Caplice v Aroogah Investments Pty Ltd

DECISION : Order that winding up proceedings be tried at the same time as Property (Relationships) Act proceedings.

CATCHWORDS : PROCEDURE - winding up application by one of two shareholders, directors and creditors of company - concurrent Property (Relationships) Act proceedings between the same persons - whether both should be tried together - FAMILY LAW - de facto relationships - need for all financial relationships between parties to be determined in Property (Relationships) Act proceedings

Corporations Act 2001 (Cth), ss.461(1), LEGISLATION CITED : Property (Relationships) Act 1984, ss.19, 20

Caplice v Aroogah Investments Pty Ltd [2004] NSWSC 516 Fox Enterprises Pty Limited v Fox (1995) 123 FLR 445 Mattock v Mattock (1989) 97 FLR 112 CASES CITED : Mourd v Atlantis Nominees Pty Ltd (1990) 100 FLR 478 Roff v Aqua Distributors Pty Ltd (1996) 22 ACSR 248 Vitali v Stachnik (2001) 28 Fam LR 142 Zhu v Tech Universal (HK-Macau) Development Pty Ltd [2005] FCA 256

Andrea Caplice - Plaintiff PARTIES : Aroogah Investments Pty Limited - First Defendant Richard Garth Carey - Second Defendant

Mr V.A. Bizannes, Solicitor - Plaintiff COUNSEL : Mr D.M. Flaherty - Second Defendant

Bizannes & Associates - Plaintiff SOLICITORS : Cameron Gillingham Boyd - Second Defendant

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST

2802/04 - ANDREA CAPLICE v AROOGAH INVESTMENTS PTY LTD

JUDGMENT 1 On 11 May 2004 the plaintiff, Ms Caplice, filed an originating process seeking an order for the winding up of the first defendant, Aroogah Investments Pty Ltd, which I shall call "the company", on the grounds in ss.461(1)(k) and 461(1)(f) of the Corporations Act 2001 (Cth), that is, the just and equitable ground and the ground of oppression or like circumstances. 2 Ms Caplice and Mr Carey, who is now the second defendant, are the only directors and only shareholders of the company. Each holds one half of the issued share capital. Ms Caplice also made an interlocutory application for the appointment of a provisional liquidator pending the hearing of the winding up application. That interlocutory application was heard by White J and refused on 4 June 2004: Caplice v Aroogah Investments Pty Ltd [2004] NSWSC 516. His Honour accepted from Mr Carey at that point certain undertakings which are set out in paragraph 33 of his judgment: "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." 3 On 27 May 2004, separate proceedings were commenced in this Division in which Mr Carey was the plaintiff and Ms Caplice was the defendant. By statement of claim filed on that date, he sought relief under the Property (Relationships) Act 1984 alleging that a relationship within the purview of that Act had subsisted between the two of them from mid 1998 until August 2003. He sought various orders including, in particular, an order under s.20 of the Act for an adjustment of interests with respect to the property of the partoies and an order that Ms Caplice resign as a director of the company and transfer her shares to him. Ms Caplice, for her part, filed a cross-claim in the Property (Relationships) Act proceedings on 1 October 2004 in which she also alleged a relationship within the purview of the Act between mid 1998 and August 2003 and sought an order under s.20. 4 Now before me is an interlocutory process (styled notice of motion) in the winding up proceedings by which Mr Carey seeks an order staying or adjourning those proceedings until the hearing of the Property (Relationships) Act proceedings or, in the alternative, an order that the winding up proceedings be heard together with the Property (Relationships) Act proceedings. He also seeks to be released from the third of the undertakings given by him to the court, that is to say undertaking (c) in paragraph 33 of White J's judgment. 5 The effect of the first two undertakings given by Mr Carey on that occasion was to cause the company to go into what has been referred to in the course of the hearing before me as a state of hibernation. It is no longer operating and has made no payment since the undertakings were given, except to its accountants by way of fees for work done to bring accounts and taxation requirements up-to-date, that being not inconsistent with the regime accepted by the court. The Australian Taxation Office has granted a request for cancellation of the company's GST registration on the basis that the company is no longer carrying on an enterprise. I am not in a position to make firm findings about solvency, but it does appear from the evidence that Mr Carey and Ms Caplice are the only creditors. It is not immediately clear to me that the company has the capacity to pay the debts owing to them, but the important point for present purposes is that there are no external creditors, that is to say, creditors who are strangers to the relationship between Ms Caplice, Mr Carey and the company. 6 With matters in this state and undertakings (a) and (b) continuing, Mr Carey says that there is no need for the winding up application to be brought on with any urgency. He also says that there is likely to be a substantial overlap between the winding up proceedings and the Property (Relationships) Act proceedings, both as to evidence and subject matter, and that, in substance, the company has been no more or less than a vehicle that the parties to the domestic relationship created and employed to house part of the property held by them in common and to undertake part of their joint endeavours. It is relevant to note in that connection that the company was incorporated in the year 2000, that is some two years after the de facto relationship began and that it was, as I have said, a company in which the parties to the relationship were the only shareholders and directors. 7 The Property (Relationships) Act proceedings have been placed in the Master's callover in May. It may be expected that a hearing date will be allocated or, at least, neither side suggested to me that the matter is not ready for hearing. The winding up application has not been progressed in any substantial way since White J's judgment, even though it has been before the Registrar on several occasions. There is nothing to suggest that Ms Caplice's application for expedition, which was foreshadowed when the matter was before White J, has materialised, with the result that there has been nothing to which Mr Carey's undertaking (c) has been able to attach. 8 Mr Flaherty of counsel, who appeared for Mr Carey, has drawn my attention to a case in which the Federal Court has cross-vested a winding up proceeding to the Family Court of Australia. The case is Roff v Aqua Distributors Pty Ltd (1996) 22 ACSR 248, a decision of Merkel J of 7 November 1996. I mentioned in the course of argument a similar recent decision of Gyles J in the Federal Court which I have located during the adjournment. It is Zhu v Tech Universal (HK-Macau) Development Pty Ltd [2005] FCA 256 decided on 21 March 2005. The decision of Merkel J in the Roff case was mentioned by Gyles J and drawn upon. His Honour also mentioned several analogous cases being Fox Enterprises Pty Limited v Fox (1995) 123 FLR 445 to which Mr Flaherty referred me, Mattock v Mattock (1989) 97 FLR 112 and Mourd v Atlantis Nominees Pty Ltd (1990) 100 FLR 478. 9 In the Zhu case, Gyles J made an order transferring a winding up proceeding to the Family Court. He did so on the basis of a finding that the interests of justice - expressly identified as the relevant determinant in ss.1337C and 1337H of the Corporations Act - made it appropriate to do so. Here, of course, both proceedings are pending in the same court, indeed, in the same Division and no cross-vesting or statutory transfer is envisaged. All that is in issue is the control by the court of its own proceedings, but there too, of course, the interests of justice will be the determinant. 10 Gyles J made pertinent observations at paragraphs 8 and 9 of his judgment: "8 As might be expected the respective interests of these parties in the company are expressly in issue in the Family Law proceedings by virtue of the various orders that are sought and will need to be resolved by that Court. Adapting the reasons of Merkel J in the similar case of Roff v Aqua Distributors Pty Ltd (1996) 22 ACSR 248; 14 ACLC 1769; (1996) 21 Fam LR 138: • Although the issues in each proceeding are not identical there will be a substantial overlap. • It will be more efficient, less time consuming and less costly for the issues arising to be resolved in the one court. • The risk of inconsistent findings will be removed if the proceedings are heard and determined in the one court. • The Family Court, with its wide powers under the Family Law Act 1975 (Cth) in respect of property settlements, is well-equipped to resolve the ultimate dispute between the parties being the future conduct, ownership and control of the company; the resolution of that issue will be a critical element in determining matters arising under the Corporations Law.

(See also Fox Enterprises Pty Ltd v Fox (1995) 123 FLR 445; (1995) 13 ACLC 573; Mattock v Mattock (1989) 97 FLR 112; (1989) 13 Fam LR 288; (1989) FLC 92-038; and Mourd v Atlantis Nominees Pty Ltd (1990) 100 FLR 478; (1990) 14 Fam LR 222.) 9 As Merkel J indicated in Roff , where the interests of third party shareholders or creditors are involved, it is necessary to take into account the circumstance that this Court is accustomed to dealing with the winding up of corporations whereas the Family Court is not. Where a company is trading actively on a substantial scale or where a real question of insolvency arises serious consideration would be required before a winding-up proceeding would be transferred to the Family Court." 11 The circumstances referred to by Gyles J at paragraph 8 resemble very closely the circumstances of this case. The note of caution expressed in paragraph 9 is not applicable here. In the Property (Relationships) Act proceedings, both the statement of claim and the cross-claim refer to the company. Each party refers to contributions made to the parties' property through the company. Each refers to his or her shareholding in the company as part of the property acquired by the parties during their relationship and, as I have said, Mr Carey seeks in the Property (Relationships) Act proceedings a specific order with respect to shares in the company. 12 Mr Bizannes, who appeared for Ms Caplice, acknowledged that the winding up proceeding is one involving breakdown of a partnership in corporate form through estrangement of the parties. The Property (Relationships) Act proceeding is certainly one involving breakdown of a domestic partnership through estrangement of the parties. Given the circumstances in which the company was formed and its current state, it is in my opinion fair to say that the domestic partnership gave rise to and was the occasion for the formation of the partnership in corporate form so that the latter is properly to be seen as an aspect of the former. 13 Section 19 of the Property (Relationships) Act is as follows: "In proceedings for an order under this Part, a court shall, so far as is practicable, make such orders as will finally determine the financial relationships between the parties to a domestic relationship and avoid further proceedings between them."

This section makes it clear that, in proceedings under that Act, the court is expected to resolve once and for all the financial relationships between the parties to the domestic relationship. The achieving of that objective will be enhanced if the court has before it for concurrent attention all proceedings involving the parties' financial relationships. In the case of Vitali v Stachnik (2001) 28 Fam LR 142 at 153-155, I pointed to the need, upon a Property (Relationships) Act application, for the court not to allow aspects that might potentially be made the subject of separate proceedings about financial dealings between the parties to be left outside the determination of the application. This is because of the clear expectation under s.19 that the Property (Relationships) Act proceedings should finally determine all aspects of the financial relationships between the parties. Orders were made in that case precluding the parties to the domestic relationship from resorting to separate proceedings that the financial dealings between them might otherwise have warranted. The orders under that Act dealt with the matters that might have become the subject of such other proceedings. 14 In the present case, the status quo regarding the company is maintained by the existing undertakings. The company is inactive. There are no third party shareholders, directors or creditors. The fate of the company should be determined in conjunction with a decision about the resolution of the whole of the parties' financial relationships in the Property (Relationships) Act proceedings. That course will not cause prejudice to the parties, nor will it cause prejudice to any other person. 15 Pursuant to Pt 31 r 7 of the Supreme Court Rules, I order that these winding up proceedings, being 2802/04, be tried at the same time as proceedings 3143/04 under the Property (Relationships) Act. 16 In addition and pursuant to Item 4 (a) of Schedule D to the Supreme Court Rules, I order that if proceedings 3143/04 are heard by a Master, the trial and hearing of proceedings 2802/04 be referred to that Master. 17 As to undertaking (c) given by Mr Carey to the Court as set out in paragraph 33 of White J's judgment, the passage of time and the state of hibernation in which the company is now placed show, in my opinion, that that undertaking is of no further utility. Richard Gareth Carey is therefore released and discharged from his undertaking to the Court on 4 June 2004 to consent to the hearing of the winding up application being expedited.

[Counsel addressed on costs] 18 The second defendant's costs of the application with which I have just dealt will be paid by the plaintiff.

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