International Greetings UK Ltd v Stansfield [2010] NSWSC 1357 | Case summary

1 These proceedings were commenced on 25 August 2008. When the matter was called on for trial this morning, counsel agreed that a preliminary point should be addressed, namely, whether, in the circumstances now existing, it is open to the court to award the relief the plaintiff seeks. 2 The cause of action the plaintiff propounds is the statutory cause of action created by s 588M(3) of the Corporations Act 2001 (Cth). Section 588M is in these terms: "(1) This section applies where: (a) a person (in this section called the director ) has contravened subsection 588G(2) or (3) in relation to the incurring of a debt by a company; and (b) the person (in this section called the creditor ) to whom the debt is owed has suffered loss or damage in relation to the debt because of the company's insolvency; and (c) the debt was wholly or partly unsecured when the loss or damage was suffered; and (d) the company is being wound up; whether or not: (e) the director has been convicted of an offence in relation to the contravention; or (f) a civil penalty order has been made against the director in relation to the contravention. (2) The company's liquidator may recover from the director, as a debt due to the company, an amount equal to the amount of the loss or damage. (3) The creditor may, as provided in Subdivision B but not otherwise, recover from the director, as a debt due to the creditor, an amount equal to the amount of the loss or damage. (4) Proceedings under this section may only be begun within 6 years after the beginning of the winding up." 3 The plaintiff's claim under s 588M(3) is a claim to recover from the defendants as a debt due to the plaintiff an amount equal to loss or damage suffered by the plaintiff in relation to debts owed to the plaintiff by Oz Wrap (International) Pty Limited ("Oz Wrap") because of the insolvency of that company. 4 It is common ground that, whatever view one takes of the precise meaning of "is being wound up" in s 588M(1)(d), Oz Wrap is not today a company that "is being wound up". It is today non-existent. 5 It is necessary to refer to certain past events that are uncontroversial. Oz Wrap became subject to creditors' voluntary winding up under the Corporations Act on 26 February 2008. The meeting of creditors and members contemplated by s 509(1) was convened on 30 May 2008 and adjourned to 20 June 2008. This was to allow time for the plaintiff to consider the possibility of funding the liquidator to pursue a preference recovery claim. 6 The course the plaintiff ultimately preferred was to undertake itself the pursuit of a s 588M(3) claim against the defendants. In order to do that, the plaintiff sought the consent of the liquidator under s 588R, that being part of the Subdivision B prerequisite referred to in s 588M(3) itself. The consent of the liquidator was given on 20 June 2008, shortly before the time fixed for the adjourned meeting of creditors and members on that day. 7 After 20 June 2008, the liquidator made a lodgment with ASIC under s 509(4). He did this on 26 June 2008. This caused ASIC, acting under s 509(5), to deregister Oz Wrap on 26 September 2008. Oz Wrap thereupon ceased to exist. 8 What I have just said will be more readily understood if I set out s 509 in full: "(1) As soon as the affairs of the company are fully wound up, the liquidator must make up an account showing how the winding up has been conducted and the property of the company has been disposed of and, when the account is so made up, he or she must convene a general meeting of the company, or, in the case of a creditors' voluntary winding up, a meeting of the creditors and members of the company, for the purpose of laying before it the account and giving any explanation of the account. (2) The meeting must be convened by an advertisement published in the Gazette at least 1 month before the meeting specifying the date, time, place and purpose of the meeting. (3) The liquidator must, within 7 days after the meeting, lodge a return of the holding of the meeting and of its date with a copy of the account attached to the return. (4) At a meeting of the company, 2 members constitute a quorum and, at a meeting of the creditors and members of the company, 2 creditors and 2 members constitute a quorum and, if a quorum is not present at the meeting, the liquidator must, in place of the return mentioned in subsection (3), lodge a return (with account attached) stating that the meeting was duly convened and that no quorum was present and, upon such a return being lodged, the provisions of that subsection as to the lodging of the return are taken to have been complied with.

9 Having regard to the uncontroversial facts to which I have referred, it is clear that, when these proceedings were commenced on 25 August 2008, Oz Wrap was in existence in the sense that its registration subsisted and the deregistration directed by s 509(5) had not occurred. But, as at that time, the final step to be taken by the liquidator had already been taken (in the form of the ASIC lodgment of 26 June 2008); and the taking of that final step by the liquidator followed a point described in s 509(1) by the words "the affairs of the company are fully wound up". 10 It is against this background that s 588M must be construed. The opening words of s 588M(1) are: "This section applies where". 11 Four conditions are then stated of which the last - that in paragraph (d) - is relevant for present purposes. 12 It is argued on behalf of the plaintiff that, as it relates to s 588M(3), the s 588M(1)(d) specification imposes no more than a condition that the company be "being wound up" when proceedings are commenced seeking the form of recovery that s 588M(3) envisages. 13 The submission on behalf of the defendants is that the specified condition as to the state of the relevant company (that is, that it is "being wound up") is a condition going to the right of recovery that s 588M(3) creates, with the result that recovery is precluded and the court cannot order or award recovery unless the company is in the relevant state (and also, of course, in existence) when the order or award is made. Furthermore, the fact that the relevant form of recovery is stated in the section to be recovery "as a debt" means that there is no recovery until there is a debt judgment. 14 Various practical considerations were ventilated in argument. Several of these concentrated on differences between recovery at the suit of a liquidator under s 588M(2) and recovery at the suit of (and by) a creditor under s 588M(3). It was pointed out, for example, that s 588Y regulates the application of proceeds of a liquidator's s 588M(2) recovery towards satisfaction of claims in the winding-up, thus making it clear that a winding-up in which assets may be applied must continue to be in force when the recovery occurs. Indeed, the subsistence of such an administration and a desire to augment the assets available for distribution in it are the only rationale for resort to s 588M by a liquidator, so that the s 588M(1)(d) requirement or condition seems to go without saying in that case 15 But this, to my mind, says nothing about whether a winding-up must continue to be in force when recovery by a creditor under s 588M(3) occurs. There is, in logic, no reason why that is necessary. In a case such as the present where the liquidator has consented to a creditor bringing s 588M(3) proceedings, the situation is, by definition, one in which the liquidator does not wish to pursue the recovery possibility for the benefit of the estate generally (see s 588U) and is content for the creditor to proceed alone and outside the administration presided over by the liquidator and thereby to exercise self-help. 16 Pertinent though this may be in a practical sense, effect must be given to the words of the legislation. Section 588M only applies "where," among other things, "the company is being wound up". Section 588M(1) sets out four conditions for the application of "[t]his section", that is, s 588M as a whole. It follows that if the relevant company is not "being wound up" (so that one of the four conditions is not satisfied), no part of s 588M "applies". 17 It further follows that the right, claim, chose in action - call it what you will - embodied in or created by the words "the creditor may recover" in s 588M(3) is not available where the company is not "being wound up". The message the words convey is that the creditor "may recover from the director" only where, among other things, the company "is being wound up", so that the creditor may not "recover from the director" unless at the time of recovery the company "is being wound up". The words seem to me to be clear and unambiguous and I can see no basis on which their meaning can be affected by the practical considerations I have mentioned. 18 On this basis and having regard to the fact that Oz Wrap is not now even in existence, I am of the opinion that, if the trial proceeds to a conclusion, it will not be open to the court to award the plaintiff any remedy under s 588M(3). In particular, it will not be possible for the court to award a judgment in the nature of a debt judgment in favour of the plaintiff and against the defendants; and this will be so whatever factual position may ultimately emerge from the evidence. 19 I should add two things. First, it is unnecessary, in view of the position I have reached, to express any view about when, in the case of a voluntary winding-up, the company ceases to be in the state described by the words "is being wound up" and, in particular, whether that state ends when, as referred to in s 509(1), "the affairs of the company are fully wound up" or, rather, continues until deregistration in accordance with s 509(5) or 509(6) causes the company to cease to exist (see s 601AD(1)). I would, however, observe that, in Keith v Verge [2009] WASC 338 (which concerned s 588M recovery by a liquidator, not a creditor), Master Sanderson said at [20], after referring to the opening words of s 509(1) ("As soon as the affairs of the company are fully wound up . . ."): "It is an element of insolvent trading under section 588M(1)(d) that the company 'is being wound up'. This element cannot be made out where the liquidator has already lodged his final notice with ASIC under s 509." 20 Second, I think that this preliminary determination (which is of significance and may merit attention elsewhere) should be put on to a formal footing by an order under rule 28.2 of the Uniform Civil Procedure Rules 2005. My inclination, therefore, is to make an order to this effect: "Order that the following question be determined separately from and before all other questions, namely, whether the plaintiff's right of recovery under section 588M(3) of the Corporations Act 2001 is precluded by the circumstance that Oz Wrap (International) Pty Limited is not now a company that 'is being wound up'." 21 I would then answer that question, "Yes". 22 However, I shall hear from counsel on that matter and otherwise as to how I should proceed from here. [Submissions] 23 Counsel are agreed that a separate question should be ordered in the terms I have outlined. They are also agreed that there will be utility in making a further order under rule 28.2 as follows. "Order that the following question be determined separately from and before all other questions, namely, whether the plaintiff's right of recovery under section 588M(3) of the Corporations Act 2001 is precluded by the circumstance that, before these proceedings were commenced, the liquidator of Oz Wrap (International) Pty Limited had made a lodgment with ASIC under section 509(4)." 24 In light of the submissions that have been made, I make each of the foreshadowed orders under rule 28.2. 25 The first of the separate questions is answered, "Yes". 26 The second of the separate questions is answered, "Not necessary to decide". [Further submissions] 27 The proceedings are dismissed. 28 I will hear counsel on the question of costs on Friday morning, 26 November, at 10 o'clock.

International Greetings UK Ltd v Stansfield

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