Manny v David Lardner & Associates
[2018] ACTSC 159
•31 May 2018
SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Case Title: | Manny v David Lardner & Associates |
Citation: | [2018] ACTSC 159 |
Hearing Dates: | 1 March, 26 April, 23 May 2018 |
DecisionDate: | 31 May 2018 |
Before: | McWilliam AsJ |
Decision: | Direct the plaintiff to serve a copy of this judgment on any creditors of the Companies and stand the matter over in order to give the plaintiff the opportunity to bring in a consent of liquidator and any undertaking for the funding of the costs of that liquidator. |
Catchwords: | CORPORATIONS LAW – reinstatement – plaintiff seeking to reinstate three companies to bring proceedings – where companies formerly in liquidation – where no liquidator has consented to act upon reinstatement – whether reinstatement just |
Legislation Cited: | Corporations Act 2001 (Cth) ss 482, 601AH Court Procedures Rules 2006 (ACT) rr 30, 210, 223 |
Cases Cited: | AMP General Insurance Ltd v Victorian WorkCover Authority [2006] VSCA 236; 15 VR 175 Arnold World Trading Pty Ltd v ACN 133 427 335 Pty Ltd [2010] NSWSC 1369; 80 ACSR 670 In the matter of ERB International Pty Ltd (deregistered) [2014] NSWSC 200; 98 ACSR 124 JP Morgan Portfolio Services Ltd v Deloitte Touche Tohmatsu [2008] FCA 433; 167 FCR 212; 65 ACSR 636 Yeo v Australian Securities and Investments Commission; Re Ji Woo International Education Centre Pty Ltd (deregistered) [2017] FCA 1480 |
Texts Cited: | Corporations Legislation 2018 (Thomson Reuters, 2018 ed) |
Parties: | Jeff Manny (Plaintiff) David Lardner & Associates (First Defendant) |
Representation: | Counsel Self-represented (Plaintiff) J Larkings (First Defendant) |
| Solicitors Self-represented (Plaintiff) Boettcher Law (First Defendant) | |
File Number: | SC 527 of 2016 |
The plaintiff has brought two amended applications in proceedings, filed on 28 February 2018. The first is brought pursuant to s 601AH(2) of the Corporations Act 2001 (Cth) (Act) and seeks to reinstate three corporate entities that were deregistered on 15 May 2016. If that application is successful, the plaintiff seeks a further order pursuant to s 482 of the Act for the grant of a stay of the winding up either indefinitely or for a limited time.
The second application then seeks to join those corporate entities to the present proceedings as co-plaintiffs in the substantive claim against the first defendant.
The parties
The plaintiff, Mr Manny, was the sole director and shareholder of three corporate entities: Jeff Manny Constructions Pty Ltd ACN 083 451 870; JK3L Pty Ltd ACN 081 795 128; and Lonagann Pty Ltd ACN 099 576 904 (Companies). Mr Manny was self-represented.
The first defendant is the former solicitor for Mr Manny and the Companies, who were all parties in family law proceedings conducted in 2010 and 2011. The first defendant was represented on the applications by Mr Larkings of counsel, from whom the Court received significant assistance, both orally and in writing, which has reduced the time taken to resolve the issues on the applications.
The Australian Securities and Investments Commission (ASIC) was named as a respondent on the application. The attitude of ASIC has been considered below, but it did not appear at the hearing.
Relevant provisions
Section 601AH of the Act provides:
Reinstatement by ASIC
(1)…
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).
ASIC to give notice of reinstatement
(4) ASIC must give notice of a reinstatement in the Gazette.
(4A) If an application was made to ASIC for the reinstatement of a company's registration, ASIC must give notice of the reinstatement to the applicant.
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 parts of s 482 of the Act that are material to this application are as follows:
Power to stay or terminate winding up
(1) At any time during the winding up of a company, the Court may, on application, make an order staying the winding up either indefinitely or for a limited time or terminating the winding up on a day specified in the order.
(1A) An application may be made by:
(a) in any case--the liquidator, or a creditor or contributory, of the company; or
…
(2) On such an application, the Court may, before making an order, direct the liquidator to give a report with respect to a relevant fact or matter.
(2A) If such an application is made in relation to a company subject to a deed of company arrangement, …[not applicable here]
(3) Where the Court has made an order terminating the winding up, the Court may give such directions as it thinks fit for the resumption of the management and control of the company by its officers, including directions for the convening of a general meeting of members of the company to elect directors of the company to take office upon the termination of the winding up.
(4) The costs of proceedings before the Court under this section and the costs incurred in convening a meeting of members of the company in accordance with an order of the Court under this section, if the Court so directs, forms part of the costs, charges and expenses of the winding up.
(5) Where an order is made under this section, the company must lodge an office copy of the order within 14 days after the making of the order.
Legal principles applying to the present applications
Factors relevant to reinstatement of a company
In deciding whether to reinstate a deregistered company, the Court considers the circumstances in which the company came to be dissolved, whether good use could be made of the order if granted, whether any person is likely to be prejudiced by the reinstatement and the public interest: Australian Competition and Consumer Commission v Australian Securities and Investments Commission [2000] NSWSC 316; 174 ALR 688; 34 ACSR 232.
The power to reinstate a company is purely discretionary and this includes a residual discretion to refuse the order even where the elements are satisfied: AMP General Insurance Ltd v Victorian WorkCover Authority [2006] VSCA 236; 15 VR 175.
If the basis for reinstatement is that the company has a cause of action that it might litigate, evidence is needed to show that reinstatement is likely to lead to the litigation being pursued and also that there is a benefit to the company or its creditors, including the applicant for reinstatement, in the litigation being pursued: Simitzis v Australian Securities and Investments Commission [2017] VSC 614.
If a company would be insolvent upon reinstatement, then reinstatement may be refused in the event that the applicant fails to undertake to pay the reasonable fees of a liquidator: Hanna v Australian Securities and Investments Commission (No 2) [2011] FCA 1491; 286 ALR 706.
If a company that is reinstated has been wound up, the liquidator will not automatically be restored to office on reinstatement and the Court will need to appoint a liquidator: JP Morgan Portfolio Services Ltd v Deloitte Touche Tohmatsu [2008] FCA 433; 167 FCR 212; 65 ACSR 636.
The Court is entitled to impose conditions upon reinstatement to ensure that the order operates in a just manner, and such conditions may, in an appropriate case, include an order for payment of costs of a third party incurred in considering the reinstatement application served upon it: Re Gia Firenze Investments Pty Ltd [2013] NSWSC 99 at [12]. This principle is relevant because procedurally, the first application for re-instatement should have been made by commencing separate proceedings. I have treated the first defendant as a ‘third party’ with a right to be heard on the application.
The Court’s power to grant a stay of a winding up
Some of the cases containing the general principles have been usefully collected in Thomson Reuters annotated Corporations Legislation (2018 ed) at [CA.482.40]. They include the following:
(a)The grant of a stay is discretionary and the onus is on the applicant to make out a positive case for a stay: Re Warbler Pty Ltd (1982) 6 ACLR 526 (Re Warbler).
(b)The provision is available even if the affairs of the company are fully wound up and the liquidator has commenced the process of deregistration: Arnold World Trading Pty Ltd v ACN 133 427 335 Pty Ltd [2010] NSWSC 1369; 80 ACSR 670.
(c)Drawing from cases such as Re Warbler; Re Telescriptor Syndicate Ltd [1903] 2 Ch 174; Re Mascot Home Furnishers Pty Ltd [1970] VR 593; Re Data Homes Pty Ltd (in liq) [1972] 2 NSWLR 22, relevant factors to the exercise of the discretion include:
(i)the persons affected, whether they have notice of the application, and their attitude to it (whether they consent or at least do not oppose);
(ii)the company’s financial position (trading and solvency) and any investigations by the liquidator;
(iii)the timing of the application; and
(iv)broader policy and public interest concerns (such as the legislative policy against delay in the liquidation process, and whether the grant of the stay would be consistent with commercial morality and the public interest).
(d)It is contrary to the public interest to terminate the winding up of a company if, after termination, it would remain insolvent: Re Nature Springs Pty Ltd (in liq) (1994) 13 ACSR 50 at 51.
Although they do not constitute an exhaustive list, guideline principles drawn from a number of authorities, including Re Warbler, were set out by Palmer J in Leveraged Capital Pty Ltd (in liq) v Modena Imports Pty Ltd (in liq) [2010] NSWSC 739 at [13]:
– the applicant must make out a positive case for the favourable exercise of the Court’s discretion;
– the applicant must show the nature and extent of the creditors, and whether all debts have been discharged;
– the attitude of creditors, contributories and the liquidator is a relevant consideration;
– the applicant must show the current trading position and general solvency of the company;
– the applicant must provide a full explanation of any non-compliance by the directors with their statutory duties;
– the applicant must explain the general background and circumstances leading to the winding up order;
– the applicant must show the nature of the company’s business and whether the conduct of the company was in any way contrary to “commercial morality” or “the public interest”.
In Gematech Pty Ltd v Bardi Investments Pty Ltd [2008] NSWSC 196, Hammerschlag J also referred to the applicable authorities, some of which have been cited above, and said at [26]-[29]:
[26] Firstly, the solvency of the Company is to be demonstrated by the applicants who bear the onus to do so by leading the “fullest and best” evidence of the company’s financial position: Commonwealth Bank of Australia v Begonia (1993) 11 ACSR 609. Proper verification of assets and liabilities is critical to rebut the presumption of insolvency. Unaudited accounts and unverified claims of ownership or valuation are not ordinarily probative of [solvency]: Expile Pty Ltd v Jabb’s Excavations Pty Ltd [2003] NSWCA 163; (2003) 45 ACSR 711 [at [16]].
[27] In QBE Workers’ Compensation Pty Ltd v P Russell Enterprises Pty Ltd [2005] NSWSC 1128 at [26] White J restated the correct approach as follows:
“....the Court is unlikely to be persuaded to act on the evidence of a single director/shareholder without external confirmation. That confirmation is typically obtained either from the liquidator of the company, if he has carried out sufficient investigations so as to put himself in a position to express an informed opinion, or from the evidence of an external accountant.”
[28] Secondly, in considering the application, the Court is to have regard not merely to the interests of creditors but to the public interest, including whether granting the order would be detrimental to commercial morality: Re Telescriptor Syndicate Ltd; Re Mascot Home Furnishers Pty Ltd; Re Data Homes Pty Ltd; Re WarblerPty Ltd.
[29] In the context of public interest and commercial morality Buckley J Re Telescriptor Syndicate Ltd required to be satisfied that the trading operations of the company had been “fair and above board” and that there was not “an ugly side to the picture”, see also Krextile Holdings Pty Ltd v Widdows [1974] VicRp 83; [1974] VR 689 at 694.
Those comments have resonance to the evidence before the Court on this application.
Whether the applicant is a person aggrieved by the deregistration
The expression ‘a person is aggrieved by the deregistration’ in s 601AH(2)(a)(i) of the Act should be given a broad construction: GIS Electrical Pty Ltd v Melsom [2002] WASCA 302; 172 FLR 218; 43 ACSR 481 at [55]; Yeo v Australian Securities and Investments Commission; Re Ji Woo International Education Centre Pty Ltd (deregistered) [2017] FCA 1480 at [16] per Gleeson J.
While the mere fact that a person is a shareholder or a director of a deregistered company does not of itself establish that person to be a person aggrieved for the purpose of s 601AH(2) of the Act, where that person is also a creditor or someone who may have had an expectation of a distribution from surplus assets or a dividend from retained profits, that person is prejudicially affected by deregistration of the company, and thus a person aggrieved: see Casali v Crisp [2001] NSWSC 860; 165 FLR 79 (Casali) at [27] per Young CJ in Equity; Re Llenruk Pty Ltd [2013] NSWSC 1430 at [14].
Counsel for the first defendant drew the Court’s attention to the statement of Barrett J in Melluish v Underwood Development Pty Ltd [2004] NSWSC 429 at [6]:
A shareholder does not, by that status alone, have the character of a “person aggrieved” for this purpose. In those cases where the company is insolvent, neither a shareholder nor director is aggrieved by the deregistration 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. This was recognised in Re Peter Conyers Holdings Pty Ltd (1996) 14 ACLC 1835. As Young J observed inCasali v Crisp (2001) 165 FLR 79, a shareholder needs to show some particular prejudice, such as also possessing the status of creditor or, in his Honour's words, "that there might well be a surplus of assets if the company was reinstated and certain events occurred”.
It has also been stated in Wyse & Young International Pty Ltd v Corrado [2015] NSWSC 1863 at [43] that it is not enough that a person is a creditor. The person must show a real economic interest in the company being reinstated.
In March 2013 (after the Companies had gone into liquidation), Mr Manny had issued invoices to each of the three companies in their own names for substantial director’s remuneration ($400,000 per year) over the period July 2003 to June 2009. He claims to be a creditor. There is a ‘Liquidator’s Annual Report’ dated 16 July 2014 in evidence, but it is ambiguous as to whether the liquidators here accepted he was a creditor in any way based on those invoices or earlier invoices addressed to the ‘Jeff Manny Group’. Apart from statutory creditors, the report refers to ‘other creditors’ that have been in contact with the Liquidators, with debts owing of approximately $21,490, however the names of those creditors are not specified. Further, the report refers to related entities of the Companies and to the Director claiming that related entities are owed significant funds by the Companies. Mr Manny may have been included as a ‘related entity’.
When one turns to the presentation of accounts and statement signed by the liquidator on 8 March 2016 and filed with ASIC in respect of each of the Companies, a number of unsecured creditors are referred to but again, not specified. For example, the combined value of unsecured creditors for JK3L Pty Ltd (in liq) was estimated to be $125,000. It may have been that the liquidators had accepted Mr Manny was a creditor, but for a lesser value than he claimed.
The onus is plainly on Mr Manny to put sufficient evidence before the Court. However, in my view, a Court considering that evidence, as part of assessing whether a person is ‘aggrieved’ under the Act, is not required to step into the shoes of a liquidator and actually assess whether the invoices issued by a director constituted a proof of debt in order to find that Mr Manny is a person aggrieved. Here, there is evidence of invoices issued, which were not suggested to be fraudulent; there is evidence that the liquidators were aware of the claims of related entities as unsecured creditors; and there is the possibility that Mr Manny as shareholder may recover some worth in the Companies through the legal claim if it succeeds (discussed below) and depending of course on the amount of damages recovered. There is no question that the litigation is likely to be pursued, as Mr Manny has already filed a claim in these proceedings mistakenly including the Companies as parties. Drawing those strands of evidence together, I accept that he is a person aggrieved within the broad definition of that phrase.
Whether it is just to reinstate the Companies
Circumstances in which the Companies came to be deregistered
The circumstances in which the Companies came to be deregistered are part of the legal action Mr Manny would have the Companies pursue.
The Companies were parties to proceedings in the Family Court of Australia in 2010. On 27 August 2010, orders were made in that Court which included a restraint on Mr Manny and the Companies from selling or disposing any properties owned by them.
On 10 October 2010, further orders were made by consent which, among other things, restrained both Mr Manny and the Companies from selling or disposing of any of the properties owned by them, save as to two specified properties in the suburb of Page.
Mr Manny contends the consent orders ought not to have been entered into by the Companies and that the first defendant was negligent in the advice given in that regard. There may also have been an alternative case that the first defendant failed to follow his instructions. In either case, the contention is that the orders were not in the interests of the Companies and it led the Companies into financial difficulties with the lending institutions, specifically the ANZ Bank, who issued a number of default notices, the last of which was dated 30 November 2010.
On 22 December 2010, the ANZ Bank appointed receivers to 13 mortgaged properties owned by JK3L Pty Ltd. On 21 February 2011, the ANZ Bank appointed administrators to the Companies. On 18 April 2011, the creditors of the Companies resolved to wind up the Companies and appointed Murray Smith and Shane O’Keeffe as liquidators of the Companies.
Whether good use could be made of the reinstatement
The purpose for reinstatement is to pursue the cause of action in negligence against the first defendant. There appears to be at least an arguable case to be run on behalf of the Companies. An action in negligence against a former solicitor in respect of advice given before entering into consent orders is a cause of action available to the Companies and sufficient evidence to establish the basic elements of such a cause of action was before the Court such as to satisfy me that the action was not fanciful.
For example, the first defendant accepted it was retained by the Companies as well as by Mr Manny. The Companies were parties to the litigation in the Family Court of Australia and were named on the orders restraining them from dealing with property. The relationship between the Companies and the first defendant is likely to be one to where a duty of care was owed.
It is also arguable that the Companies were either given legal advice or did not receive the appropriate legal advice before entering into consent orders. It is possible that such advice or lack thereof fell short of the standard required of a reasonably competent legal practitioner. Since cases such as Attwells v Jackson Lalic Lawyers Pty Ltd [2016] HCA 16; 259 CLR 1 (Attwells) and Kendirjian v Lepore [2017] HCA 13; 259 CLR 275, it is also arguable that the advocate’s immunity from suit does not apply to the type of conduct likely to be in question in a future action of the type contemplated in respect of the Companies. The conduct in question led to a consent or settled position between the parties. Whether or not it was so intimately connected with work in court so as to attract the immunity may be a question of fact and degree.
The orders restraining the Companies from acting to reduce their debt level to the ANZ Bank may have caused loss and damage to the Companies in the timing of the appointment of liquidators and ultimately the winding up of the Companies.
The first defendant did not accept that the Companies had even an arguable case. Detailed submissions were put directed to the immunity from suit, the lack of a breach of duty and the lack of causation.
However, the argument about the advocate’s immunity from suit relied upon an application of the principles in Attwells to the facts that may differ from that ultimately found by a court in possession of all the facts. The arguments about lack of any breach and causation were each based on evidentiary matters (or lack thereof), and relied on orders made in the Family Court of Australia or the Companies already being in default before the first defendant was retained. While such arguments may well be relevant to the first defendant’s defence of any litigation prosecuted by the Companies, they cannot be said to amount to a complete and conclusive defence of the litigation, such that any claim by the Companies would be considered hopeless.
The first defendant then submitted that the Companies were hopelessly insolvent, such that any monies recovered by the prospective litigation could not result in any of the Companies being put back into the position of solvency.
While the evidence does establish a lack of solvency which led to the Companies being wound up, I do not accept the evidence goes so far as to establish the Companies were hopelessly insolvent such that the Court would be satisfied there was no prospect of a benefit ultimately being obtained by the pursuit of the litigation. The Companies as at the date the first defendant was retained owned real property assets of very substantial value. What happened after that, whereby the house of cards came tumbling down, may or may not be attributable to how the Family Court proceedings unfolded at the critical juncture and again, the argument is that the slide into insolvency of the Companies was directly attributable to the conduct of the first defendant.
Likely prejudice
The first defendant does not suffer any operable prejudice by reason of the reinstatement. The Court is concerned with matters that might affect the justice of the reinstatement, not the justice of any proceedings proposed to be instituted: In the matter of ERB International Pty Ltd (deregistered) [2014] NSWSC 200; 98 ACSR 124 (ERB International) at [10]. In that case, Brereton J went on to state at [14] that it will be a very rare case that merely reinstating a company will be prejudicial to a potential defendant.
Delay has in other cases been raised as an issue relevant to prejudice, however I am not aware of any delay in commencing proceedings being raised as having caused any prejudice to the first defendant here.
Normally the Court should have evidence of ASIC’s position before it decides an application for reinstatement: Reid v Action Insulation Engineers Pty Ltd [2009] NSWSC 1182. The position of ASIC is that it does not oppose the reinstatement if a registered liquidator is appointed to each of the Companies.
One matter of concern is any prejudice suffered by other creditors. I cannot be confident on the evidence that all the creditors have been served. In MiltonbrookPty Ltd v Westbury Holdings Kiama Pty Ltd [2008] NSWSC 38; 71 NSWLR 262 at [85] Spigelman CJ said:
It is axiomatic that when a statutory power like s 601AH(2) is conferred on a court, the legislature intends that procedural fairness will be accorded to all who may be affected by the order, unless there is a clear statement to the contrary. The denial of procedural fairness by a court is a ‘fundamental irregularity’ which would entitle a person aggrieved to set aside an order as a matter of unconditional right.
The outstanding creditors currently have received no dividend. They are thus unlikely to be affected by litigation that might cause the Companies to fall into greater debt, but in any event, Mr Manny has indicated that he is prepared to give an undertaking to fund the litigation. If the litigation is successful, the position of the creditors as a whole will be improved. However, it is not for the Court to pre-empt what the creditors might say if they were given the opportunity to be heard. As they will in theory be affected by the order, they are entitled to be heard. For reasons that follow, that opportunity can still be provided because no final order can be made without the consent of a liquidator. It is therefore appropriate to direct that a copy of this judgment be served on each creditor so that if they choose, they may seek to be heard before final orders are made.
The public interest
This consideration is neutral on the facts of the present case. There is no particular public interest either in favour of, or against, reinstatement. If anything, public policy favours reinstatement of the Companies to enable the potential causes of action to recover funds for the benefit of the creditors to be explored.
It is just to reinstate the Companies on conditions
The first defendant relied in its submissions on Casali at [31] where Young CJ in Equity stated:
The authorities show that, normally, it is not just to reinstate an insolvent company so that issues can be litigated which were not clearly signalled at the time of deregistration a fortiori when such reinstatement would increase its debt.
This case is not what I might be described as ‘normal’, because the issues of alleged negligence arise out of advice given in a separate family dispute. It is only after the loss had been suffered and proper reflection was given to what might have caused that loss that the cause of action has emerged. While I accept that it is relevant to consider whether the issue was clearly signalled at the time of deregistration as part of assessing whether it is just to reinstate the Companies, I do not consider that it was unreasonable for Mr Manny to fail to raise the claims he now wishes to fund the Companies to bring, prior to the liquidators taking steps to deregistering them. The further distinguishing consideration (discussed below) is that Mr Manny is prepared to give an undertaking so that the Companies do not increase their debts.
The appointment of a liquidator
As submitted by the first defendant and accepted by Mr Manny, there is no such liquidator yet consenting to be appointed to act, despite the fact that the proceedings were expressly adjourned to enable Mr Manny to resolve that issue.
Mr Manny has confirmed that the previous liquidator does not wish to be involved. The first defendant complains about the quality of the evidence demonstrating service on the previous liquidator, however the previous liquidators had formally resigned before the Companies were deregistered. They were discharged. While it is desirable that the previous liquidators be reappointed (see Stone v ACN 000 337 940 Pty Ltd [2008] NSWSC 1058; 68 ACSR 424), it is not essential and s 601AH(3)(b) of the Act empowers the Court to make any other order it considers appropriate, which includes appointing a different liquidator, as was done after a detailed discussion of the relevant authorities by Brereton J in ERB International at [40].
In In the matter of VG Sotir Investments Pty Ltd [2017] NSWSC 1381, Black J stated at [16] that on balance, where a plausible claim against the company in question had been articulated and the plaintiff had established standing to bring the reinstatement application, his Honour was satisfied that the company should be reinstated, but only on the basis that it was reinstated in a winding up, and the plaintiff had first given an undertaking to fund the liquidator personally enforceable against him, to a level that was sufficient to permit the liquidator to deal with the litigation. Given that conclusion, Black J took the approach of standing the matter over for a short time in order to give the plaintiff the opportunity to bring in the consent of a liquidator, and any undertaking he was prepared to provide for the funding of the costs of the liquidator, the amount of which his Honour indicated would be a matter for negotiation between the plaintiff in that case and the liquidator.
Appreciating that the facts in that case were slightly different, in that in the case before Black J, the plaintiff wanted to reinstate the company in order to bring proceedings against it, the same approach nevertheless seems appropriate in the circumstances of this case. Mr Manny has demonstrated that he is aggrieved, including that there is an arguable case, and on fine balance, that the damages recoverable from any successful action may be of sufficient quantum for a benefit to be derived.
One factor that may entice a liquidator to consent to the appointment is that as stated above, Mr Manny has now confirmed to the Court that he would be prepared to give a personal undertaking to fund the liquidator in the pursuit of proceedings by the Companies, in the event they were reinstated. However, as no liquidator has yet been identified, the likely fees are not yet known. The form of any such undertaking can await the critical step of the appointment of a liquidator. I consider it just to reinstate the Companies upon those two matters being addressed.
A further issue raised by the first defendant was that r 30(4) of the Court Procedures Rules 2006 (ACT) (Rules) requires companies to be represented in proceedings by a solicitor. I accept that while the Court is able to grant leave for a director to represent the Companies, it is unlikely that it would do so here, due to the complexity of the claim sought to be agitated. However, that will be a consideration for the liquidator, if and when one consents to act.
Whether the winding up of the Companies ought be stayed
It was made very clear that Mr Manny seeks relief under s 482 of the Act because he does not want the involvement of a liquidator in the pursuit and conduct of proceedings against the first defendant. He wishes to maintain total control over the decisions of the Companies with regard to the litigation and the only way that he is able to do that is if the Companies upon reinstatement are taken out of liquidation by the winding up being terminated.
Mr Manny submitted that there was no evidence the Companies were insolvent as at May 2016, when they were deregistered and to the extent that there were insufficient funds, that lay at the hands of the liquidator. Mr Manny took the Court to information provided and statements made by the liquidator and to a number of bank statements in an effort to persuade the Court that there were errors made by the liquidator and that in fact, when the Companies were deregistered, they were solvent.
Alternatively, Mr Manny took the Court to a bank statement in the name of JK3L Pty Ltd into which he had recently deposited funds, resulting in a positive closing balance of $7065.83 with a view to establishing that the Companies would have access to those funds as soon as they were reinstated and thus be solvent.
Having read the totality of the evidence provided by Mr Manny, and having regard to the considerations set out in the authorities above, I am not persuaded that an order under s 482 of the Act should be made.
The overriding difficulty is that Mr Manny has not established that the Companies either were or will be solvent. The bank statements of themselves (containing small amounts) are insufficient to establish solvency as they are but one aspect of the financial picture of a company. There is no external accountant or independently audited accounts to verify the assertions of solvency made by Mr Manny.
On the contrary, the final presentation of accounts and statement to ASIC in evidence for each of the companies and indicated the existence of secured creditors to the value of at least $1 million for each of the companies, unsecured creditors in respect of all three companies to an estimated combined value of $252,000, and no dividend payable to any class of creditor (noting that this estimate may include some cross-collateralisation, and did not take into account the litigation contemplated against the first defendant).
To the extent that criticisms are made of the previous liquidators, they are made by Mr Manny as the sole director and shareholder, without external confirmation and I could not see anything in the evidence that suggested the final accounts were in any way to be impugned.
While I have not accepted the Companies to be hopelessly insolvent, for the reasons given above, such that a successful legal action may carry some benefit for Mr Manny, that does not mean that I am able to find that any of the companies would be solvent upon reinstatement (as opposed to following any successful litigation). Accordingly, it would be contrary to the public interest to terminate the winding up of any of them upon reinstatement.
Application for joinder
It is noted that a reinstatement order cannot limit the reinstated company’s existence to specific purposes (Re Future Life Enterprises Pty Ltd (1994) 33 NSWLR 559). However, given that the purpose for which reinstatement was sought is so that the Companies may join in the proceedings against the first defendant, if reinstatement is ordered, it would be appropriate that they be joined pursuant to rr 210 and 223 of the Rules, as the Companies are plainly interested persons.
However, if Mr Manny is unable to obtain a liquidator, or having received legal advice, the liquidator determines not to pursue the proceedings, the application for joinder will become unnecessary. Accordingly, the outcome of the application for joinder must await the finalisation of the application for reinstatement.
Conclusion
During the hearing I canvassed with the parties other conditions that may be appropriate if the Companies were reinstated. One of these included making it clear (for abundant caution) that the first defendant retained the ability to raise any defences in the litigation, such as the expiry of any limitation period. In light of my findings on the two applications, the terms of any conditions can be addressed if the critical hurdle of the consent of a registered liquidator is brought in by Mr Manny.
As foreshadowed, I direct Mr Manny to serve a copy of this judgment on any creditors of the Companies and I will stand the matter over for a period of six weeks in order to give him the opportunity to bring in a consent of liquidator and any undertaking for the funding of the costs of that liquidator.
The question of costs ought await that ultimate outcome.
| I certify that the preceding sixty-four [64] numbered paragraphs are a true copy of the Reasons for Judgment of her Honour Associate Justice McWilliam. Associate: Date: |
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