Bailey v Seneca Ltd, in the matter of Seneca Textiles Ltd

Federal Court of Australia|2020-02-20|Before: Stewart J

Pursuant to s 583 of the Corporations Act 2001 (Cth) the third plaintiff, Seneca Textiles Limited ARBN 066 900 703 (Seneca) be wound up.
The first plaintiffs, Christopher Palmer and Liam Bailey, be appointed as joint liquidators of Seneca.
The first plaintiffs' costs of this application be paid out of the assets of Seneca on an indemnity basis.
The parties have liberty to apply on notice in these proceedings for any further relief, including any relief not pressed today, save that if the Associate of Stewart J is not notified of any further proceeding in this case within three (3) months of the date of these orders the matter will be removed from the docket of Stewart J and returned to the provisional docket of the National Operations Registrar (NOR).
The third defendant's application for costs is dismissed. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Introduction 1 By amended originating process filed on 11 December 2019, orders were sought for the winding up of the third plaintiff, Seneca Textiles Ltd ARBN 066 900 703 (Seneca Textiles Australia) and ancillary matters. 2 Seneca Textiles Australia is a Pt 5.7 body being a foreign company that is registered under Div 2 of Pt 5B.2 of the Corporations Act 2001 (Cth). That follows from paragraph (b)(i) of the definition of "Part 5.7 Body" in s 9. 3 I granted the winding up order and appointed the first plaintiffs, namely Messrs Palmer and Bailey, as joint liquidators of Seneca Textiles Australia. I also ordered that the first plaintiffs' costs of the application be paid out of the assets of Seneca Textiles Australia. These are my reasons for making those orders. 4 I should mention at the outset that the third plaintiff, being Seneca Textiles Ltd with its ARBN, was originally cited as the first defendant. Thereafter there was an amendment which deleted the first defendant and added Seneca Textiles Ltd (with its ARBN) as the third plaintiff. 5 The second, third and fourth defendants did not oppose the relief that was ultimately sought and granted. The third defendant nevertheless appeared by counsel and asked for costs. He submitted that he was an unnecessary party to the proceeding and should therefore have his costs. I dismissed that application with brief reasons at the time.

Outline of Company Group 6 Seneca Textiles Ltd, the second plaintiff, was incorporated in New Zealand with Company No 646113 on 16 September 1994. Its current director is Dennis Bruce Bygrave. 7 Seneca Textiles Ltd's current shareholders are Seneca Ltd, the second defendant, as to 80/100 issued shares, and Kerry John Cockburn, the third defendant, as to 20/100 shares. Seneca Ltd was incorporated in New Zealand on 5 July 1991. 8 Seneca Textiles Ltd was first registered in Australia as a "foreign company (overseas)" on 24 October 1994. The use of the term "Seneca Textiles Australia" is to identify it by its registration in Australia. It remains a foreign company. 9 The order for winding up was sought in respect of "Seneca Textiles Limited ARBN 066 900 703" in order to make it clear that it was the domestic registration of the foreign company that is being wound up in this proceeding. That was done with reference to the example of Titchfield Management Ltd v Vaccinoma Inc [2008] NSWSC 1196; 68 ACSR 448 at [46]-[47].

Relevant Chronology 10 Christopher Palmer and Liam Bailey were appointed administrators of Seneca Textiles Ltd by its sole director, Mr Bygrave, on 3 June 2019. 11 The business had a shopfront in Prahan (Melbourne), Paddington (Sydney) and shared space with a non-related entity in Bowen Hills (Brisbane) and a warehouse in Moorabbin (Melbourne). 12 Seneca Textiles Ltd and Seneca Textiles Australia did not operate as separate entities. 13 On 28 June 2019, a report to creditors was issued by the administrators. The estimated deficiency in net assets was between $1,500,000 and $1,600,000. The key recommendation to creditors was that the company was insolvent and should be wound up at the "watershed meeting" - a term of art under the Companies Act 1993 (NZ) meaning the meeting of creditors called by the administrator to decide the future of the company and, in particular, whether the company and the deed administrator should execute a deed of company arrangement. See s 239AS of the Companies Act 1993 (NZ). 14 The watershed meeting was held on 8 July 2019 in Melbourne. At that meeting, Seneca Textiles Ltd was wound up and Messrs Bailey and Palmer were appointed the liquidators. 15 The liquidators' first report to creditors was issued on 12 July 2019. The estimated deficiency in net assets was between $1,500,000 and $3,000,000. Trading ceased in Australia on 8 July 2019.

The law 16 Section 583 of the Act provides: Subject to this Part, a Part 5.7 body may be wound up under this Chapter and this Chapter applies accordingly to a Part 5.7 body with such adaptations as are necessary, including the following adaptations: (a) the principal place of business of a Part 5.7 body in this jurisdiction is taken, for all the purposes of the winding up, to be the registered office of the Part 5.7 body; (b) a Part 5.7 body is not to be wound up voluntarily under this Chapter; (c) the circumstances in which a Part 5.7 body may be wound up are as follows: (i) if the Part 5.7 body is unable to pay its debts, has been dissolved or deregistered, has ceased to carry on business in this jurisdiction or has a place of business in this jurisdiction only for the purpose of winding up its affairs; (ii) if the Court is of opinion that it is just and equitable that the Part 5.7 body should be wound up; … (d) if the Part 5.7 body is a registrable Australian body--the winding up must deal only with the affairs of the body outside its place of origin. 17 Section 585(d) of the Act provides that for the purposes of Pt 5.7, a Pt 5.7 body is taken to be unable to pay its debts if it is proved to the satisfaction of the Court that it is unable to pay its debts. 18 The Court's powers in respect of a foreign entity under Pt 5.7 are exercisable regardless of whether any winding up has occurred in the place of incorporation of the foreign company or is likely to occur and even when the company has been dissolved in its place of incorporation: s 582(3) of the Act and Titchfield Management at [11]. Here, the foreign company is in winding up at its place of incorporation. 19 In Australian Securities and Investments Commission v Edwards [2004] QSC 344; 22 ACLC 1469 it was held as follows (at [41]): Once a registrable body that is a foreign company becomes registered under Pt 5B.2 Div 2 or carries on business in Australia, it becomes a Pt 5.7 body which is thereafter susceptible to an order for winding up, regardless of whether it subsequently becomes deregistered or ceases to carry on business in Australia. Once it becomes a Part 5.7 body it has effectively submitted to the jurisdiction conferred by the Act for its winding up. 20 Section 582(1) of the Act provides that the liquidator or Court may exercise any powers or do any act in the case of Pt 5.7 bodies that might be exercised or done by them in the winding up of companies incorporated under the Act. Section 583 provides that, subject to Pt 5.7, a Pt 5.7 body may be wound up under "this Chapter", i.e. Ch 5. That attracts the whole of Ch 5, save for matters that are inconsistent with Pt 5.7: Peninsula Group Ltd v Kintsu Co Ltd (1998) 44 NSWLR 534 at 536B. 21 Consequently, for example, since neither s 583 nor any other provision of Pt 5.7 deals expressly with the question of who may apply for the winding up of a Pt 5.7 body, the general provisions of Ch 5 apply subject to such adaptations as are necessary. 22 The general application of Ch 5 to the winding up of a Pt 5.7 body is qualified by (1) the need to make the specific adaptations referred to in s 583, and (2) the need for such other adaptations as are necessary. 23 Section 459P(1) of the Act, which is in Ch 5, relevantly provides that (a) the company, (c) a contributory, (d) a director and (e) a liquidator may apply to a court for an order that the company be wound up in insolvency. Section 462(2) of the Act, which is also in Ch 5, relevantly provides that (a) the company, (c) a contributory and (d) a liquidator may be an applicant for an order for winding up on the just and equitable ground. 24 The foreign company itself or a contributory has standing to seek a winding up order: Re Trans Pacific Insurance Corporation [2009] NSWSC 308; 71 ACSR 569 at [17] and [23] per Barrett J; Re Trans Pacific Insurance Corporation [2009] NSWSC 554; 72 ACSR 327 at [20] per Austin J. 25 The application in this case is made by the foreign company itself (the second plaintiff) through the liquidators (the first plaintiffs). Seneca Textiles Australia is also cited as the third plaintiff under its Australian registration. 26 Mr Bygrave is a director of Seneca Textiles Ltd. He deposed to an affidavit stating that he consents to Seneca Textiles Australia being cited as the third plaintiff in the proceeding and to the appointment of Messrs Palmer and Bailey as its liquidators. He also stated that there is no business or commercial utility in the registration of Seneca Textiles Ltd being maintained in Australia and that it currently conducts no business in Australia.

Grounds for winding up 27 The separate grounds for winding up under s 583(c) of the Act relied on by the plaintiffs are: (1) The Pt 5.7 body has ceased to carry on business in this jurisdiction; (2) The Pt 5.7 body is unable to pay its debts; (3) It is just and equitable that the Pt 5.7 body be wound up. 28 I am satisfied that each of these grounds is made out. Seneca Textiles Australia does not currently trade and ceased business in Australia since at least 8 July 2019. The just and equitable ground is also enlivened where there is "absence of any prospect of the company continuing to operate": CIC Insurance Ltd v Hannan & Co Pty Ltd [2001] NSWSC 437; 38 ACSR 245 at [13]. That is the case here as the company does not trade and there is no prospect that it will trade in the future. Separately, it is also established that the company is insolvent.

Discretion 29 Section 467(1) of the Act provides that a court retains a discretion to dismiss an application for winding up even if grounds for winding up have been proved. This discretion applies by dint of s 583 to the winding up of a Pt 5.7 body. 30 There are no discretionary grounds to refuse the order. To the contrary, if the winding up was refused as a matter of discretion, the result would be that a company which is not trading and is insolvent, and indeed which is in winding up at its place of incorporation, would remain registered in Australia as a foreign corporation. That would not be a satisfactory outcome. 31 In the circumstances, I declined to exercise my discretion against ordering the winding up.

Conclusion 32 I was also satisfied that to the extent that publication or notice was required it had been done or that it was appropriate to dispense with it. Also, the requisite consents to be appointed as liquidators were filed. 33 For the above reasons, I made the orders winding up Seneca Textiles Australia under its ARBN and appointing the liquidators. I certify that the preceding thirty-three (33) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Stewart.

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