Shenouda v Work Safe Medics Pty Ltd

Judgment 1On 25 November 2010, the plaintiff filed an originating process seeking an order for the winding up of Worksafe Medics Pty Ltd, which is the first defendant. The plaintiff is one of two shareholders in that company and one of two directors. The other shareholder and director is the second defendant, his wife. 2The first defendant and the second defendant are engaged in matrimonial proceedings in the Family Court of Australia, which proceedings were commenced in 2006. 3I am presently dealing with an interlocutory process filed in the winding up proceedings on 28 January 2011 by which the second defendant seeks an order under s 1337H of the Corporations Act 2001 (Cth) transferring the winding up proceedings to the Family Court of Australia at Parramatta. The obvious desire and intention is that the winding up application should be consolidated in some appropriate fashion with the matrimonial proceedings which have been pending in the Family Court for some four years. 4The plaintiff has indicated in relation to this transfer application that he neither consents to the making of the order sought nor opposes the making of that order. The same attitude has been indicated by the Commissioner of Taxation who, through Mr Lee, has made clear an intention to appear as a supporting creditor in relation to the winding up application. 5Section 1337H allows a transfer of a civil proceeding under the Corporations Act to another court having jurisdiction in the matter. In relation to proceedings for the winding up of a company, the Family Court of Australia, being a "Court" (with a capital "C") in the s 58AA sense, has jurisdiction in such a matter and may therefore be a transferee court. This court may, however, order such a transfer only if it appears to this court that it is more appropriate for the other court to determine the proceeding, having regard to the interests of justice. 6The question is therefore whether the interests of justice will be better served by transfer to the Family Court than by retention in this court and determination by this court in the ordinary course. 7The winding up application, according to its terms, is advanced on the ground in s 461(1)(k) of the Corporations Act , that is the just and equitable ground. The evidence that has been filed and the submissions that have been made by Mr Rosenblatt on the plaintiff's behalf on the transfer application confirm that the aspect of the just and equitable ground upon which the plaintiff intends to rely is that concerned with irretrievable breakdown of relationships within the company productive of paralysis or other inability of the company to operate and be administered in the way in which companies are meant to operate and be administered. 8The circumstances of breakdown within the company are no doubt, at least in broad terms, the same as those that lie at the heart of the Family Court proceedings. 9There are a number of cases in which winding up applications of this kind have been transferred to the Family Court. Relevant principles were stated by Gyles J in Zhu v Tech Universal (HK-Macau) Development Pty Ltd [2005] FCA 256, (2005) 53 ACSR 704 at [8] - [9]: " [8] As might be expected the respective interests of these parties in the company are expressly in issue in the Family Law proceedings by virtue of the various orders that are sought and will need to be resolved by that Court. Adapting the reasons of Merkel J in the similar case of Roff v Aqua Distributors Pty Ltd (1996) 22 ACSR 248; 14 ACLC 1769; (1996) 21 Fam LR 138: Although the issues in each proceeding are not identical there will be a substantial overlap. It will be more efficient, less time consuming and less costly for the issues arising to be resolved in the one court. The risk of inconsistent findings will be removed if the proceedings are heard and determined in the one court. The Family Court, with its wide powers under the Family Law Act 1975 (Cth) in respect of property settlements, is well-equipped to resolve the ultimate dispute between the parties being the future conduct, ownership and control of the company; the resolution of that issue will be a critical element in determining matters arising under the Corporations Law. (See also Fox Enterprises Pty Ltd v Fox (1995) 123 FLR 445 ; (1995) 13 ACLC 573; Mattock v Mattock (1989) 97 FLR 112 ; (1989) 13 Fam LR 288 (1989) FLC 92-038; and Mourd v Atlantis Nominees Pty Ltd (1990) 100 FLR 478; (1990) 14 Fam LR 222.) [ 9] As Merkel J indicated in Roff , where the interests of third party shareholders or creditors are involved, it is necessary to take into account the circumstance that this Court is accustomed to dealing with the winding up of corporations whereas the Family Court is not. Where a company is trading actively on a substantial scale or where a real question of insolvency arises serious consideration would be required before a winding-up proceeding would be transferred to the Family Court." 10Gyles J thus pointed to a number of circumstances, which might favour transfer to the Family Court according to the criterion expressed in s 1337H. These include material overlap between issues in the respective proceedings, benefits of efficiency (including saving of time and cost) that might be realised by having issues resolved in one court and the elimination of the risk of inconsistent findings in different courts. Gyles J observed that, in respect of property settlements, the Family Court is well armed by the legislation it administers to resolve disputes including those concerning the future conduct, ownership and control of companies owned by parties to a marriage. 11Gyles J went on, however, to refer to what had been said by Merkel J in the earlier case of Roff v Aqua Distributors Pty Limited (1996) 22 ACSR 248: that, in effect, a new and separate dimension of importance is introduced if interests of third party shareholders or creditors need to be taken into account. 12Merkel J said (and Gyles J approved his Honour's observation) that, where a real question of insolvency arises, serious consideration would be required before a winding up proceeding would be transferred to the Family Court. 13The rationale for this is no doubt the reality that the Family Court is not in the ordinary course of events a forum in which creditors' rights arise for consideration, whereas the company court, in its winding up jurisdiction (including upon applications based on the just and equitable ground) inevitably pays attention to the question of the company's financial health and the interests of creditors and any need there might be for creditors' interests to be safeguarded. 14In saying that, I do not intend to imply that, upon a transfer application of the kind now before it, this court should make some evaluation of what might be the outcome in one court rather than the other, so far as creditors are concerned. Mr Loupos has said in his submissions on several occasions that the Commissioner of Taxation will be worse off if the company is wound up here than if it is dealt with in some other way in a re-arrangement of property interests by order of the Family Court. That is not the issue. 15Creditors of an insolvent company have a right to expect that the company will be wound up and not allowed to continue in such a way that further debts may be incurred. Again I refer to Mr Loupos's submission and the proposition that this company no longer trades; but also, according to the submission, that as part of a regime ordered by the Family Court it might be rehabilitated and be made to trade again. 16Accounts that have been put into evidence indicate that the company had a net loss for the period for the financial year ended 30 June 2009 of $116,881.05 and for the financial year ended 30 June 2010 $36,719.32; also that there was a deficiency of assets over liabilities as at 30 June 2010 of $37,842.38. 17Furthermore, in or about September 2010 the Commissioner of Taxation served a statutory demand on the company in the sum of $148,120,90, which demand was not complied with. Earlier, in March of 2010, the Commissioner of Taxation had served a director penalty notice on the plaintiff as a director of the company in respect of sixteen taxation amounts unpaid by the company, the smallest of which was of the order of $3,295 and the largest appears to be of the order of $7,752 (I do not have the total before me). Because of the company's default in paying those amounts to the Commissioner, the plaintiff, as a director, was made personally liable for them under the taxation legislation 18This evidence makes it clear that the company has not paid the Commissioner of Taxation money due to the Commissioner. The fact that that may be because of a breakdown within the company and its inability to function does not change the fact that a substantial creditor has not been paid. 19It has been said by Mr Loupos from the bar table that the plaintiff has been taking money wrongly out of the company. If that is so, the estate of the company is in need of protection in order that any misapplications of that kind are pursued appropriately. 20The matters concerning the financial status of the company and, in particular, the existence of unpaid liabilities to the Commissioner of Taxation and the consequent clear financial interest of someone other than the husband and wife set this case apart from those in which the company concerned is, in effect, merely an element of the pool of matrimonial property of its shareholders. 21The added dimension to which Gyles J and Merkel J referred involving interests beyond those of the parties to the marriage intrude in this case in a significant way such as to make transfer to the Family Court rather than continuation in this court in the ordinary course a less appropriate method of dealing with the winding up application. 22I add in that connection that there is evidence of a statement by the plaintiff's family law solicitor that a pending application of the plaintiff in these proceedings, being an application in those proceedings to have an administrator appointed to the company, does not have a current listing and the family law solicitor would not expect it to be heard until after the parenting application at the end of March. Mr Loupos has pointed to the fact that the relevant application contains a claim for an order that it be expedited or, as the terminology is, be listed at short notice, but, in any event, the prospects that the Family Court will make one of the key orders sought must be regarded as virtually zero, given that the order is: "That the parties do all acts and things and sign all documents necessary to appoint Mr Adam Shepard from Setter Shepard as administrator of Worksafe Medics Pty Limited". 23This is no doubt a reference to a voluntary administrator under Part 5.3A of the Corporations Act . However, the appointment of an administrator under that regime is not in any sense something amenable to an order of a court binding upon the directors of the company. Directors can appoint an administrator under s 436A only if they form a particular opinion about the state of the company's solvency. All the court orders in the world cannot compel them to perform that statutory function. It is a matter for their own individual attention and judgment. It is for that reason I say the prospects of the Family Court making the order must be regarded as virtually zero. 24I am not satisfied that it is appropriate, in the interests of justice, that the winding up proceedings be transferred to the Family Court rather than being retained here so that they can be dealt with in the ordinary way. 25The application for transfer of the winding up proceedings to the Family Court is dismissed. [Submissions on costs] 26It is dismissed with costs.