Re Digital Dealership Pty Ltd - [2024] WASC 180

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION:   RE DIGITAL DEALERSHIP PTY LTD; EX PARTE DIGITAL DEALERSHIP PTY LTD [2024] WASC 180
CORAM:   HILL J
HEARD:   10 MAY 2024
DELIVERED          :   10 MAY 2024
PUBLISHED           :   15 MAY 2024
FILE NO/S:   COR 74 of 2024
MATTER:   IN THE MATTER OF DIGITAL DEALERSHIP PTY LTD
EX PARTE

DIGITAL DEALERSHIP PTY LTD
Plaintiff

Catchwords:

Corporations - Application for winding up under Corporations Act 2001 (Cth) - Insolvency - Just and equitable ground - Where evidence of misconduct by employees of subsidiary - Where requirements for notice and advertising abridged - Appropriate form of orders

Legislation:

Corporations Act 2001 (Cth) s 459A, s 459P, s 461(1)(k), s 462, s 465A
Supreme Court (Corporations) (WA) Rules 2004 r 5.6(2)

Result:

Application granted

Category: B

Representation:

Counsel:

Plaintiff

CK Pearce

Solicitors:

Plaintiff

Blackwall Legal LLP

Case(s) referred to in decision(s):

Australian Beverage Distributors Pty Ltd v Evans & Tate Premium Wines Pty Ltd [2007] NSWCA 57; (2007) 69 NSWLR 374
Australian Securities and Investment Commission v Letten [2011] FCA 498
Australian Securities and Investment Commission v Storm Financial Ltd (2009) 7 ACSR 81
Kozlowski v JSBG Developments Pty Ltd [2010] NSWSC 1022
Re Transpacific Insurance Corporation [2009] NSWSC 308
Re Westbourne Galleries Ltd [1973] AC 360

HILL J:

(This judgment was delivered extemporaneously and has been edited from the transcript.)

On 7 May 2024, Digital Dealership Pty Ltd (Company) filed an application for orders that it be wound up on the grounds of insolvency (pursuant to s 459A of the Corporations Act 2001 (Cth) (Act)), alternatively on just and equitable grounds (pursuant to s 461(1)(k) of the Act),[1] and that liquidators be appointed to the Company.
[1] Alternatively s 461(1)(f) and s 461(1)(g) of the Act.
At the time the application was filed, a certificate of urgency was also filed, stating that the application was required to be heard as soon as possible and, in any event, by 10 May 2024. The certificate also stated that the plaintiff intended that the application be made on an ex parte basis.
The application is supported by an affidavit of Shane Robert Jones, a director of the plaintiff, as well as an affidavit of the plaintiff's solicitor, Fraser Lewis Doling Dudfield.

Factual background

The factual background to the application can be summarised as follows, and is taken from the affidavit of Mr Jones.
The plaintiff was incorporated on 26 November 2019. The directors of the plaintiff, as disclosed in the Australian Securities Investments Commission (ASIC) search obtained on 6 May 2024 (which is annexed to Mr Jones' affidavit) are Shaun Nishant Sumaru, Thomas Raymond Szmidel, David Acton, Mr Jones and Francesco Simon Scalzo.[2]
[2] Affidavit of Shane Robert Jones filed 7 May 2024, 'SRJ2'.
In December 2019, the plaintiff incorporated a wholly‑owned subsidiary in the state of Delaware in the United States called 'Digital Dealership Inc'. To Mr Jones' knowledge, the only operations of the plaintiff and its subsidiary have been in the United States, where its subsidiary operates and provides under the business name 'Carsfast'. Carsfast provides 'smart customer reactivation solutions in the automotive industry'.[3]
[3] Affidavit of Shane Robert Jones filed 7 May 2024 [13].
After being appointed a director of the plaintiff in about July 2023, Mr Jones became concerned about the lack of access to information on the Company's operations and its financial affairs. These concerns were raised at directors' meetings of the Company in September and November 2023.
In March this year, Mr Jones received an email from the then chief executive officer of the Company, which purported to attach bank statements of the bank accounts of the Company's US subsidiaries. These documents showed balances of in excess of USD $1.4 million.
In late March 2024, as a result of contact from creditors and employees concerning unpaid amounts, as well as a threat from a former employee to commence a Fair Work claim, Mr Jones became aware that there were particular issues with the Company's performance.
These issues included:
(a)the records of the Company, which record that Mr Scalzo was appointed as a director at a meeting of directors on 26 September 2023, when Mr Jones' evidence is that there was no meeting on that date; and
(b)the lack of information being provided about the financial position of the Company's subsidiary, including the balance of its bank accounts.
At a board meeting on 15 April 2024, the directors of the Company resolved to replace the board of the US subsidiary with Mr Jones and Mr Sumaru, the then chief executive officer of the Company. The directors suspended the ability of the chief financial officer of its subsidiary to take any action on its behalf and appointed E78 to investigate matters.
At a board meeting on 18 April 2024, the Company resolved to dissolve the board of the US subsidiary and appointed Mr Jones and Mr Rushton as directors. At this same meeting, the directors resolved that steps be taken to suspend the financial controller's access to the accounts of the subsidiary, that Mr Sumuru be suspended from his role as managing director and chief executive officer of the Company, and that the ASIC records be updated to reflect the fact that Mr Scalzo was not a director of the Company.
On 18 April 2024, the financial controller was advised of her suspension from her role with the subsidiary. Later that day, the financial controller resigned from her role with the Company and demanded payment of what was said to be unpaid wages.
On 30 April 2024, Mr Sumaru resigned as chief executive officer and as a director of the Company. He also demanded payment of what was said to be outstanding wages, notice and annual leave.
The initial investigations that have been completed by E78 indicate that the balance of the subsidiary's bank accounts in the US are significantly different to that which the directors of the Company were previously advised. Rather than having account balances of more than USD $1.4 million, the bank account balances are less than USD $10,000.
The statements of the Australian bank account show that there have been inflows of funds in October 2023 and December 2023, which appear to be for the sale or issue of shares. Mr Jones' evidence is that no issue or transfer of shares has been approved by the board of the directors of the Company.
In addition, Mr Jones deposes that there has been material misinformation provided to the board of the Company as to the number of existing lender clients in the US, the number of dealer customers and the revenue of the US subsidiary.
At this stage, Mr Jones does not have access to the financial accounting software of the Company or its subsidiary. However, based on the information presently available to him, he believes that the monthly funding cost of the business is approximately USD $80,000 to USD $100,000 per month, and creditors and employees are owed between USD $450,000 to USD $500,000, excluding the claim that has been foreshadowed by the chief executive officer. On this basis, Mr Jones believes the Company is insolvent, unless there is a significant capital injection.
On 30 April 2024, the directors of the Company convened a meeting of investors. Notices were sent to approximately 50 investors, and 30 to 35 investors attended for at least part of the meeting. As a result of discussions that occurred at this meeting, Mr Jones is concerned that a number of these investors may have claims against the Company for misleading and deceptive conduct. Interest was sought to fund investigations of what has occurred and to conduct the business's operations. Expressions of interest to the value of approximately AUD $8,000 were received, which is insufficient for either of these purposes to be achieved.
Correspondence has been exchanged between solicitors for Mr Sumaru and solicitors for the Company. In this regard, it is important to note that Mr Sumaru denies any wrongdoing on his part.
On 6 May 2024, the remaining directors of the Company (being Mr Szmidel, Mr Acton and Mr Jones) signed a resolution resolving to commence these proceedings to wind up the Company. Mr Jones' evidence is that the directors considered a resolution to appoint a voluntary administrator, but declined to do so because they did not consider the restructure of the Company to be a realistic option. They also considered convening a meeting of members, but are concerned that the register of members is inaccurate.

Disposition

Standing

I accept that a company has standing to apply for its own winding up in insolvency pursuant to s 459P(1)(a) of the Act, as well as on just and equitable grounds pursuant to s 462(2)(a) of the Act.
Based on the authorities to which I have been referred, I accept that the Company can apply for its winding up on the basis of a resolution of directors who, under the constitution of the Company, have the carriage of matters on behalf of the Company.[4]

Notice and advertising

[4] Re Transpacific Insurance Corporation [2009] NSWSC 308 [23] (Barrett J) and the authorities cited therein.

Section 465A of the Act requires a person applying for the winding up of a company to lodge a notice with ASIC that the application has been made, to serve a copy of this notice on the company, and cause a notice about the application to be published 'in the prescribed manner'. Pursuant to r 5.6(2) of the Supreme Court (Corporations) (WA) Rules 2004, the notice about the application is required to be published at least 3 days after the originating process is served on the company, and at least 7 days before the date fixed for the hearing of the application.
The evidence before the court is that copies of the documents filed in these proceedings have been provided to the solicitors of the former managing director and chief executive officer, as well as to the shareholders of the plaintiff. Notice of the application was lodged with ASIC on 8 May 2024 and published on the ASIC website shortly afterwards.
The purpose of the requirement for service on the company not less than 3 days after the originating process is filed is to ensure that the company served with an application for winding up has an opportunity to either resolve the matter before the application is advertised or alternatively, to apply for an injunction to prevent that occurring.[5]
[5] Australian Beverage Distributors Pty Ltd v Evans & Tate Premium Wines Pty Ltd [2007] NSWCA 57; (2007) 69 NSWLR 374 [102].
The purpose of the requirement for advertising is to bring notice of the application to any other creditors of the company, particularly if creditors want to support the application and be substituted if, for any reason, the applicant does not wish to proceed. However, it is also important to note that it is open to a creditor to oppose the application for winding up and the costs that will otherwise be incurred by the company, if this will prejudice its ability to recover a debt or the amount that could be recovered.[6]
[6] Kozlowski v JSBG Developments Pty Ltd [2010] NSWSC 1022 [15].
The plaintiff submits that in this case, there should be an abridgment of time for the compliance with both the service and advertising requirements. This is because compliance with these timeframes would cause unnecessary delay for no appreciable benefit.
In this case, where the applicant for winding up is the Company itself, I accept that it is appropriate on the unusual facts of this case for there to be an abridgment of time between the filing of the application and notice being given of the application. In my view, the purpose for this requirement that has been identified by previous authorities has little relevance where it is the Company itself who is the applicant for relief.

Should orders be made?

In this case, the Company seeks orders for it to be wound up either in insolvency (pursuant to s 459A of the Act), or on the just and equitable ground (pursuant to s 461(1)(k) of the Act).[7]
[7] Alternatively s 461(1)(f) and s 461(1)(g) of the Act.
Turning first to the question as to whether orders should be made under s 459A of the Act. While there is evidence the subsidiary of the Company is likely to be insolvent, there is almost no evidence before me about the financial position of the Company. In these circumstances, I do not consider there is a sufficient evidentiary basis for me to form a concluded view as to whether or not the Company is insolvent. In this regard, I note that no financial statements or managements accounts are before me that would enable this conclusion to be drawn. In making this observation, I do so without criticism of Mr Jones, who has explained the reasons in his affidavit as to why that evidence has not been adduced.
Turning then to the question as to whether orders should be made under s 461(1)(k) of the Act. The categories of circumstances that satisfy the just and equitable ground are not closed or rigid.[8] In the past, orders have been made under s 461(1)(k) of the Act in cases where the winding up was served to protect investors; the affairs of the company had been conducted in a way which demonstrate a lack of probity productive of a justifiable lack of confidence in the administration of the company; or where there has been misconduct or illegality in the conduct of affairs of the company, such that it is in the public interest and the protection of investors that the company be wound up.[9]
[8] Australian Securities and Investment Commission v Storm Financial Ltd (2009) 7 ACSR 81 [65]; Re Westbourne Galleries Ltd [1973] AC 360.
[9] Australian Securities and Investment Commission v Letten [2011] FCA 498 [13].
Whilst much of the evidence before the court concerns the conduct of the subsidiary, I am satisfied that it would be just and equitable for the Company to be wound up. This is because there is evidence before me that the board of the Company has been misled as to the true financial position of the Company and its subsidiary. In these circumstances, I accept that it is in the interests of both the creditors and members of the Company for independent persons to be appointed to the Company to manage its business and affairs and to determine what steps should be taken.
The plaintiff has filed a notice of consent for Thomas Donald Birth and Jeremy Joseph Nipps to act as liquidators for the Company. In the circumstances of this case, I consider that an order should be made appointing Mr Birth and Mr Nipps as liquidators of the Company.

Conclusion

For these reasons, at the conclusion of the hearing, I made orders in terms of 'Annexure A'.

Annexure A

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
KC
Associate to the Honourable Justice Hill
15 MAY 2024