A L Campbell & Co Pty Ltd v Federal Commissioner of Taxation

3004/06 RE BANKSTOWN COMMUNITY CHILD CARE INCORPORATED - MORGAN LANE & ANOR, APPLICANTS JUDGMENT 1 On 19 June 2006, the court made an order under s 51(1)(j) of the Associations Incorporation Act 1984 that Bankstown Community Child Care Incorporated (which I shall call "the Bankstown Association") be wound up. It was further ordered that Mr Lane be appointed liquidator. 2 Mr Lane has almost completed his administration. He has reached a point where creditors have been ascertained and paid in full. A surplus remains. It is substantial, being of the order of $600,000. Mr Lane has now approached the court seeking relief directed towards orderly and proper disposal of that surplus. 3 Section 51(3) of the Associations Incorporation Act, coupled with s 14(1) of the Corporations (Ancillary Provisions) Act 2001 of this State, has the effect that a court ordered winding up of an incorporated association is governed by, and is to proceed in accordance with, the provisions in Part 5.7 of the Corporations Act 2001 (Cth) applying to the winding up under that Act of bodies other than companies - subject, however, to the modifications stated in s 51(3) itself, including those referred to in s 52. The way in which the conclusion I have just stated is reached is set out in my judgment in QBE Workers Compensation (NSW) Ltd v Wandiyali ATSI Inc [2004] NSWSC 1022; (2004) 62 NSWLR 117. 4 Section 53 of the Associations Incorporation Act then makes specific provision regarding distribution of "surplus property" of an association, that is, in the words of s 53(1), "property of the association remaining after satisfaction of the debts and liabilities of the association and the costs, charges and expenses of the winding up of the association". 5 Section 53(2) lays down the general rule that surplus property be distributed "in accordance with a special resolution of the association". Section 53(2A) goes on to impose conditions or limitations upon "[a]ny such distribution of surplus property", that is, any distribution in accordance with a special resolution. In particular, the distribution must be approved by the Director-General of the Department of Fair Trading (s 53(2A)(a)) and must not be to (or to any person in trust for) any member or former member of the association unless the member or former member is itself an association having rules preventing distribution of property to its members (s 53(2A)(b)). Section 53(3) then provides: "A person aggrieved by the operation of this section in relation to the surplus property of an incorporated association may apply to the Court which may make such orders as to the disposal of the surplus property as to the Court appears just." 6 The circumstance that causes Mr Lane to approach the court is that there does not appear to have been any special resolution of the Bankstown Association of the kind contemplated by s 53(2). 7 Two potentially relevant resolutions of the Bankstown Association have been identified. The first is the resolution discussed in my reasons for judgment of 19 June 2006 upon the winding up application. A question that arose there was whether the Association had, as envisaged by s 51(1)(a), "by special resolution resolved that it be wound up by the Court". My conclusion was that, although the membership had, by a majority of 33 out of a total of 35 or 36, approved a resolution that the Association be "dissolved", the evidence did not permit a finding that a "special resolution", as defined by s 5 of the Act, had been passed: see Re Bankstown Community Child Care Inc [2006] NSWSC 612 at [3]. The winding up order was made under s 51(1)(j) on the just and equitable ground. 8 The resolution I have just described went on to say: "The remaining funds are to be distributed to the Bankstown Community Resource Group Incorporated." 9 However, since, for the reasons previously given, the resolution cannot be seen to be a "special resolution", that part of it cannot take effect for the purposes of s 53(2). Mr Lane's further inquiries have not brought to light any evidence that would resolve the difficulties that precluded a finding that that resolution was a special resolution. 10 There is now before me evidence of an earlier resolution of relevance. The evidence is in the form of a handwritten document headed "A.G.M. 7/9/87 at 7.15pm". That document obviously records minutes of a meeting and includes the following: "If Bankstown Community Child Care closes we need another charity to give money to. Nominated: Milperra Child Care Centre be recipient of property & assets of Bankstown Community Child Care Centre in the event of it closing down. 1st: Ken Nimmo 2nd: Alan Le Clair" 11 There is no evidence about events prior to and concerning the meeting which appears to have taken place on 7 September 1987. There is therefore no basis for finding that the matter against the heading "Nominated" in the minutes represents or records the passing of a "special resolution" as defined by s 5 of the Associations Incorporation Act. Again, therefore, I cannot conclude that there has been a special resolution for the purposes of s 53(2). 12 The possibility that the gap might be filled by a new special resolution of the Bankstown Association has been considered by Mr Lane. The problem is that that solution now appears to be impossible. Under the Act, a "special resolution" is a resolution of an association's "members" that conforms to specifications in s 5. A "member" is a person, body or organisation "that is, under the rules of the association, a member of the association": definition of "member" in s 4. Under the rules of the Bankstown Association, a person is qualified under rule 2(b) to be a member only if the person "has a child/children in the attendance at the child care centre of the association". Rule 4 says that a person ceases to be a member if the person's "child/children cease attendance of [sic] the child care centre of the association". Because the Bankstown Association no longer operates a child care centre, there are no longer any persons whose children attend its child care centre. Rule 4 has operated in relation to every person who had a child or children at the centre at the time it ceased to operate. As a result, it appears that there is now no one who is, in terms of the Act, a "member" of the Association. 13 In these circumstances, Mr Lane himself makes - and causes the Association to make - an application under s 53(3). The order they seek is an order that the surplus be distributed to two named community organisations in equal shares. 14 The first question to be addressed is whether s 53(3) allows the court to make such an order. 15 That question was considered by Campbell J in Re Bankstown Students Association Inc [2005] NSWSC 700. In that case, as in this, there was no effective special resolution under s 51(2) and the circumstance that there were no longer any members meant that no special resolution could be passed. There was, however, a governing body and that body caused the association to make, in conjunction with an application for its own winding up, an application for an order under s 53(3) specifying an institution to which any surplus on winding up was to be distributed. 16 Dealing with the question of the standing of the association itself to seek such an order as a "person aggrieved", Campbell J said (at [15]): "The Association claims that it is a person aggrieved by the operation of section 53, and so has standing to make application for an order under section 53(3). Its state of aggrievement arises from the fact that section 53 provides no means by which any surplus assets it might turn out to have can be distributed. I accept that that is sufficient to bring it within section 53(3)." 17 Campbell J was also of the opinion that s 53(3) allowed the court to make an order specifying the destination of surplus assets. The order his Honour made favoured another association with similar objects. 18 I respectfully agree that an incorporated association is relevantly aggrieved by the absence of any determined destination for surplus property in its winding up. The incorporated association has an interest in that matter going beyond that of an officious bystander. Its interest is, in essence, an interest in seeing useful application of assets which, in the association's hands, were applicable to the objects for which it was formed and existed, being objects other than trading or securing pecuniary gain for its members (see s 7(2)(a) of the Associations Incorporation Act). 19 But the Bankstown Association (like the association with which Campbell J was concerned) has no members. That raises a metaphysical question: does the Bankstown Association now exist? 20 Section 15(1) of the Associations Incorporation Act provides that, on and from the date of incorporation specified in the certificate of incorporation of an incorporated association, the persons who were the association's members at a given time "together with any other persons who from time to time become members of the incorporated association (as from the time they become members) are an incorporated association …". Section 15(2) confers usual incidents of incorporation, including perpetual succession and the capacity to sue and be sued. 21 This legislation thus continues the traditional approach (recently abandoned by the general corporations legislation) of clothing a fluctuating body of persons with corporate personality so that those persons are bound together by the bond of incorporation that creates and sustains the corporation. An incorporated association is, in this way, a corporation aggregate in the true sense. 22 That raises the question of the consequences of cessation of the membership of all members of a corporation aggregate. That question has not arisen in any decided case of which I am aware - no doubt because, in modern times, the overwhelming majority of corporations aggregate have been companies with a share capital in relation to which the possibility of extinction of all members has been merely academic, since there will always be someone entitled to be registered in respect of a deceased member's shares: see A L Campbell & Co Pty Ltd v Federal Commissioner of Taxation [1951] HCA 36; (1951) 82 CLR 452; Lunn v Cardiff Coal Company (No 3) [2003] NSWSC 789; (2003) 177 FLR 411. The question has, however, been dealt with in the legal literature by reference to the hypothetical death of every member of a corporation aggregate. 23 Writing a century ago, Cecil T Carr, in "The General Principles of the Law of Corporations", Cambridge, 1905, imagined a dinner at Trinity College Cambridge at which the master, fellows and scholars who make up the whole of the corporators "are suddenly poisoned by the negligence or caprice of their cook". He asked: "Is the corporation at an end? Or does it exist 'passively' in spite of the momentary loss of members?" 24 His answer was: 'The corporation is not dead, but temporarily in abeyance." 25 Blackstone, at the end of chapter 18 of Book 1 of his Commentaries (William Blackstone, "Commentaries on the Laws of England", Oxford, 1765 - 1769), by contrast, refers to four ways in which a corporation may be dissolved. One is: "By the natural death of all its members, in case of an aggregate corporation." 26 To the same effect are observations in Kyd's work (Stewart Kyd, "A Treatise on the Law of Corporations", London, 1794), at 447-448: "That a corporation aggregate is dissolved by the death of all its members is a proposition so plain that it seems ludicrous to mention it"

and that a corporation so dissolved: "cannot be revived without a new creation." 27 Kyd saw this kind of dissolution of a corporation aggregate as an example of the more general case where "by accident it is rendered incapable of continuing its corporate succession". Both "death" and "disenfranchisement" are referred to as circumstances which may place a corporation aggregate in that condition, from which one may infer that cessation of membership from any cause may produce the result. 28 Although it appears that, because of rule 4 of the Bankstown Association's rules, there is no longer any person who is, in terms of the definition in s 4 of the Act, a "member" of the incorporated body (see [12] above), there is no need in the present case to come to a conclusion on the question whether the Bankstown Association now exists. This is because Mr Lane is himself a "person aggrieved" in terms of s 53(3). Whether the Bankstown Association continues to exist or not, he holds a fund of property and it is his duty, as liquidator charged with the administration of that fund according to the statutory scheme, to distribute the surplus in the way required by law. There is a gap, at this point, since the law identifies no destination for the surplus. Mr Lane therefore has a clear interest of his own in seeking the intervention of the court so that appropriate specification may be made to enable him to discharge his duty of winding up the affairs of the body. Because Mr Lane is an applicant on the present motion and has standing as a "person aggrieved", the court may proceed to deal with the matter. And consistently with the approach taken by Campbell J, I am of the opinion that it may do so by making an order directing disposal of surplus assets in a defined way. 29 The proposal advanced by Mr Lane is that the surplus assets should be divided equally between Bankstown Community Resources Group Incorporated (another incorporated association, which I shall call "BCRG") and Milperra Community & Children's Services Limited (a public company limited by guarantee, which I shall call "MCCS"). Despite the slightly different names, I am satisfied that these are the bodies referred to in the Bankstown Association's resolutions to which reference has already been made (BCRG in the resolution of 2006 and MCCS in the resolution of 1987). There is evidence that BCRG has objects related to the welfare of needy persons in the community, including in respect of children, and that its emphasis is on the Bankstown district. MCCS operates a community based long day care centre for children 6 weeks to 5 years at Milperra which, of course, is adjacent to Bankstown. In each case, the constitutional arrangements are such as to preclude distribution of property to members. 30 The evidence also shows that BCRG and MCCS are content to receive the surplus, as to half each. That was confirmed to the court by Mr Chegwidden, solicitor, who appeared for both of them on the present application. 31 It is clear that each of BCRG and MCCS is an appropriate recipient of funds that were initially raised - no doubt by the hard work of parents and other community minded people in the Bankstown locality - for the purpose of assisting families and providing day care for children. Division of the Bankstown Association's surplus assets between them will see the funds redeployed for like community purposes and in circumstances where private gain continues to be excluded. This is consistent with the philosophy reflected by s 53(2A)(b). 32 I should add that the Director-General of the Department of Fair Trading, whose approval of any destination for surplus chosen by special resolution would have been required by s 53(2A)(a) of the Associations Incorporation Act, was informed of the present application and the order sought and indicated that he did not intend to appear. I infer from this that the Director-General does not oppose the disposition of the surplus in the manner proposed. 33 I am satisfied that it is just that the surplus property of the Bankstown Association be divided equally between BCRG and MCCS. 34 The orders of the court are as follows:

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