Lunn v Cardiff Coal Company

Standing to bring the application

1. Section 459A of the Corporations Act relevantly provides that: "On an application under section 459P, the Court may order that an insolvent company be wound up in insolvency". Section 459P(1) provides that such an application may be made by, inter alia, the company, a creditor or a director. Section 459P(2) provides that an application by a director may only be made with the leave of the Court.
2. In this case, an application cannot be made by the Company because the Company's sole director was Ms Marshall, who is now deceased, and there is no-one who can authorise a decision to bring the application. Initially, Messrs Murray and Maguire sought to bring this application as executor and trustee for the estate of Ms Marshall, in her capacity as a director of the Company. It seems to me that the application cannot be sustained on that basis, so far as the office of a company's director must be vacated on the death of that director. Although the Company's articles of association are not in evidence, Ms Marshall is plainly no longer a director of the Company after her death, and her executors, in their capacity as executors, cannot take steps that could only be taken by her as a director of the Company. Section 201F(2) of the Corporations Act provides that, if a person who is the only director and only shareholder of a single director proprietary company dies or becomes unable to manage that company due to mental incapacity, then a personal representative appointed to administer that director's estate may appoint a person as the director of that company. Messrs Murray and Maguire have not taken that course. Mr Rosenblatt, who appears for the Plaintiffs, points out that a prudently advised person is unlikely to wish to be appointed as director of the Company which, as will emerge below, is likely insolvent.
3. This gives rise to the difficulty that, on the face of it, the Company cannot bring an application for it to be wound up in insolvency, because it now has no director, and a director cannot do so, even with leave, because there is no director. There are other persons who could bring a winding up application, including a creditor, a contributory or the Australian Securities and Investments Commission, but none of them had done so in the initial form of the application .
4. A question arises as to whether that was fatal to the application. Long before there was a statutory regime for the winding up of companies, equity courts had jurisdiction over joint stock companies, which were a form of partnership although they had many of the features that now characterise companies. Although the Corporations Act provides a detailed regime for the regulation of companies, it does not necessarily follow that it excludes an inherent jurisdiction of the Court to wind up a company where it is plainly insolvent and no other party is prepared to bring an application which has standing to do so under s 459P of the Corporations Act. It would be an undesirable result if a company, in a state of insolvency, could not be wound up by interested persons, including the executors of a deceased director, because no one who had standing to bring the relevant application would bring that application.
5. Unassisted by authority, I would have been inclined to proceed on the basis that the Court has an inherent jurisdiction to deal with the application for a winding up of an insolvent company in these circumstances. A similar view was arguably taken by Young J, as his Honour then was, in Re Kalblue Pty Ltd (1994) 12 ACLC 1057 and again by Young CJ in Eq in Re Botar-Tatham Pty Ltd [2001] NSWSC 613; (2001) 52 NSWLR 680.
6. However, there are a number of decisions to the contrary, to which Mr Rosenblatt has helpfully drawn attention in written submissions. A different view was taken in Western Interstate Pty Ltd v Deputy Commissioner of Taxation for the Commonwealth of Australia (1995) 13 WAR 479; 14 ACLC 216 and, in Lunn v Cardiff Coal Company [2002] NSWSC 1247; (2002) 171 FLR 430; 43 ACSR 649 at [26]ff, Barrett J considered the relevant authorities and held that the Court did not have an inherent jurisdiction to wind up a company, outside the statutory jurisdiction. Barrett J noted that Young J had not taken that course in Re Kalblue Pty Ltd above, but instead had extended the range of standing for a winding up application, and his Honour also referred to the decision in Western Interstate Pty Ltd v Deputy Federal Commissioner of Taxation above where that decision had been doubted.
7. In Re University of Newcastle Union Ltd [2008] NSWSC 1361 at [16], Barrett J returned to this subject and noted that it was unnecessary in that case to consider whether the Court could entertain a winding up application and order a winding up in the absence of an application by someone who is recognised by s 462(2) of the Corporations Act as a competent applicant and expressed the view that it could not, by reason of s 462(5) of the Corporations Act.
8. Mr Rosenblatt draws attention to an article by Mr Ehlers, "Inherent equitable jurisdiction and the plenary power of the Supreme Court of New South Wales to order the winding up of a company" (2010) 18 Insolv LJ 52, where the learned author had reviewed the relevant authorities and argued that a contrary approach should be taken. That approach is not open to me in the light of the decision in Treadtel International Pty Ltd v Cocco [2016] NSWCA 360; (2016) 316 FLR 318; 117 ACSR 176, to which Mr Rosenblatt helpfully also draws attention. Barrett AJA (with whom Gleeson and Leeming JJA agreed) there observed (at [84]) that: "Under s 462(2) of the Corporations Act, an application for a winding up order may be made by a person within one of the categories there specified. Application by a person not within any of those categories is not permitted and the court may not order winding up on such an application. That is made plain by s 462(5)." His Honour expanded that observation, at footnote 34, where his Honour noted that: "It was said by Young J in Re Kalblue Pty Ltd (1994) 12 ACLC 1057 that the court's inherent power recognised by s 23 of the Supreme Court Act 1970 (NSW) enabled it to make a winding up order under the Corporations Law of New South Wales in respect of a company within the meaning of that enactment even though no application for winding up had been made by a person within the specified categories of eligible applicant. That opinion was disapproved in Western Interstate Pty Ltd v DCT (1995) 13 WAR 479 at 481 but later repeated by Justice Young in Re Botar-Tatham Pty Ltd (2001) 52 NSWLR 680; [2001] NSWSC 613 at [22] and doubted by me in Lunn v Cardiff Coal Co [2002] NSWSC 1247; (2002) 171 FLR 430 at [30]. In Lunn v Cardiff Coal Co (No 2) [2003] NSWSC 25 I went further, saying (at [11]): "The court possesses no jurisdiction to set in train processes resulting in the extinction of a body corporate created by statute except to the extent that statute so allows". To accept that an effective application for winding up may be made by a person not recognised by the statute as a competent applicant is to overlook or disregard the clear words of s 462(5)."
9. I am bound by that decision and it seems to me the same reasoning would apply, by way of analogy, to an application under s 459P of the Corporations Act where s 459P(1) specifies the relevant persons and, importantly, s 459P(5) of the Corporations Act provides that, except as permitted by the section, a person cannot apply for a company to be wound up in insolvency.
10. I note, for completeness, that in Re Lilibuck Pty Ltd [2016] NSWSC 1950, Brereton J, consistent with the view that I might have taken, observed that the Court had an inherent power to wind up a company of its own motion under the Supreme Court Act 1970 (NSW) (s 23) where a company has neither a contributory nor a director and there is no practicable alternative. That, with respect, would be a useful power, if it is available notwithstanding the authorities to which I have referred above.
11. In the event, it is not necessary to determine these very complex issues in order to determine this application. After these issues were raised, the Plaintiffs, sensibly, sought leave to amend the Originating Process to add an additional Plaintiff, Alpha Consulting Group (Norwest) Pty Ltd, which is the Company's accountant. A further affidavit of Mr Murray indicates that that firm had issued invoices in July 2017 and August 2017 to the Company that are presently due and unpaid, in the amount of $4,125.94. That firm is a creditor of the Company and has standing to bring the application under s 459P of the Corporations Act. On that basis, orders for winding up the Company can properly be made where its insolvency is established, for the reasons noted below.

Evidence of insolvency

1. I am satisfied, having regard to Mr Murray's evidence, that the Company is, in fact, insolvent, and that a basis for winding up on the just and equitable ground is also established, although Mr Rosenblatt did not rely on that ground by reason of the issue of standing. Mr Murray is both the executor and trustee of Ms Marshall's deceased estate and he is also a director of the firm which is the Company's external accountants. His evidence is that the Company had a balance sheet deficiency in an amount of $245,983 as at 30 June 2017; that it does not have sufficient current assets to meet its current liabilities; that its net asset deficiency has increased in its balance sheet and profit and loss statement as at 30 November 2017; and that there is no cash at bank or receivables available to extinguish the liabilities recorded in its balance sheet. There is also in evidence correspondence from the Australian Taxation Office in respect of the Company's failure to lodge business activity statements and from the Commissioner of State Revenue (Queensland), in respect of overdue payroll tax periodic returns. It appears plain that the Company has accrued or is accruing tax liabilities that it is presently unable to meet.

Orders

1. In these circumstances, I was satisfied that the company should be wound up and made orders accordingly.

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