Mier & Anor v. Craven & Ors
[2007] QSC 259
•27 July 2007
SUPREME COURT OF QUEENSLAND
CITATION:
Mier & Anor v Craven & Ors [2007] QSC 259
PARTIES:
GERARD JOHN MIER and ANTHONY JAMES JONSSON
(Applicant)
v
DAPHNE CRAVEN
(First Respondent)
BRUCE CRAVEN
(Second Respondent)
FRANCIS DALY
(Third Respondent)
JOHN RAYMOND DEUBLE
(Fourth Respondent)
CATHERINE MARGARET DUNCAN
(Fifth Respondent)
KERRY JOHN ECKERSLEY
(Sixth respondent)
ERROL FRANCIS GLYNN
(Seventh Respondent)
DENNIS AMBROSE GOW
(Eighth Respondent)
DONALD MacDOUGAL
(Ninth Respondent)
RODNEY MILLER
(Tenth Respondent)
ERIC O’KELL
(Eleventh Respondent)FILE NO/S:
262 of 2007
DIVISION:
Trial
PROCEEDING:
Application
ORIGINATING COURT:
Supreme Court Cairns
DELIVERED ON:
27 July 2007
DELIVERED AT:
Cairns
HEARING DATE:
9 July 2007
JUDGE:
Jones J
ORDER:
1. I declare that the lawful and proper manner of distribution of the residual property of the company, Port Douglas Fishermen’s Enterprises Ltd (In Liquidation), after satisfaction of the costs of winding up and of the company’s admitted debts and liabilities, is to the respondents in equal shares.
2. I direct that after 15 days from the date hereof and after satisfaction of the costs of winding up, and of the company’s admitted debts and liabilities, the residual property of the said company be distributed by the applicants to the respondents in equal shares in satisfaction of each of the respondents’ respective rights, claims and interests as a member of the company;
3. The applicant’s costs of and incidental to this application be paid out of the assets of the said company on the indemnity basis as agreed or assessed.
4. I give liberty to the parties to apply within 14 days from the date hereof.CATCHWORDS:
CORPORATIONS- CORPORATIONS LEGISLATION – WINDING UP VOLUNTARILY– APPLICATION BY LIQUIDATORS FOR COURT ORDER – distribution of surplus capital – prohibition under Corporations Act of reduction of capital unless pursuant to a provision of the company articles.
COUNSEL:
Michael Jonsson
SOLICITORS:
Farrellys Lawyers for the applicants
Mellick, Smith & Associates for the respondents
The applicants are the liquidators of Port Douglas Fishermen’s Enterprises Ltd (In Liquidation) hereinafter referred to as “the company”. They were appointed to that role on 28 June 2006 by resolution upon a members’ voluntary winding up. This application is made pursuant to s 51 of the Corporations Act 2001 (“the Act”) for determination of a question which has arisen about the distribution of surplus assets of the company.
The evidence discloses that after satisfaction of the costs of the winding up and all debts and liabilities of the company, the residue of those proceeds available for distribution to members is likely to exceed $1.5m. There are 11 members entitled to share in that residue, each of whom has been made a respondent to the application. The issue confronting the liquidators is whether this residue should be distributed equally between the 11 members or whether, as two members assert, the distribution should be in accordance with “mooring rights” which were held unequally between the members.
The two members so contending are the sixth and tenth respondents who did not appear when the application was called on for hearing. I was satisfied that each of them was properly served with the application and the relevant material and accordingly I resolved to proceed in their absence. Each of the remaining respondents agree with the applicants’ contention that there should be equal distribution between members. I propose to delay the operation of my directions so that those particular respondents can further consider their position.
The company was incorporated on 22 November 1978 as a public company limited by guarantee. It’s primary purpose was “to build and maintain wharf facilities and otherwise promote the fishing industry in and around Port Douglas”.
By clause 6s and 7 of the company’s Memorandum of Association the members agreed that:-
6. The capital and income of the Company of all descriptions and from all sources shall in no circumstances be credited paid set over or transferred directly or indirectly by way of dividend bonus or any other manner whatsoever by way of profit to the members of the Company or to any of them or to any person claiming through any of them but shall be applied solely for the purposes and towards the promotion of the objects of the Company as set forth in paragraph 3 hereof save and except that this provision shall not prevent the company making payments to any member pursuant to the terms of any agreement contract or transaction in the ordinary course of its business nor will it prevent payment by the Company to any of its members pursuant to any contract of service or employment properly entered into between the Company and such member or members whether such contract of service or employment is properly entered into by the Company in the ordinary course of its business and provided further that the Company may reimburse any of its members for any outlays or expenses properly incurred by the member at the request of and for the benefit of the Company where such request by the Company is properly made in the ordinary course of its business.
7. If upon the winding up of the Company or dissolution of the Company in any manner whatsoever there remains after the satisfaction of all property and just debts and liabilities and after payment of the cost of such winding up or dissolution any property whatsoever and howsoever acquired then the same shall be paid to or distributed amongst the members of the Company where membership at the time of such winding up or dissolution shall be paid up or current and it is declared that the Directors of the Company shall be at liberty to apply to the members of the Company for directions as to the manner of making of such distribution or to apply to the Northern Judge of the Supreme Court of the State of Queensland for directions as to the proper manner in which to discharge obligations imposed upon them by this clause.”
As at the date of the winding up, the major asset of the company was its leasehold interest in land situated at Inlet Road, Port Douglas to which was attached eight pontoons, each accommodating two mooring berths, a total of 16 berths.
The 16 original members of the company were each allocated a single mooring berth for that member’s use, this appears to have been an informal arrangement agreed upon by each of the members. The cost of construction of the pontoons was shared equally between the original members assisted by a loan from the ANZ Bank. The leasehold interest and title to the land has at all times since remained with the company. There was no formal assigning of interests by arrangements such as a sublease or the like.
From an early stage members raised the question of selling those “mooring rights” or subleasing pontoon space. At a meeting of members on 19 January 1980 the following resolution was carried:-
“As all 16 vacancies in the company were filled no further nomination fees be accepted, and a company member may sell his berth for whatever price he wishes. The one condition being that the remaining members approve of the prospective buyer and in turn the buyer, if approved, becomes a company member accepting his share of all responsibilities that this membership entails.”
Thus a member who wished to dispose of his/her right to use the berth could sell the right but only to a person who is accepted as a member in the place of the person selling. Consequently any trading of “mooring rights” had to be undertaken between persons who were each a member of the company with all the rights and responsibilities that entailed.
Over time some members have acquired the “mooring rights” of other members. This appears to have been done on a continuation of the informal arrangements existing between the company and its members but it has resulted in the number of members being reduced from 16 to 11 at the time of the dissolution and to a member having “rights” to more than one mooring berth. For example, the sixth respondent holds the mooring rights to two berths and the tenth respondent to four berths.
Over time the company’s operating expenses had been levied to, and met by, each member in proportion to the number of berths occupied by that member.
Before making this application the liquidator sought the opinion of Mr Philp of Senior Counsel who concluded that as the company is one limited by guarantee, the rights, obligations and responsibilities of the members are equal.
In this conclusion he is, in my view, plainly correct. A company limited by guarantee is defined in s 9 of the Act to be “a company formed on the principle of having liability of its members limited to the respective amounts that the members undertake to contribute to the property of the company if it is wound up.” This distinguishes the company from one limited by shares where the liability depends upon the individual shareholder’s fractional interest in the company. It means also that the members of a company limited by guarantee upon the winding up are primarily liable to honour their guarantee which in this instance is for the same amount. Thus the contribution each member is liable to make upon a winding up is equal and accordingly the entitlement to surplus (if any) is equal between members unless otherwise provided for.
The terms of clause 7 referred to above do not alter this position. They provide that, upon winding up, the surplus “is to be paid to and distributed amongst members…paid up or current”. Without more, the express provision simply reflects the general rule.
Mr Jonsson of Counsel advanced a further argument against the contention that the distribution should be in the proportion in which “mooring rights” are held. For mooring rights to be given this status would have the effect of there having been an unauthorised reduction in capital.
The leasehold interest is effectively the only capital asset of the company. A grant to a member of an exclusive right to occupy land owned by the company would be regarded as a reduction of capital unless it is made pursuant to a provision of the Memorandum or Articles of the company. Mr Jonsson referred particularly to s 258B of the Act and draws attention to the fact that no such provision has been made in this instance. To the contrary, the terms of clause 6 referred to above expressly provides that the capital shall in no circumstances be transferred to the members of the company.
As Young J described in Collingridge v Sontor Pty Ltd[1], it is clear “that every transaction between a company and any of its members, by means of which any of the money paid to the company in respect of the members’ shares is returned to him is prohibited unless the court has sanctioned the transaction”: Davis Investments Pty Ltd v Commissioner of Stamp Duties (NSW)[2]; Australasian Oil Exploration v Lachberg[3].
[1][1997] 141 FLR 440
[2](1958) 100 CLR 392 at 413
[3](1958) 101 CLR 119 at 132
Given that the company has neither resolved to reduce its capital in accordance with Chapter 2 J of the Act any suggestion that the company in its dealing with its members has resulted in some rights beyond that envisaged in the Memorandum of Association would mean that the company has acted illegally. That is not a conclusion which a court would come to lightly and there is no basis on the material before me for suggesting that it has done so in this instance. Accordingly, the fact that there existed arrangements for some respondents to occupy a greater number of moorings than other members does not result in any entitlement to a greater share of the surplus upon the dissolution of the company.
Orders
I make the following orders:-
1. I declare that the lawful and proper manner of distribution of the residual property of the company, Port Douglas Fishermen’s Enterprises Ltd (In Liquidation), after satisfaction of the costs of winding up and of the company’s admitted debts and liabilities, is to the respondents in equal shares.
2. I direct that after 15 days from the date hereof and after satisfaction of the costs of winding up, and of the company’s admitted debts and liabilities, the residual property of the company be distributed by the applicants to the respondents in equal shares in satisfaction of each of the respondents’ respective rights, claims and interests as a member of the company;
3. The applicant’s costs of and incidental to this application be paid out of the assets of the company on the indemnity basis as agreed or assessed.
4. I give liberty to the parties to apply within 14 days from the date hereof.
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