AMP General Insurance Ltd v Victorian WorkCover Authority

Judgment

1. GLEESON JA: Application is made by the plaintiff, Mr Sam Changizi, for orders that the first defendant, the Australian Securities and Investments Commission (ASIC), reinstate the registration of European Metal Recyclers Pty Ltd (in liquidation) (deregistered) ACN 114 263 026 (EMR) and that Mr Peter Krejci be appointed liquidator of EMR.
2. ASIC took no active involvement in the proceeding other than to indicate its consent to the orders sought by Mr Changizi.
3. A former director and shareholder of EMR, Mr Hussain Rizaie, sought leave to be heard in the proceeding and was joined as the second defendant pursuant to Supreme Court (Corporations) Rules 1999 (NSW), r 2.13(3): Dahozo Pty Ltd v Oz-Us Film Productions Pty Ltd (1997) 24 ACSR 739 at 741. Mr Rizaie opposed the relief sought by Mr Changizi.

Legislative provisions

1. Mr Changizi relies on the statutory power in s 601AH(2) of the Corporations Act 2001 (Cth). Section 601AH relevantly provides: (2) The Court may make an order that ASIC reinstate the registration of a company if: (a) an application for reinstatement is made to the Court by: (i) a person aggrieved by the deregistration; or (ii) a former liquidator of the company; and (b) the Court is satisfied that it is just that the company's registration be reinstated. (3) If: (a) ASIC reinstates the registration of a company under subsection (1) or (1A); or (b) the Court makes an order under subsection (2); the Court may: (c) validate anything done during the period: (i) beginning when the company was deregistered; and (ii) ending when the company's registration was reinstated; and (d) make any other order it considers appropriate. Note: For example, the Court may direct ASIC to transfer to another person property vested in ASIC under subsection 601AD(2). ASIC to give notice of reinstatement … Effect of reinstatement (5) If a company is reinstated, the company is taken to have continued in existence as if it had not been deregistered. A person who was a director of the company immediately before deregistration becomes a director again as from the time when ASIC or the Court reinstates the company. Any property of the company that is still vested in the Commonwealth or ASIC revests in the company. If the company held particular property subject to a security or other interest or claim, the company takes the property subject to that interest or claim.

Background

1. EMR was established in about May 2005 to conduct a scrap metal recycling business from leased premises at Smithfield. Mr Changizi is a former director and shareholder of EMR. He gave unchallenged evidence that the company carried on a profitable business up until May 2007 generating profits of about $200,000 per annum.
2. It seems that in April 2006, Mr Rizaie, who was also a shareholder and director of EMR, had taken steps to cancel the insurance policy which provided, among others, insurance against the risk of fire.
3. In early 2007, two other persons, Mr Ali Abbs and Mr Arif Muradi, became or agreed to become shareholders in EMR.
4. On 2 May 2007, the factory from which EMR conducted its scrap metal business was burnt down. All records of the business were destroyed. The fire was a substantial one; 65 fire personnel attended and several other properties were also destroyed. A police and fire investigation concluded that multiple seeds for the fire including accelerant was located at the premises.
5. After the fire, Mr Rizaie, Mr Abbs and Mr Muradi established a new business known as Metal Top Recycling Pty Ltd (MTR). Mr Changizi gave evidence that later in 2007 he observed several items of EMR's property, including approximately 50 bins, weighing scales and EMR's truck being used by MTR and that many of EMRs customers became customers of MTR.
6. On 27 May 2008, EMR was placed into liquidation and Mr Martin Green appointed liquidator. The Form 524 (presentation of accounts and statement) signed by the liquidator, Mr Green, on 3 April 2009 recorded that the liquidator had not collected any receipts or made any payments, that he was not holding any money, and that the estimated value of unsecured creditors (being three in number) was $14,039.39.
7. On 14 June 2009, EMR was deregistered following completion of the liquidation.
8. Mr Changizi deposed that in 2015, in the course of discussions with Mr Rizaie in relation to another matter, Mr Rizaie made admissions to him concerning his involvement in the destruction of the EMR business and the fire at the factory premises. The admissions by Mr Rizaie are alleged to have been made in the presence of Mr Muhammad Chaudhry, solicitor, and Mr Hasan Aziz, an employed solicitor of Mr Chaudhry in about December 2015. Mr Chaudhry and Mr Aziz both deposed to the conversation in which the alleged admissions by Mr Rizaie were made.
9. Mr Changizi also deposed that Mr Rizaie made similar admissions at about the same time in the presence of Ms Lata, a manager with ANZ Bank at Merrylands Mall. There is also evidence from Mr Ahmad Mousawel, a bank manager employed by Westpac Banking Corporation, that at a meeting with Mr Changizi and Mr Rizaie in 2015, Mr Rizaie made admissions that he was instrumental in and conspired with others, including Mr Abbs, in destroying the factory business and then taking over the business of EMR.
10. The stated purpose of the reinstatement of EMR is to enable the company to pursue a claim for equitable compensation or damages against Mr Rizaie. The draft pleading in respect of the foreshadowed claim by EMR against Mr Rizaie relies upon three essential allegations: first, that the fire on 2 May 2007 was started or caused by Mr Rizaie, either alone or in concert with Mr Muradi and Mr Abbs; second, that on or about 4 April 2006, Mr Rizaie cancelled the insurance EMR maintained in respect of its business and the premises; and third, that prior to the fire, Mr Rizaie conspired with Mr Muradi and Mr Abbs to destroy EMR's scrap metal business and to take its business away for the benefit of themselves.

The approach to the application for reinstatement

1. There is no dispute as to the applicable principles. Three matters need to be considered. First, whether the application is made by "a person aggrieved by the deregistration". Second, that the Court be "satisfied that it is just that the company's registration be reinstated". Third, the Court has a residual discretion whether to make an order: Deputy Commissioner of Taxation; Re James Hardie Australia Finance Pty Ltd (Deregistered) (2008) 170 FCR 545; [2008] FCA 1181 at [13] (Lindgren J).
2. Relevant considerations include the circumstances in which the company was deregistered, the purpose in seeking reinstatement, whether any person is likely to be prejudiced by reinstatement, and the public interest generally: Re ERB International Pty Ltd (deregistered) (2014) 283 FLR 223; [2014] NSWSC 200 (ERB International) at [5] (Brereton J).

Is Mr Changizi a person aggrieved?

1. The expression "aggrieved person" is of wide impart and should be construed liberally and includes a person who has been damaged in a legal sense: Blazai Pty Ltd v Gateway Development (St Marys) Pty Ltd [2009] NSWSC 800 at [22] (Tamberlin AJ), citing Callagher v Australian Securities and Investments Commission (2007) 239 FLR 749.
2. However, that Mr Changizi is a former director and shareholder of EMR is not of itself sufficient to establish that he is a person aggrieved by the deregistration. As Barrett J explained in Melluish v Underwood Development Pty Ltd [2004] NSWSC 429 at [6]: A shareholder does not, by that status alone, have the character of a "person aggrieved" for this purpose. In those cases where the company is insolvent, neither a shareholder nor director is aggrieved by the deregistration because, as a consequence of the insolvency, the shareholder has no asset of any value and the director's office was displaced by the liquidator. This was recognised in Re Peter Conyers Holdings Pty Ltd (1996) 14 ACLC 1835. As Young J observed in Casali v Crisp (2001) 165 FLR 79, a shareholder needs to show some particular prejudice, such as also possessing the status of creditor or, in his Honour's words, "that there might well be a surplus of assets if the company was reinstated and certain events occurred".
3. Mr Changizi did not give evidence that he was a creditor of EMR. He relied upon his status as a shareholder and that there may be a surplus of assets of the company if it was reinstated and successfully pursued a claim against Mr Rizaie for breach of his fiduciary and statutory duties as a director of EMR.
4. It has been said that it is often not appropriate in an application for reinstatement to go into factual matters which may be the subject of dispute: Pilarinos v Australian Securities and Investments Commission [2006] VSC 301; (2006) 24 ACLR 775 at [22] (Gillard J); Deputy Commissioner of Taxation v Australian Securities and Investments Commission; Re Civic Finance Pty Ltd (deregistered) [2010] FCA 1411 at [14]; (2010) 81 ATR 456 (Jagot J). That observation applies to the present case when considering whether Mr Changizi has demonstrated that he is a person aggrieved. Given Mr Changizi's interest as a former shareholder in any surplus of assets of EMR, I am satisfied that Mr Changizi is a "person aggrieved" for the purposes of the reinstatement application.

Whether reinstatement is just?

1. Mr Changizi bears the burden of adducing evidence that persuades the Court that reinstatement is "just". Mr Carney who appeared for Mr Rizaie pointed to three matters against reinstatement. First, that while the evidence of the alleged admissions by Mr Rizaie was prima facie evidence "at best", the alleged admissions were not in clear and unequivocal terms. Second, that Mr Changizi was aware of the cancellation of the insurance shortly after the fire in May 2007. Third, reinstatement of registration should be refused because of delay in circumstances where a limitation defence would otherwise apply to the prospective claim by EMR against Mr Rizaie (such as in Blazai Pty Ltd v Gateway Development (St Marys) Pty Ltd and Graham Lewis Herbert v Nozala Pty Ltd [2006] NSWSC 1437).
2. Counsel for Mr Changizi responded that the present application was not the occasion on which to determine the weight to be given to the alleged admissions by Mr Rizaie.
3. As to the cancellation of the insurance, while accepting that Mr Changizi was aware of that matter shortly after the fire in May 2007, counsel for Mr Changizi submitted that Mr Changizi was unaware of the alleged conspiracy between Mr Rizaie and Mr Muradi and Mr Abbs to destroy the business of EMR, which included ensuring that the company was without insurance against the risk of fire when the factory premises were burnt down.
4. As to a limitation defence that would otherwise apply, counsel for Mr Changizi accepted that if EMR was reinstated, any claim for statutory compensation under s 1317H(1) of the Corporations Act would be barred by the six-year limitation period in s 1317K.
5. Counsel for Mr Changizi also accepted, referring to the decision of the Court of Appeal in Gerace v Auzhair Supplies Pty Ltd (in liq) (2014) 87 NSWLR 435; [2014] NSWCA 181 (Gerace) at [70], that in purely equitable proceedings where there is a corresponding remedy at law in respect of the same matter and that remedy is subject to a statutory bar, equity will apply the bar by analogy unless there exists a ground which justifies its not doing so because reliance by the defendant on the statute would, in the circumstances, be unconscionable. The equitable doctrine of fraudulent concealment is not confined to common law fraud or deceit and requires a consciousness on the part of the defendant that what is being done is wrong or that to take advantage of a particular situation involves wrongdoing: Gerace at [75].
6. Here, Mr Changizi contends that there are grounds on which equity would decline to permit Mr Rizaie to rely upon a statutory bar by analogy in answer to a claim for compensation for breach of fiduciary duty because, it is submitted, there has been fraudulent concealment consisting of active concealment by Mr Rizaie of a right of action by EMR against him: Gerace at [75]. Mr Changizi pointed to the conduct of Mr Rizaie in actively concealing until late 2015 his involvement in the alleged conspiracy with Mr Muradi and Mr Abbs to destroy the business of EMR by causing the fire at the factory premises in May 2007 and Mr Rizaie's earlier conduct in cancelling EMR's policy of insurance which would otherwise have protected against the peril of fire.
7. It has been said that on an application for reinstatement, the Court is concerned with the justice of reinstating the company, not the justice of any proceedings which is proposed that the reinstated company might institute or resume: ERB International at [10], citing the Victorian Court of Appeal in AMP General Insurance Ltd v Victorian WorkCover Authority [2006] VSCA 236 at [35].
8. As explained in AMP General Insurance Ltd v Victorian WorkCover Authority, ordinarily, the court dealing with the reinstatement application should not address and weigh the various considerations bearing upon whether the proposed proceedings by the company if reinstated would involve an abuse of process or that a fair trial was impossible: at [46]. In ERB International, Brereton J expressed a similar view at [13]: In my view, a court should not, on a reinstatement application, conclude that reinstatement would be unjust on account of considerations analogous to abuse of process or want of prosecution unless affirmatively satisfied that a fair trial could not be had, or that the proposed proceedings were doomed to fail.
9. Given the serious nature of the allegations which Mr Changizi seeks to make through EMR against Mr Rizaie, it is not appropriate to go into these factual matters which are in dispute, nor attempt to second-guess the outcome of prospective litigation against Mr Rizaie, should EMR be reinstated.
10. Accepting that a statutory bar could not be invoked by analogy in the case of fraudulent concealment, there is a contestable issue as to whether a limitation defence would otherwise apply to a claim by EMR against Mr Rizaie for equitable consideration, assuming reinstatement of registration.
11. Although Mr Rizaie complained that there has been delay in making the application given the alleged admissions were made in late 2015, it was not suggested that any delay in commencement of the proposed proceedings has caused any prejudice to Mr Rizaie as a potential defendant. On the evidence, as it appears, this is not a case where merely reinstating a company would be prejudicial to a potential defendant: ERB International at [13].
12. As indicated, ASIC has indicated that it consents to the application for reinstatement on the basis that Mr Krejci is appointed liquidator.
13. As to the position of other creditors, the three creditors referred to in the liquidator's statement of accounts, although not identified in the evidence, have received no dividend to date. Given that the only identified asset of EMR is the potential cause of action against Mr Rizaie (and perhaps others alleged to be a party to the conspiracy), I do not consider that the creditors are likely to be prejudiced by litigation that might cause EMR to incur new liabilities. Mr Changizi has deposed that he is prepared to give an undertaking to fund the proposed litigation by either directly funding the liquidator or possibly acquiring the chose in action. In either event, if the foreshadowed litigation is successful or if the liquidator disposes of the cause of action, it can be expected that the position of the creditors will be improved.
14. There is no public interest factor against reinstatement. On the other hand, there would seem to be a public interest in favour of reinstatement to enable the pursuit of potential causes of action to recover funds for the benefit of the creditors and shareholders.
15. I am satisfied that it is just to reinstate EMR.

Who should be liquidator?

1. The better view is that reinstatement does not result in the automatic resumption of office by a liquidator who was in office at the time of deregistration: ERB International at [40]. (The conflicting views in the authorities are analysed by Brereton J in ERB International at [22]-[39].) The effect of reinstatement is that the company is taken to have continued in existence as if it had not been deregistered, not that it comes back into existence in the same form: ERB International at [40].
2. Upon the reinstatement of a company that was at the time of deregistration in liquidation, it remains in liquidation unless the Court orders otherwise. The Court has power when ordering reinstatement to reappoint the former liquidator or appoint a new liquidator: s 601AH(3)(b) and (d). In the present case, the appropriate course is to appoint a new liquidator given that the former liquidator, Mr Green, has since retired from practice.
3. There is evidence of a consent to act signed by Mr Krejci. No submission was advanced by Mr Rizaie that Mr Krejci was not an appropriate appointee. There is also evidence that Mr Changizi has already paid to Mr Krejci $20,000 on account of his costs. Mr Changizi did not seek any costs order against Mr Rizaie.

Conclusion and Orders

1. I am satisfied that EMR should be reinstated, on the basis that a new liquidator is appointed. Since the former liquidator does not automatically resume office, it is necessary for the Court to appoint a new liquidator under s 601AH(3). I am satisfied that it is appropriate to appoint Mr Krejci as liquidator.
2. The Court orders that: 1. Pursuant to Corporations Act 2001 (Cth), s 601AH(2), ASIC reinstate the registration of the company, European Metal Recyclers Pty Ltd (in liq) (deregistered) (ACN 114 263 026). 2. Pursuant to Corporations Act 2001 (Cth), s 601AH(3)(b) and (d), Peter Krejci of BRI Ferrier (NSW) Pty Ltd be appointed liquidator of the company. 3. The plaintiff notify ASIC within 7 days of these orders. 4. The proceedings be listed for directions before the Corporations Registrar on 9 July 2018 at 9am.

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