In the matter of Winsome Australia Pty Ltd (in liquidation)

[2021] NSWSC 430

Supreme Court

New South Wales

Medium Neutral Citation:

In the matter of Winsome Australia Pty Ltd (in liquidation) [2021] NSWSC 430

Hearing dates:

26 March 2021, 16 April 2021, further evidence filed and served on 21 April 2021

Date of orders:

28 April 2021

Decision date:

28 April 2021

Jurisdiction:

Equity - Corporations List

Before:

Williams J

Decision:

Order pursuant to s 482 of the Corporations Act 2001 (Cth) that the winding up of Winsome Australia Pty Ltd be terminated.

Catchwords:

CORPORATIONS – winding up – application under s 482 of the Corporations Act 2001 (Cth) to terminate a winding up – whether the conduct of the company was contrary to commercial morality – where all the company’s debts have been discharged – where applicant offered undertakings as to providing ongoing financial support to the company upon termination – no issue of principle

Legislation Cited:

Corporations Act 2001 (Cth), s 482

Cases Cited:

Re Parkway One Pty Ltd (in liq) [2019] NSWSC 1495

Re Spartan Pastoral Company Pty Ltd (in liq) [2020] NSWSC 1218

Saunders v Vautier (1841) 49 ER 282

Category:

Principal judgment

Parties:

Michael Dennis Shannessy (Plaintiff)
Schon Gregory Condon in his capacity as liquidator of Winsome Australia Pty Ltd (Defendant)

Representation:

Counsel:
Mr H Alton (Plaintiff)
Ms H Hitch, solicitor (Defendant)

Solicitors:
Wills & Bowring Solicitors (Plaintiff)
Matthews Folbigg Lawyers (Defendant)

File Number(s):

2021/5070

Judgment

Introduction

1. The plaintiff, Mr Michael Shannessy, is a director and shareholder of Winsome Australia Pty Ltd (in liq) (the Company).

2. The other director and shareholder is Mrs Betty Shannessy, who is married to Mr Shannessy.

3. The Company was registered on 19 April 1995. Mr and Mrs Shannessy have been the sole directors and shareholders of the Company since that date.

4. The Company was wound up by order of the Court on 6 February 2020 following its failure to comply with a creditor’s statutory demand issued by the Chief Commissioner of State Revenue on 31 October 2019 for $239,542.25 owing by the Company in respect of land tax for the 2018 and 2019 years and interest thereon. Mr Schon Gregory Condon, registered liquidator, was appointed as liquidator of the Company. Mr Condon is the defendant in these proceedings (the Liquidator).

5. By originating process filed on 7 January 2021, Mr Shannessy seeks an order pursuant to s 482 of the Corporations Act 2001 (Cth) that the winding up of the Company be terminated.

6. As contributory of the Company, Mr Shannessy has standing to apply for that order.

Applicable legal principles

7. The Court’s power to make an order terminating the winding up of a company under s 482 of the Act is discretionary. The Court must have regard to the matters in s 482(2A), but those matters do not arise in this case. Mr Shannessy must establish that the order is appropriate in all the circumstances. Whilst there are no rigid criteria to be applied in the exercise of the discretion, the Court has regard to the interests of existing creditors (and potential future creditors if the winding up is terminated), the interest of the liquidator (particularly with respect to costs), the interests of contributories, and the public interest (including matters of commercial morality). The authorities establishing this approach, and articulating matters affecting these classes of interests that will frequently be relevant to the exercise of the discretion, were helpfully summarised by Black J in Re Spartan Pastoral Company Pty Ltd (in liq) [2020] NSWSC 1218 at [25]-[31]. The relevant matters include:

1. the circumstances that led to the winding up order. Essentially, the Court needs to be satisfied that the circumstances that required the company to be wound up no longer exist. However, even if those circumstances no longer exist, the additional matters below remain relevant;

2. the nature of the business of the company and whether the conduct of the company was contrary to commercial morality or contrary to the public interest in any way;

3. whether notice of the application for termination of the winding up has been served on all creditors and contributories. Service must be proved;

4. the nature and extent of creditors, and whether all debts have been discharged. However, there is no absolute rule that a winding up will not be terminated if one or more debts remain undischarged;

5. the attitude of creditors, contributories and the liquidator to termination of the winding up. Even if all the existing creditors agree, the court may take the view that the proposed termination puts at risk the interests of future creditors. A termination will not usually be granted unless each member of the company either consents or is otherwise bound not to object to it, or their rights are properly secured;

6. the current trading position and general solvency of the company; and

7. whether the reasons for, and circumstances of, any non‑compliance by the directors with their statutory obligations as to the giving of information or furnishing a statement of affairs to the liquidator have been fully explained.

8. In relation to the notion of commercial morality referred to above, I respectfully adopt the following summary by Rees J after a detailed review of relevant authorities in Re Parkway One Pty Ltd (in liq) [2019] NSWSC 1495 at [85]:

“While the notion of commercial morality is obviously a broad one, the cases may perhaps be distilled to two key enquiries. First, was the director’s behaviour unsatisfactory having regard to their duties as a director under the Corporations Act as well as basic concepts of honesty and competence; do they understand the nature of a corporation and the content of their duties as a director? A recurring theme is the importance of the duty to keep proper books and records, the duty not to trade while insolvent and the duty of cooperation with the liquidator but breaches of laws other than the Corporations Act, especially taxation legislation, are also relevant. Second, if breaches have occurred in the past, has a good explanation been proffered? Does the director understand that the events which occurred were unsatisfactory? What steps have been taken to mitigate or cure the breaches, or, conversely, is it likely that breaches will recur in the future.”

Consideration

Nature of the business of the Company and the circumstances that led to the winding up order

10. The Company was appointed as the trustee of the Pinta Unit Trust on 28 April 1995 (the Trust).

11. A complete copy of the deed of settlement for the Trust cannot be located. The evidence before the Court included:

1. a letter from business and financial consultants SuperVision Management Pty Ltd to Mr and Mrs Shannessy dated 26 April 1995 enclosing, amongst other things, a “Unit Trust Deed of Winsome Australia Pty Limited” and drawing attention to certain aspects of the deed, including:

“The Trust fund can at the discretion of the unit holders be wound [sic] and distributed at any time. In that case there would be a distribution to unit holders accordingly [sic] to the number of units held in relation to the percentage of the to total number of units issued.”

2. minutes of a meeting of the directors of the Company held on 28 April 1995 which record that a Deed of Settlement styled “The Pinta Unit Trust” was tabled at the meeting and the directors (Mr and Mrs Shannessy) resolved that the Company act as trustee of the Trust and issue 50 units to each of Mr and Mrs Shannessy;

3. an incomplete copy of the deed;

4. unit certificates numbered 1 and 2 for the 50 units issued to each of Mr and Mrs Shannessy;

5. a statutory declaration of Mr Shannessy dated 28 April 1995 to the effect that, at the time of the Company’s execution of the Deed of Settlement, the only asset of the Trust was $100, being the settlement money referred to in the Deed of Settlement; and

6. an Australian Taxation Office (ATO) advice dated 22 May 1995 assigning a tax file number to the Trust.

12. The pages of the deed that have been located do not include a provision for winding up of the Trust along the lines referred to in the letter from SuperVision Management Pty Limited. It is not known whether the missing pages include such a provision.

13. Mr Shannessy’s evidence is that he and Mrs Shannessy were the only beneficiaries of the trust upon its establishment and that no additional units were issued by the trustee thereafter.

14. The Company did not undertake any business activities in its own right. All of its activities were undertaken as trustee of the Trust.

15. In its capacity as trustee, the Company operated a boarding house business from a property at Yowie Bay, in New South Wales. The Company is the registered owner of that property but it holds the property as trustee of the Trust. The certificate of title issued to the Company is dated 14 November 1995 and I infer that the Company acquired the Yowie Bay property as trustee for the Trust on or about that date. According to a land tax assessment issued by Revenue NSW on 13 January 2021, the value of the land alone is approximately $6.87 million.

16. A mortgage in favour of National Australia Bank Limited is registered against the title to the Yowie Bay property, but Mr Shannessy holds a discharge of that mortgage dated 4 September 2008. The discharge of mortgage has not been registered for reasons that are not explained in the evidence.

17. It appears from the financial statements for the Trust that the Yowie Bay property and improvements to the property comprise the whole of the assets of the Trust, save for some plant and equipment of modest value.

18. In his Report on Company Activities and Property provided to the Liquidator on 14 June 2020, Mr Shannessy reported that the boarding house business ceased trading in July 2019 due to Mr Shannessy’s poor state of health and lack of funding for renovations required to the Yowie Bay property. In his affidavit sworn on 20 April 2021, Mr Shannessy explained that rental income shown in the 2019 financial statements for the Trust relate to payments made by Michael Shannessy Pty Ltd in consideration for the Company providing storage space at the Yowie Bay property for plant and equipment owned by Michael Shannessy Pty Ltd. The Company has not otherwise traded since July 2019.

19. Financial statements and tax returns for the Trust exhibited to the Liquidator’s affidavit sworn on 1 March 2021 show that the Trust traded at a loss during the 2017, 2018 and 2019 financial years and at a profit of less than $10,000 per annum during the 2016, 2015, 2014 and 2013 financial years.

20. The Company was wound up as a consequence of its failure to pay land tax levied on the Yowie Bay property when due in respect of the 2018 and 2019 financial years and its failure to respond to the creditor’s statutory demand issued by the Chief Commissioner of State Revenue on 31 October 2019 in respect of that outstanding tax.

21. Mr Shannessy candidly acknowledges that he received the statutory demand on or about 31 October 2019.

22. There is evidence that Mr Shannessy has been suffering from serious cardiac and other health problems since approximately 2018. I note that this coincides with the time at which the Company failed to meet its land tax obligations.

23. Mr Shannessy’s health conditions also appear to have contributed to the Company’s failure to appear at and contest the winding up application on 6 February 2020, as he had undergone major surgery on 29 January 2020 which had not been without complications.

24. Mrs Shannessy, the Company’s other director, took no steps to cause the Company to comply with the statutory demand or to appear at or contest the winding up application. I will return to the subject matter of Mrs Shannessy’s role below.

Whether the conduct of the company was contrary to commercial morality or contrary to the public interest and delay in providing information to the Liquidator

25. The Trust registered for a tax file number in May 1995 and evidence of the tax returns for the Trust for the 2013 to 2019 financial years was before the Court on this application. Each of those tax returns named the Company as the trustee.

26. Mr Shannessy deposes that, since the registration of the Company in 1995, he has paid all of the Company’s debts when they accrued, using his personal funds or funds of Michael Shannessy Pty Ltd (a company registered in 1981 of which Mr and Mrs Shannessy are the shareholders and two of the directors).

27. Mr Shannessy deposes that he does not seek to be reimbursed by the Company for any payments made by him or by Michael Shannessy Pty Ltd to discharge debts owed by the Company.

28. After the Company was wound up, a further amount of $114,381.30 became owing to the Chief Commissioner of State Revenue on 6 April 2020 in respect of land tax payable on the Yowie Bay property for the 2020 financial year.

29. I accept Mr Shannessy’s evidence that he has always attended to payment of the Company’s debts, but only in respect of the period prior to the due date for the 2018 land tax. As I shall refer to below, all outstanding land tax has now been paid. However, the evidence does not entirely explain the Company’s failure to pay the land tax when due in respect of the 2018 and 2019 financial years, failure to pay the statutory demand when issued on 31 October 2019 or at least prior to the winding up application on 6 February 2020.

30. Whilst I accept that Mr Shannessy’s serious health problems contributed to the cessation of the Company’s business and failure to appear at the winding up hearing shortly after his surgery, I do not accept that this satisfactorily explains the Company’s failure to pay land tax debts over such a long period of time in circumstances where it is now apparent that funds were available to the Company (through Mr Shannessy’s financial support for the Company) to pay those debts. The Company has another director who could have taken steps, in co-operation with Mr Shannessy, to cause the Company to attend to payment of its statutory debts. Mrs Shannessy’s affidavit affirmed on 17 March 2021 simply states that she has not been responsible for the day to day management of the Company and has “never paid, or arranged for the payment of, any of the company’s debts”.

31. Mr Shannessy also relies on his health problems as the reason for a delay of several months in providing to the Liquidator information about the Company’s affairs. Given the serious nature of those health problems, I accept this as an explanation for some delay on the part of Mr Shannessy although it is doubtful that it is a reasonable excuse for the whole of the period of delay. Again, it seems to me that Mrs Shannessy could have stepped in to co-ordinate the gathering of information required by the Liquidator.

32. Whilst Mrs Shannessy’s failure to attend to the payment of the Company’s debts and its affairs generally during Mr Shannessy’s incapacity is unsatisfactory, I do not consider that the Company’s affairs have been conducted contrary to commercial morality. I infer that Mr Shannessy’s serious health problems have also taken a toll on Mrs Shannessy as his wife and, in those circumstances, she found herself unable to attend to the necessary matters. I would not characterise Mr and Mrs Shannessy’s failure to discharge their obligations as directors in relation to the statutory debts of the Company during the period from 2018 to the date of the winding up order as involving commercial immorality.

Nature and extent of creditors, and whether all debts have been discharged and current trading position and general solvency of the Company

33. Based on his investigations, the Liquidator is satisfied that the only debts of the Company were:

1. the costs payable to the Chief Commissioner of State Revenue as petitioning creditor;

2. the land tax debts owed to the Chief Commissioner of State Revenue (including an additional amount of tax that became payable in respect of the 2020 year after the Company was wound up); and

3. the Liquidator’s remuneration and expenses.

34. The Liquidator has confirmed that all of those debts have been paid in full as at 29 March 2021, noting that additional remuneration will become payable to the Liquidator if the winding up is not terminated.

35. The Liquidator is satisfied that no amount is payable to the ATO by the Company or the Trust.

36. It is clear from the financial statements to which I have referred above that the Company was operating at a loss and that it will continue to incur land tax in respect of the Yowie Bay property annually if the winding up is terminated and if (contrary to Mr Shannessy’s intentions) the Company continues to own that property.

37. Mr Shannessy offers a twofold response to these problems.

38. First, Mr Shannessy offers an undertaking in his affidavit affirmed on 23 December 2020 to pay land tax for which the Company becomes liable in the future, in support of which Mr Shannessy has adduced evidence of his superannuation funds totalling approximately $1.3 million. Mr Shannessy is 66 years of age. A letter from his accountant dated 7 April 2021 states that he has met a condition of release and is therefore entitled to access his superannuation balance in full and that there are no impediments restricting him from doing so. In his further affidavit sworn on 20 April 2021, Mr Shannessy gave an expanded undertaking applicable to all debts in the following terms:

“I am not aware of any current debts that the company has to pay. I undertake to pay, and accept all responsibility for, the payment of any and all further debts and liabilities which the company may be liable to pay in the future.”

39. Second, in his affidavit affirmed on 22 March 2021, Mr Shannessy deposed that, if the winding up of the Company is terminated, “I intend to close down Winsome Australia Pty Ltd, cause it to be deregistered, and transfer its assets to my wife and I”. This bare statement of intention does not address the matters that would need to be considered by reason of the fact that the Company owns those assets as trustee of the Trust. In his affidavit sworn on 20 April 2021, Mr Shannessy deposed:

“I also undertake, in the event the company is returned to the Directors, to proceed immediately to take the steps necessary to close down Winsome Australia Pty Ltd, cause it to be deregistered and to transfer or sell its assets to my wife and I in a timely manner and as expeditiously as possible.

I confirm that I will be guided by the advice of Accountants and Lawyers as to whether the property currently held by the company as Trustee of the Pinta Unit Trust will and is able to be transferred by way of a sale or a transfer.”

40. There is no reason to suppose that the advice that Mr Shannessy will obtain from his accountants and lawyers will not address all of the issues necessary to guide him in achieving his objective to bring the existence of the Company to an end, including the powers and duties of the Company as a trustee, the potential application of the rule in Saunders v Vaulier and the tax implications of any transaction contemplated by the Company as trustee.

Notice of s 482 application and attitude of creditors, contributors and the liquidator to termination of the winding up

41. As all debts have been paid in full, there are no creditors to be notified of the application.

42. The only contributories are Mr and Mrs Shannessy. Mr Shannessy is the plaintiff. Mrs Shannessy has affirmed an affidavit in support of the application.

43. ASIC was notified of the application by letter dated 12 January 2021. In his affidavit sworn on 20 April 2021, Mr Shannessy deposed that his solicitors had informed him that they had not received any response from ASIC.

44. The Liquidator neither consents to nor opposes the application to terminate the winding up of the Company. In written submissions filed on 24 March 2021, the Liquidator drew the following matters to the Court’s attention.

41. First, the Liquidator submitted that it is not clear how the shortcomings in the governance of the Company – failure to register a discharge of mortgage over the Company’s only asset (which is held on trust), failure to pay statutory debts for two years, failure to respond to a statutory demand and the inaction of one director in circumstances where the other director was incapacitated due to illness – will not be repeated. If the Company is returned to its directors, it is not clear what steps can or will be taken to avoid the circumstances that led to its winding up being repeated.

42. Second, the Liquidator submitted that it is not clear how Mr Shannessy anticipates “dealing with the Trust”.

43. Third, the Liquidator submitted that Mr Shannessy did not proceed with a proposal made by the Liquidator that Mr and Mrs Shannessy purchase the Yowie Bay property from the Liquidator. It is not clear whether Mr Shannessy proposes to transfer the Company’s property to Mr and Mrs Shannessy at market value. Stamp duty would be payable on the basis of the market value of the property.

44. I infer from the third matter that, if the winding up is not terminated, the Liquidator intends to sell the property to realise the assets of the Company and distribute the sale proceeds. It seems to me that, in circumstances where the Company has no creditors and Mr and Mrs Shannessy are the only the shareholders and the only unitholders in the Pinta Unit Trust, those sale proceeds would ultimately be distributed to them. The precise steps involved in reaching that end result are somewhat uncertain given the incomplete copy of the deed of settlement for the Trust and the need to consider whether, if there is no express power for the trustee to wind up the trust, the unit holders would be able bring about a winding up in accordance with the rule in Saunders v Vautier. Those are matters that would require careful consideration by the Liquidator if the winding up is not terminated.

45. Counsel for Mr Shannessy informed the Court that, by reason of the increase in the value of the property since its acquisition by the Company in 1995, Mr and Mrs Shannessy cannot raise the funds in excess of $6.87 million that would be required to purchase the property from the Liquidator, even though that purchase price would ultimately be re-distributed to them as I have referred to above. Accordingly, if the winding up is not terminated, they will lose the property that has been their family home for many years. That is a distressing situation for them. In addition to operating as a boarding house, the Yowie Bay property has been a home for Mr and Mrs Shannessy and their son for many years. They are anxious to avoid losing their home.

46. In relation to the second matter, it is clear from the most recent evidence of Mr Shannessy that he intends to be guided by the advice of the lawyers and accountants that will plainly need to address the matters referred to at [39] and again at [47] above.

47. It is true that, if the property is unable to be transferred to Mr and Mrs Shannessy and remain in the Company’s ownership, the Company will continue to incur land tax debts that it will be unable to pay without financial support from Mr Shannessy. However, Mr Shannessy has given an undertaking to provide that financial support and has adduced evidence of his ability to comply with that undertaking as I have referred to above.

48. I have considered whether it is appropriate to rely on the undertakings offered by Mr Shannessy having regard to the past failures of Mr and Mrs Shannessy as the directors of the Company to pay the land tax debts in respect of the 2018 and 2019 financial years, to comply with the statutory demand or to take any steps to resist the winding up application. I have ultimately considered that it is appropriate to do so having regard to Mr Shannessy’s proven financial means, his track record of paying debts owed by the Company prior to 2018, his ill-health which partly explains the problems that arose from 2018 onwards, and the fact that he has now caused the Company’s land tax debts, and the Liquidator’s fees, to be paid out of his own funds and has given evidence that he does not require the Company to repay those sums to him. Regrettably, the evidence suggests that Mr Shannessy’s health is unlikely to improve. However, I infer that he and Mrs Shannessy will be motivated to rise above that in order to attend to the Company’s affairs and its obligations as trustee so as to avoid a repeat of the distressing situation in which they have found themselves as a result of the winding up in which they have risked losing their family home. For those reasons, I have ultimately determined that it is appropriate for the Court to rely on Mr Shannessy’s undertakings.

49. The considerations that I have mentioned immediately above address the first matter raised by the Liquidator, in my opinion.

Conclusion and orders

54. Having regard to:

1. the unusual and unfortunate circumstances in which the Company came to be wound up;

2. the fact that the Company’s debts have been paid in full;

3. the evidence and undertakings of one of the Company’s directors and shareholders concerning his ongoing financial support for the Company if the winding up is terminated;

4. the fact that he intends to bring the Company’s affairs to an orderly conclusion if the winding up is terminated;

5. the significant prejudice and hardship that the shareholders of the Company and beneficiaries of the Trust will suffer if the winding up is not terminated;

6. the lack of commercial immorality in the management of the Company prior to its winding up; and

7. the fact that the Liquidator does not oppose termination of the winding up,

8. I am satisfied that an order should be made pursuant to s 482 of the Corporations Act terminating the winding up of the Company.

55. The originating process filed by Mr Shannessy also sought an order for costs. No submissions were directed to the question of costs, but there is no basis for an order to be made for Mr Shannessy’s costs to be paid by any other person.

56. The Liquidator has not opposed the application and has limited his role in the proceedings to providing assistance to the Court. I consider that the assistance provided has been appropriate.

57. I make the following order:

1. Order pursuant to s 482 of the Corporations Act 2001 (Cth) that the winding up of Winsome Australia Pty Ltd (ACN 069 098 157) be terminated with effect from 28 April 2021

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Decision last updated: 28 April 2021