Supreme Court New South Wales Medium Neutral Citation: In the matter of Ryde Ex-Services Memorial & Community Club Limited [2015] NSWSC 125 Hearing dates: 9 February 2015 Decision date: 09 February 2015 Jurisdiction: Equity Division - Corporations List Before: Black J Decision: Order made that the appointment of the administrator be declared valid under s 447C of the Corporations Act. Catchwords: CORPORATIONS – voluntary administration – appointment of administrator – where approval of appointment of an administrator was required by a third party authority – whether resolution passed at a director's meeting without quorum – whether administrator's appointment was valid. Legislation Cited: - Corporations Act 2001 (Cth) ss 436A, 447A, 447C, 447C(2), 1322, 1322(4) - Registered Clubs Act 1976 (NSW) s 41 Cases Cited: - Clifton and Hall v Berri Club Inc [2014] SASC 170 - Correa v Whittingham [2013] NSWCA 263 - Deputy Commissioner of Taxation v Portinex Pty Ltd (2000) 34 ACSR 391 - Re HPI Australia Pty Ltd [2008] NSWSC 1106 - Re Wood Parsons Pty Ltd (2002) 43 ACSR 257 - Smolarek v McMaster (as administrators of Eznut Pty Ltd [2006] WASCA 216 Category: Principal judgment Parties: Gregory Alexander Russell in his capacity as administrator of Ryde Ex-Services Memorial & Community Club Limited (Administrator Appointed) (Plaintiff) Ryde Ex-Services Memorial & Community Club Limited (Administrators Appointed) (Defendant) Representation: Counsel: C Harris SC (Plaintiff) Solicitors: Colin Biggers & Paisley (Plaintiff) File Number(s): 2015/29761 Judgment – ex tempore 1. By Originating Process filed on 30 January 2015, the Plaintiff, Mr Gregory Russell, in his capacity as administrator of Ryde Ex-Services Memorial & Community Club Limited (Administrator Appointed) ("Club") seeks, first, a declaration under s 447C of the Corporations Act 2001 (Cth) that his appointment on 21 January 2015 as administrator of the Club under s 436A of the Corporations Act was valid. Mr Russell also seeks further relief under ss 1322 and 447A of the Corporations Act, although it would strictly only be necessary to address that relief if the primary declaration which he seeks as to the validity of his appointment were not made. 2. The application was initially made returnable before the Duty Judge on 30 January 2015 and the Court then made directions for Mr Russell to give notice of the application in a specified manner and to specified persons, including by giving such notice on the Club's website and on a notice board at the Club's premises and by tabling the notice at the first meeting of the Club's creditors held on 2 February 2015 and sending it to other parties in other proceedings in which the Club is involved. There is evidence, in Mr Harkin's affidavit dated 9 February 2015, that notice of the application was given substantially in accordance with those directions, although there was a delay in notification of the application on the Club's website as a result of difficulties arising from unpaid invoices claimed to be due by the internet service provider. I am satisfied that sufficient notice has been given of this application. No party appeared to oppose the application. 3. One member of the Club, Mr Bonvino, had previously raised several matters which were said to raise a question as to the validity of Mr Russell's appointment as administrator of the Club and I will address those matters below. By email dated 2 February 2015, Mr Bonvino's solicitor had advised Mr Russell's solicitor that he now accepts the validity of Mr Russell's appointment, and Mr Bonvino therefore did not appear to oppose this application. Another member of the Club had communicated his support for the application to Mr Russell's solicitor and offered to appear at the application, but had been advised that it was not necessary to do so where Mr Bonvino had withdrawn his opposition to the application. 4. By way of further factual background, it appears that the Club has been developing a proposal for the possible sale of part of the land it owns for a considerable period, which has been the subject of disputes between members, and is in turn the subject of other proceedings in Court brought in this Court, where a hearing has taken place and judgment is reserved. Shortly before that hearing was due to take place, the directors of the Club resolved to appoint Mr Russell as administrator under s 436A of the Corporations Act on 21 January 2015. That section provides that a company may, by writing, appoint an administrator of a company if the board has resolved to the effect that, in the opinion of the directors voting for the resolution, the company is insolvent or is likely to become insolvent at some future time. 5. Minutes of a meeting of directors, attended by five directors (Messrs Fish, Flynn, Schulz, McLellan and Smith) and also by the Club's Chief Executive Officer on 15 January 2015 passed a resolution to that effect. A company search in respect of the Club is in evidence and it records the five persons who voted in favour of the resolution as being directors of the Club, and is, of course, prima facie evidence of that matter. 6. By letter dated 28 January 2015, the solicitors acting for Mr Bonvino, who opposes the course taken by the Club in respect of the proposed sale of part of its land, wrote to the solicitors for Mr Russell setting out several bases on which he did not accept the administrator's appointment. As I noted above, Mr Bonvino has since withdrawn his challenge to the validity of that appointment. However, Mr Harris, who appears for Mr Russell, has properly drawn attention to those matters and it is necessary to deal with them. 7. The first of those matters is that Mr Bonvino indicated that he had not then seen confirmation from the Independent Liquor and Gaming Authority ("Authority") that Mr Russell's appointment had been approved. The requirement for such approval arises under s 41 of the Registered Clubs Act 1976 (NSW) which provides that, relevantly, a person is not capable of being appointed to act in the capacity of an administrator of a registered club that is a company within the meaning of the Corporations Act or of acting in any such capacity unless that person has been approved to act in that capacity by the Authority. That section is capable of invalidating the appointment of an administrator, which would otherwise have been validly made under the Corporations Act, if the relevant appointment had not been approved by the Authority prior to the time at which it was made. In Correa v Whittingham [2013] NSWCA 263, the Court of Appeal held that the appointment of an administrator was invalid, where it had occurred prior to such approval being given by the Authority and held that the appointment was not capable of remaining in suspension pending such approval, and also held that an appointment which was invalid, by reason of s 41 of the Registered Clubs Act, could not be validated under s 447A of the Corporations Act or otherwise. 8. In the present case, the question of appointment prior to such approval does not arise. There is evidence, in the affidavit of Ms Collins dated 9 February 2015, that the Club had written to the Authority seeking approval for the appointment of Mr Russell under s 41 of the Registered Clubs Act, on 15 January 2015, after the board had passed the relevant resolution but prior to the execution of the instrument of appointment. Ms Collins gives evidence, on information and belief, that Mr Russell received a telephone call from the Chief Executive Officer of the Authority advising that the authority approved his appointment to the Club at about 6.20pm on 20 January 2015, and that evidence is corroborated by a contemporaneous email sent by Mr Russell on 20 January 2015 that stated, "Thanks for approval of the administrator's appointment to the Club", and noted that the directors proposed to sign the appointment document the following morning. 9. There is also in evidence an email from the Authority dated 21 January 2015, sent at 9.04am, confirming its approval to appoint Mr Russell as administrator. However, it is clear from the evidence to which I have referred that that email is in the nature of a confirmation and that the relevant approval to the appointment had been both given and communicated to the Club previously. Two directors of the Club in turn executed an instrument of appointment of the administrator at 8.45am and 8.46am respectively on 21 January 2015. In any event, that occurred after approval had been given, on 20 January 2015, by the Authority, although prior to the written confirmation of that approval. Mr Harris submits, and I accept, that s 41 of the Registered Clubs Act does not require written approval, still less written communication of the fact of approval, to the Club or the administrator. It simply requires that the Authority has in fact approved the appointment, prior to it taking place, and that had occurred in this case. I note, for completeness, that Mr Bonvino did not contend to the contrary, but merely recorded his lack of awareness, at the time he initially identified bases for opposition, of the status of that approval. 10. Next, Mr Bonvino raised an issue as to whether the board of the Club had a sufficient quorum to resolve to appoint Mr Russell as administrator. Article 48 of the Club's Constitution provides that the quorum for a meeting of the board is four members personally present. Article 52 in turn provides that all acts done by members of the board or a person acting as a member of the board shall, notwithstanding a defect in their appointment or disqualification, be as valid as if every member of the board was duly appointed and qualified to be a member of the board. 11. It appears, from an affidavit of Mr Bonvino dated 23 January 2015 filed in the primary proceedings, which was not read in this application, that an issue was raised as to Mr Smith's appointment as a director of the Club on the basis that he had been appointed on 18 May 2014 in respect of a casual vacancy and not elected to membership of the Club until 23 May 2014, to Mr Shultz's appointment as a director on the basis that, it is alleged, he had resigned from the Club; and to Mr Flynn's appointment as a director on the basis that he had ceased to be a member after failing to pay membership fees. No evidence of these matters exists, where Mr Bonvino's affidavit dealing with them was not read. There is some evidence to the contrary in respect of Mr Flynn, so far as the RSL has confirmed that his membership was paid for in 2014 and there is some evidence to the contrary in respect of Mr Schultz, so far as the RSL has expressed the view that a form which purported to transfer him to the unattached list was invalid, because it was not signed by him but by the Honorary Secretary of the Club. 12. In any event, even putting aside the evidence to the contrary, it seems to me that these matters were not capable of depriving the Board of a quorum, because the effect of article 52 of the Club's Constitution was to validate any act that was undertaken by a meeting of the board, notwithstanding any defect in the appointment of any of its members or, if it were relevant, any disqualification arising from matters such as a suggested non-payment of fees or a suggested transfer of membership. It is, however, not necessary to express any final view as to that matter where, as I have noted, Mr Bonvino has not led any evidence to support the matters on which he relied to question the validity of the directors' appointment and the information recorded by the Australian Securities & Investments Commission as to the present membership of the board operates as prima facie evidence of that matter, absent any evidence to the contrary. For that reason, I am satisfied that the resolution was in fact passed by five members of the Board, being a unanimous resolution of the then members of the Club's board. 13. The next basis of the criticism is an allegation that the appointment was for an improper purpose. Mr Bonvino did not press that allegation and no evidence was led to support it. It seems to me that I therefore need to say nothing further about it. An allegation of improper purpose cannot be established, without leading at least some evidence to support it. 14. Next, it is suggested that Mr Russell's independence was "not accepted" by Mr Bonvino, although Mr Bonvino did not affirmatively contend that Mr Russell was not independent. Again, no evidence was led to impugn Mr Russell's independence and, absent such evidence, it seems to me that no question of Mr Russell's independence arises or needs to be determined. 15. Next, Mr Bonvino suggested that the Club was in a position to overcome any "temporary illiquidity", which he did not admit, by borrowing funds. Mr Bonvino led no evidence to support the claim for the Club's solvency, again because he no longer contests the validity of Mr Russell's appointment, and Mr Russell led uncontested evidence of his view, formed having regard to recent cash flow projections of the Club, that the Club was insolvent, or at least likely to become insolvent, by reason of matters including the fact that it would exceed the limit of its overdraft facilities in January 2015, and that its directors considered that they should not borrow further in circumstances of continuing litigation and uncertainty regarding the suggested sale of the land or development of the Club's premises. There is no reason not to accept Mr Russell's evidence as to the Club's present status of solvency, particularly where that evidence is ultimately uncontested in this application, and I accept that evidence. For that reason, it seems to me that there is no basis to find that the resolution, to the effect that the directors held the opinion that the Club was insolvent or likely to become insolvent, was not properly founded. 16. In these circumstances, it seems to me that the basis for a declaration under s 447C of the Corporations Act is established. That section relevantly provides that, if there is doubt, and on a specific ground, about the validity of a purported appointment of a person as administrator of a company, the company or any of its creditors may apply to the Court for an order under the section. That application is presently brought by the Club, which has standing to bring it under that section. Section 447C(2) provides that, on such an application, the Court may make an order declaring whether or not the purported appointment was valid on the grounds specified in the application or on some other ground. The orders made by a Court under this section are declaratory rather than curative, in the sense that they record a finding that the appointment was in fact valid, rather than curing any defect in the appointment: Smolarek v McMaster (as administrator of Eznut Pty Ltd) [2006] WASCA 216 at [25]; Re HPI Australia Pty Ltd [2008] NSWSC 1106 at [8]. 17. In these circumstances, I consider that I should properly make an order under s 447C of the Corporations Act declaring the validity of the administrator's appointment. 18. I should note, for completeness, that there is no necessity to consider the application under s 1322(4) of the Corporations Act, by which an order was sought by the Club that Mr Russell's appointment as administrator was not invalid by reason of the fact that three of the five directors who resolved to make the appointment may not have validly held appointment as directors at the time of the resolution. However, against the contingency that I were not correct in respect of the findings that I have reached in respect of the position of the directors of the Club to which I have referred, I should indicate that I accept Mr Harris' submission that orders under s 1322(4) of the Corporations Act can be made, and often have been made, to validate the appointment of an administrator where the primary basis of any attack on it is a lack of quorum. 19. In the present case, taking the criticisms articulated by Mr Bonvino at their highest, the resolution to appoint the administrators was passed by two of the five directors, with three other directors whose appointment was challenged by Mr Bonvino also voting for it. If, contrary to the findings which I have reached, any such challenge had been established, it seems to me that the fact that the appointment had been voted by two directors whose appointment is not challenged, and the evidence as to the Club's insolvency in fact, are such as to support an order under s 1322(4) of the Corporations Act in respect of the appointment of Mr Russell: compare Deputy Commissioner of Taxation v Portinex Pty Ltd (2000) 34 ACSR 391; Re Wood Parsons Pty Ltd (2002) 43 ACSR 257; Clifton and Hall v Berri Club Inc [2014] SASC 170. Had I not found that the appointment was valid and made a declaration to that effect under s 447C of the Corporations Act, I would have validated the appointment so far as it were necessary to do so, in respect of the issue of the quorum of the directors' meetings, under s 1322 of the Corporations Act. I do not make such an order, because it would be inconsistent with the finding which I have already reached, namely that the appointment was valid in its terms. 20. In these circumstances, it does not seem to be necessary for me to consider the operation of s 447A of the Corporations Act since the circumstances for its application do not arise. 21. Accordingly, I make the following orders: 1. Declare under s 447C(2) of the Corporations Act 2001 (Cth) that the appointment on 21 January 2015 of the plaintiff, Mr Gregory Russell, as administrator of the defendant, Ryde Ex-Services Memorial & Community Club Limited, under s 436A of the Act was valid. 2. The plaintiff's costs in the proceedings be costs in the administration. 3. These orders be entered forthwith. ********** 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: 04 March 2015