In the matter of Roxy's Bootcamp Pty Limited (in provisional liquidation)

[2024] NSWSC 948

Supreme Court

New South Wales

Medium Neutral Citation:

In the matter of Roxy’s Bootcamp Pty Limited (in provisional liquidation) [2024] NSWSC 948

Hearing dates:

19 and 22 July 2024

Date of orders:

22 July 2024

Decision date:

22 July 2024

Jurisdiction:

Equity - Corporations List

Before:

Black J

Decision:

Directions given to liquidators and order made as to payment of trust funds.

Catchwords:

CORPORATIONS – Winding up – Application by liquidators for directions – Whether liquidator is justified in treating trust funds as property beneficially owned by the company – Whether liquidator is justified in not proceeding with so called ‘Prize Draw’.

Legislation Cited:

Insolvency Practice Schedule (Corporations), s 90-1

Cases Cited:

- Re Montpac Pty Ltd (in liq) and Global Network Link Pty Ltd (in liq) [2020] NSWSC 1237

- Re Octaviar Administration Pty Ltd (in liq) [2017] NSWSC 1556

Category:

Procedural rulings

Parties:

Roxy Elise Davis-Jacenko (Applicant/Liquidators)
Roxy’s Bootcamp Pty Limited (in provisional liquidation) (Respondent)

Representation:

Counsel:
M L Rose (Applicant/Liquidators)
C W Robinson (Respondent) (First day only)

Solicitors:
Bridges Lawyers (Applicant/Liquidators)
Yazbeck Law (Respondent) (First day only)

File Number(s):

2024/193403 (006)

Judgment – ex tempore (Revised 29 July 2024)

Nature of the application

1. By Interlocutory Process filed on 2 July 2024 the Applicants, Messrs Cathro and Blundell, as provisional liquidators and now liquidators (“Liquidators”) of Roxy’s Bootcamp Pty Limited (in prov liq) (“Company”) apply for a range of relief. I note that the Company has now passed from provisional liquidation into liquidation and the provisional liquidators have become its liquidators; I will refer to them as the “Liquidators” as they now have that capacity.

2. The first relief sought is a direction that the Liquidators are justified in causing the Company not to proceed with the “Prize Draw”, as that term is defined in an affidavit of Mr Blundell dated 21 June 2024 filed in the proceedings. The second is a direction that the Liquidators would be justified in treating the Trust Funds (as defined in that affidavit) as being property beneficially owned by the Company and a declaration that the Trust Funds have that character.

3. The Liquidators also seek an order that the First Respondent to the application, Lawyers Pty Ltd trading as Yazbeck Law account to the Company for the Trust Funds. An order in respect of the cost of the application is not pressed as against Yazbeck Law, in the circumstances that I note below but the Liquidators seek an order that their costs of and incidental to the application be costs in the Company’s provisional liquidation, and be paid out of the Company’s assets.

Affidavit and other evidence

4. The application is supported by an affidavit dated 21 June 2024 of Mr Blundell, one of the Liquidators, who referred to the circumstances of his appointment as provisional liquidator of the Company, by orders made by this Court. He outlines the steps which he has taken, together with his staff and legal advisors, since that date, which have included steps to postpone the proposed Prize Draw in relation to a competition which was to be conducted by the Company, and had become controversial in the period prior to the appointment of the provisional liquidators.

5. Mr Blundell also there addresses the circumstances of the Prize Draw, which was to be open to purchasers of courses offered by the Company during the period 8 March 2024 to 6 June 2024, and which held out the prospect of participating in a game of chance which would allow participants a prospect of winning a property situated in Cronulla (“Property”) and, if the first valid entry drawn did not do so, an alternative cash prize of $250,000, together with two prizes to other entrants of lesser value. Mr Blundell refers to the difficulties which arose in respect of the conduct of the Prize Draw, which led the provisional liquidators, initially, to postpone the Prize Draw, which included, fundamentally, the fact that the Company did not own and did not have any apparent ability to obtain the Property which was (subject to the game of chance) the first prize in the Prize Draw; the amount of $250,000 which was the cash prize, for a winner who did not win the Property, had been paid to solicitors, Yazbeck Law, on terms which I note below; and the Company also did not have the lesser prizes, which were in the possession of Ms Davis-Jacenko. That now prompts the application by the Liquidators for a direction that they are justified in not proceeding with the Prize Draw.

6. Mr Blundell in turn refers to the position in respect of the Property; in respect of the cash prize, which was previously in dispute in this application; and the other prizes. He also addresses the financial position of the Company, which has limited assets, other than the Trust Funds held by Yazbeck Law, and the possibility that the alternative prizes are its assets. He notes that the Company’s known liabilities are less than the amount of the Trust Funds, but the Company may have additional taxation liabilities, and potential liabilities to third parties in respect of the circumstances in which the Prize Draw has not proceeded. Mr Blundell also addresses the position as to the Company’s solvency, and notes that he has been unable to reach a conclusive view as to its solvency, having regard to several matters.

7. An exhibit to Mr Blundell's affidavit contains a company search for the Company, which records that until 19 April 2024, Ms Davis-Jacenko was a director of the Company; until 9 May 2024, Mr Alaouie was also a director of the Company; and from 9 May 2024 to date, Mr Tleis was a director of the Company and remains as the Company’s sole director. That company search also refers to the shareholdings in the Company, which were held in equal shares by Ms Davis-Jacenko on the one hand and by two companies associated with Messrs Tleis and Alaouie on the other.

8. The exhibit also contains the terms and conditions of the promotion in which the prizes to which I referred above were to be awarded, which provide for the prizes to include the Property, the $250,000 cash prize as an alternative prize, and the two minor prizes to which I referred above. The exhibit also included documents relating to a costs agreement between Yazbeck Law and the Company and companies associated with Messrs Tleis and Alaouie, which related to work involved in a dispute with Ms Jacenko in relation to the Company. As events have emerged, it will not be necessary to determine any question in respect of Yazbeck Law’s entitlement to costs or disbursements as against the Company, which can properly be addressed in the liquidation. Mr Blundell also exhibits correspondence with the solicitors acting for shareholders in the Company relating to the availability of the prizes, which confirms the difficulty in accessing those prizes.

9. The Liquidators also tender the Xero records of the Company, from the date when those records appear to have commenced with a nil balance on 12 March 2024 to 27 May 2024. Importantly, those accounting records record that, on 13 May 2024, the Company paid Lawbase Pty Ltd (“Lawbase”), which were the Company’s solicitors prior to the retainer of Yazbeck Law, the amount of $250,000, reducing its assets from an amount in the order of $258,000 to an amount in the order of $8,000. That amount has since been transferred by the former solicitors to Yazbeck Law.

10. The Liquidators also tender correspondence, which reflects matters which arose on the first occasion when this hearing was listed, by which the Liquidators confirm that they do not seek any order for costs against Yazbeck Law, and Yazbeck Law confirms that it no longer seeks to assert a lien over the Trust Funds and does not seek any costs in respect of the litigation or as trustee of the fund, and does not oppose the balance of the relief sought by the Liquidators in the Interlocutory Process. Yazbeck Law in turn confirms that position by its email dated 22 July 2024.

11. When the matter was first listed before me, and prior to the developments recorded in that correspondence, Yazbeck Law opposed the relief sought by the Liquidators, and read affidavits dated 5 July 2024 of Mr Tleis and Mr Yazbeck. Mr Tleis' affidavit addressed the circumstances in which moneys were paid by the Company into the former solicitors’ trust account, and by which access to those funds was in turn provided to Yazbeck Law.

12. Mr Yazbeck's affidavit referred to the circumstances in which Mr Tleis, then claiming to act on behalf of the Company, approached Yazbeck Law seeking representation for the Company in relation to a dispute between the Company and Ms Davis-Jacenko. There was a potential difficulty with that characterisation, which emerged when the matter was first listed, namely that the substantive dispute which was heard before the Court, and which led to the appointment of the provisional liquidators and then the Liquidators, was a dispute between the Company's shareholders, namely the entities associated with Mr Tleis and Mr Alaouie on the one hand and Ms Davis-Jacenko on the other. The Company was the subject of that dispute between the relevant shareholders.

13. Mr Yazbeck in turn referred to the circumstances in which the firm entered a cost agreement, which provided for an uplift in specified circumstances, and contemplated that the costs payable to the firm would be paid on a sale of the Property. Mr Yazbeck also referred to the execution of a costs agreement, and to the circumstances in which a proposal developed that the fees payable under the costs agreement would be paid from the Trust Funds held by Yazbeck Law.

14. A second difficulty arose in respect of that aspect of the agreement. The costs agreement imposed liability for costs, inter alia, on Tleis Investments Group Pty Ltd and Salameh Investments Pty Ltd, and contemplated that those costs would be paid from the Property owned by those entities, or at least by entities associated by Mr Tleis and Mr Alaouie. The effect of an arrangement by which, instead, those costs would be paid from the Trust Funds held by Yazbeck Law, was potentially to advantage Mr Tleis and Mr Alaouie at the expense of the Company and its creditors, and plainly involved a potential conflict of interest on the part of Mr Tleis as a then director of the Company. I recognise, in that respect, that Mr Tleis has not had an opportunity to be heard as party to the application, and that finding is not binding upon him. That matter in turn gave rise to a possible difficulty, so far as Yazbeck Law sought to rely on those matters as the source of an asserted lien over the Trust Funds.

15. In the event, Yazbeck Law now no longer seeks to rely on the suggested lien or to claim costs from the Trust Funds. In those circumstances, it is neither necessary nor appropriate to address further the question of the status of any arrangements as between Mr Tleis as the Company’s then sole director, Yazbeck Law and the Company in respect of those transactions, and those matters can properly be dealt with in the liquidation.

The relief sought by the Liquidators

16. As I noted above, the first relief sought by the Liquidator is a direction that the Liquidators are justified in causing the Company not to proceed with Prize Draw (as defined). That relief is sought under s 90-15 of the Insolvency Practice Schedule (Corporations) and Mr Rose, who appears for the Liquidators, refers to my summary of the applicable principles in, inter alia, Re Octaviar Administration Pty Ltd (in liq) [2017] NSWSC 1556 and Re Montpac Pty Ltd (in liq) and Global Network Link Pty Ltd (in liq) [2020] NSWSC 1237. A direction may be given under that section where a liquidator is faced with competing claims raising issues of legal difficulty and it would be unfair that he or she were exposed to the risk of liability for a difficult choice, involving legal and practical questions, where that choice would necessarily disappoint interested parties.

17. Here, it seems to me that the Liquidators plainly face a choice of that character, where persons who had acquired the relevant courses from the Company would plainly have had a potential expectation that they could participate in the Prize Draw and potentially receive valuable prizes, or at least the opportunity to participate in the so-called game of chance which could allow the acquisition of the main prize, the Property. Those persons may plainly be disappointed with the decision not to proceed with the Prize Draw. However, the evidence plainly establishes that the Company does not have access to, and the Liquidators cannot realistically obtain access to, the Property so as to deliver the opportunity of winning that property under the Prize Draw. It seems here that there is a substantial difference between a draw which allows the opportunity to win that Property, and a draw where the only prize that is available is a $250,000 cash prize, even putting aside the additional factors that the minor prizes are also now not in the Company’s possession.

18. In these circumstances, it seems to me that the Liquidators cannot conduct a Prize Draw which is, in substance, the Prize Draw which the Company held out to purchasers of its courses, and the Liquidators are justified in not proceeding with the Prize Draw, and leaving participants to any claim in the liquidation for any loss which has been suffered by the inability to conduct the Prize Draw. It is important to recognise, in that context, that the loss that may be suffered by those participants is not the consequence of any choice by the Liquidators, in any real sense, because they are faced with a position where, irrespective of anything which they do, the Company cannot deliver the major prize, which was at least the prospect of winning the Property in the Prize Draw, and also cannot now deliver the minor prizes. On that basis, the Liquidators are justified in making that choice; it would be unfair that they be left to bear personal liability for that choice in circumstances that are not of their making; and the Court should make the direction that is sought, so that they are not required to bear the liability for that choice, and any claims of participants are then addressed in the liquidation of the Company, as against what assets are then available to the Company.

19. By orders 2 and 3 the Liquidators seek a direction, and alternatively an order, that the Trust Funds are property beneficially owned by the Company. It seems to me that a direction would, in the present circumstances, adequately protect the Liquidators, and the basis for that direction is straightforward. The evidence to which I have referred above indicates that the moneys now constituting the Trust Funds were sourced from the Company. The submissions for Yazbeck Law had at one point raised the possibility of some form of purpose trust in respect of the Trust Funds; however, if such a purpose ever existed, it has now been frustrated by the Company’s inability to conduct the Prize Draw. In those circumstances, I can be comfortably satisfied that, on failure of that purpose, the Trust Funds are property of the Company, where no other party has any arguable claim to them. Accordingly, I will make a direction in the form of order 2 sought in the Interlocutory Process.

20. The Liquidators also seek an order that Yazbeck Law, account to the Company for the Trust Funds. I am satisfied that that order is properly made, where Yazbeck Law no longer asserts a lien over the funds, and I am satisfied for the reasons noted above that the Trust Funds are the Company’s property. That order will protect Yazbeck Law, so far as that firm is concerned as to how it may properly deal with the Trust Funds, since it will require, by mandatory order of the Court, that the firm now pay those funds to the Liquidators.

21. As I noted above, no order is now sought against Yazbeck Law in respect of the costs of the proceedings. I am satisfied that an order should properly be made that the provisional liquidators’ and Liquidators’ costs of and incidental to this application be costs in the provisional liquidation and the liquidation of the Company, and are to be paid out of the assets of the Company, where this application was properly brought in the conduct of the provisional liquidation and the liquidation.

Orders

22. For these reasons, I make the following orders:

1. Direct that the Liquidators are justified in causing Company not to proceed with the Prize Draw (as defined in Mr Blundell’s affidavit sworn 21 June 2024).

2. Direct that the Liquidators are justified in treating the Trust Funds (as defined in Mr Blundell’s affidavit) as being property beneficially owned by the Company.

3. Order that the first respondent, Lawyers Pty Ltd ACN 609 867 138 trading as Yazbeck Law, account to the Company (by the Liquidators) for the Trust Funds and pay those funds to the Liquidators by 4pm on 24 July 2024.

4. There be no order as to the costs of this application as between the provisional liquidators, Liquidators, and Lawyers Pty Ltd trading as Yazbeck Law.

5. The provisional liquidators’ and Liquidators’ costs of and incidental to this application be costs in the provisional liquidation and liquidation of the Company (as the case may be) and be paid out of the Company’s assets.

6. The exhibits be returned.

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Decision last updated: 02 August 2024