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- Notable Unreported Decision
SUPREME COURT OF QUEENSLAND
Re Kowanyama Cattle Company (in liquidation)  QSC 112
DERRICK CRAIG VICKERS
SC 329 of 2014
Supreme Court at Cairns
DELIVERED EX TEMPORE ON:
30 March 2020
27 March 2020, 30 March 2020
CORPORATIONS – WINDING UP – CONDUCT AND INCIDENTS OF WINDING UP – APPLICATIONS TO COURT FOR DIRECTIONS OR ADVICE – where the liquidation of the company was very successful and resulted in a significant surplus – where the liquidator conducted the company’s business as a cattle property – where the business provides employment and education to the local community and traditional owners - where the liquidator seeks orders pursuant to s 90-15 of the Insolvency Practice Schedule (Corporations) that, inter alia, the cattle owned by the company be distributed in specie to the Kowanyama Aboriginal Shire Council – where the Kowanyama Aboriginal Shire Council the only realistically suitable entity willing to continue the operation of the cattle enterprise – whether the distribution should be made in specie
Corporations Act 2001 (Cth)
Corporations Regulations 2001 (Cth), reg 5.6.71
Brealey v Shields  NSWSC 1148, cited
Cadman v Aborigines and Islanders Alcohol Relief Service Limited  QSC 72, applied
Re Octaviar Ltd (in liq)  QSC 235, cited
Re RH Trevan Pty Ltd (in liq)  NSWSC 1445, cited
Visnic v Sywak  NSWSC 1284, cited
Thompson Reuters, McPherson’s Law of Company Liquidation (online at 31 January 2017)
E Goodwin for the applicant
Ashurst for the applicant
HENRY J: The applicant liquidator seeks orders giving leave for distribution of a surplus after a successful winding up.
The liquidator was first appointed by me in 2014 when I ordered the Kowanyama Cattle Company Proprietary Limited to be wound up. It transpired, under the guidance of the liquidator, that the company’s cattle business was profitable. The liquidator obtained orders from me in 2017 allowing his continued role, despite the availability of a surplus to its creditors. My orders allowed for the use of funds on the continued operation of the company, particularly on cattle yards and fencing and the mustering of cattle.
The company’s herd has continued to grow since then, despite significant cattle sales in the meantime.
The liquidator has now paid all creditors and set aside, with a stakeholder, sufficient money to allow for a potential adverse outcome in an unresolved dispute with a feed lot operator. He now seeks to finalise his work, after paying for the costs of the liquidation, by distributing all surplus assets in the winding up to the Kowanyama Aboriginal Shire council. That course is not opposed by ASIC, which took no active role in the proceeding.
That there are surplus assets is to the credit of the liquidator and his implementation of a care and preservation strategy which was in the interests of creditors as well as the local indigenous community, some of whom derive work and training from the company’s operation. It is to be appreciated cattle farming plays an important role in the local community, being a means by which traditional lands may be occupied and income earned.
The assets to be distributed are principally cattle – around 5000 head – along with some cash and choses in action. The company does not own the lands on which it operates its business of raising and grazing cattle for sale. Those lands are held on trust by the Kowanyama Aboriginal Shire Council for the native title holders, the area having been the subject of a native title determination. As will be seen, the fact that the Kowanyama Aboriginal Shire Council, referred to hereafter as “the Council”, happens to hold the lands on which the cattle graze is but one reason why it presents as the most obvious entity to which the company assets should be distributed.
The Corporations Act 2001 (Cth) confers broad powers upon the court in connection with a winding up. For instance, s 90-15(1) of sch 2 of the Act, the Insolvency Practice Schedule (Corporations), provides the court may make such orders as it thinks fit in relation to the external administration of a company. The precursors to s 90-15 were now repealed sections of the Act, ss 479(3) and 511. Section 90-15 of the Insolvency Practice Schedule (Corporations) serves the same purpose as those provisions – see, for example Re Octaviar Ltd (in liq)  QSC 235. It follows it is moot whether, by reason of s 1617 of the Act, the old provisions still apply to an application brought under the new regime in a winding up commenced by proceedings brought under the old regime.
The specific provision of the Act under which the liquidator seeks the court’s leave is s 488(2), which provides that a liquidator may distribute a surplus only with the court’s special leave. One purpose of requiring the court’s special leave is to ensure that there is, in fact, a surplus to be distributed – see, for example, Visnic v Sywak  NSWSC 1284, . In the present case, whether the assets are distributed in specie, as proposed by the liquidator, or are liquidated before distribution, it is beyond doubt that there is a surplus.
The real focus of the court’s attention in considering whether special leave should be given here is upon whether it should be a distribution as proposed by the liquidator, namely, a distribution in specie and, more specifically, whether it should be a distribution to the Council.
The evidence strongly supports the conclusion that the distribution should be in specie. If the liquidator instead sold up the company assets with a view to cash distribution, it will be necessary to engage in an expensive muster, likely to take over two years. Those expenses would be added to by the need for the liquidation to continue in the meantime.
Further, the liquidation of the company’s principal assets, its cattle, would be at odds with clause 2 of its Memorandum of Association, in which the objects of the company are said to be “to support and assist the objectives of the Kowanyama Foundation, in particular, the operation of a cattle enterprise as an educational and training program in the management and operation of the cattle herd”. The Kowanyama Foundation Limited was established to act as the trustee of the public charitable trust known as the Kowanyama Foundation and to establish wholly-owned subsidiary companies to carry on such enterprises as may from time to time be considered appropriate by the board.
The inherent merit in the proposed distribution allowing the opportunity for the continued operation of a cattle enterprise in the interests of a local community which both the company and the Foundation aspire to serve, is a topic to which I will return in considering the question of who the surplus should be distributed to.
To whom should the surplus of a winding up ordinarily be distributed? The answer is succinctly explained in Thompson Reuters, McPherson’s Law of Company Liquidation (online at 31 January 2017) [14.330]:
[T]he rule is clear that, in the absence of provision to the contrary in a company’s constitution … surplus assets … must be distributed rateably; that is, in direct proportion to the nominal amounts of the shares held by the members at the commencement of the winding up.
Who are the members of this company? ASIC’s database records there are two shares in the company, one held beneficially by the Council and one held beneficially by the Kowanyama Foundation Limited. There are inconsistencies in other relevant records regarding the number of shares and the capacity in which they are held, however, on any view of the available evidence, the Council and the Foundation are the only shareholders. The Foundation was deregistered by ASIC in May 2014 for failing to lodge documents, and it remains deregistered. Pursuant to s 601AD of the Act, its shareholding is therefore vested in ASIC unless their shareholding was held on trust by it, in which case it vested in the Commonwealth. ASIC has disavowed interest in asserting a right to company assets. Whether its position can be regarded as also representing the Commonwealth’s position, bearing in mind the anomaly that on one view the shareholding of the Foundation vested in the Commonwealth, need not be resolved. The issue is rendered academic by the company’s constitution.
Clause 5 of the company’s Memorandum of Association provides the property of the company remaining after satisfaction of debts and liabilities upon a winding up shall not be paid to the members but “shall be given or transferred to some institution or organisation having objects similar to the objects of the association” and which, like the company’s constitution, prohibits distribution of its income and property amongst its members.
Clause 5 provides for the institution or organisation which would benefit from the distribution to be determined by either the members or a Supreme Court judge. Whether those are alternative options or the latter arises in default of or as a second step after the other is unclear, because of an apparently omitted word or words. On its terms, clause 5 caters for a “winding up or dissolution”. Informed by that context, I readily conclude they are alternative options. I note, in any event, the anomalous fate of the Foundation shareholding makes a meeting of members impracticable and, even if it could occur, s 488(2) would still require my leave in respect of the distribution of the surplus.
Clause 5 logically informs my consideration of whether I ought give leave for the proposed distribution of the surplus. It, in effect, calls for me to consider whether the Council is an institution or organisation having objects similar to the objects of the association and which will not allow its income and property to be distributed among its members. Language such as “objects” and “members” does not translate directly to an institution like the Council. However, honouring the intent of such language, I conclude Council comes within the intended meaning of clause 5’s description of a suitable entity. It exists and operates to serve the local community and does not distribute its income and property in any sense akin to a company distributing its profit to its members.
The Council has confirmed with the liquidator that it wants and is prepared to take control of the company’s cattle to continue the operation of the cattle enterprise so as to continue its education and training benefits and also provide a source of income to local persons. Indeed, the Council considers the continuation of such an enterprise is vital for the Kowanyama community and its traditional owners.
Aside from external government agencies, the major entities supporting the people of the Kowanyama area and their interests are the Council and the Abm Elgoring Ambung Aboriginal Corporation, a prescribed body corporate supported by the Cape York Land Council. The liquidator has conscientiously explored options involving the Abm Elgoring Ambung Aboriginal Corporation as well as less locally involved third parties taking over the company’s assets. But they have not resulted in any tangible proposal capable of meeting the five selection criteria identified by the liquidator as essential to the continued operation of the cattle enterprise. Those criteria are: (1) local presence; (2) local training facilities; (3) 100 per cent local benefit/ownership; (4) management capacity/resources; (5) immediate access to land area. I agree those criteria are apt to ensuring the selected entity will, consistently with the objects of the former company, operate a local cattle enterprise involving education and training and the management and operation of a cattle herd.
The upshot then is that the Council has emerged as the only realistically suitable and willing entity to which the surplus should be distributed. The liquidator’s proposal to distribute the surplus to the Council is sound and well-founded.
The draft order before me contemplates orders granting leave and stating that the liquidator would be justified in distributing all assets in the winding up, after paying or providing for the costs and expenses of the liquidation, by transferring those assets in specie to the Kowanyama Aboriginal Shire Council and includes a list of those assets. Those orders should be made.
A technical issue arising is that reg 5.6.71 of the Corporations Regulations 2001 (Cth) provides that an order in a winding up by the court authorising a liquidator to distribute any surplus to a person entitled to it must, unless the court otherwise directs, have annexed to it a schedule in accordance with form 551. However, it is clear on its face that form 551 is not intended for use in matters involving the distribution of surplus funds to parties who are not members (see Cadman v Aborigines and Islanders Alcohol Relief Service Limited  QSC 72, ), let alone to a single entity as will be occurring here. The requirement of the annexure to my order of a form 551 schedule is therefore dispensed with. The draft order of the applicant so provides.
The draft order includes an order that the liquidator’s costs of the application are costs of the winding up and are to be paid out of the assets on an indemnity basis. Such an order is uncontroversial in a case of this kind – see, for example, Brealey v Shields  NSWSC 1148, (3); Re RH Trevan Pty Ltd (in liq) NSWSC 1445, .
I order as per the draft order signed by me and placed with the papers.
- Published Case Name:
Re Kowanyama Cattle Company (in liquidation)
- Shortened Case Name:
Re Kowanyama Cattle Company (in liquidation)
 QSC 112
30 Mar 2020
- White Star Case: