Promnitz v Australian Securities and Investments Commission

REASONS FOR JUDGMENT 1 The plaintiff is a chartered accountant and a former director of ACN 005 405 498 Pty Ltd, formerly known as MPA Partners Pty Ltd ("the company"). The company carried on the practice of chartered accountants. From 20 December 1977 until 22 March 2001, the plaintiff was a director of, and a shareholder in, the company. On 30 June 2000 the company was placed in liquidation and liquidators of the company were appointed pursuant to Pt 5.5 of the Corporations Act 2001 (Cth) ("the Act"). The company was deregistered on 22 March 2001 pursuant to the provisions of the Act. 2 The plaintiff seeks an order pursuant to s 601AH(2) of the Act that the Australian Securities and Investments Commission ("ASIC") reinstate the registration of the company. The application arises in the following circumstances. 3 In or about July 1990 the company acted on behalf of Trimcast Pty Ltd ("Trimcast") in relation to the purchase of an engineering business from the Trimcast Unit Trust. The purchase agreement provided for the rearrangement of the affairs and conduct of the business of the Trimcast Unit Trust by using the wholly owned subsidiary Trimcast. The agreement also provided for the transfer of the business to Trimcast, pursuant to s 160ZZN(4) of the Income Tax Assessment Act 1936 (Cth), and the sale by the Trimcast Unit Trust to Trimcast of certain assets of the business, including its goodwill. 4 On 31 October 2000 the plaintiff received a letter from Lander & Rogers solicitors in which they informed him that they had been instructed to act on behalf of Trimcast in relation to a potential negligence claim against the company. It was alleged by the solicitors that, although it was apparent that the agreement was intended to take advantage of the capital gains tax rollover provisions contained in s 160ZZN(4) of the Income Tax Assessment Act, that is not what occurred. In the letter the solicitors informed the plaintiff that Trimcast held both the plaintiff and the company fully responsible for what was said to be a very substantial loss. 5 During the period 31 December 1999 to 31 December 2000 (which included the date upon which the plaintiff received the letter from the solicitors) the company was insured, by way of professional indemnity insurance, with HIH Casualty and General Insurance Limited. 6 The plaintiff notified the company's liquidators of the claim, who in turn notified Aon Professional Services immediately upon receipt of the claim notification. A loss adjustor was appointed to investigate the claim. The company and the plaintiff were told not to communicate with Trimcast or its solicitors. 7 On 11 June 2001 HIH Casualty and General Insurance Limited and other companies in the HIH group went into liquidation. The Commonwealth Government engaged HIH Claims Support Limited ("HCS Limited") to administer what has been called the HIH Claims Support Scheme. That scheme was developed to assist persons who had policies with companies in the HIH group to make insurance claims which could be met. Under the scheme the Commonwealth Government has agreed to provide the benefit that would have been provided by an HIH company under its insurance policies. 8 On 18 August 2001, as a result of the claim which had been made by the solicitors for Trimcast, the plaintiff made an application for assistance on behalf of the company to HSC Limited under the scheme. 9 On receipt of the plaintiff's application for assistance on behalf of the company, HCS Limited sought additional information from the plaintiff, which was subsequently provided. 10 On 14 November 2001 HCS Limited informed the plaintiff that the company had been determined to be eligible for assistance under the scheme if the plaintiff had a valid claim under his former professional indemnity policy. HCS Limited referred the matter to QBE Management Services Pty Ltd to manage the claim on its behalf. On 6 September 2002 QBE Management Services Pty Ltd informed the plaintiff that he was entitled to indemnity under his HIH policy. 11 The matter rested until 10 April 2003, when the solicitors for Trimcast wrote again to the plaintiff informing him that their client was taking steps to sell its business and, when that had been completed, its client's loss would have crystallised and it would be initiating proceedings to recover the loss from the plaintiff and other persons. 12 On 5 June 2003 HCS Limited wrote to the plaintiff informing him that a search undertaken at ASIC had disclosed that the company had been deregistered on 22 March 2003 and that as a result any policy‑holder rights held by the company would not be able to be assigned to HCS Limited. HCS Limited said that the deregistration of the company had voided its previous decision to grant eligibility to the plaintiff to participate in the scheme. HCS Limited then suggested that the company be reinstated on the register to enable the plaintiff to obtain eligibility under the scheme. 13 On 12 June 2003 the plaintiff's solicitors sought further information from Trimcast's solicitors in relation to the claim and this information was subsequently provided. 14 The plaintiff's solicitors wrote to the liquidators of the company on 29 October 2003 informing them that an application for reinstatement of the company was to be made. The liquidators were asked if they had any objection to being appointed liquidators of the company in the event that the company was reinstated. The liquidators did not respond to this letter. The plaintiff's solicitors spoke to one of the liquidators of the company on 26 November 2003 who had said that he could see no objection to the application. Notwithstanding service of the copy of the application for reinstatement and the affidavit in support, the liquidators have not participated in the proceeding. 15 The plaintiff says that he is aggrieved by the deregistration of the company. As the company is deregistered it is unable to rely upon its insurance policy and accordingly the plaintiff is unable to receive protection, because it is a necessary part of the scheme that any rights under the policy be assigned to HCS Limited. 16 ASIC does not oppose the order for reinstatement of the company's registration, but has informed the plaintiff's solicitors that ASIC considers it appropriate that the plaintiff, as part of the order for reinstatement of the registration, be ordered to pay the reasonable costs and disbursements of the liquidators incurred as a result of the reinstatement. ASIC takes the view that where a liquidator resumes office in a company in liquidation which has been reinstated following deregistration, the liquidator will be subject to various statutory obligations such as the calling and holding of meetings, the preparation and lodgement of accounts and the filing of notices under the Act. This may occur in circumstances where there will no longer be funds in the liquidation upon which the liquidator can draw for his or her expenses. 17 Section 601AH provides: "(1) ASIC may reinstate the registration of a company if ASIC is satisfied that the company should not have been deregistered. (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. …" 18 Before making an order for reinstatement of the registration of the company it is necessary that the Court be satisfied of two matters: first, that the plaintiff is aggrieved by the deregistration; and secondly that it is just that the company's registration be reinstated. These two conditions are conjunctive and not disjunctive. 19 The requirement that the Court be satisfied that it is just that the company's registration be reinstated is not constrained by any particular criterion. However, the cases make it clear that there are a number of matters which ought to be taken into account, namely the circumstances in which the company came to be deregistered, the future activities of the company if an order be made and also whether any particular person is likely to be prejudiced by the reinstatement. See for example, Re Kilkenny Engineering Pty Ltd (In Liq) (1976) 13 SASR 258; Drysdale v Australian Securities Commission (1992) 10 ACLC 1427; Re Steelmaster Pty Ltd (In Liq); Kenny v McCann (1992) 10 ACLC 176; Australian Competition and Consumer Commission v Australian Securities and Investments Commission (2000) 174 ALR 688. 20 I also consider that there is a public interest consideration to be taken into account in determining whether a company in liquidation which has been deregistered should be the subject of reinstatement: Australian Competition and Consumer Commission v Australian Securities and Investments Commission (supra) at 693. 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. However, I consider that the public interest is preserved by allowing the reinstatement of a company where the particular purpose for which reinstatement is sought is to enable a claim to be made on an indemnity policy of insurance, and, as in this case, for the assignment of any rights under such a policy to another entity which enables the persons covered by indemnity policies to obtain the benefit of the indemnity which was originally provided to the deregistered company. 21 I am satisfied that the plaintiff is aggrieved by the deregistration of the company and that it is just that an order for reinstatement of the registration of the company should be made. I have taken into account the circumstances in which the company came to be deregistered, the utility of the order for reinstatement of the registration and the fact that it is unlikely that any person will be prejudiced by the reinstatement: see Australian Competition and Consumer Commission v Australian Securities and Investments Commission (supra) at 693. There have been cases in the past where orders were made to reinstate a company that had been covered by an indemnity policy of insurance so that a party who had issued proceedings against the deregistered company could benefit from having the company obtain indemnity in respect of the claim made against it: Re Steelmaster Pty Ltd (In Liq); Kenny v McCann (supra); Civil & Civic Pty Ltd v R W Bass Pty Ltd (1996) 14 ACLC 1015. The present case is similar in principle to those cases, as the purpose of the reinstatement is to enable the plaintiff to be placed in the position of being entitled to the benefit of an insurance policy. This can only occur if the holder of the policy can assign rights under it to HCS Limited. To achieve that end the company must be in existence. 22 I am also satisfied that it is an appropriate form of order to make, in conjunction with the reinstatement order, that the party seeking the reinstatement of the company pay the reasonable remuneration, costs and disbursements of the company's liquidators incurred as a result of the reinstatement of the registration of the company. Orders have commonly been made in other courts for the payment of the reasonable remuneration, costs and disbursements of liquidators incurred as a result of the reinstatement of a company: Brownlie v TTPM Pty Ltd [2003] NSWSC 480; Australian Competition and Consumer Commission v Australian Securities and Investments Commission (supra); Wall, in the matter of W Tolson & Co Pty Ltd (Deregistered) v Australian Securities and Investments Commission (9 May 2003, VSC, Senior Master Mahony). 23 The plaintiff was concerned about the possible scope of such an order and submitted that any order should be limited to those costs and expenses incurred directly as a result of the proceeding for reinstatement of the registration. Put another way, the plaintiff submitted that he should not be obliged to pay remuneration, costs and disbursements incurred in the course of the continuation of the company during its period of liquidation. However, I consider that such an obligation is the price to be paid for the reinstatement of the registration of the company. Were it not for the plaintiff's application there would be no further obligation cast on the liquidators. Once the company's registration is reinstated, obligations may arise for the liquidators. Although not all these obligations may be able to be foreseen at the present time, it is necessary that the liquidators be protected as a result of the reinstatement sought by the plaintiff. I consider that any particular or unusual issue which might arise in relation to what constitutes the liquidators' reasonable remuneration, costs and any disbursements incurred by the liquidators can be adequately met by reserving liberty to the plaintiff to apply to vary the order that he pay the reasonable remuneration, costs and disbursements of the liquidators.