Termite Resources NL (in liq) v Meadows, in the matter of Termite Resources NL (in liq) (No 2)

• Jurisdiction: Australia Federal only
• Court: Federal Court
• Judge: WHITE J
• Judgment Date: 15 March 2019
• Neutral Citation: [2019] FCA 354
• Date: 15 March 2019

FEDERAL COURT OF AUSTRALIA

Termite Resources NL (in liq) v Meadows, in the matter of Termite Resources NL (in liq) (No 2) [2019] FCA 354

File number:	SAD 99 of 2016
Judge:	WHITE J
Date of judgment:	15 March 2019
Catchwords:	CORPORATIONS – directors’ duties – Defendants were directors and/or officers of a mining company (Termite) operating a mine with a life of about five years – Termite conducted the mining and associated activities through contractors pursuant to contracts for terms closely corresponding to the estimated life of the mine – Defendants caused Termite to adopt and implement a distributions policy by which, subject to the retention of a reserve of $3 million, all the proceeds from the mining were distributed to the joint venturer shareholders – part way through the expected life of the mine, the iron ore price dropped and Termite went into voluntary administration and subsequently into liquidation - claim that several of the Defendants breached their common law duties to act with care, skill, diligence and good faith for the company as a whole – claim that the Defendants breached ss 180 and 181 of the Corporations Act 2001 (Cth) – claim that the reserve of $3 million was inadequate – claim that a reserve of at least $10 million was necessary for Termite to survive even a short term downturn in the iron ore price. ; CORPORATIONS – claim for damages pursuant to s 1317H of the Corporations Act or at common law for the deficiency in Termite’s liquidation – in the alternative, claim that the distributions would not have been made and that Termite would have repaid its creditors and reduced a loan from its parent company – in the further alternative, claim for the aggregate of the distributions paid pursuant to the Distributions Policy. ; Held: 1. A cash reserve of at least $10 million should have been retained – each of the Defendants, acting as either directors or de facto directors, breached their duties under ss 180 and 181 in respect of the adoption and implementation of the distributions policy and in failing to review and revise it during the period that distributions were made – three of the defendants breached their common law duties. ; 2. An additional $7 million would have been available in mid-2014 when the administration occurred if a $10 million cash reserve had been retained – damages of $7 million awarded. ; CORPORATIONS – consideration of claim for damages and review of deficiency in the liquidation – liquidators have admitted proofs of debt – whether the amount for which a debt has been admitted to proof by the liquidators was a cap on the Defendants’ liability – assessment of creditors’ claims.
Legislation:	A New Tax System (Goods and Services Tax) Act 1999 (Cth) ss 21‑15, 58‑60 Corporations Act 2001 (Cth) ss 9, 79, 180, 181, 286, 439C, 443B, 554B, 563C, 597, 598, 1305, 1317H, 1317S, 1318 Defence Act 1903 (Cth) Trade Practices Act 1974 (Cth) s 75B(1) Corporations Regulations 2001 (Cth) regs 5.6.44, 5.6.5, 5.6.54, 5.6.55 Defence Forces Regulations Reg 35 Federal Court Rules 2011 (Cth) rr 16.03, 16.08
Cases cited:	Adler v Australian Securities and Investments Commission [2003] NSWCA 131; (2003) 179 FLR 1 Agricultural Land Management Ltd v Jackson (No 2) [2014] WASC 102 Arthur Young v Tieco International [1995] SASC 5173; (1995) 182 LSJS 367 Australian Competition and Consumer Commission v Giraffe World Australia Pty Ltd (No 2) [1999] FCA 1161; (1999) 95 FCR 302 Australian Energy Ltd v Lennard Oil NL [1986] 2 Qd R 216 Australian Securities and Investments Commission v Adler [2002] NSWSC 171; (2002) 168 FLR 253 Australian Securities and Investments Commission v Australian Investors Forum Pty Ltd (No 2) [2005] NSWSC 267; (2005) 53 ACSR 305 Australian Securities and Investments Commission v Cassimatis (No 8) [2016] FCA 1023; (2016) 336 ALR 209 Australian Securities and Investments Commission v Drake (No 2) [2016] FCA 1552; (2016) 340 ALR 75 Australian Securities and Investments Commission v Flugge [2016] VSC 779; (2017) 342 ALR 1 Australian Securities and Investments Commission v Fortescue Metals Group Ltd [2011] FCAFC 19; (2011) 190 FCR 364 Australian Securities and Investments Commission v Lindberg [2012] VSC 332 Australian Securities and Investments Commission v Mariner Corporation Limited [2015] FCA 589; (2015) 241 FCR 502 Australian Securities and Investments Commission v Maxwell [2006] NSWSC 1052; (2006) 59 ACSR 373 Australian Securities and Investments Commission v Rich [2009] NSWSC 1229; (2009) 75 ACSR 1 Australian Securities and Investments Commission v Somerville [2009] NSWSC 934; (2009) 77 NSWLR 110 Automatic Fire Sprinklers Pty Ltd v Watson [1942] HCA 25; (1946) 72 CLR 435 Bell Group Ltd (in liq) v Westpac Banking Corporation (No 9) [2008] WASC 239, (2008) 39 WAR 1 Black v Brimbank City Council (1998) 77 IR 405 Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61, (2001) 53 NSWLR 153 Byrnes v Kendle [2011] HCA 26, (2011) 243 CLR 253 Commonwealth of Australia v Amann Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64 Concut Pty Ltd v Worrell [2000] HCA 64; (2000) 176 ALR 693 Cummins Generator Technologies Germany GmbH v Johnson Controls Australia Pty Ltd [2015] NSWCA 264; (2015) 326 ALR 556 Daniels v Anderson (1995) 37 NSWLR 438 Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 261 CLR 640 Ermogenous v Greek Orthodox Community of SA Inc [2002] HCA 8; (2002) 209 CLR 95 FAL Healthy Beverages Pty Ltd v Xenos [2017] NSWSC 476 Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR 9251 Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; (2009) 264 ALR 15 Geneva Finance Ltd v Resource & Industry Ltd [2002] WASC 121; (2002) 169 FLR 152 Graham Barclay Oysters Pty Ltd v Ryan [2002] HCA 54; (2002) 211 CLR 540 Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6; (2012) 200 FCR 296 Grout v Gunnedah Shire Council (1994) 125 ALR 355 Grout v Gunnedah Shire Council (1995) 129 ALR 372 Grove v Flavel (1986) 43 SASR 410 Henville v Walker [2001] HCA 52; (2001) 206 CLR 459 Hill v CA Parsons & Co Ltd (1972) 1 Ch 305 Jones, in the matter of Great Southern Ltd (in liq) [2017] FCA 169 Kalls Enterprises Pty Ltd (in liq) v Baloglow [2007] NSWCA 191; (2007) 63 ACSR 557 Kinsela v Russell Kinsela Pty Ltd (in liq) (1986) 4 NSWLR 722 Leighton Contractors Pty Ltd v Construction, Forestry, Mining and Energy Union [2006] WASC 144; (2006) 154 IR 228 Lewis (as liquidator of Doran Constructions Pty Ltd (in liq)) v Doran [2005] NSWCA 243; (2005) 54 ACSR 410 Linton v Telnet Pty Ltd (1999) 30 ACSR 465 Lym International Pty Ltd v Marcolongo [2011] NSWCA 303 Macmahon Mining Services v Cobar Management [2014] NSWSC 731 March v E & MA Stramare Pty Ltd [1991] HCA 12; (1991) 171 CLR 506 Maronis Holdings Ltd v Nippon Credit Australia...