In the matter of Lisap Cosmetics Australia Pty Ltd

[2019] NSWSC 205

Supreme Court

New South Wales

Medium Neutral Citation:	In the matter of LISAP Cosmetics Australia Pty Ltd [2019] NSWSC 205
Hearing dates:	23 January 2019
Decision date:	23 January 2019
Jurisdiction:	Equity - Corporations List
Before:	Black J
Decision:	Declare that the Plaintiff’s prior application for an order to be wound up not be invalid by reason of the fact that the resolution to be wound up was only passed by one director. The requirement for advertising and publication be dispensed with and a liquidator be appointed to the Plaintiff.
Catchwords:	CORPORATIONS – Winding up – Application to validate application for winding up under s 1322 of the Corporations Act 2001 (Cth) – where resolution to apply to be wound up passed by only one director – where resolutions of the company must be passed by two directors – where company has only one director – whether it is just and equitable to validate the application – whether the power under s 1322(4)(a) of the Corporations Act should be exercised.
Legislation Cited:	- Corporations Act 2001 (Cth) ss 249B, 461, 556, 1322
Cases Cited:	- Correa v Whittingham [2013] NSWCA 263 - Weinstock v Beck (2013) 251 CLR 396
Category:	Principal judgment
Parties:	Lisap Cosmetics Australia Pty Ltd (Plaintiff) Caithness99 Pty Ltd (Defendant)
Representation:	Counsel: J Baird (Plaintiff) P Bolster (Defendant)   Solicitors: Ronayne Owens Lawyers Pty Ltd (Plaintiff) Pikes & Verekers (Defendant)
File Number(s):	2019/18975

Judgment – ex tempore (revised 25 january 2019)

Application under s 1322 of the Corporations Act

1. By Originating Process filed by leave, on 18 January 2019, the Plaintiff, Lisap Cosmetics Australia Pty Ltd ("LCA") sought an order that it be wound up. The Defendant, Caithness99 Pty Ltd (“CPL”), was a lessor of premises occupied by LCA. CPL is represented today, by Mr Bolster of Counsel, and several other parties which have commercial relationships with LCA are also represented by Mr Bolster. By Interlocutory Process filed at the same time, LCA sought an order that a provisional liquidator be appointed, although the parties now consider that the preferable course is to proceed to determination of the winding up application on a final basis.

2. A preliminary question arose, so far as it appears that the commencement of the winding up proceedings was authorised by a single director of LCA, Mr Luca Papetti, after the resignation of the other director of LCA. It is common ground that a decision by Mr Papetti to authorise the commencement of the winding up would not satisfy the quorum requirements of LCA’s constitution, which contains a common provision that the quorum for a resolution by directors is two directors. A resolution cannot now be passed by two directors to authorise the winding up, where one of the directors has resigned. Since the commencement of the proceedings, Mr Papetti in his capacity as sole shareholder of LCA has also passed a resolution, under s 249B of the Corporations Act 2001 (Cth), that LCA be wound up and, for that purpose, applies to the Court for an order that it be wound up and for the appointment of a liquidator or provisional liquidator. That resolution is dated on the same day as the commencement of the proceedings, although it is not apparent whether it was passed before or after the commencement of the proceedings.

3. There is no dispute between the parties as to what should occur. Mr Baird, who appears for LCA, seeks a declaration under s 1322(4) of the Corporations Act that LCA's acts in applying to the Court for an order that it be wound up and, if thought fit, for the appointment of a provisional liquidator, are not invalid by reason only that LCA had one director at that time and, at least implicitly, the commencement of the proceedings was authorised only by that director. Section 1322(4)(a) of the Act provides that the Court may, on an application by an 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 the Act in relation to a corporation is not invalid by reason of any contravention of a provision of the Act or a provision of the company's constitution. The Court may only make such an order where the requirements of s 1322(6) are satisfied, including one of the three alternative requirements in s 1322(6)(a) and the requirement in s 1322(6)(c) that no substantial injustice has been or is likely to be caused to any person.

4. I am satisfied that the commencement of a winding up application is a proceeding under the Act, and also a proceeding in relation to a corporation. The case law establishes that the concept of "contravention" in s 1322 extends to noncompliance with a statutory requirement or a provision of a constitution. I am satisfied that, for the purposes of s 1322(6)(a), it is at least just and equitable that the order be made. There are two reasons to reach that conclusion. The first is that, where there remains only one director of LCA, there was no practical way in which a resolution satisfying the quorum requirement could be passed by its directors. Second, it is just and equitable to make such an order where the sole shareholder of LCA has now indicated his support for the winding up application, which could have been brought by that sole shareholder as a contributory of LCA. I am satisfied that no substantial injustice has been or is likely to be caused to any person by the making of that order where, as I have noted above, the sole shareholder in LCA has indicated his support for the application.

5. This conclusion is consistent with the wider and beneficial construction that should be given to s 1322, as the High Court emphasised in Weinstock v Beck (2013) 251 CLR 396. A similar approach has been adopted in several cases where resolutions for the appointment of an administrator have not satisfied quorum requirements: for example, Correa v Whittingham [2013] NSWCA 263. For these reasons, I make an order in accordance with paragraph 1 of the short minutes of order initialled by me and placed in the file.

Dispensing with publication of the application

6. LCA also seeks an order dispensing with the advertising and publication requirements in respect of the winding up application, so the matter can proceed, as I noted above, to a determination of the winding up application on a final basis today. That application is not opposed by CPL and other interested parties. The evidence indicates that LCA’s major creditors are likely to be persons represented by Mr Bolster; there is plainly an issue in respect of its assets, as to which LCA, its sole shareholder, and the parties represented by Mr Bolster are in dispute; and the appointment of a liquidator will allow an independent party to deal with any dispute as to the validity of a security on which one of the interested parties relies to retain LCA's stock.

7. In these circumstances, there would be little utility in publication of the application. It is difficult to see that third party creditors, to the extent that there are any, would oppose a winding up, where one of the interested parties has now taken possession of all of LCA’s stock. It also seems to me that, in any event, Mr Baird is correct that the delay and additional cost involved in adjourning the proceedings, in order to advertise the application, would not be warranted in the circumstances, and costs and delay are likely to be minimised by proceeding directly to a determination of the winding up application. Accordingly, I make a further order dispensing with the advertising and publication requirements in respect of the winding up application.

Application for winding up order

8. LCA, as I have noted, now seeks an order that it be wound up on a final basis. That order is not opposed by CPL, which is or was, prior to the termination or purported termination of the lease, a lessor of property occupied by LCA. It is also not opposed by the interested parties represented by Mr Bolster, who include Hairtech Australia Pty Ltd (“HAPL”), which was the vendor of a business purchased by LCA.

9. It seems to me that there are several reasons why that order may be made under s 461(1)(k) of the Corporations Act, on the basis that it is just and equitable that LCA be wound up. The first is that the board of LCA is presently inquorate, where one of its directors has resigned, and the other is resident overseas. That could, perhaps, be cured by the appointment of another director, but there is no suggestion in the relevant circumstances that another director has been identified who would consent to appointment. Secondly, Mr Baird, who appears for LCA, also submits that there is at least a real issue as to LCA's solvency, given the amounts claimed by the parties represented by Mr Bolster, and the matters to which I will refer below would exacerbate any such issue. Third, LCA presently does not have access to its books and records, which are presently under the control of parties represented by Mr Bolster. Fourth, as I have noted above, the sole remaining director of LCA authorised this application to be brought (for the winding up of LCA) and has also approved the application to wind up LCA in his capacity as sole shareholder of LCA. The Court will ordinarily make a winding up order, on the application of a company which seeks that order for itself, and here that application is supported by both the sole director and sole shareholder of LCA, and not opposed by the other interested persons represented by Mr Bolster. Fifth, there seems little prospect that the company could continue to trade, in circumstances where, it appears, HAPL has asserted an unpaid vendor's lien over stock of the company, and that would exacerbate any existing issues as to LCA’s solvency.

10. There is in evidence a document headed "Consent of liquidator/provisional liquidator" signed by Mr Granger, although the operative paragraphs of that consent are directed to his consent to act as provisional liquidator and indicates that he has no conflict of interest or duty that would make it improper for him to act as provisional liquidator. Presumably, the consent was drafted in that way because it was originally proposed that the application would initially proceed as an application for appointment of a provisional liquidator. I have been informed by Mr Bolster that his instructing solicitor’s discussions with Mr Granger have indicated that Mr Granger consents to appointment as liquidator, and there is no reason to doubt that. The matters referred to in that consent, as to the absence of a conflict of interest, would equally apply to appointment as provisional liquidator or liquidator. In those circumstances, I consider that I may properly proceed to make orders today. I will also make a direction that LCA file Mr Granger's consent to act as liquidator within two business days.

Costs

11. LCA seeks an order that its costs of this application be paid out of its assets in priority under s 556(1)(b) of the Corporations Act which provides for priority of the applicant's costs in a Court-ordered winding up. I am satisfied that those costs are properly paid on that basis. The Defendant, CPL, also sought its costs of the winding up. I am satisfied that CPL’s costs should be paid (although they do not fall within s 556(1)(b) of the Corporations Act) where CPL was joined, it appears, under a misapprehension as to the nature of an interest which it was thought to claim over LCA’s assets, and its participation in the proceedings has resulted from that joinder.

12. I therefore order that CPL’s costs of the application be paid out of LCA’s assets in priority under s 556 of the Corporations Act. I will not seek to determine the priority of that claim in the winding up, which will be a matter to be addressed by the liquidator in due course.

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Decision last updated: 24 March 2019