Jones v 3R Gas [2006] NSWSC 290 | Case summary

4885/05 ANDREW ALLAN JONES V 3R GAS PTY LTD JUDGMENT 1 HIS HONOUR: By an originating process filed on 7 September 2005, the plaintiff sought an order for reinstatement of the registration of the defendant company, and also a series of other orders. One of the orders sought was a declaration that the affairs of the company had been conducted oppressively. Other orders included an order for the company to allot 10 shares to the plaintiff, and an order that the company be wound up and a liquidator appointed. In the alternative to winding up, the originating process sought the appointment of a provisional liquidator, an order that the plaintiff's shares be purchased by the company with an appropriate reduction of the company's share capital, or an order that a receiver and manager be appointed to the company. Interim relief to restrain the directors from disposing of the company's assets was sought. 2 The originating process identified the company, 3R Gas Pty Ltd, as the defendant, notwithstanding that the company had been deregistered by ASIC. The plaintiff applied to Barrett J on 21 November 2005 for an order for reinstatement of the company, under s 601AH(2), an order for the allotment of 10 shares to the plaintiff, and an order for the winding up of the company. 3 Barrett J declined to make any of these orders. He declined to order reinstatement because he was unsure that the plaintiff would have standing to seek the order as a person aggrieved by the deregistration, merely by virtue of being a director or shareholder (citing to Casali v Crisp [2001] NSWSC 860). He declined to make an order compelling the issue of shares because the plaintiff had not shown any basis for an obligation of the company to issue the shares. He declined to make a winding up order because no grounds for winding up within the Corporations Act had been shown. 4 The company was deregistered on 16 May 2004, apparently for failure to file an annual return. Until it was deregistered, the company was the registered proprietor of a property in Summer Hill. The deregistration of the company has made it impossible to deal with the property and there are difficulties about the payment of rates and other outgoings and the receipt of rent. 5 Prior to its deregistration, the company had six directors, namely Raymond Blasig, Gerard Lawne, Robert Trevisan, Rafael Minnicelli, and Stuart Hicks ("the other five directors") and the plaintiff, Andrew Jones. Mr Jones gave evidence that between 1998 and 2001, he and his wife were friendly with Mr and Mrs Blasig and they came to discuss property development. Eventually the plaintiff participated in the purchase of a property with the other five directors, using the defendant company as the investment vehicle. The plaintiff gave evidence that in 2003 he and his co-investors agreed to sell the property for a sale price that would generate a profit, but later Mr Blasig declined to sell and said he would buy the others out. However, he did not do so and in August 2005 the plaintiff discovered that the company had been deregistered more than a year earlier. 6 The plaintiff's evidence is that the title to the investment property remains registered in the company's name, subject to a mortgage to Permanent Custodians Ltd, and that the company has a bank account and financial commitments to pay council and water rates and strata levies. The property is tenanted and income is received by way of rent. 7 Section 601AH(2) provides as follows: "The Court may make an order that ASIC reinstate the registration of the 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." 8 In Casali v Crisp Young CJ in Eq observed (at [27]) that "the mere fact that a person is a shareholder or a director of the deregistered company is insufficient to establish that that person is a person aggrieved within s 601AH". He said that where the company was insolvent and in liquidation before deregistration, a shareholder and director are, at least ordinarily, not aggrieved by the deregistration, because the shareholder has no asset of any value and the director's office was displaced by the liquidator. Those observations were applied by Barrett J in Euphron Pty Ltd (in liq) v Hunter Valley Piggery Pty Ltd [2003] NSWSC 543, at [12], where his Honour said there must be "something more" than the mere position of shareholder (see also GIS Electrical Pty Ltd v Melson (2002) 43 ACSR 481 at 492-4 per Steytler J (with whom Templeman and Miller JJ agreed); Danich Pty Ltd; re Cenco Holdings Pty Ltd (2005) 53 ACSR 484, at [31]-[32] per Barrett J). 9 In the present case, the company was not in liquidation prior to its deregistration, and had substantial assets. Mr Jones gave evidence that the company was solvent at the time of its deregistration. Mr Jones claims to be a shareholder but ASIC's records do not show that any allocation of shares has been made to him. His solicitor has filed an affidavit annexing searches of ASIC's records, including the application for registration of the company. Under the heading "Details of members and share details", the application form lists the allotment of ten shares each to the other five directors, and there is provision for another set of particulars to be filled out, but they have been left blank. This has led Mr Jones' solicitor to express the belief that there was an oversight in completion of the application form and that Mr Jones, who was a director of the company, should have been allocated ten shares as well. It is unnecessary for me to resolve this issue because, as will be seen below, the other 5 directors, who are also the shareholders of the company, have agreed to allot 10 shares to the plaintiff. In these circumstances it is appropriate to treat Mr Jones as having an interest in the reinstatement of the company by virtue of his entitlement to be allotted one-sixth of the company's shares. 10 Additionally, and beyond his interest as a shareholder and director, he has been prejudicially affected by the deregistration of the company in two ways. First, he has a loan account with the company and is a creditor in the sum of $17,816, according to his evidence. Secondly, he is a guarantor under the Home Loan/Loan Agreement between Permanent Custodians Ltd as lender and the company as borrower, for the principal sum of $244,800 together with interest and charges. He has given evidence that unless the company's registration is reinstated, he is fearful that the lender will enforce its rights against him pursuant to the guarantee. 11 Until recently Mr Jones was in dispute with the other five directors by virtue of the facts I have outlined. He gave evidence in his affidavit made on 1 September 2005 that until the dispute was resolved he would be unable to realise his loan to the company or to sell his shares. That would be a further ground of prejudice, but for the fact (as noted below) that the dispute appears to have been resolved. 12 In these circumstances I am satisfied that Mr Jones is a "person aggrieved", having standing to seek the reinstatement of the company under s 601AH. ASIC has issued a letter saying that it does not oppose the application for reinstatement, if certain conditions are satisfied. The two substantive conditions are for the applicant to notify the former officeholders of the company of the application, and for a liquidator to be appointed and the company wound up. 13 As to notification of the other five directors, a solicitor claiming to be the solicitor for the defendant filed a Notice of Appearance on 22 September 2005. The Notice of Appearance set out "grounds of opposition to winding up", which were stated to be that the company was not insolvent, that it was deregistered for failure to lodge an annual return, and that it was the registered proprietor of real property. When the matter came before the Deputy Registrar on 7 October 2005 there was an appearance for the other five directors by counsel instructed by that solicitor. Leave was granted to the other five directors to intervene in the proceeding and they were directed to serve their affidavits by 8 October, but no affidavits have been filed. On 3 November 2005 the solicitor wrote to the Registrar explaining that he had been acting on the instructions of the former directors of the company and had filed the Notice of Appearance on the basis that an application was then pending to ASIC for reinstatement of the company. The ASIC application had since been withdrawn and therefore the solicitor had no standing to appear, and would seek leave under rule 12.5 of the Uniform Civil Procedure Rules to withdraw. 14 It seems that there were then some negotiations for settlement of the dispute, involving that solicitor on behalf of the other five directors, and a draft deed was prepared, but it had not been signed by the time that the matter came before me in the Corporations List on 6 March 2006. I directed the plaintiff to take all reasonable steps to notify the other five directors of the fact and content of the evidence upon which he would rely, and to file an affidavit setting out the steps that had been taken to comply with my direction and any communication received from the other five directors. By his affidavit made on 28 March 2006, the plaintiff's solicitor deposed that he had written to the solicitor who had acted for the other five directors, noting that the matter would be before the court again on 3 April, and that the proposed deed had not become available for the hearing on 6 March. The letter said that since it appeared impossible for the parties to reach agreement, the plaintiff would prepare the matter for hearing. Copies of that letter were served on four of the five directors. The plaintiff's solicitor was unable to ascertain with certainty the whereabouts of the fifth director but he sent a copy of the letter to an address that may have been correct. I am satisfied that in the circumstances, he took all reasonable steps to notify the other five directors, in compliance with my order. I assume this evidence also satisfies the notification condition imposed by ASIC. 15 The matter returned to me in the Corporations List on 3 April 2006. There was no appearance on behalf of any of the other five directors. Counsel for the plaintiff informed the court that a deed of agreement had been entered into by all six directors, and he tendered an undated but signed copy of the deed. The deed recited that in about May 2002 the other five directors had reached an agreement with the plaintiff that he would be allotted ten shares. It said that all six directors sought to have the registration of the company reinstated and have the company voluntarily wound up, and that all surplus capital after repayment of costs and the company's debts (including the shareholder loan accounts) be distributed equally between the six directors/shareholders. The deed made provision that within seven days of the date of an order of the Supreme Court requiring reinstatement of the company, the members of the company would call a general meeting to pass a resolution for the allotment of ten shares to the plaintiff, and the winding up of the company and the appointment of a liquidator. Provision was made for the payment of the costs of the present proceeding by the company. 16 As indicated by Barrett J on 21 November 2005, the court may have some difficulty making an order for winding up on the just and equitable ground, on the limited facts that have been placed before the court. However, it seems to me that the obligations undertaken by the six directors under the deed of agreement, coupled with the court's reliance on implementation of the deed of agreement as the basis for making its reinstatement order, will be sufficient to satisfy the condition of ASIC's consent that a liquidator be appointed and the company be wound up. 17 In these circumstances I am satisfied that the appropriate course is to make an order under s 601AH(2) requiring ASIC to reinstate the registration of the company, and to direct the plaintiff to forward an office copy of the order to ASIC so that the company may be reinstated. Consistently with the terms of the deed, I shall order the company, upon its reinstatement, to pay the plaintiff's costs of this proceeding.

Jones v 3R Gas

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