Official Trustee in Bankruptcy v Buffier [2006] NSWSC 870

New South Wales Supreme Court

CITATION : Official Trustee in Bankruptcy v Buffier [2006] NSWSC 870

HEARING DATE(S) : 15 May 2006

JUDGMENT DATE : 29 August 2006

JURISDICTION : Equity

JUDGMENT OF : Austin J

DECISION : See under heading "Conclusions"

CATCHWORDS : CORPORATIONS - winding up by the court - application for authority to make distribution of surplus asset in specie - court's power to give directions to liquidator - deficiencies in application - costs of applicant and liquidator

LEGISLATION CITED : Corporations Act 2001 (Cth), ss 477, 479, 485, 488, 556

Re GB Nathan & Co Pty Ltd (in liq) (1991) 24 NSWLR 674 CASES CITED : Re South African Supply & Cold Storage Co; Wild's Case [1904] 2 Ch 268 Stafford Coal & Iron Co Ltd v Brugan [1963] 3 All ER 277 Warne v GDK Financial Solutions Pty Ltd [2006] NSWSC 464

The Official Trustee in Bankruptcy (P) PARTIES : Andrew Brian Benjamin Buffier (D1) James Court & Associates Pty Ltd (in liq) (D2/R) Brian Joseph Bouffiere (D3/A)

FILE NUMBER(S) : SC 3519/05

COUNSEL : JK Chippinall (A/D3) B Skinner (R/D2)

SOLICITORS : David Landa Stewart (A/D3) Sally Nash & Co (R/D2)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST

AUSTIN J

TUESDAY 29 AUGUST 2006

3519/05 OFFICIAL TRUSTEE IN BANKRUPTCY V ANDREW BUFFIER & CO JUDGMENT HIS HONOUR: The application 1 Before me is an interlocutory process filed 11 April 2006 by the third defendant, Brian Joseph Bouffiere, said to be made under ss 447(1)(d) and 485(2) of the Corporations Act. There is no s 447(1)(d) in the Corporations Act, but the court is obliged by s 485(2) to adjust the rights of contributories among themselves and distribute any surplus among the persons entitled to it. That obligation would in normal circumstances be discharged on the application of a liquidator rather than a person claiming to be a contributory, such as Mr Bouffiere. There is therefore a question, to which I shall return, as to whether Mr Bouffiere has standing to make the application. 2 Questions also arise, on the evidence, as to the identity and description of Mr Bouffiere. It appears that Mr Bouffiere has, on occasion, spelt his surname "Buffier". The first defendant, his son, goes by the name "Buffier". What is less clear is whether "Brian Joseph Bouffiere", the third defendant, is the same person as " Brian Leslie Joseph Bouffiere [or Buffier]", referred to in some of the evidence. I shall return to this point. 3 The application is for the following substantive declaration and orders: 1. A declaration that the only creditor of the second defendant ("the Company") is Mr Bouffiere; 2. An order that the liquidator of the Company transfer the interest of the Company in property at 53 Kuranda Crescent, Kotara ("the Kotara Property") to Mr Bouffiere in consideration of an undertaking by Mr Bouffiere not to claim any further dividends or make any other claim in the winding up of the Company; 3. An order that the liquidator of the Company be not required to settle a list of contributories pursuant to s 478 of the Corporations Act; 4. An order that the costs of the application be costs in the winding up. 4 At the hearing of this application I was handed draft Short Minutes of Orders, which seek relief not identical with the interlocutory process. The draft Short Minutes of Orders provide for a declaration and orders as follows: 1. The Court declares that pursuant to a proof of debt filed on 9 December 2005 and admitted to rank for dividend on 16 January 2006, the only remaining creditor of [the Company] is the deferred creditor being Michael John Zwar as trustee of the Buffier Family Trust in the sum of $896,626.26. 2. The Court notes the undertaking of Michael John Zwar as trustee of the Buffier Family Trust and Mr Bouffiere that a dividend of $391,788 has been paid to them by the liquidator of [the Company] and they will and both of them will make no further claim for dividends in the winding up of [the Company]. 3. The Court orders that Darren Scott Pascoe as liquidator of [the Company] execute a memorandum of transfer of the interest of [the Company] in [the Kotara Property] in favour of [Mr Bouffiere] in pursuance of the undertakings referred to in paragraph 2 hereof. 4. The Court orders that the said Darren Scott Pascoe is justified in not settling a list of contributories of [the Company] pursuant to the provisions of the Corporations Act. 5. The Court orders that the interlocutory applications filed on 25 November 2005 and 3 February 2006 be dismissed. 6. The Court orders that the costs of the application be an expense in the winding up. 7. The Court orders that this order be settled and entered forthwith. 5 At the hearing of the application, Mr Chippindall of counsel appeared for Mr Bouffiere and Mr Skinner of counsel appeared for Mr Pascoe, the liquidator of the Company. There was no appearance for any other party. The liquidator of the Company gave evidence by affidavit saying that he did not oppose the transfer of the Kotara Property to Mr Bouffiere, should the court so order. He said that if the court did not make such an order, then he would realise that asset in the liquidation. 6 The evidence adduced in support of the application has been unclearly and incompletely set out in the body of the affidavits. It has been necessary for me to read the exhibits carefully so as to uncover material facts. Having done so, I have reached the firm conclusion that the evidence does not support any of the relief sought in the interlocutory process and draft Short Minutes, except for the para 5 of the draft Short Minutes. 7 The application was made in a proceeding of some length and complexity, in which Campbell J heard a contested application for an order for the winding up of the Company, and delivered a substantial reserved judgment (The Official Trustee in Bankruptcy v Buffier [2005] NSWSC 839, 25 August 2005). His Honour decided that a winding up order should be made on the just and equitable ground. The judgment indicates that the affairs of the Company were conducted in a very unsatisfactory manner, partly because of the intervention of Mr Bouffiere in the management of the Company, notwithstanding that he was an undischarged bankrupt and was prevented from managing a corporation by an order made by the Australian Securities and Investments Commission. The proceeding 8 By the initial summons in this proceeding, filed in June 2005, the Official Trustee in Bankruptcy sought to establish that Mr Bouffiere's title to two items of property had vested in him as trustee in bankruptcy, and he sought orders for the recovery of the property. The two items of property were a unit at 85/15 Herbert St, St Leonards ("the St Leonards Property") and the beneficial ownership of the whole of the issued capital (being 100 shares) in the Company. The summons also sought an order that the Company be wound up under s 461 of the Corporations Act, and that Mr Pascoe be appointed liquidator. Initially the defendants were the first defendant (Mr Bouffiere's son) and the Company. Mr Bouffiere became a party as third defendant pursuant to orders made by the Registrar in Equity on 12 December 2005. 9 When the matter came before White J as duty judge on 23 June 2005, his Honour made an order extending a caveat until further order and adjourned the proceeding. On 29 June 2005 his Honour made a declaration, by consent, that the 100 issued ordinary shares in the Company were vested in the plaintiff pursuant to s 58(1)(a) of the Bankruptcy Act 1966 (Cth), and he directed the Company to register the plaintiff as shareholder. His Honour's orders noted that the plaintiff would only be seeking to proceed for orders for the winding up of the Company and the appointment of a liquidator. The winding up application was dealt with by Campbell J, by his reasons for judgment delivered on 25 August 2005. 10 By an interlocutory process, said to have been made under s 479 of the Corporations Act and filed on 25 November 2005, Mr Bouffiere sought orders that the liquidator of the Company pay him an initial distribution of $300,000 and that the liquidator be authorised to divide all or part of the surplus assets of the Company amongst the members in specie. According to the affidavit of Michael John Zwar (Mr Bouffiere's solicitor) made on 10 April 2006, that application has been adjourned from time to time but has not been heard. It is one of the two applications which Mr Bouffiere now asks the court to dismiss. 11 In his affidavit of 10 April 2006, Mr Zwar said he prepared, but did not file, an amended interlocutory process seeking an order for the transfer of the 100 issued shares in the Company from the liquidator to Mr Bouffiere. The transmission of those shares was attended to by orders of the Registrar on 12 December, as noted below. The draft interlocutory application also sought an order authorising the liquidator to distribute to Mr Bouffiere all the Company's cash after deduction of proper expenses and debts owing to creditors, and to transfer the Kotara Property. The last part of the application now comes before the court as part of the interlocutory application of 11 April 2006. 12 As mentioned above, the short minutes of orders handed to me by counsel at the hearing of the present application invited me to dismiss the application of 25 November 2005, and also an application said to have been filed on 3 February 2006. According to the court's records, there was no application filed on that day. It may be that the short minutes were intended to refer to the draft application described by Mr Zwar in his affidavit. But it would be nonsensical to ask the court to make an order dismissing that application, since it was not filed, according to his evidence. 13 Mr Zwar exhibited to his affidavit of 10 April 2006 some correspondence between his firm and the solicitors for the liquidator concerning a draft interlocutory process. It is clear from the correspondence that the draft under discussion was not the draft exhibited to Mr Zwar's affidavit (at MJZ 2). In the circumstances, I do not know what to make of some parts of the correspondence. However, I can and do make the following inferences: · the correspondence confirms my overall impression of the evidence, which is that this application, and the proceeding as a whole, is being conducted in a very loose and imprecise manner having the effect of obfuscating the true facts; · the question whether the Company has any actual or potential tax liability is unresolved - by letter dated 3 February 2006 the solicitors for the liquidator expressed concern about the tax implications of any transfer of the Kotara Property to Mr Bouffiere, and while Mr Zwar's firm replied on 8 February 2006 asserting that there is no tax liability, it appears from item 10 of the liquidator's solicitor's letter of 22 March 2006 that the solicitors for the liquidator were still concerned about the matter at that time. Bankruptcy of third defendant 14 The third defendant was made bankrupt by sequestration order in January 2000. The plaintiff was appointed his trustee in bankruptcy. The bankrupt's statement of affairs was filed in January 2001 and in January 2004 the plaintiff caused the bankruptcy to be extended for a further period of three years, in consequence of alleged non-compliance by the third defendant with the plaintiff's requirements. 15 According to the affidavit of Mr Zwar made on 27 February 2006, Mr Bouffiere's bankruptcy was annulled on 21 September 2005, pursuant to s 73(A) of the Bankruptcy Act. There is no such section, and s 73A deals with another matter, namely the trustee's power to require surety for the cost of a meeting of creditors. In his affidavit of 10 April 2006, Mr Zwar said that the bankruptcy was annulled under s 74(5) of the Bankruptcy Act and he referred to a certificate of annulment which, however, has not been put into evidence. Mr Zwar's assertion suggests that there may have been a compromise or arrangement between the bankrupt and his creditors, approved by the creditors by special resolution on about 21 September 2005, having the effect that the bankruptcy was annulled by force of s 74(5) of the Bankruptcy Act on that day. But his evidence is so unsatisfactory, in the various ways identified throughout this judgment, that I cannot make a finding of fact that the bankruptcy has been annulled. Instead, I shall merely assume that this is the case for the purposes of considering the other issues I have been asked to address. Ownership and control of the Company 16 A company extract annexed (upside down!) to the affidavit of Mr Pascoe made on 12 May 2006 asserts that Mr Bouffiere is the beneficial holder of all of the 100 issued shares in the Company. According to the same extract, the director and secretary of the Company, appointed on 1 December 2003, is Alastair Service. 17 These matters have been the subject of findings by Campbell J. I shall consider, first, the identity of the director or directors, and secondly, the identity of the shareholder. Control of the Company 18 His Honour held that Mr Bouffiere was a director of the Company until 28 January 1999. He said that on 27 January 1999 ASIC made an order against Mr Bouffiere under s 600 of the Corporations Law, prohibiting him for a period of 5 years from being concerned in the management of a corporation without the leave of the court. He found that from March or April 2001 until October 2002, Mr Bouffiere purported to act as a director of the Company while bankrupt and disqualified by an ASIC order. Subsequent appointments of directors initiated by him were accordingly invalid, and so the person purporting to act as sole director in 2005, Mr Service, did not validly hold that office and there was, in effect, a power vacuum justifying the making of an order for the winding up of the Company. 19 Campbell J noted that according to an ASIC search tendered in evidence before him, Mr Bouffiere may have been appointed a director again on 11 April 2001, but it is not clear whether the leave of the court was obtained as required by ASIC's order, and in any case Mr Bouffiere was an undischarged bankrupt at that time. Although there appears to be no notation in ASIC's records to show resignation or removal, it appears that at some stage Mr Bouffiere ceased to be a director, for by 2005 only Mr Service was purporting to act as the sole director and secretary of the Company. Ownership of the Company's shares 20 According to the evidence of Mr Zwar (affidavit of 27 February 2006), Mr Bouffiere acquired all of the ordinary issued shares of the Company for a consideration of approximately $300 in July 2001. However, there was evidence before Campbell J, referred to in his judgment at [18], that the purchase of shares occurred on 14 March 2001. Whether it was in March or July 2001, Mr Bouffiere's purchase of the shares occurred while he was an undischarged bankrupt. Campbell J inferred that at the time of acquisition, the plaintiff must have already been the beneficial owner of the shares. This was because White J's declaration, made on 29 June 2005 by consent, that the shares were vested in the plaintiff, was made under the section of the Bankruptcy Act (s 58(1)(a)) that deals with the vesting in the trustee in bankruptcy of property of the bankrupt at the time when he became a bankrupt (at [18]). The circumstances of Mr Bouffiere's apparent acquisition of the beneficial ownership of the shares are not revealed either by Campbell J's judgment or the evidence before me on the application. 21 On 12 December 2005 the Registrar in Equity made an order under s 468(1) of the Corporations Act that the transmission of the 100 shares in the Company from the plaintiff to Mr Bouffiere was not void, and it authorised the liquidator to register the transmission. Section 468(1) states, inter alia, that a transfer of the shares of a company in liquidation, made after the commencement of the winding up, is void, but it authorises the court to make an order to the contrary. Therefore Mr Bouffiere is now registered as the sole shareholder in the Company. Whether he is entitled to the shares depends upon whether he validly acquired them and whether his bankruptcy has been validly annulled. If he is entitled to the shares, Mr Bouffiere is the sole contributory of the company. The property of the Company 22 It appears from Mr Pascoe's Report to Creditors dated 22 December 2005 that the Company's two principal assets are the Kotara Property and the proceeds of sale of the St Leonards Property.