(1) CGU Workers Compensation (NSW) Ltd v Rockwall Interiors Pty Ltd(2) CGU Workers Compensation (NSW) Ltd v DJB Pty Limited(3) CGU Workers Compensation (NSW) Ltd v R & L Airconditioning Pty Ltd [2006] NSWSC 690

Reported Decision : 201 FLR 296

New South Wales Supreme Court

CITATION : (1) CGU Workers Compensation (NSW) Ltd v Rockwall Interiors Pty Ltd(2) CGU Workers Compensation (NSW) Ltd v DJB Pty Limited(3) CGU Workers Compensation (NSW) Ltd v R & L Airconditioning Pty Ltd [2006] NSWSC 690

HEARING DATE(S) : 19/06/06 Written submissions 23/06/06

JUDGMENT DATE : 7 July 2006

JURISDICTION : Equity Division Corporations List

JUDGMENT OF : Barrett J

DECISION : Orders for reinstatement of registration and winding up

CATCHWORDS : CORPORATIONS - reinstatement of registration - application by workers compensation insurer - special considerations - status of matters occurring between deregistration and reinstatement of registration - where statutory demand supposedly served and not complied with during that period - whether presumption of insolvency will arise if registration reinstated - whether court should make order having that effect

LEGISLATION CITED : Corporations Act 2001 (Cth), ss.9, 459F, 461(1)(k), 467(3)(d), 601AA, 601AB, 601AD(1), 601AH(2), 601AH(3), 601AH(5)

Deputy Commissioner of Taxation v Action Workwear Pty Ltd (1996) 20 ACSR 712 Deputy Commissioner of Taxation v Lanstel (1996) 22 ACSR 314 Diamond Hill International Pty Ltd v Xu (2001) 19 ACLC 1139 Greenfold Holdings Pty Ltd v ACB Human Resources Pty Ltd [2003] NSWSC 1184 Joro Pty Ltd v State Bank of New South Wales (1992) 5 BPR 11,709 CASES CITED : Pagnon v Workcover Queensland [2001] 2 QdR 492 Partners in Enterprise Pty Ltd v Sampson [2002] NSWSC 383 Re Fensford Pty Ltd [2004] VSC 179 Roberts v Australian Securities Commission (1996) 21 ACSR 455 White v Baycorp Advantage Business Information Services Ltd [2006] NSWSC 441 WorkCover Authority (NSW) v Picton Truck & Trailer Repairs Pty Ltd (2004) 51 ACSR 102

(1) CGU Workers Compensation (NSW) Ltd - Plaintiff Rockwall Interiors Pty Ltd - Defendant PARTIES : (2) CGU Workers Compensation (NSW) Limited - Plaintiff DJB Pty Limited - Defendant (3) CGU Workers Compensation (NSW) Ltd - Plaintiff R & L Airconditioning Pty Ltd - Defendant

FILE NUMBER(S) : SC (1) 1588/06; (2) 1369/06; (3) 1589/06

COUNSEL : Mr S. Taleski, Solicitor - Plaintiffs

SOLICITORS : NV Legal Pty Ltd - Plaintiffs

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST

BARRETT J

FRIDAY, 7 JULY 2006

1588/06 CGU WORKERS COMPENSATION (NSW) LIMITED v ROCKWALL INTERIORS PTY LTD 1369/06 CGU WORKERS COMPENSATION (NSW) LIMITED v DJB PTY LIMITED 1589/06 CGU WORKERS COMPENSATION (NSW) LIMITED v R & L AIRCONDITIONING PTY LTD JUDGMENT 1 These are three separate proceedings in each of which the same plaintiff, CGU Workers Compensation (NSW) Limited, seeks an order for the reinstatement of the registration of a company and orders that the company be wound up and a liquidator be appointed. 2 The first company is Rockwall Interiors Pty Ltd. According to search materials in evidence, it was registered on 29 March 1997 and deregistered on 12 June 2000, apparently on the initiative of Australian Securities and Investments Commission for failure to lodge documents or pay fees. The second company is DJB Pty Limited which was registered on 28 April 1999 and deregistered on 16 January 2005. In this instance, the deregistration was effected by ASIC at the request of the company or its controllers. The third company is R & L Airconditioning Pty Ltd which was registered on 10 June 1987 and deregistered on 14 February 2005, again at the instigation of the company or its controllers. 3 Each of the companies was insured for workers compensation by the plaintiff. The evidence shows that a special and stringent regime (based in statute) applies to workers compensation insurers. Unlike other insurers, they may not refuse to renew insurance cover. In addition, and as explained in the Premium and Debt Collection Manual of WorkCover New South Wales, they have no discretion to accept less than 100% of a debt or to avoid or withdraw from legal proceedings to recover premiums. As the manual says: "Where a debt remains unpaid, the Insurance MUST commence wind up or bankruptcy proceedings." 4 Section 7.3 of the manual deals with the situation where a workers compensation insurer discovers that a debtor company has been deregistered. Subject to exceptions for cases where the debt is small and certain other exceptions, the insurer is required to do what it can to have the company re-registered "and commence litigation proceedings". 5 Compliance with these expectations of WorkCover is apparently the impetus for the plaintiff's applications for orders that ASIC reinstate the three companies with which I am here concerned. Whether there is any commercial point in bringing any of the companies back into being appears to be something with which WorkCover is not concerned. The policy seems to be one of hot pursuit except perhaps where it is clear beyond reasonable doubt that the case is a hopeless one, in which event WorkCover may grant a dispensation. 6 The court has little if any discretion when an application of this kind comes before it. Under s.601AH(2), it must inquire into whether the plaintiff is "a person aggrieved by the deregistration" and whether it is "just" that the registration be reinstated. If positive findings are made on those matters, it should normally follow that an order for reinstatement is made. That course is indicated by the decision of the Court of Appeal (Mason P, Sheller and Ipp JJA) in WorkCover Authority (NSW) v Picton Truck & Trailer Repairs Pty Ltd (2004) 51 ACSR 102. 7 I proceed, therefore, to the question posed by s.601AH(2)(a)(i), that is, whether the present plaintiff is a "person aggrieved" by the deregistration of each of the three companies. The plaintiff is a creditor of each company. The circumstance that the company is no longer in existence means that the plaintiff, as creditor, is no longer able to pursue its legal rights with a view to obtaining legal satisfaction, or initiating wind up. That, according to decided cases, is enough to bring the plaintiff within the "person aggrieved" description: see, for example, Deputy Commissioner of Taxation v Lanstel (1996) 22 ACSR 314; Greenfold Holdings Pty Ltd v ACB Human Resources Pty Ltd [2003] NSWSC 1184; Re Fensford Pty Ltd [2004] VSC 179. 8 There is then the question whether it is "just" that the deregistration should be reinstated. In a narrow and immediate sense, the answer must be in the affirmative, since reinstatement will alleviate the plaintiff's grievance by permitting it to pursue its claim. But the matter may need to be looked at more broadly. An aspect which contributes towards a positive answer is the operation of the workers compensation system. Discussion the Picton Truck & Trailer case (above) shows that the presumed continuity of existence of a corporate employer is of central importance to the operation of that system. In the present cases, however, there is no indication that the theoretical difficulties that may come from the undisclosed demise of an employer have become a reality or are likely to. 9 Another factor at work here is that it is to be expected that, if the companies were resurrected, the former directors and officers would be unwilling to resume their responsibilities. In the absence of evidence that they are willing, they should be presumed to be unwilling. It would not be "just" to resurrect a company which would then be devoid of proper governance. It is for that reason that the plaintiff seeks winding up in conjunction with reinstatement. 10 In applying for winding up in each case, the plaintiff relies on the insolvency ground and, in particular, on non-compliance with a supposed statutory demand. It appears that, after deregistration in each case, the plaintiff caused a document in the form of a statutory demand to be delivered to the place that was the registered office immediately before deregistration; also that payment of the sum specified in the document was not forthcoming within the period of twenty-one days after such delivery. Because s.601AH(5) says that a reinstated company "is taken to have continued in existence as if it had not been deregistered", the plaintiff argues that, upon reinstatement, the company will be regarded as having failed to comply with a statutory demand, with the result that s.459C will have supplied a presumption of insolvency and therefore a ground for winding up in insolvency. 11 Mr Taleski, solicitor, who appeared for the plaintiff and later provided helpful written submissions, referred to a number of cases in this connection. Before referring to them, I should set out ss.601AH(3) and 601AH(5): "(3) If the Court makes an order under subsection (2), it may: (a) validate anything done between the deregistration of the company and its reinstatement; and (b) make any other order it considers appropriate. Note: For example, the Court may direct ASIC to transfer to another person property vested in ASIC under subsection 601AD(2).

…

(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 or the Court reinstates the company. Any property of the company that is still vested in 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." 12 The first case referred to by Mr Taleski is Partners in Enterprise Pty Ltd v Sampson [2002] NSWSC 383 where a statutory demand had been served and the period for compliance had expired before deregistration and it was observed that the non-compliance might still form the basis for a winding up order after reinstatement. That situation (in which non-compliance with the statutory demand was complete before the deregistration) is, of course, distinguishable from the situation now before me. 13 Reference was also made to Deputy Commissioner of Taxation v Action Workwear Pty Ltd (1996) 20 ACSR 712 where there was discussion of the question whether a special direction under an earlier version of the reinstatement provisions (s.574 of the Corporations Law) should be made to validate a supposed statutory demand served after deregistration. I do not regard that case as of any real assistance, given the different statutory context. I also put to one side as involving a different statutory regime the obiter comments on the matter by McLelland CJ in Eq in Roberts v Australian Securities Commission (1996) 21 ACSR 455. 14 These differences were referred to by Stone J in the fourth case drawn to my attention by Mr Taleski, Diamond Hill International Pty Ltd v Xu (2001) 19 ACLC 1139, which is of particular relevance because of the comment made on the decision of Young J in Joro Pty Ltd v State Bank of New South Wales (1992) 5 BPR 11,709: "That case concerned the failure of a deregistered company to comply with a notice requiring the company, as mortgagor, to remedy certain defaults identified in the notice. The notice was a pre-condition to the mortgagee having power to sell the mortgaged property. In the Supreme Court of New South Wales, Young J stated that at the time when the notice was given 'there could be no failure by the customer to remedy defaults because the customer did not exist and had no duty to do anything because it did not exist'. This must be correct." 15 This, to my mind, identifies the vital point. While non-existent, a company has no duty to do anything. Nor, of course, does it have the capacity or ability to do anything. 16 The deemed continuity created by s.601AH(5) cannot, in my view, support a fiction that, in the period after deregistration, there was both service of and non-compliance with a statutory demand. Upon deregistration, a company ceases to exist: s.601AD(1). If a document in the form of a statutory demand is thereafter created and served at the place that was the registered office of the company immediately before cessation of its existence, that document is not a statutory demand. A demand can only be a "statutory demand" as defined by s.9 if it is "served under section 459E"; and a demand cannot be "served under section 459E" unless it is, in the words of s.459E(1), served "on a company". Delivery to the place that was the registered office of a now non-existent company cannot be service "on a company". 17 The deemed continuity of the company's existence brought about by s.601AH(5) would not cause a document such as I have described to become a "statutory demand" with retrospective effect; nor would it justify a conclusion that there had been, after deregistration and before reinstatement, non-compliance with any such "statutory demand". Section 601AH(5) creates only a limited form of retrospectivity. It recognises expressly that the persons who were directors at the time of deregistration are not to be regarded as having continued as directors throughout the period of the company's non-existence. It likewise recognises expressly that property of the company at the time of deregistration (which, by force of the Act, thereupon becomes vested in ASIC under s.601AD(2)) is not to be regarded as owned by the company throughout the period of the company's non-existence. I adopt, in this respect, the thorough analysis appearing in the judgment of Campbell J in White v Baycorp Advantage Business Information Services Ltd [2006] NSWSC 441 at paragraphs [115] and following. Section 601AH(5) cannot, in a retrospective way, give efficacy to active steps taken in relation to a company which, because of the company's non-existence, were, when taken, simply devoid of legal effect. 18 It may be that there is jurisdiction under s.601AH(3) to "validate" the service of the supposed statutory demand and thereby to inject efficacy into it as from the time of its purported service. But the s.601AH(3) jurisdiction should, in my opinion, be used principally to remove anomalies or impediments. The section may, for example, be used to ensure that the period of non-existence does not count for the purposes of limitation of actions: see Pagnon v Workcover Queensland [2001] 2 QdR 492. That is consistent with a notion that the period of non-existence should be, as it were, neutral in the renewed affairs of the company. In the relatively common case where the company's controllers are unaware of the deregistration and continue to conduct the company's business, s.601AH(3) might be used to put beyond doubt the validity of transactions supposedly undertaken by the company during the period of non-existence by means of things actually done purportedly by and for it. 19 It seems to me, however, that s.601AH(5) would not, in general, be appropriately used to visit adverse effects upon the company by reason of the inactivity necessarily stemming from its non-existence. For the company not to act after it ceases to exist is a perfectly natural and expected result of its not existing. The concept of failure to comply with a statutory demand, as reflected by s.459F, is based on an implied assumption of capacity (in the sense of power, as distinct from financial wherewithal) to make payment. A non-existent company lacks that and every other capacity. It has the same powers as a person who has died or not yet been born. It is difficult to think that it could ever be appropriate to make an order under s.601AH(3) entailing prejudice to a reinstated company on account of its failure to do something that its non-existence made it impossible for it to do. 20 I am not satisfied that lack of payment in response to the supposed statutory demands issued after deregistration provides any presumption of insolvency as a basis for winding up in the cases now before me. Nor am I satisfied that it would be appropriate to make any order under s.601AH(3) purporting to give those documents efficacy for that purpose. 21 The plaintiff contends, in the alternative, that a winding up order should, in each case, be made on the just and equitable ground. 22 In two cases – DJB Pty Limited and R & L Airconditioning Pty Ltd – deregistration appears to have proceeded from a decision of the relevant company or its directors. Each such deregistration was under s.601AA, headed "Deregistration – voluntary". The fact that deregistration occurred under this provision should be taken to mean that the conditions specified in s.601AA(2) were established to ASIC's satisfaction, including that the company was not carrying on business, that the members agreed to deregistration, that there were no liabilities and that assets were less than $1,000. In those circumstances, the application for deregistration and the action taken by ASIC in response to it provide, in my view, grounds for winding up on the just and equitable ground under s.461(1)(k). The case can be seen to be one in which the substratum has gone and no one having any relevant connection with the former company wishes it to continue. 23 The position is somewhat different in the case of Rockwall Interiors Pty Ltd. In that instance, deregistration apparently occurred because of failure to lodge documents or pay fees: see s.601AB, "Deregistration – ASIC initiated". The situation is thus one in which there was neglect in relation to the affairs of the company. It is of particular significance that the deregistration occurred more than six years ago. The evidence shows that the plaintiff has taken steps to press for payment (including by way of the supposed statutory demand). There is no evidence of any response to these approaches. Nor is there evidence that those formerly interested in the company have seen fit to take any steps to resurrect it. In those circumstances, it should, I think, be inferred that in this case also the substratum of the company has gone. The apparent absence for more than six years of all interest in further pursuit of the purposes to which the company was devoted, combined with inability for the non-existent company to fulfil those purposes, must mean that there is no longer any substratum. 24 Particularly in light of the special considerations arising from the WorkCover regime, I am satisfied that reinstatement of the registration of each company will be just, provided that the company is immediately wound up. ASIC has made it clear that it does not oppose reinstatement on that basis. 25 Each company should be wound up on the just and equitable ground. The consent of an official liquidator to act as liquidator has been filed in each case. 26 I make the following orders: 1. Order pursuant to s.601AH of the Corporations Act 2001 (Cth) that Australian Securities and Investments Commission reinstate the registration of Rockwall Interiors Pty Ltd ACN 080 238 482. 2. Order pursuant to s.467(3)(d) that all notification and advertising requirements in respect of an application for a winding up order in respect of the said Rockwall Interiors Pty Ltd be dispensed with. 3. Order that, immediately upon reinstatement of the registration, the said Rockwall Interiors Pty Ltd be wound up. 4. Order that, immediately upon reinstatement of the registration, Robert Boyce Moody of Level 8, 333 George Street, Sydney, an official liquidator, be appointed liquidator of the said Rockwall Interiors Pty Ltd. 5. Order pursuant to s.601AH of the Corporations Act 2001 (Cth) that Australian Securities and Investments Commission reinstate the registration of DJB Pty Limited ACN 087 316 701. 6. Order pursuant to s.467(3)(d) that all notification and advertising requirements in respect of an application for a winding up order in respect of the said DJB Pty Limited be dispensed with. 7. Order that, immediately upon reinstatement of the registration, the said DJB Pty Limited be wound up. 8. Order that, immediately upon reinstatement of the registration, Daniel Civil of Level 8, 333 George Street, Sydney, an official liquidator, be appointed liquidator of the said DJB Pty Limited. 9. Order pursuant to s.601AH of the Corporations Act 2001 (Cth) that Australian Securities and Investments Commission reinstate the registration of R & L Airconditioning Pty Ltd ACN 003 313 746. 10. Order pursuant to s.467(3)(d) that all notification and advertising requirements in respect of an application for a winding up order in respect of the said R & L Airconditioning Pty Ltd be dispensed with. 11. Order that, immediately upon reinstatement of the registration, the said R & L Airconditioning Pty Ltd be wound up. 12. Order that, immediately upon reinstatement of the registration, Robert Boyce Moody of Level 8, 333 George Street, Sydney, an official liquidator, be appointed liquidator of the said R & L Airconditioning Pty Ltd. **********

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