Caplice v Aroogah Investments P/L

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

2802/04 ANDREA CAPLICE v AROOGAH INVESTMENTS PTY LIMITED JUDGMENT 1 HIS HONOUR: On 11 May 2004 the plaintiff filed an application under ss 461(1)(f), 461(1)(k) and 472 of the Corporations Act 2001 (Cth). She sought an order that the defendant company be wound up on just and equitable grounds, or on the grounds of oppressive and unfairly prejudicial and discriminatory conduct. She also sought the appointment of a provisional liquidator. 2 On the return of the originating process on 3 June 2004 the matter was referred to me, as the duty judge, to hear the application for the appointment of a provisional liquidator. Because of the state of the court list yesterday, I stood the matter over to this morning in order to give judgment. 3 In these reasons I shall concentrate on the essential grounds for the application. Much of the evidence adduced related to real property purchases made by the plaintiff and a Mr Carey which, at best, was of peripheral relevance to the application and to which I will make no further reference. 4 The defendant was incorporated in Queensland on 29 April 1999 by a Mr Richard Garth Carey, who is now a resident of Sydney. He and the plaintiff had what has been called a de facto relationship, from either mid 1998 or mid 1999, until they separated in August 2003. 5 On 24 February 2000 the plaintiff was appointed as a director of the company and was issued shares, making her a 50 percent shareholder with Mr Carey. 6 The evidence of both the plaintiff and Mr Carey was that the company, at least amongst other things, traded in shares and that they each contributed some amounts towards that trading. According to the plaintiff, from the beginning of 2002 Mr Carey worked as a consultant for a company called ETT Pty Limited and that fees payable by that company for his consultancy services were paid to the defendant. 7 Unsigned financial statements of the company for the twelve months ended 30 June 2002, which were provided by the company's accountants to its directors on 5 June 2003, record that the company, in that twelve month period, earned an income of $72,541.00 and incurred expenses of $93,750.00. The bulk of the income was described as, "programming revenue". I was informed by counsel for the defendant, that that referred to the income earned by the company from Mr Carey's consultancy. 8 The balance sheets and the unsigned accounts as at 30 June 2002 disclose a deficiency in shareholders' funds of $188,063.00, after taking into account what were called loans to the plaintiff and to Mr Carey of $56,427.00 and $172,156.00 respectively. The deficiency of $188,063.00 apparently represented accumulated losses from trading up to and including 30 June 2002. 9 No accounts have been prepared for the year ended 30 June 2003 or subsequent periods. 10 Following the separation of the plaintiff and Mr Carey in August 2003, negotiations ensued for a financial settlement. Part of those negotiations related to the value of the plaintiff's interest in the defendant company. Mr Carey, through his solicitors, asserted that it had a nominal value only. 11 I infer that it was in order to make good that assertion that Mr Carey's solicitors made statements on his behalf about the financial position of the company, that the defendant's counsel in the hearing before me sought to explain or to qualify. 12 On 11 December 2003 Mr Carey's solicitors stated that the defendant company had a share portfolio of approximately $35,000.00 with an estimated tax liability of $45,000.00. They also said that the company had an excess of liabilities over assets. 13 On 19 March 2004 Mr Carey's solicitors stated that there was a "pending taxation liability" and that although that liability was not indicated in the financial records of the company to 30 June 2002 nonetheless, in the 20 months to March 2004, revenue of about $220,000.00 had been derived by the company from the provision of Mr Carey's services to ETT Pty Limited and that after expenses this would give rise to a taxation liability of about $45,000.00. 14 The evidence at the hearing suggested that the company has minimal assets consisting of cash in bank, which as at 5 May 2004 amounted to $3,160.00, a motor vehicle to which I will refer later and units in a listed trust which as at 9 September 2003 had a value of $12,152.00. 15 Clearly if the company owes a debt to the Australian Taxation Office in the order of $45,000.00, as has been asserted, then irrespective of debts which may be owed by it to its shareholders, the company would be insolvent. 16 In response to this contention, the defendant's counsel noted first that no application had been made to wind up the company in insolvency. That is true but I think of marginal relevance on this application. However, counsel also pointed out that notwithstanding what was said in the correspondence from Mr Carey's solicitors nonetheless, the company prima facie, had carried forward losses of about $184,000.00 which would be available to be offset against the net income derived by the company from July 2002, from the provision of Mr Carey's services. 17 I was told that from September 2003 Mr Carey no longer provided his services to ETT Pty Limited through the company. There is some corroboration of that in the company's bank statements, which show that the regular amounts of money from ETT Pty Limited ceased from about that time. It does appear that following the separation of Mr Carey and the plaintiff, the company is no longer trading and Mr Carey has given evidence to that effect. 18 I am left in the position that I do not know whether the company has any liability for taxation for the year ended 30 June 2003 or subsequent periods. It appears from the company's bank statements, that up to September 2003, the consultancy fees paid by ETT Pty Limited were paid to the company and drawn out, presumably by way of loan, to either the plaintiff or Mr Carey or both. The evidence does not show whether either of them remains a creditor of the company as indicated in the 30 June 2002 accounts or whether they, or either of them are, or is, its debtor. 19 The present financial position of the defendant company is unknown. So far as the evidence before me reveals, there is a strong inference that it was insolvent based on its trading losses to 30 June 2002. The failure of the directors to cause accounts to be prepared for the 12 months ended 30 June 2003, or any subsequent period, means that there is no clear evidence to displace the inference of insolvency which arises from the accounts of the earlier period. 20 In addition to the question of the company's solvency, the plaintiff relied upon what she says were misleading statements made to her about the disposal of the share portfolio and the late or incomplete provision of information to her. 21 By letter dated 10 December 2003 Mr Carey's solicitors advised the plaintiff's solicitors that the company had a liability of about $1,300.00 per month to meet the lease payments over a month and that, "we are instructed that it is necessary for the company to sell part of its share portfolio to meet such outgoings". 22 On 19 March those solicitors referred again to their previous advice of "the intention to sell part of the share portfolio". In fact, the company's share portfolio, although not, so far as the evidence reveals, its units in a listed property trust, were sold between 24 November and 26 November 2003. I do not think that any satisfactory explanation was provided as to why the plaintiff's solicitor was not told, in December 2003, that the shares had already been sold. 23 There was no evidence that Mr Carey had authority to cause the company to sell the shares. Counsel submitted that he was, de facto, the managing director of the company, although no resolution of the directors conferring any particular authority on him was tendered. It appears he simply assumed unilateral control of the company after his separation from the plaintiff. 24 Mr Carey deposed that the net proceeds of sale from the share transactions was $20,793.95 and that that was applied to meet the company's expenses including vehicle lease payments. There were no other particulars of expenses said to have been paid. The company's bank statements, which were produced, did not include the page which might be expected to have shown the receipt and disbursement of at least the bulk of these moneys. 25 The company had met the payments on the lease of a motor vehicle. Mr Carey deposed that in May this year he paid out the lease with his own funds. It appears this happened on 19 April. He exhibited documents which suggest that he claims ownership of the vehicle. I was told by counsel for the defendant that his instructions were that the vehicle was still registered in the name of the company. 26 Mr Carey has accepted that the plaintiff, as a director of the company, is entitled to have access to its records, although it does appear that information provided to her to date has been late and in some respects incomplete. 27 I think there is quite a strong prima facie case that the company is liable to be wound up on just and equitable grounds. It was the vehicle for a quasi-partnership between two equal shareholders whose relationship has broken down. 28 The other matters to which I have referred earlier in these reasons of its doubtful solvency, the directors' failure to prepare accounts for the year ended 30 June 2003 and of Mr Carey's unilateral assumption of control of the company, also point to the probability of a winding up order being made. 29 Counsel for the defendant submitted however, that as proceedings were on foot under the Property (Relationships) Act 1984 (NSW) for an adjustment of the interests of the plaintiff and Mr Carey with respect to their property, and as their interests in the company were but a part of that wider relationship, the preferable course would be not to wind up the company in separate proceedings brought for that purpose. Rather, it was submitted, the question should be dealt with as part of the existing proceedings under the Property (Relationships) Act and be determined when all the issues arising in those proceedings were determined. 30 Counsel referred to a decision of the Federal Court in Roff v Aqua Distributors Pty Limited, Merkel J, 7 November 1996, unreported, where, counsel submitted, the Federal Court took such a course in relation to family law proceedings which involved a family company. 31 I think it preferable that I express no view on this submission which will have to be dealt with by the judge hearing the application for the winding up and which that judge may or may not consider is of sufficient weight to dispel the prima facie case for winding up to which I have already referred. 32 Counsel for the defendant also submitted that having regard to the few remaining assets of the company and that it was not trading, it was undesirable that the company be subjected to the costs of a provisional liquidation which would be likely to consume its remaining assets. 33 Further, in response to questions from the bench he proffered the following undertakings to the Court from Mr Carey, namely, that until further order: a. Mr Carey would not dispose of or encumber the company's assets; b. he would not cause the company to incur any debts or liabilities except for accounting fees for the preparation of the financial statements of the company; and c. he would consent to the hearing of the winding up application being expedited.

34 The plaintiff, through her solicitor, accepted that such undertakings would be adequate to preserve the status quo. Her solicitor urged however, that the appointment of a provisional liquidator was desirable so that the provisional liquidator could investigate the financial position of the company and investigate what moneys were owed to the company by, or by the company to, the plaintiff and Mr Carey. 35 What course the court should take on such an application where there are orders, or undertakings to the Court, to preserve the company's assets up until final hearing was considered by Barrett J in Triulcio v Chase Property Investments Pty Ltd [2003] NSWSC 861. I adopt his Honour's analysis of the authorities. 36 In Zempilos v and J N Taylor Holdings Limited & Ors (No 2) (1990) 55 SASR 103 at 106, King CJ said, "The appointment of a provisional liquidator pending adjudication upon the petition for winding-up is a drastic intrusion into the affairs of the company and is not to be contemplated if other measures would be adequate to preserve the status quo."

37 That observation was referred to with approval by each of the members of the Court of Appeal in Constantinidis v JGL Trading Pty Limited (1995) 17 ACSR 625 at 635, 640, 647. 38 As the company is not trading, I think the undertakings to the Court proffered by Mr Carey, with slight modifications, are adequate to preserve the status quo. Although the evidence raised questions as to the propriety of Mr Carey's conduct, I do not think that is a proper reason to doubt that he would honour the undertakings to the Court which of course would carry the sanction of contempt of court if breached. Indeed, the contrary was not submitted. 39 I will direct that the matter be placed in the Corporations List for directions with a view to the winding up application being heard as soon as possible. 40 The orders which I propose are these. Upon the undertakings of Mr Richard Garth Carey to the Court given by counsel for the defendant on Mr Carey's instructions, that until further order,

a. he will not transfer title to, or dispose of, or encumber any asset of the defendant, or any assets to which the defendant is beneficially entitled, except in payment of a debt incurred in accordance with the next undertaking; and b. he will not cause the defendant to incur any debt or liability, except for accounting fees in connection with the preparation of taxation returns or financial statements of the defendant, in respect of the year ended 30 June 2003 or subsequent periods I will dismiss the application for the interim order sought in the originating application. [Counsel Addressed]

41 I note that those undertakings are given to the Court by Mr Carey, through counsel for the defendant.

42 Accordingly, I note those undertakings and I dismiss the application for the interim order sought in the Originating Application. That dismissal however, arises only as a result of undertakings which were proffered yesterday. I order that the costs of the application for interim orders be the plaintiff's costs in the proceedings. 43 In order that these reasons maybe transcribed and to give the parties a little time to consider their position, I will stand the matter over to the Corporations List on Tuesday, 15 June 2004 for directions before the Corporations List judge. 44 I will also note the following, which may be of relevance in relation to any future orders that may be sought or made as to costs. First, that no challenge was made before me to the retainer of Mr Brian Cameron of Messrs Cameron Gillingham Boyd, Solicitors, to appear for the defendant. 45 Secondly, that the substance of the opposition to the application was made by Mr Richard Garth Carey who has given the undertakings to the Court and who is the plaintiff's co-shareholder and director.

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