In the matter of Production & Graphics Communications Pty Ltd Progress Printers & Distributors Pty Ltd v Production & Graphics Communications Pty Ltd
[1996] FCA 689
•8 AUGUST 1996
CATCHWORDS
CORPORATIONS - application for retrospective leave to resolve to voluntarily wind up the company - application pursuant to ss 490 and 497 of the Corporations Law - issue whether corporation ought to be wound up voluntarily or compulsorily on application of the respondent - irregularities as to notification of creditors' meeting and as to purported adjourned creditors' meeting - notification inadequate - non-compliance with s 498 - advantages to creditors under compulsory winding up, particularly with respect to powers of supervision and relation back - whether preferable that corporation be wound up voluntarily rather than compulsorily - whether retrospective advantages of compulsory winding up have been taken into account by creditors - power to grant leave retrospectively under s 490 to be exercise sparingly and with the assent of creditors or at least the principal creditors - company seeking voluntary winding up must satisfy the court that it is to be preferred to a winding up by the court on a creditors' application - such circumstances not made out - relation back may be important - irregularities in past meetings.
Corporations Law (1990) ss 490, 497, 498, 1322
Re Horsham Kyosan Engineering Co Ltd [1972] VR 403, cited
Re Campbells Corporation Ltd (1978) 3 ACLR 519, cited
Re Akai Australia Pty Ltd (1978) 3 ACLR 353, cited
Re North Western Fruitgrowers Pty Ltd [1965] VR 306, applied
Re South Australian Air Conditioning Centre Pty Ltd (1977)
2 ACLR 359, applied
In the matter of Production and Graphics Communications Pty Limited ACN 061 057 243
PROGRESS PRINTERS AND DISTRIBUTORS PTY LIMITED v
PRODUCTION AND GRAPHICS COMMUNICATIONS PTY LIMITED
No NG 3414 of 1996
Tamberlin J
Sydney
8 August 1996
IN THE FEDERAL COURT OF AUSTRALIA )
NEW SOUTH WALES DISTRICT REGISTRY ) No. NG 3414 of 1996
GENERAL DIVISION )
In the matter of Production and
Graphics Communications Pty Limited
ACN 061 057 243
BETWEEN: PROGRESS PRINTERS AND
DISTRIBUTORS PTY LIMITED
ACN 051 757 718
Applicant
AND: PRODUCTION AND GRAPHICS
COMMUNICATIONS PTY LIMITED
ACN 061 057 243
Respondent
CORAM: TAMBERLIN J
PLACE: SYDNEY
DATED: 8 AUGUST 1996
MINUTE OF ORDERS
THE COURT ORDERS THAT:
The Notice of Motion be dismissed.
The respondent pay the applicant's costs of the Notice of Motion.
The respondent be wound up and Geoffrey David McDonald of Messrs Love & Rogers, Level 29 St Martins Tower, 31 Market Street, Sydney in the State of New South Wales, an official liquidator, be appointed the official liquidator of the respondent.
The applicant's costs (including the reserved costs) be taxed and reimbursed out of the property of the respondent in accordance with subsection 466(2) of the Corporations Law.
NOTE: Settlement and entry of orders is dealt with in accordance with Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA )
NEW SOUTH WALES DISTRICT REGISTRY ) No. NG 3414 of 1996 GENERAL DIVISION )
In the matter of Production and
Graphics Communications Pty Limited
ACN 061 057 243
BETWEEN: PROGRESS PRINTERS AND
DISTRIBUTORS PTY LIMITED
ACN 051 757 718
Applicant
AND: PRODUCTION AND GRAPHICS
COMMUNICATIONS PTY LIMITED
ACN 061 057 243
Respondent
CORAM: TAMBERLIN J
PLACE: SYDNEY
DATED: 8 AUGUST 1996
REASONS FOR JUDGMENT
TAMBERLIN J
Before me is a Notice of Motion filed on 26 July 1996 by the respondent which seeks the following orders:
That it have leave nunc pro tunc to resolve to be wound up voluntarily pursuant to s490 and s497 of the Corporations Law (1990).
A declaration that Geoffrey Ellison is and has been the Liquidator of the respondent since 5 July 1996.
3.The winding up application be dismissed
The applicant resists the motion and seeks an order for a compulsory winding up.
The Company is clearly insolvent and ought to be wound up.
In essence the question on this Notice of Motion is whether leave should be granted retrospectively to enable the respondent to be wound up voluntarily with Mr Ellison, a registered liquidator, as the liquidator or whether it should be wound up compulsorily on the application of the applicant.
Section 490 of the Corporations Law 1990 ("the Law") provides:
"490Except with the leave of the Court, a company cannot resolve that it be wound up voluntarily if:
(a)an application for the company to be wound up in insolvency has been filed; or
(b)the Court has ordered that the company be wound up in insolvency, whether or not the order was made on such an application." (Emphasis added)
On 25 June 1996, an application to wind up was filed by the applicant and served on the respondent the following day.
On 2 July 1996 the applicant solicitor's informed the respondent's solicitors of the application. They referred to s490 and stated that, without the leave of the Court, the respondent could not resolve at the proposed meeting on 5 July 1996 that it be wound up voluntarily.
Notwithstanding this letter on 5 July, without the leave of the Court, a members' meeting resolved to wind up the respondent and appointed Mr Ellison as liquidator.
A creditors' meeting was also held on 5 July 1996. The purpose of the meeting was stated to be to receive a report as to the respondent's affairs, confirm the appointment of the liquidator Mr Ellison; fix his remuneration and appoint a committee of inspection. At the meeting a Mr Aboud, on behalf of a creditor, drew to the attention of the meeting, that the Notice convening the meeting was defective in that it was addressed to 51 York Street, Sydney instead of 37 York Street, Sydney.
The creditors present were invited to request the meeting to be reconvened at a later date so that any other creditors should be given an opportunity to question the directors. The meeting resolved that, in view of the defective notice to some creditors, the meeting be reconvened at a date to be decided, at 31 Market Street, Sydney.
No time or day was specified at the meeting of 5 July 1996 for the reconvened meeting as required for an adjournment of a meeting by s498(1). Accordingly, the meeting of 31 July 1996 could not be treated as a continuation of the meeting of 5 July 1996 and therefore there was arguably a contravention of s497(1) of the Law. See Crawford v Australia and New Zealand Banking Group Ltd (1994) 14 ACSR 310 at 313 per Underwood J.
Notices of the adjourned meeting which was to be held on 31 July 1996 were said to have been sent to individual creditors. No notice of that meeting was published in any newspaper.
It was submitted that the reconvened meeting was a continuation of the earlier meeting because it was an adjournment. If it is so regarded then the adjourned date was outside the 21 days required by s498(1). Furthermore, the applicant said it did not receive any notice and did not learn of the proposed meeting on 31 July 1996 until it read on 31 July 1996, the affidavit of Mr Ellison relied on this proceeding. This was served on the solicitors for the applicant at 4.20 pm on 30 July 1996. The applicant did not become aware of the proposed meeting until about one hour before the meeting was to take place. This was clearly inadequate.
Nevertheless, the meeting of creditors took place on 31 July 1996 at 10.00 am, when it was resolved to confirm that there should be a voluntary winding up and that Mr Ellison should be appointed as liquidator.
Two affidavits sworn by Mr Ellison have been filed in these proceedings. These record that on 16 May 1996 the respondent's Board of Directors resolved to call meetings, pursuant to ss490 and 497 of the Law to consider whether the respondents ought to be wound up. Mr Ellison was asked to convene these meetings. He did so on 14 June. He has carried out a substantial amount of work in relation to the matter since that date and this is detailed in his affidavits. The respondent submits that there would be a great deal of time and money saved if the company were to be wound up pursuant to the resolution of 31 July 1996 and if Mr Ellison were to be appointed liquidator.
The Motion is opposed by the applicant on a number of grounds including:
•The irregularities concerning notice of the first meeting.
•The irregularities in notification of the applicant of the meeting of 31 July 1996.
•Non-compliance with s497.
•Non-compliance with s498.
•The advantages which flow to creditors in a Court winding up so far as powers of supervision and relation back where there is a concern about insolvent trading.
•The uncertainty as to whether creditors were informed of the relative merits of a voluntary winding up as opposed to a compulsory winding up.
Although a retrospective order may be made in an appropriate case (see Re Horsham Kyosan Engineering Co Ltd [1972] VR 403 and Re Campbells Corporation Ltd (1978) 3 ACLR 519), it is necessary to establish that it is preferable that the company be wound up voluntarily rather than compulsorily. See Re Akai Australia Pty Ltd (1978) 3 ACLR 353 at 356-357, per Powell J. His Honour there indicated that it is important for the Court to consider whether the creditors have taken into account the respective advantages of a compulsory as opposed to a voluntary winding up. The Minutes do not in the present case disclose whether there was any discussion on this matter.
In Re North Western Fruitgrowers Pty Ltd [1965] VR 306, which concerned a members' voluntary winding up, Adam J said at 308-309:
"Unless it was intended, even although the creditor's petition was presented first, to give preference to a voluntary winding up over a winding up by the Court, it is not surprising that the legislature should recognize the rights of the creditor who had petitioned before there was a voluntary winding up, to prevent, save with leave of the Court, a voluntary winding up supervening before his petition was heard. This, I would think, was what was behind s276 (which corresponds with s490). It is to be observed, however, that s276 bars a subsequent winding up resolution without leave only in a case where a petition has been presented on the ground that the company is unable to pay its debts."
At 309-310, his Honour went on to say
"...it is not easy to conceive of cases where such a mode of winding up (a members voluntary winding up) would be preferable in the interests of creditors, and particularly where by reason of a creditor's petition having been presented first, the date of commencement of the winding up, should a winding up order be made, would ante-date the commencement of the voluntary winding up .... the liquidator in a winding up by the Court is an official appointed by the Court, and in a members' winding up, as contemplated in this case, is the appointee of the members; the former has the more extensive powers and, in the exercise of them, is in no way, by contrast subject to control or supervision by the members."
Here, of course, we are concerned with a creditors' winding up but the observations as to relation back are relevant as are the reference to the powers and role of a court supervised liquidator.
In Re South Australian Air Conditioning Centre Pty Ltd (1977) 2 ACLR 539 at 541, Jacobs J, of the South Australian Supreme Court, referred to the decision in Re Horsham (supra) and pointed out that it was held by Gowans J in that case, that upon consideration of the purpose of s276 (which corresponds to s490) there was power to grant leave retrospectively, but the power so construed was to be exercised sparingly, and only in circumstances in which the Court is satisfied that the assent of the creditors or at least the principal creditors is given. In the present case, the claims of the creditors represented at the meeting of 31 July 1996 was in the order of $90,000 to $100,000 out of total debts of around $312,000.
As Jacobs J points out at 541:
"When a company is unable to pay its debts, the petitioning creditor, as against the company, is entitled, almost as a right, to a winding up order, although there may be very special circumstances when the petition will not be granted. ... If therefore a company applies to the court ... for leave to wind up voluntarily, after a petition has been presented, the onus is on the company to satisfy the Court that a voluntary winding up is to be preferred to it by the Court on the creditor's petition." (Emphasis added)
In my view, in the present case, the respondent has not made out a case that there are special circumstances sufficient to justify a voluntary winding up. True it is, that some time and expense may be saved by appointing Mr Ellison, but I do not give great weight to this having regard to the irregularities
in the creditors' meetings. Further, the Minutes of the meeting of 31 July 1996 express some concern over the question as to precisely when the company became insolvent and about possible insolvent trading as well as the transfer of assets of the business. Although there is only in the order of ten days difference between the dates for relation back, I accept that this is a case in which such a period could be important.
I am not persuaded that I should exercise the Court's discretion under s1322 to waive, insofar as this is possible, any irregularities in the convening or notification of the meetings of the creditors.
The respondent has not made out a sufficient case for leave under s490 and I therefore dismiss the Motion with costs.
I also order that the respondent be wound up.
I certify that this and
the preceding eight (8)
pages are a true copy of the
Reasons for Judgment herein of
his Honour Justice Tamberlin.
Associate:
Date: 8 August 1996
Solicitor for Applicant: Dunhill Madden Butler
Solicitor for Respondent: L W Adams & Associates
Date of Hearing: 1 August 1996
Date Judgment Delivered: 8 August 1996
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