Elias v Australian Securities and Investments Commission

REASONS FOR JUDGMENT 1 This is an application brought under s 601AH of the Corporations Act 2001 (Cth) for reinstatement of Zel Management Pty Limited ("Zel") as a registered company. 2 I will refer to the plaintiff as "Mrs Elias" and her husband Mr Kristo Elias as "Mr Elias". The application is supported by affidavits sworn by Mrs Elias on 17 November 2015, 1 February 2016, 15 March 2016 and 30 March 2016; and by her children, Mr Andrew Elias ("Andrew") on 10 December 2015; Mr Elias Elias ("Les") on 15 December 2015, and Ms Tespina Elias ("Tespina") on 17 December 2015. I mean no disrespect by referring to Mrs Elias' adult children by their given names. 3 Zel was registered on 9 December 2009 with Mrs Elias as sole director and shareholder. In 2012, the Australian Securities & Investments Commission ("ASIC") was notified that Mrs Elias had retired as a director and Les was appointed as a director, he also replaced her as the sole shareholder of Zel. Zel was deregistered on 3 May 2015. 4 In the original formulation of the application to this Court, Mrs Elias also sought orders under ss 53(a), (e) and (f) and s 233 of the Corporations Act that Les holds the shares in Zel registered in his name as bare trustee for her, that those shares are not property divisible among Les' creditors under s 116(1) of the Bankruptcy Act 1966 (Cth) and that Mrs Elias is the beneficial owner of those shares and has the power to control the exercise of the right to vote and dispose of those shares. With leave, the application was amended to seek this relief under s 30 of the Bankruptcy Act and to seek orders under s 175 of the Corporations Act to correct Zel's register accordingly, with the consequence that ASIC must be notified of the change. 5 On 2 March 2016, the Official Trustee lodged a notice dated 29 February 2016 submitting to any order which the Court makes. At the hearing on 14 March 2016, Counsel for Mrs Elias, Mr Gray, advised that ASIC had indicated that it did not intend to appear at the hearing but that it did not oppose the orders sought.

Background 6 Mr and Mrs Elias ran a construction business through several companies. In 2010, a number of the companies came under financial strain. Zel was unable to complete a 10 townhouse development in Homebush, New South Wales ("Development") and had to bring in some partners to help fund the remainder of the project, being members of the Arraj family and companies associated with them. 7 Mrs Elias sought Zel's reinstatement so that it can execute a settlement deed in respect of litigation concerning the Development which has been on foot in the Supreme Court of New South Wales since mid-2011. Consequent upon the settlement, a townhouse would be transferred from Antoine and Renee Arraj to Zel and certain moneys held by the Supreme Court will be released. Mr Gray advised the Court that the Supreme Court proceedings have been stood over until early May 2016. 8 Mr Elias suffered a heart attack in February 2012, he was critically ill for three months after that and required ongoing hospital treatment until his death on 17 February 2014. Mrs Elias was his primary carer and felt unable to deal with the ongoing litigation with the Arraj family. English is Mrs Elias' second language and she felt out of her depth in the litigation. As the oldest son in a family with a Lebanese heritage, Les agreed to take on the role of director of Zel in April 2012 and to relieve his mother of this responsibility while she cared for Mr Elias. 9 Mrs Elias queried whether Les could take on the role as he had been made bankrupt in 2005. Les says that he thought he had been discharged from bankruptcy in early 2012; he asserts that he filed a return as to affairs in 2009. His sister, Tespina, conducted much of the administration of the family's companies. She says that she conducted a search of ASIC's register of disqualified and banned persons for "Elias Elias" without result. A Veda search of "Elias Elias" on 16 April 2012 also did not reveal that he was bankrupt. 10 Mrs Elias retired as a director of Zel on 20 April 2012 and a document notifying ASIC of the change was filed on that day. A document notifying ASIC that Les had been appointed as a director was also lodged on 20 April 2012. A further document notifying ASIC that Les replaced Mrs Elias as the sole shareholder on 11 November 2012 was filed with ASIC on 5 December 2012. The notification of change in members indicates that Les would hold the shares beneficially. Both Tespina (who prepared the form) and Les say that they did not understand what the term "beneficially" meant. Les says that there was no other transfer document, that he did not pay for the shares, that Mrs Elias (often with funds provided by her son Andrew and her son-in-law) funded the litigation and that he acted under his mother's direction in relation to the conduct of the litigation with the Arraj family. Les says he always regarded himself as no more than a nominee of his mother. Andrew confirms that he provided funding to his mother to conduct the litigation. 11 The terms of the settlement deed for the Supreme Court proceedings were agreed in June 2015 and a draft deed of settlement is in evidence. 12 In early July 2015, Mrs Elias said that, with the "case" with the Arraj family settled, she would resume her position as director and shareholder of Zel and that she intended to live in the townhouse. 13 Tespina says that she attempted to change the directorship and membership of Zel to re-appoint Mrs Elias as sole director and to record that she was the beneficial owner of the shares but was unable to do so because Zel had been deregistered due to non-payment of the annual registration fee. In early July 2015, Mrs Elias lodged an application with ASIC to reinstate Zel to the register of companies. ASIC advised her on 16 July 2015 that it could not consider her application because she was not a director of Zel at the time it was deregistered. 14 On 10 August 2015, ASIC wrote to Les advising that it could not consider an application to reinstate Zel's registration which he lodged in early August, as ASIC's records indicated that he did not hold the office of director at the time Zel was deregistered. In a telephone conversation, an officer of ASIC advised Mrs Elias and Tespina that ASIC took the view that Zel had not had a director since April 2012. On 31 August 2015, an officer of ASIC sent an email to Les indicating that while he may not be bankrupt under the name "Elias Elias", he was bankrupt under the name "Les Elias" and therefore the criteria for reinstatement could not be met. The ASIC officer advised Les that an application for reinstatement of Zel could be made to either the Federal Court or the Supreme Court. 15 Les undertook that if Zel was reinstated, he will immediately transfer the shares he holds to Mrs Elias and "remove myself as a director". Mrs Elias undertook that upon restoration of Zel to the register of companies, she will procure Les to transfer the shares to her, complete a written consent to act as director and then, acting as sole shareholder resolve to be the sole director. She also undertook to lodge all the requisite forms with ASIC and pay all outstanding fees.

Declaration 16 I am satisfied that Mrs Elias is the beneficial owner of the Zel shares and that it is appropriate to make a declaration that they did not form part of the property of Les divisible among his creditors. 17 The evidence of Mrs Elias, Tespina and Les is all to the effect that there was no intention to transfer the beneficial interest in the shares in Zel to Les. Save for the fact that the form notifying ASIC of the change of ownership indicated that Les would have a "beneficial" interest in the shares, the evidence is that Les was to act as Mrs Elias' nominee during a difficult time in his parents' life and in circumstances where Mrs Elias was not in a position to manage the ongoing litigation. This evidence is consistent amongst the deponents. I accept the evidence of Les and Tespina that they did not understand what was meant by "beneficially" in the context. There is no evidence that Mrs Elias intended to gift the shares to Les or that she received consideration from him for them. The litigation in relation to the Development was funded by Mrs Elias, with the assistance of her son Andrew and her son-in-law. 18 The Official Trustee does not oppose the proposed declaration. 19 Mr Gray provided written submissions in support of the application for the declaration and orders under s 233 of the Corporations Act. Mr Gray could not suggest any precedent for orders based on s 232 in a context such as this. At the hearing on 14 March 2016, I indicated to Mr Gray that, while I was satisfied that it was appropriate to make an order as to the beneficial ownership of the shares and that they did not form part of Les' bankrupt estate, I was unconvinced that ss 232 and 233 provide a sound foundation for that order. The application was accordingly amended to seek a declaration under s 30 of the Bankruptcy Act and orders under s 175 of the Corporations Act.

Reregistration 20 Section 601AH(2) of the Corporations Act empowers the Court to make an order that ASIC reinstate the registration of a company if a "person aggrieved" by the deregistration applies for such an order and the Court is "satisfied that it is just that the company's registration be reinstated". 21 A beneficial shareholder is capable of being a "person aggrieved": see Brereton v Australian Securities and Investments Commission [2007] FCA 651 at [11] per Finkelstein J. 22 The phrase "satisfied that it is just that the company's registration be reinstated" confers wide discretion on the Court; the Court is not constrained by any particular criterion. However, there are a number of matters which ought to be taken into account including the circumstances in which the company came to be deregistered, the party making the application, the future activities of the company if an order is made and whether any person would be likely to be prejudiced. ASIC's attitude towards Zel's reinstatement should also be taken into account, as must the fact that a company cannot be reinstated for a limited purpose: see Deputy Commissioner of Taxation v Australian Securities and Investments Commission; in the matter of Civic Finance Pty Limited (Deregistered) [2010] FCA 1411 at [25]-[26]. Whether reinstatement is "just" also involves consideration of the future stewardship of the company when it comes back into existence: Stone v ACN 000 337 940 Pty Ltd (2008) 68 ACSR 242; [2008] NSWSC 1058 at [23] per Barrett J. 23 Mrs Elias has given evidence that Zel has no creditors other than herself for the sums she provided to support the litigation with the Arrajs; there is evidence that Zel will benefit from the execution of the settlement deed, the terms of which have been agreed. As a result of the transfer of the townhouse to Zel, Mrs Elias will be provided with a home. All of these circumstances indicate that it would be just that an order be made that Zel be reregistered. However, the Court did not have before it evidence of ASIC's attitude to the application. At the hearing on 14 March 2016, Mr Gray was not in a position to tender evidence of ASIC's attitude to the proposed orders. 24 At the resumed hearing on 22 March 2016, Mr Gray tendered a copy of a letter dated 25 November 2015 from an officer of ASIC. The letter advised that ASIC had been served with a copy of the originating process and Mrs Elias' supporting affidavit. ASIC advised that it would not oppose the application for reinstatement if certain conditions were met including: (1) that the order under s 601AH(2) requires ASIC to reinstate Zel's registration; and (2) as ASIC's records indicate that the shares held by the former office holder (Les, an undischarged bankrupt) were held beneficially, unless it was proved otherwise, upon its reinstatement that Zel be wound up and the Court appoint a liquidator. It would have been appropriate for these conditions to have been drawn to the Court's attention as part of the material supporting the application; it should not have been left to the Court to require production of the letter. 25 As this letter predated both an indication from the Official Trustee that it would not oppose orders and knowledge of the Court's willingness to make a declaration that Mrs Elias was the beneficial owner of the Zel shares, I asked Mrs Elias' legal advisors to seek ASIC's attitude to the amended proposed orders, which would include both a declaration as to Mrs Elias' beneficial ownership of the Zel shares and an order under s 175 correcting the register of members accordingly.

Order under s 175 26 The Court has jurisdiction to correct a register of shareholders whenever the plaintiff has an equity to support the remedy. The power should only be exercised to give effect to some legal or equitable right on the part of the plaintiff: see Price v Powers [2005] WASC 154 at [98] per Le Miere J. In this case, I will make a declaration that Mrs Elias is the beneficial owner of the shares in Zel. She therefore has the power to exercise control over those shares, which would include calling for the transfer of legal title to herself. In my view an order correcting the register will facilitate the reregistration of Mrs Elias as the sole shareholder of Zel and provides certainty as to this step in circumstances where the Court would otherwise be relying on Les' assurance that he will transfer the shares, and having regard to ASIC's attitude (see below). There is no power under Pt 2C.1 of the Corporations Act for the Court to correct the register to effect a change in directors, as requested by Mrs Elias in her revised application. I declined to make that order.

ASIC 27 There is a difficulty as to the order in which Zel's reinstatement and resolutions of the sole shareholder appointing Mrs Elias as a director should occur in the current circumstances. By seeking ASIC's attitude to the proposed orders, I had hoped to elicit assistance as to this detail, however, I have not been greatly assisted. 28 On 30 March 2016, Mrs Elias swore an affidavit which she deposed to the following: On 27 March 2016, Mrs Elias consented to be appointed as a director of Zel; On 28 March 2016, as sole registered shareholder of Zel, Les signed a resolution appointing Mrs Elias as a director. To avoid doubt, he also signed a document dated 29 March 2016 formally resigning as a director; and Mrs Elias undertook that forthwith upon Zel's reregistration, she would give notice of these matters. 29 I note that Mrs Elias has previously undertaken to pay ASIC all outstanding fees. 30 On 6 April 2016, Mrs Elias' legal advisors provided me with a copy of an email sent on 1 April 2016 by Mr Lettoof of ASIC. It advised as follows: ASIC's position is as stated in my correspondence dated 25 November 2015. Reinstatement returns the company to registered status as if it was never deregistered. Hilda Elias would need to resume her directorship as of 20 April 2012, the day of her cessation. Elias Elias, being a bankrupt, should not have been appointed a director. If the Court is satisfied as to the verity of the declarations made by Mrs Elias, then it should make such Orders as it sees fit. 31 It is difficult to envisage how Mrs Elias can "resume her directorship as of 20 April 2012". The only conclusion I can come to is that ASIC is suggesting that the only appropriate course is to order that Zel's registration be reinstated and appoint a liquidator. As Zel does not appear to be insolvent, the utility of that is difficult to comprehend having regard to the form of the declaration that the Court will make as to the beneficial ownership of the Zel shares, which was advised to ASIC. In the circumstances, the fact that Zel might have been without a director since 20 April 2012 through inadvertence is of little moment and is greatly outweighed by the utility of reinstating Zel's registraton with Mrs Elias resuming her roles as director and shareholder so that settlement with the Arrajs can be effected. There is no suggestion that Mrs Elias is bankrupt. 32 As reinstatement takes effect as though the company had never been de-registered, I have taken the view that Les' resolution appointing Mrs Elias as a director will be effective. However, should ASIC form a different view when Mrs Elias seeks to file notifications as to the change of directors, with the benefit of the order under s 175 Mrs Elias will be in a position to pass a resolution appointing herself as a director. I grant Mrs Elias liberty to apply to the Court for any necessary remedial orders to assist her in achieving the desired outcome. I certify that the preceding thirty-two (32) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Farrell.