Business Law Case Study: The Corporation Act 2001 and Director Removal

This case study analyzes a business law case concerning the provisions of The Corporation Act 2001 (Cth), involving the appointment of administrators to two companies. The central issue revolves around the validity of the administrators' appointment, contingent on whether a director, Mr. Lee, was removed before or after their appointment. The court examined the timing of the director's removal, the relevance of statutory assumptions under sections 128 and 129 of the CA, and the potential application of sections 447A or 1322 to validate the appointment. The court determined that Mr. Lee had not been removed before the administrators' appointment, and that the administrators could rely on statutory assumptions. The case underscores the importance of accurate record-keeping, timely ASIC notifications, and clear communication in director removal processes, with the company being bound by actions of a director until proper removal protocols are followed. The decision emphasizes the significance of the Corporation Act's provisions in such scenarios, and the impact of these legal principles on business operations. The case also references previous legal precedents like Correa v Whittingham and Ross v GNC Homes Pty Ltd, to support the decisions.

Running head: BUSINESS LAW
Business law
Name of the Student
Name of the University
Author Note

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Briefly describe the essential facts of this case
The case is related to the provisions of The Corporation Act 2001 (Cth)1. In this case
there are four defendants namely S.E.T. Services Pty Ltd (Administrators Appointed) (Receivers
and Managers Appointed) (SET), Sydney Project Group Pty Ltd (Administrators Appointed)
(Receivers and Managers Appointed) (SPG), Mr Salim Mehajer and Ms Khadijeh Mehajer. The
plaintiffs in this case are Mr. Christian Peter Sprowles and Mr. Michael Andrew Hogan2. The
plaintiffs in this case had been appointed the Administrators of both the defendant companies by
their only director Mr Kenneth Wen Hsi Lee. The defendants had made a claim that the Mr. Lee
had been removed from his post as a director through passing of a special resolution as stated in
section 249B of the CA on the morning of the same day when the plaintiffs had been appointed
as the administrators. The plaintiffs had been appointed as administrators through the due
process as has been provided through section 436A of the CA.Therefore there was an emergence
of possibilities which could suggest that the appointment of the plaintiffs as the administrator
may not have been done in a valid way. Thus the plaintiff commenced proceedings in as quickly
as possible seeking substantive relief for themselves.
The plaintiff pleaded for an under in relation to section 447C of the CA a declaration
which would ensure that the plaintiffs had been appointed in a valid way as the administrators of
both the company. The plaintiffs also demanded an order under section 1322(4) and/or 447A of
the CA which would validate their appointment as the administrators of both the company. In
addition the plaintiffs asked for the cost incurred by them in relation to this application be
deemed as the cost incurred by the defendant company in the capacity of them being the
1 Corporation Act 2001 (Cth)
2 [2017] NSWSC 881 at [1-5]

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administrators and also cost against the other defendants of this case. An interlocutory
injunction had been granted by the court which restricted the plaintiffs from exercising their
powers as the administrators of the two defendant companies until 29th June. The order was than
extended on 29th June till the final judgment had been made by the court. The defendants were
sole shareholders of the company3. Mr Lee had received statutory demand by the creditors of
both the companies and asked the defendant to appoint administrator. Mr. Lee thought the
company had become insolvent or was likely to become insolvent and thus opted for the
appointment of administrators. ASIC search in relation to the directors of the company had been
made by the plaintiff prior to being appointed as administrator4.
Why was it necessary to determine when Mr. Lee was removed as a director of both
companies?
It was important to determine whether Mr. Lee had been removed as a director or not in
order to establish the fact that whether the plaintiffs had been appointed as the administrators of
the company in a valid manner. If it was found by the court that the removal of the director had
been made after the plaintiff had been appointed than the appointment would be held as a valid
appointment5. This is because if the director would have been removed after the appointment of
the administrators the appointment would have been done in proper capacity and would have
been valid. To the contrary if the appointment of the administrators would have been done after
the removal of Mr. Lee as a director the appointment would not have been valid as it would have
been outside the scope of authority of Mr. Lee to take a decision in relation to the defendant
companies. Thus it was a fundamental issue in this case to decide whether Mr. Lee had been
3 [2017] NSWSC 881 at [6-10]
4 [2017] NSWSC 881 at [15-20]
5 [2017] NSWSC 881 at [82]

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removed as the director of the defendants company before appointing the plaintiffs as their
administrators.
The authenticity of the date and time when the director had been removed by the
defendants had to be brought out by the defendants as provided by the court although the burden
of proof in retain to Mr. Lee’s removal as a director after appointment was on the plaintiffs. The
CA acts provides that along with a special resolution the required forms also have to be lodged
by the ASIC for the purpose of removing a director of the company. The belief of the defendants
that as soon as the minutes were signed they became effective was rejected by the court stating
that the evidence provided by defendant purported that during the course of dealing it was
believed that Mr. Lee was still the director of the company. The court therefore concluded that
the plaintiff should be given a declaration under section 447C of the CA that they had been
appointed validly as the administrator of the company as the court was not able to come to the
conclusion that Mr. Lee had not been removed as the director of the company before the
appointment of the plaintiffs as administrators had been made by him6.
What was the relevance of the statutory assumptions to the validity of the administrators’
appointment by Mr Lee?
The second basis upon which the plaintiff had been found to be entitled to the declaration
under section 447C of the CA was in relating to statutory assumption7. According to section 128
(1) of the CA an assumption with respect to section 129 of thee CA can be made by a person in
relation to transactions with the company. Any assumption which has been made cannot be
asserted by the company to be incorrect in court proceedings.
6 [2017] NSWSC 881 at [114]
7 [2017] NSWSC 881 at [114]

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According to section 129 (2) of the CA an assumption can be made by person in relation to
anyone who purports with respect to the information which is available to the public from the
ASIC provided by the company to be a director or secretory of the company has been appointed
duly by the company. In addition such director has the power to carry on the dealings which
director would be entitled to do in relation to a similar company.
As per these assumptions provided by the CA when a person is dealing with a company
and relied upon the information which had been provided to them by the ASIC in relation to the
directors of the company, it an been provided that the transaction is valid if such dealing is
within the power of the directors in a similar situation or company. Thus as in this case the
plaintiffs had relied on the information provided by the ASIC with respect to Mr. Lee being the
director of the defendant companies the defendants cannot provide in court that the assumption
made by the plaintiff in relation to Mr. Lee being the director of the companies is not correct.
In the case of Correa v Whittingham8 it had been ruled by the court that a person who has
been made the administrator of a company can be regarded as persons in relation to section 128
and 129 of the CA and have the right to rely upon the assumptions provided in the sections. In
the previous trial of this case Correa v Whittingham9 it was held by the court that assumptions
under section 129 were available to the administrators. In the case of Ross v GNC Homes Pty
Ltd10 a similar conclusion had been reached by the court.
Thus in the case one of the main issue was that if the assumptions were available to the
administrators under the CA they had the right of claiming a declaration under section 447C.
8 [2013] NSWCA 263; (2013) 278 FLR 310
9 (No 3) [2012] NSWSC 526
10 [2015] SASC 168

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Do you agree with the ultimate determinations of the Court on the issues arising in this
case? What must your clients be aware of as a result of this decision?
The issues which had arose in this case are as follows:
1. The first issue was whether the resolution made by the defendants in relation to section
249B of the CA to remove Mr. Lee as the director was made before the appointment of
the plaintiffs as the administrator of the company or after the appointment11.
2. Whether the statutory assumptions as provided in section 128 and 29 of the CA were
enough to ensure that the plaintiff had been appointed administrators in a valid manner
and the defendant cannot provide such assumptions to be incorrect12.
3. The final issue which had to be determined by the court the court was that whether the
section 447A or 1322 of the CA had to be used to validate the appointments of the
plaintiffs as the administrator of the company if their appointment had been invalid13.
In relation to the first issue the court had provided that Mr. Lee had not been removed as the
director of the company before the appointment of the plaintiffs as the administrators. The
decision of the court was based on the fact that the defendants were not able to prove that the
date and time the minutes had been signed were the same when the director had been removed.
In addition the defendants had to launch specific forms with the ASIC for the removal process to
be completed which they did not. The evidence of the defendants moreover made the court
establish the fact that they did not consider Mr. Lee be removed as the director as soon as the
minutes has been signed. Thus in this case it can been provided that the decision which have
been made by the court in relation to the first issue of the case is appropriate, correct and just14.
11 [2017] NSWSC 881 at [29]
12 [2017] NSWSC 881 at [30]
13 [2017] NSWSC 881 at [31]
14 [2017] NSWSC 881 at [49-85]

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In relation to the second issue it had been provided by the court that the plaintiffs had the
right to make assumption under section 128 and 129 and the defendant did not had the right to
provide hold such assumption made by the plaintiff to be incorrect. The court based its decision
on the wordings of the sections and on the fact that the plaintiffs had acquired information from
the ASIC commission prior to being appointed as the administrators of the defendant company
which was assumed to be insolvent by its sole director. The court also based its decision on the
cases of Correa v Whittingham and Ross v GNC Homes Pty Ltd which were in relation to
statutory assumptions as provided by the CA as well as the appointment of administrators. An
attempt was made by the defendants to distinguish between the precedent and the present case
that the submission which had been provided by the defendants in this case were not present in
the precedents. However such attempt was rejected by the court further citing Sliteris v Ljubic15
in relation to statutory assumptions16. Thus the decision provided by the court in relation to the
second issue was also correct.
The court did not have to decide the third issue as the first and second issue already
established that the appointment of the plaintiffs as administrators was valid17.
The case signifies the importance of keeping records in a good way and lodging notifications
to the ASIC in a timely manner with respect to removing directors from their post. The case also
provides that clear indication has to be provided to the directors that they have been removed
from their post. The company would be bound to the actions of the directors who had been
removed from their post if they have not been provided information about their removal, the
15 [2014] NSWSC 1632
16 [2017] NSWSC 881 at [94-107]
17 [2017] NSWSC 881 at [113]

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records of the ASIC support their appointment and the company holds them to be the directors
after removal.

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Bibliography
ASIC v Vines [2005] NSWSC 738
Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34
Commercial Union Assurance Company of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR
389
Corporation Act 2001 (Cth)
Correa v Whittingham (No 3) [2012] NSWSC 526
Correa v Whittingham [2013] NSWCA 263; (2013) 278 FLR 310
Jones v Dunkel (1959) 101 CLR 298
Moukhayber v Camden Timber & Hardware Co Pty Ltd [2002] NSWCA 58
Ross v GNC Homes Pty Ltd [2015] SASC 168
Sliteris v Ljubic [2014] NSWSC 1632
Sydney Project Group Pty Ltd (Administrators Appointed) (Receivers and Managers Appointed)
and S.E.T. Services Pty Ltd (Administrators Appointed) (Receivers and Managers Appointed)
[ 2017] NSWSC 881
Watson v Foxman (2000) 49 NSWLR 315