Londish v Sheahan & Lock in Re Valofo Pty Ltd

[2009] NSWSC 1175

CITATION:	Londish v Sheahan & Lock in Re Valofo Pty Ltd [2009] NSWSC 1175
HEARING DATE(S):	2 October 2009
JURISDICTION:	Equity Division Corporations List
JUDGMENT OF:	Brereton J
EX TEMPORE JUDGMENT DATE:	2 October 2009
DECISION:	Declare that the administrators were not validly appointed – set aside summons for examination and orders for production issued by purported administrators
CATCHWORDS:	CORPORATIONS – external administration – voluntary administration – application for declaration that administrators were not duly appointed – where dispute as to appointment of directors of company who purported to appoint administrators – whether notice signed by sole shareholder purportedly to appoint new director – valid resolution within (CTH) Corporations Act 2001, s 249B – where notice does not evidence a formal decision of the company – held, notice was a unilateral act of shareholder under a misconceived power, and not intended as a resolution of company under s 249B – held, director not validly appointed – consequently, administrators not validly appointed – Where appointors seek to have ineffective appointments cured under (CTH) Corporations Act 2001, s 447A – whether s 447A would authorise an order validating the removal and appointment of a director – where appointors seek to have ineffective appointments cured under (CTH) Corporations Act 2001, s 1322 – where s 1322 only allows for corrections of matters of a procedural nature – held, appointment of directors not procedural
LEGISLATION CITED:	(CTH) Corporations Act 2001 s 249B, s 436A, s 447A, s 1322(2), s 1322(4), s 1322(6)
CATEGORY:	Principal judgment
PARTIES:	Peter Londish (applicant) John Sheahan and Ian Lock (first respondents) David Bowman (second respondent) Sidney Londish (third respondent)
FILE NUMBER(S):	SC 4058/09
COUNSEL:	Mr S Burchett (applicant) Mr P Braham (first respondents) Mr M Izzo (second & third respondents)
SOLICITORS:	Hartmann & Associates (applicant) Purcell Insolvency Lawyers (first respondents)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
CORPORATIONS LIST

BRERETON J

Friday 2 October 2009

4058/09 Peter Gregory Londish v Sheahan & Lock in Re Valofo Pty Ltd

JUDGMENT (ex tempore)

1 HIS HONOUR: By interlocutory process filed on 9 September 2009, the applicant Peter Londish claims a declaration that the first respondents John Sheahan and Ian Lock have not been validly appointed as administrators of the company Valofo Pty Limited, an order that the purported administration end, and orders setting aside summonses for examination and orders for production issued at the request of the administrators. The application is brought essentially on two bases: first, that the administrators were not duly appointed, and secondly, that they were appointed for an improper purpose. I have come to the conclusion that the case can be decided on the first basis, without considering the bona fides of the appointors and the administrators. I appreciate that this may leave those issues to be decided on another occasion, but it has become clear enough that if they were to be explored, the case would not be decided today in any event. Moreover, in a busy Corporations List, the court cannot be expected to investigate and adjudicate every potential issue, when the particular application can be determined by reference to only one or some of them.

2 Consideration of the issues pertaining to the validity of the appointment of the administrators commences with examination of the control of Valofo’s ultimate holding company, Vesudi Investments Pty Limited. An extract from the National Database shows that the shareholdings in Vesudi Investments are:

· Vesudi Holdings Pty Limited, 1,000;

· Masalo Pty Limited (a company associated with the second respondent Mr David Bowman), 66,863;

· Feenix Investments Pty Limited (a company associated with the applicant), 66,863; and

· Tiffany Properties Pty Limited (a company associated with Sidney Londish), 66,274.

3 The Articles of Association of Vesudi Investments provide, relevantly, that holders for the time being of the majority of the issued shares and capital of the company which confer on them the right of voting at all general meetings of the company may at any time remove any director from office and may appoint any person to be a director, and that any such appointment or removal takes effect immediately on delivery of the instrument of appointment or removal to the registered office [Article 62(3)].

4 On 19 February 2009, Mr Sidney Londish as director and Ms Lynn Londish as secretary of Tiffany Properties, and Mr Bowman as director of Masalo Pty Limited, signed a notice in the following form:

Notice of Removal of a Director and Replacement of a New Director for Vesudi Investments Pty Ltd.

Please be advised that the following shareholders of Vesudi Investments Pty Ltd who jointly hold a majority of shares in the company and have the right of voting at all general meetings now give notice of the removal of Peter Gregory Londish as a Director and Secretary of the company and the appointment of Sidney Londish as a Director of the Company.

5 Prima facie, according to the extract from the National Database, Masalo and Tiffany Properties constitute a majority of shareholders so as to be entitled to exercise the power under the Article to which I have referred. However, the applicant contends that there is evidence to the contrary of what is in the National Database. That contention is correct, in that two notices of changes in particulars of shareholdings were lodged which, if they are regular, would tend to show that in late 2008 and early 2009 Feenix remained entitled to some 133,000 shares, not the 66,863 referred to in the extract. But the circumstances surrounding the belated notification of the transfer of part of Feenix’s shareholding are explained by Mr Bowman in his affidavit (at paragraph 40), and, more significantly, are corroborated by entries in the Shareholders Register, (exhibit SX16). On that evidence, I find that as at 19 February 2009 Masalo and Tiffany together constituted a majority of shareholders and were entitled to exercise the power given by Article 62, and did so validly and effectively by the notice of that date, with the effect that the applicant was removed, and Mr Sidney Londish was appointed, as a director of Vesudi Investments.

6 The next step is that, on 25 February 2009, Mr Sidney Londish, as a director of Vesudi Investments, and Mr Bowman as director and secretary, signed in those capacities and on behalf of Vesudi Investments a notice in the following form:

Notice of Removal of a Director and Replacement of a New Director for Londish Nominees Queensland Pty Ltd.

Please be advised that the following shareholder of Londish Nominees Queensland Pty Ltd who holds all of the shares in the company and has the right of voting at all general meetings now gives notice of the removal of Peter Gregory Londish as a Director and Secretary of the company and the appointment of Sidney Londish as a Director of the company.

7 That notice, if effective, would have removed the applicant as a director of Londish Nominees Queensland (“LNQ”) and replaced him with Mr Sidney Londish. However, the Articles of Association of LNQ contain no provision equivalent to that in clause 62 of the Articles of Vesudi Investments. The respondents sought to sustain this notice as a resolution under the (CTH) Corporations Act 2001, s 249B, which provides as follows:

249B Resolutions of 1 member companies

(1) A company that has only 1 member may pass a resolution by the member recording it and signing the record.
(2) If this Act requires information or a document relating to the resolution to be lodged with ASIC, that requirement is satisfied by lodging the information or document with the resolution that is passed.

8 While I accept that LNQ was a company that had only one member, Vesudi Investments, I do not accept that the notice is compliant with 249B. Section 249B contemplates the passing of a resolution by the sole member of a company by recording that resolution and signing the record of the resolution. In the context of s 249B, the resolution contemplated is a resolution of the company as if in general meeting. The notice of 25 February is not expressed to be and does not purport to be an act or resolution of the relevant company, LNQ. Rather, it purports to be an act of LNQ giving notice of removal of a director. It appears to have been a purported exercise of a non-existent power under a non-existent article of LNQ, which was mistakenly thought to contain a provision equivalent to Article 62 in the Articles of Vesudi Investments. A resolution is a formal decision of a meeting or, in some cases where no meeting is convened, of the persons entitled to attend the meeting. This notice does not evidence a formal decision of LNQ; it evidences a unilateral act of Vesudi Investments as sole shareholder of LNQ, purporting to remove by notice, but not making a decision of LNQ such as is contemplated by s 249B. Accordingly, in my view there was no valid and effective resolution of LNQ to remove the applicant and replace him with Mr Sidney Londish. The applicant remained at all material times a director of LNQ, and Mr Sidney Londish was not a director.

9 The next step in the process was that on the following day, 26 February 2009, Mr Sidney Londish and Mr Bowman in their purported capacities as directors of LNQ signed a notice in the following form:

Notice of Removal of a Director and Replacement of a New Director for Valofo Pty Ltd.

Please be advised that the following shareholder of Valofo Pty Ltd who holds all of the shares in the company and has the right of voting at all general meetings now gives notice of the removal of Peter Gregory Londish as a Director and Secretary of the company and the appointment of Sidney Londish as a Director of the company.

The articles of Valofo contain no provision equivalent to clause 62 in the Vesudi Investments articles. For exactly the same reasons as apply in respect of LNQ, that notice was not a valid exercise of the power under s 249B for a single member company to make a resolution in the manner therein prescribed. Moreover, Mr Sidney Londish was not a validly appointed director of LNQ and could not in any event have authenticated such a notice, if one were permitted. Accordingly, the notice was not effective to remove the applicant as a director of Valofo or to replace him with Mr Sidney Londish. The applicant at all material times remained a director of LNQ, and Mr Sidney Londish was not a director.

10 The next and culminating step was that, on 16 July 2009, Mr Sidney Londish and Mr Bowman, purporting to be the directors of Valofo, resolved to appoint Mr Sheahan and Mr Lock to be the company’s joint and several Administrators pursuant to Corporations Act, s 436A. But, as Mr Sidney Londish had never been appointed validly as a director that was not a valid and effective act on the part of the company. It follows that the administrators were not duly appointed.

11 The appointors made an oral application for relief under Corporations Act, s 447A (and, alternatively, under s 1322) to overcome this defect in the purported appointment.

12 Section 447A provides that the court may make such order as it thinks appropriate about how Pt 5.3A is to operate in relation to a particular company. There is no doubt that that section is of potentially wide application, but what is in question here ultimately is not so much the appointment of the administrators, but the purported removal of the applicant as a director and his replacement with Mr Sidney Londish. Section 447A would not authorise an order which validated that act, that not being anything to do with how Pt 5.3A is to operate. Even if Pt 5.3A authorises an act that the Part operate in respect of Valofo as if the administrators had been duly appointed, I do not think it would be appropriate, as a matter of discretion, to invoke s 447A in those circumstances.

13 So far as s 1322 is concerned, it was not suggested that s 1322(2) was attracted. The appointors relied on s 1322(4)(a) to seek an order declaring, in effect, that the purported removal of the applicant and his replacement with Mr Sidney Londish as a director of Valofo was not invalid by reason of the circumstances to which I have referred.

14 There are at least obstacles to this course. First, it was said that the relevant “act … purporting to have been done” for the purposes of s 1322(4)(a) was the notice; but the notice was not an act, matter or thing or proceeding “under this Act” or in relation to a corporation in contravention of a provision of the Corporations Act or the corporate constitution; it was something entirely unauthorised and uncontemplated by the Articles or the Act. It was an act which proceeded with irrelevance to the Constitution, the Act, and without any effect.

15 Secondly, and more significantly, s 1322(6) provides that the court must not make an order under s 1322(4)(a), unless it is satisfied that the act, matter or thing or the proceeding is essentially of a procedural nature. The removal of a director and his replacement by another director cannot be passed off as something essentially of a procedural nature. It is manifestly substantive.

16 Accordingly, I would not make an order under s 1322(4).

17 As the Administrators have not been duly and validly appointed it follows that they are not entitled to conduct the proposed examination of the applicant nor to have issued the orders for production made in connection with the examinations, which should also be set aside.

18 My orders are:

1. Declare that the first respondents, John Sheahan and Ian Lock, have not been validly appointed as Administrators of the company Valofo Pty Limited, ACN 033 366 934.

2. Order pursuant to Corporations Act 2001 s 447A that the purported administration of the company end.

3. Order that the Summons for Examination issued on 13 August 2009 addressed to:

(a) the Applicant
(b) Ross Seller, and
(c) any other person or entity

be set aside.

4. Order that the Orders for Production issued by the Court on 13 August 2009 and addressed to:

(a) the Applicant,
(b) the Proper Officer of Tollan Real Estate Pty Limited,
(c) the Proper Officer of Davlon Management Pty Limited,

(d) the Proper Officer of Baltarna Pty Limited, and
(e) the Proper Officer of PILT Nominees Pty Limited,
(f) Ian Londish,
(g) Ross Seller,
(h) Australia & New Zealand Banking Group Limited,
(i) Johnson Winter and Slattery,
(j) HLB Mann Judd,
(k) Wong and Mayes,
(l) Phillip Crossman,
(m) RMB Australia Limited, and
(n) any other person or entity,

be set aside.

5. Declare that the Applicant has not been validly removed as a director and the Third Respondent, Sidney Londish has not been validly appointed a director of:

(a) Valofo Pty Limited, and
(b) Londish Nominees Queensland Pty Limited

6. Order that the register of Valofo Pty Limited kept by the Australian Securities & Investments Commission be rectified in respect of the said appointments by the Second Respondent.

7. Order that the Respondents pay the Applicant’s costs of the interlocutory process.

[Counsel addressed on costs]

19 The Administrators were necessary parties to the application which impugned their appointment. Where a respondent or defendant is a necessary party, unless it submits to the relief sought, then it makes no difference to the applicant or plaintiff’s entitlement to costs that the relevant respondent or defendant does not contest a particular issue. In the absence of consent or submission, the applicant still has to incur the cost of proving those issues, regardless of the relevant respondent’s silence.

20 In those circumstances I do not see it as material that the Administrators did not actively engage in the argument as to the validity of their appointment. They had to be joined, and they did not submit. In those circumstances they are equally responsible with the other respondents for the applicant’s costs.

21 The costs order which I have foreshadowed will stand.

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