Telfer v Astarra Securities Pty Ltd [2010] NSWSC 682 | Case summary

1 An originating process seeking an order for the winding up of each of two companies has been filed in court today. The companies are Astarra Securities (Australia) Pty Ltd and Astarra Nominees (Australia) Pty Ltd. 2 There are three plaintiffs. It is sufficient to note in relation to standing that the third plaintiff, Astarra Funds Management Pty Ltd, a company in voluntary administration, is the sole member of each of the two defendant companies. It therefore has standing under s 462(2)(c) of the Corporations Act 2001 (Cth) to seek winding up, and I do not pause to consider the positions of the other plaintiffs given that all appeared by the same counsel and solicitors. 3 Also filed in court today was an interlocutory process by which the plaintiffs sought the appointment of a liquidator provisionally in respect of the two defendant companies. It is with that interlocutory application that I am now concerned. 4 Having said what I have said about standing, my first task is to decide whether, on the material before me, it is likely that a winding up order will, in due course, be made in relation to each company. 5 The circumstances in which the two companies are placed are relevantly identical subject to one difference. Each is the trustee of a unit trust referred to in the evidence as an unregistered management investment scheme called a private equity trust. The investors in each trust are superannuation funds and other investment vehicles. The assets of the trusts or managed investment schemes are invested in various avenues in the field of medical research and other innovation. The two companies and the investment trusts they administer are part of the Trio Group. 6 The second defendant, Astarra Nominees (Australia) Pty Ltd, no longer has directors, all previous directors have resigned. The first defendant, Astarra Securities Pty Ltd, has one director in office. He, however, cannot act in any effective way. The company's constitution fixes the quorum for a meeting of directors at two. In addition, however, the constitution fixes the minimum number of directors at one, so that it might be expected that a sole director would be able to function through s 248B of the Corporations Act. But the effect of the authority to have one director only is then very largely negated by a provision that, if the number of directors is reduced below the number necessary for a quorum at a meeting of directors, that is two, the remaining director or directors may act only to increase the number of directors or to call a general meeting. 7 As things now stand, therefore, neither company has a board of directors capable of functioning. 8 One might expect that situation to be remedied by the sole member. That, however, is problematic to say the least - first, because the sole member has caused to be passed within each of the two companies a special resolution that the company be wound up by the court; and, second, because there is evidence lending support to the proposition that each company is insolvent. 9 The only asset in each case is said to be the right of indemnity out of trust funds for liabilities properly incurred as trustee; and the indication in the evidence is that the revenues are insufficient to satisfy the indemnity in full. 10 So far as the prospects of an eventual winding up order are concerned, therefore, there is a significant likelihood that the insolvency ground will be made out and the separate ground in s 461(1)(a) is already established. Once the sole shareholder caused to be passed a special resolution that the company be wound up by the court, any discretion that might ultimately be exercised on the question of winding up became a very limited one indeed: Hillig v Darkinjung Local Aboriginal Land Council [2006] NSWSC 1371; (2006) 205 FLR 450. 11 Additionally and as I have said, the evidence as it stands points to a conclusion of insolvency. There is also the lack of directors because of the likely insolvency the lack of ability to obtain directors. That would indicate that it was just and equitable that the company be wound up: CIC Insurance Ltd v Hannan Pty Ltd [2001] NSWSC 437; (2001) 38 ACSR 245. The question whether it is likely that a winding up order will in due course be made must be answered in the affirmative in relation to each company. 12 I move, therefore, to the second matter I must consider, that is, whether there exists, in relation to each company, a situation of jeopardy inimical to the proper maintenance of the status quo pending determination of the winding up application - in other words, I suppose, whether there is instability making it necessary for the particular kind of temporary administration to be put in place. 13 The evidence about the lack of directors is compelling in this respect. In one case, there are no directors; in the other, there is one director who cannot act except to appoint further directors or to call a general meeting. The prospects of finding new directors must be considered remote because no one will be willing to become a director of a company that has all the hallmarks of insolvency. In any event, the sole member has made it clear that it wants each company to be wound up by the court and will be moving for a winding up order which would further deter anyone who might have thoughts of stepping forward to occupy a position on the board of directors. 14 There is thus an inability of each company to function at board level. There is a paralysis with no apparent cure. That is sufficient basis for finding that maintenance of status quo warrants an appointment of a provisional liquidator: CIC Insurance Ltd v Hannan Pty Ltd (above). 15 It has been said in many cases that the appointment of a provisional liquidator is a drastic and intrusive step and one not to be taken lightly. There is a particular aspect of that matter that needs to be mentioned here. The trust deed of each of the investment funds, that is the funds of which Astarra Securities Pty Ltd and Astarra Nominees (Australia) Pty Ltd are trustees, contains a provision which, on its face, causes the office of trustee to be vacated automatically if the company which is trustee "enters into liquidation, whether compulsory or voluntary (not being a voluntary liquidation for the purpose of amalgamation or reconstruction) or, has an administrator, receiver, or official manager or receiver and manager appointed". 16 The circumstance that appointment of a provisional liquidator might trigger this clause could be one to which the court should have regard in exercising its discretion. 17 I am satisfied, however, that appointment of a provisional liquidator will not act as such a trigger. The terms "administrator", "receiver", "official manager" and "receiver and manager" all have established and well recognised meanings quite distinct from a liquidator and, therefore, from a provisional liquidator. Appointment of a liquidator provisionally, which is the terminology in s 472(2), is something different from the appointment of an administrator, receiver, official manager or receiver and manager. 18 Nor, in my view, does the appointment of a liquidator provisionally under s 472(2) cause the relevant company to "enter into liquidation". The word "liquidation" here is synonymous with winding up and in the case of a court ordered winding up there is no winding up and, therefore, no "liquidation" unless and until a winding up order is made. At that point, the process of collecting assets, reducing them to money, ascertaining debts and applying the assets towards the debts begins: Re Crust n Crumbs Bakers (Wholesale) Pty Ltd [1992] 2 QdR 76. 19 It is true that, for the purposes of the Corporations Act, a winding up by order of the court may be deemed in certain cases to commence at a point before the making of the winding up order. This is the effect of s 513A. For example, if the company is already subject to voluntary administration when the winding up order is made the winding up is deemed to have commenced at the earlier point at which the antecedent voluntary administration is deemed to have commenced. There is, however, no provision that back dates the commencement of a winding up on the sole basis that a provisional liquidator has been appointed. In such a case the winding up is deemed to commence when the winding up order is made. There is thus no basis for an argument that these interpretation provisions of the Corporations Act will warrant an interpretation of the deed provision that has regard to a date other than the date of the making of any eventual winding up order. 20 I am therefore of the opinion that the existence of the trust deed provision I have mentioned does not represent any discretionary reason for declining to appoint a provisional liquidator. The respective companies under any provisional liquidation will be entitled to continue as trustees. Whether that is a long term proposition or the appointment will bring about in the short term alternative proposals as to trusteeship is not something that should concern me on this application. I need only say that at a commercial level there appears to be other parties interested in becoming trustees; whether they would be suitable is another question which again I do not pause to consider now. 21 It is appropriate, in the whole of the circumstances, that a provisional liquidator be appointed in respect of each company. An undertaking as to damages is often required when a provisional liquidator is sought, but I see no need for that precaution in this case. Neither company has any activity apart from the single trusteeship and it is, in any event, a wholly owned subsidiary of the principal applicant for the making of the order. 22 I make the following orders: (1) Order that Geoffrey Trent Hancock of BDO Kendalls be appointed liquidator of Astarra Securities Pty Limited ACN 109 078 319 provisionally. (2) Order that Geoffrey Trent Hancock of BDO Kendalls be appointed liquidator of Astarra Nominees (Australia) Pty Limited ACN 003 983 917 provisionally. (3) The originating process is to stand over before the Corporations Judge at 10am on 26 July 2010. (4) Costs of the interlocutory process be reserved. **********

Telfer v Astarra Securities Pty Ltd

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