J P Morgan Portfolio Services Limited v Deloitte Touche Tohmatsu

REASONS FOR JUDGMENT 1 By way of notice of motion, the respondents in this proceeding seek orders for the re-registration of a company known as GC & Associates Pty Ltd which was de-registered on 10 June 2004. The company was de-registered following a resolution of its members at a meeting on 26 August 2003 that it be wound up voluntarily. Mr John Frederick Taylor was appointed a liquidator for that purpose and his fees were paid by agreement between him and the directors of the company. The final accounts of the company, which were prepared by Mr Taylor, were lodged with ASIC on 10 March 2004 and showed that at that time the company had no liabilities and no assets. 2 GC & Associates was a party to the business sale agreements pursuant to which the business of NRS (both the main business and the Western Australian business) was transferred to what is now J P Morgan Portfolio Services Limited. The agreements provided that trade debts owed to NRS at the time of the sale were not included in that sale but were retained by the parties defined as the 'asset vendors', of whom GC & Associates was one. The agreements imposed obligations in respect of the collection of the debts on the purchaser of the business. Those obligations are the subject of a cross-claim in this proceeding, however, being deregistered, GC & Associates was not a party to the cross-claim. 3 The cross-claimants now seek to reinstate the company so that it can be joined as a cross-claimant. The application is brought under s 601AH(2) of the Corporations Act 2001 (Cth) which empowers the Court to make an order that ASIC reinstate the company if the application is made either by a person aggrieved by the deregistration or a former liquidator, and the Court is satisfied that it would be just to do so. No issue has been taken as to whether, in the present circumstances, the applicants on the notice of motion are persons aggrieved by the deregistration of the company; s 601AH(2)(a)(i). It therefore remains for me to consider whether, in all the circumstances, it is just to make the order. 4 The Court's discretion under s 601AH is very wide. The factors to be taken into account in the exercise of that discretion include the circumstances in which the company was de-registered, the purpose in seeking its re-registration and the likely prejudice to any person; Australian Competition and Consumer Commission v Australian Securities and Investments Commission (2000) 174 ALR 688 at 693. In this case the purpose of the order is to allow the company to take its place alongside the other asset vendors as a respondent and cross-claimant in the proceedings. As such, its fortunes would stand or fall with the other respondents and cross-claimants. The company's ability to contribute financially to any order made against the respondents would depend on its success in the cross-claim, however there is no suggestion that its position in defending the claims made by the applicants in the main proceeding or in pursuing the cross-claim would differ from that of the other respondents and cross-claimants. At this stage there has been no submission that the company's participation would be likely to add to the costs in the proceeding. 5 The applicants on the notice of motion have tendered a letter dated 17 March 2008 from ASIC which states that ASIC does not oppose the application on the following conditions: 1. The order sought for reinstatement is in terms of section 601AH(2) of the Corporations Act, requiring ASIC to reinstate the registration of the company; 2. The company (if ordered to be reinstated) continues in liquidation (subject to any order made by the Court in this regard) and a liquidator appointed; 3. The Court order is lodged with ASIC … so that the company may be reinstated; 4. The Applicant pays ASIC's costs of $434 for consideration of this matter; 5. The applicant notifies ASIC upon conclusion of the winding up so that the company may be deregistered. 6 The letter from ASIC points out that if the company was re-registered it would return on ASIC's register to the status of External Administration. Clearly condition 2 above assumes that re-registration of the company would not automatically reinstate Mr Taylor as liquidator and therefore that it would be necessary to appoint a liquidator. 7 There are conflicting authorities as to whether a liquidator of a company who was in office at the time the company was de-registered is automatically reinstated to that office when the company is restored to the register. In Brownlie v TTPM Pty Ltd (2003) 21 ACLC 1204, Hamilton J held that in such circumstances the liquidator was automatically reinstated and approved a statement to that effect made in A R Keay, McPherson: The Law of Company Liquidation 4th ed, 1999 at 678; see also Australian Competition and Consumer Commission v Australian Securities and Investments Commission (2000) 174 ALR 688 at 697. 8 The opposite conclusion was reached by Barrett J in Ramantanis v G & M Excavations (2004) 22 ACLC 22 and Donmastry Pty Ltd v Albarran (2004) 49 ACSR 745. In Ramantanis his Honour noted that the statement in McPherson approved by Hamilton J appeared to have been made by reference to cases under earlier and somewhat different legislation to the present. His Honour noted that the specific provision in s 601AH(5) for the automatic reinstatement as director of a person who was a director of a company immediately before it was deregistered suggests that the deemed continuity of existence of the company is not sufficient to cause a director to resume his former position upon reinstatement of the registration. By analogy his Honour concluded that it followed that re-registration per se was also not sufficient to reinstate a liquidator. His Honour observed at paras [8] - [9],: As a matter of policy, however, a pre-existing and undischarged liquidator should resume office on reinstatement of registration. Section 601AH(3)(b) empowers the court to make "any order it considers appropriate", when making an order for reinstatement. I consider that that provides a suitable means of dealing with a situation where, as here, a liquidator was in office at the time of deregistration … In view of the continuity that s 601AH(5) is intended to produce (which, in my view, entails continuity of that aspect of the company's characteristics which causes it to be in the course of winding up), the orders that the court makes should, in each case, put beyond doubt the ongoing tenure of the original liquidator. There are detailed provisions in the Act as to the resignation and replacement of liquidators. If a new liquidator is to be substituted, those provisions should be observed. 9 His Honour made orders for the reinstatement of registration and the continuation of the liquidator in office. In Donmastry Barrett J confirmed the view he had expressed in Ramantanis although, as the liquidator at the time of deregistration did not wish to continue in office and had expressly consented to another liquidator being appointed in his place, his Honour acceded to that request. 10 I respectfully agree with Barrett J as to the implication to be drawn from the fact that s 601AH(5) specifically provides for the continuity of directors of a re-registered company. In my view the better construction of the subsection is that on re-registration of a company the liquidator who was in office at the time of his deregistration is not automatically reinstated and therefore, it is necessary for the Court to make a new appointment to take effect on re-registration. I also agree with his Honour that, all other things being equal, it is preferable that the same liquidator be appointed. In the case of GC & Associates the applicants on the notice of motion have tendered a letter dated 14 March 2008 from the former liquidator, Mr Taylor, consenting to be appointed as liquidator of the company and to act as a liquidator if appointed by an order of the Court. 11 J P Morgan has submitted that it does not oppose the reinstatement of the company provided that its position is reserved in relation to the following matters: (a) its right to raise a defence to the effect the limitation period within which GC & Associates could bring a cross-claim has expired; (b) its right to seek security for costs from the company if it wishes to propound a cross-claim; and (c) its right to amend its statement of claim in order to join GC & Associates as a respondent. 12 There were however, some matters raised by J P Morgan as to the appropriateness of Mr Taylor being re-appointed as liquidator. Those matters relate to Mr Taylor's existing role in this proceeding. As a member of the firm of Greenwood Challoner & Co, which is the third respondent in the proceeding, Mr Taylor is personally a respondent. Mr Taylor was a shareholder of GC & Associates and, if the company is reinstated he would, by virtue of s 601AH(5), also be a director. Appointment as a liquidator would give him a fourth role in the proceeding and, in J P Morgan's submission, it may involve him in unacceptable conflict. 13 Mr Stoljar, for J P Morgan, drew my attention to s 532(2)(c)(i) of the Corporations Act which provides that, subject to the section, that a person must not consent to be appointed a liquidator or act as a liquidator of a company if he or she is an officer or employee of that company. Subsection 532(2)(c)(v) imposes the same limitation on a person who is a partner, employer or employee of an officer of the company. Mr Taylor falls within both subsections and therefore, it was submitted, should not be appointed as liquidator. 14 The "Caesar's wife" standard of impartiality and independence for liquidators is established beyond the need for authority, however, if support for the proposition is needed it is not necessary to go beyond Young J's comprehensive discussion of the issue in National Australia Bank Ltd v Market Holdings Pty Ltd (in liq) (2001) 161 FLR 1 at 29-32. Nevertheless, as Mr Stoljar accepted, the mere fact that a proposed liquidator's relationship with the company falls within one or more of the categories listed in s 532(c) does not preclude his or her appointment as the section itself provides that the Court has discretion in the matter. When asked what was the substance of the conflict that J P Morgan fears, Mr Stoljar was not able to put the matter higher than that his client has "an apprehension" that Mr Taylor would find it difficult to reconcile his various roles in the proceedings, particularly his role as liquidator of a company, a contingent creditor of which is his client.