Corporations - Application for reinstatement - Direct action against insurer - Whether company should be reinstated notwithstanding action to be commenced against probable insurer

Corporations Act 2001 (Cth), s 601AG, s 601AH

1 BEECH J: This is an application for reinstatement of a company and an application for leave to proceed against a company in liquidation. The second part of the application arises only in the event of the success of the first part of the application.

2 The background to the application appears from the affidavit from Mr Kuscevich sworn 13 March 2008.

3 The applicant was injured in a mining accident on 15 March 2002.

4 Proceedings have been commenced in relation to that accident in the District Court. It has, very recently, become apparent to the solicitors for the applicant in the District Court action that it is 'probable' that the former company the subject of this application, Western Metals Zinc NL (in liquidation), owned and operated the mine in which the applicant sustained his injury. The District Court case has proceeded on the basis that another company owned and operated the mine.

5 Western Metals Zinc NL was deregistered on 17 June 2006. The deregistration is described, in the company search, as being by reason of s 509 of the Corporations Act 2001 (Cth). That section provides for the deregistration of a company following the final meeting in the course of its winding up.

6 The purpose of this application relates to the insurance policy which, it is thought, was likely to have covered Western Metals Zinc NL and its operation of the mine site at which the applicant was injured. The position in relation to insurance is not yet certain. The affidavit of Mr Kuscevich has, as an annexure, a letter dated 12 March 2008 from solicitors for QBE Insurance (Australia) Ltd (QBE) to the applicant's solicitors. This letter describes a policy to Western Metals Ltd which included cover for subsidiary companies specified in the schedule. It is not yet clear whether Western Metals Zinc NL was a company specified in the schedule, although it is thought to be likely.

7 The benefit to be obtained by the reinstatement of Western Metals Zinc NL is therefore based upon the expectation that it was insured. Section 601AG of the Corporations Act provides for a direct right of recovery against the insurer of a deregistered company in certain circumstances. It provides that:

A person may recover from the insurer of a company that is deregistered an amount that was payable to the company under the insurance contract if:

(a) the company had a liability to the person; and

(b) the insurance contract covered that liability immediately before deregistration.

8 In light of the existence of that section there is a question as to the utility of reinstatement of Western Metals Zinc NL. I was, in the course of the hearing, told by counsel for the applicant that it is already intended that the applicant will commence proceedings against QBE, which is thought to be the insurer, and that these proceedings will be commenced today (14 March 2008). In my view it is regrettable that this was not a matter revealed in the papers filed before the Court. One would think that the failure to disclose arises from the urgency of the situation given the understanding of the applicant's solicitors that the limitation period of six years will expire on Saturday, leaving today as the last day for the commencement of an action in the ordinary course.

9 Counsel for the applicant submits that notwithstanding the presence of s 601AG and the applicant's intention to commence an action under that section, an order for reinstatement under s 601AH(2) should be made. In support of that submission he refers to two matters.

10 First, it is submitted that the legal efficacy of the remedy under s 601AG is unclear and that insurers may, in effect, dispute their liability under that section.

11 That submission was not supported by reference to specific authority. To my mind, reference to the explanatory memorandum of the Company Law Review Bill 1997 (Cth), which ultimately resulted in the inclusion of s 601AH and s 601AG in the Corporations Act, and to the authorities which I have had the opportunity to review does not support the view that there is any reasonable room for doubt in this regard.

12 The explanatory memorandum which accompanied the Company Law Review Bill included paragraphs in these terms [15.22] - [15.23]:

At present, a person wishing to make a claim against a deregistered company may need to apply to a court for the reinstatement of the company in order to bring an action against it. The Bill enables a person to proceed directly against the insurer of a company that is deregistered, without seeking the company's reinstatement (Bill, s 601AG). Comparable rights have previously been provided in other legislation, for example, section 6 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW).

The Bill enables a third party to recover directly from the insurer of the deregistered company an amount payable under their contract of insurance if 2 preconditions are met:

(a) the deregistered company had a liability to the third party;

(b) the insurance contract covered that liability (Bill s 601AG).

13 I refer also to the observations of McPherson JA in Pagnon v WorkCover Queensland [2000] QCA 421; [2001] 2 Qd R 492. At [17] his Honour said this:

The legislative policy underlying s 601AG is, however, not open to doubt. It is to 'shortcut' the need to reinstate the company, and to do so by enabling the ultimate recipient of the insurance proceeds to sue the insurer direct where the company has been dissolved without imposing the additional trouble and expense of first applying to have it reinstated.

14 In Hutchinson v Australian Securities and Investments Commission [2001] VSC 465 [36] - [37] it was said:

Since the underlying purpose of s 601AG, in a situation where it applies, is to obviate the need to apply to the Court for an order for reinstatement of a company's registration, it ought to be used against insurers where appropriate ...

An application for reinstatement made under s 601AH which is unnecessary because s 601AG applies generally ought be dismissed. In such a situation, it could be said properly that the plaintiff seeking reinstatement is not 'aggrieved by the deregistration', the primary criterion for an order under s 601AH.

15 However, in Hutchinson the Court recognised that the making of an order under this section is discretionary. Special circumstances may exist which satisfy the Court that notwithstanding that s 601AG applies to enable a plaintiff to proceed directly against the deregistered company's insurer, the plaintiff is nevertheless aggrieved by the deregistration and that it is just to order the company's reinstatement.

16 Indeed in Hutchinson, special circumstances were found to arise where the liquidator of the company was aware of the proceedings in question and yet had allowed the company to be deregistered without notice to the plaintiff.

17 I adopt, with respect, the statements in Hutchinson [36] - [37] to which I have referred.

18 The second matter referred to by counsel for the applicant in support of the order, notwithstanding the availability of a direct claim under s 601AG, was that it was said to be less than certain that QBE is in fact the insurer. Further, it was said to be likely that an insurer of Western Metals Zinc NL did exist, but that it may not be possible to identify the insurer, if it is not QBE, unless the company is reinstated. That is said to be because it is unlikely that the former liquidator of Western Metals Zinc NL or anybody else will be able or willing to take steps to ascertain the identity of the insurer unless and until the company is reinstated. Further, counsel for the applicant reiterates that the limitation period for any action expires tomorrow.

19 As to the last of those points, any injustice which might arise from the fact that the six-year limitation period expires tomorrow would be able to be dealt with by an order under s 601AH(3). This subsection empowers the Court to make any other order it considers appropriate if it is making an order for reinstatement under s 601AH(2). The authorities make it clear that this power extends to making orders to the effect that the period of deregistration will not count for the purpose of any limitation period. Thus, if subsequently it became necessary to reinstate the company, any difficulty arising from the fact that the six-year limitation period expires tomorrow could at that time be dealt with in a way which would avoid any prejudice to the plaintiff.

20 The remaining question is whether, the prospect that QBE is not the insurer and that, without reinstatement, it proves not to be possible to identify the insurer, is a sufficient reason to make it just in all the circumstances to order the reinstatement of the company. I am not satisfied that this is a sufficient ground to conclude that it would be just to reinstate Western Metals Zinc NL in the circumstances of this case.

21 In so concluding, I take into account that by its nature, an order for reinstatement results in reinstatement for all purposes. It seems to me that justice is not best served by making an order for reinstatement at this time. Rather, if the contingency said to justify the need for reinstatement were to arise, then at that time an application could be made. The fact that the limitation period would by then have expired will be able to be remedied or dealt with by the making of an order under s 601AH(3).

22 For those reasons, in my opinion the application should be refused or adjourned.