St Leonards Property
28 The registered proprietor of the St Leonards Property was the first defendant, Mr Bouffiere's son. It appears from Campbell J's judgment that he granted a mortgage of that property to RAMS Mortgage Corporation Ltd, and also that he gave security over it to the Company.
29 There was evidence before Campbell J that the first defendant executed a mortgage on 8 October 2001 over the St Leonards Property in favour of the Company to secure the sum of $16,000. The discharge of that mortgage was executed, ostensibly by Mr Bouffiere, on 28 November 2001 (although it appears from Campbell J's judgment (at [46]) that there is an allegation that Mr Bouffiere's signature is a forgery).
30 In February 2003 the Company commenced a proceeding in this court against RAMS Mortgage Corporation Ltd and the first defendant, claiming a declaration that it was an equitable mortgagee of the St Leonards Property and seeking orders for the discharge of a mortgage held by RAMS. As Campbell J remarked (at [53]), it appears that Mr Zwar, who was acting for the Company in that proceeding, did so on instructions given to him by Mr Bouffiere while Mr Bouffiere was an undischarged bankrupt. The RAMS mortgage was later discharged.
31 The Company became a registered mortgagee of the St Leonards Property in 2003. According to Campbell J's judgment, the principal sum secured was $630,000. The mortgagee was undated but it was stamped and registered in mid-2003. The source of the funds is not revealed by the evidence.
32 Campbell J (at [56]) referred to some evidence indicating that the Company purported to exercise its security against the St Leonards Property later in 2003, but it was not able to sell the property at an acceptable price. By the time of the winding up hearing in 2005, there were further negotiations for sale and a draft contract had been submitted.
33 According to Mr Zwar's affidavit of 27 February 2006, the Company sold the property as mortgagee in possession for $630,000 in September 2005, and the net proceeds of sale were paid into the liquidator's trust account. But Mr Pascoe's Report to Creditors dated 22 December 2005 gives the purchase price as $642,000. Mr Pascoe has annexed a settlement sheet to his affidavit, which shows that the purchase price was $642,000 including a deposit of $64,200. The settlement sheet indicates that payment was made to the company of $518,272.90, and payment was made to the trust account of Mr Zwar's firm of $50,000. The destination of the deposit is not indicated.
The Buffier Family Trust
34 There was some evidence before Campbell J that, at one stage, a trust called the Buffier Family Trust had existed. His Honour concluded that the evidence did not establish that the Company was the trustee of that trust or that the Company held its interests in the St Leonards Property and the Kotara Property in trust.
35 There is further evidence before me now about the Buffier Family Trust. In his affidavit of 27 February 2006, Mr Zwar said that prior to 25 August 2005, when the winding up order was made, the Company purported to be the trustee of that trust. He said the trust had been registered at the Land Titles Office in Canberra in 1985. He exhibited to his affidavit a document he claimed to be a true copy of the "Original Deed" of the Buffier Family Trust.
36 The exhibited document is very curious in some respects. The first 19 pages consist of a standard text of an instrument called a Deed of Settlement. The instrument contemplates, in the typical fashion, that the variable parts appear in a Schedule. Following those 19 pages there is a page numbered 24 (that is, not numbered sequentially after the previous 19 pages), which contains an attestation clause and signatures, in a different typescript. The signatures are by Barbara Joan O'Brien and Copperhead Pty Ltd, the latter under seal. The next page in the exhibit, which bears no number at all (except the number affixed during preparation of the exhibit) is headed "Schedule" and is in a different typescript again.
37 The Schedule identifies the trust as the Buffier Family Trust, the settlor as Barbara Joan O'Brien and the trustee as Copperhead Pty Ltd. The Principal is named as Brian Leslie Joseph Buffier and the residuary beneficiaries are said to be the children of the Principal. As previously mentioned, the evidence does not directly indicate whether "Brian Leslie Joseph Buffier" and "Brian Joseph Bouffiere" are the same person.
38 The exhibit includes a statutory declaration by an officer of the Land Titles Office, Canberra, but it does not assist in overcoming the uncertainties of the documentation. I would not be prepared to conclude, on the basis of the evidence before me now, that the 19 page boilerplate instrument, the attestation page and the Schedule were contemporaneous parts of a single document at the time of execution.
39 According to Mr Zwar, as a consequence of "doubt" as to the validity of the appointment of the Company as trustee of the Buffier Family Trust, a Deed of the Appointment was made on 19 December 2005, appointing Mr Zwar as trustee and replacing the first defendant with the third defendant as residuary beneficiary of the trust. He exhibited to his affidavit a copy of that deed.
40 The Deed of the Appointment is between Andrew Buffier (the first defendant), Mr Bouffiere and Mr Zwar. The recitals identify what, I infer, Mr Zwar had in mind when he referred to a doubt about the validity of the appointment of the Company as trustee. The recitals appear to assume that the Schedule page was a page of the trust instrument establishing the Buffier Family Trust. Recital B asserts that Brian Joseph Bouffiere was the first Principal of the trust - that is, the recitals treat him as the person described in the trust instrument as "Brian Leslie Joseph Buffier". The recitals trace the history of purported appointments of trustees after the initial trust instrument (including a purported appointment of the Company), noting the absence of documentation and recording that as a consequence of legal advice there was uncertainty as to whether the Company was ever validly appointed as trustee.
41 In the operative part of the deed, Mr Andrew Buffier acknowledges that Mr Brian Bouffiere is the sole Principal, and Mr Bouffiere as Principal appoints Mr Zwar as trustee. Then Mr Zwar as trustee purports to vary the Schedule so that the residuary beneficiary is Brian Joseph Bouffiere rather than "the children of the Principal".
42 Mr Zwar said in his affidavit evidence that the trust vested on 23 December 2005. He said that after the vesting date, a proof of debt for $896,626.26 was lodged in the winding up of the Company, both by himself as trustee of the Buffier Family Trust and the third defendant as residuary beneficiary of the trust. He did not explain the basis for the claim, or the relationship between the two proofs of debt. He did not give evidence as to the property of the trust; specifically, he did not claim that either the Kotara Property or the mortgage interest in the St Leonards Property was held by the Company on the trusts of the Buffier Family Trust. As I have mentioned, Campbell J found that the evidence before him did not warrant the conclusion that the Company's property was held in trust.
Winding up of the Company
43 In July 2005 the plaintiff, then the sole contributory of the Company as confirmed by White J's declaration, made an application for the winding up of the Company on the just and equitable ground, said to be made as part of the realisation of assets of the bankrupt estate of Mr Bouffiere. According to Campbell J's judgment, the winding up application was opposed by counsel instructed by Mr Zwar, who was purporting to act for the Company while receiving instructions from Mr Service. Campbell J made a winding up order on 25 August 2005 and appointed Mr Pascoe as liquidator.
44 Mr Pascoe's Report to Creditors is dated 22 December 2005. He calculated that the Company had a surplus of assets over liabilities of $697,703. The principal assets were the Kotara Property, which he valued at $550,000, and the net proceeds of sale of the St Leonards Property of $630,000. There were small amounts of debtors, cash at bank, work in progress and plant and equipment. The liabilities were a loan by Permanent Custodian in the sum of $450,000 and unsecured creditors of $51,926. However, the Report listed total claims of creditors at $1,916,826.25. This figure included the secured loan of $450,000 made by Permanent Custodian, a claim for $3,600 by "Mr Brian Buffier (Priority Creditor)", a claim for $66,191.40 by Mr Zwar's firm, and a claim for $1,396,206 by Mr Zwar as trustee of the Buffier Family Trust. The Report said that Mr Pascoe would seek approval for remuneration of $36,839.95 for the period to 21 December 2005, and future remuneration not to exceed $25,000. The Report enclosed proof of debt forms and gave notice of a meeting of creditors to be held on 10 January 2006.
45 Mr Pascoe said he received "proven" proofs of debt from Brian Leslie Joseph Buffier for $3,600 for unpaid wages, ASIC for $212 for an annual review fee, Mr Zwar's firm for $8,000 for the provision of legal services, and the Office of State revenue for $616.85. Additionally, Mr Zwar lodged a proof of debt as trustee of the Buffier Family Trust for $896,626.26, which Mr Pascoe treated as "proven".
46 Mr Zwar's proof of debt as trustee, which is annexed to Mr Pascoe's affidavit, is said to be for "loan advanced to James Court 18/7/01 and 7/8/01" in the sum of $896,626.26. No documentary evidence of the loan is attached to the proof of debt, or is otherwise in evidence. Mr Pascoe said in his affidavit that the trust property in the Buffier Family Trust has vested and that Brian Bouffiere is the sole residuary beneficiary as well as being the sole shareholder in the Company. He annexed a copy of the Deed of Appointment dated 19 December 2005 to his affidavit (considered above), but he did not explain what significance he attached to that document. He appears to have accepted Mr Zwar's claim that the trust made a loan of $896,626.26 to the Company, but he did not directly say so and he did not produce any evidence of the loan.
47 Exhibited to the affidavit of Mr Zwar made on 10 April 2006 is a proof of debt directed to the liquidators of the Company, dated 9 December 2005 and on its face signed by Mr Bouffiere, apparently for himself and purportedly as agent for Mr Zwar. The document contains very little information about the claim that it makes. It asserts that the Company is indebted to "Michael John Zwar as trustee of the Buffier Family Trust and Brian Joseph Bouffiere as residuary beneficiary of the Buffier Family Trust upon the vesting of the Buffier Family Trust on 23 December 2005 jointly" for $1,396,206. The "particulars" of the claim give the date as 20 February 1981 and the consideration as "Buffier Family Trust", and under the heading "remarks" there is simply a horizontal line. There is no evidence before me that makes clear the relationship between this proof of debt and Mr Zwar's proof of debt for a smaller amount.
48 A meeting of creditors was held on 10 January 2006, attended by Mr Pascoe and a colleague from his firm, and Mr Zwar, appearing as a representative of his firm and as the trustee of the Buffier Family Trust. The firm's claim, admitted for voting purposes, was $66,191.40, and the trust's claim admitted for voting purposes was $990,000. Mr Pascoe did not explain the calculation of these amounts in his affidavit. The amount claimed by Mr Zwar's firm is the same figure as appears in the Report to Creditors, but the figure of $990,000 for the trust is neither the amount claimed in Mr Bouffiere's proof of debt nor the amount claimed in Mr Zwar's proof of debt.
49 A motion for approval of the liquidator's fees to date was put and carried. There was discussion about future fees, and also about whether and in specie distribution of the Kotara Property could be made to Mr Bouffiere. A resolution for approval of future fees up to a stated amount was carried. Mr Zwar signed a handwritten note on behalf of the Buffier Family Trust consenting to the debt owing to the trust being deferred in favour of the unsecured creditors identified in the Report to Creditors. Apparently that note was produced after Mr Pascoe said at the meeting that such a deferral would be a prerequisite to an in specie distribution.
50 Mr Pascoe said he "advertised for dividends" but he did not annex any advertisement to his affidavit. However, he did annex some Notices of Declarations of Dividends. Mr Bouffiere as employee, ASIC, and Mr Zwar's firm (in respect of a claim of $8,000) received notices of declaration of dividends at the rate of 100 cents in the dollar. There is no indication of payment to the Office of State Revenue (recorded as a creditor in the Report to Creditors), or the balance of the claim by Mr Zwar's firm (which according to the Report to Creditors was for $66,191.40).
51 By a Notice of Declaration of Dividend dated 16 January 2006, Mr Pascoe advised Mr Zwar as trustee of the Buffier Family Trust of a "first dividend for deferred unsecured creditors" at the rate of 43.7 cents in the dollar. The notice enclosed a cheque in favour of Mr Zwar as trustee of the Buffier Family Trust for $391,788, calculated on a debt admitted to rank for dividend in the sum of $896,626.26. There is no Notice of Declaration of Dividend in respect of the proof of debt signed by Mr Bouffiere for $1,396,206 (except to the extent that the Notice of Declaration of a dividend of $391,788 might, in some unexplained fashion, be a response to that proof of debt as well as Mr Zwar's proof of debt for a lower amount).
52 Mr Pascoe has annexed to his affidavit a Receipts and Payments Listing which shows the distributions to Mr Zwar as trustee ($391,788), Mr Zwar's firm ($8,000), ASIC ($212) and Brian Leslie Joseph Buffier of $2,466 (the amount of $3,600 claimed less PAYG). It does not show any payment to the Office of State Revenue.
53 In his affidavit of 10 April 2006 Mr Zwar said he had been informed that Mr Bouffiere does not seek to make any further claims in the liquidation of the Company provided that the Company's interest in the Kotara Property is transferred to him. Just what claims he may otherwise have had, and in what capacity, are matters that remain mysterious. Mr Bouffiere has not directly given evidence of these matters. At the hearing Mr Chippindall of counsel offered to the court a similar undertaking by Mr Bouffiere and also by Mr Zwar, as trustee of the Buffier Family Trust.
Financial position of the Company
54 In his affidavit made on 10 April 2006, Mr Zwar referred to his earlier affidavit, which he said was made on 23 November 2005. No such affidavit was read on the application. I have searched through the large file in this proceeding. There is no affidavit by Mr Zwar dated 23 November 2005, but there is an affidavit by him dated 25 November 2005. That affidavit refers extensively to an exhibit called "[Ex1]", but the exhibit was not tendered on the application and there is no copy of it in the file.
55 In his affidavit of 10 April 2006 Mr Zwar said the only creditors of the Company were those disclosed in the Reports as to Affairs exhibited to his affidavit of 23 November. For the reason just explained, the Reports as to Affairs are not in evidence. He said that:
· he has been informed by the liquidator that the Australian Taxation Office has not lodged any proof of debt;
· the third defendant told him that all outstanding taxation returns in respect of the Company have been lodged;
· there are no costs owing to the plaintiff because the plaintiff's costs were settled in the course of the annulment of the bankruptcy.
56 He claimed that the only asset of the Company remaining to be dealt with is the Kotara Property. He asserted that Mr Bouffiere as residuary beneficiary of the Buffier Family Trust is the only creditor of the Company.
57 I do not accept Mr Zwar's evidence that Mr Bouffiere is the only creditor of the Company. In the first place, the evidence does not disclose the basis upon which Mr Bouffiere, if he is the sole beneficiary of a trust, comes to have a claim as creditor of the Company. In the second place, the very skimpy evidence that I have described does not enable me conclude that Mr Bouffiere has become the sole beneficiary of the Buffier Family Trust. In the third place, the evidence does not support Mr Zwar's assertion that there are no other creditors. The evidence shows that there was, at the time of the Report to Creditors, a creditor, namely the Office of State Revenue, which is not shown by the evidence to have been paid. It may be that Mr Zwar's evidence amounts to a waiver by his firm of their claim for fees in excess of the sum of $8,000 that appears to have been paid to them, but that issue is also not clear on the evidence. Further, as I have said, the evidence raises a question as to whether the Australian Taxation Office may have a claim of some sort against the Company in the event that the Kotara Property is sold or distributed in specie to Mr Bouffiere. In the fourth place, the only evidence that the liquidator has advertised for claims by creditors is Mr Pascoe's bare assertion in his affidavit, without any indication of where the advertisements were placed or what they said.
Conclusions
58 Paragraph 1 of the interlocutory process filed on 11 April 2006 seeks a declaration that the only creditor of the Company is Mr Bouffiere. For the reasons I have given under the heading "Financial position of the Company", the evidence does not permit me to make such a declaration. Further, I am not in a position to conclude, for reasons I have given, that Mr Bouffiere, the applicant, is entitled to the shares in the Company, and therefore he has the standing (if any) that may be afforded to a contributory. Additionally, it is not plain to me that a contributory would have the standing to obtain a declaration of the kind sought in para 1 even if there was evidence to support the declaration. I shall therefore not make the declaration sought in para 1.
59 Nor shall I make the declaration sought in para 1 of the draft Short Minutes of Orders. Just as the evidence does not allow me to say that the only creditor of the Company is Mr Bouffiere, equally I am not in a position on the evidence to say that the only remaining creditor is Mr Zwar as trustee of the Buffier Family Trust. If (contrary to the position obtaining on the evidence) I could say so, in some general sense, I would not be able to reach the conclusion that the amount owing is $896,626.26, a figure not substantiated by the evidence. Further, I am not satisfied that there has been any adequate advertising for claims. There is also the problem of standing that I have mentioned.
60 Paragraph 2 of the draft Short Minutes of Orders invites the court to note an undertaking by Mr Zwar and Mr Bouffiere. Such an undertaking has been given by counsel and could be noted, provided there was some point in doing so. In view of my conclusion on the other matters addressed in the draft Short Minutes, there is no point in noting an undertaking. Nor is it clear, on the evidence, that Mr Zwar as trustee of the Buffier Family Trust, or Mr Bouffiere, would have any further valid claim on the Company if the undertaking were not given.
61 Paragraph 2 of the interlocutory process and para 3 of the draft Short Minutes invite the court to order Mr Pascoe as liquidator to transfer the Company's interest in the Kotara Property to Mr Bouffiere, in consideration of the undertakings to which I have referred. The evidence and submissions suggest that such an order is sought on each of three grounds.
62 First, it seems to be contended that the Company holds the Kotara Property on the trusts of the Buffier Family Trust, which vested on 23 December 2005 in the sole beneficiary, Mr Bouffiere. On this analysis, the liquidator should cause the Company as trustee to distribute the trust property to the sole beneficiary, who is sui juris and absolutely entitled and has called for it. Assuming, without deciding, that the Deed of Appointment of 19 December 2005 was effective to appoint Mr Zwar as trustee and cause Mr Bouffiere to be the sole beneficiary of the Buffier Family Trust on the vesting date, the fatal defect of this submission is that the evidence, set out above, does not show that the Kotara Property is held by the Company on the trusts of the Buffier Family Trust or any other trust.
63 Second, it seems to be submitted that the Kotara Property should be transferred to Mr Bouffiere as an in specie distribution in the winding up of the Company. Generally speaking, the duty of a liquidator in a court-ordered winding up is to realise the assets of the company and pay its debts and costs, and if there is a surplus, obtain the court's special leave under ss 485 and 488(2) to distribute the surplus among the persons entitled to it. Prima facie, this process involves converting the assets into money, but it appears that if the company's constitution authorises distribution in specie, or if everyone who is entitled to participate in the distribution agrees to distribution in specie, the court may authorise the liquidator to make a distribution of assets in specie without conversion into money, provided that all debts and expenses are paid: see AH Slater, Law and Taxation of Company Distributions in Australia (CCH, 1980), para [1536], citing Re South African Supply & Cold Storage Co; Wild's Case [1904] 2 Ch 268; cf Stafford Coal & Iron Co Ltd v Brugan [1963] 3 All ER 277.
64 There is no evidence of the contents of the Company's constitution in this case. But if it were established that Mr Bouffiere was the sole contributory and consented to distribution of the Kotara Property in specie, and there were no creditors except creditors who validly waived their remaining claims against the Company, the court may be prepared to make an appropriate order.
65 However, these preconditions have not been satisfied on the evidence before me. For the reasons I have explained, it has not been shown that there are no remaining creditors apart from Mr Bouffiere and the trust. In my view, there would need to be quite specific evidence with respect to any claim by the Australian Taxation Office, including any claim to capital gains tax that might arise out of the disposal of the Kotara Property.
66 Unless it is clearly established that all claims of creditors have been met or appropriately compromised, and that only Mr Bouffiere has any claim to the Kotara Property, questions may arise for investigation by the liquidator about the destination of borrowings by the Company secured over the Company's interests in property, and the destination of the proceeds of sale of St Leonards Property including the deposit.
67 Third, it is submitted that the transfer should be sanctioned under s 477(1)(b) or (c). Those provisions confer powers on the liquidator, not on the court. But under s 477(6) the exercise by the liquidator of these powers is subject to the control of the court.
68 Section 477(1)(b) empowers a liquidator, subject to s 556, to pay any class of creditors in full. I had occasion to consider this provision recently in Warne v GDK Financial Solutions Pty Ltd [2006] NSWSC 464; see also Ford's Principles of Corporations Law (LexisNexis, looseleaf) at [27.501] and cases there cited. It seems to me that s 477(1)(b) does not fit the present circumstances, because on Mr Bouffiere's contention, this is not a case of paying a class of creditors in full while not paying others.
69 Section 477(1)(c) empowers a liquidator to make any compromise or arrangement with creditors or persons claiming to be creditors. Arguably there are elements of a compromise or arrangement in the present case, because Mr Bouffiere and Mr Zwar are undertaking not to pursue their claims against the Company in consideration of the liquidator transferring the Kotara Property to Mr Bouffiere. The substantial difficulty with the court making an order to sanction such an arrangement is that the evidence does not establish that the interests of other creditors or potential creditors (including the Australian Taxation Office) have been properly identified and addressed, and it does not provide sufficient information about the nature of the claims of Mr Bouffiere and the Trust against the Company to enable the court to conclude that it is reasonable to compromise those claims by transferring the sole remaining substantial asset of the Company to Mr Bouffiere.
70 I shall therefore not make an order providing for a transfer of the Kotara Property to Mr Bouffiere.
71 Paragraph 3 of the interlocutory process and para 4 of the draft Short Minutes propose an order exonerating the liquidator from settling a list of contributories. Section 478(1A) requires the liquidator of a company that is being wound up by the court to settle a list of contributories if it appears to the liquidator likely that:
(a) either:
(i) there are persons liable as members or past members to contribute to the company's property on the winding up; or
(ii) there will be a surplus available for distribution; and
(b) it will be necessary:
(i) to make calls on contributories; or
(ii) to adjust the rights of the contributories amongst themselves.
72 This provision requires that the liquidator must take certain steps if he forms a certain opinion. The section does not give the court a power to exonerate the liquidator. I take it that the application is an application for the court to give directions under s 479(3) that the liquidator would be justified in not settling a list of contributories in the present case.
73 I see no proper basis for giving such a direction. There is nothing in the evidence to indicate that any member or past member may have a liability to contribute to the Company's property on winding up, or to pay a call. There is some evidence to indicate that there may be a surplus available for distribution on winding up (although, as I have pointed out, the evidence as to the financial position of the company is incomplete), but nothing to indicate any need to adjust the rights of contributories amongst themselves, because the application is made on the basis that there is only one contributory. Directions under s 479(3) may be given in circumstances of doubt, so as to provide a measure of protection to the liquidator (see Re GB Nathan & Co Pty Ltd (in liq) (1991) 24 NSWLR 674), but the present case is not one where, if the facts were properly proved, there would be doubt of the kind warranting the court's intervention by direction.
74 Paragraph 5 of the draft Short Minutes invite the court to order that the interlocutory applications filed on 25 November 2005 and 3 February 2006 be dismissed. The application filed on 25 November 2005 seems to be out of date and the appropriate course is to dismiss it. As I have said, the evidence and the court's file do not reveal any application filed on 3 February 2006.
75 Paragraph 4 of the interlocutory process and para 6 of the draft Short Minutes seek an order that the costs of the application be an expense in the winding up. In the absence of any order, it seems to me that the liquidator's costs of appearing on the present application, other than any deferred expenses, are recoverable out of the assets of the Company as expenses properly incurred by a relevant authority in realising or getting in property of the company, and accordingly have the priority allocated by s 556(1)(a). Any deferred expenses of the liquidator would fall within s 556(1)(de). I see no reason to interfere with those priorities, and I shall make an order confirming that outcome in the interests of clarity. But there is no case for making an order that would have the effect that Mr Bouffiere's costs of his application should become expenses recoverable out of the assets of the company at all, let alone with any statutory priority. Not only is the application unsuccessful, but it was poorly prepared in the many ways that I have noted in these reasons for judgment.
76 I shall therefore make orders as follows:
(1) the interlocutory process filed by Brian Joseph Bouffiere on 25 November 2005 is dismissed;
(2) subject to order (1), the interlocutory process filed by the third defendant on 11 April 2006 is dismissed;
(3) the costs of the liquidator (but not the costs of the applicant) with respect to the interlocutory processes referred to in orders (1) and (2), other than deferred expenses as defined in s 556(2), are the liquidator's expenses properly incurred in realising or getting in property of the second defendant, for the purposes of s 556(1)(a) of the Corporations Act 2001 (Cth), and the liquidator's deferred expenses in respect of the applications are his deferred expenses for the purposes of s 556(1)(de).
77 In the absence of any further, competent application, Mr Pascoe will have no alternative but to complete the administration of the winding up of the Company according to law, with due expedition.
**********