Plaintiff v Defendant

1 On 29 April 2021, Jacqueline Anne Browne-Kerr ('the plaintiff') filed an application seeking orders under s 482 of the Corporations Act 2001 (Cth) ('the Act') terminating the winding up of The Thoroughbred Consultants Pty Ltd (ACN 118 130 251) ('the Company'). The plaintiff's application is opposed by the Company's liquidator ('the defendant').

2 The Company has never traded. The sole asset of the Company is a one half share in the property known as 124 Blackjack Road, Harcourt VIC 3453 ('the Property').

The plaintiff, her husband Mr Craig Browne-Kerr, and their four children have lived at the Property since 2015. The Company's only purpose was to own the half share in the Property. In a concurrent proceeding in the County Court, Mr Browne-Kerr has applied for a stay of execution of a warrant for possession of the Property obtained by the defendant.

3 The defendant was appointed liquidator of the Company on 13 June 2018 pursuant to a signed resolution of Mr Daniel Juratowitch as trustee in bankruptcy of the estate of Mr Craig Browne-Kerr. At the time of making that resolution Mr Juratowitch had conducted three separate company searches that indicated that Mr Browne-Kerr was the Company's sole shareholder.

4 The defendant conducted a company search on 24 May 2018 which revealed that Mr Browne-Kerr was the sole shareholder and a director and secretary of the Company. Further, the same company search revealed that the plaintiff was the other director and secretary of the Company.

5 The plaintiff claims that these company searches did not reflect the true ownership of the Company's shares. She says that on 19 March 2015, pursuant to a resolution of the Company's directors, Mr Browne-Kerr transferred his three shares in the Company to the plaintiff. The plaintiff challenges the defendant's appointment on the basis that, on the transfer of the shares to her, the Company shares were not part of the bankrupt estate of Mr Browne-Kerr. The plaintiff argues that, as the Company's sole shareholder, she has standing to make the application under s 482 of the Act.

6 The plaintiff submits that the financial position of the Company can best be described as vague. It is common ground that the plaintiff has not assisted the defendant to ascertain the true position of the Company. The plaintiff does not concede that the creditors identified by the defendant are either creditors or creditors for the amounts identified by the defendant.

7 The plaintiff argues that in cases where a company was wound up on a ground other than insolvency, it is unnecessary to demonstrate the company's solvency in order to succeed on an application to terminate the winding up.

8 In my view, notwithstanding that the Company was wound up by members resolution, it is still necessary for the plaintiff to establish the Company's solvency before the Court will terminate the winding up. Accordingly, I have dismissed the plaintiff's application and found it unnecessary to determine the plaintiff's challenges to the defendant's appointment.

9 The plaintiff relies on the following in support of her application:

(a) the first affidavit of Jacqueline Anne Browne-Kerr sworn 29 April 2021;

(b) the second affidavit of Jacqueline Anne Browne-Kerr sworn 31 May 2021; and

(c) an outline of submissions dated 31 May 2021.

10 The defendant relies on the following in opposition to the application:

(a) the first affidavit of Robert Scott Woods sworn 12 May 2021;

(b) the affidavit of Daniel Peter Juratowitch sworn 21 May 2021;[1]

(c) the second affidavit of Robert Scott Woods sworn 31 May 2021; and

(d) an outline of submissions dated 21 May 2021.

11 The following facts, summarised by the defendant, were not in dispute on the application:

(a) the Company and Stubbs Investments Pty Ltd (an unrelated entity) are the registered proprietors of the Property as tenants-in-common in equal shares;

(b) the Plaintiff, her husband, Mr Craig Browne-Kerr and their children have lived in the Property since 2015. They have never paid rent or been party to any lease agreement with the Company or Stubbs Investments Pty Ltd;

(c) on 13 February 2018, a sequestration order was made against the estate of Mr Browne-Kerr, and Mr Juratowitch was appointed as trustee of Mr Craig Browne-Kerr's estate;

(d) on 13 June 2018, the trustee passed a resolution pursuant to s 249B of the Act that the plaintiff be removed as a director of the Company with effect on and from the date of the resolution (while the plaintiff disputes the validity of the resolution, the fact the resolution was passed is not in dispute);

(e) on 13 June 2018, the Trustee passed a further resolution that the Company be wound up and that the defendant be appointed as liquidator of the Company (again, while the plaintiff disputes the validity of the resolution, the fact the resolution was passed is not in dispute);

(f) on 17 September 2019, the defendant issued proceedings against the plaintiff and Mr Browne-Kerr in the County Court of Victoria (Proceeding No. CI‑19 04399) ('County Court Proceeding') seeking orders for vacant possession of the Property;

(g) on 31 October 2019, the defendant obtained default judgment against Mr Browne-Kerr in the County Court Proceeding, and an order for possession of the Property;

(h) on 3 July 2020, by reason of the plaintiff failing to comply with a self-executing order made 24 June 2020 in the County Court Proceeding, the defendant obtained judgment and an order for vacant possession of the Property against the plaintiff;

(i) on 7 July 2020, the County Court of Victoria issued a warrant of possession against the plaintiff and Mr Browne-Kerr in respect of the Property;

(j) in accordance with the warrant of possession, the Sherriff's Office issued to the plaintiff and Mr Browne-Kerr (as occupants of the Property) a Final Notice to Vacate Property, pursuant to which they were required to vacate the Property by 16 April 2021;

(k) on 14 April 2021, two days before the deadline to vacate set by the Final Notice to Vacate, Mr Browne-Kerr issued a Summons seeking a stay of execution of the judgment and the warrant of possession, on the basis that he proposed to bring an application to set aside the judgment; and

(l) on 12 May 2021, the County Court made orders by consent staying the execution of the warrant of possession and the County Court Proceeding until 16 June 2021.

12 On the issue of the Company's solvency the plaintiff's evidence was that:

(a) she believes that the Property is currently valued at approximately $650,000 to $750,000. The plaintiff provided no basis for this belief; and

(b) the Property is subject to a caveat registered by Anthony Long & Associates, 'pursuant to a charge which secures an advance of credit by Mr Long.' The plaintiff provided no further details about this facility.

13 On the issue of solvency the defendant's evidence is that neither the plaintiff nor Mr Browne-Kerr have provided him with a report as to the affairs of the Company. The defendant has identified creditors of the Company totalling $224,090.14. The defendant says that since his appointment and as at 12 May 2021 he has:

(a) recorded unbilled work in progress of $71,551.50 and disbursements of $14,180.83 (both figures excl GST);

(b) been advised his lawyers have recorded work in progress of $77,723.00 and disbursements of $78.41 (both figures excl GST); and

(c) incurred counsel's fees.

14 In response to the defendant's evidence, the plaintiff's legal representative submitted that Mr Stubbs was the Company's bookkeeper and 'took care of all of the financial aspects of running the Property.' The plaintiff submitted that as a non-trading entity, there was not a large amount of books and records of the Company in the plaintiff's possession to hand over to the defendant. In the plaintiff's view the defendant had been given 'quite sufficient time to provide a report as to the solvency or otherwise of this [C]ompany', but had only produced a small chart setting out three creditors with no proofs of debt or other details. The plaintiff did not concede that the creditors identified by the defendant were in fact creditors or creditors in the amount asserted. Ultimately the plaintiff's submission was that the financial position of the company 'can best be described as vague' and that the plaintiff really did not know how the defendant had calculated it.

15 The plaintiff did not agree to the amount of the defendant's expenses, submitting they were 'rather high'. The plaintiff's legal representative informed the Court that if the Court ordered the termination of the Company's winding up to be subject to payment of the defendant's costs and expenses, the plaintiff 'would find a way to definitely do that.

16 Section 482 of the Act relevantly provides:

482 Power to stay or terminate winding up

(1) At any time during the winding up of a company, the Court may, on application, make an order staying the winding up either indefinitely or for a limited time or terminating the winding up on a day specified in the order.

(1A) An application may be made by:

(a) in any case - the liquidator, or a creditor or contributory, of the company; or

(b) in the case of a company registered under section 21 of the Life Insurance Act 1995 - APRA; or

(c) in the case of a company subject to a deed of company arrangement - the administrator of the deed...

17 The applicable legal principles are well established. The Court's power to make an order terminating a winding up is discretionary. The person seeking the order bears the onus of establishing that the order is appropriate.

18 In Re Warbler Pty Ltd (1982) 6 ACLR 526, Master Lee summarised the factors relevant to the exercise of the Court's discretion to stay or terminate a winding up:[2]

1. The granting of a stay is a discretionary matter, and there is a clear onus on the applicant to make out a positive case for a stay: Re Calgary & Edmonton Land Co Ltd (in liq) (1975) 1 WLR 355, 358-359 (Megarry J).
2. There must be service of notice of the application for a stay on all creditors and contributories, and proof of this: Re South Barrule Slate Quarry Co (1869) LR 8 Eq 688; Re Bank of Queensland Ltd (1870) 2 QSCR 113.
3. The nature and extent of the creditors must be shown, and whether or not all debts have been discharged: Krextile Holdings Pty Ltd v Widdows [1974] VicRp 83; (1974) VR 689; Re Data Homes Pty Ltd (1971) 1 NSWLR 338.
4. The attitude of creditors, contributories and the liquidator is a relevant consideration: Re Calgary & Edmonton Land Co Ltd (in liq) (1975) 1 WLR 355.
5. The current trading position and general solvency of the company should be demonstrated. Solvency is of significance when a stay of proceedings in the winding up is sought: Re a Private Company [1935] NZGazLawRp 17; [1935] NZLR 120; Re Mascot Home Furnishers Pty Ltd [1970] VicRp 78; (1970) VR 593, 598.
6. If there has been non-compliance by directors with their statutory duties as to the giving of information or furnishing a statement of affairs, a full explanation of the reasons and circumstances should be given: Re Telescriptor Syndicate Ltd [1903] UKLawRpCh 65; [1903] 2 CH 174.
7. The general background and circumstances which led to the winding-up order should be explained: Krextile Holdings Pty Ltd v Widdows [1974] VicRp 83; (1974) VR 689.
8. The nature of the business carried on by the company should be demonstrated, and whether or not the conduct of the company was in any way contrary to "commercial morality" or the "public interest": Krextile Holdings Pty Ltd v Widdows [1974] VicRp 83; (1974) VR 689; Re Data Homes Pty Ltd (1971) 1 NSWLR 338.

19 These principles were refined by Austin J in Vero Workers Compensation v Ferretti:[3]

1. the court has a discretion as to whether the winding up should be terminated;
2. in exercising its discretion, the court considers the interests of:
   1. creditors of the company (including future creditors);
   2. the liquidator, particularly with respect to costs;
   3. the contributories; and
   4. the public, including the public interest in matters of commercial morality, and the public interest that insolvent companies should be wound up.

20 The plaintiff submitted that the authorities support the proposition that solvency is only a significant factor in applications to terminate a winding up where the winding up order was based on a presumption of insolvency arising under s 459C of the Act as a consequence of a failure to satisfy a statutory demand. The plaintiff did not identify any particular authority but rather submitted that so much was clear from the authorities relied upon by the defendant.

21 I am unable to accept the plaintiff's submission. In Krextile Holdings Pty Ltd v Widdows,[4] the winding up order had been made on just and equitable grounds. In that case, Gillard J observed that:

It would appear that the Court has found little difficulty in being so satisfied to exercise its discretion where the applicant has established that (a) the business of the company was carried on in accordance with accepted commercial practices; (b) the business was well established and was not in an insolvent condition; (c) the creditors and members did not object: cf. Re South Barrule Slate Quarry Co (1869) LR 8 Eq 688; (d) there has been a reconstruction of the company or its business; and (e) it did not appear to be against the public interest to permit the company to continue its existence and activities.

22 In Von Risefer v Mainfreight International Pty Ltd,[5] Ashley JA surveyed the authorities and cautioned against a rigid or narrow view of the concepts of commercial morality and public interest in the context of an application to terminate a winding up. Specific reference was made to the judgment of Hammerschlag J in Gematech Pty v Bardi Investments Pty Ltd,[6] which quoted the comments of Mason JA in Re Data Homes Pty Ltd albeit in the context of the equivalent section in the Companies Act 1961 (Cth):[7]

But it should not be assumed that there is any sharp dividing line between considerations which are detrimental to commercial morality and those which are opposed to the public interest. They clearly overlap. Nor should it be assumed, as the appellant would have it, that each is a narrow concept for in truth they are designed to give expression to the very broad discretion which s 243 confers upon the court.

There is as little reason for confining considerations of commercial morality to the investigation of misconduct in the affairs of the company as there is for restricting the public interest to pecuniary interests of existing and future creditors...

23 In my view the solvency of a company is a necessary component of whether it is in the public interest that the company be permitted to continue its existence and activities. This is so in all cases, no matter the basis upon which the company came to be wound up. As the authorities make clear, the significance of solvency relative to the other factors the Court must consider will depend on all of the circumstances of the particular case.

24 In this case the plaintiff has provided no evidence upon which the Court could be satisfied that, if the winding up was terminated, the company would be solvent. Indeed, all the available evidence points to insolvency. There is no independent evidence of the value of the Company's sole asset. The plaintiff has provided no evidence in the form of the Company's audited or even unaudited accounts. Nor has the plaintiff sought to put on evidence of any source documents such as bank statements, loan documents or any evidence of an ability to raise funds. There is no evidence from the Company's bookkeeper. The plaintiff disagreed with the defendant's evidence of the Company's financial position on the basis that the plaintiff did not know how the defendant had calculated that position. The Company's liquidator opposes the application and there is no evidence of the Company's creditors' views of the plaintiff's application.

25 It is well established that the plaintiff bears the onus of establishing the solvency of a company when seeking an order that the company's winding up be terminated. There is no basis for departing from that requirement in this matter. The plaintiff has not established that the company would be solvent if the winding up was terminated. In all of the circumstances of this case I am not satisfied that it is in the public interest that the winding up of The Thoroughbred Consultants Pty Ltd (ACN 118 130 251) be terminated.

26 The plaintiff's application is dismissed and I will hear from the parties on the question of costs.

[1] Mr Juratowitch's affidavit was accepted for filing on 24 May 2021 with the consent of both the plaintiff and defendant. Mr Juratowitch neither consents nor opposes the plaintiff's application.

[2] Re Warbler Pty Ltd (1982) 6 ACLR 526, 533 (Master Lee)

[3] Vero Workers Compensation v Ferretti [2006] NSWSC 292, [17] (Austin J).

[4] Krextile Holdings Pty Ltd v Widdows [1974] VicRp 83; (1974) VR 689, 695 (Gillard J).

[5] Von Risefer v Mainfreight International Pty Ltd [2009] VSCA 179; (2009) 25 VR 366 (Ashley JA, Beach AJA agreeing).

[6] Gematech Pty v Bardi Investments Pty Ltd [2008] NSWSC 196

[7] Re Data Homes Pty Ltd (1972) 2 NSWLR 22, 26-27 (Mason JA).