Grundy Organisation Pty Ltd [2010] NSWSC 1432

New South Wales Supreme Court

CITATION : Grundy Organisation Pty Ltd [2010] NSWSC 1432

HEARING DATE(S) : 09/12/10

JUDGMENT DATE : 9 December 2010

JURISDICTION : Equity Division Corporations List

JUDGMENT OF : Barrett J

EX TEMPORE JUDGMENT DATE : 9 December 2010

DECISION : Curative orders made.

CATCHWORDS : CORPORATIONS - members voluntary winding up - special resolution for winding up passed with notice of less than 21 days - both members assented - liquidator later resigned - directors purported to pay dividend to holding company - irregular for company in liquidation to do so - but funds reached destination consistent with due progress of winding up - no injustice - curative orders made

LEGISLATION CITED : Corporations Act 2001 (Cth), ss 495(2), 495(3), 1322(4), 1322(6)(a)(i), 1322(6)(a)(ii), 1322(6)(a)(iii), 1322(6)(c) Corporations Law, ss 491(1), 249H(2)(b).

CATEGORY : Principal judgment

PARTIES : Martin John Green and Peter Paul Krejci as liquidators of Grundy Organization Pty Ltd - Plaintiffs

FILE NUMBER(S) : SC 2010/405621

COUNSEL : Mr C N Bova - Plaintiffs

SOLICITORS : Holding Redlich - Plaintiffs

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

BARRETT J

THURSDAY 9 DECEMBER 2010

2010/405621 MARTIN JOHN GREEN & ANOR AS LIQUIDATORS OF GRUNDY ORGANISATION PTY LTD

JUDGMENT

1 Mr Green and Mr Krejci are the liquidators of Grundy Organisation Pty Ltd ("Grundy") or, at least, there was a purported appointment of them as liquidators in March 2010. 2 I say that there was a purported appointment because the application they now make is one that concerns, in part, irregularity attending action taken in 1998 to cause Grundy to become subject to members voluntary winding up under the Corporations Law. 3 Application is made under s 1322(4) of the Corporations Act 2001 (Cth) for curative orders in respect of that irregularity. There is a like application in respect of another irregularity to be mentioned presently. 4 As at December 1998, Grundy had two members, each of whom held one share. They were Fremantle Australia Holdings Pty Limited ("Fremantle") and Ms Pecotic. She held her one share upon trust for Fremantle. 5 On 18 December 1998 there was a purported meeting of the members of Grundy at which it was purportedly resolved by way of special resolution that the company be wound up voluntarily. Notice of at least 21 days was not given. Accordingly, the resolution could not be a special resolution as required by s 491(1) of the Corporations Law unless members with at least 95 per cent of the votes that could be cast at the meeting had agreed to some shorter period of notice: Corporations Law, s 249H(2)(b). 6 Agreement to short notice was signified by Fremantle by an instrument executed under its seal. Ms Pecotic was one of the persons who signed in connection with the affixing of that seal. She did not, however, herself as a shareholder signify agreement of the kind contemplated by s 249H(2)(b), with the result that that section did not operate. 7 The evidence makes it clear, however, that Ms Pecotic attended and was present at the meeting of 18 December 1998 and participated in its deliberations as a shareholder; also that Fremantle so participated. Both were in favour of the resolution for voluntary winding up and the appointment of Mr Vincent as liquidator. In those circumstances, it is easy to infer (and I do infer) that, despite the absence of the formal step of Ms Pecotic's advance agreement to short notice, she, like Fremantle, was content for the meeting to occur and to proceed as it did with notice of less than 21 days having been given. 8 The irregularity consisting of the absence of Ms Pecotic's advance agreement to short notice is a procedural irregularity within s 1322(6)(a)(i) and, given that the winding up in question was a members voluntary winding up not raising questions about the interests of creditors, the situation is one in which, in terms of s 1322(6)(c), no substantial injustice has been or is likely to be caused to any person if the court makes a remedial order in respect of the irregularity. 9 The second matter with which the application deals is more difficult. It arises from unusual circumstances that occurred in the course of the winding up. 10 Mr Vincent was appointed liquidator at inception in December 1998 and assumed office. Grundy was and is a company within a group of companies. Its immediate holding company is Fremantle and, at all material times, the two issued shares have been held as to one by Fremantle and as to another by a person in trust for Fremantle. Grundy also has (and has had at material times) a subsidiary, Fremantle Media ("Media"), so that the assets of Grundy included, at the time at the commencement of the winding up, the shares in Media. 11 The rationale for the winding up was, it seems, a desire to eliminate what was seen to be an unnecessary company which merely complicated the corporate group. That rationale was explained to Mr Vincent at the time by the then financial controller of the group. Mr Vincent deposes that, soon after commencement of the winding up and on a date he cannot now recall, the financial controller said to him words to the effect: "The directors of the Company are not sure whether they want to proceed with the liquidation of Grundy Organisation. Can you put the liquidation on hold?" 12 Mr Vincent deposes that he then did nothing to effect or otherwise advance the winding up. He later came to think that the winding up "had been abandoned". He therefore resigned as liquidator on 4 June 1999 and lodged with ASIC notification of that resignation. At that time, so far as he was aware, Grundy was dormant. He had not realised any assets (confined, it seems, to the shares in Media and receivables owed to Grundy by related companies). 13 Thereafter, it appears, Grundy remained without a liquidator until Mr Green and Mr Krejci were appointed in March 2010. I infer that their appointment was made by members under s 495(3) of the Corporations Act. 14 Mr Green deposes that, during 2004 (that is, at a time when the winding up subsisted but no liquidator was in office), the directors of Grundy purported to distribute, as dividend to Fremantle, sums received by Grundy as dividends from Media. It is not suggested that the shares in the subsidiary were themselves distributed by Grundy way of dividend. 15 By virtue of s 495(2), all the powers of the directors of Grundy had ceased on the appointment of Mr Vincent as liquidator and were not exercisable except with the approval of either the liquidator for the time being or the company in general meeting (but with the power of the general meeting to approve being subject to the consent of the liquidator). Thus, the payment of dividends by the company by decision of its directors in accordance with its constitution was precluded by this provision at the time of the purported dividend payment. 16 Indeed, the concept of the payment of dividends to its shareholders by a company subject to winding up is, to say the least, an anomalous concept, given that the imposition of winding up brings into force a regime under which liabilities are to be ascertained, assets are to be realised, the liabilities are to be satisfied and any surplus is to be distributed to members in satisfaction of their rights under the winding up, being rights defined by or derived from the constitution coupled with the holding of shares. It is foreign to that process for dividends to be paid in the way in which they would be paid by a company operating as a going concern and not subject to winding up. 17 Nevertheless and in view of the fact the evidence makes it clear that, as at 2004 Grundy had no creditors, the irregular action consisting of the payment of dividends on what I might call a going concern basis at the behest of directors caused assets in fact to reach the destination that was the appropriate destination in the circumstances of winding up. 18 In substance, therefore, a result consistent with due conduct of the winding up was achieved by a method inconsistent with that due conduct and in a way which, given the absence of creditors, did not impinge upon or adversely affect the interests of any person. 19 In relation to the 2004 events, there is no reason to doubt that the persons who were party to the purported corporate action acted honestly (see s 1322(6)(a)(ii)) or that it is just and equitable that the irregularity that attended those events should be put beyond doubt or challenge (see s 1322(6)(a)(iii)). 20 Furthermore and in the circumstances where there were no creditors or other persons whose interests may have been adversely affected, the conclusion in respect of the events of 2004 is that no substantial injustice has been or is likely to be caused to any person (see s 1322(6)(c)). 21 I will, accordingly, make the orders that are sought in relation to both the purported special resolution of 1998 and the distribution of 2004. These include not only orders under s 1322(4)(a) but also orders under s 1322(4)(c). **********