FEDERAL COURT OF AUSTRALIA Fletcher, in the matter of McLaughlins Financial Services Limited (In Liquidation) (ACN 088 647 796) [2010] FCA 606 Citation: Fletcher, in the matter of McLaughlins Financial Services Limited (In Liquidation) (ACN 088 647 796) [2010] FCA 606 Parties: WILLIAM JOHN FLETCHER IN HIS CAPACITY AS LIQUIDATOR OF MCLAUGHLINS FINANCIAL SERVICES LIMITED (IN LIQUIDATION) and KATHERINE ELIZABETH BARNET IN HER CAPACITY AS LIQUIDATOR OF MCLAUGHLINS FINANCIAL SERVICES LIMITED (IN LIQUIDATION) File number(s): NSD 699 of 2010 Judge: JACOBSON J Date of judgment: 15 June 2010 Catchwords: CORPORATIONS – urgent declarations sought in relation to the winding up and the appointment of liquidators of the company – public examination of the directors of the company to take place – director of company questioned validity of appointment of liquidators Legislation: Corporations Act 2001 (Cth) ss 491, 494, 495, 497, 511, 1322 Corporations Regulations 2001 (Cth) reg 5.6.16, Date of hearing: 15 June 2010 Date of last submissions: 15 June 2010 Place: Sydney Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 20 Counsel for the Plaintiffs: Mr S Aspinall Solicitor for the Plaintiffs: Henry Davis York IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 699 of 2010 IN THE MATTER OF MCLAUGHLINS FINANCIAL SERVICES LIMITED (IN LIQUIDATION) (ACN 088 647 796) WILLIAM JOHN FLETCHER IN HIS CAPACITY AS LIQUIDATOR OF MCLAUGHLINS FINANCIAL SERVICES LIMITED (IN LIQUIDATION) First Plaintiff KATHERINE ELIZABETH BARNET IN HER CAPACITY AS LIQUIDATOR OF MCLAUGHLINS FINANCIAL SERVICES LIMITED (IN LIQUIDATION) Second Plaintiff JUDGE: JACOBSON J DATE OF ORDER: 15 JUNE 2010 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The matter be stood over to Thursday 17 June 2010 at 9:30 am. 2. There be liberty to apply on 1 hour's notice. 3. Costs reserved. 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 Federal Law Search on the Court's website. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 699 of 2010 IN THE MATTER OF MCLAUGHLINS FINANCIAL SERVICES LIMITED (IN LIQUIDATION) (ACN 088 647 796) WILLIAM JOHN FLETCHER IN HIS CAPACITY AS LIQUIDATOR OF MCLAUGHLINS FINANCIAL SERVICES LIMITED (IN LIQUIDATION) First Plaintiff KATHERINE ELIZABETH BARNET IN HER CAPACITY AS LIQUIDATOR OF MCLAUGHLINS FINANCIAL SERVICES LIMITED (IN LIQUIDATION) Second Plaintiff JUDGE: JACOBSON J DATE: 15 JUNE 2010 PLACE: SYDNEY REASONS FOR JUDGMENT 1 This matter came before me urgently on Friday afternoon when I was sitting as the Corporations Duty Judge. I abridged the time for service and made the application returnable today. 2 This morning, the plaintiffs, who are the joint and several liquidators of McLaughlins Financial Services Limited, sought urgent declarations from the Court under section 511 of the Corporations Act 2001 (Cth) ("the Act") that the winding up of McLaughlins Financial Services Limited ("the company") proceed as a creditors' voluntary winding up pursuant to Division 3, Part 5.5 of the Act. They also sought certain other relief, which I need not refer to in these reasons. 3 The application was brought on urgently because the plaintiffs have arranged for a public examination of the directors of the company to be carried out over three days commencing today at 11 am in the Supreme Court of New South Wales. 4 One of the examinees is Mr David Anderson, who was a director of the company. The examination of Mr Anderson is scheduled to begin at 11 am tomorrow morning. 5 On Friday 11 June 2010, that is to say the last business day before the examinations were scheduled to commence, Mr Anderson sent a facsimile to the plaintiffs. The fax made a number of complaints regarding the conduct of the liquidation. Most significantly, Mr Anderson questioned whether the appointment of the plaintiffs as liquidators had been confirmed by the creditors of the company. 6 In those circumstances, the plaintiffs seek urgent relief on a final basis, including a declaration that the winding up of the company is, and should be, conducted as a creditors' voluntary winding up. 7 The background to the application can be stated shortly. The company was incorporated in 1999 and is a member of the group of companies known as the MFS Group, which was later renamed as the Octaviar Group. There were three directors of the company who include Mr Anderson. The sole shareholder of the company is MFSL Holdings Pty Limited, which is also in liquidation and the plaintiffs are the liquidators of that company. 8 At a meeting of members of the company held on 23 November 2009, chaired by Mr Anderson, a special resolution was unanimously passed that the company be wound up voluntarily in accordance with s 491 of the Act. As required by s 495, the company also resolved to appoint the plaintiffs as joint and several liquidators of the company. In addition, the minutes record that Mr Anderson informed the meeting "That in the opinion of the Directors the Company was solvent". However, no declaration of solvency was provided in accordance with s 494 of the Act. 9 Since there was no declaration of solvency pursuant to section 494, the plaintiffs submit that, since the time of their appointment, the winding up of the company has been a creditors' voluntary winding up. That submission seems to me to be correct, and is supported by observations made in Ford HAJ, Austin RP, Ramsay IM Ford's Principles of Corporations Law (Butterworths, subscription service) at [27.550]ff. As the learned authors of that service observe at [27.550]: When a voluntary winding up is proposed the directors are required by s 494 to consider the company's financial position. The voluntary winding up can be a members' voluntary winding up if the directors make a written declaration of the company's solvency before sending out the notice of meeting, otherwise it will be a creditors' voluntary winding up. 10 The same observation is made by the learned authors of the service at [27.560]. They there state that if a declaration of solvency is made, the winding up proceeds as a members' voluntary winding up, but otherwise the winding up proceeds as a creditors' voluntary winding up. 11 The effect of the winding up proceeding as a creditors' voluntary winding up includes a requirement upon the liquidator to convene a meeting of the company's creditors, as stated in s 497 of the Act. At such meeting, the creditors have an opportunity to remove the liquidator and appoint another person, and to determine whether a committee of inspection should be appointed: see ss 497(10) and 497(11). 12 In order to comply with the provisions of s 497(1) of the Act, the plaintiffs called a meeting of creditors to be held on 8 December 2009. However, Mr Anderson did not comply with his obligation under the Act to provide a report as to the affairs of the company and accordingly, the plaintiffs were unable to comply with section 497(2)(b) which required the plaintiffs to send to each creditor, with the notice of meeting, a summary of the affairs of the company and a list setting out the names of all creditors. 13 On 8 December 2009 none of the creditors then known to the plaintiffs as creditors of the company attended the meeting. Accordingly, the quorum which is required by reg 5.6.16 of the Corporations Regulations 2001 (Cth) was not met. Moreover, at that time, the plaintiffs were unaware of the identity of all of the creditors. They have since identified further creditors. None of those creditors were notified of the meeting because, at the time, they were not known by the plaintiffs to be creditors of the company. The meeting was adjourned pursuant to reg 5.6.16(4)(c) to the following week. Unfortunately, however, it appears that notice of the adjournment was not given as required by reg 5.6.16. 14 Nevertheless, the meeting was apparently convened on 15 December 2009, although a quorum was not present. Accordingly, pursuant to reg 5.6.16(8), the meeting of creditors lapsed. The plaintiffs submit that, despite the failure of the creditors to attend so as to make up a quorum, the meeting nonetheless occurred so as to satisfy the obligation on the plaintiffs to hold such a meeting. For reasons set out below, I do not propose to rule on that submission today. 15 The present application is made under s 511 of the Act. The plaintiffs also rely on s 1322 which deals with the effect of a procedural irregularity. 16 Although my preliminary view on the material which I have seen to date is that I would be inclined to grant some form of relief to the plaintiffs, I do not think it is appropriate to do so today. I say this, in particular, because I am concerned that the creditors who should have been given notice of the proceeding may not have had sufficient time or notice to attend before the Court this morning, given the fact that leave to serve short notice was granted only on the Friday afternoon which preceded the long weekend. 17 I do have evidence of service of the originating process and supporting material. However the service was effected in some instances by facsimile and, importantly, the service upon Mr Anderson's company was effected by email. 18 The evidence satisfies me that the email was sent, but in the present circumstances, I do not think I should make orders or declarations in the terms sought because of Mr Anderson's absence before me this morning. 19 That said, I should express the view that I have considerable doubts as to whether Mr Anderson's letter shows any valid reason for the course that he seems to propose as set out in his letter of Friday 11 June. It is important to bear in mind that Mr Anderson chaired the meeting of 23 November 2009 at which a resolution was passed unanimously that the company be wound up voluntarily and that the present circumstances seem to have been brought about by his failure to provide a report as to the affairs of the company. 20 In the circumstances which I have outlined above, it seems to me that I ought not to grant the relief which is sought, but in view of the doubts that I have expressed, I ought to stand the matter over. I will stand the matter over until Thursday, 17 June at 9.30 am; I will reserve liberty to apply on one hour's notice in the event that anything should occur in the course of the examination which might have the effect of disrupting the carrying out of the examination orders which have previously been made; and I will reserve the costs of this morning's application. I certify that the preceding twenty (20) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jacobson. Associate: Dated: 16 June 2010