Golden Heritage Golf Pty Ltd (in liq) v Sun
[2016] VSC 248
•20 May 2016
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2015 000447
IN THE MATTER of Golden Heritage Golf Pty Ltd (in liquidation) (Receivers and Managers appointed) (ACN 147 372 101)
| GOLDEN HERITAGE GOLF PTY LTD (IN LIQUIDATION) (RECEIVERS AND MANAGERS APPOINTED) (ACN 147 372 101) & ORS | Plaintiffs |
| and | |
| GUA ZHAO SUN & ORS | Defendants |
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JUDGE: | SIFRIS J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 11 May 2016 |
DATE OF JUDGMENT: | 20 May 2016 |
CASE MAY BE CITED AS: | Golden Heritage Golf Pty Ltd (in liq) & Ors v Sun & Ors |
MEDIUM NEUTRAL CITATION: | [2016] VSC 248 |
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CORPORATIONS – Winding up – Liquidators seek directions that they are justified in entering into settlement agreement – Section 511 Corporations Act 2001 (Cth) – Directions given and orders made.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | M J Galvin QC | Thomson Geer |
| For the Third and Fourth Defendants | J Evans | Madgwicks Lawyers |
| For the Fifth Defendant | P Joyce | Lander & Rogers |
| For the Sixth Defendant | A Weiner | Evans Ellis Lawyers |
HIS HONOUR:
Introduction
By their Originating Process filed on 4 December 2015 the plaintiffs have sought two categories of relief:
(a) Relief under Part 5.7B of the Corporations Act 2001 (Cth) (‘the Act’) against the first and second defendants (‘the Sun entities’) in respect of securities asserted by them over land owned by the plaintiff company (‘GHG’); and
(b) A direction under s 511 of the Act that the plaintiff liquidators are justified in entering, and causing GHG to enter, into a settlement agreement with the third – sixth defendants (‘the Settlement Agreement’), who claim security over the same land.
The Court has determined the Part 5.7B application in favour of the plaintiffs for reasons given in a judgment handed down on 22 April 2016.[1] On 11 May 2016 I heard the plaintiffs’ application for a direction under s 511 relating to the Settlement Agreement. Having read the submissions of the parties to the Settlement Agreement, and after further oral submissions, I indicated that I was satisfied that the appropriate direction should be given. I indicated that reasons would follow. These are the reasons.
[1][2016] VSC 167 (the Judgment). I will assume familiarity with the Judgment. Defined terms bear the same meaning.
The Sun entities were aware of the hearing but did not appear. I have taken into account evidence filed on their behalf.
Relevant background
GHG was formed on 15 November 2010.[2]
[2]Affidavit of Hamish Alan MacKinnon sworn 3 December 2015, ex. ‘HAM-1’.
In 2012, GHG became the registered proprietor of a number of parcels of land (collectively, ‘the Land’) in Chirnside Park, comprising the Henley Golf Course, the St John Golf Course, the Retreat and Spa of the Sebel Heritage, Yarra Valley, and land referred to as ‘the Management Lot’. The Management Lot formed part of what is known as the ‘Yarra Valley Lodge’. The rest of the Yarra Valley Lodge was owned by another company, Austpac Funds Management Pty Ltd, as responsible entity for the Heritage Lodge Managed Investment Scheme. Most of the facilities used in running the Yarra Valley Lodge were located on the Management Lot.[3]
[3]Affidavit of Hamish Alan MacKinnon sworn 3 December 2015, paragraph 7.
The operation of the Yarra Valley Lodge was governed by a Hotel Management Agreement dated 28 June 2002.[4]
[4]Affidavit of Hamish Alan MacKinnon sworn 3 December 2015, ex. ‘HAM-4’.
Mr Sunny Sun (‘Sun’) is, and has been since its incorporation, a director and shareholder of GHG.[5] Sun is also the trustee of the ABC Investment trust and is, and has been since May 2000, a director of the Second Defendant, Corpsun Pty Ltd (‘Corpsun’).[6] Corpsun is the trustee of the Sun Family Trust.
[5]Affidavit of Hamish Alan MacKinnon sworn 3 December 2015, ex. ‘HAM-1’.
[6]Affidavit of Hamish Alan MacKinnon sworn 3 December 2015, ex. ‘HAM-7’.
In August 2013, Morlend Finance Corporation (Vic) Pty Ltd (‘Morlend’) became registered as the first mortgagee of the Land.
On 31 January 2014, Morlend exercised its rights under its security to appoint Petr Vrsecky and Glenn Jeffrey Franklin as receivers and managers of the assets and undertaking of GHG. On the same day, Morlend exercised its right under s 436C of the Act to appoint Hamish Alan MacKinnon and Michael Francis Quin as joint and several administrators of GHG.[7]
[7]Affidavit of Hamish Alan MacKinnon sworn 3 December 2015, ex. ‘HAM-1’.
On 17 April 2014, at a meeting convened under s 439A of the Act, GHG’s creditors resolved that it be wound up and that Messrs MacKinnon and Quin be the company’s joint and several liquidators.[8]
[8]Affidavit of Hamish Alan MacKinnon sworn 3 December 2015, paragraph 5, ex. ‘HAM-1’.
In April 2014, the receivers sold the Land other than the Management Lot. After accounting to their appointor (‘Morlend’) for the balance, the receivers retained a fund of $1,392,268.59 from the surplus proceeds to cover the costs of anticipated litigation. Morlend also retains a sum of $918,620.04 from the surplus proceeds to cover anticipated costs.[9]
[9]Affidavit of Hamish Alan MacKinnon sworn 3 December 2015, paragraphs 38 to 39. See receivers’ letter to Madgwicks dated 24 November 2015, ex. ‘HAM-38’.
In July 2014, the receivers entered into a contract for the sale of the Management Lot. The sale settled on 19 December 2014.[10] On 9 February 2015, the receivers paid the balance of the proceeds of sale, being $1,882,463.61, into Court (‘the Court Fund’).[11]
[10]Affidavit of Hamish Alan MacKinnon sworn 3 December 2015, paragraph 42.
[11]Affidavit of Hamish Alan MacKinnon sworn 3 December 2015, paragraph 42, ex ‘HAM-39’.
The receivers asserted various claims on behalf of GHG against Austpac under the Hotel Management Agreement. On or about 14 December 2014, Austpac paid $670,000 to GHG in settlement of the claims. A sum of $551,755.07, representing the proceeds of settlement after deduction of fees and expenses, is being held by the liquidators (‘the HMA Fund’).[12]
[12]Affidavit of Hamish Alan MacKinnon sworn 3 December 2015, paragraphs 44 to 46.
In summary, the surplus funds from the realisation of GHG’s assets comprise:
Receivers’ Retention Fund $1,392,268.59 Mortgagee’s Retention Fund $918,620.04 Court Fund $1,882,463.61 HMA Fund $551,755.07 $4,745,107.31
Each of the defendants claims a security interest in the surplus proceeds of the sale of the Land (‘the Surplus’). The object of the Settlement Agreement, and the present proceeding, is to resolve those claims.
The Settlement Agreement
The parties and their claims
The parties to the Settlement Agreement are:
• GHG;
•Hamish Alan MacKinnon and Michael Francis Quin, the liquidators of GHG;
• Tao Lin (Third defendant);
• Qian Xu (Fourth defendant);
•Falcon Corporate Advisory Pty Ltd (‘Falcon’) (Fifth defendant); and
• Well Link Holdings Pty Ltd (‘Well Link’) (Sixth defendant).
Each of Tao Lin, Qian Xu, Falcon and Well Link claims a security interest over the Surplus in respect of an outstanding debt. The only other parties claiming a security interest were the Sun entities, being the first and second defendants. For the reasons set out in the Judgment, I held that the Sun entities have no security interest.
Tao Lin’s claim
The circumstances of Tao Lin’s claim are set out in paragraphs 20 - 24 of the Liquidators’ Affidavit.[13] GHG borrowed $4,000,000 from Tao Lin in December 2013. The loan is evidenced by a written loan agreement[14] and a mortgage,[15] both dated 12 December 2013.
[13]Affidavit of Hamish Alan MacKinnon sworn 3 December 2015, paragraphs 16 to 20, CB 17-18. The title to the Management Lot, being Certificate of Title 10650/047, is at ex ‘HAM-3’, CB 182.
[14]Affidavit of Hamish Alan MacKinnon sworn 3 December 2015, ex ‘HAM-12’, CB 328-355.
[15]Affidavit of Hamish Alan MacKinnon sworn 3 December 2015, ex ‘HAM-13’, CB 356-370.
A record of a telegraphic transfer shows that on 18 December 2013, $4,000,000 was paid by Tao Lin to GHG Services Pty Ltd (‘GHGS’).[16] GHGS was the service company established in order to manage the Heritage Golf and Country Club and other assets of GHG.[17] GHG holds 75% of the shares of GHGS, with the remaining 25% being held by Tao Lin.[18] Sun is, and was at the time, the sole director of GHGS.[19] The liquidators are also the liquidators of GHGS.[20]
[16]Affidavit of Hamish Alan MacKinnon sworn 3 December 2015, ex ‘HAM-14’, CB 372-373.
[17]Affidavit of Hamish Alan MacKinnon sworn 3 December 2015 paragraph 9, CB 15.
[18]Affidavit of Hamish Alan MacKinnon sworn 3 December 2015, ex ‘HAM-6’, CB 285.
[19]Affidavit of Hamish Alan MacKinnon sworn 3 December 2015, ex ‘HAM-6, CB 284.
[20]Ibid.
The said sum of $4,000,000 was deposited on 18 December 2013 into a National Australia Bank account in the name of GHGS.[21] The same day, it was transferred from that account to an account in the name of Sun.[22] The liquidators believe that this latter account was previously the operating account of GHGS, which did not acquire an account in its own name until October 2013.[23] The same day, sums of $3,800,024 and $200,000 were withdrawn from the account.[24]
[21]Affidavit of Hamish Alan MacKinnon sworn 3 December 2015, ex ‘HAM-14’, CB 379.
[22]Affidavit of Hamish Alan MacKinnon sworn 3 December 2015, ex ‘HAM-14’, CB 374.
[23]Affidavit of Hamish Alan MacKinnon sworn 3 December 2015, paragraph 21, CB 19.
[24]Affidavit of Hamish Alan MacKinnon sworn 3 December 2015, ex ‘HAM-14’, CB 374.
Entries in GHG’s cash receipts journal described the payment as ‘re Tao Lin equity investment’.[25] Nonetheless, the payment was made pursuant to a loan agreement and repayment was secured by a mortgage. Tao Lin lodged a caveat on 30 July 2014 claiming an interest under the mortgage.[26]
Qian Xu’s claim
[25]Affidavit of Hamish Alan MacKinnon sworn 3 December 2015, ex ‘HAM-15’, CB 381-382.
[26]Affidavit of Hamish Alan MacKinnon sworn 3 December 2015, ex ‘HAM-16’, CB 384.
The circumstances of Qian Xu’s claim are set out in paragraphs 18 and 19 of the Liquidators’ Affidavit.[27] GHG borrowed $800,000 from Qian Xu in January 2013. The loan is evidenced by a written loan agreement[28] and an undated mortgage.[29] It was a condition of the loan agreement that GHG would provide a mortgage to secure the debt.[30] It follows that the property of GHG was charged in equity at the time of the execution of the loan agreement.
[27]Affidavit of Hamish Alan MacKinnon sworn 3 December 2015, paragraphs 16 to 20.CB 17-18.
[28]Affidavit of Hamish Alan MacKinnon sworn 3 December 2015, ex ‘HAM-8’, CB 294.
[29]Affidavit of Hamish Alan MacKinnon sworn 3 December 2015, ex ‘HAM-8’ , CB 321.
[30]Affidavit of Hamish Alan MacKinnon sworn 3 December 2015, ex ‘HAM-8’, page 7, clause 2, CB 301. See definition of ‘Security’ at page 5, CB 299.
A deposit slip dated 14 January 2013 records a payment of $800,000 to GHG on that date.[31]
[31]Affidavit of Hamish Alan MacKinnon sworn 3 December 2015, ex ‘HAM-10’, CB 325.
Qian Xu lodged a caveat on the title to the Management Lot on 30 July 2014 asserting an interest under the mortgage and loan agreement dated 14 January 2013.[32]
Falcon’s claim
[32]Affidavit of Hamish Alan MacKinnon sworn 3 December 2015, ex ‘HAM-11’, CB 327.
Falcon’s claim is addressed in paragraphs 25 and 26 of the Liquidators’ Affidavit.[33] Falcon supplied consultancy services to GHG with respect to loans procured on GHG’s behalf. GHG entered into a consultancy agreement with Falcon in or around December 2010.[34] The agreement was varied in about July 2011, when GHG agreed to pay Falcon a monthly retainer of $15,000 for a period of 12 months (including arrears), a success fee of 3% on all real estate sales and interest at 13% per annum. The variation is evidenced in a letter from Falcon to GHG dated 25 July 2011.[35] GHG and Falcon entered into a second consultancy agreement in about April 2012, pursuant to which Falcon agreed to charge $450 / hour for its services, a fee of $10,000 per hearing in respect of VCAT proceedings and a fee of 1% on all loan facilities and refinance obtained for GHG. This second agreement is evidenced by a memorandum from Falcon to GHG dated 30 April 2012.[36] In September 2012, Falcon and GHG confirmed the agreement in writing[37] and also entered into a loan agreement.[38] The agreement, dated 26 September 2012, contained a provision for security in respect of past and future indebtedness.[39] Unpaid fees as at the date of the agreement totalled almost $300,000.[40] In the loan agreement, GHG acknowledged that the principle sum owed as at 26 September 2012 was $177,252,[41] which amount was due to be paid by 31 March 2013.[42]
[33]Affidavit of Hamish Alan MacKinnon sworn 3 December 2015, paragraphs 25 to 26, CB 22.
[34]Evidenced by a memo from Falcon to GHG dated 9 February 2011, Affidavit of Hamish Alan MacKinnon sworn 3 December 2015, ex ‘HAM-17’.
[35]Affidavit of Hamish Alan MacKinnon sworn 3 December 2015, ex ‘HAM-18’, CB 386, at 388.
[36]Affidavit of Hamish Alan MacKinnon sworn 3 December 2015, ex ‘HAM-19’, CB 394-398.
[37]Affidavit of Hamish Alan MacKinnon sworn 3 December 2015, ex ‘HAM-20’, CB 400-404.
[38]Affidavit of Hamish Alan MacKinnon sworn 3 December 2015, ex ‘HAM-21’, CB 406.
[39]Affidavit of Hamish Alan MacKinnon sworn 3 December 2015, ex ‘HAM-20’, clause 6 at CB 401.
[40]Affidavit of Hamish Alan MacKinnon sworn 3 December 2015, ex ‘HAM-20’, see introductory paragraph at CB 400.
[41]Affidavit of Hamish Alan MacKinnon sworn 3 December 2015, ex ‘HAM-21’, clause 2, CB 405.1.
[42]Ibid, clause 3(a).
On 1 November 2012, GHG executed a mortgage over the land owned by GHG, including the Management Lot.[43] On 5 February 2014, Falcon lodged a caveat on the titles to the land claiming an interest as mortgagee.[44]
[43]Affidavit of Hamish Alan MacKinnon sworn 3 December 2015, ex ‘HAM-22’, CB 407-409.
[44]Affidavit of Hamish Alan MacKinnon sworn 3 December 2015, ex ‘HAM-24, CB 435.
Falcon claims consultancy fees totalling $637,529.21, plus interest which, as at July 2015, totalled $162,481.81.[45]
[45]Affidavit of Hamish Alan MacKinnon sworn 3 December 2015, ex ‘HAM-23, CB 411-412.
Falcon has commenced a proceeding (No. S CI 2014 02262) against Well Link and the Registrar of Titles.
Well Link’s claim
Well Link’s claim is addressed at paragraphs 27 – 31 of the Liquidators’ Affidavit. In June 2011, GHG entered into an ‘Investor Agreement’ with Well Link pursuant to which the latter agreed to lend the former $800,000.[46] The purpose of the loan (from GHG’s point of view) was to fund GHG’s acquisition of the golf course assets.[47] In June 2013, the parties (and others) entered into an agreement titled ‘Deed of Variation of the Investor Agreement and Further Security’.[48] By this latter agreement, GHG undertook to repay the Well Link loan together with interest fixed in the sum of $800,000 by 28 June 2015.[49] GHG also agreed to grant Well Link a mortgage over GHG’s land, including the Management Lot.[50]
[46]Affidavit of Hamish Alan MacKinnon sworn 3 December 2015, ex ‘HAM-25, CB 437-441.
[47]Ibid, clause 2.1 at CB 438.
[48]Affidavit of Hamish Alan MacKinnon sworn 3 December 2015, ex ‘HAM-26’.
[49]Ibid, clause 5.1, CB 446.
[50]Ibid, clause 5.2.
GHG executed a mortgage in favour of Well Link, which is undated and unregistered.[51] Well Link lodged a caveat in respect of the mortgage on 15 April 2015.[52]
[51]Affidavit of Hamish Alan MacKinnon sworn 3 December 2015, ex ‘HAM-27, CB 454-498.
[52]Affidavit of Hamish Alan MacKinnon sworn 3 December 2015, ex ‘HAM-28, CB 500.
In November 2014, the liquidators commenced a proceeding (No. S CI 2014 02828) to set aside the Well Link mortgage as an uncommercial transaction and an unreasonable director related transaction. Well Link has filed a defence denying the liquidators’ claims. The proceeding remains on foot, subject to the Settlement Agreement.
The terms and agreed compromise
The key features of the Settlement Agreement are as follows:
(a) the liquidators were to attempt to resolve the claims of Sun and, failing that, to apply to set aside the mortgage to Sun dated 29 December 2013, which relief has been sought and granted;[53]
[53]Affidavit of Hamish Alan MacKinnon sworn 3 December 2015, ex ‘HAM-40, clause 2.2(a) at CB 638.
(b) the liquidators were to apply for approval of the Settlement Agreement;[54]
[54]Ibid, clause 2.2(c) and (d), CB 638.
(c) Falcon and Well Link agree to accept payments of $540,000 and $400,000 respectively from the Court Fund in settlement of their claims;[55]
[55]Ibid, clause 3.2(c) and (d) and 3.4, CB 639.
(d) Falcon is entitled to interest on the sum payable to it at the rate of 7% per annum from 11 November 2015;[56]
[56]Ibid, clause 3.3.
(e) the balance of the Court Fund is to be paid to Qian Xu and Tao Lin;[57]
[57]Ibid, clause 3.5.
(f) on payment of the above amounts, the parties mutually release one another from all claims;[58]
[58]Ibid, clauses 3.6 and 3.7, CB 639-640.
(g) on payment of the amount due to Well Link under the agreement, the Well Link proceeding is to be discontinued;[59]
(h) the parties agree to a sum of $250,000 being paid from the HMA Fund to the liquidators and the balance of the HMA Fund being paid to Qian Xu and Tao Lin;[60] and
(i) in the event that the Mortgagee’s Retention Fund and/or the Receivers’ Retention Fund or any part of them are delivered to GHG or the liquidators, such sums are to be paid to Qian Xu and Tao Lin.[61]
[59]Ibid, clauses 4.1 and 4.2, CB 640.
[60]Ibid, clauses 5.1 and 5.2.
[61]Ibid, clause 6.
The Applicable Principles
It is not uncommon for liquidators to seek approval by the Court of a proposed settlement of claims in the liquidation or by the liquidators. In granting such relief, the Court is exercising a power of judicial advice.
The Court's jurisdiction under s 511 to give liquidators in creditors’ voluntary windings up judicial advice is similar to its jurisdiction to give guidance to liquidators in compulsory windings up under s 479(3).[62] It has been commented that the Court's power under s 511 is more limited than the power under s 479 because, under s 511, the Court has to be satisfied that the exercise of power will be ‘just and beneficial’ (see s 511(2)).[63] However, whilst a court appointed liquidator is an officer of the Court, and a liquidator in a creditors’ voluntary winding up is not, whether there is any relevant distinction between the scope of the power under s 511 and the scope of the power under s 479(3) is doubted.[64]
[62]Handberg v MIG Property Services Pty Ltd [2010] VSC 336 per Warren CJ, but see Dean-Willcocks v Soluble Solution Hydroponics Pty Ltd (1997) NSWLR 209 per Young J at 212.
[63]Hall Re Australian Capital Reserve (in liquidation) [2008] FCA 1895 at [18].
[64]Handberg v MIG Property Services Pty Ltd at [10]-[12].
It is not the role of the Court in an application under s 479(3) or s 511 to make commercial decisions. There must be an issue calling for legal judgment. But having made a commercial judgment, it may be open to the liquidator to seek the Court’s protection from a potential unreasonable challenge to his judgment which might adversely affect the administration of the winding up.[65]
[65]Handberg v MIG Property Services Pty Ltd at [19]-[24].
The only proper subject of a liquidator's application for directions is the manner in which the liquidator should act in carrying out his functions as such. If the liquidator has made full and fair disclosure to the court of the material facts, he will be protected from liability for any alleged breach of duty as liquidator in respect of anything done in accordance with any direction or advice given.[66]
[66]G B Nathan & Co Pty Ltd (in liq) (1991) 24 NSWLR 674 at 679-680; Re Mento Developments (Aust) Pty Ltd (in liq) [2009] VSC 343.
The Court will not give directions regarding a hypothetical matter. The directions sought must relate to a particular matter or matters arising in the winding up.[67]
[67]HIH Casualty & General Insurance Ltd (in liq) v Building Insurers’ Guarantee Corporation (2004) 51 ACSR 21.
The power to give judicial advice enables the court to give a liquidator advice as to his proper course of action in the liquidation. It does not enable the court to make binding orders in the nature of judgments which determine rights and liabilities.[68]
[68]G B Nathan & Co Pty Ltd (in liq) at 679-680; Re Mento Developments (Aust) Pty Ltd (in liq).
A liquidator is entitled to seek directions on his administration of the winding up even though the issue about which he seeks a direction may be, or become, an adversarial issue in other proceedings. The fact that the court’s advice may tend to foreclose an issue in the other disputed proceedings is not of significance to the court in exercising its discretion to give private advice to the liquidator.[69]
[69]Re Mento Developments (Aust) Pty Ltd (in liq) at 49.
The court does not endorse a proposed agreement, but gives permission to the liquidator to exercise his own commercial judgment.[70]
[70]Re Bell Group Ltd; Ex parte Woodings [2009] WASC 235 at [58].
Consideration
The Court is not asked to determine the validity, enforceability or priority of the competing claims. Rather, the liquidators seek advice from the Court that they are, in all the circumstances, acting reasonably or are otherwise justified in entering into the Settlement Agreement.
The object of the Settlement Agreement is to expedite and minimize the costs to the liquidation by resolution of competing proprietary claims. But for the Settlement Agreement, the liquidators and the other parties face the prospect of protracted legal proceedings as to the validity, enforceability and priority of the various competing claims to security.
The object of the application for judicial advice is, in turn, to procure for the liquidators protection from suit with respect to the settlement. It is possible, if not likely, that in the absence of Court approval, the liquidators may be criticized by Sun and Corpsun for entering into the Settlement Agreement. In his affidavit sworn on 4 March 2016,[71] Sun deposes that:
[71]Affidavit of Guo Zhao Sun sworn on 4 March 2016, CB 651-770.
(a) he did not execute the mortgage to Tao Lin (that is to say, his signature was forged);[72]
[72]Affidavit of Guo Zhao Sun sworn on 4 March 2016, paragraph 27, CB 658.
(b) Qian Xu’s loan amount was converted into an investment of equity or otherwise repaid;[73]
(c) Falcon did not procure any loans or refinance for GHG, and presumably therefore is not owed the amount it claims;[74]
(d) the claim against Well Link is similar to the claim against him and Corpsun (and presumably has the same merit).[75]
[73]Affidavit of Guo Zhao Sun sworn on 4 March 2016, paragraph 26 (CB 658) and paragraph 33(d) (CB 661).
[74]Affidavit of Guo Zhao Sun sworn on 4 March 2016, paragraph 30, CB 659-660.
[75]Affidavit of Guo Zhao Sun sworn on 4 March 2016, paragraphs 31 and 33(c), CB 660-661.
Sun has also queried the payment of the $250,000 to the liquidators ‘without any evidence of costs associated with the liquidation or legal costs.[76] As to this, the liquidators’ position is that any payment received by the liquidators will be deposited into the liquidation bank account and administered in accordance with s 556 of the Corporations Act.
[76]Affidavit of Guo Zhao Sun sworn on 4 March 2016, paragraph 33(e), CB 661.
Under the Settlement Agreement, Qian Xu’s and Tao Lin’s claims for more than $5,000,000 as at 11 November 2015 are to be compromised for approximately $3,550,000.
In the case of the Qian Xu mortgage and debt claim, Sun asserts[77] that the loan of $800,000 made by Qian Xu was repaid in November 2013 ‘by being transformed into part of a $1,000,000 equity investment by Lin in GHGS’. He produces no document to which Qian Xu is a party in support of this assertion. There is no evidence that the books and records of GHG (and GHGS) support this assertion, although - as can be seen from Mackinnon’s affidavit sworn 3 December 2015 – Sun appears to have sought to manipulate the entries in GHG’s general ledger to swap debts of the company into equity and back, practically at whim, such that the books and records cannot be treated as reliable in this respect. The documents exhibited by Sun to his affidavit do not support the proposition that either Qian Xu or Tao Lin sought to make any investment of $1,000,000 in GHGS. Nor do the documents support the proposition that Qian Xu accepted that her loan to GHG had been repaid.
[77]Affidavit of Sunny Sun affidavit sworn 4 March 2016, paragraph 26.
Sun’s assertion that he did not sign the Tao Lin mortgage[78] is unlikely to be accepted, if ever tested at a trial. The loan agreement between Tao Lin and GHG,[79] which Sun does appear to admit executing on 12 December 2013,[80] expressly made it a condition precedent of Tao Lin advancing the sum of $4,000,000 to GHG that there be a mortgage executed by GHG over all of the properties owned by GHG. Further, the signature on the mortgage in favour of Tao Lin by GHG looks very much like that of Sun.[81]
[78]Affidavit of Hamish Alan MacKinnon sworn 3 December 2015, ex ‘HAM-13’.
[79]Affidavit of Hamish Alan MacKinnon sworn 3 December 2015, ex ‘HAM-12’.
[80]Affidavit of Sunny Sun sworn 4 March 2016 paragraph 27.
[81]There are numerous admitted signatures of Mr Sun throughout the documents. The resemblance of those to the signature on the Tao Lin mortgage (HAM-13) is apparent.
Further, at paragraph 12 of Sun’s affidavit sworn 4 March 2016, Sun admits that at least $2,500,000 of the Tao Lin loan was used by GHG in respect of paying an amount to a creditor of GHG, while asserting that the balance of Tao Lin’s loan money was directed to purchasing equity in GHG and GHGS. Sun’s assertion regarding equity investment is lacking substance for at least 2 reasons:
(1)First, Sun’s assertion regarding the composition of the payment of $3,800,000 paid to Hua Wang not consisting entirely of money advanced to GHG (via GHGS) by Tao Lin is demonstrably false – see HAM-14, being bank statements which clearly show the truth;
(2)The documents exhibited by Sun at ‘GZS-5’ are obviously incomplete, and feature a number of peculiarities (missing signatures, wrong dates, no identification of what is being transferred) and cannot be relied upon as providing prima facie evidence of anything.
Finally, even if Sun’s assertions are accepted, Tao Lin would still be a secured creditor of GHG, for more than $3.2 million as at November 2015.
Under the Settlement Agreement Falcon’s claim of more than $800,000 as at 11 November 2015 (the date of the Settlement Agreement)[82] is to be compromised for $540,000 (plus interest from 11 November 2015).
[82]Affidavit of Hamish Alan MacKinnon sworn 3 December 2015, ex ‘HAM-23’.
In the case of the Falcon mortgage and debt claim, Sun contests some of Falcon’s invoices.[83] However, Sun’s first 3 complaints relate to activities before September 2012, when he executed documents acknowledging debts in respect of those activities, and executed a mortgage in favour of Falcon which secured those debts. His latter 2 complaints relate to 2 invoices with a value of less than $200,000. It is significant that the amount of these invoices is approximately equivalent to the amount which Falcon has given up by its compromise of its claims under the Settlement Agreement.
[83]Affidavit of Sunny Sun sworn 4 March 2016, paragraph 30.
Under the Settlement Agreement Well Link’s claim of more than $1,600,000 as at 11 November 2015 is to be compromised for $400,000.
In the case of the Well Link mortgage and debt claim, the Settlement Agreement disposes of a separate proceeding by the liquidators of GHG to set aside the mortgage. The compromise by the liquidators of $400,000 – which is also agreed to by Qian Xu and Tao Lin - represents slightly less than 25% of the value of Well Link’s claim (including interest). Sun does not appear to make any assertions in respect of Well Link’s claim.
In the case of the claims by each of Falcon, Well Link, Qian Xu and Tao Lin, GHG had executed a mortgage of land in favour of the claiming creditor. Sun signed each of those mortgages.
From the liquidators’ perspective, it is important that the resolution of part of the claims of Falcon adversely to a share of the Surplus, or of Well Link to a share of the Surplus, or of Qian Xu to a share of the Surplus, would be insufficient to have entitled the liquidators to any part of the Surplus, if the claim of Tao Lin was wholly successful – as that claim, including interest on the sum of $4,000,000 would, but for the compromise achieved by the Settlement Agreement, exceed the value of the Surplus.
The general weakness of Sun’s assertions, when compared with the documents supporting the existence of the Qian Xu and Tao Lin secured loans, and the documents supporting the existence of Falcon’s and Well Link’s claims, when combined with the inevitable costs associated with the running of a contested 6 way priority dispute[84] to the Surplus, where each of the secured creditors would claim to be entitled to the costs of establishing their claim, under the terms of their respective mortgages, justify the Settlement Agreement as a practical compromise from the perspective of all parties, such that the liquidators will receive $250,000, effectively from Qian Xu and Tao Lin, as the price for Qian Xu and Tao Lin avoiding particularly the costs (including the costs payable out of the Surplus in priority to their own claims to the Surplus), and to a lesser extent the risks, associated with contesting the claims of Falcon and Well Link, and establishing their own claims to the Surplus.
[84]Which is now a 5 way priority dispute, Sun’s security interest now having been avoided by the liquidators of GHG — see [2016] VSC 167.
By reason of the above matters, the Settlement Agreement is one which the liquidators, acting reasonably, are well justified in having entered into, and for these reasons orders were made accordingly.
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