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Sykes v Matthews in his capacity as liquidator of Daycare (NSW) Pty Limited (in liquidation) [2010] FCA 1500

by Martha.Ware 29. April 2011 09:37

Facts

 

Sykes is the managing director, secretary and shareholder of the Daycare. Daycare was ordered to be wound up on 9 November 2010. Sykes sought an order that the winding up be terminated under s 482(1) of the Corporations Act 2001.

 

The winding up order was founded on Daycare’s deemed insolvency due to its failure to comply with a statutory demand. The statutory demand was based on a judgment debt. The judgment debt remained unsatisfied.

 

Daycare sought termination of the winding up on the basis that despite the failure to comply with the statutory demand, it was solvent and had made provision for, or paid, all its creditors: [3].

 

Daycare held the licence for a childcare centre. This business had been sold with completion due on 8 November 2010. Completion later took place with substantial cash proceeds: [4].

 

The winding up was stayed pending the resolution of this application and control of Daycare was returned to Sykes. The debts due to employees and unsecured creditors were paid in full and money set aside for taxation debts.

 

Daycare had another similar business with value of approximately $1.4M.

 

Outcome

 

It was clear that notwithstanding the winding up order, and failure to comply with the statutory demand, Daycare was solvent and able to pay its debts when and as they fell due. Therefore subject to making adequate provision for the costs and expenses of the winding up it was appropriate to make an order terminating the winding up: [8].

 

Provision was made for payment of the judgment debt and the taxation debts and undertakings were given to not register a charge over Daycare until the taxation debt was paid, to pay the liquidators costs into a controlled money account and to remit cheques drawn in favour of unsecured creditors and employees.

 

Relevant paragraphs of Ford

 

[27.129]

Tags:

Ford's Principles of Corporations Law

Sugarloaf Hill Nominees Pty Ltd as Trustee for the Richard and Anna Trust v Rewards Projects Ltd [2011] WASC 19

by Martha.Ware 29. April 2011 09:29

Facts

 

This case concerned security for a costs application. The s 1335 threshold question (Corporations Act) is whether there is credible testimony of a real chance the Plaintiff corporation will be unable to pay the defendant’s costs must be satisfied prior to exercising the discretion to order security for costs: [32].

 

There is no particular evidentiary onus to be discharged by either party on the threshold question or on the exercise of the discretion. A party may be required to provide evidence of facts it wishes to assert, otherwise there is a persuasive onus that rests on the Defendant: [34].

 

The court must fix the time of the Plaintiff’s apprehended inability to pay and identify the range of assets to which recourse could be had. If tangible assets are held on trust must consider the difficulties a defendant may have in enforcing costs orders: [35].

 

Discretion under s1335 is unfettered. Relevant considerations include: 

  • Whether the application for security had been brought promptly;
  • The strength of the Plaintiff’s case;
  • If the Plaintiff’s impecuniousity was caused by the Defendants conduct the subject of the claim;
  • If the application was oppressive;
  • If the persons standing behind the Plaintiff offered any personal undertaking to be liable for the costs and the form of the undertaking;
  • If the applicant was in substance a Plaintiff or the proceedings were defensive in sense of directly resisting proceedings already brought or trying to stop the defendant’s self help remedy; and
  • The public interest: [36].

 The evidence satisfied the threshold question. The only assets the Plaintiff had recourse to would be trust assets. The Plaintiff’s net asset position was uncertain, there was nothing to suggest the Plaintiff’s position would improve plus charges had been granted by the Plaintiff: [59].

 

The Plaintiff could arguably maintain claims under ss 1325 and 1041H of the Corporations Act and s 12DA of the ASIC Act.

 

The pleadings reflect misconceptions about a corporation’s liability for its civil wrongs and the liability of others connected with the corporation. This goes to the merit of its claims: [67].

 

Directors cannot be held liable for torts of employees and agents unless they ordered or procured the acts to be done: [68]. At common law if a person is the directing the mind and will of the corporation their conduct is attributable to the corporation: [70]. Under s 75B of the Trade Practices Act and its equivalents in the Corporations Act and ASIC Act, a director will not be party to the corporation’s contravention merely by being a director. A party to the contravention must be an intentional participant. Necessary intent is based on knowledge of the essential elements of the contravention: [71]. Accessorial liability depends on the principles in Barnes v Addy. An allegation the directors ‘directed and procured’ a breach by Rewards by being directors and because Rewards could only act through them is insufficient to establish primary or accessorial liability: [73].

 

Other difficulties with the pleadings included that the particulars did not attempt to plead matters that sustained an allegation of dishonesty or allegations of breach of fiduciary duties. There was no evidence of loss to the Plaintiff arising from Rewards alleged change in position.

 

Outcome

 

The application for security for costs was successful.

 

Relevant paragraphs of Ford

[3.390], [4.053], [4.054], [8.410], [10.030], [16.020], [16.070], [22.020], [22.050], [22.120], [22.450], [22.502], [22.508], [22.509]

Tags:

Ford's Principles of Corporations Law

Streeter v Western Areas Exploration Pty Ltd [No 2] [2011] WASCA 17

by Martha.Ware 28. April 2011 13:19

Facts

 

This was an appeal of a decision that the Appellants had breached the fiduciary duties they owed to the Respondent by taking advantage of, or using knowledge obtained from their position as directors, to divert an opportunity away from the Respondent. In the Supreme Court, it was held that a constructive trust existed over the shares in favour of the Respondent due to the breach.

 

The Respondent’s only asset was a 70% interest in the Cue gold mining tenement. Streeter or his companies had a substantial interest in the Respondent.

 

Brailey caused ANPC to make proposal to Streeter. Streeter and Cooper put an ‘offer’ to ANPC using the Respondent as the corporate vehicle for the project. It was rejected. ANPC wanted a fresh corporate vehicle.

 

The structure of new company Western Areas NL (“WANL”) was agreed with ANPC in December 1999. Cooper and Streeter were directors of this new company.

 

At the Respondent’s board meeting in January 2000, Brailey agreed for the Respondent to receive shares in WANL for its Cue tenement with some shares to go to a Streeter company to satisfy debts.

 

The trial judge found the Appellants had failed to disclose to Brailey the name of the entity buying the Cue tenements, that they were directors, that a Streeter company had acquired the remaining 30% interest in the Cue tenement which would be vended to the WANL or that the 30% interest in Cue tenement was up for sale prior to buying it. Brailey resigned in March 2000.

 

The prospectus for WANL was issued in May 2000 to all the Respondent’s shareholders and capital raising was completed in July. Streeter obtained discounted shares plus options. Cooper received options. Streeter company received 150,000 shares for its 30% interest in Cue tenement. Streeter company took 350,000 shares as trustee for Respondent’s 70% interest in Cue tenement.

 

The options were exercised. WANL’s share price rose significantly. Streeter made substantial capital injections.

 

In June 2006 the Appellants were removed from the Respondent’s board and proceedings commenced shortly after.

 

McLure P and Buss JA held there was only one breach of fiduciary duties by Appellants which they agreed with Murphy JA.

 

The ANPC proposal was not an opportunity for the Respondent ([48]), Streeter did not require the Respondent’s assets for the ANPC proposal as without them he would have a 20% interest and control of WANL ([58]), Streeter was approached by ANPC as a potential capital provider, not as Respondent’s director ([62]).

 

Two themes were discussed with relation to fiduciary duties: the conflict rule and the profit rule: [65].

  • The conflict rule was not strictly applied to company directors: [69].
  • The content of fiduciary duties are moulded to the particular relationship and the circumstances of the appointment or course of dealings determine the scope of the duty: [70].

Held

 

Cooper and Streeter were not prohibited from investing or directorship of other mining companies: [71].

 

Where the relief sought is an account of profits there must a causal connection between profit and use of fiduciary position: [75]. There was no positive duty to acquire a benefit in this case. If there is benefit acquired, it is irrelevant that the person to whom fiduciary duty owed was unwilling, unlikely or unable to make the profits or that fiduciary acted honestly or reasonably: [77]. It is relevant to whether the person had a conflicting interest with the fiduciary if they had no positive duty to acquire the benefit: [78].

 

The Respondent had no opportunity to be the corporate vehicle therefore there was no conflict between the Respondent and Streeter: [87]. The only conflict was after WANL incorporated transferring the 70% tenement, however, the profit on the initial shares received was not relevantly connected to the Cue tenement: [92].

 

It was held unanimously that Streeter had breached their fiduciary duty by obtaining 30% interest in Cue tenement but only relevant to the profit on the 150,000 vendor shares received for the interest: [94] and [618]. The defence of laches was successful. Other relevant factors included:

  • Mines, due to their fluctuating natures and claims for constructive trusts, traditionally require special promptness: [643].
  • The Respondent’s shareholders were aware of material facts in May 2000. Two had received legal advice. They thus had freedom to act.
  • Circumstances had significantly changed. It was inferred that the Respondent’s shareholders lacked the appetite for risking their own capital and the proper inference was failure to act was acquiescence: [674].
  • Granting trust would cause great injustice: [675].

 

Relevant paragraphs of Ford
[8.010], [9.010], [9.057], [9.220], [9.280], [9.350]

Tags:

Ford's Principles of Corporations Law

Takeovers Panel Publishes Reasons for its Decision

by Martha.Ware 28. April 2011 13:11

The Takeovers Panel today published the reasons for its decision on an application dated 12 April 2011 from Moat Investments Pty Ltd in relation to the affairs of ComOps Limited. Details of the Panel’s decision can be found at TP 11/28 and TP 11/29.

The Panel’s reasons for its decisions can be found on the Panel's website at www.takeovers.gov.au.

The sitting Panel was comprised of Garry Besson, Sophie Mitchell and Karen Wood (sitting President).

Tags:

Takeovers and Reconstructions

Panel receives application from Moat Investments Pty Limited

by Martha.Ware 20. April 2011 08:51

The Takeovers Panel has received an application from Moat Investments Pty Limited, a shareholder in ComOps Limited, in relation to the affairs of ComOps.

Among other things, the application concerns the granting of a proxy in connection with the issue of 15,000,000 shares in ComOps. The shares were issued as consideration for the acquisition of the Executive Online business. The applicant seeks interim orders including disclosure in relation to the transaction and orders preventing parties from acquiring further shares or voting power.  The applicant seeks final orders including the vesting of shares issued in relation to the transaction.

The Panel makes no comment on the merits of the application.

Tags:

Takeovers and Reconstructions

Smart Company Pty Ltd (In Liquidation) v Clipsal Australia Pty Ltd [2011] FCA 35

by Martha.Ware 20. April 2011 08:44

Facts

Enterprise Global Resources Pty Ltd (“EGR”) made an application to intervene in the proceedings pursuant to ss 236 and 237 of the Corporations Act. EGR is the Applicant’s sole shareholder.

 

At the hearing, EGR sought to vary the notice of motion to be granted leave to continue the proceedings with respect to the Trade Practices Act, Fair Trading Act and breaches of fiduciary duties in the name of the Applicant and that it be joined as co-applicant for the remaining causes of action.

 

Section 236 has no operation where the company for which the member seeks to intervene is in liquidation: [8].

 

EGR relied on the court’s inherent jurisdiction to make an order allowing a contributory, who is a company member, to prosecute a proceeding where the company will not do so: [10].

 

A deed of assignment was executed purporting to assign the Applicant’s chose in action to Mrs Tomazos. A second deed purported to appoint Mrs Tomazos as trustee of a trust which EGR was also a trustee of and took assignment of the chose in action as a trustee of the trust. A third deed purported to assign the chose in action from Mrs Tomazos to EGR, as trustee. This deed was entered into after the Court raised the issue of Mrs Tomazos having conflicting interests.

 

The circumstances of the purported assignment and the further deeds raised serious doubt about the transactions validity: [32]. If valid, the Applicant’s sole asset, the chose in action, was assigned to its shareholder on behalf of a beneficiary, defeating the claims of unsecured creditors: [33].

 

The Supreme Court held the assignments were void: [38].

 

EGR could not be allowed to be joined as co-applicant or be given leave to continue the proceedings where the assignments were void: [40]. Even if assignments were not void, they did not assign any of the statutory causes of action to EGR and the different causes of action arising out of the same facts would have to be separately prosecuted: [41].

 

The court has a residual power in the course of a winding up to allow proceedings to be brought on behalf of a company by a member or creditor: [43]. It is not used unless the Court is unless satisfied proceedings taken in the company name are not vexatious or oppressive. These proceedings were not.

 

The Liquidator opposed this application: [45].

 

The Applicant would not identify the beneficiaries of the trust. It was relevant as the Court did not know if ERG was able to meet costs orders if joined.

 

The Applicant had applied to set aside the assignment therefore it was inappropriate for EGR to prosecute this action: [48].

 

The court was not satisfied that EGR was a fit and proper person in the corporate sense to maintain the proceedings: [49].

Outcome

EGR’s motion was dismissed.


Relevant paragraphs of Ford

[10.071], [10.230], [10.420], [11.240], [11.250], [11.255], [11.260], [11.265], [11.760]

Tags:

Ford's Principles of Corporations Law

Singleton, in the matter of Lehman Brothers Australia Limited (in liquidation) [2010] FCA 1491

by Martha.Ware 19. April 2011 14:02

Facts

The liquidators sought court approval for entering into deeds pursuant to s 477(2B) and directions they were justified in doing so under s 479(2B) of the Corporations Act. The deeds related to a proposed alternative dispute resolution process which may take up to 3 months to resolve claims. 204 proofs were lodged. 77 of these claimants are involved in separate class action proceedings. The Liquidator was in negotiations with the parent company to enter an arrangement allowing repayment of a significant proportion of claimant’s initial investment.

 

Determination of losses suffered was a problem as many claimants still held the products and the loss had not crystallised. The Liquidator’s issue was whether the loss alleged to have been suffered was one capable of being proved in the liquidation: [14]. The Liquidators wished to ask each claimant to sign a deed providing that all parties be bound to participate in an alternative dispute resolution process and be bound by its rules including the need to negotiate and act in good faith and to provide the liquidators with all relevant and necessary information to support their claims [15].

 

Outcome

The proposed alternative dispute resolution scheme was held to be a sensible and practical means by which creditors could establish their claims in an appropriate, potentially less burdensome manner than under a formal proof of debt procedure [20].

 

The liquidation involved a large number of claimants, complex financial products and the company was already party to a significant piece of litigation in relation to the products which had taken some time to be ready for hearing even with parties cooperating [21]. 

 

The Court approved the entry into the deeds and directed the liquidators were justified in entering into deeds [22].

 

Costs of the application were costs in the liquidation.

Paragraphs of Ford:

[25.112], [26.170], [26.193], [26.373], [26.404], [27.102], [27.170], [27.171], [27.172]. [27.180], [27.182], [27.620]

Tags:

Ford's Principles of Corporations Law

Selex Communications SpA v Rennie, in the matter of Stanlite Pacific Ltd (in liq) [2010] FCA 1482

by Martha.Ware 19. April 2011 14:00

Facts

Proceedings were commenced in the liquidation of Stanlite Pacific. This was an application to join a company in liquidation and its past and present liquidators to appeal against a proof of debt rejected pursuant to regulation 5.6.54(2).

 

Selex is the successor in title of OTE SpA. OTE had entered a memorandum of understanding with either Stanlite Pacific Limited or Stanlite Electronics Pty Limited.  Both companies were now in liquidation with the same liquidators.

 

OTE submitted proofs of debt in both liquidations for the same amount and same claim. The Stanlite Pacific proof of debt was lodged in 1997. Stanlite Electronic’s proof of debt was lodged in 2000 and rejected in 2003 on the ground the memorandum was with Stanlite Pacific. OTE did not appeal in time. OTE’s proof of debt against Stanlite Pacific was rejected in 2009 on the basis there was no obligation to pay for goods and that the memorandum was with Stanlite Electronics.

 

The liquidators had not indicated they would reject the Stanlite Pacific proof of debt. Selex claimed the liquidators breached a duty of care in not acting with due diligence and by not taking due care in rejecting the proofs of debt.

 

The real question was not whether the liquidator ought to have acted consistently in rejecting the proofs of debt but whether there was a legally comprehensible claim that the liquidator owed OTE/Selex an identifiable duty of care requiring them to come to a consistent outcome with the later determined Stanlite Pacific proof of debt: [26]. A legal source for such a duty is not clear: [29].

 

Four matters were critical in that it was difficult to formulate the new claim as it did not integrate with statutory duties, Selex refused to particularise its novel claim, the prospect of recovery of monies against Stanlite Electronics was slight and Selex gave no explanation for its delay in seeking to appeal against the rejection of its proofs of debt: [30]. It would be a futile inappropriate use of court resources to allow the joinder of claims against Stanlite Electronics and its past and current liquidators: [35]. Granting an extension of time is altering a substantive right and granting an amendment is regulating a procedural right: [39]. The amendment was similar to granting an extension of time. It was a novel claim that appeared to raise a significant new evidentiary field in already complex litigation: [43].

 

Outcome

The Notice of Motion was dismissed. Selex was ordered to pay the respondent’s costs.

 

Relevant paragraphs of Ford

[24.504], [26.300], [26.350], [27.080], [27.183], [27.44], [27.441], [27.450]

Tags:

Ford's Principles of Corporations Law

New ASIC guidance on substantial holdings disclosure for securities lending

by Martha.Ware 18. April 2011 08:37

On Friday, ASIC released new regulatory guidance and relief aimed at achieving better disclosure by parties engaging in securities lending of substantial holdings in listed entities.

Under the new guidance, contained in Regulatory Guide 222 Substantial holding disclosure: securities lending and prime broking (RG 222), ASIC sets out its expectations as to how:

  • parties involved in securities lending (including securities lenders and borrowers) will disclose substantial holdings in listed entities (interest of 5% or more); and
  • prime brokers will disclose substantial holdings.

ASIC has also set out its expectations of the content of substantial holding notices that parties engaged in securities lending will have to provide, and has granted relief in [CO 11/272] to simplify the content of those notices and better align timing of disclosures to changes in control over securities.

Tags:

ASIC

Re Timbercorp Securities Limited (In liq) [2011] VSC 24

by Martha.Ware 18. April 2011 08:36

Facts

Timbercorp Securities Limited (in liq) was the responsible entity for two projects which its liquidators were in the process of winding up. The liquidators sought, and were granted, Court directions under s 511 of the Corporations Act that they were justified in terminating or surrendering the investors rights in licences to grow grapes on land owned by a third party.

 

The third party was the responsible entity for a trust. It was in receivership. The receivers and managers contracted to sell the land unencumbered by the investor’s licences and rights.

 

The court’s function was not to substitute its commercial judgment for that of the liquidators but to supervise and consider whether there was any impropriety or other good reason which may indicate the liquidators may be acting inappropriately or unreasonably in their actions: [3]. It was relevant whether there was prejudice to the investors or secured creditors. It was intended to hold the sale proceeds in trust pending Court determination of party’s rights: [4]. Further the project’s constitutions had been amended under s 601GC(1)(b) of the Corporations Act to allow the termination or surrender of the licences: [5].

 

Outcome

The court held the exercise of s 601GC(1)(b) power was valid. The liquidators had considered the effect on the member’s rights before and after the proposed amendments and their opinion was reasonably held. The liquidators had followed the same process used in winding up other schemes. The third party’s receivers and managers had undertaken a robust, thorough sales process calculated to maximise value: [6]. The third party’s receivers and managers supported the proposed orders, the investors were not opposed and ASIC neither opposed nor consented to the application.

 

Relevant paragraphs of Ford

[11.265], [22.505], [27.161], [27.171], [27.182], [27.480], [27.540], [27.550], [27.610], [27.620]

Tags:

Ford's Principles of Corporations Law



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