Reported Decision : [2000] 33 ASCR 691 New South Wales Supreme Court CITATION : JA Pty Limited & 1 Ors v Jonco Holdings P/L & 2 Ors [2000] NSWSC 147 CURRENT JURISDICTION: Equity FILE NUMBER(S) : SC 2098/99 HEARING DATE(S) : 28/10/99, 29/10/99, 02/11/99, 03/11/99, 18/11/99, 02/02/00 JUDGMENT DATE : 10 March 2000 JA Pty Limited (ACN 009 990 738) (First Plaintiff) Otterton Investments Pty Limited (Second Plaintiff) PARTIES : Jonco Holdings Pty Limited (ACN 003 474 799) (subject to Deed of Company Arrangement) (First Defendant) Richard Porter (Second Defendant) Salvatore Coco (Third Defendant) JUDGMENT OF : Santow J J E Thomson (Plaintiffs) COUNSEL : P R Dutney, QC (First and Third Defendants) C R C Newlinds (Second Defendants) Gordon & Johnstone (Plaintiffs) SOLICITORS : Colwell Wright, Solicitors (First and Third Defendants) Cunich Business Lawyers (Second Defendant) CATCHWORDS : CORPORATIONS — Deed of Company Arrangement — Application in relation to a trading trust trustee to set aside deed on a number of grounds — Misleading and deceptive information, material non-disclosure, deed unfair, oppressive and discriminatory — Relevance of comparative return under liquidation versus deed and onus of proof — Administrator opposed to Deed not having been given essential company records and prevented by vote from seeking adjournment of meeting to clarify extent of plaintiff creditors' right of proof — Circumstances of voting including "in-house" votes — Trustee's right of recourse to trust assets purportedly excluded — Trustee's right to exoneration and indemnity not effectively excluded — Capacity to exclude — Allegation that trustee's retirement not effected in accordance with deed — Possible duty of administrator to seek directions — Statutory grounds under Corporations Law to terminate inter alia under s445D or declare deed void under s445G — No delay. LEGISLATION CITED : Corporations Law s436A; s439A; s445D; s445G; s447A; s588FB; Pt 5.3A Corporations Law Regulations Regulation 5.6.21 Re ADM Franchise Pty Ltd (1983) 7 ACLR 987; 1 ACLC 987 Bennett v Wyndham (1862) 4 DF&J 259; 45 ER 1183 Commissioner of Stamp Duties (NSW) v Buckle (1998) 192 CLR 226; (1995) 38 NSWLR 574 DFC of T v Comcorp Australia Ltd (1996) 14 ACLC 1,616 Ex parte Edmonds (1862) 4 De GF&J 488; 45 ER 1273 Elders Trustee v Reeves (1987) 78 ALR 193 Employers' Mutual Indemnity (Workers Compensation) Ltd v TST Transport Services Pty Ltd (1997) 15 ACLC 314 Re G B Natham & Co Pty Limited (In Liquidation) (1991) 24 NSWLR 674 Ex parte Garland (1803) 10 Ves Jun 111; 32 ER 786 Glennon v Federal Commissioner of Taxation (1972) 127 CLR 503 CASES CITED : Hagenvale Pty Ltd v Depela Pty Ltd (1995) 17 ACSR 139 Jones v Dunkel (1959) 101 CLR 298 Kalon v Sydney Land Corporation (No. 2) (1998) 16 ACLR 540 Kemtron Industries Pty Ltd v Commissioner of Stamp Duties [1984] 1 Qd R 576 Khoury v Zambena Pty Limited [1999] NSWCA 402 Lam Soon Australia Ltd v Molit (No 55) Pty Ltd (1996) 14 ACLR 1,737 Margison v Potter (1976) 11 ALR 64 Octavo Investments Pty Limited v Knight (1979) 144 CLR 360 re Raybould; Raybould v Turner [1900] 1 Ch 199 Shirlaw v Taylor (1991) 31 FCR 222 Re Suco Gold Pty Limited (In Liquidation) (1983) 33 SASR 99 Universal Distributing Co Ltd (In Liquidation) (1933) 48 CLR 171 DECISION : Deed of Company Arrangement terminated. IN THE SUPREME COURT OF NEW SOUTH WALES IN EQUITY SANTOW J No. 2098/99 In the matter of Jonco Holdings Pty Limited (ACN 003 474 799) (subject to Deed of Company Arrangement) JA PTY LIMITED (ACN 009 990 738) First Plaintiff OTTERTON INVESTMENTS PTY LIMITED Second Plaintiff JONCO HOLDINGS PTY LIMITED (ACN 003 474 799) (subject to Deed of Company Arrangement) First Defendant RICHARD PORTER Second Defendant SALVATORE COCO Third Defendant JUDGMENT 10 March 2000 Table of Contents Page INTRODUCTION CONTENTIONS OF THE PARTIES NARRATIVE OF FACTS The meeting to adopt the Deed of Company Arrangement LEGAL ISSUES Right of indemnity of Trust Conclusion Significance of attempted "removal" of Trustee's right of indemnity Deleting the right of indemnity makes no difference Summing up Comparative Return — Deed or liquidation Conclusion Deed oppressive and unfairly prejudicial Deed unfairly discriminatory False or misleading information and material omission No delay OVERALL CONCLUSION GENERAL — COSTS AND ORDERS INTRODUCTION 1 The two Plaintiffs, both substantial creditors of the First Defendant, seek, under the Corporations Law, to set aside the First Defendant's Deed of Company Arrangement ("the Deed"). It was entered into on 15 April 1999 despite the recommendation of the Administrator to the contrary, a narrow vote in favour. The Plaintiffs, who opposed the Deed, were narrowly defeated by the votes of creditors associated with Mr Coco, who is the Third Defendant and principal of the First Defendant. Within two weeks the Plaintiffs commenced proceedings by Summons dated 23 April 1999 to have the Deed set aside. These proceedings have subsequently proceeded by pleadings. The central issue is whether the Deed can and should be terminated by the Court, under the various statutory grounds in the Corporations Law. As emerges from these reasons, the circumstances of this deed of company arrangement illustrate how badly wrong that process can go when creditors are misled. 2 The parties to the Deed are Jonco Holdings Pty Limited ("Jonco Holdings"), the First Defendant, its principal director and shareholder, Mr Salvatore Coco, the Third Defendant (who contributed $100,000 for the benefit of "Deed Creditors"), and the former administrator, Mr Richard Porter, the Second Defendant. 3 Jonco Holdings was at relevant times the trustee of the Coco Family Trust though there is a dispute as to whether it was replaced. A primary issue is whether, contrary to what was put by the Administrator to creditors before they voted, Jonco Holdings is entitled to recourse to the trust assets in meeting creditors' claims, including the Plaintiffs'. I have earlier concluded that it was so entitled (see my Judgment of 31 October 2000). As I explain in this judgment, the Administrator was misled by those associated with Mr Coco, in concluding that there was no such recourse. 4 Mr Porter recommended against entry into the Deed at the time primarily because of the absence of sufficient records being provided to him in relation to the affairs of Jonco Holdings. There was also an outstanding dispute as to how much was owed by Jonco Holdings to the Plaintiffs, affecting the Plaintiffs' right of proof and consequential vote. It was not disputed that they were creditors save as to quantum. The Administrator unsuccessfully sought an adjournment of the relevant creditors' meeting so as to obtain directions from the Court as to the amount the Plaintiffs should be permitted to prove for. He then, as now, favoured liquidation rather than the arrangement under the Deed. But he has played no active role in these proceedings beyond filing a comprehensive affidavit and two further affidavits, and making brief written submissions. The First and Third Defendants oppose termination of the Deed, contending that no case for doing so has been made out. contentions of the parties 5 An application to terminate the Deed may be made by a creditor pursuant to ss445D, 445G or, invoking the general discretion on the Court's part, s447A of the Corporations Law. The legislation relevantly provides: "When Court may terminate deed 445D (1) [Grounds for termination by court] The Court may make an order terminating a deed of company arrangement if satisfied that: (a) information about the company's business, property, affairs or financial circumstances that: (i) was false or misleading; and (ii) can reasonably be expected to have been material to creditors of the company in deciding whether to vote in favour of the resolution that the company execute the deed; was given to the administrator of the company or to such creditors; or (b) such information was contained in a report or statement under subsection 439A(4) that accompanied a notice of the meeting at which the resolution was passed; or (c) there was an omission from such a report or statement and the omission can reasonably be expected to have been material to such creditors in so deciding; or (d) there has been a material contravention of the deed by a person bound by the deed; or (e) effect cannot be given to the deed without injustice or undue delay; or (f) the deed or a provision of it is, an act or omission done or made under the deed was, or an act or omission proposed to be so done or made would be: (i) oppressive or unfairly prejudicial to, or unfairly discriminatory against, one or more such creditors; or (ii) contrary to the interests of the creditors of the company as a whole; or (g) the deed should be terminated for some other reason. … … … When Court may void or validate deed 445G (1) [Application to court where doubt] Where there is doubt, on a specific ground, whether a deed of company arrangement was entered into in accordance with this Part or complies with this Part, the administrator of the deed, a member or creditor of the company, or the Commission, may apply to the Court for an order under this section. 445G (2) [Court may declare deed void or not void] On an application, the Court may make an order declaring the deed, or a provision of it, to be void or not to be void, as the case requires, on the ground specified in the application or some other ground. 445G (3) [Court's power where contravention of Part] On an application, the Court may declare the deed, or a provision of it, to be valid, despite a contravention of a provision of this Part, if the Court is satisfied that: (a) the provision was substantially complied with; and (b) no injustice will result for anyone bound by the deed if the contravention is disregarded. 445G (4) [Variation of deed where void provision] Where the Court declares a provision of a deed of company arrangement to be void, the Court may by order vary the deed, but only with the consent of the deed's administrator. … … … General power to make orders 447A (1) [Orders as to operation of Part] The Court may make such order as it thinks appropriate about how this Part is to operate in relation to a particular company. 447A (2) [Example of order] For example, if the Court is satisfied that the administration of a company should end: (a) because the company is solvent; or (b) because provisions of this Part are being abused; or (c) for some other reason; the Court may order under subsection (1) that the administration is to end. 447A (3) [Order subject to conditions] An order may be made subject to conditions. … … …" 6 The Plaintiffs rely in summary upon the following grounds under the Corporations Law for terminating the Deed (or in the case of s445G declaring it void): (a) material non-disclosure or false or misleading information and given to the creditors or Administrator including in particular as to the trustee's right of recourse to trust assets (s445D(1)(a), (b) or (c)); (b) prejudice to creditors in general and to the Plaintiffs firstly by reason of the creditors being substantially better off in a liquidation under the Deed and secondly by reason of oppressive and arbitrary discrimination between different classes of creditors, that is to say, ordinary scheme creditors on the one hand and what might be called "related creditors", being those associated with Mr Coco or his companies on the other; see s445D(1)(e) or (f); (c) (i) improper or incorrect calculation of the Plaintiffs' debt for voting purposes understating it , or (ii) frustration of the means of ascertaining its quantum by the court application the Administrator wanted to make during an adjournment of the meeting. When "there is doubt on a specific ground whether a deed of company arrangement was entered into in accordance with this Part", s445G permits the Court to declare void the Deed; see also s445D(1)(e) or (f). (d) the debt claimed by a creditor, Maltak Pty Ltd, should have been taken into account but was not; see s445D, and finally (e) under the general discretion conferred by s445D(1)(g) and s447A, in which the matters set out in (a) and (b) above are relied upon. 7 The First and Third Defendants deny that the content of the Administrator's report (of 1 April 1999) contained any material non-disclosures or misinformation to creditors. They say that in any event (a) creditors knew of the inadequacy of information so were not misled; (b) they voted with their eyes open knowing that the information might be disadvantageous to the proposed arrangements; (c) the voting result would have been the same with full disclosure, and (d) most of the supporting creditors — presumably the insiders I interpolate — could be presumed to know the true position of the company. I examine these propositions at paras 108-110. 8 Finally, it is put that the issue therefore comes down to one of discretion under s445D(1)(e), (f) or (g) or s447A. The relevant considerations affecting the exercise of discretion are, according to the First and Third Defendants such as to dissuade the Court to exercise its discretion to set aside the Deed. In particular, the First and Third Defendants take issue with the contention that creditors would be substantially better off in a liquidation than under the Deed (see First and Third Defendants' response dated 14 February 2000 to Plaintiffs' further submissions dated 4 February 2000). The First and Third Defendants also take issue that there was any oppressive and arbitrary discrimination between the different classes of creditors affected by the Deed. That too remains to be examined. 9 On 31 January 2000 I handed down a judgment dealing with an application by the Plaintiffs seeking to re-open their case for the purpose of reading two affidavits dated 26 November 1999 bearing upon the trust deed of 1 March 1990 ("the Trust Deed") under which Jonco Holdings Pty Limited was trustee and upon its status and rights. For the reasons set out in that judgment leave was granted. In the exceptional circumstances of the case, where the original trust deed was only belatedly produced, I ordered that the costs of the re-opening are to be paid by the First and Third Defendants. Following that judgment, I also permitted the First and Third Defendants to file a further affidavit of Owen F Cooper from the law firm Colwell Wright, acting for the Coco interests, dated 17 February 2000 pertaining to the circumstances of the location and apparent alteration of the trust deed. This is as affecting clause (h) on page 19 of the Trust Deed, where the trustee's right of indemnity was crossed out in circumstances yet to be properly explained. Moreover, Mr Coco (other than through double hearsay via Mr McPhee his general manager) has advanced no explanation. Mr Cooper has failed to interview him due to Mr Coco's "unavailability". This was notwithstanding the clear terms of the leave I gave for such further affidavit that it be prepared "after proper enquiry from their client Mr Coco"; see my Judgment of 31 January 2000, para 19, order 4. The end result is to leave an impression of deliberate obfuscation on the part of the Coco interests, to which I return later. 10 It was confirmed that further cross-examination of Mr Owen F Cooper was not required by the Plaintiffs nor, in consequence, was cross-examination required of Messrs Houen and Ireland whose further affidavits of 26 November 1999 were admitted pursuant to the leave I gave. Their evidence pertains to the execution of the trust deed, its apparent alteration to delete a right of indemnity on page 19 and also as to a subsequent purported Variation of Trust Deed dated 19 January 1999. Mr Houen when the original trust deed was drafted dated 1 March 1990, was the solicitor instructed to draft it, whilst his partner Mr Ireland was the settlor. Mr Ireland's uncontested evidence is that despite the signature appearing opposite his name, he never signed the subsequent Variation Deed of 19 January 1999 to the Trust Deed. No-one from the First and Third Defendants professes to explain how that came about or advances any explanation. So too the apparent alteration remains unexplained, despite its convenience for the case of the Coco interests. 11 It appears that subsequent to Messrs Houen and Ireland of the firm of Messrs Creaghe Lisle solicitors of Wagga Wagga acting for Mr Coco and his various companies, other solicitors have acted, including now the solicitors involved in the present litigation and earlier in relation to the Deed, Messrs. Colwell Wright of Morayfield Queensland, of which Mr Owen Cooper is a partner and Mrs Wright consultant. 12 Significantly for present purposes, at para 22 of my judgment of 31 January 2000 I expressed the view I had formed on one of the issues in the present case for the assistance of the parties: "22. It may be of assistance to the parties to know that, without recourse to the further affidavit evidence of 26 November 1999 though consistent with it, I have formed the view, based on the evidence and written submissions though subject to consideration of relevant new evidence (if any) as may be put by the earlier leave in any further hearing, that: (a) Jonco Holdings is entitled to an indemnity out of trust assets in respect of all liabilities it has incurred as a Trustee, and (b) The Plaintiffs' claims and the claims of other creditors in the administration, speaking generally, were claims for which Jonco Holdings was entitled to have reimbursed from the assets of the Trust, it being understood that the reference to the Plaintiffs' claims is in the amounts as finally determined and meantime as admitted." This conclusion is affirmed in this judgment, for the reasons later elaborated. 13 For completeness, I should also quote the other part of that judgment. It deals with a matter upon which I wished to hear further from the First and Third Defendants (as I subsequently did on 10 February 2000) concerning the purported retirement of Jonco Holdings Pty Limited as trustee and its purported replacement (if such occurred) by a company Sybury Pty Limited from the same group of companies: "23. Furthermore, although no party has expressly addressed this matter, it would appear that the "Appointor" is an essential party to appoint a new trustee to the original Trust Deed of 1 March 1990 (see clause 8(a) of the Trust Deed) and secondly any amendment to the Trust Deed under clause 9 requires at least fourteen days notice in writing to the Appointor (see clause 11). The Appointor is according to the schedule to the Trust Deed, Salvatore Coco. He, self-evidently, is not a party to the Deed of 19 January 1999 and there is no evidence of any written notice to him of the amendment when originally proposed. That bears directly on the efficacy of the purported retirement and of any purported amendment to the trust deed. Even if, as clause 11 contemplates, the Trustee may waive the requirements of notice to the Appointor, in amending the Trust Deed, firstly there is no evidence of such waiver unless it be said that it is constituted merely by entering into the Deed of 19 January 1999 itself, and secondly, it does not apply to the replacement of a trustee and the power in that regard has not been amended as contained in clause 8. Accordingly, I wish to hear from the First and Third Defendants as to whether they still contend that the retirement and substitution of Sybury has taken place and if so how, consistently with the trust deed." I deal later in this judgment (paras 48 and following) with that contention. 14 I now deal with the relevant factual background leading to the dispute between the parties. NARRATIVE OF FACTS 15 Many of the critical events are not in themselves in dispute, as is clear from the agreed chronology which is retained in the file. I set out a factual narrative below, identifying where occasionally matters are in dispute and indicating such findings as I have been able to make. 16 The Coco Family Trust was established by a deed dated 1 March 1990 ("the trust deed"). The settlor was John Andrew Ireland, a partner in the firm of solicitors Creaghe Lisle, of Wagga Wagga and the trustee was Jonco Holdings then named Jancost Pty Limited. That company changed its name to Sam Coco Pty Limited on 25 July 1990 and then to Jonco Holdings Pty Limited on 18 August 1998 (being the First Defendant referred to as "Jonco Holdings"). The document was prepared by Mr Ireland's partner, Mr Charles Houen, on instructions received from Mr Coco. Under the trust deed, Mr Coco was given certain powers as "appointor", in particular to remove and replace a trustee (clause 8). The initial settlement sum was $10. 17 As trustee of the Coco Family Trust, Jonco Holdings undertook various investments and business activities determined from time to time by Mr Coco who was at all material times, the sole director and sole beneficial shareholder of Sam Coco Pty Limited (now Jonco Holdings). 18 As well as undertaking various investments, Mr Coco used the company as a vehicle to undertake retailing operations in southern Queensland trading under the name "Coco's Big N'Fresh Food Markets". The trading name was originally registered 19 November 1992 and was at all material times owned by Sam Coco Pty Limited (now Jonco Holdings). The retail operations principally comprised sale of fresh fruit and vegetables and other convenience items to members of the public. By the mid-1990's, a number of such stores had been established by Mr Coco, run from premises leased by the company. Mr Coco described his operations through his various entities, as "now the largest independent wholesale and retail fruit and vegetable operation in Queensland." 19 In October 1994, Mr Coco caused Sam Coco Pty Limited (now Jonco Holdings) to enter into lease arrangements from the Plaintiffs as lessor of retail premises at Morayfield Road, Coboolture, about 40 kilometres north of Brisbane, which were then under construction. The lease was for a term of ten years commencing on 22 August 1995 with an annual rent per annum gross rental of $156,000 (indexed to CPI) and with two, five year options for renewal. Permitted use of the premises was stated to be sale of fresh fruit and vegetables and associated food items normally sold in fruit and vegetable markets, together with a number of nominated other products. 20 The leased premises comprise part of a shopping centre owned by the Plaintiffs as joint tenants known as the "Jewel Market Plaza Shopping Centre". The fruit and vegetables store was (and continues to be) seen as complimentary in terms of the centre's operation, to the product lines of the centre's "anchor tenant"; the latter operates a Jewel foodstore, which does not generally sell fresh produce as part of its operations. 21 The business at the Morayfield Road premises was initially franchised by Sam Coco Pty Limited (now Jonco Holdings) to a company associated with a Mr and Mrs Valentine. Mr and Mrs Valentine sold their franchise interest to three operators, Messrs Dangerfield, Webb and Baksh in about August 1995. The lease was subsequently assigned to Messrs Dangerfield, Webb and Baksh 27 May 1997. The assignment was consented to by the Plaintiffs upon the basis that Sam Coco Pty Limited (now Jonco Holdings) as assignor remained obliged to perform the terms of the head lease. However, Mr Coco who had guaranteed performance of the head lease, was released as covenantor as part of that transaction. 22 In April 1997, a competing regional shopping centre known as the Morayfield Shopping Centre was opened approximately one kilometre from the Plaintiffs' shopping centre. The Morayfield Shopping Centre was much larger and more diverse than the Plaintiffs' centre. It had an area of approximately 42,000 square metres and included a cinema complex, K-Mart, Target, Franklins, Big Fresh, Mega BiLo and 117 specialty stores. It was the largest shopping complex within 24 kilometres and had a number of fruit and vegetable outlets. 23 The competition for the consumer's custom which arrived with the opening of the Morayfield Shopping Centre, had a significant impact on sales from the Coco's Big N' Fresh Food Market and other retailers in the Jewel Market Plaza Shopping Centre. The average reduction in turnover in the Plaintiff's centre was about 39% in the months immediately following the opening of the Morayfield centre. Turnover for the period ended 30 June 1998 was 48% less than turnover for the year ended 30 June 1997. 24 The franchise operations of Messrs Dangerfield, Webb and Baksh proved to be unsuccessful. The sub-tenants failed to meet their lease obligations to the Plaintiffs. The premises were ultimately vacated in about August 1998. 25 On about 12 May 1998, the Plaintiffs made demand on Sam Coco Pty Limited (now Jonco Holdings) for arrears of rent under the head lease. Proceedings were commenced in the Brisbane Magistrates Court on 20 May 1998 claiming unpaid arrears totalling $36,796.55 plus costs. Various defendants liable for rental under the assigned lease, including Sam Coco Pty Limited (now Jonco Holdings) were defendants in those proceedings. 26 On about 22 July 1998 there was a hearing in the Magistrates Court on a judgment summons issued by the Plaintiffs, the result of which was judgment for the plaintiff entered against various other defendants but not, at that stage, Sam Coco Pty Limited (now Jonco Holdings). The matter between the Plaintiffs and Sam Coco Pty Limited (now Jonco Holdings) was heard on 12 November 1998 and the Plaintiffs were successful in obtaining judgment against Sam Coco Pty Limited (now Jonco Holdings) for the arrears of rent on 15 December 1998. 27 On 29 December 1998, the Plaintiffs issued a creditors statutory demand against Jonco Holdings. 28 The amount for which judgment was earlier obtained against Sam Coco Pty Limited (now Jonco Holdings) Pty Limited was $42,971.01. An application to stay execution of the judgment was taken out by Jonco Holdings' solicitors, but that application was dismissed on 22 February 1999. An application to set aside the creditors statutory demand issued on 31 December 1998, was dismissed with costs on or about 12 February 1999. 29 In early November 1998, the Plaintiffs, accepting the repudiation of the lease to Sam Coco Pty Limited (now Jonco Holdings), entered into a tenancy agreement with a Mr Alvarez, on the basis of a rental equal to a turnover rent of 7%. The tenancy was a monthly tenancy and required the ongoing use of the premises as a food and vegetable store. Mr Coco's general manager, Mr Peter McPhee had earlier indicated to the Plaintiffs' leasing agent Mr Gordon Anderson, in August 1998, that Mr Coco's organisation has no interest in taking over the Morayfield Road Store. The Plaintiffs contend that it became obvious from Mr Anderson's efforts to locate suitable alternative tenants to operate the store as a fruit and vegetable centre, that the Plaintiffs would not be able to relet the premises for rentals even approaching that which was provided for in the lease to Sam Coco Pty Limited (now Jonco Holdings); that is disputed. Mr Anderson is of the view that to obtain a tenant on the basis of a set weekly rental for the remaining duration of the lease previously taken by Sam Coco Pty Limited (now Jonco Holdings), the best rental which could be obtained would be less than $104,000 per annum (excluding a rent free period). The Plaintiffs have assessed their claims under the lease against Jonco Holdings in its subsequent administration, at the disputed amount of $461,275.27, including the following components: (a) arrears of rental the subject of the judgment $43,771.01 (b) unpaid rent while the shop was vacant $78,438.50 (c) crystallised loss of rent subsequent to reletting the shop 1 November 1998 to 28 March 1999 $31,397.17 (d) expected loss for balance of the term of the original lease until 21 August 2005 $307,668.59 30 It is principally this last item which Mr Coco and his companies dispute. For the purpose of the subsequent administration, in voting upon the Deed, the Administrator Mr Porter was persuaded to allow the Plaintiffs' claim for voting purposes, in an amount of $270,947.10, though still falling short of the total claimed ($461,275.27). He actually sought an adjournment of the creditors' meeting to seek the Court's directions on the matter, but the meeting voted against it. In each case, the voting by value would have gone the other way had even a further amount of just under $5,000 (or more) been allowed the Plaintiffs. That is not to say it should have been allowed, for the evidence on the matter is necessarily incomplete. Indeed it is strongly contested by the First and Third Defendants who say $270,947.10 is too high. But what it does say is that the Administrator should have had the opportunity to have ascertained the position through the Court, and quite possibly should have moved earlier to get it. 31 In these proceedings, the Plaintiffs complain that that assessment of $270,947.10 was reached on the basis of turnover figures furnished by Mr Coco's staff. Those figures appeared to show relatively robust turnover. But it related to the period prior to the commencement of the competing Morayfield Supermarket. It therefore failed to take into account the quite different and depressed market conditions which subsequently prevailed, with the extent of fresh competition. 32 In 1998, Sam Coco Pty Limited (now Jonco Holdings), as franchisor, was also having problems with another franchisee, Maltak Pty Limited, which was a franchisee of the company's store at Toowoomba. Mr Coco claims that by April 1998, the franchisee owed an amount in excess of $130,000. This prompted a demand and a notice of default to Maltak Pty Limited. On 20 April, Mr McPhee attempted to take possession of the Toowoomba premises on behalf of the franchisor, but this was not successful. Proceedings were commenced in the Queensland Supreme Court, on an urgent basis, returnable 27 April 1998. 33 On 27 April 1998, arrangements were made between Mr McPhee and the franchisee, for Sam Coco Pty Limited (now Jonco Holdings)'s claim against Maltak Pty Limited to be "forgiven" upon the basis of delivery up of the premises and various items of plant and equipment. Maltak Pty Limited went into liquidation in October 1998. In subsequent proceedings commenced by Maltak Pty Limited and its liquidators for preference claims against Coco's Fresh Food Pty Limited, Mr McPhee deposed that as at 11 March 1998 and 9 April 1998, it is his assessment the value of Maltak's franchise, was worth $300,000 as a business. This is one of the potentially vulnerable transactions to which I later make reference; see para 97 below. 34 In the subsequent administration of Jonco Holdings (and subsequent to the entry into the deed of company administration), the liquidators of Maltak Pty Limited have lodged proof of debt claiming $274,478.61 asserting that the arrangements entered into on 27 April 1998 were voidable, being uncommercial transactions within the meaning of s588FB of the Corporations Law. This was in circumstances where the value of the business taken was $300,000 in satisfaction of a debt owing by Maltak Pty Limited to Sam Coco Pty Limited (now Jonco Holdings), of $25,212.39. The proof of debt alleges that Maltak Pty Limited was insolvent at all times since about January 1998 and that these circumstances were known to Mr McPhee and his staff. The Defendants dispute the Maltak proof of debt, saying (at para 32 of their written submissions of 10 November 1999): "The proof of debt of the liquidator of Maltak Pty Ltd should not be taken into account. The evidence makes it clear that the company had purported to terminate the franchise agreement with Maltak and had applied to the Court for possession. No evidence is adduced that that termination was other than valid. Once the franchise had been terminated Maltak had no business to dispose of. There could thus not be any sale at below market value and the proof of debt must inevitably be rejected: see Coco third affidavit paras 11-14; ex SC4; ex SC6." 35 The Deed Administrator has deferred ruling on that proof of debt, because of the pendency of these proceedings. I am not able, on the state of the material before me, to reach any concluded view on the Maltak transaction. But there is clearly enough to warrant further investigation of this potentially vulnerable transaction. 36 There are a number of other claims which have more recently been put forward against Sam Coco Pty Limited (now Jonco Holdings) Pty Limited in the administration which have either been not admitted or not dealt with, from former franchisees, making various complaints including allegations of misrepresentation in relation to the franchised businesses and complaints of oppressive conduct by the franchisor. These are uniformly disputed by Mr Coco and the company. Again I am not able to reach any concluded view on such claims. But they clearly represent a material possibility that there will be other creditors claiming against Jonco Holdings and who were not represented at the creditors' meeting adopting the Deed on 12 April 1999. 37 For many years, Mr Coco and his companies have used Mr Galluzzo of Galluzzo Fedele Zaccagnini as his external accountant. The books and records of Sam Coco Pty Limited (now Jonco Holdings) have always been maintained both for the company's internal accounting purposes, and by its external accountants, on the basis that the company operates solely as trustee of the Coco Family Trust, and with no other business or operations and is entitled to indemnity out of the trust assets for any liability as trustee. No credible explanation was offered by the Coco deponents as to how the accounts in their recognition of the indemnity could be reconciled with the supposed preclusion of trustee indemnity and I place considerable weight on them in this context. Thus most recently Mr Galluzzo prepared its accounts as at 30 June 1998. These accounts were furnished to the Administrator prior to submission of the Deed to creditors and became annexure E of his report to them. The accounts included note 2 (in PX1, tab I), which provides: 1998 1997 $ $ 2. TRUST LIABILITIES AND RIGHT OF INDEMNITY Liabilities of the SAM COCO FAMILY TRUST not recorded in the financial statements of the company were: Current Liabilities Creditors & Borrowings 3,307,141.16 3,053,012.53 Total Current Liabilities 3,307,141.16 3,053,012.53 Non-Current Liabilities Creditors and borrowings 230,028.49 419,994.56 Total Non-Current Liabilities 230,028.49 419,994.56 Total Liabilities 3,537,169.65 3,473,007.09 Right of Indemnity from Trust Assets 3,483,019.50 3,418,856.94 Deficiency in Trust Right of Indemnity 54,150.15 54,150.15 Right of indemnity for liabilities incurred by the company on behalf of the following trust and not recorded in the financial statements of the company were: SAM COCO FAMILY TRUST 3,537,169.65 3,473,007.09 Less Provision for Deficiency in Right of Indemnity 54,150.15 54,150.15 3,483,019.50 3,418,856.94 Note 4 under contingent liabilities adds: "A contingent liability exists relative to any future claims which may be made against the company arising from trusteeship dealings." The meeting to adopt the Deed of Company Arrangement 38 The voluntary administration under Part 5.3A of the Corporations Law leading to these proceedings commenced on 23 February 1999, under the provisions of s436A of the Corporations Law. Mr Porter was appointed Administrator. The first meeting of creditors was held 2 March 1999. The Administrator's report to creditors was dated 1 April 1999. It recommended that the company be wound up, and that creditors reject the deed of company arrangement being proposed by Mr Coco. The report also foreshadowed an application to the Court to seek directions on quantification of the Plaintiffs' claims for the purpose of voting at the second meeting. However, when the second meeting was held on 12 April 1999 this was against the strong desire of the Administrator, bereft of adequate company records, for an adjournment so he could approach the Court. At that meeting held with such indecent haste, four "in-house" creditors who supported Mr Coco and the arrangements he proposed, voted by a narrow margin (see below) against an adjournment. They also voted to require that the company enter the proposed deed of company arrangement. Those four creditors, described below as to their association with Mr Coco or his advisers, had sufficient numbers to control the meeting and the resolutions were passed over strong objection from the Plaintiffs' representative at the meeting. 39 Earlier the report as to affairs dated 3 March 1999 (Tab I of PX1) had been belatedly furnished to the Administrator by the Coco interests. It was clearly inadequate as I explain and provided no reliable basis for putting forward the Deed. The Administrator was unable to confirm its accuracy for lack of being "provided with all of the company's accounting records or a satisfactory explanation of the disposal of company assets; see para 2 of Administrator's report to creditors of 1 April 1999 (Tab I). That report as to affairs, for no apparent reason, left out of account all other creditors which had totalled as at 30 June 1998, in excess of $3.3 million. Westpac Banking Corporation was disclosed as a creditor in an amount of $3.4 million. It was not disclosed as a creditor in the company's financial accounts for 30 June 1998 and its proof of debt (JRP1 page 109) disclosed that its claim was contingent only, based on guarantees which the company had furnished in support of loans made to other entities controlled by or associated with Mr Coco, none of which were suggested to be in default or likely to be called up. 40 It is true that related creditors in the sense of group company creditors did not vote. However, the resolution to adopt the Deed passed on 12 April 1999 received four votes in favour, three out of four effectively "in-house" as I explain, and the fourth, the HSP Unit Trust, arguably so, though that cannot be said unequivocally. The four total $275,450. There was only one vote against (the Plaintiffs) but totalling $270,947 (DXI, tab H transcript of minutes of creditors of Jonco Holdings) and which might have been more (or less) depending on what the Court might have determined had an adjournment been allowed. This lead to the resolution being passed, pursuant to Regulation 5.6.21 of the Corporations Law Regulations. No occasion arose for the Administrator to exercise his casting vote. But based on the Administrator's stated opposition to the Deed it could be reasonably assumed he would have voted against, had the occasion arose. Amongst the four who did vote for the Deed and against the Administrator's requested adjournment was the company's accountant since August 1993, Mr McPhee, who became general manager in 1994. His vote representing $143,079.20. Indeed his vote, or that of any one of the other three, save for Mr Galluzzo, would have been sufficient to swing the result in terms of dollar amount when the margin was just under $5,000. Mr McPhee represented what had become in effect an "in-house" debt discharged on behalf of Jonco Holdings by paying out Jonco Holdings' bankers, the National Australia Bank; Mr Porter in his affidavit of 25 June 1999 (paras 329 and 447) confirms this. Mr McPhee was shown as the creditor by assignment from NAB — a transaction which Mr Coco initially sought to portray as having been paid for by Mr McPhee "out from his own funds" (Coco affidavit 13 May 1999, para 58) but which had in fact been funded by Mr Coco (T, 143.16-.50). This NAB overdraft related to the affairs of Jonco Holdings as trustee. One might reasonably infer that NAB would have been less amenable to Mr Coco's interests than Mr McPhee. 41 The second "in-house" creditor who voted similarly was Mrs Wright, a consultant to Mr Coco's present solicitors, Colwell Wright. She put in a proof of debt, admitted in full, based on accounts and invoices for legal work for the Coco Group, for $81,065.10; Porter affidavit, para 442. He also allowed her to vote in respect of a further $405.80 in respect of a claim by Pauline Mann for employee entitlements to which she claimed to be subrogated; see Porter's affidavit paras 407-9. Mrs Wright gave no evidence. 42 That same firm Colwell Wright then — and now — acted for the third creditor voting in favour, Mr Ross as trustee for the HSP Unit Trust, who gave confidential evidence for the First and third Defendants as to their potential value which was said to be very considerable. Its proof of debt was admitted for $50,000 relating to monies owed for the purchase of twenty units; see Porter affidavit paras 443-445. The Report as to Affairs failed to disclose the $50,000 of units as an asset of Jonco Holdings, yet clearly it was. It is notable that Mr Ross reached his view to support the Deed having "read all material and discussed all matters with the solicitors for Jonco Holdings Pty Ltd" — but not the Administrator — and "I have seen nothing that would change my decision to vote on the Deed of Company Arrangement". Finally, there was a debt of $900 owed to the company's external accountants for many years (Galuzzo, Fidele Zaccognine Pty Limited) for accounting fees. Their proof was also admitted; see Porter's affidavit para 410. He was effectively "in-house". No other creditors voted than these five; that is, the Plaintiffs voted in opposition to the four in-house creditors who carried the day by just under $5,000. This was with the result that the Deed was then adopted and the meeting not adjourned, in each case contrary to the recommendation of the Administrator. This was a vote conducted on incorrect facts as regards the supposed preclusion of trust assets to the trustee Jonco Holdings and a grossly incorrect and incomplete Report as to Affairs, and generally on seriously incomplete facts, so far as the lack of company records was concerned. 43 The deed of company arrangement which was entered into pursuant to the resolution on 15 April 1999, in essence provided for Mr Coco to establish a fund of $100,000 for the purpose of distribution by the deed Administrator amongst "admitted creditors", whose claims would otherwise be extinguished. In addition, Mr Coco would meet the deed administrator's costs and expenses of the administration. The deed also provided that any proceeds from writs of execution which the company had obtained against property belonging to the sub-tenants of the Morayfield shop would be available for distribution to creditors under the deed. However, the writs proved to be worthless as the judgments upon which they were obtained were subsequently set aside on appeal. 44 "Related creditors", though capable of proving under the Deed, will undertake (see para 27 of the Defendants' written submissions of 10 November 1999) not do so, with the only creditors proving being Mr Galuzzo ($900), Mr Renos Ross ($50,000) and the Plaintiffs (claiming $444,745.56 but admitted for voting only at $270,947. The First and Third Defendants contend that the Plaintiffs' claim will ultimately be further reduced whilst the Plaintiffs contend it will be increased to the claimed $444,745.56. 45 Turning to the liabilities comprised within the total liabilities (as at 30 June 1998 shown at $3,537,169.65), one of the creditors is Coco's Warehouse. It is a creditor in an amount of $1,326,145.20. Many of the other creditors are similarly related. If a liquidator were appointed, those debts can be expected to be subject to further investigation. It is not possible on the limited material before me to speculate on the result of that beyond saying that the Report as to Affairs gives no reason for confidence in any of the figures shown. The First and Third Defendants for their part contend that total assets as disclosed in the Accounts would be substantially reduced from $3,483,019 appearing in the 1998 accounts to $1,080,157.50 as against the Defendants' estimate of liabilities of $3,521,967.50 (see Defendants' written submissions of 14 February 2000). I will return to this aspect later (paras 92 and following) when I consider the effect of taking into account the trustee's indemnity (or right of exoneration) were the Deed set aside on the likely return to creditors. That needs to be compared to the position under the Deed, taking into account the First and Third Defendants' earlier mentioned undertaking. 46 The maximum distribution to creditors contemplated under the deed was approximately 23.5 cents in the dollar. This distribution must be liable to be diluted by admission of proofs of debt from other creditors, or upon review of claims which had already been received; see, for example, Lai Ming Yuen's proof of debt for $57,127.88 of 17 May 1999 (after the meeting of creditors) referred to in Mr Porter's affidavit of 25 June 1999, paras 450-1 and a public liability item for personal injuries of $50,809.90 and under s588FB from Maltak of $274,787.61 (Mr Porter's affidavit of 29 October 1999, para 3). Further proofs of debt have in fact been received, which have the potential to significantly dilute the dividend to deed creditors, although no decisions on these have yet been made. Mr Porter as Administrator now of the Deed continues to be of the view that the company should be wound up giving these reasons in his latest affidavit of 29 October 1999: "My reasons for believing the Company should be wound up are: (a) Further claims have emerged since the date of my Section 439A Report. (b) There are a number of dealings with associated entities of Jonco Holdings Pty Limited which bear further investigation and would more appropriately be investigated by a Liquidator. In particular, I am not confident that the question of the status of the Trust and the indemnity can be determined without further investigation and legal advice. The outcome of that enquiry may have an important bearing on the position of creditors. (c) The claim by Maltak Pty Limited shall require investigation and legal advice before any ruling can be made. (d) I am still unable to recommend a Deed of Company Arrangement as I am not confident that all information has been provided to date. (e) It is, in my view, currently impossible to provide creditors with a reliable comparison between the likely dividend in a liquidation and that available under a Deed of Company Arrangement." 47 Other relevant events are dealt with below in dealing with the legal issues. legal issues Right of indemnity of Trust 48 Before turning to the Plaintiffs' contention that there was a scheme put in place by the Defendants to avoid payment of Sam Coco Pty Limited (now Jonco Holdings)' creditors, I need to deal with some preliminary legal questions concerning Jonco Holdings' position as trustee. If answered as the Plaintiffs contend they should be, that is to say if Jonco Holdings is entitled to indemnity against all of the trust assets in respect of liabilities incurred by it as trustee, including liabilities to the Plaintiffs, then that must effect the likely return to creditors were the Deed set aside. I commence with the relevant legal principles and then as they bear upon whether Jonco Holdings remains a trustee, or was replaced by Sybury Pty Limited and whether that matters. 49 The First and Third Defendants did not seriously contest the first of the Plaintiffs' propositions, namely that notwithstanding what may or may not have happened regarding the deletion of sub-clause (h) on page 19 of the Trust Deed, the Trustee is entitled to indemnity from the Trust assets by way of exoneration in meeting trust liabilities. In effect the First and Third Defendants sought to contend that even though that were so, it did not mean that the Deed should be set aside. This is based on the disputed position regarding comparative return to creditors, with or without the deed; see paras 92 and following. 50 The following basic principles, taken largely from the Plaintiffs' submissions, can be taken to be an accurate statement of the law. They lead inexorably to the result that Jonco Holdings is entitled to a full indemnity from the Trust assets by way of exoneration in respect of any liability incurred as trustee. (1) A trustee is personally liable for all debts contracted: Octavo Investments Pty Limited v Knight (1979) 144 CLR 360 at 367. Gummow J explained it this way in Elders Trustee v Reeves (1987) 78 ALR 193 at 253: "It is fundamental that the common law does not recognise a trustee as having assumed an additional or qualified legal personality. This means that the liability of the trustee for debts he incurs includes those incurred in the course of the performance of the trust. His liability to creditors is not limited or quantified by reference to the extent of trust assets: Re Johnson (1880) 15 Ch Division 548 at 552. The debts are his debts. … however, the law does permit a trustee to contract with third parties on the basis that his personal liability is limited, for example to the extent of his right to resort to and apply trust funds for the discharge of liabilities incurred by him in the authorised conduct of the trust. Nevertheless, third parties may, in a given case, not be prepared to deal with a trustee on such a basis and, in any event, clear words are necessary to achieve a result whereby what is prima facie the unlimited personal liability of a trustee is so qualified: Helvetic Investment Corp Pty Ltd v Knight (1984) 9 ACLR 773." So far as debts incurred by a trustee for the purposes of carrying on the affairs of the trust are concerned, the trustee has a right of indemnity and recoupment. "It is in the nature of the office of the trustee, whether expressed in the instrument, or not, that the trust property shall reimburse him all the charges and expenses incurred in the execution of the trust." - Worrall v Harford (1802) 8 Ves Jun 4 at 8 [32 ER 250 at 252] per Lord Eldon LC. (2) The High Court in Commissioner of Stamp Duties (NSW) v Buckle (1998) 192 CLR 226 at 245-6 approved the following passage from Scott on Trusts Fourth Edition (1988) volume 3A para 246: "Where the trustee acting within his powers makes a contract with a third person in the course of the administration of the trust, although the trustee is ordinarily personally liable to the third person on the contract, he is entitled to indemnity out of the trust estate. If he has discharged the liability out of his individual property, he is entitled to reimbursement: if he has not discharged yet, he is entitled to apply the trust property in discharging it, that is, he is entitled to exoneration." (3) Further, the trustee's rights of reimbursement or exoneration are afforded a priority in administration of the trust and in appropriate circumstances the trustee is entitled to the benefit of proprietary rights to the fund to secure such entitlements. In Commissioner of Stamp Duties v Buckle (supra) at 246-7, the High Court explained the sense in which there is "an equitable charge over the 'trust assets' which may be enforced in the same way as any other equitable charge", in cases where a trustee is entitled to reimbursement or exoneration, with the result that the trust property is "no longer property held solely in the interests of the beneficiaries of the trust". See also Commissioner of Stamp Duties v Buckle (1995) 38 NSWLR 574 at 585-7 per Sheller JA (with whom Kirby P agreed); Kemtron Industries Pty Ltd v Commissioner of Stamp Duties [1984] 1 Qd R 576 at 589 per McPherson J; McPherson J's article "The Insolvent Trading Trust" published in Finn (Ed); Essays in Equity, LBC (1985); Ford & Lee, Principles of the Law of Trusts (Second Edition) LBC 1990 chapter 14. (4) As to the effect of liquidation on the trustee of the trading trust, see Re Suco Gold Pty Limited (In Liquidation) (1983) 33 SASR 99; Re ADM Franchise Pty Ltd (1983) 7 ACLR 987; 1 ACLC 987; Re G B Natham & Co Pty Limited (In Liquidation) (1991) 24 NSWLR 674 at 685. The liquidator is entitled to have recourse to the assets of the trust to meet the costs and expenses of preserving and administering the assets and the costs and expenses of his administration and for the purpose of distributing any fruits of the trustee's right of indemnity to creditors under the insolvency provisions of the corporations law : see Re G B Natham (supra); Universal Distributing Co Ltd (In Liquidation) (1933) 48 CLR 171; Shirlaw v Taylor (1991) 31 FCR 222. (5) The test for an equity of reimbursement or exoneration does not depend upon whether the trustee in incurring the liability disclosed that the trustee was incurring the debt in its capacity as trustee. The right of reimbursement or exoneration depends only on whether the liabilities were properly incurred in the administration of the trust. Thus for example, the right of exoneration and reimbursement as available to the trustee in respect of tortious liability arising out of the conduct of the affairs of the trust notwithstanding that the trustee failed to disclose to the victim, that the wrong was being committed in furtherance of his office as trustee: in re Raybould; Raybould v Turner [1900] 1 Ch 199; Bennett v Wyndham (1862) 4 DF&J 259; 45 ER 1183. (6) Nor can it make any difference, that the trustee might secretly have reserved an intention that the trust assets not be affected by the transaction where the transaction does relevantly relate to the carrying on of the trust's business. There are several reasons why this must be so. First, a trustee who intends to limit his liability to the extent of the trust assets, can only do so by clear words supported by consideration. This is because the result is to limit or reduce the extent of a legal remedy which the party contracting with the trustee would otherwise have. That justification should apply also in respect of arrangements intended by the trustee to limit recourse to trust assets which would otherwise be available. Second, the better view is that (apart from statute) a trustee may not by agreement exclude the right of indemnity from the trust estate which arises as a necessary incident of the office of trustee: see McPherson J in Kemtron Industries Pty Limited v CSD Queensland (supra) at 585. As such a result is not permissible as a matter of policy, it would be anomalous, and contrary to principle, that an unexpressed subjective intention on the part of the trustee when entering a contract, could achieve the same end. Third, in certain circumstances the trust creditor has a right to obtain satisfaction directly (by a species of subrogation, it seems) out of trust property: Ex parte Garland (1803) 10 Ves Jun 111 at 120; 32 ER 786 at 789; Ex parte Edmonds (1862) 4 De GF&J 488 at 498; 45 ER 1273 at 1277 and see also Margison v Potter (1976) 11 ALR 64 at 75 per Jacobs J. Entitlements and remedies recognised by law and otherwise available are not generally liable to be affected by subjective and unexpressed intentions on the part of one party to the transaction. (7) A trustee, as such, is not a distinct legal person, in representative capacity, separate from his or her personal capacity: See, for example, Glennon v Federal Commissioner of Taxation (1972) 127 CLR 503 at 511-3 per Walsh J. See generally Ford & Lee op.cit. at [136] ff. A change of trustee and transfer of assets does not discharge the former trustee of liability for debts, whether or not they are incurred in furtherance of or for the purposes of the trust's business. Upon insolvency of a corporate trustee, all its debts become affected by the insolvency. 51 The next question is whether Jonco Holdings was in fact replaced as trustee of the Coco Family Trust by Sybury Pty Limited on 31 August 1998 or indeed subsequently on 19 January 1999 being the date of what purports to be a deed amending the original Trust Deed of 1 March 1990. 52 On any view of matters, a purported substitution of one trust deed by another could not be effectively backdated. Thus even assuming that the Deed of 19 January 1999 were effective in terms of the power to replace a trustee as set out in the original Trust Deed of 1 March 1990, such backdating would have the effect that for the period of the backdating there would have been no trustee in reality holding the legal or equitable interest in the relevant trust property. Likewise there would have been no trustee available to satisfy the requirement of a trustee responsibility for the trustee's personal obligation to deal with trust property for the benefit of beneficiaries, being a personal obligation annexed to the trust property; see Jacob's Law of Trusts in Australia, 5th edition at [105], [106], and [111]. 53 One of two things must follow. If the deed of 19 January 1999 cannot operate retrospectively, it either fails to operate at all, or operates only as from its actual date of 19 January 1999. 54 The operative provision of the Deed of 19 January 1999 is clause 1. It says: "The Settlement Deed is hereby amended as follows as and from 31 August 1998: The New Trustee of the Trust Deed is Sybury Pty Ltd ACN 083 762 163." 55 Alongside this clearly intended retrospectivity, is the dysfunctional relationship between the Deed of 19 January 1999 and the original Settlement Deed of 1 March 1990, when regard is had to the relevant clauses in that Deed dealing respectively with appointment, removal and retirement of trustees (clause 8(a)) and amendment (clause 9 to be read with clauses 11 and 12). 56 Clause 8(a) is in the following terms: "APPOINTMENT REMOVAL AND RETIREMENT OF TRUSTEE: 8. (a) Subject to Sub-Clauses (b) and (c) hereof the Appointor may at any time or times and from time to time: (i) by notice in writing to any Trustee hereof remove that Trustee from office forthwith; (ii) by Deed appoint a new Trustee or new Trustees; and (iii) by Deed appoint an additional Trustee or additional Trustees, provided that no Trustee shall be removed from office otherwise than simultaneously with the appointment of a new Trustee or new Trustees in his place if such removal would cause the office of Trustee to become vacant. ……." 57 Clause 9 is in the following terms: " AMENDMENT: 9. Subject always to Clause 11 and 12 hereof the Trustee shall have the power by deed to revoke alter vary or add to all or any of the trusts, powers and provisions herein declared concerning the Trust Fund or any part thereof or the income or any part thereof including the addition and/or deletion of any of the Beneficiaries for such ends, intents and purposes as the Trustee may in its absolute discretion think fit. Any such revocation alteration variation or addition or deletion shall be subject in like manner to be revoked altered varied or added to provided that no share of or benefit from or interest in or under the Trust Fund or any part thereof or the income or any part thereof shall by virtue of such revocation alteration income or capital of the Trust Fund, or investments for the time being representing such income or capital or income derived from any such investments, to which such Beneficiary, whether an infant or otherwise, has become absolutely entitled pursuant to this Deed." 58 I should note in passing as to clause 9 that in the last sentence there seems to be words omitted after the word "alteration" where second appearing between "alteration" and "income". 59 The first matter to be observed is that the power of appointment, removal and retirement in each case is conferred upon "the Appointor". The Appointor is defined in the Settlement Deed of 1 March 1990 in clause 1(g) as the person named in the schedule, and the schedule provides that that person is in fact Mr Salvatore Coco, the Third Defendant. 60 The Deed of 19 January 1999 is not one whereby the Appointor is a party in that capacity. Thus this Deed does not by its terms, constitute notice by the Appointor to remove a trustee or the appointment of a new trustee by deed or, for that matter, the appointment of an additional trustee by deed; see clause 8(a) requiring these things to be done by the Appointor in each case. 61 The First and Third Defendants seek to overcome this difficulty by pointing to the fact that Mr Salvatore Coco is in fact the director who causes Jancost Pty Limited (now known as Jonco Holdings) to sign under seal, and likewise Sybury Pty Limited to sign under seal. It is then said that it is quite artificial to doubt the plain intention of Mr Coco to effect the change of trustee, when he is clearly on notice of the change and purports to cause it to happen as a director of the old and new trustee. But an immediate difficulty is that his intention as expressed in what was done was both legally an impossibility — in a retrospective alteration of the trustee's status — and ambiguous in that the documentation is at least as consistent with Sybury being an additional not substitute trustee, as I explain below. 62 Firstly, however if the Deed of 19 January 1999 constitutes an amendment of the original Settlement Deed, as it expresses itself to be, then there is no suggestion in the terms of that Deed of 19 January 1999 that the amendment intended is one which removes the requirement of the Appointor actually to do the appointing of a new trustee in substitution of the old. This is quite apart from the fact that clause 9 read with clause 11, while conferring the power of amendment upon the trustee makes no mention of the Settlor being a necessary party to a subsequent deed. This is so, despite the fact that the further deed professes to include the Settlor as a party (when in reality Mr Ireland confirms he knew nothing about any of this and never signed the purported Variation Deed). Clause 9 requires fourteen days notice in writing to be given to the Appointor by the Trustee of the Trustee's intention to exercise the relevant power of amendment. Here the Deed of 19 January 1999 is not in terms at least, any kind of notice by the Trustee to the Appointor, though clearly enough I accept that in reality Mr Coco is "on notice" of the intended appointment. 63 The First and Third Defendants would thus have a robust interpretation placed on the Deed of 19 January 1999 and would have it treated as effective to produce the substitution of Sybury for Jonco Holdings. The fundamental problem in the way of all that is that the only intention that can be derived from the plain meaning of the Deed of 19 January 1999 is an intention to effect a retrospective appointment — and equally consistent with an additional rather than substitute trustee. Since no such retrospective appointment is legally permissible, the short answer to all of the First and Third Defendants' contentions is that the Deed of 19 January 1999 fails in its intended effect. It cannot be rescued by trying to give it another intended effect, namely an intention to substitute a new trustee for the old as from the date of 19 January 1999. 64 There is a further difficulty, namely that even if one accepts the Defendants' contentions, the meaning of the Deed of 19 January 1999 may well be merely to add Sybury as an additional trustee rather than remove Jonco Holdings and substitute Sybury. This is more especially as clause 8(a) requires an express notice for removing the existing trustee Jonco Holdings and none in terms has been given even if Mr Coco is taken to be on notice of what the Deed of 19 January 1999 provides. Clearly enough there is no provision of the Deed of 19 January 1999 which professes to effect such removal. Conclusion 65 Jonco Holdings remains a trustee of the settlement of 1 March 1990 either by itself or in conjunction with Sybury. The more likely view is that Jonco Holdings is the sole trustee. But in any event, even if Jonco Holdings were removed, it has not lost its right to be indemnified in respect of liabilities incurred while it was a trustee. The liability to the Plaintiffs was incurred while it was a trustee. For reasons developed later (paras 86-8), I am also of the view that "removal" of sub-clause (h) on page 19 first was without authority or legal effect and second, even if legally affective, would not be effective to remove the trustee's right at law to reimbursement and exoneration. Significance of attempted "removal" of Trustee's right of indemnity 66 I now turn to the remaining questions affecting the trust status of Jonco Holdings in relation to the Plaintiffs. The first question relates to the significance of the apparent removal of sub-clause (h) of the Settlement Deed of 1 March 1990. I have already concluded in my earlier Judgment that the removal appears to have occurred not prior to executing that settlement but after, for the reasons set out at para 14 of my earlier Judgment. 67 The uncontested evidence of Messrs Houen and Ireland is that neither of them were given instructions when drafting the Trust Deed to delete the standard indemnity. Also exciting suspicion is the uncontested evidence of Mr Ireland in his affidavit that the signature appearing next to his name on the last page of the annexed Deed of 19 January 1999 was not his signature and that, "I was not informed at any time in or before January 1999 that the variation of trust deed was or had been executed. The signature was placed on the document without reference to me." 68 The Deed of 19 January 1999 described as "Variation of Trust Deed" bears Colwell Wright's name as the solicitors, so was clearly prepared by that firm. While Mr Owen Cooper in his subsequent affidavit of 17 February 2000 attests to the enquiries he has made, he, as I have said, says absolutely nothing about how, if at all, he could account for what appears as some kind of signature of the settlor though possibly prefaced by the word "per" which Mr Ireland backed by Mr Houen, expressly denies was his. Colwell Wright acted on the Variation so cannot attribute this aspect to earlier law firms. Furthermore, when it comes to the enquiries he was to make of Mr Coco as to the deletion of sub-clause (h) on page 19, the best he can do is to say that he has spoken to Mr Peter McPhee who in turn gives the necessarily double hearsay statement via Mr McPhee that Mr Coco has "no recollection of signing the Deed". Mr Coco has evidently been "not available or is difficult to contact"; see para 26 of Mr Cooper's affidavit of 17 February 2000. Mr Cooper promises that, "once I have spoken to Mr Coco I will prepare a further affidavit for this honourable court" but thus far none has arrived. 69 Finally, Mr Cooper adds an entirely gratuitous if not malicious reference, in paragraphs 29 and 30 to Messrs Creaghe Lisle being sued by Mr Coco or one of his companies for failing to provide adequate security in a particular transaction and contemplating further action in relation to a property at Diamond Beach. He does so under the guise of referring to "a number of dealings in which 'usual practice' appears not to have been followed". 70 Whilst Mr Cooper attests to having enquired of Wendy Anne Wright if she had any knowledge of how sub-clause (h) on page 19 of the Trust Deed was crossed out and responds with her necessarily hearsay answer, that she has informed him and he verily believes that she has no knowledge of how the crossing out occurred (para 13), he has as yet received no confirmation from Messrs Bowdens Lawyers, a firm that previously acted for the Coco group of companies presumably. He has however received a response from two firms of accountants and a solicitor Mr McGregor whose replies are annexed and which are negative so far as any knowledge is concerned. 71 All of this is quite unsatisfactory. I consider that while there is no evidence clearly pointing to Colwell Wright or anyone in that firm having participated in the deletion, there remains no explanation for how it occurred, and the absence of any initialling is itself suspicious. The inference which I would draw is that the alteration never occurred as a valid legal act by the parties to the document, but that someone, a person at this stage unknown but possibly connected with Mr Coco, caused the alteration to be made in order to give credence to the contention that the Trustee has no power of indemnity. Certainly that argument was strongly pressed on Mr Porter by Colwell Wright; see para 81. 72 Indeed evidently enough the external accountant Mr Galluzzo was under no misapprehension as to the Trustee having a right of indemnity. The accounts prepared by Mr Galluzzo including the most recent before the Court of 30 June 1998, contain a note (see note 2 of the accounts of 30 June 1998 earlier quoted) whereby firstly total liabilities of the Trust are stated as $3,537,169.65 and underneath appears the following: "right of indemnity from trust assets" with the figure "$3,483,019.50" being evidently the total of the trust assets and leaving what is described as "deficiency in trust right of indemnity" with the figure "$54,150.15". 73 The significance of that is firstly that Mr Galluzzo has no doubt that trust indemnity applies. Secondly, he quite evidently includes all liabilities as subject to that indemnity including the liabilities to the Plaintiffs. 74 The First and Third Defendants contended firstly that there was a policy which Mr Coco insisted upon — but evidently unknown or overlooked by Mr Galluzzo — based upon advice that assets such as leases were not to be placed in the Trust and secondly there was evidence from the solicitors involved in the Plaintiffs' transaction negotiating and executing the lease that neither was instructed to involve the Trust and neither was aware of any Trust involvement; see affidavit of Karen McCue, para 5, and Douglas McGregor's affidavit of 27 October 1999, para 4. 75 But none of that has much credibility when weighed against Mr Galluzzo's preparation of accounts and the fact that he was not called to give evidence and there was no explanation of his failure to appear, even though the accounts which he prepared flatly contradicted the case of the First and Third Defendants in these proceedings. On that basis, a strong inference under Jones v Dunkel (1959) 101 CLR 298 that his evidence would not have assisted the Defendants can readily be drawn. 76 In further reinforcement of the lease by the Plaintiffs being entered into by Jonco Holdings as part of its activities in the course of performance of the Trust, in particular its retail activities, is that the evident purpose of obtaining the lease of the premises was to provide premises from which retail operations could be carried on. These were the retail operations trading as "Coco's Big'N Fresh Food Market" which could thus be conducted as part of the Trust's activities. That was in fact the use to which the premises were put. Similarly the use of "turnover" from operations at the stores (including the Morayfield store) to meet the obligations of Jonco Holdings to the lessors (including the Plaintiffs) was a proper and naturally expected use of trust assets. It reflected the commercial reality that the lease liabilities were incurred in the course of the performance of the Coco Trust. Thus, despite Mr Coco's evidence in his affidavit of 15 June, 1999, paras 49 and 50 that the lease was not to be a trust asset (and see also his second affidavit of 2 October 1999, para 4) and his maintaining that position or attempting to do so throughout his oral evidence, supposedly consistent with advice he said he received from his adviser Mr Webb, there was contradictory evidence that payments received by Jonco Holdings from franchisees in relation to the payments and subsequently remitted to the Plaintiffs were passed through the company account operated on behalf of the Trust. This was attempted to be explained away by Mr Robin Christmas, the in-house accountant for the Coco's group in his affidavit of 25 October 1999, para 4, by saying that Jonco Holdings had no other bank account into which such payments were paid. However, the natural explanation for that is that there was no other bank account simply because there was no need for one because it was always intended that the benefit of the lease in the form of franchise payments would go to the Trust via Jonco Holdings. That benefit could not be separated from the head lease burden, in particular to pay rent, so the two naturally went together. 77 Indeed the absurdity of Mr Coco's contentions to the contrary is illustrated by comparing his answers to cross-examination on the second day before and after the morning tea adjournment; see, for example, T, 71.43-45, T, 73.45-52, T, 75.37-76.16. At that stage of his evidence Mr Coco contended that all of the income derived from the operation of the lease stores belonged to Jonco Holdings in its own right, not as part of the Trust. This position he maintained notwithstanding the way his company's accounts had been kept (T, 80.22-.44) and similarly as regards the Carrara operation (T, 86.02-.10). He had to say this because of his commencing assumption that Jonco Holdings did not take the lease as part of the Trust's affairs and thus could not receive the benefits of the associated franchise as part of the Trust's affairs either. 78 But after the morning tea break (at T, 86.37) and a discussion with Peter McPhee (T, 97.26-.39), Mr Coco's evidence was that all the trading and turnover belonged to the Trust (T, 96.34-.41). He then went to considerable lengths to say how he was not really in a position to be informed about these matters and in particular to explain how on the one hand the Trust could have the rental or franchise payments but on the other hand not have the Trust obligations that went with the rental, namely the lease liabilities (see, for example, T, 97.46). Clearly that proposition was untenable. 79 Indeed none of Mr Coco's earlier evidence could be reconciled with the fact that receipts from franchisees in relation to their use of premises, exploitation of goodwill and payment of upfront fees were in fact accounted as receipts of the Trust; indeed correctly so as I conclude. I did not find Mr Coco a satisfactory witness, and while he disavowed any detailed knowledge of financial complexities, leaving them to others, I am satisfied he had a shrewd overall understanding of what went on. Here we are dealing not with mere financial detail but a central aspect of Mr Coco's business affairs. 80 The fact that the Plaintiffs were not aware of the Trust arrangement when they entered into the lease is irrelevant. What matters is the true nature of the arrangements and the only rational explanation consistent with the evidence is that reflected in Mr Galluzzo's accounts. Indeed Mrs Wright herself when lodging a proof of debt against Jonco Holdings for a range of accounts made no distinction between matters pertaining to the affairs of Jonco Holdings arising in the performance of the Coco Family Trust and accounts which (if Mr Coco were to be believed) did not; see, for example, the account in relation to Jonco Holdings' trademark (CJRP1, page 131). Likewise, Pauline Mann's claim plainly related to the activities of the company in its capacity as Trustee (T, 243.7-.34). Likewise, the NAB facilities given to Jonco Holdings; Mr McPhee, who "purchased" them conceded as much (T, 242.31). Indeed, the very act of putting forward that proof of debt as a liability of Jonco Holdings, whilst at the same time maintaining to the Administrator that the affairs of the Trust were not involved in the administration, involved conduct which was not only inconsistent but revealed a lack of integrity in advancing what was evidently a scheme to defeat the Plaintiffs' claims, firstly by denying them access to the trust's right of indemnity against trust assets; T, 242.40-243.16). While Mr McPhee did not think it was dishonest, I accept the Plaintiffs' contention that it was. 81 On 2 March 1999, Mrs Wright told the administrator, in response to a request, that the trust deed did not give an indemnity to Jonco (Porter affidavit 25 June 1999 paragraph 89). A copy of the trust deed was furnished by Mrs Wright at a meeting on 15 March 1999 (Porter affidavit 25 June 1999 paragraph 143). The document which was furnished (JRP1 page 287) appeared to show, on page 19, that sub-clause (h) had been crossed out. 82 I am prepared to draw the inference that Mr Coco and his deputies incorrectly, if not deliberately falsely, contended to the Administrator (as reflected in his report to creditors of 1 April 1999, especially para 4.2) and so as to mislead him that (a) Jonco Holdings had no right of indemnity; (b) the affairs of the Trust which had been transferred to the new trustee, Sybury Pty Limited were not relevant to the administration; (c) that liabilities had been "transferred" to Sybury Pty Limited relating to the Trust activities; (d) that the claims of various creditors including the Plaintiffs, related to activities "entered into by Jonco outside its capacity as Trustee" and that "all the debts shown in the RATA of Jonco relate to those activities of the company outside its capacity as Trustee". 83 So mislead was the Administrator that at para 4.3, having earlier been advised as above, according to para 4.2, he says, "Also attached as Annexure E is a copy of the financial accounts for the year ended 30 June 1998 prepared by Jonco's external accountant, Galluzzo Fedele Zaccagnini. It should be noted that these financial accounts indicate that the company has an indemnity from the Trust for the liabilities that it incurred. This appears to be incorrect in light of the deletion of the indemnity from the Trust Deed. The internal financial accounts are also incorrect in that all the activities undertaken by Jonco have been combined. That is, the activities in its capacity as Trustee and in its own right are not dissected in the financial accounts. It is therefore impossible to determine the financial position of Jonco. If Jonco did not have an indemnity from the Trust for the liabilities that it incurred then that raises the possibility that the company may have been trading insolvently and thereby rendered the director personally liable for debts incurred by the company under s588G. This is a matter which requires further investigation." 84 The Coco interests having, with the in-house support to which I earlier referred, forced through the resolutions declining an adjournment to an enable a Supreme Court application for directions as to how the Plaintiffs' claim should be treated (see para 7 of the Report to Creditors of 1st April 1999), the same in-house vote then saw the Deed of Company Arrangement adopted notwithstanding the Administrator's statements, "I am unable to recommend a Deed of Company Arrangement to creditors, as I have been unable to complete my investigations to determine whether it is in the best interests of creditors to accept a DCA." 85 The reason why he was unable to complete his investigations also included, as he earlier makes clear, that, "I am not in a position to confirm the accuracy of the RATA [Report as to Affairs], as I have not been provided with all the company's accounting records or a satisfactory explanation of the disposal of company assets (see page 3, para 2 of Report to Creditors 1st April 1999) with further elaboration of his restricted access to records in para 4.1. Deleting the right of indemnity makes no difference 86 Finally, I should add that even if the uninitialled deletion of sub-clause (h) on page 19 of the Trust Deed had effectively occurred, it would make no difference. This is because I accept the Plaintiffs' submission that the rights of reimbursement and exoneration arises a necessary incident of holding the office of trustee and are integral to the institution of a trust and for the benefit not only of the trustee, but also its creditors, whether or not aware they are dealing with a trust. They operate to create in favour of a trustee a beneficial interest in the trust assets similar or equivalent to an equitable charge. Hence as a matter of legal principle the trust's entitlement to recover liabilities incurred in carrying on the trust exists and arises independently of any provision contained in the trust deed; see Commissioner of Stamp Duties v Buckle (supra) at 245. 87 The better view is that the Trustee's rights of reimbursement and exoneration could not be excluded through the instrument of trust; Kemtron Industries Pty Ltd v Commissioner of Stamp Duties at 589 per McPherson J. 88 Furthermore, even if that view were not correct, it would require a much clearer statement of an affirmative intention on the part of the Settlor in the Trust Deed to exclude the otherwise automatic operation of the Trustee's entitlement to reimbursement and exoneration. The alteration to page 19 of the Trust Deed for the Coco Family Trust falls well short of such provision. Nor does it sit satisfactorily with the Trustee's rights to costs, charges and expenses of the Trust being charged against the trust fund contained in sub-clause (f) on pages 18-19 of the Trust Deed. Summing up 89 (i) Jonco Holdings retained its right of indemnity in respect of all of the assets of the Trust. (ii) Those assets of the Trust prima facie include the assets the subject of the accounts of 5 June 1998 updated to the present date to include any further assets similarly acquired. Likewise, the liabilities in respect of which Jonco Holdings is entitled to exoneration include the Plaintiff's claims as well as liabilities of the kind reflected in the accounts of 30 June 1998 pertaining to the Trust's business but updated to the present date. In the case of assets and liabilities further investigation is required as to their genuineness and quantum and as to any potentially vulnerable transactions. (iii) There is no justification for excluding from the liabilities of Jonco Holdings as trustee any lease liabilities whilst including the reciprocal asset being franchise fees or rent. Both should be included. (iv) An inference can fairly be drawn and should be drawn that those representing Mr Coco in communication with the Administrator prior to the adopting of the Deed of Company Arrangement, falsely represented to the Administrator to the contrary of the above propositions and in particularly falsely asserted that the financial accounts prepared by Mr Galluzzo of 30 June 1998 were incorrect "in light of the deletion of the indemnity from the Trust Deed". This is so whether that assertion was made with knowledge of its falsity or otherwise. (v) The Administrator was deprived of the essential books and records he needed in order properly to carry out his function of reporting to creditors as required by s439A of the Corporations Law and Regulation 5.3A.02 of the Corporations Regulations . That denial was, I am satisfied, deliberate. It, with the misinformation to creditors on the trust's right of indemnity, as I later conclude, of itself vitiated the process which followed when the Deed of Company Arrangement was submitted to the vote of creditors. It must lead to the Deed being set aside by reason of false or misleading information and omission of matters material to creditors under s445D(1)(a), (b) or (c) and as giving rise to injustice, oppression or unfair prejudice to the Plaintiffs within s445D(1)(e) or (f) of the Corporations Law for reasons I later elaborate. (vi) Finally, the report as to affairs provided to the Administrator as of 9 March 1999 and filed by Galluzzo Fedele Zaccagnini and annexed to the Report to Creditors of 1st April 1999 was furnished in circumstances where the Administrator was in no position to confirm its accuracy by reason of the absence of the company's accounting records or a satisfactory explanation of the disposal of company assets. Comparative return — Deed or liquidation 90 The foregoing conclusions may suffice to see the Deed set aside, though it is still necessary that I consider whether, as the Plaintiffs contend, a return under the Deed would likely or certainly be a lesser return than on liquidation or the reverse; see the Plaintiffs' submissions of 4 February 2000 and the First and Third Defendants' response to the contrary dated 14 February 2000. That issue is a factor relevant to the alternative basis for setting aside the Deed, namely whether a deed of company arrangement operates oppressively (Kalon v Sydney Land Corporation (No. 2) (1998) 16 ACLR 540 at 546. It also bears on whether there is unfair prejudice to a creditor or creditors (Lam Soon Australia Ltd v Molit (No 55) Pty Ltd (1996) 14 ACLR 1,737 at 1,749) and is generally relevant to the Court's overall discretion under Pt 5.3A and s447A to terminate a deed (Dallinger v Halcha Holdings Pty Ltd (in admin) & Anor (1996) 14 ACLC 263 per Sundberg J at 268). Importantly, if there is uncertainty on that question of comparative return, and if it be clear, as it is here, that it is "not possible for the company or its business to continue in existence" then s435A of the Corporations Law effectively places the onus on those who support the deed to show positively that it "results in a better return for the company's creditors and members than would result from an immediate winding up of the company". As emerges below, the First and Third Defendants cannot discharge that onus. Indeed to the extent this bears on discretion, on balance I would judge the greater likelihood that liquidation will afford the better return. 91 The Administrator has declined to give his own quantification of the position on the basis that he does not have sufficient information to do so. However, the Administrator has consistently favoured and continues to favour liquidation rather than the regime imposed by this Deed on creditors. 92 However, what is clear is that the Deed was premised on the basis that the Trustee had no right of indemnity against trust assets in respect of either liabilities owed to the Plaintiffs or liabilities to creditors generally. That contention has been clearly refuted so that trust assets are available by way of exoneration, though creditors stand to benefit only if the Deed is set aside. The Plaintiffs assert (written submissions of 4 February 2000, paras 3 to 7) that liquidation with access to assets of the trust would produce a substantially higher return to creditors than under the Deed. This is on the basis of the last accounts of 30 June 1998 available to the Plaintiffs. It takes into account the potential up-side in value of certain assets, in particular the generous assessment of the value of the units in the HSP unit trust by Mr Ross, the First and Third Defendant's witness, and also the potential reduction if in-house liabilities are overstated on investigation. To quote: Liquidation Scenario 3. If the evidence of Mr Ross is accepted as to the value of units in the HSP Unit Trust (Transcript page 166, 2 November 1999 and confidential part of Transcript) one can assume that if the units were sold creditors would receive 100¢ in the dollar. If this is accepted then it is unnecessary to look to other assets of the Trust. There appears to be little doubt that the units have a substantial value, far in excess of the purchase price of $50,000.00. 4. Mr Porter has indicated in recent correspondence that he is not in a position to comment upon the Trust assets and the value of the units in the HSP Unit Trust as that information has been intentionally withheld from him. Accordingly one can only make submissions based on the little information available. 5. Attached hereto is a copy of the financial accounts of the First Defendant as Trustee of the Sam Coco Family Trust for the period ending 30 June 1998. We do not have in our possession the 1999 accounts. In summary the accounts show that the Trust achieved an operating profit before tax of $590,936.14 for the year ended 30 June 1998, the total assets of the company amount to $3,483,019.50 and the total liabilities amount to $3,537,169.65. Accordingly there is a small deficiency of liabilities over assets. However, it is noted that a substantial amount of the liabilities relates to related creditors which would require an investigation by the Liquidator to determine the bona fides of such claims. For example one of the creditors is Coco's Warehouse in an amount of $1,326,145.20. Even if one accepts the figures and adds the Deed Creditors to those creditors of the Trust i.e. approximately $546,398.10 (which includes the claim of the Plaintiff to the extent of $270,947.10) total creditors on a liquidation scenario would amount to less than $4.1 million and on the assumption that the assets could be realised ($3,483,019.50) for an amount of at least $2.1 million (which is extremely conservative) the return to creditors would exceed 50¢ in the dollar. 6. Of course additional to those assets in the Trust moneys may be realised from the sale of shares in the HSP Unit Trust and also from the following sources: (a) The First Defendant holds 2/3 of the units in the Cela Unit Trust. The Cela Unit Trust owns a shopping centre at Toowoomba and one could presume that the equity in that shopping centre would be substantial (see attachment B being a copy of a document produced by Westpac on subpoena noting that the value of the shopping centre to be in excess of $2.5 million which should be offset against maximum borrowings of $1.625 million. (b) Actions by a Liquidator to pursue claims in respect of those numerous business and assets which have been transferred for undervalue. (c) Actions by a Liquidator to recover the profits of those businesses transferred and those businesses conducted by the Trust. 7. In summary upon any reading of it we submit that the Defendants would have to concede that if the assets of the Trust are available to a Liquidator of the First Defendant the return to creditors by way of a liquidation would be substantially more than the current return likely to be received from the Deed of Company arrangement and indeed the return may be 100¢ in the dollar." 93 The First and Third Defendants' contend to the contrary, arguing that assets have been overestimated. They also contend that insufficient allowance made for the effect of proving for all the related creditor liabilities, once the undertaking which goes with the Deed ceases to operate in respect of those creditors. Then it is said the result is that the Deed of Company Arrangement would after taking into account of these matters be more favourable with its prospective return of 23.5 cents in the dollar. 94 The Plaintiffs contend (para 2) and I accept that in fact the return to creditors under the Deed would be more likely to be substantially less than 23.5 cents in the dollar. This is because the earlier calculation was made on the basis that the debt due to the Plaintiffs was $148,360 but this amount was increased by the Administrator at the subsequent creditors' meeting to $270,947.10. In addition, there appear further creditors who have made claims in the administration as set out in the affidavit of Mr Porter of 29 October 1999 (para 3) being the liquidator of Maltak Pty Limited (in liquidation) in an amount of $274,787.61, though this is disputed, also Mr Kumar in an amount of $50,809 (also disputed) and also from Lai Ming Yuen for alleged rent from 1 January 1999 to May 31, 1999 in respect of premises at Sunny Bank, Queensland for $57,127.88 (which may or may not be disputed). I should add that the Administrator does not indicate one way or the other as whether he would dispute those three claims. 95 Taking first into account only the additional amount allowed by the Administrator for the Plaintiffs' proof of debt at the increased amount allowed by the Administrator (though not the full amount claimed), the effect would be a reduction to 18.3 cents in the dollar under the Deed. But if one accepts the proof of debts of the first two parties as well then the dividend becomes even lower at 12 cents in the dollar. And that is without allowing for the claims now of other potential creditors which must be likely nor of any increase in the Plaintiffs' proof of debt if successful in getting the full amount claimed. 96 As against those calculations, the First and Third Defendants (paras 5 to 15 of 14 February 2000 submissions) put various alternative calculations based on a liquidation scenario and the claims that would then be advanced if the undertaking not to prove were removed for the related creditors. But no allowance is made for whether those claims might themselves be attackable as uncommercial transactions or otherwise. But even accepting all these arguable bases for reducing assets and adding to liabilities, and making no contra by way of allowance for the potentially vulnerable transactions (see para 97 below), the effect on the First and Third Defendant's best case is still only a return on liquidation of 25 cents in the dollar. That calculation assumes the Plaintiffs prove for $270,947.10 but no more (or less) and no further liabilities emerge when clearly some already have, as identified by the Administrator (affidavit of 29 October 1999 para 3). The difference between 25 cents in the dollar and 23.5 cents already favours liquidation, though not by much, and in my judgment, though on limited and not fully tested evidence, is likely to be an underestimate of the margin favouring liquidation. And this is without even allowing for the potentially vulnerable transactions to which I now briefly turn. 97 The Plaintiffs in their written submissions of 8 December 1999 (pp 19 to 25 paras 13 to 19) identify a number of potentially vulnerable transactions which a liquidator could well attack apart from the earlier Maltak transaction (see paras 33 and 34 above) arising from the reconstruction that occurred in August 1998 in the Coco group of companies affecting Jonco Holdings. These include in particular the associated transfer of depreciated plant and equipment at what the Plaintiffs contend, was a substantial undervalue and similarly the transfer of stock. There was also the sale of certain freehold property at Woodridge which may generate an unfair preference in favour of Coco's Warehouse Pty Limited in respect of $630,000 owed to it by Jonco Holdings. While it is not possible to reach a concluded view on these potentially vulnerable transactions and noting the denial of any impropriety by the First and Third Defendants, the reasons elaborated in the Plaintiffs' written submissions of 8 December 1999 persuade me there is sufficient to justify thorough investigation by a liquidator, and indeed possibly by ASIC having regard to directors' fiduciary responsibilities. 98 The gravamen of the Plaintiffs' overall allegations can nonetheless be accepted without reaching any concluded view on these transactions. To quote from the Plaintiffs' written submissions (at 14): "8. Mr Coco and his advisors put together and then sought to implement, a scheme seeking to take advantage of the provisions of Part 5.3A of the corporations law. The principal components of the scheme seem to have been (or became) that Mr Coco (either directly or through his deputies Mr Peter McPhee and Ms Wendy Wright): (a) changed the name of the trustee; (b) transferred as many assets as possible away from the trustee, to other entities in his group (or pretended that this had occurred); (c) sought to change the trustee and asserted that he had effectively done so; (d) commenced an insolvent administration under Part 5.3A of the Corporations Law; (e) furnished a wholly inadequate and false report as to affairs; (f) denied in the administration that the right of indemnity and exoneration was available to the trustee (and in the course of doing so, propounded a fraudulently altered version or copy of the trust deed in aid of such contention); and (g) purported to differentiate on a completely arbitrary basis between creditors of Sam Coco Pty Ltd affected by the administration and creditors of Sam Coco Pty Ltd not affected by it; (h) bought or otherwise procured sufficient claims in the administration to control the statutory meetings; (i) frustrated the administrators attempts to carry out his statutory duties to investigate the company's affairs and report to creditors; (j) propounded a deed of company arrangement which was blatantly oppressive to creditors; (k) prevented the administrator obtaining access to the Court for guidance as to the exercise of his functions; (l) used his voting control of the meeting of creditors to require the adoption of the deed being propounded by Mr Coco." 99 Leaving aside (b) above, insofar as it relies on any final determination that the various transfers were improper, I am satisfied that these contentions are made out even if the alteration to the Trust Deed were not fraudulent, though highly suspicious. 100 The unsatisfactory state of production of books and records to the Administrator emphasises, if that were needed, the importance of a liquidator with adequate powers investigating these and other transactions identified by the Plaintiffs. Conclusion 101 I am satisfied taking all these matters into account, that it is more likely than not that a greater return would be achieved for creditors if the Deed were set aside than if it were not. Clearly there are uncertainties in the way of that conclusion but there are sufficient indications in support of it to treat this as an independent basis for setting aside the Deed. Certainly the First and Third Defendants have failed to satisfy the onus on them to establish, in conformity with the object of Pt 5.3A stated in s435A of the Corporations Law, that a better return for the company's creditors and members would result from Jonco Holdings continuing in existence under the Deed, "than would result from an immediate winding up of the company". Deed oppressive and unfairly prejudicial 102 As in Kalon (supra) at 546 (Priestley, Meagher and Sheller JJA) so here: "Thus the Deed failed to achieve the object set out in s435A(b), that is to say in the situation where it was not possible for Kalon or its business to continue in existence, the Deed did not achieve a better return for Kalon's creditors and members than would result from an immediate winding up of the company. The Deed was oppressive because not only were the creditors not advantaged by it, but the shareholders of a third party, APH, some of them but not all of them creditors, obtained a collateral advantage. Young J was right to conclude that the Deed was oppressive with respect to SLC and to make the orders that he did." 103 Here the collateral advantage which makes the Deed oppressive and unfairly prejudicial inter alia to the Plaintiffs, within s445D(1)(f)(i), is denial of access to the trust assets, which thus become available directly or indirectly only to related creditors. They are not governed by the Deed whereas the Deed gives those creditors who are so governed not a better return, but more likely a worse one. This is so, even if the latter proposition is on the balance of probabilities, and leaving aside the difficulties of calculation through lack of records. 104 There is furthermore the cumulative effect of the conduct of Mr Coco and those acting on his behalf, as earlier identified, in the way in which the vote on the Deed was forced through on inadequate information and in respect of the Trustee's indemnity incorrect information. As was said by Davies AJA in Khoury v Zambena Pty Limited [1999] NSWCA 402 at para 105: "Part 5.3A ought not to be used as an instrument of oppression against one or more creditors. An arrangement under Part 5.3A may discriminate between creditors or classes of creditors; but nevertheless it ought deal fairly with the interests of creditors of an insolvent company ….. . To be valid, a deed of arrangement must be fairly reached in the interests of creditors." To similar effect are the observations of Hanson J in Wood v Laser Holdings Ltd (1996) 14 ACLC 801 especially at 819-20 on the consequences of companies direct or achieving through control of the creditors' meeting an "underhand bargain". 105 Here, I am satisfied that through non-co-operation, misrepresentation, misleading conduct and breach of the statutory duties of disclosure and assistance, the company's controllers created the very circumstances which prevented the Administrator from fulfilling his task in putting the relevant proposal of the Deed to creditors with correct information and no material non-disclosure. Thus Young J in Winterton Constructions v M A Coleman Joinery (1996) 14 ACLC 1168 at 1171 noted the importance to the operation of a legislative scheme that directors of companies entering administration do their duty by advising the administrator of all claims, even disputed claims. By parity of reasoning, directors should furnish relevant and accurate information about the financial affairs and assets of the company. Deed unfairly discriminatory 106 Here it can be reasonably inferred related creditors who do not claim under the Deed will be advantaged rather than disadvantaged, whilst those who claim under the Deed were denied access to the very assets upon which the Trustee is entitled to exoneration. That is a further basis for setting aside the Deed of Company Arrangement, under the general discretion conferred by s445D(1)(g) assisted by s447A by reason of the Deed operating in an oppressive and arbitrary manner in its discrimination between different categories of creditor. Here the comparison is between creditors affected by the deed and those creditors who were treated as having been "transferred" including all the inter-company creditors of Jonco Holdings, who remain creditors at the commencement of the administration. There is also the discrimination between those creditors such as the National Australia Bank who were paid out prior to the commencement of the administration as compared to creditors who participate in an unfair scheme under the Deed for a deficient return compared to what is more likely to be their entitlement under a liquidation. None of the discriminatory features of the present Deed can be justified on the basis that such a discrimination was appropriate or calculated to achieve the objectives of Part 5.3A; compare Lam Soon Australia Pty Limited v Molit (No. 55) Pty Ltd (supra) at 1748-9; Employers' Mutual Indemnity (Workers Compensation) Ltd v TST Transport Services Pty Ltd (1997) 15 ACLC 314. False or misleading information and material omission 107 Finally, there is the clearest of cases to set aside the Deed by reason of (i) false or misleading information material to creditors being given to the administrator or creditors (s445D(1)(a)); or (ii) contained in a report or statement accompanying the notice of meeting (s445D(1)(b); or (iii) constituting an omission from such a report or statement that can reasonably be expected to be material to creditors (s445D(1)(c). This is to be found in there being no mention of the Trustee's right of indemnity or exoneration save in the misinformed Administrator's denial of it in his report to creditors. Further misinformation or material omission may emerge when proper and complete company records are made available, in relation to those vulnerable transactions to which earlier reference has been made. 108 As to lack of information, what is put by the First and Third Defendants is that the creditors were informed where information was in the view of the Administrator inadequately supplied by the company (see affidavit of Mr Porter dated 25 June 1999 paras 452-466). Thus, it is said, the creditors knew that the Administrator could not, in his view, assess certain matters and voted in that knowledge. It is then contended that the true position, being presumably the position that would have been disclosed had the material been furnished, would not have been material to know unless it showed a significantly better return to creditors — and that would not have been the case. Thus it is said, "the creditors could assume from any failure to provide information that that information might be disadvantageous to the proposed arrangements and exercise their vote accordingly"; see First and Third Defendants' written submissions of 10 November 1999, para 4. (Yet to the contrary the material omission and misinformation as to the trustee's right of indemnity could not have been within the category of information where creditors knew they did not have the full story yet chose to vote.) 109 But such an unattractive argument cannot avail the First and Third Defendants, once a case of material misinformation is made out. This is more especially once it be established, as it has been, that a better return from the Deed could not be demonstrated compared to liquidation, even if uncertainties make a definitive conclusion not yet possible. Certainly one does not correct the effect of material misinformation by establishing that everyone knows merely that they have not been told the full story. As to the further defence that it would have made no difference to the voting result, there is a heavy onus on those who misinform or mislead to establish that the outcome of the meeting indubitably would have been the same, whether properly informed or not. This is an onus, the First and Third Defendants have clearly not satisfied. It requires them to establish that, properly informed, no other creditors would have attended, that the close voting result would still have been the same, and that the Administrator properly informed would not have approached the Court prior to the meeting for an injunction to restrain it, with some prospect of success. This is in circumstances where we know the Administrator wanted to adjourn the meeting to establish the Plaintiffs' extent of debt and thus their votes, lacking as he did the necessary company records, and misled into believing the Trustee had no right of recourse to trust assets. He favoured liquidation rather than this deed of company arrangement. The approach contended for by the First and Third Defendants would eviscerate the safeguards of the Corporations Law and render such creditors' meetings a farce. 110 The First and Third Defendants go on to contend that, "in addition, in view of the nature of the creditors supporting the Deed it cannot reasonably be expected that any non-disclosure of the type alleged would have resulted in a different outcome on the vote. Most of the supporting creditors could be presumed to know the real position of the company." [emphasis added] That amounts to saying that those who voted for the Deed were, as insiders associated with Mr Coco, better informed than those who voted against it. Such an argument could not be accepted, because it would place a premium on inside knowledge and legitimate discriminatory manipulation of creditors' meetings exploiting that knowledge. It also ignores the implication of not informing the Administrator properly. Such failure undermines or destroys the Administrator's capacity to preside effectively over the statutory creditors' meeting under s439A(4) to consider adopting a deed of company arrangement. For how then could an uninformed Administrator carry out the overriding object of Pt 5.3A, with its emphasis on choosing the course which gives the better return to creditors as a whole, when the choice is between continuing in existence or going into liquidation? Uninformed, self-evidently, the Administrator could not give the guidance creditors were entitled to accept. Such a proposition is untenable and the assumption behind it requires the Court's emphatic rejection. 111 It has been said that the court will not be surprised to see every so often that the details given to the creditors at meetings are not as well presented as they should be, and indeed, may be biased towards the directors' view. This will not necessarily be sufficient in itself to set aside the deed and the Court will take into account time constraints imposed on administrators when considering omissions and is not looking for excessive detail; compare Hagenvale Pty Ltd v Depela Pty Ltd (1995) 17 ACSR 139. However, here the omissions are so gross and the circumstances so unredeeming so far as the controllers of the company are concerned, that the best efforts of the Administrator could not have availed; that is to say, in placing all matters reasonably expected to be material to creditors before them and in a way that was not false or misleading (DFC of T v Comcorp Australia Ltd (1996) 14 ACLC 1,616 at 1,637). Indeed with the wisdom of hindsight, the Administrator should have applied to the court to intervene at the time, though in saying that, I do not seek to criticise the Administrator in difficult circumstances. No delay 112 Nor has there been delay as could conceivably lead to the court's discretion being exercised against terminating the Deed on this or the other available grounds. To the contrary: the Plaintiffs acted with commendable promptness in less than two weeks from the meeting; compare Molit (No 55) Pty Ltd at 171 where Branson J thought even one month could be too long and Khoury v Zambena Pty Limited (supra) where a 13 month delay in commencing proceedings was fatal (though Fitzgerald JA per contra). Overall Conclusion 113 The Deed should be terminated by the Court pursuant to s445D and the general discretion, more particularly as set out in para 6 above under (a), (b), (c)(ii) and (e) or otherwise declared void pursuant to s445G. While the Administrator is not to be criticised for this, for the guidance of future administrators, the present circumstances highlight the importance of the Administrator seeking directions and if necessary the Court's intervention when unsatisfied that a deed of company arrangement should yet be put to creditors when creditors could not be properly informed for lack of essential corporate records and there is a serious risk that they may be materially misled. Less clear-cut is the case where a proof of debt cannot be provisionally determined but may require judicial consideration. There may be a case for resorting to the court if feasible, especially if this could affect the outcome of the vote. However, that situation must be viewed having regard to the prevailing circumstances and is not an invariable requirement as it may simply not be possible to achieve this under the stringent deadlines of a salvage or rescue operation via a deed of company arrangement and which is evidently not unfair. general — costs and orders 114 The matters to which I have earlier made reference in this judgment are of sufficient seriousness to warrant that a copy of this judgment be made available to ASIC for its consideration. ASIC in turn, in light of its further investigation, can decide whether further referrals are appropriate and warranted such as to the Queensland Law Society in relation to the alteration to the Trust Deed and the settlor's supposed execution of the Variation Deed and the use to which these were put. 115 Subject to hearing from the parties including the Second Defendant I consider that the Plaintiffs should obtain orders in terms of paras 29.1, 29.2, 29.3, 29.4 and 29.6 of the Plaintiffs' Statement of Claim. 116 Costs clearly enough should follow the event, though I am prepared to hear submissions on costs from the parties and the Second Defendant (having regard in his case to his written submissions of 29 October 1999). As I presently see matters, costs should be awarded on an indemnity basis against the First and Third Defendants with costs against the First Defendant to be costs in the liquidation. Furthermore, as I presently see matters there should be a Bullock order ensuring that the First Defendant's liability for the costs of these proceedings can be recovered from the Third Defendant. 117 In any event, I direct that the parties submit orders giving effect to this judgment within fourteen days, preferably in agreed form or otherwise in the parties' competing versions. ********** Last Modified: 01/07/2002 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.