Restoring trust – request to reinstate granted

This week’s TGIF considers Brislane v ASIC, in the matter of Chiswick Universal Pty Ltd (in liq) [2018] FCA 1095, where the Court ordered that a deregistered company be reinstated to recover a valuable interest vested in the Commonwealth.

The Trust

In early 2018, Chiswick Universal Pty Ltd (Chiswick) was wound up and deregistered. Prior to entering external administration, Chiswick had operated a furniture manufacturing business and, separately, was the trustee of the A&D Family Trust (Trust).

In its capacity as trustee of the Trust, Chiswick formed a partnership (Partnership) with an unrelated company, Limsip Pty Ltd (Limsip). The Partnership owned land worth $9 million which produced significant rental income for the beneficiaries of the Trust.

The sole director of Chiswick, and the liquidator appointed, were unaware it was trustee of the Trust or of its interest in the land until after Chiswick had been wound up.

Chiswick’s deregistration had the effect that its interest in the partnership (and by extension the land) vested in the Commonwealth.

The application

The plaintiffs, being the sole (former) director and the beneficiary of the Trust, sought to preserve the Trust’s interest in the Partnership by having Chiswick reinstated (which would mean it had continued in existence as if not deregistered), a liquidator appointed to manage its retirement from the Partnership and a new trustee appointed as replacement to allow the Trust to continue to have the benefit of the land.

Reinstatement: Were the plaintiffs aggrieved persons?

The Court was satisfied the plaintiffs were ‘aggrieved persons’ with standing to apply for reinstatement under s 601AH(2) of the Act. A person aggrieved may include a director of the company, the company itself (where the company has a separate existence, such as is the case of a foreign company) or, such as in this instance, a beneficiary of a trust who stood to lose a significant income stream if the deregistration remained in effect.

Reinstatement: Was it just?

The test for reinstatement of a company is whether it is ‘just’ to do so. The Court’s wide discretion is guided by the following factors:

• the circumstances of deregistration;
• the use that might be made of reinstatement; and
• the prejudice any person may suffer as a result of the reinstatement.

The Court was satisfied significant detriment would accrue to the beneficiary of the Trust if the company was not reinstated. In reaching this conclusion, it was noted that:

• the evidence demonstrated that steps had been taken to prevent deregistration on the apparent belief the company remained in existence;
• neither ASIC, the former liquidator or Limsip raised objection to the relief sought; and
• there was no prejudice to Chiswick’s creditors if the Trust interest was salvaged given it had not incurred any debts as trustee of the Trust.

As such, an order was made that Chiswick be reinstated and that, upon reinstatement, a liquidator be appointed so as to facilitate the actions contemplated to preserve the Trust’s interest in the Partnership.

Comment

The power of reinstatement, and the statutory retrospective effect of such an order, is useful to keep in mind when faced with a disastrous consequence of deregistration. The wide discretion available to the Court has the potential to ameliorate any prejudice that may result.