ASIC fails in bid to have deregistered company re-instated

The extent of ASIC’s power to reinstate a company, as well as what is meant by an ‘person aggrieved’ for the purposes of s 601AH of the Corporations Act, were recently clarified by Reeves J in the Federal Court case of ASIC v CFS Private Wealth Pty Ltd [2019] FCA 24.

 

Under s 601AD of the Corporations Act 2001 (the Act), a company ceases to exist on deregistration, and its property vests either (a) in the Commonwealth (all property held by the company on trust) or (b) ASIC (all other property). However, s 601AH of the Act provides that registration may be reinstated:


  • by ASIC, if it is satisfied the company should not have been deregistered;
  • by order of the Court, following an application by a "person aggrieved by the deregistration" or a former liquidator of the company, if the Court is satisfied the company should be reinstated.

A recent example

In the present case, ASIC had deregistered BDM Asia Pacific Pty Ltd (BDM) for failing to pay its review fees (being an express ground upon which ASIC may deregister a company under s 601AB(1A)). However, following investigations into the former sole director of BDM for misappropriating the superannuation and other savings of a group of clients, ASIC applied to the Court as an aggrieved person to have the company reinstated. It wished to do this in order to make the cash assets of approximately $194,000 which BDM held at the time of its deregistration, and which were consequently then vested in ASIC, available to a liquidator to distribute to creditors.

On the issue of whether ASIC was an aggrieved person for the purposes of s 601AH, Reeves J heard evidence that ASIC would be burdened by being involved in the affairs of the company, and specifically, by having to administer and account for the funds – which it said would not be commensurate with its role of the Regulator. The Court however noted that an aggrieved person for the purposes of s 601AH must be able to show that they have been "deprived… of something, or injured or damaged in a legal sense". Accordingly, the Court reasoned that although ASIC may be "dissatisfied" that it has to perform the obligations imposed on it by statute, that "does not … constitute any relevant prejudice to its interests".

ASIC also submitted it could not use its own power under s 601AH to reinstate BDM as the company was deregistered for a valid reason, namely, failure to pay review fees, and therefore ASIC could not be satisfied that "the company should not have been deregistered" (being the precondition for it exercising its power of reinstatement under s 601AH). The Court however concluded that s 601AH "gives ASIC a broad discretionary power to review and reverse a deregistration decision it has made at any time in the future … on the information available at that time". In other words, the discretionary power of reinstatement given to ASIC is not confined to fact known at the time of the original decision. The Court stated that:

"Based on what ASIC now knows… there is ample reason for it to be satisfied that the company should not have been deregistered in 2017 and, therefore, that it should now be re-registered"

Accordingly ASIC’s application to reinstate BDM was dismissed.

Implications

Deregistration may not mean the end. It is important for directors and other stakeholders of a company to be alive to the fact that the exposure of directors to claims by the company may not be discharged upon deregistration, with ASIC having a "broad discretionary power" to reinstate companies, and the Courts also able to reinstate companies upon application of an person aggrieved by the deregistration. Furthermore, it is entirely open to have a company re-instated in order to have it wound up.

McCabe Curwood’s Litigation and Dispute Resolution Group has significant experience and expertise in corporate insolvency. If you require advice in relation to deregistering or reinstating a company, please contact us for assistance.

Contributors

Nathan Jones Senior Associate
Tal Prigan Law Graduate