REASONS FOR JUDGMENT
Introduction
1 The applicant, Panasystems Pty Ltd ("Panasystems"), has applied to the Court to wind up the respondent, Voodoo Tech Pty Ltd ("Voodoo") and to appoint a provisional liquidator to Voodoo pending the hearing of the winding up application on 23 May 2003. Panasystems has also made an interlocutory application under s 447C of the Corporations Act 2001 (Cth) ("the Act') for a declaration that the purported appointment on 16 April 2002 of Peter Ngan ("Ngan") as administrator of Voodoo is invalid. Gregory Jones ("Jones"), the Chairman of Voodoo, has applied to the Court under s 447A of the Act for an order that, in the event that the appointment of Ngan is invalid, the Court validate the appointment.
2 Voodoo develops computer software. It has a number of large clients, including Australia Post. Most of its clients are located in Sydney and Melbourne. A company controlled by Jones holds all the issued shares in Voodoo. In about September 2002 an agreement was reached between a group of investors and Jones that a company to be nominated by those investors would purchase one half of the issued shares for $65,000 and would lend up to $225,000 to Voodoo. The loan was to be made at a rate of $45,000 per month.
3 Panasystems was nominated as the entity that would acquire the shares from Jones' company. The purchase price for the shares, namely $65,000, was paid in two instalments, one on 29 November 2002 and the other on 13 December 2002. Notwithstanding the payments, Jones' company has not transferred any shares to Panasystems. In addition to making payment for the shares, Panasystems has lent amounts totalling $165,000 to Voodoo. There has been a dispute between the investors and Jones. According to the investors they were not provided with regular financial reports as promised, and have been, in substance, excluded from the conduct of Voodoo's affairs.
4 Despite the injection of funds from Panasystems, Voodoo did not trade profitably. It appears to be common ground that by April 2003 Voodoo was not able to pay its debts as and when they fell due. On 1 April 2003 Panasystems' solicitors wrote to Voodoo about the insolvency of the company. The letter stated that Voodoo "cannot continue to operate without a significant injection of funds and we call upon you to agree forthwith that the company be placed into administration so that the creditors can consider its future, or alternatively it be placed into liquidation." The letter went on to state that unless agreement was reached in relation to the future of the company, Panasystems would make application to wind it up and appoint a provisional liquidator to take control of its affairs.
5 On 2 April 2003 there was a meeting of directors. The meeting was conducted on the telephone with Jones and his solicitor and accountant in Sydney and Mr Williamson ("Williamson") who is a director of Panasystems, his solicitor and other investors in Melbourne. Williamson's account in his affidavit of what transpired is as follows. Jones acknowledged that Voodoo was in serious financial difficulty. He was of the view that Voodoo should not continue trading. He moved a resolution that Ngan be appointed as voluntary administrator "effective immediately". Jones voted in favour of the resolution and Williamson voted against it. In view of the tied vote Jones purported to exercise his casting vote as chairperson of the meeting pursuant to sub-rules 94.1 and 95.3 of the Constitution of Voodoo. This was challenged by Williamson's solicitor for the reason that no chairperson had in fact been appointed to the meeting. Nevertheless, Jones declared the resolution passed on his casting vote. The challenge concerning Jones' entitlement to a casting vote as chairperson was not pressed at the hearing.
6 Jones' account of the meeting in his affidavit differs from that given by Williamson. Relevantly, for present purposes, Jones states that prior to calling for a vote on the resolution he stated to the meeting that Voodoo "did not have an ability to meet its debts as and when they fall due" and that "as such" he called for a vote on the resolution he was proposing that, in the circumstances, Voodoo be placed in the hands of an administrator, namely Ngan. Jones prepared Minutes of the meeting, which record the resolution that was passed as follows:
"On a motion moved Mr G Jones seconded Mr G Jones, using casting vote, IT WAS RESOLVED that:
(i) The Company is nearing insolvency or insolvent within the meaning of Section 588G of the Corporations Act 2001.
(ii) Mr Peter Ngan, Registered Liquidator, be appointed as Administrator of the Company at a date subsequent to 2 April 2003, which date is noted on the document appointing the Administrator.
(iii) The Director(s) sign the document appointing the Administrator.
The Chairman declared the motion carried."
7 The difference between the two accounts of the meeting is significant because s 436A(1) provides:
"A company may, by writing, appoint an administrator of the company if the board has resolved to the effect that:
(a) in the opinion of the directors voting for the resolution, the company is insolvent, or is likely to become insolvent at some future time; and
(b) an administrator of the company should be appointed."
8 Panasystems, in reliance upon Williamsons' account of the meeting, contends that the appointment of Ngan as administrator is invalid because there was no resolution to the effect that in the opinion of Jones, the director voting for the resolution, Voodoo "is insolvent, or is likely to become insolvent at some future time" as required by s 436A(1)(a) of the Act. Jones, in reliance upon his account of the meeting, contends that, in context, the resolution was "to the effect" of the resolution required by s 436A(1)(a).
Section 436A(1)
9 In Wagner v International Health Promotions (1994) 12 ACLC 986 ("Wagner") Santow J held that the appointment of the administrator in that case was invalid as, although there was discussion at the meeting of directors about the "questionable solvency" of the company and a statement was made by the Chairman of the meeting that "he had reason to believe" that the company "may be" insolvent, those statements fell short of a resolution in the terms required by s 436A(1)(a) with the consequence that the appointment was invalid. Santow J also held (at 989) that the invalidity could not be cured by s 1322 of the Corporations Law as it arose from a failure to comply with the mandatory requirement of the Corporations Law predecessor to s 436A(1)(a) and was not a "procedural irregularity". In Wagner no application was made under the Corporations Law predecessor to s 447A.
10 The Constitution of Voodoo does not require that resolutions at meetings of directors be passed or recorded in any formal manner. Although the Constitution provides for the Minutes of a meeting of directors signed by a Chairperson to be received in evidence it is not suggested by any of the parties that the Minutes can be relied upon to conclusively prove what they record. Thus, the issue of fact for determination in the present case is whether there was a resolution passed to the effect that in the opinion of Jones, the director voting for the resolution, Voodoo was insolvent or was likely to become insolvent at some future time.
11 I would be inclined to the view that, if Jones' version of the meeting were to be accepted, his statement as to Voodoo's insolvency, in effect, should be taken to be a recital to the resolution appointing Ngan as administrator and, as such, would probably be sufficient for the purposes of s 436A(1) to form part of that resolution. However, before having to determine that issue I must first be satisfied that Jones' version of the meeting, rather than that of Williamson, is to be preferred. It is clear that, on Williamson's version of the meeting, there was merely a reference to the serious financial difficulties of Voodoo and no reference to any actual or prospective insolvency of Voodoo. Thus, on that version nothing was said at the meeting to the effect that Voodoo was insolvent or was likely to become insolvent. While it may well be that those attending the meeting had that in mind there must, at the least, be an unequivocal statement to the meeting to the effect required by s 436A(1)(a) if such a statement were to be considered to be part of the resolution passed at the meeting.
12 Notwithstanding the conflict between the two versions of the meeting held on 2 April 2003 there was no cross-examination of any of the deponents of the Affidavits filed by the parties. If I was unable to determine which of the versions is to be preferred it would follow that Panasystems, carrying the onus to make out its case of invalidity, would fail. However, I have concluded that the version proffered by Williamson is to be preferred to that proffered by Jones and I shortly state my reasons for arriving at that conclusion.
13 First, Jones' reliability is significantly undermined by the fact that, even on his own version of events, no resolution was passed to the effect of the resolution that he purported to record as the resolution passed in the Minutes of the meeting. Second, contemporaneous notes were said to have been taken by the parties attending the meeting in Sydney and in Melbourne. Yet, the only contemporaneous notes produced in evidence were those taken by Williamson and Panasystems' solicitor in Melbourne. Those notes do not contain any reference to a statement being made to the effect that Voodoo was insolvent. Importantly, Panasystems' solicitor dictated a detailed memorandum of the discussion that occurred at the meeting shortly after it was held and those notes do not contain any reference to Voodoo's insolvency. Rather, they corroborate the version of the meeting proffered by Williamson. The failure to produce the notes said to have been taken by one of the parties attending the meeting in Sydney enables me to more confidently infer that those notes would not be helpful to the version of the meeting proffered by Jones.
14 Third, Jones' solicitor swore an affidavit which confirmed part of Jones' version of the meeting but did not confirm his alleged statements to the meeting concerning the insolvency of Voodoo. I regard that omission as significant as it has the consequence that neither solicitor attending the meeting has given evidence that is consistent with Jones' version of the events. I do not give much weight to the fact that Jones' accountant supported his version of events as the accountant stated that he did not take notes of the meeting and did not endeavour to recite the actual content of the conversations. Rather, he merely stated that the "detailed affidavit" of Jones is an "accurate record of the proceedings and voting of the resolution". The accountant's credibility in that regard is undermined by the fact that he also stated that the Minute "is an accurate record of the resolution", a view that is not supported by the evidence.
15 It must follow that the requirements of s 436A(1) were not satisfied with the consequence that, subject to the application of Jones under s 447A, the appointment of Ngan would be invalid.
Section 447A
16 Section 447A provides:
"(1) The Court may make such order as it thinks appropriate about how this Part is to operate in relation to a particular company.
(2) For example, if the Court is satisfied that the administration of a company should end:
(a) because the company is solvent; or
(b) because provisions of this Part are being abused; or
(c) for some other reason;
the Court may order under subsection (1) that the administration is to end.
(3) An order may be made subject to conditions. (4) An order may be made on the application of:
(a) the company; or
(b) a creditor of the company; or
(c) in the case of a company under administration - the administrator of the company; or
(d) in the case of a company that has executed a deed of company arrangement - the deed's administrator; or
(e) ASIC; or
(f) any other interested person."
17 In Deputy Commissioner of Taxation v Portinex Pty Ltd (2000) 34 ACSR 391 ("Portinex") at 397-400 [29]-[33] Austin J, after carefully considering the nature and scope of the power conferred by s 447A, concluded that the section can be relied upon to cure a lack of a quorum at a meeting where the board of directors purported to resolve that the company is insolvent and that an administrator be appointed. In the course of considering the authorities in relation to 447A, and its statutory predecessors, Austin J referred to a number of cases, including Australasian Memory Pty Limited v Brien (2000) 200 CLR 270 and emphasised the broad scope of s 447A. In Re Brashs Pty Ltd (1994) 15 ACSR 477 ("Re Brashs") Hayne J accepted that a statutory predecessor to s 447A was not confined to filling in gaps in the legislative scheme and could be used to exonerate a person from what would otherwise be a contravention or a failure to comply with a provision of that scheme. In Portinex Austin J also stated that the power conferred by s 447A is to be exercised only in relation to how Pt 5.3A is to operate and therefore looks to the future, rather than the past, with the consequence that the orders made under s 447A only have effect from the time of their making. Although Austin J at 400 [33] stated that he did not have to consider whether s 447A could be used if there was no attempt at all to pass a resolution in compliance with s 436A(1) (cf Wagner), it is consistent with his Honour's reasoning to conclude that in a case such as the present, where there was an attempt, albeit unsuccessful, to pass a resolution in compliance with s 436A(1) because of the insolvency of the company, the failure to pass a resolution to the requisite effect may be cured by an order under s 447A.