Is it Just? Federal Court of Australia considers whether to reinstate a deregistered company and whether the deregistration itself prevented the proposed plaintiff from filing within the limitations period

In deciding whether to reinstate a deregistered company (and suspend a limitation period to allow the company to commence proceedings), the primary question for the court is whether it is just to do so. In the recent decision of the Federal Court in Price, in the matter of Advanced Polymer Recycling Pty Ltd v Australian Securities and Investments Commission [2022] FCA 20, the court found this requires consideration of whether, practically speaking, the deregistration of the company had prevented the Plaintiff from instituting proceedings they otherwise would have brought.

Relevantly:

• The Plaintiff, Garry Price, was a former company director and shareholder of Advanced Polymer Recycling Pty Ltd (APR).
• Mr Price made an application pursuant to s 601AH(2) of the Corporations Act 2001 (Cth) (Act) to reinstate APR, so that the company could bring a claim against the Commonwealth Government
• The Plaintiff also sought an order, pursuant to s 601AH(3) of the Act, that the period between the date of APR’s deregistration and the date of reinstatement should not count toward the relevant limitation of actions timeframe.
• The Defendant – the Australian Securities and Investments Commission (ASIC) – did not oppose the application, provided certain administrative conditions were met.

Background

The Plaintiff’s claim against the Commonwealth was for actions in negligence and breach of contract regarding a research and development agreement (Agreement) between APR and AusIndustry. AusIndustry was part of the Department of Industry, Science, Energy and Resources (DITR) and interalia, provided grants to businesses.

• APR and AusIndustry entered into the Agreement in either March 2003 or 12 January 2004.
• In mid-2005 to early 2006, DITR received allegations APR’s grant funds were not being used to support project research and development and APR did not own the IP required to develop the project. DITR initially engaged Ernst and Young to investigate the allegations, before reporting them to the Australian Federal Police (AFP). The AFP interviewed bankers, suppliers and customers of APR and indicated the company was being investigated. AFP subsequently raided the premises of APR and its two directors and referred a brief of evidence to the Commonwealth Director of Public Prosecutions (CDPP).
• Over the next 2 years, APR had a receiver appointed, the Plaintiff and his co-director were declared bankrupt and no replacement directors were appointed. APR was deregistered by ASIC on 25 May 2008.

In February 2009 the CDPP decided no charges would be laid against APR or its directors. In August the following year, the Plaintiff was discharged from bankruptcy. He gave evidence that at that time, he didn’t know nor was advised APR could be reinstated but was told to seek redress via other means. From this point:

• The former directors commenced proceedings in the Federal Court against the Commonwealth in September 2013. Proceedings were discontinued in 2014 after the applicants did not file an amended statement of claim;
• The Plaintiff received legal advice in 2014 that he could make an application to have the proceedings reinstated but would have to amend the statement of claim to bring proceedings on behalf of APR, not the former directors. The Plaintiff gave evidence he did not have the financial means to make such an application at that time.
• Between 2014 and 2017 the Plaintiff explored other avenues to seek redress against the Commonwealth which for our purposes do not require further consideration.

In November 2019, the Plaintiff applied to ASIC to have APR reinstated. The application was refused because at deregistration both directors were disqualified from managing a corporation, leaving it with no officeholders. ASIC advised the Plaintiff he could make an application for reinstatement to the Court. In his subsequent application, the Plaintiff gave evidence he believed APR had a valid and substantial claim – upwards of $150 million – against the Commonwealth, alleging the investigations carried out had undermined APR’s relationships with banks and clients, causing it to suffer substantial loss and ultimately led to receivership. If the claim was successful, APR would have a large surplus of assets.

Key provisions

The key provisions considered were subsections 601AH(2), 601AH(3) and 601AH(5) of the Act.

Relevantly s 601AH(2) of the Act states the Court can order ASIC to reinstate the registration of a company if (a) an application is made by a person aggrieved by the deregistration and (b) the Court is satisfied it is just the company’s registration be reinstated.

Pursuant to s 601AH(3) of the Act, if a company is reinstated, the Court may validate anything done during the period of deregistration.

If a company is reinstated, s 601AH(5) of the Act states the company is taken to have continued in existence as if it hadn’t been deregistered. A person who was a director immediately before deregistration is reinstated as such; any company property vested in the Commonwealth or ASIC revests in the company; any security, interest or claim attached to company property remains.

His Honour Justice Moshinsky explained s 601AH is a broad provision and provides the court with a wide discretion. In deciding whether to reinstate a company a court will weigh up the circumstances in which it was deregistered, what good could be made from reinstating it, whether anyone would be prejudiced by reinstatement and whether reinstatement is in the public interest.

His Honour said while s 601AH(3) allows a court to order the suspension of a limitation period between deregistration and reinstatement, the relevant consideration whether to exercise this power is, practically speaking, has the deregistration prevented the company from instituting proceedings it otherwise would have brought.

Court’s findings

Section 601(2) – person aggrieved?

The Court was satisfied the Plaintiff, as an APR shareholder, would benefit from any successful claim against the Commonwealth and was a person aggrieved.

Section 601(2) – is re-registration ‘just’?

The Court found the Plaintiff had failed to provide a full and proper account of the circumstances in which APR was deregistered, including why no new directors were appointed following their respective bankruptcies, why APR did not comply with its obligation to pay registration fees or whether APR failed to comply with any other obligations.

In deciding whether good use could be made of an order for reinstatement, here, the main purpose of reinstatement was a claim against the Commonwealth – a claim the Court described as weak but arguable.

Before concluding whether reinstatement was just, the Court first considered the likely expiration of the limitation period which was alleged to be 12 years, expiring in May 2018.

In deciding whether the period between May 2018 and reinstatement should count toward the limitation period the Court considered the practical effect of the deregistration and whether it prevented the Plaintiff from instituting proceedings they otherwise would have brought, before the limitation period expired.

The Court noted that despite the Plaintiff’s lack of knowledge that APR could be reinstated at the time he was discharged from bankruptcy, there was no evidence a claim in APR’s name was being contemplated then. Therefore, it could not be established the deregistration had any effect on the failure to bring a claim at that time.

In 2014, the Plaintiff was aware of the need to commence proceedings in APR’s name but, given his financial circumstances at that time, arguably he would have been prevented from doing so even if APR had been re-registered. In the absence of further explanation, it was unclear whether the deregistration itself was central to the failure to bring a claim.

The Court acknowledged deregistration may have prevented the Plaintiff from bringing a proceeding for part of the deregistration period. In mid-2017 the Plaintiff received legal advice he should make an application to reinstate APR. The Plaintiff may have had access to pro-bono or reduced-fee representation and conceivably could have commenced proceedings had APR not been deregistered. However, there was insufficient evidence presented to the Court to support this suggestion.

In short, the Court found the Plaintiff had not provided any clear evidence to support the view that but for the deregistration, a proceeding would have been commenced in APR’s name, prior to the expiry of the limitation period.

In addition, the lack of clarity about the circumstances in which the company was deregistered, the weakness of the proposed claim and the likelihood the limitation period had expired meant the Court was not satisfied it was ‘just’ to make an order reinstating the company.

The Application for orders to reinstate the company and suspend the limitation period was dismissed.

Conclusion

In considering whether to reinstate a deregistered company (and seek to suspend the running of a limitation period), the primary consideration for the Court is whether it is just to do so. This requires an assessment of a host of factors, relevant to the particular circumstances.

In considering whether to suspend a limitation period, the Court will look at the practical effect of the deregistration and whether it was the deregistration itself which prevented the proposed Plaintiff from instituting proceedings they otherwise would have brought.

Authored by:

Scott Couper, Partner
Jessica Lawrence, Graduate