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Re Dawning Investments Pty Ltd

Re Dawning Investments Pty Ltd

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Case Copied 28 October 2022 79 min read

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IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST

S ECI 2020 03674

IN THE MATTER of DAWNING INVESTMENTS PTY LTD (ACN 144 681 032)

BETWEEN:

GRACE YANG	Plaintiff
v
XU DONG ZHENG & ORS (according to the attached Schedule)	Defendants

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JUDGE:	Hetyey AsJ
WHERE HELD:	Melbourne
DATE OF HEARING:	30 November 2021, 1 December 2021, 22 December 2021 and 16 February 2022
DATE OF JUDGMENT:	28 October 2022 (revised 10 November 2022)
CASE MAY BE CITED AS:	Re Dawning Investments Pty Ltd and Dawning Developments Pty Ltd
MEDIUM NEUTRAL CITATION:	[2022] VSC 641

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CORPORATIONS – Corporations Act 2001 (Cth) – Part 2F.1 – ss 232 and 233 – Two companies and unit trust established to conduct property investment and development business – Whether conduct of companies’ affairs contrary to the interest of members as a whole–Whether conduct unfairly prejudicial to or unfairly discriminatory against member.

CORPORATIONS – Corporations Act 2001 (Cth) – Part 5.4A – s 461(1)(k) – Winding up on just and equitable ground – Quasi-partnership – Deadlock – Irretrievable breakdown of relationship – Allegations of misuse of company assets – Lack of confidence in the conduct and management of the affairs of the company – Absence of financial statements and other records for the companies – Failure to meet taxation obligations – Jurisdiction enlivened – Discretionary factors – Relative justice of winding up remedy – Whether proceeding brought as an abuse of process – Whether applicant for relief has clean hands.

CORPORATIONS – Corporations Act 2001 (Cth) – Part 5.4B – s 467(4) – Winding up only remedy sought by plaintiff – Whether winding up justified – Financial position of companies – Companies likely cash-flow insolvent – Whether other remedy available – No proposal for buyout – Voluntary sell-down of assets not feasible – Differences between remedy of appointment of receiver and manager to companies and appointment of liquidator – Companies wound up.

CORPORATIONS – Liquidation of trustee company – Trustee right of indemnity – Where company bare trustee – Just and convenient to appoint liquidator as receiver and manager to assets of unit trust pursuant to ss 232, 233(1)(h) and 461(1)(f) of the Corporations Act 2001 (Cth) and/or s 37 of the Supreme Court Act 1986 (Vic).

PROCEDURE AND EVIDENCE – Abuse of process – What constitutes abuse of process – Collateral purpose – Allegation that proceeding brought as an abuse process not made out.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff/Defendant by Counterclaim	Dr A Hanak KC with Mr D R Diaz	Hiways Lawyers
For the Defendant/Plaintiff by Counterclaim	Mr M W Sanger	Luna & Xia Lawyers

TABLE OF CONTENTS

Introduction........................................................................................................................................ 1

Background......................................................................................................................................... 1

Procedural history.............................................................................................................................. 6

Witnesses and credibility of witnesses.......................................................................................... 7

Key issues for determination......................................................................................................... 10

Statutory provisions and legal principles................................................................................... 10

Nature of relationship between parties....................................................................................... 20

Allegations of misuse of company assets.................................................................................... 22

Payment of company funds towards Steven’s home loan.......................................... 22
Purchase of Tesla Model X vehicle by Steven............................................................... 29
Other unexplained transfers…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2022] VSC 641
Decision Date: 28 October 2022 (revised 10 November 2022)

CaseChat Overview and Summary

In the case of Re Dawning Investments Pty Ltd, the matter was brought before the court concerning two companies and a unit trust established to conduct property investment and development business. The primary issue was whether the conduct of the companies' affairs was contrary to the interest of members as a whole, and whether it was unfairly prejudicial or discriminatory against a member. The court was also required to consider whether winding up the companies was just and equitable, and whether the proceeding was brought as an abuse of process.

The court addressed the statutory provisions under the Corporations Act 2001 (Cth), particularly sections 232 and 233 concerning unfair conduct, and section 461(1)(k) regarding winding up on just and equitable grounds. The court found that the conduct of the companies' affairs was indeed contrary to the interest of members as a whole, and was unfairly prejudicial to one member. The evidence showed a deadlock in the management of the companies, misuse of company assets, lack of financial records, and failure to meet taxation obligations. These factors, coupled with the absence of a proposal for a buyout and the unfeasibility of a voluntary sell-down of assets, justified the winding up of the companies.

In determining the appropriate remedy, the court considered the financial position of the companies, which were likely cash-flow insolvent, and the absence of any alternative remedy. The court concluded that winding up was the justified and only remedy sought by the plaintiff. The court also found that the proceeding was not brought as an abuse of process and that the applicant for relief had clean hands. Consequently, the court appointed a liquidator as receiver and manager to the assets of the unit trust, pursuant to the relevant sections of the Corporations Act and the Supreme Court Act 1986 (Vic). The court ordered the winding up of the companies and the appointment of a liquidator to manage the assets of the unit trust.

Orders