Liberty International Underwriters v Australian Securities and Investments Commission, in the matter of Moore Murphy Holdings Pty Ltd

BACKGROUND 1 D-Tech Contracting Pty Ltd (Company) was registered on 12 July 2013. It carried on the business of providing, inter alia, marine mechanical services. On 10 July 2019 the Company's name was changed to Moore Murphy Holdings Pty Ltd. 2 On 20 July 2017 the Company made a claim (Claim) pursuant to a Marine and General Liability Insurance Policy that it held with the Applicant, Liberty International Underwriters (Insurer). The Claim related to work that the Company had carried out for a customer in respect of the engine of a cray fishing boat. The engine had purportedly failed, causing the customer to suffer loss and damage. The Insurer granted indemnity under the policy in respect of the Claim, and a sum was duly paid out to the customer by the Insurer. 3 On 13 March 2019 the Insurer, exercising its right of subrogation, commenced proceedings in the District Court of Western Australia against Kewmoore Pty Ltd trading as R Moore and Sons (RMS). It is alleged in those proceedings that the engine failure was caused by RMS incorrectly machining engine cylinder heads, which task RMS had been contracted to undertake by the Company (District Court proceeding). 4 The allegations made in the District Court proceeding are supported by the expert evidence of a forensic engineer. 5 Various procedural steps were taken in the District Court proceeding during 2019 and 2020. On 13 July 2020 the matter was listed for trial for 6 days commencing on 25 March 2021. 6 On 3 December 2020, the Insurer's solicitors discovered that the Company had become deregistered on 28 October 2020. It would appear that the directors had voluntarily de-registered the Company after selling the business that it had operated. 7 On 14 January 2021, the Insurer lodged with the Australian Securities and Investments Commission (ASIC) an application seeking reinstatement of the registration of the Company. That application has not yet been processed. 8 The Insurer seeks an order pursuant to s 601AH(2) of the Corporations Act 2001 (Cth) reinstating the registration of the Company and an order pursuant to s 601AH(3) of the Act reinstating the District Court proceeding and validating any step taken in respect of those proceedings during the period of deregistration.

RELEVANT LAW 9 Section 601AD(1) of the Act provides that, upon deregistration, a company ceases to exist. 10 Section 601AH(2) of the Act provides that the Court may make an order that ASIC reinstate the registration of the company if: (a) an application is made by a 'person aggrieved by the deregistration'; and (b) the Court is satisfied that it is 'just' that the company's registration be reinstated. 11 The expression 'person aggrieved' should not be construed narrowly: The Bell Group Limited v Australian Securities and Investments Commission (2018) 128 ACSR 247; [2018] FCA 884 (at [47] and the authorities cited therein). Where deregistration has extinguished a legal right of value, or potential value, the applicant will be a 'person aggrieved' for the purposes of the provision: Bell Group (at [51] and the authority cited therein). 12 I also noted in Bell Group (at [72]-[73]) that in considering whether it is 'just' to make an order under s 601AH(2), the Court should have regard to the circumstances in which the company came to be deregistered, its future activities, whether any person is likely to be prejudiced by the reinstatement and whether there are any matters of public policy for, or against, the making of an order: see also Australian Competition and Consumer Commission v Australian Securities and Investments Commissioner (2000) 34 ACSR 232; [2000] NSWSC 316 per Austin J (at [27] and the authorities cited therein). 13 Section 601AH(3) of the Act empowers the Court, upon reinstatement of the registration of a company, to validate 'anything done' during the period of deregistration and to make 'any other order' it considers appropriate. Section 601AH(5) provides that a reinstated company is taken to have continued in existence as if it had not been deregistered. However, this does not mean that anything which was purportedly done on behalf of the company during the period of deregistration is thereby regarded as valid. The effect of s 601AH(5) is to provide for a 'limited' retrospectivity only: Bell Group (at [137]) and White v Baycorp Advantage Business Information Services Ltd (2006) 200 FLR 125; [2006] NSWSC 441 per Campbell J (at [115]). 14 Accordingly, ancillary orders under s 601AH(3) are required in order to restore a right of action by reinstating legal proceedings and validating any steps taken in the proceedings during the period of deregistration: Bell Group (at [137]). Proceedings purportedly commenced against a company when it was deregistered may be validated nunc pro tunc pursuant to s 601AH(3), if it would be just to do so. As Rees J observed in Re Austral Bronze Pty Ltd (No 2) [2020] NSWSC 1633 (at [92]): Section 601AH(3)(c) clearly states that "the Court may validate anything done during the period beginning when the company was deregistered and ending when the company's registration was reinstated". Validating the commencement of legal proceedings purportedly against a company at a time when the company was deregistered falls squarely within this language. There is no reason to curtail the statutory power by reference to case law in respect of a different, and more limited, statutory power. It may, of course, not be appropriate in the exercise of the Court's discretion to validate the commencement of legal proceedings nunc pro tunc, but nor is the Court precluded from doing so by reference to the statutory language. 15 As I noted in Bell Group (at [136]), the power to make ancillary orders in s 601AH(3) exists for the primary purpose of treating a company upon reinstatement as though it had continued in existence from the date of deregistration. 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] respectively).

APPLICATION OF THE RELEVANT LAW 16 The Insurer has filed two affidavits in support of the application for reinstatement which establish the facts outlined above and those discussed further below. The application was filed on 8 February 2021 with relief sought on an expedited basis due to the proximity of the trial in the District Court proceeding set down for six days from 25 March 2021, and a directions hearing in the same proceedings listed on 16 February 2021. As the reasons that follow make apparent, while I consider on the material before the Court that reinstatement should be granted, the Court is concerned to ensure that all interested parties are afforded a reasonable opportunity to respond to the application. 17 Although the Company existed at the time the District Court proceedings were commenced by the Insurer, it has ceased to exist since its deregistration on 28 October 2020. The Insurer gives evidence of a telephone conversation with one of its former directors that the deregistration was due to the sale of the business operated by the Company, the directors now having no further use for the Company. The deregistration appears to be separate and unrelated to anything that has ensued in the District Court proceeding however in pursuing rights subrogated to it by the Company, the Company's continued existence is required for the Insurer to pursue its claim in the District Court proceeding. 18 As I recently observed in State of Western Australia v Australian Securities and Investments Commission [2020] FCA 810 (State v ASIC) (at [11]) in a relatively similar application for reinstatement to pursue a subrogated right: The State is aggrieved by the deregistration of Inspire Acacia because the deregistration has caused its deemed right of subrogation in relation to the relevant legal rights and remedies of Inspire Acacia against KDD and Ms Dillon to be rendered obsolete: MH Smith (Plant Hire) Ltd v DL Mainwaring [1986] 2 Lloyd's Rep 244 and see generally C Mitchell & S Watterson, Subrogation - Law and Practice (Oxford University Press, 2007) at [10.63]. 19 As a result of the deregistration of the Company, the Insurer has been deprived of the legal right to seek from RMS the sum it has paid in respect of the Claim and its costs incurred in the District Court proceeding. That right is a thing of value or potential value. The Insurer is therefore a 'person aggrieved' for the purposes of s 601AH(2). 20 As to whether it is just that the Company be reinstated, as noted in State v ASIC (at [16]), Courts have previously ordered reinstatement for the purpose of the company being able to bring legal proceedings: Re JJ Weeks Constructions Pty Ltd (1982) 31 SASR 96 and Re Timothys Pty Ltd & the Companies Act [1981] 2 NSWLR 706. See also more recently BSA Limited v Australian Securities and Investments Commission [2020] FCA 1823. 21 The Insurer also referred the Court to Rees J's decision in Austral Bronze and his Honour's observation that four themes emerge from the case law in considering whether to make orders under s 601AH(3) (at [77]-[85]): (a) whether ancillary orders are sought to avoid a limitation period; (b) whether ancillary orders would prejudice the reinstated company due to its failure to do something which it could not have done while deregistered; (c) whether ancillary orders would require the Court to determine contentious matters between the applicant and the company; and (d) whether the ancillary orders sought are futile or sought in aid of an unmeritorious claim 22 None of the considerations identified in Austral Bronze is adverse to the Insurer in the present case - the ancillary orders are not required in order to avoid a limitation period, there is no evidence of prejudice to the Company in the sense considered by Rees J, there is no need for the resolution of any dispute as between the Insurer and the Company and the orders sought are not futile, to the contrary, the expert evidence for the Insurer at least suggests that the Insurer may have a meritorious claim against RMS such that it would be just for that claim to be heard and determined by the District Court. As noted by Bromberg J in BSA Limited (at [15]), '[i]t is not necessary to delve into the substance of the [claim] unless it is plainly hopeless and bound to fail…'. 23 The application and supporting affidavits have been served on ASIC, the solicitors for RMS, and the Company's former directors . All three have been advised of the anticipated timeframe for determination of the application. ASIC has now been joined as a party at my request. Notice of these proceedings to those parties was given less than a week ago. 24 Earlier today, the Insurer provided to the Court a letter that it had received from ASIC indicating that the application was not opposed provided that the following conditions were met: (a) no order for costs will be sought against the ASIC; and (b) the former directors of the Company are provided reasonable notice and opportunity to respond to the application. 25 The interests of justice favour the granting of the orders sought under both ss 601AH(2) and 601AH(3). Without reinstatement of the Company's registration and restoration of its right of action in the District Court proceeding, the Insurer will lose the right to have its claim against RMS determined. While the evidence does not suggest any prejudice to the former directors, notice was only given to them (and RMS) last week. 26 As to RMS, while it could be arguable that prejudice arises, in circumstances where the Company was registered at the time the District Court proceedings were commenced in March 2019 and the proceedings are now well advanced, it is difficult to presently see how any prejudice could outweigh that which the Insurer would occasion if reinstatement is not ordered. I do not consider the Insurer to be at fault in needing to bring this application nor its timing: cf Eyles v Curved Plywood [2004] NSWSC 257. 27 In Eyles, the applicant sought to reinstate a company that had been his employer so that he could pursue a personal injury claim. In that case, the company was already deregistered when the personal injury claim was commenced however Austin J considered that the circumstances of the case warranted reinstatement (at [8]): I am satisfied that the appropriate course in the present circumstances is for this Court to do what is necessary to make it clear that the District Court proceeding is to be treated as if the defendant were a corporation in existence at all relevant times. There is a substantive question for the District Court as to whether leave should be granted to the plaintiff, nunc pro tunc, to extend the time under the Workers' Compensation Act for commencement of that proceeding. I say nothing about the merits of that matter. It seems to me, however, that it is that matter that should be addressed on its merits and the District Court ought not to be distracted by the additional complication arising out of the non-existence of the defendant. 28 In reaching the conclusion that the Company should be reinstated, I do consider that further time should be allowed to permit RMS a reasonable opportunity to respond to the application. Similar treatment will also be given to the former directors given that it is also a condition of ASIC's non-opposition that they be afforded a reasonable opportunity to respond. In the exercise of statutory powers such as that conferred by s 601AH, it is necessary to ensure that all parties who may be affected by the relief sought be accorded procedural fairness: Miltonbrook Pty Ltd v Westbury Holdings Kiama Pty Ltd (2008) 71 NSWLR 262 (at [85]) (Spigelman CJ, with whom Tobias and Campbell JJA agreed).

CONCLUSION 29 Orders will be made in the terms sought by the Insurer except their operation will be deferred by seven days to permit RMS and the former directors some further time to consider whether they wish to be heard on the question of reinstatement. Should either party so indicate, a further seven days will be provided for the filing of short submissions. I certify that the preceding twenty nine (29) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice McKerracher.