Teffaha v Australian Securities and Investments Commission

CATCHWORDS : CORPORATIONS - deregistered company - application for order directing ASIC to reinstate registration - application by person who is director and shareholder - something more required to make him a "person aggrieved" - additional element supplied by his being a recipient of a director's penalty notice under income tax legislation - whether reinstatement "just" - where non-existent company traded for three years - where supposed tax debt non-existent because debtor non-existent - where recipients of directors penalty notices undertake to put company into voluntary winding up if reinstated

LEGISLATION CITED : Corporations Act 2001 (Cth), Part 5.3A, ss 601AH(2) 601AH(3), 601AH(5) Income Tax Assessment Act 1936 (Cth), s 222AOE

Application of Stojic [2006] NSWSC 608; (2006) 24 ACLC 844 CASES CITED : Baldwin v Australian Securities Investments Commission [2009] NSWSC 936 Beckton v Australian Securities and Investments Commission [2007] NSWSC 780 Casali v Crisp [2001] NSWSC 860; (2001) 165 FLR 79

PARTIES : Ahmed Teffaha - Plaintiff Australian Securities and Investments Commission - Defendant

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST

2010/123488 AHMED TEFFAHA v AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

1 The plaintiff, Mr Teffaha, has approached the court urgently this morning seeking an order under s 601AH(2) of the Corporations Act 2001 (Cth) directing that Australian Securities and Investments Commission reinstate the registration of F & R Enterprises Pty Ltd. 2 F & R Enterprises was incorporated in September 2002 and deregistered by ASIC on 12 February 2007. The deregistration occurred under s 601AB which indicates that ASIC proceeded to deregister because of some payment or lodgement default by the company. 3 Mr Teffaha was at all material times one of two directors and shareholders of the company. The other director and shareholder was his son. The company conducted a small trucking business and in fact the business has continued, despite the deregistration, since neither Mr Teffaha nor his son became aware of it until 14 May 2010, when an accountant they had consulted obtained an ASIC search. Mr Teffaha and his son have continued operating the business through the nonexistent company, as if it were still alive and capable of acting. 4 The visit to the accountant I have mentioned was in connection with the possible appointment of an administrator of the company under Part 5.3A of the Corporations Act. That indicates that the company (or, rather, non-existent company) was, on 14 May 2010, seen by its directors to be in a state of insolvency, or likely to become insolvent; or at least that they were sufficiently concerned about that possibility to seek the advice of the accountant. 5 The application that has come before me this morning has been prompted by service on the directors of penalty notices under s 222AOE of the Income Assessment Act 1936 (Cth). By the notices, the Deputy Commissioner of Taxation has informed each director that he is liable to pay, by way of penalty, an amount equal to the unpaid amount of certain taxation liabilities of the company. Those liabilities amount to some $28,000. 6 It is made clear by the Deputy Commissioner, however, that action to recover the penalty will be stayed and the penalty will be remitted if within 14 days of the service of the notice one of several enumerated events happens. These include the company being wound up. 7 Mr Teffaha and his son intend to take action promptly to place the company in creditors voluntary winding up, assuming that its existence is recreated. That intention is with a view to their satisfying the condition to which I have referred. 8 Mr Orlizki, who has appeared for Mr Teffaha, has informed the court that, on the instructions of both Mr Teffaha and his son, he offers to the court an undertaking that they will proceed promptly today to initiate voluntary winding up if the reinstatement order is made. In fact, they are now at the accountant's office ready to take that action. Of course, if the order is made, it will take some little time for it to be acted on by ASIC, but that interval is intended to be dealt with by an order of the court validating action to be taken to initiate the winding up with the validation being pursuant to s 601AH(3). 9 The questions posed by s 601AH(2) upon an application such as the present are first, whether Mr Teffaha is a person "aggrieved" by the deregistration of the company; and second, whether it is "just" that the registration be reinstated. 10 As to the first question, the normal position would be that someone occupying the position of shareholder or director, or both those positions, was not relevantly "aggrieved" by the non-existence of the company: see Casali v Crisp [2001] NSWSC 860; (2001) 165 FLR 79 and several later cases to that effect. Something more is needed, at least where the company is insolvent. 11 In the present case, the additional element is provided by the personal exposure that Mr Teffaha faces by virtue of the penalty notice served by the Deputy Commissioner of Taxation. The need, from the point of view of personal protection, to bring about satisfaction of one of the conditions for staying the Deputy Commissioner's hand is something that causes Mr Teffaha to have a special interest making him a person "aggrieved" by the deregistration. 12 As to whether it is "just" that the registration be reinstated, I suppose the first matter to mention is that, as I have said, the company has continued to trade throughout a period of more than three years during which it has not existed. By that I mean that the human beings concerned have acted in such a way as ostensibly to cause the company to do business with other persons without anyone realising that there was no company capable of transacting business. The public interest in seeing relevant transactions validated automatically to the extent provided by s 601AH(5) is significant. 13 Beyond that, there is the position of the Deputy Commissioner of Taxation. Mr Orlizki has pointed out that the penalty notices issued under the income tax legislation and served on the directors refer to a liability to pay, by way of penalty, an amount equal to the unpaid amount of each relevant tax liability of the company. The notices thus proceed on the basis that the company has a liability for tax. Of course, a nonexistent company owes nothing to anyone. It cannot be sued. The Deputy Commissioner of Taxation, if minded to pursue the company for the unpaid tax, would have to obtain reinstatement of its registration. And because of the derivative nature of the penalty imposed on the directors, it seems equally clear that the penalty will be capable of being collected only if liability of the company is re-created through reinstatement of the registration. The Deputy Commissioner's interests will thus apparently be served by the reinstatement; and that is, I think, another matter that points to the conclusion that the reinstatement is "just". 14 There have been three prior cases analogous to this case of which I am aware: Application of Stojic [2006] NSWSC 608; (2006) 24 ACLC 844; Beckton v Australian Securities and Investments Commission [2007] NSWSC 780; and Baldwin v Australian Securities Investments Commission [2009] NSWSC 936. In all of those cases there was an indication before the court that the Australian Taxation Office did not oppose the application. There is no such indication in this case but, for the reasons I have stated, it seems to me that the interests of the Deputy Commissioner of Taxation will not be prejudiced - indeed will be positively served - if the reinstatement order is made. 15 Notice of this application has been given to the defendant, Australian Securities and Investments Commission, which, by letter dated 20 May 2010, has indicated that it does not intend to oppose the application if certain conditions are satisfied, including the winding up of the company. The matters to which I have referred concerning voluntary winding up appear to me to satisfy that condition. The other ASIC conditions do not raise any issue. 16 Mr Teffaha has made out a case for the grant of the relief he seeks, subject to the undertaking to which I have referred. Mr Orlizki has indicated, as I have said, that the Messrs Teffaha are currently in their accountant's office and they intend to implement their undertaking immediately. 17 Upon the undertaking of Ahmed Teffaha and Rami Teffaha given through their solicitor to the court that they will this day as directors and shareholders of F & R Enterprises Pty Ltd take all such actions as are necessary to cause that company to become subject to voluntary winding up under the Corporations Act, I make the following orders: 1. Order that the Australian Securities and Investments Commission reinstate the registration of F & R Enterprises Pty Ltd ACN 102 303 444.

2. Order that, in the event that reinstatement by Australian Securities and Investments Commission, pursuant to order 1 is not completed on 21 May 2010, any special resolution or other action of and relating to F & R Enterprises Pty Ltd for the imposition upon it of creditors voluntary winding up and appointment of Angus Gordon as liquidator be validated pursuant to s 601AH(3) of the Corporations Act .

3. Order that the plaintiff pay the defendant's costs in the sum of $434 within two days. 18 The orders may be taken out forthwith. 19 I will stand the matter down in the list so that Mr Orlizki may return later in the morning to confirm that the undertaking has been performed.

[Matter stood down] 20 The special resolution document now produced to the court will be marked as Exhibit B. I note that by that special resolution the undertaking given to the court this morning by Ahmed Teffaha and Rami Teffaha is satisfied.

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