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A recent saga played out in the Supreme Court of NSW illustrates why the dispute resolution procedures available to strata owners under the Strata Schemes Management Act 2015 (NSW) make strata title superior to company title. This is because company title property owners have only the blunt instruments of liquidation and administration available under the Corporations Act 2001 (Cth). This article analyses how poorly the Corporations Act 2001 (Cth) is equipped to handle disputes between owners of company title properties. The company title property The company, Wentworth Place Pty Ltd, is the owner of an old Georgian sandstone mansion in Wentworth Place, Point Piper, Sydney. It has two storeys which are converted into four apartments, two on the upper floor and two on the lower floor. Particular classes of shares in the company give the right to exclusive occupation of particular apartments, hence the use of the terms ‘company title’ or ‘shared block company’. In all properties with shared ownership, a major source of disputes is repairs and maintenance to the building – the necessity, the nature and extent and the cost. So it was that at Wentworth Place: roof repairs were required to stop leaks, garage driveway gates needed to be replaced, vines needed to be removed from the sandstone walls and a Fire Order from Woollahra Council needed to be complied with. In 2015, the owners agreed to convert the company title to strata title and to carry out repairs to the building. They signed a Deed, but many of the details were left to be agreed later. Discussions ensued between the Goldings, who owned 2 apartments and 54.37% (in number) of the shares, and the O’Ryans who owned of 1 apartment and 28.07% of the shares. The owner of the other apartment, with 17.54% of the shares, did not participate. There were dealings with the local council and attempts to agree on the terms of a building contract. But no agreement could be reached between the Goldings and the O’Ryans as to the scope and cost of the repairs, and the discussions broke down in December 2018. The Supreme Court Proceedings The proceedings were a six part saga. Part I – The Application for winding up In July 2019, the O’Ryans brought proceedings in the
Supreme Court to specifically enforce the agreement, and
alternatively for the appointment of a receiver of the
property. The Court observed that “The deadlock between [the
parties] is manifest and appears irresolvable to the naked
eye.” Accordingly, the Court concluded that: “Winding up on the just and equitable basis under section 461(1)(k) of the Corporations Act 2001 (Cth) is appropriate, indeed necessary” and ordered the appointment of a liquidator. Stephen Richard O’Ryan v Greg Ray Golding [2019]
NSWSC 1229 (Hammerschlag J) (12 September 2019) The Goldings sought a stay of the winding up order. The Court noted that the Goldings were majority shareholders, and therefore had a veto over repairs, and the public interest in compliance with the Fire Order. The Court refused to grant a stay, relying on the liquidator’s evidence that the company was insolvent and that: “the relationship between O’Ryan and Golding has reached such a level of dysfunctionality to the point where the ability of the company to make decisions is effectively paralysed and the appointment of an independent third party such as a liquidator was necessary to implement the proposed Strata scheme.” Stephen Richard O’Ryan v Greg Ray Golding No.2
[2019] NSWSC 1349 (Hammerschlag J) (3 October 2019) The liquidators had a problem. They needed to raise levies to complete the building work and strata conversion. To do so, they needed to be appointed as a voluntary administrator under section 437A(d) of the Corporations Act 2001 (Cth) to exercise the powers of the company officers to raise those levies (under the company’s constitution the directors have exclusive power to raise levies). In the circumstances that the liquidators proposed to keep the shareholders informed and seek their views on building and design matters, and undertook to not embark on a process of sale of the property without giving 14 days notice, the Court gave leave for the liquidators to appoint themselves as voluntary administrators of the company. The Court also approved a funding agreement. Stephen Richard O’Ryan v Greg Ray Golding No. 3 [2019] NSWSC 1372 (Hammerschlag J) (10 October 2019) Part IV – The Appeal Golding appealed to the Court of Appeal, Supreme Court of New South Wales, against the winding up order on the grounds of denial of procedural fairness. The Court dismissed the application for leave to appeal with costs, finding there was no error of law. Golding v O’Ryan [2019] NSWCA 259 (Macfarlan JA, Bell P and Gleeson JA agreeing) (25 October 2019) Part V – The liquidators / administrators remuneration In March 2020, the liquidators and administrators applied to the Court for a determination pursuant to s 60-10(1)(c) of Schedule 2 of the Corporations Act 2001 (Cth) that the liquidators be entitled to receive remuneration for work done in the amount of $36,933, and the administrators be entitled to receive remuneration for work done in the amount of $72,302. The O’Ryans supported the application, the Goldings opposed it. The Court stated: “A factor which I consider to be material in this case ... is the [Goldings] lack of co-operation. The administrators have been distracted by litigation, including that which they have commenced to recover the special levy which the Goldings have not paid. Without the necessary funding, the conversion works [which include the repairs] cannot happen.” The Court determined that: “the work was necessary, and that the remuneration claimed by the administrators is not excessive and is reasonable.” Stephen Richard O’Ryan v Greg Ray Golding No. 4 [2020] NSWSC 424 (Hammerschlag J) (21 April 2020) Part VI - The legal fees The administrators raised a special levy in November 2019 for building works, remuneration and other expenses. The O’Ryans paid their share of $77,221.27 and Ms Freyberg paid her share of $48,252 in early December 2019. But the Goldings made no payment until 27 April 2020, when they paid $51,412.91, and the balance of $90,215.33 on 12 May 2020. The administrators applied to the Court that the Goldings pay their legal costs in the proceedings on the indemnity basis. The Court, took into account the fact that the Goldings had “no reasonable defence” in the proceedings and taking into account their reluctance to pay the special levy necessitated the current motion. The Court specified and fixed the costs at $73,044.73, payable by the Goldings. The order was made under the Civil Procedure Act 2005 (NSW) ss 98(1)(c) and 98(4)(c). Wentworth Place Pty Ltd (in liquidation) (administrators appointed) v Gregory Ray Golding (Costs) [2020] NSWSC 928 (Hammershclag J) (21 July 2020) Concluding comments
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