Withdrawing unlawful ASIC forms from ASIC’s register: the importance of safeguarding your company’s corporate key and ensuring proper corporate steps are taken to effect your company’s changes

What happens if there is an internal dispute within a company and ASIC forms are lodged without officeholder or member consent to change the company details of the company on the ASIC register? As was recently held by Black J of the Supreme Court of NSW in In the matter of Seabay Kitchen Pty Ltd [2019] NSWSC 790, if the Court is satisfied that no corporate step was taken to effect the company changes, the Court can order rectification of the invalid forms from ASIC's register.

 

A refresh on the role and powers of ASIC

ASIC is Australia's integrated corporate, markets, financial services and consumer credit regulator.

As per the Australian Securities and Investments Commission Act 2001, ASIC is required to:


  • maintain, facilitate and improve the performance of the financial system and entities in it;
  • promote confident and informed participation by investors and consumers in the financial system;
  • administer the law effectively and with minimal procedural requirements;
  • enforce and give effect to the law;
  • receive, process and store, efficiently and quickly, information that is given to them;
  • make information about companies and other bodies available to the public as soon as practicable; and
  • take whatever action they can, and which is necessary, to enforce and give effect to the law.
The laws that ASIC administers, such as the Corporations Act 2001 (Cth) (the Act), relevantly includes the requirement to maintain publicly accessible registers of information about companies, financial services licensees and credit licensees as per s 1274(1) of the Act.

There is no obligation upon ASIC under the Act to ensure that the documents lodged to ASIC's register contain accurate information.

As per section 1274(8) of the Act, when a document is submitted for lodgement, ASIC may refuse to register or receive the document if, for example, the document contains a matter contrary to law, is false or misleading, or if it contains an error.

ASIC also has the power to request any other such document in support of the document that has been lodged, if ASIC considers it necessary to form an opinion whether it wants to refuse to receive or register the first‑mentioned document; section 1274(9) of the Act.

Significantly, the discretionary powers of section 1374(8) and (9) of the Act is at the time of lodgement and does not assist those seeking to withdraw the forms once lodged and reflected on ASIC's register.

What can ASIC do if there is an internal dispute about forms lodged on their register?

When there is a dispute between officeholders and/or members of small proprietary companies, unless it will result in a greater impact in the market and benefit the general public more broadly, ASIC will unlikely become involved.

ASIC can take action where there has been a breach of the Act, however this is an exercise of discretion as to whether they investigate a report of a potential breach.

A case example

In In the matter of Seabay Kitchen Pty Ltd [2019] NSWSC 790, the defendant caused the lodgement of two ASIC Form 484 forms, which changed the company details to remove the plaintiff as the sole director and sole shareholder of the company and replace the defendant as the sole director and sole shareholder. These forms were lodged with ASIC by the defendant unlawfully, and without the plaintiff's consent, using the company's corporate key.

McCabe Curwood acted for the plaintiff in these proceedings.

The plaintiff set out in her evidence that she did not resign as director or authorise the transfer of her shares in the Company to the defendant, and she submitted that the Forms 484 certified by the defendant and lodged with ASIC recorded a false account of the relevant transactions.

Black J, in regards to the validity of the two forms, held that the transactions were ineffective, in that:

  1. So far as the transfer of shares is concerned, section 1071B of the Act provides that a company may only register a transfer of securities if a proper instrument of transfer has been delivered to the company, in which his Honour was satisfied that there was no evidence of.
  2. His Honour was also satisfied that the plaintiff did not resign as a director of the Company and was not, and could not have been, removed as a director of the Company where she was its only shareholder and did not assent to her removal in a general meeting. The defendant also could not be appointed as director other than in accordance with the Company’s constitution or by resolution in a general meeting under the replaceable rule in section 201G of the Act where that rule is applicable, or in another manner authorised by the Act. There was no suggestion that any of these steps took place.
His Honour observed that what effectively took place was that the defendant, regardless of his intentions, procured the lodgement of Forms 484 with ASIC recording changes in shares and the directorship.  His Honour noted that this did not assist the defendant, as lodgement of such a form is not a means recognised by the Act for the transfer of shares, the removal of directors or the appointment of directors, as distinct from the notification of those events by lodging ASIC forms when the events otherwise validly occur.

The plaintiff sought for the Court to make an order under section 1322(4)(b) of the Act that the relevant Forms 484 lodged with ASIC be withdrawn from ASIC's register.

Black J noted that the Court has power to rectify the register where

"… the process leading to entry of the current information as to the directors, shareholders and registered office … was not properly founded by any corporate process and the register should be rectified on that basis. … [T]here is a public interest in the adoption of a proper process for changes in directors and shareholders and for notifications to ASIC of directors and shareholdings, which warrants rectification of the register …"

His Honour was thereby satisfied that the Court had power to rectify the register to correct the incorrect information included in the two invalid forms, and the forms were subsequently removed from ASIC's register.

Key takeaways

As was emphasised in Seabay, to ensure that invalid company details are removed from ASIC's register, it is necessary to show that every company change is in accordance with the company's constitution or the Act.

You should also ensure that your company's corporate key is secure and is only accessible by valid company officeholders. As occurred in Seabay, the ASIC forms were lodged using the company's corporate key on ASIC's online platform, which caused immediate changes to the company’s details. We note that new corporate keys can be requested by officeholders, so in the event of an internal dispute between directors, immediate injunctive relief may be required to prevent any further changes to ASIC's register.

As was found in Seabay and the more recent decision of In the matter of McDonagh Management Pty Limited [2019] NSWSC 1099, the Court is "increasingly dealing with the consequences of abuse of corporate keys", so safeguarding your corporate key is becoming ever more paramount to protect your company against unauthorised changes to ASIC's register.

McCabe Curwood's litigation and dispute resolution team has a great deal of knowledge and experience in relation to corporate disputes and applications under the Corporations Act. If you or your company require legal advice on any of the matters raised in this article, do not hesitate to get in touch with our firm today to ensure you and/or your company are adequately protected.

Contributors

Jennifer Bradley Lawyer