under the management of Mr and Mrs Flynn. In 2014, Glenfyne Farms purchased land with finance from ANZ Bank. 4. In 2016, a small portion of the farm was sold, with the proceeds to be used as working capital. The primary judge recorded that, by late 2017, disagreements and some confusion appeared to have emerged between the parties in relation to the preparation of financial statements for the companies, and the contents and adequacy of those financial statements. On 27 October 2017, Mr Tai resigned as a director of Glenfyne Farms. The primary judge noted that Mr Tai said that he was asked to guarantee further finance for the Company but was not prepared to do so without knowing more about the financial state of the companies. 5. In February 2018, Mr Tai sought to be reappointed as a director of Glenfyne Farms. In that context, Mr Tai's solicitor wrote to Mr Flynn's accountant, Mr Moustacas of Strategic Wealth Management Pty Limited (Strategic Wealth Management), stating that Mr Tai resigned in circumstances in which he was "taken by surprise and put on the spot". Mr Moustacas replied advising that he did not accept Mr Tai's version of the meeting, having compared it with his file note. 6. On 24 April 2018, Mr Tai's solicitors wrote to Mr Flynn expressing significant concerns about Mr Flynn's conduct of the Company, its assets and the joint venture, and said that Glenfyne International considered it had been, and continued to be, unfairly treated. On 30 April 2018, Mr Flynn's solicitor, Mr Tom Crilly of Crilly Lawyers Pty Ltd, replied, denying that this was so and seeking information as to third parties whom it was suggested had funded Mr Tai's contributions to the Company. There was no apparent response to Mr Crilly's letter. 7. On 9 July 2018, Glenfyne Farms executed a contract of sale for the farming land and water rights in the amount of $3.5 million. The sale was completed on 8 August 2018 and, after discharge of mortgages, $510,258 was paid into the Company's bank accounts. Mr Tai said that he was unaware that the farm was sold and did not agree to this. 8. On 7 September 2018, Mr Gladman was appointed as an administrator of Glenfyne Farms by Mr Flynn, at that time its sole director. Mr Gladman had been referred by Mr Moustacas. The significance of this will emerge in due course. 9. Mr Gladman completed a declaration of independence, relevant relationships, and indemnities, declaring that he had not provided any professional advice to the Company other than advice on the Company's insolvency, nor received an indemnity or an upfront payment for remuneration. He identified no real or potential risks to his independence. Mr Gladman noted that Strategic Wealth Management had previously referred other appointments to Hall Chadwick, of which he was a partner. 10. Mr Gladman also declared that, prior to his appointment, he had had three telephone conversations with Mr Moustacas on 6 July, 3 August and 9 August 2018 and attended two meetings (a two hour meeting with Mr Moustacas, Mr Flynn and Mr Crilly on 13 August 2018 and a 35 minute meeting with Mr Moustacas on 30 August 2018) for the purpose of discussing and understanding the background, nature and business of the Company, its current financial position, available options in the case of insolvency and the possible appointment of an administrator. Mr Gladman said that he received no remuneration for any advice provided during these meetings and telephone conversations. Mr Gladman did not consider this pre-appointment advice to influence his ability fully to comply with his statutory and fiduciary obligations associated with the administration of the Company in an objective and impartial manner. 11. On 7 September 2018, Mr Flynn completed a Report as to Affairs in respect of Glenfyne Farms. He listed the following unsecured creditors: "Mr Tai $492,454 Strategic Wealth Management $1,100 Crilly Lawyers $1,100 Mr and Mrs Flynn $243,350 Glenfyne International Hong Kong $59,774" 1. No secured creditors were recorded. 2. The first creditors' meeting was held on 18 September 2018. Mr Tai, however, had not received notice of it and did not become aware of a notice to creditors of 10 September 2018 until 27 September 2018. As the primary judge recorded at [13], it seemed that Mr Flynn had not given Mr Gladman the contact details of Mr Tai's Australian solicitor nor his email address for the purpose of notifying Mr Tai of the first creditors' meeting. As a consequence, as I have noted, Mr Tai did not attend the first creditors' meeting as he was not aware that an administrator had been appointed to Glenfyne Farms until shortly before the meeting. 3. On 28 September 2018, Mr Gladman submitted his first report to creditors which included an explanation as to the matters to which he and his staff had attended since his appointment. As the primary judge recorded at [16], Mr Gladman advised that unsecured creditors could expect to receive a dividend if the Company were to be placed into liquidation and recommended that this should happen. He flagged his proposal to ask creditors to make a decision regarding that matter on 9 October 2018. 4. One matter of particular note in Mr Gladman's first report to creditors was that "[i]n the period 1 July 2018 to 31 August 2018, the Company incurred professional fees of $27,000 and business expense reimbursements of $2,106,950". The report also stated that: "As discussed above, the Company's external accountant advised that these business expense reimbursements are a journal entry to account for the trading of the Company which was previously accounted for through the Partnership." 1. The report also recorded that "[t]he Company reported a loss of $84,646 in the 30 June 2018 financial year mainly due to no income being generated." 2. Further explanation of these matters was given by Mr Gladman in the following passage of the report: "…[T]he Company's business previously operated through the Partnership. I have been advised that the Company's previous external accountant continued to report the financial position of the Company through the Partnership up to the period ending 30 June 2017, which was not in accordance with the provisions set out in the Joint Venture Agreement between the Company's shareholders. However, I understand that the Company has now accounted for the operation of the business through the Partnership in its books and records up to 31 August 2018." The primary judge commented that Mr Tai was "rightly concerned about this, and wishes to investigate the business expense reimbursements": at [17]. 1. It is also significant to note, as the primary judge observed at [20] of her reasons, that Mr Gladman reported that his preliminary investigations had indicated that Mr Flynn may have committed insolvent trading offences which would be reported to the Australian Securities and Investments Commission and that the Company may have an action for $51,568 as an "unreasonable payment to director" in respect of certain plant and equipment which had been transferred to Mr Flynn at its written down value. 2. At [23] of the judgment, the primary judge described Mr Gladman's report to creditors as "thorough" and said that it "indicated what the Court wishes to see from an administrator, that is, an objective, impartial and detailed review of a company's affairs with an eye to any breaches of the Corporations Act and a willingness to investigate further where appropriate". Her Honour noted that Mr Gladman's fees to that point in time were $31,421 plus GST. 3. On 2 October 2018, four days after the first report to creditors, a solicitor acting for Mr Tai wrote to Mr Gladman indicating that Mr Tai had only recently been made aware that an administrator of Glenfyne Farms had been appointed and that he had been unaware that the farm had been sold. The letter made complaints about the conduct of Mr Flynn and, in particular, the fact that Mr Flynn had caused Glenfyne Farms to pay the debts of entities associated with him. 4. A week later, on 9 October 2018, the second meeting of creditors took place. On this occasion, Mr Tai attended, together with his solicitor (Ms Ellen Louie) who took notes of the meeting and gave affidavit evidence before the primary judge. The minutes recorded that: "Ellen Louie advised that she was instructed by her clients to offer to purchase the debts owed to the unrelated unsecured creditors of the Company, and had not yet received a response to these offers. Ellen Louie again offered to purchase these debts from the unrelated unsecured creditors. The unrelated unsecured creditors declined to sell their debts." 1. The unrelated, unsecured creditors referred to were Crilly Lawyers and Strategic Wealth Management. Both of their debts were for modest sums. The offer to pay them out would, of course, if accepted, have precluded them from voting at the creditors' meeting. As shall be seen, both opposed the Resolution put on behalf of Glenfyne International, and Mr Gladman put some store on this in exercising his casting vote against the Resolution. 2. At the second creditors' meeting, it was resolved, presumably pursuant to s 439C(c) of the Corporations Act, that Glenfyne Farms be wound up. It was also at this meeting, as I have noted earlier in these reasons, that Mr Tai moved the Resolution on behalf of Glenfyne International that Messrs Porter and Micheletto be appointed as liquidators of Glenfyne Farms. As the primary judge recorded at [30]: "The resolution to appoint Mr Porter and Mr Micheletto was voted upon, lost on the voices and a poll taken. The result was that two proxy holders voted in favour of the appointment of Mr Porter and Mr Micheletto, being Mr Tai and his solicitor, representing $552,228 of unsecured creditors, whilst three voted against the resolution, being Mr Flynn, Mr Crilly and Mr Moustacas on behalf of unsecured creditors totalling $245,550.50. The minutes continue: The result of the poll was: For Against Total votes 2 3 Total votes ($) 522,228 245,550.50

The Chairperson advised that as a result was not reached on a poll he may use his power as Chairperson to exercise a casting vote. The Chairperson advised that the ARITA Code of Professional Practice recommended that a Chairperson should proceed to exercise the casting vote to resolve the deadlock, unless there is some good reason to refrain from doing so. The Chairperson exercised his casting vote against the resolution and advised that the resolution did not pass. The Chairperson explained his reasons for exercising the casting vote against the resolution as; • The third party unrelated creditors, being Strategic Wealth Management Pty Ltd and Crilly Lawyers Pty Ltd have both voted against the resolution; and • Neither Kam Wai Tai nor Glenfyne International Holding Limited have lodged a proof of debt in the Administration of the Company. They have advised through their lawyer that they are not in a position to complete formal proofs of debt as they do not have sufficient visibility as to how the funds they contributed were applied. I have admitted them for voting purposes for the amounts recorded in the RATA [Report As To Affairs] but from their own advisor they are uncertain how much they are owed, in the circumstances I cannot be certain of the amounts owed." 1. It may be noted at this point, as was also indicated at [3] above, that the reason why Mr Gladman, as the person presiding at the meeting of creditors, had a casting vote is to be found in s 75-115 of the IPR, of which sub-sections (1)-(3) relevantly provide: "When a resolution is passed at a meeting of creditors after a poll is demanded (1) A resolution is passed at a meeting of creditors of a company if: (a) a majority of the creditors voting (whether in person, by proxy or by attorney) vote in favour of the resolution; and (b) a majority in value of the creditors voting (whether in person, by proxy or by attorney) vote in favour of the resolution. (2) A resolution is not passed at a meeting of creditors of a company if: (a) a majority of the creditors voting (whether in person, by proxy or by attorney) vote against the resolution; and (b) a majority in value of the creditors voting (whether in person, by proxy or by attorney) vote against the resolution. (3) Subject to subsection (7), if no result is reached under subsection (1) or (2) and the resolution does not relate to the remuneration or the removal of the external administrator of the company: (a) the person presiding at the meeting may exercise a casting vote in favour of the resolution, in which case the resolution is passed; or (b) the person presiding at the meeting may exercise a casting vote against the resolution, in which case the resolution is not passed; or (c) if the person presiding at the meeting does not exercise a casting vote, the resolution is not passed." Sub-section (7) had no relevance in the present case. 1. The consequence of the Resolution not having been passed, and the Company having been placed into liquidation, was that Mr Gladman was taken to have been appointed as liquidator at the end of the meeting: s 499(2A)(b) of the Corporations Act. 2. As noted at [5] above, about six weeks after the second creditors' meeting, the two sets of proceedings from which these appeals have been brought were commenced. The primary judge noted that, on 11 January 2019, Mr and Mrs Flynn's solicitor wrote to Mr Tai's solicitor proposing to resolve the proceedings by appointing an independent liquidator to ensure that there was no perceived or actual bias. 3. On 21 January 2019, however, this proposal was rejected by Mr Tai's solicitor on his behalf.

The primary judgment 1. The primary judge began her analysis by setting out s 75-43 of the Insolvency Practice Schedule, which was identified in the originating process as the source of the Court's power to make the order sought. Sub-sections (1)-(4) relevantly provide: "Proposed creditors' resolution not passed because of casting vote—Court's powers Application of this section (1) This section applies if: (a) a resolution is not passed at a meeting of creditors of a company under external administration; and (b) the resolution is not passed because the person presiding at the meeting exercises a casting vote, or refuses or fails to exercise such a vote. Application to the Court … (3) A person … may apply to the Court for an order under subsection (4), but only if: (a) the person voted for the proposed resolution in some capacity (even if the person voted against the proposed resolution in another capacity); or (b) a person voted for the proposed resolution on the first-mentioned person's behalf. Court may make orders (4) On application under subsection (2) or (3), the Court may: (a) order that the proposed resolution is taken to have been passed at the meeting; and (b) if it does so--make such further orders, and give such directions, as it thinks fit." (emphasis added). 1. At [39] of her reasons, the primary judge observed that, before making an order under s 75-43 of the Insolvency Practice Schedule, the requirements of subs (1) and (3) must be satisfied. Her Honour then made reference to s 75-115 of the IPR, setting out sub-sections (1) and (2) (which have already been reproduced at [38] above) and sub-section (5), which is in the following terms: "If no result is reached under subsection (1) or (2) and the resolution relates to the removal of the external administrator of the company: (a) the external administrator may exercise a casting vote in favour of the resolution, in which case the resolution is passed; or (b) if paragraph (a) does not apply—the resolution is not passed." (emphasis added). 1. The primary judge then said (at [40]) that: "It can be seen from the above that the administrator may exercise a casting vote in favour of the resolution removing him or her, or abstain from voting, but is not entitled to exercise a casting vote against the resolution. As such, Mr Gladman was not entitled to exercise a casting vote against the resolution proposed by Mr Tai and the resolution simply was not passed. Consequently, the application which is before the Court, relying on section 75-43 of the Insolvency Practice Schedule (Corporations), is ill-founded as sub-section (1)(b) is not satisfied." (emphasis in original). 1. Importantly for present purposes, her Honour indicated (at [41]) that she would not have been minded to grant the relief sought in any event. Her reasons for not doing so were outlined at [42]-[48] as follows: "First, Mr Tai is concerned that Mr Gladman did not send the notice of his appointment to Mr Tai in Hong Kong by means other than post, or to his Australian solicitors. Mr Gladman cannot be blamed for this, it seems to me, as he simply acted on the basis of inadequate information he was given by Mr Flynn. Second, Mr Tai criticises Mr Gladman's report to creditors as apparently showing a serious lack of critical analysis. I do not think Mr Tai's criticisms are a fair assessment of Mr Gladman's report, which seems to have identified each of the transactions about which Mr Tai is concerned and expressed an intention to investigate them. Third, Mr Tai considered Mr Gladman's reasons for exercising his casting vote to be unreasonable and to show a lack of judgement in circumstances where Mr Gladman was aware that Mr Crilly and Mr Moustacas were holding themselves as creditors in order to advance the position of their client, Mr Flynn. As I have already said, Mr Crilly and Mr Moustacas were not obliged to sell their debts to Mr Tai, nor can criticism be made of Mr Gladman as a consequence of their refusal to do so. Fourth, unlike Iris Diversified Property and Brisconnections Management Company Ltd v Burness [2009] FCA 626; (2009) 72 ACSR 233, none of the creditors are "truly independent". Both profess an interest in investigating the affairs of the company. Fifth, Mr Tai says that it may be necessary for the liquidator to investigate Mr Moustacas, including at a public examination. Mr Tai does not consider it appropriate for any such investigation to be carried out by a liquidator who obtained the liquidation role by way of referral from Mr Moustacas. Whilst I doubt that Mr Gladman is so faint-hearted, he is on notice that Mr Tai expects Mr Gladman to fully discharge his obligations as a liquidator. Sixth, and probably most significant, Mr Tai does not have confidence in Mr Gladman and wants Mr Flynn's conduct to be investigated by a person other than Mr Gladman, who was appointed by Mr Flynn. Mr Tai has offered to provide $40,000 of initial funding for such investigations, if and only if the liquidators are replaced. The availability of funding for the liquidator is a relevant, but not determinative, consideration. It has to be balanced against the work which has already been done by the current liquidator. As Black J said in In the matter of ACN 151 726 224 Pty Ltd (in liq) previously Ridley Capital Holdings Pty Ltd [2016] NSWSC 1801 at [44]: '… It also does not follow that, even if the Court might be prepared to appoint a special-purpose liquidator, because of the view as to funding taken by a particular creditor, whether reasonably or unreasonably, it should remove an existing liquidator simply because a particular creditor, for whatever reason, will not fund work by that liquidator.' The amount of funding offered does not seem to me to do any more than enable the new liquidators to effectively replicate the work of the current liquidator, but probably not materially advance the liquidation overall. Those funds, it seems to me, would be better directed to funding the current liquidator to advance the work already commenced. Mr Gladman appears to me to be ready, willing and able to undertake the necessary investigations and has already conducted preliminary work to enable him to do so in a cost-effective manner." 1. The primary judge also referred to the appellants' alternative argument for the appointment of their preferred liquidators, namely pursuant to s 90-15 of the Insolvency Practice Schedule, sub-section (1) of which simply provides that the "Court may make such orders as it thinks fit in relation to the external administration of a company". Her Honour noted that sub-section (4) of s 90-15 sets out certain matters that may be taken into account before making such an order and concluded, at [52], that: "These considerations, albeit not exclusive, suggest that there should be some failure on the part of the liquidator to attend to their duties before an order is made under section 90-15. This is confirmed by subsection (5), which empowers the Court to make orders that an external administrator be personally liable for the costs of an application for such an order and, in subsection (6), the power to order that an external administrator is personally liable to make good losses caused to the company. However, I note that Black J did not approach section 90-15 as so confined in In the matter of Manband Pty Limited (in liquidation) (subject to Deed of Company Arrangement) [2018] NSWSC 1282, where his Honour made an order under section 90-15 to terminate a member's voluntary winding up." 1. The primary judge declined to make an order under s 90-15 of the Insolvency Practice Schedule, although to what extent this was because of the construction of the section that her Honour appeared to favour, coupled with an absence of any failure on the part of Mr Gladman in the performance of his duties as administrator, was not completely clear. It must be assumed that her Honour's decision was influenced by the construction she placed on s 90-15. As shall be seen, that construction is the subject of the second ground of appeal.

Appellant's submissions 1. Three grounds of appeal were pressed in argument. 2. The first ground was that: "The primary judge incorrectly found that section 75-115 of the Insolvency Practice Rules (Corporations) 2016 prevented the Second Respondent from exercising his casting vote against the resolution the subject of the proceedings (the Resolution), and that in such circumstances the Court's had no power to make an order in relation to the Resolution pursuant to section 75-43 of the Insolvency Practice Schedule (Corporations) in Schedule 2 of the Corporations Act 2001 (Cth)." 1. In my opinion, this ground should succeed. 2. The error in her Honour's conclusion is contained in [40] of the judgment, reproduced at [44] above. In that paragraph, her Honour stated that whilst s 75-115(5) of the IPR authorised a vote in favour of a resolution, it did not authorise an external administrator to vote against a resolution, such that the unsuccessful resolution could not be said to have failed within the meaning of s 75-43(1)(b) of the Insolvency Practice Schedule because the external administrator (as "the person presiding at the meeting" in question) exercised a casting vote against it. Her Honour found that s 75-115(5) of the IPR did not in fact allow such a vote to be cast, with the consequence that s 75-43(4) of the Insolvency Practice Schedule could not be engaged. 3. With respect to her Honour, the difficulty with this argument was that its premise, namely that s 75-115(5) precludes an external administrator voting against a resolution, only applies to resolutions relating to "the removal of the external administrator of a company." The rationale for that restriction is self-evident, but the key point is that the resolution in question and in respect of which the Appellants sought relief was not of that character; rather, it was for the appointment of joint liquidators. Such a resolution was not for the removal of an external administrator. 4. This conclusion is confirmed by the terms of s 435C of the Corporations Act, which establish when the administration of a company begins and, most relevantly for present purposes, ends. Sections 435C(1)(b) and 435C(2)(c) provide that the administration of a company ends, relevantly in this case, on the passage of a resolution of the company's creditors under s 439C(c) that the company be wound up. This resolution was the first of the two resolutions passed at the second creditors' meeting. The effect was that, after the first resolution was passed and before the Resolution was put, the administration of the company had ended. Thus, the unsuccessful Resolution could not have been a resolution which "relate[d] to the removal of the external administrator of the company" within the meaning of s 75-115(5) of the IPR, because the administrator was, by the time it was put, functus officio. 5. Indeed, s 75-115(5) presupposes the existence in office of an administrator. It is important here to observe that the terms of that sub-section are not merely the converse of those in subs (3). Sub-section (3) empowers the "person presiding at the meeting" to exercise a casting vote where the resolution does not relate, relevantly, to the removal of the external administrator of the company. Sub-section (5) takes away the power to exercise a casting vote against such a resolution from the external administrator only. As has been seen, by the time the Resolution was put, Mr Gladman had a casting vote in his ongoing capacity as the person presiding at the meeting, but was no longer the external administrator. 6. The primary judge's, with respect, erroneous conclusion that s 75-115(5) applied in turn had the consequence that her Honour did not have regard to the terms of s 75-115(3) set out at [38] above. It was open to Mr Gladman to have cast his vote as he did, namely against the resolution, pursuant to s 75-115(3)(b), and the fact that he did so in the way that he did engaged s 75-43 of the Insolvency Practice Schedule because the casting vote was the cause of the Resolution not being passed. That is the consequence dictated by s 75-115(3)(b). 7. The premise of the primary judge's reasoning being, with respect, flawed, it did not follow that the application before the Court based on s 75-43 was "ill founded" cf. [40] of her Honour's judgment. 8. The Court was empowered under s 75-43(4)(a) to order that the Resolution be taken to have been passed, because s 75-43(1)(b) was satisfied. 9. The second ground of appeal related to what the primary judge said in relation to the Court's power under s 90-15(1) of the Insolvency Practice Schedule to make "such orders as it thinks fit in relation to the external administration of a company". Her Honour's relevant findings in this regard have been set out at [46] above. 10. Although this ground is strictly unnecessary to decide in view of my conclusion as to the first ground, insofar as the primary judge held at [52] of her judgment that s 90-15 requires some failure on the part of an external administrator to attend to his or her duties in order for the power contained in that sub-section to be engaged, I disagree (although it is no doubt the case that where there has been such a fault or failing, there may be a stronger case for the exercise of the power which s 90-15 vests in the court). 11. In their written submissions, the Appellants referred to Borg v de Vries (Trustee), in the matter of the Bankrupt Estate of David Morton Bertram [2018] FCA 2116 at [24] where White J said: "In contrast with the former s 179(1) [of the Bankruptcy Act 1966 (Cth)], s 90‑15 [of the Insolvency Practice Schedule] does not require a two stage consideration. An applicant seeking the removal of a trustee does not have to establish proper grounds for an inquiry. The power to remove and replace is not made subject to conditions such as proof of error, misfeasance, negligence or other poor conduct by a trustee." (emphasis in original). See also In the matter of Manband Pty Limited (in liquidation) (subject to Deed of Company Arrangement) [2018] NSWSC 1282 which suggests no limitation constrains the broad power given by s 90-15. 1. This construction of s 90-15 is consistent with what was said in Owners of the Ship "Shin Kobe Maru" v Empire Shipping Company Inc (1994) 181 CLR 404 at 421; [1994] HCA 54, namely that "[i]t is quite inappropriate to read provisions conferring jurisdiction or granting powers to a court by making implications or imposing limitations which are not found in the express words". See also FAI General Insurance Co Ltd v Southern Cross Exploration N.L. (1988) 165 CLR 268 at 283-284, 290; [1988] HCA 13; Knight v FP Special Assets Ltd (1992) 174 CLR 178 at 185, 202-203, 205; [1992] HCA 28.

Re-exercise of discretion 1. As I have noted at [45] above, although the primary judge took the view that the occasion for the exercise of her discretion did not arise because s 75-43 of the Insolvency Practice Schedule was not engaged, she nevertheless expressed the view that she "would not have been minded to grant the relief sought." 2. Whilst it is true that her Honour gave some six reasons for her provisional view (see at [45] above), the expression that she "would not have been minded to grant the relief sought" suggests to me that what her Honour was doing fell short of a fully considered and contingent exercise of discretion. No criticism of her Honour should be made in that regard, given that such a consideration was unnecessary in light of her other findings but it follows, in my opinion, that it was not incumbent on the Appellants to establish error on the part of the primary judge in relation to that aspect of her decision cf. Wade v Burns (1966) 115 CLR 537 at 555; [1966] HCA 35. 3. The salient point, for present purposes, is that given the conclusions I have reached with regard to both s 75-43 and s 90-15 of the Insolvency Practice Schedule, it falls to this Court to consider whether or not the Court should order, pursuant to s 75-43(4)(a), that the resolution put on behalf of Glenfyne International at the second creditors' meeting should be "taken to have been passed". 4. The principles governing a review of the casting vote of a presiding member have been considered in a large number of cases. Some of these were collected by Gordon J in Brisconnections Management Company Limited, In the matter of Thames Blund Holdings Pty Ltd (In Liquidation) [2009] FCA 626; (2009) 72 ACSR 233 at [9] in relation to predecessor provisions of s 75-43(4). In that decision, at [6], her Honour usefully reproduced s 21.7.4 of the IPA Code of Professional Practice for Insolvency Practitioners which sets out a number of relevant matters for consideration when exercising a casting vote. At [12] of her decision, Gordon J observed that: "The exercise of the casting vote is most appropriate in circumstances where a creditor with a majority in value (such as the [A]pplicant) has such an overwhelming interest that it is inappropriate to allow a majority in number who do not have the same monetary interest to carry the day. As the case law and the Code makes abundantly clear, there is no presumption in favour of the majority in value. However, where there is large disproportion between the values of the debts of the numerical minority and the numerical majority (as is the position here) it must be a factor to be taken into account." 1. In an earlier decision, Cresvale Far East Ltd (In Liq) v Cresvale Securities Ltd [2001] NSWSC 89; (2001) 37 ACSR 394 at [111]-[113], Austin J made the following observations in relation to the review by a Court of the exercise of a insolvency practitioner's casting vote. His Honour said: "In my opinion, the Court's power under s 600B, to set aside or vary a resolution passed because of the exercise of the casting vote, permits it to review the administrator's reasons for the exercise of the casting vote. The Court need not confine itself to the question whether the administrator has acted honestly as chairman, because it is given a specific statutory power to hear an application to set aside or vary the resolution. As Santow J said in Re Martco Engineering, the Court does not automatically accept the (honest) exercise of the casting vote as an appropriate one. The Court's attitude will 'depend on factors such as whether the administrator has properly exercised the casting vote in the interests of creditors as a whole, such as in circumstances where the vote or votes which prevent one of the two conditions being fulfilled [approved by numerical majority and by value of debts] would represent an outcome unfair to the remaining creditors if not reversed by a casting vote' (at 489). Re Coaleen Pty Ltd (1999) 30 ACSR 200 shows that it is relevant to take into account, as factors, matters such as: • opposition to the proposal by the major creditor, especially when there is a large disproportion between the major debt and other debts; • support of the proposal by the directors where the proposal will deliver some advantage to them; • misleading information in the administrator's report; and • whether creditors who voted in favour of the deed will be prejudiced if the Court sets aside the resolution. Additionally, the Court may be influenced by whether the administrator has made adequate investigations before deciding on the use of the casting vote. Failure by the administrator to carry out sufficient investigations into taxation and other matters, before exercising the casting vote, led Derrington J to set aside a deed of company arrangement under s 447A, in Re Bartlett Research Securities Pty Ltd (1994) 12 ACSR 707. His Honour did not refer to s 600B, but his decision was applied by Moynihan J, in the context of s 600B, in Re Coaleen Pty Ltd." 1. It was also submitted and, in my opinion, correctly so, that: 1. when ascertaining the interests of creditors, it is their interests as creditors that are to be primarily considered, with the views of those who are voting for foreign purposes unrelated to their desire to maximise recovery of their debts to be given reduced regard: Deputy Commissioner of Taxation v Alternative Business Solutions (Aust) Pty Ltd [2006] FCA 400 at [9]; 2. when it comes to deciding who should be the liquidator of a company, the views of those with a vested interest in minimising investigations, such as those involved in or benefiting from transactions likely to be impugned, should be discounted: Haulotte Australia Pty Ltd v All Area Rentals Pty Ltd [2012] FCA 615; (2012) 90 ACSR 177 at [39]; and 3. a director should not to be permitted, through control of a bloc of related creditors, to override the wishes of other creditors in order to minimise scrutiny of their conduct: In the matter of Sales Express Pty Ltd (Administrators Appointed) [2014] NSWSC 460 at [27]-[28]. 1. In light of these principles, it was submitted by Mr Rayment, who appeared on behalf of the Appellants, that: 1. the only reason that the Resolution did not pass outright (that is, without requiring any casting vote) was the votes of Mr Moustacas and Mr Crilly, both of whom were closely associated with Mr Flynn, being his professional advisors; 2. both of those creditors were owed minimal sums, and thus had limited financial interests in Glenfyne International's insolvency; 3. given this, and in circumstances where Mr Moustacas and Mr Crilly had both refused payment of their modest debts in full by Mr Tai prior to the meeting (see [35]-[36] above), the only rational inference available was that they were not acting out of a desire to maximise their returns in the insolvency, but for some ulterior purpose, such as to protect the interests of their client, Mr Flynn, and to assist him in blocking passage of the Resolution to appoint liquidators other than Mr Gladman who, unlike him, had no prior relationship with Mr Moustacas or Strategic Wealth Management, who had recommended Mr Gladman's appointment. 1. In this regard, Mr Rayment also referred to the fact that Mr Moustacas had been the Company's accountant during the time when the journal entry referred to at [29] above was made, and about which the primary judge had observed Mr Tai to be "rightly concerned": see [31] above. The submission was that these entries may have raised questions about Mr Moustacas' role in the Company's affairs and that, as any such questions would fall for investigation by the liquidator, it was inappropriate that the liquidator be somebody who had an association (albeit professional) with Mr Moustacas as a result of previous referrals. 2. Pausing there, in my opinion, and without suggesting anything untoward on the part of Mr Moustacas or Mr Gladman, it is tolerably clear that the various matters referred to by Mr Rayment relating to the adjustment of accounts and the reimbursement of business expenses of the partnership would, prima facie, call for the investigation of a liquidator. That investigation may produce perfectly clear explanations as to each of the transactions referred to but, that having been said, I agree with the submission that it would obviously be preferable if those investigations were not carried out by somebody who had a professional history or association with Mr Moustacas. 3. Whilst these considerations are relevant to the question of whether or not there should be a liquidator other than Mr Gladman (who, as has been seen, only became liquidator following the failure of the Resolution at the second creditors' meeting), they are not positive reasons for the appointment of the particular joint liquidators as preferred by Mr Tai and his associated companies. In that context, it is relevant to recall that, as noted at [40] above, on 11 January 2019, Mr and Mrs Flynn's solicitor wrote to Mr Tai's solicitor proposing to resolve the proceedings by appointing an independent liquidator to ensure that there was no perceived or actual bias, but that offer was later rejected. 4. In one sense, that offer presented a sensible solution to the impasse that had developed. Mr Tai and his interests, however, were not bound to accept that offer (at the possible risk of costs). They were entitled to pursue their legal rights and to have the Court consider whether the Resolution they had urged at the second creditors' meeting should be taken to have been passed. 5. In my opinion, it should be so taken to have been passed. The most compelling reason for this conclusion is that, had the Resolution not been opposed by Crilly Lawyers and Strategic Wealth Management, both of which were minor creditors evidently acting contrary to their own interests qua creditors, having rejected the offer to be paid out in respect of their respective debts, the Resolution would have passed without the need for any casting vote. Mr Tai's interests were plainly the most substantial creditors of the Company and the subject matter of the potential investigations would only, if they produced any recovery, be likely to reinforce that position. 6. For the foregoing reasons, in proceedings 2019/96083, I would make the following orders: 1. Allow the appeal. 2. Set aside the orders of the primary judge in proceedings 2018/357721. 3. Order that the resolution proposed at the meeting of creditors of Glenfyne Farms International AU Pty Ltd on 9 October 2018 that Jason Lloyd Porter and Fabian Kane Micheletto be appointed as joint and several liquidators of Glenfyne Farms International AU Pty Ltd be taken to have been passed at the meeting. 4. No order as to costs. 1. In proceedings 2019/96084, I would make the following orders: 1. Allow the appeal. 2. Set aside order 2 made on 8 March 2019 in proceedings 2018/357706 and in lieu thereof, order that pursuant to s 472(1) of the Corporations Act 2001 (Cth) Jason Lloyd Porter and Fabian Kane Micheletto be appointed as joint and several liquidators of GI Commercial Pty Ltd (in liq). 3. No order as to costs. 1. MACFARLAN JA: I agree with Bell P.

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Amendments 03 June 2020 - Amendment made to [65], third line, reference to Brisconnections Management Company Limited, In the matter of Thames Blund Holdings Pty Ltd (In Liquidation) [2009] FCA 626 at [11] changed to at [9]. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 03 June 2020