Liquidator Allowed to Adjust Asset Distribution Based on Debts Owed

The court determined that the liquidator of a company in members' voluntary liquidation is entitled to adjust the distribution of surplus assets to reflect debts owed by a contributory to the company, based on the Corporations Act 2001 (Cth).

New South Wales Supreme Court

CITATION : [NAME] v [NAME] [2006] NSWSC 987

HEARING DATE(S) : 28 April 2006

JUDGMENT DATE : 22 September 2006

JURISDICTION : Equity

JUDGMENT OF : Austin J

DECISION : Order for distribution as per liquidator's plan of distribution of 19 July 2005, subject to adjustments for reasonable costs and interest. Leave to proceed under s 500(2).

CATCHWORDS : CORPORATIONS - members' voluntary winding up - application for determination of question arising in winding up - whether jurisdiction should be exercised to resolve disputed factual claim - CONTRACT - binding determination by counsel - effect

LEGISLATION CITED : Corporations Act 2001 (NSW), ss 479, 500, 511

[NAME] v [COMPANY] (1969) 121 CLR 432 CASES CITED : [NAME] v [NAME] (1997) 42 NSWLR 209 Re [COMPANY] (in liq) (1991) 5 ACSR 673

[NAME] (P; R1) PARTIES : [COMPANY] (in liq) (D1; R2) [NAME] (D2; A)

FILE NUMBER(S) : SC 5559/05

[NAME] with [NAME] (P; R1) COUNSEL : [redacted] [NAME] SC with [NAME] (D2; A)

[NAME] (P; R1) SOLICITORS : [redacted] [NAME] (D2; A)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST

AUSTIN J

FRIDAY 22 SEPTEMBER 2006

5559/05 [NAME] [COMPANY] (IN LIQ) & ANOR

JUDGMENT 1 HIS HONOUR: The first defendant ("[NAME]") is in members' voluntary liquidation. The liquidator is [NAME]. The plaintiff, [NAME], and the [NAME] defendant, [NAME], are sister and brother. They are the directors and sole shareholders in [NAME]. They are therefore contributories of the company in liquidation. 2 The liquidator has prepared a plan of distribution of the company's surplus funds as at 19 July 2005 ("the 2005 Plan"). Under the 2005 Plan, the distribution to [NAME] would be reduced by the total amount said to be owing by [NAME] to the company according to his [NAME] account, including two amounts recorded as reversals of journal entries, in the sums of $39,734.05 ("the First Amount") and $102,682 ("the [NAME]"), together with interest. [NAME] asserts that those deductions should not be made. His sister strenuously disagrees with him. 3 Section 511(1)(a) of the Corporations Act 2001 (Cth) allows the liquidator, or any contributory or creditor, to apply to the court "to determine any question arising in the winding up" of the company. Section 511(2) says that the court, "if satisfied that the determination of the question … will be just and beneficial", may accede wholly or partly to the application on such terms and conditions as it thinks fit and make such order as it thinks just. 4 By Further Amended Originating Process filed on 13 February 2006, [NAME] makes an application under s 511(1)(a) to determine whether [NAME] should proceed to distribute the net balance of its funds to its shareholders. The form of the order she proposes is as follows: "An order pursuant to section 511 of the Act that the First Defendant proceed with the distribution of the net balance of funds to shareholders of the Company as per the liquidator's draft plan of distribution dated 19 July 2005, adjusted to reflect interest accrued on the accounts of the Company to date." She also seeks an order that [NAME] pay the costs of the application on an indemnity basis. 5 As presently constituted, [NAME]'s proceeding is against [NAME] in liquidation and [NAME] as defendants. Counsel for [NAME] (by its liquidator) submitted that the proceeding should have been brought against the liquidator rather than the company, because as presently constituted, it is a proceeding requiring leave under s 500(2) and leave has not been granted. Although there may be some scope for argument as to whether, having regard to the nature of the relief sought, the proceeding is one "against the company", my view is that on balance, this submission is correct. I therefore intend to grant [NAME] leave under s 500(2), nunc pro tunc, to commence and proceed with the present proceeding. 6 By an interlocutory process filed on 14 February 2006, [NAME] seeks to invoke s 511(1)(a) for the purpose of achieving a different outcome. He asks the court to make a determination under s 511(1)(a) that the liquidator of [NAME] is not entitled to reduce the funds to be distributed to him by deducting the First and [NAME], and an order under s 511(2) directing the liquidator not to reduce the amount of funds distributed to him in that way. He seeks a determination under s 511(1)(a) that he does not owe [NAME] the First and [NAME], and an order under s 511(2) for the liquidator to distribute the company's surplus assets without making those deductions. 7 Thus, the issue between the parties, which both sides seek to have determined by their respective applications, is whether [NAME] owes [NAME] the First and [NAME]. It seems to be accepted that if he does, then it would be appropriate to deduct those amounts in calculating the final distributions of surplus assets to the contributories of the company. I note, however, as counsel for [NAME] pointed out, that the actual amounts of the final distributions will have to be adjusted to take into account interest and the liquidator's costs. 8 In the interlocutory process, paras 3 and 4, [NAME] sought orders under s 1321 of the Corporations Act, directing the liquidator not to deduct the First and [NAME] from the funds distributed in the winding up. Section 1321 allows a person aggrieved by an act, omission or decision of [relevantly] a liquidator to appeal to the court. It was submitted on behalf of [NAME] at the hearing that he had made no relevant decision, and consequently s 1321 was not available. In my opinion it is plain on the facts before me, to which I shall refer below, that [NAME] prepared a plan of distribution as at 19 July 2005, but he did not act on the plan because he received a threatening letter from [NAME] and then the matter came to be subject to the present litigation. At the hearing senior counsel for [NAME] accepted that this was so and informed me that his client did not move on paras 3 and 4. Scope of ss 511(1)(a) and 511(2) 9 [NAME] seeks a binding determination of the question whether the First and [NAME] are owing and whether, accordingly, the liquidator should or should not deduct those amounts from the final distribution to [NAME]. In the interlocutory process, [NAME] also sought determinations of these matters under s 511(1)(a). But in the written submissions made on his behalf just prior to the commencement of the hearing, senior counsel for [NAME] submitted that a proceeding brought by a contributory under s 511 is not an appropriate vehicle for resolution of such a dispute. In his oral submissions, senior counsel for [NAME] explained that while he conceded that the court has the power to determine whether [NAME] owes the First and [NAME] to the company, it is not appropriate or useful to do so. But this was a preliminary submission and his primary submission was that the court should make a determination under s 511(1(a) in accordance with para 5 of the interlocutory process, that is a determination that [NAME] does not owe [NAME] the First and [NAME] or interest on those amounts. 10 In my view it is appropriate to rely on s 511(1)(a), in conjunction with s 511(2), to determine whether the First and [NAME] are owing, in the particular circumstances of the present case. Senior counsel for [NAME] sought to distinguish s 511, which applies in the case of a members' or creditors' voluntary winding up, from s 479(3), the power of a liquidator to seek the court's directions in a winding up by the court. He noted that s 511(1)(a) allows the court to "determine any question" arising in the winding up, suggesting the binding determination of the rights of the parties, whereas s 479(3) simply allows the court to give directions. He also noted that while s 479(3) is available only to the liquidator, s 511(1) can be invoked not only by the liquidator but also by any contributory or creditor. He submitted therefore that s 511(1) is wider in scope that s 479(3), referring to [NAME] v [NAME] (1997) 42 NSWLR 209, a case also cited of behalf of [NAME]. 11 I find it unnecessary to decide, in the present case, whether s 511 allows the court to grant relief in circumstances where that relief would not be available under s 479(3). In my opinion, if there had been a court-ordered winding up, the court could have dealt with the matters raised in this proceeding in an application by the liquidator under s 479(3), for a direction that he would be justified in making the final distribution to the contributories on a basis reflecting whether the First and [NAME] were all one of owing. Therefore, a fortiori, the court may make a determination of the dispute under s 511(1)(a). 12 In New South Wales the leading case on the scope of s 479(3) and the circumstances where it is appropriate for the court to give directions is Re [COMPANY] (in liq) (1991) 5 ACSR 673. There McLelland J observed (at 678) that s 479(3) does not enable the court to make binding orders in the nature of judgments, and that the function of a liquidator's application for directions is to give him advice as to his proper course of action in the liquidation rather than to determine the rights and liabilities arising from the company's transactions before the liquidation. However, he continued (at 678-9): "It should be observed that there are instances where a court has, in proceedings commenced as a liquidator's application for directions, gone on to make orders declaratory of substantive rights, clearly intended to be of binding effect on the parties to the proceedings …. The procedures of the court are sufficiently flexible to enable proceedings commenced as an application for directions to be changed into proceedings for the determination of substantive rights, and this is sometimes a convenient course in order to avoid the need to commence further proceedings involving additional cost and delay …. However it is important that the distinction between the two kinds of proceedings be not lost sight of or blurred, and such a fundamental change should not be permitted unless the court is satisfied that those affected either consent to that course …, or will not suffer injustice in consequence of the alteration to the status of the proceedings." 13 The present case never was an application by a liquidator for directions. It always was the other kind of case referred to by his Honour. His Honour's observations confirm that even under s 479(3), an application for relief of the kind sought in the present case can be entertained, provided that the issues arise in the context of a liquidator's application. Given the terms of s 511(1), the proviso need not be satisfied in an application under s 511. The question is whether this is the kind of case in which a court, acting under s 479(3), would allow a substantive determination of rights to occur. 14 In my view this is just such a case. Here, the liquidator and the affected parties are all before the court. Although it cannot be said that the parties have consented to having their dispute resolved under the section, the two principal protagonists have proceeded, until just before the hearing, on the basis that s 511 was the appropriate source of jurisdiction to resolve their dispute, and the costs of preparation of the hearing were incurred accordingly. Indeed, [NAME]'s interlocutory process is inconsistent with his submission that the hearing that the court should not proceed under s 511. The issue to be determined was presented to the court by affidavit and documentary evidence without any cross-examination of witnesses. The court is not, therefore, required to resolve matters of credit of witnesses. Although some questions of fact are contested, the primary issues relate to the proper construction of their documents and minutes of an alleged agreement in light of admissible evidence of the surrounding circumstances. Perhaps most importantly, if the court were to decide that it is inappropriate to resolve the dispute under s 511, after hearing full argument, it would be sending them away without the "just and beneficial" exercise of the power that s 511(2) contemplates. Facts to February 2001 15 [NAME] and [NAME] are the children of [NAME] (who died in 1985), and [NAME] (who died in 1997). [NAME] is a family company established by the late [NAME] and now owned in equal shareholdings by [NAME] and [NAME]. The constitution of the company divides the shares into several classes of cumulative preference and ordinary shares but the effect of clause 152(b) of the constitution is that surplus assets on winding up are to be distributed amongst the members in proportion to their capital contributions at the commencement of the winding up. The capital contributions of the shareholders, as such, are equal. 16 In about 1972 [NAME] acquired about 48 ha of land at [NAME], about 75 km west of Sydney. The land, referred to as "[NAME]", was subdivided into 13 lots in January 2000. By the time of the hearing, all lots had been sold and the assets of [NAME] are cash in bank accounts. However by September 2001 only three lots had been sold, and [NAME] estimated that the value of the remaining 10 lots was approximately $4.58 million. 17 In about 1996 [NAME] and his family moved in with his mother, [NAME], who was at that time living in a house on Lot 102 in the [NAME]. [NAME] later claimed that [NAME] moved after his business failed and he was forced to sell his home at [NAME]. [NAME] asserts that he moved to [NAME] under the terms of an oral agreement he made with his mother and sister on 22 and 23 January 1993, according to which he would renovate the house on Lot 103 and live with his mother while the renovations took place, and work full-time to supervise the subdivision and orderly realisation of the assets of [NAME], and would draw a reasonable amount from the company's account for living expenses and outgoings. 18 [NAME] and his family moved in with his mother in January 1996, and [NAME] supervised renovations of the house on Lot 103. He moved into the renovated house with his family in September 1996. He ran the affairs of [NAME] from the location. According to [NAME]'s evidence, there were problems with the subdivision including dealing with an action group of local residents, a council moratorium on subdivisions, difficulties with the relevant water authority in litigation with contractors. He said he was paid a monthly sum by [NAME] for managing its affairs, together with rent-free occupation of the house, the use of a motor vehicle and part of the expense of running another motor vehicle, outgoings in relation to the house, and petty cash. 19 Between 1996 and 1999 [NAME] kept [NAME]'s books and made financial records, which she handed over from time to time to the company's accountants, [NAME]. The arrangements obviously created the potential for financial disputes, with [NAME] drawing money from the company without any clearly defined arrangements, and [NAME] keeping financial records. 20 At that time the company's accountants were [NAME]. According to the evidence of [NAME] entered accounting data into [NAME]'s cash book and delivered to him each year, and then [NAME]'s accounts were prepared under his supervision and provided to the directors for review and signature. 21 [NAME] and [NAME] entered into an agreement on 29 November 1998, after their mother died, relating to the adjustment of their respective rights in their mother's estate and the funding of an option for [NAME] to purchase Lot 105 of the [NAME] subdivision. [NAME] later alleged that the agreement was unconscionable and that she signed it without proper legal advice. 22 Sometime in late 1999 or early 2000, when [NAME] and [NAME] were reviewing the draft accounts for the 1999 financial year, [NAME] protested that his [NAME] account had been debited for various matters that, according to his arrangements, should have been paid by the company. [NAME] credited [NAME]'s [NAME] account and debited the subdivision expense account (or, in one case, retained profits) for various items relating to private use of a motor vehicle, insurance payments, company telephone expenses, directors fees, rent and payment to Pest Control. Some of these matters have become controversial. I note, in particular, that one of the credits to the [NAME] account was for directors fees of $58,400. 23 Late in 1999 [NAME] retained an accountant to advise her with respect to [NAME]. She claimed that she did so at the suggestion of [NAME], but that he prevented the accountant from obtaining access to information about the company. [NAME] complained that there had been no sales of lots in the subdivision for many months after subdivision approval, and alleged that she was not consulted about the affairs of the company and was not able to gain access to information necessary to understand what was happening about the sale of the lots. 24 In February 2001, [NAME]'s solicitor informed [NAME] that she had been removed as a director of [NAME] and that [NAME] had been appointed in her place. According to [NAME], on the same day [NAME] withdrew approximately $350,000 from [NAME]'s bank account and placed it in a term deposit in the name of the company, controlled by him. She says that on the same day he withdrew $15,000 from [NAME]'s cheque account and deposited it into an account of the company, also controlled by him. The 2001 proceeding 25 On 1 March 2001 [NAME] commenced a proceeding by originating process in the Equity Division of this Court (No 1625 of 2001) against [NAME] and [NAME]. She sought relief on the oppression ground, including an order that [NAME] purchase her interest and that there be an appropriate reduction in share capital, or a winding up order. She also sought a declaration that [NAME] was not a director and an injunction to restrain the defendants from acting as if she was no longer a director. 26 [NAME] alleged oppression arising out of her brother's closing of the company's bank account and exclusion of her from the management of the company. She alleged that she had not been informed of legal proceedings taken against the company in which judgment had been entered, and that the company was under threat of winding up. 27 On 20 August 2001 [NAME] filed a cross-claim in the 2001 proceeding, asserting two causes of action. 28 The first cause of action alleged an agreement made on 23 January 1993 between [NAME] and their mother, [NAME]. According to the cross-claim, it was agreed that [NAME] and his family would leave their existing home and relocate at the [NAME] property owned by [NAME]. [NAME] would sell [NAME] part of the land (referred to as "Lot 105"), and [NAME] would renovate the property and reside in it, and supervise the realisation of the assets of [NAME] with a view to the orderly liquidation of the company. Part of the realisation of the assets was to involve the subdivision of the [NAME] land. [NAME] said it was agreed that he would set aside his existing business activities and devote himself full-time to the supervision of the orderly realisation of the assets of [NAME], and that he would draw a reasonable sum for living expenses from the account of [NAME], as well as car expenses and other out-of-pocket expenses, generally at the rate that [NAME] was withdrawing at the time for her living expenses. [NAME] claimed that he performed and acted in reliance on this agreement but [NAME] later repudiated it. 29 In the [NAME] cause of action, [NAME] alleged an agreement, partly in writing dated 29 November 1998, between him and [NAME]. He said that for the purpose of adjusting their respective rights in the assets of the estate of their deceased mother [NAME] and [NAME] agreed to the value of a property at Bilgola that had passed to [NAME] under [NAME]'s will. [NAME] was to have an option to purchase Lot 105 from the company, under funding arrangements which involved [NAME] repaying money owed by it to the estate of [NAME] on [NAME] account, and the estate in turn make the money available to [NAME], to whom [NAME] had been indebted. [NAME] claimed that [NAME] repudiated the agreement. 30 [NAME] made various claims against [NAME] for amounts said to be owing to him, or him and his wife, or one of his associated companies ([COMPANY] and [COMPANY]), particularised in a series of "invoices" dated 14 August 2001 but relating to work alleged to have been done at various times going back to February 1990. The invoices were tendered (Exhibit D2). The total amount claimed is $532,372.75. These invoices were not recorded so as to be reflected in any of the company's financial statements, presumably because they were regarded as released as a result of the mediation. Mediation before [NAME], the Heads of Agreement and the Facilitating Deed 31 On 25 September 2001 a mediation was held in respect of the 2001 proceeding. The mediator was [NAME]. The mediation was attended by: · [NAME], her junior counsel and solicitor and forensic accountant; · [NAME], his solicitor and senior and junior counsel; · the respective spouses of [NAME] and [NAME], and [NAME]'s son; and · [NAME], a defendant in the 2001 proceeding and at that time a director of the company. 32 The mediation resulted in "Heads of Agreement" being entered into, and subsequently, a Facilitating Deed dated 6 December 2001 was executed.

The Heads of Agreement 33 The Heads of Agreement were expressed to have immediate effect. They were manually recorded during the course of the mediation by three separate persons, namely [NAME]'s solicitor, [NAME]'s solicitor, and [NAME]'s son. There is an agreed typescript in Exhibit D1. 34 According to those records, agreement was reached on matters including: · [NAME]'s acquisition of Lot 103 in the [NAME]; · funding arrangements in connection with his legacy from his late mother's estate and by debit to his [NAME] account; · arrangements for the governance of [NAME]; · termination of the agreement of 29 November 1998 with respect to Lot 105; · the dismissal of the equity proceeding and cross-claim; and · [NAME] and [NAME] to be declared directors of the company. 35 There is evidence, not contested, that the commercial agreement underlying the Heads of Agreement involved [NAME] agreeing to release [NAME] from claims in return for the transfer to him of Lot 103 at a favourable price which included an allowance of $185,000 for the work he had done over the period of the subdivision and an allowance of $20,000 for the cost of work to be done to split the amenities then servicing Lots 102 and 103. 36 The three handwritten versions are in substantial conformity that the following provisions were contained in the Heads of Agreement: "14. [[NAME]] and [[NAME]] of the one part and [[NAME]] of the other part to mutually release each other and [NAME] by Deed in relation to the subject matter of the proceedings other than as covered in these Heads of Agreement.

15. The [NAME] companies and interests referred to in the Related Party Invoices to release [NAME] in respect thereof".

The Facilitating Deed 37 The Heads of Agreement contemplated that the parties would later execute a formal deed. An instrument called the "Facilitating Deed" was executed on 6 December 2001. The parties are [NAME] and [NAME]'s two companies, [NAME] and [NAME]. 38 The recitals to the deed noted the equity proceeding and the cross-claim, and that [NAME], his two companies and [NAME] claimed that [NAME] was indebted to them for services provided, work done and materials supplied. It was decided that all issues, disputes and differences arising in the equity proceeding and the cross-claim between [NAME] and [NAME]'s two companies had been mediated before [NAME], and that the deed recorded the agreement reached between them at the mediation. 39 The terms of the Deed include provision for the following matters: · [NAME] and [NAME] to be appointed directors of [NAME] and [NAME] to retire as a director; · the constitution of [NAME] to be amended so as to provide, in effect, for the entrenchment of [NAME] as the chairman of directors for the ensuing three years or until winding up; · [NAME] to be the sole signatory of [NAME]'s bank accounts; · [NAME] to transfer Lot 103 to [NAME] for a price to be satisfied by [NAME]'s pecuniary legacy in his mother's estate, a debit of $152,500 to [NAME]'s credit [NAME] account in [NAME], and an advance by [NAME] to [NAME] of $117,750 repayable by 31 October 2003 and bearing interest in the meantime (eventually recorded in a debit [NAME] account of [NAME]); · the agreement dated 29 November 1998 relating to Lot 105 was set aside; · the equity proceeding and cross-claim were to be dismissed. 40 Clause 4 of the Deed provides: "Without limiting the powers otherwise conferred upon [NAME] by the Constitution of [NAME] and these presents, his functions shall include acting in the best interests of [NAME] in: 4.1 resolving disputes between [NAME] and [NAME] in relation to [NAME], the interpretation of the Heads of Agreement bearing date 25 September 2001 and the interpretation of this Deed; 4.2 concluding litigation with contractors; 4.3 management and completion of subdivisional matters; 4.4 financial and statutory returns." 41 Clause 10 of the Deed is as follows: "[NAME] and [NAME] mutually release each other, their employees, agents and assigns from all actions, suits, causes of actions, claims and demands whatsoever which any of them now has against [NAME] and/or any one or more of the others, their employees, agents or assigns and from all liability arising from or relating in any way to the Proceedings or the Cross Claim save that this clause does not release any [NAME] account as finally determined (without double counting of any item referred to in the Cross Claim)." Events after the mediation, to [NAME]'s retainer 42 [NAME] became chairman of directors pursuant to the provisions of the Facilitating Deed. [NAME] gave evidence that in early 2002, [NAME] instructed him to complete the financial statements for the financial years 1999, 2000 and 2001 and to incorporate the effects of the Facilitating Deed and Heads of Agreement into the 2001 accounts, notwithstanding that the documents were entered into after 30 [NAME] 2001. On 25 March 2002 [NAME] sent the 30 [NAME] 2001 draft financial statements to [NAME]. He said in his covering e-mail that he had incorporated the effects of the Facilitating Deed and Heads of Agreement as he understood them. He attached the journal entries arising out of implementing those agreements. One of them was as follows: "Jnl 20 write off to subdivision costs of debit [NAME] account in accordance with the facilitating Deed and Heads of Agreement." That referred to the debit in [NAME]'s [NAME] account of $39,734.05. 43 Disputes continued between [NAME] and [NAME] (for example, in [NAME]'s letter to [NAME] of 15 March 2002). On 13 [NAME] 2002 he wrote to [NAME] and [NAME] after having received correspondence from their respective lawyers. He provided them with an update on various matters, including litigation and the financial position of the company. He pointed out that fees were being incurred because of continuing disputes between the shareholders, and that in order to bring some of those disputes to a conclusion, he had made certain determinations after conferring with the mediator and others. He continued: "I also determined that the journal entries required as a result of the mediation agreement will be put through by the company's long-standing accountants [[NAME]] in the normal manner as they determine." 44 On 12 May 2003 [NAME]'s accountant, wrote a report directed to her solicitors. The purpose of the report was to indicate his opinion on the "current position in regard to the treatment of the disputed items of expenditure in the financial records of [NAME] and the amendments still to be made". According to [NAME], the financial statements for the 1999, 2000 and 2001 financial years were to be adjusted to remove disputed amounts prior to signature by the directors. Apparently his opinion was formed on the basis of his interpretation of the releases in the Heads of Agreement and the Facilitating Deed. 45 His report attached a schedule, which summarised the disputed transactions. Apart from matters no longer in dispute, the summary referred to the following: (a) $10,800 in 1998 for "directors fees" for [NAME], credited to [NAME]'s [NAME] account and debited to subdivision costs, and not adjusted in any financial statements. [NAME] said the charge should be reversed in 1999. He described the proposed reversal as "reversal of unauthorised directors remuneration". (b) $58,400 in 1999 for "director's remuneration for the years 1996, 1997, 1998 and 1999", debited to subdivision costs and credited to [NAME]'s [NAME] account, and not adjusted in any financial statements. [NAME] said the charge should be reversed in the 1999 financial statements, again describing the reversal as "reversal of unauthorised directors remuneration". (c) $600 in 2000 for "director's remuneration", debited to subdivision costs and credited to [NAME]'s [NAME] account, and not adjusted in any financial statements. [NAME] said that the charge should be reversed in the 2000 financial statements, as "reversal of unauthorised directors remuneration". (d) $16,800 in 2000, said to represent: payments made to [NAME] and charged to subdivision costs $14,400; $2200 charged to subdivision costs and credited as to $1800 to director's salary and $400 to [NAME]'s [NAME] account; and $200 charged to subdivision costs and credited to [NAME]'s [NAME] account. [NAME] said the $400 and $200 corresponded with the $600 noted at (c). As to the remainder, he said that if the entry were adjusted then subdivision costs would be credited $16,200 and [NAME]'s [NAME] account would be debited $16,200, which he described as "allocation of payments made to [NAME]". (e) $16,082 in 2001, said to represent payments made to [NAME], being 7 payments of $1200, 2 payments of $1201, one of $480 and 8 of $400, adding up to $14,482. There were also 8 payments of $200 made to [NAME] adding up to $1600. [NAME] said adjustments for those payments had not been made. He said the required entry would be to credit subdivision costs $4882, credit hire charges $3200 and debit [NAME]'s [NAME] account $16,082, which he described as "allocation of payments made to [NAME]". 46 The total debit to [NAME]'s [NAME] account recommended by [NAME] in (a) to (e) above was $102,082. In addition, the report said that as of [NAME] 2001, an amount of $39,734.05 was credited to [NAME]'s [NAME] account and debited to subdivision costs. This is the amount referred to in [NAME]'s affidavit, as noted at (i) above. According to [NAME], that amount represented the balance of [NAME]'s [NAME] and amounted to the writing off of a balance due from [NAME] to [NAME]. He said that in his view, the transfer was contrary to the terms of the mediation agreement and the write-off was incorrect. 47 At some stage in 2003 [NAME] proposed to the shareholders that they give consideration to a voluntary winding up of [NAME]. On 27 May 2003 [NAME]'s solicitors wrote to him saying that she would consent to winding up only if agreement was reached between her and [NAME] "as to the appropriate adjustments to be made on the company [NAME] account of the parties". The letter enclosed [NAME]' report. 48 There was a meeting of the directors of [NAME] on 28 May 2003. According to the minutes [NAME] objected to the contents of the letter as having been dealt with under [NAME]'s authority. [NAME] said that his determinations had been made and previously notified to members. There followed a heated discussion about [NAME]'s winding up proposal and the meeting was adjourned. 49 At the adjournment of the directors' meeting on 25 [NAME] 2003 [NAME] presented an "Executive Chairman's Report" to the directors. In that report he referred to his letter of 13 [NAME] 2002, noted above, saying that he had made determinations in relation to the [NAME] accounts of the two shareholders. There was further discussion at the meeting about voluntary winding up in one of the solicitors for the company suggested that a sum of money be retained until final distribution to allow [NAME] to re-examine the accuracy of the [NAME] accounts prepared by the company's accountants in accordance with [NAME]'s determination. According to the minutes, the board resolved to pursue this solution. 50 At a board meeting held on 10 December 2003, not attended by [NAME], it was resolved, on the motion of [NAME], that his debt to the company together with interest at the rate of 6.8% per annum be payable on the date of the forthcoming distribution to the shareholders. [NAME] as chairman noted that he had given [NAME] time to make further submissions about the shareholders' [NAME] accounts, the deadline expiring on that day. 51 At a board meeting on 4 February 2004, not attended by [NAME] tabled his report headed "Determination in regard to disputes over shareholders [NAME] accounts February 2004". In that document he referred to various discussions he had had with the parties and their legal representatives, with a view to ascertaining the meaning of the releases in the Heads of Agreement and Facilitating Deed. He made a number of determinations, which he described as final and in conclusion of the matters determined. He referred to [NAME]'s debit [NAME] account of $39,734.05, which [NAME] had reallocated to subdivision costs in the year to [NAME] 2001. He noted that this [NAME] account had not been specifically mentioned in the Facilitating Deed and Heads of Agreement and made the determination that the [NAME] account should have remained unchanged by the signing of the Deed and Heads of Agreement, and therefore the entry reallocating the [NAME] account to subdivision costs should be reversed, leaving the balance of the [NAME] account repayable by [NAME]. He referred to the "discount" given to [NAME] in the mediation, on the acquisition by him of Lot 103, and expressed the view that if this was intended to be in full satisfaction of all services provided by [NAME] for the subdivision (including unpaid invoices and earlier payments) it is most likely that the Heads of Agreement and the Facilitating Deed would have said so. 52 [NAME] indicated at the meeting that he would take advice on the content of [NAME]'s report. 53 On 26 March 2004 [NAME]'s firm wrote to [NAME] querying the five entries that had not been reversed, relating to [NAME]'s remuneration and reimbursement of associated entities. [NAME] replied on 29 March 2004, saying: "I confirm that as the Facilitation Deed dated December 2001 was not clear in relation to the treatment of reimbursements and remuneration to [NAME] and his associated entities these payments were regarded as reasonably incurred costs relating to the subdivision." 54 On 30 March 2004 [NAME], the company's solicitor, wrote to [NAME]'s solicitor canvassing various matters, including the [NAME] accounts. He said: "To put this matter beyond [doubt] [NAME] has raised, once again, the issue of the reversal and non reversal of certain accounting entries with [NAME]. [NAME] have now advised, inter alia, that in preparation of the accounts all relevant matters contained in the Facilitating Deed were considered. In the circumstances, [NAME] advises that there is no basis for any further amendment to his determination." 55 At a board meeting on 31 March 2004, attended by all directors, [NAME] read [NAME]'s letter of 29 March to the meeting. He then said that [NAME]'s query had been answered and he could not take the matter further. The meeting approved the company's accounts up to 2003 and that [NAME]'s request, agreed to make any adjustments the chairman might find to be necessary to the 2004 accounts. 56 On 5 April 2004 [NAME] and [NAME] signed the directors' declaration for the financial statements of [NAME] for the financial years 1999, 2000, 2001, 2002 and 2003. The accounts up to the 2001 year were prepared by [NAME] and the accounts for 2002 and 2003 were prepared by [NAME]'s firm. [NAME]'s [NAME] account recorded his borrowing of $117,750 for the acquisition of Lot 103, and interest. They did not reflect [NAME]'s determination to reverse the writing off of $39,734.05, presumably because the determination occurred after the end of the 2003 financial year. Nor did they reflect any of the reversals recommended by [NAME] of the amounts for [NAME]'s remuneration and reimbursement of his related companies. [NAME] gave evidence that she agreed to the lodgment of the financial statements for the years from 1999 to 2003 on the proviso that any adjustments to the accounts could and would be made in the year ended 30 [NAME] 2004. 57 The directors met again on 19 May 2004. It appears that by that time [NAME], acting on behalf of the company, had obtained a draft advice from [NAME]. The draft is not in evidence but it appears to have addressed alternative means of putting the assets in the hands of the shareholders, without a winding up. According to the minutes, [NAME] insisted that the company had to be wound up; and that was taken by [NAME] as agreement to the proposed members voluntary winding up. But [NAME]'s evidence is that she made it plain that she would not agree to the company being placed into liquidation until the [NAME] accounts had been dealt with in accordance with the [NAME]' report. 58 [NAME] claimed at the meeting that the company owed her $275,000 for bookkeeping over a seven-year period, but she said she would accept $125,000. [NAME] asked why this claim was not dealt with at the mediation and there was further argument. As to that point, [NAME] has provided evidence indicating that her invoice for her original claim, for $250,000 plus GST, was issued prior to the mediation but it was not referred to in the mediation documents. 59 On 25 May 2004 [NAME] sent a facsimile to [NAME] asking him whether clause 10 of the Facilitating Deed released [NAME] from any obligation to meet [NAME]'s claim to $125,000. 60 On 26 May 2004 there was another meeting of the directors, which rejected the suggested alternatives to liquidation. [NAME] put forward resolutions for the company to recommence business, to consider restructuring the board and management, and to create a business plan. Those motions were deferred. 61 [NAME] invited [NAME] to provide advice in response to his letter of 25 May. [NAME] said that he was waiting on advice from [NAME] and a comment from [NAME]'s solicitor. According to the minutes: "After discussion, the meeting agreed that [NAME]'s advice be sought in connection with the legal interpretation of the documents associated with the mediation outcome being joined together with the validity of the claims of [NAME]." The minutes record that [NAME], supported by [NAME], proposed to draft an agreement for signature by each party in order to finalise the proposed undertaking and make it binding on the participants, before any meeting with [NAME]. It was agreed that the directors would be able to meet with [NAME] separately. The retainer of [NAME] 62 On 26 May 2004 [NAME], the solicitor for the company, sent an e-mail to [NAME] seeking advice. He referred to [NAME]'s claim for bookkeeping fees, and explained that [NAME] had sought clarification as to whether [NAME]'s claim had been extinguished by clause 10 of the Facilitating Deed. [NAME]'s solicitor had asserted that if [NAME]'s claim could not be made, then payments or entries previously credited to [NAME] would have to be reversed. [NAME]'s advice was sought on these matters. 63 [NAME] referred to a board resolution on that day, that all matters relating to the resolution of [NAME] account disputes be referred to [NAME] for his opinion, having regard to the terms of the various agreements of the parties and as to the legitimacy of the claims. [NAME] said: "The parties have agreed that your opinion in relation to the matters in dispute will be final and binding upon them." He said the board also resolved that each of the relevant parties, namely [NAME] and [NAME] (as chairman of the company) be permitted to independently put their point of view to [NAME] regarding the questions to be answered. It will be noted that [NAME]'s account of the directors' decision to instruct [NAME] is different from the account in the minutes. I infer from the correspondence that the minutes were prepared by [NAME] after he had read [NAME]'s e-mail. 64 [NAME] also sought the advice of [NAME] on whether [NAME] was permitted, having regard to the terms of his appointment and the Facilitating Deed, to vote as a director on a proposal by [NAME] to permit the company to continue to trade and to invest its funds, rather than to proceed to winding up. 65 [NAME] sent [NAME] a copy of his e-mail to [NAME]. [NAME] replied by facsimile that evening. He referred to the motions he had put to the meeting of directors that day, and noted that no votes had been taken on them, and then he said: "It would be premature, in the circumstances, to action any part of any resolution at this time including, of course, the proposal involving [NAME] SC in respect of [NAME] account issues." 66 On 9 [NAME] 2004 [NAME] sent another facsimile to [NAME], enclosing the minutes of the meeting of 26 May and saying: "Since I do not agree to being involved with a quasi-arbitration or '[ADDRESS]' as explained to you this morning, I would not agree to [NAME] being involved other than to provide advice to the Company on points of law." After noting that he was not present at the time of the negotiations in the mediation, he continued: "I therefore could not be exposed to, or bound by, such an undertaking since I would be unable to make or defend my position through [NAME] by providing direct evidence to the negotiations." 67 [NAME] and [NAME] made submissions to [NAME]. [NAME] was unable to attend [NAME] but he communicated by facsimile. [NAME]'s written advice, undated but bearing a facsimile imprint with the date 23 August 2004, was tabled at the directors' meeting on 25 August 2004. He concluded, for reasons considered below, that all "related party claims" were released by clause 10 of the Facilitating Deed, whether recorded or not. The principal impact of that conclusion was on [NAME], for it meant that [NAME]' view that the remuneration and reimbursement claims should be reversed and consequently [NAME]'s [NAME] account should be debited with $102,082, was correct. On the other hand, [NAME]'s advice arguably did not disturb [NAME]'s determination as chairman with respect to the $39,734.05. 68 By letter dated 24 August 2004, [NAME] wrote to [NAME] contending that [NAME]'s advice had not focused on the exact wording of clause 10, and that he had not examined the cost claim in the 2001 proceeding. The letter asserted that no part of the monies credited to [NAME]'s [NAME] account should be reversed. 69 On 25 August 2004 [NAME] sent a memorandum to [NAME] and [NAME] saying that he had received a letter from [NAME] and had referred to [NAME], and he said he would wait for [NAME]'s final advice before deciding how the [NAME] account should be finalised. He argued that this should not preclude the company from proceeding into liquidation because it would then be possible to pay an immediate distribution pending receipt of [NAME]'s review. 70 The evidence includes minutes of a meeting of the directors of [NAME] on 25 August 2004, signed by [NAME] as chairman. Whereas previous minutes had been prepared by [NAME], the minutes of this meeting were prepared by [NAME], employed as an accountant with [NAME]'s firm. Under the heading, "Approval of Previous Minutes", it is recorded that [NAME] tabled the minutes of the previous meeting held on 26 May 2004 (wrongly recorded as 24 May), and that [NAME] did not agree with the content of the minutes as drafted. Then the following appears in the minutes: "[NAME] requested the following be added to the previous minutes: 'it was decided between all of the directors to appoint [NAME] to be an independent person to look at each person's submission and to give advice as to his views as to the treatment of the shareholders' [NAME] accounts which would be final and binding on all parties.' The resolution was carried unanimously." 71 At the meeting on 25 August 2004, [NAME] recommended, after discussion and [NAME]'s advice, that the directors resolved to consider the placing the company in liquidation. [NAME] opposed this course, saying she wanted to see the company accounts before making a decision. However, a declaration of solvency, for the purposes of winding up, was put to the directors and carried by [NAME] and [NAME] abstaining. Then a resolution was carried in the same way, for convening an extraordinary general meeting of members to be held on 22 September 2004, to consider a resolution that the company be wound up. [NAME] tabled a consent to act as liquidator. 72 [NAME] gave evidence that she took handwritten notes of all matters discussed at the meeting and afterwards, typed up her notes into formal minutes which she supplied to [NAME] for review. [NAME] signed the minute she distributed them to the directors, keeping a copy of the signed minutes on file. Her handwritten notes, annexed to her affidavit, correspond closely to the minutes in their final form, except that instead of recording that the resolution was carried unanimously, they say "both parties agreed to the above". 73 In his affidavit [NAME] said that [NAME]'s statement about the decision at the May meeting was not proposed as a resolution of directors and was not put to a vote. He also said that it was incorrect to record that the statement was carried unanimously as a resolution, because no vote was taken. In my opinion it does not matter much whether there was a vote, if the parties agreed that the statement was correct. According to [NAME]'s handwritten notes, there was agreement. Significantly, [NAME] did not say in his affidavit that he disagreed with [NAME]'s account of the decision at the May meeting. [NAME] said that the minutes were not accepted any subsequent meeting, but the copy of the minutes of 25 August 2004 that is in evidence has been confirmed by the signature of [NAME] as chairperson. 74 [NAME]'s account corresponds in its essential terms with [NAME]'s e-mail of 26 May to [NAME], that the parties agreed that [NAME]'s opinion would be final and binding (although he was drafting a letter of agreement to "formalise" that aspect). Reacting to [NAME]'s e-mail on the same day, [NAME] did not protest that there had been no agreement that [NAME]'s opinion would be binding, but only that it would be premature to involve [NAME] until the other issues he had raised at the meeting were resolved. His facsimile of 9 [NAME] 2004 indicates that by that stage he regarded the arrangement as a "[ADDRESS]", but that was after the event. 75 In all the circumstances, my conclusion is that [NAME] and [NAME] reached agreement at the 26 May meeting that [NAME]'s opinion would be final and binding, as recorded in [NAME]'s minutes. To the extent that the original minutes of the meeting, prepared by [NAME], are inconsistent with that conclusion, those minutes are wrong. Although a document was contemplated to "formalise" the agreement, it is plain from [NAME]'s e-mail that he regarded himself as authorised to approach [NAME] immediately, and his conduct in writing the e-mail implies that as an observer of the directors' decision, he regarded the arrangements reached by the directors as immediately binding on them, notwithstanding that no formal agreement had been drafted. In these circumstances my opinion is that the decision that [NAME]'s determination would be final and binding was an immediately binding commitment by the directors. 76 [NAME] provided a written further advice dated 15 September 2004. In this advice (considered further below) he reviewed submissions of the parties and statements he had received from the persons who are present at the mediation. Having reviewed those materials, he reaffirmed his initial opinion. [NAME]'s advice 77 In his first advice, [NAME] made points about clause 10 of the Deed which I shall summarise in my own words as follows: (1) Clause 10 states that the parties mutually release each other from claims against [NAME] and any of the others. As a matter of construction, this includes a release by each party of that party's claims against [NAME]. (2) The disputed items in the schedule to [NAME]' report of May 2003 (the items adding up to $102,082) were items that had been recorded by crediting his debit [NAME] account and debiting some other accounts such as subdivision expenses ("recorded claims"). The effect of a release of those claims by the Deed would be that the credits to the [NAME] account would be reversed and [NAME]'s indebtedness to the company would be increased. (3) Clause 10 released the company from its liability to meet [NAME]'s invoice for $275,000 and the clause released the company from its liability to meet [NAME]'s invoices totalling $532,372.75 ("the disputed invoices"). This is presumably on the basis that [NAME] and their companies were all releasing parties under clause 10, and as a matter of construction they released [NAME] from liability for any claims etc they might have against it. (4) As to whether clause 10 released the "recorded claims": (a) clause 10 expands on the two clauses in the Heads of Agreement and telescopes them into one clause, adding a new element reserving any [NAME] account as finally determined without double counting; (b) [NAME] received inconsistent statements as to the intended scope of the release, supplied by some of those who were at the mediation, specifically as to whether the "discount" of $185,000 on Lot 103 was intended to be in compensation for remuneration in respect of subdivision work; that is [NAME]'s disputed invoices ("the [NAME] view"), or all remuneration including recorded claims ("the [NAME] view"); (c) under the mediated commercial arrangements, the company was recognising [NAME]'s subdivision work by transferring Lot 103 to him at a "discount" of $185,000, thereby effectively incurring a cost by forgoing revenue on the sale of that property, and there would be "double counting" (that is, [NAME] would be remunerated twice for the same work) to the extent that it had already recorded in its books, as expenses of the subdivision, remuneration to [NAME]; (d) if the [NAME] view were accepted, so that clause 10 operated to release the company from "recorded claims" by [NAME] for remuneration in respect of the subdivision, then the application of clause 10 would lead the company to reverse those journal entries, and consequently increase [NAME]'s indebtedness to the company, and so the "double counting" referred to at (c) above would be avoided; (e) if the [NAME] view were accepted, so that clause 10 only released the disputed invoices, no double counting of the kind noted at (c) above could arise; (f) consequently, the [NAME] view provides a sensible field of operation for the proviso to clause 10, but on the [NAME] view the purpose of the proviso is inexplicable and it is otiose; (g) in further support of the [NAME] view, if the intention of the drafter of clause 10 was merely to release the "disputed" invoices of both parties, that could have been very simply expressed, by the use of significantly different words; (h) the fact that a company has recognised a claim, by accounting for it, is not inconsistent with the idea that the company may negotiate for the release of that claim, since the released claim can be reversed out; (i) it follows the clause 10 operates to release all related party claims, whether recorded or not. 78 In their letter of 24 August 2004, [NAME] criticised this reasoning on the ground that the proviso about double counting related to items referred to in the cross-claim, and they asserted that [NAME] did not examine the cross-claim. However, the first cause of action in the cross-claim relied on the alleged agreement between [NAME] and [NAME] and their mother in January 2003, under which, according to [NAME], he was entitled to remuneration and expenses with respect to the subdivision. It is a fair inference that he would seek to justify his entitlement to the remuneration and expenses that have been credited to his [NAME] account by reference to that agreement, as well as the disputed invoices. In my view there is no substance to this criticism. [NAME] said that [NAME] was properly concerned to ensure that there was no item which [NAME] was "giving up" as part of the commercial settlement, which had already been credited to his account. But if the "giving up" related only to the disputed invoices, it is hard to see how any crediting could already have occurred. That is [NAME]'s point, as I understand it. 79 [NAME]'s reasoning in his first advice seems to be directed towards what I have called "the disputed invoices" of both [NAME] and [NAME], and the "recorded claims" relating to remuneration and expenses of the subdivision, the disputed amount which is now $102,682. He referred to the amount of $39,269 (presumably this is the same as the $39,734.05 now disputed), but it is not clear to me whether he reached a conclusion as to the application of clause 10 to that amount. The evidence before me now indicates that [NAME] claimed that that amount should be written off because he was entitled to be paid the relevant amounts under the 1993 agreement. The 1993 agreement related to his remuneration and expenses in relation to supervision of the subdivision. It seems to me that in principle, [NAME]'s reasoning should support the view that the company's allowance of this amount to [NAME], reflected in writing off the [NAME] account debit as at 30 [NAME] 2001, should be reversed because the company's obligation (if any) was released by clause 10. [NAME]'s construction of clause 10 supports the view taken by [NAME] and [NAME] that the writing off should be reversed and that the debt remains owing. 80 [NAME]'s first advice proceeded on the basis that [NAME]' report had been available at the time of the mediation. If there was a report from [NAME] available at that time, it is not the one in evidence before me, which is dated May 2003, well after the mediation had concluded. I have considered whether [NAME]'s opinion would be affected if he were in error on this matter of fact. In my opinion his reasoning as to the construction of clause 10 stands independently of this matter. 81 In his [NAME] advice, [NAME] reviewed some additional documents dealing with the factual underpinning of his earlier advice, and reconsidered the issues. For the most part, the [NAME] advice is a refinement of the ideas in the first advice, coupled with specific rebuttal of certain arguments put on behalf of [NAME]. 82 There are two issues that, in my opinion, add to the analysis in the first advice in a fashion that should be mentioned here. First, [NAME] construed the concept of "double counting" for the purposes of clause 10 so that double counting would not be confined to cases where there is an identical charge in the related party invoices and in a credit to the [NAME] accounts (that is, identical as to amount and also the subject of the charge). In [NAME]'s opinion, "double counting" also includes charges "of the same type" and as those contained in the disputed invoice, and in his view the relevant type or genus is "related party charges". To the extent that the credit in the [NAME] account reflects a related party charge of the type, though not necessarily identical with, a charge found in the invoices, there is double counting. 83 Senior counsel for [NAME] presented a detailed argument designed to show that if [NAME]'s reasoning were correct, it would be incapable of yielding the conclusion that the sum of $102,682 should be debited to [NAME]'s own account. It seems to me plain, however, that the reasoning as I have articulated it, especially given the preference for the interpretation of "double counting", leads to the conclusion that all of the items falling within the $102,682 total fall into the "related party charges" category. 84 The [NAME] matter is that according to [NAME]'s interpretation of the clause, it had the effect of casting on [NAME] the onus of identifying double counting in the [NAME] accounts (with the result that the release applies). That, said [NAME], was an unlikely construction because in fact, [NAME] and her advisers appear to have done nothing to discharge that onus, in the context of a matter that has generated considerable animosity, trouble and expense. He regarded this as another reason why [NAME]'s construction of the clause was unlikely to be correct. 85 Some of the evidence supplied to [NAME] was evidence of external circumstances surrounding the making of the agreements reflected in the documents, and evidence of the intention of persons who participated in the negotiations leading to the agreements. Evidence of this kind is generally inadmissible for the purposes of construction of a written agreement. To the extent that [NAME]'s reasoning relied directly on material of that kind, it would be unsafe of the court to accept his opinion unless it is separately supported by other reasoning. In my view, however, [NAME]'s essential reasoning stands independently of inadmissible material. Indeed, he discounts much of that material. 86 In my summaries of his two written advices I have endeavoured to isolate the reasoning process permissible for a court to adopt. That is the reasoning process in paragraphs (a)-(i) in respect of the first advice (other than para (b)), and in the two matters that I have singled out for mention from the [NAME] advice. Having considered the submissions of the parties, I find myself in agreement with [NAME]'s reasoning to the extent that I have identified it, and therefore I am in agreement with his conclusion as to the proper construction of clause 10. The winding up of the company 87 On 27 October 2004 [NAME] and [NAME] as the shareholders of [NAME] resolved by special resolution that the company be wound up voluntarily and "that the Liquidator be empowered to divide among the members in specie or in kind, the whole or any part of the assets of the Company". [NAME] was appointed liquidator. At the meeting he tabled a draft plan of distribution (the 2004 Plan). I shall return to this document. I should note, however, that it reversed not only the credit of $39,734.05 to [NAME]'s [NAME] account, but also it debited to [NAME]'s [NAME] account the 5 amounts recommended for reversal in [NAME]' report totalling $102,082. 88 About this time [NAME]'s draft financial statements for the year ending 30 [NAME] 2004 were finalised. [NAME]'s plan of distribution, there were reversals debiting [NAME]'s [NAME] account with $39,734.05 and $102,682 (the latter reversals were apparently made on a basis that did not accept [NAME]' view that the accounts had double-counted a figure of $600). Interest was also debited to the [NAME] account. 89 On 7 February 2005 the liquidator made an interim distribution to the two shareholders of $600,000 each. In his memorandum to the shareholders of that date, he indicated that [NAME] had submitted claims and proofs of debt against [NAME] for services rendered by him and his company, [COMPANY]. He said he had taken the advice of [NAME] and had not formally responded to the proofs of debt. [NAME] also reported that he was working on some issues with the Australian Taxation Office ("ATO"). 90 [NAME] reported to the shareholders again by memorandum dated 2 March 2005, reporting on issues arising out of a review of the company by the ATO. One of the issues related to loans made by [NAME] to [NAME], and another related to payments made by the company to [NAME] and a company called [NAME]. [NAME] said in his memorandum these two matters were issues for the shareholders rather than [NAME]. By another memorandum dated 15 March 2005, [NAME] forwarded to the shareholders his most recent correspondence with the ATO. 91 [NAME]'s negotiations with the ATO came to an end in July 2005. On 15 July 2005 the ATO sent him a notice to the effect that $1.00 would be sufficient to discharge any outstanding tax-related liabilities of the company. On 21 July 2005 [NAME] wrote to the shareholders informing them that he had received this notice and that his intention was to distribute the net balance of funds to each shareholder in accordance with the Corporations Act, and to wind up the company's affairs. He said he would retain $50,000 to cover fees and expenses. He asked the shareholders to authorise the finalisation of liquidation by signing copies of his letter. It seems that they did not do so. 92 On 27 July 2005 [NAME] sent to the shareholders his plans of distribution as at 26 October 2004, and as at 19 July 2005, which are described below. [NAME]'s Plans of Distribution 93 [NAME] prepared two plans of distribution, the first at the time of commencement of the liquidation of [NAME] and the [NAME] as at 19 July 2005. He sent both plans to [NAME] and [NAME] under cover of his letter of 27 July 2005.

The 2004 Plan 94 [NAME]'s first plan was entitled "Plan of Distribution Based on the Estimated Financial Position of the Company as at 26 October 2004" ("2004 Plan"). According to this document, the company's cash assets stood at $3.29 million. Expected outgoings were $54,000, leaving a net amount available to shareholders of $3.236 million. To this was added [NAME]'s [NAME] account of $301,156 48 (treated as a debt owing by him to the company), to produce an amount available for distribution of $3,537,208.85. According to the 2004 [NAME] would receive a distribution of half of this amount, namely $1,768,604.42, while [NAME] would receive the reduced amount of $1,467,447.95, which was $301,156.48 less than the distribution to [NAME] because of [NAME]'s [NAME] account. 95 The 2004 Plan gave a breakdown of [NAME]'s [NAME] account. It comprised an amount for a home [NAME] and interest, and amounts for expenditure on electricity, plant and equipment, interest on those matters and "Cabbage Tree expenses". There were two other items debited to [NAME]'s account, representing what I have called the First and [NAME]: "Jnls reversed per determination $39,734 05" "LM Dr [NAME] (2) (Reversal of directors fees) $102,682"

The 2005 Plan 96 The [NAME] plan enclosed with [NAME]'s letter of 27 July was entitled "Plan of Distribution Based on Estimated Financial Position of the Company as at 19 July 2005" ("2005 Plan"). The organisation of this document corresponded with the 2004 Plan, but some of the figures were different. The cash assets available to the shareholders had been reduced to $2.095 million (no doubt partly because of the interim distribution). Estimated outgoings were reduced to $50,000 so that the amount available to shareholders was $2.045 million. The amount owing by [NAME] in his [NAME] account was increased to $371,786.88. The proposed distribution to [NAME] was $1,208,364.27 and the distribution to [NAME], reduced by the debt in his [NAME] account, was $836,577.41. 97 The breakdown of the [NAME] account was the same as in the 2004 Plan, except that "Interest on the [NAME] from [NAME])" had risen by a little over $7,700, and the sum of $62,884.53 had been added for "Interest on [NAME] from LM". Importantly, the items appearing in the 2004 Plan for the First and [NAME] appeared again in the 2005 Plan. Responses to [NAME]'s proposed distribution 98 In his letter of 27 July 2005, enclosing the 2004 and 2005 Plans, [NAME] said he intended to distribute the available funds to shareholders as soon as practicable. He noted, however, that he had received correspondence from [NAME], which led him to "reluctantly agree" to defer the distribution for no less than 14 days. He noted that [NAME] had engaged senior counsel and that this would impact on the plan of distribution because it would increase [NAME]'s costs so that the provision of $50,000 might not be sufficient. 99 The letter from [NAME]'s solicitor alleged that [NAME] had purported, as chairman of directors of [NAME], to reverse certain journal entries which had recorded a sum accrued of $142,182 as expenses of the company in carrying out the subdivision of the [NAME] land, which had been applied in reduction of the amount owed by [NAME] to the company. The letter alleged that [NAME] did not have the authority to reverse the journal entries, and that if he did, his determinations were incorrectly made. The letter said that senior counsel had been briefed to advise on this and other issues and that [NAME] would not consent to any distribution being made until he had the reasonable opportunity to receive and consider senior counsel's advice. The letter sought [NAME]'s undertaking to defer taking further steps in the winding up for 14 days, threatening legal proceedings if the undertaking was not given. 100 [NAME]'s solicitors wrote to [NAME] on 4 August 2005, complaining about the delay in making the distribution and asserting that, contrary to the claim made by [NAME]'s solicitor, the reversals in the [NAME] account were made as a result of a lengthy independent inquiry and determination by [NAME], in which [NAME] participated. 101 On 29 August 2005 [NAME]'s solicitor wrote to [NAME]'s solicitor enclosing a Statement of Position, Draft Quantification of Losses and Draft Summary of Financial Claim by [NAME], for [NAME]'s urgent attention. The letter threatened to hold [NAME] personally liable for compensation for financial loss should he distribute funds and finalise the liquidation in accordance with determinations subsequently found to be wrong. 102 On 7 September 2005 [NAME]'s solicitors wrote to [NAME], claiming that the documents enclosed with their letter of 29 August failed to take into account the deed of settlement dated 6 December 2001 and binding determinations made by [NAME] in August and September 2004. The letter demanded that [NAME] should either withdraw his threats or commence proceedings, and advised of [NAME]'s intention to make an application under s 511, in which she would seek costs against [NAME]. 103 On 12 September 2005 [NAME] asked for a copy of the deed of settlement of 6 December 2001 and [NAME]'s "binding determinations", and asked on what basis it was alleged that the determinations were binding. [NAME]'s solicitors replied on 16 September 2005, enclosing the documents and drawing attention to correspondence and minutes upon the basis of which it was alleged that the parties were to be bound by [NAME]'s advice. Findings with respect to the First Amount 104 The First Amount was a fluctuating debit in a [NAME] account of [NAME], which rose to $39,734.05 in about March 2001 and then was written off by credit to the [NAME] account and debit to subdivision expenses at the end of the [NAME] 2001 financial year. There is no reason for believing, on the evidence before me, that the debit amount in the [NAME] account was otherwise than an accurate calculation of a fluctuating balance. There is, however, an issue which I am not in a position to resolve, as to whether the historical operations of the [NAME] account reflected [NAME]'s entitlement under the alleged agreement of 1993. 105 However, it is unnecessary for me to make a decision on this point. The mediation occurred, in September 2001, at a time when the [NAME] account was in debit. The application of [NAME]'s reasoning (with which I agree) produces the result that any obligation of the company to reverse and write off the debit balance in the [NAME] account by virtue of any 1993 agreement was released under clause 10 of the Facilitating Deed. Consequently the purported writing off of the debit balance was incorrect by virtue of the release in clause 10, and should be reversed. 106 For the reasons I have given, [NAME] and [NAME] agreed to be bound by [NAME]'s and determination at the directors' meeting of 26 May 2004. The determination would therefore be binding even if I were not in the position of having reached the conclusion that his construction of clause 10 is correct. But I do not rest my decision on this point. As senior counsel for [NAME] submitted, referring to [NAME] v [COMPANY] (1969) 121 CLR 432, any agreement to be bound by [NAME]'s determination as to the proper construction of the deed Deed could not oust the jurisdiction of the court to form its own view about the matter. 107 As I understand it, this is the conclusion [NAME] reached in his determination made on 4 February 2004. It is clear from its terms that his determination was intended to be made under clause 4 of the Facilitating Deed, to resolve a dispute between [NAME] and [NAME] in relation to the interpretation of the Deed. It was a binding determination under that provision. I disagree with the submission made on behalf of [NAME] that clause 4 did not give [NAME] the power to make such a determination. It was a determination resolving a dispute that had emerged between [NAME] and [NAME] in relation to the interpretation of the deed. I also disagree with the submission that [NAME] did not purport to exercise his powers under the clause. His determination as to the effect of clause 10 on the writing off of the [NAME] account amounted to a determination resolving a dispute in the interpretation of the deed. 108 The 2001 financial statements were approved by the directors on 5 April 2004, well after the mediation had occurred on 25 September 2001 and after [NAME]'s determination. They reflected the writing off of the debit amount and did not reflect [NAME]'s decision to restore that amount. That may have been because [NAME]'s determination was made in a later financial year. Clearly what should happen, if it has not yet occurred, is that the steps taken by [NAME] to reallocate the debit to subdivision costs should be reversed. 109 I note that in his e-mail to [NAME] dated 25 March 2002, [NAME] said that the writing off of this amount was in accordance with the Facilitating Deed and Heads of Agreement. I disagree. Consistently with [NAME]'s construction of clause 10 of the Deed, with which I agree, the writing off of the debit amount should not have occurred, and should now be reversed. 110 For the purposes of the distribution of surplus assets in winding up, [NAME]'s plan of distribution of 19 July 2005 is correct in this respect. The sum of $39,734.05, plus further interest, should be treated as a debt by [NAME] to [NAME] for the purposes of adjustment in the distribution. Findings with respect to the [NAME] 111 The sum of $102,082 (later adjusted to $102,682, as explained above) was identified by [NAME] when he reviewed the company's general ledger and in particular, [NAME]'s [NAME] account of the period from 1998 to 2001, on the instructions of [NAME]. As I have shown by reference to his report, some of the five amounts making up the total were described in the company's financial records as directors' remuneration and others were reimbursements of expenses to [NAME]'s company. I am not able to make a determination as to whether each of those amounts was properly owing by the company to [NAME] or his related entity at the time when the entries were made in [NAME]'s financial records. 112 However, the application of [NAME]'s reasoning, with which I agree, produces the result that these amounts were released by clause 10 of the Facilitating Deed. To reflect that release, the credits to [NAME]'s [NAME] account should be reversed, with the result that his indebtedness to the company will increase. As I have said in relation to the First Amount, my finding about the directors' meeting of 26 May 2004 means that [NAME]'s determination was binding on [NAME] and [NAME], but I do not rest my decision on that matter. 113 For the purposes of the distribution of surplus assets in winding up, [NAME]'s plan of distribution is also correct with respect to the total of $102,682. That amount, plus further interest, should be treated as a debt owing by [NAME] to [NAME] for the purposes of adjustment in the distribution. Conclusions and orders 114 [NAME] has succeeded in making out the substance of her claim for relief in the Further Amended Originating Process, except that it is the liquidator of the First Defendant rather than the First Defendant who should be the subject of the order. It is also undesirable to make an order expressed by reference to the 2005 Plan, because the figures in that plan do not take into account any costs of the liquidator in excess of the amount provided for, or accruing interest. In my opinion the appropriate order to make, allowing for those matters is an order as follows: (1) Pursuant to ss 511(1)(a) and 511(2) of the Corporations Act 2001 (Cth), the Court determines that the liquidator of the First Defendant is entitled, in distributing the surplus assets of the First Defendant to its contributories, to adjust the amounts of the distributions to the contributories inter se by taking into account that the sums of $39,734.05 and $102,682 are moneys owing by the [NAME] Defendant to the First Defendant. 115 As previously mentioned, I shall also make the following order: (2) Pursuant to s 500(2) of the Act, the Court grants leave to the Plaintiff, nunc pro tunc, to commence and proceed with the present proceeding against the First Defendant. 116 I shall hear the submissions of the parties as to how I should best reflect in a costs order the fact that the Plaintiff has succeeded comprehensively against the [NAME] Defendant. **********

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