Case: CIC Insurance Limited v Hannan and Co Pty Ltd [2001] NSWSC 437 ; (2001) 38 ACSR 245
Outcome: considered
ground upon which the winding up itself of the company is sought is that specified in s 461(1)(k) of the Corporations Act , namely the just and equitable ground. My attention has helpfully been drawn to a decision of Barrett J in CIC Insurance Limited v Hannan and Co Pty Ltd [2001] NSWSC 437 ; (2001) 38 ACSR 245 ( CIC Insurance case). At para 10 his Honour notes that there are statements in the cases which call into question the propriety of actions which caused the number of directors of the company to be reduced below the statutory minimum. In CIC Insurance , at para 11, Barrett J opined that: It may be doubted whether these concerns are well-founded, at least insofar as they relate to removal of directors by members. It is not as if disappearance of the whole board leaves the company without the means to continue. There is a residual common law power for the members, in general meeting, to appoint directors. His Honour later observes, at para 12, that directors are enjoined during times of economic difficulty in the company to take particular care in the incurring of debts by the company. His Honour cites authority for that. His Honour further notes that such circumstances will generally prompt diligent directors towards the voluntary administration regime in Pt 5.3A. It is evident from the correspondence exhibited to Mr Khatri's affidavit that there has been what one might term a degree of prompting as to the taking of that course. It is also evident that that prompting has not been heeded, for whatever reason. In the CIC Insurance case, at para 13, Barrett J voiced the opinion that: The fact that directors are unable or unwilling to act, so that there is a power vacuum level, is probably not, of itself, sufficient to justify winding up on the just and equitable ground, since it always open to members to appoint directors who can function as a board: Morgan v 45 Flers Avenue Proprietary Limited (1986) 10 ACLR 692. There must be some additional element of corporate paralysis, such as the absence of any prospect of the company continuing to operate: Re Vision Image (Aust) Pty Ltd; Cheng v Yeo (1998) WASC 38. In this case, of course, I am not concerned with the winding up itself, but rather with the appointment of provisional liquidators. Nonetheless, it seems to me that the sentiments voiced by Barrett J at para 13 are pertinent. There is, in my opinion, established on the evidence, a corporate paralysis, and, further, having regard to the subjection of the shares in the company to the charge, every prospect manifested by the present stance of the receivers and managers that the company's shareholder will not be able to alleviate the present power vacuum. It is desirable, having regard to the real prospect, as I assess it, on Mr Khatri's affidavit, of claims against the company and the fact that there is a substantial amount of money in the company's bank account, that the company be under some form of lawful control. The prospective provisional liquidators have, by Mr Khatri's affidavit, frankly disclosed the existence of loans as between Storm Financial and Victorian Families Retirement and Investment Group. Mr Khatri deposes in these terms: The only potential source of conflict that I am able to identify for this court is in relation to the status of the loan account between the company and the plaintiff. I do not, however, believe that any conflict in fact arises because: (a) the receivers and managers have control of the plaintiff's loan account; and (b) the balance of the loan account has been calculated by the independent chief financial officer of both companies, and no uncertainty or dispute exists regarding the debt.