Stolar Joinery (Aust) Pty Ltd v Charterarm Investments Pty Ltd (in liq)
[2011] VSC 577
•15 November 2011
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL COURT
CORPORATIONS LIST
No. S CI 2010 03857
IN THE MATTER OF CHARTERARM INVESTMENTS PTY LTD (ACN 054 052 934)
BETWEEN
| STOLAR JOINERY (AUST) PTY LTD (ACN 005 106 052) | Plaintiff |
| and | |
| CHARTERARM INVESTMENTS PTY LTD (ACN 054 052 934) (in liquidation) | Defendant |
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JUDGE: | FERGUSON J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 3 November 2011 | |
DATE OF JUDGMENT: | 15 November 2011 | |
CASE MAY BE CITED AS: | Stolar Joinery (Aust) Pty Ltd v Charterarm Investments Pty Ltd (in liquidation) | |
MEDIUM NEUTRAL CITATION: | [2011] VSC 577 | |
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CORPORATIONS – Application to terminate winding up – Factors to be established – Solvency – Protection of future creditors – Commercial morality and public interest – Director’s failure to comply with liquidator’s requests for information and to provide books and records – Failure to comply with tax obligations – Continuation of litigation by director after company in liquidation – Corporations Act 2001 (Cth), s 482(1)
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APPEARANCES: | Counsel | Solicitors |
| For the Applicant/Appellant (Comsport Pty Ltd) | Mr S O’Bryan SC with Mr S Smith | Michael Vuckovic |
| For Mr Clynton Roberts | Mr P Crutchfield SC with Mr G Parncutt | Chadwicks |
| For Mr Brent Leigh Morgan (the liquidator of Charterarm Investments Pty Ltd) | Ms F Clancy | Madgwicks Lawyers |
| For the Australian Taxation Office | Mr S Campbell | ATO Legal Services Branch |
TABLE OF CONTENTS
Introduction......................................................................................................................................... 2
The application to wind up the Company.................................................................................... 3
The liquidator’s requests for books and records......................................................................... 4
The VCAT proceeding...................................................................................................................... 5
The liquidator’s requests for information about the assets of the Company......................... 6
Report to ASIC about the conduct of Mr Bougioukos............................................................... 6
Relevant legal principles.................................................................................................................. 6
Solvency............................................................................................................................................... 8
Commercial Morality....................................................................................................................... 12
Has Comsport established all the criteria to justify terminating the winding up?.............. 15
HER HONOUR:
Introduction
On 22 September 2010, the Court ordered that the defendant, Charterarm Investments Pty Ltd (“the Company”), be wound up in insolvency under the provisions of the Corporations Act 2001 (Cth). Mr Brent Leigh Morgan was appointed as the liquidator. On 28 April 2011, Comsport Pty Ltd (which is a shareholder of the Company) applied to terminate the winding up. An Associate Judge dismissed the application and Comsport has appealed against that order. The appeal is by way of a re-hearing[1] although the Court will give such weight to the decision of the Associate Judge as appears proper.[2]
[1]Rule 77.06(7) Supreme Court (General Civil Procedure) Rules 2005 (Vic).
[2]Southern Motors Pty Ltd v Australian Guarantee Corporation Ltd [1980] VR 187 at 189-190.
The Company was incorporated in 1991. It is a building company and was the vehicle that its director, Mr George Bougioukos, used as a registered building practitioner to undertake building works and property developments. Mr Bougioukos left school when he was 18 and became involved in the business of residential building. He has been in that industry for approximately 25 years. He has no previous experience in relation to the winding up of companies. In addition to his position as a director of the Company, he is also a director of Comsport.
On 13 October 2009, the Company commenced proceedings in the Victorian Civil and Administrative Tribunal (“VCAT”) against Mr Clynton Roberts for amounts it says he owes in relation to the construction of two luxury townhouses. The claim is for $358,000. Mr Bougioukos says that the non-payment of the amount claimed was the cause of significant cash flow problems for the Company. Mr Roberts denies the claim and has brought a counterclaim in the VCAT proceeding against the Company for $1 million.
Comsport’s application for termination of the winding up is opposed by Mr Roberts. The liquidator and the Deputy Commissioner of Taxation (another creditor) neither opposed nor consented to the application.
Mr Roberts contends that the winding up should not be terminated because Comsport has not established that the Company is sufficiently solvent such that prospective creditors might be protected, nor has it established that the conduct of the Company through Mr Bougioukos was not in any way contrary to commercial morality and the public interest. In relation to these last two matters, amongst other things, Mr Roberts points to the continuation of the VCAT proceeding by Mr Bougioukos on behalf of the Company after it was placed into liquidation, the failure of Mr Bougioukos to provide all of the Company’s books and records to the liquidator and the fact that the liquidator has reported Mr Bougioukos to the Australian Securities and Investments Commission for misconduct.
There is insufficient evidence to satisfy me that the Company is solvent enough such that it should be permitted to trade again. In my view, taking that into account together with the conduct of Mr Bougioukos in failing to comply with his statutory obligations, the winding up should not be terminated. The appeal from the Associate Judge will be dismissed.
My more detailed reasons are set out below. I will first set out how the Company came to be in liquidation and some of what has occurred since the appointment of the liquidator.
The application to wind up the Company
The application to wind up the Company was brought by Stolar Joinery (Aust) Pty Ltd. The Deputy Commissioner of Taxation was a supporting creditor. There was no appearance by the Company when the winding up application was ultimately heard and determined on 22 September 2010, although the Company had instructed lawyers in relation to the winding up application. According to Mr Bougioukos, he paid approximately $20,000 (which is what was due) to Stolar Joinery on 21 September 2010 and he was not aware that any amount had to be paid to the Deputy Commissioner by 22 September 2010. Nor was he aware that the winding up order was going to be made against the Company nor the precise legal ramifications of such an order. Mr Bougioukos did not learn that the Company had been wound up until later that month when his bank manager told him that the Company’s bank accounts had been frozen because of the winding up order.
The liquidator’s requests for books and records
According to the liquidator, his investigations were frustrated by the lack of information supplied by Mr Bougioukos. At an early stage of the liquidation, the liquidator sent letters to Mr Bougioukos noting that the Corporations Act imposes onerous requirements on officers of the Company to assist the liquidator in the conduct of the winding up, confirming that under s 471A of the Corporations Act the powers of Mr Bougioukos as a director ceased on the appointment of the liquidator and stating that under s 530B of the Corporations Act Mr Bougioukos was required to assist the liquidator, comply with his demands and attend upon him as requested. Attached to one of those letters was a summary of the offences that an officer would commit if the Corporations Act requirements were not met.
During the course of the winding up, the liquidator and his staff repeatedly made requests to both the solicitor that was then acting for Mr Bougioukos and directly to Mr Bougioukos for information about the Company and its affairs. The first such request was by letter dated 30 September 2010 to Mr Bougioukos. Enclosed with the letter was a formal notice requiring delivery to the liquidator of all the books and records of the Company. On numerous occasions spanning a period from early October 2010 to 16 March 2011, the liquidator made further requests for the books and records of the Company.
Over time, Mr Bougioukos did provide some of the Company’s books and records either directly or through his solicitors or accountants to the liquidator. He provided information as to creditors, a cheque book, a deposit book, Business Activity Statements, tax returns, financial statements, some building contracts, some bank statements, a list of tools, a rental statement for a property owned by the Company and information in relation to inter-company loans. However, this did not constitute all of the books and records and, as late as 5 April 2011, the liquidator was still seeking bank statements, cheque and deposit books, creditors’ invoices and correspondence, customer invoices, contracts and correspondence, copies of asset and depreciation schedules and the Company’s MYOB electronic accounting file. Some of these documents were provided the following day.
The VCAT proceeding
Mr Bougioukos met with two of the liquidator’s staff on 12 October 2010. Amongst other things, he told them that the Company had brought the VCAT claim for an amount exceeding $350,000, that Lovegrove & Lord were acting for the Company in that litigation and that a hearing date was set for 21 February 2011. The amount of the claim was included as a contingent asset in the report as to affairs that Mr Bougioukos completed during the meeting. According to the liquidator, one of his staff told Mr Bougioukos that his powers as director had ceased and therefore he could no longer run the VCAT proceeding on behalf of the Company and that the liquidator would need to make an informed decision regarding the continuation of the proceeding. Mr Bougioukos agrees that he was told that his powers as a director had been curtailed. According to him, he understood that the Company could not carry on business but he did not understand that he had to stop taking part in the VCAT proceeding on behalf of the Company. He does not believe that the liquidator informed him that he could not carry on the VCAT proceeding but, if he was told that, he misunderstood what he was told and did not intentionally engage in that proceeding knowing or believing that he was not entitled to do so.
After the meeting on 12 October 2010, the liquidator and his staff made frequent requests for information about the VCAT proceeding. Eventually, on 14 January 2011, Mr Bougioukos provided a copy of the VCAT application and Points of Claim to the liquidator. Shortly after this the liquidator became aware that the VCAT proceeding included a counterclaim by Mr Roberts. On 18 April 2011, the liquidator wrote to Lovegrove & Lord who acted for the Company in the VCAT case. A couple of days later, Mr Roberts’ solicitors contacted the liquidator’s office and stated that they had only just found out that the Company was in liquidation. The VCAT proceeding was by then part heard after 19 days of hearing that started on 21 February 2011. The liquidator did not know before he was contacted by Mr Roberts’ solicitors that Mr Bougioukos had continued the VCAT proceeding purportedly on behalf of the Company. The proceeding is now stayed.
The liquidator’s requests for information about the assets of the Company
From October 2010 to 21 March 2011, the liquidator made many repeated but unanswered requests for the details and location of company assets which Mr Bougioukos had included in the report as to affairs that he completed. On 21 March 2011, having been unable to obtain the information that he had sought, the liquidator wrote to the then solicitor acting for Mr Bougioukos, stating that he considered that Mr Bougioukos had contravened s 590 of the Corporations Act. Among other things, that section is contravened if an officer of a company does not deliver up all the property of the company in the person’s possession or all company books in the person’s possession. Following this letter, Mr Bougioukos provided a list of the assets he had included in the report as to affairs.
Report to ASIC about the conduct of Mr Bougioukos
In April 2011, the liquidator submitted a report to the Australian Securities and Investments Commission under s 533 of the Corporations Act reporting on what the liquidator described as the misconduct of Mr Bougioukos.
Relevant legal principles
Section 482(1) of the Corporations Act, so far as relevant to this application, provides that at any time during the winding up of a company, the Court may make an order terminating the winding up.[3] A shareholder has standing to apply for termination of the winding up.[4]
[3]The full text of s 482(1) Corporations Act is set out in the annexure to these reasons.
[4]Section 482(1A) of the Corporations Act. The full text of this section is set out in the annexure.
In Metledge v Bambakit Pty Ltd(in liq),[5] Barrett J, in considering s 482, stated:
[5][2005] NSWSC 160.
The jurisdiction to terminate a winding up under s 482 is discretionary. The court may have regard to a range of factors. While not to be rigidly applied, the list of criteria set out in the judgment of Master Lee QC in Re Warbler Pty Ltd (1982) 6 ACLR 526 provides useful guidance:
1.the granting of a stay is a discretionary matter, and there is a clear onus on the applicant to make out a positive case for a stay.
2.There must be service of notice of the application for a stay on all creditors and contributories, and proof of this.
3.The nature and extent of the creditors must be shown, and whether or not all debts have been or will be discharged.
4.The attitude of creditors, contributories and the liquidator is a relevant consideration.
5.The current trading position and general solvency of the company should be demonstrated. Solvency is of significance when a stay of proceedings in the winding-up is sought.
6.If there has been non-compliance by directors with their statutory duties as to the giving of information or furnishing a statement of affairs, a full explanation of the reasons and circumstances should be given.
7.The general background and circumstances which led to the winding‑up order should be explained.
8.The nature of the business carried on by the company should be demonstrated, and whether or not the conduct of the company was in any way contrary to ‘commercial morality’ or the ‘public interest’.[6]
[6]Ibid at [5] (authorities and their citations omitted).
In addition to those factors, a court is required to take into account the interests of the public and whether the termination will be detrimental to commercial morality.[7]
[7]See Re Skay Fashions Pty Ltd (in liq) (1986) 10 ACLR 743; McAusland v Commissioner of Taxation (1993) 47 FCR 369; Re Origin Internet Solutions Pty Ltd(in liq)(2004) 23 ACLC 88.
In this case, the principal contentious factors for consideration are those relating to solvency and commercial morality.
The Associate Judge was satisfied that the Company was technically solvent but declined to terminate the winding up having regard to the conduct of the director, Mr Bougioukos. His Honour found that Mr Bougioukos had failed to comply with a number of requests by the liquidator for information; did not ensure that tax returns and statements were lodged and that tax and employee superannuation payments were made on time; and, during the course of the liquidation, he continued the VCAT litigation on behalf of the Company. The Associate Judge noted that the liquidator had filed a report with the Australian Securities and Investments Commission about the conduct of Mr Bougioukos. Having regard to these matters, his Honour determined that the winding up of the Company should not be terminated because there had been a lack of commercial morality.
Solvency
The liquidator prepared a report for the Court in which he concluded that the Company is solvent. He stated that the Company’s solvency depends upon Comsport advancing funds to the Company to repay a debt that is owing to the Deputy Commissioner of Taxation (approximately $157,000), continued support from its bank, National Australia Bank Ltd, and support from Comsport and its various related entities.
The liquidator’s opinion is that historically the Company has been insolvent. In this regard, his report discloses that:
· the Company had not been able to satisfy tax and superannuation guarantee charges and the ageing of the debt outstanding to the Deputy Commissioner of Taxation far exceeded the statutory terms for lodgement and payment such that the Company was unable to meet its statutory obligations as and when they fell due from at least June 2007;
· the Company’s bank statements indicated that the Company may have experienced cash flow difficulties from January 2007 as the Company’s bank account was overdrawn on numerous occasions from January 2007 to June 2009 (when the Company did not have an overdraft facility) and, from July 2009, when it did have an overdraft facility, the account was frequently operated over its limit;
· the Company’s financial statements prepared by its external accountants revealed various related party loans and unpaid present entitlements relating to the Company’s trust activities;
· the liquidator had not been provided with sufficient documents in relation to transactions with suppliers to enable him to comment on the Company’s ability to meet the trading terms of suppliers (although he did not have information which indicated that action was being taken against the Company, other than by the Deputy Commissioner and Stolar Joinery (Aust) Pty Ltd (the creditor that had applied successfully for the winding up of the Company);
· the statutory requirement to maintain financial records[8] had been satisfied as the Company’s financial statements adequately explained its correct financial position and the liquidator was able to audit the Company’s financial position; and
· the Company had a deficiency of assets to liabilities from at least 30 June 2010 and the Company made losses in the financial year ended 30 June 2010 and the three months ended 30 September 2010.
[8]Section 286 Corporations Act.
Annexed to the liquidator’s report was a long list of dishonoured cheques from May 2008 onwards.
As to the current position, the liquidator estimates that if the Company’s assets (land, plant and equipment[9]) were realised to meet liabilities, there would be a shortfall of approximately $20,000. The liabilities are debts owed to the Company’s banker, National Australia Bank Limited and the amounts owing to the Deputy Commissioner. The debt that was owed to the petitioning creditor, Stolar Joinery, has been paid. The liquidator did not identify any additional trade creditors, having sent correspondence to all suppliers referred to in the Company’s cheque butts in the twelve months prior to liquidation. Each of the debts owed by the Company to related entities has either been released or is the subject of Debt Capitalisation Deeds, such that each of those entities would swap the debt owed to it for equity by way of shares in the Company. The liquidator has not included these related entities as creditors.
[9]The liquidator did not include in the assets to be realised any amount for debts owed to the Company by related creditors.
The National Australia Bank Limited has informed the liquidator that it continues to support the Company and does not oppose the termination of the winding up.
The liquidator noted that the debt owed to the Deputy Commissioner is to be paid by Comsport. In this regard, bank cheques for the amount owing appear to be held by the Company’s former solicitors. This transaction will not simply result in the substitution of Comsport as a creditor in place of the Deputy Commissioner. Rather, the amount advanced by Comsport is to be set off against a greater amount owed by it to the Company. As noted above, the Deputy Commissioner neither opposed nor consented to the application to terminate the winding up.
In his calculations, the liquidator did not include as an asset any amount in respect of the claim brought by the Company against Mr Roberts in VCAT. Nor did the liquidator include any amount for a liability in respect of Mr Roberts’ counterclaim for which he has lodged a proof of debt for $1 million. Having received advice from the Company’s lawyer that the counterclaim was merely strategic in nature and had limited prospects of success, the liquidator determined that Mr Roberts should not be included as a creditor for the purposes of considering the solvency of the Company.
Mr Bougioukos says that the liquidator’s conclusion as to solvency is supported by a statement of assets and liabilities prepared by the Company’s external accountants which shows net assets of approximately $1.7 million. In addition, Mr Bougioukos has deposed that the Company is solvent.
As noted above, the Associate Judge was satisfied that the Company is technically solvent. It was submitted by counsel on behalf of Mr Roberts that this is not sufficient. Counsel submitted that the Court has to be comfortably satisfied that the Company has sufficient available liquid assets in order to meet its liabilities going forward such that the future creditors and the public are not at risk of being prejudiced. Counsel pointed to the lack of evidence as to any business plan or cashflow projections should the winding up be terminated and the Company re-commence trading. It was also contended by Mr Roberts that there was no evidence of how future prospective creditors might be protected.
Mr Bougioukos submitted that if the winding up is terminated, cash will come from the VCAT claim against Mr Roberts. In addition, there is a project that is already underway that Mr Bougioukos says could be completed and another under contract which is yet to be started. On the reckoning of Mr Bougioukos, those projects will yield $370,000 in clear fees.
Counsel for Comsport contended that although the position of future creditors has to be considered by a court when determining whether to terminate the winding up of a company, the circumstances of the particular company and the industry within which it operates needs to be taken into account. In this regard it was submitted that in the building industry, small companies do have cash flow problems from time to time particularly if (as counsel contended here) a customer refuses to pay and this leads to a dispute about payment of the debt. Counsel submitted that the Company’s performance was fairly typical for a small construction company. Therefore, it was said, the Court should not be alarmed by the cash flow problems that the Company had experienced, particularly in the context of it being a company which undertakes a small number of higher paid projects where one of its customers has refused to pay.
It was further submitted that as all current creditors will be paid (other than the National Australia Bank Limited, which is not pressing for payment), the Company could be regarded as having a clean slate. It was put that it is no different to starting a new company with no asset backing which wants to go forward and trade. It was argued that in that situation there is no more nor less risk to creditors who either will or will not deal with the Company based on past experience. Counsel also noted that the Domestic Building Contracts Act1995 (Vic) requires suppliers to be paid before payment is made to the builder and submitted that there will not be a trail of trade creditors left behind as the Company has a good record with trade creditors. Counsel accepted that the Company had a dispute with Stolar Joinery, the applicant for the winding up, but noted that the debt was only for approximately $20,000 which has now been paid. Further counsel observed that there may be cashflow problems in the future or there may not be, but in the past the company has managed to continue trading satisfactorily and to the extent that third party support has been needed, it has been found - both bank support and support by Comsport.
Mr Bougioukos accepted that if the application were to be granted, conditions would have to be imposed such that the balance of the liquidator's fees were secured and the Deputy Commissioner would have to be paid the bank cheques that have already been obtained for the amount that is due.
Commercial Morality
When it came to the issue of commercial morality, counsel for Comsport submitted that the Associate Judge had only taken into account the failings of Mr Bougioukos without having regard to factors weighing in his favour. If those matters had been taken into account, counsel contended that the application ought to have been granted notwithstanding that a level of censure, possibly strong censure, is warranted for the things that Mr Bougioukos did wrongly.
The first matter that counsel argued the Associate Judge should have taken into account was the submission that the continuation of the liquidation threatens the livelihood of Mr Bougioukos as a domestic builder. The essence of this submission was that if Mr Bougioukos is associated with a company that has been wound up, he will have difficulty obtaining compulsory building insurance (either directly himself or through another corporate vehicle). Such insurance is required under the relevant statutory regime that regulates the building industry.
Second, Mr Bougioukos is of the view that the liquidity issues that the Company suffered and that eventually led to the winding up order were caused by Mr Roberts’ failure to pay. Counsel submitted that the Associate Judge should have taken this into account.
Counsel submitted that a further factor in favour of Mr Bougioukos was that Comsport had obtained bank cheques for payment of the amounts due to the Deputy Commissioner. The only reason that they have not been paid is because the Deputy Commissioner would not accept them without the consent of the liquidator (which had not been forthcoming). However, counsel noted that this was a substantial sum that Mr Bougioukos was prepared to have Comsport pay before the outcome of the application to terminate the winding up was known and which, if paid, would effectively have been lost if the application was unsuccessful. In addition, post liquidation, Mr Bougioukos had made a number of other payments in relation to liabilities of the Company that he was not required to make, including for the liquidator’s fees, a disputed debt and body corporate fees in relation to property owned by the Company.
Another factor said to be in favour of Mr Bougioukos is that he engaged solicitors before the winding up application and has continued to engage solicitors in an attempt to have the winding up terminated.
In conclusion, Comsport’s counsel submitted that the best measure of the likely future standard of behaviour of Mr Bougioukos (from a commercial morality point of view) is how he behaved in the past, before the winding up order was made. It was submitted that overall the standard of conduct was fairly good for a small building company. Mr Bougioukos has been a director of small companies for about 20 years, has never been convicted of an offence under the Corporations Act or its predecessor legislation and the worst thing that he had done, it was contended, was to let the debt to the Deputy Commissioner get behind. It was submitted that the conduct of the Company cannot have been so bad or unusual because the Deputy Commissioner did not oppose the application to terminate the winding up.
As I have previously noted in these reasons, the Associate Judge found that Mr Bougioukos did not ensure that tax returns and statements were lodged and that tax and employee superannuation payments were made on time. Counsel submitted that on closer examination, the Company’s track record of tax compliance was quite good. Evidence given on behalf of the Deputy Commissioner of Taxation showed that until May 2009, most statements required to be lodged by the Company were lodged on time with only a couple lodged a few weeks late. However, after that time, statements were always lodged late, frequently many months late.
Counsel submitted that the Court can at least be confident that what will happen in the future, is that the books and records of the Company will continue to be kept in a sound way. Counsel pointed to the manner in which the Company kept its financial records and the observation by the liquidator that the Company had complied with its statutory obligations by maintaining records that adequately explained the Company’s correct financial position such that an audit could be completed.
Mr Bougioukos appreciates that continuing with the VCAT proceeding on behalf of the Company after the winding up order was made was an unsatisfactory thing to have occurred. Counsel submitted that Mr Bougioukos has given a full explanation of his conduct which was not motivated by intentional disregard of the Corporations Act but rather arose out of a misunderstanding of the effect of the liquidation. Counsel also noted that Mr Bougioukos did not hide the existence of the litigation from the liquidator – he included it in the report as to affairs that he completed at the first meeting with the liquidator’s staff and he told them about the proceeding. He eventually provided documents to the liquidator. Whilst not intending any criticism, counsel observed that nothing was being done by the liquidator’s staff to contact the Company’s solicitors about the VCAT claim until after the scheduled date for commencement of the hearing.
Counsel also noted that Mr Roberts has not necessarily been prejudiced by the continuation of the VCAT proceeding because it was open to the liquidator to continue to pursue that claim.
Counsel for Comsport submitted that, putting everything into the balance, the just outcome favours the granting of the application.
Has Comsport established all the criteria to justify terminating the winding up?
As can be seen from what is set out above, the essence of the submissions by Comsport is that the Company’s solvency problems arose because of Mr Roberts’ refusal to pay, the Company is now solvent, any concern for future creditors should not feature prominently in the Court’s consideration because cash flow problems are common in the building industry and the failures by Mr Bougioukos are not so egregious as might found the basis for refusal of the application to terminate the winding up.
Counsel for Comsport noted that many of the cases such as Re Skay Fashions Pty Ltd (In liq)[10] and Acconci v Alpha Technologies Corporation Ltd[11] are fairly extreme factual scenarios where a number of parties have opposed the application to terminate the winding up. In Re Skay concerned an application to terminate the winding up of a company. The applicant sought an adjournment because it was not clear that the company was not insolvent and steps were to be taken to address this and other issues. The adjournment was refused. It was not clear to the Court why the termination of the winding up was being pursued; no explanation was given as to why there was no appearance by the company on the winding up application; the liquidator had been unable to satisfy himself as to the true state of affairs of the company; there were insufficient liquid assets to meet the current liabilities of the company; from the most optimistic view of the company, only bare solvency might be demonstrated; the company was badly mismanaged before being wound up; there was still a good deal of investigation to be undertaken by the liquidator; there was no information about how the company might be managed or conducted if the winding up were terminated; there was no information that the company might receive an injection of capital; and some creditors opposed the application while others did not.
[10](1986) 10 ACLR 743.
[11](2010) 79 ACSR 505.
Acconci concerned a listed public company where termination of the winding up was sought. The liquidator gave evidence that the company was insolvent and would remain so (in the absence of more definite and satisfactory measures to those that had been proposed - deferral of loans, input of funds from shareholders and reduction of operating expenses). The Court was not satisfied about the position of existing and future creditors. Of the shareholders who were aware of the application, 47% of them opposed it. Further, there was also discord between shareholders and not insignificant related litigation. The Court refused to terminate the winding up.
Counsel for Comsport contended that these cases are distinguishable. Counsel noted that the Company is not a public company that runs a major public business. Rather, counsel submitted, it is a small private company that is really the alter ego of a one man builder who now builds on behalf of others without employees but using independent contractors with occasional peaks and troughs in cash flow position. Counsel submitted that it is in a difficult competitive industry, but the Court could have that level of confidence based on its history that it will be a responsible corporate citizen and go on as a responsible corporate citizen. In this regard, counsel argued that although there had been blemishes in the past, the worst of them took place during the liquidation which was an isolated event at a time of great stress and concern to Mr Bougioukos.
I accept that the facts in both Re Skay and Aconcini are removed from those in the present case. However, the principles that they applied are the same as must be applied here. In this regard, where effectively the Court’s imprimatur is sought to permit a company to begin trading again, I do not think that it is acceptable to brush aside considerations such as the likely position of future creditors and persistent failures by the director of the company to comply with statutory obligations. This is particularly so in circumstances where the Company has been insolvent in the past and there is insufficient evidence to establish that it would be anything more than barely solvent were it to commence trading again. I accept that how the Company has performed in the past is the best indicator of how it is likely to conduct itself in the future. In this regard, Mr Roberts’ non-payment may explain why there were financial difficulties in the period from about mid 2009. However, the liquidator’s evidence is that the Company was insolvent from June 2007. In addition, there is evidence of a significant number of dishonoured cheques from May 2008 and, prior to the dispute with Mr Roberts, the Company was trading beyond the limit of its bank account. Given this historical performance of the Company, evidence was required about how the business would run both operationally and financially were the liquidation terminated. A business plan, cash flow forecasts and more detailed information about support from third parties (as to their identity, level of support and ability to provide that support) was required. However, there was so little evidence about the projects to be undertaken and how the business would be funded, that I am not persuaded that the Company should be permitted to operate again. It is of little comfort that Mr Bougioukos has voluntarily paid creditors after the Company was placed into liquidation and that under the relevant legislation creditors must be paid before the Company could be paid. If there are insufficient funds to pay them, then the creditors will be left in the lurch, regardless of the fact that the Company would also not be paid.
I have taken into account that the Deputy Commissioner of Taxation does not oppose the termination of the winding up, but nor did Deputy Commissioner support it. The Company’s historical performance in relation to taxation matters is at best patchy. Whilst taxation returns and statements were lodged within time on many occasions, more recently that has not been the case. Further, the Company allowed its tax payments to get well behind. Whilst the outstanding debt is now to be attended to, and this is to the credit of Mr Bougioukos, the Company’s past performance does not bode well for the future. It was noted that the Company does not intend to employ any staff and therefore, the issue that arose with non payment of superannuation liabilities would not arise. However, the past performance of the Company in this regard is another example of a failure to comply with statutory obligations. Even if that particular breach will not be repeated, it does not lead to any great confidence that going forward the Company will comply with other statutory obligations.
I have also noted that the Company would have the support of the National Australia Bank Limited, which also did not oppose the application for termination. However, whilst that is a relevant matter when considering the position of unsecured prospective creditors, it is outweighed by other considerations such as there being no business plan or other information as to the level of trading proposed to be undertaken by the Company and whether the level of the bank’s support would be sufficient to enable the Company to trade solvently.
Even accepting that Mr Bougioukos may find it more difficult to obtain compulsory building insurance if the Company remains in liquidation, I am not persuaded that his livelihood is threatened. In this regard, there was insufficient evidence as to any detriment he would suffer as a result of refusal to grant the application for termination of the winding up. For example, there was no evidence that if a company of which he was a director could not obtain insurance he could not gain employment with another building company.
At all times, Mr Bougioukos was focussed on having the liquidation terminated and attending to financial matters that would assist in achieving that aim. He was active in engaging solicitors to assist him. However, his determination to bring the liquidation to an end, is not an acceptable reason for him to have failed in his statutory obligations in regard to providing information (including the books and records) to the liquidator. As noted above, the liquidator sent to Mr Bougioukos information which should have alerted him to the obligations that he had and to the penalties that may be imposed if he failed to comply with those obligations. Whilst he did some things well in relation to management of the Company (for example, the maintenance of financial records in compliance with the Corporations Act) that alone is not sufficient. He should have complied with all statutory obligations, including those that applied to him as a director of a company that was in liquidation.
It was not acceptable for him to continue the VCAT proceeding on behalf of the Company after the winding up began. Nor should he be excused because he says that he did not know or misunderstood that he could not continue the proceeding. If he did not know, then it was important for him to find out the exact limits on his powers once the Company was in liquidation.
The application for termination of the winding up should be refused and the appeal from the Associate Judge will be dismissed.
Section 482 of the Corporations Act 2001 (Cth) provides:
(1)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.
(1A) An application may be made by:
(a)in any case – the liquidator, or a creditor or contributory, of the company; or
(b)in the case of a company registered under the Life Insurance Act 1995 – APRA; or
(c)in the case of a company subject to a deed of company arrangement – the administrator of the deed.
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