- Australian Competition and Consumer Commission v Australian Securities and Investments Commission

Applicable legal principles

I should now turn to the matters which are relevant to an application for reinstatement. Section 601AH(2) of the Corporations Act provides that the Court may make an order that ASIC reinstate the registration of a company if an application for reinstatement is made to the Court by a person aggrieved by the deregistration and the Court is satisfied that it is just that the company's registration be reinstated.
Mr Allan points out, and I accept, that the fact that Mr Galic was a shareholder of the Company, prior to its reinstatement, is not sufficient in itself to establish that he is a person aggrieved by its deregistration: Casali v Crisp [2001] NSWSC 860; (2001) 165 FLR 79. However, the concept of "person aggrieved" extends to a person who has a genuine grievance because the Company's dissolution has extinguished a right of some value or potential value, including a right to bring proceedings against the Company or, potentially, to bring a claim by the Company against a third party.
In the present case, it is not suggested that Mr Galic seeks to bring proceedings against the Company in respect of his dealings with it, at the time he subscribed for shares or made a loan to Mr Samia. Any such claim might face substantial difficulties, including limitation issues because of the time that has elapsed since the relevant transactions. It is suggested that Mr Samia and Mr Galic (presumably, on the Company's behalf) would bring proceedings against Mr Napier, which, as I have noted above, appear to be within time, and proceedings 206085 of 2016 are of that character, although not expressly brought on the Company's behalf. It seems to me that, if those proceedings were properly pleaded, and if there were any reasonable prospect that the Court would grant leave to bring them as derivative proceedings, whether in its statutory jurisdiction or in its inherent jurisdiction, then Mr Galic might well be a person aggrieved for the purposes of s 601AH(2) of the Act.
It does not seem to me that he constitutes such a person at this stage, because the proceedings that are brought, in their present form, are formulated in such a manner that there is little prospect that the Court would grant leave to pursue them as a derivative claim in their present form, and the claim cannot be said to be of some value or potential value, if Mr Galic cannot pursue it in his own capacity, because the alleged statutory duties are not owed to him, and cannot pursue it in the name of the Company, because it is not formulated in a manner that would allow the Court to grant leave to pursue it.
The observations I have made above overlap with the question whether the Court can be satisfied that it is just that the Company's registration be reinstated. The case law indicates that that criterion involves a judicial discretion to be exercised by the Court and relevant matters include the circumstances in which the Company was deregistered, the purpose of the reinstatement, the Company's solvency, whether any person is likely to be prejudiced by the reinstatement, and the public interest generally: Australian Competition and Consumer Commission v Australian Securities and Investments Commission [2000] NSWSC 316; (2000) 174 ALR 688; WorkCover Authority (NSW) v Picton Truck and Trailer Repairs Pty Ltd [2004] NSWCA 371; (2004) 51 ACSR 102.
It seems to me that a number of those factors do not support an order for reinstatement, and the Court could not presently be satisfied that it is just that the Company's registration be reinstated. I recognise that the purpose of the reinstatement is to pursue proceedings, which could only be brought by the Plaintiffs in the name of the Company against Mr Napier, but I have referred above to the difficulties as to the manner in which those proceedings are formulated, and, more fundamentally, the effect of those difficulties upon the likelihood that any leave to bring a derivative action would be granted.
The position as to the solvency of the Company also seems to me to cause considerable difficulty. There is no information before the Court that indicates that the Company is, or that there is any prospect that it would be, presently solvent. Its last financial accounts in evidence, for the year ended 30 June 2008, show substantial accumulated losses, in excess of $919,000, and a significant operating loss and accumulated losses in that year. Its balance sheet as at 30 June 2008 shows negative shareholders' equity of nearly a million dollars. At that point, the Company was recorded as owing substantial shareholder loans to a number of shareholders, and was owed an amount by Mr Samia, one of the Plaintiffs, of in excess of $1,111,428, and there is no evidence that loan has either been repaid or is recoverable. The inquiries made by the police suggest there were significant cash payments to Mr Samia, during the relevant period, from the Company's accounts, and a letter from the Company's then solicitor, John Orford & Associates, to Mr Samia, dated 16 April 2008 also raised issues in respect of the Company's management, and emphasised that the matter was then developing into a "very serious matter."
The premise of the Plaintiffs' case is that, to the extent the Company had any funds prior to its deregistration, they were diverted to Mr Napier. I express no view as to whether that allegation is correct or incorrect, because the evidence does not seem to me to allow a conclusion as to that matter, which in any event would not properly be decided in an application of this kind. However, if that allegation were correct, it would emphasise that the Company is presently without funds to meet its debts as and when they fall due.
In those circumstances, it seems to me clear that the Court would not reinstate the Company other than on the basis that a liquidator was appointed. I raised that matter with Mr Barber, at the commencement of the hearing, but no consent of a liquidator to appointment has been obtained, and no arrangements have been made to put a liquidator in funds to conduct a liquidation in which the claims of creditors may be investigated, to the extent appropriate. As I noted above, Mr Samia seeks to address this issue by an offer of contributing an amount of $10,000 to the Company, if it is reinstated. The inadequacy of that proposition is self-evident. If the Company's position is now as it was in 2008 as recorded in the last financial statements in evidence before me, then the Company owes loans to shareholders of nearly $2 million, and is owed an amount in excess of $1 million by Mr Samia. There is no suggestion that the Company could presently discharge those loans and there is no reason to think that they are not presently due to shareholders. In those circumstances, it is self-evident that a contribution of $10,000 to the Company would not restore its solvency.
To the extent it is suggested that Mr Galic would be appointed as the Company's director, at Mr Samia's suggestion, I could also not be satisfied that the public interest is likely to be served by the Company's reinstatement. It seems to me that, given the Company's history, and the issues that surround it, any reinstatement could only properly take place on the basis that an independent insolvency practitioner, who could adjudicate the Company's and its creditors' claims, was appointed. It would be inappropriate that the Company were reinstated in a manner that would potentially leave Mr Samia controlling it or in a position of influence over it, where one of the Company's claims appears to be a substantial claim against Mr Samia for amounts that were, at best, lent by it to him.
Relevant factors in respect of reinstatement also include whether any person is likely to be prejudiced by the reinstatement and the public interest generally. It seems to me that, so far as reinstatement is sought to pursue a claim against Mr Napier in the form presently pleaded, then he would potentially be prejudiced by the reinstatement. That prejudice could be reduced, and possibly eliminated, if the claim were properly formulated, so that he would have a fair opportunity to know the allegations that are put against him and to respond to them. So far as the public interest is concerned, the matters to which I have referred above suggest that the Company should not be reinstated other than in circumstances that a liquidator is appointed to it.
I should note that Mr Allan also draws attention to other matters, to some of which I have referred above, which may tend against the Company's reinstatement, including the delay in bringing of claims by the Company and a suggested lack of utility in reinstating it. I recognise that both of those matters are relevant to the exercise of the Court's discretion whether to reinstate a company, as was noted by Tamberlin AJ in Blazai Pty Ltd v Gateway Development (St Marys) Pty Ltd [2009] NSWSC 800. In the present case, there has plainly been a significant delay in respect of the application for reinstatement, since the Company was deregistered and since deregistration came to Mr Galic's knowledge. The question whether there is utility in reinstating the Company would depend, in substantial part, upon whether the Plaintiffs are able to formulate a case against Mr Napier in a way that identifies its factual components with greater clarity than the case presently formulated. As matters stand, it seems to me there would be no utility in reinstatement, given the difficulties with the claim as it stands, but it is preferable that I express no view as to the position that would exist if such a claim were properly and clearly formulated.
In these circumstances, I am satisfied that an order should not be made under s 601AH(2) of the Corporations Act to reinstate the Company as matters stand. Mr Barber approached the matter, in submissions, on the basis that a refusal to reinstate the Company would, in effect, leave Mr Galic unable to vindicate any rights he (or, correctly, the Company) may have against Mr Napier. That does not seem to me to be the position, where the difficulties that presently exist are within Mr Galic's control. It is within Mr Galic's control, with the assistance of his legal representatives, to prepare an adequate pleading in proceedings 206085 of 2016, and it is not too much to ask that he should do so, if he seeks to make (on the Company's behalf) serious allegations of breach of directors' duties against Mr Napier.
It is also within Mr Galic's control to obtain the consent of a liquidator to appointment, so that any application for reinstatement can be considered on the basis that the Company will be placed under the control of an independent insolvency practitioner, in circumstances that it appears to be insolvent and has been the subject of questionable transactions in the past. It is therefore within Mr Galic's control whether he has the opportunity to bring, on the Company's behalf, the proceedings that he seeks to bring, but he may only do so if he properly pleads them and if he is content to have a liquidator appointed to the Company, if it is to be reinstated in a condition of insolvency.
Consistent with those views, it seems to me that the preferable course is to make orders, today, that are consistent with my judgment, but to stay their operation for a period, against the contingency that Mr Galic may prepare a proper pleading and may obtain the consent of a liquidator who is prepared to be appointed to the Company, such that a reinstatement order could then be made on that basis.
Accordingly I make the following orders:
The Originating Process in proceedings 2016/243306 seeking reinstatement of the Second Defendant under s 601AH of the Corporations Act be dismissed with costs.
Stay Order 1 until 4pm, 4 July 2017.
Any application by the Plaintiffs to reopen the question of reinstatement to be filed and served by 4pm 26 June 2017, returnable before Black J at 2pm on 3 July 2017.

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