Before the court is an application by the Lane Cove Council for an order that the Australian Securities and Investments Commission reinstate the company Epitome Holdings Pty Ltd, which was deregistered on 12 October 2014.
Epitome was registered in New South Wales on 3 December 2010. At all material times, its sole shareholder and director was David John McLeod. Epitome was wound up by order of the court of 25 March 2014, when Scott Darren Pascoe was appointed liquidator. It was deregistered, pursuant to (CTH) Corporations Act 2001, s 601AB, on 12 October 2014, upon the request of the liquidator.
Epitome operated a sidewalk café/restaurant business in the Lane Cove precinct, for which it was liable to the Council for an occupation fee. The Council brought proceedings (2013/084371) against Epitome in the Local Court at Sutherland. Those proceedings were settled by Terms of Settlement dated 27 August 2013, which were to the effect that:
1. Epitome agreed to pay
1. $61,887.98 (arrears) and costs of $9,500 making a total of $70,387.98 for the outstanding moneys claimed in the statement of claim, and
2. separately to pay to the Council $1,368 per month for current rental, the first such payment to be made on 1 September 2013, and in this respect time to be of the essence;
1. if the amount of $61,887.98 was paid in full, the Council would discontinue the proceedings;
2. if the amount of $61,887.98 was not paid, or the monthly instalments of $1,368 were not paid in accordance with the agreement, then upon 14 days' notice given by the Council to Epitome of the default, the Council could enter a consent judgment for $61,887.98 plus costs of $8,500, making a total of $70,387.98, less credit for any payments made on account;
3. if the arrears were paid in full, then the Council would waive its entitlement to costs of $8,500;
4. it was also agreed that:
1. Epitome would pay the arrears in full within 2 years of completion of the upgrade works referred to below, as well as ongoing rental in full;
2. the Council would not charge approval fees during the period of upgrade works at the Lane Cove Plaza precinct adjacent to Epitome's restaurant, and in that respect a certificate of the Council's Executive Manager - Open Space and Urban Services stating that the works were completed would be prima evidence to that effect; and
3. after completion of the upgrade works and the issue of the certificate, Epitome would have a further two years to pay the arrears.
In the matter of Epitome Holdings Pty Ltd [2017] NSWSC 1533 | Case summary | Zoe
Concurrently with those terms of settlement, on 27 August 2013 Mr McLeod executed a deed of guarantee in favour of the Council, by which he unconditionally guaranteed to the Council the due and punctual payment of all moneys now or in the future payable by or recoverable from Epitome arising out of (a) the Sutherland Local Court proceedings and judgment entered therein; (b) future fees payable by Epitome to the Council for occupation of the relevant footpath area; and (c) all fees due now or in the future by Epitome to the Council which Epitome does not pay (clause 1). The Deed provided that if any of the obligations guaranteed were at any time not enforceable against Epitome, it should be construed as an indemnity, and Mr McLeod indemnified the Council in respect of any failure by Epitome to make any payment referred to in clause 1 (clause 4).
It appears that the upgrade works were completed on 1 November 2014. On that basis, the "arrears" referred to in the terms of settlement would not become payable before 1 November 2016 at the earliest. However, it seems that no such notice or certificate as referred to in (5)(c) above was then given, and under that provision of the terms of settlement, time ran from the issue of the Certificate.
By 1 November 2014, Epitome had gone into liquidation (on 25 March 2014), and had been deregistered (on 12 October 2014).
In 2015, the Council brought proceedings (2015/234226) in the Local Court at Hornsby against Mr McLeod, apparently founded on the theory that the deregistration of Epitome somehow dispensed with the preconditions or accelerated the obligations of the guarantor. These proceedings resulted in a judgment in favour of Mr McLeod as defendant. The Magistrate appears to have concluded that (1) there was no judgment in the Sutherland proceedings, because although the terms of settlement contemplated entry of judgment in certain circumstances, that had never been done; (2) there was no money presently owing by Epitome, because the two year period had not expired; and (3) because there was at that stage no money payable by Epitome, the guarantee/indemnity was not engaged.
On 12 December 2016, the Council sent to ASIC a certificate of the completion, on 1 November 2014, of the upgrade works, over the signature of its Executive Manager - Open Space and Urban Works. Whether that had any effect may be doubted, because although the property of a deregistered company vests in ASIC, the company ceases to exist upon deregistration and ASIC does not represent the company. On the other hand, under the terms of settlement time runs from the issue of the certificate (by the Council), rather than the giving of notice to Epitome, so it may not matter. In any event, it is unnecessary to resolve that issue in this proceeding. A copy of the certificate was also sent to Mr McLeod, whose barrister responded to the effect that Mr McLeod denied that any moneys were owing by him pursuant to a guarantee, that proceedings against him would be baseless, and that ASIC was a mere repository of any assets. Further correspondence did not advance the position.
The Council then instituted the present application, by originating process filed on 19 April 2017, in order to enable the Council to obtain a judgment against Epitome in the Sutherland proceedings, and then enforce that judgment against Mr McLeod as a guarantor. The application should have been made by interlocutory process, in the winding-up proceeding, and I will make an order for consolidation. In addition to reinstatement, the Council also seeks leave under Corporations Act, s 471B, to continue the Sutherland proceedings against Epitome.
The application has been adjourned from time to time, because the full background - and in particular the basis of the judgment in the Hornsby proceedings - was not then known, and the possibility that a judgment therein favourable to Mr McLeod rendered inutile, by way of res judicata, any reinstatement of Epitome, required exploration. It took some time to obtain a transcript of the judgment in the Hornsby proceedings. Once it was obtained, it appeared that the effect of the relief sought might be to deprive Mr McLeod of a defence otherwise available to him in any claim on the guarantee, and so on 15 September I directed that notice of the proceedings be served on him. That was done, and on 25 September 2017 counsel appeared for Mr McLeod, although no notice of appearance was filed. The proceedings were at his request adjourned to 30 October, to enable him to consider the evidence and prepare submissions. However, before the adjourned date, Mr McLeod's counsel informed the Council's solicitor that his instructions to appear had been withdrawn, that he would not be appearing, and that he did not expect that Mr McLeod would appear. On 30 October, the application proceeded without opposition. That of course does not dispense with the need for the Court to be satisfied that the conditions for reinstatement are met.
[3]
Reinstatement
Corporations Act, s 601AH(2), provides for the reinstatement of a deregistered company pursuant to an order of the Court, on application by a person aggrieved by the deregistration, if the Court is satisfied that it is just that the company's registration be reinstated. Under s 601AH(3)(b), if the Court makes an order for reinstatement, it may validate anything done during the period of deregistration, and make any other order it considers appropriate.
Section 601AH(5) provides that if a company is reinstated, it is taken to have continued in existence as if it had not been deregistered, and a person who was a director of the company immediately before deregistration becomes a director again from the time of reinstatement. However, reinstatement of a deregistered company does not result in the automatic resumption of office by a liquidator who was in office at the time of deregistration: the effect of reinstatement is that the company is taken to have continued in existence as if it had not been deregistered, not that it comes back into existence in the same form. However, upon the reinstatement of a company that was at the time of deregistration in liquidation, it remains in liquidation unless the Court otherwise orders. Under s 601AH(3)(b), the Court can, when ordering reinstatement, re-appoint the former liquidator, or appoint a new liquidator. All other things being equal, re-appointment of the former liquidator is preferable. [1]
[4]
Is the Council a person aggrieved by the deregistration?
The Council's claim to standing is founded on the proposition that while Epitome is deregistered, the Council cannot proceed to obtain judgment against the company in the Sutherland proceedings, and without that judgment cannot enforce the guarantee against Mr McLeod.
The guarantee is to the Council of "due and punctual payment of all moneys now or in the future payable by or recoverable from [Epitome] arising out of [relevantly] the Sutherland Local Court proceedings … between [the Council and Epitome] and judgment entered therein". It is at least arguable that the guarantee is limited to moneys the subject of or consequent on a judgment entered in the Sutherland proceedings. The Hornsby Magistrate held, rightly in my opinion, that there was no judgment entered in the Sutherland proceedings. As Epitome has been liquidated and deregistered, there can be no judgment so entered, pursuant to the terms of settlement, unless (1) Epitome is reinstated, and (2) leave to proceed against Epitome in liquidation is given.
As the deregistration of Epitome prevents the Council not only from proceeding to enter judgment, but also from enforcing the guarantee, the Council is a person aggrieved by the deregistration of Epitome, and has standing to apply under s 601AH(2) for its reinstatement.
[5]
Is it just that the company's registration be reinstated?
ASIC has indicated that it does not oppose the application, upon usual conditions, including that the previous liquidator resume his role or a new liquidator be appointed.
The former liquidator Mr Pascoe at first did not consent to be reappointed as liquidator, and that if the Court were inclined to reinstate the company, the applicant should be required to pay the costs of the liquidation. In subsequent correspondence, Mr Pascoe indicated that he would accept an indemnity of $2000 in respect of the costs of the reinstatement. In those circumstances, upon the applicant's undertaking to indemnify Mr Pascoe to that extent, it is preferable to reappoint Mr Pascoe than to appoint a new liquidator.
The liquidator's conditions having been addressed, the only other potential injustice might be to Mr McLeod. Being deprived of the opportunity to frustrate enforcement of the guarantee through deregistration of his company does not prima facie impress as substantive injustice. By withdrawing his counsel's instructions, when on notice of the proceedings, Mr McLeod has eschewed the opportunity to advance an argument of injustice. Given the prejudice to the Council of the inability to enforce its rights while the company remains deregistered, and the apparent absence of substantive prejudice to anyone else from reinstating the company, it is just that the company's registration be reinstated.
[6]
Section 471B leave
Although the claim against Epitome is plainly one which could be dealt with by a proof of debt in the liquidation, the Council at least arguably requires a judgment in the Sutherland proceedings in order to engage the guarantee. It appears likely to be entitled to such judgment. Those proceedings are well advanced, and their prosecution to judgment need not involve any expense on the part of the liquidator. The Council does not intend to enforce the judgment against the company, but to rely on it to pursue Mr McLeod under the guarantee. Leave to continue the Sutherland proceedings up to entering judgment should be granted.
[7]
Conclusion
My conclusions may be summarised as follows:
As the deregistration of Epitome prevents the Council not only from proceeding to enter judgment, but also from enforcing the guarantee, the Council is a person aggrieved by the deregistration of Epitome, and has standing to apply under s 601AH(2) for its reinstatement. Given the prejudice to the Council of the inability to enforce its rights while the company remains deregistered, and the apparent absence of substantive prejudice to anyone else from reinstating the company, it is just that the company's registration be reinstated. Leave to continue the Sutherland proceedings up to entering judgment should be granted.
The Court orders that:
1. these proceedings be consolidated with proceedings 2014/042276, and the originating process herein have effect as an interlocutory process in those proceedings, as if the plaintiff were an applicant on the interlocutory process and the defendant a respondent thereto;
2. pursuant to Corporations Act, s 601AH(2), upon the applicant Lane Cove Council by its counsel undertaking to the court that it will indemnify the liquidator Scott Darren Pascoe in respect of his costs and remuneration consequent upon the reinstatement of the company up to a limit of $2,000, the respondent ASIC reinstate the registration of the company Epitome Holdings Pty Ltd (ACN 147 700 230);
3. pursuant to Corporations Act, s 601AH(3), Scott Darren Pascoe be re-appointed liquidator of the company; and
4. pursuant to Corporations Act, s 471B, the applicant have leave to continue proceedings 2013/084371 in the Local Court at Sutherland against the company, up to and including the entry of judgment in those proceedings.
[8]
Endnote
In the matter of ERB International Pty Ltd [2014] NSWSC 200; (2014) 98 ACSR 124 at [40].
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Decision last updated: 14 November 2017