Entitlement to the surplus
18The questions in respect of which the liquidator seeks directions include the following:
1. Is the liquidator ... justified in declaring that the rights, if any, reserved to the respective husbands, executors and/or administrators of the shareholders in the Cardiff Coal Company listed in bold at 2 below have ceased pursuant to clause 15 of the Cardiff Coal Company Deed of Settlement?
2. ...
3. Alternatively, pursuant to clause 5 of the Cardiff Coal Company's Incorporation Act of 1863, is the liquidator ... justified in determining that the liquidator is entitled not to be bound by the trust arising pursuant to section 601AE of the Corporations Act 2001 in regard to the shares listed in italics in 2 above alleged to have been held by the deregistered company Belmont Colliery Pty Limited in the Cardiff Coal Company?
4. Further and in the alternative, is the liquidator ... justified in determining that the deregistered company Belmont Colliery Pty Limited could not hold the share listed in italics in 2 above in the Cardiff Coal Company by reason of clause 18 of the Cardiff Coal Company Deed of Settlement?
5. Further and in the alternative, pursuant to clause 5 of the Cardiff Coal Company's Incorporation Act of 1863, is the liquidator ... justified in determining that the liquidator is entitled not to be bound by any trust arising by reason of that shares alleged to have been held by the deregistered company Belmont Colliery Pty Limited were held on trust for other persons?
6. Is the liquidator ... justified in determining that William Lunn is the only shareholder of the Cardiff Coal Company retaining all or any rights attaching to all or any shares he holds in the Cardiff Coal Company?
7. Is the liquidator ... justified in determining that the liquidator should pay all remaining funds less the costs of this application to William Lunn as the sole remaining shareholder in the Cardiff Coal Company?
19Questions 1, 3, 4 and 5 are essentially preliminary to questions 6 and 7: the fundamental issue is whether, as the liquidator proposes, he would be justified in distributing the whole of the surplus to Mr Lunn on the basis that he is the sole known shareholder. The liquidator submits that although there are possibly other persons possibly entitled to be members of the Company, Mr Lunn is the only known member satisfying all criteria.
20Section 10 of the Incorporation Act provides that the share register of the company shall at all times be prima facie evidence to show who are the proprietors for the time being of the capital thereof and the number of shares held by each proprietor. I respectfully and gratefully adopt Barrett J's analysis (in Cardiff Coal Company (No 3)) of the state of the register:
16 Based on the foregoing analysis, the persons now appearing in the share register as holders of shares are:
A. William Herbert Lunn, the present plaintiff, whose name was entered in the register in 1996.
B. Belmont Colliery Proprietary Limited, the name of which was entered in the register in 1938.
C. "Est Wm Bullard", under an entry made in 1938.
D. "A W Henderson & Ors", under an entry made in 1916.
E. "Est G A Lloyd", under an entry made in 1910.
F. "Thos Fenwick", under an entry made in 1909.
G. "Est L E Threlkeld", under an entry made in 1909.
H. "E Apps Smith", under entries made in 1863.
17 No doubt or difficulty arises in relation to the first two entries (A and B), so far as the message appearing on the face of the register is concerned. Mr Lunn is living and has been recognised by order of the court as having the status of a holder of 100 promoters shares. Belmont Colliery Proprietary Limited, being itself a body corporate, must be presumed to exist in the absence of evidence that it has been dissolved.
18 In relation to items C, E and G (recording "Est", or the estate of a deceased person), the entries seem to recognise no more than the death of the person named as holder in an earlier entry. In the case of "Est Wm Bullard", it appears that Wm Bullard himself went on to the register in 1909, so that it should be inferred that he died some time between 1909 and 1938. In the case of "Est G A Lloyd", the corresponding inference is that death occurred between 1886 and 1910. In the case of "Est L E Threlkeld", the inference is that death occurred between 1862 and 1909.
19 Item D - "A W Henderson & Ors" - is presumably intended to indicate that several persons were the holders of the parcel of shares concerned. But there is no way of knowing how many "Ors" there were or, indeed, that there were any identifiable holders other than A W Henderson. The only safe course is, I think, to recognise that A W Henderson was entered as a holder in 1916.
20 Item H ("E Apps Smith"), taken at face value, indicates that a person who became a member 140 years ago is today a member. Principles discussed by Dixon J in Axon v Axon (1937) 59 CLR 395 at 404-5 amply justify the inference that E Apps Smith is no longer living. Item F, taken at face value, indicates that a person who became a member 94 years ago is today a member. Bearing in mind that the disability of infancy subsisted in 1909 until age 21, the virtually irresistible likelihood is that the "Thos Fenwick" registered in 1909 was born before 1889. He, by reference to the same principles, should be presumed to be now dead.
21 In summary, therefore, the register contains the names of two persons (Mr Lunn and Belmont Colliery Proprietary Limited) clearly now in existence, three persons (Bullard, Lloyd and Threlkeld) acknowledged upon the face of the register to have died, two persons (Apps Smith and Fenwick) who, for reasons stated, should be presumed to be dead and one person (Henderson) who, if he became a shareholder at age 21, must be either more than 108 years old or dead.
21Thus, with the benefit of Barrett J's analysis, it appears that, according to the register, the current state of the shareholding is:
(1)William Herbert Lunn, in respect of 100 shares;
(2)Belmont Colliery Proprietary Limited, in respect of 1625 shares;
(3)"Est Wm Bullard", in respect of 25 shares;
(4)"A W Henderson & Ors", in respect of 100 shares;
(5)"Est G A Lloyd", in respect of 50 shares;
(6)"Thos Fenwick", in respect of 25 shares;
(7)"Est L E Threlkeld", in respect of 100 shares; and
(8)"E Apps Smith", in respect of 50 shares.
22As to (1), no difficulty arises.
23As to (2), although the conclusions reached in Savage v Lunn impugn the title of Belmont to the whole of its shareholding in the Company, the order for rectification was made in respect of only the 100 shares which had been held by James Lunn - which were the only shares in suit. Belmont remained - and remains - the registered holder of the remaining 1625 of the 1725 shares that were ostensibly transferred to it in 1938. However, Belmont was deregistered as a result of strike-off action by ASIC, on 14 October 2007. Prior to deregistration, its director was Leslie Herbert Savage, and its shareholders were Leslie Herbert Savage and Jocelyn Jean Savage. Upon deregistration, its property (other than trust property) vested in ASIC pursuant to (CTH) Corporations Act 2001, s 601AD(2), and is to be dealt with by ASIC pursuant to s 601AE(2). Accordingly, prima facie, its 1625 shares are now vested in ASIC. These are the shares identified in italics in question 2.
24Moreover, conformably with the findings in Savage v Lunn, Belmont's ostensible shareholding of 1625 is, to say the least, dubious, and it is likely that those truly entitled to those shares are the successors of the shareholders from whom Mr Blackwood purportedly acquired his shareholding (later ostensibly transferred to Belmont) in 1916. These persons are amongst those identified in bold in question 2.
25As to (3) through (8), for the reasons explained by Barrett J, these shareholdings are all likely to be vested in deceased estates. They too are amongst those identified in bold in question 2.
26Thus the total issued share capital appears to be 2075 shares, of which Mr Lunn holds just under 5%. At least at first sight, a proposal to pay the whole of the surplus to Mr Lunn, who is entitled to less than 5% of the shareholding, seems extraordinary. But this approach has been proposed by the liquidator on the basis that various provisions of the Incorporation Act and the Deed of Settlement permit the company (and thus the liquidator) to disregard all interests other than those of Mr Lunn.
27Dealing first with the 1625 shares of which Belmont is the registered holder, the liquidator submits that:
(1)pursuant to clause 5 of the Incorporation Act, the liquidator is not bound by any trust arising pursuant to section 601AE of the Corporations Act 2001 in regard to the shares ostensibly held by Belmont;
(2)pursuant to clause 5 of the Incorporation Act, the liquidator is not bound by any trust arising by reason that shares ostensibly held by Belmont were held on trust for other persons; and
(3)by reason of clause 18 of the Deed of Settlement, Belmont could not hold the shares ostensibly held by it.
28Section 5 of the Incorporation Act relevantly provides as follows:
5. Trusts or equitable interests affecting shares. The corporation shall not be bound in any manner by any trusts or equitable interests or demands affecting any shares of the capital standing in the name of any person as the ostensible proprietor thereof or be required to take any notice of such trusts or equitable interests or demands but the receipt of the person in whose name the shares shall stand in the books of the corporation shall notwithstanding such trusts or equitable interests or demands and notice thereof to the said corporation be a good and valid and conclusive discharge to the corporation for or in respect of any dividend or other money payable by the said corporation in respect of such shares ... Provided always that nothing therein contained shall be deemed or taken to interfere with or abridge the right and power of a Court of Equity to restrain the payment of any such dividend or other money payable thereafter by the corporation in respect of any such shares ... or to direct the payment of such dividends or other money by the corporation ... to such other person as such Court may think fit.
29Prima facie this provision protects the Company (and thus the liquidator) against notice of equitable interests in respect of shares. Essentially, it provides that the discharge of the registered holder shall be a good and sufficient discharge. (Applied to the Belmont shares, that would mean that the liquidator could pay Belmont's ostensible entitlement to it and receive a good discharge, without being affected by notice that Belmont held its shareholding on trust for someone else). It does not preclude equitable interests arising, and the proviso plainly admits that such interests may be recognised and enforced by a court of equity.
30The interest of Belmont is not an equitable interest: it appears as the registered holder on the face of the register, although pursuant to s 601AD(2) its interest (unless held on trust) is now vested in ASIC. Even if the liquidator would not be bound by any trust upon which Belmont may have held its shares, that does not mean that he can disregard the registered shareholding of Belmont, which is now vested in ASIC. Least of all does it mean that Belmont's interest is somehow extinguished or forfeited so as to enlarge Mr Lunn's interest.
31Clause 18 of the Deed of Settlement provides for the transferability and assignability of the shares by the proprietor, but includes the following proviso:
PROVIDED that no Body Corporate shall hold any shares in the said Capital
32Notwithstanding that provision, on the face of the register a body corporate, Belmont, is registered as holder of 1625 shares. It does not follow from clause 18 that those shares can be treated as somehow extinguished or non-existent, in a way that enlarges Mr Lunn's interest. If Belmont had been otherwise regularly registered, and given the contractual nature of the Deed of Settlement, the possibilities would include that the contractual prohibition had been waived.
33As to the other registered shareholders, the liquidator submits that their rights, or those of their successors, have ceased pursuant to clause 15 of the Deed of Settlement, which relevantly provides as follows:
15. As to shares of female proprietors when marrying and of deceased lunatic and insolvent or bankrupt proprietors. THE husband of any female proprietor or the executor or administrator of any deceased proprietor or the Committee of any Lunatic Proprietor may on notice in writing to the head office of the Company for the time being and production of satisfactory evidence of title either elect to become a proprietor in respect of the shares to which he shall be entitled in either of those capacities or procure any other person to become a proprietor in respect of such shares ... PROVIDED always that no person shall be entitled to receive any dividends or other profits which shall be declared on the shares of such female deceased Lunatic Insolvent or Bankrupt proprietor after his or her marriage death commission of Lunacy Insolvency of Bankruptcy until some person shall have become a proprietor in respect of such shares and the person who shall ultimately become a proprietor in respect of such shares shall be entitled to such last mentioned dividends and profits and the full right and interest of and in such shares AND PROVIDED FURTHER that if no person shall become a proprietor in respect of such shares within the period of two years from the date of such marriage death or Commission of Lunacy respectively then the rights herein reserved to such husband executor administrator or committee respectively shall cease and determine and it shall be lawful for the Board of Directors to sell the said shares by public auction and to retain the proceeds together with the interest and dividends which shall have accrued previously to such sale until the person legally entitle thereto shall establish his claim to the satisfaction of the Board of Directors and such person shall not be entitled to claim Interest on the amount retained ...
34Clause 15 does not have the effect that the interest of a deceased shareholder is extinguished. This is apparent from the power given to sell such shares, coupled with an obligation to retain the proceeds "until the person legally entitled shall establish his claim". All that ceases after two years are "the rights herein reserved to such ... executor", which is a reference to the right given by the first part of the clause to "elect to become a proprietor in respect of the shares to which he shall be entitled in either of those capacities or procure any other person to become a proprietor in respect of such shares". Clause 15 does not mean that the shareholdings of a deceased shareholder are extinguished or forfeited in a way that enlarges the remaining shareholdings.
35Accordingly, there is no apparent basis for concluding that Mr Lunn's holding of less than 5% of the share capital entitles him to receive a distribution of 100% of the surplus.
36A fundamental function of a liquidator, having got in the assets, is to establish who is entitled to them - whether creditors or contributories. It is for this reason that, at least where there is likely to be a surplus, a liquidator is required to settle a list of contributories - and has power, in the course of doing so, to adjust the rights of the contributories (including now, explicitly, to rectify the register) [Companies Code, s 378, s 386(2), s 389; (NSW) Supreme Court Rules 1970, Pt 80 r 32 ("the Companies Rules"); cf Corporations Act, s 478]. Thus the liquidator ought to inquire into and ascertain who is entitled to the surplus. Although (in an affidavit sworn on 24 July 2012 in support of an application for remuneration) the liquidator says that "despite ongoing efforts" he has not been able to locate the true owners of any shares in the Company, that is so "because none of the descendants of the original shareholders have at any stage properly taken steps to transfer the shares ...". The liquidator says in his affidavit that since his appointment no person other than Mr Lunn has contacted him asserting ownership of any shares, or asserting any rights attaching to shares, in the company. However, there is no evidence of what if any inquiries and investigations the liquidator has undertaken to ascertain who may be the persons presently entitled. The evidence reveals no attempt by the liquidator to identify by search and inquiry who might be entitled to the shares, other than those of which Mr Lunn is the registered holder.. This is so not only in respect of the deceased estates; there is no evidence of any inquiry in relation to who is truly entitled to the shares held in the name of Belmont. While it seems to me that the decision of the Court of Appeal in Savage v Lunn would probably be sufficient basis for the liquidator to determine that neither Belmont (and thus ASIC) nor Mr Blackwood were entitled to be registered, ASIC and the Savages should be afforded an opportunity to be heard, as should any successor of Mr Blackwood. Ultimately, proper inquiry by the liquidator may not locate any person entitled in respect of one or more of the former shareholders, in which case it may be that their entitlement to any surplus is to be dealt with as unclaimed moneys, although I have not given close consideration to this.
37In any event, an application for directions is not the appropriate vehicle for obtaining approval to distribute surplus. The power to distribute surplus is a power of the Court which is delegated to a liquidator, but which can be exercised by the liquidator only with the special leave of the Court [Companies Code, s 389(1)(c), (2); Companies Rules, r 46; cf Corporations Act, s 488(1)(c), (2); (NSW) Supreme Court (Corporations) Rules 1999, r 7.10]. The regulations and rules make provision in respect of applications for special leave to distribute surplus [(NSW) Companies (New South Wales) Regulations ("the Companies Regulations"), regs 183, 184; cf (Cth) Corporations Regulations 2001, reg 5.6.71; Corporations Rules, r 7.9]. On such an application, the liquidator is expected to prove that there is a surplus, and show who is entitled to the surplus, and that proper steps have been taken to ensure that those who might have a claim on it have been notified [In the matter of John L Norris Holdings Pty Limited (in liq) [2013] NSWSC 2005, [3]].