Corporations - Application for appointment of provisional liquidator - Deadlock between sole directors and shareholders - Inability to carry on business as licensed finance broker - Work in progress in need of urgent completion

Finance Brokers Control Act 1975 (WA)

1 EM HEENAN J: The evidence on this application shows that Finance Relationship Consultants Pty Ltd ("FRC"), a duly incorporated company, has for some substantial time been carrying on the business of a finance broker at Victoria Park in Western Australia and, under a different statutory regime, in Melbourne in the State of Victoria. The scale of the operations is substantial. There are up to 4000 current clients, although not all of those presumably have business presently pending with the company. In the forecast of income and expenditure for January 2006, which is Annexure 17 to the affidavit of Mr Coombs of 16 January 2006, it appears that the monthly expenses are running at slightly in excess of $400,000 yet it is said, and acknowledged, that the business is solvent and presumably profitable; so one must assume that this level of expenditure is matched by an equivalent or larger amount of income.

2 The control of the company is through its two directors, Mr Coombs and Mr Dawson, who are the only, but equal, shareholders in the company. Regrettably, as happens all too often, unresolved disputes have arisen between these two gentlemen. They have been causing problems since September 2005 or earlier, which led to a situation being reached where the licence for FRC required under the Finance Brokers Control Act 1975 (WA) was renewed in September last, but only until 31 December 2005. The purpose of that limited renewal was evidently to allow the company a transition period in which the differences between the directors could be resolved and an orderly transfer of control, or winding up, of the business completed.

3 In the events which have since happened such a solution could not be reached and from 31 December 2005 the company no longer held a licence and is therefore no longer able to carry on that business. Mr Coombs departed from the business and established a new business which is called Crystal Finance Brokers Pty Ltd. It is licensed under the Finance Brokers Control Act 1975. He is purporting to continue or complete parts of the current work of FRC under the licence of that new company and his own licence as director. In the process he has taken some of the files to enable necessary work to be performed, but he holds himself accountable to FRC for any profits or other advantages so derived. Mr Coombs' explanation for this activity is: that it is incumbent upon him to ensure that proper attention to current work is given and pending contracts performed; that he is the only officer of FRC with a licence of any kind under the Finance Brokers Control Act 1975 which will enable this to be done; and that if the files were left with FRC under the control of the other director, Mr Dawson, and any work were done on them, that would be in breach of the Act and would render the person or persons carrying on that work, and Mr Coombs himself, liable for breaches of the Act and so exposed to heavy monetary penalties.

4 Notwithstanding the need for such interim work to be done and the explanations given by Mr Coombs which I have just briefly outlined, Mr Dawson has pleaded that this amounts to unauthorised conversion of the files and work in progress of the company. He has made a complaint to the police and is adopting the position that Mr Coombs can, and should, be charged with stealing in view of what has occurred. As a result of all that, the rights and wrongs of which I do not address now, Mr Coombs has made arrangements for those files which are in need of current work to be returned to FRC in bulk today, but he points out that doing this is to deliver the incomplete work to a company which is not authorised to complete the work, and which has no personnel licensed who can do so.

5 Mr Dawson's counter to that is that he proposes that colleagues in the finance broking business, from two other companies, Westate Finance and West Coast Mortgage Services Pty Ltd, should "make their licences available" to FRC to allow this work to be completed. However laudable that may be, it would seem to involve one or other of two possible situations. Firstly, that the work would remain at FRC and most of the supervision and performance of the work would be carried on by existing officers of FRC under some loose or nominal supervision from the proposed licensee, whom I have likened, without any disparagement, to someone minding the shop. That kind of distant or light supervision is not consistent with the ample obligations and close supervision of a licensee required by the Finance Brokers Control Act 1975.

6 It may be however that a much more extensive and proper control and supervision of the current work by the proposed "minders of the shop" is what Mr Coombs really intends, but if that is what is required, then it must necessarily involve an assignment of that work of the company to one or both of the two companies mentioned. That could only be done effectively by a joint decision of the directors, acting together, and Mr Dawson is withholding his assent to any such proposal.

7 Whichever way one looks at the situation, there is clearly a deadlock which prevents the continuation of the important business of this company being carried out in conformity with the requirements of the Finance Brokers Control Act 1975. There is no prospect of that deadlock being resolved between the two disputants. In fact, the three-month period of grace which was proposed has expired without a solution being reached. They are no closer to agreement, nor is there any other prospect of immediate control of the affairs of Finance Relationship Consultants Pty Ltd being taken over or its licence restored.

8 I am satisfied, therefore, that steps need to be taken as a matter of urgency to regularise the position as quickly as possible to confer authority for the management of all affairs of FRC upon a person who will have unfettered control and will have the power to disregard, or override, objections by one or other of the disputing directors and who will have the responsibility of restoring a proper working regime in conformity with the requirements of the legislation as soon as possible. That can be done by the appointment of a provisional liquidator, whose most immediate and obvious priority will be to secure a licensed finance broker to continue this important work and to take charge of the operations of the personnel, the staff and the assets of the company.

9 It is for those reasons that I am satisfied that I should accede to this application and appoint a provisional liquidator as sought. There is no objection made to the choice of the proposed liquidator, Mr Kim David Holbrook of 19 Pier Street, Perth, an official liquidator, and I shall therefore appoint him until the making of a winding-up order in this action or until further order, as sought in par 1 of the interlocutory application dated 22 December 2005.

10 I also direct that the duties of the provisional liquidator shall be those as set out in par 1.2 of that application, which has been amended in the course of the hearing this morning, so that par 1.2(c) refers to par 1.2(d) below rather than 3.2(d) below. I also order, in terms of par 1.3 of the application, that the provisional liquidator is to take possession of all the assets and property of the company and, in terms of par 1.4, that there be liberty to the parties and the provisional liquidator to apply on 24 hours' notice. I also order, in terms of par 2, the costs of the application are the plaintiff's costs in the originating process. There shall be general liberty to apply.