By Amended Originating Process filed in Court on 16 August 2024, the Plaintiff (Mr Liu) seeks an order under s 601AH of the Corporations Act 2001 (Cth) (the Act) reinstating the registration of Mamae Pty Ltd, together with ancillary orders.
No party objects to the reinstatement.
[2]
Factual background
Mr Liu and the First Defendant (Ms Shelley) are siblings.
Nicholls (Trustee) v Australian Securities and Investments Commission, in... [2024] NSWSC 1032 | Case summary | Zoe
Mamae was incorporated on 3 March 2010. At that time, Mr Liu was the sole shareholder of Mamae, and Mr Liu and Ms Shelley were the directors of Mamae.
From around 25 March 2010, Mr Liu and Ms Shelley became equal shareholders in Mamae.
Mamae was incorporated for the purpose of acquiring a property located at XXX in New South Wales (the Property).
Mr Liu deposes that he and Ms Shelley agreed in about early 2010 that each would contribute 50 per cent of the money required to purchase the Property, on the basis that each would be entitled to a half share in the Property, including a half share in any rental income. Mr Liu also deposes that, at the time of this agreement, the Property was being leased to Interconnect Pty Ltd. Ms Shelley's husband, Mr Phillip Shelley, was a director and shareholder of Interconnect.
On 6 May 2010, Mamae became registered proprietor of the Property.
Documents produced by Ms Shelley in answer to a Notice to Produce in these proceedings include trust deeds dated 3 March 2010 and 3 March 2012 for the "Liu Family Trust" (Trust), which name Mamae as trustee of the Trust. Mr Liu deposes that prior to the production of these documents, he was not aware that the Trust had been established or that Mamae was the trustee of any trust. Having regard to this material, Senior Counsel for Mr Liu noted that there may be an issue regarding whether Mamae held the property in its own right, or as trustee for the beneficiaries of the Trust, or on trust for Mr Liu and Ms Shelley (having regard to the matters in paragraph 7 above). I do not need to resolve that issue for the purposes of this application.
On around 10 January 2012, Ms Shelley lodged a form with the Third Defendant (ASIC), certifying that Mr Liu ceased to be a director of Mamae from 2 January 2012. Mr Liu deposed that he cannot now recall whether or not he agreed to this occurring, or was informed that this form had been lodged. However, Mr Liu acknowledged that Ms Shelley was solely responsible for managing the affairs of Mamae and the Property.
Between September and November 2021, Mr Liu and Ms Shelley exchanged emails in relation to Mamae and the Property. It is not necessary to go into the details of that correspondence. In short, Mr Liu sought information in relation to Mamae and the Property; Ms Shelley did not provide this material and indicated that she intended to cease managing the affairs of Mamae; and Mr Liu indicated that he could find someone else to manage Mamae. In response, Ms Shelley indicated to Mr Liu that she intended to "transfer [her] half out", following which Mr Liu would "have 100% Mamae". Mr Liu asked for details of her proposal and indicated that he did not consent to Ms Shelley disposing of any assets of Mamae until the issues between them had been resolved.
On 1 March 2022, Mamae transferred the Property to the Second Defendant, QD Trading Pty Ltd. The directors and shareholders of QD Trading are Ms Shelley and Mr Shelley.
The registered transfer of the Property indicates that nil consideration was paid.
On 30 April 2022, Mr Liu received an email from Ms Shelley which stated as follows:
"I have sold [XXX address] for 1.7m, $850k belong to you, I will transfer $700K plus last year rental $24,807 to you this week. 150k I will hold until tax return 2022 done. I will finalize rest balance in august this year."
Mr Liu deposes that between 2 and 9 May 2022, he received a total of $724,807 from Ms Shelley, which he understood to be payments in respect of the transfer of the Property.
There is evidence that, prior to transferring the Property for nil consideration and informing Mr Liu that it had been sold for $1.7m, Ms Shelley had received an appraisal report dated 30 July 2021, which valued the Property at between $2.4m and $2.5m. Ms Shelley emailed this valuation to Mr Liu at 5.50pm on 2 August 2021, and then attempted to recall that email at 6.03pm. Following this, she sent him a further email at 6.07pm, which attached an appraisal from the same entity, dated 2 August 2021, valuing the Property at between $1.7m and $2.0m. The relationship between the two valuation reports is unexplained.
On 10 August 2022, Ms Shelley lodged with ASIC an application for voluntary deregistration of Mamae pursuant to s 601AA of the Act. This application included a declaration by Ms Shelley that all members of Mamae agreed to the deregistration. Mr Liu deposes that Ms Shelley did not seek or obtain his consent or approval to lodge the form; that he did not agree to the deregistration of Mamae; and that he was not aware of its deregistration until around March 2023.
On 12 October 2022, Mamae was deregistered.
Mr Liu has estimated that, from the time Mamae purchased the Property (when Interconnect was a tenant) until the time of its deregistration, Mamae received or was entitled to receive rental income of around $1.6m. He sets out in his affidavit the basis of this estimate. Mr Liu deposes that, based on his review of his own financial statements, Ms Shelley has caused him to be paid only $91,356 on account of rental income.
[3]
The position of the Defendants
At the start of the hearing, Senior Counsel for Mr Liu mentioned the matter on behalf of the solicitor for Ms Shelley and QD Trading and handed up proposed short minutes of order, which were signed by the solicitor for Ms Shelley and QD Trading. Those proposed consent orders provided for the reinstatement of Mamae; noted Ms Shelley's agreement to resign as director of Mamae upon its reinstatement; provided for Mr Liu and Mr Siyuan Liu (who is the nephew of Mr Liu and Ms Shelley) to be appointed as directors of Mamae; and reserved costs as against Ms Shelley and QD Trading.
Mr Liu also tendered correspondence from ASIC, confirming that ASIC's position was that it did not oppose the application and would not attend the hearing on the condition that no order for costs would be sought against ASIC (and no such order has been sought).
Relevant Principles
Section 601AH of the Act relevantly provides as follows:
(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;
…
(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:
…
(d) make any other order it considers appropriate.
…
(5) If a company is reinstated, the company is taken to have continued in existence as if it had not been deregistered. A person who was a director of the company immediately before deregistration becomes a director again as from the time when ASIC or the Court reinstates the company. Any property of the company that is still vested in the Commonwealth or ASIC revests in the company. If the company held particular property subject to a security or other interest or claim, the company takes the property subject to that interest or claim.
The principles relevant to reinstatement applications were conveniently summarised by McGrath J in the recent decision of Yi Li v Australian Securities and Investments Commission [2024] NSWSC 514 at [25] as follows:
"(1) The question whether an applicant under s 601AH(2) is a 'person aggrieved by the deregistration' is considered by reference to legal rights and legal interests: Arnold World Trading Pty Ltd v ACN 133 427 335 Pty Ltd [2010] NSWSC 1369; (2010) 80 ACSR 670, Barrett J at [43], approved in Re LCW Property Holdings Ltd (deregistered) [2020] NSWSC 71, Gleeson J at [17].
(2) The concept of a 'person aggrieved by the deregistration' includes a person who has a genuine grievance because a company's dissolution has extinguished a right of some value or potential value, including a right to bring proceedings against the company or to bring a claim by the company against a third party: Re Likehart Pty Ltd (deregistered) [2017] NSWSC 884, Black J at [18]; LCW Property at [21]; In the matter of Human Group Pty Ltd; In the matter of A.C.N. 137 384 662 Pty Ltd [2023] NSWSC 28, Black J at [7].
(3) The question of whether it is just that the company's registration be reinstated involves a broad discretionary judgment of the court, the relevant considerations for which include the circumstances in which it was deregistered, the purpose of the person aggrieved in seeking its reinstatement, whether any person is likely to be prejudiced by its reinstatement and the public interest generally: Re ERB International Pty Ltd (deregistered) (2014) 283 FLR 223; [2014] NSWSC 200, Brereton J at [5]; LCW Property at [16] and [22]-[28]; Human Group at [9].
(4) On an application for reinstatement, the court is concerned with the justice of reinstating the company, not the justice of any proceedings which it is proposed that the reinstated company might institute or resume: ERB International at [10] citing the Victorian Court of Appeal in AMP General Insurance Ltd v Victorian WorkCover Authority [2006] VSCA 236 at [35]; applied in LCW Property at [22].
(5) It is often not appropriate in an application for reinstatement to go into factual matters which may be the subject of dispute: Pilarinos v Australian Securities and Investments Commission [2006] VSC 301; (2006) 24 ACLC 775, Gillard J at [22]; Deputy Cmr of Taxation v Australian Securities and Investments Commission; Re Civic Finance Pty Ltd (deregistered) [2010] FCA 1411; (2010) 81 ATR 456, Jagot J at [14], applied in LCW Property at [20].
(6) The effect of reinstatement is that the former directors and secretary automatically resume office as directors and secretary of the company by reason of the operation of s 601AH(5) of the Corporations Act: LCW Property at [27], citing Mitzev v Foxman [2007] NSWCA 273, Basten JA (Tobias and McColl JJA agreeing) at [25].
(7) The power of the court in s 601AH(3)(d) of the Corporations Act to 'make any other order it considers appropriate' must be exercised having regard to all of the circumstances of the particular case and the broader context of the operation of the Corporations Act: Federal Cmr of Taxation v Iannuzzi (No 3) [2024] FCA 45, Markovic J at [215]."
The expression "person aggrieved" is of wide import and is to be construed liberally: Owners of Strata Plan No 91349 v Australian Securities and Investment Commission [2020] NSWSC 685 at [61] (Bell P). What must be shown is that the plaintiff has a genuine grievance because the deregistration has extinguished a right of some value or potential value, such as a right, potentially, to bring a claim by the company against a third party: In the matter of Likehart Pty Ltd (deregistered) [2017] NSWSC 884 at [18] (Black J); In the matter of LCW Property Holdings Pty Ltd (deregistered) [2020] NSWSC 71 at [20]-[21] (Gleeson JA).
Where reinstatement is for the purpose of pursuing legal proceedings, the Court should not engage in too close a scrutiny of the claims or their strength; the claims must be shown to have "some level of arguability", but the threshold is "very low": Owners of Strata Plan No 91349 v Australian Securities and Investment Commission at [88] (Bell P).
[4]
Consideration
I am satisfied that a basis has been established for the making of an order to reinstate Mamae.
Mr Liu submitted that he was a "person aggrieved" by the deregistration of Mamae for two principal reasons:
1. first, the deregistration of Mamae occurred without Mr Liu's consent and, as a result, he lost the ability to bring a shareholder oppression claim in relation to Ms Shelley's management of the affairs of Mamae; and
2. secondly, by the deregistration of Mamae, he lost the ability to bring a derivative claim in the name of the company against Ms Shelley and/or QD Trading in respect of the transfer of the Property at an undervalue or in respect of any failure to collect commercial rent in respect of the Property.
I do not need to determine the strength of those claims. I accept that, on the basis of the evidence that Mr Liu has put forward on this application which I have summarised above, those claims have a sufficient level of arguability to meet the low threshold on such an application. Accordingly, I accept Mr Liu's submission that he is a person aggrieved by the deregistration of Mamae, having lost a right of some potential value.
The evidence before the Court does not provide a basis for concluding that, upon reinstatement, Mamae would be insolvent. In particular:
1. as at the time of applying for deregistration of Mamae, the sole director, Ms Shelley, made a declaration that, among other things, Mamae was not carrying on any business, had paid all fees and penalties payable under the Act, had no outstanding liabilities, and was not a party to any legal proceedings;
2. the most recent financial statements of Mamae "ATF Liu Family Trust" which are available, and which were signed by Ms Shelley, are those as at 30 June 2021. These financial statements indicate that Mamae's assets were approximately equal to its current and non-current liabilities, and that Mamae's income exceeded its expenses for that financial year; and
3. a tax return which was prepared in respect of Mamae as trustee of the Trust for the financial year ending 30 June 2022 (and which is marked as its "final tax return", on the basis that Mamae has "ceased business") records that Mamae had no current liabilities and no trade creditors.
Pursuant to s 601AH(5), upon reinstatement of Mamae, Ms Shelley, who was its sole director, will become its director. As I have already noted above, Ms Shelley has indicated, in the signed consent orders, her agreement and intention to resign as director of Mamae upon its reinstatement. It is therefore necessary to appoint directors to Mamae.
The Court has power to make orders appointing directors to the company upon its reinstatement pursuant to its power under s 601AH(3)(d): In the matter of Garfox 86 Pty Ltd [2019] NSWSC 442 at [20]-[25] (Rees J); Nicholls (Trustee) v Australian Securities and Investments Commission, in the matter of Lawson [2023] FCA 1368 at [20]-[21] (Halley J).
Mr Liu is willing to be appointed as a director of Mamae upon its reinstatement.
Mr Siyuan (Simon) Liu, who is the nephew of Mr Liu and Ms Shelley, has affirmed an affidavit confirming that he is also willing to be appointed as a director of Mamae upon its reinstatement, that he will not charge any fees to carry out his duties as a director and that he will not cause Mamae to trade or incur any liabilities which it cannot meet. Mr Siyuan Liu is ordinarily resident in Australia and consents to his residential address being used as Mamae's registered address.
Ms Shelley and QD Trading have consented to the proposed orders appointing Mr Liu and Mr Siyuan Liu as directors of Mamae, and changing the registered address of the company to Mr Siyuan Liu's address.
In addition, Mr Liu proffered, by his Counsel, an undertaking to the Court that upon reinstatement of Mamae, he will pay on behalf of Mamae, and also indemnify Mamae with respect to, registration fees and other fees payable by Mamae to ASIC; any fees, disbursements or costs incurred by Mamae with respect to any proceedings commenced by Mr Liu in the name of Mamae against Ms Shelley and QD Trading; and any adverse costs order made against Mamae with respect to such proceedings.
In circumstances where the person who was sole director of Mamae, Ms Shelley, has indicated her intention to resign as a director upon its reinstatement; where the only shareholders of Mamae were Ms Shelley and Mr Liu; where it is proposed that Mr Liu and the nephew of both Mr Liu and Ms Shelley be appointed as Mamae's directors upon its reinstatement; where Ms Shelley consents to orders effecting those appointments; and where Mr Liu has proffered the undertaking outlined above, I am satisfied that it is appropriate to exercise the power under s 601AH(3)(d) to order that those appointments be made.
Finally, the material before the Court does not suggest that there is any public interest factor against reinstatement. As I have noted above, the evidence does not suggest that Mamae will be insolvent upon its reinstatement; I have referred above to the terms of the undertaking proffered by Mr Liu and the matters affirmed by Mr Simon Liu in his affidavit; the persons most likely to be affected by reinstatement (Ms Shelley and QD Trading) consent to the proposed orders; and ASIC does not oppose reinstatement.
[5]
Orders
For the reasons given above, I make the following orders.
1. The Court orders that the Third Defendant is ordered to reinstate the registration of Mamae Pty Ltd (ACN 142 376 609).
2. The Court notes the First Defendant's intention to resign as director of Mamae Pty Ltd (ACN 142 376 609) upon its reinstatement.
3. The Court orders that upon the reinstatement of the registration of Mamae Pty Ltd (ACN 142 376 609), the Third Defendant:
1. record Wen Qi Liu and Siyuan Liu as directors of Mamae Pty Ltd (ACN 142 376 609); and
2. record XXX as the registered office of Mamae Pty Ltd (ACN 142 376 609).
1. There be no order as to costs against the Third Defendant.
2. Costs as against the First and Second Defendants are reserved to the shareholder oppression proceedings and/or derivative action proceedings foreshadowed in this application by the Plaintiff against the First and Second Defendants.
3. Liberty to restore on 3 days' notice.
4. The Court notes the undertaking by the Plaintiff to the Court that, upon reinstatement of the registration of Mamae Pty Ltd (ACN 142 367 609) (Mamae), he will pay on behalf of, and also indemnify Mamae with respect to:
1. registration fees and any other fees payable by Mamae to the Australian Securities and Investments Commission;
2. any fees, disbursements, or costs incurred by Mamae with respect to any proceedings commenced by the Plaintiff in the name of Mamae against the First and Second Defendants; and
3. any adverse order as to costs made against Mamae with respect to the proceedings referred to in paragraph (b) above.
[6]
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 19 August 2024
Parties
Applicant/Plaintiff:
Nicholls (Trustee)
Respondent/Defendant:
Australian Securities and Investments Commission, in the matter of Lawson