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[2005] FCA 1887
Federal Court of Australia
2005-12-02
Emmett J
Original judgment source is linked above.
REASONS FOR JUDGMENT 1 There is before the Court an application for orders under ss 447A and 1332 of the Corporations Act 2001 (Cth) ('the Act'). The application is brought by Mr Mark Cooper in relation to his purported appointment as administrator of Goldbiz Paperbiz Pty Limited ('the Company'). 2 On 8 November 2005, Mr Cooper consented to act as administrator of the Company pursuant to ss 448A and 448B of the Act. Section 448A provides that a person cannot be appointed as administrator of a company unless the person has consented in writing to the appointment and, at the time of the appointment, has not withdrawn the consent. Section 448B imposed certain restrictions on appointment. 3 Before consenting, Mr Cooper had access to an extract from the database maintained by Australian Securities and Investment Commission ('the Commission') concerning the Company. That extract, as at 8 November 2005, disclosed that the only current director was Mr Michael Palasovksi and that a previous director, Mr Robert John Paul, had ceased to be a director on 16 May 2005. 4 On 8 November 2005, Mr Palasovski, purporting to act as the sole director of the Company, signed a resolution that Mr Cooper be appointed as administrator of the Company under Part 5.3A of the Act. Pursuant to the obligations that would be imposed upon him as administrator, Mr Cooper convened a meeting of creditors of the Company, which was held on 15 November 2005. At that meeting, a solicitor, Mr Richard Watson, who was then acting for Mr Paul, questioned the validity of Mr Cooper's appointment. 5 After an exchange of correspondence, Mr Cooper carried out further investigations of the records of the Company and ascertained that the removal of Mr Paul had purportedly taken place at a meeting held on 21 April 2005. A notice of a meeting of the members of the Company was issued on 1 April 2005, convening a general meeting for 12 noon on 21 April 2005. 6 The business disclosed in the notice of meeting was the removal of a director, in accordance with s 203C of the Act. At that time there were two members of the Company, one member being Mr Paul, the other member being Goldbiz Enterprises Pty Limited. Mr Paul held one B class, 49 D class and 50 E class shares. Goldbiz Enterprises Pty Limited held one A class, 51 D class and 50 E class shares. There is no suggestion that notice of the meeting was not given to each of the members. However, at the meeting held on 21 April 2005, Mr Paul was not present nor was any proxy or representative of his present. Mr Palasovski was present as a representative of Goldbiz Enterprises Pty Limited. 7 A meeting was purportedly held at that time. A document entitled 'Minutes of Meeting of Directors of the Company' records the passing of a resolution for the removal of Mr Paul. It appears that the document was intended to be minutes of a meeting of members. The Constitution of the Company provides in clause 56 that no business is to be transacted at any meeting of the Company's members unless a quorum of members is present at the time when the meeting proceeds to business. Clause 56(2) provides that two persons each being a member or a proxy or a representative of a member will be a quorum for a meeting of the company's members. 8 It is apparent that there was no quorum present at the meeting purportedly held on 21 April 2005. Accordingly, the removal of Mr Paul was ineffective. It follows that at the time of the passing of the purported resolution of directors on 8 November 2005, Mr Paul continued to be a director of the Company. 9 Clause 85 of the Constitution of the Company provides that at a meeting of directors, the number of directors whose presence is necessary to constitute a quorum where there are two or more directors, is such number as is determined by the directors and, unless so determined, is two. There is no evidence that the directors have made any determination as to a quorum. It follows that the purported resolution signed by Mr Palasovski on 8 November 2005 was not effective to appoint Mr Cooper as administrator. 10 Mr Cooper has prepared a report to creditors, as he would be required to do by the Act if he were validly appointed as an administrator. The report, which is dated 24 November 2005, indicates that Mr Cooper is continuing to trade the business of the Company. He says that he advertised the Company's business for sale on 12, 14 and 15 November 2005. While he was contacted by a number of interested parties, to whom information concerning the business was forwarded, he has not yet received any offers for the purchase of business from that advertising. 11 Mr Cooper has received correspondence from Mr Paul, through his solicitors, claiming to be entitled to repayment of a loan of $50,000 and to payment of salary in the sum of $70,000. There is a dispute as to whether those amounts are owing. Mr Cooper has estimated that, if the business of the Company is sold as a going concern, there could be a surplus of approximately $25,000, although, that estimate assumes that the amounts claimed by Mr Paul are not owing. On the other hand, Mr Cooper has estimated that, if the business of the Company is not sold as a going concern, there would be a deficiency before the costs of administration. 12 A demand under the Act has been made on behalf of Mr Paul in respect of the sum of $50,000. That demand has not at the moment been complied with. At the date of Mr Cooper's appointment, the Company had cash funds of less than $50,000, such that it is not in a position to meet the demand. 13 Mr Cooper has estimated that ordinary unsecured creditors amount to some $105,000, including the sum of $50,000 claimed by Mr Paul. In his report to creditors, Mr Cooper expresses the opinion that it would be in the best interests of the Company's creditors for the Company to be wound up. In his statement pursuant to s 439A(4B) of the Act, he gives the following as his reasons for that opinion: '(a) The two shareholders of the company continue to disagree on the ongoing management of the company.
(b) The company may not be solvent after taking account of disputed creditor claims and potential costs of litigation relating to disputed creditor claims.
(c) No proposal for a deed of company arrangement has been put forward on behalf of the directors or any other person.' 14 In all of the circumstances, it is clearly desirable that the Company be administered by an administrator or be wound up. Having regard to the work that has been done so far by Mr Cooper, it would be desirable for his position to be validated since it is clear that his appointment was ineffective. Section 447A of the Act provides that the Court may make such order as it thinks appropriate about how Part 5.3A is to operate in relation to a particular company. 15 Section 436A provides that a company may, by writing, appoint an administrator if the Board has resolved to the effect that, in the opinion of the directors voting for the resolution, the company is insolvent or is likely to become insolvent and an administrator of the company should be appointed. That pre-requisite has not been satisfied in the present case. In effect, Mr Cooper asks for an order under s 447A that Part 5.3A operates in a way that would treat the resolution signed by Mr Palasovksi as effective to appoint Mr Cooper, notwithstanding the requirements of s 436A. 16 It is clear enough that s 447A can be used to overcome a defect in compliance with the appointment procedure under s 436A. The Court has power to make an order under that provision which has some effect in the past in the same way as the Court can make an order nunc pro tunc. There is no reason why, in the exercise of its discretion, the Court cannot, in relation to a particular company, deal with the technical defect in a resolution by making an order under s 447A. 17 Under s 1322(4) of the Act, the Court may make certain orders either unconditionally or subject to such conditions as the Court imposes. Specifically, under s 1322(4)(a) the Court may make an order declaring that any act, matter or thing purporting to have been done under the Act or in relation to a corporation is not invalid by reason of any contravention of a provision of the Act or a provision of the constitution of a corporation. However, the Court must not make an order under s 1322 unless it is satisfied that it is just and equitable that the order be made and that no substantial injustice has been or is likely to be caused to any person. 18 The initiating process has been served on Mr Paul, Mr Palasovksi and on the Company. Mr Palasovksi and the Company have not appeared. However, Mr Paul has appeared by his solicitor, who, apart from drawing the Court's attention to the deficiencies in the appointment, neither consents to nor opposes the orders sought in the originating process. 19 I am satisfied that no injustice will be caused to any person by making orders as asked for by Mr Cooper. The appointment of Mr Cooper occurred, in effect, as a consequence of an oversight. He quite properly relied upon the extract from the Commission's records that, under s 1274B of the Act, constitute prima facie evidence of the correctness of the statements made in them. It is unfortunate, of course, that this circumstance has come about. It appears to me, however, that it is in the interests of the creditors and the shareholders of the Company that the administration continue. Accordingly I consider it is appropriate to accede to the application made by Mr Cooper.
I certify that the preceding nineteen (19) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett.
Associate: Dated: 22 December 2005 Counsel for the Applicant: Mr D Stack Solicitor for the Applicant: Nash O'Neill Tomko Lawyers Solicitor for Mr Paul: Watson & Watson Date of Hearing: 2 December 2005 Date of Judgment: 2 December 2005