Weston (Trustee) v Australian Securities and Investments Commission, in the matter of Bayswater Developments Pty Ltd

AND: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION Defendant WAFIQUE MHANNA Interested Person

order made by: FARRELL J DATE OF ORDER: 3 February 2021

THE COURT NOTES: A. The undertaking to the Court by the plaintiff that, in the event that he is appointed liquidator of Bayswater Developments Pty Ltd (in liquidation), he will forthwith procure that proceedings are commenced by that company and himself against Wafique Mhanna in the form or substantially the form of the draft Application and Statement of Claim being Exhibit 3 herein. B. Mr Mhanna does not oppose the Court making the following orders. THE COURT ORDERS THAT: 3. Bayswater Developments Pty Ltd ACN 071 003 980 ("the Company") be wound up pursuant to s 461(1)(a) of the Corporations Act 2001 (Cth). 4. Paul Gerard Weston, of DW Advisory, Level 2, 16 Spring St, Sydney NSW 2000, be appointed official liquidator of the Company. 5. All notification and advertising requirements in relation to an application for the winding up of the Company be dispensed with. 6. The plaintiff's costs of the application be paid out of the assets of the Company as a cost and expense of the winding up. 7. Pursuant to r 2.13(2)(a) of the Federal Court (Corporations) Rules 2000 (Cth), Mr Mhanna pay the additional costs of the plaintiff of the adjourned hearing on 2 December 2020 in the agreed sum of $2,500.00 (inclusive of GST). Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

FARRELL J: 1 These are reasons for orders made on 29 January 2021 and 3 February 2021.

Introduction 2 On 14 May 2013, a sequestration order was made against the bankrupt estate of Kylie Ridge. The plaintiff, Paul Gerard Weston, was appointed as the trustee of that estate. 3 As at 14 May 2013: (a) Ms Ridge was the sole shareholder of Bayswater Developments Pty Ltd (ACN 071 003 980). The Court accepts Mr Weston's submission that, pursuant to s 116(1) of the Bankruptcy Act 1966 (Cth), Ms Ridge's property, including her 100 Bayswater shares, vested in Mr Weston on that day. On 12 April 2017, the Bayswater shares were registered in Mr Weston's name. (b) Ann Solway was the sole director of Bayswater. She retired on 17 November 2015 and Wafique Mhanna replaced her. Mr Mhanna is Ms Ridge's husband. He ceased to be a director of Bayswater on 26 January 2020, when Bayswater was deregistered under s 601AB of the Corporations Act 2001 (Cth).

Application 4 On 22 October 2020, Mr Weston filed an originating process and a supporting affidavit sworn by him 21 October 2020. Mr Weston read his affidavit and tendered exhibit PGW1. 5 By the originating process, Mr Weston sought: (a) A declaration that he is entitled to be registered as the holder of the issued shares in Bayswater; (b) Orders (among other things): (i) reinstating Bayswater's registration forthwith pursuant to s 601AH of the Corporations Act; (ii) winding up Bayswater under ss 461(1)(a), 461(1)(k) and/or 462 of the Corporations Act and dispensing with all notification and advertising requirements associated with such an application; (iii) appointing Mr Weston as Bayswater's liquidator; and (iv) that Mr Weston's costs of this application be paid out of Bayswater's assets. 6 Counsel for Mr Weston tendered: (a) A letter dated 10 November 2020 from ASIC indicating that it did not oppose the reinstatement of Bayswater (exhibit 1). (b) An email sent on 29 January 2021 by a lawyer employed by ASIC to the solicitors for Mr Weston indicating that Bayswater could be reinstated within 48 hours of a request in the required form to which was attached a copy of a Court's order (exhibit 2). 7 It was Mr Weston's evidence that he intended to commence proceedings as trustee of Ms Ridge's estate and on behalf of Bayswater against Mr Mhanna. His counsel tendered a draft statement of claim and draft application for those proceedings (exhibit 3). Materials in Exhibit PGW1 are relevant to many of the factual contentions in the draft statement of claim as well as this proceeding. 8 The draft application indicates that Mr Weston will seek (among other things): (a) A declaration that Mr Mhanna holds legal title to 5% of a property known as 1660 Kangaloon Rd, Kangaloon in the state of New South Wales (the Property) on resulting trust for Mr Weston as trustee of the estate or alternatively for Bayswater. In the alternative, that Mr Mhanna pay $83,500 to Mr Weston; (b) A declaration that Mr Mhanna holds the Property upon constructive trust for, and the Property is charged in favour of Bayswater, or alternatively Mr Weston, to the extent of $179,712.59. In the alternative, that Mr Mhanna account to Bayswater for $179,712.59; (c) An order under s 66G of the Conveyancing Act 1919 (NSW) appointing Mr Weston as trustee for sale of the Property and related orders; and (d) An interim order restraining Mr Mhanna from dealing with the Property until the application is finally determined. 9 The draft statement of claim contains the following claims: Resulting trust 10. On or about 5 December 2013 the Bankrupt was paid the sum of $103,120.9 by her employer, NSW Government, by way of a redundancy final payment. 11. On or about 5 December 2013 the Bankrupt paid the said sum of $103,120.95 into the bank account of Bayswater with St George Bank ("the Bayswater Account"). 12. The said sum of $103,120.95 was property of the Bankrupt vested in the Trustee pursuant to ss.58 and 116(1) Bankruptcy Act. 13. On 23 December 2013 the Bankrupt, or alternatively Bayswater as the case may be, caused a bank cheque for the sum of $83,500.00 to be drawn upon the Bayswater Account made payable to Carl Hilder Real Estate Sales Trust Account ("the Bank Cheque"). 14. On 9 January 2014 the Respondent entered into a Contract for the Sale of Land to purchase the Property for the price of $1,670,000.00 and paid or caused to be paid the Bank Cheque to the nominated agent acting on the sale of the Property, Carl Hilder Real Estate, by way of 5% deposit on the purchase of the Property. 15. On 11 March 2014 completion of the aforesaid purchase of the Property took place. 16. Upon completion of the purchase of the Property the Respondent became the sole registered proprietor of the Property, subject to a Mortgage registered No AI451690 to Commonwealth Bank of Australia for the sum of $1,336,000.00 ("the CBA Mortgage"). 17. By reason of the matters aforesaid the Respondent holds the Property upon a resulting trust for the Trustee, or alternatively Bayswater, and himself in the proportions that reflect their respective contributions to the purchase of the Property, namely 5% as to the Trustee, or alternatively Bayswater, and 95% as to the Respondent. Constructive trust 18. Further, between 11 March 2014 and about November 2016 the Bankrupt made or caused to be made payments into the Bayswater Account totalling not less than $179,712.59. 19. The said payments were property of the Bankrupt to which ss.58 and 116(1) Bankruptcy Act applied as aforesaid. 20. Between 11 March 2014 and about November 2016 Bayswater made repayments upon the CBA Mortgage totalling $179,712.59 out of the Bayswater Account. 21. By reason thereof the Respondent holds the Property upon constructive trust for, and the Property is charged in favour of, Bayswater, or alternatively the Trustee, to the extent of $179,712.59. 22. Further, or in the alternative to paragraph 21, the Respondent is liable to account to Bayswater, or alternatively the Trustee, for the said sum of $179,712.59. 10 This matter first came before the Court on 12 November 2020. Mr Mhanna appeared in person. The transcript of the proceedings that day indicates that he stated that he did not oppose reinstatement but requested an adjournment of the hearing of the application so that he could get legal advice. Justice Markovic made orders standing the matter over to a date after 23 November 2020 to allow Mr Mhanna time to consider whether he wished to apply for leave to be heard under r 2.13 of the Federal Court (Corporations) Rules 2000 (Cth) during which time a docket judge would be appointed to hear the application. If Mr Mhanna wished to apply for leave, he was required to notify Mr Weston and file and serve an affidavit stating the basis on which he wished to be heard by 23 November 2020. Mr Mhanna did not file an affidavit. 11 I was appointed as the docket judge to hear the application. On 2 December 2020, Mr Mhanna appeared by counsel, as did Mr Weston. The Court made orders granting leave for Mr Mhanna to be heard in the proceedings and noted that Mr Weston and Mr Mhanna were to meet for settlement discussions by Friday, 11 December 2020. By consent, the Court ordered that Mr Mhanna file and serve evidence on which he sought to rely by 15 January 2021 and any written submissions by 25 January 2021. The matter was listed for hearing on 29 January 2021 at 2.15 pm. Mr Mhanna did not file any affidavit or submissions in accordance with the timetable. 12 On the morning of 29 January 2021, Mr Weston's solicitors forwarded to my chambers a copy of a letter dated 28 January 2021 from Mr Mhanna's solicitors stating: We refer to your client's Application for reinstatement of Bayswater Developments Pty Ltd (in liquidation), ACN 071 003 980 (Company). We have had the opportunity to consider your client's draft statement of claim and we confirm that our client will not oppose the reinstatement application insofar as it relates to that Company. Whether the Company is in fact reinstated is of course a matter for the Court and we make no comment on that proposition. Given the above, we do not propose to appear tomorrow and would be grateful if you could mention our appearance if required. 13 Counsel for Mr Mhanna appeared at the hearing on 29 January 2021 for the purpose of making submissions as to costs. It emerged that the parties were in discussion about whether they could agree on a lump sum costs order in relation to Mr Weston's additional costs incurred by reason of the hearing on 2 December 2020. It was agreed that that matter would be deferred to a further hearing which would be held for the purpose of making a winding-up order and appointment of a liquidator after Bayswater was reinstated.

Disposition 14 Section 601AH(2) of the Corporations Act provides as follows: 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. 15 In relation to s 601AH(2)(a), Mr Weston submitted that he is a "person aggrieved" by Bayswater's deregistration because, on the bases set out in the draft statement of claim, he has an interest in the Property as the trustee of the bankrupt estate for at least the deposit of $83,500 and Bayswater has claims to an interest in the Property for contributions to the mortgage on the Property totalling $179,712.59. He is also registered as the shareholder of Bayswater. Any net surplus funds after payment of creditors' claims in Bayswater's liquidation and the liquidator's remuneration and costs would be paid to Mr Weston for the benefit of the creditors of Ms Ridge's bankrupt estate. Mr Weston says that unsecured creditors of Ms Ridge's bankrupt estate were owed a total of $913,166 and he has paid a first dividend to them of $273,950 leaving a balance owing of $639,216. 16 In Deputy Commissioner of Taxation v Australian Securities and Investments Commission; in the matter of Civic Finance Pty Limited (Deregistered) [2010] FCA 1411 at [9]-[10], Jagot J noted relevant authorities on the meaning of the expression "person aggrieved", from which these propositions can be extracted: (a) The expression "person aggrieved" is of wide import and should be construed liberally to include a person who has been damaged or injured in a legal sense: see Callagher v Australian Securities and Investments Commission [2007] FCA 482; (2007) 239 ALR 749 (Lander J). (b) It excludes a person who is a mere busybody, who has no genuine interest in the outcome of a decision. The interest must be real and direct and can result from a person being subject to a legal burden by a decision: see Blazai Pty Ltd v Gateway Development (St Marys) Pty Ltd [2009] NSWSC 800 at [23] (Tamberlin AJ) and the cases there cited. (c) The fact that the person seeking reinstatement is doing so in pursuit of public responsibilities supports their standing as a "person aggrieved": see Re James Hardie Australia Finance Pty Ltd (Deregistered) [2008] FCA 1181; (2008) 170 FCR 545 at [16] (Lindgren J) and the cases there cited. 17 The Court was satisfied that Mr Weston (in his role as trustee of Ms Ridge's bankrupt estate) can properly be characterised as a "person aggrieved" by Bayswater's deregistration. He is not a mere bystander in relation to Bayswater: he is the registered holder of all of its issued shares, there are substantive issues to be tried for the relief claimed in the draft application and he has a public function to perform by getting in all of Ms Ridge's assets for the benefit of her creditors. 18 Section 601AH(2)(b) of the Corporations Act requires the Court to be satisfied that it is just to reinstate Bayswater's registration and the Court was so satisfied because: (a) While there is an unresolved question concerning whether applicable limitation periods might have expired in relation to some of the claims set out in the draft statement of claim, the evidence before the Court indicates that Mr Weston intends to bring proceedings against Mr Mhanna in which there are substantive issues to be tried for the benefit of the creditors of Bayswater and the creditors of Ms Ridge's bankrupt estate. The Court is satisfied that there is utility in making the reinstatement order. (b) As the person affected by the proposed application, Mr Mhanna does not oppose the Court making the reinstatement order, the winding-up order or Mr Weston's appointment as Bayswater's liquidator. (c) ASIC does not oppose Bayswater's reinstatement. (d) Mr Weston indicated he was prepared to undertake to the Court that, in his capacity as the sole shareholder of Bayswater, he will pass a resolution to wind up Bayswater under s 461(1)(a) of the Corporations Act forthwith upon its registration being reinstated. The Court notes that there is no evidence before the Court as to Bayswater's solvency so that it is appropriate that Bayswater's liquidator be Court appointed. (e) In light of the evidence before the Court, the Court was not concerned that there would be any material conflict between Mr Weston's role as trustee of Ms Ridge's bankrupt estate and his role as liquidator of Bayswater which would suggest that he should not be appointed as Bayswater's liquidator upon its reinstatement to the register: see Pascoe v Ambernap Pty Ltd [2008] FCA 1975 and Weston (Trustee) v Australian Securities and Investments Commission, in the matter of Empire Property and Investment Group Pty Ltd (Deregistered) [2017] FCA 176. Accordingly the Court is satisfied that Bayswater's future stewardship will be in appropriate hands: see Stone v ACN 000 337 940 Pty Ltd [2008] NSWSC 1058; (2008) 68 ACSR 242 at [23] (Barrett J). 19 Accordingly, the Court determined that it was appropriate to make orders on 29 January 2021 that Bayswater's registration be reinstated. 20 At the adjourned hearing on 3 February 2021, counsel for Mr Weston tendered: (a) An extract from ASIC's database obtained on 1 February 2021 indicating that Bayswater's status was "registered" (exhibit 4); (b) A resolution dated 2 February 2021pursuant to ss 249A(2), 249B and 461(1) of the Corporations Act signed by Mr Weston as the sole shareholder of Bayswater resolving to wind up the company and appoint him as its liquidator (exhibit 5); (c) A form 8 consent to act as a liquidator signed by Mr Weston dated 2 February 2021 (exhibit 6); and (d) An undertaking to the Court to commence proceedings in accordance with the draft application and draft statement of claim forthwith upon his appointment as liquidator dated 2 February 2021 (exhibit 7). 21 My chambers received an email from Mr Mhanna's counsel indicating that he would not appear at the hearing on 3 February 2021 and that his client did not oppose the orders which Mr Weston sought (tendered as exhibit 8 in these proceedings). 22 As the orders proposed by Mr Weston fulfilled the purpose of Bayswater's reinstatement and they were not opposed by Mr Mhanna (including the lump sum costs order to be made against him), I was satisfied that it was appropriate to make those orders. I certify that the preceding twenty-two (22) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Farrell.