Jones, Michael Gregory (in his capacity as administrator of New Life Promotions Australia Pty Ltd) v New Life Promotions Australia Pty Ltd

[1998] FCA 32

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NG 3008 of 1998

BETWEEN:	MICHAEL GREGORY JONES (in his capacity as administrator of NEW LIFE PROMOTIONS AUSTRALIA PTY LIMITED (ACN 062 550 976)) APPLICANT
AND:	NEW LIFE PROMOTIONS AUSTRALIA PTY LIMITED (ACN 062 550 976) RESPONDENT

JUDGE:	LINDGREN J
DATE:	12 JANUARY 1998
PLACE:	SYDNEY

REASONS FOR JUDGMENT
(ex tempore)

There is before the Court an application for a declaration under s 447C(2) of the Corporations Law (“the Law”). That provision, together with s 447C(1) is as follows:

“447C(1)       If there is doubt, on a specific ground, about whether a purported appointment of a person as administrator of a company, or of a deed of company arrangement, is valid, the person, the company or any of the company's creditors may apply to the Court for an order under subsection (2).

(2)On an application, the Court may make an order declaring whether or not the purported appointment was valid on the ground specified in the application or on some other ground.”

The application claims the following relief:

“1.A declaration pursuant to section 447C(2) of the Corporations Law that the purported appointment of Michael Gregory Jones as administrator of New Life Promotions Australia Pty Limited on 2 January 1998 was valid.

2.Further and alternatively, a declaration that the appointment of John Edward Star as administrator of New Life Promotions Australia Pty Limited under section 436A of the Corporations Law on 23 December 1997 was valid.”

As appears, the applicant (“Mr Jones”) claims to have been appointed as administrator of the respondent, New Life Promotions Australia Pty Ltd (“the Company”), more recently than Mr Star. He claims to be the occupant of that office at present.  Why Mr Jones would wish to seek a declaration that the earlier appointment of Mr Star was valid will appear in due course.

Mr Jones asked that his application be heard during vacation, because of the time constraints affecting the duties which Part 5.3A of the Law imposes on an administrator. The application and a supporting affidavit of George Spitzer, who has been the accountant for the Company since about November 1993, sworn 9 January 1998, were filed in Court by leave, together with an “affidavit as to urgency” also sworn by Mr Spitzer on 9 January (see O 2 r 2(2) and Practice Note No 7, “Vacation Hearings”). I order that the application be heard in vacation.

I am informed by counsel appearing for Mr Jones that copies of the application and affidavits have been served on the Company at its registered office. He has undertaken to the Court that an affidavit of service will be filed later today. The company’s registered office is c/o T M Foster & Co, 8th floor, 60 York Street, Sydney, which is apparently Mr Spitzer’s office. Further, there is in evidence a letter on the letterhead of the Company signed by Mr Graham Wilson, the ultimate controller of the Company (see below), to the effect that he is aware of the application and that the orders sought are consented to.  Further, as will appear, there is evidence that all members of the Company support the application. I am satisfied that it is appropriate that the hearing proceed and that there should be an order dispensing with compliance with the rules relating to service.

The evidence shows that the Company is incorporated in New South Wales and that its principal business is the biannual promotion of the “Mind Body Spirit” Sydney Festival.  The members of the Company are, again, Mr Spitzer, Antony John Drew and Orminay Holding Corp (“Orminay”). Orminay is a British Virgin Islands company.  Of the one hundred issued ordinary shares in the capital of the Company, Orminay holds ninety-eight, and Mr Drew and Mr Spitzer hold one each. They hold as trustees for Orminay.  The principal of Orminay is Graham Leslie Wilson, a United Kingdom resident. 

Since 8 May 1997, when a former director named Ms Burton resigned, Mr Drew has been the sole director of the Company. He had been appointed on 22 November 1993. A proprietary Company may have only one director: see s 221 of the Law.

The problem which has arisen relates to actions of Mr Drew on 23 December.  On that date he purported to pass resolutions of “the Directors” of the Company that John Edward Star be appointed administrator of the Company and that the Company's seal be affixed to the necessary instrument of appointment. Such an instrument was purportedly executed under the Company’s common seal and signed by Mr Drew as director. Mr Star signed a consent to act. 

Subsection 436A(1) of the Law provides:

“436A(1)       A company may, by writing under its common seal, appoint an administrator of the company if the board has resolved to the effect that:

(a)in the opinion of the directors voting for the resolution, the company is insolvent, or is likely to become insolvent at some future time; and

(b)an administrator of the company should be appointed.”

The first problem which has arisen springs from certain provisions of the Company's articles of association.  Article 73 provides that at a meeting of directors, the number of directors whose presence is necessary to constitute a quorum is such number as is determined by the directors, and, unless so determined, is two. Article 57(1) provides that the number of the directors and the names of the first directors shall be determined in writing by the subscribers to the memorandum of association or a majority of them. So far as the evidence reveals, there has been no determination by the subscribers. I proceed on the assumption that Mr Drew is validly a director, and the only director, of the Company.

The first doubt touching the appointment of Mr Star is that perhaps there was not a quorum present at the meeting held on 23 December 1997.  I say “perhaps” because, contrary to first impression, the matter may not be straightforward. Let it be assumed that there was no determination of a quorum or that the quorum was determined to be a number greater than one. It is nonetheless arguable that notwithstanding article 73, Mr Drew was entitled to pass an effective resolution of directors, on the basis that article 73 operates only where there are two or more directors in office. 

I turn next to the sealing of the instrument.  Article 84(2) provides:

“(2)The seal shall be used only by the authority of the Directors, or of a committee of the Directors authorised by the Directors to authorise the use of the seal, and every document to which the seal is affixed shall be signed by a Director and be countersigned by another Director, a Secretary or another person appointed by the Directors to countersign that document or a class of documents in which that document is included.”

In the present case, there was a signature by the one and only director, Mr Drew. He was “the Directors”. Countersignature by another director was an impossibility, although countersignature by “a Secretary or another person appointed by the Directors to countersign” was a possibility.  Literally, the terms of s 436A(1) are satisfied, in that there was a writing under the common seal of the Company and its affixation was authorised by the authority of “the Directors”.  But Mr Jones has raised the question whether the terms of the section were met in view of the fact that there was no countersignature.

Mr Star convened a meeting of creditors, purportedly in compliance with the requirement of s 436E(1) of the Law, which requires the convening of such a meeting by an administrator in order that it may be determined whether a committee of creditors is to be appointed, and, if so, who are to be the committee’s members. I say, “purportedly” because the making of the present application raises the very question whether Mr Star was properly in office. The meeting was held on 2 January 1998. The documents before the Court suggest that, leaving to one side “a contingency for additional creditors” of $50,000, the Company had unsecured creditors to the extent of $528,014.28, of which creditors to the extent of $349,130.07 were represented at the meeting. It may be that the second figure mentioned should be higher.

Section 436E(4) of the Law provides:

“At the meeting [a meeting of creditors convened by an administrator pursuant to s 436E(1)], the company's creditors may ... by resolution:

(a)remove the administrator from office; and

(b)appoint someone else as administrator of the company.”

It was resolved by creditors that Mr Star be removed as administrator and that Mr Jones be appointed in his place. It is not suggested that the formalities of the resolutions of the creditors were not in order. Rather, if the initial appointment of Mr Star was not valid there arises questions whether the meeting was an effective meeting for the purposes of 436E(1) and therefore whether the power given to creditors by s 436E(4) was available.

On 9 January 1998 a general meeting of members of the Company was held.  Present were Mr Spitzer, both in his own capacity and as the appointed proxy of Mr Drew, and Mr Wilson as representing Orminay.  Accordingly, all members of the company were present.  At that meeting the following two resolutions were passed unanimously:

“IT WAS RESOLVED THAT the resolutions of Antony John Drew with respect to the insolvency of the company and the appointment of John Edward Star as administrator of the company made on 23 December 1997 as recorded in the copy of the minutes of meeting attached and marked “A” be ratified and confirmed notwithstanding that these resolutions may have been beyond the power of Mr Drew as a director of the company.

IT WAS RESOLVED THAT the instrument appointing John Edward Star as administrator of the company made on 23 December 1997 a copy of which is attached and marked “B” be ratified and confirmed with effect to bind the company notwithstanding that the affixing of the common seal and the manner of attestation of the affixing of the common seal may not have been in accordance with the articles of association of the company.”

There are in evidence documents which demonstrate the consent by all three members of the Company to the holding of that general meeting on less than the required notice.

Clearly, if there was a problem initially, in all the circumstances it should not be allowed to prevail against the wishes of members and creditors if this result can be avoided.

Section 1322(4)(a) of the Law empowers the Court to make a declaration that any act, matter or thing purporting to have been done, or any proceeding purporting to have been instituted or taken under the Law or in relation to a corporation is not invalid by reason of any contravention of a provision of the Law or a provision of the constitution of the corporation. I think that the case is an appropriate one for a declaration that the resolution of Mr Drew dated 23 December 1997 is not invalid by reason of any absence of a quorum of directors at the meeting held on that date, and that the appointment of Mr Star under the common seal of the Company by instrument dated 23 December 1997 is not invalid by reason of the absence of any counter signature on the instrument of appointment.

I raised with counsel appearing for Mr Jones the question whether the ratification had retrospective effect in the present case as ratification ordinarily does in an agency situation. I need not decide this question because, having declared that the acts of 23 December are not invalid for the only possible cause of invalidity before the Court, I think it appropriate to make a declaration under s 447C. 

THE COURT ORDERS THAT:

1. The Application be returnable instanter.

1. Any further or other service of the Application and supporting Affidavits be, and the same is hereby, dispensed with.

1. The resolutions passed by Antony John Drew on 23 December 1997 as constituting the board of directors of New Life Promotions Australia Pty Ltd are not invalid by reason of any absence of a quorum of directors.

1. The appointment of John Edward Star as administrator of New Life Promotions Australia Pty Ltd by written instrument of appointment under the common seal of that company countersigned by Antony John Drew is not invalid by reason of the absence of any other signature.

1. The applicant’s costs of the present Application are a proper and legitimate cost of the administration.

THE COURT DECLARES THAT:

1. The purported appointment of John Edward Star as administrator of New Life Promotions Australia Pty Limited on 23 December 1997 was valid.

1. The appointment of Michael Gregory Jones as administrator of New Life Promotions Australia Pty Limited on 2 January 1998 was valid.

THE COURT GRANTS LEAVE:

1. To the applicant to file in Court the Application and two Affidavits of George Spitzer, sworn 9 January 1998.

THE COURT RESERVES LIBERTY:

1. For the applicant to apply in the event that any difficulty should arise in the outworking of the above orders and declarations.

I certify that this and the preceding six (6) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Lindgren

Associate:

Dated:            12 January 1998

Counsel for the Applicant:	Mr R A Dick
Solicitor for the Applicant:	Parry Carroll Kanjian
Solicitor for the Respondent:	There was no appearance for the respondent
Date of Hearing:	12 January 1998
Date of Judgment:	12 January 1998