Federal Court of Australia

Orel, in the matter of an application by Orel [2025] FCA 590

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 1322(4)(a) of the Corporations Act 2001 (Cth), the Court declares that the Originating Process filed by the Applicant on 24 March 2025 is not invalid by reason of non-compliance with s 206G(2) of the Corporations Act.

2.    Pursuant to s 206G(1)(c) of the Corporations Act, the Applicant has leave to manage Tom & Elia Pty Ltd ACN 145 904 972 (the Company).

3.    Until such time as the Applicant is no longer disqualified from managing corporations under Part 2D.6 of the Corporations Act, the Company must not engage in any activity other than to act as Trustee of the T & E Superannuation Fund (the Fund) and to do things that are reasonably incidental to so acting.

4.    Pursuant to s 126J(1)(b) of the Superannuation Industry (Supervision) Act 1993 (Cth), the Applicant is not a disqualified person in relation to the Company and the Fund.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

SARAH C DERRINGTON J:

INTRODUCTION

1    By an originating application filed on 24 March 2025, the applicant, Mr Thomas Robert Orel, seeks orders pursuant to s 206G(1)(c) of the Corporations Act 2001 (Cth) (Corporations Act) and s 126J(1)(b) of the Superannuation Industry (Supervision) Act 1993 (Cth) (SIS Act), respectively, that he be given leave to manage Tom & Elia Pty Ltd (the Company) and that he is not a disqualified person in relation to the Company and the T & E Superannuation Fund (the Fund) of which the Company is Trustee. The purpose of Mr Orel’s application is to enable him to manage the Fund as a self-managed superannuation fund for the benefit of himself and his wife.

2    In support of his application, Mr Orel relied on his affidavits dated 16 October 2024 (First Orel Affidavit) and 23 April 2025 (Second Orel Affidavit), the affidavit of Elia Orel dated 16 October 2024 (Elia Affidavit), the affidavit of Moni Adele Sander dated 30 May 2025 (Sander Affidavit), and written submissions provided to the Court on 1 June 2025.

3    For the reasons that follow, I made the orders sought by Mr Orel at the conclusion of the hearing on 2 June 2025.

BACKGROUND

4    The circumstances of Mr Orel’s disqualification from managing corporations are described in the First and Second Orel Affidavits, and the Elia Affidavit. In short, prior to 24 August 2022, Mr Orel was the sole director of Oracle Building Corporation Pty Ltd, which operated a residential construction business in New South Wales and Queensland until it was placed into liquidation on that date (First Orel Affidavit at [11]). The Queensland Building and Construction Commission (QBCC) subsequently obtained judgment against Mr Orel on 14 December 2023 for $4.1 million in respect of statutory warranty claims arising from the liquidation of Oracle, as Mr Orel was also claimed against for breaches of personal guarantees he had given in relation to that business (First Orel Affidavit at [14]-[15]).

5    Being unable to satisfy those judgment debts, Mr Orel presented a debtor’s petition to the Official Receiver on 25 January 2024, which was accepted on 29 January 2024 (First Orel Affidavit at [16]), with the result that Mr Orel became bankrupt by operation of s 57A of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act).

6    At the time of his disqualification, Mr Orel was a director of the Company. In consequence of his bankruptcy, Mr Orel was automatically disqualified from managing corporations by operation of s 206B(3) of the Corporations Act and ceased to be a director of the Company pursuant to s 206A(2). He also became a “disqualified person” for the purposes of s 120 of the SIS Act (being “insolvent under administration” as defined by ss 10(1) and 120(1)(b)) and, therefore, was prohibited from being a director of the Company by operation of s 126K(4) of the SIS Act. Unless his bankruptcy is varied, Mr Orel will be automatically discharged from bankruptcy on 30 January 2027, pursuant to s 149(1)(b) of the Bankruptcy Act.

7    From the time of its registration in August 2010, the Company has only acted as the Trustee of the Fund and has not undertaken any other activity (First Orel Affidavit at [4]; Elia Affidavit at [3]). Mr and Mrs Orel were the only directors and shareholders. Since Mr Orel’s disqualification, Mrs Orel has been the sole director of the Company and has conducted its affairs (First Orel Affidavit at [19]; Elia Affidavit at [5]).

8    Since the establishment of the Fund in September 2010, Mr and Mrs Orel have been its only members (First Orel Affidavit at [5]). By clause 1 of the Trust Deed for the Fund, the sole purpose is the provision of “Old-Age Pensions” or “Benefits” to members and, on their death, to their dependants.

9    The Fund’s assets are comprised of cash deposited with Westpac and three parcels of real estate which together are leased to a third party (First Orel Affidavit at [6]-[9]; Elia Affidavit at [4]). The net assets of the Fund comprise at least $2.2 million (Elia Affidavit at Exhibit EO2).

10    Other than the present issue concerning Mr Orel’s directorship of the Company, the Fund is compliant with its tax and reporting obligations and with its obligations under the SIS Act (Elia Affidavit at [6]-[8]).

PRELIMINARY ISSUE – IS THE ORIGINATING PROCESS INVALID?

11    When the matter first came before me on 4 April 2025, it became apparent that, due to an oversight on the part of his solicitors, Mr Orel had not provided 21 days’ notice to ASIC of this proceeding prior to his filing the originating application, contrary to the requirement in s 206G(2) of the Corporations Act. Indeed, despite filing the originating application on 24 March 2025, ASIC was only informed seven days after that filing with the lodgement of notice in the prescribed form on 31 March 2025 (Sander Affidavit at [2]-[3]).

12    That preliminary issue, which was acknowledged by the applicant to potentially have consequences for the validity of the originating process and therefore the competency of the proceeding as a whole, was the subject of Mr Orel’s interlocutory application filed on 29 April 2025.

13    By that interlocutory application, the applicant seeks a declaration by the Court pursuant to s 1322(4) of the Corporations Act, which provides the Court with power to declare that a proceeding purporting to have been instituted under the Act is not invalid by reason of a contravention of its provisions. The Court must not make such a declaration unless it is satisfied, relevantly, that the matter contravened is essentially procedural in nature and that no substantial injustice has been, or is likely to be, caused by the contravention (s 1322(6)).

14    In other cases before this Court, including the decisions of Middleton J in Nenna v Australian Securities and Investments Commission [2011] FCA 1193; 198 FCR 32 and of Siopsis J in Re Stokes [2016] FCA 1000, it has been accepted that the notice requirement in s 206G(2) of the Corporations Act is procedural in nature, such that relief under s 1322(4) is available to relieve a party of the consequences of non-compliance with it. I respectfully adopt that characterisation.

15    The remaining question then is whether any substantial injustice has been, or is likely to be, caused by reason of Mr Orel’s failure to notify ASIC within the required time. In this regard, the applicant submitted that Mr Orel’s failure to give notice to ASIC within the requisite time period was unintentional, and that ASIC has had about nine weeks’ notice of the hearing. The Sander Affidavit discloses that Mr Orel’s solicitors have followed up with ASIC by telephone to request that it confirm its position as to the application, and that ASIC has indicated that it does not intend to respond to the notice (Sander Affidavit at [6]). I infer from that indication that ASIC does not wish to oppose the application. Given that ASIC has had ample opportunity to express its view on the application, I do not consider that any substantial injustice arises from the failure to notify it in accordance with s 206G(2).

16    In those circumstances, I am satisfied that it is appropriate to make the declaration sought under s 1322(4) of the Corporations Act that the proceeding is not invalid by reason of the applicant’s non-compliance with s 206G(2).

SHOULD THE APPLICANT BE PERMITTED TO MANAGE THE COMPANY?

17    As I have already outlined, Mr Orel is prohibited from managing corporations pursuant to s 206A of the Corporations Act, except to the extent that he obtains permission from the Court to do so under s 206G. He is also prohibited by s 126K(4) of the SIS Act from acting as a director of a corporate trustee of a superannuation entity, unless he obtains an order of the Court under s 126J that he is not a “disqualified person”.

18    For the Fund to maintain its character as a “self-managed superannuation fund” under the SIS Act, it must satisfy the conditions contained in s 17A, which relevantly include that, where the trustee of a fund is a body corporate, each director of the trustee company must be a member of the fund (s 17A(1)(c)), and each member of the fund must be a director of the trustee company (s 17A(1)(d)(ii)). In order to meet those conditions, Mr Orel therefore requires leave under s 206G of the Corporations Act to manage the Company, and an order under s 126J of the SIS Act that he is not a disqualified person. Counsel for the applicant submitted, and I accept, that failing that relief, it is the case that either the Fund must change its character or Mr Orel must cease to be a member.

19    The principles relevant to exercising the discretions in s 206G(1) of the Corporations Act and s 126J of the SIS Act have some overlap and were summarised in Frigger, in the matter of an application by Frigger [2019] FCA 1730; 139 ACSR 329 and in Macalister, in the matter of an application by Macalister [2021] FCA 1455, respectively.

20    In Frigger, Jackson J summarised the principles relating to s 206G of the Corporations Act as follows (at [8]-[12]):

8    In Re Altim Pty Ltd [1968] 2 NSWR 762 at 764, Street J identified the fundamental principles which informed the court's discretion under a statutory predecessor to s 206G as follows:

The section under which this application is made proceeds upon the basis that a person who is an undischarged bankrupt is prima facie not to be permitted to act as a director or to take part in the management of a company. The Court is given jurisdiction to grant leave for such activities to be carried on, but an applicant who comes to the Court seeking leave must bear the onus of establishing that the general policy of the Legislature laid down in this section ought to be made the subject of an exception in his case. It should be borne in mind that the section is not in any sense a punishment of the bankrupt. Nor should a refusal to grant leave under the section be regarded as punitive. The prohibition is entirely protective, and the power of the Court to grant leave is to be exercised with this consideration in the forefront.

9     Even in the absence of a contradictor it is for the applicants for leave to place before the court evidence in appropriate form that is capable of satisfying the court that, in the given case, an exception should be made to the legislative policy underlying the prohibition in the Act. ASIC's absence is not necessarily to be given significant weight: Watts, in the matter of Watts [2011] FCA 1185; (2011) 284 ALR 403 at [18] (Yates J).

10     Generally, before it can lift the disqualification the court needs to know what the applicants propose to do by way of corporate management, although this may not be necessary if the application is for leave to take part in the management of a specified corporation or corporations: Re Shneide (1996) 71 FCR 69 at 73 (Drummond J). In those cases the court will consider the structure of the companies, the nature of their businesses and the interests of their shareholders, creditors and employees, and any risks to those persons or to the public which may be involved in the applicants assuming positions on the board or in management: Adams v Australian Securities & Investments Commission [2003] FCA 557; (2003) 46 ACSR 68 at [8] (Lindgren J).

11     As one would expect, the attitude of the shareholders to the application can be a relevant factor: see e.g. Jansen v Australian Securities & Investments Commission [2003] FCA 1564 at [12], [14] (Mansfield J).

12     The court will also look to the circumstances in which the debts giving rise to the bankruptcy were not paid, and the extent to which an applicant has cooperated with the trustee in bankruptcy: GRD v BJD [2018] WASC 374 at [12] (Master Sanderson), applying Chye v Australian Securities and Investments Commission [2012] FCA 1405 (Bromberg J).

(Emphasis added.)

21    These principles are also relevant to the exercise of discretion for applications under s 126J of the SIS Act, which the Court must determine having regard to the principal object of that legislation – namely, to provide for the prudent management and supervision of superannuation entities (Frigger at [17]-[18], citing Porter, Application under the Superannuation Industry (Supervision) Act 1993 [2012] FCA 1431 at [29]-[31]).

22    The principles applicable to applications under both provisions were distilled by Banks-Smith J in Macalister at [21]:

… it can be seen that the main consideration in applications under s 206G(1)(c) of the Corporations Act and s 126J(1)(b) of the SIS Act is therefore the interests of third parties; the shareholders, creditors and employees of the relevant company, and the public at large … other considerations may include:

(a)    the protection of the public and any shareholders;

(b)    the nature of the disqualification;

(c)    the applicant’s character and conduct since the disqualification;

(d)    the structure of the company and the nature of the business;

(e)    the potential for repetition of contraventions;

(f)    the risk to survival of the company;

(g)    the effect on any third parties of the company being unable to have the benefit of the applicant’s knowledge; and

(h)    insofar as bankruptcy is involved, the circumstances in which the debts giving rise to the bankruptcy were not paid and the extent to which an applicant cooperated with the trustee in bankruptcy.

(Citations omitted.)

23    The applicant accepted that the main consideration on this application is the interests of third parties who would be affected by granting Mr Orel the relief he requires to manage the Company. In this regard, the Company’s main interaction with third parties is its leasing of three parcels of commercial property. Counsel submitted that there was minimal risk to third-party interests in circumstances where: those parcels are all leased to a single tenant pursuant to a single instrument of lease (Exhibit TO8 to the First Orel Affidavit); and that lease commenced on 7 December 2022 for an initial three-year period with a further three-year option which, if taken up, would extend the tenancy beyond Mr Orel’s current disqualification period. The Company’s interactions with third parties are otherwise limited to depositing funds with a single ADI and engaging a compliance auditor. I accept the submission that any risk to third parties in granting the relief sought is minimal.

24    Mr Orel’s disqualification occurred in the context of his bankruptcy. It is therefore also relevant to look to the circumstances of the relevant unpaid debts. In this regard, the evidence discloses that Oracle’s liquidators have explained that the underlying cause of those debts was financial difficulties arising from industry-wide trends, including increased operating costs and delays resulting from market forces in the wake of the COVID-19 pandemic. Their report does not indicate that the debts were caused by any conduct lacking probity on Mr Orel’s part (First Orel Affidavit at Exhibit TO7, page 266). Mr Orel has also cooperated with his trustee in bankruptcy as he is required to do by law, including by providing a statement of his affairs and by participating in an interview process (First Orel Affidavit at [17]-[19]).

25    I have had regard to Mr Orel’s character and good conduct since his disqualification; the nature, purpose and size of the Fund; and to the unlikelihood that there will be any further contraventions by Mr Orel if he is to manage the Company. All of those matters speak to the appropriateness of granting the relief sought.

DISPOSITION

26    I am satisfied that Mr Orel should be given leave to manage the Company to facilitate his participation as a member of the Fund, and that it should be ordered that he is not a disqualified person in respect of the Company and the Fund for this limited purpose.

27    For these reasons, I made the orders sought by the applicant at the conclusion of the hearing on 2 June 2025.

Associate:

Dated:    4 June 2025