In the matter of The Owners of Strata Plan No 91349 v Australian Securities and Investments Commission  NSWSC 685, the Supreme Court of New South Wales recently reaffirmed the principles relating to applications to have a deregistered company reinstated in accordance with section 601AH of the Corporations Act 2001 (Cth) (Act).
Prior to its deregistration, Beaconsfield Street Pty Ltd (BSPL) owned real property situated at Silverwater upon which a mixed used commercial and residential strata unit development was completed (Development). Upon registration of the relevant strata plan the Owners Corporation became the immediate registered proprietor/successor of BSPL in accordance with section 18C of the Home Building Act 1989 (NSW).
On 18 February 2016, BSPL was placed into voluntary liquidation by a resolution of its purported sole shareholder.
Following BSPL being placed into liquidation, various issued emerged with the Development relating to defects. The Owners Corporation commenced proceedings in respect to the defects claims and sought to reinstate BSPL so as to:
- Consider whether certain claims could be made in respect to statutory warranties which had otherwise been rendered entirely nugatory by BSPL’s winding up, in particularly where the period for bringing such claims had not expired.
- Seek to join BPSL to the defect proceedings.
- Consider claims against BSPL’s sole director, Mr Crane, including for claims that could be brought by a liquidator for breach of duties and in respect to the transmission of the sale proceeds to a related entity, of which Mr Crane was the sole director, in breach of section 254T of the Act.
- Explore whether the impugned transactions were disclosed to, or investigated by, BSPL’s previous liquidator and whether there was any legitimate explanation as to why (a) monies payable to BSPL were paid to a related entity; and (b) units in the development were transferred to another related entity for nil consideration in circumstances where the underlying contract disclosed a value of approximately $1.6M.
Both the Australian Securities and Investments Commission and Mr Crane were joined to Owners Corporation’s application. Mr Crane sought to oppose the reinstatement application.
Section 601AH of the Act provides that, among others, an “aggrieved person” may apply to the Court to seek to have a deregistered company reinstated. In the event that the Court determines to reinstate the relevant company, it may also make an order validating anything done during the period between the relevant company’s deregistration and the reinstatement .
In circumstances where the relevant company is reinstated, it 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 from the time of reinstatement. Any property of the company that is still vested in the Commonwealth or ASIC revests in the company. If the company held a particular property subject to a security or other interests or claim, the company takes the property subject to that interest or claim (see section 601AH(5) of the Act).
What the Court concluded in the BSPL proceedings
Th expression “person aggrieved” is not be construed narrowly. The relevant applicant must be able to show that the deregistration deprived it of something, or injured or damage it within a legal sense, or that it became entitled, in a legal sense, to regard the deregistration as a cause of dissatisfaction (referring to Bell Group Limited (ACN 008 666 993) (in liq) v ASIC (2018) 358 ALR 624).
The Owners Corporation submitted that it was a creditor of BSPL by reason of the contingent claims arising from the allegations of breach of statutory warranties owed by BSPL (which had been frustrated by reason of BSPL’s winding up). The Owners Corporation further submitted that it was not appropriate for the Court to entertain in detailed argument the merits of the claim for the purpose of considering standing pursuant to section 601AH(2) of the Act, only that it needed to be satisfied the claim was not hopeless or bound to fail.
“Just” to reinstate
Following satisfaction of the threshold question, the Court will then consider whether or not the reinstatement of the relevant company is “just” in all of the circumstances.
The question of whether it is “just” to reinstate a company is broad. 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 (referring to Fiorentino v ASIC  NSWSC 200). In reliance upon Fiorentino , the Owners Corporation, in responding to Mr Crane’s submission that there was no utility in the reinstatement as BSPL had no assets from which a recovery could be made, submitted that “the Court need not be satisfied that any future claim by a liquidator arising from the pre-winding up transactions will necessarily or even probably succeed. If there is shown to be a seriously arguable case or a possibility of recovery that can suffice.”
Decision to reinstate
In concluding that BSPL should be reinstated, the Court reiterated the following:
- The Court is not required to engage in too close a scrutiny of the claims the subject of the defect proceedings or the strength of those claims, only that an arguable case is demonstrated. In this respect, the Court found the “very low” threshold of a “person aggrieved” to have been met.
- In exercising the discretionary decision of whether or not to order BSPL to be reinstated, the question of the utility of reinstatement was again a “very low” threshold to meet. In this regard, the Court found that the transfer of BSPL’s assets to a related entity for nil consideration, coupled with the director’s candid evidence this was not in the normal course of BSPL’s business, strengthened the Owners Corporations’ submission that there were matters which a liquidator would wish to investigate.
- The Owners Corporation would bear the costs of funding the liquidator (and the risk of any such funding not producing a recovery).
- Whilst the question of prejudice is relevant, the mere fact of the reinstatement of a company is unlikely to be, of itself, prejudicial. The party who may ultimately be the subject of a claim by a liquidator of a reinstated company has available to them remedies of summary dismissal and stay of proceedings in the substantive claim (it being the usual case that a defendant has no power to prevent a proceedings from being commenced against them in the usual course).