Supreme Court New South Wales Medium Neutral Citation: In the matter of Condor Blanco Mines Ltd [2016] NSWSC 1196 Hearing dates: 18, 19 August 2016 Decision date: 30 August 2016 Jurisdiction: Equity Before: Barrett AJA Decision: 1. Declare that the appointment of the defendant, Domenic Calabretta, as voluntary administrator of the plaintiff, Condor Blanco Mines Ltd, on 4 July 2016 was invalid, void and of no effect. 2. The question of costs is reserved. Catchwords: CORPORATIONS – voluntary administration – where the board of a public company consisting of two directors only resolves to appoint administrators – whether in fact both directors participated in the passing of the resolution – whether both directors held a genuine opinion in good faith that the company was insolvent or likely to become so – whether the directors acted for an improper purpose of defeating the wishes of the shareholders who were about to vote to reconstitute the board – whether the resolution of the board of a company having fewer than the statutory minimum of directors was an effective resolution – whether the administrator discharged his responsibility to assess the validity of his appointment – the nature and scope of that responsibility discussed – whether the administrator should have commenced proceedings to test the validity of his appointment. Legislation Cited: Corporations Act 2001 (Cth) Evidence Act 1995 (NSW) Cases Cited: Aloridge Pty Ltd v Christianos [1994] FCA 972; 13 ACSR 99 Australian Securities and Investments Commission v Planet Platinum Ltd [2015] VSC 682 Australian Securities and Investment Commission v Planet Platinum Ltd [2016] VSC 120; 112 ACSR 570 Australian Securities and Investments Commission v Sino Australia Oil and Gas Ltd [2015] FCA 531; 106 ACSR 575 Blacktown City Council v Macarthur Telecommunications Pty Ltd [2003] NSWSC 883 ; 47 ACSR 391 Cadwallader v Bajco Pty Ltd [2001] NSWSC 1193; 189 ALR 370 Calabretta v Redpen Developments Pty Ltd [2010] FCA 81; 183 FCR 47 Correa v Whittingham [2013] NSWCA 263; 278 FLR 310 Deputy Commissioner of Taxation v Portinex Pty Ltd [2000] NSWSC 99; 156 FLR 453 Downey v Crawford [2004] FCA 1264; 51 ACSR 182 Fitzgerald v F J Leonhardt Pty Ltd [1997] HCA 17; 189 CLR 215 Glenmorton Holdings Pty Ltd v D'Aloia [2001] FCA 1331 Gosford Christian School Ltd v Totonjian [2006] NSWSC 725; 201 FLR 424 Howard Smith Ltd v Ampol Petroleum Ltd [1974] UKPC 3; [1974] AC 821 In the matter of Beechworth Land Estates Pty Ltd (No 3) [2015] NSWSC 733; 298 FLR 233 In the matter of Lime Gourmet Pizza Bar (Charlestown) Pty Ltd [2015] NSWSC 244 In the matter of Live Board Holdings Ltd [2014] NSWSC 161 In the matter of O'Neill v Advantage Hearing Pty Ltd [2013] NSWSC 175 In the matter of Ryde Ex-Services Memorial & Community Club Ltd [2015] NSWSC 125 In the matter of Sales Express Pty Ltd [2014] NSWSC 460; 9 BFRA 251 In the matter of Warwick Keneally as administrator of Australian Blue Mountain International Cultural & Tourist Group Pty Ltd [2015] NSWSC 937; 107 ACSR 172 Jack James as Administrator of ZYL Ltd [2015] WASC 57 Kazar v Duus [1998] FCA 1378; 88 FCR 218 McDonald, in the matter of Pasdonnay Pty Ltd [2005] FCA 335; 53 ACSR 717 Re ACN 101 445 916 Pty Ltd [2004] NSWSC 710 Re Continental Pacific Insurance Co (Aust) Ltd [2002] NSWSC 789 Re Creative Memories Australia Pty Ltd [2013] NSWSC 652 Re Darin (as administrators of Palamedia Ltd) [2010] NSWSC 451 Re DH International Pty Ltd [2013] NSWSC 1120; (2013) 95 ACSR 578 Re Ethan Minerals Ltd [2011] NSWSC 899 Re HPI Australia Pty Ltd [2008] NSWSC 1106 Re Kala Capital Pty Ltd [2011] NSWSC 1253 Re Newman Rivergums Village Operations Pty Ltd [2015] WASC 443 Re Nillumbik Community Church Inc [2010] VSC 136 Ross v GNC Homes Pty Ltd [2015] SASC 168; 110 ACSR 60 Sliteris v Ljubic [2014] NSWSC 1632 Smolarek v McMaster (as administrator of Eznut Pty Ltd) [2006] WASCA 216 Smolarek v McMaster as administrator of Eznut Pty Ltd (No 2) [2008] WASCA 234; 3 BFRA 419 Spacorp Australia Pty Ltd v Fitzgerald [2001] VSC 61; 19 ACLC 1979 St Leonards Property Pty Ltd v Ambridge Investments Pty Ltd [2004] NSWSC 851; 210 ALR 265 Weinstock v Beck [2013] HCA 14; 251 CLR 396 Whitehouse v Carlton Hotel Pty Ltd [1987] HCA 11; 162 CLR Wilson v Manna Hill Mining Company Pty Ltd [2004] FCA 1663; 51 ACSR 404 Workers Compensation Nominal Insurer v Perfume Empire Pty Ltd [2011] NSWSC 379 Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd [1978] HCA 42; 139 CLR 410 Category: Principal judgment Parties: Plaintiff – Condor Blanco Mines Ltd Defendant – Domenic Calabretta Representation: Counsel: Plaintiff – Mr DA Smallbone with him Mr J Wheeldon Defendant – Mr S Golledge Solicitors: Plaintiff – W Advisers Pty Limited Defendant – Piper Alderman File Number(s): 2016/226585 Publication restriction: Nil Judgment 1. BARRETT AJA: Condor Blanco Mines Ltd ("Condor") was incorporated in 2010 and admitted to the official list of Australian Securities Exchange Ltd ("ASX") in 2011. Since that time, its securities have been listed for quotation on the stock market operated by ASX. Trading suspensions have been imposed on several occasions. Condor's principal activities have been associated with mining exploration in South America. 2. The central questions in the present proceedings are whether the defendant, Domenic Calabretta, was validly appointed administrator of Condor under Part 5.3A of the Corporations Act 2001 (Cth) on 4 July 2016 and, if he was, whether the voluntary administration should be terminated. 3. The current action is brought by Condor alone, as plaintiff. The circumstances in which it has initiated the proceedings will be mentioned presently. Condor seeks a declaration that Mr Calabretta's appointment as administrator was invalid, void and of no effect or, in the alternative, an order that the administration end. 4. Mr Calabretta is the sole defendant. He takes an essentially neutral stance on the substantive issues, in that he neither consents to nor opposes the grant of the relief just described. Mr Calabretta did, however, give evidence and appear by counsel in order to make submissions to the court. 5. In accordance with directions made by Brereton J, steps were taken to identify creditors and to notify them of the proceedings. No creditor indicated an intention of appearing and none sought to appear at the hearing. The grounds relied on by Condor 1. At the time of the purported appointment of Mr Calabretta as voluntary administrator on 4 July 2016, two directors of Condor were in office. They were Glen Darby and Timothy Stops. Mr Darby had been a director since the establishment of the company. He was previously managing director but relinquished his executive role on 20 May 2015. Mr Stops was appointed to the board on 28 June 2016. One of the issues in the case is whether those two persons in fact acted in a particular way on 4 July 2016 and, if so, whether their action was effective to cause Mr Calabretta to be duly appointed as administrator. Another issue goes to the purposes underlying the appointment of Mr Calabretta (if he was, in reality, appointed) and the propriety of those purposes. 2. Relevant to the parties' controversy are two particular provisions of the Corporations Act 2001. The first is s 436A(1): "A company may, by writing, appoint an administrator of the company if the board has resolved to the effect that: (a) in the opinion of the directors voting for the resolution, the company is insolvent, or is likely to become insolvent at some future time; and (b) an administrator of the company should be appointed. 1. The other provision is s 201A(2): "A public company must have at least 3 directors (not counting alternate directors). At least 2 directors must ordinarily reside in Australia." 1. Condor advances five grounds in support of the grant of the relief it seeks: 1. That, as at 4 July 2016, the board of Condor was incapable of functioning because the number of the directors in office was below the minimum prescribed by s 201A(2). 2. That, as a matter of fact, no resolution of the board of Condor was passed on 4 July 2016 (or at all) as contemplated by s 436A(1). 3. That, if a resolution of the board was passed on 4 July 2016 in terms referred to in s 436A(1), the directors voting for the resolution did not hold an opinion of the kind described in s 436A(1)(a). 4. That, if a resolution of the board was passed on 4 July 2016 in terms referred to in s 436A(1) and the directors did hold the s 436A(1)(a) opinion, the resolution was passed for an improper purpose. 5. That, if voluntary administration was validly initiated, it has become or is becoming an abuse of Part 5.3A. 1. Ground (1) took on a somewhat different complexion when, at the conclusion of submissions, counsel for Mr Calabretta sought and was granted leave to file an interlocutory process claiming an order under s 447A or s 1322(4) curing any defect or irregularity affecting his appointment and arising from the circumstance that the number of directors in office was smaller than the minimum allowed by s 201A(2). That application causes Ground (1) to be, as it were, a discrete issue requiring attention only if the case in favour of the invalid appointment contention is not made out on some other ground. 2. Attention must therefore be given initially to Grounds (2) and (3). Ground (2) turns on a narrow question of fact, namely, whether Mr Stops, one of two apparent signatories of two documents dated 4 July 2016, signed those documents. If it is determined that he did not sign, the case for the declaratory relief sought is made out and no further inquiry is necessary. 3. If Ground (2) is found not to be a basis for concluding that Mr Calabretta's appointment was invalid, it will be necessary to decide whether Ground (3) requires a conclusion of invalidity. If, after both Ground (2) and Ground (3) have been assessed, the conclusion is that the appointment was not invalid, it will be necessary to return to Ground (1) and the question whether the deficiency in the number of directors had the result that the appointment was invalid. 4. If that point is reached, the process of assessment will proceed in one of two ways. If the conclusion is that the deficiency did have the consequence that the appointment was invalid, it will be necessary to decide whether a curative order of the kind Mr Calabretta seeks should be made; and only if such an order is made will it become necessary to consider Grounds (4) and (5). Alternatively, if the decision with respect to Ground (1) is that the deficiency did not cause the appointment to be invalid, the appropriate course will be to proceed direct to Grounds (4) and (5). Issues 1. Ground (1) raises issues of statutory construction that have been recognised, at least by implication, in several earlier cases [1] but not directly confronted or decided, namely, whether the reference to "the board" in the opening words of s 436A(1) is a reference to a "board" constituted in a way that conforms to the applicable s 201A specification or, rather, to a "board" which, although for the time being not so complying [2] , is capable under the company's constitution of acting in the way that s 436A(1) contemplates; and whether s 201A in truth prohibits all action by a directorate of less than the statutory minimum. As I have said, attention to this question may be deferred until after the issues raised by Grounds (2) and (3) have been determined. 2. Ground (2) raises an issue of fact alone, namely, whether Mr Darby and Mr Stops both signed the two documents on 4 July 2016. The factual inquiry is confined to the actions of Mr Stops. 3. Ground (3) recognises that although, on its face, the s 436A(1) precondition is satisfied if a resolution records an opinion of the directors voting for the resolution that the company is insolvent (or is likely to become insolvent at some future time), the section in reality imposes by implication a requirement that the directors voting for the resolution hold an opinion which is "bona fide and genuinely formed". These are words used by Merkel J in Kazar v Duus [1998] FCA 1378; 88 FCR 218 in a passage approved in later cases including, in particular, Smolarek v McMaster as administrator of Eznut Pty Ltd (No 2) [2008] WASCA 234; 3 BFRA 419 where Pullin JA said with the concurrence of Wheeler JA and Le Miere AJA in at [55]-[56] (citations omitted): "The opinion referred to in s 436A must be bona fide and genuinely formed. A concluded opinion, rather than a tentative opinion, is necessary. If a bona fide opinion is genuinely formed as to 'actual', 'likely' or 'actual or likely' insolvency, that opinion will satisfy the requirements of s 436A. The requisite opinion is that of the directors voting for the resolution, rather than that of its individual members). The ultimate task of the court is to determine, having regard to the actual facts and circumstances, whether on the balance of probabilities the opinion required to be formed by the repository of the power as a condition of its exercise has been formed. Statements as to subjective intention are relevant, but the court must approach its task of classification of the conduct in question objectively." 1. In advancing Ground (3), Condor maintains that the directors who acted on 4 July 2016 to appoint Mr Calabretta on 4 July 2016 did not hold any such opinion bona fide and genuinely formed. 2. Ground (4) is based on a principle also referred to by Merkel J in Kazar v Duus (above), namely, that a decision to appoint a voluntary administrator may be vitiated by improper purpose. Merkel J said (at p.335): "A statutory power must be exercised for the purpose for which it was conferred. If the power is exercised for more than one purpose, where one of those purposes is improper, the exercise of the power will be vitiated if the improper purpose was a substantial purpose in the sense that the decision would not have been made but for the ulterior purpose: see Samrein Pty Ltd v Metropolitan Water Sewerage and Drainage Board (1982) 41 ALR 467 at 468, and Thompson v Council of the Municipality of Randwick [1950] HCA 33; (1950) 81 CLR 87 at 106, cf Knuckey v FCT (16 September 1988, Fed C of A, Black CJ, Tamberlin and Goldberg JJ, unreported at 11–13)." 1. After observing that an appointment of an administrator must be in furtherance of the object of Part 5.3A stated in s.436A, Merkel J said that the power of appointment would be invalidly exercised if exercised "for a purpose unrelated to that object but for an ulterior and extraneous purpose". Examples of cases where such ulterior or extraneous purpose actuated the decision to impose voluntary administration were referred to by Brereton J in In the matter of Sales Express Pty Ltd [2014] NSWSC 460; 9 BFRA 251 (at [19]). His Honour noted that, as mentioned in Workers Compensation Nominal Insurer v Perfume Empire Pty Ltd [2011] NSWSC 379 (at [22]), the cases in which the Court had intervened to terminate a voluntary administration were cases in which there had been what might be termed as some ulterior element or purpose, including cases in which the directors had put the company into administration not for a purpose envisaged by the legislation but with a view to installing an administrator who might be more compliant than the provisional liquidator already in office (Aloridge Pty Ltd v Christianos [1994] FCA 972; 13 ACSR 99); where a secured creditor had imposed an administrator when an appeal by the company was pending against the dismissal of its application for an order setting aside a statutory demand served by that creditor (Spacorp Australia Pty Ltd v Fitzgerald [2001] VSC 61; 19 ACLC 1979); where a sole director imposed voluntary administration with a view to the adoption of a deed of company arrangement by a decision of creditors (being himself and two persons allied with him) of doubtful value, which would bar particular claims already being litigated against the company (Blacktown City Council v Macarthur Telecommunications Pty Ltd [2003] NSWSC 883 ; 47 ACSR 391); and where an administrator was imposed by the sole director in the face of a pending winding up application, in order to manipulate the relation-back day to his own personal advantage (St Leonards Property Pty Ltd v Ambridge Investments Pty Ltd [2004] NSWSC 851; 210 ALR 265). 2. In advancing Ground (4), Condor maintains that Mr Darby, one of the two signatories to the two documents of 4 July 2016, had a purpose (in which Mr Stops was complicit) of putting voluntary administration in place in order to negative the power of new directors about to be installed by the members in general meeting and to thwart the will of those members. Ground (5) is based on an alleged purpose of regaining control of Condor through a deed of company arrangement following what was, as at the time of the appointment, the virtual certainty that he would be removed from office as a director by resolution passed at a general meeting scheduled to be held the following day, 5 July 2016. Condor's board of directors 1. The agenda for the general meeting of Condor scheduled to be held on 5 July 2016 was confined to proposed resolutions for the removal of the three directors in office when the notice convening the meeting was issued (27 May 2016) and the election of three other persons to be directors. 2. The three directors in office when the notice of general meeting was issued were Mr Darby, Lia Darby (Mr Darby's sister) and Michelle Feruglio. Two of them (Lia Darby and Ms Feruglio) resigned before the date appointed for the meeting. Lia Darby resigned on 28 June 2016, on which day Timothy Stops was appointed a director by the continuing directors. Ms Feruglio resigned on 30 June 2016. Three directors were therefore in office at all material times up to 30 June 2016, at which point the number of directors in office fell to two. 3. At the general meeting held on 5 July 2016, a resolution removing Mr Darby from office was passed. In addition, it is accepted in these proceedings that Mr Stops ceased to hold office as a director at the commencement of the general meeting by operation of article 11.4(b) of the company's constitution. That article states that a person appointed to fill a casual vacancy (as Mr Stops was) "holds office only until the next general meeting of the Company and is then eligible for re-election". There was no resolution for re-election of Mr Stops at the 5 July 2016 general meeting. 4. The persons elected as directors at the 5 July 2016 general meeting were Joshua Farquhar, Sarah Miles and Jay Stephenson. They constituted the board of directors when these proceedings were commenced and it is at their instigation that Condor seeks the relief to which I have referred. If the true position is that Condor is under administration, its directors are precluded by s 437C of the Corporations Act from functioning as directors except with the written approval of the administrator. In order to facilitate determination of the important question of the company's status, Mr Calabretta gave a written approval to enable the directors to prosecute the proceedings for Condor, in case there should otherwise be an impediment to their doing so. Events before 4 July 2016 1. Condor had been through a period of particular turbulence in the lead-up to the purported appointment of Mr Calabretta. 2. On 25 September 2014, Condor announced to ASX a placement of 45 million shares at 2.5 cents each "in escrow to EMC (Nominees) Pty Ltd pending the finalisation of confidential agreements on funding, project acquisitions and/or vendor consideration to un-related and un-associated parties". The announcement stated, "shares will be cancelled on any transaction that does not proceed". 3. On 1 March 2015, Condor announced to ASX that a further 50 million shares had been placed at one cent each "in escrow" pending an event or events described in precisely the same way as the 25 September 2015 announcement. Again, there was a statement that shares would be "cancelled on any transaction that does not proceed". 4. On 1 May 2016, Mr Farquhar, a holder of shares in Condor (and one of the persons now in office as a director following the general meeting of 5 July 2016), made an application to the Takeovers Panel under s 657C(2) of the Corporations Act for a declaration of unacceptable circumstances in respect of the issue of 50 million shares referred to in the announcement of 1 March 2015. The President of the Panel made an interim order in respect of those shares on 3 May 2016. 5. On 6 May 2016, ASX suspended official quotation of securities of Condor. ASX later asked questions of Condor regarding both the September 2014 and March 2015 share issues. Condor replied that 17,062,640 of the 45 million shares and the whole of the 50 million shares had been issued "in escrow" and had been cancelled. The balance of the 45 million shares, being 27,937,360 shares, was said to have been issued to named persons, including Minesweeper Pty Ltd. Condor's reply did little to elucidate the concept of shares being issued to a nominee "in escrow" for later placement under "confidential agreements on funding", failing which they would be "cancelled". 6. On 30 May 2016, the Takeovers Panel made a declaration of unacceptable circumstances in respect of the acquisition of both the 45 million shares and the 50 million shares (representing respectively 33.24% and 29.15% of Condor's score capital at the relevant time) because the effect of the escrow arrangements was that EMC (Nominees) Pty Ltd and Condor itself each came to control more than 20% of the voting power in Condor. The Panel ordered that the 50 million shares and the unplaced balance of the 45 million shares be cancelled and that Condor make a corrective announcement to ASX. An order was made prohibiting voting of some of the 27,937,360 shares actually placed. 7. Meanwhile, on 9 May 2016, Mr Farquhar and two other shareholders had taken action under s 249D of the Corporations Act to requisition a general meeting to consider resolutions for the removal of all Condor directors and for the appointment of replacement directors. Condor issued the notice of meeting on 27 May 2016 in respect of a general meeting to be held on 5 July 2016 to consider such resolutions. 8. On 29 June 2016, the Takeovers Panel issued a media release concerning an application made to it by Australian Securities and Investments Commission ("ASIC"). The expressed concern of ASIC was that Minesweeper and persons alleged to be its associates had come to control more than 20 per cent of the voting power in Condor. ASIC sought certain interim orders. 9. Significantly, for present purposes, the orders thus sought by ASIC included an order that the general meeting to be held on 5 July 2016 be postponed. Events on 4 July 2016 1. At the commencement of 4 July 2016, therefore, Condor was in a position where shareholders would, at 11am the next day, meet to consider proposals to remove Mr Darby from the board and to install three new directors. There was, however, uncertainty whether the meeting would proceed at the appointed time. The Takeovers Panel had before it an undetermined application by ASIC for an order postponing that meeting. With that background in mind, it is necessary to trace events that occurred on 4 July 2016 up to the point at about 6.00pm at which action was taken to appoint Mr Calabretta as administrator. 2. At 9.31 am, Mr Darby sent an email to Michael Stafford, solicitor, saying that Mr Stops had been "in and out of hospital over the weekend and probably today with some serious health issues" and "looks to be on his deathbed". Mr Darby asked if Mr Stops' health condition would be a cause for adjourning the forthcoming general meeting. Mr Stops was to be the chairman of the general meeting. He had been admitted to hospital at 6.25 on the morning of Saturday 2 July 2016 and had remained there until about 4.50 pm, returning for further consultation later that night for a short period. 3. At 10.33 am on 4 July 2016, an officer of the Takeovers Panel sent an email to Condor officers asking for the proxy count for the forthcoming general meeting, with particular reference to certain named shareholders. The Panel asked that the information be provided by 11am. Mr Darby replied at 10.44am that it would not be ready by 11am. 4. At 10.53 am, Mr A E Vrisakis, a solicitor instructed by Mr Darby, emailed the Panel submitting that the general meeting should be postponed until the conclusion of the Panel proceedings. The email referred to Mr Stops' admission to hospital and Ms Feruglio's recent resignation from the board. 5. At 11.30 am, Mr Calabretta received a phone call from David Sorban, a solicitor, who said that he had "a referral for a potential administration". The solicitor asked whether Mr Calabretta could meet Mr Darby that day as Mr Darby wished "to potentially appoint a voluntary administrator to the company Condor Blanco Mines Ltd" (these are words appearing in Mr Calabretta's affidavit). Mr Calabretta received a like call at about the same time from John Kukulovski, a business adviser with whom he was acquainted. Mr Kukulovski also wanted to set up a meeting between Mr Darby and Mr Calabretta later in the day. 6. At 1.11 pm, an officer of the Takeovers Panel replied to Mr Vrisakis' email of 10.53 am saying that the Panel would meet at 4pm to consider interim orders and that the proxy count was required. 7. At 2.55 pm, Mr Vrisakis emailed the Panel pressing the request for an order postponing the general meeting. 8. At 3.00 pm, Mr Stafford emailed to Mr Darby a paralegal's research on the question whether Mr Stops' illness could be made a basis for obtaining an adjournment of the general meeting. The analysis was generally negative. 9. At 3.29 pm, the Panel officer emailed Mr Darby with a further demand for the proxy count. 10. At 3.53 pm, Mr Dunoon sent an email to the Panel giving the near final proxy count which indicated that almost two-third of proxy votes were in favour of removal of Mr Darby and election of the replacement directors. 11. At 4.11 pm, ASIC emailed various persons (including Mr Darby) saying that ASIC did not press the application for an interim order postponing the general meeting and did not object to the meeting proceeding the following day. The Panel confirmed by email received by Mr Darby at 5.47 pm that the Panel had decided not to make an interim order adjourning the general meeting. 12. At around 4.30 pm, Mr Kukulovski phoned Mr Calabretta and asked whether he could meet Mr Darby. Although Mr Calabretta had expected to hear from Mr Darby direct, he indicated to Mr Kukulovski that he could attend a meeting at 5.00pm. A restaurant in Bligh Street Sydney was fixed as the venue. 13. At about 5.00 pm, Mr Calabretta went to the restaurant and met Mr Darby and Mr Kukulovski who were already there together. Mr Darby and Mr Calabretta then spoke alone. Mr Kukulovski went elsewhere in the premises to make phone calls. 14. At about 5.45 pm, after Mr Darby and Mr Calabretta had been rejoined by Mr Kukulovski (and after the arrival of Tristan Walker, who had a pre-existing arrangement to meet with Mr Calabretta for an unrelated purpose), the four men left the restaurant by taxi and travelled to the Empire Hotel at Kings Cross. The signing of appointment documents – Ground (2) 1. I turn now to factual matters of particular relevance to Issue (2). Those matters go to the question whether Mr Darby and Mr Stops, the two directors then in office, signed two documents dated 4 July 2016, one headed "Resolution of Board of Directors" and the other headed "Instrument of Appointment of Administrators". Under Condor's constitution, a resolution in writing signed by all the directors for the time being is as valid and effectual as a resolution passed at a meeting of the directors. The content of the "Resolution of Board of Directors" document signed by Mr Darby and Mr Stops is: "THAT in the opinion of the directors the company is insolvent or is likely to become insolvent at some future time and that a voluntary administrator should be appointed to the company under section 436A of the Corporations Act 2001. THAT the company appoint Domenic Calabretta of Mackay Goodwin as Administrator pursuant to Section 436A of the Corporations Act 2001. THAT the company execute, in accordance with the Corporations Act 2001, an Instrument of Appointment of Administrator, and, for the purpose thereof, the undersigned, being the board of directors of the company, is hereby authorised to execute on behalf of the company the Instrument of Appointment of Administrator." 1. The documents were prepared in Mr Calabretta's office and, as typed, had spaces for the signatures of Mr Darby, Ms Feruglio and Mr Stops. In each signed document, the name of Ms Feruglio and the associated line for signing are crossed out (Mr Calabretta explained that he had prepared the document from search results and did not know of Ms Feruglio's resignation until informed by Mr Darby when they first met). Apparent signatures of Mr Darby and Mr Stops appear in the spaces provided for signatures of those persons. There is no suggestion that the signature of Mr Darby is otherwise than genuine. 2. There is, however, evidence that Mr Stops did not sign the document. That evidence was given by Ms Stops himself. He deposed on affidavit that the signature on the documents "looks" to be his but that he was "certain" that he had never seen or read either document before seeing them on 15 August 2016. Furthermore, he deposed that he had been shown a photograph of a person he had been told was Mr Calabretta (which photograph was annexed to his affidavit) and that he had never met, seen or spoken with the man in the photograph. 3. Mr Calabretta gave evidence that when he, Mr Darby and the two others (Mr Kukulovski and Mr Walker) arrived at the Empire Hotel at Kings Cross, Mr Darby introduced him to Mr Stops who was drinking in the public bar. Mr Calabretta further deposed that Mr Darby and Mr Stops then conversed alone, after which they re-joined him, certain conversation took place and Mr Darby and Mr Stops both signed the two documents that Mr Calabretta had prepared. Mr Kukulovski and Mr Walker were not involved in these events. While Mr Darby and Mr Stops were meeting separately, Mr Calabretta and Mr Kukolovski conversed together but Mr Walker was at another part of the bar in the vicinity of a person unknown to him with whom Mr Stops had been conversing when the party of four arrived. In the course of his separate conversation with Mr Kukolovski, Mr Calabretta asked Mr Kukolovski why he was not taking the voluntary administrator appointment himself. Mr Kukulovski replied that it was because he was no longer at Jirsch Sutherland. Mr Kukulovski also told Mr Calabretta that he was going to see if he could help Mr Darby with the Clean Energy transaction after Mr Calabretta's appointment. 4. Both Mr Stops and Mr Calabretta were cross-examined. Mr Calabretta's cross-examination was consistent with the content of his affidavit although, unsurprisingly, a greater degree of detail emerged as to certain aspects. The same cannot be said of Mr Stops. It quickly became clear in the course of Mr Stops' cross-examination that he suffers from severe deficiencies of memory. Many questions were answered by reference to inability to remember and memory problems. Mr Stops accepted that he had been diagnosed as afflicted by alcoholism and that he habitually spent his afternoons and evenings drinking at the Empire Hotel. At about 6.25 on the morning of 2 July 2016 (two days before the date the documents bear) he was admitted to St Vincents' Hospital "heavily intoxicated" after an "alcohol binge". The quoted words appear in the clinical notes. He remained in hospital until about 4.50pm but returned later that night complaining of pain. 5. Mr Stops conceded in cross-examination that he could not remember whether he was at the Empire Hotel in the early evening of 4 July 2016 but said he went there virtually every day at about 2.00 pm and stayed until he went home to watch the news (whether an early evening or late evening telecast was not specified). He also said that he had no recollection of meeting Mr Darby and Mr Calabretta there at that time. He accepted, however, that Mr Darby knew he could usually be found at the hotel and that it was entirely possible that the events deposed to by Mr Calabretta had happened. When asked whether it was possible that he met Mr Calabretta at the Empire Hotel at about 6.00pm on 4 July 2016, Mr Stops said that his memory problems had the effect that he could not recall doing so. 6. Mr Walker, one of the two other persons who travelled with Mr Darby and Mr Calabretta by taxi to the Empire Hotel swore an affidavit and was cross-examined. He gave evidence that Mr Darby (whom he had not met until they were introduced by Mr Calabretta at the Bligh Street restaurant) introduced him to a person named "Tim" after arrival at the Empire Hotel. Mr Walker did not participate in conversations about Condor at the hotel. He was simply waiting for Mr Calabretta to finish his business there. Before swearing his affidavit, Mr Walker was shown a copy of Mr Stops' drivers licence. He deposed that the photograph on that licence was a photograph of the "Tim" to whom he was introduced (Mr Walker and Mr Stops were not in the courtroom at the same time). 7. Mr Walker's evidence regarding identification of Mr Stops and Mr Calabretta's evidence on the matter of signing, coupled with Mr Stops' acceptance that the signature looked like his, his concession that it was entirely possible that the meeting and signing occurred and the obviously very serious impairment of memory from which Mr Stops suffers, comfortably persuade me on the balance of probabilities that the content of Mr Stops' affidavit regarding his not having signed can be rejected and that the signature on each of the documents is a genuine signature of Mr Stops placed there by him at the Empire Hotel at about 6.00 pm on 4 July 2016.. 8. Ground (2) is therefore not made out by Condor. The solvency opinion issue – Ground (3) 1. In relation to Ground (3), Condor's principal contentions are that Mr Darby had, on two occasions shortly before 4 July 2016, been party to board resolutions recording an opinion that Condor was solvent, that Mr Stops had been party to one such resolution and that the seemingly inconsistent opinion recorded in the written "Resolution of Board of Directors" of 4 July 2016 was not a genuine opinion formed in good faith. In relation to Mr Stops there is an added contention, namely, that he had never acquired any knowledge about the financial position of the company and, as a matter of fact, did not form any opinion on the subject of solvency. 2. As the "Resolution of Board of Directors" document shows, the opinion therein expressed by the signatories was that, at the time of the resolution, the company was either insolvent or likely to become insolvent at some later time. A finding that, at the time of signing, the directors did not genuinely and in good faith hold an opinion that the company was then insolvent will therefore not result in a decision in favour of Condor on Issue (3) if there is, in addition, a finding that the directors genuinely and in good faith held an opinion that the company was then in such a condition that it was likely to become insolvent at some later time. Also, of course, the relevant inquiry is as to each assenting director's opinion. The actual state of affairs prevailing is relevant only to the extent that it may ground inferences as to the opinion a director held and the genuineness of that opinion. The matter was put thus by Weinberg J in Downey v Crawford [2004] FCA 1264; 51 ACSR 182 at 196: "[T]he question is not whether, as at that date, the company was actually insolvent, or likely to become so at some future time. It is rather whether the directors genuinely believed that this was so, and whether that belief was reasonable in the circumstances. That in turn will depend largely upon whether they took adequate steps to satisfy themselves that the statutory requirements were met before resolving to appoint Mr Downey as administrator. 1. It is therefore necessary to consider what, according to the evidence, each of Mr Darby and Mr Stops did, before 6.00pm on 4 July 2016, to inquire into and form an opinion about the financial position of Condor. In addition, it is necessary to remember that the burden of proving that the relevant opinion was not genuinely held rests with Condor. 2. In evidence are minutes of a meeting of directors of Condor held at 5.00 pm on 21 June 2016. Recorded as present are Ms Feruglio, Mr Darby and Lia Darby. Mr Dunoon was in attendance. The minutes refer to Lia Darby's intention to resign and to "formalise it at another date". There is also reference to the possibility of a "placement … to raise in excess of $200,000". Then comes a heading "Review of Solvency Position" and the following: "No demand of payments have been received. GD [Glen Darby] & LD [Lia Darby] put $7,500 into Aleco's (trust account) lawyer account. This amount is a loan to the company from Glen and Lia. Glen Darby stated that the Company is solvent. There is a delay in raising funds because of the ASX suspension. There is approximately $200,000 of liabilities and no funds in the bank account. The directors will provide financial support if required for immediate payments. The directors and secretary will not demand payment of their invoices until funds received from capital raisings or after 5 July 2016 (whichever comes first)." 1. The minutes then record under a heading "Resolution": "It was resolved that the Company is solvent as of today." 1. Lia Darby then tabled "her invoice totalling $11,000 for the company to consider for the additional work in handling the Takeovers Panel". Lia Darby later lodged an informal proof of debt with Mr Calabretta for a total of $67,682, [3] being two months "wages" at $4,000 per month, twelve months "wages as payout per director contract" at $4,000 per month and $6,682 "unsecured loan to company". 2. Minutes of a meeting of directors held at 2.15 pm on 30 June 2016 show Mr Stops, Mr Darby and Ms Feruglio as participants (the minutes indicate that the last two participated by telephone but Mr Dunoon's evidence is that Mr Darby was physically present). Mr Dunoon is recorded as being in attendance as secretary. The first item, after noting that there were no apologies, was: "Solvency Resolution It was resolved that Condor Blanco Mines Ltd is solvent and can pay its liabilities as and when they fall due. Glen Darby is communicating to parties regarding ongoing capital raising." 1. There was then reference to communicating with unnamed parties about capital raising and to continuing negotiation with Clean Energy Corporation. The minutes record Ms Ferulgia's intention to resign as a director and: "Michelle expects her remaining invoices to be paid but does not expect a termination payment." 1. Mr Dunoon gave evidence of having explained the definition of solvency and of pointing out that the company had liabilities of around $200,000 and only $300 in the bank. The minutes of the 30 June 2016 meeting contain no reference to other matters referred to in the minutes of the earlier meeting, being Lia Darby's claim, the provision of financial support by directors or their forbearance in respect of their invoices. 2. It should be noted at this point that Mr Darby had been in discussion with Michael Loone of Clean Energy Corporation from about March 2016 concerning possible acquisition by Condor of the assets and business of Clean Energy Corporation for a consideration consisting of shares to be issued by Condor. Mr Loone gave evidence that Mr Darby's efforts in that direction increased towards the end of June 2016 and that Mr Darby said to Mr Loone that some shareholders were "trying to take over the company" and that, if he could "have a deal to show the shareholders", they would "have confidence in me and keep the company as it is". Mr Darby sent Mr Loone an SMS on 26 July 2016 (that is, some three weeks after Mr Calabretta's appointment) asking him to call Mr Kukulovski about "submitting an initial proposal". 3. Some idea of Condor's financial position at 31 March 2016 can be obtained from its quarterly report for the period of that date lodged on 29 April 2016. According to that report, activities during the quarter to 31 March 2016 were confined to attempts to find "a suitable acquisition". Net operating cash flow for the period was negative $153,000 ($1,044,000 for the year to date). Proceeds of share issues were recorded at $1,066,000 for the year to date, representing virtually the whole of net financing cash flow for the year to date. Payments to directors and their associates during the quarter amounted to $121,000. Total cash at the end of the quarter was $31,000 compared with $184,000 at the end of the previous quarter. An issue of 3,333,333 shares was made in January 2016 in "settlement" of a liability or $50,000. A further 50 million shares were recorded as issued in March 2016 for "nil" consideration. This is no doubt the share issue that prompted Mr Farquhar's application to the Takeover Panel. 4. The quarterly report makes it clear that the only means of obtaining cash to which the company had resort in the quarter ended 31 March 2016 was the issue of shares. 5. Mr Farquhar gave evidence of a meeting he had with Mr Darby on 1 July 2016. At one point in the meeting, Mr Farquhar asked whether the company was solvent, to which Mr Darby replied, "Yes it is", adding that the board had on the preceding day passed a resolution that the company was solvent. Mr Farquhar expressed doubt, noting that the company had had only $30,000 in the bank at the date of the last financial report and that there must have been significant legal bills and other liabilities since. In response to a question from Mr Farquhar about the debts of the company and the creditors to whom they were owed, Mr Darby said that the company owed "about $200,000", that he did not know the specifics and that Mr Dunoon could provide an answer. 6. Mr Dunoon gave evidence that, since his appointment as secretary in September 2012, all the accounting records of Condor (including periodical downloads of information from the company's bank as to transactions and balances) had been kept in electronic form on a computer system to which he alone had access. He deposed that neither Mr Darby nor Mr Stops ever asked for general access to any of these records. Neither did any ask for a printout or copy. 7. Mr Calabretta gave evidence of statements made to him by Mr Darby at their meeting at the Bligh Street restaurant commencing at about 5.00pm on 4 July 2016. Mr Darby said that he had just had a meeting with "an adviser John Kukulovski" to discuss "the solvency issues of the company"; that the company "is insolvent"; and that the directors would like to appoint Mr Calabretta as voluntary administrator. In response to Mr Darby's question about how to proceed, Mr Calabretta suggested that they go through the quarterly report for the period to 31 March 2016, a copy of which he had brought with him. Mr Calabretta's affidavit sets out what Mr Darby told him about the financial position, namely, that: 1. the company had only a few hundred dollars in the bank; 2. an interest in a mine in Turkey had been abandoned and was of no value; 3. the company had an interest in a mine in Chile but "a few hundred thousand dollars" would need to be spent to make it operational; 4. the current and former directors had been funding operations because the company had no money; 5. Lia Darby had called up her loan and was pushing for payment but the company had no funds to meet the claim; 6. "a lot of money" was owed to former and current directors for fees and superannuation; 7. there was a credit card debt of $8,000 and other creditors in excess of $250,000 plus a liability of about $60,000 for fringe benefits tax; and 8. there had been an opportunity to obtain further capital from Clean Waste Energy but it appeared that that would not be going ahead unless the company was "cleaned up through a voluntary administration". 1. Condor's challenge on Ground (3) requires attention to the state of mind of each of Mr Darby and Mr Stops at the time of the signing of the documents at about 6.15pm on 4 July 2016. The question is whether each of them held an opinion that Condor was then insolvent or was likely to become insolvent at some future time. 2. In assessing the evidence relevant to that question, I begin with Mr Darby. He had been a director continuously for more than six years and had been managing director until May 2015. Even after he ceased being managing director, he continued to operate in a quasi-executive capacity and to devote significant time to the company's affairs. Although, according to Mr Dunoon, Mr Darby never asked for general access to financial records, it is clear that Mr Darby had familiarity with the company's financial position. Furthermore, the minutes of the board meetings of 21 and 30 June 2016 show that there was a general awareness (to which Mr Darby was party) that there was a need for cash to deal with day to day exigencies. There was also an assurance at the first of those meetings that the directors would provide this if required (indeed, the minutes refer to Mr Darby and Lia Darby having made cash available for particular legal fees), also that they would hold off demanding payments due to them. Furthermore, there were references to the possibility of a placement of shares to raise $200,000. 3. Against that background (including, in particular, his long tenure as a director and continuation of a quasi-executive role after May 2015), there was a rational basis for an opinion on Mr Darby's part that a state of solvency – albeit parlous – existed on both 21 June 2016 and 30 June 2016. But forbearance by present and past directors (including Lia Darby and Ms Feruglio) and their willingness to contribute financial support necessarily played a part in any such assessment. There cannot have been any expectation that anyone's financial support would continue after departure from the board. There is also a rational basis for concluding that Mr Darby's opinion changed when it became obvious to him in the course of 4 July 2016 that he would be voted off the board and new directors would be installed. That circumstance would have led to a conclusion that he and associated directors would no longer make loan funds available or exercise forbearance in requiring payment by the company and that the company would no longer enjoy whatever measure of confidence there might have been that his own efforts could produce a capital injection of $200,000. Also, Mr Darby was in no position to expect that the incoming board could do anything to alleviate the position. On the evidence, he knew nothing about their plans or their capacity. It was understandable that he should think that the parlous position that already existed would degenerate into insolvency at some point after the new and unknown group of directors took over. 4. In short, there is no sound basis for a finding that, having become aware of the inevitable outcome of the general meeting to be held the next day, Mr Darby did not, in the early evening of 4 July 2016, hold a rationally based opinion that, at the least, Condor was likely to become insolvent at some future time. 5. The position in relation to Mr Stops is different. In the course of cross-examination, Mr Stops was asked what steps he had taken to inform himself about the financial position of the company of which he had become a director. His reply was as follows: "I was not aware of no [sic] obligation on myself personally to seek out that information. My understanding was that I was a member of a board and would be obliged to participate with the board and receive information. The suggestion that you are implying shocks me enormously if you are suggesting that within three days I should have been fully aware of the intricacies of the company's financial situation. I am remiss if that is the law, I certainly didn't understand that. . . ." 1. The cross examination continued: "Q. Sir, let's put aside any need to become intimately involved with the intricacies of a company's position, but can I just ask you this, did you take any steps at all following your appointment on 28 June, to learn anything about the financial position of the company to which you have been appointed? A. I did nothing at all except for discuss matters with Glen when he tracked me down and we had discussions. Q. At the Empire Hotel? A. I Q. At the Empire Hotel? A. Probably, yes. I took no proactive steps to ask anyone to inform me of the financial position of the company other than I was fully aware from Glen from well beforehand, pretty much where the company was. It was trying to raise money for a new venture and it was being stymied in that by all these attacks by the Australian. Q. When I asked you about where any meeting with Mr Darby took place, I think your answer was "Probably at the Empire Hotel", between 28 June and 5 July this year? A. Yes. Q. Did you meet Mr Darby at any place other than the Empire Hotel? A. Not that I can recall. Q. How many times between those seven days do you recall meeting Mr Darby at the Empire Hotel? A. Maybe twice." 1. Mr Stops said in his affidavit that he was never given access to the company's books and had never spoken to the secretary about getting the financials. Mr Stops also deposed: "Glen never gave me a copy of the financials of the company but I knew what the company's position was based on what Glen had told me. The company had run out of many and so had Glen. I always relied on Glen entirely as regards the financial position and solvency of the Company. It was like being on a plane coming in for landing. You knew it was going to land because you had been told so beforehand." 1. Mr Calabretta gave evidence of words exchanged by Mr Darby and Mr Stops in his presence at the Empire Hotel. According to Mr Calabretta, Mr Stops said to Mr Darby: "Glen, an administrator is the right thing to do?" 1. Mr Darby replied: "We have no choice. It's insolvent." 1. Mr Stops then said: "OK, I believe you." 1. The evidence makes it clear that Mr Stops never inquired about Condor's financial state or addressed his mind independently to the question whether Condor was insolvent or likely to become insolvent at some future time. He says that he always relied on Mr Darby regarding the financial position and solvency. But there is not the slightest indication (apart from the vague statement "the company had run out of money and so had Glen" and his apparently blind acceptance of what Mr Darby told him in Mr Calabretta's presence, "It's insolvent") that Mr Stops ever formed any opinion about the capacity of Condor to pay its debts as and when they fell due. Nor is there any indication that Mr Darby ever shared with Mr Stops any basis for the opinion cryptically stated by him in Mr Calabretta's presence. It was not open to Mr Stops simply to take at face value and unquestioningly the terse opinion communicated by Mr Darby. He had a responsibility to think and assess for himself and, for the purpose of doing so, to familiarize himself with relevant financial facts (see Australian Securities and Investments Commission v Healey [2011] FCA 717; 278 ALR 618 at [14]-[22]). In discharging that responsibility, Mr Stops might have been assisted by guidance and explanation given by Mr Darby or Mr Dunoon whose familiarity with the company's affairs gained over a substantial period was obviously greater than whatever Mr Stops, acting alone, could have gleaned in six days. But he still needed to form an opinion of his own. He did not do so. 2. Mr Stops did not, as at 4 July 2016, hold a genuine opinion, formed in good faith, that Condor was insolvent or likely to become insolvent at some future time. To that extent, the statutory pre-condition to appointment of an administrator prescribed by s 436A(1)(a) was not satisfied. 3. Ground (3) is accordingly made out by Condor and justifies a declaration that Mr Calabretta's appointment as administrator was invalid, void and of no effect. The s 201A(2) compliance issue – Ground (1) 1. Given the position reached on Grounds (2) and (3), it is not strictly necessary to return to Issue (1). I do so, however, for the sake of completeness, noting that the question of statutory construction is whether the "board" referred to in s 436A(1) must be a board made up of at least the minimum required by s 201A(2) and whether that section prohibits action by a directorate of less than that statutory minimum. 2. Section 201A(2) imposes an obligation by means of the word "must". The obligation is, of its nature, one which a company, viewed as a juristic person, cannot by its own actions perform. Performance depends on actions of directors or members. It is nevertheless clear that a company which, for the time being, is not in compliance with s 201A as to composition of its directorate contravenes the section, according to the concept of "contravention" adopted by the High Court in Weinstock v Beck [2013] HCA 14; 251 CLR 396. It seems to follow that, in terms of s 1311(1)(c), the company is guilty of an offence punishable by fine (see s 1311(5) and s 1312(1)). Non-compliance may also justify an ASIC penalty notice under s 1313. No provision is made for any penalty upon an officer contributing to or failing to address the default. 3. Whether or not a penalty is provided for, there is a question whether the statute intends to prohibit conduct inconsistent with observance of the statutory requirement. 4. Framed in that way, the question paraphrases language used by Mason J in Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd [1978] HCA 42; 139 CLR 410 at 423. That was a case about the effect of statutory contravention on the enforceability of a contract. The question here is about the effect of contravention by a company of a statutory requirement regarding the composition of an organ of the company on the efficacy of acts of the organ. But the process of analysis is the same: having imposed the requirement and provided for a penalty (if, indeed, a penalty is provided for), does the statute intend merely to penalize non-compliance or is there an intention to go further and deny efficacy to acts of a non-compliant organ? 5. Another authoritative statement about the effects of statutory illegality on contracts is that of McHugh and Gummow JJ in Fitzgerald v F J Leonhardt Pty Ltd [1997] HCA 17; 189 CLR 215 at 227. They said that refusal of courts to enforce contracts associated with illegal activity stems not from express or implied legislative prohibition but from "the policy of the law, commonly called public policy"; and that the predominant consideration is whether, according to "the scope and purpose of the statute", the legislative purpose will be fulfilled without regarding the contract as void and unenforceable. 6. It can be said at once that the scope and purpose of s 201A(2) are not to ensure that decisions of the directors of public companies always involve, potentially at least, the votes of three directors. There is no policy of precluding decision-making at director level when fewer than the specified minimum number of directors is able to vote. The company under consideration in Whitehouse v Carlton Hotel Pty Ltd [1987] HCA 11; 162 CLR 285 satisfied the statutory requirement as to minimum number of directors in office but all directors other than the governing director were, by the constitution, denied voting (and other) rights while the governing director remained in office, unless such rights were specifically given by the governing director. It was held by Brennan J (with the concurrence of Mason, Wilson, Deane and Dawson JJ) that, despite the disability to which the constitution subjected the directors other than the governing director, they were in truth directors and the provision concerning minimum number of directors was satisfied. A board of three of whom only one is entitled to vote therefore satisfies s 201A(2). 7. A most significant factor is that the legislation itself contemplates valid and effective action by a public company board having fewer than three members. A public company that does not have a constitution is, by virtue of s 135, governed by the "replaceable rules" within the Corporations Act itself. It is instructive to consider the way in which those replaceable rules deal with a situation where, through resignation, death or otherwise, the number of directors of a public company falls to one. 8. The replaceable rule in s 201H(1) is: "The directors of a company may appoint a person as a director. A person can be appointed as a director in order to make up a quorum for a directors' meeting even if the total number of directors of the company is not enough to make up that quorum." 1. The replaceable rule in s 248F states that, unless the directors determine otherwise, the quorum for a directors' meeting is two directors. 2. If the number of directors in office falls to one, the "total number of directors of the company" (being one) is not enough to make up the quorum called for by s 248F (being two) and the sole director is empowered by s 201H(1) to appoint a director to make up that quorum. Then, with a quorum available, s 201H(1) applies anew to empower the two directors, at a quorate meeting, to appoint further directors. 3. In this way, the directorate of a public company governed by the Corporations Act alone is, by that Act itself, allowed to function even though it consists of fewer than three persons. Furthermore, the first of the two steps described (appointment by the sole director of another director to make up the quorum of two) is not only permitted while the company is not in compliance with s 201A(2) but is a step that causes the company to be in a new and different state of non-compliance until subsequent action is taken to appoint a third director. 4. The scope and purpose of the Corporations Act are thus such that a public company not having a constitution which has fewer than three directors is capable of functioning. There is no indication that the directorate becomes paralysed and incapable when the deficiency in the directorate occurs. Indeed, there is a clear indication to the contrary. It may be, of course, that persistence of a situation in which there are fewer than three directors will have other consequences, such as reinforcing a case for winding up on the just and equitable ground (Re Kala Capital Pty Ltd [2011] NSWSC 1253 at [14]) or grounding a finding of breach of statutory duty by directors who do nothing to remedy the deficiency (Australian Securities and Investments Commission v Planet Platinum Ltd [2015] VSC 682 at [67]). 5. The scope and purpose of the legislation in relation to a public company that has a constitution cannot be different. It is therefore necessary to identify provisions of the constitution of Condor relevant to the capacity to function with a deficiency of directors. 6. The first relevant provision is article 11.1(a) which states that the number of directors "must be" not less than three and not more than ten (or any smaller number determined by the directors, not being smaller than the number of the directors in office when the determination is made). Article 11.4(a) provides: "The Company in general meeting may by resolution and the Directors may at any time appoint any person to be a Director, either to fill a casual vacancy or as an addition to the existing Directors, but so that the total number of Directors does not at any time exceed the number determined in accordance with clauses 11.1(a) and 11.1(b)." 1. Article 13.4 fixes at two "the number of directors whose involvement is necessary to constitute a quorum" at a meeting of directors. 2. Article 13.5 is in the following terms: "In the event of a vacancy or vacancies in the office of a Director or offices of Directors, the remaining Director or Directors may act but, if the number of remaining Directors is not sufficient to constitute a quorum at a meeting of Directors, they may act only for the purpose of: (a) increasing the number of Directors to a number sufficient to constitute such a quorum; or (b) convening a general meeting of the Company." 1. Article 13.5 thus imposes a restriction on the ability of the remaining director or directors to function when their number falls below two, that being, in terms of article 13.4, the number that is "necessary to constitute a quorum at a meeting of Directors". But if the number of the continuing directors is sufficient to constitute a quorum (that is, is two or more), the restriction does not operate and those directors are able to exercise all the powers reposed in the directors as a body. The fact that their number is less than the minimum required by s 201A(2) does not affect that conclusion: compare Gosford Christian School Ltd v Totonjian [2006] NSWSC 725; 201 FLR 424 at [67]). 2. Had it been necessary to decide Ground (1), my conclusion would have been that the circumstance that, at the time of the purported board resolution of 4 July 2016, Condor had only two directors did not affect the validity of a board resolution otherwise valid. The basis for this conclusion would have been that the reference in s 436A(1) to a company's "board" extends to a board the composition of which does not accord with s 201A, provided that the constitution allows a board so constituted to function. That being so, there is no need to address Mr Calabretta's application for a curative order to overcome the perceived s 201A problem. The improper purpose issue – Ground (4) 1. In light of the conclusion stated to this point, there is, strictly speaking, no need to address the remaining issues identified at [9] above. I nevertheless proceed to do so for the sake of completeness and turn, therefore, to Ground (4) and Condor's contention that the decision of Mr Darby and Mr Stops to appoint an administrator was infected by improper purpose. 2. Condor's contention under this heading is that the voluntary administration was engineered by Mr Darby simply as a defensive tactic against what was, by the early evening of 4 July 2016, the virtual certainty that he would be removed from the board the next day and other directors would be installed. 3. There are, in essence, two parts to that contention: first, that Mr Darby wished to see voluntary administration in place so that he could use it to promote some deed of company arrangement proposal protective of his own position; and, second, that the voluntary administration was imposed with undue haste simply to defeat the legitimate expectations of the new directors about to be installed and the actions of the body of shareholders installing them. 4. I deal first with the deed of company arrangement point. It is the contention of Condor that Mr Darby acted as he did because he wished to promote a deed of company arrangement proposal to his own advantage and needed voluntary administration as a platform. There was, however no real articulation of how any such purpose might have been achieved, beyond identifying Clean Energy Corporation as somehow potentially involved. Mr Kukolovski had told Mr Calabretta at the Empire Hotel on 4 July 2016 that he was going to see if he could help Mr Darby with the Clean Energy Corporation transaction after appointment of an administrator. Mr Calabretta's understanding was that such a transaction would involve the provision of funding by Clean Energy Corporation. Some time after his appointment, Mr Calabretta became aware that Mr Kukulovski was assisting Mr Darby put together a deed of company arrangement involving Clean Energy Corporation. Mr Darby's SMS to Mr Loone asking him to contact Mr Kukulovski about a "proposal" is consistent with this. 5. The evidence does not identify with any degree of precision what a transaction with Clean Energy Corporation might have been expected to be accomplish through a deed of company arrangement, except that it would have involved "funding" for Condor. According to Mr Loone's description, the idea that had existed since March 2016 was that Condor would acquire the assets of Clean Energy Corporation in return for Condor shares, since Condor had no money and no apparent borrowing power. That, of itself, would not have provided "funding" for Condor, although it might have created future cashflow. Importantly, however, one feature of any such transaction, as described by Mr Loone, was that Mr Darby would leave Condor as soon as it was completed. 6. There is, in my opinion, no basis in the evidence for any finding that Mr Darby initiated voluntary administration because he wished to promote a deed of company arrangement proposal to his own advantage and needed voluntary administration as a platform. It is clear that he was aware of the deed of company arrangement process. He may well have had it in mind to seek to use it in some way. It is by no means unusual in quiite regular and proper Part 5.3A cases for the directors to have in mind before appointment the possibility of rehabilitation through a deed of company arrangement. In this case, the very sketchy evidence about a Clean Energy Corporation proposal suggests that one of its elements would have been Mr Darby's departure from Condor. That being so and in the absence of any indication that another deed proposal somehow protective of Mr Darby's position was in mind, that that other proposal entailed some improper purpose and that Mr Darby was motivated by a purpose of achieving the improper motive or ulterior objective, there can be no finding that the appointment was susceptible to challenge because of an attendant purpose of misusing the deed of company arrangement process. 7. There is then the contention that the move to voluntary administration was made with undue haste simply to thwart the will of the shareholders and defeat the impending and virtually certain reconstitution of the Condor board. The only witness who gained any real measure of insight into Mr Darby's thinking at the time is Mr Calabretta. He was cross-examined as to his understanding of the reason why action to appoint him as administrator had been taken when it was taken – at 6.00 pm on the day immediately before the scheduled general meeting and less than seven hours after Mr Calabretta had first been sounded out as to his availability. 8. Mr Calabretta understood that there was urgency to make the appointment. It was put to him in cross-examination that the reason for the urgency was the imminent general meeting. He replied that, on his understanding, the urgency came from the fact that Lia Darby was pressing for payment; also, that he was under the impression that the general meeting was going to be adjourned and therefore did not represent any pressing consideration. In addition, Mr Calabretta's assessment of the solvency position was such that he considered a decision to go into voluntary administration to be a rational and correct decision. 9. Mr Darby, of course, knew by 6.00 pm that the die was cast, that the Takeovers Panel would not order postponement of the general meeting and that, at 11.00 am the next day, he would be removed as a director. He had known that from 4.11 pm or soon thereafter. And it was only after receiving the news that ASIC would not be pressing for a Panel order postponing the meeting that he acted with particular haste to move immediately to voluntary administration. Mr Kukulevski, no doubt at the request of Mr Darby, phoned Mr Calabretta at 4.30 pm to arrange the meeting that took place at the Bligh Street restaurant at 5.00 pm and led on to the visit to the public bar at the Empire Hotel and the signing of the documents at about 6.00 pm. 10. The conclusion that Mr Darby acted with extreme haste after 4.11 pm is irresistible. Also irresistible is the conclusion that he did so for the purpose of causing Condor's affairs to be in the hands of an administrator before the installation of the new directors who were virtually certain to be appointed the following morning. The financial exigencies were real. But they were no more pressing at 6.00 pm on 4 July 2016 than they had been in the days beforehand and there was no reasons to proceed urgently at that time rather than holding off until the next day or the next week. No financial catastrophe demanding instant action existed, although, as I have said, there were good objective grounds for an opinion that the company was insolvent or likely to become so. 11. The power of appointing an administrator is, by s 436A of the Corporations Act, confided to a company's directors. Like all other powers of directors, the power may only be exercised in the interests of the company as a whole. If it is found that the directors are motivated by a purpose of self-interest, such as a desire to retain their control of the company or to defeat the legitimate exercise of shareholders' powers inimical to their personal interests, their decision is one that is inconsistent with due performance of their duties. One need not look beyond the decision of the Privy Council in Howard Smith Ltd v Ampol Petroleum Ltd [1974] UKPC 4; [1974] AC 821 for authority on this. And if such an inconsistent purpose is causative, in the sense that, but for its presence, the power would not have been exercised, the tainted action is vitiated by the impermissible purpose and is rendered voidable as distinct from void: Whitehouse v Carlton Hotel Pty Ltd (above) at 294-5. 12. In this case, Mr Darby was motivated by an improper purpose of negativing the power and influence of the incoming directors and defeating the will of the members who were about to put those directors into office. Mr Stops simply followed blindly and unquestioningly in Mr Darby's footsteps, so that his participation was tainted by the same improper purpose. But for that purpose of Mr Darby in which Mr Stops cooperated, the appointment under Part 5.3A effected at 6.00 pm on 4 July 2016 would not have been made. 13. Had it been necessary to address Ground (4), my decision would have been that that ground was made out and that an order under s 447A ending the administration should therefore have been made. The subsequent abuse issue – Ground (5) 1. Because there is, again, no need to decide this matter in order to determine the proceeds, I consider it only briefly. 2. Condor's contention is that events since 4 July 2016 have shown that Mr Darby is attempting to abuse the process made available by part 5.3A. The abuse is said to be revealed by proofs of debt lodged with Mr Calabretta for the purposes of the first meeting of creditors which was held soon after Mr Calabretta's appointment. 3. Particular attention is focused on the following persons who lodged proofs for the amounts indicated. Ian Leete Travelling expenses in Israel to assess acquisitions, December 2015 $1,250 Linked Businesses Pty Ltd Consulting fees $2,000 Cabcharge Taxis $1,560 David Sorrell Consulting fees relating to project acquisition $5,000 Monclar Pty Ltd Due diligence on a confidential investment $4,840 National Australia Bank Ltd Net debit balance to bank accounts $8,670 ASX Operations Pty Ltd Listing fees $14,445 ASX Operations Pty Ltd Prospectus fees $3,848 Advanced Share Registry Registry fees $4,222 AE Vrisakis Legal fees $31,145 Angel Games Pty Ltd Consultancy fees $8,000 Axina GmbH Investor relations services provided in 2011-2012 Eur 11,520 Deakin Consultancy Pty Ltd Legal services $3,850 Eakin McCaffrety Cox Legal services $25,065 Foxfire Capital Pty Ltd Management fee for capital raising $33,000 LS Services Pty Ltd Retainer and promotional services $63,800 Michael Loone Professional services $9,000 Nexia Court & Co Audit and accounting services $27,843 Odyssey Corporate Pty Ltd Consultancy fees $54,450 Proactive Investors Australia Pty Ltd Investor relations services $5,134 Sydney Accounting Practice Company secretary and accounting services $29,898 Vinsen Group Pty Ltd Consultancy services $1,100 Super Structure International Pty Ltd Consultancy services $11,000 *Dragon Fly Pty Ltd Corporate director fees (Ms Feruglio) $61,682 *Glen Darby Services and loan $326,021 *Lia Darby Service and loan $67,682 *RW Pritchard Director remuneration November 2012 to July 2013 $18,900 *Timothy Stops Director's fee $4,000 1. The entities at the end of the list denoted by asterisk are former directors and, in one case, a former director's related entity. 2. Both Mr Farquhar and Mr Calabretta included in their affidavits facts said to either support or call in question the proposition that some of the other debts might not be genuine or might be inflated. In the case of the debts claimed by directors, there was reference to provisions of the constitution and content of annual reports relied on in the light of the principle that directors may not receive financial benefits except as allowed by the constitution or approved by the company in general meeting. 3. It should also be mentioned that there is clear evidence that Mr Darby made efforts to encourage persons to create invoices and to submit proofs of debt in respect of questionable entitlements. Efforts in that direction are recorded in the affidavit of Rabi Abareh who gave evidence under the protection of a certificate under s 128 of the Evidence Act 1995 (NSW). 4. Because this issue is not determinative of the proceedings, it is sufficient to say merely that many of the items not denoted by asterisk appear to be unobjectionable, that some of them may be questionable and that none of the items referable to directors could safely be relied on without significant further investigation; also that there is evidence that Mr Darby did take steps to procure invoices and proofs for questionable entitlements. Substantive result 1. Because Ground (3) has been made out, there will be a declaration that Mr Calabretta's appointment as administrator was invalid, void and of no effect. That being so, no occasion arises for an order that the administration end. Matters relevant to costs 1. Condor submitted that, if the relief it sought was granted, Mr Calabretta should be ordered to pay its costs. Mr Calabretta' position is that, even in that event, he should not be ordered to pay Condor's costs because he did no more than act as a responsible administrator should act in the face of an allegation that he was not validly appointed or that the administration is an abuse of process. On that basis, he says, he should not be required to pay Condor's costs and should have indemnity out of Condor's assets for his own costs. 2. There was discussion at the hearing whether the court should proceed at this stage to address the question of costs or whether argument on costs should be deferred. There was reference to the possibility of an application for some special costs order and to a potential need to lead further evidence in support of such an application. 3. I have decided that I should record findings relevant to the costs question but invite further submissions before making any order. For that purpose, it is necessary to consider certain events that happened in the period of three weeks after Mr Calabretta's appointment. 4. On 6 July 2016, there was a meeting between Mr Calabretta and Mr Farquhar who had been elected to Condor's board the previous day. Mr Farquhar gave evidence that he and his colleagues who made up the new board had "significant misgivings" about Mr Darby's actions and that he told Mr Calabretta that they needed to "resolve the issue of your [Mr Calabretta's] appointment". Mr Farquhar said that, in order to settle that matter, Mr Calabretta should seek a court order validating his appointment. 5. Mr Farquhar wrote to Mr Calabretta on 14 July 2016. The letter referred back to the meeting on 6 July 2016 and to the view that Mr Calabretta had not been validly appointed as administrator. Two "distinct bases" for that view were stated; first, that Mr Darby and Mr Stops "could not possibly have formed a concluded or bona fide opinion about the Company's solvency or likely solvency with they signed the purported appointment resolution"; and, second, that the circumstances of the purported appointment indicated an "improper purpose" of seeking to frustrate the general meeting the following day. Mr Farquhar said that "abundant evidence" in support of these view had been given to Mr Calabretta at the 6 July 2016 meeting. 6. The letter went on to refer to "substantial authority" to the effect that an administrator should take reasonable steps to confirm the validity of his appointment including seeking a declaration under s 447C if put on inquiry. Mr Farquhar (who is, by profession, a military officer) invited Mr Calabretta's attention to "for example, Re Keneally (as administrator of Australian Blue Mountain International Cultural and Tourist Group Pty Ltd (Administrator Appointed)) (2015) 107 ACSR 172 and the numerous cases cited at paragraph 44 thereof". 7. Mr Farquhar then made four demands of Mr Calabretta: first, that he cease holding himself out as administrator; second, that he make an immediate announcement to ASX that he had ceased performing functions as administrator; third, that he return to Condor all its property in his possession; and, fourth, that he give immediate confirmation that he would comply with the first three demands. Mr Farquhar added that if such confirmation were not received by close of business that same day, Condor would request ASIC to apply to the court for a declaration of invalidity of his appointment; also, that if ASIC were not minded to do so, Condor itself intended to make an application. The letter went on to set out, in three closely typed pages, contentions in support of the demands, together with an allegation that Mr Calabretta's "actions as purported administrator" were "causing serious damage to the Company". 8. Mr Farquhar's letter was on Condor letterhead and was signed by him as "Executive Chairman". 9. Mr Calabretta's solicitor, Thomas Russell, replied to Mr Farquhar's letter on the same day. He said that he expected to have instructions enabling him to reply more substantially by 18 July 2016 and that, in the meantime, Mr Calabretta maintained that he had been validly appointed. Mr Russell also drew attention to s 437C (providing, in effect, that the functions of officers are suspended once administration is in place) and pointed out that contravention of the section is a criminal offence of strict liability carrying, on conviction, a penalty of up to six months imprisonment. Mr Russell said that, in light of that prohibition, "you" (presumably Mr Farquhar) were not to issue any further correspondence on Condor letterhead or otherwise under the company's name. 10. Mr Russell wrote again to Mr Farquhar on 18 July 2016. He made the following points: (1) Mr Calabretta continued to maintain that he had been validly appointed. (2) Mr Darby and Mr Stops were the directors at the time of the appointment and had authority to act. (3) There was nothing to suggest to Mr Calabretta that the opinion regarding insolvency in the 4 July 2016 documents was either not held at all or not held genuinely and in good faith. (4) Mr Calabretta's meeting with Mr Darby before appointment indicated insolvency. (5) Investigations by Mr Calabretta and his staff after appointment indicated various matters and did not cause him to question the views of as to solvency expressed by the appointing directors. (6) Mr Calabretta was not aware whether any improper purpose was behind his appointment and could not say that the appointment would not have been made but for some improper purpose. (7) Because Mr Calabretta did not consider himself invalidly appointed, he could not cease holding himself out as administrator. (8) Mr Calabretta did not consider himself bound to take steps to make a court application to confirm the validity of his appointment and, in any event, would seek payment out of the company's assets for all or some of his own fees and the whole of his legal expenses if there were to be any such application. (9) If anyone else made an application, Mr Calabretta would neither consent nor oppose (except as to costs) and would give all necessary evidence and provide all necessary documents to the court. 1. The letter ended with a question whether, if the view that Mr Calabretta should make an application were still held, Mr Farquhar "or anyone else" would be prepared to fund and indemnify Mr Calabretta in respect of his legal expenses. 2. Mr Farquhar sent a letter of nine pages dated 25 July 2016 to Mr Russell. That letter intimated (in a paragraph beginning "TAKE NOTE THAT") that, unless Mr Calabretta conceded by close of business on 26 July 2016 that his appointment was invalid and took action to effect "orderly return to the control of the directors of the entirety of the funds and assets of the company" that had come into his hands, Condor would commence proceedings. Demands were then made and the letter went on to rehearse various matters seen as relevant to the substantive issues. Particular exception was taken to the part of Mr Russell's letter of 15 July 2016 referring to criminal sanctions in respect of breach of s 437C. Mr Farquhar made it plain in his oral evidence that that reference had offended him greatly. He said that it was "something that I will not forget easily". 3. These proceedings were commenced by Condor two days later, on 27 July 2016. 4. Although the tone of the correspondence was, on both sides, not particularly conducive to constructive resolution of issues in which the parties had a clear and close mutual interest, that correspondence made four things plain: first, that Mr Farquhar considered that Mr Calabretta's appointment was obviously flawed in such a way that Mr Calabretta should simply, as it were, walk away and act as if there had never been any action to appoint him; second, that Mr Calabretta did not see any such flaw and was of the opinion that the grounds raised by Mr Farquhar could only be tested by court proceedings; third, that Mr Farquhar was of the view that, if there were to be any such proceedings, they should be commenced by Mr Calabretta upon whom lay a responsibility to satisfy himself of the validity of his appointment; and, fourth, that Mr Calabretta, while willing to cooperate in proceedings brought by someone else, did not consider himself bound to initiate proceedings of his own in circumstances where the company's assets could not possibly cover his legal expenses and protection in that respect was not offered by anyone else. 5. In considering those propositions, I must look first at the nature of the responsibility that rests upon an administrator regarding assessment of the validity of his or her appointment. Early recognition of the responsibility was articulated by Austin J in Deputy Commissioner of Taxation v Portinex Pty Ltd [2000] NSWSC 99; 156 FLR 453. More recently, in In the matter of Lime Gourmet Pizza Bar (Charlestown) Pty Ltd [2015] NSWSC 244 (at [72]), Black J dealt specifically with what he called "the level of inquiry required of an administrator on his appointment". His Honour said that the administrator is not required to undertake "some form of independent verification of the factual basis on which the directors proceed in that appointment". Rather, he should conduct "a review of whether the resolution appointing the administrator appeared, on its face, to be valid". In the earlier case of In the matter of O'Neill v Advantage Hearing Pty Limited [2013] NSWSC 175, Black J framed the matter slightly differently, referring to "an obligation to at least take some steps to satisfy himself or herself as to the validity of his or her appointment, and in particular to review the terms of the resolution of the board by which he or she is appointed". The Court of Appeal noted in Correa v Whittingham [2013] NSWCA 263; 278 FLR 310 that a duty of inquiry may exist during the course of the administration, if the administrator is later put on notice of possible invalidity of his or her appointment. 6. Both at the time of the appointment and subsequently, an administrator must be attentive to any matter coming to his or her notice that may call into question the premise upon which the appointment is made, that is, that directors genuinely holding the requisite opinion concerning solvency have validly and regularly passed a resolution in terms of s 436A. Two matters will therefore have to be tested: first, the formal validity of the resolution and, second (and to the extent that testing is possible on the materials available to the administrator), whether the directors voting for the resolution appear to hold the stated opinion at the time of voting. It may be expected that an administrator will make some inquiry of those by whom he or she is approached with a view to gaining insight into the company's financial position and thereby to subject the expressed opinion of directors to a rough check. Publicly available information will also be examined. In that way, the administrator will discover who the directors are. [4] The administrator must see that the board consisting of those directors has adopted due process to pass, by a majority of votes, a resolution in appropriate terms. But there, in my opinion, the responsibility ends in all but very exceptional cases. 7. In saying this, I intend to indicate an opinion that, in general, it is not part of the administrator's responsibility, in assessing the validity of his or her appointment, to delve into any purpose or motive of the directors beyond that of resort to Part 5.3A administration as a response to actual or impending insolvency. Any suggestion to the contrary that there may be in Australian Securities and Investment Commission v Planet Platinum Ltd [2016] VSC 120; 112 ACSR 570 (at [23]-[24]) should, in my respectful opinion, not be accepted. It was said in that case that "the actual purpose of the appointment" is "an important factor" for the administrator to take into account in discharging his or her responsibility to assess the validity of the appointing resolution. That view was expressed by reference to the following passage in the judgment of Austin J in Cadwallader v Bajco Pty Ltd [2001] NSWSC 1193; 189 ALR 370 at [224]: "Additionally, the law requires that the purpose of the resolution, as an act of the board, be ascertained, and then characterised as proper or improper. The court's task is to identify the actual purpose of the directors who voted in favour of the resolution, having regard to the character and operation of the resolution in relation to the facts in circumstances surrounding it, and not merely to the motives of individual directors (Arthur Yates & Co Pty Ltd v Vegetable Seeds Commission (1945) 72 CLR 37 at 82 per Dixon J), although statements about the motives or subjective intentions of individual directors are relevant (Advance Bank Australia Ltd v FAI Insurances Ltd (1987) 9 NSWLR 464; 12 ACLR 118 at NSWLR 485 per Kirby P; and generally, Darvall v North Sydney Brick & Tile Co Ltd (1989) 16 NSWLR 260). Where several purposes are identified, some of which are proper while others are improper, the court must determine whether, but for the improper purpose, the directors would have passed the impugned resolution: see Whitehouse v Carlton Hotel Pty Ltd (1987) 162 CLR 285; 70 ALR 251 at CLR 293–4 per Mason, Deane and Dawson JJ." 1. Austin J here described "the court's task" – and did so in terms making it clear that that task will often be a complex one involving examination of the character and operation of the resolution in relation to the facts and circumstances surrounding it and the motives of individual directors. A court undertakes that task in a context where evidence of witnesses (including any who are compelled) is systematically marshalled and presented and processes exist to ensure that contemporary documents of relevance are disclosed. An insolvency practitioner contemplating acceptance of an appointment as administrator lacks like means to obtain facts. 2. If it were as plain as a pikestaff, [5] without any form of inquiry, that directors were resorting to administration for an extraneous purpose (because, for example, they actually said so or immediately obvious and observable circumstances left no alternative explanation), the practitioner asked to accept appointment would fail to discharge the relevant responsibility by accepting. Beyond any such patently obvious case, however, there can be no expectation that the responsibility at the time of appointment extends to considering possibilities of improper purpose and abuse of process. 3. I note the observations of Lander J in Wilson v Manna Hill Mining Company Pty Ltd [2004] FCA 1663; 51 ACSR 404 (at [59]) that an administrator "should satisfy himself or herself that he or she has been regularly appointed" and (at [61]) that "the company's officers, its members and its creditors can expect that an administrator would satisfy himself or herself of the regularity of the appointment before entering into the administration". Lander J also said (at [63]): "Where the minute containing the appointing resolution, the appointing resolution or the circumstances surrounding the passing of the resolution or any other circumstances particular to the company involved contain some feature which ought to put an administrator on notice, the duty to inquire will oblige the administrator to carry out whatever reasonable enquiries are necessary to satisfy the administrator that the appointment has been validly and regularly made. What is reasonable will depend upon the facts and circumstances of each individual case." 1. Despite the apparent breadth of that statement, Lander J made it clear (at [64]) that the relevant responsibility to make inquiry is a limited responsibility related to the resolution and that it goes only to contextual matters such as whether the meeting of directors was validly convened, who was present at the meeting, whether all directors had been advised of the meeting, why any absent director was not present and why the chair had exercised a casting vote. Lander J was not suggesting that the administrator had any general responsibility to inquire into the directors' motives and purpose. 2. Against this background, I turn to the question whether it might be said that Mr Calabretta failed to discharge his responsibility to assess the validity of his appointment. 3. Mr Calabretta had a discussion of about 45 minutes with Mr Darby at the Bligh Street restaurant about the financial state of Condor. He had already obtained and reviewed the interim report for the period to 31 March 2016. From both those sources he obtained information which, according to his appraisal, was objectively consistent with an opinion that the company was insolvent or likely to become so. He cannot be criticised in relation to that aspect of his pre-appointment review. As to the formal validity of the resolution, he saw the two directors sign. He thought it odd – particularly in the case of a listed public company – that he should be asked to meet one director at a City restaurant and then be taken by him to the public bar of a Kings Cross hotel to meet the other director. But those circumstances, although out of the ordinary, did not provide grounds for any objectively based apprehension that the resolution was irregular or that the directors did not hold the requisite opinion. It is true that Mr Calabretta did not engage in discussion with Mr Stops about the state of solvency. But he was present when Mr Stops accepted Mr Darby's statement that the company was insolvent. He knew from that that the issue was one that was in Mr Stops' mind. For all he knew, the two directors had had earlier discussions on the subject. Being himself of the opinion that the company was insolvent or likely to become so, it was not incumbent upon Mr Calabretta to ask whether they had had such discussions. 4. As to the issue of the directors' purpose, Condor asserted in the correspondence of 14 to 25 July 2016 that Mr Calabretta's appointment had been made for the ulterior and extraneous purpose of defeating the will of the shareholders at the impending general meeting. That was put forward as indicating that the appointment was not valid. I am satisfied that no such improper purpose was or could have been evident to Mr Calabretta. As far as he was aware, the general meeting was going to be postponed. He was not privy to the message received by Mr Darby and others from ASIC at 4.11 pm. He took at face value the fact that the company was in a very poor financial state and that Lia Darby was pressing for money she considered due to her. There was no reason why he should not have done so. With the company's financial plight as it was, there was nothing at all to suggest to Mr Calabretta that the decision of directors was anything but a rational response to that plight. 5. Except in relation to the matter of s 201A(2) compliance (about which Condor made no complaint in the correspondence), the circumstances with which Mr Calabretta was confronted on 4 July 2016 did not exhibit any feature that caused his action in accepting appointment to be otherwise than in accordance with his responsibility to assess the validity of the appointment. 6. Nor was Mr Calabretta remiss in declining to meet the demand of Condor that he simply retire from the field and announce to ASX that he was not the administrator and was not functioning as such. He had, as I have found, reviewed the validity of his appointment to an extent consistent with his responsibility. He had not found it wanting. Any judgment on the further question whether the appointment had been made for a purpose related to an object of Part 5.3A stated in s 435A or for some ulterior and extraneous purpose vitiating the exercise of the statutory power was a judgment that it did not lie within Mr Calabretta's capacity to make. The matters on which Condor relied in the correspondence of 14 to 25 July 2016 (over and above the matter of the prima facie status of the appointing resolution) were matters which could only be determined by court proceedings. It would have been a clear breach of duty for Mr Calabretta to abandon his appointment and relinquish control of Condor's property and affairs in response to Mr Farquhar's demand that he do so. 7. The correspondence between Mr Farquhar and Mr Russell also raises the question whether the allegation of improper and extraneous purpose of the directors in appointing him as administrator caused it to become incumbent upon Mr Calabretta to initiate court proceedings when Condor itself had no money by which the proceedings could have been funded. 8. As administrator, Mr Calabretta could have commenced relevant proceedings in Condor's name and on its behalf. Power to do so is conferred by s 442A. The proceedings would presumably have sought declaratory relief as to the status of the administration and, if abuse of process were established, an order under s 447A that it be terminated. 9. Another and more straightforward possibility would have been for Mr Calabretta to apply under s 447C for an order declaring his appointment valid notwithstanding the perceived improper purpose of the appointing directors. [6] 10. A third possibility would have been for Mr Calabretta to seek directions from the court under s 447D, although that course is realistically available only when uncontested facts can be laid before the court by the applicant. 11. There is a real question whether, had any of these courses been followed, Mr Calabretta could properly have done more than place relevant evidence before the court, together with an analysis of arguments both for and against the proposition that his appointment was tainted. The question in proceedings brought on any of the three bases would have been one in which Mr Calabretta had a clear personal interest distinct from the interest of Condor. Condor's interest would have been to obtain clarity about whether it was subject to voluntary administration with Mr Calabretta as administrator. Mr Calabretta would have had the same interest accompanied, however, by the personal pecuniary interest in retention of a remunerated office. As a fiduciary, an administrator is bound to avoid situations in which interest and duty conflict. On that basis, it is difficult to see how Mr Calabretta could have instituted proceedings in which he actively sought to impugn the administration over which he was presiding, as distinct from placing matters before the court for decision – in circumstances where he did not himself suspect any improper purpose and was reacting to allegations put forward by someone else. It is noteworthy that all the cases referred to at [19] above involving findings of improper purpose or abuse of process in the initiation of Part 5.3A administration (as well as Australian Securities and Investment Commission v Planet Platinum Ltd (above at [140] and In the matter of Warwick Keneally as administrator of Australian Blue Mountain International Cultural & Tourist Group Pty Ltd [2015] NSWSC 937; 107 ACSR 172) involved proceedings brought by a person other than the administrator who thereby assumed a burden of proof. [7] It is by no means clear how an administrator would assume a like burden of proof in support of the proposition that his or her appointment was invalid or that the administration should be terminated. 12. If any of the postulated litigation courses had been taken by Mr Calabretta, he would have been performing a function or exercising a power as administrator. Debts incurred for legal expenses would therefore have been debts of the administrator attracting the benefit of the statutory indemnity under s 443D. But that indemnity is an indemnity out of the property of the company, so that, if that property is non-existent or insufficient, it is the administrator's personal pocket that bears the burden of the debts incurred. 13. The provisions with respect to voluntary administration do not contain any equivalent of s 545 which, in relation to winding up, lays down a rule that, subject to any direction by ASIC or the court, a liquidator is not liable to incur any expense in relation to the winding up unless there is sufficient available property. Despite that omission, it must be the case that, where an administrator does not have a clear and positive responsibility to take a particular step, the absence of funds to which he or she can resort under the statutory indemnity represents good reason not to take the step. Putting this another way, an action which an administrator can take or not take purely as a matter of discretion and without any express or implied positive duty to act need not be taken if the administrator will have to spend his or her own money without any prospect of recoupment by means of the statutory indemnity. 14. Having made these observations on matters relevant to the question of the costs of these proceedings, I shall appoint a time to hear such submissions on costs as the parties may wish to make in the light of those observations. Conclusion 1. At this stage, the only order is a declaratory order as follows: Declare that the appointment of the defendant, Domenic Calabretta, as voluntary administrator of the plaintiff, Condor Blanco Mines Ltd, on 4 July 2016 was invalid, void and of no effect. 1. The question of costs is reserved. ********* Endnotes 1. Re Continental Pacific Insurance Co (Aust) Ltd [2002] NSWSC 789; Re Darin (as administrators of Palamedia Ltd) [2010] NSWSC 451; Re Ethan Minerals Ltd [2011] NSWSC 899; Re Creative Memories Australia Pty Ltd [2013] NSWSC 652; Re DH International Pty Ltd [2013] NSWSC 1120; (2013) 95 ACSR 578; Jack James as Administrator of ZYL Ltd [2015] WASC 57. 2. Section 201A(2) is set out above. Section 201A(1) requires a proprietary company to have at least one director and that at least one director ordinarily reside in Australia. 3. The proof is referred to at [118] below. 4. And, by searching bankruptcy records, whether any is disqualified from acting as a director on that ground: Calabretta v Redpen Developments Pty Ltd [2010] FCA 81; 183 FCR 47. 5. Language used in a different context by Brooking and Charles JJA in Spacorp Australia Pty Ltd v Myer Stores Ltd [2001] VSCA 89; 19 ACLC 1270 (at [4]). 6. Orders made under that section are declaratory rather than curative: Smolarek v McMaster (as administrator of Eznut Pty Ltd) [2006] WASCA 216 at [25]; Re HPI Australia Pty Ltd [2008] NSWSC 1106 at [8]. 7. In some of the cases at [19] above, the plaintiff was a creditor (Blacktown City Council v Macarthur Telecommunications Pty Ltd [2003] NSWSC 883 47 ACSR 391; Workers Compensation Nominal Insurer v Perfume Empire Proprietary Ltd [2011] NSWSC 379; In the matter of Sales Express Pty Ltd (Administrators Appointed) [2014] NSWSC 460; 9 BFRA 251). In others, where administration had been imposed by a secured creditor or someone claiming to be a secured creditor, the plaintiff was the company itself (Aloridge v Christianos [1994] FCA 972; 13 ACSR 99; Spacorp Australia Pty Ltd v Fitzgerald [2001] VSC 61; 19 ACLC 1979). In Australian Securities and Investment Commission v Planet Platinum Ltd [2016] VSC 120; 112 ACSR 570, the plaintiff was ASIC. In the later case of In the matter of Warwick Keneally as administrato r of Australian Blue Mountain International Cultural & Tourist Group Pty Ltd [2015] NSWSC 937; 107ACSR 172, the plaintiff was a director. Applications under s 447C actively brought by administrators seeking a declaration of validity are commonly made ex parte to resolve doubt in the absence of any contradictor (see, for example, Glenmorton Holdings Pty Ltd v D'Aloia [2001] FCA 1331; Re ACN 101 445 916 Pty Ltd [2004] NSWSC 710; McDonald, in the matter of Pasdonnay Pty Ltd [2005] FCA 335; 53 ACSR 717; Ross v GNC Homes Pty Ltd [2015] SASC 168; 110 ACSR 60; In the matter of Beechworth Land Estates Pty Ltd (No 3) [2015] NSWSC 733; 298 FLR 233; In the matter of Ryde Ex-Services Memorial & Community Club Ltd [2015] NSWSC 125; Re Newman Rivergums Village Operations Pty Ltd [2015] WASC 443). Resort to s 447C by administrators in contentious circumstances typically occurs when some other party has initiated proceedings and the administrator seeks a declaration of validity by way of responsive cross claim (see, for example, Sliteris v Ljubic [2014] NSWSC 1632; In the matter of Live Board Holdings Ltd [2014] NSWSC 161; Australian Securities and Investments Commission v Sino Australia Oil and Gas Ltd [2015] FCA 531; 106 ACSR 575). Since s 447C empowers the court to declare "whether or not" a purported appointment was valid, a person with standing may make application for an order that the appointment was not valid (see, for example, Re Nillumbik Community Church Inc [2010] VSC 136). 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. Decision last updated: 30 August 2016