Shoal Bay Beach Constructions No. 1 Pty Ltd v Mark Hickey and the persons listed in Schedule A to this Statement of Claim trading as at all material times as Sparke Helmore

By notice of motion, filed on 3 June 2021, the defendants, Mark Hickey and others (Sparke Helmore) seek orders, including a permanent stay of the proceedings, which were commenced by Shoal Bay Beach Constructions No. 1 Pty Ltd (the plaintiff) by filing a statement of claim on 2 July 2019.

Mr Weinberger, who purported to appear on behalf of the plaintiff, sought an adjournment of the motion, which was listed for hearing before me today, to permit an application to be made in the Corporations List in the Equity Division pursuant to s 601AH of the Corporations Act 2001 (Cth) to reinstate Shoal Bay Beach Constructions Pty Ltd (the parent company), which, until the time of its deregistration on 21 March 2020, owned all the shares in the plaintiff. Mr Weinberger submitted that the Court ought give the plaintiff an opportunity to regularise its position and that two weeks would be sufficient for this purpose.

The relevant background to the adjournment application is as follows.

Until 23 September 2020, Carmelo Mastronardo was the parent company’s sole director and shareholder. Upon the making of a sequestration order under the Bankruptcy Act 1966 (Cth) on 23 September 2020, his shares in the parent company vested in Katherine Barnet, his trustee in bankruptcy. As a bankrupt, he was disqualified from being a director. The parent company was deregistered on 21 March 2020, which caused all of its assets (including its 100 shares in the plaintiff) to vest in the Australian Securities and Investments Commission (ASIC): s 601AD(2) of the Corporations Act.

By document dated 18 June 2020, but not filed with ASIC until 14 September 2020, the parent company (which no longer existed by reason of its deregistration) purported to transfer its shares in the plaintiff to Antonella Mastronardo (Mr Mastronardo’s sister) for the sum of $1 and to appoint her as the director and secretary of the plaintiff. This purported assignment was ineffective to transfer the shares, which had already vested in ASIC on 21 March 2020. It is possible that the appointment of Ms Mastronardo was valid under s 201H of the Corporations Act (there being no evidence of the parent company’s constitution to displace the replaceable rule) but such appointment was required to be confirmed by the parent company within two months. As this did not occur (because the parent company no longer existed, having been deregistered), she has not been validly appointed as a director of the plaintiff.

Further, the plaintiff was deregistered on 18 April 2021 on the application of ASIC but was reinstated on 10 May 2021.

When the defendants learned of the matters referred to above, their solicitor, Mr Price, by letter dated 24 May 2021, drew them to the attention of Mr Tomaras, the solicitor on the record for the plaintiff.

On 1 July 2021, Ms Mastronardo filed an application in the Corporations List in the Equity Division for an order pursuant to s 601AH(2) of the Corporations Act to reinstate the parent company. She also sought orders validating, on and from 18 June 2021, her appointment as director of the plaintiff, the removal of Mr Mastronardo as director, and the transfer of the parent company’s shares in the plaintiff to her. The application came before Ward CJ in Eq, who dismissed the application without prejudice to Ms Mastronardo’s right to make a further application. The transcript of the Equity Proceedings was not before me for the hearing of the adjournment application.

In substance, the defendants submitted that the proceedings had become an abuse of process at least since 18 August 2020 when the appointment of the company’s putative sole director, Ms Mastronardo, lapsed in circumstances where the parent company had been deregistered on 21 March 2020. Mr Zahra SC, who appeared with Mr Burnett for the defendants, submitted that the plaintiff was “rudderless” and that the Court ought dismiss the proceedings as an abuse of process or grant a permanent stay.

Mr Zahra did not submit that the plaintiff’s position was irretrievable. However, he submitted that the plaintiff had done little to help itself to remedy its situation since the defendants’ solicitor, Mr Price, drew it to the attention of Mr Tomaras approximately six weeks ago. Mr Zahra submitted that an application to reinstate the parent company under s 601AH of the Corporations Act could only be made by “a person aggrieved”. He contended that it was difficult to see how there would be a candidate who falls into that category other than Ms Barnet, Mr Mastronardo’s trustee in bankruptcy, who holds all the shares in the plaintiff. Mr Zahra submitted that Ms Mastronardo would not qualify as a person aggrieved since she has never been a shareholder of the plaintiff or the parent company. Nor would Mr Mastronardo be a person aggrieved and, in any event, by reason of s 60 of the Bankruptcy Act, he would not be able to bring proceedings. Furthermore, Mr Zahra submitted that under s 601AH(2)(b) of the Corporations Act, the Court must be satisfied that it is just that the company be reinstated. He submitted that there was a real question of solvency, and that there was no evidence which would enable me to have any confidence that any application in the Equity Division to reinstate the plaintiff would be successful in the absence of any evidence about solvency.

I understood Mr Zahra to accept that if the plaintiff was ultimately required to pay the costs of the application for adjournment or of the proceedings, the defendants would be entitled to have that order met from the amount of $90,000 which has been paid into court by way of security for costs.

The hearing is listed to commence on 13 September 2021 and has an estimate of five days.

I understood Mr Weinberger to accept that the proceedings, as presently constituted, are an abuse of process. Indeed, he did not seek to argue against the matters raised by Mr Zahra which I have referred to above. However, Mr Weinberger submitted that it would be just to allow the plaintiff to get its house in order by making an application before the Equity Division with a view to properly reconstituting the proceedings, and therefore converting them from an abuse of process to proper proceedings before the Court.

It is not productive for me to attempt to quantify the prospects of success of such an application since this will be determined in any event by the Equity Division relatively shortly. It is proposed that the notice of motion be adjourned for a period of 14 days in order to permit the application to be heard and determined by the Equity Division. Thus, it would appear to be common ground that an adjournment of this period is necessary if the application is to be made and determined before I determine the defendants’ notice of motion. There is a dispute between the parties as to the form of order which I should make.

Mr Zahra points to the several authorities which say that the appropriate course for the Court to take when its processes are being abused is to grant a stay of the proceedings, including Doulaveras v Daher [2009] NSWCA 58; (2009) 253 ALR 627 at [150] (Campbell JA, Giles and Macfarlan JJA agreeing). He says that this would indicate that the proceedings are currently an abuse of process but it would protect the plaintiff’s right to make the application before the Equity Division with a view to reconstituting the proceedings properly.

Mr Weinberger submitted that were I to grant a stay, that might cast a cloud over the hearing date, which I note is listed in September of this year for final hearing, and he says that ordering a stay may be the difference between having the matter go ahead on the days allocated, and the matter having to be adjourned because it is not ready.

I consider that it is appropriate to make the order as sought by Mr Zahra and grant a stay of the proceedings until 5pm on 3 August 2021. Where a party has, after having validly invoked the processes of the court, put itself in a position where the processes of the court are being abused, I accept Mr Zahra’s submission that the appropriate course is to grant a stay. This will not affect the plaintiff’s right to approach the Equity Division to regularise the proceedings, but it will give the defendants some protection in that they will not be obliged to take any further steps in the proceedings until the matter comes back before me on 3 August 2021.

For these reasons, I make the following orders: