Chevron Furnishers Pty Ltd (in liq), Re [1992] QSC 354 [1994] 2 Qd R 475

IN THE SUPREME COURT OF QUEENSLAND Application No. 413 of 1992 IN THE MATTER of the Corporations Law - and - IN THE MATTER of CHEVRON FURNISHERS PTY. LTD. (Receiverand Manager appointed (in liquidation) A.C.N. 010 157 392) JUDGMENT - RYAN J. Delivered the Second day of October, 1992 Counsel: Mr. P. Dunning for the Applicant Mr. B. O'Donnell for the Respondent Solicitors: Tobin & Co. for the Applicant McCullough Robertson for the Respondent Hearing Date: 22 September 1992. -- 1 of 13 -- IN THE SUPREME COURT OF QUEENSLAND Application No. 413 of 1992 IN THE MATTER of the Corporations Law - and - IN THE MATTER of CHEVRON FURNISHERS PTY. LTD. (Receiver and Manager appointed (in liquidation) A.C.N. 010 157 392) JUDGMENT - RYAN J. Delivered the Second day of October, 1992 Application has been made on behalf of five applicants for orders seeking declarations and consequential relief in relation to the conduct of a meeting of creditors of Chevron Furnishers Pty. Ltd. (Receiver and Manager appointed) (In liquidation). I shall refer to it as "Chevron". On 19 June, 1992, an order was made that Chevron be wound up, and that Ernest George Harris and John Robert Rees be appointed official liquidators. Queensland Amalgamated Industries Pty. Ltd. (QAI) and Millihaven Pty. ltd. (Millihaven) are unsecured creditors of Chevron. QAI also trades as Cane Cargo, which is an unsecured creditor of Chevron. Mr. Ferguson and his wife are also creditors of Chevron. These are the five applicants. Mr. Ferguson is a director of Chevron, QAI and Millihaven. -- 2 of 13 -- 2 On 14 August, 1992, notice was given by Mr. Harris that a meeting of the creditors of Chevron would be held in Coopers & Lybrand Training Room on 10 September 1992 at 11 a.m. The agenda was as follows:- (i) To consider and discuss the Report as to Affairs of the company; ( ii) To consider and discuss the Liquidator's Report to creditors; (iii) (iv) (V) Determine whether the creditors require the appointment of a Committee of Inspection and if so who are to be the members of the Committee; To approve the remuneration of the Liquidator up to an amount of $20,000; Any other business that may be considered with the aforegoing. Mr. Ferguson deposes that he attended the meeting together with his wife, his accountant, Mr. Kienzle, and his solicitor Mr. Tobin. At the commencement of the meeting, Mr. Harris appointed a solicitor Mr. Bradbury as Chairman of the meeting. As soon as the meeting commenced, Mr. Bradbury stated that the liquidators had admitted all the proofs of debt in full and all the proxy forms, and that the proxies in favour of the liquidators amounted to $472,881. A partner of Mr. Harris, Mr. Roach, then addressed the meeting. During discussions arising from this address, a Mr. Honey spoke from the floor and made reference to Mr. Ferguson and his conduct as a director of Chevron. Mr. Harris said that the meeting had reached a stage where certain discussions should -- 3 of 13 -- 3 follow on matters concerning the creditors. Mr. Honey then told Mr. Bradbury that Mr. Ferguson should leave the meeting. Thereupon Harris and Bradbury had a whispered discussion. Mr. Bradley then told Mr. Ferguson that he and his representatives at the meeting should leave the meeting. Mr. Ferguson replied that he refused to leave the meeting and that he was entitled to be present at it, particularly as he was a representative of the largest unsecured creditor, QAI. Mr. Bradbury had a further whispered conversation with Harris, and then told Mr. Ferguson that he insisted upon him leaving the meeting. He said also that Mr. Ferguson' s representatives should leave the meeting. As Mr. Ferguson was leaving the meeting, Mr. Harris asked him if he had anything to say to the meeting. He declined to say anything to the meeting at that point. Mr. Bradbury directed Mr. Tobin and Mr. Kienzle also to leave the meeting. Mr. Ferguson, his wife, Mr. Kienzle and Mr. Tobin then left the meeting. On 14 September, 1992, Mr. Tobin sent a letter to Mr. Harris on behalf of the five applicants. He pointed out that QAI was the largest single unsecured creditor of Chevron and represented approximately 18 per cent of the value of unsecured creditors. The five applicants represented in excess of 31 per cent of the value of unsecured creditors. The letter claimed that the meeting was irregular and the resolutions passed at the meeting were invalid. It requested that the meeting should be reconvened and conducted properly. -- 4 of 13 -- 4 A reply from Mr. Harris dated 15 September, 1992 rejected these claims. It stated: "At the suggestion of a creditor, your clients were asked to leave the meting for the purpose of discussing whether a Section 597 examination should be held and a 'fighting fund' established. Your client declined to leave the meeting voluntarily and the Chairman was left with no alternative but to direct that Mr. Ferguson and his advisors leave the meeting while the matters were discussed, as their presence would have clearly given rise to a conflict of interest. The chairman advised your clients that they could re-join the meeting at the conclusion of the discussion of these matters. After the discussions were completed, the Chairman invited your clients back to the meeting, but was advised by my staff that they were no longer on the premises." Mr. Harris has deposed that as a result of his investigations into Chevron, he formed the view that there were grounds to question seriously the conduct of officers of Chevron and in particular the conduct of Mr. Ferguson, a director of Chevron. He states matters which he considered required investigation relating to the applicants, and states that at the meeting Mr. Roach on behalf of the liquidators outlined his concerns. During the following discussion, a creditor requested that the Chairman consider the possible conflict of interest that arose as a result of Mr. Ferguson remaining in the meeting while these matters were discussed by creditors. He stated that immediately prior to Mr. Ferguson leaving the room, he asked him whether there was anything he had to.say to the meeting. Mr. Ferguson replied "no". Mr. Roach has deposed that creditors with debts totalling $1,267,000.89 were entitled to vote at the meeting. The debts ~ claimed by the Ferguson group who were entitled to vote at the -- 5 of 13 -- 5 meeting amounted to $207,581 . 90. At the meeting, proxies in favour of the Chairman were received from 29 creditors. There were a further 1 6 creditors (which included Mr. and Mrs. Ferguson, Mr. Tobin and Mr. Kienzle) present at the meeting entitled to vote on any resolution put to the meeting. In oral testimony, Mr. Roach said that members of the Ferguson group were not invited back to the meeting as a member of the staff of the liquidator's office had said that they had left. According to an accountant, Mr. Wlossak, who attended the meeting, after the ejection of Mr. Ferguson and those associated with him, there was a discussion about the possible public examination of Mr. Ferguson and certain other officers of Chevron, about how much money would be required for the public examination, and about the possibility of as. 592 action against Mr. Ferguson for insolvent trading. He said that when Mr. Bradbury insisted that Mr. Ferguson leave the room, he • advised him and his representatives of their right to return to the meeting at a later time. He stated that when it was suggested that the meeting turn to the resolution, neither Mr. Harris nor Mr. Bradbury sent any of the liquidator's employees out to ascertain whether Mr. Ferguson was outside the room. Mr. Murphy, an accountant in the employ of the liquidators, deposed that he at tended the meeting. The Ferguson group (Mr. and Mrs. Ferguson, Mr. Tobin and Mr. Kienzle) were asked by the Chairman to leave the meeting and did so. After they had left, he had left the room on a number of occasions and on the last occasion he had noticed that the Ferguson group was not -- 6 of 13 -- 6 outside the room. When he was asked by Mr. Bradbury to check whether the Ferguson group was outside, he told him that they had gone. In oral testimony, he said that he was not able to say categorically that they had gone. Mr. Bradbury deposed that during the course of the presentation of the Liquidator's Report, it was put to the meeting that there may be some grounds for commencing actions against the officers of Chevron, pursuant to s. 592 of the Corporations Law. He requested the Ferguson group to leave the room, but he advised them that they could rejoin the meeting after the discussion if they cared. He was told later that the Ferguson group had left. He states that the resolution to appoint the committee of inspection was carried unanimously. In oral evidence, he said that he believed Mr. Ferguson had a right to be at the meeting, but he did not think there would be a full and frank discussion if he was present. He said that he did not attempt to invite Mr. Ferguson back before voting occurred, as he was told by Mr. Murphy that he had gone. I am satisfied that the Chairman asked Mr. Ferguson and what is referred to as the "Ferguson group" to leave the room at which a meeting was being held which they were entitled to attend, and that he told them that they could rejoin the meeting after the discussion on the report made by Mr. Roach if they wished. They left the meeting, and did not remain in the environs of the place where the meeting was being held I accept the evidence of Mr. Bradbury that he formed the opinion that there would not be full and frank discussion if Mr. Ferguson was present, and that -- 7 of 13 -- 7 he did not attempt to invite him back before voting occurred, as he had been told that he had gone. The meeting was convened pursuant to s. 4 79 ( 2) of the Corporations Law. This provides that the liquidator may convene general meetings of the creditors or contributors for the purpose of ascertaining their wishes. It was submitted for the applicants that once a liquidator convenes a meeting of creditors, though he is under no obligation to do so, every creditor is entitled to attend and participate in the whole of the meeting and vote on resolutions at it. It was said that the court would closely scrutinise and control the actions of a liquidator in conducting a meeting, as he was acting therein as an officer of the Court. The power given to the liquidator under s. 479(2) was to ascertain the wishes of the creditors, and he had no power to exclude some creditors and thereby ascertain the wishes of some only of the creditors. It was submitted that the Fergusons and their representatives had a real interest as representing approximately one-third of the unsecured debt in being present during the discussion in relation to the public examination, and that s. 564 did not give a liquidator the right to be selective in those creditors by whom he was funded. It was claimed that the fact that it may have been difficult or uncomfortable to discuss matters such as the examination of Mr. Ferguson in his presence was irrelevant. It was then said that s. 1321 of the Code empowered the Court to reinstate the rights of the applicants which had been denied and that I should discharge the resolutions made at the meeting and that a new meeting should be reconvened so that the agenda for -- 8 of 13 -- 8 the meeting could be dealt with in the presence and with the participation of all those person who were invited to attend the meeting on 10 September. For the respondents it was submitted that the action taken by Mr. Bradbury in directing Mr. Ferguson to leave during the meeting was necessary to ensure that all creditors had the opportunity of expressing their views to the liquidators. Mr.Bradbury had formed the opinion that it was necessary for Mr. Ferguson and his group to leave, and it was the duty of the Chairman to ensure that all creditors had the opportunity of expressing their views to the liquidator. It was then submitted that if the action taken by the Chairman was beyond his power the error was a procedural irregularity, and it had not caused nor might it cause substantial injustice. Accordingly the proceeding was not invalidated in consequence of s. 1322(2) of the Corporations Law. In Byng v. London Life Association [1989] BCLC 400 at p. 410 Brown-Wilkinson V.C. said that at common law it would have been the chairman 1 s duty to regulate the proceedings so as to give all persons entitled a reasonable opportunity of debating and voting. This observation was made in the course of considering whether a chairman 1 s power to adjourn a meeting was properly exercisable. I am unable to conclude that the power to regulate a meeting extends so far as to enable a Chairman to require persons entitled to be at a meeting to leave it while a matter in which they are interested is discussed, as their presence may inhibit other persons entitled to be at the meeting from discussing the issue freely and frankly. The presence at a meeting of persons -- 9 of 13 -- 9 with sharply opposed views and interests is in no way unusual, and it is impossible to accept that a chairman has the power to exclude some members in the interest of others, at least where there is no suggestion that any of the members are being disorderly or disruptive. It is unnecessary to consider whether an adjournment would have been justified in the circumstances. I consider that the chairman's action in requiring Mr. Ferguson to leave exceeded his powers. It was submitted for the applicants that they were persons aggrieved by a decision of a liquidator. Accordingly they had the right to appeal to the Court in respect of the decision pursuant to s. 1321 of the Corporations Law. It was said that the meeting could only be called by the liquidator by reason of his power as a liquidator, and the meeting could only be chaired by Mr. Bradbury as a result of the power conferred on the liquidator to appoint somebody in his place to chair the meeting. It appears from the transcript of the meeting that Mr. Harris appointed Mr. Bradbury to act as chairman of the meeting. Mr. Bradbury was the nominee of Mr. Harris, and his act in requiring Mr. Ferguson to leave the meeting was, I consider, an act or decision of the liquidator. The applicants lost thereby the right to present their views to the general meeting, and thereby were aggrieved by the liquidator's decision. An appeal lies according to this court. Though Mr. Ferguson was improperly required to leave the meeting during the discussion of the liquidators' report to creditors, he and his associates were not excluded from being present and voting on items (iii) and (iv) of the agenda. Their -- 10 of 13 -- 10 absence at the time when the voting occurred was due to their own decision to leave the environs of the meeting place. The crucial question however, in my opinion, is whether the decisions taken by the meeting in relation to the Committee of inspection and the Liquidators' remuneration and the establishment of a fighting fund for an examination under s. 597 of the Corporations Law can stand. It was submitted for the respondents that, if the chairman improperly directed Mr. Ferguson to leave the meeting, this was a procedural irregularity and did not invalidate the proceeding. Section 1322(2) of the Corporations Law provides that a proceeding under this law is not invalidated because of any procedural irregularity unless the Court is of the opinion that the irregularity has caused or may cause substantial injustice that cannot be remedied by any order of the Court and by order declares the proceeding to be invalid. In Re Penbury Pty. Ltd. (1991) 9 ACLR 937 it was held that "a proceeding under this law" ins. 1322(2) includes a meeting of the members of·a corporation and the proceedings conducted at such a meeting, and that the onus of proving that irregularities had caused or may cause substantial injustice that could not be remedied by an order of the court was on the applicants who were seeking a declaration that the proceedings were invalid. It was then submitted for the respondents substantial injustice had been done to the applicants. that It no was pointed out that the discussion from which they were excluded was only to ascertain the wishes of creditors, and that no resolutions were put and voted on at that time; that Mr. Ferguson -- 11 of 13 -- 11 was given an opportunity to speak before he was required to leave; and that it was not shown that if the persons excluded had been present they could have affected the decisions taken by the meeting. In relation to this last point, it appears from an affidavit by Mr. Roach that no proxy was lodged by either QAI or Millihaven at the meeting on 10 September, 1992. As already mentioned, creditors with debts totalling $1,267,450.89 were entitled to vote at the meeting, while the debts claimed by the Ferguson group who were entitled to vote at the meeting amounted to $207,581.90. Mr. Bradbury has deposed that if a poll had been taken in respect of the resolution to appoint a committee of inspection and for the further resolutions to appoint certain creditors as members of the committee of inspection, he would have exercised the voting rights in the proxies which he held as chairman in favour of the appointment of a committee of inspection and in favour of the appointment of certain persons to that committee and would have opposed the appointment of members of the Ferguson group to the committee of inspection. For the applicants it was submitted that the failure of a creditor to be heard and to hear others was the infringement of a substantial right 1 and the onus therefore fell on the respondents to demonstrate that no substantial injustice had been caused to the applicants. I accept that the Chairman's decision which resulted in a failure to be heard and to hear others did infringe a right of the persons excluded, but I consider that the onus is on the applicants to show that the irregularity has caused or may cause substantial injustice that cannot be remedied -- 12 of 13 -- 12 by an order of the Court. I consider that they have discharged this onus. Mr. Ferguson and others excluded were not given an opportunity to be present at and participate in a discussion which preceded the voting on certain resolutions. However improbable it may be that they may have succeeded in having other resolutions adopted or the resolutions proposed not adopted if they had not been wrongly excluded, I consider that the procedural disadvantage from which they suffered may cause substantial injustice to them through the resolution for the appointment of a committee of inspection, the appointment to it of certain members, and the resolution in relation to the establishment of a "fighting fund". I can see no injustice to them in the resolution as to the liquidators' remuneration. I consider that I should declare those resolutions to have been invalidly adopted. I do not think that an order should be made that the liquidators convene a further meeting of creditors. The discretion is conferred on them to convene a meeting to ascertain the wishes of creditors, and no reason has been shown why I should interfere with the exercise of their discretion. I declare that Gary Douglas Ferguson, Margaret Ann McAlister Ferguson, John Kienzle and Peter William Tobin were wrongly required to leave the 10 September meeting while an item was discussed. I declare that resolutions passed at the 10 September meeting, other than the resolution approving the remuneration of the liquidators are invalid. I order that the costs of all parties of and incidental to this application be costs in the liquidation. -- 13 of 13 --