Missing directors and company registers: winding up a company as trustee of a shareholder
Winding up a company when you are the trustee in bankruptcy of the sole director and shareholder can be more complicated than you think.
- It is common for a trustee in bankruptcy to find him or herself appointed to the estate of a bankrupt who is the director and sole shareholder of a company that is either trading while insolvent or at risk of doing so. In such a case, the trustee will no doubt wish to stop the company trading, wind it up and realise any assets for its creditors (if any) and for the creditors of the bankrupt through his or her shareholding. Such a course may sound straightforward, but can present surprising complexities.
- An example of such complexity can be seen in Taylor (Trustee), in the matter of Kwok v Goldana Investments Pty Limited (receivers and managers appointed) (No 2)  FCA 947 (Taylor), where the Federal Court dealt with circumstances in which each of the bankrupt and the director of the company in which the bankrupt held shares (Goldana) had gone to ground, and no books and records of that company (including the register of shareholders) were able to be located by the trustee. As the court noted, the route that the trustee had to take through the Corporations Act 2001 (Cth) (the Corporations Act) to achieve his objective – being orders winding up Goldana on just and equitable grounds – was “unfortunately and surprisingly, somewhat torturous” (at ). That was a consequence of the fact that, without further order, he would not have had standing to apply to wind it up.
- In that respect, section 462(2) of the Corporations Act contains a list of persons who may apply for an order to wind up a company. The list includes a ‘contributory’. A ‘contributory’ in relation to a company is defined in section 9 of the Corporations Act as including a holder of fully paid shares in the company. Upon the appointment of a trustee in bankruptcy, of course, s 58(1) of the Bankruptcy Act 1966 (Cth) (the Bankruptcy Act) operates to effect the vesting of any shares in a company previously held by the bankrupt in the trustee. However, that fact does not mean that the trustee becomes the holder of the shares with standing to apply for the winding up of the company. To achieve that position, he or she must become the registered holder of the shares: Re H L Bolton Engineering Co Ltd  Ch 577 (rather than just the beneficial holder).
- The difficulties faced by the trustee in Taylor were numerous. First, he had no physical register to present to a director for correction. Secondly, even if such a register had been found, the trustee was unable to arrange for a director to correct it. He had tried to find the other director of the company, but she had disappeared (this would also be a problem in a company where the bankrupt is the sole director, in which case he or she would have been automatically disqualified from holding office and have no standing to change the registration, even if he or she was cooperative). More importantly, absent registration as the holder of the shares, the trustee had no standing to wind Goldana up.
- It is the case that a ‘person aggrieved’ may apply to the court to have a register kept by the company corrected (s 175(1) of the Corporations Act). A trustee in these circumstances would be a person aggrieved because he or she would be entitled to be recorded in the register of members as the holder of the relevant shares by reason of the bankrupt’s bankruptcy: s 58(1)(b) of the Bankruptcy Act and s 1072C(2) of the Corporations Act; Francis v Blue Ribbon Enterprises (NSW) Pty Ltd (2009) 76 ACSR 13;  FCA 1364 at .
- In the circumstance of Taylor, of course, there was no physical register. How then could it be corrected? Before Taylor, there was some authority that the court could create a register so as to correct it. In Re Mogul Stud Pty Ltd  NSWSC 1639 at , Black J noted that while s 175(1) of the Corporations Act does not confer a power to create a register, it assumes that the court already has such a power at general law. In Taylor (at ), the court decided that the power in s 175 of the Corporations Act, considered against the background of that general law power, was sufficiently broad to enable a register to be created where the original has been destroyed or cannot be located. It was also said that section 175 is plainly a beneficial provision that should be construed broadly.
- The court went on to say (at ) that an order that the register be corrected pursuant to s 175 of the Corporations Act would be sufficient to give the trustee standing to apply to have Goldana wound up. The court relied upon the position taken by Emmett J in Francis v Blue Ribbon Enterprises (NSW) Pty Ltd (2009) 76 ACSR 13;  FCA 1364, where his Honour similarly ordered that the register be corrected nunc pro tunc to record the trustee in bankruptcy as the holder of shares in the relevant company, and also ordered that the company be wound up on the application of the trustee in bankruptcy (who as a result of the correction to the register had standing).
- Similarly, the court in Taylor held that it was just and equitable for Goldana to be wound up, as the (then) sole director and secretary appeared to reside overseas and to have no involvement in the management or control of the company (which appeared to be carrying on no business and not to have any books and records). The trustee was then the sole shareholder of Goldana, the application to wind it up had already been advertised and a liquidator had consented to act.
- For those reasons, the trustee was entitled to the relief he sought. No doubt, however, obtaining it was more complicated than he had expected.