In the matter of Lek Management Consulting Pty Ltd (ACN 152 615 060) (Deregistered)
[2019] VSC 261
•1 May 2019
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2018 02275
IN THE MATTER OF LEK MANAGEMENT CONSULTING PTY LTD
(ACN 152 615 060) (DEREGISTERED)
| COMMISSIONER OF STATE REVENUE | Plaintiff |
| v | |
| LEK MANAGEMENT CONSULTING PTY LTD (ACN 152 615 060) (DEREGISTERED) - and – AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION | First Defendant Second Defendant |
---
JUDICIAL REGISTRAR: | Hetyey JR |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 14 March 2019 |
SUPPLEMENTARY WRITTEN SUBMISISONS | 12 April 2019 |
DATE OF RULING: | 1 May 2019 |
CASE MAY BE CITED AS: | In the matter of Lek Management Consulting Pty Ltd (ACN 152 615 060) (Deregistered) |
MEDIUM NEUTRAL CITATION: | [2019] VSC 261 |
---
CORPORATIONS – Deregistered corporation – Corporations Act 2001 (Cth) – s 601AH(2) – Application to reinstate registration - Notice of winding up lodged same day as deregistration – Whether applicant person aggrieved – Whether Court satisfied it is just that company’s registration be reinstated – Whether public interest in reinstatement - Applicant’s ability to prove in liquidation of related entity - Whether utility in reinstatement.
---
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | State Revenue Office | |
| For the Defendant | JHK Legal |
JUDICIAL REGISTRAR:
Introduction
This is an application by the Commissioner of State Revenue (“the Commissioner” or “the plaintiff”) for the reinstatement of Lek Management Consulting Pty Ltd (“the Company” or “this Company”) pursuant to s 601AH(2) of the Corporations Act 2001 (Cth) (“the Corporations Act”). The matter was first commenced as a winding up proceeding brought by the Commissioner against the Company. However, the winding up application was overtaken by the Company’s deregistration.
The Company’s reinstatement is opposed by its former director, Mr Ben Lek. Initially, Mr Lek resisted the reinstatement on the basis that the underlying debt relied upon by the Commissioner in the winding up application was disputed. However, at the hearing, Mr Lek no longer pressed that ground of opposition. Instead, he now maintains that the reinstatement has no utility.
Procedural history
On 16 November 2018, the Commissioner filed his winding up application against the Company. The Commissioner alleged that the Company failed to comply with a statutory demand dated 8 August 2018. The statutory demand sought payment of the amount of $111,734.80 in respect of unpaid payroll tax, penalty tax and interest.[1]
[1]See the plaintiff's statutory demand dated 8 August 2018 which is attached to the originating process filed on 16 November 2018.
When the winding up proceeding first came before the Court on 19 December 2018, it emerged that the Company had in fact been deregistered on 19 November 2018 in accordance with section 601AA of the Corporations Act. The effect of the Company’s deregistration was that it had ceased to exist.[2] The matter was adjourned to enable the plaintiff to consider his position in light of the Company’s deregistration. On 22 January 2019, the Commissioner filed his interlocutory process seeking the Company’s reinstatement.
[2]Section 601AD(1) of the Corporations Act.
The Australian Securities and Investments Commission (“ASIC”) has been notified of the making of the application for reinstatement in accordance with rule 2.8 of the Supreme Court (Corporations Rules) 2013 (Vic). ASIC takes no active role in the proceeding and does not oppose the plaintiff’s application subject to certain conditions being satisfied.[3] One such condition was that it be named as a defendant to the proceeding. That occurred by order dated 9 April 2019.
[3]See exhibit I to the affidavit of Liane Jin sworn 29 January 2019 and supplementary letter attached to the plaintiffs’ written submissions.
Circumstances surrounding deregistration
The Company was incorporated on 11 August 2011 apparently for the purposes of receiving management fees from a related entity, Sky Communications Pty Ltd (in liquidation) (“Sky”).[4] Those management fees effectively constituted remuneration received by Mr Lek.[5] Mr Lek deposes that the Company did not receive any further management fees from Sky after June 2014 and effectively ceased trading from that time.[6]
[4]See affidavit of Mr Ben Lek sworn 18 February 2019 para [4].
[5]Ibid.
[6]Ibid para [5].
In her affidavit of 24 January 2019, Ms Liane Jin, a solicitor employed by the Commissioner, explains that the Company’s debt arises from outstanding assessments issued by the plaintiff pursuant to the Payroll Tax Act 2007 (Vic) (“Payroll Tax Act”) and the Taxation Administration Act 1997 (Vic) (“Taxation Administration Act”) on 20 January 2017, 23 November 2017 and 3 April 2018, respectively. She exhibits to her affidavit a Certificate of Evidence issued under s 128 of the Taxation Administration Act to establish the Company’s liability in respect of these assessments and the total sum claimed.[7] The information contained in the Certificate is essentially the same as the particulars set out in the schedule to the plaintiff’s statutory demand.
[7]See exhibit LJ-3 to the affidavit of Ms Liane Jin affirmed 24 January 2019.
ASIC records disclose that on 14 March 2018, the Company’s director lodged with ASIC a form 6010 for the voluntary deregistration of the Company.[8] Relevantly, Mr Lek specifically declared in the form that “the [C]ompany ha[d] no outstanding liabilities”.
[8]Ibid, exhibit LJ-5.
In her earlier affidavit of 19 December 2018, Ms Jin explains that on 22 May 2018, the plaintiff contacted ASIC to request a deferral of the director’s application for voluntary deregistration of the Company on the basis of outstanding payroll tax liabilities.[9] ASIC responded on 31 May 2018 and advised that the period remaining before deregistration would be extended by 180 days.[10]
[9]Affidavit of Ms Liane Jin affirmed 19 December 2018, para [8].
[10]Ibid, exhibit L-2.
On 22 August 2018, Mr Lek wrote to the State Revenue Office querying the debt the subject of the statutory demand. In essence, Mr Lek contended that it was inappropriate for the Commissioner to have “grouped“ the payroll tax liabilities of both the Company and Sky. However, no formal application to set aside the statutory demand was ever filed by the Company pursuant to s 459G of the Corporations Act within the requisite 21 day period.
On 30 October 2018, the Commissioner provided a detailed response to Mr Lek’s correspondence of 22 August 2018.[11] The letter stated that the amount of the debt claimed in the statutory demand, together with further interest, remained payable immediately. In addition, the letter sought to explain the legal basis upon which the payroll tax liabilities of the Company and Sky were grouped. The grouping of payroll tax liabilities is a matter to which I will return.
[11]Affidavit of Ms Vijitha Satkunanathan affirmed 5 March 2019, exhibit VS-2.
As previously noted, the plaintiff filed its winding up application on 16 November 2018 (a Friday). Ms Jin deposes that the plaintiff relied upon a current and historical company extract maintained by ASIC and retrieved that same day.[12] The extract showed that at the time the winding up application was initiated, the Company remained registered with a deregistration (or strike-off action) in progress.
[12]Affidavit of Ms Liane Jin affirmed 24 January 2019, exhibit LJ-4.
On the following Monday, 19 November 2018 at 12:05 pm, the plaintiff then lodged a form 519 notifying ASIC of the winding up application. Ms Jin deposes that the deregistration of the Company occurred the very same day.[13] That is borne out by a further current and historical company extract obtained on 19 December 2018.[14] It is common ground that the 180 day period by which ASIC deferred the deregistration of the Company expired on the day the plaintiff filed the form 519 notice.
[13]Affidavit of Ms Liane Jin affirmed 22 January 2019.
[14]This later current and historical company extract was not exhibited to any affidavit but instead handed up to the Court at the hearing of the matter on 14 March 2019. That document has been marked for identification purposes as "MFI – 1".
Following the last hearing of the winding up application on 19 December 2018, the Commissioner’s lawyers further liaised with ASIC in relation to the deregistration. ASIC responded in an email of even date advising that because the Company had already been deregistered the Commissioner should contemplate making an application for reinstatement under s 601AH of the Corporations Act. The Commissioner’s interlocutory application for reinstatement was then filed on 24 January 2019.
Legislative provisions
Section 601AH of the Corporations Act 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);
(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.
...
(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.
Adopting the language of that provision, two key issues fall for consideration:
(a) is the Commissioner a person aggrieved by the deregistration of the Company?; and
(b) can the Court be satisfied that it is just that the Company be reinstated?
Is the plaintiff a person aggrieved?
The expression “a person aggrieved by the deregistration” is not to be narrowly construed.[15] However, to satisfy s 601AH(2)(a), a person must establish that their grievance is genuine, real and not merely theoretical.[16] Their legal rights or interests must have been damaged or affected by the deregistration.[17] The person must therefore demonstrate a causal link between their grievance and the deregistration,[18] although it does not matter that the grievance arose following deregistration.[19]
[15] Attorney-General of Gambia v N’Jie [1961] AC 617, 634; Re Proserpine Pty Ltd [1980] 1 NSWLR 745, 749 [15] (“Proserpine”); Pacanowski v Australian Securities Commission (1995) 57 FCR 173, 175; Re James Hardie Australia Finance Pty Ltd (Deregistered) (2008) 170 FCR 545 (”Re James Hardie”) 548 [14]; GIS Electrical Pty Ltd v Melsom (2002) 172 FLR 218; Blazai Pty Ltd v Gateway Development (St Marys) Pty Ltd[2009] NSWSC 800 at [22]–[23] (“Blazai”).
[16]See Pilarinos & Ors v Australian Securities and Investment Commission (2006) 24 ACLC 775 (“Pilarinos”) 776 [7].
[17]Australian Competition and Consumers Commission v Australian Securities and Investments Commission (2000) 174 ALR 688 (“ACCC v ASIC”) 692-3 [24] (per Austin J); Blazai at [22]-[23]; Callegher & Anor v Australian Securities and Investments Commission (2007) 218 FCR 81, 90 [50]; Re Newfront Pty Ltd (Deregistered) [2008] SASC 127 (“Newfront”) at [10]; Arnold World Trading Pty Ltd v ACN 133 427 335 Pty Ltd (2010) 80 ACSR 670, 678-9 [43] (per Barrett J).
[18]Pilarinos 782 [49]; Proserpine at 749 [15]; ACCC v ASIC at 692-3 [24]–[25]; Blazai at [22]-[23]; Newfront at [10].
[19]Pilarinos 782 [49].
The question may be put succinctly: how is the plaintiff, as an unpaid creditor of the Company, any worse off as a result of the Company’s deregistration?
Here, the Commissioner is in a worse position as a result of the deregistration because he has lost the opportunity to:
(a) obtain a winding up order;
(b) request that a liquidator investigate potential claims for the purpose of determining whether any money or other assets can be recovered by the Company for the benefit of creditors; and
(c) submit a proof of debt and claim the amounts assessed under the Payroll Tax Act and the Taxation Administration Act for the purpose of obtaining a potential dividend in the liquidation of the Company.
The Commissioner has been denied the ability to pursue these outcomes because the Company ceased to exist upon its deregistration.
The director submits that the plaintiff has available to him another avenue of redress; namely, the ability to prove in the liquidation of Sky which was wound up on 23 February 2018 by Court order.[20] However, on the threshold question of whether the plaintiff is a person aggrieved, the existence or otherwise of an alternative remedy does not change the fact that the deregistration has resulted in the plaintiff being unable to pursue his rights and discharge his obligations in respect of this Company. Further, there is no requirement that a plaintiff must demonstrate a possible benefit arising from reinstatement in order to qualify as a person aggrieved.[21] All of these matters are more appropriately considered at the next stage of the inquiry, ie: whether the reinstatement is just.
[20]See affidavit of Mr Ben Lek sworn 18 February 2019 at paragraph [19] and affidavit of Vijitha Satkunanathan affirmed 5 March 2019 at paragraph [17].
[21]Deputy Commissioner of Taxation v Australian Securities and Investments Commission; in the matter of Civic Finance Pty Ltd (Deregistered) (2010) 81 ATR 456 (”Civic Finance”) 465 [16] (per Jagot J).
The circumstances of the Company’s deregistration also support the conclusion that the Commissioner is a person aggrieved. As previously mentioned, it is apparent that the Company was deregistered on the basis of the director’s declaration that “the [C]ompany ha[d] no outstanding liabilities”. However, at least two of the Commissioner’s assessments had already been issued when Mr Lek submitted that declaration on 14 March 2018. Those assessments are dated 20 January 2017 and 23 November 2017, respectively and claimed a total sum of almost $46,000. There is therefore real doubt as to whether the director’s declaration was true and complete at the time he made it.
In light of the above, I consider that the Commissioner is a “person aggrieved by the deregistration” and has sufficient standing to seek the reinstatement of the Company.
Is it just that the Company’s registration be reinstated?
As previously stated, under s 601AH(2)(b), a Court may reinstate a company’s registration if it considers that it is “just” to do so.
In ACCC v ASIC,[22] Austin J identified a number of factors relevant to an assessment of whether a reinstatement would be just:
[22](2000) 174 ALR 688, 693 [27]-[28].
The wording of the section is very broad, and the cases confirm that it gives the court a wide discretion. The court takes into account the circumstances in which the company came to be dissolved; whether, if the order were made, good use could be made of it; and whether any person is likely to be prejudiced by the reinstatement: Re Kilkenny Engineering Pty Ltd (in liq) (1976) 13 SASR 258; 1 ACLR 285; Drysdale v Australian Securities Commission (1992) 10 ACLC 1427; Steelmaster Pty Ltd (in liq) v McCann (1992) 6 ACSR 494 .
…
These matters are only factors to be weighed in the exercise of the court's discretion. They are not limits on the court's power. Here, the reinstatement is likely to lead to the company being joined in proceedings in which the ACCC will seek orders for pecuniary penalties against it. The company may therefore be prejudiced. The court may nevertheless conclude that it is just that the company's registration be reinstated, having regard (for example) to the strong public interest which is involved. It is appropriate for the court to take into account questions of public interest in exercising its discretion under s 601AH:
Re Immunosearch Pty Ltd
(1990) 2 ACSR 455.
Public interest considerations
The public interest served by a reinstatement has also been identified in a number of cases which have been decided since ACCC v ASIC. In Re James Hardie, Lindgren J held that the public responsibilities of the Deputy Commissioner of Taxation were comparable to those of the Australian Competition and Consumer Commission.[23] Further, where a company’s deregistered status has prevented the Deputy Commissioner of Taxation from pursuing a claim for outstanding tax liabilities, this has previously been held to support the conclusion that a reinstatement would be just.[24]
[23]Re James Hardie 548 [16].
[24]Civic Finance 467-8 [27]; Deputy Commissioner of Taxation v Australian Securities and Investments Commission; In the matter of Anttila Enterprises Pty Ltd (Deregistered) (“Anttila Enterprises“) (2011) 82 ATR 472.
The public interest in the plaintiff pursing a claim to recover tax liabilities owed to the State is, in my view, analogous to the public interest identified in the cases referred to above. It is a factor which weighs in favour of reinstatement.
Circumstances surrounding deregistration
I have already said something about the circumstances and timing of the deregistration of the Company and the response of the Commissioner.
At the hearing of the application, Mr Lek submitted that the plaintiff effectively prejudiced himself by filing the winding up application so close to the expiry of ASIC’s deferral of the deregistration process. It is suggested that the plaintiff ought to have filed the winding up application earlier or at least written to ASIC seeking a further extension of the deregistration.
There is some force to this argument. However, whilst potential shortcomings in the plaintiff’s administrative processes may well have contributed to the present situation, there is also a degree to which the timing of the deregistration is simply unfortunate.
Further, when taken as a whole, the evidence does not reveal any undue delay by the Commissioner in generating the relevant assessments or in pursuing his rights and statutory obligations during the period the Company’s deregistration was pending. Steps were taken to liaise with ASIC about the deregistration process, to serve the statutory demand and to eventually file the winding up application.
Utility of reinstatement
The reinstatement of the Company is principally opposed by Mr Lek on the basis that it lacks utility. In essence, Mr Lek submits that because the plaintiff has proved for the outstanding tax liabilities in the liquidation of Sky, there would be little benefit or value in reinstating the Company only to subsequently wind it up.
As previously noted, the plaintiff grouped the Company and Sky for payroll tax purposes. It is appropriate to explain the basis upon which that has occurred.
Section 72 of the Payroll Tax Act 2007 (Vic) relevantly provides:
(1)If a person or set of persons has a controlling interest in each of 2 businesses, the persons who carry on those businesses constitute a group.
(2)For the purposes of this section, a person or set of persons has a controlling interest in a business if—
...
(c) in the case of a business carried on by a corporation—
(i) the person or each of the set of persons is a director of the corporation and the person or set of persons is entitled to exercise more than 50% of the voting power at meetings of the directors of the corporation...
Section 81(1) of the Payroll Tax Act, in turn, sets out the legal effect of grouping two businesses as follows:
If a member of a group fails to pay an amount that the member is required to pay under this Act in respect of any period, every member of the group is liable jointly and severally to pay that amount to the Commissioner.
Ms Vijitha Satkunanathan, a solicitor employed by the Commissioner, deposes that since 1 March 2013, the Company and Sky were grouped for the purposes of s 72 of the Payroll Tax Act on the basis that Mr Lek was the sole director of both companies and was entitled to exercise more than 50% of the voting power at meetings of directors of those entities.[25] Accordingly, assessments were initially issued to Sky for the same amounts as those later addressed to the Company.[26] Ms Satkunanathan further explains that because Sky failed to pay those assessments by their due dates, the Company became jointly and severally liable for those amounts pursuant to s 81(1) of the Payroll Tax Act.[27]
[25]This grouping was specifically said to have occurred pursuant to section 72(2)(c)(i) of the Payroll Tax Act - see the affidavit of Vijitha Satkunanathan affirmed 5 March 2019 para [9].
[26]Affidavit of Vijitha Satkunanathan affirmed 5 March 2019 para [12].
[27]Ibid at [13].
As previously noted, on 23 February 2018, Sky was placed into liquidation by Court order. Whilst the Commissioner has proved in the liquidation of Sky[28] for the same debt owed by the Company, he has not received any dividend to date.[29]
[28]See exhibit DHT- 1 to the affidavit of Dylan Haydn Trickey sworn 14 March 2019.
[29]Affidavit of Vijitha Satkunanathan affirmed 5 March 2019 para [17].
However, Mr Lek submits there are real prospects that unsecured creditors, including the Commissioner, will receive a dividend in the external administration of Sky as a result of the following matters:
(a) On 27 February 2018, a sale of the majority of Sky’s assets occurred. The purchaser was a further entity associated with Mr Lek; Sky Communications Australia Pty Ltd (“Sky Australia”);[30]
[30]See statutory report prepared by the liquidator of Sky dated 23 May 2018 and found at exhibit DHT-2 to the affidavit of Dylan Haydn Trickey sworn 14 March 2019 (part [2.1]).
(b) The total cash consideration received from the sale was $250,000. As part of the transaction, Sky Australia assumed certain employee entitlements.[31] It was also agreed that if the combined value of employee entitlements exceeded the purchase price, Sky Australia would make up the shortfall;[32]
[31]Ibid part [2.2].
[32]Ibid part [2.1].
(c) At the date of the appointment of the liquidator, Sky had debtors worth in excess of $1.4 million.[33] Non-related party unsecured creditors were owed approximately $2.79 million, whereas 12 related parties claimed over $2.6 million in the liquidation;[34]
[33]Ibid part [2.2].
[34]Ibid.
(d) According to the liquidator’s statutory report dated 23 May 2018, unsecured creditors were projected to receive a distribution of between 0 to 42 cents in the dollar.[35]
(e) At the time of publication of the liquidator’s statutory report, Mr Lek “indicated that he may be in a position to provide funding towards a [deed of company arrangement (“DOCA”)] which would allow for the creditors to receive a return that would be greater and or in a shorter timeframe than in a liquidation scenario”[36] [original emphasis]. Mr Lek also suggested that under a possible DOCA, related-party creditor claims and claims by Sky Australia as a subrogated creditor would be foregone;[37] and
(f) Correspondence sent from the liquidator’s office to Mr Lek’s lawyers on 13 March 2019 suggested a revised estimated return to creditors of Sky of between 2 to 25 cents in the dollar.[38]
[35]Ibid part [3].
[36]Ibid part [2.5].
[37]Ibid.
[38]See exhibit DHT-1 to the affidavit of Dylan Haydn Trickey sworn 14 March 2019.
At the hearing of the matter on 14 March 2019, it was not apparent whether the estimated return referred to in the 13 March 2019 correspondence was in the liquidation or predicated upon Sky coming out of liquidation and executing a DOCA. Nor was the status of the liquidation clear at that time (noting that the liquidator’s statutory report was then over 9 months old). As a consequence, orders were made for the filing of supplementary material going to these matters along with further details of Mr Lek’s proposed DOCA.
Supplementary affidavit material filed on behalf of Mr Lek on 29 March 2019 suggests that the last discussions between the liquidator’s office and Mr Lek about a possible DOCA occurred in November 2018 and that the proposal very much remains a work in progress.[39] Further, Mr Lek’s lawyer, says that “[i]t is anticipated [that] once the [liquidator is] in a better position to determine what the final dividend might be in a liquidation, [he] will [then] liaise with the former [d]irector of Sky to formulate a DOCA proposal and compare the potential returns ... to a dividend in the liquidation“.[40]
[39]Further affidavit of Dylan Haydn Trickey sworn 29 March 2019 at [4].
[40]Ibid.
It is apparent that despite the possibility of a DOCA being noted in the liquidator’s statutory report of 23 May 2018, Mr Lek’s DOCA proposal has not advanced significantly since that time. Nor is the liquidator in any better position to provide creditors of Sky with a concluded opinion as to the relative benefits of a DOCA (if any) compared with the likely distribution to creditors in Sky’s liquidation. These matters are premature and speculative.
The extent to which the Commissioner may ultimately recover the jointly owed taxation debts by way of dividend in the liquidation of Sky or under a DOCA is also a matter of speculation. However, even on the most optimistic scenario, a significant portion of those taxation liabilities will not be recovered in connection with Sky. I accept the plaintiff’s submission that in the event he is unable to prove for these same liabilities in a liquidation of this Company, the State will be denied the opportunity to further recover these taxation debts.
As a general proposition it may be both appropriate and necessary to reinstate a company, even though it is sought to be immediately wound up.[41] That said, there are a number of features of this Company which are noteworthy: (a) information regarding the Company’s financial position prior to its deregistration is very limited;[42] (b) the Company did not apparently trade for some time prior to deregistration[43]; and (c) there is no specific evidence of transactions concerning the Company’s assets or liabilities which warrant closer inspection. However, it does not follow that the Commissioner should be deprived of the opportunity of having those matters investigated by a liquidator.[44] It is sufficient, for present purposes, that there is simply a possibility of financial recoveries being achieved by a liquidator.[45]
[41]See In the matter of Global Communications Technologies Pty Ltd (Deregistered); Lindholm v Australian Securities and Investments Commission [2005] VSC 453; CGU Workers Compensation (NSW) Ltd v Rockwall Interiors Pty Ltd (2006) 201 FLR 296; Legrande Enterprises Pty Ltd v Australian Securities and Investments Commission [2009] FCA 718 (”Legrande Enterprises”) and Civic Finance.
[42]See the Company’s last tax return for the year ending 30 June 2015 at exhibit BL-1 to the affidavit of Mr Ben Lek sworn 18 February 2019.
[43]See affidavit of Mr Ben Lek sworn 18 February 2019 para [5].
[44]See Anttila Enterprises 474 [12] (McKerracher J).
[45]Legrande Enterprises [29] (Besanko J).
On balance, I am satisfied that the reinstatement of the Company serves a useful purpose. A reinstatement would enable the plaintiff to press for the orderly winding up of the Company and the proper investigation of its affairs.
Prejudice of reinstatement
On the question of prejudice, Mr Lek submits that if the Company is reinstated and subsequently placed into liquidation, he will be obliged to spend time and energy dealing with another liquidator (noting that Sky is also currently in liquidation). He also submits that he may be prejudiced by being investigated for potential insolvent trading in his capacity as director.
In my view, such prejudice is not sufficiently significant to militate against reinstatement. Moreover, in the event the Company has traded whilst insolvent, this is a matter which would warrant thorough investigation. The duty to prevent insolvent trading found in s 588G of the Corporations Act serves the important policy objective of discouraging directors from acting in a commercially dishonest or irresponsible way by allowing a company to incur debts when insolvent.[46] It also provides a remedy for the repayment of a company’s debts. However, investigations into insolvent trading or other potential claims can only occur if the Company is reinstated and a liquidator appointed.
[46]Edwards v Australian Securities and Investments Commission (2009) 264 ALR 723, 724 (per Campbell JA).
Ancillary orders
Where a company was in liquidation immediately prior to being deregistered, reinstatement will rarely be allowed unless there are funds available to enable a liquidator to perform his/her functions.[47] Accordingly, the Court may utilise its power under s 601AH(3)(d) to require the applicant to fund the liquidator in those circumstances.[48]
[47]Promnitz v Australian Securities and Investments Commission (2004) 22 ACLC 108, 111 (per Goldberg J).
[48] ACCC v ASIC 698-9 [55] & [60] (per Austin J) and Re James Hardie 558 [87] (per Lindgren J).
However, this requirement may not be necessary where the relevant company was never the subject of a previous winding up.[49] That is of course the position here.
[49]Legrande Enterprises [30] (per Besanko J). See also Anttila Enterprises and Civic Finance which involved similar facts to the present case and where no order such condition was imposed.
On the question of whether the Court should make an ancillary order that a liquidator be put in funds, the Commissioner submits that he is constrained in the way he expends taxpayer money. He also submits that the situation regarding this Company is no different to that which ordinarily arises in a winding up proceeding where consent is provided by a liquidator to perform his/her duties with respect to a presumed insolvent company. I accept both of those propositions.
Mr Paul Vartelas has provided his consent to act as liquidator[50] should the Company be reinstated and subsequently wound up by the Court. In addition, he has recently confirmed in a letter to the Commissioner[51] that if appointed he will:
[50]Filed 12 December 2018.
[51]Mr Vartelas’ letter dated 11 April 2019 was attached to the plaintiff’s supplementary submissions filed on 12 April 2019.
(a) carry out his functions as liquidator as he would for any appointment where there is a presumption of insolvency and where there may be an absence of funds in the liquidation;
(b) carry out the necessary preliminary investigations acting in the best interests of creditors as required by the Corporations Act and, where appropriate, seek funding from the creditors of the Company to pursue any claims that may be available; and
(c) seek his costs as priority in the liquidation from any realisations made.
In these circumstances, it is unnecessary for the Court to make an ancillary order requiring the Commissioner to provide funding for any subsequent liquidation of the Company.
Conclusion
For all of the above reasons, I am satisfied that the Commissioner is a person aggrieved and that it is just for the registration of the Company to be reinstated.
I will hear from the parties as to the formulation of orders and the appropriate disposition of the plaintiff’s winding up application.
---
1
14
0