Smith re Berowra RSL Bowling and Community Club Ltd [2006] NSWSC 780

Reported Decision : 58 ACSR 410

New South Wales Supreme Court

CITATION : Smith re Berowra RSL Bowling and Community Club Ltd [2006] NSWSC 780

HEARING DATE(S) : 31/07/06

JUDGMENT DATE : 8 August 2006

JURISDICTION : Equity Division Corporations List

JUDGMENT OF : Barrett J

DECISION : Direction that liquidator may terminate bowling activities and sell bowling greens.

CATCHWORDS : CORPORATIONS - voluntary administration - powers of administrator - power to discontinue part of company's business and dispose of part of company's property - whether constrained by provision of constitution requiring company to promote relevant activity and to maintain property devoted to that activity

LEGISLATION CITED : Corporations Act 2001 (Cth), Part 5.3A, ss.140(1)(a), 437A(1)(c), 437B, 447A(1), 447D, 4772(c)

Aloridge Pty Ltd v Christianos (1994) 13 ACSR 99 CASES CITED : Australian Guarantee Corporation Ltd v Registrar of Titles (1992) 7 ACSR 577 Brash Holdings Pty Ltd v Katile Pty Ltd (1994) 13 ACSR 504 Re eisa Ltd (2000) 35 ACSR 394

PARTIES : Michael John Morris Smith in his capacity as Administrator of Berowra RSL Bowling and Community Club Limited - Plaintiff

FILE NUMBER(S) : SC 3912/06

COUNSEL : Mr A. Ivantsoff - Plaintiff

SOLICITORS : Matthews Folbigg Pty Ltd - Plaintiff

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

BARRETT J

TUESDAY, 8 AUGUST 2006

3912/06 MICHAEL JOHN MORRIS SMITH IN HIS CAPACITY AS ADMINISTRATOR OF BEROWRA RSL BOWLING AND COMMUNITY CLUB LIMITED JUDGMENT 1 The plaintiff is the administrator under Part 5.3A of the Corporations Act 2001 (Cth) of Berowra RSL Bowling and Community Club Limited ("the Club"). 2 The Club owns two properties. A property in Pacific Highway, Berowra is the site of an RSL club of the usual kind. The second property, in High Street, Berowra is the site of two bowling greens, a clubhouse and associated facilities. 3 The plaintiff's investigations have led him to the conclusion that cessation of the bowling activities and sale of the bowling venue in High Street is "the only realistic option which maximises the chances of the company continuing in existence, whilst maximising the chances of the creditors being repaid in full, in the short term". He gives cogent reasons for that opinion in his affidavit. 4 The plaintiff accepts that he has, under s.437A(1)(c) of the Corporations Act, power to discontinue any part of the Club's business and to dispose of any of its property; also that, under s.437B, exercise by him of that power would be taken to be action as the Club's agent. But the plaintiff apprehends that there may be an impediment to putting an end to the bowling activities and selling the High Street property. It is in that connection that he seeks the assistance of the court. 5 The apprehended impediment arises from the Club's constitution to which I now turn. 6 The Club is a company limited by guarantee. It was incorporated in 1971 under the Companies Act 1961. It appears from a schedule to the constitution that, in 1993, an amalgamation occurred under which members of a bowling club became members of the Club, the High Street property passed to the Club and the bowling club entered voluntary winding up. It also appears that, as part of the arrangements for amalgamation, the constitution of the Club was altered by the addition of provisions which required the Club to allow former members of the bowling club to form "their own section" within the Club, allowed that "section" to have a say in decisions as to the admission of members and gave the "section" what is termed "representation on the relevant Sub-Committee of the R.S.L. Bowling and Community Club Limited". Also apparently added to the constitution at that time was article 28: "The R.S.L. Bowling and Community Club Limited will: (a) promote and support the Bowling section and its activities. (b) maintain two bowling greens and surrounds in prime condition as championship greens in accordance with the requirements of the standards of the Royal New South Wales Bowling Association and supply and maintain all necessary and incidental equipment for that purpose." 7 A general meeting of the Club was held on 30 April 2006. A proposed special resolution to alter the constitution by omitting article 28 was put to a vote but was not passed by the necessary 75% majority. 8 It is in this context that the plaintiff as administrator, seeks, in the alternative: (a) an order under s.447A(1) "that article 28 of the articles of association of the company be deleted"; or (b) a direction under s.447D that, notwithstanding article 28, the plaintiff may terminate the bowling activities and sell the High Street property. 9 The plaintiff's apprehension is, of course, that article 28 precludes his terminating the bowling activities and selling the High Street property. 10 It may be said at once that that apprehension is without foundation. The power of an administrator under s.437A(1)(c) to discontinue any part of the company's business and to dispose of any part of its property is not a power of the company. It is a power that the administrator is given by statute, being a power exercisable by the administrator as administrator in relation to the company's business and property so as to be binding on the company. The administrator, in exercising the statutory power, is to be taken to be acting as the company's agent: see s.437B. That is the statutory mechanism that causes the company to be bound by acts of the administrator in exercise of the separate statutory powers conferred on an administrator with respect to the company's property. The company has not in fact constituted the administrator as its agent. Nor has the company done what has been done by the administration in exercise of the administrator's statutory power. The statute merely says that the acts of the administrator are to be taken to be of the same quality as if there had been an appointment of the administrator as the company's agent. 11 The separateness of, on the one hand, a power under the Corporations Act for a statutory official to sell the company's property (in that case, the power of a liquidator under s.477(2)(c)) and, on the other, the company's own power with respect to its property (and powers of agents appointed by the company) is recognised in Australian Guarantee Corporation Ltd v Registrar of Titles (1992) 7 ACSR 577. 12 The comprehensive nature of an administrator's powers under s.437A and related sections is recognised in the cases: see, for example, the decision of Brooking, J.D. Phillips and Hansen JJ in Brash Holdings Pty Ltd v Katile Pty Ltd (1994) 13 ACSR 504 at p.510. In Aloridge Pty Ltd v Christianos (1994) 13 ACSR 99 at p.101, Burchett J described them as "immense". Voluntary administration is a regime under which decision-making is confined to the administrator and, as to certain matters and in certain ways, the creditors assembled in a meeting and the court. Members and the interests of members are relegated. This is made clear by the decision of Beach J in Brash Holdings Ltd v Shafir (1994) 14 ACSR 192. His Honour said (at p.196): "If one looks at the provisions of Pt 5.3 a of the Corporations Law, it is clear, in my opinion, that they focus exclusively on the interests of creditors of the corporation in question. Nowhere in Pt 5.3 a is provision made for members to have a voice in the administration of the corporation. Expressed another way, members are excluded from contemplation during the process of an administration. Section 437 a , so far as is relevant, reads: 437 a (1) [Powers of administrator] While a company is under administration, the administrator:… (c) may... dispose of all or part of that business, and may dispose of any of that property... In my opinion, it is clear that the administrators of a company appointed under Pt 5.3 a of the Corporations Law have the power to dispose of the business and property of the company without convening a general meeting of the members of the company."