Francis v Blue Ribbon Enterprises

REASONS FOR JUDGMENT 1 The applicants (the Trustees) are the trustees in bankruptcy of the property of Graeme Edward Martin (the Bankrupt) under a sequestration order made in respect of the estate of the Bankrupt on 22 November 2007. They bring this proceeding under the Bankruptcy Act 1966 (Cth) and under the Corporations Act 2001 (Cth). The application relates to the affairs of Blue Ribbon Enterprises (NSW) Pty Limited (Blue Ribbon). 2 Blue Ribbon was incorporated on 5 May 2004. On 16 July 2007, Australian Securities and Investments Commission (the Commission) commenced deregistration processes in relation to Blue Ribbon and, with effect from 24 September 2007, Blue Ribbon was deregistered. During the whole of the period from 5 May 2004 to 24 September 2007, the Bankrupt was the only director and secretary of Blue Ribbon. During that period, the issued capital of Blue Ribbon consisted of one ordinary share registered in the name of and beneficially held by the Bankrupt. 3 The originating process, on which the Trustees move, was served on the former registered office of Blue Ribbon and the proceeding is brought with the consent of the Bankrupt. Further, the Commission has, by letter addressed to the solicitors for the Trustees, stated that it will not oppose the application for reinstatement if certain conditions are satisfied. There is a logical difficulty with some of those conditions, in that one of them cannot be satisfied. In any event the Commission was served with the process and did not appear when the matter was called. Nor did anybody purport to appear on behalf of Blue Ribbon. There would, of course, have been some difficulty if anybody had, because, as the Commission correctly observed, at the present time, Blue Ribbon does not exist. 4 On 4 January 2005 a fixed and floating charge, given by Blue Ribbon to St George Bank Limited (St George) on 24 December 2004, was registered with the Commission. The property of Blue Ribbon that was the subject of the charge included a property situated at 30 Hensons Road, Somersby. That property was also the subject of a registered mortgage to St George. St George exercised power of sale as mortgagee and executed a transfer of the property on 12 October 2007. The proceeds of sale exceeded the amount owing by Blue Ribbon to St George and at some time after completion of the sale, St George paid to the Commission the surplus of $31,602.52. The Commission still holds that sum. 5 There are no divisible assets in the hands of the Trustees at this stage and there have been no income contributions paid by the Bankrupt to the Trustees. The remuneration of the Trustees to date is $5759 and they are liable to their solicitors in respect of the costs of this application. The Trustees, not surprisingly, seek to recover from the Commission the money received by the Commission from St George, if that is possible. At present it is not possible for the Trustees to obtain the money directly from the Commission. The mechanism that is proposed is for the Trustees to seek the reinstatement of Blue Ribbon, then to ask the Court to make a winding up order in respect of Blue Ribbon and appoint liquidators and then ask the Court to order the Commission to pay the money held by it, to the liquidators. If there are no debts or claims to be met in the winding up, any surplus after the costs of the winding up have been met would be paid to the Bankrupt's estate. 6 The Trustees, of course, have no way of knowing anything about the financial position of Blue Ribbon. The reason why steps for deregistration by the Commission were undertaken is not known to the Trustees. The mechanism whereby the Trustees can get access to the money held by the Commission involves a fairly tortuous consideration of the provisions of the Corporations Act as well as the Bankruptcy Act. It is necessary to say something about the legal framework within which this application is brought. 7 On the making of the sequestration order all the Bankrupt's property, as defined by s 5 of the Bankruptcy Act, vested in the Trustees pursuant to ss 58 and 116 of the Bankruptcy Act. That vesting is recognised by the Corporations Act. Section 1072C of the Corporations Act applies where, because of the operation of the Bankruptcy Act, a share in a company vests in the trustee of a bankrupt's estate and that bankrupt is the registered holder of that share. The section applies whether or not the trustee has become registered as the holder of the share. 8 Under s 1072C(2), the trustee is entitled to the same rights as the bankrupt would be entitled to if he were not a bankrupt, including rights in relation to meetings of the company, documents including notices of meeting, voting and inspection of the company's records. Under s 1072C(3), the trustee has the same rights to transfer the share, and to require a person to do an act or give a consent in connection with completing or registering a transfer of the shares, as the bankrupt would have if he or she were not a bankrupt. Under s 1072C(4), if the trustee transfers the share, the transfer is as valid as if the trustee had been registered as the holder of the share and executed the instrument of transfer. 9 The object of this proceeding is to bring about the winding up of Blue Ribbon with a view to the appointment of liquidators who will be in a position to deal with the money held by the Commission. Of course, the liquidators' obligation will be to deal with that fund in accordance with the priorities outlined in s 556 of the Corporations Act. Specifically, under s 556(1), in the winding up of a company, expenses properly incurred in preserving, realising or getting in property of the company or in carrying on the company's business, are paid in priority to all other unsecured debts and claims. Where the Court orders the winding up, the costs in respect of the application for the winding up order are then to be paid in priority to all other unsecured debts and claims. 10 The Trustees propose that Katherine Elizabeth Barnet and John Maxwell Morgan be appointed official liquidators of Blue Ribbon, upon its reinstatement. They have consented to that appointment. However, a question that arises concerns the standing of the Trustees to bring this proceeding for the winding up of Blue Ribbon. Before dealing with that I will say something about the operation of Part 5A.1 of Chapter 5A of the Corporations Act. 11 Under s 601AB(1) of the Corporations Act, the Commission may decide to deregister a company if certain prerequisites are satisfied. There is no reason to doubt that the relevant prerequisites were satisfied, although there is no evidence as to precisely what circumstances satisfied those prerequisites. Under s 601AB(3), if the Commissioner decides to deregister a company under s 601AB, it must give notice of the proposed deregistration to, amongst others, the company and the company's directors. It must also give notice in the Gazette. When two months have passed, since the Gazette notice, the Commission may deregister the company. Under s 601AB(5), the Commission must then give notice of the deregistration to everyone who was notified of the proposed deregistration. Under s 601AD(1), a company ceases to exist on deregistration and, under s 601AD(2), on deregistration all the company's property relevantly vests in the Commission. However, under s 601AD(3), the Commission takes only the same property rights that the company itself held. 12 Section 601AH deals with reinstatement. Under s 601AH(2), the Court may make an order that the Commission reinstate the registration of a company if an application for reinstatement is made to the Court by, relevantly, a person aggrieved by the deregistration and the Court is satisfied that it is just that the company's registration be reinstated. If the Court makes such an order, it may make any other order it considers appropriate. By s 601AH(5), if a company is reinstated, the company is taken to have continued in existence as if it had not been deregistered and any property of the company that is still vested in the Commission re-vests in the company. Thus, if an order is made under section 601AH(2) in respect of Blue Ribbon, the money held by the Commission that it received from St George would re-vest in Blue Ribbon. It would then be appropriate for the Commission to pay the sum to Blue Ribbon or its liquidators. 13 The beneficial ownership of the share in Blue Ribbon, if Blue Ribbon were reinstated, would vest in the Trustees. On reinstatement, the money held by the Commission would vest in Blue Ribbon. Assuming there were no liabilities of Blue Ribbon, the benefit of that money would be available to its shareholder. Any entitlement to a distribution, on the winding up of Blue Ribbon, of the money held by the Commission would vest in the Trustees. Although the Trustees are not the holders of the share at present, they are beneficially entitled to the share, and, accordingly, any surplus would be available to the Trustees, since they have stepped into the shoes of the Bankrupt. The Bankrupt would clearly have been a person aggrieved, for the purpose of s 601AH, and accordingly, the Trustees are persons aggrieved by the deregistration. 14 I am satisfied that it is just that Blue Ribbon's registration be reinstated. I am satisfied that the Trustees are relevantly persons aggrieved. I consider, therefore, that it is appropriate to make an order that the registration of Blue Ribbon be reinstated. I consider that it is also appropriate to make an order that the Commission pay to Blue Ribbon any money that it holds on behalf of Blue Ribbon. Of course, if Blue Ribbon were to be wound up prior to that payment, the money would be paid to the liquidators. That is the next step that the Trustees wish to take. 15 Under s 461(1)(k), the Court may order the winding up of a company if the Court is of the opinion that it is just and equitable that the company be wound up. Under s 462(2)(c), a contributory may apply for an order to wind up a company. Under s 9, a contributory relatively means, in relation to a company, a person liable, as a member or past member, to contribute to the property of the company if it is wound up and, for a company with a share capital, the holder of fully paid shares in the company. 16 Even following the making of an order for reinstatement of Blue Ribbon, the Trustees may not be contributories. They have no liability to contribute to the property of the company, because the share owned by the Bankrupt is fully paid. Further, notwithstanding the operation of s 1072C(c), there is, in my view, considerable doubt as to whether the Trustees could be fairly described as the holder of the share registered in the name of the Bankrupt. However, there is no doubt that the Trustees would be entitled to be registered as the holder of that share, by the operation of ss 58 and 116 of the Bankruptcy Act. 17 Section 175(1) of the Corporations Act provides that a person aggrieved may apply to the Court to have a register kept by a company under Part 2C.1 corrected. One of the registers to be kept under Part 2C.1 is a register of members. The Trustees are, in my view, persons aggrieved, in the sense that they are entitled to be shown on the register, having regard to the status of the Bankrupt, who is no longer a director or secretary who is capable of dealing with the register. In the circumstances of this case, I consider that it is appropriate to make an order under s 175 that, upon its reinstatement, the register of members of Blue Ribbon be corrected to record the Trustees as the holder of the Bankrupt's share. 18 Upon reinstatement and the correction of the register by recording the Trustees as the holder of the only issued share, the Trustees would then have standing to apply to the Court for the winding up of Blue Ribbon. In circumstances where, as I have said, the only director and secretary of Blue Ribbon is a bankrupt and is therefore not able to hold office, and the Trustees will be the only holders of the only issued share in the capital of Blue Ribbon, it is just and equitable that Blue Ribbon be wound up. I therefore propose to make an order that Blue Ribbon be wound up, pursuant to s 461(k), and that Katherine Barnett and John Morgan be appointed as liquidators of Blue Ribbon. 19 It is appropriate that the costs of the Trustees of this application be paid out of the assets of Blue Ribbon. Whether there will be any other costs of the liquidators that take priority over those expenses, pursuant to s 556(1)(a), will be a matter for determination by the liquidators. That is not a matter presently before the Court. I certify that the preceding nineteen (19) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett.