"So far it has not been necessary for any court to define precisely what amounts to an alteration in the "status" of a shareholder. Plainly enough, the section is not concerned with persons with a disability or other peculiar legal condition, which is the usual meaning of "status". The section is designed to maintain the status quo as regards the rights and obligations of shareholders existing at the commencement of an administration. If the status quo is not maintained, then the rights that a company in administration or later liquidation may have against its shareholders could be impaired or lost. Undoubtedly, there will be an alteration in status if a preference shareholder becomes an ordinary shareholder, except perhaps in the unusual circumstances that exist in In re Blaina Colliery Co [1926] WN 30. There will also be an alteration in status if partly paid shares are converted to fully paid shares without payment of the balance of the uncalled capital (see In re Oriental Commercial Bank (1868) LR 5 Eq 420). So also if the register is rectified to remove the name of a shareholder ( In re London & Suburban Bank (1872) LR 15 Eq 274). There will be an alteration in status in each of these cases because there has been a change in the rights that subsist between the company and the shareholder (see In re National Bank of Wales (1897) 1 Ch 298). This case, however, falls beyond the reach of the section. Here, none of the rights or privileges which are vested in, nor any of the corresponding duties or obligations which are imposed upon, existing shareholders will in any way be affected by the allotment."
50 Second and in any event, Vamona Pty Ltd was not (and is not) a member of Brakepower. Mr Lollback was, at all material times, the sole member.
51 Third, there is an erroneous assumption that an issue or allotment of shares is somehow "registered at the ASIC".
52 It seems clear, however, that the liquidator consented in writing to corporate action of Brakepower, through its sole director, by which shares were issued to each of Vamona and Mr Lollback in consideration of release by them of the debts owed to them by Brakepower. It may be inferred, therefore - and the liquidator does not argue to the contrary - that there was approval of the director's action by the liquidator under s 471A(1A). The liquidator accepts that shares were allotted and (indebtedness extinguished) and that this happened on 17 May 2010 in consequence of approval granted by the liquidator on 1 April 2010.
53 Returning to the events of 6 April 2010, however, it is clear that, although Mr Lollback's claim was a claim for an order terminating the winding up, the winding up was, on that day merely stayed until further order so that the company remains subject to winding up. Thereafter, both the liquidator's application for determination of his remuneration and Mr Lollback's claim for an order directing a s 536 inquiry were progessed.
54 Against this factual background, I return to the complaints relevant to Mr Lollback's claim for a s 536 inquiry.
The liquidator's conduct in relation to the s 482 application
55 Mr Lollback contends that the liquidator should have consented to the termination of the winding up when the matter was before the court on 15 March 2010 and should not have done further work (attracting remuneration and entailing legal fees) beyond that date.
56 This contention not only misunderstands the role of a liquidator in such circumstances but is patently unsupported by the facts.
57 The position on the morning of 15 March 2010 was that the liquidator had received Mr Godfrey's solvency report at the close of business on the immediately preceding business day. He needed time to review it. As it happened, the report expressed the opinion that the company was insolvent and had been in that state since the commencement of the winding up. The report also expressed an opinion that the company would not be insolvent if the related party indebtedness to Vamona were capitalised and converted into share capital.
58 How can it possibly be said that the liquidator somehow acted wrongly because he did not indicate consent to the termination of the winding up of a company still in a state of insolvency? Perhaps the proposition is that he should have consented on the strength of an undertaking to the court by Mr Lollback to attend to capitalisation of the Vamona debt. But that is, for several reasons, a problematic proposition.
59 The capitalisation proposal arguably entailed disadvantage for Vamona. That company was asked to exchange the position of creditor of an insolvent company for the position of shareholder in a company rendered solvent solely by the elimination of the debt it owed to Vamona. What advantage did that transaction offer to Vamona, from the point of view of its own separate interests? And what of the position of Mr Lollback as, it appears, the sole director of Vamona as well as of Brakepower: how would he, as a fiduciary of each, arguably compromise the interests of Vamona for the advantage of Brakepower; and what of the interests of any separate constituency of creditors within Vamona?
60 Unless and until he actually saw the capitalisation achieved and completed, the liquidator was entitled to have reservations as to whether it would occur.
61 Nor could the liquidator proceed on any well-founded assumption that the court would see an undertaking regarding capitalisation as a sound basis on which to terminate the winding up of an insolvent company: see, for example, Re SNL Group Pty Ltd [2010] NSWSC 797.
62 In short, the liquidator was not presented with the clear-cut position that could have been achieved had Mr Lollback, before requesting the liquidator to support the termination, moved methodically to seek the liquidator's approval under s 471A(1A) to exercise of his powers as director to issue shares in satisfaction of a such suitable application as might be made by Vamona and, armed with that approval, to attend to the capitalisation of the Vamona debt and then produce appropriate evidence to Mr Godfrey so that he could express a positive and unconditional opinion on the question of solvency. Had Mr Lollback proceeded in that way, the liquidator's attitude to the termination application may have been different.
63 Mr Lollback and those advising him seem to think that, if a liquidator consents to a contributory's application for an order terminating a court-ordered winding up, the court will simply make the order without inquiry. This is simply not so. The power under s 482 to terminate or stay a winding up is discretionary. Speaking of termination, Austin J summarised the relevant principle as follows in Vero Workers Compensation (NSW) Ltd v Ferretti Pty Ltd [2006] NSWSC 292 ; (2006) 57 ACSR 103 at [17]:
"(i) the court has a discretion as to whether the winding up should be terminated;
(ii) in exercising its discretion, the court considers the interests of:
creditors of the company (including future creditors);
the liquidator, particularly with respect to costs;
the contributories;
the public, including the public interest in matters of commercial morality, and the public interest that insolvent companies should be wound up."
64 The attitude of the liquidator is an important consideration upon a termination application. If the liquidator is opposed, the court will scrutinise the matter very closely. If the liquidator consents, the court will have the knowledge that the person most familiar with the up-to-date position perceives no obstacle to the re-launching of the company into the mainstream of commercial life. If the liquidator neither consents nor opposes, the court will know that the liquidator does not consider himself or herself justified in offering the court an opinion one way or the other as to the ultimate outcome.
65 In the present case, the state of affairs existing on 15 March 2010 cannot be said to have been such that the liquidator was duty bound to consent to the termination - or even that that would have been the preferable course for him to adopt.
66 The liquidator's conduct in not consenting to termination of the winding up when the termination came before the court on 15 March 2010 does not raise any apprehension of misconduct warranting inquiry under s 536.
The liquidator's conduct in relation to the meeting of creditors
67 The complaint here, as I have said, is twofold: that the meeting should not have been convened; and that it was not properly convened.
68 The proposition that the meeting should not have been convened is bound up with the contention that the liquidator should have consented to the termination of the winding up. Reference was made by counsel for Mr Lollback to State Debt Recovery Office v L and G Contracting Service Pty Ltd [2009] NSWSC 1116.
69 It may be that, in some circumstances, the court will, as there, deal with a liquidator's remuneration in a relatively summary way in the context of a termination application. But that does not change the fact that, on the face of s 473(3), the expectation is that, where there is no committee of inspection, the fixing of remuneration is normally or principally a task for a meeting of creditors. In the ordinary course of events, the appropriate course will be for the liquidator to seek a resolution of creditors before resorting to the court.
70 The liquidator's intention to convene a meeting of creditors for this purpose was notified to Mr Lollback on 29 January 2010. Some nine days beforehand, Mr Lollback had filed his termination application. The liquidator had formed the view that it was not supported by evidence sufficient to prove solvency. The liquidator remained of that view until he became aware that, on 17 May 2010, the Vamona debt had been capitalised and converted into equity with the aid of an approval given by the liquidator on 1 April 2010.
71 When the liquidator gave notice of the meeting of creditors on or about 25 February 2010, the termination application had been before the court on two occasions but had not been progressed in any substantive way. When the meeting of creditors was held on 12 March 2010, the position was precisely the same. At neither point was there any sound basis for an expectation that an opportunity would (or might) present itself to seek to have the question of remuneration dealt with in the summary way outlined at paragraph [69] above.
72 From at least 10 March 2010, it was clear that Mr Lollback was opposed to the remuneration proposal put forward by the liquidator for consideration at the meeting. That position was confirmed when the meeting declined to pass resolutions as sought by the liquidator. An important point arises at this juncture. Not only did the meeting decline to pass the resolutions sought by the liquidator. It also failed to make any other determination of remuneration. It was open to the meeting to determine remuneration less than that sought. To resolve that, say, 50% or 75% of the claimed amount be determined as the liquidator's remuneration for each period is something that was within the power of the meeting. Section 473(3)(b)(i) differs in an important matter of substance from s 473(3)(a). The concept in s 473(3)(a) is one of agreement: there will be no determination of remuneration unless there is "agreement between the liquidator and the committee of inspection" and, in the event of agreement, it is the agreement that fixes the remuneration. Under s 473(3)(b)(i), by contrast, the process is one of unilateral determination by resolution of creditors. The creditors, by resolution, dictate the remuneration and there is nothing confining them to whatever request the liquidator may have made - indeed, they do not need to have any such request before them. If the determination that creditors actually make does not find favour with the liquidator (in the sense that the liquidator is of the opinion that there is, as an objective matter, a valid case to be made in support of a greater quantum), he or she may apply under s 473(6) for a review of the remuneration by the court.
73 When, as happened on 12 March 2010, the meeting of creditors is invited to pass particular resolutions fixing the liquidator's remuneration and passes neither those nor any other resolutions, the liquidator is at liberty to think that there is no point in persisting with the principal method of determination envisaged by the legislation for cases where there is no committee of inspection. On that footing, there was no reason why the liquidator should not have resorted to the s 473(3)(b)(ii) method, as he did by his interlocutory process filed on 19 April 2010 (at which time, it may be noted, the capitalisation of the Vamona debt approved by the liquidator some eighteen days earlier as part of Mr Lollback's plan to restore Brakepower to solvency had not occurred - it was to be a further four weeks before that happened).
74 Mr Lollback's solicitors said in their letter of 10 March 2010 to the liquidator's solicitors, after stating that the meeting had "not been properly convened" and was "totally unnecessary", that Mr Lollback intended "to informally approve" total remuneration of $10,000 and "would accept disbursements up to a limit of $5,000". Why Mr Lollback and his related creditors did not then act at the meeting to determine remuneration in the sum of $10,000.00, thus transferring to the liquidator the onus to seek review of that remuneration, is something that the evidence does not disclose.
75 I am of the opinion that the action of the liquidator in convening a meeting of creditors for the purpose of seeking a determination of his remuneration in the way envisaged by s 473(3)(b)(i) is not something that calls his conduct into question in any way warranting inquiry under s 536.
76 There is then Mr Lollback's allegation that the meeting was not properly convened. Submissions by his counsel refer to the letter of 10 March 2010 from Mr Lollback's solicitors as having made this allegation known to the liquidator. It is true that that letter did advance such an allegation. It did so in the fifth last paragraph. But neither in that paragraph nor elsewhere did the letter state the basis of the allegation - beyond the point that the termination application was pending and was to be before the court on 15 March 2010 in circumstances where Mr Lollback and his related interests were the only creditors.
77 Counsel's submissions go on to say, however, that the liquidator subsequently admitted "that he did not comply with his obligations in convening the meeting of creditors for the purpose of approving his remuneration". The admission is said to have been made through the letter of 11 March 2010 (see paragraph [39] above).
78 I do not accept that there was, in any relevant sense, an admission that the meeting had been not properly convened. The evidence is that the liquidator sent on 11 March 2010 a remuneration report that had been inadvertently omitted when the notice of meeting and supporting documents were sent earlier. The proposition that the omission was inadvertent is not questioned. By the time of the meeting, the additional information - not difficult to understand and absorb - was in the hands of creditors. Mr Lollback's complaint in the letter of 10 March 2010 in no way suggested that the information supplied in connection with the proposed resolutions regarding remuneration was inadequate. Nor, according to the minutes, was there any complaint at the meeting itself about the lateness of the additional report transmitted on 11 March 2010.
79 The significant point about these matters is that the meeting, at which the minutes show Mr Lollback to have been present, made no decision on the matter of remuneration. There can thus be no suggestion that a decision adverse to the interests of creditors was made on the basis of inadequate or incomplete information supplied by the liquidator in connection with the meeting.
80 The liquidator should have sent the remuneration report with the notice of meeting and the documents accompanying it. By inadvertence, he failed to do so. In the circumstances, his failure was not the source of prejudice to anyone and does not represent a ground on which the court should order a s 536 inquiry into the conduct of the liquidator.
The liquidator's conduct in relation to remuneration claims
81 The contention of Mr Lollback under this heading is that the remuneration claims advanced by the liquidator in the context of the 12 March 2010 meeting of creditors and afterwards were excessive and that the liquidator's conduct in that respect should be examined by the court.
82 The contention was explained by counsel for Mr Lollback in his opening:
"[W]hat we say is and partly with the benefit of Registrar Musgrave's decision but partly with this analysis we are going through, we say that the amount sought by the liquidator at that time was grossly excessive, 35, 40 percent in excess of what ought to have been requested.