Reported Decision : 76 ACSR 164 235 FLR 434 New South Wales Supreme Court CITATION : FAI Car Owners Mutual Insurance Company Pty Ltd & Ors [2009] NSWSC 1350 HEARING DATE(S) : 30/11/09 JUDGMENT DATE : 4 December 2009 JURISDICTION : Equity Division Corporations List JUDGMENT OF : Barrett J DECISION : Amended applications and further submissions to be brought in CATCHWORDS : CORPORATIONS - winding up - winding up by the court - surplus after payment of debts and claims in full - proposed distribution to contributories - whether necessary to settle list of contributories - ascertaining entitlements to surplus - role of company's constitution - need for "special leave" to distribute - whether Form 551 should be dispensed with - where surplus includes company's right to participate as a creditor in the insolvent winding up of another company - nature of that right - proposed distribution of the right in kind - where constitution allows distribution in kind with sanction of special resolution - no effective special resolution passed - whether court has power to sanction distribution in kind despite absence of special resolution - whether unanimous assent may cure absence of special resolution - whether assignment of right under winding up of another company is an "agreement" within s 477(2B) - where entitlement to surplus rests with sole member which is itself in liquidation and company concerned is a creditor in that liquidation - whether modified rule in Cherry v Boultbee requires deferral of distribution of surplus until proceeds of proof received - no such requirement in case of sole contributory - distribution in kind of the company's right under the sole contributory's winding up - whether such distribution constitutes "compromise" of "debt" - liquidator's remuneration - power of court to fix where no committee of inspection and no creditors - release of liquidators - application premature where surplus not distributed - destruction of books - whether on the evidence order sought as to destruction should be made Companies Act 1981 (Cth), regulation 97(1) of Table A of Schedule 3 Companies Acts of 1931 (Qld), s 258 LEGISLATION CITED : Company Law Review Act 1998 (Cth) Corporations Act 2001 (Cth), ss 254A(2B), 254B(2), 473(3), 477(1)(d), 477(2A), 477(2B), 478(1A), 479(3), 480(d), 481(5)(b), 485(2), 511, 542(2), 542(3)(a), 563B, 1322(4)(a), Corporations Regulations 2001 (Cth), Form 551, regulations 5.4.02, 5.6.71 Supreme Court (Corporations) Rules 1999, rule 7.5(2) CATEGORY : Principal judgment Agnew v Commissioner of Inland Revenue [2001] 2 AC 710 Archibald Howie Pty Ltd v Commissioner of Stamp Duties [1948] HCA 28; (1948) 77 CLR 143 Baker & Davies plc v Leslie Wilkes Associates [2005] 3 All ER 603 Brealey v Shields [2009] NSWSC 1148 Cherry v Boultbee (1839) 4 My & Cr 442; 41 ER 171 Dean-Willcocks v ATTT Investments Pty Ltd [1999] NSWSC 642; (1999) 17 ACL 1310 Elderslie Finance Corporation Ltd v Newpage Pty Ltd (No 6) [2007] FCA 1030; (2007) 160 FCR 423 Huddersfield Banking Company Ltd v Henry Lister & Son Ltd [1895] 2 Ch 273 March v Martin [1880] WN Eng 111 Motor Terms Co Pty Ltd v Liberty Insurance Ltd [1967] HCA 9; (1967) 116 CLR 177 Official Trustee in Bankruptcy v Buffier [2006] NSWSC 870 CASES CITED : Otis Elevator Co Pty Ltd v Guide Rails Pty Ltd [2004] NSWSC 383; (2004) 49 ACSR 531 Re Crust 'n' Crumbs Bakers (Wholesale) Pty Ltd [1992] 2 Qd R 76 Re Driffield Gas Light Co [1898] 1 Ch 451 Re D S Millard & Sons Pty Ltd (1997) 24 ACSR 71 Re Lombe as liquidator of Ulicorp Pty Ltd [2009] NSWSC 536 Re Peruvian Railway Construction Co Ltd [1915] 2 Ch 144 Re The English and Foreign Credit Company (1884) 1 TLR 1 Re 3 Ernest Street Pty Ltd (1980) CLC 40-619 Re Thylungra Pastoral Co Ltd [1933] QWN 45 Re Yanollee Pty Ltd [2006] NSWSC 705; (2006) 24 ACLC 1087 Spalla v St George Motor Finance Ltd (No 7) [2006] FCA 1177 White v Elmdene Estates Ltd [1960] 1 QB 1 Anthony Gregory McGrath and Christopher John Honey as liquidators of HIH (NSW) Pty Limited - Applicants (1) FAI General Insurance Company - Plaintiff FAI Car Owners Mutual Insurance Company Pty Ltd - Defendant (2) ACN 005 312 345 Pty Ltd - Plaintiff CIC Investments Ltd - Defendant (3) HIH Casualty and General Insurance Ltd - Plaintiff FAI Finance Corporation Pty Ltd - Defendant (4) FAI General Insurance Company Ltd - Plaintiff FAI Workers Compensation (Vic) Pty Ltd - Defendant (5) Lanlex No 65 Pty Ltd - Plaintiff (6) HIH Underwriting and Agency Services Ltd - Plaintiff Berzot Pty Ltd - Defendant (7) FAI General Insurance Company Ltd - Plaintiff PARTIES : Tangleberry Pty Ltd - Defendant (8) FAI Insurance Ltd - Plaintiff Radbath Holdings Pty Ltd - Defendant (9) Radbath Holdings Pty Ltd - Plaintiff Vanhall Pty Ltd - Defendant (10) FAI Insurance Ltd - Plaintiff FAI Investments Pty Ltd - Defendant (11) Lanlex No 45 Pty Ltd - Plaintiff Rhondda Collieries (Qld) Pty Ltd - Defendant (12) HIH Casualty and General Insurance Ltd - Plaintiff HIH (NSW) Pty Ltd - Defendant (13) Murray Campbell Smith as Liquidator of FAI Sunshine Coast Pty Limited - Applicant Gleneagles Properties Pty Ltd - Plaintiff FAI Sunshine Coast Pty Ltd - Defendant FILE NUMBER(S) : SC 6367/04; 4232/03; 4237/03; 2422/03; 1803/01; 6366/04; 6389/04; 6387/04; 6390/04; 6398/04; 6374/04; 6375/04; 6368/04 COUNSEL : Mr M B Oakes SC/Mr J Scarcella - Applicants SOLICITORS : Blake Dawson - Applicants IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST BARRETT J FRIDAY 4 DECEMBER 2009 6367/04 FAI GENERAL INSURANCE COMPANY LTD v FAI CAR OWNERS MUTUAL INSURANCE COMPANY PTY LTD 4232/03 ACN 005 312 345 PTY LTD v CIC INVESTMENTS LTD 4237/03 HIH CASUALTY AND GENERAL INSURANCE LTD v FAI FINANCE CORPORATION PTY LTD 2422/03 FAI GENERAL INSURANCE COMPANY LTD v FAI WORKERS COMPENSATION (VIC) PTY LTD 1803/01 LANLEX NO 65 PTY LTD 6368/04 GLENEAGLES PROPERTIES PTY LTD v FAI SUNSHINE COAST PTY LTD 6366/04 HIH UNDERWRITING AND AGENCY SERVICES LTD v BERZOT PTY LTD 6389/04 FAI GENERAL INSURANCE COMPANY LTD v TANGLEBERRY PTY LTD 6387/04 FAI INSURANCE LTD v RADBATH HOLDINGS PTY LTD 6390/04 RADBATH HOLDINGS PTY LTD v VANHALL PTY LTD 6398/04 FAI INSURANCE LTD v FAI INVESTMENTS PTY LTD 6374/04 LANLEX NO 45 PTY LTD v RHONDDA COLIERIES (QLD) PTY LTD 6375/04 HIH CASUALTY AND GENERAL INSURANCE LTD v HIH (NSW) PTY LTD JUDGMENT Introduction 1 The liquidators of thirteen companies in the HIH Group seek orders directed towards completion of the respective windings up and deregistration of the companies. 2 In referring to the "HIH Group", I intend to identify HIH Insurance Limited and 81 subsidiaries of that company, all of which are in the course of being wound up by the court under the Corporations Act 2001 (Cth). 3 As one might expect, the several windings up have progressed at different rates, depending on circumstances. The thirteen companies with which I am now concerned are the first to approach the last stage of the winding up process. 4 With two exceptions, each of the thirteen companies has one member only, being another company in liquidation and included in the HIH Group. One exception is a company having two members, each of which is a company in liquidation within the HIH Group and holds ordinary shares. The other exception is a company which has on issue ordinary shares held by one member and redeemable preference shares held by four members, all members forming part of the HIH Group. The several classes of companies 5 For the purposes of the liquidators' application, the thirteen companies were divided into three classes: Class A: Companies each of which has paid the claims of creditors in full (together with interest pursuant to s 563B of the Corporations Act ) and has a surplus of assets. Class B: Companies each of which has no creditors and a surplus of assets. Class C: Companies in each of which the claims of creditors have not been satisfied in full but assets are exhausted. The orders sought 6 The orders sought in the interlocutory processes in respect of several of the Class A companies are: "1. A direction pursuant to section 479(3) of the Act that the Liquidators of the Company, on behalf of the Company, are released from the requirement under section 478(1A) of the Act to prepare and settle a list of contributories of the Company. 2. An order pursuant to section 488(2) of the Act that the Liquidators be granted special leave to distribute the surplus assets of the Company. 3. A direction pursuant to Regulation 5.6.71(1) of the Corporations Regulations 2001 , that the order authorising the distribution of surplus need not have annexed to it a schedule in accordance with Form 551. 4. A direction pursuant to section 479(3) of the Act that the Liquidators of the Company, on behalf of the Company, are entitled to make an in specie distribution of any surplus assets of the Company. 5. An order pursuant to section 477(2B) of the Act that the making by the Liquidators, for and on behalf of the Company, of the Deeds of Assignment which are in, or substantially to the effect of [identified forms of deed of assignment in favour of group companies other than sole member] be approved. 6. A direction pursuant to section 479(3) of the Act that the Liquidators of the Company, for and on behalf of the Company, are authorised to enter into the Deeds of Assignment which are in, or substantially to the effect of [identified forms of deed of assignment in favour of group companies other than sole member] and to distribute any surplus in accordance with the terms of the Deeds of Assignment. 7. A direction pursuant to section 479(3) of the Act that the Liquidators of the Company are justified in extinguishing the debt owed to the Company by [sole member] in the sum of [amount] (the Debt ); 8. Further and in the alternative to 7 above, an order pursuant to section 477(2A) of the Act that the Liquidators have approval, for and on behalf of the Company, to compromise the Debt. 9. An order that an application to the Court in relation to the approval of the Liquidators' remuneration may be made notwithstanding the terms of section 473(3)(a) or section 473(3)(b)(i) of the Act, or, in the alternative, an order pursuant to section 1322(4)(a) of the Act that the application for approval of remuneration is not invalidated by virtue of any non-compliance with sections 473(3)(a) and 473(3)(b)(i) of the Act. 10. An order pursuant to section 473(3)(b)(ii) of the Act that: (a) the Liquidators' remuneration for the liquidation of the Company for the period 10 December 2004 to 6 November 2009 (inclusive), is determined to be [amount] together with [amount] GST; (b) the Liquidators' remuneration for the liquidation of the Company for the period 7 November 2009 until and including the deregistration of the Company be fixed in the amount of [amount] together with [amount] GST; or (c) in the alternative to paragraphs (a) and (b) above, that the determination of the Liquidators' remuneration for the liquidation of the Company for the periods referred to in paragraphs (a) and (b) be referred to a Registrar of the Court. 11. An order pursuant to section 480 of the Act that: (a) the Liquidators be released from their role in relation to the Company; and (b) the Company be deregistered by ASIC. 12. A direction pursuant to section 542(3)(a) of the Act that the Liquidators be permitted to destroy the books and records of the Company after the expiry of 90 days from deregistration." 7 Orders 4, 5 and 6 deal with the same subject. They are relevant to one of the Class B companies and all but one of the Class A companies. Each such company is one in which the surplus in the liquidator's hands includes debts owed to the company by one or more HIH Group companies other than the company's sole member. The intention is to see the debt or debts assigned to the sole member so that it is to the sole member, instead of the subject company, that the indebtedness of the other HIH Group member or members is owed. 8 Orders 7 and 8 are sought in two cases (one a Class A company and the other a Class B company) where the surplus in the liquidators' hands includes a debt owed to the subject company by its sole member. The intention is that the debt be simply released. 9 Where the surplus in the liquidator's hands includes debts owed to the subject company by both its sole member and one or more other companies in the HIH Group, all of orders 4, 5, 6, 7 and 8 are sought. 10 As I have said, all of orders 1 to 12 are sought in respect of several Class A companies. In the case of one of the Class B companies, all of orders 1 to 12 are sought by the interlocutory process. In relation to the other Class B company, the claim is for orders 9 to 12 only. 11 For each Class C company, the interlocutory process contains claims for only orders 11 and 12. An abandoned claim 12 One of the claims made in every case was abandoned at the hearing. I refer to the claim for order 1. This was abandoned because it is recognised that there will be no need to make calls on contributories (all relevant shares being fully paid) and no need to adjust the rights of contributories among themselves (there being a single contributory only in all but one of the cases and two contributories holding shares with identical characteristics in the remaining case). Because of the lack of need either to make calls on contributories or to adjust the rights of contributories among themselves, the obligation under s 478(1A) to settle a list of contributories does not arise: see s 478(1A)(b). 13 Had the s 478(1A) obligation operated, the application for order 1, if pressed in the terms made, would have been refused. This is because the section relied upon, being s 479(3), does not empower the court to "release" a liquidator from that obligation. 14 Because the s 478(1A) obligation does not operate in any of the cases before me, the court would have been prepared to make a s 479(3) direction in the usual form that is, that the liquidators are justified in not settling a list of contributories under s 478(1A). However, no such direction was sought – no doubt because the position was, on reflection, seen to be clearcut. Surplus in a winding up 15 Orders 2 to 8 are all concerned, in one way or another, with distribution of surplus remaining in the liquidators' hands. 16 A succinct description of the winding up process leading to the emergence of such surplus appears in the judgment of McPherson SPJ in Re Crust 'n' Crumbs Bakers (Wholesale) Pty Ltd [1992] 2 Qd R 76 at 78: "Winding up is a process that consists of collecting the assets, realising and reducing them to money, dealing with proofs of creditors by admitting or rejecting them, and distributing the net proceeds, after providing for costs and expenses, to the persons entitled." 17 In a court-ordered winding up, the final step – "distributing net proceeds, after providing for costs and expenses, to the persons entitled" – is required by s 485(2) of the Corporations Act: "The Court must adjust the rights of the contributories among themselves and distribute any surplus among the persons entitled to it." 18 Except in special cases (see, for example, s 254B(2)), the entitlements referred to in s 485(2) are not dictated by or derived from legislation. In the case of a company limited by shares, they are the product of shareholding and any applicable provisions of the company's constitution. As Wright J said of the English statutory provisions in Re Driffield Gas Light Co [1898] 1 Ch 451 at 455: "[They] do not of themselves supply any rule for the mode of adjusting loss of capital or of distributing surplus, but only supply the necessary powers for giving effect to the rights and interests of the parties. Those rights in the case of a company constituted under the Companies Act must, in the absence of any provision in the memorandum or articles of association, be ascertained, in the view of one of the noble and learned Lords who took part in the decision of Birch v Cropper (1889) 14 App Cas 525, by recourse to general principles of equity; in the view of another of them, by reference to the principles and provisions of the Companies Acts. But in either view the result is the same, namely, that the capital account must first be equalized, and then there remains no ground for appropriating the balance in any other way than according to the nominal amount of the shares in the capital." 19 In the absence of any other specification, therefore, distribution of surplus among members was according to the nominal amounts of their shares. With the abolition of the par value concept in relation to shares by the Company Law Review Act 1998 (Cth) with effect from 1 July 1998, the position became that distribution of surplus among members is prima facie according to numbers of shares held: Re Yanollee Pty Ltd [2006] NSWSC 705; (2006) 24 ACLC 1087. 20 This prima facie position may be changed by the company's constitution. The Corporations Act recognises this and, in some cases, requires that rights to participate in surplus assets be set out in the constitution (or approved by special resolution): see s 254A(2)(b). In Archibald Howie Pty Ltd v Commissioner of Stamp Duties [1948] HCA 28; (1948) 77 CLR 143 at 152, Dixon J recognised that a member's right to have paid up capital returned in a liquidation is a right arising out of "the contract inter socios". 21 Allocation of surplus among members in a winding up must be in the proportions indicated by the respective shareholdings, subject to any provisions of the constitution fixing or affecting proportions. 22 The Corporations Act is also silent regarding the form in which surplus is to be distributed. Given the nature of the winding up process (including, in the words of McPherson SPJ, "realising and reducing [the assets] to money … and distributing the net proceeds"), distribution will, in the ordinary course, be in the form of cash. 23 Again, however, the prima facie position may be altered by the constitution. Reference will be made in due course to the common constitutional provision for distribution of particular assets in kind with the sanction of a special resolution. Distribution of surplus 24 Orders 2 and 3 are sought in relation to all Class A companies and one Class B company. 25 In all those cases, no question arises as to the first matter referred to in s 485(2), that is, the rights of contributories among themselves. In all but two cases, there is a single contributory. In one of the remaining cases, there are two contributories and the shares held by each, being fully paid, carry identical rights. In the other case, redeemable preference shares are on issue in addition to ordinary shares held by a single holder and the amounts paid up on the redeemable preference shares have, in accordance with the terms of issue, been returned, thus fulfilling the rights attached to those shares and leaving the sole holder of ordinary shares alone to participate in surplus. 26 Section 488(2) aims to instil in a liquidator a sense of care to ensure that all steps necessary to verify that a surplus in truth exists have been duly taken and that members' entitlements have been ascertained. It is for this reason that the liquidator must approach the court, by way of application specially made, to obtain permission to distribute: Re D S Millard & Sons Pty Ltd (1997) 24 ACSR 71. 27 The existence of a surplus is sufficiently demonstrated in each of the cases in which orders 2 and 3 are sought. I should add that, in the several cases in which the court is asked both to fix remuneration of the liquidators and to grant "special leave" to distribute surplus, it is shown that a surplus will remain after the remuneration has been paid. 28 The requirement under regulation 5.6.71 of the Corporations Regulations 2001 (Cth) that an order of the court authorising distribution of surplus have annexed to it a schedule of entitlements in Form 551 is intended for cases other than those as simple and straightforward as this. As in Brealey v Shields [2009] NSWSC 1148, therefore, there will be a direction under regulation 5.6.71(1) dispensing with the requirement that a schedule in Form 551 be annexed to the order granting "special leave" to distribute surplus. 29 Orders 2 and 3 are appropriate and will be made in every case in which they are sought. Assignment of debts owed otherwise than to sole member 30 As I have said, the situation in several cases is that, after all debts have been paid and expenses met, there will remain, as part of the surplus assets in the winding up, a debt or debts owed to the particular company by one or more companies in the HIH Group, not being or including the company's sole member. Thus, in the winding up of Company X, the whole of the issued shares in which are held by Company Y, the surplus for distribution to contributories (in reality, the sole contributory, Company Y) will include a debt owed to Company X by Company Z. 31 In the ordinary course of events, the expectation would be that the liquidator of Company X would collect the debt owed by Company Z to Company X, the proceeds would be applied in the ordinary course of administration along with other available funds and, after all debts proved in the winding up of Company X had been paid and all expenses of administration had been met, Company Y, as sole contributory, would receive in cash the remaining balance. 32 The liquidators wish to follow an alternative path. Company Z is itself in the course of insolvent winding up. What (if anything) will ultimately be realised and when realisation will occur are doubtful. The intention is that Company X should, in the course of "distributing" surplus assets to its sole member, Company Y, assign to Company Y the rights that Company X has by virtue of the debt owed to it by Company Z. The "debt" owed by Company Z 33 Submissions proceeded on the footing that, despite the circumstance that Company Z is being wound up by the court, there remains a debt owing by Company Z to Company X. The forms of deed referred to in orders 5 and 6 have been prepared on that basis. 34 The better view is that the intervention of a court-ordered winding up of Company Z changed the nature of Company X's right. When the winding up of Company Z commenced, Company X was denied the right that it would otherwise have had to sue Company Z to recover the debt. It obtained instead a right to participate in a distribution in Company Z's winding up. The concept is elucidated in Motor Terms Co Pty Ltd v Liberty Insurance Ltd [1967] HCA 9; (1967) 116 CLR 177, particularly in the judgment of Kitto J at 180-181. 35 If there is to be a distribution in specie by the liquidators of Company X to Company Y, it is this right to participate under the winding up of Company Z that must be the subject matter of the distribution. Requirements for distribution in specie 36 In relation to the possibility of distribution in specie, I have been taken to the constitution of each company occupying the position of the assumed Company X. There is, in each case, a provision to the effect that, 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, together with certain associated provisions of a machinery kind. Each such provision is in terms very similar to those of regulation 97(1) of Table A of Schedule 3 to the Companies Act 1981 (Cth). It will be convenient to refer to such a provision as an "in specie article". 37 Each in specie article uses the words "may divide among [or 'amongst'] the members in kind the whole or any part of the property [or 'assets'] of the company". The significant words are "divide among [or 'amongst']" and "in kind". 38 The in specie article reflects a natural assumption that there will be several members. In the cases before me, however, there is only one member. The word "divide" must, in the context, be regarded as the equivalent of "give" or "make available", with reference to the single member. 39 The concept of division "in kind" connotes the passing of value otherwise than in money. As was said in Baker & Davies plc v Leslie Wilkes Associates [2005] 3 All ER 603 at [16]: "The word 'payment' in ordinary parlance is capable of including a payment in kind, as that well-known expression exemplifies. … In my judgment, the word 'payment' in these statutory provisions includes a payment in kind, at any rate where the payment in kind is capable of valuation in monetary terms." 40 In White v Elmdene Estates Ltd [1960] 1 QB 1 at 16, Lord Evershed referred to "payment in kind" as one means of discharging a monetary obligation. 41 The Privy Council observed in Agnew v Commissioner of Inland Revenue [2001] 2 AC 710 at [46] that a debt cannot be enjoyed in specie. Its value can only be exploited by exercising the right to be paid that it represents or by assigning it for value to a third party. Their Lordships might have added that a debt can also be exploited by releasing it in favour of the debtor in return for some benefit conferred by the debtor. This analysis holds good also for the species of chose in action enjoyed by a creditor entitled to prove and be paid in an insolvency administration. 42 The liquidators of Company X will, in my opinion, "divide" the chose in action that Company X has as against Company Z and its liquidators – and do so "in kind" – by any means that causes the chose in action to become vested in Company Y. Resort to the in specie articles 43 The liquidators have attempted to engage the several in specie articles by action intended to result in the passing of a special resolution of Company X. The right machinery has been employed, but inadequate words have been used. Each special resolution is in these terms: "Resolved as a special resolution of the Company that the liquidators of the Company divide amongst its members the whole of the assets of the Company." 44 Absent are the crucial words "in specie" or "in kind" and a description of a particular asset or assets. A special resolution is not needed merely to enable the liquidators to distribute the whole of the surplus assets. The liquidators can and must do that regardless of any special resolution. An appropriate special resolution, together with the in specie article, enables them to effect the distribution, as to nominated assets, by distribution in kind, thereby avoiding realisation of the asset and its conversion into cash. By an "appropriate" special resolution, I mean one that accords with the in specie article and refers specifically to a particular asset or particular assets and authorises distribution of the asset or assets in kind. The several resolutions actually passed do not do this. Does the court have some overriding power? 45 It was submitted that the court has power to authorise the in specie distribution of assets to contributories; and that it can do so even though the in specie article exists and has not been complied with (in the sense that there has been no special resolution in accordance with the article in respect of the assets concerned). 46 Reference was made by counsel to the judgment of Austin J in Official Trustee in Bankruptcy v Buffier [2006] NSWSC 870. His Honour said at [64]: "There is no evidence of the contents of the Company's constitution in this case. But if it were established that Mr Bouffiere was the sole contributory and consented to distribution of the Kotara Property in specie, and there were no creditors except creditors who validly waived their remaining claims against the Company, the court may be prepared to make an appropriate order." 47 Austin J found, however, that those preconditions had not been satisfied, so that it became unnecessary for him to consider further what the court "may be prepared to do". 48 Counsel also referred to Re The English and Foreign Credit Company (1884) 1 TLR 1 where liquidators sought approval for assets in the form of shares in a small company not readily saleable to be distributed among the contributories instead of being sold. The brief report shows no more than that the Vice-Chancellor "said that the principle was plain that liquidators had, with the sanction of the Court, power under the Companies Act to distribute shares forming part of the company's assets instead of selling them." No provision of the Companies Act 1862 (Eng) is identified in the report; nor does a brief perusal of that Act reveal any provision to which the Vice-Chancellor might have intended to refer. 49 The case just mentioned is one of two referred to in argument in Re Thylungra Pastoral Co Ltd [1933] QWN 45, a case of members' voluntary winding up. The liquidator applied for an order that he be at liberty to distribute in specie to members certain surplus assets, being Commonwealth inscribed stock realisation of which would have caused cost and delay. The company's constitution was silent as to distribution of surplus assets in specie. The judgment of Henchman J may be quoted in full: "I will grant leave to the liquidator to distribute the assets of the company among the shareholders in specie . The order will be in terms of the summons." 50 The other case referred to in argument in Re Thylungra Pastoral Co Ltd is March v Martin [1880] WN Eng 111. That was a case of amalgamation under which assets of an unregistered company were to be taken over by a new company. Certain bonds and securities of the old company, held by receivers as trustees for it (which presumably means as trustees for its members, the old company not being incorporated), were judged unsaleable. Some 90% of the shareholders wished to have these bonds and securities transferred to them in accordance with a proposal to that effect apparently formulated by the receivers. The Vice-Chancellor considered the proposal "a just and equitable arrangement" and directed that 90% of the securities be transferred to the shareholders wishing to have them. 51 The report of March v Martin identifies no statutory basis for the order made. In Re Thylungra Pastoral Co Ltd, by contrast, counsel advanced the application under s 258 of the Companies Acts of 1931 (Qld), a provision generally similar to s 511 of the present Corporations Act which empowers the court to "determine any question arising in the winding up of a company". 52 In Re Thylungra Pastoral Co Ltd, there was no in specie article. In neither Re The English and Foreign Credit Company nor March v Martin was it suggested that there was an in specie article. In none of those cases is there any explanation of the authority by which the court interfered with the course of events involving realisation of all assets and the distribution of surplus to contributories in the form of cash and instead compelled contributories to take specific property. The closest there is to an explanation is the reference in the report of the Thylungra case to the equivalent of the present s 511, a provision applicable to voluntary winding up which neither has any direct counterpart in the case of a court-ordered winding up of the kind now before me nor allows the court to change rights. 53 In the present case, by contrast, the constitution of Company X includes the in specie article. Because the "contract inter socios", as Dixon J called it, provides that surplus may be divided among members in kind with the sanction of a special resolution, the clear implication is that surplus may not be divided in kind in the absence of approval by special resolution. In these circumstances, I must confess that I see no basis on which a court could purport to arrogate to itself a power to direct otherwise. Unanimous assent 54 It was submitted that the court should accept the propriety of distribution in specie in this case because there is only one contributory and that contributory consents to the distribution. 55 It was indicated in Official Trustee in Bankruptcy v Buffier (above) that, if a sole contributory was content to take surplus by way of in specie distribution and all creditors' claims had been dealt with, the court "may be prepared" to make an order sanctioning the distribution. This is a reflection of the principle recognised in Re Lombe as liquidator of Ulicorp Pty Ltd [2009] NSWSC 536 that the contributories may, by unanimous assent, sanction some departure from the basis of distribution of surplus that would otherwise apply. The expressed and communicated wish of a sole contributory in that respect may safely be given effect to and the court will give guidance to a liquidator accordingly. 56 In the present case, however, there is no satisfactory evidence of the will of the sole contributory. All the court has to guide it is the special resolution set out at paragraph [43] above. That does not evidence any assent of the sole contributory to the form of in specie distribution now in contemplation. 57 It will be a simple matter for the liquidators of each of the companies I have designated Company Y to procure the passage of a special resolution of Company X which, by reference to the in specie article in the constitution of Company X, identifies the particular debt owed by Company Z to Company X, refers to the right to participate in the winding up of Company Z enjoyed by Company X accordingly and sanctions assignment of that right by Company X to Company Y by way of distribution in, as the case may be, full or partial satisfaction of the entitlement of Company Y to the whole of the surplus in the winding up of Company X. Assignment by deed would then appropriately be undertaken. The claim for order 5 58 The claim for order 5 seems to be advanced on the footing that, by making an assignment to Company Y of the chose in action referable to the winding up of Company Z, the liquidators will enter into an agreement of the kind referred to in s 477(2B) of the Corporations Act: "Except with the approval of the Court, of the committee of inspection or of a resolution of the creditors, a liquidator of a company must not enter into an agreement on the company's behalf (for example, but without limitation, a lease or a charge) if: (a) without limiting paragraph (b), the term of the agreement may end; or (b) obligations of a party to the agreement may, according to the terms of the agreement, be discharged by performance; more than 3 months after the agreement is entered into, even if the term may end, or the obligations may be discharged, within those 3 months." 59 An assignment is not an agreement. Nor does it have a "term" that is to "end" or create "obligations" that are to be "discharged by performance". An assignment, of its own immediate force, causes that which was vested in the assignor to be vested in the assignee. It has a once and for all operation. 60 Order 5 is accordingly not needed and will not be made. "Extinguishment" of debt owed by sole member 61 Order 8 is relevant to the case where a debt is owed to the company in course of winding up (Company X) by its sole member (Company Y). The intention is that Company X should simply "extinguish" the debt. More precisely, I think, it is intended that Company X will release the right that it has to participate as a creditor in the insolvent winding up of Company Y. 62 I did not receive detailed submissions on this matter, but it seems to me that a fundamental point needs to be addressed. 63 Company Y, like Company X, is in the course of insolvent winding up. Again, therefore, there is doubt about what (if anything) will ultimately be realised by Company X and when any realisation will occur. The intention is that Company X should simply abandon, to the advantage of others interested in the insolvent estate of Company Y, its rights to participate as a creditor in the winding up of Company Y; and that Company Y, as the embodiment of the interests of its creditors, should accept that advantage in satisfaction of its right, as sole member of Company X, to the whole of the surplus in the winding up of Company X. 64 The fact that there are mutual claims between Company X and Company Y referable to the respective windings up brings into focus the rule in Cherry v Boultbee (1839) 4 My & Cr 442; 41 ER 171 (which is just as applicable to a contributory as to a creditor: Re 3 Ernest Street Pty Ltd (1980) CLC 40-619) – or, more precisely, the variant of the rule stated by Palmer J in Otis Elevator Co Pty Ltd v Guide Rails Pty Ltd [2004] NSWSC 383; (2004) 49 ACSR 531 at [39] by reference to Re Peruvian Railway Construction Co Ltd [1915] 2 Ch 144: "A person who is both a claimant on, and a debtor to, a fund cannot obtain payment of his claim out of the fund until he has first paid his debt into the fund PROVIDED THAT if the claimant's estate is being administered in insolvency at the time that his claim against the fund arises, the claimant's insolvent estate cannot obtain payment of the claim out of the fund until it first pays into the fund such dividend on the claimant's debt to the fund as is available from the claimant's insolvent estate." 65 If that rule were applied in this case, Company Y as the sole member entitled to surplus in the winding up of Company X could not obtain that surplus until it had first paid whatever dividend was payable to Company X, as a creditor of Company Y, in consequence of Company X's proving in the winding up of Company Y. 66 The rule enunciated by Palmer J, like the original rule on which it is based, aims to ensure equity among claimants on a particular fund. A person who is entitled to participate in the fund but also liable to contribute to it must contribute before participating. If that were not so, the person would derive, as claimant, an inequitable advantage over the other claimants. 67 Here, however, there are no other claimants on the fund represented by the surplus in the hands of the liquidators of Company X. Company Y alone is entitled to the whole. There is accordingly no need for equity to insist on payment to Company X by Company Y's liquidators before distribution of the surplus by Company X's liquidators. 68 The substance of the proposal before me is again an in specie distribution of surplus assets by the liquidators of Company X, being a distribution to Company Y of the chose in action represented by Company X's right to participate as a creditor in the insolvent winding up of Company Y. 69 Because this is the substantial effect of what is proposed and because no express power of a liquidator simply to abandon a possibly fruitful right of the company in liquidation has been identified, the better course will be for resort to be had to the in specie article in the constitution of Company X. 70 Consistently with what is said at paragraph [42] above, I am of the opinion that the liquidators of Company X will "divide" a chose in action that Company X has as against another company in liquidation – and do so "in kind" – by any means that causes Company X no longer to be able to assert the chose in action and causes that other company and its insolvent estate to benefit, as to value, commensurately. 71 There is a case, therefore, for approval under the in specie article in Company X's constitution of release by Company X in favour of Company Y of the rights that Company X has as against Company Y and its liquidators by reason of the debt, with an acknowledgment by Company Y (in favour of Company X and its liquidators) that the benefit of the release is received in full satisfaction or, as the case may be, satisfaction to a specified extent, of the right of Company Y to participate as sole contributory in the winding up of Company X. There would then be acknowledgment of full satisfaction of the right of Company X to participate as a creditor in the insolvent winding up of Company Y and either full or partial satisfaction of the right of Company Y, as sole contributory of Company X, to receive the entire surplus in the winding up of Company X. 72 Implicit in what I have just said is that the steps outlined should be achieved by deed. 73 If this course were followed, there would need to be a modified form of order 7. A "compromise"? 74 The application for order 8 raises the question whether, if the procedure just outlined is adopted, there will be a "compromise" of a debt owed by Company Y to Company X so that, if the debt exceeds the s 477(2A) threshold of $100,000 (see Corporations Regulations, regulation 5.4.02), the liquidator's power to effect the "compromise" pursuant to s 477(1)(d) will be dependent upon the court's having granted approval under s 477(2A). 75 For reasons already discussed, Company X no longer holds a debt owed by Company Y. No question of compromise of a debt therefore arises, with the result that there is no occasion for an approving order to be made under s 477(2A). The section is concerned with debts strictly so called: see, for example, Spalla v St George Motor Finance Ltd (No 7) [2006] FCA 1177; Elderslie Finance Corporation Ltd v Newpage Pty Ltd (No 6) [2007] FCA 1030; (2007) 160 FCR 423. 76 There is another point. Young J observed in Dean-Willcocks v ATTT Investments Pty Ltd [1999] NSWSC 642; (1999) 17 ACL 1310 at [7] that "a compromise usually means a situation where there is some doubt about a claim and a lesser sum is taken". Likewise in Huddersfield Banking Company Ltd v Henry Lister & Son Ltd [1895] 2 Ch 273 at 285, Kay LJ said that "a compromise takes place when there is a question of doubt and the parties agree not to try it out, but to settle it between themselves by a give-and-take arrangement". 77 Here, there is no doubt that a debt was owing by Company Y to Company X and that, upon the commencement of the winding up of Company Y, there accrued to Company X a right to participate in the winding up accordingly. There is no suggestion that that position is other than fully acknowledged and accepted. Even if the debt itself were regarded as continuing in existence, it is not attended by any doubt or dispute capable of becoming the subject of a compromise. 78 Order 8 is not needed and will not be made. Remuneration 79 Claims for orders 9 and 10 are made in relation to those of the thirteen companies with assets out of which remuneration may be obtained. These companies are among those in Class A and Class B, but not Class C. The claims are advanced by reference to s 473(3) of the Corporations Act: "A liquidator is entitled to receive such remuneration by way of percentage or otherwise as is determined: (a) if there is a committee of inspection--by agreement between the liquidator and the committee of inspection; or (b) if there is no committee of inspection or the liquidator and the committee of inspection fail to agree: (i) by resolution of the creditors; or (ii) if no such resolution is passed--by the Court. Note: See also section 579L (consolidated meetings of creditors--pooled groups)." 80 There is, in each such case, evidence adequately establishing that the amount that the court is asked to award as remuneration is fair and reasonable reward for the work done and, as to the future element, the work still to be done. The merits of the case are not in question. An order in terms of paragraphs (a) and (b) of order 10 will be made in each case. 81 For consideration, however, is the claim for order 9. 82 The order sought is an order that the application to have remuneration fixed by the court "may be made notwithstanding" the terms of s 473(3)(a) and s 473(3)(b)(i). The assumption seems to be that, if there has been some form of non-compliance with or otherwise impermissible by-passing of s 473(3)(a) and s 473(3)(b)(i), the court may somehow condone it. No basis for any such suggestion is advanced. 83 The alternative proposition underlying order 9 is that, in the absence of a curing order under s 1322(4)(a), the making of the application for an order of the court fixing remuneration would entail, in the words of that section, a "contravention of a provision of this Act". 84 These apprehensions are groundless. The scheme of s 473(3) is clear. If there is a committee of inspection, remuneration is to be fixed by agreement between the committee and the liquidator. If there is no committee of inspection (or the committee and the liquidator fail to agree), remuneration is to be fixed by a resolution of the creditors or, if no such resolution is passed, by the court. 85 In each of the relevant cases now before me, there is no committee of inspection. The condition upon which the operation of s 473(3)(a) is predicated is therefore not satisfied. One therefore passes to s 473(3)(b). Because all proved claims have been satisfied in full, there are no creditors. That being so, no resolution can be passed. Section 473(3)(b)(ii) is thus available. It is available not because of any non-compliance with or "contravention" of some other provision of s 473(3) but simply because of the particular circumstances existing. 86 Order 9 is not needed and will not be made. Release of the liquidators 87 Order 11 is an order under s 480(d) of the Corporations Act that the liquidators be released and that Australian Securities and Investments Commission deregister the company. This is sought in relation to each of the thirteen companies. 88 This application is premature in relation to those companies with surplus still to be distributed. I say this for two reasons. First, s 480 itself begins with the words: "Where the liquidator . . . has realised all the property of the company or so much of that property as can in his or her opinion be realised without needlessly protracting the winding up, and has distributed a final dividend (if any) to the creditors and adjusted the rights of the contributories among themselves and made a final return (if any) to the contributories . . ." 89 Then follow the words: "he or she may apply to the Court. . . " 90 As the earlier discussion shows, the liquidators of those companies that are yet to distribute surplus have not made the "final return" to which s 480 refers. It is therefore not open to the liquidators of those companies to make an application of the kind that may be made by a liquidator who has reached that point. 91 The second matter flows from the first. Under s 481(5)(b), an office copy of an order under s 480 that a liquidator be released and that ASIC deregister the company must be lodged with ASIC within fourteen days after the making of the order. Upon lodgement of the office copy, ASIC is compelled to deregister the company. No discretion is reserved to ASIC, either as to acting or as to the time of acting. 92 It follows from the structure of the legislation that the court will not make an order under s 480(d) unless and until it sees, at the least, that the conditions imposed by the introductory words in s 480 to permit the liquidators to apply for the order have been satisfied. 93 The court will make order 11 in relation to each Class C company. No question of distribution of surplus arises there. The winding up has been shown to be complete. For the Class A and Class B companies, however, order 11 should not be made except upon a renewed application made after the "final return" to contributories. Destruction of books 94 I refer finally to proposed order 12, that is, an order making a direction in terms of s 542(3)(a) of the Corporations Act. Section 542 is as follows: "(1) Where a company is being wound up, all books of the company and of the liquidator that are relevant to affairs of the company at or subsequent to the commencement of the winding up of the company are, as between the contributories of the company, prima facie evidence of the truth of all matters purporting to be recorded in those books. (2) If a company has been wound up, the liquidator must retain the books referred to in subsection (1) for a period of 5 years from the date of deregistration of the company and, subject to section 262A of the Income Tax Assessment Act 1936 , may, at the end of that period, destroy them. (3) Despite subsection (2) but subject to subsection (4), when a company has been wound up, the books referred to in subsection (1) may be destroyed within a period of 5 years after the deregistration of the company: (a) in the case of a winding up by the Court--in accordance with the directions of the Court given pursuant to an application of which at least 14 days notice has been given to ASIC; and (b) in the case of a members' voluntary winding up--as the company by resolution directs; and (c) in the case of a creditors' voluntary winding up--as the committee of inspection directs, or, if there is no such committee, as the creditors of the company by resolution direct. (4) The liquidator is not entitled to destroy books as mentioned in paragraph (3)(b) or (c) unless ASIC consents to the destruction of those books." 95 Order 12 is sought in relation to all thirteen companies. 96 The general rule laid down by s 542(2) is that the liquidator must retain relevant books for five years after deregistration of the company. The general rule may, in the case of a winding up by the court, be relaxed or modified by the court, but only upon an application at least fourteen days notice of which has been given to Australian Securities and Investments Commission. 97 The liquidators have not given notice of the application to ASIC. They do not, however, intend to press their application for order 12 until notice has been given and ASIC's attitude has been made known. 98 But it is by no means clear why the liquidators wish to be free to destroy all relevant books related to a particular company once a period of ninety days has elapsed after the company's deregistration. I say this because the affidavit evidence makes it clear that the liquidators intend to retain the books relevant to all HIH Group companies until their administration of the entire HIH Group is complete. The liquidators also say, however, that they want to be in a position to destroy the books of the thirteen companies before the expiration of five years from deregistration (without the cost of a further court application) if the HIH Group administration as a whole is completed within that period. 99 The strong likelihood is that the winding up of HIH Insurance limited will be the last to be completed. That being so, the objectives of the liquidators in respect of the thirteen companies now under consideration might be adequately accommodated by an order under s 542(3)(a), in respect of each company, directing that the books may be destroyed after the expiry of ninety days from deregistration of HIH Insurance Ltd. 100 If it later transpired that some earlier destruction were desirable and the period of five years referred to in s 542(2) had not expired, a new application could be made. 101 The evidence as stands does not permit me to find that there is a need for the liquidators to be free to destroy books as soon as ninety days have elapsed from deregistration. I can therefore see no sound basis for making order 12 as sought, particularly since an indication given to the court in another matter recently is that the winding up of HIH Insurance Limited is likely to extend at least until 2014. 102 I note in passing in relation to the application for order 12 that there does not appear to have been compliance with rule 7.5(2) of the Supreme Court (Corporations) Rules 1999; nor is there any application for dispensation from that rule. Conclusion 103 The present applications are to be before the court again on 15 December 2009. 104 It is desirable that the liquidators of each company furnish to my Associate, at least three business days before that day, the form of any amended interlocutory process they intend to file, together with further written submissions. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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