Weston (Trustee) v Australian Securities and Investments Commission, in the matter of Empire Property and Investment Group Pty Ltd

Federal Court of Australia|2017-02-28|Before: Mr J, Farrell J

THE COURT DECLARES THAT:

The Plaintiff is entitled to be registered as the holder of all the issued shares in Empire Property and Investment Group Pty Ltd ACN 103 826 919 ("the Company"). THE COURT NOTES THAT:
The Plaintiff has provided an undertaking that he will pass a resolution of the Company forthwith to place it into liquidation and will take all steps necessary to realise the assets of the Company, including, if necessary, taking any injunctive action to prevent the forfeiture or transfer of shares held by the Company in Aughton Flats Pty Ltd ACN 000 357 443. THE COURT ORDERS THAT:
The registration of Empire Property and Investment Group Pty Ltd ACN 103 826 919 be reinstated by the Defendant forthwith.
The plaintiff have leave nunc pro tunc to bring and maintain these proceedings. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

ORDERS NSD 224 of 2017 IN THE MATTER OF EMPIRE PROPERTY AND INVESTMENT GROUP PTY LTD ACN 103 826 919 (DEREGISTERED)

AND: AUSTRALIAN SECURITIES & INVESTMENTS COMMISSION Defendant

JUDGE: FARRELL J DATE OF ORDER: 27 february 2017

THE COURT ORDERS THAT:

All notification and advertising requirements in relation to an application for the winding up of Empire Property and Investment Group Pty Ltd ("the Company") be dispensed with.
The Company be wound up under the Corporations Act 2001 (Cth).
Paul Gerard Weston be appointed official liquidator of the Company.
The Plaintiff's costs be paid out of the assets of the Company. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

FARRELL J: 1 On 14 May 2013, a sequestration order was made against the estate of Ms Kylie Ridge. The applicant, Mr Paul Gerard Weston, was appointed as the trustee of her bankrupt estate. At the time of Mr Weston's appointment as trustee, Ms Ridge was the sole director and shareholder of Empire Property and Investment Group Pty Ltd ACN 103 826 919. 2 Mr Weston submitted, and I accept, that upon the sequestration order being made, Ms Ridge's shares in Empire vested in Mr Weston pursuant to s 116 of the Bankruptcy Act 1966 (Cth) and she ceased to be a director of Empire by force of ss 203B and 206B(3) of the Corporations Act 2001 (Cth). 3 Empire was deregistered on 27 July 2014.

Application 4 On 20 February 2017, Mr Weston made an urgent application for relief pursuant to ss 601AH, 461(1)(a), 461(1)(k) and/or 462 of the Corporations Act. In support of his application, Mr Weston filed an affidavit sworn on 20 February 2017. 5 On the basis that he is a person "aggrieved by the deregistration" and that it is just that Empire's registration be reinstated (see s 601AH(2)), Mr Weston sought a declaration that he is entitled to be registered as the sole shareholder of Empire and orders that Empire's registration be reinstated; that Empire be wound up; all notices and advertising requirements be dispensed with; and that he be appointed as liquidator or provisional liquidator. The grounds for winding up were either that Empire has, by special resolution, resolved that it be wound up (s 461(1)(a)) or on the just and equitable ground (s 461(1)(k)). 6 Mr Baird, counsel for Mr Weston, provided written submissions on 20 February 2017 which were amended on 21 February 2017. Mr Baird also appeared on 21, 22 and 27 February 2017 and made oral submissions. Among other things, Mr Baird advised that ASIC had been given a copy of the originating process and Mr Weston's affidavit. ASIC indicated that it would not appear. 7 On 22 February 2017, I made the declaration sought by Mr Weston and ordered that Empire be reinstated forthwith. On 27 February 2017, I ordered that Empire be wound up and that Mr Weston be appointed as liquidator of Empire. These are my reasons for making those orders and orders ancillary to them.

Background 8 Factual matters are taken from Mr Weston's affidavit and documents tendered at the hearings on 21, 22 and 27 February 2017. 9 It appears that at the time Empire was deregistered, Empire held 2,500 shares in Aughton Flats Pty Limited (Shares). Aughton is the registered proprietor of a building in Coogee in New South Wales. The building is divided into apartments. The shares held by Empire confer on their owner the right to occupy or lease a designated apartment. On 14 February 2017, Aughton issued a letter of demand for payment of outstanding levies, interest and legal fees owing by Empire and stating that the Shares would be forfeited if the outstanding amounts were not paid to Aughton by 28 February 2017: see [17] below. That letter dictated the urgency of Mr Weston's application. 10 Mr Weston was unaware of Ms Riley's shareholding in Empire until mid-2016. He made attempts to contact Ms Ridge following his appointment, but they were unsuccessful until June and July 2016. Two of his staff interviewed Ms Riley at that time; Ms Riley admitted to receiving correspondence from Mr Weston but said that she did not understand it. 11 Ms Riley lodged a statement of affairs on 8 July 2016, a copy of which was annexed to Mr Weston's affidavit. Among other things, it revealed that: Ms Riley is estranged from her husband whose surname is "Mhanna"; She conducted a business through Empire; Empire's business was holding property, and it had not ceased operating; Under the heading "Companies", Ms Riley said that she held 100% of the shares in Empire; and Ms Riley answered "yes" to the question of whether a liquidator, receiver or company administrator had been appointed to manage the company. 12 Attached to Mr Weston's affidavit was a current and historical extract of information about Empire held by the Australian Securities and Investments Commission (ASIC) dated 16 June 2016. It indicates that the Commonwealth Bank of Australia (CBA) was a controller of Empire from 2 October 2012 to 18 September 2013. 13 The Shares were not disclosed in the statement of affairs and Aughton is not mentioned. However, it does refer to the street address of the apartment as property to which Ms Riley contributed towards purchasing. Ms Riley said the apartment is worth $500,000. Under the heading "liabilities", Ms Riley indicated that the apartment is mortgaged to St George Bank, the outstanding liability is $435,000 and its resale value is $500,000. 14 Mr Weston is concerned that in about October 2014, Ms Riley attempted to transfer the Shares to Mr Ali Mouhanna. Mr Weston believes that Mr Mouhanna is a family member of Ms Riley's husband based on comments made by Ms Riley in the interviews with Mr Weston's staff in July 2016. Mr Baird noted that "Mouhanna" appears to be a variant spelling of "Mhanna", Ms Riley's husband's name. 15 Email correspondence indicates that on 17 October 2014, Ms Riley made enquiries of Aughton's representative (Mr George Johnston, Strata Consultant of Kooper & Levi Strata Management) saying that she had sold "her" apartment and that settlement was being held up because of documentary requirements of the purchaser's bank. A share transfer form relating to Empire's Shares in Aughton indicates that the shares were purchased on 26 October 2014. Ms Riley signed that transfer form as Empire's sole director and shareholder and Mr Mouhanna signed the form. Their signatures are dated 8 January 2015. Mr Weston submitted that the share transfer is invalid because Ms Riley had no authority to sign it on 8 January 2015 or to sell the Shares on 26 October 2014, as she was an undischarged bankrupt at those times and therefore no longer a director of Empire. 16 Mr Weston says that: (1) He has been informed that Aughton refused to transfer Empire's Shares to Mr Mouhanna because it owed Aughton approximately $36,000 in shareholder contributions. (2) Empire's bank statements indicate that a loan from St George Bank to Empire was discharged by the payment of $480,148.81 on 23 January 2015. Until then, St George Bank had a charge over the Shares for approximately $480,000. (3) By a letter dated "5th February", CBA advised Aughton that its client (Mr Mouhanna) had purchased the Shares. Attached to the letter were a share certificate and the transfer form. CBA sought registration of the transfer and asked that a share certificate be returned to it in an express post envelope provided for that purpose. (4) Mr Weston therefore believes that CBA provided the funds to discharge St George Bank's loan to Empire. 17 On 14 February 2017, Aughton issued a letter of demand to CBA, Mr Mouhanna and Mr Weston for $53,361.65 representing "outstanding strata levies, interest and legal fees" for the apartment. The letter advised that if the outstanding sum was not paid within 14 days, then "upon the expiration of a further 28 days", a meeting of the directors of Aughton would be held at which it would be resolved to forfeit the Shares registered in Empire's name pursuant to article 31 of Aughton's Articles of Association. 18 Mr Weston says that on 16 February 2017, an assistant manager in his office had a conversation with Aughton's representatives who indicated that if the Shares were forfeited, Aughton would sell the Shares for any amount sufficient to cover the outstanding contributions. 19 Mr Weston believes that, based on the value of the apartment, the shares in Empire have significant value. Mr Weston has provided evidence of a "curbside" valuation obtained on 18 February 2017 for the apartment that its current value is between $795,000 and $850,000 and it would have been valued at approximately $615,000 in October 2014. An enquiry at "realestate.com.au" estimates the value of the apartment at between $1.1 million and $1.374 million dollars. 20 The bankrupt estate's unsecured creditors are owed approximately $921,289.

"Person aggrieved" 21 Mr Baird drew my attention to the discussion of the meaning of "person aggrieved" in s 601AH(2) in Deputy Commission of Taxation v Australian Securities and Investments Commission; in the matter of Civic Finance Pty Ltd (Deregistered) [2010] FCA 1411 (DCT v Civic) at [9]-[10] per Jagot J: [9] The first issue under s 601AH(2) of the Corporations Act is whether the Commissioner is a person aggrieved by the deregistration of Advance and Civic. As Tamberlin AJ summarised in Blazai Pty Ltd v Gateway Development (St Marys) Pty Ltd [2009] NSWSC 800 at [22]-[23]: [22] The expression "person aggrieved" is of wide import and should be construed liberally and includes a person who has been damaged or injured in a legal sense: Callagher v Australian Securities and Investments Commission (2007) 239 FLR 749. [23] It excludes a person who is a mere busybody, who has no genuine interest in the outcome of a decision. A person aggrieved has a genuine grievance as a result of a decision which prejudices his or her interest: see Australian Competition and Consumer Commission v Australian Securities and Investments Commission (2000) 174 ALR 688 at [24]-[25] per Austin J; Newfront Pty Ltd (Deregistered) [2008] SASC 127 and the cases cited therein. This interest must be real and direct and can result from a person being subject to legal burden by a decision: Callagher v Australian Securities and Investments Commission (2007) 239 FLR 749. [10] In Re James Hardie Australia Finance Pty Ltd (Deregistered) (2008) 170 FCR 545; [2008] FCA 1181 Lindgren J considered an application for reinstatement with a view to making amended assessments. At [13]-[16] Lindgren J said: [13] An application under s 601AH for reinstatement of the registration of a company may be made by "a person aggrieved by the deregistration". According to s 601AH(2)(b), it is a condition of the enlivening of the Court's power to order reinstatement that the Court be "satisfied that it is just that the company's registration be reinstated". The Court has a residual discretion whether to make an order. These three matters will need to be considered. [14] It has been said that the expression "a person aggrieved by the deregistration" should not be narrowly construed: see Re Proserpine Pty Ltd [1980] 1 NSWLR 745 at [15]; Pacanowski v Australian Securities Commission (1995) 57 FCR 173 at 175. It does not matter that the person's interest in the decision to deregister arose after the deregistration: Proserpine [1980] 1 NSWLR 745 at [15]. [15] The Commissioner is charged with the responsibility of administering, relevantly, the Income Tax Assessment Act 1936 (Cth) (ITAA 1936). The Commissioner wishes to make a determination under s 177F of the ITAA 1936, and, consequentially, to make an amended assessment of the amount of JHAF's taxable income and of the tax payable on it under ss 166 and 170 of that Act in respect of the year ended 31 March 2002. The Commissioner wishes to do so as a result of his investigation consequent upon his receipt of information from an overseas regulatory authority. The Commissioner considers that he may not be in a position to act as proposed while JHAF is deregistered. I agree that he cannot do so because, as noted earlier, upon deregistration of a company it ceases to exist. [16] In my view, the facts recounted above show that the Commissioner is a person aggrieved by the deregistration of JHAF and has standing to apply for reinstatement of its registration. The public responsibilities of the Commissioner can be compared with those of the Australian Competition and Consumer Commission, which was acknowledged to have standing to apply for a reinstatement under s 601AH in Australian Competition and Consumer Commission v Australian Securities and Investments Commission (2000) 174 ALR 688. 22 Mr Weston was appointed as Ms Riley's trustee in bankruptcy prior to Empire's deregistration; he was then entitled to become registered as the sole shareholder and to exercise the rights conferred on a trustee in bankruptcy by s 1072C of the Corporations Act for the benefit of the bankrupt estate. However, due to Ms Riley's failure to provide details of her assets to Mr Weston in a timely way, he did not know of Empire's existence until well after it was deregistered. 23 I was satisfied that Mr Weston is a person aggrieved by Empire's deregistration even though he is not currently registered as a shareholder of Empire.

Whether it is just to reinstate Empire 24 The next issue was whether it is "just" to order that Empire's registration be reinstated. In relation to s 601AH(2), in Australian Competition and Consumer Commission v Australian Securities and Investments Commission (2000) 174 ALR 688; [2000] NSWSC 316 at [27] Austin J noted that: The wording of the section is very broad, and the cases confirm that it gives the Court a wide discretion. The Court takes into account the circumstances in which the company came to be dissolved; whether, if the order were made, good use could be made of it; and whether any person is likely to be prejudiced by the reinstatement: Re Kilkenny Engineering Pty Ltd (in liq) (1976) 1 ACLR 285; Drysdale v ASC (1992) 10 ACLC 1427; Re Steelmaster Pty Ltd (in liq) (1992) 6 ACSR 494. 25 Having regard to the "curbside" and website valuations of the apartment, it is likely that the Shares are a valuable asset of Empire. If Aughton forfeited and then sold the Shares in order to pay Empire's liabilities to Aughton, Empire would be entitled to residual funds: see article 40 of Aughton's Articles of Association. At the hearing on 21 February 2017, Mr Baird submitted that Aughton's interest was in achieving quick payment of outstanding liabilities, not necessarily receiving the best value for the Shares. Aughton was on notice of these proceedings but did elected not to appear. 26 While Mr Weston was not in a position to advise the Court of the identity of Empire's other creditors, I was satisfied that Empire's creditors would generally benefit from the best value being realised for the Shares. Similarly, Ms Riley's residual interest in the estate is best served by the value in the Shares being preserved and realised for the benefit of the estate. 27 On reinstatement applications, it is necessary to consider the future stewardship of the company: Stone v ACN 000 337 940 Pty Ltd (2008) 68 ACSR 242; [2008] NSWSC 1058 at [23] per Barrett J (as he then was). In this case, that issue would be addressed by Mr Weston's application for Empire to be wound up upon its reinstatement. This is necessary since Empire would otherwise have no corporate officers because Ms Riley is disqualified from holding office as she is an undischarged bankrupt. Mr Baird initially indicated that Mr Weston relied on the just and equitable ground under s 461(1)(k) and noted that this was the basis of Jagot J's orders in DCT v Civic at [38]. He could point to no authority under which s 1072C was employed to pass a resolution to wind up a company before it was reinstated to the register. 28 I was concerned to ensure that there would be utility in making orders for reinstatement and winding up, given the timeframe in which Aughton proposed to act on its power to forfeit and sell the Shares. Accordingly, on 21 February 2017, I stood the matter over until the next day and sought assurances from Mr Weston as to the steps he proposed to take and information from ASIC as to how quickly Empire's reinstatement could be effected. 29 On 22 February 2017, Mr Weston provided an undertaking to the Court that, forthwith upon Empire's reinstatement, he would pass a resolution to place Empire into liquidation and take all steps necessary to realise its assets, including, if necessary, taking any injunctive action to prevent the forfeiture or transfer of the Shares. Mr Baird told the Court that ASIC had indicated that reinstatement could occur within 48 hours of being advised that an order under s 601AH(2) had been made. On this basis I was satisfied that there was utility in making an order for reinstatement and to make the declaration Mr Weston sought. Those orders were made and the matter was stood over until 27 February 2017.

Winding up 30 At the hearing on 27 February 2017, Mr Baird advised that Empire's registration had been reinstated on 23 February 2017. He tendered an email from an officer of ASIC to that effect and a search dated 24 February 2017 which indicated that Empire was restored to the register on 23 February 2017. 31 Mr Baird also tendered a copy of a resolution that Empire be wound up signed by Mr Weston on 23 February 2017. 32 Ms Riley is the sole shareholder of Empire. Having regard to s 1072C(2)(b)(iii), I am satisfied that Mr Weston can pass a resolution for winding up Empire by signing a resolution to that effect: see Pascoe v Ambernap Pty Ltd [2008] FCA 1975 at [5] per Jacobson J and the cases there cited. 33 There remains the question of whether, as trustee of the estate of the bankrupt sole shareholder, there is a conflict of interest which would require that Mr Weston not be appointed as liquidator of Empire. I have no evidence of who the creditors of Empire are, with the exception of Aughton and possibly Mr Mouhanna. As indicated previously, Aughton was on notice of the proceedings and elected not to appear. Mr Mouhanna is a putative transferee of the Shares, but he is also a relative by marriage of Ms Riley. I do not consider that either interest is such that it should prevent Mr Weston's appointment; as liquidator it will be his duty to investigate the affairs of Empire. As in Pascoe v Ambernap, I accept that the practical and sensible approach in this case is to appoint Mr Weston as official liquidator so that the immediate issue of protecting Empire's interest in the Shares may be addressed. 34 Before orders were made, Mr Baird tendered a copy of a letter from Aughton's lawyers to Mr Weston's lawyers dated 24 February 2017. The letter indicated that Aughton withdrew the forfeiture notice. While the immediacy of the proposed forfeiture has been relieved, I was satisfied that it was appropriate to make the short minutes of ordered tendered by Mr Baird, including orders that all notification and advertising requirements in respect of the winding up application be dispensed with, that Empire be wound up, that Mr Weston be appointed as its liquidator and that Mr Weston's costs of the application be paid from Empire's assets. I certify that the preceding thirty-four (34) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Farrell.

Corporations Act 2001(Cth)ss 203B, 206B, 461(1)(a), 461(1)(k), 462, 601AH, 1072C

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