FEDERAL COURT OF AUSTRALIA McGuinness v Workplace Eye Protection Pty Ltd [2020] FCA 626 File number: NSD 47 of 2020 Judge: GLEESON J Date of judgment: 19 May 2020 Catchwords: CORPORATIONS – application for leave pursuant to s 237 of the Corporations Act 2001 (Cth) to bring proceedings on behalf of a company – where application brought by executor of the estate of a former company shareholder – where certain company dividends alleged to have been paid unlawfully – whether grant of leave is in the best interests of the company – whether there is a serious question to be tried – whether prospective claim is time-barred – leave refused Legislation: Corporations Act 2001 (Cth) Part 2F.1, ss 180, 181, 236, 237, 254T, 1317H, 1317K Cases cited: Carpenter v Pioneer Park Pty Ltd (in liq) [2004] NSWSC 973; (2004) 51 ACSR 245 Drew v Lynch, in the matter of Mirage 3.4D Pty Limited [2019] FCA 632 Fiduciary Ltd v Morningstar Research Pty Ltd [2005] NSWSC 442; (2005) 53 ACSR 732 Huang v Wang [2016] NSWCA 164; (2016) 114 ACSR 586 Keenan v Bundaberg Port Authority [2016] FCA 134 Lewski v Australian Securities and Investments Commission [2016] FCAFC 96; 246 FCR 200 Re Gladstone Pacific Nickel Ltd [2011] NSWSC 1235; (2011) 86 ACSR 432 Date of hearing: Determined on the papers Date of last submissions: 3 April 2020 (Defendant) 6 April 2020 (Plaintiff) Registry: New South Wales Division: General Division National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Category: Catchwords Number of paragraphs: 88 Counsel for the Plaintiff: JM Harris Solicitor for the Plaintiff: Jemmeson Fisher Lawyers Counsel for the Defendant: A Harding Solicitor for the Defendant: Glenn R Walters & Co ORDERS NSD 47 of 2020 BETWEEN: PHILLIP EDWARD MCGUINNESS Plaintiff AND: WORKPLACE EYE PROTECTION PTY LTD (ACN 128 607 607) Defendant JUDGE: GLEESON J DATE OF ORDER: 19 May 2020 THE COURT ORDERS THAT: 1. The application for leave to bring proceedings pursuant to s 237 of the Corporations Act 2001 (Cth) be refused. 2. The plaintiff pay the defendant's costs of the application. 3. The proceeding be listed for a case management hearing on 28 May 2020 at 9:30 am to make further orders for the continuation or finalisation of the proceeding. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT GLEESON J: 1 The plaintiff, Mr McGuinness, seeks leave pursuant to s 237 of the Corporations Act 2001 (Cth) (Act) to begin proceedings on behalf of the defendant (company) against the two directors of the company, Cheryl Dunstan and Susan Hantzi, and a former director, Adam Ayash. Specifically, Mr McGuinness seeks leave to bring the proceedings on behalf of the company for compensation pursuant to s 1317H of the Act for breaches of directors duties and for orders replacing the current directors with himself and Cathie Lynch (derivative action). 2 Section 237 of the Act provides: (1) A person referred to in paragraph 236(l)(a) may apply to the Court for leave to bring, or to intervene in, proceedings. (2) The Court must grant the application if it is satisfied that: (a) it is probable that the company will not itself bring the proceedings, or properly take responsibility for them, or for the steps in them; and (b) the applicant is acting in good faith; and (c) it is in the best interests of the company that the applicant be granted leave; and (d) if the applicant is applying for leave to bring proceedings – there is a serious question to be tried; and (e) either: (i) at least 14 days before making the application, the applicant gave written notice to the company of the intention to apply for leave and of the reasons for applying; or (ii) it is appropriate to grant leave even though subparagraph (i) is not satisfied. 3 As a member of the company, Ms McGuinness falls within s 237(1). Mr McGuinness is the non-beneficial owner of 50 of the 100 issued shares in the company (Shares). He holds the shares in his capacity as sole executor, administrator and trustee of the estate of the late John William Moore, who died on 24 November 2011. Ms Dunstan and Ms Lynch are the other shareholders, each owning 25 shares in the company. 4 The evidence in support of the application comprised the affidavits of: (1) Mr McGuinness affirmed 27 December 2019; (2) Ms Lynch affirmed 18 October 2019; (3) Donna Boyce sworn 14 January 2020; and (4) Ms Dunstan sworn 25 March 2020 (and filed by the company). 5 The application was opposed by the company, on the following grounds: (1) there is no serious question to be tried because all of the proposed claims are time barred under s 1317K of the Act and, in any event, they have no prospects of success; (2) the derivative action is not in the company's best interests; and (3) Mr McGuinness did not give the notice required by s 237(2)(e)(i) of the Act. Facts 6 The evidence proves, at least to a prima facie level, the following facts. If and when any derivative action is brought, the following facts may be contradicted by other evidence including, for example, by Mr Ayash or Ms Hantzi. 7 The company imports and supplies prescription safety frames for prescription safety glasses for use in industry. It was registered as a company in 2007. The company was established by Mr Moore, who is the brother of Ms Dunstan and Ms Lynch. Ownership of company shares 8 Mr McGuinness did not become the registered owner of the Shares until about 25 October 2013. 9 The Shares were transferred to Mr McGuinness by Mr Ayash. On 15 January 2009, the Shares had been transferred by Mr Moore to Mr Ayash to be held on trust for Mr Moore. 10 Mr McGuinness's evidence included an email sent on 20 March 2012 in which Ms Dunstan appears to have acknowledged that Mr Ayash held the Shares "non-beneficially … on behalf of John's estate". Subsequently, a dispute arose as to whether the estate owned the Shares. 11 In about March 2014, Mr McGuinness was informed that, on 26 February 2014, the directors of the company (that is, Ms Dunstan and Ms Hantzi) had resolved to approve the transfer of the Shares to Mr McGuinness. 12 In her affidavit, Ms Dunstan acknowledges that she understood, when Mr Moore transferred the Shares to Mr Ayash, that the Shares were to be held on trust for Mr Moore although she did not know the precise arrangements between them. Directors of company 13 By s 9 of the Act, "director" of a company is relevantly defined to mean: (a) a person who: (i) is appointed to the position of a director; … (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. 14 Mr Ayash was a director of the company from 16 January 2009 to 15 July 2013. 15 According to ASIC's records, Ms Dunstan has been a director of the company since 12 April 2012, and Ms Hantzi has been a director since 15 July 2013. 16 Ms Dunstan contends that she did not become a director of the company until about 12 June 2012. However, she accepts that, on 7 June 2012, Ms Dunstan (and Ms Hantzi) agreed to the payment of a dividend declared on 7 June 2012 (2012 dividend). The constitution of the company provides for the declaration of dividends by the directors of the company. On those facts, I accept that there is prima facie evidence that, on 7 June 2012, Ms Dunstan and Ms Hanzi were directors of the company within the meaning of s 9 of the Act. 2012 dividend 17 There was a meeting attended by Mr Ayash, Ms Dunstan and Ms Hantzi on 7 June 2012. 18 At that meeting, Mr Ayash, Ms Dunstan and Ms Hantzi agreed to the distribution of the following amounts from the company's funds: (1) Ms Dunstan $13,000 (2) Ms Hantzi $13,000 (3) Estate of Late John William Moore $26,000 19 Following the meeting, Ms Dunstan sent an email to Mr Ayash, Paul Simeoni (the company's former accountant)and Ms Hantzi, saying: Following our meeting this morning I would like to confirm the following Dividend Payments $13,000 (less Franked Credits) to be paid each to Sue South & Cheryl Dunstan before 30th June 2012. $26,000 (less Franked Credit) to be held as "Provision for Dividends" for the "Estate of Late John William Moore" and payable after Probate of Estate has been processed. 20 Also at that meeting, or at another meeting on that date, Mr Ayash, Ms Dunstan and Ms Hantzi agreed to the following effect: That the invoice from A&G Ayash to [the company] dated 7th June 2012, for the amount of $21,800 is to be paid out of the dividend of $26,000 being the 50% shareholding of the Estate of Late John William Moore from [the company] for the year ended June 30, 2012. The remainder of $4,200 will be paid to the Estate of Late John William Moore once probate has been issued. 21 Subsequently, the company paid the amount of $21,800 to Mr Ayash. In about March 2014, the remaining $4,200 was paid to Mr McGuinness on behalf of the estate. 22 In an email dated 13 June 2012 12:13 pm to Mr Simeoni, copied to Mr McGuinness and Ms Hantzi (then Sue South), Ms Dunstan referred to an "unauthorised invoice from Adam for $21,800" and disputed the company's liability to pay the invoice. 23 Mr McGuinness has asked Mr Ayash to repay the dividend to either the company or to the estate, but Mr Ayash has refused. 24 Ms Dunstan's evidence includes the following diary entry for 13 June 2012: 12:17pm – 12:28 pm Paul Simeoni – agrees inv s/be to Estate from Adam Suggest speak to Paul Tomkins & not to pay. 25 Ms Dunstan's evidence is that, on 19 June 2012, she received a minute dated 7 June 2012 which purported to record a resolution to the effect of the agreement set out at [19] above. 26 Subsequently, and after consulting the company's solicitor, Ms Dunstan arranged for Mr Ayash to be paid $21,800 in two amounts: $14,000 on 30 June 2012 and $7,800 on 1 July 2012. 27 On 30 May 2013, Ms Dunstan sent Mr McGuinness an email in which she apparently referred to the payment to Mr Ayash, saying: I have not had any communication with Adam since July 2012. He does not contact [the company] at all after taking the 2012 Estate Dividend for John's shares he holds in trust as a Non Beneficial shareholder as payment for his "so called" invoice. 28 According to Ms Dunstan, her last contact with Mr Ayash was in August 2012. As noted above, Mr Ayash ceased to be a director of the company on 15 July 2013. January 2014 dividend 29 On about 8 January 2014, at a meeting of the directors of the company, Ms Dunstan and Ms Hantzi passed the following resolution: It was resolved that a fully franked dividend of $98,000 be declared out of profits of prior years, and that such dividend be paid or credited to shareholders as at tomorrow's date 9th January 2014. 30 Apparently based on an unsigned document entitled "Shareholder Dividend Statement" dated 9 January 2014, Mr McGuinness believes that the company paid the $49,000 dividend plus the imputed credit of $21,000 to Mr Ayash. 31 By letter dated 7 March 2014, from Glenn R Waters & Co (GRWC) to Ferrys Law Firm (Ferrys), Mr McGuinness was informed that, on 26 February 2014, the directors of the company (that is, Ms Dunstan and Ms Hantzi) had resolved to approve the transfer of the Shares to Mr McGuinness. The letter concludes: We enclose: 1. Cheque payable to the Estate of the Late John William Moore in the sum of $48,701.00 representing dividend declared 8 January 2014 and paid 9 January 2014 by the company 2. Shareholder dividend statement issued by the company in relation to the cheque for $48,701.00. You will note that the directors have resolved to withhold $299.00 from the dividend due to the penalties incurred by the inappropriate lodgement of form 484 by your client in his capacity as Trustee of the Estate. 3. Cheque payable to the Estate of the Late John William Moore in the sum of $4,200.00 representing the balance of dividend paid by the company on 7 June 2012. 32 Earlier, by letter dated 9 January 2014, from GRWC to Ferrys, Mr McGuiness was informed of the $98,000 dividend declared the previous day. 33 By that letter, GRWC also stated: We understand that the Estate claims to be beneficially entitled to the shares previously held by Adam Ayash. The directors have not approved any transfer of the shares … The directors intend to draw a cheque in favour of Adam Ayash for him to appropriately disburse in the absence of a reply to this correspondence within 7 days clarifying the shareholding to the satisfaction of the directors. 34 On 25 February 2014, Ferrys sent a letter to GRWC, enclosing a statutory declaration made by Mr Ayash, which stated that the shares held by him in the company were held "in Trust for the deceased John William Moore… The shares were transferred to the said Phillip Edward McGuinness on the basis that he would hold those shares on behalf of the Estate of the deceased". 35 On 14 March 2014, the cheques in the sum of $48,701 and $4,200 were both presented. 36 On 2 March 2020, GRWC wrote to Mr McGuinness's current solicitors, and provided a detailed response to the allegations made on Mr McGuinness's behalf. In particular, GRWC contended that the January 2014 dividend had been paid to the estate under cover of the 7 March 2014 letter. 37 There has been no response to the 2 March 2020 letter. May 2014 dividend 38 On 20 May 2014, at a meeting of the directors of the company, Ms Dunstan and Ms Hantzi passed the following resolution: It was resolved that a fully franked dividend of $154,000 be declared out of profits from prior years, and that such dividend be paid or credited to shareholders as at the date of the 21st May 2014. 39 Mr McGuinness did not receive the estate's portion of the dividend until 15 June 2014, although by effect of the dividend resolution Ms Duncan and Ms Hantzi were entitled to receive their respective portions on 21 May 2014. 40 Between the declaration of the dividend and 15 June 2014, Ms Dunstan and Ms Hantzi offered to purchase the Shares from Mr McGuinness for $100,000. Mr McGuinness refused the offer. 41 Mr McGuinness was not aware of the declaration of the dividend prior to 15 June 2014. 42 Although, by letter dated 20 May 2014, Wilson, Graham & Associates lawyers wrote to Ferry's requesting the estate's tax file number declaration, the letter did not refer to the dividend. Proposed derivative action 43 Mr McGuinness seeks to bring the proposed action for the benefit of the estate's residuary beneficiaries. By the proposed action, Mr McGuinness principally seeks to recover the June 2012 dividend and the January 2014 dividend. 44 In addition, Mr McGuinness alleges various contraventions of the Act by the company's directors during the financial years ended 30 June 2012 and 30 June 2014. Draft statement of claim 45 The draft statement of claim alleges contraventions by Mr Ayash, Ms Dunstan and Ms Hantzi of s 180(1) and s 181(1) of the Act concerning each of: (1) the 2012 dividend; (2) the January 2014 dividend; and (3) the May 2014 dividend. 46 Section 180(1) provides: (1) A director or other officer of a corporation must exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise if they: (a) were a director or officer of a corporation in the corporation's circumstances; and (b) occupied the office held by, and had the same responsibilities within the corporation as, the director or officer. 47 Section 181(1) provides: (1) A director or other officer of a corporation must exercise their powers and discharge their duties: (a) in good faith in the best interests of the corporation; and (b) for a proper purpose. 48 It may be necessary to refer to the terms of the draft statement of claim in more detail in considering whether Mr McGuinness has established a serious question to be tried. Mr McGuiness's evidence does not verify his belief as to the existence of the claims set out in the statement of claim or the facts upon which those claims are based. This is of particular significance in connection with the claims concerning the January 2014 dividend. 49 The draft statement of claim makes several allegations based upon a characterisation of various events as "representations". I am not persuaded that any relevant representations were made or that the draft statement of claim discloses any cause of action based on false or misleading representations, particularly under the Australian Consumer Law. Accordingly, I have not had regard to those aspects of the draft statement of claim in considering whether Mr McGuinness has identified a serious question to be tried. 50 A significant feature of the draft statement of claim is the allegations that the company contravened s 254T(1)(b) of the Act by paying each of the three dividends. Section 254T(1)(b) provides: (1) A company must not pay a dividend unless: ... (b) the payment of the dividend is fair and reasonable to the company's shareholders as a whole; and 51 In summary, the draft statement of claim alleges that by his involvement in the declaration of the 7 June 2012 dividend and the payment to him of $21,800, Mr Ayash contravened s 180(1) of the Act because he: (1) caused the company to contravene s 254T by causing part of the dividend to be paid to him personally instead of to the estate; (2) caused the company to pay his tax invoice when there was no proper basis for the company to pay it; (3) unjustly enriched himself at the expense of the company; (4) he caused the company to prepare financial statements which misstated the proper characterisation of the payment -of $21,800 as a dividend instead of cost of sales; and (5) failed to advise the other directors that the declaration of the 7 June 2012 dividend and the payment to him of $21,800 had the consequences involved in (1) to (4). 52 Further, the draft statement of claim alleges in summary that Mr Ayash contravened s 180(1) by failing to inform Ms Dunstan that the company's 2012 income tax return was materially false. 53 It is further alleged that, by rendering his tax invoice and voting in favour of its payment, Mr Ayash failed to exercise his powers and discharge his duties to the company in good faith and in the interests of the company and for a proper purpose and thereby contravened s 181(1) of the Act. 54 Similar allegations of contraventions of s 180(1) are made against each of Ms Dunstan and Ms Hantzi. 55 There is also an allegation that each of Ms Dunstan and Ms Hantzi contravened s 181(1) of the Act by acting recklessly in voting in favour of the second resolution. Consideration 56 In Carpenter v Pioneer Park Pty Ltd (in liq) [2004] NSWSC 973; (2004) 51 ACSR 245 (Carpenter (No 1)) at [16], Barrett J explained that the provisions of Part 2F.1 of the Act, which includes s 236 and s 237: ... enable anyone with a particular form of 'insider' status described in s 236(1)(a) to seek the court's assistance in taking over the role of the normal decision makers in relation to a particular proceeding. The court's function is essentially a screening function. It must assess against specified criteria the litigation proposal the applicant has in mind for the company. If that proposal is found by the court to meet the criteria, it must grant leave enabling the applicant to pursue it for the company. 57 Having regard to the company's opposition, it is probable that the company itself will not bring the proceedings proposed by Mr McGuinness. Accordingly, s 237(2)(a) is satisfied. Good faith 58 In Re Gladstone Pacific Nickel Ltd [2011] NSWSC 1235; (2011) 86 ACSR 432, Ball J stated (at [58]): The requirement that the applicant be acting in good faith has at least two elements. One is that the applicant must honestly believe that the company has a good claim with reasonable prospects of success. The other is that the claim must not be brought for some collateral purpose as would amount to an abuse of process. In my opinion, the applicant must also honestly believe that it is in the best interests of the company that the action be brought. (citations omitted) 59 There is no suggestion that Mr McGuinness is not is acting in good faith in bringing the application, although there is some issue concerning the identity of the residuary beneficiaries on whose behalf the derivative action would be brought. Mr McGuinness did not verify that he believes that the company has a good claim with reasonable prospects of success based on the draft statement of claim; or that it is in the best interests of the company that the action be brought. 60 Even so, where Mr McGuinness is acting as administrator of the estate, I accept that he is acting in good faith. Accordingly, s 237(2)(b) is satisfied. Serious question to be tried 61 In Keenan v Bundaberg Port Authority [2016] FCA 134 , Reeves J said (at [40]): This criterion has been held to set a "relatively low threshold to surmount" and it has been compared to the standard applicable to the grant of an interlocutory injunction: see Swansson at [25] and Gartner at [46]. It has also been observed that this criterion "does not require the Court to enter into the merits of the proposed derivative action to any great degree": see Vinciguerra at [147]. Nonetheless, it is clear on the authorities that "the application must be supported by evidence. A mere 'indication of the evidence' without actual evidence is insufficient": see Vinciguerra at [141] and Gaertner at [47]. 2012 dividend 62 Subject to the limitation issue raised by the company, I accept that there is a serious question to be tried that Mr Ayash contravened s 180(1) or s 181(1) by procuring the payment of $21,800 to himself, ostensibly for services provided to the company, from that portion of the dividend payable for the benefit of the estate. 63 I also accept that there is a serious question to be tried that Ms Dunstan and Ms Hanzi each contravened s 180(1) or s 181(1) by permitting or facilitating this payment to Mr Ayash. 64 However, s 1317K of the Act provides: Proceedings for a declaration of contravention, a pecuniary penalty order, or a compensation order, may be started no later than 6 years after the contravention. 65 The proposed derivative action comprises proceeding within the meaning of s 1317K. 66 Mr McGuinness referred to the following statement in Lewski v Australian Securities and Investments Commission [2016] FCAFC 96; 246 FCR 200 at [111]: Section 1317K would not prevent reliance on conduct occurring prior to the six year period, either to put in context a later contravention amenable to the making of a declaration, or a continuing course of conduct which continued within the period of six years prior to the commencement of the proceedings for a declaration of contravention under s 1317J. 67 This passage does not assist Mr McGuinness to prosecute proceedings for contraventions in relation to the June 2012 payment to Mr Ayash. January 2014 dividend 68 Mr McGuinness wishes to contend that Ms Dunstan and Ms Hanzi each contravened s 180(1) and s 181(1) by, in effect, declaring this dividend either knowing, or reckless as to whether, the company would be caused harm if it was distributed to anyone other than Mr McGuinness. 69 I am not satisfied that there is a serious question to be tried in relation to the alleged contraventions. To the contrary, there is evidence that, at the relevant time, Ms Dunstan and Ms Hantzi were alive to Mr McGuinness' claim to be the owner of the Shares and were seeking to determine the appropriate recipient of the portion of the dividend that was payable to the estate. 70 Further, the evidence strongly suggests that the dividend was in fact appropriately distributed, including as to 50%, to Mr McGuinness. On the other hand, the only evidence that the dividend might have been distributed in part to Mr Ayash is an unsigned "Shareholder Dividend Statement". May 2014 dividend 71 Mr McGuinness wishes to contend that Ms Dunstan and Ms Hanzi each contravened s 180(1) and s 181(1) by, in effect, declaring the May 2014 dividend in circumstances where Ms Dunstan and Ms Herzi were paid their portions of the dividend on 21 May 2014 but the estate's portion was not paid until 15 June 2014. 72 Further, Mr McGuinness contends that, when declaring the dividend, Ms Dunstan and Ms Hantzi knew or ought to have known that: … it was necessary for the proper discharge of each of her duties as a director to satisfy herself, by inquiry and/or upon taking legal advice about the accuracy and legitimacy about whether Dunstan and Hantzi should be paid their respective dividends when [the company] had not and would not pay [Mr McGuinness] the 20 May 2014 Dividend: i. Until such time as it suited them as shareholders, to negotiate the purchase of the Shares from [Mr McGuinness] for $100,000; and ii. With the intention of using the 20 May 2014 Dividend to pay for the Shares; and iii. By such conduct permanently deprive the Administrator of the 20 May 2014 Dividend. 73 Mr McGuinness also contends that the intentional delayed payment of the dividend to him involved a contravention of s 181(1) by Ms Dunstan and Ms Hantzi. 74 I am not satisfied that there is a serious question to be tried as to any of these alleged contraventions. In particular, there is no evidence that the directors contemplated the delayed payment (from 21 May 2014 to 15 June 2014) at the time that the dividend was declared, except to the extent that it might be inferred from the subsequent delay in payment. Even if they had, I am not satisfied that declaring the dividend in those circumstances could have amounted to a contravention of either s 180(1) or s 181(1). 75 I am also not satisfied that the delay in payment, without more, demonstrates a serious question to be tried that the directors, or either of them, contravened either s 180(1) or s 181(1). 76 Even if it is assumed that the directors deliberately delayed in paying the dividend to the estate in the hope of negotiating a purchase of the Shares, Mr McGuinness did not explain how this conduct could have achieved the alleged goals either of using the May 2014 dividend to pay Mr McGuinness for the Shares or depriving the estate of the May 2014 dividend. 77 In particular, the evidence that Ms Dunstan and Ms Hantzi offered to purchase the Shares from Mr McGuinness between the declaration of the May 2014 dividend and the 15 June 2014 payment to him, does not give rise to a serious question to be tried that Ms Dunstan and Ms Hantzi attempted to deprive the estate of the May 2014 dividend. Best interests of the company 78 It follows that it is not in the best interests of the company that Mr McGuinness be granted leave. 79 In relation to the claims concerning the 2012 dividend, had they not been time barred, the question of whether it would be in the best interests of the company that Mr McGuinness be granted leave to pursue them is finely balanced. I have set out the relevant principles in Drew v Lynch, in the matter of Mirage 3.4D Pty Limited [2019] FCA 632 at [108] and following. In particular: (1) The applicant must establish the balance of probabilities that the action is in the best interests of the company, a fact which can only be determined by taking into account all relevant circumstances: Huang v Wang [2016] NSWCA 164; (2016) 114 ACSR 586 at [57]. (2) The best interests of the company means best interests in the sense of its separate and independent welfare. Best interests, at least assuming the company concerned is solvent, will predominantly reflect the interests of shareholders in that capacity: Huang at [59]. (3) A company might have sound business reasons for not pursuing a cause of action open to it and that its management might legitimately have decided that the best interests of the company would be served by not taking action. For example, where it is clear that there has been a breach of duty by a director but the loss to the company may only be nominal, the costs of taking proceedings may outweigh any benefit to the company: Fiduciary Ltd v Morningstar Research Pty Ltd [2005] NSWSC 442; (2005) 53 ACSR 732 at [44], citing para 6.38 of the Explanatory Memorandum to the Corporate Law Economic Reform Program Bill 1998 (Cth). (4) It is necessary to consider both whether it is in the best interests of the company that: (a) the action be brought; and (b) the action be brought by the applicant: Re Gladstone at [57]. (5) Relevant considerations are the prospects of success of the action, the likely costs and likely recovery if the action is successful and likely consequences if it is not. One relevant matter in considering these issues is the nature of any indemnity the applicant has offered to the company if the action is brought and the likelihood that the company will recover under that indemnity. It is also necessary to consider the resources the company will be required to devote to the action and the resources it has available, together with the effect that the action may have on other aspects of its business. It is also necessary to consider whether some other remedy is available to the applicant so as to make the proposed action unnecessary from its point of view: Gladstone at [57]. 80 Mr McGuinness did not verify that he believes that the proposed derivative action (limited to the claims concerning the 2012 dividend) is in the best interests of the company and it is not obvious that he has considered that question. 81 There is also no evidence of any inquiries made of any of the defendants' capacity to pay any compensation that could have been ordered. 82 In those circumstances, although it might be in the best interests of the company to grant leave to Mr McGuinness to bring proceedings limited to the claims concerning the 2012 dividend (were they not time barred), I am not satisfied on the balance of probabilities as to that matter. Other issues Replacement of directors 83 The originating process did not specify the power pursuant to which the orders for changing the directors of the company were sought. However, the originating process does not seek relief under s 232, which is a precondition to the Court's power to make an order under s 233. 84 I do not understand Mr McGuinness to be seeking leave under s 237 to claim this relief. Company books 85 Mr McGuinness did not seek orders for access to company books. As I understood it, his complaints about lack of access and delayed preparation of financial statements were relevant to the timing of his commencement of this proceeding and the proposed order for the removal of Ms Dunstan and Ms Hanzti as directors. It is not necessary to make findings about these complaints for the purpose of determining the leave application. Directors' failure to take recovery action against Mr Ayash 86 In submissions, Mr McGuinness complained that the company has no taken action to recover the $21,800 paid to Mr Ayash. However, no cause of action is pleaded in the draft statement of claim based on that matter and there was no evidence about the prospects of any recovery action against Mr Ayash. Conclusion 87 The application for the order in prayer 1 of the originating process must be refused. Costs should following the event. 88 I will list the matter for a case management hearing on 28 May 2020 to make further orders for the continuation or finalisation of the proceeding. I certify that the preceding eighty-eight (88) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gleeson. Associate: Dated: 19 May 2020