Gibbons v LibertyOne Ltd

Judgment 1Henry Davis York ("HDY") brings an application under s 588T of the Corporations Act 2001 (Cth) for leave to commence proceedings against the former directors of ACN 062 408 040 Pty Limited (in liq) ("Company") for an amount of $294,099.84 under ss 588G and 588M of the Corporations Act. That amount relates to legal costs incurred by the Company in respect of the conduct of certain proceedings. That application is listed before the Court on a future occasion and it is not necessary to address it today, other than in respect of the exercise of the Court's discretion as to the application to be heard today. 2HDY today seeks an order under s 509(6) of the Corporations Act that the Australian Securities and Investments Commission ("ASIC") deregister the Company at a future date, other than the date that would arise by the application of s 509(5) of the Corporations Act. That order has been put in somewhat different ways in the course of the application. In the originating process, the order was initially sought in the form that ASIC not deregister the Company in accordance with s 509(5) of the Corporations Act until further order of the Court. That form of order was not pressed before me, and it is unlikely that the Court could have made an order in that form under s 509(6) of the Corporations Act. The alternative orders that were pressed before me were orders either that ASIC deregister the Company one month after the disposal of the application for leave under s 588T of the Corporations Act or the disposal of the relevant proceedings, or alternatively that ASIC deregister the Company on a specified date, 18 December 2014. I will return to the difference between those forms of order below. 3The liquidator of the Company has appeared in respect of this application, and Mr Watson, representing the liquidator, has made helpful submissions in respect of certain issues that may arise in connection with the application. HDY has also, appropriately, given notice of the application to ASIC which has advised that it considers that the matter is properly left for the Court's determination and that it does not propose to intervene in the proceedings or seek leave to appear in connection with the application. 4With that background, I should note that the need for the application arises because the liquidator of the Company held its final meeting of members and creditors and lodged his final return with ASIC on 18 January 2013 and, unless an order is made under s 509(6) of the Corporations Act, ASIC is required under s 509(5) of the Corporations Act to deregister the Company on 18 April 2013, being three months after the final meeting of members and creditors. Section 509(6) of the Corporations Act in turn provides that: "On application by the liquidator or any other interested party, the Court may order that ASIC deregister the Company on a specified date. The Court must make the order before the end of the three month period after the return was lodged." 5I should note one further matter. Mr Cook, who appears for HDY, has made clear that he proceeds, in effect, on an ex parte basis. The proposed proceedings are sought to be brought against two directors of the Company as well as against the Company. While the liquidator appears in right of the Company, those directors are not present today. It appears that the directors have not been formally served with the application, where it appears that both are presently outside the State and that it may be difficult to contact them. Nonetheless, the application is plainly urgent, given the impact of s 509(5) of the Corporations Act unless orders are made as sought by HDY. In these circumstances, it seems to me that it is open to the Court to hear the application on the present basis; to put it another way, the directors' absence from the jurisdiction, or difficulty of service upon them, should not deprive HDY of the opportunity to have its application determined within the time period in which it is necessary to determine it for any order to have practical effect. To the extent that the directors' interests may be affected by the application, it will be possible, at least to some extent, to recognise their interests by granting other parties liberty to apply in respect of any orders made. 6The questions raised by HDY's application are first, whether it is an "interested party" for the purposes of the section; second, whether a form of order that would provide for deregistration within a period after the determination of an application before the Court constitutes an order for deregistration on a "specified date" for the purposes of the section, or whether any order could only be made in the alternative form raised by HDY; and, third, whether the Court should exercise the discretion to make the orders sought in all the circumstances, which must have regard to the practical impact of such an order on the liquidator's position. 7It seems to me that HDY is plainly an "interested party" for the purposes of s 509(6). The case law has recognised that a person seeking to maintain a claim against the Company may fall within that classification: Programmed Maintenance Services Ltd v Ranelagh House Pty Ltd (in liq) [2008] FCA 1974 at [6]-[8]. HDY is such a person and it is at risk of its claim being defeated if the Company is deregistered, because it is at least arguable that such a claim could not be maintained under s 588M of the Corporations Act in respect of a deregistered Company: International Greetings UK Ltd v Stansfield [2010] NSWSC 1357; (2010) 79 NSWLR 464; (2010) 80 ACSR 664. In any event, HDY could not continue its claim against a deregistered Company without an order for reinstatement being made, and its exposure to the costs of such a reinstatement application gives it a proper interest in pursuing this application. 8The second question is whether an order could be made in the first form sought by HDY, so as to bring about the deregistration of the Company within a period of a specified event, namely the disposal of its application for leave under s 588T of the Corporations Act or of the proceedings it brings if such leave is granted. I do not doubt the convenience of making an order in that form. However, in Re Rosaub Pty Ltd (in liq) [2005] NSWSC 689; (2005) 54 ACSR 371 at [15], Barrett J expressed the view, with reference to earlier authorities, that a date on which a future event may happen (being, relevantly, the determination of HDY's applications) is not a specified date, when the event is not certain to happen (for example, if the proceedings were to evolve in a manner which did not give rise to a final determination of them). His Honour noted that, where the Court makes an order displacing the 3-month period under s 509(5) of the Corporations Act, it must ensure that it "leaves no doubt on the question what ASIC is to do, in a timing sense, by way of deregistration". I agree with that view, which is consistent with the authorities to which his Honour referred. 9That difficulty may be addressed, as it was in Re Rosaub (and is proposed to be by the second form of order proffered by HDY), by amending the form of order to specify a fixed date that would likely be sufficient for completion of the proposed proceedings. For example, in Programmed Maintenance Services Ltd above, the Federal Court of Australia (Jacobson J) made an order that deregistration take place on a fixed date, there being two years after the application before him, to allow a plaintiff to pursue its claims against a company. That course involves one practical, and unavoidable, difficulty. Once that date is fixed, a subsequent variation of it may not be effective, given the requirement in s 509(6) of the Corporations Act that the order be made before the end of the 3-month period after the return was lodged. An extension of the time for the Company's deregistration will in turn extend the period for which the liquidator remains in office, which is a matter to which I must have regard in exercising the Court's discretion and to which I will refer below. 10I turn now to the question of the exercise of the Court's discretion as to whether to make the order in these circumstances. It is neither necessary nor appropriate for me to express any detailed view as to the prospects of an application for leave under s 588T of the Corporations Act, as sought by HDY, which allows the Court to grant leave for a creditor to bring proceedings under s 588M of the Corporations Act without a liquidator's consent in specified circumstances. I note that the application for leave will shortly be determined by the Court, subject to the outcome of these proceedings, on a separate occasion. It is only necessary to note that the application is supported by an affidavit of Ms Merrick dated 9 April 2013, which sets out the history of the proceedings in which HDY acted, the circumstances which gave rise to the debt underpinning HDY's claim, and identifies several factors which HDY contends support a conclusion that the Company was insolvent during the period in which it incurred that debt, so as to support a claim under s 588G and s 588M of the Corporations Act. I am satisfied that HDY has a seriously arguable case that it ought to be granted leave, without needing to express a final view as to whether that leave would be granted, and recognising that the Court has not yet heard from the directors who may wish to put submissions to the contrary. 11Accepting that there is a seriously arguable question as to whether leave ought to be granted, the legislation does not itself confine the Court's exercise of its discretion whether to grant that leave. The case law has identified relevant factors as including whether the continued existence of the Company is necessary in order to effect some proper purpose; whether, if deregistration was not deferred, interested persons would suffer a loss that there is no particular reason that they should suffer; and whether "some apparently beneficial purpose will, according to the evidence, be served by deferral", Re Rosaub at [12] and the cases cited therein. In the present case, the preservation of HDY's ability to pursue its claims is such a beneficial purpose and, conversely, there seems to be no reason that HDY should suffer its loss of the ability to bring those claims by reason only of the Company's deregistration. 12I am conscious that HDY's position must be balanced against the liquidator's interest and, possibly, that of other creditors and contributories in bringing the winding up to an end at the earliest practicable time. Mr Watson, who appeared for the liquidator, ultimately submitted that the liquidator's position was that any order extending the time should be for the shortest practicable period. 13Mr Watson also drew attention to two other matters. First, he properly drew attention to the fact that the Form 524 lodged by the liquidator with ASIC had recorded, in answer to a column requiring specification of the date of the liquidator's ceasing to act, the date of 18 January 2013, which was the date of the final meeting. That record might be understood, on one view, as the liquidator's assessment of when the substantive work that he was then required to undertake was completed. If read in that way, the statement is very likely correct, since by that date the liquidator would have brought in the Company's assets to the extent possible to do so; made any distributions to claimants in the winding up; and attended to convening the final meeting as required by the Act. If that statement is read as containing an implication that the liquidator had ceased to hold office on that date - and I note that it does not state that in terms, then it would be incorrect. The liquidator had not, on the evidence before me, resigned nor had he obtained an order from the Court releasing him so as to bring about his resignation. Even if s 509(5) of the Corporations Act took effect in accordance with its terms, there would have been a further period of three months before the Company would was deregistered. Mr Watson has indicated that it may be the liquidators' practice to complete the form in this manner; it is not necessary for me to express any view as to whether that practice may need revision in future. I do not consider that the fact that the form was completed in that way has any substantial impact on the outcome of this application; if it was incorrect, that error exists whether or not this application is granted, because on any view the liquidator would remain in office until the date the Company was deregistered. 14Mr Watson submitted that the liquidator would potentially be exposed to additional cost by the Company continuing in existence. That may be the case, although that prospect is mitigated by several matters. First, s 545 of the Corporations Act provides a statutory protection against the liquidator being required to undertake work which he is not funded to undertake, beyond compliance with his statutory obligations. Second, there may be little further work to be done, where the final meeting has already been held, presumably on the basis that the winding up is complete. Third, to the extent that further meetings may be required, by the continuance of the winding up, the Court may have the ability to relieve the liquidator from that requirement, since the Company passed into liquidation from voluntary administration and the Court's ability to make orders under s 447A of the Corporations Act is available in that situation: Gibbons v LibertyOne Ltd (in liq) [2002] NSWSC 274; (2002) 41 ACSR 442. Mr Watson accepted that the proper course for the Court is not to seek to make such orders at this point, although I have noted the possibility that they may be made, if the liquidator, on further advice, considers it is necessary to seek them. 15I do not consider that, as Mr Watson submitted, it would be an appropriate course to make any order extending the time for deregistration conditional upon HDY paying the liquidator's costs of further work done in the liquidation. First, that order has the obvious difficulty that it does not include any direct causative nexus between the application made by HDY and the further work that might then be done. Second, I do not think such an order could be made without further exploration, at a factual level, of the circumstances in which the liquidation has been completed without HDY's claim being determined, which is not a matter which was addressed by any party in evidence before me. Third, on the evidence before me, there is no reason to consider that, with the avenues available to the liquidator and the Court to protect his position, the costs to which he is exposed are likely to be substantial. 16In these circumstances, I am satisfied that the Court should make an order under s 509(6) of a similar character to that made in Re Programmed Maintenance Services above, in order to preserve HDY's claim. I will make that order in a form that extends the date for deregistration to a specified date, 18 December 2014, being the date put forward by HDY. I will reserve liberty to any interested person to apply, although the utility of that liberty may be confined, so far as any application were made to vary the time period, by the limited power of the Court to do so under s 509(6) of the Act. That reservation will, at least, permit the liquidator to seek any necessary orders arising from the extension of time. 17I therefore make the following orders: