If you have been unfortunate enough to enter into an agreement with a company that was deregistered at that time, it is not necessarily the end of the road. In certain circumstances, it is possible to reinstate the company and have the agreement validated by the Court.
Consider the following set of circumstances:
- Party A is a lender and enters into a loan agreement to provide Company B with a loan.
- After the monies are advanced, Party A learns that the company was deregistered when it entered into the agreement.
- Party A now seeks to recover its money.
Reinstating the Company
Section 601AH(2) of the Corporations Act 2001 (Cth) (Act) provides that 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.
The 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).
In the above scenario, it would not be difficult for the Court to consider Party A an aggrieved party.
Just to Reinstate
The Court considers a number of matters when considering whether it is ‘just’ to reinstate the company. These include:
- the circumstances by which the company was deregistered;
- the purpose of the reinstatement, and the future activities of the company if an order for reinstatement is made;
- whether any particular person is likely to be prejudiced by the reinstatement; and
- any public interest or public policy reasons for or against reinstatement.
Directors and liquidation
If a company is reinstated, the director at the time of deregistration resumes their role as a director. This may give rise to a difficulty in having the company reinstated if for example the director is now deceased, or bankrupt and thereby disqualified from being a director of a company.
The Court will not consider it “just” to reinstate a company without a director as it would be devoid of proper governance. In such cases, it may be appropriate to simultaneously seek an order that the company be placed into liquidation immediately upon the company’s reinstatement. The Court will make such an order if it is of that opinion that it is just and equitable that the company be wound up (see section 461(1)(k) of the Corporations Act 2001 (Cth)). The lack of proper governance is a compelling case in this regard.
Validating the Agreement
Section 601AH(5) of the Act provides that if a company is reinstated, the company is taken to have continued in existence as if it had not been deregistered.
However, that does not mean that anything which was purportedly done on behalf of the company during the period of its deregistration is thereby regarded as valid.
The Court’s power is not limited to reinstated but is extended by section 601AH(3) of the Act such that the Court may validate anything done when the company was degistered.
In the scenario provided above, to validate the loan agreement, an additional order would need to be sought under section 601AH(3) of the Act which would validate the execution of the agreement by the company. This was set out by the Court in White v Baycorp  NSWSC 441 at :
“If a director had purported to act on behalf of a deregistered company during the period of deregistration, mere reinstatement would not validate his action, because s 601AH(5) provides only a limited measure of retrospectivity, so that the director regains his office only from the time of reinstatement. Similarly, s 601AH(5) provides only a limited measure of retrospectivity concerning title to the property of the company, so that the property revests in it only from the time of reinstatement. Thus, notwithstanding the reinstatement, any contractual power which Capital Corporate had prior to the deregistration is still regarded, even after the deregistration, as having been vested in ASIC during the period of deregistration. If the contractual power was vested in ASIC, Capital Finance could not have had authority to exercise that contractual power.”
Additionally, if there are any ancillary transactions forming part of the agreement, an order may need to be sought for those transactions to be validated by the Court as well.
An example of an ancillary transaction might be a buy and lease arrangement, where goods are purchased and leased back to the party from whom the goods were bought. In this scenario, it may not be sufficient to simply validate the lease agreement, but also the transaction recording the purchase of the goods.
Whilst one should always ensure that a company is registered at the time of entering into a transaction or agreement, there are avenues available to a party aggrieved by the deregistration of a company so that all is not necessarily lost.