Mann, P. v Australian Securities Commission
[1993] FCA 541
•08 JULY 1993
PETER MANN v. AUSTRALIAN SECURITIES COMMISSION
No. NG3005 of 1992
FED No. 541
Number of pages - 4
Corporations
COURT
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Whitlam J(1)
CATCHWORDS
Corporations - application for reinstatement of registration - trustee of insolvent trading trust - relevance of meetings and proceedings prior to dissolutions.
Corporations Law s 574(3)
Denis v. McMahon (1989) 7 ACLC 283
Re Great Eastern Cleaning Services Pty Ltd (No.2) 1978 3 ACLR 886
Re Immunosearch Pty Ltd (1990) 8 ACLC 1031
G and G Nicol Finance Pty Ltd v. Commissioner of Corporate Affairs (1987) 5 ACLC 578
HEARING
SYDNEY, 19 March 1993
#DATE 8:7:1993
Counsel for the appellant: M.R. Gracie
instructed by Musgrave and Malcolm
Counsel for the respondent: C.I. Wong (Solicitor)
instructed by Peter J Stepek
Counsel for L.A. Developments T.I. Shaw
(Goulburn) Pty Ltd
instructed by Galland Elder Lulham
Counsel for Norco Co-Operative R.J. Webb
Limited
instructed by Stone and Partners
JUDGE1
WHITLAM J This is an application under s 574(3) of the Corporations Law for the reinstatement of the registration of Pileti Pty Limited ("the company"). The applicant was a director and member of the company at the time of the cancellation of its registration.
The company was incorporated on 16 November 1981 under the Companies Act, 1961 (NSW) and was dissolved on 13 April 1992. The Australian Securities Commission ("the Commission") appears to have cancelled the registration of the company following its failure to lodge annual returns for the 1989, 1990 and 1991 financial years.
The Commission was named as respondent in the application and does not oppose the relief claimed. Pursuant to O 71 r 10(1) leave has been granted to L.A. Developments (Goulburn) Pty Ltd and to Norco Co-Operative Limited, each of which opposes reinstatement.
The applicant learnt of the company's dissolution in an unfortunate way. On 7 September 1992 the company commenced proceeding no. NG 651 of 1992 in this Court against L.A. Developments (Goulburn) Pty Ltd and two other respondents. The next day the solicitors for those respondents wrote to the company's solicitors pointing out that the company had been deregistered on 13 April 1992 and that, as it did not now exist, it had no status to institute the proceeding. Accordingly they indicated that, unless the proceeding was discontinued, their clients would apply to strike it out.
The explanation offered by the applicant for his ignorance of this hapless situation is a familiar one. The registered office of the company was the office of the company's accountants, and the registered office had not been changed when the company changed accountants in April 1990. The applicant had instructed the new accountants to attend to all statutory requirements, and he never received from either the old or the new accountants any notice from the Commission dealing with the failure to file annual returns.
When the Commission cancelled its registration, the company was carrying on a restaurant business at Taree. The application and statement of claim in matter no. NG 651 of 1992 are annexed to the applicant's affidavit. They show that this case concerns representations made in connexion with the lease and a licence for the restaurant business. The applicant deposes that the company was "also" the trustee for the Mann Family Trust ("the Trust") and that he is the "appointor" of the Trust. No deed of settlement is annexed to his affidavit. Reinstatement is sought, according to the applicant, so that "in addition to proceeding with the litigation in proceedings number 651 of 1992 ... the Company would again act as trustee on behalf of the Mann Family Trust and continue trading as a corporate entity in other future ventures."
What does not emerge at all clearly from the applicant's affidavit is that the company was carrying on the restaurant business as trustee for the Trust. The accounts prepared by Bird Cameron as at 30 June 1992, which were tendered by the Commission, make this quite clear. The company does nothing but act as trustee for the Trust. The company has no assets in its own name other than its paid up capital of $2.
Counsel opposing the relief sought by the applicant submit that, were the company to be allowed to recommence business, it would be "hopelessly insolvent" and for that reason an order of reinstatement should not be made: Re Great Eastern Cleaning Services Pty Ltd (No. 2) (1978) 3 ACLR 886 at 887. I think that the applicant acknowledges in his affidavit that the company would be unable to pay its debts. After all, he wrote as much to Norco Co-Operative Limited on 2 May 1992. Even then he thought his only hope was litigation. Since then the restaurant has ceased trading and the Bird Cameron accounts reveal the parlous state of the Trust as at 30 June 1992. It is not necessary to descend into the detail of those accounts (and counsel for the applicant did not seek to do so) to accept that the limited information therein comfortably establishes the balance sheet insolvency of the company.
However, counsel for the applicant submits that the test is whether, upon reinstatement, the company's insolvency will get worse. He referred me to Denis v. McMahon (1989) 7 ACLC 283 where, in the course of allowing reinstatement so that a court action could continue, Demack J said (at 284): "Neither is this a case of a hopelessly insolvent company, where reinstatement would only multiply debts." I am afraid that I cannot extract the test contended for out of that sentence. On the contrary, it seems to me that his Honour was expressing his view of the usual consequences of reinstating a hopelessly insolvent company.
Quite apart from the solvency of the company, there are other considerations which are, in my view, relevant to the exercise of my discretion under s 574(3). One of these is the applicant's evidence about his attempts to straighten out the affairs of the company: See G and G Nicol Finance Pty Ltd v. Commissioner of Corporate Affairs (1987) 5 ACLC 578 at 581-582 and Re Immunosearch Pty Ltd (1990) 8 ACLC 1031 at 1034.
The applicant annexes 24 sheets marked "F" to his affidavit which he describes as the company's annual returns for 1989, 1990 and 1991. (These returns signed by the applicant on 23 September 1992 contain the only material in that affidavit or its annexure from which it may be discerned that the company acted solely as trustee for the Mann Family Trust.) There is a worrying symmetry to the directors' meetings and annual general meetings supposedly held on 1 December and 31 December in each of those years. More curious is the venue of the 1989 meeting at the restaurant premises in Taree during which time the applicant and his wife were living in Papua New Guinea. The document which causes me the most concern is the "deed of postponement" wedged between the 1989 and 1990 annual returns. This purports to have been executed under the common seal of the company on 1 July 1988. Yet the seal used is different to that used for the execution of the lease (annexure C) and the licence agreement (annexure D) on 11 September 1990. This seal incorporates the company's Australian Company Number, which is, to say the least, surprising since such a requirement was first introduced by the Corporations Law in 1991.
I should state that no submissions were made to me about those documents. However, I am not at all satisfied that the company's proceedings have been properly conducted and recorded.
Another important consideration is the status of what is incontestably an insolvent trading trust. The Bird Cameron accounts (note 1) state that the Trust "also owns Rental Property." This may be an error since the balance sheet of the Trust does not show such an asset. I do not know . Any such property may now be vested in the Commission by force of s 576 of the Corporations Law. See Re Waterbury Nominees Pty Ltd (1986) 11 ACLR 348. The applicant deposes that he has the power to appoint a new trustee. This could be done: see too s 6 of the Trustee Act 1925 (NSW). In any event, the applicant has furnished no information about such rental property, which could permit a view to be formed about whether the company, if reinstated, would be recommencing business or directions to be given under s 574(5).
A new trustee could also commence a fresh proceeding to pursue the Trust's claims in respect of the representations relating to the restaurant business. There may be some difficulty in procuring a new trustee for an insolvent trading trust and, of course, creditors of the Trust will have their own rights. However, that course provides a means of pursuing the claims without reinstating the company. No doubt, the discontinuance or dismissal of the matter no. NG 651 of 1992 will mean that the applicant (who is funding that litigation) will have wasted some expenditure on filing fees and the like: G and G Nicol Finance Pty Ltd v. Commissioner of Corporate Affairs at 580-582. Such inconvenience and expense does not, in my view, make it "otherwise just" to reinstate the company.
In all circumstances I think that I should not exercise my discretion in favour of ordering reinstatement. Counsel appearing by leave each submitted that the applicant was not "aggrieved by the cancellation" within the meaning of s 574(3). In view of the decision I have reached it is unnecessary to deal with the question of standing.
The application is dismissed.