Supreme Court New South Wales Medium Neutral Citation: In the matter of Veraz Enterprises Pty Ltd [2016] NSWSC 1580 Hearing dates: 8 November 2016 Decision date: 08 November 2016 Jurisdiction: Equity - Commercial List Before: Stevenson J Decision: Declare that the actions of the late Mr Venceslav Zarev were not effective to transfer his shares in the plaintiff Catchwords: CORPORATIONS – requirements for valid transfer of shares in unlisted company; GIFTS INTER VIVOS – incomplete gift Legislation Cited: Corporations Law Corporations Act 2001 (Cth) Cases Cited: Cope v Keene (1968) 118 CLR 1 Milroy v Lord (1862) 45 ER 1185 Category: Principal judgment Parties: Veraz Enterprises Pty Ltd (Plaintiff) Vivo Enterprises Pty Ltd (First Defendant) Cathy Spralja (Second Defendant) Betty Mateski (Third Defendant) Representation: Counsel: M Klooster (Plaintiff) Solicitors: Wollongong Legal (Plaintiff) Quirk Lawyers (Defendants) File Number(s): SC 2016/216486 Judgment 1. The plaintiff, Veraz Enterprises Pty Ltd, seeks declarations to the effect that steps taken by the late Mr Venceslav Zarev in September 2010 concerning his then 50 per cent shareholding in Veraz, were not effective to dispose of that shareholding. 2. Mr Zarev was known as "Vince" and, without intending any disrespect to him, I shall refer to him by that name. 3. Veraz was incorporated on 4 April 1995. Veraz conducted a real estate business in the Illawarra region. 4. At that time, Vince held one of the two issued shares in the company. According to Veraz's current Register of Members, the other issued share in Veraz was then held by Ms Elizabeth Sonniettner, who died in 1998 whereupon her share transferred to Vince. 5. Thus, from 1998, Vince held the two issued shares in Veraz. 6. In around 2005, Vince formed a domestic relationship with Ms Voskra Mateska. Ms Mateska is known as "Vicky" and, again, without intending any disrespect, I shall refer to her by that name. 7. On 16 May 2008, Vince made his last will and testament and named Vicky as his sole executrix and beneficiary. 8. On the same day, Vince caused a meeting of directors of Veraz to be called at which it was resolved that Vicky be appointed a director of Veraz and that she be issued with two additional ordinary shares. 9. Thus, Vicky then became an equal 50 per cent shareholder with Vince in Veraz. 10. Vicky has two daughters, Ms Cathy Spralja and Ms Betty Mateski. 11. In September 2010, unbeknownst to Vicky, Cathy and Betty, Vince purported to transfer his two shares in Veraz to Cathy and Betty. 12. Vince did not execute share transfers in favour of Cathy and Betty. He simply lodged at the Australian Securities and Investments Commission a Form 484 "Change to Company Details" which asserted that on 9 August 2010 Vince had transferred his two shares in Veraz to Cathy and Betty. 13. Veraz's constitution cannot be located. However, as Veraz was incorporated in 1995, it was likely to have been in the form of, or to the effect of, Table A to the then operative Corporations Law: s 175. 14. Relevantly, Table A provided that a transfer of shares could only take effect by an "instrument of transfer…executed by or on behalf of both the transferor and the transferee" and that the transferor of shares would remain holder of the shares transferred until the transfer was registered in the records of the company: reg 19. 15. Further, at the time that Vince purported to transfer the shares, s 1071B(2) of the Corporations Act 2001 (Cth) provided that a company "must only register a transfer of securities if a proper instrument of transfer…has been delivered to the company". 16. In any event, Cathy and Betty knew nothing of the purported transfer. They did not seek it and, when they became aware of it (see below) they eschewed, in vigorous terms, any interest in being a shareholder of Veraz. Insofar as the evidence casts any light on why Vince took this step, it appears to have been a misguided attempt to confer an indirect benefit on Vicky. 17. It does appear that Vince intended to make an inter vivos gift to Cathy and Betty. But that gift is not effective because Vince did not do "everything which, according to the nature of the property comprised in the settlement, was necessary to be done in order to transfer the property and render the settlement binding" Cope v Keene (1968) 118 CLR 1 at 12 per Taylor J, referring to the principle applied in Milroy v Lord (1862) 45 ER 1185. 18. Thus, Vince's actions were not effective, in my opinion, to transfer his shares to Cathy and Betty. 19. Vince died in June 2011. 20. Cathy and Betty only became aware of the purported share transfers a few months later, in August 2011. Each protested that she did not wish to be a shareholder in Veraz and wished to be removed as shareholder. 21. The matter was complicated the following year when Veraz's tax advisor, a Ms Anastasia Sourlas from "Master Tax Services" lodged a further Form 484 at ASIC purporting to show that Cathy and Betty had on 3 April 2012 transferred their shares in Veraz to another company, Vivo Enterprises Pty Ltd. Vicky is the sole shareholder and director of that company. 22. Neither Cathy or Betty gave Ms Sourlas instructions to take that step. 23. The instructions that Vicky had given Ms Sourlas were to arrange for the shares purportedly held by her daughters in Veraz to be transferred "back to Vince". Ms Sourlas later told Vicky that the reason she took the course she did was because there were "tax benefits" in transferring the shares to Vivo. 24. To complicate matters further, in April 2016, Vicky prepared two share transfer forms, backdated to April 2012, purporting to evidence a transfer of the shares held by Cathy and Betty in Veraz to Vivo and arranged for Cathy and Betty to sign them. Cathy and Betty signed the documents without reading them and did so because they did not profess to have any interest in any shareholding in Veraz and wanted to "help their mother out". 25. For her part, Vicky said she arranged for these share transfers to be prepared and signed because she had received a letter from the Office of State Revenue requesting signed transfers and "felt pressured at the time from the OSR to comply with their request". 26. The OSR assessed those transfers as dutiable. The OSR confirmed that decision on an internal review. Vicky then commenced proceedings in the NSW Civil and Administrative Tribunal to challenge that decision. The proceedings in NCAT are currently pending the outcome of these proceedings. Consideration 1. It is clear to me that in these circumstances, nothing has occurred that had the effect of transferring Vince's shares in Veraz to Cathy or Betty and that, accordingly, neither Cathy nor Betty had any interest in the shares that they were able to pass on to Vivo. 2. The matter has been complicated by Vicky's wrongheaded decision (taken without legal advice) to endeavour to achieve a resolution of the problem by having her daughters execute the transfers in favour of Vivo. 3. However, Vicky has candidly revealed the full circumstances in her evidence before me and has, in addition, through her counsel, Mr Klooster, offered an undertaking to the Court to pay to the OSR such sum as NCAT determines is dutiable on the share transfers executed by Cathy and Betty or, in the absence of such determination in the reasonably near future, as the OSR has assessed. 4. Each of Cathy, Betty and Vivo are joined as defendants. Mr Quirk, solicitor, appeared for each of those parties today and informed me that each consents to the relief now sought by Vicky on behalf of Veraz. 5. In those circumstances, and upon Vicky giving to the Court the undertaking to which I have referred, I am prepared to make declarations and an order to the following effect: 1. That no step taken by the late Mr Venceslav Zarev had the effect of transferring any share held by him in Veraz Enterprises Pty Ltd to either of Cathy Spralja or Betty Mateski; 2. That the late Mr Zarev was, at the date of his death, on 14 June 2011, the holder of two ordinary shares in Veraz Enterprises Pty Ltd; 3. That the purported share transfers of one ordinary share in Veraz Enterprises Pty Ltd by each of Cathy Spralja and Betty Mateski to Vivo Enterprises Pty Ltd is void, and of no effect; 4. That none of Cathy Spralja, Betty Mateski or Vivo Enterprises Pty Ltd has any right, title or interest in any share of Veraz Enterprises Pty Ltd; 5. That there be no order as to the costs of these proceedings with the intention that each party pays its or her own costs. 1. I will hear submissions as to the precise form of the declarations to be made. ********** Amendments 08 November 2016 - [11] and [29] - typographical errors i corrected. [14] - regulation 19 added to end of sentence. 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: 08 November 2016