On 14 May 2024, as Commercial List Duty Judge, I made the following orders:
1. Pursuant to s 601AH(2) of the Corporations Act 2001 (Cth), the Fifth Defendant is to reinstate the registration of Bill. H Pty Limited ACN 108 973 575, the Third Defendant, forthwith.
2. Pursuant to s 601AH(2) of the Corporations Act, the Fifth Defendant is to reinstate the registration of 25 Jersey Road Matraville Pty Limited ACN 605 723 313, the Fourth Defendant, forthwith.
3. Pursuant to s 601AH(3)(c) of the Corporations Act, the commencement of these court proceedings against the Third Defendant and the Fourth Defendant is validated as having been commenced against the Third Defendant and the Fourth Defendant as at 10 May 2024.
4. Pursuant to s 601AH(3)(d) of the Corporations Act, the Plaintiff is to serve a sealed copy of orders 1 to 3 together with a Form 105 on the Australian Securities and Investments Commission by 5.00 pm on 15 May 2024.
These are my reasons for making those orders.
The plaintiff, Mr El-Rihani, was previously in business with the second defendant, Mr Hotait. Together, they ran a construction and property development business through several companies, including Sky Works NSW Pty Ltd.
In 2016, Mr El-Rihani and Mr Hotait decided to end their joint business and executed a "Deed of Separation" which required each to make contributions to a trust account for the benefit of Sky Works' creditors.
Mr El-Rihani alleges that Mr Hotait refused to make the contributions required of him under the Deed of Separation.
On 14 March 2018, Mr El-Rihani commenced proceedings arising from those matters. The proceedings were commenced in this Court and later transferred to the Federal Court of Australia.
As at 5 June 2018, Bill.H Pty Limited owned a property in Maroubra. Mr Hotait was the sole director, secretary, and shareholder of Bill.H Pty Limited.
On 5 June 2018, Mr Hotait caused Bill.H Pty Limited to transfer the Maroubra property to the first defendant, Ms Amne Sbeiti. Ms Sbeiti is Mr Hotait's wife. The consideration stated on the Transfer was $2 million. The evidence does not reveal whether Ms Sbeiti paid the consideration of $2 million.
On 26 September 2019, the Federal Court conducted a hearing to decide several separate questions arising from Mr Hotait's defence of the proceedings commenced against him by Mr El-Rihani.
As at 8 October 2019, 25 Jersey Road Matraville Pty Ltd was the registered proprietor of property in Matraville. Mr Hotait was then one of two directors and was a 50% shareholder in that company, with the other 50% shareholder being, curiously, 25 Jersey Road Matraville Pty Limited itself.
On 8 October 2019, 25 Jersey Road Matraville Pty Ltd transferred the Matraville property to Ms Sbeiti. The consideration stated on the transfer of that property was $1,525,000. The evidence before me does not reveal whether Ms Sbeiti paid that consideration.
On 22 November 2019, Bill.H Pty Limited was deregistered.
On 30 June 2020, the Federal Court delivered its judgement. The Federal Court decided each of the separate questions against Mr Hotait.
On 27 September 2021, 25 Jersey Road Matraville Pty Ltd was deregistered.
On 6 June 2023, the Federal Court ordered Mr Hotait pay $2,073,343.93 into a nominated trust account by five instalments. Mr Hotait did not comply with that order.
On 22 December 2023, Mr Hotait affirmed an affidavit that suggests he no longer has assets to comply with the order.
On 5 April 2024, Mr El-Rihani commenced proceedings in this Court seeking preliminary discovery of all documents evidencing payment of consideration for the transfer of the Maroubra property and the Matraville property. [1]
On 26 April 2024, Peden J made final orders in those proceedings requiring Ms Sbeiti to give preliminary discovery documents evidencing payment of consideration for the transfer of the Maroubra property and the Matraville property in seven days. Relevantly, Peden J ordered:
Mr El-Rihani may use the documents disclosed by Ms Sbeiti … for the purposes of commencing proceedings against Ms Sbeiti in an appropriate court.
Ms Sbeiti has not complied with those orders.
Mr Harker, who appeared for Mr El-Rihani, submitted that, but for the events I have described, Mr El-Rihani could have sought to enforce the Federal Court orders by:
1. applying for writ of sequestration or writ of execution in respect of Mr Hotait's shares in Bill.H Pty Limited and 25 Jersey Road Matraville Pty Ltd; or
2. causing a receiver to be appointed under s 57 of the Federal Court of Australia Act 1977 (Cth) in respect of those shares,
and then to realise the value of the shares "or possibly the Maroubra and Matraville properties".
Mr Harker submitted that the transfer of the two properties to Ms Sbeiti, and the subsequent deregistration of the two companies, effectively denies Mr El-Rihani the ability to do so.
In these proceedings, Mr El-Rihani:
1. seeks as final relief, orders under s 37A of the Conveyancing Act 1919 (NSW) that the transfer of the Maroubra property by Bill.H Pty Limited to Ms Sbeiti, and the transfer of the Matraville property by 25 Jersey Road Matraville Pty Ltd to Ms Sbeiti be declared void as transfers made with intent to defraud creditors of Mr Hotait including, Mr El-Rihani; and
2. also sought the orders I have set out at [1] in order that such final relief be pursued.
Mr Harker submitted that that proposed claim under s 37A is "not unarguable nor bound to fail" and pointed to the timing of the transfers in the context of the progress of the Federal Court proceedings, and the fact that the transfers were made to Mr Hotait's wife evidently leaving him without assets.
The matter was brought on before me urgently as the transfer of the Maroubra property was registered on 17 May 2018 and, arguably, the limitation period for Mr El-Rihani's proposed claim under s 37A would expire six years later, on 17 May 2024; then only a few days away.
Mr El-Rihani has named the Australia Securities and Investments Commission (ASIC) as fifth defendant and served the application on ASIC in accordance with directions I made on 10 May 2024.
On 13 May 2024, ASIC wrote to Mr El-Rihani's solicitors:
"ASIC's position
I confirm that ASIC's Regulatory Guide 83 requirements have been satisfied by the First Applicant. Accordingly, on the basis that:
1. the plaintiff has provided notification to the former sole director of the companies of the Application, advising that their role as director will resume in the event the companies are reinstated; and
2. no order for costs will be sought against ASIC/the Commonwealth;
I confirm that ASIC does not oppose the order for relief sought in the Application and does not wish to be heard nor intends to appear at the hearing tomorrow. A copy of this email may be provided to the Court [so] it is aware of ASIC's position." (Emphasis in original.)
Section 601AH of the Corporations Act provides, relevantly:
"(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 … and
(b) the Court is satisfied that it is just that the company's registration be reinstated."
The principles concerning a reinstatement application such as this were recently summarised by McGrath J in Yi Li v Australian Securities and Investments Commission, [2] as follows:
"The legal principles concerning a reinstatement application are well established, being as follows:
(1) The question whether an applicant under s 601AH(2) is a 'person aggrieved by the deregistration' is considered by reference to legal rights and legal interests. [3]
(2) The concept of a 'person aggrieved by the deregistration' includes a person who has a genuine grievance because a company's dissolution has extinguished a right of some value or potential value, including a right to bring proceedings against the company or to bring a claim by the company against a third party. [4]
(3) The question of whether it is just that the company's registration be reinstated involves a broad discretionary judgment of the court, the relevant considerations for which include the circumstances in which it was deregistered, the purpose of the person aggrieved in seeking its reinstatement, whether any person is likely to be prejudiced by its reinstatement and the public interest generally. [5]
(4) On an application for reinstatement, the court is concerned with the justice of reinstating the company, not the justice of any proceedings which it is proposed that the reinstated company might institute or resume. [6]
(5) It is often not appropriate in an application for reinstatement to go into factual matters which may be the subject of dispute. [7]
(6) The effect of reinstatement is that the former directors and secretary automatically resume office as directors and secretary of the company by reason of the operation of s 601AH(5) of the Corporations Act. [8]
(7) The power of the court in s 601AH(3)(d) of the Corporations Act to 'make any other order it considers appropriate' must be exercised having regard to all of the circumstances of the particular case and the broader context of the operation of the Corporations Act." [9]
As Mr Harker submitted, the threshold in relation to such an application is low.
And as Brereton J said in In the matter of ERB International Pty Ltd (deregistered): [10]
"It will be a very rare case that merely reinstating a company will be prejudicial to a potential defendant. That potential defendant still has available all the remedies of summary dismissal and stay in the substantive proceedings, if they are instituted. All he or she is deprived of is the opportunity to prevent the proceedings even being instituted - an issue on which a defendant usually has no say. In my view, a court should not, on a reinstatement application, conclude that reinstatement would be unjust on account of considerations analogous to abuse of process or want of prosecution unless affirmatively satisfied that a fair trial could not be had, or that the proposed proceedings were doomed to fail. … [S]uch questions can usually only [be] addressed once the cause of action has been formulated and pleaded and the issues defined, and are best examined by the court in which the substantive proceedings are conducted."
I was satisfied that Mr El-Rihani is a "person aggrieved" for the purposes of s 206AH, and that the justice of the case required that an order be made reinstating the companies.
I should add that, at the hearing, Mr Hotait was present in person and Mr Calabria, solicitor, appeared for Ms Sbeiti. [11] Both said that they neither consented nor opposed the reinstatement orders being made. Neither pointed to any prejudice that might arise from an order for reinstatement beyond the prejudice that will inevitably be sustained by reason of having to defend Mr El-Rihani's proposed claim.
It is for those reasons that I made the orders set out [1] above.
To be clear, nothing in this judgment should be taken as me expressing any view about the merits or otherwise of the claim that Mr El-Rihani proposes to bring under s 37A of the Conveyancing Act other than to say that the plaintiff had satisfied me that the claim is not unarguable nor bound to fail.
[3]
Endnotes
Proceedings numbered 2024/126975.
[2024] NSWSC 514 at [25].
Arnold World Trading Pty Ltd v ACN 133 427 335 Pty Ltd [2010] NSWSC 1369 (Barrett J) at [43], approved in In the matter of LCW Property Holdings Limited (deregistered) [2020] NSWSC 71 (Gleeson J) at [17].
In the matter of Likehart Pty Ltd (deregistered) [2017] NSWSC 884 (Black J) at [18]; LCW Property at [21]; In the matter of Human Group Pty Ltd; In the matter of A.C.N. 137 384 662 Pty Ltd [2023] NSWSC 28 (Black J) at [7].
In the matter of ERB International Pty Ltd (deregistered) [2014] NSWSC 200 (Brereton J (as his Honour then was)) at [5]; LCW Property at [16], [22]-[28]; Human Group at [9].
ERB International at [10] citing the Victorian Court of Appeal in AMP General Insurance Ltd v Victorian WorkCover Authority [2006] VSCA 236 (Maxwell P and Neave JA) at [35]; applied in LCW Property at [22].
Pilarinos v Australian Securities and Investments Commission [2006] VSC 301 (Gillard J) at [22]; Deputy Commissioner of Taxation v Australian Securities and Investments Commission; Re Civic Finance Pty Ltd (deregistered) [2010] FCA 1411 (Jagot J) at [14], applied in LCW Property at [20].
LCW Property at [27], citing Mitzev v Foxman [2007] NSWCA 273 (Basten JA, Tobias and McColl JJA agreeing) at [25].
Federal Commissioner of Taxation v Iannuzzi (No 3) [2024] FCA 45 (Markovic J) at [215].
Supra at [13].
Albeit only for the purpose of the reinstatement application.
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Decision last updated: 18 May 2024