Reported Decision : 74 NSWLR 669 New South Wales Supreme Court CITATION : Lombe as liquidator of Ulicorp Pty Ltd [2009] NSWSC 536 HEARING DATE(S) : 20/04/09, 29/04/09, 10/06/09 JUDGMENT DATE : 12 June 2009 JURISDICTION : Equity Division Corporations List JUDGMENT OF : Barrett J DECISION : Special leave to distribute surplus. CATCHWORDS : CORPORATIONS - winding up - winding up by the court - surplus after payment of debts in full - basis on which surplus should be distributed to members - unanimous agreement of members to adopt some other basis - whether liquidator may proceed in accordance with agreement LEGISLATION CITED : Corporations Act 2001 (Cth), ss 140(1)(c), 488(2) CATEGORY : Principal judgment Re DS Millard & Son Pty Ltd (1997) 24 ACSR 71 CASES CITED : Re HIH Casualty & General Insurance Ltd [2005] NSWSC 240; (2005) 190 FLR 398 Re Trix Ltd [1970] 1 WLR 1421 Re Yanollee Pty Ltd [2006] NSWSC 705; (2006) 24 ACLC 1087 TEXTS CITED : "Palmer's Company Precedents" (17th ed) (1956) p 645 PARTIES : David John Frank Lombe in his capacity as official liquidator of Ulicorp Pty Limited - Plaintiff FILE NUMBER(S) : SC 1628/09 COUNSEL : Ms A Cameron, Solicitor - Plaintiff SOLICITORS : Gilbert + Tobin - Plaintiff IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST BARRETT J FRIDAY, 12 JUNE 2009 1628/09 DAVID JOHN FRANK LOMBE IN HIS CAPACITY AS OFFICIAL LIQUIDATOR OF ULICORP PTY LIMITED JUDGMENT 1 On 10 June 2009, I made an order granting special leave to Mr Lombe, as liquidator of Ulicorp Pty Limited, to distribute the surplus in the winding up of that company to Peter William Turner as to 37.5%, Philippa Turner as to 37.5% and Cherie Anne Lenon as to 25%. I indicated that I would publish my reasons later, as I now do. 2 Mr Lombe was appointed liquidator of Ulicorp by an order made by the court on 11 September 2007. The winding up is thus a winding up by the court. 3 Mr Lombe has paid in full the admitted claims of all creditors, together with interest. After these payments had been made, a surplus remained in his hands. Under s 488(2) of the Corporations Act 2001 (Cth), a liquidator may distribute a surplus only with the "special leave" of the court. In the context, "special leave" indicates no more than the court's permission given upon an application specially made by the liquidator: Re DS Millard & Son Pty Ltd (1997) 24 ACSR 71. 4 The issued share capital of Ulicorp consists of ordinary shares and "Dividend-V-R" (or "DVVR") shares. One hundred shares of each class have been issued. They are held as follows: P W Turner 15 DVVR shares 15 ordinary shares Philippa Turner 15 DVVR shares 15 ordinary shares C G Wise 15 DVVR shares 15 ordinary shares Roslyn Wise 15 DVVR shares 15 ordinary shares C A Lenon 10 DVVR shares 10 ordinary shares Darien Wise 15 DVVR shares 15 ordinary shares S D Wise 15 DVVR shares 15 ordinary shares 5 The DVVR shares are classified by a provision of the constitution as redeemable preference shares. They therefore carry both the rights given by the constitution to redeemable preference shares (there is provision for classes of redeemable preference shares other than DVVR shares, although no other redeemable preference shares are on issue) and the rights specifically given to DVVR shares. Among the rights attached to redeemable preference shares (and therefore to DVVR shares) is the following right: "On a winding up of the company, all shares shall be entitled to a pro-rata repayment of capital contributed, and such payments shall be ranked equally in priority and ranked before any shares which are not redeemable preference shares." 6 DVVR shares carry no other right upon a winding up. 7 The constitution also defines in express terms the rights carried by ordinary shares. These include: "'On a winding up of the company the right to participate pari passu with other shares of this class in the distribution of any surplus assets." 8 It appears, therefore, that upon a winding up, each holder of DVVR shares has a preferential right to repayment of the capital paid upon his or her DVVR shares but no other or additional right, while each holder of ordinary shares has a right to participate, in proportion to his or her holding of ordinary shares, in the balance of surplus remaining after the preferential rights of the holders of DVVR shares have been satisfied. However, since there is no suggestion that different amounts have been paid up on the DVVR shares of different holders and each holder of DVVR shares also holds an equivalent number of ordinary shares, the practical result, in terms of the entitlements upon a winding up created by the constitution, is that, in the particular circumstances of this case, the members participate in proportion to their respective shareholdings, regardless of class. 9 The relevant provision of the Corporations Act, in the case of a winding up by the court, is s 485(2). It says that, after adjustment of the rights of contributories among themselves, any surplus is to be distributed "among the persons entitled to it". The relevant entitlements are fixed by the numbers of shares held, subject to any contrary or adjusting provision of the constitution: see generally Re Yanollee Pty Ltd [2006] NSWSC 705; (2006) 24 ACLC 1087. For the reasons I have stated, the respective entitlements in the present case may be taken to be in proportion to the numbers of shares held. 10 The liquidator's proposal, however, was that the surplus should be distributed otherwise than to all members in proportion to the numbers of the shares they hold. That proposal was based on a resolution (said to have been a special resolution) passed at a meeting of the members of the company on 2 June 2009: "That any surplus funds from the administration of Ulicorp Pty Ltd (In Liquidation) be distributed in Peter William Turner, Philippa Turner and Cherie Anne Lenon in proportion to their respective shareholdings, in accordance with clause 2.3 of the Deed of Release dated May 2008 between Ulicorp Pty Ltd (In Liquidation), David John Frank Lombe in his capacity as Official Liquidator of Ulicorp Pty Ltd (In Liquidation), Colin George Wise, Stephen Douglas Wise and Darien Wise." 11 The deed referred to in this resolution is in evidence. Despite its description in the resolution, it is in fact a deed the parties to which are Ulicorp, Mr Lombe and the four Wise shareholders, not just the three mentioned. By the deed, those Wise parties agreed (for good reasons and upon a good consideration) to stand back from the winding up and to allow P W Turner, Philippa Turner and C A Lenon alone to participate in any surplus. 12 It was suggested at an earlier hearing that a resolution such as was eventually passed on 2 June 2009 would be proposed to give effect to article 97.1 of the constitution: "If the company is wound up, the liquidator may, with the sanction of a special resolution, divide among the members in kind the whole or any part of the property of the company and may for that purpose set such value as he considers fair upon any property to be so divided and may determine how the division is to be carried out as between the members or different classes of members." 13 This provision, however, is concerned only with the form in which the surplus is distributed among members. Its purpose is described thus at page 645 of the seventeenth edition (1956) of "Palmer's Company Precedents": "The power to distribute in specie or kind is in many cases found extremely convenient, for where the assets or the greater part of them consist of shares or other interests in or securities of another company, it may be impracticable to sell except to the serious detriment of the contributories." 14 Article 97.1 does not permit departure from the ordinary basis of distribution, so far as proportionate participation is concerned. The resolution of 2 June 2009 was, of itself and by reason of its being a special resolution, incapable of justifying distribution among some members to the exclusion of others. 15 It is significant, however, that, as the evidence makes clear, all seven members voted, in person or by proxy, on the special resolution and that every vote cast was in favour of the resolution. It can thus be seen that the members were unanimous in expressing a desire that the basis of distribution among members should be altered. 16 As has been noted, s 485(2) is concerned with entitlements measured by the respective proportionate shareholdings, as modified or adjusted by the constitution which, of course, has effect as a contract among the members by virtue of s 140(1)(c). It is clear that what would otherwise be statutory rights of participation by creditors in a winding up may be varied and re-arranged by the form of deemed unanimous assent of creditors created through a Part 5.1 scheme of arrangement (see, for example, Re Trix Ltd [1970] 1 WLR 1421; Re HIH Casualty & General Insurance Ltd [2005] NSWSC 240; (2005) 190 FLR 398). It should, I think, be accepted as equally clear that what would otherwise be the statutory rights of participation in surplus by members may be varied and re-arranged by the actual and unanimous assent of members. 17 The fact that every member expressed concurrence in the resolution of 2 June 2009 may be accepted as a sufficient manifestation of unanimous assent to the variation of the rights of participation of members that would otherwise have prevailed to justify the liquidator's distributing surplus on the unanimously agreed basis rather than the basis that would have been dictated by a combination of the proportionate shareholdings and the provisions of the constitution. 18 It was accordingly appropriate that the court grant special leave under s 488(2) to permit surplus to be distributed on that unanimously agreed basis. Agreement short of unanimity would, however, have been insufficient. ********** 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.