Deputy Commissioner of Taxation v ACN 001 330 203 Pty Ltd

REVISED - 6 August, 1999 IN THE SUPREME COURT OF NEW SOUTH WALES IN EQUITY

No. 2650/96 DEPUTY COMMISSIONER OF TAXATION Plaintiff ACN 001 330 203 PTY LTD (in liquidation) (formerly Bertram & Son Pty Limited ACN 001 330 203)

1 I have made the attached directions to the liquidator of ACN 001 330 203 Pty Ltd ("the Company") pursuant to s479(3) of the Corporations Law. What follows are brief reasons for those directions with the essential facts. Details of the relevant circumstances are set out in "Outline of Submissions" of Mr Chippindall of Counsel dated 2 August 1999 remaining with the papers. I am posed this question; what happens when an administration is set aside as invalid following earlier lodgment and adjournment of a winding up application, which application is then finally granted? Within that time period do intervening transactions fall to be set aside as insolvent transactions under s588FE of the Corporations Law? Is the six months relation back period to be brought forward from the earlier date of lodging the winding-up application to the date an administrator was invalidly appointed? 2 Essentially, what has happened is that a proprietary company formed in 1975 required under its Articles of Association a minimum of two directors. This was in conformity with the then applicable provisions of the companies legislation; s114 of the Companies Act 1961 of NSW amended by Act No. 61 of 1971. As from 15 December 1971, the concept of a one director company had been abolished. Henceforth a minimum of two directors was obligatory. However one director proprietary companies were again allowed, by further amending legislation in December 1995. This modified s221(1) of the Corporations Law expressly allowing one director for proprietary companies. So had the wheel come full circle in twenty-five years. 3 However, there was never any meeting of shareholders of the Company to alter the Articles of Association of the company so as to reduce the number of directors required from two to one. This was a two shareholder company, so that was no formality. That is evidenced by the minutes of shareholders' meetings contained in Exhibit "KMB1" where in contrast there were shareholders resolutions dispensing with the requirement of an auditor. 4 I should add that the relevant Articles of Association adopt Table A and therefore adopt Article 84. It precludes the continuing directors acting for any other purpose than to increase the number of directors to the minimum number or to summon a general meeting of the company. 5 The purported resolution of the board of the company to appoint an administrator on 18 March 1998 was a nullity since such an appointment required a resolution of the board and there was no properly constituted board; see my decision in Wagner v International Health Promotions (1994) 15 ACSR 419, approved and followed by Young J in Gordon v Allied Meridian Pty Ltd (Young J (1999) NSWSC 558, 28 May 1999, unreported). 6 Irrespective of what the purported administrator may have attempted to do but failed to do so far as entering into a deed of company arrangement (see Outline Submissions), the administration simply has no legal existence. 7 The relevant provisions of the Corporations Law, for relation back purposes in setting aside insolvent transactions are s9 (definition of "relation back day") and s513A and C, though s468 should also be noted. I quote the principally relevant provisions for convenience: " s9 'Relation Back Day' in relation to a winding up of a company or Part 5.7 body, means: (a) if, because of division 1A of Part 5.6, the winding up is taken to have begun on the day when an order that the company or body be wound up was made - the day on which the application for the order was filed; or (b) otherwise - the day on which the winding up is taken because of Division 1A of Part 5.6 to have begun;"

" 468 (1) Any disposition of property of the company, other than an exempt disposition, and any transfer of shares or alteration in the status of the members of the company made after the commencement of the winding up by the Court is, unless the court otherwise orders, void."

" 513A If the Court orders under section 246AA, 459A, 459B or 461 that a company be would up, the winding up is taken to have begun or commenced: (a) if, when the order was made, a winding up of the company was already in progress - when the last-mentioned winding up is taken because of this Division to have begun or commenced; or (b) if, immediately before the order was made, the company was under administration - on the section 513C day in relation to the administration; or (c) if: (i) when the order was made, a provisional liquidator of the company was acting; and (ii) immediately before the provisional liquidator was appointed, the company was under administration; on the section 513C day in relation to the administration; or (d) if, immediately before the order was made, a deed of company arrangement had been executed by the company and had not yet terminated - on the 513C day in relation to the administration that ended when the deed was executed; or (e) otherwise - on the day when the order was made."

" 513C The section 513C day in relation to an administration of a company is: (a) if, when the administration began, a winding up of the company was in progress - the day on which the winding up is taken because of this Division to have begun; or (b) otherwise - the day on which the administration began."

8 The commencement of the winding-up is an event which owes its origin to statutory definition and is not to be confused with the time at which winding-up occurs; McPherson "The Law of Company Liquidation" (LBC, 1987) at 161. The effect of those provisions of the Corporations Law and in particular the combination of the relevant definition of "relation back day" in s9 with s513A, is that in the events that occurred, the relation back day is the earlier date (12 June 1996) on which the summons for winding up was first filed (the deemed commencement date of the winding-up) and which has since led to the winding-up of the company. Insolvent transactions for six months preceding that date (12 June 1996) may thus be set aside (s588FE of the Corporations Law) and any non-exempt disposition of property after that date is void; s468. That date (12 June 1996) is considerably earlier than the date the administration purportedly commenced (18 March 1998) because of a succession of adjournments. This has significant implications for the recovery of monies constituting insolvent transactions within s588FE. This is because there can be no bringing forward of the commencement of the winding-up to the date the administration commenced because the latter was a nullity; compare the effect of s513A(b) with s513C to s513A(e) of the Corporations Law. 9 I agree with the submissions made, in what has been an uncontested matter, that s1322(4) of the Corporations Law could not be applied in the present circumstances. This is primarily as a matter of jurisdictional reach but in any event as a matter of discretion. Thus even if the section were otherwise capable of application, a remedial order would have a prejudicial effect on creditors seeking to set aside earlier insolvent transactions and thus could not be made. The same reasoning applies mutatis mutandis to any application of s447A of the Corporations Law. 10 Finally, I should note that the nullity of the administration in the present circumstances accords with the reasoning of the decision of Young J in Gordon v Allied Meridian (supra), though the facts differed, in that a director was excluded from voting who would have opposed the resolution to appoint an administrator. Young J likewise set aside the administration as a nullity.

Pursuant to s479(3) of the Corporations Law , I give the following directions to the liquidator, namely that he shall conduct the liquidation on the following basis and findings:

1. in the events that have happened Andrew Hugh Jenner Wily was not validly appointed as administrator of ACN 001 330 203 formerly Bertram & Sons Pty Limited.

2. in the events that happened, the winding up of ACN 001 330 203 commenced on 4 June 1998.

3. in the events that happened the relation-back day in respect of the winding up of ACN 001 330 203 within the meaning of s588FE of the Corporations Law is the date on which the summons was filed which led to the winding up of ACN 001 330 203, namely 12 June 1996.

4. Order that the costs of the applicant to this application be an expense in the winding up of ACN 001 330 203 Pty Limited.

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