FEDERAL COURT OF AUSTRALIA KMS Imports (Aust) Pty Ltd (In Liq) v Wang, in the matter of KMS Imports (Aust) Pty Ltd (In Liq) [2016] FCA 1571 File number: WAD 323 of 2014 Judge: GILMOUR J Date of judgment: 22 December 2016 Catchwords: CORPORATIONS – trading whilst insolvent – reasonable grounds to suspect the company was insolvent – whether the second defendant was a director when the debt was incurred – whether a reasonable person would have suspected the company was insolvent Legislation: Bankruptcy Act 1966 (Cth) s 58(3)(b) Corporations Act 2001 (Cth) ss 9, 95A(1), 95A(2), 205A, 286, 286(1), 286(2), 588E(4), 588G(1), 588G(1)(c), 588G(2), 588H(4), 588M, 588M(2), 596B Income Tax Assessment Act 1997 s 995-1(1) Taxation Administration Act 1953 ss 8AAZF, 8AAZH Cases cited: Australian Securities & Investments Commission v Plymin (No 1) (2003) 46 ACSR 126 Green in his capacity as Liquidator of Arimco Mining Pty Ltd (in liq) v CGU Insurance Ltd (2008) 67 ACSR 398 McLellan, in the matter of The Stake Man Pty Ltd v Carroll (2009) 76 ACSR 67 Rema Industries and Services Pty Ltd v Coad (1992) 7 ACSR 251 Date of hearing: 13 September 2016 Registry: Western Australia Division: General Division National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Category: Catchwords Number of paragraphs: 76 Counsel for the Plaintiff: Mr J Kohn Solicitor for the Plaintiff: Herman Davis Lawyers Solicitor for the First Defendant: HopgoodGanim Lawyers Counsel for the Second Defendant: The Second Defendant appeared in person ORDERS WAD 323 of 2014 IN THE MATTER OF KMS IMPORTS (AUST) PTY LTD (IN LIQUIDATION) (ACN 122 833 756) BETWEEN: KMS IMPORTS (AUST) PTY LTD (IN LIQUIDATION) (ACN 122 833 756) First Plaintiff NEIL RAYMOND CRIBB AS LIQUIDATOR OF KMS IMPORTS (AUST) PTY LTD (IN LIQUIDATION) (ACN 122 833 756) Second Plaintiff AND: YI PING WANG First Defendant YONG LI Second Defendant JUDGE: GILMOUR J DATE OF ORDER: 22 december 2016 THE COURT ORDERS THAT: 1. The second defendant pay to the plaintiff: (a) the sum of $74,159.37 pursuant to s 588M of the Corporations Act 2001 (Cth); plus (b) interest pursuant to s 51A of the Federal Court Act 1976; plus (c) the plaintiff's costs (to be taxed in default of agreement). Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT GILMOUR J: 1 On 31 October 2014, the plaintiffs commenced proceedings in the Federal Court of Australia by originating process in which they sought numerous orders against the first defendant (Mrs Wang) pursuant to Part 5.7B of the Corporations Act 2001 (Cth) (Act). 2 On 7 April 2016, the second defendant (Mr Li) was added as a defendant to the proceedings. 3 On 11 April 2016, the plaintiffs filed a further amended originating process and statement of claim in which they sought orders against Mr. Li pursuant to s 588M of the Act. Factual background 4 On 23 November 2006, the first plaintiff (Company) was incorporated. The Company carried on business importing kitchen parts from Germany and China. Those parts were sold to the public in flat packs or sometimes in assembled format. The Company also provided kitchen design services to the general public. 5 According to a search of the records maintained by the Australian Securities & Investments Commission (ASIC) in relation to the Company: (a) Between 23 November 2006 and 26 February 2008, the Company was known as "Smart Kitchen And Home Pty Ltd". (b) Between 27 February 2008 and 29 September 2008, the Company was known as "Kitchen City Pty Ltd". (c) Since 7 June 2010, the Company's registered office was c/- Mr Li, 28 Illingbridge Street, Morley, WA, 6062 (Property). 6 On 23 February 2009, the Company became indebted to the Deputy Commissioner of Taxation (DCT) for outstanding tax liabilities in the sum of $1,248 which continued to increase until the date of winding up. 7 On 2 April 2009, the DCT served a notice of overdue payment reminder on the Company. The notice stated: "We note with concern that the above amount remains outstanding for your integrated client account liability. You are required to pay this amount immediately … If you fail to respond to this notice by 23 April 2009 we will commence recovery action which may include legal proceedings or recovery of the full amount from bank accounts or other income sources." 8 The directors did not pay the amount demanded in the notice nor did the directors put the Company into funds to permit the Company to discharge the Company's tax liabilities in respect of those amounts within the period referred to in the notice or at any time before the Company went into liquidation. 9 On 30 April 2009, the DCT served another notice of overdue payment reminder on the Company. The notice stated: "You have not responded to our previous letter regarding your outstanding debt. Payment in full is required immediately to clear this debt. If you do not pay your debt by 10.00am on 14 May 2009 we will begin legal action. When legal action is undertaken we will also seek to recover any associate legal costs. This notice does not constitute a deferral of the original due date for payment." 10 Again, the directors did not pay the amount demanded in the notice, nor did the directors put the Company into funds to permit the Company to discharge the Company's tax liabilities in respect of those amounts within the period referred to in the notice or at any time before the Company went into liquidation. 11 On 23 May 2009, the DCT served a final notice to lodge income tax returns for the financial years ended 30 June 2007 and 2008 on the Company. The notice stated: "Our records show that we have not received income tax returns for the years: 01 Jul 2006 to 30 Jun 2007 01 July 2007 to 30 Jun 2008 Under section 162 of the Income Tax Assessment Act 1936, as delegate of the Commissioner, I now require you to furnish to the Commissioner of Taxation the income tax returns referred to above by 20 June 2009. 12 The directors did not lodge the income tax returns referred to in the above notice. 13 On 8 March 2011, the DCT served a notice of intended legal action/garnishee on the Company. The notice stated: "Unless payment in full is received by close of business on the date shown hereunder, it is our intention to issue legal proceedings for recovery of the outstanding amount. This legal action for recovery will commence without further notice. Legal costs incurred in connection with this action may also be payable by you." 14 The final date for payment was 18 March 2011. 15 Again, the directors did not pay the amount demanded in the notice nor did the directors put the Company into funds to permit the Company to discharge the Company's tax liabilities in respect of those amounts within the period referred to in the notice or at any time before the Company went into liquidation. 16 On or about 22 March 2011, the DCT served a statutory demand on the Company for the payment of the sum of $61,949.01. According to the statutory demand, the debt owed by the Company is described as the running balance account deficit debt as at 22 March 2011 in respect of amounts due under the BAS provisions as defined in subsection 995-1(1) of the Income Tax Assessment Act 1997 and general interest charge payable under s 8AAZF of the Taxation Administration Act 1953 (TAA 1953), being a debt due and payable by the company pursuant to s 8AAZH of the TAA 1953. 17 The Company did not comply with the statutory demand. 18 On 4 November 2011, the DCT filed winding up proceedings in the Federal Court of Australia against the Company (proceeding number WAD 446 of 2011). 19 On 7 December 2011, Deputy District Registrar Stanley made orders winding up the Company in insolvency and appointing the first plaintiff (Liquidator) as liquidator of the Company for the purpose of the winding up. 20 On 8 December 2011, the Liquidator sent separate letters to the Company directors (including Mr Li) enclosing a blank copy of a report as to affairs (RATA) and a director's questionnaire in relation to the Company. The letter demanded that all books and records of the Company in possession of the directors be delivered to the Liquidator's office and requested that the directors advise the Liquidator where the Company's books and records may otherwise be located. 21 On or about 8 December 2011, the Liquidator sent a letter to the DCT requesting access to documents in relation to the Company. 22 The DCT sent the Liquidator copies of the following documents: (a) running account balance; (b) income tax account; (c) correspondence; (d) business activity statements; and (e) tax returns. 23 On or about 20 December 2011, the Liquidator received an unexecuted RATA from Mr Li. which stated the unsecured creditors of the Company, as at 7 December 2011, were $160,000. 24 On 23 December 2011, Miranda Ho (Ms Ho) of the Liquidator's office sent an email to Mrs Wang requesting Mrs Wang to: (a) advise her of the whereabouts of the management accounts of the Company; (b) advise her if any financial statements have been prepared and if so, by whom; (c) confirm whether any books and records are still in Mrs Wang's possession and if so, arrange for them to be delivered to the Liquidator's office; and (d) provide the contact details including telephone and/or postal address of the landlord. 25 On 13 February 2012, Ms Ho telephoned Mrs Wang to discuss the Company's affairs. During the conversation, Mrs Wang advised Ms Ho that she would try to liaise with the directors of the Company and obtain the requested documents. Mrs Wang also said that a substantial amount of the Company's books and records were disposed or lost during the relocation from the Company's East Perth office to the Bayswater's warehouse. Further, Mrs Wang said she would try to liaise with the previous bookkeeper again and see whether she can obtain copies of the financial reports and management accounts of the Company. 26 No books and records were delivered to the Liquidator by the Company's directors, the Company's former bookkeeper or any other person. 27 On 1 August 2013, the Liquidator filed an application in the Federal Court for a summons to be issued against Mrs Wang to be publically examined in relation to the affairs of the Company pursuant to s 596B of the Act (proceeding no. WAD 301 of 2013). 28 A summons was issued for Mrs Wang to be publically examined. 29 Mrs Wang did not attend the public examination, and as a result a warrant for her arrest was issued. 30 On 17 February 2015, orders were made by consent discharging the warrant for Mr Wang's arrest and for Mrs Wang to pay the liquidators costs to be taxed in default of agreement. 31 On 21 April 2016, the costs of proceeding no. WAD 301 of 2013 were taxed. 32 Mrs Wang failed and/or refused to pay the taxed costs. 33 A bankruptcy notice was lodged and served on Mrs Wang. 34 Mrs Wang did not comply with the bankruptcy notice and, on 11 July 2016, a creditor's petition was filed. 35 On 22 August 2016, the creditor's petition was heard. Mrs Wang did not appear at the hearing of the creditors' petition. Registrar Trott made a sequestration order against Mrs Wang's estate. 36 As a result of Mrs Wang being made bankrupt, this proceeding against Mrs Wang was stayed pursuant to s 58(3)(b) of the Bankruptcy Act 1966 (Cth). 37 On 29 June 2016, an order was made, amongst others, that Mr Li discover "all documents, memoranda, notes and correspondences relating to the second defendant ceasing to act as a director of the first plaintiff". 38 Mr Li did not discover any documents whatsoever. 39 On 23 August 2016, orders were made setting down the proceeding for hearing and for Mr Li to file and serve any affidavits upon which he intends to rely by 4:00pm on 6 September 2016. 40 Mr Li did not file or serve any affidavit material pursuant to the orders made on 23 August 2016. Mr Li advised the Court that a defence and a letter outlining his case was filed with the Court. According to the Court file a defence was filed on 7 September 2016 however, the defence and outline were not served. Orders were made on 13 September 2016 that the defence and letter stand as Mr Li's defence and evidence in this proceeding. The hearing was adjourned to allow the plaintiffs an opportunity to file amended submissions and for Mr Li to file submissions in reply. Plaintiffs' claims 41 The Liquidator contends that Mr Li has breached s 588G(2) of the Act and, pursuant to s 588M of the Act, the Liquidator may recover from Mr Li as a debt due to the Company the sum of $74,159.37 plus interest and costs. Trading Whilst Insolvent 42 Section 588G(1) of the Act provides: This section applies if: (a) a person is a director of a company at the time when the company incurs a debt; and (b) the company is insolvent at that time, or becomes insolvent by incurring that debt, or by incurring at that time debts including that debt; and (c) at that time, there are reasonable grounds for suspecting that the company is insolvent, or would so become insolvent, as the case may be; and (d) that time is at or after the commencement of this Act. 43 Section 588G(2) of the Act provides: By failing to prevent the company from incurring the debt, the person contravenes this section if: (a) the person is aware at that time that there are such grounds for so suspecting; or (b) a reasonable person in a like position in a company in the company's circumstances would be so aware. 44 Section 588M of the Act provides: (1) This section applies where: (a) a person (in this section called the director) has contravened subsection 588G(2) or (3) in relation to the incurring of a debt by a company; and (b) the person (in this section called the creditor) to whom the debt is owed has suffered loss or damage in relation to the debt because of the company's insolvency; and (c) the debt was wholly or partly unsecured when the loss or damage was suffered; and (d) the company is being wound up; whether or not: (e) the director has been convicted of an offence in relation to the contravention; or (f) a civil penalty order has been made against the director in relation to the contravention. (2) The company's liquidator may recover from the director, as a debt due to the company, an amount equal to the amount of the loss or damage. Debt incurred 45 On or about 12 January 2012, the DCT lodged a proof of debt with the Liquidator. The proof of debt is described as "Running Balance Account deficit debt in respect of BAS amounts as at 7 December 2011" in the sum of $74,159.37 (Debt). According to the running balance account, the Debt was incurred between 2 January 2009 and the date of winding up. The plaintiffs contend Mr Li was a director of the company during this period and he is liable to compensate the Company the sum of $74,159.37. Mr Li was a director when the debt was incurred 46 A 'director' of a company is defined in s 9 of the Act as: (a) A person who: (i) is appointed to the position of a director; or (ii) is appointed to the position of an alternate director and is acting in that capacity regardless of the name that is given to their position; and (b) unless the contrary intention appears, a person who is not validly appointed as a director if; (i) they act in the position of a director; or (ii) the directors of the company or body are accustomed to act in accordance with the person's instructions or wishes. 47 According to the records maintained by ASIC: (a) On 23 November 2006, Mr Li was appointed a director of the Company; and (b) On 15 December 2011, a Form 484 - "Change to Company details" (Form) was lodged with ASIC which states that Mr Li purportedly resigned as a director of the Company on 1 July 2011. 48 The Form was lodged: (a) 167 days after Mr Li purportedly resigned as a director of the Company. (b) 8 days after the Court ordered that the Company be wound up in insolvency. (c) 7 days after the Liquidator sent Mr Li a letter advising him of the winding up of the Company. 49 The Liquidator did not lodge the Form nor did he authorise anyone to lodge the Form on behalf of the Company. 50 Importantly, the Form is not, in and of itself, evidence of when (if at all) Mr Li validly resigned as a director of the Company. The validity and effectuation of the resignation will be determined according to the Company's constitution (or the replaceable rules) and the common law. For example, for companies which have elected to have replaceable rules apply to them, s 205A of the Act permits a director or secretary who retires or resigns to give ASIC written notice. In the case of resignation, the notice must be accompanied by a copy of the letter of registration given to the company. 51 In circumstances where no letter of resignation or minutes of meetings of the directors of the Company or any such similar documents have been produced evidencing Mr Li's resignation as a director of the Company, and in circumstances where Mr Li has not sought to file any affidavit material explaining the circumstances of his resignation as a director of the Company, the Court should infer that Mr Li was, as a matter of fact, a director of the Company at the date of winding up. 52 Mr Li states in his defence that he had ceased working with the Company in any capacity from January 2010. No evidence was tendered in support of the assertion contained in Mr Li's defence. Even if Mr Li did cease working with the Company, according to the ASIC register, he remained after January 2010 a director of the Company. Company was insolvent 53 The plaintiffs contend that at the time that the Company incurred the debt in respect of which the s 588M(2) claim has been brought, the Company was presumed to have been insolvent. Alternatively, the plaintiffs contend that the Company was, as a matter of fact, insolvent. 54 Section 286(1) of the Act provides: A company, registered scheme or disclosing entity must keep written financial records that: (a) correctly record and explain its transactions and financial position and performance; and (b) would enable true and fair financial statements to be prepared and audited. 55 Section 286(2) of the Act provides: The financial records must be retained for 7 years after the transactions covered by the records are completed. 56 Financial records is defined in s 9 of the Act as including: (a) invoices, receipts, orders for the payment of money, bills of exchange, cheques, promissory notes and vouchers; and (b) documents of prime entry; and (c) working papers and other documents needed to explain: (i) the methods by which financial statements are made up; and (ii) adjustments to be made in preparing financial statements. 57 Section 588E(4) of the Act provides: Subject to subsections (5) to (7), if it is proved that the company: (a) has failed to keep financial records in relation to a period as required by subsection 286(1); or (b) as failed to retain financial records in relation to a period for the 7 years required by subsection 286(2); the company is to be presumed to have been insolvent throughout the period. 58 The presumption applies for the purpose of a proceeding for a contravention of s 588G(2) in relation to the incurring of a debt by the company (including proceedings under section 588M in relation to the incurring of the debt not including proceedings for an offence). 59 The Liquidator has made numerous demands for the delivery up of the Company's books and records. No book and records have been produced. In the circumstances, the Company has not complied with s 286 of the Act and it can be presumed, pursuant to s 588E(4), that the Company was insolvent since incorporation. 60 Even if books and records exist, the Company failed to lodge business activity statement for the quarter ended 31 December 2011 and income tax returns for the years ended 30 June 2007, 30 June 2010, 30 June 2011 and 30 June 2012. In the circumstances, the books and records could not correctly record and explain the Company's transactions and financial position and performance and would not enable true and fair financial statements to be prepared and audited. In the circumstances, the Company would not have complied with sections 286(1) of the Act and it could be presumed pursuant to s 588E(4) of the Act that the Company was insolvent since 30 June 2007. 61 In the alternative, s 95A(1) of the Act provides that a person is solvent if, and only if, the person is able to pay all of the person's debts, as and when they become due and payable. Further, s 95A(2) of the Act provides that a person who is not solvent is insolvent. 62 On 23 February 2009, the Company became indebted to the DCT for outstanding tax liabilities in the sum of $1,248. The debt amount continued to increase until the date of winding up. The Company made no payments to the DCT in respect of its outstanding tax liabilities. In the circumstances, the Company was insolvent since at least 23 February 2009. Reasonable grounds to suspect the Company was insolvent 63 The next issue for consideration is whether the Liquidator has shown that there were reasonable grounds for suspecting that the Company was insolvent at the time that it incurred the Debt in respect of which compensation is claimed in this proceeding. 64 In Australian Securities and Investments Commission v Edwards (2005) 220 ALR 148 at [249]- [250], Barrett J made the following observations in relation to the approach to be taken in assessing whether an applicant has satisfied the requirements of s 588G(1)(c): [249] The inquiry relevant to s 588G(1)(c) is not an inquiry concerning the particular director whose conduct is under scrutiny. It is an inquiry into the objectively formed state of mind of a person of ordinary competence. These propositions are supported by cases such as 3M Australia Pty Ltd v Kemish (1986) 10 ACLR 371 and Metropolitan Fire Systems Pty Ltd v Miller (1997) 23 ACSR 699. As Einfeld J observed in the latter case (at 703) questions of the particular director's knowledge of and participation in the incurring of the debt play no part in this aspect of the s 588G inquiry. [250] The central word in s 588G(1)(c) is "suspecting". The criterion is one of suspicion, which is something less developed and less well formulated than expectation. The matter was explained by Kitto J in Queensland Bacon Pty Ltd v Rees [1966] HCA 21; (1966) 115 CLR 266 at 303 in this way: In the first place, the precise force of the word "suspect" needs to be noticed. A suspicion that something exists is more than a mere idle wondering whether it exists or not; it is a positive feeling of actual apprehension or mistrust, amounting to "a slight opinion, but without sufficient evidence", as Chambers's Dictionary expresses it. Consequently, a reason to suspect that a fact exists is more than a reason to consider or look into the possibility of its existence. The notion which "reason to suspect" expresses in subs (4) is, I think, of something which in all the circumstances would create in the mind of a reasonable person in the position of the payee an actual apprehension or fear that the situation of the payer is in actual fact that which the subsection describes — a mistrust of the payer's ability to pay his debts as they become due and of the effect which acceptance of the payment would have as between the payee and the other creditors. 65 In McLellan, in the matter of The Stake Man Pty Ltd v Carroll (2009) 76 ACSR 67 at [144], Goldberg J observed: The test prescribed by s 588G(1)(c) is an objective test: Powell v Fryer [2001] SASC 59; (2001) 159 FLR 433, Hall v Poolman (above) at [231]. The concept of "suspecting" or "suspicion" involves having a state of mind which falls between having a firm belief or a significant degree of satisfaction that insolvency exists on the one hand and wondering whether it exists on the other. The concept of having a "suspicion" requires an affirmative feeling: Hall v Poolman (above) at [231]. 66 The plaintiffs contend that a person of ordinary competence would, on the basis of the foregoing facts and circumstances, objectively have suspected that the Company was not able to pay all of its debts as and when they fell due. Accordingly, the requirements of s 588G(1)(c) of the Act have been satisfied. Reasonable person would have suspected the Company was insolvent 67 Section 588G(2) of the Act provides: By failing to prevent the company from incurring the debt, the person contravenes this section if: (a) the person is aware at that time that there are such grounds for so suspecting; or (b) a reasonable person in a like position in a company in the company's circumstances would be so aware. 68 In Australian Securities & Investments Commission v Plymin (No 1) (2003) 46 ACSR 126 at [325], Mandie J held: It would seem to follow … the essence of a failure by a director to prevent a company form incurring a debt is a failure by that director to take all reasonable steps within his power to prevent the company form incurring such a debt. The effect of the provisions, shortly stated, is that if the requirements of s 588G(1) are proved in circumstances where either ss (a) or ss (b) of s 588G(2) is also proved, a director will be taken to have failed to prevent the company form incurring the debt unless it is proved that the director to all reasonable steps to prevent the company form incurring the debt. 69 Mandie J further held at [426]: What s 588G(2)(a) requires is proof of a subjective awareness by the director of grounds, whether or not the director has a "subjective suspicion" of insolvency, which grounds may be objectively characterised as reasonable grounds" for suspecting insolvency. If, on the other hand, it cannot be shown that the director was aware of such grounds, s 588G(2)(b) provides an alternative basis for the plaintiff to establish a contravention. That is to say, under that provision, if a reasonable person (in a like position to the particular director in a company in Water Wheel's circumstances) would be aware of the existence of reasonable grounds for suspecting insolvency, it does not matter that the particular director was not so aware. Section 588G(2)(b) would therefore typically deal with the case where the particular director was unaware of the facts and matters constituting reasonable grounds for suspecting insolvency because he had failed to ascertain them, if a reasonable person in a like position would or ought to have ascertain those facts and matters." 70 In Green in his capacity as liquidator of Arimco Mining Pty Ltd (in liq) v CGU Insurance Ltd (2008) 67 ACSR 398 at [313], Einstein J held: Subsection 588(2)(b) applies to cases where the directors did not know of the relevant facts and matters because they had failed to ascertain them, but a reasonable person in a like position would or ought to have ascertained those facts and matter. 71 In Rema Industries and Services Pty Ltd v Coad (1992) 7 ACSR 251 at 259, Lockhart J said: The test of 'reasonable cause' in the context in which the expression appears imports an objective standard, but it must be applied to the facts and circumstances known to the defendant and facts and circumstances which, by reason of the defendant's duties as a director or officer of the company, ought to have been known to him. It would be absurd for a defendant to be able to establish a defence simply on the basis of what he in fact knew. This would reward the incompetent director who ought to have known a great deal more than he in fact knew. 72 The plaintiffs concede that in light of Mr Li's recent evidence that he didn't know what was happening with the Company after January 2010, they are unable to establish Mr Li was aware at the time the debt was incurred that there were grounds for suspecting the Company was trading whilst insolvent. 73 Nevertheless, the plaintiffs rely on s 588G(2)(b) and contend that Mr Li was a director of the Company at all relevant times and a reasonable person in the position of a director of the Company would have monitored whether the Company was meeting and was able to meet its tax obligations as and when they fell due. Further, that director would have also monitored the state of the Company's financial affairs. Such activities would have invoked an awareness of reasonable grounds to suspect that the Company was insolvent. In the circumstances, a reasonable person in the position of Mr Li, as a director of the Company, would have been aware that there were reasonable grounds to suspect from at least 23 February 2009 that the Company was unable to pay its debt as and when they fell due. Conclusion 74 In light of the above, the plaintiffs contend they have satisfied each of the elements in section 588G of the Act. The plaintiffs further contend that the ATO has suffered loss or damage in relation to the incurring of the Debt, which is unsecured, because the Debt is still owed to the ATO and there is unlikely to be any recovery in the winding up. 75 It is noted that Mr Li was self-represented in this proceeding. To the extent Mr Li's defence is capable of constituting a defence in reliance on s 588H(4) of the Act, the plaintiffs contend that Mr Li's lack of involvement in running the Company does not constitute "some other good reason" within the meaning of that sub-section. The words "good reason" must be read down in accordance with the scope and purpose of the legislation in which they appear "so that they do not conflict with the obligation of directors generally to participate in the management of the company". Reasons which cause a director never to participate in management are not capable of constituting "good reason" for not participating at a particular point of time. 76 For reasons outlined above, the Court will make the following orders: The second defendant pay to the plaintiff: (a) the sum of $74,159.37 pursuant to s 588M of the Corporations Act 2001 (Cth); plus (b) interest pursuant to s 51A of the Federal Court Act 1976; plus (c) the plaintiff's costs (to be taxed in default of agreement). I certify that the preceding seventy-six (76) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gilmour. Associate: Dated: 22 December 2016