Weston (Trustee) v Australian Securities and Investments Commission, in the matter of Empire Property and Investment Group Pty Ltd (Deregistered)  FCA 176
The Federal Court of Australia recently reinstated a company on application of the trustee in bankruptcy of the former sole director and shareholder.
The purpose of the reinstatement was to enable the trustee to gain access to shares the company held in another entity, which in turn gave rights to occupy or lease an apartment. The bankrupt had failed to disclose her position in the company and the rights in respect of the apartment in her Statement of Affairs.
The trustee in bankruptcy (Mr Weston) sought that the deregistered company, Empire Property and Investment Group Pty Ltd (Empire), be reinstated by ASIC. Mr Weston also sought that, upon reinstatement, he be registered as the sole shareholder, that Empire be wound up, and that he be appointed liquidator.
Mr Weston made an urgent application for relief pursuant to ss 601AH, 461(1)(a), 461(1)(k) and/or 462 of the Corporations Act 2001 (Cth) (the Act).
The urgency was that Empire, at the time of deregistration, held 2,500 shares in another company (Aughton). Those shares conferred on Empire the right to occupy or lease a designated apartment and so had considerable value in the hands of creditors. However, the right to occupy the apartment would be lost if certain amounts weren’t paid by 28 February 2017. Aughton had already issued a notice of demand.
ASIC had been given a copy of the Originating Process and supporting affidavit but indicated that it would not appear.
The first question was whether Mr Weston was a ‘person aggrieved’ within the meaning of s 601AH(2) of the Act, such that he could apply for reinstatement of Empire.
But for the bankrupt’s non-disclosure in the Statement of Affairs, Mr Weston, as trustee of Ms Ridge’s estate, would have otherwise been entitled to be the sole director and shareholder of Empire and exercise the rights conferred on a trustee in bankruptcy by s 1072C of the Act. As a result, Farrell J was satisfied that Mr Weston was a person aggrieved by Empire’s deregistration.
‘just that the company’s registration be reinstated’
The second question was whether it was ‘just’ to order that Empire’s registration be reinstated as required by s 601AH(2) of the Act.
In determining this fact, her Honour referenced Austin J in Australian Competition and Consumer Commission v Australian Securities and Investments Commission (2000) 174 ALR 688, who provided at  that a “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.”
Her Honour agreed that the shares are likely a valuable asset of Empire. She was satisfied that Empire’s creditors would generally benefit from the best value being realised for the shares, as would the bankrupt’s residual interest in the estate. It was submitted that Aughton likely would not achieve the best value of the shares when they forfeit them, preferring quick payment instead.
Undertakings given by trustee in bankruptcy
Her Honour was, however, concerned that given the impending deadline set by Aughton, the shares may be forfeited before the orders made by the Court could have effect. To ensure that there was utility in making orders for reinstatement and winding up, Mr Weston provided undertakings to the Court that he would pass a resolution to place Empire into liquidation and take all steps necessary to realise its assets, including, if necessary, taking any injunctive action to prevent the forfeiture or transfer of the shares. ASIC also indicated that reinstatement could occur within 48 hours of being advised that an order under s 601AH(2) had been made (see paragraph ).
Her Honour was satisfied that Mr Weston was able to pass a resolution for winding up Empire. She also found no conflict of interest in appointing Mr Weston as liquidator, and saw it (at ) as the “practical and sensible approach … so that the immediate issue of protecting Empire’s interest in the Shares may be addressed.”
Share transfer after bankruptcy
There was an additional concern, in connection with these shares, as the bankrupt attempted to transfer such shares to a family member after she was declared bankrupt. Mr Weston submitted that the transfer was invalid as the bankrupt ceased to be a director following the sequestration order (ss 203B and 206B(3) of the Act). This issue wasn’t expressly resolved on the application (presumably because Mr Weston’s appointment as director was sufficient for present purposes and that this would be a matter that Mr Weston could address as liquidator).
To read the full judgement, follow this link – http://www.judgments.fedcourt.gov.au/judgments/Judgments/fca/single/2017/2017fca0176
Legislation and catchwords
- Reinstatement of registration of company
- Access to property by trustee in bankruptcy
- Non-disclosure in Statement of Affairs
- Winding up
- Aggrieved person
- s 601AH of the Corporations Act 2001 (Cth)
- Transfer of shares or property after sequestration or bankruptcy order made