FEDERAL COURT OF AUSTRALIA Deputy Commissioner of Taxation v Concrete Contractors (NSW) Pty Ltd [2008] FCA 1339 CORPORATIONS – Winding up in insolvency – choice of person to be liquidator – exercise of discretion. Held: in the circumstances, person nominated by plaintiff creditor appointed, not person who had been appointed by invalid resolution for voluntary liquidation DEPUTY COMMISSIONER OF TAXATION v CONCRETE CONTRACTORS (NSW) PTY LIMITED (ACN 110 069 844) NSD 690 of 2008 LINDGREN J 29 AUGUST 2008 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD 690 of 2008 In the matter of Concrete Contractors (NSW) Pty Limited (In Liquidation) (aCN 110 069 844) BETWEEN: DEPUTY COMMISSIONER OF TAXATION Plaintiff AND: CONCRETE CONTRACTORS (NSW) PTY LIMITED (IN LIQUIDATION) (ACN 110 069 844) Defendant MURRAY RODERICK GODFREY Applicant JUDGE: LINDGREN J DATE OF ORDER: 20 AUGUST 2008 WHERE MADE: SYDNEY THE COURT NOTES THAT: 1. It has reviewed the decision and orders of Deputy Registrar Hedge given on 27 June 2008 in this proceeding. THE COURT ORDERS THAT: 2. The relief applied for by Amended Notice of Motion filed on 10 July 2008 be refused. 3. The applicant, Murray Roderick Godfrey, pay the plaintiff's costs of the application for review of the Deputy Registrar's decision and orders. 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 690 of 2008 In the matter of Concrete Contractors (NSW) Pty Limited (In Liquidation) (aCN 110 069 844) BETWEEN: DEPUTY COMMISSIONER OF TAXATION Plaintiff AND: CONCRETE CONTRACTORS (NSW) PTY LIMITED (IN LIQUIDATION) (ACN 110 069 844) Defendant MURRAY RODERICK GODFREY Applicant JUDGE: LINDGREN J DATE: 29 AUGUST 2008 PLACE: SYDNEY REASONS FOR JUDGMENT Introduction 1 On 20 August 2008 I made certain orders following a review of the decision and orders of a Deputy Registrar. These are my reasons for the making of those orders. 2 On 27 June 2008 the Deputy Registrar ordered that the defendant (the Company) be wound up and that Anthony Sims of Sims Partners be appointed liquidator. The Deputy Registrar also ordered that the costs of the plaintiff (DCT – I will also use the abbreviation "ATO" to refer to the Australian Taxation Office) be fixed at $1,256.70 and be reimbursed pursuant to s 566 of the Corporations Act 2001 (Cth) (the Act). 3 The Deputy Registrar noted by consent that the Company had not had the leave of the Court under s 490(1) of the Act when, on 19 May 2008, it had resolved to be wound up voluntarily and appointed the present applicant, Murray Roderick Godfrey (Mr Godfrey), as voluntary liquidator, and that his appointment as liquidator was invalid. 4 The Deputy Registrar also ordered that Mr Godfrey's costs on an interlocutory process that he had filed on 27 June 2008 be fixed at $1,200.00 and be reimbursed next after the DCT's costs. By that interlocutory process Mr Godfrey had sought: · a declaration that a resolution of the Company's creditors passed on 29 May 2008 that the Company be wound up voluntarily and that he be appointed liquidator was invalid and consequently of no effect; · that the Company be wound up by the Court; and · that Mr Godfrey be appointed liquidator. 5 In the way in which the proceeding developed, the dispute to be resolved was whether Mr Sims or Mr Godfrey was to be liquidator. 6 On 4 July 2008 Mr Godfrey filed a notice of motion seeking review by the Court of the Deputy Registrar's decision on 27 June 2008 to appoint Mr Sims and not to appoint him and an order that he (Mr Godfrey) be appointed. Having reviewed the Deputy Registrar's decision, by way of a hearing de novo, I have reached the same decision. Facts 7 Prior to its ceasing business, the Company operated as a general concreter doing residential, commercial and high rise work. 8 On 30 January 2008, an officer of the DCT posted a statutory demand by the DCT for $289,623.02 to the Company at its registered office. The statutory demand would have expired in late March 2008 but the DCT did not file the originating process which commenced this proceeding until 14 May 2008. So far as the evidence reveals there was no communication between the ATO and the Company in the intervening period. 9 On 14 March 2008, an accountant in Wollongong named "Simone" telephoned Darren Vardy of RMG Partners, Mr Godfrey's firm. She said that she needed assistance in connection with a "Director Penalty Notice" issued by the ATO to her client. Later the same day, Mr Vardy had a telephone call from Ivano Cadorin who said that he was the director in question. In fact, Mr Cadorin is the sole director, secretary and shareholder of the Company. Mr Cadorin sent a copy of the penalty notice to Mr Vardy. After receipt of it, Mr Vardy spoke to "Simone" on 17 March 2008 and then on 20 March 2008 met with her and Mr Cadorin. They told him that the Company had, in effect, ceased trading and had no work. They said that a new company was being established to look at new projects in the future, and that there was to be a transfer of assets from the Company to the new company. Mr Vardy states that he told them that a transfer would have to be at market value and that a sale agreement should be prepared. 10 There is in evidence a "deed of sale" dated 1 May 2008 by which the Company agreed to sell and a company called "NSW Concrete Contractors Pty Limited" agreed to purchase for a price of $22,000 the Company's business known as "Concrete Contractors". The agreement provides that the whole of the purchase price of $22,000 was to be paid by instalments of $5,500 on 31 May 2008, $8,250 on 30 June 2008 and $8,250 on 31 July 2008. The deed of sale purports to have been signed by Mr Cadorin on behalf of both the Company as vendor and the new company as purchaser. 11 It does not require great imagination to perceive the desirability of this transaction being investigated. In substance, the business has been continued by a company of an almost identical name under the control of the same person. A liquidator of the Company, and through him the Company's creditors, are left with an entitlement to recover only $22,000. 12 Mr Vardy said that on or about 6 May 2008, Mr Cadorin told him that he had been unsuccessful in refinancing, that the Company was to be placed into liquidation, and that the ATO was pursuing him (Mr Cadorin) personally pursuant to the Director Penalty Notice. 13 After receiving financial information from Mr Cadorin, Mr Vardy prepared papers in relation to the proposed voluntary liquidation. 14 On or about 10 May 2008, Mr Vardy met with Mr Cadorin and provided him with documents to facilitate a voluntary liquidation. Mr Vardy gave evidence that he thinks he may have learned of the deed of sale at this meeting. He said that he did not know of it earlier than this and that he had no role in relation to the preparation of the deed of sale. 15 On 14 May 2008 the originating process in this proceeding was filed. and on 19 May 2008 a copy, together with other documents, was posted to the Company at its registered office. 16 On Thursday 15 May 2008, the DCT lodged with the Australian Securities and Investments Commission (ASIC) a Form 519 (Notification of Application to Wind Up the Company in Insolvency under s 459P of the Act). 17 On Monday 19 May 2008 a meeting of directors of the Company, that is to say Mr Cadorin, resolved that the Company was insolvent and unable to pay its debts as and when they fell due and should be wound up, and that the services of RMG Partners be requested to assist the Company in entering into a creditors' voluntary winding up and that Mr Godfrey be approached to accept nomination as liquidator. 18 On the same day (Monday 19 May 2008) the Company's shareholders (again Mr Cadorin) passed a special resolution that the Company be wound up voluntarily and that Mr Godfrey be appointed liquidator. 19 Mr Godfrey states that on the day of the passing of the resolutions, Monday 19 May 2008, he caused a member of his staff, Laura Arnold, to conduct a free search of the records maintained by the ASIC in respect of the Company via a modem in his office. He asserts that the result of the search did not reveal any application for the winding up of the Company. Mr Godfrey states: "I have not retained or have been unable to locate a copy of the results of that search". It was also on Monday 19 May 2008 that a copy of the originating process together with other documents was posted to the Company at its registered office. 20 It is common ground that neither Mr Godfrey nor Mr Vardy inquired of the ATO or of the Court as to whether a winding up application had been launched. 21 It was also common ground that it can take up to two business days for a Form 519 lodged with ASIC to show up on a search. Since the Form 519 in the present case was lodged on Thursday 15 May 2008, it is conceded that because of the intervening weekend, it may not have shown up on a search until some time on Monday 19 May 2008, possibly after Laura Arnold made her search of the ASIC records. 22 Mr Godfrey convened a meeting of the Company's creditors for 29 May 2008. The meeting took place at the offices of RMG Partners. The Summary of Affairs of the Company showed one asset, namely plant and equipment of $22,000, and creditors totalling $439,027.51. The ATO was shown as a creditor for $350,000, Mr Cadorin for $70,000, GIO Commercial Insurance for $13,527.51, and Accounting by Maynes Rutty for $5,500. On these figures the DCT represented 79.72 percent of the amount owing to creditors. 23 On the motion of Mr Cadorin, it was carried on the voices that the appointment of Mr Godfrey as liquidator be ratified and that his remuneration up to a limit of $15,000 (including GST) be approved. Mr Cadorin was the only creditor who attended, and he attended by telephone. Mr Godfrey and a member of his staff were also "present". 24 Mr Godfrey states that at the time of the creditors' meeting on 29 May 2008 he had no knowledge of the DCT's pending winding up application against the Company and that if he had known of it, he would not have accepted affirmation of his appointment. 25 On 2 June 2008 Mr Godfrey wrote to the ATO advising that on 19 May 2008 he had been appointed liquidator of the Company by a resolution of the shareholders. 26 On 5 June 2008 the ATO wrote to Mr Godfrey advising that the Company was indebted to the ATO and that the amount claimed was $301,629.38. The letter enclosed a proof of debt in that sum and requested advice as to when a dividend was expected. 27 On 11 June 2008, the ATO wrote to Mr Godfrey drawing his attention to the pending winding up application which had been commenced on 14 May 2008 and was returnable on Friday 13 June 2008. The letter advised that in view of Mr Godfrey's appointment the DCT would seek to have the application dismissed with an order for costs. 28 By the time of the return date on 13 June 2008, it was appreciated by the ATO that s 490 of the Act had the effect that the Company had not been able to resolve that it be wound up voluntarily because the application for it to be wound up in insolvency had been filed. The originating process was filed on Wednesday 14 May 2008 and it will be recalled that the resolution that the Company be wound up voluntarily was passed on the following Monday 19 May 2008. 29 Accordingly, on 13 June 2008, Irene Chan of the ATO who appeared for the DCT caused the proceeding to be adjourned to Friday 27 June 2008. Ms Chan wrote to Mr Godfrey on 16 June 2008 a letter advising of the adjournment and noting that under s 490(a) of the Act, the appointment of Mr Godfrey as liquidator on 19 May 2008 had been invalid. 30 I noted at [2] above, the orders made by the Deputy Registrar on 27 June 2008. 31 On 4 July 2008, Mr Godfrey filed a notice of motion seeking review of the Deputy Registrar's decision of 27 June 2008, and on 10 July 2008 he filed an amended notice of motion seeking that relief but in the alternative an order pursuant to s 490 or in the alternative s 1322(4) of the Act, nunc pro tunc, granting leave for the Company to be wound up and for Mr Godfrey to be liquidator "pursuant to the resolution of (a) [t]he members of the [Company] on 19 May 2008; and (b) [t]he creditors of the [Company] on 29 May 2008". Consideration 32 There is a course of authority according to which leave may be granted under s 490 of the Act nunc pro tunc, that is to say, as if the Court's leave had been granted before the passing of the special resolution by the company that it be wound up voluntarily: see, for example, Re Horsham Kyosan Engineering Co Ltd [1972] VR 403; Re Campbell's Corporation Ltd (1978) 3 ACLR 519; Re Akai Australia Pty Ltd (1978) 3 ACLR 353 at 356-357; Progress Printers & Distributors Pty Ltd v Production & Graphics Communication Pty Ltd [1996] FCA 689; 21 ACSR 241; 14 ACLC 1383 (Tamberlin J). In the Akai case, Powell J said that it is important for the Court to consider whether the creditors have taken into account the respective advantages of a winding up by the Court as opposed to a voluntary winding up. In the present case, the creditors have not considered that question and there can be no doubt how the votes would go if they did consider it. 33 In my view, Mr Sims should be liquidator. 34 The view of the majority of unrelated unsecured creditors is entitled to considerable weight. The Company's debts, excluding the $70,000 said to be owed to Mr Cadorin, total $369,027.51 (see [22] above). Of this amount, the sum of $350,000 said to be owed to the ATO represents 94.84%. 35 On 17 March 2008 Mr Cadorin faxed to Mr Vardy a copy of the Director Penalty Notice and other documents including a copy of the statutory demand dated 30 January 2008. Accordingly, from 17 March 2008, Mr Vardy and, through him, Mr Godfrey, knew that the groundwork for the making of an application to the Court for a winding up in insolvency had been made. Yet neither of them pursued with Mr Cadorin the question whether the Company had been served with a winding up application. 36 The Company would have received the originating process shortly after 19 May 2008, admittedly after the passing of the members' resolution, but well before the holding of the creditors' meeting on 29 May 2008. No doubt, if Mr Godfrey had known within a few days following 19 May 2008 that the originating process had been filed on 14 May 2008, he would have taken the appropriate steps at the meeting of creditors on 29 May 2008 to advise them that the resolution of 19 May 2008 had been invalid, and matters would not have proceeded any further. Indeed, Mr Godfrey said as much in his evidence. Conclusion 37 For the above reasons, the decision of the Deputy Registrar should not be disturbed, and the applicant, Mr Godfrey, should pay the DCT's costs of the review of her decision. I certify that the preceding thirty-seven (37) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lindgren. Associate: Dated: 29 August 2008 Counsel for the Plaintiff: Mr FFF Salama Solicitor for the Plaintiff: Legal Services Branch, Australian Taxation Office Counsel for the Applicant: Mr P G Cutler Solicitor for the Applicant: Turks Legal Date of Hearing: 23 July 2008 Date of Judgment: 20 August 2008 Date of Publication of Reasons: 29 August 2008