A Best Floor Sanding Pty Ltd v Skyer Australia Pty Ltd [1999] VSC 170

Supreme Court of Victoria|1999-05-19|Before: Warren J

The application to stay the winding up application on the basis of an arbitration agreement between the joint venture parties raises a fundamental principle of corporations law. To state the very obvious, a company is a corporation in the common law sense formed by registration under Part 2A.2 of the Corporations Law or under corresponding earlier legislation. In the words of Ford, Austin & Ramsay in Ford's Principles of Corporations Law (at p.1061): "a corporation (or body corporate in the common law sense) is a legal device by which legal rights, powers, privileges, immunities, duties, liabilities and disabilities may be attributed to a fictional entity equated for many purposes to a natural person ... The fictional entity acquires rights and liabilities by the acts of persons behind it." Upon incorporation, the Corporations Law applies to the new entity. Its company directors and management are subject to regulation under the Corporations Law. The Corporations Law contains provisions relating to the company's constitution, general meetings of members, management of the company, the company's dealings with other parties, the company's financing, the handling of its affairs when it is subject to a financial crisis and, most significantly for present purposes, its winding up and dissolution. The Corporations Law controls by statutory force the creation and demise of the company; it oversees the birth, the life and death of the company. Such matters cannot and ought not be subject to private contractual arrangement.

Throughout Chapter 5 of the Corporations Law there exists a statutory structure setting out the manner in which applications for the winding up of a company are to be made, the persons or parties who are permitted under the Law to make an application for the winding up of a company and, most significantly, the effect of a winding up order on creditors and contributories. A major aspect of the control by the court of the winding up of a company is the fact that the court appoints an official liquidator to be liquidator of the company. In this respect the Corporations Law sets out the powers and duties of a liquidator or a provisional liquidator of the company in the course of the winding up of that company. Indeed, the order of the court for the winding up of the company does not in effect wind up that company. Rather, the effect of the court order is that it directs that the process of liquidating the assets of the company and the winding up of its affairs should begin (see Re Crust 'n' Crumbs Bakers (Wholesale Pty Ltd) (1992) 2 Qd R 76, 78; (1991 5 ACSR 70). Upon a court ordering a winding up and so long as the winding up of the company remains unterminated no further order can be made by a court with respect to that company (see Commonwealth v. Emanuel Projects Pty Ltd (1996) 21 ACSR 36; Dewina Trading Sdn Bhd v. Ion International Pty Ltd (1996) 141 ALR 317; 22 ACSR 352).

It is, of course, contemplated by the Corporations Law that a company can be wound up on a voluntary basis. However, voluntary windings up differ from compulsory windings up in that they are initiated by the members rather than the court. A members' voluntary winding up is possible for solvent companies only, and the winding up by the liquidator is subject to the control of the members. If the company is insolvent, a voluntary winding up must be a creditors' voluntary winding up. Although it is voluntary in the sense that the members initiate it, the liquidator is subject to control by the creditors.

As observed by Ford, Austin & Ramsay in Ford's Principles of Corporations Law (at p.27,065):

"If debtors have insufficient property to discharge their liabilities, a procedure to ensure an orderly and rateable distribution of that property among the creditors is needed. In the case of an individual that procedure is a bankruptcy administration. In the case of a company it is a winding up.

Achievement of an orderly and rateable distribution requires:

* collection of all the debtor's property not claimable by secure creditors;

* recovery for addition to the debtor's estate of property previously transferred when the debtor was insolvent;

* a process by which claims against the debtor can be asserted and quantified;

* a scale of priorities for distribution of the property.

Bankruptcy administration in respect of natural persons has a social function - to give the debtor a discharge from debts and a new start. Winding up a company has no similar aim. At the end of the winding up the company is dissolved."

The application by A.B. Floor to stay the winding up application strikes at the very heart of the corporation structure enshrined in the Corporations Law. The arbitration clause in the joint venture agreement is null and void insofar as it purports to subject the parties to an arbitration with respect to the dissolution or winding up of the company. The provision is null and void because it has the effect of obviating the statutory regime for the winding up of a company. Moreso, the arbitration clause, if adhered to, would frustrate the contributory, Skyer Australia in its efforts to seek relief from the court under the winding up provisions of the Law. In essence, the arbitration clause in the joint venture agreement is contrary to the provisions of the Corporations Law and cannot be applied.

There were additional matters raised by Mr Chizik in argument against the application by A.B. Floor. There are other issues not raised in argument such as the application of a State law, the Commercial Arbitration Act, to a Commonwealth law, the Corporations Law. However, it is unnecessary to consider those matters in light of the fundamental finding I make with respect to the arbitration clause. It follows that the application by A.B. Floor fails.

Arbitration Act 1959

Arbitration Act 1984

Mr Edmunds who appeared for A.B. Floor submitted that Skyer Australia was bound by the arbitration clause and that pursuant to s.53 of the Commercial Arbitration Act 1984 the winding up application by Skyer Australia must be stayed pending the arbitration. Mr Edmunds relied upon the authorities Oceanic Sun Line Special Shipping Company Limited v. Fay [1988] HCA 32; (1988) 165 CLR 197, 224; also Huddard Parker Limited v. The Ship (Mill Hull) [1950] HCA 43; (1950) 81 CLR 502, 508. He cited, also, the judgment in Manningham City Council v. Dura (Australia) Constructions Pty Ltd, unreported judgment of Gillard, J delivered 11 March 1999. It is a well established principle of law that where the parties agree to submit to arbitration court proceedings on the same issue ought be stayed. Section 53 of the Commercial Arbitration Act 1984 provides:

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