Federal Court of Australia

Ausprout Group Pty Ltd (in liq) v Gordon, in the matter of Ausprout Group Pty Ltd (in liq) [2026] FCA 1635

ORDERS

THE COURT ORDERS THAT:

1.    The Plaintiffs’ originating application is dismissed.

2.    The parties are to be heard on the question of costs.

3.    By 4.30pm, on 13 November 2026 the Defendants file and serve any affidavits and written submissions (of no more than 5 pages) on the question of costs.

4.    By 4.30pm, on 27 November 2026 the Plaintiffs file and serve any affidavits and written submissions (of no more than 5 pages) on the question of costs.

5.    By 4.30pm, on 4 December 2026 the Defendants file and serve any affidavits and written reply submissions (of no more than 2 pages) on the question of costs.

6.    Upon receipt of the Defendant’s submissions in reply, the question of costs will be reserved for judgment on the papers.

7.    There be liberty to apply in relation to Orders 3, 4 and 5.

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

REASONS FOR JUDGMENT

WHEATLEY J:

INTRODUCTORY OVERVIEW

1    The First Plaintiff, Ausprout Group Pty Ltd (in liquidation) and the Second Plaintiff, Mr Thomas Otway (the Liquidator) (together, the Plaintiffs) bring this proceeding against Mr Graham Gordon and Mrs Pamela Gordon (together the Defendants or Mr and Mrs Gordon) on the basis that they were shadow or de facto directors of Ausprout. Originally, the Plaintiffs’ claim was based on two broad bases. First, that the Defendants had breached their directors’ duties or been a party to an unreasonable director-related transaction, under Part 5.7B of the Corporations Act 2001 (Cth) (the Act). Second, and separately that the Defendants had been parties to voidable (insolvent) transactions and that orders under the Act about those transactions were appropriate (including an order for a payment).

2    On the commencement of the hearing, the Plaintiffs abandoned certain aspects of their case against the Defendants. This included that the Plaintiffs did not seek the Court to make any findings regarding the claimed insolvency of Ausprout. The Plaintiffs only pressed for relief on the first basis that the Defendants breached their directors’ duties or had entered an unreasonable director-related transaction.

3    That relief pressed by the Liquidator required the Court to find that the Defendants were shadow or de facto directors of Ausprout. The Plaintiffs accepted that the Defendants had not been formally appointed as directors. The Plaintiffs also accepted that should this issue be resolved against them, the proceeding must be dismissed. As such, this can be properly described as a threshold or preliminary issue.

4    It became apparent during the Plaintiffs’ opening that the case sought to be advanced was beyond the terms of the pleadings. The sole pleaded basis upon which the Plaintiffs relied to support the allegation that Mr and Mrs Gordon were shadow or de facto directors was that they were granted a power of attorney. The Liquidator sought leave to amend the Statement of Claim which he accepted would necessitate an adjournment of the trial and as such, it would be appropriate for the costs thrown away by the adjournment to be ordered in the Defendants’ favour. The Defendants opposed that application.

5    At the hearing, that oral application for leave to amend and to adjourn the trial was refused. Reasons for dismissing that application are provided in this judgment.

6    The Plaintiffs’ closing submissions also sought to advance arguments beyond the pleaded case. The Defendants objected and opposed those submissions. It is first necessary to resolve that issue and determine what is the basis advanced by the Plaintiffs to support their contention that the Defendants are shadow or de facto directors of Ausprout and whether that is accepted, to determine the threshold issue.

7    For the following reasons, the proceeding must be dismissed as the Plaintiffs are unable to establish that the Defendants were shadow or de facto directors of Ausprout, on the basis pleaded. As such the Plaintiffs’ claims that the Defendants breached their directors’ duties or had entered an unreasonable director related transaction must fail.

8    It will be necessary to hear from the parties in relation to costs.

AGREED FACTS

9    Before the Plaintiffs abandoned part of their case, the parties filed a statement of agreed facts. Given the change in the Plaintiffs’ case, it is only necessary to refer to the following matters.

10    Ausprout was incorporated under the Act on 14 May 2018. Gradon (Qld) Pty Ltd currently holds and has held since 25 March 2019, 400 ordinary shares in Ausprout. Mr and Mrs Gordon were and are (at all relevant times) directors and shareholders of Gradon. It was admitted on the pleadings that Mr Ryan Watts was the director of Ausprout from 14 May 2018 and he held 600 ordinary shares in Ausprout.

11    From about 18 May 2018 to 12 February 2019 Mr and Mrs Gordon advanced $263,105.23 to Ausprout (Monies Paid). The Monies Paid were by way of several different amounts on different dates. Two additional amounts were also paid by Mr and Mrs Gordon to Ausprout which totalled $2,351.60 on 11 and 15 April 2019 (Further Monies Paid), together the Monies Paid and the Further Monies Paid will be referred to as the Loaned Amount.

12    On 21 March 2019, Ausprout (by way of its appointed director, Mr Watts) and Mr and Mrs Gordon executed a written agreement entitled “Loan Deed”. Relevantly, the Loan Deed:

(a)    recorded the Monies Paid by Mr and Mrs Gordon to Ausprout;

(b)    granted Mr and Mrs Gordon security over Ausprout in respect of the Monies Paid; and

(c)    appointed Mr and Mrs Gordon as Ausprout’s agent, attorney, nominee, proxy and representative to do or cause to be done all acts and things necessary or desirable to give effect to the Loan Deed.

13    On 2 April 2019 Mr and Mrs Gordon registered their security interest over the Company on the Personal Property Securities Register (PPSR).

14    On 11 October 2019 Ausprout, Mr and Mrs Gordon and Gradon entered into a general power of attorney (POA) in which Ausprout granted the POA to Mr and Mrs Gordon and Gradon until the Loaned Amount was repaid. Further, Ausprout permitted Mr and Mrs Gordon and Gradon to enter into conflict transactions.

15    On 30 January 2020 Ausprout received a research and development payment from the Australian Taxation Office (ATO) in the sum of $186,074.62 (R & D Payment), into its Suncorp Bank Account ending 8242 (Suncorp Account).

16    On 4 or 5 February 2020, Mr and Mrs Gordon withdrew the sum of $186,060 and applied it in reduction of the Loaned Amount (the Withdrawal and Payment).

17    On 29 April 2020, Ausprout was wound up pursuant to an Order of this Court and the Liquidator was appointed.

THRESHOLD ISSUE - Were the Defendants directors?

18    The Parties had also provided an agreed list of issues for trial, before the Plaintiffs abandoned some of their case. The Parties agreed at the hearing that the preliminary issue (which was issue 1 from the agreed list of issues) was whether:

(b)y virtue of the power and control granted to and exercisable by the First and Second Defendants (collectively, the Defendants) pursuant to the terms of the power of attorney (POA) between the First Plaintiff (Company) and the Defendants dated 11 October 2019, were the Defendants shadow directors or de facto directors of the Company within the meaning of subparagraph (b) of the definition of directors in section 9 of the Corporations Act 2001 (Cth) (Act) (which is now contained in section 9AC but at the time was section 9 of the Act) at time the payment of $186,060 (Payment) was made on 4 or 5 February 2020?

19    This was stated succinctly in the Plaintiffs’ opening as:

Were the Defendants shadow or de facto directors of [Ausprout] within the meaning of the Corporations Act by virtue of the power and control granted to and exercisable by them, pursuant to the terms of the power of attorney executed by [Ausprout] in their favour.

20    It is only necessary to consider the remaining issues (being a contended breach of director duties or an unreasonable director-related transaction), should this threshold issue be answered favourably for the Plaintiffs. Neither of the director claims can succeed if the Defendants are not directors, as contended by the Plaintiffs. As such, it is appropriate to consider this issue first and separately.

How do the Plaintiffs contend that the Defendants were directors?

21    The Plaintiffs plead that by virtue of the power and control granted to and exercisable by the Defendants pursuant to the terms of the POA, they were shadow or de facto directors of Ausprout and therefore were directors within the meaning of that term in s 9 (and s 9AC) of the Act. This is denied by the Defendants.

22    However, during each of the Plaintiffs’ opening and closing submissions different and additional matters were advanced by the Plaintiffs. Each of these needs to be considered to properly ascertain how the Plaintiffs contend that the Defendants were directors.

The Plaintiffs’ Opening

23    During the Plaintiffs’ opening it became clear that the matters sought to be opened and advanced to support their contention that the Defendants were shadow or de facto directors were beyond the pleaded case. The Defendants objected to the Plaintiffs seeking to expand its case in this way.

24    The Plaintiffs accepted that the matters advanced in opening were beyond the pleading and sought leave to amend their Statement of Claim. Consequential upon that application, it was also accepted by the Plaintiffs that they would need to seek an adjournment of the trial to produce a proposed amended pleading. In these circumstances, the Plaintiffs also accepted that they should pay the costs thrown away by the application to amend and adjourn.

The application to amend and adjourn

25    The Plaintiffs submitted that being the Liquidator, there was only access to limited information at the time of filing the Statement of Claim, however on receipt of the Defendants’ evidence further issues had become apparent. The Plaintiffs further submitted that the prejudice to the Defendants would be addressed by the proposed order as to costs. Further, given the time which had been taken on preliminary issues the Plaintiffs were no longer confident that the trial would conclude in the day, such that an adjournment might be inevitable.

26    The Defendants opposed the application to amend and adjourn. The Defendants submitted that the application had come very late and in fact after the Plaintiffs concluded their opening in the trial. Any matters which the Plaintiffs claim to have been apparent from the Defendants’ affidavit evidence were available to the Plaintiffs for approximately 6 months prior to the trial commencing. The Defendants also submitted that costs were not the only prejudice incurred, the Defendants as individuals are in a different position, in circumstances where the proceeding was filed in 2023 and hence had been an ongoing strain. Finally, the Defendants submitted that the hearing was likely to still conclude in the day, if the amendment was not permitted and that it was in the interests of justice, including other users of the Court for the trial to proceed, when it was set for hearing.

27    The principles to be applied are well-settled from Aon Risk Services Australia Limited v Australian National University (2009) 239 CLR 175; [2009] HCA 27 which can be summarised as:

(1)    the nature and importance of the amendment to the party seeking to amend (Aon at [102]);

(2)    whether there has been undue delay, and the extent of that delay, in making the application and whether that party has had sufficient opportunity to plead their case (Aon at [24], [102] and [111]);

(3)    whether the trial date would be vacated or a trial adjourned (Aon at [5], [24]-[25], [30] and [102]);

(4)    whether a satisfactory explanation for the delay is provided (Aon at [5], [30] and [102]-[103]);

(5)    whether the point to be raised by the amendment would be raised in the trial, anyway, or the controversy in issue was in existence prior to the application to amend (Aon at [28] and [82]);

(6)    the point the litigation has reached, relative to the trial (Aon at [102] and [112]);

(7)    the strain and uncertainty on litigants (Aon at [30] and [100]-[101]);

(8)    whether the delay would undermine public confidence in the administration of civil justice (Aon at [5], [24], [30] and [35]);

(9)    the effect on other litigants, wasted public resources and the inefficiencies in the administration of justice (Aon at [5], [23]-[25], [27], [94]-[95], [102] and [113]);

(10)    prejudice to the other party (Aon at [5], [99] and [102]);

(11)    the additional costs to be incurred, the capacity to pay costs and that the payment of costs are not the panacea they once were (Aon at [5], [25], [96], [98]-[99], [102] and [111]); and

(12)    the just resolution of the proceedings (Aon at [36], [90] and [98]).

28    The plurality observed at [90] (FN 181) that rules similar to that under consideration in Aon were also stated in the rules of other courts in Australia, except the rules of this Court. The bill introducing the Access to Justice (Civil Litigation Reforms) Amendment Bill 2009 (Cth) was introduced on 22 June 2009 and prior to the decision in Aon being delivered. However, as the Addendum to the Explanatory Memorandum recognised, the case management principles sought to be introduced by the bill was supported and consistent with the High Court’s decision in Aon. This bill introduced Part VB regarding case management in civil proceedings into the Federal Court of Australia Act 1976 (Cth) (the FCA). In this regard particular note should be made of s 37M and s 37N of the FCA.

29    The plurality of Kiefel CJ, Bell and Keane JJ stated in UBS AG v Tyne as trustee of the Argot Trust (2018) 265 CLR 77; [2018] HCA 45 at [38] (although in the context of that case being one involving an abuse of process) the following statement of general principle, after express reference to s 37M of the FCA:

The timely, cost effective and efficient conduct of modern civil litigation takes into account wider public interests than those of the parties to the dispute. These wider interests are reflected in s 37M(2) of the FCA. As the joint reasons in Aon Risk Services Australia Ltd v Australian National University explain, the “just resolution” of a dispute is to be understood in light of the purposes and objectives of provisions such as s 37M of the FCA. Integral to a “just resolution” is the minimisation of delay and expense. These considerations inform the rejection in Aon of the claimed “right” of a party to amend its pleading at a late stage in the litigation in order to raise an arguable claim. The point is made that a party has a right to bring proceedings but that choices are made respecting what claims are made and how they are framed. Their Honours speak of the just resolution of the dispute in terms of the parties having a sufficient opportunity to identify the issues that they seek to agitate.

[footnotes omitted]

30    Section 37M of the FCA provides that the overarching purpose of the civil practice and procedure provisions is to facilitate the just resolution of disputes according to law and as quickly, inexpensively and efficiently as possible.

31    Before UBS and further to Aon French CJ, Kiefel, Bell, Gageler and Keane JJ stated the following in Expense Reduction Analysts Group Pty Ltd v Armstrong Strategic Management Marketing Pty Ltd (2013) 250 CLR 303; [2013] HCA 46 at [51]:

In Aon Risk Services Australia Ltd v Australian National University, it was pointed out that case management is an accepted aspect of the system of civil justice administered by the courts in Australia. It had been recognised some time ago by courts in the common law world that a different approach was required to tackle the problems of delay and cost in the litigation process. Speed and efficiency, in the sense of minimum delay and expense, are essential to a just resolution of proceedings. The achievement of a just but timely and cost-effective resolution of a dispute has effects not only upon the parties to the dispute but upon the court and other litigants. The decision in Aon Risk Services Australia Ltd v Australian National University was concerned with the Court Procedures Rules 2006 (ACT) as they applied to amendments to pleadings. However, the decision confirmed as correct an approach to interlocutory proceedings which has regard to the wider objects of the administration of justice.

32    Applying these principles, the application to amend the Plaintiffs’ pleading and adjourn the trial was refused. These are the reasons for that refusal.

33    The Plaintiffs’ application to amend their pleading was reactionary to the Defendants’ objection that their opening went beyond the pleaded case. As such, the precise scope of the nature of the proposed amendments was unclear and a specific form of amendment was not advanced. Broadly, the Plaintiffs submitted that the amendments would expand the basis upon which material facts would be alleged to support the Plaintiffs’ contention that the Defendants were directors of Ausprout and would remove the abandoned aspects of the Plaintiffs’ case. The expansion was said to be on the basis of the progression or development of the relationship of the Defendants from investors to directors. However, given the absence of a proposed amendment and the other matters opened, it is likely that the amendments would have gone further than this one matter. The Plaintiffs were seeking leave to amend at large.

34    It is clear that the nature of the amendments sought were important to the Plaintiffs. Without leave to amend, the Plaintiffs’ case would be restricted to the matters pleaded regarding the grant of the power of attorney said to be exercisable by the Defendants. By the Plaintiffs’ opening it was clear they sought to rely on other material facts to support their contention that the Defendants were shadow or de facto directors. This factor weighs in favour of granting leave to amend.

35    The Plaintiffs accepted that they had both the opportunity to amend their pleading earlier and that this application was “an extremely belated request”. This application was made at almost midday on the first day of trial. The Plaintiffs had concluded their opening, and the Defendants had objected to certain parts of the opening as going beyond the pleaded case. It was then that the Plaintiffs sought leave to amend. This factor weighs against granting leave to amend.

36    As the Plaintiffs’ application to amend was reactionary, they did not have a proposed amended pleading and therefore properly recognised that the application was for leave to amend and to adjourn the trial. This would result in the remaining trial date being vacated and the trial, having already commenced, being adjourned. The trial was set down pursuant to case management orders dated 15 August 2025. Earlier case management orders dated 10 February 2025 (and extended on 18 June 2025) made provision for each parties’ evidence. When the trial was set down in August 2025, all of the evidence proposed to be relied on was already filed. The vacation and adjournment of the trial in circumstances where it had been set down for 6 months and where all of the evidence had been filed prior to the setting down of the trial weighs against granting leave to amend and an adjournment of the trial.

37    The Liquidator seeks to explain the delay effectively due to the nature of his office. This is because the Liquidator was not a party to the transactions or events and as such he claims that such matters were not known to him. The Liquidator submits that such matters only became apparent on receipt of the Defendants’ evidence. I do not accept this as a satisfactory explanation. The Defendants’ evidence was filed prior to the proceeding being set down for trial. On receipt of the Defendants’ evidence, at least 6 months prior to the trial, there was an opportunity for the Plaintiffs to seek leave to amend. Such quick action by the Plaintiffs (consistent with s 37M) would have resulted in the trial dates being maintained. The absence of a satisfactory explanation weighs against granting leave to amend and adjournment of the trial.

38    The Plaintiffs also sought to argue that as the matters now sought to be raised in the pleadings arose from the Defendants’ evidence, such points would be raised in the trial anyway and those matters of controversy were already in issue. However, the Defendants’ evidence was filed prior to the Plaintiffs’ abandonment of large parts of its case. Furthermore, the Defendants had not opened their case and therefore had not identified what evidence the Defendants would be relying on. The Plaintiffs’ abandonment of a large part of their case meant it was not clear that these matters would be the subject of controversy or would be raised anyway in the trial. The Plaintiffs did not seek to develop this submission by express or precise reference to any material. For these reasons I do not accept these submissions of the Plaintiffs and as such, this factor weighs against granting leave to amend.

39    The litigation had reached trial and was in the process of being heard, when the Plaintiffs made the application to amend and adjourn. The application was not made at the commencement of the hearing, but in reaction to the Defendants’ objection to parts of the Plaintiffs’ opening. The litigation was well advanced and therefore this factor weighs against granting leave to amend.

40    There is a particular strain and uncertainty which must be regarded in the circumstances of this case, as the Defendants are individuals. The Defendants are not sophisticated businesspeople, and these proceedings were commenced on 16 March 2023. There is a non-compensable inconvenience and stress on individuals which is significant in modern litigation. If leave was granted to amend and the trial adjourned, further interlocutory steps would be necessary, and the ongoing burden of this litigation would be imposed on the individual Defendants for longer. This factor weighs against granting leave to amend.

41    The delay would undermine the public confidence in the administration of civil justice. Particularly given the absence of a satisfactory explanation, the undue delay, the opportunity being available earlier to seek leave to amend and the strain on the individual Defendants as litigants. This factor weighs against granting leave to amend.

42    There is also an effect on other litigants and inefficiencies in the administration of justice. As the application to amend and adjourn was made part way through the trial there is an obvious waste of public resources. The trial would need to recommence and hence there would be an effective duplication of that part of the hearing, if leave to amend were granted. Further, there is an effect on other litigants as the hearing dates could have been allocated to others, which were then wasted. This is ameliorated in some respects as the Court’s work is not only in hearing cases, but also in preparing and delivering judgments. If the adjournment were to be granted the Court’s time could, in some respects, be reallocated. However, the wasted time already spent could obviously not be reallocated. On balance, however, given the very stage at which this application was made this factor does weigh against granting leave to amend.

43    There is also prejudice to the Defendants, not only in terms of the strain of litigation on the individuals involved, but also as they have prepared for the trial of this proceeding and then during the trial, the Plaintiffs sought to recast their case. This is in circumstances where the Plaintiffs’ Statement of Claim was filed when the proceeding was commenced on 16 March 2023, was unchanged through all of the case management steps, preparation of evidence and during the commencement of trial. The Plaintiffs abandoned certain aspects of their case at the commencement of the trial, but by now seeking to amend, there would be a fundamental change to the Plaintiffs’ case regarding the allegations that the Defendants were directors. This factor weighs against granting leave to amend.

44    Although the Plaintiffs offered to pay the Defendants costs thrown away by the adjournment (on a party-party basis), the payment of costs is not the panacea it once was. Even indemnity costs may not be sufficient to undo the prejudice (Aon at [99]). As the Plaintiffs were seeking leave to amend the Statement of Claim, the Defendants would need to replead by way of their Defence, and there would likely be additional evidence. All of which would have incurred additional costs. This factor weighs against granting leave to amend.

45    Finally, a consideration of the just resolution of the proceeding is required. The Plaintiffs have advanced the same case regarding the alleged capacity of the Defendants being directors for the entirety of the proceeding. Then during the trial, the Plaintiffs sought to expand the material facts relied on to support their contention that the Defendants were shadow or de facto directors. Without the amendment the Plaintiffs are not held out of advancing their case against the Defendants for being alleged directors, they are, however restricted to the same basis as originally pleaded. The Defendants have prepared for the trial based on the current (and constant) allegation against them being shadow or de facto directors. That allegation is based on the power and control granted to and exercisable by the Defendants pursuant to the POA. In all of these circumstances, it is the determination of this controversy between the parties which will bring about a just resolution.

46    For all of these reasons the Plaintiffs’ application to amend their pleading and adjourn the trial was refused. As such, after the Plaintiffs’ opening, the only basis advanced against the Defendants being directors was based on the matters pleaded in the Statement of Claim.

The Plaintiffs’ closing submissions

47    The Plaintiffs’ written closing submissions, after the close of evidence, advanced different and additional facts and arguments to support their contention that Mr and Mrs Gordon were shadow or de facto directors of Ausprout. These matters were different and additional to those matters advanced in their pleading. The Plaintiffs accepted that they did seek to go beyond their pleaded case, however they submitted that the Defendants have not been taken by surprise. Further, the Plaintiffs submitted that these issues have been fully and properly ventilated and as such, the Court should decide the case considering these different and additional matters.

48    The Defendants opposed this position advanced by the Plaintiffs and sought to confine the issues to those on the pleadings. Further, the Defendants submitted that the Plaintiffs’ pleading is only that Mr and Mrs Gordon had the capacity to exercise a power under the POA, not that by virtue of exercising the powers granted to them under the POA, they were shadow or de facto directors. The Defendants identified 12 paragraphs and 3 sub-paragraphs of the Plaintiffs’ written closing submissions which they submitted went beyond the pleaded case.

49    It is important to understand precisely the basis or bases upon which the Plaintiffs rely to support their contention that the Defendants were directors. This is important because whether a person fulfils the role of a shadow or de facto director is a question of fact: Shafron v Australian Securities and Investments Commission (2012) 247 CLR 465; [2012] HCA 18 at [26] (French CJ, Gummow, Hayne, Crennan, Kiefel and Bell JJ) which endorsed Morley v Australian Securities and Investments Commission (2010) 274 ALR 205; [2010] NSWCA 331 at [892]-[893] (Spigelman CJ, Beazley and Giles JJA).

50    It is the pleadings which identify the material facts upon which the parties rely and the issues the parties seek to have determined: Betfair Pty Limited v Racing New South Wales [2010] FCAFC 133 at [50] (Keane CJ, Lander and Buchanan JJ).

51    The Plaintiffs accepted that they do seek to go beyond their pleaded case.

Should the Plaintiffs’ case be confined to the pleadings?

52    In essence the different and additional facts that the Plaintiffs sought to rely on to establish that the Defendants were shadow or de facto directors were matters regarding the Defendants having allegedly held themselves out as directors (by engaging and instructing Ausprout’s accountants), providing financial directions and acting with authority (by way of the POA) over Ausprout’s affairs.

53    The Plaintiffs contended that it was no longer the case that pleadings rigidly and precisely limited issues, but rather the pleadings must give appropriate notice of the claims being made and must plead matters that would otherwise take a defendant by surprise: Dyldam Developments Pty Ltd v Jones [2008] NSWCA 56 at [31] (Hodgson JA, with whom Giles and Basten JJA agreed). Hodgson JA in that passage concluded that “the crucial consideration is whether the claim being upheld by the judge is one of which the losing party had appropriate notice and an appropriate opportunity to meet by evidence and submissions”.

54    The pleading must meet the basic requirement of procedural fairness, so that the party has an opportunity to meet the case against them: Pivotel Satellite Pty Limited v Optus Mobile Pty Limited [2010] FCA 516 at [7] (Jagot J, then of this Court) with reference to Banque Commerciale SA en Liquidation v Akhil Holdings Ltd (1990) 169 CLR 279; [1990] HCA 11 at 286. The pleading is not to be scrutinised for elegance or perfection, but for reasonable compliance with the rules of pleading: Canberra Data v Vibe Constructions (ACT) Pty Ltd (2010) 173 ACTR 33; [2010] ACTSC 20 at [49] (Refshauge J). The pleadings are a means to an end; the function of pleadings is to present the case with reasonable clearness: Betfair at [52].

55    The Plaintiffs’ written closing submissions do go well beyond the pleaded case. As already observed the Plaintiffs quite rightly accepted that position, however submitted that there were sufficient facts pleaded to give the Defendants notice of the matters which would be relied on. Based on the way the Plaintiffs advanced its case, by way of opening and the evidence led, the Defendants made, they submit, three strategic decisions about their case. First, not to call any evidence. Second, the limited topics of cross-examination which were put to the Liquidator and third was the limited evidence adduced through the Liquidator in cross-examination. In short, the Defendants submit that they did this based on the Plaintiffs’ case, as presented on the pleadings and the evidence adduced relevant to that pleading. Further, the Defendants submit that they may have conducted their case quite differently if the matters sought to be advanced in the Plaintiffs’ written closing submissions were earlier advanced on the pleadings.

56    As the Plaintiffs contend that sufficient notice was given in the pleading of the different and additional matters sought to be advanced by the Plaintiffs in their closing submissions, it is necessary to consider those matters in further detail. The different and additional matters sought to be advanced can be grouped into the following four categories.

(i)    That the Defendants held themselves out as directors and were acting on behalf of Ausprout, by instructing and representing that they had authority to so instruct (including by way of the POA) to third parties, including Ausprout’s accountants.

(ii)    That the Defendants exercised powers on behalf of Ausprout, including by applying part of the payment of the R & D Payment towards the Loaned Amount, establishment of a new bank account for the R & D Payment to be deposited, that this new bank account would require two signatures to operate, being any two of Mr Watts or Mr or Mrs Gordon and that Mrs Gordon was to notify the accountants of the new bank account details.

(iii)    That the Defendants undertook a substantial business decision on behalf of Ausprout and assumed responsibility for making high-level management decisions of Ausprout.

(iv)    The conduct of the Defendants reflects their influence over Ausprout and the pressure which was applied to Mr Watts, by way of entering into the Loan Deed, the POA and by making the Withdrawal and Payment.

57    The Plaintiffs’ pleadings (by way of the Statement of Claim and the Reply) do not plead, as a material fact:

(a)    that the Defendants (either or both of them) held themselves out as directors;

(b)    anything regarding the accountants (including who were the accountants, what, if anything, they were instructed to do and by who) – the only mention of “Coverdale Business Solutions” was as a particular, listed as an amount outstanding to a creditor. There was nothing pleaded to identify that this entity was Ausprout’s accountants;

(c)    that by making the Withdrawal and Payment, the Defendants were doing so, on behalf of Ausprout. The Statement of Claim only alleged “(o)n or about 4 February 2020, the Defendants withdrew the sum of $186,060 from the Company’s bank account (Payment), and applied it in reduction of the Investment Amount” (being the Loaned Amount);

(d)    that the Defendants were in any way involved in seeking the R & D Payment (that being defined in the Statement of Claim as the R & D grants). The Statement of Claim only alleged “(o)n or about 30 January 2020, the Company received an R & D grant payment from the Australian Taxation Office in the sum of $186,074.62 in its bank account”, this being the account ending 8242;

(e)    that the bank account ending 8242 was a new account, any matters as to the establishment of this account ending 8242 and nothing regarding the signatures of this bank account;

(f)    that the Defendants undertook a, or any kind of substantial business decision on behalf of Ausprout;

(g)    that the Defendants made any kind of management decisions (at a high-level or otherwise) of Ausprout and there is no allegation that the Defendants assumed responsibility for making such management decisions of Ausprout; and

(h)    that the Defendants’ conduct reflected influence over Ausprout and/or of the Defendants putting pressure on Mr Watts to do anything.

58    It is worth setting out the following paragraphs from the Statement of Claim to identify the limited nature of the Plaintiffs’ case, as follows:

Transfer of Payment from Company account

18.    On or about 30 January 2020, the Company received an R&D Grant payment from the Australian Taxation Office in the sum of $186,074.62 in its bank account.

PARTICULARS

Transfer to the Company’s Suncorp account ending 8242 on 30 January 2020.

19.    On or about 4 February 2020, the Defendants withdrew the sum of $186,060 from the Company’s bank account (Payment), and applied it in reduction of the Investment Amount.

PARTICULARS

Withdrawal from the Company’s Suncorp account ending 8242 on 4 February 2020.

20.    At the time of the Payment, the Investment Amount was not yet due and payable by the Company to the Defendants.

…

Defendants as directors of the Company

24.    By virtue of the power and control granted to and exercisable by the Defendants pursuant to the terms of the POA, the Defendants are shadow directors and / or de facto directors of the Company and are therefore “directors” of the Company within the meaning of section 9 of the Act.

59    Earlier in the Statement of Claim, the Plaintiffs plead the Loan Deed (as the Agreement):

Agreement and Power of Attorney

Agreement

11.    From 18 May 2018 to 12 February 2019, the Defendants advanced to the Company the sum of $263,105.23 (Investment Amount).

PARTICULARS

See Schedule A

12.    At the time of the advances, the Investment Amount was not recorded in writing, nor was it secured.

13.    Subsequently, on or about 21 March 2019, a written agreement was entered into recording the advance of the Investment Amount and naming the Defendants as lenders and the Company as borrower (Agreement).

PARTICULARS

Agreement dated 21 March 2019, which is available for inspection at the Plaintiffs’ lawyers’ offices.

14.    Pursuant to the terms of the Agreement:

14.1.    the parties noted the advance of the Investment Amount by the Defendants to the Company;

14.2.     the due date for “repayment” of the Investment Amount was 31 March 2029;

14.3.     the Defendants were granted security over the Company in respect of the Investment Amount; and

14.4.     the Company irrevocably appointed the Defendants as its agent, attorney, nominee, proxy and representative to do or cause to be done all acts and things necessary or desirable to give effect to the Agreement.

15.    The Defendants registered a security interest against the Company’s personal property on the Personal Property Securities Register on 2 April 2019.

60    The Plaintiffs plead the following regarding the POA:

Power of Attorney

16.    On 11 October 2019, the Company, the Defendants and Gradon entered into a General Power of Attorney (POA).

PARTICULARS

General Power of Attorney dated 11 October 2019, which is available for inspection at the Plaintiffs’ lawyers’ offices.

17.    Pursuant to the terms of the POA:

17 .1.    the Company granted the POA to the Defendants and Gradon until such time as all monies were repaid to the Defendants and Gradon; and

17.2.    the Company permitted the Defendants and Graden to enter into conflict transactions, being transactions in which there may be a conflict or which results in conflict between a duty of an attorney towards the principal and the interests of the attorney.

61    The Plaintiffs submitted that the pleading of the Loan Deed, that included a clause appointing them as attorney was the accumulation of the progression of the relationship from investor to director.

62    The pleading then, it was submitted by the Plaintiffs, relevantly pleads the claimed breaches of directors’ duties and the claimed unreasonable director-related transaction. However, such matters are built upon the premise that the Defendants are shadow or de facto directors. These later pleadings in the Statement of Claim are not pleadings seeking to establish or make allegations that the Defendants are directors.

63    The different and additional matters sought to be advanced in the Plaintiffs’ written closing submissions go well beyond the pleaded case. Furthermore, the Plaintiffs’ pleading does not give the Defendants appropriate notice of the facts or arguments now sought to be advanced against them by the Plaintiffs.

64    The only allegation that the Defendants are directors of Ausprout is in paragraph 24 of the Statement of Claim (set out above at [58]). That only relies on the grant of power and control, said to be exercisable by the Defendants pursuant to the POA. The Plaintiffs do not plead any course of conduct, holding out or any other material facts to allege and support a finding of fact (as it must be) that the Defendants are shadow or de facto directors (other than in paragraph 24): see In the matters of Earth Civil Australia Pty Ltd [2021] NSWSC 966 at [955] and the authorities cited therein, whereby Ward CJ (as the President then was) summarised the relevant inclusive factors in considering the question of whether a person fulfils the role of de facto director as a question of fact. An appeal from this decision was dismissed ([2022] NSWCA 161; 109 NSWLR 348) and did not comment on the inclusive factors to be considered on whether a person fulfils the role of a de facto director.

65    The Statement of Claim does not plead that the Defendants were “investors”, it only defines the amount advanced (being the Monies Paid) as the “Investment Amount”. That is simply a label. It is a defined term used in the pleading to provide a shorthanded, abbreviated descriptor of the total of the amount advanced and the allegations in paragraph 11 of the Statement of Claim. That label could have been “Amount”, “Monies Paid” or any other short-handed descriptor. It does not, by using that label allege that the Defendants were investors. Furthermore, the pleading does not suggest any kind of progression in a relationship from investor to director, by way of the entry into a written agreement, course of conduct or otherwise. Of course, such a progression would not be possible without an allegation that the Defendants were first investors.

66    Each of the “Loan Deed” (Agreement), POA and Withdrawal and Payment are each pleaded as a separate, discrete matter. There is no linking of those matters to allege any kind of “progression” at all. There are no pleadings that any of these matters were undertaken (or were purportedly undertaken) by the Defendants as directors. There is also no pleading that the entry into each of these arrangements or by undertaking each of these acts, there is some kind of progression in the relationship as between the Defendants and Ausprout or any course of conduct relied on.

67    Although it can be accepted that the pleadings should not be narrowly or rigidly construed, it still must give appropriate notice of the claims which the Plaintiffs were seeking to establish in support of their case. There was no notice in the Plaintiffs’ pleading of the different or additional matters that they sought to advance and rely on in their closing submissions. The Defendants submit and I accept, that they were caught by surprise. Further, the Defendants ran their case in a particular way in reliance on the Plaintiffs’ case, as known to them and as was fairly disclosed.

68    For these reasons, the different or additional matters advanced by the Plaintiffs in their written submissions will not be considered further. The Plaintiffs are confined to their pleaded case.

Conclusion – Plaintiffs’ contention that the Defendants are directors

69    The sole basis by which the Plaintiffs seek to advance that the Defendants were directors, which is relevant to consider, stems from paragraph 24 of the Statement of Claim. That only relies on the grant of power and control, said to be exercisable by the Defendants pursuant to the POA. It is not alleged by the Plaintiffs that the Defendants actually exercised the powers granted to them pursuant to the POA, which then meant that the Directors were shadow or de facto directors.

Therefore, by grant of the POA were the Defendants directors?

70    Ausprout was in business to innovate and develop products for the rural sector, including fodder units using hydroponic sprouting which could be used to feed livestock. The Defendants are not sophisticated businesspeople and the Plaintiffs do not allege that the Defendants are in the money lending business. The Defendants have had some involvement with Ausprout since its incorporation on 18 May 2018, and lent monies to Ausprout from that time, being ultimately the Loaned Amount.

71    The Loan Deed was entered on 21 March 2019 whereby the Defendants were described as the “lender”, Ausprout was the “borrower” and Mr Ryan Watts and Ms Sarah Watts were described as the “guarantor”. The principal sum under the Loan Deed was $256,482.31 and the due date was stated as 31 March 2029. The Loan Deed granted security over Ausprout’s personal property to secure the amount advanced. The Defendants registered a security interest against Ausprout’s personal property on the PPSR on 2 April 2019.

72    Further, the Defendants, Gradon and Ausprout entered into the POA on 11 October 2019. The POA granted to the Defendants by Ausprout was until all of the Loaned Amount was repaid to the Defendants and Gradon. The Defendants and Gradon were also permitted, pursuant to the terms of the POA, to enter conflict transactions.

73    Section 9 of the Act defines “director” by reference to s 9AC. The Plaintiffs relevantly rely on s 9AC(1)(b) of the Act which states as follows:

9AC    Meaning of director

A director of a company or other body is

…

(b)    unless the contrary intention appears, a person who is not validly appointed as a director if:

(i)    they act in the position of a director; or

(ii)    the directors of the company or body are accustomed to act in accordance with the person’s instructions or wishes (excluding advice given by the person in the proper performance of functions attaching to the person’s professional capacity or their business relationship with the directors or the corporation).

Note:    Examples of provisions for which a person would not be a director because of paragraph (b) of this subsection include:

(a)    section 205B (notice to ASIC of change of address); and

(b)    section 249C (power to call meetings of a company’s members); and

(c)    subsection 251A(3) (signing minutes of meetings).

74    As such, by this statutory definition, a director includes those who are not validly appointed but who meet the requirements of either s 9AC(1)(b)(i) (generally referred to as “de facto” directors) or s 9AC(1)(b)(ii) (generally referred to as “shadow” directors) of the Act: Hayes (liquidator), in the matter of Container Freight Services Pty Ltd (in liq) v Sinadinos [2024] FCA 885 at [17] (Halley J).

75    From Grimaldi v Chameleon Mining NL and Another (No 2) (2012) 200 FCR 296; [2012] FCAFC 6, Finn, Stone and Perram JJ provided guidance as to relevant inclusive factors to be considered as to whether a person was a de facto director, which were summarised by Barrett AJA In the matter of ACN 092 745 330 [2017] NSWSC 241 at [33] and distilled by Halley J in Hayes as follows (at [18]):

(a)    to be a de facto director, a person must be shown to have assumed or performed functions which only a de jure director or board can properly perform, or which are the sole responsibility of a director or board;

(b)    any comparison of what an alleged de facto director does, however, with the things that are done by duly appointed directors, must take into account the fact that what is to be done in the field of management of business and affairs by an individual director will vary from company to company, according to the particular company’s circumstances;

(c)    the existence of active directors or a properly constituted and apparently functioning board does not preclude a finding that an alleged de facto director was a director;

(d)    whether the company has held the alleged de facto director out as a director will be a relevant, but not decisive, consideration;

(e)    the focus of the consideration is on the way the alleged de facto director operates within the particular corporate governance context, the degree of autonomy exercised, and the appearance (and reality) of authoritative operation as a primary level decision maker for the company;

(f)    it may be useful to direct attention to the following considerations:

(i)    whether the person has assumed responsibility to act as a director;

(ii)    the nature of the corporate governance structure and the position the person occupies within it;

(iii)    what the person actually did, as distinct from any job title;

(iv)    the cumulative effect of the activities relied on, with the whole of the circumstances being looked at “in the round”;

(v)    whether the company regarded the person as a director and held them out as such;

(vi)    whether third parties considered that the person was a director; and

(vii)    whether the person was consulted about or participated in directorial decisions.

76    The above principles, in relation to a consideration of a de facto director are accepted, however, given the narrow basis advanced and relied on by the Plaintiffs, most of these guiding principles are not applicable in the circumstances of this case.

77    Although the Plaintiffs continued to submit that the Defendants were either shadow or de facto directors, the Plaintiffs did not plead any acts or conduct whereby it was alleged that Mr Watts was accustomed to act in accordance with the instructions or wishes of the Defendants, as would be required for a shadow director. Furthermore, by only the grant of the POA which gave power to the Defendants which was exercisable (not that it was exercised), that could not satisfy the requirements of being a shadow director, of itself. Section 9AC(1)(b)(ii) of the Act would require Mr Watt to act in accordance with the instructions or wishes of the Defendants. The grant alone of the POA would not satisfy these requirements. No relevant “acts” of the Defendants are relied on either by exercising the power granted pursuant to the POA or otherwise, to satisfy the requirements of s 9AC(1)(b)(ii) of the Act. As such, the Defendants would not satisfy the requirements, on any view of the Plaintiffs’ case, of being shadow directors. Therefore, it is not necessary to consider this aspect of the Plaintiffs’ case further.

78    It was clear that the Plaintiffs’ real contention was that the Defendants were de facto directors. This is because of the Plaintiff’s pleaded case and the authorities relied on.

79    The Plaintiffs rely on the following decisions to support the submissions advanced. Those being:

(a)    Broadway Plaza Investments Pty Ltd v Broadway Plaza Pty Ltd, in the matter of Combined Projects (Arncliffe) Pty Ltd [2020] NSWSC 1778 (Ward CJ);

(b)    Boyd v Feeney & Ors [2017] NSWSC 1595 (Black J);

(c)    Australian Securities and Investment Commission v Midland Hwy Pty Ltd (Admin Apptd) (2015) 110 ACSR 203; [2015] FCA 1360 (Beach J);

(d)    Walsh Engineering Services Pty Ltd (in liq) & Ors v Walsh Group (Aust) Pty Ltd & Ors [2021] VSC 206 (Hetyey AsJ);

(e)    Woodworx Joinery Holdings Ltd (in liquidation) [2026] NSWSC 39 (Black J); and

(f)    International Cat Manufacturing Pty Ltd (in liq) and Anor v Rodrick and Ors [2013] QSC 91 (Philip McMurdo J).

80    The Plaintiffs submit that the decision of Broadway concerned the interaction between the power granted under a power of attorney and the attorney’s position then as a director of the company.

81    The Plaintiffs submitted that Broadway involved two proceedings being heard together: the “Broadway Proceeding” and the “Arncliffe Proceeding”. The Plaintiffs submitted that in the Broadway Proceeding, the power of attorney granted by the company and its director to Jamil Sayour were not considered authority for Jamil to operate the business of Broadway Plaza Pty Ltd due to the limited terms of that power of attorney. However, the Plaintiffs further submitted that Jamil was considered to be acting as a de facto director of Sayour Holding Pty Ltd in the Arncliffe Proceeding, which was due to the unlimited terms of the power of attorney granted and then acted on by Jamil. This submission by the Plaintiffs is with reference to Broadway at [3602], that paragraph states:

As to the findings sought by Konstructions, I do not accept that the evidence permits any finding as to Jamil’s unreliability or dishonesty or otherwise, nor do I draw any inference from Moustafa’s, perhaps inconsistent, conduct in expressing views as to Jamil’s unreliability in the past but at the same time having been prepared to appoint him as his attorney when he travelled overseas and having been prepared to allow Jamil to manage certain of the family business affairs (including Biomed). Nor do I draw an inference from whatever cultural practices might suggest in this context (having again the absence of any expert sociological or anthropological evidence as to applicable cultures or customs). Suffice it to note that, whatever in fact be the extent of Moustafa’s understanding at the relevant time as to the purpose of Sayour Holdings and whatever his understanding as to the Arncliffe Development, he certainly left to Jamil the day-to-day running of the Arncliffe Development and, to that extent, he either impliedly authorised Jamil to act on behalf of Sayour Holdings in that project or he acquiesced in him so acting.

82    That paragraph does not stand for the broad proposition advanced by the Plaintiffs. The Broadway matter was obviously complex. In Broadway it was submitted that Jamil met the definition of an officer, being a de facto director (at [1631]). Further, in the paragraph before (at [3601]) Ward CJ stated the following, which should be noted was without reference to any power of attorney:

Generally for the reasons advanced by the Deiri Parties and Konstructions (and, as outlined above), I find that Jamil was acting as a de facto director of Sayour Holdings and that Moustafa, who must be taken to have been aware of the company’s incorporation since he signed the consent forms for the registration of the company, permitted that state of affairs to continue.

83    The scope of the authority said to be conferred on Jamil in Broadway was “hotly” disputed (Broadway at [101] and [1102]). Ward CJ did not accept the submission that the execution of the various powers of attorney was evidence that Jamil was given authority to run the business of Plaza (at [1168]). The circumstances of that case required the precise scope and effect of the powers of attorney to be considered, however the successive powers of attorney did establish a level of trust and confidence in Jamil to authorise him to do certain things (at [1169]). Ward CJ did not accept that Jamil was given sole authority to conduct the business of Plaza, but he was given a level of authority and was held out as someone with whom Investments (another party) could deal with on behalf of Plaza in some contexts (at [1410], which is detailed further at [1411]-[1412]).

84    The finding made by Ward CJ at [3601] (set out above) regarding Jamil being a de facto director was not made only by reference to the relevant powers of attorney in that case. The finding was based on a series of factual findings which supported the ultimate conclusion that Jamil was a de facto director. Those factual matters included who took an active role in managing the affairs of the relevant company, the director (Moustafa Sayour) must have known Jamil would continue to make all decisions and exercise all functions, permitted this state of affairs, knew Jamil was centrally involved and Jamil held a power of attorney (see [3579]-[3596], where the relevant parties’ submissions were set out, which were generally accepted at [3601]).

85    The Plaintiffs’ submission that the Broadway case can be described as one where a person was considered to be acting as a de facto director because an unlimited power of attorney had been granted and was then acted upon, cannot be accepted. Broadway was more complicated than that. Ward CJ considered many facts, circumstances and the conduct of Jamil and other parties including appointed directors.

86    Furthermore, the Plaintiffs’ submission in purported reliance on Broadway (which as observed, is not supported) contains two aspects. First that there is a grant of an unlimited power of attorney and second that it was then acted upon. This submission does not assist the Plaintiffs, as the Plaintiffs do not plead any conduct by the Defendants which was undertaken by way of acting upon the POA granted to them.

87    To be clear, Broadway does not provide support for the first aspect of this submission, that the grant of an unlimited power of attorney by a company (or its director(s)), of itself, is sufficient for such person(s) to be considered a de facto director of that company.

88    The Plaintiffs also submit that the decision of Boyd supports their position as Ms Ellersdorfer held a power of attorney in circumstances where no director was appointed in accordance with the Act, and the Court observed (Boyd at [49]) that it was likely she was acting as a de facto director.

89    In Boyd the Court was considering whether a particular memorandum of understanding should be the subject of an order for specific performance and whether a winding up order against the company, D & D Corak Investments Pty Ltd should be made, on the basis of oppression or on the just and equitable ground. The Court was not satisfied that oppression had been established and hence that would not be a proper basis to wind up D & D (Boyd at [47] and [48]). However, based on the governance (or lack thereof) of D & D, the Court did order D & D be wound up.

90    Mr Corak, as director of D & D had relevantly appointed Ms Ellersdorfer as attorney of D & D, conferring wide powers (Boyd at [16]). Black J observed (at [21]) that Ms Ellersdorfer had expressed an intention that the assets of D & D would be sold and distributed amongst the shareholders and then wound up, however the corporate steps that would or could be undertaken to achieve that result, where D & D had no director appointed were not identified (and the shareholders were in dispute).

91    In this context it is worth setting out the relevant part of Boyd at [49] in more detail, given the Plaintiffs’ reliance on this paragraph. Black J stated:

…Mr Bennett also relies on the steps which the Defendants have taken to sell all of the Company’s assets and to deal with its outstanding loans to Ms Feeney and her associate company and on the fact that they propose later to distribute the balance to shareholders and wind up the Company in opposing the relief sought. While these matters are significant, it must also be recognised that these steps have been taken (to the extent they have already occurred) in the exercise of Ms Ellersdorfer’s power of attorney, and likely by her acting as a de facto director of the Company, in circumstances where there has been and is no director appointed in accordance with the requirements of the Corporations Act to make relevant decisions on the Company’s behalf.

92    Black J further observed that it was a significant matter that D & D had been undertaking substantial business transactions, albeit authorised by Ms Ellersdorfer under the power of attorney and implemented with the assistance of the Company’s accountant and its or her solicitors, over a significant period, in which D & D had no director capable of making corporate decisions (Boyd at [52]). Ultimately, Black J was satisfied that a winding up order must be made on the narrow basis that the D & D had no director appointed to it since the death of the late Mr Corak (which appeared to have occurred in 2015) (Boyd at [2] and [53]) and did not presently have a director appointed. The absence of a company director capable of exercising corporate authority has long been recognised as a matter which may support a winding up of that company, however, Black J did observe that the authorities relied on were not in circumstances where there had been an “ongoing attempt” to exercise corporate powers under a power of attorney (Boyd at [53]). Relevantly, Black J stated:

where the Company has no director capable of making a corporate decision on behalf of the Company, including a decision to revoke the power of attorney granted to Ms Ellersdorfer, and Ms Ellersdorfer is left, in the indeterminate future, to conduct its affairs without a director or proper corporate governance being in place, unless or until any voluntary winding up takes place. It seems to me that the power of attorney granted by the Company to Ms Ellersdorfer to conduct aspects of its affairs, cannot substitute for compliance with the requirement that a proprietary company have at least one director resident in Australia, who is subject to the statutory responsibilities imposed on a properly appointed director.

93    Despite the passing remark of Black J at [49] (which was clearly obiter) the Court held that D & D had no corporate officer and no director presently appointed, in circumstances where Ms Ellersdorfer held a wide-ranging power of attorney for D & D. It was on this narrow basis that D & D was wound up. That is, the power of attorney held by Ms Ellersdorfer was insufficient to support a finding that D & D’s current governance structure could be a proper substitute for compliance with the Act. This was because D & D lacked the necessary corporate officer or director, and therefore was not in compliance with the requirement under the Act that the company have at least one director. (Boyd at [53]). Furthermore, there is no clear, definitive finding of Black J that the power of attorney granted to Ms Ellersdorfer, of itself, was sufficient for her to be a director, with the meaning of that term under the Act, by way of being a de facto director.

94    Boyd does not support the Plaintiffs’ contention that the grant of a wide ranging power of attorney by the company of itself is sufficient for such a person to be considered a de facto director and hence a director within the meaning of that term under the Act.

95    The Plaintiffs submit that the decision of Midland supports their position whereby it considered circumstances where a power of attorney, together with another written instrument, gave rise to the attorney being a de facto director.

96    In Midland the Court was considering ASIC’s application for orders under s 447A of the Act setting aside a resolution that a deed of company arrangement be executed and an order to windup Midland. Relevantly, Mr Grochowski was granted a power of attorney for Midland and he was also a party to another agreement with Mr Wood (the registered director of Midland) and Midland which was headed “Appointment of Director Agreement”. It was an unusual arrangement, whereby that agreement recorded, first, that Mr Wood was the registered director. Second, that Mr Wood did not have authority to act for or create or assume any responsibility or obligation for Midland other than authorised in writing by Mr Grochowski. Third, that Mr Grochowski would have a general power of attorney and fourth, that Mr Grochowski would hold Mr Wood’s resignation of director form and company resolution pending the removal of Mr Wood for whatever reason (Midland at [11]-[13]).

97    Beach J found that Mr Grochowski was the real controller of Midland and appears to have been the de facto or shadow director but remained in the shadows (Midland at [11] and [12]). Subsequently Mr Wood died, but nevertheless Mr Grochowski appears to have continued to run Midland “as a shadow/de facto director after this time or under the relevant power of attorney” (Midland at [26]). Beach J relied on several facts and circumstances to make the observations that Mr Grochowski appeared to have been a shadow/de facto director, including the Appointment of Director Agreement. Furthermore, the finding that Mr Grochowski continued to run Midland after the death of Mr Wood was based on him being a shadow/de facto director or because he held the power of attorney, not that Mr Grochowski ran Midland as a shadow/de facto director because he held the general power of attorney.

98    Midland does not support the Plaintiffs’ contention that the grant of a general power of attorney by the company, of itself is sufficient for such a person to be considered a de facto director and hence a director within the meaning of that term under the Act.

99    The Plaintiffs submit that the decision of Walsh (at [29]) also supports their position, where further relevant factors were identified with respect to de facto directors, including the size of the company, its internal practices, structure and holding out of a person as a director, to third parties.

100    The matter pressed in Walsh was a declaration that the directors, Mrs Walsh, and Mr Walsh, a former director and claimed de facto director, had engaged in insolvent trading (Walsh at [1] and [5]). There was no grant of a power of attorney in Walsh.

101    Hetyey AsJ considered Mr Walsh’s status as a director in detail (Walsh at [27]-[34]) commencing with observations from Grimaldi (Walsh at [27]) as outlined (above in these reasons at [75]). Hetyey AsJ also observed relevant factors (Walsh at [29]), similar to those summarised by Ward CJ in Earth Civil at [955] (both with reference to Deputy Commissioner of Taxation v Austin (1998) 28 ACSR 565; [1998] FCA 1034 (Madgwick J)).

102    Then, in the circumstances of Walsh Hetyey AsJ found at [32]:

Because the defendants’ defence has been struck out, they are taken to have admitted the following facts which are pleaded by the plaintiffs in their statement of claim dated 25 November 2019:

(a)     Mr Walsh was a director of the Company between 31 January 2017 and 21 November 2017;

(b)     Mr Walsh was signatory of the Company’s bank account;

(c)     Mrs Walsh was not a signatory of the Company’s bank account;

(d)     Mr Walsh managed the Company’s financing activities with Scottish Pacific Finance Pty Ltd without the need for approval from, or reporting to, Mrs Walsh;

(e)     Mr Walsh managed the Company’s day to day operating activities without the need for approval from, or reporting to, Mrs Walsh;

(f)     the decision by the Company to appoint voluntary administrators was made by Mr Walsh;

(g)     the Company traded as part of a group of companies which included Walsh Group and Walsh Equipment Services Pty Ltd (collectively, ‘the Walsh group of companies’);

(h)    the Walsh group of companies maintained the same contact details;

(i)     Mr Walsh was held out as the managing director of Walsh Group;

(j)    Mrs Walsh maintained paid employment outside of the Walsh group of companies while Mr Walsh worked in and for the Walsh group of companies on a full-time basis.

103    Furthermore, Mr Walsh gave evidence that he ran the company, that Mrs Walsh had no involvement in its operations and that at all material times he was acting as the company’s director and was its decision-maker.

104    Although the inclusive guiding relevant factors from Grimaldi, Walsh and Earth Civil to be considered for determination of when a person not validly appointed, nonetheless meets the requirements of s 9AC(1)(b) of the Act, are accepted, Walsh does not assist the Plaintiffs. This is for the following reasons:

(a)    first, there were no circumstances involving a grant of power of attorney in Walsh;

(b)    second, Mr Walsh accepted and gave evidence that he ran the company, acted as its director and was its decision-maker; and

(c)    third, unlike Walsh the Plaintiffs did not plead as material facts, any of the kind of guiding factors relevant for a consideration of whether a person is a de facto director.

105    Furthermore, in so far as the Plaintiffs may seek some support from Walsh because Mr Walsh was a signatory to the company’s bank account, that does not assist the Plaintiffs. First, that Mr Walsh was a signatory to the company’s bank account was but one factor relied on (as pleaded) and accepted by Hetyey AsJ. It was not the sole basis for finding that Mr Walsh was a de facto director. That is also sufficient for Walsh to be of no assistance to the Plaintiffs. Second, the Plaintiffs do not plead that the Defendants were signatories to Ausprout’s bank account (or any of its bank accounts) and by virtue of such the Defendants were de facto directors of Ausprout. Even the agreed fact simply states (as does the pleading) that Mr and Mrs Gordon withdrew the sum of $186,060 and applied it in reduction of the Loaned Amount. Implicit in that (the pleading and agreed fact) is that Mr and Mrs Gordon were able to affect that withdrawal themselves. To do so they would need to be a signatory to that account. Even if the Plaintiffs had pleaded that the Defendants were signatories to the bank account, that of itself would be insufficient. The Plaintiffs must also allege that by being such signatories they were de facto directors of Ausprout. The only basis that the Plaintiffs plead is that by virtue of the power and control granted to and exercisable by the Defendants pursuant to the terms of the POA, they were (shadow or) de facto directors of Ausprout and therefore were directors within the meaning of that term in s 9 of the Act.

106    The Plaintiffs submit that the decision of Woodworx also supports their position. This is on the basis that the liquidator in Woodworx contended that Mr Daniels was a de facto director (after his resignation) on the basis that he was a signatory to the company’s bank account, he appeared to assume responsibility for making high-level management decisions of the company and the validly appointed director appeared to act in accordance with Mr Daniels’ instructions (Woodworx at [16]). The Plaintiffs rely on Woodworx at [18] where Black J stated:

It seems to me that the totality of Mr Daniels’ conduct, and particularly his control of Woodworx’s bank account, together with the titles that he adopted in dealing with third parties and his instructing staff as to the debts to be paid, is sufficient to establish that he continued to act as a de facto director of Woodworx in the period after his resignation as a statutory director.

107    Woodworx also did not involve any grant of a power of attorney. Furthermore, for similar reasons to those given regarding Walsh, Woodworx does not assist the Plaintiffs. As the above passage made clear (and see Woodworx at [17]), it was the totality of the conduct which was considered. It was not that Mr Daniels was a signatory to the company’s bank account in and of itself (even though that was significant). In this regard the observation of McMurdo J in Rodrick at [168] accords with this view. That a person may be authorised to operate the company’s bank account, in a small business was significant and consistent with his participation as an investor. McMurdo J did not say that such a circumstance, of itself was consistent with being a de facto director.

108    Finally, the Plaintiffs submit that the decision of Rodrick supports their position. In Rodrick the company’s liquidator made essentially three complaints (Rodrick at [11]-[13]). Relevantly, the liquidator claimed that Mr Rodrick’s participation in the affairs of the company was so extensive that by November 2003 and thereafter he was a de facto director (Rodrick at [12]). McMurdo J considered whether Mr Rodrick was a director in detail (Rodrick at [153]-[190]). With reference to Grimaldi (Rodrick at [155]-[161]), McMurdo J considered the relevant facts and circumstances regarding Mr Rodrick (Rodrick at [162]-[190]). At [189] McMurdo J held:

The nature and extent of his participation is most reliably indicated by these circumstances. He considered himself to be an investor and effectively a half owner of the company. He was providing its working capital and monitoring its application closely; in other words, he was not simply writing a cheque each month or so without knowing how it was spent. He was at the factory or the Morrin home office upon effectively a full time basis. He was accruing a wage at the same rate as Ms Morrin and Mr Coghlan. But he was not under the direction of either of them. They were not able to direct what he could or could not do for the company. He became authorised to operate its bank account, consistently with the circumstance that he financially controlled the business by controlling its only line of credit. And he was an experienced businessman who believed that he could contribute not only finance but also business acumen to the company, particularly in the circumstance where he considered Ms Morrin and Mr Coghlan to be inexperienced. I accept that he chose not to become a duly appointed director. But there may have been many reasons for that and it is not irreconcilable with his wanting to be effectively one of the controllers of the company. Having provided so much money for the business and considering himself to be a part owner, it was almost inevitable that he would assume a role which corresponded with that of a director.

109    There was no grant of power of attorney in Rodrick. McMurdo J considered the relevant guiding factors (from Grimaldi) to ascertain whether Mr Rodrick was in the position of a director, being a de facto director, as he had not been validly appointed. The operation of the bank account, consistent with Walsh and Woodworx was considered to be a factor, relevant to a consideration of whether Mr Rodrick was a de facto director. However, it is clear that it was insufficient of itself.

110    Rodrick does not assist the Plaintiffs. The case advanced by the Plaintiffs does not rely on any of the guiding relevant factors from Grimaldi. The Plaintiffs rely on the grant of the POA, alone.

Conclusion – It is not possible, in this case, that the Defendants were directors

111    The Defendants cannot be de facto directors, on the basis advanced by the Plaintiffs. This is for two reasons (separately and cumulatively). First, the power granted pursuant to the POA, which is exercisable, is insufficient of itself to satisfy the requirements of being a de facto director, and therefore a director within the meaning of that term under s 9AC(1)(b)(i) of the Act. Second, no relevant “acts” of the Defendants are relied on either by exercising the power granted pursuant to the POA or otherwise, to satisfy the requirements of s 9AC(1)(b)(i) of the Act. Section 9AC(1)(b)(i) requires the person to “act” in the position of director. Even on a generous reading of the allegation of the Withdrawal and Payment, for the reasons given above (concerning the authorities relied on by the Plaintiffs) that is insufficient of itself. Furthermore, the Withdrawal and Payment is not alleged to be an act undertaken in the position of a director (or even undertaken by exercising the POA).

112    None of the authorities relied on by the Plaintiffs support their contention that by the power and control granted to and exercisable by the Defendants pursuant to the POA, the Defendants were de facto directors and therefore directors within the meaning of that term in s 9AC(1)(b)(i) of the Act. Moreover, a single factor relied on (or even with the Withdrawal and Payment, noting that this was not alleged to have been an act done pursuant to the POA) would not accord with the requirements and the guiding factors of Grimaldi.

CONCLUSION – THRESHOLD ISSUE

113    The Plaintiffs are unable to satisfy this threshold issue, on the basis of the case advanced. The Defendants could not and would not satisfy the requirements of being a de facto director, and hence a director within the meaning of that term under the Act. Furthermore, as explained above at [77], the Defendants could not and would not satisfy the requirements of being a shadow director, on the pleaded case. As was accepted by the Plaintiffs, in such circumstances, the proceeding must be dismissed. The Plaintiffs are unable to be successful on any of the relief which was pressed, all of which was premised on the Defendants being directors. They are not.

114    I will hear from the parties on the issue of costs.

Associate:    

Dated:    30 October 2026