Re Soul Outlet Pty Ltd (in Liq)
[2015] WASC 307
•20 AUGUST 2015
RE SOUL OUTLET PTY LTD (IN LIQ); EX PARTE JACK JAMES AS LIQUIDATOR OF SOUL OUTLET PTY LTD (IN LIQ) [2015] WASC 307
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2015] WASC 307 | |
| Case No: | COR:140/2015 | 11 AUGUST 2015 & ON THE PAPERS | |
| Coram: | PRITCHARD J | 20/08/15 | |
| 25 | Judgment Part: | 1 of 1 | |
| Result: | Application granted | ||
| B | |||
| PDF Version |
| Parties: | JACK JAMES AS LIQUIDATOR OF SOUL OUTLET PTY LTD (IN LIQ) |
Catchwords: | Corporations Voluntary winding up Application pursuant to s 1322(4)(a) of the Corporations Act 2001 (Cth) Whether members' meeting and resolutions contravened the Act or company constitution Minimum notice Written notice Quorum Meaning of special resolution Meaning of votes cast Whether just and equitable for order to be made Whether substantial injustice caused Whether directions should be given pursuant to s 511 of the Act |
Legislation: | Corporations Act 2001 (Cth), s 491(1), s 505, s 511, s 1322 |
Case References: | Ananda Marga Pracaraka Samgha Ltd v Tomar (No 6) [2013] FCA 284; (2013) 94 ACSR 199 Australian Securities and Investments Commission v MacDonald (No 12) [2009] NSWSC 714; (2009) 259 ALR 116 Chalet Nominees (1999) Pty Ltd v Murray [2012] WASC 147 Expile Pty Ltd v Jabb's Excavations Pty Ltd [2004] NSWSC 284 In the matter of Catombal Investments Pty Ltd [2012] NSWSC 775 In the matter of H and P Newcastle Pty Ltd (in liq) [2013] NSWSC 778 Northwest Capital Management v Westate Capital Ltd (2012) 264 FLR 424; [2012] WASC 121 Primelife Corp Ltd v Aevum Ltd (2005) 53 ACSR 283; [2005] NSWSC 269 Re Charter Hall Ltd [2007] FCA 1316 Re Elemental Minerals Ltd [2010] FCA 687; (2010) 79 ACSR 277 Re Golden Gate Petroleum Ltd (2010) 77 ACSR 17; [2010] FCA 40 Re Great Southern Managers Australia Ltd (in liq); Ex parte Jones [2014] WASC 312 Re Pembury Pty Ltd [1993] 1 Qd R 125 Re Wave Capital Ltd (2003) 47 ACSR 418; [2003] FCA 969 Twin v Deputy Commission of Taxation [2003] QSC 329; [2004] 1 Qd R 450 Weinstock v Beck [2013] HCA 14; (2013) 251 CLR 396 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CIVIL
JACK JAMES AS LIQUIDATOR OF SOUL OUTLET PTY LTD (IN LIQ)
Plaintiff
Catchwords:
Corporations - Voluntary winding up - Application pursuant to s 1322(4)(a) of the Corporations Act 2001 (Cth) - Whether members' meeting and resolutions contravened the Act or company constitution - Minimum notice - Written notice - Quorum - Meaning of special resolution - Meaning of votes cast - Whether just and equitable for order to be made - Whether substantial injustice caused - Whether directions should be given pursuant to s 511 of the Act
Legislation:
Corporations Act 2001 (Cth), s 491(1), s 505, s 511, s 1322
Result:
Application granted
Category: B
Representation:
Counsel:
Plaintiff : Mr J C Vaughan SC
Solicitors:
Plaintiff : HWL Ebsworth Lawyers
Cases referred to in judgment:
Ananda Marga Pracaraka Samgha Ltd v Tomar (No 6) [2013] FCA 284; (2013) 94 ACSR 199
Australian Securities and Investments Commission v MacDonald (No 12) [2009] NSWSC 714; (2009) 259 ALR 116
Chalet Nominees (1999) Pty Ltd v Murray [2012] WASC 147
Expile Pty Ltd v Jabb's Excavations Pty Ltd [2004] NSWSC 284
In the matter of Catombal Investments Pty Ltd [2012] NSWSC 775
In the matter of H and P Newcastle Pty Ltd (in liq) [2013] NSWSC 778
Northwest Capital Management v Westate Capital Ltd (2012) 264 FLR 424; [2012] WASC 121
Primelife Corp Ltd v Aevum Ltd (2005) 53 ACSR 283; [2005] NSWSC 269
Re Charter Hall Ltd [2007] FCA 1316
Re Elemental Minerals Ltd [2010] FCA 687; (2010) 79 ACSR 277
Re Golden Gate Petroleum Ltd (2010) 77 ACSR 17; [2010] FCA 40
Re Great Southern Managers Australia Ltd (in liq); Ex parte Jones [2014] WASC 312
Re Pembury Pty Ltd [1993] 1 Qd R 125
Re Wave Capital Ltd (2003) 47 ACSR 418; [2003] FCA 969
Twin v Deputy Commission of Taxation [2003] QSC 329; [2004] 1 Qd R 450
Weinstock v Beck [2013] HCA 14; (2013) 251 CLR 396
1 PRITCHARD J: Mr James was appointed the liquidator of Soul Outlet Pty Ltd on 3 June 2015. Information subsequently came to light which cast doubt over the validity of his appointment. For that reason, Mr James filed an Originating Summons dated 19 June 2015 (the Application) seeking orders under s 1322, and a direction under s 511, of the Corporations Act 2001 (Cth) (the Act).
2 The terms of the orders sought were set out in a Minute of Proposed Orders dated 13 August 2015 (Minute) (see [42] below). For the reasons set out below, I am satisfied that orders should be made in terms of that Minute.
3 In these reasons I deal with the following matters:
1. Factual background;
2. The orders sought;
3. Why an order under s 1322(4)(a) of the Act should be made; and
4. Why a direction under s 511 of the Act should be given.
1. Factual background
4 The factual background to the Application was set out in affidavits sworn by Mr Jack Robert James on 19 June 2015 and 15 July 2015, affidavits sworn by Mr Richard Michael Johnson on 20 July 2015 and 24 July 2015 and an affidavit sworn by Mr Justin Vishnuvardhana Naidu on 24 July 2015.
5 Mr James was purportedly appointed the liquidator of Soul Outlet on 3 June 2015, following a special resolution of the company to voluntarily wind it up, pursuant to s 491(1) of the Act.
6 On 3 June 2015, a meeting of the directors of Soul Outlet was held. It was attended by Mr Mark Holmsen, the sole director of Soul Outlet. The minutes of that meeting indicate that the director passed a resolution that Soul Outlet was
insolvent and unable to pay its debts as and when they fall due and it is in the best interests of the Company and its creditors that the Company be wound up voluntarily.
7 The minutes also record that the director passed a further resolution that Mr James be approached to accept the nomination as liquidator, and that Palisade Business Consulting (a firm in which Mr James is a partner) be requested to assist Soul Outlet in entering into a creditors' voluntary winding up, and to send to shareholders a notice of a general meeting to consider a special resolution that the company be wound up voluntarily, and an ordinary resolution for the nomination of Mr James as the liquidator of Soul Outlet.
8 On 3 June 2015, Mr Mark Holmsen, on behalf of the Board of Soul Outlet, issued a Notice of Meeting of the members of Soul Outlet, to be held on 3 June 2015, to consider a special resolution that Soul Outlet be wound up, and an ordinary resolution that Mr James be nominated as the liquidator of Soul Outlet.
9 As at 3 June 2015, Soul Outlet's share capital was comprised of two ordinary fully paid shares. One of those shares was registered to Sander Nominees Pty Ltd (Sander) and the other share was registered to Showside Pty Ltd (Showside).
10 On 3 June 2015, Mr Mark Holmsen, the director of Showside, gave written consent to the proposed meeting of Soul Outlet's members, and to the proposing and passing of the special resolution to wind the company up, notwithstanding that less than 21 days' notice of the meeting had been given. That consent was purportedly given in accordance with s 249H(2) of the Act (Consent to Short Notice). The Consent to Short Notice form completed on Showside's behalf indicated that Showside was a member of Soul Outlet, holding at least 95% of the votes that may be cast at a general meeting of Soul Outlet.
11 A meeting of the members of Soul Outlet was purportedly held on 3 June 2015 (the Members' Meeting). The minutes of the Members' Meeting indicate that it was attended by Mr Mark Holmsen, on behalf of Showside, and that the Consent to Short Notice form which had been executed by Showside was tabled.
12 According to the minutes of the Members' Meeting a special resolution of the members (that Soul Outlet be wound up voluntarily) and an ordinary resolution (that Mr James be nominated as the liquidator of Soul Outlet) were then passed by the members of Soul Outlet.
13 Sander was not provided with notice of the Members' Meeting, nor did it attend that meeting and vote on the resolutions passed at the Members' Meeting.
Mr James' knowledge of Sander's shareholding in Soul Outlet
14 Mr James deposed that on 3 June 2015, he was not aware that Sander was a shareholder in Soul Outlet.
15 Prior to his appointment as liquidator, Mr James had been asked to provide some advice to Soul Outlet's director, Mr Mark Holmsen, about the company's options in view of its financial position. On 27 May 2015, Mr James met with Mr Mark Holmsen and Mr Oren Zohar of Blue Ocean Capital to discuss Soul Outlet's position. (It is not entirely clear what Mr Zohar's role was, but it appears that he was acting as an advisor to Soul Outlet or to Mr Mark Holmsen.)
16 In his affidavit of 19 June 2015, Mr James deposed that at that meeting Mr Zohar advised him of three matters. First, Mr Zohar advised that Mr Mark Holmsen's brother, Mr Gregory Holmsen, the sole shareholder of Sander, had previously been involved in Soul Outlet. Secondly, Mr Zohar advised that an agreement had been reached several years earlier that resulted in Mr Gregory Holmsen leaving Soul Outlet, and in the transfer of Sander's share to Showside pursuant to a Share Sale Agreement (the Share Sale Agreement). Mr Zohar provided an unsigned copy of the Share Sale Agreement to Mr James. Thirdly, Mr Zohar advised that the transfer of Sander's share had been effected but the share transfer had not been registered with the Australian Securities and Investments Commission (ASIC).
17 It is not clear from the affidavit evidence before the Court whether Mr Mark Holmsen was present when Mr Zohar provided this information to Mr James.
18 Mr James then provided some advice to Mr Mark Holmsen about the steps necessary to place Soul Outlet into administration or liquidation. Mr James deposed that he told Mr Mark Holmsen words to the effect that:
(i) the Company could consider the appointment of a liquidator by resolution of members or the appointment of an administrator by resolution of the director of the Company; and
(ii) in circumstances where, as I understood the position to be at that time, the Company had a single member:
(A) it would be as easy for the Company to appoint a liquidator as it would be to appoint an administrator. ...
(B) given that the Company did not appear to have any real prospect of rehabilitation, it would be advantageous to move to an immediate liquidation in any event.
20 Mr James deposed that on 1 June 2015 Mr Mark Holmsen requested that he prepare the documentation required to place Soul Outlet into liquidation. Mr James met with Mr Mark Holmsen on 3 June 2015 to execute the documents to which I have referred above.
21 It appears that at no time prior to his appointment as liquidator on 3 June 2015 did Mr James take steps to confirm the number of shareholders in Soul Outlet, nor did he take steps to confirm whether or not the transfer of Sander's share in Soul Outlet to Showside had in fact been effected.
22 Mr James deposed that on 15 June 2015, he spoke by telephone with Mr Gregory Holmsen, who asked why he had not been notified of the Members' Meeting on 3 June 2015, when Sander was a shareholder in Soul Outlet. It appears to have been at that point that Mr James became aware that the Share Sale Agreement may not have been performed, and that Sander remained a shareholder in Soul Outlet.
23 On 16 June 2015, Mr James obtained a company search of Soul Outlet from ASIC, which indicated that one share in Soul Outlet was held by each of Sander and Showside. (Mr James also obtained a company search of Sander from ASIC, which indicated that Mr Gregory Holmsen was the sole director, secretary, and shareholder of that company.) At that point, Mr James realised it would be necessary to make the Application.
24 In his affidavit of 19 June 2015, Mr James deposed that
as at the date of swearing this affidavit, I have been unable to ascertain from my discussions with Mark Holmsen and Greg Holmsen the basis on which the Share Sale [Agreement] was not completed, notwithstanding the execution of [the] Share Sale Agreement by the parties to that document.
25 The affidavit evidence before the Court sheds no further light on why it was that Mr James was not informed that the Share Sale Agreement had not been performed. Mr Naidu's affidavit annexes a letter dated 24 July 2015, from Mr Mark Holmsen to Mr James, which appears to have been written for the purpose of its tender to the Court in support of the Application. In that letter Mr Mark Holmsen said:
I confirm that:
…
• at the time of your appointment as liquidator I was receiving advice by external consultants and I was not advised, nor was I aware, the decision to appoint you as liquidator would require all members to pass a resolution to that effect. I would have instead proceeded by appointing you as a voluntary administrator of the Company at that time.
26 Mr James deposed that had he been aware that Soul Outlet had a second member, he would have recommended that Mr Mark Holmsen appoint him as a voluntary administrator unless both members of Soul Outlet agreed to vote in favour of a resolution that the company be wound up.
Events after the appointment of the liquidator
27 Immediately following his appointment, Mr James caused Soul Outlet to cease trading, including at three retail premises, as he had formed the view that the company was insolvent and had no funds to meet wages, or costs and expenses associated with the leases. Mr James and his staff have also undertaken a number of other tasks in the liquidation of Soul Outlet, including liaising with the landlords of the premises leased by Soul Outlet, liaising with former employees of Soul Outlet about their entitlements, and liaising with Soul Outlet's creditors.
28 In addition, Mr James negotiated an agreement to sell Soul Outlet's stock to a company called Shoeshow Online Pty Ltd (Shoeshow). Mr James deposed that on 3 June 2015, he received an email from Mr Zohar containing an offer from Shoeshow to purchase all of the assets of Soul Outlet. (The sole director and shareholder of Shoeshow was Ms Elizabeth Holmsen, the wife of Soul Outlet's director, Mr Mark Holmsen.) Mr James deposed that he then obtained a valuation of Soul Outlet's stock, and was advised by the valuer that the costs of removing the stock from Soul Outlet's premises for auction would be prohibitive, having regard to its value. The valuer recommended that a sale of the stock in situ was preferable, on terms including that the purchaser be required to meet the costs of removing and relocating the stock. Mr James then negotiated with Shoeshow on the terms on which he would sell Soul Outlet's assets. The parties agreed terms and entered into an Asset Sale Agreement on 5 June 2015. Performance of that agreement was completed on 25 June 2015.
29 In his affidavit of 15 July 2015, Mr James deposed that, based on information provided to him by Mr Mark Holmsen, and his own investigations into Soul Outlet to that point in time, he prepared a statement of the financial position of Soul Outlet as at 3 June 2015. That statement showed that the company's liabilities exceeded its assets by a very considerable margin, and that the company was, in Mr James' view, 'hopelessly insolvent as at 3 June 2015'.
Meeting of Soul Outlet's creditors
30 Mr James deposed that on 4 June 2015, he issued a Report to Creditors and a notice of a meeting of Soul Outlet's creditors, to be held on 17 June 2015, which indicated that Soul Outlet was insolvent.
31 The minutes of the meeting of Soul Outlet's creditors on 17 June 2015 (the Creditors' Meeting) indicate that Mr James advised creditors of the issue that had arisen in relation to his appointment. He advised creditors that if it were necessary to make an application to the Court to regularise his appointment, the costs involved in doing so would not be sought as costs in the liquidation, but rather would be borne by his firm. According to the minutes of the Creditors' Meeting, Mr James told creditors that his understanding had been that the Share Sale Agreement had resulted in a transfer of the share held by Mr Gregory Holmsen to Mr Mark Holmsen, with the result that Mr Mark Holmsen was the sole shareholder of Soul Outlet, but that ASIC records had not been updated to indicate that the share transfer had occurred.
32 The minutes of the Creditors' Meeting also indicate that Mr James explained to creditors his decision to proceed with the sale of Soul Outlet's stock to Shoeshow. He explained that after considering the value of the stock, its estimated realisable value following an auction (particularly having regard to the costs associated in proceeding to auction), the cost of relocating and holding the stock, and the lack of any funds to permit the stock to be held pending an invitation for expressions of interest to purchase it, he had determined that it was in the best interests of creditors to proceed with the sale to Shoeshow.
33 Finally, the minutes of the Creditors' Meeting indicate that Mr James did not receive any proposal from creditors for an alternative liquidator to be appointed.
The claim by Sander against Mr James
34 After the Application was filed, a Notice of Appearance was filed on behalf of Sander, which indicated that it intended to oppose Mr James' Application. Orders were made by Master Sanderson on 30 June 2015 for the filing and service of any affidavit and submissions in opposition to the Application.
35 No such affidavit or submissions have been filed, and there was no appearance on behalf of Sander at the hearing of the Application. Instead, documents annexed to Mr Johnson's affidavit sworn on 24 July 2015 indicate that Mr James and Sander have entered into a Deed of Settlement and Release pursuant to which they have settled a dispute relating to a number of claims made by Sander and Mr Gregory Holmsen in respect of Mr James' appointment, his conduct, and its consequences.
36 Those claims included that Sander was not given notice of the Members' Meeting, was denied the opportunity to vote at that meeting, was denied the opportunity to influence the strategy adopted in relation to Soul Outlet's financial difficulties (and to explore alternatives to liquidation), and was denied the opportunity to make an offer to acquire Soul Outlet's assets; that Mr James did not investigate the possibility of the sale of Soul Outlet's assets to other parties before agreeing to sell those assets to Shoeshow; that Mr James did not properly investigate the conduct of Soul Outlet's officers before Soul Outlet was placed into liquidation; that the liquidation of Soul Outlet would preclude Sander from enforcing the Share Sale Agreement; that Sander had suffered substantial injustice as a result; and that it would not be just and equitable for Mr James to obtain the relief sought from the Court in the Application.
37 It is unnecessary to discuss the terms of the Deed of Settlement and Release, other than to observe that both Sander and Mr Gregory Holmsen have released Mr James and his firm from the claims made against them, agreed to withdraw their opposition to the Application, and agreed that Mr James would be entitled to continue with the Application and to seek the relief he sought in it. That agreement was confirmed in a letter written by Sander's solicitors, for the purpose of its tender by Mr James in support of the Application. A copy of that letter was annexed to Mr Johnson's affidavit of 20 July 2015.
Soul Outlet's Constitution
38 In the course of the hearing of the Application, there was some discussion about the requirements for a quorum at the Members' Meeting. Counsel for Mr James indicated that he was instructed that Soul Outlet did not have a constitution. I invited counsel to have his instructing solicitors prepare an affidavit placing that information before the Court.
39 Mr James subsequently filed a supplementary affidavit sworn by him on 12 August 2015, together with further written submissions. Counsel for Mr James sought leave to provide those submissions. In view of the content of Mr James' supplementary affidavit, it is appropriate to grant that leave.
40 In his supplementary affidavit, Mr James deposed that following the hearing he arranged for an employee of his firm to conduct a further review of the books and records of Soul Outlet and of its lodgements with ASIC, and for enquiries to be made of the company's former accountants, as a result of which Mr James ascertained that Soul Outlet does in fact have a constitution. A copy of that constitution was annexed to Mr James' supplementary affidavit.
41 As a consequence of this further information, counsel for Mr James sought to modify the orders sought on the Application.
2. The orders sought
42 The orders sought by Mr James in the Minute are in the following terms:
1. Pursuant to section 1322(4)(a) of the Corporations Act 2001 (Cth) (Act) the members resolutions dated 3 June 2015 to wind up Soul Outlet Pty Ltd ACN 108 339 180 (Company) and to appoint the plaintiff (Liquidator) as the liquidator of the Company are not invalid by reason of the following contraventions of the Act and the Company's constitution, namely, the failures:
(a) to give notice of the meeting at which the members resolutions were passed to Sander Nominees Pty Ltd (Sander);
(b) to obtain agreement of members with at least 95% of the votes that may be cast at a meeting of the Company's members to notice shorter than 21 days notice of the meeting at which the members resolutions were passed;
(c) to obtain a quorum of 2 members at the meeting at which the members resolutions were passed;
(d) to obtain a special resolution to wind up the Company at the meeting at which the members resolutions were passed (in that Sander, being entitled to cast 50% of the votes of the Company's members, was not given notice of the meeting and there was not 21 days' notice of the meeting).
2. Pursuant to section 511 of the Act it is directed that the Liquidator is and will be justified and acting properly in proceeding with the liquidation of the Company on the basis that his appointment as liquidator of the Company is not invalid by reason of the contraventions specified in para 1 above.
3. The costs of the application are to be borne by the Liquidator personally and will not be costs in the liquidation of the Company.
3. Why an order under s 1322(4)(a) of the Act should be made
43 Section 1322 of the Act relevantly provides:
(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 or a corporation, at a joint meeting of creditors and members of a corporation or at a meeting of members of a registered scheme; and
(ii) a defect, irregularity or deficiency of notice or time.
(3) A meeting held for the purposes of this Act, or a meeting notice of which is required to be given in accordance with the provisions of this Act, or any proceeding at such a meeting, is not invalidated only because of the accidental omission to give notice of the meeting or the non-receipt by any person of notice of the meeting, unless the Court, on the application of the person concerned, a person entitled to attend the meeting or ASIC, declares proceedings at the meeting to be void.
…
(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.
(5) An order may be made under paragraph (4)(a) or (c) notwithstanding that the contravention or failure referred to in the paragraph concerned resulted in the commission of an offence.
(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.
(a) Mr James is an 'interested person' for the purposes of an application under s 1322(4) of the Act;
(b) The members' resolutions to wind up Soul Outlet and to appoint Mr James as liquidator of Soul Outlet were acts or things purporting to have been done under the Act or in relation to a corporation;
(c) Those members' resolutions were passed in circumstances where the Members' Meeting was not conducted in compliance with the requirements of the Act or of Soul Outlet's constitution;
(d) It is just and equitable that a declaration under s 1322(4) should be made; and
(e) No substantial injustice has been, or is likely to be, caused to any person.
My reasons for those conclusions are explained below.
(a) Mr James is an 'interested person' for the purposes of an application under s 1322(4) of the Act
45 A person whose financial interests are affected or likely to be affected by an act or decision falls within the concept of an interested person for the purpose of s 1322(4).1 Mr James' legal rights to act as the liquidator of Soul Outlet, and his pecuniary interest (in his remuneration as liquidator) are or may be affected by the irregularities identified in the process leading to his appointment. Mr James is thus clearly an 'interested person' for the purposes of an application under s 1322(4) of the Act.
(b) The members' resolutions to wind up Soul Outlet and to appoint Mr James as liquidator of Soul Outlet were acts or things purporting to have been done under the Act or in relation to a corporation
46 The members' resolutions passed at the Members' Meeting to wind up Soul Outlet and to appoint Mr James as the liquidator of the company were acts purportedly done under s 491(1) of the Act, and in any event were clearly things done (in that they were decisions made) in relation to a corporation.
(c) Those members' resolutions were passed in circumstances where the Members' Meeting was not conducted in compliance with requirements of the Act or of Soul Outlet's constitution
47 Although the court's power under s 1322(4) applies only in respect of a particular contravention or contraventions, the word 'contravention' in s 1322(4) should be given its ordinary and natural meaning, which is broad in scope.2 The meaning of the word 'contravention' is not limited to contraventions of the Act, but applies to contraventions of the constitution of a company.3 'Contraventions' include not only things which may be done under the Act or under the constitution of a company, but which are not done validly, but extend also to things which cannot be done at all under the Act or under the constitution of a company.4 The word 'contravention' is not to be 'hedged about by any implied limitation' which is not found in the express words of the section.5
48 In view of the evidence which suggests that the Share Sale Agreement was not performed, the situation as at 3 June 2015 was that Soul Outlet had two members, Sander and Showside, each of whom held one of the two ordinary shares in the company. In order for Soul Outlet to be wound up voluntarily, a special resolution was required.6 The making of a valid special resolution of that kind required compliance not only with those provisions of the Act which pertained specifically to special resolutions, but also with those provisions of the Act, and of Soul Outlet's constitution, which pertained to the notice, and conduct, of meetings of members of the company.
Contravention of the minimum notice requirements for the Members' Meeting
49 Section 249H(1) of the Act provides that, subject to any longer minimum period of notice under a company's constitution, at least 21 days' notice must be given of a meeting of a company's members. Soul Outlet's constitution made provision for the notice required to be given of meetings. Clause 46(1) of Soul Outlet's constitution provided that:
Subject to the provisions of the Act relating to special resolutions and agreements for shorter notice of meetings, 21 days' notice at the least must be given to all persons who are entitled to receive such notices from the company, exclusive of the day on which the notice is served or deemed to be served, and of the day for which the notice is to be given.
50 Clearly, the period of notice of the Members' Meeting required under the Act and under cl 46(1) of Soul Outlet's constitution, was not provided.
51 However, cl 46(1) of Soul Outlet's constitution, like s 249H(1) of the Act, is subject to the provisions of the Act which permit the members of a company to agree to shorter notice of meetings. Section 249H(2) of the Act permits a general meeting of a company (other than a meeting at which the removal of a director or auditor, or the appointment of a director, is to be considered) to be called on shorter notice if members with at least 95% of the votes that may be cast at the meeting agree beforehand.7
52 The evidence before the Court on the Application establishes that there was a contravention of the requirement for notice under Soul Outlet's constitution, and the notice requirement under the Act, in that at least 21 days' notice was not provided to members in circumstances where there was no prior agreement to shorter notice by members with at least 95% of the votes that may be cast at the meeting (because only Showside provided the Consent to Short Notice).
Contravention of the requirement for written notice of the Members' Meeting
53 Section 249J(1) of the Act requires that written notice of a meeting of a company's members must be given individually to each member entitled to vote at the meeting, and to each director.
54 The evidence before the Court on the Application establishes that there was a contravention of the requirements of s 249J(1) of the Act in that notice of the Members' Meeting was not given to one of the members of Soul Outlet, namely Sander.
Contravention of the requirement for a quorum of the Members' Meeting
55 The Act also contains a number of requirements for the conduct of meetings of members. Section 249T(1) of the Act specifies that the quorum for a meeting of a company's members is two members. However, s 249T(1) is a 'replaceable rule'8 with the result that its requirements can be displaced or modified by a provision of a company's constitution. Clause 48(2) of Soul Outlet's constitution deals with the quorum for a general meeting of the members of the company. It provides:
Two (2) members present and entitled to vote shall be a quorum for all general meetings unless there is only one (1) member of the company, in which case a quorum will be that member.
56 The evidence before the Court on the Application establishes that there was a contravention of the requirement of cl 48(2) of Soul Outlet's constitution in that there were two members of Soul Outlet on 3 June 2015 but only one member was present at the Members' Meeting which took place on that day.
57 Counsel for Mr James submitted that the absence of a proper quorum at the Members' Meeting arguably constituted a procedural irregularity. Given the terms of s 1322(1)(b), I agree with that characterisation. Notwithstanding the operation of s 1322(2), I see no impediment to making an order pursuant to s 1322(4) in relation to the resolutions passed at the Members' Meeting in so far as they were potentially invalidated by that irregularity. Section 1322(4) is, after all, a provision which should be construed broadly, and applied pragmatically, principally by reference to considerations of substance rather than of form.9 Furthermore, the other contraventions of the Act to which the order under s 1322(4)(a) is referrable are closely linked in that they all pertain to the same Members' Meeting. Those other contraventions cannot properly be described as mere procedural irregularities. Finally, an order under s 1322(4)(a) will avoid the possibility of any lingering doubt about the impact of the absence of a quorum on the validity of the appointment of the liquidator.10
Whether the special resolution was passed in accordance with the requirements of the Act
58 It was initially contended on behalf of Mr James that the special resolution purportedly passed by the members of Soul Outlet at the Members' Meeting did not comply with the requirements for a 'special resolution' (as that term is defined in s 9 of the Act). The basis for that contention was that the resolution to wind up Soul Outlet was not passed by at least 75% of the votes cast by members entitled to vote on the resolution, because Sander had not voted in favour of the resolution.
59 A 'special resolution' in relation to a company is defined to mean:
a resolution:
(i) of which notice as set out in paragraph 249L(1)(c) has been given; and
(ii) that has been passed by at least 75% of the votes cast by members entitled to vote on the resolution.
60 In supplementary submissions on this issue, counsel for Mr James acknowledged that the resolution to wind up Soul Outlet had complied with the requirement that it be passed by at least 75% of the votes cast by members entitled to vote on the resolution. That concession was properly made. The requisite percentage of votes required is a percentage of the 'votes cast'. On their ordinary meaning, those words clearly refer to the votes actually cast. Support for that conclusion also derives from the statutory context. Where the percentage of votes is to be calculated by reference to the total number of members who are entitled to vote (rather than solely to those members entitled to vote who actually cast a vote) the Act requires that expressly. By way of example, the definition of 'extraordinary resolution' (in respect of a registered scheme) requires that the resolution be passed by a fixed percentage 'of the total votes that may be cast by members entitled to vote on the resolution (including members who are not present in person or by proxy)'.11 Similarly, s 249H(2) requires that members with at least 95% of the votes that may be cast at a meeting agree to a shorter notice period.
61 Further support for the conclusion that a 'special resolution' requires that the resolution be passed by at least 75% of the votes actually cast by members entitled to vote on the resolution can be found in cl 1.9 of the Small Business Guide in pt 1.5 of the Act, which provides:
If a meeting is held, an ordinary resolution must be passed by a majority of the votes cast by shareholders of the company entitled to vote on the resolution at the meeting in person or by proxy (if proxies are allowed). A special resolution must be passed by at least 75% of the votes cast by shareholders of the company entitled to vote on the resolution and who vote at the meeting in person or by proxy (if proxies are allowed).
62 The reference to members 'entitled to vote' in the definition of 'special resolution' acknowledges that the vote of a member who is not entitled to vote on a resolution, for whatever reason,12 will not be counted in the determination of the requisite percentage.13
63 The only vote actually cast in respect of the resolution to wind up Soul Outlet was cast on behalf of Showside, which was the only member present at the meeting and entitled to vote. Its vote was in favour of the resolution, with the result that the resolution was passed by at least 75% of the votes cast by members entitled to vote on it.
64 However, the special resolution passed at the Members' Meeting involved a contravention of the Act, and of Soul Outlet's constitution, for the reasons already outlined (insufficient notice, failure to obtain the prior agreement to short notice by the requisite percentage of members, and the absence of a proper quorum) and because there was no compliance with an additional notice requirement which applies to a special resolution. As the definition of 'special resolution' makes clear, a special resolution is one in respect of which notice as set out in par 249L(1)(c) of the Act has been given. Paragraph 249L(1)(c) of the Act requires that if a special resolution is to be proposed at a meeting of the members of the company, the notice which is given to a company's members (in compliance with the other requirements of the Act) must also set out the intention to propose the special resolution and to state the resolution. In the present case, by virtue of the failure to provide notice of the Members' Meeting to Sander, there was a contravention of this additional requirement to put Sander on notice of the proposed special resolution.
(d) It is just and equitable that a declaration under s 1322(4) should be made
65 In bringing the application for an order under s 1322(4)(a), counsel for Mr James submitted that the requirements of s 1322(6)(a)(ii) or (iii) were satisfied. The criteria in s 1322(6)(a)(i) - (iii) are disjunctive, not cumulative.14
66 In this case, I am content to proceed on the basis that the criterion in s 1322(6)(a)(iii) is satisfied. I am satisfied that it is just and equitable that an order under s 1322(4)(a), in the terms proposed in par 1 of the Minute, should be made, for six reasons.
67 First, having regard to the evidence before the Court as to Soul Outlet's balance sheet and cash flow, Soul Outlet was clearly insolvent on 3 June 2015 when the resolution to wind it up was passed. That was also the view held by the sole director of Soul Outlet, Mr Mark Holmsen, at the time. And it was the view reached by Mr James once he had had the opportunity to investigate the financial affairs of Soul Outlet.
68 Secondly, there is no evidence to support the conclusion that there was any realistic possibility that Soul Outlet's financial position could have been salvaged, and liquidation avoided, by the intervention of another party. Mr James deposed that Mr Gregory Holmsen claimed that had he attended the Members' Meeting he may have been able to influence the direction of the company, and avoid liquidation. However, there is nothing to support the conclusion that Sander was in fact in a position, or inclined, to make the very substantial contribution of funds which would have been required to bring Soul Outlet back to a position of solvency.
69 Thirdly, it is clearly in the interests of creditors that the liquidation continue. The creditors did not take action to replace Mr James as the liquidator of Soul Outlet in the course of the Creditors' Meeting.
70 Fourthly, it is clearly in the public interest for the order to be made, and the liquidation to continue. It is in the public interest that insolvent companies be wound up.15
71 Fifthly, it is evident that even if Soul Outlet had not been would up by a special resolution, another route to its liquidation would have been pursued. There is evidence to suggest that, if it were not possible to place the company into voluntary liquidation through a members' special resolution, Mr Mark Holmsen would have proceeded to place Soul Outlet into voluntary administration, with the almost inevitable result (given Soul Outlet's insolvency) that it would have been wound up as a result of that process. The board of directors of Soul Outlet (that is, Mr Mark Holmsen) could have resolved that Soul Outlet was insolvent, and that an administrator should be appointed16 and could then have appointed Mr James as the administrator. The administrator would have been required to convene an initial meeting of Soul Outlet's creditors,17 to take control of Soul Outlet's business,18 to investigate the company's affairs and to consider possible courses of action including whether it would be in the creditors' interests for Soul Outlet to be wound up.19 The administrator would then have been required to convene a further meeting of creditors, and to provide them with a report about Soul Outlet's business, property, affairs and financial circumstances.20 At that meeting, it would have been open to the creditors to resolve that Soul Outlet be wound up.21 A resolution of that kind would have had the effect that Soul Outlet would be taken to have passed a special resolution under s 491 of the Act that it be wound up voluntarily.22
72 Sixthly, there is no evidence to suggest that any party will suffer prejudice or injustice if an order is made under s 1322(4) of the Act. As I explain further below at [82] - [83], I have reached that conclusion in light of the Deed of Settlement and Release entered into by Sander and Mr James.
73 Finally, in reaching the conclusion that it is just and equitable to make an order under s 1322(4)(a), I have taken into account the conduct of the persons concerned in, or party to, the contraventions of the Act and of Soul Outlet's constitution, to which I have referred above. In my view, the conduct of the parties to a relevant contravention may be a factor (to be considered along with all other relevant factors) which warrants consideration in the court's determination of whether it is 'just and equitable' that an order be made under s 1322(4)(a). That that is so is clear from the breadth of the phrase 'just and equitable'.23 If the making of an order under s 1322(4) would mean that a person would benefit from their own wrongdoing or deliberate disregard for the requirements of the Act, that would be a factor which may weigh against the exercise of the court's discretion to make the order.24
74 In this case, the Members' Meeting was conducted on the basis that Showside was the only member of Soul Outlet. Mr James deposed that he was advised by Mr Zohar of the existence of the Share Sale Agreement, of the fact that it had been performed and Sander's share transferred to Showside, and of the fact that the ASIC register had not been updated to reflect that state of affairs. Mr James clearly relied upon that information, and provided advice to Mr Mark Holmsen in relation to the means by which Soul Outlet may be wound up, based on this understanding of the circumstances. Regrettably, Mr James did not take any steps to confirm the accuracy of the information Mr Zohar had provided. However, Mr James has clearly acted to ameliorate the consequences of the contraventions of the Act which transpired by reaching agreement with Sander and by bearing the cost of the Application.
75 Unfortunately, the evidence before the Court of the circumstances in which the information about Soul Outlet's shareholders came to be provided to Mr James raised more questions than it answered.
76 There was no direct evidence before the Court from Mr Mark Holmsen or Mr Zohar setting out their knowledge of Soul Outlet's shareholders at the relevant time. Consequently, there was no evidence before the Court as to how Mr Zohar acquired his knowledge of what had taken place in relation to the Share Sale Agreement, and thus how he came to advise Mr James that the Share Sale Agreement had been performed, and that Sander's share in Soul Outlet transferred to Showside, when that was not the case. It is not entirely clear from the evidence before the Court whether Mr Mark Holmsen was present when, or was aware that, Mr Zohar provided that information to Mr James.
77 In his letter of 24 July 2015 (referred to at [25] above) Mr Mark Holmsen stated that he was not aware, and that he had not been advised, that the decision to appoint Mr James would require 'all members' to pass a resolution to that effect. It is implicit in that observation that on 3 June 2015 Mr Mark Holmsen was aware that Soul Outlet had two members. It is, therefore, mystifying why Mr Mark Holmsen signed the Consent to Short Notice in respect of the Members' Meeting which indicated that Showside held at least 95% of the votes that may be cast at a general meeting of Soul Outlet.
78 Furthermore, as I have explained at [18] above, Mr James deposed that he advised Mr Mark Holmsen in words to the effect that, in circumstances where Soul Outlet had a single member the company could appoint a liquidator by a resolution of that member, but if there were two or more members, it would be easier for Mr Mark Holmsen as the sole director to appoint an administrator instead. In view of that advice, it is far from clear why Mr Mark Holmsen instructed Mr James to prepare documentation for the appointment of a liquidator by special resolution of the members of Soul Outlet, but apparently without any reference Sander's shareholding.
79 On the other hand, I do not overlook the fact that the Share Sale Agreement was executed nearly a decade ago, its terms are complex, and it is difficult to discern from those terms what conduct was required of the parties to it to perform their Agreement and when that performance was to occur. Although it is difficult to envisage an explanation for the confusion about whether Sander's share was transferred to Showside, one possibility may be that, after the Share Sale Agreement was executed, Sander ceased to have any role in Soul Outlet, and the performance of the Share Sale Agreement (or lack thereof) was overlooked.
80 These questions cannot (in view of the absence of any evidence from Mr Mark Holmsen and Mr Zohar), and need not, be resolved in the context of the Application. For present purposes, it suffices to say that the evidence before the Court clearly did not establish that Mr James' conduct warranted the refusal of the Application. There is no basis for concluding, for example, that Mr James acted dishonestly, or with such carelessness or imprudence as to entirely negate the performance of the duties he was exercising,25 when he provided advice to Mr Mark Holmsen about the means by which a liquidator could be appointed to Soul Outlet, or in assisting Soul Outlet to do so. Nor did the evidence which was before the Court on the Application establish that the conduct of the other parties was dishonest, or otherwise of such a nature as to cast doubt on whether an order under s 1322(4)(a) should be made, having regard to the other factors I have outlined which so clearly favour the making of the order.
81 I am not persuaded that these questions about the conduct of the parties concerned warrant the conclusion that it would not be just and equitable to grant an order under s 1322(4)(a) of the Act.
(e) No substantial injustice has been, or is likely to be, caused to any person
82 Having regard to the matters discussed above at [67] - [69] I am also satisfied that it cannot now be said that any substantial injustice was caused to any person, or is likely to be caused to any person, by virtue of the contraventions of the Act or of Soul Outlet's constitution, which have been identified.26
83 The position of Sander is clearly highly relevant to this consideration. Sander claimed that it suffered a substantial injustice by virtue of being deprived of the opportunity to attend the Members' Meeting and to participate in voting on the resolutions which were passed at that meeting. There is authority for the proposition that if a party is denied the opportunity to attend a meeting and to cast a vote at that meeting, that may (depending on the circumstances) constitute a substantial injustice.27 However, any injustice which may have been suffered by Sander in this case must now be considered to have been ameliorated by the settlement of its claim against Mr James. The fact that Sander and its director Mr Gregory Holmsen have withdrawn their opposition to the Application and to the grant of the relief sought, supports that conclusion.
4. Why a direction under s 511 of the Act should be given
84 Section 511 of the Act relevantly provides:
(1) The liquidator … may apply to the Court:
(a) to determine any question arising in the winding up of a company; or
(b) to exercise all or any of the powers that the Court might exercise if the company were being wound up by the Court.
...
(2) The Court, if satisfied that the determination of the question or the exercise of power will be just and beneficial, may accede wholly or partially to any such application on such terms and conditions as it thinks fit or may make such other order on the application as it thinks just.'
85 Counsel submitted that Mr James in effect sought confirmation that the effect of s 505 of the Act is that his acts as liquidator since his appointment on 3 June 2015 were valid, notwithstanding the contraventions and irregularities with respect to the conduct of, and resolutions made at, the Members' Meeting.
86 Section 505 of the Act provides:
(1) The acts of a liquidator are valid notwithstanding any defects that may afterwards be discovered in his or her appointment or qualification.
(2) A disposition of a company's property by a liquidator (including a disposition by way of conveyance, assignment, transfer or an instrument giving rise to a security interest) is, notwithstanding any defect or irregularity affecting the validity of the winding up or the appointment of the liquidator, valid in favour of any person taking such property in good faith and for value and without actual knowledge of the defect or irregularity.
(3) …
(4) For the purposes of this section, a disposition of property is taken to include a payment of money.
87 The Application to the Court, in so far as it relied upon s 511, did not specify a question arising in the winding up of Soul Outlet for the determination of the Court. Nevertheless, in effect it constituted an application to the Court to determine the question whether s 505 will operate to confirm the validity of the acts of Mr James since his appointment, including his entry into the agreement to sell Soul Outlet's stock, notwithstanding the contraventions of the requirements of the Act, and of Soul Outlet's constitution, which pertained to the Members' Meeting, and to the resolutions made at that meeting. Having regard to its very clear terms, there is no basis to doubt that s 505 will operate in that way.
88 I reviewed the principles governing applications under s 511 of the Act in Re Great Southern Managers Australia Ltd (in liq); Ex parte Jones.28 It is unnecessary to repeat those principles here.
89 In the present case, the direction under s 511 of the Act is not sought with respect to any particular course of action proposed to be taken by Mr James in the future, but instead is clearly sought out of an abundance of caution, and to provide reassurance to the liquidator, and to others affected by his acts since his appointment, that those acts are valid notwithstanding the contraventions of the Act and Soul Outlet's constitution which I have discussed above.
90 Given the unusual history of this liquidation and the controversy which has already arisen in relation to it, I am satisfied that it would be just and beneficial, in the conduct of the liquidation, to make an order pursuant to s 511 of the Act providing direction to the liquidator of the kind sought.
Orders
91 I will make orders in terms of the Minute. The orders in the Minute include an order that the costs of the Application be borne by the liquidator personally, and will not be costs in the liquidation of the company. In my view, that order is appropriate given the circumstances.
1Twin v Deputy Commission of Taxation[2003] QSC 329; [2004] 1 Qd R 450 [16] (Holmes J).
2Weinstock v Beck[2013] HCA 14; (2013) 251 CLR 396 [40] (French CJ).
3Weinstock v Beck[2013] HCA 14; (2013) 251 CLR 396, 564 [41] (French CJ), 567 [54] (Hayne, Crennan & Kiefel JJ).
4Weinstock v Beck[2013] HCA 14; (2013) 251 CLR 396 [42] (French CJ), 567 [52] (Hayne, Crennan & Kiefel JJ) cf [65] (Gageler J).
5Weinstock v Beck[2013] HCA 14; (2013) 251 CLR 396, 567 [55] - [56] (Hayne, Crennan & Kiefel JJ).
6Corporations Act 2001 (Cth) s 491(1).
7Corporations Act 2001 (Cth) s 249H(2)(b).
8Corporations Act 2001 (Cth) s 135(2).
9Weinstock v Beck[2013] HCA 14; (2013) 251 CLR 396, 559 [39] (French CJ).
10 Cf In the matter of H and P Newcastle Pty Ltd (in liq)[2013] NSWSC 778 [13] (Black J).
11Corporations Act 2001 (Cth) s 9.
12 So, for example, if a vote was cast by a proxy, in circumstances where proxy votes were not permitted, that vote would not be counted in determining whether the requisite percentage had been reached. Similarly, if a member was not entitled to vote on the resolution (eg under s 224(1) of the Act) that member's vote would not be counted in determining whether the requisite percentage of votes had been reached.
13 See also A.D. Lang, Horsley's Meetings: Procedure, Law and Practice, 2015, 7th ed, p 316 - 318.
14Re Charter Hall Ltd [2007] FCA 1316 [7] (Gyles J); Re Elemental Minerals Ltd [2010] FCA 687; (2010) 79 ACSR 277 [30] (Gilmour J).
15Expile Pty Ltd v Jabb's Excavations Pty Ltd [2004] NSWSC 284 [56] (Palmer J).
16Corporations Act 2001 (Cth) s 436A(1).
17Corporations Act 2001 (Cth) s 436E.
18Corporations Act 2001 (Cth) s 437A(1).
19Corporations Act 2001 (Cth) s 438A.
20Corporations Act 2001 (Cth) s 439A(4).
21Corporations Act 2001 (Cth) s 439C(c).
22Corporations Act 2001 (Cth) s 446A(2).
23In the matter of Catombal Investments Pty Ltd [2012] NSWSC 775 [20] (Brereton J); Ananda Marga Pracaraka Samgha Ltd v Tomar (No 6) [2013] FCA 284; (2013) 94 ACSR 199 [607] (Dodds-Streeton J).
24 Cf Re Wave Capital Ltd (2003) 47 ACSR 418; [2003] FCA 969 [29] (French J); Re Golden Gate Petroleum Ltd (2010) 77 ACSR 17; [2010] FCA 40 [43] (McKerracher J).
25 Cf Australian Securities and Investments Commission v MacDonald (No 12)[2009] NSWSC 714; (2009) 259 ALR 116 in relation to the requirement for honest conduct on the part of a person who seeks to be excused from a contravention of a provision of the Act or from liability for negligence, or a breach of trust or duty, or default; see also Primelife Corp Ltd v Aevum Ltd (2005) 53 ACSR 283; [2005] NSWSC 269 [8] (Hamilton J); Re Elemental Minerals Ltd [2010] FCA 687; (2010) 79 ACSR 277 [41].
26 See Re Pembury Pty Ltd [1993] 1 Qd R 125, 127 (Byrne J).
27Northwest Capital Management v Westate Capital Ltd (2012) 264 FLR 424; [2012] WASC 121 [130] - [131] (Edelman J); Chalet Nominees (1999) Pty Ltd v Murray [2012] WASC 147 [29] - [34] (Le Miere J).
28Re Great Southern Managers Australia Ltd (in liq); Ex parte Jones [2014] WASC 312 [54] - [65].
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