Federal Court of Australia

Scott v Olde [2025] FCA 1014

ORDERS

THE COURT ORDERS THAT:

1.    The amended originating application be dismissed with costs.

2.    The administrator be granted leave to withdraw the undertaking referred to in the orders of Justice Moore dated 6 June 2025.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

(Delivered ex tempore, revised from the transcript)

LEE J:

A    INTRODUCTION AND FACTUAL BACKGROUND

1    This proceeding has involved a vast amount of paper and an apparent multitude of facts but, upon close examination, only has a patina of complexity and it is possible to proceed to deliver judgment immediately.

2    The proceeding was initially listed before me on 7 August 2025 for final hearing of the plaintiff’s application under r 75–100(4) of the Insolvency Practice Rules (Corporations) 2016 (Cth) (Insolvency Practice Rules) challenging the administrators’ decision to admit certain creditors to vote at a second meeting of creditors of Kentel Australasia Pty Ltd (KAPL) held on 13 May 2025.

3    After the plaintiff opened his claim, leave to amend was sought. I made orders timetabling the service of an amended originating process and points of claim, and adjourned the proceedings, part heard, to 19 August 2025.

4    By a further amended originating process, the plaintiff seeks relief under ss 445D and 447A of the Corporations Act 2001 (Cth) (CA) terminating the deed of company arrangement (DOCA) and the administration of KAPL, and orders that KAPL be wound up and a liquidator appointed. In the alternative, the plaintiff seeks orders amending the DOCA and for “leave to bring an application for leave” to bring a derivative suit in the name of KAPL against Mr James Kennedy and three of his related entities (being Kencom Pty Limited, Kentel Pty Limited (Kentel) and Kencom Entertainment) (Kennedy Parties) under s 237(1).

5    It is worth commencing by recounting my findings as to the background facts.

6    The plaintiff, Mr Scott, is a director of KAPL. Mr Scott and his school friend, Mr Kennedy, incorporated KAPL for the purpose of developing “Luxe Listings Sydney”, a reality television programme that follows several real estate agents in Sydney as they buy, sell and showcase (so-called) “luxurious properties”. KAPL was incorporated in 2018.

7    In order to understand what follows, it is important to note that Kentel is the 70% shareholder of KAPL with the balance of shares being held by Bronson Management Pty Ltd (Bronson), an entity controlled by Mr Scott. Mr Kennedy and Mr Scott were both directors of KAPL until Mr Kennedy’s resignation.

8    Mr Kennedy resigned as director of KAPL on 30 June 2022, and at this time, Mr Scott became the sole director of KAPL. The shareholding Mr Scott controls remains unaltered.

9    Since 21 February 2023, Mr Scott and Mr Kennedy have been locked in protracted litigation. On that date, Mr Scott (as first plaintiff) and KAPL (as second plaintiff) commenced proceedings in the Supreme Court of New South Wales (SC Proceedings) against the Kennedy Parties. Since that time, the only substantive activity of KAPL has been prosecution of the SC Proceedings (as although it also received some royalty payments pursuant to a streaming service agreement executed by Mr Scott, on behalf KAPL, on 7 July 2020 (Amazon Agreement), those payments have ceased).

10    On 6 November 2024, two independent directors, Mr Roderick Sutton and Mr Norman Mel Ashton, were appointed to the Board of KAPL at a meeting convened pursuant to orders made by Nixon J on 28 October 2024: In the matter of Kentel Australasia Pty Limited [2024] NSWSC 1352 (Collateral SC Proceedings).

11    On 30 January 2025, the second directors’ meeting attended by Messrs Ashton and Sutton took place. Mr Sutton’s motion was that KAPL terminate the retainer of its solicitors in the SC Proceedings. This passed together with a motion that a “non-recourse” loan of $70,000 be obtained for the purposes of funding independent legal advice.

12    New solicitors for KAPL were appointed on 30 January 2025, being A&O Shearman (A&O) and that firm filed a notice of change of solicitor on 3 February 2025. The same day, the partner in charge of the litigation wrote to the solicitors for the Kennedy Parties, copied to the solicitor for Mr Scott, noting “it may be necessary that our client apply for the Court’s leave to have separate representation from … Mr Scott as a plaintiff” and that he would write separately “regarding case management generally for the proceedings” and that he anticipated “being instructed to temporarily pause progress of the proceedings (insofar as they are brought by our client) while we consider the proceedings generally and take instructions from our client”.

13    Three days later, the solicitors for the Kennedy Parties in the SC Proceedings sought orders the proceedings be stayed for so long as the plaintiffs continue to be separately represented and for summary dismissal in relation to any claim for relief brought by Mr Scott. This application was subsequently listed for hearing on 28 March 2025.

14    As foreshowed by their communicated intention to “consider” the SC Proceedings, on 12 February 2025, A&O prepared observations which they sent to senior and junior counsel as part of a brief to advise on the prospects of the SC Proceedings.

15    On 4 March 2025, counsel provided their written advice (Memorandum of Advice). Although significantly qualified, that advice is both detailed and cogent. It canvassed the prospects of five claims in the SC Proceedings being that Mr Kennedy:

(1)    caused KAPL to become contractually bound to the Amazon Agreement, which was not in the best interests of KAPL (Claim One);

(2)    was in a position of conflict at the time he caused KAPL to enter into the Amazon Agreement, arising from the benefit Mr Kennedy stood to obtain from the placement of luxury brands in Luxe Listings Sydney (Claim Two);

(3)    incorporated Kencom Pty Ltd, Kentel Holdings Pty Ltd and Kentel Entertainment Pty Ltd for the purpose of diverting the business and assets of KAPL (Claim Three);

(4)    was liable to pay damages to KAPL for breach of an agreement, under which Mr Kennedy agreed not to withdraw funding from KAPL without reasonable notice (Claim Four); and

(5)    caused KAPL to make a number of payments which were without a legitimate purpose and not in the best interests of KAPL (Claim Five).

16    Senior Counsel, for reasons which, on an impressionistic basis, seem to me to be compelling, advised that Claims One, Two and Four had “weak prospects”. As to Claim Four, it had “reasonable prospects of making out the liability elements of the claim. However, [it had] real issues regarding determination of any remedy or quantifying any loss”. As to Claim Five, advice was provided that “it is conceded that some payments were not made for proper purposes of [KAPL]. However, any compensation due to [KAPL] to the extent that such payments were not in the interests of [KAPL], would depend on the assertion that all such amounts were correctly recorded as intercompany loans in the books and records of [KAPL]”.

17    A week later, KAPL’s solicitors wrote to the solicitors for the Kennedy Parties and offered to compromise on terms that included KAPL’s claims in the SC Proceedings being dismissed with no order as to costs. After some toing and froing, which is unnecessary to recount, the proceedings were dismissed but accompanied by an adverse costs order. The rationale for this is set out in a letter from KAPL’s solicitors of 27 March 2025 to the solicitors representing Mr Scott:

Since our appointment as solicitors on record for our client, our client has taken the benefit of advice from Darrell Barnett SC and Maria Mellos of counsel regarding its claims in the Proceedings.

Prior to the filing of the abovementioned notice of discontinuance, and following receipt of the abovementioned advice, our client has formed the view that the claims made by it in the proceedings do not have reasonable prospects of success.

Further, our firm (as solicitor on the record) had formed the view that we were no longer able to certify for purposes of clause 4 of Schedule 2 to the Legal Profession Uniform Law Application Act 2014 (NSW) in relation to the claims made [by] our client in the Proceedings.

…

The notice of discontinuance of our client’s claims in the Proceedings has been duly filed and sealed by the Court registry…

Without any admissions, our client has additionally signed a consent order to the above effect. We enclose a copy of that consent order. Our client consents to orders being made in those terms in the Proceedings at the hearing on 28 March 2025.

In the above circumstances, our client is no longer a party to the Proceedings…

B    27 MARCH AND THE NATURE OF THE PLAINTIFF’S ALLEGATION

18    The central pleaded allegation in this case is one of alleged “corporate malfeasance”, which is said to have manifested itself in a “co-ordinated” strategy employed by either Mr Kennedy or the Kennedy Parties commencing with the appointment of Messrs Ashton and Sutton as directors on 26 November 2024, and culminating in the execution of the DOCA on 13 May 2025.

19    KAPL was placed into voluntary administration on 27 March 2025, and the first and second defendants (Mr Olde and Mr Healey) were appointed voluntary administrators (Administrators) by resolution under s 436A of the CA.

20    The plaintiff alleges that this “strategy” was, by stay or dismissal, to take Mr Scott out of the SC Proceedings and that the:

… final piece of the strategy, which was soon to be revealed, but was ultimately fumbled, was to take out [KAPL] from the [SC Proceedings] by having it consent to the discontinuance or dismissal of the [SC Proceedings]. The end point of the strategy was that neither plaintiffs would be left standing in the [SC Proceedings].

21    I will call this collusion or strategy case the “broader case”, and it is fair to say that by the end of the hearing, it was less a direct allegation of a co-ordinated strategy, but rather a contention that the consequences of the actions of the independent directors, the Administrators and Mr Kennedy amounted to a process whereby the Kennedy parties became “judgment-proof”. In truth, this is the same allegation but perhaps put in less graphic terms.

22    On 27 March 2025, a critical meeting was held of KAPL. Prior to the meeting, Mr Scott had complained about inadequate notice and sought an adjournment of the meeting. Messrs Ashton and Sutton met virtually, and Mr Scott was unable to attend. At the meeting (and reflected in resolution six), the Board resolved that the three directors receive no more than $200,000 as an aggregate sum payment for their services, to be divided equally pursuant to cl 58.1 of KAPL’s constitution.

23    That provision seems to me to provide clearly that KAPL’s non-executive directors are to be paid up to $200,000 per annum if no aggregate maximum sum has been determined.

24    Moments later, the Board “considered the financial position of the Company” and then passed a resolution in the following terms:

Resolution of the Company’s Solvency

7.    The Board considered the financial position of the Company. The following resolution was proposed:

Resolution:

We, the undersigned, being the directors of the Company , hereby resolve:

THAT 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 that voluntary administrators should be appointed to the Company under section 436A of the [CA] .

Votes:

•    Mr SUTTON, Yes

•    Mr ASHTON, Yes

The resolution was passed.

25    The concerns that Messrs Ashton and Sutton held in relation to solvency are contained in the Report to Creditors dated 6 May 2025. Their main concern was that after having received the Memorandum of Advice from Counsel, they formed the view that there was “little merit in the legal action and very little chance of a favourable outcome for [KAPL]”.

26    The plaintiff contends that reasoning and logic of the events of 27 March 2025 are “flawed and curious”. The part of the strategy which involved the voluntary administration, it is contended, only emerged after Mr Scott indicated on 25 March 2025, that he would pursue derivative proceedings on behalf of KAPL against the Kennedy parties. These “flaws and curiosities of 27 March 2025” are said to be compounded by the reasoning and logic of the Administrators in admitting the three proofs of debts that Mr Scott urges the Court to reject and to which it will be necessary to address later in these reasons.

27    Returning the narrative, on 13 May 2025, a second creditors meeting of KAPL was convened by the Administrators. At that meeting, the creditors voted to approve KAPL executing a DOCA. Four creditors were admitted to vote: Mr Sutton, Mr Ashton, the Kennedy Parties and Mr Scott. Mr Sutton, Mr Ashton and the Kennedy Parties voted in favour of the resolution. As such, the DOCA was carried by a majority of the creditors (in number and value) with Mr Scott being the only creditor to vote against the resolution.

28    By operation of cl 7, the DOCA is said by the plaintiff to extinguish KAPL’s claims against the Kennedy Parties. Clause 7 is in the following terms:

7    Release and transfer of assets

Immediately upon payment of the Cash Contribution to the Deed Administrators in accordance with clause 6.1(1):

(1)    all of the Company’s rights, title and interest to and in the Assets will be transferred to the Proponent (or its nominee) on an “as is, where is” basis and the Deed Administrators must sign such document or instrument as may be required to give effect to this transfer; and

(2)    the Company will immediately release and discharge any and all claims (including, without limitation, all claims, demands, debts, actions, proceedings, suits, costs, charges, expenses, damages, losses, penalties, fines, obligations and other liabilities) that it may have (or could be, or could have been, brought on behalf of the Company by any person under Part 2F.1A of the Corporations Act, including without limitation, any derivative action) against the Proponent and/or its Related Parties (at law, in equity or under statute, present or future, known, unknown or contingent, ascertained or sounding only in damages, and whether or not related to the Legal Proceedings).

C    DETAILS OF THE APPLICATION

29    Relying primarily on the broad contention to which I have already made reference, Mr Scott seeks to establish that the Court’s discretion to terminate the DOCA arises on at least one of six grounds: (1) because the DOCA cannot be given effect without injustice: ss 445D(1)(e) and 447A (Injustice Ground); (2) the DOCA should be terminated because it is contrary to commercial morality: s 445D(1)(g) (Public Interest Ground); (3) because provisions of Pt 5.3 are being abused: s 447A(2)(b) and 447A (Abuse Ground); (4) because the DOCA is oppressive or unfairly prejudicial to, or unfairly discriminatory against Mr Scott or the creditors as a whole: s 445D(1)(f) (Prejudice Ground); (5) because KAPL is solvent: ss 445D(1)(g) and 447A (Solvency Ground); and (6) a further narrower case concerning the DOCA being set aside by reason of the attack the plaintiff makes on the admission of proofs of debt (which I will deal with separately) (Narrower Case).

D    THE RELEVANT LAW

30    The principles are not really in dispute but are worth setting out briefly.

31    Sections 445D(1)(e), (f) and (g) of the CA, along with s 447A, confer wide discretionary powers on the Court: Australasian Memory Pty Ltd v Brien [2000] HCA 30; (2000) 200 CLR 270 (at 280–281 per Gleeson CJ, McHugh, Gummow, Hayne and Callinan JJ). These sections provide as follows:

445D    When Court may terminate deed

(1)     The Court may make an order terminating a deed of company arrangement if satisfied that:

(a)     information about the company’s business, property, affairs or financial circumstances that:

(i)    was false or misleading; and

(ii)     can reasonably be expected to have been material to creditors of the company in deciding whether to vote in favour of the resolution that the company execute the deed;

        was given to the administrator of the company or to such creditors; or

(b)     such information was contained in a document that accompanied a notice of the meeting at which the resolution was passed; or

(c)    there was an omission from such a document and the omission can reasonably be expected to have been material to such creditors in so deciding; or

(d)     there has been a material contravention of the deed by a person bound by the deed; or

(e)     effect cannot be given to the deed without injustice or undue delay; or

(f)     the deed or a provision of it is, an act or omission done or made under the deed was, or an act or omission proposed to be so done or made would be:

(i)     oppressive or unfairly prejudicial to, or unfairly discriminatory against, one or more such creditors; or

(ii)     contrary to the interests of the creditors of the company as a whole; or

(g)     the deed should be terminated for some other reason.

…

447A    General power to make orders

(1)    The Court may make such order as it thinks appropriate about how this Part is to operate in relation to a particular company.

(2)    For example, if the Court is satisfied that the administration of a company should end:

(a)    because the company is solvent; or

(b)    because provisions of this Part are being abused; or

(c)    for some other reason;

the Court may order under subsection (1) that the administration is to end.

(3)    An order may be made subject to conditions.

(4)    An order may be made on the application of:

(a)     the company; or

(b)    a creditor of the company; or

(c)    in the case of a company under administration—the administrator of the company; or

(d)    in the case of a company that has executed a deed of company arrangement—the deed’s administrator; or

(e)     ASIC; or

(f)     any other interested person.

32    Section 445D necessitates a two-stage enquiry. The first stage is determining whether one of the grounds referred to in s 445D(1) has been established and, if it has, the second stage is to decide whether to exercise the discretion to terminate the DOCA based on that ground. Relevantly, the onus of establishing that a ground for termination under s 445D(1) has been made out lies with the party seeking termination of the deed: Decon Australia Pty Ltd v TFM Epping Land Pty Ltd (No 2) [2021] FCA 32 (at [125] per McKerracher J).

33    In determining whether any criterion set out in s 445D(1) is made out, the Court is required to make an objective evaluation of the relevant circumstances viewed as a whole: Decon Australia Pty Ltd v TFM Epping Land Pty Ltd [2022] FCAFC 54 (at [144]–[147] per Yates, O’Callaghan and Halley JJ).

34    Further, in deciding whether the DOCA is oppressive, unfairly prejudicial and/or unfairly discriminatory, or contrary to the interests of the creditors as a whole, I am to have regard to the following factors (see Britax Childcare Pty Ltd, in the matter of Infa Products Pty Ltd v Infa Products Pty Ltd (Administrators Appointed) [2016] FCA 848; (2016) 115 ASCR 322 (at 346 [115]–[116] per Burley J)):

(1)    the object of Pt 5.3A;

(2)    the interests of other creditors, the company and the public;

(3)    the comparable position of the creditor on a winding-up, compared with their position under the deed; and

(4)    other relevant factors such as the relative position of all creditors under the deed (that is, whether they are better off), the existence of a collateral benefit to shareholders and the whole of the effect of the deed.

35    As will become evident, it is possible to deal with many of the grounds identified by the plaintiff together (although I will continue to set out the law briefly in relation to the grounds as articulated separately).

D.1    Injustice Ground

36    Turning now to s 445D(1)(e), it has been held that:

(1)    the section “draws attention to the effect of the deed” instead of the deed’s purpose or any of its provisions, or “the purpose of those who implement the deed”: Cresvale Far East Ltd (In Liq) v Cresvale Securities Ltd [2001] NSWSC 89; (2001) 37 ACSR 394 (at 430 [188] per Austin J);

(2)    a deed may not be able to be given effect without injustice within the meaning of s 445D(1)(e) if its effect would be to avoid a proper investigation of the relevant transactions: Cresvale (at 430–431 [189]–[191] per Austin J);

(3)    the Court’s power to terminate the DOCA is not enlivened because it forms the view that irregular transactions may have occurred, but it is sufficiently enlivened where a deed has the effect of denying proper liquidation scrutiny: Deputy Commissioner of Taxation v TMPL Pty Ltd (subject to a deed of company arrangement) (No 3) [2011] FCA 1403; (2011) 289 ALR 69 (at 95 [96] per Perram J); and

(4)    the Court may terminate a DOCA pursuant to s 445D even where creditors would be better off under the DOCA than with a liquidation: Bidald Consulting Pty Ltd v Miles Special Builders Pty Ltd [2005] NSWSC 1235; (2005) 226 ALR 510 (at 565 [286] per Campbell J).

D.2    Public Interest Ground

37    As Derrington J observed in Canstruct Pty Ltd v Project Sea Dragon Pty Ltd (Subject to a Deed of Company Arrangement (No 4) [2024] FCA 112; (2024) 172 ACSR 73 (at 95–96 [102]), the authorities concerning the application of s 445D(1)(g) demonstrate that the Court can terminate a DOCA where:

(1)    there has been an abuse of the provisions of Pt 5.3A;

(2)    the DOCA is contrary to the “public interest”, which involves considerations of commercial morality and the interests of the public at large;

(3)    as in the case of s 447A, the termination of a DOCA can be justified in the public interest even if it is not also in the interests of the creditors as a whole; and

(4)    the DOCA has the consequence of preventing an effective investigation into the company’s affairs and the opportunity for a greater return in a liquidation scenario, as in such circumstances the DOCA is contrary to the creditors’ interests overall and the public interest at large.

38    Indeed, in ASIC v Midland Highway Pty Ltd [2015] FCA 1360; (2015) 110 ACSR 203, Beach J observed (at 223 [68]):

Where there has been misconduct in the affairs of a company requiring appropriate investigation by a liquidator and appropriate recovery proceedings being considered and undertaken, it is detrimental to commercial morality to prevent or hinder such steps through the device of a DOCA propounded by entities and individuals who ought be the subject of investigation and the target of such proceedings. A winding up will be beneficial from a public interest perspective where investigations and recovery proceedings are likely to be funded and the investigations and appropriate recovery proceedings could realistically lead to the relevant persons who have engaged in the suspect transactions being brought to account: Public Trustee (Qld) v Octaviar Ltd (subject to a deed of company arrangement) (2009) 73 ACSR 139; [2009] QSC 202 at [182] per McMurdo J.

39    Where the relevant company is not trading and there is no likelihood of it resuming its former business, the public interest in placing the company in the hands of a liquidator may prevail over the interests of creditors: Australian Securities and Investments Commission v Storm Financial Ltd (recs and mgrs apptd) (admin apptd) [2009] FCA 269; (2009) 71 ACSR 81 (at 110 [69] and [71] per Logan J).

D.3    Abuse Ground

40    The concept of an abuse in this context requires attention to be directed to the object of Pt 5.3A, which provides:

435A Object of Part

The object of this Part, and Schedule 2 to the extent that it relates to this Part, is to provide for the business, property and affairs of an insolvent company to be administered in a way that:

(a) maximises the chances of the company, or as much as possible of its business, continuing in existence; or

(b) if it is not possible for the company or its business to continue in existence—results in a better return for the company’s creditors and members than would result from an immediate winding up of the company.

41    Jackman J, with respect, summarised the principles relating to abuse well when writing for the Full Court in Project Sea Dragon Pty Ltd (Subject to a Deed of Company Arrangement) v Canstruct Pty Ltd [2024] FCAFC 141; (2024) 305 FCR 465 (at 503 [124]):

… the concept of abuse of the provisions of Pt 5.3A is akin to the jurisdiction of the Court to stay proceedings for abuse of process, that the question is whether there is an improper or collateral purpose which is the predominant purpose, and that the Court is entitled to take into account the interests of the creditors as a whole and the public interest, including considerations of commercial morality and the interests of the public at large.

D.4    Prejudice Ground

42    The principles relevant to the Prejudice Ground were articulated by Master Newnes in Fleet Broadband Holdings Pty Ltd v Paradox Digital Pty Ltd [2005] WASC 261; (2005) 228 ALR 598 (at 608 [59]–[60]) as follows:

In considering whether a deed is oppressive or unfairly prejudicial or discriminatory under s 445D(1)(f), it is necessary to consider the effect of the deed against the background of the general principles underlying Pt 5.3A, which establish the basic right of a creditor to be paid or to wind a company up, or to have the company administered by the administrator in a way that keeps the company's business going and will see the creditor paid something out of the property of the company. If a deed departs from that, a creditor is more easily able to say that it is operating oppressively: Sydney Land Corporation Pty Ltd v Kalon Pty Ltd (supra) at 99.

Where s 445D(1)(f)(i) is relied upon, the Court looks at the whole of the effect of the DOCA and assesses its unfairness, if any, to the plaintiff creditor bearing in mind the scheme of Pt 5.3A, the interests of the other creditors, the company and the public generally: Sydney Land Corporation Pty Ltd v Kalon Pty Ltd (supra) at 98. In order to consider questions of fairness it is necessary to look at the whole of the circumstances and see if there is overall unfairness: Hagenvale Pty Ltd v Depela Pty Ltd & Serrada Holdings Pty Ltd (1995) 17 ACSR 139 at 151; Deputy Commissioner of Taxation v Portinex Pty Ltd (2000) 156 FLR 453. The criteria that guide the Court are fairness and practicality of the scheme as a whole: Re Bartlett Researched Securities Pty Ltd (1994) 12 ACSR 707 at 710.

43    A DOCA can be contrary to the interests of a companies’ creditors as a whole where it would exclude the prospect of further investigation of claims in respect of amounts paid out vis-à-vis funding contributed: Guo v Song; In the matter of SG Capricorn Investments Pty Ltd (subject to deed of company arrangement); and New Mangrove Pty Ltd (subject to a deed of company arrangement) [2018] NSWSC 12 (at [149] per Black J).

D.5    Solvency Ground

44    Section 447A(2)(a) expressly provides that the Court may make an order that the administration of a company is to end if satisfied that the company is solvent. Derrington J recently articulated the relevant principles in Park, In the matter of IG Power (Callide) Pty Ltd (Administrators Appointed) (No 7) [2025] FCA 808 (at [15]–[16]), where his Honour observed:

The Court may, pursuant to s 447A(1) of the Corporations Act, order that the administration of a company be brought to an end if it is satisfied that the company is “solvent”: s 447A(2)(a) of the Corporations Act; see In the matter of Keybridge Capital Limited (No 2) [2025] NSWSC 354 [17] (Keybridge). A company is solvent if, and only if, it is able to pay all its debts, as and when they become due and payable: s 95A(1) of the Corporations Act. It is not controversial that that definition enshrines a “cash flow” test of insolvency, which is directed to the income sources available to the relevant company and the expenditure obligations that it has to meet, rather than a “balance sheet” test, which focuses upon the value of the Company’s assets and liabilities reflected in the company’s books (though the latter test can very well provide context for the application of the former): In the Matter of Ashington Bayswater Pty Ltd (In Liq) [2013] NSWSC 1008 [3], citing Southern Cross Interiors Pty Ltd (in liq) v Deputy Commissioner of Taxation (2001) 53 NSWLR 213. That is, the focus of the test of insolvency prescribed by s 95A(1) is the liquidity and viability of the business of the company: see Crema (Vic) Pty Ltd v Land Mark Property Developments (Vic) Pty Ltd (2006) 58 ACSR 631, 652 [141].

Whether a company is able to pay its debts “as and when they become due and payable” is a question of fact to be ascertained objectively and from consideration of the company’s position taken as a whole, including the nature of its assets and business, having regard to “commercial realities” and common sense: see, eg, Smith (in his capacity as liquidator of ACN 002 864 002 Pty Ltd (in liq) (formerly known as Petrolink Pty Ltd)) v Boné (2015) 104 ACSR 528, 533 – 534 [25]. In Anchorage Capital Master Offshore Ltd v Sparkes [2023] NSWCA 88 (Anchorage Capital Masters), the New South Wales Court of Appeal framed the test as follows (at [244]):

The test is concerned with present inability to pay all debts, as and when they become due and payable. A company is insolvent only when it is unable to pay its debts as and when they fall due. His Honour rightly recorded that it was uncontroversial that the test of insolvency is prospective, so the question is not simply whether the company can pay debts falling due at or around the date the question arises, but whether, as at that date, it can pay debts falling due in the future; that how far into the future the Court should look is a question to be answered having regard to the particular facts of the case; and that normally, a court will not look far into the future because there are so many unknowns and contingencies, though sometimes it may be appropriate to do so.

(Emphasis in original)

E    THE INJUSTICE, MORALITY, ABUSE AND PREJUDICE GROUND

45    As already noted above, Mr Scott alleges that the effect of the DOCA is to prevent liquidator scrutiny in relation to the:

(1)    “resolution 6 transaction” whereby Messrs Ashton and Sutton caused KAPL to be indebted to them for $66,666 each (that is, the directors’ remuneration resolution);

(2)    purported loan agreement between Mr Kennedy, the Kennedy Parties and other Kennedy entities;

(3)    value of the loan and what entity the loan can be said to be owing;

(4)    intercompany treatment of those loans and whether there was an offset; and

(5)    claims made against the Kennedy Parties in the SC Proceedings.

46    In addition, and as I referred to above, Mr Scott alleges that the effect of the DOCA is to extinguish the claims KAPL have against the Kennedy Parties, which is “aggravated” by the prospect of the Kennedy Parties judgment proofing themselves in circumstances where there was a claim which had reasonable prospects and where the litigation had been funded by Mr Scott, Mr Scott had provided security, and the previous solicitors for KAPL had certified the claims as having a reasonable prospect of success.

47    Further reference is made to the fact that Mr Scott offered to purchase, as assignee, the claims against the Kennedy Parties. Mr Scott also complains about his exclusion from the management of KAPL, and submits that, as a consequence of this exclusion, he was never given the opportunity to participate in decision-making processes relating to various matters, including the determination of the SC Proceedings.

48    I describe above the so-called judgment proofing “strategy” as the broader way in which these grounds are pressed, but a refined basis upon which these grounds were sought to be invoked did emerge during the course of submissions – that is, that the financial position of KAPL, pre-DOCA and post-DOCA, was so radically different to the disadvantage of KAPL that it is an affront to justice that the DOCA ought be allowed to remain in place.

49    But the starting point of analysis is the broader way in which Mr Scott puts his case. Recognising the nature of the allegation that was made in the initial submissions provided to the Court, I made an order that the suggestion of a “strategy” be the subject of pleading in a points of claim.

50    I do not think there is any basis on the evidence which could cause me to reach the level of satisfaction necessary to say that there has been a combination of individuals including Mr Kennedy, the Administrators, the new directors and perhaps others acting in a way which was directed to the end of securing the purpose of the strategy as pleaded. This is not to say that no doubt Mr Kennedy would have seen the events that unfolded as likely to be in his commercial interests, but that is a very different matter. There is no suggestion that the directors, who had no pre-existing relationship with Mr Kennedy, were somehow patsies or dupes surrendering their professional judgment in order to advance the interests of Mr Kennedy or acted otherwise than in accordance with their duties as they perceived them.

51    The key point opened on by counsel for Mr Scott (and finding recurring reflection in his written and oral submissions) is that the effect of the DOCA was to judgment proof the Kennedy Parties. This undoubtedly was the consequence of the transactions entered into, but this only presents a small part of the overall picture.

52    As I learnt more during the hearing about the position of KAPL when it entered into administration, it became evident to me that the illicit “strategy” case was misconceived and these grounds could only, really, be advanced by reference to the narrower basis that there was a disconformity between the benefits received by KAPL in entering the DOCA as opposed to the matters that KAPL gave up by entry into the DOCA.

53    The elements of what the evidence reveals about the exercise of identifying burden and benefit were usefully and accurately summarised in a document handed up by counsel for the Kennedy Parties, which I set out below:

(Footnotes omitted)

54    As is evident from this analysis, the commercial justification of the deal embodied in the DOCA is not difficult to appreciate. The attack on the cogency of the analysis on behalf of Mr Scott was based on two contentions.

55    The first was the possible strength of the SC Proceedings, and the second was the notion that there was any basis for concluding that a debt was owed to the Kennedy Parties in the sum of $823,001.28.

56    It suffices to consider the overall fairness or otherwise of the DOCA by reference to these two matters.

57    As to the SC Proceedings, I have already characterised my impressionistic assessment of the advice provided by senior and junior counsel. As Mr Mack for Mr Scott sensibly accepted, the real worth of the SC Proceedings relates to Claim Five, which was distinguished by junior and senior counsel from the other four claims. Notably, however, when Mr Scott prepared his Report on Company Activities and Property (Form 507) on 31 March 2025, the claim relating to “misappropriated funds” was said to total “approx 500k”.

58    How that figure was arrived at is unclear, but as the Memorandum of Advice reveals, there were no issues arising from the fact that payments totalling approximately $395,000 were not made for the proper purposes of KAPL. For present purposes, it is sufficient to think that this was a valuable chose in action, which, if successful, would realise a figure of around $395,000 (or slightly more if one was to take into account interest). What is evident from the table set out above, however, is that part of the purpose behind the DOCA was to receive the cash contribution of $360,000 (see cl 6.1(1) of the DOCA) (in exchange for, among other things, the conclusion of the SC Proceedings in which the chose of action was being agitated). This aspect of the arrangements put in place by the DOCA, however, cannot be considered in isolation of the fact that the DOCA also involved the release of debts owed to the Kennedy Parties, which are reflected in the books and records of KAPL, as being in the sum of $823,001.28.

59    The response of Mr Scott was to say that there was no cogent material available in order for the Administrators (and those considering the DOCA) to proceed on the basis that such a large loan existed. Boiled down to its core, Mr Mack’s argument was that the books and records of KAPL were a “mess” and that the existence of the loan was disputed in the SC Proceedings. The reality is, however, that the books and records were consistent with the existence of such a loan, and it does not offend commercial commonsense to think it is more likely than not that amounts of the type advanced to KAPL would more likely be treated as a loan rather than the provision of working capital or a gift. These last two possible scenarios were advanced at different times by Mr Scott as being alternative explanations for the provision of funds to KAPL by the Kennedy Parties.

60    The difficulty with the working capital scenario is, of course, that this would make little sense from the perspective of Mr Scott, as the Constitution of KAPL would operate in such a way that if working capital was contributed, then that could lead, inevitably, to a dilution of the shareholding Mr Scott controlled to a minimal figure. The notion of a “gift” or, as it was described, a “non-recourse” loan with no obligation for one of the parties to repay the loan, seems even more intuitively unlikely. The provision of funds by a director and majority shareholder booked to a loan account is precisely the way in which one would think it likely a company of this type would be funded in order to allow it to operate.

61    Accordingly, it seemed to me that both the Administrators and those involved in considering the DOCA were entitled to proceed on the basis that the receipt by KAPL of $360,000 in exchange for the release of the loan, together with the other benefits received by KAPL (which included repayment to all of KAPL’s participating creditors (including Mr Scott) in full, the claims of each of KAPL’s creditors being fully released and extinguished (cl 4.5(1)) and the ability to be deregistered in an orderly and cheap manner) did not offend commercial commonsense or operate unfairly.

62    At the risk of repetition, the only apparently (or at least obviously) viable cause of action in the SC Proceedings was for an amount which was not wildly different from the cash contribution that was to be received by KAPL from the Kennedy Parties upon entry into the DOCA.

63    Finally, as noted above, there was also some suggestion that the DOCA operated unfairly or prejudicially to Mr Scott in circumstances where Mr Scott had indicated his willingness to provide some funds to KAPL as the assignee of the underlying claims being agitated in the SC Proceedings. This argument does not withstand scrutiny. Although Mr Olde placed very little or no value on the chose in action, the difficulty with any assignment to Mr Scott is that, in the absence of a cash contribution being made by Mr Scott of an amount at least roughly proportionate to that proposed under the DOCA, there was little reason why an assignment would have made any sense at all. Part of the point of Mr Kennedy providing the cash contribution was to obtain certainty in relation to the extinguishment of the cause of action.

64    All of this does not establish some sort of illicit strategy but shows what appears to me to be a negotiation by which both the deed proponent providing the cash contribution and KAPL were giving up and receiving roughly commensurate commercial benefits and burdens. In all the circumstances, I do not consider that any of the injustice, morality, abuse or prejudice grounds are made out.

F    THE SOLVENCY GROUND

65    The argument in relation to this ground seems to be tied with the notion that the asserted basis for insolvency was the costs obligation arising from “the fumbled attempt to have the proceedings discontinued or dismissed”. Mr Scott submits that this could not be the basis for insolvency as those efforts were ineffective. It also seems to rest on the contention that the resolution to pay Messrs Ashton and Sutton pursuant to the directors’ remuneration resolution is ineffective because KAPL would be insolvent if that resolution had effect according to its terms. But as the defendants emphasised in oral submissions, even if the directors’ resolution was invalid, there would still be some claim able to be made by independent directors for the provision of their services.

66    The reality is that the focus of the solvency ground is on the situation as it exists today. Accordingly, in considering whether KAPL is solvent, regard must be had not only to the Administrators’ analysis regarding KAPL’s solvency as set out in the Administrators’ report to creditors, but also the eventual costs order made against KAPL in the SC Proceedings, the proof of debt lodged by KAPL’s previous solicitors in the SC Proceedings claiming $211,896.50, the liability it has to Messrs Ashton and Sutton, and the fact that it only has around $70,000 in cash and no other assets.

67    Further, as Mr Mack again candidly accepted, there is no basis for thinking KAPL is solvent unless one proceeds on the basis that Mr Kennedy was somehow not entitled to withdraw his support in providing funding for KAPL because, as recognised in the Kennedy Parties’ submissions, KAPL was in effect insolvent from the date on which Mr Kennedy withdrew his support. Accordingly, the solvency ground is not made out.

G    THE NARROWER RESOLUTION CASE

68    Finally, it is necessary to come to the Narrower Case advanced by the plaintiff relating to the proofs of debts admitted.

69    Perhaps understandably given the way the case was originally directed, this narrower aspect of the case is inextricably linked to circumstances which I have already dealt with. In particular, the arguments that Mr Scott makes concerning the loan. The attack on the resolutions carried at the second meeting of creditors was the initial way that Mr Scott sought the DOCA be brought to an end and that KAPL proceed to be placed in liquidation.

70    The logic was that four creditors were admitted to vote, and the resolution approving the DOCA was carried by a majority of creditors both in number and value, with the creditors voting in favour of the resolution being the two independent directors (Messrs Sutton and Ashton), and interests associated with the Kennedy Parties (those interests were admitted together for one vote). But as to the proofs lodged by Messrs Sutton and Ashton, Mr Scott contends that these should have been rejected by the Administrators on the basis of the misconceived contention that directors’ remuneration required approval by an ordinary resolution of shareholders, and that absent such a resolution, Messrs Sutton and Ashton were not entitled to any remuneration, and accordingly, were not entitled to vote at the meeting.

71    As to the Kennedy Parties, Mr Scott’s argument rests on the contention that the value of debt claimed was not established and that there was no “just estimate” of its value for the purposes of r 75–85(4)(d) of the Insolvency Practice Rules. As would be evident from the discussion above, the challenge to Mr Olde’s determination of a just estimate of the proof of debt lodged by the Kennedy Parties is unsustainable in circumstances where the loan is recorded in the books and records of KAPL.

72    Here, it is worth pausing to note that the party challenging the administrator’s decision to admit a creditor’s proof of debt for voting purposes must establish, on the balance of probabilities, that the particular proof of debt should have been rejected: El-Saafin v Franek (No 3) [2019] VSC 155; (2019) 143 ACSR 452 (at 464 [77] per Lyons J). Further, an administrator’s task in making a “just estimate” of the value of a debt under r 75–85(4)(d) of the Insolvency Practice Rules for voting purposes at a meeting is necessarily of a “somewhat summary nature” and the Insolvency Practice Rules do not require that the administrator undertake “any detailed inquiry”. To this end, the administrator is to “do the best that can be done by reference to the factual material the claimant furnishes, viewed in the total context with which the decision-maker is dealing”: see Selim v McGrath [2003] NSWSC 927; (2003) 47 ACSR 537 (at 565 [103] per Barrett J); Bacnet Pty Ltd v Lift Capital Partners Pty Ltd (in liq) [2010] FCAFC 36; (2010) 183 FCR 384 (at 396 [76]–[77], 397 [85] per Keane CJ and Jacobson J).

73    The mere assertion of a dispute in separate proceedings is insufficient, to my mind, to discharge the onus of establishing that it was not open to the Administrators to make the just estimate. I appreciate that by putting it this way I am not losing sight that I am dealing with a de novo consideration of the issues, but it seems to me that even if there might be some ambiguity in the underlying primary documents upon which Mr Mack places such store, KAPL clearly received funds which were treated in the books and records of KAPL in a certain way. There is no real basis, other than a mere assertion of disputation, to suggest a just estimate would not be admission of the proof of debt. Indeed, in final submissions, Mr Mack conceded that it would have been open to the Administrators to admit the debt for a nominal basis, which would mean, of course, the resolution of this issue would not be determinative in any event.

74    When it comes to the directors’ fees, it seems to me that the proper construction of cl 58 is quite clear. The directors were entitled to remuneration, had fulfilled the role, and despite suggestions that they did not do a great deal in order to obtain payment of the amount that they were ultimately paid, that is not a proper way of assessing whether or not a proof of debt in the amount the subject of the resolution of KAPL should be accepted.

75    Accordingly, I am not satisfied that there is some error that has been shown in any aspect of the Administrators’ decision. Even approaching this matter on a de novo basis without the need to demonstrate error, I do not think it has been shown that it was appropriate to proceed otherwise than admitting the proofs of debt challenged by Mr Scott. The Narrower Case for setting aside the DOCA also fails.

H    ORDERS AND CONCLUSION

76    In the circumstances identified above, the application must be dismissed with costs.

77    Given the nature of the allegations made, I granted leave for the Kennedy Parties to be joined as parties. Obviously enough, the costs order extends to all defendants of the proceedings. The Administrators have, however, sought a special costs order.

78    Section 43 of the Federal Court of Australia Act 1976 (Cth) gives the Court a wide discretion as to costs. The speed by which these transactions occurred, and the net result of the proceedings agitated by Mr Scott at no cost to KAPL being determined, has obviously led to some real suspicion held by Mr Scott as to what has occurred.

79    When I first saw this case, without understanding the detail of the financial transactions, it was fair to say that it caused me some initial concerns. Those concerns dissipated when I was taken, during the hearing, to documents demonstrating the true financial position of KAPL and the countervailing benefits and burdens put in place by the DOCA. Although I do not consider that the application brought by Mr Scott has merit when those transactions are properly analysed, it was not a category of case which seems to me to call for the power to make some form of special costs order, and costs will be payable on the ordinary basis.

80    This matter came on with great dispatch. I am grateful to counsel and all the parties for the efficient way the proceeding was conducted and the provision under tight deadlines of court books and useful submissions.

Associate:

Dated: 1 September 2025