Healy, in the matter of Falaren Pty Ltd (deregistered), v Australian Securities and Investments Commission

AND: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION (AND OTHERS NAMED IN THE SCHEDULE)

JUDGE: SIOPIS J DATE: 12 APRIL 2012 PLACE: PERTH

REASONS FOR JUDGMENT 1 On 19 November 2007, District Registrar Jan made a sequestration order against the estate of Mr James Gerard Michael Healy and appointed the Official Trustee in Bankruptcy as the trustee in bankruptcy of Mr Healy's bankrupt estate. The order was made on the petition of the Deputy Commissioner of Taxation, who had obtained a judgment against Mr Healy in the sum of $164,731.96. The petition was supported by Mr Graeme Trevor Lean, in his capacity as liquidator of Falaren Pty Ltd (in liquidation) (Falaren) and Gemwalk Pty Ltd (in liquidation) (Gemwalk). Mr Lean claimed that each of the companies was a creditor of Mr Healy, on the basis of entries in each of the company's accounts which recorded loans to Mr Healy in a total sum of $154,075.00. 2 Each of Falaren and Gemwalk was a company in respect of which Mr Healy had been a director. Mr Healy was, also, a director of two other companies prior to his bankruptcy. These companies were North Wanneroo Gas Pty Ltd and World Class Service Pty Ltd. By the time of Mr Healy's bankruptcy, each of these four companies was in liquidation and Mr Lean was the liquidator of each of the companies. I will refer to these companies collectively as "the Healy companies". 3 On 8 February 2008, Mr Lean filed proofs of debt on behalf of each of the Healy companies. Each of the companies alleged in the proof of debt that Mr Healy was liable as a director to the company for trading whilst the company was insolvent. In support of each of those claims Mr Lean relied on the presumption in s 588E(4) of the Corporations Act 2001 (Cth), that the company was insolvent, on the basis that the company's books were inadequate and that the company records had not been provided. In addition, each of Falaren and Gemwalk filed a proof of debt in respect of the debt upon which each had relied, as supporting creditors, in the bankruptcy proceeding before District Registrar Jan. 4 On 19 March 2008, the Official Trustee in Bankruptcy admitted the proofs of debt which had been lodged by Mr Lean on behalf of each of the Healy companies. 5 On 9 September 2009, Mr Healy commenced proceeding No PEG 163 of 2009 in the Federal Magistrates Court (the bankruptcy proceeding) seeking an order under s 153B of the Bankruptcy Act 1966 (Cth) annulling his bankruptcy on the basis that the sequestration order ought not to have been made. In that proceeding, Mr Healy, also, sought an extension of time within which to bring a claim under s 104(3) of the Bankruptcy Act compelling the Official Trustee in Bankruptcy to reject the proofs of debt lodged by Mr Lean as liquidator of each of the Healy companies. 6 Each of the Healy companies, then in liquidation, was named by Mr Healy as a party to the proceeding. This proceeding was subsequently transferred from the Federal Magistrates Court to the Federal Court. 7 On 3 December 2009, the solicitor for Mr Lean and the Healy companies, advised Mr Healy that in the absence of leave from the Court, Mr Healy was precluded by s 500(2) of the Corporations Act from proceeding against the Healy companies in proceeding No PEG 163 of 2009. 8 On 21 December 2009, Mr Healy then commenced a proceeding in this Court whereby he sought leave to proceed against the Healy companies in the bankruptcy proceeding, nunc pro tunc. Each of the Healy companies was joined as a defendant to this proceeding, as was Mr Lean. 9 On 27 January 2010, one of the Healy companies, Falaren, was deregistered. 10 On 1 December 2010, the Federal Court made orders that the application for the annulment of the bankruptcy be tried as a separate and preliminary issue. Each of the proceedings is still pending in the Federal Court. 11 On 8 December 2010, Mr Healy was discharged from bankruptcy pursuant to s 149 of the Bankruptcy Act. 12 By a letter dated 10 February 2012, the Australian Securities and Investments Commission (ASIC) advised Mr Patrick Healy, the plaintiff's brother, that Falaren had been deregistered and that each of the other three Healy companies would be deregistered on 12 April 2012. The ASIC letter, also, advised that Mr Lean had resigned from all external appointments and had requested that his registration as a liquidator, be cancelled. 13 By this application, Mr Healy makes an application pursuant to s 601AH of the Corporations Act, for the reinstatement of Falaren, and, also, for orders pursuant to s 509(6) of the Corporations Act, that each of the other three Healy companies not be deregistered until 1 January 2015. 14 By reason of the fact that Mr Lean is not available to resume his position as liquidator in respect of Falaren, nor to continue as liquidator until 1 January 2015 of the other three Healy companies, Mr Healy has made an additional application under s 502 or s 503 of the Corporations Act, for the appointment of Mr Kevin Ernest Judge as the replacement liquidator of each of the Healy companies. 15 Section 601AH(2) of the Corporations Act, empowers the Court to make an order that ASIC reinstate the registration of a company if an application for reinstatement is made by a person aggrieved by the deregistration and the Court is satisfied that it is just that the company's registration be reinstated. 16 In the case of Australian Competition and Consumer Commission v Australian Securities and Investments Commission (2000) 174 ALR 688 at [27], Austin J observed: The wording of the section is very broad, and the cases confirm that it gives the court a wide discretion. The court takes into account the circumstances in which the company came to be dissolved; whether, if the order were made, good use could be made of it; and whether any person is likely to be prejudiced by the reinstatement: Kilkenny Engineering Pty Ltd (in liq) (1976) 1 ACLR 285; Drysdale v Australian Securities Commission (1992) 10 ACLC 1427; Re Steelmaster Pty Ltd (in liq) (1992) 6 ACSR 494. 17 The legislation does not describe the circumstances to be taken into account in the exercise of the Court's discretion in respect of an application under s 509(6) of the Corporations Act, to defer the deregistration of a company in liquidation to a specific date. However, in Re Rosaub Pty Ltd (in liq) (2005) 54 ACSR 371, Barrett J referred at [12], to the need for the evidence to demonstrate that there would be an "apparently beneficial purpose" served by the deferral of the deregistration. 18 Mr Healy claimed that he would be aggrieved because the absence of the Healy companies as parties to the bankruptcy proceeding, would prejudice his prospects of success in his annulment application. This is because, said Mr Healy, the question of his solvency at the time the bankruptcy order was made, would be a relevant consideration on his annulment application. Mr Healy went on to contend that if Falaren was reinstated, and each of the other three Healy companies remained in existence, and a liquidator was appointed to each of these companies, the liquidator may carry out the investigations which may find that the Healy companies were not, at the relevant times, insolvent and, therefore, Mr Healy was not liable for insolvent trading. 19 Mr Healy accepted that the administration of the winding up of the Healy companies was complete, that external creditors had been paid and that third party rights had become involved. However, Mr Healy said that by impugning, in the bankruptcy proceeding, the Official Trustee in Bankruptcy's acceptance of the proofs of debt, he did not thereby intend to procure the disgorgement of amounts which have been paid to third party creditors of those companies pursuant to the liquidation administration, or otherwise unwind the liquidation process. As mentioned, Mr Healy says that the purpose of seeking the relief under s 104 of the Bankruptcy Act, is to assist his application to annul his bankruptcy under s 153B of the Bankruptcy Act. 20 In my view, Mr Healy's application is to be dismissed for two reasons. 21 First, in my view, Mr Healy has not demonstrated that there would be sufficient utility in reinstating Falaren and keeping the other three Healy companies in existence. Secondly, Mr Healy has not identified in his application, a liquidator who is qualified to act as the replacement liquidator for Mr Lean.

absence of sufficient utility in making orders 22 There are a number of reasons why I have come to the view that Mr Healy has not demonstrated that there would be sufficient utility in making the orders sought by him. 23 First, the joinder of the Healy companies as parties to the bankruptcy proceeding is tenuous. The joinder of the companies is justified by Mr Healy on the basis that they are proper parties to the application challenging the acceptance of the proofs of debt, under s 104 of the Bankruptcy Act. However, Mr Healy has not yet obtained an extension of time within which to bring his claim under s 104 of the Bankruptcy Act seeking to impugn the decision of the trustee in bankruptcy to admit the proofs of debt. The fact that Mr Healy seeks to impugn the proofs of debt only as a means of assisting his application for an annulment of the bankruptcy would militate against the Court granting an extension of time. 24 Secondly, even if orders were granted in the terms sought by Mr Healy, such that Falaren was reinstated and the other three Healy companies not deregistered, it is entirely speculative as to whether any investigation carried out by a liquidator would result in any evidence being available to Mr Healy which would assist him in his quest to demonstrate that he was not insolvent at the time of the making of the bankruptcy order. 25 Thirdly, it would, in any event, be open to Mr Healy, at the hearing of the annulment application, to seek to lead evidence from other sources, as to the question of his solvency at the time of the making of the sequestration order.

absence of qualified replacement liquidator 26 The second reason why Mr Healy's application is to be dismissed, is that I am not satisfied that Mr Judge has the necessary degree of independence to qualify for the appointment of liquidator of each of the Healy companies. 27 In his notice of consent to act as a liquidator, Mr Judge disclosed that his firm had been engaged by Mr Patrick Healy to advise Mr Patrick Healy and the plaintiff, in relation to the insolvency trading claim and director's loans claim which were made by Mr Lean in the proofs of debt, for the purposes of challenging the claims in the bankruptcy proceeding. Mr Judge said that, pursuant to the retainer, he had carried out work investigating the validity of the claims for insolvent trading made by Mr Lean in the proofs of debt against Mr Healy. In the course of so doing, Mr Judge has met with the legal representatives of Mr Healy in the bankruptcy proceeding. 28 It is trite that a liquidator must be independent and be seen to be independent (Re Club Superstores Australia Pty Ltd (in liq) (1993) 10 ACSR 730 at 734-735). In my view, Mr Judge does not meet the qualification of being seen to be independent in respect of an appointment as a liquidator to the Healy companies. This is because having been retained by Mr Healy's brother, to examine and advise upon the validity of the insolvent trading claims made by Mr Lean against Mr Healy, Mr Judge could not be seen to bring the necessary degree of independence to the prospect of having to undertake the same task in his capacity as a liquidator appointed by the Court, when it may be necessary to adopt a hostile position to Mr Healy. 29 The application is dismissed. I certify that the preceding twenty-nine (29) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Siopis.

Associate: Dated: 12 April 2012 Schedule IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION WAD 65 of 2012

IN THE MATTER OF FALAREN PTY LTD (ACN 009 031 930) (DEREGISTERED) IN THE MATTER OF GEMWALK PTY LTD (ACN 069 308 087) (IN LIQ) IN THE MATTER OF NORTH WANNEROO GAS PTY LTD (ACN 067 321 206) (IN LIQ) IN THE MATTER OF WORLD CLASS SERVICE PTY LTD (ACN 101 692 460) (IN LIQ) Second Defendant: GEMWALK PTY LTD (ACN 069 308 087) (IN LIQ)

Fifth Defendant: WORLD CLASS SERVICE PTY LTD (ACN 101 692 460) (IN LIQ) GRAEME TREVOR LEAN