Federal Court Reinstates Company for Contribution Claim

OUTCOME: Allowed

IN THE FEDERAL COURT OF AUSTRALIA [APPELLANT] No NG 3550 of 1995

[APPELLANT]: [APPELLANT] Applicant -and- [RESPONDENT] Respondent Coram: [APPELLANT] J Place: Melbourne (Heard in Sydney) Date: 17 April 1996 [APPELLANT] THE [APPELLANT] the proceeding stand adjourned sine die. [APPELLANT] 1. the parties confer with a view to reaching agreement on the form of the orders [APPELLANT] should be made to give effect to the reasons for judgment published this day; 2. the parties have leave if so advised to make further submissions in writing; 3. the proceeding be relisted for the making of final orders upon the written request of either party.

NOTE: Settlement and entry of orders is dealt with in rule 36 of the Federal Court Rules.

[APPELLANT] Applicant -and- [RESPONDENT] Respondent Coram: [APPELLANT] J Place: Melbourne (Heard in Sydney) Date: 17 April 1996

REASONS FOR

JUDGMENT THE PROCEEDING On 29 September 1995 the applicant ([APPELLANT[NAME]) commenced this proceeding seeking, inter alia, an [APPELLANT] pursuant to s 571 of the [APPELLANT] the dissolution of [RESPONDENT] ([NAME]. [RESPONDENT]) be declared void. Other relief is also sought. It would probably have been more appropriate if the application had been made in the proceeding in which the [APPELLANT] for dissolution was made but as it happens all the necessary parties are before the Court and no objection has been raised as to the form of the proceeding. On 3 November 1995 leave was granted to amend the application which now seeks the following orders pursuant to s 571 and s 471B of the Corporations Law:

1. [APPELLANT] the dissolution of [NAME]. [RESPONDENT] on 4 March 1994, pursuant to a court [APPELLANT] made under section 481(6) of the Corporations Law, be declared void. 2. [APPELLANT] the declaration sought in paragraph 1 have retrospective effect and [APPELLANT] the dissolution of [NAME]. [RESPONDENT] is void ab initio. 3. [APPELLANT[NAME] be granted leave to commence proceedings No 20390 of 1994 in the Supreme Court, [APPELLANT] such leave take effect from 21 June 1994. The amended application asserts [APPELLANT] the nature of [APPELLANT[NAME]'s interest is as a contingent creditor of [NAME]. [RESPONDENT] and [APPELLANT] it relies upon the following grounds: a) [APPELLANT[NAME] is a contingent creditor of [NAME]. [RESPONDENT]; b) [NAME]. [RESPONDENT] is insured; and c) To take advantage of such insurance it is necessary [APPELLANT] [NAME]. [RESPONDENT] be reinstated. Subsequently, on 7 December 1995 [APPELLANT[NAME] filed a notice of motion seeking orders, inter alia: 1. [APPELLANT] [[APPELLANT[NAME]] be granted leave nunc pro tunc to commence proceedings numbered 20390 of 1994 in the Supreme Court, Common Law Division against [RESPONDENT] (in liquidation) and [APPELLANT] such leave take effect from 21 June 1994.

2. Further, or in the alternative, [APPELLANT] [[APPELLANT[NAME]] be granted leave to proceed with proceedings numbered 20390 of 1994 in the Supreme Court, Common Law Division against [RESPONDENT] (in liquidation) notwithstanding [APPELLANT] such proceedings were commenced on 21 June 1994 without leave. 3. [APPELLANT] all steps already taken and taken hereafter in those proceedings be valid notwithstanding the [APPELLANT] for winding up and notwithstanding [APPELLANT] such proceedings were commenced without leave on 21 June 1994, and [APPELLANT] those proceedings proceed to judgment notwithstanding the [APPELLANT] for winding up and notwithstanding [APPELLANT] such proceedings were commenced without leave on 21 June 1994. The amended application and motion were heard together on 5 March 1996. On 12 December 1995 [NAME] [RESPONDENT] filed an appearance "on behalf of the respondent". Clearly at [APPELLANT] time, and indeed throughout the present proceeding, "the respondent" ([NAME]. [RESPONDENT]) had no legal or other existence. The appearance has in the circumstances been treated as an appearance in the interests of [COMPANY] ([COMPANY]) [NAME]. [RESPONDENT]'s insurer at the relevant time. In the event [APPELLANT] the Court declares the dissolution of [NAME]. [RESPONDENT] void, it will regain the status it had at the time the [APPELLANT] for dissolution was made, namely a company in liquidation.

Accordingly, before the applicant can proceed further against it in the action referred to in the amended application and the notice of motion it will require leave in accordance with s 471B of the Corporations Law. THE DISSOLUTION OF [NAME]. [RESPONDENT] [NAME]. [RESPONDENT] was incorporated in South Australia under the Companies Act 1962-1981 (SA) on 8 April 1982. On 14 April 1992 [NAME] ([APPELLANT] made application in the Federal [APPELLANT] for it to be wound up pursuant to s 460(1) of the Corporations Law. A winding up [APPELLANT] was made on 29 May 1992. [APPELLANT] England was appointed by the Court as [NAME]. On 6 December 1993 [NAME] made application pursuant to s 480 of the Corporations Law for orders [APPELLANT] he be released and the company be dissolved. Such orders were made by Einfeld J pursuant to s 481 on 4 March 1994. The effect of the [APPELLANT] releasing [NAME] is [APPELLANT] the release operates as a removal from office (s 481(4)). The effect of the [APPELLANT] the company be dissolved is [APPELLANT] from the date of the [APPELLANT] the company is dissolved (s 481(6)). Section 571(1) of the Corporations Law gives the Court the power to declare the dissolution of a company void. The section provides as follows: 571(1) Where a company has been dissolved pursuant to subsection 481(6) or 509(5), the Court may at any time, on application of [NAME] of the company or of any other person who appears to the Court to be interested, make an [APPELLANT] declaring the dissolution to have been void, and the Court may by the [APPELLANT] give such directions and make such provisions (including directions and provisions relating to the re-transmission of property vested in the Commission under section 576) as seem just for placing the company and all other persons in the same position as nearly as may be as if the company had not been dissolved. THE [NAME]. [RESPONDENT] was engaged in the [NAME] as a contract bricklayer. In 1985 it had a contract with [APPELLANT[NAME] (a major building contractor) to work at the Casuarina Shopping Centre extension in Darwin. [RESPONDENT] ([NAME]) was employed by [NAME]. [RESPONDENT] as a bricklayer and worked on this job. On 14 June 1985 [NAME] sustained severe personal injuries in the course of his employment whereupon he became entitled to be paid, and was paid, compensation under the NT workers' compensation legislation. [NAME]. [RESPONDENT] was insured with [COMPANY] and compensation payments were in fact sourced from the insurer. On 30 July 1990 [NAME] commenced proceeding No R400129 of 1990 in the Supreme Court of NSW (the damages proceeding) claiming damages from both [NAME]. [RESPONDENT] and [APPELLANT[NAME]. On 3 May 1991 [NAME]. [RESPONDENT] filed a notice of motion in the damages proceeding seeking orders [APPELLANT] the proceeding against it be stayed or dismissed generally and on 14 June 1991 judgment was entered by consent in favour of [NAME]. [RESPONDENT] against [NAME]. It is said, and it appears to be the case, [APPELLANT] by virtue of a provision of the Workers' Compensation Act 1971-74 (NT) [NAME] action against his [NAME] employer was statute barred. [APPELLANT[NAME] also argued [APPELLANT] [NAME]'s action against it was statute barred but on 22 June 1992 [NAME] in the Supreme Court of NSW held to the contrary. [APPELLANT[NAME] appealed against [NAME]'s decision. On 13 July 1992 solicitors acting for [APPELLANT[NAME] wrote to [COUNSEL] solicitors confirming the terms of an agreement apparently reached on 25 June 1992 to the effect [APPELLANT] the quantum of damages and costs in the damages proceeding had been agreed at $400,000 but [APPELLANT] payment of the agreed sum by [APPELLANT[NAME] was dependent upon an unsuccessful outcome of the appeal against [NAME]'s decision of 22 June 1992. [ADDRESS] of Appeal dismissed the appeal on 29 April 1993. It is common cause [APPELLANT[NAME] thereupon paid [APPELLANT] the agreed sum. On 21 June 1994 [APPELLANT[NAME] commenced proceeding No 20390 of 1994 in the Supreme Court of NSW against [NAME]. [RESPONDENT] and [NAME] (the contribution proceeding). The applicant claims [APPELLANT] it is entitled to contribution from [NAME]. [RESPONDENT] for part or the whole of the amount it paid to [NAME]. It appears [APPELLANT] no progress had been made in the contribution proceeding by 27 June 1995 when the solicitors acting for [APPELLANT[NAME] became aware for the first time of the status of [NAME]. [RESPONDENT]. Since then attention has been directed to the reinstatement of the company to facilitate further progress in the contribution proceeding. [NAME]. [RESPONDENT] had at all times held [NAME] with [COMPANY] and at all times [NAME] acted for it. [APPELLANT[NAME] was not aware [APPELLANT] [NAME]. [RESPONDENT] had been wound up and dissolved until informed of these facts by its ([APPELLANT[NAME]'s) solicitors in July 1995. In April 1995 [APPELLANT[NAME]'s solicitor had sought an indication from [NAME] as to whether they would accept service in the contribution proceeding on behalf of [NAME]. [RESPONDENT]. No immediate reply was received but on 16 October 1995 they advised [APPELLANT] they had instructions to accept service of the statement of claim and on 20 October 1995 they purported to appear for [NAME]. [RESPONDENT] in the contribution proceeding by filing an appearance in the name of the company. Counsel appearing in the interests of [COMPANY] concedes [APPELLANT] in the event of [APPELLANT[NAME] being in a position to prosecute the contribution proceeding, [COMPANY] would have the conduct of the action on behalf of [NAME]. [RESPONDENT] and [APPELLANT] would become liable to indemnify [NAME]. [RESPONDENT] against any judgment obtained by [APPELLANT[NAME]. [NAME] In the course of argument counsel assumed [APPELLANT] one effect of an [APPELLANT] declaring the dissolution of a company void under s 571 would be automatically to reinstate [NAME] in his [NAME] position. Counsel referred to and relied upon the decision in [COMPANY] (in Liq); [NAME] v [NAME] 6 ACSR 494 in which [NAME], in an application under s 571(1) of the Corporations Law said (at p 496) [APPELLANT] on the making of a declaration, [NAME] will be restored to office. Whilst not doubting the accuracy of [APPELLANT] statement in the context in which it was made, it is not in my opinion applicable in the present case. In [NAME] the company had been dissolved by operation of s 509(5) and not by an [APPELLANT] of the Court. The present case is quite different. Here, not only was the company dissolved by [APPELLANT] of the Court but in addition the Court ordered [APPELLANT] [NAME] be released. The effect of the release is the same as if [NAME] had been removed from office (s 481(4)) and accordingly, if the company is reinstated, there will be a vacancy in the office of a [NAME] appointed by the Court which must be filled by the Court (s 473(7)).

[NAME]'S REPORT The report filed by the [NAME] of [NAME]. [RESPONDENT] in support of his application for orders [APPELLANT] he be released and the company be dissolved contains a reference to proceedings begun in 1993 by Mr [RESPONDENT] (a [NAME] shareholder and director of [NAME]. [RESPONDENT]) and (with the liquidators consent) [NAME]. [RESPONDENT] "against a number of parties for damages caused to Mr [RESPONDENT] and the company as a result of the respective parties' action". It is said in the report [APPELLANT] Mr [RESPONDENT] believes it was the actions of these parties which caused the demise of the company and the exclusion of Mr [RESPONDENT] from the [NAME]. It appears however [APPELLANT] as a consequence of the solicitors acting for Mr [RESPONDENT] and [NAME]. [RESPONDENT] failing to provide information to [NAME], his consent was subsequently withdrawn. The report contains no further reference to the proceedings. Indeed, it is not altogether clear whether any proceedings were ever instituted. As [NAME]'s report was not adverted to at the hearing on 5 March 1996 I invited counsel for the parties to seek instructions as to whether the proposed avoidance of the dissolution of [NAME]. [RESPONDENT] might have any unexpected consequences in relation to the proceedings referred to in the report. I was particularly concerned [APPELLANT[NAME] may have been a party to those proceedings and [APPELLANT] same could have been settled on a basis [APPELLANT] might have a bearing upon other claims [APPELLANT[NAME] and [NAME]. [RESPONDENT]. The solicitor for [APPELLANT[NAME] has since filed an affidavit which I accept as adequate proof, [APPELLANT[NAME] has no knowledge of any proceedings of the type referred to in [NAME]'s report. In the circumstances it is unnecessary to pursue the matter further. THE COURT'S POWERS The provisions of s 571(1) are set out earlier in these reasons. Whilst in the past, under a different statutory regime, it has been held [APPELLANT] proceedings commenced after a company is dissolved are not validated in the event of the company being restored (Morris v Harris (1927) AC 252; Solla v Scott (1982) 2 NSWLR 832) the latter part of s 571(1) empowers the Court to make orders and give directions to ensure [APPELLANT] the company and all other persons are placed in the same position as nearly as may be as if the company had not been dissolved. Under the present legislation an [APPELLANT] declaring the dissolution of [NAME]. [RESPONDENT] to be void would mean [APPELLANT] at the date of the commencement of the contribution proceeding [NAME]. [RESPONDENT] was a company in liquidation but by virtue of s 471B of the Law [APPELLANT[NAME] would not have been able to commence the proceeding without the leave of the Court. The power of the Court to grant leave under s 471B is at large and may be exercised subject to the imposition of such terms as the Court thinks fit. There is a substantial body of authority which suggests [APPELLANT] the Court has jurisdiction to grant such leave nunc pro tunc in respect of an action which has by reason of the absence of leave, been invalidly instituted. A number of such authorities are referred to in the reasons of [NAME] in [COMPANY] v [NAME] (unreported: Supreme Court of W.A.; 29 July 1994). I am satisfied [APPELLANT] the combination of the very wide powers conferred by s 571(1) and the power under s 471B to grant leave having retrospective effect empower the Court to make orders which will validate the initiation of the contribution proceeding. It is clear [APPELLANT] the continued existence of [NAME]. [RESPONDENT] as a corporate entity is not a matter which has exercised the minds of those who have conducted the affairs of [COMPANY]. Had the insured been a natural person no difficulty would have arisen. As recently as October 1995 [COMPANY] was prepared to deal with [APPELLANT[NAME] as if [NAME]. [RESPONDENT] were indeed still an extant body. There is no suggestion [APPELLANT] as a result of the dissolution of [NAME]. [RESPONDENT], [COMPANY] has altered its position in such a way as to give rise to any prejudice in the event [APPELLANT] the dissolution of [NAME]. [RESPONDENT] is declared void. On the other hand to fail to reinstate [NAME]. [RESPONDENT] would deny [APPELLANT[NAME] the opportunity to litigate a claimed right of action against the company. As any damages awarded against [NAME]. [RESPONDENT] would be recoverable from [COMPANY], the proceeding would not be nugatory. In the circumstances, as a matter of discretion, I am of the view [APPELLANT] an [APPELLANT] should be made pursuant to s 571(1) declaring the dissolution of [NAME]. [RESPONDENT] void. Whether or not [APPELLANT[NAME] has a claim which remains enforceable is a matter for the Supreme Court. Nor is there any suggestion [APPELLANT] real prejudice would flow from the granting of leave under s 471B with retrospective effect. It is common cause [APPELLANT] if [APPELLANT[NAME] is unable to pursue the contribution proceeding presently instituted, the claim it seeks to make would be statute barred. It would in my opinion be oppressive to enable [COMPANY] to take advantage of such a circumstance and for [APPELLANT] reason I would grant [APPELLANT[NAME] leave with effect from 20 June 1994 to begin and proceed with proceeding No 20390 of 1994 in the Supreme Court of New South Wales against [NAME]. [RESPONDENT]. THE APPOINTMENT OF A [NAME] For the reasons I have expressed earlier I am of the view [APPELLANT] it will be necessary for the Court to appoint a [NAME] of [NAME]. [RESPONDENT]. As it cannot be assumed [APPELLANT] the [NAME] will be prepared to resume [APPELLANT] position, I propose to delay making any formal orders in the proceeding until arrangements are in place for an official [NAME] to be nominated and for the person so nominated to signify his or her willingness to accept appointment. This is a matter which [APPELLANT[NAME] should pursue in consultation with the Registrar.

CONCLUSION For the time being the proceeding will remain adjourned sine die. I will relist the matter for the making of final orders, including any [APPELLANT] relating to costs, on the written request of either party. In the meantime, apart from attending to the nomination of a [NAME], the parties are directed to confer with a view to agreeing on the exact form of [APPELLANT] should be made to give effect to my decision. In the absence of agreement the parties have leave to make further submissions in writing. I certify [APPELLANT] this and the preceding 11 pages are a true copy of the Reasons for Judgment of the Honourable Justice Olney

Associate:

Dated: Heard: 5 March 1996 Place: Sydney Reasons published: 17 April 1996. Appearances: Mr [COUNSEL]. [COUNSEL] (instructed by [COUNSEL]) appeared for the applicant. Mr [COUNSEL].[COUNSEL]. [COUNSEL] (instructed by [COUNSEL]) appeared for [COMPANY].