New South Wales Supreme Court CITATION : ASIC v FORGE & ORS [2002] NSWSC 760 CURRENT JURISDICTION: Equity Division FILE NUMBER(S) : SC 2338/01 11/03/2002 to 14/03/2002, HEARING DATE(S) : 08/04/2002 to 09/04/2002 29/04/2002 to 01/05/2002 JUDGMENT DATE : 28 August 2002 PARTIES : Australian Securities & Investments Commission v WIlliam Arthur Forge & Ors JUDGMENT OF : Foster AJ at 1 Mr R. Burridge with Mr M.Vincent/Mr D. Stack - Plaintiff COUNSEL : Mr Allan Endresz appearing in person for all Defendants. Mr Graeme Plath - Plaintiff SOLICITORS : Solicitor ASIC Canberra CATCHWORDS : Allegations against defendants of conduct occurring in 1998 alleged to have been in contravention of certain provisions of the Corporations Law. Corporations Law 1997 Corporations Act 2001 LEGISLATION CITED : Companies (Acquisition of Shares( Victoria) Code 1980 Companies (Victoria) Code 1981 Australia Act 1986 ASC v SIB Resources NL & Ors (1991) 103 ALR 374 Odyssey Nominees Pty Ltd v Australian Stock Exchange Ltd [1997] 15 ACLC 743 Australian Growth Resources Corp Pty Ltd v Van Reesema 91988) 13 ACLR 261 at 272 R v Byrnes (1995) 183 CLR 501 CASES CITED : Re: Magna Alloys & Research Pty Limited (1975) 1 ACLC 203 Zucker v Commissioner for Corporate Affairs (1981) VR 72 at 77 Murray v ASC (1984) 12 ACLC 11 at 13 ASC v Donovan (1998) 28 ACSR 583 at 602 Trade Practices Cmmission v Stihl Chainsaws (Aust) Pty Ltd [1978] ATPR 17, 882 at 17,896 NW Frozen Foods v The Australian Competition & Consumer Commission (1996) 71 FCR 285 (FC) at 293 DECISION : Refer Schedule (pp83-90) THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION FOSTER AJ WEDNESDAY, 28 AUGUST, 2002 2338/01 AUSTRALIAN SECURITIES & INVESTMENTS COMMISSION –v- William Arthur FORGE & Ors JUDGMENT 1 FOSTER AJ: In these proceedings the Australian Securities & Investments Commission ("ASIC") by Originating Process, dated 26 April 2001, sought various declarations and orders against each of the defendants in respect of conduct occurring in 1998, which was alleged to have been in contravention of certain provisions of the Corporations Law then in force. The application is made under s 1317EB of the Corporations Law, which section continues to apply to the 1998 conduct pursuant to s 1383 of the Corporations Act, when read with s 1473(1) of the Corporations Law. The application seeks civil penalty orders against each defendant being declarations under s 1317EA(2) and orders under s 1317EA(3) of the Corporations Law. ASIC alleges that the conduct engaged in by each of the defendants involved contraventions of provisions of the Corporations Law that were in force in 1998, namely ss 232(2), 232(4), 232(6), 243ZE(2) and 243ZE(3). The fifth defendant is in liquidation and the proceedings against it have been stayed. 2 It is convenient, by way of background, to refer to certain facts which are clearly established in the evidence. The second defendant, Jozsef Endresz ("Mr Endresz") and the third defendant, Dawn May Endresz ("Mrs Endresz") are husband and wife. The fourth defendant, Allan Paul Endresz ("Allan Endresz") is their son. The fifth defendant, Kamanga Holdings Pty Limited ("Kamanga") is a family company of the Endresz family. 3 The first defendant, William Arthur Forge "(Mr Forge") is a friend of the Endresz family and is the sole director and secretary of the sixth defendant, Bisoya Pty Limited ("Bisoya") which is his private family company. 4 Mr and Mrs Endresz and Allan Endresz were at different times directors of the company CTC Resources N.L. ("CTC") which, until 12 March 1991, was named Emu Hill Gold Mines N.L. From 1989 Allan Endresz and Mr Endresz held 51% of the issued shares in this company. Until 18 December 1990 the company was listed on the Australian Stock Exchange ("ASX") but, on that date, was delisted pursuant to an ASX discretionary rule. 5 In April 1991 Mrs Endresz was appointed a director of CTC. On 11 June 1993 Allan Endresz resigned as director and secretary and Mr Endresz was appointed as secretary in his place. Mr Forge was appointed a director of CTC on 9 September 1994. 6 In 1992, a registered fixed floating Charge of $1,000,000.00 was registered over all the assets of CTC in favour of Kamanga. 7 In the early 1990's CTC retained Davis Samuel Pty Limited ("Davis Samuel") as a corporate advisor. This company was owned as to 50% of its shares by Kamanga. In 1994 CTC brought a claim for damages in the Supreme Court of Western Australia against the ASX, alleging that its delisting had been wrongful. Damages were claimed, ranging between $37,000,000.00 and $1,500,000,000.00. Davis Samuel conducted the action on behalf of CTC, originally in consideration of its receiving 60% of damages recovered. A subsequent variation of these arrangements involved CTC purchasing half of the 60%, whilst the remaining 30% was sold to Kamanga. Instead of the previous arrangements Davis Samuel was given a fee of $60,000.00 per month from 1 May 1988 onwards in consideration of its continuing to prosecute the claim. 8 CTC has about 1,200 shareholders but no annual general meeting of the company was held between 1991 and 1997. On 23 March 1998 an annual general meeting was held in respect of those years. The accounts for 1991 to 1997 were produced to the meeting and were approved. These accounts referred to the fact that CTC was fully supported by Kamanga, the auditors (Messrs. Ernst & Young) expressing doubts as to CTC's ability to continue as a going concern unless provided by support from Kamanga. It was not possible to determine whether Kamanga had the relevant ability to provide support. 9 These accounts, when presented, indicated significant operating losses in the years 1994 to 1997. In 1994 there was a loss of $164,000.00. In 1997 the loss was $344,000.00. Accumulated losses had increased each year with the result that the accounts indicated that shareholders' equity was, in fact, a deficiency of $1,427,273.00 in 1997. The company had earned no income over that period. 10 The events with which these proceedings are concerned occurred in April 1998. In that month CTC received into its funds the amount of $6,000,000.00. This amount was received from the Commonwealth of Australia and was characterised as payment for 60,000 redeemable convertible non-cumulative A-Class preference shares called CTC Capital Bonds Series 1, the issue price being $10.00 per share. A dividend of 6.5% was to be paid annually and there was to be a guaranteed redemption of the capital at the end of four years. 11 The circumstances attending the entry into of this capital raising exercise and the receipt of the payment are not in issue in these proceedings. It is the manner in which the amount received was dealt with, by way of disbursement, that is called in question. 12 After portion of the amount received was invested in a Commercial Bill Facility, the whole of the balance, $3,596,348.90 was disbursed at various times in 1998. Eight transactions are alleged to have occurred in breach of relevant sections of the Corporations Law. It is convenient, at this stage, to set-out in full those parts of the originating process that deal with each transaction, describing it, and indicating the relief sought in the proceedings:- "This application concerns conduct that occurred in 1998. The application is made under subsection 1317EB of the Corporations Law, which continues to apply to the conduct pursuant to subsection 1473(1) of the Corporations Law. The conduct involved contraventions of certain provisions of the Corporations Law that were in force in 1998, namely subsections 232(2), 232(4), 232(6), 243ZE(2) and 243ZE(3) of the Corporations Law . This application seeks civil penalty orders under provisions of the Corporations Law that were in force in 1998 and which continue to apply regarding the conduct pursuant to subsection 1473(1) of the Corporations Law . The civil penalty orders that the application seeks are declarations under subsection 1317EA(2) of the Corporations Law and orders under subsection 1317EA(3) of the Corporations Law . Transaction 1 1 A declaration, pursuant to subsection 1317EA(2) of the Corporations Law, that the first defendant, second defendant, third defendant and fourth defendant have each, as an officer of CTC Resources N.L. ACN 009 061 036, in New South Wales, by approving, permitting or allowing CTC Resources N.L. ACN 009 061 036 to pay $2,205,000 to the fifth defendant, on or about 20 April 1998, contravened subsection 232(2) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036 (" Contravention 1 "). 2 A declaration, pursuant to subsection 1317EA(2) of the Corporations Law, that the first defendant, second defendant, third defendant and fourth defendant have each, as an officer of CTC Resources N.L. ACN 009 061 036, in New South Wales, by approving, permitting or allowing CTC Resources N.L. ACN 009 061 036 to pay $2,205,000 to the fifth defendant, on or about 20 April 1998, contravened subsection 232(4) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036 (" Contravention 2 "). 3 A declaration, pursuant to subsection 1317EA(2) of the Corporations Law, that the first defendant, second defendant, third defendant and fourth defendant have each, as an officer or employee of CTC Resources N.L. ACN 009 061 036, in New South Wales, by approving, permitting or allowing CTC Resources N.L. ACN 009 061 036 to pay $2,205,000 to the fifth defendant, on or about 20 April 1998, contravened subsection 232(6) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036 (" Contravention 3 "). 4 A declaration, pursuant to subsection 1317EA(2) of the Corporations Law, that the first defendant, second defendant, third defendant and fourth defendant have each, by being involved in or by being recklessly concerned in or by being party to, CTC Resources N.L. ACN 009 061 036 paying $2,205,000 to the fifth defendant, on or about 20 April 1998, contravened subsection 243ZE(3) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036 (" Contravention 4 "). 5 A declaration, pursuant to subsection 1317EA(2) of the Corporations Law, that the fifth defendant has, by receiving $2,205,000 from CTC Resources N.L. ACN 009 061 036, on or about 20 April 1998, contravened subsection 243ZE(2) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036 (" Contravention 5 "). Transaction 2 6 A declaration, pursuant to subsection 1317EA(2) of the Corporations Law, that the first defendant, second defendant and third defendant have each, as an officer of CTC Resources N.L. ACN 009 061 036, in New South Wales, by approving, permitting or allowing CTC Resources N.L. ACN 009 061 036 to pay $260,000 to the sixth defendant, on or about 20 April 1998, contravened subsection 232(2) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036 (" Contravention 6 "). 7 A declaration, pursuant to subsection 1317EA(2) of the Corporations Law, that the first defendant, second defendant and third defendant have each, as an officer of CTC Resources N.L. ACN 009 061 036, in New South Wales, by approving, permitting or allowing CTC Resources N.L. ACN 009 061 036 to pay $260,000 to the sixth defendant, on or about 20 April 1998, contravened subsection 232(4) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036 (" Contravention 7 "). 8 A declaration, pursuant to subsection 1317EA(2) of the Corporations Law, that the first defendant, second defendant and third defendant have each, as an officer or employee of CTC Resources N.L. ACN 009 061 036, in New South Wales, by approving, permitting or allowing CTC Resources N.L. ACN 009 061 036 to pay $260,000 to the sixth defendant, on or about 20 April 1998, contravened subsection 232(6) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036 (" Contravention 8 "). 9 A declaration, pursuant to subsection 1317EA(2) of the Corporations Law, that the first defendant, second defendant and third defendant have each, by being involved in or by being recklessly concerned in or by being party to, CTC Resources N.L. ACN 009 061 036 paying $260,000 to the sixth defendant, on or about 20 April 1998, contravened subsection 243ZE(3) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036 (" Contravention 9 "). 10 A declaration, pursuant to subsection 1317EA(2) of the Corporations Law, that the sixth defendant has, by receiving $260,000 from CTC Resources N.L. ACN 009 061 036, on or about 20 April 1998, contravened subsection 243ZE(2) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036 (" Contravention 10 "). Transaction 3 11 A declaration, pursuant to subsection 1317EA(2) of the Corporations Law, that the first defendant, second defendant, third defendant and fourth defendant have each, as an officer of CTC Resources N.L. ACN 009 061 036, in New South Wales, by approving, permitting or allowing CTC Resources N.L. ACN 009 061 036 to pay $40,833.34 to the fifth defendant, on or about 28 May 1998, contravened subsection 232(2) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036 (" Contravention 11 "). 12 A declaration, pursuant to subsection 1317EA(2) of the Corporations Law, that the first defendant, second defendant, third defendant and fourth defendant have each, as an officer of CTC Resources N.L. ACN 009 061 036, in New South Wales, by approving, permitting or allowing CTC Resources N.L. ACN 009 061 036 to pay $40,833.34 to the fifth defendant, on or about 28 May 1998, contravened subsection 232(4) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036 (" Contravention 12 "). 13 A declaration, pursuant to subsection 1317EA(2) of the Corporations Law, that the first defendant, second defendant, third defendant and fourth defendant have each, as an officer or employee of CTC Resources N.L. ACN 009 061 036, in New South Wales, by approving, permitting or allowing CTC Resources N.L. ACN 009 061 036 to pay $40,833.34 to the fifth defendant, on or about 28 May 1998, contravened subsection 232(6) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036 (" Contravention 13 "). 14 A declaration, pursuant to subsection 1317EA(2) of the Corporations Law, that the first defendant, second defendant third defendant, and fourth defendant have each, by being involved in or by being recklessly concerned in or by being party to, CTC Resources N.L. ACN 009 061 036 paying $40,833.34 to the fifth defendant, on or about 28 May 1998, contravened subsection 243ZE(3) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036 (" Contravention 14 "). 15 A declaration, pursuant to subsection 1317EA(2) of the Corporations Law, that the fifth defendant has, by receiving $40,833.34 from CTC Resources N.L. ACN 009 061 036, on or about 28 May 1998, contravened subsection 243ZE(2) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036 (" Contravention 15 "). Transaction 4 16 A declaration, pursuant to subsection 1317EA(2) of the Corporations Law, that the first defendant, second defendant and third defendant have each, as an officer of CTC Resources N.L. ACN 009 061 036, in New South Wales, by approving, permitting or allowing CTC Resources N.L. ACN 009 061 036 to pay $10,833.34 to the sixth defendant, on or about 28 May 1998, contravened subsection 232(2) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036 (" Contravention 16 "). 17 A declaration, pursuant to subsection 1317EA(2) of the Corporations Law, that the first defendant, second defendant and third defendant have each, as an officer of CTC Resources N.L. ACN 009 061 036, in New South Wales, by approving, permitting or allowing CTC Resources N.L. ACN 009 061 036 to pay $10,833.34 to the sixth defendant, on or about 28 May 1998, contravened subsection 232(4) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036 (" Contravention 17 "). 18 A declaration, pursuant to subsection 1317EA(2) of the Corporations Law, that the first defendant, second defendant and third defendant have each, as an officer or employee of CTC Resources N.L. ACN 009 061 036, in New South Wales, by approving, permitting or allowing CTC Resources N.L. ACN 009 061 036 to pay $10,833.34 to the sixth defendant, on or about 28 May 1998, contravened subsection 232(6) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036 (" Contravention 18 "). 19 A declaration, pursuant to subsection 1317EA(2) of the Corporations Law, that the first defendant, second defendant and third defendant have each, by being involved in or by being recklessly concerned in or by being party to, CTC Resources N.L. ACN 009 061 036 paying $10,833.34 to the sixth defendant, on or about 28 May 1998, contravened subsection 243ZE(3) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036 (" Contravention 19 "). 20 A declaration, pursuant to subsection 1317EA(2) of the Corporations Law, that the sixth defendant has, by receiving $10,833.34 from CTC Resources N.L. ACN 009 061 036, on or about 28 May 1998, contravened subsection 243ZE(2) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036 (" Contravention 20 "). Transaction 5 21 A declaration, pursuant to subsection 1317EA(2) of the Corporations Law, that the first defendant, second defendant, third defendant and fourth defendant have each, as an officer of CTC Resources N.L. ACN 009 061 036, in New South Wales, by approving, permitting or allowing CTC Resources N.L. ACN 009 061 036 to pay $250,000 to the fifth defendant, on or about 28 October 1998, contravened subsection 232(2) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036 (" Contravention 21 "). 22 A declaration, pursuant to subsection 1317EA(2) of the Corporations Law, that the first defendant, second defendant, third defendant and fourth defendant have each, as an officer of CTC Resources N.L. ACN 009 061 036, in New South Wales, by approving, permitting or allowing CTC Resources N.L. ACN 009 061 036 to pay $250,000 to the fifth defendant, on or about 28 October 1998, contravened subsection 232(4) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036 (" Contravention 22 "). 23 A declaration, pursuant to subsection 1317EA(2) of the Corporations Law, that the first defendant, second defendant, third defendant and fourth defendant have each, as an officer or employee of CTC Resources N.L. ACN 009 061 036, in New South Wales, by approving, permitting or allowing CTC Resources N.L. ACN 009 061 036 to pay $250,000 to the fifth defendant, on or about 28 October 1998, contravened subsection 232(6) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036 (" Contravention 23 "). 24 A declaration, pursuant to subsection 1317EA(2) of the Corporations Law, that the first defendant, second defendant, third defendant and fourth defendant have each, by being involved in or by being recklessly concerned in or by being party to, CTC Resources N.L. ACN 009 061 036 paying $250,000 to the fifth defendant, on or about 28 October 1998, contravened subsection 243ZE(3) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036 (" Contravention 24 "). 25 A declaration, pursuant to subsection 1317EA(2) of the Corporations Law, that the fifth defendant has, by receiving $250,000 from CTC Resources N.L. ACN 009 061 036, on or about 28 October 1998, contravened subsection 243ZE(2) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036 (" Contravention 25 "). Transaction 6 26 A declaration, pursuant to subsection 1317EA(2) of the Corporations Law, that the first defendant, second defendant, third defendant and fourth defendant have each, as an officer of CTC Resources N.L. ACN 009 061 036, in New South Wales, by approving, permitting or allowing CTC Resources N.L. ACN 009 061 036 to pay $100,000 to the fifth defendant, between about 27 October 1998 and 30 October 1998, contravened subsection 232(2) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036 (" Contravention 26 "). 27 A declaration, pursuant to subsection 1317EA(2) of the Corporations Law, that the first defendant, second defendant, third defendant and fourth defendant have each, as an officer of CTC Resources N.L. ACN 009 061 036, in New South Wales, by approving, permitting or allowing CTC Resources N.L. ACN 009 061 036 to pay $100,000 to the fifth defendant, between about 27 October 1998 and 30 October 1998, contravened subsection 232(4) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036 (" Contravention 27 "). 28 A declaration, pursuant to subsection 1317EA(2) of the Corporations Law, that the first defendant, second defendant, third defendant and fourth defendant have each, as an officer or employee of CTC Resources N.L. ACN 009 061 036, in New South Wales, by approving, permitting or allowing CTC Resources N.L. ACN 009 061 036 to pay $100,000 to the fifth defendant, between about 27 October 1998 and 30 October 1998, contravened subsection 232(6) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036 (" Contravention 28 "). 29 A declaration, pursuant to subsection 1317EA(2) of the Corporations Law, that the first defendant, second defendant, third defendant and fourth defendant have each, by being involved in or by being recklessly concerned in or by being party to, CTC Resources N.L. ACN 009 061 036 paying $100,000 to the fifth defendant, between about 27 October 1998 and 30 October 1998, contravened subsection 243ZE(3) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036 (" Contravention 29 "). 30 A declaration, pursuant to subsection 1317EA(2) of the Corporations Law, that the fifth defendant has, by receiving $100,000 from CTC Resources N.L. ACN 009 061 036, between about 27 October 1998 and 30 October 1998, contravened subsection 243ZE(2) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036 (" Contravention 30 "). Transaction 7 31 A declaration, pursuant to subsection 1317EA(2) of the Corporations Law, that the first defendant, second defendant and third defendant have each, as an officer of CTC Resources N.L. ACN 009 061 036, in New South Wales, by approving, permitting or allowing CTC Resources N.L. ACN 009 061 036 to pay $75,000 to the sixth defendant, between about 27 October 1998 and 30 October 1998, contravened subsection 232(2) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036 (" Contravention 31 "). 32 A declaration, pursuant to subsection 1317EA(2) of the Corporations Law, that the first defendant, second defendant and third defendant have each, as an officer of CTC Resources N.L. ACN 009 061 036, in New South Wales, by approving, permitting or allowing CTC Resources N.L. ACN 009 061 036 to pay $75,000 to the sixth defendant, between about 27 October 1998 and 30 October 1998, contravened subsection 232(4) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036 (" Contravention 32 "). 33 A declaration, pursuant to subsection 1317EA(2) of the Corporations Law, that the first defendant, second defendant and third defendant have each, as an officer or employee of CTC Resources N.L. ACN 009 061 036, in New South Wales, by approving, permitting or allowing CTC Resources N.L. ACN 009 061 036 to pay $75,000 to the sixth defendant, between about 27 October 1998 and 30 October 1998, contravened subsection 232(6) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036 (" Contravention 33 "). 34 A declaration, pursuant to subsection 1317EA(2) of the Corporations Law, that the first defendant, second defendant and third defendant have each, by being involved in or by being recklessly concerned in or by being party to, CTC Resources N.L. ACN 009 061 036 paying $75,000 to the sixth defendant, between about 27 October 1998 and 30 October 1998, contravened subsection 243ZE(3) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036 (" Contravention 34 "). 35 A declaration, pursuant to subsection 1317EA(2) of the Corporations Law, that the sixth defendant has, by receiving $75,000 from CTC Resources N.L. ACN 009 061 036, between about 27 October 1998 and 30 October 1998, contravened subsection 243ZE(2) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036 (" Contravention 35 "). Transaction 8 36 A declaration, pursuant to subsection 1317EA(2) of the Corporations Law, that the first defendant, second defendant, third defendant and fourth defendant have each, as an officer of CTC Resources N.L. ACN 009 061 036, in New South Wales, by approving, permitting or allowing CTC Resources N.L. ACN 009 061 036 to pay $150,000 to the fifth defendant, on or about 13 November 1998, contravened subsection 232(2) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036 (" Contravention 36 "). 37 A declaration, pursuant to subsection 1317EA(2) of the Corporations Law, that the first defendant, second defendant, third defendant and fourth defendant have each, as an officer of CTC Resources N.L. ACN 009 061 036, in New South Wales, by approving, permitting or allowing CTC Resources N.L. ACN 009 061 036 to pay $150,000 to the fifth defendant, on or about 13 November 1998, contravened subsection 232(4) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036 (" Contravention 37 "). 38 A declaration, pursuant to subsection 1317EA(2) of the Corporations Law, that the first defendant, second defendant, third defendant and fourth defendant have each, as an officer or employee of CTC Resources N.L. ACN 009 061 036, in New South Wales, by approving, permitting or allowing CTC Resources N.L. ACN 009 061 036 to pay $150,000 to the fifth defendant, on or about 13 November 1998, contravened subsection 232(6) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036 (" Contravention 38 "). 39 A declaration, pursuant to subsection 1317EA(2) of the Corporations Law, that the first defendant, second defendant, third defendant and fourth defendant have each, by being involved in or by being recklessly concerned in or by being party to, CTC Resources N.L. ACN 009 061 036 paying $150,000 to the fifth defendant, on or about 13 November 1998, contravened subsection 243ZE(3) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036 (" Contravention 39 "). 40 A declaration, pursuant to subsection 1317EA(2) of the Corporations Law, that the fifth defendant has, by receiving $150,000 from CTC Resources N.L. ACN 009 061 036, on or about 13 November 1998, contravened subsection 243ZE(2) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036 (" Contravention 40 ")." 13 Before referring the evidence relied on in the hearing, it is convenient to refer to the sections of the Corporations Law which are involved. They or their effect are as follows:- " s.79 A person is involved in a contravention if, and only if, the person: (a) has aided, abetted, counselled or procured the contravention; (b) has induced, whether by threats or promises or otherwise, the contravention; (c) has been in any way, by act or omission, directly or indirectly, knowingly concerned in, or party to, the contravention; or (d) has conspired with others to effect the contravention. s.232(2) An officer of a corporation shall at all times act honestly in the exercise of his or her powers and the discharge of the duties of his or her office. s.232(4) An officer of a corporation shall at all times exercise a reasonable degree of care and diligence in the exercise of his or her powers and the discharge of his or her duties. s.232(6) An officer or employee of a corporation must not, in relevant circumstances, make improper use of his or her position as such an officer or employee, to gain, directly or indirectly, an advantage for himself or herself or for any other person or to cause detriment to the corporation. s.234H(1) A public company must not give a financial benefit to a related party except as permitted by Part 2E.4 or 2E.5. S.243F(1) of the Corporations Law defines a related party of a public company to include the following:- (a) a director of the public company; (b) a director of a body corporate that is a parent entity of the public company; (c) one of the persons constituting an entity (other than a body corporate) that is a parent entity of the public company; (d) a spouse or de facto spouse of such a director or person; (e) a parent, son or daughter of such a director, person, spouse or de facto spouse; (f) an entity (other than a child entity of the public company) over which: a person of the kind referred to in paragraph (a), (b), (c), or (e) has control; or 2 or more such persons together have control; (g) a parent entity or sibling entity of the public company. s.243ZE (1) This section applies if: (a) a related party of a public company receives a financial benefit from the public company… (b) the public company contravenes subsection 243H(1) …, by giving the benefit. (2) The related party contravenes this subsection. (3) Subject to subsection (4), a person contravenes this subsection if the person: (a) is involved (as defined in section 79) in; or (b) is, by act or omission, directly or indirectly, recklessly concerned in, or party to the contravention of subsection 243H(1) or (2), or the contravention of subsection (2) of this section. s.1473(1) Part 9.4B of the old Law continues to apply in relation to: (a) a contravention of a civil penalty provision listed in section 1317D of the old Law; or (b) an offence committed against one of those civil penalty provisions; despite its repeal. s.1317D of the Corporations Law (as it then existed) provides, in effect, that ss 232(2), 232(4), 232(6) and 243ZE of the Corporations Law were all civil penalty provisions. s.1317EA (1) This section applies if the Court is satisfied that a person has contravened a civil penalty provision… (2) The Court is to declare that the person has, by a specified act or omission, contravened that provision in relation to a specified corporation or registered scheme, but need not so declare if such a declaration is already in force under Division 4. (3) The Court may also make against the person either or both of the following orders in relation to the contravention: (a) an order prohibiting the person, for such period as is specified in the order, from managing a corporation; (b) an order that the person pay to the Commonwealth a pecuniary penalty of an amount so specified that does not exceed 2,000 penalty units. (4) The Court is not to make an order under paragraph 3(a) if it is satisfied that, despite the contravention, the person is a fit and proper person to manage a corporation. (5) That Court is not to make an order under paragraph 3(b) unless it is satisfied that the contravention is a serious one. s.206C of the Corporations Act now provides the Court with a discretion to disqualify a person from managing a Corporation for such period as the Court thinks fit where there has been a contravention of a civil penalty provision. s.206E of the Corporations Act now provides the Court with a discretion to disqualify a person from managing a Corporation for such period as the Court thinks fit where there has been two or more contraventions of the Corporations Act. s.1317G of the Corporations Law now provides, in effect, that a Court may order a person to pay a pecuniary penalty of up to $200,000 in respect of a serious contravention of a civil penalty provision." 14 Some of these sections have been the subject of judicial comment. I shall refer to relevant decided cases later in these reasons. 15 Allan Endresz represented himself in these proceedings. He was given leave, by consent, to represent the other defendants. He is not legally qualified but has an accounting and corporate background. It is clear that his decision to represent himself and the other defendants was not based upon financial considerations. He was, however, accorded at least, if not more than, the customary level of assistance provided to litigants in person. I shall consider matters raised by him in his defence and in defence of the other defendants later in these reasons. At this stage I shall refer to ASIC's case as presented against him and the other defendants. 16 A large part of the evidence in this case was documentary in form. ASIC tendered four bundles of documents which, together, became exhibit "A". A number of these documents related to the payment by CTC of the amounts in question in the impugned transactions and their receipt by the relevant defendants. These documents consisted of copy invoices, cheques, bank statements and the like financial records. In the result, the payment and receipt of the relevant monies is not in issue. Accordingly, I merely note that I have been taken to the relevant exhibited records and that they substantiate these payments and receipts. It is convenient, however, to consider at this stage and set out relevant parts of certain documents, to which I was taken by counsel for ASIC, in relation to transactions 1 and 2, as they provide a convenient introduction to the issues relating to those transactions and also to the other transactions in question. In particular, they illustrate the concerns of CTC's auditors, Ernst & Young in relation to the 1998 transactions and the way in which ASIC became involved. 17 I have already referred to the comments of Ernst & Young in relation to the accounts presented at the general meeting on 23 March 1998 in respect of the financial years 1991-1997. The receipt of the $6,000,000.00 and its disbursement were of concern to the auditors in relation to the accounts for the financial year 1998. 18 The amount of $6,000,000.00 was received by CTC on 20 April 1998. At 11.30am on that day there was a meeting of the company's directors, the minutes of which are in evidence. Those in attendance were Mr Endresz as Chairman, Mr Forge and Mrs Endresz. Under the heading "Management Fees and Retainer Kamanga Holdings Pty Limited", the minutes record the following:- " The Chairman advised the meeting that the matter to be considered by the board concerned the past and future management fees and retainers with respect to Kamanga Holdings Pty Ltd. In view of his common directorship with Kamanga, the chairman advised that he would not vote on the matter nor would he be present whilst the board considered the matter pursuant to Section 232A of the Corporations Law. Accordingly, Mr Jozsef Endresz retired from the meeting and handed the chair over to Mr William Forge for the duration of this matter. Mr Forge confirmed that pursuant to the Articles of Association and the Corporations Law, the remaining directors constituted a quorum and the meeting was declared open to consider this matter. IT WAS RESOLVED to accept the invoice issued by Kamanga in respect of past management fees totalling $2,205,000 and calculated as to $245,000 p.a. over 9 years. This represented the enormous management contribution provided by Kamanga over the Company's most difficult and turbulent years in its Corporate history. IT WAS FURTHER RESOLVED to execute the attached Management Retainer with Kamanga on the basis of a minimum of $245,000 p.a. for a period of 5 years. This is to ensure that the Company retains Kamanga and its professional staff for such a minimum period. Payments to be made on a monthly basis commencing 1st May 1998. Having concluded this matter, Mr Forge invited Mr Endresz to rejoin the meeting and resume the chair." 19 Under the heading "Management Fees Bisoya Pty Ltd., the following is minuted:- "Mr Forge advised the meeting that the matter to be considered by the board concerned the past and future management fees and retainers with respect to Bisoya Pty Ltd. In view of his common directorship with Bisoya Mr Forge advised that he would not vote on the matter nor would he be present whilst the board considered the matter pursuant to Section 232A of the Corporations Law. Accordingly, Mr Forge retired from the meeting for the duration of this matter. Mr Jozsef Endresz confirmed that pursuant to the Articles of Association and the Corporations Law, the remaining directors constituted a quorum and the meeting was declared open to consider this matter. IT WAS RESOLVED to accept the invoice issued by Bisoya in respect of past management fees totalling $260,000 and calculated as to $65,000 p.a. over 4 years. IT WAS FURTHER RESOLVED to execute the attached Management Retainer with Bisoya on the basis of a minimum of 465,000 p.a. for a period of 5 years. Payments to be made on a monthly basis commencing 1st May 1998. Having concluded this matter, Mr Endresz invited Mr Forge to rejoin the meeting and resume his board position." 20 It may be noted that the invoice referred to, relating to Kamanga, was dated 20 April 1998 and that relating to Bisoya was dated 21 April 1998. 21 The auditors raised questions in relation to the payments made under the authority of these resolutions, in a document of 30 June 1998, described as a "Summary Review Memorandum", in draft form. It appears to be in the nature of a discussion document between the auditors and CTC. It is erroneously referred to as relating to the year ended 30 June 1997. It is accepted that the reference should be to 1998. It records that the company made a significant loss of approximately $3.8 million for that year which was said to be "predominantly due to the following factors." These included the payment of "Management Fees of $2.25 million to Kamanga Holdings P/L, the family company of the Endresz family and Management fees of $0.27 million paid to Bisoya P/L, a company operated by the director, Bill Forge". 22 Under the heading "Significant Accounting and Auditing Issues", reference was made to the issue of the $600,000.00 redeemable convertible non-cumulative preference shares, referred to above and to the annual dividends payable in respect of them and that this should be recognised as a financial liability of CTC. Reference was then made to the payment of management fees to directors, it being noted that these payments were funded from the $6,000,000.00 resulting from the issue of the shares. The payments to Kamanga and Bisoya were considered under this heading. Then under the heading of "Potential Breach of Corporations Law" the following appears:- "s 243 of the Corps Law govern financial benefits to related parties. S 243H states that a public company must not give a financial benefit to a related party except as permitted by Division 4 or 5. Essentially, where the transaction is not at arms length, or the remuneration is not reasonable, the payment of the benefit must be approved in a general meeting by non-involved shareholders. Given the financial performance of CTC, it appears difficult to maintain an argument that the remuneration was reasonable. CTC have not notified the ASIC of any of their related party transactions, thus it appears EY are required to notify the ASIC of the breach of s 243H." 23 Reference was also made to the agreement with Davis Samuel relating to the claim against the Australian Stock Exchange. In this regard, the following appears in the memorandum:- "This agreement was amended in April 1998, whereby CTC paid Davis Samuel $300,000 (plus a monthly retainer of 46,000) in return for CTC increasing their share of any damages awarded to 70%. CTC have attempted to capitalise these costs in the expectation of a substantial damages payment from the claim against the ASX. We have been unable to find adequate evidence supporting the Director's assertion that a damages payout is likely in the foreseeable future. EY have discussed the status of the claim with Michael McPhee, Partner of Michell Sillar McPhee law firm running CTC's case. Per McPhee, the case has not yet gone to trial and is unlikely to do so before the middle of 1999. McPhee stated that proving CTC had incurred loss as a result of their delisting would be difficult, and that even if judgment was obtained then the ASX had the option of appealing to the full bench of the WA Supreme Court and ultimately the High Court (pending special leave). Based on the above, EY consider any future benefit arising from the legal costs incurred to be uncertain and immeasurable. Client will be asked to expense all legal costs, and failure to do so will result in EY qualifying the audit report to reflect the disagreement with management (given the costs are material)." 24 Under the heading "Provision of Consultancy Services from Kamanga Holdings Pty Ltd the following appears:- "CTC entered into a Consultancy agreement on 20 April 1998 with Kamanga Holdings Pty Ltd. The agreement provides for CTC to pay the Consultant, named as Allan Endresz, a retainer of $245,000 per annum for 5 years, with the first year of the contract commencing on 20 April 1998. The portion of the first years payment relating to the period ended 30 June 1998 was expensed in the current year profit and loss statement, with the remaining portion recorded as a prepaid expense. In addition, Kamanga Holdings are a related party so the appropriate disclosure in the related party note has been made, as well as disclosure of the commitment remaining at 30 June 1998." 25 Additionally, on 24 September 1998, Mr Walsh, a partner in Ernst & Young wrote to the directors of CTC in relation to "a number of related party transactions" which had been encountered in the audit. Reference was then made to the payment of $2,205,000.00 to Kamanga and of $260,000 to Bisoya, as retrospective payments of management fees. There was further reference to Future Management Fees being payment of $245,000 per annum to Kamanga and $65,000 per annum to Bisoya for the next 5 years." The letter then continued as follows:- "Based upon our review of the company's statutory records and register we are not aware of shareholder approval being obtained for these transactions, should it be required. In order for us to make an assessment as to the adequacy of the disclosure of these transactions in the financial statements and to assist us in fulfilling any other statutory duties imposed by us in relation to these matters, would you please provide us with further clarification as to the circumstances surrounding these payments. In particular, our duties extend to making an assessment as to whether the transactions are at arms length, and whether the quantum of remuneration is reasonable. Could you please provide the following details, - how the transactions arose; - how the amounts involved were arrived at; and - what approval process was undertaken. In addition, could you also provide us details as to the shareholding of directors in Kamanga Holdings Pty Ltd and Bisoya Pty Ltd, to assist us in determining whether those shares are held by all members of those entities as nominees for CTC." 26 The letter also referred to the auditor's duty to "notify the ASIC of any Corporations Law consequences." 27 Although this letter had been addressed to the Directors of CTC, it was answered by Allan Endresz, describing himself as "Corporate Advisor". His reply was dated 15 December 1998 and was addressed to Mr Walsh. The relevant parts of the letter read as follows:- "I refer to your letter dated 24th September 1998 in respect of the related party transacations with CTC Resources N.L. and advise as follows: 1. Davis Samuel is a partnership owned equally by Quancorp Pty Ltd and Kamanga Holdings Pty Ltd. As Mr Jozsef Endresz does not control this entity pursuant to Section 243F(1)(f)(i), it is not a related party. Any reference in the Financial Statement of Davis Samuel being a related party should be removed. ……………… 4. With respect to the management fees of $2,205,000 paid retrospectively for the past 9 years to Kamanga Holdings Pty Ltd together with contracts committing CTC to future management fees of 4245,000 per annum for the next 5 years, we advise as follows:- The Related Party issues above are exempt pursuant to Section 243K as a financial benefit may be given if it is reasonable to provide that remuneration or it was reasonable to make that contract. In this regard, the services provided by Kamanga include, but are not limited to, the full time involvement of three (3) persons, namely: Jozsef Endresz, Dawn Endresz and Allan Endresz. This equates to an effective annual cost to CTC of 481,666 per person. The hourly contribution by these parties exceeds 60 hours per week per person for their professional services. It is considered that in light of these onerous hours, extensive responsibilities and market comparisons, the management contracts (both past and present) are reasonable to CTC. However, from Kamanga's perspective, these fees represent payments for services well below their true market worth. In addition, Kamanga was deprived of the use of such money for a period of 9 years with no annual reviews to market even though CTC received such services with considerable benefits to CC and its shareholders. 5. With respect to the management fees of $2260,000 paid retrospectively for the past 4 years to Bisoya Pty Ltd together with contracts committing CTC to future management fees of $65,000 per annum for the next 5 years, we confirm that the Related Party issues are exempt pursuant to Section 243K as detailed in clause 4 above. The services provided by Mr William Forge are reasonable in view of the hours contributed and remuneration payable of $65,000 per annum. I trust that the above satisfies your queries and welcome any further discussion in respect of these issues." 28 It is clear that this response was not regarded as satisfactory by Ernst & Young, with the result that Mr Walsh, on 15 January 1999 wrote to Allan Endresz indicating that he had "a number of follow-up queries" which he stated as follows:- "I. Is there any further evidence other than in your letter dated 15 December 1998 as to the reasonableness of fees paid to Kamanga Holdings Pty Ltd and Bisoya Pty Ltd during the period ended 30 June 1998? II. When did the amounts specified in Point I become due and payable? What event triggered this date? What agreements existed that required the amounts to be paid? III. Why was the portion of remuneration paid to Kamanga and Bisoya in the year ended 30 June 1998 which related to prior periods not disclosed as a contingent or actual liability in prior period accounts?" 29 On 15 February 1999, in a lengthy letter Mr Endresz, as director, answered Mr Walsh's specific queries as follows:- "I. Further evidence with respect to the reasonableness of fees paid to Kamanga Holdings Pty Ltd and Bisoya Pty Ltd includes the following: As a result of Kamanga's business interests, particularly in Davis Samuel, CC benefits (at no cost) from an extensive research data base (both legal and corporate) and professional outsourcing. Professionals accessed have included Alan Myers Q.C., Alan Archibald Q.C., Blake Dawson Waldron and Michell Sillar McPhee. In this regard, Kamanga brings to CTC an entire corporate package of not only professional advice but also a dedicated team of Board members who receive no direct salaries or fees as they undertake their duties. The extent of this professionalism is verified in the attached corporate profile of Davis Samuel. During the past 9 years, Kamanga has incurred additional professional fees for outsourced work to the benefit of CTC. These fees have not (nor will be) invoiced to CTC as Kamanga considers them part of the overall service provided to CTC. To verify this, I refer you to Kamanga's extensive legal and corporate work including (but not limited to) numerous leading Federal and High Court cases (ie ATO franking credits, Private Ruling System, SIB Resources N.L., Ando Minerals N.L.), drafting and completing numerous corporate proposals and funding packages (ie Information Memorandums for raising equity and asset acquisitions), major debt settlements (ie Westpac Banking Corporation), other debt and litigation settlements (ie Elders Finance and Tivmoss), creditor liaison (three unlisted companies and subsidiaries with over 150 individual creditors), taxation and corporate re-structuring, extensive research and advice on ASX $37 million Damages claim, proposed implementation of marketing and profile strategies for the CTC Premium Bonds, corporate and community based sponsorship programs together with unique and innovative utilisation of Davis Samuel products including substantial proposed takeovers. Additional professional work undertaken by Kamanga has not been factored into the management fee structure of past years nor the current 5 year retainer. To measure the substantial benefits derived by CTC and therefore the reasonableness of such fees, I refer you to the $120,000 fee rendered by Ernst & Young with respect to taxation aspects of transferring franking credits. Although the concept and a majority of the research was developed and structured by Kamanga (together with external legal advises), Kamanga did not (nor has) received additional fees for this onerous service. Accordingly, the level of fees rendered must be placed in perspective. The working hours engaged by Kamanga personnel, together with their extensive professional input and research, ensures that the fees rendered are reasonable. With respect to Bisoya, Mr Forge brings to the CTC expertise by virtue of his external public company directorships in the resource sector. In this regard, I refer to his directorships with Growth Resources N.L., Kanowna Lights N.L., and Hallmark Gold N.L. Mr Forge delivers to CTC potentially a number of resource projects and other networking within the resource sector Management fees paid and or payable to Bisoya are therefore reasonable when compared with fees paid to public company directors. II. The amounts specified in Point I, became due and payable upon receipt of the Invoices dated 20th April 1998. There were no previous agreements that required the amounts to be paid. The CTC board carefully reviewed and discussed the prospects of past management fees upon receipt of the proposed five year management agreements and invoices. In light of the onerous and significant commercial projects now undertaken by CTC, the board concluded that not only should a further five year professional relationship be maintained with Kamanga & Bisoya, but that these entities were entitled to previous years management fees. III. As detailed in Point II, above, the liability had arisen on 20th April 1998 and was therefore neither a contingent nor actual liability in prior period accounts." 30 Ernst & Young, obviously, were unimpressed and unpersuaded. In his response of 4 March 1999 Mr Walsh reminded the directors of CTC that it was a public company and that "the documentation previously forwarded has not been sufficient to enable us to form an opinion as to the compliance or otherwise of the transactions with the relevant provisions of the Corporations Law." He addressed the following queries:- " Remuneration to director related entities 1. Is there any further as yet previously undisclosed evidence as to the reasonableness of fees paid to Kamanga Holdings Pty Ltd and Bisoya Pty Ltd during the period ended 30 June 1998? For example, could the parties involved be requested to provide more detailed invoices (ie projects/tasks/hours) concerning the services provided? 2. Why was there no disclosure in prior year financial statements regarding an actual or contingent liability to pay management fees ' other remuneration to any director related entities? 3. As there were no previous agreement in place to bind CTC to paying retrospective management fees, why did CTC pay the amounts if they were not liable to do so? 4. Are there any other potential invoices to be rendered by Kamanga Holdings Pty Ltd or Bisoya Pty Ltd relating to the period prior to 30 June 1998 or after that date which would require recognition and/or disclosure in the financial statement as at 30 June 1998." 31 The letter also sought (inter alia) a list of all individuals and companies considered to be "related parties" and "a summary of the professional relationship between CTC and Kamanga Holdings Pty Ltd." Reference was also made to a possible need to notify ASIC, if the information was not satisfactory. 32 It appears that this letter was responded to by a letter from CTC's solicitors dated 15 September 1999, which referred to the transactions between CTC and Kamanga and Bisoya and stated that "our instructions contemplate that if necessary and appropriate we should seek to declaratory relief in the Courts in relation to the transaction." They sought, in effect, time to consider the matter. 33 Mr Walsh replied on 23 September 1999. He advised that CTC had "breached the time deadlines specified in the Corporations Law for issuing their annual report to members, lodging their financial report with ASIC, and holding their A.G.M. He indicated that, pursuant to the solicitor's request, he would refrain from completing the audit for 14 days, pending receipt of their advice. This produced a response from the solicitors that they would not be able to comply with that time limit. 34 On 1 February 2000 Mr Walsh sent a long letter to the directors of CTC, referring to the endeavours of the auditors "to finalise the audit for the year ended 30 June 1998 and 30 June 1999. It referred to the fact that ASIC had been previously advised that CTC was in breach of the relevant dead-lines and requested that the 30 June 1998 financial statements be completed immediately. It referred to relevant penalties under the Corporations Law which could be imposed upon directors. It enclosed a copy of a letter sent to ASIC in accordance with the obligations of the auditors. It pointed to the fact that "the most significant matters outstanding for the 30 June 1998 financial statements were in relation to payments made to entities associated with directors, namely the payment of $2,205,000.00 to Kamanga Holdings and a similar payment to Bisoya of $260,000 together with the commitment to each company for the payment of management fees for the next five years. It referred to the absence of shareholder approval in respect of these payments and that the information provided in respect of them was inadequate. It further indicated a lack of satisfaction on the part of the auditors that "the transactions are commercial". It sought additional information, in the following respects:- " Payment to Kamanga Holdings Pty Ltd for management fees for the year ended April 1998 and the previous 8 years for a total of $2,2025,000. Responses from Jozsef and Allan were inconsistent, with Jozsef's being based on remuneration of individuals (Jozsef, Dawn and Allan) and Allan's being based on payments for work performed. Jozsef and Dawn were directors of other companies, including listed companies during those 9 years. Therefore payment based on a full-time salary, for a 60 hour week on CTC affairs, does not appear appropriate. The amounts do not appear to directly relate to work performed, as the amounts do not vary from year to year to link to the projects nominated as having been completed. We would like more information as to what CTC has paid for and when the events occurred. The payable to Kamanga includes amounts paid by Kamanga on behalf of CTC Resources. A detailed analysis of the Kamanga and other payable accounts for the 9 years is required to ensure no double counting of payments by Kamanga. Commitment to pay Kamanga Holdings Pty Ltd management fees of $245,000 for each of the next 5 years. The term "consulting services" is used in the management contract with Kamanga. We believe that the services to be provided are too broad to establish a fixed price for future work. We would like to know what alternatives to Kamanga were considered by the CTC board. What oversight of the contract is being undertaken by CTC to ensure that it receives sufficient value for what is paid? The apparent lack of alternatives and oversight of the contract indicate that the contract may not be on an arm's length basis. Payment to Bisoya Pty Ltd for management fees for the year ended April 1998 and the previous 3 years for a total of $260,000. Forge was and is a director of other companies, including listed companies. Therefore payment based on a full-time salary does not appear appropriate. We would like to know what evidence the board had of the hours worked by Forge and the performance of Forge before making the payment. Commitment to pay Bisoya Pty Ltd Management fees of $65,000 for each of the next 5 years. As for the retrospective management fees, we would like to know what evidence the board had of the past performance of Forge to warrant the future management fees." 35 Reference was also made to the issuing of shares and options to Kamanga by CTC on 30 June 1998, with an indication that, on the information available to the auditors, there appeared to have been breaches of the Corporations Law under Chapter 2E (formerly Chapter 3.2A) Related Party Transactions, in that shareholder approval had not been obtained for the issue of the shares and options on 1 August 1998. The question whether the issue of the shares and options had been properly on an arm's length basis was raised. A number of further audit requirements were stipulated including "a confirmation from the Commonwealth Bank to support the Capital Guarantee of the CTC Capital Bonds – Series 1, as detailed in the relevant letter of offer. A reply was sought by 15 February 2000. 36 On 1 February 2000 Ernst & Young wrote to CTC's solicitors indicating that they were not satisfied that the relevant transactions were commercial or in compliance with the Corporations Law and stating that, if sufficient further evidence had not been received by Tuesday 15 February 2000, Ernst & Young would be required to notify ASIC that there was reasonable grounds to suspect relevant breaches of the Corporations Law. Advice was sought as to "the status as to any action…..being undertaken by CTC…generally and in particular with the Kamanga and Bisoya transactions." 37 On 1 February 2000 Ernst & Young wrote to ASIC indicating that until the directors of CTC had furnished them with a final set of financial statements, they were unable to finalise the audit and issue a report for the year ended 30 June 1998. The letter referred to the auditor's understanding, which was correct, "that CTC Resources' assets continue to be frozen and that the company is currently not operating due to litigation proceeding in the Australian Capital Territory." This litigation related to the payment to CTC of the $6,000,000.00 on 20 April 1998. 38 Transactions 3-8 are all the subject of documentation, copies of the relevant documents being part of exhibit "A". I have been taken through them by counsel for ASIC. There is no dispute as to their effect. They clearly establish the existence of the transactions the subject of the charges made in the relevant sections of the Originating Process. Accordingly, I will merely record in the following paragraphs the findings in respect of the making of particular transactions. 39 I find Transaction 3 established, namely a payment of $40,833.34 by CTC to Kamanga on 26 May 1998. This represents two monthly payments to Kamanga, pursuant to a Consultancy Agreement approved at the CTC board meeting of 20 April 1998. The Consultancy Agreement is in evidence and refers to the retainer sum of $245,000 per year, the Principal Officer of Kamanga being Allan Endresz. Kamanga is to perform and provide advisory services including strategic and business planning, marketing, financial and organisational services. It is also to carry out the role of Public Officer of CTC. The payment relates to management fees for the months of May and June. The directors involved in the authorising of the payments are Mr Forge, Mr Endresz, Mrs Endresz and, it is alleged, Allan Endresz. It will be necessary to consider in more detail the role of Allan Endresz later in these reasons. 40 Transaction 4 involved the payment of $10,833.34 by CTC to Bisoya. Again there is a Management Agreement dated 20 April 1998, the Principal Officer of Bisoya being Mr Forge. The amount represents management fees for May and June. The directors involved are Mr Forge, Mr Endresz and Mrs Endresz. Bisoya is involved as the recipient of the payment. 41 Transactions 5 and 6 involve a loan by CTC to Kamanga of $350,000 broken up into two payments, one of $250,000 and the other of $100,000 being, respectively, transactions 5 and 6. There is a Loan Agreement bearing date 27 October 1998 signed by Mr Endresz on behalf of Kamanga which confirms the acceptance from CTC of a loan in the amount of $350,000 dated that date and for the term of twelve months. It is a loan without security. The loan was approved on 27 October 1998 at a Directors' Meeting of CTC at which Mr and Mrs Endresz were present together with Mr Forge. As previously, because of the common directorship Mr Forge absented himself from the Directors' Meeting and Mr and Mrs Endresz resolved to confirm and ratify the loan of $350,000 to Kamanga. The documentation to which I have been taken clearly indicates the payment from CTC to Kamanga of $250,000 on 28 October as an unsecured loan. 42 Transaction 6 is the balance of the unsecured loan being the amount of $100,000. It is debited to CTC on 30 October. The documents indicate quite clearly that it represented the "balance of loan facility" to Kamanga. 43 Transaction 7 relates to a $75,000 loan to Bisoya. On 27 October 1998 a Loan Agreement was executed by Bisoya by Mr Forge as sole director and secretary. It was to be an unsecured loan from CTC for a period of twelve months. Relevant documentation shows its payment and receipt on 30 October 1998. 44 Transaction 8 was a loan of $150,000 by CTC to Kamanga, received on 13 November 1998. There was a Loan Agreement in the same format as the previous Loan Agreements. It is an unsecured loan. The loan is authorised in a meeting of CTC directors conducted in the same way as previous meetings to avoid relevant directors voting in matters in which they had an interest. 45 It is the general contention of ASIC that all these transactions were uncommercial, not in the interests of CTC or its shareholders and in breach of the relevant provisions of the Corporations Law. ASIC sought to establish these breaches by the calling of evidence, to which I shall now turn. 46 The first witness called was Graeme Leslie Barned, who had sworn an affidavit of 26 June 2001. Mr Barned in his affidavit and oral evidence did little more than confirm, through bank documentation, matters that I have already found to be established. He did, however, indicate that, at least from his viewpoint as a senior bank officer in Albury, where CTC conducted its operations, no guarantee had been given as to the redemption by CTC of capital involved in the Bond issue. I should add that there was no evidence from any other source that such a guarantee was put in place. 47 The next witness for ASIC was Roger John Craig Walsh ("Mr Walsh") who gave evidence, by affidavit dated 27 June 2001, and also orally. Mr Walsh was a partner in the Corporate Finance Division of Ernst & Young and was the partner responsible for the audit of CTC in the 1997 and 1998 financial years. His evidence, to a large extent, dealt with the financial documentary material which underpinned the findings that have been made as to the payments and receipts constituting the transactions, the subject of these proceedings. Additionally, he gave evidence that in those financial years he dealt with Mr Forge, Mr Endresz and Mrs Endresz as directors of CTC. He indicated that, from his duties as audit partner he believed that Allan Endresz "played a major role in managing the affairs of the company and that on a majority of occasions he asked for and spoke to him on audit matters. He said that, "in the absence of conclusive evidence" he could not reach the opinion that Allan Endresz was a defacto director of CTC at that time. He understood that Allan Endresz had an interest in Davis Samuel Pty Ltd which provided company advisory services to corporations, including, from time to time, CTC. He also became aware that Kamanga, with which company Mr Endresz and Allan Endresz were associated, could be regarded as a related party of CTC, as was Bisoya, in which Mr Forge had an interest. 48 Mr Walsh had been unable to obtain confirmation as to the existence of a Commonwealth Bank guarantee in relation to the Series 1 Capital Bonds. He regarded the redemption amount as a liability of CTC. He referred to the correspondence with CTC, which has been set out above, and supported the opinions expressed by himself and his staff as set-out in those letters. 49 In his oral evidence, Mr Walsh made reference to the draft accounts that had been prepared in respect of the financial year 1998 and that they showed an operating loss for CTC before tax of $3,782,240.00. He indicated, however, that the draft accounts had been the subject of further work since the making of his affidavit and that the operating loss for the company, as then ascertained, was "some millions of dollars higher". In particular, certain exploration assets, referred to in the previous draft accounts, had not been renewed by the Department of Mines, with the result that the tenements had been lost involving "an extra $2 million of loss in the financial statements." 50 He also indicated that, as at the time of the giving of his oral evidence, he had received no information indicating that any guarantee was in place relating to the redemption of the capital of the bond issue. In relation to the transactions which are the subject matter of these proceedings, referred to as "the related party transactions", he expressed the view that nothing had occurred to alter his opinion that the transactions were not commercial. 51 Mr Walsh was extensively cross-examined by Allan Endresz. The cross-examination produced many objections as to relevance, a large number of which were successful. During the cross-examination Allan Endresz tendered a large number of documents, some of which were used in cross-examination. I do not propose to refer in detail to the cross-examination or to the documents. However, the following matters emerged. 52 Mr Walsh regarded the question of whether Allan Endresz had acted, at relevant times as a defacto director as being in "a grey area". He agreed that Allan Endresz would not have been a director from 1993 because of "consideration as to prior issues with Corporations Law." That is why "the accounts now reflect, the three directors, Dawn Endresz, Jozsef Endresz and William Forge". It emerged later in the cross-examination that Allan Endresz had in fact been barred for a number of years from holding the position of director because of previous infringements of the Corporations Law. Mr Walsh gave as his understanding of "the Davis Samuel entity" that it was "a corporate advisor firm of which Allan Endresz was one of the principals". It was a company with a securities license. 53 In relation to the activities of Davis Samuel he gave the following evidence:- "A. Yes, my understanding about the activities of Davis Samuel was it was engaged in a number of corporate deals or attempted corporate deals which were varying in nature, some of which involved public companies. Q. Would you suggest small or sizeable deals in the corporate areas? A. Tended to be deals on the fringe, smaller deals and deals which were high risk in nature. Q. Takeovers that might not have been contemplated in the general marketplace, as to acquisitions in the normal course? A. Yes. Q. Innovative, would that be a word? A. Yes, different." 54 Mr Walsh agreed that the audit of the 1998 financial year accounts was still incomplete and had been "an on-going programme for quite some time". He indicated that the auditors principal concern, in relation to the guarantee of repayment, was that it should be "classified as a liability in the balance sheet." In relation to the ongoing audit he agreed that there had been a meeting convened in the offices of CTC in Albury with himself and others and legal representatives "to canvass a lot of these issues in an open forum." Allan Endresz asked Mr Walsh what word he would use to describe CTC as an entity with its activities and what it had been doing over a ten or twelve year history. Mr Walsh responded that if he had to chose a word it would be "unusual". He also said, in answer to questions from Allan Endresz that, if he were advising someone who was contemplating being a director of that company, he "would tell them not to." He was asked a number of questions relating to the ongoing attempts to finalise the accounts and their audit. In relation to the fees in question paid to Kamanga and Bisoya he gave the following evidence:- "ENDRESZ: Q. In relation to the review of those fees and the payments has this been a difficult task to balance out the commerciality in relation to the size of the fees? A. Yes it has. Q. The considerations you have given have been extensive? A. Yes. Q. You have received a lot of information from the directors? A. We have received I believe as much information as they can provide us, yes. Q. The issue is still uncertain in terms of coming to grips with this level of fees at this point? A. We believe we have received all of the evidence available to us and the current status of our opinion in relation to those is that we have not received sufficient evidence to convince us that those fees were either validly incurred or commercial." 55 It is fair to say that Mr Walsh adhered to this opinion throughout his cross-examination. He agreed the matter was still open but expressed the opinion that:- "A. In view of the fact that we have written to the company on no less than three occasions seeking that evidence, in view of the fact we visited the company's offices and had extensive conversations with the company about these transactions, in view of what we have received I think it is unlikely there is any further material to be provided to us in relation to these transactions." 56 In cross-examination, reference was made to the absence of payment of directors' salaries to the CTC directors over the relevant period. Reference was also made to the receipt of monies from CTC by director-related entities. There was no specificity in this evidence. 57 In the context of the "unusual" activities of CTC, reference was made to Article 2A of its Articles and some relationship of the Article 2A to a "shareholder incentive bonus concept". By questioning in cross-examination, Allan Endresz brought out the relationship between that scheme and the delisting of the company by the Australian Stock Exchange, leading to the company's claim for damages. 58 In answer to direct questions from Allan Endresz, the following evidence was given by Mr Walsh in relation to each of the defendants:- "ENDRESZ: Q. Mr Walsh, if we could first take Mr Joseph Endresz, in the period – he is a continuing director, as you know now from 1991 through to present – if we could consider his position as to his honesty and forthcoming in terms of documentation, disclosures, et cetera, et cetera? A. Yes. His role as a director of the company, he has, in my view, conducted himself with honesty, against a background that the company is a highly unusual company. We said that earlier on; the activities of the company are on the fringe and often pushing the boundaries of the law. There is a large amount of – there seems to be a large amount of litigation and legal matters involved in the company's activities and therefore, I guess you have to consider the company's activities are unusual from a starting point. Mr Joseph Endresz, we have had contact with him in our capacity as auditors over the years and I think he, like the other directors, where there has been a question of the company being in breach of an accounting standard, or needing to make a change to the accounts in order to comply with the law, there have been vigorous debates over the years but, in the end, the company has generally taken advice from us in order to comply with the law. Q. And moving on to Mrs Dawn Endresz? A. I have not had a lot of contact with Dawn. Over the years, it has mainly been in a simply telephone type of conversation, where she has directed us to other directors. In terms of her honesty, we have no reason to question her. She is not a woman without opinions; generally, those opinions are consistent with the other directors. Q. And Mr Bill – William Forge? A. Mr Forge came along later into the group. I am not sure of his exact background. He really hasn't – his opinions have not featured strongly in terms of the direction of the company. He is more in the nature of making up the numbers. Q. During the periods you have indicated in earlier evidence, my capacity as a corporate adviser through up to – I will put to you 18 January 2000 to now as a director, as to honesty, et cetera? A. You have always had a very strong role in relation to the company's activities. In fact, I would say you were much more of a leader than a follower in relation to those activities. We have had occasions to question the logic of a great deal of the company's activities from time to time but, for the company's own reasons, it has chosen to pursue various transactions and avenues which have often not borne fruit. Q. You have been the person who has sought out opportunities which perhaps others wouldn't have seen, in order to convert those opportunities to financial good for the company. One thing that has typified those opportunities has been they have been on the edge of the law. You have been not able to act in the capacity of director previously, so I guess that goes to overall assessment, but we have not found you, in our dealings, to be a dishonest person but, certainly, a person who is creative and prepared to push the boundaries of the law." 59 Mr Walsh agreed, in re-examination, that Allan Endresz had previously been found guilty of a contravention of the Corporations Law in relation to a proposed takeover which led to his being barred "from acting as a director for a company for a number of years." He also agreed that even if he was unable to characterise, with certainty, Allan Endresz as a defacto director, he fitted the definition of an "executive officer" of a body corporate, at the relevant times, within the meaning of s.9 of the Corporations Law. I found Mr Walsh to be an impressive and reliable witness. 60 The next witness called by ASIC was Mr Leo Edward Tutt, an expert witness on the duties and activities of company directors. Mr Tutt furnished an expert report in which he answered specific questions posed by ASIC. These questions were in the same form in respect of each of the transactions in question in these proceedings. By way of illustration, I set-out the questions in relation to transaction 1, as follows:- " Re Transaction 1: a. Would a careful and diligent director of CTC Resources NL ("CTC") have caused or permitted the payment, on or about 20 April 1998, of $2.205 million to Kamanga Holdings Pty Ltd ("Kamanga")? b. Would a director of CTC, acting honestly in the exercise of his or her powers and the discharge of the duties of his or her office, have caused or permitted the payment, on or about 20 April 1998, of $2,205 million to Kamanga? c. Do you consider the decision, by any of the directors of CTC, to make a payment, on or about 20 April 1998, of $2.205 million to Kamanga, to be an improper use of his or her position?" 61 Mr Tutt furnished the following answers:- " Re Transaction 1 (a) No. The directors voting on the resolution were aware, as evidenced by the minutes of the meeting, of the conflict of interest involved in the transaction. As such they were on notice they must not allow a conflict of interest to compromise their position. They should have been aware (as directors) of some 1,200 other shareholders of CTC and of their duty of care to those members. The payment was not proposed to be payable after approval by shareholders in a General Meeting, which given the circumstances may have been a proper course. [Reference: Wambo Mining Corporation Pty Ltd v Wall Street (Holdings) Pty Ltd (1998)]; (b) No. To have acted honestly the directors would have had to act in good faith and in the best interest of the company ( S.181 CL). The past trading performance, and obligations to pay a 6.5% dividend on $6,000,000 of Redeemable convertible non-cumulative preference shares annually, (the source of the funds being disbursed) was not considered. (c) Yes. The receipt of substantial funds into the company's bank account was almost immediately followed by payments to director related parties with no independent documentary evidence to support payments. The payment was in my opinion highly irregular, and to the detriment of CTC (loss of funds/income) and represented an immediate gain to director related parties. I have read the argument that the amounts referred to "became due and payable upon receipt of the invoices dated 20th April, 1998. There were no previous agreements that required the amounts to be paid." [Reference: Jozsef Endresz' letter of 15th February, 1999 to Mr Roger Walsh (Ernst & Young] and further in that letter "…the liability had arisen on 20th April, 1998 and was therefore neither a contingent non actual liability in prior period accounts." I do not find that explanation compelling. I am also not persuaded that the amount involved was "reasonable remuneration" provided to a director within the meaning of S.211 CL nor do I believe the payment of such a substantial amount was in the best interest of "CTC". The process of agreement by directors to resolve payments by CTC to director related first entity by one "unrelated party", and then a similar transaction by the other clearly suggests advantage obtained by improper procedure for personal gain." 62 Similar answers were given to the similar questions posed in respect of each transaction. They are set-out at pages 545 to 548 of Volume 3 of Exhibit "A". I shall not set them out here. 63 In short evidence-in-chief, Mr Tutt, who had sworn to the accuracy of his report by affidavit, said that if asked to consider Allan Endresz's position as being that of an executive officer rather than a director of the relevant company, that he had not given a great deal of consideration to that but considered that by and large it was "a very similar situation". 64 Mr Tutt was also extensively cross-examined by Allan Endresz. Again it was productive of a number of objections as to relevance, many of which were upheld. A lot of the cross-examination proceeded upon a misconception of the role of an expert witness as opposed to that of an investigator. It was frequently pointed out to Allan Endresz that Mr Tutt's role was the former and not the latter. Nevertheless a great deal of time was taken up in objections to and the disallowing of questions asked on the basis that Mr Tutt should have made further enquiries in various directions before expressing his views. I do not propose to deal further with this cross-examination in these reasons, other than to state that, in my view, it did not reduce the weight of Mr Tutt's evidence. An allegation of bias was made, which I shall refer to later. 65 At the conclusion of Mr Tutt's evidence counsel for ASIC tendered documents indicating the shareholding of Kamanga in the relevant years, which documents made it plain that the shareholding consisted of three shares owned by Allan Endresz and the other two shares owned by Mr Endresz. The plaintiff's case was then closed. 66 At this stage of the proceedings, despite directions previously given, no evidence had been filed on behalf of the defendants. After some debate, leave was given to Allan Endresz to file affidavits on behalf of himself and the other defendants. This necessitated an adjournment of the proceedings to a later date, the costs of the adjournment being reserved. Allan Endresz could have been in no doubt as to the Court's prior directions. His disregard of them was, in my view, quite deliberate and calculated to achieve an advantage for the defendants. 67 In the result, very shortly before the resumed date, affidavits were filed by the first, second, third and fourth defendants. No affidavits were filed in reply. No objections were taken to the affidavits filed by the defendants. They were not professionally drawn and contained objectionable material, the plaintiff waiving objections, in the interests of progressing the matter. 68 A reading of these affidavits indicates, quite clearly, that they are the product of one draftsman, namely Allan Endresz. Faint suggestions to the contrary were made in the oral evidence, which I reject. Each deponent was called for cross-examination. Before cross-examination commenced, each of the first, second and third defendants confirmed that he or she wished to be represented in the proceedings by Allan Endresz and agreed that their evidence, affidavit and oral, should be evidence not only in the proceedings brought against them, as individuals, but also in all the other proceedings. None of those defendants had been present during the presentation of the plaintiff's case against them. 69 I have referred to the fact that it is established in the evidence that the lack of legal representation for Allan Endresz in these proceedings was not due to financial difficulties. The evidence also establishes that this is so in respect of the other defendants. The Court has, accordingly, been deprived of expert assistance in the presentation of their cases. Allan Endresz indicated, in his oral evidence, that he had not obtained representation because, in his view, the proceedings should never have been brought. In view of the civil penalties that were being sought against him and the other defendants, this seemed a strangely arrogant attitude, which did not reflect well upon his credit. Indeed, having had the opportunity to observe the defendants in the giving of their oral evidence, I formed a view of their credibility which was uniformly adverse. I have carefully re-read the transcript of their evidence and this view has not changed. 70 In order to provide a general overview of the defence case it is convenient to refer, first, to the evidence, both affidavit and oral, of Allan Endresz. His affidavit referred to an exhibit, described therein as Exhibit "APE-1", which later came into evidence as exhibit "8". It is a large bundle of documents, to which reference is made in his affidavit and in the affidavits of the other defendants. I have had regard to these documents but will not refer to them in any detail in these reasons. 71 In his affidavit, Allan Endresz refers to the eight transactions in question in these proceedings as the "Relevant Transactions". He deposes that "at all material times during the relevant period of the Relevant Transactions" he acted "in a professional capacity as a Corporate Advisor to CTC in accordance with the instructions of the first, second and third defendants". He asserts that at no stage was he:- (a) A director, secretary, executive officer or employee of CTC; or (b) Concerned in or took part in, the management of CTC; or (c) Involved in the Relevant Transactions." 72 In his affidavit, he provides information as to Kamanga, indicating that it was registered on 12 June 1987 with 60% of the voting capital being issued to himself and 40% to the second defendant, Mr Endresz. On 23 June 1987 they were appointed directors and he was appointed secretary. On the same day Kamanga was appointed Trustee of the Allan Endresz Family Trust pursuant to a Deed, a copy of which is provided in Exhibit "8". 73 On 11 June 1993 Allan Endresz resigned as director and secretary, of Kamanga, in circumstances to which reference will be made later, with the result that "at all material times during the relevant period of the relevant transactions" Mr Endresz was the sole director and secretary of Kamanga which continued to act as Trustee. During this period, he alleges that he acted as corporate advisor to Kamanga and at no stage was: (a) A director, secretary, executive officer or employee of Kamanga; or (b) Concerned in or took part in, the management of Kamanga: or (c) Involved in the Relevant Transactions." 74 The affidavit then provides a history of CTC. It had formerly been Emu Hill Gold Mines N.L. ("Emu Hill"), registered under that name on 2 March 1983 and being listed on the ASX on 16 August 1984. It was further noted that on 16 December 1986 at the Annual General Meeting of the company the shareholders approved resolutions setting the remuneration of each non-executive director at $7,500 per annum and the aggregate remuneration of the joint managing directors at $75,000 per annum. None of the defendants were present at this meeting. Nor, at that stage, were they officers of Emu Hill. 75 The affidavit indicates that on 20 December 1989 Allan Endresz and Mr Endresz were appointed directors of the company "after independent shareholders approved at an Extraordinary General Meeting the acquisition by CTC Nominees Pty Ltd CAN 003 713 719 [a related entity of the Second and Fourth Defendants] of a 50.18% controlling interest in Emu Hill in accordance with the Companies [Acquisition of Shares] [Victoria] Code 1980." 76 The affidavit then indicates that the company undertook significant investment acquisitions in various mining companies, but that additional working capital was required in circumstances where the Australian economy was in recession and loan financing was difficult to obtain. Accordingly, he says, he "set about to design and implement an innovative and unique capital raising concept." This involved the preparation of "a new company regulation for the specific purposes of enabling a company to adopt a Shareholder Incentive Bonus Scheme ("SIBS") through the issue of redeemable convertible non-cumulative preference shares." If licensed by Kamanga and approved by shareholders of Emu Hill it was to become part of the Articles of Association of that company. The affidavit asserts that after extensively canvassing shareholders, "the board was completely satisfied that shareholders not only shared the SIBS vision but also insisted on it proceeding." On 5 September 1990, Emu Hill announced to the ASX "its intention to place a motion before its shareholders for a SIBS Rights Issue to raise $7,514,601.00 pursuant to Regulation 2A. It was to be "the world's first lottery" style preference share issue. However, the ASX "refused to allow the SIBS rights issue to proceed on the grounds that SIBS was "against the integrity of the market" ". On 18 December 1990 the company was delisted by the ASX on the basis that "it intended to proceed with the shareholder incentive bonus". 77 The Annual General Meeting of Emu Hill was held on 23 January 1991, when resolutions were passed changing the name of the company to CTC Resources N.L., and adopting Regulation 2A. Resolutions requiring the company to obtain prior consent of the ASX to the issuing of SIBS securities and the compelling of directors to remove the company from the Official List if such prior consent was not obtained, were defeated. The large percentage (99.42%) in favour of the adoption of Regulation 2A is described in the affidavit as "an overwhelming mandate from shareholders to make SIBS a financial reality and to pursue the ASX for significant damages." 78 On 12 March 1991 the company changed its name to CTC Resources N.L. ("CTC") and on 8 April 1991 Mrs Endresz was appointed as a director of CTC. 79 The affidavit refers to activities in 1991 in relation to the formation of a company SIB Resources N.L. ("SR") to exploit Regulation 2A type activities and the fact that after a prospectus was lodged with the plaintiff, an application was made to the Victorian Supreme Court "to have SR de-registered and/or Regulation 2A removed." Kamanga had issued a licence to SR to adopt Regulation 2A in its prospectus. The affidavit asserts that the application was dismissed by the Victorian Supreme Court and the prospectus was then subsequently registered, the case being ASC v SIB Resources N.L. (1991) 103 ALR 374. I shall refer to this case later. 80 In 1992, between July and December, the affidavit continues, CTC gave a fixed and floating charge to Kamanga in respect of a loan facility of $1 million, a private ruling was obtained from the Australian Tax Office "in order to establish the taxation compliance of Regulation 2A". Documents in relation to this application are in Exhibit "8". Work was also done in December 1992 in respect of an agreement between CTC and Westpac Banking Corporation in relation to Regulation 2A and the transfer of $9 million of franking credits. It is not clear to me what was involved in this activity. It has not been explained in evidence. 81 The affidavit refers to the conviction of Allan Endresz on 11 June 1993 of six offences under s.11(2) of the Companies (Acquisition of Shares) (Victoria) Code 1980 and certain other offences. These convictions led to his prohibition, under s.227(2)(c) of the Companies (Victoria) Code 1981, from being a director or taking part in the management of a corporation for a period of five years from the date of the conviction. Accordingly, Allan Endresz resigned from his directorship with CTC and also Kamanga. He refers to his vigorous pursuit of avenues of appeal from these convictions including proceedings in the High Court to have the convictions overturned on constitutional grounds, the relevant procedure having been commenced on 10 December 1998. One of the grounds is that "there is an appeal to the Privy Council on the grounds that s.11 of the Australia Act 1986 is unconstitutional." The affidavit is silent as to the progress of these proceedings. I did not gain any impression from his oral evidence that they were being vigorously pursued. 82 Allan Endresz says that, as a result of the prohibition, he made absolutely sure that between 11 June 1983 and 11 June 1998 he was not a director, secretary, executive officer or employee of any corporation, or concerned in the management of any corporation. As a matter of financial necessity however, he embarked on a new career as professional corporate advisor. This led to the formation of the Davis Samuel Partnership, which consisted of Kamanga and a company Quancorp Pty Ltd, this being a trustee company for the Family Trust of a close friend, Mr Peter Caine, a lawyer. The Davis Samuel Partnership then undertook corporate advisory work and transactional management services. According to the affidavit, which provides extensive information, it has operated successfully and earned considerable money for its partners. It does not appear, however, that the activities referred to in the affidavit relate to CTC, other than the fact that Kamanga, as a partner in the partnership is a related entity to CTC. 83 So far as CTC activities are concerned, between 1993 and 1998, the affidavit instances only the appointment of Mr Forge as managing director on 9 September 1994, after his having acquired 5 million fully paid ordinary shares in CTC, through Bisoya. Also, on 9 December 1996 CTC brought the damages claim against the ASX and defended a strike-out claim by the ASX in the Western Australian Supreme Court. The affidavit refers, somewhat triumphantly, to this application having been dismissed. I shall refer to this later. The case has been referred to earlier in these reasons and was referred to in the audit enquiry. 84 I have already referred to the absence of annual accounts from 30 June 1991 to 30 June 1997 and the holding of an Annual General Meeting by CTC on 23 March 1998. This meeting is referred to in the affidavit. The financial accounts for those years were presented and passed, with the qualification already referred to. In addition, it is said, a presentation was made to shareholders as to "recent significant events". These were described as follows:- "Since the delisting of your Company by the Australian Stock Exchange Ltd on 18 December 1990, the Board has vigorously pursued the ASX for $35 million in damages [including interest and costs] whilst preserving the integrity and legality of the Shareholders Incentive Bonus concept. With the invaluable financial and corporate support of Davis Samuel, your Company is embarking upon vibrant future embracing CTC Premium Bonds and Bold Takeovers of listed resource based companies." 85 At the meeting the shareholders were told by Davis Samuel Corporate Advisory Services that "the long-term strategic plan of CTC was to globally launch the SIBS concept under the brand name of "CTC Premium Bonds". These would be in competition with bonds issued by the U.K. Government and by the ANZ Banking Group Limited, significant funds having been raised by those bonds. The "CTC Premium Bonds would be capital guaranteed by large financial institutions." Many other highly optimistic statements were made including that CTC "would be realistically capitalised at no less than $US4.3 billion. 86 The affidavit goes on to itemise operations undertaken by CTC after this meeting including certain sponsorship arrangements with basketball clubs and investments in the mining industry. 87 Reference is also made to counterclaims brought by CTC and the first, second, third and fourth defendants against the Commonwealth in the proceedings in the Supreme Court of the Australian Capital Territory. These proceedings have apparently led to the freezing of CTC assets and, it is alleged, its cessation of business, involving it in considerable losses. CTC's counterclaim is for $US4.3 billion. These counterclaims were brought on 6 April 2000, well after the date of the transactions in question in these proceedings. 88 So far as the transactions are concerned, the affidavit provides the following evidence:- "69. Early in March 1998, the Second Defendant approached me and we had a conversation with words to the following effect: He said: "I think its time CTC raised its own working capital to fund these programs and to finally pay directors and consultants. I was thinking about one of your preference share issues." I said: "Its possible. May be an issue of redeemable non-cumulative preference shares similar to Petroz would be the way to go. The advantage is that there is no annual accumulation of dividends and you only have to pay the dividends out of profits. Section 254T I think. Also the redemption is subject to Section 254J which basically means it is redeemable only on the terms of issue and even then, out of profits or a new issue for that purpose." He said: "Sounds good, let's look into it." I said: "How much do you think you need?" He said: "I reckon maybe 5-10 million or even more if we can." "70. Early on the morning of 20 April 1998, I had a conversation with the Second Defendant with words to the following effect: He said: "We've had a lot of calls from shareholders concerned that you're not formerly engaged as corporate advisor on a long term contract. They want to tie you down on SIBS and get the first rights to all your projects. There's been a lot of press on your takeovers." I said: "Dad, I'd be happy to do a deal, but I'll need to get paid for all the work I've done over the years and so should you. It's only fair, given what we've done for CTC and you know what my takeovers can now do. Just look at how high we took Petroz. There'll be a few conditions: (a) Kamanga is a party to the agreement; (b) The designated Principal Officer is myself; (c) A review at the end of 12 months; (d) A retainer of $245,000 payable monthly in advance; (e) CTC to get a first right of refusal to all my projects; (f) A schedule of services; (g) Kamanga to receive $2,205,000 for past services provided over the last nine years by both of us." He said: "You know I can't vote with Kamanga involved?" I said: "Yes, but there's not much choice. With Davis Samuel, Kamanga is our main tax structure. Anyway, it should be a straight forward commercial decision." He said: "I'll think about it and come back to you." 71. Later that morning the Second Defendant said words to the following effect: He said: "I'm comfortable with the proposal from Kamanga's point of view. Could you knock up a draft invoice and an agreement for me to consider and if it's OK I'll pass it on to Bill and Dawn."" 89 Allan Endresz then prepared an invoice and consultancy agreement with the assistance of Mr Peter Caine. These were given to Mr Endresz. 90 As to the activities with Ernst & Young in relation to the audit of the 1998 financial accounts, Allan Endresz engaged in them, so he says, as a corporate advisor instructed by the CTC directors. 91 In relation to the individual transactions, the affidavit contains lengthy material, which is argumentative rather than evidentiary. I shall set out the material in relation to the first transaction, excluding from it the references to particular documents in Exhibit "8". The material in relation to the other transactions is in similar vein and similarly lengthy. " Transaction 1 [$2,205,000] 77. At all material times during the relevant period of transaction 1, the First and Third Defendants acted honestly in the exercise of their powers and discharge of their duties and at no stage made improper use of their positions to gain, directly or indirectly an advantage for themselves or any other person or to cause detriment to CTC. They exercised a degree of care and diligence that a reasonable person in a like position in CTC would have exercised in CTC's circumstances. Transaction 1 was a general exception in accordance with Sections 243K and or 243N of the Corporations Law where the First and Third Defendants gave due consideration to: (a) The Consultancy Agreement being subject to and conditional upon transaction 1; (b) Kamanga being a related entity of CTC pursuant to Section 243F of the Corporations Law; (c) The Fourth Defendant acting in a professional capacity as a corporate advisor to CTC in accordance with the instructions of the First, Second and Third Defendants and at no stage being: (i) A director, secretary, executive officer or employee of CTC; or (ii) Concerned in or taking part in, the management of CTC: or (iii) Involved in transaction 1. (d) The Second and Fourth Defendants being related parties of Kamanga; (e) The First and Third Defendants not being relat4ed parties of Kamanga and at no stage being: (i) A director, secretary, executive officer, or employee of Kamanga. (ii) Concerned in or taking part in, the management of Kamanga. (f) The First and Third Defendants not having any material personal interest in transaction 1 and being legally permitted to participate in the 20 April 1998 Board Meeting; (g) The Second Defendant, not having any involvement in transaction 1, at the commencement of the 20 April 1998 Board Meeting fully disclosed to the First and Third Defendants that he had a material personal interest in transaction 1 and the Consultancy Agreement and immediately removed himself from the meeting in accordance with Section 232A(1) of the Corporations Law and Articles 83 and 107 in Exhibit 3. (The CTC Articles); (h) The salaries of each non-executive director being set at $7,500 per annum ["Base Salaries"] in accordance with Article 76 in Exhibit 3 as approved by shareholders at the AGM1; (i) Directors performing extra services where CTC shall, in accordance with Article 77 of Exhibit 3, remunerate such directors by a fixed sum as may be determined by the directors which is in addition to the salaries set in item (i) above ["Additional Salaries"]; (j) The aggregate salary of the joint managing director being set at $75,000 per annum ["Managing Director Salary"] in accordance with Article 95 in Exhibit 3 as approved by shareholders at the AGM1; (k) The First and Third Defendants being expressly empowered by Article 115[3] in Exhibit 3 to pay for any services rendered to CTC, including services rendered by executive directors, at their discretion; (l) The First and Third Defendants being expressly empowered by Article 115[20] in Exhibit 3 to contract on behalf of CTC with any person or persons or body corporate for the provision to CTC of any services whatsoever; (m) The services provided by Kamanga during the period 20 December 1989 to 20 April 1998 inclusive ["9 Year Period"] where: (i) The Second Defendant was a full time executive director during the 9 Year Period and did not receive any Base or Additional Salaries; (ii) The Third Defendant was a full time executive director during the 9 Year Period and did not receive any Base or Additional Salaries; (iii) The Fourth Defendant was a full time executive chairman during the period 20 December 1989 to 10 June 1993 inclusive and did not receive any Base or Additional Salaries; (iv) The Fourth Defendant was engaged as a corporate advisor during the period 11 June 1993 to 20 April 1998 inclusive and did not receive any fees or retainers despite being engaged by "arms length" clients on annual retainers in excess of $245,000 per annum; (v) The average weekly wages in February 1998 for non-managerial employees being in excess of $700 per week in accordance with the Australian Bureau of Statistics; (vi) Kamanga provided CTC with a loan re draw facility and guaranteed its liabilities. As at 30 June 1997 and 1 March 2002, CTC owed Kamanga $1,101,657 and $221,253 respectively. During the period 20 December 1989 to 26 July 1992 inclusive, the loan re draw facility was provided to CTC on an unsecured basis on commercial terms. Kamanga continues to provide CTC with a $1,000,000 secured loan re-draw facility and guarantees its liabilities; (vii) Kamanga [and its director related entities] was engaged by CTC to provide management services for its listed ASX companies in the Emu Hill Group. Whilst Kamanga had received management fees from CTC during the 9 Year Period totalling $ 254.747 comprising $6,500, $38,730, $21,275, $66,875, $107,800, $11,717, $850 and $1,000 for the years ended 30 June 1990, 1991, 1992, 1993, 1994, 1995, 1996 and 1997 respectively, CTC had, in turn, received significant management fees totalling $481,495 as a consequence of Kamanga's services. CTC received $154,000, $190,995, $58,500 and $78,000 for the years ended 30 June 1990, 1991, 1992 and 1993. The management fees received by Kamanga do not in any way reflect the services provided directly to CTC. In fact, CTC made a profit of $226,748 as a result of the Kamanga services provided to companies within the Emu Hill Group; (viii) Kamanga provided extensive administrative and professional services and sought no reimbursements for legal costs incurred for the benefit of CTC; (n) CTC shareholders giving the Board an overwhelming mandate at AGM2 and AGM3 to vigorously pursue the corporate objectives of CTC. To achieve this, the First and Third Defendants endorsed their shareholders eagerness in securing the professional services of the Fourth Defendant on a long term contract whilst rewarding him for his past services; (o) CTC never being insolvent nor at risk of insolvency. A deficiency in shareholder funds does not reflect insolvency nor impair the intangible value of SIBS or the $1 billion damages claim against the ASX. For the years ended 30 June 1990, 1991, 1992, 1993, 1994, 1995, 1996 and 1997 it has been the opinion of the directors that the ability of CTC to pay its debts as and when they fall due is dependent upon the ongoing support of Kamanga which continues to meet all its obligations; (p) CTC's future commitments: (i) There are no current or contingent liabilities outstanding with respect to the redeemable convertible non-cumulative 'A' Class preference shares ["Preference Shares"] dividend entitlements. Whilst the holder of the Preference Shares is entitled to receive an annual non-cumulative preferential dividend of 6.5%, these dividends are paid annually, but only from future profits derived by CTC. In the event of CTC not making a profit in any given year, then no dividends are payable and the annual dividend entitlement lapses; (ii) Subject to the outcome of proceedings in the ACT Supreme Court, there are reasonable grounds to believe that Davis Samuel Pty Ltd will ensure that a capital guarantee is put in place on behalf of CTC prior to redemption the Preference Shares." 92 Quite plainly, the purpose of this lengthy material was to establish justification for the payment to Kamanga for past services, allegedly performed, and for the failure to obtain shareholder approval for such payment. It is noteworthy that these detailed matters had not been put to Ernst & Young in relation to the audit queries, nor, indeed, were they put to Mr Walsh in cross-examination. The same comments apply to the material in relation to the other transactions. They also apply to the material provided in the affidavits of the first, second and third defendants. 93 The affidavits of the other defendants contain similar, if not identical, argumentative material to that set out above in the affidavit of Allan Endresz. His authorship of this material is quite obvious. The affidavits of the other defendants make reference to the occasions upon which the eight transactions took place, it being the evidence of Allan Endresz that he was not present on those occasions, not being, relevantly, a director or officer of CTC. I shall refer to this evidence and some of the oral evidence relating to those occasions, later in these reasons. It is convenient at this stage, to refer to certain particular matters of defence, referred to in the affidavits and also in the earlier responses to queries from the auditors. I shall refer to these under appropriate headings, as follows. 94 The role of Allan Endresz It is accepted by ASIC that the evidence does not enable a finding that during the period of the transactions, Allan Endresz was a de facto director of CTC. However, it is ASIC's contention that he was, during this period, relevantly, an "officer" of the company. Section 232(1) of the Corporations Law provides that: ""officer", in relation to a corporation, means: (a) a director, secretary or executive officer of the corporation…". 95 The term "executive officer" is also the subject of definition in s 9 of the Corporations Law. This section was slightly amended in 1998, with the result that the definition is differently worded in relation to the period up to 30 June 1998 from the wording applicable thereafter. Prior to that date, "executive officer" meant: "a person, by whatever name called and whether or not a director of the body…who is concerned, or takes part, in the management of the body…". 96 After that date it was defined as meaning: "a person who is concerned in, or takes part in , the management of the body (regardless of the person's designation and whether or not the person is a director of the body)." 97 It is ASIC's submission that the evidence as to the activities of Allan Endresz in the relevant period establishes clearly that he was an "officer" of CTC. Reliance is placed upon the evidence of Mr Walsh that, from his dealings with Allan Endresz, he was satisfied that fitted the description of an "executive officer" as defined in the Corporations Law, in that he was concerned in and took part in the management of CTC. In his affidavit evidence he describes him as his main point of contact with CTC and saw him as playing a major role in the management of its affairs. In his oral evidence he referred to Allan Endresz as always having had "a very strong role in relation to the company's activities" being "much more of a leader than a follower in relation to those activities." It may also be noted that the significant letter from CTC to the auditors of 15 December 1998 went out over his signature. I have no doubt that he was the author of its contents. Moreover, having had the opportunity to make an assessment of his father in the giving of his evidence and in considering his background as detailed in that evidence, I am satisfied that the letter of 15 February 1999, set out above, which was forwarded by Mr Endresz, must have been wholly or in large part composed by Allan Endresz. 98 In so far as, it would appear, the main activity of CTC in the period 1993 to 1998 related to endeavours in relation to the Regulation 2A Scheme, this was work that could only have been performed to any significant degree by Allan Endresz. It was his brainchild. Although he sought to label his role as being that of "corporate advisor" to CTC, in my view, in substance, he performed a managerial role. The conversation that he alleges he had with his father in relation to the setting up of the transactions of 20 April 1998 is, in my opinion, one that goes beyond mere advice and enters well into the field of management. 99 Moreover, Mr Barned, whose evidence I accept, who was the bank manager, in 1998, for what he referred to as the "Endresz Group", stated that, during that year, he managed the business banking of CTC, "liaising on the majority of occasions with Allan Endresz, whom I understood to be a representative of CTC". He also recalled discussions with Allan Endresz about the issue of the CTC Capital Bonds and the possibility that the Commonwealth Bank would guarantee the issue. 100 I gained the very strong impression from the evidence of Mr and Mrs Endresz that, in their capacity as directors of CTC, they were very reliant upon the advice and assistance of their son. I do not think it unfair to Allan Endresz to find that, upon his being disqualified to act as a director in 1993, he adopted the role of commercial advisor in relation to CTC which, in truth, was no more than an artifice to avoid the consequences of his disqualification. For him to adopt such a role would be entirely consistent with what I perceive to be his general attitude to regulatory restrictions. Rather than seeking to comply with the law, he would search for ways of avoiding it. This was clearly the view of Mr Walsh, who had ample opportunity to observe and assess him in a commercial setting. 101 Allan Endresz was cross-examined on his affidavit. It is necessary to make reference to certain part of the cross-examination. 102 In relation to whether he took part in the management of CTC during the period of the transactions, he denied that he did so at any stage. He agreed however, with respect to the audit of the 1998 accounts, he was the main contact point with the company's auditor. In this regard he claimed that this was due to his having been appointed by the Board and "instructed to attend to the advisory work with respect to the audits." 103 He agreed that he was the only person amongst the four defendants who had any accountancy qualifications. He also agreed that the role of discussion with the company's auditors was an important one. 104 In answers to questions relating to Davis Samuel's actions on behalf of CTC, he indicated that it had contracted as an entity to provide the services "for the ASX damages case", but no other activities. Kamanga was in a different situation, in regard to which he gave the following evidence:- "Q. What activity has Kamanga undertaken on behalf of CTC? A. Kamanga is subject to a consultancy agreement where it maintains the services of myself as the principal in relation to corporate advisory services embracing a whole range of activities that Kamanga provides to CTC. Q. Do you mean Kamanga is, for the purposes of this exercise, yourself? A. I am the principal in relation to Kamanga but no, it is the services provided by the new trustee of the Allan Endresz Family Trust pursuant to that contract. Q. Without worrying about the artifices of the legal structure, are we talking about your services provided through the structure of Kamanga? A. Part of my services, yes." 105 He said, in relation to the period from late December 1989 through to his resignation in June 1993, Kamanga provided to CTC "full time executive services to myself and Jozsef." He also said "there were secretarial services, administrative services, then corporate advisory service was post June 1993 through right up to my reappointment as a director." He also said that before 1993 when he and his father were directors of CTC their services were provided by Kamanga being "a structure which was owned by yourself and your father." 106 He also stated that CTC and Kamanga were located in the same building and that CTC's secretarial staff "were paid through Kamanga doing services for CTC, through Kamanga as a management consultancy company." 107 I was not impressed by his demeanour under cross-examination. He gave the appearance of defending a carefully prepared position, rather than providing frank answers as to his role in the affairs of CTC. Indeed, the very fact of his acting for the other defendants in these proceedings bespeaks their dependence upon him and his underlying and pervasive managerial role in the affairs of CTC. 108 I am satisfied that, during the period of the transactions in question, Allan Endresz was acting as an "officer" of CTC. 109 Were Kamanga and Bisoya related parties of CTC? As appears from the written responses to the auditor's enquiry, set out above, and the contentions in the affidavit of Allan Endresz, the defendants deny that Kamanga was a related party within the meaning of s 243F of the Corporations Law. In my opinion, this contention cannot be maintained. It is clearly established that Mr Endresz had been a director of Kamanga since 23 June 1987 and owned 40% of its shares. At all relevant times Allan Endresz owned the remaining 60%. In the result, Kamanga was, in my opinion, a related party of CTC being an entity of the kind described in s 243F(1)(f) being under the control of Mr Endresz as a director of CTC (s 243F(1)(a)) and of Allan Endresz, his son, (s 243F(1)(e)). 110 Similarly, Bisoya was owned, as to 50% by the first defendant who at the relevant times was a director of CTC. The other 50% of Bisoya was owned by his wife. The combined affect of s 243F(1)(a)(d) and (f) was to make Bisoya a related party at the relevant time. 111 Did Kamanga and Bisoya receive financial benefits pursuant to s 243G of the Corporations Law? In my opinion, ASIC's submission that such financial benefits were received is amply made out, the benefits being as follows:- " Kamanga (a) Transaction 1 – involved the payment of $2,205,000 by CTC Resources NL to Kamanga Holdings Pty Ltd on 20 April 1998; (b) Transaction 3 – involved the payment of $40,833.34 by CTC Resources NL to Kamanga Holdings Pty Ltd on 26 May 1998; (c) Transaction 5 – involved the payment of $250,000 by CTC Resources NL to Kamanga Holdings Pty Ltd on 28 October 1998; (d) Transaction 6 – involved the payment of $100,000 by CTC Resources NL to Kamanga Holdings Pty Ltd on 30 October 1998; and (e) Transaction 8 – involved the payment of $150,000 by CTC Resources NL to Kamanga Holdings Pty Ltd on 13 November 1998. Bisoya (a) Transaction 2 – involved the payment of $260,000 by CTC Resources NL to Bisoya Pty Ltd on 20 April 1998; (b) Transaction 4 – involved the payment of $10,833.34 by CTC Resources NL to Bisoya Pty Ltd on 28 May 1998; and (c) Transaction 7 – involved the payment of $75,000 by CTC Resources NL to Bisoya Pty Ltd on 30 October 1998." 112 Exceptions The claim was made in the correspondence set out above that some of the transactions fell within the "reasonable remuneration" exception provided by s 243K of the Corporations Law. This was denied by the auditor. I am not entirely clear whether the argument is persisted in. In any event, in my view, s 243K applies to remuneration paid to persons in their capacity as officers of the body making the payment. Neither Kamanga nor Bisoya fall within this description. None of the provisions of ss 243J to 243PB would seem to apply, with the possible exception of s 243N. I am satisfied that there is no evidence before me which could bring that section into operation in favour of the defendants. There is nothing that satisfies me that the transactions could be regarded as at arm's length. 113 The admissibility of Mr Tutt's evidence As previously indicated, Allan Endresz challenged Mr Tutt's evidence on the basis of bias. This allegation, as appears from Allan Endresz's affidavit, is based upon the fact that Mr Tutt is chairman of Royal & Sun Alliance Insurance Australia Holdings Limited ("RSA"). In paragraph 84 of his affidavit, Allan Endresz makes the following statement:- "RSA and its subsidiaries, Royal & Sun Alliance Financial Services Limited and Tyndall Superannuation Limited are involved in legal proceedings with Strategic Superannuation Solutions Pty Ltd ["SSS"], of which I am a director. These proceedings involve the recovery by SSS of an outstanding debt owed by RSA in excess of $2 million [with interest and costs] and separate legal proceedings detailed at item 39 of Exhibit APE1 (Exhibit"8")." 114 The proceedings referred to were interlocutory and the ex tempore judgment, included in Exhibit "8", to which I was not taken in argument, appears to cast no light on this submission. Mr Allan Endresz questioned Mr Tutt in cross-examination on this topic. In my opinion, nothing emerged which could reasonably found a holding of bias, actual or ostensible. I regarded Mr Tutt as an impressive witness, whose expert testimony could be completely relied upon. 115 CTC's Articles In his written submissions, Allan Endresz seeks to rely upon certain articles of CTC, as founding a right in the directors to make payments of the kind in question in these proceedings, without reference to the shareholders. I received no oral argument in respect of these matters from either side. In my view these articles could not prevail over the relevant sections of the Corporations Law and Corporations Act , where contraventions of those sections are established. 116 Court decisions referred to by Allan Endresz Reliance was placed by Allan Endresz, in his affidavit, upon decisions said to be favourable to the SIBS concept and, apparently, supportive of entitlement to make and receive the payment involved in the first transaction. In respect of ASIC's proceedings in the Victorian Supreme Court in relation to the prospectus sought to be issued by SIB Resources NL, Allan Endresz said, in paragraph 35 of his affidavit that: "On 26 June 1991, Justice Ryan of the Victorian Supreme Court dismissed the application by the Plaintiff and the Prospectus was then subsequently registered. See ASC v SIB Resources N.L. & Ors [1991] 103 ALR 374." 117 The decision referred to is that of Ryan J in the Federal Court of Australia, not the Victorian Supreme Court. Reference to it indicates that it is not a ringing endorsement of the SIBS concept. The question at issue was whether it was entitled to be registered as a no liability company, in so far as its objects were not confined to mining. His Honour having considered the relevant legislative provisions held that they did not "evince an intention that the Court should have a power, on the application of the Commission, retrospectively to deprive the private company of the corporate existence conferred by s 123 of the Law…". He held however that because SR's objects were wider than those permitted to a no liability company, it could not remain on the register as a company of that class, if its objects were not amended. After amendment, SR was floated. The float failed, only minimal support for the shares being achieved. 118 Also, in paragraph 40 of his affidavit, Allan Endresz made the following claim:- "On 9 December 1996 CTC launched a $35 million [now $1 Billion] damages claim against the ASX. The ASX sought to summarily strike out the claim, but in a Judgment handed down on 11 April 1997, the application was dismissed. See CTC Resources NL v Australian Stock Exchange Ltd; Odyssey Nominees Pty Ltd v Australian Stock Exchange Ltd [1997] 15 ACLC 743 [WA Sup Ct] Sanderson J, 11 April 1997]]." 119 Reference to this case indicates that it was an application before a Master. In fact, the statement of claim was struck out, with leave to replead. It was an interlocutory application, in which the Master also held that an arguable case was demonstrated, although the pleading was deficient. It could not be made the basis of a triumphal claim in relation to the proceedings against ASX, although it appears to have been put to this use in reporting the result to shareholders. 120 In my view, these cases do not support, in any way, a general assertion that the payment made to Kamanga in the first transaction was justified on the basis of unremitting endeavours made on behalf of CTC and its shareholders. 121 The Transactions Under this heading I propose to consider evidence given by the first, second, third and fourth defendants in purported justification of each transaction. I have already referred to the nature of the transactions and to the fact that it is admitted that they took place in the way alleged. (a) Transaction 1 Allan Endresz was not present at the meeting of 20 April 1998. I have referred to his evidence relating to a conversation with his father prior to the sale of CTC bonds, which sale resulted in CTC receiving the amount of $6 million. The conversation referred to the alleged reasonableness of Kamanga receiving payment for past work and also of its entering into a Consultancy Agreement, which would provide the basis for its future work and receipt of emoluments in respect of it. His affidavit evidence is replete with assertions that considerable effort had been expended by Kamanga and those involved in it on behalf of CTC, for a period of some nine years, during which no payment had been made to it. It is clear that he accepted that there was a potential conflict of interest involved in Mr Endresz, as a director of Kamanga, being a party to any resolution by the Board of CTC in favour of payment to Kamanga. 122 I should say that I was quite unimpressed by his evidence as to his conversation with his father, as set out in his affidavit and quoted above. Having heard and observed Mr Endresz in the giving of his evidence and having considered his commercial background as set out in that evidence, I have very considerable doubt that the conversation would have taken place in the way suggested by Allan Endresz. Its purported record, in his affidavit, has all the appearance of contrivance and artifice. I am also not prepared to accept, in the absence of any supporting evidence, that the company's shareholders were requesting that the company enter into a contract with Kamanga in order to secure the future services of Allan Endresz and Mr Endresz. I am far from persuaded that the shareholders knew anything of the arrangements for payment that were to be put in train on 20 April 1998 or that CTC would receive $6 million on that day. To the contrary, the shareholders must have been well and truly aware, because of the AGM, which had recently taken place, that the company had significant accumulated losses and negative shareholder equity. 123 Allan Endresz's justification of the payment to Kamanga in transaction 1 and, presumably, the payment to Bisoya in transaction 2 and the subsequent payments and advances to those entities in the other transactions, appears to be summed up in the passage in his written submissions, which reads as follows:- "Aren't people who continue to nurture a company in the face of great difficulties, and who forgo fees during those years in order to keep faith with the shareholders, entitled to fees when the opportunity presents itself in the interests of the company? That opportunity being not just the liquidity of the company but the fact that they honestly believed that the matters they had been working on for some time would now come to fruition." 124 The minutes of the CTC Board Meeting of 20 April 1998 have been set out above. The evidence of Mr and Mrs Endresz and Mr Forge as to this meeting leaves me in some degree of doubt as to whether it was actually held or whether the minutes were simply constructed to give effect to arrangements otherwise concluded. Mr Endresz says that the main purpose for the calling of the meeting was the ratification of a buy back from Davis Samuel by CTC of 30% of the interest in the case against the ASX. Reference to this appears in the minutes. However, Mr Endresz said that after that matter had been dealt with, the question of management fees and retainer for Kamanga came up for discussion. He had with him "a proposal that I draft, proposal of management contract, and an invoice." He had talked about these "weeks beforehand" and that the document and invoice containing the proposed annual fee of $245,000 per year had been drafted up by himself and Allan. This could have taken place in March. The underlying concept was that "any time money had arrived into the company's coffers, these will be put into place." He expanded on this topic in the following questions and answers, which related also to Mr Forge and Bisoya:- "Q. In any event, the idea that you discussed with your son, perhaps in March 1998, was that as soon as there was sufficient money in the company's bank account, Kamanga would be paid, past and future? A. Yes. Q. Presumably you discussed Mr Forge's position as well, and his company did you? A. That's correct. Q. The same idea, I suppose, was agreed to at the same time namely, that Mr Forge will be fixed up both for the past and the future as well? A. That's correct." 125 Mr Endresz said that he had decided upon the figure of $65,000 per year as a retainer for Bisoya. He said that he worked through the company documents and "to me a director, managing director was entitled to $75,000" and that, having looked at Mr Forge's position at that time he "felt because the 65 would be a abetter way for me to operate, because I would save a few bob on the full amount to be payable. He never pay everything. That's a nice situation. You screw them out as much as you can." 126 He also said that, in effect, the $245,000 per year for Kamanga was a product of "screwing Kamanga down in the company's interests" and that it was "just peanuts" for the nine years work that had been put into it and because "the company's future depends on that contract." He also said that there was " a huge company takeover program going through on behalf of CTC." It was his determination to "make CTC the biggest company in the country". 127 Mr Endresz insisted that he had created the price of $65,000 in respect to Mr Forge's agreement, but not the agreement itself. He could not account for the fact that Mr Forge's Bisoya Agreement appeared to be a mirror image of the Kamanga Consultancy Agreement. He did not why it was in the same form and he was not interested. The effect of his evidence is that there was an understanding with Mr Forge, as well, that when there was money in the company "we will first priority pay ourselves what we are owed." I am satisfied that Mr Forge was a party to this understanding. 128 Mr Endresz's attitude to the arrangements put in place on 20 April 1998 appears to be summed up in the following passage:- "Q. May we take it then that there was no need to give consideration to questions of other use that the money might be put to, anything of that nature? A. Well, there was no need for it because we had plans, as I told you before, on the takeovers in train. I had $50m also elucidated from Singapore. There was another negotiation going with other parties, so the first $6m coming in was just a matter of the first one arrives. Q. That was peanuts anyway? A. that's exactly right, yes. Q. Was it the company's peanuts? A. It's – that's irrelevant. It was – the company was liquid; it had to pay the debt. It paid it and would proceed from there on. Q. And questions of repayment of the $6m could take care of themselves further down the track? A. I've got no problem of repaying the six million. I have even today. Kamanga is capable of repaying that one any time we want." 129 Mrs Endresz gave evidence to the effect that she attended the meeting because her husband "just called the board and said 'we'll have a meeting'". The clear effect of her evidence is that prior to going to the meeting she did not know what it was to involve. Mr Forge was in the office that morning, so the three of them went into the board room. 130 In relation to the proposal of payment of $2,205,000 to Kamanga, she stated that her husband left the room and that then "Bill and I made up the quorum and we had discussions about that for maybe twenty-five minutes, half an hour". She took the view that insofar as "Joe and Allan hadn't been paid for nine years work" that "now was an opportune time." She said, amongst a number of other things to the same effect that "it's fair and reasonable. They had to be paid for what they have done and now CTC was cashed up, we were liquid." She also expressed the view, in a number of ways, that it was in the best interests of the company that the past and future amounts in contemplation be paid to Kamanga. It was in fact a bonus for CTC and the shareholders in that the services of her husband and Allan were being obtained cheaply. She did not seem to be aware that CTC had given some seven million shares to Kamanga. 131 She also spoke of Mr Forge's producing his management agreement, although she didn't think he produced an invoice at that time. However, after he had left the room, Mr Endresz and she passed the resolution in his absence that he be paid $260,000, this being the amount on the Bisoya invoice. I have already referred to the fact that the invoice was dated the next day. She said that the figure of $65,000 was arrived at between her husband and herself, as being a fair thing to pay in respect of the past work of Bisoya, that it was a true value and not a discount. She was not, apparently, aware of the "screwing down." 132 In relation to the $6 million, she knew that it would have to be repaid eventually and that there were interest obligations attached to it. She held the view, apparently, that CTC would be able to repay the $6 million because it had plenty of projects tied in with Kamanga and Davis Samuel. 133 I gained the strong impression that Mrs Endresz did not have any significant grasp of the business affairs of CTC and was very much reliant upon her son and husband for any knowledge of the company, its affairs or its relationship with Kamanga or Davis Samuel. 134 Mr Forge gave evidence of attendance at the meeting. He said that he had no forewarning that Mr Endresz would produce the Kamanga invoice and consultancy agreement to the meeting. As it happened he was carrying his own agreement with him in his brief case, where it had been for some weeks and he simply produced it from his brief case at the meeting because it was an opportune moment to do so. He did not produce an invoice to the meeting but believed that he would have mentioned the figures of $65,000 per annum and the back payment of $260,000 before leaving the meeting, so that his claim could be discussed, in his absence, by Mr and Mrs Endresz. So far as the $6 million was concerned, he was confident that the company would be able to repay it when it fell due. I found his evidence, in general, most unimpressive. 135 I am left with the overwhelming impression from the evidence of these four defendants that, in circumstances where CTC had had no significant income for many years, the receipt of the $6 million was seen as a golden opportunity for the payment to the director -related entities of Kamanga and Bisoya of significant sums of money for the benefit, ultimately, of the defendants themselves. I am of the view that the claims made in their affidavit and oral evidence that payments were made for the benefit of the company and its shareholders are no more than colourable after -thoughts. I do not accept their evidence in this regard. In particular, I am totally unpersuaded that any of these matters of justification for the payments were in the minds of the first, second and third defendants at the time the resolutions of 20 April 1998 were passed if, in fact, they were passed at a properly constituted meeting. 136 Transactions 3 and 4 These involve the payments made on 28 May 1998 to Kamanga of $40,833.34 and to Bisoya of $10,833.34. As already indicated, they represent payments made under the respective agreements dated 20 April 1998 and are, purportedly, for services rendered in respect of those agreements. They are, however, payments made to related parties. They are sought to be justified on the basis that they fall within the statutory exceptions. There is nothing that indicates to me that they could properly be described as arm's length transactions. 137 Transactions 5, 6 and 8 These loans by CTC to Kamanga are clearly made to a related party. They appear to be justified on the basis that CTC was indebted to Kamanga and they are to be seen against a background of loans passing back and forth between the companies. In his affidavit Mr Endresz, in effect, wipes his hands of the matter by indicating that he had no involvement in the transactions, insofar as he disclosed his personal interest to the first and third defendants and removed himself from the directors' meeting which authorised the loans. He takes the same approach in respect of the loan of $150,000 to Kamanga, the subject of transaction 8. I can find no acceptable explanation for the making of these unsecured loans from the resources of CTC, a public company, to the entities in which the directors had a commercial interest. In this regard, the Court is left in the same position as were the auditors. They are prima facie unlawful and no acceptable explanation is given. 138 Transaction 7 This unsecured loan from CTC to Bisoya was made to assist Mr Forge in relation to a property settlement with his estranged wife. As Mr Forge said in evidence, it was paid "for Bisoya's benefit to relieve a loan account that was owed to Lorraine Olive Forge." 139 In relation to this loan Mr Endresz said that he lent the money to Mr Forge who had asked for it "for personal reasons". He didn't ask what the loan was for because he didn't want to get involved in it. He didn't worry about security for this loan of public company funds because of the existence of the management contract with Mr Forge and his company Bisoya. In adopting this approach, he displayed the same attitude to the public company funds as he did in relation to the loans to Kamanga, where his explanation was "Kamanga needed some short term working capital, the money was asked for and we put it in." 140 The contraventions I have set out the sections relied upon by ASIC as founding the alleged contraventions under the Corporations Law. I shall now refer, briefly, to what has been said, by way of interpretation of some of these sections, in certain decided cases. 141 As to the "duty to act honestly" required by s 232(2) of the Corporations Law, I am satisfied that, as these are not criminal proceedings, I can reasonably follow the interpretation given to the section by King CJ in Australian Growth Resources Corp Pty Ltd v Van Reesema (1988) 13 ACLR 261 at 272 where his Honour said:- "The section therefore embodies a concept analogous to constructive fraud, a species of dishonesty which does not involve moral turpitude. I have no doubt that a director who exercises his powers for a purpose which the law deems to be improper, infringes this provision notwithstanding that according to his own lights he may be acting honestly." 142 Section 232(6) received an explanation in R v Byrnes (1995) 183 CLR 501 where the High Court said:- "Impropriety does not depend on an alleged offender's consciousness of impropriety. Impropriety consists in a breach of the standards of conduct that would be expected of a person in the position of the alleged offender by reasonable persons with knowledge of the duties, powers and authority of the position and the circumstances of the case. When impropriety is said to consist of an abuse of power, the state of mind of the alleged offender is important: the alleged offender's knowledge or means of knowledge of the circumstances in which the power is exercised and his purpose or intention in exercising the power are important factors in determining the question whether the power has been abused. But impropriety is not restricted to abuse of power. It may consist in the doing of an act which a director or officer knows or ought to know that he has no authority to do." 143 With these interpretations in mind and, having regard to the wording of all the relevant sections which has been set out earlier in these reasons, I turn to consider whether the contraventions alleged have been established. I bear in mind that proof to the Briginshaw standard is required. 144 In my opinion, the contraventions are amply demonstrated. In general terms, I am satisfied that the first, second, third and fourth defendants simply regarded the acquisition by CTC of the amount of $6 million on 20 April 1998 as amounting, virtually, to a provision of funds for their own private use. The amounts covered by the transactions were paid out, in the form of fees or loans to related entities, without regard to the fact that the $6 million itself was subject to repayment and also carried with it obligations to pay interest. Despite protestations in the case that shareholder approval was not required because of the attitude of shareholders in the past, I am of the view that the question of shareholder approval was not even considered in relation to any of these payments or loans. All that mattered was their own perceived entitlement to payment for past and future services. 145 Having regard to the width of the definition of "contravention" in s 79 of the Corporations Law, set out above, I am quite satisfied that each of the defendants, with the exception of Kamanga, against whom action is necessarily stayed, has been "directly or indirectly, knowingly concerned in and party to the contraventions "involved in the transactions, in which they are named in the originating process. The first, second and third defendants were each involved by reason of their directorships in CTC and in Kamanga or Bisoya. The fourth defendant, Allan Endresz was, in my view, clearly involved in transactions 1,3 5,6 and 8, because of what I have found to be his disguised, but nevertheless ongoing, managerial role in both CTC and Kamanga. 146 So far as concerns the alleged contraventions of ss 232(2), 232(4), 232(6), 243ZE(3) and 243ZE(2) of the Corporations Law, in each of the transactions, I am assisted by the expert testimony of Mr Tutt and Mr Walsh, in conjunction with the facts that I have found, in determining whether relevant contraventions have been committed by the respective defendants. 147 I am satisfied that, with the exception of paragraphs 5, 15, 25, 30 and 40 in the list of transactions in the Originating Process, which relate to Kamanga and are not relied on, the plaintiff has proved the contraventions alleged. Relevant failures to act honestly and with a reasonable degree of care and diligence have been established in relation to the making of the payments and loans, as have the making of improper use of the officers' positions to gain advantage for Kamanga and Bisoya. Also involvement in or reckless concern in the payments and loans to Kamanga and Bisoya as related parties, has been amply demonstrated.. 148 Declarations In view of my finding that the respective contraventions have been established, it is appropriate that I make the declarations, pursuant to subs. 1317EA(2) of the Corporations Law sought in the Originating Process. I accordingly make them. They will be set out in a Schedule to these reasons. 149 I turn then to consider whether and, if so, what orders should be made pursuant to s 1317EA(3) (a) and (b) of the Corporations Law. 150 Banning orders Under s 1317EA(3)(a), the Court is empowered to make "an order prohibiting the person (for such period as is specified in the order) from managing a corporation," such order not to be made if the Court is, nevertheless, satisfied that the person is a fit and proper person to manage a corporation. It is clear that the object of this section is not punitive. The section is "designed to protect the public and to prevent the corporate structure from being used to the financial detriment of investors, shareholders, creditors and persons dealing with the company (per Bowen CJ in Eq, Re: Magna Alloys & Research Pty Limited (1975) 1 ACLC 203 at 205). There are many opinions to like effect in other decided cases. (See e.g. Zucker v Commissioner for Corporate Affairs (1981) VR 72 at 77; Murray v ASC (1984) 12 ACLC 11 at 13; ASC v Donovan (1998) 28 ACSR 583 at 602). 151 Obviously, the Court must take into account the nature and number of the contraventions established, any relevant history of the contravenor and the detriment suffered by the victims of the contravention. The plaintiff advances the following specific reasons why the defendants should be prohibited from managing a corporation: "(a) The contraventions of the Corporations Law of which the Defendants are guilty are most serious - they involve the loss of in excess of $3 million from a public company to private companies associated with each of them. (b) The Defendants' use of their position was improper and put the interests of related entities of the Defendants ahead of the shareholders of CTC Resources. (c) The Defendants have shown no remorse or contrition. In fact, they have repeatedly denied that they acted in any way improperly, despite the evidence against them. The fourth Defendant in particular, in giving evidence, continued to deny his culpability and seek to justify his conduct. (d) The fourth Defendant has criminal convictions which resulted in him being prevented from holding the position of director for five years from 11 June 1993. It is during this time period that transactions 1 and 3 occurred. (e) It is submitted that these factors demonstrate that none of the Defendants is a "fit and proper person" to manage a corporation and that there is a need to protect the public from their activities." 152 I consider that these submissions should be upheld and appropriate periods of prohibition should be ordered. 153 As to the fourth defendant, Allan Endresz, I am satisfied that his contraventions, although fewer in number than those of the first, second and third defendants, are significantly more serious. I am satisfied that he was, in effect, the leader in the series of contraventions in which he was involved, relating to the disbursement of the monies received on 20 April 1998. Also he was clearly a willing participant in the later payments and loans to Kamanga. Additionally, he has shown a distinct pre-disposition to flout the law, having regard to his earlier convictions. Moreover, his total lack of contrition and his generally arrogant attitude towards these proceedings, do not suggest that he is likely to restrain himself from committing commercial misdemeanours in the future. In view of these factors the period of prohibition must be substantial. I take into account Mr Walsh's perhaps over benign view that Allan Endresz was not actually dishonest. However, dishonesty in the sense referred to above has been amply proved. I order that the fourth defendant be prohibited from managing a corporation for sixteen years from today's date. 154 So far as the first, second and third defendants are concerned, their continuance in corporate management would pose less of a threat to the public interest, but the threat is, nevertheless, significant, in the circumstances of the case. Each was significantly wanting in the discharge of his and her duties as director of this public company and has demonstrated no proper understanding of what those duties required. I order that each should be prohibited from managing corporations for a period of eight years from today's date. 155 Pecuniary penalties I consider that the contraventions are sufficiently serious to warrant the imposition of pecuniary penalties pursuant to s 1317EA(3)(b). I agree, with respect, with Cooper J where, in Australian Securities Commission v Donovan (1998) 28 ACSR 583 his Honour said at pp 37-38:- "Section 1317EA(3)( b) is punitive in character. Its purpose in the appropriate case is to punish, but principally the imposition of a pecuniary penalty is to act as a general deterrent and a deterrent to the general public against a repetition of like conduct. The legislative deterrent effect is aimed at preventing a corporate structure being used by an individual in the manner which is contrary to proper commercial standards to the detriment of the company, its shareholders, creditors, investors and others dealing with it. If compliance with the appropriate standards of commercial conduct in the management of corporations by deterrence is the object, then any penalty should be no greater than is necessary to achieve this objective. Otherwise, severity beyond that figure would be oppressive: Trade Practices Commission v Stihl Chainsaws (Aust) Pty Ltd [1978] ATPR 17, 882 at 17,896 ; NW Frozen Foods v The Australian Competition & Consumer Commission (1996) 71 FCR 285 (FC) at 293. Further, the appropriate civil penalty is in each case a question of fact and circumstances of one case cannot dictate the appropriate penalty in difference circumstances in another case; NW Frozen Foods at 295." 156 It is also appropriate, in accordance with the general principles applicable to the imposition of penalties, to take into account the nature and extent of the contravening conduct and the amount of loss or damage caused. The presence or absence of contrition is also important. Also, the whole of the contravening conduct must be taken into account so that the well-known "totality principle" of sentencing is not infringed. 157 The plaintiff submits, and I agree, that the following matters should be taken into account in the present case in determining the amount of pecuniary penalty:- "i the Defendants' conduct has resulted in the loss of in excess of $3 million from a public company was deliberate and for their own personal gain; ii the Defendants have attempted to justify their conduct; iii the Defendants failed to show any contrition; iv the need to deter the Defendants from similar conduct in the future (specific deterrence); v to deter other directors from breaching the directors' duties and other provisions presently found in the Corporations Act (general deterrence); and vi to punish the Defendants for their conduct." 158 With these principles and considerations in mind I turn to consider the penalties appropriate in the case of each defendant, in respect of each transaction. In my view, there is no need to differentiate between the contraventions involved in each transaction. Having regard to the "totality principle", I should impose one penalty to cover all contraventions comprised in each transaction. 159 In respect of transaction 1, I impose upon Allan Endresz, William Forge, Jozsef Endresz and Dawn Endresz, a pecuniary penalty of $120,000. 160 In relation to transaction 2, I impose upon each of William Forge, Jozsef Endresz, Dawn Endresz and Bisoya Pty Limited a pecuniary penalty of $30,000. 161 In relation to transaction 3, I impose upon William Forge, Jozsef Endresz, Dawn Endresz and Allan Endresz a pecuniary penalty of $10,000. 162 In relation to transaction 4, I impose upon each of William Forge, Jozsef Endresz, Dawn Endresz and Bisoya Pty Limited a pecuniary penalty of $5,000. 163 In relation to transaction 5, I impose upon each of William Forge, Jozsef Endresz, Dawn Endresz and Allan Endresz a pecuniary penalty of $30,000. 164 In relation to transaction 6, I impose upon each of William Forge, Jozsef Endresz, Dawn Endresz and Allan Endresz a pecuniary penalty of $20,000. 165 In relation to transaction 7, I impose upon each of William Forge, Jozsef Endresz, Dawn Endresz and Bisoya Pty Limited a pecuniary penalty of $10,000. 166 In relation to transaction 8, I impose upon each of William Forge, Jozsef Endresz, Dawn Endresz and Allan Endresz a pecuniary penalty of $20,000. 167 I further order that the defendants pay the plaintiff's costs of these proceedings including all reserved costs. SCHEDULE A. Declarations pursuant to s 1317EA(2) of the Corporations Law. 1 The first defendant, second defendant, third defendant and fourth defendant have each, as an officer of CTC Resources N.L. ACN 009 061 036, in New South Wales, by approving, permitting or allowing CTC Resources N.L. ACN 009 061 036 to pay $2,205,000 to the fifth defendant, on or about 20 April 1998, contravened subsection 232(2) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036. 2 The first defendant, second defendant, third defendant and fourth defendant have each, as an officer of CTC Resources N.L. ACN 009 061 036, in New South Wales, by approving, permitting or allowing CTC Resources N.L. ACN 009 061 036 to pay $2,205,000 to the fifth defendant, on or about 20 April 1998, contravened subsection 232(4) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036. 3 The first defendant, second defendant, third defendant and fourth defendant have each, as an officer or employee of CTC Resources N.L. ACN 009 061 036, in New South Wales, by approving, permitting or allowing CTC Resources N.L. ACN 009 061 036 to pay $2,205,000 to the fifth defendant, on or about 20 April 1998, contravened subsection 232(6) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036. 4 The first defendant, second defendant, third defendant and fourth defendant have each, by being involved in or by being recklessly concerned in or by being party to, CTC Resources N.L. ACN 009 061 036 paying $2,205,000 to the fifth defendant, on or about 20 April 1998, contravened subsection 243ZE(3) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036. 5 The first defendant, second defendant and third defendant have each, as an officer of CTC Resources N.L. ACN 009 061 036, in New South Wales, by approving, permitting or allowing CTC Resources N.L. ACN 009 061 036 to pay $260,000 to the sixth defendant, on or about 20 April 1998, contravened subsection 232(2) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036. 6 The first defendant, second defendant and third defendant have each, as an officer of CTC Resources N.L. ACN 009 061 036, in New South Wales, by approving, permitting or allowing CTC Resources N.L. ACN 009 061 036 to pay $260,000 to the sixth defendant, on or about 20 April 1998, contravened subsection 232(4) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036. 7 The first defendant, second defendant and third defendant have each, as an officer or employee of CTC Resources N.L. ACN 009 061 036, in New South Wales, by approving, permitting or allowing CTC Resources N.L. ACN 009 061 036 to pay $260,000 to the sixth defendant, on or about 20 April 1998, contravened subsection 232(6) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036. 8 The first defendant, second defendant and third defendant have each, by being involved in or by being recklessly concerned in or by being party to, CTC Resources N.L. ACN 009 061 036 paying $260,000 to the sixth defendant, on or about 20 April 1998, contravened subsection 243ZE(3) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036. 9 The sixth defendant has, by receiving $260,000 from CTC Resources N.L. ACN 009 061 036, on or about 20 April 1998, contravened subsection 243ZE(2) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036. 10 The first defendant, second defendant, third defendant and fourth defendant have each, as an officer of CTC Resources N.L. ACN 009 061 036, in New South Wales, by approving, permitting or allowing CTC Resources N.L. ACN 009 061 036 to pay $40,833.34 to the fifth defendant, on or about 28 May 1998, contravened subsection 232(2) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036. 11 The first defendant, second defendant, third defendant and fourth defendant have each, as an officer of CTC Resources N.L. ACN 009 061 036, in New South Wales, by approving, permitting or allowing CTC Resources N.L. ACN 009 061 036 to pay $40,833.34 to the fifth defendant, on or about 28 May 1998, contravened subsection 232(4) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036. 12 The first defendant, second defendant, third defendant and fourth defendant have each, as an officer or employee of CTC Resources N.L. ACN 009 061 036, in New South Wales, by approving, permitting or allowing CTC Resources N.L. ACN 009 061 036 to pay $40,833.34 to the fifth defendant, on or about 28 May 1998, contravened subsection 232(6) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036. 13 The first defendant, second defendant third defendant, and fourth defendant have each, by being involved in or by being recklessly concerned in or by being party to, CTC Resources N.L. ACN 009 061 036 paying $40,833.34 to the fifth defendant, on or about 28 May 1998, contravened subsection 243ZE(3) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036. 14 The first defendant, second defendant and third defendant have each, as an officer of CTC Resources N.L. ACN 009 061 036, in New South Wales, by approving, permitting or allowing CTC Resources N.L. ACN 009 061 036 to pay $10,833.34 to the sixth defendant, on or about 28 May 1998, contravened subsection 232(2) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036. 15 The first defendant, second defendant and third defendant have each, as an officer of CTC Resources N.L. ACN 009 061 036, in New South Wales, by approving, permitting or allowing CTC Resources N.L. ACN 009 061 036 to pay $10,833.34 to the sixth defendant, on or about 28 May 1998, contravened subsection 232(4) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036. 16 The first defendant, second defendant and third defendant have each, as an officer or employee of CTC Resources N.L. ACN 009 061 036, in New South Wales, by approving, permitting or allowing CTC Resources N.L. ACN 009 061 036 to pay $10,833.34 to the sixth defendant, on or about 28 May 1998, contravened subsection 232(6) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036. 17 The first defendant, second defendant and third defendant have each, by being involved in or by being recklessly concerned in or by being party to, CTC Resources N.L. ACN 009 061 036 paying $10,833.34 to the sixth defendant, on or about 28 May 1998, contravened subsection 243ZE(3) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036. 18 The sixth defendant has, by receiving $10,833.34 from CTC Resources N.L. ACN 009 061 036, on or about 28 May 1998, contravened subsection 243ZE(2) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036. 19 The first defendant, second defendant, third defendant and fourth defendant have each, as an officer of CTC Resources N.L. ACN 009 061 036, in New South Wales, by approving, permitting or allowing CTC Resources N.L. ACN 009 061 036 to pay $250,000 to the fifth defendant, on or about 28 October 1998, contravened subsection 232(2) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036. 20 The first defendant, second defendant, third defendant and fourth defendant have each, as an officer of CTC Resources N.L. ACN 009 061 036, in New South Wales, by approving, permitting or allowing CTC Resources N.L. ACN 009 061 036 to pay $250,000 to the fifth defendant, on or about 28 October 1998, contravened subsection 232(4) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036. 21 The first defendant, second defendant, third defendant and fourth defendant have each, as an officer or employee of CTC Resources N.L. ACN 009 061 036, in New South Wales, by approving, permitting or allowing CTC Resources N.L. ACN 009 061 036 to pay $250,000 to the fifth defendant, on or about 28 October 1998, contravened subsection 232(6) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036. 22 A declaration, pursuant to subsection 1317EA(2) of the Corporations Law, that the first defendant, second defendant, third defendant and fourth defendant have each, by being involved in or by being recklessly concerned in or by being party to, CTC Resources N.L. ACN 009 061 036 paying $250,000 to the fifth defendant, on or about 28 October 1998, contravened subsection 243ZE(3) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036. 23 The first defendant, second defendant, third defendant and fourth defendant have each, as an officer of CTC Resources N.L. ACN 009 061 036, in New South Wales, by approving, permitting or allowing CTC Resources N.L. ACN 009 061 036 to pay $100,000 to the fifth defendant, between about 27 October 1998 and 30 October 1998, contravened subsection 232(2) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036. 24 The first defendant, second defendant, third defendant and fourth defendant have each, as an officer of CTC Resources N.L. ACN 009 061 036, in New South Wales, by approving, permitting or allowing CTC Resources N.L. ACN 009 061 036 to pay $100,000 to the fifth defendant, between about 27 October 1998 and 30 October 1998, contravened subsection 232(4) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036. 25 The first defendant, second defendant, third defendant and fourth defendant have each, as an officer or employee of CTC Resources N.L. ACN 009 061 036, in New South Wales, by approving, permitting or allowing CTC Resources N.L. ACN 009 061 036 to pay $100,000 to the fifth defendant, between about 27 October 1998 and 30 October 1998, contravened subsection 232(6) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036. 26 The first defendant, second defendant, third defendant and fourth defendant have each, by being involved in or by being recklessly concerned in or by being party to, CTC Resources N.L. ACN 009 061 036 paying $100,000 to the fifth defendant, between about 27 October 1998 and 30 October 1998, contravened subsection 243ZE(3) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036. 27 The first defendant, second defendant and third defendant have each, as an officer of CTC Resources N.L. ACN 009 061 036, in New South Wales, by approving, permitting or allowing CTC Resources N.L. ACN 009 061 036 to pay $75,000 to the sixth defendant, between about 27 October 1998 and 30 October 1998, contravened subsection 232(2) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036. 28 The first defendant, second defendant and third defendant have each, as an officer of CTC Resources N.L. ACN 009 061 036, in New South Wales, by approving, permitting or allowing CTC Resources N.L. ACN 009 061 036 to pay $75,000 to the sixth defendant, between about 27 October 1998 and 30 October 1998, contravened subsection 232(4) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036. 29 The first defendant, second defendant and third defendant have each, as an officer or employee of CTC Resources N.L. ACN 009 061 036, in New South Wales, by approving, permitting or allowing CTC Resources N.L. ACN 009 061 036 to pay $75,000 to the sixth defendant, between about 27 October 1998 and 30 October 1998, contravened subsection 232(6) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036. 30 The first defendant, second defendant and third defendant have each, by being involved in or by being recklessly concerned in or by being party to, CTC Resources N.L. ACN 009 061 036 paying $75,000 to the sixth defendant, between about 27 October 1998 and 30 October 1998, contravened subsection 243ZE(3) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036. 31 The sixth defendant has, by receiving $75,000 from CTC Resources N.L. ACN 009 061 036, between about 27 October 1998 and 30 October 1998, contravened subsection 243ZE(2) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036. 32 The first defendant, second defendant, third defendant and fourth defendant have each, as an officer of CTC Resources N.L. ACN 009 061 036, in New South Wales, by approving, permitting or allowing CTC Resources N.L. ACN 009 061 036 to pay $150,000 to the fifth defendant, on or about 13 November 1998, contravened subsection 232(2) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036. 33 The first defendant, second defendant, third defendant and fourth defendant have each, as an officer of CTC Resources N.L. ACN 009 061 036, in New South Wales, by approving, permitting or allowing CTC Resources N.L. ACN 009 061 036 to pay $150,000 to the fifth defendant, on or about 13 November 1998, contravened subsection 232(4) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036. 34 The first defendant, second defendant, third defendant and fourth defendant have each, as an officer or employee of CTC Resources N.L. ACN 009 061 036, in New South Wales, by approving, permitting or allowing CTC Resources N.L. ACN 009 061 036 to pay $150,000 to the fifth defendant, on or about 13 November 1998, contravened subsection 232(6) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036. 35 The first defendant, second defendant, third defendant and fourth defendant have each, by being involved in or by being recklessly concerned in or by being party to, CTC Resources N.L. ACN 009 061 036 paying $150,000 to the fifth defendant, on or about 13 November 1998, contravened subsection 243ZE(3) of the Corporations Law in relation to CTC Resources N.L. ACN 009 061 036. B Orders pursuant to s 1317EA(3)(a) of the Corporations Law: 1 The fourth defendant is prohibited from managing a corporation for a period of sixteen (16) years from 28 August 2002. 2 The first defendant is prohibited from managing a corporation for a period of eight (8) years from 28 August 2002. 3 The second defendant is prohibited from managing a corporation for a period of eight (8) years from 28 August 2002. 4 The third defendant is prohibited from managing a corporation for a period of eight (8) years from 28 August 2002. C Totals of pecuniary penalties imposed pursuant to s 1317EA(3)(b) of the Corporations Law: 1. First defendant, William Arthur Forge $245,000.00 2. Second defendant, Jozsef Endresz $245,000.00 3. Third defendant, Dawn May Endresz $245,000.00 4. Fourth defendant, Allan Paul Endresz $200,000.00 5. Sixth defendant, Bisoya Pty Ltd $ 45,000.00 ****************** ************* Last Modified: 09/02/2002 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.