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Federal Court of Australia |
Last Updated: 18 April 2008
FEDERAL COURT OF AUSTRALIA
Richards, in the matter of Mount Richon Investments Pty Ltd, v Arnold [2008] FCA 509
CORPORATIONS – error made
in respect of the register of members – whether necessary for an
application for correction of
the register of members to have been made
Corporations Act 2001 (Cth) s 175
IN
THE MATTER OF MOUNT RICHON INVESTMENTS PTY LTD
(ACN 112 853 326)
JOANNE PETA RICHARDS v SHELLY JEAN
ARNOLD and MOUNT RICHON INVESTMENTS PTY LTD
(ACN 112 853 326)
WAD 40 OF 2008
SIOPIS
J
17 APRIL 2008
PERTH
IN THE MATTER OF MOUNT RICHON INVESTMENTS
PTY LTD (ACN 112 853 326)
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AND:
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THE COURT DECLARES THAT:
1. The plaintiff is, and has been since 4 September 2007, entitled to be registered on the register of members as the holder of 95 of the 100 issued shares in the second defendant and the first defendant is, and has been since 4 September 2007, entitled to be registered as the holder of 5 of the 100 issued shares in the second defendant.
2. The action taken by Mr Armenti on 29 January 2008 to amend the register of members of the second defendant to reflect the position declared in para 1 above, has been ratified by the first defendant.
THE COURT ORDERS THAT:
3. The first defendant’s motion of 13 March 2008 is dismissed.
4. The first defendant pay the plaintiff’s costs of the motion and the
application.
Note: Settlement and entry of orders is dealt with in Order
36 of the Federal Court Rules.
IN THE MATTER OF MOUNT RICHON INVESTMENTS PTY LTD
(ACN 112 853 326)
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BETWEEN:
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JOANNE PETA RICHARDS
Plaintiff |
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AND:
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SHELLY JEAN ARNOLD
First Defendant MOUNT RICHON INVESTMENTS PTY LTD (ACN 112 853 326) Second Defendant |
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JUDGE:
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SIOPIS J
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DATE:
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17 APRIL 2008
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PLACE:
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PERTH
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REASONS FOR JUDGMENT
1 The second defendant, Mount Richon Investments Pty Ltd (the company), as part of its business, owns a number of horses. In mid 2007, the plaintiff, Ms Richards, who was the company’s sole shareholder and director, advised Mr Richard Shenton that she wished to engage a second director to help with the day to day running of the business, especially in relation to looking after the horses. In response to this request, Mr Shenton recommended the first defendant, Ms Arnold, as an appropriate person to be appointed as a co-director. Mr Shenton then held discussions with Ms Arnold on the terms of her remuneration. Ms Arnold said that she would accept a 5% shareholding in the company as remuneration for the work she would perform as a co-director charged mainly with looking after the horses. Ms Richards agreed to those terms.
2 Mr Shenton then approached Mr Armenti, the company accountant, who kept the books and records of the company. He advised Mr Armenti that Ms Arnold was to become a director and 5% shareholder of the company and asked him to amend the company books to reflect that fact.
3 However, in purporting to amend the records of the company, on 4 September 2007, Mr Armenti in error removed Ms Richard’s name as sole shareholder and director of the company and substituted the name of Ms Arnold as the sole shareholder and director of the company.
4 In January 2008, Mr Shenton became aware of circumstances which indicated that the the company’s register of members may not correctly reflect Ms Arnold’s position as a 5% shareholder. Mr Shenton then met with Mr Armenti and advised him that there might be an error in the register. Mr Armenti subsequently checked the register, found that it reflected that Ms Arnold was the sole shareholder of the company. Mr Armenti deposed that he "changed the information in anticipation of Ms Shelley Arnold agreeing to the fact that the registry of the Company was erroneous and needed to be rectified". The documents in evidence show that it was on 29 January 2008 that Mr Armenti amended the register to reflect that Ms Richards held 95 of the 100 issued shares in the company, and Ms Arnold held 5 of the 100 issued shares.
5 On 6 February 2008, the solicitors for Ms Richards issued a notice of demand to Ms Arnold. The demand referred to the mistake made by Mr Armenti in registering Ms Arnold as the sole shareholder of the company and required Ms Arnold immediately to instruct Mr Armenti to "correct the mistake made by him". The demand threatened to commence proceedings if Ms Arnold’s instructions were not forthcoming. The demand did not refer to the fact that Mr Armenti had already, without Ms Arnold’s authority, changed the register.
6 No instruction was issued by Ms Arnold to Mr Armenti, in response to the demand of Ms Richards.
7 On 29 February 2008, Ms Richards commenced an originating application in this Court under s 175 of the Corporations Act 2001 (Cth) to correct the register of members to reflect that Ms Richards held a 95% shareholding, and Ms Arnold held a 5% shareholding in the company.
8 On 13 March 2008, Ms Arnold filed a notice of motion applying for the originating application to be dismissed. I listed both the notice of motion and the originating application to be heard at the same time.
9 In her affidavit sworn on 13 March 2008 in support of her notice of motion, Ms Arnold deposed that:
The change in the share structure to the extent of 95% in favour of the plaintiff and 5% in favour of me had already been effected on the 29th January, 2008.10 In support of her motion at the hearing, counsel for Ms Arnold said that Ms Arnold did not challenge the evidence that the entry in the register recording her as the sole shareholder was an error. However, Ms Arnold contended that because, before the filing of the originating application on 29 February 2008, the register already reflected Ms Richards as holding 95% of the issued shares and Ms Arnold as holding 5% of the issued shares, there had been no need for the proceeding to have been commenced. Accordingly, said Ms Arnold, the application should be dismissed and Ms Richards should bear the costs of making the application.
11 There is, therefore, now no issue between the parties as to the true position on the proportionate shareholding between Ms Richards and Ms Arnold. Both parties accept that Ms Richards is entitled to hold 95 of the 100 issued shares and Ms Arnold is entitled to hold 5 of the 100 issued shares. The statements made by Ms Arnold in her affidavit and the statements of her counsel at this hearing, constitute ratification of Ms Arnold’s action in amending the register.
12 The question, therefore, is whether it was necessary for Ms Richards to have made the originating application for the relief claimed by her.
13 Ms Richards contended that it was necessary to make the application because Ms Arnold through her solicitor had not, prior to the commencement of the proceeding, accepted that she was not the sole shareholder of the company, and that in reflecting that position, the register was in error.
14 Ms Arnold, however, contended that in the correspondence leading up to the commencement of the proceeding, Ms Richards’ solicitors had never revealed the fact that the register had been unilaterally altered by Mr Armenti to reflect the position that Ms Richards was the holder of 95% of the shareholding and Ms Arnold 5% of the shareholding.
15 It is necessary to look at the correspondence which passed between the parties to determine whether it was necessary for Ms Richards to commence the originating application.
16 In a letter dated 31 January 2008 to Ms Richards’ solicitors, Ms Arnold’s solicitor stated that Ms Arnold was the "sole director and shareholder of the company".
17 As previously mentioned, on 6 February 2008, Ms Richards’ solicitors sent a notice of demand requiring that Ms Arnold instruct Mr Armenti to correct the register to reflect a position of 95% of the shareholding being held by Ms Richards and 5% of the shareholding being held by Ms Arnold, and threatening to commence legal proceedings.
18 On 7 February 2008, Ms Richards’ solicitors advised that unless a response was received from Ms Arnold by 12 February 2008, Ms Richards would lodge an application in the Federal Court. On 19 February 2008, Ms Arnold’s solicitor wrote saying that he had no instructions to accept service of any court process.
19 By a letter dated 6 March 2008, Ms Arnold’s solicitor said that his client had handed him the papers comprising Ms Richards’ Federal Court application. Ms Arnold’s solicitor went on to inquire as to the basis of the authority on which Mr Armenti had acted in changing the shareholding in the register to reflect the allocation of 5 issued shares to Ms Arnold and 95 issued shares to Ms Richards. He said:
Ms Arnold instructs me that there was no meeting held or resolution passed to sanction that allocation.20 In my view, there is nothing in the correspondence from Ms Arnold’s solicitor up to 29 February 2008 which indicates that Ms Arnold accepted that she was not entitled to be registered as the sole shareholder, and that the entry in the register to that effect was in error.
21 To the contrary, in his letter of 31 January 2008, Ms Arnold’s solicitor stated that Ms Arnold was the sole shareholder of the company. Further, even after Ms Arnold received the notice of demand dated 6 February 2008, Ms Arnold did not instruct Mr Armenti to amend the register to reflect her shareholding as comprising 5% of the issued shares, nor did she protest that the legal proceedings threatened in the notice of demand were not necessary as there was no issue between the parties on this point.
22 Even when Ms Arnold’s solicitor was advised by Ms Richards’ solicitors letter dated 7 February 2008 that the Federal Court proceeding would be issued unless she responded by 12 February 2008, Ms Arnold did not advise that she did not contest the claim made by Ms Richards that she was only entitled to a 5% shareholding, and that any entry in the register showing that she was the sole shareholder was an error. The first indication that Ms Arnold did not challenge the claim that she was entitled to no more than a 5% shareholding, is in her affidavit of 13 March 2008.
23 It is the case, as contended by Ms Arnold, that the correspondence sent by Ms Richards’ solicitors before the commencement of the Federal Court proceeding, does not disclose that Mr Armenti had on 29 January 2008 already made an amendment to the register, as he put it, in "anticipation of Ms Shelley Arnold agreeing" to the amendment, so that the register showed that Ms Richards held a 95% shareholding and Ms Arnold held a 5% shareholding. It is also remarkable that Mr Armenti should have effected such a change without the authority of Ms Arnold. However, the fact that the correspondence did not reveal that Mr Armenti had already made an unauthorised amendment to the register, does not mean that it was, therefore, unnecessary for Ms Richards to bring the Federal Court proceeding. This is because, for the reasons set out in the preceding paragraphs, the correspondence of Ms Arnold’s solicitor did not demonstrate that Ms Arnold accepted she was only entitled to be registered as a 5% shareholder of the company.
24 It was, therefore, necessary for Ms Richards to commence the proceeding to have the true position as to the respective shareholding between herself and Ms Arnold determined, and to regularise the entry that had been made by Mr Armenti without the authority of Ms Arnold.
25 It is appropriate, therefore, that on the originating application, I grant relief which declares the true position to be that Ms Richards is entitled to 95 of the 100 issued shares and that Ms Arnold is entitled to 5 of the 100 issued shares, and that the entry in the register which records Ms Richards as the holder of 95 of the 100 issued shares, and Ms Arnold as the holder of 5 of the 100 issued shares properly reflects the true position.
26 As I have already found that it was necessary for Ms Richards to commence this proceeding, I dismiss Ms Arnold’s notice of motion dated 13 March 2008. There were other grounds for dismissal of the application set out in the notice of motion, but they were not seriously advanced at the hearing and are without merit.
27 I will hear the parties on costs.
Associate:
Dated: 17
April 2008
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Solicitor for the Plaintiff:
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Brett Davies Lawyers
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Counsel for the First Defendant:
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Mr MJ Bateman
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Solicitor for the First Defendant:
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Batemans Barristers & Solicitors
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The Second Defendant did not appear.
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