Supreme Court New South Wales Medium Neutral Citation: In the matters of RH Trevan Pty Ltd (in liquidation); Trevan Auto Service Pty Ltd (in liquidation); Trevan Car Sales Pty Ltd (in liquidation) [2013] NSWSC 1445 Hearing dates: 23 September 2013 Decision date: 30 September 2013 Jurisdiction: Equity Division - Corporations List Before: Black J Decision: Orders made granting special leave to the plaintiff to make a distribution of the surplus in the winding up in specified proportions. Orders made that the plaintiff's costs of the application be paid out of the assets of the company. Orders made that the books and records held by the plaintiff resulting from his appointment as liquidator of the companies may be destroyed not sooner than one month after any deregistration of the companies. Catchwords: CORPORATIONS - winding up - liquidators - order sought granting special leave to liquidator to make a distribution of a surplus in the winding up to contributories - whether appropriate in all the circumstances for the distribution to be made to the contributories - order sought that books and records in the liquidator's possession may be destroyed under s 542(3) Corporations Act 2001 (Cth) - where high cost to retain records for the statutory five year period -order sought for release of liquidator and deregistration of companies - where final return to contributories has not yet been made. Legislation Cited: - Corporations Act 2001 (Cth) ss 11, 461(1)(k), 480(d), 481(3), 485(2), 488, 488(1), 488(2), 542, 542(1), 542(3), 542(3)(a), 542(4) - Company Law Review Act 1988 (Cth) - Supreme Court (Corporations) Rules 1999 (NSW) rr 7.5(2), 7.5(3), 7.5(4), 7.10 - Corporations Regulations 2001 (Cth) reg 5.6.71(1) - Income Tax Assessment Act 1936 (Cth) s 262A Cases Cited: - Brealey v Shields [2009] NSWSC 1148 - CGU Workers Compensation (NSW) Ltd v Ascom Service Automation (Australia) Pty Ltd [2005] NSWSC 747 - Deputy Commissioner of Taxation v Tideturn Pty Ltd [2001] NSWSC 217; (2001) 37 ACSR 152 - Re DS Millard & Son Pty Ltd (1997) 24 ACSR 71; (1997) 15 ACLC 808 - Re FAI Car Owners Mutual Insurance Company Pty Ltd [2009] NSWSC 1350; (2009) 76 ACSR 164 - Re Trussted Frames & Trusses Pty Ltd [2012] NSWSC 787 - Re Wayland as Liquidator of ABC Containerline NV (in liq) [2005] NSWSC 13; (2005) 52 ACSR 750 - Singer v Trustee of the Property of Munro [1981] 3 All ER 215 Category: Interlocutory applications Parties: Ian James Purchas as liquidator of RH Trevan Pty Ltd, Trevan Auto Service Pty Ltd and Trevan Car Sales Pty Ltd (all in liquidation) (Plaintiff) Representation: Counsel: J. Baird (Plaintiff) RPV Carey (Contributor - Mr Jack Trevan) Solicitors: TressCox (Plaintiff) McCartney Young Lawyers (Contributor) File Number(s): 2008/280633 Judgment 1By Interlocutory Process filed on 23 August 2013, Mr Ian Purchas as liquidator of RH Trevan Pty Limited (in liq) ("Company") seeks an order under s 488(2) of the Corporations Act 2001 (Cth) granting special leave to make a distribution of the surplus in the winding up of the Company to its contributories and an order that his costs and expenses of this application be paid out of the Company's assets. 2Mr Purchas also seeks an order under s 542(3) of the Corporations Act that the books and records of the relevant companies and records in his custody, control and possession resulting from his appointment as liquidator of the Company, Trevan Auto Service Pty Limited (in liq) ("Auto Service") and Trevan Car Sales Pty Limited (in liq) ("Car Sales") ("relevant companies") may be destroyed not sooner than one month after the companies' deregistration. Finally, Mr Purchas seeks an order under s 480(d) of the Corporations Act that he be released as liquidator of the relevant companies and that the Australian Securities and Investments Commission ("ASIC") deregister those companies. 3Mr Purchas outlines the background to his appointment and the steps that have been taken in the winding up of the relevant companies in his affidavit sworn 26 August 2013 in support of the application. By way of background, the Company was incorporated on 8 September 1922; Car Sales was incorporated on 20 February 1946 and Auto Service was incorporated on 27 June 1997. The directors of the relevant companies were Robert Trevan and Jack Trevan; the shareholders of the Company and Car Sales were Robert Trevan, Jack Trevan, Lismore Car Wreckers Pty Limited ("Car Wreckers") (as trustee for the Bob Trevan Family Trust) and Coastline Holdings Pty Limited ("Coastline Holdings") as trustee for the Jack Trevan Family Trust; and the shareholders for Auto Service were Lismore Car Wreckers Pty Limited and Coastline Holdings Pty Limited as trustees for the respective Trusts (Purchas 26.8.2013, Ex IJP-2, pp 1, 12, 23). The relevant companies were wound up on the just and equitable ground under s 461(1)(k) of the Corporations Act and Mr Purchas was appointed as liquidator. It was anticipated that there would be a surplus in the windings up, which has been achieved. By affidavit dated 5 September 2013, Mr Purchas gives evidence that ASIC was notified of this application on 27 August 2013 and this application was advertised on 5 September 2013. 4Mr Purchas also relies on an affidavit of his solicitor, Ms Kirsten Farmer, sworn 20 September 2013. Ms Farmer gives evidence of correspondence with the parties and ASIC concerning this application. By letter dated 18 September 2013 to the liquidator's solicitors, ASIC advised that it does not object to the proposed application and will not be appearing at this hearing. A letter dated 16 September 2013, annexed to that affidavit, provides an estimate of the cost incurred to complete the winding up. Ms Farmer also gives evidence of service of the interlocutory process and affidavit in support upon the solicitors acting for Mr Robert Trevan and Mr Jack Trevan. Application under s 488 of the Corporations Act 5As noted above, Mr Purchas seeks an order under s 488(2) of the Corporations Act granting special leave to make a distribution of the surplus in the winding up of the Company to its contributories and an order that his costs and expenses of this application be paid out of the Company's assets. The order for costs and expenses would extend, following an amendment discussed in the course of submissions, to any costs of destruction of documents pursuant to an order made by the Court. The form of the order sought by the liquidator in respect of his costs and expenses broadly reflects the form of order that was made by Barrett J in Brealey v Shields [2009] NSWSC 1148. 6Section 485(2) of the Corporations Act provides that the Court must adjust the rights of the contributories among themselves and distribute any surplus among the persons entitled to it Section 488(1) provides that the rules and regulations may enable or require the liquidator to exercise, inter alia, that power, and r 7.10 of the Supreme Court (Corporations) Rules delegates that power to the liquidator subject to specified limitations. Section 488(2) of the Corporations Act in turn provides that, notwithstanding that delegation, a liquidator may distribute a surplus only with the Court's special leave. That provision is intended to ensure that there is in reality a surplus, in that creditors' claims have been recognised and met in full, and that the correct relativities among the contributories have been observed: CGU Workers Compensation (NSW) Ltd v Ascom Service Automation (Australia) Pty Ltd [2005] NSWSC 747 at [4]. The phrase "special leave" requires that a special application be made to the Court, as has occurred in this matter, rather than the matter being dealt with as part of some other administrative procedure: Re DS Millard & Son Pty Ltd (1997) 24 ACSR 71; (1997) 15 ACLC 808. 7The principles applicable to an application under s 488(2) of the Corporations Act were reviewed in Brealey v Shields above and, in Re FAI Car Owners Mutual Insurance Company Pty Ltd [2009] NSWSC 1350; (2009) 76 ACSR 164, Barrett J noted that the purpose of s 488(2) was 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". His Honour also noted (at [19]-[20]) that, following the abolition of the par value concept in relation to shares by the Company Law Review Act 1988 (Cth) with effect from 1 July 1998, a distribution of surplus among members is prima facie to be made according to the number of shares held, although that position may be changed by the Company's constitution. In Re Trussted Frames & Trusses Pty Ltd [2012] NSWSC 787, Brereton J observed that an order under that section required that it be shown that it was appropriate in all the circumstances for the distribution to be made to the contributories. 8Mr Purchas was previously granted special leave by the Court to make an interim distribution of surplus, having previously made distributions of $2m to Robert Trevan and $2m in specie to Jack Trevan prior to that date. He thereafter retained approximately $800,000 for payment of other creditors that might arise, including the Australian Taxation Office. On 23 May 2012, he paid a dividend of 100¢ in the dollar to the Australian Taxation Office on its proof of debt in the amount of $62,826. He has subsequently received tax clearances in respect of the relevant companies from the Australian Taxation Office. Mr Purchas' affidavit also sets out the steps that were taken to deal with proofs of debt by Robert and Jack Trevan respectively. 9As at the date of his affidavit sworn 26 August 2013, Mr Purchas held the sum of $305,378.19 and, after payment of costs and expenses in the winding up, he estimates that approximately $238,578 will be available for final distribution to the four shareholders of the Company, with all property of the relevant companies having been realised. His affidavit attaches a draft Form 551, being a schedule of contributories or other persons to whom a distribution of surplus is to be paid, in accordance with reg 5.6.71(1) of the Corporations Regulations 2001 (Cth). Mr Baird, who appears for Mr Purchas, points out that in the present case Mr Robert Trevan holds one share in the Company; his family company, Lismore Car Wreckers as trustee for the Bob Trevan Family Trust, holds 5,304 shares, which together total 50% of the issues shares; and Mr Jack Trevan similarly holds one share in the Company in his own name and his family company, Coastline Holdings as trustee for the Jack Trevan Family Trust, holds 5,304 shares, so that there is equality in the respective shareholdings between the interests associated with Mr Robert Trevan and Mr Jack Trevan. As Mr Baird points out, and consistent with observations made by Barrett J in Brealey v Shields, a distribution of surplus in such a case is straightforward, involving dividing the available sum between the two contributory groups in equal shares. I am satisfied that it is appropriate that the Court grant special leave to the liquidator to make the proposed distribution of surplus in the winding up of the Company in the manner proposed in the Interlocutory Process. 10Mr Purchas also seeks an order, under reg 5.6.71(1) of the Corporations Regulations providing that the order authorising distribution of a surplus to a person entitled to it need not have annexed to it a schedule in accordance with Form 551. As in Brealey v Shields and Re FAI Car Owners Mutual Insurance Company Pty Ltd above, I consider that the simplicity of the distribution in this case warrants an order dispensing with the requirement that a schedule in Form 551 be annexed to the order granting "special leave" to distribute the surplus. It seems to me, as in Trussted Frames, that the specification of the names of persons to whom the distribution is to be paid and the amounts of that distribution in the order sufficiently serves the objective otherwise to be achieved by reg 5.6.71 of the Corporations Regulations. Application under s 542 of the Corporations Act 11As noted above, Mr Purchas also seeks an order under s 542(3) of the Corporations Act that the books and records (including soft copy records which he holds and records held by offsite resources) and records in his custody, control and possession resulting from his appointment as liquidator of the relevant companies may be destroyed not sooner than one month after the companies' deregistration. 12Section 542 of the Corporations Act relevantly provides that, if a company has been wound up, a liquidator must retain the books referred to in s 542(1) for a period of 5 years after the date of the company's deregistration, and subject to s 262A of the Income Tax Assessment Act 1936 (Cth), may destroy them at the end of that period. Section 542(3) permits those books to be destroyed within that 5 year period, in the case of a winding up by the Court, in accordance with directions of the Court given pursuant to an application of which at least 14 days notice has been given to ASIC. Section 542(4) provides that the liquidator is not entitled to destroy such books unless ASIC consents to their destruction. The notification of this application to ASIC specifically noted that the orders sought included an order for destruction of the companies books and records. By letter dated 18 September 2013, ASIC advised that, based on the information available to it, it had no objection to the order sought under s 542(3)(a) of the Corporations Act for early destruction of the companies' books. 13Mr Purchas sets out reasons supporting the order permitting the destruction of the Company's books and records, which should be considered in the context of his evidence that the business operated by the relevant companies was sold and they ceased to trade in August 2005. He notes that no litigation by or against him as liquidator of the companies is on foot, contemplated or expected; no request for access to the books and records by any creditor or other party has been received to date; to the best of his knowledge, no circumstances exist in relation to the companies or an associate (as defined in s 11 of the Corporations Act) which may result in those books and records being required within 5 years of the companies' deregistration; and he has satisfied all of his lodging and reporting requirements resulting from his appointment as liquidator. The application for destruction of the relevant records is also supported by Mr Purchas' evidence that it would cost approximately $36,000 to retain those records for the 5 year statutory period, which would erode the surplus otherwise payable to the contributories. The cost of retaining those records reflects the fact that those records are contained in two shipping containers, together with electronic records. 14Mr Carey, who appeared for one of the contributories, Mr Jack Trevan, noted that the amount available on a distribution would be increased if the Court were prepared to make orders for the early destruction of records of the kind that were sought, by avoiding the costs of retaining those documents over the relevant period. Mr Carey noted that his instructions were that the documents held by the liquidator dated back to 1922 and that his client did not consider it necessary to retain them or to incur the future costs of storage. 15In these circumstances, I am satisfied that I can properly make the order sought under s 542 of the Corporations Act. I should note, however, that the order is not presently operative since it will not take effect until after the relevant companies are deregistered. Second, s 542(4) of the Corporations Act provides that the liquidator is not entitled to destroy the relevant books unless ASIC "consents" to the destruction of those books, and a statement that ASIC does not object to that destruction is not, in terms, a consent to that destruction. It follows that Mr Purchas will not be able to take advantage of the order unless and until he obtains consent to his doing so from ASIC, as distinct from its present statement of non-objection. Application under s 480 of the Corporations Act 16Mr Purchas seeks an order under s 480(d) of the Corporations Act that he be released as liquidator of the relevant companies and that ASIC deregister those companies. That paragraph relevantly provides that, where a liquidator has realised all of the company's property or so much of that property as can, in his or her opinion, be realised without needlessly protracting the winding up, and has distributed any final dividend to the creditors and adjusted the rights of the contributories among themselves and made any final return to the contributories, he or she may apply to the Court for an order that he or she be released and that ASIC deregister the company. The effect of an order for release of a liquidator under s 480(d) is stated in s 481(3)-(4) of the Corporations Act as follows: "(3) An order the Court releasing the liquidator discharges him or her from all liability in respect of any act done or default made by him or her in the administration of the affairs of the company or otherwise in relation to his or her conduct as liquidator, but any such order may be revoked on proof that it was obtained by fraud or by suppression or concealment of any material fact. (4) Where the liquidator has not previously resigned or been removed, his or her release operates as a removal from office." 17The effect of such an order has been described as to "wipe the slate clean", subject to the limited exceptions set out in s 481(3): Singer v Trustee of the Property of Munro [1981] 3 All ER 215 at 219 (dealing with the corresponding English provisions in respect of a trustee in bankruptcy); Re Wayland as Liquidator of ABC Containerline NV (in liq) [2005] NSWSC 13; (2005) 52 ACSR 750 at [27]. The notification provisions in respect of such an application allow it to be the forum at which any claim that the liquidator has been deficient in performing his or her role should be advanced: Deputy Commissioner of Taxation v Tideturn Pty Ltd [2001] NSWSC 217; (2001) 37 ACSR 152; Re ABC Containerline above at [28]. 18I do not consider that I can presently make an order for the release of Mr Purchas in respect of the Company, for the reason noted by Barrett J in Re FAI Car Owners Mutual Insurance Company Pty Ltd above, namely that such an order is premature where a surplus is still to be distributed in respect of the Company. As his Honour pointed out (at [88]), that section contemplates that an application for release may be made where the liquidator "has realised" all of the Company's property and "has distributed" a final dividend to the creditors and adjusted the rights of contributories and made a final return to the contributories. In the present case, that final return to contributories has not yet been made, although it can now be made in accordance with the orders to be made by the Court. Such an order would also have the second difficulty to which Barrett J referred (at [91]), that it would be required to be lodged with ASIC within 14 days after it was made, and ASIC would then be compelled to deregister the Company, a course that would cause difficulty if the distribution of surplus had not been completed within that time. 19The interlocutory process did not, in terms, contain the statements required by r 7.5(2) of the Supreme Court (Corporations) Rules. Had this been the only area of difficulty, I would have made an order dispensing with the application of those rules, since notice of the relevant applications and of the effect of s 481(3) of the Corporations Act was in fact provided to interested persons. I should add that, so far as Mr Purchas ultimately seeks an order that he be released and that ASIC deregister each of the companies, it would be necessary to confirm that his affidavit evidence in support of that order to addresses each of the matters specified in rule 7.5(3) of the Corporations Rules, which seem to me to be essential to the Court being placed in a position where it has the information necessary to be satisfied that it should make an order releasing a liquidator under s 480 of the Act. An affidavit would also need to be filed including the statements specified in r 7.5(4) of the Corporations Rules, and in particular the confirmation of the liquidator's belief that no act or default made by him is likely to give rise to any liability to the relevant company, any creditor or contributory and that he is not on notice of any claim by such a person. These statements also seem to me to be essential to the Court being placed in a position where it can be satisfied that it should make such an order. Orders 20Accordingly, I make the following orders: 1. Pursuant to s 488(2) of the Corporations Act 2001 (Cth), the Plaintiff have special leave to make a distribution of the surplus in the winding up of RH Trevan Pty Limited (in liq) to the contributories of RH Trevan Pty Limited (in liq) ("Company") in the following proportions: (a) Robert Warren Trevan of [address omitted] as to 1 share; (b) Lismore Car Wreckers Pty Limited as trustee of the Bob Trevan Family Trust as to 5,304 shares; (c)Jack Harrison Trevan of [address omitted] as to 1 share; (d) Coastline Holdings Pty Limited as trustee for the Jack Trevan Family Trust as to 5,304 shares. 2. Pursuant to reg 5.6.71(1) of the Corporations Regulations 2001 (Cth), the order authorising distribution of surplus to a person entitled to it need not have annexed to it a schedule in accordance with Form 551. 3. The Plaintiff's costs and expenses of this application and any costs of destruction pursuant to order 4 be paid out of the assets of the Company before striking the surplus to be distributed. 4. Pursuant to s 542(3) of the Corporations Act 2001, and if the consent of the Australian Securities and Investments Commission is obtained as required by s 542(4) of the Act, the books and records (including all soft copy records held by the Plaintiff and by offsite resources) in the Plaintiff's custody, control and possession resulting from his appointment as liquidator of the following companies may be destroyed not sooner than one month after any deregistration of the companies: (a) RH Trevan Pty Limited (ACN 000 012 322) (in liq); (b) Trevan Auto Service Pty Limited (ACN 079 102 159) (in liq); and (c) Trevan Car Sales Pty Limited (ACN 000 051 598) (in liq). 21For the reasons noted above, I have not at this point made a further order that the Plaintiff be released as liquidator of the relevant companies and that ASIC deregister the companies. It will, of course, be open to Mr Purchas to renew his application for release after the distribution of the surplus has been completed, and at that time to file the form of affidavit required in support of such an application. ********** 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: 03 October 2013