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[2014] FCA 259
Federal Court of Australia
2014-03-26
Mr J, White J
Original judgment source is linked above.
Background 11 The liquidators have collected and realised all the available assets of Tulloch Lodge. In particular, in September 2011, the liquidators settled for an amount of $737,500 inclusive of interest and costs the claim which Tulloch Lodge had brought against Lion Energy Ltd. That compromise was approved by Finn J on 5 October 2011: Lion Energy Ltd v Tulloch Lodge Ltd (in liquidation), in the matter of Tulloch Lodge Limited (in liq) [2011] FCA 1139. 12 After discharging the liabilities of Tulloch Lodge to its unsecured creditors, the liquidators held a surplus at 30 June 2013 of $57,174.92. As at 30 November 2013, that surplus had reduced to $20,186.72. As at 5 March 2014, it had reduced still further to $10,836.26. The reduction in the surplus is attributable principally to the fees and disbursements of the liquidators and their legal advisers in respect of the work carried out since 1 July 2013. The liquidators have agreed not to make any further charge for their work since 30 November 2013. 13 The liquidators propose that, of the sum of $10,836.26, $10,000 be distributed to the 13 contributories. The balance will meet the costs of this application and the costs associated with making the distribution. 14 Mr Cooper has deposed to the difficulties in preparing a schedule in accordance with Form 551 in proper form. Principally, those difficulties arise from the absence of a complete share register. Mr Cooper attributes that absence to the failure of the former director of Tulloch Lodge, Mr Mercorella, to maintain a proper share register in accordance with the provisions of the Corporations Act, or to the loss of any complete share register which may have existed. It is pertinent to note that Mr Mercorella had been involved in the promotion of an unlicensed managed investment scheme and that, in November 2006, he was sentenced in the District Court of South Australia to five years' imprisonment for offences under the Corporations Act. 15 Mr Cooper has deposed to the inquiries and investigations which the liquidators have made with a view to locating an up-to-date share register. I accept that they have had the difficulties to which Mr Cooper deposes. It is not necessary presently to make findings as to the causes of the liquidators' difficulties in this respect or to detail the actions which they have taken. I also accept that they have not been able to locate an up-to-date and complete share register for Tulloch Lodge. 16 The most recent share register available to the liquidators appears to have been last updated on 4 July 2005 (the 2005 Register). Mr Cooper deposed to his belief that the 2005 Register is not accurate or, at least, not wholly accurate and it is apparent that it does not satisfy the requirements for such a register specified in s 169 of the Corporations Act. It does not contain an up-to-date index of members' names, postal addresses for some members are not included, and it does not contain details of the share certificate numbers issued nor the dates when the relevant entries had been made. Further, the liquidators have received correspondence from shareholders indicating that a number of transfers have not been registered, as well as other documentation indicating discrepancies between the size of some shareholders' holdings as recorded in the Register and the size stated in the share certificate issued to those holders. 17 The 2005 Register indicates that Tulloch Lodge had 7,151,226 shares owned by 1,471 shareholders, with the majority of those shareholders holding parcels of only a few hundred shares. This makes it obvious that, on a rateable distribution, most contributories would receive such small amounts by way of distribution as to make the cost of making the distribution to them not worthwhile. That is because, after the costs of settling a list of contributories in accordance with s 478 and allowing for the costs of a distribution, most would receive, on a pro rata distribution, a distribution of less than $1 and in most cases this would be only a few cents. 18 In those circumstances, the applicants formed the view that it would be uncommercial to distribute a dividend to shareholders who would receive less than $25. Otherwise, the cost of distribution would exceed the amount of the dividends. 19 On 14 October 2013, the Court granted the applicants leave to convene a meeting of shareholders of Tulloch Lodge to consider a special resolution, and made orders with respect to the provision of notice with respect to that meeting. 20 The meeting was convened on 15 November 2013. The special resolution, in the terms following, was passed unanimously: That the division of the surplus assets of the company held by the liquidators be distributed otherwise than pro rata per shareholder as at the date of distribution in accordance with Article 147 of the Articles of Association of the company, such that the said surplus be distributed only to those members of the company whose shareholding entitles them to a payment of a distribution of not less than AUD$25. 21 A resolution of this nature was authorised by Articles 147 and 148 of the Articles of Association. Articles 147 and 148 provide as follows: [147] If the Company is wound up (whether voluntarily or otherwise) the liquidator may with the sanction of a special resolution divide among the contributories in specie or kind any part of the assets of the Company and may with the like sanction vest any part of the assets of the Company in trustees upon such trusts for the benefit of the contributories or any of them as the liquidator with the like sanction thinks fit. [148] If thought expedient any such division may be otherwise than in accordance with the legal rights of the contributories and in particular any class may be given preferential or special rights or may be excluded altogether or in part but in case any division otherwise than in accordance with the legal rights of the contributories is determined on any contributory who would be prejudiced thereby shall have a right to dissent and ancillary rights as if such determination were a special resolution passed pursuant to section 409 of the Code. 22 I am satisfied that the meeting of 15 November 2013 was convened appropriately in accordance with the Court's orders. This involved notice of the meeting being sent to those shareholders listed in the 2005 Register at their last known address and to those who, although not included in the Register, had provided evidence of their shareholding. In addition, notice of the meeting was published on the Australian Securities and Investment Commission (ASIC) insolvency notices website and in the Australian newspaper. 23 As noted above, the special resolution was passed unanimously, although there was only limited attendance of contributories at the meeting. The liquidators did not receive any indication of opposition to the resolution, whether formally or informally, before or after the meeting. The minutes of the meeting were lodged with ASIC on 25 November 2013. This has not resulted in any indication of dissent.
Consideration 24 As indicated, the Court must satisfy itself that there is in fact a surplus to be distributed. I accept Mr Cooper's evidence that all of the debts of Tulloch Lodge to its unsecured creditors and its tax-related liabilities have been discharged. I accept that the statement of the liquidators' accounts in Mr Cooper's affidavits of 5 July 2013, 10 December 2013 and 6 March 2014 reflects the position in the liquidation and, accordingly, that there is presently a surplus of only $10,836.26. 25 I am satisfied that, in relation to the getting in and realisation of assets and the discharge of the liabilities of Tulloch Lodge to its creditors, the requirements of the Corporations Act and the Corporations Regulations have been satisfied. The difficulty arises at the end of that process, i.e., with respect to the disposition of the small surplus. 26 Section 478(1A) of the Corporations Act requires a liquidator to settle a list of contributories if it appears, amongst other things, that there will be a surplus available for distribution and it will be necessary to adjust the rights of the contributories among themselves. The lack of a reliable up-to-date share register suggests that it would be appropriate for there to be compliance with s 478(1A) in the present case. However, the large number of contributories in Tulloch Lodge and the small size of the available surplus makes it commercially unrealistic to do so. 27 The process for settling a list in accordance with s 478(1A) is governed by regs 5.6.58-5.6.62. It involves a liquidator settling a provisional list of contributories in accordance with Form 538; the liquidator giving notice in writing in accordance with Form 539 to each contributory on the list of the time and place appointed for the settling of the list; the liquidator lodging with ASIC a statement that the notice has been given to each contributory in the provisional list; the liquidator settling the list after hearing and determining any objections by a person to be included in the list; the liquidator certifying the settled list in accordance with Form 541; and the liquidator then serving on the persons included in the list notice of their inclusion in the list, together with notice of their appeal rights. 28 As has been observed elsewhere, this can be a cumbersome and expensive process. I accept the liquidator's evidence that the undertaking of these steps in the present case would have involved expense which would have consumed almost wholly, if not wholly, the available surplus. 29 The method proposed by the liquidators does involve some adjustment of the rights of the contributories among themselves. As is well-established, the ordinary position in a winding up is that, in the absence of provision to the contrary, a surplus is to be distributed rateably: Birch v Cropper (1889) 14 App Cas 525; Re Sullivans Cove IXL Nominees Pty Ltd [2011] TASSC 9 at [48]; (2011) 82 ACSR 224 at 231. In the present case, it will be some 13 shareholders only out of some 1,471 shareholders who will receive a dividend. However, I am satisfied that that adjustment is appropriate. For the reasons already given, the process involved in distributing the surplus rateably would involve its dissipation, with most shareholders receiving a dividend of only a few cents. A distribution in this way would not be commercial. 30 Further, at the meeting of the contributories on 15 November 2013, the resolution in favour of a distribution only to those who would receive a minimum amount of $25.00 was approved. As noted, notification of that meeting was sent to each known contributory and the meeting was also advertised publicly. The minimum attendance at the meeting may be taken to indicate a tacit acceptance by the contributories that insistence by them on a rateable distribution is not commercially realistic. 31 No person has appeared at the hearing of the present application to oppose the making of the order sought by the applicants. 32 It is arguable in the present case that compliance with s 478(1A) is not necessary given that it is the contributories themselves who have resolved, at the meeting of 15 November 2013, on an adjustment of the rights between themselves. However, given that that meeting occurred in the context of the applicant seeking the Court's directions with respect to the distribution of the surplus, I consider it inappropriate to proceed on that basis. 33 As previously noted, reg 5.6.71(1) requires a schedule in accordance with Form 551 to be annexed to the Court's orders authorising the distribution of the surplus, unless the Court directs to the contrary. The applicants do not seek such a direction. They accept that such a direction is usually confined to the relatively straightforward case, such as those in which there are few shareholders, or little complexity: Visnic v Sywak [2012] NSWC 1284 at [6]; Re Klaus Maertin Pty Ltd (in liq) [2009] NSWSC 618 at [51]; (2009) 232 FLR 239 at 250; Brealey v Shields [2009] NSWSC 1148 at [14]; Re FAI Car Owners Mutual Insurance Co Pty Ltd [2009] NSWSC 1350 at [28]; (2009) 262 ALR 552 at 558 and Re Paragon Holdings Ltd [1961] 1 Ch 346 at 353. 34 The liquidators contend instead that they have, in respect of the 13 shareholders, provided a schedule which, although not complete, complies substantially with the requirements of Form 551. They invoke in this respect s 25C of the Acts Interpretation Act 1901 (Cth) which provides: 25C Compliance with forms Where an Act prescribes a form, then strict compliance with the form is not required and substantial compliance is sufficient. As can be seen, substantial compliance with a prescribed form will be sufficient, subject to the proviso that there not be a statutory indication to the contrary: s 2(2). Whether or not there has been "substantial compliance" with a prescribed form is a question of fact, to be determined having regard to the extent to which the form has been completed as directed and to the nature and significance of any omissions or inaccuracies. This in turn directs attention to the apparent purpose of the form's requirements. 35 In the present case, I am unable to discern any statutory indication to the effect that substantial compliance should not be sufficient in relation to the completion of Form 551. 36 In considering the completeness of the schedule provided by the liquidators, two matters are to be noted. First, Form 551 does not require a listing of all of a company's contributories. It requires details in respect of only those contributories or other persons to whom a distribution of the surplus is to be paid. In this case, that is the 13 contributories who will receive a dividend of at least $25.00. 37 The second matter to note is that Form 551 proceeds on an implicit assumption that liquidators have settled a list of contributories in accordance with s 478(1A). It is the absence of such a settled list which gives rise to the shortcomings in the schedule which Mr Cooper identified in his affidavit of 6 March 2014. 38 First, the schedule does not include the serial number in a settled list of contributories, the name of the contributories in the settled list and the number of shares held by each contributory as shown in the settled list. As indicated, that is because the liquidators have not carried out the process of settling such a list. In circumstances in which the liquidators appreciated that the process would consume, if not entirely eliminate, the available surplus, their conduct in this respect is understandable. The schedule provided by the liquidators includes instead details of the 13 shareholders and the number of shares held by them as indicated by the 2005 Register. 39 In relation to the columns headed "Total amount called up", "Total amount paid up", and "Arrears of calls at date of return", Mr Cooper has deposed that the records of Tulloch Lodge available to him do not indicate whether the shares have been fully or partly paid, or whether there has been any call on those shares. He says, and I accept, that he has no reason to think that the shares have not been fully paid up and he has, accordingly, completed the schedule on that understanding. Mr Cooper has, accordingly, in respect of each of the 13 contributories, entered "nil" in the total amount called up, a dollar value in the column headed "Total amount paid up" equivalent to the number of shares held (i.e., at $1.00 per share) and "nil" in the arrears column. 40 I accept that the liquidators have done what can be reasonably expected in a commercial sense in the present circumstances. However, that does not of itself warrant the conclusion that there has been substantial compliance with the requirements of Form 551. 41 The settling of a list in accordance with s 478(1A) and the provision of a schedule in accordance with Form 551 is intended to provide some verification that each person who is entitled to participate in the distribution of a surplus, and the extent of their entitlement, has been identified. By this means, the Court can be assured that the order it makes for the distribution of the surplus has a sound basis. One would naturally expect an assessment of "substantial compliance" in relation to Form 551 to take account of these important purposes. 42 However, it is reasonable to suppose at the same time that the provisions are intended to operate in a practical way so as to avoid, if possible, the circumstance that the process by which the Court obtains the appropriate assurance does not consume the whole of the amount available to be distributed. There will be cases, of which the present is one, in which there is a tension between these two conflicting aims. 43 I am willing to proceed on the basis that, had the liquidators settled a list of contributories under s 478(1A) in the manner outlined earlier in these reasons, the settled list would not have been different from the 2005 Register in a way which is material for present purposes. That would be so because the 2005 Register is substantially accurate or, alternatively, because the contributories would not have thought it worth their while to participate in the process so as to identify any errors. The latter alternative is the more likely. In other words, the contributories' apparent indifference to the meeting of 15 November 2013 is likely to have been manifest in a similar way to any attempt by the liquidators to have settled a list under s 478(1A). 44 I note again that no person has appeared to oppose the making of the orders sought by the applicants. 45 Having regard to these matters, I am willing to conclude, in the particular and somewhat exceptional circumstances of this case, that the schedule prepared by the liquidators does reflect substantial compliance with the requirements of Form 551. That schedule will be attached to the Court's orders
Conclusion 46 For these reasons, there will be orders as follows, that: (1) Pursuant to s 488(2) of the Corporations Act 2001 (Cth), the liquidators of Tulloch Lodge Limited (in liquidation) ACN 003 157 533 are granted special leave to distribute the surplus of $10,000 to shareholders in respect of the liquidation of the company. (2) The liquidators are to distribute the surplus in terms of the schedule which appears as Annexure A to these orders. (3) There be liberty to apply. I certify that the preceding forty-six (46) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice White.
Lion Energy Limited
Tulloch Lodge Limited
The applicable legislation 6 In a Court-ordered winding up, s 485(2) of the Corporations Act requires the Court to adjust the rights of the contributories among themselves and to distribute any surplus among the persons entitled to it. By s 488(2) of the Corporations Act, a liquidator may distribute a surplus only with the Court's special leave. As Young J explained in Re D S Millard & Son Pty Ltd (1997) 24 ACSR 71 at 72, this means merely 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. The requirement of special leave is to ensure that there is in fact a surplus to be distributed (Visnic v Sywak [2012] NSWSC 1284 at [3]) and that the "correct relativities among the contributories have been observed" (CGU Workers Compensation (NSW) Ltd v Ascom Service Automation (Australia) Pty Ltd [2005] NSWSC 747 at [4]). 7 Regulation 5.6.71 of the Corporations Regulations governs the making of an order by the Court in respect of the distribution of the surplus. It provides: (1) An order in a winding up by the Court authorising the liquidator to distribute any surplus to a person entitled to it must, unless the Court otherwise directs, have annexed to it a schedule in accordance with Form 551. (2) The liquidator must send to each person to whom any surplus is distributed a notice in accordance with Form 552. 8 As can be seen, the Court's order must, unless the Court otherwise directs, have annexed to it a schedule in accordance with Form 551. Form 551 specifies a schedule of contributories or other persons to whom a distribution of surplus is to be paid. It requires details in relation to each contributory, including serial number, name and address, the shareholding, the status of that shareholding, and the net distribution payable. As Barrett J observed in Brealey v Shields [2009] NSWSC 1148 at [10], "compliance with the form entails the specification of a specific and quantified amount of money in relation to each contributory". 9 In addition, rule 7.9 of the Federal Court (Corporations) Rules 2000 requires that the affidavit in support of an application for special leave to distribute a surplus must state how the liquidator intends to distribute the surplus, including the name and address of each person to whom the liquidator intends to distribute any part of the surplus. Rule 7.9 also requires the liquidator to publish notice of the application at least 14 days before the date fixed for the hearing of the application. 10 The liquidators have complied with the requirements of rule 7.9. However, they have not provided a schedule which complies in all respects with Form 551.
[2011] TASSC 9
(2009) 262 ALR 552
(2009) 232 FLR 239