FEDERAL COURT OF AUSTRALIA CORPORATIONS – Winding Up – application by Insurance and Superannuation Commissioner for winding up of insurance company under s 462 (j) of Corporations Law – whether Commissioner satisfied threshold test laid down in s 462 (3) of Corporations Law of proving that at date of application that company's "liabilities" exceeded its "assets" within meaning of Part III of Insurance Act 1973 (Cth) – no question of principle. Corporations Law ss 461 (j); 462 (3) (b) Insurance Act 1973 (Cth) ss 30 (1); 33 (4), (6) DAVID BRUCE MAGNEY, MICHAEL KENNETH ADRIAN RHODES AND SIMON CHISHOLM HORTON TRADING AS MAGNEY & RHODES v GREATLANDS GENERAL INSURANCE COMPANY LTD (IN THE MATTER OF GREATLANDS GENERAL INSURANCE COMPANY LTD ACN 003 641 834) NG 3050 of 1998 INSURANCE AND SUPERANNUATION COMMISSIONER v GREATLANDS GENERAL INSURANCE COMPANY LTD (IN THE MATTER OF GREATLANDS GENERAL INSURANCE COMPANY LTD ACN 003 641 834) NG 3057 of 1998 LINDGREN J SYDNEY 2 JUNE 1998 IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NG 3057 of 1998 in the matter of: greatlands general insurance company ltd (aCN 003 641 834) BETWEEN: DAVID BRUCE MAGNEY, MICHAEL KENNETH ADRIAN RHODES AND SIMON CHISHOLM HORTON TRADING AS MAGNEY & RHODES Applicant AND: greatlands general insurance company ltd (acn 003 641 834) Respondent ng 3057 OF 1998 in the matter of: greatlands general insurance company ltd (aCN 003 641 834) BETWEEN: insurance and superannuation commissioner Applicant AND: greatlands general insurance company ltd (acn 003 641 834) Respondent JUDGE: LINDGREN J DATE: 2 JUNE 1998 PLACE: SYDNEY IN EACH PROCEEDING THE COURT ORDERS THAT 1. The proceeding be stood over to 5 June 1998 at 9.30 am for the making of orders including orders as to costs. 2. By 5.00 pm on 4 June 1998, the parties supply to the Associate to Lindgren J agreed short minutes of orders to be made and failing agreement by that time, short minutes of the orders for which they will respectively contend and outlines of submissions in support. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NG 3050 of 1998 in the matter of: greatlands general insurance company ltd (aCN 003 641 834) BETWEEN: DAVID BRUCE MAGNEY, MICHAEL KENNETH ADRIAN RHODES AND SIMON CHISHOLM HORTON TRADING AS MAGNEY & RHODES Applicant AND: greatlands general insurance company ltd (acn 003 641 834) Respondent ng 3057 OF 1998 in the matter of: greatlands general insurance company ltd (aCN 003 641 834) BETWEEN: insurance and superannuation commissioner Applicant AND: greatlands general insurance company ltd (acn 003 641 834) Respondent JUDGE: LINDGREN J DATE: 2 JUNE 1998 PLACE: SYDNEY REASONS FOR JUDGMENT INTRODUCTION The applicant in proceeding NG 3057 of 1998 ("the Commissioner"), who is appointed under the Insurance and Superannuation Commissioner Act 1987, commenced that proceeding on 31 March 1998 seeking an order that the respondent ("GGI") be wound up pursuant to s 461 (j) of the Corporations Law ("the Law") and consequential relief. In proceeding NG 3050 of 1998, commenced eight days earlier on 23 March 1998, a firm of Sydney solicitors, Magney & Rhodes, seek an order that GGI be wound up under s 459A of the Law. On 9 April 1998, I ordered that the two proceedings be heard together and I ordered in the Commissioner's proceeding that Richard Grellman be appointed as liquidator of GGI under s 472 (2) of the Law, provisionally. The hearing which has taken place on 18 and 19 May 1998 has been on the Commissioner's application. Rhodes and Magney have not appeared on the hearing of it. Section 461 (j) of the Law provides as follows: "461 The Court may order the winding up of a company if: ... (j) if the application was made by the Insurance and Superannuation Commissioner - the Court is of the opinion that it is in the interests of the public, of the members or of the creditors that the company should be wound up; ... ." Subsection 462 (3) of the Law provides: "462 (3) A person being, or persons including, the Insurance and Superannuation Commissioner may only apply for an order to wind up a company if: (a) an inspector has been appointed to make an investigation in respect of the company under section 52 of the Insurance Act 1973; and (b) the company's liabilities within the meaning of Part III of that Act exceed the company's assets within the meaning of that Part." The Commissioner's application is opposed. On the hearing, Mr J E Thomson of counsel appeared for the Commissioner; Mr C D Freeman of counsel appeared for Mr A P Fielding, the administrator of GGI ("the Administrator"), and for Mr G A O'Connell, a director of GGI ("the Director"), to oppose the application; and Mr M Deakin, solicitor, appeared for the provisional liquidator, Mr Grellman. Mr Deakin was excused from further attendance. Two substantial issues have been debated on the hearing: (1) Did GGI's liabilities within the meaning of Part III of the Insurance Act 1973 (Cth) ("the Act') exceed its assets within the meaning of that Part as at 31 March 1991 when the Commissioner filed his application for winding up? (2) If so, is the Court of the opinion that it is in the interests of the public or of the creditors of GGI that it should be wound up? There were two other issues. One is whether s 462 (3) also requires that liabilities exceed assets as at the time when the application for the winding up order is dealt with by the Court, that is, when the winding up order is made. It is common ground that the condition laid down in s 462 (3) (b) must be satisfied at least at the time of the filing of the application: cf Tickle v Crest Insurance Company of Australia Ltd (1984) 2 ACLC 493 at 495. The other issue is whether the Court retains, by virtue of the word "may" at the beginning of s 461, a residual discretion as to whether to make a winding up order, even if it is of opinion "that it is in the interests of the public, of the members or of creditors that the company should be wound up". I need say no more of these issues. BACKGROUND As its name suggests, GGI is in the business of providing general insurance. Its ultimate holding company is Greatlands Pty Limited ("GPL"). There is an intermediate company, Greatlands Investments (Australia) Limited. For quite some time, GGI has been in "run-off". This signifies that it has not been writing new business. It had previously done so in New South Wales, Victoria and, to a lesser extent, South Australia, specialising in providing worker's compensation insurance to local councils and restaurants. GGI was once called "The Baltica General Insurance Company Limited". It became part of the Greatlands Group in October 1996 and changed its name to its present name on 28 October 1996. From the time of acquisition its registered office and principal place of business became the offices of Magney & Rhodes in Sydney. They represented GGI from 28 October 1996 until January 1998. Michael Rhodes, a partner of the firm, was a director of GGI from 28 October 1996 until 29 October 1997. The other directors were and are Martin Wotton and the Director. They were responsible for the management of GGI and are both located in Brisbane. GGI's accounts were maintained in Brisbane and audited by the Brisbane office of Deloitte Touche Tohmatsu ("Deloittes"). GGI's claims administration was undertaken by Alfred Steeden of Steeden Consulting Pty Limited, who was and is located at Lake Macquarie, New South Wales. Although GGI is in "run-off", it has continued to carry on an insurance business in that it has continued to manage and administer existing and newly reported claims. Accordingly, it is required to comply with the Act and is subject to the regulatory control of the Commissioner. Both proceedings (NG 3050 of 1998 and NG 3057 of 1998) were before the Court on 9 April on the question of the appointment of a provisional liquidator. On the preceding day, 8 April, pursuant to a resolution of its directors, GGI, by writing under its common seal, appointed the Administrator as administrator of GGI pursuant to s 436A of the Law. In the event, on the hearing on 9 April, an accommodation was reached by the parties appearing in both proceedings, as a result of which I made the following orders: "1. Proceedings NG 3050 of 1998 and NG 3057 of 1998 be heard together and the evidence in the one be evidence in the other with all just exceptions as to admissibility. 2. In proceeding NG 3057 of 1998, by consent as between Anthony Peter Fielding, the administrator of the respondent, and the applicant, the Insurance and Superannuation Commission, and without opposition or consent from the applicants in NG 3050 of 1998, Richard Grellman, chartered accountant of 45 Clarence Street Sydney be appointed as liquidator of the respondent under s 472(2) of the Corporations Law, provisionally. 3. The respondent in NG 3050 of 1998 pay the costs of the applicants of that motion, including the costs of today's hearing. 4. The applicants' motion for appointment of a provisional liquidator in NG 3050 of 199 be dismissed. 5. Except as above, all questions of costs be reserved. 6. Both proceedings be stood over to Friday 24 April at 9.30 am." Both matters were again before the Court on 24 April and 8 May for directions and on the latter date they were fixed for final hearing on 18 May. INTRODUCTION TO ISSUES It will be recalled that the first issue for decision is: Did GGI's liabilities within the meaning of Part III of the Insurance Act 1973 exceed its assets within the meaning of that Part as at 31 March 1998 when the Commissioner filed his application for winding up? Part III (ss 21-38) of the Act is headed "AUTHORITY TO CARRY ON INSURANCE BUSINESS" and Part V (ss 50-62) is headed "INVESTIGATIONS". Within Part III, s 21 provides that it is an offence to carry on insurance business without authorisation under the Act. Subsection 29 (1) provides that an authority granted to a body corporate (under s 21 it is an offence for a person other than a body corporate or a Lloyd's underwriter to carry on insurance business) is subject to the conditions mentioned in the subsection. One of these is, relevantly, that the value of the body corporate's assets shall at all times exceed the amount of its liabilities by not less than $2,000,000. Subsection 30 (1) provides that in Part III a reference to the assets of a body corporate does not include a reference to certain classes of asset described in the subsection. The excluded assets of relevance to the present case are, in general terms, a loan to a director (s 30 (1) (a) (i)), "an asset that is charged for the benefit of a person other than the body corporate to the extent that it is so charged" (s 30 (1) (c), and an amount due from or a loan to a body corporate that is related to the body corporate (s 30 (1) (d)). Subsections 33 (4) and (6) provides as follows: "(4) Where an asset of a body corporate consists of securities: (a) listed for quotation on the official list of a stock exchange in Australia; or (b) not so listed but listed for quotation on the official list of a stock exchange outside Australia; the value of those securities as at a particular time is the value as ascertained by reference to any one of those stock exchanges and: (c) by reference to: (i) the sale of securities of the same class last recorded before that time by that stock exchange; or (ii) the selling offer for securities of the same class last recorded before that time by that stock exchange; whichever is the less; or (d) by reference to the buying bid for securities of the same class last recorded before that time by that stock exchange; whichever is the greater. (6) Subject to subsection (4), the value of an asset of a body corporate as at a particular time is the market value of the asset at that time." The first issue has given rise to dispute as to the market value of certain assets of GGI as at 31 March. Within Part V of the Act, s 51 empowers the Commissioner, if it appears to him that a body corporate authorised under the Act to carry on insurance business "is or is likely to become unable to meet its liabilities", to give certain classes of direction, by notice in writing, to the body corporate. Section 52 empowers the Commissioner, in the circumstances there set out, to appoint a person to investigate the whole or any part of the business of the body corporate. Section 62 empowers the Commissioner to give certain classes of direction to a body corporate where an investigation is being made into its affairs. On 17 December 1997, a Deputy Commissioner appointed Shane Andrew Bennett under s 52 of the Act to make an investigation into the whole of the affairs of GGI for the purpose of establishing its ongoing capacity to comply with the conditions of authorisation specified in par 29 (1) (b) of that Act. Mr Bennett has filed in the proceeding an affidavit sworn on 30 March 1998 to which are exhibited documents which he obtained in the course of his investigation and other correspondence. Pursuant to s 475 of the Law, the Director provided a verified report as to affairs ("RATA") dated 30 April 1998 setting out the assets and liabilities of GGI as at that date. Mr Grellman has filed an affidavit sworn 8 May 1998 to which is annexed a report by him as provisional liquidator on the affairs of GGI. A copy of the Director's RATA is attachment "C" to Mr Grellman's report. Attachment "A" to Mr Grellman's report is a document headed "Schedule of Assets and Liabilities - April 1998". It lists, relevantly, in four columns (1) the assets and liabilities of GGI as at "April 1998", (2) Mr Grellman's estimate of the values of the assets and amounts of the liabilities on an "optimistic" basis, (3) Mr Grellman's estimate of the values of the assets and amounts of the liabilities on a "pessimistic" basis, and (4) the estimate of the values of the assets and amounts of the liabilities according to the RATA. This document provided a structure for the debate on the hearing. However, in the course of the hearing some issues ceased to be contentious. Counsel for GGI provided as an annexure to his submissions, schedules 1 and 2 which were designed to indicate the result of the course of the hearing and of submissions. I have annexed to these Reasons a composite document setting out in columns (1) the assets and liabilities of GGI as listed by Mr Grellman, (2) Mr Grellman's optimistic assessment, (3) Mr Grellman's pessimistic assessment, (4) the figures stated by the director in his RATA, and (5) the position finally propounded by the Administrator and the Director. It will be noted that Mr Grellman's optimistic net asset figure was $328,391 and his pessimistic net asset figure was ($1,900,107). It was common ground that the first three loans mentioned totalling $196,000 are excluded as assets by the operation of s 29 of the Act and that the amount of ($130,000) shown under the "Liabilities" side heading is also excluded as a benefit which came into being after 31 March 1998. When these two figures are deducted from Mr Grellman's "optimistic" net assets figure of $328,391, that figure is reduced to only $2,391. Counsel for the Commissioner's approach was to attempt to show that the values of certain other assets must be at least less than the amounts assigned to them in column 2 and that even though there might not be evidence enabling me to be satisfied as to what their correct value was, as at 31 March, the reductions would necessarily exceed, and therefore eliminate, the credit balance of, $2,391. It is appropriate now to introduce briefly the parties' respective positions in relation to the items in dispute. 1. Austrust deposit account: $1,641,996 This is the most substantial asset which GGI claims to own. It will be necessary to discuss in detail later the circumstances relating to it. In short, there were dealings between GPL and Prudential-Bache Securities (Australia) Limited ("Prudential-Bache"), a broker of securities to which GPL was indebted as a result of securities transactions brokered by Prudential-Bache for and on behalf of GPL. As at 4 June 1997, GPL was indebted to Prudential-Bache in the sum of $1,642,852.83. GGI had on deposit with Prudential-Bache at that time $1,619,809.81. The Commissioner contends that GGI charged these moneys in favour of Prudential-Bache as security for the indebtedness of GPL. In the alternative, the Commissioner submits that the value of the Austrust deposit account is something less than its current face amount of $1,641,996 because Prudential-Bache asserts that the moneys are so charged, and, as a result, some discount off the face value must be made for the possibility that Prudential-Bache will be proved to be correct. The Commissioner submits that once it is accepted that a discount should be made off the face value of $1,641,996, it should also be accepted that the appropriate amount of the discount must surely exceed $2,391. 2. Loans (inter-company loans, loans to directors, related parties) As can be seen from the annexure to these Reasons, these three amounts are $51,000, $35,000 and $110,000 (total $196,000). The Administrator concedes that as a result of s 30 (1) of the Act, the assets of GGI do not include these three loans. Accordingly, it is common ground that they are to be treated as having a value of "nil" for present purposes. 3. Shares at market value (May 1998) - Goldsearch A note to this item in Mr Grellman's schedule explains that "Goldsearch" is a mining company trading on the Australian Stock Exchange ("ASX"), that "Corporate Registry Services" has advised that GGI is registered as the holder of 7,325,000 shares in Goldsearch of 25 cents each fully paid, and that the estimated resale value of the shares ranges between a pessimistic figure of 3 cents and an optimistic figure of 4.5 cents per share. This estimate is said to be based on values reported in "The Australian Financial Review" between 9 April and 7 May 1998 and on "advice sought from ANZ Securities". The Commissioner submits that I should accept that the market value as at 31 March 1998 is somewhere between the two figures. My calculator indicates that if the value per share were only 0.000326416 less than 4.5 cents, the optimistic net asset figure of $2,391 would be eliminated. The Administrator and the Director submit that there is no evidence of the value of the shares as at 31 March, the date of the filing of the Commissioner's application. 4. Shares at market value (May 1998) - Cardia A note against this item in Mr Grellman's schedule is to the effect that the shares in "Cardia Mining", which have a par value of 20 cents each, trade on the ASX and that the estimated resale value ranges between a pessimistic figure of 40 cents and an optimistic figure of 46 cents per share based on trading figures reported in the "The Australian Financial Review" between 9 April and 7 May 1998. Again, the Administrator and the Director submit that this is not admissible evidence of the value of the shares as at 31 March. 5. Shares at market value (May 1998) - Power Capital ($1 par) The note to this item in Mr Grellman's schedule is to the effect that, according to the Director's RATA, GGI owns 1,000,000 shares in "Power Capital" of which it acquired 750,000 in June 1997 and a further 250,000 in April 1998. Mr Grellman states that the shares trade on the Internet and on the OTC Bulletin Board. He further states that their "estimated range of resale value is between a pessimistic value of US 10 cents and an optimistic value of US 25 cents per share, based on a current exchange rate of $0.645 = US $1". Another document annexed to Mr Grellman's report shows that the correct name of the entity in question is "Power Capital Partnership Inc". According to my understanding, Mr Grellman is saying that between some unidentified dates, for the total holding the pessimistic figure was US $100,000 and the optimistic figure was US $250,000. But if Mr Grellman used an exchange rate of $0.645 to arrive at his figures of AUD 116,279 and AUD 387,597 which appear in his schedule, there has been a miscalculation: at that exchange rate US $100,000 is AUD 155,038.76 while it is true that US $250,000 is AUD 387,596.90. Again, the Administrator and the director submit that there is no admissible evidence of value as at 31 March. 6. Outstanding claims (including IBNR provision and future expense liability) Mr Grellman's figure, both pessimistic and optimistic, is $2,251,000 while that of the Administrator and the Director is only $1,690,000. This latter figure is found in an annexure to an "Independent Audit Report to the Directors of Greatlands General Insurance Company Limited" by Deloittes dated 27 January 1998 in which a figure of $1,690,000 is shown as representing "outstanding claims" as at 30 November 1997 by entities other than those "related" to GGI. The figure shown for loans to GGI by "related" entities as at 30 November 1997 is $386,000. Mr Grellman's figure of $2,251,000 is based on a report dated 7 May 1998 by KPMG Actuaries Pty Limited a copy of which is annexed to his report. 7. ICF Distribution According to Mr Grellman's schedule a negative figure of $130,000 appears against this entry. A note explains that "[t]his figure is the amount proposed by WorkCover NSW as a result of the decision on Tuesday 5 May 1998 by the Insurers NSW, who have an existing interest in the ICF, and WorkCover to close the Insurer's Contribution Fund ('ICF')". On the hearing the Administrator and the Director conceded that since this decision post-dated 31 March, it should be ignored. 8. Other creditors Against this entry, a figure of $489,833 appears in Mr Grellman's schedule but the Administrator and the Director say that the figure should be $330,453 in accordance with the RATA, a difference of $150,380. 9. Costs associated with provisional liquidation These costs totalled $136,467. The Administrator and the Director submitted that all these costs arose after 31 March 1998. Although counsel for the Commissioner said that this was not true of every sub-item comprised in this heading of liability, he said that the Commissioner was prepared to concede the point for the purpose of the hearing. Accordingly, the costs totalling $136,467 cease to be a liability for present purposes. REASONING I deal first with the Austrust deposit account. It will be recalled that s 30 (1) of the Act provides that in Part III of the Act, a reference to assets of a body corporate does not include a reference to: "(c) an asset that is charged for the benefit of a person other than the body corporate to the extent that it is so charged; ..." Subsection 3 (1) of the Act provides that unless the contrary intention appears: "'charge' means a charge created in any way and includes a mortgage or an agreement to give or execute a charge or mortgage, whether upon demand or otherwise;". The Commissioner submits that the Austrust deposit account in which there is, according to Mr Grellman's schedule, $1,641,996 to the credit of GGI is charged for the benefit of Prudential-Bache to the extent of $1,642,852.83, representing the indebtedness of GPL to Prudential-Bache. As noted earlier, the Commissioner submits, in the alternative, that if he does not establish the existence of a charge, nonetheless the market value of the deposit is less than its face value, because of the chance that Prudential-Bache may succeed in establishing its contention. The Commissioner did not lead testimonial evidence from Prudential-Bache with a view to establishing the existence of the charge: the Commissioner relies only on documents. The Administrator and the Director submit that the only issue to be determined is "charge or no charge": they submit, in particular, (a) that if the money in the Austrust deposit account is subject to a lien, the lien does not fall within the statutory definition of "charge", and (b) that it is impermissible to discount the value of the amount standing to the credit of the Austrust deposit account to a figure less than its face value on account of the chance mentioned. The documentary evidence to which I referred exists in three forms: a Deed dated 25 November 1997 between GGI, GPL and Prudential-Bache; pleadings in proceeding No 749 of 1998 in the Supreme Court of Queensland between Prudential-Bache as plaintiff, GGI as first defendant and GPL as second defendant; and certain correspondence and other documents. I will deal with these three forms of evidence in turn. The Deed dated 25 November 1997 recites that up until 4 June 1997, GGI "held on deposit through" Prudential-Bache cash in the sum of $1,619,809.81 (called in the Deed, "the fund"); that GPL was related to GGI; that GPL owed Prudential-Bache as at 4 June 1997 $1,642,852.83; that on that date Prudential-Bache transferred the fund from the account of GGI in reduction of the debt owed by GPL; that the parties were in dispute as to the status of the fund and as to whether Prudential-Bache had been entitled to transfer it; and that pending resolution of the dispute, the parties had agreed that the fund should stand to the credit of the account of GGI with Prudential-Bache "subject to the terms of [the] Deed". The parties agreed that on the date of the Deed, 25 November 1997, Prudential-Bache would return the fund to GGI's account from which it had been transferred on 4 June 1997, and would arrange for the fund to be invested in the Austrust Cash Deposit Fund account from which it had been withdrawn on that date. Clauses 3, 4, 5 and 6 of the Deed were as follows: "3. The parties agree each with the other not to deal with the fund except as authorised by: (a) this Deed; or (b) Court order. 4. Otherwise, the parties reserve all their rights in relation to the fund including to apply for Court orders relating to the ownership of and title to the fund and the right to deal with the fund.Wwithout limiting the foregoing either party may apply to the Court at any time for relief in relation to the fund or any part thereof. 5. Ownership of and title to the fund and the right to deal with the fund will be resolved by: (a) agreement in writing by the parties; (b) the making of a Court order dealing with those matters or in respect of the disposition of the fund; or (c) payment being made by Greatlands of its debt to PB (it being agreed that that event will immediately entitle GGI to deal with the fund). 6. This agreement is made entirely without prejudice to the parties' rights and obligations in relation to the fund and without admission in respect to ownership of and title to the fund and the right to deal with the fund." The intent of the Deed is clear: to restore the parties to their pre-4 June 1997 positions. At that time, the parties' dispute had been soluble in any one of the three ways mentioned in clause 5 and only in one of those three ways: by agreement, by the Court, or by the payment of GPL's debt to Prudential-Bache. The Deed reveals nothing as to the strength of the claim by Prudential-Bache to security over the fund. Only GGI could charge the fund in favour of Prudential-Bache and it did not purport to do so by the Deed. On its face, the Deed made GGI's position no worse than it had been before execution of the Deed. The substance of the Deed was an interim agreement as to the investment of the money pending the resolution of the dispute by litigation or otherwise. It was a substitute for an interlocutory injunction designed to preserve the status quo pending a hearing and determination of the competing claims of Prudential-Bache and GGI in respect of the fund. In making that agreement, GGI did not charge the fund as security for GPL's debt. I turn next to the pleadings in the Queensland Supreme Court proceeding. The pleadings were annexed to an affidavit of the Director sworn 23 March 1998 filed in proceeding No NG 3050 of 1998 to which I referred earlier. The writ of summons and the concurrent writ of summons are dated 23 January 1998. There are three pleadings in evidence: the writ of summons which is addressed to GPL, the concurrent writ of summons which is addressed to GGI, and GPL's defence dated 20 February 1998 (there is not in evidence a defence of GGI itself). The claim endorsed on the writ of summons indicates that Prudential-Bache's claim against GPL is for damages for breach of contract, damages for negligent misrepresentation, interest and costs. The claim is for debt in a sum of $1,619,809.81 being the net balance of GPL's running account with Prudential-Bache on which, according to the claim, the amount owing as at 4 June 1997 had been $1,642,852.83 which had been reduced to $ 1,619.809.81 by the time of the issue of the writ of summons on 23 January 1998. By the concurrent writ of summons addressed to GGI, Prudential-Bache also claimed against GGI damages for breach of contract, damages for negligent misrepresentation, interest and costs. There is no proprietary claim in respect of the Austrust Cash Deposit Fund or otherwise. However, the statement of claim endorsed is against GPL rather than against GGI, and is in identical terms to that endorsed on the writ of summons. Thus, we do not find a pleading by Prudential-Bache of, for example, a claim that it has security over the Fund. GPL's defence is not verified but, as indicated earlier, it was an annexure to an affidavit of the Director who is a director of both GPL and GGI. By the defence, GPL admitted that as at 4 June 1997 it was indebted to Prudential-Bache under a running account in the sum of $1,642,852.83 and that it executed the Deed in November 1997. GPL pleaded that it incurred the debt in about November 1996 in connection with its acquisition of 4,260,000 shares of 36 cents each in Goldsearch NL and that Prudential-Bache had acted as broker for GPL on the purchase and had advanced the purchase money to GPL without requiring or taking any security. The defence then pleads that following settlement in or about January 1997, an oral agreement was made between Martin Wotton of GPL and two named individuals for Prudential-Bache, and that the agreement was confirmed, or alternatively was made, orally in about April 1997, between Martin Wotton for GPL and a different named individual for Prudential-Bache. The defence pleads the effect of the agreement, implementation of it and breach of it by Prudential-Bache on or about 4 June 1997. The relevant part of GPL's defence is as follows: "(iii) the effect of the agreement made in about January 1997, or alternatively in about April 1997, was that the debt would not be repayable during such time as:- (A) the First Defendant placed on deposit an amount of $1.6 million with the Plaintiff or a party nominated by the Plaintiff in an unrelated account ('the fund'); and (B) the First Defendant maintained the credit balance in the fund reasonably in parity with the amount of the debt from time to time; and (C) the First Defendant 'ran off' its insurance operations (this is, it ceased to take new business and finalised existing claims) so that the fund would become available for release from the First Defendant (without any breach of its obligations under the Insurance Act) and available for the use of the Second Defendant; (e) in consideration of the agreement the Second Defendant caused the First Defendant to:- (i) deposit the sum of $1.6 million with the Plaintiff; (ii) maintain the deposit in reasonable parity with the amount of the debt from time to time; and (iii) run off its insurance operations as quickly as possible to be able to seek from the Insurance and Superannuation Commission approval to release the fund to the Second Defendant." The agreement pleaded is between GPL and Prudential-Bache; GGI is not said to have been a party to it. In effect, according to the pleading, GPL and Prudential-Bache agreed that GPL's debt to Prudential-Bache would not be repayable during such time as certain conditions existed. The pleading is not that GPL promised Prudential-Bache that it would cause GGI to do anything. It is pleaded, however, that "in consideration of the agreement" GPL did in fact cause GGI to do the things mentioned in subpar 3 (e). As will be observed later, the defence is consistent with the correspondence and other documents. The pleadings do not afford evidence that GGI charged the chose in action in question. I turn finally to the correspondence and other documents. On 13 February 1998, Mr Bennett wrote to the Director. In an appendix to the letter dealing with, inter alia, "Part III Assets and Liabilities", Mr Bennett advised that he had concluded that there was a deficit of $732,000 and that in arriving at that figure he had excluded "Deposit subject to charge" of $1,620,000. In this respect, he stated: "• The deposit of $1.62 million is excluded from calculations under paragraph 30 (1) (c) of the Act. The Deed executed between Greatlands, PB and GPL constitutes a charge as it secures the payment of an amount that may be owed in the future. The Deed results in the deposit of $1.62 million being completely subject to a charge to the benefit of PB." According to a file note of Mr Bennett dated 5 January 1998, Mr Bennett contacted Ms Helen Barnhill, Assistant General Counsel of Prudential-Bache, on 31 December 1997 to discuss issues outstanding from a visit which he had paid her in Melbourne the preceding week. The file note recorded as follows: "I contacted Ms Helen Barnhill of Prudential Bache (PB) on 31/12/97, to discuss outstanding issues from our visit to PB in Melbourne last week. Ms Barnhill provided the following information. · As suspected Greatlands Pty Limited (GPL) acquired the Gold Search shares (4.26 million in November 1996) on terms. As at January 1997 the company had failed to pay for the shares resulting in Greatlands crediting with PB $1.6 million on 17/1/97; $1.6 million was the amount owing from GPL on the Gold Search Shares. PB made an error at this point in not having Greatlands execute documentation securing the deposit to the outstanding GPL debt; · The 4.26 million shares were acquired from Thomas Nominees Pty Limited which to her knowledge was an unrelated party to Greatlands. (As discovered last week at the visit to PB, the ASC became interested in the share transaction as it occurred off market, and issued a Direction for the submission of information. The response was compiled by PB, a copy of which was obtained by the inspection team, and indicates that the transaction occurred to unwind a joint venture); · The transfers that occurred in March and June occurred without documented approval from Greatlands. However, PB alleges these actions occurred with the knowledge of the Directors (though no tangible evidence exists reflecting the Directors consent for the transfers). Additionally, the deposit was reversed in April 97 as Greatlands claims the money was needed for the submission of ISC statements, and on 'full clearance being obtained, we will advise you immediately to transfer the funds accordingly'. The basis of this statement contained in facsimile dated 29/4/97 from Martin Wotton is unclear but appears prima facie to have no connection with ISC procedure indicating that the statement is false. However, the statement is contained in a facsimile to PB in relation to the 'Settlement of Gold Search Purchase' and implies that the deposit will be used to settle the outstanding debt associated with the Gold Search shares, which was owed by GPL; and · The Letter of Authorisation (LOA) was altered by a PB staff member in Brisbane. However, the staff member claims that the alteration that occurred was consistent with the intentions of Directors ie that Authorisation be given to transfer funds from Greatlands to GPL's loan account. Ms Barnhill confirmed that there was no second LOA completed, although discussions occurred with Wotton for completion of same. (PB appears to have suffered continuously from poor documentation, with Greatlands not executing any underlying documentation linking/securing the deposit to GPL's loan). Although there is no primary documentation connecting the deposit as security to the loan, PB believes that there is sufficient circumstantial evidence to claim the deposit: · The initial deposit was equivalent to the amount owing by GPL; · There is a history of transfers between accounts; · Verbal assurances were given to PB staff that repayment would occur from the deposit if required; · A letter indicating that Greatlands would be the source of repayment and not GPL (I assume this is the facsimile from Mr Wotton dated 29/4/97 which supports this assertion); and · The fact that a statement was sent out reflecting that the deposit had been transferred in August but directors failed to take any action until November 1997. (Statements were sent out in June from Austrust and August from PB reflecting the withdrawal of the deposit). However, the case would rely on circumstantial evidence and the probability of PB being successful is unclear. Ms Barnhill also indicated that if the deposit could not be accessed, PB may take action against GPL for the outstanding debt. Ms Barnhill confirmed that the files made available to the ISC were the only files in existence and consisted of all available documents from Melbourne and Brisbane. Ms Barnhill stated that legal staff had not been included in the process and that certain procedures have subsequently been revised. Additionally, the majority of discussions on the matter occurred by telephone with no supporting/confirming file notes, letters or facsimiles; additionally, client conversations are not taped. I advised Ms Barnhill that I was particularly interested in any documentation indicating that Directors of Greatlands were aware that the deposit had been transferred in March and June. Ms Barnhill undertook to revisit the files to determine if such information is available but indicated that she could not recall this information; which is consistent with the ISC's review of the files. Ms Barnhill also undertook to provide a transaction listing of Account 408492 which is GPL's margin lending account. Conclusion Through poor internal controls and lack of suitable documentation, PB's claim on the deposit is based on circumstantial evidence. Accordingly, it is unclear what interpretation the Court will take on the circumstantial evidence. If the claim against the deposit fails, PB will consider direct action against GPL. An issue that has yet to be resolved (due to the transcripts from the Gold Search share registry being ordered but outstanding) is when the Gold Search shares were transferred from GPL to Greatlands and whether the shares have been paid for by Greatlands. This issue will now become the focus of the investigation." This diary note does not itself establish that GGI had charged the asset in question in favour of Prudential-Bache. Ms Barnhill was the Assistant General Counsel for Prudential-Bache. She was outlining to Mr Bennett the nature of Prudential-Bache's case. However, I should refer to certain documents which Mr Bennett obtained from Prudential-Bache in the course of his investigation, some of which are referred to in his diary note. The first document is a statement of the running account of GPL with Prudential-Bache (408490). This shows that on 15 November 1996 Prudential-Bache purchased on behalf of GPL 4,260,000 Goldsearch NL shares at 0.36 per share. With brokerage and stamp duty, GPL was debited by Prudential-Bache with a sum of $1,545,102.00. On 5 March 1997 a sum of $1,458,170.00 was transferred from GGI's account (408491) to that of GPL previously mentioned, but on 9 April 1997 the transfer was reversed. On 4 June 1997 a sum of $1,619,809.81 was transferred from GGI's account to that of GPL. This, of course, is the transfer which was the subject of the Deed mentioned earlier. The second document is a statement of the account (408491) of GGI. That account was opened with a deposit of $1,600,000 on 17 January 1997. It shows the counterparts of the transfer, reversal and fresh transfer mentioned in the preceding paragraph. The next document is a "Letter of Authorisation" apparently dated 17 January 1997 executed under the common seal of GGI. By this letter, GGI authorised CorCarr Nominees Pty Ltd, a wholly owned subsidiary of Prudential-Bache, to place funds standing to the credit of GGI from time to time on deposit with Austrust Cash Deposit Fund, and to be the sole person ("to the exclusion of [GGI] or any other agent") able to deal with Austrust with respect to all transactions relating to such deposits. The next document is a letter from GGI to Prudential-Bache dated 29 April 1997 signed by Mr Wotton which was as follows: "Dear Andrew, As per our conversation, I confirm audited results for the Insurance Company will be lodged at the end of this week. We anticipate a clearance will be given by the Insurance Superannuation Commission in a time not exceeding 21 days, our quarterly return will also be lodged within that timeframe. On full clearance being obtained, we will advise you immediately to transfer funds accordingly. Thankyou for being so patient, if any problems please contact me immediately. Best regards," The final document is a letter dated 13 November 1997 from GPL to Prudential-Bache giving reasons why Prudential-Bache should accept that GPL had the capacity to pay its debt to Prudential-Bache. The documentary evidence to which I have referred does not prove that GGI charged the fund in question. It is, on the present state of the evidence, mere speculation that it did so. One possible explanation of the events which I have described is that Prudential-Bache agreed with GPL, or, alternatively was content, not to press GPL for payment, so long as GGI in fact had funds on deposit with Prudential-Bache or, through it, with the Austrust Cash Deposit Fund. In accordance with this view, GGI would have been at liberty to withdraw the funds at will, but if it did so, Prudential-Bache would have been freed from its promise to GPL not to take recovery action against it. The Commissioner has not established the existence of a charge over the amount on deposit with the Austrust Cash Deposit Fund. There is no question of the existence of an equitable lien: the case is one of the creation of a charge intentionally by GGI or nothing. There should be no reduction in the value of the asset in question on account of the possibility that a charge may be found to exist. The Commissioner has not led evidence that the "market value" of the money on deposit with the Austrust Cash Deposit Fund is less than its face value, that is, that it would probably have been bought and sold at anything less than $1,641,996 as at 31 March 1996 or as at any other time. Shares at market value (May, 1998) - Goldsearch The company is Goldsearch NL. Subsection 33 (4) of the Act was set out earlier. According to Mr Grellman's report, the shares in the company are traded on the ASX. Accordingly, subs 33 (4) of the Act provides that the value of the shares as at 31 March 1998 is the value as ascertained by reference to the ASX and by reference to one or other of the matters referred to in the subsection. The Commissioner has not led evidence directed to satisfying the section and therefore the evidence before me does not enable the statutory requirement to be observed. Mr Grellman says no more than that the shares were trading at between 3 cents and 4.5 cents per share between 9 April and 7 May. The Administrator says that they were trading at 44 cents per share on 13 May. There is no evidence of the price at which they were trading on 31 March or as at the last trading in them prior to that date. The date 9 April is closer than 13 May to 31 March. But the evidence does not reveal the price at which the shares were being traded on 9 April - for all that the evidence shows, it may have been 4.5 cents per share. The only evidence of a price on any particular day is the Administrator's price of 4.4 cents per share on 13 May - long (one and a half months) after 31 March. At the prices mentioned, the 7,325,000 shares in Goldsearch NL give the following values: 3 cents $219,750.00 4.4 cents $322,300.00 4.5 cents $329,625.00 The Commissioner has not proved the market value of the shares on 31 March. But they had a market value. I am not satisfied that it was less than 4.4 cents per share. For the purpose of the calculations to be performed, I will take that amount as their value. Shares at market value (May, 1998) - Cardia The company is Cardia Mining NL. The shares trade on the ASX. Therefore I repeat what I have said above in relation to s 33 (4) of the Act. Mr Grellman says no more than that the shares were trading at between 40 cents and 46 cents per share between 9 April and 7 May. The Administrator says that they were trading at 45 cents per share on 13 May. I repeat, with necessary adjustments, what I said above in relation to the Goldsearch NL shares. At the prices mentioned, the 10,500 shares in Cardia Mining NL give the following values: 40 Cents $4,200 45 cents $4,725 46 cents $4,830 The Commissioner has not proved the market value of the shares on 31 March. But they had a market value. I am not satisfied that it was less than 45 cents per share. For the purpose of the calculations to be performed, I will take that amount as their value. Shares at market value (May, 1998) - Power Capital The company is Power Capital Partnership Inc. The provisions of subs 33 (4) do not apply in this case because the shares are not listed on the official list of the ASX. There is no expert evidence as to the value of the shares as at 31 March 1998 and I am not at liberty, in the absence of expert evidence, to engage in guesswork as to what their value was as at that date. The letter dated 6 May 1998 from John H Holder, chairman and chief executive officer of the company, states that the shares are "currently trading" in the range US $0.08 to US $0.50 per share. There is no expression of opinion as to what the 1,000,000 shares of GGI, just under one quarter of the issued share capital of Power Capital Partnership Inc, would have realised if offered for sale en bloc on 31 March. Mr Holder's letter asserts that because of the circumstances under which they were issued, the shares cannot be traded or sold within the United States within twelve months of the date of issue - 20 November 1997 in the case of 750,000 of the shares and 29 March 1998 in the case of the remaining 250,000 shares. He says that if an offshore buyer can be found, the shares "generally trade at a discount of around 3% per month to the end of the restriction period off the US on-market price". Finally, Mr Holder says that in the case of the 250,000 shares issued on 29 March 1998, the company asserts a right to cancel the issue if GGI fails to pay certain fees and costs charged by Baker and Mackenzie in relation to certain work. For his "optimistic" and "pessimistic" figures, Mr Grellman uses the range of US 10 cents to US 25 cents per share. He describes this as an "estimated range" and as being "based on a current exchange rate of $0.645 = US $1". I do not understand in what way the exchange rate is relevant to a range of prices expressed in US dollars for shares in this United States corporation. Mr Grellman's basis of and source for the "estimated range" are not stated. Mr Grellman's optimistic and pessimistic figures are $387,597 and (after the correction mentioned earlier) $155,039. The Administrator states that as at 12 May the last sale of the shares was at US 25 cents per share on 29 April. An affidavit of David Clarke Sullivan sworn 18 May 1998 annexes certain charts showing trading prices for the company's shares. This evidence appears to show that as at 31 March 1998, the price was, if anything, slightly above US 25 cents per share. If I proceed on the basis of a market price of US 25 cents per share, GGI's holding of 1,000,000 shares would, if able to be sold on the US market on that date and without any allowance for the size of the holding, have had a market value of US $250,000. The Commissioner has not proved their value. For the purpose of calculation, I propose to accept that figure which, using Mr Grellman's exchange rate, gives AUD 387,591. I will now proceed to refer to some matters, none of which were the subject of submissions. Mr Holder claims, in effect, that 750,000 of the shares could not have been sold traded or sold within the United States until 20 November 1998 and 250,000 of the shares could not have been traded or sold there until 29 March 1999. According to Mr Holder's letter, for an offshore buyer buying on 31 March 1998, a discount of 3 per cent per month would have to be allowed. Accordingly, as I understand his letter, the calculation would be as follows: 750,000 shares @ 25 cents per share US $187,500.00 Less discount of 3% per month for 8 months (24%) US $45,000.00 US $142,500.00 250,000 shares @ 25 cents per share US $62,500.00 Less discount of 3% per month for 12 months (36%) US $22,500.00 US $40,000.00 This would give a total value of US $182,000 as at 31 March 1998. Using Mr Grellman's exchange rate of 0.645, this equates to AUD 282,170.54. Of course an expert might have explored the effect on market price of the fact that the holding represented just under one quarter of the company's issued shares and the effect of other matters mentioned in Mr Holder's letter and its annexures, such as the possibility of a cancellation of the issue of the 250,000 shares. The discount of 3 per cent per month mentioned by Mr Holder may explain why Mr Grellman has adopted an estimated range of US $0.10 to US $0.25 per share rather than Mr Holder's US $0.08 to US $0.50 per share. But, it may be asked, if so why increase the bottom of the range by US 2 cents and reduce the top of the range by US 25 cents? Mr Grellman states that the amount of the fees and costs payable to Baker and McKenzie is $117,193.00 (which amounts to US $75,589.49 at Mr Grellman's exchange rate of 0.645). Mr Grellman observes that in order to make the retention of the 250,000 shares profitable for GGI, GGI would need to be able to sell the shares for at least US 30 cents (US $75,589.49 divided by 250,000). He further states that he has not yet formed a view as to whether it is in the best interests of GGI to pay the debt owing to Baker and McKenzie. He must think, that, on the present information available, it is not impossible for the shares to realise US $0.30 per share. This lends some support for acceptance, in the present state of knowledge, of the price of US 25 cents per share, rather than, for example, acceptance of the unproved assertions as to discount made by Mr Holder, the Chairman and Chief Executive Officer of the company in a letter. Perhaps it was considerations of this sort which led counsel for the Commissioner not to support a simple adoption of the suggestions in Mr Holder's letter. I will not engage in speculation. The Commissioner has not proved the market value of the shares on 31 March 1998. There is some evidence to support a value of US $0.25 per share and I accept that figure. Outstanding claims (including IBNR provision and future expense liability) The Administrator and the Director rely upon Deloittes' final signed audit report on GGI dated 27 January 1998. The following "qualified audit opinion" was expressed at the end of that report: "In our opinion, except for the effects of such adjustments, if any, as might have been determined to be necessary had the matters discussed in the qualification paragraphs above not existed, the financial report presents fairly in accordance with Section 44 of the Insurance Act 1973 the financial information required by the Insurance and Superannuation Commission to be presented in the ISC Forms 16A, 16B, 16C and 16D as at 30 November 1997 and for the 11 months then ended." "Form 16A", which was annexed to the report, purported to state the total assets and total liabilities of GGI as at 30 November 1997. One of the liabilities shown was $1,690,000 for "outstanding claims". Deloittes' report did not express an opinion as to whether the accounting policies used by the directors of GGI were appropriate to its needs. Deloittes' report further stated: "Our audit has been conducted in accordance with Australian Auditing Standards. Our procedures included examination, on a test basis, of evidence supporting the amounts and other disclosures in the financial report and the evaluation of significant accounting estimates. These procedures have been undertaken to form an opinion whether, in all material respects, the financial report is presented fairly in accordance with Section 44 of the Insurance Act 1973. The Act does not require the application of all Australian Accounting Standards." The report dated 7 May 1998 by KPMG Actuaries Pty Limited addressed to Mr Grellman is a lengthy and detailed one (forty-two pages including appendices). Section 7 is headed "Results" and is as follows: ($'000) Workers' Other Total Compensation Gross central estimate 657 719 1,376 Reported claims 576 159 735 IBNR Sub-total 1,233 878 2,111 Recoveries (534) (534) Reinsurance (130) ICF (130) Sub-total (130) (534) (664) Expenses 107 33 140 Net Central Estimate 1,210 377 1,587 The covering letter from Mr Brett Ward, director of KPMG Actuaries Pty Ltd also stated that he understood that there had been negligible activity since 31 December 1997 so that his "net central estimate" was also suitable for the assessment of the solvency of GGI as at 7 May 1998. The figure of $2,251,000 in Mr Grellman 's schedule is clearly made up as follows: Gross central estimate Reported claims 1,376 IBNR 735 2,111 Expenses 140 _____ 2,251 The amount of $1,580,000 referred to by KPMG Actuaries Pty Ltd is clearly made up as follows: The above gross figure 2,251 Less Reinsurance recoverable $534 ICF Distribution $130 664 _______________ 1,587 Thus, the figures are consistent with Mr Grellman's schedule. In my opinion, it should be accepted that the amount of $2,251,000 shown as Mr Grellman's optimistic and pessimistic estimate of the amount of outstanding claims is the preferable one as at 31 March 1998. I prefer to rely upon the detailed report of KPMG Actuaries Pty Ltd addressing the position as at 31 December 1997 and since that date, to the qualified audit certificate of Deloittes directed to a different purpose and an earlier date. GGI did not attack any particular part of the former report, being content to invite me to prefer the latter. I decline the invitation. Other creditors As noted earlier, Mr Grellman gives a figure of $489,833 against this item in both his optimistic and pessimistic estimates while the Administrator and the Director contend for a figure of $386,575 in accordance with the Director's RATA. Attached to Mr Grellman's report is a schedule of "other creditors". There are thirty-eight of them and the amount said to be owing to each is set out, as is the total of $489,833. Both parties seem to have assumed that the comparable figure stated by the Director in his RATA was $386,575, but this figure does not appear in the copy annexed to Mr Grellman's report which is in evidence. In any event, in a later affidavit sworn 14 May 1998, the Director has said that in his view the true amount of "Other Creditors" of GGI is $339,453. Apart from this sworn opinion, GGI has led no evidence relating to any of the individual items in Mr Grellman's listing of creditors. I do not think that the supposed estimate by the Director of the amounts of "Other Creditors" in his RATA or his unsupported expression of opinion in his affidavit should be preferred against Mr Grellman's list. Accordingly, I accept Mr Grellman's figure of $489,833 for "Other Creditors". In the result, in terms of s 462 (3) (b) of the Law, the Commissioner has established that the assets and liabilities of GGI within the meaning of Part III of the Act as at 31 March 1998 are as follows (I include, for convenience, all items represented on the annexure to these Reasons for Judgment): Assets St George Bank Account $143,014 Austrust Cash Deposit Fund account $1,641,996 Plant and equipment $7,000 Loans: Intercompany loans - Loans to directors - Related parties - Other - secured by mortgage $87,679 Shares at market value (May 1998): Goldsearch NL (7,325,000 at 25 cent par, fully paid say 4.4 cents per share) 322,300 Cardia Mining NL (10,500 shares at 20 cent par, fully paid say 45 cents per share) 4,725 Power Capital Partnership Inc ($1 par) (say US 25 cents per share) 387,597 _________ $2,594,311 Liabilities Outstanding claims $2,251,000 Reinsurance recoverables (534,000) ICF Distribution - Loans from Greatlands Pty Ltd $256,000 Other creditors $489,850 Costs associated with provisional liquidation - ________ Total liabilities $2,462,833 According to this calculation, assets exceed liabilities by $131,428. CONCLUSION On the evidence, the Commissioner has not established that the condition of his being entitled to apply for an order to wind up GGI laid down in par 462 (3) (b) of the Law has been satisfied. On this basis, his application should be dismissed with costs and I need not consider the second issue raised, that is, whether it is in the interests of the public or of the creditors of GGI that GGI should be wound up. There will be implications of my conclusion for the position of the provisional liquidator and appropriate orders should be made. I will not make orders at present and will give the parties opportunity to confer with a view to agreeing on short minutes of orders, and, if they cannot agree, making submissions as to the orders which should be made. I certify that this and the preceding twenty-six (26) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Lindgren Associate: Dated: 2 June 1998 Counsel for the Applicant: Mr J E Thomson Solicitor for the Applicant: Australian Government Solicitor Counsel for the Respondent: Mr C D Freeman Solicitor for the Respondent: MacGillivrays Solicitor for the Provisional Liquidator: Mr M Deakin Date of Hearing: 18, 19 May 1998 Date of Judgment: 2 June 1998 Assets & Liabilities Mr Grellman's optimistic figures Mr Grellman's pessimistic figures Director's RATA Position finally taken by Administrator & Director Assets 143,014 143,014 142,967 143,014 St George Bank account Austrust deposit account 1,641,996 unknown 1,641,996 1,641,996 Plant and equipment 7,000 1,000 Nil 7,000 Loans: 51,000 Nil 51,000 Nil Intercompany loans 35,000 Nil 35,000 Nil Loans to directors 110,000 Nil 110,025 Nil Loans to related parties 87,679 85,000 85,000 87,679 Other - secured by mortgage 329,625 219,750 337,982 329,625 Shares at market value 4,830 4,200 5,250 4,830 Goldsearch NL 387,597 116,279 373,000 387,597 Cardia Mining NL Power Capital Partnership Inc TOTAL ASSETS 2,797,741 569,243 2,782,220 2,601,741 Liabilities 2,251,000 2,251,000 1,113,925 1,690,000 Outstanding claims Less (534,000) (534,000) Nil (534,000) Reinsurance recoverables (130,000) (130,000) Nil Nil ICF Distribution 256,000 256,000 256,000 256,000 Loan from Greatlands Pty Ltd 489,833 489,833 386,575 386,575 Other creditors 50 50 Nil 50 Westpac Bank 136,467 136,467 Nil Nil Costs associated with provisional liquidation TOTAL LIABILITIES 2,469,391 2,469,350 1,025,720 1,798,625 NET ASSETS 328,391 (1,900,107) 1,025,720 803,116