Kay v Playup Australia Pty Ltd

Company lawyers are familiar with the “company extracts” which can be obtained by searching the electronic database maintained by the Australian Securities and Investment Commission (“ASIC”). In these proceedings, questions arose as to whether, and in what circumstances, the Court could make orders removing entries from that database. At the end of the argument on 12 October, I refused the defendant’s application to have references to these proceedings removed from ASIC’s publicly searchable records. The following are my reasons for doing so.

The defendant, Playup Australia Pty Ltd (“Playup”) and its subsidiaries operate what are described as “fantasy sports” and betting websites. In March 2018 Playup entered into a contract to purchase all the shares in Best Bet (NSW) Pty Ltd which operates an online bookmaking business. The shares were purchased from the plaintiff, Ryan Kay, who was formerly the sole director and majority shareholder of that company. The purchase price was $1.6 million, with $1 million payable at the time of purchase and the balance payable in twenty-four monthly instalments of $25,000. The purchase was completed in May and the first instalment was due in June.

Daniel Simic is the sole director of, and (I assume) a shareholder in, Playup. Playup failed to make the first instalment payments to Mr Kay under the purchase agreement, which were due on 22 June and 22 July. According to Mr Simic, this was because the agreement provided for certain adjustments to be made reducing the amount and there was insufficient information available to work out how much was to be paid.

Mr Kay took the position that under the terms of the share sale agreement, Playup’s failure to make the June and July instalment payments meant that the whole deferred amount of $600,000 had become due and payable. On 10 August Mr Kay had a statutory demand served on Playup. The amount claimed in the demand was $589,292.68. This represented the difference between $600,000 and the adjustment in favour of Playup, which Mr Kay calculated as being $10,707.32.

According to Mr Simic, on 13 August he caused payment to be made to Mr Kay of $19,242.24 ($50,000 for the June and July instalments less Playup’s calculation of the adjustment, which was $30,757.76). Mr Simic also tried to contact Mr Kay to have him withdraw the statutory demand. He sent a number of emails, but there was no response.

Playup did not make any application to have the statutory demand set aside. The period for compliance with the statutory demand expired on 1 September. Mr Kay commenced these proceedings on 10 September, seeking to have Playup wound up. The return date for the Originating Process was 11 October but that was brought forward to 25 September after Playup applied for the proceedings to be expedited. The proceedings were originally to be heard before Black J on 5 October but were then fixed for hearing before me on 11 October. The hearing proceeded on that day, with supplementary submissions being made on the afternoon of 12 October.

I was informed from the Bar Table, without objection, that on both 25 September and 5 October, Playup offered to pay the disputed amount into Court but this was not considered necessary.

The Corporations Act 2001 (Cth), ss 465A(a) and 470(1)(a), required Mr Kay to lodge notice of the winding up application with ASIC in the prescribed form (Form 519) and this was done. A current extract from the database as it was at the beginning of the hearing on 11 October was tendered and showed that the form notifying the application had been lodged and the application had been recorded in the database.

On 11 October, the day of the hearing, the winding up application was settled. Playup undertook to pay out Mr Kay's debt and Mr Kay agreed to withdraw the application. In addition, as part of the consent orders for the resolution of the proceedings, Playup sought orders directing that reference to the winding up application be removed from the ASIC database.

Mr Simic gave evidence as to why Playup wished to have the reference to the application removed from the database. He said that Playup hoped to float later this year. He said people who had seen reference to the application had contacted him, concerned about Playup’s financial position. He said that the notification was “spooking both investors and punters”.

On withdrawal of the application, Mr Kay was obliged to lodge a notice in the prescribed form (also a Form 519) with ASIC of the withdrawal: s 470(1)(c). The Corporations Regulations 2001 (Cth) would also require, should an order be made under s 1322(4)(b) as sought by Playup, lodgement of an office copy of the order with ASIC: reg 1.0.20(j). As ultimately formulated, the order sought by Playup would have required ASIC to remove from any publicly available register kept by ASIC under the Act any reference to:

Following the settlement, Mr Kay did not oppose the orders sought by Playup. Indeed, part of the terms of settlement involved Mr Kay agreeing to take whatever steps were necessary to try to persuade ASIC to remove reference to the winding up application from its database. But, of course, the question whether it is proper to make such an order compelling ASIC to remove material from its database is a matter for the Court, not merely a matter of agreement between the parties.

The application by Playup was made by way of Interlocutory Process in the proceedings. The appropriate course would have been to make ASIC a respondent to the application, or at least to serve notice of the application on ASIC (see Re Centura Global Holdings Pty Ltd (2016) 111 ACSR 185; [2016] NSWSC 62 at [58]). Playup sought to address this problem by providing, in the consent orders, for a copy of the removal order, once made, to be served on ASIC and for liberty to be reserved for ASIC to move to set it aside. As I decided to reject the application, I do not need to consider whether this was a satisfactory way of proceeding.

Playup’s application relied on the Court’s power under s 1322(4)(b) of the Act to rectify registers kept by ASIC. Alternatively, reliance was placed on the Court’s power under s 467(1)(c) to make interim or other orders on the hearing of the winding up application. It is convenient to consider s 1322(4)(b) first, as that provision has received more extensive discussion in the authorities. It provides:

Registers and the registration of documents are dealt with in Part 9.1 of the Act. Section 1274(1) relevantly provides:

Section 1274A relevantly provides:

In Re Voxson Sales Pty Ltd [1989] 1 Qd R 711, receivers were appointed to the assets of two companies. The companies did not contest the validity of the appointment, but contended that the appointment was inconsistent with the terms of the relevant security agreements. The companies arranged to pay out the secured creditor which released the relevant charge. The companies then applied for an order that five specified forms lodged with respect to the receivership “be removed from the register” of the National Companies and Securities Commission (the forerunner of ASIC). Neither the creditor nor the receivers objected, but the NCSC did.

Ambrose J declined to make the order. He said (at 717, emphasis added):

In OneSteel Reinforcing Pty Ltd v Westpoint Constructions Pty Ltd (2005) 23 ACLC 1384; [2005] FCA 808, OneSteel served a statutory demand on Westpoint for the payment of a trade debt “for reasons which cannot be explained, the demand was not received by Westpoint”. The demand was not satisfied and OneSteel applied to wind up Westpoint. A Form 519 was lodged with ASIC pursuant to s 470. When served with the originating process for the winding up application, Westpoint immediately paid the debt, and OneSteel agreed to discontinue the winding up application. Westpoint then sought an order in the form sought by Playup in this case (see [11] above).

Westpoint made this application because of concerns about the effect of the notice on creditors and financiers. The evidence showed that one of Westpoint’s financiers would not permit a finance facility which had previously been granted to be drawn down “until this matter is resolved”. ASIC neither consented to nor opposed the application. Finkelstein J said:

His Honour made the order sought, distinguishing Re Voxson. Referring to the two emphasised passages quoted at [18] above, he said:

In Lavercombe v Auscott Ltd (2006) 202 FLR 390; [2006] NSWSC 867 the plaintiff served a statutory demand on the defendant. The defendant did not apply to have the demand set aside and the plaintiff commenced winding up proceedings. But by the time the application came on for hearing the debt had been paid. The winding up application was dismissed and the defendant sought a further order directing ASIC to remove “all references to the winding up application having been made” from “the records from the company maintained by the Commission”.

Barrett J (as his Honour then was) considered that three issues arose. First, whether there was a “relevant register kept by ASIC” for the purposes of s 1322(4)(b). Second, whether the order sought involved “rectification” of that register. Third, whether to make the order in the exercise of the Court's discretion.

In dealing with the first issue, his Honour observed that some provisions of the Act specifically provide for ASIC to establish and maintain registers (at [24]). But (at [25]):

At [26], his Honour pointed out that a Form 519 was to be lodged. His Honour stated:

His Honour continued (at [27]):

His Honour thus concluded that there was no “relevant register”. But his Honour went on to consider whether the removal of records would involve “rectification” in the relevant sense. After discussing the concept of “rectification”, especially as applied to the register of members of a company, his Honour said (at [36]):

His Honour then addressed Finkelstein J’s point in OneSteel that one meaning of “rectify” is to “reform”, and that this contemplated that the Court could direct the expungement of records held by ASIC resulting “from due and faithful adherence to the statutory scheme”. His Honour said (at [38]-[39]):

In Westbury Holdings Kiama Pty Ltd v ASIC (2007) 25 ACLC 710; [2007] NSWSC 466, the Court made an order under the Corporations Act, s 601AH(2), reinstating a company which had been deregistered by ASIC following a voluntary winding up. ASIC then reinstated the company to the register. The Court made the reinstatement order without hearing from Miltonbrook Pty Limited which had been party to contractual arrangements with the company and was affected by the order reinstating it. Miltonbrook applied to have the reinstatement order set aside and the re-registration removed. The application came before Barrett J. His Honour refused the order. On the basis of his earlier analysis in Lavercombe v Auscott, his Honour considered that there would be no power to order ASIC to remove the re-registration from the register and therefore there would be no utility in making an order setting aside the re-registration.

On appeal (Miltonbrook Pty Ltd v Westbury Holdings Kiama Pty Ltd (2008) 71 NSWLR 262; [2008] NSWCA 38), the leading judgment was given by Spigelman CJ. His Honour referred to what Barrett J said about expunging records from the register by reference to non-statutory criteria. Spigelman CJ pointed out that this reasoning was obiter given “his Honour's previous reasoning, which appears correct to me, that there was no register of any character involved with respect to winding up applications”. His Honour pointed out (at [45], [47]):

After considering the statutory context, his Honour said (at [56]-[57]):

After referring to the power to register and deregister a company, his Honour said (at [59]-[60]):

As this reasoning shows, the actual decision in Miltonbrook involved circumstances where what ASIC was removing and restoring to the register was the company’s own registration. Such deregistration and re-registration itself gave rise to legal consequences, namely the non-existence and re-existence of the company as a legal entity. It might have been argued that the reasoning would not necessarily flow on to circumstances where registration was purely a matter of creating publicly available information, with consequences that were at most evidentiary. But that has not been the path of subsequent authority.

MIG Property Services Pty Ltd (2012) 92 ACSR 234; [2012] VSC 606, a decision of Robson J, concerned a winding up order which was made by the Court but which was subsequently appealed, with the order being set aside and the application for winding up adjourned. The debt the subject of a notice of demand was then compromised, and, it seems, the application was dismissed. The sole director and shareholder of MIG sought an order removing all of the notifications which had been lodged with ASIC of what had happened in the winding up proceedings.

Robson J concluded, in the light of Miltonbrook, that the power of the Court to rectify a register extended to directing ASIC to rectify information that had been validly and correctly entered on the register in compliance with law, as well as information which was invalid or incorrect. He accepted that the decision of Finkelstein J in OneSteel had been appropriate in the circumstances of that case.

But Robson J considered that the orders sought should not be made on the facts before him. There was no evidence that the statutory demand did not come to MIG’s attention, nor any explanation for why the debt was not paid at an earlier point. Indeed the company should have been in a position to pay the debt. His Honour did not consider that there was anything unjust or unfair about a winding up application having been made against MIG in these circumstances and there was no reason why the record of that application should not stand.

In a subsequent decision, Robson J found that a purported share transfer which was notified to ASIC had not actually taken place. His Honour made a declaration that the shareholding of the company was not affected by the purported transfer and ordered that ASIC “rectify its registers accordingly”: Re Botanical Water Holdings Pty Ltd [2013] VSC 96. Black J has adopted Robson J’s approach in two other cases where the share transfers were notified to ASIC which were later found to be invalid: Re DJG Equities Pty Ltd (2014) 32 ACLC 14-008; [2014] NSWSC 194; Re Centura Global Holdings Pty Ltd. In Re ABI Australia Holding Pty Ltd [2017] NSWSC 1822 Black J made an order under s 1322(4)(b) “to rectify the register kept by ASIC in respect of” a company to show the initial number of ordinary shares issued to its parent company on incorporation where an incorrect number of shares had been notified to ASIC.

In Demetriou v Gusdote Pty Ltd (2010) 78 ACSR 566; [2010] FCA 581 Cowdroy J made an order that “the registers” kept by ASIC be rectified so as to reflect declarations made by his Honour that certain share transactions, which had been notified to ASIC, were invalid. In Re Macquarie Americas Holdings Pty Ltd [2015] NSWSC 2073 Brereton J made an order requiring ASIC to rectify “the register kept in respect of” the company to correct the details of the ordinary shares issued and allocated on registration of the company, when that figure had been incorrectly notified to ASIC. This is consistent with the approach followed by Robson J and Black J, although in neither case was there any discussion of the authorities.

In none of the authorities which post-date Miltonbrook, however, has an order actually been made for the removal of reference to a winding up application, as is sought in this case. The cases in which orders have actually been made all concerned transactions notified to ASIC which the Court later concluded were invalid, or notifications which were erroneous, in the sense that they did not accurately reflect the actual transaction.

Before proceeding further, it is necessary to say something more about the ASIC database itself. The search of Playup, which was in evidence, described itself as a “current extract” relating to Playup. It bore a note which stated:

Under the heading “current company officers” Mr Simic’s particulars appeared for the “role” of director and also for the “role” as secretary. There then appeared a further “role”, namely “petitioner court action”, which set out the details of Mr Kay and of his winding up application. The search also contained a list of documents lodged with ASIC which included the Form 519 relating to the application to wind up the company and which was, in accordance with ASIC’s usual practice, given a document number. The same document number was shown as the source of the details about the “petitioner court action” entry.

The term “ASIC database” is defined in s 9 as meaning:

Although the note on the search describes the information as coming from the ASIC database “under” s 1274A, that section does not refer to the ASIC database by name at all. The Act contains no provision expressly directing ASIC to establish or maintain the “ASIC database”, or prescribing its content. But the Act does contain a number of provisions which assume the database’s existence.

For instance, the Act directs ASIC to record certain action taken by it (such as exercising its power to wind up a company or to initiate its deregistration) in the “ASIC database”: ss 489EA(6)(a) and 601AB(3)(a)(iv). Part 2N.4 also provides the statutory basis for ASIC’s practice of sending out to each company each year an extract of particulars for correction and return. The relevant provisions (s 348A-348D) refer only to a “return of particulars ... recorded in relation to the company or scheme in a register maintained by ASIC”. The provisions do not expressly identify the particulars as those recorded in the ASIC database, although the small business guide in Part 1.5, in providing a summary of the provisions, does state that what ASIC sends out includes details from ASIC’s database (see cl 4.2). The heading to s 1274B refers to the “use in court proceedings, of information from ASIC’s national database” and that section makes a written extract of information from “the national database” admissible in such proceedings.

It will be recalled that s 1274A(4) permits ASIC to make available “prescribed information” that ASIC has obtained from “a prescribed register”. Registers are prescribed for the purpose of s 1274A in the Corporations Regulations, reg 9.1.01. One of the prescribed registers is:

Under reg 9.1.02, the prescribed information for this register is:

Regulation 9.1.02 clearly proceeds on the assumption that the register maintained by ASIC for the purposes of s 118 not only records details of the registration of the company, but also the further particulars which are specified in the regulation. But this is only a regulation and the Act does not itself direct ASIC to keep these details in the register of companies, or in any other statutory register. However the Act does assume that at least some of those particulars will be recorded in the ASIC database, which, under its definition, is to “consist”, at least in part, of a “register maintained by ASIC”. ASIC’s power to maintain registers is not restricted to registers it is expressly required to retain under the Act. Section 1274(1) allows ASIC to retain such registers as it thinks fit. It is an untidy state of affairs, but clearly ASIC does in fact maintain records that contain the particulars in reg 9.1.02 for each company registered under the Act.

In MIG Robson J stated (at [64]):

I would express the situation as follows. Although it may not have an express statutory obligation to do so, ASIC in fact maintains records including each of the particulars in reg 9.1.02. Those records correspond with the ASIC database or at least with part of the ASIC database. Although they contain more particulars than are required in the register of companies ASIC is required to maintain, they answer the description of a “register” which ASIC is entitled to, and does in fact, maintain under s 1274(1). Those particulars are then rendered “prescribed information” by reg 9.1.02. This formulation differs in its wording from what Robson J said in MIG but not, I think, in its substance.

As Robson J pointed out in MIG, the particulars in reg 9.1.02 include particulars of the “liquidation” of the company, and ASIC in fact maintains in the ASIC database a record of winding up applications which have been made. It follows that, contrary to the view expressed by Barrett J in Lavercombe at [27] (quoted at [26] above), ASIC does maintain a register which includes details of winding up applications, although there is no express statutory obligation to do so. It follows that in a proper case, the Court may direct ASIC to alter the particulars so recorded, just as the Court may direct ASIC to correct shareholding details which are found to have been incorrectly notified.

This conclusion does not necessarily address Form 519 itself, considered as a document a copy of which can be retrieved from ASIC’s database. Is this part of a “register” or not?

A typical register in company law is a register which records for each entity in it, information about the entity. There is a distinction between such a register and documents from which the information is extracted and entered in the register. For instance, in the case of a company's register of shareholders, where a shareholder changes his or her address, a letter or other communication will be sent to the company with the new address. The letter itself is not incorporated into the register, and once the information in the letter has been recorded in the register by making the necessary entry, the letter can be discarded. It is not part of the register (in practice, of course, the letter would usually be retained for a period of time for verification purposes).

But this is not the only type of register which may be kept. In a register of documents, an incoming document is “registered” simply by allocating a number or index reference to it and incorporating it into a file or book. The “register” is a file or book of documents so registered. The General Register of Deeds kept pursuant to the Conveyancing Act 1919 (NSW), Part 23, is a register of this type.

The two types of register may co-exist within one system. For instance, the Torrens Title register under the Real Property Act 1900 (NSW) is defined to include both the folios (which contain current details of the land such as the registered proprietor, encumbrances etc) (s 31B(2)(a)) and the registered dealings affecting that land (s 31B(2)(b)).

It might be thought that the definition of the ASIC database (quoted at [42] above) recognises a distinction between information registered by ASIC and copies of documents lodged with ASIC. But there is nothing in the Act which requires a “register” maintained by ASIC to be of one type or another.

I think it is clear that in fact the ASIC database is a hybrid system similar to the Torrens Title register. ASIC does, in effect, register documents which are lodged with it under the Act, by allocating distinctive numbers to those documents and retaining copies of them, so recorded, in a form in which they can be retrieved. The Act itself speaks of this as “registration”: see ss 1274(8) and (9), and the heading to s 1275. Arguably, the “register” in fact maintained by ASIC for each company includes not only the particulars in reg 9.1.02, but the documents lodged and recorded against the company as well. Thus, Barrett J may not have been correct in concluding that a Form 519 does not relevantly form part of any “register” for the purpose of s 1322(4)(b).

If a Form 519 were lodged which purported to record that a winding up application had been made against a particular company, and no such application had in fact been made, there would be every reason why the Court should have power to order that the Form be removed from the database. Consistently with the provisions of the Act, it should never have been there in the first place. Especially is this so because, while ASIC may under s 1274(8) refuse to register a document when lodged if it contains errors, etc, its power to destroy documents under s 1274(10) would not permit removal of such a document, once registered, on those grounds (cf Miltonbrook at [56], quoted at [31] above).

It was not necessary for the purposes of these proceedings to reach a final conclusion on this question. For the reasons I have given, the Court has power, at least, to order ASIC to alter or remove particulars of a winding up application recorded by it against a company where no valid application has been made or the particulars recorded are in some other way inaccurate.

But it is a different thing to exercise the Court’s power so as to remove reference to a winding up application which has been validly made. In my view, the reasoning of Barrett J on this question in Lavercombe at [38]-[39] is unanswerable. The legislature has decided that the fact of the making of a winding up application is to be recorded by ASIC and made publicly available. A form has been lodged, and an entry has been made in ASIC’s database, which reflects that fact. For the Court to order ASIC to remove reference to such an application from its database would be to require it to act contrary to the intention of Parliament. The result would be that the database, by its incompleteness, would be inaccurate.

In the present case, the facts were that a statutory demand was validly served on Playup; Playup did not move to have it set aside; and Mr Kay then, as he was entitled to, commenced winding up proceedings. I cannot see any justification for pretending that these events did not occur. It could hardly be suggested that upon the withdrawal of the winding up application in these proceedings, the Court would order that its file be destroyed, or take steps to prevent a member of the public who attended the hearings from publishing the fact that the proceedings had been brought.

Playup’s evidence on this application, of course, only addressed the effect of the notification that the application had been made. With the withdrawal of the application, the fact that it had been withdrawn will now be registered. Playup’s case was based on the proposition that this gives rise to some sort of ongoing stain on Playup’s corporate reputation. That may, I suppose, be true, but it did not afford a sufficient reason for making the orders which Playup seeks.

Playup’s position was that there was never any real question about its solvency and for investors and customers to take the making of the application into account after it has been withdrawn would be irrational. But the scheme of the Act is that it is for prospective investors in, and customers of, Playup to determine the relevance of information about Playup which is collected and made publicly available under the Act. It is not for the Court to restrict that information based on the Court’s judgment about its relevance or utility. If Playup’s investors or customers are “spooked” by the truthful revelation that Mr Kay made, and later withdrew, a winding up application against Playup, that is not the Court’s concern.

In my respectful view, the approach stated by Finkelstein J in OneSteel is too wide. If, as I assume, the evidence in that case demonstrated that the statutory demand had been served, then the winding up application was still validly made, even if it was not received, because of the deemed service provision in the Acts Interpretation Act 1901 (Cth), s 29(1). In considering the decision, it is difficult to put out of mind the fact that the Westpoint group was subsequently exposed as a ponzi scheme and collapsed with huge debts. It would be interesting to know exactly how comprehensive the evidence was about OneSteel’s demand not having been received. It would also be interesting to know how it was that OneSteel came to issue its statutory demand in the first place; usually an unpaid supplier does not go to the trouble of issuing a statutory demand unless the debt has been outstanding for some time and conventional methods of collecting it have not been successful. But it is not necessary to decide whether there is power to remove reference to a winding up application from ASIC’s database where the statutory demand on which the application is based, although technically served, was not received. It is enough to say that the circumstances of this case are quite different.

Having regard to my conclusions under section 1322(4)(b) it is not necessary to consider the Court’s power under s 467(1)(c). If the Court’s power under that section extended so far, then for the reasons I have given I would not have exercised it. I would only observe in passing that it would be surprising, if the Court’s power under s 1322(4)(b) were not extensive enough to permit rectification of the ASIC database, that the Court’s incidental power under s 467(1)(c) should be wider.