Simitzis v Australian Securities and Investments Commission
[2017] VSC 614
•11 October 2017
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S CI 2017 02827
IN THE MATTER OF: SIPPY DOWNS OPERATIONS PTY LTD (in liquidation)
(ACN 106 672 208)
| PETER SIMITZIS | First Plaintiff |
| GEORGIA SIMITZIS | Second Plaintiff |
| v | |
| AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION | Defendant |
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JUDGE: | Matthews JR |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 18 August 2017 |
DATE OF JUDGMENT: | 11 October 2017 |
CASE MAY BE CITED AS: | Simitzis v ASIC |
MEDIUM NEUTRAL CITATION: | [2017] VSC 614 |
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CORPORATIONS – Reinstatement of deregistered company – Whether applicants are ‘persons aggrieved’ – Exercise of discretion – Whether reinstatement just – Corporations Act 2001 (Cth), s 601AH(2) – Application refused.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr T L Bevan | Thomson Geer |
| No appearance for the Defendant | ||
| For Party Intervening, Isaac Szmerling | Ms A J Golding | Colin Biggers & Paisley |
JUDICIAL REGISTRAR:
Introduction
The plaintiffs in this application, Peter Simitzis and Georgia Simitzis (‘the applicants’), seek an order under s 601AH(2) of the Corporations Act 2001 (Cth) (‘the Act’) directing the Australian Securities and Investments Commission (‘ASIC’) to reinstate the registration of Sippy Downs Operations Pty Ltd (in liquidation) (ACN 106 672 208) (‘the Company’) (‘the Application’).[1] The Company was deregistered on 28 October 2012 following the conclusion of the winding up of the Company. The Federal Court made orders on 3 February 2011 for the winding up of the Company and appointed Geoffrey Niels Handberg as liquidator. If the Company is reinstated, then the applicants also seek orders that Anthony Robert Cant be appointed as liquidator of the Company.[2]
[1]By order made on the Court’s own motion, the Application was referred to me for hearing and determination.
[2]The originating process seeks an order that Mr Cant be appointed as liquidator if the Company is reinstated. The applicants’ outline of submissions seeks that Mr Cant and Renee Sarah Di Carlo, also of the firm Romanis Cant, be appointed as liquidators. Exhibited to Mr Cant’s affidavit sworn 24 July 2017 is a consent of liquidator to the appointment from both Mr Cant and Ms Di Carlo: exhibit ‘ARC-2’. If reinstatement were to be ordered, this position would need to be clarified.
At the time the Company was wound up, Mr Simitzis was a director and Ms Simitzis was a shareholder of the Company. The only other shareholder of the Company was Concord Lane Pty Ltd (‘Concord Lane’). Ms Simitzis is the director, company secretary and shareholder of Concord Lane, and Mr Simitzis is a former director and former shareholder of Concord Lane.[3]
[3]This information is taken from ASIC searches of the Company and of Concord Lane as at 22 February 2017, which are exhibits ‘PXT-6’ and ‘PXT-7’ respectively to the affidavit of Patrick Xavier Tuohey sworn 15 August 2017.
While not entirely clear on the evidence before the Court, it appears that the only ‘asset’ of the Company if it was to be reinstated is a cause of action which Mr Simitzis asserts it has against Isaac Szmerling, the Company’s former solicitor. The applicants want the Company reinstated so that Supreme Court proceedings already commenced in 2017 by Mr Simitzis, the Company, and Concord Lane against Mr Szmerling can continue.[4]
[4]In Supreme Court Proceeding No. S CI 2017 00404 (‘the Other Proceeding’).
Mr Szmerling sought leave to intervene in the Application. The applicants opposed that granting of leave, relying on the endorsement by the Court of Appeal in Chalker v Clark & Ors of Whelan J’s observation at first instance that:
It is often not appropriate for prospective defendants to a proceeding proposed to be pursued after reinstatement of a deregistered company to be permitted to make submissions as to the merits of the proposed action on the reinstatement application. In some circumstances, it is appropriate to entertain such submissions. For example, where it can be demonstrated that reinstatement is futile, as the proposed cause of action is clearly statute barred.[5]
[5]Chalker v Clark & Ors [2008] VSCA 92, [33] (‘Chalker’).
The applicants also relied on the statements by Gillard J in Pilarinos & Ors v ASIC that such submissions will be successful only in ‘the clearest of clear cases’, and that the Court’s preferences should be that:
the proper venue for the cause of action to be heard and determined is a court or statutory tribunal. The parties will then have every opportunity to fight the case in a proper setting, to have the advantage of discovery, to test the other party’s case, and to properly present their cases.[6]
[6]Pilarinos & Ors v ASIC [2006] VSC 301, [29] (‘Pilarinos’).
Mr Szmerling also relied on Chalker. Like the interveners in that case, Mr Szmerling is an interested party as he is directly affected by the reinstatement application, since he is a defendant to the Other Proceeding. In Chalker, Maxwell P noted that the interested parties there were the only active respondents and if they had not been permitted to intervene, there would have been no contradictor.[7] Maxwell P then went on to state that:
Not only did they have a proper interest to assert, and proper submissions to make about why the appeal should fail, but it was in the public interest that there be a contradictor for the assistance of the court.[8]
[7]Chalker, [50].
[8]Chalker, [51].
After hearing argument from counsel for the applicants and for Mr Szmerling, I granted leave for Mr Szmerling to intervene. If he had not been allowed to intervene, there would have been no active respondent to the Application and I had formed the view that I would be assisted by the presence of a contradictor. Further, as will become clear, there was highly relevant information which only came to the Court’s attention through the evidence adduced by Mr Szmerling.
For the reasons set out below, I will dismiss the applicants’ application for the reinstatement of the Company.
Affidavits relied upon
The applicants rely on the following affidavits (and exhibits thereto) in support of their application:
(a) Peter Simitzis, sworn 24 July 2017 (‘Simitzis Affidavit’);
(b) The proposed liquidator of the Company, Anthony Robert Cant, sworn 24 July 2017 (‘Cant Affidavit’); and
(c) Konstantin Rotarou sworn 16 August 2017 (‘Rotarou Affidavit’). Mr Rotarou is a partner of the law firm Melbourne Lawyers & Mediators who, until 16 August 2017, were the solicitors for the applicants in this proceeding.[9]
[9]A notice of solicitor ceasing to act was filed by Melbourne Lawyers & Mediators on 16 August 2017. Counsel appeared for the applicants at the hearing on 18 August 2017, but at that time there was no solicitor on the record for the applicants.
In opposition to the application, Mr Szmerling relies on the affidavit (and exhibits thereto) of Patrick Xavier Tuohey sworn 15 August 2017 (‘Tuohey Affidavit’). Mr Tuohey is a partner of the law firm Colin Biggers & Paisley, the solicitors for Mr Szmerling in relation to this application and in respect of the Other Proceeding.
I was also assisted by the written outlines of submissions provided by both counsel.
Background[10]
[10]These facts are taken from the affidavits and exhibits thereto, as set out above.
The Company was registered in Victoria on 15 October 2003. Mr Simitzis was the director and company secretary from that time to 28 October 2012, when the Company was deregistered. From the time of its registration to 27 May 2009, the Company was called ‘Sippy Downs Development Pty Ltd’.
Prior to its winding up, the Company operated the ‘Tropical Inlander Resort’ in Mildura (‘the Resort’). According to Mr Simitzis, this activity was conducted pursuant to a management agreement whereby the Company was reimbursed for its expenses of operating the Resort and received a fee of $12,000 (excluding GST) per month. Mr Simitzis states that the freehold on which the Resort was located was held by a company called Inlander Resort Pty Ltd which by 2010 had been placed into receivership. Mr Simitzis does not state whether this company was related to the Company or otherwise controlled by him. He states that he had offered to purchase the land from the receiver and exhibits a copy of the draft offer. It is apparent from the face of that document that the offer was made by Mr Simitzis however the offer states that the purchaser will be ‘a newly incorporated entity of which I will be the sole director’.[11] Mr Simitzis states in his affidavit that one consequence of the winding up of the Company was that it ‘lost the opportunity’ to purchase this property, whereas it appears the purchaser was to be a different entity. These apparent contradictions were not the subject of evidence or argument, however it may be that nothing much turns on them for the purposes of the Application. Mr Simitzis deposes that the property was sold to a third party.
[11]Exhibit ‘PS-12’.
Mr Simitzis states that Mr Szmerling, practising under the name ‘Chadwicks The Law Firm’ had acted for him and his group of companies since about 2000, doing almost all the legal work generated by that group of companies.
Mr Simitzis deposes that on 20 August 2010 the Company received a statutory demand from the Deputy Commissioner of Taxation in the amount of $125,534.36 (‘Statutory Demand’) and that on the same day he retained Mr Szmerling to deal with the Statutory Demand (‘Retainer’). He states that the Deputy Commissioner of Taxation subsequently made an application to wind up the Company (‘Originating Process’) which was served on his former accountants, Lowe Lippman, on 7 December 2010, but the Originating Process did not come to his attention until after orders had been made on 3 February 2011 for the winding up of the Company.
Mr Simitzis states that in October 2011,[12] he and Ms Simitzis refinanced their home with the Bank of Queensland (‘BOQ’) so as to pay out loans owed by the Company to the National Australia Bank (‘NAB’) in respect of which he says they were guarantors. He says that on 6 October 2011, he and Ms Simitzis paid NAB a total of $393,019.51.
[12]For the reasons set out in paragraph 52 below, this date appears incorrect and should be October 2010.
The Company was deregistered on 28 October 2012, pursuant to s 601AB of the Act, the liquidator having, on 6 August 2012, applied for the deregistration of the Company and presented his statement of final accounts.[13]
[13]Exhibit ‘PXT-6’.
Mr Simitzis does not state in his affidavit that on or about 6 March 2014 he was declared bankrupt by way of a creditor’s petition. Mr Tuohey deposes to this and exhibits a copy of an extract dated 23 February 2017 from the National Personal Insolvency Index relating to Mr Simitzis.[14] That extract reveals that as at 23 February 2017, Mr Simitzis was an undischarged bankrupt. During submissions, both counsel referred to Mr Simitzis’ bankruptcy as having now been discharged, however there was no evidence before me as to this or as to the date upon which it occurred. For the purposes of the Application, I am prepared to assume that Mr Simitzis was discharged from bankruptcy some time between 23 February 2017 and the date of the hearing.
[14]Exhibit ‘PXT-5’.
The Other Proceeding
The Other Proceeding was commenced on 8 February 2017. The plaintiffs in that proceeding are Mr Simitzis, the Company, and Concord Lane. The defendants in the Other Proceeding are Mr Szmerling trading as Chadwicks The Law Firm and Sayers Partners Pty Ltd (‘Sayers’). Sayers are the former accountants to the Company.
The plaintiffs in the Other Proceeding allege, in the statement of claim dated 7 February 2017 (‘SOC’),[15] that Mr Szmerling breached his duties in contract and tort arising from the Retainer. They allege that he failed to adequately advise the Company in relation to the Statutory Demand and that he failed to take prompt action regarding the Statutory Demand.
[15]Exhibit ‘PXT-1’. Mr Simitzis does not exhibit a copy of the SOC.
Mr Simitzis deposes that the Originating Process was served on 7 December 2010 on Lowe Lippman, the Company’s former accountants. He says that the Company had changed accountants to Michael Sayers in December 2010, and that in 2011 Mr Sayers told him he had sent a letter to Lowe Lippman requesting that all files and records relating to the Company be sent to him.[16] Mr Simitzis says that Mr Sayers told him he did not receive the Originating Process from Lowe Lippman. The plaintiffs in the Other Proceeding allege that Sayers was engaged to act as accountants for ‘a group of companies, which in the intervening period grew to include’ the Company on or about 2 December 2010.[17] They further allege that Sayers failed to file a notice of change of address of the registered office for the Company with ASIC, such that the plaintiffs in the Other Proceeding were not made aware of the Originating Process ‘until 11 February 2010’ [sic].[18] This is said to be a breach of Sayers’ duties to those plaintiffs in contract and tort.
[16]The date or month is not specified by Mr Simitzis – he simply says he made inquiries of Mr Sayers in 2011: Simitzis Affidavit [10].
[17]Exhibit ‘PXT-1’ [5].
[18]Exhibit ‘PXT-1’ [15].
The plaintiffs in the Other Proceeding claim that the alleged breaches of Mr Szmerling and Sayers caused loss and damage to them. The particulars of loss are that Mr Simitzis was ‘forced to declare bankruptcy’ and the Company went into liquidation. The damages claimed are not quantified in the SOC. As part of the prayer for relief, the plaintiffs in the Other Proceeding also claim ‘leave for the re-registration’ of the Company and ‘leave … to bring these proceedings pursuant to section 237’ of the Act.[19]
[19]Exhibit ‘PXT-1’.
While Mr Simitzis goes into some detail in his affidavit to describe his grievances against Mr Szmerling, he says very little about the Other Proceeding. All that he says is that he intends to continue the Other Proceeding either by indemnifying and underwriting the liquidator or by procuring an assignment of the cause of action.[20]
[20]Simitzis Affidavit [16].
In his affidavit, Mr Simitzis does not state who the parties to the Other Proceeding are and he does not give any information about its current status. He does not exhibit the SOC filed in the Other Proceeding or any orders made. The only exhibit to the Simitzis Affidavit relating to the Other Proceeding is a proposed amended statement of claim (‘PASOC’).[21]
[21]Exhibit ‘PS-13’.
The PASOC is not in the proper form, as it does not show the amendments to the SOC. In the PASOC, Concord Lane is not listed as a plaintiff and Sayers is not listed as a defendant. Mr Simitzis gives no explanation for this.
The allegations in the PASOC against Mr Szmerling are more detailed than those contained in the SOC but the causes of action are essentially the same: breach of duty in contract or tort in connection with the Retainer and the Statutory Demand.
The Tuohey Affidavit provides information as to the parties to the Other Proceeding and its current status. Concord Lane is a former shareholder of the Company and has not been granted leave pursuant to s 237 of the Act to bring proceedings on behalf of the Company.[22] Mr Simitzis was, at the time the Other Proceeding was commenced, an undischarged bankrupt.[23] Any claim which Mr Simitzis personally had against Mr Szmerling vested in his bankruptcy trustee, and there is no evidence that the trustee had authorised Mr Simitzis to commence the Other Proceeding or had assigned the cause of action to him. The Company was deregistered at the time the Other Proceeding was commenced.
[22]Tuohey Affidavit [10]. Other than the reference in the prayer for relief, there is no evidence of such leave having been sought to date.
[23]Tuohey Affidavit [8].
None of the plaintiffs in the Other Proceeding had standing to commence it at the time they did.
As I apprehend it, the current status of the Other Proceeding is that Mr Szmerling has filed a summons seeking orders for summary judgment against the plaintiffs in that proceeding, the hearing of which has been adjourned to 19 September 2017,[24] and that pursuant to orders made by Derham AsJ on 27 July 2017, excepting certain procedural matters, the Other Proceeding is stayed until further order.[25]
[24]Tuohey Affidavit [11]-[12].
[25]Exhibit ‘PXT-9’.
Notice to ASIC
On or about 2 August 2017, the applicants’ then solicitor, Mr Rotarou, served copies of the Application, the Simitzis Affidavit and the Cant Affidavit on ASIC.[26] Mr Rotarou received a letter dated 7 August 2017 from ASIC confirming that, providing certain conditions were satisfied, ASIC would not oppose the application for reinstatement. Those conditions were:[27]
[26]Rotarou Affidavit [5].
[27]Rotarou Affidavit [6]; exhibit ‘KR-1’.
(a) The order for reinstatement is in the terms of s 601AH(2) of the Act requiring ASIC to reinstate the registration of the Company;
(b) The previous liquidator of the Company be notified of the Application;
(c) The Company, if ordered to be reinstated, continues to be in liquidation (s 601AH(5) of the Act) and the previous liquidator, Geoffrey Handberg, resumes his role or the Court appoints a new liquidator;
(d) The court order is lodged with ASIC so that the Company may be reinstated; and
(e) The liquidator notifies ASIC upon conclusion of the winding up.
The letter from ASIC stated that ASIC would not be appearing at the hearing of the Application and gave permission for the applicants to provide the Court with a copy of the letter to indicate ASIC’s views.[28]
[28]Exhibit ‘KR-1’.
Correspondence with the previous liquidator
Mr Rotarou deposes that on 11 August 2017 he served by email copies of the Application, the Simitzis Affidavit and the Cant Affidavit on the previous liquidator of the company, Geoffrey Niels Handberg, and that he has not received any response to this correspondence.[29]
[29]Rotarou Affidavit [7]-[8].
Mr Rotarou also deposes to previous correspondence with Mr Handberg regarding the Application. He states that on or about 19 July 2017 he sent by email to Mr Handberg a letter asking whether he would agree to act as liquidator of the Company if the Court orders its reinstatement.[30] Mr Rotarou states that he received an email from Mr Handberg on 24 July 2017, wherein amongst other things Mr Handberg stated:
Given my past dealings with, and knowledge of your client, I would only be willing to act as liquidator if and when the sum of $20,000 is paid into my firm’s trust account.[31]
[30]Rotarou Affidavit [9].
[31]Rotarou Affidavit [10].
Mr Rotarou says that he sent a reply to Mr Handberg on 26 July 2017 which stated as follows, and to which he has not had a response:
Our client has considered your proposal and finds the amount of $20,000 to be placed in your trust account excessive. We would appreciate if you could provide an explanation as to the purpose of these funds.
We would also appreciate your confirmation that if our client is not prepared to put money in your trust account in the amount as requested, you will not consent to act as liquidator of [the Company].
We request that you kindly provide your response by 4:00 pm on Friday 28 July 2017, otherwise we shall consider that you do not give your consent to act as liquidator of [the Company].[32]
[32]Rotarou Affidavit [11]-[12].
Mr Rotarou exhibits the correspondence between him and Mr Handberg. The letter dated 19 July 2017 from Mr Rotarou states that his firm acts for Mr Simitzis and refers to the purpose of the Application being to purse an action ‘against the former solicitor of Sippy Downs Pty Ltd (ACN 106 672 208) Isaac Szmerling for negligence and breach of contract in relation to the statutory demand issued by the ATO, which ultimately resulted in the company’s liquidation’.[33] That letter does not state that such a proceeding had already been commenced by the Company. As well as the statement referred to in paragraph 33 above, in his response Mr Handberg corrected the name of the Company and then said:
This is not the first time this matter has been raised with me. Interestingly I note that Sippy Downs Operations Pty Ltd was one of three plaintiffs, including your client, in a recent action against Szmerling, notwithstanding it had been deregistered![34]
[33]Exhibit ‘KR-3’.
[34]Exhibit ‘KR-3’ (emphasis in original).
Applicable law
The Application is made under s 601AH(2) of the Act, which provides:
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.
In Chalker, Maxwell P stated as follows, in respect of the breadth of the Court’s discretion:
The power which is conferred on the court to order reinstatement is a discretionary power, to be exercised according to the justice of the case. The discretion could hardly be broader.[35]
[35]Chalker, [42].
Associate Justice Derham has conveniently summarised the applicable principles in Elsworthy v ASIC,[36] and I adopt that summary, the relevant portions of which are set out below, omitting footnotes and references:[37]
[36][2016] VSC 14, [32]-[45] (‘Elsworthy’)
[37]Elsworthy, [33]-[38] (citations omitted).
[33]The first requirement of the section is that the applicant is a ‘person aggrieved’. Those words are to be interpreted widely. A person will be aggrieved by deregistration of the company if the person has a real and direct interest in the deregistration.
[34]In Arnold World Trading Pty Ltd v ACN 133 427 335 Pty Ltd,[38] Justice Barrett stated:
[38](2010) 80 ACSR 670, [43].
The question whether an applicant under s 601AH(2) is a ‘person aggrieved by the deregistration’ is considered by reference to legal rights and legal interests. It must be seen that the applicant has a genuine grievance that the dissolution of the company affected his or her interest because, for example, a right of some value or potential value has gone out of existence. Under analogous English legislation, the applicant was expected to have ‘an interests of a proprietary or pecuniary nature in resuscitating the company’.
[35]… the mere fact, without more, that a person is a shareholder or a director of a deregistered company is insufficient to establish that that person is a person aggrieved within s 601AH. An applicant must show that her interests have been or are likely to be prejudicially affected by the deregistration of the company. That prejudice might be shown by the shareholder showing that they were also a creditor of the company or that there might well be a surplus of assets if the company were reinstated and certain events occurred.
[36]In Re Brockweir Pty Ltd Justice Sifris observed:
In order to assess whether the plaintiffs are aggrieved parties, it is not necessary to embark upon a detailed and exhaustive analysis of the facts and the law underpinning the claim. The threshold is low. The assessment needs to be dealt with in a summary way. As long as the claim is not plainly hopeless and bound to fail, it should, subject to other relevant matters, proceed.[39]
[39][2012] VSC 225, [22]. Importantly, in that case Sifris J’s observation was in the context of the applicant being a person aggrieved because they had a claim against the deregistered company. Therefore, it was the applicant’s claim against the company that was to be assessed in a summary way and should, subject to other relevant matters, be allowed to proceed where it was not plainly hopeless and bound to fail.
[37]The second requirement is that the Court is satisfied that it is just that a company’s registration be reinstated. The wording of the section is very broad, and the cases confirm that it gives the Court a wide discretion. Without limiting the Court’s power, the matters the Court takes into account include the following:
(a) the circumstances in which the company came to be dissolved;
(b)whether, if the order were made, good use could be made of it. This includes whether the reinstatement would be futile; and
(c)whether any person is likely to be prejudiced by the reinstatement.
[38]The decisions on both limbs of the section are so various that it is not profitable to attempt a comprehensive summary of them. So much turns on the particular facts and circumstances of the company concerned and the interest of the applicant in its affairs.
As to the time at which the person needs to be aggrieved by the deregistration in order to be a ‘person aggrieved’ within the meaning of s 601AH(2), Gillard J in Pilarinos held that:[40]
[40]Pilarinos, [93]-[94].
I am satisfied that there is nothing in the section or in the context of the Act which limits the fact of aggrievement to the person being aggrieved at the time of the deregistration ….
In my opinion, the question of whether or not a person is aggrieved is to be determined at the date of the hearing. If the fact that the company remains deregistered would cause grievance to a particular person or entity, then, in my view, the person or entity who brings the application is an aggrieved person. In my opinion, the questions for determination are:
As at the date of the application, do the facts show that the applicant is aggrieved by the deregistration? If yes, is the grievance genuine, real and not merely theoretical, petty or fanciful?
If the answer to the latter question is also yes then, in my opinion, the person is an aggrieved person within the meaning of s.601(AH)(2) [sic] of the Act.
Whether an applicant’s status as an unsecured creditor of the company is sufficient to establish them as a ‘person aggrieved’ must depend on the circumstances of the case. In Wyse & Young International Pty Ltd v Corrado, White J stated that:
To show that a person is aggrieved by the deregistration of the company, it is not enough for him or her to demonstrate that he or she is a creditor of the company. The person must show some real economic interest in the company’s being reinstated.
Reinstatement of this company would inevitably require its immediate winding up. I return to that question shortly. But unless there is evidence that the plaintiffs could expect to receive some distribution on a winding up of the company, then they do not, in my view, show that they are persons aggrieved …[41]
[41][2015] NSWSC 1863, [43]-[44] (‘Wyse’).
The factors summarised by Derham AsJ in Elsworthy at [37] (see above) as to whether it is just to order reinstatement are drawn from Australian Competition & Consumer Commission v Australian Securities and Investments Commission.[42] In that case, Austin J stated that those matters are ‘only factors to be weighed in the exercise of the court’s discretion. They are not limits on the court’s power.’[43] Austin J went on to say that ‘[i]t is appropriate for the court to take into account questions of public interest in exercising its discretion under s 601AH’.[44]
[42][2000] NSWSC 316 (‘ACCC v ASIC’).
[43]Ibid, [28].
[44]ACCC v ASIC [2000] NSWSC 316, [28].
The Act sets out the consequences of the deregistration of a company. First, a company ‘ceases to exist on deregistration’.[45] Second, ‘all of the company’s property (other than any property held by the company on trust) vests in ASIC.’ If company property is vested in a liquidator (other than where it is vested in a liquidator on trust) immediately before deregistration, that property vests in ASIC.[46]
[45]The Act, s 601AD(1).
[46]The Act, s 601AD(2).
The Act also sets out the consequences if a company is reinstated. Section 601AH(5) provides:[47]
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.
[47]The Act, s 601AH(5).
Consideration
Before turning to a consideration of the two limbs, it is convenient to make some comments about the material filed by the applicants in support of their application.
At the time the Application and supporting material was filed, it would not have been known whether ASIC was going to appear and defend the proceeding. Nor would it have been known whether anyone else, such as Mr Szmerling, was likely to learn of the proceeding and seek leave to intervene. While not an ex parte application per se, since the application is made on notice to ASIC, applications of this type are not uncommonly run without ASIC defending or any other person appearing.
In that context, it is of concern to the Court that Mr Simitzis did not refer in his affidavit to his own bankruptcy. That was a matter which Mr Szmerling, through the Tuohey Affidavit, brought to the Court’s attention.[48]
[48]See paragraph 18 above.
It may be that Mr Simitzis did not think it relevant, and there is no evidence before me to establish whether the solicitors he had retained for the Application knew of it and were therefore in a position to advise him about it. As noted above, the SOC particularises Mr Simitzis’ loss in his claim against Mr Szmerling as being that he was ‘forced to declare bankruptcy’, however it appears that the solicitors for the plaintiffs in the Other Proceeding at the time the writ and SOC were filed were different to the applicants’ solicitors in this proceeding. Further, the PASOC exhibited to Mr Simitzis’ affidavit lists as his solicitors in the Other Proceeding the same solicitors as in this proceeding and it does not contain the same particulars as the SOC in this respect.
I am therefore not in a position to draw any conclusion as to whether Mr Simitzis knew, or was given advice about, the significance of his bankruptcy on his standing in respect of the Application. Nonetheless, I am concerned that he did not reveal it, as it affects both whether he is a ‘person aggrieved’ and whether it is just to order reinstatement, for reasons I will address at the appropriate points in this judgment.
Further, Mr Simitzis gave very little information about the Other Proceeding, including as to such matters as its current status and the identity of the parties.[49] Again, the applicants ought to have brought this information to the Court’s attention, as it is relevant to the second limb.
[49]See paragraphs 23 to 27 above.
Had it not been for the presence of the intervener and the evidence given on his behalf, the Court as constituted may not have learned of these matters.
A person aggrieved
Mr and Mrs Simitzis contend that they are creditors of the Company and that this means they are persons aggrieved by its deregistration. The Simitzis Affidavit states that they guaranteed certain loans owed by the Company to NAB and that on 6 October 2011 they paid NAB a total of $393,019.51 in respect of two accounts of the Company.[50] The Simitzis Affidavit says that Mr and Mrs Simitzis refinanced their home with BOQ so as to pay out the Company’s loans with NAB.[51] The evidence tendered for this is a bundle of documents described by Mr Simitzis in his affidavit as comprising an email from NAB sent 5 October 2011, a letter from BOQ dated 7 October 2011 and a BOQ account statement.[52]
[50]These were described by Mr Simitzis as a NAB loan account number 083347-831648078 in the amount of $306,256.96 and a NAB account number 083347-830836042 in the amount of $86,762.65 (‘Payout Figures’).
[51]Simitzis Affidavit [2].
[52]These are exhibit ‘PS-0’.
The dates deposed to by Mr Simitzis appear to be incorrect: the email, letter and account statement in exhibit ‘PS-0’ are all dated October 2010, not October 2011. This inconsistency in dates was not identified or addressed at the hearing. This appears to be an error by Mr Simitzis in describing when the NAB accounts were paid out, since if it was October 2011, that would have been after the Company went into liquidation, and it is also inconsistent with the documents relied upon. Mr Simitzis appears to have derived the Payout Figures from the email dated 5 October 2010 from NAB, however these are described in that email as ‘indicative payout amounts’, the total of which (when combined with a loan account in Mr Simitzis’ personal capacity) does not conform exactly with the figure given in the BOQ account statement as the amount paid to NAB on 7 October 2010.[53] For the purposes of the Application, I will proceed on the basis that this refinancing of Mr and Ms Simitzis’ property occurred in October 2010 and that the Company’s loans with NAB, in approximately the amounts identified in the Payout Figures, were paid out as part of that refinancing.
[53]7 October 2010 is the date given in the account statement for this debit to the account: from the email at exhibit ‘PS-0’, it appears that settlement of the refinancing was to occur on 6 October 2010.
The applicants contend that this is enough to qualify them as persons aggrieved. They submit that guarantors and creditors are normally considered aggrieved by a company’s deregistration, relying on Russell & Anor v Westpac Banking Corporation & Ors[54] and Casali v Crisp[55] respectively. Presumably, it is their status as alleged guarantors which is said to give rise to their status as creditors: it was not suggested that they were creditors as a result of any other conduct or liability. It should be noted that Russell was not a reinstatement case: the question there was whether guarantors of a company’s debt could bring an action in the name of the company. There, the Full Court of the Supreme Court of South Australia accepted that where the guarantor is called upon to pay the creditor and does so, he becomes a creditor in the winding up.[56]
[54](1994) 13 ACSR 5 (‘Russell’).
[55][2001] NSWSC 860, [27].
[56]Russell (1994) 13 ACSR 5, 8.
Mr Szmerling submits that the alleged guarantee and other relevant documentation relating to the liabilities have not been put before the Court, and that therefore there is insufficient evidence as to Mr and Mrs Simitzis’ status as creditors. Mr Szmerling does not say what this ‘other relevant documentation relating to the liabilities’ is.
Other than Mr Simitzis stating in his affidavit that he and his wife were guarantors of the Company’s two loans with NAB, there is no evidence of any guarantee/s before me.
I will turn now to consider each of Mr Simitzis and Ms Simitzis separately.
Mr Simitzis
Mr Szmerling submitted that Mr Simitzis had no standing to bring the Application, having been declared bankrupt on 6 March 2014. It was submitted that any claim which he may have had against the Company arising from the alleged guarantee or a debt owed to him vested in his trustee in bankruptcy, and there was no evidence that the trustee had assigned this cause of action to Mr Simitzis.
Counsel for the applicants did not abandon Mr Simitzis’ claim to be a person aggrieved, but it is true to say that it was only faintly pressed, as Counsel properly ackowledged that a reinstatement of the Company and a judgment obtained by it against Mr Szmerling would not directly affect Mr Simitzis’ interests. Rather, Counsel contended that it was Ms Simitzis’ status as a creditor which was now really relied upon.
Mr Simitzis states in his affidavit that he ‘was a creditor of the Company at the time of its deregistration.’[57] If the applicants’ contentions as to the guarantee are accepted, then Mr Simitzis was a creditor of the Company as at 28 October 2012. But this is not to the point, as whether Mr Simitzis is a person aggrieved by the deregistration of the Company is to be assessed as at the date of the hearing (see paragraph 39 above).
[57]Simitzis Affidavit [2].
In my view, Mr Simitzis is not a person aggrieved as at the date of the hearing, as the effect of his bankruptcy means that he personally no longer has a cause of action against the Company in respect of the alleged debt relied upon.
Ms Simitzis
The only evidence in relation to Ms Simitzis’ status as a creditor is that given by Mr Simitzis as referred to above. The letter from BOQ following the refinancing is addressed to Ms Simitzis, and the BOQ account statement is in both their names. These documents appear to demonstrate that Ms Simitzis incurred a liability to BOQ and I am prepared to accept that they do so. However, the documents exhibited to the Simitzis Affidavit do not go to whether or not Ms Simitzis was a guarantor of the Company’s loans with NAB.
The only evidence I have as to the guarantee itself is Mr Simitzis’ affidavit where he states that they were guarantors. There is no copy of a guarantee produced by Mr Simitzis or any other documentation to support his statement that the refinancing to BOQ had as its purpose the payment of liabilities owed to NAB by he or Ms Simitzis. It will be recalled that Russell, the case relied on by the applicants, stated that guarantors were creditors where the guarantee had been called upon and the guarators had paid the debt.[58] Here, there is no evidence about whether NAB had called on the guarantees or whether the Company’s loans which were paid as part of the refinancing of the applicants’ home were paid out because of the guarantee. Further, I observe that Mr Simitzis does not say that he and Ms Simitzis paid out those loans pursuant to the guarantee. His evidence only goes so far as to say ‘[t]he purpose of the refinancing was to pay out loans owed by the company to [NAB] for which we were guarantors.’[59] The circumstances of the discharge of these Company loans is therefore not before the Court.
[58]See paragraph 53 above.
[59]Simitzis Affidavit [2].
For the purposes of the Application, and despite the deficiencies in the evidence provided, I am prepared to accept that Ms Simitzis is a creditor of the Company. It is likely that she either discharged some of the Company’s liabilities in respect of the NAB loans or that the Company incurred an obligation to her in respect of payments she had made on its behalf.
However, even if Ms Simitzis is a creditor, this may not be sufficient to make her a person aggrieved by the Company’s deregistration. There is no evidence before me as to the financial position of the Company at the time it was deregistered, in terms of the outstanding creditors of the Company at the time the liquidation was concluded, including whether any of those creditors were secured. The damages claimed against Mr Szmerling have not been quantified, and so it is not known what the return to creditors is possibly to be even if the Other Proceeding is able to be pursued and the Company (if reinstated) succeeds in its damages claim. Ms Simitzis would only have a ‘real economic interest’ in the Company’s reinstatement if it was successful in recovering damages in the Other Proceeding and if the financial position of the Company was such that there was a return to unsecured creditors in the liquidation of the Company.[60]
[60]As referred to in Wyse, see paragraph 40 above.
Mr Simitzis goes into some detail in his affidavit to attempt to establish that the Company was solvent at the time it received the Statutory Demand and when it was wound up. He deposes to the Company’s income and profits for the financial year ending June 2010 and refers to a valuation of the Company in 2009.[61] He also refers to claims which the Company could have pursued in respect of an insurance claim and against the owners’ corporation in respect of the management agreement for the Resort, but which the liquidator did not.[62] Nonetheless, Mr Simitzis does not provide any information about the Company’s outstanding creditors at the time of the conclusion of the winding up, let alone any information about an expected return to unsecured creditors, or information which would enable me to form a view as to such matters.
[61]Simitzis Affidavit [13].
[62]Simitzis Affidavit [14].
Therefore, in my view it has not been established that Ms Simitzis is a creditor who is also a person aggrieved. I should point out that I have not formed a view about the likelihood of the Company (if reinstated) succeeding in the Other Proceeding and I have not taken that into account, one way or the other, in terms of considering whether Ms Simitzis is a person aggrieved. Rather, my concern is that the applicants have led no evidence to suggest that there will be a return (and if so, whether that is more than a nominal amount) to unsecured creditors even if the litigation is successful. The applicants bear the onus of establishing that Ms Simitzis is a person aggrieved, and I do not consider that they have done so.
For the sake of completeness, I observe here that even if being a creditor was sufficient on its own to mean that Ms Simitzis was a person aggrieved, then the paucity of evidence in respect of whether Ms Simitzis is likely to achieve a return as an unsecured creditor if the litigation is successful is a relevant factor when considering the second limb.
Is it just that the Company is reinstated?
The applicants submit that it is just that the Company be reinstated as they say that it has a viable claim against Mr Szmerling. They submit that they have a determination to underwrite and prosecute that claim and if, as is envisaged, the applicants provide an indemnity to the liquidator or proceed by way of an assignment of the cause of action, then the Company’s creditors would suffer no detriment if the Company was reinstated. They also submit that if the Company’s claim against Mr Szmerling is ultimately successful, then it will be of benefit to all of its creditors.
The applicants further submit that an order for reinstatement should only be refused if the Court was persuaded that the cause of action was statute barred, without citing authority for the proposition in those terms. The applicants’ counsel made detailed submissions as to why the claim against Mr Szmerling was not statute barred, however it is not necessary for me to determine that question, for the reasons set out below.
Mr Szmerling alleges, in his defence in the Other Proceeding, that the claim against him is statute-barred.[63] In submissions, his counsel stated that Mr Szmerling maintained this defence, but that for the purposes of the Application the situation is not so clear-cut as to present a ‘knock out’ blow.
[63]Defence [21]: exhibit ‘PXT-2’.
Accordingly, Mr Szmerling did not rely on his limitations defence as a basis for resisting reinstatement of the Company. Rather, he submitted that the applicants had not established that ‘good use’ could be made of the Company’s reinstatement. It was submitted that there were a number of steps which would need to be taken to regularise the Other Proceeding; the liquidator would either have to continue the Other Proceeding or the applicants would have to enter into an arrangement with the liquidator to achieve that outcome; and the status of the Other Proceeding was such that at this stage the plaintiffs in that action would require leave in order to file and serve the PASOC.
I will now consider the four factors referred to in ACCC v ASIC.[64]
[64][2000] NSWSC 316, [28]; see also Ellsworthy [2016] VSC 14, [37].
Circumstances of the Company’s dissolution
Turning to the factors referred to in Elsworthy at [37],[65] firstly the circumstances in which the Company came to be dissolved were that it was deregistered after the conclusion of the liquidation. That is not controversial.
[65]See paragraph 38 above.
Whether good use could be made of the Company’s reinstatement
While the Other Proceeding was irregularly commenced and is currently stayed, those do not present insurmountable obstacles to the Company being able to continue with the action if it is reinstated. Given the concession in respect of his limitations defence properly made by counsel for Mr Szmerling for the purposes of the Application, it could not be said that the reinstatement of the Company would be futile. In those circumstances and in light of the comments made in Chalker[66] and Pilarinos,[67] it is not appropriate for me to embark on an assessment of the merits of the claims made by the plaintiffs in the Other Proceeding.
[66][2008] VSCA 92, [33], see paragraph 4 above.
[67][2006] VSC 301, [29], see paragraph 5 above.
However, there are other aspects which mean that I am not satisfied that the applicants have established that good use can be made of the Company’s reinstatement.
For the applicants to be able to pursue the Company’s claims in the Other Proceeding, they would need to persuade the liquidator to pursue the action, or procure an assignment of the cause of action to one or more of them or some other person, or enter into some other arrangement so that it can continue.
In his affidavit, Mr Cant states that he has been provided with ‘an amended statement of claim which I understand sets out the nature and substance of the claim to be made against’ Mr Szmerling.[68] He then exhibits a copy of the document he was given,[69] which is the same document as the PASOC. There is nothing from his affidavit to establish that he was informed that what he thought to be the ‘amended statement of claim’ is nothing more than a proposed pleading in respect of which leave would have to be obtained. There is also nothing from his affidavit to indicate that Mr Cant was given any information about the status of the Other Proceeding, which may have been relevant to his consideration of the issues.
[68]Cant Affidavit [4].
[69]Exhibit ‘ARC-1’.
Mr Cant says in his affidavit:
If I were appointed liquidator, I would be prepared to consider any proposal by the plaintiff [ie Mr Simitzis] to either assign any cause of action the company may have against Isaac Szmerling to him or his nominee pursuant to Schedule 2 Section 100-5 of the Corporations Act 2001 (Cth) or enter into some other arrangement whereby the cause of action could be pursued should I consider that the proposal was in the best interests of the company and its creditors and otherwise consistent with my obligations.[70]
[70]Cant Affidavit [6].
It appears that no concrete proposal has been put to Mr Cant by the applicants. Further, it is by no means certain what attitude Mr Cant would take to the Company continuing the Other Proceeding or to an assignment of the cause of action to Mr Simitzis or his nominee. It is clear that he has not made any decision in that regard, and he would presumably require more information than it appears he currently has in order to make an assessment of any proposal that was ultimately put to him. In those circumstances, the prospect of the Company being able to continue with the Other Proceeding is speculative.
Mr Szmerling submits that the Court has not been provided with information upon which I could assess the content of any proposal to be put to the liquidator, how it was to be funded, and whether it would be in the interests of the Company and its creditors. I accept this submission.
The only evidence I have of these matters is contained in the Simitzis Affidavit. Mr Simitzis gives no detail about this, and there is only a mere assertion as to his intention:
It is my intention if the Company is reinstated to either indemnify the liquidator and underwrite the costs of litigating [the Other Proceeding] or alternatively procure an assignment of any cause of action against [Mr Szmerling] from the liquidator to prosecute the matter in my own name.[71]
[71]Simitzis Affidavit [16] (‘stated intention’).
I observe that the stated intention is not an unequivocal undertaking. In my view, that affects the weight that should be given to it, such that it should be given little weight.
Mr Simitzis gives no evidence as to his financial position, so that there is nothing before me to establish that he has the capacity to make good on his stated intention about indemnifying the liquidator and underwriting the costs of the Other Proceeding. In the context of him being only recently discharged from bankruptcy and in light of there being no other evidence of his financial means, I am not satisfied that I should place any weight on this stated intention. Further, the only evidence I do have is the applicants’ objection to Mr Handberg’s requirement that $20,000 be deposited into his trust account before he would consent to act as liquidator of the Company.[72] Such a position does not inspire confidence in Mr Simitzis’ stated intention or his ability to make good on it.
[72]See paragraph 33 above.
There is no evidence at all as to Ms Simitzis’ willingness or otherwise to indemnify the liquidator and underwrite the costs of litigating the Other Proceeding, let alone any evidence of her financial capacity to meet such obligations. She has not gone on affidavit at all in respect of the Application.
In Chalker, the company which was the subject of the reinstatement application was insolvent. There, it was accepted by the Court of Appeal that the evidence before the trial judge did not satisfactorily establish the applicant’s capacity to indemnify the action, which Osborn AJA viewed as raising ‘further serious doubts’ that the assignment of the cause of action would be agreed to and ‘confirms that the application should be regarded as highly speculative’.[73]
[73]Chalker, [27].
Similarly, the evidence before me does not satisfactorily establish the applicants’ ability and, in the case of Ms Simitzis, willingness, to indemnify the liquidator and underwrite the litigation.
Further, Mr Simitzis’ stated intention is only in respect of the Other Proceeding. He does not state that he will meet the liquidator’s costs if the Company is reinstated. It is open to the Court to impose, as a condition of reinstatement, that the applicants undertake to meet the liquidator’s costs or to order the applicants to pay the liquidator’s reasonable remuneration, costs and disbursements incurred in the course of the continuation of the Company during its period of liquidation.[74] As Goldberg J stated in Promnitz:
Where a company has been in liquidation it will be a rare case that allows reinstatement where there are no funds available to enable the liquidators of the company to continue to supervise and monitor its operations.[75]
If that was the Court’s only concern, then I may consider such undertakings or orders to be appropriate. However, in light of the matters set out in paragraphs 83 to 86 above, I do not consider that course to be appropriate or sufficient protection for the liquidator or for the creditors of the Company.
[74]Promnitz v ASIC [2004] FCA 22 (‘Promnitz’).
[75][2004] FCA 22, [20].
As set out in paragraphs 64 to 66 above, there is no evidence to establish whether, even if the Company were to be successful in the Other Proceeding, there is likely to be a return for its stakeholders, including its secured and unsecured creditors and its shareholders. In economic terms, therefore, it has not been sufficiently established that good use could be made of the Company’s reinstatement.
Whether any person is likely to be prejudiced by the Company’s reinstatement
Clearly, Mr Szmerling would be prejudiced as then the Other Proceeding may be continued against him, however that is not a relevant prejudice contemplated by the authorities as summarised in paragraph 38 above.
However, I am not satisfied that no person is likely to prejudiced by the Company’s reinstatement, for the same reasons as set out above. There is no certainty that the liquidator’s costs would be met by the applicants, which would be prejudicial to the liquidator’s interests and would also be to the detriment of the Company’s creditors.
In Casali v Crisp, Young CJ in the Supreme Court of New South Wales held that it would not be just to order reinstatement in that case, as:
Reinstatement would permit an insolvent company to mount speculative litigation against the defendants over an event many years old with little prospect of financial reward to the plaintiff at the end of the day.[76]
[76][2001] NSWSC 860, [46].
In that case, there was evidence before the Court as to the financial position of the company and as to one expert’s opinion of the expected return if the litigation was successful. In Pilarinos, Gillard J referred to Young CJ’s observations in Casali v Crisp but said that he did not consider that those comments applied in the case before him, as he did not believe that it was speculative litigation.[77]
[77]Pilarinos, [109].
I do not have evidence before me of the Company’s financial position, although the fact that it was wound up in insolvency permits the inference that it was insolvent at that time. I have no evidence as to the Company’s financial position at the time the liquidation was concluded. I do not have sufficient information about the merits of the Other Proceeding and I have not had the benefit of any submissions as to whether it could be viewed as speculative. While the position in respect of the Company is therefore not as clear cut as that in Casali v Crisp, the situation is that the Company would likely be insolvent at the time it was reinstated.[78] This is a factor weighing against reinstatement given the uncertain situation regarding the funding of the liquidation and the Other Proceeding.
[78][2001] NSWSC 860.
The Company was deregistered almost 5 years ago and the applicants have not given any explanation for the delay in applying for its reinstatement. This matter was not addressed in the applicants’ submissions, although the written outline of submissions from Mr Szmerling’s counsel raised it. There is authority for the proposition that a lengthy delay in making an application for reinstatement can be a reason why it would not be just to order reinstatement.[79] In circumstances where Mr Szmerling did not point to any particular prejudice as a consequence of the delay, I regard this as a neutral factor in assessing whether it is just that the Company be reinstated.
[79]Herbert v Nozala Pty Ltd [2006] NSWSC 1437.
The public interest
The Statutory Demand was served by the Deputy Commissioner of Taxation for unpaid taxes. Mr Simitzis deposes that if Mr Szmerling had advised him that the Company should pay out the tax debt in full, then he would have arranged for it to do so immediately.[80] He also deposes that:
The group of companies I controlled had access to a number of credit facilities upon which I was able to draw with sufficient credit to discharge the tax debt. The Company had the capacity to satisfy the statutory demand in full.[81]
[80]Simitzis Affidavit [12].
[81]Simitzis Affidavit [13].
Mr Szmerling submits that the applicants are seeking an exercise of the Court’s discretion in their favour in circumstances where the cause of action is based on deliberate non-payment of the Company’s tax debt and it is asserted that the Company had the capacity to pay that debt, and that such an exercise of discretion is not in the public interest.
While I do not consider this to be determinative, there is some force to the submission and it is therefore a factor which I have given some minor weight to when it comes to the exercise of the Court’s discretion.
Conclusion
I have found that neither of the applicants are persons aggrieved by the deregistration of the Company. Failure to establish the first limb of the test under s 601AH(2) of the Act means that the Application should be dismissed, the two conditions being conjunctive and not disjunctive.[82]
[82]Promnitz [2004] FCA 22, [18].
Even if the contrary were the case and one or more of the applicants had been found to be a person aggrieved, then in all the circumstances I do not consider it to be just to order the reinstatement of the Company, for the reasons set out above and where:
(a) It is likely that the Company is insolvent;
(b) There is insufficient evidence as to the funding of the Other Proceeding and of the liquidator, such that reinstatement may be prejudicial to the liquidator and to other creditors of the Company;
(c) There is insufficient evidence as to whether the liquidator will come to some arrangement with the plaintiffs which would permit the Company’s claims in the Other Proceeding to be pursued, such that the prospect of those claims continuing is speculative at this point in time;
(d) The prospect of a return to Ms Simitzis is speculative, given the state of the evidence as to her status as a creditor of the Company and there is no evidence as to whether there will be a return to creditors if the litigation is successful; and
(e) The prospect of a return to Mr Simitzis, the other plaintiff in this proceeding, is non-existent.
Accordingly, I decline to exercise the Court’s discretion to order the Company’s reinstatement.
I will hear the parties as to the appropriate form of orders and as to costs.
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