Saba Bros Tiling (ACT) Pty Ltd v Australian Securities and Investments Commission

[2021] ACTSC 47

CORPORATIONS LAW - REINSTATEMENT - Applicant seeking to reinstate two companies to recover funds - where the companies were formerly in liquidation - where applicant was not notified of the winding up of both companies - where no clear path to recovery of funds identified - whether reinstatement just - public interest in reinstating the companies established

Corporations Act 2001 (Cth), ss 9, 91, 180 - 184, 494, 513C, 588FC, 588FDA, 588FF, 597, 601AH, 1317E, 1317G, 1317H

Anthony Hordern & Sons Ltd v Amalgamated Clothing and Allied Trades Union of Australia [1932] HCA 9; (1932) 47 CLR 1

Australian Competition and Consumer Commission v Australian Securities and Investments Commission [2000] NSWSC 316; 174 ALR 688

David Grant & Co Pty Ltd v Westpac Body Corporation [1995] HCA 43; (1995) 184 CLR 265

In the matter of Austral Bronze Pty Ltd [2020] NSWSC 1633

JP Morgan Portfolio Services Ltd v Deloitte Touche Tohmatsu [2008] FCA 433; 167 FCR 212

Pagnon v Workcover Queensland [2000] QCA 421; [2001] 2 Qd R 492.

Australian Securities and Investments Commission (First Respondent)

1. The applicant, Saba Bros Tiling (ACT) Pty Ltd (Saba) has applied for the reinstatement of the registration of two deregistered companies. The first is 113 134 964 Pty Ltd (formerly Chase Building Group Pty Ltd) which I will refer to as the Chase entity. I refer to it in that manner because there are a number of other related companies with the name Chase and the Chase entity was an entity established to undertake a particular project. The second is Manhattan Development Pty Ltd which I will refer to as Manhattan. The application was opposed by Andrew Jolley, the former director of the Chase entity.

2. Saba undertook tiling, waterproofing work and the installation of bench tops in 330 residential apartments and two commercial tenancies in a development known as the Manhattan Apartments at Block 1, Section 53, Canberra City. It made a final claim for $247,962.87 dated 7 September 2015.

3. A resolution to wind up the Chase entity voluntarily was passed on 5 April 2017. This was done following a declaration by Mr Jolley that the company would be able to pay its debts in full within 12 months of the winding up. The liquidator of the Chase entity, Jonathon Colbran, presented a statement of accounts dated 18 July 2017. Chase was deregistered on 18 October 2017.

4. A resolution was passed for the winding up of Manhattan on 2 May 2017. Manhattan was deregistered on 26 December 2017.

5. No notice was received by Saba of the winding up of either company.

6. The opposition to the reinstatement of the companies was, in summary, based upon the lack of utility of their reinstatement and the delay on the part of the applicant in making the application.

7. By the time of the hearing it was uncontroversial that it was appropriate to join Mr Jolley as the second respondent in the proceedings.

Section 601AH

8. The requirements of s 601AH(2) of the Corporations Act 2001 (Cth) are relevantly that:

(a) the application for reinstatement 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.

9. It was uncontroversial that Saba is a person aggrieved by the deregistration because it wishes to pursue a claim against the company for damages arising out of non-payment of amounts said to be due under the contract with the Chase entity which is referred to below.

10. The contest between the parties was whether or not it was "just" for the companies to be reinstated and whether there was any discretionary reason not to reinstate the companies. Although Mr Jolley contended that neither company should be reinstated, his opposition was articulated in more detail in relation to the Chase entity, the company in relation to which he had a controlling interest. Further, because of the nature of the contract with Saba it was the Chase entity rather than Manhattan which had dealings directly with Saba.

11. The position of ASIC was that it did not oppose the reinstatement of the company, subject to a number of conditions being satisfied. They were that:

(a) the order for reinstatement be in the terms of the section requiring ASIC to reinstate the registration of the company;

(b) the previous liquidators of both companies, Jonathon Colbran and Andrew Barnden respectively, be notified of the application;

(c) the companies continue to be in liquidation and the previous liquidators resume their roles unless the court appoints a new liquidator or liquidators;

(d) the court order is lodged with ASIC so that the company may be reinstated; and

(e) the liquidator notify ASIC at the conclusion of the winding up.

12. I am satisfied that the previous liquidators of both companies have been notified of the application. The other matters referred to can either be accommodated by orders or flow as a matter of law.

13. The chronology of the dealings between the parties is relevant because Saba relies upon it to show a course of conduct involving the removal of assets from the Chase entity, its deregistration and then dealings between a former officer of the Chase entity and Saba which continued after the deregistration of Chase. On the other hand, Mr Jolley relies upon the chronology to indicate the limitation difficulties that arise in relation to any claim that might be made by the liquidator to recover funds and also to illustrate the delay by Saba in commencing the current proceedings.

14. The subcontract between Saba and the Chase entity acting as agent of Manhattan was entered into on 1 August 2012.

15. On 22 August 2013 a certificate of occupancy for the premises was issued.

16. On 21 October 2013 the Chase entity sold its plant and equipment to a related entity. The plant and equipment was sold for a sum of $304,500 (excluding GST) with an effective date of 1 October 2013. The accounts for the company show the depreciated value of all of its property, plant and equipment as at 30 June 2013 as being $331,359.

17. In May 2014 Saba obtained an expert report in relation to claims of defects in its work.

18. During the 2013 and 2014 financial years the Chase entity distributed all of its available funds. The amounts so distributed were $6,988,156 in the in the year ending 30 June 2013 and $377,511 in the year ending 30 June 2014. On 30 June 2014 the directors of the Chase entity declared a final dividend.

19. On 22 August 2014 Saba submitted a progress claim relating to an amount of $118,481.49.

20. On 7 September 2015 it submitted a final claim of $247,962.87. On 21 September 2015 Mr Thomas Simonds, identifying himself as the general manager of the Chase entity, provided a payment schedule asserting that no amount was payable to Saba. A covering letter also outlined the Chase entity's allegations in relation to defects in the work done by Saba. Those related to the installation of tile angle, screed to balcony areas, the installation of the membrane system and tiling works in the balcony area.

21. In 2015 and 2016 there were meetings and discussions in relation to Saba's claim. It is unnecessary to articulate the details of those discussions other than to identify that there was a dispute as to whether or not the work done by Saba was relevantly defective and whether any difficulties with the final outcome resulted from defective design work not undertaken by Saba.

22. On 30 June 2016 Manhattan directors declared a final dividend.

23. In November 2016 the then general manager of Saba, Mr Mehrdad Araghi, continued to pursue the claim and sought a response from the Chase entity to Saba's claim. Mr Simonds who then identified himself as the "Managing Director" identified some items for day labour ($58,601) and expert reports ($14,723) and contended that they were not payable but said "The other items we are open to negotiation as we want to be in a position to close it out."

24. On 4 April 2017 Mr Jolley signed a declaration of solvency under s 494 of the Corporations Act. That involved declaring that he had "enquired into the affairs of the company" and that he had "formed the opinion that the company will be able to pay its debts in full within 12 months of the commencement of winding up". It also identified that there were no unsecured creditors and no contingent liabilities.

25. On 5 April 2017 the members of the Chase entity resolved to wind up the company.

26. On 2 May 2017 the members of Manhattan resolved to wind up the company.

27. On 18 July 2017 the liquidator of the Chase entity filed a form with ASIC indicating the end of the liquidation. The total fee shown as payable to the liquidator was $3300.

28. On 9 October 2017 Mr Barnden, the liquidator of Manhattan, filed a form with ASIC indicating the end of the liquidation of Manhattan. The total fee shown as having been paid to Mr Barnden was $6325.

29. The Chase entity was deregistered on 18 October 2017. Manhattan was deregistered on 26 December 2017.

30. In December 2017 Mr Araghi wrote again to the Chase entity, referring to being told that "you had claimed through your professional indemnity insurance for the damages caused by the bad design ... and that you would pay us once you receive the insurance moneys".

31. Notwithstanding that the Chase entity had been deregistered, Mr Simonds continued to deal with Saba as if the Chase entity continued in existence. In response to Mr Araghi who continued to pursue the claim, on 6 February 2018 Mr Simonds agreed to meet the next day at the Chase office in Kingston. Following that meeting, Mr Araghi corresponded with Mr Simonds further and Mr Simonds continued to engage with Mr Araghi as though the Chase entity continued to exist.

32. On 18 April 2018 Mr Araghi indicated that it may be necessary to get lawyers involved as a last resort. On 18 June 2018 Mr Simonds responded to Mr Araghi saying that "we are meeting with the insurers later this week and I will update once we have the meeting."

33. In June 2019 correspondence was sent by solicitors acting on behalf of Saba. Mr Simonds responded that there were still outstanding defects that were yet to be addressed and attached a report from the owners corporation.

34. In October 2019 Saba commenced proceedings in the New South Wales District Court in an attempt to recover the amount said to be owing. However, it had commenced proceedings against the wrong company. When this was pointed out it discontinued those proceedings. From at least this time Saba was aware of the deregistration of the Chase entity.

35. The present proceedings were commenced on 4 August 2020.

36. Each of the witnesses who swore or affirmed affidavits were required for cross‑examination. They were Mr Mehrdad Araghi, Mr Peter Saba, Ms Julie Abood, Mr Andrew Jolley and Mr Thomas Simonds. Beyond what is set out in the chronology which I have referred to above it is only necessary to refer briefly to that evidence.

37. Mr Saba, managing director and owner of Saba gave evidence that he was prepared to fund the liquidator up to $10,000 in order for initial investigations to be undertaken. Once he received some report from the liquidator then he would determine whether to provide further funds to pursue recovery of the debt owing to Saba. In cross‑examination he agreed that the figure of $10,000 was not based on any detailed estimate of actual costs that might be incurred by the liquidator.

38. Mr Jolley explained in his evidence that he had signed the declaration of solvency on the understanding that the liquidator Mr Colbran had liaised with the Chase entity's accountants and prepared the form for his signature. He did not make any enquiries of Mr Simonds as to whether there were any outstanding claims against the company prior to making the declaration. Mr Simonds' evidence was consistent with this being the process that had occurred.

39. Consent to be appointed liquidator of both Chase and Manhattan given by Riad Tayeh were filed. A consent of Mr Colbran to be appointed liquidator of Chase was also filed. A consent to be appointed liquidator of Manhattan was not filed by Mr Barnden, the former liquidator of the company.

40. Saba is undoubtedly a person aggrieved by the deregistration for the purposes of s 601AH(2). The effect of the deregistration is to prevent it from making its claim against Chase or Manhattan.

41. The substantial contest between the parties was as to whether it was "just" to have the companies reinstated and whether there was a discretionary reason for not taking that step. The discretion under s 601AH is very wide. The factors to be taken into account in the exercise of the discretion include the circumstances in which the companies were deregistered, the purpose in seeking its reregistration and the likely prejudice to any person: see Australian Competition and Consumer Commission v Australian Securities and Investments Commission [2000] NSWSC 316; 174 ALR 688 at [27].

42. Saba contended that the companies should be reinstated so that a claim could be made against one or both of the companies and that a liquidator could examine the potential for recovery of funds to satisfy any proper claim. Further, it submitted that even if there were limitation bars that affected the capacity of the liquidator to recover funds that might satisfy a claim against the company, there were potential causes of action under ss 180-184 of the Corporations Act arising out of the making of the incorrect declaration by Mr Jolley which might lead to declarations under s 1317E, civil penalty orders under s 1317G or orders for compensation under s 1317H of the Corporations Act.

43. Mr Jolley advanced a number of arguments in opposition to reinstatement:

(a) there would be no utility because the companies have no assets to satisfy any claims;

(b) there would be no utility because causes of action relating to voidable transactions are statute barred;

(c) there would be no utility because there is no insurance that would respond to the claim;

(d) there was no wider public interest in having the companies reinstated;

(e) no adequate arrangements have been made for the funding of the liquidator;

(f) having regard to the book value of the assets of the Chase entity sold to a related company the claim that they had been sold without a valuation at an undervalue was not strong;

(g) the appointment of a liquidator to investigate the circumstances in which the declaration was made would constitute a significant infringement upon Mr Jolley's right to silence; and

(h) there were repeated failures and delays by the applicant in enforcing its rights.

44. In summary, while I accept that many of the arguments put on behalf of Mr Jolley have technical merit, I consider that it is just to have the companies reinstated so as to permit examination and consideration by the liquidator, to the extent that funding permits, of the extent of the liabilities of those companies and the conduct of Mr Jolley and Mr Simonds surrounding the decision to deregister them. It will also permit examination of the funding arrangements for Manhattan, which was not the owner of the land upon which the development was constructed. Those arrangements are not, on the materials before me, clear. It would, in my view, be unjust in the circumstances to prevent Saba from pursuing its claim against the companies by declining to have them reregistered in circumstances where, at least so far as the Chase entity is concerned, the deregistration occurred without notice to Saba and where the declaration of solvency is now accepted as having been incorrect.

45. So far as the particular arguments advanced by Mr Jolley are concerned, my conclusions are as follows:

(a) I accept that the prima facie position in relation to each company is that it has no assets as those assets have been sold or distributed to shareholders. Any possibility of recovery depends upon recovery of assets by the liquidator, payment to or by Manhattan or alternatively, payment of identified liabilities of the companies by related parties.

(b) I accept that there are unavoidable time bars precluding a claim relating to any voidable transactions. That arises because the limitation period for such claims is three years and that three years commences from the date of the resolution for the winding up of the company: see ss 588FF(3), 91 and 513C of the Corporations Act. That situation would not have existed had there been a creditors voluntary winding up at the time of the resolution for the winding up of the company. That would have been the case had there been no declaration under s 494 because any voluntary winding up in which there is no declaration under s 494 is necessarily a creditors' voluntary winding up: see the definitions of members' voluntary winding up and creditors' voluntary winding up in s 9 of the Corporations Act. The making of the incorrect declaration is therefore directly related to the existence of these time bars.

(c) In relation to the availability of insurance, notwithstanding the representations made by Mr Simonds to representatives of Saba about the possibility of an insurance claim, no submissions were made by Saba in support of the potential for the Chase entity to make such an insurance claim and hence for present purposes I proceed on the basis that the insurance policy is not a potential source of funds to pay a claim made by Saba.

(d) I do not accept the submission that there is no wider public interest in the winding up. While it is correct to say that these companies and their dealings with Saba are not matters of public interest, there is a public interest in ensuring the integrity of the process for the deregistration of companies and the diligence of directors in ensuring that companies are only deregistered in the manner that these companies were when their liabilities have been met. There is therefore a public interest in having a liquidator examine, to the extent that funding permits, the circumstances in which each of the companies came to be deregistered.

(e) I also accept the submission that the Chase entity was acting as the disclosed agent of Manhattan and as a consequence the starting point is that any claim would need to be made against Manhattan. However, because of the contractual role played by Chase and its officers it is not clear that a reinstatement of Manhattan alone would be sufficient to allow any claim by Saba to be completely dealt with.

(f) I accept the submission that there is not strong evidence that the failure to obtain a valuation of Chase's physical assets prior to their sale to a related entity involved a sale at an undervalue or, alternatively, a sale at an undervalue of any significance. While that is a matter which a liquidator could investigate, the book value of its assets appears to bear a reasonable relation to the amount paid for those assets.

(g) I do not accept the submission that the appointment of a liquidator to investigate the actions of Mr Jolley would be a significant infringement upon his rights. The commonly used provisions for the examination of directors do preclude refusal to answer questions on the basis of self-incrimination: s 597(12) of the Corporations Act. However, those answers may not be used in criminal proceedings (see s 597(12A)) and the answers given may be relevant to a liquidator's investigation of any cause of action against Mr Jolley or Mr Simonds. Further, Mr Jolley has already made significant admissions under oath as to his lack of enquiries as to the affairs of the company prior to the making of the declaration.

(h) I do not accept that delay is an issue which would make the reinstatement unjust. While the claim has generally not been pursued with great vigour and Saba has further delayed since it became aware of the deregistration of the Chase entity in 2019, any issue of delay must be seen against the background of the failure to notify Saba of the liquidation of the company and the conduct of Mr Simonds in continuing to deal with Saba as if the Chase entity continued to exist. Further, I do not consider that any delay in the making of the application should warrant a refusal in the exercise of discretion.

46. So far as Saba's submission as to possible breaches of s 180 of the Corporations Act are concerned, I accept there may be some basis for a cause of action at least insofar as it relates to any liability of the company for interest arising from the delay in the resolution of Saba's claim and any costs order arising from the present proceedings. There is a possibility that a liquidator may be able to identify other losses to the Chase entity arising from Mr Jolley or Mr Simonds' course of conduct.

47. None of the causes of action identified by Saba present a clear path to recovery of any amount owed to Saba. Yet they are matters worthy of consideration by a liquidator. Whether they can in fact be pursued by liquidator will depend upon the willingness of Saba, or persons associated with Saba, and any other outstanding creditors, to fund that process.

48. However, the potential for recovery of assets to satisfy any justifiable claim by Saba does not define the limits of the public interest in the reinstatement of these companies. As pointed out earlier in these reasons, there is a public interest in identifying what has occurred. Further, there may be consequences for Mr Jolley as the sole director of the company if, by reason of his declaration, the company was deregistered in circumstances where it was insolvent and its liabilities unsatisfied. Given that the company was part of a group of companies, it may be that even if there are no available causes of action permitting the liquidator to recover assets, funds to meet an agreed resolution of the claim made by Saba may be contributed in order to avoid the company being deregistered with its liabilities unsatisfied.

49. The detriment to Mr Jolley of the reinstatement of the companies is that it exposes his conduct and the conduct of others involved in the management of the company to investigation by the liquidator. Having regard to the evidence about the circumstances in which he signed the declaration of solvency and the evidence of Mr Simond's conduct subsequent to the deregistration of the company in dealing with Saba's claim, that exposure would not amount to an injustice.

50. In written submissions filed by leave following the conclusion of the hearing, the applicant submitted for the first time that the limitation bar referred to above, applicable to any claim by the liquidator to recover a voidable transaction, could be overcome by the making an order under s 601AH(3)(d) of the Corporations Act. That permits the court to make "any other order it considers appropriate". The applicant submitted that an order should be made to stop time counting against the Chase entity in relation to any insolvent transactions arising from distributions to shareholders (s 588FC of the Corporations Act) or unreasonable director related transactions (s 588FDA of the Corporations Act). It relied upon the decision in Pagnon v Workcover Queensland [2000] QCA 421; [2001] 2 Qd R 492. However, that decision, insofar as it permits such an ancillary order, relates to claims against the company rather than claims by the company: see In the matter of Austral Bronze Pty Ltd [2020] NSWSC 1633 at [77]. Further, it cannot be said that any such actions are more than a possibility at this stage. Finally, because of the failure to seek such an order in the Originating Process, the persons against whom such actions might be brought, other than Mr Jolley, are not on notice of the possibility of such an order, have not been joined as parties to the proceedings and have not otherwise been given the opportunity to be heard. For those reasons, I would not in this case make such an order. I note also that the making of such an order would be contrary to the specific limitation provision in s 588FF(3) and it would not be usual to read that specific provision as subject to variation by a general power such as s 601AH(3)(d). David Grant & Co Pty Ltd v Westpac Body Corporation [1995] HCA 43; (1995) 184 CLR 265 is an example, in a corporations context, of the general principle in Anthony Hordern & Sons Ltd v Amalgamated Clothing and Allied Trades Union of Australia [1932] HCA 9; (1932) 47 CLR 1 at 7.

51. Consistently with the decision in JP Morgan Portfolio Services Ltd v Deloitte Touche Tohmatsu [2008] FCA 433; 167 FCR 212, both parties proceeded on the basis that on reregistration of a company the liquidator who was in office at the time of deregistration was not automatically reinstated and therefore it was necessary for the court to make a new appointment to take effect on reregistration. So far as the identity of the liquidator is concerned, I consider that it is appropriate that a liquidator, other than the liquidator who has previously been involved in the winding up of the two companies be appointed. That is because there is evidence in the case of the Chase entity of the involvement of the liquidator in procuring the signing of the declaration which is now accepted by Mr Jolley to have been inaccurate. Part of the role of the liquidator may involve some further investigation of the circumstances in which the declaration was made and whether or not it involved a contravention of s 494 of the Corporations Act. In those circumstances, it is better that a liquidator with no previous involvement be responsible for the liquidation. That will avoid the possibility or appearance that the past involvement with the company influences the approach taken to the investigation of the affairs of the company. The only liquidator who has consented in relation to the liquidation of Manhattan is Mr Tayeh.

52. I accept that it is possible that a conflict of duty may arise at some time in the future from the appointment of a single liquidator to the two different companies. However, that issue can be addressed if it arises and does not outweigh the desirability of having a liquidator who has no previous involvement with the companies to undertake the liquidations.

53. Saba provided draft proposed orders that it sought be made in the event that its application was successful. Those orders included the court noting that upon the reinstatement of each company it continues in liquidation. Such a note does not appear to me to be necessary and I will not make it at this stage. Further, the costs order sought was that the costs of the proceedings be paid by each of the two companies. While it is not clear why an order in those terms was the appropriate one, given that it was proposed by Saba and is favourable to Mr Jolley, I will make the order but allow an application to vary it to be made within a short period of time. In order to resolve any outstanding issues, I will therefore grant liberty to apply in relation to the form of the orders and costs, which liberty must be exercised within a very limited period of two days.

1. Andrew Jolley be joined in the proceedings as the second respondent.

2. The Australian Securities and Investments Commission must reinstate the registration of 113 134 964 Pty Ltd (ACN 113 134 964) pursuant to s 601AH(2) of the Corporations Act 2001 (Cth).

3. Upon reinstatement of 113 134 964 Pty Ltd, Riad Tayeh is appointed as liquidator of that company.

4. The Australian Securities and Investments Commission must reinstate the registration of Manhattan Development Pty Ltd (ACN 144 701 173) pursuant to s 601AH(2) of the _Corporations Act 2001 (_Cth).

5. Upon reinstatement of Manhattan Development Pty Ltd, Riad Tayeh is appointed as liquidator of that company.

6. The costs of these proceedings be paid by 113 134 964 Pty Ltd (ACN 113 134 964) and Manhattan Development Pty Ltd (ACN 144 701 173).

7. The applicant must notify the Australian Securities and Investments Commission of these orders within seven days of orders 2 and 4 taking effect.

8. Each party has liberty to apply in relation to the form of the orders and in relation to any alternative order in relation to costs, which liberty must be exercised within two days after today.

[Further submissions were made and the Court made the following additional orders]

9. Any submissions in relation to the form of orders or costs limited to not more than three pages and any evidence in relation to costs be filed and served by 1 April 2021.

10. Any submissions in reply limited to not more than three pages and any evidence in relation to costs be filed and served by 5 April 2021.

11. Orders 2, 4 and 7 are stayed until 9 April 2021 and if a notice of appeal and application in proceeding seeking the continuation of the stay are filed by that date the stay continues until 23 April 2021.

I certify that the preceding fifty-four [54] numbered paragraphs are a true copy of the Reasons for Judgment of his Honour Justice Mossop.