Supreme Court New South Wales

• Medium Neutral Citation: In the matter of ERB International Pty Limited (deregistered) [2014] NSWSC 200
• Hearing dates: 7 March 2014
• Decision date: 10 March 2014
• Jurisdiction: Equity Division - Corporations List
• Before: Brereton J

Decision

Order that the company be reinstated and that new liquidators be appointed

• Catchwords: CORPORATIONS - external administration - deregistration and reinstatement - application by former liquidator for reinstatement of company - whether just to order reinstatement - where purpose to bring claims against directors - where potential claims came to light in course of disciplinary proceedings against liquidator - where directors will retain ability to apply to stay or dismiss proceedings - question is justice of reinstatement, not of proposed proceedings - held, reinstatement would be just - whether former liquidator automatically resumes office - held, former liquidator does not automatically resume office on reinstatement - whether former liquidator should be reappointed - held, in the circumstances of this case, not appropriate to reappoint former liquidator - new liquidators appointed.
• Legislation Cited: (CTH) Corporations Act 2001, s 601AH
• Cases Cited: ACN 078 272 867 Pty Ltd (in liq) (formerly Advance Finances Pty Ltd) v Deputy Commissioner of Taxation; Binetter v Deputy Commissioner of Taxation [2011] HCA 46; (2011) 86 ALJR 4; (2011) 85 ACSR 247; AMP General Insurance Ltd v Victorian Workcover Authority [2006] VSCA 236; Australian Competition and Consumer Commission v Australian Securities and Investments Commission [2000] NSWSC 316; (2000) 174 ALR 688; 34 ACSR 232; Auzhair Supplies Pty Ltd (a deregistered company) and Auzhair 1 Pty Ltd, Re; Greenaway v Auzhair 1 Pty Ltd [2010] NSWSC 1339; (2010) 80 ACSR 538; Best v Yellow Express Carriers Ltd [2004] NSWSC 666; Binetter v Commissioner of Taxation [2011] FCA 1195; (2011) 198 FCR 49; Blazai Pty Ltd v Gateway Development (St Marys) Pty Ltd [2009] NSWSC 800; Brisbane South Regional Health Authority v Taylor (1996) 186 CLR 541; Brownlie v TTPM Pty Ltd [2003] NSWSC 480; (2003) 21 ACLC 1204; Casali v Crisp [2001] NSWSC 860; (2001) 165 FLR 79; Civil & Civic Pty Ltd v R W Bass Pty Ltd (1996) 20 ACSR 16; Deputy Commissioner of Taxation, Re; James Hardie Australia Finance Pty Ltd (deregistered) [2008] FCA 1181; (2008) 170 FCR 545; (2008) 67 ACSR 497; Donmastry Pty Ltd v Albarran [2004] NSWSC 632; (2004) 49 ACSR 745; Gorman v ASIC [2008] FCA 962; Herbert v Nozala Pty Ltd [2006] NSWSC 1437; JP Morgan Portfolio Services Ltd v Deloitte Touche Tohmatsu [2008] FCA 433; (2008) 167 FCR 212; (2008) 65 ACSR 636; Kenney v McCann (1992) 7 WAR 329; sub nom Re Steelmaster Pty Ltd (in liq) (1992) 10 ACLC 176; Murray Halstead v CTS Quality Building Products Pty Ltd (in liq) [2006] NSWSC 1022; Promnitz v ASIC [2004] FCA 22; Ramantanis v G&M Excavations Pty Ltd [2003] NSWSC 1250; (2004) 22 ACLC 22; Stone v ACN 000 337 940 Pty Ltd [2008] NSWSC 1058; (2008) 68 ACSR 242
• Texts Cited: McPherson, The Law of Company Liquidation (4th ed, 1999)
• Category: Principal judgment
• Parties: Pino Fiorentino (applicant); Australian Securities & Investments Commission (first respondent); Ali Hammoud and Manel Issa (second respondents)
• Representation: Counsel: T. J. Rickard (applicant); P. T. Russell (first respondent); B. DeBuse (second respondents); Solicitors: Kim Turner, Solicitor, ASIC (first respondent); Schofield King Lawyers Pty Ltd (second respondents)
• File Number(s): 2013/332730

Judgment

1 The company ERB International Pty Ltd went into liquidation pursuant to a creditors' voluntary winding up on 2 April 2008; its liquidators were the applicant Mr Fiorentino together with William James Hamilton. At the request of the liquidators, the company was deregistered on 24 January 2010. On 16 September 2011, the first respondent ASIC commenced investigating the liquidators' administration of the company, and on 12 June 2013 filed applications against each liquidator in the Companies Auditors and Liquidators Disciplinary Board (CALDB), alleging that they were not fit and proper to remain a liquidator. The proceedings against Mr Hamilton have been heard and a determination delivered; the question of penalty is to be determined on 11 March 2014. The proceedings against Mr Fiorentino were heard, ultimately in his absence, a further adjournment having been refused. The decision is reserved.

2 One of the allegations against Mr Fiorentino is that he failed properly to investigate potential voidable transactions and/or misappropriation of funds by the directors during the period between 9 August 2007 and 4 March 2008 pursuant to which the directors were paid $2 million and a related company was paid $609,832 from the company's funds. On 4 November 2013, Mr Fiorentino - having previously notified ASIC of his intention so to do, instituted these proceedings for the reinstatement of the company. Mr Hamilton has indicated that he does not wish to be reappointed as liquidator. ASIC, subject to a number of provisos, does not oppose the application, but opposes the reappointment of Mr Fiorentino as liquidator and tenders the consent of Messrs Simon Cathro and Phillip Campbell-Wilson of Ernst & Young to act as liquidators. Notice of the application has been given to those who, as a result of reinstatement, might be exposed to proceedings by the company [cf Casali v Crisp [2001] NSWSC 860; (2001) 165 FLR 79], and Mr Hammoud and Ms Issa, the former directors of the company, appear to oppose the application, essentially on the ground that it is not shown to be "just" that the company be reinstated.

3 Corporations Act 2001, s 601AH(2), provides that the Court may make an order that ASIC reinstate the registration of a company upon the application of "a person aggrieved" by the deregistration, or a former liquidator of the company, if the Court is satisfied that it is just that the company's registration be reinstated.

Standing

4 As the present applicant is a former liquidator of the company, he has standing as such to make the application, and it is not necessary to consider whether he is "a person aggrieved".

Would it be just to order reinstatement?

5 The provision that the court "may" order reinstatement if satisfied that it is "just" to do so has been said to confer a broad discretionary judgment on the Court. Relevant considerations include include the circumstances in which the company was de-registered, the purpose in seeking its re-instatement, whether any person is likely to be prejudiced by reinstatement, and the public interest generally [Australian Competition and Consumer Commission v Australian Securities and Investments Commission [2000] NSWSC 316, [27]-[28]; (2000) 174 ALR 688, 693; 34 ACSR 232; Promnitz v ASIC [2004] FCA 22, [19]-[20]; JP Morgan Portfolio Services Ltd v Deloitte Touche Tohmatsu [2008] FCA 433, [4]; (2008) 167 FCR 212; (2008) 65 ACSR 636; AMP General Insurance Ltd v Victorian Workcover Authority [2006] VSCA 236].

6 The company was deregistered at the request of the liquidators, who had in January 2009 entered into a deed of release with the directors under which they accepted $60,000 and gave a general release of all claims they and/or the company had or might have against the directors arising out of or in any way related to any of the affairs of the company (clause 3). The deed recited that the liquidators had formed the view that it was appropriate to publically examine the directors (recital F), and that there were undisclosed causes of action which could be investigated (recital I). There were no funds in the liquidation, and no dividend for creditors.

7 The purpose of seeking reinstatement is said to be to enable the liquidator to pursue claims against the former directors, for moneys allegedly taken by them from the company, amounting to some $3.24 million. At first sight, the deed of release stands in the way of any such proceedings. If, however, it were procured by fraudulent non-disclosure on the part of the directors, it might be set aside. Given the references in the deed to the liquidators' belief that there were undisclosed causes of action which could be investigated, such an application would not be without its difficulties. In such circumstances, evidence that the liquidators were unaware of any such cause of action would be important, and was lacking. The allegations contained in ASIC's Statement of Facts and Contentions against Mr Fiorentino in the CALDB are allegations, not proof; and even less so in these proceedings. If the test were whether a seriously arguable case had been established, the applicant would fail.

8 In Herbert v Nozala Pty Ltd [2006] NSWSC 1437, White J declined to reinstate a company where his Honour was not satisfied that the applicant was a "person aggrieved", as the claim upon which his standing depended was "speculative at best" and he would be estopped from asserting that he was the beneficial owner of the shares of which he was the legal owner. Alternatively, his Honour was not satisfied that reinstatement would be just, as even if not so estopped, the applicant had allowed the potential respondents to conduct the company's affairs for eleven years without making any claim that might alert them to the possibility that he might seek to claim a benefit from their endeavours, then failed to object to the deregistration, and then delayed in making an application to the court, during which delay a substantial number of company documents were routinely destroyed. It is notable that this was a case in which the person claiming to be aggrieved and seeking reinstatement was found to have engaged in conduct which created detriment to the other interested parties. It affords a good illustration of where reinstatement would be unjust.

9 In Blazai Pty Ltd v Gateway Development (St Marys) Pty Ltd [2009] NSWSC 800, Tamberlin AJ refused to reinstate a company for "several interrelated reasons", being first, the lengthy delay of the plaintiff in pursuing its alleged right, secondly the contingent and speculative nature of the proceeding proposed to be brought against the company's director, and thirdly the prejudice and difficulties likely to be faced by the director having regard to the lapse of time. As to the second, his Honour was of the opinion "on the material before me that the case [proposed to be brought against the director] is not reasonably arguable". However, I do not think his Honour was articulating a test, but was expressing one of several relevant considerations which, together, resulted in a conclusion that it would not be "just" to reinstate the company - again, in circumstances where delay by the applicant had created detriment to the respondent should the company be reinstated.

10 I accept that the applicant bears the burden of adducing evidence that persuades the court that reinstatement is "just". But on an application for reinstatement, the Court is concerned with the justice of reinstating the company - not the justice of any proceedings which it proposed that the reinstated company might institute or resume. This was emphasised by the Victorian Court of Appeal in AMP General Insurance Ltd v Victorian Workcover Authority [2006] VSCA 236, quoting (at [35]), without disapproval, the primary judge's statement:

The application for reinstatement is not the appropriate venue to deal with such matters, other than in the clearest of clear cases. If it were clear that the prospective action would be stayed as an abuse of process, then the reinstatement would be futile and the Court would not order it, either because it was not just to do so or in the exercise of the Court's residual discretion. That is not the position I am in. It is not clear to me that the prospective proceeding will be stayed as an abuse of process.

11 In dismissing the appeal, the Court of Appeal said (emphasis added):

[37] In our view, the attack on his Honour's exercise of discretion must fail. This is not a case where it can be said that the primary judge 'failed to take into account a relevant consideration", in the sense in which that category of discretionary error is defined. The relevant consideration was the (risk of) prejudice to AMP flowing from the reinstatement of the company, namely, that as the company's insurer AMP would be in the position of having to litigate (through the exercise of tis right of subrogation) a proceeding about a workplace accident which occurred very many years ago.

[38] As appears from the passages we have set out, his Honour recognised the relevance of the issue - indeed, he described it as the issue for decision. AMP's real complaint concerns his Honour's refusal to undertake the kind of assessment of the risk of prejudice which would take place on an application to dismiss the proceeding for want of prosecution or otherwise as an abuse of process.

12 Later, the Court expressed itself in terms that articulate the position that ordinarily the Court dealing with the reinstatement question should not address and weigh the various considerations bearing upon abuse of process/want of prosecution, that being a question for the court managing the substantive litigation; the only exception being where it can be said with certainty that a fair trial could not be had:

44 Were it possible to say with certainty even before the company was joined to the proceeding that a fair trial was impossible, then it might be that the only conclusion reasonably open was that reinstatement was not just. But it would be a rare case where a conclusion of that kind could be reached with confidence before the proceeding had even begun.

45 In our view, it will almost always be the appropriate course for the question of prejudice to a party to a proceeding to be assessed by the Judge (or Master) who has the management of that proceeding. Moreover, that assessment can really only be made after joinder of issue in the proceeding, at which point the Court can ascertain precisely what is in contest between the parties, who the witnesses will be, and how much reliance is to be placed on oral evidence on the one hand and documentary evidence on the other.

46 The forum of an application for reinstatement of a company is singularly inappropriate for such an investigation. The order for reinstatement is, in effect, purely administrative, albeit made in the exercise of a discretionary power. In all but the rare case to which we have referred, it is not for the Court dealing with the reinstatement question to deal with, and weigh up, the various considerations bearing upon abuse of process/want of prosecution. As already noted, that assessment involves examining not only the risk of prejudice to the defendant but the plaintiff's explanation for the delay.

13 It will be a very rare case that merely reinstating a company will be prejudicial to a potential defendant. That potential defendant still has available all the remedies of summary dismissal and stay in the substantive proceedings, if they are instituted. All he or she is deprived of is the opportunity to prevent the proceedings even being instituted - an issue on which a defendant usually has no say. In my view, a court should not, on a reinstatement application, conclude that reinstatement would be unjust on account of considerations analogous to abuse of process or want of prosecution unless affirmatively satisfied that a fair trial could not be had, or that the proposed proceedings were doomed to fail. Consistently with what the Victorian Court of Appeal said, such questions can usually only been addressed once the cause of action has been formulated and pleaded and the issues defined, and are best examined by the court in which the substantive proceedings are conducted.

14 In the present case, the evidence supporting the application is less than desirable. However, it demonstrates that transactions apparently worthy of investigation took place in the year or so prior to liquidation. There is evidence before the court on this application that, according to the company's accounts as at 30 June 2007, the company owed the directors $429,329; that on 9 August 2007, Mr Hammoud withdrew $1 million from the company's Westpac No 1 account and deposited the proceeds to his own Westpac No 1 Account; and that on 25 February 2008, Mr Hammoud withdrew $1,808,919 from the company's Westpac No 2 account and deposited $1 million to his Westpac No 2 Account.

15 Further, the evidence shows that disciplinary proceedings against both liquidators, founded inter alia on the allegation that they did not properly investigate those matters, have been prosecuted by ASIC to final hearings before CALDB, resulting in a determination on liability adverse to Mr Hamilton, and with Mr Fiorentino not participating in the final hearing of the application against him. This indicates that there is a seriously arguable case that the liquidators did not conduct an adequate investigation, where there were matters warranting investigation. Further investigation might establish that, notwithstanding the deed of release, there are potential worthwhile causes of action against the directors. If the deed of release poses an insuperable obstacle, the damages for loss to the administration, might be recoverable against the liquidators. (While this latter possibility was not a basis for reinstatement advanced by the applicant, it illustrates that there may well be benefit to the creditors in reinstatement, even if proceedings against the directors are not pursued, in an alternative route of recovery).

16 Reinstatement will not necessarily result in the institution of proceedings against the directors, or the liquidators. But it will enable the possibility of such proceedings to be investigated. If it emerges that it appears that the directors have taken funds of the corporation before it went into liquidation, and fraudulently did not disclose the true position to the liquidator, then the deed of release may be vulnerable. And in any event, the directors will retain the ability to plead the deed of release, and to make any appropriate application for summary dismissal or a stay. The only prejudice from reinstatement will be the loss of the ability to preclude the institution of proceedings in limine, a benefit to which they have no legal right (as they had no legal right to insist on deregistration).

17 While reference was made, in submissions on their behalf, to the possibility of prejudice from the passage of time, and while I do not overlook the generally prejudicial effect of delay [Brisbane South Regional Health Authority v Taylor (1996) 186 CLR 541, 551 (McHugh J)], no specific prejudice was identified. The directors would, in the event of reinstatement, be able to agitate any such prejudice on an application for stay or dismissal of the proceedings. In essence, the point is that any prejudice to the directors will be occasioned not by the reinstatement of the company per se, but by delay in the institution of the proposed proceedings against them.

18 In my judgment, public policy favours reinstatement of the company, in order to enable the matters to which I have referred to be investigated, and potential causes of action to recover funds for the benefit of the creditors to be explored.

19 I am, therefore, satisfied that it is just that the company's registration be reinstated.

Does the former liquidator automatically resume office?

20 That leaves for resolution whether Mr Fiorentino or some other liquidator should be appointed. There is some controversy in the authorities as to the effect of a reinstatement order in the context of a company in liquidation, so far as concerns the status of the liquidator. All agree that a company in liquidation, upon a reinstatement order being made, continues in liquidation. However, there is disagreement as to whether the former liquidator automatically resumes the office of liquidator (as is the case with directors). Section 601AH(5) provides as follows:

If a company is reinstated, the company is taken to have continued in existence as if it had not been deregistered. A person who was a director of the company immediately before deregistration becomes a director again as from the time when ASIC or the Court reinstate the company. Any property of the company that is still vested in the Commonwealth or ASIC revests in the company. If the company held particular property subject to a security or other interest or claim, the company takes the property subject to that interest or claim.

21 It is significant, as the cases indicate, that while the subsection makes provision for a former director to resume office, it does not make provision for a former liquidator to do so - notwithstanding that subsection (2)(b) expressly confers standing to make an application on a "former liquidator".

22 The following statement in McPherson, The Law of Company Liquidation (4th ed, 1999) (at 678) was influential in earlier cases on this point under s 601AH:

It is likely that, as under the previous law, if a company that is reinstated had been wound up, the liquidator would be restored to of office on reinstatement, if not released before deregistration.

23 For that proposition, the author cited Kenney v McCann (1992) 7 WAR 329; sub nom Re Steelmaster Pty Ltd (in liq) (1992) 10 ACLC 176; and Civil & Civic Pty Ltd v R W Bass Pty Ltd (1996) 20 ACSR 16. In Kenney v McCann, Owen J in the Supreme Court of Western Australia held that a company which had been dissolved upon completion of a voluntary liquidation would, upon the dissolution being declared void, be reinstated as a company in voluntary liquidation. While his Honour did not find it necessary to make a fresh appointment of a liquidator, he nonetheless included in his orders directions as to what the liquidator might do. In Civil & Civic, Olney J in the Federal Court of Australia concluded that where the liquidator in a court-ordered winding up had been released by order at the time of the dissolution, he no longer held office, and that in those circumstances it was necessary to appoint a new liquidator. As has been pointed out in later cases, those cases dealt with legislation and concepts not identical to s 601AH(5) - specifically, declaring a dissolution void.

24 The view that the liquidator automatically resumes office upon reinstatement of the company is supported by observations of Austin J in Australian Competition & Consumer Commission v Australian Securities and Investments Commission [2000] NSWSC 316; (2000) 174 ALR 688; (2000) 34 ACSR 232. His Honour said (at [49]):

A company may be deregistered in various circumstances set out in Chapter 5A of the Corporations Law. The deregistration may follow a winding up (s601AC(1)(c)), but it may occur in cases where no process of liquidation is on foot. Reinstatement puts the company back into the position in which it stood immediately before the deregistration occurred. If the company was under the control of its directors, reinstatement returns the company into their hands. If it was under the administration of a liquidator, reinstatement returns the company to the liquidator. The liquidator's continuation in office is then governed by Pt5.5 of the Corporations Law.

25 The same view was espoused by Hamilton J in Brownlie v TTPM Pty Ltd [2003] NSWSC 480; (2003) 21 ACLC 1204:

[3] Curiously, the question of the status of a company restored to the register which was in liquidation when it was removed is not entirely clear, although restoration of deregistered companies is a common occurrence. Prior to 1998 there were two procedures by which a company left the register. The first was dissolution, which was the formal act at the end of a winding up. Usually associated with dissolution was the release of the liquidator, which had the effect of the liquidator leaving office. The other method was administrative deregistration, which was used in the case of companies which, whether in liquidation or not, had simply become defunct and ceased to function. In 1998, the process of dissolution was abolished and, since then, there has been only one process for the removal of companies from the register, being deregistration, which is used even where a winding up has been completed. The company was deregistered in 2001 under this uniform procedure.

26 His Honour then referred to the statement in McPherson, set out above, and the authorities cited for it, and continued:

[5] In my view, the statement made by the learned editors of McPherson on Company Liquidation and cited above is correct. I rely on that authority and also on the words of s 601AH(2) that the Court "may make an order that ASIC reinstate the registration of a company". The import of those words appears to be that the company is put back on the register in precisely the state in which it left it.

27 Later cases have cast doubt on the proposition that the effect of reinstatement is to return the company to the precise position in which it was before deregistration: as will be seen, the section provides that the company continues in existence, but says nothing as to its form. In any event, as the current legislation continues to enable a liquidator to obtain a release prior to deregistration, it is difficult to see how a liquidator having been released would be automatically returned to office on reinstatement.

28 The view that the liquidator did not automatically resume office on reinstatement was doubted by Barrett J, as his Honour then was, in Ramantanis v G&M Excavations Pty Ltd [2003] NSWSC 1250; (2004) 22 ACLC 22. As his Honour's judgment articulates many of the considerations, and has been influential and cited extensively in later cases, it is appropriate to quote it in some detail:

[5] There is, however, one point that requires attention. Each company was, at the time of deregistration, in liquidation, in one case by way of winding up by the court and in the other under a creditors voluntary winding up. Section 601AH(5) says that, if a company is reinstated, it is taken to have continued in existence as if it had not been deregistered. In Brownlie v TTPM Pty Ltd (2003) 21 ACLC 1204, Hamilton J held that reinstatement of the registration of a company which had at the time of deregistration been in liquidation brought the company back to life in such a way that the continuity effected by s 601AH extended not only to its status as a company in liquidation but also so that the liquidator was still in office, with the result that it was unnecessary to reappoint that liquidator. His Honour approved the following statement at p 678 of the fourth edition (1999) of McPherson's "The Law of Company Liquidation":

It is likely that, as under the previous law, if a company that is reinstated had been wound up, the liquidator would be restored to office on reinstatement, if not released before deregistration.

[6] The cases cited by the learned author of McPherson in support of that proposition are Re Steelmaster Pty Ltd (1992) 6 ACSR 495 and Civil & Civic Pty Ltd v R W Bass Pty Ltd (1996) 20 ACSR 16. But, as the text indicates, they were cases under earlier legislation, being s 571 of the Corporations Law as it stood before the commencement of the Company Law Review Act 1998 which repealed that s 571 and inserted ss 601AA to 601AH which make up the present Ch 5A. Dealing with the case where a company had been dissolved under the former s 481(6) or 509(5) (each of which was also superseded by the Act of 1998), the former s 571 empowered the court to make an order "declaring the dissolution to have been void". That concept is to be contrasted with that embodied in the present s 601AH. The concept reflected by the present legislation is one of reinstatement of registration carrying with it a deemed continuity, under s 601AH(5), of the company's existence (no doubt with the attributes it possessed at the time of deregistration) but without, it seems, all the other consequences that would follow if the cessation of the company's existence was simply made "void", as under the former s 471.

[7] I have doubts about the applicability of the earlier case law to produce, under the current provisions, the result referred to by Hamilton J. This is because of part of the current s 601AH which, after referring to the deemed continuity of existence, says:

A person who was a director of the company immediately before deregistration becomes a director again as from the time when ASIC or the Court reinstates the company.

This suggests that, in the case of a director, the deemed continuity of existence of the company is not sufficient to cause a director to resume his former position upon reinstatement of the registration. It seems to be recognized that, if the company's existence comes to an end, so too does the tenure of each person who is then as a director: hence the need to have the statute cause each such person to become a director again. By like reasoning, it may well be that a reinstatement order, combined with the statutory deeming of continuity of existence of the company, is not sufficient to cause a liquidator in office at the time of deregistration to go back into office automatically on reinstatement of the company's registration.

29 However, his Honour also stated that as a matter of policy, a pre-existing undischarged liquidator should resume office upon reinstatement, and power to effect this was to be found in the power of the Court in s 601AH(3)(b), when making an order for reinstatement, to make "any other order it considers appropriate":

[8] As a matter of policy, however, a pre-existing and undischarged liquidator should resume office upon reinstatement of registration. Section 601AH(3)(b) empowers the court to make "any other order it considers appropriate", when making an order for reinstatement. I consider that that provides a suitable means of dealing with a situation where, as here, a liquidator was in office at the time of deregistration. The plaintiff has, in each case, approached the person who was the liquidator at the time the company was deregistered and has tendered a letter from that person. In each case, the person is content to continue as liquidator if the registration is reinstated, subject to protection in relation to costs. The plaintiff has also produced a consent to act signed by another official liquidator in relation to each company.

[9] In view of the continuity that s 601AH(5) is intended to produce (which, in my view, entails continuity of that aspect of the company's characteristics which causes it to be in the course of winding up), the orders that the court makes should, in each case, put beyond doubt the ongoing tenure of the original liquidator. There are detailed provisions in the Act as to the resignation and replacement of liquidators. If a new liquidator is to be substituted, those provisions should be observed.

30 Barrett J adhered to and reiterated those views in Donmastry Pty Ltd v Albarran [2004] NSWSC 632; (2004) 49 ACSR 745. However, in circumstances where the former liquidator did not wish to continue in office and consented to another being appointed, and this accorded with the wishes of the creditors that a new liquidator review matters, his Honour made orders appointing a new liquidator.

31 In Best v Yellow Express Carriers Ltd [2004] NSWSC 666, Young CJ in Eq, as he then was, appears to have adopted the McPherson approach, saying (at [4]) that as the company was in voluntary winding up rather than court ordered winding up, there had never been an order discharging the liquidator so that Civil & Civic Pty Ltd v R W Bass Pty Ltd did not apply and it would seem that if the company was restored the former liquidator would continue to be the liquidator. However, as the former liquidator had shown no interest in the matter, sufficient cause was shown under s 503 to remove that liquidator and appoint another, as "a mere matter of expediency in the interests of the company and its creditors". His Honour does not appear to have been referred to the other authorities mentioned above.

32 In JP Morgan Portfolio Services Ltd v Deloitte Touche Tohmatsu [2008] FCA 433; (2008) 167 FCR 212; (2008) 65 ACSR 636; Stone J in the Federal Court of Australia, after referring to the above authorities (other than Best v Yellow Express), said (at [10]):

I respectfully agree with Barrett J as to the implication to be drawn from the fact that s 601AH(5) specifically provides for the continuity of directors of a re-registered company. In my view the better construction of the subsection is that on re-registration of a company the liquidator who was in office at the time of his deregistration is not automatically reinstated and therefore, it is necessary for the Court to make a new appointment to take effect on re-registration.

33 However, conformably with what Barrett J had said, her Honour also expressed the view that "all other things being equal, it is preferable that the same liquidator be appointed".

34 In Gorman v ASIC [2008] FCA 962, Jacobson J (at [5]) referred to Australian Competition and Consumer Commission v Australian Securities and Investments Commission; Ramantanis v G and M Excavations; Murray Halstead v CTS Quality Building Products Pty Ltd (in liq) [2006] NSWSC 1022 (at [12]); and JP Morgan Portfolio Services Ltd v Deloitte Touche Tohmatsu, observing that with the exception of Austin J's decision in ACCC v ASIC, all supported the proposition that on reinstatement, the liquidator who was in office at the time of deregistration is not automatically reinstated. However, without deciding the question, his Honour followed Best v Yellow Express (at [8]):

It follows, in my view, that the appropriate course is not to seek to express any view as to the difference of opinion which has emerged in the cases to which I have referred, but, rather, to follow the expedient and practical course endorsed by Young CJ in Eq.

35 In Deputy Commissioner of Taxation, Re; James Hardie Australia Finance Pty Ltd (deregistered) [2008] FCA 1181; (2008) 170 FCR 545; (2008) 67 ACSR 497; Lindgren J reached the same conclusion as had Stone J in JP Morgan:

[6] ... As noted earlier, upon deregistration JHAF ceased to exist. Clearly, Mr Green is no longer in office as its liquidator. It is therefore not quite appropriate to speak of his being "replaced". Although I reached this view before becoming aware of Stone J's decision in JP Morgan Portfolio Services Ltd v Deloitte Touche Tohmatsu [2008] FCA 433; (2008) 167 FCR 212, I note that it is totally in conformity with her Honour's.

[7] Section 601AH(5) provides expressly that upon a reinstatement, a person who was a director immediately before the reinstatement "becomes a director again as from the time when ASIC or the Court reinstates the company". The existence of this provision suggests, first, that in the absence of such a provision persons in office at the time of deregistration are not automatically reinstated, and, second, that all that is at issue is whether a person should be appointed to an office as from the time of the reinstatement.

36 In Stone v ACN 000 337 940 Pty Ltd [2008] NSWSC 1058;(2008) 68 ACSR 242; Barrett J endorsed Stone J's statement that all other things being equal, the previous liquidator be reappointed:

[24] Immediately before deregistration, however, Rigby Jones was subject to members voluntary winding up. A liquidator was in office. If and when reinstated, the company will again be a company in liquidation. However, the person who was the liquidator at the time of deregistration will not resume office as liquidator upon reinstatement: see J P Morgan Portfolio Services Ltd v Deloitte Touche Tohmatsu [2008] FCA 433 ; (2008) 65 ACSR 636 and cases there discussed. It will be necessary, therefore, that a liquidator be appointed. This is another aspect of stewardship.

[25] Generally speaking, it is desirable that the previous liquidator be put back into office: J P Morgan Portfolio Services Ltd v Deloitte Touche Tohmatsu (above), Ramantanis v G & M Excavations Pty Ltd [2003] NSWSC 250 ; (2004) 22 ACLC 22; Gorman v Australian Securities and Investments Commission [2008] FCA 962. As Stone J said in the J P Morgan case at [10]:

[A]ll other things being equal, it is preferable that the same liquidator be appointed.

[26] And as was said in the Ramantanis case at [8], s 601AH(3)(b) provides a basis for appointing a liquidator upon reinstatement where a liquidator was in office at the time of deregistration.

37 The power to make such an order appointing a liquidator under s 601AH(3)(b) was also invoked by Ward J, as her Honour then was, in Auzhair Supplies Pty Ltd (a deregistered company) and Auzhair 1 Pty Ltd, Re; Greenaway v Auzhair 1 Pty Ltd [2010] NSWSC 1339; (2010) 80 ACSR 538 (at [83]):

The court may appoint the liquidator with effect from the company's reinstatement (J P Morgan Portfolio Services Ltd v Deloitte Touche Tohmattsu (2008) 167 FCR 212 and see other authorities cited in Austin & Black at [85,161]).

38 Stone J returned to the matter in Binetter v Commissioner of Taxation [2011] FCA 1195; (2011) 198 FCR 49, stating that s 601AH(5) provides for continuity of existence not continuity of form, although in the absence of any contrary order, continuity in form would follow reinstatement:

[21] Counsel for Mr Binetter, Ms R Seiden, submitted that s 601AH(5) provides that when a company is reinstated "it is deemed to come back in existence in the form it was in before it was deregistered". That is not, in fact, what the section says. It states:

...

[22] It can be seen that the section provides for continuity of existence not continuity of form however, in the absence of any contrary order, continuity in form would follow reinstatement. For example, in Ramantanis v G & M Excavations (2004) 22 ACLC 22 the Supreme Court of New South Wales held that a company that had been in liquidation at the time it was deregistered continued in liquidation on reinstatement. In relation to the position of liquidator, Barrett J observed that the reinstatement of the company might well be insufficient to reinstate automatically the liquidator who held office at the time of deregistration. ...

[23] In JP Morgan Portfolio Services Ltd v Deloitte Touche Tohmatsu [2008] 167 FCR 212 at [7]-[9] I discussed the conflicting authorities on the question of automatic reinstatement of a liquidator. In [10] I expressed my preference for the construction propounded by Barrett J in Ramantanis and Donmastry Pty Ltd v Albarran (2004) 49 ACSR 745 over that in Brownlie v TTPM Pty Ltd (2003) 21 ACLC 1,204. In Ramantanis the court was satisfied by the evidence that in each case the person who was the liquidator at the time the company was deregistered had agreed to continue as liquidator on reinstatement. The orders for the liquidator to continue were made at the same time as the order for reinstatement. There was no suggestion that on reinstatement the company was without a liquidator even for an instance. In fact the court took care to ensure that all details concerning the continuity of the liquidator, such as consent, were attended to before making the orders.

39 Her Honour's view was echoed by Heydon J in the High Court of Australia in ACN 078 272 867 Pty Ltd (in liq) (formerly Advance Finances Pty Ltd) v Deputy Commissioner of Taxation; Binetter v Deputy Commissioner of Taxation [2011] HCA 46; (2011) 86 ALJR 4; (2011) 85 ACSR 247 (at [41]):

There is one other argument of the plaintiffs which should be referred to. The plaintiffs submitted that s 601AH(5) provides that when a company is reregistered it comes back into existence in the same form as it was on deregistration. The plaintiffs relied on JP Morgan Portfolio Services Ltd v Deloitte Touche Tohmatsu. In fact s 601AH(5) does not provide that the company comes back into existence in the same form. Rather it provides that it is taken to have continued in existence as if it had not been deregistered. That does not preclude a court order being made so that its new form will differ from its old in that its new form will be as a company in liquidation.

40 In my view, it can now be said that reinstatement does not result in the automatic resumption of office by a liquidator who was in office at the time of deregistration. The effect of reinstatement is that the company is taken to have continued in existence as if it had not been deregistered, not that it comes back into existence in the same form. However, upon the reinstatement of a company that was at the time of deregistration in liquidation, it remains in liquidation unless the court otherwise orders. Under s 601AH(3)(b), the court can, when ordering reinstatement, reappoint the former liquidator, or appoint a new liquidator. While, all other things being equal, reappointment of the former liquidator is preferable, it will not be the appropriate course where there are considerations militating against that course.

Should Mr Fiorentino be reappointed?

41 Here, all other things are not equal. First, there are serious contentions, advanced by ASIC, that Mr Fiorentino did not diligently conduct the administration, and is not fit to remain a liquidator. He did not participate in the final hearing of the disciplinary proceedings against him, although he has brought proceedings in the Federal Court to impugn the disciplinary proceedings. I venture no view and make no finding whatsoever in respect of the merits of the case against him, but those facts of themselves suggest that there is a not insignificant prospect that he would have to be replaced in the not distant future. It would be undesirable to expose the reinstated company to that uncertainty and potential disruption.

42 Secondly, in the disciplinary proceedings, Mr Fiorentino gave an undertaking not to accept any new appointments until the determination of those proceedings. That undertaking was given in connection with an adjournment of the disciplinary proceedings, at a time when the current application was already on foot and known to ASIC. I do not need to, and do not, determine whether it would be a contravention of the undertaking for Mr Fiorentino to be reappointed to this company, where his application for reinstatement was already on foot when the undertaking was given. It suffices that the undertaking recognised that it was appropriate that he refrain from accepting new appointments while his status remained under investigation. That tells against reappointing him here.

43 Thirdly, as I have foreshadowed, upon reinstatement, while one line of investigation may be potential actions against the directors, another may well be the potential liability to the company of Mr Fiorentino and Mr Hamilton. Mr Fiorentino would not be able impartially to pursue that line of inquiry.

Conclusion

44 My conclusions may be summarised as follows. It is just that the company's registration be reinstated. Upon reinstatement, the former liquidator does not automatically resume office and the court may under s 601AH(3)(b) reappoint the former liquidator or appoint another liquidator. In this case, having regard to the serious possibility that he may have to be replaced, the appropriateness of his not accepting new appointments while the disciplinary proceedings are unresolved, and the difficulties he would encounter in impartially evaluating whether the company should pursue the directors or the former liquidators, it would not be appropriate to reappoint Mr Fiorentino; new liquidators should be appointed.

45 As to costs, it seems to me that although Mr Fiorentino has succeeded only in part, he brought the application in the interests of the company and its creditors. The directors' opposition has substantially failed, but added little to Mr Fiorentino's costs. ASIC has succeeded on the issues raised by it. In principle, Mr Fiorentino's costs, other than those attributable to seeking his own reappointment, and those attributable to the opposition of the directors, should be costs in the liquidation. To the extent that his costs were increased by their intervention, the directors should pay his costs. Mr Fiorentino should pay ASIC's costs. To give effect to that, I propose to order that Mr Fiorentino's costs assessed in the sum of $8,750 be costs in the liquidation; that Mr Hammoud and Ms Issa pay Mr Fiorentino's costs in the sum of $1,250; and that Mr Fiorentino pay ASIC's costs in the sum of $3,000, but I shall afford the parties an opportunity to apply for different orders.

46 The Court orders that:

(1) Pursuant to Corporations Act, s 601AH(2), ASIC reinstate the registration of the company ERB International Pty Limited (in liquidation) (deregistered) ACN 088 055 538.

(2) Pursuant to Corporations Act, s 601AH(3)(b) and (d), Simon Cathro and Phillip Campbell-Wilson of Ernst & Young be appointed liquidators of the company.

(3) The applicant Mr Fiorentino's costs assessed in the sum of $8,750 be costs in the liquidation.

(4) The second respondents Mr Hammoud and Ms Issa pay the applicant's costs in the sum of $1,250.

(5) The applicant pay the first respondent ASIC's costs in the sum of $3,000.

(6) Orders (3), (4) and (5) not take effect until 17 March 2014 or, if by then a motion seeking different costs orders has by then been filed, until the determination of such motion.

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Decision last updated: 10 March 2014