In the matter of Alleta Pty Ltd

[2015] NSWSC 2064

Supreme Court

New South Wales

Medium Neutral Citation:	In the matter of Alleta Pty Ltd [2015] NSWSC 2064
Hearing dates:	5 June 2015
Date of orders:	05 June 2015
Decision date:	05 June 2015
Jurisdiction:	Equity - Corporations List
Before:	Brereton J
Decision:	Defendants restrained from dealing with the proceeds of sale of the property except as specified until further order of the Court, but not from selling property.
Catchwords:	EQUITY – equitable remedies – injunctions – application for injunction to restrain auction sale of property – whether serious question to be tried – dispute as to beneficial ownership of shares – balance of convenience – whether prejudice to defendant of granting injunction outweighs prejudice to plaintiff of not granting injunction – where prospect of appreciation of property speculative – impact of mortgage outgoings on property’s value – whether risk of sale at undervalue – held, application for injunction restraining sale refused; injunction retraining disbursement of proceeds granted.
Legislation Cited:	(CTH) Corporations Act 2001, s 128 (NSW) Real Property Act 1900, s 57(2)(b)
Category:	Procedural and other rulings
Parties:	Mary Melhem (plaintiff) Alleta Pty Ltd (ACN 160 069 319) (first defendant) Stella Tzonis (second defendant)
Representation:	Counsel: C O’Neill (plaintiff) C Alexander (defendants)   Solicitors: Swaab Attorneys (plaintiff) Vizzone Ruggero Twigg Lawyers (defendants)
File Number(s):	2015/163704

Judgment (ex tempore)

1. HIS HONOUR: Before the Court is an originating process filed by leave on 2 June 2015 and made returnable today for hearing of an application for interlocutory relief restraining the second defendant Stella Tzonis, in her capacity or purported capacity as a director of the first defendant Alleta Pty Limited, from carrying out an auction sale of a property situate at and known as unit 31, 481-483 Parramatta Road, Leichhardt, which is listed to take place tomorrow Saturday, 6 June 2015.

2. There are 10 issued shares in the first defendant company Aletta Pty Limited. According to the company register, those shares were issued on incorporation to the second defendant Stella Tzonis. There was, at that stage, nothing to indicate that they were not held beneficially by her.

3. According to the company register, there have been no subsequent share transfers or resolutions of directors’ meetings approving the transfer of those shares. However, the ASIC database contains records of several purported transactions. First, the shares were ostensibly transferred on 29 July 2013 to Rene Melhem, a son of the plaintiff Mary Melhem, who is shown to have held the shares non-beneficially. Next, it appears that they were retransferred to Stella Tzonis on 30 September 2013, whereupon she is shown to have held them non-beneficially. Next, they are shown as having been transferred to the plaintiff Mary Melhem on 16 January 2015, who is shown to have held them non-beneficially. Finally, they are shown as having been retransferred to the second defendant Stella Tzonis on 4 March 2015, when she is shown to hold them beneficially as well as legally.

4. Stella Tzonis says that she is and always has been beneficially entitled to the shares.

5. According to the company register, Stella Tzonis was appointed a director on incorporation. The company register evidences no change to that position. However, once again, the ASIC database records numerous changes in the directorship, including the appointment in her place of Rene Melhem on 13 July 2013 and then in his place, once again, of Stella Tzonis on 30 September 2013, who was apparently replaced by the plaintiff Mary Melhem on 23 December 2014 for a day only but thereafter with effect from 31 December 2014 until 24 February 2015. Then, Stella Tzonis is shown as having been appointed as a director, once again, on 16 January 2015.

6. According to the company register, Stella Tzonis has always been the sole shareholder and the sole director of the company. According to the ASIC database, she is presently the sole shareholder and sole director of the company. However, by her own admission, her present registration as such was procured irregularly, and there was no share transfer to her, nor any resolution appointing her a director in respect of that appointment. That said, there is no evidence of any share transfer to Mary Melhem, nor of any director's resolution appointing her.

7. This is a case in which there has been total and absolute disregard for proper corporate governance procedures of the most elementary kind and, once again, manifests the misconception that somehow the ASIC database operates like the Real Property register whereby registration confers title. The ASIC database, of course, has no such effect and, while it may be prima facie evidence of what it records, ultimately whether a person is entitled to be a director or a shareholder does not depend on what is in the ASIC database.

8. The company appears to have been incorporated in order to purchase the property at Leichhardt to which I have referred, which is in a development built by one Joseph Cernigoi. Ms Tzonis was in a de facto relationship with Mr Cernigoi from about early 2011 to October 2014. Ms Melhem had been in a relationship with him before then. Joseph Cernigoi has a daughter Natalie Cernigoi.

9. The property was purchased by the company under a contract entered into in or about November 2012 for a price of $426,000. Although the evidence is most unclear, it seems at least that, in one way or another, Ms Cernigoi provided a deposit of $21,300 and the balance purchase money was borrowed by Alleta from two sources: first, as to some $373,000, from Patricia Martha Wetherill and Joroz Pty Limited on a contributory mortgage apparently negotiated through Baccus Investments Limited; and secondly, as to $80,000, from Reliance Leasing Pty Limited. In each case, the loan documentation was signed by Ms Tzonis as a director of the company and also in the capacity of guarantor.

10. The plaintiff contends that the company was incorporated on the basis and with the intention that the shares would be beneficially held by Ms Cernigoi, and that Ms Cernigoi has always been the beneficial owner of the shares. Ms Cernigoi lodged a caveat in respect of the property, claiming an interest as beneficial owner. Aletta – presumably at the instance of Ms Tzonis – caused a lapsing notice to be served, and that caveat lapsed. Ms Cernigoi has very recently, on 3 June, lodged a further caveat claiming an interest as a secured creditor in respect of the deposit moneys.

11. As it seems to me, the real ultimate question in these proceedings is going to be who is beneficially entitled to the shares in the company. The plaintiff claims, in substance, that she was appointed as trustee of the shares in place of the earlier trustees, and that the shares should be vested in her as trustee for Ms Cernigoi – and, implicitly, that no one has ever removed her as trustee, let alone replaced her with the second defendant.

12. The second defendant, as I understand it, contends that she has always been the sole person beneficially entitled to the shares.

13. Some guide to the answer to this question is provided by an analysis of the contributions to what the evidence indicates is the company's only asset, namely the Leichhardt property.

14. It is not really controversial that Ms Cernigoi provided the deposit. It also seems to be uncontroversial that the Reliance loan was paid out by Ms Cernigoi. There is no evidence that Ms Tzonis has contributed anything to the property. I say that fully conscious that she has guaranteed both the Reliance loan (since repaid) and the Baccus loan, but in circumstances where the exposure on those loans is significantly less than the value of the property, it seems likely that that will ultimately involve no actual contribution on her part. In those circumstances, one might ask why would Ms Cernigoi contribute the deposit if the sole beneficial shareholder was Ms Tzonis; and why would she pay out the Reliance loan; and, against that, what has Ms Tzonis contributed to earn any beneficial interest at all?

15. A more realistic position, although I did not understand it to be that contended for at this hearing by Ms Tzonis, might have been that the intention was that the shares were to be held on trust for her and Mr Cernigoi equally. There is at least some suggestion in the evidence that the acquisition was to be for her and Mr Cernigoi together, but that does not appear to be the case she makes – nor realistically could it be, because that would not authorise her unilateral re-taking of control of the company.

16. On that basis, it seems to me that there is a serious question to be tried that Ms Cernigoi is beneficially entitled to the shareholding, was entitled to appoint Ms Melhem as trustee of the shareholding and, thus, that Ms Melhem was entitled to have the shares vested in her and, as the sole shareholder, to control the composition of the board of directors. It follows that there is a serious question to be tried that Ms Tzonis is not entitled to be regarded as a shareholder or director.

17. It is then necessary to consider the balance of convenience. Essentially that involves assessing whether the prejudice to the defendant, if I were to grant an injunction and it eventuates that the plaintiff's case fails, exceeds the prejudice to the plaintiff if I were to decline an injunction but the plaintiff ultimately succeeds. A number of factors inform this balance of prejudice.

18. First, the property is an investment property, not occupied by any of the parties as a home. It is true that it may appreciate in the future, but it may not. It seems to me that the financial risk of appreciation as opposed to that of wasting is speculative, and does not significantly inform the balance of convenience one way or the other. If the property is not sold it may appreciate but, alternatively, the position may deteriorate with the mortgage outgoings. Currently it is incurring interest under the Baccus mortgage. More tellingly, the term of the mortgage has expired, the mortgagees have served a notice under (NSW) Real Property Act 1900, s 57(2)(b) and, on that account, it seems very likely that the property will have to be sold, in any event, to repay the mortgagee, there being no suggestion at this stage of any refinance in the offing.

19. Moreover, the body corporate has commenced proceedings to recover levies in respect of the property.

20. Next, it was suggested that there was at least a risk that if the sale proceeded it might be at an undervalue. The evidence indicates that the property has been advertised in places where one would normally expect it to be advertised. There is no evidence that the marketing has been other than ordinary and appropriate, nor that the proposed sale, which is by auction, would be other than at arm's length. Indeed, the fact that an auction is proposed is considerable comfort in that respect.

21. As to any risk that the sale be at an undervalue, Ms Tzonis has given evidence that she has received an offer of $670,000, but hopes that the property might obtain more at auction. She offers an undertaking not to sell for less than $670,000. Not only does that price, when compared to a price of $460,000 only eight months ago, appear to be a very good return on the investment, but there is evidence from a number of sources that indicates that it is at least at valuation, if not better. There is a valuation – apparently obtained on the instructions of Mr Cernigoi for family law purposes – at $625,000 as at 29 January 2015. This cannot come as a surprise as, in correspondence, written on behalf of Ms Cernigoi (whose trustee the plaintiff claims to be) on 16 January 2015, it was asserted that the property had an approximate current market value of $650,000.

22. Accordingly, with the undertaking not to sell for less than $670,000, I do not think that there is any significant risk that this will be a sale at an undervalue.

23. I have considered and discussed with counsel whether, in circumstances where there is obvious doubt as to the regularity of the current state of the ASIC database, it would be mischievous to allow the sale to proceed. But, as it seems to me, a purchaser would be entitled to rely on the presumption referred to in (CTH) Corporations Act 2001, s 128, that the matters recorded in the ASIC database are correct, unless there was notice of some ground giving rise to a suspicion that that was not so. A purchaser who is not entitled to rely on that assumption will plainly enough not be protected. A purchaser who is entitled to rely on that assumption will be entitled to enforce the contract against the company. It does not seem to me that this bears materially on the balance of prejudice between the respective parties before me.

24. It is telling that a s 57(2)(b) notice has been served and that, in the context that the Owner's Corporation is also suing for arrears and the company has no other loan assets, a sale appears practically inevitable, in any event.

25. In those circumstances, the expenses that have been incurred in respect of tomorrow's sale would be wasted and visited on the parties a second time if this sale did not proceed, whereas it is difficult to see what is the prejudice to the plaintiff if the injunction is not granted and the sale proceeds. At the worst, the property may be sold at auction tomorrow at what appears to be a very satisfactory price compared to the purchase price and compared to the known valuations and estimates of value. It is said that there is prejudice in the loss of the opportunity to retain the property, refinance it and have it appreciate in the future; but that is a very speculative scenario. I am not satisfied that the balance of convenience favours the grant rather than the withholding of the injunction.

26. In those circumstances, the defendant's proposal sufficiently meets the need of the situation. That, in itself, reflects that the plaintiff has obtained, by concession, a measure of relief, which it would almost certainly have obtained in any event. Costs of the application should be costs in the proceedings.

27. The Court therefore orders that:

1. upon the plaintiff, by her counsel, giving to the Court the usual undertaking as to damages, until further order the defendants be restrained from, by themselves, their servants or agents, dealing with the proceeds of sale of the property situate at and known as unit 31, 481-483 Parramatta Road, Leichhardt in the State of New South Wales, being the land comprised in Folio Identifier 31/SP75710, otherwise than as follows:

1. First, in payment to the mortgagee of the amount required to procure discharge of the registered mortgage;

2. Secondly, in payment of selling costs, including legal costs of sale advertising and agents’ commission; and

3. Thirdly, in payment or adjustment of any rates, taxes (including GST or capital gains tax), insurance and other outgoings that may be payable in respect of the property and as to the residue into Court to the credit of these proceedings or, if the parties so agree, into a controlled moneys account in the joint names of John Frisoni, solicitor for the defendants, and Terence Sperber, solicitor for the plaintiff;

provided that it not be a contravention of this order for the defendants to pay to the caveator any amount required to procure a withdrawal of the caveat by Natalie Cernigoi.

2. Costs of the interlocutory application be costs in the proceedings.

3. The proceedings be stood over to Monday, 22 June 2015 at 10am in the Corporations Judge’s Directions List.

28. The Court notes that the second defendant, by her counsel, undertakes to the Court that the defendants will not sell the property for a price less than $670,000.

29. These orders are to be entered forthwith.

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Decision last updated: 11 March 2016