Corporations - Winding up voluntary - Liquidators - Appointment and removal - Appointment of members' nominee by default of creditors nominating a different person at their meeting called pursuant to the Corporations Law, s497(1).

Corporations - Winding up voluntary - Liquidators - Appointment and removal - Creditors' meeting called pursuant to the Corporations Law, s497(1), not adjourned for want of compliance with s498(1) and (2).

Corporations - Winding up voluntary - Floating charge over all the assets of the company - Agreement that chargee would pay liquidator's costs - Claims of chargee limited to realisation of assets after payment of such costs - Priority afforded employees by s561 is to payment before those claims. Corporations Law, ss497, 498, 499 and 561.

Solicitors for 1st named respondent: Shields Heritage

Solicitors for 2d named respondent: Dobson Mitchell and

Allport

Counsel for former employees of the

Company: R Greuber

Solicitors for former employees of

the Company: Jennings Elliott

UNDERWOOD J This application is made by the liquidator of Precise Timbers Pty Limited (in liq) ("the company") pursuant to the Corporations Law, s511. A determination is sought "whether the funds held by the applicant in the liquidator's account should be paid to the first named respondent (Australia and New Zealand Banking Group Limited) or the second named respondent (Duesburys - a firm) or the former employees of the company who have lodged proofs of debt with the applicant and if so, in what proportions." At the commencement of the hearing, counsel for the ANZ Banking Group stated that the first respondent no longer claimed an interest in the fund that is the subject matter of this application. It then became common ground that the money in the fund should be paid either to Duesburys or rateably, to former employees of the company who had filed a proof of debt.

2. The members of the company resolved that there should be a creditors' voluntary winding up. A meeting of creditors was called pursuant to the Corporations Law, s497(1). The minutes of this meeting were exhibited to the affidavit of the liquidator. There was no evidence of the minutes of the meeting of the company at which the special resolution for winding up was passed, but I infer from the minutes of the creditors' meeting that the former was held immediately prior to the latter on 27 August 1991. That inference is drawn from the following minute of the meeting of creditors:

"The Chairman advised that at a meeting of the company,

which had been held prior to this meeting, the

following resolution had been passed as a Special

Resolution:-

'THAT the company be wound up voluntarily and that Messrs

S Wallace-Smith and B A Secatore of 12th Floor, 555 Lonsdale

Street Melbourne be nominated joint and several liquidators

for the purpose of the winding up.'

Resolution to appoint liquidators - the Chairman asked Mr

S Wallace-Smith to explain to the meeting this item of

business. Mr S Wallace-Smith explained to the meeting that

members of the company had resolved that S Wallace-Smith and

B A Secatore of 12th Floor, 535 (sic) Lonsdale Street had

been appointed liquidators. He also pointed out to the

meeting that the company from that point of time was in

liquidation."

3. It appears to be common ground that Messrs Wallace-Smith and Secatore were members or employees of Duesburys.

4. The appointment of a liquidator on a creditors' voluntary winding up is governed by the provisions of s499(1). In effect, that subsection provides that the members must nominate someone to be liquidator at the meeting at which they passed the resolution to wind up the company. At their first meeting thereafter, the creditors may appoint someone else to be liquidator but if they do not exercise this power, the person nominated by the company shall be the liquidator. At that first creditors' meeting there appeared to be some difficulty about the appointment of a liquidator. The Chairman called for nominations for liquidator. Timothy Oliver Bayley (erroneously described in the minutes as Billing) and Simon Wallace-Smith were nominated. A suggestion was apparently made that Duesburys may have conflict of interest because of "the relationship between Duesburys and Norton-Smith and Co who were accountants for Precise Timbers Pty Ltd." Mr Wallace-Smith said that there was no "financial involvement" and that he was not disqualified from appointment. A poll was taken and the result was as follows:

No Creditors $

Bayley 29 169,061.29

Wallace-Smith 6 275,296.24

Abstained 1

36 444,357.53

"The vote was declared and the Chairman referred to Section

s499(1) of the Act and referred to minutes of meeting of

27th August 1991 and the fact of the previous appointment by

the members of S Wallace-Smith and B Secatore.

At this point adjournment of the meeting was moved by Wood

and seconded by Murphy. The motion was passed on a show of

hands.

The Chairman declared the meeting adjourned."

6. I infer that the above reference to s499(1) was a reference by the Chairman to the legislative provision that appoints as liquidator the nominee of the company if the creditors do not appoint a different person. Appointment is effected by the statute upon the creditors' nomination of a different person or upon the failure of the creditors to so nominate. Thus, appointment cannot occur until the conclusion of the creditors' meeting called pursuant to s497(1).

7. At common law, an adjourned meeting, conducted for the purpose of completing unfinished business is deemed to be a continuation of the original meeting. See Scadding v Lorant [1851] EngR 699; (1851) 3 HLC 418 at 446: [1851] EngR 699; 10 ER 164 at 175. See also Wills v Murray [1850] EngR 211; (1850) 4 Exch 843 at 862: [1850] EngR 211; 154 ER 1458 at 1467. However, the Corporations Law has made special provision for the adjournment of a meeting of creditors convened pursuant to s497. Section 498 provides that:

- the meeting may be adjourned by resolution "from time to

time to a time and day specified in the resolution but shall

not be adjourned to a day later than 21 after the day for

which the meeting was originally convened";

- unless otherwise provided by the resolution the adjourned

meeting shall be held at the same place as the original

meeting; and

- where a meeting is adjourned to a day more than eight days

after the adjournment, notice of the adjourned meeting is to

be published in a newspaper at least seven days before the

resumption of the meeting.

- (Not material for present purposes).

8. The adjournment, resolved by a show of hands on 27 August 1991, was not to any specified time or day.

9. However, the creditors did meet again at the same place. This meeting was held twenty days after the adjournment viz, on 16 September 1991. The minutes of that meeting record that advertisements, placed in the Advocate and Examiner newspapers on 7 September 1991 were read. However, there is no evidence of the content of those advertisements. At this meeting it appeared that previous differences amongst the creditors with respect to the appointment of a liquidator had been settled for the following resolutions were passed:

"It was moved B Wood, seconded R Billing that Mr Andrew

Crawford of 15a Brisbane Street Launceston, be appointed

liquidator of the company. At this stage, Mr Billing drew

the Chairman's attention to the withdrawal of the acceptance

of nomination by Timothy Oliver Bayley. The Chairman also

noted that Mr S Wallace-Smith had withdrawn his nomination.

Mr Crawford was declared elected.

Moved Mr Norton-Smith, seconded Mr Hite that the

remuneration of the liquidator and his staff be and his

hereby fixed at the scale of fees on a time basis in

accordance with the Insolvency Practitioners Association of

Australian (sic) from time to time plus expenses necessarily

incurred. These expenses to include costs arising against

Duesburys in calling of the meeting of creditors and legal

advice obtained by the directors in reconvening of the

meeting.

The motion was carried."

10. On behalf of the liquidator and on behalf of the former employees of the company, it was submitted that the meeting on 16 September 1991 was a continuation of the meeting held pursuant to s497(1) on 26 August 1991 and that on the later date, the creditors nominated as liquidator, a person different from the person nominated by the members of the company. On behalf of Duesburys, it was submitted that the meeting on 16 September was not a continuation of the meeting held pursuant to s497(1) on 26 August, and at the latter meeting the creditors did not nominate any person to be the liquidator so that by force of the section, Messrs Wallace-Smith and Secatore were appointed. It was further submitted that they remained liquidators until vacating office at the meeting on 16 September 1991.

11. I accept the submission made on behalf of Duesburys. It must be correct having regard to the provisions of s498(1). The creditors' meeting called pursuant to s497 could only be adjourned to a time and day specified by resolution, being a day not more than twenty-one days after the day for which the meeting was originally convened. The meeting of creditors on 27 August 1991 was adjourned without specification of the time or day for its resumption. It follows that the so called resumption of the meeting on 27 August 1991 was in fact a further meeting of creditors and not a continuation of the adjourned meeting of creditors called pursuant to s497. No nomination for the office of liquidator was made by the creditors at the meeting held pursuant to s497(1) and accordingly by virtue of the terms of that subsection, Messrs Wallace-Smith and Secatore were appointed liquidators. The proper construction of the events at the next meeting of creditors is that the liquidators resigned office and this enabled the creditors to exercise the power conferred by s499(5) and fill the vacancy by the appointment of the applicant as liquidator. Section 499(3) gives the creditors a power to fix the remuneration of the liquidator. That power was not exercised at the meeting held on 27 August 1991. The remuneration of the liquidator was fixed by resolution passed at the meeting of creditors held on 16 September 1991. Although the resolution referred to the liquidator's expenses, said "to include costs arising against Duesburys in calling of the meeting of creditors and legal advice obtained by the directors in re-convening of the meeting", as Messrs Wallace-Smith and Secatore were liquidators from 26 August 1991 until 16 September 1991, during that period they fell within the terms of the resolution which fixed the liquidator's fees to be in accordance with the scale of fees of the Insolvency Practitioners Association of Australia. I might add, that insofar as the resolution purported to authorise payment of anything more than the liquidator's remuneration it is void for want of statutory authority. Accordingly, both the applicant and Duesburys are entitled to the benefit of the Corporations Law, s512 which provides:

"All proper costs, charges and expenses of and incidental to

the winding up (including the remuneration of the

liquidator) are payable out of the property of the company

in priority to all other claims."

12. The next question is whether the fund in the hands of the liquidator is the property of the company within the meaning of s512, or the property of the ANZ Banking Group.

13. Prior to the resolution to wind up the company, all its assets were the subject of a mortgage debenture to the ANZ Banking Group. The mortgage debenture provided that it shall operate as a fixed charge with respect to certain specified assets and a floating charge with respect to all the other assets of the company. Clause 17 of the mortgage debenture provided in part:

"The charge hereby created shall operate as a floating

security only as regards all other assets hereby charged ...

so that the floating security hereby created shall ipso

facto and without any act on the part of the Bank being

necessary immediately become a fixed and specific charge

upon the property and assets previously subject only to a

floating charge upon the moneys hereby secured becoming

payable ..."

"The moneys hereby secured shall at the option of the Bank

... immediately become due and payable ... if ... an

effective resolution is passed for the winding up of the

mortgagor or a meeting is summoned or convened for the

purpose of considering such a resolution."

15. Accordingly, the floating charge became a fixed charged on all the assets of the company prior to the commencement of the winding up. (See s492 prior to its repeal by No 210/1992). The applicant deposed that prior to his appointment as liquidator, he held discussions with the ANZ Banking Group with respect to its security over the assets of the company. The result of those discussions is summarised in a letter from the applicant to the bank dated 6 September 1991 as follows:

"As indicated, I am prepared to act as liquidator on the

following grounds:

1 The ANZ Bank does not act upon its security at the present

time, but reserves the right to so act in appropriate

circumstances at some future time.

2 The ANZ Bank consents to the company being made the

subject of a Creditors' Voluntary Winding Up, and to my

proposed appointment as liquidator subject to (1) above.

3 The ANZ Bank authorises the proposed liquidator to realise

the Company's assets subject to its charges on the

understanding that the net proceedings (ie after

liquidator's costs and charges) will be forwarded to the

bank for credit of the Company's account."

16. The applicant deposed that the balance of the monies in his account "consists of monies realised by me from the collection of assets, less the costs of the liquidation, which assets were the subject of the floating charge of the first named respondent."

17. Counsel for the liquidator referred to McPherson, The Law of Company Liquidation 3rd edn at 311:

"Neither 'assets' nor 'property' is defined by the Act, but

the latter is, as Lord Atkin has said, a term which would be

understood by a lawyer as including property, rights and

powers of any description. It therefore embraces all the

real and personal property of the company, including choses

in action such as goodwill, unpaid calls on shares, and

rights of action for compensation or damages.

Non-assignable contractual rights and property held on trust

are not included, nor is property which has been validly

mortgaged or charged or which is subject to some other form

of enforceable encumbrance."

18. The author relies upon Re United Pacific Transport Pty Ltd (1968) Qd R 517 at 521 as authority for the proposition that property validly charged by the company is not the property of the company. In that case W B Campbell J so held on the basis that "the assets are regarded in equity as the property of the (chargee)" - 521. See also Bank of New South Wales v Deputy Commissioner of Taxation and Ors [1979] HCA 64; (1979-1980) 28 ALR 43 at 47. The textbook was written and the cases decided on now repealed legislation. The Corporations Law, s9, defines property to mean:

"Any legal or equitable estate or interest (whether present

or future and whether vested or contingent) in real or

personal property of any description and includes a thing in

action."

19. However, in the circumstances of this case, the introduction of the legislative definition of property makes little difference, for the property of the company as defined by the Corporations Law, had no value after realisation of the assets which were the subject matter of the mortgage debenture for there was insufficient to satisfy the indebtedness to the bank. The liquidator's fund, being the balance of the realisation of the bank's security is the property of the ANZ Bank and not the property of the company. I infer that the applicant liquidator was authorised to take his costs and expenses from that fund by virtue of his agreement with the bank as expressed in par3 of his letter to the bank dated 6 September 1991. Alternatively, his entitlement to remuneration for the realisation of the assets which were the subject matter of the mortgage debenture, arises from the bank being a party to the liquidator's realisation of the assets over which it had security. With respect to this, James LJ said in In Re Regent's Canal Ironworks Company ex parte Grissell (1876) 3 Ch D 411 at 427:

"The debenture holders are the creditors to whom the

property belonged; they were creditors of the company

independently, but besides being creditors of the company

they had a specific right to the property for the purpose of

paying their debts. If the property is realised in the

proceedings to which they are parties they must pay the

costs of the realisation, just as they would have had to pay

them if they had their own suit for the purpose of realising

it, or if they had employed a person out of doors. Those

are charges to be deducted out of the proceeds of the

property, and they are only entitled to the net proceeds of

the property."

20. The Court of Appeal held however, that the liquidator was not entitled to recover from the property which was charged by the debenture the other costs associated with the liquidation. See also Batten v Wedgwood Coal and Iron Company (1885) 28 Ch D 317 at 325.

21. As the liquidator's fund is not the property of the company it is not available for the payment of the costs of Wallace-Smith and Secatore for work done by them as liquidators in the absence of an agreement between them and the bank to that effect.

22. It appears from the evidence that prior to the meeting at which it was resolved to wind up the company, Duesburys entered into precisely the same agreement with the ANZ Banking Group as did the applicant after the meeting at which the resolution to wind up the company was passed. By letter dated 12 August 1991 the ANZ Bank advised Duesburys (inter alia):

"The Bank consents to the abovenamed company going into a

Creditors' Voluntary Liquidation and to the proposed

appointment of Messrs S Wallace Smith and B A Secatore as

Liquidators ...

The Bank authorises proposed Liquidators to realise assets

subject to its charges, on the understanding that the

proceeds will be forwarded for credit of above company's

account at this office, ..."

23. By virtue of the agreements made between the bank and the liquidators that the bank would pay the liquidator's costs out of the realisation of the secured assets, the bank, as chargee of the mortgage debenture, is not entitled to receive the funds from such realisation until those costs have been paid. The Corporations Law, s561, gives employees certain priority if the property of the company available for payment of creditors other than secured creditors, is insufficient to meet payment of certain wages and related expenses specified in the section. In that circumstance, the payment of those specified wages and related expenses "shall be made in priority over the claims of a chargee in relation to a floating charge created by the company and may be made accordingly out of any property comprised in or subject to that charge." Although the charge in this case was fixed at the date of the winding up, the priority afforded by s561 applies to this charge because s9 defines a floating charge to include "a charge that conferred a floating security at the time of its creation but has since become a fixed or specific charge." This definition was inserted into the Company's legislation to overcome the difficulty raised by Stein v Saywel and Ors [1969] HCA 16; (1969) 121 CLR 529. This section gives priority to employees' claims for wages "over the claims of a chargee in relation to (the) floating charge created by the company." The chargee's claim in relation to the floating charge is to the money raised by the sale of the assets charged after payment of the costs of Duesburys and the applicant in accordance with the agreement made between them and the bank. Thus, the priority afforded the employees by s561 does not come into effect until after payment of the agreed costs. No specific argument was addressed with respect to the terms of those agreements it being assumed that Duesburys' costs are in excess of the fund, but before making an order that the fund be paid to Duesburys I will hear Counsel.