Legrande Enterprises Pty Limited v Australian Securities and Investments Commission

History of Mauviel Holdings 9 Mauviel Holdings was a proprietary company limited by shares. It was registered on 4 June 1999 and deregistered on 28 October 2007. At the time of the company's deregistration, Mr Mauviel was the sole director of the company and the shareholders were Mr Mauviel and, it seems, members of his family. 10 A company called Bowman Management and Accounting Services Pty Ltd was responsible, it seems, for the preparation of Mauviel Holdings' financial statements and taxation returns. At the time of deregistration, Mauviel Holdings' registered office was the premises of Bowman Management and Accounting Services Pty Ltd on King William Street, Adelaide. 11 The business of Mauviel Holdings was the operation of a number of franchises operating under the name "Billy Baxter's". The franchises involved the operation of licensed cafés and restaurants. One such business operated by Mauviel Holdings was in a shop at the Golden Grove Village Shopping Centre in Golden Grove, South Australia. In 2004, this business was sold by Mauviel Holdings to Legrande Enterprises. I will refer to this business as "the Golden Grove business". 12 Mauviel Holdings was deregistered by the Commission pursuant to s 601AB(1A) of the Act. That subsection gives the Commission power to deregister a company if that company's review fee in respect of a review date has not been paid in full at least 12 months after the due date for payment. On 20 August 2007, the Commission wrote to Mauviel Holdings care of Bowman Management and Accounting Services Pty Ltd, advising it that the Commission had "started deregistration action" against the company. Mauviel Holdings took no steps to avert deregistration and, as I have said, that took place on 28 October 2007.

The District Court action 13 On 4 August 2006, Legrande Enterprises commenced an action in the District Court of South Australia against Mauviel Holdings and Mr Mauviel. In the action, it claimed damages against Mauviel Holdings and Mr Mauviel on the basis of certain representations concerning the sale and purchase of the Golden Grove business. 14 There seems to be no dispute that on 18 October 2004 Legrande Enterprises entered into a written agreement with Mauviel Holdings whereby it purchased the Golden Grove business from Mauviel Holdings for a consideration of $280,000. Legrande Enterprises was incorporated on 4 October 2004 and Mr Eduard Karssen and Mr John Duffield became the company's directors. 15 It is alleged by Legrande Enterprises that, before entering into the written agreement on 18 October 2004, Mauviel Holdings and Mr Mauviel made certain representations about the gross takings and net profits of the Golden Grove business and that the representations were untrue or misleading or deceptive. The representations were made in documents entitled "Mauviel Holdings Pty Ltd - Job Profit & Loss Statement 1/11/03 through 30/6/04" given to Mr Karssen by Mauviel Holdings on 16 July 2004, and a document entitled "Form 2 - Statement under Section 8" (see Land and Business (Sale and Conveyancing) Act 1994 (SA)) given to Legrande Enterprises by Mauviel Holdings on 4 October 2004. I was told that a Form 2 was not actually required by the Land and Business (Sale and Conveyancing) Act 1994 (SA) because of the amount of the consideration paid for the business. 16 The Golden Grove business was not a success and, on 29 May 2006, Legrande Enterprises purported to rescind the agreement for sale and purchase. That rescission was not accepted by Mauviel Holdings. Legrande Enterprises sold the business to a third party on 6 September 2007 with settlement taking place on 17 December 2007. 17 The District Court action has proceeded through various interlocutory stages and has not yet come on for trial. It seems that, in about January 2008, Legrande Enterprises discovered that Mauviel Holdings had been deregistered. Through its solicitors, it wrote to the solicitors then acting for Mauviel Holdings and Mr Mauviel, asking the defendants to rectify the situation. Nothing was done and, in fact, at about that time, the solicitors ceased acting for Mauviel Holdings and Mr Mauviel. The Commission was approached, but it indicated that it would not exercise its power to reinstate the company because the case did not fall within the circumstances in which it would ordinarily do so.

Mauviel Holdings' business operations 18 Legrande Enterprises issued a subpoena directed to Mr Mauviel and Bowman Management and Accounting Services Pty Ltd seeking the production of the following documents: "1. The financial statements prepared for Mauviel Holdings Pty Ltd ('the Company') for the financial years ended 30 June 2006, 2007 and 2008 respectively; 2. Any correspondence between ASIC and the Company relating to its deregistration; 3. Minutes of any meeting of the directors of the Company held in 2006 and 2007; and 4. Records of any resolution signed by the directors of the Company in 2006 and 2007." 19 Only one document was produced and that was the Commission's letter dated 20 August 2007 and referred to in [12] above. 20 Mr Mauviel tendered an affidavit on the hearing of the application in which he states that Mauviel Holdings does not trade and has no assets, and that reinstatement would be a pointless exercise. 21 Mr Mauviel was cross-examined by counsel for Legrande Enterprises. The following emerged from the cross-examination. At one point, Mauviel Holdings held five franchises, including the Golden Grove business. The company stopped trading in March 2005 after the franchises had been sold. Bowman Management and Accounting Services Pty Ltd was the company's accountant. It was not instructed by Mr Mauviel to prepare taxation returns for the financial years ended 30 June 2006, 30 June 2007 and 30 June 2008 and none were prepared. Mauviel Holdings had no assets and liabilities in March 2005. The franchises were sold and most of the liabilities of the company were paid. There were no surplus assets and, in fact, the company had a liability to the Australian Taxation Office which it has not met. There were no directors' meetings of the company held after March 2005. 22 Mr Mauviel said he was not told of the Commission's letter dated 20 August 2007 and that the first time he became aware that Mauviel Holdings had been deregistered was in January 2008. 23 In summary, there are no documents put before the Court which showed the financial position of Mauviel Holdings at any time. At some stage, the company had substantial assets. There is no clear evidence of its liabilities. Mr Mauviel, as the controlling mind of Mauviel Holdings, decided to bring its operations to an end in March 2005. On his evidence, he conducted what might be considered a de facto winding up of the company at that time. By then, all of the assets of the company had been sold and the liabilities of the company were, for the most part, discharged. The company has had no assets since March 2005, and it had at least one liability at that time, being a liability to the Australian Taxation Office. The company has not operated since March 2005 and it has not had prepared any financial statements or taxation returns since that time. On Mr Mauviel's evidence, no directors' meetings of the company have been held since that time. The company did not pay its review fees and that led to its deregistration by the Commission.

The issues on the application 24 The two principal orders sought by Legrande Enterprises are that the Commission be ordered to reinstate the registration of Mauviel Holdings and that the company then be wound up. 25 In order to obtain an order for reinstatement, Legrande Enterprises must show that it is a person aggrieved by the company's deregistration and that it is just that the company's registration be reinstated. It is not necessary to consider whether there is a residual discretion not to make an order, even where these two matters are established, because it is not suggested that there are discretionary considerations not encompassed within the consideration of whether it is just to order that the company's registration be reinstated. 26 I find that Legrande Enterprises is a person aggrieved by the deregistration of Mauviel Holdings. The deregistration of the company means that Legrande Enterprises is unable to pursue its claim against it. A comparison of the figures put before the Court by Legrande Enterprises establishes that Legrande Enterprises has a prima facie case that the representations made to it were untrue and many of the other allegations, such as the provision of the alleged figures by Mauviel Holdings to Legrande Enterprises, are admitted. Furthermore, Legrande Enterprises has incurred legal costs in pursuing an action against Mauviel Holdings that was a properly constituted action before 28 October 2007. In my opinion, this is sufficient for Legrande Enterprises to constitute a person aggrieved within s 601AH(2)(a)(i) (Donmastry Pty Ltd v Albarran (as vol liq of Project Management, Architecture, Construction, Interior (PACI) Pty Ltd) (2004) 49 ACSR 745 at 746 [4] per Barrett J). I note that in his outline of argument Mr Mauviel did not contend that Legrande Enterprises was not a person aggrieved. 27 The direction to the Court in s 601AH(2) to consider if it is just that the company's registration be reinstated confers a broad discretion. In Australian Competition and Consumer Commission v Australian Securities and Investments Commission (2000) 174 ALR 688, Austin J said (at 693 [27]-[28]): "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: Re 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.

These matters are only factors to be weighed in the exercise of the court's discretion. They are not limits on the court's power." 28 I am satisfied that it is just that Mauviel Holdings' registration be reinstated. As I have said, Legrande Enterprises has a prima facie case against Mauviel Holdings. It will be unable to pursue any type of claim against Mauviel Holdings if the company's registration is not reinstated. The prejudice to Legrande Enterprises is obvious. Mauviel Holdings at one time had substantial assets and its operations were brought to an end, not by an orderly winding up, but by what was, in effect, administrative action by Mr Mauviel. If the evidence of Mr Mauviel is to be believed, he was not even aware that the company of which he was the controlling mind was deregistered. There is no evidence of prejudice to any third party. There is no prejudice to Mr Mauviel because, although s 601AH(5) provides that the usual consequence of a reinstatement order is that a former director becomes a director again, I will, for reasons to be given, make an order that the company be wound up. 29 I have considered whether Legrande Enterprises must establish that Mauviel Holdings had assets that will enable it to recover on any judgment it may obtain against Mauviel Holdings in the District Court action. However, I am persuaded by the submissions of counsel for Legrande Enterprises that Legrande Enterprises need not establish this. It is sufficient that there is a possibility of financial recoveries being achieved through steps taken by a liquidator against persons who may have been a party to misapplication of its assets. It is clear that Mauviel Holdings did at some stage hold substantial assets and it is clear that it has never been the subject of an orderly winding up, in the course of which the assets and liabilities of the company are identified and, if necessary, fully investigated. Mr Mauviel relied on the following observation of Goldberg J in Promnitz v ASIC (2004) 22 ACLC 108 at 111 [20]: "Where a company has been in liquidation it will be a rare case that allows reinstatement where there are no funds available to enable the liquidators of the company to continue to supervise and monitor its operations." 30 However, the distinguishing and significant point in this case is that Mauviel Holdings was never the subject of an orderly winding up. 31 Mr Mauviel raises two matters in opposition to an order that the registration of Mauviel Holdings be reinstated. The first is that he will be prejudiced in that he will once again become a director of the company. I have already dealt with that argument. Secondly, he submits that no order should be made until the outcome of the District Court action against him is known. If he successfully defends the action, no order will be necessary. If he does not, then an order can be made and it is unlikely Mauviel Holdings will contest any findings made against Mr Mauviel. I reject this submission. It is quite unreasonable to expect Legrande Enterprises to take the risk of having to conduct two trials in relation to its purchase of the Golden Grove business. 32 Legrande Enterprises submits that it is just and equitable that Mauviel Holdings be wound up. It submits that it has standing to seek a winding up order because it is a prospective creditor of Mauviel Holdings within s 462(2)(b) of the Act. It submits that it is a prospective creditor because it has a prima facie case against the company. As I have said, I accept that it has a prima facie case, and I accept that that means that it is a prospective creditor of Mauviel Holdings: Commissioner of Taxation of the Commonwealth of Australia v Simionato Holdings Pty Ltd (1997) 15 ACLC 477. 33 I am satisfied that it is just and equitable to make an order for the winding up of Mauviel Holdings. The company has not been under the effective control of any person since March 2005 and that is a sufficient ground upon which to conclude that it is just and equitable to order that the company be wound up. In Re Sparad Ltd (1993) 12 ACSR 12, McLelland CJ in Eq said (at 13-14): "It seems to me that the fact that the registration was cancelled and has remained cancelled since 24 June 1993 and, as I would infer, no action has been taken by anyone associated with the company to remedy that situation, is clear evidence that the company is without effective control. In particular its affairs, if a dissolved company can be said to have affairs, are not under effective control and it is unlikely that there would be any person who would be concerned to revive the company at this stage. It also provides sufficient evidence to justify a winding up order on the just and equitable ground, quite apart from any question of insolvency. I would in any event draw an inference of insolvency from the evidence which is before the court and it seems to me that that evidence also clearly shows the plaintiff to have sufficient standing to proceed to apply for a winding up order. There is nothing to suggest to me that there is the slightest likelihood of this company being revived and I conclude that the only way in which the rights of creditors can be vindicated, including particularly those of the plaintiff, is by acceding to the application that it be wound up, such winding up to be preceded by an order reinstating the company to the register. I do not consider that any useful purpose would be served by any advertisement and I dispense with the requirements of the rules relating to advertisement." 34 To similar effect are the reasons of Barrett J in Shaw v Goodsmith Industries Pty Ltd (formerly Newbold General Refractories Ltd) (2002) 41 ACSR 556 at 559 [14]-[15]: "The plaintiff in fact seeks a winding up order in the event that the order for reinstatement is made. The fact that, by virtue of s 1408(1), the reinstatement will be effected under the Corporations Act 2001 (Cth) means that the company will properly be regarded as 'registered under this Act', so that it comes within the s 9 definition of 'company' and therefore within the description at the start of s 461(1). The plaintiff's standing to apply for a winding up order derives from s 462(2)(b), he being a contingent or prospective creditor. The circumstances of this case - namely, that the directors and officers, as well as the shareholders, whoever they may be (the company extract does not identify them), have been out of touch since December 1990 - may be taken to be such that the company should be regarded as practically unable to operate under the normal kind of administration so that it is just and equitable, in terms of s 461(1)(k) that it be wound up immediately. Should any of the shareholders come to think that the former administration should again become operative and that the company has become viable, they may seek the assistance of the court through s 482 by way of order terminating the winding up. The decisions of Young J in Scott v Janniki Pty Ltd(1994) 14 ACSR 334 and McLelland CJ in Eq in Re Sparad Ltd(1993) 12 ACSR 12 show that, in cases such as this where winding up should follow immediately upon reinstatement, there is no need for formalities of advertising and the like to be undertaken. I am therefore prepared to dispense with them. The plaintiff has tendered the consent of a registered liquidator to act as liquidator in this case."

Conclusion 35 Subject to the conditions sought by the Commission, and the question of whether any outstanding review fees should be paid as a condition of granting relief, I am disposed to make the first five orders sought by Legrande Enterprises. It has asked to be heard further before formal orders are made and I think it appropriate to accede to that request. I will order that Legrande Enterprises bring into Court minutes of order reflecting the conclusions expressed in these reasons. I certify that the preceding thirty-five (35) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Besanko.

Associate: Dated: 8 July 2009 Counsel for the Plaintiff: Mr S D Ower

Solicitor for the Plaintiff: Camatta Lempens