New South Wales Supreme Court CITATION : Peter Turner v Ulicorp Pty Ltd [2006] NSWSC 1445 HEARING DATE(S) : 13/12/06 JUDGMENT DATE : 13 December 2006 JURISDICTION : Equity Division Corporations List JUDGMENT OF : White J EX TEMPORE JUDGMENT DATE : 12/13/2006 DECISION : See Paras 22-27 of judgment. CATCHWORDS : CORPORATIONS – Winding-up – Liquidators – Provisional liquidators – Appointment – Application by plaintiff, a shareholder of defendant, for orders that provisional liquidator be appointed to defendant and defendant be wound up pursuant to s 461(1)(e) or 461(1)(k) Corporations Act 2001 (Cth) – Plaintiff complains that defendant preparing to declare dividend which would leave defendant unable to pay remuneration and expenses of any liquidator appointed to defendant – Whether provisional liquidator should be appointed – Where defendant proffers undertaking not to declare any dividend or make any other payment to shareholders – Where application brought despite existing agreement that defendant be wound up voluntarily – Where appointment of provisional liquidator likely to be less timely and cost-efficient than voluntary winding-up – Application dismissed. LEGISLATION CITED : Corporations Act 2001 (Cth) CASES CITED : Zempilas & Ors v JN Taylor Holdings (in prov liq) (No. 3) (1990) 3 ACSR 518 Peter Turner PARTIES : v Ulicorp Pty Ltd FILE NUMBER(S) : SC 6187/06 COUNSEL : Plaintiff: S Golledge Defendant: J Choy SOLICITORS : Plaintiff: Gordon & Johnstone Solicitors Defendant: N/A IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST WHITE J Wednesday, 13 December 2006 6187/06 Peter Turner v Ulicorp Pty Ltd JUDGMENT 1 HIS HONOUR: This is an application for the appointment of a provisional liquidator to the defendant company. The plaintiff is a shareholder in the company. He seeks an order pursuant to s 461(1)(e) or (k) of the Corporations Act 2001 (Cth) that the company be wound up. That is to say, the application for winding-up is made on the ground that the affairs of the company are being conducted in a manner that is oppressive or unfairly prejudicial to, or unfairly discriminatory against, a member, or in a manner contrary to the interests of the members as a whole, or on the ground that it is just and equitable that the company be wound up. 2 On 19 May 2005, the shareholders of the defendant, together with the defendant itself and another company, entered into a deed to settle disputes between them, which had led to the institution of proceedings against the plaintiff and proceedings associated with him in the Federal Court. The shareholders of the defendant are said to be divided into two camps called the "Turner Parties" and the "Wise Parties". The plaintiff, of course, is in the former camp. 3 The Turner Parties held between them 40% of the issued shares. The Wise Parties held the balance. By clause 3 of the deed of settlement it was agreed as follows: " 3(a) The Turner Parties and the Wise Parties agree that any outstanding business of Ulicorp [the defendant] is to be finalised as soon as is practicable. Any surplus of funds after all liabilities are paid is to be distributed to shareholders and Ulicorp is to be voluntarily wound up. (b) The parties agree that Peter Crawford of D J Ryan & Co, accountants of Sydney in the State of New South Wales, be appointed to give effect to clause 3(a). " 4 In June 2005, Mr Turner deposed that he learned that immediately prior to the deed of settlement being entered into, cheques totalling $216,000 were drawn on the defendant's bank account in favour of the Wise Parties. He says that thereafter, he had numerous conversations with Mr Crawford at D J Ryan & Co in relation to these payments. 5 It appears that the Wise Parties contend that the moneys were due to them as a fee for providing security for a number of years for certain borrowings in favour of the bank which lent money to another company. 6 I understand from submissions of counsel for the defendant that it will be contended that the payees of the sum of $216,000 were entitled to payment pursuant to an earlier agreement. At this stage, no evidence has been put on in relation to what that agreement may have been. Be that as it may, the question of the payment of the sum of $216,000 has been a matter which has been known to the plaintiff now for some eighteen months. 7 In July 2006, it appears that a resolution declaring an interim dividend was passed and $547,000 has been paid by way of dividend to shareholders. This has left the defendant with a credit balance of $37,202. 8 By letter dated 1 December 2006, notice was given of a meeting of directors of the defendant to be held on 19 December 2006 for the purpose of considering, inter alia, whether to declare a further dividend, and if so, in what amount. This, it appears, prompted the plaintiff to make the present application for the appointment of a provisional liquidator. The plaintiff was concerned that if a further dividend were declared and paid, there would be no funds available in the company's bank account to meet the expenses of a liquidator. 9 The parties took steps with a view to effecting the members' voluntary winding-up. A dispute arose as to whether Mr Crawford was an appropriate person to be appointed as liquidator. It appears that an alternative appointee was proposed and agreed on, but his appointment could not proceed. The directors were unable to agree upon the terms of the statement of affairs of the company, showing, inter alia, the company's property, which is required to be attached to a declaration of solvency, where it is proposed that the company be wound up voluntarily (Corporations Act, s 494(1) and (2)). 10 The Wise Parties would not agree to the inclusion in the company's assets of an amount of $324,027.01, which the Turner Parties contended should be treated as loans or advances, repayable to the company. As I understand the matter, the Turner Parties now contend that that figure should be the sum of $216,000 rather than $324,027.01 as previously asserted. 11 It is submitted for the plaintiff that it will inevitably be necessary for a liquidator to investigate the payments of $216,000 made to the Wise Parties. It is submitted that, although by the deed of settlement of 19 May 2005 the parties had agreed upon a voluntary winding-up after all outstanding business was finalised, subsequent events have shown that the process of effectuating a voluntary winding-up has broken down. 12 The plaintiff submits that, although the Court is usually reluctant to appoint a provisional liquidator, at least where the status quo can be preserved by a less onerous remedy, that consideration has less weight in the current case because the company is not trading. It does not have a currently operating business which would be prejudiced by the appointment of a provisional liquidator. 13 The defendant, I assume on the instructions of the majority of the directors, proffers an undertaking not to make any payment, whether by dividend or otherwise, to any of the company's shareholders or their associates, until the final hearing of the proceedings in February 2007. I was told that the defendant would not oppose an order restraining it from dealing with its assets except by paying debts in the ordinary course of business. 14 It was also submitted for the defendant that there were continuing negotiations to be embarked upon with the Office of State Revenue in relation to a claim for refund of payroll tax. The present directors and the accountants are familiar with the issues concerning the application for a refund of payroll tax. There is a time limit, which will shortly expire, for the company to appeal from a decision of the Chief Commissioner of State Revenue refusing the application for refund. It is submitted that it would be disruptive, as well as costly, for a provisional liquidator to be appointed. The proposed provisional liquidators, if appointed, would have to acquaint themselves with the details of that application. 15 In Zempilas & Ors v JN Taylor Holdings (in prov liq) (No. 3) (1990) 3 ACSR 518, the Full Court of the Supreme Court of South Australia said (at 522): " The appointment of a provisional liquidator pending adjudication upon the petition for winding up, is a drastic intrusion into the affairs of the company and is not to be contemplated if other measures would be adequate to preserve the status quo. " 16 That passage has frequently been cited with approval, including by the Court of Appeal. 17 In my view, the proffered undertakings and consent to an order restraining any dealing with the company's assets, otherwise than by paying debts in the ordinary course of business, would satisfactorily preserve the status quo until the final hearing of the application. Notwithstanding the matters advanced by counsel for the plaintiff, it is by no means certain that the plaintiff will be found to be entitled, at a final hearing, to the relief which is sought. 18 The defendant has foreshadowed that a ground of defence to the claim will be that the parties have agreed to there being a voluntary winding-up following finalisation of the company's business, so far as that finalisation can be effected through its directors. Such a regime, it is submitted, is likely to be cheaper than the appointment of a court appointed liquidator. 19 Whilst such a contract could no doubt be overridden by a statutory claim for the winding-up of the company, the existence of such a contract may well provide a discretionary defence to the order sought. Moreover, there may not be the impasse to the company being wound up voluntarily, as was suggested. 20 Section 494(1) of the Corporations Act requires that the declaration of solvency be resolved upon by a majority of the directors. It does not require a unanimous resolution. It may well be that, prior to the hearing of the originating process, the directors will have agreed upon the form of the statement of affairs to be attached to the declaration of solvency. There does not appear to be any dispute that a declaration of solvency can properly be made. If there is no unanimity on that question, it may well be that the matter can be dealt with by the votes of the majority of the directors. It may also be that the parties will have agreed upon a person to be appointed as a liquidator in the voluntary winding-up, assuming that Mr Crawford is not to be so appointed. 21 I think there is substance in the defendant's contention that the dispute with the Chief Commissioner of State Revenue concerning the refund of payroll tax is likely to be able to be handled more expeditiously and more cheaply by the directors and the company's accountant, than would be the case if provisional liquidators were appointed. In my view, the plaintiff's position is sufficiently protected by the undertakings, or the order which I will make in relation to the dealings with the company's assets. 22 I note the undertaking given by the defendant to the Court through its counsel, without admissions, not to make any payment, whether by dividend or otherwise, to any of its shareholders or their associates until the completion of the final hearing of the originating process, or further order. 23 I order that, until further order, the defendant by itself, its servants or agents, be restrained from dealing with its assets otherwise than by paying debts in the ordinary course of business. 24 I order that the defendant file and serve any affidavits upon which it proposes to rely on the hearing of the originating process by 5 pm on 19 January 2007. 25 I stand over the originating process to 5 February 2007 at 10 am before the Corporations List judge. 26 I order that the interlocutory process filed on 6 December 2006 be otherwise dismissed. 27 The plaintiff has been unsuccessful in its interlocutory application. However, the merits of its application to wind up the defendant on grounds of oppression, or the just and equitable ground, have not been determined. The appropriate order is that the costs of the interlocutory process be the defendant's costs in the proceedings. ****** 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. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.