Lee v Parker

Case [2020] FCA 1453

Federal Court of Australia

Lee v Parker [2020] FCA 1453

File number: NSD 528 of 2020
Judgment of: GRIFFITHS J
Date of judgment: 8 October 2020
Catchwords: CORPORATIONS – application for reinstatement of two companies under s 601AH of the Corporations Act 2001 (Cth) and appointment of a new liquidator – whether the Court is satisfied that it is just that the companies’ registration be reinstated – application allowed, subject to certain conditions
Legislation:

Corporations Act 2001 (Cth), s 601AH

Taxation Administration Act 1953 (Cth), s 269-45 of Sch 1

Cases cited:

Deputy Commissioner of Taxation v Australian Securities and Investments Commission; in the matter of Civic Finance Pty Limited (Deregistered) [2010] FCA 1411

In the matter of European Metal Recyclers Pty Ltd (in liq) (deregistered) [2018] NSWSC 946

Lee v Deputy Commissioner of Taxation; Silverbrook v Deputy Commissioner of Taxation [2020] NSWCA 95

Makita (Australia) Pty Ltd v Sprowles [2001] NSWCA 305; 52 NSWLR 705

Makrypodis v Eleisawy [2014] NSWSC 1429

Perera v Australian Securities and Investments Commission, in the matter of Hodder Rook & Associates Pty Limited [2019] FCA 2015

Pilarinos v Australian Securities and Investments Commission [2006] VSC 301

Sydneywide Distributors Pty Ltd v Red Bull Australia Pty Ltd [2002] FCAFC 157; 234 FCR 549

The Bell Group Limited v Australian Securities and Investments Commission [2018] FCA 884; 358 ALR 624
Division: General Division
Registry: New South Wales
National Practice Area: Commercial and Corporations
Sub-area: Corporations and Corporate Insolvency
Number of paragraphs: 39
Date of hearing: 8 October 2020
Counsel for the Plaintiffs: Mr T Cleary
Solicitor for the Plaintiffs: Gibson Howlin Lawyers
Counsel for the First Defendant: Mr T Marskell
Solicitor for the First Defendant: Wotton & Kearney Lawyers
Counsel for the Second Defendant: The Second Defendant did not appear

ORDERS

NSD 528 of 2020
BETWEEN:

JANETTE LEE

First Plaintiff

KIA SILVERBROOK

Second Plaintiff
AND:

GREGORY JAY PARKER

First Defendant

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

Second Defendant

order made by:

GRIFFITHS J

DATE OF ORDER:

8 october 2020

THE COURT ORDERS THAT:

1.Pursuant to s 601AH(2) of the Corporations Act 2001 (Cth), the second defendant reinstate the registration of Serif Pty Ltd ACN 081 122 232 (Deregistered) subject to compliance with the conditions set out in the second defendant’s letter dated 29 May 2020. 

2.Pursuant to s 601AH(2) of the Corporations Act 2001 (Cth), the second defendant reinstate the registration of Worldwide Speciality Property Services Pty Ltd ACN 066 573 671 (In liq) (Deregistered) (WSPS) subject to compliance with the conditions set out in the second defendant’s letter dated 29 May 2020.

3.Upon reinstatement of WSPS, and pursuant to ss 601AH(3)(b) and (d) of the Corporations Act 2001 (Cth), Mr David Ingram be appointed as liquidator of WSPS.

4.The plaintiffs notify the second defendant within seven days of these orders. 

5.The parties have liberty to apply to the docket judge for the further conduct of the substantive proceeding. 

6.The costs of the plaintiffs’ applications be their costs in the cause. 

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AGLC
Lee v Parker [2020] FCA 1453
Case
[2020] FCA 1453
Decision Date

CaseChat Overview and Summary

In the matter of Lee and others versus Parker and others, the applicants sought the reinstatement of two companies under section 601AH of the Corporations Act 2001 (Cth) and the appointment of a new liquidator. The Federal Court of Australia was required to determine whether the reinstatement of the companies' registration was just and appropriate, considering the circumstances surrounding their deregistration. The key legal issue was whether the Court should exercise its discretion to allow the reinstatement of the companies, considering the competing interests and the potential consequences of such an order.

The Court found that the focus in a reinstatement application should be on the justice of reinstating the company, not the justice of any proposed proceedings that the reinstated company might institute. The Court held that it was generally not appropriate to delve into disputed factual matters or contested opinions on subjects such as valuation. Instead, the Court should determine whether any proposed proceeding had a prima facie basis and was not futile. The expression "person aggrieved" was construed liberally to include those who have been damaged or injured in a legal sense. However, a shareholder or director by status alone would not necessarily be considered a person aggrieved. The Court also noted that there was no temporal restriction in the expression "person aggrieved" as long as there was a causal link between the grievance and the deregistration.

The Court found that the applicants were persons aggrieved by the deregistration of the companies and that it was just for the Court to reinstate the registration of the companies subject to certain conditions. The Court appointed Mr David Ingram as liquidator of Worldwide Speciality Property Services Pty Ltd upon reinstatement. The Court ordered that the costs of the applicants' applications be their costs in the cause.

In conclusion, the Federal Court of Australia allowed the reinstatement of the two companies' registration under section 601AH of the Corporations Act 2001 (Cth), subject to compliance with certain conditions. The Court exercised its residual discretion to order the reinstatement, taking into account the justice of reinstating the companies and the competing interests of the parties involved. The Court also appointed a new liquidator for one of the companies and ordered the costs of the applicants' applications be their costs in the cause.

Orders

Orders of the court

1. Pursuant to s 601AH(2) of the Corporations Act 2001 (Cth), the second defendant reinstate the registration of Serif Pty Ltd ACN 081 122 232 (Deregistered) subject to compliance with the conditions set out in the second defendant’s letter dated 29 May 2020.

2. Pursuant to s 601AH(2) of the Corporations Act 2001 (Cth), the second defendant reinstate the registration of Worldwide Speciality Property Services Pty Ltd ACN 066 573 671 (In liq) (Deregistered) (WSPS) subject to compliance with the conditions set out in the second defendant’s letter dated 29 May 2020.

3. Upon reinstatement of WSPS, and pursuant to ss 601AH(3)(b) and (d) of the Corporations Act 2001 (Cth), Mr David Ingram be appointed as liquidator of WSPS.

4. The plaintiffs notify the second defendant within seven days of these orders.

5. The parties have liberty to apply to the docket judge for the further conduct of the substantive proceeding.

6. The costs of the plaintiffs’ applications be their costs in the cause.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

Serif was the legal and beneficial owner of the two issued ordinary shares in WSPS. The plaintiffs were:(a)directors of WSPS between 16 September 1994 and 20 June 2019, with the first plaintiff being the secretary of that company during that time;(b)directors and secretaries of Serif from 22 December 1997 to 15 May 2016; and(c)each the legal and beneficial owner of 50% of the ordinary shares issued by Serif.The evidence and summary of background facts The plaintiffs relied upon three affidavits by the first plaintiff and an expert report by Mr Peter Haley, who provided an “indicative valuation” of the Patents. Mr Haley was cross-examined. Mr Parker relied upon two affidavits by his solicitor and an expert report by Mr Yves Hazan (primarily concerning US patent law) in response to Mr Haley’s report. Mr Parker also relied upon an expert report by Mr Grant Kepler, who responded to various questions regarding Mr Haley’s report. The Australian Taxation Office (ATO) has a judgment debt in the form of director penalties against the plaintiffs in the amount of $13,961,633.90, in respect of WSPS’s unpaid taxation liabilities (see Lee v Deputy Commissioner of Taxation; Silverbrook v Deputy Commissioner of Taxation [2020] NSWCA 95). It appears that the plaintiffs have sought special leave to appeal from that decision. The second plaintiff provided Mr Parker with a certified Report as to Affairs dated 29 April 2014 concerning WSPS. He estimated the value of the Patents as $18,848,613.00. The Report was accompanied by a document headed “WSPS Patent inventory 16 April 2014” which identified the Patents. There is a strong dispute regarding the value of the Patents. Mr Haley has given them an “indicative valuation” of approximately $20m based on a cost-based valuation methodology or $37,297.977.00 on a market-based methodology. Mr Parker objected to all of Mr Haley’s report on the basis it relied on factual assumptions which have not been made good by lay evidence. Mr Parker drew attention to the fact that the balance sheets for WSPS as at 30 June 2013 and 30 June 2014 contain no reference to the Patents being an intangible asset beneficially owned by WSPS. He also relied upon the criticisms levelled at Mr Haley’s report by both Mr Hazan and Mr Kepler. Consideration and determination Sub-sections 601AH(2), (3) and (5) are as follows:601AH Reinstatement…Reinstatement by Court(2)The Court may make an order that ASIC reinstate the registration of a company if:(a) an application for reinstatement is made to the Court by:(i) a person aggrieved by the deregistration; or(ii) a former liquidator of the company; and(b)the Court is satisfied that it is just that the company’s registration be reinstated.(3) If:(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).…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.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

I see no reason why the Court would decline the reinstatement in the exercise of its residual discretion. Conclusion For these reasons, both companies will be reinstated, subject to compliance with certain conditions set out in two letters dated 29 May 2020 from the second defendant, which are attached at Annexure A to these reasons for judgment. Mr David Ingram will be appointed liquidator of WSPS. ASIC should be notified of these matters. Having regard to the interlocutory character of the matter, I consider that it is appropriate to order that costs of the current part of the proceeding be the plaintiffs’ costs in the cause. The parties have liberty to apply to the docket judge for the future conduct of the proceeding.

Ratio Decidendi

Legal Principle Established

There is a strong dispute regarding the value of the Patents. Mr Haley has given them an “indicative valuation” of approximately $20m based on a cost-based valuation methodology or $37,297.977.00 on a market-based methodology. Mr Parker objected to all of Mr Haley’s report on the basis it relied on factual assumptions which have not been made good by lay evidence. Mr Parker drew attention to the fact that the balance sheets for WSPS as at 30 June 2013 and 30 June 2014 contain no reference to the Patents being an intangible asset beneficially owned by WSPS. He also relied upon the criticisms levelled at Mr Haley’s report by both Mr Hazan and Mr Kepler. Consideration and determination Sub-sections 601AH(2), (3) and (5) are as follows:601AH Reinstatement…Reinstatement by Court(2)The Court may make an order that ASIC reinstate the registration of a company if:(a) an application for reinstatement is made to the Court by:(i) a person aggrieved by the deregistration; or(ii) a former liquidator of the company; and(b)the Court is satisfied that it is just that the company’s registration be reinstated.(3) If:(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).…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 relevant legal principles are discussed in cases such as Pilarinos v Australian Securities and Investments Commission [2006] VSC 301 per Gillard J; Deputy Commissioner of Taxation v Australian Securities and Investments Commission; in the matter of Civic Finance Pty Limited (Deregistered) [2010] FCA 1411 per Jagot J; The Bell Group Limited v Australian Securities and Investments Commission [2018] FCA 884; 358 ALR 624 per McKerracher J; In the matter of European Metal Recyclers Pty Ltd (in liq) (deregistered) [2018] NSWSC 946 per Gleeson JA and Perera v Australian Securities and Investments Commission, in the matter of Hodder Rook & Associates Pty Limited [2019] FCA 2015 per Markovic J and the cases referred to therein. The relevant principles may be summarised as follows. (a)On an application for reinstatement, the focus is the justice of reinstating the company, not the justice of any proceedings which it is proposed that the reinstated company might institute.(b)It is important not to lose sight of the fact that a company’s registration is not reinstated for a particular purpose; rather, the reinstatement is for all purposes. (c)It is generally not appropriate in a reinstatement application to go into factual matters which are the subject of dispute. This is particularly so where the question arises whether a proposed action is doomed to fail and that question involves complex factual and legal matters. I see no reason why a similar approach should not be taken to contested opinions on a subject such as valuation. As Gillard J said in Pilarinos at [106] (emphasis added):106.The question of whether the proposed action was doomed to fail is a question which involves complex factual matters, and inferences that are to be drawn from the factual matters. Some of the facts and some of the inferences are very much disputed between the parties and involve reasonably complex questions of law. It is not appropriate in those circumstances for this Court to attempt to determine the likely outcome of any proceeding. That is best left to a Court hearing. Some of the matters raised are “fact sensitive” and it is inappropriate to attempt to resolve those on affidavit material. Mr Garde also raised the question of the proceeding being statute barred and also precluded by laches. The interest claimed is an equitable one. This involves interesting questions relating to limitations and, further, laches is a matter that is fact sensitive. (d)Without derogating from sub-paragraph (c) above, it is generally sufficient for the Court to determine on the material before it whether any proposed proceeding have a prima facie basis and are not futile because, for example, it is hopeless. (e)The expression “person aggrieved” is a broad one, which should be construed liberally. It includes a person who has been damaged or injured in a legal sense. It excludes, however, a person who is a mere busybody, who has no genuine interest in the outcome of a decision. A person aggrieved includes a person who has a genuine grievance as a result of a decision which prejudices his or her interest, which must be real and direct and can result from a person being subject to legal burden by a decision. A person aggrieved could include a shareholder who can demonstrate that he or she is a creditor of the company, or that there will be a surplus of assets and rights to dividends if the company were to be reinstated. (f)However, a shareholder (or a director), by that status alone, will not necessarily be a person aggrieved. For example, where a company is insolvent, neither a shareholder nor a director is aggrieved by the deregistration simply because, as a consequence of the insolvency, the shareholder has no asset of any value and the director’s office was displaced by the liquidator. (g)There is no temporal restriction in the expression “person aggrieved” as long as there is a causal link between the grievance and the deregistration. Consequently, a person can become aggrieved after the time of deregistration. (h)As to the requirement that reinstatement be “just”, the legislation does not provide any list of criteria, but relevant matters can include:(i)the circumstances in which a company came to be deregistered and the reasons for seeking the reinstatement order;(ii)the future activities of the company, if an order for reinstatement were made, and whether good use would be made of the reinstatement;(iii)whether any particular person is likely to be prejudiced by the reinstatement; (iv)any relevant public policy consideration; and(v)whether there has been unwarranted delay.(i)On an application for reinstatement the Court is concerned with the justice of reinstating the company, not the justice of any proceedings which the reinstated company might institute and/or prosecute. (j)It is also well settled that the Court has a residual discretion whether or not to order reinstatement.