PRIOR - [2019] SASC 156

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
In the Matter of CV CONSTRUCTIONS PTY LTD (IN LIQUIDATION) ACN 008 003 709
PRIOR
[2019] SASC 156
Judgment of Judge Dart a Master of the Supreme Court
29 August 2019
CORPORATIONS - WINDING UP - LIQUIDATORS - APPOINTMENT - IN VOLUNTARY WINDING UP - APPLICATION TO COURT
Resolution of sole member to put company into voluntary winding up - validity of resolution - member deregistered prior to resolution - application of liquidator to validate appointment - Corporations Act s 1322(4) - consideration of statutory criteria for the making of an order.
Held: Appropriate to validate the appointment.
Corporations Act 2001 (Cth) s 436A, s 601AD, s 1322, referred to.
Primelife Corporation Ltd v Aevum [2005] NSWSC 269; Sheahan & Anor v Londish & Ors [2010] NSWCA 270, also in [2010] 80 ACSR 337; Winpar Holdings Ltd v Goldfields Kalgoorlie Ltd [2001] NSWCA 427, considered.

PRIOR
[2019] SASC 156
JUDGE DART:

The applicant was appointed as liquidator of CV Constructions Pty Ltd (“the company”) following a resolution passed by members of the company on 1 July 2019. It now appears there may have been an irregularity involved in the passing of the resolution. The applicant seeks an order under s 1322(4) of the Corporations Act 2001 (Cth) (“the Act”) to regularise his appointment and to remedy any invalidity. It is appropriate to make the order sought.
Background
The company was incorporated in 1982. As its name suggests, the company carried on business as a builder. It has a sole director, Mr Wauchope, and a sole shareholder, Wauchope Enterprises Pty Ltd. Mr Wauchope is the sole director of that company as well. The shareholder is trustee of the W E Building Trust. The resolution to place the company into a voluntary winding up having been passed by the member on 1 July 2019, the applicant commenced taking steps to progress the winding up of the company.
On 23 July 2019 it came to the attention of the applicant that the shareholder had been deregistered prior to the date of the members meeting at which it was resolved to wind up the company. A company that is deregistered no longer exists.[1] Property of a deregistered company vests in the Australian Securities and Investments Commission (“ASIC”).[2] Wauchope Enterprises Pty Ltd was therefore not entitled to vote on the resolution to wind up the company.
[1] Section 601AD(1) of the Corporations Act 2001.
[2] Section 601AD(1A) of the Corporations Act 2001.
The application
After discovering that there may be an irregularity in the resolution appointing him, the applicant ceased taking substantive steps in the winding up of the company. He made this application to Court. The application sought remedial orders to the effect that the voluntary winding up of the company was not invalid. It was made pursuant to s 1322 of the Act which relevantly provides:
1322Irregularities
(1)In this section, unless the contrary intention appears:
(a)a reference to a proceeding under this Act is a reference to any proceeding whether a legal proceeding or not; and
(b)a reference to a procedural irregularity includes a reference to:
(i)the absence of a quorum at a meeting of a corporation, at a meeting of directors or creditors of a corporation, at a joint meeting of creditors and members of a corporation or at a meeting of members of a registered scheme; and
…
(4)Subject to the following provisions of this section but without limiting the generality of any other provision of this Act, the Court may, on application by any interested person, make all or any of the following orders, either unconditionally or subject to such conditions as the Court imposes:
(a)an order declaring that any act, matter or thing purporting to have been done, or any proceeding purporting to have been instituted or taken, under this Act or in relation to a corporation is not invalid by reason of any contravention of a provision of this Act or a provision of the constitution of a corporation;
(b)an order directing the rectification of any register kept by ASIC under this Act;
(c)an order relieving a person in whole or in part from any civil liability in respect of a contravention or failure of a kind referred to in paragraph (a);
(d)an order extending the period for doing any act, matter or thing or instituting or taking any proceeding under this Act or in relation to a corporation (including an order extending a period where the period concerned ended before the application for the order was made) or abridging the period for doing such an act, matter or thing or instituting or taking such a proceeding;
and may make such consequential or ancillary orders as the Court thinks fit.
…
(6)The Court must not make an order under this section unless it is satisfied:
(a)in the case of an order referred to in paragraph (4)(a):
(i)that the act, matter or thing, or the proceeding, referred to in that paragraph is essentially of a procedural nature;
(ii)that the person or persons concerned in or party to the contravention or failure acted honestly; or
(iii)that it is just and equitable that the order be made; and
(b)in the case of an order referred to in paragraph (4)(c)—that the person subject to the civil liability concerned acted honestly; and
(c)in every case—that no substantial injustice has been or is likely to be caused to any person.
An order is sought pursuant to s 1322(4)(a) declaring the winding up not to be invalid by reason of a contravention of the Act.
The position of ASIC
On 30 July 2019 a copy of these proceedings and the applicant’s affidavit[3] were sent by express post to the Legal Division of ASIC.[4] A copy of the proceedings were also served on Mr Wauchope. The known creditors of the company were also advised of the proceedings.
[3] Affidavit of Leigh Deveron Prior, filed 29 July 2019, FDN2.
[4] Affidavit of Brooke Tegan Willshire, filed 31 July 2019, FDN4.
The application came on for mention on 22 August 2019. The plaintiff had had no response from ASIC by that date. I directed the applicant to provide a copy of the proposed minutes of order and his written submissions to ASIC. That was done.[5] ASIC then responded in the way that it commonly does.[6] Its position is, so long as no orders are sought against it, ASIC did not object to the orders sought, did not wish to be heard and did not wish to be joined as a party to the proceedings. In the circumstances, I proceeded on the basis that there was no objection from ASIC to the Court exercising its discretion pursuant to s 1322(4)(a) of the Act to regularise the position.
[5] Third affidavit of Brooke Tegan Willshire, filed 27 August 2019, FDN6.
[6] Third affidavit of Brooke Tegan Willshire, filed 27 August 2019, FDN6, Exhibit 6C.
Consideration of the legal issue
The terms of s 1322(4) were considered by the Court of Appeal in New South Wales in Sheahan & Anor v Londish & Ors.[7] The Court was there dealing with similar circumstances in relation to the appointment of a voluntary administrator. There was a question about whether or not a particular director had been removed from office and another director appointed. The latter appointed director purported to resolve to put the company into administration. It later became apparent that the original director had not been properly removed from office.
[7] [2010] NSWCA 270; also in [2010] 80 ACSR 337.
The Court of Appeal made a validating order under s 1322(4)(A) of the Act. Lindgren AJA said:[8]
The expression in 1322(4)(a) “any act, matter or thing purporting to have been done, or any proceeding purporting to have been instituted or undertaken under [the] Act or in relation to a corporation” is of the widest kind. It embraces the purported appointment of the appellants as administrators of Valofo.
[8] Sheahan & Anor v Londish & Ors [2010] NSWCA 270 at [233]; also in [2010] 80 ACSR 337.
Lindgren AJA, together with Young JA, both considered the circumstances permitted to exercise the discretion provided by s 1322 of the Act.
The remedial effect of s 1322 was considered by the New South Wales Court of Appeal in Winpar Holdings Ltd v Goldfields Kalgoorlie Ltd.[9] Giles JA, with whom Beazley JA agreed, said:[10]
Section 1322(4)(a) empowered an order “declaring that any act, matter or thing purporting to have been done, or any proceeding purporting to have been instituted or taken, under this Law or in relation to a corporation is not invalid by reason of any contravention of a provision of this Law”. The parties' submissions took as the act matter, thing or proceeding the calling of a separate meeting of the shareholders whose shares were to be cancelled, as I have earlier said perhaps more correctly the failure to have a meeting of those shareholders. Other analyses would be possible, but I proceed as the parties did. On that basis, the contravention of the Law was the failure to take the appropriate steps to call that meeting, and if invalidity was not to flow from the contravention either the calling of the meeting had to be “essentially of a procedural nature”; or the persons concerned in the failure to take the appropriate steps to call the meeting must have acted honestly; or it must have been in the public interest that the order be made; and as well no substantial injustice must have been likely to be caused to any person. The approach to the application of s 1322(4) should be that it was a remedial provision to be applied with liberality, see NRMA Ltd v Gould (1995) 18 ASCR 290.
[9] [2001] NSWCA 427.
[10] Winpar Holdings Ltd v Goldfields Kalgoorlie Ltd [2001] NSWCA 427 at [74].
The exercise of the discretion is tempered by the operation of s 1322(6) of the Act, which imposes conditions on the exercise of the Court’s power under s 1322(4).
The provisions of s 1322(6)(a) provide three circumstances in which the Court may make a s 1322(4) remedial order. Each of those circumstances is an alternative. An applicant need only establish that one of the circumstances exists to enliven the Court’s power under s 1322(4).[11] It is a requirement of s 1322(6)(c) that the Court be satisfied that no substantial injustice has been or is likely to be caused to any person by the contravention.
[11] Primelife Corporation Ltd v Aevum [2005] NSWSC 269 at [8].
In deciding whether it was appropriate to make an order, I had regard to the following:
1The passing of a resolution to put the company into a voluntary administration was procedural in nature. There was an absence of a quorum at the relevant meeting.
2The director of the shareholder appears to have acted honestly at the time the resolution was passed, in that he was unaware that the shareholder had been deregistered.
3The same person in his capacity as a director of the company wishes the company to be wound up.
4The company ceased trading prior to the passing of the resolution.
5The applicant has undertaken an investigation of the position of the company and determined that it is insolvent and has significant debts.
6The public interest in the affairs of an insolvent company being investigated.
7If the winding up of the company and appointment of a liquidator is invalid, then the director of the company would be in a position to resolve to place the company into a voluntary administration.[12] That course is undesirable, however, as it would increase expense and delay the inevitable winding up of the company.
8ASIC does not oppose the Court making the orders sought by the applicant.
9No creditor has come forward to oppose the making of the order.
[12] Section 436A Corporations Act 2001.
In the result, I was satisfied that it was appropriate to make the orders sought by the applicant. It was just and equitable that the order be made. That is sufficient. The other criteria in s 1322(6)(a) also appear to have been established. It is appropriate that the company be wound up and its affairs investigated. No substantial injustice was caused to any persons by the failed resolution.