Mercy & Sons Pty Ltd v Wanari Pty Ltd [2014] NSWSC 1889 | Case summary

Mercy & Sons Pty Ltd v Wanari Pty Ltd [2014] NSWSC 1889 | Case summary | Zoe

By Originating Process filed on 12 November 2014, the Plaintiffs, Mr Paul Valois and Mr and Mrs Legaz, apply under ss 482 and 511(1)(b) of the Corporations Act 2001 (Cth) for an order that the winding up of Pool Doctor Services Pty Ltd ("Company") be terminated.
Mr Valois is the liquidator of the Company, which is presently in voluntary liquidation. He has sworn an affidavit dated 12 November 2014 in support of the application for termination of the voluntary winding up. He notes that he has acted as accountant and tax agent to the Company and to its shareholders and directors for a considerable period, prior to his appointment as liquidator in the members' voluntary winding up. He sets out the Company's history, noting that the Company undertook business activities on its own account prior to the sale of its business in 2006, and has since acted as the trustee of a trust, The Pool Doctor Services Settlement ("Trust").
He refers to discussions, in the period since 2009, of the possibility that the affairs of Mr and Mrs Legaz could be simplified, including by a members' voluntary winding up of the Company, but those discussions appear to have proceeded on the basis that, obviously enough, a new trustee would be appointed to replace the Company as trustee of the Trust prior to the Company being placed in winding up.
Mr Valois also refers to discussions in 2013 as to the possibility that the Company may enter into call options for particular properties, as to which he was given limited detail, and to further discussions in 2014 which resulted in a members' voluntary winding up of the Company, by resolution passed by directors and shareholders on 30 April 2014 and 23 May 2014 respectively. Mr Valois sets out the Company's assets, at the time of the members' voluntary winding up, which included a registered interest in property at Marrickville NSW, held in its capacity as trustee of the Trust, and also rights under certain options to acquire land, including at Asquith NSW, of which Mr Valois and his staff were not aware in May 2014.
Mr Valois also gives evidence as to the Company's assets, although the latest balance sheet of the Company which is in evidence is now some time ago, as at 30 June 2013. He notes that the Company has a related party receivable in excess of $500,000 and does not have liabilities in its own right, although it has a liability in respect of a loan on the Marrickville property, but also holds an interest in that property.
He sets out the Company's assets and liabilities in its capacity as trustee of the Trust, including some liabilities, and also a corresponding right of indemnity against trust assets, and he notes that the assets of the Trust available for the indemnity exceed the liabilities of the trust by a substantial amount. He also indicates that he does not make any claim for fees as liquidator against the Company. He also, fairly, discloses that the Australian Taxation Office has not been able to issue a tax clearance for the year ended 30 June 2014, which depends upon the filing of the latest tax return of the Trust, which has not been completed.
Mr and Mrs Legaz each also swear affidavits in support of the application, which refer to their engagement of Mr Valois, and also indicate that they had not appreciated the possible implications of a winding up of the Company where it had not previously been removed as trustee of the Trust and a new trustee appointed. They also provide information as to the land owned by the Company at Marrickville and its liability in respect of that land. I interpolate that there is evidence that the lender in respect of that loan, Westpac Banking Corporation, has been advised of this application and has indicated that it has no objection to the application.
Mr Legaz and Mr Valois both express the view that the Company was solvent at the date that it was wound up, as is implicit in the fact that the winding up was a members' winding up, and is presently solvent. There is no reason to doubt that conclusion, although I note that, where the Company is not, it appears, undertaking a trading business, then that conclusion depends upon the extent of the liabilities which it will incur on an ongoing basis, if the winding up is terminated, as trustee of the Trust and its right of indemnity against trust assets. Mr Legaz also gives evidence, albeit in somewhat abbreviated form, of his expectation that the Company's involvement in a development of the Marrickville property is likely to generate a profit, and also refers to the options in respect of the Asquith property, which have been extended after the Company's solicitors advised the grantors of the fact that the Company had been inadvertently placed in winding up.
Mrs Legaz's evidence covers essentially the same territory as that of Mr Legaz. Mr Legaz also gives evidence, by a further affidavit dated 17 November 2014, that the Trust's beneficiaries or creditors are Mrs Legaz and himself.
Mr Gray, who appears for the Plaintiffs, has drawn my attention to several authorities dealing with the reinstatement of companies in liquidation. Several of those authorities, including the decision in Re Plaza West Pty Ltd (in liq) (subject to Deed of Company Arrangement) [2013] NSWSC 168; (2013) 93 ACSR 118 to which Mr Gray refers, deal with applications to terminate a winding up in circumstances where there have been previous issues as to the relevant company's solvency, where the Court is required to give relatively detailed attention to the question of the company's future solvency in respect of an application to terminate a winding up. As I will note below, the question of termination of a winding up, in respect of a members' voluntary winding up, may be a matter of lesser difficulty.
The Court has power to make an order terminating a winding up in respect of a court-ordered winding up under s 482 of the Corporations Act, and that power is extended to a voluntary winding up by s 511(1)(b) of the Corporations Act. An application under s 511(1)(b) of the Corporations Act may be brought by the liquidator, so Mr Valois has standing to bring the application, and it may also be brought by a contributory or creditor of the Company, so Mr and Mrs Legaz at least have standing to bring the application as contributories of the Company, and would also have standing to the extent that they are creditors of the Company.
Relevant factors to such an application have been identified in several cases, including Re Warbler Pty Ltd (1982) 6 ACLR 526 at 533; Mercy & Sons Pty Ltd v Wanari Pty Ltd (in liq) [2000] NSWSC 756; (2000) 157 FLR 107 at [47]ff and summarised by Austin J in Vero Workers' Compensation (NSW) Ltd v Ferretti Pty Ltd [2006] NSWSC 292; (2006) 57 ACSR 103 at [17] as including the interests of the Company's creditors, including future creditors; the interests of the liquidator, particularly with regard to costs; the interests of contributories and the interests of the public, including the public interest in matters of commercial morality, and the public interest that insolvent companies should be wound up.
I summarised the matters relevant to such an application, in the case of a company that had been placed in members' voluntary winding up, and, in that case, then deregistered in Re F&A Henry (Gowrie) Pty Ltd (deregistered) [2012] NSWSC 1061 at [17], as follows: "Section 511(1)(b) of the Corporations Act in turn authorises the Court to exercise the power to terminate a winding up in a voluntary winding up... subject to the question of the company's solvency, the Court may otherwise make an order terminating a winding up where a sole shareholder, for reasons of administrative convenience, took steps directed towards ultimate dissolution of the company at the conclusion of a members' voluntary winding up and, for reasons of the same kind, now wishes to put a stop to the process which it had previously thought would be beneficial: Re St George Bank Limited [2007] NSWSC 134 at [11]. I agree with the view expressed by Barrett J in Re St George Bank that, absent any demonstrated reason why the sole member's wish should not be implemented, the Court, having considered the interests of creditors and any public interest, should be willing to order the termination of a member's voluntary winding up if that is the sole member's wish."
I pause to emphasise that observation, because it underpins the comment that I made earlier that the question of termination of a winding up may raise less difficult issues in respect of an application of this kind than it would if, for example, the Company had previously been wound up by reason of insolvency. In the present case, as in Re St George Bank Ltd above and Re F & A Henry (Gowrie) Pty Ltd (deregistered) above, the evidence makes clear that the decision to wind up the Company was made by Mr and Mrs Legaz, in consultation with Mr Valois, for reasons of administrative convenience, that is to simplify their affairs, albeit without, as it turned out, a sufficient understanding of the difficulties which might arise if the process was implemented without replacing the trustee as trustee of the Trust. In the present case, because the decision was an administrative one, as Barrett J noted in Re St George Bank above, there seems to be no reason why the members of the Company should not be permitted to change their minds, unless any question of the interests of creditors or the public interest has intervened to prevent that result. That principle is no less applicable where an application is brought by both of the contributories of the Company than where it is brought by a Company's sole member.
It seems to me that the interests of creditors and future creditors of the Company do not provide any reason not to terminate the winding up. As Mr Gray points out, it appears that the Company's primary creditor is Westpac Banking Corporation, which is a secured lender in respect of the Marrickville property, and it has indicated that it does not oppose the application. No doubt, the Company may incur further debts in its capacity as trustee, from time to time, and will need to rely on its indemnity against trust assets in respect of those debts, but it appears that the property held by the Company as trustee is sufficient to meet that indemnity. No doubt, the directors will have to continue to monitor the Company's solvency, as all directors of all companies must do, but the position here is not that of reinstatement of a company which had previously been insolvent, or where there is any evidence to suggest that there is any particular risk that it will trade while insolvent in the future.
The issue which arises, in some matters, as to whether a company has sufficient financial strength to be returned to the mainstream of commercial life, to use the language of Sutherland v Rahme Enterprises Pty Ltd (in liq) [2003] NSWSC 673; (2003) 46 ACSR 458 at [9], is therefore less acute in this context. The interests of the liquidator do not cause any difficulty because he is an applicant for the termination of the winding up and has made clear that he does not have any claim against the Company in respect of costs of the winding up. The termination of the winding up is in the contributories' interests, so far as they bring the relevant application, and there is no public interest or matter of commercial morality identified in the application that is inconsistent with a termination of the winding up.
There are, however, two matters which I should note before making orders. The first is that a question may or may not arise, which does not need to be addressed in this application, as to whether there are any implications for the Trust of the fact that the Company has been in winding up, when it is not uncommon for trust deeds to include provisions which provide for automatic consequences of a winding up. That is not a matter that I need to address, but it is one to which the plaintiffs' legal advisors will need to have regard. Second, r 2.8 of the Supreme Court (Corporations) Rules 1999 (NSW) requires that notice of an application for the termination of a winding up be given to the Australian Securities and Investments Commission ("ASIC") a reasonable time before the hearing of the application. Although ASIC commonly does not appear in such applications, it will usually impose several conditions, of an administrative character, upon its decision not to resist such applications, in order to ensure that the process of termination of the winding up is effectively implemented. In the present case, notice had not been given to ASIC of the application to terminate the winding up. I do not consider that that is any reason to decline the application, or put the Plaintiffs to the costs of the further appearance, where it seems to me unlikely, on the evidence before me, that ASIC would take any active role in resisting the application. However, it seems to me that the proper course, which is not resisted by the Plaintiffs, is to direct them to serve the documents which have been relied upon in this application, and give notice of the orders made by the Court, to ASIC, and that I reserve liberty to ASIC to apply within 14 days if it wishes to be heard in respect of the orders that the Court has made.
Accordingly, I make the following orders:
An order that the winding up of Pool Doctor Services Pty Ltd be terminated.
Direct the Plaintiffs, within 24 hours, to provide a copy of the originating process and each affidavit relied upon in the application to the Australian Securities and Investments Commission.
Reserve liberty to the Australian Securities and Investments Commission to apply, should it seek to be heard in respect of the orders made, within 14 days.
These orders be entered forthwith.

Mercy & Sons Pty Ltd v Wanari Pty Ltd

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