Chen v The Ginza Beauty Pty Ltd

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FEDERAL COURT OF AUSTRALIA

Chen v The Ginza Beauty Pty Ltd [2023] FCA 1192  

File number: NSD 50 of 2022
Judgment of: MARKOVIC J
Date of judgment: 9 October 2023
Catchwords: CORPORATIONS – application for access to books and financial records of a company – where substantial disclosure of documents has already been made – whether the plaintiff has established a proper purpose – application dismissed
Legislation: Corporations Act 2001 (Cth) s 247A
Cases cited: Enares Pty Ltd v Nimble Money Ltd (2022) 294 FCR 31
Division: General Division
Registry: New South Wales
National Practice Area: Commercial and Corporations
Sub-area: Corporations and Corporate Insolvency
Number of paragraphs: 118
Date of hearing: 26 August 2022; 10 October 2022
Counsel for the Plaintiff: Mr A Emmerson (26 August 2022); Mr DR Pritchard SC (10 October 2022)
Solicitor for the Plaintiff: Yingke Law Firm
Counsel for the Defendant: Dr AJ Greinke
Solicitor for the Defendant: Auyeung Hencent & Day Lawyers

ORDERS

NSD 50 of 2022
BETWEEN:

YIYU CHEN

Plaintiff
AND:

THE GINZA BEAUTY PTY LTD

Defendant

ORDER MADE BY:

MARKOVIC J

DATE OF ORDER:

9 OCTOBER 2023

THE COURT ORDERS THAT:

1.The further amended originating process be dismissed.

2.The parties are to confer on the question of costs of the proceeding:

(a)if they agree on the orders to be made they are to provide the Associate to Markovic J with their proposed orders on or before 23 October 2023; or

(b)if they cannot agree on the orders to be made they are each to file submissions, not exceeding three pages in length, on the question of costs on or before 30 October 2023; and

(c)in the event that the parties file submissions in accordance with Order 2(b) above, unless either party requests an oral hearing, the question of costs will be dealt with on the papers.

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


REASONS FOR JUDGMENT

MARKOVIC J

  1. Yiyu Chen, the plaintiff, seeks an order pursuant to s 247A of the Corporations Act 2001 (Cth) that she, her financial and legal advisors be permitted to inspect and make copies of the books and records of the defendant, The Ginza Beauty Pty Ltd, set out in the schedule to the further amended originating process filed on 11 October 2022. 

  2. The categories of books and records sought by Ms Chen in the schedule are:

    1.For each of the Financial Years to present (unless already provided on 19 August 2021) the following final and signed financial reports and records of the Company including:

    (a)profit and loss statements;

    (b)cash flow statements;

    (c)balance sheets;

    (d)cash sales and cash receipt records, including bank deposit records; and

    (e)director’s reports;

    (f)notes in the financial statements;

    (g)income tax returns lodged with the Australian Taxation Office (ATO); and

    (h)business activity statements lodged with the ATO.

    1ATo the extent that any document sought in item 1 above in respect of the financial year ending 30 June 2022 remains in draft, the plaintiff seeks production…

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Details
Case
[2023] FCA 1192
Decision Date

CaseChat Overview and Summary

The case of Chen v The Ginza Beauty Pty Ltd involves a shareholder, Yiyu Chen, seeking access to Ginza Beauty's books and financial records under s 247A of the Corporations Act 2001 (Cth). Ginza Beauty, a company operating a cosmetic clinic, had already disclosed substantial documents to Chen, including financial statements, ledger entries, bank statements, and employment details. Despite this disclosure, Chen sought additional financial and operational records. The court had to decide whether Chen had established a proper purpose for the requested inspection and whether Ginza Beauty had already disclosed sufficient information. The court considered the extensive disclosure already made by Ginza Beauty and found that further inspection would not serve a proper purpose. Consequently, the court dismissed Chen's application.

The central legal issue in this case was whether Chen had established a proper purpose for inspecting Ginza Beauty's books and records, as required by s 247A of the Corporations Act. The court examined the extent of disclosure already made by Ginza Beauty, including financial statements, ledger entries, bank statements, and employment details. The court also assessed whether the additional information sought by Chen was necessary for understanding Ginza Beauty's financial and operational status. The court found that Ginza Beauty had already disclosed substantial information and that further inspection would not serve a proper purpose. Therefore, the court concluded that Chen had not met the threshold requirement of establishing a proper purpose for the inspection.

In dismissing Chen's application, the court noted that Ginza Beauty had already provided significant financial and operational records to Chen. This included final and signed financial reports, ledger entries, bank statements, and employment details. The court held that the substantial disclosure already made was sufficient for Chen to understand Ginza Beauty's financial and operational status. The court also considered that some of the material was provided after the proceedings began, which, in the court's view, only impacted the costs of the proceeding. Consequently, the court determined that further inspection would not serve a proper purpose and dismissed Chen's application. The court reserved the question of costs and invited the parties to file submissions to resolve the issue.

The court ordered the dismissal of Chen's application for access to Ginza Beauty's books and records. Additionally, the court directed the parties to confer on the question of costs. If the parties could agree on the costs orders, they were to provide proposed orders to the Associate to Markovic J by 23 October 2023. If they could not agree, each party was to file submissions on the costs issue, not exceeding three pages, by 30 October 2023. Unless either party requested an oral hearing, the question of costs would be determined on the papers. The entry of orders was governed by Rule 39.32 of the Federal Court Rules 2011.

Orders

Orders of the court

1. The further amended originating process be dismissed.

2. The parties are to confer on the question of costs of the proceeding:

(a) if they agree on the orders to be made they are to provide the Associate to Markovic J with their proposed orders on or before 23 October 2023; or

(b) if they cannot agree on the orders to be made they are each to file submissions, not exceeding three pages in length, on the question of costs on or before 30 October 2023; and

(c) in the event that the parties file submissions in accordance with Order 2(b) above, unless either party requests an oral hearing, the question of costs will be dealt with on the papers.

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

Background

Background to the litigation

For the purposes of the schedule: (1)“Company” means Ginza Beauty; and (2)“Financial Years” means the financial years ending 30 June 2018, 30 June 2019, 30 June 2020, 30 June 2021 and 30 June 2022. BACKGROUND Ginza Beauty runs “Lumière Cosmetic Clinic” which offers cosmetic treatments and beauty services including: (1)non-medical cosmetic treatments using specialist equipment and products;(2)medical cosmetic procedures carried out by licensed medical practitioners using specialist products and equipment;(3)cosmetic consultations by medical and non-medical cosmetic professionals; and(4)supply of specialised cosmetic and beauty products. Ginza Beauty officially opened its business, Lumière Cosmetic Clinic, on 15 September 2018, after a soft opening. Its principal place of business was initially shop 2, 389 Sussex Street, Haymarket, New South Wales. Wei Xuan, also known as Christy Xuan, is Ginza Beauty’s sole director and secretary. Ms Chen is a shareholder in Ginza Beauty. Based on a company search of Ginza Beauty undertaken as at 5 October 2021 Ms Chen holds 111 or 11.1% of the issued share capital while the balance of the shares are held by Ms Xuan as to 389 shares, Chengyuan (Anita) Jiang as to 167 shares, Wei (Monica) Zhang as to 111 shares and Wenting (Bonnie) Liu as to 222 shares. Without intending any disrespect and for ease I will refer to Ms Zhang as Monica and Ms Liu as Bonnie. Despite being in funds, historically Ginza Beauty did not make any distributions to its shareholders or pay director’s fees. Ms Xuan explained that this was because the business was in a growth phase and it was understood that any profit would generally be re-invested in order to further develop and grow it. In order to minimise costs the working shareholders, Ms Xuan, Monica and Bonnie, did not receive a salary between July 2018 and September 2019. From September 2019 to March 2020 they each received $25 per hour and from March 2020 they each received $35.50 per hour. The impact of the COVID-19 pandemic Following the appearance of COVID-19 cases in February 2020 in New South Wales Ginza Beauty experienced a decline in its performance with the cancellation of many, if not all, of its bookings. In order to minimise the impact of the COVID-19 pandemic and to retain its employees Ginza Beauty attempted to sell its range of beauty products online to existing and new customers. However, during the initial five months of the pandemic Ginza Beauty’s sales declined. From the beginning of June 2020, after the end of the first lockdown in New South Wales, Ginza Beauty’s business started to improve. Ginza Beauty expands By email dated 4 September 2020 Ms Xuan was informed that level 3, 389 Sussex Street was available for lease. Ms Xuan arranged a dinner with the shareholders at which she informed them that level 3 had become available and that taking on a lease of those premises would be a good growth opportunity for it. Ms Xuan’s evidence is that each shareholder agreed to this course and to payment of a monthly sum of $50,000 for five months to an outgoing shareholder, Qian (Vicky) Wu, for her shares. At the time of registration of Ginza Beauty Ms Wu held 10% of its shares. Ms Xuan informed the shareholders that she did not believe that taking on a lease of level 3 and making the payments to Ms Wu would require any funds from Ginza Beauty’s shareholders although if that changed she would let them know.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

Having regard to all of the circumstances of this case, a powerful factor against exercise of the discretion is that, as set out at [54]-[55] above, Ginza Beauty has made substantial disclosure to Ms Chen, comprising not only financial statements but also individual ledger entries for all accounts between July 2018 to July 2021, for bank statements and employment information for shareholder employees. While some of the material was only provided after commencement of the proceeding, that is a matter that ultimately would, in my view only, go to costs. CONCLUSION For those reasons I would dismiss the application. Costs would ordinarily follow the event. However, as Ginza Beauty seeks to be heard on costs, I will reserve on that question and invite the parties to file short submissions and, unless either party requests an oral hearing, the question of costs will be determined on the papers.

Ratio Decidendi

Legal Principle Established

Yiyu Chen, the plaintiff, seeks an order pursuant to s 247A of the Corporations Act 2001 (Cth) that she, her financial and legal advisors be permitted to inspect and make copies of the books and records of the defendant, The Ginza Beauty Pty Ltd, set out in the schedule to the further amended originating process filed on 11 October 2022. The categories of books and records sought by Ms Chen in the schedule are:1.For each of the Financial Years to present (unless already provided on 19 August 2021) the following final and signed financial reports and records of the Company including:(a)profit and loss statements;(b)cash flow statements;(c)balance sheets;(d)cash sales and cash receipt records, including bank deposit records; and(e)director’s reports;(f)notes in the financial statements;(g)income tax returns lodged with the Australian Taxation Office (ATO); and(h)business activity statements lodged with the ATO.1ATo the extent that any document sought in item 1 above in respect of the financial year ending 30 June 2022 remains in draft, the plaintiff seeks production of those draft financial reports and records.2.For each of the Financial Years to present (unless already provided on 19 August 2021) any Company ledger, including written documents which record the terms and obligations in respect of any such loans, showing shareholders’ loans for each shareholder, including dates, amount of loans to the Company, withdrawals (repayments) from the Company and current loan balances.3.For each of the Financial Years to present (unless already provided on 19 August 2021) details of the director loans and any other loans (excluding shareholder loans) made to or by the Company, including written documents which record the terms and obligations in respect of any such loans.4.For each of the Financial Years to present (unless already provided on 19 August 2021) any fixed asset registers and any depreciation reports of the Company.5.For each of the Financial Years to present records of annual salary, wages, for each staff, employee or contractor who performed work for the Company.6.For each of the Financial Years to present any contracts of employees or contractors of the Company.7.Any executed shareholder agreements made in respect of the members of the Company.11.For each of the Financial Years to present bank statements for all the Company’s bank accounts (but excluding bank account statements already provided by the Company to the Plaintiff).(Underlining and strike out omitted.) For the purposes of the schedule: (1)“Company” means Ginza Beauty; and (2)“Financial Years” means the financial years ending 30 June 2018, 30 June 2019, 30 June 2020, 30 June 2021 and 30 June 2022. BACKGROUND Ginza Beauty runs “Lumière Cosmetic Clinic” which offers cosmetic treatments and beauty services including: (1)non-medical cosmetic treatments using specialist equipment and products;(2)medical cosmetic procedures carried out by licensed medical practitioners using specialist products and equipment;(3)cosmetic consultations by medical and non-medical cosmetic professionals; and(4)supply of specialised cosmetic and beauty products.