Holli Managed Investments Pty Ltd v Australian Securities Commission

[1998] FCA 1657

FEDERAL COURT OF AUSTRALIA

CORPORATIONS – Dissolution of company – application to reinstate – whether dissolution extinguishes the debts of the dissolved company – whether dissolution extinguishes any right of indemnity in respect of those debts – whether a reinstatement order should be made to enable a secured creditor to carry out an investigation into the whereabouts of assets of the dissolved company – whether a secured creditor is able to appoint a receiver over the assets of a dissolved company – whether a secured creditor may apply for an examination under s 596B of the Corporations Law – whether failure to reinstate a dissolved company will impose undue hardship on the Australian Securities Commission

Corporations Law ss 574, 576, 578

Chief Commissioner of Stamp Duties v Buckle (1998) 72 ALJR 243 cited
Dyke v Walford (1846) 5 Moo PCC 434 [13 ER 557] cited
E R Ives Investment Ltd v High [1967] 2 QB 379 referred to
GIO (NSW) v K A Reed Services Pty Ltd [1988] VR 829 applied
Gosling v Gaskell [1897] AC 575 referred to
In re FitzGeorge, Ex parte Robson [1905] 1 KB 462 cited
In re Higginson & Dean, Ex parte The Attorney-General [1899] 1 QB 325 cited
In re Perkins; Poyser v Beyfus [1898] 2 Ch 182 cited
In re Wells; Swinburne–Hanham v Howard [1933] Ch 29 cited
Megit v Johnson (1780) 2 Dougl 542 [99 ER 344] cited
Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360 cited
R.W.G. Management Ltd v Commissioner for Corporate Affairs [1985] VR 385 cited
Re Excel Finance Corp Ltd (1993) 10 ACSR 255 followed
Re Otway Coal Co Ltd [1953] VLR 557 discussed
Russian and English Bank v Baring Bros and Co Ltd [1936] AC 405 cited
Taylor v Sanders [1937] VLR 62 cited
Thomas v Todd [1926] 2 KB 511 referred to
Tito v Waddell (No 2) [1977] Ch 106 discussed
Tyman’s Ltd v Craven [1952] 2 QB 100 referred to
Vitamins Australia Ltd v Beta-Carotene Industries Pty Ltd (1987) 5 ACLC 802 discussed

HOLLI MANAGED INVESTMENTS PTY LTD v AUSTRALIAN SECURITIES COMMISSION and NAJEE PTY LTD

VG 3198 of 1998

JUDGE:         FINKELSTEIN J
DATE:           21 DECEMBER 1998

PLACE:         MELBOURNE

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VG 3198 of 1998

BETWEEN:	HOLLI MANAGED INVESTMENTS PTY LTD Applicant
AND:	AUSTRALIAN SECURITIES COMMISSION and NAJEE PTY LTD Respondents

JUDGE:	FINKELSTEIN J
DATE:	21 DECEMBER 1998
PLACE:	MELBOURNE

THE COURT ORDERS THAT:

1. The application be dismissed.

2. The applicant pay the respondents’ costs of and incidental to the application.

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

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VG 3198 of 1998

BETWEEN:	HOLLI MANAGED INVESTMENTS PTY LTD Applicant
AND:	AUSTRALIAN SECURITIES COMMISSION and NAJEE PTY LTD Respondents

JUDGE:	FINKELSTEIN J
DATE:	21 DECEMBER 1998
PLACE:	MELBOURNE

REASONS FOR JUDGMENT

HIS HONOUR: The applicant, Holli Managed Investments Pty Ltd (Holli), applies to reinstate the registration of Imam Nominees Pty Ltd (Imam Nominees), a company whose registration was cancelled by the Australian Securities Commission (ASC) (now known as the Australian Securities and Investments Commission (ASIC); see s 5(1) of the Australian Securities Commission Act 1989 (Cth) as amended by the Financial Sector Reform (Amendments and Transitional Provisions Act) 1998 (Cth)), the first respondent, whereupon it was dissolved. The application is made under s 574(3) of the Corporations Law which subsection empowers the court, upon the application of an aggrieved person, to reinstate the registration of a company if the court is satisfied that at the time of cancellation the company was carrying on business or was in operation or that it is just that the order be made. On 1 July 1998 s 574(3) was repealed and replaced by s 601AH (see sch 5, Pt 2 of the Financial Sector Reform (Amendments and Transitional Provisions) Act) but the former section still governs this application.

In delivering judgment on a question of law that was raised by the parties (see Holli Managed Investments Pty Ltd v Australian Securities Commission and Najee Pty Ltd, unreported, 2 October 1998) I set out the facts that give rise to this application.  The following summary of the facts is taken from that judgment. 

Imam Nominees was the trustee of the N Imam Family Trust (the trust).  In its capacity as trustee of the trust, Imam Nominees borrowed in excess of $10 million from the Australia and New Zealand Banking Group Ltd (ANZ).  The repayment of the loan was secured by a charge on all of the property, business and undertaking of Imam Nominees.  Imam Nominees defaulted in its obligations to ANZ and the bank appointed a receiver to take possession of the company’s assets.  The receiver realised those assets whose existence he was able to discover and paid the net proceeds of the sale to ANZ.  This left a balance of approximately $7.5 million owing to the bank. 

ANZ then applied for an order that Imam Nominees be wound up in insolvency.  The winding-up order was made on 26 July 1993.  In the meantime Imam Nominees had been replaced as trustee of the trust by Najee Pty Ltd (Najee), the second respondent.

On 8 May 1995 ANZ assigned to Holli the balance of the debt that was due to it by Imam Nominees (the quantum of the debt was said to be $12,640,012.42) together with all of ANZ’s interest under the charge.   The liquidator was given notice of both assignments. 

The liquidator realised an amount of $61,394.66 upon the sale of the assets of Imam Nominees.  After deducting the costs and expenses of the liquidation, the liquidator had available $30,000 to be distributed amongst the creditors of Imam Nominees.  Holli was the only creditor of the company and the sum of $30,000 was paid at its direction.

The liquidator then filed his final accounts on 3 June 1996 and on 8 November 1996 the ASC cancelled the registration of Imam Nominees pursuant to s 574(1) of the Corporations Law, whereupon the company was dissolved.

Holli contends that:  (a) when Imam Nominees incurred its debt to ANZ it was entitled to be indemnified out of the assets of the trust in respect of that debt; (b) this entitlement constituted a proprietary interest in the property of the trust; and (c) the right of indemnity was included in the property that was charged to ANZ and formed part of the property that was assigned to Holli.  The correctness of these propositions was not disputed by Najee (the ASIC did not appear at the hearing having advised the Court that it was content to abide by the result of the case) and, in my view, they are supported by authority:  see R.W.G. Management Ltd v Commissioner for Corporate Affairs [1985] VR 385; Octavo Investments
Pty Ltd v Knight (1979) 144 CLR 360; Chief Commissioner of Stamp Duties v Buckle (1998) 72 ALJR 243.

The reason Holli now seeks an order that Imam Nominees be reinstated is that it believes that the trust still holds assets in respect of which the right of indemnity can be exercised.  It says that the company should be reinstated to enable it to conduct enquiries as to whether such assets do exist, to determine the extent of those assets and, if appropriate, to take proceedings, as mortgagee, to enforce the indemnity. 

I propose to consider this application on the assumption that there are in existence assets in respect of which Imam Nominees has a right of indemnity for the debt incurred to ANZ.  It is true that there is evidence from the former liquidator of Imam Nominees that he has realised all of the assets of the company, including those assets in respect of which the right of indemnity existed. On the other hand, searches at the Trade Marks Office show that at the time of its dissolution Imam Nominees was registered as the owner of a number of trade marks (three in all) which may have some value and which may form part of the assets of the trust. I will also proceed on the further assumption that a thorough investigation of the position may reveal that the trust holds other assets that may be subject to the right of indemnity.  In my view it is reasonable to proceed in this way because it has been shown, prima facie at least, that the investigations undertaken by the liquidator may not have resulted in the discovery of all of the property that Imam Nominees held as trustee of the trust. 

Let me say at the outset of these reasons that if I was satisfied that by the reinstatement of the company Holli would be assisted in its stated intention of pursuing its enquiries to ascertain whether the trust has assets which ought to be sold to satisfy the outstanding debt which has been assigned to Holli, I would make the order that is sought.  I would also make the order if I thought it was necessary or desirable so as to enable Holli to obtain an order that the trust assets (if there be any) be sold and the proceeds applied in discharge of the debt.

The first basis upon which Holli asserts that it would be assisted by a reinstatement order is in respect of its investigation as to whether there are any assets of the trust against which the right of indemnity can be enforced.  In one sense of course, Holli is in the same position as any other person who wishes to investigate or enquire into a particular matter. It is able to do so by any means that it chooses provided it does not unlawfully interfere with the rights of
third parties. However, Holli says that, being the holder of a charge over the assets of Imam Nominees, it should be entitled to use certain statutory powers of investigation that are not available to the ordinary citizen and that would only be available to it if the reinstatement order is made. 

There are three statutory powers that seem to be relevant (only one was mentioned in argument) but in each case the power is not exercisable by Holli.  The first two powers that I have in mind are those that are conferred by s 430 and s 431 of the Corporations Law upon a “controller” of property of a corporation: “controller” is defined in s 9 of the Corporations Law to include, relevantly, a receiver or receiver and manager. By s 430 a controller of property of a corporation may by notice given to, among others, persons who have been officers of the corporation, require those persons to make out a report containing such information as to the affairs of the corporation as is specified in the notice. By s 431 a controller of property of a corporation is entitled to inspect any books of the corporation that relate to that property.

If Holli wishes to take advantage of s 430 or s 431 it must appoint a receiver who can exercise the power conferred by those sections. In this connection two questions arise. The first is whether it is possible to appoint a receiver in respect of the property of a corporation when that corporation has been dissolved and its property has vested in the ASIC pursuant to s 576(1) of the Corporations Law: this is the subsection that was in force at the date of dissolution but see now s 601AD(2).

In principle there can be no objection to the appointment of a receiver in that circumstance.  The principal function of a receiver, appointed by a secured creditor, is to take possession of the mortgaged assets, usually as agent of the mortgagor unless the corporation is in the process of being wound up (as to which see Gosling v Gaskell [1897] AC 575; Thomas v Todd [1926] 2 KB 511) but otherwise as agent of the mortgagee or as principal, for the purpose of realising those assets in order to pay out the amount that is due to the mortgagee. If there are in existence assets that can be sold to satisfy the obligations due to a secured creditor, the fact that the corporation has been dissolved should not be a bar to the appointment of a receiver over those assets. In Re Otway Coal Co Ltd [1953] VLR 557, a case that was concerned with a claim made by a second ranking debenture holder against the surplus produced on a sale of a company’s assets by the first ranking debenture holder, the
second ranking debenture holder had appointed a receiver of the assets of the company many years after the company had been dissolved.  This fact was noticed by the trial judge, O’Bryan J, and it was not suggested that the appointment was defective in any way. 

The second question that arises is whether, upon dissolution, Imam Nominees’ liability to the ANZ was extinguished with a corresponding extinguishment of the right of indemnity. In that event, no receiver could be appointed there being no property in respect of which the charge would stand as security. Holli contends that this is precisely what has occurred and that this will remain the position unless Imam Nominees is reinstated. It is to be noted that if an order for reinstatement is made then Imam Nominees “shall be deemed to have continued in existence as if its registration had not been cancelled”: see s 574(4) but see now
s 601AH(5).  Accordingly, if the position contended for by Holli is correct, the reinstatement of the company would have retroactive effect and would enable Holli to assert the continued existence of the debt and the right of indemnity:  see generally Tyman’s Ltd v Craven [1952] 2 QB 100.

Obviously, the resolution of this issue is of fundamental importance in deciding whether the reinstatement order should be made quite apart from the relevance it has to the ability of Holli to appoint a receiver.  However, I will defer dealing with this matter until later in these reasons.

Assuming for the moment that Holli has the right to appoint a receiver without a reinstatement order being made, Holli nevertheless contends that it is inappropriate for such an appointment to be made in respect of assets of a corporation that are vested in the ASIC. Several reasons were put forward in support of this submission.  One, which I must say I found difficult to follow, was that if a receiver is appointed this will require the ASIC “to assume the mantle of a private litigator”.  Presumably, what was meant by this is that the appointment of a receiver will impose obligations on the ASIC to ascertain whether the appointment is lawful, to determine whether there is any valuable property that the receiver is seeking to take possession of and, if appropriate, to take proceedings to challenge the lawfulness of the appointment of the receiver and the conduct of the receivership.  It was also submitted that it would not usually be appropriate to place the ASIC in a position where it is required to protect the rights of third parties in respect of disputed claims over the assets of a

dissolved corporation. It was said that these factors, either alone or in combination, justified the making of a reinstatement order.

I do not accept that the appointment of a receiver would impose any, or any unreasonable, burden or obligation upon the ASIC.  In the first place, the ASIC, a respondent to this proceeding, has decided not to make submissions in support of the application for reinstatement.  I do not mean this in any way as a criticism of the ASIC.  It obviously took the view that the other parties would fully canvass all of the relevant issues.  Nevertheless, if the ASIC was at all concerned about its own position, I am quite confident it would have so advised the Court.

Secondly, the only property that may have vested in the ASIC is property which would constitute part of the trust assets including the right of indemnity that is exercisable against that property.  The persons interested in protecting the trust property are the beneficiaries of the trust who will no doubt act through Najee, the trustee of the trust. They are also the only persons interested in resisting any claim under the indemnity.  Thus, whether or not a reinstatement order is made, the reality is that the beneficiaries, through Najee, will play an active role in protecting the trust assets (if there are any) and the ASIC will for all practical purposes be relieved of any such obligation.

I can now deal with the statutory power that Holli says should be employed to assist it in the conduct of an investigation into the affairs of Imam Nominees if the company is reinstated. By s 596A and s 596B of the Corporations Law, on the application of an “eligible applicant”, the court is given power to summon a person to be examined about the “examinable affairs” of a corporation. An “eligible applicant” is defined in s 9 to be the ASIC, a liquidator of a corporation or a person authorised by the ASIC to make the application. The expression “examinable affairs” is also defined in s 9 and it includes the promotion, formation, management or administration of a corporation and any other affairs of a corporation.

Section 596A requires the court to summon an “examinable officer” (defined in s 9 to include a director, secretary, or executive officer of a corporation) for examination if the application is made within two years of the commencement of the winding-up of the corporation, even if the winding-up has been completed at the time the application is made. However, where the winding-up has been completed the liquidator will no longer be an “eligible applicant”. In
that circumstance only the ASIC or a person authorised by the ASIC can make the application. 

Section 596B gives the court the discretion to summon any person to be examined about the examinable affairs of a corporation if the court is satisfied, among other things, that the person may be able to give information about those affairs.

The argument made by Holli is that if Imam Nominees is reinstated it will be reinstated as a company in liquidation and its liquidator will then be eligible to apply for the examination of the officers of the company for the purpose of ascertaining the location and value of the company’s assets and whether the right of indemnity is a valuable right. Two points should be noticed. First, if the company is reinstated, its liquidator will not be entitled to make an application under s 596A because the time for making that application has passed. The reinstatement of the company will not alter that position. Secondly, the liquidator will not be under any obligation to make an application under s 596B and, in any case, it is unlikely that he would do so without being funded by Holli.

The various objectives of the examination provisions, provisions which date back to the last century, are clear enough.  It is in the public interest that officers and promoters of a failed corporation provide a candid account of the affairs of that company.  It is in the public interest to ascertain whether those persons have been guilty of fraud or other wrong doing and whether they should be required to account for any ill-gotten gains.  It is also in the interests of creditors and contributories of a failed corporation that all the assets of the organisation be recovered. 

There is no reason why the examination provisions should not be available to assist a secured creditor in his effort to recover charged property. This was recognised by O’Loughlin J in Re Excel Finance Corp Ltd (1993) 10 ACSR 255 where it was held that orders for the examination of officers of a corporation could be made on the application of a receiver appointed by a debenture holder provided the receiver had been authorised by the ASC to make the application.

Here, however, Holli has not sought the authority of the ASIC to make an application under s 596B. Of course, if it had applied for and been granted that authority, Holli would not be in
a position to contend that the company should be reinstated to enable the liquidator to make the application.  On the other hand, in the absence of a refusal by the ASIC to grant the authority, I am not disposed to order the reinstatement of the company on the ground that reinstatement is necessary to enable examinations to take place.

In the first place, if Holli is able to establish, to the reasonable satisfaction of the ASIC, that there is utility in conducting an examination it is likely that it will obtain its authority to make an application under s 596B. In that event it would not be necessary to reinstate the company. In the second place, even if the company is reinstated it does not follow that the liquidator will apply for an order for the examination of its officers. The liquidator might remain of the view that there are no assets against which the right of indemnity can be exercised in which case he will not consider it appropriate to make the application. The liquidator might also take the view, not unreasonably in my opinion, that Holli should first seek the authority of the ASIC to make its own application before considering whether he should do so. It is true that an adverse decision or the refusal to make a decision by a liquidator is capable of review by the court if it can be shown that the conduct is unreasonable: see s 1321 of the Corporations Law. But the point is that the reinstatement of the company will not necessarily produce the result that Holli is seeking to bring about.

In the end, I am left to choose between leaving Holli in the uncertain position of having to seek the authority of the ASIC or, if I was to make the order sought, placing it in the uncertain position of seeking to persuade the liquidator to make the application. I am in no doubt that Holli should first exhaust its remedies against the ASIC before I should be asked to make an order that the company be reinstated to enable Holli to attempt to persuade its liquidator that he should make an application under s 596B. This course is appropriate because it involves fewer complications and less cost than would result from the reinstatement of Imam Nominees.

Let me now return to what I understand to be the principal contention made on behalf of Holli, namely that the dissolution of Imam Nominees has extinguished the liability secured by the charge and, in consequence, that the right of indemnity has also been extinguished on the basis that there is no debt in respect of which the indemnity is required. It was not in dispute that if the debt has been extinguished then the reinstatement of the company would revive it: see s 574(4) and see now s 601AH(5).

It is necessary to consider the effect that the dissolution will have in relation to the outstanding debts of a company in two different circumstances, viz. (a) where the dissolved company has no assets at the date of its dissolution and (b) where there are in existence assets which have not been distributed amongst the company’s creditors.  Although Companies Acts since 1852 have made provision for the realisation of all of the assets of a company that is being wound up so that the proceeds can be applied towards the repayment of the company’s debts before it is dissolved, it will sometimes be the case that not all of those assets will be realised before dissolution.

With regard to a company that has no assets there seems to be little doubt that the outstanding debts and obligations of the company are extinguished upon its dissolution:  see Blackstone’s “Commentaries on the Laws of England” vol 1 at 484; Russian and English Bank v Baring Bros and Co Ltd [1936] AC 405 at 427; Taylor v Sanders [1937] VLR 62. This result necessarily follows from the “civil death” of the company for the reason that the subsistence of a debt or other obligation assumes the existence of a person against whom the debt or obligation can be enforced.

It must follow that an indemnity given in respect of a debt formerly owed by a dissolved corporation would also cease to be binding.   As Lindley MR said in In re Perkins; Poyser v Beyfus [1898] 2 Ch 182 at 189: “A liability to indemnify against a liability which has no existence, and which can never arise, is a contradiction in terms.” In Taylor v Sanders the Full Court of the Supreme Court of Victoria applied this dictum to an indemnity given by a dissolved company for a debt due under a mortgage.  A guarantor might be in a different position.  In In re FitzGeorge, Ex parte Robson [1905] 1 KB 462 Bigham J held that liability under a guarantee did not cease to exist when the debtor corporation was dissolved because a guarantee will not come to an end when the debt ceases to exist merely by operation of law.

What then is the position if the dissolved company did have assets at the date of dissolution out of which its debts could be paid in part or in full?  Does the dissolution of the debtor company bring about the extinguishment of its debts and the extinguishment of any right of indemnity in respect of those debts?

Under the common law the Crown takes all property which has no owner:  it is the right of the Crown to bona vacantia.  Accordingly, where a person dies intestate leaving no spouse or next of kin his estate will pass to the Crown:  see Dyke v Walford (1846) 5 Moo PCC 434 [13 ER 557]. The Crown will take that property subject to the debts of the intestate (Megit v Johnson (1780) 2 Dougl 542 [99 ER 344] per Lord Mansfield) not for the reason that the Crown becomes liable to pay those debts, but because letters of administration will be granted to a nominee of the Crown subject to the condition that the administration expenses and debts of the intestate will be paid.

In the case of a dissolved corporation, statutory provisions apart, its outstanding assets also vest in the Crown bona vacantia:  see Kyd on Corporations (1794) vol 2 at 516;  Grant on Corporations (1850) at 303;  In re Wells; Swinburne–Hanham v Howard [1933] Ch 29. Since 1897 in Victoria, and later in all other Australian jurisdictions, provision has been made for the vesting of the outstanding property of a dissolved corporation in an officer of the Crown or in a statutory corporation. At first the property vested in the Registrar-General, from 1982 it vested in the National Companies and Securities Commission (NCSC) and since the commencement of the Corporations Law it vests in the ASIC.

The first Act making provision for the vesting of property of a dissolved corporation was the Defunct Companies Act 1897 (Vic).  It is necessary to refer to the relevant provisions of that Act.  The first is s 4 which provided for the vesting of the outstanding assets.  It read:

“Where after a company has been dissolved there remains any outstanding property real or personal which was vested in the company or to which it was entitled or over which it had a disposing power at the time it was so dissolved, but which was not got in realized upon on or otherwise disposed of or dealt with by the company or its liquidator, such property except called and uncalled capital shall for the purposes hereafter mentioned notwithstanding any Statute or rule of law to the contrary be deemed to be vested in the Registrar for all the estate and interest therein legal or equitable of the company or its liquidator at the date the company was dissolved, together with all claims rights and remedies which the company or its liquidator then had in respect thereof.”

Sections 5 and 6 empowered the Registrar-General to dispose of land and chattels that had vested in the Registrar-General by operation of s 4 provided it was property in respect of which the dissolved corporation was beneficially entitled.

Section 7 imposed a liability on the Registrar and the Crown to pay certain charges imposed by statute on property that had vested in the Registrar-General.  That section read:

“Property deemed to be vested in the Registrar by operation of this Act shall be liable and subject to all charges claims and liabilities imposed thereon or affecting such property by reason of any statutory provision as to rates taxes drainage fencing destruction of vermin or thistles or any other matter or thing to which such property would have been liable or subject had such property continued in the possession ownership or occupation of the company.  Provided nevertheless that the fact of the property being so deemed to be vested in the Registrar shall not nor shall any such statutory provision impose on the Registrar or the Crown any duty obligation or liability whatsoever to do or suffer any act or thing required by an such statutory provision to be done or suffered by the owner or occupier for the time being of such property beyond or other than the satisfaction or payment of any such charges claims or liabilities out of the assets of such company so far as the same are in the opinion of the Registrar properly available for and applicable to such payment.”

Successive Companies Acts incorporated ss 4, 5 and 6 in substantially the same terms save for changes in the identity of the person in whom the assets vested. Until the amendments brought about by the Financial Sector Reform (Amendments and Transitional Provisions) Act the relevant provisions in the Corporations Law were s 576(1) and s 577(1); see now
s 601AD and s 601AE where the language has changed but not their effect.

However, in the Companies Codes of 1982 the successor to s 7, namely s 463, which imposed liability on the NCSC and the Commonwealth in respect of property that had vested in the NCSC, was cast in different terms.  It read:

“Property vested in the Commission by operation of this Subdivision is liable and subject to all charges, claims and liabilities imposed on or affecting that property by reason of any law as to rates, taxes, charges or any other matter or thing to which the property would have been liable or subject had the property continued in the possession, ownership or occupation of the company, but there shall not be imposed, on the Commission or the Commonwealth any duty, obligation or liability whatsoever to do or suffer any act or thing than the satisfaction or payment of any such charges, claims or liabilities out of the property of the company so far as it is, in the opinion of the Commission, properly available for and applicable to such a payment.”

The current legislation is substantially to the same effect: see s 578 of the Corporations Law being the provision applicable to this application; see now ss 601AD(3), 601AE(3) and 601AE(4).

What is the effect of these provisions?  First, they recognised that the only property, or estate or interest in property, that will vest in the ASIC is the estate, legal or equitable, that was held by the dissolved corporation.  Thus the common law position (as to which see In re Higginson & Dean, Ex parte The Attorney-General [1899] 1 QB 325) has remained unchanged. Secondly, speaking generally, although the outstanding property of a dissolved corporation will vest in the ASIC, neither the ASIC nor the Commonwealth will be liable for the debts of the corporation. Usually those debts will be extinguished as in the case of a dissolved corporation that has no assets as at the date of its dissolution. Accordingly, if it is discovered that property has vested in the ASIC which ought to be distributed amongst the unsecured creditors of the dissolved corporation it would be necessary to make a reinstatement order to enable that distribution to occur. However, where property that has vested in the ASIC is subject to a charge, claim or liability, that charge etc. will continue to subsist and must be satisfied out of the property of the dissolved company. Prior to 1982 the only charge etc. that would burden the property was a charge etc. that was imposed by statute. Since 1982 the property is burdened not only by a charge etc. that exists by reason of any law as to rates, taxes, etc. but it will also be burdened by a charge etc. affecting the property by reason of “any other matter or thing”. This language is sufficiently broad to cover the case of a charge such as a right of indemnity; see now ss 601AD(3), 601AE(3) and 601AE(4) of the Corporations Law where the matter is beyond doubt. The fact that the indemnity is in respect of a debt that may have been extinguished is of no consequence.  The charge etc. exists as if the property “remained in the possession, ownership or occupation of the [dissolved] company”.  Thus, until the charge etc. is satisfied either the extinguished debt is deemed to subsist or the debt has not been extinguished. 

These conclusions find support in Vitamins Australia Ltd v Beta-Carotene Industries Pty Ltd (1987) 5 ACLC 802, a decision of the Full Court of the Supreme Court of Western Australia. There the Full Court was required to consider the effect of the dissolution of a company on an exclusive licence that had been granted over patents that were registered in the name of the company. The Full Court held that the licence continued in existence notwithstanding the dissolution. Each member of the Full Court gave different reasons for reaching this conclusion although each of them proceeded on the basis that the exclusive licence had conferred upon the licensee a proprietary interest in the patents.

Wallace J held that the licence continued in force because the interest it conferred did not form part of the property of the company and therefore could not pass to the NCSC. This seems to be an uncontroversial finding.  Under the common law the Crown would only succeed to the estate or interest in property that was held by the dissolved corporation and it would not, at least generally, defeat any outstanding legal or equitable interest in that property.  Wallace J did not consider whether the proprietary interest of the licensee would remain if its existence was dependent upon the performance of obligations by the dissolved corporation.

Brinsden J took a different approach.  He held that both the legal and equitable interest in the patents had vested in the NCSC.  However, he was of the view that the rights of the licensee continued to exist by reason of the application of the maxim: “He who takes the benefit of a transaction must also bear the burden”.  His Honour said (at 808):

“[W]hen the Commission becomes vested of property of a dissolved company, which property is measured by rights and obligations, then it is entitled to those rights and also obliged by those obligations.  One is inseparable from the other.  Part of the property of [the dissolved company] which vested in the Commission was [the dissolved company’s] interest in the license agreement and in particular to receive payment of the license fee as defined by the agreement.  Having assumed that right it also assumed the obligation to pay the renewal fees to the Patent Office.”

If I might say so, with respect, there is difficulty with this analysis.  It is true that there are cases which accept that there is a principle to the effect stated:  see for example, Tito v Waddell (No 2) [1977] Ch 106; E R Ives Investment Ltd v High [1967] 2 QB 379. According to Tito the principle extends to transactions affecting land and other property and operates against successors in title.  According to Ives, the principle is equitable in nature in which case it would not give rise to obligations at common law.   But there are at least two difficulties with the views of Brinsden J.  In the first place the existence of the so-called principle has been denied by the Full Court of the Supreme Court of Victoria in GIO (NSW) v K A Reed Services Pty Ltd [1988] VR 829. In that case, Brooking J, with whom O’Bryan J agreed, after a detailed examination of the cases, said (at 841) that the so-called principle “is founded upon authority that will not sustain it and [is] at odds with settled and fundamental rules. It is in truth a mere maxim masquerading as a rule of law, false and misleading … when read literally”.

In the second place it is difficult to see how the so-called principle could impose an obligation on the Commonwealth or an agent or instrumentality of the Commonwealth merely because property has vested in the Commonwealth, agent or instrumentality by operation of law or by statute.  The Corporations Law defines the ambit of the liability that is imposed on the ASIC and the Commonwealth in respect of property that has vested with the ASIC. If the so-called principle was a rule of law ss 601AD(3), 601AE(3) and 601AE(4) and their predecessors would be otiose. Yet they have been regarded as necessary provisions since 1897. In my view, in the absence of provisions such as ss 601AD(3), 601AE(3) and 601AE(4) and their predecessors, neither the ASIC nor the Commonwealth would be burdened by any personal obligation in respect of property that has vested in the ASIC apart from any obligation that might arise if the ASIC has become the trustee of property by succeeding to a trustee’s estate in trust property.

The remaining member of the Full Court in Vitamins was Kennedy J.  He was of the view that it was a consequence of s 461 and s 463 of the Companies Code (now ss 601AD and 601AE of the Corporations Law) that when the patents vested in the NCSC they did so subject to the exclusive licence just as they had vested subject to the mortgages which appeared on the register maintained by the Commissioner of Patents.  His Honour said (at 811) that the effect of s 461 of the Companies Code was that “[W]hat the Commission gets is what the company had, that is, a patent subject to an exclusive licence”.  But his Honour went on to say that the exclusive licence would only confer a very limited right of action against the NSCS for the enforcement of its agreement.

Notwithstanding the differences in approach by the members of the Court, Vitamins does stand as authority for the proposition that when a company is dissolved and its property vests in the ASIC that property remains liable in respect of all proprietary encumbrances that existed at the date of dissolution including encumbrances created by statute: see also the discussion by Professor Von Nessen in his article “The Dissolution and Reinstatement of Companies” published in (1993) 67 ALJ 427 at 431-432.

In the result, it is my view that the right of an indemnity held by Imam Nominees, to the extent that there are assets in respect of which that right might be exercised, has not been extinguished by the dissolution of the company.  For the purposes of the enforcement of that right of indemnity, the debt that has been assigned by ANZ to Holli will be deemed to
continue in existence.  Accordingly, there is no need to reinstate Imam Nominees to enable Holli to realise the charge that it has over the right of indemnity.

It remains to mention one further argument put on behalf of Holli in support of its application.  The argument is difficult to paraphrase so I will adopt the language of the written submissions filed on behalf of Holli.  It is alleged that “[b]efore Imam Nominees’ claim to be indemnified can be categorised as a ‘right of indemnity’ or as ‘property’, a number of conditions have to be met:  (a) the continued existence of the underlying indebtedness; (b) the determination of whether the debt was incurred in the execution of the relevant trust; and (c) the determination, by the taking of accounts, as to the extent to which the indebtedness incurred exceeds any compensation due to the trust by Imam Nominees.”

The submission seems to assert that there is no “right of indemnity”, and thus no proprietary interest in the trust fund (assuming there to be assets which can be applied to satisfy the indemnity), until final accounts have been taken between the former trustee and the beneficiaries of the trust and where there are claims against the trustee, until those claims have been quantified and set off against what would otherwise be due to the trustees under the indemnity.  The submission assumes that there are outstanding disputes between the former trustee and the beneficiaries that require resolution; an assumption that is not supported by the evidence.  In any event, I do not accept the correctness of the submission.  The right of indemnity of a trustee comes into existence when the trustee properly incurs costs and expenses in the administration of the trust and its existence does not depend upon  the taking of final accounts between the trustee and the beneficiaries.  However, the exercise of the right thereby conferred will be postponed if the trustee, by breach of trust, has caused a loss to the trust estate and has not made good that loss:  see Scott on Trusts (3rd ed) vol 3 para 244.3. 

In the result the application will be dismissed with costs.

I certify that this and the preceding    fourteen (14) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein

Associate:
Dated:              21 December 1998

Counsel for the Applicant:	Mr JG Santamaria QC
Mr L Glick
Solicitor for the Applicant:	Clayton Utz
Counsel for the First Respondent:	No appearance
Solicitor for the First Respondent:	Counsel Litigation Australian Securities and Investments Commission
Counsel for the Second Respondent:	Mr JE Middleton QC Mr N Lucarelli
Solicitor for the Second Respondent:	Gadens Lawyers
Date of Hearing:	6  October 1998
Date of Judgment:	21 December 1998