Why strata title is superior
to company title
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.”
The Court said that it was “soon apparent” that a winding up
order was “the only feasible solution … unless contrary to
lengthy history, the parties came to their senses and
reached some accommodation which would enable the conversion
to strata to occur and the building to be repaired.”
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)
Part II – The Application to stay the winding up order
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)
Part III – The appointment of administrators
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
- Two comments to be made:Company title works very
well when the shareholders / owners are harmonious.
Decisions are easier to make and implement than in a
Strata Scheme, and ‘undesirables’ can be excluded from
purchasing or renting.
But when the owners are in a “state of warfare”, it is
the Supreme Court that is the forum for disputes not
NCAT, and the remedies are under the Corporations Act
2001 (Cth), not the Strata Schemes Management Act
2015 (NSW), which means that disputes are often
resolved judicially by the appointment of a liquidator
and an administrator.
- The conversion of company title to strata title
requires Council Consent by way of a Development
Application. The Council will impose conditions for
consent such as fire safety compliance, which can be
expensive, especially for upgrading an older building
for fire compliance. Company title property owners need
to be prepared to pay the special levies for the fire
upgrades and building upgrades when committing to a
strata conversion.
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