In the matter of A.C.N. 063 346 708 (formerly known as South Passage Pty Ltd)

1. [1]

   HER HONOUR: This is an application for substituted service, reinstatement of a company and ancillary orders pursuant to section 601AH(3)(d) of the Corporations Act 2001 (Cth) that, upon the reinstatement of the company, contrary to the position at deregistration:

2. [2]

   The plaintiff’s counsel accepts that, by this application, he seeks ancillary orders on reinstatement which are wide reaching and unusual, but contends that these are unusual circumstances.

The facts

1. [3]

   Peter Chase was a solicitor in Taree, New South Wales. He and his wife Margery Chase adopted three children: Stuart, Andrew and Karen. The children are now all aged in their 50s. Karen Chase has a de facto partner, Douglas Marshall, with whom she has three children.

2. [4]

   The way in which Peter Chase conducted his business affairs was somewhat opaque. In 1981, Lyndsay Tooley, a long time business associate of Mr Chase, agreed to buy 90 Bohnock Road, Bohnock for $104,000 in equal shares with Mr Chase. Mr Chase took care of the conveyancing. The property was registered in Mr Tooley’s name although he does not recall why as he only provided half the purchase price. Mr Chase told Mr Tooley at the time that he was cutting off a piece of the property for Stuart Chase to live on. The Bohnock property was across the Manning River from Mr Chase’s home on Oxley Island. There was an old farmhouse on the Bohnock property. When Mr Tooley was visiting Mr Chase on Oxley Island, Mr Chase pointed across the river to the old farmhouse on the Bohnock property and told him that that was Stuart’s place.

3. [5]

   Stuart Chase has since lived on and farmed the Bohnock property for over 35 years. According to a valuation report by the Valuer General of September 2017, the unimproved land value of the Bohnock property is $769,000. A more recent real estate appraisal indicates that the value of the Bohnock property is between $1.2 million and $1.4 million.

4. [6]

   In 1994, South Passage Pty Ltd was incorporated with share capital of 100 ordinary shares. The shares were issued to Karen Chase (75 shares) and Andrew Chase (25 shares). On 18 August 1997, Mr Tooley signed a transfer of the Bohnock land to South Passage Pty Ltd in consideration for $200,000. Mr Chase witnessed Mr Tooley’s signature on the transfer as the solicitor for the transferee. South Passage Pty Ltd became, and is still, the registered proprietor of the Bohnock property. So far as Stuart Chase is aware, the Bohnock property is the only asset of South Passage Pty Ltd.

5. [7]

   Not long before the transfer of the Bohnock property, Karen Chase and Andrew Chase each signed declarations of trust in respect of their shares in South Passage Pty Ltd. The declarations of trust were almost identical and it is sufficient to set out the declaration signed by Karen Chase being:

6. [8]

   Karen Chase’s declaration of trust was dated 23 December 1992, which was clearly incorrect as it was before South Passage Pty Ltd was incorporated. Andrew Chase’s declaration of trust was dated 1 January 1996 but bore a stamp duty stamp for the 1996/1997 financial year. It seems likely that both documents were signed shortly before the Bohnock land was transferred to the company, presumably because Peter Chase wished that the land be held in a corporate structure rather than by Stuart Chase directly. With the shares in the company being held on trust for Stuart Chase, he would have the benefit of the Bohnock property but not the ability to deal with it without the agreement of Karen Chase and Andrew Chase. The declarations of trust were in a box of documents handed by Peter and Margery Chase to Stuart Chase in 2012. It appears that Stuart Chase may not have been aware of the declarations of trust before that time.

7. [9]

   In 1998, Karen Chase became a director and secretary of South Passage Pty Ltd and Andrew Chase became a director. In 2007 Stuart Chase also became a director. In 2013, Andrew Chase ceased to be a director of South Passage and, in 2014, Stuart Chase also ceased to be a director leaving Karen Chase as the sole office holder of the company. In 2014, 23 Winser Crescent, Kambah ACT 2902 became the registered office of South Passage Pty Ltd. This property is owned by Jennifer Marshall, the mother of Douglas Marshall. Karen Chase lives at this property.

8. [10]

   In November 2014, Peter Chase died. On 9 December 2014, Stuart Chase directed Karen Chase to transfer to him the shares in South Passage Pty Ltd which she held. Karen declined to do so. Three weeks later, on 30 December 2014, Karen Chase, as sole director and secretary of South Passage Pty Ltd, executed a mortgage over the Bohnock property in favour of Douglas Marshall to secure $100,000. According to the mortgage, $100,000 was lent by Mr Marshall to South Passage Pty Ltd on the following terms:

9. [11]

   The mortgage is registered on the title of the Bohnock property. Stuart Chase says that there have been no improvements done on the Bohnock property using funds lent by Mr Marshall nor, so far as Stuart Chase is aware, is there any basis for the mortgage.

10. [12]

    Also registered on the title to the Bohnock property is a lease to Douglas Marshall expiring on 30 June 2017 with an option of renewal for a further 10 year term. As Stuart Chase lives on the Bohnock property, and has done so for 35 years, the suggestion that Mr Marshall has leased the property from 2007 to 2017 seems unlikely. Whether Mr Marshall has exercised the option under the lease may reveal itself in due course.

11. [13]

    On 16 June 2015, Andrew Chase signed a transfer of shares to transfer his 25 shares in South Passage Pty Ltd to Stuart Chase for $1. The transfer of shares has not been effected by the sole office holder of South Passage Pty Ltd, Karen Chase. The same day, the registered office of South Passage Pty Ltd changed from 23 Winser Crescent, Kambah ACT 2902 to 52 Lee-Steere Crescent, Kambah ACT 2902. This property is owned by Mr Marshall.

Chase v Chase

1. [14]

   In June 2016, Stuart Chase and his mother Margery Chase commenced proceedings in this Court against Karen Chase and another family company, Ileaco Pty Ltd, seeking inter alia the following relief:

2. [15]

   In July 2016, Karen Chase filed a defence, which traversed the allegation of the formal declaration of trust sufficiently to suggest that she claimed that she did not sign it. Karen Chase’s defence also contained a number of serious allegations and was, by its terms, susceptible to being struck out under Uniform Civil Procedure Rules 2005 rule 14.28(1) as having a tendency to cause prejudice, embarrassment or delay or otherwise as an abuse of the process of the court. As Ms Chase took no steps to prove her allegations with evidence, I will not repeat those allegations here.

3. [16]

   In November 2016 the registered office of South Passage Pty Ltd changed from 52 Lee-Steere Crescent, Kambah ACT 2902 to a Brisbane address.

4. [17]

   In September 2017, the proceedings were listed for final hearing before Lindsay J on 6 and 7 February 2018.

5. [18]

   On 4 December 2017, an application was made for voluntary deregistration of South Passage Pty Ltd and Ileaco Pty Ltd. The application is not in evidence before me but, as Karen Chase was the sole office holder of South Passage Pty Ltd at the time, I infer that the application was made by Karen Chase.

6. [19]

   On 6 February 2018, Chase v Chase was listed for hearing before Lindsay J. Karen Chase did not appear. Karen Chase did not respond to a subpoena served on her in the proceedings nor did she put on any evidence. His Honour’s treatment of the plaintiffs’ claim, in the absence of Karen Chase, was characteristically meticulous. His Honour made inter alia the following notations and orders:

7. [20]

   By orders 10 and 11, his Honour declared that Karen Chase held her shares in South Passage Pty Ltd on trust for Stuart Chase and ordered that Karen Chase do all such acts and things as are necessary to transfer those shares to Stuart Chase. Amongst the evidence relied upon by the plaintiffs, Margery Chase, the witness to Karen Chase’s signature on the declaration of trust, identified her and Karen Chase’s signatures on the document. A forensic document examiner also provided a report to support the opinion that the person who signed the declaration of trust was Karen Chase.

8. [21]

   Two days later, on 8 February 2018, South Passage Pty Ltd was deregistered by the Australian Securities and Investments Commission (ASIC).

9. [22]

   The plaintiffs’ solicitors encountered considerable difficulties effecting service of Lindsay J’s orders on Karen Chase. An investigator was retained, who attempted service at the registered office of South Passage Pty Ltd in Brisbane, then at a Melbourne address indicated by a search of the electoral role, then at the two addresses in Kambah, ACT. Amongst these efforts, the following two events are significant.

10. [23]

    Further company searches undertaken by the plaintiffs’ solicitors at this time revealed that South Passage Pty Ltd and Ileaco Pty Ltd had been deregistered. In May 2018, the plaintiffs brought the matter back before Lindsay J to make further orders in light of the difficulties effecting personal service on Karen Chase and the fact that the companies had been deregistered. His Honour made orders for substituted service on Karen Chase and further:

11. [24]

    In June 2018, the plaintiffs served Karen Chase in accordance with the orders made by Lindsay J for substituted service by placing his Honour’s orders in an envelope at both addresses in Kambah, ACT.

These proceedings

1. [25]

   On 20 August 2018, Stuart Chase commenced proceedings in the Corporations List of this Court seeking orders against Karen Chase and ASIC for reinstatement of South Passage Pty Ltd. On 3 September 2018, the Originating Process and affidavit in support were served on Karen Chase using the same means of service as specified by Lindsay J, that is, by placing the documents in an envelope and leaving them at both Kambah addresses.

2. [26]

   On 13 September 2018, ASIC wrote to the plaintiff’s solicitors advising that it would not oppose reinstatement if various conditions were satisfied including:

3. [27]

   On 18 September 2018, Registrar Walton granted leave to the plaintiff to amend his Originating Process to give effect to ASIC’s request. By amending the Originating Process to change the name of South Passage Pty Ltd on reinstatement to ACN 063 346 707 Pty Ltd, the relief sought was not substantively changed. On 24 September 2018, the Registrar referred the matter to me and I directed the plaintiffs to file an interlocutory process seeking further orders for substituted service on Karen Chase and stood the matter over for hearing on 28 September 2018. On 26 September 2018, the plaintiff served the interlocutory process and affidavits in support by placing them in an envelope and leaving them at the two Kambah addresses. On 28 September 2018 the matter came before me for hearing. There was no appearance by Karen Chase.

4. [28]

   Having regard to the numerous affidavits of the process server, I am satisfied that the orders for substituted service should be made, as Karen Chase cannot practicably be served in the usual manner, but leaving the documents at two addresses at which Karen Chase either lives, or her de facto partner’s mother lives, will bring the documents to her notice.

Should the company have been deregistered at all?

1. [29]

   Part 5A.1 of the Corporations Act deals with deregistration of companies. Section 601AA concerns voluntary deregistration on the application of a company, director, member or liquidator. In that event, section 601AA(2) provides:

2. [30]

   It can be seen immediately that the requirements of section 601AA are cumulative, that is, each subsection must be satisfied before an application for voluntary deregistration may be made.

3. [31]

   In the case before me, the application for deregistration is not in evidence, but it would appear that at least three requirements of section 601AA(2) were not satisfied. First, it seems unlikely that all the members of the company agreed to deregistration as one of the members of the company, Andrew Chase, had transferred his shares to Stuart Chase. Second, the company owned the Bohnock Road property, worth between $1.2 and $1.4 million. Third, the company apparently had an outstanding liability to a secured creditor, Mr Marshall, of $100,000. As such, it would appear that ASIC should not have deregistered the company. Presumably, ASIC acted on the information provided to it.

Reinstatement by the Court

1. [32]

   Subsections 601AH(2) and (3) concerns reinstatement by the Court and provide:

2. [33]

   Section 601AD provides that, on deregistration, a company ceases to exist and all property that the company held on trust immediately before deregistration vests in the Commonwealth and other property vests in ASIC.

3. [34]

   Notes form part of the Corporations Act and have the same status as the provisions of the Act: section 13, Acts Interpretation Act 1901 (Cth); Pearce and Geddes, Statutory Interpretation in Australia, 8th ed. (2014) at [4.47], [4.57]. It would appear from the Note that an example of an order which may be made on reinstatement includes directing ASIC to transfer to another person property vested in ASIC under subsection 601AD(2). In this case, it would appear to endorse this Court directing ASIC to transfer the company’s property, including the Bohnock property, to Stuart Chase.

4. [35]

   On an application to reinstate a company, the first matter to consider is whether Stuart Chase is “a person aggrieved by the deregistration”. As Gleeson JA explained in Re European Metal Recyclers Pty Ltd (in liquidation) (deregistered) [2018] NSWSC 946 at [17]-[18], the expression “aggrieved person” is of wide import and should be construed liberally and includes a person who has been damaged in the legal sense. The fact that an applicant is a former director and shareholder of a deregistered company is not of itself sufficient to establish that he is a person aggrieved by the deregistration, as Barrett J explained in Melluish v Underwood Development Pty Ltd [2004] NSWSC 429 at [6]:

5. [36]

   Here, Stuart Chase is a person aggrieved by the deregistration of South Passage Pty Ltd as he is the beneficial owner of a company which owns valuable property. Those assets presently vest in ASIC.

6. [37]

   The second matter to consider is whether “it is just that the company’s registration be reinstated”. His Honour Austin J succinctly explained this requirement in Australian Competition and Consumer Commission v Australian Securities and Investments Commission [2000] NSWSC 316 at [27]:

7. [38]

   It is not “just” to resurrect a company which will then be devoid of proper governance and it is for this reason that applicants seeking reinstatement of companies often seek the appointment of a liquidator in conjunction with reinstatement: see, for example, CGU Workers Compensation (NSW) Ltd v Rockwall Interiors Pty Ltd [2006] NSWSC 690 at [9] per Barrett J.

8. [39]

   I am satisfied that it is “just” that the company’s registration be reinstated. It may be inferred from the sequence of events that Karen Chase applied to voluntarily deregister South Passage Pty Ltd in order to frustrate the processes of the Court. Unless the company is reinstated, Stuart Chase will not enjoy the benefits of the orders made in his favour in Chase v Chase.

9. [40]

   However, section 601AH(5) provides:

10. [41]

    As such, if South Passage Pty Ltd is reinstated, Karen Chase “becomes a director again” and any property of the company that is still vested in the Commonwealth or ASIC revests in the company subject to any security interest. Concern was expressed that if the company was reinstated, Karen Chase would be automatically reappointed as the sole director and thus able to deal with the assets of the company in a manner potentially inconsistent with the orders of Lindsay J. That concern appears to me to be well founded.

11. [42]

    This brings me to the third matter, being the extent of the Court’s power to make ancillary orders under section 601AH(3)(d), and what orders are appropriate in this case. It was submitted that section 601AH(3)(d) is wide and the Court should not read it down. It was submitted that the orders sought advance the objects of the section because the orders protect the company and the beneficial shareholder and the assets of the company which are presently exposed. In order to protect the beneficial owner of the company, the officer on reinstatement should not be Ms Chase.

12. [43]

    Section 601AH(3)(d) gives the Court power to “make any other order it considers appropriate”. The “other” refers back to section 601AH(3)(c), which empowers the Court to validate things done during the period of deregistration. In Pagnon v Workcover Queensland [2001] 2 Qd R 492, McPherson JA considered the power to be very wide at [15]. In Re Bele & Co Pty Ltd [2017] NSWSC 1824, Black J read the power as incidental to the Court’s power to reinstate a deregistered company, and not as independent of it: at [6].

13. [44]

    The most expansive review of the legislative history and case law in respect of section 601AH(3)(d) was undertaken by McKerracher J in Bell Group Limited v ASIC [2018] FCA 884. His Honour was asked to reinstate 16 companies related to The Bell Group Ltd, itself in liquidation since 1991. The deregistered companies fell into two categories. In the first category were companies which stood to receive distributions from a $1.7 billion settlement fund after the Bell Group proceedings were concluded in 2013. As shareholders of the deregistered companies, the plaintiffs stood to receive a distribution in liquidation if the companies were reinstated. In the second category were companies which held shares in other Bell Group companies which prevented those companies forming part of a tax consolidated group under the Income Tax Assessment Act 1997 (Cth). Under that Act, wholly owned subsidiaries can form part of a consolidated group within which losses would be offset against tax liabilities of other entities. On deregistration, the shares held by the deregistered companies vested in ASIC, which prevented any of the companies whose shares were so held forming part of the consolidated group. These companies, having suffered significant losses, would reduce the overall tax liability of the consolidated group if they became a part of it. The Bell Group Ltd sought orders under s 601AH(3)(d), as his Honour put it, “to achieve the effect that the shares held by a number of the Deregistered Companies be deemed and taken at all times from the date of dissolution of those companies to have been beneficially owned by the companies”: at [32].

14. [45]

    As to the scope of the power conferred by section 601AH(3)(d), McKerracher J noted at [110]:

15. [46]

    His Honour noted that there was no suggestion in the statute that an order could only be made where it was justified by exceptional circumstances, rather, “The power to make the orders is cast in very broad terms”: [129]. His Honour considered the section clearly permitted an ancillary order which had significant, not merely incidental, retrospective consequences: [137].

16. [47]

    ASIC pointed to Barrett J’s observation in CGU v Rockwall Interiors Pty Ltd at [18]:

17. [48]

    His Honour McKerracher J did not consider that Barrett J’s observation detracted from the approach to be taken, at [141] (emphasis original):

18. [49]

    His Honour noted that The Bell Group’s objectives were on their face entirely lawful and reasonable. The Commissioner of Taxation still had ample opportunity to oppose the tax consequences of the ancillary orders in other administrative or judicial proceedings if the Commissioner chose to do so; the ancillary orders simply allowed The Bell Group to contend for such consequences. However, his Honour considered that it was desirable to grant no more than the minimum relief necessary to do justice and to do so solely for the stated purpose in the way described by The Bell Group: at [147].

19. [50]

    The breadth of the power can be seen from the instances in which the power has been exercised. Under section 601AH(3)(d), the courts have made orders suspending the limitation period during the period in which a company was deregistered: Re Regional Planners Developments Co Pty Ltd [2015] NSWSC 1996 per Brereton J; Pagnon v Workcover Queensland at [15] per McPherson JA. In contrast, in Re Bele & Co Pty Ltd, a creditor sought an order that ASIC pay the creditor $193,000, being funds which ASIC held in respect of deregistered company, alternatively, reinstatement of the company and an order that ASIC pay the creditor the relevant amount pursuant to section 601AH(3)(d). His Honour Black J considered that the power in section 601AH(3)(d) did not allow the Court, in effect, to determine a claim between a creditor and a deregistered company, without the attendance of the deregistered company and in a manner that would not bind it, and then make an order for ASIC to make a payment consequential upon its determination of that claim. See likewise Randall v City of Canada Bay Council (No.4) [2015] NSWSC 1759 at [200].

20. [51]

    Having regard to these authorities, it seems to me that the Court has a wide power under section 601AH(3)(d). The case law, by and large, concerns applications for reinstatement brought by those wishing to make a claim against, or by, the deregistered company. In both situations, the merits of that claim remain to be determined in other proceedings. The case before me is unusual in that Stuart Chase’s right to be recorded as the beneficial owner of the whole of the share capital of South Passage Pty Ltd has been finally determined in proceedings to which Karen Chase was a party. In those circumstances, it seems to me that the Court can be more confident in identifying what orders are appropriate. I also do not consider that section 601AH(5) confines the Court’s power in section 601AH(3)(d) such that the Court may not make orders modifying the effect of reinstatement. Rather, section 601AH(3)(d) gives the Court the power to alter the ordinary incidents of reinstatement in appropriate circumstances.

21. [52]

    As I observed earlier, the Notes to section 601AH(3)(d) give, as an example of an exercise of the power, an order directing ASIC to transfer to another person property vested in ASIC under subsection 601AD(2). As such, it seems to me that the Court has power to order ASIC to transfer the Bohnock property to Stuart Chase. If that were done then, following the transfer of the Bohnock property, the company could, and probably should, again be deregistered. This would reduce the possibility of Karen Chase dealing with the company on reinstatement in a way to frustrate the orders made by Lindsay J in Chase v Chase. I do not know whether Stuart Chase wishes to continue to hold the Bohnock property via a corporate structure or directly. There may be tax implications and stamp duty considerations which favour one structure over the other. It may be that ASIC has a view about whether ASIC can or should be ordered to transfer real property in this way. It may be that the Registrar General would need to be joined if title was to be transferred in this manner.

22. [53]

    As such, the orders proposed by Stuart Chase commend themselves for their simplicity, and because each of the orders, save for the order in respect of the constitution, arises squarely from the final orders made in Chase v Chase. So far as the constitution is concerned, Stuart Chase does not have a copy of any former or current constitution of South Passage Pty Ltd. He does not know what the current constitution is and has not been able to obtain a copy of it from Karen Chase. He sees no apparent need for a constitution. As Stuart Chase is entitled to be registered as the sole shareholder and office holder of the company, and to avoid any issues which may arise under a constitution which he has not been able to obtain, I consider it appropriate to make such an order.

23. [54]

    It may be that the Registrar General will become involved in any event if Stuart Chase wishes to remove the impediments on the title of the Bohnock property, being the registered mortgage and any further lease said to have come into existence by exercise of an option under the registered lease. The natural home for the determination of such matters would be in Chase v Chase rather than in these proceedings.

24. [55]

    I note that ASIC’s opposition to the application for reinstatement was conditional upon various matters, including that if Karen Chase was unable to be served, then upon reinstatement a liquidator be appointed. Karen Chase has been served, albeit pursuant to orders for substituted service. As such, it is not necessary for a liquidator to be appointed in order to satisfy ASIC’s conditions. In any event, it does not appear to me that the appointment of a liquidator is necessarily otherwise warranted.

25. [56]

    The Court makes the following orders and directions:

    1. (1)

       Order pursuant to rule 10.14(3) of the Uniform Civil Procedure Rules 2005 (NSW) that the delivery of a copy of the Originating Process filed on 20 August 2018 and the affidavit of Stuart Gordon Chase made 31 July 2018 and filed in these proceeding be taken to have been served on 3 September 2018.

    2. (2)

       Order pursuant to rule 10.14(3) of the Uniform Civil Procedure Rules 2005 (NSW) that the delivery of a copy of the Interlocutory Process filed on 24 September 2018 and the affidavits be taken to have been served on 26 September 2018.

    3. (3)

       Pursuant to subsection 601AH(2) of the Corporations Act 2001 (Cth), order ASIC to reinstate the registration of the company formerly known as South Passage Pty Ltd A.C.N. 063 346 707.

    4. (4)

       Pursuant to subsection 601AH(3)(d) of the Corporations Act 2001 (Cth):

    5. (5)

       Order the plaintiff to serve this judgment and orders on the first defendant by placing the documents in an envelope and leaving them at 23 Winser Crescent, Kambah ACT 2902 and 52 Lee-Steere Crescent, Kambah ACT 2902 on or before 16 November 2018.

    6. (6)

       Direct the plaintiffs to provide this judgment and orders to the second defendant, ASIC, on or before 16 November 2018.

    7. (7)

       Order the first defendant to pay the plaintiff’s costs of the proceedings.

    8. (8)

       Grant liberty to the first defendant to apply for an order that these Orders be discharged or varied by way of an interlocutory process, filed and served no later than 7 December 2018.