Supreme Court New South Wales Medium Neutral Citation: Re Llenruk Pty Limited; Sim v Australian Securities and Investments Commission and Ors [2013] NSWSC 1430 Hearing dates: 24 September 2013 Decision date: 24 September 2013 Jurisdiction: Equity Division Before: Lindsay J Decision: Order for reinstatement of deregistered company, with ancillary orders Catchwords: CORPORATIONS - Dissolution - Deregistration - Reinstatement - Who can apply - Whether just to reinstate the registration of a company - Corporations Act 2001 (Cth), s 601AH Legislation Cited: Corporations Act 2001 (Cth) s 601AH(2), s601AA, s 601AH(3), s 601AH(5), 601AH(2)(a)(i), s 601AH(2)(b), s 601AH(2)(a), s 601AH(3)(b) Limitation Act 1969 NSW s14, s63 Cases Cited: AMP General Insurance Ltd v WorkCover Authority (Vic) (2006)15 VR 175 at 179 -180 [9]-[21] Australian Competition and Consumer Commission v Australian Securities and Investments Commission (2000) 174 ALR 688; 34 ASCR 232; 19 ACLC 341; [2000] NSWSC 316 at [27] Casali v Crisp (2001) 165 FLR 79; [2001] NSWSC 860 at [27] AMP General Insurance Ltd v Victorian WorkCover Authority (2006) 15VR 175 Pilarinos v ASIC [2006] VSC 301 at [106] Texts Cited: - Category: Principal judgment Parties: Colin Sim (Plaintiff) Australian Securities and Investments Commission (First Defendant) Paul Douglas Williams (Second Defendant) Shane Barr (Third Defendant) Representation: Counsel: GES Ng (Plaintiff) J Ireland QC (Second Defendant) Solicitors: Blackstone Waterhouse Lawyers (Plaintiff) Rockwell Olivier (Second Defendant) File Number(s): 2013/00275576 Judgment - EX TEMPORE Introduction 1As a shareholder and former director of Llenruk Pty Limited ("the Company"), the plaintiff applies to the court for an order (pursuant to s 601AH(2) of the Corporations Act 2001 (Cth)) that the Australian Securities and Investments Commission (the first defendant) reinstate the registration of the Company. 2By a letter dated 13 September 2013, ASIC advised the solicitors for the plaintiff that, subject to formal conditions not necessary here to elaborate, it does not oppose the application for reinstatement. Factual Context 3The Company was deregistered, on its own application, pursuant to s 601AA of the Corporations Act on 27 January 2010. The "Application for Voluntary Deregistration" was lodged with ASIC by the third defendant as one of the two directors (and shareholders) of the Company. The plaintiff was the other director/shareholder. 4Conformably with s 601AA(2) of the Corporations Act, the Application for Deregistration included a declaration to the effect, inter alia, that: (a)all members of the Company (one of whom was, of course, the plaintiff) agreed to its deregistration; and (b)the Company's assets were worth less than $1,000. 5The plaintiff does not contest that these propositions were the subject of that declaration or that, at the time of the declaration, they were in his belief true. 6The plaintiff applies for reinstatement of the Company because, he says, and I accept: (a)the only substantial asset of the Company is a cause of action it has, or may have, against the second defendant; (b)at the time he agreed to deregistration of the Company he believed that the second defendant was impecunious; (c)since that time his attention has been drawn to public statements attributed to the second defendant which, if correct, suggest that the second defendant is a man of means; (d)any cause of action which the Company may have (jointly with him or in the alternative to him) may be liable to be extinguished (by operation of ss 14 and 63 of the Limitation Act 1969 NSW) on or about 27 September 2013; (e)he proposes, before that time, to commence proceedings against the second defendant (by a statement of claim presented, in the current proceedings, in the form of a draft) in which he and (if its reinstatement is ordered) the Company are named as plaintiffs; (f)if the Company is successful in its prospective action against the second defendant it will stand to recover monies which will produce surplus of assets over liabilities in the Company, which will enure to his benefit as a shareholder. (g)the refusal of the third defendant to join him as a plaintiff in the current proceedings is not an impediment to the application for reinstatement because: (i)the third defendant is bound by the Court's determination as a defendant; (ii)the third defendant has taken no steps in opposition to the reinstatement application; and (iii)the third defendant has foreshadowed that, should the Company be reinstated, he intends to resign his directorship. 7The second defendant opposes the plaintiff's reinstatement application. 8The plaintiff and the second defendant are the only parties actively engaged in the proceedings presently before the court. 9Sections 601AH(2) and 601AH(3) of the Corporations Act are in the following terms (with emphasis added): "Reinstatement by Court (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: (a) ASIC reinstates the registration of a company under subsection (1); or (b) the Court makes an order under subsection (2); the Court may: (c) validate anything done during 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." 10Section s 601AH(5) provides for the general effect of an order for reinstatement: "Effect of reinstatement (5) If a company is reinstated, the company 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 as from the time when ASIC [under s 601AH(1)] or the Court [under s 601AH(2)] reinstates the company. Any property of the company that is still vested in the Commonwealth or ASIC revests in the company. If the company held particular property subject to a security or other interest or claim, the company takes the property subject to that interest or claim." 11The second defendant opposes any grant of relief to the plaintiff on the basis, he contends, that: (a)the plaintiff is not "a person aggrieved" within the meaning of s 601AH(2)(a)(i); and (b)the Court should not be satisfied, for the purpose of s 601AH(2)(b), that it is just that the Company's registration be reinstated. 12I have not been separately addressed on any residual discretion there may be to refuse a grant of relief if the conditions for which s 601AH(2)(a) and (b) provide are made out: AMP General Insurance Ltd v WorkCover Authority (Vic) (2006)15 VR 175 at 179 -180 [9]-[21]. 13I have, however, been addressed on a range of factors which go to the Court's discretion: Australian Competition and Consumer Commission v Australian Securities and Investments Commission (2000) 174 ALR 688; 34 ASCR 232; 19 ACLC 341; [2000] NSWSC 316 at [27]. Those factors include the circumstances in which the Company came to be deregistered; whether, if an order for reinstatement were to be made, good use could be made of it; and whether any person is likely to be prejudiced by the reinstatement. Section 601AH(2): A Person Aggrieved 14Both the plaintiff and the second defendant accept as correct the determination of Young CJ in Eq, in Casali v Crisp (2001) 165 FLR 79; [2001] NSWSC 860 at [27], that in order for a shareholder or former director of a deregistered company to have standing (under s 601AH(2)(a)(i)) to bring an application under s 601AH(2), he or she must show "that he or she was also a creditor of the company or that there might well be a surplus of assets if the company were reinstated and certain events occurred". 15The plaintiff's contention is that, if the Company were to succeed in the foreshadowed proceedings against the second defendant, it would have a sufficiency of assets to confirm that the plaintiff is a "person aggrieved" within the meaning of s 601AH(2)(a)(i). 16The second defendant's disputation of this contention boils down to a proposition that, on the proper construction of contractual documentation of upon which any cause of action must be based or by which any cause of action must be referenced: (a)such (if any) liability as the second defendant may have is a liability to the plaintiff alone; and (b)the Company has no cause of action against the second defendant. 17It is not necessary, or desirable, for me to venture an opinion as to the proper construction of the contractual documentation in the context of the current proceedings. That is best left for the foreshadowed proceedings: AMP General Insurance Ltd v Victorian WorkCover Authority (2006) 15VR 175; Pilarinos v ASIC [2006] VSC 301 at [106]. 18It is sufficient for me to record the following: (a)in return for a payment of a sum said to be $620,000 to him by the plaintiff (characterised as an "advance"), the second defendant granted to the plaintiff, or the nominee of the plaintiff, an option to buy shares on the basis that, if the option were to be exercised, the advance would be characterised as a part-payment of the purchase price for the shares; (b)the plaintiff acquired the Company as a special purpose vehicle to exercise the option, which it did. The Company was the plaintiff's nominee but, independently of the plaintiff, it had rights against the second defendant; (c)on the case for which the plaintiff contends, the second defendant failed to honour his contractual obligations to both the plaintiff and the Company and, in broad terms, the "advance" became repayable; (d)the plaintiff claims that the second defendant is liable, at law or in equity, to either him or the Company for the consequences of non- performance of the obligation to transfer shares; (e)the plaintiff contends that, whether the second defendant is liable to him or the Company, depends, ultimately, on the construction of the contractual documents governing the dealings between the plaintiff and the Company (on the one hand) and (on the other hand) the second defendant; (f)I accept this analysis is correct. 19The fact that the plaintiff acquiesced in the Company's deregistration does not preclude his characterisation as "a person aggrieved". Section 601AH(2) is not limited in its operation to situations in which deregistration is involuntary. It operates in the context of a voluntary deregistration under s 601AA as well as in other circumstances. Section 601AH(2): Justice of Reinstatement 20The second defendant's opposition to a grant of relief sought by the plaintiff is not limited to his contention that the plaintiff is not an "aggrieved person" within the meaning of s 601AH(2)(a)(i). 21He contends, also, that (having agreed to deregistration of the Company and, specifically, the terms of the Company's declaration under s 601AA(2)) the plaintiff cannot, as required by s 601AH(2)(b), satisfy the Court that it is just that the Company's registration be reinstated. 22I do not accept this submission. 23The principal arguments against an affirmative answer to the question raised by s 601AH(2)(b) are: first, the plaintiff's acquiescence in a voluntary deregistration under s 601AA; and, secondly, such prejudice as may be suffered by the second defendant by an order for reinstatement that facilitates prospective litigation against him. 24As to the first, notice has already been given to the statutory availability of an order for reinstatement in the case of a voluntary deregistration. In the particular case, significance attaches to the fact that the plaintiff's deliberate decision to support deregistration was grounded upon a belief - possibly mistaken - about the commercial utility of litigation against the second defendant as a man of straw. The subsequent realisation that his belief about the commercial viability of the second defendant may have been mistaken is sufficient, in the present setting, to neutralise the plaintiff's participation in the process of deregistration. 25As to the second topic (prejudice to the second defendant), notice should be taken of the fact that an order for reinstatement will expose the second defendant to fresh court proceedings. However, the Company's prospective claim against the second defendant must be assessed in the context of the plaintiff's personal claim against him and the fact that the plaintiff (personally, and prospectively, through the Company) is seeking to vindicate alleged rights to compensation or restitution against the second defendant. 26As the plaintiff is proposed to be a party - perhaps one might say even the principal party - to the foreshadowed fresh proceedings against the second defendant, there appears to be no basis for any suggestion that the second defendant will be exposed to a special risk that, in the event that he succeeds in the new proceedings, he will not be able to recover on costs orders that might be made in his favour in those proceedings. 27I do not intend, by this observation, to prejudge any application that may be made by the second defendant in the foreshadowed proceedings for an order for security for his costs. I make only the point that those proceedings are intended to be brought in the name of the plaintiff personally, as well as in the name of the Company, and the plaintiff's participation as a party in the proceedings exposes him to personal costs orders in any event. Conclusion 28In the event, I propose to exercise the Court's discretion in favour of an order for reinstatement. 29Having regard to conditions attached to ASIC's non objection to an order for reinstatement, the orders I make are in the following terms: (1)Order (pursuant to s 601AH(2) of the Corporations Act 2001 (Cth)) that the first defendant (ASIC) reinstate the registration of Llenruk Pty Limited ACN 127 748 949. (2)Order (pursuant to s 601AH(3)(b) of the Act) that the plaintiff forthwith notify the third defendant of these orders. (3)Order (pursuant to s 601AH(3)(b)) that the plaintiff forthwith lodge a copy of these orders with the first defendant. (4)Order that these orders may be entered forthwith. 30On the question of costs, I am conscious that the relief that has been granted is in the character of an indulgence to the plaintiff in circumstances in which he had made a deliberate decision to support deregistration of the Company. It was not unreasonable, in the circumstances, for the second defendant, in effect, to put him to proof on his application for reinstatement of the Company. 31Accordingly, I propose to make no order as to the costs of the proceedings. 32I formally order that exhibits and subpoenaed material may be returned forthwith. Any exhibits returned must be retained intact by the party or person that produced that material until the expiry of the time to file an appeal, or any appeal has been determined. ********** 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. Decision last updated: 26 September 2013