Re Pine Forests of Australia (Canberra) Pty Ltd

[2010] NSWSC 1127

CITATION:	Pine Forests of Australia (Canberra) Pty Ltd [2010] NSWSC 1127
HEARING DATE(S):	20/09/10
JUDGMENT DATE :	1 October 2010
JURISDICTION:	Equity Division Corporations List
JUDGMENT OF:	Barrett J
DECISION:	Proceedings adjourned.
CATCHWORDS:	CORPORATIONS - winding up - application by contributory for order terminating winding up - liquidator has paid all proved debts - insufficient funds to pay statutory interest on proved debts - shareholders who are also major creditors waive their own entitlements to interest and put liquidator in funds to satisfy interest entitlements of other creditors - waiver and right of liquidator to release funds to other creditors conditional on court making certain orders - one such order is order that liquidator pay interest to other creditors - liquidator inadvertently releases funds to other creditors - no basis for making order for payment by liquidator in any event - order for termination of winding up sought in form that termination to occur on interest being paid and a new director being appointed - form of order not authorised by section allowing court to terminate winding up "on a day specified in the order" - meaning of "specified" - another order sought contemplates direction for convening of general meeting to elect a new director and to consider removal of existing directors - second aspect not within scope of court's power to make directions for resumption of management and control by officers - observations on timing sequence indicated by s 482(1) and s 482(3)
LEGISLATION CITED:	Corporations Act 2001 (Cth), Division 3 of Part 2G.2, ss 482(1), 482(1A)(a), 482(3), 509(6), 547(1), 563B
CATEGORY:	Principal judgment
CASES CITED:	Commissioner of Taxation v Linter Textiles Australia Ltd [2005] HCA 20; (2005) 220 CLR 592 Re Rosaub Pty Ltd [2005] NSWSC 689; (2005) 192 FLR 395
PARTIES:	Pine Forests of Australia (Canberra) Pty Ltd - First Plaintiff Peter Charles Hicks as liquidator of Pine Forests of Australia (Canberra) Pty Ltd - Second Plaintiff Pine Forests of Australia Pty Ltd - Third Plaintiff Syfind (Finances) Pty Ltd - Fourth Plaintiff
FILE NUMBER(S):	SC 2010/242928
COUNSEL:	Mr G Lucarelli - Plaintiffs Ms M Agbinya - Deputy Commissioner of Taxation
SOLICITORS:	Johnson Winter & Slattery - Plaintiffs ATO Legal Services Branch - Deputy Commissioner of Taxation

- 12 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
CORPORATIONS LIST

BARRETT J

FRIDAY, 1 OCTOBER 2010

2010/242928 PINE FORESTS OF AUSTRALIA (CANBERRA) PTY LTD & 3 ORS

JUDGMENT

1 This is an application under s 482(1) of the Corporations Act 2001 (Cth) for an order terminating the court-ordered winding up of Pine Forests of Australia (Canberra) Pty Ltd which I shall call “PFC”. Other orders are also sought.

2 The plaintiffs are PFC itself, Mr Hicks (its liquidator), Syfind (Finances) Pty Ltd (“Syfind”) and Pine Forests of Australia Pty Ltd (“PFA”). Syfind and PFA between them hold all the shares in PFC and are the only contributories. They are also major creditors. In both those capacities, Syfind and PFA have standing under s 482(1A)(a) to apply for an order terminating the winding up, as does the liquidator.

3 Stated in very general terms, a central question on any application under s 482(1) is whether the company’s financial health is such that it may safely be released from the form of external administration focussed mainly on the interests of creditors and returned to the mainstream of commercial life where it may, under the control of its directors, incur new debts that have to be paid as and when they fall due. A capacity to operate in a financially sound and responsible way and to service foreseen indebtedness is central to the inquiry.

4 The order sought with respect to termination of the winding up in this case, as set out in the originating process, is as follows:

“1. An order under section 482(1) of the Act that the winding up of Pine Forests of Australia (Canberra) Pty Ltd (in Liquidation) (ACN 002 042 015) ( Company ) be terminated upon, both, interest payable to creditors of the Company under section 563B of the Corporations Act 2001 (Cth) ( Act ) having been paid to creditors as specified in order 2 below, and upon a new director of the Company being elected as specified in order 3 below.”

5 The reference in this form of order to “order 2 below” is a reference to the following:

“2. An order that Peter Charles Hicks, as liquidator of the Company pay interest to the following creditors of the Company and in the following amounts pursuant to section 563B of the Act:
(a) Australian Taxation Office - $13,2678.82
(b) Ms Sallyanne Bond - $2,152.80
(c) Dr Terence Mau - $5,025.60
(d) Mrs Genneice Gorey - $11,460.02”

6 The reference in order 1 to “order 3 below” is a reference to the following, as set out in the originating process:

“3. Directions under section 482(3) of the Act that Peter Charles Hicks convene, as soon as reasonably practicable, a general meeting of the members of the Company to elect a director of the company to take office upon the termination of the winding up and at which meeting the following resolutions will be considered and voted upon:
a. That Daria Read be removed as a director of the Company.
b. That Michelle Therese Kerdel be removed as a director of the Company.
c. That Anthony Read be removed as Secretary of the Company.
d. That Zenon Alexander be appointed a director of the Company.
e. That Zenon Alexander be appointed as Secretary of the Company.”

7 I also set out orders 4 and 5 as sought in the originating process:

“4. An order under section 477(2B) of the Act granting Peter Charles Hicks as liquidator of the Company leave to enter into the agreement styled ‘Deed of Advancement’ as annexed to the affidavits in support of this application.
5. An order under section 482(4) that costs of this application and the costs of convening a meeting of members of the Company in accordance with order 3 above form part of the costs, charges and expenses of the winding up.”

8 The s 482(1) application is made in circumstances where the liquidator has realised all assets of PFC, with the exception of a parcel of vacant land at Captains Flat, and has paid all proved and admitted debts in full. There were, however, insufficient funds to allow the liquidator to pay interest to which creditors with admitted debts have a statutory entitlement under s 563B.

9 According to the liquidator’s affidavit, the amount required to cover s 563B interest up to the date at which proved debts were paid in full is $330,210.18. Of this, all but $37,738.24 is attributable to Syfind and PFA in their capacity as creditors (I am not sure how $37,738.24 tallies with the aggregate of the sums in order 2 but the matter is not important at this point).

10 Syfind and PFA wish to see the winding up terminated so that they may enjoy, through their ownership of the whole of the issued share capital of a rehabilitated PFC, indirect ownership and effective control of the Captains Flat land. To that end, they indicated to the liquidator that, in order to facilitate termination of the winding up, they would forego their own entitlements to interest under s 563B and “advance” – which really means simply “pay” – a sum of money to PFC sufficient to enable the liquidator to pay the s 563B interest of all other creditors in full. The intention was that this money would be used to satisfy the statutory interest entitlements of those other creditors so that PFC then had assets consisting of the Captains Flat land and a small amount of cash to enable the liquidator to defray minor remaining costs, against which stood no liabilities.

11 A deed was executed on 17 June 2010 with a view to implementing these intentions with respect to s 563B interest. Pursuant to the deed, $37,738.24 was paid to the liquidator on terms that it would be applied in meeting the interest entitlements of creditors other than Syfind and PFA. It was provided, however, that the funds were not to be applied by the liquidator in that way until a particular condition had been satisfied, namely, that certain orders had been made by the court.

12 The deed also embodied releases by Syfind and PFA of their entitlements to s 563B interest. This was subject to the same condition concerning the making of specified orders by the court.

13 The orders central to the condition operative under the deed for the two purposes I have mentioned were set out in a draft form of originating process attached to the deed. They correspond with orders 1, 2, 3, 4 and 5 set out at paragraphs [4] to [7] above. Satisfaction of the condition in the deed will therefore occur if and when the court makes orders 1, 2, 3, 4 and 5 as now sought.

14 In the events that have happened, the liquidator, having received the sum of $37,738.24 under the deed, satisfied the s 563B entitlements of creditors (other than Syfind and PFA) without the stipulated condition with respect to the making of court orders having been fulfilled. This was done inadvertently. At this point, therefore, those creditors may be taken no longer to have unsatisfied interest entitlements.

15 The like entitlements of Syfind and PFA under the winding up have not been satisfied; nor, however, are releases on their part in that respect operative at this point since those releases are subject to the condition that the court make the specified orders.

16 If and when the orders relevant to the deed condition are made, the effect of the deed will be, so the plaintiffs maintain, that the interest entitlements of Syfind and PFA will no longer need to be taken into account by the liquidator and the position will be that PFC has the single asset of substance and no liabilities, with the result that the court may, it is said, safely terminate the winding up.

17 Unless the court makes all of orders 1, 2, 3, 4 and 5 set out in paragraphs [4] to [7] above, however, the entitlements of Syfind and PFA to s 563B interest will continue and it will not be possible to view PFC in the way just mentioned. And unless and until PFC can be viewed in that way, there will be no apparent basis on which it will be appropriate to terminate the winding up.

18 It can be said at once that the court will not make order 2, that is, the order requiring the liquidator to make specified interest payments to certain persons. In the first place, the evidence shows that relevant payments have already been made, albeit “inadvertently”. The court will not order to be done something that has already been done. Second (and even if the money had not been paid), there is no apparent basis on which the court would, in relation to the particular matter, exert compulsion upon the liquidator by way of mandatory order as distinct from, perhaps, advising him by way of s 479(3) direction that he would be justified in making the payments. Section 479(3) is identified in the originating process as one of the sections under which the orders are sought. But that section enables the court to give advice rather than to issue the kind of command reflected by order 2.

19 The fact that the court will not make order 2 is sufficient to lead to the conclusion, first, that the releases by Syfind and PFA under the deed will not be operative, second, that their entitlements to s 563B interest and the concomitant liability for that interest will accordingly remain and, third, that it is therefore not appropriate to terminate the winding up.

20 I proceed nevertheless to a brief consideration of aspects of the other orders sought.

21 Orders 1 and 3, taken together, raise an important question of timing. Section 482(1) is in these terms:

“At any time during the winding up of a company, the Court may, on application, make an order staying the winding up either indefinitely or for a limited time or terminating the winding up on a day specified in the order.”

22 Section 482(3) provides as follows:

“Where the Court has made an order terminating the winding up, the Court may give such directions as it thinks fit for the resumption of the management and control of the company by its officers, including directions for the convening of a general meeting of members of the company to elect directors of the company to take office upon the termination of the winding up.”

23 Dealing wit a general meeting to elect directors, therefore, s 482(3) says:

“Where the court has made an order terminating the winding up, the Court may give … directions for the convening of a general meeting of members of the company to elect directors of the company to take office upon the termination of the winding up .” [emphasis added]

24 Directions for the convening of a general meeting can thus be made only if an order terminating the winding up has already been made. Furthermore, s 482(3) operates in a context where s 482(1) empowers the court to make an order “terminating the winding up on a day specified in the order”. Read together, the two provisions mean that any terminating order must specify the day on which the winding up is to terminate by force of that order; and any order by way of direction for the convening of a general meeting to elect directors must, first, be made after the terminating order itself has been made (and hence after the court has “specified” in the terminating order the day on which the termination is to be effective) and, second, be framed in such a way that any election of directors resolved upon by the general meeting is to cause the persons elected to take office on the day on which the termination becomes effective, being the day “specified” in the terminating order.

25 In the normal course of events, an order under s 482(1) specifies a particular day as the day on which termination of the winding up takes effect, such as the day on which the order is made or the day seven days after that on which the order is made or the 30 June next following the making of the order. In the present case, there is a very substantial question whether the day on which any new director is elected by members at a meeting convened pursuant to a s 482(3) direction can be, in s 482(1) terms, “a day specified in the order”. What follows if a s 482(1) order in those terms is made and no one is ever elected a director at a general meeting convened pursuant to a s 482(3) direction?

26 The answer, to my mind, is that it is not open to the court to order that the winding up be terminated on the day on which any new director is elected since that is not, in terms of s 482(1), “a day specified in the order”.

27 I had occasion to consider the meaning of “specified day” in Re Rosaub Pty Ltd [2005] NSWSC 689; (2005) 192 FLR 395. That case concerned s 509(6) of the Corporations Act which permits the court to order that ASIC “deregister the company on a specified day”. Section 509(6) bears a conceptual resemblance to s 482(1) in that each permits the court to order that an important change in a company’s status occur on a “specified” day and accordingly empowers the court to “specify” the day on which the change is to be effective. I quote from the judgment in Re Rosaub Pty Ltd at [14] to [16]:

“[14] The form of order now sought (expressed, as it is, in the alternative) raises a question as to the meaning of ‘a specified day’. A fixed date (such as 31 December 2005 or 1 January 2006) is, clearly enough, a ‘specified day’. So too is a day precisely identified otherwise than by its date (such as ‘Good Friday 2006’) and, perhaps, a day described by reference to some past and identifiable event, such as ‘the first anniversary of the date of acceptance’ of an identified offer made in the past: Esanda Finance Corp Ltd v Lancaster (unreported, WA Sup Ct, Malcolm CJ, Pidgeon, Seaman JJ, 20 December 1990, 8 of 1990). In some contexts, ‘there may be the sufficient specification of a period by reference, not to a definite point of time, but to the occurrence of an ascertainable event’: Re Karounos; Ex parte Official Trustee in Bankruptcy (1989) 25 FCR 177 per Sheppard J.

[15] But I do not think that the day on which a future event is to happen (or a day that is a fixed number of days after it) can be said to be a ‘specified day’, where the event is one that may not eventuate. This is particularly so in the present context where s 509(6) and the court's order combine to make up the directive to ASIC to put the company out of existence. That is something that cannot be allowed to be in any way uncertain. The court must ensure that, where the three month period under s 509(5) is displaced, its order leaves no doubt on the question what ASIC is to do, in a timing sense, by way of deregistration.

[ 16] The conclusion I have reached as to the need for specificity in relation to a substituted date imposed by the court under s 509(6) is supported by the observation of Marks J in Deputy Commissioner of Taxation v Bettina House of Fashion Pty Ltd (unreported, Vic Sup Ct, Marks J, 18 November 1988, 948 and 1014 of 1988 ) in relation to a similar provision of the Companies (Victoria) Code that ‘any period of suspension should be certain and a date of postponement specified in any order granting it’. The conclusion is also supported by the brief judgment of Young J in Stores v Austra Tanks Pty Ltd (unreported, NSW Sup Ct, Young J, 8 August 1988, 3331 of 1988). His Honour said of the analogous provision of the Companies (New South Wales) Code :
Although the point does not seem to have been the subject of any previously decided case, in my view, the clear words of the section mean that the court has to specify a date and cannot merely extend the time until the litigation referred to has been completely disposed of.”

28 In this case, it may be expected that the liquidator would give effect to any s 482(3) direction made by the court, although there is, I suppose, a theoretical possibility that he would not. But if the liquidator did convene a general meeting as directed, there could be no certainty that the meeting would elect a new director. That would depend on how members cast their votes at the time. The event contemplated by order 1 with respect to the election of a new director “as specified in order 3 below” (that is, at a general meeting of the members convened by the liquidator pursuant to a s 482(3) direction of the court) is thus one that may never occur. The day of the happening of the event therefore cannot not be, in terms of s 482(1), a “day specified in the order”.

29 Implicit in s 482(1) is a requirement that an order be framed so as to produce certainty as to whether, at a particular time, a company is or is not subject to winding up and that nothing more that the effluxion of time, as appearing on the face of the court’s order, should have to be inquired into. It may be technically possible for the court to specify in the order, say, the day next after the death of an identified person now living (since the person is certain to die), but one cannot imagine that the court would proceed in that way as a matter of discretion. Anyone reading the court’s order at a particular time really ought to be able to tell without further inquiry whether or not the termination has then taken effect.

30 I am not persuaded that order 1, as now framed, is an order that s 482(1) allows the court to make.

31 There is also a question whether it is open to the court to make a direction under s 482(3) that a general meeting have, as part of its agenda, proposed resolutions for the removal of existing directors and secretaries from office: see paragraphs (a), (b) and (c) of order 3.

32 Apart from s 482(3) and any order or direction under it conferring a relevant function on him, the liquidator will not be competent to convene a general meeting. The matter of convening such meetings is, in general terms, dealt with by Division 3 of Part 2G.2. A liquidator plays no part under those provisions. A liquidator may, at the direction of the court, convene a meeting of contributories (see s 547(1)), but that is not a general meeting of members. As McHugh J observed in Commissioner of Taxation v Linter Textiles Australia Ltd [2005] HCA 20; (2005) 220 CLR 592 at [171], the consequences of the making of a winding up order include that the company’s members cease to be called “members” and become “contributories”. His Honour also said:

“On a winding up order being made, the members lost the power to pass resolutions in general meeting about what the company should do. Without a court order directing that a general meeting occur prior to a stay or termination of a liquidation, there was no provision for the members to hold a general meeting.”

33 Given the terms of s 482(3), it seems to me that the only purpose for which the court can make a direction that a general meeting be convened is the purpose specified by the words “to elect directors of the company to take office upon the termination of the winding up”. The purpose of considering the removal of directors (and secretaries) already in office therefore does not appear to be one for which a general meeting directed by the court under the section can be held.

34 I would add that the part of s 482(3) that contemplates directions for the convening of a general meeting to elect new directors follows the word “including”, thus indicating that directions on that subject are an example or sub-set of the wider class of directions referred to at the start of the section, that is, “directions . . . for the resumption of the management and control of the company by its officers”. It is difficult to see how a direction the objective of which is to see all existing officers who are directors or secretaries removed from office, if the members so resolve, is concerned with the “resumption” of the management and control of the company “by its officers”.

35 As to proposed order 5 (see paragraph [7] above), I merely say at this stage that if the costs of the application are, as contemplated, to eat into the resources now available to the liquidator which will remain after any termination of the winding up, their impact on the ability to view the company as a solvent and financially stable concern after termination will arise for consideration.

36 In view of the position reached, I do not intend to consider proposed order 4 at this stage. Nor, for the same reason, is there any need at this point to pay attention to the question whether the evidence shows that PFC’s financial condition after termination of the winding up on the basis contemplated would be such as to justify termination. It might nevertheless be observed that to say, in abstract terms, that the Captains Flat land will be the only asset and there will be no liabilities may be too simplistic an approach since, as every owner of land in New South Wales knows, ownership carries with it ongoing financial obligations including, obviously, for local government rates and charges.

37 The appropriate course, in light of what has been said, is that the plaintiffs have leave to amend the originating process and to adduce further evidence and that the proceedings stand over to a future date accordingly.

**********

I certify that this and the 11 preceding pages are a true copy of the reasons for judgment herein of Justice Barrett.

DATED: 1/10/10 Associate