In the matter of Sam Beast Mask Pty Ltd

[2024] NSWSC 941

Supreme Court

New South Wales

Medium Neutral Citation:

In the matter of Sam Beast Mask Pty Ltd [2024] NSWSC 941

Hearing dates:

18 July 2024

Date of orders:

18 July 2024

Decision date:

18 July 2024

Jurisdiction:

Equity - Corporations List

Before:

Black J

Decision:

Orders made in accordance with Short Minutes of Order.

Catchwords:

CORPORATIONS — Directors and officers — Appointment, removal and retirement of directors – Application for declarations that Plaintiffs were not appointed as company directors – whether Plaintiffs consented to appointment.

Legislation Cited:

Corporations Act 2001 (Cth), ss 201D, 201M, 204C, 500(2).

Cases Cited:

- Re Concreting and Formwork Personnel Pty LtdACN 627 355 480 (In Liquidation) [2023] NSWSC 512

- Forkserve Pty Ltd v Jack [2000] NSWSC 1064; (2001) 19 ACLC 299

- Hedges v NSW Harness Racing Ltd (1991) 5 ACSR 291

- Knight v Bulic (1994) 13 ACSR 553

- Re Whitsunday Clean Sands Pty Ltd [2017] NSWSC 1199

Category:

Principal judgment

Parties:

Patrick Killalea (First Plaintiff)
Scott Findlay (Second Plaintiff)
Sam Beast Mask Pty Ltd (First Defendant)
Deputy Commissioner of Taxation (Second Defendant)
Australian Securities and Investments Commission (Third Defendant)

Representation:

Counsel:
M Kearney (Plaintiffs)

Solicitors:
Horne Legal (Plaintiffs)

File Number(s):

2024/93555

Judgment – ex tempore (Revised 18 July 2024)

Nature of the application

1. By Amended Originating Process filed, by leave, today, the Plaintiffs, Mr Killalea and Mr Findlay, seek leave to commence these proceedings against the First Defendant, a company now known as Sam Beast Mask Pty Ltd ("Company") pursuant to section 500(2) of the Corporations Act 2001 (Cth) (“Act”); declarations that, in effect, they did not consent to act as, and were not appointed as, directors of the Company and did not subsequently resign as directors of the Company; and consequential orders in respect of the rectification of records maintained by the Australian Securities and Investments Commission ("ASIC") in respect of the Company. Applications of this kind have been considered by the Court in earlier case law, including my decision in Re Whitsunday Clean Sands Pty Ltd [2017] NSWSC 1199 (“Whitsunday Clean Sands”) and the decision of Williams J in Re Concreting and Formwork Personnel Pty LtdACN 627 355 480 (In Liquidation) [2023] NSWSC 512 (“Concreting and Formwork Personnel”).

Affidavit evidence

2. The Plaintiffs rely on the affidavit dated 6 March 2024 of Mr Killalea, who refers to having been approached by a third party to design and manage an American-style burger restaurant which was to be established in Bondi, and his involvement, together with Mr Findlay, in designing the menu for the restaurant and cooking at the restaurant. He refers to his having received a small shareholding in the Company on that basis, and to his and Mr Findlay having subsequently worked in the restaurant until August 2020.

3. Mr Killalea refers to his receipt of a Director Penalty Notice from the Australian Taxation Office in November 2023 on the basis that he was a director of the Company. His evidence, which has not been contested by any of the Defendants to the proceedings, including the Deputy Commissioner of Taxation and ASIC, is that he did not know that he had been a director of the Company prior to the receipt of a company search undertaken by his solicitor, after the receipt of the Director Penalty Notice, and he had not provided written or verbal consent to being made a director of the Company. He also denies that he had resigned as a director of the Company, as a notice lodged with ASIC had indicated, consistent with his evidence, that he was not appointed as a director of the Company.

4. By an affidavit dated 6 March 2024, Mr Findlay gives somewhat similar evidence, referring to his role in working in the kitchen at the restaurant, and to his also having received a Director Penalty Notice from the Australian Taxation Office in November 2023. His evidence is that he had also not given written or verbal consent to being made a director of the Company, and was not aware that he had been purportedly appointed a director of the Company until he had received a company search undertaken by his solicitor, again after the receipt of the Director Penalty Notice. He also denies having resigned as a director of the Company, in circumstances that he contends he was not appointed as a director of the Company.

5. The Plaintiffs also rely on the affidavit dated 28 June 2024 of their solicitor, Mr Horne, who refers to correspondence to the Court from the Deputy Commissioner of Taxation, which indicates that it neither consents to nor opposes the relief sought by the Plaintiffs in the proceedings, and correspondence from ASIC, following its inquiry in respect of the matter, that it neither consents to nor opposes the relief sought. Importantly, Mr Horne also annexes a letter dated 4 June 2024 from the Company’s liquidator to ASIC, in response to inquiries which ASIC had made, which indicates that:

“We have reviewed the records of the Company in our possession and advise that we do not have any records that confirm Mr Patrick Killalea or Mr Scott Findlay consented to act as company directors nor acted as company directors of the Company. We also note that we have no records to confirm the resignation of Mr Patrick Killalea or Mr Scott Findlay as company directors.”

Submissions and determination

6. The factual position is therefore straightforward, as Ms Kearney, who appears for the Plaintiffs, points out in submissions. The evidence of Mr Killalea and Mr Findlay, which is not contested by anyone who has knowledge of the relevant matters or an interest in the orders that is sought, is that they did not consent to their appointment as directors of the Company, in circumstances that consent to appointment as a director is required for the valid appointment of a director under the Act. The liquidator has confirmed that no document exists which records their consent to act as directors, or their having acted in a manner that is consistent with their having been appointed as directors, so as to cast any doubt on the evidence which they have given in that respect.

7. Ms Kearney, in turn, draws attention to the case law, which I noted in Whitsunday Clean Sands, where I observed (at [15]) that, where a person has not consented to appointment as director of a company, either by a written consent or by consent in fact, then his or her appointment will be invalid, not only by reason of ss 201D and 204C of the Act, but also at general law: Hedges v NSW Harness Racing Ltd (1991) 5 ACSR 291 at 293; Knight v Bulic (1994) 13 ACSR 553 at 560; Forkserve Pty Ltd v Jack [2000] NSWSC 1064; (2001) 19 ACLC 299. I there also noted (at [16]), that there is no room for the application of s 201M of the Act, which validates the acts of a director where there is a defect in his or her appointment, where no relevant act of the directors requires validation, and where that section does not, on the authorities, validate the appointment of the director, as distinct from any acts which he or she may have undertaken. The same approach was taken by Williams J in Concreting and Formwork Personnel, where her Honour referred to Whitsunday Clean Sands for the proposition that the appointment of a director will be invalid, if he or she has not consented to that appointment, by written consent or by consent in fact, and made declarations as to the invalidity of a director's appointment, where her Honour found on the uncontested evidence in that case that the director had not consented to that appointment.

8. I am satisfied that, by reference to the uncontested evidence to which I have referred, and the case law which I have noted above, that the Plaintiffs have established their entitlement to the substantive relief sought. An order should be made granting leave to bring the proceedings against the Company, under s 500(2) of the Act, where the relief sought could not be obtained by a proof of debt in a liquidation. The declarations that are sought should be made, where they reflect the uncontested evidence and the consequence that the appointments of Messrs Killalea and Findlay were not effective follows from the absence of their consent to appointment. There is plainly utility in making those declarations, not least because it will resolve, as between the Plaintiffs and the Deputy Commissioner of Taxation, the question as to whether the Plaintiffs were appointed as directors, in a manner which will likely have significant practical impact for the Director Penalty Notices.

9. I will make an order for the amendment of the initial notice of appointment of the directors, in the form sought by Messrs Killalea and Findlay, but qualified so that it does not require ASIC to amend the relevant registers, if that would be inconsistent with its practice, I recognise ASIC may well take the view that it can only remove, but not alter, documents which are incorrect but are nonetheless a part of the historical record maintained on that register. The order requiring the removal of the notice of resignations can be made, where that will not otherwise effect the integrity of the relevant registers. In any event, as between the parties to the proceedings, the declarations that have been made will resolve the relevant issues in a way that determines that the Plaintiffs are not to be treated as having consented to their appointment as directors or having validly been appointed as directors.

Orders

10. For these reasons, I make orders in accordance with the Short Minutes of Order initialled by me and placed in the file.

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Decision last updated: 02 August 2024