Unicomb v Official Trustee in Bankruptcy
[2000] FCA 457
•11 APRIL 2000
FEDERAL COURT OF AUSTRALIA
Unicomb v Official Trustee in Bankruptcy
[2000] FCA 457BANKRUPTCY - property of the bankrupt - whether shares that were to be allotted to the applicant through the demutualisation and reconstruction of Australian Mutual Provident Society vested in the Official Trustee in Bankruptcy - consideration of when those shares became “property”.
Bankruptcy Act 1966 (Cth) ss 58, 116
Australian Mutual Provident Society (Demutualisation and Reconstruction) Act 1997 (NSW)Official Receiver in Bankruptcy v Schultz (1990) 170 CLR 306 Dist
Federal Commissioner of Taxation v St Helens Farm (ACT) Pty Ltd (1981) 146 CLR 336 Appl
VGM Holdings Ltd [1942] 1 Ch 235 (CA) Appr
Re R G Capital Radio Pty Ltd (formerly Sea FM Pty Ltd) (1998) 26 ACSR 622 Cited
National Westminster Bank P/L v Inland Revenue Commissioner [1995] 1 AC 119 CitedPETER ASHLEY UNICOMB v OFFICIAL TRUSTEE IN BANKRUPTCY
Q7069 OF 1999COOPER J
BRISBANE
11 APRIL 2000
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
Q 7069 OF 1999
IN THE MATTER OF:
PETER ASHLEY UNICOMB
APPLICANTAND:
OFFICIAL TRUSTEE IN BANKRUPTCY
RESPONDENTJUDGE:
COOPER J
DATE OF ORDER:
11 APRIL 2000
WHERE MADE:
BRISBANE
THE COURT DECLARES THAT:
1.On 1 January 1998 the applicant became beneficially entitled to an allocation of 2,352 shares in AMP Limited.
THE COURT ORDERS THAT :
1.The Official Trustee in Bankruptcy pay to the applicant the proceeds from the sale of the 2,352 AMP Limited shares, together with interest of 10.5 per cent per annum from and including 23 February 1999 until and including Tuesday 11 April 2000.
2.The respondent pay the applicant’s costs of and incidental to the application including reserved costs, if any, to be taxed if not agreed.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
Q 7069 OF 1999
IN THE MATTER OF:
PETER ASHLEY UNICOMB
APPLICANTAND:
OFFICIAL TRUSTEE IN BANKRUPTCY
RESPONDENT
JUDGE:
COOPER J
DATE:
11 APRIL 2000
PLACE:
BRISBANE
REASONS FOR JUDGMENT
Background
The applicant was declared bankrupt on 2 November 1994. He was discharged from bankruptcy on 3 December 1997.
By letter dated 7 May 1998 the applicant was advised by AMP Limited that he had become a shareholder of that company on 1 January 1998, consequent upon the demutualisation of the Australian Mutual Provident Society (“AMP Society”). The letter advised the applicant that he held 2,352 shares in the company and that he had the opportunity to sell or retain them as he chose; these choices were explained in the accompanying prospectus.
The Official Trustee in Bankruptcy (“Official Trustee”) wrote to the applicant claiming that the shares had vested in the Official Trustee pursuant to s 58 of the Bankruptcy Act 1966 (Cth) (“the Act”). The applicant disputed the Official Trustee’s claim to ownership of the shares.
The Official Trustee procured the sale of the shares and the proceeds of sale were paid to the Official Trustee.
The Application
The applicant seeks declarations that :
(a)from 1 January 1998 the applicant was beneficially entitled to the 2,352 shares in AMP Limited issued in his name on that date;
(b)the Official Trustee wrongly procured the sale of the said shares and without entitlement wrongly received and retained the proceeds of sale of the said shares.
The applicant also seeks orders for :
(c)delivery up of the proceeds of sale of the said shares together with the payment of interest for the period the Official Trustee has wrongly detained the proceeds;
(d)costs and further or other relief.
The Argument
The applicant submits that he was the holder of three AMP assurance policies at the commencement of his bankruptcy, which policies did not become property divisible among his creditors: s 116(1) and s 116(2)(d) of the Act.
The applicant submits that because he was the beneficial owner of the assurance policies between 11 December 1996 and 10 September 1997, which was the eligibility period under the demutualisation scheme, he became an eligible member of the AMP Society to receive shares in AMP Limited, in the event that the AMP Society was demutualised in accordance with a proposal put by the AMP Society to its members in June 1997. However, the applicant submits no entitlement to shares in AMP Limited vested in him until the AMP Society converted to a company limited by shares on 1 January 1998. The shares in AMP Limited, the applicant submits, vested in him on or after 1 January 1998 as property acquired after his discharge from bankruptcy and therefore was not property to which s 58 of the Act applied.
The Official Trustee submits that the entitlement to receive shares in AMP Limited was property within the meaning of s 58 of the Act. Further, it submits the applicant, as an eligible member of the AMP Society, acquired the right to the shares when the members of the AMP Society, on 20 November 1997, resolved to approve the proposal of the AMP Society to demutualise and convert to a company limited by shares.
The Official Trustee submits that the shares in AMP Limited were received in consideration of the applicant giving up his rights as a member of the AMP Society to allow demutualisation in accordance with the proposal to proceed. In these circumstances, it was submitted, the shares could not be characterised as proceeds of the assurance policies and thus exempt property under s 116(2)(d) of the Act.
The Issues
The starting point to test the arguments advanced is a consideration of the demutualisation scheme carried through by the AMP Society and the rights and entitlements, if any, of the applicant under the scheme.
The AMP Society was established under the Australian Mutual Provident Society Act 1857 (NSW). It was continued as a body corporate under the Australian Mutual Provident Society’s Act 1910 (NSW).
In June 1997 the New South Wales Parliament enacted the Australian Mutual Provident Society (Demutualisation and Reconstruction) Act 1997 (NSW) (“the AMP Act”). The AMP Act permitted AMP Society to change from a mutual society to a company limited by shares by passing a Conversion Resolution (as defined in s 4 of the AMP Act) and complying with the requirements of the AMP Act.
The AMP Act contained a procedure for a company, specified as NHL, which would become AMP Society’s ultimate holding company when conversion to a company limited by shares took effect, to issue shares to members of the AMP Society in exchange for their membership rights in the Society: s 13 of the AMP Act.
The AMP Act also authorised the Board of Directors of the AMP Society to make rules about the membership of the Society for the purposes of or in connection with a proposal to convert the AMP Society to a company limited by shares: s 15 of the AMP Act.
The AMP Society prepared a proposal which it sent to members of the Society in October 1997. The written proposal was accompanied by an explanatory memorandum and a Notice of General Meeting to be held on 20 November 1997.
The proposal contained the following elements :
(a)the AMP Society would change from a mutual society to a shareholder owned company;
(b)subject to the Board’s membership rules, members of the AMP Society, in consideration for giving up their membership rights, would receive shares in AMP Limited calculated in accordance with Shareholder Allocation Rules promulgated by the Board for the purposes of the scheme;
(c)the AMP Society, once converted to a company limited by shares, would be beneficially owned by AMP Limited as its ultimate holding company;
(d)The Australian Mutual Provident Group of companies would be restructured so as to be beneficially held by AMP Limited as the ultimate holding company;
(e)the shares in AMP Limited would be listed on the Australian Stock Exchange to enable the shareholders of AMP Limited to trade their shares.
The Membership Rules, so far as presently relevant, provided :
(a)no new membership of the AMP Society would be taken to have arisen after 5.00 pm on 11 December 1996 (the “First Qualifying Date”) and any membership arising after that date were extinguished: Rule 1.1(a), (b);
(b)a person became a member if before 5.00 pm on 10 September 1997 (the “Second Qualifying Date”) the person became the legal beneficiary or mortgagor of a policy which was in force at the First Qualifying Date as a result of one of the circumstances specified in the Rule: Rule 2.1. Or, the proceeds of a policy in force at the First Qualifying Date: Rule 2.2.
In the present case the applicant was a member of the AMP Society at the First Qualifying Date, namely 5.00 pm 11 December 1996.
The Share Allocation Rules, so far as is relevant provided :
“Rule 1 Object
1.1The object of these Rules is to set out the basis on which Shares in AMP Limited will be issued to Members at the time when AMP Demutualises, in exchange for the membership rights which AMP Members will give up on Demutualisation.
Rule 2Interpretation
2.1Except as otherwise provided, words and phrases used in these Rules are to be given the same meaning as equivalent words and phrases used in the Explanatory Memorandum and in the Appointed Actuary’s report which is included in the Explanatory Memorandum.
2.2For the purposes of these Rules :
(a)the First Qualifying Date is 5.00 pm (Sydney time) on 11 December 1996;
(b)the Second Qualifying Date is 5.00 pm (Sydney time) on 10 September 1997;
(c)the Membership Rules are the Board’s Membership Rules, the text of which is set out in Section 12.4 of the Explanatory Memorandum;
(d)a person is a Member if the person is a Member of AMP according to the By-laws and Membership Rules at the time when AMP Demutualises;
(e)a person is the Owner of a Policy if the person is the legal owner or mortgagor of the Policy, or is a Member of AMP in respect of the Policy by virtue of a determination by the Board under By-law 5.1, and a person is the Owner of a Policy at the Second Qualifying Date if the person would have been the Owner of the Policy at that Date but for the happening of an event stated in Membership Rule 3;
(f)a Policy is an Eligible Policy if:
(i)it existed at the First Qualifying Date or is a Policy to which Membership Rule 2.4 refers, and has continued until the Second Qualifying Date, or
(ii)it existed at the First Qualifying Date or is a Policy to which Membership Rule 2.4 refers, and is also a Policy to which Membership Rule 3 refers (being, in the case of Membership Rule 3(a) or 3(b), the first-mentioned Policy);
(g)a Policy is referable to a Member if the Member:
(i)was the Owner of the Policy at the First Qualifying Date and at the Second Qualifying Date, or
(ii)became the Owner of the Policy after the First Qualifying Date in the circumstances described in Membership Rule 2.1 or 2.4 and was the Owner of the Policy at the Second Qualifying Date, or
(iii)became legally and/or beneficially entitled to the proceeds of the Policy in the circumstances described in Membership Rule 2.2, or
(iv)became the legal personal representative of a deceased person in respect of a Policy in the circumstances described in Membership Rule 2.3, or
(v)became the legal personal representative of the Owner of the Policy because of that person’s death after the Second Qualifying Date;
(h)the following are each to be treated as a single Policy:
(i)an investment-linked Policy together with any attached riders or Policies providing insurance benefits, and
(ii)conventional Policies, together with any associated increases by endorsement, and
(iii)multiple identical Policies known as ‘clusters’, including the following United Kingdom products - Flexible Investment Bond, Estate Planning Bond, Gold Sovereign; and any other products or plans customarily sold in the form of several essentially identical Policies, and
(iv)any other group of Policies recognised as a single Policy in AMP’s books and records.
Rule 3 Allocation and issue of Shares
3.1Shares are allocated to Members according to the formula set out and explained in Rules 4, 5 and 6, calculated in the manner set out in Rules 7, 8 and 9.
3.2At the time when AMP Demutualises, the Shares which are allocated to Members under these Rules are to be issued to them. However, if the Member is a Unverified Member, the Shares which are allocated to the Member are issued to the trustee of the AMP Foundation, and if the Member is an Overseas Member, the Shares are issued to the trustee of the AMP Overseas Members Trust.
3.3.Shares must not be allocated to a Member for an Eligible Policy unless the Eligible Policy is referable to the Member.
.....
Rule 7Date of calculation of Share allocation
7.1Shares will be allocated on the basis of calculations made as at the First Qualifying Date.”
On 20 November 1997 a general meeting of the members of the AMP Society passed some of the following special resolutions :
“THAT:
(a)the status of Australian Mutual Provident Society (‘AMP’) be changed to a company limited by shares;
(b)the Share Allocation Rules set out on pages 164 - 167 of the Explanatory Memorandum dated 10 September 1997, a copy of which has been tabled at the meeting and for the purposes of identification initialled by the Chairman of the meeting (‘Explanatory Memorandum’), be approved; ... ”
The resolutions passed by the members of the AMP Society were for the purposes of the AMP Act, conversion resolutions: s 4.
The authority for the AMP Society to convert to a company limited by shares in accordance with Part 2 of the AMP Act was given by s 6 of that Act. The authority was permissive only. The decision whether to proceed with demutualisation by conversion to a company limited by shares, resided with the AMP Society at all times.
In the event that the AMP Society determined to convert to a company limited by shares, the AMP Act provided a procedure in s 7 which the Society was required to follow. The procedure under s 7 was initiated by an application lodged for that purpose with the Attorney-General (NSW). The application was to be accompanied by a number of documents specified in s 7(2) as follows :
“7(2) The application must be accompanied by each of the following:
(a) a copy of:(i)a conversion resolution that AMP be converted to a company limited by shares, and
(ii)a conversion resolution dealing with the issue of shares by NHL in accordance with section 13 (which may be the same conversion resolution as is referred to in subparagraph (i)), and
(iii)any other conversion resolution passed at the meeting at which the resolution referred to in subparagraph (i) was passed,
(b)a statement signed under the authority of a resolution of the directors of AMP that, in the opinion of the directors, AMP's creditors are not likely to be materially prejudiced by the conversion and that sets out their reasons for that opinion,
(c)a consolidated copy of the By-laws as at the date of lodgment of the application,
(d)a copy of the memorandum and articles of association of NHL as at the date of lodgment of the application, together with a statement signed by the shareholders of NHL agreeing to supply to the Attorney General any amendment to the memorandum and articles made before the application is dealt with,
(e)a copy of each other document or resolution (if any) that is necessary to ascertain the rights attached to issued or unissued shares of AMP, NHL or any other proposed holding company of AMP,
(f)a statement signed under the authority of a resolution of the directors of AMP setting out:
(i)the amount of share capital with which AMP proposes to be registered and the division of that share capital into shares of fixed amounts, and
(ii)the number and classes of shares that will comprise AMP's issued share capital when it converts to a company limited by shares, and
(iii)the name and address of each person who will be a shareholder in AMP when AMP converts to a company limited by shares (being NHL or a subsidiary of NHL), and
(iv)the number of shares, or the method of determining the number of shares, that will be held by each AMP shareholder, and
(v)if NHL is not the sole AMP shareholder-particulars sufficient to show that NHL will be the ultimate holding company of AMP after AMP converts to a company limited by shares, and
(vi)the consideration (if any) to be provided by each AMP shareholder for AMP shares, and
(vii)the amount (if any) that will be unpaid on any of the shares of AMP,
(g)a statement signed under the authority of a resolution of the directors of NHL:
(i)stating their intention that NHL will issue shares on the same day as AMP converts to a company limited by shares, and
(ii)referring to records of AMP that, in accordance with the conversion resolution referred to in paragraph (a) (ii), identify or provide the method of identifying the persons to whom those shares are to be issued and the number of shares to be issued to each person, and
(iii)setting out (by reference to matters including share capital and any share premium account, retained profit and revaluation reserve) how the issue of shares will be accounted for in the accounts and accounting records of NHL,
(h)written consent to the application by each AMP shareholder.”
For the purpose of the AMP Act, and in particular paragraphs (f)(iii), (iv), (vi) and (h) above, an “AMP Shareholder” is not a member of the AMP Society who would become members of NHL upon conversion of the AMP Society. Rather, AMP shareholders, in the AMP Act, means (s 3(1) of the AMP Act) :
“a person identified in AMP’s application under section 7(2)(f)(iii) as a person who will be a shareholder of AMP when AMP converts to a company limited by shares.
Note: This definition refers to AMP’s shareholders rather than the members of AMP. The members will become shareholders of NHL rather than AMP when the demutualisation takes effect.”
As appears from the Share Allocation Rules, Rule 4.4 under the proposal circulated to the members of the AMP Society, the shareholder of the AMP Society after conversion to a company limited by shares was proposed to be AMP Financial Services Holdings Limited.
Following the resolution of members on 20 November 1997, the AMP Society made application to the Attorney-General (NSW) in accordance with s 7 of the AMP Act.
Pursuant to s 8 of the AMP Act, the Hon J W Shaw QC, Attorney-General (NSW) by notice dated 27 November 1997 published in the Gazette, gave notice of his intention to issue a Certificate of Conversion, as provided for in the AMP Act, one month after publication of the notice unless prevented by order of a Court from doing so.
On 31 December 1997 a Certificate of Conversion pursuant to s 8 of the AMP Act issued. The Honourable the Attorney-General certified that :
“(i)at 11.30 am (Sydney eastern summer time) on 1 January 1998, each AMP shareholder (as defined in section 3(1) of the 1997 Act) shall be taken to hold shares in the Australian Mutual Provident Society (‘AMP’), established under the Australian Mutual Provident Society Act 1857, and continued as a body corporate by the Australian Mutual Provident Society’s Act 1910; and
(ii)at 12.00 noon (Sydney eastern summer time) on 1 January 1998, AMP is converted to a company limited by shares.”
Section 9 of the AMP Act dealt with the effect of the Certificate of Conversion. The section, so far as relevant, provided :
“9 Effect of certificate of conversion
(1)AMP is converted to a company limited by shares by the operation of this section and by virtue of the issue of the certificate of conversion.
(2)Subject to section 11 (3), the conversion of AMP to a company limited by shares, and any conversion resolution, take effect at the time and on the day specified in the certificate of conversion, or if no time and day are specified, at midday on the day on which the certificate is issued.
(3)Different times or different days may be specified for the conversion to have effect, but in no case can a time or day be specified that is earlier than midday on the day on which the certificate is issued.
..... ”
Section 11 of the AMP Act dealt with the effect of conversion of the AMP Society into a company limited by shares. The section, so far as relevant, provided :
“11 Effect of conversion
(1)The conversion of AMP to a company limited by shares under this Part does not:
(a)create a new legal entity, or
(b)affect AMP's existing property, rights or obligations (except as against the members of AMP in their capacity as members), or
(c)render defective any legal proceedings by or against AMP or its members.
(2)Subject to this section, AMP is demutualised and reconstructed at the conversion time, and at that time:
(a)the members of AMP other than AMP shareholders cease to be members of AMP, and
(b)each AMP shareholder becomes a member of AMP if not already a member, and
(c)each AMP shareholder is taken to hold the shares specified or determined for that person under section 7 (2) (f) (iv), and
(d)the shareholders of AMP have such liability as members of AMP to contribute to the property of AMP as is provided by this Act or the Australian Mutual Provident Society Act 1988, and
(e)the By-laws are taken to be amended in Part 1 by:
(i)omitting clause II and inserting instead the statement made in that application in compliance with section 7 (2) (f) (i), and
(ii)omitting clause III and inserting instead the statement that the liability of the members of AMP is limited, and
(f)the By-laws are taken to be amended by omitting Part 2 and inserting instead the provisions of Table A of Schedule 1 to the Corporations Law.
(3)If the certificate of conversion states, with AMP's consent, a shareholding time that is earlier than the conversion time:
(a)AMP will be taken to have the authorised share capital referred to in section 7 (2) (f) (i) and the AMP shareholders will be taken to hold the shares specified or determined under section 7 (2) (f) (iv) as from that time, and
(b)until the conversion time:
(i)the rights attaching to those shares (excluding the right to participate in a distribution of surplus assets on the winding up of AMP) are the rights that will attach to the shares immediately after the conversion time, and
(ii)the directors of AMP are taken to have the power to declare and pay a dividend out of profits (including retained profits) of AMP to the AMP shareholders, provided the AMP shareholders are each policy holders of AMP, and
(iii)the AMP shareholders may not deal with or create any interest with respect to any of those shares, and
(iv)if an AMP shareholder is a body corporate, the body corporate may not make any distribution to its members, but an AMP shareholder that is a wholly owned subsidiary may make a distribution if the full value of the distribution passes to and remains with its ultimate holding company, and
(v)subject to this section, the rights of members of AMP other than the AMP shareholders are not affected.
.....
(6) In this section:
conversion time means the time at which the conversion of AMP to a company limited by shares takes effect.
shareholding time means the time at which AMP shareholders are taken to hold shares in AMP.”
The effect of s 9 and s 11 of the AMP Act, having regard to the terms of the Certificate of Conversion, were :
(a)at 11.30 am on 1 January 1998 the AMP Society was taken to have authorised the share capital referred to in s 7(2)(f)(i) and the AMP shareholders (AMP Financial Services Holdings Ltd) was taken to hold the shares specified or determined under s 7(2)(f)(iv) of the AMP Act as from that time subject to the limitations specified in s 11(3)(b) of the AMP Act;
(b)at 12.00 noon on 1 January 1998 the AMP Society was converted to a company limited by shares.
Contrary to the submissions of the Official Trustee, the AMP Society did not become AMP Limited and the applicant did not obtain shares in the AMP Society when it converted to a company limited by shares. The shares the subject of the present application are the shares to which s 13 of the AMP Act apply.
Section 13 of the AMP Act provided :
“13 Issue of shares by NHL
(1) If:
(a)AMP is converted to a company limited by shares under this Part, and
(b) on the conversion:
(i)NHL beneficially owns all of the shares in AMP, or
(ii)if one or more holding companies are interposed between AMP and NHL, no person other than NHL or a holding company of AMP is the beneficial owner of any shares in AMP or in any such interposed holding company,
then:
(c)NHL must give effect to the demutualisation and reconstruction of AMP by issuing fully paid shares in NHL to the persons identified by a method referred to under section 7 (2) (g) (ii) in the manner stated under section 7 (2) (g) (iii) .....”
The effect of s 13(1)(c) of the AMP Act is that if the conditions in s 13(1)(a) and (b) were satisfied, NHL (AMP Limited) was required to issue to persons who were identified by the AMP Society Membership Rules and the Allocation of Shares Rules referred to earlier in these reasons, shares in AMP Limited to give effect to the demutualisation and reconstruction of the AMP Society. That means, in accordance with the proposal voted upon at the meeting of members of 20 November 1997. The paragraph also deems each prospective shareholder to have agreed immediately before the issue of the shares to become a member of AMP Limited.
The Official Trustee makes the following submissions :
(a)Upon the passing of the conversion resolution on 20 November 1997 by members of AMP Society, the applicant had the right to receive shares in AMP Limited as a result of being a policy holder between 11 December 1996 and 10 September 1997.
(b)The entitlement to the shares consequent upon the conversion resolution was only subject to the taking of the formal steps required by the AMP Act and their completion.
(c)The right which the applicant acquired on 20 November 1997 was a right to be allocated shares in accordance with the conversion resolution subject to the issue of a Certificate of Conversion by the Attorney-General and the conversion then being effected.
(d)The right which the applicant obtained was an existing chose in action which the applicant held as and from 20 November 1997.
(e)The chose in action passed to the Official Trustee by virtue of s 58(1) of the Act as property of the bankrupt divisible amongst his creditors.
(f)That the chose in action was comparable with the interest of a beneficiary in a deceased’s estate, such that upon due administration of the estate the right which passed to the Official Trustee carries the right to receive the benefit of the estate: Official Receiver in Bankruptcy v Schultz (1990) 170 CLR 306.
In my view, the submission of the Official Trustee ignores the reality of what in fact was involved with the demutualisation of the AMP Society and the restructuring of the Australian Mutual Provident Group. Any shares which the applicant might receive in AMP Limited in consequence of a proposal of the AMP Society being carried into effect, were to come from AMP Limited and not the AMP Society. Nor were such shares to be obtained as the result of any agreement between the applicant and AMP Limited to allot those shares, or between the applicant and the AMP Society that the Society would transfer such shares to the applicant or procure the allotment of shares to him by AMP Limited. The proposal documents are redolent with statements that nothing contained in the documents is to constitute an offer to the members of the AMP Society.
The resolution of 20 November 1997 contained three elements :
(a)that the status of the AMP Society be changed to a company limited by shares;
(b)that the Share Allocation Rules be approved; and
(c)that certain payments and transfers of properties contemplated by the proposal if they constituted financial assistance in accordance with s 129(10) of the Companies (New South Wales) Code and s 4(1) of the Australian Mutual Provident Society Act 1988 (NSW) be approved.
The first two elements were necessary for the purposes of s 7(2)(i) and (ii) of the AMP Act. The third element is self-explanatory.
The resolutions passed by the members in general meeting created no rights to an entitlement to shares in AMP Limited either in terms or in effect. The resolutions were nothing more than necessary steps to be taken to enable the AMP Society to progress the proposal, of which the conversion of the AMP Society to a company limited by shares was but one part. As appears from the proposal papers, a number of regulatory approvals were required to give effect to the proposal. Those regulatory approvals were required to be obtained in Australia, the United Kingdom and New Zealand. Although some had been obtained and applications for others were pending, there was in November 1997 no absolute certainty that the proposal would proceed to completion, notwithstanding the strong expectation that it would. Absent the restructuring of the assets and the transfer of funds as an integral element of the proposal, AMP Limited would not be in a position to allot shares as contemplated by the proposal.
The entitlement of the applicant to the allotment of shares in AMP Limited is statutory. It is found in s 13(1)(c) and (d) of the AMP Act. His entitlement arises because :
(a) the preconditions in s 13(1)(a) and (b) have been satisfied; and
(b)because he is a person identified by a method referred to in s 7(2)(g)(ii) of the AMP Act.
Section 7(2)(g)(ii) refers to a resolution of the directors of AMP Limited, resolving to issue shares at the time the AMP Society converts to a company limited by shares to persons identified in accordance with the Conversion Resolution referred to in s 7(2)(a)(ii). That is, in accordance with the Share Allocation Rules.
Until a Certificate of Conversion issued under s 8 of the AMP Act and had effect in accordance with s 9 and s 10 of that Act, the applicant remained a member of the AMP Society with all the rights which were incidental to that membership. Those rights did not include a right to be allocated shares in AMP Limited, whether absolute, conditional or contingent.
When the AMP Society converted to a company limited by shares at 12.00 noon on 1 January 1998, the membership of the applicant and all his rights which were incidents of such membership, ceased. At the same time as the cessation of the membership of the AMP Society, and assuming the satisfaction of s 13(1)(b)(ii), the applicant obtained such statutory rights as flowed from s 13(1)(c) and (d).
The AMP Act gave members of the AMP Society, including the applicant, no enforceable rights against the AMP Society in respect of the allotment of shares in their favour in AMP Limited. Rather, the AMP Act left the members of the AMP Society to their rights and remedies under the general law and the Corporations Law: s 27, s 32.
There are other substantial reasons why s 58(1) of the Act has no application in the present case. Section 58(1) of the Act provides :
“(1) Subject to this Act, where a debtor becomes a bankrupt:
(a)the property of the bankrupt, not being after-acquired property, vests forthwith in the Official Trustee or, if, at the time when the debtor becomes a bankrupt, a registered trustee becomes the trustee of the estate of the bankrupt by virtue of section 156A, in that registered trustee; and
(b)after-acquired property of the bankrupt vests, as soon as it is acquired by, or devolves on, the bankrupt, in the Official Trustee or, if a registered trustee is the trustee of the estate of the bankrupt, in that registered trustee.”
“Property” for the purposes of s 58 and s 116 of the Act has an extended meaning. It is contained in s 116(1)(b), which provides :
“116(1) Subject to this Act:
...(b)the capacity to exercise, and to take proceedings for exercising, all such powers in, over or in respect of property as might have been exercised by the bankrupt for his or her own benefit at the commencement of the bankruptcy or at any time after the commencement of the bankruptcy and before his or her discharge;
...
is property divisible amongst the creditors of the bankrupt.”
The sections require that there be some identifiable property of the bankrupt before either section can operate.
Until allotment and issue, which includes the entry of the allottee’s name on a share register in respect of the allotted shares, there is no property in unissued shares. In particular, there is not then, or at any other time, any property or proprietorial right in or of the company in the unissued shares in its capital: per Barwick CJ in Federal Commissioner of Taxation v St Helens Farm (ACT) Pty Ltd (1981) 146 CLR 336 at 349; VGM Holdings Ltd [1942] 1 Ch 235 (CA) at 241.
Prior to the issue of any shares by AMP Limited to the applicant, the applicant had no entitlement to any shares in AMP Limited and he had no proprietorial right in or to the unissued shares in that company. Until the shares were allotted to him there was no property in the shares.
Until the conversion of the AMP Society on 1 January 1998 to a company limited by shares, the applicant had no rights against AMP Limited. Until conversion the statutory obligation in s 13(1)(c) did not arise. Once the preconditions in s 13(1)(a) and (b) were satisfied, the applicant had the right to have the shares in AMP Limited issued to him and to be entered in the register of shareholders in respect of those shares. However, until he is entered in the register he is not a shareholder and his legal ownership of the shares is not complete: Re R G Capital Radio Pty Ltd (formerly Sea FM Pty Ltd) (1998) 26 ACSR 622 at 626; National Westminster Bank P/L v Inland Revenue Commissioner [1995] 1 AC 119 at 146 - 147.
In VGM Holdings, the Court of Appeal was concerned with the question a subscription for shares was a “purchase” of shares for the purposes of s 45(1) of the Companies Act 1929. Lord Green MR, in a judgment agreed in by Luxmoore and Goddard LLJ, said (at 240 - 241) :
“... Mr Wynn Parry endeavoured heroically to establish the proposition that a share before issue was an existing article of property, that it was an existing bundle of rights which a shareholder could properly be said to be purchasing when he acquired it by subscription in the usual way. I am unable to accept that view. A share is a chose in action. A chose in action implies the existence of some person entitled to the rights which are rights in action as distinct from rights in possession, and, until the share is issued, no such person exists. Putting it in a nutshell, the difference between the issue of a share to a subscriber and the purchase of a share from an existing shareholder is the difference between the creation and the transfer of a chose in action. The two legal transactions of the creation of a chose in action and the purchase of a chose in action are quite different in conception and in result. ...”
For the purposes of the present application the question then is, where is the chose in action, in the absence of the issue of shares by AMP Limited, or at a minimum in the absence of the conversion of the AMP Society to a company limited by shares, thus enlivening the statutory rights and obligations under s 13 of the AMP Act?
In my view reference to the position of a beneficiary under an unadministered deceased’s estate and the decision in Official Receiver in Bankruptcy v Schultz as an analogous situation is a reference to a false analogy. There are two critical elements present in the case of a beneficiary under a deceased estate which were lacking as regards the applicant on 20 November 1997. The first is that there is identifiable property in the case of a deceased estate, the property is the corpus of the estate. The second, is that the beneficiary has rights in respect of that property, although not as legal or equitable owner of the assets which go to make up the estate. In Official Receiver in Bankruptcy v Schultz the Court in a joint judgment said (at 313 - 314) :
“The right which any beneficiary has in an unadministered estate springs from the duty of the executor to administer the estate, to preserve the assets and to deal with them in the proper manner. Each beneficiary has an interest in seeing that the whole of the assets are treated in accordance with the executor’s duties. In that sense, the beneficiaries as a class may be said to have an interest in the entire estate. But it does not follow that each piece of property which goes to make up the estate is held on a particular trust for the beneficiary named as its intended recipient upon completion of administration: Horton v Jones (1935) 53 CLR 475, at p 486. Whether or not the estate is held on a trust for the beneficiaries as a class in the usual sense in which the word “trust” is used, so as to confer a specific proprietary interest, as distinct from a general, non-specific interest, upon all beneficiaries, is not something which arises for consideration in this case.
Nevertheless, Mrs Schultz acquired upon the death of Mrs Pereira a right to have the deceased estate administered in accordance with the duties of the executors. Though not the legal or equitable owner of the assets which were the subject of the devise and bequest in her favour, she had, by virtue of the chose in action created by that devise and bequest, an expectation that the assets would pass to her upon completion of the administration, subject to their being realized to meet any outstanding liabilities and to defray the costs of administration, and an interest in respect of those assets. That interest was derived from and dependent upon the chose in action. The interest is of such a kind that, when a beneficiary transmits a chose in action (or part thereof), or that chose in action passes by operation of law, such as under the Bankruptcy Act, that transmission naturally encompasses not only the chose in action but also the expected fruits of that chose in action: Horton v Jones; In re Leigh’s Will Trusts [1970] Ch 277, at p282.”
The chose in action in Official Receiver in Bankruptcy v Schultz was the right given by the devise and bequest under the Will in favour of the beneficiary, which gave her an expectation that the existing property of the estate would pass to her upon completion of the administration of the estate. To use the words of Lord Green MR in VGM Holdings, Mrs Schultz was a “person entitled to the rights in action as distinct from rights in possession” to the property the subject of the deceased estate.
In the present case the Official Trustee sought to treat the unissued shares in AMP Limited prior to their issue as property in respect of which the applicant had rights. Such an approach is, in my view, wrong in principle.
Further what right did the applicant acquire which was an enforceable right, constituting property itself, or being in respect of property? The applicant on 20 November 1997 did not enter into a binding contract with either the AMP Society or AMP Limited in respect of transfer to the applicant of future property. In the absence of a contractual obligation, there is no chose in action which arose from an enforceable obligation in favour of the applicant against the AMP Society or AMP Limited as at 20 November 1997.
In my view, as at 20 November 1997, the members of the AMP Society had no more than an expectation that if the proposal proceeded to a conclusion which involved the conversion of the AMP Society into a company limited by shares, they would receive shares in a company, AMP Limited, at the time their membership of the AMP Society ceased. That expectation had no existence in contemplation of law at that time and no property of whatsoever nature thereby vested in the members, including the applicant.
It follows, in my view, that the applicant’s entitlement to the shares arose after his discharge from bankruptcy and that neither the entitlement nor the shares in question became property of the bankrupt for the purposes of s 58(1) of the Act before that date. The applicant is entitled to declaratory relief in the terms outlined earlier in these reasons.
There is no evidence as to the date upon which the Official Trustee received the proceeds of the sale of the shares. However, as at the date the applicant filed his application, the Official Trustee held the proceeds of sale and therefore determined to resist the proper claim of the applicant for payment to him of the proceeds. In my view, interest at the statutory rate of 10.5 percent (O 35 r 8 Federal Court Rules) should be paid from the date of filing the application until the date of judgment. Costs should follow the event.
I certify that the preceding fifty-seven (57) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Cooper. Associate:
Dated: 11 April 2000
Counsel for the Applicant: J McCormack Solicitor for the Applicant: Hoy & McCormack Counsel for the Respondent: D Mullins SC Solicitor for the Respondent: Australian Government Solicitor Date of Hearing: 19 August 1999 Date of Judgment: 11 April 2000
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