In the matter of ACN 605 810 928 Pty Ltd (in liq) (formerly Sydney Outboard Centre Pty Ltd)

[2018] NSWSC 2026

Supreme Court

New South Wales

Medium Neutral Citation:	In the matter of ACN 605 810 928 Pty Ltd (in liq) (formerly Sydney Outboard Centre Pty Ltd) [2018] NSWSC 2026
Hearing dates:	29 October 2018
Decision date:	29 October 2018
Jurisdiction:	Equity - Corporations List
Before:	Black J
Decision:	Order made under s 1322(4) of the Corporations Act 2001 (Cth) validating the Plaintiff's appointment as liquidator of the First Defendant, nunc pro tunc. The Plaintiff's costs of the application be paid out of the assets of the First Defendant.
Catchwords:	CORPORATIONS – winding up – application under s 1322 of the Corporations Act 2001 (Cth) to validate appointment of liquidator – where former shareholder may not have had capacity to transfer shares in company to purported current shareholder – where voluntary winding up of the company by special resolution of its members may have been invalid – where it is just and equitable that an order validating liquidator’s appointment be made – whether the power under s 1322(4)(a) of the Corporations Act should be exercised.
Legislation Cited:	- Corporations Act 2001 (Cth) ss 491, 1322
Category:	Principal judgment
Parties:	Mitchell Warren Ball (Plaintiff) ACN 605 810 928 Pty Ltd (in liq) (formerly Sydney Outboard Centre Pty Ltd) (First Defendant) Liquidion Properties Pty Ltd (ACN 169 708 696 (deregistered) (Second Defendant) Australian Securities and Investments Commission (Third Defendant)
Representation:	Counsel: N Chase Berry (Solicitor) (Plaintiff)   Solicitors: ERA Legal (Plaintiff)
File Number(s):	2018/288191

Judgment – ex tempore judgment (revised 31/10/2018)

Nature of the application

1. By Originating Process filed on 20 September 2018, the Plaintiff, Mr Mitchell Ball, in his capacity as liquidator of ACN 605 810 928 Pty Ltd (in liq) (formerly Sydney Outboard Centre Pty Ltd) ("Company"), sought a range of relief, not all of which is ultimately necessary for his purposes. He initially sought an order directing the Third Defendant, the Australian Securities and Investments Commission ("ASIC"), to reinstate the registration of another entity, the Second Defendant, Liquidion Properties Pty Ltd (dereg) (“Liquidion”), and an order validating a transfer of that entity's shares in the Company to a third party, Mr Melville Toms. He also sought an order validating his appointment as liquidator of the Company, and an order validating his acts as liquidator of the Company. Mr Chase Berry, who appears for Mr Ball, now accepts that the latter order is not necessary, where the only issue presently raised is the validity of his appointment, and the latter order may extend to a range of acts which have not yet been identified with specificity, and where the basis for any challenge to them is not known.

2. Mr Ball sought a further order that ASIC rectify the register, likely referring to any register maintained by ASIC recording the shareholders in the Company. That order has its difficulties, including that it is not clear whether the records of the identity of shareholders maintained by ASIC are in the nature of a register. Ultimately, that question did not need to be determined for present purposes.

3. The application is supported by two affidavits of Mr Ball dated 19 September 2018 and 26 October 2018, and a third affidavit indicating that an attempt was made, unsuccessfully, to serve the application upon the purported shareholder in the Company, Mr Toms, who passed the resolution for Mr Ball’s appointment as voluntary liquidator of the Company.

4. By his first affidavit, Mr Ball refers to the position disclosed by the Company's records maintained by ASIC as at May 2017, when he was appointed, which indicated that the sole shareholder in the Company was Mr Toms, and that Liquidion was a previous sole shareholder of the Company. He refers to the circumstances in which the matter was referred to him, and in which he was appointed to act as liquidator in a voluntary liquidation of the Company by a resolution passed, at short notice, by Mr Toms. He refers to the work which he has undertaken since his appointment as liquidator of the Company.

5. Mr Ball also indicates that, on 8 August 2018, he received a letter from ASIC, advising that Liquidion had been deregistered on 16 October 2016 due to non-payment of fees owed to ASIC. Mr Ball's evidence is that, to the best of his knowledge and belief, he was not aware of that matter prior to receiving that letter from ASIC. That deregistration had the consequence that, at the date that the shares purportedly held by Liquidion in the Company were transferred to Mr Toms, so that he became a member, Liquidion was deregistered and it did not have the capacity to make that transfer. The letter from ASIC also refers to other somewhat complex steps taken by Mrs Fraser, who was at one point a director of the Company; to her replacement by another person as a director of the Company; to Mrs Fraser's role as the sole director of Liquidion; and to the subsequent step where, after the deregistration of Liquidion, a form was lodged with ASIC purporting to appoint Mr Toms as director of the Company and to transfer Liquidion’s shareholding in the Company to Mr Toms. ASIC there expresses the view that Mr Toms never became the Company's sole shareholder, because Liquidion’s shareholding could not have been transferred to him subsequent to its deregistration; the purported meeting of shareholders to appoint Mr Ball as voluntary liquidator was not valid; the special resolution to wind up the Company under s 491 of the Corporations Act was not valid; and Mr Ball's appointment as liquidator of the Company was not valid. ASIC there invited Mr Ball to take steps, as he has now done by this application, to seek to address those matters. Mr Ball refers to subsequent inquiries he has made as to the circumstances in which these events took place and to notice given to creditors and to ASIC of this application. There has been no response from creditors, and ASIC has indicated that it does not oppose the application, on certain conditions. By a second letter dated 27 August 2018, ASIC drew attention to matters that suggested that, at the time steps were taken to transfer shares in the Company from Liquidion to Mr Toms, at least Mrs Fraser may well have been aware that Liquidion was deregistered, by reason of a previous inquiry she had made to ASIC as to what would be required to bring that deregistration to an end.

6. Mr Ball also notes that he anticipates it will take approximately six months to complete his investigations and finalise the Company's liquidation and, based on the Company's currently available assets, it is unlikely there will be a distribution to creditors. In those circumstances, it seems highly unlikely that contributors of the Company, namely its shareholders, would receive any distribution on the liquidation, and it appears they have no economic interest in the liquidation.

7. By a further affidavit dated 26 October 2018, Mr Ball elaborated on these matters, and referred to an application which had now been made by persons associated with Liquidion to ASIC, to reinstate that company, although that reinstatement has not yet occurred. Mr Ball also referred to a notification to creditors of the Company and to Mr Toms of this application. Mr Ball’s third affidavit dated 25 October 2018 addresses attempts made to serve the application on Mr Toms, to which I referred above.

Determination

8. With this background, I will deal shortly with those aspects of this application that I need not determine. First, Mr Ball brings an application under s 601AH(2) of the Corporations Act for an order directing ASIC to reinstate Liquidion’s registration and validating the transfer of the shares in the Company by Liquidion to Mr Toms. This is a step, it seems, toward validating Mr Ball’s appointment as voluntary liquidator of the Company. I am satisfied that Mr Ball is a person aggrieved for the purposes of bringing this application under s 601AH of the Corporations Act. However, I am not satisfied that the Court could make an order under s 601AH of the Act where the consequence would be to return Liquidion to the control of its former director, without evidence of its solvency. It seems to me, at the least, there would need to be evidence of Liquidion’s solvency, or alternatively a liquidator would need to consent to appointment to Liquidion, before an order reinstating its registration could be made. It seems to me that it is in any case not necessary to make such an order for present purposes.

9. Mr Ball also seeks an order under s 1322(4) of the Corporations Act validating his appointment and acts as voluntary liquidator of the Company. Section 1322(4)(a) of the Act provides that the Court may, on application by any interested person, make an order declaring that:

“Any act, matter or thing purporting to have been done, or any proceeding purporting to have been instituted or taken, under this Act in relation to a corporation is not invalid by reason of any contravention of a provision of this Act or a provision of the constitution of a corporation."

10. The case law indicates that s 1322 is a remedial provision and is to be given a broad construction and is to be exercised having regard to the purposes of the Corporations Act, the interests of all parties and the public interest in ensuring compliance with the corporations law. The power to validate an act under s 1322(4) is not limited to an act in the nature of a procedural invalidity. A person may bring an application under that section where he or she is an interested person, and I am satisfied that Mr Ball satisfies that criterion, where the validity of his appointment is in issue.

11. Here, an act took place purporting to be done under s 491 of the Corporations Act, namely the voluntary winding up of the Company by special resolution of its member, then understood to be Mr Toms. There is plainly a question whether that act was invalid or did not comply with the Corporations Act, because Mr Toms may not have been the sole member of the Company, by reason of the issue as to the deregistration of Liquidion prior to the transfer of its shares in the Company to him, to which I referred above.

12. In order to make an order under s 1322(4), the Court must be satisfied that any one of the three factors specified in s 1322(6)(a) is established. I am not satisfied that the appointment of Mr Ball as liquidator was essentially of a procedural nature. Given the uncertain factual position disclosed by the evidence, and in the absence of evidence given by the persons involved in Mr Ball's appointment (other than Mr Ball), I am not able for a view whether the person or persons concerned in the relevant act (other than Mr Ball) acted honestly. I do not accept Mr Chase Berry’s submission that the fact that Mr Ball acted honestly in respect of the application supports an inference that those appointing him as liquidator also acted honestly in that regard. Obviously, there can be occasions on which persons who appoint a liquidator have an ulterior or improper purpose to which the liquidator is not party. Here, the Court simply cannot know, one way or the other, whether the persons party to the appointment of Mr Ball (other than Mr Ball) acted honestly in respect of that appointment.

13. I can, however, be satisfied that it is just and equitable that an order validating Mr Ball's appointment be made, without needing to deal with any question of whether Mr Toms had become the shareholder in the Company at the time of the appointment. The Company has been in voluntary liquidation for some time, and it appears its assets are likely to be insufficient to support a distribution to creditors, still less to shareholders. There is no suggestion that the Company is solvent or should be returned to ordinary trading. If Mr Ball's appointment had not been valid, in the first place, then it is likely that the Court would now have to appoint a provisional liquidator, or a liquidator on a final basis. There is no suggestion that Mr Ball was on notice of the invalidity of his appointment, and it is in the interests of creditors and the community that the investigations which he is presently undertaking proceed to completion. There is no suggestion that validating Mr Ball’s appointment would cause substantial injustice to any person, for the purposes of s 1322(6)(c), where creditors’ interests will be advanced by doing so and contributors no longer have any economic interest in the Company.

14. For all these reasons, I am satisfied that an order may be made under s 1322(4) of the Act validating Mr Ball's appointment, where it was made by a person then purportedly recorded on ASIC's records as its sole member, and where it is in the interests of creditors and the community, as I have noted, that the liquidation continue. It is not necessary, as Mr Chase Berry accepted, to then further validate the acts of Mr Ball as liquidator. An order validating Mr Ball's appointment can be made nunc pro tunc, and the validation of his appointment, nunc pro tunc, will leave the validity of his subsequent acts to be determined on their merits, and on the basis that the circumstances of his appointment have no adverse impact upon the validity of his subsequent acts. Mr Chase Berry accepts that in these circumstances, and where there is no likelihood of a distribution to contributories, it is not necessary to consider any question of rectification of the register of the Company, whether its share register, ASIC's records of its shareholding, or otherwise.

15. I am satisfied that this is a proper case for an order, sought by Mr Ball, that his costs of the application be paid out of the assets of the Company, so far as it was necessary for this application to be brought in order to regularise the appointment.

Orders

16. Accordingly, I make the following orders:

1. Order pursuant to s 1322(4) of the Corporations Act 2001 (Cth) validating the Plaintiff's appointment as liquidator of the First Defendant, nunc pro tunc.

2.    The Plaintiff's costs of the application be paid out of the assets of the First Defendant.

**********

Decision last updated: 27 February 2019