Curing defects in a members’ winding up

Cathro (liquidator), in the matter of Petsamo No 14 Pty Ltd [2022] FCA 399

On application by the liquidator in a voluntary winding up, the Court exercised its powers under s 1322 of the Corporations Act 2001 (Cth) (Act) and s 90-15 of the Insolvency Practice Schedule (Corporations) (Schedule 2 to the Act) (IPS) to cure issues arising from the passing of important members’ resolutions by power of attorney (POA). Section 1322 of the Act permits the Court to declare that any act, matter or thing done in contravention of the Act is not invalid. Section 90‑15 empowers the Court to make such orders as it thinks fit in relation to an external administration, including to determine any question arising.

Petsamo was a family company incorporated in 1979. Its initial shareholders and directors were Haritune Thomassian and his eldest son, George. In 1991, following Haritune’s passing, George’s brother Alfred was allotted one share in Petsamo and appointed a director. Petsamo thus had two directors, George and Alfred.

Two POAs were relevant, one executed by George in his personal capacity in favour of Alfred and the other by which Alfred was appointed as Petsamo’s attorney to execute documents on its behalf.

In 2018, following the sale of Petsamo’s primary asset (a Double Bay property), Pestamo’s accountants advised that voluntary winding up would be the most tax-effective way of dealing with the sale proceeds.

In August 2019: (i) Petsamo purported to resolve that George be removed as director and become a single director company; (ii) Petsamo lodged a declaration of solvency with ASIC; and (iii) the members of Petsamo purported to resolve that Petsamo be wound up voluntarily, Mr Cathro be appointed as liquidator and the liquidator be authorised to distribute Petsamo’s assets. The relevant statement of resolutions was signed by Alfred in his own right, and under POA on behalf of George. The liquidator subsequently issued a notice of intention to declare a dividend, and distributed a surplus of $3.5m to Alfred as shareholder.

George challenged these actions.

The Court found the resolution to wind up Petsamo and appoint the liquidator was defective because it did not comply with ss 250A and 250B of the Act, or Petsamo’s constitution, regarding vote by proxy including under POA (the POA had not been lodged with Petsamo’s registered office nor did it include Petsamo’s name or the meeting at which it could be used). The Court exercised its power under s 1322 of the Act to validate the liquidator’s appointment nunc pro tunc, on the basis it was just and equitable to do so and in the absence of substantial injustice. This was for reasons including that no creditor had objected, Petsamo’s only asset had been sold, and there was no suggestion it should be returned to trading.

To the extent necessary, the Court further exercised its s 1322 power to cure any issue with the resolution that Petsamo become a single-director company and to remove George as director, again with respect to the POA. This was on the basis that no substantial injustice had resulted, or would result, because the resolution gave effect to George’s intentions at the time.

As for s 90-15, the Court cited authority to the effect that it is a broader power than its predecessors (ss 511(1)(a) and 479(3) of the Act), and could be applied to make orders of a substantive nature affecting third parties. The Court was satisfied that it should exercise the power to determine the parties’ substantive rights in this case, given interested parties had been joined and had had the opportunity to be heard.

Accordingly, under s 90-15, the court ordered that (i) the liquidator was justified in relying on an ASIC search as prima facie evidence that George had been removed as director and of Alfred’s shareholding; (ii) the liquidator’s distribution of a surplus to Alfred was not invalid; (iii) to the extent necessary, the declaration of solvency was not invalid by reason of any breach of Petsamo’s constitution or s 494 of the Act; (iv) the liquidator was relieved of conducting any further investigations in the liquidation; (v) the liquidator’s proffered distribution of the balance of Petsamo’s assets was approved, and (vi) the liquidator be released and discharged from liability arising from his acts performed in the liquidation.

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