Termite Resources NL (in liq) v Meadows, in the matter of Termite Resources NL (in liq) (No 2) [2019] FCA 354

Termite Resources NL (in liq) v Meadows, in the matter of Termite Resources NL (in liq) (No 2) [2019] FCA 354

Each defendant (director or officer) breached their statutory duties under ss 180 and 181 of the Corporations Act (and, for de jure directors, their common law duties) by causing Termite to adopt and implement a distributions policy with an inadequate $3 million reserve, and by failing to review or revise the policy. They knew of Termite's vulnerabilities, foreseeable operational and market risks, and the consequences for creditors; their conduct privileged parent/shareholder interests over Termite's. The business judgment rule did not excuse their conduct. Had reasonable care and diligence been exercised, a reserve of at least $10 million would have been maintained. As a result, $7...

Parties
Plaintiff: Termite Resources NL (in liq); First Defendant: Neil Eugene Meadows; Second Defendant: John Stephen Nitschke; Third Defendant: Simon Robert Parsons; Fourth Defendant: Philip Ross Hoskins; Fifth Defendant: Wei Sun; Sixth Defendant: Kee Chau Pang
Jurisdiction
Australia
Judgment Date
15 March 2019
Procedural Posture
Corporations Proceeding (director/officer Liability, Liquidation Claim) / Judgment After Trial
Outcome
Plaintiff succeeds in part; defendants are liable for breach of statutory and common law duties; damages awarded.
Legal Topics
Directors' Duties, Director and Officer Liability, Distribution of Corporate Assets, Liquidation, Damages for Breach of Duty, Interests of Creditors, Business Judgment Rule
Corporations Law Commercial Law Insolvency Law Directors' Duties Director and Officer Liability Distribution of Corporate Assets Liquidation Damages for Breach of Duty +2 more

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Parties

Termite Resources NL (in liq)

Plaintiff

Neil Eugene Meadows

First Defendant

John Stephen Nitschke

Second Defendant

Simon Robert Parsons

Third Defendant

Philip Ross Hoskins

Fourth Defendant

Wei Sun

Fifth Defendant

Kee Chau Pang

Sixth Defendant

Procedural Posture

Corporations Proceeding (director/officer Liability, Liquidation Claim) / Judgment After Trial

Legal Issues

  1. 1 Whether the defendants breached statutory and common law directors' duties to Termite Resources NL in adopting and implementing a distributions policy
  2. 2 Whether the retention of a $3 million reserve (versus a larger amount) was consistent with directors' duties and the interests of creditors
  3. 3 Whether the directors sufficiently considered foreseeable risks (iron ore price volatility, operational risks) and potential liabilities to contractors

Ratio Decidendi

Each defendant (director or officer) breached their statutory duties under ss 180 and 181 of the Corporations Act (and, for de jure directors, their common law duties) by causing Termite to adopt and implement a distributions policy with an inadequate $3 million reserve, and by failing to review or revise the policy. They knew of Termite's vulnerabilities, foreseeable operational and market risks, and the consequences for creditors; their conduct privileged parent/shareholder interests over Termite's. The business judgment rule did not excuse their conduct. Had reasonable care and diligence been exercised, a reserve of at least $10 million would have been maintained. As a result, $7...

Court Disposition

Plaintiff succeeds in part; defendants are liable for breach of statutory and common law duties; damages awarded.

Orders

  • Judgment for plaintiff for $7 million against each defendant.
  • Matter adjourned for further submissions on interest and costs.