Case: Manpac Industries Pty Ltd v Ceccattini [2002] NSWSC 330
Outcome: cited
analysis of the defence available under s 588H(3)(a), which is helpful in the present context, was undertaken by Young CJ in Manpac Industries Pty Ltd v Ceccattini (2002) 20 ACLC 1304 , [2002] NSWSC 330. Young CJ said at pars [52]-[54]: "[52] It is extremely difficult for a person to say that a person is responsible for providing adequate information about solvency and was fulfilling that responsibility when the person allegedly relying on the other person was the source of the supply of information and that supply of information was not completely full. [53] The subsection arises from the recommendations made in para 211 of the Law Reform Commission's Discussion Paper No 32 as fleshed out in [303] and following of the Harmer Report. In [307] it was said: "The Commission considers that the defence is clearly necessary in the case of larger companies in which it cannot be expected that directors will have control over every action taken in the conduct of the company's business. Additionally, a defence of this nature may encourage a proper system of financial management." [54] Thus the prime thrust of the defence is to cover the situation where there is a large corporation with bulky accounts and where there is a system in place of competent accountants, credit controllers and financial management and the board has a regime whereby those people, provided they are competent and responsible, will report to the board any problems that the board may pick up. The prime thrust of the exception is not to deal with the situation where a small company with directors who have little idea of accountancy, bring in a trouble shooter, supply the trouble shooter with information which may not be complete, receive reports back from the trouble shooter and then intend to rely on a report which is incomplete because they have provided incomplete information." There is no doubt that Mr Bright was engaged or retained by the Company in March 2005 for the purpose of giving the Company business advice regarding the Company's cashflows, costs and expenses, and an analysis of the business model profits and losses. Mr Bright prepared financial statements which included requiring him to allocate a value to the timber stock inventory. Further, in the middle of 2005 he prepared financial analyses relating to the green timber milling business which he considered to be still profitable. However, I do not consider that Mr Bright was given the role of "the other person" for the purposes of s 588H(3)(a)(i) of the Act. That is to say, I do not consider that Mr Bright was required to fulfil the role or did fulfil the role of a competent and reliable person who was responsible for providing to Mr Carroll adequate information about whether the Company was solvent. Certainly Mr Bright was a competent and reliable person but I do not consider that it can be said that he was "responsible" for providing to Mr Carroll adequate information about whether the Company was solvent. True it is that on occasions he gave Mr Carroll advice about whether the Company was solvent. He gave such advice in or about June 2005 and later during the relevant period, although his evidence as to what he told Mr Carroll in relation to the solvency of the Company during the relevant period was limited. His evidence was: "I was aware by March 2006, as Tony had told me, that TSM's cashflow situation was poor, and that the funds provided by Tom Cameron and Tony to TSM in July 2005 had been exhausted, in February 2006. At this time, Tony was looking for potential investors, which he discussed with me. At no time during January to April 2006 did I formally tell Tony that I believed TSM was insolvent. Based on the value of its stock at hand, which I considered was saleable and able to be realised within a short period of time (i.e. a couple of months) I did not consider that TSM was insolvent at that time, and I told Tony this on a number of occasions. ..."