Arnold v Australian Securities and Investments Commission

1. The application be dismissed.
2. No order as to costs. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

PERRAM J: 1 This is an application pursuant to s 601AH(2)(a)(i) of the Corporations Act 2001 (Cth) ('the Act') to reinstate the registration of a former corporation, MedAid Pty Ltd ('MedAid'). MedAid became deregistered on 2 August 2015. Section 601AH(2) of the Act provides: '601AH Reinstatement Reinstatement by ASIC … Reinstatement by Court (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. …' 2 The Plaintiff is Mr Stephen Arnold who is a former director of MedAid. Mr Arnold is resident in Canada. ASIC would appear to have been content to have MedAid reinstated provided a resident director was appointed. Subsection 201A(1) of the Act requires that a proprietary company must have at least one director who resides in Australia. 3 Mr Arnold says that MedAid does not need a resident director because it is not conducting any business in Australia and only wishes to pursue certain tax proceedings before the Administrative Appeals Tribunal ('the Tribunal'). 4 Assuming in Mr Arnold's favour that this Court could reinstate MedAid without a resident director, I do not think that it should do so. Mr Arnold's contention is that MedAid is entitled to around $50,000 in the form of a GST credit. 5 The Commissioner has taken the view that MedAid owes a substantial amount of both unpaid income tax and GST. This has resulted in the issue of notices of assessment to MedAid. MedAid will be entitled to the $50,000 only if it persuades the Tribunal on review that it does not owe these sums (which are both very significantly in excess of $50,000). Proceedings were in fact commenced in the Tribunal in the name of MedAid to review the underlying objection decision. Those proceedings are in abeyance pending the outcome of this application. 6 Having some familiarity with Mr Arnold's proceedings, I have my doubts that he will succeed in the review proceedings, especially in relation to the question of whether the sales of the medicines in the United Kingdom were not a supply subject to Australian GST given the nature of the scheme which this Court has previously found Mr Arnold to have been operating: Commissioner of Taxation (Cth) v Arnold (No.2) [2015] FCA 34; (2015) 324 ALR 59. However, I am prepared to assume that they have some, perhaps not very compelling, prospects. 7 The difficulty I see is solvency. At the moment, MedAid is hopelessly insolvent. The notices of assessment issued to it for income tax and GST are due and payable and remain so notwithstanding the existence of the review proceeding. The only responsible step any director could take if I permitted MedAid to be reinstated would be immediately to petition the Court to wind it up or perhaps place it in administration. It might be possible thereafter for Mr Arnold to seek leave from the Court to continue the AAT review proceeding in MedAid's name: cf the Act sch 2, Insolvency Practice Schedule, Division 90, s 90-20(1)(d); HFGC Nominees (No 2) Pty Ltd v Hancock as Liquidator of 246 Arabella Investments Pty Ltd (in liq) [2010] FCA 1005; (2010) 80 ATR 442 at 445 [7]-[8]. 8 Mr Arnold has made it clear that he does not wish to see the company wound up and I am not confident, therefore, that he would seek to put the company into some form of external administration following its reinstatement. 9 The result of what he seeks is, therefore, that I should call back into existence an insolvent company, with no form of external administrator and without even a resident director. This is precisely what the Act does not contemplate. I do not think this would be a proper exercise of the power in s 601AH(2). The application will be dismissed. ASIC took no part in the hearing and there will be no order as to costs. I certify that the preceding nine (9) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Perram.