77 ACSR 410 28 ACLC 10-010 Reported Decision : 4 BFRA 512 [2010] ALMD 4140 [2010] ALMD 4137 238 FLR 384 New South Wales Supreme Court CITATION : Buzzle Operations Pty Ltd (In Liq) v Apple Computer Australia Pty Ltd [2010] NSWSC 233 HEARING DATE(S) : 27-30 April 2009; 1, 4-8 and 12-15 May 2009 JUDGMENT DATE : 30 March 2010 JURISDICTION : Equity JUDGMENT OF : White J DECISION : 1. Direct entry of judgment for the defendants. 2. Order that the defendants' cross-claim against Mr McComb (the second cross-defendant) be dismissed. 3. The exhibits may be returned after 28 days. CATCHWORDS : CORPORATIONS – merger and proposed float of plaintiff – defendant's consent required and given for merger to proceed – plaintiff granted charge to defendant over plaintiff's assets – failure of float and plaintiff's business – receivers appointed to plaintiff – orders made for winding up of plaintiff and liquidator appointed – plaintiff incurred debts to defendant when plaintiff insolvent – debts remained unpaid at liquidation - CORPORATIONS – whether charge void under Corporations Law, s 267– charge not void – defendant not relevant person under s 267 – defendant not an officer of plaintiff – defendant did not make or participate in any decisions that affected the whole or substantial part of plaintiff's business – defendant had capacity to affect significantly plaintiff's financial standing but not involved in management of plaintiff's business – defendant not associated with plaintiff – defendant not acting in concert with plaintiff in creation of charge – no trespass or conversion by receivers in taking possession of plaintiff's assets and realising assets to pay debts - CORPORATIONS – whether payments made to defendant by plaintiff when insolvent were uncommercial transactions under Corporations Law, s 588FB – payments not uncommercial transactions – payments made for full consideration – defendant received benefits in good faith and without reasonable grounds to suspect plaintiff's insolvency - CORPORATIONS – whether payments made to defendant by plaintiff when insolvent were unfair preferences under Corporations Law, s 588FE – whether payments by receiver to defendant to discharge debt were unfair preferences – whether defendant related entity of plaintiff – running account between plaintiff and defendant under s 588FA – payments not unfair preferences - CORPORATIONS – whether defendants contravened Corporations Law, s 588G due to plaintiff's incurring debts when insolvent – determination of when plaintiff insolvent – determination of when defendants had reasonable grounds for suspecting plaintiff's insolvency or when reasonable person in like position would have been aware of plaintiff's insolvency - CORPORATIONS – whether s 588G applies to shadow directors – whether company can be a shadow director – defendants not plaintiff's shadow directors – plaintiff did not establish that its directors were accustomed to act in accordance with defendants' wishes or instructions – imposing conditions or terms in arm's length commercial dealings or negotiations with which plaintiff felt obliged to comply not sufficient to make defendant shadow director – causal connection required between acts of directors and instructions or wishes of shadow director – whether plaintiff's directors delegated their powers – no such delegation – directors collectively or governing majority in their exercise of powers of management must be accustomed to act on instructions or wishes of shadow director Corporations Law Corporations Act 2001 (Cth) LEGISLATION CITED : Corporate Law Economic Reform Program Act 1999 (Cth) Acts Interpretation Act 1901 (Cth) Companies Act 1980 (UK) Company Directors Disqualification Act 1986 (UK) CATEGORY : Principal judgment Apple Computer Australia Pty Ltd v Mekrizis [2003] NSWSC 126; (2003) 44 ACSR 518 Buzzle v Apple Computer [2007] NSWSC 930 Commissioner for Corporate Affairs v Bracht [1989] VR 821 Australian Securities and Investments Commission v Citigroup Global Markets Australia Pty Ltd (No. 4) (2007) 160 FCR 35 Adsteam Building Industries Pty Ltd v The Queensland Cement & Lime Co Ltd & Ors (No. 4) [1985] 1 Qd R 127; (1984) 2 ACLC 829 IPT Systems Ltd v MTIC Corporate Pty Ltd (2001) 19 ACLC 386 Bateman v Newhaven Park Stud Ltd (2004) 49 ACSR 597; (2004) 22 ACLC 943 Australian Innovation Ltd v Dean-Willcox & Ors (2001) 40 ACSR 521 Bank of Australasia v Hall (1907) 4 CLR 1514 Queensland Bacon Pty Ltd v Rees (1966) 115 CLR 266 Sandell v Porter (1966) 115 CLR 666 Hymix Concrete Pty Ltd v Garritty (1977) 13 ALR 321 Downey v Aira Pty Ltd (1996) 14 ACLC 1068 CASES CITED : Re Newark Pty Ltd (in liq); Taylor v Carroll [1993] 1 Qd R 409 Standard Chartered Bank of Australia Limited v Antico (1995) 38 NSWLR 290 Ho v Akai Pty Ltd (in liq) [2006] FCAFC 159; (2006) 24 ACLC 1526 Australian Securities and Investments Commission v Edwards [2005] NSWSC 831; (2005) 34 ACSR 583 Kuwait Asia Bank EC v National Mutual Life Nominees Ltd [1991] 1 AC 187 Re Hydrodam (Corby) Ltd [1994] 2 BCLC 180 In re Bulawayo Market and Offices Co Ltd [1907] 2 Ch 458 Emanuel Management Pty Ltd (in liq) v Fosters' Brewing Group Ltd & Ors [2003] QSC 205; 178 FLR 1 Beach Petroleum NL v Johnson (1993) 43 FCR 1 Australian Securities Commission v AS Nominees Ltd (1995) 133 ALR 1 Secretary of State for Trade and Industry v Deverell [2001] Ch 340 Ultraframe (UK) Ltd v Fielding & Ors [2005] EWHC 1638 (Ch) Re Unisoft Group Ltd (No. 3) [1994] 1 BCLC 609 Tourprint International Pty Ltd (in Liq) v Bott [1999] NSWSC 581; (1999) 32 ACSR 201 Powell (as joint liquidators of Noelex Yachts Australia Pty Ltd (in liq)) v Fryer [2001] SASC 59; (2001) 37 ACSR 589 Audit Reform and Corporate Disclosure) Bill Commentary on the Draft Provisions – Corporate Law Economic Reform Program No. 9 (October 2003) TEXTS CITED : Corporations and Markets Advisory Committee, Personal Liability for Corporate Fault Discussion Paper (May 2005 at 74) Sir P Millett "Shadow Directorship – a Real or Imagined Threat to Banks" (1991) 1 Insolvency Practitioner 1st Plaintiff: Buzzle Operations Pty Ltd (In Liq) PARTIES : 2nd Plaintiff: Andrew Hugh Jenner Wily 1st Defendant: Apple Computer Australia Pty Ltd 2nd Defendant: James Likidis FILE NUMBER(S) : SC 2004/181828 COUNSEL : Plaintiffs: A J Meagher SC with L V Gyles SC and J Shepard Defendants: B A J Coles QC with C R C Newlinds SC and R C A Higgins SOLICITORS : Plaintiffs: Piper Alderman Defendants: Clayton Utz IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION WHITE J Tuesday, 30 March 2010 2004/181828 Buzzle Operations Pty Ltd (In Liq) & Anor v Apple Computer Australia Pty Ltd & Ors JUDGMENT Introduction 1 HIS HONOUR: The first plaintiff ("Buzzle") was incorporated on 3 July 2000. It acquired the stock and businesses of six retailers (called Apple Resellers) of Apple Computer products. The Apple Resellers took shares in Buzzle's holding company, Buzzle Limited. They expected that the merged business would be more profitable than the sum of the individual businesses. They intended that a short time after Buzzle had established the merged business its holding company would be floated on the Australian Securities Exchange and shares would be issued to members of the public. 2 Each of the Apple Resellers had entered into Reseller Agreements with the first defendant ("Apple") pursuant to which the Reseller purchased stock on credit. Each Apple Reseller had given a charge over its assets to Apple. As part of the merger, the Resellers transferred their stock, plant and equipment and the goodwill of their businesses to Buzzle. The stock transferred consisted partly of stock purchased from Apple and partly other stock. Each of the principals of the companies whose businesses were merged into Buzzle became a director of Buzzle. But there were few board meetings. 3 Apple's consent was needed to the merger because Apple had a charge over the assets to be transferred to Buzzle. The Resellers were also dependent on Apple's agreeing to enter into a Reseller Agreement with Buzzle. Apple consented to the merger. It entered into a Reseller Agreement with Buzzle pursuant to which it provided stock on credit. It took a charge over Buzzle's assets. 4 The proposed float did not proceed. Buzzle's business failed. Apple appointed receivers on 31 March 2001. On 28 November 2001 an application was filed for the winding-up of Buzzle. On 15 February 2002 an order was made for Buzzle to be wound up. The second plaintiff was appointed liquidator. 5 The plaintiffs contend that Apple was closely involved in the merger. The merger was implemented on 13 and 14 September 2000. The charge Buzzle gave Apple is dated 14 September 2000. The plaintiffs contend that the charge is void pursuant to s 267(1) of the Corporations Law. Section 267 provided: " Charges in favour of certain persons void in certain cases (1) Where: (a) a company creates a charge on property of the company in favour of a person who is, or in favour of persons at least one of whom is, a relevant person in relation to the charge; and (b) within 6 months after the creation of the charge, the chargee purports to take a step in the enforcement of the charge without the Court having, under subsection (3), given leave for the charge to be enforced; the charge, and any powers purported to be conferred by an instrument creating or evidencing the charge, are, and shall be deemed always to have been, void. (2) Without limiting the generality of subsection (1), a person who: (a) appoints a receiver of property of a company under powers conferred by an instrument creating or evidencing a charge created by the company; or (b) whether directly or by an agent, enters into possession or assumes control of property of a company for the purposes of enforcing a charge created by the company; shall be taken, for the purposes of subsection (1), to take a step in the enforcement of the charge. ... (7) In this section: chargee , in relation to a charge, means: (a) in any case—the holder, or all or any of the holders, of the charge; or (b) in the case of a charge that is an agreement to give or execute a charge in favour of a person or persons, whether upon demand or otherwise—that person, or all or any of those persons. officer , in relation to a company, includes, in the case of a registered foreign company, a local agent of the foreign company. receiver includes a receiver and manager. relevant person , in relation to a charge created by a company, means: (a) a person who is at the time when the charge is created, or who has been at any time during the period of 6 months ending at that time, an officer of the company; or (b) a person associated, in relation to the creation of the charge, with a person of a kind referred to in paragraph (a). " 6 The plaintiffs contend that Apple was a "relevant person" within the meaning of the section. They contend that when the charge was created, Apple was an "officer" of Buzzle within the meaning of paras (b)(i) and (ii) of the definition of "officer" in s 9 of the Corporations Law. That is, the plaintiffs say that Apple was: " a person: i. who makes, or participates in making, decisions that affect the whole or a substantial part, of the business of the corporation; or ii. who has the capacity to affect significantly the corporation's financial standing. " 7 The plaintiffs also contend that Apple was a person associated, in relation to the creation of the charge, with the directors of Buzzle, and for that reason also comes within the definition of "relevant person" in s 267. 8 The plaintiffs say that Apple took a step in enforcement of the charge less than six months after its creation by appointing KPMG as investigating accountants of Buzzle on 2 February 2001. Hence, the plaintiff says that at all times the debts owed by Buzzle to Apple were unsecured. 9 The consideration for the transfer of the stock, plant and equipment and businesses of each of the Resellers to Buzzle was the payment of cash and the issue of shares in Buzzle Limited, Buzzle's holding company, which was the company whose shares were proposed to be listed on the stock exchange. The amount of cash to be paid depended upon valuations of each Reseller's stock, plant and equipment. Buzzle was required to pay for stock acquired from each Reseller by no later than 31 October 2000. That obligation applied to all stock acquired by Buzzle. The remaining cash component of the consideration was deferred until the earlier of the float of Buzzle Limited on the stock exchange or on its directors forming the view on reasonable grounds that Buzzle had adequate cash flow to pay amounts owing to all vendors on a pro rata basis or in accordance with requirements of that vendor to pay its creditors (Merger Deeds clause 6.5). Buzzle also agreed with Apple for its benefit to repay all amounts owing by it to the vendors pursuant to clause 6.5(a) of the Merger Deed by 31 October 2000. 10 Apple issued invoices on 16 October 2000 to Buzzle for the value of the Apple stock which the Resellers had transferred to Buzzle. This value was established by valuations as part of the merger. Each Reseller was entitled to be paid by Buzzle by no later than 31 October 2000 for the value of the stock transferred to Buzzle. The value of Apple stock transferred by the Resellers to Buzzle was $6,298,139. Each of the Resellers was indebted to Apple for stock supplied to the Reseller. At the time of the merger, the Apple Resellers owed Apple $15,242,925. At the same time Apple debited Buzzle with $6,298,139, it credited the Resellers with their respective proportions of the value of the stock each had transferred to Buzzle. Thus the combined debts owed by the vendor Resellers to Apple were reduced to $8,944,786. 11 Between 3 October 2000 and 8 December 2000 Buzzle made four payments to Apple on behalf of the vendor Resellers. It paid $1,595,000 on 3 October 2000, $2,168,088.71 on 31 October 2000, $1,016,827.64 on 6 November 2000, and $108,623.55 on 8 December 2000. All of these amounts were credited by Apple to the vendor accounts. None was credited to Buzzle's account with Apple. In other words, none of the payments reduced the debt payable by Buzzle to Apple for the Apple stock valued at $6,298,139. Nor were any of the payments credited against the cost of goods supplied by Apple to Buzzle after 13 September 2000. The liquidator contended that prior to the payment of 6 November 2000 all of the debts then due and payable by Buzzle to the vendors for non-Apple stock had been satisfied. He contended that the only outstanding debts owed by Buzzle to the vendors which might be satisfied by the payments made on 6 November 2000 and 8 December 2000 related to the value of the plant and equipment acquired by Buzzle from the vendors. But those debts would only be payable at the time of the float, or if the directors of Buzzle Limited formed the view on reasonable grounds that Buzzle had adequate cash flows to pay those amounts, or if the payments were needed by a vendor to pay its creditors. The plaintiffs say that the payments made on 6 November 2000 and 8 December 2000 by Buzzle to Apple did not discharge any debt then due and payable by Buzzle to the vendors. 12 The plaintiffs contend that as at 6 November 2000 and 8 December 2000 Buzzle was insolvent (within the meaning of s 95A of the Corporations Law) and that the payments on those dates were uncommercial transactions within the meaning of s 588FB of the Corporations Law. The liquidator seeks an order pursuant to s 588FF directing Apple to pay to Buzzle the amounts paid by it on 6 November 2000 and 8 December 2000. 13 Apple disputes that the transactions were uncommercial transactions. It also relies on s 588FG and says that it received the payments from Buzzle in good faith, it did not believe Buzzle to be insolvent, it had no reasonable grounds for suspecting that Buzzle was insolvent at the time or would become insolvent, and that a reasonable person in its circumstances would have had no grounds for so suspecting. 14 Apple's standard credit terms were 45 days. Apple did not insist on payment of any of its invoices prior to 1 December 2000. The evidence did not establish how and when this arrangement was made, but it was common ground that such an arrangement had been made. The parties conducted themselves on the basis of such an arrangement. As at 30 November 2000 Buzzle owed Apple $23,965,078. This included the debt of $6,298,139 for Apple stock acquired by Buzzle from the Resellers. No payments had been made prior to this date and no debt to Apple had become due and payable. Apple calculated that the debt payable as at 1 December 2000 was $9,731,346.88. On 1 December 2000 Buzzle paid Apple $4,300,000. After that payment and after allowance for various credits (which probably included rebates) Apple calculated that as at 1 December 2000 it was owed by Buzzle $4,770,470.23 which was due and unpaid. On 8 December 2000 a further amount of $438,496.84 became payable. The next payment was not made until 15 January 2001 in an amount of $5 million. However, over $11 million had become due and payable by 5 January 2001. 15 The plaintiffs contend that by and from 1 January 2001 Apple and its finance director, Mr James Likidis (the second defendant), were "shadow directors" of Buzzle. That is, the plaintiffs allege that the directors of Buzzle were accustomed to act in accordance with the instructions or wishes of Apple and Mr Likidis, otherwise than by merely acting on advice given by them in the proper performance of functions attaching to their business relationship with the directors of Buzzle (para (b)(ii) of the definition of "director" in s 9). The plaintiffs allege that Buzzle was insolvent at all times after 1 January 2001. The plaintiffs allege that between 1 January 2001 and 30 March 2001 Buzzle incurred debts of $12,327,256 which remained outstanding when Buzzle's liquidation commenced. Of this amount $5,776,048 was due to third party creditors, that is, to creditors other than Apple. The plaintiffs say that between January and March 2001 Buzzle incurred debts to Apple, which remained unpaid, of $6,551,208. The plaintiffs say that Apple and Mr Likidis contravened s 588G of the Corporations Law by failing to prevent Buzzle from incurring debts after 1 January 2001 when it was insolvent and seek declarations to that effect. The liquidator claims both amounts from Apple and Mr Likidis as compensation under s 588M. 16 Apple and Mr Likidis deny that either was a shadow director of Buzzle. If either was a shadow director of Buzzle, there is an issue as to whether Buzzle was insolvent for the whole of the period from 1 January 2001, and as to the time at which Apple and Mr Likidis became aware that there were grounds for suspecting that Buzzle was insolvent or a reasonable person in a like position would be so aware (ss 588G(1) and (2) and 588H(2)). Apple and Mr Likidis contend that Buzzle has not been shown to be insolvent prior to 16 February 2001 (T971). 17 There is also an issue as to the quantum of debts incurred by Buzzle during this period which were unpaid. The defendants contend that the liquidator did not prove what debts were incurred between 1 January and 31 March 2001. There is also an issue as to how payments are to be taken to have been appropriated, that is, whether to debts incurred in that period or to earlier debts. 18 Between 5 January 2001 and 30 March 2001 Buzzle made payments to Apple totalling $11,842,128. The plaintiffs claim that these payments were unfair preferences made when Buzzle was insolvent and seek to avoid these payments under s 588FF. The payments were made more than six months before the relation-back day of 28 November 2001. The plaintiffs rely upon s 588FE(4) pursuant to which an insolvent transaction is voidable if entered into with a related entity of the company within four years of the relation-back day. The plaintiffs contend that Apple was a related entity of Buzzle because it was a shadow director. As well as raising questions whether Buzzle was insolvent at the time and whether the payments were received by Apple in good faith when it had no reasonable grounds for suspecting that Buzzle was insolvent, this claim depends upon the plaintiffs establishing that the Apple debts paid during this period were wholly or partly unsecured. There is an issue as to whether from 9 February 2001 payments were made as cash on delivery of stock supplied so as not to be preferences, and if so, to what extent. There is also a question of whether there was a running account between Apple and Buzzle, and if so, the level of that account at its commencement and termination (s 588FA(3)). 19 The third and fourth defendants are the receivers appointed by Apple on 31 March 2001. They took possession of all of the company's assets including its stock and plant and equipment which, in the receivers' Report as to Affairs dated 30 May 2001 was valued at $6,655,000 as at the date of their appointment. The plaintiffs contend that as the charge was void, the receivers were trespassers. Buzzle sues in conversion for the value of the goods dealt with by the receivers in that sum. The receivers realised Buzzle's property and after the expenses of the receivership, made payments to Apple as the secured creditor. The plaintiffs contend that the charge was void and that Apple's debt was therefore unsecured. The receivers caused Buzzle to make payments of $5,250,000 to Apple after 28 May 2001, that is, within six months of the relation-back day, in reduction of Buzzle's debt. The plaintiffs seek to avoid those payments as unfair preferences under s 588FF(2). This claim also depends upon the plaintiffs succeeding on their claim that the charge was void. 20 Apple lodged a proof of debt in the liquidation of Buzzle in the amount of $12,003,500. It pleads that that proof has not been adjudicated upon and it seeks to set off such sum as might be found to be owing to it by Buzzle against any amount for which Buzzle would otherwise be entitled to recover from it, other than compensation under s 588M for insolvent trading (T1016). 21 Apple and Mr Likidis also plead that if either of them is found by the Court to have been an officer at any time of Buzzle and either of them has a consequential liability to the plaintiffs, then they ought fairly to be excused from such liability pursuant to s 1318 of the Corporations Law. 22 Apple and Mr Likidis brought a cross-claim for contribution or indemnity against the directors of Buzzle. Apple had previously sued the directors on their guarantees and obtained judgment against them (Apple Computer Australia Pty Ltd v Mekrizis [2003] NSWSC 126; (2003) 44 ACSR 518). I was told that all but one of the directors who are cross-defendants to Apple's cross-claim has been made bankrupt. The proceedings against them are stayed (Buzzle v Apple Computer [2007] NSWSC 930). There was no appearance for the other cross-defendant, Mr McComb. 23 It is convenient to deal with the issues in the following order: 1. Was Apple's charge of 14 September 2000 void? That requires investigation of the events up to 14 September 2000 and the role played by Apple and its officers in relation to Buzzle's affairs up to that time. 2. When did Buzzle first become insolvent within the meaning of s 95A of the Corporations Law ? In particular, was Buzzle insolvent as at 6 November 2000, 8 December 2000, and from 1 January 2001? All of the remaining claims depend upon Buzzle having been insolvent at the time the impugned payments were made or debts incurred. 3. When did Apple and Mr Likidis first become aware, or when would a reasonable person in their circumstances have become aware, that Buzzle was insolvent? 4. Were the payments of $1,016,827.64 on or about 6 November 2000 and $108,623.55 on 8 December 2000 uncommercial transactions? If so, are the defences in s 588FG made out? 5. Were Apple or Mr Likidis shadow directors of Buzzle at any time from 1 January 2001 to 31 March 2001, and if so, when? If so, are the defences to the insolvent trading claims made out? 6. What debts were incurred in that period which were unpaid at the date of liquidation for which Buzzle would be entitled to compensation under s 588M if the grounds under s 588G are established and defences under s 588H are not established? 7. Are the payments made by Buzzle to Apple between 5 January and 30 March 2001 recoverable as voidable unfair preferences paid to a related entity? Questions of appropriation of payments to debts arise both in relation to this claim and the insolvent trading claim. 24 Further issues concerning the unfair preference claim for payments made to Apple after 28 May 2001 and the claim for damages against the receivers for conversion of goods arise if the charge is void. 25 Questions of set-off and reasonable excuse, may arise depending upon the decisions on the earlier questions. 26 For the reasons which follow I have concluded that: 1. Apple was not an officer of Buzzle at 14 September 2000. Nor was it associated with the directors of Buzzle in relation to the creation of the charge. The charge is not void pursuant to s 267(1) of the Corporations Law . 2. Buzzle was insolvent from at least 6 November 2000. 27 It was not contended that at 6 November 2000 Apple suspected that Buzzle was insolvent or that a reasonable person in its position, would have so suspected. I have concluded that: 3. As at 8 December 2000 Apple did not suspect and did not have reasonable grounds for suspecting that Buzzle was insolvent. Nor did it suspect or have reasonable grounds for suspecting that Buzzle would become insolvent by making the payment of $108,623.55 made on that day on behalf of Mac's Place. However, by the end of December 2000 and thereafter Apple had reasonable grounds to suspect that Buzzle was insolvent and did so suspect. Apple and Mr Likidis did not expect at any time from 1 January 2001 that Buzzle was solvent and would remain solvent if it incurred debts. 4. The payments of 6 November and 8 December 2000 were not uncommercial transactions. If they were, Apple has made good the defences under s 588FG(1). 5. Apple and Mr Likidis were not shadow directors of Buzzle. 6. Accordingly all of the plaintiffs' claims fail. Credit 28 Most of the relevant evidence is found in contemporaneous documents. There are some clashes in testimony, in particular between the testimony of Mr Likidis of Apple and Messrs Hartono, Mekrizis, Qureshi and Liu of Buzzle. I have not accepted all of Mr Likidis' evidence. In some respects it was not consistent with contemporaneous documents or objective probabilities. But I regard Mr Likidis as a generally reliable witness. Given the lapse of time between the events of which he was speaking and the time he came to prepare his affidavit, there must have been some element of reconstruction in his memory. Nonetheless, he appeared to have a sound recollection of events. Where his evidence conflicted with Messrs Hartono, Liu, Qureshi or Mekrizis I generally prefer Mr Likidis' testimony. However, I prefer the contemporaneous records and the objective probabilities to any of the oral or affidavit testimony. 29 So far as the plaintiffs' witnesses were concerned, it is fair to say that there were difficulties with the testimony of all of the plaintiffs' witnesses save for Mr Patterson, whose evidence was ultimately not significant to the resolution of any disputed issue. Many of the meetings between Buzzle's promoters and executives were filmed for the purposes of a television documentary. The film is as noteworthy for what it does not say as for what it does. The complaints now made against Apple are not ventilated. I need not address the particular difficulties with each witness' testimony. Those difficulties are referred to in the defendants' submissions. The plaintiffs' counsel did not submit that where there was a conflict which could not be resolved by reference to the contemporaneous documents or the objective probabilities, the evidence of the plaintiffs' witnesses should be preferred to that of Mr Likidis. Background to the Merger 30 The idea of the merger was first mooted by Mr Craig Rispin, who worked as a contractor for Mr George Mekrizis. Mr Mekrizis was a director and principal shareholder of GM Computer Pty Ltd. Mr Mekrizis and GM Computer operated a successful business as an Apple Reseller. In early 2000 Mr Rispin proposed to Mr Mekrizis that the top seven authorised Apple Resellers in Australia merge their businesses. Apart from GM Computer, the other proposed participants in the merger were Choice Connections Australia Pty Ltd ("Choice Connections"), Mac's Place Group Pty Ltd ("Mac's Place"), Next Byte Pty Ltd ("Next Byte") and related companies, Jetocopic Pty Ltd which traded as Manning Computer & Technology ("Manning Computer"), Designwyse Pty Ltd ("Designwyse") and Status Graph Computer Solutions Pty Ltd ("Status Graph") and a related company. 31 The first meeting of these proposed participants in the merger took place on 16 May 2000. It was attended by Mr Rispin and Mr Mekrizis from GM Computer, Mr Donald Hartono, the executive director of Choice Connections, Mr Scott Thompson, the director of Mac's Place, Mr Crawford Giles and two other directors of Next Byte, Mr David Ford from Manning Computer, Mr and Mrs Kloester, directors of Designwyse, and Mr Lindsay McComb of Status Graph. No representative of Apple attended the meeting. Various benefits of a merger were identified by different participants. The advantages included reducing expenses through eliminating duplication of positions. Mr Thompson of Mac's Place said that he and Mr Rispin had worked out that between the seven Resellers they employed 14 purchasing clerks. He suggested that about $1 million of overheads could be saved. Other perceived advantages were having a combined and more efficient marketing system and the ability to increase capital to open new stores and expand the business. 32 The participants discussed their respective roles. Mr Kloester of Designwyse pointed out that as they had all been running Apple businesses for many years they were experts in the area. Mr Mekrizis said that that was why they needed to be on the board of directors. Mr Giles of Next Byte also said that they would need to take executive roles. There was discussion about the need for a chief executive officer and a chief financial officer to run a company with annual revenue of perhaps $200 million. 33 At the conclusion of the meeting each of the Resellers signed an agreement called "Heads of Agreement" by which they agreed to co-operate in good faith to seek to achieve the objective of merging the businesses and to keep confidential the information each was to receive as to the affairs and financial information of the other and use it only for the purpose of the proposed merger (TB2/698). They agreed to contribute $275,000 in stated proportions to fund part of the costs of the merger transaction (Clause 5). 34 The meeting was a lengthy one. During the meeting a presentation was made by a merchant bank as to possible net profits of a merged entity and how the merged entity might be valued when its shares were initially offered to the public. A presentation was also made by Mr Stuart Bright and Mr Neil McDermott of Arthur Andersen Corporate Finance ("Arthur Andersen"). That firm was later retained to provide advice and assistance in relation to the merger. Towards the end of the meeting there was discussion as to how to sell the idea to Apple. Mr Rispin said: " I already know what the strategy is guys. The strategy is to turn it into their idea. If Di Ryall [Apple's Managing Director] can go to the president's council with it, that it's her idea that the Apple centres go public. " 35 Apple did not participate in the initial proposal for the merger. Its consent and co-operation was needed if the merger were to go ahead. It held charges over the assets of the vendor Resellers which secured debts owed to it. The new company, the merged entity, would also need to enter into a Reseller Agreement with Apple to acquire the necessary stock on credit and to operate Apple branded stores. 36 After the meeting of 16 May 2000 the proposed participants in the merged entity held many meetings. Three types of meeting were held: Group Meetings, Value Allocation Meetings and Float Meetings. The Group Meetings were attended by representatives of all of the Resellers and by representatives from Arthur Andersen. The Float Meetings were established to oversee the proposed float of the new entity to be established. It was intended that the float would occur by about 13 September 2000. The Value Allocation Meetings were held to determine the value to be allocated to each of the Apple Resellers in the new entity. No representative of Apple attended these meetings of whatever type. 37 The participants arranged to hold a meeting with representatives of Apple in the week commencing 12 June 2000 to present the proposal to Apple. Minutes of a Group Meeting held on 2 June 2000 attended by representatives of each of the seven Resellers and also of Arthur Andersen records that: " SB (Stuart Bright of AA Corporate Finance) ... noted that the following key contributions would be sought from Apple: * Consent * Co-operation * Strategic investment in new cos; and * Changes to the 30-day notice period rule which may otherwise be a negative factor. " 38 The last dot point was a reference to the period of notice on which a Reseller Agreement could be terminated without cause. In Apple's standard agreement the period was 30 days. It was thought that this lack of security might deter potential investors from subscribing for shares in Buzzle Limited. 39 It was resolved that Mr Crispin would develop the presentation to be made to Apple. The minutes record consideration of details of the merger such as the principles on which the valuation of the respective Resellers' businesses would be made, estimates of revenue for the year ended 30 June 2000 of all of the Resellers (estimated to be approximately $170 million), the division of operational responsibilities for accounting/systems, human resources, logistics, sales and marketing as well as many other detailed issues (TB2/749-753). The minutes record that Mr Crawford Giles of Next Byte led a discussion on the organisational structure of the new company's financial department. A preliminary financial department organisational chart was distributed to participants. The Resellers had eight different accounting systems. Mr Adam Steinhart of Next Byte led a discussion on the desirability of the new company using an accounting system called Navision. The minutes record that "the Apple centre representatives (with the exception of Robert Kloester) agreed that Navision should be used by new co and should be rolled out to non-users once the Heads of Agreement has been signed." 40 The minutes of a Float Committee meeting held on 6 June 2000 record that Mr Scott Thompson presented an organisational chart for the sales division and made recommendations as to its structure, i.e. its division into geographical areas and specialist departments. He made recommendations as to which stores would require store managers, as distinct from technicians performing administration and store-keeper functions, to enable the sales team to focus on sales alone. Mr Giles presented a paper on the rollout of the Navision accounting system to the merged entity and noted that he intended to interview a potential candidate for the position of Management Accountant. It is clear that by this time detailed planning of the structure of the merged business was well underway. Apple had no input at this stage. 41 At a Value Allocation Meeting held on 9 June 2000 Mr Rispin went through some PowerPoint slides that he had prepared for presentation to Apple the following week (affidavit of Mr Hartono affirmed 7 December 2007, para 80; TB2/780). The PowerPoint presentation included that the seven Apple Resellers had agreed to merge and list on the Australian Stock Exchange and gave the reasons for the merger as being decreasing margins, increased costs of operation, lack of capital for expansion, difficulty in recruiting and retaining staff, and the principals looking for better return on investments. It appears from a draft prospectus (TB803-1) that it was hoped that by the end of 2000 a new company would be established with capital of $113 million: $55.5 million or 49.1 per cent from new shareholders, and $57.5 million or 50.9 per cent from existing shareholders, with the company having forecast revenue to 30 June 2001 of $166.7 million (TB2/803-11, 2/803-12). 42 The first meeting with Apple took place on 16 June 2000. It was attended by Messrs Rispin, Thompson, Mekrizis, Ford and Giles for the company yet to be incorporated, and by Mr Bright and Mr McDermott of Arthur Andersen. The persons attending for Apple were its Managing Director, Ms Diana Ryall, its Reseller Manager, Mr Kevin McElduff, its Finance Director, Mr Likidis, its then Marketing Director, Mr Bowley, its National Sales Manager for Education, Mr Bruce, and its in-house legal counsel, Ms Law. At that meeting, Arthur Andersen handed out a document entitled "Merger and Initial Public Offering of Apple Business". The document stated that the owners of the seven businesses had agreed to merge, listed the reasons for the merger and the proposed listing, and identified benefits to Apple from the merger. The paper noted that the businesses had stores in 33 locations and represented over half the Apple Centres in Australia. The identified benefits of the merger included the raising of capital to fund future growth, the expansion of the distribution network, enhanced marketing, and a higher profile for Apple products. Apple was informed that the businesses had entered into an agreement to pursue the merger and that it was intended that the "merged entity" would progressively acquire each of the existing businesses between late July and September 2000. The listing on the stock exchange was planned for November 2000. 43 An issue was raised at the meeting as to whether Apple would take a shareholding in the new entity. Mr Hartono and Mr Mekrizis deposed that Mr Likidis said that Apple would want to have a shareholding in the new entity. Mr Likidis denied that he said words to that effect and I accept his denial. In any event, Apple did not ever take shares in Buzzle. 44 During the meeting issues were raised as to the reactions of other Apple Resellers to the merger, as the business after merger (as it was then proposed) would have 35 per cent of the market for the sale of Apple products. Mr Likidis expressed concern as to whether the new merged entity might diversify its business away from Apple products. He asked whether the new company would be prepared to make a commitment to Apple products and someone asked whether the new entity would agree to sell Apple products exclusively. Apple also expressed concern at the proposed speed of the merger. 45 The plaintiffs allege that Apple participated in the making of the decision that Buzzle would acquire the businesses of the vendor Resellers in part by Apple's requiring Buzzle to address the concerns raised at the meeting of 16 June 2000 prior to Apple's consenting to the acquisition of the vendor companies' businesses by Buzzle. 46 Whilst it is true that Apple raised concerns about the proposal, and those concerns were ultimately addressed by Buzzle, Apple did not thereby participate as part of the management of Buzzle in the decision to acquire those businesses. That decision had already been made by the persons who were to become the directors of Buzzle. Apple's "participation" was sought as a third party whose consent was required to the implementation of the decision. Apple and the promoters, and later directors, of Buzzle, dealt with each other at arm's length in a commercial negotiation. 47 Mr Likidis prepared a note of the further information which he considered Apple needed to gain a better understanding of how the project would work. The information he sought included: " (a) proposal by the principals to minimise the risk to Apple in having such a large portion of its business concentrated in one business partner in New Co. (b) what is proposed in respect of security to apple. Will this be in the form of a charge over the assets of the business etc. and is currently in place with each business. (c) 3-year business plan of New Co. detailing such things as: (i) revenue growth strategy e.g. new stores, marketing etc. (ii) revenue by market segment (iii) p & l 3 years outlook (iv) cashflow forecasts (v) rationalisation of administration areas, the result in savings and cost to achieve this (vi) how will this rationalisation be funded (vii) timeline in completing this (viii) timeline in going public ". 48 On 21 June 2000 Mr Likidis and Ms Law attended a meeting with Mr Rispin, and Mr Bright and Mr Max of Arthur Andersen. They discussed extending the period for termination of a Reseller Agreement from the one month in the standard agreement. Mr Rispin proposed that a commitment to sell Apple products exclusively would be available if Apple committed to a longer term. 49 On 22 June 2000 Arthur Andersen wrote to Mr Likidis providing an interim response to the queries he had raised. They advised that "New Co is prepared to offer Apple the opportunity to subscribe for an equity interest in the company, which, if sufficiently large would also offer a board seat." That offer was not taken up. Arthur Andersen stated that no changes to the security position were proposed prior to the initial public offering, except that "the existing principals' exposure should be linked in some way to the ownership interests and should not increase in relation to the operations of the merged entity." Arthur Andersen requested that all directors' guarantees be released after the float. Arthur Andersen advised that detailed financial projections were being prepared with a target date of 11 July 2000. 50 There was later negotiation about these issues. Apple also saw advantages in the merger and proposed float. There was an obvious advantage to Apple in the expansion of the market for Apple products through a successful merger and float. A further advantage from Apple's perspective of a successful merger and float was the repayment of the existing debts owed by the vendor Resellers to Apple. 51 At the meeting of 21 June 2000 Mr Bright of Arthur Andersen said that the new merged entity would be using the Navision system which Next Byte was already using. He advised that the idea was to add each entity onto the system one at a time before the next merging Reseller came in. Mr Likidis was aware that the Navision system had been successfully implemented by Next Byte and Mac's Place. The other Resellers used other accounting systems. 52 On 30 June 2000 Ms Ryall wrote to Arthur Andersen and to each of the seven Resellers advising that, in principle, Apple was in favour of the proposed merger and listing, would work with "New Co" in connection with media activities about the proposed merger, and would enter into negotiations with New Co for a supply agreement. She advised that there were various terms of the proposed supply agreement yet to be negotiated including but not limited to determination of targets, the term of the agreement, securities required by Apple, and commitment by principals to New Co. 53 On 30 June 2000 Arthur Andersen said that to raise capital in an initial public offering there would need to be changes to the termination clauses contained in the existing Reseller Agreements so that the Agreement with New Co would not be terminable by either party without cause with only 30 days' notice. 54 Buzzle was incorporated on 3 July 2000. Messrs Hartono, Giles, Mekrizis, Ford and Thompson were appointed as directors. On or about 4 July 2000 Mr Hartono discussed with Mr Giles the obtaining of a licence for Buzzle to use the Navision system which Next Byte was using. Mr Giles agreed that Next Byte would pay for the licence as long as it was treated as a loan and he could get the money back when he needed it. Mr Hartono agreed to this. The proposed merger was publicly announced on 5 July 2000. On about 10 July 2000 Next Byte paid Deloitte Touche Tohmatsu ("Deloitte") $300,000 for Buzzle to be licensed to use the system. Buzzle became liable to repay that amount to Next Byte. 55 Apple was willing to modify the standard terms of its Reseller Agreements by providing a longer notice period for termination of the Reseller Agreement with Buzzle once the float occurred. In the interim it required that a new agreement be entered into with Buzzle on the same terms and conditions as its current agreements. On 6 July 2000 Mr Giles, with whom Mr Likidis was then dealing, confirmed that he was happy with that arrangement. As part of the merger process valuations were conducted on all of the Apple Resellers. This was necessary to determine their respective shareholdings in Buzzle Limited. 56 It was proposed that Buzzle commence trading in the week commencing Monday 24 July 2000 with the businesses of Next Byte and Mac's Place being transferred to it at that time. They both used the Navision system and it was then proposed that other Resellers would progressively be added to the system and merge their businesses. However, shortly before 21 July 2000 in the process of valuing the Resellers a problem was identified. It was ascertained that Mac's Place had a deficiency of net assets of about $1.1 million. Mr Giles told Apple there was "negative equity" in Mac's Place and a bit of a hole in its accounts. Mr Shearer of Apple asked all other members of the proposed merger to supply copies of balance sheets and profit and loss statements so that Apple could assess the position of each member. At about this time Mr Likidis requested that someone do a due diligence on Mac's Place. He also considered it necessary for Apple to review the financial status of all of the Resellers (T582). 57 Over the weekend of 22 and 23 July 2000 Mr Hartono of Choice Connections reached an agreement with Mr Thompson of Mac's Place under which Choice Connections would acquire the latter's business. Mr Hartono gave evidence that the agreement he reached with Mr Thompson was dictated by Mr Likidis. According to Mr Hartono, Mr Likidis said that the merger would not go ahead without Mac's Place. Mr Hartono deposed that Mr Likidis said to him, Mr Hartono, that he would need to get someone to invest and directed that Choice Connections acquire the shares in Mac's Place and not just acquire its assets. Mr Hartono said that he felt pressured by Mr Likidis but that he was used to what he called Mr Likidis' heavy-handed tactics and felt he had no realistic choice if the proposed merger was to go ahead other than to purchase the business. He told Mr Likidis that Choice Connections would acquire Mac's Place, and Mr Likidis said that Mr Thompson was to put up more security also. 58 Mr Likidis denies insisting that a deal be done. I accept that denial. I do not accept that the discussions were in the terms to which Mr Hartono deposed. Where their evidence conflicts I prefer the evidence of Mr Likidis to Mr Hartono on this topic. 59 The minutes of a Group Meeting held on 24 July 2000 record Mr Thompson's advising that Mac's Place had become a wholly owned subsidiary of Choice Connections, that Apple was satisfied with the security offered by Mac's Place on the understanding that sufficient equity would be injected by Choice Connections. The minutes do not record Mr Hartono saying anything to the effect that Mr Likidis insisted that Choice Connections acquire the shares in Mac's Place if Apple were to approve of the merger going ahead. 60 On 24 July 2000 Next Byte withdrew from the proposed merger. Mr Giles of Next Byte said that Next Byte had been unhappy with the valuations under which the share allocations to the Resellers were calculated. He said that Next Byte would continue to participate in the merger only if it received 26.5 per cent of the new company. At that time Next Byte would have been entitled to receive 18.2 per cent of the shares. The other Resellers, in particular Mr Mekrizis, did not agree to increasing the allocation to Next Byte. Before a final decision was made, Next Byte withdrew (exhibit 1, tab 35). On 27 July 2000 Mr Giles resigned as a director of Buzzle. 61 The plaintiffs plead that Apple participated in a decision made on or about 28 July 2000 to continue with the proposed merger after the withdrawal of Next Byte. The decision to withdraw was made by Next Byte, and by the other Resellers' not accepting Next Byte's ultimatum that it receive 26.5 per cent of the allocated shares if it were to participate in the merger. That decision was communicated to Mr Likidis on 24 July 2000. 62 Representatives of Buzzle then advised Mr Likidis that it was now proposed that all Resellers merge at once and that the merger be implemented within a month. Someone from Buzzle expressed the view recorded in a file note of Ms Law that "the person rolling last has most risk". The decision to continue with the merger was made by the remaining Resellers, not by Apple. 63 On 24 July 2000 Mr Likidis wrote to Mr Bright of Arthur Andersen Corporate Finance and to each of the Resellers (including Next Byte). He advised that Apple did not consent to any proposed transfer of, or any other dealing outside the normal course of business with, the inventory, fixed assets or any other property the subject of charges given by Next Byte or Mac's Place. He advised that prior to Apple's considering releasing its security over any assets subject to its charges it would require, amongst other things, mortgages in favour of Apple over Mr Scott Thompson's properties at Whitehorse Victoria and his wife's residential property. 64 On the same day Mr Likidis wrote to Mr Hartono and Mr Thompson noting the proposal that Choice Connections would purchase the shares in Mac's Place. He said that Apple would need certain information (which he specified) to consider whether it would consent to such a sale. This included the financial statements of Mac's Place on which Choice Connections was relying and details of the proposed capital injection to Mac's Place. On the same day Mr Likidis wrote to Mr Bright expressing concern at the withdrawal of Next Byte. He set out further information Apple required if the remaining Resellers intended to proceed with the merger. He said that Apple was reviewing the financial status of all the Resellers' businesses and additional securities would be required if the liquid asset position of any existing Reseller was negative. 65 At this time Mr Likidis was dealing at arm's length with the directors of Buzzle in seeking to secure and advance Apple's interests. 66 On 28 July 2000 Mr Likidis met Mr Hartono and Mr Mekrizis. At that meeting Mr Likidis gave a PowerPoint presentation. He said that his concern was that the accounting system that had been chosen, Navision, might not work properly from day one. He put a "proposal for consideration" that the merger be delayed until March 2001. He said that he was concerned that because Mr Steinhart and Mr Giles of Next Byte had pulled out, the management ability of Buzzle was not as good as it would otherwise have been. He said "I believe you should delay the merger until the likely effects of the withdrawal of Mr Steinhart and Mr Giles become clearer". In his PowerPoint presentation Mr Likidis wrote: " * no management capability in existing partners to execute merger successfully * time to find this could be long ... * system needs to be identified and implemented. " 67 He proposed that there be a merger of Choice Connections, Mac's Place and Computers Now and that otherwise, the merger should be deferred. (Computers Now was a Reseller that had been acquired by Mr Hartono.) Mr Likidis also proposed that GM Computers acquire Status Graph. This would reduce the number of groups to four to be merged at a later time. 68 Mr Likidis' proposal was not accepted by the directors of Buzzle. At a group meeting held on 1 August 2000 Mr Stead of Deloitte presented a report on the integration of the Navision System. The minutes of the meeting (4/1197 at 1198) record that: " Deloitte is comfortable with the timetable for completion in the first week of September provided that the information requested from the principals is provided shortly ". The minutes record a number of things to be done so that the system would be ready by that time. 69 On 3 August 2000 Mr Likidis and Ms Law attended a meeting with Mr Max of Arthur Andersen. There was discussion about the implementation program for Navision. Apple was told that the merger partners wanted to "go live" on 4 September 2000. Mr Likidis accepted that from early or mid August he was not seeking to stand in the way of the merger going ahead on the basis that all of the businesses were merged at once (T588). He was assured that the merger could proceed on that basis. He received advice to that effect from the directors of Buzzle, from Deloitte and from a Mr Greg Lloyd who was Buzzle's chief financial officer at the time. I refer below to Mr Lloyd's appointment. 70 On 4 August 2000 a meeting was held between Mr Hartono, Mr Thompson, Mr Likidis and two other employees of Apple. It appears from notes of that meeting that it was then proposed that Choice Connections take over all of the assets and liabilities of Mac's Place. There was then an anticipated shortfall of $1,750,000. The proposal then was that Choice Connections would pay $2,600,000 for goodwill and $400,000 for fixed assets (a total of $3,000,000). Creditors of Mac's Place would be paid from the collection of debts and from the purchase price to be paid by Choice Connections. 71 Mr Hartono deposed that at the meeting on 4 August 2000 Mr Likidis again said that the only way the merger could go ahead would be if Choice Connections took over Mac's Place and that Apple required that the acquisition occur immediately. Mr Likidis denied this and I accept his denial. Although Mr Hartono and other witnesses for the plaintiffs sought to give the impression that every step they took was dictated by Mr Likidis, it simply was not the case at this time that the Buzzle directors were falling in with Mr Likidis' wishes. Only a week earlier they had rejected his proposal that a full merger be delayed and that a merger take place step by step so as gradually to integrate each business. The focus of the Resellers, including Mr Hartono, was on the prospect of making a large amount of money on the float of Buzzle Limited. The attraction to Mr Hartono in acquiring Mac's Place, notwithstanding its deficiency in net assets, was the shareholding which would be allocated to Mac's Place on the float. Mr Hartono said that he considered that Choice Connections had to do everything Apple said if the proposed merger was to proceed. I do not accept that evidence. 72 It was agreed at the meeting that a firm of accountants, Moore Stephens, would conduct due diligence and have full access to all documents and records of Mac's Place. They provided their report to Mr Hartono on 18 August 2000. Their review of Mac's Place revealed a deficiency in net assets of $3,017,000. Prior to this time Mr Hartono had had discussions with a family friend and business colleague, Mr Wing Liu, for Mr Liu and his company, and not Choice Connections, to acquire Mac's Place. Mr Liu had informally indicated to Mr Hartono his interest in doing so. Upon receiving the due diligence report of Moore Stephens, Mr Liu was reluctant to proceed. 73 Between 19 and 21 August 2000 Mr Liu, Mr Hartono, Mr Thompson and Mr Likidis negotiated a new deal. Mr Likidis wished to avoid Apple's having to enforce its security. This was partly because its security included Mr Thompson's family home and other commercial properties he owned. I accept Mr Likidis' evidence that he had a sound relationship with Mr Thompson, liked him, and did not want to enforce Apple's rights against his home unless it was absolutely necessary. I also think that all parties wished to avoid the adverse publicity that would attend the appointment of a receiver to Mac's Place. Such an appointment would have a negative impact on the market for Apple Computer products and could only harm the prospects of a successful float. Mr Likidis persuaded Mr Thompson to offer Mr Liu his two commercial properties which Mr Thompson said were valued at between about $800,000 and $900,000 to sweeten the deal. The transaction proceeded on this basis. Mr Liu's company, Aircent Pty Limited ("Aircent"), paid $3 million to buy the assets of Mac's Place and agreed to honour all of Mac's Place's debts and liabilities. Buzzle was to acquire from Aircent the business and assets which Aircent acquired from Mac's Place. On the float of Buzzle Limited, Aircent was to be entitled to 18.5 per cent of the shares which was the allocation to Mac's Place, although Mr Liu agreed that some of the shares would be transferred or allocated to Mr Thompson. Mr Thompson was to transfer his two investment properties to Mr Liu in return for the shares in Buzzle Limited. Choice Connections was to manage the business that Aircent acquired from Mac's Place until the business was acquired by Buzzle. Aircent completed the purchase of the assets of Mac's Place on 29 August 2000. 74 Apple required due diligence reports on each of the Resellers before releasing its charges over the Resellers' assets. The due diligence reports were provided by Arthur Andersen. Apple had made its own assessment as a result of which it provided Buzzle with a credit limit of $20 million. 75 The minutes of a Group Meeting of 27 July 2000 record that a Mr Geoff Young of Status Graph had offered his assistance where required for the appointment of an interim chief financial officer or integration specialist. Mr Rispin noted that Mr Likidis wanted to meet the selected candidate prior to the appointment. The Group Meeting minutes of 9 August 2000 record that Mr Bright and Mr Hartono had met separately with Mr Lloyd. He was appointed by 15 August 2000. He was welcomed to his first Group Meeting on that day. 76 Apple received Arthur Andersen's due diligence reviews of the Resellers by 31 August 2000. On that day Mr Likidis attended a meeting with Messrs Hart, Mekrizis, Liu, Kloester, Ford, McComb, Mr Bright (of Arthur Andersen), Mr Stead (by then employed by Deloitte), and Mr Greg Lloyd, the newly appointed chief financial officer of Buzzle. Mr Likidis deposed that during the meeting of 31 August 2000 he questioned Mr Stead in detail about the implementation of the Navision system and whether it would be operational from the commencement of the new business. He deposed that Mr Stead told him that the system was ready to go and would be fully operational on the first day of Buzzle's business. I accept Mr Likidis' evidence on this. It is objectively probable. Mr Likidis also deposed that he asked Mr Bright a number of questions concerning Buzzle's working capital requirements and that Mr Bright said that Buzzle probably would not need any more funding as the float was to take place in November, but it had access to bank funding if needed. I accept Mr Likidis' evidence about this. Mr Bright was not called. Mr Hartono did not recall the discussion but did not deny it. Neither Mr Mekrizis nor Mr Liu dealt with that evidence. None of the other attendees at the meeting was called. In fact Buzzle did not have any overdraft or other arrangements with a bank for the provision of funding. 77 Mr Likidis deposed that at the meeting all of the Resellers and their advisors were very frustrated at his continuing to ask questions about the capacity of Buzzle to pay its debts to Apple, and whether or not the Resellers were ready to go ahead with the merger. He deposed that Mr Lloyd said "Everyone in this room is ready to go. There is only one person in this room that is holding the merger up and that is you. Are you prepared to sign off or not?" Mr Likidis replied "I will only sign off when you guys convince me that it is ready to go." 78 Although Mr Hartono denied this, I accept Mr Likidis' evidence. 79 The participants broke into a series of smaller meetings where Mr Likidis met individually with the principals of Manning Computer, Status Graph, and with Mr Mekrizis, to discuss a negative net asset position of Manning Computer and Status Graph revealed by the due diligence reports. Mr Mekrizis agreed to provide third party security for those companies. 80 At the meeting on 31 August 2000 the proposed date for the merger was 11 September 2000 (TB6/2139). During all these meetings Mr Likidis was dealing in an arm's length negotiation with the vendor Resellers with a view to protecting Apple's interests. He insisted on being satisfied as to how the debts of the vendor Resellers to Apple would be repaid, and on being satisfied with the security to be provided by Buzzle. He was balancing the advantages to Apple of a successful merger and float with his caution, justified as events turned out, that the merging of six separate businesses with different accounting systems in one go was risky. 81 A stocktake of the stock to be transferred to Buzzle was undertaken over the weekend of 9 and 10 September 2000. On 11 September 2000 Mr Shearer of Apple wrote to Mr Bright of Arthur Andersen asking for details of the stocktake so that Apple could "credit the old resellers' account for Apple stock on hand and recharge it to Buzzle". In due course that was done. Mr Likidis deposed that on or about 12 September 2000 Mr Hartono asked that Apple charge Buzzle's account and credit the old Resellers' accounts with the amount of Apple stock held by each Reseller once the stocktake was carried out and that he agreed to that proposal. It seems those arrangements were made before 12 September. Documentation to Effect the Merger 82 Six Merger Deeds were entered into between Buzzle, Buzzle Limited, and each Reseller and its associated companies and principals. Each deed provided for the sale and purchase of the Resellers' stock, plant and equipment. Each vendor remained responsible for the discharge of its debts and liabilities and was entitled to collect its trade debts. The purchase price was paid partly in cash and partly in the issue of shares in Buzzle Limited. The cash component was to be the "economic value" of stock and the value of plant and equipment. There were detailed provisions for the calculation of the economic value of stock. Each Merger Deed provided for the transfer of shares in Buzzle Limited to the vendor Reseller. There were other elaborate provisions to which it is not necessary to refer. 83 The principals of the vendor Resellers gave several guarantees to Apple of the liabilities Buzzle would assume to Apple. Their guarantees were limited to a per centage of Buzzle's liabilities to Apple which corresponded with the proportion of shares in Buzzle Limited that they, or their respective companies, were entitled to receive. 84 Apple and Buzzle entered into a Reseller Agreement by which Buzzle was authorised to sell Apple products (as defined) and to display certain Apple trademarks and be designated as an Authorised Apple Reseller. The appointment of Buzzle as an Authorised Apple Reseller was non-exclusive. Clause 4.1(b) of the Reseller Agreement required Buzzle to provide Apple with relevant Reseller information, documents and records reasonably requested by Apple. 85 Buzzle granted a charge to Apple over all its existing and future assets and undertaking which was partly fixed and partly floating. Clause 4.4(a) provided: " The Chargor will: (a) (Proper books of account): keep or cause to be kept: (i) proper books of account, in which it will make true entries of all dealings and transactions now or in the future conducted by the Chargor including in respect of the Business; (ii) those books of account, vouchers and all other documents relating to the affairs of the Chargor and the Business at its registered office or such other places as the Chargor may select and notify the Chargee; and the Chargor will ensure that those books of account, vouchers and other documents are available at all reasonable times for inspection and copying by the Chargee or any employee, agent or professional adviser of the Chargee that the Chargee may from time to time appoint. " 86 The charge secured all liabilities and obligations of Buzzle to Apple. 87 The shareholders of Buzzle Limited entered into a Shareholders' Deed under which they were given the right to appoint their nominees as directors of Buzzle Limited. Clause 9.1 of the Shareholders' Deed provided that certain functions were reserved for the approval of a majority of the members of the board of Buzzle Limited and were not to be exercised by any other person. Those functions included the establishment of policies and business plans and the implementation or approval of annual budgets for any "Group Company", including Buzzle. Also reserved for the approval of the majority of the members of the board of Buzzle Limited were any significant transactions to be entered into by Buzzle. 88 Clause 6.5 of the Merger Deeds provided: " 6.5 Obligations of the Purchaser The Purchaser must pay the Cash Component as follows: (a) Payment of the portion of the Cash Component attributable (in accordance with the determination made under clause 7) to Stock by Buzzle Operations to the Vendors will be deferred until such time as the directors of Buzzle form the view (on reasonable grounds) that Buzzle Operations has adequate cash flows to pay amounts owing to all Vendors on a pro-rata basis, or in accordance with the requirements of that vendor to pay its creditors, provided that such payment is made no later than 31 October 2000; and (b) Payment of the remaining amount of the Cash Component by Buzzle Operations to the Vendors will be deferred until the earlier of: (i) the float of Buzzle on ASX; or (ii) the directors of Buzzle forming the view on reasonable grounds that Buzzle Operations has adequate cash flows to pay amounts owing to all Vendors on a pro-rata basis or in accordance with the requirements of that Vendor to pay its creditors. " 89 "Stock" referred to all of the stock in trade of the vendors, not just Apple stock. The "remaining amount" of the Cash Component represented the value of plant and equipment. 90 Apple, Buzzle and each of the vendors entered into a Payments Deed. Buzzle promised not to incur financial indebtedness other than "Permitted Financial Indebtedness" without Apple's consent, such consent not to be unreasonably withheld. "Permitted Financial Indebtedness" included indebtedness incurred in the ordinary course of its ordinary business other than in respect of capital expenditure. Specific kinds of future indebtedness were also permitted including up to $1.5 million in implementing the new information technology systems, and any financing arrangements in respect of those systems. Also permitted was incurring indebtedness to raise funds to repay any financial indebtedness to a vendor or to Apple. 91 The Payments Deed also made provision in respect of the payment of the debt owed by Buzzle to the vendors. By clause 6.5(a) of the Merger Deed, Buzzle agreed to pay the vendors for stock by no later than 31 October 2000 and to make such payments pro-rata when the directors of Buzzle Limited formed the view on reasonable grounds that Buzzle had adequate cash flows to do so. By clause 3.2 of the Payments Deed, Buzzle agreed for the benefit of Apple to repay all amounts owing by it to the vendors pursuant to clause 6.5(a) of the Merger Deed by 31 October 2000. Clause 4 of the Payments Deed required Buzzle to make weekly determinations of whether it had Surplus Cash Flow and to notify promptly each vendor and Apple of the amount of that Surplus Cash Flow and how it proposed to deal with it. By clause 4.5(a) Buzzle agreed to use any Surplus Cash Flow to pay amounts owing by it to the vendors under clause 6.5(a) of the Merger Deed on a pro-rata basis or in accordance with the requirements of each vendor to pay its creditors, or as Buzzle might otherwise determine. By clause 4.5(d) each vendor irrevocably directed Buzzle to make any payment which Buzzle intended to make to that vendor to Apple to the extent that the vendor owed any amount to Apple. A schedule to the Payments Deed set out the amount of the debt each vendor owed Apple as at 14 September 2000. 92 On 14 September 2000, Mr Thompson resigned as a director of Buzzle. On the same day, Messrs McComb, Kloester and Liu were appointed as directors of Buzzle, joining Messrs Mekrizis, Ford and Hartono. First Issue: Validity of the Charge: Definition of "Officer" para (b)(i) 93 As noted earlier in these reasons, the plaintiffs contend that Apple was a "relevant person in relation to the charge" within the meaning of s 267(1)(a) of the Corporations Law. A "relevant person" in relation to a charge created by a company includes a person who is, at the time when the charge is created, or who has been at any time during the preceding six months, an "officer" of the company (definition of "relevant person" in s 267(7)). The plaintiffs say that as at 14 September 2000 Apple was an "officer" of Buzzle pursuant to either or both of sub-paras (b)(i) and (ii) of the definition of "officer" of a corporation. In relation to para (b)(i), the plaintiffs say that up to 14 September 2000 Apple made or participated in making 12 decisions that affected the whole or a substantial part of the business of Buzzle (para (b)(i)). 94 The first decision it is said Apple made, or in the making of which it is said to have participated, was the decision that Buzzle would acquire the businesses of the vendor companies (the Apple Resellers). As noted earlier in these reasons, the decision that the company which became Buzzle would acquire the businesses of the vendors was made by the promoters of Buzzle prior to Apple's being approached. Apple's consent to that course was needed because Apple held a charge over the businesses to be transferred. By giving its consent and imposing conditions Apple influenced the outcome, but it did not thereby participate in the making of a decision for Buzzle. The plaintiffs pleaded that Apple so participated by "considering and being actively involved in discussions with the proposed Appointed Directors in respect of the proposal", by "considering and being actively involved in discussions with Buzzle and its directors following its incorporation in respect of the Proposal", by "conveying concerns in respect of the Proposal", and by "requiring Buzzle to address Apple's concerns about the Proposal prior to Apple consenting ...". This describes an arm's length commercial negotiation, not the participation in the making of decisions for Buzzle. 95 The second decision Apple is said to have made, or in the making of which it is said to have participated was "the decision as to how Buzzle would acquire the businesses of the vendor companies following Apple['s] being informed in late July 2000 that Mac's Place had negative assets of approximately $3 million". The third decision Apple is said to have made, or in the making of which it is said to have participated, was the decision that Buzzle acquire the business of Aircent. The fourth decision Apple is said to have made, or in the making of which it is said to have participated, was that shares in Buzzle Limited be allocated to Aircent and Mr Thompson. 96 The plaintiffs allege that Apple instructed Buzzle's directors that Mac's Place must be included in the businesses to be acquired by Buzzle and that it was necessary to obtain an investor to inject capital into Mac's Place prior to the merger. They say that Apple instructed the directors that the proposed merger would only proceed if the acquisition of Mac's Place occurred on terms specified by Apple, and the appointed directors followed that instruction and caused Buzzle to document the proposed acquisition on terms dictated by Apple. They allege that following the failure of Choice Connections to acquire Mac's Place, Apple gave instructions that Mr Liu, through Aircent, purchase the Mac's Place business, but not the shares in the company, that Aircent pay consideration to Mr Thompson in accordance with Apple's instructions, that it was on Apple's instructions that Buzzle acquired the business of Aircent instead of the business of Mac's Place, that it was on Apple's instructions that Buzzle purchased Aircent's stock on the merger, that Buzzle procured the allocation to Mr Liu of shares in Buzzle Limited which reflected the proportional value of Aircent's business acquired from Mac's Place, that it was on Apple's instructions that Aircent transferred some of its shares in Buzzle Limited to Mr Thompson, and that Apple required that Choice Connections manage the business Aircent acquired from Mac's Place until acquired by Buzzle. They also allege that Apple instructed Buzzle's directors in relation to which businesses Buzzle should acquire for the merger by instructing them to no longer acquire Mac's Place and acquire Aircent instead. 97 The plaintiffs submitted that Apple's requirement that Mac's Place be part of the merged entity was consistent with Apple's own interests in clearing a bad debt and avoided the dislocation of putting Mac's Place into receivership. 98 The transactions concerning Mac's Place did not affect a substantial part of the business of Buzzle. Buzzle's interest in the transaction was to acquire the stock, plant and equipment and take over the business of Mac's Place. It was not to acquire the liabilities of Mac's Place. In the result, the assets and business of Mac's Place were transferred to Aircent and transferred by Aircent to Buzzle. The negotiations in which Mr Likidis participated for the payment of consideration by Aircent, the provision by Mr Thompson of two commercial properties as additional consideration for the payment and the transfer of some of Aircent's shares in Buzzle Limited from Mr Liu to Mr Thompson, were not any part of Buzzle's business. The discovery of the shortfall in Mac's Place's assets meant that Apple was concerned as to how the debt owed to it by Mac's Place would be recovered. One possibility was that it would have to enforce its security. It had security not only over the assets of Mac's Place but also over assets of Mr Thompson including his family home. Mr Likidis saw the desire of Mr Hartono and others to include Mac's Place in the merger as an opportunity for Apple to clear up what was potentially a bad debt without having to appoint a receiver or to exercise its power of sale over real property. On the completion of the purchase of assets by Aircent, Aircent paid Apple $1.56 million in reduction of the debt. Aircent assumed responsibility to Apple for the balance of the debt. According to Mr Liu, Aircent paid a further $900,000 on 29 September 2000. 99 In his negotiations with Mr Hartono and Mr Liu, Mr Likidis was not acting for Buzzle or making any decision for Buzzle. He was acting in Apple's interests. Apple did not decide for Buzzle that Buzzle should acquire the business of Aircent. I have rejected Mr Hartono's evidence that Mr Likidis said that Apple would not consent to the merger proceeding at all without Mac's Place. Even had he done so, Apple would not thereby have participated in Buzzle's decision-making. It was a matter for the directors of Buzzle to decide whether to proceed with the acquisition of Mac's Place business from Aircent. The fact that they needed Apple's consent, and the fact that Apple could have refused consent to the merger of any of the businesses of the vendor companies, does not mean that Apple thereby participated in Buzzle's decision to proceed with the acquisition of the assets of Mac's Place which had been acquired by Aircent. 100 The fifth decision Apple is alleged to have made, or in the making of which it is alleged to have participated, was to continue with the proposed merger following the withdrawal of Next Byte. As noted at paras [60] and [61] above, the decision by the remaining vendor Resellers to continue with the merger after they refused Next Byte's ultimatum that it receive an increased allocation of shares, was not Apple's decision. The decision was made by the Resellers and communicated to Mr Likidis on 24 July 2000. Mr Likidis was told that the remaining Resellers proposed that they all merge at once and that the merger be implemented within a month. 101 The sixth decision Apple is said to have made, or in the making of which it is said to have participated, was to continue to use Navision as Buzzle's financial accounting system following the withdrawal of Next Byte from the proposed merger. Again, that decision was not made by Apple. To the contrary, at the meeting on 28 July 2000 Mr Likidis warned against an immediate merger because of his concern that Navision might not work properly from the outset. Counsel for the plaintiffs submitted that Mr Likidis' caution was taken on board by the directors of Buzzle who went back to Mr Stead of Deloitte, that Mr Stead assured them that it would be able to go ahead, and they arranged for Mr Stead to satisfy Mr Likidis of that. The plaintiffs submitted that Apple, through Mr Likidis, participated in Buzzle's decision to proceed with the Navision system, notwithstanding the withdrawal of Next Byte, by his meeting with Mr Stead and considering whether or not the Navision system was going to be ready, and accepting Mr Stead's assurances that it would be. That involved no participation by Apple in Buzzle's decision to go ahead. Mr Hartono acknowledged in cross-examination that the decision to use the Navision accounting system had nothing to do with Mr Likidis (T66-67). The minutes of the Group Meeting of 1 August 2000 record that Mr Stead of Deloitte presented a status report on the Navision integration and advised that Deloitte was comfortable with the timetable for completion in the first week of September, provided that information requested from the principals was provided shortly thereafter. He requested that a technical person from Buzzle be provided to assist Deloitte and that a project manager be appointed. A Mr Steven Ong (I infer connected with Choice Connections) was nominated as the project manager. Apple did not participate in the Group Meetings. 102 The fact that at the meeting on 31 August 2000 Mr Likidis' questions concerning the Navision system were answered by Mr Stead and Mr Likidis was assured that the network was in place and was ready to go, does not mean that Mr Likidis participated in the decision by Buzzle to use the Navision system. Apple's consent to the merger was required and to obtain it Buzzle or its advisors had to satisfy Apple's concerns. Apple did not participate in Buzzle's decision-making by participating at meetings at which officers or advisors to Buzzle sought to allay its concerns. 103 The seventh decision Apple is alleged to have made, or in the making of which it is alleged to have participated, was "the decision in respect of due diligence procedures on each of the vendor companies". The plaintiffs allege that Apple made or participated in making that decision by Mr Likidis' instructing Mr Bright, who in turn advised Buzzle's directors, that an accountant should conduct due diligence on each of the proposed vendor companies and provide Apple with copies of the due diligence reports and profit and loss statements for each vendor company. It is also alleged that following its being informed that Mac's Place had negative assets of approximately $3 million Apple made this decision by instructing the "Appointed Directors" to arrange a due diligence report on Mac's Place and by Mr Hartono "on behalf of Buzzle" arranging for Moore Stephens to prepare the report. 104 No evidence was led from Mr Bright about the alleged instruction. Neither Mr Mekrizis nor Mr Hartono, who gave evidence about the meeting of 27 July 2000, referred to such an instruction being given by Mr Likidis. As noted earlier in these reasons, the minutes of the Group Meeting of 27 July 2000 record Mr Bright's recommending the appointment of a party to perform a high-level due diligence of each business to give each principal an understanding of the financial position of the other businesses. The minutes also record that Apple insisted that this process take place. The fact that Apple insisted that such due diligence take place does not mean that it made the decision, nor participated in a decision made by Buzzle that such due diligence take place. Apple could insist on any terms it chose in deciding whether to consent to the transfer of the vendor companies' stock, plant and equipment, and goodwill to Buzzle. The vendors' debts to Apple were not to be discharged at the merger. Apple had an obvious interest in such a due diligence being carried out, to satisfy itself as to whether the vendors' debts to it would be able to be discharged. Such due diligence would be an ordinary, and one would expect, an essential, part of a merger and in the interests of the merging participants. Apple had an interest in the merger being successful. 105 It is plain from the transcript of the meeting held on 27 July 2000 (the meeting was recorded) that the merger participants had already decided to conduct due diligence. Mr Bright said: " Through the process so far we've talked about various ways of conducting due diligence and getting comfortable with the numbers and the stock positions. The end point of where we got to was that the principal focus was going to be on the assets acquired. Along the way we talked about peer reviews of each other's businesses and some roles of the independent accountant. I think it's now necessary and apparent given some of the events of last week that we go back into that process and look at how we do that. " Mr Bright then discussed different firms who might be involved and recommended a particular Melbourne firm to carry out the due diligence investigation. That was agreed. 106 The eighth alleged decision was to acquire the stock of Aircent. This decision is in the same category as the earlier decisions to acquire the business of Aircent (para [95] and following). 107 The ninth and tenth decisions it is alleged Apple made, or in the making of which it is alleged Apple participated, were that Buzzle assume debts to Apple in respect of stock it acquired from the vendor companies, or which was ordered by the vendor companies and supplied to it, and to pay the moneys owed by it to the vendor companies directly to Apple by reason of Apple's instructions to Buzzle's directors to do so. 108 The ninth and tenth alleged "decisions" did not affect the whole or a substantial part of the business of Buzzle. Buzzle was liable to the vendors for stock which it purchased from them. The vendors in turn were indebted to Apple. It was of no moment to Buzzle whether it discharged the debts it owed to the vendors by paying them directly, or by paying the same amounts to Apple who credited the vendors with the payments. Insofar as any payments might have been made prior to 31 October 2000 out of Surplus Cash Flow the vendors had given an irrevocable direction for the payments to be made to Apple (Payments Deed clause 4(d)). 109 It is not clear how arrangements were made prior to 13 September 2000 for Apple to credit the vendors with the moneys payable by Buzzle and to invoice Buzzle for that debt. As noted at para [81], on 11 September 2000 Mr Shearer of Apple (who reported to Mr Likidis) sent an email to Arthur Andersen and the vendors stating: " So we are able to credit the old resellers' account for Apple's stock on hand and recharge it to Buzzle, could you supply today details and amounts to be credited and recharged. " 110 As also noted at para [81], Mr Likidis deposed that during a meeting held on or about 12 September 2000 Mr Hartono asked that Apple charge Buzzle's account and credit the vendors' accounts for the amount of stock held by each Reseller. He said that he agreed with this proposal. Although the arrangement seems to have been made before 12 September, I accept Mr Likidis' evidence that it was made by his agreeing to Mr Hartono's request. 111 On 13 September 2000 Mr Shearer forwarded to the vendors an email from Mr Likidis stating: " Assuming that completion takes place of the Buzzle Merger today, the following is the proposed transition plan:- a) Cut off all orders of Finished Goods and Service Parts to Apple Australia Computers (AAC) will be 4pm tonight 13/9/00 b) All uncompleted orders of the existing resellers (vendors) as at this date will be cancelled by AAC on receipt of the equivalent order by Buzzle via EPO. c) All future orders will be raised by Buzzle via EPO. d) The value of stock on hand that is Apple product as at the time of the merger is to be advised to Apple by each reseller (ASAP but no later than 5pm Thursday 14/9/00). Buzzle will confirm in writing the acceptance of this value to be charged to Buzzle. Apple will credit each reseller and charge Buzzle by Transfer Journal Voucher. This amount will be payable by Buzzle no later than 31-10-00. Would Renai Lawrence and Robert Ruigrok please contact Paul Shearer, Mary Haynes or Kevin McElduff in respect of any issues each may wish to clarify. " 112 On 15 September 2000 Mr Shearer sent an email to the vendors asking for the details of stock-on-hand requested in para (d) of Mr Likidis' email. On 29 September 2000 Mr Hartono sent an email to Mr Shearer and Mr Likidis stating: " Please find below the Apple stock figures that was transferred to Buzzle as at 11/9/2000. Choice Connections Australia - $2,948,717.54 Mac's Place - $1,090,226.90 Manning Computers - $71,302.94 GM Computer - $1,279,634.87 Designwyse - $486,826.87 Status Graph - $421,429.95 ". 113 On the same day Mr Likidis wrote to Mr Greg Lloyd of Buzzle asking him to confirm the accuracy of the amounts transferred and stating, "Once this is done we will arrange to make entries between each reseller and Buzzle". 114 On 10 October 2000, Mr Shearer repeated that request for confirmation to Mr Patterson (who had assumed the role of financial controller of Buzzle). On 13 October 2000 Mr Patterson confirmed that the numbers were correct. With effect as at 16 October 2000 Apple credited the vendors' accounts with the amount of stock transferred to Buzzle on 11 September 2000 and debited Buzzle's account with it. It raised an invoice to Buzzle in the sum of $6,298,139.07. 115 There is no evidence that Apple made or participated in making a decision for Buzzle to structure the transaction in this way. Rather, Mr Likidis acceded to Mr Hartono's request that the transaction be structured in this way. Even if the proposal had come from Apple, so that the accounting proceeded in the way Apple had proposed, that would not mean that Apple participated in Buzzle's decision-making. 116 The eleventh decision Apple is said to have made, or in the making of which it is said to have participated, was a decision that "Buzzle would restrict its ability to incur future indebtedness and its ability to deal with cash flow". That decision is said to be recorded in the Payments Deed. The plaintiffs allege that Apple instructed Buzzle's directors "in relation to what future indebtedness it could incur and how it should apply its future cash flows as it instructed the appointed directors to cause Buzzle to enter into an agreement which restricted Buzzle from incurring any debts other than as approved by Apple and Buzzle dealing with its future cash flow other than as approved by Apple." They allege that the directors followed those instructions and Apple's wishes and caused Buzzle to execute a deed to the effect that it would not incur financial indebtedness other than as approved by Apple and would apply its future cash flow as approved by Apple. 117 The evidence as to the negotiation of the terms of the Payments Deed was scanty. I infer that Apple did insist on the restrictions contained in the Payments Deed on the incurring of financial indebtedness other than "Permitted Financial Indebtedness". There is an elaborate definition of "Permitted Financial Indebtedness". It is not correct to say that Buzzle was restricted from incurring any debts other than as approved by Apple and could not deal with its future cash flow other than as approved by Apple. However, there were restrictions on Buzzle's ability to incur debts (other than in the ordinary course of business on non-capital account). I infer that Apple sought the restrictions contained in the Payments Deed and Buzzle agreed to those restrictions. There is no evidence that Apple participated in Buzzle's decision to agree to those restrictions other than by requesting them. That is to say, there is no evidence that Apple participated in Buzzle's making of the decision to agree to the terms of the Payments Deed. 118 The plaintiffs submitted that: " ... the entry by Buzzle into the Payments Deed on the terms that it did was a decision within which [sic] Apple was involved because the circumstances at that time, and the fact that substantial debts were owed by the old Reseller companies, meant that Apple could dictate the terms of that Agreement. As was indicated by Mr Hartono, the directors really had no choice but to agree to such terms, including the requirement for repayments on 31 October 2000, whether or not permitted by cash flow. " Mr Hartono deposed that he felt he had absolutely " no choice but to agree to the terms contained in the Payments Deed. " This does not mean that Apple participated in Buzzle's decision-making. To the contrary, Mr Hartono said he had no choice but to agree to what Apple proposed. For a director of a company to acquiesce in a third party's demands does not mean that the third party participates in the company's decision-making. Given that officers of a company have a statutory duty to act in the best interests of the company, it would be an impossible position if a third party making demands on a company in its own interests become an officer of the company because its demands were acceded to. 119 The twelfth and last decision the plaintiffs allege Apple made, or in the making of which it is alleged Apple participated, was that Buzzle only sell Apple products. The plaintiffs allege that Apple made or participated in the making of that decision by Mr Likidis' giving an instruction on 28 June 2000 to the proposed directors of Buzzle, including Mr Giles, that the directors should ensure that Buzzle sold Apple products exclusively. It is alleged that the appointed directors followed those instructions and caused Buzzle to sell only Apple products, to the exclusion of any other computer hardware, software or accessory products. 120 If what was alleged was the fact, it would not mean that Apple made or participated in Buzzle's decision to that effect. It would only mean that Buzzle acquiesced in Apple's demand. But in any event, the allegation is not correct. The agreements entered into between Buzzle and Apple did not provide that Buzzle would only sell Apple products. Mr Hartono said that it was agreed that Buzzle would sell only Apple hardware and software products in its metropolitan stores, but could sell up to 50 per cent of non-Apple products in regional stores (T111). This appears to have been common ground, although I was not referred to any agreement containing such a term. 121 For these reasons I do not consider that Apple made or participated in the making of any of the alleged decisions said to affect the whole or a substantial part of the business of Buzzle. It was not an "officer" of Buzzle within the first limb of the definition. The Second Limb of the Definition of "Officer": para (b)(ii) 122 Buzzle submitted that Apple was an officer of Buzzle within the meaning of para (b)(ii) of the definition of "officer" of a corporation being a person: " (ii) who has the capacity to affect significantly the corporation's financial standing ". This submission relies on the allegations outlined in paras [116] to [118] of these reasons, as well as Apple's control over Buzzle's raising of debt through the terms of the Payments Deed and Apple's ability to terminate the Reseller Agreement on 30 days' notice and vary terms on which it supplied stock at its own discretion. That control is said to mean that Apple could effectively bring about Buzzle's default, or serious risk of default, thereby crystallising Apple's rights under the charge. 123 There is no difficulty in saying that Apple had the capacity to affect significantly Buzzle's financial standing. It could do so by granting or withholding its consent to the merger. It could do so by the terms on which it agreed to the merger. It could do so by agreeing to supply goods to Buzzle at a low or high price. It could do so by approving other Resellers who could provide competition to Buzzle. It could do so by giving notice to terminate the Reseller Agreement. It could do so by the terms upon which it gave credit to give Buzzle. 124 Moreover Apple had the capacity (although it was not asked to do so and would doubtless have refused if asked) to offer an unlimited guarantee of all Buzzle's debts, which would undoubtedly have significantly affected Buzzle's financial standing. Any bank or financial institution of significant worth, or any wealthy person or company, had the same capacity. A "person" referred to in para (b) of the definition of "officer" includes a body politic or corporate as well as an individual (s 85A). The Commonwealth and State Governments are "persons". They have the capacity to affect the financial standing of every company. It would be absurd to say that on that account, the Commonwealth and State Governments, every bank, wealthy company and wealthy individual, is an "officer" of every other company owing duties to that company. 125 The definition of "officer" in the Corporations Law as at 13 September 2000 and now found in the Corporations Act 2001 (Cth) was introduced by amendments made by the Corporate Law Economic Reform Program Act 1999 (Cth) which came into effect on 13 March 2000. Prior to those amendments the general duties of good faith, care and diligence were imposed on directors and "executive officers". An "executive officer" was defined relevantly as a person, whether or not a director, who was concerned or took part in the management of the company. In Commissioner for Corporate Affairs v Bracht [1989] VR 821 Ormiston J said (at 830) discussed what was encompassed within the notion of "management" of the activities of a corporation which would make a person an executive officer and subject to the same statutory duties as a director. His Honour said (at 830): " It may be difficult to draw the line in particular cases, but in my opinion the concept of 'management' for present purposes comprehends activities which involve policy and decision-making, related to the business affairs of a corporation, affecting the corporation as a whole or a substantial part of that corporation, to the extent that the consequences of the formation of those policies or the making of those decisions may have some significant bearing on the financial standing of the corporation or the conduct of its affairs. It is not necessary for me to reach any conclusion in this case whether that management must be confined to the 'central direction of the company's affairs', as appears to have been approved by the Court of Appeal in Campbell's Case (78 Cr App R, at 98). With respect, I would doubt that the term must necessarily be confined in that way. It is the management of the corporation which is the subject of the prohibition. Thus, although the decisions of a branch manager, subject to predetermined restrictions, may not be comprehended, there are those involved in large, discrete parts of a corporation's business, who, although not participating in the central administration of that corporation, nevertheless are involved in its management to the extent that their policies and decisions have a significant beaning on its business and its overall financial health. " 126 It appears that the definition of "officer" in para (b)(i) and (ii) inserted by the Corporate Law Economic Reform Program Act 1999 was intended to codify the decision of Ormiston J in Commissioner for Corporate Affairs v Bracht (see The Treasury, CLERP (Audit Reform and Corporate Disclosure) Bill Commentary on the Draft Provisions – Corporate Law Economic Reform Program No. 9 (October 2003), Chapter 9 at [69] and [70]; Corporations and Markets Advisory Committee, Personal Liability for Corporate Fault Discussion Paper (May 2005) at 74). Section 179(2) in Pt 2D.1 dealing with the duties and powers of officers and employees provided that the definition of "officer" in s 9 included, as well as directors and secretaries, some other people who manage the corporation or its property. When read in the context of the provisions imposing duties on an "officer" of a corporation, and read in the light of the legislative history and the apparent intention of the Parliamentary draftsman to codify what was formerly a definition of an "executive officer", it can be seen that para (b)(ii) should be taken as referring to a person who, in his or her management of the affairs of the corporation, has the capacity to affect significantly the corporation's financial standing. It does not refer to a person who has that capacity as a third party but is not involved in the management of the corporation's affairs. As Jacobson J said in Australian Securities and Investments Commission v Citigroup Global Markets Australia Pty Ltd (No. 4) (2007) 160 FCR 35 at [490]: " The language of subparas (b)(i) and (b)(ii) of the definition of 'officer' corresponds, in large measure, with Ormiston J's description of the concept of management. What emerges from this is that an officer is involved in policy making and decisions that affect the whole or a substantial part of the business of the corporation. " 127 Therefore, the fact that Apple had the capacity to affect significantly Buzzle's financial standing is not sufficient to make it an "officer" of Buzzle, notwithstanding the apparently plain words of the definition if the definition were read without context and without an understanding of how the current definition came to be adopted. If a context is supplied, it is obvious that the definition cannot be applied literally. 128 The question under para (b)(ii) of the definition of "officer" is whether Apple was involved in the management of Buzzle in a way which gave it the capacity to affect significantly Buzzle's financial standing. But Apple was not involved in the management of Buzzle, at least up to 14 September 2000. 129 For these reasons, Apple was not a "relevant person" in relation to the charge created by Buzzle by reason of having been an officer of Buzzle. "Relevant Person" in Relation to the Charge – The Associate Reference 130 The third way Buzzle contended that Apple was a relevant person in relation to the charge was that Apple was a person "associated" in relation to the creation of the charge with the directors of Buzzle who were officers of Buzzle. Section 15 of the Corporations Law provided: " (1) The associate reference includes a reference to: (a) a person in concert with whom the primary person is acting, or proposes to act; ... in respect of the matter to which the associate reference relates. " 131 The plaintiffs submitted that Apple was acting in concert with Buzzle's directors in relation to the creation of the charge. I do not agree. For Apple to have acted in concert with the directors of Buzzle in relation to the creation of the charge would require that they took concerted action with a common purpose or object (Adsteam Building Industries Pty Ltd v The Queensland Cement & Lime Co Ltd & Ors (No. 4) [1985] 1 Qd R 127 at 130; (1984) 2 ACLC 829 at 832; IPT Systems Ltd v MTIC Corporate Pty Ltd (2001) 19 ACLC 386 at 391 [24], [25]; Bateman v Newhaven Park Stud Ltd (2004) 49 ACSR 597; (2004) 22 ACLC 943 at [16]-[23] and cases there cited). The plaintiffs submitted that Apple saw advantages to itself in the merger and the taking of the charge from Buzzle, not only in having a properly capitalised reseller network and the prospect of increased sales of its products, but also as an opportunity to better secure the collection of its debts owed by the vendor Resellers. The plaintiffs referred to evidence given by Mr Likidis that he saw the merger as a good opportunity to secure Apple's position to ensure that it received payment of the vendor Resellers' debts. The plaintiffs submitted that "Apple ... had its own reasons for the merger going forward and gained a significant advantage in respect of the prospect of collection of such debts by the pooling of the assets of the resellers and the giving of credit terms to Buzzle which enabled an early payment to be funded by it." The plaintiffs submitted that for this reason Apple and Buzzle were to be taken to have acted in concert in bringing about the merger as each benefited from it, and the granting of the charge was an integral part of the merger to bring the alleged common purpose to effect. 132 However, none of the purposes attributed to Apple in the taking of the charge was common to Buzzle. It was no part of Buzzle's purpose that Apple obtain better security for the repayment of the vendors' debts. The fact that both Apple and Buzzle saw the merger as potentially beneficial to each of them does not mean that they had a common purpose in relation to the merger, let alone that they had a common purpose in relation to the creation of the charge. 133 In IPT Systems v MTIC Corporate Pty Ltd, Owen J said (at [26]) that: " It seems to me that the phrase 'acting in concert' must mean something more than the mere entry into a transaction. It is not the mere creation of the charge that attracts the operation of the section. If it were as broad as that, then any party involved in the creation of a charge would be an 'associate' for the purposes of the definition for a bank may ask a director to have a charge executed. The bank and the director would have the common purpose of effecting the execution (as a critical step in the creation) of the charge. Even if it is benign and in the ordinary course of business, the bank would be a 'relevant person' for these purposes. That cannot have been the intention of the legislature. " 134 I agree. The plaintiffs did not submit that merely because Apple and the directors of Buzzle had the common purpose of creating the charge that Apple was for that reason associated with Buzzle's directors in relation to the creation of the charge. It is unnecessary to express any view on the further observations of Owen J in IPT Systems Ltd v MTIC Corporate Pty Ltd at the conclusion of para [27]. 135 The directors of Buzzle and Apple did not have a common purpose or object in relation to the creation of the charge. Apple had a purpose particular to it. The directors of Buzzle were resigned to the fact that the grant of the charge was necessary if Apple were to release its charges over the assets of the vendors and to enter into a Reseller Agreement with Buzzle. They entered into the charge at arm's length and without any common object or purpose which went beyond the mere purpose of giving a charge over Buzzle's assets to Apple. Conclusion in Relation to s 267(1)(a) 136 For these reasons I conclude that Apple was not a "relevant person" in relation to the charge given by Buzzle within the meaning of s 267(1). It follows that the charge was not void. 137 It is unnecessary to decide whether Apple purported to take a step in the enforcement of the charge within the meaning of s 267(1)(b). As noted earlier in para [85] of these reasons, one of the terms of the instrument creating the charge (clause 4.4) required Buzzle to keep proper books of account, make true entries of all dealings and transactions conducted by it in respect of its business, and make available to Apple at all reasonable times for inspection and copying those books of account and vouchers and other documents relating to the affairs of Buzzle and its business, at a time Apple might appoint. On 2 February 2001 Mr Likidis for Apple sent a facsimile to Mr Qureshi, the chief executive officer of Buzzle, confirming that: " Apple has appointed KPMG as its professional adviser pursuant to clause 4.4 of the Deed of Charge between Apple and Buzzle dated 13 September 2000, to inspect Buzzle's records. ... Apple expects your full co-operation with KPMG over the next few weeks whilst they conduct their investigation. " (TB11/3511) 138 Clause 4.4 of the Deed of Charge did not refer in terms to the appointment of an investigating accountant, but did require Buzzle to make its books of account, vouchers and other documents available for inspection at all reasonable times and copying by Apple or any professional adviser that Apple might appoint. 139 It is a nice question whether a step in the enforcement of a charge includes the enforcement of any condition that might be contained in an instrument of charge, whether or not that condition is one for the enforcement of security over the charged property. As in this case, it is open to parties to include in an instrument of charge any terms they like, whether or not they partake of the essential nature of a charge. In this case, Apple could equally have asserted a right to inspect Buzzle's books pursuant to the Reseller Agreement. In requiring Buzzle to make its books available for inspection by KPMG it was not taking any step to realise the property secured by the charge or to appoint receivers over that property. In Australian Innovation Ltd v Dean-Willcox & Ors (2001) 40 ACSR 521, Palmer J said (at 526-527 [26]) that: " ... what is required is that the creditor actually exercise, or attempt to exercise, a right which it has under the Charge in aid of the realisation of its security. " 140 By appointing an investigating accountant, Apple did not seek to enforce its security. 141 In the light of my earlier findings it is unnecessary for me to express any conclusion on whether Apple took a step in the enforcement of its charge within the meaning of s 267(1)(b). If I am wrong in my earlier conclusions, no findings of fact are necessary for this question to be determined by the Court of Appeal. In these circumstances, I prefer not to express an opinion on this issue. Conclusion on the First Issue 142 For these reasons, I conclude that Apple's charge is valid. It follows that the claims against the receivers for trespass and conversion will be dismissed and the claim that payments of $5,250,000 remitted by the receivers to Apple after 28 May 2001 can be recovered as a voidable preference will also be dismissed. Second Issue: When was Buzzle First Insolvent? 143 The plaintiffs allege that Buzzle was insolvent from at least 3 November 2000 and in any event by 6 November 2000. Alternatively it says that by making the payment of $1,016,827.64 on 3 or 6 November 2000 it became insolvent. (The payment of $1,016,827.64, alleged to be the first uncommercial transaction, was made by bank transfer debited to Buzzle's account on Friday, 3 November 2000 and credited to Apple's account on 6 November 2000. No different question arises whether the date of the transaction is 3 or 6 November. I will take 6 November 2000 as the relevant date.) It is necessary to consider whether Buzzle was insolvent as at that date, whether it was insolvent as at 8 December 2000, and whether it was insolvent from 1 January 2001. There is no issue that Buzzle was insolvent from 19 February 2001. 144 Buzzle never provided accurate accounts. The Navision system failed, or was never properly implemented. This created insuperable difficulties for the merged business. Buzzle was unable to identify its debtors. No meaningful accounts were prepared by Buzzle prior to 31 January 2001, and there are serious reservations in respect of the financial statements as at that date. Some of the problems with the Navision accounting system can be seen from the following statements. On 22 January 2001 Mr Jeff Hanlon, Buzzle's then financial controller, wrote to Mr Likidis and said: " After contacting debtors last week, it is clear that individual debtor balances on the listing are overstated and the ageing incorrect because of unprocessed receipts. Many of the debtor's [sic] contacted have indicated they have already paid some of the invoices shown as outstanding. ... ... the accurate [sic] of the Debtors Ledger is seriously compromised by the following events: * Stores have been preparing manual invoices that have not been entered into Navision. A high per centage of these invoices are for sales made and settled at point of sale. When processed they have no impact on debtors. However some of the stores like Albury have made sales on credit terms. * There are numerous direct customer receipts relating to accounts with balances greater than $5,000 that have been deposited into Buzzle's bank account but not processed in the general ledger bank account or allocated against an individual debtors [sic] account. It is expected that these account for most of the overstatement. " (TB10/3343). 145 The KPMG report of 19 February 2001 stated: " * Management accounts have not been generated since the inception of Buzzle. ... * The system has numerous problems that have impacted data integrity. These problems include restrictions on the ability of stores to void transactions, raise and authorise credit notes and change and authorise receipting information, which has required head office intervention resulting in processing delays and problems with end of day reconciliations. ... ... Jeff [Hanlon] has advised that problems experienced to date have not been collated and recorded centrally, for example in an issues register, which has made it difficult to identify and resolve problems with the system. ... * System costs to date are approximately $1.3 million of which $500,000 is still outstanding. * ... Three stores continued with their pre-merger systems and due to problems with Navision continue to use these systems. The use of different systems requires journal adjustments and off-system analysis in order to consolidate information. ... * Thomas [Qureshi] [Buzzle's chief executive officer] indicated to Apple representatives during January 2001 that the Buzzle financial accounts would be up to date and completed by 14 February 2001. In our opinion, we do not believe that reliable and accurate financial accounts can be generated in the short term. * There are significant issues yet to be addressed including: reconciliation of the bank accounts ... - reconciliation of debtors; establishing accurate sales data; - reconciliation of unallocated cash (to debtors or cash sales); and - establishing a fixed asset register. " (TB11/3650, 3651) 146 In their report of 19 February 2001 KPMG said: " Data quality has been a major factor in impeding an accurate and detailed financial assessment of the business. However, it is abundantly clear that Buzzle is insolvent, making significant operating losses and requires a wholesale organisational, operational and capital (involving the introduction of significant additional capital) restructuring to continue to trade. " (TB11/3639) 147 A balance sheet prepared as at 31 January 2001 and profit and loss statements for the period from 11 September 2000 to 31 January 2001 disclosed accumulated losses and net liabilities of over $8 million (TB11/3453, 3454). 148 It does not necessarily follow that Buzzle was insolvent as at 6 November 2000 or 8 December 2000, or from 1 January 2001. The plaintiffs advanced a detailed analysis of Buzzle's financial position to demonstrate that at all times from at least the beginning of November 2000 it was insolvent if regard were had to debts owed by Buzzle, although not payable until 1 December 2000 or later. The plaintiffs' analysis is supported by a report of Mr Barry Cook, a chartered accountant. It was his opinion that by late September or early October 2000 Buzzle was insolvent and remained so. He was not required for cross-examination. There was no contrary expert evidence. The defendants made only perfunctory submissions on the question of Buzzle's solvency (as distinct from Apple's reason to suspect Buzzle's insolvency). 149 The only substantial argument the defendants advanced to dispute the plaintiff's contention that Buzzle was insolvent from at least the beginning of November 2000 was that Buzzle could look to its shareholders to provide working capital. There was no written commitment by any shareholder to provide capital beyond the initial $275,000 to fund part of the cost of the merger agreed on 16 May 2000. Clause 3.5 of the Shareholders Deed provided that the maximum amount which shareholders might contribute in the form of subscription moneys was $500,000 for Mr Hartono or any entity he controlled, $1 million for Mr Mekrizis or any entity he controlled, and $500,000 from Mr Liu or any entity he controlled. That clause did not limit the right of the board to approve further shareholding funding if Buzzle required it. It is clear from internal memoranda prepared by Arthur Andersen prior to the merger that Buzzle proposed to raise $2 million from the shareholders. However, no binding commitment was given. Mr Mekrizis and Mr Hartono at different stages of their evidence said that they had contributed capital of $500,000 in the case of Mr Hartono, and $1 million in the case of Mr Mekrizis, through the provision of stock. As appears below at paras [211]-[213], Buzzle incurred liabilities to the vendor Resellers for payments made on its behalf, including payments for stock, and these liabilities were deferred. Mr Liu denied having made any commitment to provide working capital (T653-654, 638, 640). Buzzle had no right to require its shareholders to contribute further capital and, as events proved, no such capital was provided beyond the payments made on Buzzle's behalf. Buzzle's insolvency can be considered without regard to the debts it owed the vendor Resellers for payments made on its behalf. 150 When Buzzle started in business it assumed the liabilities of the vendor Resellers to ongoing expenses of the Resellers' businesses, including wages and other employment costs and rent. It had cash of about $75,000 and no overdraft facility. It was not entitled to collect the pre-merger debts owed to the vendors. It had the inventory it acquired from the vendors, and further inventory it ordered from Apple. Its ability to meet ongoing expenses and to pay for the stock it acquired depended on achieving a sufficient level of sales. As a substantial proportion of sales were on credit, Buzzle's ability to pay those debts also depended upon its ability to collect the debts owed for stock it sold or services it provided. 151 At the commencement of trading it also owed Next Byte $300,000 for Next Byte making the Navision licence available to Buzzle. 152 Arthur Andersen's forecast for Buzzle prepared in September 2000 showed that the Resellers, in aggregate, had a gross margin on sales of 14.23 per cent before rebates and 15.4 per cent after rebates. Arthur Andersen projected sales up to 30 June 2001 of $167 million and an improved gross margin of 18.7 per cent. The standard margin used in a presentation overview prepared by Buzzle dated January 2001 was 12 per cent. The fixed overheads of the merged business were around $1.7 million to $1.9 million per month. To break even with a gross margin of between 12 per cent and 15 per cent, Buzzle required a monthly turnover of around $12 million to $15 million. 153 Trading conditions from September were difficult. In discussions with Mr Rispin on 16 February 2001 Mr Mekrizis said that trading conditions from the time of the merger were much more difficult than they had been before June 2000 and the market did not improve until February 2001. This was attributed partly to the Olympics, and partly to the then recent introduction of GST. Although figures for sales were not reliably recorded, it is clear that they were substantially below budget. The management meetings record reports of slow sales. Buzzle's BAS return for the period from September 2000 to 31 March 2001 disclosed gross sales revenue for September 2000 of only $2,056,000 and only $5,360,000 for October. As at 19 February 2001, management's latest estimate of sales to 31 January 2001 was $39 million or about $10 million per month. This can be compared with Arthur Andersen's forecast sales to 31 January 2001 of $69 million. The low level of sales meant that Buzzle was trading at a loss. 154 The problems experienced with the Navision system were partly responsible for the poor sales. The stores could not get their orders for stock processed. Buzzle's ability to collect its debts was compromised by the lack of adequate records showing what debts were owed and the lack of reconciliation between cash banked and particular accounts. 155 KPMG observed in its report that no payments were made to the ATO or to the State Revenue offices in relation to PAYG deductions or payroll tax since the merger. These are classic indicia of insolvency. The amounts owing to the ATO as at 31 January 2001 totalled $2.5 million. 156 Mr Cook's uncontested evidence was that superannuation entitlements dating back to September 2000 were not paid by Buzzle. The unremitted amount by the end of October exceeded $120,000. 157 The plaintiffs' analysis of unpaid trade creditors shows that by 6 November 2000 invoices for non-Apple third party creditors outstanding for over 30 days totalled $1,580,163. 158 In November Next Byte threatened to take legal action if its debt of $300,000 was not paid. A solicitor's letter of demand was served on behalf of Love Pty Limited for the provision of services in connection with the float. Love Pty Limited had been engaged to provide certain marketing services such as logos and brand names. It proposed the name Buzzle. It had rendered invoices on 30 June 2000 and 7 August 2000 totalling $66,000 which were due for payment in 30 days. These remained unpaid. There is no evidence they were disputed. 159 As at 6 November 2000 Buzzle had cash in its bank account of $2,937,635. The plaintiff's analysis of third party invoices shows that as at that date there were invoices in arrears totalling $1,580,163 from non-Apple creditors. Of this amount $706,824 remained unpaid when the company ultimately went into liquidation. By 6 November 2000 Buzzle had incurred debts to Apple totalling $23,965,078. At this time Buzzle's trading terms with Apple allowed 45 days' credit and there was also an informal arrangement that no payments would be required before 1 December 2000. The amount due on 1 December 2000 was $9,731,346.88. Although Buzzle paid Apple $4,300,000 on 1 December 2000, there was then an additional $4,770,470 due and payable. In addition non-Apple creditors whose debts were in arrears totalled $1,786,119. Of this amount, debts totalling $1,093,996 remained unpaid. The opening balance of Buzzle's bank accounts for that day (prior to the payment of $4,300,000) was $4,502,891. Buzzle did not have the cash or other resources to pay the debts which were then due and payable, let alone the further debts which were to become due and payable to Apple. 160 Buzzle was trading at a loss. It did not have the cash flow to pay all its debts as they became due and payable. In assessing its solvency as at 6 November 2000 and subsequently, account is to be taken of the debts owed to Apple which became payable on 1 December 2000 and thereafter in accordance with the trading terms (Bank of Australasia v Hall (1907) 4 CLR 1514 at 1528). 161 Mr Cook expressed the following conclusions: " Losses were incurred from day one of the merger. Around late September to early October 2000, it was clear Buzzle: 13.1 had no profitability in the foreseeable future; 13.2 had relatively fixed monthly overheads in the nature of salary and wages and rents which had to be paid on a monthly basis; 13.3 had a recorded liability to pay $300,000 to Next Byte which was overdue; 13.4 had a liability to pay $522,542 to Deloitte which was overdue; 13.5 had payroll tax and superannuation contributions due or falling due the end of October 2000; and 13.6 although not due until 31 October 2000, had paid $1,595,000 of the total of $11.7 million due to Apple and the resellers. Based on the above, in my opinion as at late September to early October 2000, Buzzle was unable to make the payments referred to in sub-paragraphs 13.3, 13.4, and 13.5, or the balance of the payments referred to in sub-paragraph 13.6 above, and had no prospects of being able to make those payments from its expected cash flow. Consequently, it is my opinion that at and from that time, Buzzle was insolvent. Further, Buzzle was continuing to incur debts from ongoing trading during October 2000 which it would not be able to pay as and when they fell due. In my opinion the position of Buzzle worsened on or around 31 October 2000 when the balance of the debts referred to in sub-paragraph 13.6 above fell due. In my opinion, Buzzle remained insolvent until the appointment of the receivers and managers in March 2001. " 162 I agree. Buzzle was not able to pay all of the $9.07 million which became due and payable on 1 December 2000. It paid only $4,300,000 on that day. It did not make a further payment until 15 January 2001 when it paid a further $5 million. However, by 15 January 2001 the amount outstanding (immediately before the payment) was $26,052,311 of which just over $7 million had been incurred in the preceding 45 days and would not have been then due. Therefore, over $19 million was due and payable by 15 January 2001. 163 I conclude that when account is taken of the debts owed by Buzzle to Apple that fell due for payment within 45 days, Buzzle was insolvent at all material times from at least 6 November 2000. Apple's Suspicion of Buzzle's Insolvency 164 In relation to the uncommercial transaction claims, it would be a defence if Apple established that it received the benefit of the payments in good faith and at a time when it had no reasonable grounds for suspecting that Buzzle was insolvent at that time or would become insolvent by entering into the transaction and that a reasonable person in its circumstances would have had no such grounds for suspecting (s 588FG(1)). That would also be a defence to a claim by the liquidator to recover amounts equal to the payments made by Buzzle to Apple after 1 January 2001 which are said to be unfair preferences. Suspicion of insolvency would negative good faith which is a separate element of the defence under s 588FG(1) (Queensland Bacon Pty Ltd v Rees (1966) 115 CLR 266 at 287). (The potential separate defence under s 588FG(2) was not relied on, presumably because it would not be made out if the defence under s 588FG(1) was not made out.) In the case of the claim under s 588M to recover compensation for loss resulting from insolvent trading if Apple or Mr Likidis are found to be shadow directors of Buzzle, for the defence under s 588H(2) to be made out the defendants would have to establish that they had reasonable grounds to expect and did expect that Buzzle was solvent at the time and would remain solvent even if it incurred the debts. 165 Mr Likidis deposed that he did not suspect that Buzzle was insolvent until mid-January 2001. He said he had that suspicion around 14 or 15 January. Mr Likidis was assisted in his role as financial director of Apple by Mr Paul Shearer who was the financial services manager in charge of credit control. Mr Steven Kidd held the role of credit analyst and was responsible for keeping a watching brief on the financial position and credit risk of the Apple Resellers. He reported to Mr Likidis and Mr Shearer. Mr Shearer left Apple in early November 2000. Mr Kidd took over his responsibilities and then reported to Mr Likidis. 166 The plaintiffs did not submit that Apple suspected, or that a reasonable person in Apple's position would have suspected, that Buzzle was insolvent as at 6 November 2000. Given Mr Likidis' concession that he suspected that Buzzle was insolvent by 14 or 15 January, the issues are whether Apple suspected, or a reasonable person in its position would have suspected, that Buzzle was insolvent as at 8 December 2000 (being the date of the second alleged uncommercial transaction) or by 1 January 2001, or any day in January before 15 January 2001. 167 In a message from Mr Likidis forwarded to the Resellers by Mr Shearer on 13 September 2000, Mr Likidis had said that Apple would credit each Reseller and charge Buzzle by a transfer journal voucher with the value of stock on hand at the time of the merger. He said that that amount would be payable by Buzzle no later than 31 October 2000 (TB7/2536). It is not clear when or how an arrangement was made whereby Buzzle agreed that this debt would not be payable until 1 December 2000. Mr Kidd was told by Mr Shearer that Buzzle was allowed an extension of terms to pay the initial invoices and the first payment would not be due until 1 December 2000 (T681). In the books of Apple, Buzzle was debited with the amount of $6,298,139.07 on 16 October 2000 and each of the Resellers was credited with their respective portions of the debt. 168 On 21 November 2000 Mr Kidd sent an email to Mr Patterson and Mr Hartono at Buzzle advising details of payments due on Buzzle's account (TB9/2880-2881). The amounts due were as follows: " Due Date Amount 12/1/00 [sic] $9,731,346.88 12/8/00 [sic] $438,496.84 15/12/00 $754,601.61 22/12/00 $3,993,032.68 29/12/00 $316,631.89 1/5/01 $799,800.45 169 Mr Likidis was aware of the times those amounts fell due for payment. 170 After Buzzle paid only $4.3 million on 1 December 2000 its outstanding overdue debt to Apple was $4,770,470.23. Other sums were due on 8, 15, 22 and 29 December and 5 January as shown in Mr Kidd's email of 21 November 2000. On 4 December 2000 Mr Kidd sent an email to Mr Patterson enclosing a sheet for him to complete to send back for Apple's review setting out the payment plan Buzzle proposed for the next few weeks. Mr Patterson did not respond. When Mr Kidd spoke to him, Mr Patterson told Mr Kidd that he was working on it, and would be taking it to the directors and would get back to Mr Kidd (T707). Mr Patterson did not suggest to Mr Kidd that Buzzle had the money to make the payments but there was some other reason why the payments were not being made (T707). Mr Kidd said that he assumed from what he was told, probably by Mr Likidis, that the reason for the short payment was that Buzzle's accounts were in such a mess that they were having trouble with their cash flow as they could not ascertain what their accounts receivables were (T708). 171 Mr Likidis said that the short payment on 1 December 2000 was not of great concern to him at that time. He added "Talk to me a week later, and a week after that, and I'll give you a different answer. But right there and then, it wasn't a great concern to me." He knew that Buzzle's systems meant that it was not able to produce financial statements. It was not an unusual occurrence for a Reseller to be late in its payments, although default of $4.7 million was significant. Mr Likidis accepted that the default on 1 December 2000 raised questions. The questions it raised in his mind were "Why can't they pay the money? Is it because they're not cash flowing? Is it because they're losing money? Is it because they have got the money tied up in stocks and receivables? What's the reason? ..." (T448). 172 On 5 December 2000 Mr McElduff wrote to Mr Qureshi asking for a meeting between their respective management teams. He proposed a meeting for Friday 15 December 2000. 173 On the same day Mr Kidd sent an email to Mr Hartono attaching the schedule he had sent to Mr Patterson the previous day. Mr Kidd said that he needed to report on payments from Buzzle over the next few weeks to cover normal amounts plus clear arrears and asked Mr Hartono to advise. He received no response (TB9/2959, T709). 174 On 8 December Buzzle made a payment of $108,623.55, which was credited to the vendor Reseller accounts. Buzzle did not meet the arrears payable on its own debt or make any payment towards the further debt of $438,496 payable on its own account to Apple on that day. 175 On 8 December 2000 Mr Kidd wrote to Buzzle (Messrs Hartono and Patterson) advising, amongst other things, that the payment plan needed to be completed and submitted to him as soon as possible, that Buzzle had failed to honour its commitment as at 1 and 8 December 2000 and that he needed answers by Monday 11 December if stock supplies were to continue. 176 Mr Patterson of Buzzle advised Mr Kidd on 8 December 2000 that "I have transmitted $108,623.55 as directed by Donald for payment on behalf of Mac's Place." (TB9/2967-2). Mr Kidd was asked whether he was concerned that Buzzle should be making a payment on behalf of Mac's Place when it apparently could not pay the amounts which it owed Buzzle on its own account. He said that he thought the payment for Mac's Place was going to come from Mr Hartono or Mr Liu and assumed that some arrangement had been made by them with Buzzle (T710). 177 As at 8 December Mr Kidd was concerned that the payments were overdue and that he was not getting any concrete response to his request to be told what payments would be made to Apple and when. He agreed that this raised a question in his mind as to whether Buzzle was able to pay its debts (T711). 178 On 11 December, at the request of Mr Likidis, Mr Kidd prepared a short summary of Buzzle's account with Apple. He reported that the total amount outstanding at that date was $20,177,969.08. He identified the security for the debt in the form of the registered charge and guarantees and credit insurance of $10 million which was due to expire on 31 January 2001. 179 In cross-examination Mr Kidd gave the following evidence: " Q. By 18 December you thought there were real questions about whether it [Buzzle] was able to pay its debts? A. Yes. Well, it started to snow ball fairly quickly, especially when we found out there were no accounting systems in place and there were all sorts of troubles. Q. You told me you knew that at the beginning of December? A. I knew they were having trouble, the system wasn't up and running properly, but I didn't know there wasn't going to be the money there to pay us also. Q. You knew that on 1 December? A. Well, because the money wasn't paid, yes. Q. Yes? A. Yes. Q. And because when you asked them for promises, they couldn't give you promises? A. True. Q. When you asked them for explanations, they couldn't give you any real explanations as to why they didn't have money or whether they did have money? A. True. Q. All of those matters you knew by early December, that is by the 8th? A. Money wasn't coming through, yes. " 180 On 11 December 2000 Mr Kidd sent an email to Apple's insurance broker in relation to credit insurance. Temporary cover of $10 million was due to expire on 31 January 2001. At Mr Likidis' suggestion Mr Kidd asked for the temporary cover to be extended until 15 March 2001. He gave as the reason for the extension of temporary cover that the financial details for Buzzle for the period to 31 December 2000 would not be available until late February, which he attributed to the Christmas period and late commencement of trading in Buzzle's own name. The broker advised that he would make that application to the insurer. The broker advised he would tell the insurer that a three-months' management account, which the insurer had requested, would not be available until the end of February. The broker asked Apple "As added support are you able to provide the trading history your company has developed with Buzzle Operations?" (TB9/2970). On 11 December Mr Kidd responded by saying: " As at 30 November 2000 outstanding amount was $23.7 million all within terms. Payments start this month. " 181 Mr Kidd acknowledged (T715) that whilst this was literally correct, it was deliberately misleading to omit reference to Buzzle's defaults on 1 and 8 December 2000. The fact that Apple was prepared to go to the lengths of misleading its insurer to ensure that it maintained credit insurance strongly suggests that it had a real concern that Buzzle might not be able to pay its debts. Its concern was not merely that there was a temporary shortage of liquidity which meant that Buzzle could not pay its debts exactly on the days they became due. It was sufficiently concerned that it might need to call on the insurer to recover a shortfall, that it was prepared to mislead its insurer. 182 On 11 December 2000, Mr McElduff wrote to Mr Qureshi asking to be provided with financial information available for review prior to the meeting to be held on Friday 15 December. He asked to be provided with a balance sheet and a profit and loss statement for the months of September, October and November, with cash flow projections to the end of March 2001, and with debtor and creditor listings as at the end of November. He said: " In light of your current payment shortfall of $5.2 million it is critical that we have this information available prior to the meeting. " 183 Mr Qureshi was trying to delay the meeting because Buzzle could not produce the information Mr McElduff required. Apple would not be put off. On 12 December 2000 Mr McElduff wrote to Mr Qureshi and others and stated: " From our perspective it's imperative that we hold the meeting this week. We are deeply concerned about the current payment arrears of $5.2m and your ability to make good these arrears as well as meet future payments as they fall due. Buzzle currently owes Apple in excess of $20m. As yet, we have not received any financial information on Buzzle since its inception in September. Accordingly, we need to understand the financial position of the business as availability of further credit is predicated on that assessment. There must be some basis on which you are able to determine your profitability and cash flow and we need to access that information. Jim's visit on Thursday will centre around establishing a basis for understanding that information and much of Friday's meeting will be spent on discussing that data with you and your team. " 184 This email corroborates the inference to be drawn from the correspondence with the insurance broker that Apple was concerned that Buzzle did not have the ability to make good its arrears as well as to meet future payments as they fell due. Mr Likidis said in cross-examination that at that time he did not share those concerns, but I think he did. Mr Kidd said that it would be unusual for him to have taken the responsibility of responding to the insurance broker in the way he did without discussing the matter with Mr Likidis (T715), although he did not recall the discussion. When asked about the misleading nature of Mr Kidd's email to the insurance broker of 11 December 2000, Mr Likidis uncharacteristically hedged his answers. I think it probable that Mr Likidis was aware of the misleading nature of the email and was also concerned by 11 and 12 December whether Buzzle would be able to pay its debts to Apple. 185 Mr Likidis asked Mr Kidd to prepare a paper to attempt to calculate Buzzle's likely profits. The only information Apple had to attempt that task was the level of sales which it had made to Buzzle and any inferences as to Buzzle's likely gross profit and expenses based upon the experience of the vendor Resellers. The paper prepared by Mr Kidd was based upon the historical performance of the Resellers. It estimated a Buzzle profit of between $140,000 and $1.376 million depending on the proportion of sales of hardware and software. But this was based on the revenues of the Resellers to 30 June 2000. Contrary to Mr Likidis' evidence, Mr Kidd's working paper did not demonstrate that Buzzle ought to have been profitable. Nor did it demonstrate that if Buzzle was collecting its debts it ought to have had cash available to pay its debts to Apple. Nor did Mr Likidis believe that Buzzle had been profitable. He thought it likely that Buzzle had suffered losses (T466-467). 186 Mr Kidd met with Mr Qureshi on 14 December 2000. Mr McElduff had identified the purpose of that meeting as being to allow Mr Lididis to understand Buzzle's financial information in preparation for the next day's meeting. The information was not provided. Mr Qureshi told Mr Likidis that he believed that Buzzle was losing money and his focus was on saving expenses through the rationalisation of staff. Mr Qureshi told Mr Likidis that he wanted to replace Mr Patterson and was searching for a new financial controller, and that he was unable to access any financial data that recorded Buzzle's cash flow or profit or loss. He told Mr Likidis that there were approximately 9,000 handwritten invoices which had not been processed because of system problems. 187 In cross-examination Mr Likidis admitted that as at 12 December he suspected that Buzzle had lost money from the time it started business (T460-461). In the absence of a capital injection, unless that position was turned around, this must have raised concern as to Buzzle's ability to pay its debts. Before Mr Likidis' meeting with Mr Qureshi on 14 December 2000, he made notes for the meeting which included a note "losses for month Dec/cash burn". In cross-examination Mr Likidis accepted that in early to mid-December he was told by Mr Kidd that Mr Hartono had said that Buzzle would make a payment by 15 January 2001 (T463). Although Mr Likidis did not concede it, I think it probable that his note prior to his meeting with Mr Qureshi on 14 December 2000 reflects his then view that the only payment Apple was to expect before the end of the December quarter was $4.2 million from Buzzle (in fact $4.3 million) (exhibit JL1 page 477; TB9/2999.2). 188 Mr Qureshi deposed that at his meeting with Mr Likidis on 14 December 2000 Mr Likidis said to him words to the effect: " Do you realise that you people are really trading insolvently? On our estimates we believe that Buzzle has lost between $2 million and $2.4 million in the 3 months leading to 14 December 2000 and will owe Apple another $10,000 by the end of December 2000. Your systems don't work. You can't cover your debts to Apple. You need to understand that I'm letting you trade. We could close you down if we wanted to. " 189 Because of the late service of Mr Qureshi's affidavit, Mr Likidis did not swear an affidavit in response. In cross-examination it was put to Mr Likidis that: " Q. You told Mr Qureshi that Apple estimated that Buzzle had made losses for the four months to December did you not? A. I don't no I didn't tell him. I asked him, did they. Q. I suggest you told him, and that you told him that Apple estimated the losses as at more than $2 million? A. I could have. I don't recall. I don't know how Apple would have determined the losses for Buzzle to be $2 million. But in conversation I may have said about $2 million. I don't know. I don't know how we would have come up with the figure of $2 million. As you can see from the numbers I prepared, or Steve Kidd prepared, it didn't reflect that. How did we get the $2 million loss? I don't know. ... Q. And you told him. You said to him that you realised that you're trading while you're insolvent, didn't you? A. No that is absolute nonsense. I wouldn't have said. That wasn't even in my mindset, I told you that before, with respect. " 190 I accept that Mr Likidis did not tell Mr Qureshi that Buzzle was trading whilst insolvent. That does not mean that by 14 December 2000, Mr Likidis did not suspect that Buzzle was insolvent. 191 Mr Qureshi deposed that after his meeting with Mr Likidis he attended a management meeting at Buzzle and at that meeting said words to the effect: " Jim has told me that we are insolvent. In this situation we are really at Apple's mercy. This is a major problem and we are only here because of the goodwill of Apple. ... " 192 The meeting was recorded and no such statement was made by Mr Qureshi to the meeting. I do not accept Mr Qureshi's evidence that he said those words to some of the participants before the meeting started. However, I do conclude in the light of Mr Likidis' concession in cross-examination that he told Mr Qureshi that Apple estimated that Buzzle was making substantial losses and probably said that Apple estimated the losses to be about $2 million. 193 On Friday 15 December 2000 a meeting was held between Apple and Buzzle in Sydney. The meeting was attended by at least Mr Likidis, Mr Bowley, Mr Perrins, and Mr McElduff for Apple and Mr Mekrizis, Mr Hartono, Mr Liu and Mr Qureshi. Mr Likidis admitted that at the meeting Mr Qureshi said that "We believe that we have lost approximately $2.2 million between September and December 2000." 194 According to Mr Likidis, at the meeting on 15 December, Mr Qureshi told the Apple representatives that Buzzle's revenue for the period from September to December 2000 was $34.7 million and that for January, February and March 2001 it expected to exceed revenue of $45 million giving a profit of $1.125 million. I do not think that Mr Qureshi suggested that the figures he gave were actual numbers, as it was clear that Buzzle did not have the actual sales numbers. It was put to Mr Likidis that Mr Qureshi made it clear that the figures given for September to November, as well as for subsequent months were budgeted figures. Mr Likidis denied that. Nonetheless, it was clear to him that Buzzle did not have the information to give accurate historical numbers and at best the figures were estimates. 195 On 19 December 2000 Mr Likidis and Mr Kidd had a meeting with Mr Qureshi, Mr Liu and Mr Patterson at Buzzle's office in Sydney to discuss progress in relation to the production of Buzzle's financial statements. Mr Likidis made a note which he said recorded that he was told the company had cash of $1.8 million and net assets of $800,000. The notes he recorded were debtors of $7 million, inventory of $17 million and cash of $1.8 million being a total of $25.8 million. He noted liabilities of $25 million including creditors of $20 million. I do not think Mr Likidis placed any reliance on these figures. Not only did he know that Buzzle had no reliable figures, but I think it probable he knew what was the debt then owed to Apple. The debt owed to Apple as of 18 December 2000 was $24.7 million. The figure of $20 million as the total of debts owed to all creditors was clearly inaccurate. 196 Mr Likidis attended a further meeting at Apple's offices with Mr Kidd on 22 December. He met Mr Patterson and Mr Liu. He asked Mr Patterson if he could see Buzzle's cash flow statements and was told that Buzzle did not have any template set up for financial reports. On 22 December Mr Liu sent an email to Mr Likidis purporting to summarise the meeting. Buzzle was to provide financial information by 2 January 2001. Mr Liu summarised one of the outcomes of the meeting as being "an extension of our Apple payment date to be agreed upon based upon review of the above items on 2/1/2001." Mr Likidis said, and I accept, that he had not agreed that Apple would extend the payment date, but it was proposed that following the review an extension of time for payment would be agreed (T477). 197 By this time Mr Peter Oppenheimer was involved. He was the chief financial officer for Apple's parent company with worldwide responsibility. Mr Likidis forwarded Mr Liu's email to Mr Oppenheimer. Mr Oppenheimer asked whether Apple would receive a payment on 15 January 2001. Mr Oppenheimer told Mr Likidis that he should be in "very close touch with them on cash flow and collections during the first weeks of January." 198 I infer that 15 January 2001 was a date specified by Mr Hartono to Mr Kidd as a date by which Apple would make a substantial further payment. Mr Hartono must have provided a schedule of proposed payments to Mr Kidd because on 12 December 2000 Mr Kidd sent Mr Hartono an email stating "Following our telephone conversation and payments offered I have noted these on the attached sheet for your records". The attached sheet was not adduced in evidence and I understand was no longer available. 199 I infer that Apple was told that the next payment would not be made until 15 January. That is a significant default given that the substantial debt of $4.77 million had been outstanding since 1 December, that more debt was becoming due and payable, and that Buzzle had been given further credit from 13 December. 200 The financial statements which Mr Liu said would be made available on 2 January 2001 were not forthcoming. On 5 January 2001 Mr Likidis reported to Mr Oppenheimer on the meeting of 2 January 2001 and a further meeting held with Mr Liu, Mr Hartono, Mr Qureshi and members of Apple's executive team on 4 January 2001 (TB10/3240). Mr Likidis reported that the promised financial statements were not delivered and that he estimated that Buzzle was probably four weeks away from preparing accounts upon which Apple could place some reliance. In his email to Mr Oppenheimer Mr Likidis said that "The directors are discussing the possibility of a further cash infusion into the company. We will know the outcome of this next week." No such cash infusion was forthcoming. Mr Likidis did not say that he placed any reliance on that foreshadowed possibility. In the same email Mr Likidis wrote that "Cash flow is to be monitored daily and a forecast is to be prepared weekly. In using this tool we will quickly obtain an understanding of the company's ability to meets its debts and particularly repayment of the Apple debt outstanding." He said that further security would be requested from the directors "in the way of property". Mr Likidis agreed that if the directors had had funds readily available to them it is likely that they would have put them up so as to pay the Apple debt (T502). He said that he did not know that the directors had not put funds up before 1 December (T502). I conclude that Mr Likidis did not consider that Buzzle would be able to pay its debts by supplementing any shortfall in its resources with funds made available by the directors. 201 Mr Likidis deposed that at a meeting on 17 January Mr Qureshi said words to the effect that "We have plans in place and intend to inject a further $3-$5 million to improve Buzzle's working capital." Mr Likidis did not say that this allayed the suspicion which he admits he then held that Buzzle was insolvent. Similar indications were made later in January, but on 28 January 2001 Mr Oppenheimer sent an internal email to Mr Tim Cook setting out the current thinking of the wider Apple team based not only in Australia, but in Asia and America. The summary included the statement that: " The Board of Buzzle is currently contemplating how to raise further cash including additional investments from themselves and new investors. We are doubtful that funds will be raised prior to Buzzle going under. " (TB11/3485). 202 "Suspicion" of insolvency imports a "positive feeling of actual apprehension or mistrust" and "actual apprehension or fear [that the company is unable to pay its debts as and when they become due and payable]" (Queensland Bacon Pty Ltd v Rees at 303). The plaintiffs did not dispute that if Buzzle's inability to pay the debts which became due and payable during December 2000 and January 2001 was due to a temporary lack of liquidity, rather than an endemic shortage of working capital, it was not thereby insolvent (Sandell v Porter (1966) 115 CLR 666 at 670; Hymix Concrete Pty Ltd v Garritty (1977) 13 ALR 321 at 328; Downey v Aira Pty Ltd (1996) 14 ACLC 1068 at 1070-1071; Re Newark Pty Ltd (in liq); Taylor v Carroll [1993] 1 Qd R 409 at 413). In this case there was no informal agreement between Apple and Buzzle that the whole of the debts due on 1 December need not be paid on that day. Whilst Apple was prepared to consider a plan for payment of overdue debts, it had not agreed to defer the time for payment of the debts. When, in Sandell v Porter, Barwick CJ said that a conclusion of insolvency should not be drawn simply from evidence of a temporary lack of liquidity, he went on to say that it was the debtor's inability, utilising such cash resources as he has or can command through the use of his assets to meet his debts "as they fall due" which indicates insolvency. One might think that a temporary lack of liquidity denotes a temporary inability to pay debts as they fall due. Such a temporary inability would not be consistent with the company's being able to pay "all" its debts as they became due and payable. However, in assessing a company's solvency one has regard not only to the company's cash resources, but to the cash which it can raise including from the sale or charging of its assets. If a company has the ability to raise cash to pay its debts as they become due and payable, for example, by raising an overdraft on security of its assets, it is not insolvent merely because at the time particular debts have become due and payable it has not made or completed arrangements to do so. It is in this way that one can say that temporary illiquidity is not the same as insolvency, even though because of a company's temporary illiquidity, it is not, in one sense, able to pay all its debts as they become due and payable. The question is whether it would be able to pay all its debts as they became due and payable by appropriately deploying its assets or taking other steps open to it. 203 Accordingly, Apple's knowledge that Buzzle was $4.7 million short in its payment of the debts due on 1 December 2000 did not in itself show that Buzzle was insolvent, even though it could be and was assumed that Buzzle did not then have the cash to pay the debt which had become overdue. Buzzle made a second default on 8 December, being the same day as Buzzle paid $108,623.55 to be credited to Mac's Place's account with Apple. It cannot be said that at the time the payment of $108,623.55 was made and received Buzzle had defaulted in payment of $438,496.84 payable on that day. 204 In the circumstances that Apple knew that Buzzle had trouble with its accounting system which created problems in reconciling the cash banked against debtors, and had not processed invoices, so that it had difficulty in identifying and therefore collecting its debts, but where this was also expected to be a temporary "teething" difficulty, I do not consider that the delay by 8 December in paying the debt which was due on 1 December created reasonable grounds to raise an actual apprehension or fear or mistrust as to Buzzle's ability to pay its debts as they became due and payable, other than a temporary inability to do so which could reasonably be attributed to those teething difficulties. The evidence does not establish that by 8 December Apple had identified that Buzzle was suffering serious trading losses or that it was in a position to do so. In my view, as at 8 December 2000, Apple has established that it did not suspect and had no reasonable grounds for suspecting that Buzzle was insolvent at that time, or would become insolvent by making the payment of $108,623.55 on behalf of Mac's Place. A reasonable person in its circumstances would have had no such grounds for so suspecting. 205 The position is different a few days later and by the end of the month. There was default in paying the moneys due on 8 December and a series of further defaults by the end of the month. No payment plan had been proposed, or at best, the only proposal was for a payment to be made by 15 January 2001. I infer from Mr Kidd's misleading email of 11 December and Mr McElduff's email of 12 December that Apple's executive team then suspected that Buzzle was insolvent. There were reasonable grounds to suspect insolvency by 31 December. Apple by that time had information and had formed its own assessment that Buzzle was suffering trading losses in the order of $2 million per month. The problems with the implementation and operation of the Navision system had been shown to be more than temporary. I conclude that by 31 December 2000 and at all times thereafter Apple had reasonable grounds to suspect that Buzzle was insolvent, and did so suspect. Conversely, at all material times from 31 December 2000 Apple did not have reasonable grounds to expect, and did not expect, that Buzzle was solvent and would remain solvent if it incurred the debts it was incurring from 1 January 2001. Uncommercial Transactions: Payments of 6 November and 8 December 2000 206 Section 588FB of the Corporations Law provided: "(1) A transaction of a company is an uncommercial transaction of the company if, and only if, it may be expected that a reasonable person in the company's circumstances would not have entered into the transaction, having regard to: (a) the benefits (if any) to the company of entering into the transaction; and (b) the detriment to the company of entering into the transaction; and (c) the respective benefits to other parties to the transaction of entering into it; and (d) any other relevant matter. (2) A transaction may be an uncommercial transaction of a company because of subsection (1): (a) whether or not a creditor of the company is a party to the transaction; and (b) even if the transaction is given effect to, or is required to be given effect to, because of an order of an Australian court or a direction by an agency. " 207 As noted earlier in these reasons, Buzzle contends that two payments made by Buzzle to Apple and credited by Apple to the vendor Resellers' accounts with Apple were uncommercial transactions, being the payments of $1,016,827.64 credited to Apple's account on 6 November 2000 and a payment of $108,623.55 made on 8 December 2000. As noted earlier, Buzzle contends that at the time these payments were made it owed no debt to the vendor Resellers that had become due and payable. The total amount owed by Buzzle to the vendor Resellers for the stock it acquired on the merger was $10,826,511.43. This included both Apple and non-Apple stock. The debt for $6,298,139.07 for Apple stock became payable by Buzzle to Apple either by an implied assignment or novation. This left a debt owed for stock of $4,528,372.36. 208 The Merger Deeds provided for an adjustment of the purchase price for the assumption by Buzzle of 66 per cent of the entitlements of employees of the vendor Resellers for long-service leave and other future entitlements. The Merger Deeds were silent as to whether the reduction of the purchase price in respect of such entitlements should be allocated to stock or other parts of the cash component of the purchase price. The plaintiffs contended that the purchase price was reduced by $501,245 in respect of the liability for employee entitlements assumed by Buzzle. The plaintiffs submitted that as Buzzle assumed liability for the employee entitlements immediately and not some later point after the float that the employee entitlements should be deducted from the payments to be made under clause 6.5(a) of the Merger Deeds, that is, should be deducted from the purchase price for stock. The defendants did not dispute that proposition. It follows that after credit for the debt assigned or novated to Apple and credit for the amount of employee entitlements, the amount owed by Apple to the vendor Resellers under clause 6.5(a) of the Merger Deeds, which debt was payable to the vendors by 31 October 2000, was $4,027,127.36. 209 Prior to the two impugned payments, Buzzle made two payments to Apple on behalf of the vendor Resellers, namely a payment of $1,595,000 on 3 October 2000 and a payment of $2,168,088.71 on 30 October 2000. On 24 October 2000 Buzzle paid $200,000 to "Techpac" on behalf of the vendor Resellers, and on 2 November 2000 it paid Manning Computer $150,000. The effect of these payments was that prior to adjustment of the purchase price for Buzzle's assumption of liability for employee entitlements, and prior to other adjustments, Buzzle owed $115,978.24 to Designwyse, $341,687.36 to GM Computers, $32,629.81 to Mac's Place and $68,729.10 to Status Graph, and was owed $37,591.21 by Choice Connections and $106,147.54 by Manning Computer. The net amount owed (if there could be adjustments between the Resellers) was $415,285.65. The breakdown is contained in annexure "A" to these reasons. 210 I was not favoured with any breakdown between vendor Resellers of the credit for employee entitlements. I have not myself attempted, by analysing the due diligence reports, to make such a breakdown for reasons which will appear. Suffice to say that if the liability of Buzzle to the vendors is considered in the aggregate, the plaintiffs contend that as at 6 November Buzzle's unpaid debt owed to the vendors for the stock acquired from the vendors was $415,285.65 which was approximately $85,960 less than the reduction of the purchase price on account of its assumption of employee entitlements. 211 The defendants point out that this analysis ignores other relevant adjustments. The evidence about the adjustments is scanty. It is contained in spreadsheets annexed to Mr Cook's report which set out the accounts as between Buzzle and the vendors as at 8 February 2001 as restated by Mr Cook. Those spreadsheets show that Buzzle was indebted to Choice Connections, GM Computers and Mac's Place for amounts totalling $973,830.97 on account of "prepayments". The plaintiffs say this is irrelevant because clause 12 of the Merger Deeds provided for Buzzle to pay the vendors amounts equal to prepayments made by the vendors prior to completion to the extent to which those prepayments related to goods, services or other benefits to be received by Buzzle after completion. The plaintiffs correctly submit that Buzzle's liability in respect of such prepayments was not a liability under clause 6.5(a) but formed part of the "remaining amount of the cash component" whose payment was deferred under clause 6.5(b) until the float of Buzzle Limited or until the directors of Buzzle Limited formed a view on reasonable grounds that Buzzle had adequate cash flow to pay amounts owing to all vendors on a pro-rata basis or in accordance with the requirements of that vendor to pay its creditors. In this regard Buzzle's liability to pay the vendors for prepayments made by the vendors on its behalf was deferred, in the same way as its liability for plant and equipment was deferred. 212 The spreadsheet showed that Buzzle owed $270,797.56 to Choice Connections for "network equipment purchased for Buzzle", $329,464.36 for "stocks purchased for Buzzle after 11th September" and $135,018.85 for "first pay run for Buzzle". These sums total $735,280.77. Against this there was a credit for "miscellaneous cash received [by Choice Connections] on behalf of Buzzle" of $690,338.97, a difference of $44,941.80. It is likely from the description of the debts incurred to Choice Connections that the debts were incurred soon after Buzzle started business. It should be accepted that as at 6 November there was a debt of $44,941.80 then owing and payable by Buzzle to Choice Connections, in addition to debts of $228,275.14 for "prepayments" and $464,835 for plant and equipment, the payment of which were deferred in accordance with clause 6.5(b) of the Merger Deeds. 213 The spreadsheet also showed a debt owed by Buzzle to Mac's Place of $41,187.80 in respect of "miscellaneous cash banked into Buzzle". Again, it can be inferred that such a banking took place early in Buzzle's trading existence and was a debt which was both owed and payable as at 6 November 2000. Buzzle also owed Mac's Place $481,430 for plant and equipment and $119,920.86 in respect of prepayments made on its behalf, the payment of which debts was deferred under clause 6.5(b) of the Merger Deeds. The other deferred debts it owed under clause 6.5(b) for plant and equipment were $98,015 to Designwyse, $259,935 for GM Computers (it also owed GM Computers $625,634.97 in respect of prepayments), $192,795 to Status Graph and $117,130 to Manning Computer. 214 Apple required the debts of the vendors to it to be repaid by 31 October 2000, although an extension was given for some part of the debt to 3 November 2000. On 27 October 2000 Mr Kidd wrote to Mr Hartono and Mr Patterson advising that "Under the agreed arrangement made when we released our charge over the stock for the group totalling $5,207,912 you were to be [sic] pay in full for these items by 31 October 2000. So far we have received payments for $2,575,000. A further payment of $2,632,913 is due." He then gave details of the payment allocation between the different vendors. Apple required the vendors to pay $2,168,088.71 by 31 October and $1,050,999.06 by 3 November 2000. Buzzle made the payment of $2,168,088.71 on behalf of the vendor Resellers on 31 October. 215 There is nothing to indicate that anyone at Apple turned his or her mind to the question of what debts owed by Buzzle to the vendor Resellers were then due and payable and what debts were deferred until the float, or until the directors of Buzzle Limited considered that the company had adequate cash flows to make the payments, or that the vendors needed to receive payments in order to pay creditors. There is no evidence that Apple had the means of knowing the answer to that question. There is no evidence that Apple considered or had information from which it could have determined, for example, what payments the vendor Resellers might have made on behalf of Buzzle after merger. 216 On 3 November 2000 Mr Shearer wrote to Mr Mekrizis and said that: " I believe that the funds that will be paid today will only cover stock transferred from you to Buzzle in total from all old resellers $6.298 million. The next payment from Buzzle will apply to the old resellers' accounts, which will cover the third party stock. This will be done by the end of Nov as per the plan. The old resellers should also be paying down their accounts from the debtors they are collecting. " 217 It appears that at that point, Mr Shearer thought that Buzzle was to make a payment in reduction of its debt to Apple for the stock it acquired from the vendors on the merger to reduce Buzzle's debt to Apple. That is not how the payment of $1,016,827.64 was treated. It appears from the bank statements of both Buzzle and Apple that the payment of $1,016,827.64 was made to Apple's bank account on 6 November with a direction from Buzzle "Old co. Balance pay". 218 It was submitted for the plaintiffs that this was a direction by Buzzle to Apple that the payment was towards the balance owed by Buzzle in respect of the stock it acquired from the old companies in accordance with Mr Shearer's email to Mr Mekrizis of 3 November. I do not agree. First, the arrangement between Apple and Buzzle was that Buzzle did not need to pay Apple until 1 December. Secondly, the "balance" which was to be paid on 3 November was the balance of the vendors' debts to Apple. There were debts but no "balance" payable for stock supplied to Buzzle. Thirdly, had the payment really been intended by Buzzle to be on account of its debts to Apple, one would expect there to be correspondence from Mr Hartono and Mr Patterson to Mr Kidd to explain why there was still a shortfall of over $1 million in the vendors' paying Apple. That did not happen. I think it is clear that the words "Old co. Balance pay" was intended by Buzzle to mean, and was understood by Apple to mean, that the payment was for the balance of the debts owed by the old companies, that is the vendors, to Apple. Apple was entitled and obliged to appropriate the payment as directed by the payer. 219 In the case of the payment of $108,623.55 made on 8 December, there was an express appropriation by Buzzle that the payment should be credited to the debt owed by Mac's Place to Apple. Apple was bound to act on that appropriation. 220 It cannot be said that a reasonable person in Buzzle's circumstances would not have entered into the transaction having regard to the benefits to it from doing so, the detriment to it from doing so, and the respective benefits to the other parties to the transaction. Whilst Buzzle did not then owe to the vendor Resellers debts which were immediately due and payable in the amount of $1,016,827.64, it did owe debts to the vendors of more than that amount, albeit debts that were not immediately payable. In paying that sum it reduced its debts to the vendors. If it had not, the vendors would have been liable to reimburse it for the moneys which it paid on their behalf. There was no evidence that at that time the vendors would not have been able to satisfy such a liability. 221 In my view, as the payment was for full consideration it was not an uncommercial transaction. The Explanatory Memorandum to the Corporate Law Reform Bill 1992 said (at [1044]): " [1044] The tests under proposed section 588FB for whether a transaction is uncommercial relies on the phrase 'if ... it may be expected that a reasonable person in the company's circumstances would not have entered into the transaction.' The provision is specifically aimed at preventing companies disposing of assets or other resources through transactions which resulted in the recipient receiving a gift or obtaining a bargain of such magnitude that it could not be explained by normal commercial practice. Where consideration is given by the other party to the transaction but the consideration is nominal or trivial or lacks 'a commercial quality' then, provided it occurs within the time period set out in the proposed section 588FE, the liquidator may apply to a court to have the transaction set aside or another order made under proposed section 588FF so that the body of unsecured creditors is not prejudiced by this transaction. " (Defendants' emphasis.) 222 The only reason for the payments being impugned is that Buzzle was insolvent at the time the transactions were entered into. It is clear that the fact that a transaction is entered into by a company when it is insolvent is not itself sufficient to make the transaction an uncommercial transaction within the meaning of s 588FB. In essence, the liquidator seeks to recover from Apple as an uncommercial transaction under s 588FB moneys which, prima facie, would have been recoverable from the vendors as unfair preferences under s 588FA if the vendors had been able to satisfy such a claim. But in terms of s 588FB, the benefits to Buzzle of entering into the transaction was that it reduced its debts to the vendors, albeit that the debts had not then become due and payable. Buzzle, as distinct from its creditors, incurred no detriment from entering into the transactions. 223 In any event, Apple is entitled to the benefit of s 588FG(1)(b). It received the payments in good faith and without reasonable grounds for suspecting Buzzle's insolvency. As I understand it, the only basis for the plaintiffs' contending that Apple did not act in good faith is that the plaintiffs say in relation to the November payment that Buzzle directed the payment to be made towards the debt for stock. If that were so, there would be no need to seek relief under s 588FB and 588FF. Buzzle would be entitled to have the payment credited towards its debt to Apple. But there was no such appropriation. Further, in the case of the November payment, the plaintiffs did not dispute that Apple had no reasonable grounds for suspecting that Buzzle was insolvent when the payment was made, and a reasonable person in its circumstances would have had no such grounds for so suspecting, I have found that Buzzle had no such grounds when it received the payment of 8 December, and a reasonable person in its circumstances would have had no reasonable grounds for so suspecting. 224 I should note two further arguments advanced by Apple. It contended that it received no benefit because of the transaction because, had Buzzle not made the two payments, it could have enforced its security against the vendors and recovered the payments from them. I would not accept that Apple received no benefit from the transactions. I think the onus would be on it to establish that it could have recovered the payments from the vendors. No evidence was led by either party in relation to the financial position of the vendors at the time. In any event, there was a benefit to Apple in receiving the payments without the necessity of enforcing securities. A further point raised by Apple was that the court ought not make an order under s 588FF because, if it made an order directing Apple to pay the moneys received, it could not put Apple in a position where it could recover from the vendors the payments it required to disgorge or enforce the security from the vendors. It is unnecessary to consider whether this would have been sufficient reason not to have made orders under s 588FF if the grounds for doing so were otherwise established. For the reasons previously given, I reject the plaintiff's claims for relief on the basis that the 6 November and 8 December payments were uncommercial transactions. Insolvent Trading: Shadow Directors 225 Sections 588G(1) and (2) and 588H provided: " 588G Director's duty to prevent insolvent trading by company (1) This section applies if: (a) a person is a director of a company at the time when the company incurs a debt; and (b) the company is insolvent at that time, or becomes insolvent by incurring that debt, or by incurring at that time debts including that debt; and (c) at that time, there are reasonable grounds for suspecting that the company is insolvent, or would so become insolvent, as the case may be; and (d) that time is at or after the commencement of this Act. ... (2) By failing to prevent the company from incurring the debt, the person contravenes this section if: (a) the person is aware at that time that there are such grounds for so suspecting; or (b) a reasonable person in a like position in a company in the company's circumstances would be so aware. ... 588H Defences (1) This section has effect for the purposes of proceedings for a contravention of subsection 588G(2) in relation to the incurring of a debt (including proceedings under section 588M in relation to the incurring of the debt). (2) It is a defence if it is proved that, at the time when the debt was incurred, the person had reasonable grounds to expect, and did expect, that the company was solvent at that time and would remain solvent even if it incurred that debt and any other debts that it incurred at that time. (3) Without limiting the generality of subsection (2), it is a defence if it is proved that, at the time when the debt was incurred, the person: (a) had reasonable grounds to believe, and did believe: (i) that a competent and reliable person (the other person) was responsible for providing to the first mentioned person adequate information about whether the company was solvent; and (ii) that the other person was fulfilling that responsibility; and (b) expected, on the basis of information provided to the first mentioned person by the other person, that the company was solvent at that time and would remain solvent even if it incurred that debt and any other debts that it incurred at that time. (4) If the person was a director of the company at the time when the debt was incurred, it is a defence if it is proved that, because of illness or for some other good reason, he or she did not take part at that time in the management of the company. (5) It is a defence if it is proved that the person took all reasonable steps to prevent the company from incurring the debt. (6) In determining whether a defence under subsection (5) has been proved, the matters to which regard is to be had include, but are not limited to: (a) any action the person took with a view to appointing an administrator of the company; and (b) when that action was taken; and (c) the results of that action. " 226 A "director" is defined by s 9 as follows: "' director ' of a company or other body means: (a) a person who: (i) is appointed to the position of a director; or (ii) is appointed to the position of an alternate director and is acting in that capacity; regardless of the name that is given to their position; and (b) unless the contrary intention appears, a person who is not validly appointed as a director if: (i) they act in the position of a director; or (ii) the directors of the company or body are accustomed to act in accordance with the person's instructions or wishes. Subparagraph (b)(ii) does not apply merely because the directors act on advice given by the person in the proper performance of functions attaching to the person's professional capacity, or the person's business relationship with the directors or the company or body. Note: Paragraph (b)—Contrary intention—Examples of provisions for which a person referred to in paragraph (b) would not be included in the term "director" are: · section 249C (power to call meetings of a company's members) · subsection 251A(3) (signing minutes of meetings) · section 205B (notice to ASIC of change of address). " 227 In contending that Apple and Mr Likidis were directors of Buzzle from 1 January to 31 March 2001 the plaintiffs rely on the definition in para (b)(ii). They do not rely on the first limb of the definition in para (b), that is, persons who may be described as de facto directors although not validly appointed. They rely on the second limb. Although Australian legislation does not use the term "shadow director", it is the shorthand description of a person who falls under the second limb in para (b) of the definition. Legal Arguments 228 The defendants argued that only an individual can be a shadow director under para (b) of the definition of director. Para (a) of the definition refers to "a person" who is appointed to the position of a director or alternate director. Para (b) refers to "a person" who is not validly appointed as a director if either of sub-paras (b)(i) or (ii) apply. All the definitions in s 9 apply "unless the contrary intention appears". In s 9 "person", has a meaning affected by s 85A. Section 85A provided: " In this Law expressions used to denote persons generally (such as 'person', ...), include a body politic or corporate as well as an individual. " (See also Acts Interpretation Act 1901 (Cth), s 22(1)(a).) 229 Prima facie therefore a "person" in the definition in s 9 includes a body corporate. However, s 201B(1) provided: " Only an individual who is at least 18 may be appointed as a director of a company ." 230 Therefore it can be seen that the "person" in para (a) of the definition of "director" is an individual, because only an individual can be appointed to the position of director. The defendants argue that in para (b) the word "person" is used in the same sense. The defendants argue that a "person" in para (b) is an individual who could be, but has not been, validly appointed as a director. 231 I do not think there is any implication in para (b) that for a person to be a de facto or shadow director that person must be capable of being validly appointed as a director. Para (b) simply refers to a person who is not validly appointed as a director if either para (b)(i) or (ii) applies. It contains no implication that such a person could be appointed but was not. It has been held more than once and assumed on many occasions that a company can be a shadow director (Standard Chartered Bank of Australia Limited v Antico (1995) 38 NSWLR 290; Ho v Akai Pty Ltd (in liq) [2006] FCAFC 159; (2006) 24 ACLC 1526; Australian Securities and Investments Commission v Edwards [2005] NSWSC 831; (2005) 34 ACSR 583; see also Kuwait Asia Bank EC v National Mutual Life Nominees Ltd [1991] 1 AC 187; Re Hydrodam (Corby) Ltd [1994] 2 BCLC 180 at 184). Before express provision was made that only individuals could be appointed as directors, it was possible for a company to be so appointed (In re Bulawayo Market and Offices Co Ltd [1907] 2 Ch 458 at 463). There is nothing inherently incongruous with a body corporate being a de facto or shadow director. 232 It was also argued for the defendants that s 588G did not apply to shadow directors. Counsel for the defendants submitted that there was a contrary intention in s 588G to the word "director" when used in that section including a shadow director under para (b)(ii). The reason for this argument is that a person who is a "director" of an insolvent company when the company incurs a debt contravenes the section by "failing to prevent the company from incurring the debt" and the person is aware, or reasonable person in a like position would be aware, that there were grounds for suspecting insolvency (s 588G(2)). It is a defence under s 588H(4) if: " ... it is proved that, because of illness or for some other good reason, he or she did not take part at that time in the management of the company. " 233 It was submitted for the defendants that these provisions show that s 588G is not directed to a person who for good reason does not take part in the management of the company, but is directed to those who could do so. A de facto director, that is, a person falling within para (b)(i) of the definition takes part in the management of the company. The defendants submitted that a shadow director, that is a person falling within para (b)(ii), does not. They submitted that a person cannot be both a de facto director and a shadow director (Re Hydrodam (Corby) Ltd at 182-183; Emanuel Management Pty Ltd (in liq) v Fosters' Brewing Group Ltd & Ors [2003] QSC 205; 178 FLR 1 at 70, [254]). In Re Hydrodam (Corby) Ltd, Millett J (as his Lordship then was) said (at 182-183): " ... in my judgment an allegation that a defendant acted as de facto or shadow director, without distinguishing between the two, is embarrassing. It suggests ... that the liquidator takes the view that de facto or shadow directors are very similar, that their roles overlap, and that it may not be possible to determine in any given case whether a particular person was a de facto or a shadow director. I do not accept that at all. The terms do not overlap. They are alternatives, and in most and perhaps all cases are mutually exclusive. " 234 In Emanuel Management Pty Ltd, Chesterman J said (at [254]), referring to Beach Petroleum NL v Johnson (1993) 43 FCR 1 at 24 [22.18]: " ...the plaintiffs cannot rely upon both limbs of the extended definition of director: those who act as directors and those who, in effect, command the directors how to act. Control over the company's affairs may be exercised directly by those who perform that role or indirectly by controlling those who are nominally in charge. There is a conceptual difficulty in doing both at once. " 235 In my respectful view that conceptual difficulty only arises if to be a shadow director within the second limb of para (b), all of the directors must be accustomed to act in accordance with the shadow director's instructions or wishes in respect of all aspects of management. The objection to a person being both a de facto and a shadow director appears to be that one cannot be accustomed to act in accordance with the instructions or wishes of oneself. But it is clearly established that the influence of a shadow director need not be exercised over the whole field of the company's corporate activities (Australian Securities Commission v AS Nominees Ltd (1995) 133 ALR 1 at 52-53; Secretary of State for Trade and Industry v Deverell [2001] Ch 340 at 354 [35]; Ho v Akai Pty Ltd (in liq) at ACLC 1531 [21](ii)). The better view is that "the directors" who must be accustomed to act in accordance with the person's instructions or wishes need not be all of the directors. In Ultraframe (UK) Ltd v Fielding & Ors [2005] EWHC 1638 (Ch) where Lewison J said that a person at whose direction a governing majority of the board is accustomed to act is capable of being a shadow director even though not all of the directors were accustomed so to act (at [1272]): " 1272. There is no doubt a difficulty, as a pure matter of language, in construing the phrase 'the directors of the company' as meaning ' some of the directors of the company' or even ' a majority of the directors of the company'. However, the policy underlying the definition is that a person who effectively controls the activities of a company is to be subject to the same statutory liabilities and disabilities as a person who is a de jure director. Since a de jure director is subject to those liabilities and disabilities even if he is non-executive, or even inactive, it would undermine the policy of the definition if the fact that an inactive director did not act on the instructions of an alleged shadow director (because he did not act at all) could prevent that person from being a shadow director, even though in reality he controlled the activities of the company. In my judgment, therefore, a person at whose direction a governing majority of the board is accustomed to act is capable of being a shadow director. " I agree. (See also Kuwait Asia Bank EC v National Mutual Life Nominees .) 236 I see no conceptual difficulty in a person acting as a director although not so appointed, and thus being a de facto director, and with the appointed directors being accustomed to act on that person's instructions or wishes. There are numerous examples in the cases, particularly in the context of family-run companies, of a dominant family figure who is not appointed as a director (and who might be disqualified from acting as such) both acting from time to time as a director and instructing the other directors as to how they should act. 237 The major premise of the defendants' submission that s 588G does not apply to shadow directors is that for a person to be liable under s 588G he or she must be capable of taking part in the management of the company. The minor premise is that a shadow director cannot be one who takes part in the management of the company, otherwise he or she would be a de facto director, and the offices are incompatible. For the reasons above I do not accept the minor premise. It is unnecessary to decide whether the major premise is correct. 238 In the United Kingdom the expression "shadow director" has been used as a defined term since the Companies Act 1980 (UK). Section 22(5) of the Company Directors Disqualification Act 1986 (UK) defines a shadow director as: " a person in accordance with whose directions or instructions of the directors of the company are accustomed to act (but so that a person is not deemed a shadow director by reason only of the directors act on advice given by him in a professional capacity). " 239 The definition is thus similar to but not the same as para (b)(ii) of the definition of director in s 9. It refers to "directions or instructions" not "instructions or wishes". The qualification in relation to acting on advice in a professional capacity is not qualified, as is s 9, by a reference to the proper performance of functions attaching to the person's professional capacity. Nor is there any qualification in relation to acting on advice given by the person in the proper performance of functions attaching to the person's business relationship with the directors or the company. In Secretary of State for Trade and Industry v Deverell, Morritt LJ, giving the judgment for the Court of Appeal, stated the following propositions in relation to the UK definition of "shadow director". His Lordship said (at 354 [35]): " 35. I propose to express my conclusions on these and other issues in a number of propositions. (1) The definition of a shadow director is to be construed in the normal way to give effect to the parliamentary intention ascertainable from the mischief to be dealt with and the words used. In particular, as the purpose of the Act is the protection of the public and as the definition is used in other legislative contexts it should not be strictly construed because it also has quasi-penal consequences in the context of the Company Directors Disqualification Act 1986. I agree with the statement to that effect of Browne-Wilkinson V-C in In re Lo-Line Electric Motors Ltd [1988] Ch 477, 489. (2) The purpose of the legislation is to identify those, other than professional advisors, with real influence in the corporate affairs of the company. But it is not necessary that such influence should be exercised over the whole field of its corporate activities. I agree with the statements to that effect of Finn J in Australian Securities Commission v AS Nominees Ltd 133 ALR 1, 52–53 and Robert Walker LJ in In re Kaytech International plc [1999] BCC 390, 402. (3) Whether any particular communication from the alleged shadow director, whether by words or conduct, is to be classified as a direction or instruction must be objectively ascertained by the court in the light of all the evidence. In that connection I do not accept that it is necessary to prove the understanding or expectation of either giver or receiver. In many, if not most, cases it will suffice to prove the communication and its consequence. Evidence of such understanding or expectation may be relevant but it cannot be conclusive. Certainly the label attached by either or both parties then or thereafter cannot be more than a factor in considering whether the communication came within the statutory description of direction or instruction. (4) Non-professional advice may come within that statutory description. The proviso excepting advice given in a professional capacity appears to assume that advice generally is or may be included. Moreover the concepts of 'direction' and 'instruction' do not exclude the concept of 'advice' for all three share the common feature of 'guidance'. (5) It will, no doubt, be sufficient to show that in the face of 'directions or instructions' from the alleged shadow director the properly appointed directors or some of them cast themselves in a subservient role or surrendered their respective discretions. But I do not consider that it is necessary to do so in all cases. ... " 240 These propositions are of more assistance than the liberal use of metaphor in some of the earlier cases. Whilst such metaphor graphically illustrates who may fall within the definition, metaphor is unhelpful in identifying the criteria for determining who does or does not fall within the definition. It is not helpful to say that a shadow director "lurks in the shadows, sheltering behind others who, he claims, are the only directors of the company to the exclusion of himself" (Re Hydrodam (Corby) Ltd at 183), if it is to be implied that a person who does not so lurk cannot be a shadow director. 241 In Re Hydrodam (Corby) Ltd, Millett J also said (at 183) that: " To establish that a defendant is a shadow director of a company it is necessary to allege and prove: (1) who are the directors of the company, whether de facto or de jure; (2) that the defendant directed those directors how to act in relation to the company or that he was one of the persons who did so; (3) that those directors acted in accordance with such directions; and (4) that they were accustomed so to act. " With that statement, there can be no quarrel. His Lordship continued: " What is needed is first, a board of directors claiming and purporting to act as such; and secondly, a pattern of behaviour in which the board did not exercise any discretion or judgment of its own, but acted in accordance with the directions of others. " This is not so obvious, but I generally agree. The qualification is that it is not necessary that the instructions or wishes (or in the United Kingdom, directions) of the shadow director be given over the whole field of corporate activity for which the directors are responsible and therefore there is no inconsistency with a person being a shadow director, and on the other hand the board exercising some discretion or judgment in areas in respect of which the shadow director does not give instructions or express a wish. 242 I would add the following. For the definition to be satisfied the directors of the company must be accustomed to act as directors of the company in accordance with the person's instructions or wishes as to how they should so act. Thus the plaintiffs do not establish that the directors of Buzzle were accustomed to act on the instructions of Apple by demonstrating that when they conducted their business as Resellers prior to the merger, Apple had significant control over important decisions of the Resellers which the directors of the Resellers felt constrained to make to meet targets needed to obtain rebates, which in turn were necessary to achieve realistic margins. That is so for two reasons. First, the directors were not then acting as directors of Buzzle. Secondly, a person or company is not within the definition in para (b)(ii) merely because that party imposes conditions on his or her commercial dealings with the company with which the directors feel obliged to comply. A lender who is entitled to demand repayment of a loan and appoint a receiver can say, for example, that it will stay its hand only if the borrowing company sells certain assets. A supplier or buyer might impose conditions and because of its superior bargaining power, the directors of the company with whom it deals might feel they have no choice but to comply with the conditions imposed. It has been uniformly held that this is not sufficient to make the third party who exercises such powers in his dealings with the company a shadow director, even though the directors of the company are accustomed to comply with its demands (Re PFTZM Ltd (in liq); Jourdain v Paul [1995] 2 BCLC 354 at 368; Emanuel Management Pty Ltd (in liq) v Foster's Brewing Group Ltd at [268], [269], [314], [315], [324]; Ultraframe (UK) Ltd v Fielding at [1268]; Sir P Millett Shadow Directorship – a Real or Imagined Threat to Banks", (1991) 1 Insolvency Practitioner 14 at 15). 243 In my view the reason that third parties having commercial dealings with a company who are able to insist on certain terms if their support for the company is to continue, and are successful in procuring the company's compliance with those terms over an extended period, are not thereby to be treated as shadow directors within the definition, is because to insist on such terms as a commercial dealing between a third party and the company is not ipso facto to give an instruction or express a wish as to how the directors are to exercise their powers. Unless something more intrudes, the directors are free and would be expected to exercise their own judgment as to whether it is in the interests of the company to comply with the terms upon which the third party insists, or to reject those terms. If, in the exercise of their own judgment, they habitually comply with the third party's terms, it does not follow that the third party has given instructions or expressed a wish as to how they should exercise their functions as directors. 244 Another question is whether, in order for the directors of a company to act "in accordance with", the instructions or wishes of a putative shadow director, it must be shown that there is a causal connection between the putative shadow director giving the instruction or expressing the wish and the directors acting on it. In the present case, many of the things about which Apple or Mr Likidis gave instructions, or expressed a wish, are things which the directors who gave evidence said they would do in any event. For example, the plaintiffs allege that Apple instructed the directors to arrange for Buzzle's employees to prepare financial reports, prepare a plan for collection of Buzzle's accounts receivable, and employ resources for debt collection. These were basic steps for the operation of any business and things that the directors were in any event attempting to do. Can it be said that by attempting to do those things after Apple expressed a wish or gave an instruction for the things to be done, that Buzzle's directors were thereby acting "in accordance with" Apple's instructions or wishes within the meaning of para (b)(ii) of the definition? 245 The Oxford English Dictionary definition of "accordance" is that it is "the action or state of agreeing; agreement; harmony; conformity". Ordinary usage of the phrase "in accordance with" does not necessarily require a causal connection between the expression of a wish by A and the action of B. To take a homely example I advanced during argument, if on a Wednesday I decide to take my son or daughter to his or her football game on Saturday, and on Friday my wife asks me to take the child to football on Saturday, to which I agree, in performing that task I am acting in accordance with my wife's wish (or instruction). I am acting in agreement, harmony or conformity with her wish, even though I have already determined on that course of action. 246 But that is not how the definition in para (b)(ii) and cognate definitions have been approached. In Australian Securities Commission v AS Nominees Pty Ltd, Finn J (at ALR 53) posed the relevant question as being where the locus of "effective decision making" was situated. In Re Unisoft Group Ltd (No. 3) [1994] 1 BCLC 609, Harman J (at 620) spoke of a shadow director as being a "puppet master controlling the actions of the board." In Re Hydrodam (Corby) Ltd, Millett J (at 183) said that what was needed was that the board not exercise any discretion or judgment of its own, but act in accordance with the directions of others. In Secretary of State for Trade and Industry v Deverell, Morritt LJ said (at 354 [35]) that the purpose of the legislation was to identify those other than professional advisors who had real influence in the company's affairs. In Ultraframe (UK) Ltd v Fielding, Lewison J said (at [1272]) that the legislative policy was to subject those who effectively control the company's activities to the statutory duties and liabilities of a de jure director. 247 For the reasons I have already given, I do not accept that to establish that person is a shadow director, it must be shown that the directors of the company do not exercise any discretion of their own. Nonetheless, the authorities provide powerful support for the defendants' submission that there must be a causal connection between the instruction or wish of the shadow director and the act taken by the directors. There is good reason for this. If a person is a shadow director, he, she or it owes statutory duties to act in good faith in the best interests of the company, and with the reasonable care and diligence of a director of the company. A shadow director is also liable to statutory liabilities, such as the liability of a director for insolvent trading. When the definition is construed in the light of the purpose of subjecting a person who is not appointed, and does not (or might not) act as a director, to the statutory duties and liabilities of a director, it makes good sense that there must be a causal connection between the acts of the directors and the instructions of the putative shadow director for the definition to be satisfied. I accept the defendant's submissions that such a causal connection is necessary. 248 For Apple or Mr Likidis to be a shadow director, the directors of Buzzle must have been "accustomed to act" in accordance with its or his instructions or wishes. This requires habitual compliance over a period of time (Ultraframe (UK) Ltd v Fielding at [1273]). A shadow director is not subject to the statutory duties and liabilities of a shadow director for things done by the company in accordance with the shadow director's instructions or wishes before the directors of the company became accustomed to act in accordance with those instructions or wishes (Ultraframe (UK) Ltd v Fielding at [1273]-1278]). It follows that if the directors of Buzzle had not become accustomed to act on the instructions or wishes of Apple or Mr Likidis before 1 January 2001, but acted on such instructions or wishes after that date, they would not be liable under s 588G for the debts incurred by Buzzle until such time as the directors so frequently acted in accordance with their instructions or wishes that they could be said to have become accustomed to do so. 249 The definition of "director" in para (b)(ii) assumes that the giving of advice may constitute the giving of an instruction or the expression of a wish. It is only if the advice is given in the proper performance of functions attaching to a person's professional capacity or business relationship with the directors or the company that the qualification is satisfied, excluding the acting on advice as being sufficient to satisfy the definition. In the present case the plaintiffs say that if what the defendants call suggestions as to how Buzzle should act could be characterised as advice, the advice was not given in the proper performance of functions attaching to Apple's business relationship with Buzzle because Apple, for reasons of its own, wanted to avoid putting Buzzle into liquidation or administration even though it was trading whilst insolvent. It is said that such "advice" was not proper and that Apple and Mr Likidis for that reason cannot rely on the qualification. For the reasons below, it is not necessary to deal with that contention. 250 For a person to be a shadow director, the directors collectively must be accustomed to act on that person's instructions or wishes. I accept that it is sufficient that a governing majority is so accustomed (see para [235] above). It is not sufficient that executives who are not directors may be accustomed to act on the person's instructions or wishes. Depending upon the circumstances, a person who gives instructions or expresses wishes to executives of a company, and has them obeyed, might be a de facto director under para (b)(i), but he or she is not on that account a shadow director. I also agree with the view of Sangster J in Harris v S (1976) 2 ACLR 51 at 72 that instructions given or wishes expressed to a director in his or her capacity as a working executive, as distinct from an instruction or wish relating to the director's performance of his or her function as a director, is not relevant. Thus I agree with the view of Millett J in Re Hydrodam (Corby) Ltd at 183 quoted at [241] above that what is needed is a "board of directors claiming and purporting to act as such". I understand that to mean that it is the directors collectively in the exercise of their powers of management who must be accustomed to act on the instructions or wishes of the putative shadow director for the definition to be satisfied. 251 Buzzle did not have a constitution. Its internal management was therefore governed by provisions of the Corporations Law, the common law, and the provisions of the Corporations Law that applied to it as replaceable rules (Corporations Law, s 134). Relevantly, s 198A applied. It provided: " SECT 198A Powers of directors (replaceable rule—see section 135) (1) The business of a company is to be managed by or under the direction of the directors. Note: See section 198E for special rules about the powers of directors who are the single director/shareholder of proprietary companies. (2) The directors may exercise all the powers of the company except any powers that this Law or the company's constitution (if any) requires the company to exercise in general meeting. Note: For example, the directors may issue shares, borrow money and issue debentures. " 252 Also relevant are ss 198C and 198D. They provided: " SECT 198C Managing director (replaceable rule—see section 135) (1) The directors of a company may confer on a managing director any of the powers that the directors can exercise. (2) The directors may revoke or vary a conferral of powers on the managing director. SECT 198D Delegation (1) Unless the company's constitution provides otherwise, the directors of a company may delegate any of their powers to: (a) a committee of directors; or (b) a director; or (c) an employee of the company; or (d) any other person. Note: The delegation must be recorded in the company's minute book (see section 251A). (2) The delegate must exercise the powers delegated in accordance with any directions of the directors. (3) The exercise of the power by the delegate is as effective as if the directors had exercised it. " 253 At the relevant times up to 10 March 2001, the directors of Buzzle were Messrs Hartono, Liu, Mekrizis, Ford, McComb, and Kloester. Of them, only Messrs Hartono, Liu and Mekrizis gave evidence. There were few board meetings. The plaintiffs submitted that the directors delegated the overall management and governance of Buzzle's business to Messrs Hartono, Liu and Mekrizis. The plaintiffs submitted that Messrs Hartono, Liu and Mekrizis were accustomed to act in accordance with Apple's and Mr Likidis' instructions or wishes. 254 As the defendants pointed out, such a delegation would have been required to be recorded in Buzzle's minute book. There was no minute of such a delegation. It does not necessarily follow from the absence of a minute that no such delegation occurred, but the absence of a minute is relevant to determining whether or not there was such a delegation. 255 Mr Hartono and Mr Liu resigned on or about 10 March 2001. Buzzle's chief executive officer during the relevant period was Mr Qureshi. Mr Hartono deposed that he was managing director of Buzzle until Mr Qureshi was engaged as chief executive officer on 1 November 2000 (affidavit of Mr Hartono affirmed 7 December 2007, para 189). The plaintiffs did not contend that Mr Qureshi was a de facto director. The plaintiffs accept that the only directors with whom Mr Likidis dealt between 1 December 2000 and 31 March 2001 were Messrs Hartono and Liu. Mr Likidis said that he had very little involvement with the others. No Delegation by Buzzle's Board of the Directors' Powers 256 The plaintiffs contend that after September 2000 the directors of Buzzle did not meet as a board on more than one or two occasions. In his report of 19 February 2001 Mr Kershaw of KPMG said that the reason the expected efficiencies from the merger had not been realised included that: " * responsibility for the management of Buzzle following the merger or operations was split between the directors. However, due to their desire to crystallise value through the IPO and the belief that the IPO was imminent it appears that they adopted a 'minder' approach and did not jointly engage in the pro-active management of Buzzle. * The lack of planning and co-ordination post-merger is highlighted by the Board having met only once since the merger. " 257 As early as 2 June 2000 the Resellers discussed the division of operational responsibilities into different areas and selected individuals to head those divisions. The divisions were accounting systems, human resources, logistics, sales, and marketing. Mr Mekrizis was placed in charge of marketing. Later Mr Liu became responsible for finance. Mr Hartono was elected in June to be in charge of logistics and Mr Giles, human resources. On 6 June Mr Kloester and Mr Ford were recommended to take appointments in separate areas of the sales division. There were no regular meetings of directors either in person or by telephone for the directors to discuss collectively the management of Buzzle's business. 258 There is evidence of the following meetings of directors after the merger (not including meetings to resolve to enter into agreements to give effect to the merger). The minutes of the Buzzle management meeting of 4 October 2000 record that Donald (Hartono) held a directors' meeting prior to the management meeting at which topics discussed included the search for a chief executive officer, the future of a particular store, the fact that Mr Greg Lloyd was finishing as financial controller and Mr Patterson was to take over everyday accounting, that a new financial accountant was to be employed in Melbourne, that the Navision system was not functional and that Deloitte had committed to having six people to assist with catching up the backlog. 259 It can be inferred that the directors collectively agreed to the appointment of Mr Qureshi as chief executive officer. Mr Hartono announced his appointment on 27 October 2000 on behalf of the board of directors (TB8/2768). 260 When Mr Qureshi convened the management meeting to be held on 14 December he also wrote to the directors requesting that a directors' meeting be held before the management meeting commenced as there were several sensitive issues to be discussed that needed to be discussed before the planned management meeting (TB8/2951). Mr Qureshi deposed that before the meeting, Mr Likidis said to him "Your systems don't work. You can't cover your debts to Apple. You need to understand that I'm letting you trade. We could close you down if we wanted to", and that in reply he told Mr Likidis "I will speak to the directors and the management team this afternoon. Whatever you want us to do, let me know and we will put it in place." This of course is not evidence that the directors were accustomed to act on Mr Likidis' instructions in relation to how they should act as directors of Buzzle. The management meeting which followed and which was recorded is noteworthy for the absence of any statement being made by Mr Qureshi to the meeting whereby he conveyed any expression or wish of Apple. Nothing was said to indicate that the directors were then accustomed to act on Apple's instructions or wishes. Mr Qureshi gave evidence about the directors' meeting held on 14 December before the management meeting (T275-276). He said that he told the directors that Mr Likidis had told him that the company was insolvent. 261 It appears from an email sent by Mr Qureshi to officers of Apple on 1 February 2001 (TB11/3500) that a directors' meeting of Buzzle was held on 30 January 2001 at which several resolutions were passed which Mr Qureshi summarised as follows: " 1. Cash infusion of at least $6 million (ideally $7 million) within next 6 to 8 weeks. 2. Stage 2 of cost reduction program (target to reduce op ex to $1.6 million per month by 30.1.03). 3. Addressing all systems related issues as a matter of urgency ... within next 4-6 weeks ... working with Deloittes. 4. Provision of additional securities to Apple by directors (currently only 1 director abstaining), 5. CEO and financial controller taking FULL control of all purchasers and payments. 6. Increase both sales and marketing efforts aggressively. " 262 There is no evidence as to who attended that meeting. Mr Qureshi did not send a copy of his email to all of the directors, but did send a copy to Messrs Hartono, Liu and Mekrizis as well as to Mr Hanlon, the financial controller. 263 Mr Qureshi agreed that the directors functioned as a board even as late as February 2001. He said they were still functioning as of 28 February 2001. 264 In emails of 13 and 19 February 2001 Mr Qureshi conveyed to Mr Likidis what he said was the position taken by the board of directors of Buzzle. On 12 February Mr Likidis pressed Mr Qureshi to provide details of the proposal of directors to issue further security to Apple and to inject cash into Buzzle. Mr Likidis said that he was concerned that he had not heard further from Buzzle on those issues as they were both of considerable importance to Apple in terms of Apple's deliberations regarding the debt owed to it. Mr Qureshi responded on 13 February 2001. He said: " ... on behalf of the Board of Directors of Buzzle, I am able to respond formally as follows ... ". 265 The main point of his response was to complain that Apple had sent a fax advising of the appointment of Mr Kershaw of KPMG to review Buzzle's financial position to a fax number in Sydney where the document could be read, and was read, by staff, resulting in rumours that Apple was appointing an administrator. Dealing with the questions raised by Mr Likidis, Mr Qureshi said that Buzzle was only able to propose a repayment plan covering the debt owed to Apple over a nine-month period, that the directors were still considering their overall position in respect of Apple's request for additional securities, and that efforts to bring about an injection of cash were continuing. Mr Likidis' response was frosty. He objected to Buzzle's complaint about the sending of the fax to a fax machine to which there was general access, and said that any erosion of confidence within the ranks of Buzzle's staff was solely the consequence of Buzzle's inability to service Apple's debt, and not Apple's fault. In reply, Mr Qureshi said amongst other things: " ... perhaps I could respectfully remind you that I represent the opinion of 'the board of directors' of Buzzle and I am acting in my capacity as a professional manager i.e. conveying their position ... none of the sentiments that you may be offended by are mine, if anything I have been holding back diplomatically on the exchanges that take place within Buzzle. " 266 This suggests that all of the directors of Buzzle were consulted and had input in relation to decisions to be made by Buzzle, the request for injection of further cash, and the effect on staff of the news that Apple was appointing an investigating accountant. 267 On 26 February 2001 Mr Ford advised each of the other directors of Buzzle and Mr Qureshi that he had booked a boardroom for noon as a venue for a board meeting. It can be inferred that this meeting was to be held at noon on 28 February 2001 immediately before a meeting to be held with Apple. I infer that all of the directors of Buzzle were expected to attend both meetings. Mr Likidis said that his meeting with Buzzle directors on 28 February was attended by "most if not all" of Buzzle's directors. 268 At the meeting of 28 February 2001 Mr Bowley of Apple put forward a proposal for de-merger. As all of the directors of Buzzle had been the principals of the businesses that were merged, they all had a personal financial interest in the proposal for de-merger. A further meeting between Apple and Buzzle directors was held on 2 March 2001. At that meeting Mr Mekrizis confirmed that there was no additional money to be injected into the Buzzle business and that the directors preferred the de-merger option. Mr Likidis attended a further meeting with Buzzle's directors on 5 March 2001. On 7 March 2001 Mr Qureshi sent to Apple a suggested draft of a "de-merger document" in a document that, so he advised, "the directors of Buzzle have arrived at today". His email enclosing that document to Apple was copied to all the Buzzle directors. It can be inferred that all of Buzzle's directors were involved in the proposal put forward by Buzzle for a de-merger. The proposal stated that: " The acceptable key terms of the De-Merger proposal in the opinion of the director's [sic] of Buzzle are as follows. " 269 There then followed particular terms of the proposal covering issues including indemnity of Buzzle's directors, possible legal action arising from Buzzle's trading whilst insolvent, the existing shareholders of Buzzle Limited providing $5 million working capital on a pro-rata basis in accordance with their shareholding, terms for the purchase of Buzzle's plant and equipment with funding to be provided by Apple, the purchase by new companies associated with each shareholder of Buzzle stock and the timing of purchase, credit terms for the provision of new Apple stock by the new companies, the payment by Apple of valid operating expenses paid for by Buzzle, Apple's paying the balance of all outstanding Buzzle debts, Apple's covering the expenses of the de-merger, Apple's waiving the balance of its debt, and not calling upon personal guarantees. 270 On 9 March 2001 there was a meeting attended by Buzzle's directors and Apple's executive team as well as by Mr Oppenheimer from the United States. The purpose of the meeting was to see if terms could be agreed upon between Buzzle, its directors or shareholders, and Apple for a de-merger. An agreement in principle was reached between Apple and the individual directors in their capacity as principals of the Resellers (TB13/4153). Necessarily, the remaining directors of Buzzle must have been making decisions as to how the business assets and debts of Buzzle would be dealt with on a de-merger. Part of the proposal for a de-merger involved placing Buzzle into administration. There is nothing to indicate that any directors of Buzzle did not participate in the consideration of those matters. 271 The evidence does not establish that the directors of Buzzle made any general or specific delegation of their powers to Messrs Hartono, Liu and Mekrizis. What appears to have happened is that for considerable periods the directors left the management of Buzzle's affairs in the hands of Mr Qureshi, and to a lesser extent in the hands of Messrs Hartono, Liu and Mekrizis. That was not the result of a delegation of powers. Rather, the directors set about managing those particular aspects of the business for which each had individual responsibility whilst leaving it to Mr Qureshi as chief executive officer to manage the overall business. When issues arose that required the attention of the whole board Mr Qureshi arranged for all of the directors to be involved. Otherwise he dealt principally with the directors who represented the major shareholders, that is, Messrs Hartono, Liu and Mekrizis. Mr Qureshi deposed: " 17. My observations as to how Buzzle operated during my employment as its CEO was as follows: (a) there were no regular formal board meetings held; (b) there was little centralised management and the Apple resellerships that merged to form Buzzle ( the Vendor Companies ) continued to run relatively independently. One of the Directors, David Ford ( Mr Ford ), for example, spent most of his time in Coffs Harbour until he took on the role of managing Buzzle's retail outlets in early 2001; (c) the Directors themselves generally had long standing commercial relationships with the first defendant ( Apple ) and the second defendant ( Mr Likidis ) and tended to deal with him directly; (d) the Directors were primarily focussed on their own the [sic] Vendor Companies, and their operation; (e) the bulk of my communications with the Directors was by telephone or email; (f) it was rare for all Directors to be in the same place at the same time; (g) the Directors with primary responsibility for the management and practices of Buzzle were Mr Hartono, who had been acting CEO before me, and Mr Liu who was its Chief Financial Officer and I would deal with them far more than the other Directors. I had very little to do with Lindsay McComb, another Director, as he had very little to do with the management of Buzzle. George Mekrizis ( Mr Mekrizis ), Robert Kloester ( Mr Kloester ) and Mr Ford were not really involved in the management or the operation of the Buzzle business either. They seemed to spend the bulk of their time running their own Vendor Companies; (h) most of the decisions in relation to the management and running of Buzzle's business were made by Mr Hartono and Mr Liu. " 272 In relation to that evidence Mr Qureshi said that Buzzle's board operated in the way of a smaller business in that it was informal. He said: " They were all there. We had discussions. They were not structured meetings but, filed documents and all that stuff. That's what I meant [by para 17]." 273 He gave the following further evidence: " Q. But there was a functional board, and I think you mean Buzzle when you say Apple? A. There was a board of directors. They make decisions yes. Q. Sometimes they didn't meet together in the same room, but they certainly communicated with each other? A. Oh sure. Q. You had no trouble getting access to them? A. No I had no trouble getting access. Q. Sometimes trouble getting them all in the one room at the same time? A. Yes. Q. But there certainly was a board, and the board made decisions as a board? A. Yes. Q. And any suggestion that decisions by the board were really made by some subset of the board, such as Mr Hartono and Mr Liu, would be wrong, wouldn't it, it operated as a board? A. No. It would not be wrong. Q. That would not be wrong? A. Because there were some members of the board who never participated in the day to day running of the business. Lindsay McComb, David Ford, people like that, who were relatively small shareholders in the Buzzle consortium. Q. But at board level, they participated didn't they? A. Yes, but they often didn't even attend meetings because they felt that they couldn't contribute to them. McComb would be a good example of that. " 274 The fact that Mr Liu as chief financial officer and Mr Hartono as the former managing director, dealt more with Mr Qureshi than did the other directors does not mean that the other directors delegated their powers to a subset of the board. 275 As previously noted, no evidence was adduced from the remaining three directors, Messrs McComb, Ford and Kloester. Had there been an informal delegation of the directors' functions to the executive team, I would expect evidence to that effect to be led from the other directors. There was no explanation for the plaintiffs not having called the other directors, except that they contended that the other directors had delegated their powers to Messrs Hartono, Liu and Mekrizis, a contention I reject. 276 For these reasons I do not accept that the question whether the directors of Buzzle were accustomed to act in accordance with the instructions or wishes of Apple or Mr Likidis is to be answered by asking whether Messrs Hartono, Liu and Mekrizis were so accustomed. I should note that because it was not contended that Mr Qureshi was a de facto director, no issue was raised (and no submissions were made) as to whether Mr Qureshi was so accustomed. 277 The question then is whether a governing majority of Buzzle's board was accustomed to act on the instructions or wishes of Apple or Mr Likidis. The Pleaded Case 278 Paragraphs 37 and 37A of the second further amended statement of claim allege that by reason of numerous matters enumerated in those paragraphs, Apple was a director of Buzzle by the end of December 2000 within the definition of "director" in sub-para (b)(ii) in s 9 of the Corporations Law. Paragraph 37B alleges that by reason of further enumerated matters Buzzle had become a director within the meaning of sub-para (b)(ii) by the end of January 2001. Paragraph 37C alleges a further matter by reason of which Apple is said to be a director of Buzzle by the end of February 2001. The same particulars to those paragraphs are relied on to allege that Mr Likidis was a director of Buzzle from at least December 2000, January 2001 and February 2001. The plaintiffs allege that Apple is vicariously liable for Mr Likidis' conduct with respect to his actions in his role as director of Buzzle. 279 In final submissions, counsel for the plaintiffs identified a number of matters in respect of which it was alleged the Buzzle board acted in accordance with the wishes and instructions of Apple which were not pleaded. Notably, the plaintiffs contended that Buzzle acted on Apple's instructions in seeking to identify and approach third party investors with a view to recapitalising or restructuring business, and acted on Apple's instructions in seeking to pursue a proposal for de-merger, and in the meantime continued to trade and incur debt. These are not matters by reason of which the plaintiffs alleged that the directors of Buzzle were accustomed to act on Apple's instructions. That is to say, the plaintiffs rely upon earlier conduct of the directors of Buzzle to establish that Buzzle had become accustomed to act on Apple's or Mr Likidis' instructions or wishes. If the earlier contentions are not made good, the plaintiffs do not establish that the directors were accustomed to act on Apple's instructions or wishes by establishing that the directors acted on Apple's instructions or wishes on the later matters. 280 A number of the instructions and wishes of Apple on which it is said that the directors of Buzzle acted up to November and December 2000 have already been addressed. I will deal with them seriatim. The first alleged instruction is said to have been given by Mr Likidis on 28 June 2000 before Buzzle was incorporated, namely that Buzzle only sell Apple products to the exclusion of any other computer hardware, software or accessories. Negotiations on what non-Apple products Buzzle could sell did not constitute the giving of an instruction, or the expression of a wish, as to how the directors of Buzzle should act in that capacity. It was no more than a third party seeking to negotiate the terms of a contract. There was only hearsay evidence that Apple had expressed such a wish. If it did, the wish was not agreed to because the Reseller Agreement was not on those terms. 281 Secondly, the plaintiffs allege that Apple instructed the directors of Buzzle to appoint an accountant to conduct due diligence of each of the proposed vendor companies and to provide copies of the due diligence reports and profit and loss statements for each of the proposed vendor companies to Apple, and that the appointed directors followed those instructions and caused Buzzle to appoint an accountant to perform due diligence and provide reports to Apple. I have dealt with this allegation in the context of the contention that Apple was an officer of Buzzle as at 13 September 2000 (para [103] above). Mr Bright of Arthur Andersen recommended that such due diligence be carried out in respect of each vendor company. No evidence was led that the directors of Buzzle agreed to such a course because of any statement made by Mr Likidis or Apple. Any such requirement was part of a commercial negotiation at arm's length and was not an instruction or wish as to how the directors of Buzzle, in their capacity as directors of Buzzle, should act in the management of Buzzle's affairs. 282 Thirdly, the plaintiffs say that in late July 2000 Apple instructed Buzzle's directors to arrange a due diligence report on Mac's Place following Apple's being informed that Mac's Place had negative assets of approximately $3 million. It is said that Buzzle's directors followed Apple's instructions by arranging for Moore Stephens to prepare a report. There is some confusion here. Mr Likidis requested that a due diligence review be conducted on Mac's Place after he was told by Mr Giles that it had a bit of a hole in its accounts. (See para [56] above.) The deficiency was then thought to be about $1.1 million. I accept Mr Likidis' evidence that he had no involvement in the appointment of Moore Stephens. Had the alleged instruction been given, it was not an instruction to the directors of Buzzle as to how they should act in that capacity in relation to the management of Buzzle's affairs. 283 Fourthly, the plaintiffs allege that Apple instructed Buzzle's directors that Mac's Place must be included in the business to be acquired by Buzzle and that an investor injecting capital into Mac's Place was necessary prior to the merger. It is alleged that the directors of Buzzle followed that instruction. Again, the alleged instruction was not an instruction to the directors of Buzzle as to how they should act in that capacity in managing the affairs of Buzzle. I have dealt with this matter at paras [56]-[59], [70]-[73] and [95]-[99] above. I do not accept that such an instruction was given. Even if it were given, it would not be an instruction as to how Buzzle's directors should act in their capacity as directors of Buzzle in the management of Buzzle's affairs. 284 Fifthly, the plaintiffs alleged that Apple instructed Buzzle's directors that the proposed merger of the vendors' companies' businesses into a single entity was only to proceed if the acquisition of Mac's Place occurred on terms specified by Apple. The plaintiffs allege that Buzzle's directors followed that instruction and caused Buzzle to document the proposed acquisition on terms dictated by Apple. I have dealt with this allegation at paras [95]-[99] above. I do not accept that such an instruction was given. Even if it were, it was not an instruction as to how Buzzle's directors should act in their capacity as directors of Buzzle in relation to the management of the affairs of Buzzle. 285 Sixthly, the plaintiffs allege that Apple gave instructions as to how Aircent should acquire the business of Mac's Place and that Buzzle should purchase Aircent's stock at the merger and procure an allocation of shares in Buzzle Limited to Mr Liu. They allege that Apple gave instructions that Buzzle require Choice Connections to manage the business that Aircent was to acquire from Mac's Place until the business was acquired by Buzzle. They allege that Buzzle's directors followed Apple's instructions and caused their advisors to prepare an asset sale agreement with terms in accordance with Apple's instructions, which was later executed. I have dealt with these allegations at paras [95]-[99] above. I do not accept that in acquiring the assets and business of Aircent, Buzzle acted in accordance with the instructions or wishes of Apple. Buzzle always proposed to acquire the assets and business of Mac's Place which Aircent acquired. If the alleged instructions were given they were not instructions to Buzzle's directors as to how they should act in the management of Buzzle's affairs. 286 Seventhly, the plaintiffs allege that Apple instructed Buzzle's directors in relation to which businesses Buzzle should acquire for the purposes of the proposed merger, as it instructed the Buzzle directors to no longer acquire Mac's Place and to acquire Aircent. It is alleged that Buzzle's directors acted in accordance with those instructions. This is a re-statement of the earlier allegation. Buzzle's directors had already proposed to acquire the business and assets of Mac's Place. I do not accept that the alleged instruction was given. Even if it were given, it was not an instruction as to how the directors of Buzzle should act in that capacity but was a negotiation of commercial terms between parties at arm's length. 287 Eighthly, it is alleged that Apple instructed Buzzle's directors to procure an allocation of shares to Aircent and Mr Thompson and that Buzzle's directors acted in accordance with those instructions and wishes and caused Buzzle's advisors to allocate shares in Buzzle Limited accordingly. I do not accept that such an instruction took place. The allocation of shares to Aircent and Mr Thompson was the result of a commercial negotiation, not as the result of an instruction by Apple on which the directors of Buzzle acted. 288 Ninthly, the plaintiffs allege that Apple instructed the proposed directors of Buzzle that Buzzle provide security to Apple over its assets for the debts owed by the vendor companies to Apple and Buzzle's directors followed Apple's instructions and wishes and provided that security. 289 There is no evidence that any such instruction was given. If it were, it was not complied with. Buzzle's charge secured the obligations of Buzzle and Buzzle Limited to Apple. It did not secure the obligations of the vendor Resellers to Apple. 290 Tenthly, the plaintiffs allege that Apple instructed Buzzle's directors to pay the consideration for the purchase by Buzzle of the businesses of the vendor companies directly to Apple and the directors of Buzzle followed Apple's instructions and wishes. I have addressed this issue at paras [107]-[115] above. No instruction was given by Apple to Buzzle's directors as to how they should act as directors of Buzzle in relation to this matter. 291 Eleventhly, the plaintiffs allege that Apple instructed Buzzle's directors to make an announcement in respect of the proposed merger to the vendor companies' staff and that the directors followed those instructions and wishes and caused Buzzle to circulate an announcement in the terms Apple instructed. The instruction is said to have been given in an email from Mr Likidis to Mr Hartono and Mr Thompson dated 9 August 2000. Mr Likidis deposed that the draft announcement had been prepared by Mr Thompson. I accept that evidence. Mr Thompson did not give evidence. No instruction was given by Apple or Mr Likidis to the directors of Buzzle in relation to this matter. As the defendants submit, the terms on which the announcement of the proposed merger would be made is a trivial matter. 292 Twelfthly, the plaintiffs allege that Apple instructed Buzzle's directors in relation to what future indebtedness it could occur and how it should apply its future cash flows. They allege that Apple instructed Buzzle's directors to cause Buzzle to enter into the Payments Deed which restricted its ability to deal with its future cash flow. The plaintiffs allege that Buzzle's directors followed Apple's instructions and caused Buzzle to execute the Payments Deed which provided in effect that Buzzle would apply its future cash flow as approved by Apple. That was not the effect of the Payments Deed. In any event, no instruction was given by Apple to the directors of Buzle as to how they should act in their capacity as directors in the management of Buzzle's affairs. The terms of the Payments Deed were a matter of commercial negotiation between parties at arm's length. It was open to the directors of Buzzle to agree or not to agree to the terms of the Payments Deed. 293 Thirteenthly, the plaintiffs allege that Apple instructed Buzzle's directors to make payments to the vendors on 3, 27 and 31 October 2000. It is said that Buzzle's directors followed those instructions in causing Buzzle to make the payments to the vendors. The plaintiffs allege that Mr Likidis instructed Mr Hartono to make a payment on 3 October 2000 and that Mr Kidd instructed Mr Hartono and Mr Patterson to make payments on 17 and 31 October 2000. 294 The vendors did not cause Buzzle to make payments on their behalf because of instructions given to them by Apple. The vendors, Buzzle and Apple anticipated that Buzzle would make payments on their behalf to Apple. That was because Buzzle owed those moneys to the vendors. It made no difference whether Buzzle paid the vendors directly and the vendors passed the money on to Apple, or whether, on the vendors' behalf, Buzzle paid the money to Apple. Buzzle's directors were not acting on Apple's instructions because Buzzle made part-payment of its debts to the vendors by making payments towards debts the vendors owed to Apple. Mr Kidd gave no such instructions. He merely provided information as to the quantum of the debts owed by the vendors to Apple which would be reduced by Buzzle's payment. 295 Fourteenthly, the plaintiffs alleged that Buzzle's directors followed the instructions and wishes of Apple by following Apple's instruction that Buzzle purchase the stock of the vendor companies at cost price and assume a direct obligation to pay Apple in respect of that part of the consideration to be paid by the vendor companies. The obligation of Buzzle to purchase the stock of the vendor companies was assumed by it under the terms of the Merger Deeds which Buzzle entered into with the vendor companies. As indicated earlier in these reasons at paras [107]-[115] the vendors, Apple and Buzzle agreed that the debt owed by Buzzle to the vendors for the Apple stock it purchased from the vendors would become a debt that Buzzle owed to Apple at Mr Hartono's request. This was not the result of Buzzle's directors acting on Apple's instructions. The arrangement was to Buzzle's advantage because Apple did not insist on payment of the debt until 1 December 2000, whereas the debt would have been payable to the vendors by 31 October 2000. It made no difference to Buzzle to whom it owed the debt for the Apple stock it acquired from the vendors. The only difference the arrangement made to Buzzle was that Apple did not require payment by 31 October 2000. 296 Fifteenthly, the plaintiffs allege that Apple instructed Buzzle's directors "in respect of the development of financial reports", and the directors followed those instructions by causing Buzzle to develop financial reports in accordance with Apple's instructions and wishes. The instruction is said to have been given to Mr Patterson who conveyed the instruction to Messrs Liu and Hartono, and they caused Buzzle to proceed to develop the financial reports. The plaintiffs do not allege who gave the instruction to Mr Patterson, nor identify any particular instruction in their submissions. In his affidavit Mr Patterson referred to an email he received from Mr Kidd on 22 December 2000 confirming actions he described as "required to be taken by Buzzle by 2 January 2001, namely the generation of ..." financial reports. This is dealt with below at paras [298] and [299] and following. The email recorded what had been agreed between the parties. Any instruction to Mr Patterson for the development of financial reports was not an instruction to the directors of Buzzle as to how they should act in that capacity. Nor was it considered by a majority of directors. Moreover, Buzzle did not follow Apple's instructions to develop and provide financial reports. Because of the deficiencies in the Navision system, or in Buzzle's deployment of that system, it was unable to do so. Further, the alleged instruction did not cause Buzzle to endeavour to provide financial reports. It had been attempting to do so from the outset. 297 Sixteenthly, the plaintiffs allege that by the end of December 2000 Buzzle's directors had become accustomed to act on the instructions or wishes of Apple because Apple instructed them to pay moneys to Apple and Buzzle followed those instructions and wishes and caused Buzzle to pay moneys to Apple in respect of the vendors' debts. The plaintiffs allege that those instructions were given by Mr Kidd to Mr Hartono on or around 12 December 2000, and this caused Buzzle to pay $4,300,000 in respect of the vendor debts. However, Buzzle made its last payment in respect of the vendors' debts on 8 December 2000. The payment of $4,300,000 was made by Buzzle to Apple on 1 December 2000 in respect of debts which Buzzle owed Apple on its own account, not in respect of debts owed by the vendors to Apple. A creditor cannot be a shadow director of its debtor because it demands payments of debts owed to it and gets paid, or in Apple's case, paid in part. 298 Seventeenthly, the plaintiffs allege that at a meeting on 22 December 2000 Mr Likidis and Mr Kidd instructed Mr Qureshi and Mr Patterson that the directors should prepare financial reports "upon specified bases by specified times", including profit and loss statements, balance sheets, revenue and expense projections, cash flow budgets, inventory reports, and aged debtors reports including analysis. It is also alleged that at the same meeting Mr Likidis and Mr Kidd instructed Mr Qureshi and Mr Patterson that the directors of Buzzle should prepare a plan for collection of Buzzle's accounts receivables and to employ resources for debt collection, that they should ensure that responsibility for review of Buzzle's collections of its accounts receivables would be undertaken by Mr Likidis, and that the directors should ensure that all payments to creditors were controlled or authorised by Mr Liu. The plaintiffs allege that Buzzle's directors followed those instructions. 299 This allegation picks up an email Mr Kidd sent to Mr Patterson and Mr Liu on 22 December 2000 recording matters agreed between Messrs Liu, Patterson, Likidis and Kidd on that day. Mr Kidd recorded that Messrs Patterson and Liu had agreed that by 2 January 2001 they would provide: " - Balance Sheet and Profit & Loss Statements for the Group. - Bank Reconciliation. - Forecast Plan going forward to June '01. - Debtors list, broken down into sections showing accounts over $50K, $25K to below $50K, $10K to below $25K and other. - Inventory report showing Apple stock items, Units held, Values, Weekly Sale Numbers per item. - Up date on Collections of outstanding Debtors. You will also need to work on the Cash Flow statement, which Jim will send through to you. We are here to provide any assistance we can, please contact me at any time. " (TB9/3061) 300 Mr Liu also confirmed the results of the meeting of 22 December 2000. He sent an email to Mr Likidis as follows: " Dear Jim, Further to our meeting with you, Steve Kidd, Paul and myself this morning, I would like to summarize the meeting and following items required by 2/1/2001:- 1. Buzzle will prepare Profit and Losses Statement, Balance Sheet for the period ending December 31, 2000 with all adjustments. Adjustments include acquisition of six businesses, goodwill and consolidation of accounts kept for stores located at Sussex St, Clarence St and Dandenong based on legacy system. Reconciliation of cash at bank and all accounts. 2. Preparation of Revenue and Expenses Projection for the period ending June 30, 2001 including all sale budget and fixed overheads. 3. Preparation of Cash flow Projection including assumptions set for cash/account sales and collection cycle. 4. Inventory Report Summary on all key Apple Products on hand with Sale Forecast and Week Cover to be provided next week. 5. Buzzle will provide you a 'Date of Completion' from Deloitte for transferring all data across from legacy system to Navision. All Buzzle stores will be on Navision System from 1.1.2001. Navision training will be provided particularly to Sussex Street and Dandenong Stores. 6. Age Debtor with required analysis and Creditor Balance and Trial Balance. 7. Buzzle's Plan and Human Resources on Debtor Collection and review of our progress from today. 8. Payment List Control – all payment will be controlled and authorized by Wing Liu in Buzzle as advised. All third party creditor will be properly managed. 9. An extension of our Apple payment date to be agreed upon based on review of the above items on 2/1/2001. Thank you for your support. " (TB9/3062) 301 Apple was entitled to the information it sought under its Reseller Agreement. By asking for that information it was not giving instructions or expressing wishes as to how the directors of Buzzle should act as directors in the management of the affairs of Buzzle. Mr Likidis and Mr Kidd were asserting rights of Apple. Even if they sought information to which Apple did not have a contractual right, they were still asserting Apple's position rather than giving instructions to the directors of Buzzle as to how the directors should act in that capacity. The fact that Mr Liu and Mr Patterson agreed to provide the information requested did not mean that the directors of Buzzle acted in accordance with Apple's instructions or wishes. Far from it. Although Mr Liu and Mr Patterson agreed to provide the requested information and attempted to provide it, Buzzle was unable to provide the financial reports Apple sought. Whilst steps were taken in relation to the collection of debts as required by Apple, this was not the result of Buzzle's board acting on Apple's instructions. Buzzle's executives were attempting to generate financial reports and collect debts irrespective of Apple's demands. 302 The plaintiffs pleaded that on 22 December 2000 Mr Likidis and Mr Kidd instructed Mr Qureshi and Mr Patterson that all creditor payments be controlled and authorised by Mr Liu. There was no evidence of such an instruction. Even had such an instruction been given, it was not an instruction given to the directors of Buzzle or acted on by them. 303 Accordingly, I do not accept that by 31 December 2000 Buzzle's directors were accustomed to act on the instructions or wishes of Apple or Mr Likidis. Looking at the picture in broad terms, the vendor Resellers had merged their business in a way contrary to that advised by Mr Likidis. There had been little contact between Mr Likidis and Buzzle prior to December 2000. After Buzzle defaulted in its debts to Apple on 1 December 2000 Apple moved to protect its position by putting increasing pressure on Buzzle to provide it with financial information about Buzzle's trading position and to cause Buzzle to collect the debts owed to it. This is far removed from Apple's then being a shadow director. 304 The plaintiffs' final submissions did not focus on their pleadings. They rather focused on actions taken by Buzzle between January and March 2001. These actions, it was said, were taken by the directors of Buzzle in conformity with Apple's instructions. The plaintiffs submitted that: " 165. From at least 1 January 2001 Apple communicated to the directors of Buzzle: 165.1 that they should take corrective actions in relation to the finance, business operations and administration function of Buzzle's business and specifically with respect to the organisation, staffing and managing of those areas and that this should be overseen and monitored by Apple (and specifically Mr Likidis); 165.2 that they should address Buzzle's funding and working capital requirements; 165.3 that each of the matters should be addressed with the assistance of Apple (and specifically Mr Likidis) and that action in respect of them should be completed by 31 March 2001; 165.4 that Buzzle should continue to trade and to monitor its cash position paying third party creditors who were suppliers of goods or services used or required in that ongoing business (as well as other creditors who might seek to wind Buzzle up) and that this process should be monitored by Apple (and specifically Mr Likidis). 166. In the period from January to March 2001 as the Buzzle board acted upon the wishes and instructions of Apple, other more specific matters concerning its business operations and functions and its working capital requirements were the subject of Apple's instructions or wishes. Specifically, they were: 166.1 that Buzzle and Apple co-operate in dealing with Deloitte to proceed with a program to fix the Navision information system; 166.2 that Buzzle and Apple co-operate in seeking to identify and approach third party investors with a view to recapitalising or restructuring Buzzle so as to enable the business to survive in one form or another; 166.3 that Buzzle pursue with Apple a proposal to demerge the existing Buzzle businesses by the sale of all or parts of that business to the original resellers or companies associated with the principals of those resellers; 166.4 that Buzzle continue to trade on the basis described above until Apple worked out what it might do in the interests of Apple and its retail supply channel in Australia. " 305 If Buzzle's board did act in accordance with the wishes and instructions of Apple after 1 January 2001 in the ways for which the plaintiffs contend, it would not follow that by those times the directors of Buzzle were accustomed so to act. It is necessary to remain with the plaintiffs' pleading as to how they contended that the directors of Buzzle were accustomed to act on Apple's instructions or wishes. The plaintiffs alleged that by the end of January 2001 the directors of Buzzle were accustomed to act on the instructions or wishes of Apple by reason of the matters earlier pleaded (with which I have dealt) and by reason of the following further matters, namely that whilst Mr Likidis maintained an office at Buzzle's premises, Apple, through Mr Likidis, instructed Buzzle's directors to: " (1) provide intensive user training for Navision to key staff; (2) undertake a review of the current skills that exist in its finance, administration and business operations areas for the purposes of establishing an area to support the business and identify any recruitment needs; (3) undertake a review of business processes in respect of transactional processing and implement any improvements required; (4) monitor its cash flow daily and prepare weekly forecasts; (5) investigate raising further capital; (6) determine the resources required for collecting accounts receivable and engage further contractors to perform reconciliations of accounts receivable; and (7) proceed to engage Deloitte to develop its computerised accounting systems and the directors of Buzzle and employees caused Buzzle to negotiate a further contract with Deloitte; and the Appointed Directors followed the instructions and wishes and caused Buzzle [to] carry out the instructions and wishes of Apple. " (Second further amended statement of claim, para 37B(b)) 306 The plaintiffs alleged that the directors followed those instructions and caused Buzzle to implement them. 307 Mr Likidis did not give instructions to all of the directors of Buzzle in respect of any of the above matters. That is not fatal to the plaintiffs' case. Whilst a governing majority of the directors must act in accordance with a person's wishes or instructions for that person to be a shadow director, the instruction or wish need not be communicated directly by that person to all or a governing majority of the directors. It would be enough if the instructions or wishes were passed on and acted on with sufficient frequency that the directors had become accustomed so to act. But in this case neither all nor a majority of the directors of Buzzle acted in accordance with the alleged instructions. 308 The instructions are alleged to have been given by Mr Likidis to Mr Qureshi on 2 and 4 January 2001 when Mr Likidis was occupying an office at Buzzle's premises. On 2 January 2001 a meeting was held at Buzzle's Melbourne office between Messrs Likidis, Kidd and Liu. Mr Likidis reported to Mr Oppenheimer as follows: " Peter, As promised below is an update following the meeting with Buzzle on 1/2 and a further meeting held with the AET [Apple Executive Team] 1/4. The financials promised to be tabled 1/2 were not delivered. I am estimating that they are probably 4 weeks away from preparing accounts that we can place some reliance on. Reasons for this are as follows: - Systems - People - Processes relating to the Finance, Administration and Business Operations areas. Systems (Navision) The system issues that the company has experienced in the past 4 months have mainly been resolved. What is now needed is extensive training to be undertaken for all users of the system. This will commence early next week. People This area is of great concern and a lot of work has to be done here. A proper organization structure needs to be developed and good people with the good leadership skills are required. Processes This area is in great need for development with very little processes are in place [sic] to produce management information to give visibility into the running of the company. Corrective Actions to be taken a) Navision to undertake intensive user training of key staff. This will commence on Tuesday 1/9. This will continue as new people come on board to take on key positions in Finance. b) A review of the current skills that exist in the Finance, Administration and Business Operations areas will be undertaken. An organization will be then be [sic] set up in these areas to support the needs of the business and key people will be engaged to perform key functions where this is required. c) Processes are to be reviewed and actions taken to make improvements in order that transactional processing is efficiently undertaken. d) Cash flow is to be monitored daily and a forecast is to be prepared weekly. In using this tool we will quickly obtain an understanding of the company's ability to meet its debts and particularly the repayment of the Apple debt outstanding. e) Further security is to be requested from the directors in the way of property. f) The directors are discussing the possibility of a further cash infusion into the company. We will know the outcome of this next week. g) Contractors are currently being interviewed to commence as soon as possible to perform reconciliations etc. [h] The collection process and resource required to collect outstanding accounts will be determined on Tuesday 1/9. [i] A minimum payment of $5m to be paid by 1/15. My aim is to have the balance of the O/S in December of $11m i.e. $6M by the end of 1 st . week February. [j] I will personally monitor and drive the above actions and plan to allocate 2 days a week to this effort, commencing next Tuesday 9/1. I feel that this is the only way I can have some confidence that the above actions will be followed effectively. My objective is to have all the above completed by the end of Qtr. 2. Your feedback on the above would be very appreciated. " (TB9/3231-3232) 309 Mr Likidis said that he overstated his intentions in order to impress a superior. I do not think he did overstate his intentions. But it does not follow that because Mr Likidis devoted time to "personally drive" the matters set out in his email of 4 January that the directors of Buzzle became accustomed to act on his or Apple's wishes. 310 On 4 January 2001 Mr Oppenheimer wrote to Mr Likidis and said that he agreed with Mr Likidis' spending two days a week at Buzzle's offices to ensure that positive steps were taken. He said that Apple needed to err on the side of over-supporting Buzzle with people and that Mr Likidis should be lining up outside resources that "we in part manage" to supplement on the collections and accounting clean-up. The plaintiffs submitted that Mr Oppenheimer's email was consistent with a plan of action by Apple to take control of rectifying Buzzle's problems by imposing its will on the directors of Buzzle as to corrective measures that Apple considered fit. However, nothing was addressed to the directors of Buzzle collectively. A better characterisation of Mr Oppenheimer's email is that he agreed with Mr Likidis' proposal to provide support for the actions which Buzzle's executive had agreed with Mr Likidis they would undertake. 311 On 5 January 2001 Mr Liu forwarded to Mr Likidis an email he had sent on 3 January 2001 to Mr Qureshi, Mr Hartono and Mr Mekrizis setting out the scope of work required on the preparation of financial statements and the preparation of an internal audit. 312 Mr Likidis attended Buzzle's Melbourne office on 9 and 10 January 2001. On 10 January he reported to Mr Tidwell and Mr Oppenheimer on a presentation he made on the need to take corrective actions. He said that he discovered to his amazement (and the amazement of management) that the reason for the ageing of debtors was that no collection calls were being made in West Melbourne on debtors. He described the process of employing staff including a payables supervisor and payables clerk and said that he had interviewed and appointed a national credit manager. He described other steps being taken including training for the Navision system, the appointment of additional staff to collect accounts and the appointment of others to work on various accounting matters. 313 Mr Likidis' presentation on 10 January was made to about seven of Buzzle's management including Mr Liu and possibly Mr Hartono. It was not made to all or a majority of the directors collectively or individually. There is no evidence that all or a majority of the board acted on what Mr Likidis proposed. The presentation was headed "Buzzle Finance Admin. & Business Operations: Corrective Actions Recommended for Consideration by Buzzle Management." This description reflects the caution which Apple and Mr Likidis then had about the possibility of becoming a shadow or de facto director. Mr Likidis was well aware of the risks entailed in engaging too closely in the management of Buzzle's affairs. His presentation included recommendations for the centralisation of financing responsibilities in the West Melbourne office of Buzzle, the transition of all the former Resellers to the Navision system and identifying and resolving system issues. He identified the need to complete various reconciliations. 314 On 17 January 2001 Mr Likidis made a further Powerpoint presentation at Buzzle's Melbourne office. The presentation stated Apple's concern that Buzzle was then trading although insolvent. It was owed $27 million as at 15 January and was paid only $5 million and that $22 million was overdue. He noted that there were still no financial statements available five months after the company had been incorporated. In a slide headed "Suggested Corrective Actions" Mr Likidis recommended: " Clearly identify system issues and resolve Reduce operating expenses Identify inefficiencies in current processes and introduce improvements Develop an organization structure that functionally will support the company Improve communications in the company " (TB9/3300) 315 Mr Likidis recommended that matters for immediate action were: " Set up an effecting F&A and Bus.Ops. Organisation Implement system training Produce financials to end December Cash Flow to be monitored daily Forecasts to be prepared weekly Collection process reviewed and adequate resource put in a place to collect old accounts. " (TB9/3302) 316 Mr Hanlon commenced as Buzzle's financial controller on or about 15 January 2001. Mr Likidis participated in the interview for his position and approved his appointment. The plaintiffs submitted that the fact that Mr Likidis participated in interviews with potential accounting staff confirmed that Buzzle's directors were following his instructions in relation to the recruitment of accounting staff. The appointment of accounting staff was not a matter which was considered by Buzzle's board or a majority of directors. Nor did the plaintiffs plead that Mr Likidis' approval of Mr Hanlon's (or anyone else's) appointment was an instance in which Buzzle's directors acted in accordance with Apple's instructions or wishes. 317 Mr Hanlon worked closely with Mr Likidis. Mr Qureshi told Mr Hanlon that he should do anything Mr Likidis asked. This does not mean that Mr Likidis expressed instructions or wishes on which Buzzle's directors became accustomed to act. 318 Mr Hanlon sent regular emails to Mr Likidis reporting on the progress of collection of debtors and implementation of the Navision system. The plaintiffs submitted that this showed that Apple had communicated to Buzzle's directors what corrective action should be taken in relation to the finance, business and administration functions of Buzzle's business, and specifically with respect to the organisation staffing and management of those areas. They submitted that Buzzle's directors acted in accordance with those instructions or wishes. However, the evidence does not show that Buzzle's directors acted in accordance with those instructions or wishes. There is evidence that Mr Qureshi, Mr Liu, Mr Hanlon and other employees of Buzzle sought to implement Apple's recommendations. But that is different. 319 The plaintiffs also submitted that Apple expressed the wish that Buzzle should continue to trade until it worked out what it wanted to do with Buzzle. From about mid-January Mr Likidis received regular reports from Mr Hanlon on overdue creditors and whether there was any threat of legal action against Buzzle. Mr Likidis gave evidence in cross-examination that he encouraged Mr Hanlon and Buzzle to pay major third party suppliers, although Mr Likidis said he never gave any direct instruction to that effect. On occasion Mr Likidis gave instructions to Mr Hanlon in relation to payments to be made to creditors (e.g. TB13/4276; T574). Mr Likidis accepted that he encouraged Mr Hanlon to pay major suppliers to minimise the risk that third party creditors would take steps to wind up Buzzle (T575). However, the plaintiffs did not plead that Apple or Mr Likidis gave an instruction or expressed a wish that Buzzle should selectively pay its creditors so as to continue to trade although insolvent, and that the directors of Buzzle acted in accordance with such an instruction or wish. Nor is there any evidence that all or the majority of the directors of Buzzle considered any such instruction or wish. Mr Qureshi accepted that Buzzle's directors decided some time in January that it was appropriate for Buzzle to continue to trade and that Mr Likidis had nothing to do with that decision. 320 As referred to at para [305] of these reasons, the plaintiffs allege that Apple, through Mr Likidis, instructed Buzzle's directors to investigate raising further capital. Mr Likidis was told on 4 January 2001 that the directors were discussing the possibility of a further cash infusion into the company. Apple's wish was not that the directors simply investigate the possibility of injecting cash into the company. Apple wished that further capital be injected either by the directors or by a third party investor or investors. It gave no instruction to the directors to that effect. In any event, no such capital was provided. 321 The plaintiffs also allege that Mr Likidis instructed Mr Qureshi on 2 and 4 January 2001 to engage Deloitte to develop Buzzle's computerised accounting systems and the directors of Buzzle and the employees of Buzzle caused Buzzle to negotiate a further contract with Deloitte. Mr Qureshi did not give evidence about such an instruction having been given at that time. 322 The plaintiffs also allege that by the end of February 2001, Apple had instructed the directors of Buzzle to instruct Deloitte jointly with Apple in respect of the correction, revision and development of its computerised accounting system and the directors caused Buzzle to engage Deloitte jointly with Apple in respect of the correction, revision and development of Navision. 323 In final submissions, the plaintiffs said that in late January and early February 2001 that Apple communicated to Messrs Liu and Hartono that they co-operate with Apple in dealing with Deloitte to proceed with a program to fix the Navision System. The problems with the Navision system were manifest at all times. Mr Likidis referred to the need to correct the system in his Powerpoint presentations on 10 and 17 January 2001. The plaintiffs submitted that by 29 January 2001 Buzzle had followed Apple's instructions to identify the "Navision system issues" and had begun to develop a plan to resolve them. Buzzle's identification of the "issues" with the Navision system did not result from instructions given by Apple. It was something that Buzzle was working on as best as it could from the outset. On 29 January 2001 Mr Qureshi gave a presentation to Mr Oppenheimer and other representatives of Apple. Mr Qureshi identified one of the ways in which Apple could help Buzzle was by contributing to the cost of fixing the Navision system. On 13 February 2001 Deloitte provided a proposal for fixing the Navision system (TB11/3581). The estimated cost was over half a million dollars. Buzzle did not have this money. Mr Likidis said that matters had reached an impasse. Mr Liu, the financial director, wanted to abandon the Navision system. Mr Qureshi wanted to sue Deloitte. Deloitte was not prepared to do further work unless agreement was reached on costs. It claimed to be owed outstanding costs. Correction of the Navision system was essential before any external investor could be persuaded to invest. Mr Likidis was instrumental in negotiating a deal whereby Apple, Buzzle and Deloitte agreed to share equally the costs of the work required to fix the system. Such a discussion took place on 1 February 2001 (TB11/3496). The plaintiffs submitted that Mr Likidis took the running on rectifying the Navision problems and those in control of Buzzle agreed to the course being taken by Mr Likidis. I agree that Mr Likidis took the running on endeavouring to resolve the problems with the Navision system and that the management of Buzzle agreed to his doing so. However, this was not a matter which was submitted to the board of Buzzle. Mr Likidis' involvement in negotiating a deal with Deloitte to fix the Navision system did not involve his giving any instruction or expressing any wish to the directors of Buzzle about that matter. 324 The plaintiffs also submitted that Apple gave instructions to Buzzle's board upon which the board acted in seeking to identify and approach third party investors with a review to recapitalising or restructuring Buzzle so as to enable the business to survive, in pursuing a proposal to de-merge the existing Buzzle businesses by the sale of all or parts of that business to the original Resellers or companies associated with the principals of the Resellers, and by Buzzle continuing to trade until Apple worked out what it might do in the interests of Apple and its retail supply channel in Australia. Apart from the allegation that on 2 and 4 January 2001 Mr Likidis instructed Mr Qureshi to investigate the raising of further capital, dealt with in para [320] above, the plaintiffs did not plead any of these contentions. Although Mr Likidis was cross-examined in relation to these matters without objection, it is not open to the plaintiffs to rely upon these matters. The plaintiffs were afforded considerable latitude in the presentation of their case. They were permitted to rely upon very late affidavits of Mr Liu and Mr Qureshi. There was good reason for the late service of the affidavits, but that does not detract from the fact that the defendants had to meet the plaintiffs' case on the run. Had the plaintiffs sought leave to amend to plead these additional matters, and had objection been taken, it is unlikely that the amendments would have been allowed. In fact, the plaintiffs did not seek leave to amend and in closing submissions the defendants took the ground, as they were entitled to do, that they would deal only with the case as pleaded. 325 It suffices to say that whilst Apple and Mr Likidis took a proactive role in exploring the possibility of attracting third party investors, and in pursuing with the directors the proposal for de-merger, and whilst Apple wanted Buzzle to continue to trade whilst those possibilities were explored, no instruction or wish was given or expressed on which the directors collectively acted. Nor had the directors become accustomed to acting on Apple's or Mr Likidis' instructions or wishes. 326 Both parties relied upon a letter of 22 January 2001. Apple prepared the document and sent it to Mr Qureshi. Mr Qureshi delivered it to Mr Hartono and Mr Liu. They signed it and returned it to Mr Likidis. The letter was prepared by Apple's legal department. It said: " Dear Mr T Qureshi Re: Request for Assistance in Respect of Internal Re-Organisation We write further to our recent meetings and to confirm our understanding of the present position. In view of Buzzle's status as a significant re-seller of Apple products in the Australian market, it has been agreed that Apple will provide Buzzle with advice and assistance in a proposed internal re-organization aimed at improving Buzzle's commercial performance. In particular, Buzzle wishes to avail itself of Apple's knowledge and experience, gained from its position as a subsidiary of a major international corporation, in order to help Buzzle to operate its business more efficiently and to maximise profitability. For the avoidance of doubt, and to define unambiguously the role that Apple intends to play, Apple wishes to set out the terms on which it offers such assistance. 1. Apple does not wish to become involved in any corporate decision making, either at managerial or directorship level. Whilst Apple is willing to share its expertise and offer practical guidance, it is the Buzzle directors who have the ultimate responsibility for all decisions and they are, of course, at liberty to adopt or reject any advice as they see fit. Accordingly, if Apple is invited to attend any meetings at which corporate decisions are made, for example, a director's [sic] meeting it will only do so as an observer and/or adviser; 2. Buzzle will not represent to any third party that Apple's assistance represents any involvement in the management of Buzzle's business. Apple is conscious, that as Buzzle's secured creditor, its interests may not always coincide with those of Buzzle. In the circumstances, Apple strongly recommends that Buzzle gives consideration to retaining professional accounting and/or financial advisors of its own to advise it on the re-organisation. Please arrange for two Buzzle Directors to countersign the bottom of this letter to indicate the Board's acceptance of this document. In the meantime, we sincerely hope that Apple's assistance will facilitate Buzzle's commercial development and that our two companies will continue to work successfully together in the future. Yours sincerely Apple Computer Australia Pty Limited Jim Likidis Director of Finance & Business Operations " (TB10/3347-3348) 327 In opening submissions the plaintiffs contended that by the end of January 2001 Apple was acutely aware that it had been engaged in the management and decision-making of Buzzle, and for that reason sought an acknowledgment from Buzzle that it was not doing so. The plaintiffs contended that the reason the acknowledgment was signed was not because it was correct, but because Apple required it to be signed. 328 Mr Liu deposed that he was in a state of shock when he read the letter, which to his mind did not reflect the extent of Apple's and Mr Likidis' control of and involvement in the affairs of Buzzle. He deposed that he signed it because he did not think he had any choice. Mr Hartono also deposed that he felt that he had no choice but to sign, given Buzzle's financial circumstances. Mr Qureshi deposed that Mr Likidis said that the letter had to be signed if he, Mr Likidis, were to continue his involvement and that "If you do not sign this I will pull the plug. You will have no business." 329 I do not accept that Mr Likidis said words to the effect "If you do not sign this I will pull the plug. You will have no business.". He did say that if the letter was not signed, he would walk out. That may well have been understood by Buzzle's executive as being likely to lead immediately to Apple's exercising its rights as a secured creditor. In these circumstances, I do not consider the fact that Mr Hartono or Mr Liu signed the letter advances Apple's position on the question whether Apple had by 22 January 2001 gone beyond acting as an adviser. But it must have been clear to Buzzle's executives from 22 January 2001 that Apple was not purporting to give any direction to Buzzle's directors with which the directors were expected to comply. 330 It may be noted that the plaintiffs did not allege that the signing of the letter of 22 January 2001 by Messrs Hartono and Liu was an instance of the directors of Buzzle, or some of them, acting in accordance with Apple's instructions or wishes. 331 The plaintiffs stressed that Apple perceived it to be in its interests for Buzzle to continue to trade whilst Apple worked out what it wanted to do with Buzzle. It did not want winding-up proceedings to be commenced against Buzzle. The reason for this was that Buzzle was by far the largest Reseller and accounted for perhaps 30 per cent of its revenues. Apple faced substantial losses if Buzzle went into administration or receivership from the loss of sales and damage to Apple's brand. But motive for Apple to give directions to Buzzle's board, does not establish that Buzzle's directors were accustomed to act in accordance with Apple's wishes. 332 For these reasons I conclude that neither Apple nor Mr Likidis was a director of Buzzle within the meaning of para (b)(ii) of the definition of "director". Other Issues Do Not Arise 333 It follows from my conclusion that Apple was not a director of Buzzle that the plaintiffs are not entitled to recover as voidable preferences payments made to Apple between 5 January and 30 March 2001. That is because the payments were made more than six months before the commencement of Buzzle's winding-up. For that claim to succeed the plaintiffs needed to establish that Apple was a related entity of Buzzle (s 588FE(4)), which it sought to do by establishing that Apple was a director of Buzzle. That contention fails. The plaintiffs also accepted that the claim would fail if the charge were valid as I have found it to be. It is not necessary therefore to deal with questions of allocation of payments to debts which would otherwise arise. It is sufficient to indicate that if my earlier conclusions were wrong, I would hold that there was clearly a running account between Apple and Buzzle. I would accept, as the plaintiffs contended, that the peak debt on the running balance account was a sum of $26,052,311 at 12 January 2001, and the debt had been reduced to $18,814,341 by 30 March 2001 representing a reduction of $6,237,970. 334 In light of my conclusion that Apple was not a shadow director, it is unnecessary to deal with other issues of quantum which would otherwise have arisen. It is sufficient to say the following in case my conclusion that Apple was not a shadow director is set aside on appeal. First, the defendants contended that the plaintiffs had not proved what debts had been incurred between 1 January and 31 March 2001. Both parties retained accountants to provide expert evidence as to accounting matters, and, in particular, in relation to the debts of Buzzle. The experts provided various reports. A joint report was prepared in accordance with directions of the court. The experts came to an agreement on matters including the dates and amounts of Buzzle debts and the ageing of those debts (Joint Expert Report dated 26 March 2009, para 9). They prepared a spreadsheet of such debts broken down by month and creditor. 335 The defendants contended that the report was prepared only for the purposes of issues of solvency and that in any event, the experts' opinion was flawed. The defendants submitted that the experts proceeded on the assumption that debts were incurred at the time of invoice, whereas manifestly that was not so, and that some debts would have been incurred prior to the date of invoice. The defendants contended that the plaintiffs had not established what those debts were. However, the plaintiffs tendered the thousands of invoices which made up the debts claimed to have been incurred between 1 January 2001 and 30 March 2001. The defendants declined my invitation to identify any particular debts they might contend had not been incurred in that period. 336 If there were a real issue that some of the debts the plaintiffs claimed had been incurred between 1 January 2001 and 30 March 2001 had not been incurred in that period, notwithstanding the agreement of the experts to the contrary, it behoved the defendants to identify what those debts were. I would accept the plaintiffs' submission as to the quantum of debts incurred in that period. 337 The amount recoverable as damages for insolvent trading is not the quantum of the debts incurred, but an amount equal to the amount of the loss or damage suffered by the creditors (s 588M). Those amounts are usually the same (Tourprint International Pty Ltd (in Liq) v Bott [1999] NSWSC 581; (1999) 32 ACSR 201 at [78]-[79]; Powell (as joint liquidators of Noelex Yachts Australia Pty Ltd (in liq)) v Fryer [2001] SASC 59; (2001) 37 ACSR 589 at [88]), although that is not always the case, for example, if a creditor does not receive a dividend in the liquidation because he or she fails to lodge a proof of debt. In the present case, had I found that Apple and Mr Likidis were directors of Buzzle, I would have accepted the plaintiffs' submission that the amount of loss or damage recoverable by the liquidator as a debt due to the company, being the loss or damage suffered by creditors in relation to the company's debt because of the company's insolvency, is the amount of the debts incurred between 5 January and 30 March 2001, both to Apple and to other creditors, to the extent that those debts were unpaid, including the debts incurred to Apple which were unpaid after realisation of Apple's security. (No defence of set-off was raised to the claim for damages for insolvent trading.) 338 There was a question as to how payments received after 9 February 201 should be allocated to prior debts. On 9 February 2001 Mr Likidis wrote to Mr Qureshi confirming new trading arrangements. Apple stipulated that future deliveries would be made on a cash-on-delivery basis and said it would release $1 in stock for every $1.20 paid to Apple, with 20 cents of every payment of $1.20 being applied to reduce Buzzle's outstanding account with Apple. Buzzle agreed to that arrangement. The plaintiffs contended that the arrangement was not in fact implemented because Apple made what appeared to be random cash allocations which bore no relationship to the terms set out in the cash-on-delivery arrangement. Buzzle did not object to the terms proposed by Apple in its letter of 9 February 2001. By ordering further stock Buzzle is to be taken as having accepted those terms. It was not open to Apple to allocate payments made after 9 February differently. But the arrangement did not specify to which earlier debts the payments of 20 cents in $1.20 were to be allocated. In the absence of appropriation by Buzzle of those payments to particular debts, it was open to Apple to appropriate such payments to such earlier debts as it saw fit. In light of my conclusion that the defendants have no liability for the debts incurred by Buzzle after 1 January 2001, it is unnecessary to pursue further the questions of allocation of the payments after 15 February 2001 to prior debts. 339 It is unnecessary to deal with questions of set-off. It is also unnecessary to decide whether, if Apple or Mr Likidis were otherwise liable, they ought to be relieved from liability pursuant to s 1318. Conclusions and Orders 340 For these reasons, all of the plaintiffs' claims fail. I direct entry of judgment for the defendants. I order that the defendants' cross-claim against Mr McComb (the second cross-defendant) be dismissed. The exhibits may be returned after 28 days. Prima facie, costs follow the event. I will hear the parties on costs in case the parties seek any particular order for costs. ****** Annexure A Intercompany accounts as at 8 February 2001 - Restated Choice Designwyse GM Mac's Status Manning Total Stock Transferred 4,531,966.64 805,873.61 2,121,322.23 2,192,854.71 948,247.76 226,246.48 10,826,511.43 Credit from Apple -2,948,717.54 -486,826.87 -1,279,634.87 -1,090,224.90 -421,429.95 -71,302.94 -6,298,137.07 1,583,249.10 319,046.74 841,687.36 1,102,629.81 526,817.81 154,943.54 4,528,374.36 Payments 3/10/2000 -900,000.00 -195,000.00 -500,000.00 -1,595,000.00 683,249.10 124,046.74 341,687.36 1,102,629.81 526,817.81 154,943.54 2,933,374.36 30/10/2000 -660,000.00 -1,000,000.00 -408,088.71 -100,000.00 -2,168,088.71 23,249.10 124,046.74 341,687.36 102,629.81 118,729.10 54,943.54 765,285.65 Tech Pac payment -60,840.31 -8,068.50 -70,000.00 -50,000.00 -11,091.19 -200,000.00 2/11/2000 -150,000.00 -150,000.00 +37,591.21 115,978.24 341,687.36 32,629.81 68,729.10 +106,147.54 415,285.65 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.