In the matter of Nadel Investments Pty Limited (in liquidation) [2015] NSWSC 1434

Supreme Court New South Wales

Medium Neutral Citation: In the matter of Nadel Investments Pty Limited (in liquidation) [2015] NSWSC 1434 Hearing dates: 11 May 2015 Date of orders: 11 May 2015 Decision date: 11 May 2015 Jurisdiction: Equity - Corporations List Before: Brereton J Decision: The liquidators would be justified in proceeding on the footing that all shareholders were entitled to share proportionately according to the number of shares held by them in the distribution of surplus in the winding up of the company. Catchwords: CORPORATIONS – membership, rights and remedies – shareholders' rights to distribution out of assets of company on winding up – memorandum and articles of association – whether rights to distribution of surplus differ as between different classes of shares – held, all classes of shares entitled to equal share in surplus. Legislation Cited: (Cth) Corporations Act 2001, s 511 Category: Principal judgment Parties: Geoffrey Robert Davis as liquidator of Nadel Investments Pty Ltd ACN 000 229 818 (plaintiff) Michelle Sarah Armer (intervener) Representation: Counsel: D Murr SC w T Baw (plaintiff) B Levet (intervener)

Solicitors: Harris Freidman (plaintiff) Spectrum Legal (interevener) File Number(s): 2015/95696

Judgment (ex tempore) 1. HIS HONOUR: The plaintiff Geoffrey Robert Davis and his partner John Morgan are the joint and several liquidators of the company Nadel Investments Pty Ltd pursuant to a members' voluntary winding up by resolution of 15 January 2015. 2. The company was incorporated on 18 April 1958, then under the name Nadel Studios Pty Ltd, the subscribing shareholders being Meer Nadel and his wife Anna Nadel. Under the memorandum of association, Meer Nadel was appointed governing director for life with complete power over the affairs of the company. 3. Clause 4 of the memorandum of association provided that the share capital was £25,000 divided into 25,000 shares of £1 each. Clause 5 was as follows: Any of the shares in the original capital for the time being unissued and any new shares from time to time to be created may from time to time be issued with any such right of preference whether in respect of dividend or of repayment of capital or both or any such other special privilege or advantage over any shares previously issued or then about to be issued or with such deferred rights as compared with any other shares previously issued or then about to be issued and with any special or restricted rights or without any right of voting and generally on such terms and subject to such conditions and provisions as may from time to time be determined in accordance with the articles of association for the time being in force. 1. In the articles of association, cl 5 provided that the capital of the company was £25,000, divided into 1,000 ordinary shares of £1 pound each; 1,500 "A" class, "B" class, "C" class, "D" class, "E" class, "F" class, "G" class, "H" class, "I" class, "J" class, "K" class and "L" class shares respectively of £1 each – that being a total of 18,000 such shares; 2,000 Group 1 5% redeemable noncumulative preference shares of £1 each entitled to a dividend of 5% per annum; 2,000 Group 2 redeemable noncumulative preference shares of £1 each entitled to a dividend of 5% per annum; and 2,000 Group 3 redeemable noncumulative preference shares of £1 each entitled to a dividend of 4% per annum. Clause 5(2) provided that the holders of ordinary and of Group 3 4% redeemable noncumulative preference shares should be entitled to one vote for each share held, but that the holders of the "A" to "L" class shares and the Group 1 and Group 2 5% redeemable noncumulative preference shares were not entitled to vote "except as hereinafter provided". Subclause (3) was as follows: The "A" to "L" class shares inclusive shall confer the right only to such dividends as the directors may from time to time as they think fit determine. 1. Subclause (7) provided: The holders of the "A" to "L" class shares inclusive shall be entitled to such voting powers and to such dividends and rights on winding-up and otherwise as the directors may at the time of issue of each particular class determine. 1. That is of some significance as, on one view, cl 5(3) might have indicated an intention that the only rights of the "A" to "L" class shares would be of a dividend nature, but cl 5(7) shows that not to be the case. 2. Clause 6 of the Articles provides that the directors may allot shares on such terms and conditions and either at a premium or at par or at a discount as they think fit, and that subject to the Memorandum and without prejudice to any special rights previously conferred, any share may be issued with such preferred, deferred or other special rights or such restrictions whether in regard to dividend, voting, return of share capital or otherwise, as the company may from time to time by ordinary resolution determine. 3. In the context of clause 5 of the Memorandum and clause 6 of the Articles, there is, it seems to me, a general flavour that special rights – that is, respects in which particular classes of shares might differ from ordinary shares – would be specified in a resolution at the time of issue. 4. Clause 120 of the Articles makes provision in respect of the winding up of the company and in particular states: And if in a winding-up the assets available for distribution among the members, without calling up or treating as called up any uncalled capital, shall be more than sufficient to repay the whole of the capital paid up at the commencement of the winding-up, the excess shall be distributed amongst the members in proportion to the capital at the commencement of the winding-up, paid up or deemed to be paid up or which ought to have been paid up on the shares held by them respectively. But this clause is to be without prejudice to the rights of the holders of shares issued upon special terms and conditions. 1. So far as appears, at all material times there have been five issued shares in the company. Prior to his death, the governing director Meer Nadel held two ordinary shares. A resolution of the directors of 29 April 1960 records that on that day, one "A" class share was allotted to trustees for Michelle Armer, another "A" class share was allotted to trustees for Diana Armer and an "L" class share was allotted to Gertrude Armer. 2. Meer Nadel died on 18 January 1978. Probate of his will dated 11 February 1977 and first codicil dated 1 May 1977 was granted to four of the five executors named in the will, Graeme James McKimm, John Armer, Alexander John Valer and Eric Jellinek, on 10 October 1978, a fifth named executor Ernest Wolff having renounced. 3. The Court is informed, and it seems likely, that Alexander John Valer and Eric Jellinek have since died. In any event, I do not think that is crucial to the question for decision. 4. A search of the register maintained by ASIC in respect of the company indicates that, as at 12 March 2015, the registered shareholders were John Armer and James McKimm in respect of two ordinary class shares – evidently those formerly held by Meer Nadel and now an asset of his estate; Gertrude Armer in respect of one "L" class share, and Diana Babette Heinrich in respect of two "A" class shares. Whether Diana Babette Heinrich is entitled to both "A" class shares is the subject of dispute by Michelle Sarah Armer, who has instituted proceedings to have set aside or declared void the transfer of a share to which she claims to have been entitled to Diana Heinrich. The liquidator has given an undertaking to the Court not to make a distribution in respect of the disputed share until that matter returns to the Court. 5. The resolution of the directors allotting the "A" and "L" class shares to which I have referred did not purport to impose any special rights, privileges or restrictions in respect of those shares. A search of the company's books and records by the liquidator's solicitors has found no record of any determination as to the rights on winding up or otherwise of the holders of the "A" to "L" class shares. In those circumstances, a question arises upon the winding up of the company as to whether the "A" and "L" class shares are entitled to share equally with the ordinary shares in the distribution of surplus, or whether only the ordinary shares are entitled to a distribution, no right to participate having been expressly conferred on the "A" to "L" class shares. 6. I have already referred to what seems to me a general flavour of the Memorandum and Articles to the effect that a resolution is required to specify any special rights that might attach to the "A" to "L" class shares. Clause 120 of the Articles, set out above, states a prima facie position that surplus on winding up will be distributed "amongst the members in proportion to the capital at the commencement of the winding-up" and an exception that that is subject to the rights of the holders of shares issued upon special terms and conditions. As it seems to me, no shares have been issued upon special terms and conditions. The reference to "in proportion to the capital at the commencement of the winding-up", in my view, encompasses all five issued shares, not just the "ordinary" shares. That conclusion is reinforced by the circumstance that if the "A" and "L" class shares were not entitled to a pro rata distribution of surplus, then there would really be only two alternative possibilities. The first would be that they are merely entitled to a return of the amount paid up; but that would be a special term and condition, and there is nothing indicating that any such special term and condition was attached to those shares. The other would be that they were entitled to nothing at all, which would mean that they were shares without any rights – neither to vote, nor to receive dividend, nor even to a return of paid-up capital let alone to participate pro rata in the surplus, and while it may not be impossible, the notion that such shares were allotted with the intention that they have no rights whatsoever appears a remarkable one which the Court would not embrace unless compelled to do so. 7. For those reasons, it seems to me that the preferable construction is that all five issued shares are entitled to share equally in the surplus. 8. The Court therefore orders that: 1. Pursuant to (Cth) Corporations Act 2001, s 511, the liquidators would be justified in proceeding on the footing that the holders of the two issued ordinary shares, the holders of the two issued "A" class shares and the holder of the one issued "L" class share were entitled to share proportionately according to the number of shares held by them in the distribution of surplus in the winding up of the company. 2. The costs of the application are costs in the liquidation.