In the matter of The Storage Factory Pty Ltd [2014] NSWSC 616

Supreme Court New South Wales

Medium Neutral Citation: In the matter of The Storage Factory Pty Ltd [2014] NSWSC 616 Hearing dates: 19 March 2014 Decision date: 19 March 2014 Jurisdiction: Equity Division - Corporations List Before: Black J Decision: Orders made for appointment of provisional liquidator to the company. Catchwords: CORPORATIONS - winding up - application to appoint provisional liquidator - where company currently has no directors in office and no likelihood of any director being appointed - where company's assets are at risk - whether reasonable prospect that winding up order would be made on just and equitable ground - whether a provisional liquidator should be appointed. Legislation Cited: - Corporations Act 2001 (Cth) s 461(1)(k) Cases Cited: - Australian Securities and Investments Commission v ActiveSuper Pty Ltd (No 2) [2013] FCA 234; (2013) 93 ACSR 189 - CIC Insurance Ltd (prov liq apptd) v Hannan and Co Pty Ltd [2001] NSWSC 437; (2001) 38 ACSR 245 - Emmacourt Pty Ltd v Jewels Australia Pty Ltd [2007] FCA 1483 Category: Interlocutory applications Parties: Margaret Helen Geraghty (Plaintiff) The Storage Factory Pty Ltd (Defendant) Representation: Counsel: R D Marshall (Plaintiff) Solicitors: Turnbull Hill (Plaintiff) File Number(s): 2014/83620

Judgment - EX TEMPORE 1By Originating Process filed on 19 March 2014 by leave, the Plaintiff, Ms Margaret Geraghty, applies for an order winding up The Storage Factory Pty Ltd ("Company") under s 461(1)(k) of the Corporations Act 2001 (Cth) on the grounds that it is just and equitable to do so. Ms Geraghty also today seeks an order appointing Mr Paul Gidley, who has consented to his appointment, as provisional liquidator of the Company. 2The Originating Process has not yet been served upon the Company. In the ordinary course, I would be reluctant to appoint a provisional liquidator, where the Company had no notice of the application, at least where no reason for the lack of service was established. In the present case, for reasons to which I will refer below, it seems to me that the question of service is of lesser relevance. In particular, as I will note below, it appears that the sole director of the Company has resigned and in that situation, it appears that the Company would be unable to act to address the Originating Process, even if it was served upon it. In that sense, the appointment of a provisional liquidator may be a necessary step to put a person in control of the Company's affairs, who may address the issues affecting the Company. I will return to that matter below. 3The application is supported by an affidavit of Ms Geraghty dated 17 March 2014. In summary, Ms Geraghty's evidence is that she has invested in the order of $300,000 in the Company. It appears that she holds ordinary shares and K class preference shares in the Company and may have an interest of something under twenty per cent in the Company's shares. That is, of course, by no means an insignificant investment or an insignificant interest in the Company. 4Ms Geraghty sets out the circumstances of her investment and the Company's involvement, for some years, in operating a storage facility, and thereafter in owning the land on which the storage business was conducted by a third party, and receiving rental income from the person conducting that business. Throughout that period, it appears that the sole director of the Company was Mr Keith Howard, who is still recorded in the records maintained by the Australian Securities and Investments Commission ("ASIC") as the Company's director. It appears from Ms Geraghty's evidence that, at some point in the period prior to 30 June 2007, the Company may have borrowed a significant amount and paid dividends from that borrowing, a step which itself may raise issues as to whether that dividend was properly paid. 5The more immediate issue raised by the application is that, on 31 July 2012, the Company sold the property which it had previously owned to a third party for a substantial sum, and it appears that arrangements for how that sum is to be dealt with, and for what is to occur in the Company, are uncertain to say the least. Ms Geraghty received a letter dated 2 August 2013 from Mr Howard and a cheque, which contemplated the return of a form that would acknowledge that she would receive a proportion of monies available on the winding up of the Company, although that letter contained no information as to the amount of the monies that would be available or how they were to be determined. Ms Geraghty subsequently corresponded with Mr Howard, quite reasonably seeking further information in respect of these matters, but was not provided with such information. 6An attempt was then made to convene a general meeting of the Company on 7 January 2014, apparently to elect further directors to the Company. Mr Howard had responded to that general meeting by a letter dated 7 January 2014 resigning as a director of the Company. I have been informed that there was a purported appointment of further directors at that meeting, there may be question as to its validity, and that ASIC and the Company's bank have not been prepared to recognise the purported appointment of the new directors, although these matters were not addressed in evidence before me. The present position is therefore that Mr Howard has purportedly resigned as a director but no one else has been able to be appointed in his place and the Company is left without officers in contravention of the minimum number of directors provided under the Corporations Act. 7Subsequently, Ms Geraghty instructed her solicitors to write to Mr Howard and their letter was returned stating that he was no longer at that address. Ms Geraghty's solicitors were able to correspond with Mr Howard by email subsequently, and gave him notice of a suggested application to the Court to seek to clarify the position in respect of the Company's management. They also sought to be advised of a street address so that documents could be served on Mr Howard, but no such address was provided. Mr Howard then sent an email indicating that he was shutting down his email address, so that contact by email would also no longer be possible. 8The circumstances in which a provisional liquidator may be appointed are well-established and it is not necessary to review them at length in this application. The Court can appoint a provisional liquidator after the filing of a winding up application and prior to the making up of a winding up order. As I have noted above, Ms Geraghty seeks an order for the winding up of the Company. The Court would usually appoint a provisional liquidator only if there is a reasonable prospect that a winding up order would be made: Emmacourt Pty Ltd v Jewels Australia Pty Ltd [2007] FCA 1483 at [9]. 9In the present case, it seems to me that there is a reasonable prospect that a winding up order would be made under s 461(1)(k) of the Corporations Act, under the just and equitable ground, so far as the events which I have referred may well, at a final hearing, establish that there is at least a lack of confidence in the conduct and management of the Company's affairs such as to warrant such an order, or that there is a need to wind up the Company in order to protect the investors in it and allow them to realise their investment, once the Company's business has, it appears, been brought to an end. It also seems to me likely that a winding up order could be made on narrower grounds, namely, that the Company's only director has resigned; it has apparently not been possible to have the purported appointment of new directors recognised; and the Company is presently without management in circumstances where there is a real and pressing issue as to the need for an accounting of the proceeds of sale of the Company's property. It is well established that the Court may make a winding up order under s 461(1)(k) where it has no directors and there is no likelihood of any being appointed: CIC Insurance Ltd (prov liq apptd) v Hannan and Co Pty Ltd [2001] NSWSC 437; (2001) 38 ACSR 245 at [20]. 10A provisional liquidator may be appointed where there is some good reason for the appointment and, in particular, where the Company's assets are at risk. The circumstances in which such an appointment were made were usefully summarised by Gordon J in Australian Securities and Investments Commission v ActiveSuper Pty Ltd (No 2) [2013] FCA 234; (2013) 93 ACSR 189 at [11]ff, where her Honour noted that such an appointment could be made where there was a good faith application constituting a sufficient ground for making the order; the applicant had established a reasonable prospect that the order would be made on the application; and that the company's assets were at risk, so that the appointment was needed to preserve the status quo and the opportunity for the Court to decide, after further examination, whether the company should be wound up. 11In the circumstances of this application, it seems to me that there are plainly pressing issues in respect of the Company's affairs which cannot be addressed in circumstances where the Company has no director appointed, and that there is a pressing need for the appointment of an independent person who may take conduct of the Company's affairs and seek to secure its assets. For these reasons, I am satisfied that the order appointing a provisional liquidator should be made. 12I will also make orders for the Originating Process to be returnable on 24 March 2014 before the Corporations List judge and orders abridging the time for service of the Originating Process, the evidence in support and a copy of these orders. I will also make an order that these orders will be entered forthwith.