Storm Financial Limited (Receivers and Managers Appointed) (Administrators Appointed) v Victorian Families Retirement and Investment Group Pty Ltd
[2009] FCA 294
•18 March 2009
FEDERAL COURT OF AUSTRALIA
Storm Financial Limited (Receivers and Managers Appointed) (Administrators Appointed) v Victorian Families Retirement & Investment Group Pty Ltd [2009] FCA 294
CORPORATIONS — Winding up — Application for provisional liquidation —Number of directors of company below the statutory minimum — Subsidiary of a parent company subject to administration and the appointment of receivers and managers — Winding up on just and equitable grounds — Power vacuum due to lack of directors — Whether appointment of provisional liquidators appropriate to ensure that the company is subject to lawful control pending the winding up application — Whether undertaking as to damages in respect of the provisional liquidation application is required
Corporations Act 2001 (Cth) ss 461, 477
CIC Insurance Limited v Hannan and Co Pty Ltd (2001) 38 ACSR 245 considered
Corpique (Number 20) Proprietary Limited v Eastcourt Limited (1999) 15 ACLR 586 consideredSTORM FINANCIAL LIMITED (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATORS APPOINTED) (ACN 064 804 691) v VICTORIAN FAMILIES RETIREMENT & INVESTMENT GROUP PTY LTD (ACN 006 840 062)
QUD73 of 2009
LOGAN J
18 MARCH 2009
BRISBANE
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
QUD73 of 2009
BETWEEN: STORM FINANCIAL LIMITED (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATORS APPOINTED) (ACN 064 804 691)
Applicant
AND: VICTORIAN FAMILIES RETIREMENT AND INVESTMENT GROUP PTY LTD (ACN 006 840 062)
Respondent
JUDGE:
LOGAN J
DATE OF ORDER:
18 MARCH 2009
WHERE MADE:
BRISBANE
THE COURT ORDERS THAT:
1.Rajendra Kumar Khatri and Ivor Worrell be appointed as the Provisional Liquidators of Victorian Families Retirement & Investment Group Pty Ltd ACN 006 840 062 until the determination of the winding up application or earlier order.
2.The Provisional Liquidators may take into their custody all of the assets of the Defendant.
3.The Provisional Liquidators have the powers of the liquidators as set out in s 477 of the Corporations Act 2001 (Cth).
4.The costs of and incidental to this application be costs in the winding up.
5.The return date for hearing of the winding up application be 23 April 2009 at 9.30am.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using eSearch on the Court’s website.
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
QUD73 of 2009
BETWEEN: STORM FINANCIAL LIMITED (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATORS APPOINTED) (ACN 064 804 691)
Applicant
AND: VICTORIAN FAMILIES RETIREMENT AND INVESTMENT GROUP PTY LTD (ACN 006 840 062)
Respondent
JUDGE:
LOGAN J
DATE:
18 MARCH 2009
PLACE:
BRISBANE
REASONS FOR JUDGMENT
Application has been made by Storm Financial Limited (Receivers and Managers Appointed) (Administrators Appointed) for the winding up of Victorian Families Retirement and Investment Group Pty Ltd. In that winding-up application, there has been brought today an application for the appointment of provisional liquidators to that company. Messrs Rajendra Kumar Khatri and Ivor Worrell, each of whom is an official liquidator, have consented to such an appointment. Those gentlemen are presently the administrators of Storm Financial.
Mr Khatri has filed a very candid and detailed affidavit in respect of the present position of Victorian Families Retirement and Investment Group. From that it emerges that there are presently no directors of that company. The last of the directors, a Mrs Cassimatis, tendered her resignation on 27 February 2009. In so doing, she left the company Victorian Families Retirement and Investment Group without any board at all.
Victorian Families Retirement and Investment Group is a subsidiary of Storm Financial. Storm Financial, aside from being subject to administration under the Corporations Act2001 (Cth) (Corporations Act), is the subject of an appointment of receivers and managers at the behest of the Commonwealth Bank. The receivers and managers have appropriately been served with the provisional liquidation application. They have appeared today to confirm a position which they had adopted in correspondence as between their solicitors and those of the administrators. That position is, firstly and formally, that the receivers and managers neither consent to nor oppose the appointment of provisional liquidators.
Victorian Families Retirement and Investment Group is presently the subject of a complaint notice, arising from its operations, issued by the Financial Planning Association of Australia Limited. That complaint notice is materially grounded in the adequacy or otherwise of Victorian Families Retirement and Investment Group’s professional conduct in the provision of financial planning advice to an individual named in annexure A to the complaint. It may well be that that particular complaint comes to manifest itself in another way in the form of a claim against Victorian Families Retirement and Investment Group for loss said to arise from inadequate financial advice. At the moment, the position is, as Mr Khatri deposes, that the company has some $300,000 in a bank account and known liabilities in the order of $20,000. The position further is that the company does not seem to be trading.
The ground upon which the winding up itself of the company is sought is that specified in s 461(1)(k) of the Corporations Act, namely the just and equitable ground. My attention has helpfully been drawn to a decision of Barrett J in CIC Insurance Limited v Hannan and Co Pty Ltd (2001) 38 ACSR 245 (CIC Insurance case). At para 10 his Honour notes that there are statements in the cases which call into question the propriety of actions which caused the number of directors of the company to be reduced below the statutory minimum.
One might, having regard to those sentiments, call into question, on the basis of such authorities, the propriety of the resignation of the last of the directors of the company. That said, though, in the ordinary course of events, it would be possible for the shareholders of a company to remove directors and to replace them. Further, as Cohen J observed in Corpique (Number 20) Proprietary Limited v Eastcourt Limited (1999) 15 ACLR 586, it would not be a proper exercise of a company’s powers, either under statute or under its constitution, to pass resolutions removing directors and not replacing them such that the minimum number required by law was not maintained.
In CIC Insurance, at para 11, Barrett J opined that:
It may be doubted whether these concerns are well-founded, at least insofar as they relate to removal of directors by members. It is not as if disappearance of the whole board leaves the company without the means to continue. There is a residual common law power for the members, in general meeting, to appoint directors.
His Honour later observes, at para 12, that directors are enjoined during times of economic difficulty in the company to take particular care in the incurring of debts by the company. His Honour cites authority for that. His Honour further notes that such circumstances will generally prompt diligent directors towards the voluntary administration regime in Pt 5.3A.
It is evident from the correspondence exhibited to Mr Khatri’s affidavit that there has been what one might term a degree of prompting as to the taking of that course. It is also evident that that prompting has not been heeded, for whatever reason.
In the CIC Insurance case, at para 13, Barrett J voiced the opinion that:
The fact that directors are unable or unwilling to act, so that there is a power vacuum level, is probably not, of itself, sufficient to justify winding up on the just and equitable ground, since it always open to members to appoint directors who can function as a board: Morgan v 45 Flers Avenue Proprietary Limited (1986) 10 ACLR 692. There must be some additional element of corporate paralysis, such as the absence of any prospect of the company continuing to operate: Re Vision Image (Aust) Pty Ltd; Cheng v Yeo (1998) WASC 38.
In this case, of course, I am not concerned with the winding up itself, but rather with the appointment of provisional liquidators. Nonetheless, it seems to me that the sentiments voiced by Barrett J at para 13 are pertinent. There is, in my opinion, established on the evidence, a corporate paralysis, and, further, having regard to the subjection of the shares in the company to the charge, every prospect manifested by the present stance of the receivers and managers that the company’s shareholder will not be able to alleviate the present power vacuum.
It is desirable, having regard to the real prospect, as I assess it, on Mr Khatri’s affidavit, of claims against the company and the fact that there is a substantial amount of money in the company’s bank account, that the company be under some form of lawful control.
The prospective provisional liquidators have, by Mr Khatri’s affidavit, frankly disclosed the existence of loans as between Storm Financial and Victorian Families Retirement and Investment Group. Mr Khatri deposes in these terms:
The only potential source of conflict that I am able to identify for this court is in relation to the status of the loan account between the company and the plaintiff. I do not, however, believe that any conflict in fact arises because:
(a) the receivers and managers have control of the plaintiff’s loan account; and
(b)the balance of the loan account has been calculated by the independent chief financial officer of both companies, and no uncertainty or dispute exists regarding the debt.
I expressly take that into account and share the view voiced by Mr Khatri that, at present, the existence of that loan account is not a source of conflict. Of course, if the position changes, then doubtless there may be a need to review the appropriateness of Mr Khatri and Mr Worrell continuing in their capacity as provisional liquidators. I should expect them, given their position as court-appointed provisional liquidators and, as well, experienced practitioners in the field, to raise that of their own motion, in any event, should there be an apprehension as to conflict which did manifest itself.
In short, then, it seems to me that the case is one in which it is appropriate to order the appointment of provisional liquidators to this company so as to ensure that it is subject to lawful control in its affairs pending the hearing and determination of the winding-up application.
A question remains as to whether or not, as would ordinarily be the case in respect of the appointment of provisional liquidators, an undertaking as to damages ought be sought. This is a quite exceptional circumstance wherein the company is a wholly owned subsidiary and, at least for the present, appears to be in a solvent situation. It is quite different to other cases, perhaps the ordinary run of cases, where provisional liquidators are appointed at the behest of a creditor who has made a winding-up application. I therefore do not propose to require the provision of an undertaking in respect of damages.
I make orders for the appointment of Messrs Khatri and Worrell as provisional liquidators of the company in terms of the draft provided to me, which I initial and place with the court papers.
I certify that the preceding seventeen (17) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Logan. Associate:
Dated: 31 March 2009
Counsel for the Applicant: Mr M Martin Solicitor for the Receivers & Managers: Clayton Utz Lawyers
Date of Hearing: 18 March 2009 Date of Judgment: 18 March 2009
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