New South Wales Supreme Court CITATION : La Trobe Capital & Mortgage Corporation Ltd v REA Australasia Pty Ltd [2007] NSWSC 652 HEARING DATE(S) : 13/06/07 JUDGMENT DATE : 13 June 2007 JURISDICTION : Equity Division Corporations List JUDGMENT OF : White J EX TEMPORE JUDGMENT DATE : 13 June 2007 DECISION : 1. Order that the Australian Securities and Investments Commission be added as a defendant to the proceedings; 2. order that the Australian Securities and Investments Commission reinstate the registration of Real Collections No 2 Pty Limited, ACN 096 061 488; 3. order that Richard Henry Hudson of 9/100 Christie Street, St Leonards, New South Wales be removed as liquidator of Real Collections No 2 Pty Limited and that Morgan Kelly of Level 13, Grosvenor Place, 225 George Street, Sydney, official liquidator, be appointed in his place; 4. order that each party pay his and its own costs; these orders may be entered forthwith; 5. the exhibits may be returned after 28 days. CATCHWORDS : CORPORATIONS – Reinstatement of deregistered company under s 601AH(2) of Corporations Act 2001 (Cth) – Plaintiff alleges that it suffered loss by lending money in reliance upon company's negligent valuation of property by which loan ultimately secured – Circumstances in which plaintiff may not be entitled to make claim against company's insurer under s 601AG of the Corporations Act – Where arguable that insurer would be liable to indemnify company if claim were made against the company after reinstatement, because company arguably reported circumstances that may give rise to a claim before deregistration – Order that defendant company be reinstated. - CORPORATIONS – Winding up of reinstated company – Where not just and equitable that defendant be wound up by the Court – Order that member's voluntary winding up be continued – Liquidators –Removal of liquidator under s 503 of the Corporations Act – In best interests of those interested in liquidation that liquidator removed and new liquidator appointed – Order that liquidator be removed and new liquidator appointed. LEGISLATION CITED : Corporations Act 2001 (Cth) Law Reform (Miscellaneous Provisions) Act 1946 (NSW) La Trobe Capital & Mortgage Corporation Ltd PARTIES : v REA Australasia Pty Ltd FILE NUMBER(S) : SC 1769/07 COUNSEL : Plaintiff: R Darke Defendant: T F Bathurst QC & M Ellicott SOLICITORS : Plaintiff: Kells The Lawyers Defendant: Kehoe Legal IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST WHITE J Wednesday, 13 June 2007 1769/07 La Trobe Capital & Mortgage Corporation Ltd v REA Australasia Pty Ltd JUDGMENT 1 HIS HONOUR: This is an application under subs 601AH(2) of the Corporations Act 2001 (Cth) for an order that the Australian Securities and Investments Commission reinstate the registration of Real Collections No 2 Pty Limited, ACN 096 061 488 ("the company"). On 26 March 2003, the company was placed into members' voluntary liquidation. On 1 November 2003, three months after presentation of the liquidator's final accounts, the company was deregistered. 2 The plaintiff claims that it suffered loss by lending money upon security of residential property in Illawong in New South Wales, in reliance upon a valuation provided to it by the company. The valuation in question was made on or about 22 June 2002. It was a valuation given by Mr Sam Wehbe of the company, then called REA Australasia Pty Limited. The property in Illawong was then valued at $1,800,000. The plaintiff claims that in reliance on that valuation, it lent $1,260,000 to a Mr Moses for the purchase of the property and made a subsequent advance of a further $90,000. 3 After default in repayment of the loans, the property was sold in 2004 by the plaintiff in exercise of its power of sale as mortgagee. The property was sold for $1,120,000. There is some evidence in the form of a valuation opinion of another firm of valuers that, as at July 2002, the market value of the property was in the order of $1,050,000 and not $1,800,000. 4 On 4 October 2002, the plaintiff was advised that the company had been "replaced as a trading entity" by United Valuers Pty Limited. On 17 October 2003, the plaintiff wrote to Mr Wehbe at United Valuers Pty Limited. The plaintiff stated as follows: " We refer to the abovementioned and to which we now advise. We refer to your valuation completed on behalf of La Trobe on the 15th August, 2003 valuing the property at $1,800,000.00 ' as is '. Auction on the abovementioned property was held on the date of the 16th October, 2003 with the reserve price reflecting the valuation amount of $1,800,000.00. Our agent reported that the property was passed in on a genuine bid of $1,240,000.00. If this bid is accepted by La Trobe the second mortgagee will lose their entire investment amount. We now formally advise you that your company is on notice if: § upon the realisation of the security properties there is a shortfall to the mortgagee; and § the original valuations conducted by your company were negligently prepared. La Trobe will claim from your company the amount of the shortfall. " 5 Both the company and United Valuers Pty Limited were insured by ACE Insurance Limited under a professional indemnity policy for the period from 14 December 2002 to 14 December 2003. The insuring clause provided that: " ACE Insurance Ltd ("ACE") will indemnify the insured against any civil liability for breach of a duty owed in a professional capacity in connection with the Firm's Business if a Claim in respect of such breach is first made against an Insured: (a) during the Period of Insurance; or (b) during or after the Period of Insurance and the Claim arises from a Reported Circumstance." A " Claim " was defined to mean a demand for, or an assertion of a right to, civil compensation or civil damage in connection with the firm's business or an intimation of an intention to seek such compensation or damages. A " Circumstance " was defined as an incident, occurrence, fact or matter which may or does give rise to a claim. A " Reported Circumstance " was defined as a " Circumstance " first reported by an insured to ACE during the period of insurance. 6 Shortly after 17 October 2003, a copy of the plaintiff's letter of that date was sent to the insurer. 7 In February 2005, the plaintiff wrote to ACE Insurance Ltd advising that the company had been deregistered and replaced with a different trading entity, United Valuers Pty Limited, and advising of the plaintiff's intention to bring a claim, apparently with a view to making a claim for the insurance moneys. 8 On 1 September 2005, the solicitors for the insurer advised that disclosure was made to the insurer of the plaintiff's letter of 17 October 2003. The solicitors for the insurer advised: " That disclosure was made on behalf of United Valuers and not on behalf of REA. You will appreciate this was because your client's letter dated 17 October 2003 at no point refers to a valuation prepared by REA in June 2002, but refers to a valuation prepared by United Valuers in August 2003. Your client's letter was addressed to United, not REA and does not give notice of any claim against REA. " 9 It was also said that at the time the plaintiff sent the letter of 17 October 2003, REA had been wound up and deregistered and it was impossible then for a claim to be made upon it. However, that was not factually correct. It appears that the insurer also rejected the proposition that disclosure of the contents of the plaintiff's letter of 17 October 2003 was notification of Reported Circumstances within the meaning of the policy. 10 Section 601AG provides: " 601AG Claims against insurers of deregistered company A person may recover from the insurer of a company that is deregistered an amount that was payable to the company under the insurance contract if: (a) the company had a liability to the person; and (b) the insurance contract covered that liability immediately before deregistration. " 11 If, immediately prior to the deregistration of the company, the plaintiff had a cause of action against the company for loss suffered in reliance upon the valuation which is said to be negligent, and if the company's policy of insurance with ACE Insurance Ltd covered that liability, then there would be no occasion to reinstate the company pursuant to s 601AH(2). It is part of the plaintiff's claim both that it had such a cause of action, and that the claim had been made against the company during the period of insurance. However, it is clear that the insurer disputes at least the second of those contentions. 12 In the event that the letter of 17 October 2003 is found not to have been the making of a claim against the company, the plaintiff would seek to contend that it can make a claim in the future if the company is reinstated, and that, if it does so, such a claim would arise from a Reported Circumstance. In this way, reinstatement is sought in order to allow the plaintiff to crystallise a cause of action which the company would have against its insurer by making a claim following the company's reinstatement. 13 The application for reinstatement is opposed by Mr Jeffrey Millar, who is a former director of the company. He was a director until the company was deregistered. It was submitted for him that either the conditions for the plaintiff bringing a proceeding against the insurer under s 601AG were satisfied or, if they were not, then nothing further that could be done would or could lead to the insurer becoming liable to the company. It was said that either the letter of 17 October 2003 was a claim made against the company or, if it were not, notification of the claim could not amount to a Reported Circumstance within the meaning of the policy. 14 I do not think the position is so clear. In the letter of 17 October 2003, the plaintiff did not make an immediate demand for compensation. Rather, it gave notice that a claim would be made if there were ultimately a shortfall in the realisation of the secured property against the mortgage debt, and if the original valuation had been negligently prepared. It is at least arguable that such a letter does not amount to the making of the claim and, a fortiori, does not amount to the making of a claim against the company, given that the letter was addressed to Mr Wehbe at United Valuers Pty Limited. That at least is how the insurer apparently sees it. 15 I think it is arguable that nonetheless the forwarding of the letter is a report by the company to its insurer of an incident, occurrence, fact or matter which may give rise to a claim. It is an advice that the plaintiff intended to bring such a claim against the company if the two matters came about, namely a shortfall being realised and the plaintiff concluding that the original valuation was negligently prepared. 16 It is at least seriously arguable that reinstating the company in order to permit the plaintiff to make a claim, or further claim, on it, may give rise to a liability of the insurer to the company. If that were so then the plaintiff may be entitled to a charge over the insurance moneys which may become payable in respect of that liability pursuant to s 6 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW). In any event, even if that were not so, if leave were given for the plaintiff to bring proceedings against the company in liquidation, and the company in liquidation cross-claimed against the insurer, then if the plaintiff were successful, and the company were successful in its cross-claim, the liquidator would hold the proceeds of the contract of insurance received by the company for the plaintiff (Corporations Act, s 562). 17 It was submitted that s 6 of the Law Reform (Miscellaneous Provisions) Act could not apply in any event because the section only applies if either the charge provided for by subs 6(1) was created prior to the company being wound up, or the circumstances in subs 6(2) prevail. I do not think that this is the appropriate occasion, particularly in the absence of the insurer, to express any views upon the operation of s 6, save to say that I consider that it is arguable that the plaintiff may be entitled to a charge over such insurance moneys as may become payable. 18 The Court needs to be satisfied both that the plaintiff is a person aggrieved by the deregistration and that it is just that the company's registration be reinstated. For the reasons I have already given, it is clear that the plaintiff is a person aggrieved by the deregistration and I do not think the contrary was argued. It was submitted, however, that it was not just that the company's registration be reinstated. Mr Millar deposed that if the company was reinstated, he could be adversely affected in two ways. First, he and other directors could potentially be exposed to unnecessary costs, actions and time imposts to which they are not presently exposed and secondly, their credit-worthiness may be unreasonably impaired and adversely affected by being directors of a company which is in liquidation. 19 It is theoretically possible that the directors could be exposed to actions by the liquidator of the company upon its reinstatement. However, the costs of the liquidation itself will not be borne by them. There is no reason to think that they would be exposed by being made a party to any suit. There is no further explanation as to how their ability to obtain credit might be affected by the reinstatement of the company. 20 In my view, the interests of the plaintiff in being able to put itself in a position where it can more readily make a claim on the insurance proceeds outweighs the potential detriment to the directors identified by Mr Millar. I think it is just that the company's registration be reinstated. 21 On reinstatement, unless some other order is made, the company will remain subject to the members' voluntary winding-up. There is some doubt as to whether the liquidator would automatically be reinstated to his position as liquidator. He has been notified of the application, but, I am told, has not responded to that notice. 22 The plaintiff seeks an order that immediately upon reinstatement the company be wound up. In other words, it seeks to substitute a court-ordered winding-up for the voluntary winding-up. Although the ground is not expressed in the originating process, that application is made under s 461(1)(k) of the Corporations Act. In other words, the plaintiff relies upon the just and equitable ground. However, I see no reason why it is just and equitable that the company be wound up by the Court rather than continuing as a members' voluntary winding-up. 23 The difficulty is with the position of the liquidator. A Mr Kelly of Ferrier Hodgson, who is an official liquidator, has consented to be appointed as liquidator of the company. Section 503 of the Corporations Act empowers the Court to remove a liquidator of a company being wound up voluntarily, and appoint another liquidator, on cause shown. The question is whether it is in the best interests of those interested in the liquidation that the liquidator be removed and a new liquidator be appointed. I do not think it necessary to find that the liquidator's conduct is impugned in any way. It is not suggested that the existing liquidator has acted otherwise than properly. Nonetheless, where he has shown no interest in resuming office as liquidator, and has not responded to the notice which he has been given, I think sufficient cause is shown to appoint Mr Kelly as liquidator in his place. 24 For these reasons, I order first that the Australian Securities and Investments Commission be added as a defendant to the proceedings. Secondly, I order that the Australian Securities and Investments Commission reinstate the registration of Real Collections No 2 Pty Limited, ACN 096 061 488. I order that Richard Henry Hudson of 9/100 Christie Street, St Leonards, New South Wales be removed as liquidator of Real Collections No 2 Pty Limited and that Morgan Kelly of Level 13, Grosvenor Place, 225 George Street, Sydney, official liquidator, be appointed in his place. 25 I order that each party pay his and its own costs. These orders may be entered forthwith. 26 The exhibits may be returned after 28 days. ****** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.