By Interlocutory Process filed on 18 November 2015, the applicants, Messrs Needham and Taylor as liquidators of Allseal Floor Preparations Pty Ltd (in liq) ("Company") seek orders under s 488(2) of the Corporations Act 2001 (Cth) for special leave for distribution of a surplus of the Company, in a specified manner. That distribution would include an in-specie distribution of plant and equipment to a specified value and a monetary distribution to a specified value to one of the contributories of the Company, Kealy Group Pty Ltd, and an in-specie distribution of other plant and equipment and a monetary distribution to another contributory, Kealy Investments Pty Ltd, such that each of the two contributories would receive an equal proportion of the distribution, albeit they would receive different amounts in-specie and in cash which together totalled the same amount. The liquidators also seek an order dispensing with the requirement for a schedule to be annexed under Form 551 in respect of the distribution of the surplus, to which I will return.
Brealey v Shields [2015] NSWSC 1990 | Case summary | Zoe
The application is supported by a detailed affidavit of the liquidator, Mr Needham, sworn 18 November 2015, which sets out the history of the liquidation, including the background to the winding up proceedings which involved significant disputes between the contributories and directors of the Company. Mr Needham refers to the steps which have been taken to deal with outstanding tax obligations of the Company and to clearance which has now been obtained from the Australian Taxation Office in respect of the Company's taxation obligations, and to the fact that other creditors have been paid in full and have been paid statutory interest under s 563B of the Corporations Act. He refers to the steps which have been taken to develop a proposal for the distribution of the surplus, which had regard to the fact that certain plant and equipment of the Company is in the possession of two of the contributories of the Company. Mr Needham expresses the view, which is plainly open to him in the circumstances, that a greater realisation of the plant was likely to be achieved if it were distributed in-specie to the relevant contributories, rather than repossessed from them and sold. Mr Needham has, properly, obtained an independent valuation of that plant and equipment, and the proposed distribution has regard to that valuation.
The liquidators also rely on an affidavit of Mr Cussen dated 16 December 2015, which refers to the steps which have been taken to serve the application on the Australian Securities and Investments Commission, advertise the application and serve the application on the Company's contributories and creditors. Mr Cussen notes, and there is in evidence, consents of each of the two contributories to the Company, the Plaintiff and the Second Defendant to the primary proceedings, and the two directors of the Company who are associated with those contributories, to the application. In effect, those contributories are the beneficiaries of that application.
I have been provided with helpful submissions prepared by Mr Cussen, who appears for the liquidators in this application. Before turning to those submissions, I should say something about the nature of the jurisdiction to be exercised, and then turn to the particular issue arising in this matter, of a proposed distribution in-specie. Section 488 of the Corporations Act provides, relevantly, in s 488(2), that a liquidator may distribute a surplus only with the Court's special leave. That provision is intended to ensure that there is in reality a surplus, in that creditors' claims have been recognised and met in full, and also to ensure that the correct relativities among contributories have been observed: CGU Workers' Compensation (NSW) Ltd v Ascom Service Automation (Australia) Pty Ltd [2005] NSWSC 747 at [4]. The phrase "special leave" requires that a special application be made to the Court, as has occurred in this case: Re D S Millard and Son Pty Ltd (1997) 24 ACSR 71 at 72; Re HIH Services Pty Ltd (In Liq) [2012] NSWSC 1118 at [10].
I am satisfied, having regard to Mr Needham's affidavit, that appropriate inquiries have been made to determine and identify the creditors of the Company, and that their claims have been met, and in those circumstances I am also satisfied that the amount now available, after setting aside amounts in respect of the remuneration and costs of the liquidator, is properly treated as a surplus available for distribution. I can more readily draw that conclusion, not only by reference to Mr Needham's evidence, but also by reference to the steps which have been taken to advertise the application and serve it upon interested parties, and I note that no creditors have opposed the application, and that the contributories in turn consent to it.
Mr Cussen rightly draws attention to the question whether a surplus may be distributed to the contributories by way of an in-specie distribution. He notes that there is no specific provision in the Company's constitution which addresses that question. However, as Mr Cussen points out, a company has power to make such a distribution, by reason of s 124(1)(d) of the Corporations Act, which provides that a company may distribute any of its property to its members, in kind or otherwise. So far as the proper exercise of that power is concerned, in the present case, the unanimous consent of the directors and members to the exercise of the power allows a conclusion to be reached that the power is properly exercised to make the proposed distribution. That approach is consistent with the authorities, to which Mr Cussen draws attention.
In Longley v ACN 090 609 868 Pty Ltd (In Liq) [2010] FCA 1468; (2010) 81 ACSR 517, Finkelstein J held, in the context of a winding up of a group of companies, that a distribution in-specie was permissible. His Honour noted (at [16]) that although the initial position was that a creditor in a winding up had only a right to participate in the proceeds of a sale of a company's assets, as distinct from a right to an individual share of the company's assets, a debtor and creditor could, by agreement, substitute a different obligation for the obligation to make payment, and there was no reason why creditors could not unanimously agree to have transferred to them the company's assets in a liquidation instead of the proceeds of sale of those assets, provided the rights of contributories were not prejudiced. The same reasoning is applicable, in this case, where creditors' claims have been discharged and what is proposed is a distribution of assets to contributories. That result is plainly a practical and sensible one, where, on the evidence of the liquidator, it is likely to contribute to a more advantageous realisation of the Company's assets than the getting in and sale of those assets.
Mr Cussen also draws attention to the observations of Austin J in Official Trustee in Bankruptcy v Buffier [2006] NSWSC 870 at [64], to which Barrett J referred in Re FAI Car Owners Mutual Insurance Company Pty Ltd [2009] NSWSC 1350 at [46]. Austin J there noted that, although there was no evidence of the contents of the company's constitution before him, where a person was the company's sole contributory and consented to the distribution of the company's property in specie, and there were no remaining creditors of the company, the Court may be prepared to make an appropriate order for such an in-specie distribution. In FAI Car Owners Mutual Insurance Company above, Barrett J in turn accepted that the contributories may, by unanimous consent, sanction a departure from the basis of distribution of surplus that would otherwise apply, and his Honour was there prepared to permit that course provided that unanimous consent was given, in that case, by a deed. In this case, Mr Cussen submits, and I accept, that such a deed is not necessary, where it is plain that the contributories have consented, by advice in writing, to the proposed distribution.
There is evidence of the process which has been taken to calculate the relevant amounts to bring about the distribution of the surplus, based on the valuation to which I have referred above, and that the result of the distribution will be that each of the contributories take an equal share of the surplus, consistent with their interests in the Company. I am satisfied that, on that basis, the Court should grant the special leave for distribution of the surplus, in the form of a partial distribution in-specie and partially in money, as proposed by the liquidators.
The liquidators also seek an order exempting them from, or dispensing with, any requirement for them to complete and circulate a Form 551, on the basis that payment to the contributories would be sufficient proof of the adjustment of the rights and entitlements of the contributories. The Court has typically been prepared to make such an order, in the case of a simple distribution, where there is little need for the formality which the circulation of that form would otherwise provide. I am satisfied that the present case falls within that category: FAI Car Owners Mutual Insurance Company above; Brealey v Shields [2009] NSWSC 1148.
I am also satisfied that this is a proper case for the liquidator's costs and expenses of the application to be paid out of the assets of the Company, where the application is a proper step in implementing the Company's winding up.
Accordingly, I make orders in accordance with the short minutes of order initialled by me and placed in the file.
[3]
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Decision last updated: 21 January 2016