Brealey v Shields

Judgment (ex tempore) 1By interlocutory process filed in Court pursuant to leave granted today, the applicant James Alexander Shaw, who was by order of the Court made on 10 September 2009 appointed liquidator of the company Trussted Frames & Trusses (Holdings) Pty Ltd on the just and equitable ground, claims special leave pursuant to (Cth) Corporations Act 2001, s 488, to make an interim distribution of surplus to the shareholders in the company. The liquidator is also the voluntary liquidator, in a members' voluntary winding up, of two subsidiaries of the company, Trussted Frames & Trusses (Tamworth) Pty Ltd and Comtao Pty Ltd. 2Corporations Act, s 485(2), provides that the Court must adjust the rights of the contributories among themselves and distribute any surplus among the persons entitled to it. Section 488(1) provides that the rules or regulations may enable or require a liquidator to exercise all or any of the powers and duties conferred and imposed on the Court in respect of, inter alia, (c) the adjusting of the rights of contributories among themselves and the distribution of any surplus among the persons entitled to it..." 3However, subsection (2) provides that, despite anything in rules or regulations made for those purposes, a liquidator may distribute a surplus only with the Court's special leave. (NSW) Supreme Court (Corporations) Rules 1999, r 7.10, delegates the powers reserved to the Court under Pt 5.4B of the Corporations Act to the liquidator, subject to the Act, the Regulation, the Rules and any order of the Court. Accordingly, while the power to distribute surplus has been delegated to the liquidator, s 488(2) means that the liquidator nonetheless requires the Court's "special leave" to distribute a surplus. 4Those words have been considered in a number of cases, the substance of which is that they are of historical origin and do not denote that any particular standard is required so far as establishing grounds for leave is concerned, but only that it be shown that it is appropriate in all the circumstances for the distribution to be made. If "special" has a meaning, it seems to be that a specific application for leave under s 488(2) must be made, rather than being included with other administrative matters [Re Klaus Maertin Pty Ltd (In Liq) [2009] NSWSC 618; (2009) 232 FLR 239, (Austin J), citing Re DS Millard & Son Pty Ltd (1997) 24 ACSR 71 (Young J)]. 5Rule 7.9 specifies that the affidavit in support of an application for special leave to distribute surplus must state how the liquidator intends to distribute the surplus, including the name and address of each person to whom the liquidator intends to distribute any part of the surplus, and that at least fourteen days before the date fixed for hearing, the liquidator must publish a notice of the application in accordance with form 15, published in accordance with r 2.11. 6The evidence, and in particular the affidavit of the liquidator of 15 June 2012, shows that he proposes to distribute the surplus to six shareholders of the corporation. The searches of the Australian and Securities Investment Commission ("ASIC") records reveal that there are eight recorded shareholders. However, the liquidator's investigations have established that two of those shareholders, Mr and Mrs Philmer, had sold their shares back to the company, and been paid out for what was presumably the agreed value of their shareholding. It seems that the requirements of the Corporations Act in respect of reduction of capital were not complied with. Nonetheless, Mr Philmer is deceased, and Mrs Philmer, who is his executor, on her own behalf and on behalf of his estate, has indicated that they have no further interest in the company, and have consented to the proposed distribution on that basis. I am satisfied that as a matter of substance there are only six shares now on issue, and six shareholders interested, each of whom own one ordinary share, and they are the six to whom it is proposed to distribute surplus. 7The ASIC search also shows that the shares held by each of the shareholders are ordinary shares. Under the memorandum and articles of association, the capital is divided into eight classes, being A, B, C, D, E, F and G class shares, and ordinary shares. The articles give the holders of the B class shares an entitlement on winding up to receive a distribution of all surplus assets remaining after the repayment of the amount paid on all shares in the capital of the company. The holders of the A, C, D, E and F class shares are not entitled to participate in a distribution of surplus assets. The G class shares are redeemable preference shares. However, the holders of the ordinary shares are entitled to the same voting rights as are attached to the A class shares, and the same rights of distribution of surplus assets that are attached to B class shares. As only ordinary shares appear to have been issued, it appears clear that the six issued ordinary shares are entitled on winding up to receive a distribution of the surplus assets. 8The liquidator has sold the assets of the company and its subsidiaries, and paid the debts, save for workers' compensation premiums, for which provision has been made, and some tax liabilities, for which provision has also been made. Having made provision for those outstanding debts, and for further costs of administration and final distribution, it seems likely that there will be a surplus in the winding up in the order of $3.1 million. 9At this stage, the liquidator proposes to make an interim distribution of $292,500 to each of the six shareholders. The shareholders are family groups, so that means effectively $585,000 to each of the three family groups. That has arisen in circumstances where one of those family groups purchased significant assets from the liquidator, and to enable that purchase the liquidator advanced a loan to that family group, and concurrently to each of the other family groups, in the sum of $585,000. What is proposed is an interim distribution equivalent to those loans, which will have the effect of repaying those loans. Accounting evidence establishes that there are significant taxation advantages for the shareholders for those loans to be repaid, and for the interim distribution to be made before the end of the current financial year. 10Publication of notice of the present application on 13 June 2012, that is to say more than fourteen days before the date of hearing, was effected in the Newcastle Herald, as proved by the affidavit of Mr Woodward sworn 15 June 2012. Publication of an advertisement in the Sydney Morning Herald, on 1 June 2012, calling for any further proofs of debt, is established by affidavit of the liquidator sworn 21 June 2012. The period referred to in that notice, and in (Cth) Corporations Regulation 2001, cl 5.6.39, expired on 15 June 2012, and there has been no notice from any potential creditors. 11Even after the distribution, a substantial surplus will remain in the company in case there be any further claims. In those circumstances, I am satisfied that it is proper and appropriate to make the interim distribution. 12The liquidator also seeks a direction, under cl. 5.6.71 of the Regulations, that a schedule in Form 551 need not be annexed to the order. The Court has power under that regulation to dispense with the requirement that a form 551 schedule be annexed. The schedule provides information about the distribution, the calculation of it and the persons to whom the distribution is paid. In simple cases the Court can dispense with it [Re Klaus Maertin Pty Ltd [51]; Brealey v Shields [2009] NSWSC 1148, [8]-[15] (Barrett J); Re FAI Car Owners Mutual Insurance Co Pty Ltd [2009] NSWSC 1350; (2009) 76 ACSR 164 (Barrett J)]. In this case, the order itself sets out the names and amounts of the interim distribution. There are no complexities in the calculation, and in those circumstances it is appropriate to dispense with the requirement for a form 551 schedule.