M2 Assets Pty Ltd v GT Capital Partners Pty Ltd
[2022] WASC 331
•3 OCTOBER 2022
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: M2 ASSETS PTY LTD -v- GT CAPITAL PARTNERS PTY LTD [2022] WASC 331
CORAM: STRK J
HEARD: 6, 12 & 21 SEPTEMBER 2022
DELIVERED : 21 SEPTEMBER 2022
PUBLISHED : 3 OCTOBER 2022
FILE NO/S: COR 158 of 2022
BETWEEN: M2 ASSETS PTY LTD
Plaintiff
AND
GT CAPITAL PARTNERS PTY LTD
First Defendant
COLIN JAMES GRAHAM
Second Defendant
AND
Chris Dale
First Interested Party
Nicholas Dagias
Second Interested Party
Dean Clappis
Third Interested Party
Cody Beck
Fourth Interested Party
Jennifer Graham
Fifth Interested Party
John Italiano
Sixth Interested Party
Catchwords:
Corporations - Appointment of a provisional liquidator pursuant to s 472(2) of the Corporations Act 2001 (Cth) - Whether the plaintiff has reasonable prospects of obtaining a winding up order - Prospects of winding up on the insolvency ground (s 459A and s 459P of the Corporations Act 2001 (Cth)) - Prospects of winding up on the just and equitable ground (s 461(1)(e), (f) and (k) and s 462 of the Corporations Act 2001 (Cth)) - Whether there is a good reason for intervention prior to the final hearing of the winding up application - Breakdown of relationship between the directors - Serious allegations of misuse of trust funds - Impact upon interested third parties
Legislation:
Corporations Act 2001 (Cth), s 459A, s 459P, s 461(1)(e), s 461(1)(f), s 461(1)(k), s 462, s 467(4), s 472
Supreme Court (Corporations) (WA) Rules 2004 (WA), r 6.1Result:
Provisional liquidator appointed
Category: B
Representation:
Counsel:
Plaintiff : W Zappia First Defendant : No appearance Second Defendant : N Wallwork (6, 12 September)
In Person (21 September)First Interested Party : L Christensen Second Interested Party : In Person Third Interested Party : In Person Fourth Interested Party : In Person Fifth Interested Party : In Person Sixth Interested Party : In Person Solicitors:
Plaintiff : McNally & Co First Defendant : No appearance Second Defendant : Summer Lawyers (6, 12 September)
In Person (21 September)First Interested Party : CX Law Second Interested Party : In Person Third Interested Party : In Person Fourth Interested Party : In Person Fifth Interested Party : In Person Sixth Interested Party : In Person Cases referred to in decision:
Alessi v The Original Australian Art Co Pty Ltd (1989) 7 ACLC 595
Asia Pacific Joint Mining Pty Ltd v Allways Resources Holdings Pty Ltd [2018] QCA 048; [2018] 3 Qd R 520
Australian Securities and Investments Commission v ABC Fund Managers Ltd [2001] VSC 383; (2001) 39 ACSR 443
Australian Securities and Investments Commission v ActiveSuper Pty Ltd (No 2) [2013] FCA 234; (2013) 93 ACSR 189
Australian Securities and Investments Commission v AGM Markets Pty Ltd [2018] FCA 1119; (2018) 129 ACSR 335
Australian Securities and Investments Commission v Global SDR Technologies Pty Ltd [2004] VSC 402; (2004) 51 ACSR 42
Australian Securities Commission v Solomon (1996) 19 ACSR 73
BAM Property Group Pty Ltd v Imoda Group Holdings Pty Ltd [2019] FCA 1192
Bank of Australasia v Hall (1907) 4 CLR 1514
Bernhardt v Beau Rivage Pty Ltd (1989) 15 ACLR 160
Citi Project Marketing (Qld) Pty Ltd v VG Projects Pty Ltd [2017] QSC 65; [2018] 1 Qd R 100
Cowling v Mekken [2015] VSC 196
Grace v Grace [2007] NSWSC 6; (2007) 25 ACLC 141
Host-Plus Pty Ltd v Australian Hotels Association [2003] VSC 145
Leslie v Howship Holdings Pty Ltd (1997) 15 ACLC 459
Lubavitch Mazal Pty Ltd v Yeshiva Properties No 1 Pty Ltd [2003] NSWSC 535; (2003) 47 ACSR 197
Maertin v Klaus Maertin Pty Ltd [2006] NSWSC 588; (2006) 233 ALR 358
Montgomery Windsor (NSW) Pty Ltd v Ilopa Pty Ltd (1984) 2 ACLC 224
National Investment Institute Pty Ltd v Property Corporate Services Pty Ltd [2004] FCA 175; (2004) 48 ACSR 508
Re Bicher & Son Ltd [2020] NSWSC 711; (2020) 147 ACSR 108
Re Cumberland Holdings Ltd (1976) 1 ACLR 361
Re Universal Management Ltd (1981) 1 NZCLC 95-026
Rees v Bank of New South Wales (1964) 111 CLR 210
Roumanus v Orchard Holdings (NSW) Pty Ltd [2007] NSWSC 1480
Sandell v Porter (1966) 115 CLR 666
Vigliaroni v CPS Investments Holdings Pty Ltd [2009] VSC 428; (2009) 74 ACSR 282
William Buck (WA) Pty Ltd v Faulkner [No 6] [2013] WASC 342
Zempilas v JN Taylor Holdings Ltd [No 2] (1990) 55 SASR 103
Table of Contents
Introduction
Overview of procedural history
Evidence
First Turco affidavit
Second Turco affidavit
McNally affidavit
Third Turco affidavit
Second Bordi affidavit
Third Bordi affidavit
Fourth Turco affidavit
First Graham affidavit
Second Graham affidavit
Third Graham affidavit (confidential)
Fourth Graham affidavit
Fifth Graham affidavit
Sixth Graham affidavit
Applicable principles with respect to the appointment of a provisional liquidator
Disposition
Power to appoint a provisional liquidator
Procedural requirements
Standing
Reasonable prospects of obtaining a winding up order
Good reason for intervention
Undertaking as to damages
Conclusion and orders
Sch A - Orders made on 21 September 2022
Sch B - Notice issued pursuant to orders made on 12 September 2022
STRK J:
Introduction
1 By an originating process filed on 24 August 2022, M2 Assets Pty Ltd commenced a proceeding under the Corporations Act 2001 (Cth), and named GT Capital Partners Pty Ltd as the first defendant, and Colin James Graham as the second defendant. Colin James Graham usually goes by the name James Graham.
2 M2 Assets is the registered holder of 20 fully paid shares in GT Capital. It holds the shares as trustee for the M2 Assets Trust. The director of M2 Assets is Mace Angiolino Raymond Turco. Mr Turco is also one of the two directors of GT Capital.
3 Mr Graham is the registered holder of 80 fully paid shares in GT Capital and is also a director of the same.
4 Pursuant to s 459A, s 459P and s 462 (relying on s 461(1)(e), s 461(1)(f) and/or s 461(1)(k)) of the Corporations Act), M2 Assets applies in this proceeding for an order granting M2 Assets leave to apply to wind up GT Capital in insolvency, and that GT Capital be wound up.
5 Mr Turco in his originating process asserts that GT Capital is a litigation funder; is a party to several extant funding agreements; and is unable to meet its funding obligations under those funding agreements, which is a direct consequence of Mr Graham having transferred in excess of $844,100 out of the bank account operated by GT Capital since 5 July 2021. Mr Turco asserts that the precise location of the withdrawn funds is presently unknown. As a consequence of this and other matters, Mr Turco says that:
(a)the relationship of trust and confidence between the two directors of GT Capital has deteriorated to a point where there is an absence of effective stewardship of GT Capital; and
(b)GT Capital is without any working capital, has no available external sources of funding, and therefore is unable to pay its debts as and when they fall due.
6 Pending the determination of the winding up application, M2 Assets sought on an urgent basis the appointment of Gregory Bruce Dudley and Jerome Hall Mohen of RSM Australia Partners as joint and several provisional liquidators of GT Capital. The application to appoint provisional liquidators was heard over 6, 12 and 21 September 2022.
7 Mr Graham, first through counsel and then in person, was heard in opposition to the appointment. In summary, counsel for Mr Graham urged the court to dismiss the application to appoint provisional liquidators or adjourn it sine die with liberty to apply and refer the balance of the proceeding to early mediation.[1] The court facilitated a mediation as between the parties at short notice on 16 September 2022. Shortly after the mediation, Mr Graham commenced acting in person.
[1] Second defendant's submissions par 35.
8 By way of overview, Mr Graham's primary submission was that there was no basis on the evidence that the court could be satisfied that M2 Assets has reasonable prospects of obtaining a winding up order. First, because the evidence did not support a finding that M2 Assets has reasonable prospects of obtaining a winding up order on the ground that GT Capital is insolvent. Secondly, because M2 Assets does not have reasonable prospects of obtaining a winding up order on just and equitable grounds. In this regard, Mr Graham noted that M2 Assets had refused his open offer to purchase its shareholding in GT Capital, and submitted that it was unreasonable for M2 Assets to seek an order winding up GT Capital under the just and equitable ground where an alternative course was available to resolve the dispute but had been unreasonably refused, relying upon s 467(4) of the Corporations Act.[2]
[2] Second defendant's submissions pars 2(f), 22 - 26; ts 36 - 39 (21 September 2022).
9 Among other things, Mr Graham also made serious allegations in relation to the conduct of Mr Turco; cited Mr Turco's conduct as the reason for the books and records of GT Capital being unreliable; deposed to additional sources of working capital and the circumstances in which he had come to secure the advancement of moneys from a third party to pay outstanding invoices of GT; and deposed to significant prejudice that would be suffered by GT Capital, and by extension, investors, litigants and other stakeholders, if the court were to appoint a provisional liquidator.
10 A number of interested persons appeared on 21 September 2022 and were heard in relation to the application. While the Australian Securities and Investments Commission (ASIC) was given notice of the application, it did not seek to be heard.[3]
[3] Second Bordi affidavit pars 9 ‑ 12, JWB‑2; third Bordi affidavit pars 12 ‑ 13, JWB‑5.
11 At the conclusion of the hearing on 21 September 2022, I informed the parties that I considered it appropriate that the nominated provisional liquidators be appointed to GT Capital pending the hearing and disposition of the winding up application. The orders made on 21 September 2022 (as amended pursuant to O 21 r 10 of the Rules of the Supreme Court 1971 (WA) (the slip rule) on 29 September 2022) are reproduced at sch A to these reasons. I informed the parties that I would publish my reasons for decision, which I now set out below.
Overview of procedural history
12 The application to wind up GT Capital was filed on 24 August 2022, and a return date of 11 October 2022 was fixed.
13 While contemplated in the originating summons, on 2 September 2022 a formal application was made on behalf of M2 Assets for the urgent appointment of a provisional liquidator. A certificate of urgency was filed on behalf of M2 Assets on the same day.
14 I understood that on 5 September 2022, the solicitors for M2 Assets were advised that Summer Lawyers had instructions to accept service of the originating process on behalf of Mr Graham. Shortly prior to the hearing on 6 September 2022, a notice of appearance was filed in this proceeding by Summer Lawyers on his behalf.
15 I was satisfied of the urgency of the application and listed the same for hearing on 6 September 2022, which upon the provision of certain undertakings by Mr Graham was adjourned part heard to 12 September 2022 and again to 21 September 2022 to allow Mr Graham additional time to put on materials in opposition to the same. The adjournment of the application on 12 September 2022 was also granted so that notice of the application could be served upon ASIC and third party investors in the litigation funding model promoted by GT Capital. I understood the third party investors to be the unit holders in unit trusts, the trustees of which are GT Capital SPV3 Pty Ltd, GT Capital SPV5 Pty Ltd, GT Capital SPV6 Pty Ltd, GT Capital SPV9 Pty Ltd and GT Capital SPV11 Pty Ltd, respectively. A copy of the notice issued pursuant to orders made on 12 September 2022 is reproduced at sch B to these reasons.
16 On 16 September 2022, Mr Turco on behalf of M2 Assets and Mr Graham, together with their respective legal representatives, attended a court annexed mediation. The parties were unable to agree a way forward and the mediation was adjourned sine die.
17 Mr Graham was represented by Summer Lawyers and counsel appeared on behalf of Mr Graham at all hearings to oppose the application for the appointment of provisional liquidators until the afternoon of 16 September 2022 (that is, shortly after the conclusion of the mediation conference), from which time he appeared in person.
18 Notices of appearance of a number of interested parties were filed on 19, 20 and 21 September 2022. Those third parties, in person or through their legal representatives, were given an opportunity to be heard on 21 September 2022.
Evidence
19 There was a considerable amount of affidavit evidence before me at the hearing of the application. Serious allegations were made by each of Mr Turco and Mr Graham as against the other. Each sought to respond to the serious allegations made against them.
20 There were many matters where the evidence of each of Mr Turco and Mr Graham was contradictory. This was not the occasion to finally determine the factual controversies. The evidence did however consistently reveal a breakdown in the relationship as between the directors of GT Capital.
21 Counsel for M2 Assets read seven affidavits in total: three at the hearing on 6 September 2022, one at the hearing on 12 September 2022 and three at the hearing on 21 September 2022. Counsel also relied upon written outlines of submissions filed on 6 September 2022 and 11 September 2022. Six affidavits were read by Mr Graham in opposition to the application. One at the hearing on 6 September 2022, two at the hearing on 12 September 2022 and three at the hearing on 21 September 2022. Written submissions were also filed in opposition to the application on 8 September 2022 and 21 September 2022.
22 I set out below an overview of the evidence read by each party.
First Turco affidavit
23 The first affidavit read on behalf of M2 Assets was the affidavit of Mr Turco sworn on 24 August 2022, to which he attached documents marked MART-1 to MART-27.
24 Among other things, Mr Turco deposed to being a director of M2 Assets and to his qualifications, which included his current registration as an associate member of the Institute of Public Accountants.
25 He deposed that GT Capital was registered on 11 December 2017; that he had been appointed a director and sole secretary of GT Capital when it was first registered; and that Mr Graham had been appointed as a director on 19 June 2019. Of the 100 ordinary shares issued in GT Capital, Mr Turco deposed that M2 Assets holds 20 fully paid ordinary shares in its capacity as trustee for the M2 Assets Trust, and that Mr Graham holds the remaining 80 fully paid ordinary shares in GT Capital.
Roles of Mr Turco and Mr Graham
26 Mr Turco deposed that in general, he had been responsible for the accounting side of the business of GT Capital, and as a former lawyer, Mr Graham had been involved in dealing with clients (described as litigants), together with lawyers and counsel on the record for the litigants.
Financial position of GT Capital
27 As to the financial position of GT Capital, the effect of Mr Turco's evidence was that:
(a)as at 24 August 2022, GT Capital had one main bank account (the Primary GT Account), which had a negative balance of $7,036.86;
(b)GT Capital had no funds to pay its debtors, at least in the short term;
(c)there were no finalised financial statements for GT Capital; and
(d)there was potential for the future receipt of funds, but GT Capital had 'aged payables' in the amount of at least $631,788, which included debts of at least $455,860 which had been overdue for more than three months.
Litigation funding - the investment structure
28 Mr Turco deposed that GT Capital funds litigation on its own and also with third party investors, and explained the investment structures of GT Capital as follows:[4]
(1)A person or entity with a claim, or potential claim (a litigant) approaches GT Capital.
(2)Once GT Capital agrees to fund an action, it enters into a funding agreement with the litigant.
(3)GT Capital creates a special purpose vehicle (SPV) company to act as a trustee. The naming protocol is 'GT Capital SPV [a number from 1 upwards] Pty Ltd' (SPV company). For each SPV company, Mr Graham and Mr Turco are each directors and Mr Turco is the company secretary. Each SPV company is a wholly owned subsidiary of GT Capital.
(4)GT Capital novates/assigns the funding agreement to the SPV company to hold as trustee for the relevant trust. The naming protocol for each trust is 'GT Capital Unit Trust [a number from 1 upwards]'.
(5)The investors pay their money into the Primary GT Account, sign a term sheet and are issued units.
[4] First Turco affidavit pars 16 ‑ 20.
29Mr Turco further deposed that a small number of early potential investors paid money into an ANZ account held by M2 Corporate Pty Ltd, where the money was held pending either return (if the potential investor did not ultimately invest) or transfer to the Primary GT Account when an investment was identified. Mr Turco deposed that there is $26,059.98 still held in that ANZ account on behalf of one potential investor. Mr Turco says that he has control of the same and will not transfer any funds out of that account unless it is to the relevant investor.
30In relation to these early payments, Mr Turco drew the court's attention to a 2018 investor presentation, the overview of which provided that:[5]
Investor deposits funds into GT Capital Primary Fund - minimum of AUD $50,000.
The Primary Fund is akin to a trust account. Investor funds are not drawn down for a case or otherwise dealt with unless express approval has been obtained.
[5] See also ts 47 - 50 (12 September 2022).
31Mr Turco attached to his first affidavit redacted term sheets for what he described as the 'current investments', operated by GT Capital SPV3 Pty Ltd, GT Capital SPV5 Pty Ltd, GT Capital SPV6 Pty Ltd, GT Capital SPV9 Pty Ltd and GT Capital SPV11 Pty Ltd.
32Mr Turco also deposed to the sources from which GT Capital received funds, being the successful litigation it funds itself; successful litigation it funds along with investors; and a management fee of about 20% for managing matters for investors.
33Mr Turco deposed that the likely value of five current investments was $10,893,000 (which he noted does not include the return to investors), and noted that the value could be considerably higher. He further deposed that GT Capital has been successful in terms of litigation funding decisions, as for completed matters, the average return on investment had been over 200%.
Advance on future dividends
34Mr Turco deposed to an undocumented agreement having been reached in the early days of GT Capital as between Mr Graham and Mr Turco on behalf of M2 Assets, by which it was agreed that Mr Graham could withdraw $20,000 per month from the Primary GT Account as an advance on future dividends and that M2 Assets could withdraw $10,000 per month.
Primary GT Account and American Express
35Mr Turco deposed to his review of account statements for the Primary GT Account and to having identified transactions which did not appear to him to be work related.
36He also deposed to GT Capital holding a credit/charge card with American Express which was to be used to meet expenses of and incidental to GT Capital's business, with the American Express card being in the name of 'Colin James Graham GT Capital Partners Pty Ltd ABN 79623334805', with a $30,000 maximum credit/charge limit per month. Again, Mr Turco deposed to his review of account statements for the American Express account and to having identified transactions which did not appear to him to be work related.
37Mr Turco deposed to the amount of $51,306.41 being due on 7 September 2022 in respect of the American Express card, with overdue charges being applied, and to there being no funds of GT Capital to pay the same.
Communications with Mr Graham
38Mr Turco deposed to the deterioration of his relationship with Mr Graham over several months prior to the commencement of this proceeding.
39Mr Turco deposed to having made attempts from around late 2021 to tactfully raise with Mr Graham that Mr Graham had been taking too much money out of GT Capital, and that he had become concerned about the ability of GT Capital to pay debts in the short term by January 2022. Mr Turco deposed to having put his concerns in writing by an email communication sent to Mr Graham on 20 January 2022.
40Mr Turco deposed to his correspondence with Mr Graham in the period of January 2022 to July 2022; to the conduct of Mr Graham in the lead up to the application; and to allegations raised by Mr Graham concerning conduct by Mr Turco in relation to a withdrawal made by Mr Turco from the Primary GT Account (to which Mr Turco denied any allegation of wrongdoing on his part).
Pending criminal charges
41Mr Turco deposed to having been informed by Mr Graham on 22 June 2022 of criminal charges pending against Mr Graham in relation to Focus Funding Pty Ltd, a litigation funding firm of which Mr Graham was a director. Mr Turco noted that a deed of company arrangement in respect of Focus Funding had been proposed, which was executed on 5 April 2022 and subsequently terminated on 12 July 2022. With respect to Mr Graham's pending criminal charges, Mr Turco deposed to Mr Graham having told him that he was facing charges for stealing money out of the Focus Funding account. Mr Turco deposed that while it appeared from the indictment number that the indictment was signed in 2019, Mr Graham only told him about the charges in June 2022.
Appointment of Strategic Accounting and intention to remove Mr Turco as a director
42Mr Turco deposed:
(a)that on 1 July 2022 he received a letter from Andrew Dunstan of Strategic Accounting that Strategic Accounting had been approached to undertake the future income tax requirements of GT Capital;
(b)that he was informed by Mr Graham of Mr Graham's intention to call a members' meeting of GT Capital so as to remove Mr Turco as a director; and
(c)to the unwillingness of Mr Graham and Andrew Dunstan of Strategic Accounting to communicate with Mr Turco.
43He further deposed to having requested, through his solicitors, that Mr Graham repay to GT Capital the sum of $844,100 that Mr Graham had withdrawn since 5 July 2021 (which did not include payments to American Express, which were in excess of $200,000 in the same period).
Communications with Jackson McDonald
44Mr Turco deposed to having received regular follow-ups and request for payment from Jackson McDonald (the solicitors acting for a funded litigant), and to having received demands for payment of $16,646, which had been outstanding since January 2022.
45Further, Mr Turco deposed to expecting a payment of $250,000 into the Primary GT Account on account of an award of costs in an action, but that payment had been expected since January 2022 and there were ongoing communications with the costs assessor. He deposed that if Jackson McDonald were not paid and were to stop acting, this would impact the ability of GT Capital to respond to the cost assessor and obtain the anticipated costs award.
Documents attached to Mr Turco's first affidavit
46Attached to Mr Turco's first affidavit was an account statement of GT Capital as at 23 August 2022; an aged payables list for GT Capital; company searches of M2 Assets, GT Capital and Focus Funding; a copy of the constitution of GT Capital; a copy of GT Capital's 2018 investor presentation; terms sheets for the SPV companies; various other account statements for accounts held by GT Capital; various statements for the American Express account associated with GT Capital; copies of communications between Mr Turco and Mr Graham; a copy of an eCourts Portal printout for indictment number PER IND 2181 of 2019; a copy of an email communication from Strategic Accounting to Mr Turco; copies of letter and email communications between McNally & Co and Mr Graham and Strategic Accounting; the deed of company arrangement for Focus Funding; and a copy of the notice of special resolution to wind up Focus Funding.
47Documents marked MART-9 to MART-13 and MART-14.4 attached to Mr Turco's first affidavit were the subject of an application made on behalf of Mr Graham for a confidentiality order, which was not opposed by M2 Assets and which I granted at the first hearing on 6 September 2022.[6] Until further order, access to those attachments by any non-party to the proceeding is restricted. These reasons have been prepared so as to not disclose the substance of the confidential information which was before the court and which was weighed in the balance in the determination of this application.
[6] ts 3 (6 September 2022).
Second Turco affidavit
48The second affidavit relied upon by M2 Assets was the second affidavit of Mr Turco, sworn on 5 September 2022 with attachments marked MART-28 to MART-40.
49In his second affidavit, Mr Turco, among other things deposed to GT Capital being unable to pay to American Express the debt of $51,306.51 due on 7 September 2022. Mr Turco deposed that as at 2 September 2022, GT Capital had no funds to pay this debt and that he did not consider that GT Capital would be able to pay the amount on or before the date due.
50He further deposed to an anticipated GST refund in the amount of $47,955 on 6 September 2022, and to his concern that once deposited into the Primary GT Account, it may be transferred out immediately by Mr Graham.
51Mr Turco deposed to the basis for his belief that there was an urgent need for the appointment of a provisional liquidator to GT Capital. Mr Turco also outlined the attempts made to service the court documents on Mr Graham.
52Mr Turco deposed to his belief that a copy of the originating process, his first affidavit and the consent of the liquidator had been delivered to the registered office of GT Capital on 31 August 2022, and to it having been emailed to Mr Graham on the same day. He deposed to the basis for his belief that attempts to personally serve Mr Graham by a process server on 30 August 2022 and 2 September 2022 had been unsuccessful.
McNally affidavit
53The third was the affidavit of Kathleen Marie McNally, principal director of McNally & Co, sworn on 6 September 2022. Ms McNally attached to her affidavit documents marked KMM‑1 to KMM‑4.
54By her affidavit, Ms McNally deposed to communications between her, Mr Graham and Mr Dunstan informing them of the date and time of the urgent listing of the application, and to communications between McNally & Co and Summer Lawyers, on behalf of Mr Graham, accepting service on 5 September 2022.
Termination of retainer by Jackson McDonald
55Ms McNally also attached to her affidavit a letter dated 5 September 2022 from Jackson McDonald addressed to GT Capital titled 'Costs recovery on Supreme Court proceedings'. By that letter, Jackson McDonald purported to terminate its engagement to provide legal services to GT Capital with immediate effect. Referenced in the letter as the basis for termination were, among other things, an invoice which had been outstanding for over 30 days, and a failure and refusal to provide Jackson McDonald with instructions in the matter despite repeated requests.
Third Turco affidavit
56The fourth was the third affidavit sworn by Mr Turco on 10 September 2022, to which he attached documents marked MART-41 to MART-87.
Investor complaint concerning mixing of trust moneys
57Among other things, Mr Turco described Chris Dale as a long‑term investor of GT Capital, and deposed to having been put on notice by Mr Dale of Mr Dale's complaint that there had been a mixing of trust moneys. (Mr Dale was one of the third parties who appeared and was heard on 21 September 2022.)
58The letter from Mr Dale's legal representative to M2 Assets' legal representative dated 9 September 2022 was attached to Mr Turco's third affidavit and stated among other things:
My client has invested in a number of actions promoted by 'GT Capital'.
By way of example only, I attach a copy of a unit trust deed and other relevant documentation in relation to one of those investments …
It has come to my client's attention that monies provided for these investments were deposited not in an account of the trustee of the respective unit trust (by way of example GT Capital SPV 9 Pty Ltd) but, in the bank account of the GT Capital and was mixed with funds of the company's own and other trusts used as vehicles for investments made in other litigation funding opportunities.
In regard to the attached documentation, I draw your attention to clause 20.1 of the attached deed of trust which requires the monies use for these investments to be deposited in the account of the trustee. This seems not to have not occurred.
Given, the common directorships between the trustee and GT Capital, the breach of trust on the part of the trustee must be taken to also have involved not only the common directors but also GT Capital which would therefore be liable to our client for a breach of trust and obliged, depending upon the status of its bank account to account to my client for those monies. Given the nature and state of that bank account one of the remedies available could be a constructive trust over funds in GT Capital's bank account.
Loan agreement
59Mr Turco further deposed that on 7 September 2022, Mr Turco was informed by Andrew Setchell and Richard Setchell that GT Capital had entered into a loan agreement by which GT Capital had borrowed $200,000, and had secured further advances of $150,000 and $200,000, a total of $550,000.
60Mr Turco deposed that he was not involved in the creation or execution of the loan documents (which is for the amount of $200,000 only and which is due to be repaid on 30 September 2022), nor had he seen them until provided to his solicitors on 9 September 2022. The loan agreement provided that the lender under the secured loan agreement was Anglo Ports Pty Ltd, the borrower was GT Capital, and the guarantor was Mr Graham.[7]
[7] Third Turco affidavit, MART-42.
61Mr Turco deposed that Mr Andrew Setchell and Mr Richard Setchell had informed him as to how Mr Graham had used the moneys advanced to GT Capital, which included payment of $200,000 to lawyers involved in a matter that was not funded by GT Capital; and a transfer of $150,000 to Mr Graham's personal account.
62Mr Turco also responded in his third affidavit to matters deposed to by Mr Graham in the first Graham affidavit (described below).
63Among other things, Mr Turco queried with whom the obligation to pay legal fees lay (within the litigation funding model promoted by GT Capital), and how much was anticipated to be spent on current funded matters.
64Mr Turco deposed to the basis for his belief that GT Capital's unit holding in the various SPV companies was not a current asset, but a contingent asset; and as none of the claims held by the five SPV companies as trustee[8] were at a stage where 'realisation of income is virtually certain', to his belief that none should be recognised as an asset in any balance sheet. Mr Turco further deposed to his belief as to the current value of the units in each unit trust and the basis for the same.
[8] That is, GT Capital SPV3 Pty Ltd, GT Capital SPV5 Pty Ltd, GT Capital SPV6 Pty Ltd, GT Capital SPV9 Pty Ltd and GT Capital SPV11 Pty Ltd, respectively.
65In his third affidavit, Mr Turco also deposed to the allegation made against him by Mr Graham concerning an alleged transfer of moneys on 1 April 2021 and attached to his affidavit documents concerning the same, including a requisition for bank transfer of funds in the amount of $1,128,000 which Mr Turco noted was also signed by Mr Graham as an authorised signatory.
66Mr Turco deposed to enquiries he made in relation to the current creditors of GT Capital; and to having provided Strategic Accounting with read only access to GT Capital's Xero accounting software account; to Strategic Accounting having been listed as the tax agent for GT Capital without Mr Turco having consented to the same; to Mr Graham's failure to prepare quarterly investor updates in 2022 and to Mr Turco having been contacted by investors seeking the same; to not being aware of any entitlement of Mr Graham as to salary, contribution by Mr Graham of a significant amount of capital, nor any use by Mr Graham of personal funds to pay expenses of GT Capital; and to there having been no vote on any resolution with respect to the salary of Mr Graham under the terms of GT Capital's constitution.
67Mr Turco's third affidavit was the subject of an application by him for a confidentiality order, which was not opposed by Mr Graham and which I granted on 12 September 2022.[9] Until further order of the court, access to par 33(c), par 38 and the first sentence of par 59, as well as attachments marked MART-61 and MART-72, by any non‑party to the proceeding is restricted.
[9] ts 30 - 31 (12 September 2022).
68These reasons have been prepared so as to not disclose the substance of the confidential material which was before the court and which was weighed in the balance in the determination of this application.
Second Bordi affidavit
69James William Bordi is a law graduate employed by McNally & Co. On behalf of M2 Assets, Mr Bordi made an affidavit on 19 September 2022 in which he deposed to service of notice of this proceeding upon third party investors, namely the unit holders in GT Capital SPV3 Pty Ltd, GT Capital SPV5 Pty Ltd, GT Capital SPV6 Pty Ltd, GT Capital SPV9 Pty Ltd and GT Capital SPV11 Pty Ltd; and upon ASIC.[10]
[10] Mr Bordi made an earlier affidavit which was filed in this proceeding, which was not read in support of the application.
Third Bordi affidavit
70Mr Bordi made a further affidavit on 21 September 2022 in which he deposed to the status of service of the notice on third party investors. Mr Bordi deposed that at 3.37 pm on 20 September 2022, he sent an email to nine individuals identified by Mr Turco as investors (or those who had loaned money to GT Capital) who were not provided with notice on 16 September 2022 in accordance with the orders made on 12 September 2022. Mr Bordi attempted to call the investors using phone numbers provided to McNally & Co by Mr Turco. Mr Bordi says that he spoke on the phone to four investors and informed them of his email. He left a voicemail for two investors; the call was unable to be connected to one investor's phone number. Mr Turco could not provide the phone number for two investors.
71Mr Bordi further deposed to having served the documents on ASIC and to ASIC informing McNally & Co that it would not be appearing at the resumed hearing of the application on 21 September 2022.
Fourth Turco affidavit
72The seventh affidavit read on behalf of M2 Assets was the fourth affidavit of Mr Turco sworn on 21 September 2022, to which he attached documents marked MART-88 to MART-98.
73Mr Turco, among other things, deposed to having received email correspondence from Mr Richard Setchell on behalf of Anglo Ports seeking that GT Capital repay a $200,000 loan by 30 September 2022.
74Mr Turco further deposed to having received an email from Mr Graham on 20 September 2022 in which Mr Graham gave Mr Turco notice of a meeting of members of GT Capital to be held on 18 October 2022 (which Mr Graham deposed to in his sixth affidavit, discussed below).
75Mr Turco also responded to the allegation made in Mr Graham's fourth affidavit with respect to the purchase of watches to the value of about $40,000 with GT Capital funds.
76Mr Turco further deposed being informed by Ms McNally that she had requested that Mr Graham send her a copy of the email to the Director of Public Prosecutions by which Mr Graham had sent a letter (which Mr Graham deposed to in his fifth affidavit, discussed below). Finally, Mr Turco deposed to further correspondence he had with investors.
First Graham affidavit
77As noted at [21] above, six affidavits were read by Mr Graham in opposition to the application: one at the hearing on 6 September 2022, two at the hearing on 12 September 2022 and three at the hearing on 21 September 2022.
78The first was the affidavit of Mr Graham sworn on 6 September 2022, to which he attached a bundle of documents marked CG-1.
79Among other things, by his first affidavit Mr Graham deposed to a timeline of the proceeding and notably, he deposed that he was only informed of M2 Assets' urgent application for the appointment of a provisional liquidator at 11.45 am on 5 September 2022.
Allegation against Mr Turco concerning the transfer of money
80Mr Graham deposed to having formed the belief following a review of GT Capital's finances that Mr Turco had procured the transfer of $1,128,000 on 1 April 2021 from GT Capital to an account connected to Mr Turco or M2 Assets. Mr Graham deposed that he did not believe that Mr Turco or M2 Assets was entitled to retain those funds.
Financial position of GT Capital
81With respect to GT Capital's financial situation, Mr Graham deposed that in his capacity as the chief executive officer of GT Capital he had terminated Mr Turco as chief financial officer by an email communication sent to Mr Turco on 11 July 2022. He deposed that following that communication, he had undertaken a review of the books and records of GT Capital and prepared a balance sheet as at 30 June 2022, which he deposed was not prepared by an accountant but reflected Mr Graham's opinion as to the approximate present financial position of GT Capital.
82Mr Graham deposed that the assets held by GT Capital came to a total value of $15,920,061, and that its primary assets are its holdings in the unit trusts associated with each proceeding it funds. He deposed that GT Capital presently funds five proceedings and it holds units in each of the unit trusts associated with the five proceedings. Mr Graham deposed that the value of the holdings had been calculated by reference to the face value of the unit holdings which had been fixed at the time the unit trust was created. He deposed that GT Capital's units in those unit trusts have a face value of $9,500,500.
83Mr Graham also deposed that upon completion of each funded proceeding, the value returned to investors and GT Capital may exceed the face value of the units.
84Finally, he noted that GT Capital would be able to raise funds by selling its holdings in the unit trusts, which would be able to be sold at short notice. Mr Graham asserted that in the past 12 months, GT Capital had sold approximately $2,043,585 worth of its holdings in the unit trusts to non‑primary investors, and it had sold additional holdings in the unit trusts to primary investors.
Liabilities of GT Capital
85With respect to GT Capital's liabilities, Mr Graham deposed that GT Capital has no employees other than him. He further deposed that as at 30 June 2022, GT Capital's current and non-current liabilities totalled $2,484,779, which was comprised of:
(a)current liabilities in the amount of $220,278, which included $40,000 outstanding on GT Capital's corporate American Express card and $180,278 outstanding to trade creditors. In this regard, Mr Graham deposed that the total amount outstanding to trade creditors was correct to the end of July 2022, not the end of June 2022 as recorded, because Mr Graham had accounted for trade creditors paid in July 2022. Mr Graham also deposed that GT Capital was able to meet its current liabilities; and
(b)non-current liabilities in the amount of $2,264,501. In this regard, Mr Graham deposed that the non‑current liabilities were principally costs that may be paid by GT Capital towards the completion of the litigation funded by GT Capital. If GT Capital were to provide that further funding, it may sell unit trust holdings to raise the funds to pay those costs, if necessary, in accordance with its usual business practice. Mr Graham deposed that GT Capital was able to meet its non‑current liabilities.
86Mr Graham further deposed to the solvency of GT Capital and opined that it was able to, and will be able to in the immediate future, pay its debts as and when they fall due. He deposed that GT Capital will be able to meet its debts even if no money is recovered from M2 Assets or Mr Turco in relation to the $1,128,000 transferred from GT Capital on 1 April 2021.
87With respect to the Primary GT Account, Mr Graham deposed that the balance held was $38,794.34 as at 6 September 2022. Mr Graham deposed that this account does not contain investor funds, which are paid into a trust account separate from the corporate account. Mr Graham deposed that Mr Turco has control of the trust account and he does not have access to it.[11]
[11] First Graham affidavit par 50.
88Further, with respect to the American Express credit card, Mr Graham deposed that the card had been suspended and its current balance was $53,373.88, which Mr Graham intended to pay.
Appointment of Strategic Accounting
89Mr Graham deposed to his communications with Mr Turco whereby he requested on 11 July 2022 that Mr Turco handover to Strategic Accounting GT Capital's Xero accounting software login details, and that Mr Turco failed to do so. Mr Graham explained that he has 'read only' access to the accounting software and for this reason neither he nor Strategic Accounting were able to update GT Capital's accounts. Mr Graham deposed that GT Capital's Xero accounting software accounts had not been updated since Mr Turco was chief financial officer and that the aged debt report annexed to Mr Turco's first affidavit does not accurately record GT Capital's present liabilities. Mr Graham raised various examples of transactions which were not accounted for, and further deposed that all of the aged debts recorded in the first Turco affidavit had been discharged or would be discharged in the coming days.
Intention to remove Mr Turco as a director of GT Capital
90In his first affidavit, Mr Graham also expressed an intention as the majority shareholder of GT Capital to cause an ordinary resolution of the members to be passed removing Mr Turco as a director of GT Capital, to ensure the ongoing efficient management of GT Capital.
91Finally, Mr Graham deposed that he was willing to give an undertaking to the court to not cause GT Capital to transfer funds to him for 14 days.
Documents attached to Mr Graham's first affidavit
92Mr Graham attached a bundle of documents to his affidavit, which was marked CG‑1. The documents within this bundle included copies of business advantage statements; the balance sheet of GT Capital as at 30 June 2022; a copy email communications between Summer Lawyers and Strategic Accounting on 6 September 2022; a screenshot of an electronic funds transfer to the Primary GT Account; and a screenshot of the current balance due on the American Express card.
Second Graham affidavit
93The second affidavit relied upon was the second affidavit of Mr Graham sworn on 8 September 2022, to which he attached a bundle of documents marked CG-2.
94By his second affidavit, Mr Graham deposed to a further timeline of the court proceeding. He also deposed that on 8 September 2022, he had instructed his solicitors to send two letters to the solicitors for M2 Assets whereby Mr Graham made two proposals.
(1)By one of the letters, Mr Graham proposed a course for the ongoing management of GT Capital. The terms of the proposal are set out at [180] below.
(2)By the second letter, Mr Graham made an open offer to buy Mr Turco's 20% shareholding in GT Capital for $400,000, which offer was capable of being accepted for seven days and was only conditional upon the there being no appointment of provisional liquidators before settlement.
95Mr Graham further deposed that on 29 August 2022, he had instructed Strategic Accounting to prepare the business advantage statements for May, June and July 2022. Mr Graham deposed that Mr Turco objected to this, and that Mr Graham was unaware of any basis for that objection.
96Mr Graham noted that Mr Turco, through his solicitors, indicated that he would provide 'read only' access permission to GT Capital's Xero accounting software accounts rather than full access. He deposed that consequently, neither Mr Graham nor GT Capital's accountants had been able to update the books and records of GT Capital, nor properly prepare evidence of GT Capital's solvency and financial position.
97Mr Graham deposed that he was not aware of any debt that GT Capital was not able to pay, nor was he aware of any non‑current liability that GT Capital would not be able to pay as and when it falls due.
98Mr Graham provided an update as to the current amounts held in Primary GT Account and outstanding on the American Express card. He undertook to provide an authority to Mr Turco which would require Mr Turco to sign-off on any payments from the Primary GT Account, and further deposed that he had not used the funds in the Primary GT Account to satisfy the American Express outstanding balance. Mr Graham deposed that he had instructed his solicitors to request that Mr Turco provide written consent to the transfer of moneys in the Primary GT Account to the American Express account, however at the time of his affidavit, he had not received a reply. He further deposed that he had transferred a further $9,000 into the Primary GT Account, meaning that the account held in it was $53,974.34, which was sufficient to satisfy the American Express outstanding balance due of $51,299.53.
99Mr Graham denied that he had taken any funds from GT Capital to which he was not entitled. He deposed that as chief executive officer of GT Capital, he was entitled to a salary; that he had contributed a significant amount of capital to GT Capital; and that he had on occasion used his personal accounts to pay GT Capital's expenses.
Responsibility for the books and records of GT Capital
100Mr Graham opined that the books and records of GT Capital were inadequate, and that he had relied on Mr Turco, who had been GT Capital's chief financial officer and accountant, to ensure that the books and records of GT Capital were in order. Mr Graham invited a thorough reconstruction of GT Capital's books and finances, and undertook to pay back any money that an independent accountant concluded he was not entitled to retain.
Prejudice
101Finally, Mr Graham deposed to the reputational and operational damage that would be done to GT Capital if provisional liquidators were appointed. In his view, the operations of GT Capital would become paralysed.
102He deposed that in his opinion, he would not be able to raise capital on behalf of GT Capital from investors if provisional liquidators were appointed because investors would assume that there were solvency issues within the company. Mr Graham deposed that the basis of his belief were his discussions with investors since this application was made by M2 Assets, and his experience generally in raising capital for GT Capital.
103Mr Graham further deposed that if provisional liquidators were appointed, then GT Capital may be unable to fund completion of the five proceedings under management, which upon completion would produce a return on their investment to the investors and GT Capital.
104Mr Graham attached a bundle of documents to his affidavit, which was marked CG-2. The documents within this bundle included a copy of the two letters sent from Summer Lawyers to McNally & Co on 8 September 2022; a screenshot of the current funds available in the Primary GT Account and transactions involving that account; and a screenshot of the current balance due on the American Express card.
Third Graham affidavit (confidential)
105The third was the third affidavit of Mr Graham sworn on 8 September 2022. By his third affidavit, Mr Graham deposed to further matters concerning the business of GT Capital; the operational model of litigation funders; GT Capital's completed claims; and GT Capital's active claims and the anticipated settlements of the same.
106This affidavit was the subject of an application made on behalf of Mr Graham for an order restricting access to the same on the basis that the affidavit contained sensitive and commercial information. This application was not opposed by M2 Assets and I granted it on 12 September 2022. Until further order of the court, access to this affidavit of Mr Graham by any non-party to the proceeding is restricted.
107Again, these reasons have been prepared so as to not disclose the substance of the confidential information which was before the court and which was weighed in the balance in the determination of this application.
Fourth Graham affidavit
108The fourth was the fourth affidavit of Mr Graham, sworn on 16 September 2022 and filed on 19 September 2022. Mr Graham attached to his affidavit a large number of documents, marked CJG‑2A to CJG-28.
109Mr Graham deposed that the purpose of his fourth affidavit was to:[12]
(a)clarify the true financial position and affairs of GT Capital, including and with a particular emphasis on the manner in which the company accounts for and treats investor funds;
(b)explain the reasons for the discrepancies between the records relied upon by M2 Assets and Mr Graham respectively, in circumstances where both parties have access to the same information and books and records;
(c)provide supporting information and evidence for figures which have been referred to or relied upon within Mr Graham's second and third affidavits;
(d)identify aspects of Mr Turco's previously filed affidavit evidence containing false, misleading, incomplete and/or inaccurate information or statements;
(e)provide the court with a sufficient factual foundation to determine whether the evidence contained in the affidavits deposed by Mr Turco can or should be relied upon by the court for the purpose of the present application, noting that it is M2 Assets which bears the onus of proving prima facie insolvency; and
(f)provide the court with a sufficient factual foundation to determine whether M2 Assets is acting unreasonably in seeking to have GT Capital wound up in circumstances where other remedies were available but not pursued.
[12] Fourth Graham affidavit par 6.
110Mr Graham deposed in some detail to the circumstances surrounding a transfer of $1,128,000 to M2 Assets from settlement proceeds of litigation conducted via GT Capital SPV4 Pty Ltd and GT Capital SPV7 Pty Ltd as trustees of their respective unit trusts, and the alleged fabrication of the relevant unit registers by Mr Turco. He also deposed to an agreement that he said had been reached with Mr Turco to repay the funds.
111Mr Graham deposed to the circumstances in which Mr Turco's role of chief financial officer of GT Capital was terminated by Mr Graham, and to the appointment of Strategic Accounting as accountant and bookkeeper for GT Capital.
Communications with investors
112Mr Graham deposed that prior to the application having been filed he had not spoken or communicated with investors or anyone else (except his immediate family) regarding the funds taken by Mr Turco or the circumstances leading up to the application.
113Among other reasons proffered, Mr Graham deposed that until recently, he did not believe it was in the best interests of GT Capital to inform investors or other stakeholders of the circumstances of Mr Turco's exit (including his misappropriation of company funds) until such time as first, Mr Turco had handed over access to the password protected data file containing the investor circulation list, so that Mr Graham could ensure all parties were notified properly and simultaneously; and secondly, Mr Turco had either voluntarily resigned or been removed as a director following a members meeting on 21 days' notice.
Prejudice
114Mr Graham deposed in some detail to the litigation model that he says had been adopted by GT Capital in litigation funding. He says that the application of unique model creates value that is only realisable in the hands of GT Capital through Mr Graham's own contribution.
Books and records of GT Capital and alleged unauthorised transfers
115Mr Graham deposed that as a result of Mr Turco's refusal to hand over the books and records of GT Capital for, among other things, a formal review and audit, it had become necessary for Mr Graham to cross check the records prepared by Mr Turco against bank statements to compare and reconcile the same. Mr Graham attached to his fourth affidavit a number of documents which he said accurately set out the financial position of GT Capital.
116Mr Graham noted that it would also be necessary for there to be account of an additional transfer of funds that had been made to the benefit of M2 Assets in the amount of $175,000, paid with Mr Graham's consent on the basis of a pro rata entitlement being credited to Mr Graham's shareholding entity. Further, Mr Graham said that an amount of $40,000 also had to be accounted for, which had been applied, in favour of Mr Turco and Mr Turco's father in April 2021.
117Mr Graham deposed that neither of the transfers in favour of Mr Turco had been recorded in the Xero accounting software records of GT Capital. He further deposed that the withdrawal of these amounts (which came to a total of $215,000), crystallised a pro rata entitlement on behalf of Mr Graham's 80% shareholding entity for an agreed amount of $860,000. He noted that entitlement was relevant to allegations made against him by Mr Turco regarding his drawings from the Primary GT Account. He deposed that this was separate from and in addition to the amount of $1,128,000 transferred by Mr Turco to M2 Assets on 1 April 2021 from settlement funds.
118Finally, I note that Mr Graham also deposed to a medical condition for which he was diagnosed and is presently receiving treatment.
Fifth Graham affidavit
119Mr Graham also read and sought to rely upon his fifth affidavit, sworn on 19 September 2022, to which he attached documents marked CJG‑29 to CJG‑36.
Pending criminal charges
120Mr Graham annexed to his affidavit the basis upon which his counsel had informed the court on 12 September 2022 that Mr Graham expected the criminal charges against him to be dismissed. In this regard, Mr Graham attached his letter addressed to the office of the Director of Public Prosecutions for Western Australia dated 18 September 2022. In that letter Mr Graham described the various charges against him and his response to the same. He invited the Office of the Director of Public Prosecutions to discontinue the charges at or prior to the next mention hearing on 17 October 2022, failing which Mr Graham foreshadowed his intention to apply to have the charges dismissed at that hearing on the basis that there is no case to answer.
Additional working capital
121Mr Graham further deposed that in addition to the sources of working capital referred to in his earlier affidavits, through his family trust there was an amount of at least $293,424 that could be made available to GT Capital within 10 working days assuming that the winding up proceeding was dismissed or otherwise resolved on terms that do not include the appointment of a provisional liquidator. In this regard Mr Graham attached to his affidavit what appeared to be a screenshot of a page from a Government Employees Superannuation Board (GESB) member online platform, which revealed Mrs Jennifer Graham's current GESB account balance.
Chronology of events and borrowing of funds
122Mr Graham also deposed to the events which he said took place between June and August 2022, concerning the steps that were taken by him to secure funding so as to pay lawyers involved in litigation, including by meeting some of the costs personally and by procuring the funds from a third party, described as 'Anglo Ports'. In relation to the latter Mr Graham deposed to having informed Mr Turco of his intention to secure funds if it proved necessary for him to do so. He deposed to having received from Anglo Ports $300,000 of the $500,000 borrowed.
123Mr Graham also attached to his fifth affidavit various documents including a list of GT Capital's aged payables as at 22 August 2022, together with recent business advantage statement calculations.
Sixth Graham affidavit
124Mr Graham also read his sixth affidavit, which was sworn on 20 September 2022 and to which he attached CG-37. In this affidavit, Mr Graham deposed to having called a meeting of GT Capital to be held at the offices of M2 Corporate on 18 October 2022. Attached to Mr Graham's affidavit was a copy of the notice of meeting, which gave notice that the following resolutions would be proposed:
· Resolution 1: Mr Mace Angiolino Raymond Turco be removed as a director of the Company, effective from the date of the Meeting
· Resolution 2: RSM Bird Cameron be appointed as the Company's auditor in accordance with the Corporations Act, effective from the date of the Meeting
· Resolution 3: The Company appoint an independent firm of solicitors to pursue action against any director, former director, member or third party who is or following formal audit of the Company's books and records is found to owe monies to the Company
· Resolution 4: The Company appoint Morrow Sedali to act on its behalf to assist with its corporate governance, compliance and any other necessary matters including in relation to any conflict arising following audit of the Company's books and records
· Resolution 5: Any costs which the Company incurs or reasonably expects to incur as a result of Resolutions 2 to 4 be met by the members of the Company in proportion to their respective shareholdings
Applicable principles with respect to the appointment of a provisional liquidator
125The principles to be applied in the disposition of an application made under s 472(2) of the Corporations Act are well settled. In Australian Securities and Investments Commission v AGM Markets Pty Ltd [2018] FCA 1119; (2018) 129 ACSR 335, Beach J set out the principles relevant to the appointment of a provisional liquidator at [78] to [87] in the following terms:
[78]Section 472(2) of the Corporations Act empowers me to appoint a provisional liquidator at any time after the filing of a winding up application and before the making of a winding up order.
[79]Now although I have a broad discretion whether to appoint a provisional liquidator, nevertheless an applicant for the appointment of a provisional liquidator is required to establish two things.
[80]First, the applicant must show that it has reasonable prospects of obtaining a winding up order. As a consequence, there is a significant overlap between the matters relevant to determining whether to wind up a company on the just and equitable ground, and the matters that weigh in favour of the exercise of my discretion to appoint a provisional liquidator.
[81]Second, an applicant for the appointment of a provisional liquidator must show that there is some good reason for intervention prior to the final hearing of the winding up application, for example that the appointment is needed in the public interest or to preserve the status quo or to protect the company's assets and affairs.
[82]Now it has often been said that the appointment of a provisional liquidator pending the determination of a winding up application is a drastic intrusion into the affairs of a company and should not be ordered if other measures would be adequate to preserve the status quo. Now such considerations are important, but they do not of themselves necessarily limit my jurisdiction or exercise of power to appoint a provisional liquidator.
[83]Factors relevant to the exercise of my discretion to appoint a provisional liquidator include:
(a)whether the affairs of the company have been conducted casually without due regard being given to the applicable legal requirements so as to cause me to have no or little confidence that the affairs of the company are being carried out properly;
(b)whether the assets of the company will be dissipated in the interim period between the filing of the application to wind up and the winding up order being made;
(c)whether in the public interest there is a need for an examination of the state of the accounts of the company; and
(d)whether, if the appointment was not made, there was a strong possibility that there would be further acts, omissions or events which would be detrimental to creditors or shareholders.
[84]But unless an applicant can demonstrate that there is a need for interim control of the company pending the winding up of the company, no appointment will be made. It is not by itself enough, for example, that the company has not traded for some time. It is also not enough by itself that a provisional liquidator might be able to undertake investigations which might be fruitful (Allstate Explorations NL v Batepro Australia Pty Ltd [2004] NSWSC 261 at [37] per Austin J).
[85]But it may be appropriate to appoint a provisional liquidator where the affairs of the company have been carried on casually and without due regard to legal requirements so as to leave me with no confidence that the company's affairs would be properly conducted with due regard for the interests of creditors and shareholders.
[86]Further and generally speaking, it is also necessary to consider the degree of urgency and the balance of convenience.
[87]Further, where the company opposes the application for the appointment of a provisional liquidator, the onus on an applicant may not be as heavy as it would be otherwise. If the applicant's affidavits raise matters to which one would expect there to be some answer and there is no answer provided, then that may raise a suspicion that it may well be in the public interest to appoint a provisional liquidator.
126In the determination of the application before me, I accepted and adopted these principles. I also proceeded on the basis that a provisional liquidator can be appointed to a company if there is a prima facie case that the company should be wound up on the just and equitable ground.[13] (That is, in addition to or in the absence of a concern in relation to solvency.) Further, I proceeded on the basis that to enliven the court's discretion to appoint a provisional liquidator, M2 Assets did not need to establish that there were reasonable prospects of a winding up order being made on each of the grounds relied upon.[14]
[13] See Australian Securities and Investments Commission v Global SDR Technologies Pty Ltd [2004] VSC 402; (2004) 51 ACSR 42 [50] - [51]; Lubavitch Mazal Pty Ltd v Yeshiva Properties No 1 Pty Ltd [2003] NSWSC 535; (2003) 47 ACSR 197 [104] - [125]; Maertin v Klaus Maertin Pty Ltd [2006] NSWSC 588; (2006) 233 ALR 358, which cases were referenced in Ford, Austin and Ramsay's Principles of Corporations Law (17th ed, 2018) 802. See also second defendant's submissions par 6.
[14] Plaintiff's supplementary submissions par 3.
Disposition
Power to appoint a provisional liquidator
127The court has the power pursuant to s 472(2) of the Corporations Act to appoint a provisional liquidator of a company at any time after the filing of a winding up application and before the making of a winding up order. In circumstances where M2 Assets by this proceeding has applied to wind up GT Capital, which application has not yet been determined, I was satisfied that I had the power to appoint a provisional liquidator to GT Capital. I did not understand Mr Graham to contend otherwise.
Procedural requirements
128The procedural requirement prescribed in r 6.1(1) of the Supreme Court (Corporations) (WA) Rules 2004 (WA) had been met, in that the written consent of a registered liquidator had accompanied the application in the approved form.[15] Again, I did not understand Mr Graham to contend otherwise.
[15] Supreme Court (Corporations) (WA) Rules 2004 r 6.1(2), Form 8.
Standing
129As a contributory of GT Capital, M2 Assets may apply to wind up GT Capital in insolvency, but only with the leave of the court.[16] M2 Assets also has standing to apply for a winding up order under the just and equitable ground as a contributory of GT Capital.[17] In the circumstances, I was satisfied that the winding up application has been initiated by an entity with the requisite standing and that M2 Assets may seek the appointment of a provisional liquidator.
[16] Corporations Act s 459P(1)(c), s 459P(2)(b).
[17] Corporations Act s 462(2)(c).
Reasonable prospects of obtaining a winding up order
130The winding up of GT Capital is sought by M2 Assets on the insolvency ground (s 459A and s 459P), and alternatively on other grounds which include the just and equitable ground (s 461(1)(e), s 461(1)(f) and s 461(1)(k) and s 462).[18]
[18] Plaintiff's submissions par 29.
Insolvency ground
131It is convenient to first address the insolvency ground.
Applicable principles
132As to the insolvency ground, I had the benefit of submissions from counsel on behalf of M2 Assets as to the principles to be applied in determining whether to wind up a company on the basis of insolvency,[19] which I did not understand to be disputed by Mr Graham. These principles are summarised below, and I had regard to the same in the disposition of this application.
[19] Plaintiff's submissions pars 30 - 34.
133Section 9(1) of the Corporations Act defines the terms 'solvent' and 'insolvent' by the meanings given in s 95A, which provides:
95ASolvency and insolvency
(1)A person is solvent if, and only if, the person is able to pay all the person's debts, as and when they become due and payable.
(2)A person who is not solvent is insolvent.
134The question is not whether the company would be able, if time were allowed, to pay its debts out of available assets; it is whether the company is presently able to do so out of its realisable assets.[20] Consideration must be given to the future: the definition talks of ability to pay debts as they become due and payable. Accordingly, the company's position must be considered over a period rather than an instant of time.[21] But it is only the reasonably immediate future which must be considered,[22] it is not part of the court's task to determine whether the probabilities are such that circumstances will arise at some future time which will cause the company to be unable to meet debts which will then exist.[23]
[20] Bank of Australasia v Hall (1907) 4 CLR 1514, 1528.
[21] Re Universal Management Ltd (1981) 1 NZCLC 95-026, 98,246.
[22] Bank of Australasia v Hall (1527).
[23] Re Bond Corp Holdings Ltd (1990) 1 WAR 465, 474. See also Bank of Australasia v Hall (1554) ‑ (1556); Leslie v Howship Holdings Pty Ltd (1997) 15 ACLC 459, 476.
135It should not be thought that the company must have sufficient money on hand or at call to meet all of its outstanding indebtedness however far into the future the date of payment may be.[24] That goes too far. Many a company would otherwise be treated as insolvent, even if its debts were a few thousand and its assets and resources many millions.[25] As was explained by Barwick CJ in Sandell v Porter (1966) 115 CLR 666, 670:
[T]he debtor's own moneys are not limited to his cash resources immediately available. They extend to moneys which he can procure by realisation by sale or by mortgage or pledge of his assets within a relatively short time — relative to the nature and amount of the debts and to the circumstances, including the nature of the business, of the debtor.
[24] Bank of Australasia v Hall (1528), (1543), (1554); Rees v Bank of New South Wales (1964) 111 CLR 210, 218.
[25] Bank of Australasia v Hall (1553).
136Following that passage Barwick CJ went on to provide a more general statement of what will be considered by the court and what must be found:[26]
The conclusion of insolvency ought to be clear from a consideration of the debtor's position in its entirety and generally speaking ought not be drawn simply from evidence of a temporary lack of liquidity. It is the debtor's inability, utilising such cash resources as he has or can command through the use of his assets, to meet his debts as they fall due which indicates insolvency.
[26] Sandell v Porter (670).
Overview of the parties' submissions
137In summary, Mr Turco deposed that over time, his concern as to the solvency of GT Capital had grown and he was particularly troubled by Mr Graham's withdrawal of money and use of the company's credit card for what appeared to be personal expenses. Mr Turco deposed to his belief that GT Capital has insufficient funds to meet its financial obligations, which was based on his understanding of the financial position of GT Capital up to September 2022.[27]
[27] See, for example, First Turco affidavit pars 4 - 5, MART-1, MART-2; second Turco affidavit par 5; fourth Turco affidavit par 2, MART-88.
138Submissions were initially made on behalf of M2 Assets as to the solvency of GT Capital based upon Mr Turco's knowledge of the same. Counsel for M2 Assets submitted that the evidence of GT Capital's financial position (as was available to Mr Turco, having been dismissed as chief financial officer) revealed a substantial deficiency of realisable assets over liabilities and there was no evidence to suggest that GT Capital had reasonable prospects of being able to trade out of its predicament. However, it was acknowledged that the books and records of GT Capital as maintained by Mr Turco were likely out of date since July 2022.[28]
[28] Third Turco affidavit par 49.
139The effect of Mr Graham's evidence was that he took steps from late June 2022 to put GT Capital into funds without the agreement of Mr Turco. Mr Graham deposed to the steps that he took to secure funding so as to pay lawyers involved in funded litigation, including by meeting some costs personally and by securing funds from a third party, Anglo Ports.
140Mr Graham deposed to having checked the records prepared by Mr Turco against bank statements to compare and reconcile the same. Mr Graham attached to his fourth affidavit a number of documents which he deposed accurately recorded the current financial position of GT Capital.
141Mr Graham also submitted that on his evidence and that of Mr Turco, GT Capital has a significant surplus of assets to liabilities.[29] He submitted that the surplus of assets to liabilities was such that it could not be conceived that the assets could not be rearranged in such a way as to enable GT Capital to discharge its debts within a reasonable time.
[29] Second defendant's submissions par 20.
142Mr Graham submitted that his affidavits revealed that the Primary GT Account was no longer overdrawn; the outstanding American Express balance could be paid when Mr Turco gave his consent to the same; and the aged debt report relied upon by Mr Turco was unreliable as it was out of date.[30]
[30] Second defendant's submissions par 15; ts 23 - 25 (21 September 2022).
143It was Mr Graham's position that Mr Turco was not in a position to answer Mr Graham's evidence as to the financial position of GT Capital, and could therefore not discharge the onus that fell upon M2 Assets to establish a reasonable prospect of obtaining a winding up order on the insolvency ground.[31] Mr Graham submitted that in the absence of any reliable evidence that would support a finding that GT Capital is insolvent, given the obvious balance sheet solvency of GT Capital on Mr Graham's reckoning, the only conclusion open to the court on the evidence was that GT Capital is solvent.
[31] ts 30 - 32 (21 September 2022).
144Counsel on behalf of M2 Assets responded, submitting that:[32]
(a)Mr Graham's evidence with respect to the solvency of GT Capital was self-serving and contained largely inadmissible opinion evidence,[33] and if admitted into evidence ought be given little weight;
(b)in any event, the further evidence of Mr Turco revealed that Mr Graham's views as to the value of GT Capital's assets were misconceived;
(c)an interlocutory application was not the occasion to resolve factual controversies; and
(d)M2 Assets need only establish that there was a reasonable prospect that at a final hearing it would obtain an order that GT Capital be wound up on the grounds of insolvency, and the evidence adduced on behalf of M2 Assets was sufficient to achieve such end.
[32] Plaintiff's supplementary submissions par 1.
[33] Counsel stated that: In short, Mr Graham is not a valuer. Even if he was, his opinion evidence does not disclose the facts relied upon to support his opinion nor the intellectual basis for it.
Disposition
145The evidence of Mr Graham did little to quieten my concern as to the reliability of the books and records of GT Capital.
146There remained a real question as to whether the accounts had been maintained in a manner that was consistent with GT Capital's obligations to its investors (which I address in further detail below from [162] to [166]).
147I accepted that there was evidence that GT Capital had funded litigation that in the past had resulted in a significant return on investment to GT Capital and third party investors. However, I was concerned that neither Mr Turco's nor Mr Graham's account of the financial position of GT Capital was reliable, nor the value they ascribed to assets of GT Capital was reliable. It was not possible on the evidence before me to form a reliable view as to solvency and whether M2 Assets had reasonable prospects of obtaining a winding up order on insolvency grounds. That was not however the end of the matter, as I was satisfied that M2 Assets had discharged its onus of demonstrating that it had reasonable prospects of obtaining a winding up order on other grounds.
Just and equitable ground
148I had the benefit of submissions made on behalf of both parties as to the principles to be applied in determining whether to wind up a company on just and equitable grounds,[34] and I had regard to the same in the disposition of this application.
[34] Plaintiff's submissions pars 36 - 43; second defendant's submissions pars 8 - 9.
Applicable principles
149It has long been established that a company may be wound up where there is 'a justifiable lack of confidence in the conduct and management of the company's affairs' and thus a risk to the public interest that warrants protection.[35] In Australian Securities and Investments Commission v ABC Fund Managers Ltd [2001] VSC 383; (2001) 39 ACSR 443 [119], Warren J described three 'general fundamental principles' in the following terms:
First, there needs to be a lack of confidence in the conduct and management of the affairs of the company … Second, in these types of circumstances it needs to be demonstrated that there is a risk to the public interest that warrants protection. Third, there is a reluctance on the part of the courts to wind up a solvent company.
[35] Plaintiff's submissions par 37, citing Australian Securities and Investments Commission v ActiveSuper Pty Ltd (No 2) [2013] FCA 234; (2013) 93 ACSR 189 [20].
150In relation to the first principle, counsel for M2 Assets noted that a lack of confidence may arise where, 'after examining the entire conduct of the affairs of the company' the court cannot have confidence in 'the propensity of the controllers to comply with obligations, including the keeping of books, records and documents, and looking after the affairs of the company'.[36]
[36] Plaintiff's submissions par 39, citing Australian Securities and Investments Commission v ActiveSuper Pty Ltd (No 2) [21].
151Counsel noted that there is thus a significant overlap between the matters relevant to the just and equitable ground and the matters which weigh in favour of the exercise of the court's discretion to appoint a provisional liquidator.[37] For example, matters which indicate 'the propensity of the controllers to comply with obligations, including the keeping of books, records and documents, and looking after the affairs of the company' might also demonstrate that 'the company's affairs have been conducted in a manner without regard to legal requirements or accepted principles of corporate management'.[38]
[37] Australian Securities and Investments Commission v AGM Markets Pty Ltd [80].
[38] Plaintiff's submissions par 40, citing Australian Securities and Investments Commission v ActiveSuper Pty Ltd (No 2) [22].
152In relation to the second principle, counsel for M2 Assets noted that a risk to the public interest may take several forms. For example, a winding up order may be necessary to ensure investor protection or where a company has not carried on its business candidly and in a straightforward manner with the public. Alternatively, it might be justified to prevent and condemn repeated breaches of the law. Again, counsel noted that there is an overlap between matters which would pose a risk to the public interest for the purpose of s 461(1)(k), and which are relevant to the appointment of a provisional liquidator.[39]
[39] Plaintiff's submissions par 41, citing Australian Securities and Investments Commission v ActiveSuper Pty Ltd (No 2) [23].
153Finally, in relation to the third principle, counsel for M2 Assets noted that it has been said that 'a stronger case might be required where the company was prosperous, or at least solvent'.[40]
[40] Plaintiff's submissions par 42, citing Australian Securities and Investments Commission v ActiveSuper Pty Ltd (No 2) [24].
154I proceeded on the basis that solvency would not be a bar to the appointment of a provisional liquidator on the just and equitable ground, particularly where there have been serious and ongoing breaches of the Corporations Act. However, I was cognisant that winding up would generally be a remedy of last resort, especially for an ostensibly solvent corporation.[41]
[41] William Buck (WA) Pty Ltd v Faulkner [No 6] [2013] WASC 342 [145]; Australian Securities and Investments Commission v ABC Fund Managers Ltd [124]; second defendant's submissions pars 8 - 9.
Disposition
155On the evidence before me, I was satisfied that there were reasonable prospects of a winding up order being made on just and equitable grounds.
156First, there was evidence which at a final hearing may ground a finding of a justifiable lack of confidence in the conduct and management of the company's affairs.
157The directors accuse each other of serious misconduct in regard to the affairs of GT Capital. The directors blame each other for the working capital issues of GT Capital. Each director deposed to circumstances which, if established, would constitute breaches of the provisions of the Corporations Act, including, but not limited to, breaches of directors' duties, inadequacy of accounts and inadequacy of record-keeping.
158The parties did not put into evidence company records as to resolutions made or agreements reached as to remuneration entitlements, the distribution of dividends, or the grant of loans in favour of Mr Graham, Mr Turco or M2 Assets. It is not an answer to the application for Mr Graham to say that Mr Turco had been responsible for maintaining GT Capital's books and records.[42] Further, the lack of transparency is particularly concerning as the evidence suggests that large amounts of money were withdrawn from the Primary GT Account, which it appears held investor funds.
It is also necessary before sec. 367(3) can apply, in my view, for it to be shown to the court that the other remedy will effectively give relief. In order to establish that, it would, at the very least, be necessary to show that the money sum that would be available if an alternative order for compulsory purchase were made, would give the plaintiff justice. That is very difficult to establish to a court's satisfaction where there have been informal arrangements (if the defendant is to be believed) for some years, that is, each director would borrow from the company whenever he felt the need and the accounts have not been kept up to date.
Accordingly, it does not seem to me, looking at this stage at the facts, that if the facts remain the same at the hearing as they are now, that the court will be convinced that the plaintiff is acting unreasonably in seeking to have the company wound up rather than pursuing any other remedy.
Thus, it seems to me in the instant case if there be a barrier that the plaintiff has to surmount, that he will be successful in the final hearing of the petition, he has surmounted it.
[72] Alessi v The Original Australian Art Co Pty Ltd (598).
[73] Alessi v The Original Australian Art Co Pty Ltd (598).
190In Bernhardt v Beau Rivage Pty Ltd (1989) 15 ACLR 160, 164, Young J reaffirmed his views, stating that:
As far as I am aware the only other Australian case that has referred to s 367 is my recent decision of Alessi v The Original Australian Art Co Ltd (9 March 1989, Supreme Court of NSW, Young J, unreported). There a company sought to avoid provisional liquidators by saying that even if the just and equitable ground were made out, its directors had so oppressed the plaintiff, the plaintiff must have a remedy under s 320 and, accordingly, had another remedy other than winding up. Naturally enough, that submission was rejected.
191More recently, Brereton J in Grace v Grace [2007] NSWSC 6; (2007) 25 ACLC 141 reached similar conclusions, albeit without direct reference to Alessi v The Original Australian Art Co Pty Ltd, stating at [33] that:
[G]iven the serious interference with the affairs of a company involved in the appointment of a provisional liquidator, and the extraordinary nature of the remedy, the degree of likelihood that a winding up order be made is a relevant consideration, and while there is undoubtedly power to appoint a provisional liquidator where some other relief is more likely, the probability that final relief in a form other than a winding up order will be granted is a relevant discretionary consideration which may weigh against appointment of a provisional liquidator and favour some other, less intrusive, form of interlocutory relief.
192In a manner consistent with the approach adopted by Young J in Alessi v The Original Australian Art Co Pty Ltd and Brereton J in Grace v Grace, I weighed in the balance the probability that final relief in a form other than a winding up order may be granted, giving particular regard to s 467(4) of the Corporations Act. In the end I was not persuaded that the application pressed by M2 Assets to wind up GT Capital was bound to fail, as was submitted by Mr Graham.
193Mr Graham sought to lead evidence to establish that a 20% interest in GT Capital was worth much more than $400,00 but asserted that the rejection of a $400,000 offer by M2 Assets was unreasonable and would result in a winding up order not being made.[74] Assuming that 'other remedy' might include an out of court offer to purchase the M2 Asset's shares.[75] There was insufficient evidence before me to be satisfied that M2 Assets would be acting unreasonably in seeking to have GT Capital wound up instead of accepting Mr Graham's offer made to purchase M2 Assets' shareholding in the amount of $400,000. I could not be satisfied that an amount of $400,000 (or another amount nominated by Mr Graham on the evidence before me) would give M2 Assets justice. As was the case in Alessi v The Original Australian Art Co Pty Ltd, it was difficult for Mr Graham to establish that an amount that might be made available on a valuation and share buy-out would give M2 Assets justice where there were allegations of unauthorised withdrawals of moneys from the Primary GT Account; informal arrangements concerning remuneration; and informal arrangements to make moneys available as an advance to future distributions, all in circumstances where the accounts of GT Capital have not been kept up to date. There was no evidence before me as to how either alternative remedy promoted by Mr Graham would redress the consequences of the facts and circumstances upon which the winding up application was based, which is the relevant test under s 467(4).[76]
[74] As was noted in the plaintiff's supplementary submissions par 11.
[75] Compare the views expressed by Young J in Bernhardt v Beau Rivage Pty Ltd (164) with those expressed by Hansen J in Host-Plus Pty Ltd v Australian Hotels Association [2003] VSC 145 [67].
[76] Plaintiff's supplementary submissions par 12, citing Asia Pacific Joint Mining Pty Ltd v Allways Resources Holdings Pty Ltd [2018] QCA 048; [2018] 3 Qd R 520 [46]; ts 41 (12 September 2022); ts 69 - 70 (21 September 2022).
194Accordingly, if the facts were to remain the same at the final hearing as they are now, it did not seem to me that the court would be convinced that M2 Assets was acting unreasonably in seeking to have GT Capital wound up rather than pursuing any other remedy.
195I also accepted counsel for M2 Assets' submission that the mere existence of an alternative remedy does not prima facie mean that an order for winding up under s 461(e), s 461(f) or 461(k) would not be made.[77] Counsel relied upon the decision of Asia Pacific Joint Mining Pty Ltd v Allways Resources Holdings Pty Ltd at [73] ‑ [74], [75], where the Court of Appeal of Queensland upheld the trial judge's decision that it was not unreasonable to wind up the relevant company despite the existence of the alternative remedy of valuation and buy-out 'because the valuation of the respondents' shareholding would be an extensive, expensive and time consuming process, but there [was] also a real uncertainty as to whether the appellant would be willing and able to pay the price which is ultimately determined'.
[77] Plaintiff's supplementary submissions par 10.
196Further, it was not clear how the risk to the public interest would be addressed by the alternative remedies promoted by Mr Graham.[78]
[78] Plaintiff's supplementary submissions par 14, citing Re Bicher & Son Ltd [2020] NSWSC 711; (2020) 147 ACSR 108 [131] ‑ [135].
197Of course, whether there was some good reason for intervention prior to the final hearing of the winding up application was of course a matter that had to be considered in the disposition of the application before me, which I address below.
Conclusion
198M2 Assets bore the legal onus of establishing that it has reasonable prospects of obtaining a winding up order on just and equitable grounds, and it has discharged that onus.
199There are numerous conflicts on the evidence. For completeness I note that as there will be a trial of these issues, it is not appropriate that I express concluded views as to the substantive merits of the parties' claims.
Good reason for intervention
200As the applicant for the appointment of a provisional liquidator, M2 Assets had to show that there was some good reason for intervention prior to the final hearing of the winding up application, for example that the appointment is needed in the public interest, or to preserve the status quo, or to protect the company's assets and affairs.
Public interest grounds
201M2 Assets established that there was good reason for the court to intervene prior to the final hearing of the winding-up application on the basis that the appointment of a provisional liquidator was required in the public interest. As was submitted by counsel for M2 Assets, I accepted that some of the factors identified by Tamberlin J in Australian Securities Commission v Solomon (1996) 19 ACSR 73, 80 were present in this case, and that the intermingling of trust funds (as deposed to by Mr Turco) warranted the immediate appointment of a provisional liquidator.[79] The relevant common factors were as follows:
(c)There is a demonstrated lack of control over the assets of the corporations arising from the intermingling of moneys between the corporate respondents. For practical purposes they have been administered as if comprising a single undertaking operated to suit the whims or purposes of Mr Solomon without due regard to their individual best interests.
(d)No proper records have been kept of the moneys lent to or distributed between the corporate respondents which were received from investments made with Mr Solomon. For example, it appears that investment moneys procured to be invested in taxis and share markets have been diverted to publishing ventures of Mr Solomon and his personal enterprises.
(e)Mr Solomon is the controlling mind and will of the corporate respondents and faces a conflict of interest. He is a debtor to the investors and liable to them in respect of moneys advanced and at the same time he is a creditor of the corporate respondents as result of the on lending to the corporate respondents. They have no doubt received the funds with notice that they were placed by the investors with Mr Solomon for investment in nominated ventures. Mr Solomon proposes to engage in further commercial activities through the corporate respondents and to obtain further credit.
(f)It is essential, in these circumstances, that an independent person is appointed who can ensure that any remaining funds are not further diverted by Mr Solomon for other ventures or intermingled with additional moneys. An independent person would be in a position to realise the assets, determine the claims and administer the remaining funds evenly as between the investors free from any personal or pecuniary interest in the outcome.
[79] Plaintiff's supplementary submissions pars 44 - 45; ts 39 - 40, 43 (12 September 2022).
202In this case, there were strong public interest grounds for the appointment of a provisional liquidator, being that:[80]
(a)there has been a complete breakdown as between the directors in circumstances where Mr Turco (through M2 Assets) and Mr Graham had operated in a manner that might be described as a quasi‑partnership;
(b)there was and remains a management deadlock, meaning that GT Capital was and continues to be unable to take action to address its current financial predicament. The recent actions taken by Mr Graham to put GT Capital into funds were taken without the agreement of Mr Turco;
(c)serious allegations were made against each of Mr Turco and Mr Graham in relation to the misuse of funds and the unauthorised withdrawal of moneys from the Primary GT Account in circumstances where it was alleged by Mr Turco that GT Capital has held investor funds in the Primary GT Account, and there was no evidence that separate trust accounts had been used. In this case, the evidence suggested that there was a need for an independent examination of the state of the accounts of GT Capital by someone other than the directors;
(d)Mr Graham had threatened to remove Mr Turco as a director of GT Capital using his majority shareholding to do so. While that act may remove the deadlock, it would leave Mr Graham as the sole director in circumstances where serious allegations have been made against him; and
(e)there is a real risk that Mr Graham will seek to meet the liabilities of GT Capital and ongoing litigation funding obligations by raising more money from investors in circumstances where there remains a question as to whether investor funds had been managed appropriately and where, if proven, the allegations made against Mr Graham by Mr Turco would constitute breaches of the provisions of the Corporations Act, including, but not limited to, breaches of directors' duties, inadequacy of accounts and inadequacy of record-keeping.
[80] See also the plaintiff's submissions par 45; ts 39 - 40 (12 September 2022).
203Mr Graham submitted that the deadlock could be addressed by the appointment of an independent director. He submitted that his proposal promoted on 8 September 2022 in this respect and Mr Turco's unreasonable resistance to the same, gave rise to a good basis to refuse M2 Assets' application. I noted that the court does not have the power to appoint another independent director. Further, given the concerns raised as to GT Capital's treatment of investor funds, I considered that placing control of GT Capital in the hands of independent provisional liquidators to be the most appropriate course, ensuring that any remaining funds are not inappropriately diverted, nor intermingled with additional moneys that might be made available to GT Capital.
The views of interested third parties
204At the time counsel for Mr Graham filed written submissions in opposition to the application, no creditors or investors had appeared to support the application for winding up or the appointment of a provisional liquidator. Counsel for Mr Graham noted the same and submitted that the views of creditors to the application was a matter of significant weight.[81]
[81] Second defendant's submissions par 35.
205At the hearing on 21 September 2022, several investors appeared in person and pressed for the appointment of a provisional liquidator.[82] Mr Dale briefed counsel to appear on behalf in support of the application and made persuasive submissions in support of the application.[83]
[82] ts 60 - 64 (21 September 2022).
[83] ts 50 - 60 (21 September 2022).
206The potential damage to GT Capital (and potentially to third party investors and litigants) were matters which weighed heavily in the balance. I heard from a litigant who was opposed to the appointment on the basis that it might compromise the funding and prosecution of his funded action.[84] An investor expressed concern as to the potential appointment as he was concerned that it was a precursor to the winding up of GT Capital and a loss of his investment, with dire consequences to the financial position of his family.[85] These were legitimate concerns.
[84] ts 64 - 66 (21 September 2022).
[85] ts 60 - 62 (21 September 2022).
207However, in the end, I was satisfied that the public interest considerations, particularly the desire to protect the interests of third parties and the investors (that is, the unit holders and litigants); and to ensure that corporations are managed by those who will pay due regard to their obligations as directors of a company and to the law generally, were best served by the appointment of provisional liquidators. Further, I considered that pending the substantive hearing of the winding up application, the interests of third party investors and litigants would be best served by provisional liquidators now taking possession of, collecting and protecting the assets of GT Capital; and by the preparation of a report as to the matters set out in order 4(a) to (e) of the orders made on 21 September 2022.
Urgency and balance of convenience
208I did not accept the submission made by Mr Graham that no immediate risk had been demonstrated to justify the urgent appointment of provisional liquidators.[86]
[86] Second defendant's submissions par 28.
209The deadlock as between Mr Turco and Mr Graham had not been resolved. On the evidence, 18 October 2022 is the earliest that a meeting of members of GT Capital may be held and a resolution put to remove Mr Turco as a director. The evidence also suggested that Mr Graham had taken steps to put GT Capital into funds without the agreement of his fellow director, and was likely to do so again.
210Mr Graham raised that not all funds available to GT Capital from Anglo Ports had been drawn down.[87] In his fifth affidavit, Mr Graham also deposed that in addition to the sources of working capital referred to in his earlier affidavits, through his family trust there is an amount of at least $293,424 that could be made available to GT Capital within ten working days assuming that the winding up proceeding was dismissed or otherwise resolved on terms that do not include the appointment of a provisional liquidator.[88] I understood those moneys to be the superannuation funds of Mr Graham's mother, Mrs Jennifer Graham, who is described as an investor and was heard in opposition to the application.[89]
[87] Fifth Graham affidavit par 27; ts 58 (21 September 2022).
[88] Fifth Graham affidavit pars 5 - 6, CJG-30.
[89] ts 55, 63 - 64 (21 September 2022).
211As noted above, Mr Graham submitted that the deadlock might be addressed by the appointment of an independent director. He submitted that the proposal with respect to the management of GT Capital promoted on 8 September 2022 and Mr Turco's resistance to the same, gave rise to a good basis to refuse M2 Assets' application.
212Again, I note that the court does not have the power to appoint another independent director, as was promoted by Mr Graham. Further, given the concerns raised as to GT Capital's treatment of investor funds, I considered that placing control of GT Capital in the hands of independent provisional liquidators to be the most appropriate course.
213The evidence of Mr Turco led me to the conclusion that there is no other adequate interim measure that might be achieved to preserve the status quo and that, whilst the appointment of a provisional liquidator would be a serious intrusion into the affairs of the company, it is in the public interest that it now occur.
214Given the serious allegations made as against both Mr Turco and Mr Graham, absent an appointment, the court could have no confidence that the interests of M2 Assets would not be prejudiced by Mr Graham's unilateral actions, that proper records would be kept, nor that moneys sourced from lenders would be managed appropriately.
215The matter of urgency was not answered by Mr Graham's submission that on M2 Assets' own case, Mr Turco had been aware of the matters he now contends support the appointment of provisional liquidators for months, if not over a year.[90] Nor was it answered by the current suspension of GT Capital's American Express facility nor by Mr Turco's signature now being required for any transfer from the accounts of GT Capital.
[90] Second defendant's submissions par 32(a), referring to the first Turco affidavit par 40.
216I was also concerned that neither Mr Turco nor Mr Graham's account of the financial position of GT Capital was reliable, and it was not possible to form a reliable view as to solvency and whether M2 Assets has reasonable prospects of obtaining a winding up order on insolvency grounds. Given the state of the books and records and the potential for solvency to be an issue, there was some urgency in putting control in the hands of provisional liquidators, tasked among other things with preparing a report as to the solvency of GT Capital.
217In the end, I was satisfied that the balance of convenience weighed in favour of the appointment. In my view, the circumstances and allegations deposed to in the affidavits concerning unauthorised and improper conduct, and the involvement of investor funds, cried out for the immediate independent examination of the affairs of the company.
218Where the affairs of a company have been carried on casually and without due regard to legal requirements so as to leave the court with no confidence that the company's affairs would be properly conducted with due regard for the interests of shareholders, it may be appropriate to appoint a provisional liquidator.[91] The evidence of both Mr Turco and Mr Graham gave rise to such a concern and supported a precautionary approach of appointing a provisional liquidator.
[91] Montgomery Windsor (NSW) Pty Ltd v Ilopa Pty Ltd (1984) 2 ACLC 224, cited by Gordon J in Australian Securities and Investments Commission v ActiveSuper Pty Ltd (No 2) [11] - [18].
Undertaking as to damages
219Under r 6.1(4) of the Supreme Court (Corporations) (WA) Rules 2004, the court may require a plaintiff to give an undertaking as to damages. The language of this rule is permissive, not mandatory, meaning that it is not a precondition to the appointment of a provisional liquidator that an undertaking as to damages be given.[92] In appropriate commercial circumstances, the court will generally require this undertaking.[93] There may, however, be reasons which weigh against requiring the plaintiff to give the undertaking as to damages, such as where the appointment of a provisional liquidator is unlikely to cause any damage to the company or if the company has ceased trading.[94]
[92] Roumanus v Orchard Holdings (NSW) Pty Ltd [2007] NSWSC 1480 [168]; plaintiff's submissions par 47.
[93] National Investment Institute Pty Ltd v Property Corporate Services Pty Ltd [2004] FCA 175; (2004) 48 ACSR 508 [47] - [51].
[94] Lubavitch Mazal Pty Ltd v Yeshiva Properties No 1 Pty Ltd [107] - [110]; Zempilas v JN Taylor Holdings Ltd [No 2] (1990) 55 SASR 103, 107.
220In this case, M2 Assets indicated through counsel that it was prepared to provide an undertaking as to damages if required by the court. In all of the circumstances, I considered it appropriate that an undertaking be given by M2 Assets and filed with the court. The potential for GT Capital to suffer considerable prejudice from the appointment of the provisional liquidators was pressed by Mr Graham and real.[95] An undertaking in an appropriate form was filed before I extracted the orders made on 21 September 2022.
[95] Second Graham affidavit pars 23 - 25; ts 70 - 73 (12 September 2022).
Conclusion and orders
221Having had regard to the evidence filed and to the submissions made by or on behalf of each of the parties, for the reasons set out above, I was persuaded that this was a case where the appointment of provisional liquidators was appropriate.
222As to the powers of the provisional liquidators, I noted that a liquidator appointed provisionally has or may exercise such functions and powers:[96]
(a)as are conferred on him or her by the Corporations Act or by rules of the court that appointed him or her; or
(b)as the court specifies in the order appointing him or her.
[96] Corporations Act s 472(3).
223At the hearing of the application, counsel for M2 Assets adopted a form of order promoted by CX Law on behalf of an interested party (Mr Dale). In the end, I was content to make orders substantially in that form.
224As to the duties to be performed by the provisional liquidators, they were prescribed in the orders made on 21 September 2022 as follows:
(a)to take possession of, collect and protect the assets of GT Capital;
(b)to receive and collect the debts due to GT Capital;
(c)to discharge rents, wages, salaries and other current expenses but so far only as may be necessary for the purpose of preserving the assets of GT Capital or for the purposes of (d) hereof;
(d)to carry on the business of GT Capital until further order but so far only as is necessary for the beneficial disposal or winding up of that business; and
(e)generally to exercise such of the powers conferred on a liquidator by s 477(2)(a) to (k) of the Corporations Act as may be necessary for the foregoing purposes.
225The nature and description of the property of which the provisional liquidators were to take possession was defined in the order to be all of the assets and property of GT Capital.
226Given the unresolved factual controversies evident from the extensive affidavit evidence filed to date in this proceeding, I also considered it appropriate to order that within 28 days of their appointment, the provisional liquidators must provide to the court, to M2 Assets and to Mr Graham a report as to the provisional liquidation of GT Capital, including:
(a)the identification of the assets and liabilities of GT Capital;
(b)an opinion as to the solvency of GT Capital;
(c)an opinion as to the value of the assets of GT Capital;
(d)an opinion as to whether GT Capital has proper financial records; and
(e)any other information necessary to enable the financial position of GT Capital to be assessed.
227On 27 September 2022, it came to my attention that the orders made on 21 September 2022 appointing Mr Dudley and Mr Mohen as provisional liquidators did not include a declaration as to whether anything that is required or authorised by the Corporations Act to be done by the provisional liquidators is to be done by all or any one or more of them, as is required by s 472(6) of the Corporations Act. I informed the parties of the same and received a minute of proposed orders on behalf of M2 Assets. Mr Graham was asked for his view and raised no objection or concern as to the making of order 5A.
228Finally, I note that it was also appropriate that the costs of the application be reserved to the hearing of the substantive application made by this proceeding, with liberty to apply.
Sch A - Orders made on 21 September 2022
Sch B - Notice issued pursuant to orders made on 12 September 2022
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
AI
Associate to the Honourable Justice Strk
3 OCTOBER 2022
3