Deputy Commissioner of Taxation v Chairmakers Pty Ltd
[2004] VSC 109
•7 April 2004
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
CORPORATIONS LIST
No. 4016 of 2004
| IN THE MATTER OF Chairmakers Pty Ltd (subject to a deed of company arrangement) | |
| DEPUTY COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA | Plaintiff |
| v | |
| CHAIRMAKERS PTY LTD (subject to a deed of company arrangement) | Defendant |
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JUDGE: | Mandie J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 25, 29 and 30 March 2004 | |
DATE OF JUDGMENT: | 7 April 2004 | |
CASE MAY BE CITED AS: | Deputy Commissioner of Taxation v Chairmakers Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2004] VSC 109 | |
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CORPORATIONS – whether director able to resign during period of administration under Part 5.3A of Corporations Act 2001 (Cth) – whether deed of company arrangement validly executed by a director on behalf of the company – whether deed of company arrangement should be validated – winding up order
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr S Gardiner | ATO Legal Services Branch |
| For the Defendant | Mr J Guss | Joseph Guss |
| For the Deed Administrators | Mr P Fary | Anthony Peterson & Co |
HIS HONOUR:
By interlocutory process dated 23 March 2004, the plaintiff seeks an order terminating the deed of company arrangement purportedly executed by the defendant (“the Company”) on 17 December 2003 and certain consequential orders. This application comes about in the following circumstances.
By originating process dated 6 January 2004, the plaintiff applied pursuant to ss.445D, 447A and 600A of the Corporations Act 2001 (Cth) (“the Act”) for an order setting aside a resolution of creditors of the Company passed on 8 December 2003 that the Company execute a deed of company arrangement and for an order terminating the said deed.
The originating process was supporting by an affidavit of Aris Zafiriou,[1] an officer employed by the Australian Taxation Office. The affidavit showed that the Company was incorporated on 13 July 2000 and that, until 31 May 2003, the sole director and secretary was Joan Dorothy Armitage (“Mrs Armitage”) of 26 Garden Street, Box Hill North. On 31 May 2003, Mrs Armitage was replaced as director and secretary by Richard William Bult (“Mr Bult”). An ASIC search conducted on 5 January 2004 showed that the shareholders were:
[1]A further affidavit of Aris Zafiriou was later filed correcting errors in his first affidavit – the facts summarised herein take account of those corrections.
Name
No. of shares held
Joan Dorothy Armitage,[2] Box Hill North, Australia
80
Xue-Feng, Li , Guangdong Province, China
20
Zhou-Jian, Luo, Guangdong Province, China
20
Li-Chen, Hsu, Taiwan
60
Long John Holdings Australia Pty Ltd[3]
60
[2]Material subsequently filed shows that Mrs Armitage’s shares have been transferred to David Andrew Wall, who purports to be the current sole director of the Company.
[3]This company may have some association with the Armitage family.
Mr Zafiriou deposed that the Company had a liability to the plaintiff for taxation in the sum of $87,296.74, a debt which had been reduced only by certain garnishee procedures. The Company itself had paid no tax at all. The tax liability included amounts due under various provisions of the income tax legislation relating to Business Activity Statements, PAYG instalments, fringe benefits tax and interest charges. As a result of this liability the plaintiff had filed an originating process in this Court on 5 November 2003 (No. 8685 of 2003) seeking an order that the company be wound up in insolvency, based on non-compliance with a statutory demand in the sum of $57,160.07 served by the plaintiff on the Company on 16 July 2003. The winding up application was posted to the registered office of the Company on 6 November 2003. On 13 November 2003, Mr Bult appointed Loke Ching Wong and William Bernard Abeyratne as joint and several administrators pursuant to s.436A of the Act.
Exhibited to Mr Zafiriou’s affidavit is a letter from the administrators to creditors dated 28 November 2003 calling a meeting for 8 December 2003. The administrators informed creditors that the Company’s principal business was the assembly and supply of office chairs. The administrators said that in July 2002 the Company took over the assets and employees of another company, Chairtech Australia Pty Ltd, which was placed into liquidation pursuant to an order of the Supreme Court of Victoria on 4 July 2002, and that, prior to that transaction, the Company had not traded actively. The administrators said that the Company’s report as to affairs disclosed that the debtors of the Company totalled $373,681, comprising debtors of $62,982 for the supply of office chairs together with loans to related entities totalling $310,699. The administrators said that they had been advised by Mr Bult that there was unlikely to be any realisable value from the loans to related entities, whose status was as follows (omitting minor debts):
Company Current status Amount owed ($) Asia Pacific Coatings Pty Ltd In liquidation 32,491 Chairtech Australia Pty Ltd In liquidation 85,000 Colorclad Pty Ltd Administrators appointed 49,990 Mecelec Australia Pty Ltd Administrators appointed 140,640
After detailing the other assets of the Company, the administrators listed liabilities of $63,769 to priority creditors (employee entitlements) and $563,406 to unsecured creditors. The principal unsecured creditors, apart from the plaintiff, were said to be overseas shareholders’ loans ($226,669) and a company, ACA Holdings Pty Ltd ($221,000). Trade creditors amounted to only $6,614. The administrators explained that they had been led to believe that the debt to ACA Holdings Pty Ltd was related to the sale price for the purchase of the assets of Chairtech Australia Pty Ltd for $221,000. The Company’s purchase of those assets was funded by Australian Corporate Alliances Pty Ltd by payments totalling $221,723.19 and that debt was acquired by ACA Holdings Pty Ltd. However, the administrators noted that no documents had been provided to substantiate this acquisition.
After considering a variety of further matters, the administrators reported that Mr Bult had proposed a deed of company arrangement under which the Company would pay the sum of $50,000 (“the Deed Monies”) to the deed administrators in discharge of relevant debts. This was to be payable by an initial payment of $5000 within 14 days of the execution of the deed and three instalments of $15,000 at intervals of 60 days after the initial payment. The Company was further to assume full responsibility for all service-related employee entitlements. The Deed Monies were to be applied to employees’ superannuation and then to be apportioned between all non-excluded creditors. The excluded creditors were related parties as defined under the Act. The administrators recommended execution of the deed, as likely to provide a better return to unsecured creditors than would liquidation.
The second meeting of creditors was held on 8 December 2003. The proposed deed of company arrangement was approved with eight creditors to the value of $277,065 voting in favour and four creditors to the value of $87,216 voting against.
The deed of company arrangement, which was executed in circumstances to which I will later refer, gave creditors a wide definition, but “excluded creditors” were defined to mean all related entities with the meaning of s.9 of the Act, including Acalliances Pty Ltd and ACA Holdings Pty Ltd. The operative provision in relation to the Deed Fund was Clause 3.1 which said:
“The administrators are to create the deed fund from the funds provided by the Shareholders and the operation of the business as set out below:
a.an initial payment of $5,000.00 within 14 days of the execution of the deed,
b.then a further payment of $15,000.00 within 60 days of the first payment.
c.then a further payment of $15,000.00 within 60 days of the second payment.
d.then a final payment of $15,000.00 within 60 days of the third payment,
The total of all payments being $50,000.”
The deed went on to provide for the distribution of the deed fund and the payment of costs of the administrators, including their remuneration and legal costs, secondly, in payment of priority payments under the Act and thirdly, pro rata among the participating creditors. Distributions were to be in satisfaction and discharge of the debts.
The resolution approving the deed of company arrangement was carried by reason of the vote of Acalliances Pty Ltd (one of the excluded creditors and a related creditor according to the deed) with a debt of $235,000. This debt is not referred to in the administrators’ report, but at present no point seems to be made about this by the plaintiff. What the plaintiff does say is that the director of Acalliances Pty Ltd is Christopher James Armitage, the son of Mrs Armitage and her husband, Barrie Murdoch Armitage (“Mr Armitage”). Mr Zafiriou also deposed that an ASIC search of Acalliances Pty Ltd revealed that no annual return had been filed.
In relation to the “related entities”,[4] which had received loans from the Company, Mr Zafiriou deposed as follows:
(a)Asia Pacific Coatings Pty Ltd (in liquidation): the sole director of this company is Mrs Armitage and Mr Armitage was a director for a short time in 1999. The company was wound up by the Court in September 2003, although it had been the subject of a previous winding up order in June 2002 which was subsequently stayed. This company had unpaid taxation liabilities of over $540,000 and had not lodged Business Activity Statements with the plaintiff for September and December 2002.
(b)Chairtech Australia Pty Ltd (in liquidation): the sole director and shareholder of this company is Mrs Armitage. The company, incorporated in December 1999, had an outstanding taxation liability in the sum of $68,559.54, had never lodged an income tax return and had Business Activity Statements outstanding for the period July 2001 to July 2002. (There is also another company called Chairtech Holdings Pty Ltd incorporated in July 2000 of which Mrs Armitage is the sole director and secretary – that company has never filed any annual returns with ASIC).
(c)Colorclad Pty Ltd (administrators appointed): this company was incorporated in May 2002 and the sole director and secretary is and has been Mrs Armitage. No annual return has been filed with ASIC. On 5 November 2003, the plaintiff commenced proceedings seeking an order that it be wound up in insolvency. On 14 November 2003, Mrs Armitage appointed an administrator. The company had a taxation liability exceeding $126,000. A deed of company arrangement in respect of that company is being challenged by the plaintiff in proceeding No. 4017 of 2004.
(d)Mecelec Australia Pty Ltd (in liquidation): the director of this company, incorporated in May 2001, is Mrs Armitage. The company has taxation liabilities in the amount of $447,871, and has not lodged any Business Activity Statements or income tax returns. On 5 November 2003, the plaintiff commenced proceedings seeking the winding up of this company. On 17 November 2003, the company appointed administrators, but at the second meeting of creditors, it was resolved that the company be wound up.
[4] See the table in paragraph [5].
Mr Zafiriou’s affidavit refers to some 17 other companies, which the plaintiff has loosely called “Armitage companies”, being companies the director of which is either Mr Armitage, Mrs Armitage or Christopher James Armitage. Included in this group of companies are Acalliances Pty Ltd and Avin Holdings Pty Ltd (a company incorporated in May 1999, the sole director of which was Christopher James Armitage, and which was deregistered in December 2002 without ever having filed an annual return). A number of these companies have what may be described as a chequered history in relation to the filing of relevant documents, both with ASIC and with the plaintiff.
Having referred to the contents of the affidavit in support, I continue with the history of the progress of this proceeding.
On 13 February 2004, the Court made directions as to the filing of affidavits and outlines of submissions in this proceeding and fixed the proceeding for hearing (along with a proceeding involving Colorclad Pty Ltd) on 19 April 2004. The plaintiff filed further and better particulars of the grounds relied upon by it for the setting aside of the deed of company arrangement and a winding up order, namely:
“(a)It is in the public interest to do so;
(b)The history of companies currently or previously controlled directly or indirectly by one or more of [Mr Armitage, Mrs Armitage and Christopher Armitage] discloses a high degree of commercial immorality; and/or
(c)The resolution approving the defendant’s entry into the deed of company arrangement entered was passed only by reason of the votes of related creditors.”
Attached to the further and better particulars were tables relating to the “Armitage companies” and containing particulars which were verified by an affidavit of Ralph Curtis filed on the same date. A further affidavit of Mr Zafiriou was also filed, deposing that three “Armitage companies” had deducted income tax amounts from salary and wage payments made to employees, but failed to declare such deductions or remit the amounts to the plaintiff.
On 12 March 2004, further directions were made in this proceeding which, inter alia, extended the time for filing affidavits on behalf of the defendant to 5 April 2004, but the hearing date was not changed.
The present interlocutory process came before the Court on 25 March 2004. It was supported by an affidavit of Mr Zafiriou sworn 23 March 2004, deposing that the plaintiff had received a letter from the administrators to the effect that the Company had contravened the deed of company arrangement by failing to make the payment of $15,000 due on 29 February 2004. That fact is admitted, and indeed, no payment has been made to date by the Company since the initial payment pursuant to the deed of company arrangement of $5000. The administrators advised the plaintiff, by the said letter, that a meeting of creditors of the Company had been convened for 26 March 2004 to consider a resolution to terminate the deed of company arrangement and to wind up the Company. The plaintiff sought an order from the Court winding up the Company in order that an earlier relation-back day should be operative (viz. 5 November 2003, when the plaintiff’s winding up proceeding was filed, rather than 13 November 2003, when the administrators were appointed).
When the interlocutory process came on for hearing before the Court on 25 March 2004, three further matters became apparent:
1.It appeared that Mr Bult may have resigned as the sole director of the Company prior to his purported execution of the deed of company arrangement and that the deed of company arrangement was arguably of no effect and, if that was so, that the Company had been in liquidation pursuant to the Act since the time by which such deed should have been executed.
2.The plaintiff wished to rely, in support of its interlocutory application, upon the material contained in Mr Zafiriou’s original affidavit in support in addition to the fact of the Company’s breach of the deed of company arrangement.
3.The Company wished to put forward a proposal to the creditors’ meeting that the payments under the deed of company arrangement be rescheduled and that a majority of creditors in number and value were likely to support that proposal.
In the light of those three matters, and given that the solicitor for the Company had been given an inadequate opportunity to deal with the matters raised, and, in particular, to answer the affidavit material originally filed by the plaintiff, I adjourned the proceeding to Monday 29 March 2004 to enable any further affidavit material on behalf of the defendant to be filed.
The following further affidavits were filed on 25 March 2004 and relied upon in the proceeding. There is an affidavit of David Andrew Wall sworn 25 March 2004. Mr Wall deposes that he is now the sole director and secretary of the Company. He explains the failure of the Company to pay the first instalment of $15,000 to the deed administrators as follows. Mr Wall says that, given that there was about $22,000 in the administration bank account, and it was estimated by the administrators that their costs would be at most $10,000, there would be about $12,000 available to the Company. However the administrators had retained the whole of the said $22,000. Mr Wall swore that January and February were quieter trading months, but sales in March had increased, and he expected the defendant to trade profitably in the future. Mr Wall then spoke of the said proposal to reschedule the payments under the deed and of the attitude of the creditors to this proposal. An affidavit on behalf of the deed administrators confirmed that the Company had failed to pay the sum of $15,000 due on 29 February 2004, in that the Company’s cheque was dishonoured.
When the hearing resumed on 29 March 2004, a further affidavit had been filed on behalf of the plaintiff going to the question of Mr Bult’s resignation. A further affidavit by Mr Wall was filed dealing with that question and also with a number of other matters to which I will make reference in due course. I now turn to the issues raised at the hearing and the submissions of the parties in relation to them.
Was the deed of company arrangement duly executed?
It is unnecessary to refer in detail to the affidavit material, the various ASIC searches in evidence and the exhibited correspondence between ASIC and the Company, because the relevant facts are not in dispute.
The facts are that Mr Bult purported to resign as director on 12 December 2003, on which date he signed a written resignation as director and secretary of the Company. A notification of that resignation signed by Mr Bult and bearing the same date was lodged with ASIC, to which was attached a copy of his written resignation. The deed of company arrangement was not purportedly executed until 17 December 2003, when it was signed on behalf of the Company by Mr Bult. Apparently after the deed was executed, Mr Bult, purportedly as director, appointed Mr Wall as a director and the secretary of the Company, and then he resigned “again”.
Section 203A of the Act provides that a director of a company may resign as a director of the company by giving a written notice of resignation to the company at its registered office. It was accepted that Mr Bult had complied with this section,[5] unless his power to do so did not exist during the course of the administration, as Mr Guss, who appeared as solicitor for the Company, submitted.
[5]It is a replaceable rule, but it was not suggested that it had been replaced.
Mr Guss did not dispute any of the facts but contended that Mr Bult had no power to resign on 12 December 2003 and accordingly was still the sole director of the Company when he executed the deed of company arrangement on 17 December 2003. In the alternative, Mr Guss contended that the Court should cure any invalidity resulting from Mr Bult having resigned as director prior to executing the deed of company arrangement.
Mr Guss submitted that Mr Bult was unable to resign as director of the Company on 12 December 2003, because of s.437C of the Act, which provides, inter alia:
“(1)While a company is under administration, a person (other than the administrator) cannot perform or exercise, and must not purport to perform or exercise, a function or power as an officer of the Company.
(1A)Subsection (1) does not apply to the extent that the performance or exercise, or purported performance or exercise, is with the administrator’s written approval.
(1B)An offence based on subsection (1) is an offence of strict liability.
(2)Subsection (1) does not remove an officer of a company from his or her office.”
Mr Guss contended that Mr Bult’s resignation was the performance or exercise of “a function or power as an officer of the company” within the meaning of s.437C(1). He referred to the ordinary meaning of the words “function” and “power” and to the corresponding provisions which applied in the case of liquidations.[6] Reference was also made to the duties of directors to assist administrators under s.438B of the Act, which duties might be avoided if a director was able to resign after a company had entered administration.
[6]See s.471A(1) of the Act.
In my opinion, although a director’s capacity or ability to resign can loosely be described as a “power” to resign possessed by that director, the capacity or ability to resign is not “a function or power as an officer of the company” within the meaning of the section. The functions and powers with which s.437C is concerned are the functions and powers of the directors in their management of a company. This is made evident by s.437A(1), which provides that, while a company is under administration, the administrator has control of the company’s business, property and affairs, may carry on that business and manage that property and those affairs, and “(d) may perform any function, and exercise any power, that the company and any of its officers could perform or exercise if the company were not under administration”. Further, s.437B provides that “[when] performing a function, or exercising a power, as administrator of a company under administration, the administrator is taken to be acting as the company’s agent”. The functions and powers referred to s.437A and s.437B are the same functions and powers as are referred to s.437C. The so-called “power” of a director to resign is not contemplated by this set of provisions, which is concerned with the management of the company and the power of the administrator to perform all the functions and powers previously capable of being performed by the director or other officer.[7] It may be that s.438B should be addressed to former directors as well as present directors, just as in the case of liquidations various duties are imposed upon former officers as well as officers,[8] but the apparent “defects” of s.438B do not, in my opinion, affect the proper interpretation of s.437C(1).
[7]See too Division 4 of Part 2D.1 of the Act as to the “powers” of directors.
[8]See s.530A of the Act.
It follows that the deed of company arrangement was never executed on behalf of the company as required by s.444B(2) of the Act, namely, within 21 days after the end of the meeting of creditors, and therefore never became a deed of company arrangement (see s.444B(6)). The consequences of the Company contravening s.444B(2) are provided for, says s.444B(7), in Division 12 of Part 5.3A. The relevant section in Division 12 is s.446A which in effect provides that, if a company contravenes s.444B(2), the company is taken to have passed a special resolution that the company be wound up voluntarily at the time of the contravention – in this case, 21 days after the end of the meeting on 8 December 2003, namely 29 December 2003.
I conclude that unless some “curative” order is made by the Court, the Company has been in liquidation since 29 December 2003 and the administrators are the liquidators (see s.446A(4)(a)(i)).
Should the deed of company arrangement be validated?
If (contrary to his submissions) the deed was never executed by the Company, Mr Guss orally applied, pursuant to s.445G and/or s.447A of the Act, for the validation of the deed of company arrangement. Section 445G(3) of the Act empowers the Court to declare a deed of company arrangement to be valid, despite a contravention of a provision of Part 5.3A, if the Court is satisfied that:
“(a)The provision was substantially complied with; and
(b)No injustice will result for anyone bound by the deed if the contravention is disregarded.”
Section 447A(1) empowers the Court to make such order as it thinks appropriate about how Part 5.3A is to operate in relation to a particular company.
I did not hear argument as to whether the conditions of s.445G(3) had been satisfied in the present case. I am tentatively of the view that the relevant provision was not substantially complied with where the deed was executed by a person who had already resigned as director. However, it is unnecessary to consider s.445G(3) further, because it was not contested that the Court could validate the deed under s.447A if it thought it just to do so.[9] However, the plaintiff submitted that it was not appropriate for the Court to exercise any power or discretion to validate the deed of company arrangement in all the circumstances. In essence, the plaintiff relied upon the insolvency of the Company, evidenced by its inability to pay the instalment of $15,000 on time or at all, and upon the public interest considerations raised by the conduct of the various “Armitage companies”.[10]
[9]See Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270; Cawthorn v Keira Constructions Pty Ltd (1994) 33 NSWLR 607, 611 per Young J; Re Paradise Constructors Pty Ltd (administrator appointed) [2004] VSC 92.
[10]As to public interest considerations in the context of administrations and winding up, see Deputy Commissioner of Taxation v Woodings (1995) 16 ACSR 266; Re Paradise Constructors Pty Ltd (administrator appointed) [2004] VSC 92.
In order to consider the plaintiff’s submission, it is necessary to refer to the affidavit material filed on behalf of the Company on 29 March 2004, and to the submissions made on its behalf. Mr David Andrew Wall (the “director” purportedly appointed by Mr Bult on 17 December 2003) swore an affidavit dated 29 March 2004. He deposed that since his appointment, he had worked full time, every day, primarily from the offices of the Company and that the day-to-day management of the Company was undertaken by a general manager, who was the “former” director of the Company (Mr Bult). He deposed that Mr Bult had extensive business experience in various fields, and in the chair making business from 1993. Mr Bult was supported by a full time accountant and was also supported by a sales manager “who was a former founder and half owner of the business that ultimately became Chairmakers Pty Ltd”. The affidavit does not disclose the name of this “former founder and half owner”, nor does it explain the history of the “business”, nor how it “ultimately became Chairmakers Pty Ltd”.
Mr Wall next deposes that, after having made inquiries, there was no basis upon which the Company could be described as an “Armitage interest”, although he then goes on to note that Mrs Armitage was the sole director and secretary of the Company until 31 May 2003. Mr Wall then says, from his inquiries, that Mrs Armitage was very seldom seen at the Company premises, took no part whatsoever in the day to day activities of the Company, and had only a minority shareholding. Mr Wall adds that Mr Armitage was engaged as a consultant to the Company on or about July 2002 “primarily to assist the Company in its negotiations with the plaintiff and in respect to the provision of business advice” and that Mr Armitage was not at any time an officer or employee of the Company. Nowhere does Mr Wall explain how Mrs Armitage came to be a shareholder and a sole director of the Company or who it was that procured the overseas shareholders to invest in or lend monies to the Company. I am left with the impression that his affidavit has been carefully crafted to disclose only that which it was thought prudent to disclose in the context of this litigation. It seems open to infer that Mr Armitage is in some way a moving spirit behind this and the other companies which I have mentioned, but I need not make a positive finding to this effect.
I note that Mr Wall’s affidavit then deposes on information and belief that Mr Armitage had informed “the company’s solicitor” [ie, Mr Guss] that Mr Armitage had a “long running dispute commencing in 1991 with the plaintiff over taxation disputes, ultimately resolved in his favour, in which the plaintiff’s deponent, Aris Zafiriou, was closely involved [and] whose actions the company’s solicitor was informed were the subject of complaint by [Mr] Armitage to the then Deputy Commissioner of Taxation himself. Mr Wall further deposes that he is informed by the Company’s solicitor that, from the information given to the Company’s solicitor by Mr Armitage, it “prima facie appears that the said Aris Zafiriou may be acting vexatiously in pursuing these proceedings…”. In my view, there is no evidentiary basis for these allegations against Mr Zafiriou. Mr Wall’s affidavit foreshadowed the intention to cross-examine Mr Zafiriou should the originating process go to trial but, as will be seen, the necessity for a trial has been obviated as a result of matters exposed by the interlocutory process.
Mr Wall next deposes that he is a fluent speaker of Mandarin Chinese and has various contacts with the overseas shareholders and in representing their interests. He also says that he regards the Armitage family as friends, but has never been involved with any business with “Armitage interests” and is an independent person. He complains of the effect of this proceeding upon the activities of the Company and upon the morale of the employees. He refers to plans for strengthening and improving the Company’s business.
Exhibited to Mr Wall’s affidavit is a balance sheet of the Company as at 29 March 2004. The current assets of the Company total about $51,000 including debtors of $46,000, cash of $3000 and raw materials of $18,000 (there are no finished goods). The only other asset of the Company is plant and equipment said to have a written-down value of about $63,000. The balance sheet presents a misleading picture in relation to the liabilities of the Company, because it contains no entry for the sum of $45,000 payable under the deed of company arrangement, of which $15,000 is presently due and payable, but unpaid. In addition, the balance sheet does not contain any items or amounts for the creditors who are excluded creditors under the deed of company arrangement and who thus will remain creditors of the Company even after the debts of the creditors participating in the deed of company arrangement are discharged. The liabilities disclosed by the balance sheet include various current taxation liabilities totalling some $34,000 and trade creditors of about $4000. It would appear that the Company’s current liabilities exceed its current assets if one takes the current assets to be about $51,000 and the current liabilities to be about $53,000 (including the overdue instalment of $15,000). Of course, if the next instalment due under the deed of company arrangement is treated as a current liability, as it probably is, then the Company’s current liabilities exceed its current assets by some $17,000. Of more significance than the balance sheet position is the fact that the Company is clearly unable to pay the instalment of $15,000 already due and payable. I note that there is no evidence as to the age of the trade debtors or as to their collectability.
Also exhibited to Mr Wall’s affidavit are profit and loss statement for the months of December 2003 to March 2004 which show that the Company incurred a net loss in December 2003 of in excess of $20,000, a net loss in January 2004 of in excess of $15,000, a small profit in February 2004 of about $5000 and an even smaller profit in March 2004 of $1395.
Mr Wall also produced cashflow projections which make assumptions about future sales by the Company, the validity of which cannot be ascertained and which, to secure the viability of the Company, assume that the shareholders will be investing a further $25,000 in April 2004, thus recognising that the Company is undercapitalised and assume that the amounts due under the deed of company arrangement will be rescheduled. Mr Wall says that the shareholders are prepared to advance the said sum of $25,000 if this proceeding is resolved. I note in that regard that the deed of arrangement envisages that the money to be paid into the Deed Fund was to be paid “by the Shareholders and the operation of the business” and, given that the Company has been unable to pay that instalment, it is likewise clear that the shareholders have not been prepared to do so.
In the light of that material, it was submitted on behalf of the Company that the Company was solvent, that there was no evidence to show that the Company was an “Armitage company” or that it was associated with the Armitage family and that, if (contrary to the Company’s submission) the deed of company arrangement was invalid, the Court should in its discretion validate the deed.
Conclusions
I am not satisfied that the Court should exercise its discretion to validate the deed of company arrangement, indeed, I am satisfied that the Court should not do so in all the circumstances. Of importance is the fact that the Company has failed to pay the instalment of $15,000 due under the deed and is concededly unable at present to do so. Prima facie, the Company is insolvent, even if one disregards the debts which are to be discharged under the deed. I have already noted that the deed made provision for the funds payable to the deed administrators to be “provided by Shareholders and the operation of the business”. The shareholders are not parties to the deed and therefore not bound to provide those funds, but their failure to do so does not provide any assurance that the Company will be supported by its shareholders. As regards what may be described as additional public interest considerations relating to the involvement of the Armitage family, I make no positive findings. However I am not satisfied on the basis of the material provided that the Company can properly be described as having no association or connection with companies connected with that family. The history of some of those “related entities”[11] does not give grounds for any confidence in the business future or solvency of the Company; nor does the history of the Company itself.
[11]See paragraph [12].
The result is that the Company has been in liquidation since 29 December 2003 and the administrators are the liquidators. That conclusion completes the interlocutory process and renders the originating process otiose. However I think that it is now just and appropriate that the Court order, upon the application of the plaintiff in the proceeding commenced by originating process on 5 November 2003 (No. 8685 of 2003), that the Company be wound up in insolvency and that William Bernard Abeyratne of Harrisons Insolvency, Level 1, 49–51 Stead Street, South Melbourne be appointed liquidator for the purposes of the winding up. That order is made pursuant to s.459P of the Act and, to the extent necessary, s.447A of the Act.
I will hear the parties upon the precise orders to be made in each proceeding and as to any consequential orders and as to costs.
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