Stott v Australian Securities and Investments Commission, in the matter of Kosen-Rufu Pty Ltd

FARRELL J: 1 By an originating process filed on 6 October 2021, the plaintiff, Ms Stott, seeks an order under s 601AH(2) of the Corporations Act 2001 (Cth) directing the Australian Securities and Investments Commission (ASIC) to reinstate the registration of Kosen-Rufu Pty Ltd (Company). The Company was deregistered on 11 August 2021 pursuant to an application made by Ms Stott lodged with ASIC on 8 June 2021 under s 601AA(2) of the Corporations Act. 2 Her application is supported by: (a) An affidavit sworn on 5 October 2021 by Ms Stott and exhibit TS-1; and (b) An affidavit sworn on 7 October 2021 by Martin del Gallego, a partner in Piper Alderman and Ms Stott's legal representative in these proceedings, on the basis of which I accept that ASIC was given notice of these proceedings by an email sent by Kate Sambrook, a senior associate at that firm. 3 For the purpose of these proceedings, I accept the following evidence given by Ms Stott. 4 The Company was incorporated on 2 May 2012 and Ms Stott was at all times its sole director, secretary and shareholder. She was also the sole member of a self-managed superannuation fund of which the Company was the trustee (SMSF). 5 Ms Stott said that she established the SMSF through Dixon Advisory & Superannuation Services Pty Ltd (DASS) and upon its advice when she first engaged DASS as her financial advisor. Between 2012 and 2017, the Company purchased a range of investment products for the SMSF upon advice from DASS or its representatives. 6 At the time she made the decision to "disestablish" the SMSF in around mid-2019, she had lost faith in DASS and no longer wanted them to handle her assets or represent her as a financial advisor. The process of moving funds out of the SMSF and into a public industry superannuation fund took around two years, because she had been advised by a DASS representative that in order to close the SMSF, it was necessary to remove all of the SMSF's assets. To do that, she needed to find buyers for the assets and the last sale transaction occurred in June 2020. 7 On 16 November 2020, Ms Stott lodged a complaint with the Australian Financial Complaints Authority against Evans Dixon Advisory. That complaint is still active and has not yet been resolved. 8 From correspondence with DASS dated 22 December 2020, Ms Stott understood that it was necessary to obtain a notice of cancellation of the SMSF's Australian Business Number (ABN) from the Australian Taxation Office (ATO) as the final requirement to be satisfied before the SMSF could be "disestablished". 9 On or about March 2021, Ms Stott agreed to be a lead applicant in proposed representative proceedings against DASS, E&P Financial Group Ltd (E&P) and Alan Dixon relating to investments made based on personal advice given by DASS or its representatives (Proposed Representative Proceedings). Ms Stott understands that those proceedings will be commenced by mid-October 2021. This is to enable Ms Stott (on behalf of group members) to intervene to make submissions concerning penalty at a settlement approval hearing scheduled to take place on 25 November 2021 in respect of civil penalty proceedings: Australian Securities and Investments Commission v Dixon Advisory & Superannuation Services Ltd (VID595/2020). Those proceedings arise out of similar facts and circumstances to the Proposed Representative Proceedings. She anticipates that it will be necessary to seek production of documents before the settlement approval hearing. Accordingly, urgency attends the application to reinstate the Company's registration so that there is sufficient time to have those documents produced. 10 On 13 May 2021, Ms Stott received from DASS a copy of a notice from the ATO dated 5 January 2021 which indicated that the SMSF's ABN would be cancelled with effect from 24 June 2021. 11 A Form 6010 was lodged electronically with ASIC on 8 June 2021 for the purpose of deregistering the Company under s 601AA(1) and (2) of the Corporations Act. Document No 7EBI19757 contains the following declaration which Ms Stott confirms is correct: (a) All members of the company agree to the deregistration; and (b) the company is not carrying on business; and (c) the company's assets are worth less than $1000; and (d) the company has paid all fees and penalties payable under this Act; and (e) the company has no outstanding liabilities; and (f) the company is not a party to any legal proceedings. 12 The background to and the claims to be made by the Company, Ms Stott and other claimants in the Proposed Representative Proceedings are set out in a letter dated 18 August 2021 sent by Piper Alderman to DASS and E&P (Claims Letter) which is in evidence. 13 Ms Stott did not obtain any legal advice about the Company's deregistration or the SMSF's "disestablishment". She applied for the Company's deregistration to remove any ongoing connection with DASS or their advisors and to avoid paying ongoing fees in connection with entities which she no longer wished to use to conduct business. She did not understand that she needed to keep the Company registered to undertake the role of lead applicant in the Proposed Representative Proceedings rather than being able to do so in her own right. 14 Since becoming aware of that need, she sought to defer the Company's deregistration and to secure its reregistration through correspondence with ASIC in August and September 2021. That correspondence reveals that her attempt to defer deregistration was made days after deregistration occurred. It further reveals that ASIC refused to reregister the Company because it was not satisfied that it should not have been deregistered (as required by s 601AH(1)) because deregistration was voluntary and it was not satisfied that its other criteria were met. 15 On or about 29 September 2021, Piper Alderman received a response to the Claims Letter from the solicitors for DASS and E&P which contains a "without prejudice" settlement offer, including provision for the payment of a material sum. The settlement offer is open for acceptance for three weeks. Given the "without prejudice" nature of that response, it is not exhibited to Ms Stott's affidavit. Given that timeframe, Ms Stott seeks an order for the Company's reregistration urgently. 16 Section 601AH relevantly provides: 601AH Reinstatement Reinstatement by ASIC (1) ASIC may reinstate the registration of a company if ASIC is satisfied that the company should not have been deregistered. … 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) … ASIC to give notice of reinstatement (4) ASIC must give notice of a reinstatement in the Gazette. (4A) If an application was made to ASIC for the reinstatement of a company's registration, ASIC must give notice of the reinstatement to the applicant. Effect of reinstatement (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. (6) Subsection 601AH(5) does not affect the cancellation of an Australian financial services licence held by the company if the cancellation occurs because the company was deregistered. 17 In The Bell Group Limited v Australian Securities and Investments Commission [2018] FCA 884; (2018) ASCR 247 at [47], [49]-[51], McKerracher J usefully summarised relevant principles as follows: 47 The expression 'person aggrieved' in s 601AH should not be construed narrowly: Yeo v Australian Securities and Investments Commission, in the matter of Ji Woo International Education Centre Pty Ltd (deregistered) [2017] FCA 1480 per Gleeson J (at [14]-[16] and the authorities therein cited). For a person to be aggrieved for the purposes of s 601AH(2)(a)(i), an applicant for reinstatement must be able to show that the deregistration deprived the applicant of something, or injured or damaged the applicant in a legal sense, or if the applicant became entitled, in a legal sense, to regard the deregistration as a cause of dissatisfaction: Danich Pty Ltd; re Cenco Holdings Pty Ltd (2005) 53 ACSR 484 per Barrett J (at [32]). … 49 There is no temporal restriction in the description 'person aggrieved' as long as there is a causal link between the grievance and the deregistration. A person can become aggrieved after the time of deregistration: see the discussion by Gillard J in Pilarinos and Ors v Australian Securities and Investments Commission [2006] VSC 301 (at [49]). In Pilarinos, where his Honour said: The question arises whether a person can be aggrieved as a result of events which occur after the deregistration. In my opinion, there is nothing in the legislation which requires that the applicant must have been aggrieved at the time of the deregistration. Indeed, the history of the legislation, and in particular, the widening of the category of persons who could be aggrieved and, further, the removal of any time limit, supports that view. The actual words of the sub-section themselves do not restrict the application to the grievance being in existence at the date of deregistration. The sub-section requires a causal link between the grievance and the deregistration, but no temporal restriction. 50 There needs, however, to be some connection other than simply being a shareholder or a director of a company that is deregistered in order to be a person aggrieved. An applicant must demonstrate that his or her interests have been, or are likely to be, prejudicially affected by the deregistration of the company. A mere dissatisfaction with an event will not render someone a 'person aggrieved'; they must be a person who has been damaged or injured in a legal sense: Callegher v Australian Securities and Investments Commission (2007) 218 FCR 81 per Lander J (at [50] and the authorities therein cited). For example, a shareholder demonstrating that he or she is a creditor of the company, or that there will be a surplus of assets and rights to dividends if the company were to be reinstated: Vukasin v ASIC [2007] NSWSC 1341. 51 Where deregistration extinguishes a legal right of some value, or potential value, or the applicant otherwise has an interest of a 'proprietary or pecuniary nature', the applicant may be aggrieved. In Arnold World Trading Pty Ltd v ACN 133 427 335 Pty Ltd (2010) 80 ACSR 670, Barrett J said (at [43]): 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. It must be seen that the applicant has a genuine grievance that the dissolution of the company affected his or her interests because, for example, a right of some value or potential value has gone out of existence: Australian Competition and Consumer Commission v Australian Securities and Investments Commission (2000) 174 ALR 688 (at [24]-[26]) […]. Under analogous English legislation, the applicant was expected to have "an interest of a proprietary or pecuniary nature in resuscitating the company": Re Wood & Martin (Bricklaying Contractors) Ltd [1971] 1 All ER 732; [1971] 1 WLR 293; and see Re GA & RJ Elliott Pty Ltd (1978) 3 ACLR 523. 18 I am satisfied that Ms Stott has standing to bring this application as a "person aggrieved" and that it is just to direct ASIC to reregister the Company. 19 I am satisfied that the deregistration of the Company deprives Ms Stott, as the sole beneficiary of the SMSF, of something of value or potential value, being the right of the Company to bring a claim against DASS and participate in any settlement on behalf of the SMSF: see In the matter of Likehart Pty Limited (deregistered) [2017] NSWSC 884 at [18] (Black J). Further, I accept that Ms Stott acted under an honest mistake in seeking deregistration at the time that she did because she was unaware that it might have that effect: see In the matter of Kylie Mitchell Holdings Pty Ltd [2019] NSWSC 1638 (Ward CJ in Eq). 20 Taking into account the circumstances described above, it is just that the Company be reregistered so that Ms Stott's honest mistake does not deprive her of the opportunity to benefit through her SMSF in the fruits of any action which may be commenced against DASS or in any settlement which may occur. Further, no one is prejudiced by the Company's reinstatement and there is no public policy reason to refuse to grant the relief sought. 21 Ms Stott's legal advisors have provided a bundle of correspondence received from ASIC following notification of this application. ASIC requested Ms Stott to defer the hearing of this application for seven days so that it had time to be in a position to consider the application and materials served on it. ASIC asked that, if Ms Stott did not agree to seek deferral of the hearing, a copy of its email correspondence be provided to the Court and that Ms Stott make undertakings to the effect that within 14 days of lodging the orders set out above with ASIC she will do each of the following with respect to the Company: (a) lodge notifications of registered office, change of officeholders and any other details required to update ASIC's register; (b) pay all of any outstanding fees and penalties payable to ASIC; and (c) meet all of any outstanding judgments against the Company or any officer of the Company concerning failure to lodge documents with ASIC. 22 ASIC does not usually appear at the hearing of reinstatement applications. In applications where the relevant company is insolvent or there are other difficulties, that is sometimes regrettable and the Court is usually assisted by understanding ASIC's position. However, I accept Ms Stott's evidence that the declarations made in Form 6010 remain true and I note that there is a need for the Company's expeditious reinstatement in light of the settlement offer that has been received. By her counsel, Ms Stott proffered the undertaking sought by ASIC and I considered it appropriate to proceed with the hearing and make the orders sought. 23 Accordingly I will direct ASIC to reinstate the registration of the Company by 5 pm on Monday, 18 October 2021 with no order as to costs. I certify that the preceding twenty-three (23) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Farrell.