Pacanowski, D.H. v Australian Securities Commission [1995] FCA 336

CATCHWORDS CORPORATIONS - application to reinstate deregistered company - whether applicant person aggrieved - whether reinstatement just. Corporations Law, s 574(3) Re L Carroll Ltd (1975) 1 NZLR 79 Re Proserpine Pty Ltd (1980) 5 ACLR 603 Re JJ Weeks Construction Pty Ltd (1982) 1 ACLC 425 Re Immunosearch Pty Ltd (1990) 8 ACLC 1031 No. NG 3441 of 1994 DAVID HENRY PACANOWSKI v AUSTRALIAN SECURITIES COMMISSION (in the matter of GALITE HOLDINGS PTY LTD)

MOORE J SYDNEY 26 MAY 1995

IN THE FEDERAL COURT OF AUSTRALIA) ) NEW SOUTH WALES DISTRICT REGISTRY) No. NG 3441 of 1994 ) GENERAL DIVISION ) BETWEEN: DAVID HENRY PACANOWSKI Applicant AND: AUSTRALIAN SECURITIES COMMISSION (IN THE MATTER OF GALITE HOLDINGS PTY LTD) Respondent JUDGE: Moore J PLACE: Sydney DATE: 26 May 1995 ORDER OF THE COURT THE COURT ORDERS: 1. The registration of Galite Holdings Pty Ltd be reinstated. 2. No order as to costs. NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA) ) NEW SOUTH WALES DISTRICT REGISTRY) No. NG 3441 of 1994 ) GENERAL DIVISION ) BETWEEN: DAVID HENRY PACANOWSKI Applicant AND: AUSTRALIAN SECURITIES COMMISSION (IN THE MATTER OF GALITE HOLDINGS PTY LTD) Respondent JUDGE: Moore J PLACE: Sydney DATE: 26 May 1995 REASONS FOR JUDGMENT This is an application by Mr David Henry Pacanowski for the reinstatement of the registration of Galite Holdings Pty Ltd ("Galite") following the cancellation of its registration as a company. The application is made under s574(3) of the Corporations Law. The grounds upon which the application is made is that it is just that the registration of the company be reinstated. At the commencement of the proceedings Mr Harry Wygoda sought to intervene in the proceedings under O71r10 of the Federal Court Rules. I granted leave to Wygoda to intervene though I indicated that the intervention might be made conditional. As events unfolded an underlying dispute between Pacanowski and Wygoda was settled during the hearing which is something I return to shortly. Galite was incorporated in December 1986 as a shelf company and in January 1987 was acquired by Pacanowski and Wygoda for the purposes of property development which they proposed to undertake jointly. In January 1987 they became directors and shareholders in the company each holding one share valued at one dollar. The company traded for a number of years though without apparent success. By the financial year ending 30 June 1990 the company had accumulated losses in excess of $390,000. It failed to file annual returns in 1991 and 1992 and in September 1993 its registration was cancelled by the Australian Securities Commission ("ASC"). Over time the commercial relationship between Wygoda and Pacanowski has deteriorated and, as a result, there has been a plethora of litigation between them in the recent past. Some has concerned the bankruptcy of Wygoda and attempts by Pacanowski to establish Wygoda's indebtedness to him and thus his right to prove a debt for the purposes of the bankruptcy. Pacanowski was unsuccessful in this endeavour in proceedings in the Federal Court at first instance and on appeal. There have also been proceedings in the Supreme Court of New South Wales in which Galite and Pacanowski have sued Wygoda for the sum of $600,000. A point has been reached in those proceedings where the Court has ordered, on 21 October 1994, that the statement of claim be struck out and that leave be granted to the plaintiff to file an amended statement of claim. That right was conditional and the condition was in the following terms: "Any amended statement of claim be filed on or before the expiry of 15 working days after the final determination of the Federal Court proceedings to have Galite Holdings Pty Ltd reinstated." It is unnecessary to detail further the litigation between them or the circumstances that gave rise to it, save to note that as a result of the unsuccessful trading of Galite, a guarantee that had been given by Pacanowski to the Commonwealth Bank covering loans made to the company was called upon. As a consequence Pacanowski paid the bank $364,584.67. Pacanowski contends that as a consequence Galite became indebted to him in the sum of $364,584.67 and that if the company is successful in the proceedings against Wygoda, funds may become available that will permit the discharge of all or some of that debt. As a result of the unsuccessful trading of the company it has accumulated tax losses of $365,399. While the underlying dispute between Pacanowski and Wygoda has been settled, I have been informed that Galite's action against Wygoda in the Supreme Court will continue. While this was originally identified by Pacanowski as the reason for seeking the reinstatement of the company under s574(3), I have since been informed that it is Pacanowski's intention to provide funds to Galite and for Galite then to operate as a service company for a company with which he is associated, namely Marblised Products Pty Ltd. This will be done by transferring to Galite certain unencumbered assets from that company and another company, Makawe Pty Ltd, which is an investment company with which Pacanowski is associated. As a result Pacanowski has expressed the opinion in an affidavit sworn on 30 April 1995 that Galite will thus derive income, make profits and be put it in a position to repay its debt to him. I have no reason to doubt that this opinion is advanced bona fide. Section 574 raises, relevantly, two issues. The first is whether Pacanowski is a person aggrieved within the meaning of s574(3) and the second, if so, whether his application should be granted on the basis that it is just that the registration of the company be reinstated. In relation to his standing to bring the application the applicant relied upon Re L Carroll Ltd (1975) 1 NZLR 79 in which O'Regan J restored a company to the Register of Companies because shareholders wished to take advantage of accumulated losses of the company for taxation purposes and recommence the trading activities of the company. In that case it was necessary for the applicant, which was the company itself, to establish under s336(7) of the Companies Act 1955 (NZ) that the applicant felt aggrieved by the company having been struck off. While that matter was not expressly addressed by his Honour, it is clear from the approach he took that his Honour accepted the company was aggrieved and thus had the requisite standing. The expression "person .... aggrieved" should not be narrowly construed: see Re Proserpine Pty Ltd (1980) 5 ACLR 603. Pacanowski's interest is, at least arguably, as a creditor of the company and, as such, he has an interest in the pursuit of the litigation of the company against Wygoda: see Re JJ Weeks Construction Pty Ltd (1982) 1 ACLC 425. Further, having regard to Re L Carroll Ltd, supra, Pacanowski may be accepted as having an interest deriving from the future use that might be made of accumulated losses for taxation purposes. I accept that Pacanowski has standing to make the application. The question then arises as to whether it is just for the company to be reinstated. No satisfactory explanation has been given as to why circumstances were permitted to arise where statutory returns were not lodged and which led to Galite being deregistered. However the Australian Securities Commission has appeared and indicated it does not object to Galite's reinstatement. Its attitude is relevant: see Re Immunosearch Pty Ltd (1990) 8 ACLC 1031. While the position of ACS is subject to certain conditions being satisfied, it appears that the conditions have or will be met by Galite and Pacanowski in the event that an order is made reinstating it. The language of s574, in so far as it speaks of the Court being "satisfied that it is just" that registration be reinstated, is imprecise and invests the Court with a power requiring the exercise of a broad value judgment. I am satisfied that Pacanowski has, during the trading activities of Galite, guaranteed loans to the Company to his detriment and in those circumstances has a legitimate interest in availing himself of benefits that might flow from the Company being reinstated and thus being able to resume trading. Accordingly s574(3) is, in my opinion, satisfied. I order the reinstatement of the registration of Galite pursuant to s574 of the Corporations Law. I certify that this and the preceding five (5) pages are a true copy of the Reasons for Judgment herein of his Honour Justice Moore.