MPAQ and NECA v ACN 066 387 719 Pty Ltd
[2001] QSC 218
•26 June 2001
SUPREME COURT OF QUEENSLAND
CITATION: MPAQ & NECA v ACN 066 387 719 Pty Ltd [2001] QSC 218 PARTIES: MASTER PLUMBERS ASSOCIATION OF QUEENSLAND UNION OF EMPLOYEES
and
THE NATIONAL ELECTRICAL COMMUNICATIONS’ ASSOCIATION OF QUEENSLAND INDUSTRIAL ORGANISATION OF EMPLOYERS
(applicants)
and
ACN 066 387 719 PTY LTD
(respondent)FILE NO/S: SC 4247 of 2001 DIVISION: Trial Division PROCEEDING: Civil Application ORIGINATING COURT: Brisbane
DELIVERED ON: 26 June 2001 DELIVERED AT: Brisbane HEARING DATE: 21 June 2001 JUDGE: White J ORDER: The company be wound up on the just and equitable ground and Geoffrey Earl Grady be appointed liquidator. CATCHWORDS: CORPORATIONS – WINDING UP- WIDING UP BY COURT – GROUNDS FOR WINDING UP – OTHER GROUNDS – COURT OF OPINION THAT WINDING UP JUST AND EQUITABLE – whether company should be wound up on the ground of insolvency
CORPORATIONS – WINDING UP – GROUNDS FOR WINDING UP – INSOLVENCY – WHAT CONSTITUTES INSOLVENCY OR DEEMED INSOLVENCY – effect of non-compliance with s 459Q of the Corporations Law.
CORPORATIONS – WINDING UP – LIQUIDATORS – RESIGNATION OR REMOVAL – IN WINDING UP BY COURT – whether the liquidator should be removed for alleged want of independence or impartiality.
Corporations Law ss 157, 459Q, 1322.
Re Biposo Pty Ltd (1995) 17 ACSR 730 at 735.
Re Giant Resources Limited [1991] 1 Qd R 107 at 115.
Re Club Super Stores Australia Pty Ltd (in Liqu) (1993) ACSR 730 at 734-5.COUNSEL: Mr Perkins for the applicants
Ms B Mason on her own behalf
Mr D Foggo on behalf of Building Industry Specialist Contractors Organisation Queensland Inc.SOLICITORS: Freehills for the applicants
Thynne & McCartney for the provisional liquidator
The applicants who are the Master Plumbers Association of Queensland Union of Employees (MPAQ) and The National Electrical and Communications Association of Queensland Industrial Organisation of Employers (NECA) (formerly Electrical Contractors Association) filed an application on 11 May 2001 that the company, formerly Building Industry Credit Reference Service Pty Ltd, be wound up on the ground of insolvency or on the just and equitable ground or that the affairs of the company were being conducted oppressively and not in the interests of the members as a whole. They also seek an order that, notwithstanding non-compliance with s 459Q of the Corporations Law that the company be wound up for deemed insolvency for the failure to satisfy a statutory demand.
On 18 May 2001, on the application of the applicants Geoffrey Grady was appointed provisional liquidator of the company.
On the hearing of the application to wind up the company Ms Barbara Mason, who is a creditor, a 24 percent shareholder in the company, a director from November 1995 to 1 May 2001 and its manager, sought and was granted leave to appear on her own behalf.
Mr Douglas Foggo sought leave to appear on behalf of Building Industry Specialist Contractors Organisation Queensland Incorporated (BISCO). As its name suggests BISCO is a representative body. BISCO is a 19 percent shareholder in the company. Mr Foggo is President of that organisation and authorised by it to seek leave to appear on its behalf. Leave was not opposed by any other person entitled to be heard and leave was granted for the purpose of this application only.
The provisional liquidator was represented by solicitors.
Ms Mason and Mr Foggo agree that the company should be wound up on the just and equitable ground but oppose its winding up on the ground of insolvency. They oppose the continuation of Mr Grady as liquidator and have the consent to act of Mr Ross Duus. Six other creditors with debts amounting to $3,747 support the appointment of Mr Duus.
MPAQ holds 33.5 percent of the shares in the company. NECA holds 23.5 percent of the shares.
Background
The background to the establishment of the company in 1995 needs to be referred to to understand some of the issues and to put the concerns of the applicants in context. This is conveniently summarised in a report prepared by Mr John Lobban, a solicitor with the firm Blake Dawson Waldron, the registered office of the company, at the request of the provisional liquidator. Mr Lobban was a director of the company from November 1995 to 29 June 1998 and was involved in its early formation.
Credit managers and advisers involved in the Building Industry Credit Bureau thought that there was a need for an industry body to represent the interests of subcontractors. In late 1994 or early 1995 one Brian McLaughlin, who was for a time a director of the company, commenced an organisation known as Credit Management Consulting Pty Ltd with others. It provided collection and credit services generally but Mr McLaughlin considered that it was appropriate to commence a specialist subcontractors organisation. Mr Lobban and Mr Des Knight, an accountant, were involved in discussions with him. BISCO was approached with the idea and thereafter a Building Industry Specialist Contractors Credit Access Bureau (now the subject company) was commenced to provide services to subcontractors in the building industry and to provide a collection service through Credit Management Consulting Pty Ltd. Mr Knight and Mr Lobban became directors of the company at the invitation of its then shareholders who were BISCO, Electrical Contractors Association, the forerunner of NECA, and MPAQ. Mr Thomas Mayne was a representative of Queensland Specialist Subcontractors Association Inc. and in that capacity was appointed by BISCO as a representative of the subcontracting industry to the board. Exhibit 1 shows in table form the names of the directors and the dates of their acting in that capacity.
According to Mr Lobban, it was intended that BISCO and its member organisations would be the primary movers behind the company, particularly by establishing a client base from within their membership and that Mr McLaughlin’s company would derive income through providing collection services to the company.
Mr Lobban reports that throughout 1995 the company did not derive sufficient income to continue without the support of its shareholders. BISCO’s membership organisations were provided funding for the company to continue but BISCO was itself dependent on those organisations. NECA and MPAQ provided funding to cover the short term needs of the company from time to time. In 1995 Ms Mason was working for Mr McLaughlin’s collection agency and after it failed she began working for the company, being appointed a director in November 1995. According to Mr Lobban it was understood between the directors that the shareholders would meet all the funding of the company and Ms Mason would draw a salary when funds were available for that purpose although it was recognised that funds would not be readily available. She liaised with shareholders as funds were required for operating expenses.
In March 1996 the company passed a resolution whereby NECA and MPAQ agreed to provide funds by way of equity. Mr Lobban was away during most of the remainder of 1996. It was clear from the minutes of the meetings, some of which have been exhibited to some of the affidavits, that the shareholder organisations wanted to keep the balance of directors representative of their shareholding interest. Mr Lobban expressed concern at directors meetings that shareholders were continuing to provide funds to the company in a manner which was not documented and he was the only director carrying directors insurance.
The company had been housed in premises provided by NECA but it became necessary for it to obtain new premises and MPAQ offered the company space.
Mr Lobban had concerns about his continuing participation as a director. He referred to tensions developing between the applicants, the lack of directors’ insurance cover and the difficulty in finding new shareholders and directors. He tendered his resignation as a director on 29 June 1998.
There is little detail in the material for the period after Mr Lobban resigned as director until early this year. The shareholders continued to consider revised and new business plans for the company.
Recent Concerns
At the shareholders meeting held on 1 March 2001 a business plan was tabled by Ms Mason and those present appear to have agreed that if there could not be broader industry involvement then the company would cease to be viable. MPAQ and NECA did not accept the business plan and made a counter proposal which involved other industry organisations purchasing their shares in the company. It was also proposed that the company would cease to be a tenant of MPAQ on 31 May.
It is uncontroverted that by this time there were tensions between some of the shareholders or their representatives. Ms Mason became ill. She entered into a termination agreement with the company on 30 April 2001 and resigned as a director on 1 May because, she deposes, she had lost confidence in the major shareholders. By the agreement certain of the company’s assets including the credit reference debt collection database were transferred to Ms Mason and a payment of $35,000 made to her in consideration of the company being released from any claims associated with her termination. Her unpaid employee entitlements were preserved. These are assessed at approximately $75,000.
Mr W Watson, President of MPAQ, in his affidavit in support of the appointment of a provisional liquidator to the company, expressed a number of concerns which appear to have prompted the application.
The change of name to the company’s ACN on 10 April 2001 in conjunction with the registration by BISCO of the business name “Building Industry Credit Reference Service” on the same date, the papers for which were signed by Ms Mason might reasonably have created an apprehension that the company’s assets were being lost to some of the shareholders. Mr Foggo deposes that the company has had three name changes in its short history, all at the direction of BISCO consistent with art. 27.4 of its Articles of Association. The minutes for March 1996record one such change. Whether these changes in the past were achieved by special resolution as required by s 157 of the Corporations Law is not clear but the one notified on 10 April was not. Mr Foggo deposes that this most recent change was done to protect the good name of the company.
The change of premises for the operation of the business of the company to Sumner Park at an address which also accommodated BISCO’s offices might well raise suspicion to an outside observer but the letter of 15 March 2001 from MPAQ made clear that MPAQ was no longer prepared to offer a tenancy to the company after 31 May. Mr Foggo deposes that the company was accommodated in a separate tenancy from BISCO and shared only secretarial assistance. This was what had happened when the company was given accommodation with MPAQ. Ms Betty Robertshaw provided accountancy services to the company and to MPAQ.
When the applicants demanded audited accounts by letter of 23 April 2001 Ms Robertshaw advised that the production of such accounts would take not less than four weeks. Ms Mason’s contract with the company was terminated on 23 April.
Again, when the applicants demanded access to the books and records of the company by letters of 4 May, Ms Mason, Mr Mayne and Mr Huysing had already resigned as directors of the company.
Another concern raised by the applicants is the sale of shares held by the company and the disposition of the proceeds of sale in Data Advantage Pty Ltd. Mr Foggo deposes that since MPAQ and NECA had withdrawn all financial support from the company and BISCO was unable to give any, the shares had been sold so that the company might continue to operate on a day to day basis.
The applicants allege that the business of the company has been assigned, by inference to BISCO, without any consideration. Ms Mason deposes that for a company to conduct debt recovery work it must hold a licence and can only do so if it has a working director who is a licensed commercial agent. Ms Mason held the relevant licence but at the time of the termination of her employment neither of the other directors did so or was in a position to obtain a licence. It was thought highly improbable that a new director with appropriate qualifications could be located within a reasonable time.
Ms Mason deposes that the directors sought independent advice from Clout & Associates concerning the assignment of the work in progress to an appropriately licensed body. It recommended AFM Queensland Pty Ltd. An agreement was reached between AFM Queensland Pty Ltd and the company that the work in progress would be transferred to it and that the company would receive 50 percent of the net fees received. Ms Mason deposes that prior to receiving advice from Clout & Associate neither AFM Queensland Pty Ltd or any persons associated with it were known to any of the directors of the company. She deposes that the business of the respondent has not otherwise been transferred.
In the meantime MPAQ has circularised a notice to its members informing them that a provisional liquidator has been appointed to wind up the company on the grounds that the company was insolvent and that its affairs had not been conducted in the interests of all shareholders. The notice goes on to inform members that the applicants had taken the action
“…as it recently learned that [the company] without first informing its shareholders and securing their consent, ceased trading and disposed of some significant assets for no good reason and for no valuable consideration”.
Despite some attempts at negotiation in March it is unlikely that there will be any resolution of differences between the various groups of shareholders and the company ought to be wound up on the just and equitable ground.
Of more difficulty is whether the company is insolvent.
On 11 May 2001 MPAQ and NECA separately issued creditors’ statutory demands on the company care of its solicitors in the sum of $38,289.62 and $45,219.61 respectively. These amounts are described as “funds advanced by the creditor from time to time to the company”. The statutory demands were served on the company on 11 May 2001, the day the application to wind up the company was made. The provisional liquidator was appointed on 18 May. Those amounts remain unpaid. It is those amounts on the provisional liquidator’s material which together tip the company into insolvency.
Mr Grady shows total assets of the company at $133,109 and its liabilities at $181,870. The liabilities include the $83,509 MPAQ and NECA “loans”, Ms Mason’s employee entitlements of $75,634 and unsecured creditors at the directors’ estimates of $22,727. The status of the “loans” for MPAQ and NECA is uncertain. Ms Mason, Mr Foggo and Mr Mayne depose that MPAQ and NECA provided working capital to the company over much of its existence and either those amounts were forgiven by the applicants or that they were converted into equity. They appear in the most recent balance sheet of the company as non-current liabilities.
Mr Cox, the General Manager of NECA deposes that he is unable to say how the amount of $45,219.61 “loan” is made up. He deposes that the statutory demand relates to later injections of capital/loans to the company after earlier “loans” had been forgiven. Ms Mason deposes that there were no loans after 1998 made by either of the applicants to the company and any funds that were advanced were not due and payable on demand.
Mr Lobban, in his covering letter dated 8 June 2001 to the provisional liquidator wrote
“You will see from the attachment that one of the principal reasons for the decision being made by the directors, as reflected in the 13 March 1996 minutes, was my concern that monies being provided to the company by the existing members were being provided on a basis which was not clear to me and was not documented. I was of the view that those monies should not be by way of loans which were immediately repayable but should be by way of equity in order to give the directors comfort that the company was able to pay its debts as they fell due. Mr Mayne and Mr Anderson were similarly concerned.
As you will see in the attached chronology, this was an ongoing concern with representatives of the shareholding organisations asserting that their associations would “stand behind the company”. Whilst I am not able to comment on the amount of the loans of ECA and MPAQ, I can say that at the time of my directorship, I was of the view in reliance on statements made to me by representatives of ECA and MPAQ that monies provided by those organisations were provided by way of equity. Further funds may well have been provided which were by way of loan. If that is so, I am not aware of the circumstances surrounding the creation of such loans.”
Mr Lachlan McIntosh, a partner in Clout & Associates, had been engaged to assess the solvency of the company in April 2001. He formed the view, as at 1 May 2001, that the company was solvent and able to meet its debts as and when they fell due. As Mr Perkins, who appeared for the applicants, submitted, his report is qualified. Nonetheless he is an experienced insolvency practitioner and wrote to the provisional liquidator of 14 June. He said that he had reviewed the balance sheets and minutes of meetings of shareholders and had concluded that the funds were placed as capital into the company and not as loans.
Finally the provisional liquidator has deposed that after perusing the balance sheets, the letter from Mr Lobban of 8 June and the letter from Mr McIntosh of 14 June, together with his own investigations, his view is that the status of the applicants’ “loans” require further investigation. It may be that the applicants are debtors to the company since current subscriptions have not been paid for services provided.
There are, then, a number of matters which need to be further investigated before the conclusion could be drawn that the company is actually insolvent being unable to pay its debts as and when they fall due for payment.
There is then the matter of deemed insolvency. Mr Perkins submitted that notwithstanding that the statutory demand does not comply with the provisions of s 459Q of the Corporations Law, s 1322 ought to be applied. The circumstance in which a court might waive procedural irregularity is when it is of the opinion that the irregularity has not caused or may not cause substantial injustice. The statutory demands were served on the company at the time when it had no directors, concurrently with an application to wind up the company, and an application to appoint a provisional liquidator was made seven days later. The provisional liquidator does not say if he gave any consideration to the statutory demands prior to the expiration of 21 days. It is likely to cause substantial injustice to wind up the company on the ground of deemed insolvency and non-compliance with s 459Q ought not be waived.
The appointment of a liquidator
From at least the beginning of this year the degree of commitment of the shareholders to the company and what direction it should take were issues which were dividing the shareholders very much along the lines represented at this hearing. The action taken by Ms Mason, Mr Mayne, Mr Huysing and Mr Foggo to protect the company, as they would see it, was done without reference to the applicants who are the major shareholders. The applicants had chosen to cease to participate in further negotiations about the future of the company and brought these issues to a head by the application to wind up the company and the appointment of a provisional liquidator to it. Thereafter the affidavits reveal anger and distrust amongst the shareholders and/or their officers with allegations of personal abuse both made and strongly denied.
There is a perception by Ms Mason and Mr Foggo that in providing MPAQ with the company records, including the termination agreement with Ms Mason, which its officers have used for purposes not relevant to the investigations of the provisional liquidator, Mr Grady is not seen as impartial. He was unable to control what MPAQ did with the material and he was entitled to have its officers’ comments to assist him in his investigations. There was no need for a court order pursuant to s 486 to do so as Ms Mason submitted. That enables a creditor or contributory to have access to the books of a company where they are not otherwise permitted to do so.
Ms Mason expressed concern that Mr Grady has not been able to resolve the status of the “loans” made by the applicants in the time since his appointment. That is not, in the usual case, the function of a provisional liquidator. These are difficult questions as the preliminary investigations by Mr McIntosh and Mr Grady demonstrate.
Ms Mason and Mr Foggo are concerned that they and other former directors and shareholders have been insufficiently or not at all consulted by Mr Grady contrary to his assertions made at the meeting of 5 June that he would do so before releasing his report. When the record of work undertaken by Mr Grady and his staff in connection with the provisional liquidation of the company is perused, although not all former directors have been interviewed, nonetheless the contact with Ms Mason in particular has been reasonably extensive. There has also been recourse to Mr Lobban and Mr MacIntosh as well as sundry officers of MPAQ and NECA and many other persons.
A concern is expressed that Mr Grady either would not or could not give an estimate of his fees for the provisional liquidation on 5 June and the unnecessary use of solicitors to distribute the provisional liquidator’s report on the eve of the return date of the winding up application. Ms Mason deposes that she doubts from what she has seen that the liquidation under Mr Grady would be conducted in a cost effective manner. Ms Mason, who over the whole life of the company has carried out its day to day running will necessarily need to work closely and co-operatively with the liquidator and his officers. Having heard from her in court and read her affidavits I am persuaded that she will co-operate appropriately if required to do so.
As I have said there are a number of creditors most of whom are owed very small amounts who do not support the continuation of Mr Grady as the liquidator of the company. They give no reason for not doing so and it may well be that their inclination is to simply support Ms Mason or Mr Foggo.
Mr Grady and his officers have incurred $9,891.20 (excluding GST) in costs to date. This does not include disbursements such as legal costs. Mr Grady deposes that he is able to investigate the affairs of the company in an impartial manner and to be cost effective. In the event that another liquidator were to be appointed Mr Grady deposes that although that liquidator would have the benefit of the work already undertaken, nonetheless, costs of between $5,000 and $10,000 would still be incurred in becoming conversant with the matters already learnt by him and his staff.
The principals are not in doubt. It is essential that a liquidator who is an officer of the court be independent of the various interests and be seen by a reasonable observer as independent. As Young J observed in Re Biposo Pty Ltd (1995) 17 ACSR 730 at 735
“The prime problem in this case is whether it would be perceived by a reasonable observer that the liquidators have manifested a tendency to favour certain interests at the expense of others: see Re City & Country Investment Co (1877) 25 WR 342.”
See also Re Giant Resources Limited [1991] 1 Qd R 107 at 115 and Re Club Super Stores Australia Pty Ltd (in Liqu) (1993) 10 ACSR 730 at 734-5.
It is not surprising that Ms Mason and Mr Foggo would have approached Mr Grady’s handling of the provisional liquidation in a critical frame of mind. He had been put in place as the liquidator chosen by the applicants. There is always a perception, particularly by those who have had the day to day running of a company, that a liquidator unnecessarily incurs costs, but on a perusal of the provisional liquidator’s record of work undertaken that is not demonstrated. The provision of the material to MPAQ which its officers have used for their own purposes ought not to be seen as a criticism of the provisional liquidator. The termination agreement was something in which the majority shareholders had a real interest.
This is a company with little by way of cash assets and those that it has ought not be further eroded by the duplication of work already carried out. There really is nothing to support allegations of want of independence or impartiality other than what might be described as general feelings of unhappiness with his appointment. If money were not a significant issue there might be merit in a bitter dispute as this seems to have become in replacing Mr Grady, but since there are no objective concerns about him and the assets are modest he should remain as liquidator.
I note that the applicants have no objection to Mr Ross Duus who has given his consent to act were Mr Grady not to be appointed the liquidator of the company.
The order of the court is that the company be wound up on the just and equitable ground and that Geoffrey Earl Grady be appointed liquidator.
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