Official Trustee in Bankruptcy v Buffier - [2005] NSWSC 839

No judgment structure available for this case.

Reported Decision:
54 ACSR 767

New South Wales

Supreme Court

CITATION:
The Official Trustee in Bankruptcy v Buffier [2005] NSWSC 839

HEARING DATE(S): 18 & 22 July 2005, 5 August 2005

JUDGMENT DATE :

25 August 2005

JURISDICTION:
Equity

JUDGMENT OF:
Campbell J

DECISION:
Corporation to be wound up

CATCHWORDS:
CORPORATIONS - winding up - just and equitable ground - corporation not under valid and effective management - CORPORATIONS - directors - purported appointment of a bankrupt who is also subject to an ASIC banning order as a director - validity - CORPORATIONS - share held by bankrupt - powers of Official Trustee in relation to that share - BANKRUPTCY - trustees - powers in relation to a share held by the bankrupt - BANKRUPTCY - control over person and property of debtors and bankrupts - capacity for bankrupt to be appointed a company director

LEGISLATION CITED:
Bankruptcy Act 1966 (Cth)
Corporations Act 2001 (Cth)
Corporations Law
Real Property Act 1900

CASES CITED:
Australian Securities Commission v AS Nominees Ltd (1995) 18 ACSR 459
Betella v O'Leary [2001] WASCA 266
CIC Insurance Ltd (prov liq apptd) v Hannan & Co Pty Ltd (2001) 38 ACSR 245; [2001] NSWSC 437
Re Colorbus Pty ltd (in liq); Mentha v Colorbus Pty Ltd (in liq) (2004) 213 ALR 789; (2004) 187 FLR 234; (2004) 51 ACSR 677; (2005) 23 ACLC 183 [2004] VSC 486
Ebrahami v Wetbourne Galleries Ltd [1973] AC 360
Grant and Others v John Grant and Sons Proprietary Limited (1950) 82 CLR 1
Macquarie Bank Ltd v TM Investments Pty Ltd [2005] NSWSC 608
Morris v Kanssen [1946] AC 459
National Roads & Motorists' Association v Parker (1986) 6 NSWLR 517
Papapavlou v Karageorge (1987) 6 ACLC 75
Re Producers Real Estate and Finance Company Ltd [1936] VLR 235
Statutory Interpretation in Australia, 5th edition (Butterworths 2001)

PARTIES:
The Official Trustee in Bankruptcy - Plaintiff
Andrew Brian Benjihmam Buffier - First Defendant
James Court & Associates Pty Ltd - Second Defendant

FILE NUMBER(S):
SC 3519/05

COUNSEL:
B Skinner - Plaintiff
R Angyal SC - Second Defendant

SOLICITORS:
Sally Nash & Co - Plaintiff
Unrepresented - First Defendant
David Landa Stewart - Second Defendant

LOWER COURT JURISDICTION:

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
DUTY JUDGE LIST

CAMPBELL J

25 AUGUST 2005

3519/05 THE OFFICIAL TRUSTEE IN BANKRUPTCY v ANDREW BRIAN BENJHIMAM BUFFIER

JUDGMENT

1 HIS HONOUR: This is an application to wind up the second defendant on the just and equitable ground, pursuant to section 461(1)(k) Corporations Act 2001 (Cth).

2 The plaintiff is the Official Trustee in Bankruptcy (“the Official Trustee”). On 28 February 2000 a sequestration order was made in relation to the estate of Brian Leslie Joseph Buffier (“the Bankrupt”), pursuant to which the Official Trustee became the trustee of the estate of the Bankrupt. The Bankrupt sometimes spells his surname as “Bouffiere”. The Bankrupt is at present not due to obtain his discharge prior to 1 February 2006.

3 The second defendant is a company which was incorporated in Queensland on 29 June 1994. It has 100 issued shares, all of which were, until recently, held by the Bankrupt. On 29 June 2005 White J declared that those 100 shares are vested in the Official Trustee pursuant to section 58(1)(a) Bankruptcy Act 1966 (Cth), and ordered the second defendant to register the Official Trustee as the shareholder of the shares within seven days, and to notify ASIC. It is common ground on the present application that that order has in substance been complied with. That compliance provides a sufficient reason why the Official Trustee is a contributory of the second defendant, and thus has standing, under section 462(2)(c) Corporations Act 2001 (Cth) to make the present application.

4 The Official Trustee seeks the winding up of the second defendant on the basis that it, as the sole shareholder, wants to have the company wound up as part of the realisation of assets in the bankrupt estate of the Bankrupt.

Mr Service

5 Mr Alistair Service is, according to ASIC records I will discuss more fully later, the sole director and secretary of the second defendant. On 14 July 2005 a meeting took place attended by two officers of the Official Trustee, and two lawyers of the Official Trustee. It purported to be a meeting of shareholders of the second defendant. The minutes of the meeting record a resolution that Mr Service be requested to resign as the director and secretary of the second defendant forthwith. When the Official Trustee was, at that time, the sole shareholder in the second defendant, I doubt that this meeting was a valid meeting of shareholders of the second defendant. Even so, it made the wishes of the Official Trustee quite clear.

6 On 14 July 2005 an officer of the Official Trustee sent to Mr Service, by hand delivery, a letter addressed to him at 69 Eastern Valley Way Castlecrag, saying:

enclose

You failed to attend at a Section 77C examination today at the office of the Official Receiver in Bankruptcy for the Bankruptcy District of the State of New South Wales.

The Official Trustee in Bankruptcy as the only member and contributory of James Court & Associates Pty Ltd (A.C.N. 065 445 007) directs that you tender your resignation forthwith and return immediately your resignation to this office by the courier who has delivered this letter to you.”

7 A blank form of resignation as director and secretary was enclosed, along with a copy of the order of Justice White made 29 June 2005. A copy of the letter and its enclosures was also sent, on 14 July 2005, to the solicitor who appears today for the second defendant, and by express post to the second defendant at its registered office.

8 A process server has deposed to serving Mr Service at 8.17 pm on 14 July 2005, and that:

“3. At the time of service I asked the person: “Are you Alistar Ewan SERVICE?” The male person replied: “Yes, what’s that?” He then put his hands behind his back. I said: “I have this Letter, Resignation and Order for you. It’s for Court on Monday. Would you mind signing this?” He said: “No, I’m not interested. I’m signing nothing.” I then placed the documents at his feet in his presence.”

9 Mr Service declines to resign.

Section 203C Corporations Act 2001

10 Counsel for the Official Trustee explained why the Official Trustee was approaching the Court to achieve the winding up. He drew my attention to section 203C Corporations Act 2001 (Cth), which provides:

“A proprietary company:

(a) may by resolution remove a director from office; and

(b) may by resolution appoint another person as a director instead.”

11 Section 203C is stated by its heading to be a replaceable rule. Section 135 Corporations Act 2001 (Cth) says that such a provision applies only in relation to a company that was registered after 1 July 1998, or that was registered before 1 July 1998 and repeals its Constitution after that day. It is not shown that the second defendant fits into either of these categories. Thus, I am not satisfied that section 203C applies to it in any event.

Officers of Second Defendant at Various Times

12 The Official Trustee relies upon the past history of administration of the second defendant in making the present application. A company search of the second defendant at ASIC shows a Mr Martyn and Ms Gibson being the only directors of the second defendant in the period from 21 April 1995 to 11 April 2001, but ceasing to be directors on 11 April 2001, and the Bankrupt becoming a director on 11 April 2001. Somewhat inconsistently, the ASIC record also shows the appointment of the Bankrupt as a director having ceased on 28 January 1999.

13 It was on 27 January 1999 that ASIC had made a prohibition order against the Bankrupt, under section 600 of the Corporations Law, prohibiting him for a period of five years from that date being a director or promoter of, or from being in any way (whether directly or indirectly) concerned in or taking part in the management of a corporation without the leave of the court. The ASIC search discloses no other way in which, or date on which, the Bankrupt ceased to be a director of the second defendant.

14 The search goes on to show Graham Kenneth Laughlin being appointed as a director on 31 October 2002, and ceasing to be a director on 1 December 2003. The search also shows that on 1 December 2003 Alistair Ewan Service, whose address is stated in the ASIC record to be 69 Eastern Valley Way Castlecrag NSW 2068, was appointed as a director. No minute of his appointment, or of that of Mr Laughlin, was tendered. Nor is there any other evidence of the means by which either of these purported appointments were made.

15 The evidence discloses little about Mr Service, beyond the fact that it was he who witnessed the signature of both Andrew Buffier, and the Bankrupt, on a mortgage dated 8 October 2001 by Andrew Buffier to the second defendant over property at St Leonards. That mortgage is further discussed at para [44] ff below.

16 The ASIC records also show Mr Service as the current secretary of the second defendant, and as having been appointed as secretary on 1 December 2003.

17 Inconsistently with the ASIC records, the minutes of what purports to be a directors meeting of the second defendant held on 14 March 2001 record the resignation of Mr Martyn and Ms Gibson, and the appointment of the Bankrupt as sole director and secretary of the second defendant as events occurring on 14 March 2001. Those minutes record Mr Martyn and Ms Gibson as being the only people present, and state that they resolved as follows:

“To sell 100 shares to B Bouffiere. These shares are $1.00 ordinary shares fully paid owned by Mark Martyn (99 shares) and Nicolle Gibson (1 share).

Consideration for sale of such shares is $300 ($3.00 per share).

Mark Martyn to resign as both director and secretary and Nicolle Gibson to resign as director and notify the ASIC of such changes.

To appoint B Bouffiere as director and secretary and notify the ASIC of such changes.

To provide declaration of solvency to incoming shareholder B Bouffiere.”

18 Section 58(1)(a) Bankruptcy Act 1966 (Cth) makes provision for the vesting in the Official Trustee of property of the bankrupt, at the time when a debtor becomes a bankrupt. It is section 58(1)(b) which provides for the vesting in the Official Trustee of after-acquired property. The sequestration order against the Bankrupt, the reader will recall, was made on 28 February 2000. Thus, consistently with White J’s order, the 100 shares in the second defendant must have been held beneficially by the Official Trustee even prior to the passing of this resolution.

Effect of the Bankrupt Purporting to Act as Director While Bankrupt and Disqualified

19 It is apparent that, between 14 March 2001 (or possibly 11 April 2001) and 31 October 2002, it was only the Bankrupt who had any claim to be a director of the second defendant. It is necessary to examine the effect which that situation has on the validity of the appointment of Mr Laughlin, and later Mr Service, as well as in a more general way whether it is just and equitable for the second defendant to be wound up.

20 In March and April 2001 the Corporations Law contained the following provisions. The Corporations Act 2001 (Cth) also contains them now, except to the extent I expressly indicate.

“9. Unless the contrary intention appears:

…

“director” of a company or other body means:

(a) a person who:

(i) is appointed to the position of a director; or

(ii) is appointed to the position of an alternate director and is acting in that capacity;

regardless of the name that is given to their position; and

(b) unless the contrary intention appears, a person who is not validly appointed as a director if:

(i) they act in the position of a director; or

(ii) the directors of the company or body are accustomed to act in accordance with the person’s instructions or wishes.

Subparagraph (b)(ii) does not apply merely because the directors act on advice given by the person in the proper performance of functions attaching to the person’s professional capacity, or the person’s business relationship with the directors or the company or body.

Note: Paragraph (b)—Contrary intention—Examples of provisions for which a person referred to in paragraph (b) would not be included in the term “director” are:

…

201F. Special rules for the appointment of directors for single director/single shareholder proprietary companies

(1) The director of a proprietary company who is its only director and only shareholder may appoint another director by recording the appointment and signing the record.

Appointment of new director on death, mental incapacity or bankruptcy

(2) If a person who is the only director and the only shareholder of a proprietary company:

(a) dies; or

(b) cannot manage the company because of the person’s mental incapacity;

and a personal representative or trustee is appointed to administer the person’s estate or property, the personal representative or trustee may appoint a person as the director of the company.

(3) If:

(a) the office of the director of a proprietary company is vacated under subsection 206B(3) or (4) because of the bankruptcy of the director; and

(b) the person is the only director and the only shareholder of the company; and

(c) a trustee in bankruptcy is appointed to the person’s property;

the trustee may appoint a person as the director of the company.

…

201M. Effectiveness of acts by directors

(1) An act done by a director is effective even if their appointment, or the continuance of their appointment, is invalid because the company or director did not comply with the company’s constitution (if any) or any provision of this Law.

(2) Subsection (1) does not deal with the question whether an effective act by a director:

(a) binds the company in its dealings with other people; or

(b) makes the company liable to another person.

Note: The kinds of acts that this section validates are those that are only legally effective if the person doing them is a director (for example, calling a meeting of the company’s members or signing a document to be lodged with ASIC or minutes of a meeting). Sections 128-130 contain rules about the assumptions people are entitled to make when dealing with a company and its officers.

…

203B. Signpost to consequences of disqualification from managing corporations

A person ceases to be a director of a company if the person becomes disqualified from managing corporations under Part 2D.6 (see subsection 206A(2)) unless ASIC or the Court allows them to manage the company (see sections 206F and 206G).

…

205B. Notice of name and address of directors and secretaries to ASIC

New directors or secretaries

A company must lodge with ASIC a notice of the personal details of a director or secretary within 14 days after they are appointed. The notice must be in the prescribed form.

…

Notice required if person stops being a director or secretary

If a person stops being a director, alternate director or secretary of the company, the company must lodge with ASIC notice of the fact within 14 days. The notice must be in the prescribed form. However, the company does not need to lodge a notice if the person was an alternate director who stopped being a director in accordance with the terms of their appointment as an alternate director.”

“ 206A. Disqualified person not to manage corporations

…

(2) A person ceases to be a director, alternate director or a secretary of a company if:

(a) the person becomes disqualified from managing corporations under this Part; and

(b) they are not given permission to manage the corporation under section 206F or 206G.

…

206B. Automatic disqualification

…

Bankruptcy, deed of arrangement or composition with creditors

A person is disqualified from managing corporations if the person is an undischarged bankrupt under the law of Australia, its external territories or another country.

…

231. Membership of a company

A person is a member of a company if they:

(a) are a member of the company on its registration; or

(b) agree to become a member of the company after its registration and their name is entered on the register of members; or

(c) become a member of the company under section 167 (membership arising from conversion of a company from one limited by guarantee to one limited by shares).

…

249C. Calling of meetings of members by a director (replaceable rule—see section 135)

A director may call a meeting of the company’s members.

…

251A. Minutes

…

(3) The company must ensure that minutes of the passing of a resolution without a meeting are signed by a director within a reasonable time after the resolution is passed.

…

1091A Rights of trustee of estate of bankrupt shareholder

(1) Where:

Bankruptcy Act 1966

(b) the bankrupt is the registered holder of that share;

this section applies whether or not the trustee has been registered as the holder of the share.

(2) On producing such information as the company's directors properly require, the trustee is entitled to:

(a) the same dividends and other benefits; and

(b) the same rights, for example, but without limitation, rights in relation to:

(i) meetings of the company; or

(ii) documents, including notices of such meetings; or

(iii) voting; or

(iv) inspection of the company's records;

as the bankrupt would be entitled to if he or she were not a bankrupt.

(3) The trustee has the same rights:

(a) to transfer the share; and

(b) to require a person to do an act or give a consent in connection with completing or registering a transfer of the share;

as the bankrupt would have if he or she were not a bankrupt.

(4) If the trustee transfers the share, the transfer is as valid as if the trustee had been registered as the holder of the share when the trustee executed the instrument of transfer.

(5) A person or body whose consent or approval is required for the transfer of shares in the company must not unreasonably withhold consent or approval for the transfer of the share by the trustee.

…

(9) Nothing in this section limits the generality of anything else in it.”

21 The Constitution of the second defendant is not in evidence before me. I recognise it is common for companies to have a provision in their Constitution whereby if a director resigns, the ongoing director or directors can fill the vacancy. However, a provision which enabled all directors of a company to resign, and then purport to appoint someone to act as their replacement, as appears to have happened on 14 March 2001, would be, to put it at the lowest, most unusual.

22 But it is not necessary to base any decision upon that consideration. At the time of the purported resolution of 14 March 2001, and also on 11 April 2001, section 206B(3) Corporations Law disqualified an undischarged bankrupt from managing corporations. Section 206G Corporations Law enabled a person who was disqualified from managing corporations to apply to the court for leave to manage corporations, or a particular corporation – however section 206G provided that that possibility was open only if that person was not disqualified by ASIC. As the Bankrupt was also, in 2001, someone who was disqualified by ASIC, he could not have obtained leave under section 206G. Sections 203B and 206A(2) Corporations Law provided that a person ceased to be a director of a company if he became disqualified, unless ASIC or the Court allowed him to manage the company. Against this legislative background, I conclude that the purported appointment of the Bankrupt as sole director and secretary of the second defendant was not a valid one. After the coming into effect of the Corporations Act 2001 (Cth) in July 2001, sections in that Act, bearing identical numbers to those I have referred to in the Corporations Law, continued to have the effect that an undischarged bankrupt could not validly be appointed as a company director without the leave of the Court or the permission of ASIC.

23 Further, on both 14 March 2001 and 11 April 2001 the disqualification which arose from ASIC’s service of the order under section 600 Corporations Law remained valid, and provided a separate ground why the Bankrupt could not validly be appointed as a director of the second defendant.

Were Mr Laughlin and Mr Service Validly Appointed?

24 A question arises about whether, when the purported appointment of the Bankrupt as a director was invalid, he could have validly appointed Mr Laughlin as a director on 31 October 2002. Mr Angyal SC argues that, notwithstanding the deficiency in the appointment of the Bankrupt as a director, he nonetheless had the capacity validly to appoint Mr Laughlin as a director. He submits that the Bankrupt was a “director” within the extended meaning given by para (b) of the definition of “director”, that section 201M has the extended definition of “director” applied to it, and has the effect that any act of the Bankrupt in appointing Mr Laughlin was effective.

25 Alternatively, he submits that at the time of appointment of Mr Laughlin, the Bankrupt was the only shareholder in the second defendant, that the extended definition of “director” applied to the Bankrupt, and hence that the Bankrupt had power under section 201F(1) to appoint Mr Laughlin by recording the appointment and signing the record.

26 He submits that, until the Official Trustee was registered, comparatively recently, as the holder of the shares in the second defendant, it was the Bankrupt who was the shareholder. There is no definition of “shareholder” in the Corporations Law (as at March and April 2001), or in the Corporations Act 2001 (Cth) now. However, the Bankrupt would have been a “member” within the definition in each of those pieces of legislation, and there was no reason to treat the meaning of “shareholder” in section 201F(1) as being any different to the meaning of “member”. The Official Trustee acquired an equitable title to the shares upon the making of the sequestration order, and certain statutory powers in relation to the shares under section 1091A Corporations Law (then) and section 1072C Corporations Act 2001 (Cth) (now), but that did not detract from the fact that it was the Bankrupt who was the shareholder at the time of Mr Laughlin’s appointment.

Valid appointment under section 201M?

27 Mr Angyal submits that, even if the Bankrupt was not validly appointed as a director, he could validly appoint Mr Laughlin, by virtue of section 201M. He submits, in my view correctly, that section 201M is designed to cure invalidities in a wider range of circumstances than the former section 124 Companies Act 1936 and section 119 Companies Act 1961 were intended to operate, and that section 201M applies to acts done by a person who is invalidly appointed as a director where the invalidity comes from the breach of a positive requirement of the Corporations Law (Re Colorbus Pty ltd (in liq); Mentha v Colorbus Pty Ltd (in liq) (2004) 213 ALR 789; (2004) 187 FLR 234; (2004) 51 ACSR 677; (2005) 23 ACLC 183 [2004] VSC 486 at [21] – [22] per Mandie J, cf Grant and Others v John Grant and Sons Proprietary Limited (1950) 82 CLR 1, Morris v Kanssen [1946] AC 459.

28 But section 201M can apply only to an act of a type which must be performed by a director to be effective. Here, even though the validity of the appointment of Mr Laughlin and Mr Service was, at least by the last day of hearing of this matter, well exposed as being an issue, there was no attempt to provide evidence which showed the actual mechanism by which they were purportedly appointed. I will not assume, without evidence, that Mr Laughlin was appointed by an act of a type that needs to be done by a director to be valid, and that the Bankrupt was the director who purported to so act. For that reason, I am not satisfied that section 201M results in the appointment of Mr Laughlin being valid.

Alternatively, Valid Appointment Under Section 201F?

“Contrary Intention”

29 Whether the extended definition of “director” applies in section 201F(1) depends upon whether a “contrary intention appears”. Mr Angyal SC submits that the appropriate place to look for such a contrary intention is in section 201F(1) alone. I do not accept that that is correct. It is contrary to the authority cited by Burchett AUJ (with whom Wallwork and Wheeler JJ agreed) in Betella v O’Leary [2001] WASCA 266 at [13] – [14]:

Matter of the Application of The Fourth South Melbourne Building Society

Transport Accident Commission v Treloar

Knightsbridge Estates Trust, Ltd v Byrne

“Interpretation clauses must be themselves interpreted reasonably, to promote, and not to defeat, the purposes of the Act which they are intended to elucidate.”

In the last case, Viscount Maugham said (ubi cit):

“It is perhaps worth pointing out that the words ‘unless the context otherwise requires,’ which we find in the consolidating Act of 1929, are not to be found in the amending Act of 1928. I attribute little weight to this fact, for in my opinion some such words are to be implied in all statutes where the expressions which are interpreted by a definition clause are used in a number of sections with meanings sometimes of a wide and sometimes of an obviously limited character.

On the other hand I think due weight ought to be attributed to the words ‘otherwise requires’ in the Companies Act of 1929, and it is incumbent on those who contend that the definition does not apply to s74 to show with reasonable clearness that the context does in fact require a more limited interpretation of the word ‘debenture’ than s380 has assigned to it.”

In Hall v Jones

“General words in an Act of Parliament must always be construed in accordance with the circumstances to which the Act is intended to apply ... . Everything depends upon the subject matter and the context.”

Blue Metal Industries Ltd v R W Dilley

Deputy Commissioner of Taxation (NSW) v Mutton

Sin Poh Amalgamated (HK) Ltd v Attorney-General (HK)

is

Duperouzel v Cameron

30 I accept the statement of Pearce and Geddes in Statutory Interpretation in Australia, 5th edition (Butterworths 2001) at [6.62] that:

“The proper approach is to assume that the expression is used as defined and then ask whether, in the particular context in which it appears, a contrary intention can be shown. The enquiry is not affected one way or the other by the term being used other than as defined in another place in the Act. If the definition is to be departed from, it is only to be for the purposes of the particular provision under consideration.”

Betella v O’Leary

31 The note to the definition of “director” is one which appeared in the government printer’s text of the Corporations Act 2001 (Cth), and also appeared in the Corporations Bill 2001 when it was laid before Parliament. Thus, even though pursuant to section 13(3) Acts Interpretation Act 1901 (Cth) those notes are not part of the Act, they can be used, pursuant to section 15AB Acts Interpretation Act 1901 (Cth) as an aid to construction.

32 The examples given in that note of when a “contrary intention” is shown include, in their reference to section 249C and 251A(3), examples where the contrary intention can be gathered from an appreciation of how the application of the definition in those sections would work in practice, rather than from any textual clues.

33 In my view it is clear that para (b)(ii) of the definition of “director” does not apply in section 201F(1). Para (b)(ii) proceeds on the assumption that there are directors of a company, who are different people to the person in accordance with whose instructions or wishes they are accustomed to act. By contrast, section 201F(1) is concerned with the situation where there is only one director of the company.

34 In deciding whether para (b)(i) of the definition of “director” applies, the relevant context includes section 201F(3). Section 201F(3) sets out a procedure which applies in the situation where a person is the only director and only shareholder of the company, and becomes disqualified from managing corporations through being an undischarged bankrupt, when a trustee in bankruptcy is appointed to that person’s property. In that situation, the trustee may appoint a person as the director of the company. I cannot conceive that in that situation Parliament intended that, not only would the trustee have power to appoint a replacement director, but as well the person who had become bankrupt could, by flouting the disqualification in section 206B(3) come to acquire the capacity also to appoint his own replacement. I conclude that, even if the Bankrupt had purported to appoint Mr Laughlin by recording the appointment and signing the record, under s 201F, that appointment would not have been effective.

35 An alternative route Mr Angyal pointed to as the means by which Mr Laughlin may have been appointed as director is by a meeting of shareholders. He submits that until the recent vesting in the Official Trustee of the shares in the second defendant, the Bankrupt was the sole shareholder in the second defendant, that any rights of the Official Trustee to vote at meetings, under section 1091A, arose only upon the production of such information to the directors as the directors required, and that there is no evidence that the Official Trustee had ever found out what that information was, or provided it. However, when there is no evidence produced to the court that there ever was a purported meeting of shareholders to appoint Mr Laughlin as a director, the factual basis for this argument is not established. In the absence of evidence I am not prepared to infer that there was a purported meeting of shareholders, rather than (for example) a simple lodging of a form with ASIC that stated that Mr Laughlin had replaced the Bankrupt as a director.

36 In these circumstances, I do not find that the appointment of Mr Laughlin as a director was valid.

37 As well, that route to there being a valid appointment of Mr Laughlin as director is not one that I can find has succeeded, when there is no evidence that it was through the procedure set out in s 201F that an attempt to appoint Mr Laughlin as director was made.

38 For similar reasons, I do not find that the purported appointment of Mr Service as director was validly effected by Mr Laughlin acting as a director, nor that it was validly effected by any resolution of a meeting of shareholders. I conclude that the appointment of Mr Service as director is likewise invalid. The same line of reasoning leads to the conclusion that the appointment of Mr Service as secretary is also invalid.

39 When the second defendant is not subject to any valid internal management, and the sole shareholder wishes to have the company wound up, a clear case for winding up on the just and equitable ground is made out.

40 While one can identify categories of case which the court has regarded as ones suitable for the winding up of a company on the just and equitable ground, the full scope of the power is not confined to particular pre-existing categories. The present case, though, falls within a category previously recognised. In CIC Insurance Ltd (prov liq apptd) v Hannan & Co Pty Ltd (2001) 38 ACSR 245; [2001] NSWSC 437 Barrett J said, at 248, [13]:

Morgan v 45 Flers Avenue Pty Ltd

Re Vision Image (Aust) Pty Ltd; Cheng v Yeo

41 In the present case, there is in effect a power vacuum at board level, because of Mr Services’ invalid appointment, and the Official Trustee, as sole shareholder, both does not want to rectify that problem, and is in any event, by reason of the lack of anyone willing to take on the task, unable to do so.

42 Section 249B(1) Corporations Act 2001 (Cth) provides:

“A company that has only one member may pass a resolution by the member recording it and signing the record.”

Corporations Act 2001

Alternative Basis – Irregularity in Corporate Dealings

43 An alternative basis on which the Official Trustee sought the winding up was that it, as sole shareholder, had no confidence in the suitability of Mr Service to continue to manage the company.

44 It seems, on the evidence in this application, that the second defendant has at least two assets. One is a registered mortgage over a strata title home unit situated at 85/15 Herbert Street, St Leonards, which secures, on the evidence now available, a principal sum of $630,000. The registered proprietor of that home unit is Mr Andrew Buffier, the son of the Bankrupt. The evidence does not disclose how Mr Andrew Buffier became the registered proprietor. The second asset is a block of land at 53 Kuranda Crescent, Kotara. The second defendant is registered proprietor of that block. It has erected on it a house in which the Bankrupt was, fairly recently, residing, and might still be residing in.

45 On 8 October 2001 Andrew Buffier executed a mortgage, which subsequently became registered, over the St Leonards home unit in favour of the second defendant, to secure the sum of $16,000. That mortgage was executed on behalf of the second defendant under common seal, the affixing of which was attested by the Bankrupt.

46 On 28 November 2001 a discharge of that mortgage was executed, ostensibly by the Bankrupt. There is an allegation that the signature purporting to be that of the Bankrupt on that discharge of mortgage is a forgery. Evidence going to whether that allegation is correct was not tendered before me, and I make no finding about the correctness of that allegation. Whether forged or not, the discharge of mortgage was registered in December 2001.

47 I am satisfied that, both while the Bankrupt was ostensibly a director of the second defendant, and after the purported appointment of Mr Laughlin and then Mr Service as directors of the second defendant, the Bankrupt has purported to represent the second defendant in commercial dealings. Further, the Kotara property has come to be significantly encumbered, and there is no satisfactory account of what has become of the money which has been borrowed on the security of it. As well, the evidence about just what the assets of the second defendant are is imprecise and unsatisfactory.

48 On 25 June 2002 the Bankrupt executed, on behalf of “James Court & Associates Pty Ltd ATF MRB Trust” a finance application form of St George Bank. It stated that he had lived at the Kotara property for one year, and had previously lived at the St Leonards home unit. It stated his occupation as being a full time one, as an accountant, employed by the Bouffiere Family Trust and that that employment had lasted for 30 years. It listed as assets (of “applicant/guarantor 1”, so there may be room for argument about whether they are said to be assets of the Bankrupt, or of the second defendant, but for present purposes it is not necessary to decide)

Kotara	$500,000
St Leonards	$710,000
Alexandria	$420,000

49 Thus, the finance application appears to have claimed the St Leonards property as an asset, but not to have claimed any mortgage over the St Leonards property as an asset. The only mortgage stated as being in existence was one to RAMS, for $100,000. Alongside the question enquiring whether the applicant/guarantor 1 had ever been bankrupt, the “No” box was ticked. The Kotara property was offered as security for the loan.

50 That application form did not nominate the amount of the loan which was sought. However, on 10 July 2002 Colin Biggers & Paisley, the solicitors for St George Bank, issued a solicitor’s certificate relating to a loan to “James Court & Associates Pty Ltd ATF MRB Trust”, concerning which there would be security over the Kotara property, relating to a loan of $350,000, and stating the money was required on 11 September 2002. There is an offer of finance, by St George Bank to the second defendant, in the sum of $350,000. A letter from Colin Biggers & Paisley to St George Bank dated 10 September 2002 confirms that the loan transaction was in order for settlement, and stated that settlement was to be effected on 11 September 2002.

51 There is a St George Bank statement as at 31 January 2003, relating to an account in the name of “James Court & Associates Pty Ltd ATF MRB Trust” addressed to “MRB Trust” care of the Bankrupt at the Kotara property. That statement shows a facility limit of $350,000, and a debit balance of a little more than $112,000. The account number on the statement is the same as the loan account number stated in the heading of the letter from Colin Biggers & Paisley to St George Bank dated 10 September 2002. From that, I infer that the mortgage to St George Bank was granted, and that drawings were made on the facility which, as at 31 January 2003, totalled a little over $112,000.

52 Though the loan application (and certain other documents which officers of the Official Trustee have seen in the course of administering the estate of the Bankrupt) referred to the “MRB Trust” the Bankrupt has stated at his public examination that he has not heard of that trust, only the “Buffier Family Trust”. After enquiries by an officer of the Official Trustee, it has not obtained any copy of documents relating to the “MRB Trust”. Whether any such trust exists is, to put it at its lowest, doubtful.

53 On 19 February 2003 the second defendant started proceedings number 1520 of 2003 against RAMS Mortgage Corporation Limited and Andrew Buffier, claiming a declaration that as against Andrew Buffier the plaintiff was an equitable mortgagee of the St Leonards property, and seeking orders connected with obtaining a discharge of a mortgage held by RAMS over the St Leonards property. The solicitor acting in those proceedings for the second defendant (who was the plaintiff in those proceedings) was Mr Zwar, the same solicitor who acts for the second defendant in the present application. It is apparent, from an affidavit which Mr Zwar swore in those proceedings, that he was acting in those proceedings on instructions given to him by the Bankrupt. In connection with obtaining the discharge of the RAMS mortgage, the St George Bank statement dated 31 January 2003 to which I have earlier referred, was produced, as it demonstrated that the second defendant had an approved credit limit of $350,000, of which over $237,000 was still available, and that amount was more than ample to discharge the RAMS mortgage. The RAMS mortgage over the St Leonards property has now been discharged.

54 The mortgage which the second defendant holds over the St Leonards property is undated, but stamp duty was paid on it on 21 May 2003. An annexure to the mortgage refers to the mortgage (incorrectly) as being dated 19 May 2003. That annexure, which appears to be signed by Mr Andrew Buffier, is a very short document, which makes clear that the mortgage relates to a principal sum of $630,000, that no interest is payable on that principal unless and until there is a demand to repay and default in payment, and that the principal sum is repayable at any time. That document does not identify any transaction by reason of which the $630,000 became owing.

55 That mortgage was registered on the title of the St Leonards property on 23 June 2003.

56 On a date in October 2003 Mr Zwar, purporting to act on behalf of the second defendant, executed a notice addressed to Andrew Buffier under section 57(2)(b) Real Property Act 1900. That notice asserted that the total amount owing was in excess of $757,000, and that interest had been accruing at 9% per annum from 1 August 2001. There is no evidence of service of that notice, but Raine & Horne, St Leonards, were instructed to place the home unit on the market in September 2003 at a price of $740,000. Though Raine & Horne advertised the property, and produced a brochure relating to the home unit which put a price of $750,000 on it, no buyer at an acceptable price was found.

57 On 12 December 2003 the Official Trustee wrote to the company secretary of the second defendant, care of the firm which provided the registered office of the second defendant, seeking to have the 100 shares in the second defendant which were held by the Bankrupt transferred to the Official Trustee. No reply was received to that letter. The registered office of the second defendant was changed to a different address on 23 December 2003.

58 The Bankrupt sent a letter dated 27 May 2004 to the Governor of a prison at Windsor, requesting that certain enclosed documents should be signed by Andrew Buffier, and returned. Those documents included a mortgage for $50,000 to be granted by Andrew Buffier over the St Leonards property to James West, and a loan agreement relating to a loan of $50,000 from James West to Andrew Buffier. A search of the title of the St Leonards property on 16 June 2005 showed a caveat by James West over that property.

59 The letter from the Bankrupt to the Governor of the prison was on a letterhead which stated “Bouffiere Family Trust. Certified Practicing Accountants. Business Service & Advice. Financial Consultant”, and which gave the address of the Kotara property.

60 On 17 September 2004 a mortgage was executed by the second defendant over the Kotara property in favour of Permanent Custodians Limited. That mortgage was executed on behalf of the second defendant under seal, attested by Mr Service, who stated he was “sole director/secretary”. The stamp of the Office of State Revenue on that mortgage, indicating the situation concerning stamp duty, shows that it was stamped to secure up to $450,000. That is, of course, an increase beyond the $350,000 facility limit which had previously existed with St George Bank, and was secured over the Kotara property.

61 On 15 July 2005, at 5.45pm, David Landa Stewart, the firm which Mr Zwar is a member, caused over 300 pages of documents to be delivered to the office of the Official Trustee. Those documents were in response to notices to produce books and documents which had been issued to David Landa Stewart by the Official Trustee on 8 February 2005 and 21 April 2005. The officer handling the file at the Official Trustee’s office did not have the opportunity to read that documentation before the hearing of the case started on Monday, 18 July 2005. When he had read it, the Official Trustee sought, and was granted, leave to re-open evidence, to tender that material.

62 The material discloses that all the instructions given to Mr Zwar concerning the refinance of the Kotara property were given by the Bankrupt, save for one communication where Mr Service returned signed mortgage documents. They disclose that an amount of $361,871 had, by the time of the refinance, become owing to St George on its mortgage. Of the amount which was not paid to St George from the refinancing, a cheque for $51,049.92, payable to the second defendant, was sent by Mr Zwar to the Bankrupt. Mr Zwar’s firm received $33,282.25 from the refinance proceeds, made up of a little over $18,000 in relation to legal fees connected with the RAMS home mortgage, and a further $15,000 which was to be held in trust for a matter called “Buffier – James West 70333”.

63 The documentation also showed that Mr Zwar had in his files two copies of the ASIC order made on 27 January 1999, which prohibited the Bankrupt from being involved in the running of a corporation without the leave of the court.

64 After that additional material was tendered, counsel for the second defendant sought, and was granted, an adjournment to enable him to take instructions concerning it. When the matter resumed, on 5 August 2005, counsel for the second defendant was instructed not to tender any further evidence. That leads to draw more strongly the inference available from the evidence that the Bankrupt has been actively involved in the running of the second defendant and making commercial decisions relating to its assets, notwithstanding that Mr Service is, nominally, its director.

65 Winding up on the just and equitable ground can occur when there are serious grounds for lack of confidence in the directors of companies in the conduct and management of the affairs of the company (Australian Securities Commission v AS Nominees Ltd (1995) 18 ACSR 459 at 519), or when there is a lack of straightforward dealings between the company and the public (Re Producers Real Estate and Finance Company Ltd [1936] VLR 235) or its clientele (Macquarie Bank Ltd v TM Investments Pty Ltd [2005] NSWSC 608 at [13] per Barrett J), or its shareholders. In the present case, I cannot conceive of a proper reason why Mr Service (even if he had been validly appointed) should seek to remain as a director of the company, in direct opposition to the wishes of the totality of the shareholder body. He presents none in evidence. The dealings of the company, though the medium of the Bankrupt and notwithstanding both his bankruptcy and his disqualification, are not ones that seem calculated to advance the interests of the Official Trustee, who is now the sole shareholder, and has had the right to become the sole shareholder since the bankruptcy occurred. This is an appropriate case to wind the company up.

66 Recent dealings with the St Leonards unit provide some additional cause for concern.

67 Renewed efforts have been made since May 2005 to sell the St Leonards unit. On 6 May 2005 Raine & Horne St Leonards faxed Mr Service, saying:

“Further to our recent discussion and correspondence in this matter, we advise that it is our strong recommendation that the abovementioned premises be marketed and advertised at an initial price of $660,000.00 and negotiated from there to a sale price of $645,000.00.

Please do not hesitate to contact me should you have any questions.”

68 On 4 July 2005 Raine & Horne wrote to Mr Zwar confirming a sale of the home unit to a particular purchaser at $642,000, and requesting that he prepare a contract. That contract has been prepared and made available to the prospective purchasers, but at the date of the hearing in this matter, had not been exchanged.

69 Mr Angyal SC submitted that the only assets of the second defendant that the court could be confident existed were the mortgage over the St Leonards property, and the Kotara property. He submitted that the better view of the evidence is that each of those properties is held on trust, and that in consequence the court cannot be satisfied that there are any assets which the second defendant owns beneficially. In that situation, he submits, the wishes of the Official Trustee as sole shareholder are unimportant.

70 I do not accept that the preferable view of the evidence is that either of those two assets is held on trust. There is some evidence which raises a possibility of the Kotara property being held by the second defendant as trustee for the MRB Trust, but the Official Trustee, after making extensive enquiries to find documentation relating to that trust, has been unable to do so. The Bankrupt denies any knowledge of the existence of that trust.

71 A trust deed exists relating to the Buffier Family Trust. It was made on 20 February 1981. The original trustee under that deed was Copperhead Pty Ltd. However, that company has been in liquidation for many years. There is no evidence of any replacement trustee being appointed, apart from a statement in an affidavit which Mr Zwar swore in connection with the proceedings by the second defendant against RAMS, to the effect that he was informed by the Bankrupt and believed, that the second defendant was the trustee of the Buffier Family Trust. While that evidence is admissible on the present application, and indeed was tendered by the Official Trustee, the overall weight of the evidence does not bear it out. The Official Trustee on 8 February 2005, served a notice under section 77C(1)(a) Bankruptcy Act 1966 on the second defendant, at its registered office, to produce:

“1. A copy of the signed and stamped Deed of Trust.

2. Minutes of Trust.

3. Minutes of the company James Court & Associates Pty Limited.

4. Balance Sheets, Financial Records, Income Tax Returns fro period 30 June 2000, 2001, 2002, 2003, 2004.”

72 That has produced no response. A notice under section 77(1)(a) Bankruptcy Act 1966 addressed to the Bankrupt, on 20 December 2000, required him to produce documents including bank statements, income tax returns, balance sheets, cash books, ledgers, resolutions, company records, cheque butts, cheque books and deposit books with respect to, inter alia, the Buffier Family Trust. It has not produced any documents which cast light upon who, if anyone, is the current trustee of the Buffier Family Trust.

73 Nor has the second defendant tendered any documentation in the present case which tends to show that it is the trustee of either the MRB Trust, or the Buffier Family Trust. In the ordinary course of things, it is the trustee of a trust who holds the trust deed, and trust records. From their non-production in the present case, I can, and do, draw more strongly the inference which is available from other evidence in the case that either the second defendant does not have those documents, or else that they would be unhelpful to its case.

74 The documents which were produced to the Official Trustee on 15 July 2005 included the application to Permanent Custodians Limited for the $450,000 finance facility. That suggested that the borrowing was being made by the second defendant as trustee for the “MRB Executive Unit Trust”. The Official Trustee has heard nothing about a trust of that name, and the second defendant has produced no documentation relating to it. I draw the same conclusion concerning that alleged trust as I do concerning the MRB Trust, and the Buffier Family Trust.

75 A related submission which Mr Angyal makes is that, even if a liquidator were to be appointed, he would inevitably need to seek advice of the court about what to do about the allegations that the property was held on trust, which would only be a pointless expense. When I have yet to see any evidence which has any substance that there is actually a trust attaching to these properties at all, I will not give effect to that submission.

76 Mr Angyal also submits that, even though the sole shareholder of the second defendant might wish it to be placed into liquidation, the company at present is being administered in a way which is within the scope of the ordinary course of business, and where there is no sign of impropriety. He submits that, while the sale of the St Leonards property may be imminent, a proper process has been gone through to achieve that sale, and the selling price ought be accepted as being a fair current market value. On the limited evidence before me, it appears that the sale is an arms length one, and the price within, or at least very close to, the range of proper market prices. That cannot, however, detract from the significance of Mr Service not being validly appointed as a director, nor from the other irregularities in its governance which I have mentioned in these reasons for judgment.

77 While Mr Jones, the relevant officer of the Official Trustee, agreed in cross-examination that he could see nothing in the mortgage documentation relating to Kotara to suggest that the mortgage was out of the ordinary course of business, I am not satisfied that the stamping of the mortgage to $450,000, as opposed to the previous $350,000, has been shown to be in the ordinary course of business. Further, and most importantly, he made that concession before he had had the opportunity to consider the documents which David Landa Stewart produced on 15 July 2005, and which show the irregular course of conduct of the Bankrupt actively giving instructions on behalf of the second defendant, and receiving a bank cheque made out to the second defendant, and the absence of explanation of what has become of the money borrowed on the security of the Kotara property.

78 Some consideration was given in argument to whether the refusal of Mr Service to resign when requested to do so by the sole shareholder of itself demonstrated that the company should be wound up. As McLelland J said, in National Roads & Motorists’ Association v Parker (1986) 6 NSWLR 517 at 521:

Howard Smith Ltd v Ampol Ltd

Federal Commissioner of Taxation v Commonwealth Aluminium Corporation

John Shaw & Sons (Salford) Ltd v Shaw

Salmon v Quin and Axtens

Quin & Axtens Ltd v Salmon

79 In Papapavlou v Karageorge (1987) 6 ACLC 75 (9 December 1987) Young J reserved the question of whether that principle applied to a closely held company where the directors and shareholders were the same. When the appointment of Mr Service was invalid, and there are good grounds for lack of confidence in the way the company is being administered, it is not necessary for me to consider whether the principle in NRMA v Parker (1986) 6 NSWLR 517 applies to the second defendant.

80 Mr Angyal also relied on the principle that the court can refuse relief on the just and equitable ground if a dispute has arisen due to the applicant’s own misconduct: Ebrahami v Westbourne Galleries Ltd [1973] AC 360 at 387. He submitted that, by passing the purported resolution of 14 July 2005, and demanding that Mr Service resign, the Official Trustee was trying to engineer a situation where the company was ungovernable. In my view the lack of valid government of the second defendant arose long before 14 July 2005.

1. Order that James Court & Associates Pty Ltd be wound up.

2. Appoint Scott Darren Pascoe as liquidator of James Court & Associates Pty Ltd.

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Citations

Official Trustee in Bankruptcy v Buffier [2005] NSWSC 839

Most Recent Citation

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Statutory Material Cited

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CITATION:	The Official Trustee in Bankruptcy v Buffier [2005] NSWSC 839
HEARING DATE(S):	18 & 22 July 2005, 5 August 2005
JUDGMENT DATE :	25 August 2005
JURISDICTION:	Equity
JUDGMENT OF:	Campbell J
DECISION:	Corporation to be wound up

CATCHWORDS:	CORPORATIONS - winding up - just and equitable ground - corporation not under valid and effective management - CORPORATIONS - directors - purported appointment of a bankrupt who is also subject to an ASIC banning order as a director - validity - CORPORATIONS - share held by bankrupt - powers of Official Trustee in relation to that share - BANKRUPTCY - trustees - powers in relation to a share held by the bankrupt - BANKRUPTCY - control over person and property of debtors and bankrupts - capacity for bankrupt to be appointed a company director
LEGISLATION CITED:	Bankruptcy Act 1966 (Cth) Corporations Act 2001 (Cth) Corporations Law Real Property Act 1900
CASES CITED:	Australian Securities Commission v AS Nominees Ltd (1995) 18 ACSR 459 Betella v O'Leary [2001] WASCA 266 CIC Insurance Ltd (prov liq apptd) v Hannan & Co Pty Ltd (2001) 38 ACSR 245; [2001] NSWSC 437 Re Colorbus Pty ltd (in liq); Mentha v Colorbus Pty Ltd (in liq) (2004) 213 ALR 789; (2004) 187 FLR 234; (2004) 51 ACSR 677; (2005) 23 ACLC 183 [2004] VSC 486 Ebrahami v Wetbourne Galleries Ltd [1973] AC 360 Grant and Others v John Grant and Sons Proprietary Limited (1950) 82 CLR 1 Macquarie Bank Ltd v TM Investments Pty Ltd [2005] NSWSC 608 Morris v Kanssen [1946] AC 459 National Roads & Motorists' Association v Parker (1986) 6 NSWLR 517 Papapavlou v Karageorge (1987) 6 ACLC 75 Re Producers Real Estate and Finance Company Ltd [1936] VLR 235 Statutory Interpretation in Australia, 5th edition (Butterworths 2001)
PARTIES:	The Official Trustee in Bankruptcy - Plaintiff Andrew Brian Benjihmam Buffier - First Defendant James Court & Associates Pty Ltd - Second Defendant
FILE NUMBER(S):	SC 3519/05
COUNSEL:	B Skinner - Plaintiff R Angyal SC - Second Defendant
SOLICITORS:	Sally Nash & Co - Plaintiff Unrepresented - First Defendant David Landa Stewart - Second Defendant