In the matter of Blacktown City Rugby League & Sports Club Ltd (in liq) [2006] NSWSC 618

New South Wales Supreme Court

CITATION : In the matter of Blacktown City Rugby League & Sports Club Ltd (in liq) [2006] NSWSC 618

HEARING DATE(S) : 26 May, 2 & 9 June 2006

JUDGMENT DATE : 9 June 2006

JURISDICTION : Equity

JUDGMENT OF : Austin J

EX TEMPORE JUDGMENT DATE : 06/09/2006

DECISION : Direction to liquidators that they would be justified in making distribution as proposed

CATCHWORDS : CORPORATIONS - non-profit - winding up - distribution of surplus assets - requirement of determination by members

CASES CITED : In the Matter of Shellharbour Golf Club Limited (in liq) [2006] NSWSC 219

PARTIES : Antony Anne De Vries and Riad Tayeh, as liquidators of Blacktown City Rugby League & Sports Club Ltd (in liq) (P)

FILE NUMBER(S) : SC 2971/06

COUNSEL : A Ivantsoff (P)

SOLICITORS : Matthews Folbigg Pty Ltd (P)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

AUSTIN J

FRIDAY 9 JUNE 2006

2971/06 IN THE MATTER OF BLACKTOWN CITY RUGBY LEAGUE & SPORTS CLUB LIMITED (IN LIQ) JUDGMENT (Ex tempore; revised 9 June 2006) 1 HIS HONOUR: By an originating process filed on 29 May 2006, the applicants, the liquidators of the Blacktown City Rugby League & Sports Club Limited (in liq) ("the Club"), seek orders that they are justified in making a distribution of the surplus property of the company to certain voluntary associations. The application is based upon my judgment In the Matter of Shellharbour Golf Club Limited (in liq) [2006] NSWSC 219. 2 The Club was formed under the Companies Act 1961 (NSW). The liquidators have found that, after paying the secured creditor and unsecured creditors in an amount of over $328,000, there will be a surplus of in excess of $250,000. The destination of a surplus in the winding up of the Club is governed by the Memorandum of Association. The Memorandum of Association lists the objects of the Club in the usual lengthy fashion, including an incidental objects clause, but it seems to me that the main objects in the list can be identified as follows: (1) in Clause 2(a), to foster rugby league football in the Blacktown and Rooty Hill districts and elsewhere, and to provide training, conditioning and teaching facilities for rugby league football; to promote a number of games, including rugby league football, and others, and to acquire and maintain facilities for the purposes of those games; to promote the game of rugby league and assist other football clubs in the Blacktown and Rooty Hill districts; and to acquire and take over the assets and liabilities of an unincorporated association known as the Blacktown City Rugby League & Sports Club; (2) in Clause 2(b), to promote and encourage sporting, social and cultural activities of all interested community groups; (3) in Clause 2(d), to establish and maintain a Club for the use and accommodation of members. 3 Clause 3 of the Memorandum of Association states that the income and property of the Club are to be applied solely towards the promotion of the Club's objects, and no portion is to be paid by way of dividend, bonus, or otherwise, by way of profit to the members. There are, in the usual fashion, provisos to permit the payment in good faith of reasonable and proper remuneration to officers and members in return for services and the payment of interest and rent to members. 4 Clause 6 of the Memorandum of Association is in the following terms: "If upon the winding up or dissolution of the Club, there remains after satisfaction of all its debts and liabilities, any property whatsoever the same shall not be paid to or distributed amongst the members of the Club, but shall be given, or transferred to some other institution, or institutions having objects similar to the objects of the Club and which shall prohibit the distribution of its or their income and property amongst its or their members to an extent at least as great as is imposed on the Club under, or by virtue of, Clause 3 hereof, such institution or institutions to be determined by the members of the Club at or before the time of dissolution and if and so far as effect cannot be given to the aforesaid provision, then to some charitable object." 5 Clause 6 is similar to the clause that I considered in the Shellharbour Golf Club case, except that the clause in that case vested ultimate jurisdiction in the Supreme Court in default of any decision by the members as to the destination of the surplus. 6 In the Shellharbour Golf Club case, I considered whether the requirement of the Memorandum, that the identity of the recipient of the surplus be "determined by the members of the Club", required a decision by a special resolution or whether an ordinary resolution would be sufficient. I referred (at [18]) to the Articles of Association of the Shellharbour Golf Club and (at [19]) to the provisions of the Companies Act 1961 (NSW), requiring that certain decisions by the members be made by special resolution. The company in the present case was also formed under the Companies Act 1961 and its Articles of Association are relevantly indistinguishable from the articles of the Shellharbour Golf Club. 7 In the Shellharbour Golf Club case, I concluded, after review of the statutory materials and the articles, that where the Memorandum merely stipulates that a decision be made by the members, without more, the natural inference is that the decision be taken in such a manner as is permitted by the company's constitutional rules for decision-making by members (at [20]) and, consequently, that a decision by ordinary resolution would be sufficient. In that case, I found it unnecessary to reach a firm conclusion because the resolution had been put to the members as a special resolution and it had not obtained the requisite majority for a special resolution. Therefore, the default power of the Court was invoked and I exercised it. 8 In the present case, once the liquidators had identified the probability of a substantial surplus, the board of directors of the Club met to consider the matter. The meeting took place on 3 April 2006. The minutes note that the board endeavoured to give the administrators, as they were described, some direction on how they perceived the membership and themselves would like to see the funds distributed. The board unanimously recommended that the surplus assets be split by allocating 80% to Blacktown City Junior Rugby League Club Ltd, 10% to Penrith and Districts Junior Rugby League Club Ltd and 10 per cent to Blacktown City and District Cricket Association (Inc). 9 The liquidators then sent a report to the Club's creditors dated 7 April 2006, and a circular to the Club's members of the same date. Those documents explained that there would be a surplus, and indicated that a meeting of the members of the Club would be convened on 27 April 2006 to assist the liquidators to determine to which bodies the surplus funds should be distributed, as a prelude to an application to this Court. 10 The meeting was duly held and the destination of the surplus assets was fully discussed. Roughly one hundred out of several hundreds of members attended. Some members objected to money going outside the Blacktown region and, therefore, preferred not to allocate funds to the Penrith and Districts Junior Rugby League Club. There were other suggestions as to the destination of the funds - for example, one member suggested that money should be given to a variety club instead of a sporting club. But when the matter was put to a vote, as an ordinary resolution to the effect that the balance of the surplus funds be distributed to the three entities in the proportions identified by the board, the resolution was clearly supported on a show of hands and when proxies were counted, there were 64 votes in favour of the resolution and 10 votes against. 11 The issues to be addressed under clause 6 of the Club's Memorandum of Association are: (a) whether the proposed recipient institutions have objects similar to the objects of the Club; (b) whether they prohibit the distribution of their income and property amongst their members to an extent at least as great as is imposed on the Club by virtue of Clause 3 of the Memorandum; and (c) whether the members of the company have "determined" which institution or institutions should receive the funds, at or before the time of dissolution. 12 As to the first matter, I have evidence of the objects of each of the three proposed recipients. The Blacktown City Junior Rugby League Club (Inc) is a body formed under the Associations Incorporation Act 1984 (NSW). Its objects include developing, propagating and administering junior rugby league. 13 The Penrith and Districts Junior Rugby League Club Limited is incorporated under the Companies (NSW) Code, as a company limited by guarantee. Its objects include co-operating with a "District club" in promoting, organising and conducting the game of junior rugby league. 14 The Blacktown City and District Cricket Association (Inc) is formed under the Associations Incorporation Act and the objects include fostering and developing the game of cricket in the Blacktown City and districts area. 15 It seems to me plain that the objects of the first two bodies are similar to the objects of the Club, central among which is the object of promoting the game of rugby league. So far as the Cricket Association is concerned, there is, in my view, also a similarity because the broader objects of the company include the promotion of sport in the manners that I have set out. I am, therefore, satisfied that this requirement of Clause 6 is met by the proposal. 16 As to the prohibition on distribution of income and property, Clause 1.4(c) of the constitution of the Blacktown City Junior Rugby League Club (Inc) requires that the income and property of that club be applied solely towards the promotion of its objects and no portion is to be paid or transferred directly or indirectly by way of dividend, bonus, or otherwise by way of profit to the members. There is a proviso for remuneration for services and for reasonable and proper rent of premises. That clause is not materially distinguishable from Clause 3 of the Memorandum of Association of the Club. 17 As to the Penrith and District Junior Rugby League Club Limited, Clause 4 contains a provision substantially the same as Clause 3. 18 As to the Blacktown City and District Cricket Association (Inc), there is no express prohibition in its rules, but that entity was formed under the Associations Incorporation Act 1984, as I have said, and s 7 of that Act provides that an association is not eligible to be incorporated under the Act if it is carried on for trading or securing pecuniary gain for its members. 19 It seems to me that, by its formation under that legislative regime, the Cricket Club has prohibited the distribution of its income and property amongst its members, for the purposes of Clause 6 of the Memorandum of Association of the Club. 20 I am, therefore, satisfied that the second requirement of Clause 6 is met in respect of each of the three recipient bodies. 21 The third requirement is that the recipient institutions be "determined" by the members. As I have said, a resolution to approve the distribution to the three bodies was voted on by the members at a duly convened meeting and 64 of them voted in favour, with only 10 voting against. Although the resolution was not put to the members as a special resolution, it appears to me, for the reasons I advanced in the Shellharbour Golf Club case, that a special resolution is not needed when the memorandum of association contains a provision in the form of Clause 6 of the Memorandum of Association of this Club. 22 The Court is likely to be reluctant to provide any discretionary remedies, such as directions or judicial advice, where a proposal is put to members and approved by a bare majority. However, in the present case, the majority is 64 in favour and 10 against, sufficient to have passed the resolution as a special resolution if it had been put in that form. My view is that there has been a determination by the members for the purposes of Clause 6 of the Memorandum of Association. 23 In the present case, unlike the Shellharbour Golf Club case, the Court does not have a role of assessing the proposal for distribution on its merits. Clause 6 allocates that function to the members and they have performed it. Some of the evidence before me is intended to satisfy the Court on the merits and, in the circumstances, I shall not pronounce upon that subject. There is nothing in the evidence, however, that would have raised a question in my mind about the merits of the proposal if that issue had fallen to me for determination. 24 The originating process seeks a declaration that the plaintiffs are justified in distributing the surplus property in the manner proposed. This is not an appropriate application for the making of a declaratory order. The correct course, which was followed in the Shellharbour Golf Club case, is that the Court should make a direction under ss 469(3) and 511(1) of the Corporations Act that the liquidators would be justified in making the distribution that they propose. That is the order that I shall make. 25 I make an order in terms of paragraph 1 of the originating process, except that the word "direction" is substituted for the word "declaration". **********