Supreme Court New South Wales Medium Neutral Citation: In the matter of DH International Pty Limited (Administrators Appointed) ACN 143 461 849 [2013] NSWSC 1120 Hearing dates: Thursday 18 July 2013 Decision date: 18 July 2013 Jurisdiction: Equity Division - Corporations List Before: Brereton J Decision: The appointment of John Vouris and Bradley Tonks on 25 June 2013, as administrators of the third plaintiff DH International Pty Ltd ACN 143 461 849, pursuant to s 436A of the Corporations Act was not invalid by reason of there being only one director of the company in office and/or by reason that that director was not ordinarily resident in Australia Catchwords: CORPORATIONS - External administration - appointment of administrator - resolution to enter administration passed by sole director - instrument of appointment of administrator signed by sole director - sole director not resident in Australia - where constitution required more than one director - whether administrator validly appointed Legislation Cited: (Cth) Corporations Act 2001, s 201A, s 447A, s 447C, s 1311, s 1322 schedule 3 Cases Cited: DVT Holdings v BigShop.com.au [2002] NSWSC 571 In the matter of Creative Memories Australia Pty Ltd (Administrators Appointed) [2013] NSWSC 652 Re Continental Pacific [2002] NSWSC 789 Category: Principal judgment Parties: John Vouris (first plaintiff) Bradley John Tonks (second plaintiff) DH International Pty Ltd ACN 143461849 (third plaintiff) HDRN Pty Limited (interested party) Representation: Counsel: Mr M Addison (solicitor) (plaintiff) Mr S Anderton (solicitor) (interested party) Solicitors: DibbsBarker (plaintiff) Atanaskovic Hartnell (interested party) File Number(s): 2013/ 218769 Judgment (Ex Tempore) 1These proceedings are brought by John Vouris and Bradley John Tonks in their capacity as administrators of DH International Pty Ltd, as which they were purportedly appointed by resolution of the sole director of the company on 25 June 2013. 2On 21 June 2013, Mr Vouris was contacted by one Mr Brian Thomas of McKenzie Thomas Lawyers in relation to acting as an administrator of the company. Mr Vouris provided to Mr Thomas his firm's standard form of resolution and instrument of appointment, and he then undertook a search of the company and ascertained that its sole director, Mr David Henry Hoffman appeared to be a resident of Illinois in the United States of America, and not a resident of Australia. 3At 4pm on 24 June 2013, which by then was 25 June 2013 in Australia, Mr Hoffman purported to pass a resolution, as sole director, appointing the plaintiffs as administrators of the company. The minutes recording that resolution are in the following terms: Minutes of a Meeting of Directors of DH International Pty Limited ACN 143 461 849 on June 24 2013 at 4:00 pm Present David Henry Hoffman (Chairman) Appointment Of Administrators IT WAS RESOLVED that, in the opinion of the directors, the company is insolvent or likely to become insolvent at some future time. IT WAS FURTHER RESOLVED that the company appoint John Vouris and Bradley Tonks as Joint and Several Administrators pursuant to s 436A of the Corporations Act 2001. Instrument Of Appointment Of Administrators IT WAS RESOLVED that the company execute the following documents: Instrument of Appointment of Administrators Closure There being no further business, the meeting was declared closed. 4The instrument of appointment signed by Mr Hoffman at the same time was in the following terms: In accordance with a resolution passed at a meeting of directors of DH International Pty Limited ("the company"), duly convened and held at Wilmette, Illinois on June 24 2013 4:00pm the company hereby appoints John Vouris and Bradley Tonks of Level 9, 1 O'Connell Street, Sydney NSW 2000 to be the company's Administrators and to exercise all or any of the powers conferred on an Administrator by the Corporations Act 2001. Dated this 24th day of June 2013. 5The plaintiffs considered that there was a doubt as to their appointment by reason that the company did not have a resident Australian director at the time, as required by (Cth) Corporations Act 2001, s 201A(1), which provides as follows: Proprietary companies (1) A proprietary company must have at least 1 director. That director must ordinarily reside in Australia. 6Moreover, the constitution of the company requires that the company have a minimum of two directors: 14.1 Number of directors The number of directors must not be less than 2 nor more than 10 or other such number as the directors at any time determine. 7However, clause 14.10 provides as follows: 14.10 Less than minimum number of directors The continuing directors may act despite any vacancy in their body but if the number of directors falls below the minimum number fixed in accordance with the constitution the directors may act only: (a) to appoint directors up to that minimum number; (b) to call a meeting of members; or (c) in emergencies. 8The consequences of a proprietary company not having at least one resident Australian director are less than clear. It may be that the company technically breaches the Act, but it is a breach for which no penalty is proscribed: see (Cth) Corporations Act 2001, s 1311(1) and (1A), and Schedule 3. In DVT Holdings v BigShop.com.au [2002] NSWSC 571, Windeyer J said: I do not consider that the company is necessarily stultified and unable to act at all if the number of directors is reduced below the statutory number, and if any remaining directors refuse to act to fill any casual vacancy. 9In Re Continental Pacific [2002] NSWSC 789, Barrett J said: There is, I think, some uncertainty as to the consequences of failure to comply with s 201(A)(2). As has been pointed out in other cases (recently reviewed by Windeyer J in DVT Holdings Limited v BigShop.com.au (2002) 42 ACSR 768), a company may fall into the position of having too few directors without any action on its part. This can, for example, happen if several directors resign or are removed at the one time. The company, as a person, has no control over these events and it cannot be intended that s 201A denies or controls an individual's right to resign or the corporation's right to remove. It is, for me, difficult to accept that a company contravenes its 201A(2) when the number of its directors falls below the statutory minimum. If that were the correct approach, a proprietary company with one director would, by operation of s 1311(1)(c), become guilty of an offence upon the death of that single director. Despite this unease, I must accept the possibility that a contravention of s 201A(2) occurs if the number of the directors falls below the stated minimum for any reason. 10More recently, in In the matter of Creative Memories Australia Pty Ltd (Administrators Appointed) [2013] NSWSC 652, Hammerschlag J said: I am far from convinced that the resolution is ineffective or invalid but if it is, this is clearly a case where any doubt should properly be dispelled by the making of an order pursuant to s 447A(1) of the Act. 11By originating process sought to be filed in court today and made returnable instanter, the plaintiffs seek relief in the following terms: 1. A Declaration pursuant to s 447C(2) of the Corporations Act 2001 (Cth) (the Act) that the purported appointment of John Vouris and Bradley Tonks on 25 June 2013 as administrators of the third plaintiff pursuant to s 436A of the Act was not valid, on the ground that the resolution on which that appointment was purportedly made was not a valid resolution of the board of directors of the third plaintiff. 2. An order pursuant to s 447A(1) of the Act that Part 5.3A of the Act is to operate in relation to the third plaintiff as if John Vouris and Bradley Tonks had been validly appointed as administrators of the third plaintiff pursuant to s 436A of the Act on 25 June 2013. 3. An order that the costs of these proceedings be costs in the administration of the third plaintiff. 4. Such further or other order as the Court deems fit. 12The relief claimed in paragraph 1 - a declaration that their appointment is not valid - is sought in order to then found the relief sought in paragraph 2, that is, an order pursuant to Corporations Act, s 447A, to the effect that the Act operate in relation to the company as if the plaintiffs had been validly appointed. 13However, to my mind, it is inappropriate to make a declaration that the appointment of the administrators was not valid. That is because, like Hammerschlag J, I am far from convinced that their appointment was not valid, at least on the grounds that have been raised. To the contrary, for the reasons that follow, I am of opinion that their appointment was not invalid by reason of those matters. 14Section 201A(1) imposes on a proprietary company a requirement that it have least one director, and that that director be ordinarily resident in Australia. It does not mean that a director who ceases to be ordinarily resident in Australia, thereby ceases to be a director. It may well mean that the company is in contravention of the Act, in respect of the requirement imposed by s 201A(1), but it does not mean that a person who is previously a director somehow automatically vacates that office, or ceases to hold office, upon ceasing to ordinarily reside in Australia. 15Secondly, while it is true that the constitution stipulates a minimum number of two directors, clause 14.10, to which I have referred, recognises that the continuing directors may act, even if the number falls below the minimum number fixed in accordance with the constitution, for certain limited purposes, including in emergencies. It seems to me that the appointment of a voluntary administrator in circumstances of insolvency meets that requirement. 16Accordingly, I am of the view that there is no relevant defect in the appointment of the administrators. 17It was argued, on behalf of a minority shareholder who was granted leave to appear on the application, that doubt attended the question whether there was even a resolution appointing the administrator at all. This submission was advanced on the footing that, when a request for copies of all minutes of meetings of directors in "the relevant period", which concluded on the date of the request, was made, the response forthcoming was to the effect that no such minutes were held. 18The request was not a specific one for the minute or instrument of appointment, nor was the response a specific response to such a request. In circumstances where the evidence establishes that the administrators had been approached on behalf of Mr Hoffman to act, had provided a standard form of resolution and instrument of appointment, and then annexed to their affidavit a copy of those forms, apparently signed by Mr Hoffman, I am not prepared to infer that they were not held by the administrators, let alone not in existence, at the time when the request for "all minutes of meeting" was made or received. 19Accordingly, far from making a declaration pursuant to s 447C that the appointment was not valid, I propose to make a declaration that the appointment was valid. 20If I had been of the view that there were doubt as to the appointment then, as presently minded, I would have been inclined to proceed under s 1322(4), by way of an order that the appointment was not invalid by reason of the contravention of s 201A, rather than declaring the appointment invalid and making an order under s 447A(1); but as I think, on the evidence, the better view is that the appointment was valid, it seems to me that the appropriate basis upon which to act is that provided by s 447C. 21Upon the undertaking of William Mark Addison, solicitor, to pay the appropriate filing fees I grant leave to John Vouris, Bradley Tonks and DH International Pty Ltd, administrators appointed, to file an originating process in the form initialled by me, dated this day and placed with the papers. I dispense with service of the originating process. I direct that the originating process be returnable instanter. 22Pursuant to Corporations Act, s 447C(2) I declare that the appointment of John Vouris and Bradley Tonks on 25 June 2013 as administrators of the third plaintiff DH International Pty Ltd ACN 143 461 849 pursuant to s 436A of the Act was not invalid, by reason of there being only one director of the company in office and/or by reason that that director was not ordinarily resident in Australia. 23Although it might be said, in retrospect, that the present application was unnecessary, the outcome will clarify the position for the increasing number of applications that seem to be made on this basis, and it was reasonably enough made, given the practice that has prevailed until this point. I see no reason why the costs should be visited on Mr Hoffman alone. I order the costs of the application be costs in the administration of the third plaintiff. ********** 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: 12 September 2013