Essendon Apartment Developments Pty Ltd v Shaw and Ors
[2014] VSC 74
•6 March 2014
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
CORPORATIONS LIST
S CI 2012 4252
IN THE MATTER of Essendon Apartment Developments Pty Ltd (ACN 145 718 485)
(Formerly Phoenix Business Development Group Pty Ltd)
| ESSENDON APARTMENT DEVELOPMENTS PTY LTD (ACN 145 718 485) (Formerly Phoenix Business Development Group Pty Ltd) | Plaintiff |
| v | |
| JENNIFER SHAW & OTHERS (as per attached Schedule) | Defendants |
---
JUDGE: | RANDALL AsJ | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 13-14, 21, 24 September 2012 | |
DATE OF JUDGMENT: | 6 March 2014 | |
CASE MAY BE CITED AS: | Essendon Apartment Developments Pty Ltd v Shaw & Ors | |
MEDIUM NEUTRAL CITATION: | [2014] VSC 74 | |
---
CORPORATIONS — Corporations Act 2001 (Cth) s 1274(B)(2) — Resignation and appointment of director — Transfer of shares — Failure to comply with company’s constitution — Time appointment takes effect.
---
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff and Sixth Defendant | Mr J D Catlin | Tania Cirkovic & Associates |
| For the First Defendant | Mr G Parncutt | Kiatos & Co |
| For the Seventh Defendant | Dr E Boros | Stonnington & Zervas |
HIS HONOUR:
The plaintiff, formerly known as Phoenix Development Group Pty Ltd (‘Essendon’) is the registered proprietor of land situate and known as 1048–1060 Mt Alexander Road, Essendon (‘the Mt Alexander Road property’) upon which it is proposed to develop a multi-storey apartment block. Essendon also operated The Nursery Wine Bar from the Mt Alexander Road property until about March 2012.
The dispute before me is to resolve the question of who has control of Essendon. The applicant is Mrs Shaw who is recorded in the ASIC records as a former director.
Essendon was registered on 11 August 2010. The Company Extract discloses that the current directors are Antonio Iskaff and Jacobus Smit. The appointment date recorded for Mr Smit is 17 May 2012. The appointment date recorded for Mr Iskaff is 10 July 2012. There is one $1 issued share, which is held in the name of Mr Smit. The Company Extract records that the share held by Mr Smit is not beneficially held by him. Jennifer Shaw is recorded as having resigned as a director on 17 May 2012.
Mrs Shaw contends that she and Mr Iskaff are the directors of Essendon and her removal and the appointment of Mr Smit are invalid. It can be distilled that Mr Smit is in the camp of Danielle McGuire. Mr Iskaff is in the camp of Mrs Shaw.
On 25 July 2012, Essendon filed an originating motion against Mrs Shaw, her husband Bradley Allan Shaw, Giuseppe Cullia, Maria Cristina Cullia, and Southern Style Leisure Group Pty Ltd, a company representing the interests of Mrs Shaw. Putting to one side the restraint sought, the relevant relief required Mrs Shaw to swear an affidavit to, in effect, disclose the financial position of Essendon. The substantive proceeding constituted by the originating motion has not progressed save for the making of freezing orders. A proposed statement of claim has been handed to me but not filed or served. The proposed statement of claim sets out allegations of breach of duty.
On 27 August 2012, an interlocutory process was filed on behalf of Mrs Shaw. The interlocutory process was subsequently amended on 14 September 2012 to remove a typographical error in relation to one of the dates. The relief sought is as follows:
1.A declaration that Jacobus Smit has contravened the Act by lodging on 17 July 2012 an ASIC Form 484 purporting to remove Jennifer Shaw as director and appointment himself in her stead as director, secretary and shareholder of Essendon…
2.An order that Jacobus Smit deliver up any documents of [Essendon] to Antonio Iskaff.
3.An order that Antonio Iskaff be at liberty to lodge an ASIC Form 484 which records that Jacobus Smit has ceased being a director, secretary and shareholder of [Essendon].
4.Such further or other orders as the Court considers appropriate.
5.Costs.
Mrs Shaw contends that she remains a director and the shareholder of Essendon and that she validly appointed Mr Iskaff as a director on 10 July 2012. Mr Smit maintains that Mrs Shaw’s shareholding was transferred to him, she resigned as a director and he was validly appointed director in her place. Although he had initially contended that these changes occurred on 17 May 2012, he acknowledged that he did not agree to become a director until 11 July 2012. The Form 484 was not filed until 11 July 2012. The Form 484 is a document used to notify change of company details.
The history of the development
In 2009, Mr Cullia and his wife, Mrs Cullia, had attempted to purchase the Mt Alexander Road property for the purpose of its redevelopment. They were unsuccessful in that they were unable to settle. Subsequently, Mr Cullia became bankrupt in 2010.
During 2010, Ms McGuire contends that she stepped in and organised adequate financing through third parties to be contributed towards the purchase of the Mt Alexander Road property, and which would create sufficient equity for a financial institution to advance the balance. The Cullias, before seeking to purchase the Mt Alexander Road property, had been conducting The Nursery Wine Bar at those premises. Ms McGuire contended that in addition to being unable to complete the purchase of the Mt Alexander Road property, the Cullias were also in arrears in relation to the business lease payments and general business outgoings.
Ms McGuire contends that she and Charbel Kanati were instrumental in organising and coordinating the successful settlement of land which included the borrowing of funds from third party investors and from a mortgagee. The total funds required were substantially higher than the original contract price agreed to by the Cullias by reason of accrued penalty interest, legal costs and arrears of rent, rates and taxes applicable to the Mt Alexander Road property. The Mt Alexander Road property was ultimately purchased from Marp Investments Pty Ltd for the sum of $3,700,000 notwithstanding that the contract with Marp Investments Pty Ltd set out that the purchase price was $1,285,000. The contract was between Marp Investments Pty Ltd as vendor and Maria Cullia and Anthony Catanzaniti as purchasers. On 26 September 2010, Maria Cullia and Anthony Catanzaniti nominated Essendon as the purchaser under the contract.
Settlement of the purchase of the Mt Alexander Road property took place in November 2010 with the substantial amount required to be paid at settlement being advanced by a mortgagee, Bellmar Holdings Pty Ltd (‘Bellmar’). The advance by Bellmar was in the sum of $2.8 million.
Essendon defaulted in its obligations owed to Bellmar. On 15 February 2012, Essendon was served with a writ at the suit of Bellmar. Theodore Zervas, a solicitor, was provided with a copy of the statement of claim on 24 February 2012. Both Mr Iskaff and Mrs Shaw came to see him on 27 February 2012, at which stage he had been retained by Mrs Shaw to act on behalf of Essendon. There then ensued discussions and correspondence with Cornwall Stodart, which acted on behalf of Bellmar.
On 3 April 2012, Bellmar made application for summary judgment with a return date for the hearing on 4 May 2012. Mrs Shaw, on behalf of Essendon, sought to refinance the Bellmar mortgage. By the end of April 2012, Mr Zervas was of the view that refinancing would take some time as, at that stage, a planning permit for the development still had not been obtained. Mr Zervas managed to negotiate an adjournment of the summary judgment application to 18 May 2012. To procure the adjournment, a deed dated 3 May 2012 was entered into between Bellmar, Essendon and Maria Cullia.
Mrs Cullia was a defendant to the proceeding filed on behalf of Bellmar. She had guaranteed Essendon’s obligations owed to Bellmar. The deed enabled Bellmar to apply for judgment in the sum of $3,060,891.58 as at 18 May 2012. A consent to entry of judgment was signed on behalf of Essendon and on behalf of Mrs Cullia. The position of Essendon at that stage was dire. Mr Zervas managed to procure a further adjournment to 23 May 2012 on the basis that funds would be paid to secure the adjournment. Those funds were to be provided by Mr Iskaff.
After further negotiation by Mr Zervas, the proceeding filed on behalf of Bellmar was adjourned to October 2012. Mr Iskaff had already injected funds into the company and Mrs Shaw said that he had agreed to convert his loan funds into the purchase of four units.
At the time of hearing this application, it was still uncertain whether Bellmar would seek to prosecute the summary judgment application.
Mrs Shaw as a director and shareholder
Ms McGuire said that Mrs Shaw had been recommended to her as the acceptable face of the company. On 11 August 2010, Essendon was purchased as a shelf company. Mrs Shaw was the sole director and sole shareholder. Mrs Shaw was also the sole secretary. However, none of the witnesses refers to the position of secretary or its change at any time during this application. I take it that the parties did not distinguish between the different offices of director and secretary and assumed that they went hand in hand. Accordingly, I will not refer to the position of secretary in these reasons unless it becomes relevant.
Neither Ms McGuire nor Mrs Shaw gave any evidence as to whether Mrs Shaw would have an interest in Essendon or how Mrs Shaw would be compensated for conducting herself as a director of Essendon or otherwise acting for and on behalf of Essendon. Mrs Shaw explained that she was to be reimbursed expenses incurred by her and repaid any contributions made by her. Such explanation supports the position that Mrs Shaw did not contemplate obtaining any equity in Essendon and explains why she did not insist that the share in Essendon had any commercial value to her.
Ms McGuire was never an officer or shareholder of Essendon. However, the subsequent change of directorship and shareholding in September 2010 and January 2011 sheds light upon Ms McGuire’s apparent control of Essendon. The change is also relevant to the events of 2012.
Ms McGuire set out that Essendon was created to complete the purchase. Messrs Chiodo Madaferi Lawyers, who were previously instructed by the Cullias, were retained by Essendon to complete the purchase. Ms McGuire, not Essendon, maintained possession of the files pertaining to the purchase.
Mrs Shaw had been a director of Victoria Legal Aid. When questioned during cross-examination by Mr Parncutt about the appointment of Mrs Shaw as a director, Ms McGuire said that she gave Mrs Shaw ‘a job to do’ —the creation of Essendon. It was not Mrs Shaw’s company. Rather, Mrs Shaw was appointed as a director because Ms McGuire trusted her at the time. When asked if she had any interest in the company, Ms McGuire said that she herself had ‘put the Essendon project together’, but was not a shareholder or a director. She claimed that she did not have a financial interest in the company, but that it was her decision to appoint Mrs Shaw as a director of Essendon.
Mr Parncutt asked Ms McGuire the following:
What right do you have to appoint people directors of companies?
Ms McGuire replied:
Because at the time Maria Cullia was a director of the company and I wasn’t happy, because of reasons I don’t want to bring up, but I didn’t want her as a director of the company any more and Jennifer, being a Legal Aid director, I thought she would be suitable and fit for the role.
The response reinforced the concept that Ms McGuire was able to ‘hire and fire’, but did not explain Ms McGuire’s authority to do so, or why Mrs Cullia or Mrs Shaw deferred to such direction.
Mr Parncutt asked whether Ms McGuire explained to Mrs Shaw that the latter would be subordinate to Ms McGuire. Ms McGuire replied:
Yes. Any decisions that were going to be made, Jen and I talked about everything. Not everything obviously. I didn’t know about the second mortgage and so forth and about a few other things that I found out along the way.
Ms McGuire was asked about whether she was aware that Mrs Shaw was a shareholder to which she replied: ‘Yes, there was only one share’.
Mrs Shaw deposed that she had purchased the shelf company on 11 August 2010 and it was not until 21 September 2010 that she agreed to transfer ‘ownership’ of the company to Mrs Cullia, who was in the process of purchasing the Mt Alexander Road property. Ms McGuire was not aware that the company had been ‘bought off the shelf’ and had not been aware that at the time of purchase, Mrs Shaw became the sole director and shareholder. However, she was asked whether she ‘appointed her a director and shareholder in any event’ to which Ms McGuire replied, ‘Yes’.
Mrs Shaw produced the minute book for Essendon. The minute book comprises of a hard folder containing plastic pockets. Minutes of meeting (notwithstanding for most of the time there was a single director of Essendon) are inserted into each of the plastic pockets. For the minutes of meeting dated 21 September 2010 it is recorded that at the meeting, Mrs Shaw resolved that Mrs Cullia be appointed as director and shareholder. The meeting also ‘resolved that Jennifer Shaw resign as director and shareholder’. The minutes of meeting of 25 January 2011 are in like form, save that on that date Mrs Cullia was the one to resign as director and shareholder and Mrs Shaw was appointed as director and shareholder.
On neither of 21 September 2010 nor 25 January 2011 was the question of any consideration for the transfer of the $1 share raised. There is nothing recorded about the payment of consideration in the minutes of either meeting and there is nothing referred to in any other subsisting agreement. Further, Mrs Shaw did not give evidence that she received a dollar on transfer of the share in September 2010, nor that she paid a dollar or any other amount when the shareholding was retransferred to her in January 2011. Mr Cullia was asked to swear affidavits on behalf of Mrs Shaw. Maria Cullia did not swear any affidavit. Accordingly, I do not have any evidence from her as to what occurred on the transfer and retransfer of the share.
I conclude that none of Mrs Shaw, Mrs Cullia and subsequently Mr Smit attached any value to the share, nor did any of them consider that the holding of the share from time to time was determinative as to whom had power to appoint any director of Essendon. Mrs Cullia came and went at the whim of Ms McGuire. Mrs Shaw did not consider that she held any equity in Essendon. Rather, she was to be compensated for her outgoings and expenses from time to time. Mr Smit was confused about whether or not he held the same beneficially.
Mr Smit was under the impression that from 11 July 2012 he held the share in Essendon for himself.
However, when Mr Smit was asked if there was to be any arrangement for the transfer of the shareholding, he replied: ‘That had nothing to do with me. That would have something to do with Danielle McGuire. I’m not the owner of the property. I was just going to be the director’. When further asked about whether Mrs Shaw was to be compensated on her resignation as director and transfer of the shareholding, Mr Smit replied: ‘I would imagine so, but I don’t know’.
Mr Smit said:
Mrs Shaw’s [share] wasn’t beneficially held. I left it the same. I’ve spoken to Ms McGuire about it and said, ‘You have to change this, we have to have some paperwork in place,’ because the problem that she's had from day one, there was no paperwork in place.
Mr Smit said that the share was ‘not beneficially held’ by him. While being cross-examined by Dr Boros, Mr Smit became more confused about whether he had beneficial ownership of the share. In the end it seemed that he understood that he did beneficially hold the share and had been in discussion with Ms McGuire to ‘correct this paperwork, the shares should be held by whoever owns the company. I don't own the company - not today. But it’s not my company…’
17 May 2012 — First Meeting
Mrs Shaw gave evidence that she and Mr Iskaff attended Mr Zervas’ office at around 10 o’clock on 17 May 2012.
In addition to discussions about how to deal with Messrs Cornwall Stodart (the solicitors for Bellmar) the attendance on 17 May 2012 at Mr Zervas’ office also concerned the appointment of Mr Iskaff as a director and how best to protect his investment, which was then estimated to be about $950,000. It was thought at that stage, that Mr Iskaff’s investment would ‘spill over to in excess of $1.1 million’ once the further funds were advanced by him.
An unexecuted ASIC Form 484 was produced at that meeting. Mr Zervas described the Form 484 as a ‘change of directorship and transfer of share form’. Mr Zervas said that Mrs Shaw signed the Form 484 and that:
It was left undated…because at that stage Mr Iskaff was yet unsure whether he would be a co-director with Mrs Shaw or not, or whether he would appoint someone else in his place.
I accept what Mr Zervas said about execution of a blank Form 484 rather than what was contended by Mrs Shaw. During cross-examination, Mr Zervas said that Mrs Shaw had brought the Form 484 with her and he could not recall whether he had asked her to sign the same or whether she merely volunteered.
Mr Zervas also said that at the same meeting a resolution had been made but he was not tested as to whether he had produced the same or even if there was a written form produced to the meeting. Contrary to the evidence given by Mr Zervas, the resolution purported to appoint Mr Iskaff as ‘a director and secretary forthwith’. The resolution also recorded that Mr Iskaff would provide the further sum of $250,000 and that Essendon (then known as Phoenix) would be appointed as trustee of the Phoenix Unit Trust.
The unit trust deed for the Phoenix Unit Trust was not produced in its totality. The relevant schedule and signature pages were produced. 60 per cent of the units were issued to Mr Iskaff and 40 per cent were issued to Mrs Shaw. The deed was executed on behalf of Essendon (then known as Phoenix), and by Mr Iskaff and Mrs Shaw. The date of execution is recorded as 17 May 2012.
The deed was an attempt to transfer the equity (if any) in the Essendon project to the Phoenix Unit Trust on behalf of the unit holders, without regard to the concept that the shareholding in Essendon had any value, and without regard to the interests of any other person who had invested monies in the project at that stage. However, Mr Zervas conceded that there had been no declaration of trust by Essendon to the effect that it held the Mt Alexander Road property on trust for the unit trust. In that regard, it should be noted that there was simply no declaration of trust with respect to any asset of Essendon, including The Nursery Wine Bar business.
Mr Zervas said that Mrs Shaw and Mr Iskaff left his office at around 12.20pm that day. Mrs Shaw denied dating the document. Mrs Shaw added that the form had not been completed by her as she did not have the ‘corporate key’, which is the code used for the electronic lodgement of documents. I reject that explanation and accept that of Mr Zervas, to the effect that Mr Iskaff had not consented to be a director at that time, even though the resolution referred to by Mr Zervas purported to appoint Mr Iskaff forthwith.
17 May 2012 — Second Meeting
Mrs Shaw denied meeting with Mr McGuire and Mr Smit later in the day on 17 May 2012. Ms McGuire initially said:
On May 17 2012 I met with Mr Smit, Mrs Shaw at the nursery so Mrs Shaw’s resignation could take place. Mrs Shaw signed and dated a Form 484 form ASIC and a typed letter setting out her resignation was also dated and signed. Mr Smit and I told Mrs Shaw that she was still to provide all the documentation asked for and all the monies missing to be accounted.
Ms McGuire swore three further affidavits. However, it was not until giving oral evidence that she resiled from the position that Mrs Shaw had signed the notice of resignation on 17 May 2012.
Under cross-examination, Ms McGuire was also vague about the time of day at which the meeting of 17 May took place. Her recollection became further confused when the CityLink statement of account summary for four vehicles leased by Essendon were put to her.
Mr Smit also initially contended that on 17 May 2012 Mrs Shaw signed a number of documents relating to her cessation of directorship. Those documents included the Form 484, resignation of directorship and transfer of shareholding. He said:
Now produced and shown to me and marked “JS3” is a true copy of an executed form 484 signed 17 May, 2012 in which Mrs Shaw indicates that she had ceased to be a director and I become [sic] a director. The sole share held by her is also therein transferred to me. Now produced and shown to me and marked “JS4” is a true copy of a document signed by Mrs Shaw whereby she resigned as a director on 17 May, 2012. I observed her sign JS4 on 17 May, 2012 at the Nursery. Document JS3 was provided to her at the same time already signed.
In his affidavit of 31 August 2012, Mr Smit corrected that contention as follows:
I refer to my previous affidavit and now realise on further examination of associated emails that the document exhibited “JS4” was not signed on 17 May, 2012 but on 14 June 2012. That document was created by my accountant … I requested Mr [Wayne] Cargill to send the form to me on 1 June, 2012. Now produced and shown to me and marked “JS13” are true copies of email [sic] between me and Mr Cargill associated with the resignation document.
Albeit that Mr Cargill had sent a form of resignation on 1 June, the same form was again sent on 14 June 2012 at 6.08pm, which was apparently after the meeting of 14 June 2012 had concluded.
Mr Smit sought to shrug off the resending and could not provide an explanation for why Mr Cargill had resent it. The resending would be corroborative of the resignation letter not being signed until 18 June 2012 as put by Mrs Shaw, except that what was sent was a template, which Mr Smit was required to alter or redraft to fit the circumstances. He said he prepared that document prior to the meeting of 14 June.
Mr Smit, in cross-examination, conceded that he could not remember whether the meeting that he had previously referred to as occurring on 17 May 2012 took place on that day or on some day around then. Mr Smit’s evidence, together with the evidence of all other major witnesses, was, in the main, unsatisfactory. Affidavits were sworn and amended or added to and evidence was given by witnesses resiling from positions once they realised that their initial position did not fit the facts or the sequence of events.
Given the concessions made by Mr Smit, I do not accept that there was a meeting between Mr Smit, Ms McGuire and Mrs Shaw on 17 May 2012 or at least, not a meeting where the Form 484 was handed over by Mrs Shaw.
17 May 2012 was a date of some significance. On that date, there was a naive attempt to transfer the undertaking of Essendon into the Phoenix Unit trust. The date was significant in the course of negotiations with Cornwall Stodart. It is also the date of the document entitled ‘Minutes of Meeting’ at which the resolution was passed appointing Mr Iskaff as a director and secretary. It may be that about this time Ms McGuire had discussed with Mrs Shaw the issue of her resignation.
The minute book was produced to Court by Mrs Shaw so the date of 17 May 2012 could not have been arrived at by reference to the minute. I can only conclude that the Form 484 was given by Mrs Shaw to Ms McGuire on 17 May 2012 after Mrs Shaw’s meeting with Mr Zervas. Alternatively, when Mrs Shaw gave the Form 484 to Ms McGuire or Mr Smit at a time after 17 May 2012, Mrs Shaw told one or both of them that she had signed the form on that day.
Notwithstanding Ms McGuire’s contention that Mrs Shaw resigned on 17 May 2012, Ms McGuire was content to permit Mrs Shaw to remain a signatory to the bank accounts of Essendon, or at least, to the account she knew about. Ms McGuire also exhibited contracts of sale of various units to her affidavit of 11 September 2012. One of those contracts is between Essendon and Marco and Caterina Mercuri as trustees for Maca Family Trust, for the purchase of Lot 311 at the Mt Alexander Road property. The contract is signed on behalf of Essendon by Mrs Shaw after 19 May 2012. Ms McGuire has not contended that Mrs Shaw did not then have the requisite authority to execute the contract.
Meeting of 14 June 2012
It was common ground that there was a further meeting between Mrs Shaw and Mr Smit on 14 June 2012. Mrs Shaw contends that the subject of the meeting was to discuss generally the income and expenses related to the development, and to provide Bank of Queensland statements. She contends:
In the spirit of full disclosure, Mr Smit and I attended the Essendon North Bank of Queensland Branch whereby [sic] I allowed Mr Smit to become a joint signatory on the account for cheques only.
The explanation is not satisfactory given that Mrs Shaw contended that was the limit of Mr Smit’s access to the account. Without access to the account records, such as the bank statements Mr Smit could not have carried out an appropriate investigation of the financial position of Essendon.
Notwithstanding her explanation set out in her affidavit, Mrs Shaw said:
I was giving him the authority so that together any future expenses of the development, given the status of the due diligence process that we were undertaking if he were to take over the company, buy myself out and others…
Regardless of the condition sought to be imposed by Mrs Shaw, that statement is a concession by Mrs Shaw that it was intended that Mr Smith would ‘take over’. The inference is that it had been discussed by Mrs Shaw and Mr Smit (and probably Ms McGuire) that Mr Smit would become shareholder and director of Essendon in place of Mrs Shaw. ‘Take over’ does not permit a concept of Mrs Shaw remaining either or both as shareholder and director of Essendon.
Mr Smit also referred to becoming a signatory of the Bank of Queensland account on that date. In his second affidavit, Mr Smit did not further elaborate on what was discussed at that meeting. Neither Mrs Shaw nor Mr Smit elaborated in a satisfactory way as to what occurred at the 14 June 2012 meeting and why Mr Smit was authorised to sign cheques on the Bank of Queensland account if it were not contemplated that he would become a director.
Mr Smit had said that Mrs Shaw signed a resignation letter on 14 June 2012. That would explain authorising Mr Smit to be a co-signatory on the Bank of Queensland account. However, Mrs Shaw gave evidence that she signed the letter of resignation as a director on 18 June 2012. Ms McGuire, having resiled from the contention that Mrs Shaw had signed a typed letter of resignation on 17 May 2012, said that Mrs Shaw had signed a further form provided by Mr Smit’s accountant on ‘[t]he day that [Mrs Shaw] went to the bank with [Mr Smit] so that [Mr Smit] could be a second signature’. A copy of the signing authority was not produced to me.
Mr Cargill, of Mr Smit’s accountants, had prepared a template resignation. That template had been prepared for Mr Smit to resign. The correspondence produced by Mr Cargill, shows that the template was provided to Mr Smit on 1 June 2012. The correspondence also sets out that the template was retransmitted to Mr Smit on 14 June 2012 at 6.08pm. It was accepted that that was after the meeting of 14 June 2012 occurred.
Dr Boros cross-examined Mr Smit as to whether it was signed on 14 June 2012 or at a later date. Mr Smit did not resile from 14 June 2012 being the date of signing. He said, ‘I already have the first template on 1 June and I have already changed it. I don’t know what he was doing sending me another one. He was just sending me the same email again; that’s all’.
When cross-examined about the dates on each of the Form 484 and the resignation, Mr Smit said:
The first resignation came with a 484 on 17 May, and I'm absolutely convinced about that. And I had to get her to sign another form saying that she's resigned as the director and I have dated it the same date that the first one was signed. Now, if that's wrong, that's what I did.
I find it more probable than not that the resignation letter was signed by Mrs Shaw on 14 June 2012. Mrs Shaw’s acquiescence to Mr Smit becoming a signatory to the Bank of Queensland account is inexplicable, unless it was contemplated by all that she would resign as a director or had resigned as a director, and Mr Smit would become a director in her place.
18 June 2012
Mrs Shaw denied seeing Mr Smit. Mrs Shaw eventually gave evidence that she signed the notice of resignation provided by Mr Smit on 18 June 2012. However, I do not accept that evidence. Mrs Shaw claimed that she never provided the Form 484 to Mr Smit and did not know how he obtained a copy of the form. She posited that the form was taken from The Nursery Wine Bar subsequently. She said:
I had a lot of documentation which I still do, located at the nursery in Essendon, and those forms would have been within that documentation, either in the office, the kitchen, the bar, the main dining area, the lounge rather, I would have had it on a table in any of those spots.
Given the subsequent events, I find the explanation fanciful. Mrs Shaw finally conceded that she also signed a form of resignation of directorship. Initially, she denied signing that document. She said:
I did [not] not sign that document in his presence. I did not provide that document to him. The only document I have ever signed with Mr Smit is an authority at the Bank of Queensland branch in North Essendon which allowed him to be a co-signatory only on cheques but did not allow him to make any withdrawals, balance inquiries, et cetera, on the account.
That evidence does not sit with what she set out in her complaint to ASIC set out hereafter. After the resignation document was produced to Mrs Shaw, she conceded that the copy document had been signed by her. Mr Catlin asked her when she signed the document and she replied, ‘On 18 June’ and then said:
It was on the table, one of the tables at the Nursery, Essendon. It was there and I was proceeding into a meeting, and I didn't see that form again… This document was particularly to be held in escrow. We have discussed escrow before. The intention was that, once plans and permits were effected should Mr Smit assume the directorship and responsibilities of the company, including guarantorship et cetera, that I would resign as director at that point in time.
However, the form of notice of resignation was, ‘I, Jennifer Shaw…herewith resign as Director of the Company, effective this day of writing’.
Mrs Shaw said that she did not date the notice of resignation and I accept that, given Mr Smit’s evidence that he dated it upon completing the Form 484. Yet I do not accept Mrs Shaw’s version that the resignation was something just left on the table which she happened to sign and didn’t know how it, together with the Form 484, came into the hands of Mr Smit. I find that it is more probable than not that the Form 484 was provided to Ms McGuire on or shortly after 17 May 2012. Unless Mrs Shaw had told Mr Smith the date on which she signed the Form 484, or unless Ms McGuire had relayed that date to him, how else could Mr Smit have known to date it that day, being the very day that Mrs Shaw concedes that she signed it?
I note that Mrs Shaw used the word ‘escrow’, which had been referred to by Mr Parncutt in his opening with respect to the basis upon which Mrs Shaw handed her resignation letter to Mr Smit. I determine that the use of the word ‘escrow’ to be a contrivance by Mrs Shaw. The concept of ‘escrow’ could not apply to a scenario where Mrs Shaw denied signing the resignation letter. It does not sit well with her altered version that ‘[i]t was on the table [when] I was proceeding into a meeting, and I didn’t see that form again’. On her version of how the document came to be signed, there could have not been any accord, or even discussion, that the document was to be held in escrow.
Mrs Shaw was asked why she had signed the resignation. She replied:
This document was particularly to be held in escrow. We have discussed escrow before. The intention was that, once plans and permits were effected should Mr Smit assume the directorship and responsibilities of the company, including guarantorship et cetera, that I would resign as director at that point in time.
The use of the word ‘intention’ in that context is not a reference to a subjective intention. ‘Intention’ as used by Mrs Shaw can only be reflective of a discussion(s) between Mrs Shaw and Mr Smit as to her resignation and his appointment, remembering that I do not accept Mrs Shaw’s version of such discussion(s).
I further note that nothing really turns upon whether the notice of resignation was provided by Mrs Shaw on 14 or 18 June 2012. For the reasons to which I have referred, I do not accept that there was a discussion about the resignation being held in ‘escrow’ until refinancing had been effected. I accept Mr Smit’s evidence that he wanted to investigate the affairs of the company and became a reluctant director. That is borne out by what occurred at the meeting at 5 July 2012.
5 July 2012 Meeting
A further meeting occurred on 5 July 2012.
Mr Lanciana was present at that meeting. Mr Lanciana deposed that:
The purpose of the meeting was to discuss a buy out of the parties. Specifically, whether Mr. Smit, Ms. McGuire and Mr. Kanati would buy out the interests of Ms. Shaw, Mr. Cullia and Mr. Antonio Iskaff. The meeting was required so that it could be established what financial interest each person had in the Company and to confirm the position of creditors. There was also an option for Ms. Shaw, Mr. Iskaff and Mr. Cullia to pay out any interest that Mr. Smit and Mr. Kanati had in the Company. Ms. McGuire did not claim any financial interest in the Company. It was agreed at the meeting that Mr. Smit would consider becoming a director of the Company if he, Ms. McGuire and Mr. Kanati bought out the interests of Ms. Shaw, Mr. Cullia and Mr. Iskaff. Mr. Smit would also assume any guarantor responsibilities currently held by Ms. Shaw as director of the Company, specifically in relation to the loan of $200,000 that I had provided to the Company.
While I accept that Mr Lanciana had attempted to set out the general import of what was discussed at the meeting, he obviously had a financial interest, having made a loan to Essendon which was disputed by Ms McGuire. He was obviously more concerned about being repaid than the current constitution of the company. Given that he was privy to discussions that Essendon was then distressed, he would have been concerned about the strength of security and the supporting guarantee provided by Mrs Shaw. His observation was that Mr Smit stated that:
he had no interest in becoming a director until he was able to identify and clarify the position of the company. His specific words were: “I am not prepared to become a director without understanding this mess”.
That is consistent with the position adopted by Mr Smit up until 11 July 2012.
Mr Lanciana had a previous meeting on 2 July 2012 with Ms McGuire, his argument (rather than evidence) set out in the affidavit that Mrs Shaw was in charge of the company, and that Mr Smit, Ms McGuire and Mr Kanati were looking to take over the company and buy out all of the relevant interests is inconsistent with what he had been told. Mr Lanciana had been told by Ms McGuire that Mrs Shaw had signed the letter of resignation as director some weeks earlier. It was also clear that Mr Lanciana knew that Ms McGuire required Mrs Shaw to continue an association with the company to assist with the planning permit, as well as to deal with the mortgage.
10 and 11 July 2012
Mrs Shaw and Mr Iskaff attended Mr Cargill’s office on 10 July 2012. Mr Iskaff said to Mr Cargill that he was the only director and that ‘Jenny’ (Mrs Shaw) had appointed him when she resigned.
Mr Smit gave instructions to Mr Cargill to proceed to electronically lodge the Form 484 with ASIC on 11 July 2012. Mr Smit said by 11 July 2012 he had determined to accept the directorship and take the share. I cannot say whether Mr Smit’s determination was motivated by the request, the pressure imposed upon him by Ms McGuire, or by finding out that Mr Iskaff had been purportedly appointed. Nothing turns upon the motivation. What is important is that 11 July 2012 was the date that Mr Smit determined that he would accept the directorship.
On 16 July 2012, Mrs Shaw filled out a complaint with ASIC. She relevantly set out:
On 10 July 2012, I appointed Mr Antonio Iskaff as Director of the Company. Mr Iskaff was not aware of Mr Smit’s activities and he did not authorise or consent to any changes in the Directorship or Shareholdings in relation to Mr Smit.
When referring to the change of shareholding and resignation of director, Mrs Shaw set out:
These resignations and subsequent appointments were backdated to 17 May 2012. I did not sign an authorised ASIC documentation appointing Mr Smit as my replacement Director, nor did I sign documentation removing myself as Shareholder and appointing him sole Shareholder. I did intend to resign as Director however this was to be determined at a future date. To this end, a letter of resignation was signed on 18 June 2012, although it was undated and was to become effective at a future date once other administrative matters were dealt with and resolved. Upon the date at which the resignation was to be effective, the letter was to be dated and initialed [sic] by me to confirm my intentions. Since signing this letter I have not seen the letter again and have not chosen to have the effects of the resignation put into practice.
The witnesses
I did not have any regard to any affidavit sworn by Mr Iskaff. He was called to be cross-examined on his affidavits. It was immediately apparent that Mr Iskaff had no command of written English. From a few questions put to him, I also concluded that he had less than a full command of oral English. The jurat on the affidavits sworn 1 August 2012 and 10 September 2012 had been completed in the usual way. There was no indication that the services of an interpreter were used to assist Mr Iskaff in the compilation and understanding of each of those affidavits. Therefore, those affidavits are totally unreliable.
It was also clear that Mr Iskaff could not have given cogent evidence during the course of cross-examination without the assistance of an interpreter. No explanation was provided as to why an interpreter could not be provided. I asked Mr Catlin whether he wished to rely upon the affidavits in any event. Mr Catlin, however, declined to do so.
Ms McGuire’s evidence was unhelpful. Both she and Mrs Shaw were willing to swear a number of affidavits and to change versions to suit responses in cross-examination. In that regard, Mr Catlin for the respondents to the application, continued to focus upon alleged misappropriations by Mrs Shaw, which I have not dealt with as being relevant to the question of directorship, but I have made some comments about later. He also focused on the way in which Mrs Shaw gave her evidence. Although there is merit to his submission, the observations with respect to the unreliability of Mrs Shaw apply to Ms McGuire and, to a degree, Mr Smit. The latter, however, was frank in explaining how the Form 484 came to be completed, and frank in explaining why the Form 484 and the notice of resignation were dated by him. Mr Smit’s evidence was ultimately more consistent with the events.
I found Mrs Shaw to be an unreliable witness. She could have sought to explain her movements on 17 May 2012 in any number of the affidavits which she swore. She finally referred to her duties at the Law Institute of Victoria, as if that would give greater credence to her evidence. Further, Mrs Shaw sought to create the impression that she had no intention of resigning whilst she was a guarantor of the Bellmar loan. On examination of the agreement brokered with Bellmar, it was not apparent that she had any guarantee obligations.
More poignantly, the illustration of Mrs Shaw’s unreliability is derived from her conduct in seeking the tender of a further copy of the Form 484. Mrs Shaw sought to tender three pages of the Form 484 which had been stapled together. In the process leading up to the tender, Mr Parncutt (and I accept upon instructions) sought to submit that the only version of the Form 484 signed by Mrs Shaw was the document handed to me, constituted by three pages which dealt with resignation.
However, when the form was closely considered, it was apparent that the first three pages included the cover page and Section A of the form which dealt with ‘change of address’. The third page concerned the change of name of office holder and proprietary company member and a change with respect to the ultimate holding company.
The full Form 484 also includes provision for cessation of office holder and appointment of office holder. The cessation of office holder and appointment of office holder do not start until Section B, which appears after the third page. On realising the implications of what had been put to me, I permitted Mr Parncutt to desist with the tender, but the damage was done. The instructions given to him are illustrative of putting a position which might seek to deal with what one of the other witnesses had said, without regard to what actually happened.
The credit of other witnesses was not contentious.
Submissions
The primary position put on behalf of Mrs Shaw was that:
Shaw’s evidence was that she signed the resignation letter to be held in escrow until Smit was ready to assume the directorship and guaranteeship. It is submitted that it is inherently implausible that Mrs Shaw would have resigned before any arrangements were in place to take over the Company guarantees to the bank, given that a change of director constitutes a default under the mortgage to the bank. On the facts, weight should be given to the activities performed by Shaw who acted on behalf of the Company in negotiating finance, signing consent orders with the first mortgagee and operating the Company’s bank account and also the fact that the appointment was backdated.
Mr Parncutt further submitted that Mr Smit’s appointment as a matter of law cannot be effective without him in fact consenting to act as a director. On the evidence, that did not happen until 11 July 2012. I accept that Mr Smit did not consent to act as a director until that date.
Mr Parncutt further put it that as a matter of law, the date on the resignation on the Form 484 is not the paramount consideration in the determination of the issue of the date of the appointment of a director because an appointment of director only becomes valid upon him consenting to act as a director. The evidence is that he did not consent to act as director until 11 July 2012. Notwithstanding those observations, it was submitted that Mrs Shaw had not validly been removed as a director, Mr Smit was not validly appointed and Mr Iskaff was validly appointed.
I agree with the general proposition that Mr Smit could not have become a director until he consented. However, I have not accepted Mrs Shaw’s reason for not wishing to resign as at the date of providing the notice of resignation to Mr Smit on 14 June 2012 or, if I am wrong about that date, by 18 June 2012. The submission put on behalf of Mrs Shaw fails to recognise her initial denial of signing the resignation form, and fails to consider the past history where Ms McGuire directed who would be an officer of the company . The submission also fails to take into account the inexplicable behaviour of appointing Mr Iskaff as a director after the meeting of 5 July 2012. That appointment is not addressed, save to maintain that it is valid.
Prior to the appointment of Mr Iskaff the company had been acting as a one director company. I accept that Mrs Shaw’s resignation, as sole director, could not have operated until Mr Smit consented to be a director. In those circumstances it may well be that Mr Iskaff had been validly appointed.
Mr Catlin’s submissions address some of the issues raised by Dr Boros, but in the main, concentrated on the alleged misappropriations by Mrs Shaw — a matter which I told the parties I would not delve into in this application.
The gravamen of Dr Boros’ submissions was that: there was no genuine underlying transaction to support the changes made to ASIC’s records of the company, to record Mr Smit as a director and sole shareholder of the company in place of Mrs Shaw, with effect from 17 May 2012; and those changes should be reversed. That is, Dr Boros submitted that Mr Iskaff was validly appointed as a director of the company by Mrs Shaw on 10 July, and his appointment should remain in place. Dr Boros further submitted that the evidence supports the conclusion that Mrs Shaw’s letter of resignation was more likely to have been signed on 18 June than 14 June 2012.
Dr Boros also submitted that the meeting of 5 July 2012 demonstrated that at the time, Mrs Shaw remained a director and Mr Smit had not become one. Dr Boros placed particular reliance on the evidence of Mr Lanciana that Mr Smit agreed that if there was a change of director, whoever became the director would need to replace Mrs Shaw as guarantor of Mr Lanciana’s loan to the company. Mr Lanciana and Mr Cullia were not challenged on their evidence regarding those exchanges in cross-examination.
Dr Boros also highlighted other conduct of Mrs Shaw between 17 May and 10 July 2012 which are indicia of her continuing to act as a director. As I have already said, to me it is a non-issue as I accept that Mr Smit did not consent to be a director until 11 July 2012.
Additionally, Dr Boros made submissions about the applicable law which were of great assistance.
Law
Section 1274B(2) of the Act provides as follows:
[Writing prepared by ASIC is prima facie evidence]
In a proceeding in a court, a writing that purports to have been prepared by ASIC is admissible as prima facie evidence of the matters stated in so much of the writing as sets out what purports to be information obtained by ASIC, by using a data processor, from the national database. In other words, the writing is proof of such a matter in the absence of evidence to the contrary.
Section 231 provides:
A person is a member of a company if they:
(a) are a member of the company on its registration; or
(b)agree to become a member of the company after its registration and their name is entered on the register of members; …
The Replaceable Rules had been adopted as the constitution of Essendon.
Section 231 is complemented by s 1071B and the Replaceable Rules in ss 1072F–G. Section 1071B provides:
Instrument of Transfer
…
(2)Subject to subsection (5) a company must only register a transfer of securities if a proper instrument of transfer (see subsections (3) and (4)) has been delivered to the company. This is so despite:
(a)anything in its constitution; or
(b)anything in a deed relating to debentures.
Note: Failure to comply with this sub-section is an offence (see subsection 1311(1)).
(3)An instrument of transfer is not a proper transfer for the purposes of subsection (2) if it does not show the details, specified in the regulations, in relation to the company concerned.
(4)If the transfer of the securities is covered by Division 3 of this Part, then (in addition to subsection (3)), the instrument is not a proper instrument of transfer for the purposes of subsection (2) unless it is a sufficient transfer of the securities under regulations made for the purposes of that Division.
…
Section 1072F provides:
Registration of transfers (replaceable rule — see section 135)
(1)A person transferring shares remains the holder of the shares until the transfer is registered and the name of the person to whom they are being transferred is entered in the register of members in respect of the shares.
(2)The directors are not required to register a transfer of shares in the company unless:
(a)the transfer and any share certificate have been lodged at the company’s registered office; and
(b)any fee payable on registration of the transfer has been paid; and
(c)the directors have been given any further information they reasonably require to establish the right of the person transferring the shares to make the transfer.
…
Section 1072G
Additional general discretion for directors of proprietary companies to refuse to register transfers (replaceable rule--see section 135)
The directors of a proprietary company may refuse to register a transfer of shares in the company for any reason.
The Corporations Regulations 2001 Reg 7.11 provides for forms of transfer. I do not need to consider the Regulations in full, save to note that to ensure that stamp duty is paid on transfers, Reg 7.11.12 requires the transfer form for unquoted securities to include the state or territory in which the company is taken to be registered.
The Duties Act 2000 (Vic) (‘Duties Act’) was amended with effect from 1 July 2012 to replace the land rich duty provisions with landholder duty provisions. The Duties Act, prior to its amendments, applied when land constituted 60 per cent or more of the value of the landholder’s allowable assets. Pursuant to the amendments, in respect of private companies, liabilities for duty are triggered by a transfer of 50 per cent or more of the landholder. In this instance, there is only one share, so 100 per cent of the shareholding was transferred from Mrs Shaw to Mr Smit. The consequences of failure to stamp an instrument of transfer are set out in ss 269–72 of the Duties Act. In effect, such an instrument may not be presented in evidence in Court. A transfer was never engrossed. The Form 484 is not an instrument of transfer, but a notice of the same.
The Replaceable Rule in s 201G gives the shareholder power to appoint a director. In the case of a single member company, s 249B provides that a resolution may be passed by a single member recording it and signing the record. The Replaceable Rule in s 201H permits the director(s) of a company to appoint an additional director, but the appointment must be confirmed by the general meeting within two months or the appointment lapses.
Section 201D provides that a company commits an offence if it appoints a director without first being given the director’s signed consent to act. Dr Boros concedes that notwithstanding s 201D, a director may be appointed upon giving oral consent rather than a written consent. All parties to this application agree that a person cannot be a director until they have consented to act as such. I was referred to Collins v Zernike.[1]
[1][2006] WASC 67 (‘Collins v Zernike’), [24]–[32].
Section 201M provides that acts done by a director are effective even if the director’s appointment is invalid because the company or the director did not comply with the Act. Dr Boros submitted that there are limits on the operation of s 201M, in particular, in relation to third parties dealing with the company. Although a valid observation, this is not a case involving third parties assuming the correctness of the ASIC database and the compliance by the company or the director with formalities.
In effect, Dr Boros’ submission can be summarised as follows: the one issued share in Essendon had not been transferred from Mrs Shaw to Mr Smit, there being no executed transfer, no compliance with the Duties Act and no registration. Accordingly, Mr Smit could not appoint himself as a director.
In Collins v Zernike a meeting had been convened during which it was discussed and agreed that the first and second plaintiffs would be appointed as directors. A Form 484 was subsequently posted to each of the proposed incumbents. The second defendant had signed a resolution of director(s) as follows: ‘Appointment of directors: it was resolved that, having consented to act as directors of the company, the following be appointed…’[2]
[2]Collins v Zernike, [10].
The Form 484 was subsequently signed by each of the proposed directors on different dates. The second plaintiff signed and dated it 15 May 2005. The issues before Le Miere J were:
(1) Whether it was or is necessary for the first plaintiff to lodge with the first defendant a written consent to his appointment as a director of the first defendant prior to taking effect; and
(2) At what date, if any, the first defendant was validly appointed as a director of the first defendant.
Le Miere J considered that the legislature did not intend that a contravention of s 201B(1) (the requirement to provide a written consent prior to appointment) should render the appointment of a direction invalid. Le Miere J referred to and relied upon s 201M(1) which provides:
An act done by a director is effective even if their appointment, or the continuance of their appointment, is invalid because the company or director did not comply with the company’s constitution (if any) or any provision of this Act.
Le Miere J held that the appointment of the second plaintiff was valid upon him consenting to act as a director. He did so orally and in writing. More poignantly, Le Miere J held that the second plaintiff consented to act as a director by a document dated 15 May (the Form 484) and, on the evidence, executed by him on or about that day.[3]
[3]At [33].
At [36] Le Miere J said:
The second defendant appointed the first and second plaintiff as directors by executing a resolution appointing them as directors and by executing the Form 484. Those forms are unqualified and unconditional. Any subjective intention held by the second defendant does not detract from that position.
The Replaceable Rules adopted by Essendon permitted Mrs Shaw, being the sole shareholder as at 17 May, to appoint a director by resolution passed in general meeting. Replaceable rule 201H entitles the director to appoint a person as a director. Although one would normally expect a director’s resolution in writing to evidence such appointment, there is no requirement as to any formality.
I find that Mrs Shaw appointed Mr Smit director on 14 June orally. Whether she did so as to the holder of the share or as a director is of no moment. Mrs Shaw’s further explanation as to why Mr Smit was given authority to countersign cheques as referred to in paragraph 60 hereof also supports that on or by 14 June 2012, an accord had been reached by Mrs Shaw and Mr Smit that she was to resign and was to transfer her share upon Mr Smit’s decision to become the director.
It is also inescapable to conclude that appointment must have been oral. That conclusion is derived from consideration that the documents could not have been provided without conversation and is corroborated by the 5 July meeting, whereat Mr Lanciana observed Mr Smit to say ‘I am not prepared to become a director without understanding this mess’.
Mrs Shaw did not contend that this statement was untrue and I conclude that she accepted that upon Mr Smit deciding to become the director (at that time Essendon was a sole director company) her resignation would be effective.
Further, both she and Mr Iskaff attended at Mr Cargill’s office on 10 July 2012 to announce that Mr Iskaff had been appointed director. Why else would Mrs Shaw have so attended unless she understood that she had already appointed Mr Smit.
I determine that Mrs Shaw expressly authorised Mr Smit to complete and date the Form 484 and to date the resignation letter when he determined to become a director. I find Mrs Shaw’s evidence to the effect that Mr Smit somehow obtained the documents and, of his own volition, dated the same as the very date she said she signed the Form 484 as implausible. Alternatively, if she had not expressly so authorised Mr Smit, she provided those documents to Mrs Smit in circumstances where Mr Smit and Mrs Shaw agreed that he would ‘take over the company’, to use Mrs Shaw’s words. By the provision of the documents, she armed Mr Smit with the ability to complete the same. Accordingly, she tacitly authorised Mr Smit to complete and date the same.
The issue for consideration in relation to the transfer of the share and the resignation and appointment of directors is remarkably similar to that which was under consideration by the Court of Appeal in Gangemi v Osborne.[4]
[4][2009] VSCA 297 (‘Gangemi’).
Mr Gangemi had been the sole shareholder and director of 63 Buckley Street Pty Ltd, which was incorporated at the behest of Mr Gangemi and Pasquale Lanciana (the same Mr Lanciana in the application before me) as a corporate vehicle for investment in and development of the Buckley Street property. Heads of Agreement were entered into between Messrs Gangemi and Lanciana but were not signed by other participants.
The trial judge found that the Heads of Agreement were valid and binding despite being signed only by Messrs Gangemi and Lanciana. The Heads of Agreement provide for the transfer of the one issued share and for Mr Gangemi to resign as a director and Mr Lanciana to become the sole director.
It is useful to set out the submissions of counsel for the appellant as referred to in the joint judgment of Nettle and Harper JJA at [58]:
(a)The only share ever issued in 63 Buckley was one “A” class share, recorded in the Register in the name of Gangemi;
(b)Gangemi’s evidence was that he signed a blank transfer, no stamp duty was ever paid on it, it was not submitted for approval or recorded in the register, and Article 42 of the company’s constitution provided that a transferor is deemed to be the holder of the share until the transferee’s name is entered in the register;
(c)Although Gangemi signed the blank transfer, it was never used — instead Lanciana simply acted as if one “A” class share did not exist and pretended to issue 10 new shares to himself;
(d)There was no transfer of those 10 shares to Jafari, although Jafari claimed to be the owner of them;
(e)Gangemi did not cease to be a director of 63 Buckley and Lanciana was never appointed as a director of 63 Buckley, because he was disqualified from acting as a director by reason of previous criminal convictions;
(f)Lanciana was, therefore, unable to cause the issue of 10 further shares in the company which he purported to sell to Jafari and, in any event, the purported transfer of those shares was ineffective because it was never registered in accordance with the company’s constitution;
(g)These failings, were said, were not simply “procedural irregularities”, as the judge concluded, but indicative of the fact that transfers of ownership which the judge found to have occurred simply did not take place.
Nettle and Harper JJA were of the view that the trial judge’s reasoning on these points was not erroneous. The trial judge (Hargrave J) had said this:
[S]oon after the Heads of Agreement were signed, Mr Gangemi signed a handwritten note resigning as a director of 63 Buckley effective on 9 September 2003. The handwritten resignation is in the following form:
I ANTONIO GANGEMI GIVE NOTICE THAT I AM
RESIGNING FROM MY POSITION AS DIRECTOR SECRETARY
IN 63 BUCKLEY STREET PTY LTD EFFECTIVE 9/9/03.
(ACN 099 836 361).
It was submitted on behalf of Mr Gangemi that his resignation as a director was defective because it did not comply with rule 90(d) of the constitution of 63 Buckley, which provides that the office of a director becomes vacant if the director resigns his office by notice in writing to the Company.
There was no invalidity involved in Mr Gangemi’s resignation. In circumstances where he was the sole director and shareholder in 63 Buckley, [he] had agreed in the Heads of Agreement to resign as a director and transfer his share to Mr Lanciana and signed the handwritten resignation, that conduct constituted his resignation by notice in writing to the company. There was nothing further that he needed to do.
If there was some technical invalidity in this process of resignation, it does not affect the validity of Mr Gangemi’s resignation. There are two reasons for this. First, even an oral agreement to resign will be valid if tendered to the company and accepted. This is so even where the company’s constitution contains a requirement, like here, that a resignation must be by notice in writing to the company. Second, the Court has power to declare Mr Gangemi’s resignation as a director is not invalid by reason of any failure to comply with rule 90(d) of the constitution of 63 Buckley.[5]
[5]Gangemi, [59] (citations omitted).
After dealing with the resignation of the director, Nettle and Harper JJA referred to the transfer of the one “A” class share and agreed with the trial judge’s reasoning.[6] Nettle and Harper JJA set out what the trial judge had said as follows:
There is no doubt that the share transfer does not comply with the constitution of 63 Buckley and was not registered in accordance with its requirements. However, the share transfer must be viewed in its context. Notwithstanding the procedural irregularities attend upon it, the fact remains that it was signed by Mr Gangemi in performance of his obligation under the Heads of Agreement to resign as the sole director of 63 Buckley and to transfer the sole issued share in 63 Buckley to Mr Lanciana. In other words, the share transfer formed part of an agreement to transfer complete ownership and control of 63 Buckley from Mr Gangemi to Mr Lanciana. The clear intention was to enable Mr Lanciana to become the sole director and shareholder in 63 Buckley, in place of Mr Gangemi. In these circumstances, it is appropriate that the Court exercise its undoubted power to validate the share transfer. That power is contained in s 1322(4)(a)…[7]
[6]Ibid, [65].
[7]Ibid, [64].
Mandie JA, in a separate judgment, did not notably divert from any of the reasoning of Nettle and Harper JJA, save that his Honour also determined that the circumstances bore upon Mr Gangemi’s standing or interest to challenge the subsequent transactions between Mr Lanciana and Mr Jafari.
Nettle and Harper JJA observed that the power to make a declaration under s 1322(4)(a) is open:
[P]rovided the contravention is essentially procedural; or that the persons concerned acted honestly; or that it is just and equitable that an order be made, and provided that no substantial injustice has been or is likely to be caused to any person.[8]
[8]Ibid, [61] (citations omitted).
Their Honours also said that:
In this context, ‘injustice’ means real or not merely insubstantial or theoretical prejudice, and in order to determine whether there has been or would be real injustice the Court is required to weigh any alleged prejudice against the prejudice which would be suffered by the other members of the creditors of the company if an order were not made.[9]
[9]Ibid, [62] (citation omitted).
On one view of the resignation signed by Mrs Shaw, it became operative on the date it was signed. However, I accept that on 14 June 2012 (or on 18 June 2012) she provided the notice of resignation without being dated, not to be acted upon by Mr Smit until he determined whether to become a director. Given what I found to have been discussed, even if there were not express consent given by Mrs Shaw to the completion and filing of the Form 484 at the time of providing the same to Ms McGuire or Mr Smit on 17 May (or at least prior to 18 June 2012), then the provision of that form and the form of resignation was tacit or implied consent, that Mr Smit would be the sole director and shareholder upon his completion and lodgement of the Form 484 with ASIC.
To reiterate, I conclude that on 14 June 2012, Mrs Shaw provided a signed but undated letter of resignation to Mr Smit, which on its face was effective forthwith. I find that on the same day, or prior to that date, Mrs Shaw had provided the Form 484 to Mr Smit or Ms McGuire. On any view Mr Smit already had possession of the Form 484 by at least 14 June 2012. I conclude that even if the resignation was not effective forthwith, Mrs Shaw and Mr Smit intended it to be effective upon Mr Smit’s determination that he would be a director. By leaving the document undated, Mrs Shaw impliedly or tacitly consented to Mr Smit’s completion of the date when appropriate.
That the resignation was not to become effective on 11 July 2012 was supported by the discussions on 5 July 2012 when Mrs Shaw’s continued assistance with planning permits was sought, and by virtue of Mrs Shaw remaining a signatory to the Bank of Queensland account when Mr Smit was added.
The parties did not throw any light on whether it was intended by Mrs Shaw and Mr Smit that Mrs Shaw would not exercise the powers of director or shareholder in the period from 14 June 2012 to, as it transpired, 11 July 2012. Although I would normally expect powers not be exercised other than as required by law and in a caretaker capacity during that period, nothing was put to me that Mrs Shaw’s powers were constrained or in any way limited, pending Mr Smit’s decision to become a director. In those circumstances, I conclude that the appointment of Mr Iskaff as an additional director on 10 July 2012 is valid, as recorded in the Minutes of Meeting of that date. What is to be done about Mr Iskaff’s appointment in the future will be a matter for Essendon.
In the meantime, I note that the ASIC database recorded that there were two directors of Essendon as at 25 July 2012, being the date of the filing of the originating motion in this proceeding. That raises questions about whether proper instructions were obtained for the filing of the originating motion as at 25 July 2012. I will not speculate as to whether the company can now rectify the acts of Essendon’s solicitors.
As I have previously noted, in the past, Ms McGuire — without any financial or any other interest in Essendon — was able to dictate who was to be director and shareholder. That seems to be what happened in this particular instance as well. On each occasion the transferee and transferor of the share did not attach any value to the shareholding and, in effect, treated it as being part and parcel of the directorship. No sum of $1 or any other amount changed hands on previous transfers. Mrs Shaw did not contend that she had an interest in the company other than to be compensated for expenses incurred by her. In those circumstances, I conclude that providing the Form 484 in blank, Mrs Shaw tacitly, if not expressly, authorised its completion to record notice of the transfer the share as well.
For completeness, in addition to what I have set out as to the circumstances of the provision of the Form 484 and the letter of resignation, I also determine that:
(a) the replaceable rules adopted by Essendon do not require that a director also be a shareholder;
(b) Mrs Shaw was the sole director of Essendon on 17 May, 14 June and until 10 July 2012;
(c) Mrs Shaw’s appointment of Mr Smit (effective once he decided to accept) could be made in her capacity as director;
(d) Mrs Shaw knew that there had not been any formality with respect to the prior transfers of the share from and to her; and
(e) Mrs Shaw was acting at the direction of Ms McGuire in providing the Form 484 to Ms McGuire or, perhaps, Mr Smit.
Given what was set out in Gangemi both at first instance and in the Court of Appeal, I conclude that the lack of formality was not an impediment to giving notice to ASIC by way of Form 484, of what had been agreed between Mrs Shaw, Mr Smit and Ms McGuire.
However, to the extent that I cannot form any positive view as to when the Form 484 was provided to Mr Smit, or to the extent that I cannot be satisfied as to whether any or what conditions were attached to the resignation and to the completion of the Form 484, I note that this is an application by Mrs Shaw. That being so, I am not satisfied that evidence contrary to the ASIC database has been adduced. Further, I am not satisfied that Mrs Shaw has otherwise satisfied the burden of proof upon her as applicant. In those circumstances, I do not need to exercise any of the powers pursuant to s 1322(4) to validate any acts. Nor am I called upon to do so. I, however, would entertain an application by Mr Smit under s 1322 to declare that his appointment took effect from 11 July 2012 rather than 17 May 2012, if such application were made.
Accordingly, Mrs Shaw’s application is dismissed. I have already pronounced orders in this proceeding because of the urgency.
Conduct of Mrs Shaw
In this application, much of the affidavit material concerned whether there were unexplained payments to or on behalf of Mrs Shaw and to Ms McGuire and Mr Kanati. I made it clear to the parties’ counsel that I would not and could not be expected to deal with any such issues on an interlocutory application. Those issues are ultimately a matter for the trial judge. Accordingly, despite the persistence of Mr Catlin, other than to note that most of the allegations were denied by the respective recipients (if they were recipients) and that Mrs Shaw denied any wrongdoing and sought to provide reasons for why she was justified in appropriating some funds, I have not taken such allegations into account. It would be fair to say that I have doubted the veracity of Mrs Shaw and Ms McGuire. I also queried some parts of Mr Smit’s evidence, but noted that he was frank in outlining the circumstances of receiving the letter of resignation and completing it and the Form 484 after the event.
I cannot, however, avoid noting two issues.
Sale of Land Act
The first is an apparent breach of the Sale of Land Act 1962 (Vic) and the provisions of Part 3 of that Act.
Mrs Shaw produced a spreadsheet of income and expenses since March 2011. It purports to set out that income comprises of a payment on behalf of Mr Smit in the sum of $490,000 and payments by D’Anna in addition to the loan from Mr Lanciana. The expenses related to both the development project and to conducting the restaurant.
Mrs Shaw also produced a balance sheet as at 30 June 2012.
It sets out that cash in hand was $1, cash at bank (Westpac) $470.42 and Bank of Queensland $57,399.37. Those are the only two entries which relate to a cash holding. The non-current liabilities included the following entries:
Post settlement
Loan — Lanciana $200,000.00
Loan — Smit $490,000.00
Loan — D’Anna $262,500.00
Loan — Fowler $80,000.00
Loan — Tsivicos $70,000.00
Loan — Walhan & Rima Kaake $50,000.00
Exhibit DM19 to the affidavit of Ms McGuire sworn 11 September 2012 produces parts of contracts relating to the Kaakes, Tsivicos and AMD & CM Nominees Pty Ltd. There is also a spreadsheet setting out the dealings between Tony D’Anna and Essendon in relation to apartments 311, 314, 409, 509 and 510. That sets out a pre-release price and 25 per cent deposit, which was payable immediately and no later than Wednesday, 6 June 2012. There is a handwritten notation relating to the total of the five deposits payable and that only $262,500 was paid. Each of the deposits received, which correspond to the entries to the balance sheet as at 30 June 2012, ought to have been held in compliance with the Sale of Land Act.
Mr Smit also produced two contracts of purchase in respect of Lots 6.03 and 3.15 on the Mt Alexander Road property by Smit Superannuation Pty Ltd as trustee for his superannuation fund. The amounts recorded as a loan of $490,000 was the deposit provided by the superannuation fund. Even if he could have, in this type of sale, Mr Smit confirmed he did not authorise the release of the deposit. The contract of sale in relation to each of those apartments is voluminous and appends drawings and specifications. The document entitled, ‘Plan of Subdivision’, which to date has not been submitted for registration, appears to relate only to a five-storey apartment block.
Part 3 of the Sale of Land Act 1962 requires deposits to be held by a legal practitioner, conveyancer or estate agent as a stakeholder in a special purpose account. Not only has that not been done, but it can only be concluded that the funds paid pursuant to the contracts have been appropriated from the company while Mrs Shaw was the sole director.
Obligation to Keep Financial Records
Further, Mrs Shaw made various allegations about cash payments to Ms McGuire and Mr Kanati. Those payments have been recorded as expenses in the spreadsheet of income and expenses occurring since March 2011. No income is recorded from the restaurant in that document. The payments have also been included in the balance sheet as at 30 June 2012 under the heading of ‘Non-current liabilities’, with a negative amount for Mr Kanati and Ms McGuire. I am not sure whether it is intended to set out that the payments made are ultimately recoverable.
Mrs Shaw was asked about these payments during cross-examination. Initially, Mrs Shaw said that those payments were taken out of the company’s bank account held at Westpac. When she was referred to Exhibit DM15A to the affidavit of Ms McGuire sworn 11 September 2012, which illustrated little cash being paid into the bank, whether emanating from the nursery business or otherwise, she sought to say that the cash had been appropriated from the nursery takings without being banked. She conceded that for the period covered by the daily consolidated revenue centre sales detail for the nursery from January to July 2011, cash for that period was in the vicinity of $140,000.
A director has an obligation to ensure the financial records of the company are maintained to properly set out the company’s financial position. Nothing that Mrs Shaw has produced or said throws any light on the financial position of Essendon at any particular time. Although it might be unfair to note that point in isolation, the lack of integrity of any of the accounts must be viewed in combination with what appears to be an appropriation of the purchasers’ funds (deposits) and investment funds to repay amounts which Mrs Shaw alleges are due to her.
In all the circumstances, but for the subsequent winding up of Essendon, I would have been open to referring the same to ASIC.
SCHEDULE OF PARTIES
| S CI 2012 4252 | |
| BETWEEN: | |
| Essendon Apartment Developments Pty Ltd (ACN 145 718 485) (Formerly Phoenix Business Development Group Pty Ltd) | Plaintiff |
| v | |
| Jennifer Shaw | First Defendant |
| - and - | |
| Bradley Allan Shaw | Second Defendant |
| - and - | |
| Giuseppe Cullia | Third Defendant |
| - and - | |
| Maria Cristina Cullia | Fourth Defendant |
| - and - | |
| Southern Star Leisure Group Pty Ltd (ACN 146 518 237) | Fifth Defendant |
| - and - | |
| Jacobus Smit | Sixth Defendant |
| - and - | |
| Antonio Iskaff | Seventh Defendant |
2
0