Commonwealth Bank of Australia v Australian Securities Commission Caccavo, Ralph Immacolato v Australian Securities Commission Caccavo, Ralph Immacolato v Australian Securities Commission

[1998] FCA 1275

FEDERAL COURT OF AUSTRALIA           

CORPORATIONS – reinstatement to register of companies – whether error on part of the Australian Securities Commission in cancelling registration – whether sufficient that in hindsight company was carrying on business or in operation ­– whether other error on the part of the Commission – insistence on Key Financial Data in outstanding annual returns – records of company incomplete as a result of director’s defalcations – whether apparent to Commission at time of cancellation that company was in operation – claim against third party – whether Commission officer misled company’s solicitors

WORDS AND PHRASES – “in operation” – “error on the part of the Commission”

Corporations Law ss 572, 574, 601AH

Re Outlay Assurance Society (1887) 34 Ch D 479 at 482 applied

COMMONWEALTH BANK OF AUSTRALIA v AUSTRALIAN SECURITIES COMMISSION
NO. TG 2 of 1998

RALPH IMMACOLATO CACCAVO v AUSTRALIAN SECURITIES COMMISSION
NO. TG 9 of 1998

RALPH IMMACOLATO CACCAVO v AUSTRALIAN SECURITIES COMMISSION
NO. TG 10 of 1998

JUDGE:         HEEREY J
DATE:           7 SEPTEMBER 1998
PLACE          SYDNEY (HEARD IN HOBART)

IN THE FEDERAL COURT OF AUSTRALIA
TASMANIA DISTRICT REGISTRY	TG 2 of 1998

BETWEEN:	COMMONWEALTH BANK OF AUSTRALIA (ACN: 123 123 124) APPLICANT
AND:	AUSTRALIAN SECURITIES COMMISSION RESPONDENT
TG 9 of 1998

BETWEEN:	RALPH IMMACOLATO CACCAVO APPLICANT
AND:	AUSTRALIAN SECURITIES COMMISSION RESPONDENT
TG 10 of 1998

BETWEEN:	RALPH IMMACOLATO CACCAVO APPLICANT
AND:	AUSTRALIAN SECURITIES COMMISSION RESPONDENT

JUDGE:	HEEREY J
DATE OF ORDER:	7 SEPTEMBER 1998
WHERE MADE:	SYDNEY (HEARD IN HOBART)

THE COURT ORDERS THAT:

1. Application nos TG 2 of 1998, TG 9 of 1998 and TG 10 of 1998 are dismissed.

2. No order as to costs.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
TASMANIA DISTRICT REGISTRY		TG 2 of 1998
BETWEEN:	COMMONWEALTH BANK OF AUSTRALIA (ACN: 123 123 124) APPLICANT
AND:	AUSTRALIAN SECURITIES COMMISSION RESPONDENT

TG  9 of 1998

BETWEEN:	RALPH IMMACOLATO CACCAVO APPLICANT
AND:	AUSTRALIAN SECURITIES COMMISSION RESPONDENT
TG 10 of 1998

BETWEEN:	RALPH IMMACOLATO CACCAVO APPLICANT
AND:	AUSTRALIAN SECURITIES COMMISSION RESPONDENT

JUDGE:	HEEREY J
DATE:	7 SEPTEMBER 1998
PLACE:	SYDNEY (HEARD IN HOBART)

REASONS FOR JUDGMENT

Nogarap Pty Ltd (the Company) carried on business as a furniture manufacturer under the trade name Paragon 2000. It was incorporated on 10 March 1987. It effectively ceased business at the end of 1988. In 1992 its registration was cancelled by the Australian Securities Commission (ASC, now the Australian Securities and Investments Commission (ASIC)) under s 574(1) of the Corporations Law.  In 1993 the Supreme Court of Tasmania ordered that the Company’s registration be reinstated.  In 1995 the ASC again cancelled the registration of the Company.  In 1997 the ASC reinstated the registration.

Lying behind this unusual cycle of death and resurrection is a claim by the Company against the Commonwealth Bank of Australia (the Bank).  The Company alleges that between 1987 and 1989 the Bank wrongly negotiated numerous cheques drawn on the Company’s account.  The amount claimed is in excess of $1.2 million.  The Company issued a writ against the Bank in 1993.

In TG 2 of 1998 the Bank seeks an order for review under the Administrative Decisions (Judicial Review) Act 1977 (Cth) (AD(JR) Act) of the ASC’s 1997 reinstatement decision.

In TG 9 of 1998 Mr Ralph Caccavo, a director and shareholder of the Company, seeks to set aside the 1995 cancellation. 

In TG 10 of 1998 Mr Caccavo seeks an order under s 574(3) of the Corporations Law that the Court reinstate the registration of the Company.

All these matters were heard together, but are sequentially conditional.  If the Bank fails in TG 2 then the reinstatement of the Company stands.  If the Bank succeeds, then it is necessary to consider Mr Caccavo’s challenge in TG 9 to the 1995 cancellation.  If that application is successful, then the Company continues to be registered.  If it is not, then the question is whether the Court should order reinstatement in TG 10. 

However there is a jurisdictional problem with TG 10. Unless and until the Bank succeeds in TG 2 and Mr Caccavo fails in TG 9, the precondition for the exercise of the power under s 574(3) – the Company’s registration being cancelled - will not exist. There is a very practical aspect to this. If, consequent upon decisions in TG 2 and TG 9, the Company’s registration were held to be validly cancelled, it would be open to the Bank to apply immediately to the Supreme Court for dismissal of the Company’s action against the Bank on the grounds that the plaintiff had ceased to exist (see Sweeney & Vandeleur Pty Ltd v BNY Australia Ltd (1993) 11 ACSR 356). This could happen before any fresh application under s 574(3) was filed and dealt with (either in the Federal Court or the Supreme Court), and notwithstanding that the parties have argued the merits of a s 574(3) application before me.

I therefore indicated to counsel the following course of action. If I were to come to the conclusion that TG 2 succeeds and TG 9 fails, I would grant an injunction for a short period against the Bank restraining it from making any application to the Supreme Court for dismissal of the action. The injunction would be on terms that Mr Caccavo file a fresh application under the current equivalent of s 574(3). I would then treat the affidavits already filed in TG 10 as being filed in the fresh application. I would then make an order either dismissing or upholding that application.

Statutory Provisions

Section 572 relevantly provided:

“(1)  Where the Commission has reasonable cause to believe that a company is not carrying on business or is not in operation, it may send to the company by post a letter to that effect and stating that, unless an answer showing cause to the contrary is received within one month from the date of the letter, a notice will be published in the Gazette with the view to cancelling the registration of the company.

(2)  Unless the Commission receives an answer within one month from the date of the letter to the effect that the company is carrying on business or is in operation, it may publish in the Gazette and send to the company in the prescribed manner a notice stating that, at the end of 3 months from the date of that notice, the registration of the company mentioned in the notice will, unless cause is shown to the contrary, be cancelled and the company will be dissolved.

…

(4)  A letter or notice to be sent under this section or section 573 to a company may be addressed:

(a)      to the company at its registered office;

(b)if no office has been registered – to the care of some officer of the company; or

(c)if no office has been registered and there is no officer of the company whose name and address are known to the Commission – to each of the persons who subscribed to the memorandum of the company addressed to him or her at the address mentioned in the memorandum.”

Section 574(1) conferred power on the ASC to cancel the registration of a company. It relevantly provided that at the end of the time mentioned in a notice sent under s 572(2) the ASC might, unless cause to the contrary was previously shown, by notice in writing published in the Gazette cancel the registration of the Company. On the publication of such notice the company would be dissolved.

Section 574(2) conferred on the ASC a power of reinstatement. It was as follows:

“If the Commission is satisfied that the registration of a company was cancelled as the result of an error on the part of the Commission, the Commission may reinstate the registration of the company, and thereupon the company shall be deemed to have continued in existence as if its registration had not been cancelled.”

The power of the Court to order reinstatement was contained in s 574(3) as follows:

“If a person is aggrieved by the cancellation of the registration of a company, the Court, on an application made by the person at any time within 15 years after the cancellation, may, if satisfied that the company was, at the time of the cancellation, carrying on business or in operation or otherwise satisfied that it is just that the registration of the company be reinstated, order the reinstatement of the registration of the company.”

Section 574(4) further provided that on the lodging of an office copy of an order under sub-s (3) the company shall be “deemed to have continued in existence as if its registration had not been cancelled”. Section 574(5) provided:

“The Court may, in an order under subsection (3), give such directions and make such provisions (including directions and provisions relating to the retransfer of property vested in the Commission under section 576) as seem just for placing the company and all persons in the same position, so far as possible, as if the company’s registration had not been cancelled.”

The Company Law Review Act 1998 (Cth) introduced new provisions relating to cancellation and reinstatement of registration. Section 601AH is as follows:

“601AH  Reinstatement

Reinstatement by ASIC

(1)ASIC may reinstate the registration of a company if ASIC is satisfied that the company should not have been deregistered.

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.

(3)If the Court makes an order under subsection (2), it may:

(a)validate anything done between the deregistration of the company and its reinstatement; and

(b)make any other order it considers appropriate.

Note:For example, the Court may direct the ASIC to transfer to another person property vested in ASIC under subsection 601AD(2). 

ASIC to give notice of reinstatement

(4)ASIC must give notice of a reinstatement in the Gazette.  If ASIC exercises its power under subsection (1) in response to an application by a person, ASIC must also give notice of the reinstatement to the applicant.

Effect of reinstatement

(5)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 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.”

TG 2 and TG 9, being applications for review of decisions made under the former law, do not call for resort to s 601AH. As to TG 10, or rather any fresh application brought in the circumstances I have mentioned, s 601AH(2) would apply.

1992 Cancellation
On 10 July 1992 registration of the Company was cancelled by the ASC under s 574(1). The ASC formed the view that the Company was not carrying on business or was not in operation because of its failure to lodge its annual returns.

Durovic Conviction

Apart from Mr Caccavo, the other shareholder in the Company was Mr George Durovic.  On 11 February 1993, after a seven month trial in the Supreme Court of Tasmania, Mr Durovic was convicted on 165 counts of stealing from the Company and 71 counts of improper use of his position as a corporate officer.  He was sentenced to imprisonment for eight years.  An appeal to the Court of Criminal Appeal was dismissed:  Durovic v The Queen (1995) 4 Tas R 113.

1993 Reinstatement

On 27 October 1993 Mr Caccavo filed an application in the Supreme Court of Tasmania seeking an order for reinstatement under s 574(3). The application stated that:

“It would be just to order the reinstatement of the registration of company [sic] because the continuing deregistration of the company will continue to prejudice the business interests of the applicant.”

The application was supported by an affidavit sworn by Mr Caccavo on 29 September 1993.  He deposed that the Company retained an account with the Bank and that between 17 January 1987 and 17 January 1992 Mr Durovic fraudulently appropriated a total of $1,262,510 by “wrongfully dealing with various cheques drawn on the account”.  It was said that the fraudulent activities of Mr Durovic “crippled the business” of the Company and “imposed severe financial hardship” on Mr Caccavo as a major shareholder.  It was stated that Mr Caccavo could not bring an action in his own name and that no action could be brought in the name of the Company unless it was re-registered.  The affidavit concluded:

“I undertake that upon an order for reinstatement of the company that I will ensure that the company will lodge all outstanding annual returns and other documents required by the Australian Securities Commission within a reasonable time.”

On 28 October 1983 Green CJ ordered that the Company be reinstated to the register of companies.  The order does not specifically refer to Mr Caccavo’s undertaking but recites the reading of his affidavit.

The lodging of an office copy of Green CJ’s order with the ASC was not effected until 24 January 1995, some fifteen months later.  However the Company’s outstanding annual returns were not lodged.  As will be seen, this did not occur until 1997.

Supreme Court action against Bank

On 28 October 1993 the Company issued out of the Supreme Court a generally endorsed writ No 1412 of 1993.  The endorsement claimed damages against the Bank for breach of contract and/or negligence in acting as banker for the Company and negotiating various cheques between 23 March 1987 and 13 January 1989.  The Bank entered an appearance on 11 October 1994.  Under Order 22.01 of the Rules of the Supreme Court of Tasmania the Company was obliged to file and serve a statement of claim within 21 days after the Bank’s appearance.  This was not done and has still not been done.  However on 1 June 1998 the Company’s solicitors forwarded to the Bank’s solicitors a draft statement of claim.  An application for leave to extend time was filed on 30 June 1998 and has been adjourned pending the outcome of the present applications.

The draft statement of claim alleges that the Bank negligently cashed cheques presented to it by Mr Durovic or credited his accounts, including a Mastercard account, with the proceeds of such cheques.  This is said to have been contrary to the Bank’s mandate because the cheques had only one signatory, or were payable to a third party, or were crossed, or were in excess of agreed limits for the cashing of cheques.  There are allegations of circumstances which should have aroused the Bank’s suspicion, including for example that the third party payees were entities such as the Australian Taxation Office.  Particulars are given of the cashing of identified cheques by thirteen named tellers.

The Bank on 27 August 1997 filed an application for an order that the Company’s writ be struck out.  That application has also been adjourned to await the outcome of the present applications. 

1995 Cancellation

Shortly after receiving the Supreme Court’s reinstatement order, the ASC on 9 February 1995 wrote to the solicitors for the Company, Gunson Pickard and Hann, expressing concern at the delay in lodging the order and pointing out the failure of Mr Caccavo to comply with his undertaking to the Court that annual returns and other documents be lodged within a reasonable time.

The solicitors replied by letter dated 15 February stating amongst other things:

“We confirm that the delay in lodging outstanding annual returns and other documents has been the result of:

1.Criminal charges laid against Mr Durovic and the appeal process associated with this.

2.The books and records were held by the Tasmanian Director of Public Prosecutions.

3.Once the books and records were released the Company’s accountant was unable to attend to filing the annual returns due to personal circumstances.

We confirm that the books have now been placed with another firm of accountants to prepare the annual returns and once prepared an Annual General Meeting will be held.”

On 2 June 1995 the ASC sent to the Company a notice under s 572(1) stating that there was reasonable cause to believe that the Company was not carrying on business or was not in operation. The notice stated that if an answer showing cause to the contrary was not received by the office within one month of the date of the letter, notice would be published in the Gazette with a view to cancelling the registration of the Company. The notice was sent to the Company’s registered office at 104 Sunderland Street, Moonah. On 5 June the ASC wrote to the Company’s solicitors pointing out that notwithstanding the undertaking that all outstanding documents would be lodged, this had not been done. The letter enclosed a copy of the 2 June notice issued to the Company.

Although the notice of 2 June appeared to emanate from the ASC Business Centre in Hobart, the letter of 5 June came from the ASC Information Processing Centre in Traralgon, Victoria.
On 20 July the Company’s solicitors wrote to the ASC Traralgon in the following terms:

“We refer to your telephone attendance on our Mr Melick on the 9th June 1995 and advise that there will be some further delay in lodgment of documents for this company.

The company’s accountant, a Mr Ross Byrne has been discussing the lodgments of the annual returns with Mr Bruce Brown of the Commission’s regional office in Hobart and these matters are in hand but are still outstanding.

We would be pleased if the ASC would hold off any action pursuant to Section 372 (1) [sic] of the Corporations Law to cancel the companies [sic] registration.

If you have any queries in relation to the lodgment of these forms would you please telephone Mr Bruce Brown of the Hobart Regional Office or the writer.”

The Mr Byrne referred to, a partner in the Hobart accountancy firm Moore Robsons, deposed that in March 1995 he was employed by the Company to prepare financial statements and annual returns for the Company.  He soon became aware that he would not be able to prepare the documents required as “there were many gaps in the financial records”.  Mr Durovic had been managing the financial records at the time the Company ceased trading and it was impossible, because of the state of the records, to reconcile creditors and debtors and prepare financial statements.

As a result of these difficulties, Mr Byrne contacted Mr Bruce Brown of the ASC’s Hobart office.  On dates which he cannot specify he spoke to Mr Brown on a number of occasions advising him of the difficulties.  He deposed that Mr Brown “agreed that the financial statements and annual returns would be accepted without the necessity of financial information being provided”.  Mr Brown swore an affidavit denying that he made such an agreement.  He accepts however that Mr Byrne told him about the difficulty in completing the annual returns.  Mr Brown says he told Mr Byrne “he would simply have to do the best job he could in working out the financial position of the Company”. 

To return to the correspondence, the ASC replied to the Company’s solicitors on 7 August 1995 as follows:

“The Australian Securities Commission (ASC) has received your letter claiming that the above company is still carrying on business, however it has not received the information which is required by law to be lodged.  The ASC will not reconsider its view that the company is not carrying on business until that information is lodged.

-  The 1991, 1992, 1993 and 1994 Annual Return [sic] are still outstanding and must be lodged with the appropriate fees.  Any outstanding penalty notices must also be paid.

All correspondence and documentation in relation to this matter should be forwarded to the address listed above.

If the document/s have recently been lodged with the ASC, please disregard this letter.

If you have any questions, please phone [phone] and ask for GAIL CLOUGH”  (Emphasis in original)

On 16 August the ASC sent from its Traralgon office to the registered office of the Company a notice under s 572(2) as follows:

“NOGARAP PTY. LTD.
104 SUNDERLAND ST
MOONAH TAS  7009

16/08/95

CORPORATIONS LAW

NOGARAP PTY. LTD.

A.C.N. 009 562 618

You are notified that the registration of this company will be cancelled and the company will be dissolved at the end of three (3) months from the date of this notice unless cause is shown to the contrary.

The posting of this notice had to be delayed until a similar notice, bearing the same date, was published in the Commonwealth of Australia Gazette.  It should be noted that you have 3 months from the date of this notice to respond, not 3 months from the date of its receipt.

Alan Ruff
DELEGATE OF THE AUSTRALIAN SECURITIES COMMISSION” (Emphasis in original)

On 17 August Mr Melick of the Company’s solicitors spoke by telephone to Ms Clough of the ASC’s Traralgon office.  Affidavits as to this conversation were sworn by both participants.  The versions differ to some extent.  Neither deponent was cross-examined.  I accept as being likely to be accurate Mr Melick’s contemporary diary note which was in the following terms:

“re: Caccavo

Telephone attendance on Gail Cluff?  [sic] reference ASC’s latest letter. Explained situation to her and she said she wasn’t aware of that but there were some unusual notes in the file which means that somebody is aware there have been some problems running around in relation to same. She said if we wanted to avoid late lodgement fees we could put an application into the Australian Securities Commission in Hobart and see what they say about it. I had already indicated to her that the old Corporate Affairs initiated the investigation of Durovic and in fact were the ones who had taken the records which has prevented us putting all the background facts and figures in. She said what about a Section 54 discretion which allows us to put in returns without figures. I indicated probably wasn’t relevant for the majority of the time because the company had been struck off without our knowledge and we had to reinstate it. Said she would be sending out another notice when we had 90 days to go before they set off registration so there was no critical hurry at the moment.
AGM – 17.8.95”

In his affidavit Mr Melick says, and I accept, that “when” in the third last line is probably a typographical error and the word should be “then”. Counsel were unable to enlighten me as to the significance of the s 54 mentioned. It is certainly not s 54 of the Corporations Law.

Ms Clough deposed that at the time of the conversation with Mr Melick she was unaware that the notice to the Company dated 16 August had been printed at Traralgon and sent to the Company at its registered office. 

On 8 December 1995 the ASC cancelled the registration of the Company because it formed the view that the Company was not carrying on business or in operation on the basis of the Company’s failure to lodge its annual returns from the financial year ending 30 June 1998.

1997 Reinstatement

On 5 February 1996 Mr Melick spoke by telephone to Mr Quartermaine of the Bank’s solicitors.  Mr Melick told Mr Quartermaine that his firm was going to deliver a statement of claim and that they would be discussing settlement.  Mr Quartermaine said that the Company had been struck off again in November [sic].  Mr Melick said that he was not aware of that and would get on to it and get back straight away.  A search conducted that day disclosed that the Company had in fact been deregistered on 8 December the previous year.  Mr Melick then spoke to Ms Lewis of the ASC asking why the Company had been struck off when he “had been told nothing would happen to the end of February”.  He said he had spoken to Gail Clark [sic] on 27/11 [sic].  Ms Lewis said that there was a note about an application for a holding of action to strike off but there was no notice as to how much time the Company’s solicitors had been given.  She would have to follow it up.  On 7 February Mr Phillip Zeeman of the Company’s solicitors spoke to Mr Kilday of the ASC Traralgon.  Mr Kilday said that the best way to get the Company back on the register was to have an administrative reinstatement.  He said that he would put a “kit” in the mail with a sample declaration.  He in fact wrote the following day to the Company’s solicitors enclosing an administrative reinstatement kit, advising that the outstanding documents were the annual returns for 1991 to 1995 inclusive and that lodging fees of $1,477 and a further fee of $54 would be payable.  The administrative reinstatement kit contained included a statement of ASC policy and procedure and its Policy Statement 83 together with a pro forma statutory declaration. 

As already mentioned, Mr Byrne of Moore Robsons had been preparing the Company’s annual returns.  On 14 February 1996, Moore Robsons wrote a letter to the ASC Hobart, marked for the attention of Mr Brown, confirming that they had been engaged by the directors of the Company to prepare all appropriate documentation to enable the Company to be fully re-registered and enclosing annual returns for the financial years 1988 to 1994.  The letter stated, amongst other things:

“ You are no doubt aware that the company has had a some what colourful history with the key element being Mr George Durovic being convicted of crimes against the company and others.

The records of the company were seized some time ago as a consequence no financial records have been effectively written up since.  Apart from collection of debtors and payment of creditors the company effectively ceased operations with the sale of its furniture manufacturing plant at Derwent Park in December 1988.

Financial statements were prepared as at 30th June 1988, however none have been prepared since.  Indeed it appears an impossible task as there is no assurity [sic] that all or any of the records have been kept.

As to the registered office, the company vacated the 104 Sunderland Street address in December 1988, but Mr Durovic remained as a director of Paragon 2000 Pty Ltd but worked for Tasmanian Equity Ltd who were located in the building for some time.  No change to the registered office was made until October 1995 when Gunson Pickard and Hann at 152 Macquarie Street was appointed as the registered office.

Mr Durovic as a consequence of his convictions and sentencing to Risdon Prison ceased to be a director, PEO and Secretary in January 1993.  No further appointments were made until October 1993.”

The ASC returned the documents to Moore Robsons.  As far as the evidence discloses, there was no covering letter.

On 27 August 1996 the Company’s solicitors sent to the ASC Traralgon annual returns for years 1991 to 1995, cheques for the sums already mentioned and a statutory declaration by Mr Caccavo.  On 3 September the ASC replied, returning the documents and noting a number of further details which had to be provided.  The most important of these was Key Financial Data on all annual returns.  An increased amount of fees was sought totalling $3,634.  On 15 November Moore Robsons sent to the Company’s solicitors new annual returns and other documents.  On 2 December the solicitors wrote to Mr Caccavo asking him to attend the office to sign those returns.

Nothing appears to have happened until September of the following year when, prompted no doubt by the Bank’s strikeout application to the Supreme Court, the Company’s solicitors wrote a lengthy letter to the ASC dated 10 September 1997.  The letter stated amongst other things that the shareholders who sought reinstatement believed that they were now in a position to meet the requirements of the ASC’s letter of 3 September the previous year.  The letter referred to the damages claim against the Bank.  The letter said that difficulties arose in obtaining the necessary information.  Those difficulties

“…arose from the complications arising from the collapse of the company and the criminal proceedings against Mr George Durovic, the director who fraudulently obtained payment of the cheques.”

The letter referred to Mr Melick’s telephone discussion with Ms Clough.  The letter continued:

“It appears clear that at the time the ASC struck the company off:

1.It had failed to give it adequate notice of its actions (in light of Gail Clough’s conversation with Greg Melick).

2.It was clear that the company was trading as it was carrying on litigation.”

The letter then referred to the Bank’s application to strike out the claim and the fact that the action would be statute barred if such an application succeeded. The letter continued:

“It is our client’s view that the ASC is now trustee of the action for the benefit of the company.  As such it has a duty to take whatever action is necessary to protect and preserve the substantial asset for the benefit of the company.

Failure to do so would, in our view, leave the ASC clearly liable to our client for loss suffered by reason of its failure to take actions in the best interests of the company.”

The letter concluded with a request that the ASC reinstate the Company immediately, assign or transfer the action  to the shareholders, appear and defend the Bank’s application or automatically and provisionally reinstate the Company.  The letter indicated that directions would be given in the Supreme Court on 15 September and the hearing was likely to be some seven days thereafter.

The statutory declaration by Mr Caccavo enclosed with the letter stated that on the reinstatement of the Company he would hold the office of director, that if the registration of the Company was reinstated the Company would be able to pay its debts as and when they fell due, and that “the Company was carrying on business or was in operation at, and subsequent to, the time that the registration of the company was cancelled”.  Also on 10 September 1997 Moore Robsons wrote to the ASC Traralgon.  The letter referred to Mr Durovic’s conviction and said that:

“The records of the company were seized by the ASC and Director of Public Prosecutions during 1989/90 and as a consequence no financial records were written up past seizure.  Apart from collection of debtors and payment of creditors the company effectively ceased operations with the sale of its furniture manufacturing plant in December 1988.

Financial statements were prepared as at 30 June 1998, however, none have been prepared since as there were no records available for such.  Indeed it appears an impossible task as there is no assurity [sic] that all or any of the records now available are complete.  In point of fact, the courts have now proven that the records had been falsified and were incomplete and it is this very reason why Mr Durovic is in gaol.”

The annual returns were stated to have been redrafted and executed as recommended.

The annual returns forwarded for the years 1988 to 1996 (inclusive) in respect of each year state that the annual general meeting has not been held.  In answer to the question, “Principal activities”, it is stated “Non-operating”.  In answer to the question, “Principal Business Office”, there is the answer “None”.  No figures are given for Key Financial Data (ie current tangible and intangible assets, total assets, current liabilities, non current liabilities, shareholders’ equity and operating profit or loss). 

On 15 September 1997 the ASC reinstated the registration of the Company.  It wrote to the Company’s solicitors on that date advising that the status of the Company

“… was amended to ‘registered’ by the Australian Securities Commission on 15 September 1997.  This means that the registration of the company continues as if deregistration had not occurred.”

The ASC by its delegate, Ms Suzanne Wharton, provided a statement of reasons dated         15 September 1997 under s 13(1) of the AD(JR) Act. After reciting the history of the matter, the delegate turned to the interpretation of s 574(2). She said:

“ Meaning of ‘error’
What constitutes an ‘error’ is not defined by the Law.  The ASC adopts a broad definition of ‘error’ so that, with the benefit of hindsight, the original deregistration may be the result of an error on the part of the ASC, if: 

(a)there was an administrative oversight in the procedure leading to the deregistration; or

(b)the company was carrying on business or was in operation at the time it was struck off.”

The statement contains, as required by the AD(JR) Act, findings on material questions of fact.  These included the following:

“I am satisfied an error has occurred in that, despite the failure by the Company to lodge its annual returns which lead to the assumption that the Company was no longer trading or in operation, the Company was carrying on business or was in operation at and subsequent to the time it was struck off the Register of Companies.”

The statement goes on to say that Mr Caccavo’s statutory declaration

“provides evidence that the Company was carrying on business or in operation at and subsequent to the time its registration was cancelled, and that the Company will be solvent if reinstated.”

The reasons for the decision include the following:

“The Annual Returns did not provide Key Financial Data (‘KFD’) as required, however, the MR [Moore Robsons] letter gave reasons why KFD was not provided.  I referred the MR letter to the Policy and Technical Services Branch of the IPC [Information Processing Centre] who considered that it provided sufficient reasons for the failure to provide KFD, and that the Annual Returns should be accepted with a copy of the MR letter attached.”

Conclusion on TG 2 of 1998

I agree with counsel for the Bank that it is not sufficient for the purposes of s 574(2) that in hindsight it can be said that the relevant company was in fact carrying on business or in operation at the time registration was cancelled. To that extent Policy Statement 83 does not correctly state the law. If on the material available to it at the time the ASC reasonably concluded that the Company was not carrying on business or not in operation then I do not see how a decision to cancel registration can be said to involve error on the part of the Commission.  Section 574(2) was obviously designed to provide a simple and inexpensive means of reinstatement when cancellation has been due to some fault or mistake as a result of action or inaction by the ASC. When there has been no such error on the part of the ASC in that sense, then those seeking reinstatement must apply to the Court and establish either that the Company was at the time of the cancellation carrying on business or otherwise in operation, or otherwise that it is just to reinstate. Clearly the precondition for the exercise of the Court’s power under sub-s (3) is much wider than that for the ASC’s under sub-s (2). Indeed the conferring on the Court, but not on the ASC, of the general power to consider whether the company was in fact carrying on business or in operation at the time of cancellation, is conclusive against the view for which the ASC presently contends.

The same point is also illustrated by contrasting s 574(2) with the current provision, s 601AH(1). The ASIC is now given power to reinstate registration if satisfied that the company “should not have been deregistered”. This would extend to the situation where requisite circumstances as prescribed by s 601AB (see below) did not in fact exist. The Court has a similar power with respect to sequestration orders. If it is satisfied that a sequestration order ought not to have been made, it may make an order annulling the bankruptcy: Bankruptcy Act 1966 (Cth) s 153B.

I think however there was in fact other “error” on the part of the ASC which contributed to the 1995 cancellation.

Ms Clough, no doubt innocently, misled the Company’s solicitors into assuming no further action would be taken without notice to them. Although the s 572(2) notice was served on the Company’s registered office, which had in fact been abandoned many years ago, the reasonable step was not taken of sending a copy to the Company’s solicitors, as had occurred two months previously. All this occurred in a context when, to the knowledge of the ASC, one of the Company’s directors had been involved in serious defalcations and when there might reasonably be expected to be difficulty in producing adequate sets of accounts.

Indeed Mr Byrne had told Mr Brown just that.  The ASC were aware, through Mr Brown, that there were still difficulties in preparing accounts notwithstanding that such records of the Company as had been taken by the prosecuting authorities had been returned. 

In its letter of 7 August 1995 the ASC stated that it would not “reconsider its view that the Company (was) not carrying on business” until the 1991 to 1994 Annual Returns were lodged. Assuming in the ASC’s favour that it would be taken to be referring to both statutory criteria of carrying on business and being in operation, this stand was in my view not warranted by law, given the circumstance that the Company was unable to file annual returns which included Key Financial Data. Of course the failure to lodge annual returns can be good evidence of cessation of business or not being in operation, but it is not in itself the statutory pre-condition for deregistration. (By contrast, s 601AB(1) now gives the ASIC power to deregister a company if its annual return is at least six months late (par (a)), it has not lodged any other documents under the Corporations Law in the last 18 months (par (b)) and ASIC has no reason to believe that the company is carrying on business (par (c)).)

The irony here is that in September 1997 the ASC ultimately agreed to accept annual returns without Key Financial Data.  It was not suggested in argument that the ASC was acting unlawfully in so doing.  The solution seems to be a common sense one.  If the primary records are just not available the company must simply do the best job it can – as Mr Brown put it.  There is no explanation why the ASC could not have adopted in 1995 the position it ultimately took in 1997.  Instead it took a stand in its letter of 7 August 1995 which was contrary to what Mr Brown was telling Mr Byrne.  It then cancelled the registration without the notice to the Company’s solicitors that Ms Clough had undertaken to give.

I think moreover that the proper inference to be drawn by the ASC in 1995 from information then available to it was that the Company was “in operation”.  A company can be in operation without carrying on business.  For example a company might cease trading but be kept in existence by its directors against the possibility that some new venture might present itself.  The modern shelf company is another example. 

In the present case, in 1995 the Company was, to the knowledge of the ASC through the Company’s solicitors’ letters of 15 February and 20 July and the discussions between Mr Byrne and Mr Brown, taking steps to get together such documents as the ASC might require.  I do not think it commercially realistic or legally valid to say, as counsel for the Bank argued, that this activity is to be regarded as that of Mr Caccavo and not of the Company.  The Company was at that stage still registered.  Fighting possible cancellation with a view to pursuing its claim against the Bank was obviously for the benefit of the Company itself. 

There is no direct evidence that the ASC was aware of the Company’s claim against the Bank.  But I think that the evidence I have mentioned is sufficient for the ASC to have concluded in 1995 that the Company was in operation, and was not defunct.  Indeed, “the company (was) still alive, and there (were) assets to be recovered”:  Re Outlay Assurance Society (1887) 34 Ch D 479 at 482.

In any case, s 16(1) of the AD(JR) Act  expressly makes the granting of relief discretionary.  Even if the Bank had made out a case for review of the 1997 reinstatement, I would not grant the relief sought because a further application for reinstatement by the Court would be unanswerable.

It is clear that the Company has a seriously arguable claim for a large amount of money against the Bank.  The draft statement of claim gives full detail as to this.  The other participant in the events giving rise to the claim has been convicted at a criminal trial.  The reality is that the Company has long since ceased to carry on business and has no prospect of doing so again.  There is no serious suggestion that it is insolvent.  (If it was, the Bank would presumably be in a good position to know.)  All the Company wishes is to seek to have the merits of its claim tried in the Supreme Court.  Of course there has been very long delay, but whether there is adequate explanation for that, whether the Bank has suffered prejudice and whether the Company should have its action dismissed for want of prosecution are questions for the Supreme Court. 

Conclusion in TG 9 and TG 10

It is thus not necessary to consider TG 9 or TG 10.  All of the applications will be dismissed. 

Costs

Since the Bank has failed in TG 2, no order of costs should be made in its favour.  I have found that there was “error” on the part of the ASC.  Any order for costs in its favour would be inappropriate.  The applications by Mr Caccavo, TG 9 and TG 10, have been dismissed.  No order for costs in his favour should be made.  In any event I think Mr Caccavo’s solicitors must share with the ASC responsibility for this unnecessary and expensive litigation.  Reasonable diligence on the part of the former and a practical and businesslike approach by the latter would have reached today’s conclusion some five years ago.

I certify that this and the preceding eighteen (18) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Heerey

Associate:

Dated:       7 September 1998

Counsel for the Commonwealth Bank of Australia:	Mr P J Bick
Solicitors  for the Commonwealth Bank:	Simmons Wolfhagen
Counsel for Mr Caccavo:	Mr T J Williams
Solicitors for Mr Caccavo:	Gunson Pickard & Hann
Counsel for ASIC	Mr P Hiland with Mr G Durbridge
Solicitors for ASIC:	Mr C W Green
Date of Hearing:	26 August 1998
Date of Judgment:	7 September 1998