Reported Decision : 57 ACSR 714 (2006) 24 ACLC 676 New South Wales Supreme Court CITATION : Maertin v Klaus Maertin Pty Ltd & Ors [2006] NSWSC 588 This decision has been amended. Please see the end of the judgment for a list of the amendments. HEARING DATE(S) : 06/06/06 JUDGMENT DATE : 14 June 2006 JURISDICTION : Equity Division Corporations List JUDGMENT OF : Barrett J DECISION : Order for appointment of provisional liquidator. Short stay granted. CATCHWORDS : CORPORATIONS - winding up - standing - plaintiff is transferee under unregistered transfer from executor of deceased shareholder - whether "contributory" as defined by s.9 - whether within concluding sentence of s.232 as regards claim based on Part 2F.1 - whether s.232 standing can be relied upon where claims advanced principally under s.461 - whether plaintiff "creditor" - admission by defendant company that money owed by it to him - assertion that he and another jointly indebted to company in a greater sum - assuming such indebtedness to be joint, whether set-off deprives plaintiff of creditor status - application for appointment of provisional liquidator - whether cogent case for winding up shown - whether assets in jeopardy - balance of convenience considered - whether position pending trial may be secured by orders or undertakings LEGISLATION CITED : Corporations Act 2001 (Cth), ss.9, 231, 232, 233, 234(a), 461(1)(e), 461(1)(f), 461(1)(k), 462(2)(b), 462(2)(c), 472(2), 1071B, 1072E, Part 2F.1 Manzo v 555/255 Pitt Street Pty Ltd (1990) 21 NSWLR 1 Re ABT Holdings Pty Ltd (1979) 4 ACLR 41 Re A Company [1894] 2 Ch 349 Re Bright Pine Bills Pty Ltd [1969] VR 1002 CASES CITED : Re Exclusive Master Book-binding & Manufacturing Pty Limited (1977) 2 ACLR 549 Re Gattopardo Ltd [1969] 2 All ER 344 Re Meyer Douglas Ltd [1965] VR 638 Re Steel Wing Company Ltd [1921] 1 Ch 349 Rohan Trading Company Pty Ltd v Glengor Pastoral Company Pty Ltd [2003] NSWSC 1265 Russell v Scott (1936) 55 CLR 440 Philip Helmut Maertin - Plaintiff Klaus Maertin Pty Limited - First Defendant PARTIES : Simon James Singer - Second Defendant Helmut Maertin - Third Defendant Sabine Maertin - Fourth Defendant FILE NUMBER(S) : SC 2289/06 Mr P. Hallen SC - Plaintiff COUNSEL : Mr M.R. Lawson - First, Third and Fourth Defendants Mr M.S. Willmott SC - Second Defendant Uther Webster & Evans - Plaintiff SOLICITORS : Conaghan Hunter - First, Third and Fourth Defendants David Landa Stewart - Second Defendant IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST BARRETT J WEDNESDAY 14 JUNE 2006 2289/06 PHILIP HELMUT MAERTIN v KLAUS MAERTIN PTY LIMITED & 3 ORS JUDGMENT 1 By an originating process filed on 10 April 2006, the plaintiff seeks an order that the first defendant, Klaus Maertin Pty Limited, be wound up. I shall refer to the first defendant as "the company". The originating process as originally filed stated that the application was made under ss.461(1)(e), 461(1)(f) and 461(1)(k) of the Corporations Act 2001 (Cth). 2 By an interlocutory process also filed on 10 April 2006, the plaintiff seeks the appointment of a provisional liquidator. I heard that application on 6 June 2006 and in the course of doing so granted leave for the plaintiff to add references to ss.232 and 233 as provisions upon which the claims in the originating process are advanced. 3 The first matter to be canvassed is the plaintiff's standing to seek the winding up order and, therefore, the order for the appointment of a provisional liquidator. It is necessary to describe some background. 4 The company is a family company. Its assets are confined to real estate and receivables together with certain trademarks related to "Floaties", the children's swimming aids. As at 1 January 2005, to pick a date before the events central to the proceedings, the company had three directors: Ida Maertin who had been a director since 1966, and two of her four children, Sabine Maertin and Helmut Maertin, who are the third and fourth defendants and became directors in 1988. Also as at 1 January 2005 there were 1,810 shares on issue of which two were held by Sabine Maertin, two were held by Helmut Maertin and the remaining 1,806 were held by their mother Ida Maertin. 5 On 8 February 2005 Ida Maertin died. ASIC records show that she ceased to be a director four days earlier on 4 February 2005. Probate of her will was in due course granted to the executor named therein, Mr Singer, a solicitor. He is the second defendant. 6 By her will, the deceased gave her 1,806 shares in the company to three of her children: Sabine, Helmut and Phillip Maertin, the last named being the plaintiff. She gave the shares to them in equal parcels of 602 shares directing, however, that the child to whom a parcel of shares was given was to hold those shares upon trusts set out at some length in the will. The trusts were in each case essentially trusts for the benefit of the particular child and the spouse, children and grandchildren of that child. It is unnecessary to go into details. 7 By the time the application for appointment of a provisional liquidator came before me for hearing, it was common ground that the second defendant, as executor, had executed and delivered to each of the three relevant children of the deceased a transfer of the shares given by the will to that child to be held upon the relevant trusts. It was also common ground that none of the transfers has been registered so as to cause the transferee to be recorded in the company's register of members as the holder of the shares. 8 The circumstances just mentioned are relevant to the first basis on which the plaintiff claims to have standing to pursue the winding up application and the application for the appointment of a provisional liquidator. Under s.472(2), of course, pendency of an application for a winding up order is a condition precedent to the court's power to appoint a provisional liquidator. It must therefore be seen that the winding up application has been initiated by someone with the requisite standing. 9 The plaintiff says, in the first instance, that his standing to make a winding up application stems from his status as a "contributory": see s.462(2)(c). The circumstances I have outlined regarding steps taken by the executor to transfer shares to the plaintiff are said to cause him to be a contributory. He, unlike the two other children of the deceased (the third and fourth defendants) to whom shares in the company were given by the will, is not already a holder of shares. He depends entirely on the steps taken by the executor. 10 The term "contributory" is defined by s.9 of the Corporations Act: "' contributory ' means: (a) in relation to a company (other than a no liability company): (i) a person liable as a member or past member to contribute to the property of the company if it is wound up; and (ii) for a company with share capital—a holder of fully paid shares in the company; and (iii) before the final determination of the persons who are contributories because of subparagraphs (i) and (ii)—a person alleged to be such a contributory; and (b) in relation to a Part 5.7 body: (i) a person who is a contributory by virtue of section 586; and (ii) before the final determination of the persons who are contributories by virtue of that section—a person alleged to be such a contributory; and (c) in relation to a no liability company—subject to section 385, a member of the company." 11 For present purposes, para (a) is the relevant part of the definition. The essence of the status contemplated by that paragraph in the case of a company limited by shares is membership of the company by virtue of registration as the holder of fully paid shares, with the person's name actually recorded in the register. That is the import of the word "holder" in sub-paragraph (ii) of para (a) of the definition. It is also the interpretation that has been adopted in the case law: see, for example, the decision of Bray CJ in Re Exclusive Master Book-binding & Manufacturing Pty Limited (1977) 2 ACLR 549. There is reference in that case to some very limited exceptions that have been recognised, including the case where an order has been made against the company that it enter the name of the person in the register – where, it was said, equity would regard as done that which ought to have been done by the company to recognise the status of registered member. 12 There is, by contrast, reference to a case where, in proceedings between a vendor and a purchaser of shares, a declaration had been was made that the purchaser was entitled to be registered and it was held that that did not make the purchaser a contributory. The case I have just referred to is Re Gattopardo Ltd [1969] 2 All ER 344 where there was approval of a statement by Vaughn Williams J in Re A Company [1894] 2 Ch 349 to the effect that the defined statutory concept of contributory looks to the position a person actually occupies in vis-à-vis the company, not the position that he should occupy according to declarations of right binding upon persons who do not include the company. 13 Mr Hallen SC, who appeared for the plaintiff, submitted that if the plaintiff is not a contributory and, therefore, does not have standing under s.462(2)(c) to apply for a winding up order, he nevertheless has the necessary standing in the particular circumstances by reason of s.232. I have already referred to the fact that the plaintiff amended the originating process so as to state that the winding up application was made not only under ss.461(1)(e), 461(1)(f) and 461(1)(k) but also ss.232 and 233. 14 An application for relief under s.233, being relief that may be granted in a case within s.232, may be made by among others "a member of the company". That is the effect of s.234(a). "Member" there has not only the meaning emerging from s.231 (essentially, someone actually recorded in the register of members) but also the extended meaning which comes from the concluding sentence of s.232: "For the purposes of this Part, a person to whom a share in the company has been transmitted by will or by operation of law is taken to be a member of the company." 15 Section 234 is within what this sentence of s.232 calls "this Part", that is, Part 2F.1. It follows, so the submission runs, that where a winding up order (being, of course, an order expressly contemplated by s.233(1)(a)) is sought by reference to ss.232 and 233, this special definition of "member" and a corresponding special rule as to standing applies to ground the winding up application and, accordingly, a related interlocutory application for the appointment of a provisional liquidator; and that this is so even though the totality of the grounds relied upon is wider so as to take in grounds beyond those contemplated by ss.232 and 233. There is, it is said, general and close correspondence between the grounds in s.232 and the grounds in s.461(1)(f); but that does not mean that, in a case where ss.232 and 233 are relied upon among other grounds, what might be termed the easier means of access provided for in s.232 in the case of shares transmitted by will cannot be relied upon. 16 I am not convinced that a plaintiff who relies upon s.461(1)(f) plus other grounds within s 461 can gain the easier means of access provided for by s.234(a) merely by including a reference to ss.232 and 233 among the provisions under which the winding up application is made. 17 I am inclined to think that s.232 and the special provision it makes with respect to the meaning of "member" in Part 2F.1 apply only in a case where Part 2F.1 alone is relied upon. The separateness of what is now the Part 2F.1 jurisdiction and the general winding up jurisdiction was referred to by the Full Court of the Supreme Court of Victoria in Re Bright Pine Bills Pty Ltd [1969] VR 1002, although at a time when the general winding up provisions did not contain grounds for winding up in terms closely resembling those of the "oppression" provisions then in force. That notwithstanding, the comments of Master Cohen, as he then was, in Re ABT Holdings Pty Ltd (1979) 4 ACLR 41 remain apposite. He said: "The powers of the court under s 186 are much wider than the powers to wind up the company. A great variety of orders can be made in respect of the shareholding of members, the conduct of the company's affairs in the future or for the reduction of the company's capital. Indeed, if one of these matters appears to be the appropriate remedy and it is the view of the court that the winding up of the company would unfairly prejudice the petitioners, it is bound not to make that winding up order. The nature of the remedies, it seems to me, gives the litigation commenced by a s 186 petition more of the character of litigation between the parties in respect of the rights inter se than does a petition to wind up where the only result can be the liquidation of a company, a matter which could affect a great number of people other than the company and the petitioner." 18 The separateness of the two jurisdictions is thus again emphasised. I am by no means sure that that separateness has been in any way overtaken by statutory advances. 19 There are two reasons why I do not need to decide the question I have just canvassed. The first, to which I shall return, is that I am of the opinion that the plaintiff has standing for the purposes of his application based on the several paragraphs of s.461(1) because he is a creditor: see s.462(2)(b). Second, I am not persuaded that the plaintiff is, in any event, within the concluding words of s.232 - in other words, that he is a person to whom shares have been transmitted by will or operation of law. 20 The relevant concept of transmission is, I think, to be gathered from s.1072E of the Act. In the case of a deceased person who was the registered holder of shares, that section permits registration of the trustee, executor or administrator of the estate as the holder of the shares. There is similar provision in relation to a trustee in bankruptcy. Section 1071B contemplates that an executor or administrator may apply to be registered as the holder (see s.1071B(12)) as well as the alternative possibility that the executor or administrator may transfer the shares without first becoming registered as the holder: see s.1071B(8) dealing with a case of the present kind, that is, a personal representative constituted under a law of a State or Territory in which the shares are situated. 21 If the first course is taken, that is, the legal personal representative elects to becomes registered as holder, it seems to me that the registration is in recognition of the transmission to the legal personal representative; and if the second course is taken, the legal personal representative's action is, in the words of the section, a transfer being, it seems to me, a transfer which the legal personal representative becomes qualified to make only because of the prior transmission to him or her. 22 In summary, the message that comes from ss.1071B and 1072E is, in my view, that the act by which a legal personal representative puts shares into the dominion of another person, whether or not a person to whom they are given by the will, is an act of transfer and that the only relevant transmission is that by which the legal personal representative attains either registered shareholder status or the ability to make such a transfer. 23 It also is relevant to refer to the legislative history of the final sentence of s.231. It is said at para 320/1 of the third edition (May 1989 update) of "Australian Company Law" by Paterson, Ednie and Ford that the words in question were added to the 1961 version of what is now Part 2F.1 to overcome the decision in Re Meyer Douglas Ltd [1965] VR 638. That decision was concerned solely with the standing of an executor. The legislative intention may therefore be assumed not to have been concerned with beneficiaries. 24 At all events I am, as I have said, satisfied that the plaintiff has standing as a creditor under s.462(2)(b). The plaintiff in his own evidence deposes to matters which he says cause him to be a creditor. The third defendant, in an affidavit which he says he is authorised to swear on behalf of the company as first defendant, says that the first defendant asserts that it owes the plaintiff $6,242.75 rather than some greater sum said by the plaintiff to be owing to him by the company. There is thus an admission of creditor status in favour of the plaintiff. The amount does not matter. 25 But it is necessary to consider a matter put by Mr Lawson of counsel on the defendants' behalf. He points to another paragraph of the third defendant's affidavit in which it is said that the plaintiff and a foreign corporation called "QPI" "jointly owe the first defendant the sum of $236,027.69". If that is so (and I must note that other aspects of the evidence suggest that the sum, if owing, is owed by the foreign corporation alone), it is submitted that there is a set-off which destroys the plaintiff's status as a creditor. I do not think that that is correct. The joint debt referred to by Mr Lawson (or alleged joint debt, I probably should say) is described as "joint debt", not "joint and several". Assume that it is a joint debt. The two relevant persons are at common law jointly entitled to the chose in action with the incident of survivorship; see Russell v Scott (1936) 55 CLR 440. Although payment to one of the joint creditors may constitute a discharge (see Manzo v 555/255 Pitt Street Pty Ltd (1990) 21 NSWLR 1), an action for recovery of the debt would necessarily be an action brought by both of them. 26 According to common law rules, the plaintiff's claim in debt against the company could not be met by the company's claim that the plaintiff and the foreign corporation jointly were indebted to the company in a greater sum. In such an action at law, assuming that both debts were clearly established, there could not be a plea of set-off so as to produce verdict and judgment in the company's favour for the amount by which the greater sum exceeded the smaller. 27 It may be that in equity, where mutuality is not insisted upon, the set-off would be recognised. But even accepting such a position in equity, the right to sue at law for the smaller sum would be sufficient to make the plaintiff a creditor with standing to apply for a winding up order: see Rohan Trading Company Pty Ltd v Glengor Pastoral Company Pty Ltd [2003] NSWSC 1265, applying Re Steel Wing Company Ltd [1921] 1 Ch 349. 28 I am satisfied, therefore, that, even if the QPI debt is a debt owed to the company by QPI and the plaintiff jointly (a proposition called into question by other evidence), the plaintiff has standing in these proceedings because he is a creditor of the first defendant company. 29 I turn now to the circumstances of the company and the matters put forward in support of the proposition that a provisional liquidator should be appointed. 30 I have already mentioned the shareholding structure and the fact that the third and fourth defendants are the only directors. The latest financial statements in evidence relate to the year ended 30 June 2004. Assets at that date were $4,854,749.42. Intellectual property related to "Floaties" accounted for $89,310.92. Otherwise, apart from about $34,000 of what in the context I might term minor current assets, there were current assets in the form of receivables of $2,244,565.38; and, under non-current assets, there were property, plant and equipment of $2,486,777.82. Liabilities were $3,512,323.79 being payables of $144,058.08, interest bearing liabilities of $3,366,177.01 and current tax liabilities of $2088.70. 31 It is common ground that the deceased at her death owed the company $2,363,356 and that this represented principal plus accrued interest in respect of an undocumented loan by the company to the deceased to enable her to buy a house at Bayview which was her home at her death and in which two of her children (the third and fourth defendants) continue to live. The house is said to have had a value of some $2,500,000 at the date of death. It is said by the plaintiff, and at this point at least apparently not disputed by the defendants, that interest on the loan accrues at the rate of about $130,000 per year. More than a year has now passed since the deceased's death so that the loan balance should now be regarded as somewhat more than $2.6 million or thereabouts. 32 The real estate assets of the company, consisting of two residential properties, are said to have a present value of some $5.6 million, although the book value of 30 June was slightly less than $2.5 million. At that date there was secured borrowings of some $3.2 million. No doubt that has increased since then as interest has accrued. The properties are tenanted; one at $49,000 per annum and the other at $290,000 per annum. The plaintiff's understanding is that this is the only income apart, no doubt, from interest on family loans owing to the company to which I shall come. 33 Until the deceased's death, the plaintiff managed the two residential rental properties for the company and was paid for this. Continuation of the arrangement has become a bone of contention. 34 In or about January 2005, the third defendant bought a property on the Central Coast at Norah Head. The company lent him $600,000 on an unsecured basis to assist him in the purchase. Indeed, this appears to have been the full purchase price. This, according to the plaintiff, came out of bank borrowings of $1.8 million that had been arranged for the company with a view to exploiting the "Floaties" intellectual property. The plaintiff points out that the third defendant later mortgaged this property to a commercial lender to raise $480,000. He has repaid $240,000 of the $600,000 borrowed from the company. Assuming no change in property values, therefore, the third defendant has equity of some $120,000 in the property at Norah Head compared with a balance of $360,000 of the unsecured loan he obtained from the company to purchase. This, of course, disregards accrued interest. 35 The plaintiff also points out that the third defendant has put on no evidence of his financial capacity and that, if the loan is an on-demand loan, the third defendant, one of the two directors of the company, is in an impossible position of conflict regarding the making of demand. 36 The third defendant has given evidence about this loan. He says that it was made after discussion with the plaintiff, the deceased and the fourth defendant. He also says that he had a conversation with the deceased and the fourth defendant, then his co-directors, about a rate of interest referring to 1 percent above the cost of funds to the company. He says that they both agreed to that. There is no evidence from the fourth defendant about this or, for that matter, about anything else. 37 In October 2005, some months after the advance of the loan, the third defendant emailed the company's external accountant referring to "our standard practice" of charging interest at "cost plus 1 percent" for "loans to and from the company". He also referred to that rate having been applied to his loan in respect of which he had had recently repaid $240,000. Otherwise as to the terms of this loan from the company, the third defendant says in his affidavit: "I intend to repay the balance of the loan to KMPL and all interest accruing thereon in due course". 38 This leaves at large the question whether, as one would expect, the debt is payable on demand by the company or, rather, as the third defendant's statement tends to imply, it is for him to decide when to pay. 39 The plaintiff also draws attention to payments of $185,000 and $60,000 out of the company's bank account in October 2005. According to the company's bookkeeper, Ms Young, who has given affidavit evidence, these were payments to the third defendant. The third defendant in his affidavit says, however, that the first of these was a transfer from one account of the company to another and produces a bank statement relating to the second account to show this. As to the second, the third defendant says that it was his habit to pay company expenses on his personal credit card and to reimburse himself periodically out of company funds. This sum of $60,000 was, he says, principally reimbursement of patent attorney fees in relation to "Floaties". 40 That leads me to the "Floaties" situation. The plaintiff says that there is some form of licence agreement between the company and the foreign company he owns called "QPI". The agreement, he says, involves arranging manufacture, sales and distribution of the product internationally. The third defendant in his affidavit points to an entry in the company's ledger suggesting that QPI owed the company some $224,000 as at September 2005. This is the debt the third defendant said was relevant to the set-off question. He describes it in his affidavit as a debt owed jointly by the plaintiff and QPI. The recording in the ledger mentions QPI only. 41 The plaintiff refers in his affidavit to a statement to him by the third defendant in October 2005 that the third and fourth defendants had decided that the company would rescind the agreement with QPI. The basis on which it might be rescinded is not stated. The plaintiff also refers to ASIC records showing that the third defendant himself formed in Australia in November 2005 a new company with virtually the same name as QPI. 42 The first defendant company has at all material times retained the services of an external accountant (Mr Moody), at least until 29 May this year when he resigned, citing conflict arising from the fact that he acted not only for the company but also for the plaintiff and the estate. 43 The company also formerly retained a part-time bookkeeper, Ms Young. She resigned in November 2005 after more than two years in the position. She wrote a letter to the plaintiff at that time explaining concerns she held. She also wrote to the third defendant separately. She was concerned that she was not being given accurate information and that as a result a substantial amount of expenses and GST had been claimed by the company which should have been personal expenses. Some of the expenses related to the deceased's home which Ms Young says she was led to believe was owned by the company. 44 In subsequent correspondence, the third defendant does not appear to challenge what Ms Young said or to suggest that she was mistaken. Ms Young's affidavit refers to the fact that she was often instructed to make entries in the books without being given any documentation. She also refers to the third defendant giving her bundles of receipts for accommodation, taxis, drinks, meals, laundry, ice creams and snacks after he returned from Hong Kong. She was instructed to take all the expenses up in his loan account, that is, to record the company as owing money to him for the expenses he had incurred. She had no knowledge of the company having any interests in Hong Kong. 45 Later Ms Young received and acted upon a request that she apply a particular rate to the third defendant's loan account so as to be applicable to the expenses he had supposedly paid on behalf of the company. This rate appears to be different from the rate involved in earlier instructions and communications from the third defendant to which I have already referred. 46 Ms Young was concerned that the instructions she was given by the third defendant regarding his personal financial relationships with the company were never confirmed by his co-director, the fourth defendant who, as I have said, gave no evidence on the application for the appointment of a provisional liquidator. 47 Having regard to the whole of the evidence before me, I am satisfied that there is a serious question to be tried on the winding up application based on the just and equitable ground in s.461(1)(k) as well as the grounds in ss.461(1)(e) and (f). A certain degree of informality may sometimes be tolerated in the administration of family companies but there is evidence here suggestive of circumstances where the third defendant has tended to treat the company as his own domain to be used for his own purposes, added to which there are clear tensions and differences between at least two of the shareholders, the plaintiff and the third defendant, regarding matters to do with the company, although one significant problem seems to be that each may be angling to obtain for himself alone the right to exploit the company's intellectual property. I need say no more about the serious question to be tried. 48 I move to the second part of the inquiry on the present application and address the question whether the assets of the company are relevantly in jeopardy. It is clear, in my view, that, in the entire absence of any evidence from the third defendant as to his financial substance, the company's receivable of currently $360,000 referable to him is problematic, given that all he has seen to have is equity of about $120,000 in the only asset of any substance he is known to own. 49 It is submitted on behalf of the plaintiff that the "Floaties" assets are in jeopardy because they are not producing revenue. That may be so. The third defendant's formation of the new company with the QCI name and his statement that he and the fourth defendant intend to rescind whatever arrangement exists between the company and the foreign corporation QCI are suggestive of the possibility that the third defendant has it in mind to bring about some result where his separate personal interests obtain some favourable position in relation to "Floaties". 50 It is also contended that the receivable from the estate is in jeopardy because the estate's ability to pay is dependent upon sale of the deceased's home. The third and fourth defendants are still living in the home and, so the theory goes, they will not cause the company to call up the debt because that will deprive them of their occupation of the home. There is some force in this but it is clear that there is a significant role to be played by the executor. He must complete his administration. He must proceed to sell the house, no doubt with vacant possession. The third and fourth defendants have no control over that. 51 To my mind, all the matters I have mentioned combine with another very significant matter to make the appointment of a provisional liquidator appropriate. The additional factor is the lack of effective governance. The fourth defendant, representing half the board of directors, is on the evidence, supine to the point of being invisible. There are in the third defendant's affidavits sparse references to the fourth defendant having gone along with what he suggested. There is no evidence of board meetings. There is no evidence from the fourth defendant about anything. The other director, being the third defendant, has allowed his separate personal financial interests as regards the loan account, the borrowing to finance the Central Coast purchase, and his apparent ambitions regarding "Floaties" to become closely enmeshed in the affairs of the company. If he were asked tomorrow, "Should the company call up your loan so that it can deploy the money more profitably in another way?"; or, "Should the company enter into this particularly advantageous contract with an external party regarding Floaties?", it is by no means at all clear that the third defendant, who on the evidence is the dominant decision-maker, could so detach his thinking from his own personal interests and aspirations as to give an answer which had regard studiously to the separate interests of the company. 52 These concerns are emphasised by the evidence concerning the external accountant Mr Moody and the bookkeeper, Ms Young. The accountant resigned because of perceived conflicts. Admittedly this was only a short time ago, but he is not being replaced. The bookkeeper resigned some six months ago basically because of mistrust about the accuracy of what she was being told to enter in the books. She has not been replaced. 53 As far as the balance of convenience goes, there is little to be said. The company does not operate a business dependent upon external relations and goodwill. There is no reason to think that reputational harm will result from the appointment of a provisional liquidator. There is no evidence whether default clauses in, for example, bank facilities might be triggered by such an appointment, but even if they were, the banks appear to be well-secured. The likelihood of adverse effects from that quarter, therefore, need not be taken into account. 54 Certain interim orders are in place. They are to the effect that the third and fourth defendants will not deal with assets of the company otherwise than in the ordinary course of business and will not incur liabilities of the company otherwise than in the order course of business. Normally, the court would desist from appointing a provisional liquidator if some stable regime of an appropriate kind were in place by means of orders or undertakings preserving the position until trial. 55 The problem with that approach in this case, based on orders in the existing terms, is that it does not address the fundamental governance issue which is that this company has one director who, as I have said, seems to be supine to the point of being invisible and a second director who seems to have allowed the distinction between his own interests and those of the company to become quite blurred so far as his own appreciation is concerned; added to which, the two external persons who previously exercised some oversight in respect of financial matters have felt it necessary to withdraw and have not been replaced. There is, in my mind, a gap that needs to be filled. 56 Mr Hallen, on behalf of the plaintiff, tendered the consent of Mr Jones to act as provisional liquidator and proffered to the court the usual undertaking as to damages. 57 Upon that undertaking given by the plaintiff by his counsel to the court, I order that Michael Gregory Jones of Level 13, 189 Kent Street Sydney, an official liquidator, be appointed liquidator of the first defendant provisionally. 58 I direct that the originating process be stood over to the Registrar's List for directions on Thursday 22 June 2006. [Mr Lawson sought a stay] 59 In relation to the stay application, I propose to grant a very short stay so that the defendants may take such action as they wish to approach the Court of Appeal. I order that my order be stayed up to 5pm tomorrow. ********** 15/06/2006 - Typos - Paragraph(s) 47 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.