Greenfold Holdings v ACB Human Resources [2003] NSWSC 1184 | Case summary

1 By an originating process filed on 13 October 2003 the plaintiff seeks an order under s.601AH(2) of the Corporations Act 2001 (Cth) reinstating the registration of ACB Human Resources Pty Ltd, which I shall call "the company", plus an order that the company be wound up. The application is opposed by Mr Mitchell, who was a director and shareholder of the company up to 15 December 2002, the date on which the deregistration occurred. 2 The circumstances which, in the plaintiff's submission, give it standing under s.601AH(2)(a) as a person aggrieved by the deregistration are that it is the beneficiary of an order for costs made against the company in the District Court. The particular District Court proceedings were proceedings initiated by the company against the present plaintiff. They were resolved on 27 November 2001 on the basis that the company's claims were dismissed with the company bearing the present plaintiff's costs of the proceedings on the indemnity basis. Certain costs orders previously made were confirmed. There has been no assessment of costs in accordance with the Legal Profession Act but the plaintiff's solicitor has estimated the costs that would be allowed on assessment as being of the order of $90,000. 3 A creditor (or, as the plaintiff is pending formal assessment, a contingent creditor) is a "person aggrieved" for the purposes of s.601AH(2). This is because, with the debtor company no longer in existence and such property as it may have had vested in ASIC, the creditor has no means of pursuing his or her debt or attempting to realise something for it unless the company is brought back into existence with the deemed continuity for which s.601AH(5) provides. 4 With the plaintiff's standing as a person aggrieved by the deregistration thus clear, it is necessary to address the question posed by s.601AH(2)(b), that is, whether it is "just" that the registration be reinstated. This makes it necessary to review the circumstances leading up to the deregistration. The immediate cause of the deregistration was the company's failure to lodge returns with ASIC giving rise to unilateral action by ASIC under s.601AB. Whether this situation was, as it were, engineered by those then responsible for the company it is not possible to say on the evidence. What can be said, however, is that the deregistration was not in any sense a decision on merits and was by way of administrative action designed essentially to cleanse the register by removing companies which, on the broad brush evidence coming from non lodgment of required returns, are presumed to be non-functioning. 5 Evidence given by Mr Mitchell shows that the company ceased trading on 1 July 1999 following the sale of its business for a price of $582,000. The purchaser, having taken over the business, defaulted under the purchase agreement by not paying the balance of the purchase price, being $512,000. The purchaser later went into Part 5.3A voluntary administration. Neither Mr Mitchell nor the company recovered moneys owing to them by the purchaser and, in view of a deed of company arrangement that resulted from the voluntary administration, it may well be that their claims are barred. 6 Mr Mitchell further says that, after the sale of its business by the company, he arranged collection and liquidation of the assets and payment of the liabilities with the exception of a loan of $248,139 owing to him which had not been recovered and remained outstanding at the time of deregistration. 7 A balance sheet of the company as at 30 June 1999 and a profit and loss account for the year to that date are in evidence. They show a loss of some $448,000 for the year and an excess of liabilities over assets of just on $420,000. Mr Mitchell's debt of $248,139 is shown among the liabilities, which also included bank debt of almost $700,000 and a tax liability of almost $200,000. On the assets side the main item was debtors, the company being a service provider. These, net of a provision for doubtful debts, were of the order of $1.15 million and it may be presumed that, to the extent achieved, collections contributed to the ability to pay creditors, other than Mr Mitchell himself. Mr Mitchell's affidavit refers to a recollection that some funds needed to pay creditors were provided by himself or other family companies controlled by him. This presumably means that the company became indebted to those providers. 8 Mr Mitchell argues that reinstatement of the registration would serve no useful purpose and would be essentially futile. He says in effect that there was a de facto winding up of the affairs after the sale of the business with all creditors except himself paid and that things should be left where they now lie, there being no point in disturbing the status quo. 9 The attitude of Mr Mitchell might be understandable if it did not entirely ignore the position of the plaintiff. That position crystallised on 27 November 2001 when the final costs order was made, being some 17 months after the business was sold and 13 months before the company was removed from the register for failure to lodge returns. I should also mention, however, that the first of the costs orders in favour of the plaintiff was made on 8 September 2000. 10 Unless the company is brought back to life the plaintiff has no means of obtaining any form of satisfaction. It may be that the prospects of eventually achieving any such satisfaction are problematic, given the financial position as it appears to have been at 30 June 1999 and as related as to future periods by Mr Mitchell. But although the business was sold, the company clearly continued to be active after 1 July 1999, including by prosecuting the proceedings against the plaintiff in which the costs orders were made and in pursuing the defaulting purchaser. This no doubt entailed expenditure and the incurring of debts at a time when the financial stress arising from the purchaser's default had become real. The plaintiff cannot point explicitly to anything that could be characterised as the incurring of debts in circumstances which my expose the directors of the company to personal liability, nor, of course, does the plaintiff have at its disposal investigative abilities that are available to a liquidator. 11 As things now stand the company appears quite clearly to have been insolvent at the time of deregistration. On Mr Mitchell's own evidence there are no assets. He also testified, however, that he is owed the $248,319. This is apart from the plaintiff's contingent debt estimated at some $90,000. Had the deregistration not occurred the plaintiff could in the ordinary course have proceeded to obtain a winding up order. Having regard to s.459P(3), the leave needed under s.459P(2) would, in view of the evidence I have mentioned, have been granted and the winding up order would have been made, thus installing a liquidator armed with investigative powers capable of being deployed in the interests of creditors, subject to the practical constraints of funding. 12 In my judgment, justice requires that the circumstances of failure by the company to lodge returns, followed by administrative action by ASIC to cleanse the register according to the broad brush approach to which I have referred, should not stand in the way of the plaintiff attaining the position that it otherwise would have been able to attain. No one scrutinises attempts by contingent creditors to obtain winding up orders except by reference to the s.459P(3) criterion of prima facie insolvency; nor should this contingent creditor's attempt to obtain a winding up order be regulated or screened otherwise than by reference to that criterion. In order that the plaintiff might pursue its claim for a winding up order so as to bring into existence a setting in which its contingent debt may be proved and possibilities of recovery otherwise than directly from the company's resources may be pursued, it is just that the company's registration be reinstated. Reinstatement for the purpose of enabling the company to be subjected to legal processes that it would otherwise escape is an established aspect of the s.601AH jurisdiction: see, for example, Australian Competition and Consumer Commission v Australian Securities and Investments Commission (2000) 34 ACSR 232, Krstevska v ACN 010 505 102 Pty Ltd [2001] NSWSC 1093. 13 As to the winding up application, I have already referred to both the need for leave under s.459P(2) which may not be granted unless a prima facie case of insolvency has been shown, and Mr Mitchell's evidence demonstrating clear insolvency. It is therefore appropriate both to grant leave under s.459P(2) and to make a winding up order under s.459A. In addition, because the company has been non-existent for just on a year, it is appropriate to dispense with notices and advertising requirements in relation to the winding up. 14 Mr Porter's consent to act as liquidator has been filed. ASIC has been notified of the reinstatement application and has, by letter, stated that it has no objection, provided that the company is also wound up and certain other standard formalities presenting no difficulty are observed.

Greenfold Holdings v ACB Human Resources

At a glance

Court

Decision date

Before

Source

Judgment (8 paragraphs)

Parties

Legislation Cited (1)

Cases Cited (1)

Cited By (2)