2289/06 IN THE MATTER OF KLAUS MAERTIN PTY LTD (IN LIQ); PHILIP HELMUT MAERTIN V KLAUS MAERTIN PTY LTD
JUDGMENT
1 HIS HONOUR: Before the court is an interlocutory process filed on 5 June 2009 by Michael Jones, the liquidator in a court-ordered winding up of the first defendant, Klaus Maertin Pty Ltd ("the company"). Mr Jones seeks principal orders to the following effect:
(1) approving, nunc pro tunc , his registration of the transfer of 602 ordinary shares in the first defendant in favour of each of:
the plaintiff (Philip Maertin),
the third defendant (Helmut Maertin), and
the fourth defendant (Sabine Simmonds, nee Maertin);
(2) granting him special leave, nunc pro tunc , to make an interim distribution to the shareholders as at 27 June 2008 of surplus funds in the liquidation of the company in the total sum of $1,501,661.12;
(3) granting him special leave to make an interim distribution to the shareholders as at 30 June 2009 of surplus funds in the liquidation of the company and the total sum of $2,618,243.63;
(4) granting him special leave to make a distribution of the surplus in the winding up of the company, including a final distribution to the contributories of the company in its liquidation.
2 Additionally, Mr Jones seeks some orders to deal with a presently unresolved matter regarding the offsetting of debit loan accounts against the final distribution to Helmut Maertin.
3 For convenience and without intending any disrespect, I shall follow counsel's lead by referring to the plaintiff and the third and fourth defendants by their first names.
4 Counsel for Mr Jones informed me that he mentioned the appearance of each of Philip, Helmut and Sabine. He said that Philip consented to the orders sought by Mr Jones and Helmut and Sabine neither consented to nor opposed the orders. Additionally the solicitors for the executor of Mrs Maertin's estate, Mr Singer, wrote to Mr Jones' solicitor confirming that under the will of Mrs Maertin her 1806 ordinary shares in the company were to be distributed equally to her children Philip, Helmut and Sabine in their capacities as trustees of their respective family trusts. The letter said that Mr Singer was aware of the application by Mr Jones to approve the transfer of the shares and the distribution of surplus, and that he had no objection to the court granting approval to the transfer of the shares, as the estate no longer had any interest in the shares.
5 The application was made in reliance on the affidavit of Mr Jones made on 11 June 2009, and the exhibits to that affidavit, and the affidavit of Gerald Carides, the solicitor with carriage of the matter for Mr Jones, made on 25 June 2009. The evidence was not challenged and I accept it.
Facts
6 The company was formed in 1966. There is no evidence before the court of the company's constitution. As a company formed in 1966 it would have been required to have at least a memorandum of association and would either have adopted articles of association or be subject to Table A of the companies legislation of the time.
7 The company held real property and intellectual property connected with the "Floaties" brand of swimming products. At the date of her death Ida Maertin, the mother of Philip, Helmut and Sabine, owned 1806 of the 1808 issued shares in the company. Sabine and Helmut owned one share each and were directors with their mother. Mrs Maertin's will provided for a third of her shareholding to go to each of Philip, Helmut and Sabine. The executor of her will is the second defendant, Mr Singer.
8 After the death of Ida Maertin, a dispute arose between Philip, on the one hand, and Sabine and Helmut on the other, leading to the present proceedings in which orders were made on 27 July 2006 for the winding up of the company on the just and equitable ground and for the appointment of Mr Jones as liquidator. The company is clearly solvent.
9 Mr Jones has realised the company's real property. He has also caused the company to bring proceedings in this court for recovery with respect to the company's intellectual property. The defendants in those proceedings were Helmut and Sabine and their companies. The proceedings were recently settled and intellectual property has subsequently been realised. According to Mr Jones he has received funds of approximately $13.5 million in total.
10 Mr Jones gave detailed evidence that all creditors of the company have been paid in full, with appropriate interest, the total amount of the company's debts being $221,461.19. He said he has also made liquidator's loans to the contributories of the company, namely Philip, Helmut and Sabine, in a total sum of about $4.5 million.
11 He has prepared reports to creditors and minutes of creditors' meetings detailing the financial affairs of the company and his administration of it, and he has put into evidence six reports by him to creditors. He has caused the company's tax returns for the financial years ending 2005-2009 respectively to be lodged, and he has received a notice dated 3 June 2009 pursuant to subsection 45(3)-260 of Schedule 1 to the Taxation Administration Act 1953 (Cth) to the effect that the "notified amount" that the Commissioner considers is enough to discharge any outstanding tax-related liabilities of the company is $0.00.
12 Mr Jones hopes to be soon in a position to finalise the administration of the company's affairs and make a final distribution to the contributories. The only matters to be attended to are the orders in the present application, a separate application to the court for approval of his remuneration (there being no creditors left to give that approval), and resolution of an issue with Helmut Maertin concerning the amount of debit loan accounts to be offset against the company's distribution to him. In the present application he seeks orders that will set up a framework for resolution of that matter.
13 The application first came before me on 21 June 2009. At that time Mr Jones had advertised under rule 7.9 of the Supreme Court (Corporations) Rules 1999 (NSW) but the advertisement indicated that the application would be made on the following Monday, 29 June and so it would have been premature to hear the application on 21 June. Additionally I required evidence of the attitude of Mr Singer to the application. I therefore adjourned it to 29 June. I did so recognising that there was a measure of urgency about obtaining orders (1), (2) and (3). Mr Jones wanted to regularise his position with respect to distributions by no later than 30 June, so that he could make appropriate book entries before the end of the financial year to cause liquidator's loans to the contributories of about $2.6 million to be repaid and for them to receive distributions of equivalent amounts. I heard the application within the Corporations List on 29 June. There was no other appearance in response to the advertisement. I adjourned the application part-heard to 30 June so that I could consider counsel's submissions and the further evidence tendered at the hearing. Having completed that review, I held a supplementary brief hearing on 30 June and made orders (1), (2) and (3) and also the orders dealing with Helmut's offsetting loan accounts, while reserving order (4) for further consideration. I said that I would publish my reasons subsequently. These are my reasons for making orders (1), (2) and (3) and the orders about Helmut's loan accounts, and also on the application for order (4).
Approval of transfer of shares - order (1)
14 On about 30 May 2006 Mr Singer, as the executor of the will of Mrs Maertin, signed share transfers for shares in the company in favour of Philip, Helmut and Sabine Maertin as to 602 shares each, in each case as trustee for their respective family trusts. He used the Australian Standard Transfer Form for Non-Market Transactions. The forms appear to be stamped and to be signed by the respective transferees. The consideration for the transfer is said to be, in each case, that it is in accordance with the terms of the will of the late Ida Maertin.
15 For reasons not explained by the evidence, the share transfers were not delivered to Mr Jones until June 2007, 10 or 11 months after his appointment as liquidator. Mr Jones gave evidence that the company had not maintained a members' register, though it appears that he has since established one, as required by s 168 of the Corporations Act and has entered the names of the transferees as members. He dealt with the transfers by lodging a Form 484 with ASIC on 3 July 2007 to give effect to them. As I understand the position, ASIC's records and the share register now show that Philip holds 602 ordinary shares non-beneficially, and Sabine and Helmut each hold 602 shares non-beneficially and one share beneficially. The beneficiaries in each case are their respective family trusts.
16 The proper procedure to be followed by a company that receives a share transfer for registration in its members' register is typically prescribed by the company's constitution. Section 1072F of the Corporations Act is a replaceable rule that says:
a person transferring shares remains the holder of the shares until the transfer is registered and the name of the transferee is entered in the register of members (s 1072F(1));
the directors are not required to register a transfer of shares unless the transfer and any share certificate have been lodged at the company's registered office, any fee payable is paid, and the directors are given any further information they reasonably require (s 1072F(2));
the directors may refuse to register a transfer of shares if the shares are not fully-paid or the company has a lien (s 1072F(3));
the directors may suspend registration of transfers (s 1072F(4)).
Under these provisions it is the directors who deal with the process of registering a transfer of shares.
17 The replaceable rules of the Corporations Act do not automatically apply to a company registered before 1 July 1998, although they apply if the company repeals its constitution. There is no indication that the company in this case has repealed its constitution and so it seems unlikely that the replaceable rules are applicable. However, the replaceable rules are based on the old Table A articles, which were to similar effect in matters such as the transfer of shares. It was common for the articles of association of a company that did not adopt Table A nevertheless to follow Table A closely on technical matters such as share transfers, subject to the possibility that special provisions might be adopted on subjects such as pre-emption rights on sale.
18 What seems to be important to present case is that, absent evidence of the actual content of this company's constitution, it can nevertheless be taken to be probable that the constitutional power to deal with an application for registration of a share transfer was possessed by the directors, in this case Helmut and Sabine Maertin. That is the common pattern that emerges from the replaceable rules, Table A and typical proprietary company articles/constitutions.
19 However, the constitutional powers of the directors were overridden when the court made a winding up order and appointed Mr Jones as administrator. From that time, the directors have been prevented by s 471A(1) from exercising any function or power as officers of the company. By s 471A(1A)(a), the liquidator of the company is not prohibited by subsection (1) from exercising the functions and powers of officers of the company, although that provision is not itself a source of power for the liquidator to do so. The liquidator's power comes, relevantly, from s 477(2)(m), which authorises a liquidator to do all such other things as are necessary for winding up the affairs of the company and distributing its property. The liquidator, Mr Jones, has taken the view that the registration of the share transfers in favour of Philip, Helmut and Sabine is necessary for the winding up of the affairs of the company and the distribution of its property. That is clearly correct. It is necessary for the liquidator to regularise the shareholding of the company so that distributions are correctly made to those shareholders as contributories.
20 By completing and lodging a Form 484 with ASIC, Mr Jones as liquidator signified his intention to approve and register the transfers, in the exercise of all relevant powers of the relevant officers of the company under its constitution. By subsequently causing a share register to be established and recording their names and particulars in it, Mr Jones has exercised the constitutional powers of the relevant officers to register the names of the transferees on the register of members. That registration, together with their implied agreement to become members by signing the share transfers, has caused them to become members by virtue of s 231(b) of the Corporations Act.
21 If there were any doubt about this analysis, it could be overcome by the court granting approval under s 471A(1A)(d), so as to confirm that the liquidator is not precluded from exercising the relevant functions of officers. At the hearing of the application on 30 June I decided, having regard to the paramount importance of establishing the validity of the transfers as a prelude to distributions, that my order approving the transfers should be based, inter alia, on that provision. The retrospective nature of the order is dealt with below.
22 The above reasons establish that Mr Jones had the constitutional power to deal with the share transfers in the way that he has. But there is another difficulty that must be overcome. In the form in which it stood on 3 July 2007, s 468(1) provided as follows:
"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."
23 The share transfers were not, of course, dispositions of property of the company, but tucked away in subsection (1) is the proposition that a transfer of shares made after the commencement of the winding up is void unless the court otherwise orders. Section 468 was amended by the Corporations Amendment (Insolvency) Act 2007, which removed the part of s 468(1) dealing with transfers of shares and introduced a new s 468A dealing with that subject. The new provision is much more elaborate but one aspect of it should be noted, namely that under s 468A(1)(a) a transfer of shares in a company in court-ordered winding up made after the commencement of that provision is not void if the liquidator gives written, unconditional consent to the transfer. Therefore if the share transfers in the present case were governed by s 468A, it would have been within the liquidator's power to validate them by giving unconditional written consent. However according to s 1480(14), the amendments to s 468 and the introduction of s 468A do not apply to a transfer that occurred prior to the day on which those amendments commenced, 31 December 2007. Counsel for Mr Jones told the court the amended provisions do not apply and I agree.
24 Therefore the share transfers in the present case are void unless the court has the power to make an order approving the transfers retrospectively, and in the exercise of its discretion makes the order.
25 I was not referred to any case specifically considering whether the court's power to approve a transfer under s 468(1) can be exercised nunc pro tunc. In the limited time available, I have not myself identified any such cases, although I note that the case law on s 468 and its predecessors is substantial and it may be that retrospective use of the section could be discovered if the cases were more thoroughly reviewed. However, for the reasons set out below I have reached the conclusion that retrospective use of the court's power is permitted.
26 The statutory language appears to contemplate retrospective validation, for it speaks of a disposition of property or transfer of shares or alteration in the status of members "made after the commencement of the winding up" (rather than, say, "proposed to be made after the commencement of the winding up"), suggesting that the court's power may be exercised after the disposition or transfer has been "made". As regards orders approving dispositions of the company's property after the commencement of winding up, it would be very inconvenient if the court's power could not be used retrospectively, because it can happen that the company continues to trade in good faith and in the ordinary course of business after the presentation of a winding up application and during that time it may, for example, make payments for goods purchased by the company. The court should be able to make orders validating such payments, and the cases show that retrospective orders of that kind are in fact made: see Tellsa Furniture Pty Ltd (in liq) v Glendave Nominees Pty Ltd (1987) 9 NSWLR 254, at 256 per Mahoney JA, 260, 263 per Priestley JA. If s 468(1) gives the court a retrospective power of validation in respect of dispositions of company property, it must also do so in respect of share transfers.
27 Moreover, it seems to me that in principle the court should be able to exercise its power under the section retrospectively. In Rudge v Bowman (1865) LR 3 QB 689, at 695, Blackburn J said that the statutory provision declaring share transfers in winding up to be void was designed to prevent a shareholder from evading liability as a contributory by transferring shares to an impecunious person after the winding up had commenced. That would be a weak justification for such a provision in modern company law, as shares are now almost always fully paid-up and shareholders rarely have liability as contributories. The editors of McPherson's Law of Company Liquidation, 5th edn (2006) at [7.720], suggest that today the prohibition might be justified on the ground that it lessens the confusion that would otherwise result from freely allowing transfers after winding up (particularly, one supposes, in the case of a public company). If either of those justifications were correct, allowing the court to validate transfers retrospectively would enhance the legislative policy by contributing to certainty in cases where avoidance of liability cannot be an issue.
28 In Carringbush Corporation Pty Ltd v ASIC [2008] FCA 474, Greenwood J granted approval under the unamended s 468(1) to a transfer of shares of a company in liquidation that had been made 15 years earlier. His Honour carefully considered the case law as to the nature and scope for power, but evidently did not think it necessary to address expressly the retrospective aspect of the order.
29 My conclusion is that s 468(1), in its unamended form, is available to be used by the court to validate, nunc pro tunc, share transfers that were dealt with by the liquidator two years ago.
30 The principles to be applied by the court in exercising its discretion under the section were considered, as I have said, by Greenwood J in the Carringbush Corporation case. His Honour summarised the case law by saying that "ordinarily the discretion will not be exercised in favour of an order unless the court is satisfied that the order serves either the interests of the company or its creditors" (at [23]). I respectfully agree, although I would add that particular caution needs to be exercised in approving a transfer retrospectively. Here, however, it is clear that an order should be made to validate the transfers. There are no creditors. On the facts presented to the court, there is no-one who might be prejudiced by the order. The winding up of the company has almost been concluded. The liquidator has identified the three transferees as the sole shareholders/contributories of the company. Their interest in becoming registered in respect of the 1806 shares held by their mother at the time of her death arises because they are, respectively, the beneficiaries of those shares in one-third portions under their mother's will. The executor does not object to the transfer and says the estate has no interest in the shares. The order is a necessary step in the final distribution by the liquidator of the company's property to those entitled to it, namely the three transferees in proportion to their shareholdings.
31 For these reasons, I made order (1) on 30 June, expressed to be made under ss 468(1) and 471A(1A)(d).
Special leave to make distribution of 27 June 2008 - order (2)
32 On several occasions Mr Jones has made liquidator's loans to the contributories in the course of the winding up and in anticipation of subsequent distributions to them. In the circumstances described below, those loans have been repaid and equivalent distributions have been simultaneously made to the contributories, the transactions being affected by book entries in the financial records of the company. These transactions have been undertaken bearing closely in mind their effect on the taxation position of the contributories, and with close attention to s 109NA of the Income Tax Assessment Act, 1936 (Cth) ("ITAA").
33 It is unnecessary to embark upon an analysis of income taxation law in these reasons for judgment, but it is convenient to set out a description of the issues in a letter from WHK Horwath ("Horwath"), the tax accountants engaged by Mr Jones, in their letter to the company dated 10 December 2008. Referring to loans made to the contributories and their associates during the financial year ended 30 June 2008, Horwath said:
"The income tax law requires that these loans be deemed as unfranked dividends in the hands of a shareholder if the loans are not repaid by 30 June 2009.
"The reason for this is that the private company loan provisions apply when, during the course of winding-up the affairs of a private company by a liquidator, a loan made in the previous year is not repaid by the end of the current financial year.
"As it has been anticipated that the shareholder loans will be offset by way of a final distribution, it is critical that the affairs of [the company] be wound up as quickly as possible."
34 Mr Jones gave evidence that, as part of the liquidator's loans he made totalling about $4.5 million, he advanced funds on 29 June 2007 pursuant to the joint request of Philip, Helmut and Sabine in the following amounts:
Helmut Maertin $830.20
Sabine Maertin $830.20
Helmut Maertin as trustee for his family trust $500,000.00
Sabine Maertin as trustee for her family trust $500,000.00
Philip Maertin as trustee for his family trust $500,000.00
Total $1,501,660.40
35 On 27 June 2008 those advances were repaid by a book entry in the financial records of the company, and the same amounts were then distributed as a first and interim dividend of the company in liquidation to its shareholders as recorded in the records of ASIC, purportedly pursuant to s 109NA of the ITAA. The distribution was treated as a tax-exempt dividend. Counsel for Mr Jones invited the court to note that under s 109NA of the ITAA, had the loans not been recalled by 30 June 2008, that tax treatment would not have been possible.
36 The evidence of Mr Jones is that he made the mistake of failing to seek the court's leave before making the distribution of 27 June 2008. He said he believed he was able to make a distribution without leave, as is done in a voluntary liquidation, and that his belief was moulded by the solvency of the company, something quite unusual in a court-ordered winding up. I accept that explanation.
37 The provisions of the Corporations Act dealing with the distribution of surplus assets in a court-ordered winding up are notably brief and less than comprehensive. A complete account of the applicable law includes non-statutory principles developed in the English Court of Chancery in the winding up of unincorporated joint stock companies up to the middle of the 19th century, and thereafter in the winding up by the court of companies formed under companies legislation. Under s 485(2) it is the court that is required to adjust the rights of the contributories amongst themselves and distribute any surplus among "the persons entitled to it"; see Re Paragon Holdings Ltd [1961] Ch 346 at 351.
38 No question of adjustment of the rights of contributories arises unless the proportions in which the shares have been paid up are unequal, and so in the normal case the duty of the court is simply to distribute the surplus to those who are entitled to it. Section 485(2) does not say who they are. The corresponding provision for voluntary winding up, s 501, under which it is the liquidator rather than the court who has the duty to distribute the surplus, is that the property of the company must be applied in satisfaction of its liabilities equally and "subject to that application, must, unless the company's constitution otherwise provides, be divided among the members according to their rights and interests in the company". In the celebrated case of Birch v Cropper (1889) 14 App Cas 525, it was held that in the absence of provision to the contrary in the corporate constitution, surplus assets must be distributed rateably in proportion to the nominal amounts of the shares held by the members at the commencement of the winding up, though there was some doubt as to whether that principle was derived from the maxim that equality is equity or by implication from the statutory scheme (compare 542 per Lord Fitzgerald, with 543-5 per Lord Macnaghten).
39 It would obviously be impracticable to expect the court to attend to all of the tasks involved in distributing surplus assets in a winding up. Therefore s 488(1)(c) permits provision to be made by rules or regulations for enabling or requiring all or any of the powers and duties conferred or imposed on the court, in respect of (inter alia) the distribution of any surplus among the persons entitled to it, to be exercised or performed by the liquidator as an officer of the court and subject to the control of the court. The Corporations Regulations do not deal with the matter but rule 7.10 of the Supreme Court (Corporations) Rules 1999 (NSW), which is in the same terms as the corresponding rules of the Federal Court and the Supreme Courts of the other States and Territories, is a simple delegation of all relevant powers of the court to the liquidator, subject (inter alia) to any order of the court.
40 Section 488(1) and rule 7.10 are qualified by s 488(2), which says that despite anything in rules or regulations made for the purposes of subsection (1), a liquidator may distribute a surplus only with the court's "special leave". In Re DS Millard & Son Pty Ltd (1997) 24 ACSR 71 Young J said that the words "special leave" merely mean that a special application must be made to the court rather than the matter being dealt with as part and parcel of some other administrative procedure. Thus, Mr Jones as liquidator has delegated power to distribute the surplus assets of the company to the persons who are entitled to it, but he may make a distribution only with the court's special leave.
41 As with s 468(1), a question arises whether the court may grant special leave under s 488(2) with respect to a distribution that has already been made. As a matter of construction, the language of s 488(2) appears to be inconsistent with a retrospective granting of leave, for it focuses on an event, namely the making of the distribution, and demands that the event occur only "with" leave. But Emanuele v Australian Securities Commission [1997] HCA 20; (1997) 188 CLR 114 is authority on an analogous provision to the effect that an order granting leave retrospectively is nevertheless permissible. In that case, orders were made for the winding up in insolvency of several companies on the application of the Commission, which did not seek or obtain leave. Under s 459P(2) of the Corporations Law, an application by any of a list of persons including the Commission "may only be made with the leave of the court". Dawson, Toohey and Kirby JJ, Brennan CJ and Gaudron J dissenting, held that failure to obtain the leave of the court before applying for a winding up order is a mere defect or irregularity in the exercise of the court's jurisdiction, which does not affect the validity of the order made. The defect or irregularity may accordingly be cured by granting leave nunc pro tunc.
42 Toohey J, with whom Dawson J agreed, pointed out that s 459P(2) was not a provision that conferred jurisdiction on the court and it did not create a cause of action or go to the relief that might be granted in proceedings (at 128). He cited authority, dealing with other statutory provisions to the effect that action not be commenced except with the leave of the court, and relied on observations to the effect that proceedings commenced in a court with jurisdiction would not be nullity simply because of the absence of leave. One of those authorities was Re Testro Bros Consolidated Ltd [1965] VR 18, where Sholl J referred (at 33-34) to "a uniform set of authorities in Australia, extending over 70 years, for the granting of leave under such sections, nunc pro tunc".
43 The reasoning of Toohey J may appear to be distinguishable because under s 488(2) it is a distribution by a liquidator rather than the commencement of proceedings that must occur with leave. But as I have explained, the liquidator is given delegated power to make a distribution of surplus by rules of court adopted under s 488(1), and that delegated power is the court's statutory power under s 485(2) to distribute the surplus amongst the persons entitled to it. In my view the requirement for special leave under s 488(2) does not qualify the court's power to make a distribution, and consequently does not qualify the liquidator's power to do so by delegation.
44 Section 488(2) is expressed to operate "despite anything in rules or regulations made for the purposes of subsection (1)", but in my view it would be a mistake to construe those words as meaning that if the liquidator purports to make a distribution without having previously obtained the court's special leave, the distribution is without power and void. Rather, the effect of s 488(2), like s 459P(2), is that if the distribution is made without leave there is a defect or irregularity in the distribution that may give an aggrieved party the right to apply to the court to set the distribution aside, as well as tracing and other rights, but the distribution is not void. Consequently, as in the case of commencement of winding up proceedings without the leave required by s 459P(2), the defect or irregularity of failing to obtain special leave before making a distribution of surplus assets can be cured by the grant of leave nunc pro tunc.
45 As with leave under s 468(1), neither counsel's nor my own researches have unearthed any authorities dealing directly with whether a retrospective order can be made under s 488(2), in the limited time available. Counsel cited CGU Workers Compensation (NSW) Ltd v Ascom Service Automation (Aust) Pty Ltd [2005] NSWSC 747, where a liquidator who had distributed the net surplus in a winding up to the sole contributory without seeking leave under s 488(2) sought an order under s 480(d) that he be released and that ASIC deregister the company. Barrett J held that a liquidator has the power (albeit controlled power) to distribute a surplus (at [3]; of course, that holding is confirmed by rule 7.10). He said that in circumstances where the evidence clearly showed that the creditors had been paid and there was only one contributory, the court would readily have made an order granting leave under s 488(2). On the application of the liquidator, Barrett J made orders under s 1322(4)(a) and (c) in respect of the irregularity, on the ground that the failure to obtain leave under s 488(2) was an essentially procedural matter, the liquidator had acted honestly, it was just and equitable that the order under s 1322(4) be made, and that no substantial injustice had been or would be likely to be caused by the non-compliance. I have not been asked to make orders under s 1322(4) in the present case, counsel submitting that the appropriate course is an order under s 488(2). It seems to me that the availability of an alternative curative order tends to reinforce counsel's contention that s 488(2) is itself available.
46 There are many cases, including important appellate decisions, addressing in other contexts the question whether a power vested in a superior court can be used to make an order nunc pro tunc. Of course, much depends on the statutory language used to confer the power on the court, but nevertheless the cases provide some general guidance as to the correct approach to the statutory power to be used in the instant case. In Hartley Poynton Ltd v Ali [2005] VSCA 53; (2005) 11 VR 568, Ormiston JA (with whom Buchanan and Eames JJA agreed) observed that the power of the courts to antedate orders, comprehending the making of orders nunc pro tunc, is derived from the court's inherent jurisdiction. In Castle Constructions Pty Ltd v North Sydney Council [2007] NSWCA 164, Tobias JA (with whom Bell J agreed) cited Ormiston JA's observations and reiterated (at [97]) that the court has a general inherent power to make any orders that the interests of justice require, but he added that "the power to make an order nunc pro tunc having the effect of antedating an order will not be granted if it has the effect of altering the substantive rights of the parties as distinct from overcoming procedural irregularities and difficulties".
47 UCPR rule 36.4(1) says that an order takes effect as of the date on which it is made, or if the court order is not to take effect until it is entered, as of the date on which it is entered. But rule 36.4(3) says that despite subrule (1), the court may order that an order is to take effect as of an earlier date. In Turagadamudamu v PMP Ltd [2009] NSWCA 120 Beazley JA (with whom Ipp and Campbell JJA agreed) referred to rule 36.4(3) and then observed (at [50]):
"… courts have always exercised caution in making orders nunc pro tunc . An order nunc pro tunc is classically made where procedural matters are involved. It should not be used where to do so would affect the vested rights of third parties …".
I take these observations to go to the court's exercise of discretion rather than jurisdiction.
48 It therefore seems to me that the court has power under s 488(2) to grant special leave in respect of a liquidator's distribution of surplus assets that has already been made, but it should exercise great caution in doing so and should not grant leave if the vested rights of third parties are affected. If, for example, the effect of the distribution has been to exclude a contributory from participation, the order clearly ought not to be made. Indeed in my view an order should not be made if the distribution has excluded a person who has an arguable claim to be a contributory, until that claim is determined. Here, however, there are no substantive rights at stake other than the rights of the contributories, who received the distribution in pro rata shares at their express request. According to the evidence before me, there are no creditors and no other contributories, and therefore no possible prejudice to any third party. I infer that if the order had not been made, any residual doubt about the validity of the distribution might have affected the efficacy of the repayment of a liquidator's loan in the financial year ending 30 June 2008 and might therefore have had a disastrous effect on the tax position of the contributories.
49 An important consideration is that the distribution made on 27 June 2008 was an interim distribution, capable of being adjusted, if necessary, in the final distribution. I doubt that I would have been prepared to grant special leave nunc pro tunc for a final distribution in the present circumstances.
50 In all the circumstances, I decided that the court should exercise its power to grant special leave nunc pro tunc with respect to the distributions on 27 June 2008, and accordingly the order was made on 30 June 2009.
51 I also made an order dispensing with the requirement that Corporations Form 551 be annexed to my order. The court's power to dispense with that requirement is in Corporations Regulation 5.6.71(1). Essentially the form is a schedule providing information about the persons to whom the distribution is paid. In a simple case such as this, where the distribution was made to the three contributories in the amounts set out in the evidence, the annexing of such a schedule to the order would serve no useful purpose.
Special leave to make further distributions on 30 June 2009 - order (3)
52 From 1 July to 30 June 2008, Mr Jones advanced further liquidator's loans totalling $2,618,243.64 to Philip, Helmut and Sabine. Once again the loans were made as liquidator's loans pursuant to s 109NA of the ITAA. According to the tax advice provided to Mr Jones, the loans would be deemed to be unfranked dividends in the hands of the shareholders if they were not paid by 30 June 2009.
53 Mr Jones proposed to make distributions to the three contributories by no later than 30 June 2009, so as to avoid the disadvantageous tax consequences that I have identified. He proposed to do so by book entries of the same kind as the book entries made to give effect to the distribution of 27 June 2008, that is to say to cause his loans to be repaid by the contributories and for them to receive the same amount by way of distribution.
54 A problem has arisen because these distributions were made in unequal proportions. The loans made to Helmut and Sabine during the 2007/2008 tax year were each $200,000 less than the loan made to Philip. In order to redress this imbalance, Mr Jones intends to make further equalising loans of $200,000 each to Helmut and Sabine and then recall those loans and make equivalent distributions. At one stage he intended to do this on or before 30 June 2009, making the total distribution to be made by that date $3,018,243.63. But since the equalising loans will not have been made in the 2007/2008 tax year, they do not need to be recalled and matched by distributions to Helmut and Sabine on or before 30 June 2009 in order for loans to be treated as a dividend distributions under s 109NA. In accordance with a request from Helmut and Sabine, made on their behalf by their solicitor, Mr Jones has decided to defer distribution of the $200,000 equalising loans to the next financial year, although he may not be able to make the distribution within the 14 day timeframe desired by them.
55 Therefore in terms of the application to the court, what was needed on or before 30 June 2009 was special leave to distribute an amount equivalent to the liquidator's loans that had been made in the 2007/2008 tax year, namely $2,618,243.64. I made an order granting that special leave on 30 June 2009. There was, of course, no question of retrospectivity in respect of that amount. I granted leave having regard to the same discretionary considerations that I took into account in respect of order (2).
Offsetting adjustment to the distribution to Helmut Maertin
56 In his correspondence with the contributories, Mr Jones proposed that the amount owing by contributories in their loan accounts be offset against their future distributions. In his most recent letter to the contributories, dated 30 April 2009, Mr Jones noted that he had received some queries from Mr Helmut Maertin which he would discuss with him in the hope of finalising the matter in the near future so as not to disadvantage the other contributories. However he expressed concern that if he did not receive authority from Helmut to offset the outstanding loan amounts against any funds advanced by the company to his family trust, the only options available to Mr Jones would be to write the debt off (to the advantage of the other contributories) or pursue the debtors by legal action, a course that would delay the finalisation of the distribution until after 30 June 2009 and would substantially exhaust the remaining funds of about $423,000 in the company's bank account. According to the balance sheet attached to that letter the amount outstanding to the company in related party loan accounts was $141,787.66 at 30 June 2008.
57 According to the evidence of Carides, Mr Jones believes that the amount owing by Helmut and his company, QPI Hong Kong, is about $130,000. But Helmut denies owing that amount, and contends that he and his company owe only a lesser amount. Until the issue is resolved either by agreement or by a determination by Mr Jones of the amount of the offset, subject to the possibility of appeal under s 1321, Mr Jones will not be in a position to make a final distribution of the remaining surplus.
58 I was informed from the bar table that Mr Jones and the contributories had not yet reached agreement as to the offsetting amount in the case of Helmut Maertin, but they have reached agreement on a procedure for dealing with the matter. Mr Jones asked the court to make the following orders:
(a) a direction to Mr Jones to make a determination by 13 July 2009 as to the amount, if any, the company is liable to pay Helmut;
(b) the parties are agreed that any party who wishes to appeal from the liquidators determination of s 1321 of the Corporations Act would file and serve an interlocutory process for that purpose in the present proceedings by 27 July 2009, effectively abridging the time within which an appeal could be launched against the liquidator's decision from 21 days (under rule 14.1(2)(a) of the Supreme Court (Corporations) Rules) to 14 days.
59 That approach seems to me to be sensible. I made the order as sought on 30 June 2009.
Special leave to make further and final distributions - order (4)
60 Annexed to Mr Jones' affidavit of 11 June 2009 is a schedule (Annexure H) of estimated receipts and payments as at 10 June 2009. It shows total estimated income of $529,285.18 and estimated future payments of $70,000 (comprising liquidator's fees and expenses of $40,000, and some accounting and legal fees), leaving cash available for distribution of $459,285.18.
61 Mr Jones wishes to finalise the liquidation of the company by making distributions of the remaining surplus assets in his hands, less costs and disbursements. He has corresponded with the three contributories over the period from 22 September 2008 to 30 April 2009 explaining the steps he thought to be necessary to finalise the liquidation. As I have mentioned, in addition to obtaining the orders sought in the present application (including an order with respect to the offsetting adjustment to the distribution to Helmut), Mr Jones has foreshadowed a separate application for approval of his fees.
62 The accountants retained by Mr Jones to provide tax and financial advice in the administration of the company, WHK Horwath, have prepared a report dated 10 June 2009 reviewing Mr Jones' proposed distributions. Although the report does not profess to be an audit, on the basis of the information supplied by them they were able to say that the proposed distributions have been correctly calculated and would be made in accordance with the requirements of s 488(2) of the Corporations Act. According to Horwath, the total funds for distribution were $5,289,317.73, with a substantial frankable distribution.
63 In those circumstances Mr Jones seeks special leave expressed in general terms, authorising him to make a final distribution to the contributories of the amounts calculated for that purpose, without having to return to the court for special leave when the calculations have been made. In effect, the court would write him an open cheque, although of course it would do so on the basis of evidence indicating that no third party would be prejudiced and that the calculations are already close to being finalised.
64 I did not make such an order on 30 June because I wanted to give the matter some further thought. Neither counsel nor I have identified any authorities supporting the proposition that special leave may be granted under s 488(2) in general terms at a time before these specific distribution to which the leave relates has been calculated. However I am prepared to assume that the court has jurisdiction to make such an order in an appropriate case. The question is whether it ought to do so in this case.
65 I have decided that the order should not be made at this stage. It seems to me that there are several matters still to be completed that might flare up into disputes, and that therefore the court's continuing involvement in the distribution process is desirable. I have in mind Mr Jones' proposed equalising distributions and the proposed offsetting adjustment to Helmut's distribution. Section 1321 provides a framework for considering any further dispute about the offsetting adjustment, but if there are s 1321 appeal proceedings there will be further legal costs and the possibility of dispute about those costs.
66 In addition to these considerations, I assumed that Mr Jones will wish to approach the court again for an order under s 480(d) that he be released and that ASIC deregister the company, and therefore the making of the order that is sought would not avoid the need to return to court. I see no reason why Mr Jones could not, at the appropriate time, make a further application for special leave to make the final distribution and subject to the making of the distribution, orders for his release and deregistration of the company. Indeed, the application for approval of remuneration could also be included in the same interlocutory process.
Conclusion
67 I made orders on 30 June 2009 dealing with most of the relief sought in the interlocutory process. For the reasons I have given, I will not make the additional order granting special leave in advance of calculation of the amount of the final distribution. Therefore, subject to the orders made on 30 June, the interlocutory process will be dismissed.
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