New South Wales Supreme Court CITATION : Owners of Strata Plan No. 60693 v Anneliese Pty Ltd [2006] NSWSC 1206 This decision has been amended. Please see the end of the judgment for a list of the amendments. HEARING DATE(S) : 25/10/06 JUDGMENT DATE : 25 October 2006 JURISDICTION : Equity Division Corporations List JUDGMENT OF : White J EX TEMPORE JUDGMENT DATE : 10/25/2006 DECISION : See paras 23-29 of judgment. CATCHWORDS : CORPORATIONS – Winding up – Application for termination of winding up – s 482 Corporations Act 2001 (Cth) considered – Whether liabilities of defendant company substantially exceed assets – Application granted - CORPORATIONS – Winding up – Effect of winding up – Powers of company officers during winding up – Application for order nunc pro tunc approving purported exercises of power by first and second applicants – s 471A Corporations Act considered – Where liquidator approved purported exercises of power in writing – Application granted. LEGISLATION CITED : Corporations Act 2001 (Cth) Supreme Court (Corporations) Rules 1999 (NSW) CASES CITED : Re Nature Springs Pty Limited (In Liq) (1994) 13 ACSR 50 Deputy Commissioner of Taxation v Sydney Concrete Steel Fixing Pty Limited (1999) 17 ACLC 972 The Owners of Strata Plan No. 60693 PARTIES : v Anneliese Pty Ltd FILE NUMBER(S) : SC 4907/05 COUNSEL : Plaintiff: M W Young Defendant: By Consent SOLICITORS : Plaintiff: Kenneth Mark Harkness Defendants: N/A IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST WHITE J Wednesday, 25 October 2006 4907/05 Owners Corporation Strata Plan 60693 v Anneliese Pty Ltd JUDGMENT 1 HIS HONOUR: This is an application under s 482 of the Corporations Act 2001 (Cth) for an order terminating the winding up of the defendant company, and for orders pursuant to s 471A(1A) for the grant of approval nunc pro tunc of certain exercises by the first applicant of power as director and secretary of the defendant. 2 The defendant company was wound up by an order made on 10 October 2005. It is the owner of interest as tenant in common with its sole director, Mr McLeay, of three lots in a strata development known as suites 201, 202 and 203 at 105 Pitt Street, Sydney. The lots are office suites. Some of them are occupied by Mr McLeay, who carries on his practice from them. 3 The liquidator consents to the present application. Indeed, he is one of the applicants. The two shareholders of the company, namely, Mr McLeay and his wife, are also applicants. 4 The liquidator's costs and the plaintiff's costs in the proceedings have been paid by Mr McLeay. He deposes to having paid all unsecured creditors of the company to date. He deposes that the company has no creditors other than a secured creditor, namely, ING. Mr McLeay is a chartered accountant by profession. He has prepared a balance sheet of the company as at 23 October 2006. It records the debt owed to ING on that day as being $755,000.72. Arrangements have been made for the discharge of that debt. 5 Whilst Mr McLeay deposes to there being no unsecured creditors of the company at this time, the evidence, including oral evidence given by Mr Fiorennino and Mr McLeay, shows that there are some third party unsecured creditors, but arrangements have been made for moneys to be borrowed by proposed refinanciers to pay them. Cheques are held by the liquidator in escrow in order to meet those liabilities. 6 The proposed refinanciers are Charub Pty Limited and Response Finance Pty Limited. Their solicitor advised me that they are aware of the application and they support it. Arrangements have been entered into, which are conditional upon, inter alia, the making of orders for the termination of the winding-up and the making of orders under s 471A of the Corporations Act approving of the exercise by Mr McLeay of his powers as a director to cause the company to enter into agreements with the refinanciers. 7 In Re Nature Springs Pty Limited (In Liq) (1994) 13 ACSR 50, McLelland CJ in Eq said (at 51): "It is a long established principle that it is contrary to the public interest to terminate the winding up of a company if after the termination the company would remain insolvent in the sense that its liabilities will substantially exceed its assets, even if there is a contractual subordination of all existing debts to future debts." 8 Accordingly, I was concerned to be satisfied that if an order is made for termination of the winding-up, the company's assets will exceed its liabilities. If they do not, there is the potential of prejudice to future creditors if the company incurs future debts. 9 Both Mr McLeay and the liquidator, Mr Fiorennino, gave evidence, both by affidavit and orally, to explain various of the entries in the latest balance sheet and profit and loss statement prepared by Mr McLeay for the company. The fact that the liquidator also gave such evidence is important. The evidence of an external accountant or, in this case, the liquidator, is of importance in applications of this kind (see Deputy Commissioner of Taxation v Sydney Concrete Steel Fixing Pty Limited (1999) 17 ACLC 972 at 973). 10 The balance sheet of the company records that it currently holds assets which are brought to account in an amount of $1,050,318. This consists of land and buildings at a valuation of $925,500 and leasehold improvements of $124,818. The leasehold improvements are accounted for at cost without depreciation. I have proceeded on the basis that if the company had to realise its assets, it is unlikely that a substantial amount for such leasehold improvements would be realised. These leasehold improvements consist of matters such as partitioning, office furniture and fittings. 11 The valuation of the land and buildings is recent, being a valuation dated 12 October 2006. I have no reason to think that the value attributed to the company's interest in the three office suites is overstated. 12 The only liability disclosed in the balance sheet is the liability to ING of $755,000. As I have said, there are other liabilities which will be discharged from moneys to be advanced by Charub Pty Limited and Response Finance Pty Limited. 13 Mr McLeay has also discharged various liabilities of the company. On 24 October 2006, a resolution was passed that the company issue 65,479 redeemable preference shares of $1 each to Mr McLeay to be paid in full from the credit balance of his loan account. Hence, to the extent there was a creditor of the company in the amount of $65,479, his debt has been capitalised. 14 Today, Mr McLeay has entered into a deed with the company releasing the company from any present debt which it might owe to him, and from any debt which might arise in the future from any present liability which the company has to him. 15 Following the termination of the winding-up, the company's liability will consist of the debt owed to the new financiers, Charub Pty Limited and Response Finance Pty Limited, in an amount of $940,000. I am satisfied that this debt will not exceed, and certainly not substantially exceed, the value of the company's assets. 16 An agreement has been entered into between the company and Mr McLeay in relation to his occupation of the office suites of which he and the company are co-owners. Pursuant to that agreement, Mr McLeay will assume liability for all the interest payments in respect of the loans to be taken, and in respect of all strata levies and other outgoings in relation to the occupancy of the property. 17 It does not appear that the interlocutory process has been served on ASIC (see Supreme Court (Corporations) Rules 1999 (NSW), r 2.8). However, in the circumstances, I am prepared to make an order under r 2.8(3) dispensing with the giving of notice of the application to the Australian Securities and Investments Commission ("ASIC"). 18 The applicants also seek an order pursuant to paragraph 471A(1A)(d) of the Corporations Act, nunc pro tunc, approving the following exercises of power by the first and second applicants, Mr McLeay and Ms Gralton, as director and secretary respectively, namely: " 1.1 Appointment of Gregory George McLeay as a sole director of the Company on 19 October 2006 by its secretary Sophie Anneliese Gralton as recorded per ASIC Company Extract dated 19 October 2006 and ASIC Form 484 Change to Company Details Appointment or Cessation Of a Company Officeholder being ASIC document no 7E0883441. 1.2 Minute of meeting of Defendant held on 24 October 2006 resolving to issue 65,479 Redeemable Preference Shares. 1.3 Lease Agreement dated 24 october 2006 between the Company and Gregory George McLeay. 1.4 Agreements entered into and mortgages granted by the Company with Charub Pty Ltd and Response Finance Pty Ltd for refinance of ING Loans. 1.5 Deed of Acknowledgement by Company dated [ ] that the interest in the property is held beneficially by same and not on trust for anyone else. " 19 Mr Fiorennino deposes that the acts referred to were taken by the McLeays, and not by him, because the acts were primarily related to the intended operation of the company after termination of the winding-up, if the Court saw fit to order that termination. 20 On 24 October 2006, the liquidator gave written approval to the performance or exercise, or purported performance or exercise, of the functions or powers of those officers to enter into the transactions referred to in the interlocutory process. It does not appear to me that the approval of the Court to the transactions is necessary, having regard to s 471A(1A)(c), which provides that the s 471A(1) prohibition upon a person exercising a function or power as an officer of a company himself or herself does not apply to the extent that the function or power is exercised with the liquidator's written approval. 21 However, the order is sought for more abundant caution. It is possible, for reasons which are not immediately apparent, that some question might arise in the future as to the sufficiency of the liquidator's approval. It appears that the acts undertaken were done properly, and with full disclosure to the liquidator. 22 Accordingly, I will make the order sought. 23 For these reasons, I make an order in accordance with paragraph 1 of the interlocutory process filed in court this afternoon. 24 I also order that notice of the application in the interlocutory process to ASIC be dispensed with. 25 I order that the winding-up of the defendant be terminated as at the date of pronouncing this order, namely, 4.18 pm on 25 October 2006. 26 I make that last order to ensure that no question might arise as to the validity of the deed entered into this afternoon, which is exhibit 1, which I note was entered into prior to my commencing to give reasons. 27 The exhibits on this application may be returned. 28 There are two other proceedings to be dealt with. Proceedings 1749/06 concern proceedings between the company in liquidation and Mr McLeay. By consent, in those proceedings, 1749/06, I order that the proceedings be dismissed with no order as to costs. 29 In proceedings 4907/05, by consent, I order that the interlocutory process filed on 16 December 2005 be dismissed with no order as to costs. In those proceedings, I vacate the hearing fixed for 7 December 2006 and I note that those proceedings have been concluded. 16/11/2006 - Correction to SP number in Heading of Judgment Page 1 - Paragraph(s) 0 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.