Kennedy R.M. v Williamson R.H
[1995] FCA 670
•29 AUGUST 1995
CATCHWORDS
CORPORATIONS - calls made on unpaid shares - list of contributories settled by liquidator - effect of failure to take objection to inclusion on settled list - extension of time application made to have names removed from settled list of contributories - no prejudice suffered by liquidator by removal of names - likelihood of success of any applications to vary settled list of contributories.
Corporations Law ss 9, 184, 478, 483(3)(b), 514-516
Corporations Regulations regs 1.06, 5.6.58 - 5.6.62
Corporations Regulations Schedule 2: Forms 538, 539, 544, 545
No. SG 3007 of 1995
IN THE MATTER of MURRAY RIVER FM PTY LTD (IN LIQUIDATION)
ACN 008 062 607
RE: ROBERT MICHAEL KENNEDY Applicant
- and -
ROBIN HARRY WILLIAMSON, JANINE CLARK WILLIAMSON, JENNIFER RUTH BOLTO, DESMOND DEAN BOLTO, ALFRED MURRAY DYER, RODNEE MARION STEWART, KAYTON ENTERPRISES PTY LTD, RICHARD JAMES STEWART, IAN HAGUE SHOWELL, FRANCIS IAN SHOWELL, CHRISTOPHER LLOYD PEARCE, EDNA MARIE THOMAS, EDWARD TWYFORD TOWNSEND and VALERIE AILEEN TOWNSEND
Respondents
Branson J
Adelaide
29 August 1995
IN THE FEDERAL COURT OF AUSTRALIA )
)
SOUTH AUSTRALIA DISTRICT REGISTRY ) No. SG 3007 of 1995
)
GENERAL DIVISION )
IN THE MATTER of MURRAY RIVER FM PTY LTD (IN LIQUIDATION)
ACN 008 062 607
RE: ROBERT MICHAEL KENNEDY
Applicant
- and -
ROBIN HARRY WILLIAMSON, JANINE CLARK WILLIAMSON, JENNIFER RUTH BOLTO,
DESMOND DEAN BOLTO,
ALFRED MURRAY DYER,
RODNEE MARION STEWART,
KAYTON ENTERPRISES PTY LTD,
RICHARD JAMES STEWART,
IAN HAGUE SHOWELL,
FRANCIS IAN SHOWELL,
CHRISTOPHER LLOYD PEARCE,
EDNA MARIE THOMAS,
EDWARD TWYFORD TOWNSEND and
VALERIE AILEEN TOWNSEND
Respondents
REASONS FOR DECISION
CORAM: Branson J
PLACE: Adelaide
DATE: 29 August 1995
The official liquidator of Murray River FM Pty Ltd (In Liquidation) ("the company") has applied pursuant to s483(3)(b) of the Corporations Law for orders for payment of a call made by the applicant as the liquidator of the company.
The factual background to the application is not in serious dispute. The respondents at various times earlier than March
1991 agreed to purchase shares with a par value of $1.00 in the company on the understanding that the company was making an application to the Australian Broadcasting Tribunal for an independent commercial FM radio licence. The directors of the company represented to prospective shareholders that should the company's application for an independent commercial FM licence not be successful, the company would either be wound up or disposed of in a way that would limit shareholders liability to an amount of ten cents per share.
The form of application for shares in the company confirmed the representation of directors. The body of the form of application was in the following terms:-
"I/WE hereby apply for ..... Ordinary Shares of One Dollar each in the capital of the Company and request you to allot ME/US that number of shares.
I/WE enclose the sum of $..... being the application monies for the above shares paid to five (5) cents per share and I/WE hereby agree to accept the shares or any lesser number that may be allotted to ME/US.
I/WE authorise you to register ME/US as the holder(s) of the shares allotted in respect of this application and I/WE agree to be bound by the terms of the memorandum and Articles of Association of the Company.
It is hereby noted that the Company has agreed to grant to the applicant the option to take up a similar number of shares to that applied for at this time.
The conditions applying to the grant of that option are that it must be exercised for the shares on a fully paid, at par, basis within seven (7) days of the announcement by the Australian Broadcasting Tribunal of a decision granting the company's proposed independent licence application.
Should the application not succeed, the company will be wound up or disposed of in a way that will remove any further commitment for calls above 10 cents per share maximum."
The Articles of Association of the company have at all material times provided that as to calls on shares:-
"Regulations 12-18 inclusive of Table "A" shall apply to this Company";
and as to forfeiture of shares:-
"Regulations 26-32 inclusive of Table "A" shall apply to this Company."
The reference to "Table A" in the Articles of Association is a reference to Table A of Schedule 3 of the Companies (South Australia) Code ("Table A").
Regulation 12 of Table A is in the following terms:-
The directors may make calls upon the members in respect of any money unpaid on the shares of the members ..... and not by the terms of the issue of those shares made payable at fixed times, except that no call shall exceed one quarter of the sum of nominal values of the shares or be payable earlier than one month from the date fixed for the payment of the last preceding call.
Each member shall, upon receiving at least 14 days notice specifying the time or times and place of payment, pay to the company at the time or times and place so specified the amount called on his shares.
The directors may revoke or postpone a call."
Regulations 26 and 27 of Table A are in the following terms:-
If a member fails to pay a call or instalment of a call on the day appointed for payment of the call or instalment, the directors may, at any time thereafter during such time as any part of the call or instalment remains unpaid, serve a notice on him requiring payment of so much of the call or instalment as is unpaid, together with any interest that has accrued.
The notice shall name a further day (not earlier than the expiration of 14 days from the date of service of the notice) on or before which the payment required by the notice is to be made and shall state that, in the event of non payment at or before the time appointed, the shares in respect of which the call was made will be liable to be forfeited.
If the requirements of a notice served under regulation 26 are not complied with, any shares in respect of which the notice has been given may at any time thereafter, before the payment required by the notice has been made, be forfeited by a resolution of the directors to that effect.
[not here relevant]."
By a report to shareholders dated 7 March 1991 the chairman of the company advised that the Australian Broadcasting Tribunal had refused to grant the FM licence sought by the company. The report stated that in the circumstances:-
"Three major courses of action present themselves.
That the Company be wound up.
That an Appeal be lodged.
That the Company proceed with submissions to have the Riverland and Murray Bridge areas joined into one market."
The report went on:-
"If options 2 or 3 are proceeded with, further costs will be incurred in addition to those creditors that we now have, necessitating further calls.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Applications for shares lodged by our shareholders state, quote
"Should the application not succeed, the company will be wound up or disposed of in a way that will remove any further commitment for calls above 10 cents per share maximum."
In view of the fact that your liability is presently limited to 10 cents per share, please advise which course of action is approved by you, which will enable the Directors to consider future policy.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
N.B.If any shareholder prefers option 1 [i.e. that the company be wound up], a buyer will be sought for these shares at 0.1 cent per share (if this is your wish) and remove you from further liability."
(underlining in original)
It is not established that each of the respondents received the above report. Some of them did. One respondent advised the directors of her preference that the company be wound up. No buyer for her shares at a price of 0.1 cent per share, or any price, was apparently found.
It appears that as at the date of the appointment of the applicant as liquidator of the company, the directors of the company had made a number of calls on members of the company. The total amount of such calls was fifty five cents per share. Although there is evidence before me of the directors serving on at least one of the respondents a notice pursuant to
regulation 26(1) of Table A in respect of an unpaid call, there is no evidence of the shares of any respondent being forfeited by a resolution of directors as provided for by regulation 27(1) of Table A. One respondent has given affidavit evidence that the secretary of the company advised her that her shares had been forfeited. It appears that he was in error. Not only is there no evidence that the directors passed the necessary resolution, the register of members of the company continued to show her as a director.
This Court ordered on 1 December 1993 that the company be wound up in insolvency. Section 478 of the Corporations Law provides, so far as is here relevant, as follows:-
"(1)As soon as practicable after the Court orders that a company be wound up, the liquidator must:
(a)cause the company's property to be collected and applied in discharging the company's liabilities; and
(b)consider whether subsection (1A) requires him or her to settle a list of contributories.
(1A)A liquidator of a company that is being wound up in insolvency or by the Court must settle a list of contributories if it appears to him or her likely that:
(a)either:
(i)there are persons liable as members or past members to contribute to the company's property on the winding up; or
(ii)[not here relevant].
(b)it will be necessary:
(i)to make calls on contributories; or
(ii)[not here relevant].
. . . . . . . . . . . . . . . . . . . . . . . . . .
(4)The list of contributories, when settled in accordance with the regulations, is prima facie evidence of the liabilities of the persons named in the list as contributories."
Section 9 of the Corporations Law defines as "contributory" as follows:-
'"contributory" means:-
(a)in relation to a company other than a no liability company:
(i)a person liable as a member or a past member to contribute to the property of the company if it is wound up;
(ii)in the case of a company having a share capital - a holder of fully paid shares in the company; and
(iii)before the final determination of the persons who are contributories by virtue of subparagraphs (i) and (ii) - a person alleged to be such a contributory
(b)[not here relevant]
(c)[not here relevant].'
Each of the respondents is a contributory in relation to the company if only by reason of paragraph (a)(iii) of the above definition.
Division 2 of Part 5.6 of the Corporations Law makes provision with respect to contributories. Sections 514-516 are here relevant. They provide as follows:-
"Where Division applies
514This Division applies where a company is wound up.
General liability of contributory
515Subject to this Division, a present or past member is liable to contribute to the company's property to an amount sufficient:
(a)to pay the company's debts and liabilities and the costs, charges and expenses of the winding up; and
(b)[not here relevant].
Company limited by shares
516Subject to sections 518 and 519, if the company is a company limited by shares, a member need not contribute more than the amount (if any) unpaid on the shares in respect of which the member is liable as a member or past member."
Sections 518 and 519 of the Corporations Law are not relevant to the circumstances of this case.
The register of members of the company is in evidence before me. It includes the names of each of the respondents. I am prepared to assume, in the absence of evidence to the contrary, that each respondent agreed to become a member of the company by applying for shares in the company. A number of the represented respondents have filed affidavit evidence to this effect. Section 184 of the Corporations Law provides as follows:-
"A person who agrees to become a member of a company and whose name is entered in the company's register of members becomes a member of the company."
The applicant has placed in evidence a copy of the report as to the company's affairs lodged by the directors of the company. He has also placed in evidence a schedule indicating his assessment of the true asset and liability position of the company. It shows a likely deficiency of assets over liabilities in excess of $1M. In the circumstance that the issued shareholding in the company was only partly paid the conclusion seems inescapable that the applicant considered that s478(1A) of the Corporations Law, the terms of which are set out above, required him to settle a list of contributories (see s478(1)(b) of the Corporations Law).
The procedure for the settling of a list of contributories is set out in regulations 5.6.58 to 5.6.62 of the Corporations Regulations. Such regulations provide as follows:-
"Liquidator to make out provisional list of contributories
5.6.58If the liquidator of a company considers it necessary to make calls on or adjust the rights of contributories, the liquidator must, as soon as practicable, make out a provisional list of contributories in accordance with Form 538.
Time and place for settlement of list
5.6.59(1) The liquidator must give to each person included in the list not less than 14 days' notice in writing, in accordance with Form 539, of the time and place appointed to settle the list.
(2) The liquidator or a person acting on his or her behalf must lodge a statement in writing in accordance with Form 540 that notice under subregulation (1) was given to each person included in the provisional list of contributories.
(3) A statement under subregulation (2) is evidence that the notice was sent to a person on the list at the address shown for that person, in the absence of evidence to the contrary.
Settlement of list of contributories
5.6.60(1) Before settling the list of contributories, the liquidator must hear and determine any objection by a person to being included in the list.
(2) The liquidator must settle the list of contributories and certify it, in accordance with Form 541, at the time and place specified in the notice given under regulation 5.6.59.
Supplementary list
5.6.61[not here relevant]
(2) Regulation 5.6.59 and subregulation 5.6.60(1) apply to making out, or settling and certifying, a supplementary list by the liquidator.
Notice to contributories
5.6.62(1) Within 14 days after the settlement of the list, or supplementary list, of contributories, the liquidator must:
(a)notify each person included in the list, or supplementary list, of his or her inclusion; and
(b)at the same time give each person notice that he or she may appeal to the Court against his or her inclusion within:
(i)21 days after service of the notice; or
(ii)if the Court allows - any further period.
(2)A person may appeal against his or her inclusion in the list, or supplementary list, of contributories, within:
(a)21 days after service on the person of the notice under subregulation (1); or
(b)if the Court allows - any further period.
(3) The Court may extend the time for filing an appeal under subregulation (2), even if the period of 21 days specified in subregulation (1) has expired.
(4)A notice for the purposes of subregulation (1) must be in accordance with Form 544.
(5) The liquidator, or a person acting on the liquidator's behalf, must lodge a statement in writing in accordance with Form 545 that notice under subregulation (1) was given to each person placed on the list, or supplementary list, of contributories.
(6) A statement under subregulation (5) is sufficient evidence that the notice was sent to a person on the list at the address shows for that person, in the absence of evidence to the contrary."
References hereafter to a numbered form (e.g. Form 538) is a reference to the form so numbered in Schedule 2 to the Corporations Regulations.
The provisional list of contributories in accordance with Form 538 is in evidence before me. It includes the names of each of the respondents. Also in evidence before me is a copy of the notice to contributories of the appointment to settle the list of contributories signed by the applicant in respect of each contributory. During the hearing of this matter I raised with Mr Evans, counsel for the applicant, whether the notice was strictly in accordance with Form 539 as required by regulation 5.6.59(1). It seems to me that Form 539 has been drawn on the understandable assumption that each notice to a contributory would include notification of the particulars of
his or her inclusion in the list of contributories but not particulars of the inclusion of other persons. As a consequence the form is drawn on the apparent assumption that it will fit on a single page. In this case the applicant, inappropriately in my view, gave to each contributory particulars of the inclusion in the list of contributories of each such contributory. This was done on a 2½ page schedule headed "FORM 539" which included at its end the notes required by Form 539 to be included in the form. Regulation 1.06 of the Corporations Regulations provides for the marking and identification of annexures to forms. The 2½ page schedule to the Form 539 signed by the applicant in this case, if an annexure to the form, did not comply with regulation 1.06. Mr Evans argued that the schedule was not an annexure and was not required to comply with regulation 1.06: he contended that the Form 539 signed by the applicant was a single document extending over 4 pages. In my view the extent to which a form can be broken up and reproduced on separate pages comes down to a question of degree. It seems to me that there could be circumstances in which a prescribed form which was broken up and reproduced over several pages would lose its character as a single document, and might mislead a recipient of it unless there were some clearly identifying link between the pages. On reflection, however, I agree with Mr Evans that this is not such a case. I am satisfied that a recipient of the Form 539 in this case would not have been confused or misled by its form. I note that no represented respondent made complaint of having been confused or misled by the Form 539.
By the first page of the Form 539 the applicant advised contributories as follows:-
"Take notice that I Robert Michael Kennedy of 4-8 Angas Street, Kent Town, S.A., 5067, the liquidator of the company, have appointed 9.00 AM on 4th February, 1994 at 4-8 Angas Street, Kent Town, S.A., 5067, at which I must settle the list of contributories of the company that I have made. You are at present included in that list. Particulars of your inclusion are set out below. Unless, before or at the time appointed for the settlement, you give me sufficient reasons for your exclusion, your name will be included in the settled list."
The applicant lodged with the Australian Securities Commission ("ASC") a statement in writing in accordance with Form 540 that a notice under regulation 5.6.59(1) of the Corporations Regulations was given to each person included in the provisional list of contributories (reg5.6.59(2)). Such statement is evidence that the notice was sent to each person on that list at the address shown for that person in the absence of evidence to the contrary (reg5.6.59(3)). There is no evidence to the contrary before me: nor is there any challenge to the appropriateness of the address shown on that list for each person.
There is no evidence before me of any objection being taken to the provisional list of contributories at or before the time appointed for the settlement of the list.
On 4 February 1994 the applicant settled the list of contributories and certified it in accordance with Form 541 as required by regulation 5.6.60 of the Corporations Regulations. On 11 February 1994 he sent to each person included on the list notice of his or her inclusion in accordance with Form 544 of Schedule 2 of the Corporations Regulations and at the same time gave each such person notice that he or she could appeal to this court against his or her inclusion within 21 days after the service of the notice or within such further time as the Court might allow.
None of the respondents appealed against his or her inclusion in the settled list of contributories. The applicant lodged with the ASC a statement in writing in accordance with Form 545 as required by regulation 5.6.62(5) of the Corporations Regulations. Such a statement is sufficient evidence that the notice was sent to each person on the list at the address shown for that person in the absence of evidence to the contrary. There is no evidence to the contrary before me: nor is there any challenge to the appropriateness of the address shown on that list for each person.
Section 478(4) of the Corporations Law provides that the list of contributories, when settled in accordance with the regulations is prima facie evidence of the liabilities of the persons named in the list as contributories. It was contended on behalf of the liquidator that a contributory who did not contest his or her inclusion in the settled list of contributories was not entitled on this application to seek to go behind the list. He was not able to draw my attention to any authority to this effect, nor have I been able to find any: however it is certainly the approach adopted by certain of the text writers. Mr Evans read from McPherson: The Law of Company Liquidation 3rd Ed at 301 where, in dealing with the predecessors of the present provisions, the author states:-
"The list, when settled, is only prima facie evidence of the liabilities of the persons named therein as contributories, but when all objections have been heard and the time for appealing has expired, it appears that unless he first obtains an extension of time within which to apply for his removal, a contributory can no longer challenge his inclusion therein except possibly on the ground that in settling the list the liquidator failed to follow the correct procedure."
In Ford's Principles of Corporations Law 6th Ed at 851, dealing with the provisions here under consideration, the authors state as follows:-
"After settling the list the liquidator gives written notice to each person on the list stating the character in which and the number of shares or interest for which that person has been included, what amount has been called up and what amount has been paid up. The notice also advises the person of the right to apply to the court for removal of his or her name from the list or for variation of the list. When the time for appealing has run and all objections have been heard the list is final as against the contributory except for possible review not on the merits but on the ground that the liquidator has not followed the proper procedure. The liquidator, however, can make supplementary lists which add to or vary the original list."
In my view considerations of principle suggest that the above approach is the correct one. The Corporations Law and Corporations Regulations deal in considerable detail with the procedure for the settling of the list of contributories. The procedure includes the hearing by the liquidator of objections to inclusion on the list. A right of appeal to the Court is provided in respect of the liquidator's decision. In my view it cannot have been intended that a contributory could ignore these procedures and yet maintain the right to argue at a later stage before the Court matters that could have been raised by way of objection to his or her inclusion on the list of contributories, or by way of appeal against the decision of the liquidator on the settlement of the list of contributories. I consider that unless the Court allows the respondents to this application an extension of time within which to apply to vary the settled list of contributions, or to remove their respective names from the list, they may not on this application seek to dispute on the merits their respective liabilities as contributories.
During the course of argument on this matter an oral application was made on behalf of the represented respondents for extensions of time within which to apply to the Court to remove their respective names from the settled list of contributories. I allowed the application to be made orally and adjourned the proceedings to enable the represented respondents to place such evidence as they might respectively be advised before the Court on their applications for extensions of time.
Upon the matter again coming on for hearing the applications for extensions of time were opposed by the applicant. It was not contended on behalf of the applicant that he was prejudiced by the late application other than by the inevitable cost of, and delay occasioned by, the applications. However, it was argued on his behalf, first that no satisfactory explanation for the approximately 15 months delay was offered to the Court and, secondly, that it had not been shown that any application to remove a name from the settled list was attended by a reasonable chance of success.
The explanations for delay put forward on behalf of the various represented respondents were that the various respondents were not aware until this application was argued that there was any necessity for them to seek to vary the settled list of contributories, and none of them was advised by his or her legal adviser that it was necessary.
Of more significance, however, in circumstances in which little prejudice is put forward as being likely to be suffered by the applicant should the applications for extensions of time succeed, is the likelihood of any of the possible applications to vary the settled list of contributories succeeding.
It is plain that each of the respondents became a member of the company. Each of them held shares which he or she acknowledged to be partly paid shares. Nothing before me suggests that any of them ceased to be a member of the company either by the sale or the forfeiture of their respective shares. Each of them undertook to be bound by the Memorandum and Articles of Association of the company which provided for calls to be made on the unpaid amounts owing on their respective shares.
In my view it is plain that there was no contract between the respective respondents and the company that their liability to the company was limited to 10 cents per share. Even if such a contract had purported to be entered into, it would plainly have been inconsistent with the provisions of the Companies (South Australia) Code and the Corporations Law and for that reason invalid. In my view the evidence in this case demonstrates that the respondents on the one hand and the company through its directors, were well aware that the holding of partly paid shares carried with it the legal obligation to pay all calls properly made with respect to the unpaid portion of the par value of the shares. What was originally intended, and what, in my view, was represented to prospective shareholders, was that the directors would so conduct the affairs of the company in the event that the FM licence sought by the company was not granted, that no calls over 10 cents per share would be made on the company. In fact they did not so conduct the affairs of the company. It may be that this could give the respondents certain rights against such former directors - I am not in a position to say. However, I do not consider that it gives the respondents, or any of them, the legal entitlement to avoid payment of the unpaid portion of the par value of their shares in the events that have happened - i.e. that the company is being wound up in insolvency.
Mr Stathopoulos, who appeared on behalf of certain of the respondents, argued that the call of 45 cents per share made by the liquidator was invalid as the amount of the call exceeded one quarter of the nominal value of the shares. He referred to regulation 12 of Table A. Regulation 12 is set out above. In my view the powers of the liquidator to require present or past members of the company to contribute to the company's property is governed by Division 2 of Part 5.6 of the Corporations Law and not by the terms of the company's Articles of Association governing the powers of the directors of the company to make calls on partly paid shares.
In the circumstances I decline to grant the represented respondents, or any of them, an extension of time within which to seek to have their respective names removed from the settled list of contributories.
No challenge has been made on behalf of the represented respondents to the procedure followed by the liquidator in settling the list of contributories. As to the unrepresented respondents I am satisfied on the evidence placed before me on behalf of the applicant that the prescribed procedure was followed.
Subject to my being satisfied that the amounts sought by the application remain outstanding, the orders sought by the applicant will be made. Counsel will have liberty to speak to minutes of order.
I certify that this and the preceding pages are a true copy of the Reasons for Decision of Justice Branson.
Associate:
Dated:
Counsel for the Applicant : Mr M Evans
Solicitors for the Applicant : Cowell Clarke
Counsel for the First, Second, : Mr G Stathopoulos
Fifth, Eleventh and Twelfth
Respondents
Solicitors for the First, Second : O'Briens
and Fifth Respondents
Solicitors for the Eleventh : Cibiras & Daws
Respondent
Solicitors for the Twelfth : Ronald Frank Bell
Respondent
Hearing Dates : 19 May 1995
9 August 1995
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