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- Australian Competition and Consumer Commission v Australian Securities and Investments Commission - [2017] NSWSC 1381 - NSWSC 2017 case summary — Zoe
By Originating Process filed on 24 October 2016, the Plaintiff, Mr Vlasios Sotiropoulos sought a range of relief, including an order under s 601AH(2) of the Corporations Act 2001 that VG Sotir Investments Pty Ltd ("Company") be reinstated. At that time, the Plaintiff also sought orders under ss 198F and 290 of the Corporations Act that he, along with his nominated accountant and legal representatives, be entitled to inspect and make photocopies of listed documents. As the proceeding developed, by the time the matter first reached hearing before me on 27 July 2017, the issues as to production of documents had substantially disappeared, since the documents sought by the Plaintiff had been produced, to the extent that they were in the Defendants' possession, in earlier interlocutory stages in the proceedings.
The proceedings were adjourned, when the matter was heard before me on that date, after it became apparent that the real issue that remained in dispute in the proceedings was ultimately whether the Company should be reinstated, so that the Plaintiff could cause proceedings to be brought against it, and the form of those proceedings had not been clearly articulated by evidence or preparation of a draft Originating Process or Statement of Claim or otherwise.
A range of matters involving conduct of the Company in its capacity as the former trustee of the Sotiropoulos Family Trust were addressed at the hearing on 27 July 2017, but the matters which are ultimately in issue have narrowed today. I do not propose to address those matters that were addressed in submissions, either on the last occasion, or today, which are not relevant to determining this application, not least because they may or may not have been in issue in previous proceedings, and have been dealt with by other judges in those proceedings, or may be in issue in any proceedings which may in future be brought against the Company, in its capacity as former trustee of the Sotiropoulos Family Trust or against the present trustee of that trust. I will only deal with those matters which are necessary in order to determine the application today.
The Plaintiff now relies on a draft Statement of Claim to indicate the proceedings that he seeks to bring against the Company in its capacity as the former trustee of the Sotiropoulos Family Trust. The Plaintiff seeks to bring, first, a claim in respect of an amount of $63,994.35 plus interest which was paid by the estate of the late Mrs Maria Sotiropoulos to an account of the Company in its capacity as former trustee of the Sotiropoulos Family Trust, to reduce the overdraft on that account.
Second, the Plaintiff seeks to bring a claim against the Company in respect of a second amount of $361,695 which was paid by the estate of the late Mrs Sotiropoulos to extinguish the amount of the overdraft on that account. There appears to be no doubt as to the fact of those transactions, which are recorded in bank statements which were tendered by the Second Defendant, Mr Georgios Sotiropoulos. It appears that those transactions occurred in the context of the sale of certain properties of the late Mrs Sotiropoulos, and at a time that Mrs Sotiropoulos, whose assets were then under management by the Public Trustee, was under threat that receivers would be appointed by National Australia Bank Limited ("NAB") and properties would be sold, unless the amount of her borrowings was reduced to a level which the bank regarded as serviceable. The circumstances in which that occurred were reviewed, at some length, in a judgment of Robb J in Georgios Sotiropoulos as Executor of the Estate of the Late Maria Sotiropoulos v Vlasios Sotiropoulos [2015] NSWSC 855, and the parties did not suggest that I could, or should, reach any different findings as to those transactions from those which his Honour had made.
My attention was also drawn to a Forbearance Deed between NAB and Mrs Sotiropoulos dated 20 October 2011 which provided for the consequences of default by Mrs Sotiropoulos or the Company in failing to comply with their "respective obligations" under the document and certain borrowing and certain facility and other agreements. That deed referred to the personal facilities held by Mrs Sotiropoulos, and also to the FlexiPlus Mortgage arrangement held by the Company, but did not have the result, on its terms, that Mrs Sotiropoulos assumed liability for any debts owed by the Company. It did have the consequence that Mrs Sotiropoulos would at least be exposed to steps for sale of a particular property, the Lincoln Avenue property, set out in clause 5.2 of that deed, if Mrs Sotiropoulos did not, or did not choose to, reduce the amount owing by her and the Company, under all or any of the facilities, to $1.5 million by selling that or other properties.
The Plaintiff seeks to bring a claim for unjust enrichment in respect of each transaction. That claim involves the proposition that the Company, as the former trustee for the Sotiropoulos Family Trust, had and received the respective amounts of $63,994.35 and $360,465.95 when those amounts were paid by the estate of the late Mrs Sotiropoulos to reduce the overdraft facility held by the Company with NAB, and credited to the Company's account initially to reduce and subsequently to extinguish the liability of the Company in respect of that facility. Mr Harrowell, who appears for the Second Defendant, did not put any submission that a payment which extinguished a liability of the Company to the bank could not constitute unjust enrichment, as a matter of law, and it is therefore not necessary to address any such submission.
Any such claim, whether by the Second Defendant as executor of the estate, or by a replacement executor upon his removal or replacement as executor if he fails to bring such a claim, or by the Plaintiff, so far as he may or may not be able to bring such a claim as a beneficiary of the estate if the executor fails to do so, would ordinarily be brought against the Company in its capacity as former trustee of the trust. At general law, a retiring trustee remains subject to liabilities properly incurred in execution of the trust although it has an indemnity and lien over trust assets in respect of those liabilities: Collie v Merlaw Nominees Pty Ltd (in liq) [2001] VSC 39; (2001) 37 ACSR 361; Lemery Holdings Pty Ltd v Reliance Financial Services Pty Ltd [2008] NSWSC 1344; (2008) 74 NSWLR 550. A claim against the former trustee would ordinarily be available even if such a claim is also available against the current trustee of the Sotiropoulos Family Trust, if it had assumed liabilities attaching to the trust on its appointment as current trustee of the trust, although the parties did not give any detailed attention to whether it had done so (whether by novation or otherwise) in the course of submissions.
The second aspect of the claim, which I can note and should then put aside, is that there existed a conflict of interest affecting the Second Defendant at the time the relevant payments were made, so far as he owed duties as executor of Mrs Sotiropoulos's estate, and duties as director of the Company, and faced a conflict of interest or conflict of duty at the time the payment was made by the estate to reduce the Company's liability. I can put that proposition aside because, to the extent that such a claim is sought to be brought, it is not formulated as a derivative claim by the Company, which would have involved other significant difficulties, including indemnification of the Company for the costs incurred in respect of such a claim, but is instead formulated as a personal claim by the Plaintiff against the Second Defendant in respect of a breach of duty as executor. To the extent that such a claim is available, it is available whether or not the Company is reinstated, since the Company is neither a necessary nor a proper party to a claim which seeks no relief against it, and where all that is pleaded, as a step in seeking relief against the Second Defendant, is a factual matter relating to its affairs.
A claim is also identified, as against the Second Defendant, in respect of unpaid distributions by the Company to Mrs Sotiropoulos's estate. Again, I note but need not say anything further about that claim where Mr Sneddon, who appears for the Plaintiff, accepts that the Company's reinstatement is not necessary to pursue that claim.
I turn now, having identified the claims that might be brought against the Company, and the basis on which, relevantly, the claim in unjust enrichment might be brought against the Company, to the matters which are relevant in respect of an application for reinstatement under s 601AH(2) of the Corporations Act. That section provides that the Court may make an order that the Australian Securities and Investments Commission reinstate the registration of a company if the application is made, relevantly, by a person aggrieved by the deregistration and the Court is satisfied that it is just that the Company's registration be reinstated. Mr Sneddon drew attention to my decision in Re KGB Export Pty Ltd [2012] NSWSC 1077 at [4], where I referred to the circumstances in which a person may be treated as a person aggrieved with standing to make an application under s 601AH(2) of the Corporations Act. A person who seeks to bring proceedings against a deregistered company is commonly treated as a person aggrieved in such an application: for example, Re Combined Building Consultants Pty Ltd [2011] FCA 439 at [6]-[7]; Donmastry Pty Ltd v Albarran [2004] NSWSC 632; (2004) 49 ACSR 745 at [4]; Re Frozen Puppies Dot Com Pty Ltd [2014] NSWSC 1890 at [10].
Mr Harrowell submitted that a claim could be brought by the Plaintiff against the current trustee of the trust, so far as allegations of this kind are made. Even if that were the case, absent any novation of the relevant liabilities, it would not exclude the possibility that the Plaintiff could bring a claim against the former trustee, leaving it to exercise any right of indemnity that may be available against the assets of the trust when such a claim is brought. I did not understand Mr Harrowell to put any submission that, if the Second Defendant, who had undertaken the relevant transactions, chose not to challenge them, in his capacity as executor of the late Mrs Sotiropoulos's estate, it would not be open to the Plaintiff to take steps which might allow a challenge to be brought in his own right, as a beneficiary of the estate. In those circumstances, it seems to me that the Plaintiff is a person aggrieved by the deregistration of the Company, so far as he has identified a claim of the estate against it, for unjust enrichment, which he may have the capacity to bring, if the Second Defendant is not prepared to do so. It does not, of course, follow only from a finding of standing that it is also just and appropriate to reinstate the Company, a matter to which I now turn.
The second requirement for reinstatement under s601AH(2) of the Corporations Act is that it is just that the company's registration be reinstated. The relevant factors have been identified in many cases, including Australian Competition and Consumer Commission v Australian Securities and Investments Commission [2000] NSWSC 316; (2000) 174 ALR 688; 34 ACSR 232, as including the circumstances of the Company's deregistration, whether it would be put to good use upon reinstatement, any likely prejudice to third parties, and whether there is any public interest reason not to order reinstatement. In Re KGB Export Pty Ltd above, I also noted the relevance of the purpose of the reinstatement and the company's solvency, referring there to Re Tamsin Pty Ltd (1994) 13 ACSR 136 and Australian Competition and Consumer Commission v Australian Securities and Investments Commission above. I recognise that there is, of course, a balancing exercise involved in any application for reinstatement, involving, on the one hand, the question whether a party may be deprived of a cause of action, if the party against which it is sought to be brought is not reinstated, and on the other the consequences of reinstatement, particularly in circumstances that there are issues in respect of the Company's solvency or its management.
In this case, it seems to me plain, from the accounts of the Company in its own right, and the accounts of the trust to which I have been taken, that the Company would have an excess of liabilities over assets if it were reinstated, and that the trust itself now has limited assets, likely limited to the excess of debts owed to it by beneficiaries over their entitlements. There have been no meetings of directors of the Company, or of its shareholders, and no trading or other activity in the Company since mid-2008 and that was the last occasion on which the Company's financial accounts were signed. It is also plain, from the evidence led in this application, that there is no prospect that the Company could be managed appropriately, or it would be in anything other than hopeless deadlock if it were reinstated, where its two directors would be the Plaintiff and the Second Defendant, who are at issue as to the matters to which I have referred in this judgment and, it appears, a range of other matters. If the Company was reinstated in order that the claim for unjust enrichment could be brought against it, and was left in the hands of its former directors, those directors would be deadlocked, it would not have the capacity to give instructions to legal representatives in respect of those proceedings and it would be incapable of defending those proceedings.
It seems to me that, in those circumstances, the Company could only be reinstated if a liquidator were appointed to it. I had raised that matter in the course of submissions on the last occasion, and it appeared that both parties then accepted that proposition. However, the Plaintiff has still not obtained a consent of a liquidator to appointment. It also seems to me that it could only be just to reinstate the Company and appoint a liquidator to it, if that liquidator was funded to deal with proofs of debt lodged against the Company in its capacity as former trustee, or with a claim brought against it, if leave were granted to bring that claim once it was in liquidation, since the Company itself has a deficiency of assets as against liabilities and the trust's assets are not presently available to meet a claim to indemnity.
On balance, where a plausible claim against the Company has been articulated, and the Plaintiff has established standing to bring the reinstatement application, then I am satisfied that the Company should be reinstated, but only on the basis that it is reinstated in a winding up, and that the Plaintiff has first given an undertaking to fund the liquidator, personally enforceable against him, to a level that will be sufficient to permit the liquidator to deal with proofs of debt that may be lodged, and to defend the proceedings that are proposed to be brought against the Company, if the liquidator considers it appropriate to do so. I recognise that has the consequence that the Plaintiff would both be funding the proceedings, and their defence, but that appears to be the necessary consequence of his seeking to proceed by reinstating the Company, and bringing proceedings against it, where it has no other assets available to fund that defence.
I should recognise that, in the course of submissions, a possibility which is ultimately more cost-effective emerged, but did not reach a conclusion, namely that it may be open to the current trustee of the trust to acknowledge that it is liable in respect of any claim for unjust enrichment, so far as it has succeeded to the position of trustee of the trust, as though it were the former trustee of the trust. Mr Harrowell indicated that such an acknowledgment would be given, at least so far as any claim was brought by the executor of the trust. That particular undertaking had the difficulty, to which Mr Sneddon referred, that it may practically be unlikely that the Second Defendant would bring such a claim as executor in respect of conduct undertaken by him as executor. It may be that such an undertaking could be extended to a claim if permitted to be brought by the Plaintiff, as a beneficiary of the trust.
Given the conclusions that I have reached, the proper course will be to stand this matter over for a short time, in order to give the Plaintiff the opportunity to bring in a consent of liquidator, and any undertaking which he is prepared to provide for the funding of the costs of that liquidator, both in respect of the proof of debt process and the defence of any proceedings. I will not seek to define, in advance, the extent of any indemnity which will be necessary in those circumstances. That may be, in the first instance, a matter for negotiation between the Plaintiff and any liquidator who would be prepared to consent to appointment in the relevant circumstances. If, of course, no liquidator is prepared to consent to appointment, then it follows from the judgment that I have given that the Company could not be reinstated.
My preliminary view is that, as matters have developed, the proper order for costs is that the Plaintiff pay the Second Defendant's costs of the previous occasion on which this matter was heard before me, 27 July 2017, because the hearing on that date was ultimately wasted, by reason of the fact that the matter could not then be determined, in the absence of a draft Statement of Claim, and the issues as to production of documents canvassed on that occasion have largely been displaced as events have developed. My preliminary view is that there should be no order as to the costs of today, where the Plaintiff has had some, limited, measure of success, but that limited measure of success represents a subset of the issues which have been canvassed, at some length, throughout this application. I note that the order as to the costs of 27 July 2017 may overlap with, but also potentially extend beyond, the order that I made on that occasion that the Plaintiff pay the costs thrown away by the adjournment. I will, however, hear the parties if they seek to be heard as to costs.
I then heard the parties with respect to the position as to costs and there was a degree of consensus between them. Mr Harrowell seeks, and Mr Sneddon properly does not oppose, an order that the Plaintiff pay the costs of and incidental to the Second Defendant's preparation for and attendance at the hearing on 27 July 2017. For the assistance of a costs assessor, I note that an order of that kind does not interfere with any earlier orders as to costs made, including orders previously made by Brereton J in respect of costs of a directions hearing, but also does not extend to costs of previous directions hearings as to which no order as to costs has been made. I accordingly make that order as to costs.
[3]
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Decision last updated: 17 October 2017