In the matter of Likehart Pty Limited (deregistered) [2017] NSWSC 906

Supreme Court New South Wales

Medium Neutral Citation: In the matter of Likehart Pty Limited (deregistered) [2017] NSWSC 906 Hearing dates: 3 July 2017 Decision date: 03 July 2017 Jurisdiction: Equity - Corporations List Before: Black J Decision: The Plaintiffs' Further Interlocutory Process is dismissed with costs. Catchwords: CORPORATIONS — Dissolution — Reinstatement – Application to reinstate deregistered company – where proposed liquidators consent to appointment but have not been put in funds for investigations or proceedings – whether it is just that the company's registration be reinstated Legislation Cited: - Corporations Act 2001 (Cth), ss 545, 601AH Cases Cited: - Re Likehart Pty Limited (deregistered) [2017] NSWSC 884 Category: Procedural and other rulings Parties: Braco Anthony Galic (First Plaintiff) Joseph Samia (Second Plaintiff) Gavin Napier (First Defendant) Likehart Pty Ltd (Deregistered) (Second Defendant) Representation: Counsel: T Barber (Solicitor - Plaintiffs) N Allan (First Defendant)

Solicitors: Barber Lawyers (Plaintiffs) Kendal Legal (First Defendant) File Number(s): 2016/243306

Judgment- ex tempore (revised 3 july 2017) 1. By Originating Process filed 12 August 2016, the Plaintiffs, Mr Galic and Mr Samia, applied under s 601AH(2) of the Corporations Act 2001 (Cth) for the reinstatement of Likehart Pty Limited ("Company") which was previously deregistered by the Australian Securities and Investments Commission ("ASIC"). I determined that application, in its original form, in my judgment delivered on 9 May 2017 ([2017] NSWSC 884). I there referred to the applicable legal principles as to when a court would reinstate the registration of a company, which require that the Court be satisfied that it is just that the company's registration be reinstated. I also dealt with the question whether Mr Galic, as a shareholder in the Company, was a person aggrieved for the purposes of the deregistration and held that the possibility that the Company had claims against third parties (who may include Mr Napier, a Defendant, or Mr Samia, one of the Plaintiffs), which would benefit it and, indirectly, Mr Galic as a contributory, may be sufficient to constitute Mr Galic a person aggrieved. 2. I there held, however, that it did not seem to me that the Court should order ASIC to reinstate the Company, given the evidence as to its financial position, other than on the basis that a liquidator was appointed. I also noted, in paragraph 25 of that judgment, that I had raised with Mr Barber (who appears for the Plaintiffs) at the commencement of the earlier hearing, the fact that no consent of a liquidator to appointment had been obtained and no arrangements had been made to put a liquidator in funds to conduct a liquidation in which the relevant claims might be investigated to the extent appropriate. Neither of those matters had been addressed at that earlier hearing. I dismissed the proceedings seeking reinstatement of the Company under s 601AH of the Corporations Act, but stayed that order, on the basis that an application by the Plaintiffs to reopen the question of reinstatement could be made returnable before me today. In the further application today, the first of those matters, the consent of a liquidator to appointment, has been addressed, but the second, the funding of the liquidator to perform his or her role, has not been addressed, or at least has not been adequately addressed. 3. By the further application today, the Plaintiffs, Mr Galic and Mr Samia, seek orders requiring ASIC to reinstate the Company, on the basis that it be wound up, and that Messrs Iannuzzia and Naidenov of Veritas Advisory, or another liquidator, be appointed. The further application is supported by an affidavit of Mr Galic dated 4 May 2017, which was read in the previous application and again relied on today. That affidavit identifies complaints in respect of the conduct of the Company's affairs, to which I referred in the earlier judgment. I will assume, for the purposes of this judgment, without deciding, that the matters raised by that affidavit are such that there are questions which would warrant investigation by a liquidator appointed to the Company. That assumption is consistent with the views that I expressed in my earlier judgment. On that assumption, a liquidator would likely be appointed, and the Company likely reinstated, had a liquidator consented to appointment and been adequately funded to perform the relevant investigations. As I have noted above, the first of those matters has been established, but the second has not. 4. The Plaintiffs also rely on the affidavit of their solicitor, Mr Barber, dated 26 June 2017. That affidavit refers to the circumstances of the Company's deregistration in 2015, and to the complaint of Mr Galic, one of the Plaintiffs, that he did not receive any compensatory funds from the Company with respect to his shares in the Company upon its deregistration. I should note for completeness that that deregistration was initiated by ASIC in accordance with its statutory powers to deregister a company in specified circumstances, and the Corporations Act provides for any assets that were held in the company to be vested in ASIC. It is, however, implicit in the structure of the Plaintiffs' case, and in their evidence, that it is unlikely that there are any such assets in the Company at the time of its deregistration, because complaint is made that such assets were distributed to shareholders other than Mr Galic. 5. Mr Barber's affidavit refers to the Plaintiffs' lack of knowledge as to the circumstances of the deregistration and the financial affairs and assets of the Company, a matter which was also addressed at some length by Mr Barber in oral submissions. Mr Barber refers to Mr Galic's complaint that he was not given notice of or an opportunity to object to the deregistration prior to its taking place, and complains of the performance of Mr Napier, the Company's sole director at that time, in that respect. It should be recognised, of course, that the deregistration was, as I noted above, initiated by ASIC rather than by Mr Napier. Mr Barber's affidavit indicates that, based on information available to the Plaintiffs, the Company had no assets presently, even aside from the fact that the deregistration had vested its property in ASIC. As I noted above, Mr Barber sought to resile from that proposition in oral submissions, speculating that the Company may have had such assets at the point of deregistration, contrary to the Plaintiffs' claim that they had in fact been paid out to persons other than Mr Galic, and that such assets might be available to fund a liquidator's investigations and any subsequent proceedings. However, that was no more than speculation. 6. Mr Barber's evidence was that the Plaintiffs, or at least Mr Galic, were presently unable to determine whether they were entitled to any remedy against the Company, and the most commercial and realistic course was for a liquidator to be appointed to resolve the Plaintiffs' issues. I accept that, so far as complaints are made as to the conduct of the Company's affairs prior to its deregistration, and as to the lack of information held by Mr Galic as to the conduct of those matters, then the Company's reinstatement and the appointment of a liquidator, who was properly funded to undertake his or her role, might well provide an appropriate way to address those issues. The difficulty is, however, that the Plaintiffs' application for a liquidator's appointment combined with the Company's reinstatement is not supported by a proposal for properly funding the liquidator to undertake his or her role. 7. Mr Barber also made several oral submissions, in the nature of evidence from the bar table, of matters which were not established by the affidavit evidence led in the proceedings. In particular, although Mr Barber accepted that the liquidators were not presently funded for further investigations, he indicated, in a matter not addressed in the affidavit evidence, that the liquidators had required and been paid an amount of $5,000 to provide consent to their appointment. Mr Barber also submitted, in a matter also not addressed by evidence, that Mr Samia would pay amounts required for the liquidators' further investigations, as far as he had funds to do so, although he accepted that those investigations could not continue beyond the point that such monies could not be paid by Mr Samia or, presumably, if Mr Samia chose not to pay such monies. Mr Barber also submitted that Mr Samia would fund the liquidator, so far as he owed a substantial amount to Mr Galic, for which Mr Galic could otherwise bring a claim against Mr Samia. Mr Barber also referred to Mr Samia's preference, also not addressed by evidence, not to fund the liquidators in advance and submitted that the liquidators had not presently asked for funding in advance. 8. It seems to me that these matters, as they stand, cannot support the appointment of a liquidator to the Company or an order that ASIC reinstate the Company. The Court will only require ASIC to reinstate a company, for the purposes of s 601AH(2) of the Corporations Act, if it is satisfied that it is just that the company's registration be reinstated. In the present case, for the reasons set out in my earlier judgment, the Court would not reinstate the Company other than on the basis that a liquidator was appointed, because of the evidence as to the Company's financial position to which I referred in my earlier judgment. 9. The premise of this application is that, if the Company was reinstated and a liquidator was appointed, the liquidator could conduct appropriate investigations and bring proceedings for the benefit of the Company's contributories. The difficulty is, however, that that premise is not sustained. As I pointed out to Mr Barber in the course of submissions, it is highly unlikely that a liquidator could or would conduct investigations or proceedings unless he or she is funded to do so. Section 545 of the Corporations Act provides that, with certain limited exceptions, including statutory filings, a liquidator is not liable to incur any expense in relation to the winding up of a company unless there is sufficient available property. There is no reason to think that such property is available in the Company, given the matters to which I referred in my earlier judgment and the nature of the Plaintiffs' claim that the Company's assets were distributed to shareholders other than Mr Galic. Such funding could have been made available by the Plaintiffs, by advancing an amount to the liquidator, or giving an undertaking to the Court to do so at the point of the liquidator's appointment. The Plaintiffs have not chosen to take that course, and Mr Barber's submissions suggest that Mr Samia prefers instead to provide funding as requested by a liquidator, and subject to an assessment of the funding request when it is made. 10. It seems to me that that course has two fundamental difficulties. The first is that it is pointless to appoint a liquidator, or to reinstate the Company, at a point the liquidator is not funded to undertake work, and without any commitment, by way of an undertaking to the Court or otherwise, to provide such funding in the future. Second, and importantly, it seems to me that the suggestion that the liquidator would have to approach Mr Samia for funding for particular activities, and Mr Samia would choose whether or not to provide it, would be fundamentally inconsistent with a liquidator's independence. That course would provide a significant level of practical control to Mr Samia over the steps which a liquidator might undertake. That may readily be illustrated. Let it be assumed that some funding was provided to a liquidator for investigations, and the liquidator then formed the view that the most appropriate course, in order to advance the interests of the Company's contributories, including Mr Galic, was to bring proceedings against Mr Samia, arising out of matters to which I referred in the earlier judgment, rather than the proceedings against Mr Napier which the Plaintiffs seek to promote. In those circumstances, it is to be anticipated that Mr Samia would not choose to fund those proceedings and that the liquidator's investigations could go no further. It seems to me that the Court ought not to appoint a liquidator to the Company, without provision for future funding of his or her investigations, where Mr Samia's control over such funding could be used to ensure that proceedings could only be brought by the liquidator against parties of his choice, and not otherwise. 11. Mr Barber placed great weight in the course of submissions on the fact that Mr Galic is concerned as to the lack of information which has been provided to him. It is not appropriate that I reach findings, on the merits, as to the absence of such information at this stage, although I have assumed above that the concerns as to that issue might well have supported the appointment of a liquidator. I should emphasise that the Court might well have been prepared to appoint a liquidator, had appropriate funding for the liquidator's performance of his or her role been provided, and order the reinstatement of the Company, with a liquidator appointed and funded to undertake further investigations. However, appropriate funding for a liquidator's investigations, was not adequately addressed in this application. 12. For these reasons the further application for reinstatement of the Company should be dismissed, and the Plaintiffs should pay the costs of the Further Interlocutory Process, as agreed or as assessed. The stay which I previously ordered on 9 May 2017 will come to an end at 4pm tomorrow, and the orders that I previously made for dismissal of the original proceedings and in respect of costs will also take effect.