In the matter of LCW Property Holdings Pty Ltd (deregistered)

[2020] NSWSC 71

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

In the matter of LCW Property Holdings Pty Ltd (deregistered) [2020] NSWSC 71

Hearing dates:

10 February 2020

Date of orders:

14 February 2020

Decision date:

14 February 2020

Jurisdiction:

Equity - Corporations List

Before:

Gleeson J

Decision:

(1) Pursuant to s 601AH(2) of the Corporations Act 2001 (Cth), the Australian Securities and Investments Commission (ASIC) reinstate the registration of LCW Property Holdings Pty Ltd (ACN 629 793 666) (deregistered).

 

(2)   The plaintiffs notify ASIC within 7 days of these orders.

 

(3)   The proceedings be otherwise dismissed.

 (4)   There be no order as to costs to the intent that each party and interested persons bear their own costs.

Catchwords:

CORPORATIONS – deregistration by ASIC – reinstatement – where reinstatement will enable creditors to bring claim against company – whether reinstatement should be ordered under s 601AH(2) of Corporations Act 2001 (Cth) – company reinstated

Legislation Cited:

Corporations Act 2001 (Cth), s 601AH(2)

Cases Cited:

AMP General Insurance Ltd v Victorian WorkCover Authority [2006] VSCA 236
Arnold World Trading Pty Ltd v ACN 133 427 335 Pty Ltd [2010] NSWSC 1369; (2010) 80 ACSR 670
CGU Workers Compensation (NSW) Ltd v Rockwall Interiors Pty Ltd [2006] NSWSC 690; (2006) 201 FLR 296
Deputy Commissioner of Taxation v Australian Securities and Investments Commission; Re Civic Finance Pty Ltd (deregistered) [2010] FCA 1411; (2010) 81 ATR 456
Deputy Commissioner of Taxation; Re James Hardie Australia Finance Pty Ltd (Deregistered) (2008) 170 FCR 545; [2008] FCA 1181
In the matter of ERB International Pty Ltd (deregistered) [2014] NSWSC 200; (2014) 283 FLR 223
In the matter of Likehart Pty Ltd (deregistered) [2017] NSWSC 884
Mitzev v Fox [2007] NSWCA 273
Pilarinos v Australian Securities and Investments Commission [2006] VSC 301; (2006) 24 ACLR 775
White v Baycorp Advantage Business Information Services Ltd [2006] NSWSC 441; (2006) 200 FLR 125

Category:

Principal judgment

Parties:

Paul Sapienza / Antonella Sapienza (Plaintiffs)
Australian Securities and Investment Commission (Defendant)
Constandinos Ganatzos / Gavin Duffy / Morgan Talbot (Interested parties)

Representation:

Counsel:
J Hewitt / A Emmerson (Plaintiff)
M L Rose (Interested parties)

  Solicitors:
Morabito Legal (Plaintiff)
ERA Legal (Interested parties)

File Number(s):

2019/334295

Judgment

1. GLEESON J: Application is made by the plaintiffs, Paul Sapienza and Antonella Sapienza (the Sapienzas), for orders pursuant to s 601AH(2) of the Corporations Act 2001 (Cth) that the defendant, the Australian Securities and Investment Commission (ASIC), reinstate the registration of LCW Property Holdings Pty Ltd (deregistered) ACN 629 793 666 (LCW).

2. ASIC took no active involvement in the proceeding other than to indicate that it did not oppose the orders sought by the plaintiffs.

3. Three former directors of LCW at various points in time – Constandinos Ganatzos, Gavin Duffy and Morgan Talbot – gave notice of their intention to appear on 19 December 2019 to support the application for reinstatement of LCW and to oppose the other relief sought by the Sapienzas, namely, the winding-up of LCW and an appointment of a liquidator on reinstatement of LCW.

4. Ultimately, the Sapienzas only sought an order for the reinstatement of LCW and reached agreement with the former directors as to the terms upon which the balance of the relief sought in the amended originating process filed 7 November 2019 would be dismissed.

Legislative provisions

5. The Sapienzas rely on the statutory power in s 601AH(2) of the Corporations Act. Section 601AH relevantly provides:

(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:

(a)   ASIC reinstates the registration of a company under subsection (1) or (1A); 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).

ASIC to give notice of reinstatement

…

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 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 circumstances preceding the deregistration of LCW

6. LCW was registered as a company on 2 November 2018. Its initial director and secretary was Mr Ganatzos. Its share capital comprises 1,000 ordinary shares fully paid as to $10 each. According to the records of ASIC, Mr Ganatzos ceased to be a director on 19 March 2019 and Mr Talbot was appointed a director of LCW in his place. Mr Talbot resigned as a director on 28 March 2019 and Mr Duffy and Ms Kennedy were appointed directors of LCW in his place.

7. On 7 November 2018, LCW, as trustee for the LCW Property Trust, exercised a call option, the effect of which was that it entered into a contract for the sale of land as purchaser with the Sapienzas as vendors in respect of a property situated at Sirius Road, Lane Cove (the property). The contract for sale did not complete on 7 February 2019. On or about 26 March 2019, the Sapienzas agreed with LCW to vary the contract for sale such that the purchase price of $5,500,000 was to be paid as to $5,000,000 on completion and $500,000 on the earlier of the date that the Sapienzas provided LCW with vacant possession, or settlement of the sale of the property by LCW. The sale was subject to a lease agreement. Completion was to occur on 3 April 2019.

8. On 3 April 2019, the sale of the property to LCW on the amended terms completed and the Sapienzas entered into a Side Deed with LCW. The material terms of the Side Deed for present purposes are:

• LCW must pay $500,000 to the Sapienzas upon the earlier of the date that the Sapienzas provide LCW with vacant possession of the property, or settlement of the sale of the property by LCW during the remaining term of the Lease. The reference to the “Lease” was a reference to a lease agreement in respect of the property dated 1 August 2018 between the Sapienzas and Global Administration Pty Ltd as tenant: cl 2(a);

• LCW must not sell, transfer or otherwise deal with the property or permit a change of control of LCW without providing Paul Sapienza with 30 days written prior notice: cl 2(d);

• As security for payment of the purchase price, LCW agreed to grant the Sapienzas a charge over the property: cl 2(e);

• The parties agreed that the charge created a caveatable interest in the property entitling the Sapienzas to lodge a caveat on the title of the property on the earlier of receipt of a notice as envisaged by cl 2(d), the failure of LCW to pay the purchase price in accordance with the contract or the Sapienzas becomes aware of any breach of the contract by LCW or upon an insolvency event for LCW: cl 2(f).

9. On 19 June 2019, Ms Kennedy resigned as a director of LCW.

10. On 3 July 2019, Mr Duffy resigned as a director of LCW and Mr Ganatzos was appointed sole director and secretary of the company. Also on that date, Mr Duffy and Ms Kennedy transferred their shares in LCW to Mr Ganatzos. LCW failed to notify the Sapienzas of these changes.

11. On 11 July 2019, LCW transferred the property to Shen Enterprises Pty Ltd for a consideration of $7.04 million. LCW failed to provide the Sapienzas with 30 days prior notice of that transfer.

12. The Sapienzas take the position that on settlement of the sale of the property by LCW to Shen Enterprises, LCW was obliged to pay $500,000 plus GST to the Sapienzas under cl 2(a)(ii) of the Side Deed. LCW did not pay that amount to the Sapienzas.

13. On 23 July 2019, Mr Ganatzos the sole director of LCW, lodged with ASIC a Form 6010 application for voluntary deregistration of a company. That document was lodged by electronic lodgment by a registered ASIC agent on behalf of LCW and contained a declaration by Mr Ganatzos that “the company has no outstanding liabilities”.

14. On 6 September 2019, the Sapienzas provided vacant possession of the property to LCW and demanded payment of the amount of $500,000 plus GST. LCW was deregistered on 26 September 2019. On about 1 October 2019, Paul Sapienza became aware that the property had been sold by LCW when he unsuccessfully sought to lodge a caveat as registered proprietor.

The applicable principles

15. The applicable principles are uncontroversial. Three matters need to be considered. First, whether the application is made by “a person aggrieved by the deregistration”. Second, the Court must be “satisfied that it is just that the company’s registration be reinstated”. Third, the Court has a residual discretion whether to make an order: Deputy Commissioner of Taxation; Re James Hardie Australia Finance Pty Ltd (Deregistered) (2008) 170 FCR 545; [2008] FCA 1181 at [13] (Lindgren J).

16. Relevant considerations include the circumstances in which the company was deregistered, the purpose in seeking reinstatement, whether any person is likely to be prejudiced by reinstatement, and the public interest generally: Re ERB International Pty Ltd (deregistered) (2014) 283 FLR 223; [2014] NSWSC 200 (ERB International) at [5] (Brereton J).

Aggrieved person

17. The question whether an applicant under s 601AH(2) is a “person aggrieved by the deregistration” is considered by reference to legal rights and legal interests: Arnold World Trading Pty Ltd v ACN 133 427 335 Pty Ltd [2010] NSWSC 1369; (2010) 80 ACSR 670 at [43] (Barrett J).

18. Here, the Sapienzas rely upon their status as an asserted creditor of LCW for the purposes of the reinstatement application. They claim an entitlement to the amount of $500,000 plus GST under the Side Deed, or alternatively claim damages for breach of contract given the failure of LCW to give 30 days prior written notice of the change of control of LCW and the transfer of the property to Shen Enterprises.

19. In opposing the making of a winding up order if LCW is reinstated, the former directors took the position that the Sapienzas are not a creditor of LCW, contending that on the proper construction of the Side Deed, the amount of $500,000 plus GST never became payable, relevantly, because the “Lease” had been terminated before LCW sold the property to Shen Enterprises and hence the relevant condition of payment in cl 2(a)(ii) of the Side Deed was never satisfied. This construction argument did not address the other alleged breaches of the Side Deed.

20. It is not necessary to resolve this factual and legal dispute. The authorities acknowledge that it is often not appropriate in an application for reinstatement to go into factual matters which may be the subject of dispute: Pilarinos v Australian Securities and Investments Commission [2006] VSC 301; (2006) 24 ACLR 775 at [22] (Gillard J); Deputy Commissioner of Taxation v Australian Securities and Investments Commission; Re Civic Finance Pty Ltd (deregistered) [2010] FCA 1411 at [14]; (2010) 81 ATR 456.

21. It should be accepted that a person who, because of deregistration, has some right or potential value that has been extinguished, including a right to bring a claim against a company, and potentially a claim by the company against a third party, answers the description of a person aggrieved for the purposes of the reinstatement application: In the matter of Likehart Pty Ltd (deregistered) [2017] NSWSC 884 at [18] (Black J). I am satisfied that the Sapienzas answer this description.

Whether reinstatement is just

22. On an application for reinstatement, the Court is concerned with the justice of reinstating the company, not the justice of any proceedings which is proposed that the reinstated company might institute or resume: ERB International at [5], [10] citing the Victorian Court of Appeal in AMP General Insurance Ltd v Victorian WorkCover Authority [2006] VSCA 236 at [35].

23. In ERB International, Brereton J observed at [5]:

The provision that the court "may" order reinstatement if satisfied that it is "just" to do so has been said to confer a broad discretionary judgment on the Court. Relevant considerations include the circumstances in which the company was de-registered, the purpose in seeking its re-instatement, whether any person is likely to be prejudiced by reinstatement, and the public interest generally [Australian Competition and Consumer Commission v Australian Securities and Investments Commission [2000] NSWSC 316, [27]-[28]; (2000) 174 ALR 688, 693; 34 ACSR 232; Promnitz v ASIC [2004] FCA 22, [19]-[20]; JP Morgan Portfolio Services Ltd v Deloitte Touche Tohmatsu [2008] FCA 433, [4]; (2008) 167 FCR 212; (2008) 65 ACSR 636; AMP General Insurance Ltd v Victorian Workcover Authority [2006] VSCA 236].

24. The Sapienzas bear the burden of adducing evidence that persuades the Court that reinstatement is “just”.

25. Here, LCW was deregistered on the application of its newly appointed sole director, Mr Ganatzos, very shortly after it had disposed of the property on 11 July 2019, arguably in breach of its obligations to the Sapienza’s under the Side Deed: relevantly, without having given the Sapienzas notice of the change in control of the shareholders of LCW on 3 July 2019, and without giving the Sapienzas 30 days’ notice of the proposed transfer and without paying to the Sapienzas $500,000 under the Side Deed.

26. The purpose in seeking reinstatement is to enable the Sapienzas to bring their asserted claims for relief against LCW under the Side Deed. There is no material that suggests that any person is likely to be prejudiced by reinstatement and the public interest plainly supports reinstatement to permit the Sapienzas to pursue a potential claim against LCW. Further, there has been no delay in making the application for reinstatement. I am satisfied that it is just to reinstate LCW.

27. The effect of reinstatement is that the former director, Mr Ganatzos, will automatically resume office as the sole director and secretary of the company: s 601AH(5). As the Court of Appeal said in Mitzev v Foxman [2007] NSWCA 273 at [25]:

As s 601AH(5) itself recognises, the past can only partly be undone. Thus, a person who is a director immediately before deregistration becomes a director again “from the time when ASIC or the court reinstates the company”.

28. See also White v Baycorp Advantage Business Information Services Ltd [2006] NSWSC 441; (2006) 200 FLR 125 at [115]-[127] (Campbell J); CGU Workers Compensation (NSW) Ltd v Rockwall Interiors Pty Ltd [2006] NSWSC 690; (2006) 201 FLR 296 at [12]-[17] (Barrett J).

Conclusion and Orders

29. An order for reinstatement of LCW should be made under s 601AH(2). Orders should also be made reflecting the agreement between the Sapienzas and the former directors of LCW as interested persons in relation to the disposition of the balance of the claims for relief in the proceedings.

30. The Court orders that:

1. Pursuant to s 601AH(2) of the Corporations Act 2001 (Cth), the Australian Securities and Investments Commission (ASIC) reinstate the registration of LCW Property Holdings Pty Ltd (ACN 629 793 666) (deregistered).

2. The plaintiffs notify ASIC within 7 days of these orders.

3. The proceedings be otherwise dismissed.

4. There be no order as to costs to the intent that each party and interested persons bear their own costs.

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Amendments

17 March 2020 - Amendment to jurisdiction - not visible

Decision last updated: 17 March 2020