GENEVA FINANCE LTD (RECEIVER AND MANAGER APPOINTED)

GENEVA FINANCE LTD (RECEIVER AND MANAGER APPOINTED)

Corporations law - Application to reinstate deregistered companies - Whether 'just' to do so - Turns on own facts

Australian Competition & Consumer Commission v Australian Securities and Investments Commission [2000] NSWSC 316; (2000) 174 ALR 688

Callegher v Australian Securities and Investments Commission [2007] FCA 482; (2007) 239 ALR 749

Herbert v Nozala Pty Ltd [2006] NSWSC 1437

Re Great Eastern Cleaning Services Pty Ltd (No 2) (1978) 3 ACLR 886

Unkovich v Commissioner for Corporate Affairs (1986) 4 ACLC 502

1 MASTER SANDERSON: In each action the plaintiffs applied to reinstate a company - First Western Group Ltd and Catania Pty Ltd. The applications were filed on 5 June 2009 and were heard together on 11 June 2009. On 12 June 2009 I dismissed the applications and indicated I would publish reasons for that decision. These are those reasons.

2 To understand the reasons why these applications were brought and dismissed it is necessary to say something about other proceedings in this court. That is an action between Geneva Finance Ltd (receiver and manager appointed) (Geneva Finance) and Robert John Hugall CIV 2300 of 1992 (the Geneva Finance action). Mr Hugall, apart from being the defendant, is the plaintiff by counterclaim. The defendants to the counterclaim are Geneva Finance, First Western Group Ltd, Raymond Owen Jones and Catania Pty Ltd (ACN 010 021 780). (The significance of this corporation's ACN number will become apparent later in these reasons.)

3 The claim by the plaintiff against the defendant in the Geneva Finance action is relatively simple. On 29 June 1988 (unbelievably 21 years ago) the plaintiff lent the defendant $1 million. There is no dispute as to the original loan or its terms. The plaintiff wants the defendant to repay the money loaned plus interest. The real issue is joined in the counterclaim. Mr Hugall says, for reasons which I will detail later in these reasons, he is not liable to make repayment of the loan to Geneva Finance. The reason why this is so draws in the first and second defendants by counterclaim. The difficulty Mr Hugall faces at present is that the two companies the subject of these applications have been deregistered. Mr Hugall is concerned that if the matter goes to trial with two deregistered companies which can take no part in the proceedings, his chances of succeeding in his counterclaim will be compromised.

4 Therefore these actions were commenced and notice of the applications to have the companies reinstated were given to Geneva Finance. At the hearing Geneva Finance sought leave to be heard. I granted that application. At their request Geneva Finance was made a party to these proceedings.

5 The applications for reinstatement of the corporations were supported by an affidavit of David Brian Shaw sworn 5 June 2009. Mr Shaw is Mr Hugall's solicitor. Mr Shaw says when he was preparing Mr Hugall's amended defence and counterclaim in or about September 1994, in the Geneva Finance action, he caused a company search to be conducted to ascertain the details of both Catania Pty Ltd and First Western Group Ltd. Having completed those searches the two companies were included as defendants in the counterclaim. Mr Shaw says that on 20 May 2009 he was informed by Geneva Finance's solicitor that Catania Pty Ltd, which was the fourth defendant by counterclaim, was not the company which was involved in dealings between Geneva Finance and Mr Hugall. Once provided with that information Mr Shaw undertook a search. The search revealed there were three companies named Catania Pty Ltd. The Catania Pty Ltd which should have been joined as the fourth defendant had the ACN 009 298 711. So it is a different company from the one which is actually been joined in the proceedings.

6 Mr Shaw then attempted to search the details of the relevant Catania Pty Ltd. All he was able to obtain was an 'ASIC Directors Extract' which showed that at the relevant time one Neil Weston and one Graeme Sherlock were directors of Catania Pty Ltd. Further, Mr Shaw was able to establish that the relevant Catania Pty Ltd was deregistered on 19 April 1993.

7 Investigations also showed that First Western Group Ltd was deregistered on 30 March 1995.

8 Mr Shaw also filed a further affidavit sworn 11 June 2009. That affidavit annexed a copy of a letter from the Australian Securities and Investments Commission (ASIC). ASIC indicated they would not oppose the application for reinstatement of either company if the following conditions were satisfied:

1. The orders sought for reinstatement is in terms of s 601AH(2) of the Act, requiring ASIC to reinstate the registration of the company;
2. The applicant notifies the former officer holders of the company of this application;
3. The court order is lodged with ASIC ... so that ASIC can reinstate the company.

9 The letter went on to say that ASIC would not be appearing at the hearing.

10 In opposition to the application Geneva Finance relied upon an affidavit of Andrew John Mason sworn 11 June 2009. Appearing as part of annexure AGM6 is a copy of an ASIC search of First Western Group Ltd. This search shows at the date First Western Group Ltd was deregistered, the directors were Robert Alfred Howat, Russell John Hawkins and John Bedder McAlwey.

11 The court record for the Geneva Finance action shows a minute of proposed reamended defence and counterclaim was filed on 11 October 1994. On the same day a consent order was filed as between Geneva Finance and Mr Hugall so that the minute of proposed reamended defence and counterclaim became Mr Hugall's defence and counterclaim. On 19 October 1994, Mr Hugall filed a reply to the defence to counterclaim. There is nothing on the court file to indicate any of the defendants to the counterclaim other than Mr Hugall have been served with the counterclaim. None of them has entered an appearance. In these actions none of the former directors of either Catania Pty Ltd or First Western Group Ltd was served with notice of these applications.

12 Section 601AH(2) of the Corporations Act 2001 (Cth) is in the following terms:

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.

13 To be a person aggrieved an applicant must show that deregistration deprived him of something, or injured or damaged him in a legal sense, or that he became entitled in a legal sense to regard the deregistration as a cause of dissatisfaction: see Callegher v Australian Securities and Investments Commission [2007] FCA 482; (2007) 239 ALR 749. There can be no doubt that Mr Hugall falls within that category and it was not suggested otherwise on behalf of Geneva Finance.

14 In determining what is 'just' the court considers:

(a) the circumstances in which the company came to be deregistered;

(b) whether, if the order were made, good use could be made of it;

(c) whether any person is likely to be prejudiced by the reinstatement; and

See Australian Competition & Consumer Commission v Australian Securities and Investments Commission [2000] NSWSC 316; (2000) 174 ALR 688, 692.

15 Delay is a relevant consideration. It is particularly relevant where the passage of time has adversely affected the ability for there to be a fair trial of any action against the company: see Herbert v Nozala Pty Ltd [2006] NSWSC 1437 [50] - [51].

16 The reinstatement of a hopelessly insolvent company is generally not in the public interest: see Re Great Eastern Cleaning Services Pty Ltd (No 2) (1978) 3 ACLR 886.

17 The reinstatement of a company for the purpose of it entering into an obligation it does not have the capacity to meet, or which would be likely to involve breaches by its directors of their obligations in relation to insolvent trading under s 588G of the Corporations Act would not be in the public interest. That is axiomatic.

18 Where registration was cancelled for failure to lodge returns with ASIC the applicant must explain the failure and provide an undertaking that the company would bring all statutory records up to date and pay all appropriate fees: see Unkovich v Commissioner for Corporate Affairs (1986) 4 ACLC 502.

19 ASIC has issued what it describes as 'Regulatory Guide 83' (RG 83) dealing with reinstatement of companies. RG 83.2.1 sets out the circumstances in which ASIC 'will usually not object' to an application for reinstatement. Subparagraph (e) requires that an applicant provide information to satisfy the court that the company would be solvent if its registration was to be reinstated. The guide goes on to suggest that if the applicant is a creditor of the deregistered company this information need not be provided. Under subparagraph (h) the applicant should provide evidence that the members and directors at the time of deregistration have been made aware that if the application for reinstatement is successful, their roles and responsibilities will resume.

If the former directors cannot be contacted or will not undertake their roles and responsibilities, the applicant must provide an undertaking to the court to ensure that director(s) and a secretary will be appointed within 14 days of lodging the reinstatement court order with ASIC ... Alternatively, an order may be sought that the company also be wound up on the ground it is just and equitable under s 461(1)(k) our liquidator appointed.

21 There is no suggestion that an RG 83 would be binding in any sense on a court faced with an application for reinstatement. Moreover, despite their own guidelines, ASIC appear in this case to be prepared to reinstate both corporations without the requirements of the guidelines being met. But the guidelines do provide some indication of the practical requirements if a reinstatement order is to be made. In this case there is no suggestion that any of the former directors of either company have been notified of this application. That, in my view, is sufficient to warrant the application being dismissed. If that were not so, the result could be that individuals would become directors of a company without their knowing it. With respect to both companies, 14 years have passed since the former directors were relieved of their responsibilities. There is no evidence of their present whereabouts or circumstances. For one reason or another they may no longer be eligible to be directors. No alternative directors have been proposed and there is no application to wind up either company. It is clear the orders sought ought not be made.

22 Although Geneva Finance alluded to all these matters as a reason for not reinstating either company, their objections were of a wider nature. Essentially, it was submitted that it was not 'just' in the circumstances to reinstate these companies. In my view, these arguments have been made out. For sake of completeness I will deal with the submissions put on behalf of Geneva Finance. This involves some examination of the facts of this case.

23 By his substituted defence filed 30 April 2009 in the Geneva Finance action, Mr Hugall denies that he is indebted to the plaintiff. He puts three arguments. First he says he was released from all debts owed by him to the plaintiff by an agreement made in or about June 1990 between the plaintiff and the defendant. Second he says that on or about 14 July 1990 the plaintiff and the defendant together with Catania Pty Ltd, First Western Group Ltd and Raymond Jones entered into a deed of release. It is Mr Hugall's position that the entry into this deed of release extinguished any liability he may have had to the plaintiff. Third, Mr Hugall says that in or about June 1990 the plaintiff represented to him that he would be released from all debts owed by him to Geneva Finance upon his doing certain things. He says he did those things and in the process acted to his detriment. His says that the plaintiff is estopped from denying the release. There is also pleaded a slight variation on that estoppel argument but it is no more than a variation on the theme. So that is the defence. Although Catania Pty Ltd and First Western Group Ltd are mentioned neither company has a role to play in this issue as between the plaintiff and the defendant on the pleaded facts.

24 The counterclaim really deals with the deed of release. As I understand the pleading it answers a claim by the plaintiff that the parties to the deed of release did not enter into what is referred to as the 'New Loan Agreement' and the agreement was of no force and effect. If this argument were to be successful Mr Hugall says the parties to the deed of release - Geneva Finance, First Western Group Ltd, Raymond Jones and Catania Pty Ltd - should be directed to enter into that agreement. It is in that way First Western Group Ltd and Catania Pty Ltd are drawn into the proceedings.

25 In my view, it is simply not reasonably arguable that these two companies would be directed to sign the New Loan Agreement. They have no capacity to repay. It is common ground that they have no assets presently and have not traded since their deregistration. Whatever remedies may be available to Mr Hugall as a consequence of his pleaded case, it is simply not arguable that they would include an order for specific performance of the agreement so as to require the companies to effectively trade when insolvent.

26 That being so there is no utility in ordering the re-registration of these two companies. It would not be just to do so. It would not be in the public interest and it would not be in the interest of any party.

27 For these reasons I declined to make the orders sought by the plaintiff.