FEDERAL COURT OF AUSTRALIA Hill v Hicom International Pty Ltd (In liquidation) ACN 070 061 344 [2007] FCA 1014 CORPORATIONS – winding up – whether members' or creditors' voluntary winding up – where failure to comply with s 494(3) of Corporations Act 2001 (Cth) – whether declaration of solvency invalid. Corporations Act 2001 (Cth), ss 494 and 1322 GRAHAME HILL IN HIS CAPACITY AS LIQUIDATOR OF HICOM INTERNATIONAL PTY LTD (IN LIQUIDATION) ACN 069 933 213 AND HICOM SALES PTY LTD (IN LIQUIDATION) ACN 070 061 344 v HICOM INTERNATIONAL PTY LTD (IN LIQUIDATION) ACN 069 933 213 AND ANOR NSD867 OF 2007 EMMETT J 16 MAY 2007 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD 867 OF 2007 BETWEEN: GRAHAME HILL IN HIS CAPACITY AS LIQUIDATOR OF HICOM INTERNATIONAL PTY LTD (IN LIQUIDATION) ACN 069 933 213 AND HICOM SALES PTY LTD (IN LIQUIDATION) ACN 070 061 344 Plaintiff AND: HICOM INTERNATIONAL PTY LTD (IN LIQUIDATION) ACN 069 933 213 First Defendant HICOM SALES PTY LTD (IN LIQUIDATION) ACN 070 061 344 Second Defendant JUDGE: EMMETT J DATE OF ORDER: 16 MAY 2007 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. Grants leave to Grahame Hill to file the originating process, initialled by Emmett J. 2. Pursuant to section 1322(4)(d) of the Corporations Act, abridges to 23 April 2007 the time for: (a) making and lodging the Declaration of Solvency pursuant to section 494 of the Act, and (b) sending notices convening the meeting of members to be held pursuant to section 491 of the Act in respect of each of Hicom International Pty Ltd (in liquidation) and Hicom Sales Pty Ltd (in liquidation). 3. Declares that the written declaration of the directors of Hicom International Pty Ltd ACN 069 933 213 made on 23 April 2007 for the purpose of section 494(1) of the Corporations Act 2001 (Cth), is not invalid by reason of the defect in failing to make and lodge the written declaration on a date before the date on which notices of the meeting of the members of Hicom International Pty Ltd ACN 069 933 213 were sent out. 4. Declares that the written declaration of the directors of Hicom Sales Pty Ltd ACN 070 061 344 made on 19 April 2007 for the purpose of section 494(1) of the Corporations Act 2001 (Cth), is not invalid by reason of a defect in failing to lodge the written declaration on a date before the date on which notices of the meeting of the members of Hicom Sales Pty Ltd ACN 070 061 344 were sent out. 5. Declares that the liquidation of Hicom International Pty Ltd (in liquidation) ACN 069 933 213 is a members' voluntary winding up pursuant to Part 5.5 of the Corporations Act 2001 (Cth). 6. Declares that the liquidation of Hicom Sales Pty Ltd (in liquidation) ACN 070 061 344 is a members' voluntary winding up pursuant to Part 5.5 of the Corporations Act 2001 (Cth). Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD 867 OF 2007 BETWEEN: GRAHAME HILL IN HIS CAPACITY AS LIQUIDATOR OF HICOM INTERNATIONAL PTY LTD (IN LIQUIDATION) ACN 069 933 213 AND HICOM SALES PTY LTD (IN LIQUIDATION) ACN 070 061 344 Plaintiff AND: HICOM INTERNATIONAL PTY LTD (IN LIQUIDATION) ACN 069 933 213 First Defendant HICOM SALES PTY LTD (IN LIQUIDATION) ACN 070 061 344 Second Defendant JUDGE: EMMETT J DATE: 16 MAY 2007 PLACE: SYDNEY REASONS FOR JUDGMENT 1 I have before me an application brought under s 1322 of the Corporations Act 2001 (Cth) (the Corporations Act) by the liquidator of two companies, Hicom International Pty Ltd (Hicom International) and Hicom Sales Pty Ltd (Hicom Sales). The liquidator has been acting in the capacity of liquidator under what he expected to be a members' voluntary winding up of each of the two companies. However, there was an omission or oversight on the part of the liquidator or his staff that has the consequence that the windings up could be treated as creditors' voluntary windings up. 2 Under s 9 of the Corporations Act, a creditors' voluntary winding up is a winding up under Part 5.5, other than a members' voluntary winding up. Under s 9, a members' voluntary winding up is a winding up where a declaration has been made and lodged pursuant to s 494. Section 494(1) provides that a majority of directors of a company may make a written declaration to the effect that they have made an inquiry into the affairs of the company and that they have formed the opinion that the company would be able to pay its debts in full within a period not exceeding 12 months after the commencement of the winding up of the company. Under s 494(2), there must be attached to the declaration a statement of affairs of the company showing the property of the company, the liabilities of the company and the estimated expenses of winding up. The written declaration must be made before the date on which the notices of the meeting at which the resolution for the winding up of the company is to be proposed are sent out. 3 However, s 494(3) relevantly provides that a declaration made under s 494(1) has no effect for the purposes of the Act unless: (a) the declaration is made at the meeting of directors referred to in section 494(1); (b) the declaration is lodged before the date on which the notices of the meeting at which the resolution for the winding up for the company is to be proposed are sent out; and (c) the resolution for voluntary winding up is passed within the period of five weeks after the making of the declaration. 4 The current share holders of Hicom International are Warmen Investments Pty Ltd in respect of 10 million shares, and Hawkesbridge Limited in respect of one share. The present directors of Hicom International are Vivian Hugh King and Joshua Watson Rowe. The only shareholder of Hicom Sales is Hicom International. The current directors of Hicom Sales are Vivian Hugh King and Richard Franklin Williams. 5 On 19 April 2007, at a meeting of the directors of Hicom Sales, it was resolved that Messrs King and Williams sign a declaration of solvency and that a meeting of the company be convened for the purposes of considering a resolution that the company be wound up under a members' voluntary liquidation. A declaration of solvency that was signed pursuant to that resolution discloses that Hicom Sales has no assets and no liabilities. The declaration of solvency was lodged with Australian Securities and Investment Commission (the Commission) at 3.58 pm on 23 April 2007. On the same day, Hicom International consented to an extraordinary general meeting of Hicom Sales being convened and held on that day and, on that day, notice of the meeting was given to Hicom International. A meeting was then held at which a special resolution was passed that Hicom Sales be wound up under a members' voluntary liquidation. Thus, there was a failure to satisfy s 494(3)(b), which required that the declaration be lodged with the Commission before the date on which the notices of meeting were sent. It was, in fact, lodged on the same day. 6 That difficulty was compounded by the process undertaken in relation to Hicom International. At a meeting of the directors of Hicom International held on 23 April 2007, attended by Messrs King and Rowe, it was resolved that Messrs King and Rowe sign a declaration of solvency. On that day, Messrs King and Rowe signed a declaration of solvency showing that Hicom International had assets consisting of cash at bank of $22,850, and no liabilities, other than estimated expenses of winding up in the sum of $22,850. The declaration of solvency was lodged electronically with the Commission at 4.14 pm on 23 April 2007. 7 Also on 23 April 2007, Warmen Investments Pty Ltd and Hawkesbridge Ltd consented to a meeting of Hicom International being convened on that day. Notice was accordingly given of a meeting to be held on that day. A meeting was in fact held on 23 April 2007, at which a special resolution was passed that Hicom International be wound up under a members' voluntary liquidation. Thus there was a failure to satisfy the requirements of 494(3)(a) and (b), in that the declaration was not made before the date on which the notices of the meeting were sent and it was not lodged with the Commission before the date on which the notices of meeting went sent. 8 While there is provision in s 494(3)(b) for the Commission to extend the time for lodgement, there is no provision for the Commission to remedy a failure to comply with s 494(3), insofar as that provision requires that the declaration be made before the date on which notices of the meeting at which the resolution is to be proposed are sent out. The liquidator now applies for orders under s 1322 of the Corporations Act to ensure that the windings up can continue as members' voluntary windings up. While there may not be serious consequences if the windings up are to be treated as creditors' voluntary windings up, one can understand that the directors may have some residual concern that the records would show that they were directors of companies that were wound up as creditors' voluntary windings up rather than members' voluntary windings up. It does not appear to matter otherwise. 9 The liquidator caused a notice inviting formal proof of debt or claim for each of the companies to be advertised in The Daily Telegraph newspaper on 24 April 2007 and caused his appointment as liquidator to be advertised in The Commonwealth Government Gazette on 8 May 2007. The liquidator has not received any notification of the existence of any creditor of either company as at today. He has also been informed by the directors and members of each of the companies, and believes, that neither of the companies has any creditors. In the absence of creditors, there would be little point in purporting to convene a meeting of creditors, as would be required under a creditors' voluntary winding up. 10 Section 1322(2) of the Corporations Act provides that a proceeding under the Act is not invalidated because of any procedural irregularity, unless the Court is of the opinion that the irregularity has caused or may cause substantial injustice and the Court by order declares the proceeding to be invalid. It may be that the making of a declaration of solvency and proceeding with a winding up on the basis that it is a members' voluntary winding up is a proceeding within the meaning of s 1322. However, that is not entirely without doubt. On the other hand, I would certainly be satisfied that what has happened is a procedural irregularity. 11 Section 1322(4)(a) provides that the Court may make an order declaring that any act purporting to have been taken under the Corporations Act is not invalid by reason of any contravention of a provision of the Act. There is no requirement for a declaration of solvency to be made before the date on which notices of a proposed meeting of members are sent, or for a declaration of insolvency to be lodged before that date. The effect of s 494(3) is simply to provide that, unless those prerequisites are satisfied, a purported declaration of solvency has no effect for the purposes of the Act. If the prerequisites are not satisfied it would follow that there is no members' voluntary winding up, but only a creditors' voluntary winding up. 12 Whether or not contravention should be given a broader meaning, having regard to the remedial objects of s 1322(4), under s 1322(4)(d), the Court may make an order abridging the time for doing any act, or taking any proceeding under the Act, or in relation to a corporation. It seems to me that an order under s 1322(4) would achieve the aims of the liquidator to ensure that the windings up are to be treated as members' voluntary windings up. Under s 1322(4), the Court may make such consequential and similar orders as it thinks fit. 13 I am satisfied, in the circumstances, that no substantial injustice has been, or is likely to be caused to any person by reason of the failure to satisfy the strict requirements of s 494(3). Accordingly it would be appropriate to abridge the time for lodging the relevant declarations of solvency and for the passing of the resolution by the directors. It would also be appropriate to make declarations that the declarations of solvency are not invalid by reason of the failure to comply strictly with s 494(3). I certify that the preceding thirteen (13) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett. Associate: Dated: 11 July 2007 Counsel for the Plaintiff: S Golledge Solicitor for the Plaintiff: Kemp Strang The Defendant did not appear. Date of Hearing: 16 May 2007 Date of Judgment: 16 May 2007