New South Wales Supreme Court CITATION : Melluish v Underwood Development Pty Ltd [2004] NSWSC 429 HEARING DATE(S) : 17/05/04 JUDGMENT DATE : 17 May 2004 JURISDICTION: Equity Division Corporations List JUDGMENT OF : Barrett J DECISION : Orders for reinstatement of registration and winding up CATCHWORDS : CORPORATIONS - reinstatement of registration of deregistered company - whether trustee in bankruptcy of both shareholders is "person aggrieved" by deregistration - where company had assets exceeding liabilities - whether trustee in bankruptcy is "contributory" with standing to seek winding up on just and equitable ground - where former shareholders attempting to divert company property LEGISLATION CITED : Corporations Act 2001 (Cth), ss.462(2), 529, 601AB, 601AH Real Property Act, s.57(2)(b) Casali v Crisp (2001) 165 FLR 79 CASES CITED : Re Meyer Douglas Pty Ltd [1965] VR 638 Re Peter Conyers Holdings Pty Ltd (1996) 14 ACLC 1835 PARTIES : John Melluish - Plaintiff Underwood Development Pty Limited - Defendant FILE NUMBER(S) : SC 2566/04 COUNSEL : Mr D M Crompton, Solicitor - Plaintiff SOLICITORS : Church & Grace - Plaintiff IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST BARRETT J MONDAY 17 MAY 2004 2566/04 - MELLUISH v UNDERWOOD DEVELOPMENT PTY LTD JUDGMENT 1 This is an application by Mr John Melluish for an order under s.601AH of the Corporations Act 2001 (Cth) directing ASIC to reinstate the registration of Underwood Development Pty Ltd which I shall call "the Company". Mr Melluish also seeks a winding up order. 2 The Company was registered on 28 April 1999. From inception, its sole director and sole secretary was John Michael Higgins and the shareholders were John Michael Higgins and his wife, Diane Jean Higgins, as to one share each. The Company was deregistered on 18th February 2002 pursuant to s.601AB. That section empowers ASIC to deregister a company in defined circumstances concerning failure to effect lodgments under the Corporations Act. 3 The evidence shows that, at the time of deregistration, the Company was the registered proprietor of a property at Forster. According to a title search in evidence, the property is subject to a mortgage to G E Commercial Finance Australia Pty Ltd. There is also a caveat lodged by June Evelyn Cranefield. A contract for sale of this property for a price of $838,000 was purportedly made on 29 August 2003. The supposed contract was executed on behalf of the Company by Mr Higgins and Mrs Higgins. Correspondence between the solicitors for the supposed vendor, being the Company, and the purchasers named in the contract indicated that, at settlement, moneys would be payable to creditors such as ANZ Bank and the Office of State Revenue for land tax and the local council for rates. There was no reference to the registered mortgagee, G E Commercial Finance, which, on 10 March 2004, served notice under s.57(2)(b) of the Real Property Act notifying its intention to exercise its power of sale. That notice referred to secured moneys of $505,000. 4 Mr Higgins and Mrs Higgins are bankrupts, a sequestration order having been made in relation to each upon his or her own petition. Mr Melluish, the present applicant, is the trustee in bankruptcy in each case. His appointment in respect of Mr Higgins took effect on 9 October 2003. His appointment in respect of Mrs Higgins took effect on 7 April 2004. 5 Mr Melluish seeks two substantive orders. The first is an order for reinstatement of the registration of the Company. The other is an order that the Company be wound up. As to the reinstatement, the first question is whether Mr Melluish is a person "aggrieved by the deregistration", as referred to in s.601AB(2)(a)(i). 6 A shareholder does not, by that status alone, have the character of a "person aggrieved" for this purpose. In those cases where the company is insolvent, neither a shareholder nor director is aggrieved by the deregistration because, as a consequence of the insolvency, the shareholder has no asset of any value and the director's office was displaced by the liquidator. This was recognised in Re Peter Conyers Holdings Pty Ltd (1996) 14 ACLC 1835. As Young J observed in Casali v Crisp (2001) 165 FLR 79, a shareholder needs to show some particular prejudice, such as also possessing the status of creditor or, in his Honour's words, "that there might well be a surplus of assets if the company was reinstated and certain events occurred". 7 Mr Melluish must be regarded as having an interest, for these purposes, co-extensive with that of Mr Higgins and Mrs Higgins. On the evidence, as it appears, they were, until the Company ceased to exist, shareholders in a company with an asset for which an arm's-length party is prepared to pay $838,000 in circumstances where there is a registered mortgage securing $505,000. In the absence of other information about assets and liabilities, a surplus for the benefit of shareholders is inherent in the Company and gives the former shareholders (and, accordingly, their trustee in bankruptcy) the kind of interest required to warrant the conclusion that the trustee, in that capacity, is a "person aggrieved" for the purposes of the section. I am satisfied on that basis that Mr Melluish has the required standing. 8 That leads to the question whether the Court is satisfied that it is "just" that the Company's registration be reinstated: s.601AH(2)(b). In this particular case, that is a question which I think is best considered in conjunction with the question whether the Company should be wound up. The real issue is whether the Company should be taken out of the state of legal non-existence it currently occupies and put into a position where it again exists but with its affairs under the control of a liquidator. 9 It is relevant to note, in that connection, that Mr Higgins and Mrs Higgins appear to have set in train purported actions to sell the Company's property in circumstances which include payment of part of the proceeds to the ANZ Bank. The evidence shows that the ANZ Bank is a creditor of Mr and Mrs Higgins. ANZ debt is secured on their home at Sans Souci. There is nothing in the evidence before me to show that the ANZ Bank is a creditor of the Company. On 13 January 2004, Mr Higgins informed a member of Mr Melluish's staff that once the property at Forster was sold (that is, the Company's property), "there will be no debt on Sans Souci". From this it must be inferred that Mr Higgins's intention, if he had been able to effectuate it, would have been to divert funds of the company to meet the personal debts of the individual shareholders secured on their home. 10 There is therefore a serious apprehension that restoration of the company, upon its re-registration, to the control of Mr Higgins would pose a threat of misapplication of company funds. But, of course, the idea that Mr Higgins should again occupy the position of director is purely academic. He, being bankrupt, is not capable of exercising that office. In theory, Mr Melluish, once he became registered as the holder of the shares in the two bankrupt estates, could call a meeting of members and appoint new directors, but the realty is that he is of the view that winding up is the appropriate course, hence his application in that respect. 11 I am satisfied that what appears to be a potential surplus of more than $300,000 will be available after payment of the company's secured debt, assuming the sale contract is completed. It is just that the company's registration should be reinstated so that the value inherent in it does not continue under the existing statutory regime (which sees assets of that kind vested in ASIC and ultimately disposed of as unclaimed moneys) and is instead put under the control of a liquidator. There are creditors of this company and their interests would not be served by continuation of the present state of affairs. 12 Because of the impossibility of Mr Higgins again being a director and the attitude of Mr Melluish which prefers winding up – and because also of the apparent moves to deflect company funds suggests jeopardy – I consider the case to be one in which a winding up order on the just and equitable ground is warranted at the same time as a reinstatement order. 13 There remains one question about Mr Melluish's standing to seek a winding up order. Under s.462(2), any one or more of the persons there mentioned may apply for an order to wind up a company on a ground other than insolvency. The only conceivably relevant category, so far as Mr Melluish is concerned, is that in s.462(2)(c) – "a contributory". At the moment, of course, Mr Melluish is not a contributory because he does not hold shares which, in terms of paragraph (a) of the definition of "contributory" in s.9, would make him a contributory. 14 That matter is however sufficiently covered by s.529 which deals with the case where a contributory becomes an insolvent under administration. Section 529 is as follows: "If a contributory becomes an insolvent under administration, or assigns his or her estate for the benefit of his or her creditors, whether before or after being placed on the list of contributories: (a) his or her trustee is to represent him or her for the purposes of the winding up and is to be a contributory accordingly; and (b) calls already made, and the estimated value of his or her liability to future calls, may be proved against his or her estate." That section makes the same provision in the case of bankruptcy as is made by s.528 in the case of death. 15 Mr Crompton has taken me to the material in footnotes 31 and 32 on page 147 of McPherson's "The Law of Company Liquidation" (4th edition, 1999 by Keay) which deals with the case of death and says that the legal personal representative of a deceased shareholder is to be regarded as a contributory with standing to make an application for a winding up order. That conclusion is consistent with the decision in Re Meyer Douglas Pty Ltd [1965] VR 638 (at 657-8) where the equivalent of s.528 in the Companies Act 1961 (Vic) was held sufficient to justify the conclusion that a deceased shareholder's executor was competent to present a petition for winding up as a "contributory". The kind of devolution with which s.529 relating to bankruptcy is concerned is sufficiently analogous with that dealt with in s.528 concerning death for the same approach and principles to be applied. I therefore regard s.529 as giving Mr Melluish the necessary standing under s.462(2)(c). 16 It remains to mention the attitudes of other interested parties. The solicitors for G E Commercial Finance have been notified of this application and state that their client has no objection to the making of the orders sought, that is, both the reinstatement order and the winding up order. Notice of the application was also given to the solicitors for the purchasers under the supposed contract for sale. Their attitude is the same. Mr and Mrs Higgins have stated that they have no objection to the proposal to seek the two orders. ASIC has been informed of the application and has stated that it does not oppose, subject to conditions as to the form of order, the making of a winding up order and certain formalities which pose no difficulties. 17 The orders of the court are as follows: 1. Order that Australian Securities and Investments Commission reinstate the registration of Underwood Development Pty Ltd ACN 087 319 382. 2. Order that Underwood Development Pty Ltd be wound up under the Corporations Act 2001. 3. Order that Max Christopher Donnelly of level 17, 2 Market Street, Sydney, an official liquidator whose consent has been tendered to the court, be appointed liquidator of Underwood Development Pty Ltd. 4. Order that costs of the application are to be costs in the winding up of Underwood Development Pty Ltd. 5. The orders may be passed and entered forthwith. ********** Last Modified: 05/20/2004 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. 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