The plaintiffs, Mr Trent Devine and Mr Peter Moore (together the liquidators), seek relief under the Corporations Act 2001 (Cth) (the Act) in relation to the purported appointment of them as joint and several administrators and subsequently as joint and several liquidators of AMJ Transport NSW Pty Ltd (in liquidation) (the Company). They were purportedly appointed as administrators on 7 January 2019 by a resolution by Mr Joseph Napoli (Joseph) purportedly acting as the sole director of the Company. At the time Joseph was a bankrupt and, accordingly, he was not a director of the Company.
The Company was incorporated on 25 July 2013. Joseph's son, Mr Antonio Napoli (Antonio), became the sole director and secretary of the Company on its incorporation. Prior to September 2013, both Antonio and Joseph held shares in the capital of the Company. From September 2013, Antonio has been the only shareholder of the Company. The Company operated a truck haulage business transporting produce from rural New South Wales to the Sydney metropolitan region. The Company's sole customer was Harris Farm Markets. The Company has not carried on business since May 2018.
In June 2018, Mr Devine received a telephone call from Mr Greg Malone, a director of G&H Financial Pty Ltd, which carries on business as a finance broker. Mr Malone asked Mr Devine if he would be prepared to consider appointment as liquidator of the Company, since Antonio wanted to put the Company into liquidation. Mr Devine said that he would need to meet with Antonio before he could agree to be appointed as liquidator. Mr Malone said that he would arrange a meeting with Antonio and Joseph.
In the matter of AMJ Transport NSW Pty Ltd (in liquidation) ACN 164 981 837 [2019] NSWSC 818 - NSWSC 2019 case summary — Zoe
In July 2018, Mr Devine met with Joseph and Mr Malone. Joseph told Mr Devine that Antonio could not attend the meeting because he was "very stressed out about the situation". Mr Devine said that, before he could accept an appointment as liquidator of the Company, he would need to speak personally to Antonio, as the only director of the Company. Mr Devine met with Joseph again in September 2018, when he expected to be introduced to Antonio. On that occasion, Joseph explained that Antonio was experiencing "some mental health issues and anxiety". Mr Devine again confirmed that he would not accept an appointment as liquidator unless he could speak to Antonio personally. Mr Devine was told on multiple occasions that Antonio did not want to talk to him. Ultimately, Mr Devine declined to accept an appointment as liquidator of the Company in circumstances where he was unable to speak to Antonio, the sole shareholder and director, and had concerns that Antonio was not in a fit state to give him proper instructions.
On 18 December 2018, Mr Devine was asked by the Company's independent accountant if he would be prepared to reconsider accepting an appointment as liquidator. At that stage, a winding up application in respect of the Company was on foot and Mr Devine said that, in those circumstances, he could only take an appointment as a voluntary administrator. He said, however, that he would not take any appointment unless he was able to speak to Antonio. He told the accountant that, if Antonio did not want to deal with the matter, Antonio could resign and a new director could be appointed.
On 19 December 2018, Mr Devine spoke to Joseph by telephone and suggested that Antonio could consider resigning and appointing Joseph as director. He told Joseph that the implications of his being appointed director included that on a search it would come up that he was a director of a company in liquidation, but that he was only being appointed so as to effect the appointment of an administrator. Joseph told Mr Devine that he had never been a director of a company in liquidation.
On 3 January 2019, the Liquidators obtained a statement in respect of the Company from the Australian Securities and Investments Commission (ASIC) showing that, since 19 December 2018, Joseph was the only director of the Company. It appears that Antonio purported to resign as a director at the time of the appointment of Joseph.
Section 436A of the Act relevantly provides that a company may, by writing, appoint an administrator of the company if the board has resolved to the effect that in the opinion of the directors voting for the resolution, the company is insolvent and an administrator of the company should be appointed. Section 248B of the Act relevantly provides that the director of a proprietary company that has only one director may pass a resolution by recording it and signing the record.
On 7 January 2019, Joseph signed a document purporting to be "resolutions of the sole director" of the Company to the effect of the following:
That the Company is insolvent or likely to become insolvent within the foreseeable future and should be placed into voluntary administration; and
That the Liquidators be appointed as joint and several administrators of the Company.
If Joseph had been a director of the Company, the effect of the resolutions would have been to enliven Pt 5.3A of Ch 5 of the Act, the object of which is to provide for the business, property and affairs of an insolvent company to be administered in a way that will maximise the chances of the company, or as much as possible of its business, continuing in existence or result in a better return for the company's creditors and members than would result from an immediate winding up of the company. Neither of the Liquidators was aware, at that time, that Joseph was an undischarged bankrupt.
Following the purported appointment of the Liquidators as administrators of the Company, the first meeting of creditors of the Company was convened, in accordance with the Act. Thereafter, the Liquidators, as administrators, focused on identifying assets of the Company available for realisation and transactions that might be of interest to a liquidator and realising the assets of the Company. On 1 February 2019, the second meeting of creditors of the Company was convened. At that meeting, the creditors resolved to place the Company in liquidation and to appoint the Liquidators as joint and several liquidators. Thereafter, the Liquidators received proofs of debt from several creditors of the Company, including Joseph.
Section 201B(2) of the Act relevantly provides that a person who is disqualified from managing corporations under s 206B of the Act may only be appointed as a director of a company if the appointment is made with permission granted by ASIC under s 206F or leave granted by the Court under s 206G. Section 206B(3) relevantly provides that a person is disqualified from managing corporations if the person is an undischarged bankrupt. Section 206A(2) of the Act relevantly provides that a person ceases to be a director if the person becomes disqualified from managing corporations under Pt 2D.6 and the person is not given permission to manage the corporation under s 206F or s 206G. Thus, it is clear that the operation of the Act is to render ineffective a purported appointment of a director in contravention of s 201B(2).
On 15 April 2014, a sequestration order was made in respect of the estate of Joseph and he has not been discharged from bankruptcy. No permission under s 206F or leave under s 206G has been granted in respect of Joseph. Accordingly, the purported appointment of Joseph as a director of the Company on 19 December 2018 was a contravention of s 201B of the Act, any purported appointment of him as a director of the Company was ineffective and he was not a director of the Company on 7 January 2019. It is therefore clear that the appointment of the Liquidators as administrators and subsequently as liquidators of the Company was invalid. On 8 March 2019, the Liquidators become aware, for the first time, that Joseph was an undischarged bankrupt and that their appointments were invalid.
By their originating process, the Liquidators seek orders and declarations under s 447C, s 447A(1) and s 1322(4) of the Act and s 90-15 of Sch 2 to the Act. Section 447A(1) relevantly provides that the Court may make such order as it thinks appropriate about how Pt 5.3A of Ch 5 is to operate in relation to a particular company. Section 447C relevantly provides that the Court may make an order declaring whether or not the purported appointment of a person as administrator of a company was valid. Section 1322(4) relevantly provides that 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 the provision of the Act. Section 90-15 of Sch 2 to the Act relevantly provides that the Court may make such orders as it thinks fit in relation to the external administration of a company. The section does not limit the Court's power under any other provision of the Act or under any other law.
The objects of Pt 5.3A will clearly be promoted by the validation of the appointment of the Liquidators as administrators. The refusal of relief would be detrimental to the creditors of the Company since the Company would fall back into the control of Antonio, who appears to lack the capacity or the interest to attend to its affairs. The conduct of the winding up of the Company is well advanced and the disruption that would be caused to the further conduct of the winding up by commencing a fresh winding up would make it difficult to realise the objectives of Pt 5.3A. The Company ceased trading in May 2018 and its principal saleable assets, being motor vehicles, have been realised for value. No purpose would be achieved by permitting the Company to revert to the control of Antonio.
There is no reason to doubt the efficiency and diligence with which the Liquidators have carried out their work as administrators and liquidators, including the preparation of reports to creditors, the convening of meetings and the investigation of the affairs of the Company, realising the Company's assets and arriving at an estimate of the net proceeds to be distributed among the creditors. That work has benefited the creditors as a whole. Further, the Liquidators carried out that work, and incurred costs in the belief that their appointment as administrators and liquidators was effective.
There is no evidence that any injustice would accrue to any person from the making of orders that would have the effect of validating the appointment of the Liquidators as administrators. In that regard, it is relevant to have regard to correspondence between ASIC and the Liquidators' solicitors.
The originating process and the initial supporting affidavit of Mr Devine were served on ASIC upon commencement of these proceedings. Based on the information contained in Mr Devine's affidavit, ASIC raised several concerns with the Liquidators' solicitors as follows:
The Liquidators accepted their appointment even though it appears that, since the Company's business had ceased in May 2018, the administration was unlikely to fulfil the object of s 435A of the Act;
Since Mr Devine gave advice to Joseph prior to the appointment, the Liquidators were placed in a position of conflict as they would have needed to investigate the change in the directorship of the Company and were not able to bring an independent mind to the external administration of the Company; and
Mr Devine's advice necessitated the application to the Court.
ASIC sought the Liquidators' response to several questions, relevantly, as follows:
Why the Liquidators consented to the appointment when they were aware that a winding up application was on foot and that the business of the Company had ceased in May 2018;
Why the Liquidators considered it appropriate to accept the appointment given the pre-appointment advice that Mr Devine gave to Joseph; and
Why the Liquidators should be entitled to remuneration given ASIC's concern that they should not have accepted the appointment.
By letter of 5 June 2019, the Liquidators' solicitors responded to ASIC's letter to the following effect:
At the time of accepting the appointment, the Liquidators had undertaken no independent investigation into the business and trading activities of the Company and were not satisfied that the Company had in fact ceased trading. Prior to their appointment, the Company had negotiated a proposed agreement with another entity with respect to the sale of the Company's motor vehicles. The appointment facilitated the sale of the motor vehicles, albeit not with the original proposed purchaser, resulting in a better return to creditors than had the Company been wound up and the proposed sale fallen through. Further, the Liquidators were advised that the Company was preparing a proposal for a deed of company arrangement, although no such proposal was put forward in the events that occurred;
Mr Devine's conversation with Joseph did not amount to pre-appointment advice, much less advice that meant that the Liquidators would not be able to bring an independent mind to the external administration of the Company. Further, Joseph and Antonio had independent advice from their accountant throughout the relevant period, and did not rely on Mr Devine for any advice.
The Liquidators moved promptly to apply to the Court once they became aware of the defect in their appointment;
The additional costs consequential upon the appointment of new liquidators at such a late stage of the liquidation would result in no distribution to creditors whereas there is otherwise a dividend proposed to be paid.
The Liquidators' acceptance of the appointment was justified and their conduct in the liquidation has been proper.
The work performed by the liquidators during the administration and liquidation was necessary and was properly performed. The creditors of the Company have approved their remuneration.
By letter of 12 June 2019, ASIC informed the Liquidators' solicitors that, in the light of the letter of 5 June 2019, ASIC considered that the matters raised by it were properly left for the determination of the Court and did not propose to intervene in the application or seek leave to appear at the hearing. However, ASIC said that its letter should not be taken as an expression of support for, or opposition to, the orders sought by the Liquidators.
The Liquidators have informed the creditors of the Company of their intention to make this application and have received no indication of opposition. Antonio has been formally informed of this application and has indicated that he does not oppose the orders sought.
In the circumstances, I consider that it is appropriate to make orders to the following effect:
1. Order, pursuant to s 447A of the Act, that Pt 5.3A of Ch 5 of the Act is to operate in relation to the Company as if Joseph Napoli was a validly appointed director of the Company as at 7 January 2019, and
2. Declare that the appointment of Trent Devine and Peter Moore as administrators and subsequently as liquidators of the Company was not invalid by reason only of the fact that, at all material times, Joseph Napoli was an undischarged bankrupt and therefore not a duly appointed director of the Company as at 7 January 2019.
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Decision last updated: 01 July 2019