Re Alon Pty Ltd [2022] NSWSC 64

Background

1. Alon was incorporated on 6 April 1973. The nine A-class shares held by Mr Neal are held in his capacity as administrator of the will of the late Paula Claire Hewit (Paula) who died on 26 September 2019. Paula was the mother of Alan and Ron. Mr Neal was appointed by the Court as administrator of Paula's will, apparently because of differences between Alan and Ron as to who should administer the estate.
2. The main business activity of Alon is described in its tax return for the financial year ending 30 June 2021 as "financial asset investing". Alon is the trustee of the Hewit Family Trust which was established by deed dated 3 May 1973. The trust deed for the trust was amended on 11 March 2011. The beneficiaries of the trust include named beneficiaries and a class of potential beneficiaries, essentially Alan and Ron and their extended families. Ron has children, Alan does not. The amended trust deed provides that Alon is both trustee and appointor of the trust and otherwise does not provide any separate removal power. The trust deed as amended contains an ipso facto clause which has the effect that Alon is removed as trustee and appointor immediately upon Alon entering into compulsory or voluntary liquidation (except for the purposes of amalgamation or reconstruction): cl 48.
3. Following the appointment of Mr Neal as administrator of Paula's will, Alan refused to register the transmission application in respect of the nine A-class shares to Mr Neal. Disputes also arose in relation to the validity of certain share allotments and share transfers by Alan which had the effect of defeating the majority interest of Mr Neal. It is not necessary for present purposes to summarise the detail of those disputes or the litigation that ensued. Mr Neal was successful in proceedings against Alon and Alan in a judgment delivered by Rees J on 13 August 2021: Re Alon Pty Ltd [2021] NSWSC 1021.
4. Notwithstanding the outcome of that litigation and the subsequent transmission of the nine A-class shares to Mr Neal on 3 September 2021, new disputes arose after Alan purported to appoint another person, Mr David Whitty, as a director of Alon on 1 September 2021, purported to convene general meetings of Alon, and purported to allot ten A-class shares to himself on or about 21 October 2021, which again had the effect of defeating the majority interest of Mr Neal. The detail of those disputes is summarised in the judicial advice given to Mr Neal on 19 November 2019: The Application of Richard Neal in his capacity as administrator of the Estate Late Paula Hewit [2021] NSWSC 1489 at [9]-[12].
5. Mr Neal commenced the present proceedings on 11 November 2021 and obtained urgent interim relief restraining Alan from dealing with the share register of Alon and from appointing any person to any office of Alon until further or other order. On 18 November 2021, that interim order was continued, by consent, up until the determination of these proceedings or earlier further order. The Court directed the parties to attend a court-annexed mediation to be held on 10 December 2021.
6. The disputes concerning the management of the company were resolved by agreement between the parties and on 13 December 2021, the Court made declarations and orders, by consent, giving effect to the parties' agreement. That included declarations that Mr Neal and Mr Shah Rusiti are the directors of the company, that Mr Rusiti is the secretary of the company and that the purported allotment of ten A-class shares to Alan on or about 21 October 2021 was invalid. The orders made included an order under s 175 of the Corporations Act for the correction of the register kept by ASIC in relation to Alon, and that Alan deliver to Mr Neal the books and records of the company. Alan also agreed to pay Mr Neal's costs of the proceedings in an amount of $80,000.
7. On 13 January 2022, Alan sent an email to Mr Neal's solicitors attaching invoices totalling $99,675 for the cost of supervision of building works at a strata title property at Bruce Street, Brighton-le-Sands, in respect of which Alon owns two units (lots 7 and 15). Alan says that both these properties are currently classified as uninhabitable and works are required to make them habitable. The owners' corporation has recently commenced proceedings against Alon in the Local Court claiming $12,071.97 plus interest and costs in relation to unpaid strata levies.
8. Although Mr Neal now controls Alon he does not propose to attempt to manage the company with Mr Rusiti, but seeks a winding up order, given that the directors cannot ascertain the liabilities of the company and therefore are not in a position to ascertain whether the company is solvent. Also, there is an absence of meaningful information concerning the previous management of the company, given the paucity of the books and records of the company provided to Mr Neal in compliance with the court orders made on 13 December 2020.
9. Mr Neal and Mr Rusiti support the winding up application and have passed a resolution as directors to that effect.

Just and equitable ground

1. The Court may order that a company be wound up if it is of the opinion that it is just and equitable to do so [(Cth) Corporations Act 2001, s 461(1)(k)]. The concept "just and equitable" is a broad one incapable of exhaustive definition. The cases in which orders are made under s 461(1)(k) conventionally fall into a number of classes, including those identified by Brereton J in Re Catombal Investments Pty Ltd [2012] NSWSC 775 at [19]: (1) failure of the substratum of the company; (2) deadlock or disagreement in the management of the company's affairs; (3) fraud in the formation of the company; (4) misconduct by the directors of the company; (5) constitutional and administrative vacuum in the management of the company; and, (6) lack of confidence, fairness and public interest and commercial morality.
2. However, the power under s 461(1)(k) is not restricted to particular categories or classes of case. As Brereton J said in Re Catombal Investments Pty Ltd at [20]: However, the Court is not restricted in exercising its discretion to particular factual categories [Re Straw Products Pty Ltd [1942] VLR 222, 223]. And, the question whether it is just and equitable is a question of fact, in respect of which each case must depend on its own circumstances [Re Bleriot Manufacturing Aircraft Company Ltd (1916) 32 TLR 253, 255]. The words "just and equitable" are general words, which must remain general, and the applicant is entitled to rely on any circumstances of justice and equity that affect him or her in his or her relations with the company or shareholdings [Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 ("Ebrahimi"), 374], at least so long as those circumstances have a direct and immediate relationship to, or bearing upon, the management or administration of the affairs of the subject company, or the conduct of its business [Re Nestor Pty Ltd (1981) 6 ACLR 114, 119 (Powell J)].
3. Thus, an applicant for winding up is entitled to rely on any circumstances of justice and equity that affect them in their relationship with the company, and each case must turn on its own facts: Re Gearhouse BSI Pty Ltd [2021] NSWSC 98 at [169] (Williams J) and the authorities there cited.
4. In this case although the deadlock in management that previously existed has been resolved by agreement of the shareholders, as confirmed by the declarations and orders of the Court made on 13 December 2021, and Mr Neal, if he wished, could exercise control of the company and make decisions by majority, there are compelling reasons favouring winding up.
5. First, the directors of Alon cannot ascertain the liabilities of the company and whether it is solvent. Second, there are assets of the company that need urgent preservation such as the two units at Bruce Street, Brighton-le-Sands. Third, there is litigation commenced against the company by the owners' corporation of the Bruce Street property which needs to be addressed. Fourth, Mr Neal and Mr Rusiti do not wish to manage the company as they are exposed to liabilities as directors if they were to remain in those roles for any further significant length of time.
6. By contrast, a liquidator possesses extensive powers of investigation and a liquidator's remuneration for undertaking any necessary investigations will be a priority debt in the winding up, whereas there are very limited funds available to Mr Neal to administer the estate, including incurring costs in managing the affairs of the company.
7. I am satisfied that Mr Neal is not acting unreasonably in seeking to have the company wound up rather than pursuing some "other remedy": Corporations Act, s 467(4). In practical terms, there is no other remedy for available to Mr Neal. It is in the interests of the company, its creditors and members that an independent person assume control of the affairs of the company for the purpose of ensuring that its books and records are recovered, its assets and liabilities are identified and all creditors are appropriately dealt with in the liquidation. I am satisfied that it is appropriate to grant a winding up order on the just and equitable ground.
8. As to the consequences of the ipso facto clause in the amended trust deed (see [4] above), Mr Neal proposes to leave that matter to the liquidators to deal with. There is now a well-established procedure where the liquidator of a trustee company can apply to be appointed receiver of the trust assets of which the company was formerly trustee, by way of enforcement of the former trustee's right of indemnity against trust assets, which survives the removal of the trustee and operates in favour of the former trustee: Re Hercules Car Parking Systems (Victoria) Pty Ltd [2018] NSWSC 409 at [3] (Brereton J).
9. Evidence has been tendered of a consent filed by the proposed liquidators, Mr Brian Silvia and Mr Geoffrey Granger. Given the appointment of more than one liquidator, it is necessary to make a declaration under s 472(6) of the Corporations Act, notwithstanding the terms of s 530 of the Corporations Act. The latter provision is subject to a contrary intention appearing elsewhere in the Corporations Act; such an intention appears in the specific language of s 472(6), which provides: 472 Court to appoint registered liquidator ... (6) If more than one liquidator is appointed by the Court, the Court must declare whether anything that is required or authorised by this Act to be done by the liquidator is to be done by all or any one or more of the persons appointed.
10. Notice of the application has been lodged with ASIC, however there is no evidence of the advertising of the application to wind up the company. Orders should be made under s 467(3)(b) of the Corporations Act and the Supreme Court (Corporations) Rules 1999 (NSW), r 5.6(1) dispensing with the requirements to advertise the application under s 465A(1)(c) and r 5.6 and the requirement that the application be served on the company under s 465A(1)(b). No substantive purpose would be achieved by compliance with those requirements and they would involve unnecessary costs.

Orders

1. Accordingly, at the conclusion of the hearing earlier today I made the following orders: 1. Pursuant to s 461(1)(k) of the Corporations Act 2001 (Cth) (the Act), the first defendant, Alon Pty Ltd, be wound up. 2. That Brian Raymond Silvia and Geoffrey Peter Granger be appointed as the liquidators of the first defendant. 3. Pursuant to s 472(6) of the Act, declare that anything required or authorised by the Act to be done by the liquidator of the company may be done by any of the liquidators. 4. Pursuant to s 467(3)(b) of the Act and r 5.6(1) of the Supreme Court (Corporations) Rules 1999 (NSW), the requirement to advertise the application under s 465A(1)(c) of the Act and r 5.6 of the Corporations Rules be dispensed with. 5. Pursuant to s 467(3)(b) of the Act, the requirement that the application be served on the company under s 465A(1)(b) of the Act be dispensed with. 6. That the plaintiff's costs of the winding up application be paid out of the assets of the first defendant. 7. That these orders be entered forthwith.

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