Australian Competition and Consumer Commission v Australian Securities and Investments Commission

Supreme Court of NSW|2019-03-11|Before: Rees J

Judgment

HER HONOUR: This is an application for reinstatement of a company and ancillary orders pursuant to section 601AH(3) of the Corporations Act 2001 (Cth) that, upon reinstatement of the company, contrary to the position at deregistration: (a) two new persons be appointed directors; and (b) one of the original shareholders and another person be recorded as members.

Facts

In 1984, Garfox 86 Pty Ltd was incorporated. The company had two shares: one was held by the plaintiff, Donald Soo, and the other by his sister, Maree Soo. In January 1985, Garfox purchased an apartment in Artarmon. Mr Soo's mother lived in the apartment for the next 30 years. Garfox did not operate a bank account nor carry on any business; the outgoings in relation to the apartment were paid by family members. In 2015, Mr Soo's mother passed away. The apartment has since been used by the Soo family from time to time, and otherwise rented out.

First reinstatement

In 2016, Mr Soo became aware that Garfox had in fact been deregistered in 1992. Mr Soo and his sister applied to the Court to reinstate the company. ASIC consented to the reinstatement of Garfox on their undertaking to lodge all outstanding documents and pay all outstanding fees and penalties upon reinstatement.
On 24 March 2016, the Court ordered that the company be reinstated. ASIC issued a corporate key for the company to Mr Soo. At that time, Maree Soo resigned as a director and was replaced by Mr Soo's wife, Ms Leong. Mr Soo made several attempts to use the corporate key to record the change of directors but was unsuccessful and then apparently gave up and he was largely occupied by frequent travel to Hong Kong.

Second deregistration

In December 2017, ASIC commenced a second strike-off action.
In February 2018, Ms Soo completed a share transfer form, transferring her share in Garfox to Ms Leong for $500,000. Mr Soo asked his accountant to use the corporate key to update ASIC's records in respect of the directors and shareholders of Garfox. The accountant tried to do so but discovered that Garfox had been deregistered for a second time on 9 March 2018. This had the result that the accountant could not file any outstanding returns, pay any outstanding fees or make any changes to the directors and shareholders.
In June 2018, the accountant applied to ASIC to reinstate Garfox again. ASIC declined to do so because, according to the ASIC register, on reinstatement the company would not meet the requirements of section 201A and section 204A of the Corporations Act 2001 (Cth) for a minimum number of directors and secretaries. This is as a result of the company failing to notify us of changes of company details when previously reinstated by Court order on 7 April 2016.
Section 201A(1) provides for a minimum number of directors in respect of proprietary companies as follows: A proprietary company must have at least 1 director. That director must ordinarily reside in Australia.
Section 204A(1) provides for a minimum number of secretaries in respect of proprietary companies as follows: A proprietary company is not required to have a secretary but, if it does have 1 or more secretaries, at least 1 of them must ordinarily reside in Australia.
It is not entirely clear to Mr Soo why ASIC said this. There is a paucity of documents which have ever been lodged with ASIC in respect of Garfox and, as best I can tell, it may be that the only officeholders ever notified to ASIC were David Edgar and Deborah Edgar, who originally incorporated Garfox as a shelf company. As Mr Soo did not update ASIC's records when Garfox was reinstated in 2016 to record himself and his sister, or himself and his wife, as directors, ASIC may have taken the view based on the limited information available to it that there were, for practical purposes, no officeholders and thus was not prepared to reinstate the company.
ASIC does not oppose the second reinstatement of Garfox so long as the company attends to lodgement of all outstanding documents and payment of all outstanding fees and penalties, being $4,031.50. Ms Leong has deposited that sum into her solicitor's trust account with instructions to pay the monies to ASIC in the event that Garfox is reinstated.
It is proposed that a third director, Ms Murphy, will be appointed to the company to account for the fact that Mr Soo and Ms Leong are frequently overseas. Ms Murphy is resident in Australia and prepared to attend to the administrative obligations associated with the company. That would appear to have much to commend it as Mr Soo has always given those matters sufficient priority in the past.
The accountant for Garfox, Mr Yeun, has provided evidence as to the assets and liabilities of the company. The Artarmon apartment is unencumbered. The company has no existing liabilities. A valuation of the Artarmon apartment for the purposes of stamp duty, done in September 2017, indicates that at that time the apartment was worth at least $1,000,000. Garfox is not insolvent and will have a significant unencumbered asset on reinstatement.

Reinstatement by the Court

Subsections 601AH(2) and (3) concern 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; 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) [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.
On an application to reinstate a company, the first matter to consider is whether Mr Soo is "a person aggrieved by the deregistration": subsection 601AH(2)(a)(i). As Gleeson JA explained in Re 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 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 … [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.
Mr Soo is a person aggrieved by the deregistration of Garfox as he is the beneficial owner of half of the share capital, in circumstances where the company owns valuable property which presently vests in ASIC.
The second requirement is that "the Court is satisfied that it is just that the company's registration be reinstated": subsection 601AH(2)(b). His Honour Austin J succinctly explained this requirement in Australian Competition and Consumer Commission v Australian Securities and Investments Commission [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.
It is not "just" to resurrect a company which will then be devoid of proper governance and it is for this reason that applicants seeking reinstatement of companies often seek the appointment of a liquidator in conjunction with reinstatement: see, for example, CGU Workers Compensation (NSW) Ltd v Rockwall Interiors Pty Ltd (2006) 201 FLR 296; [2006] NSWSC 690 at [9] per Barrett J. I am satisfied that it is in "just" that the company's registration be reinstated. Otherwise, valuable property will remain vested in ASIC, rather than in Garfox and, indirectly, in its shareholders Mr Soo and his wife.
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 Garfox is reinstated, as best I can tell, the original directors of Garfox on its incorporation in 1984, David and Deborah Edgar, will be reinstated as directors and the shares of the company will be held equally by Mr Soo and Ms Soo. However, Ms Soo sold her share in the company to her sister-in-law in 2016 for $500,000 and resigned as a director, although it is not clear that her directorship was ever notified to ASIC in the first place.
This brings me to the third matter, being the extent of the Court's power to make ancillary orders under section 601AH(3)(d), and what orders are appropriate in this case. Section 601AH(3)(d) gives the Court power to "make any other order it considers appropriate". The "other" refers back to section 601AH(3)(c), which empowers the Court to validate things done during the period of deregistration. In Pagnon v Workcover Queensland [2001] 2 Qd R 492; [2000] QCA 421, McPherson JA (with whom Thomas JA and Muir J relevantly agreed) considered the power to be very wide: at [15]. In that case, his Honour made an order suspending the limitation period during the period in which a company was deregistered: see, likewise, In the matter of Regional Planners Developments Co Pty Ltd (2015) 100 ACSR 457; [2015] NSWSC 1996 per Brereton J. In In the matter of Bele & Co Pty Ltd [2017] NSWSC 1824, Black J read the power as incidental to the Court's power to reinstate a deregistered company, and not as independent of it: at [6]. In that case, a creditor sought an order that ASIC pay the creditor $193,000, being funds which ASIC held in respect of deregistered company, alternatively, reinstatement of the company and an order that ASIC pay the creditor the relevant amount pursuant to section 601AH(3)(d). His Honour considered that the power in section 601AH(3)(d) did not allow the Court, in effect, to determine a claim between a creditor and a deregistered company, without the attendance of the deregistered company and in a manner that would not bind it, and then make an order for ASIC to make a payment consequential upon its determination of that claim. See also Randall v City of Canada Bay Council (No.4) [2015] NSWSC 1759 at [200] per Kunc J, an appeal from which was dismissed as unarguable: Randall v City of Canada Bay Council [2017] NSWCA 1 per Basten JA, with whom Simpson and Payne JJA agreed.
The most expansive review of the legislative history and case law in respect of section 601AH(3)(d) was undertaken by McKerracher J in The Bell Group Limited v Australian Securities and Investments (2018) 128 ACSR 247; [2018] FCA 884, which I reviewed in In the matter of A.C.N. 063 346 708 (formerly known as South Passage Pty Ltd) [2018] NSWSC 1709 at [44] ff. His Honour, having regard to the comments of Barrett J in CGU Workers Compensation (NSW) Ltd v Rockwall Interiors Pty Ltd at [18], concluded that the power was wide enough to make orders with respect to the shareholding of the deregistered companies so that they could form part of a tax consolidated group for the purposes of the Income Tax Assessment Act 1997 (Cth), conferring benefits on other Bell Group companies which they could not enjoy while the companies remained deregistered.
As I concluded in South Passage, having regard to these authorities, it seems to me that the Court has a wide power under section 601AH(3)(d). Nor did I consider that section 601AH(5) confines the Court's power in section 601AH(3)(d) such that the Court may not make orders modifying the effect of reinstatement. Rather, section 601AH(3)(d) gives the Court the power to alter the ordinary incidence of reinstatement in appropriate circumstances: at [51].
In these circumstances, it seems to me appropriate to make the orders sought by Mr Soo, in particular, having regard to the fact that Garfox is solvent; monies have been placed in trust to promptly attend to payment of outstanding fees and penalties; arrangements have now been made to appoint three directors to the company including Ms Murphy who will be present in Australia and willing to attend to the administration associated with operating a company; the ancillary orders will give effect for the re-organisation of the company's affairs and shareholdings made three years ago; and each of the persons affected by the ancillary orders in particular, Ms Soo, consent to the orders sought.

Orders

The Court makes the following orders and directions. 1. Pursuant to section 601AH(2) of the Corporations Act 2001 (Cth) (the Corporations Act), that the defendant (ASIC) reinstate the registration of Garfox 86 Pty Limited ACN 002 839 170. 2. Pursuant to subsection 601AH(3)(d) of the Corporations Act, order that ASIC record the plaintiff, Vivien Hui-Wen Leong and Li Zhang Murphy as the directors of Garfox 86 Pty Ltd ACN 002 839 170. 3. Pursuant to subsection 601AH(3)(d) of the Corporations Act, order ASIC record the plaintiff and Vivien Hui-Wen Leong as the holder of one (1) ordinary share each in Garfox 86 Pty Ltd ACN 002 839 170. 4. Direct the plaintiff to notify the defendant of these orders forthwith. 5. No order as to costs.

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: 18 April 2019

Corporations Act 2001(Cth)s 601AH(3)(d)

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