Michalakas v Stuttgart Pty Ltd
[2013] FMCA 225
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| MICHALAKAS v STUTTGART PTY LTD & ORS | [2013] FMCA 225 |
| BANKRUPTCY – Review of Registrar’s decision – three joint creditors – one creditor a company – whether solicitors for joint creditors were properly instructed to issue bankruptcy notice and creditor’s petition – whether resolution of all Directors necessary for such instructions to be given – capacity of Managing Director to give instructions on behalf of the company – whether Managing Director’s action properly ratified by the company – sequestration order confirmed. |
| Bankruptcy Act 1966 (Cth), ss.52 & 308 Commonwealth of Australia Construction Act 1900 (Cth) Corporations Act 2001 (Cth), s.249B Federal Magistrates Act 1999 (Cth), ss.102, 103, 104 Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth) Federal Magistrates Court Rules 2001 (Cth) r.4.06 & 20.03 |
| Totev v Sfar (2008) 167 FCR 193 Boutros v Santa Sabino College Ltd [2011] FCA 477 Australian Workers Union & Ors v Bowen (1946) 72 CLR 575 Wilson v Hambrook [2009] FMCA 991 Dudzinski v Kellow [2003] FCAFC 207 Scook v Sims Construction Pty Ltd (2004) 3 ABC (NS) 43; [2004] FCAFC 306 Presentaciones Musicales SA v Secunda & Anor (1994) 737 2 ALL ER; (1994) Ch 271 Inglis v Moore (No.2) (1979) 25 ALR 453 Northside Developments Pty Ltd v Registrar-General (1990) 8 ACLC 611 Brick and Pike Industries Ltd v Occidental Life Nominees Pty Ltd (1992) 10 ACLC 253 Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549 Corporate Affairs Commission (NSW) v Transphere Pty Ltd (No.2) (1985) 9 ACLR 1005 Richmond v Branson & Son [1914] 1 Ch 968 |
| Applicant: | JAMES MICHALAKAS |
| First Respondent: | STUTTGART PTY LTD |
| Second Respondent: | RAYMOND ROGER GATT |
| Third Respondent: | DAVID PAUL STEICKE |
| File Number: | ADG 283 of 2012 |
| Judgment of: | Simpson FM |
| Hearing date: | 8 March 2013 |
| Date of Last Submission: | 8 and 28 March 2013, 3 April 2013 |
| Delivered at: | Adelaide |
| Delivered on: | 3 April 2013 |
REPRESENTATION
| Counsel for the Applicant: | At different times Mr A Dal Cin, Mr G Dart, Mr J Wemmer and Mr Strawbridge |
| Solicitors for the Applicant: | Uma Mahadeva Lawyer |
| Counsel for the first, second & third Respondents: | At different times Mr Roberts and Mr M Livesey QC |
| Solicitors for the first, second & third Respondents: | Randle & Taylor Solicitors |
| Counsel for first supporting creditor: | Ms L Amabili |
| Solicitors for first supporting creditor: | Ouwens Lawyers |
| Counsel for an interested party: | Mr N Strawbridge |
| Solicitors for an interested party: | Neil Strawbridge |
| Counsel for the second supporting creditor: | Mr L Rowley |
| Solicitors for the second supporting creditor: | Madsen Rowley |
| Counsel for the Trustee in Bankruptcy: | Mr K Ryder |
| Solicitors for the Trustee in Bankruptcy: | O’Loughlins Lawyers |
ORDERS
The application for review filed on 11 January 2013 is dismissed.
The sequestration order of Registrar Christie of 21 December 2012 is affirmed.
The respondents’ costs are to be taxed pursuant to Order 62 of the Federal Court Rules and paid from the bankrupt estate of the applicant debtor in accordance with the Bankruptcy Act 1966 (Cth).
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT ADELAIDE |
ADG 283 of 2012
| JAMES MICHALAKAS |
Applicant
And
| STUTTGART PTY LTD |
First Respondent
| RAYMOND ROGER GATT |
Second Respondent
| DAVID PAUL STEICKE |
Third Respondent
REASONS FOR JUDGMENT
For the purposes of clarity throughout these reasons, I will refer to Mr James Michalakas as the applicant and Stuttgart Pty Ltd, Raymond Roger Gatt and David Paul Steicke as the respondents.
In these reasons, a statement of fact is to be treated as a finding of fact established to my satisfaction on the balance of probabilities from the evidence provided by the parties and after a careful consideration of the submissions put.
I have before me an application for review of a decision of Registrar Christie made on 21 December 2012. The applicant was respondent to a creditor’s petition filed by the respondents on 15 November 2012. The Registrar made the following orders:
“1.A sequestration order be made against the estate of James Michalakas.
2.The applicant creditor’s costs be fixed at $6,724.00 and be paid from the estate of the respondent debtor in accordance with the Bankruptcy Act 1966.
3.The costs of the supporting creditor Cardiff Capital Pty Ltd be fixed in the amount of $1,000.00.
4.The costs of the supporting creditor Dean Henry Stone and Carole Julie Stone as trustees of the Stone Superannuation Fund be fixed in the amount of $6,00.00.”
Section 104(2) of the Federal Magistrates Act 1999 (Cth) (“FM Act”) provides that a party to a proceeding in which a Registrar has exercised any of the powers of the Federal Magistrates Court under s.102(2), or under a delegation under s.103(1), may apply to the Federal Magistrates Court for review of that exercise of power. Under s.104(3), the Federal Magistrates Court may, on an application under s.104(2), or on its own initiative, review an exercise of power by a Registrar under s.102(2) or pursuant to a delegation under s.103(1) and may make any order or orders it thinks fit in relation to the matter in respect of which the power was exercised.
Rule 20.03 of the Federal Magistrates Court Rules 2001 (Cth).(“FMC Rules”) provides that the review of an exercise of power by a Registrar shall proceed by way of hearing de novo. The current application is therefore not an appeal from the Registrar’s decision in the strict sense but is a complete re-hearing of the matter, but this time before a justice within the meaning of Chapter III of the Commonwealth of Australia Constitution Act 1900 (Cth). Emmett J clarified the true nature of the hearing de novo in Totev v Sfar (2008) 167 FCR 193[1] cited with approval by Nicholas J in Boutros v Santa Sabina College Ltd [2011] FCA 477[2].
[1] Paragraphs 12-15.
[2] Paragraphs 21-22.
[12]A hearing de novo is different from an appeal stricto sensu and is different from an appeal by way of rehearing. In the case of an appeal stricto sensu, the question would be whether, upon the material before the registrar, the conclusion reached by the registrar was correct. In an appeal by way of rehearing, the appellate court would rehear the matter as at the date of the appeal, but on the evidence called before the registrar, subject to a power to receive further evidence where appropriate: the rights of the parties would be determined by reference to the circumstances, including the law, as they existed at the time of rehearing (Harris v Caladine 172 CLR at 125). In each case any question concerning the exercise of discretion would be subject to the restrictions imposed on an appellate court in reviewing the exercise of a discretion (see House v The King [1936] HCA 40; (1936) 55 CLR 499.
[13 In the case of a hearing de novo, however, the judge reviewing the order begins afresh and exercises for himself or herself any discretion exercised by the registrar. The parties commence the proceeding again, subject to any rules concerning the use of evidence adduced before the registrar. The hearing de novo involves the exercise of the original jurisdiction and the petitioner, in the case of a bankruptcy petition, must start again, call witnesses and make out the petitioner's case (Harris v Caladine 172 CLR at 124).
[14]Because the hearing of an application for review of a sequestration order is a hearing de novo, it would not be sufficient for the reviewing judge to be satisfied that the registrar made no error and simply to dismiss the application for review. The judge who hears the review application must hear the petition afresh and must be satisfied as to the matters referred to in s 52 of the Bankruptcy Act. Thus, the reviewing judge must herself or himself be satisfied with the proof of:
· the matters stated in the petition;
· the service of the petition; and
· the fact that the debt or debts on which the petitioning creditor relies is or are still owing.
The reviewing judge must also exercise afresh the discretions conferred by s 52(2).
[15]In particular, unless the Bankruptcy Rules are waived, the judge must have the affidavits referred to in r 4.06 of the Bankruptcy Rules, which must be sworn shortly before the hearing. Except in the case of a review on the same day as the sequestration order was made, affidavits relied upon before the registrar would not satisfy r 4.06. In the absence of fresh affidavits, it would be necessary that compliance with the Bankruptcy Rules be waived.
Section 52(1) of the Bankruptcy Act 1966 (Cth) (“the Act”) provides that at the hearing of a Creditor’s Petition the court must have proof of:
a)the matters stated in the petition;
b)service of the petition; and
c)the fact that the debt or debts on which the petitioning creditor relies is or are still owing.
If the Court is satisfied with the proof of those matters, it may make a sequestration order against the estate of the debtor. However, under s.52(2), if the Court is not satisfied with the proof of any of those matters, it may dismiss the petition. In addition, the Court may dismiss the petition if it is satisfied by the debtor that:
a)he or she is able to pay his or her debts; or
b)for any other sufficient cause a sequestration order ought not to be made.
In addition to the matters referred to in s.52(1), the Court also has to be satisfied that the requirements of r4.06(3) of the Federal Magistrates Court (Bankruptcy) Rules 2006 (“the Bankruptcy Rules”) has been complied with. Rule 4.06 relevantly provides:
4.06 Additional affidavits to be filed before hearing
(1) Before the hearing of a creditor’s petition, the applicant creditor must file the affidavits required by this rule.
(2) The applicant creditor must file an affidavit that:
(a)states that the documents required to be served under rule 4.05 have been served and when and how they were served; and
(b)has attached to it a copy of the documents that were served and proof of service in relation to the documents.
(3) The applicant creditor must file an affidavit of a person who has searched, or caused a search to be made, in the National Personal Insolvency Index no earlier than the day before the hearing date for the petition that:
(a) sets out the details of any references in the Index to the debtor; and
(b) states that there were no details of a debt agreement, about the debt on which the applicant creditor relies, in the Index:
(i) on the day when the petition was presented; and
(ii) on the day when the search was made; and
(c) has attached to it a copy of the relevant extract of the Index.
(4) The applicant creditor must file an affidavit of a person who knows the relevant facts that:
(a) was sworn as soon as practicable before the hearing date for the petition; and
(b) states that each debt on which the applicant creditor relies is still owing.
(5) The applicant creditor must file a search affidavit if the debt stated in the petition is an amount payable to the applicant creditor under a judgment of a court that ordered the amount to be paid into the court.
The hearing
At the hearing the respondents relied on the following documents:
a)Affidavits of Leslie Raymond Bowyer sworn on 21 February and filed on 22 February 2013;
b)A further affidavit of Leslie Raymond Bowyer sworn and filed on 21 December 2012;
c)Affidavit of John Russell Jamison sworn on 19 February and filed on 22 February 2013;
d)Affidavit of Nicholas Gerard McCabe sworn and filed on 22 February 2013;
e)Affidavit of Sarah Debattista sworn on 11 October and filed on 15 November 2012;
f)Affidavit of Rebecca Louise Plenty sworn on 11 October and filed on 15 November 2012;
g)Affidavit of Jarrad Francis Curry sworn on 12 October and filed on 15 November 2012;
h)A further affidavit of Jarrad Francis Curry sworn on 30 November and filed on 4 December 2012;
i)A further affidavit of Jarrad Francis Curry sworn and filed on 19 December 2012;
j)Affidavit of Christopher James Venus sworn on 4 and filed on 6 December 2012;
k)Affidavit of Willem Ouwens sworn and filed on 18 December 2012;
l)Affidavit of Luke John Charleton Rowley sworn on 19 and filed on 20 December 2012;
m)Affidavit of John Charles Taylor sworn on 19 and filed on 21 December 2012;
n)A further affidavit of John Charles Taylor sworn and filed on 21 December 2012;
o)A further affidavit of John Charles Taylor sworn and filed on 21 December 2012;
p)A further affidavit of John Charles Taylor sworn and filed on 21 December 2012;
q)A further affidavit of John Charles Taylor sworn and filed on 17 December 2012;
r)A further affidavit of John Charles Taylor sworn on 8 March 2013;
s)A further affidavit of John Charles Taylor sworn on 8 March 2013;
t)A further affidavit of John Charles Taylor sworn on 8 March 2013; and
u)A further affidavit of John Charles Taylor sworn on 8 March 2013;
The applicant relied upon the following documents:
a)Affidavit of Elizabeth Steicke sworn and filed on 20 December 2012;
b)Further affidavit of Elizabeth Steicke sworn and filed on 23 January 2013; and
c)Further affidavit of Elizabeth Steicke sworn and filed on 7 March 2013;
As a result of the sequestration order being made by the Registrar, Anthony Christopher Matthews was appointed Trustee of the applicant’s estate. The Trustee appeared on the hearing of the review and tendered an affidavit being the Trustee’s report to date. The report indicated that the applicant had debts exceeding $20 million.
A supporting creditor, Dean Henry Stone and Carole Julia Stone as trustees of the Stone Superannuation Fund, appeared by counsel. An affidavit of Willem Ouwens sworn and filed on 22 February 2013 was tendered on behalf of this supporting creditor.
There was no application to cross-examine any of the deponents to affidavits notwithstanding some conflict on the evidence.
On the evidence before me, I am satisfied that the matters referred to s.52(1) of the Bankruptcy Act and Part 4 of the Bankruptcy Rules have been established. The applicant has not argued otherwise.
The applicant has not attempted to convince the Court that he comes within s.52(2)(a) of the Act by submitting that he can pay his debts. On the evidence before me it is clear that he cannot. The remaining issue therefore is whether there is any other sufficient cause within the meaning of that expression contained in s.52(2)(b) why a sequestration order should not be made.
The applicant submits that one of the respondent creditors, namely Stuttgart Pty Ltd (“Stuttgart”) did not make the corporate decisions necessary to instruct solicitors to issue a bankruptcy notice and, later, a petition for bankruptcy. He says that the result of this is that the bankruptcy notice and the petition are both invalid. It was submitted that where, as here, there are joint creditors it is essential that all joint creditors join in the issue of a bankruptcy notice and later the petition for bankruptcy. They must act jointly.
It was submitted on behalf of the applicant that for Stuttgart to instruct solicitors to commence bankruptcy proceedings against the applicant, there needed to be a resolution of the Directors to do so. It is further submitted that Mrs Steicke was a Director of Stuttgart, but received no notice of a Director’s meeting to pass a resolution authorising the issue of a bankruptcy notice and a creditor’s petition. It is submitted that she never voted for, or approved a resolution for the company to take this action.
Background facts
The background facts are as follows:
a)The third respondent, Mr Steicke, has been the sole shareholder and the Managing Director of Stuttgart since its incorporation in South Australia on 22 July 1992;
b)Since 2005, Mr Steicke has lived in Hong Kong.
c)Stuttgart is trustee of the Steicke Trust (“Trust”);
d)The Trust has property and shares in the sum of approximately $9,600,317.00 which are managed by Mr Steicke;
e)Mr Steicke married Elizabeth Steicke in January 1994. The marriage ceased in about January 2005. The parties continue to be involved in lengthy and acrimonious legal proceedings in the Family Court in Adelaide;
f)Mrs Steicke became an Associate Director of Stuttgart on 18 April 1994. She was given power to counter-sign documents but no right to vote. She ceased being an Associate Director on 20 May 1997;
g)On 18 January 1999, Mrs Steicke and Mr Les Bowyer, an accountant resident in Adelaide each became Directors of Stuttgart;
h)As Managing Director of Stuttgart, Mr Steicke has managed the company exclusively without the need to refer matters to other board members. The board has never formally met and only act as a board for the purpose of conducting formal matters such as approving financial statements. Mr Steicke has managed and operated the assets held by Stuttgart without reference to other board members. These activities include:
i)Managing the share portfolio of the Trust;
ii)Managing the company’s organic farm at Wistow in South Australia;
iii)Managing the Trust’s real estate at Somerton and Burnside in South Australia; and
iv)Managing the Trust’s other investments and loans.
i)Since about July 1992, the respondents have lent money to the applicant for the development of Fernleigh Gardens Retirement Village situated at 177 Pimpala Road, Woodcroft;
j)In managing the business of Stuttgart, Mr Steicke has had occasion to frequently engage solicitors. He has done so in the course of his capacity as Managing Director of the company. Since 1992, Mr Steicke has regularly engaged Mr John Jamison, a solicitor in South Australia, to act for Stuttgart. These instructions have included instructions to commence litigation on behalf of the company against the applicant and more recently to seek a sequestration order against the applicant;
k)Mrs Steicke has never played, nor even expressed to Mr Steicke an indication that she wanted to play a role in the management of the company. At no time prior to the filing of her affidavits in these proceedings did Mrs Steicke indicate to Mr Steicke that she disputed his authority to manage the affairs of Stuttgart;
l)In 2007, with the consent of the second respondent, Raymond Roger Gatt, proceedings were commenced by the respondents in the District Court of South Australia being Action No. 619 of 2007. The proceedings sought to recover the debt that the applicant owed in relation to his real estate development. Mr Steicke gave instructions to the solicitor for these proceedings to be commenced and prosecuted and did so in accordance with the performance of his role as Managing Director of the Company.
m)Mrs Steicke was aware that the District Court proceedings had been commenced against the applicant and others as Mr Steicke had informed her of this soon after the proceedings were commenced. Mrs Steicke regularly asked Mr Steicke about the activities of the Trust. At no stage did she express to Mrs Steicke any objection to the District Court proceedings having been commenced. I note that Mrs Steicke says that the proceedings were brought to her attention by her barrister in her Family Court proceedings. She does not say when this was.
n)On the first day of trial of the District Court proceedings, the applicant consented to a judgment in the sum of $2.1 million.
o)Mrs Steicke says in one of her affidavits that an agreement was reached between her and Mr Steicke that the applicant would be given an extension of time to pay the judgment debt. This is denied by Mr Steicke. In the absence of cross-examination it is difficult for this Court to make a finding about who is telling the truth on this issue. The proceedings can however be determined without a finding on this disputed fact.
p)On 15 February 2013, Mr Steicke, as sole shareholder of Stuttgart, passed a resolution of Stuttgart pursuant to s.249B of the Corporations Act which resolution stated:
“I, David Paul Steicke, sole share holder of Stuttgart Pty Ltd hereby ratify my actions as the Managing Director in instructing solicitors to issue the Bankruptcy Notice 5087 dated 16 August 2012 and causing the issuing of the proceedings in the Federal Magistrates Court against Mr James Michalakas to obtain a sequestration order.”
A board meeting of Stuttgart was called and held on 20 February 2013. It was held at 294 Payneham Road, Payneham. Mr Steicke attended by telephone. Mr Les Bowyer was present in person. Neither Mrs Steicke nor her lawyer attended. A minute of the board meeting of Stuttgart signed by Mr Steicke and Mr Bowyer reads as follows:
“It is acknowledged that David Steicke has been Managing Director of the Company since 1992 and that he has had the authority to instruct solicitors on behalf of the Company and to commence legal proceedings. Further, it is acknowledged in relation to the claim against Mr Michalakas that the Directors have been kept informed as to the issuing of the bankruptcy notice. Notwithstanding this, an issue has arisen in relation to the bankruptcy notice and to avoid any doubt, the Directors ratify the Managing Director’s authority to act in the manner he has acted and it is hereby resolved unanimously that we ratify the actions of the Managing Director in instructing solicitors to issue Bankruptcy Notice 5087 dated 16 August 2012 and causing the issuing of the proceedings in the Federal Magistrate’s Court against Mr James Michalakas and to obtain a sequestration order.”
It is clear on the authorities that for a bankruptcy notice to be issued in a situation where there are joint judgment creditors that the bankruptcy notice has to be issued with the authority of all judgment creditors (see Australian Workers Union & Ors v Bowen (1946) 72 CLR 575 at 583 and 590; Wilson v Hambrook [2009] FMCA 991; Dudzinski v Kellow [2003] FCAFC 207; Scook v Sims Construction Pty Ltd (2004) 3 ABC (NS) 43; [2004] FCAFC 306).
An issue has arisen in these proceedings as one of the joint creditors is a company. The applicant disputes that the company properly instructed its solicitors to take the legal action that it did as no proper resolution had been passed by the Directors. One of the Directors, namely Ms Steicke, says that she did not participate in a decision of the Board to instruct lawyers to have a bankruptcy notice issued or to file a petition for bankruptcy.
The respondents say that as Mr Steicke was Managing Director of Stuttgart, he had authority to instruct solicitors to take the action that they did. The applicant retorts that there is no proper evidence that Mr Steicke is Managing Director of Stuttgart. They say that Stuttgart could have, but did not, put evidence before the Court about the company’s affairs including the constitution of the company. They ask where the power is to appoint a director as managing director. They also ask where the evidence is that Mr Steicke was appointed managing director.
The respondents say that the directors of Stuttgart ratified the action taken by Mr Steicke purportedly on behalf of the company Stuttgart.
There were two meetings that the respondents’ rely upon to prove that Mr Steicke’s actions were ratified. The first meeting was a meeting of members. Mr Steicke is the sole member that the company. The second meeting was a meeting of directors.
Next, the applicant submits that it is not possible for a company to ratify a decision to instruct solicitors to issue a bankruptcy notice and achieve the position of an otherwise invalid bankruptcy notice becoming valid. Counsel for the applicant submits that unlike other situations where ratification can be effective, in these proceedings, the proceedings before Registrar Christie are now functus officio as she adjudicated on them. They submit that it is now too late to attempt to ratify. They rely on the case of Presentaciones Musicales SA v Secunda & Anor (1994) 2 ALL ER 737; (1994) Ch 271 at 277.
Respondent’s Submissions
The respondents submit that there are a number of reasons why the sequestration order made by Registrar Christie should be confirmed and that any one of those reasons is sufficient for their purposes.
Firstly, they point out that a solicitor, Mr Jamison, has given sworn evidence that he was given instructions by the respondents, including Stuttgart, to proceed with the bankruptcy application. They submit that s.308 of the Bankruptcy Act provides for the usual rule concerning agency. Section 308 provides as follows:
308 Representation of corporation etc.
Subject to this Act, for the purposes of this Act:
(a)a corporation may act by any person duly authorized in that behalf by the corporation;
(b)…
(c)…
(d)any person may act by his or her agent duly authorized in that behalf.
They submit that the evidence of Mr Jamison is sufficient to prove the authority of the solicitors to bring the proceedings and rely on the case of Dudzinski v Kellow (2003) FCAFC 207 at para 44.
Secondly, the respondents submit that if a person wishes to challenge the authority of a solicitor to bring proceedings, a substantive application to the court should be made to determine that issue. They say that the authority of the solicitor for the respondents to bring the proceedings is not a matter that should be put at the hearing of an application for review. They rely on the case of Inglis v Moore (No.2) (1979) 25 ALR 453 at 464 but see also Richmond v Branson & Son [1914] 1 Ch 968.
Thirdly, the respondents say that the evidence discloses that Mr Steicke is the Managing Director of Stuttgart and as such is responsible for the day-to-day management of Stuttgart. They submit that Mr Steicke is authorised to issue court proceedings to recover debts owing to the company.
Fourthly, they submit that the instructions to the solicitor to commence the bankruptcy proceedings was authorised by the sole member of the company Stuttgart, namely Mr Steicke. They submit that the proceedings are authorised as an act of Stuttgart under the doctrine of unanimous accent.
Finally, the respondents submit that the actions of Mr Steicke in giving instructions to solicitors for the issue of the bankruptcy notice and the petition have since been ratified by Stuttgart, firstly by formal resolution of Mr Steicke as the sole member of Stuttgart, and secondly by resolution of the board of Stuttgart.
Reasons
For the reasons that follow, it is my opinion that solicitors for the respondents were properly instructed by the respondents to have a bankruptcy notice issued and a petition for a sequestration order filed.
An officer or agent of a company only binds the company to contracts with outsiders if he or she exercises the powers and performs the duties customarily exercised or performed by an officer or agent of a similar company. The constitution or replaceable rules of a company usually confer power of management on the directors collectively as a board.
Frequently individual directors may be given power to take certain specified action. An individual director does not generally have customary authority to bind the company in contracts with outsiders. As Dawson J said in Northside Developments Pty Ltd v Registrar-General (1990) 8 ACLC 611;
“The position of Director does not carry with it an ostensible authority to act on behalf of the company. Directors can act only collectively as a board and the function of an individual Director is to participate in decisions of the board. In the absence of some representation made by the company, a Director has no ostensible authority to bind it.”
Whilst the customary authority of individual directors is limited, they will nevertheless bind their company, if they have actual authority, or been held out as having greater authority than is customary for individual directors. This may often arise, as here, in the case of small proprietary companies where management is effectively conducted by a particular director with the acquiescence of the other director or directors.
In the case of Brick and Pike Industries Ltd v Occidental Life Nominees Pty Ltd (1992) 10 ACLC 253, a dominant Director was taken to represent the mind and will of the company and have the authority of a Managing Director where the other directors acquiesced to this and did not involve themselves in transactions entered into by the dominant director. In the joint judgment of McGarvie, Marks and Beach JJ, they said at pp 263-264:
“It may be accepted, as was explained by Dawson J in Northside, that persons merely holding the office of Director are not thereby authorised to commit the company to contracts. At ACLC page 645; C.L.R. page 205 Dawson J observed that an ordinary individual Director of a company does not have ostensible authority to bind the company. However the decision of the learned judge rested on his finding that Goldberg was more than an ordinary Director. By virtue of his control of Arnsberg which owned all the shares in Brick and Pipe, Goldberg assumed the role of Managing Director with the acquiesces of the members of the board of Directors who regarded him as the “owner” of Brick and Pipe.
The learned judge found:
“The discussion at the Goldberg Group’s office, on 12 January took place in the presence of Brick and Pipe’s controlling shareholder or more precisely the person who unmistakably controlled that shareholder, Arnsberg Pty Ltd and each of its holding companies. Whatever else is unclear in this litigation, it is abundantly clear that Mr Goldberg not only had actual control, but also invariably asserted control over each of the companies within his Group, including the plaintiff company. Throughout the dealings of the Occidental Group, Mr Goldberg had been known as the alter ego of each of the Goldberg Group of companies. Up to that time, and indeed until the transactions were concluded, he had made all the relevant decisions. Nothing had occurred to indicate that he found it necessary to refer to any Board, nor had any Board (member) attempted to interfere …nevertheless it was well known that Mr Goldberg had taken over Brick and Pipe and the company was now a holy owned subsidiary of a company within the group, namely Arnsberg. There could be no doubt that Mr Goldberg spoke on behalf of each of the companies, even though on paper he was merely a member of the Board. Negotiations had proceeded for about a month at the time the document came to be executed on 12 January 1990 and settlement was completed on 16 January 1990 and there had been no indication that Mr Goldberg was unable to speak for the plaintiff company. In the circumstances, it would be remarkable if that company could now say that Mr Goldberg was not a person who could hold out on its behalf that a particular held a position in that company.
Needless to say, this finding was not challenged and there was ample evidence to support it. It included evidence that on numerous occasions after the Goldberg take over, Goldberg obtained board approval of transactions to which he had already committed Brick and Pipe without first seeking authorisation of its Board. Individual Directors in evidence confirmed the acquiescence of Board members in the activity of Goldberg which culminated in completed transactions for which they gave no prior authorisation. In most, if not all cases, the transactions committed assets of Brick and Pipe, or its subsidiaries, as security for borrowings by other Goldberg Companies.
In our opinion, what was said by the learned Judge amounted to a finding that Goldberg had actual authority to manage the business of Brick and Pipe and to hold out that Furst was the Secretary of that company. There was ample justification for that finding in application of the principle of Hely-Hutchinson v Brayhead Ltd (1968) 1 QB 549. Corporate Affairs Commission (NSW) v Transphere Pty Ltd (No. 2) (1985) 9 ACLR 1005.”
I find that the third respondent, David Paul Steicke, had actual authority to manage the business of the first respondent, Stuttgart and that this management included being able to instruct solicitors to have a bankruptcy notice issued and to file a petition for a sequestration order in the event that the bankruptcy notice was not complied with. I find that Mr Steicke is Managing Director of Stuttgart and has been Managing Director since the company was incorporated on 22 July 1992.
My finding that Mr Steicke has and had actual authority to speak on behalf of Stuttgart and to engage solicitors to commence bankruptcy proceedings makes it unnecessary for me to address the other arguments that have been presented on behalf of the respondents. Whilst I would normally nevertheless address all the submissions that have been put, I have decided that in this case, it is more important a decision be made promptly. The fact that I have not addressed all submissions that have been put does not mean that I consider them to be without merit.
I find that there is no other sufficient cause within the meaning of section 52 why a sequestration order should not be made and therefore dismiss the application for review.
I affirm the sequestration order of Registrar Christie made on 21 December 2012.
I make the orders to be found at the beginning of these reasons.
I will hear the parties and others about any further consequential orders that are needed.
I certify that the preceding forty (40) paragraphs are a true copy of the reasons for judgment of Simpson FM
Date: 3 April 2013
0
9
0