A recent decision by the Federal Court of Australia, Knauf Plasterboard Pty Ltd v Plasterboard West Pty Ltd (In Liquidation) (Receivers and Managers Appointed)  FCA 866 ("Knauf v Plasterboard West") comes as a timely reminder to liquidators and receivers/managers of potential issues that may arise regarding:
Plasterboard West Pty Ltd (In Liquidation) (Receivers and Managers Appointed) ("Plasterboard West") purportedly took steps pursuant to s 491 of the Corporations Act 2001 (Cth) ("Corporations Act") to be wound up voluntarily1.
However, Judge Markovic held at  that the first element required for a special resolution had not been satisfied. That is, that notice had not properly been given to the members of Plasterboard West as at the date of the meeting of members, 12 February 2016, there were three shareholders of the company and no notice of the meeting was given to one of those shareholders. Having received no notice of the meeting whatsoever, that member could not have received notice of the special resolution as set out in s 249L(1)(c) of the Corporations Act.
In addition, Judge Markovic held that members' consent for shorter notice did not comply with s 249H(2)(b) of the Corporations Act. This section allows a company to call on short notice if members with at least 95% of the votes that may be cast at the meeting agree so beforehand. As at 12 February 2016, there were 85 shares on issue. Those members who agreed to shorter notice held a total of 55 shares, being approximately 64% of those shares, which was significantly less than the required level of 95% under the company's Constitution. The abridgement of the notice period for the meeting was not valid.
Markovic J held at , despite the resolution to wind up [Plasterboard West] having been "passed by at least 75% of the votes cast by members entitled to vote on the resolution" (that is, by at least 75% of the votes actually cast... there was a failure to comply with the first requirement for a special resolution in s 9 of the Corporations Act and with the notice requirements for a meeting of the company's members. Thus the special resolution to voluntarily wind up [Plasterboard West] was not validly passed...".
Plasterboard West attempted to argue that it had previously effected a buy-back of the relevant shares (and hence notice had been given to the relevant members). However, Judge Markovic rejected this argument and held:
In the event that the liquidation was held to be valid, Knauf sought to argue that they had validly perfected their security interest and hence were secured creditors. Given they could not rely on perfection by way of registration on the PPSR (due to the operation of s 588FL of the Corporations Act),2 Knauf attempted to argue that they had achieved perfection by way of 'control' or 'possession' pursuant to s 20 of the PPSA. However, Markovic J rejected these arguments and held that:
In the end, it did not matter that Knauf had not achieved perfection by way of control or possession because there was no valid appointment of a liquidator, and hence the registration by it of its security interest on the PPSR on 12 February 2016 did not mean that s 588FL of the Corporations Act applied. Knauf had lodged its registration on the PPSR (on 12 February 2016) and the security interest was perfected.
Liquidators need to be conscious of the risk that their appointments may be invalid and therefore should be cautious not to incur too many costs or expenses if there are concerns regarding the same.
If Plasterboard West had validly gone into liquidation, the Liquidator would have needed to promptly deal with the Receiver and inform them that the assets had vested in the company (s 558FL of the Corporations Act).
What do liquidators do when faced with these issues? They need to be very well advised. Gavin Parsons & Associates can assist in that regard.
1 This section allows for a company to be wound up voluntarily if the company so resolves by special resolution.
2 For a secured party to be able to rely on s 588FL it must comply with the timing requirements under the section; that is, it must register its security interest: within 20 business days after the security agreement that created the security interest came into force or, if earlier, the time that the company goes into administration or is wound up; or; within 6 months before the company goes into administration or is wound up.