(c) …"
6 TPIC is within the s 9 definition of "foreign company". That alone brings it within the s 9 definition of "registrable body". Furthermore, the evidence shows that it was, on 9 April 2009 - that is, earlier this month - registered under Division 2 of Part 5B.2. It follows that TPIC is within the definition of "Part 5.7 body" and that the s 583 jurisdiction extends to it.
7 Section 583 lays down a general rule that a Part 5.7 body "may be wound up under" Chapter 5 of the Corporations Act and that Chapter 5 "applies accordingly to a Part 5.7 body" with the "adaptations" to which the section refers. Under Chapter 5, the court may appoint a liquidator provisionally at any time after the filing of a winding up application and before making a winding up order: s 472(2). The power to appoint a provisional liquidator is therefore available in this case.
8 As a matter of discretion, the court should only appoint a provisional liquidator if it is satisfied that there is a reasonable prospect that a winding up order will be made: Australian Securities and Investments Commission v Solomon (1996) 19 ACSR 73 at 80 per Tamberlin J: Lubavitch Mazal Pty Ltd v Yeshiva Properties No 1 Pty Ltd [2003] NSWSC 535; (2003) 47 ACSR 197 at [106] per Austin J.
9 That leads to a consideration of the grounds relied on by TPIC and Mr Douglas in maintaining their application for the winding up of TPIC.
10 Mr Baird made it clear that three distinct grounds form the basis of the winding up application: first, that TPIC has by special resolution resolved that it be wound up by the court; second, that TPIC is insolvent; and, third, that it is just and equitable that TPIC be wound up.
11 The second and third of these matters are referred to in s 583 (see the first part of s 583(c)(i) and s 583(c)(ii)). The first, however, is not. Mr Baird submitted that the opening words of s 583 make available, upon a winding up application in relation to a Part 5.7 body, all the grounds for winding up created by Chapter 5 in relation to a company including the grounds in s 461(1). One of these, created by s 461(1)(a), is that the company has by special resolution resolved that it be wound up by the court.
12 Mr Baird's submission cannot be accepted. It is inconsistent with the decision of the Court of Appeal in The Peninsular Group Ltd v Kintsu Co Ltd (1998) 28 ACSR 632. It was there held that s 583(c) contains an exhaustive statement of the circumstances in which the court may order the winding up of a Part 5.7 body. Sheppard AJA (with whom Meagher JA and Sheller JA agreed) said at 638:
"In my opinion, the legislature has plainly indicated that the circumstances in which a Part 5.7 body may be wound up are those specified in para (c). The list it contains is comprehensive, particularly as it includes the just and equitable ground which has been construed very widely ."
13 Later, Sheppard AJA dealt with the precise submission Mr Baird made, namely, that the words "with such adaptations as are necessary" at the start of s 583 cause to apply, in adapted form if necessary, all the provisions in Part 5.4 creating grounds for winding up. His Honour said at 640:
"If s 583 had stopped with the words 'with such adaptations as are necessary', there may have been a strong case for saying that the provisions of Pt 5.4 were to be picked up, particularly in relation to statutory demands and the consequences of service of them. But s 583 went on to refer to adaptations which were to be made. These, although briefly expressed, are quite comprehensive. In my opinion they provide, if not a code, then an exhaustive list of the grounds upon which a Part 5.7 body may be wound up. They include grounds not based on insolvency. There is thus a clear intention not to import into Pt 5.7, for instance, the provisions of s 461 dealing with the winding up of companies on grounds other than insolvency."
14 Because s 583(c) thus contains "an exhaustive list of the grounds upon which a Part 5.7 body may be wound up", the s 461(1)(a) ground is unavailable. There are available, however, the insolvency ground defined by the words in s 583(c)(i) "if the Part 5.7 body is unable to pay its debts" (the meaning of which is amplified by s 585) and the just and equitable ground is defined by the words in s 583(c)(ii), "if the Court is of opinion that it is just and equitable that the Part 5.7 body should be wound up".
15 In addressing, for the purposes of this interlocutory application now before me, the question whether there is a reasonable prospect of a winding up order being made, I therefore confine myself to the second and third matters.
16 Before turning to the facts, I should say something about the standing of TPIC and Mr Douglas to make application for an order for the winding up of TPIC.
17 Neither s 583 nor any other provision in Part 5.7 says anything on the question of who may apply for the winding up of a Part 5.7 body. There is no confining or restriction of the kind discussed in The Peninsular Group Ltd v Kintsu Co Ltd (above). The question should therefore be approached by reference to the general provisions of Chapter 5, subject to "such adaptations as are necessary". Under s 462(2), both the company itself and a contributory have standing to seek winding up.
18 TPIC is thus a competent applicant for an order for its own winding up under Part 5.7. There is, however, a question about Mr Douglas: is he a "contributory" of TPIC?
19 The definition of "contributory" in s 9, so far as relevant, is:
"'contributory' means:
(a) …
(b) in relation to a Part 5.7 body:
(i) a person who is a contributory by virtue of section 586; and
(ii) before the final determination of the persons who are contributories by virtue of that section--a person alleged to be such a contributory; and
(c) …
20 This directs attention to the meaning of "contributory" in s 586. It is sufficient to quote s 586(1):
"On a Part 5.7 body being wound up, every person who:
(a) in any case is liable to pay or contribute to the payment of:
(i) a debt or liability of the Part 5.7 body; or
(ii) any sum for the adjustment of the rights of the members among themselves; or
(iii) the costs and expenses of winding up; or
(b) if the Part 5.7 body has been dissolved or deregistered in its place of origin was so liable immediately before the dissolution or deregistration;
is a contributory and every contributory is liable to contribute to the property of the Part 5.7 body all sums due from the contributory in respect of any such liability."
21 In the case of a foreign company, s 586(1)(a) seems to me to be concerned with a liability arising outside Part 5.7 and, for that matter, outside the Corporations Act itself. Attention is directed to other sources of liability which may include the body's constitution and the law of the place of incorporation. Because I have no evidence about these matters, I am unable to conclude that Mr Douglas is subject to a liability of the
s 586(1)(a) kind. It follows that I am unable to conclude that he is a "contributory" of TPIC within paragraph (b) of the s 9 definition of that term.
22 Mr Douglas's standing to make an application for an order for the winding up of TPIC has therefore not been shown.
23 Nevertheless and as I have said, TPIC itself has standing. That being so, the court should concern itself with "the validity of the decision and executive act of the directors to present the petition in the name of the company", to quote words used by Street J in Re Inkerman Grazing Pty Ltd (1972) 1 ACLR 102 at 103. It was held in that case that a company's directors may cause it to make application to the court for its own winding up where, as is commonly the case, they are given by the constitution the ability to exercise all such powers of the company as are not, by the legislation or the constitution, required to be exercised by the company in general meeting. That was a proposition not embraced in all cases (see the comment at (1990) 64 ALJ 600 about then recent cases in Victoria and Queensland to the contrary, being Re United Uranium NL [1990] VR 121 and Re Giant Resources Ltd [1991] 1 QdR 107). However, as Austin J pointed out in Re United Medical Protection Ltd [2002] NSWSC 413; (2002) 41 ACSR 623, the differences now seem to have been settled in favour of the Inkerman Grazing approach. This is particularly so in light of Re Interchase Management Services Pty Ltd (1992) 9 ACSR 148.
24 As I have said, I have no evidence about the content of the constitution of TPIC or the law of the Cayman Islands. I am, however, prepared to infer that where, as here, a particular person is the sole shareholder and sole director of a corporation, a clearly expressed decision of that person with respect to an act of the corporation should be recognised as a decision of the corporation. In this case, Mr Douglas has taken action which manifests itself in a purported special resolution that TPIC should be wound up by the court. It is this that formed the basis for the unsuccessful attempt to rely on the ground in s 461(1)(a) of the Corporations Act.
25 I am therefore satisfied that TPIC should be regarded as having made an effective decision to make an application to the court for an order for its own winding up.
26 Having concluded that TPIC has made an appropriate application and that the application may be pursued by reference to the forms of the insolvency ground and the just and equitable ground defined by s 583, I turn to the facts as they appear from Mr Douglas's affidavit.
27 Mr Douglas says that TPIC "carried on business in Australia as a foreign general insurance underwriter specialising in legal liability cover from about 2000" (I interpolate that, if this is so and there was no foreign company registration under the Corporations Act until 9 April 2009, there appears to have been default under s 601CD for something of the order of eight years). Mr Douglas and Mr Bunt were originally the directors and shareholders but, in 2006, Mr Douglas became the sole director and shareholder. This was shortly after it had become clear to Mr Douglas that TPIC was no longer able to market insurance in Australia. Since late 2005, the remaining risks have been in "run off" mode and no new business has been written.
28 During the "run off" phase, a number of claims have been settled. About 60 claims remain current with an estimated exposure of between $7 million and $15 million. While these figures are given in Mr Douglas's affidavit, an annexed schedule of claims referring to slightly more than 60 individual claims gives an estimated total of $6,278,500. Mr Douglas estimates other liabilities at $80,000, being legal expenses outstanding. Mr Douglas says that all known creditors are in Australia.
29 On the assets side, Mr Douglas refers to cash at bank of $2,921,435, cash held by an agent in the Cayman Islands of $926,174, money in solicitors' trust accounts of $642,000 and debtors of $652,250 (mainly in respect of unpaid policy expenses due on claims paid) - a total of $5,141,859. With the exception of the moneys held by the agent in the Cayman Islands, these funds are in Australia or are in the process of being remitted to Australia.
30 With no new business being undertaken, these resources of $5,141,859 are the only foreseen means of defraying claims which, as things now stand, are estimated at $6,358,500 and may be as great as $15 million.
31 Mr Douglas refers to reinsurance held by TPIC and explains why no recovery is expected under reinsurance contracts. This is basically because of excess arrangements.
32 Mr Douglas also gives evidence about TPIC's compliance standing under Cayman Islands law. The most recent audited accounts of TPIC are for the year ended 30 June 2006. The auditors resigned in February 2009. They said in an email of 13 February 2009 that they had a limitation on scope in many audit areas and believed "that we will be unable to gain sufficient comfort to form an opinion". They continued:
"Based on this conclusion we have made the decision to resign as auditors of the Company. We shall submit our formal resignation letter in due course."
33 On 14 April 2009, the Cayman Islands Monetary Authority wrote to Mr Douglas. The letter began:
"The authority remains extremely concerned with the situation of the Company and request you take urgent corrective action to bring the Company back in full compliance with the law."
34 The law referred to is the Insurance Law (2008 Revision) of the Cayman Islands. The letter went on to refer to a number of "outstanding issues":
· non-filing of annual audited financial statements for the years ended 30 June 2006, 2007 and 2008;
· non-filing of management financials since 30 June 2006;
· lack of submission of a business plan for the Authority's approval;
· failure to provide required documents in connection with a business acquisition;
· failure to give details of an agreement for the assumption of certain claims;
· the resignation of the auditors;
· the giving of 90 days notice of resignation by the company's manager, AON, on 30 March 2009;
· the fact that only one director is in office.
35 The letter concluded by threatening "regulatory action" if TPIC was not brought back "in full compliance with the Law".
36 With this evidence in mind, I turn to the question whether TPIC has shown that there is a reasonable prospect that a winding up order will be made.
37 The concept of insolvency reflected in s 583(c)(i) is not expressed in the terms found in s 95A. The question is simply whether the Part 5.7 body "is unable to pay its debts". There must nevertheless be considerable overlap between the two. In particular, it seems to me most likely that, as White J explained in New Cap Reinsurance Corporation Ltd v A E Grant [2008] NSWSC 1015; (2008) 68 ACSR 176, an insurer's obligations to indemnify insureds in respect of losses suffered should be regarded as debts. That being so, it can be seen that, in light of the evidence referred to at paragraphs [28] - [31] above, it is likely that the s 583(c)(i) ground ("is unable to pay its debts") will be made out at trial.
38 When it comes to the a 583(c)(ii) ground, the letter from the auditors and the letter from the Monetary Authority of the Cayman Islands suggest that there are good prospects of it being shown that it is no longer possible for business to be carried on and that there is "a justifiable lack of confidence in the conduct and management of the company's affairs", to quote Lord Shaw in Loch v John Blackwood Ltd [1924] AC 783.
39 The fact that, according to Mr Douglas's affidavit, all the insurance claimants are in Australia and almost all the assets are in Australia mean that a winding up under Australian law is likely to be ordered as a matter of discretion: see generally Titchfield Management Ltd v Vaccinoma Ltd [2008] NSWSC 1196; (2008) 68 ACSR 448.
40 In summary, therefore, there are good prospects that a case for winding up will be made out at trial on both the insolvency ground and the just and equitable ground made available by s 583(c).
41 The remaining matter to be addressed on the interlocutory application for an order appointing a provisional liquidator is the balance of convenience. Aspects of this are the urgency of the situation, the reality that such an appointment represents a drastic intrusion into the company's affairs and such need as there may be for external administration to be imposed in the interests of countering instability.
42 In the circumstances of this case, the balance of convenience strongly favours the appointment of a provisional liquidator. Mr Douglas, the sole director, in effect tells the court that he no longer wishes to be responsible for the administration of the company which appears to be insolvent and to be in a state of significant regulatory non-compliance in its home jurisdiction. Instability exists and needs to be addressed. There is no continuing business and therefore no concern about impact on reputation, relationships and prospects. While insolvency or apparent insolvency may, of itself, be generally insufficient to warrant appointment of a provisional liquidator, the position may be different where the company itself is the applicant: Re McLennan Holdings Pty Ltd (1983) 7 ACLR 732. There is, however the additional ground in this case.
43 The circumstance that the assets and liabilities are wholly (or virtually wholly) in Australia indicates a need for the exercise of the discretion to appoint a provisional liquidator under the Australian legislation.
44 It is, of course, common for the usual undertaking as to damages to be required as a condition of the making of an application for the appointment of a provisional liquidator. Rule 6.1(4) of Supreme Court (Corporations) Rules 1999 says that the court may require such an undertaking. The main purpose of the undertaking is to guard against the possibility that the company may suffer damage if the appointment turns out to be unwarranted.
45 In this case, as I have said, the balance of convenience strongly favours the making of the appointment. That, together with the significant point that it is the company itself that seeks the appointment, persuades me that there is no need to require the usual undertaking as to damages in this case.
46 Mr Silvia's consent to act as provisional liquidator has been filed.
47 I order that Brian Raymond Silvia of Level 3, 1 Castlereagh Street, Sydney, an official liquidator, be appointed liquidator of Trans Pacific Insurance Corporation ARBN 136 487 673 provisionally.
48 Beyond that, I shall merely direct that the proceedings be placed in the Registrar's list at a convenient date in a month or so.
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