Gibbons v LibertyOne [2002] NSWSC 274 | Case summary

1564/02 JOHN RAYMOND GIBBONS v LIBERTYONE LTD (IN LIQ) & ANOR JUDGMENT 1 HIS HONOUR: Section 508 of the Corporations Act is one of the general administrative provisions for voluntary winding up. It provides: "508 (1) If the winding up continues for more than 1 year, the liquidator must: (a) in the case of a members' voluntary winding up - convene a general meeting of the company; or (b) in the case of a creditors' voluntary winding up - convene a general meeting of the company and a meeting of the creditors; within 3 months after the end of the first year from the commencement of the winding up and the end of each succeeding year, and must lay before the meeting or each meeting an account of his or her acts and dealings and of the conduct of the winding up during the first year or that succeeding year, as the case may be. (2) The liquidator must cause the notices of the meeting of creditors to be sent by post to the creditors simultaneously with the sending of the notices of the meeting of the company." 2 As I shall explain, the company in this case (LibertyOne Ltd, which I shall call "the Company") is in a creditors' voluntary winding up after a period of voluntary administration. The plaintiff, Mr Gibbons, is the liquidator and was previously the administrator of the Company. He seeks orders having the effect of exonerating him from the requirement of s 508 (1) (b) to convene any general meeting of the members of the Company. 3 The questions for me to decide are whether the Court has the power to dispense with the requirement of s 508 (1) (b) that a meeting of the members of the Company be convened, and if so, whether in the exercise of my discretion I should do so. The administration and winding up of the Company 4 The plaintiff was appointed administrator of the Company on 7 December 2000. The Company is the holding company in a group of internet and e-commerce companies. It had been admitted to the Official List of the Australian Stock Exchange. 5 Section 439A of the Corporations Act requires the administrator of a company under administration to convene a meeting of the company's creditors ("the second creditors' meeting") within a stated period. The second creditors' meeting in the administration of the Company was held on 1 March 2001. Section 439C says that at such a meeting the creditors may resolve that the company execute a deed of company arrangement, or that the administration should end, or that the company be wound up. In this case the creditors resolved that the Company be wound up. The passing of such a resolution causes s 446A to apply: s 446A (1) (a). Consequently, the plaintiff became the liquidator for the purposes of the winding up of the Company by virtue of s 446A (4) (a) (i). 6 Section 446A (2) is in the following terms: "(2) The company is taken: (a) to have passed, at the time referred to in paragraph (1) (a) … , a special resolution under s 491 that the company be wound up voluntarily; and (b) to have done so without a declaration having been made and lodged under s 494." 7 Section 446A (2) has the effect that the winding up proceeds as a creditors' voluntary winding up. Consequently, absent any valid order of the Court, meetings must be held under s 508 if the winding up continues for more than 1 year. 8 The business and affairs of the group of which the Company is part were complex because of their size and the manner in which they were structured. Some of the investments of the group were through wholly owned subsidiaries and others were, in effect, joint ventures with third parties. Following his appointment as liquidator of the Company, the plaintiff has realised assets and negotiated compromises with a number of parties who claim to be major creditors. He has had a number of meetings with the Committee of Inspection of creditors so as to keep them informed of relevant developments. These meetings have been amply minuted and the minutes are in evidence. 9 The plaintiff has prepared a Report to Creditors dated 15 February 2002. It shows that at that time, the plaintiff had recovered $799,624 from debtors, and had realised various assets of the company. Cash at bank stood at $931,668.62. All priority claims for employees that had been admitted in the winding up had been paid in full. The Report said that the plaintiff was unable to pay any dividends to unsecured creditors at that stage, but if he was successful in various recovery actions it may become possible to pay a dividend to them. 10 In his affidavit made for the purposes of the present proceedings, the plaintiff explained that in his opinion, the total claims of unsecured creditors provable in the liquidation would be not less than $11 million. In addition, another creditor called iRealty had recently made a claim for approximately $6 million, which was likely to be the subject of dispute. He reiterated the opinion expressed in the Report that he would only be able to pay a dividend to unsecured creditors in the event that he was successful in making recoveries of voidable transactions or in claims against directors in respect of alleged breaches of duty. He said he believed that the unsecured creditors would at best receive a small dividend and that there was no prospect that shareholders would receive any return. He estimated that the finalisation of the liquidation would take another one to three years, depending upon progress of claims with respect to voidable transactions and claims against directors in respect of alleged breaches of duty. 11 Pursuant to s 104-145 of the Income Tax Assessment Act 1997, the plaintiff made a declaration, lodged with the Australian Stock Exchange, that there were reasonable grounds to believe that there was no likelihood that the shareholders of the Company would receive any further distribution. 12 In his affidavit, the plaintiff referred to the possibility of a return to shareholders through the re-listing of the Company on the Australian Stock Exchange. He said that in order for this to occur, it would be necessary for existing shareholders or other investors to inject funds into the Company, for a deed of company arrangement to be entered into, and for the liquidation of the Company to be terminated. He said that this would be a complex procedure and that in his opinion, the prospects of it occurring were remote. There was a risk that any such development would jeopardise or extinguish claims for recovery of voidable transactions or claims against directors in respect of alleged breaches of duty. 13 During the course of the Company's administration and liquidation, the plaintiff had some correspondence with Mr Stephen Matthews. Mr Matthews represented a company called Samson Underwriting Company Ltd. He put forward a proposal, in January 2001 and subsequently, for the Company to enter into a deed of company arrangement and other arrangements under which shares would be distributed pro rata to creditors, the liquidation would be terminated, and the Company would be re-listed and would issue new shares, and would establish a fund for investment in technology stocks quoted on NASDAQ. NASDAQ is the automated quotation system conducted by the National Association of Securities Dealers in the United States. 14 The plaintiff's evidence is that, on a number of occasions, he raised Mr Matthews' proposal with the Committee of Inspection. His view, which he believes to be shared by the members of the Committee of Inspection, is that it is not in the interests of creditors for him to expend funds in the liquidation in pursuing this proposal. The proceedings 15 By an originating process filed on 18 February 2002, the plaintiff seeks relief from the requirement in s 508 (1) (b) that a meeting of the members of the Company be convened and held. Four alternative legal foundations for such relief are put forward, namely: 1. An order under s 447A (1), that s 446A of the Corporations Act is to apply to the Company, save that the requirement contained in s 508 (1) (b) for any general meeting of the Company to be convened and held shall not apply; 2. An order under s 1318 (2) that the Court relieve the plaintiff wholly from any liability that may arise from any claim made against him in respect of his failure to convene or hold any general meeting of the Company; 3. An order under ss 459A or 461 that the Company be wound up and the plaintiff be appointed liquidator; or 4. An order under s 1322 (4) of the Corporations Act extending the period for convening and holding a general meeting of the Company. 16 In my view, the second and fourth alternatives do not directly address the problem that the plaintiff has brought before the Court. If it is undesirable that any meetings of members be held, and the Court has power to make an order removing the requirement for those meetings, it should consider the matter as an application for the exercise of that power, rather than achieving that outcome indirectly by protecting the plaintiff from liability or extending for a long time or indefinitely the time for convening and holding the meetings of members. 17 The strategy underlying the third alternative is that if the winding up is converted into a winding up under an order of the Court, there will be no requirement for annual meetings of members. However, this approach is unattractive because it is likely to involve some expense and delay for the purpose of satisfying administrative requirements such as the requirement to advertise, and for the purpose of adducing further evidence on the basis of which an order for winding up can be made. 18 In those circumstances, the attention of the parties has focused on the first alternative, an order under s 447A (1). Since I have decided, for reasons I shall give, that I have the power to make an appropriate order under that section, and that there are adequate discretionary grounds for doing so, it is unnecessary for me to deal with any of the other alternatives and I shall not do so. 19 The plaintiff's evidence is that the Company has approximately 16,000 shareholders. He says that the cost of preparing, printing and posting to shareholders a notice of meeting including a copy of the Report to Creditors dated 15 February 2002 would be not less than $45,000, although the cost would reduce to about $20,000 in the event that a one-page notice of meeting without a copy of the report was sent. Additionally, there would be cost involved in holding the meeting and dealing with inquiries, which the plaintiff estimates to be not less than $20,000, though the amount could be much higher depending on the level of shareholder interest and activity. 20 When the matter first came before me on 18 February 2002, I made an order under s 1322 (4) that the time for convening the general meeting and the meeting of creditors required by s 508 (1) (b) be extended until 7 days after the determination of these proceedings, or further order. I stood the proceedings over to 25 February 2002 and I directed the plaintiff to serve the originating process on the Australian Securities and Investments Commission and Mr Matthews. 21 The Commission has indicated in writing that it does not oppose the application. However, at the resumption of the hearing on 25 February 2002 a shareholder of the company, Mr Antoun, appeared and, with leave, filed an interlocutory application seeking relief which included an order deferring determination of the plaintiff's application for 14 days, to give him time to contact other shareholders. He said that he wished to explore whether there was any interest among shareholders in a proposal for reconstructing the Company, which he tendered in evidence. Having examined Mr Antoun's proposal, my view is that it is indistinguishable from the proposal by Mr Matthews, first put forward in January 2001, which has already been considered by the plaintiff and the Committee of Inspection. 22 At the hearing on 25 February 2002 the plaintiff informed me that he wished to proceed with a meeting of creditors, but to be relieved of the obligation to comply with s 508 (2) to send notices of the meeting of creditors simultaneously with notices convening a meeting of members. Counsel for Mr Antoun opposed my making any such order, and contended that I did not have power to do so under s 447A. After delivering ex tempore reasons for my opinion that I had the power to make the order sought by the plaintiff, I made an order under s 447A that Part 5.3A of the Act operate in relation to the Company as if the effect of s 446A (2) were that the following words were added: "and (c) to have done so without the necessity of complying with s 508 (2) of the Corporations Act". 23 My intention was to allow the meeting of creditors to go ahead, without a distribution of any material to the members. I understand that the meeting of creditors was held on 16 March 2002. 24 I also made orders on 25 February 2002 reconstituting the proceedings as proceedings by the plaintiff against the Company, granting leave under s 500 (2) for him to proceed in this way. When the matter returned to me on 11 March 2002, I dismissed the balance of Mr Antoun's interlocutory application. I also made an order joining Mr Antoun as a defendant, on his application and without opposition from the plaintiff. I made directions to give the parties the opportunity to file any further evidence and make written submissions. No further evidence was filed, but I received further written submissions from both parties. 25 The order I made under s 447A on 25 February 2002 was limited to s 508(2). The matter which remains outstanding is whether the plaintiff should be exonerated from the requirement to hold any meetings of members by my making a similar order with respect to s 508 (1) (b). The order now sought by the plaintiff is: "Order pursuant to s 447A of the Corporations Act that Part 5.3A of the Act operate in relation to the Company as if the effect of s 446A (2) were that the following words were added: "and (c) to have done so without the necessity to convene any general meeting of the Company pursuant to s 508 (1) (b) of this Act."" 26 The principal issue in contention is whether s 447A authorises the making of any such order. My ex tempore decision on 25 February 2002 is authority for the proposition that it does. If an order can be made modifying, through s 446A, the effect of s 508 (2), then it must follow that a similar order can be made modifying the effect of s 508 (1) (b). Noting, however, that my order of 25 February 2002 was made ex tempore after only a short hearing, without giving the parties the opportunity to make full submissions in a contested environment, I have indicated to the parties that I regard the issue as open for reconsideration notwithstanding my earlier decision. The scope of s 447A 27 Section 447A states: "447A (1) The Court may make such order as it thinks appropriate about how this Part is to operate in relation to a particular company. (2) For example, if the Court is satisfied that the administration of a company should end: (a) because the company is solvent; or (b) because provisions of this Part are being abused; or (c) for some other reason; the Court may order under subsection (1) that the administration is to end. (3) An order may be made subject to conditions. (4) An order may be made on the application of: (a) the company; or (b) a creditor of the company; or (c) in the case of a company under administration - the administrator of the company; or (d) in the case of a company that has executed a deed of company arrangement - the deed's administrator; or (e) ASIC; or (f) any other interested person." 28 The question for the High Court of Australia in Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270 was whether s 447A (1) confers on the Court the power to make an order altering the times fixed by s 439A within which the second meeting of creditors must be held. In the course of finding that the section was wide enough to permit such an order to be made, the Full High Court (Gleeson CJ, McHugh, Gummow, Hayne and Callinan JJ) made observations about the scope of s 447A and the limitations inherent in it. 29 Their Honours held that there was nothing on the face of s 447A suggesting that it should be read down (at 279). They found that it could be used to make orders departing from or varying, for the future, other express provisions of Part 5.3A. Its use was not to be confined to curing defects or remedying the consequences of some departure from the scheme set out in the other provisions of Part 5.3A. The section permits orders to be made that alter how Part 5.3A is to operate in relation to a particular company in particular circumstances, not how the Part does operate in relation to that company (at 280). 30 In their Honours' view, s 447A is an integral part of the legislative scheme provided for by Part 5.3A (at 281). It is not right to characterise the section as a general source of power to which resort cannot be had to "circumvent" the more limited and particular powers contained in other provisions of Part 5.3A (such as s 439A (6), which empowers the Court to extend the convening period for a meeting, but does not allow the Court to validate a meeting held too early). The legislative intention was to allow s 447A to be used to alter the way other provisions of Part 5.3A operate. 31 The High Court's observations on these matters suggest that there is power under s 447A to make the kind of order sought by the plaintiff in this case. The plaintiff seeks an order in relation to a particular company in particular circumstances, altering the effect of a provision of Part 5.3A, namely s 446A. The existence of the power to make such an order arises from the broad literal words of s 447A (1) and from the fact that s 447A is integral to Part 5.3A, one of the provisions of which is s 446A. 32 In their Honours' view, s 447A may be used where the subject company has been under administration, but by the operation of other provisions of Part 5.3A the administration has come to an end (at 282). I observe that one of the ways the administration of a company comes to an end is by the company's creditors resolving under s 439C (c) that the company be wound up (s 435C (2) (c)), and in that event s 446A applies and the winding up proceeds as a creditors' voluntary winding up subject to the modifications imposed by the latter section. Importantly for present purposes, their Honours' observations at 282 mean that s 447A may be used to modify a provision of Part 5.3A, such as s 446A, notwithstanding that the Company is now in a creditors' voluntary winding up by virtue of the earlier operation of s 446A. 33 Although their Honours regarded the powers conferred by s 447A as wide, they recognised that the powers were subject to some limitations. The principal limitation is that the expression "how this Part is to operate" is an expression that looks to the future, not the past. However, the temporal requirement is satisfied if the orders made under s 447A have effect only from the time of their making. The section can be used to make an order with future effect, in respect of past matters or events (at 282). 34 In the present case, the order sought by the plaintiff under s 446A will operate only from the time it is made, and will have the effect of exonerating the plaintiff from the obligation to take action in the future, the action being the convening and holding of a meeting of members each year. It is true that, but for relief already granted in these proceedings, the obligation to convene a general meeting would already have arisen. The winding up has continued for more than one year after the anniversary of the creditors' resolution of 1 March 2001 that the company be wound up. However, by my order made on 18 February 2002 I have granted the plaintiff an extension of time for holding the general meeting, relying on the power contained in s 1322 (4), and so it is unnecessary for me to attempt to use s 447A to relieve the plaintiff of an obligation that has already accrued. Consequently the temporal limitation to s 447A is no obstacle to my granting the relief the plaintiff now seeks. 35 Another possible limitation to s 447A relates to whether it can be used to alter accrued rights. The High Court did not consider the question quite in those terms. It explored a more specific question, namely whether the section could be used to reinstate an administration, where to do so would interfere with rights that have accrued because the administration has previously come to an end (at 282). Their Honours distinguished between two kinds of case that may arise following termination of an administration. The first is where steps are taken which are predicated upon the administration having been terminated without a deed of company arrangement or a resolution for winding up. In such a case the directors resume management of the company, and they may take steps which affect the rights of third parties, such as trading or dealing with assets. The second is where steps are taken which are predicated upon the company having entered into a deed of company arrangement or having gone into liquidation, although in truth it has not done so because of some irregularity in the process of entering into the deed or meeting to resolve that the company be wound up. 36 The High Court left open the question whether there is power to make an order under s 447A (1) in the first kind of case. The Court held, however, that there was power under s 447A to make an order in the second kind of case, even though the order would operate to perfect rights which the parties to relevant transactions had intended to create but had not in fact created. 37 In the present case, the order sought by the plaintiff will deprive the members of their statutory right, arising under s 1324 of the Corporations Act and perhaps under other provisions, to require the plaintiff to discharge his statutory obligation to convene and hold a meeting under s 508. In my opinion, however, this is no bar to the making of the order. The assumption that members might make in the absence of an order of the Court (namely the assumption that the liquidator is required to convene and hold a meeting under s 508) is not the kind of assumption that leads to conduct affecting rights, such as conduct in trading or dealing. This case is not within the first of the two kinds of case identified by the High Court. Here the removal of the members' right is simply a corollary of the making of the order. 38 My conclusion is that the High Court's reasoning in the Australasian Memory v Brien supports the view that the Court has the power to make the order sought by the plaintiff in the present case. I was referred to some other cases on the general scope of s 447A. In my view, they do not add to the authoritative statement of the law made by the High Court. 39 I should record, however, that in Re Brashs Pty Ltd (1994) 15 ACSR 477 Hayne J found that s 447A was available to relieve a company under a deed of company arrangement from the obligation to include the words "subject to a deed of company arrangement" after its name in public documents (although he found that the making of an order would be premature in the circumstances). In Re Ansett Australia Ltd and Mentha [2002] FCA 2 (7 January 2002) Goldberg J used s 447A as the source of power to make various orders modifying provisions of Part 5.3A to facilitate the giving of a notice of a meeting of creditors, where a very large number of creditors was involved, without recording any debate or hesitation about the availability of the section. These cases confirm the proposition, plain in any case from the High Court's judgment, that s 447A can be used to vary a provision of Part 5.3A which is expressed in mandatory terms. 40 Counsel referred me to only one case in which an application was made to use s 447A to vary s 446A. The Court did not do so, reaching the desired outcome by a different route. The case is Re Switch Telecommunications Pty Ltd (2001) 35 ACSR 172. There, as here, the company had been in administration and moved into liquidation under s 446A. The problem was that there were two companies involved, and the liquidator was unable to distinguish the creditors of one from the creditors of the other. The liquidator made an application to Santow J to obtain orders which would permit the pooling of liquidations. That outcome was sought to be achieved either by a scheme under s 510 (the first alternative) or by using s 447A in combination with s 477 and s 479 (3) (the second alternative). 41 The second alternative would have involved the Court making an order under s 447A to deem the winding up to be a Court-ordered winding up rather than a creditors' voluntary winding up. Having made that order, the Court would then be able to approve a compromise between the creditors of the two companies under s 477 (2A) to give effect to the pooling. It would also have been able to give directions to the liquidator under s 479 (3) to provide him with a measure of protection in administering the pooled liquidations. 42 Santow J chose the first alternative, but (at paragraph 21) he made some observations about the availability of s 447A. After referring to a possible limitation on the availability of s 447A arising out of the observations of the Court of Appeal of New South Wales and his own observations in the Australasian Memory case, he questioned whether it was appropriate to use s 447A to make a fundamental change to the status of the winding up, converting it from a voluntary to a court-ordered winding up. He pointed out that, in contrast with the Australasian Memory case, the case before him was not one where the section was to be used "merely [for] the conventional dispensation from particular provisions such as time limits". 43 Counsel for Mr Antoun has seized upon these observations and has contended that there is a significant limitation on the availability of s 447A, beyond the limitations articulated by the High Court in the Australasian Memory case. Counsel refers to the observations by Santow J in the Australasian Memory case (149 ALR 393, 433), to which his Honour referred in the Switch Telecommunications case. In Australasian Memory his Honour said: "An order made under s 447A must be an order "about how Part 5.3A is to operate in relation to a particular company". Thus the power does not extend to, for example, an order dispensing with Part 5.3A altogether and declaring that some different regime is to operate. It is a power to make orders to ensure that the voluntary administration procedure in relation to a company operates in accordance with the object of Part 5.3A. Expressing the power at its simplest, it is a power of dispensation in relation to the specific requirements of Part 5.3A." 44 I note that these observations are given some reinforcement, though only generally, by the observations of Sheppard A-JA in the Court of Appeal in the Australasian Memory case, (1998) 45 NSWLR 111 at 150. Sheppard A-JA said: "I agree that it does not go beyond dealing with the position of a particular company and does not extend to an order dispensing with some or all provisions of Part 5.3A and declaring that some different regime is to operate. It is a power to ensure that the administration procedure in relation to a particular company operates in accordance with the objects of the Part. Those objects provide the parameters within which the power must be exercised and the criteria by which decisions are to be made." 45 It seems to me that to a degree, Santow J's observations need to be qualified by reference to the High Court's judgment. The High Court did not regard s 447A as merely a power of dispensation. Nevertheless, it may be true, consistently with the High Court's judgment, that there is a limitation which prevents s 447A from being used to dispense with Part 5.3A altogether, or to achieve an outcome unrelated to the administration of the company under Part 5.3A. I need not decide the point in the present case. Here there is no application to dispense with Part 5.3A altogether, or to declare that some different regime is to operate. Section 447A is not being invoked to achieve an outcome unrelated to the administration of the Company, or to achieve an objective not encompassed by the objects of Part 5.3A, as stated in s 435A. The application is specifically an application to modify s 446A, so as to qualify the extent to which the liquidation that has followed upon the administration of the Company is deemed to be subject to the rules of a creditors' voluntary winding up. 46 Nor is it necessary for me to decide, in the present case, whether s 447A can be used to make a fundamental change in the status of the winding up. The plaintiff does not seek any such order. Here, the order sought is squarely within Santow J's characterisation of "the conventional dispensation from particular provisions such as time limits". This is a conventional dispensation from a particular requirement deemed by Part 5.3A to be applicable in consequence of the company moving from administration to liquidation. 47 Counsel for Mr Antoun contended s 447A cannot be used to implement a regime different from the regime contemplated by another part of the Corporations Act, in this case the regime for a creditors' voluntary administration under Part 5.5. He submitted that to modify the operation of s 508 (1) (b) would be to give s 447A an operation going beyond Part 5.3A, and operation offensive to the specific imperative of s 508 (1) (b). He said that s 508 is a mandatory provision in specific terms, which should not be supplemented or qualified by a general provision such as s 447A. He relied upon the principle in David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265. 48 In my opinion these submissions misconceive the nature of the plaintiff's application. The plaintiff does not seek to modify a mandatory statutory provision applicable to a creditors' voluntary winding up. Rather, the plaintiff seeks to qualify the extent to which a deeming provision of Part 5.3A operates, in circumstances where the winding up falls within Part 5.5 not because a creditors' voluntary winding up has been selected in the normal fashion, but because the creditors have taken a decision of another kind in the context of voluntary administration. 49 It is noticeable that s 446A does not adopt the regime for creditors' voluntary winding up in an absolute or unrestricted fashion. Instead, s 446A (1) (2) (a) says that the company is deemed to have passed a special resolution of members for voluntary winding up even though there has in fact been no meeting of members at all; further, s 446A (2) (b) deems the case to be one where the directors have not made a solvency declaration under s 494, although the occasion for the directors to do so has in fact not arisen; and further, s 446A (3) deems there to have been a meeting of creditors complying with s 497, even though the meeting of creditors that has occurred was a meeting convened under the voluntary administration provisions of Part 5.3A and therefore for a different purpose. 50 Given that the winding up emerging from the application of s 446A is made to fit into the creditors' voluntary winding up regime only by the operation of deeming provisions, and that those provisions qualify the way in which Part 5.5 applies, there is no great leap involved in using s 447A to modify s 446A in another respect, so as to suit the circumstances of the case. To do so is not to give s 447A an operation beyond Part 5.3A. It is to make an adjustment to the deeming provisions which "borrow" Part 5.5 and adapt it to circumstances arising out of a voluntary administration. 51 In my opinion the High Court's decision in the David Grant case is not relevant to the problem before me in the present case. The language of s 508, though mandatory, is distinguishable from the language of s 459G, which stipulates that an application to set aside a statutory demand "may only be made" within the stated time period. Moreover, the High Court in David Grant took into account the specific legislative policy underlying the reforms to the statutory demand procedure which were introduced by the Corporate Law Reform Act 1992; there is no equivalently strong legislative policy underlying s 508, as I shall point out. Further, the question in David Grant was whether the general power to correct procedural irregularities contained in s 1322 could be used to vary time limits introduced by subsequent legislation based upon a clear legislative policy; whereas the question in the present case is whether one provision of Part 5.3A can be modified by the statutory power of modification of any of the provisions of that Part. 52 The governing consideration in the present case is not what the High Court said in David Grant, but what their Honours said in the Australasian Memory case. In the latter case, the High Court was prepared to use s 447A notwithstanding that the provision modified by it (in that case, s 439A) was expressed in mandatory language. Modification of s 446A in the manner sought by the plaintiff is consistent with that outcome. My conclusion, therefore, is that the Court has jurisdiction to make the order sought by the plaintiff. I shall turn now to discretionary considerations. Section 508 53 It is appropriate to consider the legislative policy underlying s 508 before making any determination that will exonerate the plaintiff from one of the obligations it imposes. The section is of much more ancient origin than s 447A, which was introduced by amendment to the Corporations Law in 1992. When United Kingdom statutory company law reached its mature form in the Companies Act 1862 (UK), there were three methods of winding up, namely voluntary winding up, winding up by the Court, and winding up subject to the supervision of the Court. The last, which has been described as a hybrid of the other two (McPherson's Law of Company Liquidation, 4th ed (1999) by Andrew Keay, p 25), remained in the Australian statutes until the Uniform Companies Acts of 1961. We need not consider it further here. 54 Initially voluntary winding up was a process controlled by the members of the company, rather than the creditors, whether or not the company was insolvent. Indeed, the provisions about voluntary winding up seemed to assume that the company was solvent, and this was regarded as a principal defect in the legislation (McPherson, at 25). The position was graphically described by Mr Maugham ("A Neglected Method of Voluntary Winding-Up", (1897) 49 LQR 104): "Assuming the usual state of things, that is that the company is wholly insolvent, the assets belong to the creditors and ought to be collected as cheaply and expeditiously as possible for their benefit. Yet creditors have no rights in a pure voluntary winding up! The Companies Act 1862 … appears to be framed on the supposition that the company which is being voluntarily wound up is solvent. The power to apply to the Court under s 138 is confined to liquidators and contributories. The meetings to be called by the liquidator are meetings of the company. The power to fill up a vacancy in the office of liquidator, or to apply for the Court to appoint a liquidator is not exercisable by creditors. The final account of the liquidator is presented to the company." 55 Relevantly for present purposes, s 139 of the 1862 Act required the liquidator to convene and hold annual meetings of members if the administration of the winding up continued for more than one year, but there was no requirement for any periodic meetings of creditors. 56 These deficiencies were addressed by the Greene Committee (Report of the Company Law Amendment Committee, 1926, Cmd 2657). The Committee said (at paragraph 77): "We are of opinion that an amendment of the law is required in order to give creditors effective control of voluntary liquidations where the company is insolvent. At present in such cases many matters are left to the shareholders who have no real interest in the winding-up except in so far as their shares may not be fully paid. … This position is highly anomalous. … In the great majority of voluntary liquidations the company is unable to pay its debts and in such cases we consider that the powers of the shareholders should be transferred to the creditors." 57 The Committee went on to recommend the structure of what became the creditors' voluntary winding up. In the course of doing so, they made a number of detailed recommendations for amendments to the voluntary winding up provisions, including the requirement (by then found in s 194 (2) of the Companies (Consolidation) Act, 1908) for annual meetings of members. They said (at paragraph 80): "The provisions of section 194 (2) with regard to the annual meeting of the company should include similar annual meetings of creditors". 58 The legislation enacted in the United Kingdom to adopt these recommendations, the Companies Act of 1929, contained two parallel sets of provisions, relating respectively to members' and creditors' voluntary winding up. Section 235 was the provision requiring annual meetings in the case of a members' voluntary winding up, and s 244 was the new provision requiring annual meetings of creditors. 59 The United Kingdom provisions were adopted in virtually identical terms in the legislation of the Australian States (see, for example, Companies Act 1936 (NSW), ss 270 and 279). The provisions about members' and creditors' voluntary winding up have remained remarkably static since that time. As far as the requirements for annual meetings of members and creditors are concerned, the only subsequent changes have been to combine the two provisions into a single provision, and to add subsection (2), which requires simultaneous dispatch of materials to members and creditors. These changes were made by the Uniform Companies Acts of 1961. 60 In my view, this brief history of the development of s 508 is of some assistance in the resolution of the questions before me now. It shows that s 508 was treated in the process of law reform as an ancillary or consequential provision, rather than a primary focus of legislative policy-making. Moreover, it suggests the possibility that no rigorous thought has been given to the need to have any meetings of members at all, in a case where the company is hopelessly insolvent, the shares are fully paid-up and on any view of the matter, the members do not stand to receive any distribution. 61 The policy underlying the Greene Committee's recommendations is that where a company is insolvent, control of the liquidation should be transferred from the members to the creditors. It is arguable that, notwithstanding that overall policy, members should retain an entitlement to information and the opportunity to play a limited role at meetings of members - although that has never been a requirement in the case of a court-ordered winding up. However, where it is clear that the members will receive nothing out of the winding up, rigorous application of the policy enunciated by the Committee should lead to a total transfer of control to the creditors, and therefore the removal of the requirement for meetings of members would be justifiable. This is particularly so where, as here, the cost of convening meetings of members is substantial. In effect, that cost is borne by the creditors to whom (as Mr Maugham put it) "the assets belong". 62 My conclusion is that nothing in the legislative history and policy of s 508 stand in the way of removing the requirement for meetings of members when there are appropriate discretionary grounds for doing so. Indeed, the policy underlying the Greene Committee's recommendations suggests that removal of the requirement is sometimes appropriate. This is not the occasion for considering whether the Court has any power to remove the requirement in a true creditors' voluntary winding up, as opposed to one deemed to arise in consequence of a voluntary administration. It is enough for present purposes that there is power under s 447A to act in the latter situation, and no overarching legislative policy against doing so. Discretionary considerations 63 Counsel for Mr Antoun points out that the liquidation of the Company will take one to three years, and he contends that the members should be informed about the progress of the winding up and in particular, of any recovery actions for unfair preferences or breach of directors' duties. The answer to this contention, in my opinion, is that according to the evidence, this is a case where there is simply no prospect of the members receiving any distribution. At best, recovery actions may lead to a distribution to unsecured creditors representing a small part of their debts. The creditors are entitled, therefore, to be informed of progress, and that is happening, through the Committee of Inspection and meetings of creditors convened under s 508. The plaintiff is accountable to the creditors by means of those processes. 64 In my opinion Mr Antoun's proposal for reconstituting the Company as a vehicle for investing in NASDAQ technology stocks does not warrant the convening of any meeting of members, let alone regular annual meetings. On his evidence of it, the proposal is very sketchy, and would need a lot of work before it could be regarded as a credible restructuring proposal. Substantially the same proposal has been considered by the plaintiff and the Committee of Inspection, with whom it has not found favour. 65 Moreover, there is another more satisfactory procedure available to Mr Antoun, if he wishes to carry the proposal forward. The proposal envisaged by Mr Antoun would entail a deed of company arrangement and therefore, as a first step, the appointment of an administrator by the liquidator under s 436B. If an application were made to the plaintiff for such an appointment, on the basis of a fully articulated proposal, and he were to refuse it, those propounding the proposal would be able to appeal to the Court under s 1321. The orders sought by the plaintiff under s 447A will not prevent any of those steps from being taken, if Mr Antoun or anyone else is serious about the proposal. 66 The winding up of the Company is a relatively large exercise and it is important, in the interests of unsecured creditors, that the liquidator be allowed to get about his work without distractions and without incurring expense in unproductive exercises. The evidence before me indicates that Mr Antoun's proposal is no more than a distraction from the plaintiff's real tasks, and that nothing will be achieved by convening and holding meetings of members, beyond the inevitable time and expense of doing so. I have decided, therefore, that this is an appropriate case for the exercise of my discretion under s 447A to make the order that the plaintiff seeks.

Gibbons v LibertyOne

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Judgment (7 paragraphs)

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