Corporations - winding up - just and equitable ground - application by single shareholder - director vacated office by reason of bankruptcy - one director remaining - no replacement director available - applications effectively instituted by liquidator of ultimate holding company - availability of voluntary winding up - winding up on just and equitable ground justified - orders made.

Corporations Law s.224(1)(c), s.9, s470(1)(a), s.461(k)

Alexander Ward and Co. Ltd v. Samyang Navigation Co. Ltd (1975) 2 All ER 424

Davis and Co. Ltd v. Brunswick (Australia) Ltd (1936) 1 All ER 299

Re Tivoli Freeholds Ltd [1972] VicRp 51; (1972) VR 445

Re Deep Sea Fisheries Pty Ltd (1984) 2 ACLC 326

In Re The Outram Societies Hall Company (Limited) (1914) 33 NZLR 1249

Solicitors for the Applicants in WAG 3009 and WAG 3010 of 1992: Clayton Utz

1. Narla Prospecting Pty Ltd be wound up pursuant to sub-s.461(k) of the Corporations Law.

2. John Frederick Lord be appointed liquidator of the company.

3. The applicant's costs of the application be taxed and paid out of the assets of the company in accordance with sub-s.466(2) of the Corporations Law.

1. Bond Mining and Exploration Pty Ltd be wound up pursuant to sub-s.461(k) of the Corporations Law.

2. Melvyn Malcolm Posner be appointed liquidator of the company.

3. The applicant's costs of the application be taxed and paid out of the assets of the company in accordance with s.466(2) of the Corporations Law.

Note: Settlement and entry of Orders is dealt with in Order 36 of the Federal Court Rules.

Dallhold Investments Pty Ltd (In Liquidation) ("Dallhold") is a company formerly controlled by Mr Alan Bond. It seeks a winding up order in respect of its wholly owned subsidiary, Narla Prospecting Pty Ltd ("Narla Prospecting"). The liquidator of Dallhold was appointed as provisional liquidator for Narla Prospecting on 11 June 1992. Following his appointment the provisional liquidator immediately sought the appointment of a provisional liquidator to Bond Mining and Exploration Pty Ltd ("BME"), a wholly owned subsidiary of Narla Prospecting. Mr Melvyn Posner was so appointed on 11 June 1992. Neither Narla Prospecting nor BME has had the statutory minimum number of two directors since 14 April 1992 when Mr Bond was made a bankrupt and thereby vacated his office as director of each of those companies. Winding up orders are sought by Dallhold against Narla Prospecting and by Narla Prospecting against BME on the grounds that it is just and equitable that such orders should be made. Practical considerations relating to the disposition of paintings forming part of the assets of the Dallhold Group underlie the application.

2. Narla Prospecting is a subsidiary of Dallhold which is the sole shareholder of its 100,000 fully paid shares. Dallhold was the subject of a winding up order made by the Federal Court in Sydney on 5 July 1991. John Frederick Lord, a partner in the accounting firm, Duesburys, was appointed as the liquidator. The directors of Narla Prospecting on 14 April 1992 were Alan Bond and Michael Christopher Cross. On 14 April 1992 a sequestration order was made against Mr Bond in the Federal Court. Section 224(1)(c) of the Corporations Law provides that:

"224(1) The office of a director of a company is, by

force of this section, vacated if the person holding

the office:

.

.

.

(c) becomes an insolvent under

administration;"

The definition of the term "insolvent under administration" in s.9 of the Corporations Law includes a person who:

"(a) under the Bankruptcy Act 1966 or the law

of an external Territory, is a bankrupt in

respect of a bankruptcy from which the

person has not been discharged;"

By reason of the sequestration order made against him and by force of s.224(1), Mr Bond's office as a director of Narla Prospecting was vacated. No person has been appointed to replace him. Mr Michael Cross, the remaining director, has informed the solicitors for the liquidator of Dallhold, by letter dated 9 June 1992, that he has been unable to secure the appointment of a new director. Section 221(1) of the Corporations Law requires that a proprietary company have at least two directors. Narla Prospecting is therefore presently without a legally effective Board. It can of course operate through its general meeting - Alexander Ward and Co. Ltd v. Samyang Navigation Co. Ltd (1975) 2 All ER 424. But in this case the sole shareholder is the applicant which is in liquidation. The liquidator of Dallhold was appointed as provisional liquidator of Narla Prospecting on 11 June 1992.

3. Bond Mining and Exploration Pty Ltd ("BME") is a subsidiary of Narla Prospecting which is the sole shareholder of its 924,188 fully paid shares and its 15,000 preference shares. As at 14 April 1992 Alan Bond and Michael Cross were the directors of BME. The sequestration order made against Mr Bond on that date had the effect that his office as a director of that company was also vacated. No other person has been appointed in his place. Mr Melvyn Posner of Bentleys, Chartered Accountants was appointed as provisional liquidator of BME on 11 June 1992. Like Narla Prospecting, BME is without a legally effective Board.

4. Underlying the applications now brought by Dallhold for the winding up of Narla Prospecting and by Narla Prospecting for the winding up of BME, is the fact that a number of paintings which Dallhold claims as its property are also the subject of claims by BME which has asserted a security interest in them arising out of a pledge given by way of security for loans made by BME to Dallhold. Dallhold denies that BME has any valid security interest in the paintings. BME has given possession of the paintings to Armoy Pty Ltd, a company controlled by Alan Bond's son, John Bond. For the purpose of winding up the affairs of Dallhold, its liquidator Mr Lord, wants to have the paintings held by Armoy sold at an auction to be conducted by Christies Australia Pty Ltd in Melbourne on 28 July 1992 at the same time as other paintings owned by Dallhold. Discussions have taken place between Mr Lord's solicitors, Mr Cross and BME's solicitors with a view to agreeing the sale of the paintings at the auction and the retention of the proceeds of those in dispute in a trust account pending resolution of the conflicting claims Armoy will not hand over possession of the paintings until the terms of the proposed agreement between Dallhold and BME have been settled and the agreement executed. As appears from the foregoing the absence of an effective decision-making body, apart from the general meetings of both Narla Prospecting and BME may inhibit their ability to deal in an effective and expeditious manner with the disposal of these assets. The ability of Dallhold to wind up its affairs efficiently and expeditiously is also compromised.

5. Dallhold's application for the winding up of Narla Prospecting and Narla Prospecting's application for the winding up of BME were filed on 11 June 1992 and have each been advertised in the West Australian newspaper of 18 June 1992 and the Commonwealth Government Gazette of 30 June 1992. Notices of the applications were lodged with the Australian Securities Commission on 12 June 1992 as required by s.470(1)(a) of the Corporations Law. No person has given notice of intention to appear upon the hearing of the applications. At the time of filing no other winding up order was pending against either company. Mr Lord consents to being appointed as liquidator of Narla Prospecting and Mr Posner as the liquidator of BME. Mr Lord is the liquidator of three other wholly owned subsidiaries of Dallhold being Gold Resources Australia Pty Ltd (In Liquidation), Preble Pty Ltd (In Liquidation) and Dallhold Feedlots Pty Ltd (In Liquidation). He is familiar with the affairs of the companies in the Dallhold Group. I accept that his appointment as liquidator of Narla Prospecting would assist in the process of administering the winding up of that company and decrease the costs of the administration. I accept also that it is necessary that a different person unconnected with Duesburys be appointed as liquidator of BME because of the conflicting claims in relation to the Dallhold paintings.

Whether it is Just and Equitable that the Companies Be Wound Up

6. Each of these applications is brought under s.461(k) of the Corporations Law which provides:

"461. The Court may order the winding up of a company

if:

.

.

.

(k) the Court is of the opinion that it is

just and equitable that the company be

wound up."

The scope of the just and equitable ground for winding up in company law and its equivalent in relation to the dissolution of partnerships does not require extensive exegesis for the purposes of this case. No general rule can be laid down as to the nature of the circumstances which have to be borne in mind in considering whether a case comes within the ground, but a decisive question must be whether, at the date of presentation of the winding up petition there was any reasonable hope that the object of trading at a profit with a view to which the company was formed could be attained - Davis and Co. Ltd v. Brunswick (Australia) Ltd (1936) 1 All ER 299 at 308-309. The words give the court a wide discretion which must be exercised judicially but the question involved is basically one of fact - Re Tivoli Freeholds Ltd [1972] VicRp 51; (1972) VR 445 at 468, see also Re Deep Sea Fisheries Pty Ltd (1984) 2 ACLC 326 at 330 (Starke J.).

7. Where a company has, as appears to be the case here, reached a volitional dead end not amenable to practical resolution by the shareholders, then a winding up order may be appropriate. Some similarity can be observed in the case of In Re The Outram Societies Hall Company (Limited) (1914) 33 NZLR 1249. There the number of directors of the company had fallen below the minimum required for a quorum, no new directors had been appointed, general meetings of shareholders had been convened but in no case did a quorum attend. Sim J. made an order winding up the company under s.177(e) of the Companies Act 1908 (NZ) apparently on the basis that its affairs were in deadlock.

8. No doubt it could be said that Dallhold could have instituted a members' voluntary winding up of Narla Prospecting and that Narla Prospecting could have done likewise with respect to BME. In the ordinary case, the availability of that option where the shareholders are ad idem as to the desirability of a winding up order being made might militate against the grant of an application on the just and equitable ground under s.461(k). I am satisfied, however, that in the circumstances of the present case in which these proceedings have been in effect instituted by the liquidator of Dallhold, it is not inappropriate to invoke the provisions of s.461(k). I propose therefore to make the orders sought.