National Acceptance Corporation Pty Ltd v Benson and Ors
(1988) 12 NSWLR 213(Decision by: Priestley JA)
Between: National Acceptance Corporation Pty Ltd
And: Benson and Ors
Judges:
Kirby P
Priestley JAClarke JA
Subject References:
COMPANIES
WINDING UP
Effect of order
Disposition of property after commencement of winding up by the court
Avoidance of disposition
'Void'
Legislative References:
Companies (New South Wales) Code - s 368
Case References:
Brady v Stapleton - (1952) 88 CLR 322
Chapman v Shepherd - (1867) LR 2 CP 228
Commercial Bank of Australia v Carruthers - (1964) 6 FLR 247; 82 WN (Pt 1) (NSW) 76; [1964-5] NSWR 1197
Craddock v Hopfner - (1986) 10 ACLR 714; 4 ACLC 421
Gray's Inn Construction Co Ltd, Re - [1980] 1 WLR 711; [1980] 1 All ER 814
Green v Rozen - [1955] 1 WLR 741; [1955] 2 All ER 797
London, Hamburg and Continental Exchange Bank; Emmerson's Case, Re - (1866) LR 2 Eq 231; on appeal (1866) LR 1 Ch App 433
Mal Bower's Macquarie Electrical Centre Pty Ltd (In Liq) and the Companies Act, Re - [1974] 1 NSWLR 254
Mercredits Finance Ltd v Ramsey - [1979] 1 NSWLR 354
Omnico Ltd, Re - (1976) 1 ACLR 381
Onward Building Society, Re - [1891] 2 QB 463
Proctor v Jetway Aviation Pty Ltd - [1984] 1 NSWLR 166
Rudge v Bowman - (1868) LR 3 QB 689
Rudi's Enterprises Pty Ltd v Jay - (Court of Appeal, 3 June 1987, unreported)
Sullivan v Henderson - [1973] 1 WLR 333; [1973] 1 All ER 48
Suttor v Gundowda Pty Ltd - (1950) 81 CLR 418
Tellsa Furniture Pty Ltd (In liquidation) v Glendave Nominees Pty Ltd - (1987) 5 ACLC 662
Wiltshire Iron Co, Re; Ex parte Pearson - (1868) LR 3 Ch App 443
Judgment date: 25 March 1988
Decision by:
Priestley JA
National Acceptance Corporation Pty Ltd (the plaintiff) brought proceedings in the District Court against Mr M Benson, Mrs F Benson and Mr D Benson (the defendants) claiming moneys from them pursuant to a guarantee they had signed. Torrington DCJ dismissed the proceedings. The plaintiff appealed to this Court.
The guarantee the defendants signed was of the observance and perform- ance of the terms and conditions of a lease of two motor cars made in 1984 between the plaintiff as lessor and Bensons Carpets Pty Ltd as lessee. By the guarantee the defendants indemnified the plaintiff against any damage sustained by it as a result of breaches of the lease committed by the lessee.
There was no dispute about the primary facts of the case. On 16 September 1985. Bensons Carpets Pty Ltd was wound up and an official liquidator appointed. The date of commencement of the winding up was 26 March 1985. The statement of claim against the defendants based on the guarantee was filed in the District Court on 29 May 1985, claiming $34,142.30. By letter dated 11 July 1985, NE Penman & Co, the solicitors for the plaintiff, wrote to Solomon Salmon & Co, the solicitors for the defendants, telling them that following the sale of the leased vehicles and taking into account a rebate to which the lessee was entitled if payment were made before 27 July 1985, the amount owing under the guarantee was $11,776.03. This did not include legal costs. On or shortly after 5 September 1985 Bensons Carpets Pty Ltd paid $11,974,45 to the plaintiff.
In the course of the appeal, no point was taken but that this amount would have been sufficient to discharge the guarantors' liability at the time it was paid. By letter dated 19 September 1985, Solomon Salmon & Co wrote to the solicitors for the plaintiff, referring to the plaintiff's solicitors' letter of 9 September 1985 (not in evidence) and telling them:
"We have advised the defendants of your costs and are awaiting their instructions. In the meantime we point out that the debt was paid by the Lessee."
I infer from this that the plaintiff's solicitors' letter of 9 September 1985 had asked for payment of the costs incurred by the plaintiff in the District Court proceedings. The next letter in evidence written by Solomon Salmon & Co on behalf of the defendants to the solicitors for the plaintiff was dated 25 October 1985, enclosing a trust account cheque "in payment of your costs and disbursements in the matter".
In the meantime, it appears from a Solomon Salmon & Co letter of 8 October 1985 that the then recently appointed liquidator of Bensons Carpets Pty Ltd had made inquiries directed to those solicitors concerning dispositions of the company property. The answers by the solicitors included information about the amount and date of the payment that had been made to the plaintiff. There is a plain inference from Solomon Salmon & Co's letter that they had been acting as solicitors for the company until the winding up order was made.
Upon receipt of the information about the payment to the plaintiff the liquidator demanded its repayment from the plaintiff, the demand being based on of the Companies (New South Wales) Code (the Code), s 368(1).
Section 368(1) makes any disposition of property of a company (other than some dispositions by liquidators) after the commencement of a winding up by the court void unless the court otherwise orders. It was not disputed in the proceedings that the payment of 5 September 1985 to the plaintiff was a disposition within the meaning of this provision. Neither the plaintiff nor any other party made any application to the court to order that the disposition should be otherwise than void. The plaintiff repaid the money to the company (in the person of the liquidator) and resumed the proceedings in the District Court against the defendants, no step apparently having been taken in those proceedings following the receipt of the amounts that had been paid in September and October 1985. An amended statement of claim was filed as also was an amended defence. The defence that Torrington DCJ accepted was that the payment of 5 September 1985 had extinguished the debt due by Bensons Carpets Pty Ltd to the plaintiff and that the subsequent repayment of that sum by the plaintiff to the liquidator did not revive the guarantors' liability under the guarantee. He did this on the footing that he was bound by the decision of Manning J in Commercial Bank of Australia v Carruthers (1964) 6 FLR 247; 82 WN (Pt 1) 76; [1964-5] NSWR 1197. However, I think it is clear that the reasoning in that case does not have the direct application to the facts of the present case which the trial judge thought it did. My reasons are as follows.
In Commercial Bank of Australia v Carruthers, Mr Carruthers guaranteed Mr Walsh's overdraft to the bank. Mr Walsh's estate was sequestrated by an order under the Bankruptcy Act 1924 (Cth). A payment which was a preference under s 95 of that Act was made to the bank within six months prior to the presentation of the petition upon which the sequestration order was made. The payment discharged Mr Walsh's overdraft and the bank released Mr Carruthers from his guarantee. The trustee in bankruptcy later claimed the payment from the bank, and the bank repaid it. The bank then sought to recover under the guarantee, the amount of its claim being limited to £600 by the terms of the guarantee. Manning J pointed out that s 95 made a preference "void as against the trustee in bankruptcy". He held that the provision did not produce the result that the preferential payment was void against anyone else than the trustee in bankruptcy. Thus, as between the bank and the bankrupt and therefore enuring for the benefit in this sense of the guarantors, the payment brought about a discharge of the debt which was not affected by the avoidance of the payment as against the trustee in bankruptcy. Although Manning J thought the result was inequitable his conclusion was that no sum (at 255; 82; 1204):
"... became owing or payable or unpaid by the principal debtor following upon the avoidance of the payment in question under s 95.
There cannot be said to be any revival of the debt, and it is the existence of a debt which can be said to be owing or payable or unpaid by the principal debtor at the relevant time which is the condition of the guarantor's liability."
As I have indicated I do not think the reasoning in Commercial Bank of Australia v Carruthers applies to the case under appeal. This is because, in my opinion, the provisions of the Bankruptcy Act (Cth) relating to preferences are not brought into the present case by the Code, notwithstand- ing that they apply in some other company winding up situations. At one time, company law made the preference section of the Bankruptcy Act (Cth) applicable to two separate periods of the final days of a company in liquidation: one, the period commencing six months before the presentation of the process seeking the winding up of the company and ending on the date of the presentation of that process, the other, the period between the presentation of the process and the date of the making of the winding up order itself. Since s 451 of the Code took its present form it is only to the first of these two periods that the preference provisions of the Bankruptcy Act (Cth) apply. To the second of the two periods, s 368 alone is applicable.
The reasons for this are explained in Tellsa Furniture Pty Ltd (In liquidation) v Glendave Nominees Pty Ltd (1987) 5 ACLC 662 at 668-669. Counsel for the plaintiff in this Court accepted that those reasons led to the position that s 368 was the only statutory provision to which the liquidator could point as making the payment in question void. The fact however that the liquidator can point only to s 368 in regard to the payment in question, and not also to the Bankruptcy Act 1966 (Cth), s 122, (which replaced s 95 of the previous Act) is not to the plaintiff's disadvantage. Section 122 retains the language which makes a preference "void as against the trustee in the bankruptcy" in distinct contrast to s 368(1) of the Code which says that a disposition to which that subsection applies "is, unless the Court otherwise orders, void".
It is this difference in language which in my opinion makes the reasoning in Commercial Bank of Australia v Carruthers not applicable to the present case. Not only is the preference section of the Bankruptcy Act (Cth) not applicable, but the applicable section of the Code appears not to be limited to making the relevant disposition void against the liquidator, and if it is not so limited, then the reasoning upon which the decision in Commercial Bank of Australia v Carruthers turned can not be adapted to this particular Code situation.
Whether the approach taken by s 368(1) should be regarded differently from that in the preference provision of the Bankruptcy Act (Cth) and hence the meaning of "void" in s 368(1) became the main matters argued in the appeal.
Counsel for the defendants submitted that "void" should be read as meaning voidable. He referred the Court to decisions in which the word had been read in that way. I see no point in going through the decisions referred to because I accept the view that in some contexts "void" may be read as meaning "voidable" and because further, none of the cases cited to my mind uses the word in a context sufficiently similar to its context in s 368 as to make a discussion of them of any particular use. I simply note, because it was not referred to in argument, a recent decision of this Court, Rudi's Enterprises Pty Ltd v Jay (3 June 1987, unreported) in which a well known High Court decision (Suttor v Gundowda Pty Ltd (1950) 81 CLR 418) on the meaning of the word in a contractual situation, was discussed by Samuels JA.
Both Suttor and Rudi's Enterprises are good examples of the context controlling the meaning.
The question of the meaning of "void" in s 368(1) is not as simple as it may at first sight appear. This is because void may in a particular context have any one of four meanings: void against all parties, voidable against all parties, void as between certain parties only and voidable as between certain parties only. So for the plaintiff to succeed in its appeal, it needs to show not only that "void" means void, but also either that it means void against all parties (that is, against the world, or absolutely) or at the least against parties which include the guarantor defendants.
To consider whether this is so, it is helpful first to set out s 368 in full. In its present form it reads:
- "(1)
- Any disposition of property of the company, other than an exempt disposition, and any transfer of shares or alteration in the status of the members of the company made after the commencement of the winding up by the Court is, unless the Court otherwise orders, void.
- (1A)
- In sub-section (1), 'exempt disposition' in relation to a company that has commenced to be wound up by the Court, means -
- (a)
- a disposition made by the liquidator of the company pursuant to a power conferred on the liquidator by this Code or by an order of the Court; or
- (b)
- a payment of money by a banking corporation out of an account maintained by the company with the banking corporation, being a payment made by the banking corporation -
- (i)
- on or before the day on which the court makes the order for the winding up of the company; and
- (ii)
- in good faith and in the ordinary course of the banking business of the banking corporation.
- (2)
- Notwithstanding sub-section (1), the court may, where an application for winding up has been filed but a winding up order has not been made, by order -
- (a)
- validate the making, after the filing of the application, of a disposition of property of the company; or
- (b)
- permit the business of the company or a portion of the business of the company to be carried on, and such acts as are incidental to the carrying on of the business or portion of the business to be done, during the period before a winding up order (if any) is made, on such terms as it thinks fit.
- (3)
- Any attachment, sequestration, distress or execution put in force against the property of the company after the commencement of the winding up by the court is void."
(Prior to the introduction of subs 1A) in 1985, in the place in subs 1 where the words "other than an exempt disposition" now appear, there appeared the words "other than a disposition made by the liquidator pursuant to a power conferred on him by this code or by an order of the court". This alteration is of no consequence to the present case.)
Before subs (1) can operate two things must happen, first, there must be a disposition transfer or alteration within the meaning of the subsection and there must be a commencement of a winding up of the company. When all that has happened is that an application for a winding up has been filed, and no winding up order has been made, then subs (1) has no present operation upon any disposition transfer or alteration spoken of by the subsection; any operation is contingent upon a winding up order being made in the future.
Any disposition, transfer or alteration taking place after the filing of a winding up application will be seen, if the application ends without any winding up order being made, as having been fully valid at the time when it took place and to have continued at all times to be so. Once the second necessary condition of the subsection has been fulfilled however the position changes retrospectively. Upon the court making a winding up order the disposition, transfer or alteration is, unless the court otherwise orders, void.
So, although as a matter of fact until the making of the winding up order a necessary condition for the operation of the subsection has not been fulfilled, and in its absence the transaction has remained valid, the subsection, upon the winding up order being made, reverses that situation by making the transaction void. One question that then arises is, when the subsection says that the transaction "is ... void", to what time is the "is" referring? For a number of reasons it seems to me that it must be when the disposition, transfer or alteration happens.
One reason is that the language of the subsection seems to me to bear the meaning that the disposition, transfer or alteration is contemporaneous with the "is". Certainly, it seems to me, the language carries that meaning if the subsection is read without knowledge of the technical meaning of "the commencement of the winding up". If the effect of that technical meaning on the subsection is next taken into account it seems to me to provide a further reason for reading it in the way suggested. Section 365(2) deems the winding up to have commenced at the time of the filing of the application for the winding up. Thus, at the time of any disposition, transfer or alteration which takes place after the filing of the application for the winding up but before the making of a winding up order, there is in fact no winding up on foot.
Once the winding up order has been made however, the statute required that the commencement of the winding up must be treated as being the time of the filing of the application for the winding up. This seems to me to mean the commencement of the winding up must be so treated at least for all purposes incidental to the working of the Companies Code. So, for the actual fact that the transaction took place when there was no winding up on foot there must be substituted the legal fact for Code purposes that the transaction took place after the commencement of the winding up. In the same way that s 368(1) changes the legal fact of the existence of the winding up retrospectively so that the transaction which took place when no winding up was on foot must be treated as having taken place when the winding up was on foot, it seems to me that the whole context of the subsection requires that what has now become legally void which was not factually void at the time when it took place should be regarded as being void at the time when it took place. A practical reason for reaching the same conclusion is that if the voidness only came into existence at the time of the making of the winding up order it would be difficult to see much point in the provision.
To this point, it seems to me that the meaning of the subsection is that unless the court otherwise orders, upon a winding up order being made any disposition, transfer or alteration within the meaning of the subsection that has taken place after the time of the filing of the application for the winding up is to have no legal effect from the time that it took place. That is, once the winding up order is made, the transaction must be regarded as never having taken place at all in law, unless the court otherwise orders. If the court does order otherwise under s 368(1) then the transaction will at all times have been. I think, a valid one, because the court's order will prevent the voidness attaching at the date at which it would have attached had the order not been made.
So, in a case where the court makes an order the following sequence will have occurred:
- (i)
- transaction occurring in fact before the commencement of the winding up and valid in law at the time of its taking place;
- (ii)
- upon the making of the winding up order, transaction deemed in fact to have taken place after the commencement of the winding up and of no legal effect; and
- (iii)
- after making of order under s 368(1), transaction at all times valid.
Thus, after the making of the order by the court the one transaction will have been valid, void, and valid successively in fact and simultaneously in law, the last legal fact being the prevailing one. This is another example of the law being able for practical purposes to ignore logical difficulties which was referred to in Proctor v Jetway Aviation Pty Ltd [1984] 1 NSWLR 166 at 183.
To this point I have been considering the word "void" without reference to the question it raises, even if the voidable meaning is excluded, void as against whom. That seems to me to be the main question in the present appeal, namely whether once s 368(1) has come into operation, and no order is made pursuant to it, the annihilation of the disposition, transfer or alteration which it effects is to be treated as effective only between the immediate parties to the transaction, or more generally. In terms of the present case, the critical question that emerges arises this way. At the time of acceptance by the plaintiff of the payment to it by Bensons Carpets Pty Ltd on 5 September 1985 the company's debt to the plaintiff was discharged. When the winding up order was made on 16 September 1985, s 368(1) brought about the result that in law that discharge had never happened. Does the subsection bring about the result that its retrospective non-occurrence in law was a non- occurrence between the parties to it only, or some wider group of parties, or for all legal purposes?
The language of s 365(2) deems a winding up other than a voluntary winding up to have commenced at the time of the filing of the application for the winding up. The use of the word "deems" carries with it a (by no means decisive) suggestion that the statutory fiction (or fact, for present purposes it does not matter which word is used) which it creates is not of an absolute kind; the idea was thought necessary or expedient for winding up purposes and the provision is at least consistent with the view that it is directed towards the administration of a winding up and has no other purpose in view.
The whole of s 368 seems to me to be most easily read in the same way. That is, (and this is the conclusion which I eventually reach) the provisions seem to me to indicate that the word "void" when used in s 368(1) means at least void for all purposes related or incidental to the administration of the winding up of the company concerned. In the present case that administration will be affected to the extent of the identity of the person who proves for the debt of $11,974.45 in the winding up of Bensons Carpets Pty Ltd. If the discharge of that debt was retrospectively of no effect between not only the plaintiff and the company, but also the plaintiff and the defendants, then the plaintiff can recover under its guarantee from the defendants and the defendants will be the persons entitled to prove for that debt in the winding up. (I omit consideration of the more complicated situation arising if the plaintiff only recovers part of the debt from the defendants; those complications, if followed through, seem to me to emphasise the point now being made.)
If the discharge was and remains effectual between the plaintiff and the defendants then it will be the plaintiff who will be entitled to prove its debt in the winding up. The identity of the person eventually proving for the debt may be of little practical importance to the unsecured creditors, but is nonetheless directly incidental to some of the things that will actually happen in the winding up of the company, such as the receipt of claims by the liquidator and the eventual rateable distribution to those whose claims are allowed by the liquidator. Further, in many cases there will be a more substantive practical effect on the winding up. In cases where a company's obligations have been guaranteed by persons holding shares in and/or engaged in conducting its business, questions of setting off credits and debits between those persons and the company frequently arise. Questions arising under the Bankruptcy Act 1966 (Cth), s 86, or s 384 of the Code may be affected by the claims of such guarantors under their guarantees. The names of the company and the defendants in the present case suggest such possibilities here, although there is no evidence upon which to draw any such conclusion one way or the other and the possibility plays no part in the view I have reached on the construction of the relevant provisions.
My conclusion thus far has been reached tentatively upon consideration of the evolution of the provisions now appearing in s 365 and s 368 of the Code and the case law upon them; that conclusion is, as far as I can see, consistent with those materials. In Great Britain a series of statutes was passed between 1834 and 1849 dealing with trading and joint stock companies in which prototypes of many of the provisions in later Companies Acts appeared. It was not however until the Limited Liability Act of 1855 (UK) that the idea of limited liability reached statutory form, thus completing the general scheme of company law in the form in which it has since been known in Great Britain and Australia. (Two places where the history may conveniently be found are Gower's Principles of Modern Company Law, 4th ed, 1979 at 39- 52 and Napier, The History of Joint Stock and Ltd Liability Companies in "A Century of Law Reform" (1901), reprinted 1972 at 379 and following.) The Limited Liability Act 1855 (UK) was not self-contained; by s 16 it was to be taken as part of the earlier Companies Acts then in force, which by s 17 were to apply to it. In the following year it and some earlier legislation were repealed and the Joint Stock Companies Act 1856 (UK) enacted, this Act being the first comprehensive limited liability Act of the style followed ever since. It was in this Act, so far as I have been able to see, that the progenitors of s 365 and s 368 of the Code first appeared. The substance of s 64 was very similar to s 365. The word "deemed" was used in the same position and in apparently the same sense as it has continued to be used in s 365. Section 73 and s 80 corresponded to s 368(1) and s 368(3), although not nearly so closely as s 64 corresponded to s 365. It seems to me however to be useful to look at the sections for present purposes, because some of the language used in them helps provide an overall context for understanding the meaning of the varying statutory provisions over the whole period including the present ones.
Section 73 dealt with disposition of company property, but did not relate back to the commencement of the winding up. Relevantly for present purposes it provided that after the winding up order:
"No Director or other Officer of the Company [should], without the Sanction of the Court, dispose of any of the Property, Effects or Things in Action of the Company, and no Transfer of any Shares [should] be valid without the Sanction of the Court."
The idea here in regard to property of the company is that disposition of it is simply prohibited without the sanction of the court, and in regard to transfer of shares that no transfer shall be valid without the sanction of the court. Although the form of words is different in regard to property and shares, there seems to be little reason for not thinking that the underlying idea of non-effectiveness without the sanction of the court was the same in both instances.
Section 80 provided that attachments, sequestrations or executions within three months before the filing of a winding up petition should "be void in favour of the Liquidators of the Company, as against the attaching, sequestrating, or Execution Creditor, ...".
In contrast s 76 made fraudulent preferences "invalid" and a conveyance or assignment by a company of all its property to trustees for the benefit of all creditors "void to all Intents".
The Joint Stock Companies Act 1856 (UK) was repealed by the Companies Act 1862 (UK). This was a fully consolidated Act which remained the basis of company law in Great Britain until 1908. The alterations it made to the relevant sections also seem to me to be helpful in understanding the corresponding provisions of the Code. The section corresponding to s 365 of the Code became s 84 and like its predecessor was substantially similar to the current Australian section. The word "deemed" was again used in apparently the same way. The section corresponding to s 368(1) was s 153. It now for the first time took much the same shape as has been maintained since: in a court winding up
"... all Dispositions of the Property ... and every Transfer of Shares or Alteration in the Status of the Members of the Company made between the Commencement of the winding up and the Order for winding up, shall, unless the Court otherwise orders, be void".
(In the Companies (Consolidation) Act 1908 the word "after" was substituted for "between" and the words "and the order for winding up" left out.)
The section corresponding to s 368(3) became s 163 which had likewise been altered to a form very similar to the current one:
"... any Attachment, Sequestration, Distress, or Execution put in force against the Estate or Effects of the Company after the Commencement of the Winding-up shall be void to all Intents."
Here, the change from s 80 of the 1856 Act is marked. The change from a limited voidness to voidness without express qualification seems to be deliberately emphasised by "to all Intents".
The meaning of s 153 was soon tested. Re London, Hamburg, and Continental Exchange Bank; Emmerson's Case (1866) LR 2 Eq 231, Lord Romilly MR considered the situation following from a sale of shares at a time when unknown to buyer or seller a winding up petition had been presented against the company. The question before the court was whether the buyer or the seller should be put on the list of contributories. It is not particularly clear from the reasons of the Master of the Rolls, what he took the arguments before him to be. The ground of his decision was that the section granted a discretion to the court "in order that bona fide transactions, and no others, may be made valid" (at 235). It was common ground that the transactions were bona fide, so he held the sale valid, with the consequence that the purchaser had to go on the list of contributories.
The purchaser appealed to the Court of Appeal in Chancery where the matter was heard by Turner and Knight Bruce LLJ (1866) (1 Ch App 433). In his reasons Turner LJ said that the first point argued was that s 153 applied only between the company and the shareholders. In dealing with this suggested construction he mentioned the reference in the section to transfers of shares and continued (at 435-436):
"... and having regard to the fact that the rights between the company and the shareholders must, to some extent at least, involve the rights between the shareholders and other persons, I do not see how it can well be said that the discretion given by the section was not intended to be given with reference to these latter rights. Such a construction of the section would obviously be most inconvenient, and might lead to great injustice, as it would make the section operate so as necessarily to invalidate all transactions between shareholders and other persons, although they may have been perfectly fair and bona fide. The 163 section was relied upon in support of the construction contended for. To say nothing as to the words 'void to all intents' which occur in this section, and which are not unimportant, as a distinction has, I think, been taken upon these words in Acts referring to other matters, it is sufficient to say that this section gives no such discretionary power as is given by the 153rd section. I think, therefore, that the Master of the Rolls has rightly held that the discretion given by the 153rd section extends to such cases as the present."
Having held that the Master of the Rolls had rightly thought s 153 conferred a discretion, Turner LJ went on to say that he thought it was wrongly exercised, the reason being that the shares not having been transferred into the buyer's name the transaction was incomplete so that in his view, a court of equity would not compel completion or registration. Knight Bruce LJ concurred and the appeal was upheld.
Section 131, referred to by Turner LJ in the passage set out above provided that from the date of the commencement of a voluntary winding up
"all Transfers of Shares except Transfers made to or with the Sanction of the Liquidators, or Alteration in the Status of the Members of the Company taking place after the Commencement of such Winding-up shall be void ...".
I think two points may be taken from the passage set out above. The first relates to what Turner LJ said about the contention that s 153 applied only between the company and the shareholders. In view of the words in the section this seems to have been a fairly desperate submission, not requiring much to be said about it. Notwithstanding this, Turner LJ's answer does seem to me to make clear that the view then held of the section was that it made void any transactions falling within the section affecting rights between shareholders and other persons, a notion which I think can be safely stated more generally as any transactions affecting the process of the winding up of the company. The second point appears from two remarks by the judge; the first that if the construction contended for were right (that is if the section did not apply to transactions between shareholders and persons other than the company) then the operation of the section would necessarily be to invalidate all transactions between shareholders and other persons. This seems to indicate that Turner LJ was proceeding on the basis that within its area of operation void meant void strictly, and not voidable. The other remark is the reference to s 131 which seems to me to be difficult to reconcile with the idea that "void" where it there occurs could mean voidable; his Lordship seems to have assumed that the meaning of "void" was the same in both s 131 and s 152, the difference he was relying on being that in the earlier section there was no discretionary power of the court to validate as there was in the later.
Thus at an early stage, the predecessors of the Code sections presently under consideration appear to have been regarded in the way that I regard the Code provisions. So far as I am aware Emmerson's Case has never been adversely criticised. It continues to be cited in current texts, eg, Buckley on the Companies Acts, 14th ed (1981) vol 1 at 572 and Halsbury's Laws of England, 4th ed, vol 7, par 1210 at 699. The later cases to my mind have proceeded on the same footing. This seems to me to be particularly clear in regard to the first of the two aspects of the question presently being considered, that concerning the void-voidable distinction. (The second is, once voidable is excluded, void against whom?) From one of the earliest cases on the section, Re Wiltshire Iron Co; Ex parte Pearson (1868) LR3 Ch App 443, to one of the most recent, Re Gray's Inn Construction Co Ltd [1980] 1 WLR 711; [1980] 1 All ER 814 (Buckley and Goff LJJ and Sir David Cairns) in which the English Court of Appeal took the continuing authority of the Wiltshire Iron Co case for granted, the decisions all seem to go on the footing that "void" is not used in the extended sense of voidable. In the Wiltshire Iron Co case for example Lord Cairns LJ said (at 446) that the section gives the court "a discretion to say that the transaction ... shall not be avoided". This means pretty clearly that unless the court exercises that discretion the transaction remains avoided; this is the reverse of what the situation would be if the transaction were voidable and not void. It is this same idea which the language of s 368(1) seems to me clearly to bear. A little later in the report of the Wiltshire Iron Co case occurs the best known passage in it, which read alone may possibly raise a doubt on the present point. This passage is (at 446- 447):
"The 153rd section no doubt provides that all dispositions of the property and effects of the company made between the commencement of the winding-up (that is the presentation of the petition) and the order for winding up, shall, unless the Court otherwise orders, be void. This is a wholesome and necessary provision, to prevent, during the period which must elapse before a Petition can be heard, the improper alienation and dissipation of the property of a company in extremis. But where a company actually trading, which it is in the interest of every one to preserve, and ultimately to sell, as a going concern, is made the object of a winding-up Petition, which may fail or may succeed, if it were to be supposed that transactions in the ordinary course of its current trade, bona fide entered into and completed, would be avoided, and would not, in the discretion given to the Court, be maintained, the result would be that the presentation of a Petition, groundless or well-founded, would, ipso facto, paralyse the trade of the company, and great injury, without any counterbalance of advantage, would be done to those interested in the assets of the company."
The part of this passage which indicates that it is not to be supposed that bona fide transactions in the relevant period "would be avoided" could be read as meaning that they would not be avoided by the section; however, that this is not the correct reading is, I think, made plain by Lord Cairns' earlier statement (at 446) that I have already referred to and by the words following the words "would be avoided" namely, "and would not, in the discretion given to the Court, be maintained". Those words indicate that it is necessary for the court to maintain the transaction to prevent the operation of the section, showing that the immediately earlier reference to the transaction being "avoided" is a reference not to what happens when the court applies the section, but to the result of the operation of the section of its own force unless and until the court exercises its discretion to maintain the transaction, that is, to exercise its discretion by negating the voiding operation of the section.
There are a number of passages in the reasons of Buckley LJ (with whom the other judges agreed) in the Gray's Inn Construction case which clearly go upon the footing that "void" means void not voidable. Buckley LJ says (at 716: 818):
"... The section must, in my judgment, invalidate every transaction to which it applies at the instant at which that transaction purports to have taken place. I cannot see any ground for saying that the invalidation can be negatived by any subsequent transaction";
and (at 718; 820) he refers to the risk third parties run "of the court refusing to make the order" or "declining to validate the transaction". Apart from these passages Buckley LJ's reasons as a whole go upon the same footing.
There is a lengthy discussion of the difficulty which persons who wish to deal with a company against whom winding up proceedings have been commenced must face and a number of practical steps suggested of dealing with the difficulties. There seems to me to be little doubt of the answer that would be given in England to the first of the two questions that I have been examining. The English decisions are of course of persuasive value rather than of binding authority in New South Wales, unless they have been said to be correct in the High Court or in this Court; I am not aware of that having happened in regard to the two cases I have particularly referred to. However, it is unnecessary for me to satisfy myself one way or the other on that aspect of the matter, because it seems to me that the view adopted by the cases is entirely consistent with what seems to me to be the meaning of the provisions in force in New South Wales.
The answer in regard to the second aspect is not so clear. There are cases which may appear to support the view that voidness only strikes the company and the party dealing with it. Rudge v Bowman (1868) LR 3 QB 689 is the first of these. Shares were bought after the commencement of the winding up and before the making of the winding up order by a buyer who did not know of the petition. The seller was placed on the list of contributories and paid a call thereafter made on the shares. The seller brought an action against the buyer claiming the sale obliged the buyer to indemnify him from such calls and that he had not done so. The buyer argued that the transfer of shares not having been registered, the implied indemnity had not attached. In support of this it was argued that the buyer could not obtain registration of his transfer, one reason for this being that the sale, not having been sanctioned by the liquidator or order of the court, was void. The court, Blackburn and Lush JJ, upheld a demurrer to the pleas raising these defences. The decision was later taken by some text writers as justifying the view that the position as between vendor and purchaser, or transferor and transferee, remained unaffected by the section: see Plicher, Uther and Baldock, The Australian Companies Acts (1937) at 581 and similar comments in Halsbury, op cit par 1210 at 699 and Wallace and Young, Australian Company Law and Practice (1965) at 656.
The last text also cites Chapman v Shepherd (1867) LR 2 CP 228 in support of the same proposition.
The decision in Rudge however turned on the fact that the Companies Act 1862 (UK), s 153, made the relevant dispositions, transfers and alterations void between the commencement of the winding up and the order for winding up. The court drew a sharp distinction between an unregistered transfer (which was treated as an agreement to transfer) and a registered transfer. "Members," said Blackburn J "are not complete members until they have been entered on the register of shareholders" (at 696). Then it was said that s 153 made void the transfer but not the agreement to transfer; and once the winding up order had been made there was no prohibition on the transfer being effected by its registration. (It seems that in their reasons both Blackburn J and Lush J were assuming as they had indicated in argument (at 695), that the court would if necessary compel the registration of such a transfer after a winding up order, in a proper case.) This would leave the situation as one where the list of contributories was not affected by the transfer, because the seller would remain a contributory. It is not necessary to examine the validity of the argument, but I have summarised it to show that the decision was based on a form of the statute which was for the purposes of that case different in a respect which would make the reasoning there adopted unavailable upon the provision in the form which it subsequently took and now takes.
Chapman does not support the text view either, in my opinion. The situation in that case was that agreements to transfer shares had been made on the stock market before the commencement of the winding-up, and the brokers' principals had sought to refuse payment to their brokers on the ground of the provisions of s 153. The decision in the case was that the agents were entitled to be reimbursed by their principals. The decision does not in my opinion cast any light upon the question which arises under s 368 in the present case.
Although Rudge continues to be cited in the texts, I have not noted any reference (I have not made a full search) to the rather severe treatment it received in the English Court of Appeal in 1891 in Re Onward Building Society [1891] 2 QB 463 at the hands of Lord Esher MR (the other two judges being Bowen and Kay LJJ). The case concerned a transfer of shares made after a winding up order. The transferee sought to be registered. Lord Esher MR said that the question depended on the true construction of s 153 and whether it applied only to a transfer between the commencement of the winding up and the order for winding up. He thought such a construction would be absurd (at 474). So absurd was such a construction, in his opinion, that he had no doubt that the section applied "to a transfer made after the winding-up order as much as to one made between the commencement of the winding-up order and the order for winding-up" (at 474). His view was that a transfer made between parties after the winding up order was "void so far as regards any effect to be given to it by or against the company, unless the court otherwise orders" (at 475). It followed that the court had jurisdiction to order that such a transfer should not be void. He stated his conclusion (at 475) in the words I have quoted because he took Rudge to have really decided:
"... that, as between the parties to such a transfer and as regards the liability of one of them to the other, the transfer is not affected by the Act. If the parties choose to make such a contract, it may be good as between themselves, though, if either of them desires that any effect should be given to it by the company, the Act does apply."
Lord Esher thought that any remarks by Blackburn J apparently to the contrary, were not really opposed to the meaning Lord Esher had gathered from the whole of what Blackburn J said. This was the only reference he made to the fact that what he said was absurd appeared to be the basis of Blackburn J's decision. In the particular case before him Lord Esher was of opinion that the court should not exercise its discretion to validate the transfer. Neither of the other judges even indirectly contradicted Blackburn J as Lord Esher did, although they appear to have had reservations about Blackburn J's view, and explicitly based their reasons on provisions other than s 153.
Bowen LJ thought the court had power to rectify the register after a winding up order, basing himself on s 35 and s 87. He thought that s 153 did not apply to a transfer subsequent to the winding up order at all (at 480). He also thought that although the power existed it should not be lightly used, and certainly not in the case before him. Kay LJ was of the same view as Bowen LJ, referring to s 153 in these terms (at 482):
"... Without saying that the case is within the terms of s 153, I say that that section affords a good guide for the exercise of our discretion in the case before, us, which is one of a transfer after the winding-up order."
He also was against the exercise of discretion in favour of registration, in the case before the court.
Bowen LJ directly accepted (at 480) and Kay LJ less directly but nevertheless fairly clearly seems to have accepted (at 482) the statement by Lindley LJ in the 5th edition of his Law of Companies (1889) at 837 that:
"In connection with this subject it is to be remembered that sales of shares after the commencement of a winding-up are not void under s 153 of the Companies Act, 1862; and transfers after that date may be approved by liquidators."
The authority for this proposition was Rudge. A little earlier in his work (at 832) Lindley LJ had explained why for reasons other than s 153, transfers made after a winding up order were void if not sanctioned by the court or the liquidators.
If my understanding of Re Onward Building Society is correct then Lord Esher's reasons and his comments about the real meaning of Rudge and s 153 do not form part of the reasoning essential to the decision in the case. That reasoning appears in what was said by the other two members of the court.
That reasoning in turn depended on the non-application of s 153 to a transfer after the winding up order, because of the period then dealt with by s 153 being only that between the commencement of the winding up and the date of the winding up order. When the Companies (Consolidation) Act 1908 (UK) changed the section corresponding to s 153 in the way earlier mentioned in these reasons, so that anything within the section after the commencement of the winding up was void unless otherwise ordered, the reasoning of the majority was no longer applicable to the section in its new form which, relevantly, is still its form in s 368(1) of the Code.
The only case I am aware of in which any reference has been made in recent times to what was said by Lord Esher in Re Onward Building Society is Sullivan v Henderson 1973 1 WLR 333; [1973] 1 All ER 48 a decision of Megarry J. The seller of shares by an oral agreement made before the commencement of the winding up sought specific performance of the agreement after the making of the winding up order. The seller contended before Megarry J that Re Onward Building Society showed that the word "void" in the Companies Act 1948 (UK), s 227, (the successor to s 153, with the change earlier referred to) merely meant void quoad a company and not void as between seller and buyer. Megarry J (at 337; 50-51) noted this submission but said no more about it than that even if it were right the case would not be one for specific performance.
The result is, that in such cases as I have looked at, I have been unable to find any direct guidance on the question which, in the end, seems to me to be the critical question in this case; between what persons, or for what purposes, is the discharge of Bensons Carpets Pty Ltd's debt to the plaintiff void. It is possible that the answer is, as between all parties and for all purposes; so far as I have been able to see, there are no authorities relating to s 368(1) in the way of such a construction. However, I earlier indicated my reasons for thinking, on a reading of the relevant statutory provisions, that "void" in s 368(1) means at least void for all purposes related or incidental to the administration of the winding up of the company. Consideration of the texts, authorities and further written submissions from counsel, has strengthened that opinion. The effect of the discharge in the present case upon the relation between the lessor and the guarantors seems to me to be related or incidental to the administration of the winding up, even although that be in the comparatively minor way I earlier mentioned. It is therefore not necessary to decide whether the voiding effect of s 368(1) is wider than that which I am prepared to adopt for the purposes of this case.
In addition to the argument centring on the meaning of "void" in s 368(1), it was argued for the defendants that, quite independently of the discharge of the guarantors' liability that would have been brought about by the company's payment to the lessor if there had been no winding up, it was agreed between the plaintiff and the defendants in the correspondence, culminating for this purpose with the letter of 25 October 1985 enclosing the trust account cheque for costs to that date in the District Court proceedings, that the defendants' liability under the guarantee to the plaintiff was discharged by what he called a contract of compromise then reached in respect of the District Court proceedings. In regard to this submission it does not seem to be necessary to say more than that, when the letters relied upon are looked at, there is no reasonable basis for concluding that the parties either intended to reach or did reach the contract of compromise contended for.
In my opinion the legal position that came about when the winding up order was made was that the payment by the company to the plaintiff was thereby avoided, as at the date of payment, with the result that the law requires that it be treated as not having happened as between the company and the plaintiff and also the plaintiff and the defendants. The court not having made any order to the contrary, this remained the position at the time of the proceedings before Torrington DCJ and the defendants remained liable under the guarantee to the plaintiff. Judgment should have been entered in the plaintiff's favour for the amount appropriate at the date of judgment. I am not sure that I can accurately work out that amount from the details in the appeal papers. I therefore suggest that following the publication of these reasons the parties should promptly bring in short minutes providing for the setting aside of judgment entered in the District Court, substituting judgment as at that date for the plaintiff in an amount to be agreed between the parties, for the plaintiff's costs in this Court and the District Court to be paid by the defendants and for a Suitors' Fund certificate, if desired, in favour of the defendants.