In the matter of Alon Pty Ltd

[2021] NSWSC 1021

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

In the matter of Alon Pty Ltd [2021] NSWSC 1021

Hearing dates:

12 August 2021

Date of orders:

13 August 2021

Decision date:

13 August 2021

Jurisdiction:

Equity - Corporations List

Before:

Rees J

Decision:

Order transmission of shares be registered under s1071F, Corporations Act. Declare director’s transfer of these shares to himself and the issue of further shares to himself was void. Order company's share register be corrected under s175, Corporations Act. Director to personally pay costs of the administrator of the Estate on an indemnity basis.

Catchwords:

CORPORATIONS – shares – mother held 82% of shares in company – son/director held 9% of shares – mother died – son refuses to register transmission of shares – son lodges Form 484 with ASIC transferring mother’s shares to himself and issuing further shares to himself – order made correcting company’s share register, registering transmission of mother’s shares to administrator of the mother’s Estate and declarations that director’s actions were invalid.

Legislation Cited:

Corporations Act 2001 (Cth), ss 109X, 175, 1071B, 1071F, 1322

Corporations Regulations 2001 (Cth), reg 7.5.10

Cases Cited:

Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd (No 2) [2009] NSWCA 12

Beck v Tuckey Pty Ltd [2007] NSWSC 1065; (2007) 213 FLR 152

Darvall v North Sydney Brick & Tile Co Ltd (1989) 16 NSWLR 260

Frigger v Campbell-Smith [2010] WASC 353

Hancock v Rinehart [2015] NSWSC 646; (2015) 106 ACSR 207

In the matter of Equiticorp Australia Ltd (in liq) [2020] NSWSC 143

In the matter of Indoor Climate Technologies Pty Ltd [2019] NSWSC 356

In the matter of Motasea Pty Ltd [2014] NSWSC 69; (2014) 97 ACSR 589

In the matter of Motasea Pty Ltd [2014] NSWSC 69; (2014) 97 ACSR 589

In the matter of Pacific Springs Pty Ltd [2020] NSWSC 1240; (2020) 148 ACSR 454

Kay v Playup Australia Pty Ltd [2018] NSWSC 1579; (2018) 131 ACSR 532

Kirwan v Cresvale Far East Ltd (in liq) [2002] NSWCA 395; (2002) 44 ACSR 21

Kokotovich Constructions Pty Ltd v Wallington [1995] NSWSC 54; (1995) 17 ACSR 478

Mills v Mills (1938) 60 CLR 150; [1938] HCA 4

Ngurli Ltd v McCann (1953) 90 CLR 425; [1953] HCA 39

Weinstock v Beck (2013) 251 CLR 396; [2013] HCA 14

Category:

Principal judgment

Parties:

Richard Neal (Plaintiff)
Alon Pty Ltd (First Defendant)
Alan Hewit (Second Defendant)

Representation:

Counsel:
Mr C Tam (Plaintiff)

Solicitors:
Teece Hodgson & Ward Solicitors (Plaintiff)
Mr A Hewit (In person for first and second defendant)

File Number(s):

2021/140161

Judgment

1. HER HONOUR: I heard this matter on 12 August 2021 and made orders on 13 August 2021. These are my reasons.

2. This is an application under section 1071F of the Corporations Act 2001 (Cth) by Richard Neal, administrator of the Estate of the late Paula Hewit, to register the transmission of shares which Paula held in Alon Pty Ltd (the Company). In addition, Mr Neal seeks orders under section 175 or section 1322 of the Corporations Act to rectify the share register of the company.

3. The application is opposed by Alan Hewit, the sole director of the Company and Paula’s son. Without intending any disrespect, I will refer to members of the Hewit family by their first name. Alan was self-represented.

4. The administrator read affidavits by his solicitor, Alice Dingle, and process server, Michael Rumore. Alan relied on his affidavits. There was no cross examination.

FACTS

5. Paula and her husband William had two sons, Alan and younger brother, Ronald (Ron). They lived in Gordon Street, Brighton Le Sands.

6. In April 1973, the Company was incorporated. Presumably, the name of the Company was a combination of the name of the two sons.

7. William and Paula both signed the Memorandum and Articles of Association of the Company. Each subscribed for one “A” class share. Whilst Alan submitted that there was no evidence that these documents were ever adopted by the Company, there clearly is: both documents were executed by the Company’s founders.

8. Paula was appointed as the sole director and secretary of the Company. The registered office of the Company was Gordon Street, Brighton Le Sands, which remains the registered office to this day. This is also where Alan lives.

9. The initial share capital of the Company was $10,000 divided into 100 “A” class preference shares of $1.00 each, 2,000 “B” class shares of $1.00 each, 2,000 “C” class shares of $1.00 each, 2,000 “D” class shares of $1.00 each, 2,000 “E” class shares of $1.00 each and 1,900 unclassified shares of $1.00 each.

10. Only “A” class shares had a right to vote (at the rate of one vote per share): Article 4(B), Articles of Association. Initially at least, only two “A” class shares were allotted, being to William and Paula.

11. In May 1973, the Hewit Family Trust was established. The beneficiaries were William’s children and their families. The Company is the trustee of the Hewit Family Trust.

12. In 1979, Alan became a director of the Company. In 1981, Ron became a director as well.

13. The Company had assets, both in its own right and as trustee of the Hewit Family Trust. Unsigned financial statements for the Company and the Hewit Family Trust for the year ended 30 June 2010 are in evidence. Alan submitted that I should attach no weight to these financial statements, as they had been obtained from “a nefarious source”, being Ron. However, the accounts appear to have been regularly prepared by an accounting firm and, whilst not signed by the accountant nor by Alan as director of the Company, nonetheless appear to be business records.

14. According to these financial statements:

1. The Company received income from rent of a strata lot in Bruce Street, Brighton-Le-Sands as well as dividends and interest. The Company enjoyed a net profit after tax of some $29,000 that year.

2. The Company had some $723,000 cash at bank, $33,000 shareholdings in ASX listed companies and the property in Bruce St, Brighton-Le-Sands. After liabilities (mostly director’s loans from Paula), the net assets of the Company were some $320,000.

3. In addition, the Hewit Family Trust received interest income of some $12,000 that year and had $370,000 in cash assets. After liabilities (mostly loans from Paula), the net assets of the trust were some $41,000.

15. The current financial position of the Company and the trust is not known, in particular, whether the substantial sums in the Company’s bank accounts remain intact.

16. In March 2011, Paula ceased to be a director of the Company. The trust deed for the Hewit Family Trust was also amended. The trust deed as amended provides that the Company be both trustee and appointor. The trust deed does not provide any separate removal power. Thus, whoever controls the Company controls the assets of the Company and the trust, without any possibility of removal or interference by, for example, a separate appointer.

17. On 12 October 2018, 1,000 “B” class shares, 1,000 “C” class shares, 1,000 “D” class shares and 1,000 “E” class shares were issued and allotted to Alan. On 18 October 2018, Ron ceased to be a director of the Company. By 19 September 2019, whatever share issue had occurred was reversed. It appears from Alan’s submissions at the hearing (see [38]) that this was the result of a mediation between Alan and Ron.

18. On 26 September 2019, Paula passed away. By her last Will, Paula left her Estate (after the payment of debts, legal and funeral expenses and a $10,000 gift to David West) in eight equal parts:

1. one part to Alan;

2. one part to Ron;

3. three parts to be held on trust by David West and Ron for Alan’s life, during which time the trust fund was to be invested and the income paid to Alan. On Alan’s passing, the capital amount then remaining and any unexpended income of the trust was to be divided equally amongst Paula’s living grandchildren; and

4. the remaining three parts were to be held on trust by both Alan and Ron for Ron’s three children until they attained 25 years of age.

19. In June 2020, Mr Neal was appointed by the Court as administrator of Paula’s Will, apparently because Alan and Ron could not agree on who should be executor.

20. A company search obtained by Mr Neal in July 2020 revealed that the Company then had 11 “A” class shares on issue: nine were held by Paula; Alan and Ron held one share each.

Transmission application

21. On 21 August 2020, this Court issued letters of administration to Mr Neal in respect of Paula’s Estate. According to the inventory of property accompanying the letters of administration, Paula’s nine “A” class shares in Alon were estimated to have a value of $702,000.

22. On 26 August 2020, Mr Neal signed a Transmission Application in respect of Paula’s shares in the Company. The application stated: (emphasis in original)

1.   I, Richard John Neal, Administrator of the Estate of late Paula Claire Hewit ("the deceased") applies to be registered as the holder of the securities held by the deceased in the above company, in accordance with article 25 of the Memorandum and Articles of Association of Alon Pty. Limited.

2.   I agree to take and hold the shares subject to the conditions on which they were held by the deceased.

3.   I give notice that my name and address is as stated below and request the same be entered in the register of shareholders.

Mr Neal also provided his full name, address and contact details.

23. Article 25 provided:

Subject to these Articles and in particular to the provisions thereof relating to transfers of shares, any person becoming entitled to a share in consequence of the death or bankruptcy of a member or by operation of law or otherwise than by transfer may, upon production of such evidence of title as the Directors shall require, be registered himself as the holder of the share or have some person nominated by him in writing registered as the holder thereof.

24. As is apparent from subsequent correspondence (see [30]), the original signed Transmission Application was sent to the registered office of the company at Gordon Street, Brighton Le Sands, where Alan lived. Section 109X(1)(a) of the Corporations Act provides that a document may be served on a company by post to the company’s registered office.

25. In addition, on 26 August 2020, Mr Neal’s solicitors sent the Transmission Application to Alan and Ron by email. By then, Ron had called a general meeting for 1 September 2020. In the email, the plaintiff’s solicitor advised:

Please let us know where the company’s books and records are held. Mr Neal looks forward to speaking to you at the general meeting of members at 9.10am on Tuesday, 1 September 2020, which he will be attending …

There was no reply.

26. If Alan had complied with Mr Neal’s request to register the transmission of Paula’s shares to the administrator of her Estate, then the administrator would have become the majority shareholder of the Company with nine votes, whilst Alan and Ron would have had one vote each. It would have been a simple matter for the administrator to appoint a director or directors to the Company, remove Alan as a director and effectively run the Company.

27. On 31 August 2020, the plaintiff’s solicitors sent a letter to Alan, by email, again requesting that Mr Neal be registered as the holder of Paula’s shares and that the company’s records and accounts be provided. The plaintiff’s solicitor observed that, as there were less than two directors of the company, Alan’s powers were limited until additional directors were appointed at a general meeting of members. The plaintiff’s solicitor invited Alan to propose items of business for a general meeting of members and requested information and records in respect of the company including financial statements, the register of members and minutes book, details of the company’s accountant, bank statements, the company’s corporate key, notices of assessment and taxation documents. There was no reply. Nor does it appear that the general meeting of members took place on 1 September 2020.

28. On 4 September 2020, the plaintiff’s solicitor wrote to Alan and Ron again, by email, attaching the letter of 31 August 2020 and requesting that Mr Neal be provided with the Company’s records and accounts. The plaintiff’s solicitor advised that, unless these records and accounts were provided within seven days “It may be necessary for the administrator … to consider court action. If that occurs, then there will be a further reduction in the estate’s net funds.”

29. By then, a general meeting of members had been proposed for 22 September 2020 for the purpose of electing a board of directors. The plaintiff’s solicitor also advised:

In relation to the proposed date for the meeting in Alon Pty Limited, Mr Neal wishes to know whether a meeting on the proposed date of 22 September 2020 could be treated as being properly constituted. However, prior to the date of any meeting, Mr Neal needs to be registered as a member of the company. On this point, we emailed a transmission application to Mr RP Hewit and Mr Alan Hewit on 26 August 2020. The original signed Transmission Application for this purpose has been sent to the registered office of the Company, [at] Gordon Street, Brighton-LeSands. A copy is attached for your reference. Has that been registered yet? If so, please provide appropriate evidence (including a share certificate, if that is the usual practice of the company). If not, please advise whether there is any problem in registration proceeding and the likely time frame. In any event, once registration has been effected, ASIC notifications should be given and we should be advised accordingly prior to the meeting.

30. On 7 September 2020, Alan finally replied to the plaintiff’s solicitor as follows:

Reference is made to your recent email and please be advised the annual company meeting for Alon has already been held and the convening of a second meeting I would suggest is not necessary until required again next year. As to providing company records or the like you will need to explain why this information is required.

Beyond Alan’s assertion, there is no evidence that a general meeting of members was in fact held.

31. On 18 September 2020, the plaintiff’s solicitor tried again, sending a further email to Alan enquiring whether Mr Neal had been recorded in the Register of Shareholders as a member, noting “Your late mother’s shares in the company … are estate assets.” Mr Neal repeated his request for documents and information, also requesting a copy of the last financial accounts for the Hewit Family Trust.

32. On 21 September 2020, Alan replied, suggesting that the Company’s constitution did not permit Mr Neal to become a shareholder, apparently because Mr Neal had not disclosed why he wanted to be a shareholder and what he would do if made a shareholder. Company documentation was said to be confidential, “Please advise why company documents are required specifically at all? [A]nd if provided what would they be used for?”.

33. On 23 September 2020, the plaintiff’s solicitor tried again, patiently explaining that the function and duty of an administrator is to take each asset that is in the name of the deceased and administer it, including by formally transferring assets from the name of the deceased into the name of the administrator. Article 25 was reproduced and a further copy of the Transmission Application provided. Confirmation was sought that Mr Neal’s name had been entered in the register of shareholders and that Australian Securities and Investments Commission (ASIC) had been notified. There was no reply.

34. On 14 October 2020, the plaintiff’s solicitor wrote to Alan again, attaching copies of previous requests – now five in total – noting that it had now become necessary for Mr Neal to take formal steps to be registered as the holder of Paula’s shares unless Alan was able to confirm, by 28 October 2020, that the Transmission Application had been registered and ASIC notified. Failing this, Mr Neal advised that it would be necessary to bring court proceedings for appropriate declarations and orders and have ASIC’s records updated accordingly. Further, “It will be regrettable if proceedings need to be brought but if it is required then in addition to the declarations and orders noted above, a costs order against you, personally, will also be sought.” There was no response.

35. In January, February and March 2021, Mr Neal’s solicitors communicated with ASIC in an effort to arrange for Mr Neal to be recorded as the holder of Paula’s shares. ASIC was unable to assist.

Share transfer and issue

36. On 22 March 2021, Alan took matters into his own hands. He lodged a “Change to company details” Form 484 with ASIC, transferring his mother’s “A” class shares to himself for $9.00. For good measure, Alan also informed ASIC that additional “A”, “B”, “C”, “D” and “E” class shares had been issued on 8 February 2021 and allotted to himself. Alan had apparently issued a further 89 “A” class shares to himself together with 2,000 “B” class shares, 2,000 “C” class shares, 2,000 “D” class shares and 2,000 “E” class shares.

37. Alan initially said he transferred his mother’s shares to himself on the advice of ASIC, having earlier tried and failed to cancel his mother’s shares. Alan said the Form 484 was lodged in an effort to fix an error which he caused on ASIC’s database, but was then unable to remove. Alan agreed, “It probably shouldn’t be on the register …”, and said he was not particularly bothered if the Court ordered that it be removed. He later retreated from this position to the extent that it would undo the allotment of shares to himself.

38. As to why Alan issued further shares to himself, in oral submissions Alan said:

The shares are issued for a variety of reasons. There was a, prior to my mother's death, a mediator agreement with Ronald Hewit. At that point in time I was the majority shareholder of the company. I gave up those particular shares as part of an agreement, but Ronald Hewitt failed on his behalf on the mediated agreement to follow through on what he was doing.

39. In written submissions, Alan said that he issued the shares to himself as a form of compensation as payment for services for building works, materials and the like in respect of a property owned by the Company, which I take to be a reference to the property in Bruce Street, Brighton-Le-Sands.

40. These explanations are difficult to reconcile. More likely, as Mr Neal submitted, Alan’s actions were directed to maintaining his de facto control of the Company and thus its substantial assets and the assets of the Hewit Family Trust.

41. It appears that Mr Neal did not immediately become aware of Alan’s actions. Instead, on 10 April 2021, Alan was personally served with a letter from Mr Neal seeking confirmation by 13 April 2020 that the Transmission Application had been registered in the books of the company and the appropriate ASIC notification given. Otherwise, court proceedings would be brought without further notice. Mr Neal advised, “If proceedings need to be brought, not only will an order for costs against you personally be sought, but also those costs on an indemnity basis …”.

42. On 13 April 2021, Alan replied that Mr Neal had not provided all of the necessary information to enable his name to be registered as a holder of the shares on the ASIC database, nor was it necessary for Mr Neal to call a general meeting as the shareholders’ meeting and annual general meeting had occurred in 2020 and “the company has decided it is not necessary to have another meeting about the same”. Further:

Please be advised the 9 shares held by my mother have a face value of nine dollars ($9) only to which this amount may be deducted from other monies owed to the company by my mother.

These proceedings

43. On 18 May 2021, these proceedings were commenced. Alan was personally served with the Originating Process and supporting affidavit on 20 May 2021.

44. On 24 May 2021, Alan filed an Interlocutory Process seeking summary dismissal of the proceedings on the basis that he and the Company had not been properly served. I prefer the evidence of the process server, Michael Rumore, who gave evidence that he delivered the documents to Alan personally at the front of the property in Gordon Street, Brighton Le Sands. Provision of the documents to the sole director of the company at its registered office is, of course, good service.

43. On 26 May 2021, Mr Neal’s solicitors offered to deal with Alan’s Interlocutory Process on the basis that it be dismissed with no order as to costs but, if Alan continued to pursue the application, the plaintiff would seek a costs order against him personally. At the hearing, Alan did not press the Interlocutory Process and asked that the filing fee be refunded.

44. On 28 May 2021, Mr Neal became aware of the Form 484 lodged by Alan with ASIC. For completeness, Mr Neal has also since received a letter from the Australian Taxation Office advising that no tax returns have been lodged for the Hewit Family Trust for the financial years ended 30 June 2018, 2019 or 2020. Alan has also sworn two further affidavits stating that he and the Company have not been properly served, apparently because the pleadings and affidavits have not been sent to the Company’s email address (as opposed to his email address).

REGISTRATION OF TRANSMISSION

47. Although the Company was incorporated in 1973, it is a corporation to which the Corporations Act applies: Weinstock v Beck (2013) 251 CLR 396; [2013] HCA 14 at [50], footnote 94 per Hayne, Crennan and Kiefel JJ; In the matter of Equiticorp Australia Ltd (in liq) [2020] NSWSC 143 at [14] per Gleeson JA.

48. Section 1071B(2) of the Corporations Act provides that a company must only register a transfer of shares if a proper instrument of transfer has been delivered to the company. To be a proper instrument of transfer, the transfer must show the details specified in the regulations: section 1071B(3). Regulation 7.5.10 of the Corporations Regulations 2001 (Cth) simply requires the transfer documents to be sufficient to enable the transferee to become registered as the holder of the shares without the transferor doing anything more, or causing anything more to be done, by way of executing or supplying documents.

49. An application by the legal personal representative of a shareholder who has died for registration as the holder of the share in place of the shareholder is taken to be an instrument of transfer effecting a transfer of the shares to the legal personal representative: section 1071B(12). Here, the Transmission Application signed by Mr Neal on 26 August 2020 stands as the "instrument of transfer" effecting a transfer of Paula's shares to the administrator of her Estate. Despite anything in the Company's constitution, the production to the Company of a document that is, under the law of this State, sufficient evidence of letters of administration of the Estate of the shareholder having been granted to a person is sufficient evidence of the grant for the Company's purposes: section 1071B(13). Here, the letters of administration were emailed to Mr Hewit on 26 August 2020 together with the Transmission Application.

50. Upon provision of the Transmission Application and the Letters of Administration, there was no more that Mr Neal, as "transferor" was required to do "by way of executing or supplying documents" to enable the administrator to become registered as the holder of the shares. All that Alan had to do was record the transfer in the register of members.

51. Alan says that the Transmission Application is invalid as Mr Neal did not provide his date of birth, despite being asked to do so. There is no evidence that Alan sought this information from Mr Neal, nor it is clear why Alan needed this information to record Mr Neal as a member in the register. Alan was obliged to register the transmission of shares from Paula to Mr Neal and failed to do so.

52. Section 1071F of the Corporations Act provides:

1071F   Remedy for refusal to register transfer or transmission

(1)   If a relevant authority in relation to a company:

(a)   refuses or fails to register; or

(b)   refuses or fails to give its consent or approval to the registration of;

a transfer or transmission of securities of the company, the transferee or transmittee may apply to the Court for an order under this section.

(2)    If the Court is satisfied on the application that the refusal or failure was without just cause, the Court may:

(a)    order that the transfer or transmission be registered; or

(b)    make such other order as it thinks just and reasonable …

(3)    In this section:

relevant authority, in relation to a company, means:

(a)    a person who has, 2 or more persons who together have, or a body that has, authority to register a transfer or transmission of securities of the company; or

(b)   a person, 2 or more persons, or a body, whose consent or approval is required before a transfer or transmission of securities of the company is registered.

53. Relief under this section lies ultimately at the discretion of the Court: Frigger v Campbell-Smith [2010] WASC 353 at [26] per Martin J.

54. Here, Alan is the "relevant authority" in relation to the Company. There is no doubt that Alan has refused or failed to register the transmission of Paula's shares to the administrator. The question is whether he has done so "without just cause". As Brereton J explained in Beck v Tuckey Pty Ltd [2007] NSWSC 1065; (2007) 213 FLR 152 at [9]:

The prevailing view is that the onus of showing an absence of just cause for the purposes of s 1071F remains with the applicant for registration, and that the corporation and the directors do not bear any onus of establishing just cause (Roberts v Coussens; Leaver v Taxi Combined Services (Launceston) Pty Ltd (2002) 10 Tas R 362 at [7]). However, that is not to say that, once it appears objectively that there is no such cause, an evidentiary onus may not easily shift to the directors to raise some cause (Roberts v Coussens); and while failure to give reasons does not of itself vitiate the decision or prove there is no just cause, at least where reasons are not required to be given, nonetheless, the failure to provide reasons may, in the context of the whole of the evidence, assist in the drawing of an inference that there is no good reason.

55. I am satisfied on the evidence advanced by Mr Neal that there is an absence of just cause. For Alan’s part, in addition to his submissions which I have already addressed, Alan submitted that Mr Neal should only be registered as a member on the condition that Mr Neal “can make no decisions whatever at all” as Mr Neal intended “to conduct meetings … and request large amounts of information which is just simply going to fatten his wallet, incurring unnecessary costs against the estate”. Further, Alan had already suggested to Mr Neal that the matter can simply be dealt with by deducting $9 from the money which his mother owes the Company. I do not accept that either matter was a proper reason to refuse to record the transmission of shares. The order sought by the administrator should be made, and was not ultimately opposed.

CORRECTING THE REGISTER

56. Section 175 of the Corporations Act provides:

Correction of registers

(1)   A company or registered scheme or a person aggrieved may apply to the Court to have a register kept by the company or scheme under this Part corrected.

…

(3)   If:

(a)   the Court orders a company or scheme to correct its register of members; and

(b)   the company or scheme has lodged a list of its members with ASIC;

the company or scheme must lodge notice of the correction with ASIC.

57. Drawing on my judgment in In the matter of Pacific Springs Pty Ltd [2020] NSWSC 1240; (2020) 148 ACSR 454 at [115]-[126], even though section 175 of the Corporations Act gives statutory authority for the correction of the register, the correction is ordered applying the principles of equity. As such, the relief is equitable in nature and an order seeking rectification under section 175 of the Corporations Act is discretionary: Kirwan v Cresvale Far East Ltd (in liq) [2002] NSWCA 395; (2002) 44 ACSR 21 at [335]; In the matter of Motasea Pty Ltd [2014] NSWSC 69; (2014) 97 ACSR 589 at [47] per Black J; In the matter of Centura Global Holdings Pty Ltd [2016] NSWSC 62; (2016) 111 ACSR 185 at [53] per Black J.

58. Here, the register of the Company may need to be corrected in two respects: first, Paula’s shares are registered in Alan’s name; second, Alan is now the majority shareholder by dint of the allotment of a large number of shares to himself, apparently on 8 February 2021.

59. As to the latter, the power of the director to allot shares is a fiduciary power: Ngurli Ltd v McCann (1953) 90 CLR 425 at 439; [1953] HCA 39. In determining whether a fiduciary has exercised a power for an improper, extraneous or ulterior purpose, the court adopts a two-stage process: ascertaining, as a matter of law, the purposes for which the power may, and may not be, exercised; and determining as a matter of fact the purpose for which the power was exercised and whether that purpose was within the category of permissible purposes: Kokotovich Constructions Pty Ltd v Wallington [1995] NSWSC 54; (1995) 17 ACSR 478 at 490; Hancock v Rinehart [2015] NSWSC 646; (2015) 106 ACSR 207 at [60] per Brereton J.

60. Directors of a company cannot ordinarily exercise a fiduciary power to allot shares for the purpose of defeating the voting power of existing shareholders by creating a new majority: Ngurli Ltd v McCann at 440. As Dixon J stated in Mills v Mills (1938) 60 CLR 150 at 185; [1938] HCA 4:

Directors of a company are fiduciary agents, and a power conferred upon them cannot be exercised in order to obtain some private advantage or for any purpose foreign to the power.

61. Directors of a company cannot ordinarily allot shares with the intention of solely diluting the shareholding of an existing shareholder: Darvall v North Sydney Brick & Tile Co Ltd (1989) 16 NSWLR 260 at 336 per Clarke JA; Kokotovich Constructions Pty Ltd v Wallington at 491-492 per Kirby ACJ (Priestley and Handley JJA agreeing).

62. Of course, there can be no complaint about the exercise of power to allot shares if what was done was with the consent of the existing shareholders of the company. There is no suggestion that shareholders other than Alan agreed to this course.

63. However, it is not necessary on this application to determine whether the allotment of shares was in breach of Alan’s fiduciary duties as a director of the Company. This is because Alan did not in fact have power to issue the shares when he did, nor to allot the shares to himself and thereby acquire a controlling interest in the Company and, consequently, the Hewit Family Trust. The number of directors of the Company was required to be not less than two: Article 53. Article 68 provided:

In the event of the number of Directors becoming less than the minimum fixed by these Articles the continuing Directors may act solely for the purpose of increasing their number or for calling a general meeting of the Company.

64. Thus, as a consequence of Alan being the only director of the Company from 18 October 2018 on, his powers were limited to arranging for a new director to be appointed or calling a general meeting. Alan did not then have power to issue further shares at the time.

65. Nor did he have power to transfer Paula’s shares to himself. Article 78 provided that the directors “may not … approve the transfer of a controlling share interest in the Company without the approval of a general meeting previously given. No such resolution of a general meeting shall be retrospective in its effect.” Alan had no such approval.

66. As a consequence, both the transfer of Paula’s shares to Alan and the allotment of further shares to Alan were without power and of no effect. The register should be corrected accordingly and ASIC notified.

67. The Court has power to order ASIC to alter or remove details recorded by it against a company where the details were incorrectly notified or inaccurate, such as incorrect shareholding details: Kay v Playup Australia Pty Ltd [2018] NSWSC 1579; (2018) 131 ACSR 532 at [50], [57]-[58] per Parker J; In the matter of Centura Global Holdings Pty Ltd at [55] per Black J. However, as ASIC is not a party to these proceedings, I am reluctant to make an order against ASIC under section 1322(4)(b) of the Corporations Act, as sought by Mr Neal. It is likely, however, that ASIC will do what is needed to give effect to the orders I have made. If there is any difficulty with this, then the plaintiff should exercise liberty to apply to join ASIC to the proceedings.

68. Submissions were also made as to whether orders should be made to deliver up the corporate key, for ASIC to cancel the corporate key and issue a new corporate key to Mr Neal, or to injunct Alan from making further unauthorised changes to the register of members. Whilst it may be necessary to make such orders in the future if Alan does not conduct himself in accordance with the principles set out in this judgment, for the moment he remains the sole director of the Company and should have the corporate key.

COSTS

69. Mr Neal submitted that, since August 2020, Alan has refused to give effect to the Transmission Application and has adopted an intransigent stance prejudicing the orderly administration of his mother’s Estate. Exemplifying this stance, Alan purported to transfer his mother’s shares to himself and to issue further shares to dilute the controlling interest which the holder of those shares would otherwise have in the Company. By reason of Alan’s intransigence, Mr Neal sought an order that Alan pay the administrator’s costs of the proceedings personally and on an indemnity basis.

70. Alan opposed such an order and submitted that, as he did not press his Interlocutory Process, it should be treated as withdrawn. Alan submitted that there should be no costs order made against him as he was not a proper party to the proceedings. The proceedings against the Company were said to be misconceived as it had not been served by the Company’s email address. He would not afford to pay a costs order himself.

71. In addition, Alan submitted that, as the plaintiff’s solicitor only sent him a link to the electronic court book shortly before the hearing commencing “for the purpose of preventing myself being conversant with the material prior to the hearing”, the proceedings should be dismissed with costs against the plaintiff’s solicitor. I do not accept this submission. Whilst the plaintiff’s solicitors sent Alan a link to the electronic court book in its final form 45 minutes before the hearing, the documents in the court book had been served on Alan much earlier. He was provided with an index to the court book on 9 August 2021 and thus knew what would be in the court book. These inconveniences are a sad fact of life for parties endeavouring to conduct trials in a pandemic. It appeared to me that the plaintiff’s solicitors were endeavouring to provide Alan with the material as soon as they were able.

72. In considering the plaintiff’s application for indemnity costs, I note the comments of Allsop P in Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd (No 2) [2009] NSWCA 12 at [5]:

Three things need be borne in mind in a judgment such as this on costs: the desirability of avoiding unnecessary recitation of cases (abounding as they are in this area); the desirability of not restating, in different terms, approaches to the broad discretion that have been well settled; and the desirability of dealing with the arguments without over-elaboration, if this is possible.

73. The applicable principles were summarised by Black J in In the matter of Indoor Climate Technologies Pty Ltd [2019] NSWSC 356 at [8]:

The principles on which an order for indemnity costs may be made are also well established. Section 98(1)(c) of the Civil Procedure Act 2005 (NSW) permits the Court to order costs on an ordinary or indemnity basis. Rule 42.2 of the Uniform Civil Procedure Rules 2005 (NSW) provides that, unless the Court otherwise orders or the rules otherwise provide, costs payable are to be assessed on an ordinary basis. Rule 42.5 of the Uniform Civil Procedure Rules deals with an order for costs on an indemnity basis. Costs are awarded on the ordinary basis unless there are exceptional circumstances: Leichhardt Municipal Council v Green [2004] NSWCA 341. An order for indemnity costs is not made to punish an unsuccessful party for persisting with a case that fails, but to compensate a successful party fully for costs incurred, when the Court takes the view that it was unreasonable for the other party to have subjected the successful party to the expenditure of costs: Hamod v New South Wales [2002] FCAFC 97; (2002) 188 ALR 659 at [20]. Whether an indemnity costs order should be made depends, at least in part, on whether there was a relevant delinquency on the part of the unsuccessful party: Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd (No 7) [2008] NSWSC 199; (2008) 65 ACSR 324 at [24]; Cabport Pty Ltd v Marinchek (No 2) [2013] NSWCA 131 at [6]. That is to be determined by reference to the conduct of the proceedings, not the conduct that is the subject of the substantive dispute.

74. In addition, an order that costs be paid on an indemnity basis may be made if a party has persevered with a hopeless or futile case: Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd (No 2) at [4].

75. The focus should thus be on Alan’s conduct during the course of these proceedings, rather than his conduct that is the subject of the proceedings. His intransigent stance in the face of Mr Neal’s requests coupled with his efforts to become the ‘majority shareholder’ pre-date the proceedings.

76. That said, Alan was on notice before the proceedings commenced that, if Mr Neal was put to the cost of bringing these proceedings, a costs order would be sought against Alan personally and on an indemnity basis. Alan has failed. His defence of these proceedings was hopeless. The assets of the Company and the assets of the Estate should not be depleted by his unreasonable refusal to agree to the orders sought by Mr Neal.

ORDERS

77. For these reasons, I made the following orders:

1. ORDER pursuant to section 1071F of the Corporations Act 2001 (Cth) that the transmission of 9 'A' class shares held by Paula Claire Hewit (deceased) in Alon Pty Ltd (A.C.N 001 105 620) (the Company) to Richard John Neal as Administrator of the Estate of the late Paula Claire Hewit dated 26 August 2020 be registered.

2. DECLARE that, since 18 October 2018 when Alan Hewit became the sole director of the Company, his powers as a director were and are limited to those described in Article 68 of the Articles of Association of the Company, being to act solely for the purpose of increasing the number of directors or calling a general member of the Company.

3. DECLARE that, pursuant to Article 73 of the Articles of Association of the Company, Alan Hewit had and has no power to approve the transfer of a controlling share interest in the Company without the prior approval of a general meeting.

4. DECLARE that the purported issue of share capital in the Company on or about 8 February 2021 and the allotment of such shares to Alan Hewit was void and of no effect.

5. DECLARE that the purported transfer of the 9 'A' class shares held by Paula Claire Hewit (deceased) in the Company to Alan Hewit on or about 22 March 2021 was void and of no effect.

6. DECLARE that the Change to Company Details Form 484 (Document Number 77EBF82155) lodged with the Australian Securities & Investments Commission (ASIC) on 22 March 2021 is of no effect.

7. ORDER pursuant to section 175(1) of the Corporations Act 2001 (Cth) that the register kept by the Company be corrected to record the members as follows:

1. Richard John Neal as Administrator of the Estate of the late Paula Claire Hewit holds nine (9) “A” class shares.

2. Alan Michael Hewit holds one (1) “A” class share.

3. Ronald Hewit holds one (1) “A” class share.

8. Pursuant to section 175(3) of the Corporations Act 2001 (Cth), ORDER the Company to lodge a notice of correction with ASIC by 12pm on 13 August 2021.

9. Dismiss the Interlocutory Process filed by Alan Hewit on 24 May 2021.

8. Order Alan Hewit to pay the plaintiff’s costs of these proceedings on an indemnity basis, noting that Alan Hewit is NOT ENTITLED to pay the plaintiff’s costs using the assets of the Company.

9. DIRECT the plaintiff to provide a copy of these orders to ASIC by 4pm today.

10. Grant liberty to the plaintiff to restore the matter on 24 hours’ notice for the purposes of joining ASIC to obtain orders for the rectification of ASIC’s register.

**********

Amendments

16 August 2021 - Case Title amended

Decision last updated: 16 August 2021