Metal Manufacturers Ltd v ACN 063 086 126 Pty Ltd (in liq)

[2001] QSC 106

SUPREME COURT OF QUEENSLAND

CITATION:              Metal Manufacturers Ltd v ACN 063 086 126 P/L (in Liq)

[2001] QSC 106

PARTIES:                 METAL MANUFACTURERS LIMITED

ACN 003 762 641

(applicant)

v

ACN 063 086 126 PTY LTD (IN LIQUIDATION)

(respondent) FILE NO: S 997 of 2001

DIVISION:               Trial

DELIVERED ON:    19 April 2001

DELIVERED AT:     Brisbane

HEARING DATE:     5 February 2001

JUDGE:  Wilson J

ORDER:Application dismissed. That the applicant pay the respondent’s costs of and incidental to the application, to be assessed on the standard basis.

CATCHWORDS:       CORPORATIONS – WINDING UP – application by creditor to set aside appointment of liquidators, to have alternative liquidator appointed and for order that company be wound up in insolvency – where liquidator chaired creditors’ meeting and exercised proxies against resolution to appoint another liquidator – where proofs of debt of related entities admitted so  that  related  entities  voted  on  resolution  at  creditors’ meeting - where liquidator declined to exercise casting vote as chairperson –whether there was a perception of bias to justify removal of liquidator -  whether company should be wound up in insolvency

Corporations Law (Cth), s 8A, s 9, s 459P, s 497, s 499, s 600A, s 600C, s 1322

Corporations Regulations (Cth), reg 5.6.19, reg 5.6.21

Network Exchange Pty Ltd v MIG International

Communications Pty Ltd (1994) 13 ACSR 544, applied. COUNSEL: M D Martin for the applicant

S B Collins (sol.) for the respondent

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SOLICITORS:          Raj Lawyers for the applicant

Clarke & Kann for the respondent

[1]     WILSON J:  ACN 063 086 126 Pty Ltd, formerly Data Installations Pty Ltd, (“the company”) is in liquidation pursuant to a resolution of its members passed on 4

January 2001. Its liquidators are Phillip Graeme Downie and Susan Ruth Carter

(who are respectively the principal and the senior associate of Downie & Associates). Metal Manufacturers Limited (“the applicant”), an unsecured creditor which is owed $50,787.00, seeks orders that the appointment of the liquidators be set aside, that a motion that William John Fletcher be appointed liquidator be deemed to have been passed, that Mr Fletcher be appointed liquidator and that the company be wound up in insolvency. The applicant relies on s 600A or s 600C of the Corporations Law.

[2]     The company formerly carried on the business of communications cabling. Mr Jim Rowston was its director. On 31 October 2000 he met with Ms Carter and discussed the company’s financial position. He told her that he thought the company could not pay its debts as and when they fell due, and sought her advice on the best way to wind it up. She gave him information “on the mechanics of a creditors’ voluntary winding up” (affidavit of Susan Ruth Carter sworn 2 February 2001 para 11). According to Ms Carter there were subsequently some telephone conversations between Mr Rowston and her in which –

“12.      …  I advised that I could not give him advice about what transactions he could enter into on the basis that it would put  me  in  a  position  of  conflict  if  I  was  to  eventually become  the  liquidator  of  ACN.  I  made  it  clear  to  Mr Rowston that until such time as the company resolved to appoint  Liquidators,  he  was  responsible  for  the  proper conduct of the company's business and that he owed a duty of care to ACN.

13.I met with Mr Rowston again on 19 December 2000 at which time he provided instructions to Downie and I to facilitate  meetings  of  members  and  creditors  of  ACN  in order to place the company in liquidation.”

On 20 December 2000 notices of a meeting of creditors to be held on 4 January

2001 were despatched from the offices of Downie & Associates. Included with the agenda papers was a summary of the affairs of the company prepared by Mr Jim Rowston.  It  showed  assets  of  $137,900  plus  contingent  assets  of  $10,000, preferential creditors of $15,186 and non-priority unsecured creditors of $363,578.

[3]     In an affidavit sworn on 5 February 2001 Mr Downie swore that he had never met

Jim Rowston or spoken with him by telephone.

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[4]     The company sold its business and changed its name from Data Installations Pty Ltd to ACN 063 086 126 Pty Ltd prior to the liquidation. Neither Ms Carter nor Mr Downie had any involvement with the sale.

[5] Pursuant to s 497(1) of the Corporations  Law a creditors' meeting had to be convened for the day of or the day after the members' meeting. The members, at their meeting, were obliged to nominate someone to be liquidator, and the creditors, at their meeting, could do so also; in the event of different nominations, the creditors' nominee would become the liquidator: see s 499(1).

[6]     The members' meeting was held on 4 January 2001 and Mr Downie and Ms Carter were nominated as liquidators. Later that day there was a meeting of creditors, chaired by Ms Carter.  The creditors' meeting was adjourned to 18 January 2001. When it resumed, Mr Niren Raj, who held the applicant's proxy, tabled a consent to act  as  liquidator  from  Mr  Fletcher  and  moved  that  Mr  Fletcher  be  appointed liquidator.  The motion was seconded.  The following is recorded in the minutes –

"The Chairperson advised all present that a resolution was required to confirm the appointment of Mr Fletcher and advised that the resolution  required  simple  majorities  in  value  and  number  of creditors  voting.    She  then  called  for  a  vote  on  the  motion.  7 creditors  with  debts  totalling  $201,376  voted  in  favour  of  the appointment of Mr Fletcher. 8 creditors with debts totalling $60,912 voted against the motion.  The Chairperson advised that the motion was lost and the nomination of Liquidators made by the company was confirmed.

Mr Raj objected to Ms Carter's exercise of proxies to vote against the appointment of Mr Fletcher.  Ms Carter noted the objection but reminded Mr Raj that she had not exercised the proxies to vote in favour of a motion in which she was financially interested, but she had  exercised  her  proxies  to  vote  against  a  motion.    Mr  Carter advised Mr Raj of the avenues available to his client in relation to his objection."

[7]     The creditors who voted against the resolution to appoint Mr Fletcher comprised -

(1)    Stronglink/CDT Pty Ltd  $110-00

(2)    Dimcrest Pty Ltd  $145-00

(3)   ABC Antennas & Electronics  $11,129-00

(4)   RT & DB Rowston  $5,500-00

(5)   Omlan Pty Ltd  $328-00

(6)   Suzann Rowston  $5,000-00

(7)   Jim Rowston  $8,700-00

(8)   J & S Rowston  $30,000-00

$60,912-00

Ms Carter held proxies from (1), (2), (3), (5) and (6).  Mr Jim Rowston held a proxy from (4), and he also cast votes on his own behalf and on behalf of  J & S Rowston.

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[8] Argument before me proceeded on the assumption that Jim and Suzann Rowston were husband and wife, and that they were “J & S Rowston”. As he was the company's director, they were within the definition of "related entities" in s 9 of the Corporations Law.  There was no evidence of the relationship, if any, between them and RT & DB Rowston.

[9]     By regulation 5.6.19(1) of the  Corporations Regulations the resolution ought to have been decided “on the voices” unless a poll was demanded. It was open to the chairperson, among others, to demand a poll. There is no evidence that a poll was demanded.  The  taking  of  a  poll  in  the  absence  of  a  demand  for  one  was  a procedural irregularity which did not invalidate the proceeding –

“…   unless the Court is of the opinion that the irregularity has caused or may cause substantial injustice that cannot be remedied by any order  of  the  Court  and  by  order  declares  the  proceeding  to  be invalid.”

(Corporations Law ss 1322(2); 8A). Here no such injustice was alleged, and the

Court was not asked to declare the proceeding invalid.

[10]     Where a poll is taken at a meeting of creditors –

(a)a  resolution  is  passed  only  if  there  is  a  majority  in  number  of creditors voting and a majority in value of creditors voting who vote in favour of it;

(b)a resolution is lost only if there is a majority in number of creditors voting and a majority in value of creditors voting who vote against it;

(c)otherwise, no result is reached, in which case the person presiding at the meeting may exercise a casting vote in favour of or against the resolution.

See  Corporations  Regulations regulation 5.6.21. Here, because there was a minority in number but a majority in value of creditors who voted in favour of the resolution to appoint Mr Fletcher, no result was reached. Ms Carter might have exercised a casting vote, although she was under no obligation to do so. In fact, she did not, as was conceded by the applicant’s counsel during oral submissions: transcript page 19 at about line 45. No result having been reached, the creditors had not nominated someone to be the liquidator, and the persons nominated by the members (Mr Downie and Ms Carter) remained the liquidators: see s 499(1).

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[11]     Section 600 A provides –

“SECTION 600A POWERS OF COURT WHERE OUTCOME OF VOTING    AT    CREDITORS'    MEETING    DETERMINED    BY RELATED ENTITY

600A(1)  [Related  entity  vote  affected  by  passing  of  resolution]

Subsection (2) applies where, on the application of a creditor of a company

..., the Court is satisfied:

(a)         that a proposed resolution has been voted on at:

(i) in the case of a company - a meeting of creditors of the company held:

(A) …  

(B) in connection with winding up the company; ...

(ii) ...  ; and

(b)that, if the vote or votes that a particular related creditor, or particular related creditors, of the company ... cast on the proposed resolution had been disregarded for the purposes of determining whether or not the proposed resolution was passed, the proposed resolution:

(i)        …  

(ii)       if in fact it was not passed - would have been passed; or the question would have been decided on a casting vote; and

(c)      that …    the failure to pass .. [the resolution] ...:

(i)       is  contrary  to  the  interests  of  the  creditors  as  a whole…  ; or

(ii)      has prejudiced, or is reasonably likely to prejudice, the interests  of  the  creditors  who  voted  for  ...  [the proposed   resolution]   ....   to   an   extent   that   is unreasonable having regard to:

(A)the benefits resulting to the related creditor, or to some or all of the related creditors from the failure to pass the proposed resolution …   ; and

(B)the  nature  of  the  relationship  between  the  related creditor  and  the  company  ...  or  of  the  respective relationships  between  the  related  creditors  and  the company ... ; and

(C)     any other relevant matter.

600A(2) [Powers of Court] The Court may make one or more of the following:

(a)         …  

(b)an  order  that  the  proposed  resolution  be  considered  and voted on at a meeting of the creditors of the company  …  convened and held as specified in the order;

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(c)an order directing that the related creditor is not, or such of the related creditors as the order specifies are not, entitled to vote on:

(i)        the proposed resolution; or

(ii)a   resolution   to   amend   or   vary   the   proposed resolution;

(d)        such other orders as the Court thinks necessary.

600A(3) [ ‘related creditor’] In this section:

‘related creditor’, in relation to a company …  , in relation to a vote, means a person who, when the vote was cast, was a related entity, and a creditor, of the company …  ”.

[12] In essence, counsel for the applicant submitted that s 600A ought to be invoked because there was a perception of bias on the part of Ms Carter. He submitted that such a perception arose from –

·  her having conferred with Mr Jim Rowston prior to a proposed winding up;

·her having sent a notice to creditors convening a meeting "15 minutes after a meeting of members already appointing a liquidator” [sic];

·  her admitting proofs of debt from directors and other family members;

·her allowing the directors to vote twice on the basis that they had lent the company money on a joint and independent basis;

·her  exercising  proxies  against  a  resolution  voted  for  by  an  overwhelming majority of creditors.

He also drew attention to affidavits sworn on behalf of two of the creditors whose proxies Ms Carter used to vote against the motion (Stronglink/CDT Pty Ltd and Dimcrest Pty Ltd) and on behalf of two creditors who had voted in favour of the proposed resolution (Optical Fibre Systems Pty Ltd and Ideal Electrical Supplies) that if another meeting were held, they would vote in favour of the appointment of Mr  Fletcher.  He  submitted  that,  in  the  minds  of  creditors,  there  would  be something about the company's having sold its business, changed its name and then gone into liquidation which ought to be investigated.

[13]     I have already set out Ms Carter's evidence as to her dealings with Mr Jim Rowston and the company prior to the company going into liquidation. That evidence was not challenged by cross-examination. It was a requirement of the legislation that the creditors' meeting be held on the same day as or the day following that on which the members' meeting was held. The applicant has not pointed to any reason why proofs of debt from the Rowstons ought not to have been admitted. As for the question of allowing a vote to be cast on behalf of J & S Rowston as well as those cast on behalf of Jim Rowston and Suzann Rowston, the applicant has done no more than put this forward as a basis for a perception of bias; it has not submitted that Ms Carter erred in law in doing so. I cannot see any reason for criticism of her decision to exercise proxies to vote against a resolution favoured by other creditors, however substantial in number and/or value. Nor can I see how the evidence of creditors as to how they would vote if another meeting were held can avail the applicant.  She has sworn to having formed a preliminary view that action should be

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taken against Mr Jim Rowston for insolvent trading, and that she will not hesitate about initiating such action if it is so warranted.

[14] In short, I do not accept that there could reasonably have been a perception of bias in the circumstances. Even if there were, that would not be sufficient to satisfy the requirements of s 600A(1)(c)(i) that the failure to pass the resolution was contrary to the interests of the creditors as a whole or s 600A(1)(c)(ii) that it has prejudiced or is reasonably likely to prejudice the interests of the creditors who voted in the affirmative to an extent that is unreasonable having regard to any of the matters in paragraphs (A), (B) or (C) as set out above. I note that in Network Exchange Pty Ltd v MIG International Communications Pty Ltd  (1994) 13 ACSR 544 Hayne J held, in relation to the failure to pass a resolution for the removal of a liquidator and the appointment of someone else in his place, that the mere fact that the largest creditor would wish its own nominee to do the job was not enough to satisfy the requirements of the section. Accordingly, in the present case the application under s 600A fails.

[15] Section 600C(1) provides –

[16]

"SECTION 600C COURT'S POWERS WHERE PROPOSED RESOLUTION OF CREDITORS LOST AS CASTING VOTE OF PERSON PRESIDING AT MEETING

600C(1) [Resolution not passed] This section applies if, because the  person  presiding  at  the  meeting  exercises  a  casting  vote,  or refuses or fails to exercise such a vote, a proposed resolution is not passed at a meeting of creditors of a company held:

(a)      …  

(b)       in connection with winding up the company.”

By subsections (2) and (3) the Court might, on the application of a creditor who voted in favour of the proposed resolution, make an order that it be taken to have been passed.

[17]     As I have already said, in the circumstances Ms Carter might have exercised a casting vote.  She was under no obligation to do so.  There is no allegation that she acted fraudulently in not doing so.  It could not be said that her conduct in not doing so was so unreasonable that no reasonable liquidator would have so acted. (See Network Exchange at 551.) It is impossible to know how she would have exercised such a casting vote. I am not prepared to make an order deeming the resolution to appoint Mr Fletcher to have been passed.

[18] The remaining question is whether the Court should order that the company be wound up in insolvency pursuant to s 459P of the Corporations Law.  I can see no benefit to creditors in making such an order and decline to do so.

[19]     The application is dismissed.  I order the applicant to pay the respondent's costs of and incidental to the application, to be assessed on the standard basis.

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Order:

Application dismissed.

That the applicant pay the respondent’s costs of and incidental to the application, to be assessed on the standard basis.