Australasian Memory Pty Ltd v Brien [2002] NSWSC 1058 | Case summary

HIS HONOUR : The application 1 The plaintiffs claim to be the liquidators of Wood Parsons Pty Ltd (in liquidation). However, a question has arisen as to the validity of their appointment. They were appointed voluntary administrators by an instrument purportedly executed under seal, pursuant to a purported resolution of the directors of the company, on 7 December 2000. The creditors of the company resolved on 11 January 2001 that the company be wound up. By virtue of s 446A (1) of the Corporations Law as in force at that time, the plaintiffs would have become the liquidators of the company in a creditors' voluntary winding up if they were validly in office as the administrators at the time of the creditors' resolution: see s 446A (4). Doubt arises because an issue has been raised as to whether the persons who purported to act as directors on 7 December 2000 were in fact the directors of the company, and consequently as to whether there was any valid resolution of directors on 7 December 2000 and any valid execution under seal of the instrument of appointment on that day. 2 The issue was raised by the solicitors for Eschavarria Escarrier Trading Ltd, a company engaged in litigation against Wood Parsons. Having received a copy of a long letter by Mr Robert Herd dated 17 January 2001 (a letter discussed below), the solicitors wrote to the plaintiffs' solicitors on 14 June 2002 noting Mr Herd's assertion that the appointment of the directors of Wood Parsons was invalid, and querying whether, if that were so, the appointment of the plaintiffs as liquidators might also be invalid. The evidence of Mr Duncan, one of the plaintiffs, is that until he received the letter of 14 June 2002 he was not aware that any creditor or shareholder (including Mr Herd) took any issue with the plaintiffs' appointment as administrators and consequently as liquidators. 3 The plaintiffs seek relief to remove doubt as to their present and past status. By interlocutory application filed on 26 July 2002, they seek orders under s 1322 (4) (a) of the Corporations Act 2001 (Cth) declaring that the resolution of directors and the execution of the instrument of appointment on 7 December 2000 were not invalid by reason of any defect in the appointment of the directors. In the alternative, they seek an order under s 447A that Part 5.3A is to operate, and has at all relevant times operated, in relation to the company as though the resolution of the directors purportedly passed on 7 December 2000 was a valid resolution for the purposes of s 436A. In the further alternative, they seek a declaration relying on s 201M, that the resolution of the directors passed on 7 December 2000 was effective as a resolution pursuant to s 436A. Notice of the application 4 On about 26 July 2002, the plaintiffs sent letters giving notice of the present application to the members of the company and the creditors known to them, and to the Australian Securities and Investments Commission. One creditor, Guide Rails Pty Ltd, responded to the invitation in the letter by asking for a copy of the interlocutory process and the affidavit supporting it. Guide Rails Pty Ltd was represented at the hearing of the application on 5 August 2002. It has made an application in this Court seeking to remove the plaintiffs as liquidators, arising from complaints in relation to the progress of various matters in the liquidation. Guide Rails Pty Ltd is in liquidation. 5 A company called Lawturn Pty Ltd had previously asserted in correspondence with the plaintiffs' solicitors that it had a beneficial interest in one third of the shares in Wood Parsons. The solicitors for Lawturn requested a copy of the present application and Mr Duncan's supporting affidavit, and were supplied with those documents, but Lawturn Pty Ltd has not made any application to appear in this Court. 6 Difficulty was encountered in transmitting the first letter by facsimile to one of the members of the company, Quartermain Holdings Ltd, and so it was necessary to send the letter to that company by mail at its address in the Bahamas. Additionally, the letter was not initially sent to Eschavarria Escarrier Trading Ltd, which (as I have said) has taken proceedings against the company, but a similar facsimile was transmitted to that company's solicitors in the Bahamas on 2 August 2002. 7 Because of the short notice to Eschavarria Escarrier Trading Ltd and Quartermain Holdings Ltd, and in view of their offshore addresses, I decided after hearing the application on 5 August 2002 to stand the application over for one week and to direct that further notice be given to those two companies, to give them time to lodge Notices of Appearance and make submissions if they wished to do so. The matter returned to me on 12 August 2002 and I was informed that neither company had responded to the notices given pursuant to my directions. Evidence was adduced that there had been a further communication on about 6 August 2002 with various interested persons, informing them of the adjourned hearing date and a proposed amendment to the interlocutory process. No one apart from Guide Rails applied for leave to appear at the hearing on 12 August 2002. 8 The hearing ended on 12 August 2002, and I reserved judgment. Before I delivered judgment, I received a letter addressed to me and dated 27 August 2002, from Barry E Connor, who purported to be attorney for Quartermain Holdings Ltd. The letter enclosed an affidavit by him dated 26 August 2002. It was in an envelope addressed to the Registrar of the Court and posted by registered post. On the back of the envelope, evidently designating the sender, was the name "A Powles" and an address in Bateau Bay, NSW. I arranged for my associate to send the letter and enclosure to the legal representatives of the plaintiffs and Guide Rails Pty Ltd, without at that stage reading the affidavit. On 6 September 2002 I heard submissions as to whether I should read the affidavit. 9 Although Quartermain Holdings Ltd is not represented and neither the plaintiffs nor Guide Rails Pty Ltd has made any application to read or tender Mr Connor's affidavit, I have decided in the exercise of my discretion that the appropriate course is to admit the affidavit into evidence by formally reading it. I have, however, excluded parts of the affidavit that I regard as inadmissible. My associate has notified the legal representatives of the plaintiffs and Guide Rails of my decision with respect to the affidavit, and I have received no submissions from them on the matter. 10 After making my decision with respect to Mr Connor's affidavit, I reviewed the evidence for the purpose of preparing my reasons for judgment on the application. I became concerned about two things. First, according to an affidavit filed on behalf of the plaintiffs, an officer of the Commission was still reviewing the material supplied by the plaintiffs on 12 August 2002. I therefore did not know whether ASIC wished to appear or make submissions with respect to the application. Secondly, Mr Connor's affidavit indicated that a person called Suzanne Lynn may have a beneficial interest in one third of the shares of the company, and it did not appear that she had been notified of the application. 11 Therefore, when the matter came before me on 6 September 2002, I announced that I would not deliver reasons for judgment but instead, I would invite the plaintiffs to obtain additional evidence on the two points of concern. 12 The solicitors for the plaintiffs have provided to my associate a letter to them from ASIC dated 4 October 2002, stating that ASIC does not propose to intervene in the proceedings and neither consents to nor opposes the application. They have also provided a written submission and dated 1 October 2002, annexing correspondence with solicitors acting for Lawturn Pty Ltd, and an ASIC search which shows that Suzanne Mary Lynn of Newtown is a director of that company. The new evidence satisfies me that adequate notification has been given to ASIC and Ms Lynn. There is therefore no remaining obstacle to my delivering reasons for judgment. Facts 13 Stating the facts is a difficult matter because it is obvious that many issues have arisen between the directors and shareholders of the company, only glimpses of which are revealed in the evidence. The presentation of the evidence has developed in an odd way, because of the receipt of Mr Barry Connor's letter. I do not criticise the plaintiffs for these matters. As far as I can tell from the limited evidence before me, they appear to have done their best to piece together a picture of the affairs of the company, its history and its financial position. However, the incompleteness of the evidence as an account of the history of the company, and the interposition of Mr Connor's evidence, are grounds for a cautious approach to the application. 14 Wood Parsons was formed in 1969 by interests controlled by Mr Samuel Lynn, to be the holding company for a 75% interest in Guide Rails Pty Ltd. The Otis Elevator Co Pty Ltd holds the remaining 25% interest in Guide Rails Pty Ltd. In addition to its shareholding in Guide Rails Pty Ltd, Wood Parsons acquired a business called Kona Coffee, and has owned several home units at Yarranabbe Gardens in Darling Point, Sydney. Following the death of Mr Lynn in 1996, there was litigation relating to the distribution of his estate. It appears that as a result of that litigation, the whole or a substantial part of the company came to be owned beneficially by Barry and Penelope Connor. Apparently Penelope Connor's interest is held through her nominee Quartermain Holdings Ltd. 15 Robert Herd and William Haddock were appointed directors of the company in 1999. Some time in the year 2000, a conflict arose between the shareholders and those two directors. Mr Herd and Mr Haddock ceased to be directors by no later than 7 December 2000, the date upon which they formally resigned their positions. At issue is the question whether they were validly removed from office at a shareholders' meeting purportedly held in the Bahamas on 15 August 2000, at which it is alleged that new directors were appointed, who in turn appointed additional directors to the board. It was this newly constituted board that purported to appoint the plaintiffs as voluntary administrators of the company. If the new board was not properly constituted, the appointment of the plaintiffs as voluntary administrators and subsequently as liquidators of the company may be open to challenge, unless a curative order is made. 16 According to minutes, which are in evidence, the directors of the company passed a resolution under s 436A for the appointment of the plaintiffs as administrators, at a meeting in the Bahamas on 7 December 2000. Len Davies and Flossie Curling were present at the meeting, and Adrian Powles was present by telephone. An instrument of appointment was executed under the common seal of the company by Mr Davies and Ms Curling on the same day. 17 One of the plaintiffs, Mr Duncan, has given evidence that at the time of the appointment of the administrators, he had no reason to doubt the validity of the appointment. However, an ASIC search undertaken by the staff of the administrators on 8 December 2000 showed that the directors of the company were Robert Herd and William Haddock. This discrepancy led Mr Duncan to cause investigations to be made. His staff discovered that a dispute had arisen in relation to a shareholders' meeting purportedly held in the Bahamas on 15 August 2000 at which the appointment of Mr Herd and Mr Haddock as directors had been terminated. He was led to understand that validity of the shareholders' meeting was questioned on the basis of inadequate notice and lack of quorum. However, he was informed that Mr Herd and Mr Haddock had formally resigned as directors on 7 December 2000, prior to the purported appointment of administrators. He was informed by Adrian Powles that Flossie Curling, Samantha Harding, Len Davies and Mr Powles had been duly appointed as directors. His evidence is that he was satisfied on the basis of those inquiries that the resolution for the appointment of the administrators was valid. 18 The evidence before me includes a copy of the minutes of a meeting of the members of the company purportedly held on 15 August 2000 in the Bahamas. The minutes record that Quartermain Holdings Ltd was present by its representative, Len Davies, and that Ian Connor was present by telephone. Mr Davies as chairman determined that there were two members present whose holdings represented 6666 of the 10,000 issued shares of the company. The meeting resolved to appoint Flossie Curling and Samantha Harding as directors and to terminate the directorships of Mr Herd and Mr Haddock. Also in evidence is a minute of a meeting of directors held in the Bahamas on 28 August 2000, attended by Ms Curling and Ms Harding (the latter by telephone), at which it was resolved to appoint Len Davies as a director. There is evidence (in minutes of a meeting of members purportedly held on 3 November 2000) to indicate that there was also a meeting of the directors on 12 October 2000. It may then have been resolved that Adrian Powles (also referred to in the evidence as Ronald Adrian Powles or Ronald Powles) be appointed as a director, but the minutes themselves are not in evidence. 19 The evidence includes company extracts of ASIC's registered information taken at various times in 2000 and 2002. At no stage have ASIC's records been altered to reflect the removal resignation of Mr Herd and Mr Haddock as directors. As far as the registered particulars are concerned, Mr Herd and Mr Haddock remain the directors. Mr Duncan's affidavit made on 26 July 2002 offered an explanation of this, by way of hearsay evidence provided by Mr Powles. Mr Powles said that he endeavoured to lodge a notice of change of officeholders with ASIC prior to 7 December 2000 but the notice was not processed due to a difficulty involving fees requisitioned by ASIC, which were not approved by Mr Herd, who was then a signatory to the company's accounts. 20 The plaintiffs produced their first report to creditors in December 2000, for the purposes of the first meeting of creditors held under s 436E on 14 December 2000. In their report, the plaintiffs noted that according to ASIC records, Mr Herd and Mr Haddock were the directors, but they recorded their understanding that Mr Herd and Mr Haddock resigned on 7 December 2000 and that on 15 August 2000 Ms Curling, Ms Harding, Mr Davies and Mr Powles had been appointed directors. The report stated that the members of the company were McGregor Morgan & Co Ltd which held 9900 shares, Romona Investments (Jersey) Ltd which held 99 shares, and John McGlinchey who held one share. 21 The first meeting of creditors was held as scheduled and on 3 January 2001 the plaintiffs issued their second report to creditors. The report recorded that "disputes have arisen following a shareholders' meeting purportedly held in the Bahamas in August 2000 relating to the appointment and removal of directors, the control and stewardship of the company and the subsequent disposal of company assets". It noted that McGregor Morgan & Co Ltd had transferred 6666 shares in the company to Quartermain Holdings Ltd, a transfer which according to the share transfer form was from trustee to beneficiary. It noted that Mr Herd and Mr Haddock were removed from office by the members at a meeting in August 2000, but a dispute arose as to the validity of the meeting on the ground of invalid notice, and the directors refused to accept the termination of their appointment, until they formally resigned their positions on 7 December 2000. 22 The report referred to charges granted over the company's assets in July 2000 in favour of Mr Herd and Mr Haddock, observing that those charges may be open to challenge under s 267 of the Corporations Law. The report noted various allegations about Mr Herd, and certain dealings with assets of the company. Those dealings included transactions in 2000 concerning a loan to the company by Guide Rails, in which the company had a 75% holding, and negotiations for the acquisition of the remaining 25% of Guide Rails held by Otis. The company's 75% holding was, according to share transfer forms which are in evidence, transferred to companies said to be associated with Mr Ian Connor, namely East Coast Rails Systems Inc (apparently a Bahamas company) and Colorado Elevators Inc (a company whose provenance has not been established by the evidence before me). I was informed from the bar table that there is a dispute between Guide Rails and the plaintiffs with respect to these transactions. 23 The report reviewed the prospects of recovery in respect of voidable transactions, insolvent trading and voidable charges in favour of officers. It concluded by expressing the plaintiffs' opinion that it would be in the best interests of the company for the company to be wound up, so that liquidators could investigate dealings with the company's assets and businesses and decide upon prospects for recovery. At the second meeting of creditors of 11 January 2001 it was resolved that the company be wound up. 24 On 17 January 2001 Mr Herd wrote to the plaintiffs' firm, commenting on the report to creditors. The contents of the letter have been verified by Mr Herd in an affidavit filed in the present proceeding. 25 Mr Herd asserted that Ms Curling and Ms Harding were not validly appointed as directors of the company on 15 August 2000 because "the meeting of 15 August 2000 simply did not take place as there was no valid quorum at which any business of the company could be conducted". He contended that Mr Ian Connor, who according to the minutes of the meeting was present by telephone, was in fact not present at the meeting, and he enclosed a copy of an affidavit signed by Mr Ian Connor deposing to that fact. He said that the minutes of 15 August 2000 were a sham because the conflict between himself and Mr Haddock, on the one hand, and the shareholders on the other hand, did not arise until 6 October 2000. 26 It appears that Mr Ian Connor is the son of Mr Barry Connor. In his affidavit, Mr Barry Connor contested Mr Herd's assertion that there was no quorum for the meeting of 15 August 2000. I am not in a position to resolve these competing contentions of fact, on the limited evidence before me on the application. 27 Mr Herd also asserted in his letter that a purported meeting of 28 October 2000 (which may have been a reference to the meeting purportedly held on 3 November 2000) was invalid on the basis that no notice had been given to all members of the company, only one day's notice was given to Mr Ian Connor, and 95% of the members were not present to be able to agree to an abridgment of time. 28 Mr Ian Connor's affidavit is in evidence. It was made under the Civil Procedures Rules 1999 of the Supreme Court of Queensland, although not in respect of any designated proceeding. Mr Connor gave a United States address and made the affidavit on 17 October 2000 before a notary public in the United States. He deposed that he was a shareholder of Wood Parsons; that he was not present at the purported meeting of the company on 15 August 2000 either by telephone, in person, by proxy or voting paper; and that he had not attended any meeting of the company in any of those ways where any of the resolutions referred to in the minutes of the purported meeting had been moved or voted on. 29 I should note at this stage that Mr Ian Connor's claim to be a shareholder is not corroborated by the plaintiffs' reports, nor by an ASIC Current and Historical Company Extract made on 21 July 2002, which is in evidence. According to the plaintiffs' reports and the company extract, the only shareholders are McGregor Morgan for 8900 shares, Romona Investments (Jersey) Ltd for 99 shares and Mr John McGlinchey for one share. A Company Extract dated 16 November 2000 contains the same information. However, the company's annual return for 1999, signed by Mr Herd as a director on 12 July 2000, while listing those three shareholders in typescript, adds a reference to Quartermain Holdings for 6665 shares and Mr Ian Connor for one share, by handwriting, reducing the McGregor Morgan shareholding by handwritten correction from 8900 to 3234 shares. Confusingly, the evidence also includes an Historical Company Extract dated 6 June 2002 in which the shareholdings correspond to the 1999 Annual Return, and in his affidavit made on 26 July 2002 Mr Duncan deposes without explanation that he understands that the shareholdings are as stated in the company extract of 6 June 2002. 30 Mr Barry Connor said in his affidavit that the one-third shareholding owned by McGregor Morgan is held by that company for Suzanne Lynn, a director of Prime Appointments Sydney. It is unnecessary for me to decide whether that is true. I am satisfied that appropriate steps have been taken to notify the directors of McGregor Morgan and Ms Lynn of the present application, as explained above. 31 It appears that Mr Herd was informed of the purported meeting of shareholders of 15 August 2000, when he received a letter dated 22 August 2000 from Mr Davies. Mr Herd says that the letter was sent to him only on 6 October 2000, although there is evidence from Mr Davies claiming that the letter was handed by him to Mr Herd during the latter's visit to the Bahamas on 22 August 2000. This is not something I am in a position to resolve, not having heard any oral evidence. 32 The letter informed Mr Herd that the shareholders had met and resolved that certain assets of the company be sold to meet its outstanding liabilities and avoid liquidation. The shareholding in Guide Rails was to be sold to two companies who had agreed to pay outstanding liabilities of Wood Parsons owed to a company called Nippon Heng Steel Ltd (a company apparently associated with Mr Barry Connor). The shareholders also resolved to sell the equipment used in the Kona coffee business to Eschavarria Escarrier Trading Ltd, in payment of a debt owing to that company. 33 Mr Davies' letter informed Mr Herd that new directors had been appointed who would be "more accountable in the running of the company", and that he was required to oversee the continued operation and eventual sale of the Kona business. The letter enclosed a copy of the minutes of the meeting of 15 August 2000, and a copy of minutes of a meeting of Ms Curling and Ms Harding as the new directors of Wood Parsons on 21 August 2000 in the Bahamas, at which those two persons, purporting to act as the directors of the company, resolved to sell the shares in Guide Rails and the plant and equipment in Kona coffee. 34 Also in evidence is a purported minute of a meeting of the directors of Wood Parsons on 28 August 2000 at which Ms Curling and Ms Harding (the latter present by telephone) purported to appoint Mr Davies as a director. There is also a purported minute of a meeting of members of Wood Parsons on 3 November 2000, attended by Mr Davies as representative of Quartermain Holdings and by Mr Ian Connor by telephone. The meeting resolved to ratify and accept the decisions of the meeting of members of 15 August 2000, and the decisions of the directors at their meetings on 21 and 28 August and 12 October 2000, Mr Connor abstaining. There are no minutes of the meeting of 12 October 2000 in evidence. 35 On 9 October 2000 Mr Davies wrote to Mr Herd claiming that Mr Herd had been requested during a recent visit to the Bahamas to apply on behalf of the new shareholders of Guide Rails (Colorado Elevators Inc and East Coast Rails Systems Inc) for approval of the transfer to them of the shareholding of Wood Parsons in Guide Rails. Mr Davies said that as a result of Mr Herd's failure to do what was requested, he had called a meeting of the shareholders of Guide Rails for 12 October 2000 and that the share transfers and requisite declarations were to be forwarded to Guide Rails prior to the meeting. By another letter of the same day, Mr Davies informed Mr Herd that the directors of Wood Parsons had instructed him to advise Mr Herd that Mr Herd was no longer permitted to act on any of the company's bank accounts, except to make deposits. The letter requested various accounting records from Mr Herd. 36 Mr Herd replied on 13 October 2000, expressing surprise at the purported meeting on 15 August 2000, and saying that neither he nor Mr Haddock had received notice of the meeting. He alleged that the meeting was held without the requisite 21 days notice of meeting. He claimed that the new directors had not been validly appointed. 37 On 5 December 2000 Quartermain Holdings instituted proceedings in this Court, No 4882 of 2000, by originating process seeking an order that Wood Parsons be wound up and that Mr Schmierer be appointed liquidator. By interlocutory process filed on the same day, Quartermain Holdings sought the appointment of Mr Schmierer as provisional liquidator or receiver and manager of the company. Apparently those applications were not proceeded with after the appointment of the plaintiffs as voluntary administrators of the company. 38 Those applications were supported by an affidavit by Mr Davies made on 4 December 2000, deposing that he was a consultant retained by Quartermain Holdings and was authorised to make the affidavit on its behalf. The affidavit gave an account of the assets and liabilities of the company, and annexed the minutes of the meeting of 15 August 2000 without any qualification as to their accuracy. Correspondence between Mr Davies and Mr Herd was also annexed. Mr Davies complained that on about 13 October 2000 the Internet password for access to the company's bank account was changed so that Quartermain Holdings no longer had access, and he asserted that Mr Herd was the only person who could have changed the password. 39 In his affidavit in the present proceeding, Mr Herd said he had been notified of the plaintiffs' application seeking orders to remedy any defects in their appointment as voluntary administrators on 7 December 2000. He said that it was his view as at 7 December 2000, and remains his view, that it was appropriate for the company to be wound up or that an administrator be appointed, given the issues that had arisen in previous months in relation to the management of the company, and the concerns expressed in his letter of 17 January 2001. He said he supported the plaintiffs' application. Mr Haddock has provided a statement made on 5 August 2002, in which he says he agrees with the content of Mr Herd's letter of 17 January 2001, to the extent that it disputed the validity of resolutions allegedly passed by the members of the company on 15 August 2000, and that he supports the plaintiffs' application for orders remedying any defects in their appointment as administrators on 7 December 2000. 40 Mr Duncan's evidence is that in his opinion, the company became insolvent from 22 August 2000. He has reached this conclusion because of investigations conducted for the purpose of challenging the purported transfer of shares in Guide Rails. It appears that the purported transfers of Wood Parsons' 75% shareholding in Guide Rails to East Coast Rails Systems Inc and Colorado Elevators Inc took place on 22 August 2000 for a stated consideration of $2. The 25% shareholder of Guide Rails, Otis Elevator Company Pty Ltd, commenced proceeding No 4383 of 2000 against Guide Rails, East Coast and Colorado, seeking the winding up of Guide Rails. Mr John Vouris was appointed provisional liquidator of Guide Rails on 6 November 2000, and liquidator on 12 March 2002, when a winding up order was made. 41 The share transfers required the approval of the directors of Guide Rails, but it was not given. A cross-claim was brought in the same proceeding by East Coast and Colorado, joining Wood Parsons and seeking to give effect to the purported share transfers. Mr Duncan's evidence in the present proceeding was that a significant distribution is expected to shareholders in the liquidation of Guide Rails, which has an estimated surplus of $2 million. Mr Duncan said that the liquidator of Guide Rails cannot distribute the surplus until the issue of ownership of the 75% shareholding is resolved. 42 Mr Duncan has given evidence that Wood Parsons became insolvent for reasons related to the purported transfer of shares in Guide Rails. He estimated the range of market values for the company's 75% shareholding as between $562,225 and $2,088,315. He said that the outstanding liabilities of the company falling due before 22 August 2000 were between $200,914 (best case) and $1,300,510 (worst-case). In his opinion the company became insolvent after the share transfers, the result of which was that the company moved from a net asset position to a net liability position of $612,067. 43 Mr Duncan's evidence is that he intends to issue proceedings to set aside the purported share transfers as voidable transactions under s 588FE of the Corporations Act, and he anticipates entering into a funding arrangement to enable him to do so. He said that unsecured creditors of Wood Parsons are unlikely to receive any dividend until the purported transfer is set aside and a distribution is received by the company from Guide Rails. According to Mr Duncan, the application to set aside the purported share transfers, and other steps in the liquidation of Wood Parsons, cannot be progressed until doubts about the validity of the plaintiffs' appointment as administrators are resolved. The grounds for relief 44 The plaintiffs seek appropriate orders under either s 447A or s 1322 (4) of the Corporations Act, curing their appointments and validating their conduct as from 7 December 2000, when they were purportedly appointed as voluntary administrators. The application raises questions as to the Court's jurisdiction to make such orders, and as to the discretionary grounds for doing so. 45 The availability of such relief is governed by the decision of the High Court of Australia in Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270. In that case the High Court did not directly deal with the question whether s 447A or s 1322(4) may be used to overcome a deficiency in the appointment of voluntary administrators. I endeavoured to deal with that matter in Deputy Commissioner of Taxation v Portinex Pty Ltd (2000) 34 ACSR 391. I drew attention (Portinex at paragraph [32]) to observations in the High Court (at paragraphs [23] and [24] of the High Court judgment) where their Honours emphasised the broad scope of s 447A on its literal construction, and its role as an integral part of the legislative scheme in Part 5.3A. I also noted that their Honours had shown a willingness to use the section in cases where the parties have assumed the validity of a deed of company arrangement and have acted accordingly (Portinex, paragraph [32]). 46 In the present case the plaintiffs have assumed the validity of their appointment as voluntary administrators and the validity of the transition of their roles from voluntary administrators to voluntary liquidators. However, not all persons affected by the process of administration and liquidation have made that assumption. In particular, Mr Herd has contested the basis of the plaintiffs' appointment as voluntary administrators. Notwithstanding these considerations, my view is that the Australasian Memory case establishes the proposition that s 447A is available to cure such matters as a lack of quorum of properly appointed directors at the meeting where a resolution is purportedly passed to appoint the voluntary administrators: see Portinex at paragraph [33]. 47 That conclusion is consistent with other cases, including Sydney Appliances Pty Ltd (in liq) v Robert Bosch (Australia) Pty Ltd (2000) 33 ACSR 680; Re Inventive Marketing Pty Ltd [2000] VSC 432; Shirlaw v Graham [2001] NSWSC 612; Sambah Holdings Pty Ltd v Lord [2001] NSWSC 1004; Re Supreme Imports Pty Ltd (in liq) [2001] NSWSC 1209. 48 Counsel for Guide Rails submitted that the present case is closely analogous to Wagner v International Health Promotions Pty Ltd (admin apptd) (1994) 15 ACSR 419, where Santow J declined to apply s 1322 in a case where there was no attempt at all to pass a resolution for the appointment of voluntary administrators in compliance with s 436A. In my opinion, Wagner's case is not authority as to the availability, as a matter of jurisdiction, of s 447A in a case such as the present one. In the first place, that case seems to go to the exercise of discretion rather than to the availability of jurisdiction. Secondly, it is a case dealing with s 1322 rather than s 447A, and was decided before the High Court expounded the scope of s 447A in the Australasian Memory case. Thirdly, the facts of the present case are distinguishable, because in the present case it appears that a number of individuals purported to act as directors for some time before the meeting at which the appointment of voluntary administrators purportedly took place, and at that meeting those individuals purported to pass a resolution for the appointment which on its face was in proper form. 49 My conclusion is that s 447A is available to make a curative order in circumstances such as are before me in this case. However, there is doubt as to whether s 447A can be used to make a curative order operating retrospectively to 7 December 2000. The doubt arises because the section authorises the Court to make orders about "how this Part is to operate", and therefore looks to the future rather than the past: see Portinex at paragraph [30] (9). It seems to me that, if I am persuaded on discretionary grounds (as I am) that the orders should be made, I should invoke s 447A as a source of jurisdiction in case it is available, but I should also rely on s 1322 (4), which appears to be more clearly available to permit an order nunc pro tunc. 50 Section 1322 (4) authorises the Court, on the application of an interested person, to make various orders, including: "(a) an order declaring that any act, matter or thing purporting to have been done … under this Act or in relation to a corporation is not invalid by reason of any contravention of a provision of this Act or a provision of the constitution of a corporation." 51 In the present case, the problem arises out of the claim that the directors who purportedly made the appointment were not validly appointed, because proper notice of the general meeting to appoint them was not given to the shareholders and a quorum of shareholders was not present. The resolution of 7 December 2000 to appoint the plaintiffs as voluntary administrators is an act, matter or thing purporting to have been done in relation to the company. The invalidity is said to arise through failure to give proper notice as required by the corporations legislation and the constitution of the company, and the absence of the quorum required by the constitution of the company. These matters fall within the wording of subparagraph (4) (a). 52 Section 1322 (4) is available in cases where s 447A is also available, according to the High Court in the Australasian Memory case (at paragraph [33]). There is nothing in the wording of the section to limit the Court's general power, where it has jurisdiction to make an order, to make that order nunc pro tunc. The only relevant restrictions on the exercise of the Court's power arise in s 1322 (6). 53 Subparagraph 1322 (6) (a) requires the Court to be satisfied of one of three matters, namely that the act, matter or thing is essentially of a procedural nature, or that the person or persons concerned in or party to the failure to comply acted honestly, or that it is just and equitable that the order be made. The evidence does not permit me to take a view as to the honesty of those involved in the meeting of 7 December 2000, and I doubt that it could be said that the problem in this case is essentially of a procedural nature: see, for example, Re Vanfox Pty Ltd (1995) 13 ACSR 209 at 216. The question, therefore, is whether it is just and equitable that the order be made. Additionally, subparagraph 1322 (6) (c) requires the Court to be satisfied that no substantial injustice has been or is likely to be caused to any person. It seems to me that, although no particular considerations are articulated in s 447A, basically the same considerations arise under that section. 54 In the present case it is important that the affairs of the company have been conducted in external administration since December 2000 and in liquidation for over 18 months. If a validating order is not made in these circumstances, there is a risk of prejudice to creditors. There are transactions entered into by the company within the six months before the relation back date, which may be liable to be avoided as preferences or on other grounds, namely the transactions involving Eschavarria Escarrier Trading Ltd and Guide Rails. Those transactions would not fall within that period if no order is made or an order is made only prospectively. Had the appointment being made properly in December 2000, those transactions would have been amenable to investigation. In light of the assumption upon which the external administration proceeded, it seems to me just and equitable, as regards the other parties to the transactions, that orders should be made restoring the position that was assumed to exist. While the orders will affect the other parties to those transactions, in my view it cannot be said that substantial injustice would be caused to them. 55 As far as the interests of members are concerned, I am satisfied that there would have been no difference in the outcome had the deficiencies of notice and quorum not occurred: compare Re Pembury Pty Ltd (1991) 4 ACSR 759, at 762,768. 56 As to the interests of the company, the evidence before me indicates that the company was insolvent as from the time of the plaintiffs' report to creditors and should have been wound up. 57 Guide Rails drew attention, in its submissions, to some uncertainties and contradictions in the evidence. I readily acknowledge that the evidence is in an unsatisfactory state. However, there seems to be enough in the evidence to justify my taking the step of curing any invalidity in what has occurred since the purported appointment of the plaintiffs on 7 December 2000. In my opinion the facts of the present case are sufficiently different from the facts in Wagner's case (where there is no attempt at all by the directors to pass a resolution complying with s 436A) to justify my exercising the discretion in a different way. 58 When the application first came before me I was hesitant as to whether orders should be made, because of concerns about whether adequate notice had been given to all affected persons and to ASIC. Those concerns have been addressed. The position now is that the affected persons have been on notice of the application since August this year, and none have come forward to oppose it, other than Guide Rails (which was present from the beginning). Mr Herd said that in his opinion the proper course would be for the orders to be made, notwithstanding his concerns about the validity of the appointment. 59 It is also relevant that the decisions made at the shareholders' meeting of 15 August 2000, said to be lacking a quorum, were ratified at the meeting on 3 November 2000 where a quorum was present, although there is an argument that inadequate notice was given of the 3 November meeting. 60 A consideration pointing against granting the relief sought by the plaintiffs is that, according to the evidence of Mr Duncan, very little trouble was taken by the plaintiffs to investigate the adequacy of their purported appointment immediately after it took place. It seems that they relied on assurances given by Mr Powles, notwithstanding the state of ASIC's records. In my view they did not conduct adequate investigations. However, that factor is substantially outweighed by the other considerations that I set out, and therefore it does not persuade me to deny the relief that has been sought. Conclusions 61 I have decided that I have jurisdiction to make an order, nunc pro tunc, which will have the effect of curing or validating the external administration of the company as from 7 December 2000, when the resolution purporting to appoint the plaintiffs as voluntary administrators was purportedly passed. The source of my jurisdiction is s 1322 (4) and may also be s 447A of the Corporations Act. 62 As I have said, I have been cautious and hesitant as to whether such orders should be made, as a matter of exercise of discretion. In the end, I am influenced by the factors described above, not least of which is the fact that, so long after the application was notified to interested parties, no-one other than Guide Rails has come forward to resist it. My view is that the grounds advanced by Guide Rails are unpersuasive. 63 Given the view I have reached with respect to curative orders, it is unnecessary for me to deal with the application for declaratory relief under s 201M, although I should note that I am not persuaded that the section would apply in the present circumstances. 64 Consequently I propose to make the orders in paragraphs 1,2 and 3 of the Amended Interlocutory Process. The plaintiffs sought an order of the Court winding up the company and appointing the second plaintiff as its liquidator, in the event that I was not prepared to make curative orders or a declaration under s 201M. It is unnecessary for me to consider that part of the application, which would be less advantageous to creditors of the company than curative orders, because of differences in the relation back period. 65 I shall order that the plaintiffs' costs as applicants be paid out of the assets of the company as costs of the winding up. **********

Australasian Memory Pty Ltd v Brien

At a glance

Court

Decision date

Before

Source

Judgment (8 paragraphs)

Parties

Legislation Cited (1)

Cases Cited (5)

Cited By (13)