Supreme Court New South Wales Medium Neutral Citation: Kala Capital Pty Limited [2011] NSWSC 1253 Hearing dates: 24 October 2011 Decision date: 24 October 2011 Jurisdiction: Equity Division - Corporations List Before: Barrett J Decision: Order for winding up. Order for appointment of liquidator. Catchwords: CORPORATIONS - winding up - application by company for its own winding up - reliance on ground that the company has resolved by special resolution that it be wound up and on the just and equitable ground - sole director and shareholder does not have records or information enabling her to discharge responsibilities - company suing her predecessor in separate proceedings - s 461(1)(a) ground established - s 461(1)(f) factors also at work - discretion should be exercised in favour of making order Legislation Cited: Corporations Act 2001 (Cth), ss 201A, 249B, 461(1)(a), 461(1)(k) Cases Cited: Hillig v Darkinjung Pty Ltd [2006] NSWSC 1371; (2006) 205 FLR 450 Re Inkerman Grazing Pty Ltd (1972) 1 ACLR 102 Category: Principal judgment Parties: Kala Capital Pty Limited - Plaintiff Representation: Mr J T Johnson - Plaintiff Carroll & O'Dea File Number(s): 2011/338044 Judgment 1This is an application by Kala Capital Pty Ltd ("Kala") for an order for its own winding up. 2Ms Ng is the sole director, sole secretary and sole shareholder of Kala. Her affidavit has been read upon the hearing of the winding up application. 3The application is expressed to be advanced on a number of grounds. The most relevant are those provided for in s 461(1)(a) and s 461(1)(k) of the Corporations Act 2001 (Cth). Section 461(1)(a) allows the court to make a winding up order where the company itself has, by special resolution, resolved that it be wound up by the court. Section 461(1)(k) allows the court to act where it is satisfied that it is just and equitable that the company be wound up. 4Ms Ng, being the sole member and sole director of Kala, has the power to cause Kala to make the winding up application. Because all conceivable corporate decision making powers reside in her, there need be no concern about "the validity of the decision and executive act of the directors to present the petition in the name of the company", to quote words used by Street J in Re Inkerman Grazing Pty Ltd (1972) 1 ACLR 102 at 103 . 5The s 461(1)(a) ground exists if the company has passed a special resolution for its own winding up. That was achieved by Ms Ng as the sole shareholder. She acted under s 249B which allows the sole member of a single member proprietary company to pass a resolution of the company by simply signing a document embodying the resolution. Ms Ng took that action on 21 October 2011. 6For reasons I stated in Hillig v Darkinjung Pty Ltd [2006] NSWSC 1371; (2006) 205 FLR 450, the court has limited discretion when winding up is sought under s 461(1)(a). I said in that case (at [35]) that the discretion should not be exercised against the making of the order unless the shareholders' decision or some aspect of the surrounding circumstances involves something unconscionable or inequitable or some special consideration adversely affecting creditors indicates that there should be no winding up. Subject to those matters, the members (or, in this case, the sole member) should be regarded as having what is, in substance, a right to require winding up by the court by the passing of a special resolution. 7In Hillig v Darkinjung Pty Ltd , I also expressed an opinion that there is no expectation that a shareholder or shareholders having the ability to impose voluntary winding up should take that course rather than passing a special resolution for winding up by the court. 8The fact that the making of a winding up order is discretionary (even though, as I see it, the discretion is very narrow in a s 461(1)(a) case) makes it necessary to look at the factual context. 9Kala was registered on 15 October 2009. The plaintiff, Ms Ng, was the sole member and a Mr Lee was the sole director. Ms Ng became a director on 15 November 2010. Mr Lee ceased to be a director on 16 December 2010. There was thus a period of one month during which the two of them were in office and there was a relatively short period during which Mr Lee might have effected a "hand-over" to Ms Ng. 10After 16 December 2010, however, Ms Ng alone was in office and this was in circumstances where relationships with Mr Lee quickly deteriorated to the point where, early this year, Kala, at the instigation of Ms Ng, instituted proceedings against Mr Lee and a company associated. The particular basis of the proceedings is not important. It is sufficient to say that there is an allegation that Mr Lee is liable to account to Kala for certain monies related to the business venture in which Kala was involved and in which Mr Lee played a role as an architect. 11While she apparently had enough information to cause Kala to commence the proceedings against Mr Lee and the other derfendant, Ms Ng has otherwise not been able to discover the true state of affairs concerning the company. 12Ms Ng says, in her affidavit, that she has been unable to obtain possession of any books or financial records which were in Mr Lee's possession or control (no doubt from the time that he was the sole director) and which would enable her to comply with her obligations under the Corporations Act to cause the company to keep proper books of account or financial records. Ms Ng has also been unable to ascertain the current position in relation to Kala's responsibilities to the Australian Taxation Office. Nor can she satisfy herself that Kala is able to pay its debts as and when they fall due. Apart from monies presently in the bank account of Kala, Ms Ng knows of no available funds. Ms Ng further says that she has been unable to prepare any relevant financial records for Kala. 13These circumstances indicate that the affairs of Kala are not in secure hands and that Ms Ng cannot act as the company's director in any satisfactory sense. That appears to be through no fault of hers - indeed, no pair of hands would appear to be a safe pair of hands while the unavailability of records remains except, I suppose, the hands of a liquidator. 14Another factor to be mentioned is that Ms Ng, on her own evidence, resides "predominantly" in Hong Kong. Under s 201A, where a proprietary company has only one director, that director must be ordinarily resident in Australia. On Ms Ng's own evidence, there is thus an indication of non-compliance with that requirement. That too indicates instability in the administration of the company. 15The circumstances I have mentioned concerning Ms Ng's residence and her inability to obtain information to discharge the duties of her office show that there are strong overtones here of a need for winding up on the just and equitable ground. 16That supplements my finding that the ground under s 461(1)(a) is available and warrants a conclusion that there is no matter which ought to cause the court to withhold the exercise its discretion in favour of the making of a winding up order. 17Mr Condon's consent to act as liquidator has been filed. 18I make orders 3, 4, 5 and 6 in the originating process. ********** 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. Decision last updated: 25 October 2011