Macquarie University v Macquarie University Union Limited

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD 784 OF 2007

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD 796 OF 2007

MACQUARIE UNIVERSITY STUDENTS' COUNCIL INCORPORATED

INTRODUCTION 1 In proceeding NSD 784 of 2007, on 4 May 2007 I appointed Trevor Mark Pogroske as official liquidator provisionally of the defendant, Macquarie University Union Limited ("MUU"): see Macquarie University v Macquarie University Union Limited [2007] FCA 743. 2 In proceeding NSD 796 of 2007, on 10 May 2007 Rares J appointed Mr Pogroske as official liquidator provisionally of the defendant, Venues at Macquarie Pty Limited ("Venues"): see Macquarie University Union Ltd (in provisional liquidation) v Venues at Macquarie Pty Limited [2007] FCA 721. 3 I will use the abbreviations "MUU" and "Venues" to refer to the respective defendants both before and after the appointments of Mr Pogroske as provisional liquidator, without distinguishing between their status before and after those appointments. 4 I will take both sets of reasons for judgment to which I have referred as read. They provide the background to the orders I made on 23 May 2007 for the winding up of both MUU and Venues and the appointment of Mr Pogroske as liquidator of those companies. These are my reasons for the making of those orders.

BACKGROUND 5 Much has happened since Mr Pogroske was appointed as provisional liquidator of MUU and of Venues. In proceeding NSD 784 of 2007, MUU filed an interlocutory process on 15 May 2007 seeking an order that Steven John Brown of Etienne Lawyers pay to it $118,000. In the same proceeding, MUU and Mr Pogroske filed an interlocutory process on 16 May 2007 seeking an order that the annual general meeting of MUU proposed to take place on 31 May 2007 not take place unless otherwise ordered by this Court. 6 In proceeding NSD 796 of 2007, Venues filed an interlocutory process on 15 May 2007 seeking an order that Macquarie University Students' Council Incorporated ("MUSC") pay $95,000 to Venues. By a separate interlocutory process filed in the same proceeding on 15 May 2007, Venues seeks an order that Mr Brown pay $115,000 to it. 7 All of the interlocutory applications were fixed for hearing at 10.15 am on 23 May 2007 but the circumstances changed fundamentally last week when the various elected student councillors decided not to contest further either the interlocutory applications or the substantive applications. In the result, the respective plaintiffs, Macquarie University ("the University") and MUU published notices in The Sydney Morning Herald on 18 May 2007 to the effect that they would apply for orders winding up MUU and Venues at 10.15 am on 23 May 2007. Rule 5.6(2)(b) of the Federal Court (Corporations) Rules 2000 requires that such notice be published at least seven days before the date fixed for hearing of the application. The notices were published a little less than seven days before 23 May 2007, but I waived compliance with the rule. 8 On the hearing, Mr Brown, through counsel, indicated that he wished to pay into Court $118,000 in proceeding NSD 784 of 2007 and $115,000 in proceeding NSD 796 of 2007 - a total of $233,000. These were the amounts referred to in the respective interlocutory processes directed to him (see [5] - [6] above). It was agreed between the respective applicants and Mr Brown that orders be made for him to make those payments into Court. Because there was a question as to the period of time during which the money would have to abide an order of the Court, I ordered by consent that those two interlocutory applications be stood over to Wednesday, 6 June 2007 at 9.30 am, and that the parties to them have liberty to apply on 24 hours' notice in the meanwhile. This would allow an opportunity, if need be, for an order to be made for investment of the amount in a special interest bearing account rather than its simply being deposited in the non interest bearing Litigants' Fund. 9 Because, in the event, I ordered that MUU be wound up, the interlocutory application in proceeding NSD 784 of 2007 seeking an order that the annual general meeting of MUU not be held became otiose and I ordered that that interlocutory application be dismissed. 10 On 17 May 2007, the Supreme Court of New South Wales ordered that MUSC be wound up and that Mr Pogroske be appointed liquidator in respect of it (see further [22] below). Accordingly, the interlocutory application in proceeding NSD 796 of 2007 seeking an order that MUSC pay $95,000 to Venues also lost its utility. On the application of Venues, I also dismissed that interlocutory application. (There was no appearance for MUSC, although, of course, its liquidator, Mr Pogroske, instructed senior counsel who appeared for Venues.) THE PRESENT APPLICATIONS FOR THE WINDING UP OF MUU AMD VENUES 11 By its originating process filed in Court on 4 May 2007, the University seeks an order for the winding up of MUU on the oppression and just and equitable grounds pursuant to ss 461, 462, 232 and 233 of the Corporations Act 2001 (Cth) ("the Act"). 12 By its originating process filed on 8 May 2007, MUU seeks an order for the winding up of Venues on the grounds of insolvency pursuant to ss 459A, 459B and 459P of the Act, and on the just and equitable and oppression grounds pursuant to ss 461, 462, 232 and 233 of the Act.

MUU 13 MUU is a company limited by guarantee. It trades under the name "Students at Macquarie" or "SAM". MUU operates as a student union and, according to its objects, exists to complement and support the academic activities of the University by providing products, services and facilities that, among other things, promote the welfare of the University and the wellbeing of its members. In keeping with its objects, MUU operates and owns one child care centre, manages two other child care centres, operates a food and beverage business, including licensed premises, and operates an entertainment department, a retail organisation and an academic dress service. MUU operates a number of bank accounts, including, relevantly, two bank accounts with the National Australia Bank ("NAB"): Banksia Cottage Childcare Centre Account (No 537121144) ("Banksia account") and a general MUU account (No 209281157) ("MUU account"). 14 As at 3 May 2007, the board of MUU comprised 13 directors. These included Victor Ma (the executive director), Siu Kei Cheung, Annie Tseung and Chi Cheung Wong. They also included (in accordance with the MUU Constitution) Mr Robert Tongue and Ms Marilyn Dodkin as the two University Appointed Board Members. Alfonso Maccioni is the Chief Operating Officer of MUU, as well as the MUU Employee Elected director of MUU. Mr Maccioni was, to his knowledge up until late April 2007, a signatory on the Banksia and MUU accounts. Ms Katrina Jacobson was the Financial Controller of MUU and, until 30 April 2007, was also a signatory on each of the Banksia and MUU accounts. 15 On 4 May 2007, the University Council passed a resolution that the appointments of all members of the board of MUU be rescinded other than those of the University Appointed Board Members and the MUU Employee Elected director. 16 As noted above, on the same day the Court appointed Mr Pogroske official liquidator provisionally of MUU.

Venues 17 Venues is a wholly-owned subsidiary of MUU. Venues operates a function centre and a catering business. It also operates a bank account with the NAB (No 577224463) ("Venues account"). 18 As at 3 May 2007, the board of Venues comprised six directors: Victor Ma, Siu Kei Cheung, Annie Tseung and Chi Cheung Wong, and Alfonso Maccioni and Anthony Matis (who is also the Chief Executive Officer of MUU). Mr Maccioni and Mr Matis resigned as directors of Venues on 2 May 2007. Ms Jacobson and Mr Maccioni were signatories to the Venues account. 19 On 8 May 2007 the board of Venues caused Venues to go into voluntary administration and Richard Albarran and Robert Elliott of Hall Chadwick were appointed voluntary administrators. 20 On 10 May 2007, in association with the appointment of Mr Pogroske as official liquidator provisionally, Rares J ordered that the voluntary administration of Venues end.

MUSC 21 MUSC is an association incorporated under the Associations Incorporation Act 1984 (NSW) ("the AI Act"). It acts as a student representative body and its objects include providing a recognised means of communication between students and the University. MUSC is unrelated to MUU and Venues although some of MUSC's councillors, including Victor Ma, are also directors of MUU and Venues. 22 The grounds on which the Supreme Court of New South Wales on 17 May 2007 ordered that MUSC be wound up were that it was unable to pay its debts and the just and equitable grounds pursuant to s 51(1)(c) and (j) of the AI Act (Macquarie University v Macquarie University Students' Council Incorporated [2007] NSWSC 510).

Application to wind up MUU 23 As the University is a member and a contributory of MUU pursuant to cll 1.26(j) and 6(b) of MUU's Constitution, it has standing pursuant to ss 234 and 462(2) of the Act to apply for an order that MUU be wound up.

Transfers of funds not in the interests of MUU and Venues 24 In the period 30 April 2007 to 2 May 2007, Ms Jacobson discovered anomalous transfers of moneys out of bank accounts as follows: (a) a sum of $40,000 from MUU's Banksia account on 27 April 2007; (b) a sum of $55,000 from the Venues account on 27 April 2007; (c) a sum of $40,000 from the Venues account on 2 May 2007; (d) a sum of $50,000 from the Venues account on 2 May 2007; and (e) a sum of $30,000 from the MUU account on 2 May 2007. 25 The transfers were made without the knowledge of Mr Maccioni or Ms Jacobson. 26 The sum of $40,000 transferred from the Banksia account on 27 April 2007 was returned to that account on 1 May 2007. 27 Ms Jacobson alerted the board of directors of MUU to the transfers in emails sent on 1 and 2 May 2007. She received responses that were unsatisfactory in that they merely told her that it would be revealed in due course that the transfers had been in order and that she should not concern herself over them. 28 On 4 May 2007, the date of Mr Pogroske's appointment as provisional liquidator of MUU, a further transfer of $88,000 was made from the MUU account to the account of Etienne Lawyers. This was in addition to the $30,000 referred to earlier which had been transferred to Etienne Lawyers on 2 May 2007. This makes $118,000 transferred to Etienne Lawyers, and is amount is the subject of the interlocutory application referred to in [5] above. Mr Pogroske requested the return of both sums from those who appeared to have been the authorised signatories of the accounts: Victor Ma, Ethan Li and Siu Kei Cheung. Mr Pogroske received responses which did not explain why the amounts had been transferred and why they were not being immediately returned. 29 In his affidavit sworn 14 May 2007, Mr Pogroske deposes that he "is not aware of any legitimate purposes for the transfer of the two payments referred to Etienne Lawyers, based on [his] inspection of the books and records of MUU". 30 With respect to amounts transferred from the Venues account, Mr Pogroske deposes in his two affidavits sworn on 14 May 2007 and filed in the Venues proceedings that, based on his investigations and communications with the NAB: (a) the $55,000 transferred on 27 April 2007 was transferred to a bank account held by MUSC; (b) the $40,000 transferred on 2 May 2007 was transferred to a bank account held by MUSC; (c) the $50,000 transferred on 2 May 2007 was transferred to Etienne Lawyers; (d) a further amount of $65,000 was transferred to Etienne Lawyers on 4 May 2007. 31 As can be seen, this makes $115,000 transferred to Etienne Lawyers and $95,000 transferred to MUSC. These are the amounts the subject of the interlocutory applications referred to in [6] above. 32 By letter dated 12 May 2007, Mr Brown of Etienne Lawyers stated to Mr Pogroske that he was not aware of having received any moneys from Venues, and that he did not receive instructions from that company. 33 In his affidavit sworn 14 May 2007 and filed in the Venues proceeding, Mr Pogroske deposes that "[b]ased on [his] investigations into Venues, and inspection of its books and records, [he] is not aware of any legitimate purpose for the transfer of the above monies to MUSC." 34 Further, with respect to the total of $210,000 removed from the Venues account (particularised in [30] above), Mr Pogroske deposes that if those transfers had not been made, Venues would have had sufficient funds to pay a substantial portion of its liabilities owing to MUU.

Oppressive and unfair conduct to the detriment of the University 35 Sui Kei Cheung, Chi Cheung Wong and Annie Tseung were appointed as members of the board of directors of MUU on 27 April 2007 without the knowledge of Mr Maccioni. 36 On or about 30 April 2007, Mr Ma and others arranged for Mr Maccioni and Ms Jacobson to be removed as signatories to the MUU, Banksia and Venues bank accounts without the knowledge of Mr Maccioni or Ms Jacobson. 37 When questioned by Ms Jacobson and Mr Pogroske about the transfers referred to above, Mr Ma and certain of the other directors were less than forthcoming. 38 I accept that the transfer of the funds was part of a strategy on the part of Mr Ma and certain of the other directors to remove assets from MUU and Venues into their control through either MUSC or Etienne Lawyers. The purpose of the strategy was to ensure that the assets were placed beyond the reach of the University, and was contrary to the objects of MUU and in breach of the directors' obligations to the membership of MUU as a whole. 39 It is beside the point that Mr Ma and others may have believed that their strategy was morally or politically supportable or that they did not intend to make any personal gain from the funds.

Authorities on "just and equitable" and "oppression" grounds for winding up 40 It is appropriate for the Court to exercise its discretion to wind up a company on the just and equitable ground in circumstances where there is "a lack of probity in the conduct of the company's affairs, productive of a justifiable lack of confidence in the administration of the company": Macquarie Bank Ltd v TM Investments Pty Ltd (2005)223 ALR 148 at [11]; see also Deputy Commissioner of Taxation v Casualife Furniture International Pty Ltd (2004) 9 VR 549 at [452]. A justifiable lack of confidence may be shown where directors of a company cause the company to enter into highly irregular and potentially dishonest transactions (Macquarie Bank Ltd v TM Investments Pty Ltd,above, at [16]) or where the history of the conduct of the company indicates a failure to abide by its obligations and by commercial morality in the conduct of the business (Deputy Commissioner of Taxation v Casualife Furniture International Pty Ltd, above, at [504]). An order may be made where a company has not carried on its business candidly and in a straightforward manner with the public or in circumstances where, as here, the company has improperly divested itself of assets in breach of directors' obligations under the Act (Australian Securities and Investments Commission v International Unity Insurance Pty Limited (2004) 22 ACLC 1416, per Lander J at [135] - [139] and cases there cited). 41 Orders for winding up on the oppression ground (whether under s 461 or s 232) may be appropriate where the conduct of a company's affairs is contrary to the interests of the members as a whole or is oppressive to members, whether in their capacity as members or another capacity. A key consideration is whether there has been unfairness in the abuse of majority power or control (Wayde v New South Wales Rugby League Limited (1985) 180 CLR 459 at 472, per Brennan J). Unfairness may be inferred where there is a lack of reasonable commercial justification for the conduct (Jenkins v Enterprise Gold Mines NL (1992) 6 ACSR 539). 42 In the factual circumstances of the present case, the Court's discretion to wind up MUU on the just and equitable ground and the oppression ground, is enlivened and should be exercised in my view. The directors in question have not sought to support their actions on any legally defensible ground. 43 An order to wind up on the just and equitable ground is particularly warranted where the University is considering the restructuring of the provision of services to students by the amalgamation of the operations of MUU, Venues, MUSC and other organisations providing services to students. This restructuring is being considered in the light of the reduction of income to these bodies resulting from the abolition of compulsory upfront student union fees by the Commonwealth government in 2005. Orders for the winding up of student associations on the just and equitable ground (albeit pursuant to s 51 of the AI Act) have been made in circumstances where the association will be unable to continue to provide services in keeping with its objects for the reason that it can no longer fund the services (Re Bankstown Students Association Inc [2005] NSWSC 700; Macquarie University v Macquarie University Students' Council Incorporated [2007] NSWSC 510). 44 It is no satisfactory solution for a fresh election of directors to be held because the directors who have caused the money of MUU to be transferred from its bank accounts may well be re-elected and embark on a similar course of action again. The case is thus not akin to one in which it can be said that the solution of removing the existing directors and replacing them with acceptable ones lies in the hands of the aggrieved party through its controlling voting power as a member.

Application to wind up Venues 45 Venues owes MUU $297,745.92. MUU is both the sole shareholder and the largest creditor of Venues. 46 As plaintiff in proceeding NSD 796 of 2007, MUU relies on the matters referred to above as they relate to Venues. 47 In addition, MUU applies for winding up of Venues on the ground of insolvency pursuant to ss 459A and 459P of the Act. That ground is also established in my view.

CONCLUSION 48 For the above reasons, I ordered that MUU and Venues be wound up and that, in each case, Mr Pogroske be appointed liquidator. I certify that the preceding forty-eight (48) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lindgren.

Associate: Dated: 31 May 2007 Proceeding NSD 784 of 2007 Counsel for the First and Second Plaintiffs and the First and Second Applicants on the Interlocutory Process: Mr I M Jackman SC and Ms J Shepard

Solicitor for the First and Second Plaintiffs and the First and Second Applicants on the Interlocutory Process: Addisons

Counsel for the Respondent on the Interlocutory Process: Mr A D Justice

Solicitor for the Respondent on the Interlocutory Process: Etienne Lawyers

Date of Hearing: 23 May 2007

Date of Judgment: 23 May 2007

Date of Publication of Reasons: 31 May 2007

Proceeding NSD 796 of 2007 Counsel for the Plaintiff and Applicant on the Interlocutory Process: Mr I M Jackman SC and Ms J Shepard

Solicitor for the Plaintiff and Applicant on the Interlocutory Process: Addisons

Counsel for the First Respondent on the Interlocutory Process: Mr A D Justice

Solicitor for the First Respondent on the Interlocutory Process: Etienne Lawyers

The Second Respondent on the Interlocutory Process did not appear

Date of Hearing: 23 May 2007

Date of Judgment: 23 May 2007

Date of Publication of Reasons: 31 May 2007