Hinz, in the matter of KEAD Pty Ltd (Deregistered) v KEAD Pty Ltd

Federal Court of Australia|2022-03-24|Before: Halley J

Pursuant to s 601AH(2) of the Corporations Act 2001 (Cth) (Act), the second defendant reinstate the registration of the first defendant (the Company).
Pursuant to s 601AH(3) of the Act, all acts done by the Company during the period 14 October 2020 to 24 March 2022 in respect of the Company, being the period in which the Company was deregistered, be validated to the extent it is necessary to do so.
There be no order as to costs. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

HALLEY J: 1 By an originating process filed on 25 November 2021, the plaintiff, Mr Andrew James Hinz, seeks an order that the second defendant, the Australian Securities and Investments Commission (ASIC) reinstate the registration of the first defendant, KEAD Pty Ltd (Deregistered) (Company), pursuant to s 601AH(2) of the Corporations Act 2001 (Cth) (Act). 2 The plaintiff also seeks an order pursuant to s 601AH(3) of the Act that all acts done by the Company during the period from 14 October 2020 to the date of this judgment (deregistration period) in respect of the Company be validated to the extent it is necessary to do so. 3 In the course of a case management hearing in this proceeding on 18 February 2022, Mr Davis, counsel for the plaintiff, informed me that ASIC did not seek to be heard with respect to the application. On that occasion Mr Davis confirmed that the plaintiff would notify the respondents in proceedings numbered NSD1170/2021 (related proceedings) that ASIC did not oppose the application and would request that the respondents in the related proceedings indicate by 24 February 2022 whether they wished to be heard in respect of the plaintiff's application in this proceeding. I further made orders that by 25 February 2022 the plaintiff was to file written submissions with respect to the application, and notify the Court of the position of the respondents in the related proceedings. I otherwise noted that in the absence of any opposition the application would be determined on the papers. 4 The plaintiff filed written submissions on 25 February 2022 and an affidavit of Mr Andrew James Clarke sworn on that date (Clarke affidavit). Mr Clarke confirmed in his affidavit that as of 25 February 2022 the respondents in the related proceedings had not replied to a letter sent by email on 18 February 2022 notifying them of ASIC's position. Mr Clarke further confirmed that the plaintiff had not otherwise been notified of the position of Mr Johan Steyn and Attvest Investments with respect to the application. 5 On 4 March 2022, in response to a request from my chambers, Mr Davis advised that in the period since the swearing of the Clarke affidavit no response had been received from the respondents in the related proceedings. 6 The plaintiff relies on the following affidavits in support of the application: (a) his affidavit, sworn on 26 November 2021; (b) an affidavit of Mr Denis Meadows, sworn on 7 February 2022; and (c) an affidavit of Mr Clarke, sworn on 25 February 2022, and exhibit AC-1 to that affidavit. 7 I am satisfied for the reasons outlined below that it is appropriate to make the orders sought in the application requiring ASIC to reinstate the Company and to validate the acts done by the Company during the deregistration period.

Background 8 The factual matters set out below are taken from the affidavit of the plaintiff sworn on 25 November 2021. 9 The Company was registered on 3 June 2013. It was incorporated for the purpose of being the corporate vehicle through which the members of the Company invested in Attvest Finance Pty Ltd (Attvest Finance). 10 The Company's shares in Attvest Finance were held through Wintercress Capital Pty Ltd as the trustee of the Wintercress Trust. The Company was a named beneficiary under the Wintercress Trust Deed and 19,000 of the shares in Attvest Finance were held on trust for the Company. 11 On or about 29 May 2020, the Company (together with other beneficiaries of Wintercress Trust) sold its beneficial interest in the shares in Attvest Finance (Attvest Share Sale) to a company now known as Attvest Investments Pty Ltd (Attvest Investments). The total price paid for the shares was $380,000. 12 After receiving the proceeds of the Attvest Share Sale, the Company distributed those funds by way of a dividend to its members. Shortly thereafter, as the Company was not carrying on any other business and held no other assets, an application was made to voluntarily deregister the Company pursuant to s 601AA of the Act. The deregistration occurred on 14 October 2020. 13 The plaintiff and Mr Meadows were the directors of the Company at the time of its deregistration. The plaintiff was also the secretary of the Company. Both were shareholders. 14 At the time of the Attvest Share Sale, Mr Johan Steyn was the Managing Director of Attvest Finance. 15 Subsequent to the deregistration of the Company, the plaintiff submits, the beneficiaries of the Wintercress Trust who participated in the Attvest Share Sale discovered that they had been variously misled or not properly informed by Mr Steyn about important matters surrounding the Attvest Share Sale, including Mr Steyn's involvement in Attvest Investments, the purchaser of the shares. 16 On 12 November 2021, those beneficiaries of the Wintercress Trust (including the Company) commenced the related proceedings in this Court seeking damages against Mr Steyn and Attvest Investments for losses incurred in the Attvest Share Sale as a result of Mr Steyn's conduct. The Company is currently named as an applicant in the related proceedings. 17 The plaintiff now brings this application to allow the Company to pursue its claim in the related proceedings.

Legal Principles 18 Section 601AH of the Act relevantly provides: 601AH Reinstatement … Reinstatement by Court (2) The Court may make an order that ASIC reinstate the registration of a company if: (a) an application for reinstatement is made to the Court by: (i) a person aggrieved by the deregistration; or (ii) a former liquidator of the company; and (b) the Court is satisfied that it is just that the company's registration be reinstated. (3) If: … (b) the Court makes an order under subsection (2); the Court may: (c) validate anything done during the period: (i) beginning when the company was deregistered; and (ii) ending when the company's registration was reinstated; and (d) make any other order it considers appropriate.

Section 601AH(2)(a)(i) - "person aggrieved" 19 The expression "person aggrieved" is not defined in the Act. The expression has been held to be of wide import, and should be construed liberally. It includes a person who has been deprived of something, or injured or damaged in the legal sense; a person who has some right of some or potential value that has been extinguished (including a right to bring a claim against a company, and potentially a claim by a company against a third party): National Australia Bank Limited v Australian Securities and Investments Commission, in the matter of Mackies Industries Australasia Pty Limited (receivers and managers appointed) (deregistered) [2022] FCA 147 (Mackies Industries) at [17] (Farrell J), citing Owners of Strata Plan No 91349 v Australian Securities and Investments Commission (2020) 147 ACSR 456; [2020] NSWSC 685 at [61]-[62] (Bell P, as his Honour then was) (Strata Plan No 91349) and the cases cited therein; Boys, in the matter of 38 Akuna Pty Ltd (Deregistered) v Australian Securities and Investments Commission [2019] FCA 320 (Boys) at [24] (Lee J), citing In the matter of Likehart Pty Limited (deregistered) [2017] NSWSC 884 at [18] (Black J). 20 The threshold for a plaintiff to establish that they are an aggrieved party is low and can be dealt with in a summary way: Mackies Industries at [18] (Farrell J), citing Strata Plan No 91349 at [65]-[67] and [88] (Bell P, as his Honour then was); see also Boys at [24] (Lee J). 21 In Callegher v Australian Securities and Investments Commission (2007) 218 FCR 81; [2007] FCA 482 (Callegher), Lander J considered an application by a shareholder of a deregistered company who stood to benefit if that company was reregistered and allowed to pursue separate litigation, and said (at [53]): The fact that Claremont is a shareholder is not of itself enough to make Claremont a person aggrieved. However, if a shareholder can show that the shareholder might benefit from reinstatement by sharing in the assets of the company or obtaining a dividend of some kind that may make the shareholder a person aggrieved: Casali v Crisp 165 FLR 79. In this case, ACMF, if reregistered, has the potential of obtaining a judgment in the order of $290,000 with a consequential return to the shareholder, Claremont. In my opinion, Claremont is a person aggrieved because it will stand to benefit by ACMF's reregistration which allows it to prosecute its proceedings in the District Court. It will benefit if the litigation is successful to the extent of $290,000.

Section 601AH(2)(b) - satisfaction that reregistration is "just" 22 In In the matter of ERB International Pty Limited (deregistered) (2014) 98 ACSR 124; [2014] NSWSC 200 at [5], Brereton J observed: The provision that the court "may" order reinstatement if satisfied that it is "just" to do so has been said to confer a broad discretionary judgment on the Court. Relevant considerations include the circumstances in which the company was de-registered, the purpose in seeking its re-instatement, whether any person is likely to be prejudiced by reinstatement, and the public interest generally: Australian Competition and Consumer Commission v Australian Securities and Investments Commission (2000) 174 ALR 688 at [27]-[28]; Promnitz v Australian Securities and Investments Commission (2004) 22 ACLC 108 at [19]-[20]; JP Morgan Portfolio Services Ltd v Deloitte Touche Tohmatsu (2008) 167 FCR 212 at [4]; AMP General Insurance Ltd v Workcover Authority (Vic) (2006) 15 VR 175. See also Mackies Industries at [21] (Farrell J) and Boys at [27] (Lee J). 23 In Boys at [28], Lee J found that the determination of whether a reinstatement is just comprises a wide discretion which involves a number of considerations, including the circumstances surrounding the company's deregistration, the use that might be made of the reinstatement, and the prejudice any person may suffer as a result of the reinstatement. See also Bell Group Ltd (ACN 008 666 993) v Australian Securities and Investments Commission (2018) 358 ALR 624; [2018] FCA 884 (Bell Group) at [72] (McKerracher J).

Section 601AH(3) 24 Section 601AH(3)(c) makes clear that the Court may validate anything done between the time a company is deregistered and when it is reinstated. Section 601AH(3)(d) provides that the Court may "make any other order it considers appropriate". 25 Justice McKerracher undertook an expansive review of the legislative history and case law in respect of s 601AH(3)(d) in Bell Group. His Honour concluded at [136] that the power to make any other appropriate order has always existed to achieve the primary purpose of treating a company upon reinstatement "as though it had continued in existence from the date of deregistration, that is to say, the 'as-you-were' position". 26 Further, McKerracher J found that while the nature of the validating orders sought will bear upon the assessment of what is just in the circumstances, it is not usually necessary for the applicant to show exceptional circumstances to justify an order, and in exercising the broad discretion conferred by the provision, the Court should be concerned to make orders that do justice to all persons affected: Bell Group at [129] and [110]; see also Liberty International Underwriters v Australian Securities and Investments Commission, in the matter of Moore Murphy Holdings Pty Ltd [2021] FCA 103 at [15] (McKerracher J).

Is the plaintiff a "person aggrieved"? 27 The plaintiff accepts that the fact that he was a director and shareholder in the Company prior to its deregistration does not alone make him a person aggrieved by the deregistration: see Callegher at [53] (Lander J); Bell Group at [50] (McKerracher J). 28 The plaintiff notes that while the damages sought by the Company in the related proceedings are yet to be quantified, it is estimated that they are likely to be in the order of $420,000 to $950,000, and that if the Company is successful in recovering its losses, those funds will be distributed to the Company's members (including the plaintiff) after the payment of any expenses that may be incurred by the Company. 29 I am satisfied that the plaintiff is a shareholder of the Company who stands to benefit from the Company being permitted to pursue its claim in the related proceedings and therefore, consistently with the position in Callegher, he is an aggrieved person who has standing to bring the present application.

Is reinstatement of the Company "just"? 30 The plaintiff submits that the following matters are relevant to the Court's consideration of whether the proposed reinstatement is just. 31 First, the plaintiff submits that the deregistration of the Company has not occurred as a result of any misconduct or delinquency on the part of the Company or its directors. 32 Second, the plaintiff submits that the use that is to be made of the reinstatement, as set out above, is to allow the Company to pursue its claims in the related proceedings with the view of a substantial recovery which will be distributed to its members. 33 Third, the plaintiff submits that there is no reason to think that any person may suffer prejudice as a result of the reinstatement of the Company. He submits that the former directors of the Company, Mr Meadows and himself, have sworn affidavits acknowledging their understanding that they will resume their positions as directors after the reinstatement, although Mr Meadows has indicated that he will resign shortly thereafter for health reasons. The plaintiff notes that clause 11.1 of the constitution of the Company allows for a minimum of one director of the Company. 34 The plaintiff also relies on the absence of any opposition from ASIC to the relief sought in the application. 35 Further, the plaintiff submits that, although the respondents in the related proceedings have not responded to the invitation by the plaintiff to indicate their position as to whether they wished to be heard on the present application, the respondents would not be prejudiced by the reinstatement in circumstances where the related proceedings has four other applicants. The related proceedings will continue irrespective of the reinstatement of the Company. 36 There is considerable force in each of the submissions made by the plaintiff and I am satisfied by reason of those submissions that the reinstatement of the Company is "just" for the purposes of s 601AH(2)(b) of the Act.

Validation of acts of the Company pursuant to s 601AH(3) 37 The plaintiff submits that the Court has the power to make orders to validate acts done during the deregistration period pursuant to s 601AH(3) of the Act. In particular, to the extent it is necessary, the plaintiff seeks an order validating the act of instructing the solicitors of the Company in the related proceedings and having the Company named as a party in the related proceedings. 38 I am satisfied that the Court has a broad discretion to make orders validating acts done during a period in which a company has been deregistered, as explained by McKerracher J in Bell Group. I am also satisfied that in the present context, particularly given the steps taken during the deregistration period leading to the Company being already named as a party in the related proceeding, it is appropriate that an order be made validating the extent that it is necessary to do so acts done during the deregistration period, consistently with the primary statutory objective described by McKerracher J in Bell Group as the "as-you-were" position.

Disposition 39 Orders are to be made reinstating the Company and validating the extent it is necessary to do so all acts done by the Company during the period of its deregistration. 40 There will be no order as to costs. I certify that the preceding forty (40) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Halley.

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