Elsworthy v Australian Securities and Investments Commission
[2016] VSC 14
•22 January 2016
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
S ECI 2015 00243
IN THE MATTER of 164 FYANS STREET PTY LTD (ACN 153 001 515)
(deregistered)
| SONJA EJVOR ELSWORTHY | Plaintiff |
| v | |
| AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION | Defendant |
---
JUDGE: | DERHAM AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 14 July 2015 (final submissions 10 August 2015) |
DATE OF JUDGMENT: | 22 January 2016 |
CASE MAY BE CITED AS: | Elsworthy v ASIC |
MEDIUM NEUTRAL CITATION: | [2016] VSC 14 |
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CORPORATIONS – Reinstatement of deregistered company – Whether applicant a “person aggrieved” – Exercise of discretion – Whether reinstatement just – s 601AH(2) Corporations Act 2001 (Cth) – Company reinstated
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Ms J Findlay | Whyte Just & Moore |
| For the Defendant | No appearance for the Defendant | |
| For Party Intervening, Morris Finance Ltd | Mr D Harrison | Smith Leonard Fahey |
TABLE OF CONTENTS
Introduction......................................................................................................................................... 1
Affidavits in support of the application........................................................................................ 1
Background Facts and Circumstances............................................................................................ 2
Notice to ASIC............................................................................................................................... 8
The Taxation Summons................................................................................................................ 8
The Bankruptcy............................................................................................................................. 9
Applicable law.................................................................................................................................. 10
Submissions and consideration.................................................................................................... 14
A Person Aggrieved................................................................................................................... 14
Is it Just that the Registration is Reinstated?........................................................................... 18
Conclusion......................................................................................................................................... 21
HIS HONOUR:
Introduction
The plaintiff seeks an order under s 601AH(2) of the Corporations Act2001 (Cth) (‘the Act’) directing the Australian Securities and Investment Commission (‘ASIC’) to reinstate the registration of 164 Fyans Street Pty Ltd (ACN 153 001 515) (‘the Company’) which was deregistered on 2 February 2015 pursuant s 601AB (which relates to failure to respond to a return of particulars, lodge other documents or pay a review fee). The Company was not insolvent at the time of its deregistration.
At the time of its deregistration there were two directors of the Company, the plaintiff, Sonja Ejvor Elsworthy (‘Sonja’) and her husband, Trevor Bruce Elsworthy (‘Trevor’), who was made bankrupt on 29 October 2014 and died on 13 November 2014. The plaintiff was made bankrupt on 4 March 2015, after the Company was deregistered.
The Company was the Custodian Trustee of property for the T & S Superannuation Fund (‘the Super Fund’), a fund established for Trevor and Sonja. Sonja is the sole remaining beneficiary of the Super Fund.
The Company’s only asset is its right to enforce an order for the payment of costs by Morris Finance Ltd (‘Morris Finance’). It wishes to proceed with a summons for taxation of those costs filed and served whilst it was deregistered. It also wishes to defend County Court proceedings commenced against it by Morris Finance. The plaintiff seeks orders pursuant to s 601AH (3)(c) of the Act validating its summons for taxation filed on 24 March 2015 whilst it was deregistered.
Affidavits in support of the application
The affidavits initially filed in support of, and opposition to, the application were as follows:
(a) the affidavit of the plaintiff, Sonja Ejvor Elsworthy, sworn 29 June 2015 and the exhibits thereto;
(b) the affidavit of the plaintiff’s Solicitor, Benjamin William Punivalu, sworn 29 June 2015 and the exhibits thereto;
(c) the affidavit of the plaintiff and the Company’s Accountant, Barry Kittelty of Crowe Horwath, sworn 13 July 2015 and the exhibits thereto;
(d) the affidavit of the solicitor to Morris Finance, Christopher Yam, sworn 14 July 2015 and the exhibits thereto; and
(e) affidavit of Mason Trevor Elsworthy sworn 29 June 2015, and the exhibits thereto.
After the hearing of the application, and because of matters raised by Morris Finance, leave was given to the plaintiff to introduce further evidence, and for both the plaintiff and Morris Finance to file written submissions. In consequence:
(a) the plaintiff filed a second affidavit of Barry Kittelty of Crowe Horwath, sworn 27 July 2015;
(b) the plaintiff swore a second affidavit on 27 July 2015;
(c) Morris Finance filed an Outline of Submissions on 5 August 2015; and
(d) the plaintiff filed an Outline of Submissions on 10 August 2015.
Background Facts and Circumstances[1]
[1]These facts and circumstances are taken from the affidavits and the exhibits thereto filed in support and in opposition to the application.
The Company was registered on 1 September 2011. From the date of its incorporation its registered office was the office of Crowe Horwath, accountants, at Level 1, 200 Moolap Street, Geelong, Victoria. Sonja and her husband Trevor were the only directors and Trevor was secretary.
The Company was established to hold the property at 164 Fyans Street, Geelong, Victoria (‘Trust Property’), as Custodian for the Super Fund. Under the Declaration of Trust dated 28 October 2011, (‘the Custodian Trust’) the Company holds the Trust Property on trust for the trustees of the Super Fund. The trustees of the Super Fund (called the beneficiary) are liable to the Company for all costs and expenses incurred in the execution of the trusts and must indemnify the Company against any loss suffered (with irrelevant exclusions). The trustees of the Super Fund have the right to remove the Company as trustee and appoint a new trustee.[2] At the same time as the Declaration of Custodian Trust was made, Trevor and Sonja entered into a Custodian Agreement with the Company under which, among other things, Trevor and Sonja agreed to indemnify the Company against all liabilities (widely expressed) incurred by the Company in acting as Custodian.
[2]Exhibit SEE-1 to the first affidavit of Sonja.
The Super Fund Trust Deed in evidence is undated and unexecuted, but the evidence for present purposes establishes its existence. Trevor and Sonja are the named Trustees. They have been given the usual indemnity out of the Trust funds in respect of expenses and other amounts incurred in acting as trustees.
Although Sonja was a director of the company, Trevor attended to the business himself and Sonja was not involved in the business of the Company of any of the other companies of which she and Trevor were directors.
From 2012, Trevor’s health gradually deteriorated. He was admitted to St Vincent’s Hospital, Victoria Parade, Fitzroy, from 26 September 2013 to 7 October 2013 and then transferred to the McKellar Centre at North Geelong from 7 October 2013 to 21 October 2013. When discharged from the McKellar Centre, he continued to receive treatment at home under a program run by Barwon Health.
In about July 2013, Morris Finance lodged a caveat against a property owned by the Company. The caveat claimed an interest in the property as chargee “Pursuant to a Deed of Charge in favour of the Caveator dated June 2013, executed by Trevor Bruce Elsworthy, a director of the sole registered proprietor being 164 Fyans Street Pty Ltd.”[3]
[3]164 Fyans Street Pty Ltd v Morris Finance Ltd & Anor [2014] VSC 199 at [2].
In April 2014, the Company commenced proceedings in this Court, Proceeding S CI 2014 01614, seeking removal of the caveat and was successful (‘the Supreme Court proceeding’). On 8 May 2014, Justice Williams ordered the removal of the caveat and that Morris Finance pay the Company’s cost of the application.[4] The occasion for the application to remove the caveat was that the Trust Property had been sold by a contract of sale dated 13 March 2014.
[4]Exhibit BWP–1 to the Affidavit Benjamin William Punivalu sworn 29 June 2015 (‘Punivalu affidavit’).
The Company duly sought payment of its costs from Morris Finance. On 3 July 2014 it estimated its costs to be $19,538.73 and demanded payment.[5] Later, on 12 March 2015, it delivered a bill of costs in taxable form in which the total costs were calculated at $28,207.54.[6]
[5]Exhibit BWP–2 to the Punivalu affidavit.
[6]Exhibit BWP–3 to the Punivalu affidavit.
On 15 July 2014, Morris Finance commenced County Court proceedings, Proceeding CI 1403381, against Trevor, the Company and two other companies controlled by Trevor seeking to recover about $211,000.00 (‘the County Court proceeding’). The claim against the Company was based on an agreement to give the charge which was the foundation for the caveat that Justice Williams ordered to be removed in the Supreme Court proceeding. In the County Court proceeding, the Company is the second of four defendants and is the only defendant defending the proceeding. The Company has filed a defence but as at the date of this application no other steps had been taken.
On 13 August 2014, the Company appointed Carol Joy Burns as an Attorney of the Company pursuant to a company power of attorney.[7] Under the power of attorney, Ms Burns provided instructions to the Company’s solicitors, Whyte Just & Moore, regarding the County Court and Supreme Court proceedings.
[7]Exhibit BWP–7 to the Punivalu affidavit.
The Company filed a summons for taxation on 24 March 2015 in the Costs Court to enforce the costs order made in consequence of the removal of the caveat against Morris Finance.[8] Instructions for the issue of that summons were purportedly given by the Company’s Attorney under power, Ms Burns.
[8]Supreme Court Proceeding No. S CI 2015 1315.
On 7 April 2015, Morris Finance’s Solicitors wrote to the Solicitors acting for the Company in the taxation proceeding notifying them that the company had been deregistered on 2 February 2015. That letter maintained that all the actions undertaken by the Company since its deregistration were of no force or effect and made other demands.[9]
[9]Exhibit BWP–8 to the Punivalu affidavit.
Enquiries were then made by the solicitors purporting to act for the Company of the Company’s accountants, Crowe Horwath. The Company’s solicitors were told that the correspondence from ASIC which gave rise to the deregistration had been received but had not been brought to the attention of the Company’s Solicitors or any other person associated with the Company.
Mr Kittelty swears in his affidavit of 13 July 2015 that on about 7 April 2015 he received a telephone call from Whyte Just & Moore telling him that the company had been deregistered. He immediately made enquiries of staff regarding the circumstances in which it was deregistered and ascertained that his office received a number of notices from ASIC in relation to payment of the annual review fee. The practice of the office when receiving such a notice was to forward it to the directors of the company to attend to payment. Due to an administrative oversight, the notice of intention to deregister the company was not brought to his attention and was not brought to the attention of the directors of the company or anyone associated with it. As a consequence, the company was deregistered.
In his affidavit of 27 July 2015, Mr Kittelty deposes as to further enquiries made by him. He says:
(a) in around 2011 Trevor instructed him to forward all correspondence received to his business address at 395 Moorabool Street Geelong (‘the Moorabool address’);
(b) between 2011 and 2013 all correspondence was so forwarded, including all ASIC related correspondence with respect to the Company. This includes the notice from ASIC dated 5 December 2012 (referred to below at paragraph 23). After forwarding that notice he is not aware of whether or not Trevor or Sonja attended to or became aware of the correspondence;
(c) on about 18 June 2013, Geoffrey Ridgeway and Trajan Kukulovski of Jirsch Sutherland (‘Liquidators’) were appointed joint and several Liquidators of Elsworthy’s Bulk Store Pty Ltd (‘the Bulk Store’). Before that appointment the Bulk Store had operated out of the Moorabool address;
(d) from 2013, Crowe Haworth did not have any instructions from Trevor or Sonja about a forwarding mail, so all correspondence in relation to Trevor, Sonja or any companies related to them were forwarded to the Liquidators. The Liquidators’ office is located at 200 Malop Street Geelong, the building in which Crowe Haworth are situated, and correspondence was forwarded to them by hand;
(e) a letter from ASIC to the Company dated 4 November 2014 giving notice of intention to deregister the Company was forwarded by hand to the Liquidators;
(f) he does not recall whether or not he received a notice from ASIC in relation to the 2013 annual review statement for the company. Having reviewed his file in relation to the company he confirms that the file does not contain a copy of the 2013 annual review statement. If it had been received it would have been forwarded by hand to the Liquidators;
(g) after forwarding correspondence to the Liquidators he is not aware whether or not they attended to or became aware of it. Apart from forwarding correspondence from ASIC regarding the Company to the Liquidators from the time of their appointment in 2013 onwards, including the notice to deregister, Crowe Haworth did not take any further steps to bring to the attention of Trevor or Sonja any correspondence related to the Company; and
(h) in his opinion, the Super Fund was at all material times solvent and able to indemnify the Company as and when required. He produces a copy of the 2014 financial statement of the Super Fund which shows it had net assets of $278,542.00.
During Trevor’s poor health from around July 2013 until his death on 13 November 2014, Sonja does not know whether he attended to any of the business of the Company. She did not receive any of the correspondence that Mr Kittelty swears was sent to the Moorabool address. She does not know if Trevor received it or attended to it. She had not been provided with any correspondence from the Liquidators referred to by Mr Kittelty as having been sent by the Accountants to the Liquidators.
Sonja swears that from 2013 until the date of this proceeding she did not receive any correspondence in relation to the Company from ASIC, from Crowe Horwath, or from the Liquidators. The only correspondence she was given were the notices that were shown to her by her Solicitors in June 2015 which she exhibited to her first affidavit. These were invoices from ASIC issued on 5 December 2012, 4 November 2014 and a letter dated 20 November 2014, giving notice of intention to deregister the Company under s 601AB(1A) of the Act.
The first Sonja knew of the deregistration of the Company was when she was contacted by Whyte Just & Moore in early May 2015. Sonja swears that the Company was at all material times solvent and was not deregistered due to any insolvency but due to its failure to pay the annual review fee.
Mr Punivalu, the Solicitor acting on behalf of the Company, swears that he was not aware before receiving the letter of 7 April 2015 from the Solicitors for Morris Finance that the Company had been deregistered. At that time the Company’s Attorney, Ms Burns, was overseas and out of contact. Mr Punivalu wrote to the Solicitors for Morris Finance notifying them that they were not aware of the deregistration of the Company and they intended, upon receiving instructions, to take all necessary steps to reinstate the Company’s registration.[10]
[10]Exhibit BWP–9 to the Punivalu affidavit.
Notice to ASIC
On 7 July 2015, the Solicitors for the plaintiff gave notice to ASIC pursuant to r 2.8(3) of the Supreme Court (Corporation) Rules 2003 of the making of the application for reinstatement of the registration of the Company, together with copies of the application and supporting affidavits. On 10 July 2015, the plaintiff’s solicitor received a letter from ASIC confirming that, providing certain conditions were satisfied, it would not oppose the application for reinstatement. The conditions were:
(a) the order for reinstatement is in terms of s 601AH(2) of the Act requiring ASIC to reinstate the registration of the company;
(b) the trustee in bankruptcy of the members at the date of deregistration appoint a new director as the sole director at the date of deregistration is currently an undischarged bankrupt;
(c) the company attends to lodgement of all outstanding documents and the payment of all outstanding fees and penalties upon reinstatement; and
(d) the court order is lodged with ASIC so that the Company may be reinstated.
The Taxation Summons
On 29 May 2015, the taxation summons came before the Costs Court. Sonja’s son, Mason Trevor Elsworthy appeared to seek an adjournment to allow an application for the reinstatement of the Company to be made. Morris Finance opposed any adjournment and sought orders dismissing the summons and the payment of its costs by Ms Burns or the Company's solicitors, Whyte, Just & Moore. The Costs Court Registrar adjourned the taxation summons to be fixed for directions and/or determination by a Costs Judge in relation to a number of questions, including; whether or not the summons for taxation should be dismissed, whether it could be cured by reinstatement of the Company, and whether or not the solicitors who filed the taxation summons or a non-party should be ordered to pay the costs of Morris Finance.
The Costs Court Judge advised the parties of a conflict and queried whether any party objected if he dealt with the matter. The Solicitors for Morris Finance objected and the matter was referred to another Costs Court Judge for determination on 26 August 2015. The application before me was issued on 29 June 2015 and came on for hearing initially on 14 July 2015 and was reserved subject to the filing of further affidavits and submissions.
It is clear that a consequence of the company's deregistration is that it is prevented from enforcing the Supreme Court order for costs arising out of the removal of the caveat lodged by Morris Finance and is unable to defend the County Court proceedings. Thus, the purpose of seeking an order for reinstatement of the registration of the Company is to allow those steps to be taken, and as well, to validate the steps that have been taken in both courts to the extent necessary.
The Bankruptcy
Because of the death of Trevor Elsworthy and the bankruptcy of Sonja Elsworthy there is no person who had been a director whose position would revive upon reinstatement of the Company. However, Mason Elsworthy has given his consent to be a director and the secretary.[11]
[11]Exhibit BWP–10 to the Punivalu affidavit.
By letter dated 3 June 2015, Whyte Just & Moore wrote to Andrew Yeo and Gess Rambaldi of Pitcher Partners, who are the trustees of the bankrupt estates of Trevor and Sonja, requesting their consent to the reinstatement application and the appointment of Sonja’s son, Mason as a director of the Company. By letter dated 23 June 2015, Pitcher Partners gave their consent to the reinstatement application and provided an undertaking to resolve to appoint Mason Elsworthy as a director of the Company upon reinstatement.
Applicable law
The application for reinstatement is made under s 601AH(2) of the Act which provides:
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.
The first requirement of the section is that the applicant is a “person aggrieved”. Those words are to be interpreted widely.[12] A person will be aggrieved by deregistration of the company if the person has a real and direct interest in the deregistration.[13]
[12]St Hilliers Contracting Pty Ltd [2009] NSWSC 1460 per Austin J at [4].
[13]Danich Pty Ltd; Re Cenco Holdings Pty Ltd (2005) 53 ACSR 484, Barrett J (‘Danich’); St Hilliers Contracting Pty Ltd [2009] NSWSC 1460 at [4].
In Arnold World Trading Pty Ltd v ACN 133 427 335 Pty Ltd,[14] Justice Barrett stated:
The question whether an applicant under s601AH(2) is a “person aggrieved by the deregistration” is considered by reference to legal rights and legal interests. It must be seen that the applicant has a genuine grievance that the dissolution of the company affected his or her interest because, for example, a right of some value or potential value has gone out of existence: Australian Competition and Consumer Commission v Australian Securities and Investments Commission [2000] NSWSC 316; (2000) 174 ALR 688 (at [24]-[26]). Under analogous English legislation, the applicant was expected to have “an interest of a proprietary or pecuniary nature in resuscitating the company”: Re Wood & Martin (Bricklaying Contractors) Ltd [1971] 1 WLR 293; and see Re GA & RJ Elliot Pty Ltd (1978) 3 ACLR 523.
[14](2010) 80 ACSR 670 at [43]. Re Brockweir Pty Ltd [2012] VSC 225 at [21].
It is not in dispute in this case that the mere fact, without more, that a person is a shareholder or a director of a deregistered company is insufficient to establish that that person is a person aggrieved within s 601AH.[15] An applicant must show that her interests have been or are likely to be prejudicially affected by the deregistration of the company.[16] That prejudice might be shown by the shareholder showing that they were also a creditor of the company or that there might well be a surplus of assets if the company were reinstated and certain events occurred.[17]
[15]Re Waterbury Nominees Pty Ltd (1986) 11 ACLR 348; Re Waldcourt Investment Co Pty Ltd (1986) 11 ACLR 7 at 12; Casali v Crisp [2001] NSWSC 860; 165 FLR 79 at [27].
[16]Re Waldcourt Investment Co Pty Ltd (1986) 11 ACLR 7 at [12].
[17]Casali v Crisp [2001] NSWSC 860; 165 FLR 79 at [27].
In Re Brockweir Pty Ltd[18] Justice Sifris observed:
In order to assess whether the plaintiffs are aggrieved parties, it is not necessary to embark upon a detailed and exhaustive analysis of the facts and the law underpinning the claim. The threshold is low. The assessment needs to be dealt with in a summary way. As long as the claim is not plainly hopeless and bound to fail, it should, subject to other relevant matters, proceed.
[18][2012] VSC 225 at [22].
The second requirement is that the Court is satisfied that it is just that a company's registration be reinstated. The wording of the section is very broad, and the cases confirm that it gives the Court a wide discretion. Without limiting the Court’s power, the matters the Court takes into account include the following:[19]
[19]Australian Competition and Consumer Commission v Australian Securities and Investments Commission, (2000) 174 ALR 688 at [27]-[28]; Re Kilkenny Engineering Pty Ltd (in liq) (1976) 1 ACLR 285; Drysdale v Australian Securities Commission (1992) 10 ACLC 1427; Re Steelmaster Pty Ltd (in liq) (1992) 6 ACSR 494.
(a) the circumstances in which the company came to be dissolved;
(b) whether, if the order were made, good use could be made of it. This includes whether the reinstatement would be futile; and
(c) whether any person is likely to be prejudiced by the reinstatement.
The decisions on both limbs of the section are so various that it is not profitable to attempt a comprehensive summary of them. So much turns on the particular facts and circumstances of the company concerned and the interest of the applicant in its affairs.
There are, however, other provisions of the Act that need to be noted in this case, because of the status of the Company as a trustee, albeit a special trustee holding property as custodian for the Super Fund.
Sub-section 601AH(3) provides:
(3) If:
(a)ASIC reinstates the registration of a company under subsection (1); 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.
Note:For example, the Court may direct ASIC to transfer to another person property vested in ASIC under subsection 601AD(2).
Sub-section 601AH(5) 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.
The first part of s 601AH(5) means that upon reinstatement of the registration the Company is to be viewed as if it had never ceased to exist, so that both the initial cessation of existence and the ongoing absence of existence are retrospectively obliterated. Subject to exceptions, there is to be an unbroken continuity of corporate existence.[20] The exceptions are a consequence of the wording of the sub-section and the fact that the first sentence does not mean that anything which purported to be done on behalf of the Company during the period of its deregistration is thereby regarded as valid (the past can only partly be undone):
[20]Danich at [28].
(a) because the provision states that a person "becomes a director again", it does not effect retrospective continuity of the tenure of directors.[21] If a director had purported to act on behalf of a deregistered company during the period of deregistration, reinstatement would not validate their action;[22]
[21]Danich at [28].
[22]White v Baycorp Advantage Business Information Services Ltd [2006] NSWSC 441 at [115].
(b) similarly, s 601AH(5) provides only a limited measure of retrospectivity concerning title to the property of the company, so that the property revests in it only from the time of reinstatement; [23]
[23]White v Baycorp Advantage Business Information Services Ltd [2006] NSWSC 441 at [115].
(c) any contractual or other power which the company had before deregistration is still regarded, even after the deregistration, as having been vested in ASIC during the period of deregistration. If the power was vested in ASIC, an agent of the company could not have had authority to exercise that contractual power during the period of deregistration;[24]
(d) if the company was insolvent immediately before its deregistration, its reinstatement will not result in it having traded during a period after deregistration, when insolvent;[25] and
(e) any business carried on prior to deregistration is not fictionally carried on during the deregistration by virtue of reinstatement.[26]
[24]White v Baycorp Advantage Business Information Services Ltd [2006] NSWSC 441 at [115].
[25]Mitzev v Foxman [2007] NSWCA 273 at [25] per Basten JA, Tobias and McColl JJA agreeing.
[26]Mitzev v Foxman [2007] NSWCA 273 at [25] per Basten JA, Tobias and McColl JJA agreeing.
Sub-section 601AD(1) of the Act provides that upon deregistration the Company ceases to exist. Sub-section (1A), (2), (3) and (4) provide:
(1A)On deregistration, all property that the company held on trust immediately before deregistration vests in the Commonwealth. If property is vested in a liquidator on trust immediately before deregistration, that property vests in the Commonwealth. This subsection extends to property situated outside this jurisdiction.
(2)….
(3)Under subsection (1A) or (2), the Commonwealth or ASIC takes only the same property rights that the company itself held. If the company held particular property subject to a security or other interest or claim, the Commonwealth or ASIC takes the property subject to that interest or claim.
(4)ASIC has all the powers of an owner over property vested in it under subsection (2).
Section 601AE deals with what the Commonwealth or ASIC do with property vested in them. In relation to trust property vested in the Commonwealth, sub-section 601AE(1) provides:
(1)If property vests in the Commonwealth under subsection 601AD(1A), the Commonwealth may:
(a)continue to act as trustee; or
(b)apply to a court for the appointment of a new trustee.
Note:Under paragraph (1)(a), the Commonwealth may be able to transfer the property to a new trustee chosen in accordance with the trust instrument.
Other parts of s 601AE deal with the powers of the Commonwealth and ASIC with respect to property vested in them and the disposition of that property. None of these powers are presently relevant.
Submissions and consideration
A Person Aggrieved
The plaintiff contends that she is a person aggrieved by the deregistration of the Company. She is the sole surviving member of the Super Fund and the Company is the custodian trustee originally established for the purposes of holding the Trust Property for the benefit of that Super Fund. As such, she is a beneficiary whose equitable rights and interests in the Super Fund are affected by the deregistration.[27] She is also the surviving indemnor under the indemnity given to the Company under the Custodian Trust. The Company has incurred expenses for which she, as a trustee of the Super Fund, is liable to indemnify the Company. Her trustees in bankruptcy agree to her applying to reinstate the Company’s registration, so to the extent that her interest in the Super Fund is diminished by the inability to recover costs from Morris Finance, or enhanced by the recovery of those costs, and that affects her bankrupt estate, she acts with the trustees consent and support.
[27]G & G Nicol Finance Pty Ltd v Commissioner of Corporate Affairs & Ors (1987) 5 ACLC 578 at 581.
I note that the existence of a separate entity to hold that property as custodian is necessary by virtue of the provisions of the Superannuation Industry (Supervision) Act 1993 (Cth) ('SISA'). Section 67 of the SISA has the effect that for the Super Fund to borrow moneys to acquire an asset, the asset must be held in a separate entity on trust for the Super Fund. The custodian agreement recites that the trustees of the Super Fund wish to borrow to complete the purchase of the property in accordance with the provisions of Part 7 of SISA. The Company was appointed custodian to be the registered legal owner of the Trust Property and to hold it on behalf of the trustees of the Super Fund.
Morris Finance resists the basis for Sonja to be “aggrieved” by the deregistration of the Company. It contends that:
(a) by clause 129 of the Superannuation Trust Deed all the benefit entitlements of a person are forfeited if the person is or becomes insolvent or has committed or commits an act of bankruptcy. Morris Finance contends that upon the plaintiff becoming bankrupt on 4 March 2015, at the latest, she has lost her entitlement under the Superannuation Trust Deed; and
(b) where a company acting as trustee is deregistered, persons who are beneficiaries or otherwise interested in the trust cannot be said to be “aggrieved” by the demise of the trustee if there are ample means of causing a new trustee to be appointed.[28]
[28]Danich; Warton v Harris [2005] NSWSC 1168 at [7].
In relation to the first point, the plaintiff responds that clause 129 of the Superannuation Trust deed is void by the operation of s 302A(1) and (2) of the Bankruptcy Act1966 (Cth). That section provides, in substance, that a provision that has the effect of clause 129 of the Superannuation Trust Deed is void. I agree.
In relation to the second point, Morris Finance submitted that the decision of Justice Barrett in Danich[29] was fatal to the plaintiff’s application. In that case Barrett J refused to reinstate the company in question, Cenco Holdings, so as to allow the applicant, Danich, to receive a distribution via its holding of units in a unit trust of which Cenco Holdings was, before deregistration, the trustee. His Honour concluded it was not necessary to reinstate Cenco Holdings:
[37] This is not a case in which the existence of Cenco is essential to the pursuit and fulfilment of Danich's rights….[His Honour then refers to the decision in WorkCover Authority (NSW) v Picton Truck & Trailer Repairs Pty Ltd[30] where the existence of the company was an essential element of the procedure WorkCover needed to follow in order to obtain the reimbursement sought.]
[38] Here, by contrast, Danich is the passive holder of an equitable interest in property, with the rights of a beneficiary under the Centrelease Trust in respect of that property, and the property, whatever it may be, is vested in ASIC.[31] To the extent, if any, that the position of someone in Danich's situation is in need of protection or improvement, re-creation of the corporate existence of Cenco does not form part of any necessary or appropriate process.
[39] In the circumstances of this case, the provisions of Ch 5A, coupled with general law principles, adequately cover Danich's situation. The trust property, including the chose in action which is the source of the entitlement to a dividend in the winding up of Cenco Corp, is held by ASIC subject to the rights and interests of Danich and others having rights and interests in it. A gap in the tenure of a trustee has occurred but it is in the hands of ASIC or Danich or anyone else with the requisite standing to seek from the court an order for the appointment of a new trustee, which order would no doubt readily be made. The dissolution of Cenco has not diminished the rights of Cenco. Those rights remain exercisable in respect of the property vested in ASIC and are subject to protection by equity in the same way as if the trust property were vested in any other person. The stated intention of the liquidator of Cenco to pay dividends to no one but Cenco is no more than a reflection of the fact that the liquidator has not been presented with evidence of his right and duty to pay otherwise than to Cenco.
[29](2005) 53 ACSR 484.
[30](2004) 51 ACSR 102; [2004] NSWCA 371.
[31]The provisions of the Act at that time vested trust property in ASIC.
The plaintiff on the other hand contended that the decision in Danich should be distinguished. Notwithstanding the power under the Custodian Trust for Sonja to remove the Company as trustee and appoint a new trustee, here the requirement of prejudice to the plaintiff has been met because the interests of the plaintiff have been specially affected by the deregistration of the Company. The Company has expended or become liable for the expenditure of funds for the costs in the costs application in the Supreme Court proceeding. The plaintiff’s bankrupt estate is, through the indemnity given to the Company as trustee of the Custodian Trust, liable for the costs expended. As the sole surviving trustee of the Super Fund, Sonja (or her bankrupt estate) is entitled to recover from the Super Fund the costs and expenses for which she is liable to the trustee under the Custodian Trust. This reduces the entitlement of Sonja or her bankrupt estate to the benefits available under the Super Fund. Further, the sole remaining asset of the Custodian Trust is the costs Morris Finance has been ordered to pay the Company. Thus the deregistration is a cause of dissatisfaction to the plaintiff in that she is unable to recover the costs for which she is liable to indemnify the trustee, whomever it may be, of the Custodian Trust; or at least is unable to do so without throwing away costs in re-constituting the costs proceeding (by commencing a fresh proceeding) in the name of a new trustee and possibly having to seek a variation of the original costs order.
Without appreciating that it had been deregistered, the Company carried on with the consequences of its success in the Supreme Court proceedings concerning the caveat removal. Expenses have been incurred in prosecuting the Supreme Court proceeding and in defending the Company in the County Court proceeding before its deregistration. For these costs and expenses, Sonja or her bankrupt estate and the bankrupt estate of the deceased estate of Trevor, are liable to indemnify the Company. This gives to Sonja a particular prejudice in addition to her position as a beneficiary of the Custodian Trust and the Super Fund.
It is in my opinion, not an answer to that prejudice to say in this case that under the Custodian Trust, Sonja is able to appoint a new Custodian trustee, as was the position in Danich. Sufficient expenditure, or liability for expenditure, will be thrown away if a replacement trustee is appointed and a fresh costs proceeding is commenced with the replacement trustee.
Is it Just that the Registration is Reinstated?
The plaintiff submitted that the evidence, as supplemented by the affidavits filed subsequent to the hearing, provides a proper explanation of the circumstances in which the Company came to be deregistered and in this respect refers to facts that I have recounted above. In the end, it comes down to an administrative oversight by Crowe Horwath in not dealing with the letter from ASIC giving notice of its intention to deregister the company, being the letter dated 20 November 2014. Trevor had, of course, died shortly before that letter was sent. The non-payment of the earlier invoices is explained, significantly, by Trevor’s illness and the appointment of liquidators to the Bulk Store.
Morris Finance submitted at the hearing that the plaintiff had showed a lack of candour in the presentation of her evidence in support of the application. The plaintiff rejected that submission and submitted that, overall, she has attempted to put as much information as is available to her before the Court, including obtaining two affidavits from Mr Kittelty, to explain what documents were received at the company’s registered office and the actions taken by Crowe Howath in relation to them. It was the failure of the Company to pay the 2013 and 2014 annual review fees to ASIC which brought about ASIC’s notice of intention to deregister and subsequent deregistration of the Company. There is clearly no deliberate course of conduct engaged in by the directors to conceal any of these matters from the Court.
Morris Finance submits that the plaintiff has not sought to explain the defence the company has to the Morris Finance claim in the County Court. It submits that the failure to do so should lead the Court to infer that it has no defence. In fact, the company had, before its deregistration, filed a defence in the County Court proceeding. There is no other active defendant in that proceeding and, the plaintiff submits, it is disingenuous for Morris Finance to contend that the Court should draw an inference that the company has no defence.
In my view, the judgment of Justice Williams in 164 Fyans Street Pty Ltd v Morris Finance Ltd and Anor[32] gives a sufficient indication of the defence the company has in the County Court proceeding. I therefore agree with the submission of the plaintiff that there is nothing in this point raised by Morris Finance.
[32][2014] VSC 199.
Morris Finance also contends that there is a contradiction in the evidence as to the assets of the Company, in that Sonja has sworn that the only asset is her right to enforce the Supreme Court costs order against Morris Finance, whilst the plaintiff’s bankruptcy trustees assert the Company has no assets. The inconsistency, Morris Finance contends, has not been explained. In my view, this inconsistency is minor and of no serious consequence. It is likely to be explained by the fact that the bankruptcy trustees have assessed whether there are any actual cash assets or other property held by the Company, as distinct from the inchoate right to obtain costs pursuant to an order of the Court.
Morris Finance also complains that the statement of financial position of the Super Fund exhibited to Mr Kittelty’s affidavit of 27 July 2015 is unsatisfactory. It purports to be a statement of financial position as at 30 June 2014 but records the death of Trevor, who did not die until 13 November 2014. Further, the information is over 12 months old and the Court should have been given figures at 30 June 2015. No explanation has been given as to why they have not been produced. Thus, Morris Finance submitted that the Court cannot have any confidence that there are any assets in the Super Fund so that the plaintiff cannot be a person aggrieved in respect of that Fund.
The plaintiff submits that Mr Kittelty, as a principal of Crowe Howath, is a certified practising accountant of 39 years standing and as the accountant for the Super Fund it is reasonable to infer that the financial statement exhibited to his affidavit was prepared after reviewing the necessary books and records of the company and the Super Fund. Mr Kittelty opines that the Super Fund is solvent and able to indemnify the Company in respect of the costs incurred in its name.
The plaintiff submits that on the basis of Mr Kittelty’s opinion that the Super Fund is solvent, it is open to the Court to find there is substance to the indemnity provided by the Super Fund via the trustee to the Company and that for this reason, the Company is not insolvent and will not be insolvent if reinstated.
I agree that there is sufficient evidence to establish that the Company will be solvent if its registration is reinstated for the reasons advanced by the plaintiff.
Morris Finance also submits that the statement of financial position of the Super Fund as at 30 June 2014 shows that there were significant borrowings as a part of the Super Fund. It points to the fact that as a general rule a trustee company that is a superannuation trustee cannot borrow money.[33]
[33]Superannuation Industry (Supervision) Act 1993 (Cth) s 67(1).
As I explained earlier in these reasons, the very existence of the Custodian Trust separates the borrowings of the Company as the custodian from the liabilities of the Super Fund. Thus, the borrowings are not strictly speaking borrowings of the Super Fund. The effect of the establishment of the Custodian Trust is that the lender to the Company is limited in its recourse to the asset acquired with the funds. Whether it is correct as a matter of accounting to include in the statement of financial position of the Super Fund the liability to the lender to the Company may be another matter.
Thus, whether or not the financial statement Mr Kittelty produces shows a breach of the SISA is much to be doubted. It is clear from the position of the company as custodian trustee that it was established so as to comply with SISA. There is no other indication that the Super Fund is directly liable to the lender for the moneys borrowed by the Company so as to render the Super Fund in contravention of the SISA.
For these brief reasons, I reject the submissions by Morris Finance that if the plaintiff is a person aggrieved, the application should be refused by reason of the plaintiff’s failure properly to explain how the company came to be deregistered, the financial position of the company and the financial position of the Superannuation Fund.
Conclusion
By the originating process, the plaintiff seeks an order pursuant to s 601AH(2) of the Act that ASIC reinstate the registration of the Company and an order under s 601AH(3)(c) that the summons for taxation of costs filed 24 March 2015 in the name of the Company (in proceeding number S CI 2015 1315), and all steps taken by the Company in that proceeding, be validated.
For the reasons given above, in my view:
(a) the plaintiff is a person aggrieved by the deregistration of the Company;
(b) the plaintiff has properly explained the circumstances in which the company came to be dissolved;
(c) if the order for reinstatement is made good use can be made of it; and
(d) no person is likely to be prejudiced by the reinstatement.
I have therefore decided that this is an appropriate case for the exercise of the discretion to order ASIC to reinstate the registration of the Company. I will make orders to that effect, subject to the conditions specified by ASIC as referred to in paragraph 26 above.
I have referred above to the effect of an order reinstating the registration of the Company and, in particular, that it will not have the effect of validating steps of the kind taken by the Company in this case in commencing the application for the taxation of costs ordered by Williams J in the Supreme Court proceeding. It is in my view appropriate to make an order validating the issue of the summons for taxation of costs and other steps taken in that proceeding.
The plaintiff should produce draft minutes of proposed orders, and provide them and any submissions as to the costs of the application to Morris Finance and my Associate. I will either hear the parties on the question of the costs or consider their written arguments, as they consider appropriate.
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