Solicitors:
W K Cahill & Associates (plaintiffs/first and second cross-defendants)
Terence Stern (first defendant)
File Number(s): 2017/285473
[2]
Judgment (ex tempore)
Until her death on 24 September 2015 at the age of 86, the late Marie Stella Joseph, also known as Stella Marie Joseph but commonly referred to as Marie, owned 14 of 15 issued shares in the second defendant company Hillsea Pty Ltd. Her brother the first defendant Peter Anthony Joseph, held the other share, and the two of them were the only directors of the company.
By her will dated 30 September 2005, probate of which was granted to her nieces, the plaintiffs Elizabeth Mary McIvor and Maureen Anne Joseph, on 5 January 2016, Marie left her estate in substance to 40 great nieces and great nephews who survived her.
By their originating process filed on 20 September 2017, her executors the plaintiffs seek, relevantly, an order that the first defendants set up and maintain a register of the second defendant in accordance with (CTH) Corporations Act 2001, s 169, within seven days; secondly, an order that the first defendant enter the names of the plaintiffs in the register of members as the holders of the class A, C, D and E shares previously held by Marie within seven days; and, thirdly, an order that the first defendant deliver a share certificate reflecting such registration to the plaintiffs within seven days.
The relevant essential background to the present application includes that, at least since the late 1980s, the company does not appear to have maintained a register of members as referred to in Corporations Act, s 169. The first defendant Peter Joseph has been the sole director in office since the death of Marie, one consequence of which is that the requisite number of directors referred to in the corporate constitution has not been in office, and there are not sufficient directors to make decisions and pass resolutions on behalf of the company. Further, the executors have raised concerns that Peter Joseph is using funds of the company for his own personal benefit, and drawing excessive director's fees.
It is relevant at this point to refer to a number of the provisions of the company's articles of association.
Article 6 provides as follows:
Every person whose name is entered as a member in the register of members shall without payment be entitled to a certificate under the common seal of the company specifying the share or shares held by him and the amount paid up thereon provided that in respect of a share or shares held jointly by several persons, the company shall not be bound to issue more than one certificate and delivery of the certificate for a share for one to several joint holders will be sufficient delivery to all.
Article 16 is as follows:
Subject to the provisions herein after contained, shares in the company shall be transferrable by written instrument in the common form signed both by or on behalf of the transferor or transferee and the transferor shall be deemed to be named the holder of the share until the name of the transferee is entered in the register of members in respect thereof.
Article 17 provides:
The directors may decline to register any transfer of shares without assigning any reason therefore and may also decline to register any transfer of shares on which the company has a lien. The director may also suspend the registration of transfers during the 14 days immediately preceding the ordinary general meeting in each year. The directors may decline to recognise any instrument of transfer unless the instrument of transfer is accompanied by the certificate of the shares to which it relates and such other evidence as the directors may reasonably require to show the right of the transferor to make transfer. If the directors refuse to register a transfer of any shares they shall within one month after the date on which the transfer was lodged with the company, send to the transferee notice of the refusal.
Articles 18 and 19 deal more directly with the circumstances relevant here, namely, transmission of a shareholding of a deceased shareholder:
18. The personal representatives of a deceased sole holder of a share shall be the only persons recognised by the company as having any title to the share. In the case of a share registered in the names of two or more holders the survivors or survivor or the personal representatives of the deceased survivor shall be the only persons recognised by the company as having any title to the share.
19. Any person becoming entitled to a share in consequence of the death or bankruptcy of a member shall upon such evidence being produced as may from time to time be required by the directors have the right either to be registered as a member in respect of the share, or instead of being registered himself, to make such transfer of the share as the deceased or bankrupt person could have made. The directors shall in either case have the same right to decline or suspend registration as they would have had in the case of a transfer of the share by the deceased or bankrupt person before the death or bankruptcy.
It is pertinent also to refer to two articles which deal with the position of the directors. Under article 63, upon the death of the founding governing director, Anthony Leo Joseph, and upon his not having appointed a succeeding governing director, then "until otherwise determined by the company in general meeting, the number of directors shall be not less than 5 nor more than 13". The evidence, at least at this stage, does not disclose that the company has otherwise determined, but it appears that there have been only two directors in office for a very long time.
Article 81 provides:
The continuing directors may act notwithstanding any vacancy in their body but if and so long as their number is reduced below the number fixed by or pursuant to these articles, as the quorum of directors, the continuing directors may act for the purpose of increasing the number of directors to that number or of summoning a general meeting of the company but for no other purpose.
Article 80 provides that the quorum necessary for the transaction of the business of the directors may be fixed by the directors, but shall not be less than 2. Whether the reference in article 81 to the quorum of directors is to the quorum referred to in article 80 or the minimum number of directors in article 63 need not presently be determined.
In the light of articles 18 and 19, there is no serious doubt that the plaintiffs as executors are, at least in the absence of a decision on reasonable grounds under article 19 to decline to register them, entitled to be registered, and pursuant to article 6, upon becoming registered, to be issued a share certificate. No argument was presented to the contrary.
On 28 July 2017, a copy of the grant of probate was forwarded to the first defendant and the company's accountant, together with an application to be registered. On 4 August, the company's then accountant lodged with ASIC a Form 48 notification of changes of details, which advised of the transmission of the shares into the name of the plaintiffs. However, he indicated that he held no register of members, and that he had never held one since he had had the conduct of the company's financial affairs since the late 1980s.
On 6 September 2017, the plaintiffs' solicitors again requested Mr Joseph to set up and thereafter maintain a register of members, and to register the plaintiffs as shareholders in respect of the deceased's 14 shares. Under cover of that letter there were also submitted consents of each of the plaintiffs (and a further person nominated by them to act as a director) and a draft minute of resolution appointing them (and a further person who Mr Joseph was invited to nominate) as additional directors. Nothing appears to have happened, so far as the evidence discloses, in response to that request within the period requested or at all, and in the absence of any such response, these proceedings were instituted, as I have said, on 20 September 2017. It is true that Mr Joseph by his solicitor had previously indicated some tentative willingness to appoint additional directors, but when the forms that would have permitted that to happen were submitted, there was no further response and no explanation has been forthcoming for it.
At the hearing on 13 November 2017, the first defendant sought an adjournment in order to permit evidence to be adduced. However, the plaintiffs had provided three weeks' notice of their intention to move on claims 1, 2 and 3 in the originating process when the matter came before the Court on 13 November. Their entitlement to be registered as shareholders appears clear and undisputed, and it is highly undesirable they should be held out of registration if there is no real issue as to their entitlement to be registered. The real issue is whether an order should be made against the first defendant, as distinct from against the company, and that is a question of law, not one of evidence. It may be that evidence might go to the question of costs, but that is no reason to defer dealing with what appears to be a clear entitlement to be registered.
The fundamental question concerns the appropriate means of bringing about the situation that the plaintiffs are registered as shareholders. The only apparent obstacle to that is provided by two circumstances: first, that there is no extant register; and secondly, there being only one director, his powers are limited to reconstituting the board to the minimum requisite number, and until that is done, he cannot take other positive steps which would require a directors' resolution for the management of the company.
The lack of the requisite number of directors does not, of course, deprive the company of legal existence, nor relieve it of its legal obligations. It may well be that Mr Joseph cannot, on his own, pass a resolution of directors or take action which would require the authority of such a resolution. But it seems to me that that does not mean that there is any reason why, as an officer of the company, he cannot perform ministerial acts that do not require a decision or authority of the directors. For example, as an officer of the company, he could bring into existence the register of members which the company is bound to set up and maintain under Corporations Act, s 168, which provides as follows:
168. Registers to be maintained
(1) a company or registered scheme must set up and maintain:
(a) a register of members (see s 169); ..."
Subsection (1A) provides that an offence based on subsection (1) is an offence of strict liability.
Section 169 provides "[d]etail of the information that must be contained in the register of members." It is clear that s 168 imposes a legal obligation on a company to, in its terms, "set up and maintain" a register of members and that it is contravened by a failure to set up and maintain such a register.
It has been suggested in a number of cases that the power in s 175 to rectify a register extends to creating a register where one does not exist. [1] It seems to me that, whatever the position is in that regard, it is clear that resort may be had to Corporations Act, s 1324, to require a company to set up and maintain a register if it has not done so. Section 1324(1) provides:
Where a person has engaged, is engaging or is proposing to engage in conduct that constituted, constitutes or would constitute:
(a) a contravention of the Act;
…
the Court may, on the application of ASIC, or of a person whose interests have been, are or would be affected by the conduct, grant an injunction, on such terms as the Court thinks appropriate, restraining the first-mentioned person from engaging in the conduct and, if in the opinion of the Court it is desirable to do so, requiring that person to do any act or thing.
As it seems to me, pursuant to s 1324(1) and, alternatively, pursuant to s 1324(2), the Court can plainly make an order requiring the company to do what s 168 requires it to do, namely to set up the relevant register.
So far as concerns registering the plaintiffs as shareholders, the matter is not so straightforward. That is not a merely administrative act that can be performed by an officer of the company, but requires a resolution or decision of the directors to register them. It seems to me that the first defendant cannot, on his own, so resolve; only a board duly constituted and quorate could do so. In those circumstances, some other remedy is necessary.
The circumstances where a transfer or transmission cannot be registered because of problems with the company's organs, such as a lack of a quorum of directors or a lack of any directors, are not unprecedented. In Re LL Syndicate, [2] Kekewich J was concerned with an application by a transferor and transferee of shares in the company for an order for rectification of the register of shareholders by the removal of the name of the transferor and the substitution of the names of the transferees in respect of the shares transferred, and that in default of the company rectifying the register in accordance with the order within seven days, the applicants themselves might be at liberty to rectify the register in accordance with the order.
The difficulties in that case arose due to disputes in the affairs of the company which had resulted in the resignation of all the directors and the secretary, so that there was no-one having authority to carry out any order which the Court might make for rectification of the register. Kekewich J observed that the ordinary form of the order was simply that the register be rectified, but, in the circumstances of the case, he would make a mandatory order directing that the company rectify the register within four days from service of the order on them, and if that order was not complied with, the applicants could then apply again under (UK) Rules of the Supreme Court order 42, r 39 for an order for substituted performance, namely one that gave them liberty to rectify the register themselves.
In Re Manihot Rubber Plantations Limited, [3] the Public Trustee moved for the rectification of the register of the company and a direction, again under order 42 rule 30, that the applicant or some other fit and proper person be appointed to rectify the register effectively as an order for substituted performance. That occurred in circumstances where, an order having been made directing the company to rectify the register of the members, it had failed to do so - there being no directors and no secretary - although the solicitors for the company had the books and documents of the company in their hands. Greer J declined immediately to make an order that the solicitors produce the books and documents of the company, but made an order appointing a person to do so on behalf of the company:
The Public Trustee, owing to his many other duties, decided that someone should be appointed to act for him and Mr Arthur Herbert Harding, a solicitor engaged in the office of the Public Trustee, had been suggested as a fit and proper person and he should appoint him. As for the further order, directing that the solicitors of the company should produce the books and documents necessary for the carrying through of the transfer, [the judge] was not prepared to make any such order then, but wished to express his opinion that nothing ought to be done by them to obstruct the carrying out of the order of the Court.
These cases were referred to in this State in the judgment of Street CJ in Eq in Re The Corowa Boiling Down Company Limited. [4] In that case, on an application for rectification of the register, it appeared that there were no existing directors of the company, so the Court ordered that the company should, within a time prescribed, rectify the register as asked. On that occasion, the court contemporaneously appointed, in default of performance, a named person to rectify the register. It happened that the named person was the then secretary of the company, in circumstances where the secretary was content to be so appointed. Once the cases of Re LL Syndicate and Re Manihot Rubber Plantations are understood, it is clear that the order was made not against Mr Gardiner, the secretary, as a defendant, but by way of a grant of liberty to him to perform the order by way of substituted performance.
In Re Chas. Jeffries & Sons Pty Limited, [5] the difficulty arose because one Eric R Jeffries was the only living director of the company and the only living shareholder, so that it was not possible to hold a meeting of directors to authorise the making of any entry in the register. Fullagar J, then a judge of the Supreme Court of Victoria, observed that an order for rectification of the register was made in very similar circumstances in re The Corowa Boiling Down Company Limited, to which I have referred. His Honour said:
In the present case, a quorum of directors cannot be obtained because there is only one director and two are required for a quorum. In these circumstances, the name of a person is in my opinion without sufficient cause omitted from the register, just as it was in the cases cited and I must rectify the register, as was done in those cases.
His Honour made an order that Eric R Jeffries rectify the register accordingly. The judgment does not appear to give any consideration to the basis upon which an order might be made against Mr Jeffries personally in that situation.
Section 175 speaks of an order that the company rectify the register, not that an individual director or other person do so. Again, as it seems to me, once all the cases are understood where an order has been made against an individual person, it is not, in truth, an order against an individual person but an order pursuant to the equivalent of (NSW) Civil Procedure Act 2005, s 94, and/or (NSW) Uniform Civil Procedure Rules 2005, r 40.8, by way of substituted performance in that, where the company fails to comply with an order to register the transfer, another person is appointed to do so in its place.
In the context of specific performance suits, it is not uncommon to appoint a Registrar of the Court under those provisions to execute conveyances or transfers. The cases to which I have referred indicate that, in the present context, it may be appropriate to appoint persons associated with the company to do so. But one would not normally appoint an opposing defendant to do so.
It is, however, clear from the cases to which I have referred that an order for rectification under s 175 would be the appropriate relief, if the register existed. As I have said, s 175 contemplates an order that the company rectify the register. It provides as follows:
(1) A company ... or a person aggrieved may apply to the court to have a register kept by the company or scheme under this Part corrected.
(2) If the Court orders the company or scheme to correct the register, it may also order the company or scheme to compensate a party to the application for loss or damage suffered.
(3) If:
(a) the Court orders the company or scheme to correct its register of the members ...
…
the company or scheme must lodge notice of the correction with ASIC.
As I have said, that indicates that such an order is directed to the company, not directed to an individual director. However, once such an order is made, then no further resolution of the directors is required to authorise the entry of the persons entitled to be registered into the register. It then becomes a merely ministerial act, not requiring a resolution of directors, and one which could be performed by the sole remaining director as an officer of the company.
The significance of this is that, unlike some of those cases to which I have referred in which there were no directors or persons capable of making the requisite entry in the register, there is a person capable of making the requisite entry, once the authority of the Court's order for rectification has been given. Likewise, once that step has been taken, the issue of a share certificate is a ministerial or secretarial matter which the sole remaining director would be able to perform on behalf of the company.
Further while, as will have become apparent, I do not think that the sections to which I have referred authorise an order against the first defendant personally, and while given the background (including that any failure to maintain a register has been on foot for many years and may not have involved direct advertence on the director's part) I am disinclined to find, at least at this stage of the proceeding, that he has aided, abetted, counselled or procured a contravention of the Act or been knowingly concerned with it, nonetheless an order made against the company can, subject to compliance with the requisite rules of court, be enforced by committal or sequestration of an officer, including a director of the company. Thus, UCPR r 40.6, which deals with committal and sequestration, provides by subrule that a judgment to which it applies may be enforced if the person bound by the judgment is a corporation, by committal of any officer of the corporation and sequestration of the property of any officer of the corporation.
That is subject to compliance with r 40.7, which requires both service of a sealed copy of the judgment on the corporation and also, if it is to be enforced against a director, service of a sealed copy personally on the officer against whom it is to be enforced, before the time for performance of the specified act expires and, in both cases, the sealed copy bearing a notice - in the first case to the company, and in the second case to the director - that the person served is liable to imprisonment or sequestration of property if the company fails to do the act or thing as required.
Accordingly, as it seems to me, it is inappropriate to make an order directly against the first defendant, either in respect of setting up the register or rectifying the register or issuing a share, but it is appropriate to make such orders against the second defendant company, and upon service of the requisite notice of those orders personally on the company and on the first defendant, he would be liable to committal or sequestration if the company does not comply with the order.
The court therefore orders that:
1. Pursuant to Corporations Act, s 1324(2), the second defendant Hillsea Pty Limited by 21 November 2017 set up a register of members as referred to in Corporations Act, s 168, and in accordance with Corporations Act, s 169.
2. Pursuant to Corporations Act, s 175, the second defendant Hillsea Pty Limited by 21 November 2017 correct the register of members by entering the names of the plaintiffs jointly in that register, with the name of the first plaintiff Elizabeth Mary McIvor to stand first in order as between them as the holders of the class A, C, D and E shares in the second defendant, previously held by the late Marie Stella Joseph known as Marie Joseph.
3. The second defendant Hillsea Pty Limited by 21 November 2017, deliver to the plaintiffs a share certificate in respect of the shareholding referred to in order 2.
4. There be liberty to apply on three days' notice in the event of any difficulty arising in the implementation of these orders.
[3]
Endnotes
See In the matter of Mogul Stud Pty Ltd [2012] NSWSC 1639 at [7] and Taylor v Goldana Investments Pty Ltd (No 2)( 2015) 236 FCR 298 (at 300 and following).
In re L.L. Syndicate Ltd [1901] WN (Eng.) 164.
(1919) 63 Sol Jo 827.
(1923) 40 WN (NSW) 151.
[1949] VLR 490.
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Decision last updated: 25 June 2019