Australian Securities and Investments Commission v Wong
[2010] FCA 1075
FEDERAL COURT OF AUSTRALIA
Australian Securities and Investments Commission v Wong [2010] FCA 1075
Citation: Australian Securities and Investments Commission v Wong [2010] FCA 1075 Parties: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION v KIM WONG and YUN JUNG CHOI File number: VID 448 of 2010 Judge: FINKELSTEIN J Date of judgment: 27 September 2010 Legislation: Corporations Act 2001 (Cth) s 1323 Cases cited: Australian Securities and Investments Commission v Burnard (2007) 64 ACSR 360
Australian Securities and Investments Commission v Carey (No 14) (2007) 158 FCR 92
Australian Securities and Investments Commission v Wiggins (1998) 90 FCR 314Date of hearing: 27 September 2010 Place: Melbourne Division: GENERAL DIVISION Category: No catchwords Number of paragraphs: 24 Counsel for the Plaintiff: F McLeod SC and P Liondas Solicitor for the Plaintiff: Australian Securities and Investments Commission Counsel for the First Defendant: A Flower Solicitor for the First Defendant: FCG Legal Pty Ltd
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION
VID 448 of 2010
IN THE MATTER OF WINTECH GROUP LIMITED
BETWEEN: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
PlaintiffAND: KIM WONG
First DefendantYUN JUNG CHOI
Second Defendant
JUDGE:
FINKELSTEIN J
DATE OF ORDER:
27 SEPTEMBER 2010
WHERE MADE:
MELBOURNE
THE COURT ORDERS THAT:
1.The plaintiff have leave to amend its Originating Process in the form provided to the Court on 22 September 2010.
2.The firstnamed defendant, who is also known as:
2.1Jen Cheng ONG;
2.2Kim WONG;
2.3Chien Kiem WONG;
2.4Kiem WONG;
2.5Gianni WONG;
2.6Kim HUYNH;
2.7Toan Kim HUYNH;
2.8Kien Toan HUYNH; and
2.9Jian Qian HUANG,
be restrained until 4:15pm on 18 January 2011, or further order, without the consent of this Court, from leaving Australia.
3.Until 4:15pm on 18 January 2011, or until further order, the firstnamed defendant is restrained, whether by himself or his servants or agents, from transferring or otherwise disposing of the nett proceeds of sale (after satisfaction of the secured creditor’s (Commonwealth Bank of Australia’s) debt and costs of sale) of 8 Viggers Parade, Glen Waverley, Victoria 3150, held in trust by FCG Legal Pty Ltd on the firstnamed defendant’s behalf following settlement of that sale on 28 June 2010.
4.Until 4:15pm on 18 January 2011, or until further order, the firstnamed defendant is restrained, whether by himself or his servants or agents, from taking or sending out of, or causing or permitting to be taken or sent from, Australia, any of his money.
5.The further hearing of the Amended Originating Process be adjourned to 10:15am on 18 January 2011.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using Federal Law Search on the Court’s website.
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION
VID 448 of 2010
IN THE MATTER OF WINTECH GROUP LIMITED
BETWEEN: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
PlaintiffAND: KIM WONG
First DefendantYUN JUNG CHOI
Second Defendant
JUDGE:
FINKELSTEIN J
DATE:
27 SEPTEMBER 2010
PLACE:
MELBOURNE
REASONS FOR JUDGMENT
The Australian Securities and Investments Commission (ASIC) seeks the continuation until 20 December 2010, or thereabouts, of an order under s 1323 of the Corporations Act 2001 (Cth) that the first defendant, Mr Kim Wong, be restrained from leaving Australia and an order under the same section, or s 23 of the Federal Court of Australia Act 1976 (Cth), that a receiver be appointed to take possession of the net proceeds of the sale of the property at 8 Viggers Parade, Glen Waverley, a property of which Mr Wong, under an alias, was the registered proprietor. As an alternative to the appointment of a receiver, ASIC seeks an order that Mr Wong be restrained from transferring or otherwise disposing of the proceeds of sale.
The background to ASIC’s application is as follows. Mr Wong, who has several aliases, was a director of Wintech Group Limited (WTG), a company whose shares are quoted on the Australian Stock Exchange (ASX). At present there is no trading in those shares as all trading has been suspended.
In July 2008 WTG issued a prospectus for a rights issue and a placement offer to raise $6,093,064. The offer was to close on 8 August 2008. According to the prospectus, WTG acquired 30% of the shares in a company called Magnafield Technology Distribution Pty Ltd (MTD), a wholesaler and distributor of computer equipment. One objective of the capital raising was to fund the acquisition of further shares in MTD.
The capital raising was not successful and on 9 October 2008 WTG issued a supplementary prospectus which stated that only $2,501,100 had been raised. Those who had subscribed were informed they could withdraw their applications and receive back their subscription moneys.
On 19 January 2009 WTG issued a replacement prospectus which sought to raise $1,550,000 by a rights issue and $950,000 under a placement offer. The closing date for those offers was 13 February 2009.
On 18 February 2009 WTG made a public announcement that it had received $2,530,890 pursuant to the offers in the replacement prospectus and, as a result, had over 400 shareholders, each with a minimum holding of 10,000 shares.
On 7 December 2009 ASIC commenced an investigation into WTG’s fundraising. To date its investigation has disclosed that the following has (or is likely to have) occurred:
(1)WTG informed the ASX that it had raised in excess of $2.5 million from the last offer and provided to the ASX what it purported to be a National Australia Bank (NAB) statement showing that amount had been lodged in a share subscription account. The bank’s records show a different picture. According to the NAB, much less than $2.5 million was placed into the share subscription account. At an examination under s 19 of the Australian Securities and Investments Commission Act 2001 (Cth), Ms Choi, who is Mr Wong’s girlfriend, conceded that she had falsified the bank statement produced to the ASX and had done so on the instruction of Mr Wong.
(2)Substantial amounts, probably over $1.5 million, were withdrawn from the share subscription account before the closing date of the offer. $195,000 was withdrawn in cash.
(3)Mr Wong has been making significant payments (at least $35,000) to Ms Choi, often by transferring money into her account with a bank in South Korea.
(4)Substantial additional amounts were withdrawn from the subscription account and transferred to Mr Wong. Over $104,000 has been traced to him. It is possible there may be more.
ASIC has also looked into dealings with WTG’s trading account. It seems that money from the share subscription account was transferred into the trading account. Then amounts in excess of $1.4 million were transferred from that account to a firm known as “Jewel Ocean”. ASIC’s investigation suggests that Jewel Ocean is a firm run by Mr Wong using one of his aliases.
ASIC has conducted s 19 examinations of Mr Wong. He was asked about the fundraising, the expenditure from the WTG share subscription account and expenditure from the WTG trading account. Several other persons have also been examined in relation to WTG’s fundraising and other activities.
ASIC’s investigation is continuing. Mr Caridi, who is a Senior Manager with ASIC, has sworn several affidavits in support of this application. In his most recent affidavit, which was sworn on 22 September 2010, Mr Caridi explained why, in his view, ASIC’s continuing investigation requires the assistance of Mr Wong. He said that Mr Wong will be required to interpret information or documents obtained from notices to produce which have been served by ASIC. He says that it is unlikely that this assistance can be provided by anyone else.
Mr Caridi has explained why only Mr Wong can help. He said that the investigation will concern answers provided by Mr Wong in his previous s 19 examinations and obviously assistance can only be given by Mr Wong. He points out that, because of Mr Wong’s responsibility for WTG’s internal accounts during the period under investigation, Mr Wong would be best placed to answer further questions in relation to the financial transactions of WTG. He particularly points to that part of the investigation which involves looking at the relationship between WTG and Jewel Ocean.
Mr Caridi notes that Mr Wong has provided some explanations regarding some of the transactions between the two organisations. He points out, unsurprisingly, that if Mr Huang, who is recorded as a director of Jewel Ocean, happens to be an alias for Mr Wong, which is what he suspects, Mr Wong would obviously be the best person to assist in the investigation. Even if Mr Huang is not an alias for Mr Wong, Mr Huang is said to live in Beijing and is not readily available to assist the investigation.
In the past Mr Wong has cooperated with ASIC. Mr Flower, who appears on his behalf, says there is no reason to doubt that, without a restraining order, Mr Wong will continue to provide assistance.
I take a rather different view. If a restraining order is not made, there is, in my view, a real risk that Mr Wong will leave Australia and not return.
I have arrived at that conclusion for several reasons. First, there is a real chance that Mr Wong will be prosecuted for offences against the Corporations Act. He no doubt appreciates this. I refer here in particular to s 184, the director’s duty section and s 722, which deals with the retention of application moneys for share subscriptions. The section provides that the money is to be held in trust for a certain period. There are also possible contraventions of ss 1308 and 1309, which concern the making of false statements and the provision of false information.
Second, Ms Choi, who ASIC unsuccessfully tried to restrain from leaving Australia, had told the court she intended to depart for only a short period. As it turns out, Ms Choi left Australia on 26 June 2010 and her outgoing passenger card states that she left permanently. It is likely that Mr Wong, who has made substantial payments to Ms Choi, will want to meet up with her. Third, Ms Choi told a former employee of MTD, a Ms Rimmrodt, that if Mr Wong got his passport returned to him he would also leave the country permanently. Fourth, ASIC has been unable to locate any assets in Australia in Mr Wong’s or an alias’ name, except the proceeds of the Glen Waverley property. Fifth, Mr Wong has strong ties to other jurisdictions.
I accept that Mr Wong has some connection with Australia. He is married and his wife lives here. But, in view of Mr Wong’s relationship with Ms Choi, his wife’s presence in Australia is unlikely to be a reason for him to stay in the jurisdiction. There are, however, children of the marriage. They are studying here, one in the later years of secondary school and one at university. That may be a reason to remain. On the other hand the children could easily travel out of the jurisdiction to visit their father. Thus I am concerned that his children living here is not sufficient to ensure that Mr Wong will return if he leaves the country.
Turning to the second limb of the application, that is, the appointment of a receiver to take possession of the proceeds of the Viggers Parade property, or the granting of a restraining order preventing those proceeds from being dealt with. I note the following: (1) The property was owned by Mr Wong, albeit under an alias; (2) It was subject to a mortgage in favour of the Commonwealth Bank; (3) In early 2010 the property was sold for $715,000 of which $520,830 was paid to the mortgagee; and (4) The purchaser paid a deposit of $71,500 which Mr Wong spent most of, in part by transferring $15,000 to Ms Choi’s overseas bank account.
Mr Wong’s solicitors (FCG Legal) hold the balance of the proceeds and they and Mr Wong had given undertakings that they would not dispose of those proceeds without three business days notice to ASIC. On 20 September 2010 FCG Legal and Mr Wong both gave ASIC notice that they sought to be released from the undertakings. Accordingly, by order made on 23 September, I restrained the disposition of those moneys until 4.00 pm this afternoon.
Section 1323 of the Corporations Act is enlivened where an investigation is being carried out under the ASIC Act or the Corporations Act in relation to an act or omission by a “relevant person” that constitutes or may constitute a contravention of the Corporations Act. If the court considers it necessary or desirable to protect the interests of an “aggrieved person” to whom the relevant person is liable or may become liable to pay money, the court may (among other orders) require the person to deliver up their passport, prohibit the person from leaving the country or appoint a receiver over the person’s property.
One of the objects of s 1323 is to assist people who have lost money as a result of breaches of the Corporations Act to recover what they have lost by either in specie recovery or by way of damages. The section achieves this object by permitting the court to preserve property belonging to the person who is the subject of an investigation. While I express no concluded view on Mr Wong’s conduct, there is a strong prima facie case that Mr Wong has breached several provisions of the Corporations Act. A consequence of these potential breaches is that Mr Wong may be liable to investors or creditors of WTG to make good any losses they have suffered.
While it cannot be doubted that, as a general proposition, the court should be cautious before exercising its power to restrain a person from leaving the jurisdiction or requiring a person to deliver up his or her passport, there is, in this case, good reason for the restraining order to continue until 20 December 2010 or thereafter, by which time I expect that ASIC will have completed its investigation and taken whatever action, if any, it deems appropriate against Mr Wong. In my view ASIC should be entitled to complete its investigation with such assistance from Mr Wong as it deems necessary and for that reason I will continue the restraining order.
I am also of the view that until 20 December 2010 (or a date convenient to the parties), Mr Wong’s Australian assets should be frozen. I could, in the terms of the section, make the restraining order which ASIC seeks. The preferable course to take, however, is in the nature of a general freezing order, which will be much less costly to comply with than the appointment of a receiver.
It is to be observed that s 1323 does not sanction making such an order. But in Australian Securities and Investments Commission v Wiggins (1998) 90 FCR 314, I suggested that such an order could be made under the Court’s general powers. See also Australian Securities and Investments Commission v Carey (No 14) (2007) 158 FCR 92 and Australian Securities and Investments Commission v Burnard (2007) 64 ACSR 360.
I certify that the preceding twenty-four (24) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein. Associate:
Dated: 1 October 2010
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