Antlers P/L v Deputy Commissioner of Taxation

[1993] FCA 540

ANTLERS PTY LIMITED v. DEPUTY COMMISSIONER OF TAXATION and THE OFFICIAL
TRUSTEE IN BANKRUPTCY
No. NG117 of 1992
FED No. 540
Number of pages - 6
Companies

COURT

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Whitlam J(1)

CATCHWORDS

Companies - termination of winding up - directors vacate office upon failure to hold general meeting ordered to elect directors - article providing for validity of acts of directors notwithstanding defect in appointment not applicable.

Companies Code, s. 383(3)

Companies Act, 1961 (NSW), Table A, reg. 89

Club Flotilla (Pacific Palms) Ltd v. Isherwood (1987) 12 ACLR 387

Re Consolidated Nickel Mines Ltd (1914) 12 ACLR 387

Grant v. John Grant and Sons Pty Ltd (1950) 82 CLR 1

Morris v. Kanssen (1946) AC 459

HEARING

SYDNEY, 24 May 1993

#DATE 29:6:1993

Counsel for the Applicant: R.J. Bainton QC

CJ Bevan

instructed by McAuslands

Counsel for the respondents: C.A. Porter QC

M.R. Aldridge

instructed by Australian Government Solicitor

JUDGE1

WHITLAM J This is a notice of motion whereby the respondents challenge the retainer of Jock McAusland, solicitor, to institute this proceeding on behalf of the applicant, Antlers Pty Ltd ("Antlers").

1. In this proceeding Antlers claims relief in respect of the orders made by the Court in matter no. NB 976 of 1990. That is a proceeding under the Bankruptcy Act 1966 ("the Act") concerning one Anthony Francis Kavich ("the bankrupt"), who became bankrupt on 1 June 1990 upon the acceptance of a debtor's petition. Accordingly, it is convenient to commence by tracing in outline developments in that matter.

2. On 23 July 1992 the Deputy Commissioner of Taxation, who claimed to be a creditor of the bankrupt and who had lodged a proof of debt, filed an application in matter no. NB 976 of 1990. The application named the bankrupt, his brother Paul Kavich, the Official Trustee in Bankruptcy and a bank as respondents. The application sought a declaration that funds in an account of Paul Kavich at the bank were property of the bankrupt and an order that the bankrupt, his brother and the bank transfer such funds to the Official Trustee. The same day the Deputy Commissioner obtained ex parte from Einfeld J an order restraining the bankrupt, his brother and the bank from dealing with the funds.

3. That application was amended on 11 August 1993 so as to add a claim for similar relief in respect of certain shares registered in the name of Paul Kavich. (An ex parte order had been obtained from Einfeld J on 4 August 1993 restraining the bankrupt and his brother from dealing with the shares.) When the amended application was filed, Einfeld J directed that consideration should be given to making the Official Trustee an applicant in the proceeding. (The Australian Government Solicitor, whilst acting for the Deputy Commissioner as applicant, had also entered an appearance for the Official Trustee as respondent.)

4. On 18 August 1993 the Deputy Commissioner obtained ex parte orders from Einfeld J restraining the bankrupt, his brother, their grandmother Carmela Portelli and another of the bankrupt's relatives, Paul Baiada, from dealing with funds up to specified amounts in nominated accounts in two more banks. A further amended application was filed on 19 August 1993 adding Mrs Portelli and Mr Baiada as respondents and claiming declarations and orders in respect of amounts in those bank accounts.

5. A second further amended application was filed on 21 August 1993. The Official Trustee was removed as a respondent and joined as an applicant. This application added three respondents: the bankrupt's mother Vera Mary Kavich, Antlers and Mrs Kavich's brother Frank Portelli. The application claimed orders, in the alternative, against these three respondents. This alternative relief related to the bankruptcy of Mrs Kavich who had become bankrupt upon a sequestration order being made against her on 28 February 1978. The alternative relief completely contradicted the primary claim that the funds and shares in question were the property of the bankrupt and claimed, in effect, that they belonged to Antlers, the shares in which were vested in the Official Trustee by virtue of their beneficial ownership by Mrs Kavich at the time of her bankruptcy (the other shareholder Mr Portelli being a mere nominee for Mrs Kavich).

6. It may be noted that none of the four forms of application filed in matter no. NB 976 of 1990 complied with the Bankruptcy Rules. In addition, the relief claimed in respect of Mrs Kavich should have been the subject of a separately entitled proceeding relating to her own bankruptcy. Although none of the respondents had complied with Rule 106 relating to notices of intention to appear, Peter Anthony Haylen, the solicitor acting for all the respondents except the bank, filed a "notice of appearance" on behalf of Antlers on 3 September 1992.

7. On 27 November 1992, by consent of the applicants and of all the respondents save the respondent bank, Einfeld J made orders disposing of the application. In substance, these orders were designed to facilitate the agreement of such parties that an agreed sum of money be withdrawn from Paul Kavich's account with the respondent bank and paid to the Official Trustee to be dealt with as property of the bankrupt estate of Mrs Kavich. To this end the interlocutory orders restraining the respondents were varied to permit withdrawal of the agreed sum and were to be discharged upon payment being made. The orders made by Einfeld J on 27 November 1992 were entered on 2 December 1992.

8. The settlement soon unravelled. On 27 November 1992, the very day that Einfeld J made the orders, the Deputy Commissioner issued a notice of assessment under the Income Tax Assessment Act 1936 to Mrs Kavich. On 30 November 1992 he issued a notice of assessment under that Act to Antlers and "garnishee" notices under s 218 of that Act to the same three banks in respect of the respective accounts of Paul Kavich, Mrs Portelli and Mr Baiada for the amount of tax due by Antlers. This led to further proceedings.

9. By application dated 3 December 1992 the Deputy Commissioner commenced a fresh proceeding no. NG 892 of 1992. This application named Antlers, the three banks, Mr Baiada, Mrs Portelli and Paul Kavich as respondents. This application was heard ex parte in chambers on 3 December 1992 by Einfeld J, who made orders (inter alia) restraining the respondents from dealing with the same funds as the interlocutory orders in matter no. NB 976 of 1990. In matter no. NG 892 of 1992 the Deputy Commissioner sought, in effect, declarations and orders in respect of the s 218 notices issued to the banks. Although it has not been the subject of argument before me, I do not see how the jurisdiction of the Court could be invoked to obtain this relief.

10. John Atkinson McAusland entered an appearance on behalf of Antlers in matter no. NG 892 of 1992. At a hearing before Einfeld J on 10 December each of Antlers and Paul Kavich admitted that the funds in Paul Kavich's bank account were beneficially owned by Antlers and, at the request of the Deputy Commissioner and over the opposition of those respondents, his Honour made a declaration to that effect. It should be observed that the admission was made on the instructions of the same Jock McAusland, whose retainer on behalf of Antlers is impugned by the Deputy Commissioner in the present proceeding.

11. Next, in matter no. NB 976 of 1990 Antlers filed on 15 December 1992 a "notice of motion" signed by Jock McAusland on its behalf seeking to vary or set aside the orders in that matter. Mr McAusland does not appear to have filed a notice of change of solicitor, but no objection was taken to his retainer when the matter came before Einfeld J for directions on 17 December 1992.

12. On 7 January 1993, by consent and without admissions, Burchett J varied the orders in both matters to permit Paul Kavich to withdraw an agreed sum from his bank account for purpose of paying it to the Deputy Commissioner on account of tax due by Antlers.

13. Both matters came before Einfeld J for directions on 19 February 1993. His Honour gave directions in relation to applications by the parties, on the one hand, to set aside and, on the other hand, to enforce the orders made on 27 November 1992 in matter no. NB 976 of 1990. In consequence three fresh proceedings were commenced: matter no. NG 105 of 1993 between the same parties as matter no. NB 976 of 1990 seeking to enforce the agreement noted on 27 November 1992 and to have interest paid on the sums payable thereunder; this proceeding, matter no. NG 117 of 1993, seeking to set aside the orders made on 27 November 1992; and matter no. NG 118 of 1992 between Paul Kavich, Mrs Kavich and Mr Portelli as applicants and the Deputy Commissioner and Official Trustee as respondents also seeking to set aside those same orders. It may be noted that the bankrupt and Mrs Portelli were not made applicants in the lastmentioned proceeding, even though the orders in question were supposed to affect his bankruptcy and her bank account. In matter no. NG 105 of 1993 Antlers also filed what it called a "cross-claim" seeking to stay that proceeding pending final determination of matters nos. NG 117 and 118 of 1993 , and so did Paul Kavich, Mrs Kavich and Mr Portelli.

14. On 8 March 1993 all five matters were listed for directions before Einfeld J His Honour gave directions for the filing of affidavits and return of subpoenas and ordered that the matters "be consolidated and heard together and that evidence in each of the proceedings be evidence in each of the other proceedings." I do not think that this order can have been intended as a true order of consolidation. Proceedings cannot be consolidated where the applicant in one proceeding is the respondent in another proceeding, unless one proceeding be ordered to stand as a cross-claim. Also it is not possible to consolidate proceedings where different solicitors have been instructed for the applicants, as they have here for Antlers and the Kavich family. In addition, "consolidation" is something of a term of art in bankruptcy: see ss 53(1) and 248A of the Act.

15. Again, whilst it has not been the subject of argument before me, I fail to see why it was necessary to commence any of the matters nos. NG 105, 117 and 118 of 1993. The issues raised should all be determined in matter no. NB 976 of 1990. If there be any jurisdiction in the Court to enforce the agreement noted on 27 November 1992, the applicants could only invoke such jurisdiction by application in that matter: Darling Downs Investments Pty Ltd v. Ellwood (1986) 18 FCR 510. (I have no idea on what possible basis a claim for interest can be made by the applicants.) So far as the respondents are concerned, whatever may be the requirement for a separate proceeding in equity to set aside a consent order (see Monroe Schneider Associates (Inc) v. No 1 Raberem Pty Ltd (No.2) (1992) 37 FCR 234), s 37(1) of the Act provides ample power for the Court to deal with an application to set aside the orders of 27 November 1992, even after they have been entered.

16. The subject of Mr McAusland's retainer was raised for the first time at the directions hearing before Einfeld J on 8 March 1993, and on 14 April 1993 his Honour gave leave to file the notice of motion presently before me. I have to consider it against the background of the procedural mish-mash described above.

17. The relevant facts may be shortly stated. Antlers was incorporated on 26 May 1971 under the Companies Act, 1961 (NSW). The issued capital comprised two subscriber's shares, one of which was transferred to each of Mrs Kavich and Mr Portelli on 2 November 1971. On that date they were also appointed directors and the directors determined by the subscribers resigned. Table A, as applied to Antlers, had been amended so that directors continued in office without the need for re-election at the annual general meeting.

18. Mrs Kavich became bankrupt on 28 February 1978 and so ceased to be a director. She was discharged from bankruptcy on 28 February 1981. Meanwhile, however, Antlers had been wound up on 21 August 1978.

19. On 23 November 1987 the Supreme Court of New South Wales made an order in the following terms:
    

"1. The winding up of the company be terminated on 1/12/87.

2. Costs of the motion to form part of the costs, charges and expenses of the winding up.

THE COURT DIRECTS that -

3. A meeting of the members of the company be convened by one day's notice in writing by the applicant to be held on 30/11/87 to elect directors to take office upon termination of the winding up."

The applicant referred to in the order was Mrs Kavich. However, the meeting of members was neither convened nor held.

1. On 13 April 1993 Mr Portelli purported to hold a meeting of directors of Antlers constituted by himself alone. At such meeting he purported to appoint Mrs Kavich to fill a casual vacancy "pursuant to Article 64 of the company's Articles of Association." Mrs Kavich and he then met, purporting to act as directors, and ratified the authority of Mr McAusland to act for Antlers in "Federal Court proceedings G 105 of 1993 (formerly G 107 of 1993), G 117 of 1993 and generally."

2. The reference to "Article 64" in Mr Portelli's resolution makes no sense. Article 64, as inserted in Antlers' articles of association, provides for the appointment of directors by ordinary resolution of members. Clearly Mr Portelli was purporting to act as a director. This appears from the title to the minutes. Mr Bainton submits that the reference to article 64 is a mistyping and that Mr Portelli must be taken to have been relying on both the power of the existing directors under article 68 to fill a casual vacancy and the power of a continuing director under article 84 to act for the purpose of increasing the number of directors to that required for a quorum. I am prepared to assume that that was the case.

3. The question remains, however, whether Mr Portelli was a director of Antlers at the time of his resolution. Mr Porter submits that upon the making of the winding up order on 21 August 1978 Mr Portelli ceased to be a director. I do not accept this submission. In Austral Brick Co Pty Ltd v. Falgat Constructions Pty Ltd (1990) 21 NSWLR 389 Young J held that on winding up directors remain in office although their powers cease. I respectfully agree with his Honour's reasons for that view.

4. In the alternative, Mr Porter submits that Mr Portelli ceased to be a director of Antlers after 30 November 1987 by virtue of the order made by the Supreme Court on 23 November 1987. I think this is correct.

5. The power to terminate a winding up was conferred on the Supreme Court by s 383 of the Companies Code. Section 383(3) provided:
   

"Where the Court has made an order terminating the winding up, the Court may give such directions as it thinks fit for the resumption of the management and control of the company by its officers, including directions for the convening of a general meeting of members of the company to elect directors of the company to take office upon the termination of the winding up."

1. It will be seen that paragraph 3 of the Court's order made on 23 November 1987 is a direction of the type contemplated by s 383(3) of the Code. The failure to hold the meeting of members on 30 November 1987 does not mean that the directors continue in office until such a meeting is held. The consequence is, in my view, the same as that where an annual general meeting required for the re-election of directors is not held. The directors vacate their office. See Re Consolidated Nickel Mines Ltd (1914) 1 Ch 883 and Club Flotilla (Pacific Palms) Ltd v. Isherwood (1987) 12 ACLR 387, 5 ACLC 1027.

2. It follows that Mr Portelli's office as a director was vacated after 30 November 1987. Mr Bainton then seeks to rely on article 89 of Table A. However, that provision does not apply where a director has ceased to hold office: Morris v. Kanssen (1946) AC 459 per Lord Simonds at 472 and Grant v. John Grant and Sons Pty Ltd (1950) 82 CLR 1 per Kitto J at 53.

3. The challenge to the retainer has been made good. There are, in my view, no directors of Antlers who could authorize the institution of this proceeding. Nor is it at all likely that a meeting of its members could be held. There is, therefore, no point in adjourning or staying this proceeding: see Australian Hydrocarbons NL v. Green (1985) 10 ACLR 72. The appropriate order is that the proceeding be dismissed and that Mr McAusland, as the solicitor on the record for the applicant, pay the respondents' costs: Harry S Baggs Liquidation Warehouse Pty Ltd v. Whittaker (Powell J, Supreme Court of New South Wales, unreported, 30 July 1982). I make that order. This decision may have consequences in the related proceedings which I have described above and I shall arrange to list them for further directions at a date convenient to the parties.