Lion Energy Limited v Tulloch Lodge Limited

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.