Australian Securities and Investments Commission v Gognos Holdings Ltd - [2017] QSC 207

SUPREME COURT OF QUEENSLAND

CITATION:

Australian Securities and Investments Commission v Gognos Holdings Ltd & Anor [2017] QSC 207

PARTIES:

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

(Applicant)

v
GOGNOS HOLDINGS LTD ACN 129 570 181

(First Respondent)

DYNAMIC AGRI TECH LTD ACN 060 891 796
(Second Respondent)

FILE NO/S:

SC No 9696 of 2016

DIVISION:

Trial Division

PROCEEDING:

Application

DELIVERED ON:

25 September 2017

DELIVERED AT:

Brisbane

HEARING DATES:

7 to 11 August 2017, further written submissions on 17 August 2017

JUDGE:

Bowskill J

ORDERS:

1. The first respondent be wound up under section 461(1)(k) of the Corporations Act 2001 on the basis that it is just and equitable to do so.

2. Michael John Hill and William James Harris of McGrath Nicol be appointed as joint and several liquidators of the first respondent.

3. The second respondent be wound up under section 461(1)(k) of the Corporations Act 2001 on the basis that it is just and equitable to do so.

4. Michael John Hill and William James Harris of McGrath Nicol be appointed as joint and several liquidators of the second respondent.

CATCHWORDS:

CORPORATIONS – WINDING UP - OTHER GROUNDS FOR WINDING UP – JUST AND EQUITABLE – where the companies have contravened the Corporations Act 2001 by failing to lodge financial reports, report annually to members, hold annual general meetings and keep and produce accurate accounting records, and the contraventions are continuing –where the companies made untrue statements to the ASX and misleading representations to investors, and there has been mismanagement in the conduct of the affairs of the companies – where the companies are not clearly solvent – where the companies did not contest, but did not concede most of the allegations as to past conduct – where the companies relied on recent changes to the directors of both companies, the provision of a $400,000 line of credit facility to reactivate the business of the companies, and undertakings to have the outstanding accounts prepared and audited, and by former directors not to seek or obtain office as directors for five years, in opposing the winding up orders – whether there is and remains a well-founded and justified lack of confidence in the conduct and management of the companies’ affairs, giving rise to a real risk to the public interest that warrants protection – whether the companies should be wound up on the just and equitable ground

Corporations Act 2001 (Cth) ss 461(1)(k), 462(2)(e), 464(1), 201A, 319, 314, 250N, 286(1)

ASIC v Green Pacific Energy Limited (2006) 59 ACSR 142
Australian Securities and Investments Commission v ABC Fund Managers (2001) 39 ACSR 443
Australian Securities and Investments Commission v ActiveSuper Pty Ltd (No 2) (2013) 93 ACSR 189
Australian Securities and Investments Commission v Bilkurra Investments Pty Ltd [2016] FCA 371
Australian Securities and Investments Commission v Chase Capital Management Pty Ltd (2001) 36 ACSR 778
Australian Securities and Investments Commission v CME Capital Australia Pty Ltd (No 2) [2016] FCA 544
Australian Securities and Investments Commission v Great Northern Developments Pty Ltd (2010) 242 FLR 444
Australian Securities and Investments Commission v Storm Financial Ltd (2009) 71 ACSR 81
Australian Securities Commission v AS Nominees Limited (1995) 62 FCR 504
Bowen v Stott [2004] WASC 94
Chapman v Rogers: ex parte Chapman [1984] 1 Qd R 542
Deputy Commissioner of Taxation v Casualife Furniture International Pty Ltd (2004) 9 VR 549
Hempseed v Ward [2013] QSC 348
Holborow v MacDonald Rudder [2002] WASC 265
In re Fildes Bros Ltd [1970] 1 WLR 592
Jeffrey v Associated National Insurance Co Ltd [1984] 1 Qd R 238
Kallinicos v Hunt (2005) 64 NSWLR 561
Manning v Cory & Sumner [1974] WAR 60
Mitchell v Burrell [2008] NSWSC 772
Paino v MDN Mortgages Pty Ltd [2009] NSWSC 898
Pearlbran v Win Mezz No 19 Pty Ltd [2009] QSC 292
Re Faymere Pty Ltd, Supreme Court of Queensland, Master Weld, No 180 of 1985, 12 November 1986, unreported
Trinick as Liquidator of Forgione Family Group Pty Ltd (in liq), in the matter of Forgione Family Group Pty Ltd (in liq) v Forgione (2015) 106 ACSR 600
Van Reesema v Flavel (1992) 7 ACSR 225
Watkins v Christian [2009] QCA 101

COUNSEL:

M Brady QC with K Slack for the applicant

T Hale SC with S McNeil and J Fitzgerald for the respondents

SOLICITORS:

Australian Securities and Investments Commission for the applicant

Diamond Conway Lawyers for the respondents

Table of Contents

Introduction

Legal principles

Factual background

ASIC’s investigation

The investment model
Office holders of Gognos
Office holders of DAT

Relationship between the companies

Dynamic group
DAT and Gognos

Failed listing

Recent events

Contraventions of the Corporations Act

Contraventions of the Act by Gognos

Failure to comply with the office holder requirements
Failure to lodge financial reports with ASIC
Failure to report to members annually
Failure to hold AGMs
Failure to keep and produce accurate accounting records

Contraventions of the Act by DAT

Failure to lodge financial reports
Failure to report to members annually
Failure to hold AGMs
Failure to keep and produce accurate records

Contraventions are continuing

Representations to the ASX

Representations to potential investors

Product sales orders

Promised share subscription payments

Representations to investors

Mr Blasenstein
Mr Moses
Dr Stewart
Mr Senior
Mr David
Mr Shellim
Mr Lissa and Mr Zwar – in their capacity as shareholders
Other shareholders opposed to the winding up

Conflicting explanation for inter-company transactions, variable share prices

Lack of directorial rigour in the management of the affairs of the companies
Companies unviable – not clearly solvent

Recent change of circumstances

Appointment of the new directors

Were the new directors properly appointed?
The role of Mr Zwar

Has Mr Manasseh really been cast adrift?

The $400,000 line of credit from Mr Lissa’s company
Why would Mr Zwar and Mr Lissa continue to stand behind the companies?

Impact on the shareholders

Conclusion and orders

Introduction

The Australian Securities and Investments Commission (ASIC) applies under ss 461(1)(k), 462(2)(e) and 464(1) of the Corporations Act 2001 (Cth) for an order that the respondents, Gognos Holdings Ltd (Gognos) and Dynamic Agri Tech Ltd (DAT), be wound up, on the ground that it is just and equitable to do so.
ASIC contends it is just and equitable to wind up the companies because there is a well-founded and justified lack of confidence in the management and conduct of the affairs of the companies, in circumstances where:
(a)both companies have contravened provisions of the Corporations Act by failing to lodge financial reports, report annually to members, hold annual general meetings and keep and produce accurate accounting records; these contraventions have not been remedied, despite ASIC’s investigation and these proceedings, and are continuing;
(b)in addition, Gognos has contravened the Act in that it has failed to comply with the office holder requirements;
(c)Gognos and DAT made statements to the Australian Stock Exchange (ASX), about Gognos’ performance under a payment deed (to satisfy listing pre-conditions) for which there was no proper or reasonable basis, and DAT made a statement to the ASX, about payment of an instalment by Gognos, which was untrue;
(d)persons on behalf of Gognos (principally Mr Maurice Manasseh, a (now former) director of Gognos and DAT) made representations to potential investors, about DAT listing on the ASX, and the financial benefit shareholders might derive from an ASX listing by DAT, based on promised product sales orders, and promised share subscriptions, which there is no realistic basis to believe will ever be received – demonstrating a need for investor protection;
(e)there are issues arising from conflicting explanations for inter-company transactions, variable share price offers and deficient record keeping;
(f)there has been a demonstrable lack of directorial rigour in the management and administration of the affairs of the companies, both in the past and in the context of recent events; and
(g)the companies are unviable, and not clearly solvent.
ASIC’s case was set out in detail in its submissions filed on 7 April 2017. The respondents’ position, when their submissions in response were prepared at that time[1] was that they “strenuously refuted” ASIC’s allegations; in so far as those allegations concerned contraventions of the Corporations Act it was said any such issues had either already been remedied, or would be by the time of the trial.
[1]Respondents’ submissions, dated 21 April 2017, but not filed until 4 August 2017.
However, at the trial, the respondents did not contest most of the factual matters alleged by ASIC, at least in so far as conduct up until July 2017 is concerned.   Instead, the respondents relied on the following recent changes to contend that there is no basis – indeed it was submitted that it might be thought to be “irrational”[2] – to wind up the companies:
(a)new directors have been appointed to both companies, such that it is “under new management”, and they would not be trying to defend the actions of the former directors;
(b)those former directors, Mr Manasseh and Mr De Andrade, have resigned and provided undertakings not to seek or obtain office as directors of the companies for a period of five years;
(c)of Mr Manasseh, the driving force behind the two companies, and the person largely responsible for inducing the investment of almost $7.7 million by shareholders in Gognos, in opening it was submitted he has been “cast adrift”, effectively “thrown under the bus”,[3] and the investors/shareholders have “struck back” and “taken over the management of … both companies”;[4]
(d)the preparation of the outstanding accounts for both companies has progressed – although is not yet finalised;[5]
(e)consequently, the companies will, in the foreseeable future, be able to lodge audited financial reports, and hold AGMs;
(f)Mr Lissa, one of the new directors, through his company Property Magic Australia Pty Ltd, has offered to advance $400,000 to “reactivate” the companies; and
(g)the companies should be allowed to continue to operate with these arrangements in place, to enable investors the opportunity to recover their investments.
[2]            T 5-32.
[3]            T 2-22.
[4]            T 1-8.
[5]            T 1-9.
ASIC contends that the recent changes do not provide an answer to its application and submits the court ought to have a justified and current lack of confidence in the management of the affairs of the companies. ASIC submits that the respondents’ attempts “to distance themselves from the multifarious sins of their past and of the present time, has failed”.[6]
[6] ASIC’s written address (11 August 2017) at [12].
For the reasons set out in detail below, I am satisfied that it is just and equitable that the companies be wound up.

Legal principles

The applicable legal principles were not in issue between the parties.
The application is brought under s 461(1)(k) of the Corporations Act, which confers a discretion on the court to order the winding up of a company if the court is of the opinion that it is just and equitable to do so.
ASIC’s standing to bring the application, in connection with its investigation of the companies’ affairs, was not disputed. Nor was it in issue that considerations of public interest properly inform ASIC’s decision to apply to wind up a company on the just and equitable ground. In this regard, and in the circumstances of this case, the observations of Finn J in Australian Securities Commission v AS Nominees Limited (1995) 62 FCR 504 at 530 are apt:
“As a matter of obligation in our system of government the ASC, like all other agencies of government, is required to act in the public interest within its sphere of responsibility; cf the observations of McHugh JA in Attorney-General (UK) v Heinemann Publishers Australia Pty Ltd (1987) 10 NSWLR 86 at 191. For this reason, when bringing an application under the Corporations Law, s 464 to wind up a company, the ASC cannot be seen quite in the same light as an ordinary creditor or contributory when so applying. Its powers and purposes are not those of the private applicant. And it does not, or at least should not, have a private self-interest to pursue.
In bringing winding-up proceedings the ASC may well appear on occasions to be little more than the surrogate of other persons who are interested in the relevant company’s affairs either as creditors or contributories. But this will not always be so. It can be the case, as here, that those interested in the company have not the desire or else the incentive to wind it up. They may, as here, positively oppose that step: cf Re Walter L Jacob & Co Ltd. It is in just such circumstances that the ASC’s public interest responsibility is most pronounced …”[7]
[7] Emphasis added.
His Honour also said (at 532) that “there is a distinct public interest in the ASC securing compliance with the Corporations Law as such. Its statutory object requires that of it”.[8]
[8]See also Australian Securities and Investments Commission v Storm Financial Ltd (2009) 71 ACSR 81 at [67] per Logan J.
The approach which Finn J adopted in that case (at 531) and which I adopt here, was that outlined by the English Court of Appeal in Re Walter L Jacob & Co Ltd (1988) 5 BCC 244 at 251:
“where the reasons put forward by the petitioner are founded on considerations of public interest, the Court, if it is to discharge its obligation to carry out the balancing exercise, must itself evaluate those reasons to the extent necessary for it to form a view on whether they do afford sufficient reason for making a winding-up order in the particular case.”[9]
[9] See also ASIC v Green Pacific Energy Limited (2006) 59 ACSR 142 at [139] per Greenwood J.
The opinion of the court, the basis of the exercise of discretion under s 461(1)(k), is one which must be formed at the time of hearing, and therefore having regard to the facts and circumstances of the companies which exist at that time;[10] although the past conduct remains relevant, as part of the overall factual matrix to be considered.
[10]In re Fildes Bros Ltd [1970] 1 WLR 592 at 597; Deputy Commissioner of Taxation v Casualife Furniture International Pty Ltd (2004) 9 VR 549 at [487].
I gratefully adopt the following summary of general principles from the decision of Moshinsky J in Australian Securities and Investments Commission v CME Capital Australia Pty Ltd (No 2) [2016] FCA 544 at [14]-[21]:[11]
[11]Recently adopted by Barker J in Australian Securities and Investments Commission v AGKM Green Pty Ltd [2017] FCA 846 at [42]-[53].
“14The classes of conduct which justify the winding up of a company on the just and equitable ground are not closed, and each application will depend upon the circumstances of the particular case: Australian Securities and Investments Commission v Kingsley Brown Properties Pty Ltd [2005] VSC 506 at [96].
15Generally speaking, a company may be wound up on just and equitable grounds where there is a justified lack of confidence in the conduct and management of the company’s affairs such as to give rise to a real risk to the public interest that warrants protection: Australian Securities and Investments Commission v Bilkurra Investments Pty Ltd [2016] FCA 371 at [55].
16Warren J (as her Honour then was) identified three factors of central significance in Australian Securities and Investments Commission v ABC Fund Managers (2001) 39 ACSR 443 at 469-470:
First, there needs to be a lack of confidence in the conduct and management of the affairs of the company. Second, in these types of circumstances it needs to be demonstrated that there is a risk to the public interest that warrants protection. Third, there is a reluctance on the part of the courts to wind up a solvent company.
17The first principle was explained by Sifris J in Galanopoulos v Moustafa [2010] VSC 380 at [32]:
If, after examining the entire conduct of the affairs of the company, the conclusion is that there is a lack of confidence in the propensity of the controllers to comply with obligations, including the keeping of books, records and documents, and looking after the affairs of the company, that is sufficient to conclude that it is just and equitable that the company be wound up.
18In respect of the second principle (risk to the public interest warranting protection), Gordon J said in Australian Securities and Investments Commission v ActiveSuper Pty Ltd (No 2) (2013) 93 ACSR 189 at [23]:
[A] risk to the public interest may take several forms. For example, a winding up order may be necessary to ensure investor protection or where a company has not carried on its business candidly and in a straightforward manner with the public. Alternatively, it might be justified in order to prevent and condemn repeated breaches of the law. Again, there is an overlap between matters which would pose a risk to the public interest for the purpose of s 461(1)(k) and which are relevant to the appointment of a provisional liquidator. (Citations omitted.)
19If a company is solvent, that may point against a winding up on the just and equitable ground, but it is not a bar. A case in which there have been numerous contraventions of the Act is one in which it is ‘precisely the situation where a solvent company should be wound up’: Australian Securities and Investments Commission v Planet Platinum [2015] VSC 682 at [95].
20In Planet Platinum, Efthim AsJ observed that a director cannot rely passively on others to advise him or her of the company’s obligations, and cannot abrogate his or her responsibility to manage the company by asserting that someone else has been requested to do so on behalf of the company: [104]-[105]. His Honour held that the manner in which a company has been managed may justify its winding up even where the company is solvent: [106].
21Conversely, if there is good reason to believe that a company is either cash flow insolvent or balance sheet insolvent, whether or not the formal elements of s 459A of the Act have been satisfied, such circumstances can be taken into account under the just and equitable ground in any event as one of the factors to consider: Australian Securities and Investments Commission v Bilkurra Investments Pty Ltd [2016] FCA 371 at [58].”
The respondents submitted that, in addition to the recent changed circumstances, which ought to allay any concerns the court might otherwise have in light of the past conduct relied upon by ASIC, the court could be satisfied by undertakings, from Mr Manasseh and Mr De Andrade, not to seek or obtain office as directors of either company for five years; or potentially other, “more rigorous” (but largely unspecified) undertakings;[12] as well as an undertaking to attend to the finalisation and audit of the financial accounts within a specified time period, during which the winding up application could be adjourned.
[12]T 2-22, 2-24, 5-27, 5-41 to 5-43 (suggesting, on the last day of the trial, during submissions, an undertaking could be obtained from Mr Manasseh to resign as a director of Dynamic Fodder) and 5-63.
The respondents also emphasised the need for the court to take into account the wishes of investors/shareholders in considering whether it is just and equitable that the companies be wound up.[13] In this regard, as well as in support of the solution proffered by the respondents that undertakings could be given, and the winding-up application adjourned for a period of time, particular reliance was placed on Australian Securities and Investments Commission v Great Northern Developments Pty Ltd (2010) 242 FLR 444 at [127].
[13] T 5-36.

I accept that the wishes of investors, and the impact on them of a winding up order being made, are matters to be taken into account. Although that cannot be the overriding consideration – all factors must be taken into account: Australian Securities and Investments Commission v Chase Capital Management Pty Ltd (2001) 36 ACSR 778 at [80].
Great Northern Developments was a very different case from this one. In that case the application was brought by ASIC on the basis only of alleged contraventions of the Corporations Act. There were no allegations of mismanagement of the company, nor in relation to the solvency or otherwise of the company. The company was a property developer which raised finance by issuing debentures and promissory notes to investors. In relation to the debentures, ASIC alleged that the company had contravened s 727 (requiring a company which makes an offer of securities to lodge a disclosure document) and s 283AA (requiring a company that offers debentures to appoint a trustee and enter into a trust deed). There was a substantial dispute as to whether the company was offering securities (debentures) within the meaning of the Act, and therefore whether it was required to comply with ss 283AA and 727. White J found that it was, but that if it had entered into a trust deed, on his Honour’s construction of s 708(14), a disclosure document would not be required (see at [40]). ASIC had also alleged contravention of s 601ED, on the basis the company was operating a managed investment scheme; but that argument was rejected by White J. At the hearing, the company, through its counsel, offered an undertaking to enter into a trust deed and appoint a trustee, should it be found that it had contravened s 283AA. White J accepted the contraventions of ss 727 and 283AA were serious, but said they did not warrant an order for winding up the company (at [127]). There was no allegation that the company was insolvent, nor any allegation that any investor was misled or that any promises to investors had not been honoured. White J was satisfied that, if the undertaking was honoured, there was no reason to think the company would commit further breaches of the Act (at [129]). It is in that context that his Honour said (at [130]):
“The investors oppose a winding-up order. I am satisfied that a winding-up would not be in their interests. The public interest in ensuring compliance with the Act will be met by making the declarations of contravention of ss 283AA and 727 and accepting GND’s undertaking…”
The present case is more comparable to Australian Securities and Investments Commission v Bilkurra Investments Pty Ltd [2016] FCA 371. In that case, Beach J was satisfied the winding up orders sought by ASIC should be made, in circumstances where the companies were cash flow insolvent; his Honour had little confidence in the management of either company; the financial records of the companies were described as being in an unsatisfactory state, with substantial breaches of s 286 having occurred; the companies had been knowing participants in schemes that had facilitated the misappropriation of investors’ funds; and the orders were considered necessary in the public interest and to protect investors (his Honour observing that there was a chance for some potential recovery of the moneys presently lost at the behest of and after a full investigation of a liquidator) (at [10]-[15]). Beach J noted, at [16], that:
“… investors … oppose liquidation. They would rather that a further opportunity be given to allow potential deeds of company arrangement to be put in place with a white knight taking over the developments and injecting value back into their investments. But in the events that have transpired, this is little more than wishful thinking. But even if that prospect had a sliver of reality, it does not outweigh the above concerns.”
Australian Securities Commission v AS Nominees Ltd was also a case, unlike Northern Developments, where investors had been misled. Finn J said to order the winding of the companies in that case was “the appropriate expression of the lack of confidence one must have in the directors of these companies in their conduct and management of the affairs of their companies”. His Honour also said, at 533:
“The one concern I have had in deciding to make this order is as to its possible effects on the beneficiaries of the trusts. I am persuaded, however, that short of granting no relief at all – and that is not an available option – the appointment of a liquidator is likely to provide the greatest protection to the beneficiaries that is possible in the circumstances. It is to be expected that further legal proceedings by or against the companies could ensue from any order I make.
Finally I should indicate that the respondents have submitted that rather than make such an order I should accept undertakings from them as to their future conduct, these undertakings being designed to redress – or at least address – past wrongs. I need not labour here why I regard such a course as inappropriate. The lack of confidence there must be in the management of these companies (and this has been exacerbated by the change in Ample’s board), the degree to which the respondents have transgressed, and the need for effective external administration, provide reason enough for my refusal to entertain it.”
In Australian Securities and Investments Commission v ABC Fund Managers (2001) 39 ACSR 443 the Court was similarly urged to accept undertakings as to future conduct, rather than wind up the companies. In relation to this submission, Warren J (as her Honour then was) referred with approval to what Finn J said in AS Nominees (see at [126]), having earlier commented that the circumstances of the matter before her Honour might be said to be worse than in AS Nominees, and also said (at [130]):
“… Having found that the public interest is invoked in the circumstances of this matter and given the serious ongoing breaches, indeed flagrant breaches of the requirements of the Corporations Act with respect to record and account keeping, I consider it entirely inappropriate that the defendants be allowed to continue. In the exercise of the discretion it would in my view be entirely contrary to the public interest to allow anything else.”
That reflects the view I have formed in this case, for the reasons set out below.

Factual background

ASIC’s investigation

In May 2015 ASIC commenced an investigation into suspected contraventions of the Corporations Act by Gognos, its officers and representatives, in the period from June 2011 and continuing. This was expanded, both in terms of the scope of the suspected contraventions, and to include the related company, DAT, in February 2016.[14]
[14] Keily (exhibit 1) [5] and [6].
The investigation commenced following complaints from shareholders and investors in Gognos, including Mr Zwar, the solicitor who now acts for the respondents, Mr Blasenstein and Mr Moses, from whom the court heard evidence, and a number of others.[15] The s 19 examinations were conducted in December 2015. This application was filed in September 2016.
[15] Keily T 1-63.

The business of the companies

Gognos and DAT are both unlisted public companies. The companies have been run for the purpose of fundraising to pursue a business venture with the initial goal of listing DAT on the ASX and the broader goal of DAT carrying on a business manufacturing and selling a specific type of animal fodder production system internationally.
The company now known as DAT emanates from a company incorporated in 1993 (Kilkenny Gold NL, later called Didasko Limited). One of the early directors of DAT, Mr John De Andrade, was an investor in a company called Almighty Fodder Ltd, which had developed the “technology to grow fodder in a machine”.[16] Mr De Andrade, an engineer, then became involved in the development of it, and also became a director. In about 2008, Almighty Fodder ran into some difficulties, eventually being placed into liquidation, and Mr Manasseh, through DAT, took over the business of Almighty Fodder.[17]
[16]Keily (exhibit 1), exhibit MFK2 (s 19 examination of Manasseh) at p 13; exhibit MFK5 (s 19 examination of De Andrade) at p 5.
[17]Keily (exhibit 1), exhibit MFK2 (s 19 examination of Manasseh) at pp 13-14; exhibit MFK5 (s 19 examination of Dr Andrade) at pp 6-7 and 9; exhibit MFK1 (s 19 examination of Lissa) at pp 10-12.
Gognos was incorporated in 2008, initially as a more general investment company, of which Mr Nigel Purves, Mr Terry Shanahan and Mr Garry Lissa were directors, with Mr Manasseh, although not an office holder, sourcing investments for the company.[18] In fact Gognos’ only business activity has been to raise funds, by way of the issue of shares to members of the public, to be used by DAT, in order to expand the business and operations of DAT, and to fund a proposed initial public offering (IPO) and listing of DAT on the ASX.[19]
[18]Keily (exhibit 1), exhibit MFK4 (s 19 examination of Purves) at pp 9-11 and 15-16; exhibit MFK6 (s 19 examination of Manfield) at p 12; exhibit MFK1 (s 19 examination of Lissa) at pp 8-10 and 28-29; exhibit MFK2 (s 19 examination of Manasseh) at pp 11-13.
[19]Keily (exhibit 1) at [122]; respondents’ written submissions (11 August 2017) at [25]. See also the letter from DAT to Gognos dated 27 November 2009 (exhibit MFK70 to Keily (exhibit 1)) and MFK2 (s 19 examination of Manasseh) at p 9.
The business of DAT was, or was intended to be, the manufacture and distribution of “animal fodder production units”, described in the replacement prospectus for DAT (dated 25 October 2010) as:
“a hydroponic fodder production unit housed inside a purpose built 12 metre unit constructed of stainless steel, aluminium and glass. This unit is designed to grow fresh green organic fodder for foraging animal needs in a wide range of climatic conditions.”[20]
[20] Keily (exhibit 1), exhibit MFK76, at pp 1677 and 1687.
The respondents invited the court to find the business of the companies involves a real product which is innovative and has been enthusiastically received, attracting “a great deal of worldwide interest in the UAE and Argentina and otherwise”.[21] I accept that the fodder unit is a real product, and also accept that those involved with the companies, including Mr Lissa, Dr Manfield and Mr Zwar, are enthusiastic about it and its potential. I decline to go so far as to find that it has been enthusiastically received or attracted a great deal of worldwide interest, because this could only be based on the assertions to that effect by those centrally and intimately involved in the company, by reference to the purported orders placed for fodder units, about which, given the circumstances (that none have been proceeded with, and there has only been a sale of one unit, in 2011, with none since 2012), there is, objectively, necessarily some circumspection.
[21] T 5-24; respondents’ submissions in support of this and other factual findings (17 August 2017).

The investment model

The model used by Gognos and DAT was that:[22]
(a)investors were told that DAT would shortly (or within a certain limited period) list on the ASX;
(b)shares of Gognos were sold to investors on the basis that upon a listing of DAT on the ASX, each share would be “converted” into three DAT shares;
(c)for accounting purposes, investor-provided funds were recorded as being loaned to either DAT or its subsidiary, Dynamic Agri Tech Finance Pty Ltd (DAT Finance), and then loaned by either of those companies to Dynamic Fodder Pty Ltd.
[22]See [19] of ASIC’s written address. I have considered the parts of the s 19 examinations of Manasseh (MFK2) and Manfield (MFK6), as well as exhibits MFK160, 161, 162 (to Keily, exhibit 1), which are referred to in the footnotes to [19] of the written address, and am satisfied this is an accurate summary. The respondents did not submit otherwise in any event.
DAT is part of what was referred to as the “Dynamic group”, which comprises DAT, DAT Finance and Dynamic Fodder. Dynamic Fodder acted as the “treasury” for the companies, being the only company within the group with a bank account.
As at 30 September 2015, Gognos had 115 shareholders who had invested a total of $7,717,975 for 25,098,568 shares on issue.[23]
[23] Keily (exhibit 1) at [257] and exhibit MFK145.
Almost all the money investors paid to acquire shares in Gognos (apart from administrative costs associated with Gognos itself) was paid to Dynamic Fodder to fund the operations of DAT, including to pay costs associated with the attempted float. The money paid by an investor was first paid into Gognos’ account, then transferred to Dynamic Fodder, or to a third party to pay the expenses of Gognos or one of the companies in the Dynamic group.[24] According to Mr Manasseh, the intention was not that that money would ever be repaid to Gognos, but rather that Gognos would be repaid in the form of shares in DAT, once DAT floated.[25]
[24]Keily (exhibit 1) at [279] and [281]-[284], exhibit MFK2 (s 19 examination of Manasseh) at pp 26-27, 42 and 134, and exhibit MFK6 (s 19 examination of Manfield) at pp 12-14.
[25] Keily (exhibit 1), exhibit MFK2 (s 19 examination of Manasseh) at pp 135-136.
The investors have nothing to show for their investments. As Senior Counsel for the respondents acknowledged, “The money’s gone. There’s no doubt about that.”[26]
[26] Respondents’ oral submissions at T 5-31.
Although there are some investors who oppose the winding up of the company, on the basis that if the companies are wound up they will lose their money, ASIC submits that the fact is they have already lost their money. The respondents urge the court to give them the opportunity to turn things around, to try to recover something for the investors.

Office holders of Gognos

As at 23 March 2017[27] and 4 August 2017[28] the directors of Gognos were recorded as being Maurice Showa Manasseh (appointed on 31 December 2013), John Charles De Andrade (appointed on 22 January 2014) and Dominic Ka Kuen Sum (appointed on 12 January 2017, and who resides in Hong Kong). Mr Manasseh was also the secretary.
[27] Keily (exhibit 2), exhibit MFK193.
[28] Keily (exhibit 3), exhibit MFK199.
As at 6 August 2017, and currently, the directors are recorded as Mr Sum; and Barry John Davis, Michael Zwar and Gary Lissa, each appointed on 31 July 2017.[29]
[29] Zwar (exhibit 16), exhibit MZ-1.
Mr Zwar is a solicitor, and long-term associate of Mr Manasseh. Mr Lissa is an accountant, also a long-term associate of Mr Manasseh, as well as having provided accounting advice to the company for many years. Mr Zwar and Mr Lissa gave evidence at the trial; but there was no evidence from Mr Sum or Mr Davis; nor from Mr Manasseh or Mr De Andrade.
Mr Manasseh and Mr De Andrade are shown as ceasing as directors on 31 July 2017.[30]
[30] Ibid.
The former directors of Gognos were Nigel Charles Purves (between February 2008 and December 2013); Mr Lissa (between February 2008 and April 2012); and Terence John Shanahan, who is recorded as having been a director between 6 February 2008 and 12 January 2017,[31] but who in fact died on 29 November 2013.[32]
[31] Ibid.
[32] Keily (exhibit 1), exhibit MFK26.
Although Mr Manasseh only became a director of Gognos in December 2013, as Mr Lissa said there is no doubt he was a shadow director prior to this.[33]
[33] Keily (exhibit 1), exhibit MFK1 (s 19 examination of Lissa) at p 58.
Mr Manasseh was the secretary of Gognos from 31 December 2013 to 31 July 2017. Mr Zwar is now the secretary of Gognos.[34] Dr Russell Manfield thought he was the company secretary of Gognos, having signed a form to that effect,[35] but he is not.
[34]Keily (exhibit 3), exhibit MFK199 (company extract as at 4 August 2017); Zwar (exhibit 16), exhibit MZ-1.
[35] T 3-45 to 3-46.

Office holders of DAT

As at 23 March 2017, the directors of DAT were Mr De Andrade (appointed on 12 November 2009), Matthew Thomas O’Leary (appointed on 24 September 2010) and Mr Manasseh (appointed on 12 November 2009).[36]
[36] Keily (exhibit 2), exhibit MFK194.
As at 4 August 2017, ASIC’s records show the following as the directors: Mr O’Leary; and Mr Lissa, Mr Zwar and Mr Davis, each appointed 17 July 2017.[37]
[37] Keily (exhibit 3), exhibit MFK200.
Mr De Andrade and Mr Manasseh are recorded as ceasing as directors on 17 July 2017.[38]
[38] See also Keily (exhibit 3), exhibits MFK204 and MFK205.
The current secretary is Dr Russell Manfield, appointed 21 April 2015. Dr Manfield was also the secretary from 20 October 2008 to 6 October 2011, and for part of this time he was also a director. Dr Manfield resigned as a director in October 2011, consequent upon his personal bankruptcy at that time.[39] His bankruptcy ended on 16 December 2014.[40]
[39] Keily (exhibit 1) at [20]; Manfield (exhibit 23) at [3] and [4].
[40] Keily (exhibit 1), exhibit MFK9.
There are a large number of former directors of DAT, but recent former directors of DAT include Dr Manfield (who was a director between October 2008 and November 2009, and then again from March 2010 to October 2011), Mr Purves (between October 2008 and March 2010); and purportedly, Alexander Richard Martin, who is described as being a director between 24 September 2010 and 24 September 2010.[41] The anomaly of coincident dates is explained by Mr Martin lodging, in September 2014, a notification of his resignation, with effect from 24 September 2010, on the basis that his consent to join the board of the company was “procured pursuant to false, misleading and deceptive representations”, particularised as a representation that the company he was agreeing to join was a “newly-incorporated and newly-listed entity on the Australian Stock Exchange”.[42]
[41] Ibid.
[42] Keily (exhibit 1) at [19] and exhibit MFK8.
Dr Manfield is an engineer, who in December 2015 described his role with DAT as doing “the technical stuff”, working in with Mr Manasseh “who does the financial stuff”.[43] Mr Manasseh was responsible for bringing in the money.[44] He did this by, in Dr Manfield’s words, “tapping the Jewish network”, the Jewish community of which Manasseh is a member.[45] According to Dr Manfield, neither Mr De Andrade nor Mr O’Leary were involved in the day to day management of DAT; that was the role of Dr Manfield and Mr Manasseh.[46] Mr Manasseh described Mr O’Leary as a farmer, and as “the one who had the technology in the first place”.[47] There was no evidence from Mr O’Leary.
[43]          Keily (exhibit 1), exhibit MFK6 (s 19 examination of Manfield) at pp 4-5.
[44]          Ibid at p 11.
[45]          Ibid at pp 12 and 34.
[46]          Ibid at pp 18-19.
[47]See also Keily (exhibit 1), MFK5 (s 19 examination of De Andrade) at p 12; and MFK6 (s 19 examination of Manfield) at p 18.
It emerged during Mr Zwar’s cross-examination at the trial that the new directors of both Gognos and DAT may not have been properly appointed, having regard to each company’s constitution. This is discussed below.

Relationship between the companies

Dynamic group

DAT is the ultimate holding company for DAT Finance, owning 100% of its issued shares. As at 19 September 2016, the director and secretary of DAT Finance was Mr Manasseh, who was appointed 15 January 2009.[48] Mr Purves and Dr Manfield were formerly directors of DAT Finance. I proceed on the basis Mr Manasseh is still a director of DAT Finance, as it does not appear an updated company search forms part of the material before the court. Mr Manasseh said, at his s 19 examination, that he “had nothing to do with” this company, and was not aware he was a director of it.[49]   In any event, DAT Finance is a dormant company, which Dr Manfield said would have been wound up by now if they had the money to pay the legal fees for that.[50]
[48]          Keily (exhibit 1), exhibit MFK11.
[49]          Keily (exhibit 1), exhibit MFK2 (s 19 examination of Manasseh) at p 30.
[50]Keily (exhibit 1), exhibit MFK6 (s 19 examination of Manfield) at pp 5-7; see also MFK2 (s 19 examination of Manasseh) at p 131.

DAT Finance is the ultimate holding company for Dynamic Fodder, owning 100% of its issued shares. The current, sole director of Dynamic Fodder is Mr Manasseh, who was appointed on 4 February 2009. The previous directors were Dr Manfield and Mr Purves. The current secretaries are Dr Manfield and Mr Manasseh.[51]
[51] Exhibit 11, company extract as at 7 August 2017.
Dynamic Fodder is the trading entity within the Dynamic Group, or as Mr Manasseh described it, the “company that does the everyday work for the company” DAT.[52]
[52]Keily (exhibit 1), exhibit MFK2 (Manasseh’s s 19 examination) at p 48; and MFK6 (Manfield’s s 19 examination) at p 13. See also Keily (exhibit 1) at [58] and [59].
One set of consolidated financial accounts is prepared for the three companies within the Dynamic group; and another for Gognos.

DAT and Gognos

DAT has issued 72,900,000 shares, of which Gognos owns about 30.6 million, comprising:
(a)2,513,720 fully paid ordinary DAT shares; and
(b)28,116,008 partly paid ordinary DAT shares.[53]
[53] Keily (exhibit 1) at [29] and [132].
There are inconsistent and somewhat confusing documentary explanations for the circumstances in which Gognos acquired its shares in DAT.
The material includes reference to a Share Sale and Purchase Agreement entered into in October 2009, under which, it seems, Gognos agreed to sell the shares it then held in DAT Finance (then called Dynamic Agri Tech Pty Ltd) to DAT (then called Didasko), in exchange for being issued with 30,629,728 fully paid shares in DAT. The Share Sale and Purchase Agreement also provided for another company, Inquisitor Pty Ltd, associated with Mr Purves, to sell its shares in DAT Finance to DAT, in exchange for the issue of just over 13 million fully paid shares in DAT.[54] The final structure of the acquisition was later changed, “to provide an injection of capital into [DAT] within the foreseeable future and provide a new trading business to the Company”.[55] Documents lodged with ASIC in 2010 show:
(a)in January 2010, DAT having a total of 48 million ordinary shares which are fully paid in the amount of just over $46.5 million; and
(b)in July 2010, a request for correction, among other things, so that the share structure is 19,883,992 fully paid ordinary shares and 28,116,008 partly paid shares; the amount paid on all shares on issue reduced to $10,223,156.08; and the amount unpaid on these shares increased to $13,778,846.92.[56]
[54]Keily (exhibit 1) at [134]-[135] and exhibit MFK62. Although objection was taken by the respondents to [135], on the basis that it purported to give secondary evidence as to the content of a document, in the absence of any contrary submission from the respondents as to the meaning and effect of the Share Sale and Purchase Agreement, I am satisfied this is a correct statement as to the apparent effect, at least in part, of this agreement.
[55]Keily (exhibit 1), exhibit MFK69, letter Dr Manfield to Mr Seeto of the ASX, dated 24 August 2010, at points 8-10.
[56] Keily (exhibit 1) at [144] and exhibits MFK67 and MFK68.
Beyond the statement referred to in Dr Manfield’s letter to the ASX (referred to in footnote 55 above), the material does not explain how or why this change came about. In any event, Gognos was issued with the shares referred to in paragraph [59] above. The amount unpaid on the shares is the subject of a payment deed between Gognos and DAT, which is discussed commencing at paragraph [117] below.
Another possible explanation for the acquisition of the shares arises from documentation which purports to evidence the loan of $1.6 million from Gognos to DAT Finance in 2009, which was to be repaid in the form of Gognos receiving the shares referred to in paragraph [59] above.[57] According to Mr Manasseh, notwithstanding he (and Dr Manfield and Mr Purves) signed a letter dated 23 September 2009 referring to the fact of the loan of $1.6 million having been made, and that it had been repaid by the issue of the shares, this in fact never happened.[58]
[57]Keily (exhibit 1) at [335]-[341], and exhibits MFK166 (letter signed by each of Dr Manfield, Mr Purves and Mr Manasseh) and MFK167 (share capital history of DAT), cf and cn at pp 2048 and 2058.
[58] Keily (exhibit 1), exhibit MFK2 (s 19 examination of Manasseh) at pp 144-145.
There is then another level of confusion, because there appears to be a further financing agreement between Gognos and DAT Finance in 2010, pursuant to which Gognos is said to have loaned DAT Finance $1.8 million (comprised of an earlier loan of $1.6 million and then a further loan of $200,000), taking a fixed and floating charge over the assets of DAT Finance to secure the loan.[59] As Mr Keily, the ASIC investor, observes at [346] of his affidavit, it is not apparent whether the $1.6 million loan referred to in the 2010 agreement is the same as that referred to in the 2009 letter, or whether there was a further loan.[60] Mr Lissa, who was a director of Gognos in this period, and provided accounting advice to Gognos, was not able to explain this.[61] Mr Manasseh did not seem able to explain it either, other than to say the money was never paid by Gognos “in one hit”, “it was in dribs and drabs”, and it never went to DAT Finance really – it all went to Dynamic Fodder.[62] It was never repaid.
[59] Keily (exhibit 1), exhibit MFK168.
[60]The letter of 23 September 2010 (Keily (exhibit 1), exhibit MFK166) suggests there were two separate transactions; whereas Mr Lissa seemed to indicate they would have to be the same: MFK1 (s 19 examination of Lissa) at p 86.
[61] Keily (exhibit 1), exhibit MFK1 (s 19 examination of Lissa) at pp 74-76 and 81-88.
[62]Keily (exhibit 1), exhibit MFK2 (s 19 examination of Manasseh) at pp 131-133; see also exhibit MFK1 (s 19 examination of Lissa) at pp 92-93 and 95.
At some point, the purported loan from Gognos to DAT Finance was apparently assigned to a company called ACN 147 783 462 Pty Ltd, which I do not understand to be related to either Gognos or any of the Dynamic group companies. This company does not appear to have paid anything for the assignment of the debt. Again, neither Mr Manasseh nor Mr Lissa could provide a clear explanation.[63] Gognos continues to hold the charge over DAT Finance’s assets,[64] but that security is meaningless since DAT Finance has no assets and is a dormant company.[65]
[63]Keily (exhibit 1), exhibit MFK2 (s 19 examination of Manasseh) at p 139-141; exhibit MFK1 (s 19 examination of Lissa) at pp 82-84.
[64] Keily (exhibit 1) at [348], [359] and exhibit MFK169.
[65] Keily (exhibit 1), exhibit MFK1 (s 19 examination of Lissa) at p 76.
The material also includes a Deed of Agreement dated November 2013 between DAT and Gognos, which refers to a loan of $1.6 million, and further loans from Gognos as at 30 June 2013 totalling almost $6 million (including the $1.6 million).[66] This agreement contemplates dealing with the loan moneys to that point by way of a “debt to equity swap”, converting Gognos’ partly paid shares in DAT into fully paid shares and, in consideration of Gognos continuing to fund DAT, DAT would issue a further 35 million ordinary shares to Gognos. Both of these were expressed to be “subject to shareholder approval”. This never happened – Mr Manasseh described this arrangement as having been “scrapped”.[67]
[66] Keily (exhibit 1), exhibit MFK176.
[67] Keily (exhibit 1) at [376]-[378] and [380]; exhibit MFK2 (s 19 examination of Manasseh) at p 142.
The agreement also provided for payment of an annual consultancy fee to Gognos of $500,000, which would only be payable on completion of an IPO. That fee has never been paid, although does appear in the draft accounts of Gognos as “income” (this is discussed further below).
The documentation purporting to evidence the treatment of moneys transferred from Gognos to DAT (or DAT Finance), via Dynamic Fodder, is confusing to say the least.   I am not alone in that view, as it is apparent from the s 19 examinations that the office holders of the companies did not have a clear, if any, understanding either.[68] To use Mr Lissa’s words, “It’s messy. It’s messy”.[69] The bottom line, for present purposes, is that investors paid just over $7.7 million to Gognos. That money went to Dynamic Fodder, to fund the operations of DAT. In the books, that was recorded in various ways as a loan to DAT or DAT Finance, with the intention being that the “loans” would be repaid by the issue of shares in DAT once it floated. There are conflicting explanations for how Gognos came to own its current shares in DAT. There was no attempt by the respondents, either by evidence or in their submissions, to explain these matters.[70]
[68]          See also Keily (exhibit 1), exhibit MFK6 (s 19 examination of Manfield) at pp 58-60 and 64.
[69]          Exhibit MFK1 (s 19 examination of Lissa) at p 96.
[70]Cf the respondents’ original submissions (21 April 2017) at [162]-[165], which provides no explanation, and which were not relied upon in any event.

Failed listing

It was a central element of the fundraising scheme that DAT would be listed on the ASX, and that people who invested in Gognos would receive three shares in DAT, for every one share held in Gognos, when DAT floated.
On 27 July 2010 solicitors for DAT wrote to the ASX seeking in-principle approval for an ASX listing proposed for August 2010.[71] A prospectus in relation to the IPO for DAT was lodged with ASIC in September 2010.[72] On 25 October 2010 a replacement prospectus was lodged.[73] Following this, between November 2010 and 10 August 2011, ten supplementary prospectuses were lodged by DAT with ASIC, the main reason for which seems to have been to extend the closing date of the offers under the replacement prospectus.[74]
[71]          Keily (exhibit 1), exhibit MFK71.
[72]          Keily (exhibit 1) at [148] and [161].
[73]          Keily (exhibit 1) at [165] and exhibit MFK76.
[74]Keily (exhibit 1) at [149] and [168]. I note that there was an objection taken to [168], on the basis that it was secondary opinion as to the content of documents. Having reviewed the exhibits MFK78, 79, 80, 81, 82, 83, 84, 85, 86 and 87, I am satisfied the summary in Keily at [168] – as to the apparent main objective of the supplementary prospectuses – is a fair one.
On 6 October 2011, DAT withdrew its application to list on the ASX, as it was unable to raise the minimum subscription to list, which at that time was $4.55 million.[75] DAT has lodged no further prospectuses since 2011.
[75]Keily (exhibit 1) at [150], [173] and MFK93 and MFK87 (tenth supplementary prospectus), referring to the minimum subscription amount of $4.55 million.
The evidence supports the submission of ASIC that the fates of the companies, Gognos and DAT, are interdependent, in that DAT is entirely dependent on Gognos investors for funding; and Gognos is entirely dependent on DAT successfully listing on the ASX in order to return any value to shareholders.[76] The evidence also supports a finding that a float of DAT cannot happen in the foreseeable future (apart from anything else, it has to have at least three years of unqualified audits, which is unlikely in the foreseeable future).[77]
[76] ASIC’s written address at [23]-[24].
[77] Zwar at T 3-7; Manfield at T 3-68; Lissa at T 4-13.

Recent events

As already noted, at trial the respondents opposed ASIC’s application, not on the basis of an active challenge to any of the matters relied upon by ASIC in terms of past conduct, but on the basis of recent changes in the management of the companies, advances in the preparation of the companies’ accounts, and the provision of the $400,000 facility. I will address the evidence concerning the recent changes below, but propose to first deal with the other bases of ASIC’s application. Although the respondents did not contest the majority of ASIC’s case, based on conduct prior to 17 July 2017, they did not concede those matters.[78] It is therefore necessary to address them by reference to the evidence; which is required in any event as part of the task of the court in evaluating the overall factual matrix.

Contraventions of the Corporations Act

[78] T 5-34.

Contraventions of the Act by Gognos

I am satisfied on the evidence that Gognos has contravened, and in the respects indicated below, continues to contravene, the Corporations Act in various ways. I also accept that these provisions, which Gognos (and, as discussed below, DAT) has contravened are important provisions, aimed at ensuring the affairs of companies are appropriately regulated for the protection of shareholders and the public.[79]
[79] ASIC’s written address at [94].

Failure to comply with the office holder requirements

Section 201A(2) of the Act requires a public company to have at least three directors, at least two of which must ordinarily reside in Australia.
I accept the analysis of ASIC that from 27 April 2012 until at least 12 January 2017 Gognos did not have three directors as required by s 201A.[80] Relevantly, in that period:
(a)from 27 April 2012 to 29 November 2013 only Mr Purves and Mr Shanahan were directors (as noted above, Mr Shanahan remained recorded on ASIC’s records as a director until 12 January 2017, but in fact he was deceased);
(b)from 29 November 2013 to 30 December 2013 only Mr Purves was a director;
(c)from 31 December 2013 to 21 January 2014 only Mr Manasseh was a director;
(d)from 22 January 2014 to 11 January 2017 only Mr Manasseh and Mr De Andrade were directors.
[80] ASIC’s written address at [96]-[98].
The evidence from Mr De Andrade, given in his s 19 examination, was that he was not involved in or familiar with the affairs of Gognos, and that he was a director in “name only” to satisfy the minimum number of directors required.[81]
[81] Keily (exhibit 1), exhibit MFK5 (s 19 examination of De Andrade) at pp 57-60, 65-68 and 88.
On 12 January 2017 Mr Sum (a Hong Kong resident) was appointed a director – which, together with Mr Manasseh and Mr De Andrade, brought the number of directors to three.
Although issues with the validity of the newest appointments emerged during the trial, for present purposes it seems the issue has resolved, such that there are now the requisite number of directors.

Failure to lodge financial reports with ASIC

Section 292 of the Corporations Act requires that a financial report (as to which see s 295) and a directors’ report be prepared for each financial year by all public companies. Section 319(1) requires the company to lodge the report with ASIC, within four months of the end of the financial year (s 319(3)). Contravening that requirement is an offence of strict liability (s 319(2)). Gognos has contravened, and continues to contravene, these provisions.
Financial reports for Gognos for the years ended 30 June 2010, 2011 and 2012 were all lodged past the deadline for lodgement.[82] The 2012 financial report was lodged over 12 months late, following commencement of an ASIC prosecution against Gognos.[83] Financial reports for the years ended 30 June 2013, 2014, 2015 and 2016 have not been lodged at all.[84]
[82] Keily (exhibit 1) at [79].
[83] Keily (exhibit 1) at [95]-[97].
[84] Keily (exhibit 1) at [78]; Keily (exhibit 2) at [8].
In the past, various reasons were put forward to ASIC to explain why the financial reports had not been prepared on time, or at all, including that preparation (and audit) of them was dependent on information being supplied by third parties – which seems to be a reference to DAT[85] – and also a lack of funds. By letter dated 2 March 2016 Mr Lissa, in his capacity as the accountant for Gognos, advised ASIC that “[a]t this point in time the company has no funds available to arrange for the completion and lodgement of the outstanding financial reports”.[86] More recently, in a letter dated 5 June 2017, Mr Lissa advised ASIC that “there are no resources available at present to satisfy the notice requiring the company lodgement of financial statements and reports”.[87] Lack of funds seems to have been the reason the work was not done prior to this also.[88]
[85]See, for example, Keily (exhibit 1), exhibits MFK31 (2010 report), 34, 36, 39 (2011 report), 46 (2013 report) and 50 (2015 report). See also MFK54 (letter from Lissa to ASIC dated 7 October 2015). See also Keily (exhibit 2) exhibit MFK196 (2016 report).
[86]Keily (exhibit 1), exhibit MFK50; see also MFK52 (letter from Mr Lissa dated 31 May 2016, to similar effect).
[87] Keily (exhibit 3), exhibit MFK202.
[88] See Keily (exhibit 1) exhibit MFK1 (s 19 examination of Lissa) at pp 12-13.
It seems something of an impasse developed, because Gognos’ auditor (Mr Haines) was unable to complete outstanding audits of Gognos’ accounts, as he required audited financial reports for DAT.[89] But the auditor of DAT (Mr Wildermuth) also required financial information, regarding Gognos, that he was not provided with.[90] With no money for either company to pay for the records to be prepared, and audited, they were left in limbo, to use Mr Lissa’s word.[91]
[89] Haines (exhibit 6) at [23] and [25].
[90]Haines (exhibit 6) at [29]; Wildermuth (exhibit 9) at [20]-[27]. See also Keily (exhibit 1), exhibit MFK1 (s 19 examination of Lissa) at p 41.
[91]Keily (exhibit 1), exhibit MFK1 (s 19 examination of Lissa) at p 41. See also MFK2 (s 19 examination of Manasseh) at pp 163-164.
The audit of the 2013 financial statements for Gognos has not been completed, and Mr Haines has done no work in relation to the audits of the financial statements for Gognos for the 2014 or 2015 years (because the 2013 audit needs to be done first), and has not been paid for any of the 2013 audit work that his firm did for Gognos.[92] He has not rendered any bills for that work, because, he said, “the work was not complete to our level”.[93] Mr Haines has nevertheless indicated he is prepared to do the audit of the 2013 and 2014 accounts for Gognos, as well as being the auditor for DAT, if the records are made available to him.
[92] Haines (exhibit 6) at [31], [32] and [34].
[93] T 2-5.
Draft accounts for Gognos have now been prepared, by Mr Lissa, for the financial years 2013 to 2016. Mr Lissa estimates it will take the auditor three to four months to complete the audit of Gognos and DAT; and that this will cost between $70,000 and $100,000.[94] The company cannot presently pay those fees. According to Mr Zwar, those who are funding the litigation will pay the auditor’s costs.[95]
[94] Lissa (exhibit 26) at [30] and [31].
[95]T 2-81; although cf submissions on the respondents’ behalf which seemed to indicate Mr Lissa would bear those costs: T 5-29.4; 5-50.20.

Failure to report to members annually

Section 314(1)(a) of the Corporations Act requires a company to provide, annually, a financial report, directors’ report and auditor’s report on the financial report to members. As already noted, there has been no financial report for any of 2013, 2014, 2015 or 2016 prepared, and no auditor’s report. There has been no reporting to members. Contravention of this provision, in the past and continuing, is established.
It was previously contended, on behalf of the respondents, that Mr Manasseh had personally kept “Gognos investors” up to date by telephone or in person.[96] That submission was not maintained at the hearing; nor was there evidence to support it.[97] But in any event, such informal communication could not satisfy the statutory obligation in s 314.
[96] Respondents’ submissions (21 April 2017) at [65].
[97]Other than from Mr Shellim, one of the investors called by the respondents, who referred to being kept up to date from time to time by Mr Manasseh (exhibit 30 at [16]).

Failure to hold AGMs

Section 250N requires a public company to hold an annual general meeting, within 18 months of its registration and then annually, within five months of the end of its financial year. Contravention of this provision is also an offence of strict liability (s 250N(2A)).
There has never been an AGM of Gognos.[98]
[98]Keily (exhibit 1), exhibit MFK1 (s 19 examination of Lissa) at p 16; and MFK2 (s 19 examination of Manasseh) at pp 21-23. See also the evidence of Manfield (exhibit 23) at [27].

Failure to keep and produce accurate accounting records

Section 286(1) of the Corporations Act requires a company to keep written financial records that:
(a)correctly record and explain its transactions and financial position and performance; and
(b)would enable true and fair financial statements to be prepared and audited.
Failure to comply with this provision is also a strict liability offence (s 286(3)).
This is the only one of the contraventions alleged by ASIC that the respondents maintained their submissions in relation to, arguing that Gognos has kept, and produced to ASIC, financial records.[99] In part, Gognos’ submission is on the basis that s 286 does not oblige a company to “produce” “accurate” records, but merely requires a company to “keep” financial records. That submission is rejected because the obligation under s 286 requires the financial records that are kept to “correctly” record and explain a company’s transactions and financial position and performance, and to enable “true and fair” financial statements to be prepared – fundamental to that obligation is that the financial records that are kept are accurate.
[99] See the respondents’ submissions (21 April 2017) at [70]-[79].
The obligation under s 286 is a present, and continuing one – not one that can be met by retrospective action.[100] The obligation is one to keep accurate accounting records, so as to disclose the financial position of the company at all times and at any time. The preparation of documents in the course of this proceeding, in order to remedy non-compliance with s 319 (among other things) does not cure what is plainly, on the evidence, a failure over a number of years to comply with s 286.
[100]See, for example, Van Reesema v Flavel (1992) 7 ACSR 225 at 229, referring to Manning v Cory & Sumner [1974] WAR 60 at 62; and Trinick as Liquidator of Forgione Family Group Pty Ltd (in liq), in the matter of Forgione Family Group Pty Ltd (in liq) v Forgione (2015) 106 ACSR 600 at [205].
The evidence of Mr Lissa also supports a finding that Gognos has contravened s 286. In response to a notice issued by ASIC to Gognos requiring production of all management accounts showing the financial position of Gognos between 1 July 2012 and 1 September 2014, Mr Lissa, on behalf of Gognos, advised that “there are no management accounts since 1 July 2012”.[101] Draft financial records that were produced, in response to ASIC’s request for production of financial statements for the 2013 to 2015 financial years, were described by Mr Lissa as something he had “just run off” so that he had something to give ASIC, but which he said were “nowhere near complete”[102] and, in relation to the drafts for the 2013 year, “out of date”.[103]
[101]         Keily (exhibit 1) at [112] and [113] and MFK54.
[102]         Keily (exhibit 1), exhibit MFK1 (s 19 examination of Lissa) at p 43.
[103]         Keily (exhibit 1), exhibit MFK54 (letter from Lissa to ASIC dated 7 October 2015).
The failure to lodge financial reports, as required by s 319, also demonstrates the failure to comply with s 286 – such records as were kept were seemingly not such as to enable true and fair financial statements to be prepared and audited.
Apart from relying on their written submissions in relation to this matter, the respondents did not address the matter any further in the evidence during the hearing. I accept the submissions for ASIC that contravention of s 286 by Gognos has been established.[104]
[104] ASIC’s written address at [117]-[127].

Contraventions of the Act by DAT

DAT has, similarly, contravened ss 319, 314, 250N and 286 of the Corporations Act.

Failure to lodge financial reports

DAT is in an even worse position than Gognos. The financial report for 2008 was lodged almost two years’ late, and the 2009 financial report was lodged one year late. The last financial report to be lodged was that for the 2010 financial year.[105] No financial reports for the years 2011 to 2016 have been audited, or lodged with ASIC.[106]
[105] Keily (exhibit 1) at [40] and [42].
[106] Keily (exhibit 2) at [12].
Mr Wildermuth was the auditor for the Dynamic group between December 2008 and April 2016.[107] He resigned as auditor of the group in April 2016, due to personal health reasons. Although a draft audit report for the year ended 30 June 2011 was prepared, he could not complete the audit for that year, because he was waiting for various documents and information. The draft report indicated the Dynamic group had an operating loss before tax of $2,249,270 and a negative cash flow from operating activities of $2,247,896. An explanation of the going concern of the consolidated group noted that “the consolidated entity does not have a source of income and is reliant on equity capital or loans from third parties to meet their operating costs. These conditions indicate a material uncertainty that may cast significant doubt about the consolidated entity’s ability to continue as a going concern” (at [21]). The draft report also recorded interest bearing, unsecured loans at call of $2,281,170 to the group from Gognos (at [22]). He has done no work for the 2012 to 2015 years. His firm is owed $25,620 in outstanding fees.
[107] Wildermuth (exhibit 9).
Draft financial statements have now been prepared for Dynamic Fodder (as the trading entity for the Dynamic group, which includes DAT) for the financial years ended 2011 to 2016.[108] As already noted, Mr Lissa estimates it will take three to four months for Dynamic Fodder / DAT’s and Gognos’ accounts to be audited, at a cost of $70,000 to $100,000.
[108] Scotney (exhibit 31) at [9], [12] and [19], and exhibit FS1.

Failure to report to members annually

There has been a failure by DAT to report to members annually, as required by s 314. That Mr Manasseh was liaising with some members personally and by telephone[109] is not in any way sufficient to meet this important obligation.
[109] Keily (exhibit 1), exhibit MFK2 (s 19 examination of Manasseh) at p 83.

Failure to hold AGMs

Contravention of s 250N of the Act by DAT is established on the evidence. DAT has not held an AGM since at least 2010.[110] Dr Manfield explained the failure to hold AGMs as a “funding issue”; Mr Manasseh explained it on the basis that there was “nothing to tell”, because “all the shareholders who I know will speak to me every time”.
[110]Keily (exhibit 1), exhibit MFK2 (s 19 examination of Manasseh) at p 54 and exhibit MFK6 (s 19 examination of Manfield) at p 67.

Failure to keep and produce accurate records

This again was the only one of the alleged contraventions which the respondents maintained their submissions in relation to,[111] although it was not a matter addressed during the hearing, either in terms of evidence or argument.
[111] Respondent’s submissions (21 April 2017) at [87]-[100].
The evidence establishes that, in response to a notice issued by ASIC requiring production of various financial documents and books for DAT for the 2011 to 2015 financial years, the only documents produced were those related to Dynamic Fodder, not DAT.[112] As noted above, DAT is part of a group of companies comprising DAT, Dynamic Fodder and DAT Finance.   Of those, Dynamic Fodder is the trading entity, and the only one that has a bank account. The evidence was that only one set of consolidated accounts is produced for the group – in Dynamic Fodder’s name. ASIC submits that even in those circumstances, each company remains obliged to keep written financial records that correctly record and explain its transactions and financial position and performance, relying on Re Faymere Pty Ltd,[113] in which Master Weld observed, at p 14:
“I would not conclude that there is any impropriety in related or associated companies conducting their affairs through a single bank account where appropriate accounting records are kept which enable the isolation of accounting and financial analysis of the affairs of each of the companies to be made.”[114]
[112]         Keily (exhibit 1) at [46] and [47].
[113]         Supreme Court of Queensland, Master Weld, No. 180 of 1985, 12 November 1986, unreported.
[114]         Emphasis added.
I accept ASIC’s submissions in this regard.[115] No authority was cited by the respondents to support the contention that production of Dynamic Fodder’s financial records was sufficient to meet DAT’s obligation under s 286. Accordingly, I find DAT has also contravened s 286.
[115] ASIC’s written address at [137]-[142].

Contraventions are continuing

The contraventions of the Act by both Gognos and DAT are continuing. Notwithstanding ASIC’s investigation commenced over two years ago; and the application for winding up was filed in September 2016, the contraventions have not been remedied.
I accept that the preparation of the accounts of both companies has advanced. But it remains concerning that, despite the considerable passage of time, they have still not been completed, and are not yet up to date. Also concerning is the fact that these public companies have not been able to prepare financial accounts, and have them audited, for so many years, because of an inability to pay the fees for that to occur, notwithstanding the investment of over $7.7 million from members of the public.[116]
[116] ASIC’s written address at [246].
The respondents submit it is in the public interest that the financial statements are audited and the accounts are completed.[117] That is accepted – but it should have happened some time ago, which would have resulted in AGMs being held, and information being provided to shareholders. The need for that to occur is not an answer to the winding up application, given all the other circumstances.
[117] T 5-29.

Representations to the ASX

At some time between 24 August and 25 October 2010[118] Gognos and DAT entered into a payment deed, under which Gognos agreed to pay DAT the amount outstanding on its partly paid shares[119] – a total amount of $13,776,843.92 – in the following instalments:
(a)$4,779.721.36 by 31 December 2010;
(b)$4,779,721.36 by 31 December 2011; and
(c)$4,217,401.20 by 30 December 2012.
[118]The timing is not clear, but I reach this finding on the basis of the following. The payment deed bears the date 2010 (Keily (exhibit 1), exhibit MFK99); it is referred to, as a draft, in correspondence from DAT to the ASX dated 24 August 2010 (Keily (exhibit 1), exhibit MFK69); and is referred to as something “Gognos has entered into” in cl 11.3.3 of the replacement prospectus, which is dated 25 October 2010 (Keily (exhibit 1), exhibit MFK76). See also MFK100 (letter Gognos to the ASX dated 1 December 2010, referring to the deed).
[119] As to which, see the discussion at paragraphs [61]-[62] above.
The evidence supports a finding that DAT and Gognos entered into the payment deed to satisfy the ASX that DAT was suitable to be listed, as one of the pre-conditions for listing imposed by the ASX was that DAT enter into a payment deed in respect of the partly paid shares.[120]
[120]See Keily (exhibit 1), exhibits MFK 69 (letter DAT to the ASX dated 24 August 2010); MFK71 (letter McCullough Robertson, solicitors for DAT, to the ASX, dated 27 July 2010 at [19]-[21]); MFK73 (letter ASX to McCullough Robertson, dated 14 September 2010); also, Keily (exhibit 1) at [195] and MFK101 (email ASX to Tim Wiedman of McCullough Robertson).
Statements that Gognos intended to make the payments to DAT,[121] and that DAT expected Gognos to make the payments, albeit the date for payment of the first instalment was increasingly revised to a later date,[122] were made on a number of occasions, in particular in the various supplementary prospectuses that were lodged. The balances of Gognos’ bank accounts as at each of those revised later dates[123] indicates there was no reasonable basis on which to make such statements.
[121] For eg, Keily (exhibit 1), exhibit MFK100.
[122] For eg, Keily (exhibit 1), exhibits MFK84, MFK85, MFK86 and MFK87.
[123]Keily (exhibit 1) at [193]. As at 31 January 2011 the combined cash balance in Gognos’ bank accounts was $92,459.67. After this, and up to 30 September 2011 (the revised date in the tenth supplementary prospectus), the balances never rose above $61,000.
The situation becomes worse, however, because in a letter dated 27 April 2011 from DAT to the ASX, signed by Dr Manfield, DAT stated that it had received the payment of $4,779.721.36, which Gognos was due to pay by 31 December 2010, “in cleared funds”.[124]
[124] Keily (exhibit 1), exhibit MFK90.
This statement was clearly false. This finding is supported by:
(a)Mr Keily’s analysis of Gognos’ accounts, referred to in his affidavit (exhibit 1) at [197].
(b)Mr Manasseh’s answers, given in his s 19 examination,[125] that although he was not aware of the payment deed, he could say that Gognos did not have the ability to pay $4.8 million to anybody, unless DAT floated – in Mr Manasseh’s words, “no-one got any money”.
(c)Mr Lissa’s statement, in his s 19 examination, that Gognos did not pay any of the scheduled instalments, because it had “no funds to do it”.[126]
(d)The statements – in the eighth, ninth and tenth supplementary prospectuses – that payment of the first instalment had been deferred to the revised “closing dates”, 20 May 2011,[127] 15 July 2011,[128] and then 30 September 2011[129] – all of which post-date the letter of 27 April 2011, in which it was said that the first instalment had been received in cleared funds.
(e)Dr Manfield saying, in his s 19 examination, that DAT never received any of the instalments, because “the spirit” of the repayment plan was that the payment was predicated on the listing going ahead.[130]
(f)Dr Manfield’s evidence in cross-examination at trial. In his affidavit, Dr Manfield said that each of the instalments, other than the first one, were conditional upon DAT listing on the ASX. Dr Manfield said he signed the 27 April 2011 letter (MFK90) “in full knowledge that the sum of $4,779,721.36 had already been received from Gognos”.[131] But in cross-examination, after some prevarication from Dr Manfield about the wording of the 27 April 2011 letter, when it was put to him that in fact the money was not paid, his response was that:
“And that sum wasn’t paid, was it? --- Well, it was paid. That – the amount of money that Gognos had advanced to DAT in the lead up to the listing attempt, it totalled around about that number - $4.7million. Those funds had already been received”; and
“Well, I suggest to you that, in fact, when one looks at the records, Gognos had only several thousand dollars in its bank account in the lead up to the end of December 2010? --- That may well have been the case, but my point is that the investors – the people who are invested in Gognos, that money had substantially passed on to DAT to around about that – that figure at the time of the float. So, in fact, that figure had been received – as it says here, it’s cleared funds – by DAT.”[132]
[125]         Keily (exhibit 1), exhibit MFK2 at pp 146 to 148.
[126]         Keily (exhibit 1), exhibit MFK1 (s 19 examination of Lissa) at pp 99 and 101.
[127]         Exhibit MFK85.
[128]         Exhibit MFK86.
[129]         Exhibit MFK87.
[130]         Keily (exhibit 1), exhibit MFK6 (s 19 examination of Manfield) at pp 61 and 62.
[131] Manfield (exhibit 23) at [28].
[132]         T 3-56.
Dr Manfield’s explanation in this regard lacks credibility. It is clear none of the instalments under the payment deed were paid by Gognos to DAT. That the money received by Gognos from investors was passed onto DAT, as seems to have been the case, is not the same thing as a particular payment provided for under a deed entered into to satisfy one of the listing requirements of the ASX.
As well as revealing concerning conduct in the past, in terms of a willingness of DAT to make statements to the ASX that were not correct, Dr Manfield’s treatment of it now, as a person with a proposed continuing central role in the conduct of the affairs of both companies, gives rise to ongoing concern.
This issue was another matter in respect of which the respondents made no submissions at the hearing; although it was not conceded.

Representations to potential investors

The next matter relied upon by ASIC is that, despite the fact that DAT withdrew its application to list on the ASX in October 2011, and that it has not lodged another application for listing since, persons on behalf of Gognos – principally Mr Manasseh – continued to make representations to investors to induce them to invest, about the financial benefits shareholders might derive from an ASX listing by DAT. ASIC contends that Mr Manasseh made representations to investors that significant funds were expected to be received from overseas, in the form of promised product sales, and promised share subscriptions, which would facilitate an ASX listing.[133]
[133] ASIC’s written address at [153].
In his s 19 examination, when Mr Manasseh was asked what the “sales pitch was to the investors” after the prospectus was withdrawn in 2011, he said “[w]e told them that we were going to float very shortly, because we had documentation to prove that we were working to float”, “[b]ecause we had a lot of people from overseas – were going to put money into the company”. He said he would “show them the orders we have and I show them the commitment from people overseas who are going to give us the money”.[134] Even after the withdrawal of the prospectus, he was still actively raising funds from people.[135]
[134] Keily (exhibit 1), exhibit MFK2 (s 19 examination of Manasseh) at pp 35-36, 60 and 62.
[135] Ibid, at p 62.

Product sales orders

Gognos and DAT engaged the services of a sales agent in Argentina, Mr Dov Libman, to generate sales of the fodder units. According to Mr Lissa, Mr Libman “has been attempting for a period in excess of five years to negotiate concluded sales with individuals and governments and statutory authorities in Argentina”.[136]
[136]Lissa (exhibit 26) at [9]; also Keily (exhibit 1), exhibit MFK2 (s 19 examination of Manasseh) at pp 77-78.
According to invoices produced to ASIC in the course of its investigation, the following sales orders have previously been given to DAT or Dynamic Fodder:
(a)Invoice dated 20 May 2013, directed to Gobierno de la Provincia de Buenos Aires, for the supply of 100 units, at a cost of US$160,000 each, making a total of US$16 million. The invoice requires a minimum deposit of US$8 million (50% of the total invoice amount) within 30 days “to confirm order”.[137]
(b)Invoice dated 23 August 2013, directed to Establecimiento La Redonda, for the supply of 30 units, for a total cost of US$4.8 million. Again, the invoice requires a 50% deposit to be paid within 30 days.[138]
(c)Invoice, presumably dated September 2013, directed to Ministerio de Produccion y Desarrollo – Gobierno de Catamarca, for the supply of 5 units, for a total cost of US$800,000; again requiring a 50% deposit within 30 days.[139]
[137] Keily (exhibit 1), exhibit MFK108.
[138] Ibid, exhibit MFK109.
[139]Ibid, exhibit MFK110 (the date of the invoice is not legible, but it is captured within an email from Dov Libman to Manasseh dated 19 September 2013).

In Paino v MDN Mortgages Pty Ltd [2009] NSWSC 898 a solicitor who was a director of and had a significant financial interest in the defendant company was restrained from acting for the company, on the basis that his “personal interest in the outcome [was] such that, if he were to continue to act, the Court may be deprived of relevant objectivity in the preparation and presentation of the case” (at [31]).
In Pearlbran v Win Mezz No. 19 Pty Ltd [2009] QSC 292 the plaintiff’s solicitor was the owner and controller of a company, Boshanje Developments Pty Ltd, and had drafted pre-sales contracts between that company, as purchaser, and the plaintiff, which were being relied upon to enforce an agreement with the defendant to fund a property development. Even apart from the prospect that the solicitor would be a witness, it was held that he had “a personal or reputational interest in the result additional to his interest in doing his best for his client to succeed in the action” (at [18]) and that “there is the distinct possibility of a real or apparent conflict between his personal interest and his duty to the Court” (at [23]), matters “which argue against him being observably independent to a fair minded, reasonably informed member of the public” (at [28]).
The respondents referred to r 27.2 of the Australian Solicitors Conduct Rules, which deals with the situation in which it becomes apparent that a solicitor is required to give evidence material to the determination of a contested issue. Other than where the solicitor is appearing as an advocate, rule 27.2 permits the solicitor to continue to act “unless doing so would prejudice the administration of justice”. As McMeekin J observed in Hempseed v Ward at [37] this rule picks up the test referred to in Kallinicos.
Reflecting the authorities that have just been discussed, I observe that, in addition to articulating the paramountcy of a solicitor’s duty to the court and the administration of justice (r 3.1), the Australian Solicitors Conduct Rules 2012 also require, as a fundamental ethical duty, that a solicitor avoid any compromise to their integrity and professional independence (r 4.1.4).
The concerns that arise given the numerous interests of and associated with Mr Zwar in relation to the companies and those centrally involved in them, including Mr Manasseh, are the result of the combination of what is an apparent conflict, between his current retainer for the companies, against the background of acting for shareholders in complaints against and about the companies, and the conduct of Mr Manasseh in particular; his role as one of the new directors, and as a witness giving evidence going beyond formal, uncontroversial matters; and importantly the apparent conflict between his personal interests in the companies (as a substantial shareholder, through his super fund, and a director), his financial interest in the outcome of the proceedings, his close personal relationship with the people involved in the companies, his personal reputational interests and his obligation to the court – all of which compound to strongly call into question the ability of Mr Zwar to discharge his duty to the court as an independent and objective lawyer unfettered by concerns about his own interests.
How Mr Zwar could have described his position in 2014 as “somewhat difficult”, but presently categorically deny any conflict – given the multifarious interests he now has – is difficult to comprehend. If his position was “somewhat difficult” in 2014, it is irreconcilable now. In my view, the submission by ASIC that Mr Zwar has displayed a “startling lack of insight” is justified.
It was not submitted, nor do I find, that Mr Zwar’s evidence ought to be rejected outright, as lacking credibility or reliability, given his conflicted position. Rather, ASIC’s contention was that the lack of insight demonstrated by Mr Zwar, one of the new directors said to have taken over the management of the companies, was a relevant matter to be taken into account by the court in considering whether it is satisfied there is now, despite the past conduct, no longer a lack of confidence in the conduct and management of the affairs of the companies.[299]
[299] ASIC’s written address at [77]-[78] and [207]-[209].
The respondents submitted that even if the court should find that there was a conflict of interest, this could not support a finding that the court could not have confidence in the management of the companies going forward, with Mr Zwar as one of the three new directors appointed.[300]
[300] Respondents’ further written submissions on the conflict issue at [39].
I reject that submission. The long-standing commercial and personal involvement of Mr Zwar with Mr Manasseh and the companies, and the lack of insight shown by Mr Zwar, in placing himself in the position he has as a solicitor for the respondents, are relevant matters, amongst the many other matters that are addressed in these reasons, and support my conclusion that there remains a justified lack of confidence in the management of these companies.

Has Mr Manasseh really been cast adrift?

The clear strategy of the respondents at the beginning of the trial was to distance themselves from Mr Manasseh – describing him as having been “cast adrift”, and effectively “thrown under the bus”, with the “investors who have the money at stake … [having] now taken over the management of … both companies”. There was no attempt to contest the allegations regarding the actions of the past directors. Mr Manasseh was not called to give evidence.
Consistently with this, the effect of Mr Zwar’s evidence was that he had “forced the issue”, “forced Mr Manasseh to resign”, and also “forced his wife quite forcefully to … support the company”.[301] Mr Zwar said that it took a while, that he had been pressuring Mr Manasseh to resign for many months, and that he (Mr Zwar) was the moving force because there was a necessity for someone to effectively take charge of the companies.[302] He “completely disagreed” with the proposition put to him in cross-examination that the change to management of the company was a carefully planned strategy between him and Mr Manasseh, in order to defeat ASIC’s application, “absolutely” denying that he was a “cat’s paw for Mr Manasseh”.
[301] T 2-71 to 2-72.
[302] T 2-76 to 2-77.
Dr Manfield’s evidence painted a somewhat different picture. He said the change of directors had been a discussion point with Mr Manasseh for about a year (or even longer[303]), but that they came to a head in September 2016 when this proceeding commenced. In particular he referred to a meeting he had with Mr Manasseh in mid-December 2016 about possible candidates for new directors to come on board, referring to a “continued theme” that “we may be needing to get some fresh direction to the company and add some new directors to enact that fresh direction”.[304] He agreed that Mr Zwar and Mr Manasseh were the people driving the idea of new directors coming onto the board, and said that Mr Manasseh was willing to depart the board, saying “Oh, yeah, he is – he has not been reluctant to – to – to leave if there was someone who could do the job better than him”.[305]
[303]         T 3-41.
[304]         T 3-21 to 3-23.
[305]         T 3-48.
The evidence strongly supports the inference that although Mr Manasseh is no longer a director of Gognos or DAT, he is still very much involved in the companies. For example:
(a)he remains the director of Dynamic Fodder, the trading or operating company for the Dynamic group;
(b)his wife is funding this litigation, to an unlimited extent;
(c)he is in regular contact with Dr Manfield (who, in response to the question how regularly he speaks to Mr Manasseh said he would “have to take off my shoes and socks to count them in a day”, “we would speak very frequently”[306]), including having spoken to him on the phone on the morning he gave his evidence;[307]

(d)he also has close and frequent dealings with Mr Zwar and Mr Lissa[308] – he spoke to Mr Lissa during the hearing, to ask how the court proceeding was going;[309]
(e)Dr Manfield carefully responded to the proposition put to him, that the respondents were conducting their case on the basis that Mr Manasseh no longer has any involvement in the conduct of the companies by saying “I would have thought Mr Manasseh no longer has any role as a director of the company”[310] –and when it was put to him that Mr Manasseh is still intimately involved in the conduct of the companies, Dr Manfield’s response was “If he can bring the money in, we’d be very grateful”;[311] and
(f)Mr Manasseh was centrally involved in the plan to replace the directors, including identifying Mr Davis and then Mr Zwar and Mr Lissa, people with whom he has longstanding relationships, as appropriate replacements – for him and Mr De Andrade.
[306]         T 3-25.
[307]         T 3-42.
[308]         Manfield T 3-46.
[309]         T 4-9.
[310]         My emphasis.
[311]         T 3-50 to 3-51.

I accept the submission by ASIC that the whole idea of the departure of Mr Manasseh as a director, the appointment of the new directors, and the $400,000 facility, was a plan put together by Mr Zwar and Mr Manasseh (with Mr Lissa and Dr Manfield) to ensure the companies could continue to operate beyond the hearing of this matter. I do not accept that this was some of the shareholders “striking back” or taking over the companies; as opposed to the same people who have been involved with Mr Manasseh for a very long time, putting in place a strategy to try to resist the winding up application.
In closing submissions for the respondents it was accepted that the change of directors was “to defeat these proceedings and to defeat the application to wind up” because, were Mr Manasseh and Mr De Andrade still directors running the company, “one would have thought there would have been very little prospect of the companies resisting the application”.[312]
[312] T 5-29.
In contrast to the manner in which the case was opened for the respondents, it was also said that the court would find it “incredible” that Mr Manasseh – as the person who had been, historically, the driving force behind these companies, having been involved for many years with the companies and people like Dr Manfield, and having a continuing interest in the companies because of his family’s shareholding in them – would not seek to keep in touch to find out what is happening in these proceedings because, among other things, he continues to have a stake in these companies, through family shareholding, and his wife has invested a significant amount of money in the defence of these proceedings.[313]
[313] T 5-30.
As I have already noted earlier, there was no evidence from any of the other directors, Mr Davis, Mr O’Leary or Mr Sum. I infer from the evidence that the people actually and actively involved in the operations of both companies are Mr Zwar, Mr Lissa, Dr Manfield and Mr Manasseh. As to the latter, that is an inference clearly available to be drawn from the evidence before the court. Mr Manasseh was not called to give evidence, a matter for which there was no explanation proffered. I infer that any evidence he could have given would not have assisted the respondents’ case in this regard.[314]
[314] Jones v Dunkel (1959) 101 CLR 298; ASC v AS Nominees (1995) 62 FCR 504 at 515.
In support of their case the respondents tendered undertakings signed by each of Mr Manasseh and Mr De Andrade that for a period of five years from the date of the undertaking (in each case, 2 August 2017) they would not:
(a)seek, nor accept appointment as a director or otherwise as an officer of Gognos; and
(b)seek, nor accept appointment as a director or otherwise as an officer of DAT.[315]
[315] Exhibit 36.
This says nothing about being involved in the affairs of the companies. Mr Manasseh was not a director of Gognos until December 2013, but prior to this, he was plainly centrally involved in its affairs and operations. As Mr Lissa said, there is no doubt he would be deemed to be a shadow director of Gognos, saying “he’s pretty much run across all of the companies, because at the end of the day it’s his expertise, his contacts…”[316]
[316] Keily (exhibit 1), exhibit MFK1 (s 19 examination of Lissa) at p 58.
In the course of his s 19 examination in December 2015 Mr Manasseh indicated it was not then his intention to be offering more shares in Gognos, until money was received from overseas.[317] There was no evidence to suggest he had done so.[318] Mr Zwar also deposed to being informed by Mr Manasseh that he was willing to give an undertaking “not to seek to raise funds from members of the public pending the resolution of this matter”.[319] That is obviously of limited value, given the qualification as to time, that Mr Manasseh is no longer a director of either company, and that it says nothing about raising further funds from existing shareholders.

[317] Keily (exhibit 1), exhibit MFK2 (s 19 examination of Manasseh) at p 163.

[318] See also Keily at T 1-70.

[319] Zwar (exhibit 12) at [90].

The $400,000 line of credit from Mr Lissa’s company

The respondents also relied upon the availability of the $400,000 line of credit, as supporting their contention that the companies ought to be given the opportunity to try to succeed.
The $400,000 has been deposited into Mr Zwar’s trust account by Property Magic Aust Pty Ltd, a company of which Mr Lissa and his wife are the directors.[320] Mr Lissa says he agreed to advance that sum “by way of a working capital facility to [DAT] in order that the funds could be utilised at my express approval for ongoing commercial negotiations and sufficient capital for [DAT] to maintain and develop its overall business plan”.[321]   Mr Zwar confirmed that Mr Lissa would have a right of veto over the manner in which the funds are used (although that is not a matter which has been discussed with the other directors).[322]
[320]         Lissa (exhibit 26), exhibit GAL-1.
[321]         Lissa (exhibit 26) at [11]; T 4-12.
[322]         Zwar T 3-4.
As described by Mr Zwar “the funds are available for the ongoing commercial activity of [DAT], including furthering its development of the containerised feed system and seeking commercial markets in relation thereto”. Initially, it seems Mr Zwar has in mind using some of this money to fund a further trip to Argentina “with a view to finally finalising a fresh order that’s emerged from Argentina”.[323]
[323] T 3-5.
Dr Manfield, on the other hand, does not envisage the money being spent in order to sell units, but rather proceeds on the basis that the current arrangements will see the orders completed, and envisages the money being utilised to fund him to travel to South America to “qualify” candidates for the manufacture of the units, to support the cost of realisation of an order(s) once a deposit is received, to meet initial manufacturing costs, any costs associated with expanded patent specifications and any further research and development.[324]
[324] Manfield (exhibit 25) at [6] and T 3-62 to 3-66.
According to Mr Zwar and Mr Lissa the funds will not be used for payment of the audits, nor for the payment of the costs of this proceeding.[325]
[325] Lissa (exhibit 26) at [12]; Zwar (exhibit 15) at [11]-[14].
Mr Zwar says that based on his knowledge of Gognos and DAT the sum of $400,000 “is sufficient to permit the commercial manufacturer (sic) of the feed containers and in furtherance of any further research and development, as it is has been the policy of [DAT] that a releasable deposit of 50% would be forwarded by the purchaser to enable to manufacture of the feed container”.[326] Mr Lissa likewise says that DAT does not presently need funding over and above $400,000, as any orders obtained will involve payment of a deposit of 50% (the retail price of a unit being $150,000, the deposit would be $75,000), which would be sufficient to commence construction of a unit.[327]
[326] Zwar (exhibit 15) at [15].
[327] Lissa (exhibit 26) at [23].
But Mr Zwar also acknowledged that in circumstances where DAT’s liabilities are presently in excess of $5 million, $400,000 is not a lot of money in the context of the historical cost of this business, and its current position.[328] Mr Lissa agreed.[329]
[328] T 3-5.
[329] T 4-18.
There is no formal agreement in place about the $400,000, including as to the interest payable, or repayment terms. There has been no meeting of the directors of the companies to consider the appropriateness of entering into the arrangement for the line of credit; or about how it is to be utilised. There has been no budget prepared.[330] Mr Lissa agreed there is not yet any effective strategy for how this money is going to be used to develop the situation further for DAT – but justified that in the context of this having “only just come up”, “so that time hasn’t permitted any discussions to take place and formalise any terms and conditions of the loan”.[331]
[330] Zwar at T 3-3 and 3-6; Lissa at T 4-11 to 4-12 and 4-18.
[331] T 4-19.
The respondents invite the court to find that the proposed facility of $400,000 will beneficially assist in the development of the business.[332]
[332] T 5-26 and the respondents written submissions on the factual findings (17 August 2017).
What is apparent from the evidence about this proposed facility is that it is a last-minute idea; which has not been the subject of discussion with all directors; for which there is no plan or budget; and for which those involved seemingly have different ideas as to how it will be spent. Moreover, there is no proper business plan for how it is proposed to develop the business, beyond a continued reliance, indeed dependence, on the possibility of success of a sales agent in Argentina, who the evidence objectively indicates has been singularly unsuccessful in the last five years. Those matters do not assist to give confidence in the ongoing management and conduct of the affairs of the companies. The availability of this money, at this stage, is not such as, in light of all the other circumstances, to alter the conclusion I regard as appropriate in this case, that it is just and equitable in all the circumstances that the companies be wound up.

Why would Mr Zwar and Mr Lissa continue to stand behind the companies?

The respondents submitted that the court “must ask why” Mr Zwar and Mr Lissa would want to advance further funds, and their personal time and energy into the continuation of the companies as a commercial enterprise, and that this is a matter the court “must give considerable weight to” in making its decision. It was further submitted that the court “is not in a position to make a determination of the commercial prospects of the companies, nor is it proper to do so”, and that the court “must accept that the new directors (and the shareholders) have determined that there is in fact commercial prospects of the companies continuing to operate successfully”.[333]
[333]Respondents’ written submissions (11 August 2017) at [49] and [50]. See also T 5-27 to 5-28 and the respondents’ submissions on factual findings sought.
Despite the imperative language used in these submissions, I do not find the question why Mr Zwar or Mr Lissa continue to support the companies readily amenable to an answer that is persuasive against the making of a winding up order. It may also be observed that there is no evidence of what the other directors, apart from Mr Zwar and Mr Lissa, may or may not have determined as to the commercial prospects of the companies; nor of “the shareholders”, other than the few that gave evidence to the court, whose evidence has been referred to above.

The reason why Mr Lissa is putting in money and time may well still be explained by reference to moral support and friendship, as he explained in his s 19 examination.[334] He has known Mr Manasseh since about 1988.[335] When he resigned as a director in 2012, it was in circumstances where he was owed about $120,000 for professional services, and had also loaned (one of) the companies around $50,000 – as he said, he was effectively a director, the tax agent, the accountant and the largest creditor – and so resigned as a director because he was in a position that he did not see as independent. He told Mr Manasseh that if he was paid, he would do the work, but otherwise he would provide him with support on a friendship basis.[336] In December 2015 he said “I’ve basically had a gutful. I just don’t want to do it anymore. Like I said, I’ve just hung in there to just kind of support the company because Maurice [Manasseh] keeps me informed about this continuing interest”.[337]
[334]         Keily (exhibit 1), exhibit MFK1 (s 19 examination of Lissa) at p 13.
[335]         T 4-8.
[336]         Keily (exhibit 1), exhibit MFK1 (s 19 examination of Lissa) at p 12.
[337]         Ibid at p 42.
Why Mr Zwar, a very experienced solicitor, would place himself in the position he has does not permit of a ready answer. Although he expressed the view that he was now more optimistic about the prospect of sales coming through from Argentina, there is no objective basis in the material before the court to support that view.
Dr Manfield is clearly very passionate about the technology, and the potential for this business. But as he described himself in the s 19 examination: “I’m always a silver lining sort of guy … So the people we’ve got [now] are the diehards – really believe in the product; believe in Maurice [Manasseh] to that extent; believe in myself, because if I get run over by a bus today, the technology vision is unlikely to be realised”.[338]
[338] Keily (exhibit 1), exhibit MFK6 (s 19 examination of Manfield) at p 16.
I do not purport to express a view about the broader potential commercial prospects of the manufacture and distribution of fodder units. What I have formed a view about, however, is that there is a well-founded, justified, present, lack of confidence in the conduct and management of the companies’ affairs, such as to give rise to a real risk to the public interest that warrants protection, and the fact that Mr Lissa, Mr Zwar and Dr Manfield have neither the desire nor the incentive[339] to wind up the companies is not such as to overcome those matters.
[339] Cf ASC v AS Nominees at 530 per Finn J.

Impact on the shareholders

The respondents pressed the point, and ASIC did not contend otherwise, that if the winding up order is made the investors in Gognos will lose their investment, which “can’t be in the interest of the shareholders”.[340] It goes without saying that losing their money is not an outcome that investors want. That is an extremely unfortunate outcome of the manner in which these companies have been conducted. But the reality is that they have already lost their money.   The $7.7 million raised by Gognos has gone. Both Gognos and DAT are in perilous financial circumstances. What the respondents are asking the court to do is give them another chance to go out and try to garner commercial interest, and actual sales in the product – with a view to, in the future, possibly (acknowledging that the actual chances of the prospect of future sales is “unknowable” on the evidence[341]) being able to return an investment. The respondents submit there is no evidence of any additional detriment to the public interest were they permitted another six months to complete the audit of the accounts, and another six to twelve months to “re-establish the business”.[342]
[340]         T 5-26 and the respondents’ submissions on factual findings sought.
[341]         T 5-26.
[342]         T 5-30 and the respondents’ submissions on factual findings sought.
I reiterate the observations made at [14]-[21] above. Adopting the words of Beach J in Bilkurra Investments at [16], “in the events that have transpired, this is little more than wishful thinking. But even if that prospect had a sliver of reality, it does not outweigh” the concerns addressed in these reasons. Given the evidence that is before the court, and the findings that have been made, I consider it inappropriate that the respondents be permitted to continue. Mr Blasenstein’s concern that the recent changes may well be “just another charade”, and Mr Moses’ expression of concern for those who have suffered, and recognition that “if the company needs to be closed down because more people may endure this kind of suffering, maybe that’s the best thing to do” are insightful observations which reflect the conclusion I have reached.
In so far as recovery by the investors is concerned, it may be that further legal proceedings by or against the companies ensue consequent upon these proceedings, but that is not a matter about which I will speculate. As Mr Keily observed, liquidation of the companies may also serve to crystallise a tax loss for those who are able to benefit from that.[343]
[343] ASIC’s written address at [10]; Keily T 1-69.

Conclusion and orders

The evidence before the court demonstrably supports the conclusion that there is a well-founded and justified lack of confidence in the conduct and management of the companies’ affairs, such as to give rise to a real risk to the public interest that warrants protection – to protect existing and the prospect of any future investors, the public, and creditors, where the companies have not carried on their business candidly and in a straightforward manner with the public, and have been mismanaged, as well as to prevent and condemn the repeated and continuing breaches of the Corporations Law. The financial position of the companies is perilous and such that, although a finding of insolvency has neither been sought, nor will be made, it supports winding up, rather than militating against it. It is inappropriate that the respondents be allowed to continue on the basis of what could be put no higher than an “unknowable” prospect of potential commercial success which may result in a return to investors, in the face of past and continuing non-compliance with obligations, mismanagement of the affairs of the companies, and misleading representations to investors, and where those now presenting as the “new management” are not “new” at all, but have long term associations with the companies and the principal offender in terms of the misleading conduct of the past, Mr Manasseh, who remains in the shadows of these companies.
I am satisfied, for the reasons given, that it is just and equitable for the companies to be wound up and therefore that it is appropriate to make the orders sought by ASIC that:
1.The first respondent be wound up under section 461(1)(k) of the Corporations Act on the basis that it is just and equitable to do so.
2.Michael John Hill and William James Harris of McGrath Nicol be appointed as joint and several liquidators of the first respondent.
3.The second respondent be wound up under section 461(1)(k) of the Act on the basis that it is just and equitable to do so.
4. Michael John Hill and William James Harris of McGrath Nicol be appointed as joint and several liquidators of the second respondent.[344]
[344] See the consents of official liquidators filed 13 October 2017.
ASIC also seeks an order that its costs of and incidental to this proceeding be costs in the winding up (taxed or as agreed) and reimbursed in accordance with section 466(2) of the Act. I will hear submissions from the respondents as to whether there is any reason to order otherwise.
The respondents submitted that if the court was minded to make an order to wind up the companies the court should stay the order for a period of 1-2 weeks to enable the respondents’ rights of appeal to be preserved.[345] I will also hear submissions from the parties in relation to this.
[345] Respondents’ written submissions at [146].

CITATION:	Australian Securities and Investments Commission v Gognos Holdings Ltd & Anor [2017] QSC 207
PARTIES:	AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION (Applicant) v GOGNOS HOLDINGS LTD ACN 129 570 181 (First Respondent) DYNAMIC AGRI TECH LTD ACN 060 891 796 (Second Respondent)
FILE NO/S:	SC No 9696 of 2016
DIVISION:	Trial Division
PROCEEDING:	Application
DELIVERED ON:	25 September 2017
DELIVERED AT:	Brisbane
HEARING DATES:	7 to 11 August 2017, further written submissions on 17 August 2017
JUDGE:	Bowskill J
ORDERS:	1. The first respondent be wound up under section 461(1)(k) of the Corporations Act 2001 on the basis that it is just and equitable to do so. 2. Michael John Hill and William James Harris of McGrath Nicol be appointed as joint and several liquidators of the first respondent. *3. The second respondent be wound up under section 461(1)(k) of the Corporations Act 2001* on the basis that it is just and equitable to do so. 4. Michael John Hill and William James Harris of McGrath Nicol be appointed as joint and several liquidators of the second respondent.**
CATCHWORDS:	CORPORATIONS – WINDING UP - OTHER GROUNDS FOR WINDING UP – JUST AND EQUITABLE – where the companies have contravened the Corporations Act 2001 by failing to lodge financial reports, report annually to members, hold annual general meetings and keep and produce accurate accounting records, and the contraventions are continuing –where the companies made untrue statements to the ASX and misleading representations to investors, and there has been mismanagement in the conduct of the affairs of the companies – where the companies are not clearly solvent – where the companies did not contest, but did not concede most of the allegations as to past conduct – where the companies relied on recent changes to the directors of both companies, the provision of a $400,000 line of credit facility to reactivate the business of the companies, and undertakings to have the outstanding accounts prepared and audited, and by former directors not to seek or obtain office as directors for five years, in opposing the winding up orders – whether there is and remains a well-founded and justified lack of confidence in the conduct and management of the companies’ affairs, giving rise to a real risk to the public interest that warrants protection – whether the companies should be wound up on the just and equitable ground
Corporations Act 2001 (Cth) ss 461(1)(k), 462(2)(e), 464(1), 201A, 319, 314, 250N, 286(1) ASIC v Green Pacific Energy Limited (2006) 59 ACSR 142 Australian Securities and Investments Commission v ABC Fund Managers (2001) 39 ACSR 443 Australian Securities and Investments Commission v ActiveSuper Pty Ltd (No 2) (2013) 93 ACSR 189 Australian Securities and Investments Commission v Bilkurra Investments Pty Ltd [2016] FCA 371 Australian Securities and Investments Commission v Chase Capital Management Pty Ltd (2001) 36 ACSR 778 Australian Securities and Investments Commission v CME Capital Australia Pty Ltd (No 2) [2016] FCA 544 Australian Securities and Investments Commission v Great Northern Developments Pty Ltd (2010) 242 FLR 444 Australian Securities and Investments Commission v Storm Financial Ltd (2009) 71 ACSR 81 Australian Securities Commission v AS Nominees Limited (1995) 62 FCR 504 Bowen v Stott [2004] WASC 94 Chapman v Rogers: ex parte Chapman [1984] 1 Qd R 542 Deputy Commissioner of Taxation v Casualife Furniture International Pty Ltd (2004) 9 VR 549 Hempseed v Ward [2013] QSC 348 Holborow v MacDonald Rudder [2002] WASC 265 In re Fildes Bros Ltd [1970] 1 WLR 592 Jeffrey v Associated National Insurance Co Ltd [1984] 1 Qd R 238 Kallinicos v Hunt (2005) 64 NSWLR 561 Manning v Cory & Sumner [1974] WAR 60 Mitchell v Burrell [2008] NSWSC 772 Paino v MDN Mortgages Pty Ltd [2009] NSWSC 898 Pearlbran v Win Mezz No 19 Pty Ltd [2009] QSC 292 Re Faymere Pty Ltd, Supreme Court of Queensland, Master Weld, No 180 of 1985, 12 November 1986, unreported Trinick as Liquidator of Forgione Family Group Pty Ltd (in liq), in the matter of Forgione Family Group Pty Ltd (in liq) v Forgione (2015) 106 ACSR 600 Van Reesema v Flavel (1992) 7 ACSR 225 Watkins v Christian [2009] QCA 101
COUNSEL:	M Brady QC with K Slack for the applicant T Hale SC with S McNeil and J Fitzgerald for the respondents
SOLICITORS:	Australian Securities and Investments Commission for the applicant Diamond Conway Lawyers for the respondents