Arnold World Trading Pty Ltd v ACN 133 427 335 Pty Limited [2010] NSWSC 1369 | Case summary

(5) ASIC must deregister the company at the end of the 3 month period after the return was lodged. (6) On application by the liquidator or any other interested party, the Court may make an order that ASIC deregister the company on a specified day. The Court must make the order before the end of the 3 month period after the return was lodged. (7) The person on whose application an order of the Court under this section is made must, within 14 days after the making of the order, lodge an office copy of the order." 6 Mr Gladman deposed as follows: 1. On 22 April 2010, he gave notice of the final meeting of members and creditors called for by s 509. The date scheduled for the meeting was 7 June 2010. 2. Accompanying the notice of meeting were a summary of the liquidator's receipts and payments for the period from 28 January 2010 to 22 April 2010, a final report to members and creditors and a copy of an advertisement to be placed in the Commonwealth Gazette. 3. On 4 May 2010, the advertisement was published in the Commonwealth Gazette. It stated that a final meeting in accordance with s 509 of the Corporations Act would be held on 7 June 2010 for the purpose of receiving a report of the liquidator, being an account of his acts and dealings and of the conduct of the winding up during the period to 7 June 2010. 7 Mr Gladman also deposed to events of 7 June 2010 and 7 September 2010 which he regards as having caused the meeting convened by him to be adjourned for two successive periods each of three months. Implicit in that view of things is that the meeting, being capable of doing so, acted on each occasion under regulation 5.6.18 of the Corporations Regulations 2001 (Cth) to direct or consent to adjournment. There must, however, be a question whether the meeting was capable of making any such decision with respect to adjournment, given that, under s 509(4), the quorum for a meeting of this type is "2 members and 2 creditors" yet only one member and one creditor (being the sole member and the only known creditor) were present, each by proxy. Having regard to regulation 5.6.11(3)(c), the s 509(4) quorum requirement prevails over the quorum specification in regulation 5.6.16. 8 There is no need, at this point, to come to any conclusion on the quorum matter. If there was a valid and effective adjournment to 7 December 2010, the s 509 meeting will reconvene on that day. If there was not, the liquidator is already subject to the s 509(4) lodgement requirement. Either way, there is no apparent reason why the company will not, in the ordinary course, be deregistered and dissolved as contemplated by s 509(5). 9 The liquidator, by his conduct of 22 April 2010 and 4 May 2010, acknowledged having reached the point at which it became incumbent upon him to make up an account showing how the winding up had been conducted and the property of the company had been disposed of and to convene a meeting of the creditors and members for the purpose of laying the account before the meeting and giving any explanation of the account. The circumstance that triggers the liquidator's obligation to take those steps is specified in the opening words of s 509(1): "As soon as the affairs of the company are fully wound up . . ." 10 The fact that, on the liquidator's evidence, such a point has been reached raises squarely the preliminary question to which I have referred: if "the affairs of the company are fully wound up", does the court have power to make an order under s 482 (as applied by s 511(1)), given the operative words of s 482(1): "At any time during the winding up of a company , the Court may, on application, make an order . . . terminating the winding up on a day specified in the order" [emphasis added]. 11 If the liquidator has taken steps on the basis that "the affairs of the company are fully wound up", is there a subsisting "winding up of a company"? 12 I raised that question upon the hearing of the application. Mr Zahra of counsel, who appeared for the plaintiff, was given leave to file written submissions on the matter. The submissions were provided promptly and are pertinent. 13 Mr Zahra referred to s 471A and s 471B, each of which creates a particular embargo "[w]hile a company is being wound up" - in one case, upon performance and exercise of functions and powers by officers and, in the other, upon the commencing or continuing of legal proceedings against the company. It was submitted that it cannot have been intended that the officers should again be empowered to act and litigation might again be pursued in the period between the point at which, in s 509(1) terms, "the affairs of the company are fully wound up" and ultimate dissolution of the company at the end of the s 509 process. 14 The legislation does not, in reality, present any such possibility. Each of s 471A and s 471B applies only to a case in which a company "is being wound up in insolvency or by the Court"; and the legislation does not, in relation to a winding up of that type, contemplate any interval between the point at which "the affairs of the company are fully wound up" and the release of the liquidator and deregistration of the company. 15 This is the practical effect of s 480. That section provides that, when the liquidator in a court-ordered winding up has completed the process entrusted to him or her (realising property, distributing a final dividend to creditors, adjusting the rights of contributories and making any final return to creditors), the liquidator may apply for either an order that the liquidator be released or an order that the liquidator be released and that ASIC deregister the company. The latter order is usually made. On the footing that ASIC will comply promptly with such an order of the court, there is typically no appreciable interval between discharge of the liquidator and dissolution of the company (for an example of a case in which there was such an interval, see Re CW Constructions Pty Ltd (1996) 22 ACSR 78). 16 In the context of a voluntary winding up, by contrast, the matter of directors' functions and powers (dealt with in s 471A in relation to a court-ordered winding up) is covered by s 495(2) or s 499(4). The former applies to a members voluntary winding up; the latter to a creditors voluntary winding up. Each section says that, on the appointment of a liquidator, "the powers of the directors cease"; but that this may be relaxed by a particular type of corporate decision. 17 In a voluntary winding up, the equivalent of s 471B is s 500(2). It provides that, except with the leave of the court, proceedings may not be commenced or continued against the company "[a]fter the passing of the resolution for voluntary winding up". It was noted by the Full Court of the Supreme Court of Western Australia in Bianchi v Crewe & Sons Pty Ltd (1996) 22 ACSR 152 at 157 that s 500(2) continued to operate after the liquidator in a voluntary winding up had made a s 509 lodgment with ASIC and pending its dissolution under s 509(5). 18 The effect of each of s 495(2), s 499(4) and s 500(2) is that the particular embargo begins to operate at the specified point (the appointment of the liquidator or the passing of the resolution for voluntary winding up) and continues indefinitely thereafter, subject to the possibility of specifically created exceptions. None of the sections is expressed to operate "during" the winding up. It follows that none raises the question of the duration of a voluntary winding up. 19 Reference could be made to a number of sections of the Corporations Act that refer to temporal aspects of a company's winding up. By and large, these provisions throw no real light on the question before me. There is, however, an exception. Section 601AB deals generally with what its heading calls "Deregistration - ASIC initiated". Section 601AB(2) provides: "ASIC may also decide to deregister a company if the company is being wound up and ASIC has reason to believe that: (a) the liquidator is no longer acting; or (b) the company's affairs have been fully wound up and a return that the liquidator should have lodged is at least 6 months late; or (c) the company's affairs have been fully wound up under Part 5.4 and the company has no property or not enough property to cover the costs of obtaining a Court order for the company's deregistration." 20 This section recognises that, even though "the company's affairs have been fully wound up" (these are the words in each of paragraph (b) and paragraph (c)), the company can still be one that "is being wound up". Words like these have been used in companies legislation for a long time. Provisions analogous with those in the present s 601AB(2) were introduced into New South Wales as part of the Companies Act 1936. Section 323(5) of that Act permitted striking off of a company after the expiration of a particular period following action described in s 323(4): " If, in any case where a company is being wound up , the Registrar-General has reasonable cause to believe either that no liquidator is acting, or that the affairs of the company are fully wound up , and the returns required to be filed by the liquidator have not been so filed for a period of six consecutive months, the Registrar-General shall publish in the Gazette and send to the company or the liquidator, if any, a like notice as is provided in subsection three of this section." [emphasis added] 21 It follows that Mr Zahra is correct in submitting that there is a distinction between completion of the process of winding up the company's "affairs" (that being the process referred to in s 509(1)) and the status of the company as one that "is being wound up" - and that the status of "being wound up" may continue even though "the company's affairs have been fully wound up". It also follows, I think, that one cannot accept the observation of Master Sanderson in Keith v Verge [2009] WASC 338 at [20] that a company is not "being wound up" after the liquidator has made the final lodgement called for by s 509 and before deregistration has occurred. 22 On this basis, s 482, as applied by s 511(1), remains available where, as here, the liquidator, by initiating the s 509 steps, has acknowledged that "the affairs of the company are fully wound up" and the company, although having thus been put on to the path that culminates in deregistration by ASIC, has not reached the end of that path. 23 The availability of s 482 in such a case is, in any event, suggested by the decision in Re Eastern Investment Co Ltd [1905] 1 Ch 352. That case was decided at a time when there was no equivalent of the current s 509(6) (such a provision was introduced in England by the Companies Act 1907 (UK)). When it became clear after the initiation of the then equivalent of the s 509 procedure that certain necessary steps with respect to disposal of assets had not been completed and more than the remainder of the three month period would be needed, the court was asked to stay the winding up. The court's power, at that time (created by a combination of s 89 and s 138 of the Companies Act 1862 (UK)), was a power to "stay all proceedings in relation to" the winding up, either altogether or for a limited time (the power to "terminate" now found in s 482 is a much later innovation). The order actually made was: "The Court being satisfied that for the purpose of effecting the transfer of the assets of this company comprised in the agreement of April 1903, to the new company, all proceedings in relation to such winding up ought to be stayed, direct the same be stayed accordingly, with liberty to apply." 24 There thus seems to have been a stay of the winding up until completion of the transfer, rather than a permanent stay tantamount to termination. As the judgment makes clear, the aim was to achieve a result that could today be achieved by s 509(6) extension. 25 The fact that the liquidator in a creditors voluntary winding up has set the s 509 process in train (and thus acknowledged that "the affairs of the company have been fully wound up") implies that, so far as the liquidator is concerned, nothing remains to be done in relation to those "affairs". As James LJ explained in Re London and Caledonian Marine Insurance Co [1879] 11 ChD 140 at 144, the affairs of the company are fully wound up: "… when the liquidator has done all that he can to wind up the company, when he has disposed of the assets as far as he can realise them, got in the calls as far as he can enforce them, and paid the debts as far as he is aware of them, and has done all that he can do in winding up the affairs, so that he has completed his business so far as he can, and is functus officio ." 26 But it is not unknown for the liquidator's initial conclusion in that respect to be revised. Mr Zahra referred in submissions to Re Rosaub Pty Ltd [2005] NSWSC 689; (2005) 192 FLR 395 where, after making the s 509 lodgement, the liquidator learned that the company may have a claim upon an insurance compensation fund and accordingly sought and was granted an order under s 509(6) postponing the date for deregistration by ASIC so that the matter of a claim on the fund might be pursued. A similar situation arose in Re Emergen-X Pty Ltd [2010] FCA 487 where it appeared that, unless deregistration was deferred, certain adverse tax consequences would arise. 27 In the latter case, Jacobson J explained (at [16] - [17]) the rationale for the period of three months specified in s 509(5): "The reason why there is a period of grace of three months allowed after the filing of the return seems to be explained in a Victorian authority from the nineteenth century. The decision, which is relevant, is John Birch & Co Ltd v The Patent Cork Asphalt Co Ltd (1894) 20 VLR 471 ( John Birch ). In that case Madden CJ said at 472 that the suspension of a dissolution for three months in the then relevant section of the legislation means that a purpose is to be served. His Honour said the only easily understandable purpose is to enable persons who are affected to come in and make a claim. Thus the period of grace is allowed for claims by creditors or other aggrieved parties so as to ensure that they can make a claim against a company without having to go through the process of seeking an order reinstating it.

Although the decision of Madden CJ in John Birch was reversed on appeal, the discussion of the Full Court does not affect the primary judge's explanation for the rationale of the three month period, see John Birch & Co Ltd v Patent Cork Asphalt Co Ltd (1985) 21 VLR 268." 28 It is because subsequent events or subsequently discovered matters may bring about a revision of the liquidator's opinion as to full winding up of affairs that s 509(6) allows the court to postpone deregistration and thereby allow time to deal with those events or matters. Section 509(6) provides a direct remedy for a situation such as that in Re Eastern Investment Co Ltd (above) which would once have been approached by seeking a stay of the winding up. 29 Section 509 proceeds on the basis that formation of an opinion by the liquidator that the affairs of the company "have been fully wound up" will lead on to deregistration, subject to the possibility of such postponement of deregistration as may be necessary to cater for any subsequently emerging matter calling into question the initial conclusion that the affairs have been fully wound up. 30 I should digress to say something about the nature and scope of the meeting called for by s 509. That meeting has a single purpose. The purpose is stated in s 509(1). The meeting is held so that the liquidator may lay his or her account of the winding up before the meeting and give "any explanation of the account". I would venture to repeat in relation to that purpose observations I made in Re Love [2003] NSWSC 58; (2003) ACSR 367 at [11] in relation to the type of meeting called for by the allied and similar provisions of s 508: "Implicit in any provision that a report or accounts or any other document be "laid before" a meeting by a particular person are three clear expectations: first, that the person concerned will be in attendance at the meeting; second, that the document in question will be then and there in the possession of those present at the meeting or, at least, readily available to those of them who wish to have it; and third, that the content of the document and matters arising from it may be discussed by those present in the hearing of the person who has laid it before the meeting. Part of that process of discussion may be an opportunity for those present to direct questions to the person concerned, although probably without any implied obligation upon that person to answer any such questions. The requirement under the Companies (New South Wales) Code that accounts and a report and statement of directors be laid by directors before an annual general meeting was assumed by McLelland J in Re Direct Acceptance Corporation Ltd (1987) 5 ACLC 1037 to entail an opportunity for those items to be considered at the meeting itself. Such an expectation is recognised, in the case of a company's annual general meeting, by s.250R(a) of the Corporations Act." 31 The s 509 meeting cannot stop the progress towards deregistration set in train by its convening. Nor can it reverse the decision that the company should be wound up. The meeting has a distinct and narrow purpose as a forum for communication. The meeting may no doubt be adjourned. But the only purpose of adjournment consistent with the meeting's purpose would be to provide more time for explanation by the liquidator or discussion by those present of the account and explanation given by the liquidator. Eventually, the meeting's purpose of communication will be accomplished, the liquidator will make the s 509(3) lodgement and the following sub-sections of s 509 will lead to the company's deregistration. 32 Having regard to the purpose and effect of s 509 and the fact that it begins to operate when the liquidator has decided that "the affairs of the company are fully wound up", on what basis might the court intervene under s 482 (as applied by s 511(1)) to terminate - as distinct from merely interrupting for a defined period - the company's progress towards deregistration? 33 The general approach to s 482 applications was summarised by Austin J in Vero Workers Compensation (NSW) Ltd v Ferrenti Pty Ltd [2006] NSWSC 292; (2006) 57 ACSR 103 at [17]: "(i) the court has a discretion as to whether the winding up should be terminated; (ii) in exercising its discretion, the court considers the interests of: • creditors of the company (including future creditors); • the liquidator, particularly with respect to costs; • the contributories; • the public, including the public interest in matters of commercial morality, and the public interest that insolvent companies should be wound up." 34 As Austin J makes clear, the power to terminate is discretionary. In the light of the nature of a creditors voluntary winding up which has reached the stage reached in this case, the considerations mentioned in his Honour's paragraph (ii) can scarcely be relevant. It is necessary to address the statutory discretion in the light of considerations relevant to a company subject to voluntary winding up which is virtually complete. 35 When a creditors voluntary winding up commences, each creditor is denied the right that the creditor would otherwise have had to sue the company to recover the relevant debt. This is the effect of s 500(2) noted above. The creditor obtains instead a right to participate in a distribution in the winding up according to the concept elucidated in Motor Terms Co Pty Ltd v Liberty Insurance Ltd [1967] HCA 9; (1967) 116 CLR 177, particularly in the judgment of Kitto J at 180-181 (that case concerned a court-ordered winding up, but the concept is the same in a creditors voluntary winding up). An element of the completion of the winding up of the company's affairs is that that substituted right is satisfied by whatever distribution the assets enable the liquidator to make to creditors. 36 Implicit in the conclusion that the affairs "are fully wound" up is a view that, whatever creditors have received at the completion of winding up - and even if there has been nothing for them to receive - there no longer exist or remain unsatisfied either their original debts or their substituted rights to participate under the winding up. 37 And likewise in relation to members or contributories. The conclusion that the affairs of the company have been fully wound up carries with it the proposition that the liquidator, having dealt with creditors and their claims, has caused any available balance to be "distributed among the members according to their rights and interests in the company" as required by s 501. There is, in the case of voluntary winding up, no requirement similar to that under s 488(2) that the permission of the court be obtained before a liquidator distributes surplus. 38 It follows that, where the meeting envisaged by s 509 has been convened, the situation is one in which, absent some unforeseen development or unknown circumstance, the entitlements of creditors and members flowing from the winding up have been fully satisfied and none of them has any continuing right, interest or expectation sourced in the relationship with the company, except for the very confined right, interest or expectation centred on the s 509 meeting itself. Only in case of some such unforeseen development or unknown circumstance is it likely that something more will need to be done to satisfy rights of the company's constituency; and in the normal course of events, that will be accommodated by a postponement under s 509(6). 39 In the present case, the reason advanced by the plaintiff (and also by ACN's sole director) for wanting to have the company continue in existence and to avoid the termination of that existence under s 509 is of an intangible kind. It appears that, before winding up was imposed, ACN had made attempts to do business in the Middle East but had not been successful. It is the wish of the plaintiff and the sole director to renew commercial efforts in that part of the world. They say that the prospects of success in this endeavour are likely to be enhanced if the same corporate vehicle is used; also that, as a cultural matter, it would be viewed poorly if, after a company had been promoted in a business context, it was later wound up. This, it is said, would reflect adversely on the director and his family who were involved in the promotion of the company. 40 The problem with this is that it has nothing to do with the company, its affairs and its constituency. The matter raised does not provide any objectively based reason for halting, in relation to the corporate entity, the process which, following the original decision of the member and creditor, has reached a point where no one any longer has any unsatisfied right or claim upon or in respect of the company, other than the very restricted right or claim to participate in the s 509 meeting. 41 Mr Zahra noted that, if matters are allowed to take their natural course so that deregistration and dissolution occur, the present plaintiff could make an application under s 601AH(2) for reinstatement of the registration. If any such application were made, it would be necessary for the plaintiff to show that it was "a person aggrieved by the deregistration" (s 601AH(2)(a)(i)) and that it was "just that the company's registration be reinstated" (s 601AH(2)(a)(ii)). 42 It seems to me that, where an order is sought under s 482 in respect of a company in the situation in which ACN is now placed (see paragraphs [36] to [38] above), it is appropriate to pay attention, by way of instructive analogy, to the considerations that would be addressed on a reinstatement application. The process now characterised as reinstatement of registration was, under earlier legislation, avoidance of dissolution. 43 The question whether an applicant under s 601AH(2) is "a person aggrieved by the deregistration" is considered by reference to legal rights and legal interests. It must be seen that the applicant has a genuine grievance that the dissolution of the company affected his or her interests because, for example, a right of some value or potential value has gone out of existence: Australian Competition and Consumer Commission v Australian Securities and Investments Commission [2000] NSWSC 316; (2000) 174 ALR 688 (at [24]-[26]). Under analogous English legislation, the applicant was expected to have "an interest of a proprietary or pecuniary nature in resuscitating the company": Re Wood & Martin (Bricklaying Contractors) Ltd [1971] 1 WLR 293; and see Re GA & RJ Elliott Pty Ltd (1978) 3 ACLR 523. 44 A member of a company that is deregistered pursuant to s 509 upon completion of winding up in which all known property has been duly collected an applied (so that there has been full satisfaction of the entitlements of members under s 501) does not suffer prejudice as a result of the deregistration or have any interest of a proprietary or pecuniary nature in bringing the company back into existence. I can therefore see no basis on which the present plaintiff, as the sole member of ACN, could mount a s 601AH(2) claim following deregistration. The considerations of personal reputation that have been put forward relate to ACN's sole director and members and his family, not the present plaintiff. It is a company that continues to exist and is capable of presenting itself in the Middle East or anywhere else as an intact corporate entity; and no right or entitlement it enjoys will have been affected by deregistration of ACN following due application of its assets by the liquidator. 45 An alternative possibility that might be addressed in the same hypothetical way is an application under s 601AH(2) by the sole director of ACN. As to that, it is sufficient to refer to the well-established principle that a director of a deregistered company does not, by reason of the directorship alone, have the "person aggrieved" status the section requires. Some additional interest is needed. But that additional interest needs to be of a tangible kind going beyond the matters of concern that have been referred to in this case. 46 Given (a) the absence of any suggestion that the affairs of ACN have not in truth been fully wound up; (b) the stage that the creditors voluntary winding up has reached (where neither the sole creditor nor the sole member any longer has any right or claim in respect of the company, except for the right to participate in the s 509 meeting, assuming that the meeting has been validly adjourned to 7 December 2010); (c) the absence of any indication that the winding up needs to be re-opened or that any matter relevant to the rights and interests of the member or the creditor makes dissolution inappropriate; and (d) that the expressed concern of the sole director as to matters of commercial perception and personal reputation are foreign to interests of and within the company, I do not regard this as a matter in which the court should exercise its discretion to terminate the winding up. It is, to say the least, anomalous to contemplate the re-emergence into the mainstream of corporate life of a company the assets of which have been fully expended by its liquidator in a process the result of which is that all pre-existing claims upon the company have ceased to be cognisable against it - including, in particular, those of it members. 47 The originating process filed on 2 November 2010 is dismissed.

Arnold World Trading Pty Ltd v ACN 133 427 335 Pty Limited

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