Bib v BC Pty Ltd - [2020] WASC 400

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION:   BIB -v- BC PTY LTD [2020] WASC 400
CORAM:   MASTER SANDERSON
HEARD:   8 OCTOBER 2020
DELIVERED          :   8 OCTOBER 2020
PUBLISHED           :   5 NOVEMBER 2020
FILE NO/S:   COR 92 of 2020
BETWEEN:   BIB
Plaintiff
AND
BC PTY LTD
First Defendant
GLB
Second Defendant

Catchwords:

Corporations law - Application to wind up as insolvent or on just and equitable grounds - Turns on own facts

Legislation:

Corporations Act 2001 (Cth)

Result:

Plaintiff's application granted

Category: B

Representation:

Counsel:

Plaintiff	:	A J Robertson
First Defendant	:	G J O'Shannessy
Second Defendant	:	G J O'Shannessy

Solicitors:

Plaintiff	:	HWL Ebsworth Lawyers (Perth)
First Defendant	:	Murcia Pestell Hillard
Second Defendant	:	Murcia Pestell Hillard

Case(s) referred to in decision(s):

Charles Philippe Louis Niland as Trustee of the property of Ramon Theordore Osborne, a Brankrupt v R L & K L Nominees Pty Ltd & Anor [2007] WASC 105
Emanuele v Australian Securities and Investments Commissions (1997) 188 CLR 114
Khamo v XL Cleaning Services Pty Ltd [2004] NSWSC 1134
Nassar v Innovative Precasters Group Pty Ltd [2009] NSWSC 324
Re Yenidje Tobacco Co Ltd [1916] 2 Ch 426

MASTER SANDERSON:

By amended originating process the plaintiff sought the following orders:
1.an order pursuant to s 459(3) that the Plaintiff be granted leave nunc pro tunc to apply to wind up the First Defendant, Byland Constructions Pty Ltd (ACN 080 704 892) in insolvency;
2.an order pursuant to section 459A of the Act that the First Defendant be wound up in insolvency;
3.alternatively, an order pursuant to section 461(1)(k) of the Act that the First Defendant be wound up as it is just and equitable that the First Defendant by wound up;
4.an order that Robert Conry Brauer and Robert Michael Kirman be appointed as joint and several liquidators of the First Defendant;
5.an order that the Plaintiff's costs be taxed and paid in accordance with section 466(2) and s556(1)(b) of the Act from the property and assets of the First Defendant;

Although the documents filed by the parties ran to over a thousand pages and while there were a multitude of claims and counterclaims the issue was really quite simple. It can be framed in this way: was the relationship between the plaintiff and the second defendant such that it was just and equitable to wind up the first defendant? After hearing argument I concluded a winding up order ought be made. I said I would publish reasons for my decision. These are those reasons.
The relevant background facts are as follows. The company is the corporate trustee of a family trust which is a discretionary trust. The specified beneficiaries of the family trust are the plaintiff and the second defendant.[1] The company (in its capacity as trustee of the family trust) formerly traded the business known as BF from premises in Webberton, Western Australia.[2] The business ceased trading in around December 2019.[3]
[1] Affidavit of BIB affirmed 16 July 2020 [4].
[2] Affidavit of BIB affirmed 16 July 2020 [7].
[3] Affidavit of BIB affirmed 16 July 2020 [8e].
The second defendant was the managing director of the company and has since around 11 November 1997 had the day-to-day control of the company in its operations. This included operating the bank account and paying all the bills; in other words, he ran the entire operations of the business. The plaintiff and the second defendant each own one share in the company and each is a director. The plaintiff had no role at all in running the business. From time to time she did execute documents but this was done at the direction of the second defendant.[4]
[4] Affidavit of BIB affirmed 16 July 2020 [9].
Up until December of 2019, the company was the registered proprietor of two Webberton properties.[5] These properties were sold and after discharge of the mortgages there was a surplus of $411,250.[6] The surplus proceeds are currently held by the Bank of Queensland. The bank was the mortgagee. The bank informed the plaintiff and the second defendant that unless the parties could agree to change the account operation to 'jointly sign' to enable both the plaintiff and the second defendant to approve all payments from the account, it would not release any funds. As an alternative, the bank suggested the appointment of a liquidator.[7] These proceedings were initiated, at least in part, to allow access to the funds presently held by the bank.
[5] Affidavit of BIB affirmed 16 July 2020 [28].
[6] Affidavit of BIB affirmed 16 July 2020 [29].
[7] Affidavit of BIB affirmed 16 July 2020; Annexure BIB-19.
The plaintiff and the second defendant are involved in proceedings for property and parenting orders currently before the Family Court of Australia.[8] The relationship between the plaintiff and the second defendant has deteriorated and become acrimonious. It was the plaintiff's position that the relationship had reached the point where communication was only possible through the respective parties' solicitors.[9] The second defendant disputed that was the case. During the course of the hearing, counsel for the second defendant pointed to a number of email communications passing directly between the plaintiff and the second defendant. While nothing really turns on this point, it is clear that some communication is possible between the parties. But the tone of the communication, on both sides, reflects their mutual antipathy.
[8] Affidavit of BIB affirmed 16 July 2020 [16e].
[9] Affidavit of BIB affirmed 16 July 2020 [18].
The parties have not been able to agree on the fate of the company. As this application makes clear the plaintiff wants a liquidator appointed. The second defendant says that step is unnecessary. The position he adopts really has two aspects. First, he says that as the company is no longer trading and is a 'cash box', the plaintiff should cooperate with him and pay the outstanding creditors, wind up the affairs of the company and have it deregistered. This, he says, will avoid the cost and expense associated with the appointment of a liquidator. His second option is to have all matters resolved in the Family Court proceedings. Both parties agree it would be open to the Family Court to make a winding up order. They also seem to agree it would be possible for the Family Court to make orders which would require the plaintiff to sign all necessary documents to bring the affairs of the company to an end - in other words to give effect to the second defendant's first proposal.
The plaintiff says, not having ever been involved in the affairs of the company, she is not satisfied she has received full and frank disclosure of the company's affairs. At least in part she wants the liquidator appointed so the affairs of the company can be investigated. This, she says, will ensure that the second defendant has not been misusing the assets of the company to her disadvantage.
A considerable amount of the evidence filed by the plaintiff was directed at this issue - that is to say, her concern the assets of the company have been used by the second defendant to his advantage and to the plaintiff's disadvantage. She says that she has been denied access to the books and records of the company.[10] Insofar as access has been made available, the plaintiff says it has been on unacceptable conditions.[11] Really when the plaintiff's evidence is examined in detail, it is difficult to see how and where the second defendant has misused the assets of the company to his advantage. No specific examples are provided by the plaintiff. But it is clear from the evidence she has produced and the tone of her affidavit that she is deeply suspicious.
[10] Affidavit of BIB affirmed 16 July 2020 [20].
[11] Affidavit of BIB affirmed 16 July 2020 [21].
During the course of his submissions, I put to counsel for the second defendant that it would have been possible for the second defendant to apply under the cross-vesting legislation to transfer this matter to the Family Court. He accepted such an application could have been made. He suggested expense was a factor in not taking that course. With respect, transferring this matter to the Family Court, particularly given the way the second defendant ran the case opposing the orders sought by the plaintiff, seemed the sensible option. Be that as it may, I was called upon to determine the application against the relevant facts. The acrimonious breakdown of the relationship between the plaintiff and the second defendant was a relevant fact. Further, I regard it as relevant the second defendant did not apply to transfer the matter to the Family Court. How that fact fits into the ultimate resolution of the application, I will discuss later in these reasons.
Section 461(1)(k) of the Corporations Act 2001 allows for winding up of a company on the grounds such an order is just and equitable. The exercise of that power is conditioned by s 467(4). That section is in the following terms:
Where the application is made by members as contributories on the ground that it is just and equitable that the company should be wound up or that the directors have acted in a manner that appears to be unfair or unjust to other members, the Court, if it is of the opinion that:
(a)the applicants are entitled to relief either by winding up the company or by some other means; and
(b)in the absence of any other remedy it would be just and equitable that the company should be wound up;
must make a winding up order unless it is also of the opinion that some other remedy is available to the applicants and that they are acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy.
Over the years there have been any number of judicial pronouncements as to when it is just and equitable to wind up a company. In her written submissions, counsel for the plaintiff referred to three cases which seem to me to neatly encapsulate the principles as they emerge from the myriad of cases. In Nassar v Innovative Precasters Group Pty Ltd,[12] Barrett J said at [132]:
As I have also said, it was readily accepted by both counsel for Mr De Oliveira and counsel for Mr Grasso that this is a classic case for the making of a winding up order on the ground that irretrievable breakdown of the relationship between the members makes winding up just and equitable. It is, on the evidence, perfectly clear that this is the case, so that the result should be as recently described by Dodds‑‑Streeton JA in Accurate Financial Consultants Pty Ltd v Koko Black Pty Ltd[2008] VSCA 86; (2008) 66 ACSR 325 at [119]:
Winding up is the characteristic remedy in circumstances where a working relationship predicated on mutual co-operation, trust and confidence has broken down. Equity would not ordinarily order the continuation of such an association where it would be a futility, would require continuing supervision or would be tantamount to specific enforcement of a contract of personal services.
[12] Nassar v Innovative Precasters Group Pty Ltd [2009] NSWSC 324.
In Khamo v XL Cleaning Services Pty Ltd,[13] Barret J cited with approval the English decision of Re Yenidje Tobacco Co Ltd.[14]. The passage his Honour cited reads as follows:
Those observations apply here with equal force. There is deadlock, mutual distrust and a complete breakdown in communication and relationships which make the company unable to function in its current configuration. It is unnecessary to seek to apportion blame. Both participants have contributed to the present situation.
[13] Khamo v XL Cleaning Services Pty Ltd [2004] NSWSC 1134.
[14] Re Yenidje Tobacco Co Ltd [1916] 2 Ch 426 [27].
Finally in this court Hasluck J in Charles Philippe Louis Niland as Trustee of the property of Ramon Theordore Osborne, a Brankrupt v R L & K L Nominees Pty Ltd & Anor[15] said at [118]:
A lack of confidence in the conduct and management of the company's affairs must be grounded on the conduct of the directors, not in regard to their private life or affairs, but in regard to the company's business. The lack of confidence cannot spring from being out voted on the company policy or on what is called the domestic policy of the company. The lack of confidence can be based on lack of probity in the conduct of the affairs of the company: Loch v John Blackwood Ltd [1924] AC 783. See also Stapp v Surge Holdings Pty Ltd(1999) 17 ACLC 896.
[15] Charles Philippe Louis Niland as Trustee of the property of Ramon Theordore Osborne, a Brankrupt vR L & K L Nominees Pty Ltd& Anor [2007] WASC 105.
Based upon these decisions it is clear that, subject to s 467(4), everything points to this company being wound up. The parties are at odds and there is nothing in the evidence to suggest they will be able to reach agreement about anything. That means the company is deadlocked - not effectively deadlocked but actually deadlocked. No decisions can be made and no steps can be taken to satisfy applicable statutory requirements. For instance, tax returns could not be lodged. Prima facie then the plaintiff is entitled to the relief she seeks.
Turning to s 467(4), engagement of that section requires the second defendant to establish two things. First, he must establish that some other remedy is available to the plaintiff. Second, it must be shown by the second defendant the plaintiff is acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy. The terms of the statute make it clear both of these considerations must be satisfied and it is for the second defendant to establish that is the case.
In her written submissions, counsel for the plaintiff addressed this issue of what she described as the 'appropriate forum' in this way:
32.There are cases in which winding up applications have been made to cross vest an application to wind up a company to the Family Court.
33.In Zhu v Tech Universal (HK-Macau) Development Pty Ltd (2005) 53 ACSR 704; [2005] FCA 256 Gyles J said at [9] – [12] (citing Merkel J in Roff v Aqua Distributors Pty Ltd (1996) 22 ACSR 248; 21 Fam FL 138; 14 ACLC 1769):
As Merkel J indicated in Roff, where the interest of third party shareholders or creditors are involved, it is necessary to take into account the circumstances 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.
33.1In Shenouda v Work Safe Medics Pty Ltd & Anor [2011] NSWSC 18 at [13] Barrett J said (referring to the above):
The 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.
34.Barrett J also said at [20] 0 [21]:
The 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.
The added dimension to which Gyles and Merkel JJ 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.
Each of the cases referred to by counsel was an instance where a party had made an application to cross-vest the winding up application to the Family Court. It would appear there is no authority dealing with the question of whether, if there is a prospect the matter could be cross‑vested to the Family Court, that amounts to 'some other remedy available to the applicant'. Counsel for the second defendant picked up on that point by submitting it was unreasonable for the plaintiff to issue proceedings in this court. The answer to that submission is two-fold. First, the plaintiff was entitled to bring the action in this court. Second, and following on from the first point, it can hardly be seen as unreasonable for a party to avail themselves of the jurisdiction of this court when they are entitled to do so. As I mentioned above, it was always open to the second defendant to seek to have the matter transferred to the Family Court under the cross-vesting legislation. That fact, taken together with the clear right to proceed in this court, means the mere fact the action is in this court does not mean the plaintiff is acting unreasonably.
At this point it is appropriate to put the application in context. This is a company which is no longer trading and which has but one asset - cash held by the Bank of Queensland. There are a number of creditors who must be satisfied from the available cash. Those creditors are at least five in number - there may be more. Appointment of a liquidator now will mean the affairs of the company can be finalised and if there is any remaining cash for division between the plaintiff and the defendant that can be done. No doubt it will be brought to account in the Family Court proceedings. But to refuse to make the order now and have all of the arguments rehashed before the Family Court is really a pointless exercise.
Accordingly, I was satisfied that an order winding up the company ought be made.
In approaching the matter in the way I have, it has not been necessary for me to decide whether or not the plaintiff should have leave to bring an application to wind up the company on the grounds of insolvency and whether a winding up order should be made on those grounds. In deference to the written submissions made by the parties on this issue and the significant amount of evidence which was filed, I will deal with each issue briefly.
Although the plaintiff did not apply for leave to bring the application before it was issued leave can be given subsequently. That is the effect of the decision of the High Court in Emanuele v Australian Securities and Investments Commissions.[16] On that basis, and always mindful of s 467A which mandates an application ought not be dismissed because of a defect or irregularity, I would not dismiss the application simply on the basis leave had not been obtained. Moreover, it seems to me that prima facie evidence is available to suggest the company was insolvent. Its asset position was clear. It had at least five creditors including the Australian Tax Office. While, on balance, the evidence suggests these creditors can be met from the assets of the company, there is some uncertainty as to how much is owed particularly to the Australian Tax Office. On that basis, the plaintiff has made out a prima facie case and leave to bring the application ought be granted nunc pro tunc.
[16] Emanuele v Australian Securities and Investments Commissions (1997) 188 CLR 114.
However I am not satisfied the company was actually insolvent. The test of solvency is of course the cash flow test - can the corporation meet its liabilities as and when they fall due. This corporation is not trading. It has the cash asset and it has fixed liabilities - apart from interest and penalties, which are no doubt being accrued with the Australian Tax Office, no other liability is being incurred. Taking the evidence as a whole, I am satisfied that the cash presently available would discharge all of the accrued and accruing liabilities. Accordingly, there is no basis to wind the company up in insolvency.

As I indicated to the parties, on publication of these reasons and on making the winding up order, I will give the parties the opportunity to be heard as to costs.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
CB
Associate to Master Sanderson
5 NOVEMBER 2020