In the Matter of Inventive Marketing Pty Ltd [2000] VSC 432 (24 November 2000)

In the Matter of Inventive Marketing Pty Ltd [2000] VSC 432 (24 November 2000) - VSC 2000 case summary — Zoe

[30]

"It is important to notice that the orders that may be made under s.477A(1) are described as orders about how Pt 5.3A is to operate "'in relation to a particular company'. The power is not cast in terms of a power to make orders to cure defects or to remedy the consequences of some departure from the scheme set out in the other provisions of Pt 5.3A. Its operation is not confined to such cases. Nor is there anything on the face of s.447A(1) that suggests that it should be read down. In particular, the words of the provision are wide enough to confer power to make orders which will have effect in the future but which are occasioned by something that has been done (or not done) under the other provisions of Pt 5.3A before application is made under s.447A(1). As was said in the judgment of the court in Owners of 'Shin Kobe Maru' v Empire Shipping Co Inc: It is quite inappropriate to read provisions conferring jurisdiction or granting powers to a court by making implications or imposing limitations which are not found in the express words. Cogent reasons must be advanced, then, if the power given by the general words of s.447A(1) is to be read down. Section 447A(1) speaks of orders about how 'this Part' is to operate. The reference to 'this Part' cannot be read as referring only to the part as a whole. That is, it cannot be read as referring, in some global way, to the total operation or effect of the part. In its context, the reference to 'this Part' is to be understood as a reference to each of the provisions in it, for it is the provisions of the part which give it the operation which an order under s.447A(10) may affect. And although the examples given in s447A(2) cannot be taken as exhaustive of the scope, or as controlling the meaning, of s.447A(1), it is clear from those examples that they assume that orders under s.447A(1) may alter the operation of other provisions of the part. That is, the orders contemplated in the examples go beyond a curial determination of what is the effect of existing provisions of the part on a particular company in the circumstances that may be established in a proceeding; the orders contemplated are orders that alter how the part is to operate in relation to a particular company, not how the part does operate in relation to that company. Next, the other provisions of Div 13 of Pt 5.3A give a court wide powers to protect creditors during the administration, to declare whether an administrator was validly appointed, to give directions to an administrator and to supervise an administrator of a company or a deed of company arrangement. And while full effect must be given to the provisions of s.447F (that '[n]othing in this Division limits the generality of anything else in it') it is clear, from the other provisions of Div 13 that we have mentioned, that s.447A was intended to permit a much wider class of orders than those which declare what is the effect of the part or which protect the interests that creditors no doubt have in the administration or which a company being carried out in accordance with law."

[34]

In Deputy Commissioner of Taxation v Portinex & Ors [2000] 34 ACSR 3191 Austin J considered the making of curative orders under ss.447A and 1322(4) of the Corporations Law. Portinex was a case that bore some similarity to the present in that the constitution of the subject company did not give authority to a single director to appoint an administrator of the company. The defect arose from an incorrect assumption that the relevant companies in Portinex had validly adopted new Articles of Association that allowed operation with a single director. The defendants to the proceedings in Portinex conceded the failure of both companies to validly convene and hold meetings of their shareholders and did not seek curative orders with respect to the proposed adoption of new single-director Articles of Association. Rather, the defendants sought declarations that the appointment of the administrator of the companies had not been invalidated, alternatively, they sought orders under s.447A that the appointment of the administrator in each case had not been invalidated by virtue of any defect in the appointment. In light of the observations of the High Court in Australasian Memory Austin J held that s.447A can be used to overcome the consequences of a defective resolution to appoint an administrator. His Honour proceeded then to determine whether or not it was appropriate to exercise the discretion under s.447A in the circumstances of the case before him. Ultimately, the learned judge determined to exercise the discretion on three bases. First, that the deficiency in quorum at the meeting resolving to appoint the administrator arose from the purported failure to properly adopt single-director Articles of Association and that if such articles had been validly adopted the resolution by the sole director appointing an administrator would have been effective. Second, there was no evidence of any prejudice to any shareholder as such persons were well aware of the administration. Third, any creditor who claimed to have been prejudiced by the administration had other remedies available, for example, under ss.445D and 445G of the Law. Ultimately, Austin J formed the view that it was appropriate in all the circumstances to make orders under s.1322(4) of the Law on the grounds that it was in the public interest that curative orders be made and that no substantial injustice had been or was likely to be caused by the making of such orders. His Honour observed that although the defects in the resolutions were not "procedural irregularities" for the purposes of s.1322(2) of the Law they could nevertheless be regarded as "essentially of a procedural nature": see also Re Vanfox Pty Ltd (1994) 13 ACSR 209, 216ff; Nece Pty Ltd v Ritek Incorporation (1997) 24 ACSR 38).

[38]

There is well established authority for the proposition that "it is not necessary that any resolution by the board should have been expressed by a minute, although it ought to be so": see H.L. Bolton Engineering Co Limited v T.J. Graham & Sons Limited (1957) 1 QB 159. Indeed, the courts have generally taken, on occasions, a liberal attitude towards the conduct of directors' meetings including that, subject to the relevant articles, it is not strictly speaking necessary for directors to physically meet together: see Bell v Burton (1993) 12 ACSR 325, 328; also, Magnacrete Limited v Douglas-Hill (1988) 48 SASR 565. There is the difficulty that the court is not aware of all the circumstances of 3 February 1997. All that is before the court are unsigned minutes extracted from the records of the company. There is no evidence from persons present at the meetings on 3 February 1997 as to events that transpired. It is not apparent as to whether Mr John Papalia was acting as proxy for Mr Joseph Papalia or otherwise. It is to be observed, further, that under the Articles of Association of the company as existed at the time of the meeting of shareholders on 3 February 1997 C-class shareholders had no voting rights. Of the persons present, being Messrs Joseph Papalia, Green and Platt only Mr Joseph Papalia and Mr Green as the holders of 800 and 100 fully paid ordinary shares respectively were entitled to vote. If in fact Mr John Papalia voted in his own right he would not have been entitled to do so. Nevertheless, the events that occurred on and around 3 February 1997 occurred three years before any issue was raised as to the validity of the appointment of the plaintiff as administrator of the company. Inevitably in such circumstances an administrator or liquidator may face difficulties in piecing together a jigsaw of events that occurred some time beforehand. As I have already found, all records of the company and actions that occurred after 3 February 1997 support a finding that the events that occurred on 3 February 1997 occurred in accordance with the Law as in place at that time and leads me to conclude that Mr John Papalia was entitled to act as he did on 3 February 1997, that the articles were amended on that date to provide for a single director of the company and that Mr John Papalia was validly appointed as such sole directors. It follows, also, that later in time when Mr John Papalia appointed the plaintiff as administrator he was empowered to do so.

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Court

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Before

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Judgment (41 paragraphs)

Cases Cited (1)