GIO General v Sabko [2007] NSWSC 251 | Case summary

1101/07 GIO GENERAL LTD (AGENT FOR WORKCOVER SCHEME) V SABKO PTY LTD JUDGMENT 1 HIS HONOUR: By an originating process filed on 15 January 2007, the plaintiff sought an order under s 601AH(2) directing ASIC to reinstate the registration of Sabko Pty Ltd ("the company"), and orders for the winding up of the company and the appointment of a liquidator, forthwith upon its reinstatement. Registrar Flaskas made a reinstatement order on 16 March 2007. The plaintiff came before me as Corporations List Judge on Monday 19 March 2007 to seek winding up orders. For the purposes of the hearing before me, it was assumed that ASIC has reinstated the company in accordance with the court's order. 2 An ASIC company extract reveals that the company was registered in 2002. The sole director and secretary was Khoder Sabra. Only one annual return was filed, in January 2003, but it was "unprocessed". The company was deregistered under s 601AB (which relates to failure to respond to a return of particulars, lodge other documents or pay a review fee) on 25 December 2005. It was not, at that time, subject to external administration. 3 On 27 February 2007 the originating process and supporting affidavit were served on a person who identified himself as Mr Sabra, the director, at 11 Station St Guildford. That was the address given as the place of business in the company's workers compensation insurance proposal form to the plaintiff dated 8 April 2005. The plaintiff tendered a report by a registered commercial agent, who said he visited the premises at 11 Station St Guildford on 12 October 2006 and spoke to a male occupant, who declined to provide his name, but confirmed that the address was the mailing address of the company and said that the company was still trading. Mr Sabra did not seek to appear at the hearing before me. 4 The plaintiff seeks a winding up order either in insolvency under s 459A or on the just and equitable ground under s 461(1)(k). In order to have the standing to obtain the order, the plaintiff (not qualifying on any other basis) must establish that it is a creditor (s 459P(1)(b) and s 462(2)(b)). 5 The plaintiff asserts that the company owes it an amount for workers compensation insurance premium in the sum of $2717.82. The evidence given on behalf of the plaintiff is that it entered into an agreement with the company to provide workers compensation insurance cover upon the basis of the company's proposal. The insurance proposal, which is in evidence, is for insurance for the period of one year from 8 April 2005 to 8 April 2006. The plaintiff contends that the policy was automatically renewed for a further year, for a premium that fell due on 31 July 2006, after the insured company had ceased to exist. 6 Counsel for the plaintiff referred me to para 49(1)(a) of the Workers Compensation Regulation, according to which a policy of insurance must contain the provisions specified in Form 3. One of the provisions in Form 3 is as follows: " 17 Renewal of Policy This Policy is renewed on the expiration of the current period of insurance to which it applies, except where: (a) the Employer has given written notice to the Insurer (before the expiration of the current period of insurance) that renewal is not required, or (b) the Insurer has given the Employer notice in writing not less than 14 days before the expiration of the current period of insurance that the Insurer refuses to renew the Policy, but the Insurer cannot refuse to renew this Policy unless the WorkCover Authority has given its prior consent in writing to the refusal. The Period of each renewal is 12 months, or such shorter period as the Insurer and the Employer agree to before renewal." 7 In the circumstances I infer that the insurance policy contained the provisions in Form 3, including clause 17. I also infer from the evidence that no written notice to the effect that renewal was not required was purportedly given on behalf of the company, and that the plaintiff did not purport to give written notice of refusal to renew the policy, and that the parties did not purport to agree to renewal for a shorter period than 12 months. 8 The plaintiff relies on a premium invoice which says that the amount payable (a slightly smaller amount than the amount now claimed) is for renewal premium for the period from 8 April 2006 to 8 April 2007, and that the "due date" is 31 July 2006. There is no reason to doubt that if the company had been in existence at all relevant times, the statement of the due date contained in the invoice would have been correct. 9 The plaintiff's difficulty is that the asserted debt upon which it relies is said to have fallen due at a time when the company did not exist (see s 601AD). It is therefore necessary to consider whether the fact that the company was deregistered before the asserted debt became due prevents the plaintiff from having the standing of a creditor in respect of that debt. 10 The following provisions of the Corporations Act are relevant: "601AD(1) A company ceases to exist on deregistration. (2) On deregistration, all the company's property vests in ASIC. …"

"601AH(5) If the company is reinstated, the company is taken to have continued in existence as if it had not been deregistered. A person who was a director of the company immediately before deregistration becomes a director again as from the time when ASIC or the Court reinstates the company. Any property of the company that is still vested in ASIC revests in the company. If the company held particular property subject to a security or other interest or claim, the company takes the property subject to that interest or claim." 11 The plaintiff says that upon the reinstatement of the company, s 601AH(5) has the effect that the debt upon which it relies is taken to have been incurred by an existing company. However, as Campbell J pointed out in White v Baycorp Advantage Business Information Services Ltd [2006] NSWSC 441, at [115] and [127], s 601AH(5) achieves only a limited measure of retrospectivity, indeed more limited than its predecessor, s 574. The first sentence of subs (5) says that the company is taken to have continued in existence as if it has not been deregistered, but as Campbell J remarked (at [115]), "that does not mean that anything which purported to be done on behalf of [the company] during the period of its deregistration is thereby regarded as valid". If that were so, the power to make a validating order under subsection (3)(a) would be otiose. The limited operation of the first sentence of subsection (5) is underlined by the succeeding sentences, which make it plain that a director regains office and property revests in the company only from the time of reinstatement (see also CGU Workers Compensation (NSW) Ltd v Rockwall Interiors Pty Ltd [2006] NSWSC 690, at [17] per Barrett J). 12 Applying this construction, Campbell J held in the Baycorp Advantage case that company A could not have had authority from company P to give certain notices because, at the time when the notices were given, company P was deregistered. He also held that if (contrary to his finding) company P was an assignee of the lessor's rights under some rental agreements, unpaid instalments of rent accruing while company P was deregistered were property which vested in ASIC under s 601AD(2) and revested in the company under s 601AH(5) only upon reinstatement, and were therefore not owing to company P during the period of deregistration. In the Rockwall Interiors case, Barrett J adopted Campbell J's analysis and held (at [16]) that "the deemed continuity created by s 601AH(5) cannot … support a fiction that, in the period after deregistration, there was both service of and non-compliance with a statutory demand" in respect of a pre-existing debt. 13 I accept the reasoning in those cases, but in my opinion they are both distinguishable from the present case on their facts. In the Baycorp Advantage case, the answer to the question about whether company A had company P's authority to issue notices depended upon whether there was some identifiable act or conduct on behalf of company P having the effect that company P authorised company A to issue the notices. The assumption required by the first sentence of s 601AH(5), namely that upon its reinstatement, company P would be taken to have continued in existence as if it had not been deregistered, could not of itself supply that ingredient. Similarly, in the Rockwall Interiors case, it could not be said that a valid statutory demand was to be taken to have been issued, served and not complied with, simply by virtue of an assumption that the recipient of the demand, being subsequently reinstated, was taken to have continued in existence as if it had not been deregistered. 14 In the present case, in contrast, the company's liability is said to arise out of the insurance contract made before the company was deregistered, coupled with the fact that nothing subsequently happened after deregistration to terminate or vary that contract, and so there was a deemed renewal of the policy and a liability to pay the premium thereby accrued. The statutory assumption - that, upon reinstatement, the company is taken to have continued in existence as if it had not been deregistered - is sufficient to overcome the objection to the validity of the debt. The company is taken to be in existence throughout the renewed term of the policy by force of the first sentence of s 601AH(5), and so under the terms of the pre-existing contract a liability accrues, without more, by the effluxion of time. 15 My conclusion has the consequence that in the present case, a debt that did not exist while the company was deregistered springs into life when a reinstatement order is made, and is then taken to have existed from the time it purported to fall due. True it is that a liability is imposed on the reinstated company in circumstances where, because of its deregistration, it could not have given a written notice of termination of the policy so as to prevent the premium from accruing. But that is a consequence of the contract it entered into before the deregistration occurred. The facts are therefore distinguishable from Diamond Hill International Pty Ltd v Xu (2001) 19 ACLC 1139, at [8], where Stone J observed that the statutory assumption of continuity of existence could not deem the company to have had the opportunity to make submissions at a taxation of costs hearing that occurred before reinstatement. In the present case, it is not necessary for the plaintiff to seek an order under s 601AH(3) to validate "anything done" between deregistration and reinstatement, because the liability arose through the absence of anything being done (cf Rockwall Interiors at [18]). 16 My conclusion is that, by virtue of the statutory assumption required by the first sentence of s 601AH(5), the amount claimed by the plaintiff in its premium invoice for the year from 8 April 2006 to 8 April 2007 is to be treated as a debt due and owing by the company in consequence of its reinstatement. Therefore the plaintiff is a creditor with standing to seek a winding up order in insolvency or on the just and equitable ground. The next question is whether the evidence establishes either of those grounds for winding up. 17 I am not satisfied that the evidence shows the company to be insolvent. The problem is that there is simply a lack of any evidence about the company's financial circumstances, other than the debt for workers compensation premium, which is for a relatively small amount. The company was deregistered for failure to respond to returns of particulars or lodge other documents or pay a review fee, but maladministration is not of itself evidence of insolvency. There was no extant winding up at the time of deregistration and there is no filing from which financial evidence can be gleaned. There was not, of course, any statutory demand served before deregistration. 18 The remaining question is whether there is sufficient evidence to wind the company up on the just and equitable ground. In the Rockwall Interiors case, one of the companies had been deregistered under s 601AB. Barrett J (at [23]) decided that the company's substratum had gone, taking into account several factors including the very fact that the company had been deregistered for failure to lodge documents or pay fees, which was evidence of neglect in relation to the affairs of the company. 19 In the present case, in addition to the fact of deregistration under s 601AB, implying neglect in relation to the affairs of the company, the following factors suggest failure of the substratum of the company: · the company was deregistered nearly 15 months ago; · there is no evidence that those formerly interested in the company have taken any steps to resurrect it; · the director of the company was served with the present application and has not sought to appear; · the plaintiff has pressed for payment of the debt and there is no evidence of any response; · there is evidence that business activity is continuing at the company's former premises, notwithstanding that the company no longer exists in law and therefore cannot be the proprietor of the business. Although the case not particularly strong, I am persuaded on balance that the just and equitable ground has been made out. 20 When a ground for winding up is established, the court has a discretion under s 467(1) to make the order, or to dismiss the application, or to adjourn, or make an interim order. In the present case I am persuaded of the importance of making an immediate winding up order. As I have noted, there is some evidence to suggest that Mr Sabra may have purported to use the company's name for the purpose of trading, while the company was deregistered. That is a serious matter, especially having regard to the interests of creditors of the business. As a practical matter, the appointment of the liquidator should bring any such activity to an end, hopefully without any need for litigation. 21 I shall make the following orders:

Order under s 461(1)(k) of the Corporations Act 2001 (Cth) that Sabko Pty Ltd ACN 100 774 883 ("the Company") be wound up, this order to take effect either forthwith or (if later) immediately upon the reinstatement of the Company by ASIC;
Order that Martin John Green of Level 13, 1 Castlereagh Street Sydney 2000, an official liquidator, be appointed the liquidator of the Company, with effect either forthwith or (if later) immediately upon the reinstatement of the Company by ASIC;
Order that the Company pay the plaintiff's costs of these proceedings (other than costs dealt with by the Court's orders made on 16 March 2007). **********

GIO General v Sabko

At a glance

Court

Decision date

Before

Source

Judgment (12 paragraphs)

Parties

Legislation Cited (2)

Cases Cited (2)

Cited By (7)