Brislane v Australian Securities and Investments Commission, in the matter of Chiswick Universal Pty Ltd

Background facts 4 The first plaintiff ("Mr Brislane") and the second plaintiff ("Mr Brettschneider") formerly operated a furniture manufacturing business through entities including the company. Mr Brislane and Mr Brettschneider were each directors of the company from 14 June 2006 to 15 August 2008. Between 15 August 2008 and 15 August 2016, the sole director of the company was Mr Karl Brettschneider, presumably a relative of Mr Brettschneider. 5 At some stage in 2015 or 2016, Mr Brettschneider ceased to be involved in the furniture manufacturing business and, on 15 August 2016, Mr Brislane was reappointed as the sole director of the company. 6 On 14 December 2016, the company commenced a creditors' voluntary winding-up. 7 Recently, Mr Brislane has become aware that, prior to the commencement of the winding up, the company was the trustee of the A&D Family Trust ("trust"), a trust associated with Mr Brettschneider. Mr Brettschneider is the appointor and a beneficiary of the trust. Mr Brislane is not a beneficiary of the trust. 8 In its capacity as trustee of the trust, the company formed a partnership with Limsip Pty Ltd ("Limsip"). The partnership between the company and Limsip is known as the Chiswick Property Services Partnership ("partnership"), and each of the company and Limsip hold a 50% interest in the partnership for the beneficiaries of each trust. 9 The partnership, via its nominee Chiswick Property Services Pty Ltd ("nominee"), is the owner of land located in Liverpool in the state of New South Wales ("land") which is leased and generates substantial rental income for the company and Limsip. The land has a book value of about $9 million. 10 The company's interest in the partnership (and by extension the land via the nominee) is held solely for the beneficiaries of the trust. 11 The winding-up was completed on 22 February 2018, at which time the liquidator of the company, Mr Neville Rubenstein, lodged final accounts with ASIC and resigned. 12 Apparently as a result, Mr Brislane anticipated that the company would be deregistered pursuant to s 509 of the Act on 22 May 2018. Section 509 of the Act relevantly provides that ASIC must deregister a company at the end of the period of three months beginning on the day after the company's final accounts are lodged. 13 This proceeding was urgently commenced on 17 May 2018 with a view to avoiding that outcome. However, shortly after commencing the proceeding, Mr Brislane became aware that ASIC had already deregistered the company on 6 May 2018. ASIC did this pursuant to s 601AB(2) of the Act, rather than s 509. Section 601AB(2) of the Act relevantly provides ASIC with a discretion to deregister a company if the company is being wound up and ASIC has reason to believe certain matters.

Impact of winding up and deregistration of company 14 The plaintiffs identified the following consequences of the company's winding-up and deregistration: (1) The company was automatically removed as trustee of the trust upon it being wound-up. (2) As a replacement trustee was not appointed by Mr Brettschneider, the company held the trust's asset (its interest in the partnership and by extension the land) as a bare trustee pending replacement: Kite v Mooney, in the matter of Mooney's Contractors Pty Ltd (in liq) [2016] FCA 886 at [3]; In the matter of Independent Contractor Services (Aust) Pty Ltd (in liq) [2016] NSWSC 106 at [48]. (3) As Mr Brislane's authority to control the company was suspended by s 499(4) of the Act due to the company's liquidation, he could not take any steps as director of the company to cause it to retire from the partnership and be replaced by a new trustee of the trust before the company was deregistered: see Arnold World Trading Pty Ltd v ACN 133 427 335 [2010] NSWSC 1369; (2010) 80 ACSR 670 at [16]-[18]. (4) Upon deregistration, the company's interest in the partnership vested in the Commonwealth under s 601AD(1A) of the Act. 15 The plaintiffs submitted that the company's role as trustee of the trust and partner in the partnership must have escaped attention at the time the company went into liquidation and throughout the winding-up process. 16 Barry Hancock, the external accountant of Mr Brislane and Mr Brettschneider from about June 2014, gave evidence that he became aware of the company's role as trustee of the trust in the course of preparing 2017 financial statements for the trust and other entities associated with Mr Brislane or Mr Brettschneider. The evidence does not disclose whether Mr Rubenstein was informed of the company's role as trustee of the trust prior to 22 February 2018, or at any time prior to the commencement of the proceeding.

What the plaintiffs hope to achieve 17 The plaintiffs seek to preserve the trust's interest in the partnership (and by extension the land) by having the company reinstated to the ASIC Register so a liquidator re-appointed to the company can take the step of retiring the company from the partnership and allow a newly appointed trustee of the trust to replace it as a partner in the partnership. That cannot happen without reinstatement, following which a liquidator will be able to exercise control of the company and enter into a suitable deed of retirement. 18 When that process has taken place, the company can then proceed to deregistration if there are no outstanding matters the liquidator needs to attend to in its winding-up. It is not anticipated that there will be any further work to do in winding-up the company. Mr Hancock's evidence is that he understood there to be no creditors of the company related to the trust's interest in the partnership. However, the evidence was that, if a new liquidator was to be appointed following reinstatement, that liquidator would satisfy himself that none of the creditors of the company are associated with the trust and that the company has no claims against the assets of the trust.

Person aggrieved 19 A person aggrieved by the deregistration of a company has standing to apply to reinstate the company to the ASIC register: s 601AH(2)(a) of the Act. An aggrieved person may include the director of the company (where the director has a real and direct interest in the company and is dissatisfied with the deregistration), and the company itself (where the company has a separate existence, such as in the case of a foreign company): Air Austral SA (deregistered) v Australian Securities and Investments Commission, in the matter of Air Austral SA (deregistered) [2018] FCA 216 at [15] ("Air Austral"). 20 In this case, the company, its sole director and shareholder (Mr Brislane), along with the appointor and a named beneficiary of the trust (Mr Brettschneider), all requested that the Court reinstate the company. I accepted that the person who probably has the most to lose is Mr Brettschneider in his capacity as a beneficiary of the trust, given the value of the land and the significant income the land generates for the partnership. The company's deregistration also prevents steps being taken to retire it from the partnership so that a newly appointed trustee of the trust can replace it as a partner in the partnership and allow the trust to continue to have the benefit of the land. I was therefore satisfied that at least Mr Brislane and Mr Brettschneider were aggrieved and had standing to bring this application.

Whether it is just for the company to be reinstated 21 Under s 601AH(2) of the Act, the Court may order the reinstatement of a company to the ASIC register if satisfied that it is just to do so. In exercising this "very wide" discretion (JP Morgan Portfolio Services Ltd v Deloitte Touche Tohmatsu [2008] FCA 433; (2008) 167 FCR 212 at [4]), the relevant factors are: (1) the circumstances surrounding the company's deregistration; (2) the use that might be made of reinstatement; and (3) the prejudice any person may suffer as a result of reinstatement: Air Austral at [18]. 22 As noted above, Mr Brislane could not cause the company to retire from the partnership and be replaced by a new trustee of the trust once the company went into liquidation. Steps were taken late in the day to preserve the trust's interest in the partnership before the company was deregistered, but those steps proved futile because ASIC deregistered the company before the date it would have been deregistered had s 509 of the Act been applied. It was unnecessary to determine whether ASIC took the correct approach to deregistration. It was enough to recognise that Mr Brislane tried to prevent deregistration of the company in the apparent belief that it would be deregistered on 22 May 2018. 23 In the circumstances, I accepted that reinstatement of the company was necessary to preserve the trust's interest in the partnership (and by extension the land). 24 If the company were reinstated, pursuant to s 610AH(5) of the Act, it would be taken to have continued in existence as if it had not been deregistered due to the statutory nunc pro tunc (or retrospective) effect of an order for reinstatement of a company: Re Piccoli Tesori Pty Ltd (Deregistered); Ex parte Bertuol [2006] FCA 462; (2006) 151 FCR 109 at [19]. 25 The company was both a (bare) trustee and a partner in a partnership at the time of deregistration. Upon reinstatement, the company would reassume its position as trustee of the assets of the trust because a replacement trustee has not been appointed and the trust deed does not provide otherwise: Silverstone Holdings Pty Ltd v American Home Assurance Co (1997) 18 WAR 516 at 521 and 533. It is the plaintiffs' assumption that, by virtue of s 601AH(5) of the Act, the company will also carry on as a partner in the partnership if it is reinstated. 26 Accordingly, if the company was reinstated, the steps necessary to retire it from the partnership could then be taken to preserve the trust's interest in the partnership (and by extension the land) before finalising the winding-up of the company. 27 For the reasons stated above, I was satisfied that significant detriment would accrue to the beneficiaries of the trust if the company was not reinstated. 28 On the other hand, neither ASIC nor the company's former liquidator, Mr Rubinstein, raised any objection to the relief sought. 29 The only other entity who could potentially have been adversely affected by the reinstatement was Limsip, if for some reason Limsip did not want to remain in the partnership with the company. However, Limsip did not oppose the application or the plaintiffs' proposal to subsequently undertake the relevant steps to preserve the trust's interest in the partnership (and by extension the land). 30 Moreover, there was no suggestion of any prejudice to the company's creditors by appointing a liquidator to the company with the intent that the trust's interest in the partnership be salvaged. In submissions made on their behalf, the plaintiffs asserted that none of the company's debts to its creditors were incurred by it acting in its capacity as trustee of the trust. For that reason, there was no basis upon which a liquidator could have recourse to assets held by the company in its capacity as trustee of the trust for the purpose of satisfying those debts: Re Byrne Australia Pty Ltd [1981] 1 NSWLR 394 at 398. However, I note that Mr Brislane's affidavit evidence referred to his understanding that the new liquidator would satisfy himself that none of the creditors of the company are associated with the trust and that the company has no claims against the assets of the trust.

Other matters 31 Mr Rubinstein did not consent to being re-appointed liquidator. However, Christopher Palmer gave his consent and there was no reason not to appoint him as the company's liquidator. 32 In the circumstances, it was appropriate to order the reinstatement of the company, its immediate winding up and the appointment of Mr Palmer as its liquidator for the purpose of preserving the trust's interest in the partnership (and by extension the land). I certify that the preceding thirty-two (32) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gleeson.