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        Federal Court of Australia confirms unregistered foreign company carried on business in Australia and can be wound up

        On 1 March 2019 McKerracher J of the Federal Court delivered his decision in the case of TCL Airconditioner (Zhongshan) Co Ltd v Castel Electronics Pty Ltd (Castel), in the matter of TCL Airconditioner (Zhongshan) Co Ltd (No 2) [2019] FCA 257, sending a strong message to unregistered foreign corporations looking to benefit from trading in the Australian market. 

        Date: 07/03/2019

        TCL Airconditioner (Zhongshan) Co Ltd (TCL), a foreign company incorporated in China with no registered office in Australia, was served by Castel Electronics Pty Ltd (Castel) with a statutory demand for payment pursuant to section 585 of the Corporations Act (Cth) 2001 (Corporations Act) seeking payment of two judgments which had been entered against it in the total sum of approximately $3,500,000.00. 

        Section 585 of the Act provides a mechanism for  issuing a statutory demand for payment as a precursor to winding up of an unregistered foreign company that is “carrying on business” in Australia.

        The judgments against TCL were obtained by Castel pursuant to two arbitral awards which had been awarded to Castel in December 2010. The awards were obtained following the termination by Castel of a general distribution agreement (GDA) between the parties which appointed Castel as TCL’s exclusive distributor of airconditioning products in Australia.

        Despite multiple attempts by TCL to prevent the registration of the arbitral awards as judgments in Australia (including a challenge to the High Court of Australia where TCL unsuccessfully argued that arbitral awards could not be registered and enforced in Australian courts), the awards were registered as judgments on 19 November 2012 together with interest accruing until the date of payment.  Demands for payment from TCL were ignored. The total amount of the judgments is now close to $7,000,000.00 not including the legal costs of registering the awards in Australia and enforcing payment.

        Following issue of the statutory demand by Castel to TCL, TCL made application to the Federal Court to seek a declaration that it was not a Part 5.7 body pursuant to the Corporations Act and it could therefore not be wound up in Australia.

        In addition, arguments made by TCL that the statutory demand had not been validly served because it was not served on a registered office of TCL in Australia failed.  The court found that a copy of the statutory demand had been delivered to TCL’s long standing lawyers and that it had come to TCL’s attention. 

        Whilst related companies of TCL have registered offices in Australia, TCL Airconditioner (Zhongshan) Co Ltd does not have a registered office in Australia.

        TCL argued that under the GDA, Castel was not an agent of TCL but rather a buyer of products from TCL who was the seller and therefore TCL was not carrying on business in Australia.  However, His Honour Justice McKerracher said that was not the end of the inquiry as the real test is what TCL is actually doing, if anything, in Australia. 

        His Honour went on to find that:

        • TCL was, in his view, on the evidence doing much more than simply selling and exporting goods disinterestedly from China to buyers in Australia. Rather, TCL was actively involved in developing, protecting and controlling its Australian market, even though some of the steps were carried out remotely.
        • Notwithstanding that Castel was not TCL’s agent and did not carry on activities on behalf of TCL, the separate sales contracts entered into between Castel and TCL for the sale of TCL airconditioners in Australia were accepted in Australia and deemed to be governed by Australian law.
        • The sales benefitted not only Castel but clearly benefitted TCL.
        • The quality of the products was important, as was TCL’s trademark and reputation to the extent that it guaranteed its products.
        • TCL retained control over the retail price of the products.
        • TCL influenced the marketing of the products insofar as it provided materials consistent with its “brand Visions Image” and TCL guaranteed the products supplied.
        • By a variation agreement TCL agreed to “promptly respond/rectify all faults/supply spare parts at its own cost to Castel when required by Castel to service all airconditioning units with faults exceeding 2%”.
        • The fact that employees of TCL travelled to Australia on an annual basis to meet with representatives of Castel was not of significance taken alone but it did tend to lead to an inference that the purpose of the meetings was to protect and improve TCL’s goodwill for its sales in Australia.
        • TCL had an actual and real business presence in Australia.

        TCL’s application was dismissed by the Court with costs.

        The judgment sends a clear and concise message to unregistered foreign corporations who seek to benefit from trading in the Australian market.  That message is if unregistered foreign companies have an actual and real business presence in Australia and carry on business in Australia, the lack of a registered office or agent will not prevent them from being wound up in Australia.

        The question now is whether this unregistered foreign company will make the payment it is required to make under the judgments obtained against it in 2012.

        A full copy of the 2019 judgement can be found here: http://www.judgments.fedcourt.gov.au/judgments/Judgments/fca/single/2019/2019fca0257

         

        Mary Nemeth, Principal Lawyer and Head of Litigation & Insolvency (Melbourne) acts on behalf of Castel. For further information please contact Mary.

        Related people

        Mary Nemeth

        • Principal Lawyer // Head of Litigation & Insolvency (Melbourne)