Walley v Australian Securities and Investments Commission, in the matter of Spectrum Community Focus Ltd

YATES J: 1 The plaintiffs are the former liquidators of Spectrum Community Focus Limited (the company) which was deregistered by the defendant, the Australian Securities and Investments Commission (ASIC), on 18 April 2019. By an originating process filed on 13 September 2019, the plaintiffs seek, amongst other things, an order pursuant to s 601AH(2) of the Corporations Act 2001 (Cth) (the Act), that ASIC reinstate the registration of the company. Their application is made in the following circumstances. 2 On 22 March 2018, Alan Lee Walker and Jason Bing-Fai Tang were appointed voluntary administrators of the company. On 11 May 2018, they were appointed as liquidators of the company by resolution of the company's creditors. On 19 December 2018, a meeting of the company's creditors resolved that Mr Walker and Mr Tang be removed as liquidators, and that the plaintiffs be appointed as joint and several liquidators of the company. On about 18 January 2019, Mr Walker lodged a Form 5603 (End of administration return) form with ASIC. It is not clear why this form was lodged because, plainly, the external administration of the company had not ceased, although Mr Walker's and Mr Tang's role as liquidators had ceased. In any event, acting on the correctness of the form which had been lodged, ASIC duly deregistered the company on 18 April 2019. On 13 August 2019, the first plaintiff, Mr Walley, was notified by a Mr Thompson, an accountant at Cor Cordis (the original liquidators' firm), that the company had been deregistered. Prior to that time, Mr Walley - and I take it, also Mr Marsden - were unaware that the company had been deregistered. 3 Since the date of their appointment on 19 December 2018, the plaintiffs have undertaken the following activities: (a) continued to take steps to realise pre-appointment debtors; (b) finalised settlement of the sale of the company's business and attended to post-completion steps, including receipting the balance of the sale proceeds; (c) prepared an initial notice to creditors and a statutory report to creditors providing updates on the progress of the liquidation, and the likelihood of a dividend; and (d) conducted investigations into the company's financial position and antecedent transactions and reported any offences and/or breaches of director's duties under the Act. 4 On 12 April 2019, the creditors approved the plaintiffs' current and future remuneration as liquidators. On 26 March 2019, the plaintiffs lodged an investigation report with ASIC under s 533 of the Act. 5 The plaintiffs have given notice of the present application to ASIC, to Messrs Walker and Tang, and to the former officers of the company, being the three directors of the company as at the date of the company's deregistration (namely, Katrina Hawkins, Kay Elizabeth Allen and Larissa Bronwyn Robertson). Ms Robertson was also the secretary of the company at the date of its deregistration. In an affidavit made on 12 September 2019, Mr Walley has deposed that no response has been received from these officers. I was informed today that that remains the position. Messrs Walker and Tang do not oppose the orders and other relief sought by the plaintiffs in the originating process. They have agreed to pay the plaintiffs' costs of the present application, including legal and filing fees up to the sum of $10,000 plus GST. 6 ASIC does not oppose the orders sought for reinstatement of the company, provided the conditions stated in its letter to PricewaterhouseCoopers dated 20 September 2019 are complied with. The conditions are: (a) The order sought for reinstatement is in terms of s 601AH(2) of the Act, requiring ASIC to reinstate the registration of the company. (b) The company, if ordered to be reinstated, continues to be in liquidation and the previous liquidators resume their roles or the Court appoints a new liquidator. (c) The Court order is lodged with ASIC so that the company may be reinstated. (d) The liquidators notify ASIC upon conclusion of the winding up. 7 These conditions are acceptable to the plaintiffs. I note that if an order for reinstatement is made under s 601AH(2), then it will be in the form that ASIC reinstate the registration of the company. 8 I also note that, if such order of reinstatement is made, s 601AH(5) of the Act provides: 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. 9 This provision does not cover the re-appointment of liquidators who held office immediately before the act of deregistration. 10 Sections 601AH(2) and (3) of the Act provide: (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) If: (a) ASIC reinstates the registration of a company under subsection (1) or (1A); or (b) the Court makes an order under subsection (2); the Court may: (c) validate anything done during the period: (i) beginning when the company was deregistered; and (ii) ending when the company's registration was reinstated; and (d) make any other order it considers appropriate. 11 The plaintiffs have standing to make this application by dint of s 601AH(2)(a)(ii) of the Act. The plaintiffs submit that it is just that the registration of the company be reinstated because its deregistration was the consequence of the original liquidators' error in lodging Form 5603. This form should not have been lodged. 12 In Commonwealth of Australia v Calabretta, in the matter of Condura Pty Ltd (in liq) [2019] FCA 219, I summarised the effect of lodging such a form (at [4]): 4 Form 5603 is an administration return under s 70-6 of the Insolvency Practice Schedule to the Act. A return under this section is only to be lodged if an external administration comes to an end. Where the external administration, which includes a creditors' voluntary winding up, is continuing, the appropriate return is a Form 5602 under s 70-5 of the Insolvency Practice Schedule. The consequence of filing a Form 5603 return is that ASIC considers that the affairs of the company are fully wound up, and will deregister the company in accordance with s 509 of the Act. 13 In that case (at [11]) I also briefly discussed the nature of the discretion to be exercised under s 601AH(2): 11 Section 601AH(2) of the Act empowers the Court to order that ASIC reinstate the registration of a company on the application of a person aggrieved by the deregistration if the Court is satisfied that it is just that the company's registration be reinstated. In Australian Competition and Consumer Commission v Australian Securities and Investments Commission [2000] NSWSC 316; 174 ALR 688, Austin J observed that the wording of section 601AH(2) is very broad and gives the Court a wide discretion. His Honour noted that the Court takes into account the circumstances in which the company came to be deregistered; whether, if an order for reinstatement were made, good use could be made of that order; and whether any person is likely to be prejudiced by the reinstatement. His Honour observed that "[t]hese matters are only factors to be weighed in the exercise of the court's discretion. They are not limits on the court's power.": [27] - [28]. 14 I accept the plaintiffs' submission that there has been an error not of their making. They have not yet finalised the winding up of the company and the public interest clearly favours the completion of that important task. 15 The plaintiffs also seek the following relief under s 601AH(3): (a) an order that the plaintiffs be reappointed as liquidators of the company with effect from 18 April 2019 (in fulfilment of ASIC's second condition); (b) an order that all acts done by the plaintiffs on and from 18 April 2019 to the date of this order as liquidators be validated to the extent it is necessary to do so; and (c) an order that all acts done by the company on and from 18 April 2019 to the date of this order be validated to the extent it is necessary to do so. 16 As Barrett J observed in Ramantanis v G & M Excavations; v I & M Excavations [2003] NSWSC 1250 (at [8]), as a matter of policy a pre-existing and undischarged liquidator should resume office upon reinstatement of a company's registration. I note that from the date of the company's deregistration, the plaintiffs have continued to carry out their functions in ignorance, until very recently, of the fact of deregistration. The acts they have taken, as well as any relevant acts by the company, up to the present time should be validated to the extent necessary to provide (what should have been) continuity in the winding up process. 17 For these reasons, I am satisfied that an order for reinstatement should be made in terms of s 601AH(2) of the Act, and that the ancillary relief which the plaintiffs seek should be granted. 18 I do not think that it would be appropriate for any of the costs of the present application to be visited directly or indirectly on the company's creditors. I propose to make an order that the costs of this application not be costs in the liquidation. That said, I have already referred to the agreement between the plaintiffs and the original liquidators as to payment of the plaintiffs' costs. I certify that the preceding eighteen (18) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Yates.