Industrial Court of New South Wales CITATION: Gorman v Parkinson [2009] NSWIRComm 93 Anne Gorman (First Applicant) Corporate Impacts Consulting Pty Ltd (Second Applicant) Barry Parkinson (First Respondent) Julie Parkinson (Second Respondent) Attain Pty Ltd (Third Respondent) PARTIES: Chip McFarlane (Fourth Respondent) Adept Communications Pty Ltd (Fifth Respondent) John Matthews (Sixth Respondent) Illumined Enterprises Pty Ltd (Seventh Respondent) The Institute of Executive Coaching of Australia Pty Ltd (Eighth Respondent) ACN 106 277 758 Pty Ltd (in liquidation) (Ninth Respondent) FILE NUMBER(S): IRC 3024 of 2005 CORAM: Marks J CATCHWORDS: S106 UNFAIR CONTRACT PROCEEDINGS - five individuals agreed to participate in a business that had been established by two of them - agreed to utilise corporate structure - relationship became dysfunctional and lead to a loss of willingness to work together - relationship breakdown impacted the business - offer made to applicant to leave - offer rejected - financial position of company was portrayed as worse than it was - company went into administration - old business sold to a company whose shareholders were corporations which represented the interests of the respondents - respondents derived significant advantage - individual applicant excluded - unfair that the agreement not contain a provision which would fairly compensate any of the parties for the value of their interest in the business and their loss of income in the event that a personal relationship broke down - failure to include such a provision enabled the individual respondents to enter a course of action bringing about the exclusion of the applicant - agreement found to be unfair - agreement varied to make provision for payment of compensation - monetary orders to compensate loss as result of unfairness by reason of exclusion from the business LEGISLATION CITED: Income Tax Assessment Act 1936 s109E Industrial Relations Act 1996 s105, s106 Bartolacci v Permanent Custodian (1992) 44 IR 388 CASES CITED: Fish v Solution 6 Holdings [2006] 225 CLR 180 Schwartz v Central Sydney Area Health Service & Anor [2002] NSWIRComm 79 Sin Yong Yim and Tae Sik Kim v Industrial Relations Commission of NSW [2007] NSWCA 77 HEARING DATES: 16 - 20, 23 - 27 February, 28, 29 April, 1, 4, 5, 13 and 14 May 2009 DATE OF JUDGMENT: 24 June 2009 Mr J Fernon SC with Mr D Mackay of counsel (First and Second Applicants) Solicitor Breene & Breene, Solicitors LEGAL REPRESENTATIVES: Mr R Goot SC (First to Eighth Respondents) Solicitor Piper Alderman ACN 106 277 758 Pty Ltd (in liquidation) unrepresented JUDGMENT: INDUSTRIAL COURT OF NEW SOUTH WALES CORAM: Marks J Wednesday 24 June 2009 Matter No IRC 3024 of 2005 Anne Gorman and anor v Barry Parkinson and ors Application under s 106 of the Industrial Relations Act 1996 JUDGMENT [2009] NSWIRComm 93 1 These proceedings brought under s 106 of the Industrial Relations Act 1996 ("the Act") are constituted by a second amended summons. The applicants are Anne Gorman and Corporate Impacts Consulting Pty Ltd ("CIC"), a corporation of which the first applicant is, in effect, the owner and of which she is the controlling mind. The first and second respondents are Barry and Julie Parkinson and the third respondent is Attain Consulting Pty Ltd ("Attain") of which they are the owners and controlling minds. The fourth respondent is Chip McFarlane and the fifth respondent, Adept Communications Pty Ltd ("Adept"), is a corporation of which he is the owner and the controlling mind. The sixth respondent is John Matthews and the seventh respondent is Illumined Enterprises Pty Ltd ("Illumined") of which he is the owner and controlling mind. The eighth respondent is the Institute of Executive Coaching Australia Pty Ltd ("the Institute"), a corporation which, in effect, acquired the business formerly operated by the ninth respondent, ACN 106 277 758 Pty Ltd (in liquidation) ("the old Institute"). 2 The applicants have based their claims brought under s 106 of the Act on a number of contracts or arrangements which are pleaded in the alternative. It will be necessary to discuss the contracts and arrangements sought to be impugned in the proceedings in some detail. 3 Ss 105 and 106 of the Act are in the following terms: 105 Definitions In this Part: "contract" means any contract or arrangement, or any related condition or collateral arrangement, but does not include an industrial instrument. "unfair contract" means a contract: (a) that is unfair, harsh or unconscionable, or (b) that is against the public interest, or (c) that provides a total remuneration that is less than a person performing the work would receive as an employee performing the work, or (d) that is designed to, or does, avoid the provisions of an industrial instrument. s 106 Power of Commission to declare contracts void or varied (1) The Commission may make an order declaring wholly or partly void, or varying, any contract whereby a person performs work in any industry if the Commission finds that the contract is an unfair contract. (2) The Commission may find that it was an unfair contract at the time it was entered into or that it subsequently became an unfair contract because of any conduct of the parties, any variation of the contract or any other reason. (2A) A contract that is a related condition or collateral arrangement may be declared void or varied even though it does not relate to the performance by a person of work in an industry, so long as: (a) the contract to which it is related or collateral is a contract whereby the person performs work in an industry, and (b) the performance of work is a significant purpose of the contractual arrangements made by the person. (3) A contract may be declared wholly or partly void, or varied, either from the commencement of the contract or from some other time. (4) In considering whether a contract is unfair because it is against the public interest, the matters to which the Commission is to have regard must include the effect that the contract, or a series of such contracts, has had, or may have, on any system of apprenticeship and other methods of providing a sufficient and trained labour force. (5) In making an order under this section, the Commission may make such order as to the payment of money in connection with any contract declared wholly or partly void, or varied, as the Commission considers just in the circumstances of the case. (6) In making an order under this section, the Commission must take into account whether or not the applicant (or person on behalf of whom the application is made) took any action to mitigate loss. The factual background 4 Mrs Gorman has worked from the mid-1970's in the public and private sectors in the area of planning and policy development. She attained an excellent reputation. Mrs Gorman met John Matthews some time after he immigrated to Australia from the USA in 1996. He was described by Mrs Gorman and acknowledged by himself as a skilled executive coach. Mr Matthews and Mrs Gorman became close friends and in about February 1999 they commenced a business which became the Australian Institute of Executive Coaching ("AIEC"). They registered a business name and, initially, it appears that they operated the business as partners. The business developed and in March 2002, a Trust was established of which Mrs Gorman became the trustee. The beneficiaries were Mrs Gorman and the wife of Mr Matthews. Income derived by the Trust was distributed to the beneficiaries. 5 In May 2002, Mr Matthews introduced the fourth respondent, Chip McFarlane, to Mrs Gorman. Mr McFarlane had worked as an executive coach in the USA and had previously worked with Mr Matthews. He commenced performing work as an executive coach for the AIEC business. Later in 2002, there were discussions between Mrs Gorman and Messrs Matthews and McFarlane about Mr McFarlane working full-time with AIEC and acquiring an interest in the business. 6 In early April 2003 the second respondent, Julie Parkinson, attended a free seminar conducted by Mrs Gorman and Mr Matthews about the training programs offered by AIEC. She introduced herself to them and initiated some discussions about the business in which she professed to have an interest. Mrs Parkinson said that she had experience running a business in Hong Kong where she and her husband, Barry Parkinson, had lived for some years. She wanted to invest in the business. There was some controversy about the extent to which Mrs Parkinson represented her ability to obtain business from the "Asian market" and through a person, Ranjan Marwah, who was a close associate of hers. In my opinion, nothing turns on this in the determination of these proceedings and it is not necessary to explore this aspect further. 7 There followed a number of meetings and communications between Mrs Gorman, Mr Matthews and Mrs Parkinson. They discussed the development of a business strategy to expand and improve the business of AIEC and Mrs Parkinson developed a document outlining her vision for the business. That strategy included injection of funds, an increase in the number of partners in the business and paid support staff. It was intended that Mrs Parkinson would work in the business especially in the marketing and strategy areas, it being acknowledged that at that stage she had no experience as an executive coach. 8 As the discussions advanced, Mrs Parkinson introduced Barry Parkinson to Mrs Gorman and Mr Matthews. He said that he had had considerable experience predominantly in Hong Kong in managing a number of businesses and was in a position to provide assistance to the business in the event that his wife, or he and his wife, became proprietors. Mr Parkinson was given accounting records and other financial documentation about the business which he analysed and which enabled him to prepare profit and loss analyses and projected income and expenditure documents. Mr Parkinson became involved in the negotiations between the parties as they progressed including meeting and dealing with Mr McFarlane, who by then had been introduced as a potential investor and principal. 9 There were some discussions about the amount that should be attributed to goodwill of the existing business before Mr and Mrs Parkinson and Mr McFarlane acquired an interest. Figures prepared by the then accountant of the business showed an "indicative valuation" of $1.296 million. Mr Parkinson valued goodwill at $564,000. The parties ultimately agreed that the goodwill of the existing business would be $1million. 10 As early as April 2003, Mrs Gorman and Mr Matthews had retained lawyers to draft a shareholders' agreement and a licence agreement in anticipation of new partners/shareholders being introduced. 11 There is controversy between Mrs Gorman and Mr McFarlane as to the date upon which he agreed to become a stakeholder in the business. Whatever the date, Mr McFarlane acknowledged that he met with Mrs Gorman, Mr Matthews and Mr and Mrs Parkinson towards the end of June 2003 and that he agreed that he would acquire a 15 per cent share in the business for $150,000, although he stated that no agreement was reached as to when he would subscribe those funds. Indeed, he had discussions with Mrs Gorman indicating that he had some difficulty in raising that amount of money. Mr McFarlane also agreed that he would be paid a salary of $150,000 per annum. 12 On or about 25 June 2003, there was a meeting at the office of an adviser to the business between Mrs Gorman, Mr Matthews and Mr and Mrs Parkinson. They agreed to enter into a business arrangement that valued the goodwill of the existing business at $1 million. Furthermore, they agreed that Mrs Gorman and Mr Matthews would each be given a 15 per cent share in the business, that Mr McFarlane would acquire a 15 per cent share for $150,000 and that Mr and Mrs Parkinson would acquire a 15 per cent share for the same consideration. It was decided that of the remaining shareholding, 10 per cent would be left unallocated for any further investor and 30 per cent unallocated as a "floating equity" which could be offered to persons who were engaged as executive coaches as part of an incentive scheme. 13 In late June 2003, Mrs Gorman and Mrs Parkinson commenced a search for offices for the business. They found appropriate premises but were required to pay bond monies of $90,000. At this stage, discussions were held with Mr McFarlane about his $150,000 investment. Mr McFarlane agreed to put in $45,000 which would be used towards payment of the bond. Later, Mr McFarlane indicated that he was unable to contribute any monies at that stage and Mr and Mrs Parkinson agreed to provide the bond monies. In September 2003, the business commenced to operate from leased premises in George Street Sydney, having previously operated from Mrs Gorman's home. Additional staff were employed to work in the new premises. 14 On about 10 September 2003, the parties caused the Australian Institute of Executive Coaching Pty Ltd to become incorporated. The directors were Mrs Gorman, Mrs Parkinson and Messrs McFarlane and Matthews. 150,000 shares was held each by CIC, Illumined, Attain and Adept. 15 Shortly thereafter, each of the persons involved, including Mr Parkinson, held discussions about a number of matters within weekly meetings of directors including a new logo, a new trading name, office systems and the like. A number of differences as to approach and opinion began to emerge, which I shall shortly describe. 16 On or about 3 November 2003, the shareholders signed a shareholders' agreement. The agreement provided for the allocation of 175,000 class A shares to each of CIC, Illumined, Attain and Adept and for the allocation of 300,000 class G shares to IECA Equity Holdings Pty Ltd, presumably to be allocated in turn to executive coaches pursuant to the incentive scheme previously referred to. The shareholders' agreement does not, however, make any reference to the monies that had been agreed to have been paid by the interests of Mr McFarlane and of Mr and Mrs Parkinson to acquire the shares. Any agreement for the payment of these monies for the acquisition of shares is that which was made in June 2003. 17 The effect of the agreement was that each of the four 175,000 Class A share holdings would represent 17.5 per cent of the company and the Class G shares 30 per cent of the company by reference to allotted shares. 18 By Clause 7, the shareholders agreed that they "must take all reasonable steps to ensure that the Company has sufficient working capital to conduct the Business…". The working capital was to be provided either by loans in the proportion to their shareholding or borrowings by the company itself supported by securities over the assets of the company. 19 By Clause 7.2, the shareholders agreed that "if called upon by the Company they will lend the Company monies for working capital purposes up to the following amounts" namely $25,000 for each of the Class A shareholders. 20 There were protective provisions in Clauses 9 and 10 relating to the transfer of shares. Ultimately, there was provision for repurchase of the shares by the company at a "Fair Value" to be determined in accordance with Clause 11. In essence, a fair value was to be calculated by reference to the net book value of the assets of the company after deduction of the liabilities of the company plus the value of the goodwill of the company, which was to be calculated depending upon the time when the valuation was to occur. For example, prior to 30 June 2004 the goodwill was to be assessed at $1 million. In the next succeeding year, the goodwill was to be $1 million together with one half of earnings before income tax. 21 By clause 2.3, each of the shareholders agreed to "do all things reasonably within its power" to cause a number of agreements to be entered into, namely a Service Agreement between the company and each of CIC, Illumined, Attain, Adept and IECA Equity Holdings Pty Ltd. 22 Notwithstanding the shareholders' agreement concerning the share structure of the company, only 600,000 Class A shares were allocated, being 150,000 to each of the Class A shareholders. 23 In November 2003, Mr Parkinson forwarded a draft proposed Directors' Services Agreement to each of the directors, which was the subject of modifications made later. However, it appears that this Agreement was never signed by any of the directors or executed by the company. Termination was to be effected by either party giving three months' written notice except in the case of breach, serious misconduct or a director being unable or becoming unable to provide Directors Services. 24 I have previously said that a number of difficulties arose between the persons who were the joint venturers in the establishment of the company. Not unnaturally, the recollections about what happened and why differed amongst the individuals. However, such differences as emerged were the subject of communications between the parties that, at the least, represent what they thought and what they felt at the time and what they communicated to each other. These communications take the form of emails and memoranda. 25 In considering these matters, I shall refer initially to the evidence of Mr Matthews, which I accept as having been given in a measured and considered manner and which I accept reflects accurately Mr Matthews' recollection of what occurred. It was the evidence of Mr Matthews that when Mr and Mrs Parkinson became involved in the business, they endeavoured to put in place a number of systems, processes and strategies which would enable the business to grow. Mr Matthews agreed with what was being undertaken by Mr and Mrs Parkinson. However, Mrs Gorman was resistant to change. He told her that she was often "oppositional" and "blunt in your communication". Mrs Gorman was resentful of what she perceived to be the usurping of the role that she had previously undertaken by Mr and Mrs Parkinson. The position was such that during the course of 2004, Messrs Matthews, McFarlane and Parkinson and Mrs Parkinson began to meet together to discuss matters because when Mrs Gorman was present there was an inability to have "a civil conversation." Mr Matthews himself was able to communicate with Mrs Gorman, as was Mr McFarlane. The tension that was created was predominantly between Mrs Gorman on the one hand and Mr and Mrs Parkinson on the other. 26 Mr Matthews said that there was a breakdown in the relationship between Mrs Gorman and Mr Parkinson. He said also that "Mrs Gorman and myself were drifting more apart because of the amount of work I was doing and the birth of another child on the way. There were issues in terms of Mrs Gorman's relationship with other people in the office and that began to emerge. There were a number of issues that led to the breakdown of the working relationship." 27 Mr Matthews said that Mr and Mrs Parkinson conducted themselves "in a professional manner" and the fact that they were married did not, in his opinion, contribute to any breakdown in relationships with Mrs Gorman. 28 Mr Matthews said also that in 2004, he observed: "that there was not only a breakdown in communication among the directors, I saw that there was, that Mrs Gorman's behaviour at times was disruptive to the running of the office and that there was communication going out to clients that were not being checked for quality of that communication by Mrs Gorman." He said that he heard complaints from some of the clients. The situation became so bad towards June 2004 that "we lost the will to work together." 29 Mr Matthews gave some evidence about his observations of what occurred within the office premises in the latter part of 2003. He said: "Unfortunately, the way Mrs Gorman would relate to support staff was very, at times, demeaning manner of commanding and in such a way that it stood against the very values that the institute was based on. It disempowered people as opposed to empowered them. Specifically, Mrs Gorman would cut across conversations in terms of conversations between individuals that she was not a part of. Whilst Mrs Gorman was able to empower me and really bring out the best in me in the early part of the business, which I am very thankful for, she also had the ability to disempower many people and it appeared to be mostly women younger than herself that I saw that behaviour which happened consistently." Mrs Parkinson and all the female employees working in the business were considerably younger than Mrs Gorman. 30 There are many emails between the parties that demonstrate the nature and extent of the breakdown of the relationship between Mrs Gorman and one or other of the principals. For example, there is an email from Mrs Gorman to Mr Parkinson of 20 April 2004 in which she refers to problems associated with documentation which she had been forwarding to clients and in particular to named clients. A concern had been expressed in a meeting between Mr Parkinson and Mrs Gorman earlier that day that she was not capable of learning what she had to do. A reply email from Mr Parkinson to Mrs Gorman later that day indicated that it had been discovered that Mrs Gorman had actually sent the incorrect documentation to two other clients as well. Mr Parkinson's email concluded: "I don't understand why this information was not provided to the Board at the time the issue was raised and why it only comes to light when I review your sent email with you on your computer. I am still unsure as to the true extent of the problem – and this is not how it should be. We all need to be open about things like this. We can discuss this more, but we don't really seem to be progressing." 31 By email dated 28 April 2004, Mrs Parkinson complained that Mrs Gorman had widely distributed a personal email, presumably throughout the Institute's email address records, inviting addressees to attend a seminar being given by a person whom she described as her financial planner and whose advice she recommended. Mrs Parkinson reacted to this by forwarding an email to her husband, Messrs McFarlane and Matthews and to Mrs Gorman describing Mrs Gorman's email as being "totally inappropriate" and expressing concern that it was detracting from the image that all concerned were endeavouring to create for the company. 32 The evidence in the proceedings indicates that Mrs Gorman was the only person ultimately opposed to the introduction of a new logo for the company, that she was opposed to the implementation of a number of innovations introduced by Mr Parkinson including new filing systems, computer network, templates and procedures to use for proposals and manuals and a system for tracking invoices. It became apparent to the others that Mrs Gorman was resistant to a lot of these changes, on the basis that they were not necessary. 33 Complaints were also made about Mrs Gorman's style. It was alleged that she would interfere in conversations, issue directives in a commanding style and spoke down to staff. There were also suggestions that some clients were unhappy having Mrs Gorman as their client relationship manager. Complaints were made by some of the staff concerning Mrs Gorman's behaviour including her manner. She was seen to be lacking discipline in her preparation of proposals, which created unnecessary stress on staff. Her conduct was seen to be embarrassing and unprofessional. 34 In early December 2003, a decision was made that Mr McFarlane provide coaching to Mrs Gorman concerning her interpersonal skills and relationship building. Mr McFarlane said that Mrs Gorman attended an initial session but declined to make arrangements to attend any others. 35 As at the end of March 2004, all of the principals concerned agreed that the working relationship between Mrs Gorman and Mr and Mrs Parkinson had broken down and that her relationship with staff was also in a parlous state. It was felt by the principals that Mrs Gorman was not receptive to any criticism. 36 There are many other specific examples given in the evidence. However, in view of the conclusion that I have reached as to the determination of these proceedings and the relevance of the deterioration of the relationship between Mrs Gorman and remaining principals, it is not necessary that I explore these matters further. 37 For present purposes it is sufficient to note that by May 2004, the relationship between each of the principal parties, that is Mrs Gorman, Mrs Parkinson, and Messrs Parkinson, Matthews and McFarlane, had deteriorated to such an extent that there was a perceived impact on the business. It was described by some of them as being "dysfunctional". The parties participated in a mediation conducted by Mr Humphrey Armstrong, an organisational psychologist which, through no fault of his, failed and was recognised by all as having failed at least by 10 June 2004. 38 At that stage, Mrs Parkinson in particular and Mr Parkinson said that they wanted to walk away from the business. Messrs Matthews and McFarlane said that they would join them in another business. At that stage also, Mrs Parkinson offered Mrs Gorman a payment of $250,000 for her to leave the business, which offer she declined without then making any counter offer. 39 On 11 June 2004, Mrs Parkinson issued a notice of a meeting of directors called for 22 June 2004. There was one agenda item which was: "To consider and discuss the future affairs of the company and the possibility of appointment of an administrator." 40 At the meeting of directors called for that day, the board resolved to appoint an administrator, Mrs Gorman being the only person to vote against that proposition. The company, which I have called "the old Institute", thereby went into administration. 41 On 2 July 2004, the administrator made Mrs Gorman an offer of $250,000, in effect for her to leave the company. She declined. There were further negotiations between the parties but they did not result in any agreement being reached. 42 On 22 July 2004, the business of the old Institute was sold to a company which subsequently changed its name to the new Institute. The shareholders of the new company were corporations which represented the interests of Messrs Matthews and McFarlane as to 25 per cent each, and a company which represented the interests of Mr and Mrs Parkinson as to 50 per cent. 43 The old Institute was later liquidated. There was a payment of 60c in the dollar to some creditors being predominantly Mrs Gorman and the Australian Taxation Office. Whilst there were other creditors, they appear to have been paid out in full by the new Institute. 44 Mrs Gorman asserts that in all the circumstances the administration of the old Institute and the sale of its business to the new Institute was accomplished with very little outlay by anyone, in circumstances which I will need to consider in some detail later in these reasons for judgment. She asserts also that there was, in effect, connivance between Mr and Mrs Parkinson and Messrs Matthews and McFarlane to bring about a situation where, in effect, she was excluded from the business which is now run by the new Institute without any compensation of any kind. In circumstances where she and Mr Matthews had created the business into which Mr McFarlane and Mr and Mrs Parkinson had entered upon a commitment to pay monies, the applicants say that it was manifestly unfair that they be deprived of any of the value that reflected the creation of the business and its establishment as a going concern. Furthermore, Mrs Gorman complained that she was thereby deprived of an income of $150,000 per annum which was paid to each of the directors, although shared by Mr and Mrs Parkinson. It will now be necessary to consider each of the elements that the applicants need to establish in order to maintain a claim against the respondents under s 106. Was there a contract? 45 The foundation for the exercise of jurisdiction under s 106(1) is the existence of a contract "whereby a person performs work in any industry…". "Contract" is defined in s 105 to mean "any contract or arrangement, or any related condition or collateral arrangement…" 46 The meaning of these provisions was determined authoritatively by the High Court of Australia in Fish v Solution 6 Holdings [2006] 225 CLR 180. At page 195, the joint judgment of Gleeson CJ, Gummow, Hayne, Callinan and Crennan JJ said of any arrangement whether contractual or non-contractual that it must by one "according to which a person performs the work (or in consequence of which or in fulfilment of which a person performs that work)…". Furthermore, the joint judgment had earlier emphasised that s 106(1) was concerned with matters which had an industrial flavour. Their Honours said: "The power given to the Commission by s 106(1) to declare wholly or partly void or to vary certain contracts should be understood as hinged about the reference to performance of work in any industry. The first enquiry required by s 106(1) is whether a person 'performs work in any industry'. What may be declared wholly or partly void or varied is any 'contract' whereby a person performs that work." (At [18]). 47 Accordingly, I must first determine whether or not Mrs Gorman has performed work in any industry. It is then necessary to identify the contract or arrangement according to which she performed that work. 48 In seeking to identify any such contract or arrangement, it is necessary to exclude any contract or arrangement which envisaged but did not establish the work relationship. See, for example, the discussion by Spigelman CJ in the New South Wales Court of Appeal in Sin Yong Yim and Tae Sik Kim v Industrial Relations Commission of NSW [2007] NSWCA 77 at [60]. In that case, Spigelman CJ (with whom Mason P and Handley AJA agreed) held that "an arrangement amongst investors, two of whom would invest additional funds and the other would retain his shareholding in the business, albeit reduced to one third of the total shares" and of which the joint venture vehicle was an existing company which would continue to employ one of the shareholders was not itself a contract or arrangement that came within s 106(1). The investor agreement "envisaged but did not establish, the required relationship. The work to be performed by the Second Respondent was to be performed in consequence of or in fulfilment of the contract between him and (the company). The Business Agreement pleaded is the means by which (the company) was to be put in funds for, inter alia, that purpose and identified, in a manner relevant to investors in a joint venture, the anticipated outgoings." (At [63]) 49 The evidence was to the effect that each of Mrs Gorman, Mr Matthews and Mr McFarlane worked full-time in the business and that Mr and Mrs Parkinson worked part-time in the business, albeit that they attended to different aspects of the business. Mr and Mrs Parkinson between them were to be paid at the same rate as each of the other individuals, namely, ultimately, $150,000 per annum for the work that they performed. Payment was to be made, and was in fact made or became payable to, a corporate entity nominated by each of the four parties. In the case of Mrs Gorman, the first applicant, the corporation was the second applicant, CIC. 50 The applicants submitted that there were "at least" two contracts or arrangements which satisfied the provisions of s 106(1). One was said to be "between Mrs Gorman and the individual respondents (or one which also included their respective companies) and made on or about 23 June 2003." Another was said to be "a contract or arrangement between Mrs Gorman (and/or Corporate Impacts) and the Institute." 51 The respondents rejected the applicants' submission. They conceded that work was performed in an industry as contemplated by s 106(1). However, they submitted that the relevant contract or arrangement for the purposes of s 106 was made in September 2003 as "an informal commercial arrangement" which involved each of the individuals being employed by their respective companies and those companies providing services to the old Institute. It was asserted that the Institute paid the companies in respect of those services and that, at all times, each of their respective companies were the employers of each of the individuals. On this basis, it was said that Mrs Gorman was employed by CIC and not by the old Institute and that there was no contract between her, CIC and any of the individual respondents. It was conceded, however, that: "There is no evidence of the terms of any of the Employment Contracts between the individuals and their companies" and "There is little evidence of the terms of the contractual arrangements between the corporate applicant, the corporate respondents and the Institute, other than the agreement to pay $150,000 excluding GST per annum in return for services rendered." 52 In order to determine this matter, it is necessary to have regard to the evidence given in the proceedings as to the interaction between each of the parties in order to determine whether there was some consensus reached of a sufficient kind to be able to characterise it as an agreement or arrangement of the kind described in s 106. 53 Until September 2003, the business known as the Australian Institute of Executive Coaching was carried on through the medium of a Trust arrangement, the beneficiaries being Mrs Gorman and the wife of Mr Matthews. That was the structure that was in place when negotiations commenced between Mrs Gorman and Mr Matthews, on the one hand, and Mrs Parkinson on the other. These later involved her husband, Barry Parkinson, and involved also Mr McFarlane who had previously discussed with Mrs Gorman and Mr Matthews acquiring an interest in the business. 54 I have already referred in a general way to the effect of the evidence given in the proceedings concerning the negotiations between all of the individuals, which led eventually to circumstances where the old Institute was incorporated. The discussions involved, as I have said, the work that each of them would perform in the business, the capital contribution to be made by Mr and Mrs Parkinson and Mr McFarlane and the value of that contribution. 55 Mrs Gorman gave evidence of a meeting in early June 2003 between Mr Matthews, herself, Mr and Mrs Parkinson, proposed investors Mr and Mrs Webb and Mr McFarlane with a Mr Craig West of Allstate Partners at his office. At that meeting, there was a discussion about the proposed capital structure of a company which would be used for the purpose of the business upon final agreement being reached. The evidence was that there would be approximately 60 per cent of the shareholding allocated, 30 per cent would be "set aside for small investors and it's mostly envisaged to be graduates. That 30 per cent is to encourage maybe 10 or so selected graduates to invest $10,000 then go on to earn more equity through coaching work…". There would be a further 10 per cent available for another investor. 56 There was a further meeting on 23 June 2003 at Mrs Gorman's home attended by her, Mr Matthews and Mr and Mrs Parkinson. Whilst there is some contention about precisely what was said at that meeting, the evidence is that there was agreement reached that Mrs Gorman and Messrs Matthews and McFarlane would work full-time in the business and that Mr and Mrs Parkinson would each work part-time on a "job share" basis, although they would not be performing the same tasks. At a further meeting on 25 June 2003, in Mr West's office, Mrs Gorman, Mr and Mrs Parkinson and Mr Matthews agreed, after negotiations, that a sum of $1 million would form the agreed basis of a valuation of goodwill. The arrangement would be that each of Mrs Gorman and Mrs Matthews would be allocated 15 per cent being one quarter of 60 per cent of the shares in a new entity with a deemed value of $150,000 and that Mr and Mrs Parkinson and Mr McFarlane would be allocated the same shareholding upon payment of the sum of $150,000. On this basis, a further 30 per cent would be unallocated but available for investment by "graduates" and the remaining 10 per cent would be available for another smaller investor. Mrs Gorman said that this arrangement was confirmed during the course of a subsequent meeting at her home at "about the end of June", which was attended by Mr Matthews, Mr and Mrs Parkinson and Mr McFarlane. 57 While Mr Matthews disagreed about some of the detail of what occurred in these several meetings, as I understand his evidence he did not disagree with the substance of the agreement as described by Mrs Gorman. 58 The evidence of Mr McFarlane was to the same effect. In cross-examination, he agreed that, by the end of June 2003, he had "come to an agreement with Mrs Gorman that (he) would join the business that she was in with Mr Matthews". He said that encompassed within that agreement was the fact that he would work in the business, Mrs Gorman and Mr Matthews would continue to work in the business, and that both Mr and Mrs Parkinson would work in the business. He agreed that that is what, in fact, happened. He said that there was also agreement that each of the four interests represented by each of the group of individuals would draw from the business remuneration at the rate of $150,000 per annum which would be inclusive of superannuation. 59 Furthermore, Mr McFarlane agreed that he was obliged to contribute $150,000 for the acquisition of his interest in the business. He said that he contributed $10,000 of this amount in about July 2003 as a contra for monies owing for work that he had performed earlier, that eventually in March 2004 he contributed a further $5,000 by way of payment, in April 2004 a further payment of $50,000, but paid no more by way of his contribution. 60 The evidence of Mrs Parkinson confirms the general substance of the arrangement set out above. Specifically, she said that it was agreed that her husband would "look after the business management in the set-up stage, and set up the systems and procedures for the office to run." This is not inconsistent with the understanding of the other witnesses. 61 Mr Parkinson's evidence was to the same general effect. In terms of the investment of capital, he said: "I decided to use the figure of $1,000,000 because I was prepared to invest $150,000 for 15 per cent of the value of the Company. I did not consider $1,000,000 to be a realistic assessment of the true value of the Company…" 62 Mr Parkinson said in evidence that in June 2003, he agreed with Mrs Parkinson to "join and work in the business." 63 Mr Parkinson said that he always contemplated that a company would be incorporated to run the business and to reflect the changed ownership. 64 In her evidence, Mrs Parkinson agreed that, as at a meeting held on 23 June 2003, there was agreement that she and her husband would work in the business "of Mrs Gorman and Mr Matthews." 65 Mrs Parkinson said that she saw her role as a person "who could bring a level of professionalism to the image of the business…a person who had previously been quite successful in the business world and…anticipated that the way in which (she) would work would bring benefits to the Institute and those working in it." 66 There is, in my opinion, clear and cogent evidence that at that stage there was an agreement between each of the individuals to whom I have referred that they would personally work "in the business", that they would each have an equal interest in the business (counting Mr and Mrs Parkinson as one unit) and that in the case of the Parkinsons and Mr McFarlane there would be a payment to acquire that interest. Furthermore, there was agreement that neither Mrs Gorman nor Mr Matthews would be required to contribute any monies to acquire their interest as recognition of the worth of their existing interests in that business. What was contemplated was that the same business, which was formerly being carried on by Mrs Gorman and Mr Matthews, was to henceforth be carried on by the individuals and that each of them would perform work in and for the business, albeit in the case of the Parkinsons on a shared full-time basis and performing different types of work but nevertheless intimately associated with the operation of the business. 67 Following that consensus and in consequence of it, the parties secured leased premises in the Sydney CBD, Mr and Mrs Parkinson formally commenced working in the business on 1 September 2003 and the old Institute was incorporated on 10 September 2003. The business moved to the new premises and operated from them from 25 September 2003. 68 The old Institute established a bank account that thenceforth was used for the purposes of the business. Furthermore, monies due for the work performed by each of the individuals were paid to the corporate entities nominated by them, the details of which I have previously referred to. 69 A shareholders' agreement was signed on 3 November 2003 and I have previously set out some of the detail of that agreement. That post-dates, of course, the incorporation of the old Institute and, indeed, that incorporation post-dates the date upon which the Parkinsons commenced working in the business, namely 1 September 2003. The shareholders' agreement contemplates the making of service agreements to be entered into on 3 November 2003, which, as is known, did not occur. 70 I cannot find any evidence that indicates that what occurred after the end of June 2003 was anything other than the steps taken by each of the individuals who reached the agreement to which I have referred in order to implement that agreement. There is no evidence of any novation of the agreement made in June 2003, there is no evidence of any variation made to what was contemplated by that agreement either as at 1 September 2003, when the Parkinsons commenced working, the date of incorporation of the old Institute or 3 November 2003, when the shareholders' agreement was made. In the same way, there is simply no evidence of any intention of any person or entity to create any different particular relationship between themselves, the old Institute and each of the corporate entities that they used for the payment by the old Institute of monies for the performance of work by them. 71 Such evidence as to what occurred subsequent to June 2003 is contained within affidavit evidence of Mr Parkinson. On 6 November 2003, Mr Parkinson said that he forwarded to each of Messrs Matthews and McFarlane, Mrs Gorman and Mrs Parkinson a proposed draft services agreement for the directors of the old Institute. It was resent to Mrs Gorman and Mr McFarlane on 10 November 2003. The accompanying email said that the agreement was "actually an employee employment agreement." Some accompanying notes indicated that as all of the persons concerned would be working, in effect, more than 80 per cent of their time for the Institute, it would be appropriate "for us to be employees rather than service contractors. This will impose obligations on the company, such as super, sickness, PAYG etc etc…". There was then a reference to the need to discuss these matters by reference to a number of issues, which were particularised. The draft employment agreement itself anticipated that the old Institute would be "employer" and each of the individuals would be "an employee" of the Institute. 72 Mr Parkinson said that there were no significant discussions about the contents of the draft proposed services agreement other than whether directors should work "under a direct service agreement or a service agreement through their respective service companies." This involved predominantly taxation issues. 73 Mr Parkinson then said that following those discussions, there was a preference expressed by the directors for a service agreement through service companies as a result of which he circulated a draft proposed directors' service agreement on 5 February 2004. This was said by him to contain "proposals for discussion around the common benefits. At that stage no decision had been made whether an employment agreement or a service agreement would be used." Mr Parkinson said that there were further discussions that did not result in any consensus being reached. Mr Parkinson said that he had an expectation that the directors would formally sign agreements based on "the current practice" at the end of the then financial year but his expectation, which is put no higher than that, was overtaken by the administration of the company in June 2004. 74 Having regard to such evidence as there is, or perhaps more accurately the lack of any specific evidence to the contrary, I infer that what occurred in connection with the performance of work was that each of the individuals nominated an entity which was to be the conduit for which the services, which each of them personally performed, were to be remunerated. Seen in this way, there is only one contract or agreement that directly led to the performance of work by each of the individuals in the business ultimately operated by the old Institute, namely that which was made at the end of June 2003. Accordingly, I reject any submission made on behalf of the respondents to the contrary. There is simply no evidence of any contract of employment or of any intention between any individual and a nominated entity to enter into a legal relationship of employer and employee. Whether the tax treatment of what happened is consistent or not with my understanding of the nature of the arrangement between the parties is of lesser relevance, in my opinion. Firstly, there was no evidence of the tax treatment and secondly, such evidence as was given in the proceedings was to the effect that the payment by the old Institute to each of the nominated entities was tax-driven. Whether and to what extent PAYG deductions ought to have been made by the old Institute (of which there is no evidence), is not, in my opinion, relevant to any determination that I am required to make in the context of these proceedings, although arguably it may be of interest to the Australian Taxation Office. This is because the principals have always been paid through their companies, even though they appear to have initially favoured employee status and never formalised any other relationship. 75 Seen in this way, the circumstances that pertain to these proceedings are relevantly different from those considered by the New South Wales Court of Appeal in Sin Yong Yim, to which I have previously referred. 76 I conclude, therefore, that there was an agreement of the kind that I have described made by and between all of the persons to whom I have referred which was one whereby work was performed in an industry by all of the participants, including Mrs Gorman, and that this is sufficient to attract the jurisdiction and power of this Court to deal with this contract under s 106(1) of the Act. 77 For completeness, I should refer also to the provisions of the shareholders' agreement, which I have described in general terms. In my opinion, that agreement was collateral to the contract made in June 2003. 78 A determination as to whether something is a collateral arrangement or a related condition involves a determination of law arrived at by reference to a factual basis. Whilst I have not been able to find any authoritative judicial pronouncement on what may be a "related condition" (and perhaps it is a concept which is so simple that none is required), there is some discussion on what constitutes a "collateral arrangement". I refer in particular to the discussion by Hungerford J in Bartolacci v Permanent Custodian (1992) 44 IR 388. His Honour said at 398, "The phrase 'collateral arrangement' requires consideration in terms of the meaning of the two words which comprise it. 'Collateral' in its commonly accepted meaning, according to The Concise Oxford Dictionary 6th ed, 1976, means a 'side by side, parallel; subordinate but from same source; contributory, connected but aside from main subject, course, etc'. The proposition that somehow a collateral arrangement could relevantly be within the section as sitting side-by-side with or parallel to, but not related to, a contract or arrangement under which work is performed in an industry does not sit comfortably with what the word 'collateral' ordinarily means. It seems to me that to be collateral to something there must be some necessary connection with or necessary relation to the primary thing, that is, subordinate to but from the same source, and even though that which is collateral may be separate or aside from the main subject. In other words, in the context of s 275, unless there be some necessary connection or relationship between the collateral arrangement and the primary contract or arrangement under which work is performed, then, in my view, there would be no relevant function for 'collateral arrangement' to perform in the context of s 275 which is essentially concerned with what might be called in a shorthand way 'work contracts or arrangements'." (Original emphasis). 79 I observe that pursuant to s 106(2)A, a contract which is a collateral arrangement may be declared void so long as the contract to which it is collateral is a contract that answers the description of one falling under s 106(1), and provided that: "The performance or work is the significant purpose of the contractual arrangements made by that person." In my opinion, the shareholders' agreement may be characterised as a collateral arrangement to the contract made in June 2003. The applicants' case on unfairness 80 The applicants alleged that a plan was developed by Mr Parkinson which would allow all of the principals save Mrs Gorman to continue to operate the business. It involved putting the old Institute into administration and subsequently liquidating it, and a new company of which all of them would be shareholders, save for Mrs Gorman, acquiring the business from the old Institute, at the same time denying Mrs Gorman any ability to be paid out any monies representing the value of her interest in the business and denying her any compensation for the resultant loss of income that it would sustain. It was alleged that Mr Parkinson misrepresented the state of the financial affairs of the company which led to the passing of a resolution appointing administrators. "Capital contribution" of Mr and Mrs Parkinson 81 Before discussing the state of the financial affairs of the old Institute in June 2004 so as to determine whether the information conveyed by Mr Parkinson to the meeting of 22 June was correct, I need to deal with the circumstances surrounding the capital contributions of $150,000 which Mr and Mrs Parkinson jointly and which Mr McFarlane on his own account had agreed to make. 82 In his affidavit, Mr Parkinson agreed that he and his wife were to obtain 15 per cent of the shares allocated in the company. He acknowledged that there was a requirement to make a payment of $150,000. In this regard, he said: "We agreed to forego for three years, $50,000 of the combined remuneration to be paid to Attain each year. Attain was thereafter to be paid only $100,000 per annum. Attain then entered into a shareholder loan agreement ("loan agreement"), to loan the company $150,000 which it needed immediately for cash flow. The loan agreement required the company to repay $50,000 per year for three years. In this way, the combination of payments Attain received for our remuneration, and loan repayments under the loan agreement, totalled $150,000 per year. The Company also received the $150,000 cash it required up front." The loan agreement was dated 25 November 2003. 83 Mr Parkinson conceded in cross-examination that from the time of his involvement and that of his wife in the company that he was "looking after the financial affairs of the Institute." It was in this capacity, namely someone who was "looking after the financial affairs of the Institute" that Mr Parkinson arranged for the shareholder's loan agreement to be entered into between the company and Attain. 84 Mr Parkinson agreed in evidence that although Mrs Gorman had signed the loan agreement on behalf of the company, it was he who had initiated the structuring of the transaction. He conceded that the reorganisation "of a capital item to a liability item" was "a significant detriment" to the company but said that this was not intentional. Also, in cross-examination, Mr Parkinson agreed that he was the principal person within the company who was responsible for considering and analysing its financial circumstances. He agreed also that the other persons involved relied upon him for his expertise in these areas. 85 The loan agreement was professed to provide generally to loans made by Attain to the company on and after 25 November 2003. Schedule 1 to the agreement said that the loan was for the sum of $150,000 being: "a sum of $90,159.50 is to be provided on 10 September 03 initially used as a cash guarantee lodged with the Commonwealth Bank against a Bank Guarantee for the lease of Suite 203, Barrack House, 343 George Street Sydney…a further sum of $59,840.50 is to be provided for use as working capital as from 1 December 2003. The loan is to be repaid at the rate of $50,000 per year over three years in equal monthly instalments commencing 1st October 2003. There will be no interest payable on the loan." 86 There is immediate tension in the provisions of Schedule 1, which refer to monies to be provided on 10 September 2003, which post date the agreement. Furthermore, the agreement itself runs contrary to the understanding reached by the individual persons who agreed to promote the company for the purpose of carrying on the business, namely that Mr and Mrs Parkinson would be contributing capital. 87 Of course, the arrangement which Mr Parkinson organised so that, ostensibly on the basis of his affidavit evidence, there would be a "salary sacrifice" each month might arguably result in an amount being shown as income after deduction of an amount for "salary sacrifice" for the efforts of Mr and Mrs Parkinson. This is, of course, a matter for the taxation records of Attain only. 88 Mr Parkinson also said in his affidavit: "While Attain issued invoices on a monthly basis to the company for Julie and my services, they were not paid. Julie and I were paid no remuneration from the company for our services throughout the period from starting to going into administration. This was because the company did not have the cash flow to be able to make these payments; it was an additional means of support to the company provided by Julie and I…". 89 In cross-examination, Mr Parkinson conceded that his evidence in his affidavit about the receipt by the company of $150,000 cash up front and the fact that he and his wife through Attain did not draw any monies from the company for several months was incorrect. Furthermore, there must be some doubt concerning his evidence about the loan agreement to which he referred. 90 The general ledger of the company shows that on 30 August 2003 the sum of $90,159.50 was loaned by Mr Parkinson to the company. That money was used for payment of the rental bond on the new premises. A further $59,840.50 was loaned by Mr Parkinson to the company on the same day. This made a total of $150,000 an amount which equated with the monies which were to be paid by Mr and Mrs Parkinson through Attain as consideration for the acquisition of the 15 per cent shareholding, which was allocated to them a little while later. However, on the same day a cheque was drawn in favour of Attain Consulting in the amount of $59,840.50. Mr Parkinson agreed that these monies were recorded in the company's records as being an advance of monies which were payable for remuneration for services provided by Mr and Mrs Parkinson. This is, of course, contrary to the evidence contained in Mr Parkinson's affidavit. Furthermore, the company's ledgers showed that on 30 September 2003, $11,363.64 was paid to Attain together with a further amount of $1,136.36. Mr Parkinson agreed that these amounts, which totalled $12,500, were for remuneration paid to Attain for the services provided by Mr and Mrs Parkinson. 91 I infer from the evidence of Mr Parkinson that the intention was to allow him and Mrs Parkinson to reflect "salary" as being $100,000 per annum rather than $150,000 per annum presumably with consequent taxation advantages. Whilst I consider that any taxation advantages will not necessarily be relevant for the determination of these proceedings, they may well be of interest to the Australian Taxation Office. As will be seen, however, the characterisation of what Mr Parkinson clearly acknowledged was a capital contribution as a loan did, on the liquidation of the old Institute consequent upon the cessation of the administration and sale of the business, provide Attain and thereby the Parkinsons' interests with a distinct monetary advantage. 92 Of course, as I understand what was intended by Mr Parkinson there was to be no loan as such but merely a means of salary sacrificing $50,000 per annum over a period of three years. Such a provision does not, of course, accommodate the sum of $90,159.50 already provided by Mr and Mrs Parkinson for the lease deposit. On this basis, only a further amount of $60,000 needed to be advanced, yet Mr Parkinson, through Attain, was seeking to obtain a further tax advantage of $50,000 per annum for three years by way of "salary sacrifice". 93 The advantages gained by Mr and Mrs Parkinson through this device were compounded by the fact that, in reality, Attain was paid remuneration at the rate of $150,000 per annum, namely $12,500 per month rather than at the rate of $100,000 per annum. In reality, on a cash flow basis, there was no salary sacrifice for the whole of the period. As will be seen, this resulted in Attain claiming more than it was entitled to with respect to a loan in the liquidation, assuming, of course, that the monies were in reality loan monies. 94 Indeed, as Mr Parkinson conceded in cross-examination, the books of account of the old Institute showed that as at 30 August 2003, Attain had received an advance of $59,840.50, which was recorded as payments to Attain for remuneration provided by Mr and Mrs Parkinson. "Capital contribution" of Mr McFarlane 95 On 6 November 2003, Mr Parkinson forwarded to Mr McFarlane a draft shareholder loan agreement "for the loan that both you and I are to make to the IECA." The document is a loan agreement in standard form. It is intended to cover loans by lenders to the company that are made from time to time. Such loans are not to attract interest for any period of an income year in which the loan is made but thereafter is to attract interest at a rate calculated under s 109E of the Income Tax Assessment Act 1936. 96 Thereafter, Mr McFarlane's contribution towards what he understood to be his requirement to provide $150,000 in capital was shown in the records of the company as a loan. 97 In an email dated 5 March 2004, which he forwarded to Mr McFarlane with copies to Mrs Gorman, Mr Matthews and Mrs Parkinson, Mr Parkinson provided some insight as to the shareholders' loan arrangements. It said: "Chip I said that I would write a note to you about payback of shareholder loan, you may wish to model what you are doing on a similar basis after you submit your loan to the company. When the company 'The Institute of Executive Coaching Australia Pty Ltd' was set up, the shareholding was divided with four equal shareholding to the companies owned by Anne, John, Chip and Julie & Barry. John and Anne, being the founders, had effectively diluted their shareholding in the AIEC to achieve this. We were 'given' this shareholding free of charge, but on the basis that payment of $150,000 would be made to the company. The most efficient way to pay this $150,000 to the company is through 'working time' rather than paying cash. That is that we take a lower 'salary' than normal and the difference over time makes up the $150,000 payment to the company. Since the company needed cash, Julie and I provided $150,000 in cash as a 'shareholder loan'. However, this is not really a loan, but the money that I owed the company for the shareholding. In order that I may 'earn' my shareholding as above, the company is repaying the shareholder loan to me at the rate of $50,000 per year over 3 years in lieu of 'salary'. You may wish to pay your contribution to your shareholding in a similar manner, both for you to earn back the cash shareholder loan you are about to provide and to earn the rest of your shareholding through reduced salary payments. I would be happy to discuss with you how you would best do this before we finalise the director's service agreements." 98 Accordingly, as at June 2004, there was reflected in the financial records of the old Institute liabilities owing to B Parkinson of $150,000 and to C McFarlane of $65,000. The applicants placed great weight on the way in which the monies which were intended to be introduced by each of these parties as capital were ultimately reflected in the financial records of the old Institute as loans, and the consequences that flowed, firstly, in considering the financial state of the company at that time and, secondly, in and about the consequences of placing the old Institute into liquidation. Events leading to administration and sale 99 In order to set the scene for a discussion of the financial state of the company, and to consider whether Mr Parkinson misrepresented it to the meeting of 22 June 2004, I need to consider a course of events which commenced on 4 June 2004, leading up to the sale of the business by the administrator to the new Institute. 100 The starting point for the suggestion made on behalf of the applicants that Mr Parkinson had devised a plan to exclude Mrs Gorman from the business was the consequences of the collapse of the mediation in June 2004. Mr Parkinson said in cross-examination that he no longer wished to work in a business with Mrs Gorman and that a solution was for him to leave. He had no doubt that his wife would also wish to leave, although it would be her choice. Mr Matthews said that he had enjoyed working in the business and that he saw it as a business that "had potential". He knew also that Messrs McFarlane and Matthews wanted to continue to work with him and his wife because they had told him after he had said that he was considering leaving the business. 101 Mr Parkinson denied that he had any particular plan in mind at that stage. He did, however, see Mr Devries who was to become the administrator of the old Institute on 21 June 2004, the day before the directors' meeting. In evidence, Mr Parkinson denied that at that stage he had an intention to appoint a voluntary administrator, but said that it was a matter that he was considering but no decision had been taken. This evidence was in contradistinction to a letter addressed to Mr Parkinson from Devries Tayeh, dated 21 June 2004, which referred to "previous correspondence" in relation to the proposed voluntary administration of the old Institute and said: "As you have indicated, it is your intention to appoint a Voluntary Administrator to the company, I attach for your attention…" and there then followed a reference to a number of documents. 102 The contents of this letter conflict with the evidence of Mr Parkinson. I have serious concerns about the veracity of Mr Parkinson's evidence. There is no explanation as to why Mr Devries would write a letter to Mr Parkinson on 21 June 2004 referring to previous correspondence and referring to an expressed intention to appoint a voluntary administrator. Mr Devries was not called by the respondents to give evidence in the proceedings and no explanation was tendered, which would indicate that he was unavailable to do so. I do not accept Mr Parkinson's explanation that as at 21 June 2004, there was no intention to appoint a voluntary administrator. Mr Parkinson's evidence in this regard is also inconsistent with that given by Mr Matthews. 103 Mr Matthews said that he knew that as at 22 June 2004, Mr Parkinson was aware that there was "a possible option" of purchasing the business of the Institute in another company. It was Mr Matthews' understanding that Mr Parkinson had a plan to resolve the problems of the company and that "one possible option" was to put it into administration. Mr Matthews clarified the evidence by saying that the problem that the company faced was the problem involving the breakdown of relationships with Mrs Gorman. He said that Mr Parkinson wanted to continue in a business relationship with him. Mr Parkinson had told him that the only concern that he had was the relationship of others with Mrs Gorman. He understood that Mr Parkinson was working on a resolution that would involve the exclusion of Mrs Gorman. Whether this required putting the company into administration he left in its entirety to Mr Parkinson. 104 Significantly, Mr Matthews said that he had met a representative of the firm who were appointed administrators before the meeting of 22 June 2004. It was some time between 6 June and that date. He said that he was in the company of Mr Parkinson when this occurred. 105 Mr Matthews confirmed that it was his preference to continue in business with Mr and Mrs Parkinson rather than Mrs Gorman and that if someone was interested in Mrs Gorman buying into the business, he would not be willing to participate. 106 Mr Parkinson had arranged for a balance sheet of the business to be prepared as at 30 May 2004. It seems to have been forwarded by facsimile to persons unknown on 4 June 2004. 107 The balance sheet showed total current assets of about $390,000. This included total cash on hand of about $206,000. However, included within these amounts was almost $50,000 shown as a deposit of the second applicant. There was also the sum of $90,159.50 shown as a term deposit, which I assume was referable to the lease bond deposit. In addition, there were credit funds in bank accounts of about $75,000. Furthermore, the balance sheet disclosed trade debtors of approximately $185,000. 108 The balance sheet showed total liabilities of approximately $329,000. However, these included items described as "long term liabilities" being a loan to B Parkinson of $150,000 and to C McFarlane of $65,000. An amount was shown for "total current liabilities" of approximately $110,000. 109 On 10 June 2004, Mr Parkinson sent an email to all of the directors advising that the cash situation of the company was "now critical". 110 Mrs Gorman replied to all directors the same day asking for details about accounts receivable, offering to put some money back into the business and referring to the shareholders' agreement which provided that in the event of a cash flow crisis each of the shareholder parties would contribute $25,000. 111 At some time in around April 2004, Mr Parkinson had negotiated an unsecured $50,000 overdraft facility for the company and corporate credit card credit limits up to $30,000, all with the ANZ Bank. There was a requirement, amongst others, that all directors give a personal guarantee. On 22 May 2004, Mrs Gorman sent her personal details to the bank so that that advance might be processed. 112 On 1 June 2004, Mr Parkinson advised Mrs Gorman that the ANZ bank loan had been approved and requested her 2003 tax details. 113 In the email communication of 10 June 2004 entitled "Cash shortage", Mr Parkinson described the cash situation as "critical". He said: "We currently have less than $2,000 in our account and while there is a cheque for a little over $8,000 which should be cleared by tomorrow, we also need to repay an over-receipt of $6,000 at the latest tomorrow and we also need $3,500 cash for foreign exchange…There are few receivables that are due in the immediate future to relieve this situation." He said that it was likely that the situation would remain "critical for some time." 114 In cross-examination, Mr Parkinson was taken to the state of the company's bank accounts as at 10 June 2004. A trading account showed a credit balance of $1,967.48. However, the company also conducted a "premium business account". As at 10 June 2004, there were credit funds in that account of $31,907.89. It is probable that that amount did include the sum of $8,800 deposited that day. Nevertheless, the overall position of the company as portrayed by Mr Parkinson in his email was worse than that revealed by the company's banking records. Indeed, in referring to the one trading account only, it may be inferred that Mr Parkinson deliberately misled those who were attending the meeting. It is inconceivable that he was not aware of the existence of the other bank account. 115 On 11 June 2004, Mr Parkinson, as a director, issued a notice of board meeting to all directors to be held at 10:30am on 22 June. The agenda was stated as "To consider and if thought appropriate to pass the following resolution…to consider and discuss the future affairs of the company and the possible appointment of an Administrator." 116 There was evidence in the proceedings that around 11 June 2004, there was a conversation between Mrs Gorman and Mrs Parkinson. Mrs Parkinson advised Mrs Gorman that it was necessary to resolve the dispute that had arisen between the directors indicating that unless there was a resolution, it might be necessary to put the company into administration. At that stage, Mrs Parkinson made an offer to pay Mrs Gorman $250,000 to leave the company. Mrs Gorman asked where the money was coming from but received no reply. She later responded to that offer in correspondence, but the matter was not pursued further by either Mrs Gorman or Mrs Parkinson. 117 It was said on behalf of the applicants that such an offer was part of the plan which involved putting the company into administration, this being a threat which was made at the time that the offer was conveyed. 118 On 16 June 2004, Mrs Gorman wrote to Mr and Mrs Parkinson rejecting the offer that she had received to leave the company upon payment to her of $250,000. 119 Later in the letter, Mrs Gorman proposed a number of alternatives to the appointment of an administrator. These included use of the credit monies of approximately $71,500 in the company's cheque account, the use of an overdraft facility with ANZ bank which she understood to have been approved in the sum of $120,000, the calling up of shareholder contributions of $25,000 each as contemplated by Clause 7.2 of the shareholders' agreement and calling upon Mr McFarlane to contribute the balance of his agreed investment of $150,000, noting that he had contributed only $65,000 to that date. 120 On 21 June 2004, Mrs Gorman prepared a discussion paper for the board meeting the following day. It sought recourse to the company's accountants, Hall Chadwick, to examine the company's financial position and give some advice about it. She also proposed that further attempts be made to resolve the impasse between the directors. 121 On 21 June 2004, Mr Parkinson prepared a memorandum for directors for consideration at the board meeting the next day. 122 That memorandum first referred to an adjustment of $98,000 for a beneficiaries' loan account that was a hangover from the accounts of 30 June 2003, which had only just come to hand. This involved monies that were associated with the earnings of Mrs Gorman and Mr Matthews from the business prior to it being acquired by the company. This matter was said to be reflected in an updated balance sheet attached to the memorandum. 123 Mr Parkinson noted that a cash flow analysis, which was attached, "shows current payables exceeding available cash resources by $114,229. This situation will deteriorate significantly over the coming couple of months such that this will likely increase to around $180,000." An attached letter from Hall Chadwick enclosing the 30 June 2003 financial accounts stated that a total of $98,383.11, under the heading "Beneficiaries' Loan Account", included an amount of $77,566.75 for "drawings to be allocated." These appear to have been the net balance of a number of payments out of the business to, presumably, CIC. In cross-examination, Mr Parkinson said that the cash flow figures were provided to him by office staff. 124 The minutes of the directors' meeting, held on 22 June 2004, became evidence in the proceedings. All of the principal persons involved were present including Mr Matthews. There was tabled the memoranda prepared by Mrs Gorman as well as Mr Parkinson's memorandum to which I have earlier referred. 125 A motion by Mrs Gorman to appoint an independent auditor to audit the figures was defeated. Mr Parkinson indicated that he was confident that the cash flow figures that he had presented were sufficiently accurate. 126 There was a discussion about whether or not directors could forego salaries in the short term. There was no support for such a move other than from Mrs Gorman. 127 Mr Matthews gave evidence about what transpired at the meeting on 22 June 2004 when Mr Parkinson was explaining the documents that were attached to his memorandum. Mr Parkinson told him and the others present at the meeting that there was an immediate cash flow concern, that the company would not be able to pay its bills in July and that he thought that the position would get worse. A document prepared by Mr Parkinson showed that the deficit would be of the order of $114,000 by about the middle of June. It was Mr Matthews' recollection that there was a discussion that was confined to the information that was contained within the pages accompanying the memorandum, but Mr Matthews himself did not ask any questions about them. Mr Matthews was aware at the meeting that Mrs Gorman was proposing that the financial affairs of the company be analysed by its accountants so as to gain some assistance. She was denying that the problem was anything other than a temporary cash flow problem and she was further denying that the company was insolvent or approaching insolvency. Mr Matthews was aware at the meeting that Mr Parkinson rejected Mrs Gorman's suggestions. He conceded that he himself did not have sufficient financial acumen to be able to make his own judgment about the financial affairs of the company. He relied upon the information provided to him by Mr Parkinson. In doing so, he was supported by Mrs Parkinson and Mr McFarlane. Mrs Parkinson was in fact voting on his behalf and he had given her a direction to do so. 128 Mr Matthews was asked about Mrs Gorman's suggestion that each of the directors make a cash contribution to alleviate the cash position. He said that all of the directors except Mrs Gorman declined to do so because of the breakdown in the working relationship between all of them and Mrs Gorman. 129 There was then discussion about payment by Mr McFarlane of the $85,000 shortfall in his $150,000 contribution to equity. Mr McFarlane advised the board that no time frame had ever been agreed for payment of the balance of his monies and that he was unable to contribute any additional monies at that stage. 130 There followed a discussion about beneficiary loan accounts shown in the 2003 financial year. 131 Other suggestions, including seeking an additional equity partner and contribution of additional monies by shareholders, were also rejected. It transpired that no shareholder indicated ability or willingness to provide additional loans or funding to the company. 132 A motion "That in the opinion of the directors, the company is likely to become insolvent and an administrator of the company should be appointed" was passed by all directors, save Mrs Gorman who voted against it. Mr Parkinson proposed that Anthony Devries and Riad Tayeh be appointed as the independent administrators on the recommendation of his solicitors, then known as Abbott Tout. A motion appointing them as administrators was then passed, again by majority. 133 Mr Matthews said that there would have been difficulty in adjourning the meeting on 22 June to consider some of the matters put up by Mrs Gorman as to accounts receivable because of the dispute involving her. That dispute, he said, "was affecting our ability to focus on financial issues. At least in the sense I had that we needed to resolve issues quickly." 134 The principal documents relied upon by Mr Parkinson at the meeting on 22 June 2004 consisted of his memorandum of 21 June 2004, the contents of which I have earlier described, together with a balance sheet which appears to have been printed on 18 June 2004, and, significantly, some cash flow summaries which I shall describe in greater detail shortly. The balance sheet showed net assets of $77,687.97. However, this was calculated after taking into account as long term liabilities loans to B Parkinson of $150,000 and to C McFarlane of $65,000. The situation is, obviously, quite different if one takes those matters into account as capital contributions. Total cash on hand was shown as approximately $95,000 and trade debtors as approximately $92,000. 135 The cash flow document as at 18 June 2004 showed that the company was as at that date in a negative cash flow position of $114,229 and this was projected to increase to $149,860 as at 15 September 2004. Included in the "payables" was a sum then said to be owing to Attain of $63,000 and to CIC of $21,591. If either Attain, which represented the Parkinson interests, or CIC, which represented the interests of Mrs Gorman, was prepared to defer payment of those monies for some few months, then the cash flow position would have improved by about $84,000. 136 However, it was in the area of receivables that the applicants levelled the greatest attack on the cash flow analysis prepared by Mr Parkinson and presented by him to the meeting. 137 It must be remembered that Mr Matthews and Mr McFarlane said in evidence that they relied on the information prepared by Mr Parkinson in their support of the resolution to appoint an administrator to the old Institute. 138 Mr Parkinson was subjected to rigorous cross-examination concerning the amounts disclosed as both receivables and payables in the cash flow analysis and accompanying documentation which he had presented to the meeting. He said that he had asked a number of persons in the office to make enquiries of individual clients to assess the likelihood of payments to be made to the company and the timing of those payments. Those enquiries had been made by persons who interfaced with each of the clients concerned. There was a great deal of cross-examination directed to whether or not the information obtained was accurate and whether it should have been included in the documentation presented by Mr Parkinson to the meeting. There is no evidence available to the Court to enable any assessment to be made about the nature and extent of the enquiries made of individual clients and the accuracy of the information obtained. 139 Mr Parkinson said that he had provided those attending the meeting with a profit and loss statement at some point before the meeting occurred. That profit and loss statement appears to have referred to the period 1 September 2003 to 31 May 2004 and was printed on 11 June 2004. It shows a net trading loss of $29,871.12. 140 However, there is evidence that if Mr Parkinson had called for a profit and loss statement for the period 1 July 2003 to 22 June 2004, the date of the meeting, this would have revealed a net profit of $111,196.03. This information comes from a profit and loss statement printed on 9 July 2004. The facility to print such a profit and loss statement for that period was the MYOB accounting system that was used by the company. Mr Parkinson did not give any satisfactory explanation as to why he could not have printed off such a document on 22 June 2004 to present to those attending the meeting. This would have created a much different trading picture for those attending the meeting. It showed that even after payments made to the companies associated with the directors and, presumably, all other known expenses, there was a net trading profit exceeding $111,000. As I have previously stated, Messrs Matthews and McFarlane relied explicitly on the information being given to them by Mr Parkinson. There is no reason to doubt that Mrs Parkinson also relied on information provided to the meeting by her husband. 141 In cross-examination, Mr Parkinson characterised the difficulties confronting the company as being "a short term serious cash problem." He was asked whether this indicated that the company was at that stage insolvent and he responded that it was. Whether or not Mr Parkinson honestly believed that the company was insolvent is a matter that I am unable to determine. However, as I have indicated elsewhere in these reasons for judgment, there are many aspects of the evidence of Mr Parkinson that indicate, in the kindest sense, an inclination to be loose with the truth. As an example, in cross-examination, Mr Parkinson was asked whether he was the managing director of the new Institute. He denied that he was and said that he could not recall ever putting himself forward as the managing director. He was shown a printout from the new Institute's website. It describes Mr Parkinson as "managing director" and contains a photograph and background information about him. This cannot, in my opinion, be a matter of insignificance such that it might slip Mr Parkinson's mind. It is again indicative of a carelessness with the truth. 142 As will be seen, there was, at that stage, no convincing argument to be made out that the company was insolvent. 143 In his evidence, Mr Parkinson complained that after he had invested in the business he discovered an entry in the accounts of the former business operated by Mrs Gorman and Mr Matthews of a "beneficiary loan" of $98,383. This, he said, included a $30,000 loan to Mr Matthews about which there was no paperwork and no details of repayment and the like. He said in a sworn reply document filed in the proceedings on 19 December 2008, of the balance of $68,000, that it related to costs which should have been reflected in the accounts for that year, namely the year commencing 30 June 2003, the costs were not so reflected and therefore the profit should have been reduced accordingly. 144 In the sworn reply, Mr Parkinson said, referring to these monies, that during the board meeting held on 22 June 2004 "the directors considered the available options to do with the impending cash crisis and the repayment of the beneficiary loan was also discussed as a possibility. The first applicant not only refused to repay the loan but refused to accept or acknowledge responsibility at all for the loan despite executing the accounts on behalf of the respondents." 145 In cross-examination, Mr Parkinson was taken to the accounts prepared by the liquidator of the old Institute, which reflected the situation in June 2004. Those accounts showed that in fact the old Institute owed Mrs Gorman's company, CIC, the sum of approximately $57,000. This is a fact that would have been well known to Mr Parkinson when he swore to the truth of the reply document. 146 Although taken to the matter in some detail in cross-examination, Mr Parkinson was at first reluctant to concede that his sworn reply document was incorrect. He endeavoured to explain what he had put in the sworn document as being referable to the allocation of the beneficiary loan in the accounts of the business previously conducted by Mrs Gorman and Mr Matthews. However, such an explanation is not credible given the clear language used in the reply document. 147 Looked at in terms most favourable to Mr Parkinson, this indicates that he was content to be loose with the truth. It is also indicative that he misled those present at the meeting on 22 June 2004. 148 I should add that Mr Parkinson continued to maintain that disputed unallocated payments to Mrs Gorman and Mr Matthews, which were a hangover of the period to 30 June 2003, in some way impacted upon the profitability of the company. Even assuming that this were correct, Mr Parkinson agreed that as at 22 June 2004 the profit of $111,196 would have been reduced to something like $63,000. 149 Mr Parkinson said that in creating the cash flow figures for presentation to the directors at the meeting, he did not take into account the totality of the value of work in progress but only that which related to invoices which were likely to be raised within the time periods referred to in the documents. This would, in my opinion, have skewed the resulting figures so as to concentrate on what Mr Parkinson described as the immediate cash flow problem and upon which he was asking everyone to focus, but would not have allowed a countervailing approach to be taken on the basis that there was, in reality, an amount of revenue which might confidently be taken into account as work in progress which might provide some comfort as to the financial viability of the company. 150 I agree also with submissions made on behalf of the applicants that the cash flow documentation prepared by Mr Parkinson showed that of the expenses about 70 per cent of them were monies payable to the directors or their companies. 151 As it transpired, the documents which were prepared at Mr Parkinson's instigation and which were relied upon by him in asserting a case for the appointment of an administrator and relied upon by the others at the meeting (save for Mrs Gorman) in accepting the assertion were significantly inaccurate. 152 I set out below a table that compares the predictions of Mr Parkinson as contained in the documents as to the receivables with actual receivables as recorded in documents that became evidence in the proceedings. Date Mr Parkinson's prediction of receivables Actual receivables received 18 06 04 $11,936 $5,808.69 01 07 04 $57,560 $27,524.34 15 07 04 $4,050 $144,631.57 01 08 04 $84,592 $68,654.43 15 08 04 $15,950 $127,924.09 01 09 04 $133,321 $128,698.38 153 The total receivables predicted by Mr Parkinson within the relevant periods was $307,409. The actual amounts received totalled $503,241.50. As the applicants pointed out in submissions, the amount predicted to 15 July 2004 was $73,546 whereas the actual amount received was $157,964.60. 154 The applicants relied upon a lack of evidence given on behalf of the respondents concerning approaches made to a number of clients of the company including the ANZ Bank, JP Morgan, the Asian Development Bank and the like. These were substantial clients producing substantial revenue for the company. 155 It was said on behalf of the applicants that the discrepancy between the estimated receivables and what occurred in fact within a relatively short period of time demonstrates that the document was either "deliberately misleading" or "grossly incompetent." 156 Mr Parkinson gave evidence that he rejected any suggestion made by Mrs Gorman that the state of the accounts of the company be reviewed by its accountants, Hall Chadwick. He said that the people in the best position to review cash flow were the people dealing with the clients. 157 Mr Parkinson was asked why at the meeting of 22 June 2004 he rejected any suggestion that the company avail itself of an overdraft facility that had been negotiated with the ANZ Bank. At that stage, on the evidence, all of the directors had indicated that they were prepared to give personal guarantees to support the facility. It was the evidence of Mr Parkinson, and this is consistent with that given by the others, that in reality they did not wish to continue in business with Mrs Gorman and that it was principally that reason, and perhaps that reason alone, that precluded the meeting from agreeing to any of the suggestions made by Mrs Gorman which might have the effect of staving off the appointment of an administrator. As was said by Mr Matthews, the company at that stage was dysfunctional and it was necessary to resolve the problems with Mrs Gorman. 158 I reject the assertions made by the respondents that the individual respondents were justified in resolving that the company be placed into administration because of its financial situation and because, in particular, there was a serious cash flow problem, as asserted by Mr Parkinson, or there was some doubt as to the solvency of the company which he professed to be his opinion at the time. The company was trading profitably, even after allowing for remuneration for the directors at the equivalent of $600,000 per annum and if there was a short term cash flow problem, it was just that and something which could have been accommodated either by the use of the ANZ Bank facility or by directors foregoing some part of their drawings. 159 It is clear that prior to the meeting on 22 June 2004, Mr Parkinson had met with the persons who were to be appointed administrators and had communications with them. He, his wife and Messrs Matthews and McFarlane were all eventually of the opinion that an administrator should be appointed so as to resolve the continuing difficulties which Mrs Gorman's presence created. In fact, once the administrators were appointed, the company carried on business "as usual". There was no attempt to refer on any of the company documentation to the fact that an administrator had been appointed. The company continued to operate as previously. 160 Mr Matthews said that shortly after the company went into administration, Mr Parkinson advanced some money for the cost of the administrator. He said that after the company was placed into administration, the business continued to operate and that it was eventually sold to another company of which he had a 25 per cent shareholding. He said that Mr Parkinson played a role in his acquiring that 25 per cent shareholding and that he was not required to pay any monies to acquire that shareholding. Administration and sale of the company 161 Consequent upon the appointment of the administrators on 22 June 2004, a meeting of creditors was conducted by them on 28 June. The chairperson, Mr Tayeh, advised the meeting that "each director present in Sydney was approached to fund the ongoing operations of the business. Except for Mr Barry Parkinson all the other directors advised that they were not in a position to provide ongoing fund (sic) to continue the business." Mr Parkinson had also given undertakings to indemnify the voluntary administrators. 162 According to the minutes, Mr Tayeh then "indicated that the assets of a service company was particularly difficult to realise as the substantial asset/goodwill rested in the minds of the directors and employees thus making its value dependent upon whether or not the employees and directors stay with the company. The chairperson also indicated that the likely prospective purchaser may be one of a few of the current directors or someone in the same industry." 163 The meeting agreed that a committee of creditors would not be formed and arrangements were made for a further creditors' meeting when further financial information was available. 164 On 12 July 2004, the administrators circulated a report to creditors, and indicated that a second meeting of creditors would be held on 20 July 2004. 165 The administrators expressed the opinion that the company not be offered for sale as a going concern to the public "as it would diminish considerably the value of the business and result in a loss of the majority of clients." The administrators recognised that the predominant value of the company was its goodwill that would attach to those of the existing principals who determined to stay with the business. The report indicated that Mr Parkinson had advised that he would submit an offer to purchase the business as a going concern. The administrators recommended that the company continue to trade because it was doing so "on a cash flow positive basis". 166 The administrators' report noted in terms of the shareholding that in addition to the 175,000 shares held by each of the four shareholders, 300,000 shares were held in the name of IECA Equity Holdings Pty Ltd in which the current four directors were all shareholders, this being a company which was "to provide an incentive to retain employees by issuing them shares…this has not yet been effected." The stated shareholding does not reflect my understanding of the actual shareholding as reflected in an ASIC search. I shall refer to this later. 167 In their report, the administrators concluded that the company was not insolvent and they noted that the company was "profitable in its previous two financial years." 168 A balance sheet prepared by the administrators as at 22 June 2004 indicated that the company had cash assets of over $100,000, receivables of approximately $235,000 and other non-current assets of about $77,000. There were liabilities of about $320,000, leaving net assets of $97,740. Included in the liabilities was $55,000 due to the administrators of $30,000, liquidation costs of $20,000 and out of pocket expenses of $5,000. 169 A further creditors' meeting was appointed for 20 July 2004. 170 Mrs Gorman had attempted to introduce a Mr Kingsford-Smith as a potential purchaser of the business. He met with Messrs Matthews, McFarlane and Parkinson and Mrs Parkinson on about 12 July. He asked them whether they were interested in him investing with Mrs Gorman to buy the company. Mr Parkinson indicated that the proposal would be discussed. He would be advised if they were interested. No interest was shown in this proposal. 171 Mr Parkinson made a bid to acquire the assets of the company together with his wife and Messrs Matthews and McFarlane. For that purpose they incorporated Attain Coaching Pty Ltd and an offer to purchase was submitted. 172 On 19 July 2004, Mr Marc Ryckmans of the law firm Abbott Tout wrote to Devries Tayeh concerning the company, acting on behalf of Mr Barry Parkinson. The letter referred to a second meeting of creditors to be called on 20 July 2004 and sought to make an offer on behalf of Mr Parkinson to acquire the assets, business and undertaking of the company. The offer referred to the acquisition of the company through a nominee company for a purchase consideration "estimated" at $639,637.57. The purchase price was to include both a cash payment on settlement and the assumption of certain liabilities of the company. Those liabilities were pre-administration creditor claims, post-administration creditor claims, payment of or assumption of employee and contractor claims, payment of costs, fees and expenses of the administrator and "assumption of shareholder loan obligations". This latter amount was $254,511.84. There was specific reference in the letter of offer to claims made by Illumined, Bhukti Mukti Family Trust and the second applicant. The assets to be acquired included goodwill, plant and equipment, work in progress, book debts and the assignment of the lease. 173 There is in evidence a copy of a letter forwarded by Mr Ryckmans to Devries Tayeh about the same subject matter dated 21 July 2004. It was said to be forwarded by facsimile. It referred to a second meeting of creditors of the company that was convened that day and was adjourned. It recorded an offer made by Mr Barry Parkinson for the purpose of the adjourned meeting to acquire the assets, business and undertaking of the company through a nominee company for the sum of $418,924. The purchase price included goodwill of $1, plant and equipment of $18,675, intellectual property, manuals and databases and business names and company name at $1 each, work in progress and book debts of $212,553 and "funds held in bank account" of $187,692. These total, as I have said, $418,924. The letter of offer noted that the purchaser would be entitled to deduct from the purchase monies monies payable to a number of creditors, namely Mr Parkinson of $40,000, post-administration creditor claims of $33,197.78, employee claims of $36,206 and administrators' remuneration of $55,000. 174 Curiously, by email dated 26 July 2004, Mr Ryckmans sent to Mr Parkinson a revised letter of offer stating: "Just to tidy up loose ends, I have enclosed a revised letter of offer that reflects the sale agreement entered into on 22 July 2004." That revised letter of offer adjusted the purchase priced to $447,147. There was a reduction of work in progress and book debts to $202,481, a reduction of funds held in the bank account of $205,983 but the inclusion of a property lease valued at $20,000. 175 From the purchase monies, Mr Parkinson was to be paid $40,000 by way of loan repayment, $33,197.78 was payable to the administrators in discharge of debts incurred during the period of administration and $66,000 was to be paid for administrators' remuneration. 176 Attain Coaching changed its name to the Institute of Executive Coaching Australia Pty Ltd ("the new Institute") on 27 July 2004. All of the existing employees and contract staff continued to work for the new Institute under its new management. The shareholding in the new company was as to 50 per cent Mr and Mrs Parkinson and as to 25 per cent each, Messrs Matthews and McFarlane. 177 The administrators adjourned the meeting of creditors that was to be held on 20 July 2004 so as to effect the sale of the business. By memorandum to creditors dated 27 July 2004, they convened a further meeting of creditors for 4 August 2004 in order to ratify the sale of the business and to discuss the future directions of the company. 178 The administrators recommended that the company be wound up because it was then "clearly insolvent." Its insolvency was obvious consequent upon the sale of the business. 179 For completeness, I note that Mr Parkinson, as a director of the new Institute, wrote to CIC on 29 July 2004 referring to the sale of the assets of the old Institute. The letter pointed out, presumably referring to Mrs Gorman as well as CIC, that "you are neither a director nor a shareholder of (the new Institute)…and therefore there is no requirement for you to attend the premises on a daily basis. Contact with the clients who are now clients of (the new Institute) associates and other service providers in relation to the business conducted by (the new Institute) is to be limited to myself, Julie Parkinson, Chip McFarlane and John Matthews…Furthermore, you are no longer entitled to represent yourself as having an association with (the new Institute) or use the name unless you obtain the written approval from the directors." The letter indicated that a service agreement would be forwarded for consideration although, on evidence, no such agreement was ever created. Mrs Gorman was invited to contact Mr Parkinson to arrange to collect "items of a personal nature and return any company property." 180 Subsequently, the old Institute was placed into liquidation. 181 On 30 July 2004, Mr Parkinson wrote to the ANZ Bank furnishing information about the new Institute. That letter said, in part: "The company originally had two shareholders/directors who were also the practitioners, John Matthews (Illumined Enterprises) and Anne Gorman (Corporate Impacts). In September 03, the company was restructured to include two more shareholders, Barry/Julie Parkinson (Attain Consulting) and Chip McFarlane (Adept Communications). The company has expanded and developed its operations form a small home based operation to an organized business with offices in the CBD, support staff and a dozen "Associates"; sub-contract practitioners. It has a good spread of clients which continue to expand, most of whom are loyal with ongoing relationship. The company has also taken it first steps to move business activities also into Asia and we are seeing much growth and interest from this region. Over the past year, revenues have doubled. This expansion has required financing, which has been provided through shareholder loans primarily from me and another director, Chip McFarlane. During this time there have been some disputes in the Boardroom, mostly associated with one of the original shareholders (Anne Gorman) having difficultly (sic) releasing control. This is not unusual in such a situation, although this was a rather extreme example. The board was working to resolving the issue but having trouble moving forward in an efficient and effective manner. By early June 04 tensions in the Boardroom had risen such that it was clear some change was needed while at the same time it also became clear that existing financing would be insufficient in the short term and additional shareholder loans would be necessary. There was reluctance from the shareholders to invest more funds into the company without a resolution of the boardroom issues. Towards the end of June 04 the final accounts for year-ending Jun 03 (which had been handled by Anne Gorman) were eventually made available. These showed a Beneficiaries Loan from the company (to the original two shareholders) of almost $100,000 which had not previously been disclosed to the new shareholders. The Board met to discuss and resolve the requirement for additional short-term funding. The two original shareholders were unable or unwilling to repay the beneficiaries loan and on this basis, none of the shareholders were willing to provide additional shareholder loans to support the company. Your offer for a borrowing facility was available at the time but, under the circumstances, none of the directors were willing to provide personal guarantees and so the offer lapsed as discussed with you at the time. With no way to resolve the Boardroom issue and consequently no source of funds available, it was decided to put the company into voluntary administration. The company was put into voluntary administration on 22 June 04. All the assets of the company (including the name) were purchased from the administrator by Attain Coaching Pty Ltd (ABN 47 110 136 448) on 22 July 04 and the name subsequently changed to The Institute of Executive Coaching Pty ltd. With the exception of Anne Gorman (Corporate Impacts), the shareholders and directors of the new company are the same individuals a (sic) before; John Matthews (Illumined Enterprises), Barry/Julie Parkinson (Attain Consulting) and Chip McFarlane (Adept Communications). With the new structure, the shareholders are again able to raise shareholder loans and external funds to support the continued expansion in Australia and into Asia. If you remember, it was Anne Gorman who was unwilling to sign a directors guarantee, so I can now confirm that ALL directors are willing to give a directors guarantee." 182 There are two matters that are referred to in that letter which are incorrect. The reference to Mrs Gorman being unwilling to sign a director's guarantee was incorrect. She had indicated to Mr Parkinson in May 2004 that she would do so and she had furnished personal financial information in support of the then application to the ANZ Bank. The reference also to the "Beneficiaries Loan" is also, in my opinion, inaccurate. The fact is that on balance there were no monies owing by Mrs Gorman or CIC to the old Institute after making allowance for other transactions and assuming that there were monies due and owing from circumstances which prevailed prior to 30 June 2003 which might justify any such assertion. There is also no evidence concerning any controversy with the circumstances of Mr Matthews and any monies that he might have owed to the old Institute. At all stages, his circumstances were nurtured by Mr Parkinson and any suggestion of any difficulty arising out of any loan monies that might have been owing by Mr Matthews to the old Institute provided an excuse for Mr Parkinson to misrepresent the financial circumstances of the company. 183 I have already indicated that the ultimate purchase price for the business appears to have been fixed retrospectively by an email dated 26 July 2004 from Mr Ryckmans, the solicitor acting for Mr Parkinson. In a letter to the administrators dated 20 July 2004 but presumably sent on or after 26 July 2004, Mr Ryckmans, acting on behalf of Mr Parkinson, made an offer of $447,147 for the purchase of the "assets, undertaking and business" of the old Institute to be apportioned on the following basis: (a) Goodwill $1.00 (b) Plant and Equipment $18,675.00 (c) Intellectual Property $1.00 (d) Manuals and Databases $1.00 (e) Business names and the Company name $1.00 (f) Work in Progress and Book Debts $202,481.00 (g) Funds held in bank account $205,983.00 (h) Property Lease $20,000.00 (i) Contracts $1.00 (j) Business Records $1.00 (k) Stock $1.00 TOTAL $447,147.00 184 The letter noted that "on completion the purchaser shall be entitled to deduct the sum of $40,000 from the purchase monies being loan repayment to Mr Parkinson." 185 The letter then noted that the purchase monies were to be paid as follows: "(a) the sum of $33,197.78 shall be paid on completion and applied by the administrators in discharge of all debts incurred during the period of voluntary administration; (b) the sum of $66,000 shall be paid on completion and applied towards payment of the Administrators' remuneration; (c) The balance of the purchase price shall be paid within seven days of demand being made by the administrators and shall be applied in the following order of priorities. Firstly, towards payment of any additional amounts due under paragraphs (a) or (b); secondly, in payment of employee entitlements due to employees who do not agree to transfer their employment to the purchaser, and thirdly, in payment pari passu to admitted unsecured creditors of the vendor company." 186 That letter enclosed a draft sale of assets agreement that was ultimately entered into on 22 July 2004. 187 During the course of cross-examination, Mr Parkinson conceded that for the purchase price of $477,147, the new Institute received cash of $250,983, book debts of $202,481 and plant and equipment at a cost of $18,675 shown on the balance sheet as worth $76,892.88. Furthermore, Mr Parkinson agreed that an amount of $20,000 was included in the purchase price for the property lease, for which a bond of $90,000 had been provided to the lessor of the premises in Barrack Street. In addition, Mr Parkinson conceded that the new Institute obtained the benefit of the work in progress of the old Institute for no consideration. 188 In the course of cross-examination, and having made the concessions to which I have referred, Mr Parkinson was asked a number of questions which, in my opinion, are typical of what I regard as a persistent refusal on his part to recognise the reality of the situation. The following is an extract of the transcript: "Q. Isn't it the case that in respect of the property that was transferred the new institute got a benefit of some 70 odd thousand dollars? A. Yes I suppose it did. Q. In respect of the plant and equipment that was transferred the new institute got a benefit of some 58 odd thousand dollars? A. It showed a book difference in the balance sheet. The plant and equipment value was evaluated by administrator. Q. The plant and equipment component of the price was something that was put by you as part of your offer to purchase the business from the administrator was it not? A. That's correct. Q. And for the intellectual property, the contracts, the goodwill, stock, manuals and data bases, the business name and the company name and the business records, the grand total of $7 was paid as part of the purchase price? A. That's correct. Q. Isn't it the case that by operation of this asset sale agreement the new institute received a substantial benefit for its own use of it? A. Yes, it did. Sorry could you just repeat the question? Q. Isn't it the case that by this asset sale agreement, the new institute received a substantial asset from its own for its own use, namely the business that had been conducted by the institute for which it effectively paid no consideration? A. Is there more than one question there I am trying to answer? Q. By the asset sale agreement, the new institute, obtained the business that had been conducted by the institute? A. It obtained the assets that had been owned by the old institute. Q. And that included the business? A. It included all the items on that list. Q. And it included the business? A. Can you define what the business was? Q. Do you have a difficulty with the question that by the asset sale agreement the new institute acquired a business that had been conducted by the institute? A. I purchased the assets and the assets included all those items on the lists. HIS HONOUR Q. If you substituted "the activities that were previously carried out by the old institute" for the business, does that make the question any clearer? A. Yes. That's right. Then we did acquire the activities of the old business. FERNON Q. You acquired those activities effectively without the payment of any real consideration? A. A very nominal consideration." 189 The applicants in their submissions summarised the effect of what occurred in the following way: "206. For the amount of $447,147, the New Institute received as cash at bank and book debts of $408,464. For a deposit of $100,000 the New Institute received $205,983 in cash. 207. For $18,675 the New Institute received plant and equipment valued in the balance sheet of 30 June 2004 at $76,892.88 or a fair market value of $41,160, a benefit of $58,218 or $22,485. 208. For $20,000 the New Institute obtained the benefit of the $90,159.50 deposited for the rental bond, a benefit of $70,159.50 209. For $7 the New Institute obtained the Intellectual Property, the Contracts, the Goodwill, the Stock, the Manuals and Database, the Business Names and the Company Name and the Business Records of the Institute. 210. The New Institute obtained all of the Institute's work in progress for free, without the payment of any consideration. 211. In addition, the $40,000 paid by Mr Parkinson paid initially to the Administrators for his fees was deducted from the purchase price." 190 The purchaser of the old Institute, now the new Institute, obtained an assignment by all of the creditors of the old Institute of the debts owed to them by the old Institute, save for two creditors, namely the Australian Taxation Office and CIC. 191 Of the creditors who assigned their debts to the new Institute included were all of the trading creditors of the old Institute and the individual directors as well as their companies, save for Mrs Gorman and CIC. 192 Included within the debts owed to companies associated with these directors was the sum of $72,625.38 owed to Attain and a "loan" to Attain of $150,000. There was also included $18,715.88 owed to Bukti Mukti Family Trust and $18,861.23 owed to Adept together with a "loan" to Adept of $65,000. The joint and several liquidators of the old Institute were the persons who had been appointed as administrators. Using the net proceeds of sale received by the old Institute after deduction of the administrators' expenses etc, they were able to declare a dividend of about 60 cents in the dollar to the creditors of the old Institute. There were, as I have said, only three creditors, namely the Australian Taxation Office for $1,813.05, CIC for $57,536.29 and the new Institute, pursuant to the assignment by the creditors of the old Institute to it of $376,196.95. 193 The new Institute agreed to make up to the former creditors of the old Institute, other than the Australian Taxation Office and Mrs Gorman, the outstanding indebtedness not received by it by way of payment of the dividend. 194 In cross-examination, Mr Parkinson agreed that the amount claimed by Attain, on his instructions in connection with the liquidation, of $150,000 represented an overpayment of approximately $42,000. Accordingly, what was owed to Attain was approximately $108,000. Furthermore, Mr Parkinson conceded that the amount shown as owed to Attain in the books of the company, namely $150,000, should have been reduced to make allowance for salary sacrifice of $40,555.55 to $109,444.45. He also conceded that the salary and expenses of the amount claimed for salary and expenses should have been reduced by $40,555.55 to $32,069.83. 195 The applicants submitted that furthermore the amount shown by way of loan from Attain of $150,000 should have been reduced further. This was because the way in which the capital contribution of $150,000 to be made by Attain was structured in the form of a loan. The loan agreement to which I have previously referred contemplated that the loan would be extinguished at the end of three years. However, notionally, the loans so called should have been reduced each month by the amount of the remuneration supposedly foregone each month to reflect the progressive nature of the contributions to capital being made by Attain. Whether, in fact, Attain over claimed in the liquidation by about $80,000 or some other figure is a matter that I do not regard as necessary to determine. Nor do I need to examine whether all of the monies paid to Attain by way of remuneration, including the amounts notionally foregone to acquire capital, were the subject of disclosure as taxable income in the accounts of Attain and whether those amounts properly flowed through to distribution of income and became taxable in the hands of the shareholders of Attain. This is a matter for the Australian Taxation Office and not for this Court. 196 Suffice to say that the manner in which the new Institute acquired the old Institute and the "loan" which was repaid to Attain resulted in a significant advantage to Attain and, ultimately, its shareholders, Mr and Mrs Parkinson. If the sum of $150,000 had been showed as a capital contribution, it would have been an amount available for payment to all shareholders on liquidation including Mrs Gorman. 197 In the same way, Mr McFarlane derived a benefit from the characterisation of the $65,000 that he thought he was contributing by way of capital as a "loan", as arranged by Mr Parkinson. This loan from Adept was assigned to the new Institute and was recorded as a debt owed to Mr McFarlane personally in the accounts of the new Institute which lodged a proof of debt for the full amount which was fully admitted by the liquidator and paid. Again, if the $65,000 had been shown as capital, it would have been an amount available for distribution to all shareholders on liquidation including Mrs Gorman. 198 Mr Matthews also said that of an amount of about $96,000, which he owed to the old Institute at the time that it went into liquidation, that amount was written off by the new Institute creating a benefit to him. 199 In the case of Mr Matthews, the applicants submitted: "217. As at 22 June 2004, Mr Matthews owed the Business the following sums: (i) $368.96 being the deficit in his loan account as at 29 June 2003; (ii) $53,310.62 being his share of the allocation of the beneficiary loan account as determined by the liquidator; (ii) $15,869.96 being monies taken as drawings for the period from 1 July 2003 to 30 August 2003. TOTAL: $69,179.58. In fact in the liquidation, Mr Matthews' Bhukti Mukti Family Trust received $18,715.88 and the above amounts were written off." 200 I agree with this submission. 201 I agree with the applicants' submissions that each of Messrs Parkinson, Matthews and McFarlane and Mrs Parkinson derived a significant advantage and significant benefits as a result of the course of action that they pursued in excluding Mrs Gorman from the business. They were able to achieve a situation whereby they continued to operate the business in circumstances where Mrs Gorman no longer had any interest in it and they achieved this with little financial outlay and benefited also from the value of work in progress. Furthermore, Mrs Gorman was excluded in circumstances where she was denied any compensation for the loss of her interest in the business and she was denied the ability to derive any further income from the operation of the business. 202 The applicants asserted that there was at all times a plan to achieve this result, conceived and driven by Mr Parkinson. I do not think that the evidence establishes that there was a detailed, structured and carefully thought out plan of this kind although it was the evidence of Mr Matthews that Mr Parkinson said that he did have "a plan". It does not matter, in my opinion, however as to whether or not there was a plan in the sense contended for by the applicants. There was a course of conduct by all of the principals involved, led substantially by Mr Parkinson, which brought about the situation about which the applicants complain. 203 Of course, the course of conduct upon which the respondents embarked needs to be understood in the context of all of the circumstances that applied at the time. These circumstances included, significantly, the breakdown in interpersonal relationships between Mrs Gorman on the one hand and the remaining principals on the other. It is not necessary to allocate culpability in what occurred. There is, as I have referred to, significant evidence that indicated that Mrs Gorman's behaviour and conduct was unsatisfactory in the eyes of all of the other principals, and in particular Mrs Parkinson. Whilst there were allegations made by each of the warring factions against each other, in essence a situation was reached, as acknowledged by all, that impacted adversely on the relationships between the principals to such an extent that the performance of the business suffered. In these circumstances, something needed to be done to break the deadlock between the parties. As I have referred to, the parties did voluntarily participate in mediation. That mediation failed ostensibly because Mrs Parkinson discovered the existence of a document which Mrs Gorman had prepared some time previously and which seemed to indicate that Mrs Gorman had reneged on a position that she had previously agreed to. Mrs Parkinson reacted so emotionally when she discovered the document that it was impossible for the mediator, a trained psychologist, to discuss the matter with her in any rational way. Mrs Gorman reacted angrily to Mrs Parkinson's emotional response and that brought about an end to the mediation process. 204 One of the other circumstances that needs to be considered in this context is the fact that, ultimately, Messrs Matthews and McFarlane decided to join Mr and Mrs Parkinson in carrying on the business. I take into account also that Mrs Parkinson offered Mrs Gorman $250,000 for her to leave the business. Mrs Gorman enquired "where the money was coming from" to which Mrs Parkinson gave no answer. Nevertheless, Mrs Gorman did not pursue the matter further other than, later, to offer to leave upon payment of a much larger figure. 205 It is inescapable on the evidence that the respondents who were parties to the shareholders' agreement did not comply with the provisions of the agreement in terms of accessing the ANZ Banking facility or considering contributing money towards the business solely because of the breakdown in the relationship of all of them with Mrs Gorman. Not one of them wished to proceed in the business with Mrs Gorman so that any attempt to rescue the company from the short-term cash flow problem would not have resolved the underlying difficulty that they faced, namely dealing in some way with Mrs Gorman. Was the arrangement unfair? 206 When determining matters of unfairness under s 106 and application of its provisions, it is clear that any value judgement exercised must be made on an objective basis having regard to, and reflecting, contemporary community values and standards. I have discussed my understanding of these matters in Schwartz v Central Sydney Area Health Service & Anor [2002] NSWIRComm 79 at paragraphs [71- 73] and [81- 82]. "[71] It is a trite observation that a pre-condition for the exercise of any power under s 106 is a finding that the relevant contract is unfair. A helpful discussion as to the approach of the predecessor tribunals to this Court to the determination of whether a contract etc is unfair is contained within the joint judgment of Fisher CJ and Hungerford J in the Industrial Court of New South Wales Full Court in Baker v National Distribution Services Ltd (1993) 50 IR 254. At 271 their Honours said: 'The test of unfairness within the meaning of s 88F of the Industrial Arbitration Act, and hence s 275 of the present Act, has received much attention by the Court and by the previous Industrial Commission over very many years, but, in our review of the cases, the approach stated by Sheldon J in Davies v General Transport Development Pty Ltd [1967] AR (NSW) 371 over 26 years ago has endured; his Honour commented (at 374) that unfairness of a contract or arrangement was to be determined according to "the common sense approach characteristic of the ordinary juryman ….It is a plain matter of morals not law." His Honour cautioned, however, (at 374,375) that the section's "massive power makes it imperative that it should be exercised with proper restraint … it should not permit itself to become a refuge for those who are merely disgruntled with a bargain entered into on even terms. … the discretion should be exercised to protect victims of wrong dealing not to prescribe anodynes." Those words by his Honour echoed what had been said earlier by Beattie J in Agius v Arrow Freightways Pty Ltd [1965] AR (NSW) 77 at 89 that it was a matter of deciding "in each particular case by the application of the tribunal's common sense and sense of justice whether a particular transaction is unfair, harsh and unconscionable". The nature of the unfairness attracted by s 88F was considered later by the Industrial Commission in Court Session (Perrignon and Dey JJ, Cahill J dissenting) in A & M Thompson Pty Ltd v Total Australia Limited [1980] 2 NSWLR 1 at 13 as follows: "It has been said that fairness is determined by the commonsense approach of a juryman and that it is a moral and not a legal issue ( Davies' case). Whether this be so or not, it does seem that in distinguishing between what is fair and what is not fair the Judge must apply standards which appear to him to provide a proper balance or division of advantage and disadvantage between the parties who have made the contract or arrangement. In doing so he would always have to bear in mind the conduct of the parties, their capability to appreciate the bargain they had made and their comparative bargaining positions when entering into the contract or arrangement." (At 271-2). [72] It is my understanding that in determining whether there is unfair conduct for the purpose of proceedings brought under s 106 and especially under sub s (2), the Court is required to exercise a value judgment reflecting contemporary community values. The contemporary values may be derived from the commonsense approach characteristic of the ordinary, reasonable, hypothetical 'standard' member of the community. Such a person will be neither an employer nor an employee, must be careful to weigh up the competing interests of the applicant as an employee and the respondent as an employer and those interests must be accommodated and viewed objectively and balanced within the context of the factual matrix which applies to them. Such a process will accommodate the reasonable requirements and understanding of an applicant as an employee and the reasonable requirements and understanding of a respondent as an employer in the context of the needs of the employer to undertake its activities in an efficient, effective and competent manner. [73] Of course the identification of contemporary community values is not without its own difficulties. Some insight as to the difficulties involved may be gained from the discussion by Professor John Braithwaite in the article entitled Symposium on Community Values in Law published in vol.17 of the Sydney Law Review at 351. Professor Braithwaite draws on a body of literature to make a distinction between community attitudes and community values, the former not necessarily assisting a court in determining a matter, the latter having much greater relevance. An obvious example of an attitudinal matter is the debate concerning abortion. The corollary and underlying value against which such debate is conducted is 'respect for human life, health, freedom of choice'." "[81] I have already referred to the process which is involved in determining whether a contract or arrangement etc or conduct is unfair. In the context of this process it is important to observe that there will be many cases where there is no absolute defining boundary which delineates what is fair from what is unfair. Often a range of conduct or activities may be said to fall within the limits of what is assessed to be fair, and, by corollary not unfair. This is because of the lack of absolute and scientifically determined criteria which differentiate the concepts of what is unfair. [82] The assessment which is to be made judged by the standard of the ordinary, reasonable, hypothetical 'standard' member of the community is not capable of precise analysis and delineation. There will be a variety of opinions held by such a person. The exercise of a value judgment in these circumstances is obviously made more difficult, but it is a difficulty which is not confined to judges of this Court. By way of analogy, evaluations of what is 'reasonable' are made daily by judges in all courts determining claims based on breach of duty of care in negligence, and those brought under certain provisions of the Trade Practices legislation." 207 The above observations were made by reference to an employment relationship. However, they apply equally to the circumstances of these proceedings. The position here is that five individuals voluntarily came together to participate in and promote a business that had been established by two of them, which they all saw as having good potential for growth and profitability. Some of them were to make different contributions to the business. Some were to be involved more than others in the promotion and marketing of the business. Some more than others were to be involved in the actual activities of the business. Mr Parkinson, and to some extent Mrs Parkinson, were to be involved in the administration of the business and in and about its management needs. The individuals agreed to utilise a corporate structure to conduct the business and for this purpose became parties to the shareholders' agreement, to which I have earlier referred. 208 No doubt flushed with an optimistic view of their prospects of success, they focussed their attention on conducting and promoting the business. It seems they did not retain a lawyer. Lawyers are trained to direct attention to what might happen if things go wrong. Thus, they failed, on the evidence, to consider what might happen if, as it transpired, they were unable to get along with each other to such an extent that the business became dysfunctional. 209 The only possible area of agreement that might apply in these circumstances was the shareholders' agreement made on 3 November 2003, albeit after they had started in business together. It contains provisions dealing with the transfer of shares in the company. The shareholders' agreement established a mechanism for the transfer of shares requiring the issue of a transfer notice to the Board in the event that a shareholder wished to transfer its shares. 210 A transfer notice is deemed to have issued with respect to a shareholder if the shareholder is in default under any of the provisions of the shareholders' agreement and has failed to rectify a breach within 30 days after a notice of that breach has been given from another shareholder requiring remediation. Furthermore, a transfer notice is to be deemed to have issued in the event of a shareholder being wound up, receiver or receiver/manager appointed, the assets of the shareholder being subject to execution or other process by result of a court or other order, a shareholder having ceased to pay its debts or having threatened to cease to carry on business or become insolvent, an administrator, trustee, liquidator, etc having been appointed to the assets of the shareholder or a shareholder having entered into or resolved to enter into an agreement etc for the benefit of creditors generally or any class of creditors or proceedings having been commenced to sanction any such arrangement. 211 The result is that in addition to a shareholder wishing to transfer its shares, the provisions of the shareholders' agreement with respect to transfer of shares apply also in the event of a shareholder being in default of a provision of the agreement or a shareholder being the subject of, or potentially being the subject of, some financial crisis. 212 There is provision in the shareholders' agreement for the determination of the fair value of the shares. This is to be calculated by "dividing the value of the net assets of the company by the total number of shares for the time being issued by the company." The value of the net assets of the company is calculated "by deducting from the aggregate of the book value of all of the assets of the company…the book value of all of the liabilities of the company at that time…plus the value of the goodwill of the company." The goodwill of the company is agreed by the shareholders to be calculated, relevantly, for the year ending 30 June 2004 at $1 million. 213 I shall return to the calculation of the net value of the shares in the company later in these reasons for judgment. 214 For present purposes, I observe that the transfer of share provisions contained within the shareholders' agreement provide in the main with a mechanism for dealing with the transfer of shares in the event that an existing shareholder voluntarily wishes to do so or there has been, as I have indicated, a financial crisis or potential financial crisis suffered by that shareholder. I should add that no transfer of shares may be made to a third party, "if, in the reasonable opinion of the majority of Shareholders (other than the Shareholder transferring its shares), the third party is not of good standing, financial substance and reputation." Accordingly, these provisions of the shareholders' agreement do not deal with any circumstances that might necessitate a transfer of shares by reference to the circumstances attaching to any of the individuals who are parties to the agreement which I have previously identified. Such circumstances might include a desire to retire from the business generally or because of ill health, the ill health of a family member or for other reasons of a personal nature. 215 What is missing from the agreement made between the individuals is any provision dealing in any way with what might happen if one of them became incapacitated, bankrupt or wished to retire or in some way conducted himself or herself in a manner warranting exclusion from the business. Significantly, the agreement does not contemplate or deal with the circumstances that might arise where any of them were no longer able to work with any other of them. 216 The failure to make provisions for such an eventuality and to deal with it in an agreement will not of itself render the agreement unfair for the purposes of s 106. Something must happen which renders the agreement relevantly unfair by reason of the failure to include a provision accommodating events such as these. 217 So much is provided for specifically in s 106(2). In this context it is necessary to emphasise that an agreement may become unfair either because of particular provisions or because it fails to accommodate or deal with particular circumstances. 218 In considering whether the omission to deal with any such matter is unfair, it is also necessary to consider what type of provisions if they have been inserted would render the agreement fair. Such a consideration is necessary firstly to assist in analysing and determining the nature and extent of the unfairness and secondly, if the agreement is found to be unfair, in considering what variation to the agreement might appropriately be made. 219 In considering the circumstances of this agreement, it is necessary to take into account a number of factors: 1) The agreement was to take over an existing business which had been run successfully for some time by Mrs Gorman and Mr Matthews in which they were, in reality, equal shareholders. 2) The "clientele" of the business at the time that the agreement was made belonged to Mrs Gorman and Mr Matthews, in the sense that clients of a lawyer or accounting partner or patients of a medical practitioner may have a personal attachment to a particular individual. 3) In addition to Mrs Gorman and Mr Matthews, only Mr McFarlane had at that stage experience and expertise in executive coaching. Mr McFarlane was not an original proprietor and it was the intention of all that he would purchase his share of the business. 4) Mr and Mrs Parkinson had no experience or expertise as executive coaches but between them had considerable experience in marketing, systems, and the administration and management of businesses. They too were intended to pay monies to acquire an interest in the business. 220 In these circumstances, it might be assumed that the "clientele" in the nature of the ANZ Bank, Asian Development Bank, and the like "belonged" predominantly to Mrs Gorman and Mr Matthews. If there was a dissolution of the agreement and everyone went their own ways, these two individuals might be thought to have a better chance of holding this clientele than Mr McFarlane and certainly a better chance than Mr and Mrs Parkinson. If this were to happen then in fairness some mechanism would need to be put in place to protect Mr and Mrs Parkinson's investment in the event that the agreement fell apart. Certainly, any surviving participants might not want Mr and Mrs Parkinson, in those circumstances, to continue to derive profit from their shareholding. On the other hand, if the arrangement fell apart in circumstances where any one of Mrs Gorman or Messrs Matthews and McFarlane decided to walk away from the business, there might need to be some protection given to the remaining partners by way of non-compete clauses, restraints of trade and the like so as to protect their interest in the business. In the same way, agreements of this kind when reduced to writing and if drafted by a lawyer commonly require mandatory submission to mediation. 221 All of these matters would be required to be taken into account for the purpose of assessing whether, in the circumstances that I have outlined, the agreement by its terms or omissions was unfair. 222 I now consider what provisions should apply to the agreement in the circumstances of these proceedings to render it not unfair. Because all of the principals other than Mrs Gorman had determined to carry on the same business without her, I shall assume that the option of starting her own business and acquiring the necessary infrastructure and endeavouring to tempt away her "contacts" from the existing business would be difficult to implement. On this basis, it is necessary to focus attention on the two matters which Mrs Gorman asserted, as a matter of fairness, should have been attended to by each of the individual respondents as part of the agreement which she had with them, the omission of which rendered it unfair. The one related to the value of her interest in the business. The other related to her exclusion from an income stream. 223 Having regard to the circumstances in which the parties made the agreement to which I have referred, and the circumstances that apply to that agreement, it was, in my opinion, unfair that it not contain a provision which would fairly compensate any of the parties including Mrs Gorman for the value of their interest in the business and for the loss of income from the business in the event that the personal relationship between any of them and the other parties broke down. As a matter of fairness, some provision should have been contained in the agreement to have accommodated these basic concerns of Mrs Gorman. To the extent that no such provision was contained in the arrangement, it was unfair at the time that it was made. To the extent that the failure to make any such provision allowed the individual respondents to enter upon a course of action that brought about the exclusion of Mrs Gorman from the business, it became unfair. 224 Consequent upon these findings, I would propose varying the agreement to make provision for the payment of compensation to Mrs Gorman to accommodate the loss of the value of her interest in the business and to make provision for the payment of reasonable monies with respect to her loss of income. The value of the applicants' interest in the business 225 On one view of it, the value of the business should reflect the fair value of the shares as contemplated by the parties in the shareholders' agreement, which I have found to be a contract that is collateral to the agreement made between the parties. Under the share agreement, the value of the net assets of the company is calculated by deducting from the aggregate of the book value of all of the assets, the book value of all the liabilities together with the value of the goodwill of the company. 226 A balance sheet of the company as of 23 June 2004 shows the value of current and fixed assets of $474,746.77. It shows total liabilities of $298,821.13 leaving the value of net assets at $175,925.64. However, included in these liabilities are amounts shown by way of "loan" to Attain and to Mr McFarlane totalling $215,000. If these amounts, which in my opinion should be treated as capital for the purpose of considering "just" compensation under s 106(5), are excluded then the net value of the assets as shown by the balance sheet as at 23 June 2004 was $390,925.64. If the figure of $1 million is added to this, then the value of the net assets of the company is $1,390,925.64. 227 The shareholders' agreement then requires that that amount be divided by "the total number of shares for the time being issued by the Company." As I understand the evidence, 150,000 shares were issued to each of the four principal shareholders. I proceed, therefore, on the basis that each of the parties or groups of parties may be considered to have had a 25 per cent interest in the company, including Mrs Gorman. On this basis, the applicants asserted that I should adopt the agreed goodwill value of $1 million for the purpose of calculation of Mrs Gorman's interest. 228 The respondents, however, suggested that the Court should adopt a calculation of the value of the goodwill made by Mr Parkinson. Whatever Mr Parkinson's expertise, I am not prepared to rely upon his calculation of the value of the goodwill of the business. It was undertaken for the purpose of discussions and negotiations leading up to the making of the agreement. Mr Parkinson has qualifications as an engineer but not as an accountant nor as a valuer. 229 A difficulty in resolving this matter lies in the fact that each of Mr and Mrs Parkinson and Mr McFarlane agreed with Mrs Gorman and Mr Matthews that they would be entitled to acquire what was, in effect, a 25 per cent share of the business upon payment of the sum of $150,000. Of course, in making these calculations, they referred only to the 60 per cent of the shares that were allocated in the aggregate to all of them. For some reason, they did not take into account the 30 per cent of the shares that were to be allocated to a company of which their interests were each a 25 per cent shareholder. On this basis, the amount that should have been paid so as to reflect an interest of 25 per cent would have been $225,000, in lieu of the $150,000 agreed to be paid and received. 230 However, this is not what the parties did. In circumstances where Mr and Mrs Parkinson and Mr McFarlane committed to pay $150,000 for what was effectively a 25 per cent shareholding, I am of the opinion that fairness dictates that the same figure be applied to what ought properly be payable to Mrs Gorman to represent the value of her interest in the goodwill of the business. Consistent with this approach, I am of the opinion that in fairness I should also apply the remaining provisions of the shareholders' agreement which take into account the net assets of the company. In doing so I intend writing back the amounts shown as loans to Attain and Mr McFarlane because these amounts should never, in my opinion, have been considered as loans but as capital contributions, again as a matter of fairness. The net assets after writing back this amount are $390,925.64. One quarter of that amount is $97,731. Accordingly, the value of Mrs Gorman's goodwill in the business, with the addition of the sum of $150,000, totals $247,731. 231 Furthermore, there is no account taken in the balance sheet of work in progress. This is an amount that, in my opinion, should be properly taken into account in assessing the value of Mrs Gorman's interest in the business. There is no evidence that I can see that would establish the value of work in progress as at the date that the administrator was appointed to the business. I intend ordering that accounts be taken to establish that amount and that Mrs Gorman be entitled to one-quarter of it. Loss of income stream 232 In addition to the value of her interest in the business, Mrs Gorman, as well as the other principals, was entitled to derive monies by way of remuneration for the work that she performed. The applicants claimed that compensation should be awarded to accommodate three years remuneration at $150,000 per annum. The respondents submitted that in the event that unfairness should be found, having regard to the limited period during which the company operated, an amount at the most equivalent to three months remuneration would be appropriate. 233 The respondents did not at any stage suggest that the circumstances surrounding the decision by them to exclude Mrs Gorman was made referrable to any conduct which was of such a kind that it would justify exclusion without notice if Mrs Gorman was an employee at law and the company was an employer. There is no suggestion of any gross misconduct that involves dishonesty or gross dereliction of duties or the like. Nevertheless, the respondents submitted that the conduct of Mrs Gorman in all the circumstances was inconsistent with the ability of the principals to continue together in the business. There was disputation between the parties and resistance by Mrs Gorman about a number of matters which covered, as the respondents submitted, almost every initiative which was proposed by persons other than Mrs Gorman. 234 The applicants submitted that notwithstanding the interpersonal difficulties which had arisen, the Court should take into account the level at which Mrs Gorman worked, namely as principal in the business, the fact that the business itself had been in operation since 1999 and Mrs Gorman's age, which would make it virtually impossible for her to secure alternative employment. 235 The overwhelming evidence is that all of the other principals and some of the staff were resistant to Mrs Gorman's continuing involvement in the activities of the business brought about by her conduct. I take this into account also in assessing what compensation ought justly be awarded to accommodate the loss of income stream that she has suffered. Having regard to all of the circumstances, including those pressed by the applicants, I assess the amount of compensation that should be awarded in this regard as equivalent to six months remuneration, namely $75,000. 236 The applicants sought orders for costs and interest. The parties asked that I reserve costs and I shall do so. I shall also reserve the determination of interest to allow the parties to make submissions about this aspect of the applicants' claim also. Conclusion and orders 237 I have found the agreement made by and between each of the individuals in June 2003 to be unfair for the reasons that I have set out. I do not find it necessary to determine whether or not the shareholders' agreement, which I have found to be a collateral agreement, is unfair. As I have previously pointed out, the shareholders' agreement does not deal in any way with the circumstances in which each of the individuals agreed to become involved in the business of the old Institute, and in particular the capital contributions to have been acknowledged in the case of Mrs Gorman and Mr Matthews or to be made in the case of Mrs Parkinson and Messrs Parkinson and McFarlane. 238 I conclude that the agreement must be varied as a consequence of the findings of unfairness that have been made and in order to remove that unfairness. Furthermore, monetary orders should be made to appropriately compensate Mrs Gorman for the losses sustained by her as a result of the unfairness visited upon her by reason of her exclusion from the business and the loss of the value of her interest in the business and of an earnings stream from the work that she performed in the business. The named individual respondents should be jointly and severally liable to pay those monies because each benefited from the unfairness, which I have found, in the manner to which I have earlier referred. 239 I make the following orders consequent upon the findings of unfairness which I have made: The agreement made in June 2003 between Anne Gorman, Barry Parkinson, Julie Parkinson, Chip McFarlane and John Matthews is varied as and from 22 June 2004 to provide as follows: 1) Notwithstanding any other provision of this agreement, in the event that the parties other than Mrs Gorman in their capacity as directors of the company now known as ACN 106 277 758 Pty Ltd (in liquidation) resolve to have that company put into administration and that the consequences thereof include the effective exclusion of Mrs Gorman from the business conducted by that company and result in a loss by her of the value of her interest in the company, then they will pay to Mrs Gorman an amount comprised of $247,731 together with 25 per cent of the value of the work in progress of the business as at 22 June 2004 and the sum of $75,000 for loss of earnings. 2) That each of Barry Parkinson, Julie Parkinson, Chip McFarlane and John Matthews are jointly and severally liable to pay the monies due and payable to Mrs Gorman pursuant to order 1. 3) The proceedings are stood over to allow the parties to discuss the most cost effective means of the taking of accounts referrable to the value of work in progress or to reach agreement on an appropriate figure, with liberty to apply. 4) Costs and interest are reserved with liberty to apply. 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