Company deregistration errors spur litigation risk

Company deregistration errors spur litigation risk

Risk, caution

SMSF practitioners have been told to approach the voluntary deregistration of companies carefully with clients, with some professionals landing themselves in court where the deregistration caused adverse outcomes.

Nicoll Legal principal David Nicoll said it’s surprising how often issues relating to the deregistration of companies arise in both the SMSF area and in corporate law in general.

Speaking at an event hosted by Townsends Business & Corporate Lawyers, Mr Nicoll said in one of the cases he worked on, the Matter of Gia Firenze Investments Pty Ltd, the client approached their accountant wanting to save some money on accounting fees.

“The accountant suggested to the client that the company they had had for a number of years was no longer needed, and therefore, that company could be voluntarily deregistered, and [they undertook] that process,” Mr Nicoll explained.

Unfortunately, that company was the corporate trustee of an SMSF and had a substantial amount of assets including shares, he said. The trustee was also a plaintiff in court proceedings. Those court proceedings were being commenced against a stock broker for alleged negligent advice.

“So it was a substantial error unfortunately that led to the voluntary deregistration of that company and they had to go through the process of court proceedings to get that company reinstated so that it could take advantage both of the assets it had in the super fund, but also the right of claim it had in an administrative court against the stockbroker,” he said.

The court ordered ASIC to reinstate the company, he said, as the trustee was found to be a person aggrieved because without the continuation of the court proceedings she would be prejudiced.

“It was in fact an error where the company had been deregistered so the court allowed the reinstatement and made orders validating the parts of the court proceedings that had been commenced during the deregistration process,” he said.

Townsends principal Peter Townsend said the accountant in this case was deeply negligent in allowing the company to be deregistered in the first place.

“He was reaching for his PI policy at the time that we were going to court and getting the whole thing sorted out, so it's obviously something that's very important to keep your eye on,” said Mr Townsend.

Company deregistration errors spur litigation risk
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