FEDERAL COURT OF AUSTRALIA Centaur Mining & Exploration Ltd (In Liquidation) (Receiver and Manager Appointed) [2003] FCA 1339 CORPORATIONS – creditors' voluntary winding up of a listed public company – whether power to relieve the liquidator from the requirement to convene a general meeting of members should be exercised because the cost of holding the meeting is disproportionate to any financial benefit the members may receive – whether it is appropriate to extend the time within which the meeting of members and creditors is required to be convened because ASIC is conducting an investigation into the company Corporations Act 2001 (Cth) ss 446B, 447A, 508 and 1322 Corporations Regulations 2001 (Cth) reg 5.3A.07 Australasian Memory Pty Limited v Brien (2000) 200 CLR 270 - cited Gibbons v Libertyone Ltd (in liq) (2002) 41 ACSR 442 – cited Application of Walker [2002] NSWSC 705 – cited Re Love (as liq of ACN 077 368 257 Ltd) (2003) 44 ACSR 367 – applied In the matter of Centaur Mining & Exploration Ltd (In Liquidation) (Receiver and Manager Appointed) ACN 004 805 145 Stephen Andrew Hawke and Robyn Beverley McKern V 3226 of 2003 MERKEL J 21 NOVEMBER 2003 MELBOURNE IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY V 3226 OF 2003 In the matter of Centaur Mining & Exploration Ltd (In Liquidation) (Receiver and Manager Appointed) ACN 004 805 145 BETWEEN: STEPHEN ANDREW HAWKE AND ROBYN BEVERLEY McKERN Plaintiffs JUDGE: MERKEL J DATE OF ORDER: 21 NOVEMBER 2003 WHERE MADE: MELBOURNE THE COURT ORDERS THAT: 1. The period within which the plaintiffs are required to convene a general meeting of Centaur Mining & Exploration Ltd (In Liquidation) (Receiver and Manager Appointed) and a meeting of the creditors under s 508(1)(b) of the Corporations Act 2001 (Cth) be extended to 31 March 2004. 2. The plaintiffs' costs of the proceeding be costs in the liquidation. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY V 3226 OF 2003 In the matter of Centaur Mining & Exploration Ltd (In Liquidation) (Receiver and Manager Appointed) ACN 004 805 145 BETWEEN: STEPHEN ANDREW HAWKE AND ROBYN BEVERLEY McKERN PLAINTIFF JUDGE: MERKEL J DATE: 21 NOVEMBER 2003 PLACE: MELBOURNE REASONS FOR JUDGMENT 1 The plaintiffs are the liquidators of Centaur Mining & Exploration Ltd (In Liquidation) (Receiver and Manager Appointed) ("the company"). They applied to the Court for an order under s 447A of the Corporations Act 2001 (Cth) ("the Act") that they be relieved of the requirement imposed by "the combined operation of s 446B of the Act, reg 5.3A.07 of the Corporations Regulations 2001 and s508 of the Act" to convene a general meeting of members of the company by 2 November 2003. In the alternative, the plaintiffs applied for an order pursuant to s 447A of the Act extending the time by which the meeting of members and creditors of the company is required to be held. 2 The Australian Securities and Investment Commission ("ASIC") did not oppose either order being made. 3 The relevant facts are as follows. The company was a publicly listed company which, before its liquidation, was primarily involved in mining. On 14 March 2001 the company entered into administration under s 436A of the Corporations Law. On 2 August 2001, pursuant to a resolution of a meeting of creditors, a Deed of Company Arrangement was entered into by the company. The plaintiffs claim that in the events that have occurred, and by reason of the operation of s 446B, reg 5.3A.07 of the Corporations Regulations and s 491, the company is taken to have been wound up by a creditors' voluntary liquidation as from 2 August 2002 and that the plaintiffs became liquidators of the company as from that date. 4 Approximately 420 unsecured creditors have lodged proofs of debt totalling $201,640,214 and the plaintiffs estimate that, after taking into account the shortfall to secured creditors and further proofs of debt expected to be lodged, the company's liabilities are likely to exceed $780 million. Even if the company succeeds in its proposed claims the value of the assets that may become available to creditors is not expected to exceed $109 million. The ultimate return to unsecured creditors is not expected to exceed five cents in the dollar. The 7,543 shareholders, who hold in excess of 440 million shares, are not expected to receive any return. 5 On 2 August 2002 ASIC announced that it had commenced an investigation into the company's affairs with a view to considering whether insolvent trading offences had occurred. That investigation was ongoing at the time of the plaintiffs' application to the Court. However, since the hearing of the application ASIC announced that it had completed its investigation and had "decided not to take any further action", although it indicated that it would provide the plaintiffs with any additional assistance that it may lawfully be able to provide. 6 Under s 508(1)(b) of the Act, after a creditors' voluntary winding up has continued for more than a year, the liquidators are required to convene meetings of the creditors and members. Section 508(1)(b) provides: "(1) If the winding up continues for more than 1 year, the liquidator must: (a) … (b) in the case of a creditors' voluntary winding up – convene a general meeting of the company and a meeting of the creditors; within 3 months after the end of the first year from the commencement of the winding up and the end of each succeeding year, and must lay before the meeting or each meeting an account of his or her acts and dealings and of the conduct of the winding up during that first year or that succeeding year, as the case may be." Section 509 provides for final meetings of members and creditors to be convened when the affairs of the company have been finally wound up. 7 In the present case s 508(1)(b) required the plaintiffs to convene the meetings by 2 November 2003. However, the plaintiffs claimed that until ASIC had completed its investigation of the company's affairs they had little to put before the general meeting of the company. Further they contended that, in view of the company's financial situation, there is not only no benefit to members in holding the general meeting of the company but, as the cost of convening a meeting to members was estimated to be $40,000, the meeting would cause disadvantage to creditors. In the course of the hearing the plaintiffs accepted that, in so far as their application was based on ASIC not having completed its investigation, that was a reason for postponing the date by which the general meeting was to be held, rather than a reason for not holding the meeting at all. 8 It appears to have been accepted by the courts that: · an order may be made under s 447A of the Act, which confers a general power to make such orders as a court thinks appropriate as to how Pt 5.3A of the Act is to operate in relation to a particular company, altering the statutory requirements set out in Pt 5.3A: see Australasian Memory Pty Limited v Brien (2000) 200 CLR 270; · in cases where a voluntary winding up occurs by virtue of s 446A (which is within Pt 5.3A) the power conferred by s 447A extends to orders in respect of the meetings required to be held under s 508, notwithstanding that that section is not within Pt 5.3A: see Gibbons v Libertyone Ltd (in liq) (2002) 41 ACSR 442 ("Gibbons") at 447-452 [27]-[52]; Application of Walker [2002] NSWSC 705 ("Walker") at [19] and Re Love (as liq of ACN 077 368 257 Ltd) (2003) 44 ACSR 367 ("Re Love") at 369-370 [7]. Although each of the above cases related to a winding up under s 446A the reasoning in them applies to a winding up, as in the present case, which is under s 446B. 9 In Gibbons at 454 [61] Austin J observed that legislative policy appears to favour a transfer of control from members to creditors where a company is wound up in insolvency although "members should retain an entitlement to information and the opportunity to play a limited role at meetings of members". His Honour added that: "where it is clear that the members will receive nothing out of the winding up, rigorous application of the policy … should lead to a total transfer of control to the creditors, and therefore the removal of the requirement for meetings of members would be justifiable. This is particularly so where, as here, the cost of convening meetings of members is substantial. In effect, that cost is borne by the creditors to whom … "the assets belong." 10 In Re Love the liquidator sought an order retrospectively absolving him from the obligations imposed by s 508 (with which he had already failed to comply), as well as an order relieving him of the requirement under s 509 of the Act to include members in a meeting, along with creditors, at the conclusion of the winding up. Barrett J at 370 [10] noted that the purpose of s 508 is made clear from the language of the section namely, that the liquidator should lay before the meeting, or each meeting, an account of his or her acts and dealings and of the conduct of the winding up. His Honour (at 371 [12]-[13]) emphasised the importance of the meeting system, within the law relating to corporations, as a mechanism for communication and accountability and noted (at 375 [29]) that policy considerations which apply to s 508 meetings also apply to s 509 meetings. Barrett J acknowledged at 375 [31] that, in cases where there was no prospect of any distribution to members, the interests of the members were "probably little more than theoretical" but stated that: "that alone is scarcely enough to deprive them of a statutory right to be part of the s 509 meeting should they wish. The only cogent basis for their exclusion would be, …, some burden or detriment that was seen to outweigh the statutory right which, in the circumstances outlined, cannot be regarded as a particularly valuable right." At 371 [13] Barrett J described the statutory rights of members and creditors in respect of meetings as follows: "Unless and until other means are adopted by statute, those involved in the administration of companies must recognise and respect the need to afford to members or creditors (or both) the opportunity for informed consultation intended to be secured by provisions requiring that meetings be held and that particular documents be laid before those meetings. Such an opportunity is something to which all relevant members or creditors have a statutory right. The right exists in support of their common interest in responsible administration. And, where a particular official is required to lay before the meeting an account of his or her administration, the meeting serves as a medium for communication both by and to the officer or official and a means by which accountability is enhanced." 11 While each case must be considered by reference to its own facts the observations of Barrett J in Re Love, with which I agree, should generally lead a court to decline to relieve a liquidator from performance of the obligations imposed under s 508 because the cost of the meeting is disproportionate to any financial benefit the members might receive. As Barrett J pointed out "communication" and "accountability" are rights that may have no financial benefit to members but, nonetheless, have been conferred as statutory rights by ss 508 and 509. 12 The present case affords a good example of why communication and accountability are, generally, matters of importance. Shareholders in the company, who invested in it as a publicly listed company, are entitled to be informed about the winding up and to be assured that, in the circumstances, all that can reasonably be expected of the liquidators is, in fact, being done. To deny the company's members their entitlement to a meeting after the winding up has proceeded for over a year on the basis that it will not be cost effective is equivalent to accepting a principle that, notwithstanding the significant loss suffered by a large number of shareholders, the substantial cost of calling the meeting justifies not holding it. In my view the fact that such a significant loss has been suffered by a large number of shareholders is a good a reason for holding of the meeting, even if the cost might be substantial. 13 In any event, if cost is a factor, it may be more appropriate for the liquidator to explore ways to minimise the cost (eg by providing information on a website), rather than to seek to not hold the meeting at all. 14 The other basis put forward for relieving the plaintiffs from the requirement to convene the meeting was that the plaintiffs were awaiting the outcome of ASIC's investigation into the company. As that outcome is now known that basis is no longer applicable. 15 Initially, the plaintiffs made their application to the Court only in relation to the meeting of members. However, after it became apparent that the appropriate order might be an extension of the time within which the meeting was to be convened, the plaintiffs applied for the meetings of both members and creditors to be postponed so that the meetings could be convened at the same time. 16 In my view it was not unreasonable for the plaintiffs to await the outcome of ASIC's investigation to enable them to provide useful information to the meeting. In the circumstances it is appropriate that the time for the convening of both meetings be extended for a reasonable period to ensure that the plaintiffs have sufficient time to conduct their own investigation into the liquidation before convening the meetings. 17 Section 1322(4)(d) empowers the Court to make "an order extending the period", inter alia, "for doing any act, matter or thing … under this Act or in relation to a corporation", provided that "no substantial injustice has been or is likely to be caused to any person" (see s 1322(6)(c)). In the present case I do not consider that the extension of the time during which the s 508 meetings are required to be convened will cause or be likely to cause substantial injustice to any person. Accordingly, for the reasons set out above, it is appropriate to order that the period for convening the general meeting of members and the meeting of creditors be extended to 31 March 2004. As the requirement for an extension of time has not arisen as a result of any default on the part of the plaintiffs it is appropriate to order that their costs be costs in the liquidation. I certify that the preceding seventeen (17) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Merkel. Associate: Dated: 20 November 2003 Counsel for the Australian Securities and Investment Commission: Mr T Honey Solicitor for the Australian Securities and Investments Commission: Australian Securities and Investments Commission Counsel for the Plaintiff: Mr MD Wyles Solicitor for the Plaintiff: Freehills Date of Judgment: 21 November 2003