Higgins v Drilling Australia Pty Ltd

[2018] WASC 254

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

CITATION:   HIGGINS -v- DRILLING AUSTRALIA PTY LTD  [2018] WASC 254

CORAM:   MASTER SANDERSON

HEARD:   6 JUNE 2018

DELIVERED:   6 JUNE 2018

PUBLISHED:   21 AUGUST 2018

FILE NO/S:   COR 63 of 2018

BETWEEN:   TROY ALLEN HIGGINS

Plaintiff

AND

DRILLING AUSTRALIA PTY LTD

Defendant

Catchwords:

Corporation Law - Application to act in name of company to resist winding up application - Turn on own facts

Legislation:

Corporations Act 2001 (Cth)

Result:

Application to proceed in name of company refused
Company wound up

Category:    B

Representation:

Counsel:

Plaintiff	:	Mr B Grubb
Defendant	:	Mr C K Pearce

Solicitors:

Plaintiff	:	Hager Grubb & Partners Lawyers
Defendant	:	Blackwall Legal LLP

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

Blakeney v Blakeney [2016] WASCA 76

Hawksford v Hawksford [2005] NSWSC 463

MASTER SANDERSON:

1. By originating process filed 17 April 2018 the plaintiff sought an order winding up the defendant. By an interlocutory process filed 22 May 2018 Cameron Blake Fredrickson sought the following orders. First, that he 'take responsibility' for the conduct of these proceedings on behalf of the defendant. Second, to any extent necessary he have leave nunc pro tunc under s 237 of the Corporations Act 2001 (Cth) to intervene in the proceedings. Third, that he be entitled to intervene in the proceedings under s 236 of the Act. He also sought an order that his costs of the conduct of the proceedings be paid by the defendant. The originating process and the interlocutory process were heard together. At the conclusion of the hearing I dismissed the interlocutory process, ordered that the defendant be wound up and the orders take effect from 6 June 2018. I indicated to the parties I would publish reasons for my decision. These are those reasons.

2. The defendant company has two co‑directors and two equal shareholders - the plaintiff and Mr Fredrickson.  Quite obviously the company is deadlocked.  It cannot therefore give instructions to solicitors to defend the wind up application.  So Mr Fredrickson seeks first an order that he be permitted to cause the company to resist the application.  This situation arises frequently, particularly in relation to corporations - and this is one of them - which are quasi partnerships.  But the authorities are quite clear.  Absent agreement between the directors there is no power in one director to cause a corporation to resist a winding up application.  This issue was considered in some detail by Campbell J in Hawksford v Hawksford [2005] NSWSC 463. The decision has been followed on countless occasions and is not to be doubted.

3. On behalf of Mr Fredrickson it was said that he had been appointed the managing director of the defendant.  That was disputed by the plaintiff.  But even if it was the case or if he was a de facto managing director the position does not change.  That point too was considered by Campbell J in the Hawksford decision and his Honour concluded that it is the directors of the company and only the directors who can take a decision to instruct solicitors and impose a winding up application.  This aspect of Mr Fredrickson's application fails.

4. Section 237(2) of the Corporations Act is in the following terms:

   (2)The Court must grant the application if it is satisfied that:

   (a)it is probable that the company will not itself bring the proceedings, or properly take responsibility for them, or for the steps in them; and

   (b)the applicant is acting in good faith; and

   (c)it is in the best interests of the company that the applicant be granted leave; and

   (d)if the applicant is applying for leave to bring proceedings—there is a serious question to be tried; and

   (e)either:

   (i)at least 14 days before making the application, the applicant gave written notice to the company of the intention to apply for leave and of the reasons for applying; or

   (ii)it is appropriate to grant leave even though subparagraph (i) is not satisfied.

5. In his written and oral submissions counsel for the plaintiff focused on s 237(2)(b) and s 237(2)(c). As counsel noted all of the five subsections must be satisfied and if they are leave 'must' be given.

6. For present purposes it is enough to focus on s 237(2)(c). It is difficult to envisage a situation where a company is deadlocked and it would be in the company's best interests to allow a winding up application to be opposed. Even assuming the company is solvent and assuming leave were granted and the winding up application was dismissed, the company would still be deadlocked. It simply could not go about managing its day to day affairs.

7. In reality once a company such as this is deadlocked there are only three possibilities.  First, one party buys out the other.  Second, the assets and undertakings of the company are sold and the proceeds of sale are distributed through the company structure.  Third, the company is wound up.  There are no other options.

8. Further, it is clear from the decision of Blakeney v Blakeney [2016] WASCA 76 that the scope of s 236, with particular reference to s 236(2), is extremely limited. In that case one party wished to take action in the name of a company for alleged breaches of trust - the company was a trustee. The court, while accepting there was a cause of action, was still of the view that it was not in the best interests of the company to allow the derivative action to proceed. If a derivative action is not appropriate when there is an allegation of breach of trust it is difficult to see in what circumstances it might be thought taking action was in the best interests of the company. In any event, the circumstances of this case would certainly not justify the grant of leave.

9. That then left the question of the winding up.  The defendant had failed to comply with the provisions of a statutory demand.  There is therefore a presumption of insolvency.  No evidence having been led to rebut that presumption and working on the basis that insolvent companies ought be wound up I made a winding up order in this case.

10. I will give the parties the opportunity to consider these reasons before dealing with the question of costs.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.

DG
ASSOCIATE TO MASTER SANDERSON

21 AUGUST 2018