Actwane Pty Ltd (Receiver and Manager Appointed) (In Liquidation) and William James Moss v Hotel Redfern Pty Ltd, Actwane Holdings Pty Ltd and Stephen Michael Larkin [2002] NSWSC 265

New South Wales Supreme Court

CITATION : Actwane Pty Ltd (Receiver and Manager Appointed) (In Liquidation) and William James Moss v Hotel Redfern Pty Ltd, Actwane Holdings Pty Ltd and Stephen Michael Larkin [2002] NSWSC 265 CURRENT JURISDICTION: Equity Division Commercial List FILE NUMBER(S) : SC 50116/01 HEARING DATE(S) : 25 and 26 March 2002 JUDGMENT DATE : 8 April 2002

Actwane Pty Ltd (Receiver and Manager Appointed) (In Liquidation) (First Plaintiff) William James Moss (Second Plaintiff) PARTIES : Hotel Redfern Pty Ltd (First Defendant) Actwane Holdings Pty Ltd (Second Defendant) Stephen Michael Larkin (Third Defendant) JUDGMENT OF : Bergin J

COUNSEL : B Coles QC leading P Newton and R Pepper S Robb QC leading N Kidd SOLICITORS : Blake Dawson Waldron (Plaintiffs) Eakin McCaffery Cox (Defendants) CATCHWORDS : Application for rectification of the register of members of the first defendant. Corporations Act 2001 LEGISLATION CITED : Fair Trading Act 1987 (NSW) Trade Practices Act 1974 (Cth) CASES CITED : Grant v John Grant & Sons Pty Limited (1950) 82 CLR 1 DECISION : Rectification ordered

- 25 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION commercial LIST

BERGIN J

8 APRIL 2002

50116/01 Actwane Pty Ltd (Receiver and Manager Appointed) (In Liquidation) and William James Moss v Hotel Redfern Pty Ltd, Actwane Holdings Pty Ltd and Stephen Michael Larkin JUDGMENT 1 The plaintiffs seek an order pursuant to s 175 of the Corporations Act 2001 that the register of members of the first defendant, Hotel Redfern Pty Ltd (Hotel Redfern) be rectified to record the first plaintiff, Actwane Pty Ltd (Actwane), as the holder of two shares in Hotel Redfern currently registered in the name of the second defendant, Actwane Holdings Pty Ltd (Holdings). 2 Actwane is in receivership. It has two directors, Colin Graham, the second plaintiff's nephew and the third defendant, Stephen Michael Larkin (Dr Larkin). It has two shares held equally by TPC Nominees Pty Ltd, a company associated with the second plaintiff, William James Moss (Mr Moss) and Wentworth Advisors Pty Ltd, a company associated with Dr Larkin. 3 Mr Moss is an Executive Director of Macquarie Bank Ltd in charge of Banking and Property. He has known Dr Larkin for over ten years and he and Dr Larkin were involved in a successful property investment some years ago. They apparently enjoyed an amicable social relationship and were on good terms until April or May 2001. 4 In about early 1998 Dr Larkin suggested to Mr Moss that they form a joint venture for the purpose of purchasing, developing and operating hotels. The understanding between Dr Larkin and Mr Moss was that Dr Larkin would do all things necessary to obtain hotel licenses, arrange for properties to be purchased and developed, and for hotel business to be put into operation. Each would provide guarantees for the funding for the purchases, however it is clear that the risk, depending upon the extent of the debt, was greater for Mr Moss who was able to provide far greater assets as security than those provided by Dr Larkin. 5 In about March 1998 Dr Larkin's accountant, Mr Bruce Coombes, of the accounting firm Macquarie Partners (Australia) Pty Ltd, acquired Actwane to be used as the principal vehicle for the joint venture investments. 6 In early March 1998 Mr Moss opened a cheque account in the name of Actwane with Macquarie Bank and in May 1998 he arranged a $400,000 facility with Macquarie Bank. Dr Larkin, Mr Moss and his wife provided personal guarantees in respect of those borrowings that were deposited into Actwane's Macquarie Bank account in order to provide the capital to purchase hotel licences. 7 During 1998 Dr Larkin acquired three country hotel licences in Actwane's name from hotels at Coreen, Tooma and Wilcannia. During 1999 Actwane acquired an option to purchase two properties, one at Carramar and one at Canley Heights. The licence from the Wilcannia hotel was sold and the two other hotel licences from Coreen and Tooma were successfully transferred to the properties at Carramar and Canley Heights. The options to purchase the Canley Heights and Carramar properties were exercised during 1999. 8 In about August 1999 Dr Larkin informed Mr Moss that the venture had spent well in excess of what was originally budgeted and that a further $1 million would be needed to have the further sites approved. As a result of this conversation Mr Moss arranged for the credit facility with Macquarie Bank to be increased to $1.05 million. 9 In about December 1999 Dr Larkin informed Mr Moss that even further funds were needed. Mr Moss suggested that an approach be made to St George Bank and on about 14 December 1999 Mr Moss arranged to borrow approximately $430,000 from St George Bank to be allocated as to $200,000 for working capital and as to $230,000 to finalize the purchase of the Carramar property. 10 In May 2000, by which time the Macquarie Bank facility had increased to approximately $1.137 million, Mr Moss advised Dr Larkin that they needed to sort out the debt and that they needed one bank. He asked Dr Larkin how much money was needed to complete the projects and Dr Larkin advised that the venture needed a facility of $3.1 million. Mr Moss then approached the St George Bank in order to obtain sufficient funds to pay out the facility provided by Macquarie Bank and to re-finance the joint venture with St George Bank. 11 On about 24 May 2000 Mr Moss obtained approval for facilities totalling $2.945 million from the St George Bank which required various forms of security. A joint and several guarantee and indemnity signed by Dr Larkin, Mrs Moss, Austcorp No. 214 Pty Ltd as trustee for the Moss family trust and Mr Moss was provided and Mr Moss provided shares which he held in Macquarie Bank, then valued at approximately $3.4 million. St George Bank also obtained a first ranking charge over the assets and undertakings of Actwane as security for the facilities. 12 In June 2000 Dr Larkin informed Mr Moss that there had been a further escalation in costs and that the joint venture needed more money. Mr Moss was of the view that the only way to obtain additional funds was to retain the Macquarie Bank facility rather than use the moneys borrowed from St George to pay it out. That is what was done. 13 Mr and Mrs Moss separated in May 2000 at which time Mrs Moss transferred her interest in Actwane to Mr Moss in consideration of him taking responsibility for Actwane's debt. 14 On 23 June 2000 Actwane Hotel Management Pty Ltd (AHM) was established to operate Actwane's planned hotel at Canley Heights. The directors of AHM were Colin Graham and Dr Larkin. The two shares in AHM were issued to Macquarie Advisors (Australia) Pty Ltd (later known as Wentworth Advisors Pty Ltd), a company associated with Dr Larkin, and Wybalena Securities Pty Ltd, a company associated with Mr Moss. In about June 2000 Phillip Brooks was appointed manager of the Canley Heights Hotel which commenced operation in August 2000. 15 On 5 September 2000 Dr Larkin met with Mr Moss at his office at Macquarie Bank. Also present at the meeting were Mr Coombes and a solicitor, Mr Swaab. The purpose of the meeting was to discuss a then contemplated further investment in an hotel at Petersham, known as the Petersham Inn, and to discuss general forward planning for the joint venture. Although Mr Moss in his affidavit suggested that Mr Coombes had drawn a corporate structure on a whiteboard, it is clear that Mr Moss drew at least one corporate structure on a whiteboard during discussions at this meeting. A drawing was printed out from the whiteboard and a copy was provided to Mr Coombes (Ex 1). The diagram is difficult to read. On the left hand side of the page there are some figures and writing that have been partially obliterated. The diagram depicted Holdings at the top of the structure owned equally by Mr Moss and Dr Larkin with "JAM, Actwane, Petersham M/Co and A.H.M" referred to on the line immediately underneath Holdings.