Vukasin v ASIC [2007] NSWSC 1341 | Case summary

5601/07 JOHN VUKASIN V AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION JUDGMENT 1 HIS HONOUR: On 19 November 2007 I heard these proceedings and made final orders, reserving my reasons because of the pressure of the Corporations List. I now publish the reasons for my decision. 2 Hy-Lift Pty Ltd ("the Company") was incorporated in 1983 and was deregistered and dissolved under s 601AB of the Corporations Act 2001 (Cth) on 4 November 2001. Section 601AB(1) allows ASIC to deregister a company if it is at least 6 months late in responding to a return of particulars and has not lodged any documents within 18 months, and ASIC has no reason to believe that it is carrying on business. Section 601AB(1A) allows ASIC to deregister a company if the company's review fee is not paid in full at least 12 months after the due date for payment. It is not clear whether the deregistration of the Company was based on subsection (1) or subsection (2) or both of them. 3 By an originating process filed on 19 November 2007, the plaintiff (Mr Vukasin) sought orders for the reinstatement of the Company and other relief. Section 601AH(2) allows the court to make an order requiring ASIC to reinstate the registration of a company if (inter alia) the application for reinstatement is made by a person aggrieved by the deregistration and the court is satisfied that it is just to do so. Facts 4 At the time of the Company's deregistration, its directors were Mr Vukasin and Angelo Cattarossi, each of whom held one of the two issued shares. Until its deregistration, the company traded as a forklift repairer at the Sydney Flemington Markets. The business of the company has always operated from Store 12, Warehouse "O", Sydney Markets, Flemington. According to Mr Vukasin, that is a good position in the market, and the business enjoys a good relationship with Sydney Markets and creditors and customers. His evidence is that the business earns little other than his wages and the wages of Mr Cattarossi. 5 The company is named as the lessee of those premises from Sydney Markets Ltd under a registered lease for a term of 5 years commencing on 1 June 2003, with an option to renew for a further period of 5 years. According to Mr Vukasin, this is a valuable lease because of the position of the premises in the market. The lease was executed by Mr Vukasin and Mr Cattarossi purportedly for the Company, and also by each of them personally as guarantors of the Company's obligations. At the time that the lease was entered into, and at all subsequent times, the company has been deregistered. 6 The business was conducted by Mr Vukasin and Mr Cattarossi, both of whom are in their 50s, without any full-time employees. Mr Vukasin and Mr Cattarossi arranged between themselves that Mr Vukasin would look after the workshop and Mr Cattarossi would help with that and would also look after "paperwork". 7 Mr Vukasin's evidence is that he learned of the company's deregistration when he received a phone call from a representative of Dun & Bradstreet, who were doing a survey of Flemington Market leaseholders in late 2005 or early 2006. He said he was informed by Mr Cattarossi that the company had never lodged or made BAS payments or PAYG employee deductions for either himself or Mr Cattarossi, and no financial reports had been prepared. 8 In late 2005 and into early 2006 Mr Cattarossi became very ill with a heart condition and then he had open-heart surgery. Since that time he has had little to do with the business because of his illness. Mr Vukasin's evidence is that he and Mr Cattarossi have grown apart from one another. They argue and do not trust one another, and they no longer wish to remain in business together. He says they wish to have the company wound up and its business sold off. They have negotiated the sale of the business (essentially, the lease) for $278,000 subject to the landlord's approval of the transfer of the lease. The buyer has had indicative approval from executives of Sydney Markets. 9 Mr Vukasin says he does not understand paperwork and he procrastinates in getting professional advice, but eventually he consulted an accountant who referred him to his present solicitor. With assistance, he has prepared some financial statements for the company for the years up to June 2005. It appears that the wages drawn by Mr Vukasin and Mr Cattarossi have been very modest and in most years the company has suffered a loss. There appears to be a substantial amount of unpaid GST, in a sum exceeding $60,000, as well as unpaid employee group tax deductions in excess of $70,000. Standing to seek reinstatement 10 Section 601AH(2)(a)(i) allows an application for reinstatement to be made to the court by "a person aggrieved by the deregistration". In ACCC v ASIC (2000) 34 ACSR 232 it was held that the ACCC was a "person aggrieved" because its legal rights had been affected and because it had a "genuine grievance that the dissolution had affected its interests". However, there is now a substantial body of case law, including Casali v Crisp (2001) 165 FLR 79, supporting the proposition that the mere fact that a person is a shareholder or a director of the deregistered company is insufficient to provide standing. 11 In Brereton v Australian Securities and Investments Commission [2007] FCA 651 Finkelstein J held that a shareholder of a solvent company who stands to lose his or her capital has a sufficient basis for standing (at [4]), and he expressed the opinion that there was a strong argument in favour of holding that a former director of a solvent company would also have standing (at [5]), though he found it unnecessary to resolve that question. The authorities to which his Honour's attention was drawn on this point were decided in the 1980s, and his attention does not appear to have been drawn to more recent cases (see Butterworths' Australian Corporations Law: Principles and Practice (looseleaf), vol 2, [5.6.0 555], note 20) including the decision of Young CJ in Eq in Casali v Crisp, which has been followed in this and other courts (Euphron Pty Ltd (in liq) v Hunter Valley Piggery Pty Ltd [2003] NSWSC 543 at [12]; Melluish v Underwood Development Pty Ltd [2004] NSWSC 429 at [6]; Warton v Harris (2005) 56 ACSR 122 at [4]; Jones v 3R Gas Pty Ltd (2006) 24 ACLC 450 at [8]; Piccoli Tesori Pty Ltd (Deregistered); Ex parte Bertuol (2006) 151 FCR 109 at [23]; Herbert v Nozala Pty Ltd [2006] NSWSC 1437 at [38]; Callegher v Australian Securities and Investments Commission (2007) 25 ACLC 438 at [50] and [53]; Middleton Nominees Pty Ltd v Westpac Banking Corp [2007] FCA 845 at [6]). 12 It therefore seems to me doubtful that Brereton's case reflects the law on this point. It may be that Finkelstein J would not disagree with the proposition that the mere fact that the person is a shareholder is insufficient to establish standing, but additional facts showing that the company was solvent at the time of deregistration and that the shareholder stands to lose his or her capital unless deregistration occurs would tend to prove the existence of a factual interest sufficient to satisfy the statutory requirement. However, in the present case I did not find it necessary to reach a concluded view as to whether a shareholder/director has standing per se, because on any view of the law Mr Vukasin clearly had a sufficient factual interest to justify the conclusion that he is a person aggrieved by the Company's deregistration. 13 At the time of the deregistration, the Company operated a modestly successful business in rented premises in the Flemington Markets. A new lease, which has proved to be valuable, was entered into after the deregistration, purportedly in favour of the deregistered company as lessee. The plaintiff and his co-director/shareholder wish to sell the business and the lease and wind the Company up, and if they do, they will receive, as contributories, the surplus assets after payment of creditors. The deregistration of the Company is an obstacle to their doing so. I concluded that those facts amply established that the plaintiff is a "person aggrieved by the deregistration". Whether it is just that the company's registration be reinstated 14 I reached the conclusion that a good case was made out for the reinstatement of the Company, provided that (as my orders required) the Company was immediately placed under the control of a provisional liquidator. 15 Obviously the company has been very poorly administered for many years. That is established by the simple facts that it was deregistered on 4 November 2001 and Mr Vukasin, one of its two directors, did not learn of that fact until late 2005 or early 2006, and then only through an external source, and the company has never made BAS payments or employee deductions and did not prepare financial statements until Mr Vukasin cause them to be prepared very recently; and meanwhile the directors have purported to trade in their defunct company's name and have entered into a substantial lease purportedly on its behalf. One can imagine circumstances where such mismanagement would provide an eloquent case for denying an application for reinstatement, for fear that the maladministration would be resumed. But in this case the application for reinstatement was combined with an application for winding up and for the immediate appointment of a provisional liquidator, so a resumption of maladministration was unlikely. Moreover, it appeared that the maladministration arose out of a division of functions which, questionable though it was, led to Mr Vukasin trusting Mr Cattarossi to attend to the Company's financial and administrative affairs, and that division of functions has come to an end as a result of Mr Cattarossi's illness. 16 I decided that the reinstatement of the company coupled with the appointment of a provisional liquidator would not lead to any unfair prejudice. The reinstatement permitted the company to sell its business and transfer its leasehold interest, subject to the consent of the lessor. The lessor might arguably have been prejudiced by the reinstatement because, if the company remained deregistered, it might have been able to offer the demised premises to another party at a higher rent. But I formed the opinion that any prejudice to the lessor, which would arise if the company were to be reinstated and the lessor were to be deprived of the opportunity of disregarding the lease, could not be described as "unfair" prejudice. It seemed to me fair and appropriate that the lessor should be held to a commercial arrangement it entered into in the evident belief that the lessee was an extant entity, and should not be permitted to take advantage of the deregistration. Moreover, it appeared from the evidence that the lessor would be prepared to consent to the transfer of the lease to the proposed buyers of the business. 17 The evidence did not identify anyone else who might arguably be prejudiced by the reinstatement, other than (perhaps) Mr Vukasin, who sought the order, and Mr Cattarossi, who consented to it. 18 ASIC provided a letter indicating that it would not oppose the application for reinstatement provided that certain conditions were satisfied. ASIC's conditions appeared to me to have been satisfied by the terms of the originating process and the orders sought at the hearing. Winding up and the appointment of a provisional liquidator 19 The originating process filed in court on 19 November 2007 sought an order that upon its reinstatement, the Company be substituted for ASIC as defendant, and an order that the substituted defendant be wound up. Mr Vukasin had standing to seek an order that the company be wound up in insolvency as a contributory, under s 459P(1)(c), provided that he obtained the leave of the court under s 459P(2). He also had standing as a contributory to seek a winding up order on other grounds including the just and equitable ground, under s 462(2)(c). 20 I decided that it was appropriate that leave be granted under s 459P(2) in the present case. I had regard to Mr Vukasin's evidence, in particular his evidence with respect to the Company's tax liability upon reinstatement, which in my view established a prima facie case of insolvency. 21 Since the originating process made a winding up application, s 472(2) authorised the court to appoint an official liquidator provisionally before the making of a winding up order. I decided it was essential that, upon reinstatement, the control of the company be put in the hands of an official liquidator who would conduct further investigations into the company's affairs and seek to establish the true financial position, and report to the court accordingly. The orders sought by Mr Vukasin included orders appointing Mr Peter Burton as liquidator of the Company provisionally, with appropriate powers, and an order that the provisional liquidator furnish a report to the court as to his investigations into the affairs of the Company by 7 December 2007. Those orders were, in my opinion, appropriate and highly desirable. The matter will be brought back to the Corporations Judge on 10 December 2007 to consider the report and for further directions. 22 I decided it was also appropriate to make an order dispensing with advertising in respect of the winding up application at this stage, except for the provisional liquidator's usual notice of appointment and statutory filings. It may be necessary to revisit the question of advertising of the application after the provisional liquidator has reported to the court. Validating order 23 The originating process also sought an order under s 601AH(3)(a) validating the Company's execution of the lease of the premises at Flemington Markets. Section 601AH(3) says that if the court makes a reinstatement order, it may also "validate anything done between the deregistration of the company and its reinstatement". I decided it was appropriate that in the present case a validating order be made in respect of the lease. 24 The approach of the courts to an application for orders under s 601AH(3) is well illustrated by CGU Workers Compensation (NSW) v Rockwall Interiors Pty Ltd [2006] NSWSC 690 (Barrett J). That case was a little more complicated than the present case, because his Honour was asked to make orders under s 601AH(3) to "validate" the service of a statutory demand that had been purportedly served on the company and not complied with while the company was deregistered. But the general principles stated by his Honour are applicable here. He said: "[18] It may be that there is jurisdiction under s 601AH(3) to 'validate' the service of the supposed statutory demand and thereby to inject efficacy into it as from the time of its purported service. But the s 601AH(3) jurisdiction should, in my opinion, be used principally to remove anomalies or impediments. The section may, for example, be used to ensure that the period of non-existence does not count for the purposes of limitation of actions: see Pagnon v WorkCover Queensland [2001] 2 Qd R 492. That is consistent with the notion that the period of non-existence should be, as it were, neutral in the renewed affairs of the company. In the relatively common case where the company's controllers are unaware of the deregistration and continue to conduct the company's business, s 601AH(3) might be used to put beyond doubt the validity of transactions supposedly undertaken by the company during the period of non-existence by means of things actually done purportedly by or for it." 25 Barrett J went on to hold that an order under s 601AH(3) is not, in general, appropriate where the order would visit adverse effects upon the company by reason of some inactivity necessarily stemming from its non-existence. That is not the case here. The present circumstances are an illustration of the "common case" to which his Honour refers in the quoted paragraph, where a transaction has been supposedly undertaken by the company during the period of non-existence by means of things actually done purportedly by or for it. It is appropriate to cure the deficiency caused by the deregistration in such a case, so long as no unfair prejudice arises from doing so. That condition is satisfied in the present case. 26 I therefore made a validating order in respect of the market lease. **********

Vukasin v ASIC

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