3703/02 - KHADIJEH AWADA v LINKNARF LIMITED (IN LIQUIDATION)
JUDGMENT
1 The present application raises a short but important point about voluntary winding up. The defendant, Linknarf Limited (formerly Franklins Limited), became subject to members' voluntary winding up by virtue of a special resolution passed on 15 April 2002. A declaration of solvency (Form 520) signed by a majority of its directors and dated 12 April 2002 was duly lodged in accordance with s. 494 of the Corporations Act 2001 (Cth). The declaration showed assets of $25,230,093 and liabilities of $24,770,711, leaving an estimated surplus of $459,382 after paying debts in full.
2 In September 2001 (that is, some eight months before the winding up), the plaintiff commenced proceedings 8890 of 2001 against the defendant in the District Court claiming damages for injuries allegedly sustained when the plaintiff slipped and fell at the defendant's supermarket at Chester Hill. The question for immediate consideration is whether it is open to the plaintiff to continue the District Court proceedings without the leave of this court or some other "Court" (with a capital "C") as defined in the Corporations Act. The answer turns upon the proper construction, in its context, of s.500(2) of the Act. That section is in the following terms:
"After the passing of the resolution for voluntary winding up, no action or other civil proceeding is to be proceeded with or commenced against the company except by leave of the Court and subject to such terms as the Court imposes."
3 Mr Walsh of counsel, who appeared for the plaintiff, submitted that s.500(2), on such a proper construction, does not apply to a case of members' voluntary winding up. He relied, in that respect, on the decision of Judge Burley, Master of the Supreme Court of South Australia, in Catto v Hampton Australia Ltd (1998) 29 ACSR 225. Mr Lucarelli of counsel, who appeared for the company, submitted to the contrary, adding that the decision in Catto's case did not afford sufficient weight to the possibility that a winding up which begins as a members' voluntary winding up may afterwards come to be treated as a creditors voluntary winding up.
4 As Mr Lucarelli pointed out, there are really two ways in which a company may become subject to creditors' voluntary winding up. The first (and the more common today) is by way of follow-on from Part 5.3A voluntary administration by resolution of creditors under s.439(1) or s.445E or in default of execution of a deed of company arrangement as resolved by creditors (s.444B). The second is under Division 3 of Part 5.5 where a special resolution of members for winding up under s.491 is supplemented by a meeting of creditors convened in accordance with s.497. A variant on the second (which Mr Lucarelli was inclined to classify as a third possibility) is that, in the case of a winding up which begins as a members' voluntary winding up, the liquidator may form the opinion that the company is insolvent, in consequence of which a meeting of creditors is convened and the winding up thereafter proceeds "as if the winding up were a creditors' voluntary winding up" (see ss.496(6) and (8)). I shall return to the significance of these provisions and to the submission based on them.
5 First, I proceed to examine the statutory provisions. It is essential to consider the totality of the context in which s. 500(2) is found. The process of voluntary winding up for which the Act provides is created by Part 5.5. That Part consists of Divisions 1 to 4. Under s.491, a company may be wound up voluntarily "if the company so resolves by special resolution". Having regard to the definition of "special resolution" in s.9, this initiating step is, of its very nature, taken by the members only. By virtue of s.493, the passing of the special resolution marks the point at which cessation of the company's business occurs (except to the extent the liquidator considers continuation necessary for the beneficial disposal or winding up of that business) and there arises an embargo on transfers of shares and the alteration of the status of members (in the sense that a transfer or alteration after the passing of the resolution is void). In a real and direct sense, therefore, it is the passing by members of the s. 491 special resolution that causes the voluntary winding up regime to be imposed.
6 Whether the voluntary winding up thus initiated by the passing of a special resolution by members is a "members' voluntary winding up" or a "creditors' voluntary winding up" depends on a factor mentioned in the s.9 definition of the first of these terms, namely, whether a declaration of solvency has been made by directors and lodged pursuant to s.494. If it has, the winding up is a members' voluntary winding up; otherwise, it is a creditors' voluntary winding up. This is the effect of the two definitions.
7 Sections 491, 493 and 494 appear in Division 1 of Part 5.5 headed "Resolution for winding up". There follow Division 2 headed "Members' voluntary winding up", Division 3 headed "Creditors' voluntary winding up" and Division 4 headed "Voluntary winding up generally". Divisions 2 and 3 contain certain provisions resembling one another and dealing with the same subject matter. Thus, for example, s.495(2) in Division 2 and s.499(4) in Division 3 are as follows:
"495(2) On the appointment of a liquidator, all the powers of the directors cease except so far as the liquidator, or the company in general meeting with the consent of the liquidator, approves the continuance of any of those powers."
"499(4) On the appointment of a liquidator, the powers of the directors cease except so far as the committee of inspection, or, if there is no such committee, the creditors, approve the continuance of any of those powers."
8 Similarly, Division 2 contains s.495(3) and Division 3 contains s.499(5):
"495(3) If a vacancy occurs by death, resignation or otherwise in the office of a liquidator, the company in general meeting may fill the vacancy by the appointment of a liquidator and fix the remuneration to be paid to him or her, and for that purpose a general meeting may be convened by any contributory or, if there were 2 or more liquidators, by the continuing liquidators."
"499(5) If a liquidator, other than a liquidator appointed by or by the direction of the Court, dies, resigns or otherwise vacates his or her office, the creditors may fill the vacancy and, for the purpose of so doing, a meeting of the creditors may be convened by any 2 of their number."
9 There are thus in ss.495(2) and 499(4) provisions which, if they apply indiscriminately to every company to which a liquidator is appointed in a voluntary winding up, are inconsistent in a such a way that they cannot operate together. Likewise, if ss.495(3) and 4999(5) apply to every such company, there are again provisions on the same subject which so conflict as to be irreconcilable. The provisions can only be properly understood on the footing that those located in Division 2 apply where the winding up is a members' voluntary winding up as defined by s.9 (but not where it is a creditors' voluntary winding up) and those in Division 3 apply where the winding up is a creditors' winding up as defined by s. 9 (but not where it is a members' voluntary winding up).
10 Division 2 and Division 3 each refer to "the company", without any attempt to describe or define the company to which reference is made. Thus, for example, s. 500(3) empowers the court to require certain persons, including agents of "the" company to deliver to the liquidator property to which "the" company is prima facie entitled and s. 500(1) renders void any attachment or the like put in force against the property of "the" company. If a reference to companies without distinction were intended, the words "a company" would be used. The definite article shows that a particular company is in contemplation. The context demonstrates that "the company" is, of necessity, a company in liquidation. Furthermore and for the reasons I have already stated, I consider the "the" company referred to in a Division 2 provision is a company subject to members' voluntary winding up, while "the" company referred to in a Division 3 provision is a company subject to creditors' voluntary winding up.
11 This approach attaches weight to the headings of Division 2, Division 3 and Division 4 of Part 5.5. Underlying it is the notion that the Division 2 heading "Members' voluntary winding up" and the Division 3 heading "Creditors' voluntary winding up" convey the message that the provisions in each of those divisions are applicable only to the type of winding up mentioned in the particular heading, while Division 4 - "Voluntary winding up generally" - contains provisions applicable to both types of voluntary winding up. I consider this approach to be correct as a matter of statutory interpretation.
12 By force of s.5C of the Corporations Act, the Acts Interpretation Act 1901 (Cth) as in force on 1 November 2000 applies to that Act. The status of headings in Acts is dealt with in s.13 of the Acts Interpretation Act. Section 13, as it has existed since 1980, is in the following terms:
"13. Headings, schedules, marginal notes, footnotes and endnotes
(1) The headings of the Parts Divisions and Subdivisions into which any Act is divided shall be deemed to be part of the Act.
(2) Every schedule to an Act shall be deemed to form part thereof.
(3) No marginal note, footnote or endnote to an Act, and no heading to a section of an Act, shall be taken to be part of the Act. "
13 Because of s.13(1), there can be no doubt that the headings of Divisions 1, 2, 3 and 4 of Part 5.5 of the Corporations Act form part of that Act and are to be taken into account in construing its provisions. It is useful to note two recent observations on the weight to be afforded to headings in Acts, whether under s.13(1) or otherwise. I refer first to the following passage in the judgment of Drummond J in Hagan v Trustees of Toowoomba Sports Ground Trust [2000] FCA 1615:
"But to give s.18C(1)(b) such a mechanical application is to ignore the statutory context and purpose of s.18C. It is in Part IIA of the Act headed 'Prohibition of Offensive Behaviour based on Racial Hatred'. It is necessary to take this heading into account in seeking the true meaning of s.18C(1)(b): that heading is part of the statutory context of the phrase, 'act done because of the race ...', in this sub-section. See s.13(1) the Acts Interpretation Act 1901 (Cth) and CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384, where it was said at 408 that 'the modern approach to statutory interpretation ... insists that the context be considered in the first instance, not merely at some later stage when ambiguity might be thought to arise ...'. "
14 I refer next to the remarks of Mansfield J in Australian Prudential Regulation Authority v Holloway (2000) 104 FCR 521:
"Section 13 of the Acts Interpretation Act 1901 (Cth) may be relevant. It directs that the headings of Parts and Divisions (but not of sections) of an Act are deemed to be part of the Act.
In Silk Bros Pty Ltd v State Electricity Commission (Vic) (1943) 67 CLR 1 Latham CJ said (at 16):
'The headings in a statute or in Regulations can be taken into consideration in determining the meaning of a provision where that provision is ambiguous, and may sometimes be of service in determining the scope of a provision ... '
A provision which is unambiguous will not (necessarily) be read down by a heading which might otherwise suggest a more limited meaning: Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Ltd (1978) 140 CLR 216 at 225; Bevanere Pty Ltd v Lubidineuse (1985) 59 ALR 334 at 341; Pearce and Geddes in Statutory Interpretation in Australia (4th ed, 1996), p 120 state:
'The other context in which problems occur is where a section expressed in general terms is included in a Part headed in a way that could limit its operation and it is clear that other sections in that Part fall within the description contained in the heading. This causes greater difficulty as prima facie it would appear that the general section should be confined by its context.'
In each of Chalmers v Thompson (1913) 30 WN (NSW) 161 and K & S Lake City Freighters Pty Ltd v Gordon & Gotch Ltd (1985) 157 CLR 309, the heading did not limit the scope of the particular provisions because of the legislative history of the section and the context of the Act.
In considering the significance of a heading, as K & S Lake City Freighters shows, it is appropriate to have regard to the fact that the heading's function is to serve as a brief guide to the provisions which fall within it: see Henry LJ in Oyston v Blaker [1996] 1 WLR 1326 at 1333; [1996] 2 All ER 106 at 114; F A R Bennion, Statutory Interpretation (3rd ed, 1997), p 574, s 255. The heading is necessarily brief, and may therefore be inaccurate or incomplete. It may survive despite amendment to the sections in the course of the passage of the Bill.