Westbury Holdings Kiama Pty Ltd v ASIC [2007] NSWSC 115 | Case summary

6104/06 WESTBURY HOLDINGS KIAMA LIMITED v AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION JUDGMENT 1 The plaintiff, Westbury Holdings Kiama Pty Limited ("Westbury"), seeks an order under s.601AH(2) of the Corporations Act 2001 (Cth) directing Australian Securities and Investments Commission ("ASIC") to reinstate the registration of Churnwood Holdings Pty Ltd ("Churnwood"). 2 Churnwood was incorporated in 1972 under the Corporations Act 1961. It was deregistered by ASIC on 29 January 2005 in conformity with s.509(5) of the Corporations Act. The members of Churnwood had apparently resolved by special resolution that Churnwood be wound up and the winding up had proceeded and been completed as a members' voluntary winding up. Mr Fitzgerald became the liquidator. He deposes that the administration was completed in October 2004. Churnwood had no creditors. The net proceeds of realisation of assets were distributed to the members. Mr Fitzgerald then made up an account pursuant to s.509(1), following which the processes provided for in s.509 led to the deregistration pursuant to s.509(5) to which I have referred. 3 The evidence shows that, on 11 January 1996, Churnwood became a party to two deeds. The other parties were, in each case, Miltonbrook Pty Limited ("Miltonbrook") and Embrook Holdings Pty Limited ("Embrook"). By each of these deeds, each of Miltonbrook and Embrook granted to "Churnwood or its nominee" an option to purchase certain property. On 30 July 2004 (that is, after the commencement of the winding up but before deregistration), a director of Churnwood purported to cause Churnwood to nominate Westbury to exercise each option. Westbury later purported to exercise the options by means which included not only documents ostensibly executed by Westbury but also documents purportedly executed on 13 October 2006 by the then non-existent Churnwood. 4 The affidavit of Mr Gallagher, a director of Westbury, supporting Westbury's application says that, in these circumstances: "A dispute has arisen between Miltonbrook Pty Limited, Embrook Holdings Pty Limited and Westbury Holdings Kiama Pty Limited in respect of the proper or due exercise of the options by Westbury Holdings." 5 The two questions posed by s.601AH(2) upon the application are, first whether Westbury is "a person aggrieved by the deregistration" of Churnwood (s.601AH(2)(a)(i)) and, second, whether it is "just" that the registration be reinstated (s.601AH(2)(b). 6 As to the first matter, it is clear that Westbury's attempts to defend its actions directed towards exercise of the options originally granted to Churnwood will be assisted and enhanced if it is able to enlist the support of a revived Churnwood. Indeed, action by Churnwood, either voluntarily or compelled at the suit of Westbury, may be essential to the progressing of Westbury's claims against the grantors of the options. 7 I am satisfied that, in the circumstances as they have emerged, Westbury has become entitled, in a legal sense, to regard the dissolution of Churnwood as a cause of dissatisfaction, with the result that it is not a mere bystander when it comes to the matter of revival of Churnwood. Westbury is, in my view, a "person aggrieved" by the event that caused Churnwood to cease to exist. 8 I turn therefore to the question whether reinstatement would be "just". The nature of that inquiry has recently been the subject of discussion in the Court of Appeal of Victoria. In AMP General Insurance Ltd v Victorian Workcover Authority [2006] VCA 236. Maxwell P and Neave JA said (at [27]): "In our view, the decision to order reinstatement is properly characterised as a discretionary decision of the kind described in Norbis v Norbis [(1986) 161 CLR 513]. The decision has all of the features there referred to. The decision depends on the application of a very general standard - what is "just". The standard is so general, indeed, that it might be thought to do no more than make explicit the duty implicitly imposed on every decision-maker - to consider and weigh, fairly and rationally, all the relevant considerations. What is "just" is a value judgment, and there is room for reasonable differences of opinion, no particular opinion being uniquely right." 9 In the present case, "all the relevant considerations" that it is necessary to "weigh, fairly and rationally" seem to be that, with Churnwood non-existent, Westbury is inhibited in attempts to enforce the rights it considers itself to have in respect of the options; that, according to the view Mr Fitzgerald took as liquidator in the latter part of 2005, the affairs of Churnwood had been fully wound up; that, as is testified by affidavits of Mr Gallagher and Mrs Gallagher (who, at the time of deregistration, were the only directors of Churnwood and held 20 of the 21 issued shares), they are aware that the reinstatement will cause them to be directors again (see s.601AH(5)) and are willing to undertake all the functions and responsibilities of directors; that Mr Fitzgerald is content for the registration to be reinstated; and that, as is confirmed by a letter dated 1 February 2007, ASIC does not oppose the application. ASIC's non-opposition is, however, subject to several conditions, including: "The company continues in liquidation and a liquidator appointed". 10 In these circumstances, none of the considerations (except, in a way about to be mentioned, the condition imposed by ASIC) militates against reinstatement and the first of the considerations militates in favour. It is, in my opinion, "just" that the order for reinstatement be made, subject to resolution of the issue raised by ASIC's condition. 11 The need to address the issue raised by ASIC's condition arises because the amended originating process includes a claim for an order that the winding up of Churnwood be terminated. 12 In one sense, that claim can be dealt with briefly. The application for termination is expressed to be made under s.482(1). Because that provision appears in Part 5.4B headed "Winding up in insolvency or by the Court", it is inapplicable to a case of members' voluntary winding up. Under s.511 (a provision clearly applying to such a case), the court may exercise in a voluntary winding up any power that would be exercisable by the court if the company were being wound up by the court. An application under s.511 may be made by the liquidator, a contributory or a creditor (that is, the same class of competent applicants contemplated by s.482(1A)(a)). Because Westbury - the applicant for not only the order directing reinstatement but also the order terminating the winding up - will not be a contributory or creditor if and when Churnwood's registration is reinstated, there will be no application by a competent applicant for an order terminating the winding up. 13 Such an order would, in any event, be contrary to the condition in ASIC's letter. There is the added point that Mr Fitzgerald has not, at this point, consented to act again as liquidator. His affidavit proceeds on the basis that an order terminating the winding up will be made. There thus arises the dilemma identified by White J in Halstead v CTS Quality Building Products Pty Ltd [2006] NSWSC 1022 at [12]: "Moreover, if the company were reinstated, it would resume its status as a company in liquidation. It would not necessarily follow that the liquidator, whose functions had been wholly discharged, would automatically resume office as liquidator upon reinstatement ( Ramantanis v G & M Excavations (2004) 22 ACLC 22). It would be necessary to appoint a liquidator and, accordingly, the consent of a qualified person to assuming the office of liquidator would be needed. Adequate arrangements would also need to be made in respect of the liquidator's remuneration and expenses." 14 The position is thus, first, that a termination application by an incompetent applicant will be before the court consequent upon reinstatement; second, that reinstatement without an order of the kind contemplated by s.482(3) (as made available through s.511) ensuring that Mr Fitzgerald is still liquidator will leave proper governance of the company in doubt; and, third, that progressing of the application for termination of winding up will render inapplicable ASIC's statement of non-opposition to the reinstatement of the registration. I will therefore not make any order at this point. Rather, I propose to stand over the present application to 10 am on Monday, 26 February 2007 (or, if that is inconvenient, a date and time to be arranged with my Associate). I shall then hear from counsel how the plaintiff proposes to deal with the matters I have identified. **********

Westbury Holdings Kiama Pty Ltd v ASIC

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