Company Reinstatement: Your Key to Legal Action

In Australia, companies can be deregistered by the Australian Securities and Investments Commission (ASIC) for a range of reasons, including:

1. Voluntary deregistration on application by its members,
2. On application for winding-up,
3. Following a reconstruction or amalgamation, or
4. Initiated by ASIC for a failure to pay fees, file necessary documents or if the company is no longer carrying on business.

Upon deregistration a company loses its legal personality and ceases to exist. All of the company’s property held immediately before deregistration, including any which had vested in a liquidator but save for property held on trust, vests in ASIC pursuant to s 601AD(2) of the Corporations Act 2001 (Cth).  Any property held on trust vests in the Commonwealth pursuant to s 601AD(1A). Other statutory effects of the deregistration of a company are also set out in that section.

As a result, it is necessary to reinstate a deregistered company when there are unresolved legal matters or claims against the company. Examples of these scenarios include when an individual or entity seeks to bring legal action against the deregistered company, or to take derivative action against third parties (e.g. directors or other officers) on behalf of that company.

The Federal Court decision of Justice Jackman in Chu v Lin, in the matter of Gold Stone Capital Pty Ltd (Trial Judgment) [2024] FCA 766 concerned the company Gold Stone Capital Pty Ltd which was deregistered on 13 May 2020; however, on application by the plaintiffs, the company was reinstated by orders made by Rares J on 5 August 2022.

Reinstatement

The reinstatement of a deregistered company is governed by s 601AH of the Act. Subsections 601AH(1), (1A) and (1B) allow for ASIC itself to reinstate the registration of a company on its own initiative or on application in certain circumstance, for example in cases where a company had been subject of an ASIC-initiated deregistration under s 601AB.

Subsection 601AH(2) provides for Court ordered reinstatement of the registration of a company on application subject to certain considerations.

Who can apply for reinstatement?

A court can reinstate a deregistered company on application by a ‘person aggrieved’ by the deregistration or a former liquidator.

The term ‘person aggrieved’ refers to a class of persons which the Courts have construed liberally – an applicant need only demonstrate to a Court that the applicant has suffered or may suffer some detriment or potential detriment. The Court will assess a claimed detriment but only to the threshold that it is not plainly hopeless and bound to fail; a Court will not conduct an in-depth analysis into the facts and law underlying the claim.

The requirement will generally be satisfied where the applicant has any proprietary or pecuniary interest that has been affected by the deregistration or the applicant has been injured or damaged in a legal sense, as a result of the company’s deregistration. However, mere dissatisfaction with the deregistration is not sufficient.

The plaintiffs, in their application for the reinstatement of the registration of Gold Stone, relied on principles laid out by Gleeson J in Re LCW Property Holdings Pty Ltd (deregistered) [2020] NSWSC 71 at [21] where his Honour found that the right to make claims against a company, which were lost on its deregistration constituted relevant detriment. The plaintiffs also relied on the statements of Bell P in Owners of SP 91349 v ASIC [2020] NSWSC 685; 147 ACSR 456 at [65], [90]-[96] as to the relevant threshold.

Time limits apply to applications for the reinstatement of a deregistered company – an application for reinstatement must be made within 15 years after deregistration.

Court considerations

Courts have broad discretion in making reinstatement orders and evaluates several factors including but not limited to:

1. Circumstances of Dissolution: The specific circumstances that led to the company’s dissolution are scrutinized to understand the context and reasons behind it.
2. Potential Benefits: The Court assesses the extent to which the reinstatement order could be put to ‘good use’. This involves considering the potential positive outcomes of reinstating the company.
3. Prejudice to Individuals: The likelihood of any person being prejudiced by the reinstatement is a critical factor. The Court aims to ensure that reinstatement does not unfairly disadvantage any stakeholders.
4. Public Interest: Questions of public interest are also taken into account. The Court considers whether reinstating the company aligns with broader societal and economic interests.

It is important to note that the mere fact that a company was actively conducting business at the time of deregistration does not automatically justify its reinstatement. Conversely, the company’s insolvency at the time of deregistration does not, by itself, preclude reinstatement, provided the company is deemed potentially viable.

However, reinstating an insolvent company for the purpose of continuing business operations is generally deemed inappropriate. Despite this, an insolvent company may still be reinstated if the intention is to wind it up again or to address new liabilities.

Effect of reinstatement

Upon reinstatement, the company is considered to have continued in existence as if it had never been deregistered. This means:

• The company’s directors are automatically reinstated,
• Company property revests from ASIC to the company,
• Any property held on trust revests form the Commonwealth to the company,
• Any debts or liabilities that existed prior to deregistration are revived, and
• Any securities which existed over assets immediately prior to deregistration are preserved so that assets revest in the company subject to those security interests.

However, parties should note that acts purportedly carried out or decisions purportedly made by the company during its period of deregistration is not automatically validated or ratified.  A court has the ability to validate such acts pursuant to s 601AH(3)(c), however an application must be made to the court to do so.

Key Takeaways

1. A court has the power to reinstate the registration of a company where it is necessary and appropriate to do so.
2. The court will consider key factors such as the person aggrieved, circumstances of dissolution and the public interest, but has a wide discretion to consider other relevant factors it sees fit.
3. A person aggrieved has 15 years to apply for reinstatement of the registration of a company.
4. Upon reinstatement, the company continues as if it had never been deregistered with assets debts, liabilities, directors and shareholders continuing.

This is a crucial step in affording stakeholders such as creditors and members the opportunity to commence legal proceedings against a deregistered company or taking steps, such as derivative action, on behalf of a deregistered company.

Contributors

• Dylan Zhu, Senior Associate
• Michelle Tan, Lawyer

McCabes has extensive experience in matters involving the reinstatement of registration of companies and directors and officeholders of those companies including for any alleged breach of their duties in derivative action.  Please do not hesitate to contact McCabes if you may have claims which may only be pursued following reinstatement of the registration of a company.