FEDERAL COURT OF AUSTRALIA Deputy Commissioner of Taxation v Australian Securities and Investments Commission [2013] FCA 594 Citation: Deputy Commissioner of Taxation v Australian Securities and Investments Commission [2013] FCA 594 Parties: DEPUTY COMMISSIONER OF TAXATION v AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION File number: VID 329 of 2013 Judge: GORDON J Date of judgment: 17 June 2013 Date of hearing: 13 June 2013 Date of last submissions: 13 June 2013 Place: Melbourne Division: GENERAL DIVISION Category: No catchwords Number of paragraphs: 26 Counsel for the Plaintiff: Mr S Linden Solicitor for the Plaintiff: ATO Legal Services Branch Counsel for John Rennie and Lisa Rennie (interested parties): Mr SB Rosewarne Solicitor for John Rennie and Lisa Rennie (interested parties): Johnson Winter & Slattery IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 329 of 2013 BETWEEN: DEPUTY COMMISSIONER OF TAXATION Plaintiff AND: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION Defendant JUDGE: GORDON J DATE OF ORDER: 17 june 2013 WHERE MADE: MELBOURNE THE COURT ORDERS THAT: 1. The interlocutory process filed on behalf of John Rennie and Lisa Rennie dated 31 May 2013 is dismissed. 2. The Defendant reinstate the registration of Melren Farms Pty Ltd (ACN 050 030 487) (the Company) pursuant to s 601AH(2) of the Corporations Act 2001 (Cth). 3. Upon reinstatement of the Company, Guiseppe Michele Rambaldi and Andrew Reginald Yeo, both of Pitcher Partners, be appointed as joint and several liquidators of the Company (the Liquidators). 4. A copy of this Order as authenticated be sent by ordinary prepaid post by the Plaintiff to the Liquidators, John Rennie and Lisa Rennie. 5. Prior to a copy of this Order as authenticated being lodged with the Defendant together with a completed ASIC Form 105, the Plaintiff pay the Defendant's costs of this proceeding fixed at $495.00. 6. The Plaintiff's costs of the application be costs in the winding up of the Company. 7. Otherwise, there be no order as to costs. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011 (Cth). IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 329 of 2013 BETWEEN: DEPUTY COMMISSIONER OF TAXATION Plaintiff AND: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION Defendant JUDGE: GORDON J DATE: 17 JUNE 2013 PLACE: MELBOURNE REASONS FOR JUDGMENT INTRODUCTION 1 By originating process dated 30 April 2013, the Deputy Commissioner of Taxation (the DCT) applies pursuant to s 601AH(2) of the Corporations Act 2001 (Cth) (the Act) to reinstate Melren Farms Pty Ltd (ACN 050 030 487) (Deregistered) (Melren) (the Reinstatement Application). 2 Melren was registered on 10 September 1990, it was placed into liquidation on 20 July 2005 as a result of a voluntary winding up, and then deregistered on 23 May 2007. It was common ground that John Rennie and Lisa Rennie (the Rennies) were appointed directors of Melren on registration and were the only directors of Melren on deregistration. 3 Notice of the Reinstatement Application was served on the Australian Securities and Investments Commission (ASIC), the former liquidator of Melren, and each of the directors and members of Melren at the time of Melren's deregistration. ASIC does not oppose the Reinstatement Application. 4 The stated purpose of the Reinstatement Application is to enable the DCT to wind-up Melren so that a liquidator can carry out further investigations with the aim of bringing claims against: 1. John Rennie as a former director of Melren for conversion and/or breaches of fiduciary duty and/or trust for disposing of assets of Melren for no real consideration to the detriment of the company and its creditors; 2. other members of the Melren group of companies (including trustees of various trusts) for knowingly assisting in breaches of fiduciary duties; 3. those entities that received money and/or property of Melren for trespass, knowing receipt, unjust enrichment and/or money had and received; and 4. the Rennies (and any other recipients of real property) on the basis of voluntary conveyances made for the purpose of defrauding creditors. 5 By an interlocutory process dated 31 May 2013, the Rennies have applied pursuant to r 2.13 of the Federal Court (Corporations) Rules 2000 (Cth) (the Corporations Rules) for leave to be heard on the Reinstatement Application. In support of that interlocutory process, the Rennies have filed two affidavits; an affidavit sworn by Paul Reidy on 31 May 2013 and an affidavit of Dougal Andrew Ross sworn on 6 June 2013. The DCT opposed the Rennies' application to be heard in relation to the Reinstatement Application. 6 For the reasons that follow, Melren should be reinstated. The Rennies' application for leave to be heard on that application is dismissed. These reasons for judgment will consider first the relevant statutory provisions, before turning to the Rennies' application and the Reinstatement Application. RELEVANT STATUTORY PROVISIONS AND AUTHORITIES 7 Sections 601AH (2) and (3) of the Act provide: (2) 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. (3) If: … (b) the Court makes an order under subsection (2); the Court may: (c) validate anything done between the period: (i) beginning when the company was deregistered; and (ii) ending when the company's registration was reinstated; and (d) make any other order it considers appropriate. 8 As was explained in Australian Competition and Consumer Commission v Australian Securities and Investments Commission (2000) 174 ALR 688 at [27]-[28] in relation to s 601AH(2): [27] The wording of the section is very broad, and the cases confirm that it gives the court a wide discretion. The court takes into account the circumstances in which the company came to be dissolved; whether, if the order were made, good use could be made of it; and whether any person is likely to be prejudiced by the reinstatement: Re Kilkenny Engineering Pty Ltd (in liq) (1976) 1 ACLR 285; Drysdale v ASC (1992) 10 ACLC 1427; Re Steelmaster Pty Ltd (in liq) (1992) 6 ACSR 494. [28] These matters are only factors to be weighed in the exercise of the court's discretion. They are not limits on the court's power. Here, the reinstatement is likely to lead to the company being joined in proceedings in which the ACCC will seek orders for pecuniary penalties against it. The company may therefore be prejudiced. The court may nevertheless conclude that it is just that the company's registration be reinstated, having regard (for example) to the strong public interest which is involved. It is appropriate for the court to take into account questions of public interest in exercising its discretion under s 601AH: Re Immunosearch Pty Ltd (1990) 2 ACSR 455. 9 Rule 2.13(1) of the Corporations Rules provides: The Court may grant leave to any person who is, or who claims to be: (a) a creditor, contributory or officer of a corporation; or (b) an officer of a creditor, or contributory, of a corporation; or (c) any other interested person; to be heard in a proceeding without becoming a party to the proceeding. THE RENNIES' APPLICATION 10 The Rennies, as former directors of Melren, seek leave to be heard on the Reinstatement Application. Former directors have been granted leave to be heard on the hearing of applications made pursuant to s 601AH(2) of the Act to reinstate a company: see, for example, Australian Competition and Consumer Commission v Australian Securities and Investments Commission (2000) 174 ALR 688; Herbert v Nozala Pty Ltd [2006] NSWSC 1437; cf Deputy Commissioner of Taxation v Australian Securities and Investments Commission (2010) 81 ATR 456. 11 The Rennies submitted that the reasons for leave being granted to former directors are clear – in circumstances where the purpose of reinstatement is to bring an action against a former director, the former director is a person who is likely to be impacted by the reinstatement order and therefore should be afforded the right to be heard. In particular, the Rennies referred to the decision of the New South Wales Court of Appeal in Miltonbrook Pty Ltd v Westbury Holdings Kiama Pty Ltd (2008) 71 NSWLR 262, where Spigelman CJ stated at [85] (Tobias JA at [102] and Campbell JA at [103] agreeing): It is axiomatic that when a statutory power like s 601AH(2) is conferred on a court, the legislature intends that procedural fairness will be accorded to all who may be affected by the order, unless there is a clear statement to the contrary. The denial of procedural fairness by a court is a "fundamental irregularity" which would entitle a person aggrieved to set aside an order as a matter of unconditional right. 12 However, the right is not unlimited. As was explained in Pilarinos v Australian Securities and Investments Commission (2006) 24 ACLC 775 at [29]: I think it would be appropriate, also, as a general guideline, that if a judge formed the view on the material that it was proposed to sue the company, and the cause of action was hopeless, it may be appropriate to require notice to be given to the potential litigant. Examples of this would be where there is a clear defence, such as a limitation defence or some statutory defence. However, it would only be in the clearest of clear cases that that should happen. I reiterate 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. 13 What then are the matters the Rennies wish to agitate on the hearing of the Reinstatement Application? In short, the Rennies submitted that the delays in bringing the Reinstatement Application by the DCT and the length of time since relevant events means that it is not just for Melren to be reinstated. 14 These submissions require further examination. The Rennies submitted that the claims foreshadowed by the DCT will be statute barred (or alternatively, are likely to be unavailable in accordance with the equitable principles of laches) and are therefore futile. Their next submission was that the significant delays in bringing the Reinstatement Application are such that the passage of time is likely to have adversely affected the ability of there to be a fair trial of any action against them. In this respect, the Rennies pointed to the documents and circumstances referred to by Mr Yeo, one of the proposed liquidators, in his letters of 7 May 2012 and 17 April 2013 to the Australian Taxation Office (the ATO). In those letters, Mr Yeo identified potential claims in relation to a series of transactions entered into by Melren (the Transactions). The Transactions may be summarised as follows: 1. the cessation of Melren's potato growing business coinciding with the commencement of a similar business under the name "Melren (NSW) Trust Pty Ltd" (Melren (NSW)), an entity associated with the Rennies; 2. the transfer of assets of Melren to entities associated with the Rennies; and 3. the apparent investment by Melren, and liabilities incurred, in entities based in the British Virgin Islands. At the date of liquidation, the investment was worthless but there was a liability in excess of $5 million charged against the assets of Melren. 15 The Rennies submitted that the DCT was (or should have been) aware of all the Transactions at least by 2005 or 2006 when Melren was in liquidation. In oral submissions, the Rennies further contended that the DCT was (or should have been) at least aware of the Melren (NSW) Transaction by 2000. In this regard, the Rennies referred to the ATO's audit of Melren in connection with the "Wandeet" tax avoidance scheme and the resulting "Case Audit Report" dated 23 March 2000. The "Case Audit Report" included summaries of the returns of both Melren and Melren (NSW). According to the Rennies, this information should have alerted the DCT to the Melren (NSW) Transaction. 16 The Rennies further submitted that, on the basis of the DCT's actual (or constructive) knowledge, the DCT should have raised these concerns when Melren was in liquidation or invited the former liquidator to conduct further investigation into the Transactions. Finally, in relation to Mr Rennie, Counsel for the Rennies provided the Court with a letter from a neurosurgeon dated 5 September 2012 which outlined in general terms his medical history from July 2002 until September 2012. 17 In support of these submissions, the Rennies referred to Herbert at [50]-[51] and Blazai Pty Ltd v Gateway Development (St Marys) Pty Ltd [2009] NSWSC 800 at [19], [28]-[36]. In both Herbert and Blazai, the Courts expressed the view that the passage of time since the relevant company was deregistered meant that it was likely to have affected, adversely, the ability for there to be as fair a trial of any action against the directors as could have been available if any such claim had been brought promptly. 18 The desirability of bringing claims against former directors promptly is beyond dispute. But that statement is incomplete. It is incomplete because it must be considered in the context of the circumstances of each case. As was explained in Deputy Commissioner of Taxation v Australian Securities and Investments Commission [2011] FCA 524 at [19]: Where as here the Limitations Acts does not apply to equitable claims (see the Limitations of Actions Act 1958 (Vic)), equity may act by analogy to statute: see Knox. However, a Court of equity will not apply a statutory period of limitation by analogy if in the circumstances of the case it would be unjust to do so: Barker v Duke Group Ltd (in liq) [2005] SASC 81; (2005) 91 SASR 167 at [84]. Consistent with that principle, equity has regard to the time when the plaintiff became aware of the rights, particularly in cases of concealed fraud: see Barker at [105]-[106]. The DCT submitted that this is the position in relation to Melren and, in particular, the possibility of potential claims not only against the Rennies but entities associated with them. For the reasons set out below, the DCT's submissions should be accepted; Melren should be reinstated. It follows that the Rennies' application for leave to be heard may be put to one side. This is not one of the clearest of cases where the potential causes of action are hopeless: cf Deputy Commissioner of Taxation v Australian Securities and Investments Commission at [17]. The Rennies' application for leave to be heard is therefore dismissed. 19 Before turning to consider the Reinstatement Application, a separate submission made by the Rennies should be addressed. The Rennies submitted that they should be heard on the issue of whether it is appropriate for the proposed liquidators to be appointed in the event that Melren is reinstated. The Rennies assert a concern that the proposed liquidators might not bring an independent mind to an administration or liquidation of Melren having regard to previous correspondence from Mr Yeo to the Australian Taxation Office dated 7 May 2012 and 17 April 2013. The allegations made by the Rennies are, at best, general in nature and unparticularised. Even taken at their highest, the allegations on their face do not, individually or collectively, provide any basis for rejecting their appointment as liquidators of Melren. REINSTATEMENT APPLICATION 20 The Rennies have not challenged the DCT's standing to seek the reinstatement of Melren. 21 What then is the basis of DCT's application to seek Melren's reinstatement? 22 As referred to at [14] above, Mr Yeo, one of the proposed liquidators, has identified potential causes of action against the Rennies and further or alternatively, entities associated with them, which require further investigation and which may not be statute barred. The Rennies contend that the documents and circumstances relied upon by Mr Yeo in relation to each of those potential causes of action were available to the DCT in about 2005 and 2006. Whether they were may be put to one side. First, it was not and is not the DCT's role to investigate claims. It was and remains the role of the liquidator to collect the assets of Melren which includes investigating the rights of action that Melren may have against its former officers and associated entities in relation to (or in connection with) breaches of trust or breaches of duty or both. 23 Secondly, and no less importantly, in 2005 and 2006, the DCT did not have the results of Mr Yeo's investigation into the transactions of Rennie Produce (Aust) Pty Ltd (ACN 076 403 542) and Rennie Produce Pty Ltd (ACN 006 185 824). Rennie Produce Pty Ltd was reinstated on 19 May 2011 on the application of the DCT to enable Mr Yeo (and Mr Rambaldi) to investigate its affairs: Deputy Commissioner of Taxation v Australian Securities and Investments Commission [2011] FCA 524. As a result of those investigations, the liquidators recovered in excess of $21 million. It was during the course of those investigations in 2011 and 2012 that Mr Yeo identified potential claims in relation to a series of transactions entered into by Melren summarised at [14] above. 24 Next, the reinstatement application is not the appropriate forum for the Court to determine the disputed factual matters which may be the subject of any potential proceedings by the liquidators against the Rennies and further or alternatively, entities associated with them: see, by way of example, Pilarinos at [22]-[27]; AMP General Insurance Ltd v Victorian Workcover Authority (2006) 15 VR 175 at [42]-[46]. As Gillard J said in Pilarinos at [22], the claims involve a consideration of the facts and the law where the evidence can be tested using the "armoury" of the legal system to ascertain the relevant facts, to test the other party's case and to make appropriate submissions. That cannot occur here. 25 On the material currently before the court, it cannot be said that reinstatement of Melren is unjust or futile. The new liquidators should be given an opportunity to investigate and pursue any necessary and appropriate legal actions on behalf of Melren. Further, in the event that the new liquidators commence proceedings against the Rennies and/or entities associated with them, the Rennies and those other entities will be able to raise, on appropriate material, any available defences. 26 It is appropriate that Melren be reinstated. The DCT will indemnify the new liquidators of Melren to investigate Melren's affairs with a view to obtaining a dividend for its creditors. I certify that the preceding twenty-six (26) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gordon. Associate: Dated: 17 June 2013