Zhang v Australian Securities and Investments Commission
[2022] ACTSC 116
SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Case Title: | Zhang v Australian Securities and Investments Commission |
Citation: | [2022] ACTSC 116 |
Hearing Date: | 24 May 2022 |
DecisionDate: | 24 May 2022 |
Before: | Elkaim J |
Decision: | (i) An order pursuant to s 601AH of the Corporations Act2001 (Cth) directing ASIC to reinstate the registration of Huaking Investments Pty Ltd (ACN 605 756 134). (ii) The Court notes the undertaking given by the plaintiff to pay any amount of fees owing to ASIC. (iii) The Court to hear the parties on the costs of this application. |
Catchwords: | CIVIL LAW – CORPORATIONS – Where the plaintiff seeks an order under s 601AH of the Corporations Act 2001 (Cth) that the defendant reinstate the registration of a company – meaning of “aggrieved person” – defendant ordered to reinstate registration |
Legislation Cited: | Corporations Act 2001 (Cth) s 601AH |
Cases Cited: | Re ERB International Pty Ltd (deregistered) [2014] NSWSC 200; 283 FLR 223; 98 ACSR 124 |
Parties: | Xuewen Zhang (Plaintiff) Australian Securities and Investments Commission (Defendant) Trinity Law and Mark Poretti (Interested Persons) |
Representation: | Counsel B Zipser (Plaintiff) Self-Represented (Defendant) J Anderson (Interested Persons) |
| Solicitors Juris Cor Legal (Plaintiff) Self-represented (Defendant) Sparke Helmore (Interested Persons) | |
File Number(s): | SC 277 of 2021 |
Elkaim J
The plaintiff filed an amended originating process on 8 April 2022. The defendant is the Australian Securities and Investments Commission (ASIC). The purpose of the application is to obtain an order pursuant to s 601AH of the Corporations Act 2001 (Cth), directing the reinstatement of a company, Huaking Investments Pty Ltd (Huaking) which had been deregistered on 7 October 2018. The deregistration was a consequence of a failure to pay certain fees owing to ASIC.
By a letter dated 7 March 2022, ASIC stated that it does not oppose the reinstatement provided that there will be no order for costs made against it.
The application is opposed by Trinity Law and Mr Mark Poretti who are interested persons who have been granted leave to oppose the application without becoming parties to the proceedings.
The plaintiff relies on a number of affidavits which are listed in the index to the Court Book. There is an additional affidavit of Ana Zhao affirmed on 23 May 2022. I dealt with some objections at the commencement of the hearing.
The interested parties did not rely on any affidavit material, nor did they require any of the deponents of the plaintiff’s affidavits for cross-examination.
The background to the matter is to be found in the affidavits. The following is a summary. The plaintiff lives in China. In 2015 he decided to invest some money in Australia in order to ground an application for a visa to live in Australia.
To this end he sought financial opportunities which would provide an appropriate vehicle for his investment. He identified a chain of coffee shops in the ACT which was for sale.
Huaking was incorporated to facilitate the purchase of this business. The plaintiff was one of two directors of the company but was the principal shareholder, owning 99 of 100 shares.
Mr Poretti was the principal of Trinity Law, a firm of solicitors. The plaintiff, through the company, retained Trinity Law to act on behalf of the company in respect of the purchase of the coffee shop business. A costs agreement between the company and Trinity Law was concluded.
A purchase price of $1,200,000 was paid by Huaking for the coffee shop business. The plaintiff was source of this money.
The coffee shop business soon failed so that by December 2016 Huaking had no assets or value.
The plaintiff wishes to sue the interested parties for negligence in their dealings with him and Huaking. The company cannot commence proceedings until it is reinstated. The purpose of the proposed claims would be to recover the $1,200,000 that had been originally paid for the business.
It was common ground that in order for the application to succeed the plaintiff would need to establish that it was just for an order for reinstatement to be made.
The plaintiff said that the test for reinstatement had been concisely stated by Brereton J in Re ERB International Pty Ltd (deregistered) [2014] NSWSC 200; 283 FLR 223; 98 ACSR 124, at [5]:
The provision that the court “may” order reinstatement if satisfied that it is “just” to do so has been said to confer a broad discretionary judgment on the court. Relevant considerations include the circumstances in which the company was deregistered, the purpose in seeking its reinstatement, whether any person is likely to be prejudiced by reinstatement, and the public interest generally.
The interested parties said it would not be just. They concentrated on three reasons:
(i)First, they said that the plaintiff was not a “person aggrieved by the deregistration” (s 601AH(2));
(ii)Secondly, that the company, if reinstated, would be insolvent; and
(iii)Thirdly, that there had not been a proper explanation for the delay in seeking reinstatement.
I will deal with each of the interested parties’ reasons for opposition in turn.
The plaintiff provided the funds to purchase the business. He did so through the company. The company retained the interested parties. If there is merit in the claim against the interested parties then, in a general sense, they have caused the loss to the plaintiff, albeit via the company. I think the plaintiff is plainly an aggrieved person.
The interested persons submitted that if the plaintiff succeeded in his claim against them there would be no award of damages in favour of the company (in effect no double compensation) so that the company would not receive any assets for the benefit of the plaintiff. But, as seen above, the company had made the costs agreement with the interested parties. It is as conceivable a result that the company might succeed and the plaintiff might not.
In relation to solvency the interested parties submitted that the company had no assets and there was little evidence of the capacity of the plaintiff to finance the company. For example, it was pointed out that valuations of property relied upon by the plaintiff were somewhat out of date.
It is to be remembered that the company was incorporated in order to purchase the coffee shop business. It does not have any other business nor any other reason to have assets or liabilities. It does however have the asset of its claim against the interested parties.
At the same time the company does not have any liabilities. The affidavit evidence, for example at [10] on page 168 of the Court Book, states that, other than the fees outstanding to ASIC, there are no debts owing or claims against the company.
In addition, as I observed in discussion, if an order for reinstatement was made, no doubt the interested parties, as defendants, would contemplate seeking security for costs in respect of the proceedings against them.
Turning now to delay, the relevant period should commence shortly before October 2018 when the company was deregistered. The explanation however goes back to December 2016 (from [18] on page 125 of the Court Book). The explanation, at least until January 2020 revolves around the personal circumstances of the plaintiff, in particular stemming from assaults upon his mental health.
Thereafter the explanation is provided by his solicitor (page 11 of the Court Book) where details of legal work on behalf of the plaintiff are set out. It is considered by the plaintiff that there is no explanation for about a nine-month period from 16 January 2020 to October 2020. Overall this is a relatively short period which I do not think should impact upon the overall explanation which is otherwise sound.
Returning to the criteria set out by Brereton J in ERB, the circumstances of the deregistration have been adequately explained (at page 127 of the Court Book, the purpose for reinstatement is the claim against the interested parties (assuming it has merit), and there must be a public interest in allowing meritorious claims to be pursued.
The interested parties might be seen as prejudiced by an order for reinstatement. However, again if the claim has merit, they ought to face the action. There is no doubt that they have been given notice of the claim and are aware of its contents.
Accordingly, I make the following orders:
(i)An order pursuant to s 601AH of the Corporations Act2001 (Cth) directing ASIC to reinstate the registration of Huaking Investments Pty Ltd (ACN 605 756 134).
(ii)I note the undertaking given by the plaintiff to pay any amount of fees owing to ASIC.
(iii)I will hear the parties on the costs of this application.
| I certify that the preceding twenty-seven [27] numbered paragraphs are a true copy of the Reasons for Judgment of his Honour Justice Elkaim. Associate: Date: |
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