Casali v Crisp [2001] NSWSC 860 | Case summary

Judgment 1 His Honour: This is an application made under s 601AH of the Corporations Act 2001 for the re-registration of Sabiadorro Pty Ltd ("Sabiadorro"). 2 Section 601AH(2) is, so far as is relevant, as follows: "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; … and (b) the Court is satisfied that it is just that the company's registration be reinstated." 3 Sabiadorro was incorporated on 27 May 1975. It was placed into liquidation by this Court in proceedings initiated by the Deputy Commissioner of Taxation (No 4285 of 1994) on 26 October 1995. Peter David Rodgers was the person appointed by the Court to be its liquidator. 4 Sabiadorro was noted in ASIC's records as having as its principal activity investment. However, at the date of its winding-up, it was operating a delicatessen at Coffs Harbour. At that date, it owned two investment properties, one at Bulli Heights (which was later sold by the liquidator) and one at Warriewood which was then in the process of being sold by the mortgagee. 5 As at the date of liquidation, there were 15 issued shares in five classes. Of these, the plaintiff, Enzo Casali held two A class shares, one B class share and three ordinary shares. It would appear that the A class shares carry all powers relating to management and control, but no right to dividends or distribution of surplus in a winding-up. The B, C, D and ordinary shares have no voting rights, but the right to all dividends and distribution of surplus. 6 The principal disputants (apart from professional liquidators) are members of the Casali family. The heads of the family appear to be Nino deceased and Rina who each held one A class share and the Casali Family Trust at the address which would seem to be the old family home is said to hold two ordinary shares. The children of that couple are the plaintiff and the second and third defendants, Nicholas Casali (who held one C class share and one ordinary share) and Sandra Wickham (who held one D class share and two ordinary shares). 7 At the date of winding up, Rina Casali and the plaintiff were the directors of the company and the plaintiff's then wife, Jennifer, its secretary. 8 At the time of the liquidator's appointment, Mr Giles Woodgate had been appointed administrator of Sabiadorro following a resolution of its directors. 9 At the same time as the administrator and later liquidator were appointed to Sabiadorro, the same people were appointed to those offices with respect to another company Pacen Pty Ltd ("Pacen"), a company whose directors and shareholders were the plaintiff and Jennifer Casali. 10 At the time of the liquidator's appointment, Sabiadorro was involved with a series of pieces of litigation of which the present second and third defendants were the plaintiffs. 11 On 1 April 1997, all that litigation was settled between Sabiadorro and the second and third defendants by consent orders. These orders noted, inter alia, that the liquidator would withdraw his contention that a deed between members of the Casali family of 31 January 1992 contravened s 205 of the Corporations Act. Although the plaintiff and Jennifer Casali were parties to the litigation, they did not participate in the consent orders. On 14 March 2000, Simos J held that the liquidator's withdrawal was ineffective. Simos J found that the plaintiff and not Sabiadorro was liable for damages for breach of the deed of 1992. 12 The consent order also had the effect of vesting in Mr Rodgers all of Sabiadorro's property pursuant to s 474(2) of the Corporations Act. 13 On 25 May 1999, Mr Rodgers resigned as liquidator and the Court appointed Mr Geoffrey McDonald in his place. On 28 February 2000, Glenn Crisp, the first defendant to these proceedings, succeeded Mr McDonald as liquidator. 14 The final act of the liquidator was on 6 July 2000. It would seem that the liquidator's return was received by ASIC on 14 July 2000 which would mean that, pursuant to s 509 of the Corporations Act, Sabiadorro would have been deregistered on 14 October 2000. 15 On 4 May 2001, the plaintiff filed his originating process to reinstate Sabiadorro's registration. After preliminary directions hearings, the application came before Palmer J on 8 August 2001. His Honour ruled that the second and third defendants be added as parties and that the plaintiff notify the additional defendants in writing as to why Sabiadorro had a claim against them if it were to be reinstated. 16 It is clear that the second and third defendants had the right to be heard on the question before the court; see Re Peter Conyers Holdings Pty Ltd (1996) 14 ACLC 1835, 1849. 17 The amended originating process was filed on 10 August 2001. The only amendment was the addition of parties. 18 In compliance with Palmer J's order, the plaintiff wrote to the second defendant, Nicholas Casali, that because he had lodged and had extended caveats on properties owned by Sabiadorro at Bulli and Leichhardt pursuant to the deed of 1992, which deed was illegal and unenforceable, Sabiadorro had suffered loss and damage being the loss of the development profit from those two properties. 19 A similar letter was written to the third defendant, Sandra Wickham, but this letter added a claim that her obtaining an order prohibiting Sabiadorro from mortgaging or charging any of its assets on 18 May 1993, "effectively prevented Sabiadorro developing its other properties at Warriewood and Castle Hill." 20 The case came on before me on 17 September 2001. Mr T Lee, solicitor appeared for the plaintiff, Mr J T Johnson appeared for the first defendant and Mr M Cohen for the second and third defendants. By consent, the evidence that was read and transcribed before Palmer J was taken to be evidence read or heard by me and that evidence was supplemented by further affidavits and documents. Extensive oral submissions followed, finishing at 3:53pm, making it necessary to reserve my decision. 21 ASIC was asked for its consent to the orders being sought. Consistently with usual practice, it wrote that it would not oppose the application if the liquidator consented to the application and its fee of $434 was paid before determination of the matter. Neither condition has yet been fulfilled. As to the latter, Mr Lee put that the fee would be paid before the order was entered. This is hardly satisfactory as if no order is made, ASIC may have to sue the solicitor for its fee. The Court expects the fee to be paid before the hearing. 22 It was made clear from the outset that, if the order reinstating the company was made, Mr Crisp would retire as liquidator and Mr Dean-Willcocks would be appointed in his place. There was also the distinct flavour that Mr Lee would act for Sabiadorro on a contingency fee basis and that the liquidator's costs would be covered by the plaintiff. There was vague mention of a litigation funder being involved as well. 23 The first question is whether the plaintiff is a person aggrieved by the deregistration. 24 Mr Lee submitted that a "person aggrieved" within the meaning of the section is a person "against whom a decision has been pronounced which has wrongfully deprived him of something or wrongfully refused him something or wrongfully affected his title to something". He says he took that quotation from Macchia v Nilant [2001] FCA 7. However, the submissions merely quoted a passage and I was not taken to the case. When one examines French J's actual judgment, one can see that the quote is in the midst of a discussion on the differences between s 178 of the Bankruptcy Act 1966 and its predecessors and further that that quote derives from the judgment of James LJ in Re Sidebotham (1880) 14 Ch D 458, 465. 25 Three points must be made about that quote. First, it is preceded in the judgment by these words, "the words 'person aggrieved' do not really mean a man who is disappointed of a benefit which he might have received if some other order had been made." Secondly, in the present type of case, the Sidebotham test may be too strict. Thus, in Re Hall (1957) 20 ABC 21, 29, Clyne J pointed out that in this area of the law, a bankrupt may be aggrieved either by an act or a decision of a trustee in bankruptcy. Thirdly, there are a plethora of modern cases in corporations law dealing with the construction of the term in the Corporations Act including Re Capital Project Homes Pty Ltd (1991) 6 ACSR 310, 311; Westpac Banking Corp v Totterdell (1998) 29 ACSR 448; Re Peter Conyers Holdings Pty Ltd (1996) 14 ACLC 1835 and Payne v Wizard Industries Pty Ltd (1997) 24 ACSR 277. 26 Mr Johnson, for the former liquidator concedes that the plaintiff is a person aggrieved. Mr M Cohen, however, puts this is in issue. He submits that, on the facts in this case, the plaintiff is not a person aggrieved as there is little reasonable possibility of his being appreciably disadvantaged in a legal or practical sense. He relies on three authorities, Ritz Hotel Ltd v Charles of the Ritz Ltd (1988) 15 NSWLR 158, 193; Kraft Foods Inc v Gaines Pet Foods Corp (1996) 65 FCR 104, 112 and National Mutual Life Association of Australasia Ltd v Reynolds [2000] FCA 267. With respect, none of these cases take the matter very far. The second of those cited is a trade mark case which provides no guidance in the corporations law situations. The first merely says that the expression must be construed liberally, the third merely mentions the current problem. 27 The mere fact that a person is a shareholder or a director of a deregistered company is insufficient to establish that that person is a person aggrieved within s 601AH; see eg Re Waterbury Nominees Pty Ltd (1986) 11 ACLR 348. As Olney J said in Re Waldcourt Investment Co Pty Ltd (1986) 11 ACLR 7, 12: "I do not think that either a shareholder or a director as such must necessarily be aggrieved by the cancellation of the registration of a company. An applicant must, in my opinion, show that his interests have been or are likely to be prejudicially affected by the cancellation of registration."

That prejudice might be shown by the shareholder showing that he or she was also a creditor of the company or that there might well be a surplus of assets if the company were reinstated and certain events occurred. 28 The Peter Conyers case at pp 1850-1 makes it clear that if the company was insolvent and in liquidation before deregistration then, at least ordinarily, a shareholder and a director are not aggrieved by the deregistration. This is because the shareholder has no asset of any value and the director's office was displaced by the liquidator. 29 To see whether this prejudice has been established I must look at the facts that are also relevant as to whether it is "just" to reinstate the company. 30 The other question is whether, if the plaintiff has standing to make the application, it is just to reinstate the company. 31 The authorities show that, normally, it is not just to reinstate an insolvent company so that issues can be litigated which were not clearly signalled at the time of deregistration a fortiori when such reinstatement would increase its debt; see eg Payne v Wizard Industries Pty Ltd (1997) 24 ACSR 277, 284-5; cf Denis v McMahon (1989) 7 ACLC 283. 32 The case being made on the merits by the plaintiff is that the caveats lodged in respect of four pieces of land prevented their development by Sabiadorro. Had the land been developed, on the evidence of the valuer, Mr Verheyden, the company would have made a profit of $620,000. This sum would have been more than sufficient to pay all of Sabiadorro's debts and the costs and expenses of the winding-up and return monies to the shareholders. Sabiadorro has actions against the second and third defendants in respect of the caveats and against the liquidator for not taking action to realize its assets. 33 The claims of Sabiadorro need to be looked at in a dispassionate way. A number of points must be made. First, the $620,000 is the potential gross profit on Mr Verheyden's figures. Mr Verheyden was not cross examined, but, as his report discloses inaccuracies as to ownership of the land, I must view it with caution. However, there is no evidence at all as to how the insolvent company would have been able to finance the development, nor what would have been the cost of development. 34 It is also very significant that the caveats in question were lodged in 1992/3. In respect of caveats lodged before 1 February 1997, the former s 74P of the Real Property Act 1900 applies not the s 74P which replaced it by virtue of the Real Property Amendment Act 1996. This means that a person seeking compensation under the section must establish that the defendant not only acted without reasonable cause, but also acted "wrongfully". This means that the plaintiff must establish that (i) the caveator had no caveatable interest; (ii) the caveator had no reasonable belief based on reasonable grounds that such caveatable interest existed; and (iii) the caveat was lodged or maintained with the intention of causing harm to the plaintiff: Beca Developments Pty Ltd v Idameneo (No 92) Pty Ltd (1990) 21 NSWLR 459, 472-5. 35 There is virtually no evidentiary material before me to show that Sabiadorro could surmount the high barrier that the old s 74P raised against the proposed claim. Indeed, this appears unlikely in view of the reasons for judgment of Bryson J on 18 May 1993 that the 1992 deed justified the caveats and that they should be extended. Even if it be the case that the deed was later found to be invalid or that Sabiadorro had no liability under the deed, Sabiadorro would not be able to make a successful claim under the former s 74P of the Real Property Act. 36 I have not taken into consideration any questions of limitation of actions which might arise. 37 If Sabiadorro is reinstated and commences proceedings, the defendants have stated that they will seek security for costs. The plaintiff has fairly indicated that he could not provide such security himself, but would defend the application on the ground that the defendants themselves brought about Sabiadorro's impecuniosity. Care must be taken with this alleged rule. The more limited statement of it in Colbran, Security for Costs (Longman Professional, Melbourne, 1993) at pp 246-7 should be heeded, viz that as a discretionary factor "In order to prevent an order for security for costs the plaintiff has the onus of establishing the defendant's conduct has been a substantial cause of, or exacerbated, the plaintiff's impecuniosity to the extent that, but for the conduct of the defendant, the plaintiff would have been financially secure". It is usually difficult to establish this discretionary defence where the plaintiff was impecunious before the acts of the defendant were committed: Rosenfield Nominees Pty Ltd v Bain & Co (1988) 14 ACLR 467, 471. 38 Apart from the problems with the proposed action, there is not the evidence to show that, even if it were successful, the action would produce money for the plaintiff. 39 The accounts of Sabiadorro are in a shocking state. According to the accounts for 30 June 1993 in Exhibit TX12, Sabiadorro had a deficiency of $168,825. Its liabilities included a debt to Kruger Nominees of $310,000, an unsecured loan of $115,030 from the plaintiff and a loan of $61,334 from the Casali Family Trust and a commercial bill to the State Bank of $6,750. 40 However, there are other versions of the 1993 accounts in evidence which give a vastly different figure, purportedly prepared by the same accountant. Further, the plaintiff claimed before Bryson J that Sabiadorro owed Pacen $364,548.85. As to this, Bryson J said in proceedings 4286/94 on 5 June 1998 when dealing with a proof of debt issue: "The difficulties of establishing the state of accounts between the companies [ie Sabiadorro and Pacen] are very great because the liquidator has not been given, by the directors or by anyone else, books of account kept in accordance with law by either company. If a company's affairs have been conducted with law and common prudence, its general ledger and the ledger accounts relating to debtors and creditors provide a liquidator with a starting point for understanding its affairs and the claims which should be made on its behalf. For these companies that advantage is not available." 41 The plaintiff in a subsequent affidavit commented that Bryson J "… has criticised me for not keeping proper records and books of account. I believe his Honour is mistaken in law, and in fact". (See TX12/75). 42 On 5 February 1998, Mr James of Pannell Kerr Forster on behalf of the second and third defendants examined Sabiadorro's position and reported that it had a deficiency of liabilities over assets at that date of $454,073 and that its shares were valued at nil. 43 Thus, the overwhelming evidence is that even if the action succeeded for the maximum in Mr Verheyden's assessment (which is unlikely) the return to the plaintiff would only be 4/11ths of $165,000 or $60,000 less costs not paid by other parties. However, in view of all the other factors mentioned in these reasons, the chances of getting any money at all out of the action are not particularly good. 44 This means that the plaintiff has not established to my satisfaction that he is a person aggrieved by the deregistration. He did not protest at the time and, even now, there is only a speculative chance of him obtaining any money if Sabiadorro is reinstated. 45 I note that I have not explored, as I was not asked to consider it, whether the plaintiff as a creditor was a person aggrieved. Consideration of such an issue may well involve investigating the accounts as to the plaintiff's status as a creditor. 46 Even if I was wrong on the matter of a person aggrieved, on the principles I have discussed, it would not be just to order reinstatement. Reinstatement would permit an insolvent company to mount speculative litigation against the defendants over an event many years old with little prospect of financial reward to the plaintiff at the end of the day. 47 It follows that the application should be dismissed with costs. The exhibits, being documents, should be retained.

Casali v Crisp

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