Li v Ye

[2024] NSWSC 1176

Supreme Court

New South Wales

Medium Neutral Citation:

Li v Ye [2024] NSWSC 1176

Hearing dates:

3, 4, 6, 11, 12, 24 June, 12 August 2024; further written submissions 23, 26 & 27 August 2024

Decision date:

18 September 2024

Jurisdiction:

Equity - Commercial List

Before:

Stevenson J

Decision:

Oppression alleged by plaintiffs for the most part not established; oppression alleged by defendant established; companies in the Shield Group to be wound up

Catchwords:

CORPORATIONS – members’ rights and remedies – oppression – power of court to order remedy – where group of companies engaged in the timber industry – where irretrievable break down in the relationship between various shareholders and directors of those companies – where competing allegations of oppression – plaintiffs’ allegations for the most part not made out – defendant undoubtedly locked out of management of companies since November 2023

CORPORATIONS – winding up – where the group of companies is in a parlous financial state – where the principal trading company in the group is likely, or is actually, insolvent – where remedy sought by the plaintiffs would enable the group to trade and incur debts where there are reasonable grounds to suspect insolvency – where appropriate course to wind up the companies

Legislation Cited:

Corporations Act 2001 (Cth)

Work Health and Safety Act 2012 (SA)

Cases Cited:

Ananda Marga Pracaraka Samgha Ltd v Tomas (No 6) (2013) 300 ALR 492; [2013] FCA 284

Australian Securities and Investments Commission v Plymin (No 1) (2003) 175 FLR 124; [2003] VSC 123

BAM Property Group Pty Ltd as trustee for the BAM Property Trust v Imoda Group Holdings Pty Ltd [2019] FCA 1192

Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567

Bentley Smythe Pty Ltd v Anton Fabrications (NSW) Pty Ltd (2011) 248 FLR 384; [2011] NSWSC 186

Bideena Pty Ltd as trustee for Bideena Pty Ltd Superannuation (2016) 334 ALR 146; [2016] NSWSC 735

Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34

Campbell v BackOffice Investments Pty Ltd (2008) 66 ACSR 359; [2008] NSWCA 95

Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304; [2009] HCA 25

Cassegrain v CTK Engineering Pty Ltd [2005] NSWSC 495

Cowling v Mekken [2015] VSC 196

Elliott v Australian Securities and Investments Commission (2004) 10 VR 369; [2004] VSCA 54

Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (1998) 28 ACSR 688; [1998] NSWSC 413

Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [2001] NSWCA 97

First Strategic Development Corporation Ltd (in liq) v Chan [2014] QSC 60

Food Improvers Pty Ltd v BGR Corporation Pty Ltd (No 4) [2007] FCA 220

French v Smith; French v Quarry Quip Engineering Pty Ltd [2004] VSCA 207

Gerard Cassegrain & Co Pty Ltd v Cassegrain [2011] NSWSC 1156

Helton v Allen (1940) 63 CLR 691; [1940] HCA 20

In the matter of Bias Boating Pty Limited (receivers and manager appointed) (in liquidation) [2018] NSWSC 1977

In the matter of Custom Bus Australia Pty Limited (in liq) [2021] NSWSC 1036

In the matter of JGS Investment Holdings Pty Ltd [2014] NSWSC 1532

In the matter of Pacific Plumbing Group Pty Ltd (in liq) [2024] NSWSC 34

In the matter of Swan Services Pty Limited (in liq) [2016] NSWSC 1724

International Cat Manufacturing (in liq) v Rodrick [2013] QCA 372

John Holland Pty Ltd v Kellogg Brown & Root Pty Ltd [2015] NSWSC 451

Joint v Stephens [2008] VSCA 210

Lewis (as liquidator of Doran Constructions Pty Ltd (in liq)) v Doran (2005) 219 ALR 555; [2005] NSWCA 243

LPD Holdings (Aust) Pty Ltd v Phillips (2013) 281 FLR 227; [2013] QSC 225

Lucy v Lomas [2002] NSWSC 448

Lukaszewicz v Polish Club Ltd [2019] NSWSC 446

Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692

Munstermann v Rayward; Rayward v Munstermann [2017] NSWSC 133

Nassar v Innovative Precasters Group Pty Ltd [2009] NSWSC 342

Patterson v Humfrey [2014] WASC 446

Quick v Stoland Pty Ltd (1998) 87 FLR 371; 157 ALR 615; [1998] FCA 1200

Re a company; ex parte Shooter (No 2) [1991] BCLC 267; [1991] BCC 44

Re Brenfield Squash Racquets Club Ltd [1996] 2 BCLC 184

Re Enterprise Gold Mines NL (1991) 3 ACSR 531; (1991) 9 ACLC 168

Re Quest Exploration Pty Ltd (1992) 6 ACSR 659

Smith Martis Cork & Rajan Pty Ltd v Benjamin Corporation Pty Ltd (2004) 207 ALR 136; [2004] FCAFC 153

Southern Cross Interiors Pty Ltd (in liq) v Deputy Commissioner of Taxation (2001) 53 NSWLR 213; [2001] NSWSC 621

SX Projects Pty Ltd (in liq) v Battaglia [2018] NSWSC 1830

Taxa Australia Pty Ltd v Wang [2016] NSWSC 1913

Tzavaras v Tzavaras & Sons Pty Ltd [2023] NSWCA 168

United Rural Enterprises Pty Ltd v Lopmand Pty Ltd (2003) 47 ACSR 514; [2003] NSWSC 910

Watson v Foxman (1995) 49 NSWLR 315

Wayde v NSW Rugby League Ltd (1985) 180 CLR 459; [1985] HCA 68

White Constructions (ACT) Pty Ltd (in liq) v White (2004) 49 ACSR 220; [2004] NSWSC 71

Zhong v Shield Resources Pty Ltd [2023] NSWSC 1611

Texts Cited:

ASIC, Regulatory Guide 217, “Duty to prevent insolvent trading”

Category:

Principal judgment

Parties:

Xuxu Li (First Plaintiff)
Kevin Ross Waters-Marsh (Second Plaintiff)
Xiaosi Chaney Qian (Third Plaintiff)
Mana Assets Management Pty Ltd (Fourth Plaintiff)
XCQ Holdings Pty Ltd (Fifth Plaintiff)
Phoenix Group Australia Pty Ltd (Sixth Plaintiff)
Feng Ye (First Defendant)
Thomas Gem Stone Pty Ltd in its own right and in its capacity as trustee of the Ye Family Trust (ABN 39 218 802 573) (Second Defendant)
Shield Formply Australia Pty Ltd (Third Defendant)
Shield Resources Pty Ltd (Fourth Defendant)
Shield Holdings Australia Pty Ltd (Fifth Defendant)
Shield Holdings South Australia Pty Ltd (Sixth Defendant)
Shield Hardwood Pty Ltd (Seventh Defendant)
Shield Intermodal Pty Ltd (Eighth Defendant)
Shield Equipment Qld Pty Ltd (Ninth Defendant)
Shield Timber SA Pty Ltd (Tenth Defendant)
Shield Biomass Energy Pty Ltd (Eleventh Defendant)
Shield Equipment Pty Ltd (Twelfth Defendant)
Shield Construction Material Group Pty Ltd (Thirteenth Defendant)
Oz Plantation and Hewer Pty Ltd (Fourteenth Defendant)

Representation:

Counsel:
M R Elliott SC / B Goodyear (Plaintiffs)
J C Kelly SC / A E Maroya (Defendants)

Solicitors:
Norton Rose Fulbright (Plaintiffs)
Goh Lawyers (Defendants)

File Number(s):

2024/125503

JUDGMENT

1. The parties are shareholders in what I will call the Shield Group of companies. The Shield Group is involved in a timber business, operating out of Queensland and South Australia.

2. The principal protagonists are the first plaintiff, Ms Xuxu Li, the second plaintiff, Ms Li’s husband, Mr Kevin Waters-Marsh, and the third plaintiff, Mr Xiaosi Qian, on the one hand, and the first defendant, Mr Feng Ye, on the other. During the hearing, the parties adopted the convention of referring to these individuals by the given names by which they are known: Suzie, Kevin, Robin and Thomas respectively. I will do the same.

3. A chart showing the various members of the Shield Group, and how Suzie, Kevin, Robin and Thomas and their related corporate entities, as well as other entities, hold their shares, is attached. The document also shows of which companies the individuals are directors.     Annexure 1 - Share Structure Diagram

4. During the hearing, attention focused on eight of the Shield Group companies:

1. Shield Resources Pty Ltd (“Shield Resources”), the fourth defendant;

2. Shield Hardwood Pty Ltd (“Shield Hardwood”), the seventh defendant;

3. Shield Holdings South Australia Pty Ltd (“Shield Holdings South Australia”), the sixth defendant;

4. Shield Formply Australia Pty Ltd (“Shield Formply”), the third defendant;

5. Shield Holdings Australia Pty Ltd (“Shield Holdings Australia”), the fifth defendant; and

6. three subsidiaries of Shield Holdings Australia, that is:

1. Shield Equipment Pty Ltd (“Shield Equipment”), the twelfth defendant;

2. Shield Timber SA Pty Ltd (“Shield Timber SA”), the tenth defendant; and

3. Shield Intermodal Pty Ltd (“Shield Intermodal”), the eighth defendant.

5. A document showing the shareholding in those companies, and their operations, is attached.     Annexure 2 - Shareholding Table

6. Thomas is a director of each company in the Shield Group. Through his company, Thomas Gem Stone Pty Ltd, the second defendant (“Thomas Gem Stone”), Thomas holds the majority of shares in each company. Thomas said that he “was educated at Xiamen University in Economics” and that he “worked for [the] government of the PRC in the administration and management of timber resources from about 1991 to 1998, before going into business for myself”.

7. He deposed that:

“I have been involved in the timber industry in Australia and elsewhere for the past 17 or more years. I set up a plywood manufacturing plant in Beihai in the People’s Republic of China in 2012. Part of the timber business I conducted after the Beihai plant became operational was the export of logs from Australia to the PRC for the manufacture of different varieties of plywood.”

8. It was Thomas who established the business conducted under the name Shield.

9. Thomas has been a permanent resident of Australia since 2003 and an Australian citizen since 2005. He is not proficient in the English language but fluent in Mandarin. He gave his evidence before me through an interpreter.

10. Suzie has been since July 2016, and is, employed as the Chief Executive Officer of the Shield Group. She holds, either personally or through one of her companies, including Mana Assets Management Pty Ltd, the fourth plaintiff (“Mana Assets”), shares in each company. She is also a director of most of the companies in the Shield Group. Suzie holds a Bachelor of Commercial Law from the China University of Politics and Law, a Graduate Certificate of International Business from the University of Wollongong and a Master of Commerce from the University of Sydney. Suzie has lived in Australia since she emigrated from China in 2000. In 2007 and 2010, Suzie established businesses, separate from the Shield Group, providing migration advice services. Suzie is bilingually fluent in both spoken and written English and Mandarin.

11. Kevin is Suzie’s husband. Kevin contends that he is the Chief Operating Officer and Workplace Health & Safety Officer of the Shield Group. He played the role of Chief Operating Officer in the Shield Group from at least October 2022 to early 2024.

12. Robin has been since 2017, and is, employed as the Chief Financial Officer of the Shield Group and holds, through his company, XCQ Holdings Pty Ltd, the fifth plaintiff (“XCQ Holdings”), shares in Shield Holdings Australia. He is also a director of that company and certain other companies in the Shield Group. Robin is a qualified accountant. He holds a Diploma in Accounting from Chang Chun Finance College in China. He worked in China as an accountant up to 2008. He immigrated to Australia in 2008 and has worked as an accountant here since then. Robin is also bilingually fluent in both spoken and written English and Mandarin.

13. Each of these individuals presented as being confident of the importance of their contribution to the fortunes of the Shield Group and, as between Thomas on the one hand and Suzie, Kevin, and Robin on the other, dismissive of the contributions of the other. Much was said during submissions about the credit of each of these individuals and how they presented when giving their evidence. For the most part, I am able to resolve the disputes between them and determine the outcome of the proceedings without reference to such matters.

The claims in the proceedings

14. Suzie, Kevin and Robin (together, the “Plaintiffs”) bring a number of claims against Thomas.

15. As articulated in their Amended Commercial List Statement, Suzie and Robin claim that they have been oppressed in the manner proscribed by s 233 of the Corporations Act 2001 (Cth) (the “Act”) by Thomas’s conduct in allegedly:

1. failing to agree, as Thomas is said to have represented he would, on a “fair” redistribution of shares in the Shield Group having regard to Suzie’s and Robin’s contributions to the business;

2. seriously mismanaging the construction of the sawmill located on a property at Nangwarry in South Australia owned by Shield Holdings South Australia (the “Nangwarry Property”);

3. engaging in various acts said to be attempts to “remove or diminish” Suzie;

4. diverting the funds of various companies in the Shield Group for his own benefit;

5. refusing to pay monthly payments due under a loan of $4.8 million from Judo Bank Limited to Shield Formply;

6. refusing to pay Suzie, Robin and Kevin arrears of salary and entitlements and refusing to repay loans advanced by Suzie and Robin to various companies in the Shield Group.

16. Suzie also makes a number of claims in relation to a property at Chinchilla in Queensland (the “Chinchilla Property”) which is registered in the name of Thomas Gem Stone.

17. Suzie and Robin seek:

1. orders that Thomas and Thomas Gem Stone transfer to them and their associated companies:

1. for no consideration, their shares in Shield Resources, Shield Hardwood, Shield Formply, Shield Holdings Australia and Shield Holdings South Australia so that Suzie and Robin or their companies hold 30% and 20% respectively, a combined 50% share, in each of those Shield Group companies; and

2. for $31,309, ^[1] their remaining shares in those Shield Group companies, three-fifths to Suzie or her company and two-fifths to Robin or his company;

   1. The figure determined by the Plaintiffs’ expert as the value of the shares in these companies.

2. a declaration that the Chinchilla Property is held on trust for Shield Resources and consequential orders including that it be transferred to Shield Resources;

3. an order that Thomas be removed as a director of each of the companies in the Shield Group;

4. an order rescinding a resolution of Shield Holdings Australia made on 12 September 2023 pursuant to which family members of Thomas were appointed directors; and

5. orders that Thomas “repay” monies to certain companies in the Shield Group.

18. Suzie, Robin and Kevin seek judgment against Shield Resources and Shield Intermodal for unpaid salary and superannuation.

19. Suzie, her associated company, and Robin seek judgment against a number of Shield Group companies in respect of funds advanced by way of loan.

The wider background

20. All of these claims must be seen against the wider background that:

1. the relationship between the parties has irretrievably broken down;

2. the Shield Group is, if not actually insolvent, close to insolvency;

3. Thomas has, since November 2023, been excluded from any management role in the Shield Group;

4. none of the companies in the Shield Group has a functional board of directors; and

5. the affairs of the Shield Group are presently being conducted by the minority shareholders, Suzie and Robin, who have excluded Thomas from any management role, and who seek to have Thomas transfer to them his shares so they can somehow trade out of the Shield Group’s present financial state.

The principal Shield Group entities

21. Before considering the various claims made in the proceedings, I will outline the role of the principal Shield Group entities.

Shield Resources Pty Ltd

22. Shield Resources conducts a softwood log export business using a facility in Bordertown and the Nangwarry Property in South Australia.

23. This was the company in association with which Thomas and Suzie first conducted a timber business together. They started working in this way in 2016 having known each other previously through a series of unrelated activities. Thomas suggested to Suzie that they work together on a business that would manufacture timber veneer in Australia, export it to China to be used to manufacture formply, a timber composite used by concreters for formworking, with such formply then being imported into Australia for sale here. Thomas had an interest in a factory in China that made formply. He had previously imported formply from China to Australia.

24. Thomas and Suzie agreed that they would be directors and make decisions together, that Suzie would be the Chief Executive Officer on a salary of $150,000 per annum and have an initial 4% shareholding; 2% held in Phoenix Group Australia Pty Ltd (“Phoenix Group Australia”), a company associated with Suzie and Kevin, and 2% held by Thomas for her.

25. Suzie’s initial 4% shareholding increased to 6% in 2019, evidently in recognition of the role she was playing in the company, and then to 30% in 2022 in recognition of her role in securing funding to refinance the purchase by Shield Holdings South Australia of the Nangwarry Property, where a sawmilling operation is currently to be carried out.

26. Thomas, through Thomas Gem Stone, now holds 69.5% of the shares in Shield Resources and Suzie, through Mana Assets, holds 30%. A non-party, evidently supportive of Suzie’s position, Awake (K&T) Pty Ltd (“Awake”), holds the remaining 0.5%.

27. Shield Resources has been supported financially in two ways. First, it is supported by loans from external parties which were organised when Thomas was not able to locate funding. One of those parties is Mr Yuping Zhong who in December 2023 obtained a judgment for $1.5 million against Shield Resources. ^[2] That judgment, and a further amount due to Mr Wang Yang of $3 million, has not been repaid.

    2. Zhong v Shield Resources Pty Ltd [2023] NSWSC 1611.

28. Second, Shield Resources has been supported by Suzie and Robin through the provision of loan funds. Suzie contends that she is owed some $1.3 million and Robin contends he is owed some $2.36 million as well as an amount in the order of US$1.6 million.

Shield Hardwood Pty Ltd

29. Shield Hardwood is the operator of a hardwood timber export business carried out at the Chinchilla Property.

30. In 2018, Thomas Gem Stone acquired the Chinchilla Property from which Shield Hardwood now conducts this business. There is controversy about the circumstances in which this acquisition took place. I refer to this below. ^[3]

    3. From [180].

31. Thomas, through Thomas Gem Stone, holds 94% of the shares in Shield Hardwood. Phoenix Group Australia holds the balance of 6%.

Shield Holdings South Australia Pty Ltd

32. Shield Holdings South Australia is the owner of the Nangwarry Property from which Shield Resources carries out the softwood timber export business. Its function is to hold that property.

33. Thomas, through Thomas Gem Stone, holds 69% of the shares in this company. Suzie, through Mana Assets, holds 30% of the shares and Awake holds the balance of 1%.

34. It was Suzie’s role in procuring the refinancing of the loan taken out by Shield Holdings South Australia to purchase the Nangwarry Property that led to her shareholding in Shield Resources being increased from 6% to 30% in 2022.

Shield Formply Australia Pty Ltd

35. Shield Formply was once used by Thomas to conduct the formply import business to which I have referred. ^[4]

    4. At [23].

36. It is now the borrower of funds that have been used to finance the operation of the South Australian softwood timber export business, and is currently indebted to Judo Bank in the sum of $4.8 million.

37. Thomas currently holds 70% of the shares in Shield Formply, with Suzie and Robin holding 20% and 5% of the shares respectively. Ms Rita Zhou holds the remaining 5% of shares.

Shield Holdings Australia Pty Ltd

38. Shield Holdings Australia was incorporated on 9 May 2023 at a time when the parties were contemplating the “restructure” of the Shield Group to which I will return. ^[5]

    5. From [124].

39. Shield Holdings Australia is the ultimate holding company of:

1. Shield Equipment, which owns the sawmill production equipment at the Nangwarry Property;

2. Shield Timber SA, which is the proposed operator of the sawmill operation the Nangwarry Property; and

3. Shield Intermodal, which employs and manages staff in South Australia.

40. Thomas, through Thomas Gem Stone, holds 64% of the shares in Shield Holdings Australia, and thus, in effect, the three companies referred to in the preceding paragraph. Suzie, through Mana Assets, holds 20% and Robin, through XCQ Holdings, holds the remaining 16%.

The parlous state of the Shield Group

41. All parties agree that the relationship of trust and confidence that hitherto existed between Suzie, Kevin and Robin on the one hand, and Thomas on the other, has broken down.

42. Thus, in their closing submissions, Mr Elliott SC and Mr Goodyear, who appeared for the plaintiffs, accepted:

“There is no question that the relations between Thomas, Suzie and Robin have completely broken down. They cannot continue in business together, and absent some other order better suited to address the present circumstances and rights of the respective parties, the appropriate order would appear to be one for the winding up of all companies in the Group …

The relationship between the parties is the same across the Group – Suzie is Suzie no matter which director cap she may be wearing at any one time, and so is Thomas. Therefore, if the relationship between them has broken down to a degree to justify winding up on the ‘just and equitable’ ground, then it would do so for all companies [in the Group].”

43. Because of that breakdown in relations, none of the companies in the Shield Group has a functional board of directors.

44. There is also an issue as to the solvency of companies in the Shield Group.

45. In that regard, the parties’ submissions focused on the question of the solvency of Shield Resources.

46. Shield Resources is the principal trading company in the Shield Group and, as I have said, exports softwood from South Australia, manages the lease agreement for the Bordertown facility, and manages the operational machinery in South Australia. It also employs all staff for the Shield Group, apart from in Queensland. Mr Elliott and Mr Goodyear submitted that Shield Resources “plays an integral part in the operations of the Shield Group” and is the “face of the Shield Group”.

The test for solvency

47. A company is “solvent if, and only if, [it] is able to pay all [its] debts, as and when they become due and payable”. ^[6] If Shield Resources does not meet that definition, it is necessarily insolvent. ^[7]

    6. Section 95A(1) of the Act.

    7. Section 95A(2) of the Act.

48. Mr Elliott and Mr Goodyear pointed to the recent summary by Black J of the principles concerning insolvency in In the matter of Pacific Plumbing Group Pty Ltd(in liq). ^[8] His Honour said the relevant test:

    8. [2024] NSWSC 34.

“…adopts a ‘cash flow test’ of insolvency which turns upon the income sources available to the company and the expenditure obligations that it has to meet, although a balance sheet test can provide context for the application of the cash flow test ^[9] …

In Quick v Stoland Pty Ltd,^[10] Emmett J summarised the applicable principles as follows:

‘In order to determine whether the company was solvent at a given time, it would be relevant to consider the following matters:

• All of the company’s debts as at that time in order to determine when those debts were due and payable.

• All of the assets of the company as at that time in order to determine the extent to which those assets were liquid or were realisable within a timeframe that would allow each of the debts to be paid as and when it became payable.

• The company’s business as at that time in order to determine its expected net cash flow from the business by deducting from projected future sales the cash expenses which would be necessary to generate those sales.

• Arrangements between the company and prospective lenders, such as its bankers and shareholders, in order to determine whether any shortfall in liquid and realisable assets and cash flow could be made up by borrowings which would be repayable at a time later than the debts’.” ^[11]

9. Citing Southern Cross Interiors Pty Ltd (in liq) v Deputy Commissioner of Taxation (2001) 53 NSWLR 213; [2001] NSWSC 621 at [33] (Palmer J); Australian Securities and Investments Commission v Plymin (No 1) (2003) 175 FLR 124; [2003] VSC 123 at [370]ff, affirmed in Elliott v Australian Securities and Investments Commission (2004) 10 VR 369; [2004] VSCA 54 and see In the matter of Swan Services Pty Limited (in liq) [2016] NSWSC 1724 at [136]ff; SX Projects Pty Ltd (in liq) v Battaglia [2018] NSWSC 1830 at [20]ff (Black J) and In the matter of Bias Boating Pty Limited (receivers and manager appointed) (in liquidation) [2018] NSWSC 1977 at [4]ff and In the matter of Custom Bus Australia Pty Limited (in liq) [2021] NSWSC 1036 at [33]ff.

10. (1998) 87 FLR 371 at 379 (Emmett J); 157 ALR 615; [1998] FCA 1200.

11. In the matter of Pacific Plumbing Group Pty Ltd (in liq) (supra) at [3]-[4].

49. In relation to the arrangements between the company in question and “prospective lenders”, Black J said in In the matter of Custom Bus Australia Pty Ltd (in liq): ^[12]

“The case law indicates that whether a company is able to pay its debts as and when they fall due and payable is a question of facts to be determined objectively and without hindsight in all the circumstances, including the nature of its assets and business, and the Court will have regard to commercial realities in that regard. ^[13]

In assessing a company’s capacity to pay its debts, the Court should have regard to all of the assets of the company as at the relevant time in order to determine the extent to which those assets were liquid or realisable within a timeframe that would allow each of the debts to be paid as and when they became due. Apart from an assessment of the company’s own assets, regard can also properly be had to funds which the company can borrow, on a secured or unsecured basis, or otherwise obtain from lenders or shareholders and which were, as a matter of commercial reality, available to the company to enable its debts to be paid. The case law recognises that, in determining a company’s solvency, the Court may have regard to the likelihood that it will have funds available to it from sources with which it has no formalised agreement or understanding, including loans from its directors or from third parties, at least if they are not repayable in the short term, and the company’s ability to borrow funds can also be taken into account.” ^[14]

12. Supra at [34]-[35].

13. Southern Cross Interiors Pty Ltd (in liq) v Deputy Commissioner of Taxation (supra) at [54] (Palmer J); White Constructions (ACT) Pty Ltd (in liq) v White (2004) 49 ACSR 220; [2004] NSWSC 71 at [289] (McDougall J); Lewis (as liquidator of Doran Constructions Pty Ltd (in liq)) v Doran (2005) 219 ALR 555; [2005] NSWCA 243 at [103] (Giles JA, Hodgson and McColl JJA agreeing); Bentley Smythe Pty Ltd v Anton Fabrications (NSW) Pty Ltd (2011) 248 FLR 384; [2011] NSWSC 186 at [48]-[49] (Ward J, as the President then was).

14. Lewis (as liquidator of Doran Constructions Pty Ltd) v Doran (supra) at [109]-[112]; International Cat Manufacturing (in liq) v Rodrick [2013] QCA 372 at [102]-[105] (Morrison JA, Holmes and Gotterson JJA agreeing); First Strategic Development Corporation Ltd (in liq) v Chan [2014] QSC 60 at [67]-[69] (Philip McMurdo J).

The 1 June 2024 Facility Agreement

50. So far as concerns Shield Resources, in closing oral submissions Mr Elliott accepted that “[t]he solvency question ultimately turns on your Honour’s view about the $12 million facility that [Suzie and Robin] have obtained”.

51. Mr Elliott was referring to a “Facility Agreement” dated 1 June 2024 expressed to be between Mana Assets as borrower and Mr Zhongping Huang and Ms Jia Zhaou as lenders, according to the terms of which Mr Huang and Ms Zhaou have agreed to lend Mana Assets $12 million.

52. The Facility Agreement is dated 1 June 2024; the Saturday before the hearing of these proceedings commenced. Suzie said that she had first approached the lenders on 30 or 31 May 2024; the Thursday or Friday before the hearing commenced.

53. According to the terms of that Facility Agreement, the lenders have agreed to make available to Mana Assets a “facility” of $12 million to be applied by Mana Assets “for the purpose of the operational funding needs of the Shield Group from time to time” and for an “availability period” of five years.

54. An interest rate of 10% per annum is specified, but this is subject to cl 9 which provides:

“9.   INTEREST

9.1   Interest free period

(a)   Subject to Clause 9.1(b) below, no interest accrues on any Loan.

(b)   The Lender may issue the Borrower with written notice that interest will accrue on all Loans in accordance with Clause 9.2 on and from a date falling not less than one (1) Month after the date of the notice issued pursuant to this Clause 9.1(b).

9.2   Calculation of interest

The rate of interest on each Loan is the Interest Rate.

9.3   Payment of interest

(a)   The Borrower must pay accrued interest on each Loan annually.

(b)   All accrued but not yet paid interest shall be paid by the Borrower to the Lender on the Final Repayment Date.” (Emphasis in original.)

55. Thus, according to the terms of the Facility Agreement, the advance of $12 million is interest free unless the lenders decide otherwise.

56. The Facility Agreement makes no provision for security.

57. In cross-examination, Suzie said that:

1. she had met the lenders, who are a couple who live in “the Crown building” in Sydney;

2. the lenders had agreed to fund the needs of Shield Resources;

3. the terms on which the lenders had agreed to advance the funds were wholly contained in the Facility Agreement; and

4. the lenders had $12 million available to provide pursuant to the Facility Agreement and had shown Suzie, on their mobile telephones, their bank statement showing the availability of the funds.

58. The terms of the Facility Agreement are extraordinarily generous; a five year $12 million loan without security and, absent a contrary decision by the lenders, interest free.

59. Mr Elliott and Mr Goodyear submitted that, in his cross-examination of Suzie, Mr Kelly SC, who appeared with Mr Maroya for the Defendants, did not put to Suzie that the 1 June 2024 Facility Agreement was not a genuine document, nor that it did not reflect an actual agreement made between Mana Assets and the named lenders.

60. Mr Elliott and Mr Goodyear submitted that it was only in relation to the question of the lenders showing their bank statements to Suzie that any challenge about the 1 June 2024 Facility Agreement was made; when Mr Kelly asked Suzie “[a]re you sure you’re not making this up as you go along?”, in response to which Suzie said, “I’m not making it up”.

61. However, a fair reading of Mr Kelly’s cross-examination of Suzie as a whole on this topic makes clear that, in asking the rhetorical question set out in the preceding paragraph, he was seeking to cast doubt on all of Suzie’s evidence about the 1 June 2024 facility; including whether the Facility Agreement truly reflected an agreement by the putative lenders to make the advance described in the document.

62. Although those lenders were apparently present in Sydney and available to give evidence confirming their preparedness to make the advance, they were not called, from which state of affairs I draw the inference that they were not able to give evidence supportive of the Plaintiffs’ case.

63. That does not, of course, prove that the Facility Agreement is a sham but, overall, I entertain grave disquiet as to its true status.

64. I think Mr Kelly and Mr Maroya put the matter fairly when they submitted:

“Indeed, there is an open question whether ‘[Mr Huang and Ms Zhaou]’ have $12 million available to lend to Mana Assets, and whether the $12 Million facility is a real transaction. On the face of the facility agreement, which is dated 1 June 2024 (and which appears to have been brought into existence for the purpose of these proceedings) the facility is extraordinary. It is improbable in the extreme that anyone would lend $12 million without any form of security, even so much as a personal guarantee, to a company like Mana Assets, for the purpose of funding the business and operations of the Shield Group. A loan of $12 million without security is most unusual. A loan agreement which does not give an address for the putative lender or indicate how and where payments of interest or repayment of the loan is to take place, calls the veracity of the transaction into question.”

65. Suzie said that Mana Assets will advance the $12 million it borrows from these lenders to Shield Resources, albeit conditionally, as I discuss below. ^[15]

    15. From [70].

The other funds available

66. The other funds that Suzie and Robin contend are available to Shield Resources comprise:

1. liquid funds of $2,635,229 in the bank account of Mana Assets; and

2. liquid funds of RMB¥6,524,799 in Robin’s bank account.

The conditional availability of these funds

67. The funds that Suzie or Robin, through their companies, could make available to Shield Resources are not available unconditionally.

68. Thus Suzie deposed:

“As I have previously said, I am reluctant to proceed with lending more money to the Shield Group in circumstances where Thomas is trying to wind the company up. I have no doubt these borrowings can be proceeded with should that attack on the company be removed.”

69. Robin gave evidence to similar effect.

70. In cross-examination, Mr Kelly asked Suzie about a judgment entered against Shield Resources in favour Mr Yuping Zhong of $1,151,465.06 by Fagan J on 18 December 2023. ^[16]

    16. Zhong v Shield Resources Pty Ltd (supra); referred to at [27] above.

71. This exchange occurred:

“Q. Well, what I suggest is, Shield Resources cannot do it because it does not have the capacity itself, or by anyone who is supporting it, to pay that judgment debt.

A. You’re wrong.

Q. Let us look at the situation today. Are you saying to the Court that Shield Resources has the financial capacity or a supporting avenue under which it can and will pay that judgment debt?

A. Yes.

Q. What is that source of funds?

A. They will come from me or me and Robin, and to be most specific, it will come from me.

Q. You’re saying, are you, that you personally --

A. Yeah.

Q. -- will lend to Shield Resources whatever money is necessary to pay that judgment debt?

A. Yes.

Q. There are no conditions to that support?

A. When you say no conditions, what do you mean?

Q. Is it a condition of your making those funds available to Shield Resources that the shareholding structure in Shield Resources should change?

A. Shield - Shield, well, we’re here today is to talking about the Shield – Shield’s group’s shareholding structures, but apart from that, which will be decided by - by this Court, and if the judgment come to us, to Shield Resources, and Shield Resources need to pay, I will provide that support.

Q. Unconditionally?

A. At this stage I think so.

HIS HONOUR

Q. Even if Mana’s shareholding remains at 30%?

A. Well, again, I said that’s not my claim in this Court, and I'm expecting I would able to get the relief I’m asking for in this Court, and that meanwhile, and the business carry on as usual, and if the judgment coming at this stage saying okay, you’ve got to pay, this is amount, go pay it, and we have to pay it.

Q. So you’ll lend Resources the money to pay the Zhong debt, what, if you get the relief from me that you’re asking for. Is that it?

A. Okay, like – it’s two different things, all right? One thing is if the judgment come - if whatever the proceeding is, and the Zhong’s lawyer come to us say, this is judgment, this is what you need to pay, and then we have to pay it, and regardless what the structure is. Another thing is, I’m here today because all the reasons [I’m] telling your Honour, and why I think we should get relief from you, as another matter. If at the end of day, and we got the relief, and it separate from Zhong’s matter. I - is that clear?” (Emphasis added.)

72. I understand from this evidence, and in particular the passages that I have emphasised, that Suzie’s position is that she would be prepared to cause Mana Assets to advance funds to Shield Resources if, but only if, she is successful in these proceedings in obtaining an order for the compulsory transfer by Thomas of his shares in the Shield Group in general, and Shield Resources in particular.

The expert opinions

73. Both sides adduced expert evidence in relation to the solvency of Shield Resources.

74. Suzie, Robin and Kevin relied upon a report from Mr Scott Kershaw of 21 June 2024.

75. Thomas relied upon a report from Mr Alan Walker of 19 June 2024 together with a “Solvency Report Memo” that Mr Walker prepared on 24 June 2024 which provides a summary of the “agreed and disagreed position” between the two experts.

76. Although time was allocated during the hearing for cross-examination of these experts, neither expert was cross-examined.

77. In his Solvency Report Memo, Mr Walker said that the following matters were common ground:

“Both experts agree that [Shield Resources] is loss making and has recorded cumulative losses of $3.98 million for FY22-FY24.

Both experts agree that no opinion can be provided as to the future financial performance of [Shield Resources] and whether it can service any new debt should it be secured given the lack of information provided.

Both experts agree that there are material omissions in the Financial Statements provided.

Both experts agree that [Shield Resources] may be insolvent on a balance sheet basis.”

78. Mr Walker opined that Shield Resources is insolvent.

79. Mr Walker pointed to the general indicators of insolvency in the ASIC Regulatory Guide 217 ^[17] and concluded that six of those indicators were present, namely:

    17. ASIC, Regulatory Guide 217, “Duty to prevent insolvent trading”.

1. Shield Resources has a history of continuing trading losses;

2. Shield Resources is experiencing cash flow difficulties;

3. creditors are not being paid on agreed trading terms;

4. legal action has been commenced against Shield Resources and judgment has been entered against it; ^[18]

5. Shield Resources is unable to produce accurate financial information on a timely basis; and

6. it is not certain that Shield Resources has assets that can be sold in a relatively short period of time to provide funds to help meet debts owed, without affecting the company’s ongoing ability to continue to trade profitably.

   18. Mr Zhong, to whom I have referred above: see [27].

80. Mr Walker pointed out that “the company has previously been funded by shareholder loans and deferral of employee entitlements” and that both Suzie and Robin “have demanded the repayment of their loans in October 2023 and April 2024 respectively”. Mr Walker also expressed scepticism as to the 1 June 2024 Facility Agreement and, evidently, did not take it into account when concluding “I do not consider that the company will be able to raise sufficient funds to meet its liabilities as and when they fall due”.

81. On the other hand, Mr Kershaw assumed that the $12 million referred to in the 1 June 2024 Facility Agreement was available to Shield Resources and that the employee entitlements of Suzie, Kevin, Robin and Thomas, asserted to be in the order of some $3.1 million in total, were not due and payable.

82. Mr Kershaw stated that he had not been provided with all the information necessary for him to express an opinion as to whether Shield Resources was solvent. Included in the missing information to which Mr Kershaw referred were finalised and signed financial statements for FY23, management accounts for FY24, integrated financial forecast models for FY25 to FY29 and management’s underlying calculations and assumptions to support these forecasts.

83. On that basis, Mr Kershaw reached these somewhat tentative conclusions:

“… there is not sufficient evidence to provide a concluded opinion that Shield Resources is insolvent. Based on my review of the limited information available and my instructed assumptions, in my opinion it is likely that Shield Resources is solvent.

… my opinion of solvency is not a concluded one. However, in my opinion it is not appropriate to conclude that Shield Resources is insolvent without further investigation and information.

… the cashflow test is the primary test of solvency, in accordance with the definition of solvency under the [Act]. … I have not been provided with all of the information necessary for me to form a concluded opinion on Shield Resources’ solvency.

… the records available are not adequate to form a concluded opinion on Shield Resources’ solvency at this time… based on my review of the limited information available and my instructed assumptions, it is likely Shield Resources is solvent under the cash flow test.

… I have not been provided with all of the information necessary [to] form a concluded opinion on the solvency of Shield Resources. Based on the limited information available to me and my instructed assumptions, there is an indication that it is likely Shield Resources is solvent.” (Emphasis added.)

Vcoco

84. On 6 October 2023, Robin, as Chief Financial Officer, sent Suzie and Thomas an email attaching a document entitled “Shield Debt Amounts as of 6 October 2023”.

85. One of the debts recorded was to an entity described as “Vcoco” for $11.5 million.

86. That entry appeared to relate to another document known as the “Vcoco Trust Account Ledger” or the “Vcoco Family Trust Ledger” which, as Mr Elliott and Mr Goodyear accepted in their closing written submissions, “at first blush … looks like a ledger recording investments that Vcoco did in fact make”.

87. Nonetheless each of Suzie and Robin gave evidence that, although Vcoco was initially interested in investing in the Shield Group, no investment was ever made.

88. However, on the face of it, the Vcoco Trust Account Ledger suggests that, as at 8 June 2023, Vcoco (whoever that is) had advanced $5,729,430 to one or other Shield Group entity, including substantial sums in cash and that, on one reading of the document, a further $6 million was to be invested.

89. In his affidavit, Robin said that:

“I … created a spreadsheet ledger, titled ‘Vcoco Trust Account Ledger’ accounting for all of my friends I had borrowed money from, in order to lend to the Shield Group, who would be paid back from the Vcoco investment.”

90. Mr Elliott and Mr Goodyear submitted:

“In other words, it was simply a list showing people from whom Robin had borrowed money, and the amounts he borrowed (which he on-lent to the Shield Group). It was a list of people who Robin planned to repay, if Vcoco made the investment. As he explained at the hearing …

Q. Why did you call the ‘Vcoco Family Trust ledger’?

A. Because, look, we were intending to repay this amount from Vcoco’s investment.”

91. The matter does not seem to be as simple as this.

92. The Vcoco Trust Account Ledger appears to suggest that, as at 8 June 2023, “Vcoco” had advanced to one or other Shield Group entity $5,729,430. Robin’s 6 October 2023 document records an indebtedness from the Shield Group to Vcoco of $11.5 million.

93. Robin gave this evidence in response to my questions concerning the Vcoco Trust Account Ledger:

“Q. I’ll ask this question. What does this record?

A. It’s a record - look, as I said, look. Because of the Vcoco potential investment and - and the loan negotiation processing time, during - during the period of procession time, we were short of cash flow. Then I borrowed from one - from my friend, several friend. I said one of friends I borrowed from, one of the lender is Mr Oo who is based in - in Queensland. I borrowed around - I borrowed twice. One is in – there’s August 2022, I borrowed $1.5 million from him. There’s another one from January 2023, it’s $1 million. He is in the show form of business and in construction industry. He said, ‘Look, I have some cash. You want to borrow?’ At that point in time no matter what kind of form of the funds, we have to take it. That’s a reason, you know. He passed me around $2.5 million cash from - because that’s from out of his out of tax pocket. That’s the reason I borrowed that.

Q. What do the transfers and cash deposits on this document record?

A. That’s, you know, look, for - for example the first one, that a cash deposit, you know. I put into Shield Resource’s account. That’s the amount I borrowed from my friend, Mr Oo, and the second one, yes, the second one, yes, I – that’s the part of the $2.5 million cash. Then the third one, yes, it is, and then I have a look.

Q. Why did you call [it] the ‘Vcoco Family Trust ledger’?

A. Because, look, we were intending to repay this amount from Vcoco’s investment.” (Emphasis added.)

Loans to the Shield Group by Robin’s “friends”

94. On 29 September 2023, Suzie sent an email to Robin and Thomas suspending discussions in relation to the proposed “restructure” of the Shield Group. I will return to this subject below. ^[19] For present purposes, the point is that Suzie said in this email:

“All the fund sourced by Robin and injected to Shield Businesses will be personal loan of Robin and Robin will be personally liable for the any liability raised from third parties.”

19. At [124] below.

95. Robin replied to the email, several hours later, saying “confirmed and agreed”.

96. Robin gave this evidence in relation to the arrangement suggested in Suzie’s email:

“Q. The words, ‘All the funds sourced by Robin and injected to Shield Businesses,’ when you read that, you understood it to be a reference, did you, to the funds listed in a document that you had earlier circulated entitled Vcoco Family Trust.

A. No, I didn’t refer to the ledger. I didn’t refer to all the funds I released from third parties. …

Q. What amount of money did you have in mind when you first read a reference to all the funds sourced by Robin [and injected to] Shield Businesses?

…

A. Eight or nine million dollars from my memory as if we put the..(not transcribable)..on that particular date, 29 September 2023, my memory is around eight or nine million dollars.

Q. So is this right, when you first got Suzie’s email and read that numbered paragraph 5 and saw that she was telling you that all the funds sourced by you and injected to the Shield businesses will be a personal loan of you?

A. Yes, because I --

Q. Let me finish. You understood her to be saying that some eight or nine million dollars would thus be taken up by you as a personal loan.

A. Yes, I know that because those funds are from my friends, and the - then to me, then into the Shield Business, because if you don’t know Shield Business, they don’t know who Thomas are, who Suzie are - who Suzie is, who Thomas is, and they rely on me and if this new structure has to be stopped, then I personally need to stand out and to, you know, to pay the loan from my friends –"

97. Robin then gave this evidence in answer to questions from me:

“Q. What did you understand Suzie to mean by [the paragraph set out at [94] above] ?

A. Pardon?

Q. What did you understand her to mean by what she wrote in paragraph-

A. I understand because those friends I - I rang my friends or us an agreement-

Q. No, no, no, what did you understand Suzie to mean when she wrote what’s in paragraph 5 [in her 29 September 2023 email]? Being something to which you agreed, apparently.

A. Yes, Suzie in - in the item five, Suzie said all the funds are raised. All the fund - all from - I've ordered from my friends, we all - I will be person reliable for those, and I agreed. I agree.

Q. You mean liable to pay them to Shield?

A. No, I – I’m liable to pay to my friends. I’m responsible for chasing the loans from Shield, and then repay to my friends. That’s what my understanding was.”

98. Robin then gave evidence that what was evidently proposed was a change whereby the Shield companies were no longer liable to the original investors, Robin’s “friends”, but would be liable to Robin.

99. Thus, he gave this evidence:

“Q. So this is something that Suzie was telling you, I suggest? That is, henceforth, you will be personally liable to the third parties and the companies that will be liable to you. Is that right?

A. I think so, because I will be liable for those fund to - for the lenders, then I should chase up the - chase up the repayment from Shield.

Q. So between yourself and Suzie, you were agreeing to change the arrangement which was already in place?

A. I don’t think that’s the agreement between me and Suzie, because Suzie sent that email, I have thought about it, then from perspective, look, I borrowed money from my friends to Shield, then as a - as a trusted person, I have to stand up and say, ‘Look, I give the commitment to my friends. That’s what I’m thinking at that point in time.’

Q. What about the company, sir?

A. I - then the company will be liable to me.

Q. That’s something that you and Suzie agreed amongst yourselves on this occasion, correct?

A. Yes, and send - send the email to all the people ask for confirmation, then from my personal - I agree this mechanism.

Q. But you’re not suggesting that Thomas, for example, agreed with this change in the arrangements that were in place.

A. Look, at that point in time, I don’t know what - what Thomas thoughts (as said). I don’t know. That’s a reason I replied, still waiting for the confirmation from other parties such as Thomas and Emma and the - and the case as well.

HIS HONOUR

Q. Before this the companies were liable to your friends, and after this the companies would be liable to you?

A. Yeah.”

100. Robin produced a series of letters, all dated 2 May 2024, by a number of persons with Chinese names which purport to be an assignment of those persons’ entitlements against various companies in the Shield Group to Robin.

101. None of those persons was called.

102. Otherwise, as Mr Kelly and Mr Maroya pointed out in their closing submissions, Suzie and Robin have led no evidence to prove the existence or terms of any particular loan by any particular investor to any particular company in the Shield Group so as to establish any underlying indebtedness capable of being assigned or otherwise dealt with by way of the arrangement that Robin described.

103. Thomas gave this evidence:

“On 3 October 2023, I received a telephone call from Suzie in which she said words to the effect: ‘We have to get the restructure back on the rails’ and ‘Vcoco is too good an opportunity to miss’. I said words to the effect: ‘Who are these people? I have never met them. Do they even exist?’ Suzie said words to the effect: ‘You have to keep out of it, Thomas. They are Robin’s investors.’ I said words to the effect: ‘I am not going to be pushed out.’ We spoke for several hours. The conversation went around and around and did not result in any agreement except that I would think about it and we would have another meeting.”

Conclusion on solvency

104. This evidence bespeaks a most unsatisfactory state of affairs concerning the financial records of the Shield Group.

105. The present position is that Shield Resources does not have the benefit of the facility purportedly represented by the 1 June 2024 Facility Agreement that Suzie has said Mana Assets would make available assuming she were to achieve success in these proceedings; that is, assuming that I were to order that Thomas transfer his shares in the Shield Group companies to Suzie and Robin in the manner I have set out above. Further, the present position is that Suzie, Robin and Kevin have demanded that the monies they contend are due to them, being the loans and unpaid salary, be paid.

106. Mr Kershaw’s tentative opinion that Shield Resources is solvent is made on the assumptions that Mana Assets will be able to draw on the $12 million under the 1 June 2024 Facility Agreement, and on-lend that sum to Shield Resources, and that the shareholder entitlements of some $3.1 million are not due and payable.

107. As I have said, I have grave reservations about whether any funds are available to Mana Assets by reason of the 1 June 2024 Facility Agreement. In any event, Mana Asset’s preparedness to advance any such funds to Shield Resources is conditional in the manner I have described; suggesting that, at the moment, Shield Resources is likely insolvent.

108. The position might be different were I to order that Thomas transfer his shares in the Shield Group companies to Suzie and Robin and were Mana Assets to draw on the $12 million under the 1 June 2024 Facility Agreement and on-lend those funds to Shield Resources. But even then, and assuming the correctness of the very tentative conclusions that Mr Kershaw has expressed, it is by no means clear to me that Shield Resources could continue to trade solvently.

109. Suzie has described her ambitions in this regard as follows:

“If Robin and I were allowed to buy out Thomas’s interest in the Shield Group companies, I would continue to operate all of the arms of the Business with a view to generating cash flows that could be used across the different activities, with the objective of making it an overall success and generating a return … I would be holding off seeking full payment of loan monies from the companies that owe me or Mana Assets money so as to allow this to happen.”

110. And further:

“Robin and I have developed what I consider to be a robust plan for the Business, which includes our proposed customers, timber products for export, and sources of funding. In due course, our objective is also to build up an Australian customer base. As part of that objective, I have started to speak to potential customers in Australia and in the PRC.

Based on those discussions and my experience in running the Business as CEO, I am confident about our ability to source clients for all of the Shield Group’s products, to complete construction of the sawmill at the Nangwarry Property and successfully grow the Business.”

111. Similarly, Robin has deposed:

“If Suzie and I were allowed to buy out Thomas’s interest in the Shield Group Companies, I would continue in my role as CFO and to source funding and investment necessary for the Shield Group to succeed, with the objective of making the Business profitable and enable Suzie and I to be repaid our loans and unpaid salaries. I would not seek repayment of those amounts until the Business had the necessary investment and cash flow for this to happen.”

112. As Mr Kelly and Mr Maroya pointed out, there is no evidence before me about the content of the “robust plan” that Suzie said she and Robin had “developed”. There is no evidence of any cash flow projections or other business plan information that might cast light on whether the “plan” is viable.

113. And the “plan” must depend on Mana Assets drawing down the funding referred to in the 1 June 2024 Facility Agreement. Further, assuming the lenders to Mana Assets did charge interest at the rate specified in the Facility Agreement, 10% per annum, it is not clear how Shield Resources could service such interest: $1.2 million annually. ^[20]

     20. See cl 9.3 of the 1 June 2024 Facility Agreement set out at [54] above.

114. Suzie’s and Robin’s “plan” thus raises the spectre, assuming the establishment of oppressive conduct by Thomas and the transfer by him to them of his shareholding in the Shield Group, of them causing the members of the Shield Group to trade and incur debts in circumstances where those companies are actually insolvent, or where there are reasonable grounds to suspect that the companies are, or would become, insolvent. This would be in breach of their duty under s 588G of the Act.

115. The Court could not, obviously, give its imprimatur to such a state of affairs.

Alleged oppression – principles

116. Section 233 of the Act enables the Court to make an order that a company be wound up or for the purchase of any shares by any member of the company.

117. Section 232 of the Act provides:

“The Court may make an order under section 233 if:

(a) the conduct of a company’s affairs; or

(b) an actual or proposed act or omission by or on behalf of a company; or

(c) a resolution, or a proposed resolution, of members or a class of members of a company;

is either:

(d) contrary to the interests of the members as a whole; or

(e) oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or in any other capacity.

For the purposes of this Part, a person to whom a share in the company has been transmitted by will or by operation of law is taken to be a member of the company.”

118. There was no dispute about the principles to be applied.

119. They are: ^[21]

     21. Adopting my summary in Munstermann v Rayward; Rayward v Munstermann [2017] NSWSC 133 at [22]; cited with approval in Tzavaras v Tzavaras & Sons Pty Ltd [2023] NSWCA 168 at [74] (Gleeson and Adamson JJA, Griffiths AJA).

1. The test of oppression is an objective one of unfairness. ^[22]

   22. Wayde v NSW Rugby League Ltd (1985) 180 CLR 459 at 472-473 (Brennan J, as his Honour then was); [1985] HCA 68; Re Quest Exploration Pty Ltd (1992) 6 ACSR 659 at 669 (Mackenzie J).

2. The Court must look to determine whether on the balance of probabilities the objective commercial bystander would be satisfied that the affairs of the company were being conducted unfairly. ^[23]

   23. Campbell v Backoffice Investments Pty Ltd (2008) 66 ACSR 359; [2008] NSWCA 95 at [362] (Young CJ in Eq); Cassegrain v CTK Engineering Pty Ltd [2005] NSWSC 495 at [84] (White J, as his Honour then was).

3. A director may act oppressively in the sense relevant to the operation of s 232 and yet not breach any fiduciary or other duty owed as a director. ^[24]

   24. Gerard Cassegrain & Co Pty Ltd v Cassegrain [2011] NSWSC 1156 at [49] (Barrett J).

4. Conduct of a company’s affairs may be oppressive even though the conduct is otherwise lawful. ^[25]

   25. Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304; [2009] HCA 25 at [176] (Gummow, Hayne, Heydon and Kiefel JJ).

5. Conduct that has the effect of paralysing a company in the operation of its business is properly characterised as conduct contrary to the interests of the members as a whole. ^[26]

   26. Campbell v Backoffice Investments Pty Ltd (supra) at [185] (Basten JA).

6. A shareholder of 50% of the shares in a company can seek relief for oppressive conduct because they do not have control in the form of power to prevent the oppression, particularly where individual strong arm tactics are used. ^[27]

   27. Patterson v Humfrey [2014] WASC 446 at [52]-[53] (Le Miere J).

7. The Court must formulate an opinion about oppression or unfair prejudice as at the date of the institution of proceedings and the issue of relief under s 233 must be determined as at the date of the hearing. ^[28]

   28. Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [2001] NSWCA 97 at [159] (Spigelman CJ).

8. The discretion under s 233 is wide as to the appropriate remedy. ^[29]

   29. Smith Martis Cork & Rajan Pty Ltd v Benjamin Corporation Pty Ltd (2004) ALR 136; [2004] FCAFC 153 at [70] (Wilcox, Marshall and Jacobson JJ) citing United Rural Enterprises Pty Ltd v Lopmand Pty Ltd (2003) 47 ACSR 514; [2003] NSWSC 910 at [34]-[38] (Campbell J).

9. The nature of the remedy chosen by the Court under s 233 will be dependent upon the conclusions drawn by the Court as to the type of oppression with which the Court is dealing and the Court will choose the remedy which is least intrusive. ^[30]

10. The aim of any order under s 233 must be to put an end to the oppression. ^[31]

11. The Court should only look to wind up an otherwise solvent company as a “last resort”. ^[32]

12. As a remedy for oppression, an oppressor can be ordered to sell their shares to the oppressed party. ^[33]

13. If an order is to be made for the purchase of shares under s 233 the task of the Court is to fix a price that represents a fair value in all the circumstances. ^[34]

    30. Re Enterprise Gold Mines NL (1991) 3 ACSR 531; (1991) 9 ACLC 168 at 174 (Murray J); United Rural Enterprises Pty Ltd v Lopmand Pty Ltd (supra) at [26] (Campbell J) citing Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (1998) 28 ACSR 688 at 742 (Young J, as his Honour then was); [1998] NSWSC 413.

    31. Nassar v Innovative Precasters Group Pty Ltd [2009] NSWSC 342 at [125] (Barrett J).

    32. Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (supra) at 742 (Young J, as his Honour then was).

    33. Re a company; ex parte Shooter (No 2) [1991] BCLC 267; [1991] BCC 44 (Harman J); Re Brenfield Squash Racquets Club Ltd [1996] 2 BCLC 184 (Rattee J).

    34. Smith Martis Cork & Rajan Pty Ltd v Benjamin Corporation Pty Ltd (supra) at [71] (Wilcox, Marshall and Jacobson JJ).

120. It is well settled that the expression “oppressive to, unfairly prejudicial to, or unfairly discriminatory against” is a compound expression and is concerned with “commercial unfairness”. ^[35]

     35. Joint v Stephens [2008] VSCA 210 at [134] (Nettle, Ashley and Neave JJA); BAM Property Group Pty Ltd as trustee for the BAM Property Trust v Imoda Group Holdings Pty Ltd [2019] FCA 1192 at [49] (Derrington J).

121. Unfairness, for the purpose of s 232, is “assessed by reference to whether ‘objectively in the eyes of a commercial bystander, there has been unfairness, namely, conduct that is so unfair that reasonable directors who consider the matter would not have thought the decision fair’.” ^[36]

     36. Campbell v BackOffice Investments Pty Ltd (supra) at [181] (Basten JA) citing Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692 at 704 (Young J).

122. Further, “one must take all the matters alleged together and remember that each case must be decided on its own facts because there is no such thing as oppression in a vacuum”. ^[37]

     37. Lucy v Lomas [2002] NSWSC 448 at [45] (Young CJ in Eq).

Alleged oppression – the “restructure”

123. Mr Elliott and Mr Goodyear described this claim as the “backbone” of the Plaintiffs’ oppression claim.

124. The allegation in the Plaintiffs’ Amended Commercial List Statement is that:

“From time to time, Thomas has represented to Suzie and Robin that the ongoing financial support that Suzie and [Robin] ^[38] were providing in these regards would be recognised and rewarded when there was a restructure of the Shield Group later on, at which time they would sit down and agree on a fair distribution of shares in the Shield Group companies having regard to their contributions to the Business, including their ability to source and obtain funding for its continued operations and survival.”

38. The pleading refers to “Thomas”, but this is obviously an error.

The course of events concerning the restructure

125. Suzie’s evidence concerning the restructure commenced with her account of a conversation she said she had with Thomas in around 2017.

126. At that time, Suzie had, in effect, a 4% shareholding in Shield Resources. Thomas personally, or through Thomas Gem Stone, held the remaining shares in the Shield Group.

127. Suzie deposed that Thomas said:

“Thomas said to me and Robin … that we would have a three-way relationship each bringing our own skills – Thomas as timber expert, me in the CEO role … and Robin looking after financial management.

… Thomas said … that we would all need to sit down later once the funding for the major works required to build the factory had been sorted out, and agree then on a fair split of the shares between us.”

128. Suzie said that in March 2018 she had another discussion with Thomas “along the same lines” and that:

“Thomas said to Robin and me that we were so important to the Business and that we were ‘unbreakable’ and ‘like an iron triangle’. He said that right now he was holding the shares for all of us, but when funding arrived for the major works, he would redistribute the shares as part of a restructuring of the Business and its ownership. He referred to this future ‘restructure’ on a number of occasions over time.”

129. Robin said that in around late 2018:

“… Thomas said that once the Shield Group was profitable and we obtained investments from third parties, Suzie, Thomas and I would sit down and work out how we should allocate the shareholdings to reward us for our respective efforts.”

130. As Mr Kelly and Mr Maroya pointed out, the evidence of Suzie and Robin is consistent insofar as it suggests an agreement to agree upon some future date, but is inconsistent insofar as it concerns the occasion when any such negotiation was to take place. Suzie said it was when funding for building the factory had been “sorted out”, ^[39] whereas Robin said it was when the Shield Group had achieved “profitability” and “investments from third parties”. The two are, obviously, very different.

     39. At the Nangwarry Property.

131. Suzie also deposed:

“… from June 2021 to 23 April 2023, I did not receive any salary or superannuation payments. In around May 2021, Thomas spoke to me and said to me that the Business could not afford to pay me any salary or superannuation, and he told me that I would be rewarded for my patience when the restructuring occurred.”

132. Thomas agreed that there would be some kind of restructure.

133. Thus, he gave this evidence in cross-examination:

“Q. In essence, what you discussed with them was an arrangement under which there would be a division of rewards from the business in the future to be determined, having regard to each party’s contributions to the business; correct?

A. INTERPRETER: No. It’s based on the shares.

Q. That there would be a redistribution of shares at a later time as part of a restructure. Correct?

INTERPRETER: I beg your pardon?

Q. There would be a redistribution of shares at a later time in the context of a restructure. Correct?

A. INTERPRETER: Yes.”

And:

“Q. On your own evidence, Mr Ye, on your own evidence, you accept that shares in companies were issued to these people in recognition of the work they performed.

A. INTERPRETER: Yes.

Q. There’s no question, is there, that you had conversations with Suzie and Robin about giving them shares in recognition for contributions they made?

A. INTERPRETER: Yes.

Q. And conversations in which you said that there would be allocation of shares on a fair basis to reflect contributions to the company?

A. INTERPRETER: That’s not based on their request. Actually, that’s me who took the initiative to give this - I told them, based on their contribution to the company, also based on my judgment, I would - I will give them shares. We never had a formal meeting to discuss about it. That’s out of my own personal promise to them.”

134. Thomas did cause Suzie’s shareholding in Shield Resources, at first through Phoenix Group Australia and then Mana Assets, to be increased from 4% to 6% in 2019 and then to 30% in 2022. As I have said, the latter increase was evidently a response to the role that Suzie played in procuring funding for the refinancing of the purchase by Shield Holdings South Australia of the Nangwarry Property, including offering her home as security and providing a guarantee for the relevant indebtedness.

135. Suzie, through Mana Assets, also holds 30% of the shares in Shield Holdings South Australia.

136. Suzie said that there were further discussions in September 2022. Suzie described these discussions as “the beginning of a restructuring”.

137. Suzie said:

“At one point towards the end of a conversation that we had around this time (September 2022), Thomas said that whatever we ended up negotiating for the Restructure, it would be a good idea that the restructuring documents showed that he was a majority owner (ie held more shares than Robin and me combined) because he said that would be best for attracting investors.”

138. Suzie said that she was not “happy with this suggestion”, but that:

“… because Thomas had promised that I would receive more shares in the Shield Group when we restructured the Business, I continued to work with Thomas to develop and grow the Business and thought that the best time to discuss who would receive what shares was when further funding had been obtained.”

Events in 2023

139. By 2023, relations between Thomas and Suzie had deteriorated. Thomas deposed that:

“Since February 2022, things have been very tense between Suzie and myself. We are barely on speaking terms. When we do speak, our conversation always ends up in an argument. Suzie blames me for her giving a mortgage over her home and a personal guarantee to support the borrowing that she negotiated to complete the purchase of the [Nangwarry Property]. On a number of occasions in 2022 and 2023, including the time the funding arranged [in relation to the Nangwarry Property] was refinanced … Suzie said to me words to the effect: ‘You do not know how to run a business. You made a mess of funding Nangwarry. You should leave it to me and Robin to run the business.’ I said words to the effect: ‘I established the business. You seem to be moving in and taking over’ …

My relationship with Robin also soured after he gave a personal guarantee in support of the purchase of the [Nangwarry Property].”

140. Nonetheless, there were further talks about restructuring in 2023.

141. In around May 2023, Suzie and Robin proposed that the shareholding in the Shield Group be split 50:30:20 between Thomas, Suzie, and Robin.

142. On 9 May 2023, and as a part of a proposed restructure, Shield Holdings Australia was incorporated as a holding company for the Shield Group. On incorporation, its shares were held 50:30:20 by the three companies associated with Thomas, Suzie, and Robin: Thomas Gem Stone, Mana Assets and XCQ Holdings. This evidently reflected the shareholding structure that Suzie and Robin then proposed.

143. On 22 May 2023, Thomas and Suzie had the following exchange via WeChat messages:

“[Thomas]   Good morning to both of you! In order to regulate the management of the company and comply with Australian laws, here is my personal statement, specifically inform everyone.

[Suzie]   Let’s find some time in the next couple of days to have a meeting and clarify all the issues, so we can avoid any misunderstandings and suspicions.

It’s not been easy for the three of us to get to where we are today. If there are any issues, let’s address them face to face and resolve them directly. I don’t like suspicion or internal strife.

[Thomas]   I am the founder of the company and the sole majority shareholder. I have no rivals and no motive. The label of internal strife doesn’t apply to me. One of you is my close neighbor and fellow-townsman, and the other is a long-time friend I’ve known for over twenty years. I’m much older than both of you, and as the elder brother, I fully trust both of you. At the same time, you have both contributed a lot. I have led everyone with dedication and hard work. I am very busy on work, now that we are close to reaping the rewards, I have little energy left. I’m confident that I have the vision for this situation. You both are smart people. I just want to know who initiated the following two documents. I really want to know where I have let everyone down all this time?”

144. The “two documents” to which Thomas referred in the final words of this message were a draft Securityholders’ Deed and draft Deed to Establish a “Shield Holdings Australia Trust”. The effect of these documents was to divide ownership of the Shield Group 50:30:20 between Thomas, Suzie and Robin.

145. Suzie deposed:

“Shortly after 9 May 2023, Thomas said he did not agree with the proposed 50/30/20 ownership split for the Shield Group, as he said he insisted that he required a majority shareholding because he was the founder of the Business and had put in a lot of money over the time of the Business. He also said that as Robin and I were only employees, we should only receive a minority shareholding.”

146. On 12 July 2023, Thomas, Suzie and Robin, by their companies, Thomas Gem Stone, Mana Assets, and XCQ Holdings, signed a number of documents including a Shield Holdings Australia Trust Deed and a Securityholders’ Deed which had the effect that the shares in Shield Holdings Australia, and the units in the Shield Holdings Australia Trust, ^[40] were held in proportions 64:20:16 for Thomas, Suzie and Robin respectively. ^[41]

     40. Of which Shield Holdings Australia is trustee.

     41. The actual number of units agreed was 576 for Thomas, 180 for Suzie, and 144 for Robin.

147. Thus, the parties did “sit down and agree” on a redistribution of shares in the Shield Group.

148. Suzie’s and Robin’s real complaint appears to be that they were somehow “coerced” by Thomas into coming to this agreement.

The “coercion”

149. Suzie and Robin contend that they only agreed to the 64:20:16 ownership split because of what Mr Elliott and Mr Goodyear described as Thomas’s “threat of a nuclear option”.

150. It was hardly that, even on Suzie’s and Robin’s account.

151. Suzie said that in around June 2023:

“[Thomas] said that if we did not agree to a deal under which he had the majority ownership, he would stop works at the Nangwarry Property and just walk away, and would not cooperate with any efforts to refinance the [Nangwarry Property] to a new lender, which would be a problem for us as [the existing lender] had issued a default notice and … had the personal security Robin and I had provided for that loan, which included the house that I lived in.”

152. Robin gave evidence to similar effect.

153. Suzie said:

“Because of Thomas’ threat about what would happen if we did not agree to majority ownership, I gave in to Thomas’ demand for it. I said to Robin that I felt like we had no choice about it, as the alternative Thomas was threatening was something I could not risk. He said he didn’t think we had any choice. I hoped that the potential new investor would be able to come in, and after that happened, things would end up working out better and the new investor, Robin and I could work together to ensure that the Business was run properly and we were all treated fairly.”

154. Robin deposed:

“Suzie said to me that she felt she did not have any choice given what Thomas was threatening to do. She said to me that Thomas had assured her that even though he was saying he wanted majority ownership, the Shield Group would continue to be operated and directed by the three of us as it had been. I said that was good, as it would enable Suzie and I to work together if Thomas wanted to do things we did not agree with.”

155. Suzie said that, during these discussions:

“Thomas said to me that I did not need to worry about how the Business would be run and decisions would be made, and that things would continue on in the same way, whatever was on paper. I understood from this that Thomas was saying that Robin, Thomas and I would continue to direct the business, that I would remain as CEO and Robin as CFO.”

156. Thomas disputed this. He gave this evidence in cross-examination:

“Q. You had spoken with Suzie and Robin about a restructure during 2023?

A. INTERPRETER: If my memory is correct, only when I received a notice of restructure on 22 May 2023 I - as the first time I learnt about the issue of restructure.

Q. In mid-2023, you knew that Robin and Suzie were saying that they should own 50% of the Shield companies?

A. INTERPRETER: Yes. At that time, I was very angry. They just did all that. They just want to steal the company from me with - yeah, with some bad intention.

Q. You were angry that they were now asking you to honour the promise that you had always made; correct?

A. INTERPRETER: No.

Q. But you were very angry?

A. INTERPRETER: I have the record for that.

Q. But you were very angry?

A. INTERPRETER: Yes.

Q. You told them that if that was their position, you would walk away from the Shield Group?

A. INTERPRETER: That’s nonsense.

Q. You told them that you were the only one that could complete the construction of the sawmill in South Australia, didn’t you?

A. INTERPRETER: Yes.

Q. You said unless they agreed to your shareholding proposal, you would walk away; correct?

A. INTERPRETER: That’s nonsense. I’m the owner of the company. I don’t have a reason to walk away.”

157. It seems probable that Thomas, perhaps angrily, insisted that he retain a majority interest in the Shield Group. And assuming that he made the threats to which Suzie deposed, this would likely have been a concern to Suzie and Robin, as they had guaranteed and provided security for the finance over the Nangwarry Property and were vulnerable should the lender seek to exercise its powers over that security.

158. But as Mr Kelly and Mr Maroya pointed out, Suzie and Robin are both highly qualified and experienced business people. Each of Thomas, Suzie and Robin had a high opinion of the worth of their own contribution to the Shield Group. Each was entitled to, and did seek to, drive a hard bargain when it came to negotiating the 64:20:16 split reflected in the Shield Holdings Australia Trust Deed. There was some hard bargaining. The parties came to an agreement.

159. In any event, the unstated premise of Suzie’s and Robin’s complaint about being “coerced” into agreeing to that bargain was that it was somehow a bad bargain. It was doubtless less favourable to Suzie and Robin than the 50:30:20 split that they proposed. It involved some dilution of Thomas’s equity in the Shield Group. But the evidence does not enable me to conclude that a 64:20:16 split was not in range of what was “fair”. The result has not been shown to be so commercially unfair to amount to oppression.

The 12 September 2023 general meeting

160. On 12 September 2023, Thomas convened a meeting of shareholders of Shield Holdings Australia to consider a motion to appoint “three additional directors”, being his wife and two family members.

161. The motion was carried, over Suzie’s and Robin’s objections.

162. I deal with this below, under the heading “Alleged oppression – attempts to remove or diminish Suzie”. ^[42]

     42. From [339].

The 29 September 2023 board meeting

163. On 27 September 2023, Thomas sent Suzie a WeChat message requesting a meeting of the board of Shield Holdings Australia. The meeting was held on 29 September 2023. This was the first such meeting of that board.

164. Suzie has deposed that at that meeting Thomas proposed, without notice, that she be removed as Chief Executive Officer of Shield Holdings Australia and that he be appointed in her place.

165. Thomas gave this account of that meeting:

“During the course of the meeting an argument occurred about management control. Amongst other things, Suzie said words to the effect: ‘I want to be the CEO of all companies in the group. You cannot manage any of them.’ I said words to the effect: ‘I started this business. I should be the CEO.’ Robin said words to the effect: ‘I need to be the CFO.’ The meeting ended when Robin stormed out of the room.”

Suzie’s termination of the restructure discussions

166. Suzie evidently saw this as a departure from what she had understood Thomas to mean when he had said “things would continue on in the same way, whatever was on paper”. ^[43]

     43. See [155] above.

167. Thus, she sent this email to Thomas and Robin:

“As a result of the discussion today, the restructure of Shield businesses can not be proceeded further. Therefore I request below:

1. Stop the restructure of Shield businesses immediately.

2. Terminate the Trust Deed of Shield Holdings Australia Unit Trust immediately.

3. Restore the business structure to pre-restructure stage immediately.

4. Withdraw the Subscription Agreement with Vcoco immediately.

5. All the fund sourced by Robin and injected to Shield Businesses will be personal loan of Robin and Robin will be personally liable for … any liability raised from third parties.”

168. Later that day, Robin sent an email stating his agreement with the five propositions set out in Suzie’s email.

169. There is no evidence that any step was taken in response to Suzie’s and Robin’s “request” that the “restructure of Shield Business” be stopped “immediately” or that the “Trust Deed of Shield Holdings Australia Unit Trust” be “terminated immediately”.

170. What appears to have happened is that Suzie, with Robin’s support, has sought unilaterally to put to an end the arrangements agreed in July 2023.

171. I have received no submissions as to what, if any, legal effect those actions had.

172. Those actions appear to have been born of the events in September 2023, to which I have referred, ^[44] rather than because of any “coercion” leading to the execution by Suzie and Robin of the 12 July 2023 documents.

     44. See [160]-[165] above.

Conclusion on restructure

173. Thus, on Suzie’s and Robin’s account of it, Thomas invited Suzie, and later Robin, to participate in a business that he founded. Each of Suzie and Robin made a substantial contribution to the business, both in its day to day activities but also in advancing funds to the business and working without salary. Thomas told them that, in due course, the three of them would sit down, discuss and endeavour to agree on a fair redistribution of shareholding in the Shield Group. They did this in about July 2023. Suzie and Robin proposed a 50:30:20 split. Thomas insisted on a 64:20:16 split: an outcome that involved some movement by Thomas but not as much as Suzie and Robin wanted. The result has not been shown to be so commercially unfair to amount to oppression. Ultimately, as relations continued to deteriorate between the parties, it was Suzie who sought to “stop the restructure”.

Withdrawals from account of Shield Timber SA

390. The Plaintiffs allege two unauthorised withdrawals from this account.

391. The first is a withdrawal on 20 November 2023 for $1,300 with the transaction description on the relevant bank account as “Pymt Shield For”. This is evidently an intercompany loan by Shield Timber SA to Shield Formply.

392. The second withdrawal is on 28 November 2023 for $10,000 with the description in the relevant bank account “Feng Ye Ye claim nangwarry Ye claim nangwarry”. Shield Timber SA is the manager of the sawmill business at the Nangwarry Property. This withdrawal was made after Thomas had been locked out of the Nangwarry Property but appears to be a notation of payment of a claim for expenses related to the Nangwarry Property.

393. Thomas was not asked any questions about this in cross-examination. In those circumstances, I cannot see how I can conclude that this is an inappropriate diversion of Shield Timber SA’s funds.

394. The balance of the Plaintiffs’ claims in relation to Shield Timber SA relate to debit card transactions totalling $1,536 that Suzie has listed in a paragraph in her affidavit. Mr Elliott and Mr Goodyear directed no submissions to these amounts and I do not propose to make any findings about them.

Withdrawal from account of Shield Holdings South Australia

395. The cheque in question here was for the princely sum of $100 and drawn on 20 November 2023 with the transaction description in the relevant bank account “Shield Formply Australia Pty Ltd 18 Nov 2023”.

396. The entry appears to comprise a payment from Shield Holdings South Australia to Shield Formply; that is, in effect, an intercompany loan.

397. Mr Elliott and Mr Goodyear did not suggest otherwise in their written submissions.

398. The fact that the Plaintiffs sought recovery from Thomas of $100 in the context of litigation of this magnitude suggests that there has been a loss of perspective on Suzie’s and Robin’s part.

Withdrawal from account of Shield Formply

399. Suzie deposed that:

“Robin said that he had seen that Thomas appeared to have transferred a sum of over $100,000 from Shield Resources to Shield Formply, but since that transfer, Thomas appeared to have transferred significant amounts of that out of Shield Formply for Thomas’s personal use …”

400. Suzie said that Robin said the result was that “there was not much left to cover ongoing mortgage payments to Judo Bank”. I return to Judo Bank below. ^[71]

     71. At [418].

401. Four particular cheques are identified as being unauthorised withdrawals made by Thomas from Shield Formply for his own benefit.

402. The first cheque was drawn on 18 November 2023 for $200,000 with the description “Return loan”.

403. There are three credit entries in the same bank statement for $25,000, $75,000 and $100,000, recording that a total of $200,000 was advanced to Shield Formply by a company called Dora Investments Pty Ltd between 11 November 2023 and 17 November 2023.

404. Thomas gave this evidence about that matter:

“Q. Staying with page 147, you can see there are a number of credit entries between 11 November and 17 November?

A. INTERPRETER: Yes.

Q. And deposits made by Dora Investment?

A. INTERPRETER: Yes.

Q. And who is that - who or what is that, Dora Investment?

A. INTERPRETER: That money was transferred from my friend. It’s a short term loan by a few times, because at the beginning, in order to repay the loan from [Judo] Bank, I asked my friend to lend me $200,000, and later I found we had fund to repay that loan, so I returned the money back to my friend.

Q. Didn’t you take $200,000 out of this account on 18 November?

A. INTERPRETER: Yes. That’s the amount my friend injected to us, but later we didn’t use that fund. That’s why I returned that fund to my friend.”

405. This evidence shows that Dora Investments made a short term loan to Shield Formply that Thomas caused to be repaid by the cheque in question.

406. The second cheque was drawn on 25 November 2023 for $10,000 with the description in the bank statement “Transfer To Feng Ye Ye Claiming”.

407. Mr Kelly and Mr Maroya submitted that the entry in the bank statement showed that this was a claim by Thomas for refund of expenses incurred by him on behalf of the company.

408. There is no direct evidence to support that submission. However, the bank entry shows that Thomas made no attempt to disguise the nature of the payment. Further, there is a similar entry for $37,989.57 in the same bank account for 13 December 2023 using the words “Transfer To Feng Ye ye claim nangwarry” about which no complaint is made.

409. I accept Mr Kelly’s and Mr Maroya’s submission that the two entries “are consistent with the existence of a practice in which claims for expenses were noted when transfers took place”.

410. In these circumstances, I see no basis to find that the transfer was made for Thomas’s benefit.

411. The third cheque was drawn on 12 December 2023 in the sum of $239,852.54 with the description in the bank statement “WDL Branch St Ives”. The only submission that Mr Elliott and Mr Goodyear made about this was to note that “St Ives is the suburb where Thomas lives”.

412. That submission does not take account of this evidence that Mr Elliott elicited from Thomas in cross-examination:

“Q. You can see on 12 December a transfer into Shield Formply of $340,000 from Australian Wood Wholesalers?

A. INTERPRETER: Yes.

Q. What was that for?

A. INTERPRETER: This is regarding a specific project. We bought timber from China and imported it to Australia. That’s the payment we need to pay for that goods. In total, that’s seven containers.

Q. Do you see on 12 December an entry where $239,852.54 is taken out of the account?

A. INTERPRETER: Yes.

Q. You withdrew that money, didn’t you?

A. INTERPRETER: Yes, that’s for the payment for the goods.”

413. That evidence shows that Australian Wood Wholesalers, evidently a customer of Shield Formply, paid $340,000 as payment for product and that a payment was then made by Shield Formply in the amount of $239,852.54 for the product.

414. The final withdrawal was made on 19 December 2023 for $100,000 with the description “Refund loan”.

415. Mr Elliott cross-examined Thomas about this in this passage of evidence:

“Q. On 19 December 2023 you took out another $100,000, didn’t you?

A. INTERPRETER: Yes.

Q. You see by the start of November 2023, your relationship with Suzie and Robin had turned very bad, hadn’t it?

A. INTERPRETER: Could you repeat the date again.

Q. By the start of November 2023?

A. INTERPRETER: Our relations have been turning bad since 2022 when they start to produce the Nangwarry property.

Q. You had a terrible relationship with Suzie and Robin by the start of November 2023, correct?

A. INTERPRETER: Our relations have been bad before that date you mentioned.

Q. You had an argument with Suzie and Robin at the end of September 2023, didn’t you?

A. INTERPRETER: Yes.

Q. You had tried to remove Suzie as the CEO, correct?

A. INTERPRETER: Yes.

Q. She had refused; correct?

A. INTERPRETER: Yes. That’s the company’s restructure.

Q. You had received a report from Kevin in relation to the Nangwarry property; correct?

A. INTERPRETER: Yes.

Q. You were very angry about it, weren’t you? It’s a simple question?

A. INTERPRETER: Yes.

Q. You tried to remove Suzie as a director as well, didn’t you?

A. INTERPRETER: Yes, because our relation had been so bad we couldn’t even work together.

Q. What you tried to do after the relationship fell part in late 2023 was get as much money out of Shield Formply as you could?

A. INTERPRETER: That’s incorrect.

Q. You had spoken with Suzie and Robin about a restructure during 2023?

A. INTERPRETER: If my memory is correct, only when I received a notice of restructure on 22 May 2023 I - as the first time I learnt about the issue of restructure.

Q. In mid 2023, you knew that Robin and Suzie were saying that they should own 50% of the Shield companies?

A. INTERPRETER: Yes. At that time, I was very angry. They just did all that. They just want to steal the company from me with - yeah, with some bad intention.

Q. You were angry that they were now asking you to honour the promises that you had always made; correct?

A. INTERPRETER: No.

Q. But you were very angry?

A. INTERPRETER: I have the record for that.

Q. But you were very angry?

A. INTERPRETER: Yes.

Q. You told them that if that was their position, you would walk away from the Shield Group?

A. INTERPRETER: That’s nonsense.

Q. You told them that you were the only one that could complete the construction of the sawmill in South Australia, didn’t you?

A. INTERPRETER: Yes.

Q. You said unless they agreed to your shareholding proposal, you would walk away; correct?

A. INTERPRETER: That’s nonsense. I’m the owner of the company. I don’t have a reason to walk away.

Q. You had not mortgaged any of your own property in order to get the money to buy the Nangwarry property?

A. INTERPRETER: That was guaranteed by both my personal guarantee and also the Chinchilla property as the guarantee.

Q. That’s the property that had been purchased for the Shield Group; correct?

A. INTERPRETER: That’s nonsense.”

416. In this wide ranging cross-examination, Mr Elliott did not put to Thomas that the $100,000 was not used to repay a loan, as the entry in the bank statement suggests. As Mr Kelly and Mr Maroya submitted, what the cross-examination did confirm was that the relationship of trust and confidence between the parties had broken down, but without establishing any basis to impugn the integrity of the $100,000 withdrawal.

Conclusion in relation to the “misappropriation” claim

417. The Plaintiffs have failed to establish that any of these payments was improperly applied by Thomas for his own benefit.

Alleged oppression – refusing to pay Judo Bank loan

418. As I have set out above, Shield Formply borrowed $4.8 million from Judo Bank to finance the South Australian softwood timber export business being conducted by Shield Timber SA on the Nangwarry Property, which is owned by Shield Holdings South Australia.

419. In their closing submissions, Mr Elliott and Mr Goodyear said:

“In exercising his 70% control of Shield Formply, Thomas has had that company refuse to make the monthly payments due under the Judo Bank Loan Agreement … putting Shield Formply at risk of default.”

420. As I have said, Suzie has given personal guarantees and a mortgage over her properties to secure the Judo Bank loan.

421. Mr Elliott and Mr Goodyear continued:

“Thus, Thomas’ approach of letting Shield Formply ignore its repayment obligations has forced Suzie to step in to cover the Judo Bank Loan Agreement payments, which she has done in an attempt to prevent Judo Bank enforcing securities against her. To avoid that risk, Suzie has (via Mana Assets) paid Shield Formply’s monthly repayments (of $47,036) to Judo Bank …

The above conduct has seen the affairs of Shield Formply conducted in a manner that is contrary to the interests of Shield Formply’s members as a whole, because Shield Formply is being put at risk of defaulting on the Judo Bank Loan Agreement, and it is also oppressive to Suzie and Robin, both in their capacities as members of Shield Formply, but also in their capacities as providers of security under the Judo Bank Loan Agreement ... Accordingly, an order is sought pursuant to [the Act] s 233 that Shield Formply restore the amounts that have been paid by Mana Assets to cover the Judo Bank Loan Agreement payments, namely the $235,180.05 paid.”

422. The difficulty I see with this submission is that my attention has not been directed to any evidence to show that Thomas has “refused” to cause Shield Formply to make the relevant monthly payments.

423. Indeed, my attention was not drawn to any evidence showing in what circumstances Shield Formply has failed to make payments to Judo Bank.

424. If Suzie, as guarantor, has discharged Shield Formply’s guarantee then she is no doubt entitled to claim indemnity from Shield Formply and contribution from her co-sureties.

425. Whether Suzie’s company, Mana Assets, would have the same entitlements was a matter not explored at the hearing.

Alleged oppression – refusing to repay borrowings and salaries

426. Finally, Mr Elliott and Mr Goodyear submitted:

“In exercising their control of the Shield Group, Thomas and Thomas Gem Stone have had various Shield Group entities borrow money without repaying it, thereby exposing those entities to claims by lenders – not only the plaintiff lenders in these proceedings, but external lenders such as Mr Zhong, which has led to Court proceedings, and a judgment debt, against Shield Resources …

Finally, Shield Resources and Shield Intermodal did not pay, and continue not to pay, employees amounts owed to them, thereby exposing them to claims by them, as is again evident from these proceedings.”

427. These submissions were not developed further.

Conclusion on oppression

428. I have found that, for the most part, Suzie’s and Robin’s claims that they had been oppressed by Thomas have not been made out.

429. I have found that the passage of the 12 September 2023 resolution appointing Thomas’s family members to the board of Shield Holdings Australia was oppressive, albeit without any practical consequences, since no resolution was passed by that board.

430. On the other hand, it is obvious that Suzie’s and Robin’s conduct in excluding Thomas from all involvement in the companies of which he is the majority shareholder and in their assumption of the sole control of the Shield Group since November 2023 was oppressive of Thomas.

Whether the companies in the Shield Group should be wound up in any event

431. But, as I have said, ^[72] the wider background is that:

1. the relationship between these parties has broken down irretrievably;

2. there is no functional board of any of the companies in the Shield Group; and

3. the principal trading company in the Shield Group, Shield Resources, is in a parlous financial position, if not actually insolvent.

   72. At [20] above.

432. In these circumstances, there can be no point in these companies continuing to trade. For them to continue to trade would carry the risk, if not the certainty, of one or more of them incurring liabilities while unable to meet them.

433. I repeat this passage from Mr Elliott’s and Mr Goodyear’s final submissions:

“There is no question that the relations between Thomas, Suzie and Robin have completely broken down. They cannot continue in business together, and absent some other order better suited to address the present circumstances and rights of the respective parties, the appropriate order would appear to be one for the winding up of all companies in the Group.”

434. Later, Mr Elliott and Mr Goodyear submitted:

“Therefore, if the relationship between them has broken down to a degree to justify winding up on the ‘just and equitable’ ground, then it would do so for all companies – not just Shield Resources.”

435. In closing oral submissions, Mr Kelly submitted that all companies in the Shield Group should be wound up, apart from Shield Holdings South Australia, which he said “might be one exception” to the winding up of all companies in the Shield Group.

436. In that regard, Mr Kelly submitted:

“As your Honour appreciates, we, Thomas Gem Stone in particular, claims that it has been oppressed because it has been deprived of a functioning, working board and a functioning, working manager, Thomas having been shut out, locked out, et cetera. But we have to acknowledge that Thomas Gem Stone does have available to it, the power under article 25 of the constitution of that company to move for the removal of Suzie as a director, which it has put in train in order to establish a workable board. In cases where there is an available means for the oppression to be cured by the party who is oppressed, that can be a powerful discretionary ground not to make the order. Your Honour has seen in our submissions, we respectfully submit that in the case of [Shield Holdings South Australia], the claim should simply be dismissed so as to permit the company to call a meeting and constitute a new board.”

437. I do not accept that submission.

438. The appropriate course is for orders to be made for all companies in the Shield Group to be wound up.

439. I shall however defer making those orders to give the parties an opportunity to consider whether some alternative arrangement can be arrived at.

The loan claims

440. In view of that conclusion, it will likely be for the liquidator of the companies in the Shield Group to adjudicate on the remaining issues.

441. However, I will deal with them briefly.

442. Each of Suzie, Mana Assets, and Robin allege that they have advanced funds to various of the Shield Group companies.

443. Thomas did not dispute the fact that loans had been made.

444. However, Mr Kelly and Mr Maroya submitted:

“… the accounting in this evidence in this matter is very unsatisfactory. Although it cannot be doubted that [Shield] Resources, for example, is heavily in debt, the Plaintiffs have asserted but not proved the unpaid loans for which they seek judgment against an assortment of [the Shield Group companies].”

Suzie’s loan claims

445. Suzie claims that she is owed:

1. $752,589.97 by Shield Resources;

2. $49,500 by Shield Holdings South Australia;

3. $78,000 by Shield Hardwood;

4. $200,000 by Shield Formply; and

5. $90,000 by Shield Timber SA.

446. The evidence on which Suzie relies comprises schedules set out in one of her affidavits of the advances allegedly made to each of these companies, together with “repayments” to Suzie from Shield Resources. The schedules have been annotated to cross-reference the relevant bank statements.

447. Many, but not all, of those entries in the bank statements refer to a “shareholder loan”.

448. On 25 September 2023, Robin sent Suzie and Thomas documents called “loan transaction summary” in relation to each of them. I have referred to the “Thomas loan summary” above. ^[73]

     73. At [366].

449. The “loan transaction summary” concerning Suzie was entitled “Suzie Loan Transaction” and recorded, under the heading “Deposit to SR” a total amount of $1,955,940.27 and, under the heading “loan payback from SR” a total of $1,209,834.23 leaving a “remaining balance” of $746,106.04.

450. Although both these columns refer to “SR”, ^[74] the loans in relation to the deposits include “cash deposit”, “cash deposit to Suzie” and “cash deposit to Suzie (from Vcoco)”.

     74. Presumably, a reference to Shield Resources.

451. Other notes make reference to “SH”, which Robin confirmed was a reference to Shield Hardwood. Those notes include “Suzie directly deposit to SH account” and “Michael Ma Shasong Sun deposit to SH”.

452. Still other notes make reference to “Holdings account”, which I infer to be a reference to Shield Holdings South Australia. Those notes include “Deposit to Holdings account” and “to holdings account”.

453. Robin’s covering email said:

“There might be errors in the attached spreadsheets, but happy to cross-check with individual records at any time.”

454. Those “individual records”, whatever they may be, are not before me.

455. Suzie replied to Robin on 29 September 2023:

“I can confirm my shareholder loan transactions are matching my banking records. I confirm my shareholder loan to Shield at today is AU$746,106.04.”

456. The figure in Suzie’s email is the “remaining balance” figure in Robin’s “loan transaction summary”.

457. It is true that this figure is close to the figure that Suzie claims is now due to her from Shield Resources: $752,589.97.

458. But that does not take into account the further sums that Suzie contends are due to her from the other Shield Group companies to which I have referred.

459. The total of these amounts is $1,170,089.97.

460. On 6 October 2023, Robin sent Suzie and Thomas the document to which I have referred above. ^[75] That document recorded, under the heading “Shield Debt Amounts as of 6 October 2023”, that the amount of “Suzie’s Loan” was $746,106.04.

     75. At [84].

461. In this uncertain state of affairs, I am not prepared myself to conduct an analysis of the bank statements to which Suzie has referred in her evidence.

462. I am satisfied that Suzie is owed a considerable sum by one or more members of the Shield Group but am not able to determine that figure.

456. In view of my overall conclusion as to the appropriate manner in which these proceedings should be disposed of, I do not propose to consider the matter further.

Robin’s loan claims

464. Robin claims to be owed the following amounts:

1. $2,360,082.54 as well as US$1,600,793 from Shield Resources;

2. $82,300 from Shield Holdings South Australia;

3. $197,392.62 as well as US$1,392,033.14 from Shield Hardwood;

4. $132,300 from Shield Formply;

5. $58,000 from Shield Timber SA;

6. $93,355 from Shield Equipment;

7. $111,775 from Shield Intermodal;

8. $162,508 from Shield Construction Material Group Pty Ltd, the thirteenth defendant (“Shield Construction Material”);

9. $60,650 from Shield Biomass Energy Pty Ltd, the eleventh defendant (“Shield Biomass Energy”); and

10. $109,030 from Oz Plantation and Hewer Pty Ltd, the fourteenth defendant (“Oz Plantation”).

465. These amounts total $3,367,394.16 and US$2,992,826.14.

466. In Robin’s 25 September 2023 “loan transaction summary”, in respect of his own position, he said that the “remaining balance” due to him was $1,347,184.62.

467. Robin repeated that figure as being the amount due to him in his 6 October 2023 document.

468. It appears that a reason the amount that Robin now claims is a much greater figure is his contention that, arising from Suzie’s 29 September 2023 instruction that he assume personal responsibility for funds “sourced by” him, he has, in the circumstances I have discussed above, ^[76] assumed responsibility for the “$8 or $9 million” that his “friends” had advanced for the purposes of the Shield Group.

     76. See [98]-[101].

469. As I have said, in support of this contention, Robin produced a series of letters, all dated 2 May 2024, by a number of persons with Chinese names which purport to be an assignment of those persons’ entitlements against various Shield Group companies to Robin. None of those persons was called.

470. In that uncertain state of affairs, although I am satisfied that one or more of the Shield Group companies is indebted to Robin, I cannot form any view about what the level of that debt might be.

Mana Assets’ loan claims

471. Mana Assets contends that it is owed the following amounts:

1. $545,930 by Shield Resources;

2. $56,800 by Shield Holdings South Australia;

3. $285,850 by Shield Hardwood;

4. $85,100 by Shield Timber South Australia;

5. $22,500 by Shield Equipment; and

6. $321,976 by Shield Intermodal.

472. The total amount sought by Mana Assets is thus $1,403,256.

473. Suzie’s evidence in relation to these loans is a total set out by reference to pages in the relevant bank statements with the dates and amounts of the payment. Each of those payments are simply described as “transfer”.

474. In his 6 October 2023 document titled “Shield Debt Amounts as of 6 October 2023”, Robin did not include any amount as being owing to Mana Assets.

475. Nonetheless, it does appear from the entries in the bank statements that monies were advanced by Mana Assets as Suzie contends.

476. Mana Assets also seeks to recover from Shield Equipment a debt that it contends was assigned to it by Tongling Ruihong International Trading Co Ltd, a company associated with Robin’s nephew.

477. Mr Kelly and Mr Maroya accepted that the evidence appeared to show that Mana Assets was entitled to recover this sum but submitted that Shield Equipment is in no position to pay the amount in question. The amount was US$908,396.17, which converts to $1,392,835.

The salary claims

478. There is now no dispute about Suzie’s, Robin’s and Kevin’s entitlement to the salary and superannuation entitlements for which they contend.

479. Thus Mr Kelly and Mr Maroya accepted that “the Court may well find that the above entitlements” ^[77] are payable, but Mr Kelly and Mr Maroya did not suggest there was any other dispute than the quantum of the amounts claimed.

     77. Those set out in Robin’s 6 October 2023 document.

480. Shield Resources was the relevant employer until 23 April 2023 after which the employment contracts were novated to Shield Intermodal.

481. Mr Kelly and Mr Maroya added that neither Shield Resources nor Shield Intermodal had the financial capacity to pay these amounts.

Conclusion

482. I will give the parties time to consider these reasons before considering further what orders should now be made.

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Endnotes

Decision last updated: 18 September 2024