Supreme Court of WA|2000-05-08|Before: Mr J, Owen J

Walker v Midlink Nominees Pty Ltd (Provisional Liquidator Appointed) & Ors [2000] WASC 112 (8 May 2000)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : WALKER -v- MIDLINK NOMINEES PTY LTD (PROVISIONAL LIQUIDATOR APPOINTED) & ORS [2000] WASC 112

MIDLINK NOMINEES PTY LTD (PROVISIONAL LIQUIDATOR APPOINTED) (ACN 082 074 253)

Corporations - Voluntary administration - Winding up - Provisional liquidator appointed - Subsequent appointment of voluntary administrators by company - Whether company had power to appoint administrators - Whether actions of director in causing appointment an exercise of a function or power of office

Declaration that appointment of administrator invalid

ANZ Banking Group Ltd v Director General of the Department of Fair Trading [1999] NSWCA 278; [1999] 47 NSWLR 223

Cadbury Schweppes Pty Ltd (1987) 16 FCR 437; (1987) 76 ALR 643

Commercial Banking Co of Sydney Ltd v Federal Commissioner of Taxation (1983) 14 ATR 142

Commonwealth v Cockatoo Dockyard Pty Ltd (1995) 36 NSWLR 662

David Grant & Co Pty Ltd v Westpac Banking Corporation [1995] HCA 43; (1995) 184 CLR 265; 13 ACLC 261

Fernando v Commissioner of Police (1995) 36 NSWLR 567

Re Codesco Pty Ltd (1974) ACLR 27, 897

Re Rampton Holdings Pty Ltd (In Liq) (1990) 3 ACSR 594

Thompson v Hill (1995) 38 NSWLR 714

1 OWEN J: This is an application for a declaration that the appointment of the administrators under Pt 5.3A of the Corporations Law ("the Law") by a director of a company, after the appointment of a provisional liquidator by the Court, is invalid.

2 One Russell Walker is the registered and beneficial owner of one of the two issued shares in the capital of Midlink Nominees Pty Ltd ("Midlink"). The other share is held by one Allyn Kirkby. A Company Extract taken from the records maintained by the Australian Securities and Investments Commission on 29 February 2000 reveals that Kirkby is the sole director and secretary of Midlink.

3 On 14 January 2000 Walker filed a winding up application invoking s 461(e) and s 461(f) of the Law. Walker alleges that Kirkby had acted, in relation to the Company, in his own interests rather than in the interests of Midlink as a whole. Further, Walker says that the affairs of Midlink had been conducted in a manner that was oppressive and unfairly prejudicial to him.

4 On 23 February 2000 a Master acceded to an ex parte application made by Walker that Charles Nilant be appointed provisional liquidator of Midlink pending the hearing of the winding up application. On the papers before the Court it is not clear when the provisional liquidator formally advised Midlink of his appointment and commenced to exercise the powers and functions of the office.

5 On either 21 or 25 February 2000, Kirkby, as sole director, held a directors meeting of Midlink at which he resolved that Midlink was insolvent or likely to become so at some time in the future and that an administrator should be appointed with a view to executing a Deed of Company Arrangement. In the minutes of the meeting the resolution is framed in this way:

"... that Messrs Melsom and Lopez, having already consented to act as Administrators, are to be appointed as joint and several Administrators of the company with a view to executing a Deed of Company Arrangement."

6 It is not entirely clear when that meeting was held. The minutes indicate that it was held on 21 February 2000 but they are dated 25 February 2000. By writing dated 25 February 2000 executed under its common seal, Midlink appointed Melsom and Lopez as joint and several administrators. They notified ASIC of their appointment by lodging a form showing the date of their appointment as 25 February 2000. On that day the administrators advised the provisional liquidator of their appointment and requested him to cease performing or exercising any function of his office and that steps he had taken to realise assets were "suspended until further notice". On 28 February 2000 the administrators wrote to the provisional liquidator asking for the keys to Midlink's premises so they could "secure and protect the company's assets".

7 On 29 February 2000 Midlink, by the provisional liquidator, applied for relief, including the following:

"3 Pursuant to s 447C(2) of [the Law] it be declared that the purported appointment of [Melsom and Lopez] as administrators of [Midlink] pursuant to Pt 5.3A of [the Law] on 25 February 2000 is invalid on the ground that it was a purported appointment in contravention of s 471A(2) of [the Law].

4 [Melsom and Lopez] be perpetually restrained from exercising any powers or functions as administrators of [Midlink] pursuant to Pt 5.3A of the Law."

8 On 1 March 2000 a Master made orders that Midlink be designated as the first respondent and that Melsom and Lopez be joined as second respondents.

9 Against this background a neat question falls for determination. It is this: can a company, by its director, appoint an administrator pursuant to s 436A of the Law even though a provisional liquidator has already been appointed?

10 The object or purpose behind the introduction of Pt 5.3A is clearly set out in s 435A. It is to provide for the business, property and affairs of an insolvent company to be administered in a way that:

(a) maximises the chances of the company, or as much as possible of its business, from continuing in existence; or

(b) if it is not possible for the company or its business to continue in existence - results in a better return for the company's creditors and members than would result from an immediate winding up of the company.

11 Section 436A(1) permits a company, by writing under its common seal, to appoint an administrator if the board has resolved that the company is insolvent or likely to become insolvent and that an administrator should be appointed. Section 436(2) prohibits a company from doing so if it is "a company that is already being wound up". Although a winding up application had been filed and a provisional liquidator appointed before [Midlink] purported to appoint the administrators, I do not think it falls foul of s 436A(2). This is because a winding up is taken to have commenced when a winding up order has been made: see s 461, s 513A(e). I do not think it could be argued that a company is "being wound up" until the winding up has commenced.

12 The administration of a company begins when the administrator is appointed under s 436A and it is said to be "under administration" from that time on: see s 435C(1)(a), s 435C(4). While a company is under administration a person other than the administrator (and this includes a provisional liquidator) cannot perform or exercise a function or power as an officer of the company, and must not purport to perform or exercise such a power or function, except with the administrator's written approval: see s 437C(1) and s 437C(4). This prohibition does not have the effect of removing an officer of the company from his or her office: see s 437C(2).

13 The director's resolution and writing under seal of 25 February 2000 appear to comply with s 436A and, if the resolution is valid, the appointment of the administrators took effect on 25 February 2000 and from that date [Midlink] was under administration.

14 The office of provisional liquidator is one of considerably greater antiquity than that of administrator. Clause 86 of the Joint Stock Companies Ordinance 1858 empowered the court, at any time after the presentation of a winding up petition, "to appoint a receiver of the estate and effects of the company". The phrase "provisional liquidator" appears in s 112 of the Companies Act 1893 and has been used in each version of the statute regulating corporate entities since then. It is probably trite to say that the object behind the legislative provisions providing for the appointment of a provisional liquidator is to put in place a mechanism by which the property of a company can be protected and preserved for the ultimate benefit of those who will share in the available assets if a winding up order is eventually made. The true role is to preserve the status quo, the undertaking of the company, and the assets, with the least possible harm to all concerned, so as to enable the court to decide after a proper and final hearing whether or not the company should be wound up: Re M L Industries Pty Ltd (1981) 5 ACLR 769 at 775.

15 Of critical relevance to this application are s 471A(1) and s 471A(2), which are in these terms:

"(1) While a company is being wound up ... by the Court, a person cannot perform or exercise, and must not purport to perform or exercise, a function or power as an officer of the company except:

(a) as a liquidator appointed for the purpose of the winding up; or

(b) as an administrator appointed for the purposes of an administration of the company beginning after the winding up order was made; or

(2) While a provisional liquidator is acting, a person cannot perform or exercise, and must not purport to perform or exercise, a function or power as an officer of the company except:

(b) as an administrator appointed for the purposes of an administration of the company beginning after the provisional liquidator was appointed; or

16 Section 471A(3) makes it clear that the prohibition against exercising powers or functions does not remove an officer of the company from office.

17 I should also mention s 440A(2) and s 440A(3) because they have something to say about the interrelationship of voluntary administrations and winding up proceedings. Under s 440A(2), the Court is to adjourn the hearing of an application for an order to wind up the company if the company is under administration and the Court is satisfied that it is in the interests of the company's creditors for the company to continue under administration rather than be wound up. Under s 440A(3), the Court is to refrain from appointing a provisional liquidator of a company if the company is under administration and the Court is satisfied that it is in the interests of the company's creditors for the company to continue under administration rather than have a provisional liquidator appointed.

18 The onus is on the company and the administrator to demonstrate "by persuasive evidence that it is in the interests of the company's creditors that the administration continue rather than liquidation ensue": Deputy Commissioner of Taxation v Yates Security Services Pty Ltd (1997) 15 ACLC 448 at 451. In a case such as this, that would effectively put the onus on Melsom and Lopez rather than on the provisional liquidator.

19 In Object Design Inc v Object Design Australia Pty Ltd (1997) 78 FCR 60, Heerey J dealt with the point that is raised in this case in similar factual circumstances. On 24 June 1997 a provisional liquidator had been appointed to the company on the application of a creditor. At some time between 25 June and 2 July 1997 the company appointed an administrator after the sole director had resolved that the company was likely to become insolvent at some time in the future. It is not entirely clear from the report whether the creditor or the company applied for declaratory relief. Heerey J made an order rescinding the appointment of the provisional liquidator and declaring the appointment of the administrator to be valid. In the course of so doing his Honour held that where a provisional liquidator of a company has been appointed and no winding up order has been made, the company may appoint an administrator under s 436A(1) of the Law.

20 In the course of his reasons, Heerey J set out s 436(1) and s 436(2) and opined that the company was not "already being wound up". As I have already said, I respectfully agree with that conclusion. His Honour went on to set out s 471A(2) and said:

"... while the appointment of a provisional liquidator has a paralysing effect on the company and brings to an end the power of the directors, there remains at least a residual power in directors to appeal against the appointment or oppose the winding up order: Re Laverton Nickel NL (1979) ACLC 32,084 at 32,086, Re Union Accident Insurance Co Ltd [1972] 1 WLR 640 at 641 - 642; [1972] 1 All ER 1105 at 1113. I do not think that s 471A(2) should be read so as to exclude that long-established residual power, the need for which is obvious as a matter of justice. But it is likely that s 741A(2) does not apply anyway because [the director] was not performing or exercising a function or power as an officer of the company in the sense of contracting or entering into some other arrangement on behalf of the company; rather her passing of the resolution was an act of the company itself.

Moreover, I think the suggested limitation on the company's power seems to be inconsistent with s 437C(1) and (4) ...

Thus the Corporations Law expressly contemplates that an administrator may be appointed, notwithstanding that a provisional liquidator is already in place. That seems to me consistent with the overall purpose of Pt 5.3A which is to provide a radical new system of insolvency administration so that the fate of the company can be determined in a prompt and commercially practical way by its creditors. The administrator in this setting is to fulfil a role comparable to that of a surgeon, albeit that heroic surgery may be called for, as distinct from the undertaking function of a provisional liquidator or liquidator."

21 In the balance of the reasons his Honour went on to consider whether, in the exercise of discretion, the administration should be stayed or the provisional liquidation terminated. He noted that, in the administration there was an offer from a third party that would have the effect of enabling the company to pay its creditors in full. This, his Honour said, was the very sort of outcome that the Law contemplated and the Court ought not to destroy the chances of it coming to fruition. Accordingly, discretionary considerations favoured the administration, rather than the provisional liquidation, continuing. Orders were made so as to allow the administration to proceed.

22 Counsel for Midlink submitted that I should decline to follow Object Design. There are at least two points of distinction between that case and this. First, it is not clear whether the administrator or the provisional liquidator was the de facto applicant for relief. Secondly, I am not dealing with discretionary issues requiring me to decide which of the administration or an eventual liquidation would best serve those interested in the affairs of Midlink. I am dealing purely with the issue of statutory construction involved in the question that I posed earlier. It is not to the point that injunctive relief is also sought. Nothing has been advanced in the materials that are before me that would justify the grant or withholding of injunctive relief other than as an adjunct to the decision on the construction issue. However, I do not think either of these points presents a valid basis on which I could distinguish Object Design.

23 I am very conscious of the desirability that the exercise of jurisdiction under uniform national legislation ought to avoid conflicting interpretations wherever possible. That is especially so in the case of intermediate appellate courts: Australian Securities Commission v Marlborough Gold Mines Ltd [1993] HCA 15; (1993) 177 CLR 485 at 492. However, a Judge sitting at first instance must apply the law. If, in good conscience, he or she feels unable to accept the reasoning and result of a judicial officer of co-ordinate jurisdiction on the same issue, the Judge must depart from the earlier reasoning and apply the law as it appears to be. The decision to depart from the earlier judgment is not one that will be taken lightly. Due respect must be afforded to every decision made by a judicial officer. Due weight must be given to policy considerations that underpin the doctrine of precedent, especially in the area of uniform national legislation. But in the end a Judge must apply the law as he or he believes it to be. Where there are conflicting decisions of Judges at first instance the system provides a mechanism by which the point can be resolved at a higher level. This, itself, promotes the proper and orderly development of the law.

The Construction of s 471A and s 436C - Approach

24 The reasoning in Object Design was based on three propositions. First, that the directors of a company retain a residual power to appeal against the appointment of a provisional liquidator and to oppose the winding up application and that there was nothing in s 471A(2) that was inconsistent with the continuation of these residual powers. While it is not expressly stated, I think his Honour had in mind that this residual power would likewise extend to the exercise of functions necessary to enable the company to appoint an administrator. Secondly, and in any event, the appointment was the act of the company and the director was not "performing or exercising a function or power as an officer of the company". Thirdly, a limitation on the company's power to appoint an administrator would be inconsistent with s 437C(1) and s 437(4) which contemplates that an administrator could be appointed while an provisional liquidator is in office. In my view the proper construction of the statutory provisions can be arrived at by testing them against those three propositions.

25 It has long been the case that directors have held residual powers following the appointment of an outside controller. This was (and no doubt still is) the case, for example, when directors wish to challenge the appointment of a receiver and manager appointed by debenture holders: Bunbury Foods Pty Ltd v National Bank of Australasia Ltd [1984] HCA 10; (1984) 153 CLR 491. It certainly was the case in relation to the right to appeal against the making of a winding up order: Anfrank Nominees Pty Ltd v Connell (1989) 1 ACSR 365 at 383. It was also the basis of the rule that the directors had power to oppose the making of a winding up order even though a provisional liquidator had been appointed: Re Laverton Nickel NL (1978) 3 ACLR 945.

26 However, the statute now has something to say about these matters. I refer, of course, to s 471A(1) and s 471A(2). These provisions were included in the legislation as a result of a recommendation of "the Harmer Report". Paragraph 162 of the Report reads: "From the commencement of winding up all creditors and members are bound and, unless the liquidator determines otherwise all powers, functions and duties of officers are terminated" (emphasis added). It is interesting to note that when the Corporate Law Reform Bill 1992 was first released for public comment, it contained only s 471A(1) and did not contain a provision equivalent to s 471A(2). By the time the Bill had proceeded into law, s 471A(2) had been added. The two subsections are, for all practical purposes, in the same terms. Paragraph 747 of the Explanatory Memorandum that accompanied the Corporate Law Reform Bill 1992 is as follows:

"Proposed subsection(1) provides that, while a company is being wound up ... by the Court, a person cannot perform or exercise, nor purport to perform or exercise, a function or power as an officer of the company, except as a liquidator, or as an administrator ... or with the liquidator's written approval or the approval of the Court. Similar provision is made by the proposed subsection(2) in circumstances where a provisional liquidator is acting." (emphasis added).

27 In Rock Bottom Fashion Market Pty Ltd v HR & CE Griffiths Pty Ltd (1997) 142 FLR 20 the Court of Appeal in Queensland held that following the introduction of s 471A(1) the directors of a company no longer retained residual power to appeal against a winding up order. The Court held that there was no necessity for the old rule (which preserved the residual power) because the Court was given the power under s 471A(1)(d) to approve the performance or exercise of a function or power as an officer of the company. There was no justification, the Court held, effectively to imply an additional exception to the prohibition against a director exercising a power, namely to permit an appeal against a winding up order.

28 There is no doubt, therefore, that s 471A changed the law, at least in some respects. Counsel for Midlink submitted that there was no relevant distinction between s 471A(1) and s 471A(2) and that in the light of the decision in Rock Bottom there was no room for a residual power of the type here in question. I think that is correct. The wording of s 471A(2) is, for all practical purposes, identical to that of s 471A(1). There is no reason, either as a matter of construction from the words used or as a point of principle, to distinguish between the two subsections. I am aware that Rock Bottom does not say that the concept of residual powers has been entirely at nought. But the rationale behind the finding that the power to institute an appeal against a winding up has not survived the implementation of s 471A(1) is the existence of the jurisdiction residing in the Court by virtue of s 471A(1)(d) to approve the exercise of powers or functions by directors. That same jurisdiction is to be found in s 4671A(2)(d) in relation to provisional liquidators. In Pieman Australia Pty Ltd v MAS Food Industries (Australia) Pty Ltd [1999] WASC 220 at 2, Master Sanderson applied the same principles in accepting that the directors of a company needed the approval of the Court to apply for the setting aside of an order made ex parte for the appointment of a provisional liquidator. It seems to me that there is no reason in principle to read down the very general and all-embracing words used in the preamble to s 471A(2) to exclude some powers or functions exercisable by officers of companies.

29 Counsel for Melsom and Lopez submitted that there was a relevant distinction between s 4871A(1) and s 4871(2). The former conditions the prohibition to apply "while a company is being wound up ... by the Court". The latter conditions the prohibition to apply "while a provisional liquidator of a company is acting". I think the point counsel was making was that the legislature did not use the phrase "once a provisional liquidator has been appointed", which would make it more equivalent to s 471A(1). The argument goes like this. There is a difference between being appointed and doing something in relation to that appointment. The range of powers that a provisional liquidator can exercise will depend on the order under which he or she is appointed. If, for example, the order did not include a power to take possession of all or any assets of the company, s 471A(2) would have no application to the directors doing an act or exercising a power in relation to that asset or those assets. Additionally, unless the provisional liquidator was contemplating the exercise of the power under s 436B by which he or she could appoint an administrator, it could not be said that the provisional liquidator was "acting" with the purposes of Pt 5.3A in mind.

30 I think there are at least two answers to this proposition. First, it runs counter to the broad phraseology that the legislature has used. Secondly, it seems to me that it is a respectable construction of the word "acting" to regard the provisional liquidator as acting once he or she has accepted appointment and embarked on the carrying out of the statutory functions of the office. I do not think the provisional liquidator would need to carry out functions in relation to the whole of the range of powers which are exercisable under the terms of the order before he or she could be said to be "acting" in the office. It may be different, for example, where there is a stay in place. In those circumstances, the provisional liquidator would still be "appointed" but in all "probability" could not be said to be "acting". The same could be said of a situation where the provisional liquidator had appointed an administrator under s 436B. Both parties accepted, I think correctly, that appointments of a provisional liquidator and an administrator can co-exist under the statutory scheme. The existence of those possibilities are sufficient to give meaning to the word "acting" in contradistinction to the word "appointed, which might have been used.

31 There is another matter. One of the points made by counsel for Melsom and Lopez is that it could not have been intended by the legislature that the provisional liquidator would be left with the carriage of the winding up proceedings. That is a point made in Re Laverton Nickel at 947. Nor could it be said that the legislature intended, in a case where the provisional liquidator was not given power to deal with particular assets, to create the position where no one had effective control over those assets. However, the directors are not without a remedy in these situations. They can exercise necessary functions with the approval of the provisional liquidator or with the approval of the Court.

32 Even if I am wrong in all of this and the nature of the powers which are conferred on a provisional liquidator is a relevant consideration to the range of residual powers that can be exercised by the directors without reference to the Court or to the provisional liquidator it seems to me that regard would have to be paid to the consequence of the exercise or purported exercise by the directors of those powers. It is trite to say that a court will not appoint a provisional liquidator as a matter of course. Cause must be shown why, in the circumstances which apply to the company, it is necessary to preserve the status quo pending the hearing of the winding up application and that imposition of a provisional liquidator is the most convenient means of doing so. By virtue of s 472(4) one of the powers that a provisional liquidator has is to carry on a business operated by the company. This very same power is conferred on an administrator by virtue of s 437A(1)(c). Of course, in most cases the powers conferred on a provisional liquidator by order of the court will be broad and are likely to cover many other areas that fall within the province of the administrator under the Law. It seems to me that once the court has made a considered decision to appoint one of its officers as provisional liquidator, it would be straining the broad language of s 471A(2) to read into it an exception which would permit the directors to appoint an administrator and thus to render the appointment of the provisional liquidator nugatory. The Court, by virtue of the Law and as a matter of principle, retains ultimate supervisory control over the activities of its officers. It would require precise words by the legislature to detract from that jurisdiction. I can see no such words in the Law.

33 While it is not an issue related to the residual powers of directors I should deal with another argument raised by counsel for Melsom and Lopez, namely the effect of s 436C. Counsel pointed out that a charge has authority under s 436C to appoint an administrator. He submitted that in principle there is no reason why a company cannot appoint an administrator after the appointment of a provisional liquidator when a charge may do the same thing under s 436C.

34 A review of the Harmer Report will demonstrate that the position of secured creditors and the exercise by them of their rights was the subject of specific and detailed discussion when the proposal that was eventually to become Pt 5.3A was under consideration. It has always been the case (in a statutory sense) that receiverships (or other forms of remedy exercised by secured creditors) and liquidations have co-existed. It has never been the case that the appointment of a provisional liquidator, or even of a liquidator, has, of itself, prevented a secured creditor from exercising remedies: see s 471C; Mercantile Credits Ltd v Atkins (1985) 1 NSWLR 670. Of course, the appointment of a liquidator may have other ramifications for a secured creditor, for example, by curtailing the ability of the secured creditor or its receiver to act as agent of the company. But that is not relevant for these purposes. The fact is that the ability of a charge to exercise remedies in the face of the appointment of a provisional liquidator is consistent with corporations law as it has developed over time. Section 471A has nothing to say about secured creditors and, so far as I am aware, the legislature has not seen fit otherwise to intervene.

35 On the other hand, Pt 5.3A has quite a bit to say about the position of secured creditors in the scheme of voluntary administrations. I have already mentioned s 436C. By virtue of s 440B a person cannot enforce a charge on property of the company except with the administrator's consent or with the leave of the Court. But Div 7 of Pt 5.3A sets out a comprehensive regime dealing with the secured creditors' rights and which waters down significantly the bland prohibition in s 440B. In my view s 436C has to been seen in the light of, and as part of, the comprehensive regime within Pt 5.3A dealing with secured creditors in the context of a voluntary administration.

36 A charge is in an entirely different position in relation to the company's assets than are the directors. The fact that the legislature has seen fit to give to a charge a power to appoint an administrator does not, in my view, provide any justification for saying that the directors should be seen to have a similar power.

The Construction Issue - Whether an Exercise of Power by Director

37 The next argument is that even if s 471A has removed or curtailed the residual powers previously available to directors, the appointment of the administrators was the act of the company and did not involve an exercise by the director of a power or function of his office.

38 I have some difficulty with that argument. Again, it is trite to say that a company is a legal entity, with an existence independent of that of its members and of its directors. But it remains an artificial entity and can only act through natural persons. As Cairns LJ said in Ferguson v Wilson (1866) 2 Ch App 77 at 89:

"The company itself cannot act in its own person, for it has no person; it can only act through directors and the case is, as regards those directors, merely the ordinary case of principal and agent."

39 There is a discussion to similar effect in Black v Smallwood [1966] HCA 2; (1966) 117 CLR 52 per Windeyer J at 61 - 62.

40 Section 436A(1) provides that the company may, by writing, appoint an administrator. In this case the "writing" is the document dated 25 February executed under the common seal of Midlink. The affixing of the common seal was witnessed by Kirkby in two capacities: once as a director and once as the secretary. There is no doubt that a secretary is, like a director, an officer of a company: see s 82A. The affixing of the common seal by the secretary was specifically authorised by the directors' resolution of 21 or 25 February 2000. It is certainly the case that it is for a company, not its directors, to appoint administrators. The appointment takes effect by virtue of the writing to which s 436A(1) refers and not by virtue of the directors' resolution that authorised it. The writing is, I think, properly to be characterised as a document of the company: see the discussion on a similar issue in MYT Engineering Pty Ltd v Mulcon Pty Ltd [1999] HCA 24; (1999) 195 CLR 636 at 645 - 51, decided under the repealed s 182. Once the writing has been signed, the appointment becomes the act of the company. Nonetheless, I find it difficult to see how that stage could be reached without some conduct of the officers of the company which would inevitably be characterised as the performance or exercise of a function or power as an officer of the company. In this case the affixing of the common seal by Kirkby to the writing and him witnessing the document were done in accordance with an authority conferred on him by a directors' resolution directed to him in his capacity as secretary of the company.

41 There is an even more fundamental problem with the argument based on the proposition that this was the act of the company and not of its director. It arises from the very words of s 436A(1). A company may appoint an administrator by writing if the directors have:

(a) formed the opinion that the company is insolvent or likely to become insolvent at some future time; and

42 In other words, even if the appointment (constituted by the writing to which s 436A refers) is the act of the company, it cannot be effected unless and until the directors have formed the opinion and passed the resolution to which I have referred. The two things are inextricably interwoven. The second (that is, the written appointment) could not be done without the first step having been completed. I find it difficult to see how the first step could be carried into effect without an officer or officers of the company performing or exercising a function or power of office.

The Construction Issue - the Operation of s 437C

43 The final point is whether a limitation on the company's power to appoint an administrator would be inconsistent with s 437C(1) and s 437C(4) which contemplates that an administrator can be appointed while an provisional liquidator is in office.

44 The prohibition in s 437C(1) against the exercise by officers of the powers and functions of office applies by virtue of s 437C(4) to a provisional liquidator appointed before the administration began. There is no need for the prohibition to apply to a provisional liquidator appointed after the commencement of the administration because the only way such an appointment could be made is by the Court under s 440A(3). This would, in effect, mean a considered decision by the Court that liquidation is to be preferred to administration.

45 Counsel for Melsom and Lopez submitted that, as s 436A(2) restricts the right of the company to appoint administrators only to a situation where the company is already being wound up and Pt 5.3A contemplates the appointment of a provisional liquidator, a further restriction, namely against the company appointing an administrator after the appointment of a provisional liquidator, ought not to be implied. Had the legislature intended that result to ensue it could have said so expressly. Further, counsel submitted, s 471A(2)(b) would be unnecessary if, on the appointment of a provisional liquidator, there is an appointment of an administrator by the provisional liquidator or, with leave of the Court, the company (by its directors).

46 It is necessary to examine how the two sections fit together. I do not see any incompatibility between s 471A(2) and s 436C(1). Section 436B permits a provisional liquidator to appoint an administrator in certain circumstances. I have already referred to the power of a charge to appoint an administrator under s436C, which power may be exercised notwithstanding that a provisional liquidator is in place. In these circumstances, the offices of provisional liquidator and administrator can co-exist. Section 471A(2)(b) would then operate, for example, if there were to be an appointment by a charge under s 436C. When the two sections, that is, s 471A(2) and s 436C are read together they form a comprehensible scheme.

47 In my view, the statutory scheme preserves the primacy of the Court as the ultimate controller of the fate of a company which is the subject of competing or alternative approaches under ch 5 of the Law. It is clear that the mere filing of a winding up application does not prevent the directors from appointing an administrator. Nor does it prevent the directors from opposing the winding up application. No question of "residual powers" arises because, subject to practical limitations, the board continues as the primary management organ of the company until a liquidator is appointed. If a winding up application is filed and the company later appoints an administrator, the situation is governed by s 440A(2). It is the Court, not the directors, that has ultimate control over the fate of the company. Additionally, it is those advocating an administration, rather than those pressing for liquidation, who bear the burden of persuading the Court that this is the proper course. Similarly, the mere appointment of administrators does not totally forestall the appointment of a provisional liquidator. Section 440A(3) again gives the Court power to appoint a provisional liquidator in certain circumstances. On the other hand, if the appointment of administrators occurs first, no winding up application can be commenced other than with the leave of the Court: s 440D.

48 It seems to me to follow from the statutory scheme that once the Court has appointed a provisional liquidator then, as between the company and the external controller, the power to appoint an administrator has become entrusted to the officer of the Court rather than left in the hands of company, through its directors. The Court could always grant leave to the company to act in a proper case. I accept the submission of counsel for Midlink that it would be an odd result if the contrary were accepted. It would allow the directors effectively to prevent the provisional liquidator from doing what the Court has appointed him or her to do, namely to safeguard the assets of the company and preserve the status quo until the winding up application has been determined. That this should be so, as a matter of practice, is highlighted by the circumstances of this case. The dispute on which the winding up application will eventually be decided will turn on the conduct and actions of the director who resolved to appoint the administrators.

49 After considerable deliberation, I feel compelled to come to a conclusion on the proper construction of the statutory scheme that is different from that reached in Object Design. Accordingly, I must decline to follow and apply it.

50 I have not been asked to exercise the discretionary powers available to the company under s 471(2)(d). In the circumstances I think Midlink, through the provisional liquidator, is entitled to a declaration that the purported appointment of the second respondents as administrators of Midlink pursuant to Pt 5.3A of the Law on 25 February 2000 is invalid. If it is considered necessary, there should also be an injunction restraining the exercising of any powers or functions as administrators.

51 Because the second respondents sought to support their appointment on the basis of a decision of a court of competent jurisdiction, they should have to bear the costs of the application. I will order that the costs of each of the first respondent and the second respondents, to be taxed, be paid out of the assets of Midlink.

Stock Companies Ordinance 1858

Walker v Midlink Nominees Pty Ltd

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (86 paragraphs)

Walker v Midlink Nominees Pty Ltd (Provisional Liquidator Appointed) & Ors [2000] WASC 112 (8 May 2000)

Parties

Legislation Cited (1)

Cases Cited (13)