Little v Edwards Concreting Pty Ltd

CATCHWORDS : CORPORATIONS - application under Corporations Act s 500(2) for leave of the court to continue proceedings against company in voluntary liquidation - liquidation a creditors' voluntary winding-up and not a members' voluntary winding-up - no appearance by liquidators - indication that liquidators may have purportedly resigned and requested deregistration of company before company's affairs fully wound up - troubling aspects of winding-up might warrant inquiry by the court under s 536(1)(a) or s 536(3) - notice to liquidators and former directors to make submissions as to whether court should hold such inquiries

LEGISLATION CITED : Corporations Act 2001 (Cth) Home Building Act 1989 (NSW)

CASES CITED : Awada v Linknarf Limited [2002] NSWSC 873; (2002) 55 NSWLR 745 Hall v Poolman [2009] NSWCA 64; (2009) 228 FLR 164

TEXTS CITED : McPherson's Law of Company Liquidation, Thomson Reuters Legal Online

Plaintiffs: Jeffrey & Birgit Little PARTIES : 1st Defendant: Edwards Concreting Pty Ltd 2nd Defendant: Douglas Robert Edwards 3rd Defendant: Leigh Robert Edwards

COUNSEL : Plaintiffs: In person Defendants: n/a

SOLICITORS : Plaintiffs: n/a Defendants:n/a

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST

2009/291424 J & B Little v Edwards Concreting Pty Ltd & Ors JUDGMENT 1 HIS HONOUR: On 10 October 2008 the plaintiffs commenced proceedings in the Consumer Tenancy and Trader Tribunal ("the Tribunal") against the defendant, Edwards Concreting Pty Ltd ACN 104 650 535 ("the company"). 2 After a number of directions hearings or other hearings, the plaintiffs were met with the contention that their proceedings against the company in the Tribunal were stayed by reason of the company's having gone into voluntary liquidation (Corporations Act 2001 (Cth) s 500(2)). 3 The Commonwealth Gazette of 13 October 2009 records that at an extraordinary general meeting of members of the company held on 30 September 2009 it was resolved the company be wound up voluntarily, and that Messrs Shaw and Newton of Shaw Gidley be appointed as liquidators. 4 There is in evidence a form, apparently signed by Mr Newton, notifying his appointment as liquidator and describing the liquidation as a members' voluntary liquidation. 5 The plaintiffs seek leave to proceed against the company, or in the alternative a declaration that s 500(2) of the Corporations Act does not apply to stay the proceedings they commenced in the Tribunal. 6 If the liquidation of the defendant is in truth a members' voluntary winding-up, then s 500(2) does not have the effect that the proceedings are stayed (Awada v Linknarf Limited [2002] NSWSC 873; (2002) 55 NSWLR 745). 7 However, it appears to me that the liquidation is a creditors' voluntary winding-up and not a members' voluntary winding-up. 8 Section 9 defines a members' voluntary winding-up as a winding-up under Pt 5.5 where a declaration has been made pursuant to s 494 and lodged with ASIC. 9 A creditors' voluntary winding-up is a winding-up under Pt 5.5 other than a members' voluntary winding-up. 10 Section 494 permits, but does not require, the directors of a company, which it is proposed be wound up voluntarily, to make a written declaration of solvency. It does not appear that any such declaration was made or lodged. To the contrary, the plaintiffs have tendered what purports to be a minute of a meeting of directors held on 7 September 2009 at which either a director (or perhaps the sole director) resolved that, it being proved to the satisfaction of the meeting that the company could not by reason of its liabilities continue its business and it was advisable to wind up the company voluntarily, Messrs Shaw and Newton be nominated to act as liquidators. 11 I conclude that notwithstanding statements to the contrary by the liquidators, the winding-up is a creditors' voluntary winding-up. 12 Accordingly, the plaintiffs' proceeding in the Tribunal is stayed unless an order is made under s 500(2) to permit it to be proceeded with. 13 There has been no appearance by the company through its liquidators, nor by the directors, on the present application. That is to say, the company has not advanced any reason as to why leave to proceed in the Tribunal should not be given. 14 The nature of the claim is described in some detail in Mr Little's affidavit in support of the originating process. It appears to me that the claim would be more aptly determined by the Tribunal than by a liquidator in considering a proof of debt. 15 Mr Little's evidence gives grounds for concern that the placing of the company into voluntary liquidation may have been for the purpose of frustrating the plaintiffs' claim in the Tribunal. It is unnecessary to make an affirmative finding to that effect, but the inference is not rebutted by anything from the company, which has not appeared on this application. 16 Also of concern is that there has been tendered today a request, apparently lodged by Mr Shaw as liquidator of the company, to ASIC, for the company to be deregistered on the grounds that there are no funds left in the creditors' voluntary liquidation to hold a final meeting, and that the affairs of the company are fully wound up. 17 I would have thought it was quite clear the affairs of this company are not fully wound up, there being on foot a claim against the company in the Tribunal as well as the present application. 18 The plaintiffs have also tendered a form which appears to state that the liquidators ceased to hold office on 6 January 2010. I am at a loss to understand how the liquidators could have ceased to hold office. 19 I trust that on a copy of these reasons being provided by the plaintiffs to ASIC, ASIC will not take any steps to proceed with the request that the company be deregistered without notice to the plaintiffs. On the materials before me there are no grounds for the company to be deregistered. 20 I make the following orders: 1. I give leave for the plaintiffs to proceed with the proceedings commenced by them against Edwards Concreting Pty Ltd ACN 104 650 535 ("the company") in the Consumer Tenancy and Trader Tribunal reference HB 08/46392.

2. I direct that no judgment obtained by the plaintiffs in the Consumer Tenancy and Trader Tribunal be enforced against the assets of the company without leave of this Court.

3. I order that paragraph 2 of the originating process be dismissed. 4. I stand over the question of costs to 3 March 2010 at 9.30 am. 21 There is a question as to whether the costs of the application should be paid out of the assets of the company, and whether the liquidators should personally pay any of the costs of the application. I direct that when a transcript of these reasons is available that the plaintiffs provide a copy of these reasons to the liquidators. 22 My Associate will also notify the liquidators that these proceedings are listed on 3 March 2010 to deal with questions of costs. I also expect an appearance by the liquidators on that day to explain the deregistration request of 11 January 2010 and the lodgment of the notice of their ceasing to be liquidators. Addendum: 11 February 2009 23 The above reasons were delivered ex tempore in the course of a busy Monday's Corporations List. I make the following additional observations and orders in chambers. 24 The evidence of Mr Little and the affidavits of other persons attached to his affidavit, if accepted, would indicate that after the resolution that the company be wound up voluntarily, the individuals who had conducted the business of the company continued to carry on the same business, using the same name (Edwards Concrete), the same corporate logo, and the same equipment. Mr Little gives evidence of Mr Leigh Edwards having boasted that he had "screwed you's over" by having placed the company into voluntary liquidation. 25 Pursuant to s 497 of the Corporations Act the liquidators were required to convene a meeting of the company's creditors and give creditors at least seven days' notice of the meeting, a summary of the affairs of the company in the prescribed form, and a list of creditors. I understand the plaintiffs to say that they did not receive notice of a meeting. They tendered a minute of a meeting of creditors of the company held on 15 October 2009 that recorded that only one person claiming to be a creditor attended, namely Mr Leigh Edwards, a director. His claimed debt was in the sum of $25,000. According to the minute the meeting was not held because a quorum was not present. The fact that Mr Edwards' presence did not constitute a quorum indicates that the liquidators were of the view that there were other creditors (Corporations Regulations 2001 (Cth) reg 5.6.16(2)). The minute does not record that the meeting was adjourned (see reg 5.6.16(1)(c)). 26 On 13 October 2009, the liquidators lodged with ASIC notices of disclaimer of onerous property. I infer these were contracts for the lease of two trucks and a bobcat loader. 27 As noted in my ex tempore reasons transcribed above, on 6 January 2010 the liquidators lodged with ASIC a notice they had ceased to be liquidators on that day. When I gave my ex tempore reasons I said I was at a loss to understand how that could be so. On further reflection it may be that the liquidators took the view that they could resign without the consent of creditors and without holding a creditors' meeting to have someone appointed in their place. If they did so, there is a question whether any such resignation was proper and whether any vacancy which may exist should be filled by the court's making an appointment of someone else as liquidator (Corporations Act, s 502; McPherson's Law of Company Liquidation, Thomson Reuters Legal Online, at [8.230]). 28 On 11 January 2010, Mr Shaw lodged a request that the company be deregistered. He said there were no funds to hold a final meeting of creditors and the company's affairs were fully wound up. At that time the Tribunal had adjourned the plaintiffs' proceedings to enable them to seek leave of this Court to continue with the proceedings. There is a question as to the propriety of the deregistration request lodged by Mr Shaw. 29 The company represented that it held, or was entitled to build, pursuant a licence under the Home Building Act 1989. The new business, through its new owner, makes the same claim, referring to the same licence, although if the licence were held by the company, prima facie, it would be cancelled on the company's going into voluntary liquidation (Home Building Act, ss 22 and 39). 30 Aspects of this matter are troubling. From the plaintiffs' perspective, they claim to have contracted with a company to carry out building work on their house. They make a claim of no great magnitude. The claim is for allegedly defective building work. Though significant to them, and to the director and shareholders, their claim, and the winding-up of the company, are unlikely to attract the attention of a regulator. Whilst the proceedings in the Tribunal were pending the shareholders put the company into voluntary liquidation. Whether it was a creditors' or a members' voluntary winding-up was unclear. That issue was debated in the Tribunal and the proceedings were adjourned to enable the plaintiffs to seek leave to proceed if that were appropriate. The plaintiffs say they were not given notice of the convening of a meeting of creditors. So far as appears, no meeting of creditors was held. The assets of the company were apparently disposed of to its directors and shareholders who, to all appearances, continue to carry on the same business under the same name and using the same assets. Possibly, the liquidators resigned, although no-one was appointed in their place. An application was made to ASIC for the company to be deregistered, although proceedings against the company were still pending. What consideration was paid for any transfer of assets or the goodwill of the business is unknown. Apparently, no reports were provided to the plaintiffs who claim to be creditors. The obstacles to the plaintiffs' recovering any damages if their claim is well-founded are formidable. They might not only have needed leave to proceed in the Tribunal, but they also might have needed to apply for the reinstatement of the company, and the appointment of a new liquidator simply to find out how the company's assets were dealt with. 31 The Court, on its own motion, can inquire into a matter if it appears that a liquidator has not faithfully performed his or her duties or has not observed a requirement of the Act or Regulations (Corporations Act, s 536(1)(a); Hall v Poolman [2009] NSWCA 64; (2009) 228 FLR 164). There is an independent power for the court, at any time, to require a liquidator to answer any inquiry in relation to the winding-up, to examine the liquidator or any other person concerning the winding-up, and to direct an investigation of the books of the liquidator (Corporations Act, s 536(3)). The court takes cognisance of the conduct of liquidators, including liquidators conducting a voluntary winding-up. The power to inquire under s 536(3) may require specification of the issues or questions to be inquired into (Hall v Poolman at [193]). 32 On the return of the matter on 3 March 2010, the liquidators may make submissions as to whether they should be examined on oath in relation to the matters specified below or matters incidental thereto, and whether the court should direct an investigation of their books. Messrs Leigh Robert Edwards and Douglas Robert Edwards may also make submissions as to whether they should be examined on oath in relation to the matters specified below or matters incidental thereto. 33 Such matters as may be the subject of an inquiry under s 536(3) are:

(a) the instructions and information given to the liquidators, the advice sought from them, and the advice given by them prior to the resolution that the company be wound up voluntarily;

(b) the information provided to the liquidators as to the financial position of the company, including its assets and liabilities, income and trading performance and any list of creditors;

(c) the investigations conducted by the liquidators as to the company's financial position and as to the identity and amount of its assets and its creditors;

(d) the creditors to whom notice of the meeting to be convened pursuant to s 497 was given;

(e) whether notice of that meeting was given to the plaintiffs, and if not, why not;

(f) whether the meeting the subject of the minute dated 15 October 2009 was held, and if so, whether it was adjourned, and if not, why not;

(g) whether any meeting of creditors required by s 497 was held, and if not, why not;

(h) whether any report as to affairs or information of a kind required by a report as to affairs was provided by a director of the company to the liquidators, and if so, the content of such report or information;

(i) the contracts disclaimed by the liquidators and the reasons for and reasonableness of the disclaimer;

(j) what were the assets and liabilities, the income and expenses, and the cash flow position of the company;

(k) whether the assets of the business of the company were transferred to or at the direction of the company's directors or shareholders, and if so, what was transferred, on what terms, and for what consideration;

(l) under what licence the company carried on its building business and what became of that licence;

(m) whether the liquidators resigned or purportedly resigned their position, and if so:

ii) why they did so; iii) whether there had been prior discussions with the directors or officers of the company about their doing so, and if so, what discussions; iv) why they did not convene a meeting of creditors to replace them as liquidators or seek directions from the court.

(n) if the liquidators did not resign or purportedly resign, on what basis it is said that they ceased to hold office;

(o) what knowledge the liquidators had of the plaintiffs' proceedings in the Tribunal and what authority they gave to a director or officer to represent the company in the Tribunal; and

(p) the reasons for the liquidators' requesting ASIC to deregister the company and the propriety of that request. 34 The company's winding-up appears to be a relatively small affair. If an inquiry under s 536(3) is warranted it should be short. I do not have the time for extended questioning. The liquidators should not be subjected to extended questioning, or required to attend on multiple occasions. Accordingly, if I were to decide that I should investigate the liquidator's books and examine the liquidators or other persons on oath pursuant to s 536(3), I would propose to do so immediately after making such a determination, if time and other court commitments permits that to be done. 35 It is not my present intention to decide whether I should make an order for the court to conduct an inquiry under s 536(1)(a) until I have decided whether I should require the liquidators to answer an inquiry under s 536(3), to investigate the liquidator's books pursuant to that sub-section, and to examine other persons pursuant to that sub-section, and if so, have conducted an inquiry under s 536(3). Nonetheless, I will hear submissions in relation to the exercise of the power under s 536(1)(a), if the liquidators contend that after an inquiry under s 536(3) there should be no inquiry under s 536(1)(a), or if they contend that any such inquiry under s 536(1)(a) should precede an inquiry under s 536(3), or that for any reason no inquiry under s 536(1)(a) or s 536(3) is warranted. 36 If they wish to do so, the liquidators and the Messrs Edwards may provide written submissions in advance of 3 March 2010, so that if I were persuaded that no inquiry under s 536(1)(a) or (3) was required, I could discharge the orders requiring their attendance on 3 March 2010. I might also vary such orders requiring the attendance of both liquidators if one of them only had the carriage of the winding-up and he attends. Any such submissions should be provided to my Associate by 26 February 2010 with a copy to the plaintiffs. 37 For these reasons, I make the following further orders:

That Scott Anthony Newton, James Alexander Shaw, Leigh Robert Edwards and Douglas Robert Edwards have liberty to provide written submissions to my Associate on the questions whether the court should exercise its powers pursuant to s 536(1) or s 536(3) of the Corporations Act in relation to the winding-up of Edwards Concreting Pty Ltd ("the company"), or if they seek a variation or discharge of the orders below.

Any such submissions are to be provided to my Associate with a copy to the plaintiffs by 26 February 2010.

Fix the matter at 9.30am on 3 March 2010 to hear any submissions by or on behalf of those persons in relation to whether the court should exercise its powers under s 536(1) or s 536(3) in relation to the winding-up of the company.

That each of Scott Anthony Newton, James Alexander Shaw, Leigh Robert Edwards and Douglas Robert Edwards attend on 3 March 2010 at 9.30am at court 10C, Law Courts Building, Queen's Square, Sydney, until excused, to be examined on oath or affirmation concerning the winding-up of the company.

That on 3 March 2010 Scott Anthony Nelson and James Alexander Shaw produce to the Court at court 10C, Law Courts Building, Queen's Square, Sydney, their books relating to the company.

That the Sheriff promptly effect personal service or arrange for the personal service of these orders and accompanying reasons upon Scott Anthony Newton, James Alexander Shaw, Leigh Robert Edwards and Douglas Robert Edwards.

Liberty to apply on 72 hours' notice to the plaintiff.

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