On 1 April 2019, ASIC deregistered the company, apparently because outstanding filing fees had not been paid. This was somewhat unexpected as Firths had been given to understand that the company would not be deregistered until the removal of Ms McDonagh from the company had been rectified. In any event, on 27 June 2019, these proceedings were commenced. Regrettably, Mr Vickers was not made a party to the proceedings and, when the matter was listed before me for hearing on 25 July 2019, I ordered that he be joined as a defendant and served with the Originating Process and any supporting evidence in accordance with rule 10.25 of the Uniform Civil Procedure Rules. This was done on 14 August 2019.
Finally, Ms McDonagh is not in a financial position to pay the outstanding ASIC fees but Firths has agreed to pay the fees. Firths has also written to Mr Trovas asking that he return the corporate key and give an undertaking not to use it, but has had no reply.
[2]
Reinstatement by the Court
Subsections 601AH(2) and (3) concerns reinstatement by the Court and provide:
(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 …
(b) the Court is satisfied that it is just that the company's registration be reinstated.
(3) [Court's powers upon reinstating registration] If: …
(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).
Section 601AD provides that, on deregistration, a company ceases to exist and all property that the company held on trust immediately before deregistration vests in the Commonwealth and other property vests in ASIC. As such, on deregistration, the company's chose in action against the defendants in the Common Law proceedings vested in ASIC.
On an application to reinstate a company, the first matter to consider is whether Ms McDonagh is "a person aggrieved by the deregistration". As Gleeson JA explained in In the matter of European Metal Recyclers Pty Ltd (in liquidation) (deregistered) [2018] NSWSC 946 at [17]-[18], the expression "aggrieved person" is of wide import and should be construed liberally and includes a person who has been damaged in the legal sense. The fact that an applicant is a former director and shareholder of a deregistered company is not of itself sufficient to establish that they are 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 … [A] shareholder needs to show some particular prejudice, such as also possessing the status of creditor or … that there might well be a surplus of assets if the company was reinstated and certain events occurred.
Here, Ms McDonagh is a person aggrieved by deregistration of the company as she is the beneficial owner of the company which has a chose in action against the defendants in the Common Law proceedings which has been pursued for almost five years. The chose in action presently vests in ASIC.
The second matter to consider is whether "it is just that the company's registration be reinstated". His Honour Austin J succinctly explained this requirement in Australian Competition and Consumer Commission v Australian Securities and Investments Commission (2000) 34 ACSR 232; [2000] NSWSC 316 at [27]:
The wording of the section is very broad, and the cases confirm that it gives the court a wide discretion. The court takes into account the circumstances in which the company came to be dissolved, whether, if the order were made, good use could be made of it, and whether any person is likely to be prejudiced by the reinstatement: Re Kilkenny Engineering Pty Ltd (in liq) (1976) 1 ACLR 285; Drysdale v Australian Securities Commission (1992) 10 ACLC 1427; Re Steelmaster Pty Ltd (in liq) (1992) 6 ACSR 494.
I am satisfied that it is "just" that the company's registration be reinstated. Otherwise, Ms McDonagh will not enjoy the benefit of any judgment in the Common Law proceedings in favour of the company, should such a judgment be given after lengthy and, presumably, expensive legal proceedings.
However, section 601AH(5) provides:
Effect of reinstatement
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.
As such, if the company is reinstated, Mr Vickers will be automatically reappointed as the sole director and sole shareholder and thus able to deal with the assets of the company in a manner contrary to the wishes and interests of Ms McDonagh. Mr Vickers should never have become a director or shareholder in the first place. He was made a director, secretary and shareholder, as was Mrs Smith before him, in an attempt to frustrate the processes of the court in the Common Law proceedings.
This brings me to the third matter, being whether ancillary orders should be made under section 601AH(3)(d). I reviewed the authorities which have considered the extent of the Court's power under this sub-section in In the matter of ACN 063 346 708 (formerly known as South Passage Pty Limited) [2018] NSWSC 1709 at [43]-[52] and concluded that section 601AH(3)(d) gives the Court a wide power including to alter the ordinary incidents of reinstatement in appropriate circumstances. In South Passage, the beneficial owner of the shares of a company had obtained final orders against the legal owner of the shares, his sister, that she transfer the shares to him. In an attempt to frustrate the judgment of the Court, the sister, who was the sole director of the company, requested that ASIC deregister the company, which it did. It was appropriate in that case to order that the company be reinstated and, on reinstatement, that effect be given to the judgment of the court by ordering ASIC to record the brother as the sole shareholder, director and secretary of the company; that the registered office of the company be the brother's address and that the constitution of the company, the location and contents of which were unknown, be repealed. The ancillary orders were made to prevent the automatic effect of reinstatement - that the sister would again be the sole director of the company - and thus prevented any further attempts by the sister to frustrate the Court's processes or to cause her brother further cost to undo her mischief.
The case before me is a far more elaborate series of attempts to frustrate the processes of the Court by twice lodging Change of Company Details forms with ASIC without the knowledge or consent of the sole director and shareholder of the company, Ms McDonagh. In this rather extraordinary case, it is appropriate that the Court make ancillary orders so that, on reinstatement, Mr Vickers and whoever stands behind him cannot easily repeat their mischief under the guise of his position on reinstatement as sole director and shareholder of the company.
[3]
ASIC REGISTER
ASIC keeps registers under section 1274 of the Corporations Act and, under section 1274A, may permit people to search the register to obtain information. ASIC maintains records that contain the particulars in regulation 9.1.02 of the Corporations Regulations 2001 (Cth) for each company registered under the Act: see Kay v Playup Australia Pty Limited (2018) 131 ACSR 532; [2018] NSWSC 1579 at [42]-[50] for an explanation of these provisions. Section 1322(4)(b) of the Corporations Act provides:
… the Court may, on application by any interested person, make all or any of the following orders, either unconditionally or subject to such conditions as the Court imposes: …
(b) an order directing the rectification of any register kept by ASIC under this Act
In a proper case, the court may direct ASIC to alter the particulars recorded in its register, including where the details have been found to be incorrectly notified or are inaccurate, for example, where a winding up application is recorded but when no valid winding up application had been made: Kay v Playup Australia at [50], [58]. The power under section 1322(4)(b) has been treated as sufficiently wide to allow rectification of the register where the process by which the event had been included in the register was invalid: In the matter of MIG Property Services Pty Limited (No 2) (2012) 92 ACSR 234; [2012] VSC 606; In the matter of Centura Global Holdings Pty Limited (2016) 111 ACSR 185; [2016] NSWSC 62; In the matter of Botanical Water Holdings Pty Limited [2013] VSC 96; In the matter of DJG Equities Pty Limited [2014] NSWSC 194.
More recently, in In the matter of Seabay Kitchen Pty Limited, Black J noted that the Court has power to rectify the register where, at [13]:
… the process leading to entry of the current information as to the directors, shareholders and registered office … was not properly founded by any corporate process and the register should be rectified on that basis. … [T]here is a public interest in the adoption of a proper process for changes in directors and shareholders and for notifications to ASIC of directors and shareholdings, which warrants rectification of the register …
In Seabay Kitchen, the former husband of the plaintiff had made repeated use of the corporate key issued by ASIC to change the officeholders and shareholders of a company. Accordingly, his Honour made an order under section 1322(4)(b) for ASIC to rectify the register but also ordered an injunction restraining the husband from lodging further documents with ASIC. At [14]:
It is plainly unacceptable that Ms Zhang, or indeed ASIC, and the public who may rely on the registers, be exposed to the risk of repeated notifications of false information by Mr Shu, or that Ms Zhang be placed in the position she must bring repeated Court applications to correct that information.
For the reasons already given, it is appropriate that an order be made under section 1322(4)(b). At the moment, a search of ASIC's register in respect of the company will reveal that it is deregistered, that Mr Vickers was the sole officeholder and shareholder before it was deregistered, that Mrs Smith was the sole officeholder and shareholder before that, and that Ms McDonagh ceased to be a director and shareholder of the company in 2016. Thus, most of the entries in ASIC's register in respect of the company are based on incorrect information.
Mr Trovas has the corporate key but is not a party to the proceedings and thus an injunction against him is not appropriate. I am concerned to ensure that, on reinstatement of the company, Ms McDonagh is not put to further cost in the event that Mr Trovas uses the corporate key when the company is reinstated but before Ms McDonagh has applied for a new corporate key. I have endeavoured to craft orders to deal with this but acknowledge that the orders are, so far as I am aware, novel and in the event that ASIC is unable to comply with the orders, I grant ASIC liberty to apply to make submissions as to what it can and cannot do in cases such as this to prevent further abuse of the corporate key.
[4]
ORDERS
I make the following orders:
1. Pursuant to section 601AH(2) of the Corporations Act 2001 (Cth), order the first defendant (ASIC) to reinstate the registration of the company McDonagh Management Pty Limited ACN 166 719 839.
2. Pursuant to 601AH(3)(c) of the Corporations Act 2001 (Cth) validate anything done by McDonagh Management Pty Limited in Supreme Court proceedings number 2014/311738 on and from 1 April 2019.
3. Pursuant to section 1322(4)(b) of the Corporations Act 2001 (Cth):
1. Order that the Forms 484 lodged with ASIC with document numbers 7E7674133 and 8E0135306 be withdrawn from the registers kept by ASIC under the Corporations Act and not appear on public view.
2. Order that ASIC record Sharon McDonagh as the sole director and secretary of McDonagh Management Pty Limited.
3. Order that ASIC record Sharon McDonagh as the sole shareholder of McDonagh Management Pty Limited.
4. Order that ASIC record the registered office of McDonagh Management Pty Limited as that of Sharon McDonagh, as notified by her or her solicitors to ASIC.
1. Pursuant to section 601AH(3)(d) of the Corporations Act 2001 (Cth):
1. Order that ASIC cancel the corporate key issued in respect of McDonagh Management Pty Limited.
2. Order that ASIC issue a new corporate key for the company to Sharon McDonagh.
3. Restrain ASIC from registering any documents in respect of McDonagh Management Pty Limited until Order 3 and Orders 4(a) and (b) have been complied with.
1. Order the second defendant to pay the plaintiff's costs of these proceedings.
2. Direct that, within two business days of the publication of this judgment, the plaintiff by her solicitor send this judgment to the Enforcement Division of ASIC and to Steven Vickers C/- The General Manager of Dawn De Loas Correctional Centre, Silverwater Correctional Complex.
3. Grant liberty to ASIC to apply within seven days to vary these orders.
4. These orders be entered forthwith.
[5]
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 26 August 2019
HER HONOUR: This is an application under sections 601AH and 1322 of the Corporations Act 2001 (Cth) to reinstate McDonagh Management Pty Limited (the company) and to correct the register maintained by the Australian Securities and Investments Commission (ASIC) to reflect that at all times the plaintiff, Sharon McDonagh, was the sole director, secretary and shareholder of the company.
In addition, orders are sought to regularise actions taken by the company -whilst deregistered - in proceedings 2014/311738 in the Common Law Division of this Court, McDonagh & Anor v Huxley & Ors (Common Law proceedings). Much of the evidence in these proceedings is derived from the Common Law proceedings, in respect of which Lonergan J made the following order on 21 December 2018:
Release the plaintiffs from that implied undertaking to the extent necessary for them to make any application to a court, as they may be advised, to correct, challenge or alter the alleged shareholding and directorships recorded upon the ASIC register in respect of the second plaintiff.
The defendants to these proceedings are ASIC and Steven Vickers. Mr Vickers was recorded as the director, secretary and shareholder of the company before it was de-registered. He is currently serving a period of imprisonment in Long Bay Correctional Centre, but was served with the pleadings and evidence in accordance with rule 10.25 of the Uniform Civil Procedure Rules 2005 (NSW) and invited, if he wished, to seek to appear by audio-visual link. Mr Vickers did not seek to appear.
The circumstances in which ASIC's register was twice changed such that Ms McDonagh ceased to be an officeholder and shareholder of the company are highly unusual and troubling. The troubling aspect is that the Court is increasingly dealing with the consequences of abuse of corporate keys. A corporate key is an eight-digit number issued by ASIC on the registration of a company. It is unique to each company, and each company can only have one key at a time. The corporate key must be used to register for online access for a company; it is also used to authenticate paper forms lodged with ASIC. Problems arise where the person with the corporate key does not have authority to use it or where the changes made online are not properly founded on any corporate process: see, for example, In the matter of Seabay Kitchen Pty Ltd [2019] NSWSC 790.
First change of ASIC register
On 24 December 2015, Ms McDonagh and the company filed a motion for default judgment in the Common Law proceedings against Mrs Huxley and Mr McDonnell in the sum of $1,098,183.60.
In, it would appear, early 2016, one of Mr Trovas' clients introduced him to Adrian Hall. Mr Hall was a former barrister, struck off for professional misconduct, in particular, for multiple stealing offences: Legal Profession Board of Tasmania v Hall (2015) 24 Tas R 110; [2015] TASSC 63. Mr Trovas knew that Mr Hall had been struck off but did not think this was "a major thing". Mr Hall asked Mr Trovas to transfer the shares in the company to his mother, Glenys Smith, as the company had not paid annual fees to ASIC, a strike-off action was in progress and Mr Hall said he would paid the outstanding ASIC fees. Mr Trovas said that he spoke to Mr Hall about this on a number of occasions on the phone. Mr Trovas said he agreed to transfer the shares to Mrs Smith as he considered that the company would thereby be kept alive. Mr Trovas considered that he had authority to do this by reason of the authority said to have been signed by Ms McDonagh in 2013, albeit in circumstances where he had not seen Ms McDonagh since, did not know whether the authority had been withdrawn in the intervening three years and did not check with Ms McDonagh.
On 5 February 2016, a Change to Company Details form was lodged with ASIC by Alpha Consulting, notifying that Ms McDonagh had ceased to be the director, secretary and shareholder of the company and had been replaced by Glenys May Smith. This was done without Ms McDonagh's knowledge or consent. Mr Trovas agreed that he transferred the shares to Mrs Smith without having received any instructions from Ms McDonagh or Mrs Smith. The only person he spoke to was Mrs Smith's son, Mr Hall.
Mr Trovas did not accept that, by changing the purpose of the company from a corporate trustee to a trading company, he invalidated the company as a proper trustee of the superannuation fund:
Well, no, because if Ms McDonagh ever contacted me again it would be very easy to put her back on the company and then perhaps implement a new corporate trustee.
… and if and when Ms McDonagh came back into my office to put a tax return in we could have tidied it up then …
On 16 February 2016, Ms McDonagh and the company obtained default judgment.
Two years later, on 14 March 2018, the solicitors for the Huxley parties wrote to Firths attaching a copy of an ASIC search which showed that Ms McDonagh was no longer the director, secretary or shareholder of the company, expressed concern as to whether Firths had authority to act for the company and whether the company was aware of the proceedings being conducted in its name. The Huxley parties' solicitor sought confirmation as to whether Firths held instructions from Mrs Smith to act for the company and, if not, the basis of their instructions. Firths immediately wrote to Mrs Smith in Tasmania asking how it was that she had become the officeholder and shareholder of the company, noting that this fact "comes as a great surprise".
Second change of ASIC register
Mr Trovas said he was asked by Mr McDonnell to contact Mrs Smith and see if she would transfer her shares in the company to Steven Vickers:
Well I knew Steve Vickers quite well and I knew that even though I would have transferred it to him, if Miss Pinkus or Ms McDonagh had contacted me I could transfer them back quite quickly.
… I knew that Glenys Smith didn't want anything to do with this, I knew Adrian Hall was panicking over this and I knew I had to get it somewhere else away from him.
… I was putting her shares in somebody who I knew would transfer them easily, if they were to contact me and just say "give us back those shares", I would have done it in a flash.
It would appear from the judgment of Rein J in Batmor Mortgages Pty Ltd v Arcuri [2017] NSWSC 84 that Mr Vickers was known to Mr Huxley. According to his Honour's judgment, Mr Huxley was a director of Batmor Mortgages Pty Limited. That company was the trustee of Residential Trust of which Mr and Mrs Huxley and their son were unitholders. At [29]:
Mr Huxley retired as a director of Batmor last year [2016] and was replaced by a Mr Steven Vickers … [I]t is not at all surprising that Mr Huxley might be a director of the trustee since the only trust asset, the property, is inhabited by Mr Huxley and his children (or some of them), and he established the Trust in 2000.
On 30 April 2018, Mrs Smith was replaced as director, secretary and shareholder of the company by Steven Vickers of Revesby, New South Wales. The Revesby property was owned by The Housing Commission of New South Wales. On this occasion, the Change to Company Details form was lodged by Langford Trovas & Associates Pty Limited, a company with a registered address at the same address in Carlton as Alpha Consulting. Again, this happened without the knowledge or consent of Ms McDonagh.
On 22 May 2018, the solicitors for the Huxley parties wrote to Firths again, attaching an ASIC search which indicated that Mr Vickers was now the sole director, secretary and shareholder of the company. Ms McDonagh was asked to urgently confirm her authority to retain Firths on behalf of the company. Firths immediately contacted Mr Hall to find out what had happened. By email replies, Mr Hall advised:
I was … contacted by an accountant to facilitate transfer of directorship back to whom I was advised by the accountant had been nominated by your client.
… [My mother] should not have been a director, never purported any control over the company and later signed documents to transfer out of the directorship.
When asked who the accountant was who contacted him, Mr Hall advised:
Andrew Trovas, Anco Accounting. I confirmed with him several times by telephone that he had instructions.
On 18 March 2018, Mr Trovas was contacted by the Huxley parties' solicitor, who said that a former client of Mr Trovas' was suing Mr Huxley. Mr Trovas telephoned Firths and left a message, apparently because he wanted to tell Firths that Mr Hall had never traded with the company and Mr Trovas was prepared to give it back to Ms McDonagh: "I really wanted to give this company back".
On 21 March 2018, the Huxley parties filed a motion in the Common Law proceedings seeking, inter alia:
1. A declaration that [Ms McDonagh] neither represents, nor had the authority to represent, the [company] in these proceedings.
2. A declaration that neither Stephen Firth nor Firths The Compensation Lawyers (a firm) have standing as solicitors for the [company] in these proceedings.
On 26 March 2018, the trial in the Common Law proceedings began before Lonergan J. Counsel for Ms McDonagh, Mr Goodridge, informed the Court that someone else was claiming to be a director and shareholder of the company but Ms McDonagh had never sold her shares: "Someone seems to have got up to some sort of fraud in the background, to change the ASIC record". Mr Goodridge informed her Honour that they had received a phone call that day from a person who said he was a lawyer and the son of Mrs Smith and they would speak to him as soon as possible. Later that day, Firths spoke to Mr Hall, who said he was Mrs Smith's son and authorised to speak on her behalf. Mr Hall said:
Mum has no idea about this Company or being made a director of the Company. As far as she is concerned she is not the director or shareholder of this Company. I think it was a mistake.
Whether Mr Hall was in fact authorised to speak on behalf of Mrs Smith or whether Mrs Smith was in fact his mother is not known.
On 27 March 2018, Mr Hall confirmed what he had said in an email to Firths saying:
… my mother does not now and at no relevant time purports to have any interest, control or authority in respect of the second plaintiff.
On or about 5th February 2016 my mother consciously, legitimately and purposefully signed documents to become director of another completely unrelated company. She was never aware of Sharon McDonagh and certainly never aware that the company was a Superannuation Trustee Proprietory Company for the McDonagh Family Superannuation Fund.
In other words, to make it clear, whatever documents were signed making her a director of the second plaintiff were signed in error or in confusion at a time contemporaneous with signing other documents for another company.
… My mother is content to facilitate a change of director back to Sharon McDonagh …
Mr Hall's email was provided to Lonergan J when the hearing resumed that day. Mr Hall forwarded his email to Mr Trovas, who read it and thought that Mr Hall was lying to Firths. According to Mr Trovas, Mr Hall also rang and told him that Mr Hall had transferred the shares back to Ms McDonagh.
The trial before Lonergan J concluded after eight days on 6 April 2018 and her Honour stands reserved on the relief sought by Ms McDonagh and the company in the Common Law proceedings.
On 23 May 2018, Firths solicitor wrote to Mr Vickers, Mr Trovas and the Huxley parties' solicitors suggesting that this was a mischievous fraud which had been reported to the police: "All inferences point to mischief by one or more of the defendants." Firths reported the matter to the Australian Federal Police and began extensive investigations to try and locate Mr Vickers. Unbeknownst to Firths, on 8 June 2018, Mr Vickers was convicted of an offence under section 193C of the Crimes Act 1900 (NSW) - dealing with property suspected of being proceeds of crime - and sentenced to three years' imprisonment. Mr Vickers was sent to Long Bay Correctional Centre.
On 20 June 2018, apparently on a day when final submissions were heard following the trial, Mr McDonnell filed a motion to set aside the default judgment obtained against him and to re-hear all or some of the proceedings. On 20 August 2018, Lonergan J dismissed his motion.