Lean v Banning Holdings Pty Ltd - [2017] WASC 353

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: LEAN -v- BANNING HOLDINGS PTY LTD [2017] WASC 353

CORAM: SMITH AJ

HEARD: 20 NOVEMBER 2017

DELIVERED : 20 NOVEMBER 2017

PUBLISHED : 6 DECEMBER 2017

FILE NO/S: COR 140 of 2017

MATTER :Banning Holdings Pty Ltd

BETWEEN: GRAHAM TREVOR LEAN
Plaintiff
AND
BANNING HOLDINGS PTY LTD
Defendant

Catchwords:

Corporations law - Application to wind up a company by the court - Standing - Whether plaintiff is a 'contributory' of the company within the meaning of s 9 Corporations Act 2001 (Cth) - Plaintiff holder of an equitable lien expressly limited by order of the court

Legislation:

Civil Judgments Enforcement Regulations 2005 (WA), reg 57
Corporations Act 2001 (Cth), s 9, s 9(a)(i), s 9(a)(ii), s 9(a)(iii), s 461(1), s 461(1)(e), s 461(1)(f), s 461(1)(k), s 462, s 462(5), s 478, s 478(1), s 478(1A), s 480, s 480(a), s 515, s 516

Result:

Application dismissed

Category: B

Representation:

Counsel:

Plaintiff: Mr C P Stokes
Defendant: Mr T R Stephenson

Solicitors:

Plaintiff: Chris Stokes & Associates
Defendant: Eastwood Sweeney Law

Case(s) referred to in judgment(s):

Computer Accounting and Tax Pty Lt (in liq) v Professional Services of Australia Pty Ltd [No 2] [2010] WASC 318
Computer Accounting and Tax Pty Ltd (in liq) v Professional Services of Australia [No 11] [2016] WASC 365
Computer Accounting and Tax Pty Ltd v Professional Services of Australia Pty Ltd [2008] WASC 133
Frigger v Campbell‑Smith [2010] WASC 353
In Re Savoy Estate Ltd (1949) Ch 622
Maddocks v DJE Constructions Pty Ltd (1982) 148 CLR 104
Mellor v Mellor [1992] 4 All ER 10
Professional Services of Australia Pty Ltd v Computer Accounting and Tax Pty Ltd [No 2] [2009] WASCA 183
Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; (1998) 194 CLR 355
Re Lawrenson Light Metal Die Casting Pty Ltd (1999) 33 ACSR 288
Re Scottish Properties Pty Ltd (1977) CLC 40‑307
Re Van Reesema; Ex parte Australian Growth Resources Corporation Pty Ltd (Receivers and Managers Appointed) [1987] FCA 336
Shirlaw v Taylor (1991) 102 ALR 551
Viola v Anglo‑American Cold Storage Company [1912] 2 Ch 305
Yara Australia Pty Ltd v Oswal [No 2] [2013] WASCA 187

SMITH AJ: On 20 November 2017, I made an order dismissing this proceeding. Having heard preliminary argument, I was not satisfied the plaintiff, Graeme Trevor Lean, had standing to make the application. These are my reasons for making the order.
This is an application by Mr Lean brought pursuant to s 461(1) of the Corporations Act 2001 (Cth) for the court to wind up Banning Holdings Pty Ltd (BH).
BH is owned by the deceased estate of Martin Paul Banning. BH is incorporated as a proprietary company limited by shares.
Whilst the application is made under s 461(1)(e), s 461(1)(f) and s 461(k) of the Corporations Act, the ground relied upon by Mr Lean to wind up BH is as provided for in s 461(k), that it is just and equitable to do so.

Background

This application has been instituted as part of long running disputes and litigation between a number of parties which include Mr Lean, BH and Professional Services of Australia Pty Ltd (PSA), Computer Accounting and Tax Pty Ltd (CAT) and Mrs Angela Frigger and Mr Helmut Frigger.
On 21 November 2008, in CIV 2265 of 2006 Mr Lean was appointed receiver of PSA by order of Justice Simmonds for a limited purpose of appropriating and realising property to satisfy a judgment debt. At the time the order was made Mr Banning together with PSA owed to CAT a judgment debt: see Computer Accounting and Tax Pty Lt (in liq) v Professional Services of Australia Pty Ltd [No 2] [2010] WASC 318 (CIV 2265 of 2006); Computer Accounting and Tax Pty Ltd v Professional Services of Australia Pty Ltd [2008] WASC 133. The defendants to the action in CIV 2265 of 2006 were at that time PSA and Mr Banning.
Mr Banning died shortly after the delivery of the judgment in 2008. Donald Campbell‑Smith as executor of Mr Banning's estate was later substituted as the second defendant in CIV 2265 of 2006.
When the order was made by Simmonds J on 21 November 2008, the only property of substantial value available to satisfy the judgment debt was one share in BH. Orders 2 and 3 of the order made by Simmonds J provided:
2.For the purposes of this Order the Receiver is appointed in this action to appropriate and realise the property so as to satisfy the judgment debt.
3.For the purposes of this Order the property is that described and referred to in the Schedule.
The Schedule of Property described the property as property held by the second judgment debtor (Mr Banning) in his name, being one share (50% shareholding) in BH.
Pursuant to the order made by Simmonds J on 21 November 2008, one share in BH in December 2008 was transferred to Mr Lean by Mr Campbell‑Smith as the executor of the estate of Mr Banning.
Following the registration of the share in Mr Lean's name, Mr Lean entered into a contract of sale between Mr Lean and Mrs Angela Frigger and Mr Helmut Frigger (who were the directors and shareholders of CAT). The Friggers paid Mr Lean the purchase price of $730,000. The directors of BH, Sandra Banning and Mr Campbell‑Smith refused to process or register an executed transfer of the BH share. Consequently, the transfer did not occur and $730,000 less a deposit of $20,000, was returned to the Friggers. The $20,000 was retained pending a determination whether the Friggers were entitled to become registered as shareholders of BH.
The Friggers commenced proceedings, against Mr Lean, Mr Campbell‑Smith and Mrs Banning (in their capacities as directors of BH) and BH, seeking transfer of the share to them (CIV 1727 of 2009). Before the action proceeded to trial, the judgment debt owed to CAT was in effect deemed to have been paid following a decision of the Court of Appeal in October 2009 reducing damages on a claim of statutory compensation by $680,000 (substantial components of the debt having been paid prior to the delivery of the judgment of the Court of Appeal): see Professional Services of Australia Pty Ltd v Computer Accounting and Tax Pty Ltd [No 2] [2009] WASCA 183.
As the judgment debt that had been owed by PSA to CAT had been substantially paid, Simmonds J cancelled the receivership order made on 21 November 2008, on grounds that it was improbable that the services of the receiver were required further: Computer Accounting and Tax Pty Ltd (in liq) v Professional Services of Australia Pty Ltd [No 2] [99] ‑ [100] (Simmonds J).
The effect of the order to cancel the receiver order, was to discharge Mr Lean as receiver. However, Simmonds J was of the opinion that a consequential order should be made in favour of Mr Lean to preserve a lien for his costs (of his work as the receiver) on the share or its proceeds, as his costs of receivership were not chargeable to CAT and the lien survived his discharge as receiver [76].
Notwithstanding that Simmonds J was aware that it was common ground that the one share had been registered in the name of Mr Lean as receiver, on 10 November 2010 Simmonds J made an order in terms of order 2 of the Receiver's Minute of Proposed Orders and Declaration, filed 10 November 2010. Order 2 of the minute was as follows:
2.The Receiver has an equitable lien over the share in Banning Holdings Pty Ltd which is currently registered in the name of Martin Banning and the proceeds of its sale for the payment to him of his remuneration and costs as approved in accordance with the orders of the court made 21 November 2008.
On 2 December 2010, Kenneth Martin J granted a permanent stay of the proceedings instituted by the Friggers to enforce the sale of the share of BH in CIV 1727 of 2009: Frigger v Campbell‑Smith [2010] WASC 353.
Pursuant to the order made by Simmonds J on 10 November 2010, in CIV 2265 of 2006, granting Mr Lean an equitable lien over the one share in BH, Mr Lean was required to apply to the court for an order for his remuneration to be assessed.
After a significant delay, Mr Lean submitted his accounts to the court in CIV 2265 of 2006 for remuneration as required by reg 57 of the Civil Judgments Enforcement Regulations 2005 (WA).
When Master Sanderson heard the application, counsel for the defendants (PSA and Campbell‑Smith in capacity as executor of the estate of Mr Banning), put a submission that Mr Lean should only be allowed his costs in so far as the activities were reasonably undertaken and incidental to performing the function created by Mr Lean's appointment, that is to say, valuing and selling the share in BH and reporting to the court and to the judgment creditor from time to time. Up until the time of sale of the share Mr Lean claimed $47,951.50 and an amount of $75,811 which appeared to be for costs incurred after the sale of the share.
Master Sanderson found that the sale process was flawed and the actions of Mr Lean after the sale of the share were not appropriate and any amount charged by him should not be the subject of an order for remuneration: Computer Accounting and Tax Pty Ltd (in liq) v Professional Services of Australia [No 11] [2016] WASC 365 [27] ‑ [28].
Whilst Master Sanderson accepted that Mr Lean's work after the sale of the share was not strictly necessary, he was of the opinion that it may be the case Mr Lean was required thereafter to undertake some further work consequent upon the sale of the share.
Master Sanderson made orders that the defendants in CIV 2265 of 2006 (PSA and Mr Campbell‑Smith as executor) pay Mr Lean's remuneration in an amount of $75,000 and costs of $30,000 (being the costs of the application to assess the receiver's remuneration).
The decision of Master Sanderson is subject to an appeal presently before the Court of Appeal (CACV 2 of 2017). The appeal has yet to be heard. It is common ground that at the date of hearing of this application the sums awarded by Master Sanderson on 8 December 2016 in CIV 2265 of 2006 had not been paid.

Application for the court to wind up BH

The application for an order for winding up is opposed on grounds that:
(a)Mr Lean has no standing to make the application because he is not entitled to remain a shareholder, having only become one for the limited purchase of his appointment as court appointed receiver; and
(b)Mr Lean's evidence fails to establish that BH should be wound up on just and equitable grounds.

Standing of Mr Lean to bring application pursuant to s 461(1) Corporations Act

Pursuant to s 462 of the Corporations Act, the company, a creditor (including a contingent or prospective creditor) of the company, a contributory, the liquidator of the company, ASIC (in prescribed circumstances) or APRA may apply for an order to wind up the company under s 461. Unless permitted by s 462 to bring an application, a person is not entitled to apply for an order to wind up a company: s 462(5).
Mr Lean does not claim he is a creditor of BH he contends he has standing to bring an application to wind up BH as a contributory.
A contributory is defined in s 9 of the Corporations Act, unless the contrary intention appears, to mean:
'contributory ' means:
(a)in relation to a company (other than a no liability company):
(i)a person liable as a member or past member to contribute to the property of the company if it is wound up; and
(ii)for a company with share capital--a holder of fully paid shares in the company; and
(iii)before the final determination of the persons who are contributories because of subparagraphs (i) and (ii)--a person alleged to be such a contributory; and
(b)in relation to a Part 5.7 body:
(i)a person who is a contributory by virtue of section 586; and
(ii)before the final determination of the persons who are contributories by virtue of that section--a person alleged to be such a contributory; and
(c)in relation to a no liability company--subject to subsection 254M(2), a member of the company.
Mr Lean says he is a contributory within the meaning of the definition of 'contributory' in s 9, as BH is a company with share capital and he is a holder of a fully paid share in BH.
Counsel for Mr Lean put a submission that Mr Lean's lien over the share he holds in BH and the value of the share held by Mr Lean can only be realised upon a winding up of BH. Consequently, it is argued that Mr Lean would be entitled to the distribution of any surplus assets that would be paid to subscribers (of which he is one) which surplus be held by him as trustee of that share whereby Mr Lean would be entitled to be paid from that surplus $105,000 (being the sum awarded by Master Sanderson in CIV 2265 of 2006). Any surplus remaining would then be paid to the shareholder to whom the share would revert, Sandra Banning (the sole beneficiary of Mr Banning's estate).
As counsel for Mr Lean points out, a court appointed receiver is entitled to a proprietary equitable lien over those assets which he is appointed in respect of his remuneration and expenses: Re Lawrenson Light Metal Die Casting Pty Ltd (1999) 33 ACSR 288 [57] ‑ [59]. The receiver's right to remuneration is not affected by his discharge and the lien continues to exist independently: Mellor v Mellor [1992] 4 All ER 10; Shirlaw v Taylor (1991) 102 ALR 551. The lien takes priority over creditors, including the costs of parties to the action. The equitable lien made the receiver a secured creditor whose claim ranks ahead of the priority creditors: O'Donovan J, Company Receivers and Administrators, vol 2 [25.360].
Whilst Mrs Banning may have a beneficial interest in the share held by Mr Lean as the beneficiary of the estate of Mr Banning, Mrs Banning has no more than an equitable interest in that share as her name is not entered into the register of members in respect of that share: s 231 Corporations Act; Maddocks v DJE Constructions Pty Ltd (1982) 148 CLR 104, 117.
As Mr Lean is the registered holder of one share in BH, he is said to be the legal owner of the share by the fact of his registration in the register of members of BH. A receiver is not usually entitled to have by virtue of his or her appointment as receiver, property transferred into his or her name: Re Scottish Properties Pty Ltd (1977) CLC 40‑307. However, in the present case, the share in BH has been vested in Mr Lean by virtue of the order made by Simmonds J on 21 November 2008.
In Yara Australia Pty Ltd v Oswal [No 2] [2013] WASCA 187 the Court of Appeal found the holder of shares at law means the legal entity registered in the register of members of a company, and whether the holder holds the shares in respect of a trust is not relevant to the status of a holder. President McLure explained [56] ‑ [63]:
The ordinary meaning of 'hold' and 'holder' is reflected in s 1072F(1) of the Corporations Act 2001 (Cth) (CA), a replaceable rule, which provides:
'A person transferring shares remains the holder of the shares until the transfer is registered and the name of the person to whom they are being transferred is entered in the register of members in respect of the shares.'
'Holder' in the CA retains its ordinary meaning notwithstanding other provisions relating to notification in the register as to beneficial ownership. The CA requires that a company set up and maintain a register of members (s 168). At all material times, BHL was required to indicate in its register of members any shares that a member did not hold beneficially (s 169(5A)). Further, registered shares held by a trustee in respect of a particular trust may (not must), with the consent of the corporation, be marked in the register in such a way as to identify them as being 'held in respect of the trust' (s 1072E(9)). Finally, where a non-beneficial holding of shares becomes beneficial, the holder is required to give to the company notice that, among other things, the person holds the relevant shares beneficially (s 1072H(6)).
The approach taken to the word 'holder' in s 1072F is informed by the broader legal framework. The relationship between shareholder and company and shareholders inter se is contractual. A company's constitution and any replaceable rules that apply have effect as a contract: s 140 CA.
If s 1072F applies, registration of a transfer of shares in the register of members of a company results in the novation of that (statutory) contract as between the existing registered shareholders, the transferee and the company.
A trust is not a legal entity. It cannot be a party to a contract. A trustee contracts as principal in his or her personal capacity as a legal entity without limitation. Thus, a trustee is personally liable, as are his assets, under the contract (unless the contract otherwise provides): Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360, 367. However, the capacity in which the trustee acts is relevant to other contracting parties. Unless the contract otherwise provides, creditors of the trustee are entitled to be subrogated to the trustee's right of indemnity against the trust assets: Octavo (367). There are also insolvency ramifications.
Further, the holders (legal owners) of shares have, as between themselves and the company, all the rights attached to shares including voting, entitlement to receive dividends and benefits on a winding up: Glennon v Federal Commissioner of Taxation (1972) 127 CLR 503, 511 - 512. Walsh J in Glennon considered the effect of s 156(3) of the Companies Act 1961 (Qld) which, like s 1072E(9) of the CA, provided that shares held by a trustee in respect of a particular trust may, with the consent of the corporation, be marked in the register in such a way as to identify them as being held in respect of the trust. Walsh J concluded that even if the shares in question in that case had been marked in the register so as to identify them as shares held in trust that had no consequence in relation to the rights of the holders of the shares as between themselves and the companies (512). That is, a notification in the register that shares are held in trust does not have any legal consequences affecting the mutual rights and obligations of shareholders and the company.
If the capacity in which the trustee held the shares is part of its status as the holder, there would be a requirement, not just a statutory power, for that information to be included in the register.
These features explain why the 'holder' of a share is, for CA purposes, the legal entity entered on the register of members. The capacity in which the legal owner of the share is acting is not relevant to the status of 'holder'.
Similar observations were made by Pullin JA [254] ‑ [259] and Murphy JA [403] ‑ [406].
With respect, these observations in Yara do not assist in determining whether Mr Lean has standing to bring this application as a 'contributory'. Although it is clear that Mr Lean is a holder of a fully paid share in a company with share capital, he does not hold that share as a trustee. It is well established that any property which a receiver appointed by a court, holds subject to his or her appointment, is to be treated as property in the possession of the court that appointed him or her: Viola v Anglo‑American Cold Storage Company [1912] 2 Ch 305, 311; In Re Savoy Estate Ltd (1949) Ch 622, 635; Re Van Reesema; Ex parte Australian Growth Resources Corporation Pty Ltd (Receivers and Managers Appointed) [1987] FCA 336.
Prior to the order appointing Mr Lean as receiver of BH being cancelled and Mr Lean being discharged as receiver, he held the share as property in the possession of the court.
It is my opinion the definition of contributory in (a)(i), (a)(ii) and (a)(iii) must be read conjunctively. When this approach to the construction of the definition of contributory is applied, for a person who is a holder of a fully paid share in a company other than a no liability company to be a 'contributory' as defined in s 9 of the Corporations Act the person must also be liable as a member to contribute to the property of the company if it is wound up.

It is a modern rule of statutory construction that an Act of Parliament is to be read as a whole. The object of statutory construction is to construe the meaning of words used in a section in the context of the language in the legislation as a whole, to try to discern the intention of the legislature: Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; (1998) 194 CLR 355 [69] (McHugh, Gummow, Kirby & Hayne JJ).
The definition of 'contributory' in s 9 must be read in context with the provisions of the Corporations Act that provide for the application of and contributions by contributors on the winding up of a company, in particular, s 478, s 480, s 515 and s 516.
These provisions make it clear that a contributory is a person who is liable to contribute to the property of the company on winding up and if there is a surplus is entitled to a distribution.
Pursuant to s 478(1) after a court orders a company be wound up, the liquidator must cause the company's property to be collected and applied in discharging the companies' liabilities and consider whether s 478(1A) requires him or her to settle a list of contributions.
Section 478(1A) requires a liquidator to settle a list of contributories if it appears to him or her there are persons liable as members (or past members) to contribute or there will be a surplus for distribution and it will be necessary to make calls on the contributories or adjust the rights of the contributories.
Pursuant to s 480(a) a liquidator may apply to the court to be released when he or she has realised all the property of the company, has distributed a final dividend (if any) to the creditors and adjusted the rights of the contributories among themselves and made a final return (if any) to the contributories.
Section 515 provides that a member or past member is liable to contribute to the company's property to an amount sufficient to pay the company's debts and liabilities and the costs, charges and expenses of the winding up and to adjust the rights of the contributories among themselves.
Where a company is limited by shares (and not by guarantee) 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 present or past member: s 516.
Mr Lean is not a creditor of BH. He is a creditor of PSA and Mr Campbell‑Smith (as executor ). Mr Lean's lien cannot be characterised as a liability of BH, as his equitable lien by order of Simmonds J is expressly limited to the sale of the one share of BH registered in the name of Mr Banning pursuant to the order made on 10 November 2010. It is notable that when that order was made it appears that there was a possibility of portion of the judgment debt payable to CAT had not been satisfied (being an amount for costs of the action and enforcement costs) and Kenneth Martin J had not permanently stayed the Friggers proceedings in CIV 1727 of 2009 to compel the registration of the transfer of the share: Computer Accounting and Tax Pty Ltd (in liq) v Professional Services of Australia Pty Ltd [No 2] [56], [107].
In these circumstances, Mr Lean having only an equitable lien over the share he cannot be said to be liable to contribute to the property of BH within the meaning of s 515 and s 516 as he cannot be called into account to contribute the amount paid on the share he holds. Nor can he said to be a person who is entitled as a 'contributory' to a distribution of a surplus within the meaning of s 478 and s 480.
In these reasons, I found Mr Lean was not a 'contributory' of BH and consequently by operation of s 462 had no standing to bring an application to the court for an order to wind up BH.
I will hear further from the parties as to costs, in particular whether BH is entitled to indemnity costs, or costs at all, on grounds that any resolution to defend these proceedings is void as a quorum for the transaction of business by BH cannot be fixed by less than two directors.