Nicholls (Trustee) v Australian Securities and Investments Commission, in the matter of Lawson

A. Introduction 1 The applicant, Alan Richard Nicholls in his capacity as trustee of the property of Shirley Thelma Lawson (Trustee), applies for an order pursuant to s 601AH(2) of the Corporations Act 2001 (Cth) (Act), that the respondent in these proceedings, the Australian Securities and Investment Commission (ASIC), reinstate the registration of Shirley Lawson Pty Ltd (Company) and for related relief. 2 The application is supported by an affidavit of the Trustee sworn on 11 September 2023 together with affidavits from Angus Charles Blair, the solicitor for the Trustee, sworn on 3 October 2023 and 1 November 2023. Steven Golledge of senior counsel, who appears for the Trustee, has provided detailed written submissions together with oral submissions in support of the application. I have drawn heavily on those submissions in preparing these reasons for judgment.

B. Background 3 The Trustee is the trustee of the bankrupt estate of Ms Lawson. The Trustee was appointed to that role on 23 April 2020. On 23 April 2023, Ms Lawson was discharged from her bankruptcy. To date, the Trustee has recovered $183,162.45 and has paid an interim dividend to creditors, who have lodged a proof of debt, of 39.67 cents on the dollar. 4 On the date of commencement of her bankruptcy, Ms Lawson was the sole director, secretary and shareholder of the Company. She was also a director of another company, SSJ Bay Developments Pty Ltd (SSJ). Prior to its deregistration, the Company was the trustee of a family discretionary trust known as the Shirley Investment Trust. SSJ is a trustee of a unit trust in which the Company holds 50% of the issued units. The only assets of the Shirley Investment Trust are loans that it has made to SSJ in an aggregate amount of $168,152 and units that it holds in the SSJ unit trust which are valued in the financial statements at $100,000. 5 At the date of the commencement of her bankruptcy, Ms Lawson was also a creditor of the Company in the amount of $263,200.55 and a creditor of SSJ in the amount of $15,003. On the commencement of her bankruptcy, those two debts vested in the Trustee pursuant to s 58 of the Bankruptcy Act 1966 (Cth). Any recovery of those debts depends upon the Company being able to recover its debt from SSJ and/or realising its units in the SSJ unit trust. 6 In October 2022, the Trustee learnt that the Company had been deregistered by ASIC on 22 April 2022, pursuant to s 601AB of the Act for failure to pay annual fees. As a result, the assets of the Company then vested in the Commonwealth, to the extent those assets were held on trust by the Company prior to deregistration. The Trustee now seeks an order for reinstatement as a necessary step to recover debts owed to the bankrupt estate by the Company. 7 Each of ASIC, Ms Lawson, and the sole director of SSJ have been given notice of these proceedings and of the hearing on 2 November 2023 and have been provided with a copy of the orders sought in the application. Each of these persons has confirmed to the Trustee that they do not have any objection to the relief which the Trustee now seeks.

C. Relevant Principles 8 The power granted to the Court pursuant to s 601AH of the Act is subject to a jurisdictional threshold as well as discretionary and evaluative considerations. 9 The jurisdictional element is that the Court must be satisfied that the applicant is a "person aggrieved" by the deregistration. Section 601AH of the Act relevantly provides: 601AH Reinstatement … Reinstatement by Court (2) The Court may make an order that ASIC reinstate the registration of a 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. (3) If: … (b) the Court makes an order under subsection (2); the Court may: (c) validate anything done during the period: (i) beginning when the company was deregistered; and (ii) ending when the company's registration was reinstated; and (d) make any other order it considers appropriate. 10 It has been said that the expression "person aggrieved" is one of wide import, which should be construed liberally. I recently summarised the relevant authorities to that effect in Hinz, in the matter of KEAD Pty Ltd (Deregistered) v KEAD Pty Ltd (Deregistered) (2022) 158 ACSR 444; [2022] FCA 270 at [19], citing National Australia Bank Limited v Australian Securities and Investments Commission, in the matter of Mackies Industries Australasia Pty Limited (receivers and managers appointed) (deregistered) [2022] FCA 147 at [17] (Farrell J); Owners of Strata Plan No 91349 v Australian Securities and Investments Commission (2020) 147 ACSR 456; [2020] NSWSC 685 at [61]-[62] (Bell P, as his Honour then was); Boys, in the matter of 38 Akuna Pty Ltd (Deregistered) v Australian Securities and Investment Commission [2019] FCA 320 at [24] (Lee J); In the matter of Likehart Pty Limited (deregistered) [2017] NSWSC 884 at [18] (Black J).

D. Consideration 11 I am satisfied that the Trustee is a person aggrieved. The Trustee is a creditor of the Company for an outstanding debt. A person who is a creditor of a company, which has been deregistered and is precluded from enforcing any claim against the company while it remains deregistered will have standing: Arnold World Trading Pty Ltd v ACN 133 427 335 Pty Limited (2010) 80 ACSR 670; [2010] NSWSC 1369 at [43] (Barrett J); see also KEAD at [19]. 12 I now turn to address evaluative discretionary considerations. The provision that the Court "may" order reinstatement if it is "just" to do so has been said to confer a discretionary judgment on the Court: In the matter of ERB International Pty Limited (deregistered) (2014) 98 ACSR 124; [2014] NSWSC 200 at [5] (Brereton J); Akuna at [28]. 13 I am satisfied in the present case that reinstatement will serve a useful purpose in that it will provide the Trustee with the ability to recover debts owed to the former bankrupt by the Company. First, I am satisfied, in the circumstances, that the reinstatement will facilitate the recovery of assets held by the Company at the time of its deregistration and the repayment of debts due by the Company, including a debt now owed to the Trustee. In that context, I note that on the evidence before me, it would appear that the financial position of the SSJ unit trust is solvent. 14 Second, the payment of that debt will, in turn, enable further payment of debts in the bankrupt estate and potentially the making of distributions to the beneficiaries of the family trust and the surplus to the former bankrupt. 15 Third, there is a public interest in the payment of a company's proper debts and the payment of debts due in bankruptcy and in the protection of the interests of beneficiaries of private trusts from the accidental defeat of those entitlements by reason of the absence of a validly appointed and effective trustee. 16 Further, I am satisfied that there is no basis to conclude that any third party will be prejudiced by reinstatement. 17 As I have indicated earlier, none of the parties directly affected by the reinstatement, being SSJ, and Ms Lawson herself, have objected to the orders which are sought. Nor has ASIC objected to the orders on the condition that no orders for costs are sought against it. 18 A further issue that arises is that, on its reinstatement, there would be no director of the Company. It is appropriate that proper arrangements are in place to provide for the ongoing management of the Company upon its reinstatement. The Trustee only seeks to be appointed as a receiver of the trust assets and does not wish to seek appointment as a director of the Company. 19 On one view, the obvious candidate to act as a director of the Company is the former director, Ms Lawson. Her previous bankruptcy does not in and of itself render it appropriate for her to be appointed. There is little authority on whether the Court can appoint a director as an ancillary order pursuant to s 601AH(3)(d) of the Act. That section provides the Court with the power to "make any other order it considers appropriate". 20 The scope of the power to make those orders in the context of an appointment of a director to a company that has been reinstated was canvassed by Rees J in In the matter of Garfox 86 Pty Limited [2019] NSWSC 442 in the following passages: 22 This brings me to the third matter, being the extent of the Court's power to make ancillary orders under section 601AH(3)(d), and what orders are appropriate in this case. Section 601AH(3)(d) gives the Court power to "make any other order it considers appropriate". The "other" refers back to section 601AH(3)(c), which empowers the Court to validate things done during the period of deregistration. In Pangon v Workcover Queensland [2001] 2 Qd R 492; [2000] QCA 421, McPherson JA (with whom Thomas JA and Muir J relevantly agreed) considered the power to be very wide: at [15]. In that case, his Honour made an order suspending the limitation period during the period in which a company was deregistered: see, likewise, In the matter of Regional Planners Developments Co Pty Ltd (2015) 100 ACSR 457; [2015] NSWSC 1996 per Brereton J. In In the matter of Bele & Co Pty Ltd [2017] NSWSC 1824, Black J read the power as incidental to the Court's power to reinstate a deregistered company, and not as independent of it: at [6]. In that case, a creditor sought an order that ASIC pay the creditor $193,000, being funds which ASIC held in respect of deregistered company, alternatively, reinstatement of the company and an order that ASIC pay the creditor the relevant amount pursuant to section 601AH(3)(d). His Honour considered that the power in section 601AH(3)(d) did not allow the Court, in effect, to determine a claim between a creditor and a deregistered company, without the attendance of the deregistered company and in a manner that would not bind it, and then make an order for ASIC to make a payment consequential upon its determination of that claim. See also Randall v City of Canada Bay Council (No.4) [2015] NSWSC 1759 at [200] per Kunc J, an appeal from which was dismissed as unarguable: Randall v City of Canada Bay Council [2017] NSWSCA 1 per Basten JA, with whom Simpson and Payne JJA agreed. 23 The most expansive review of the legislative history and case law in respect of section 601AH(3)(d) was undertaken by McKerracher J in The Bell Group Limited v Australian Securities and Investment (2018) 128 ACSR 247; [2018] FCA 884, which I reviewed in In the matter of A.C.N. 063 346 708 (formerly known as South Passage Pty Ltd) [2018] NSWSC 1709 at [44] ff. His Honour, having regard to the comments of Barrett J in CGU Workers Compensation (NSW) Ltd v Rockwall Interiors Pty Ltd at [18], concluded that the power was wide enough to make orders with respect to the shareholding of the deregistered companies so that they could form part of a tax consolidated group for the purposes of the Income Tax Assessment Act 1997 (Cth), conferring benefits on other Bell Group companies which they could not enjoy while the companies remained deregistered. 24 As I concluded in South Passage, having regard to these authorities, it seems to me that the Court has a wide power under section 601AH(3)(d). Nor did I consider that section 601AH(5) confines the Court's power in section 601AH(3)(d) such that the Court may not make orders modifying the effect of reinstatement. Rather, section 601AH(3)(d) gives the Court the power to alter the ordinary incidence of reinstatement in appropriate circumstances: at [51]. 25 In these circumstances, it seems to me appropriate to make the orders sought by Mr Soo, in particular, having regard to the fact that Garfox is solvent; monies have been placed in trust to promptly attend to payment of outstanding fees and penalties; arrangements have now been made to appoint three directors to the company including Ms Murphy who will be present in Australia and willing to attend to the administration associated with operating a company; the ancillary orders will give effect for the re-organisation of the company's affairs and shareholdings made three years ago; and each of the persons affected by the ancillary orders in particular, Ms Soo, consent to the orders sought. 21 With respect, I concur with the approach taken by Rees J in Garfox, in which her Honour ultimately made an order pursuant to s 601AH(3)(d) of the Act that ASIC record two named individuals be the directors of the company on its reinstatement. In this case, I am satisfied that the making of an order to that effect is appropriate given the need for a director to be appointed to facilitate the reinstatement in circumstances where I am otherwise satisfied that the reinstatement is necessary and appropriate in order to provide for recovery of assets for the purpose of enabling the creditors of the former bankrupt to be paid and, potentially, for distributions to be made to beneficiaries of the family trust and the former bankrupt in the event that a surplus is achieved. I note that the former bankrupt has provided a consent to act as a director of the company.

E. Disposition 22 In all the circumstances, I am satisfied that orders should be made substantially in the form of the orders sought by the applicant in the application, as modified in revised orders provided to me shortly prior to the commencement of this hearing. I certify that the preceding twenty-two (22) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Halley.