Interchase Corporation Ltd (provisional liquidators appointed) The application of Interchase Corporation Ltd

[1992] FCA 808

APPLICATION OF INTERCHASE CORPORATION LTD (PROVISIONAL LIQUIDATORS APPOINTED)
No. N G3018 of 1991
FED No. 808
Company Law
(1992) 111 ALR 561

COURT

IN THE FEDERAL COURT OF AUSTRALIA

QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
Cooper J.(1)

CATCHWORDS

Company law - Provisional Liquidators appointed - own application by company to be wound up - insolvent - resolution of board of directors - no resolution of members in general meeting - whether directors have power to apply for its winding up - construction of articles of association - "business of the company shall be managed by the Directors".

The Standard Bank of Australia Ltd (1898) 24 VLR 304

In Re Birmacley Products Pty. Ltd. (1943) VLR 29

Re United Uranium N.L. (1990) 8 ACLC 741

Re Woulfe and Sons Pty. Ltd. (1972) QWN 50

Re Giant Resources Limited (1991) 1 Qd R 107

Re Inkerman Grazing Pty. Ltd. (1972) 1 ACLR 102

Re Compaction Systems Pty. Ltd. (1976) 2 ACLR 315

Strong v. J. Brough and Son (Strathfield) Pty. Ltd. (1991) 5 ACSR 296

Campbell v. Rofe (1932) 48 CLR 258

Corporations Law

HEARING

BRISBANE

#DATE 20:10:1992

Counsel for the Applicant: R. Chesterman QC and J. McKenna

Solicitors for the Applicant: Feez Ruthning

ORDER

THE COURT ORDERS that :-

1. Interchase Corporation Ltd. (Provisional Liquidators appointed) be wound up by this Court under the provisions of the Corporations Law.

2. GREGORY PAUL KELLY and RICHARD ANTHONY BARBER of Waterfront Place, 1 Eagle Street, Brisbane Queensland 4000, official liquidators, be appointed the joint liquidators of the affairs of the said company.

3. The provisional liquidators costs of and incidental to this application be costs in the provisional liquidation.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules

JUDGE1

COOPER J. The company has applied on its own application for an order that it be wound up. The business of the company has ceased and its assets got in by the provisional liquidator. The company is, notwithstanding the realization of its assets, hopelessly insolvent. The case is a proper one for the making of a winding up order.

1. A question has arisen as to whether the Court can or should make the order as the application was made in accordance with a resolution of the board of directors of the company and not as a result of a resolution of the members in general meeting.

2. There is authority of the Victorian Supreme Court (The Standard Bank of Australia Ltd (1898) 24 VLR 304; In Re Birmacley Products Pty. Ltd. (1943) VLR 29 and Re United Uranium N.L. (1990) 8 ACLC 741) and the Supreme Court of Queensland (Re Woulfe and Sons Pty. Ltd. (1972) QWN 50 and Re Giant Resources Limited (1991) 1 QdR 107) which holds that unless authorised by the articles of association, the directors of a company have no power to apply for its winding up. The underlying reasoning of the decisions is that the power to manage the business of a company refers to the commercial activities of it and does not extend to the making of an application which has as its object the cessation of the business and the winding up of the company's affairs.

3. In Giant Resources, Ryan J. merely adopted the reasoning of McGarvie J. in United Uranium because the Articles in question were identical. He declined to follow the practice of the Supreme Court of New South Wales which was to allow such applications by directors (Re Inkerman Grazing Pty. Ltd. (1972) 1 ACLR 102; Re Compaction Systems Pty. Ltd. (1976) 2 ACLR 315).

4. Numerous decisions of single judges of the Supreme Court of New South Wales can be found giving effect to the decision of Street J. in Inkerman Grazing. For present purposes reference need only be made to two of them. In Compaction Systems Pty. Ltd., Bowen C.J. in Equity said (at 491) :-
   

"'Management or administration of a company' would appear to cover all the matters committed by the Act, and by the articles of association, to the board of directors, and also generally those matters which may be dealt with by shareholders in general meeting. The argument has, on occasion, been advanced in this Court, where a board of directors has resolved that a petition to wind up a company be presented to the Court, that this was beyond the powers of a board of directors. Broadly this argument follows the line that, where the articles commit to the directors the management of the affairs of a company, it is not within their powers to make a decision to launch proceedings having as their ultimate objective the termination of the company's affairs. The argument has not been accepted: Re Inkerman Grazing Pty. Ltd. It would, of course, be a misstatement of the position to say that a decision to present a petition to wind up is itself a decision to terminate the affairs of the company. Clearly it is not. The business of the company continues and the directors continue to manage it. The decision as to whether the company shall be wound up is committed to the Court. Again, where application is made for the appointment of a provisional liquidator, the affairs of the company continue, although at this point the provisional liquidator assumes, to the extent to which the Court provides in its order appointing him, the powers of the directors, with vestigial powers continuing to reside in them. A winding up order may or may not ultimately be made".

1. Compaction Systems was applied by Young J. in Strong v. J. Brough and Son (Strathfield) Pty. Ltd. (1991) 5 ACSR 296 at 299. Importantly, Young J. referred to the decision of the Privy Council in Campbell v. Rofe (1932) 48 CLR 258. In Campbell v. Rofe the Privy Council had occasion to construe an article in the following terms :-
   

"The management of the business of the company shall be vested in the directors who in addition to the powers and authorities by these presents or otherwise expressly conferred upon them may exercise all such powers and do all such acts and things as may be exercised or done by the company and are not hereby or by statute expressly directed or required to be exercised or done by the company in general meeting" (art. 117)"

1. In the High Court it was unanimously held that Article 117 was concerned only with the management of the business of the company. The Privy Council disagreed with this narrow interpretation and said at 265 :-
   

"In this view, art. 117, which only purports to confer additional powers, does not include the powers conferred by art. 10; but, if their Lordships had taken a different view as to art. 10, they would have been prepared to hold that art. 117 clearly delegated to the directors power to do everything that the Company could do except where the authority of a general meeting of the Company is expressly prescribed, and that such delegation would include power to issue preference shares. Their Lordships are unable to agree with the narrow construction of the words "management of the business of the Company" adopted by the High Court".

1. Young J. in Strong v. Brough and Sons relied upon the observations of Bowen C.J. in Compaction Systems and the observations in Campbell v. Rofe to give a broad interpretation of the article under consideration. That article provided :-
   

"37. The business of the company shall be managed by the directors who may pay all expenses incurred in promoting and registering the company and may exercise all such powers of the company as are not by the Code or by these articles required to be exercised by the company in general meeting. The general powers given by this article shall not be limited or restricted by any special authority or power to the directors by any other article".

1. His Honour held that the article empowered the directors to seek a winding up order.

2. McGarvie J. was not referred to the decisions in Compaction Systems, Strong and Campbell v. Rofe when he decided United Uranium N.L.. Nor were the latter two decisions referred to Ryan J. when he decided Giant Resources.

3. An analysis of the cases shows that all Courts have approached the question by determining the proper interpretation of the articles of the company under consideration. (See Inkerman Grazing at 106; United Uranium at 743; Strong at 299; Giant Resources at 108-109). The differences which have arisen stem from the reading of the words "and may in addition to the powers herein conferred upon them exercise all such powers of the company as are under the Companies Act or under the regulations for the time being of the company required to be exercised by the company in general meeting..." as limited by the words "the business of the company shall be managed" which also appear in the article. This has the effect of imposing a business management purpose on what is prima facie an unrestricted additional grant of power. This limitation first appears in The Standard Bank of Australia Ltd. at p 306-307.

4. The effect of the decision of the Privy Council in Campbell v. Rofe is that the powers may be constructed disjunctively if the context will allow.

5. In the present case the article provides :-
   

"87. The business of the Company shall be managed by the Directors, who may pay all expenses incurred in promoting and registering the Company, and may exercise all such powers of the Company as are not, by the Code or by these Articles, required to be exercised by the Company in general meeting, subject, nevertheless, to any of these Articles, to the provisions of the Code, and to such Articles, being not inconsistent with the aforesaid Articles or provisions, as may be prescribed by the Company in general meeting; but no regulation made by the Company in general meeting shall invalidate any prior act of the Directors which would have been valid if that regulation had not been made".

1. The article is substantially, in its operative parts, in the same terms as the article considered by Young J. in Strong. I am persuaded by the reasoning in Strong that the article ought properly to be constructed as empowering the directors to exercise all the powers of the company as are not required to be exercised in general meeting without the limitation that the power be used for the management of the company. I am not persuaded that the decisions in United Uranium and Giant Resources would necessarily have been determined in the manner they were if the argument based on the decisions in Campbell v. Rofe and Strong had been advanced. It is unnecessary to determine whether the bringing of an application to wind up upon the resolution of the directors is inconsistent with their power and duty to manage the business of a company.

2. Accordingly, I am satisfied that the application is properly brought upon the resolution of the board of directors.

3. THE COURT ORDERS that :-
   1. Interchase Corporation Ltd. (Provisional Liquidators
   

appointed) be wound up by this Court under the provisions of the Corporations Law.

2. GREGORY PAUL KELLY and RICHARD ANTHONY BARBER of Waterfront

Place, 1 Eagle Street, Brisbane Queensland 4000, official liquidators, be appointed the joint liquidators of the affairs of the said company.

3. The provisional liquidators costs of and incidental to this

application be costs in the provisional liquidation.