Re Dip Gailey Road Pty Ltd (No 2)
[2021] VSC 727
•5 November 2021 Ex Tempore; written reasons published 8 November 2021
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2020 03985
IN THE MATTER OF DIP GAILEY ROAD PTY LTD (ACN 622 773 577)
| RYAN’S HORIZON PTY LTD (ACN 621 003 110) AS TRUSTEE FOR THE HORIZON TRUST | Plaintiff |
| and | |
| DIP HOLDCO PTY LTD (ACN 609 390 570) AS TRUSTEE FOR THE DIP HOLDING TRUST | First Defendant |
| DIP GR FUNDING PTY LTD (ACN 622 773 193) AS TRUSTEE FOR THE GR FUNDING TRUST | Second Defendant |
| DIP GAILEY ROAD PTY LTD (ACN 622 773 577) | Third Defendant |
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JUDGE: | Connock J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 5 November 2021 |
DATE OF JUDGMENT: | 5 November 2021 Ex Tempore; written reasons published 8 November 2021 |
CASE MAY BE CITED AS: | Re DIP Gailey Road Pty Ltd (No 2) |
MEDIUM NEUTRAL CITATION: | [2021] VSC 727 |
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CORPORATIONS — Winding up on ‘just and equitable’ grounds — Section 461(1)(k) of the Corporations Act 2001 (Cth) — Property development— Provisional liquidators previously appointed to the company — General principles on just and equitable ground — Provisional liquidators appointed as liquidators of company — Consent of shareholders — Justifiable lack of confidence in the conduct and management of the company’s affairs — Incomplete books and records — Investor protection — Clearly insolvent company — Failure of sole enterprise of the company.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr P Caillard | Madison Marcus |
| For the Defendants | Mr M Nurse (solicitor) | Colin Biggers & Paisley |
| For Mr Franklin and Mr Stone in their capacity as provisional liquidators of the third defendant, DIP Gailey Road Pty Ltd | Ms C Lim (solicitor) | Altus Lawyers |
HIS HONOUR:
Introduction and summary
By its amended originating process and by its summons filed 25 October 2021 the plaintiff seeks, among other things, orders that:
(a) the third defendant, DIP Gailey Road Pty Ltd (Company) be wound up pursuant to ss 233 and/or 461(1)(k) of the Corporations Act 2001 (Cth) (Act);
(b) the provisional liquidators of the Company (who are also the receivers of the assets of a trust known as the GR Funding Trust (Trust)), Glenn Franklin and Jason Stone of PKF Melbourne (Franklin and Stone), be appointed jointly and severally as liquidators of the Company; and
(c) the plaintiff’s costs of its application to wind up the Company be costs in the liquidation of the Company.
At the hearing, counsel for the plaintiff informed the court that it was not pressing its application for a winding up order under s 233 of the Act and that the plaintiff was proceeding with the application on only the just and equitable ground under s 461(1)(k) of the Act.
The Company and the Trust are the vehicles through which a failed student accommodation development project (Project) was to be undertaken on land purchased by the Company at 152–156 Gailey Road, St Lucia, Queensland (Land). The plaintiff invested $5,900,000 in the Project by purchasing shares in the Company and units in the Trust in response to an information memorandum issued by the Company and Dysin Investment Partners. Mr Jackie Chen and Mr Rufino Villaluz are the individuals behind the Project (and other projects) and were described in the information memorandum as the Managing Partners of Dysin Investment Partners, which was to be the ‘Manager’ of the Project.
Franklin and Stone were appointed as provisional liquidators of the Company and receivers of the assets of the Trust by orders made on 15 June 2021 (Appointment Orders), which orders were made for the reasons published in Re DIP Gailey Road Pty Ltd (June Reasons).[1]
[1][2021] VSC 345.
The plaintiff relied upon the following:
(a) the affidavit of Mr Xinyan Cai affirmed 14 October 2020;
(b) the affidavit of Mr Joey Lin affirmed 16 December 2020;
(c) the affidavits of Ms Ern Wei Loy sworn 14 October 2021 (two affidavits) and 29 October 2021;
(d) a written consent and conflict declaration of Franklin and Stone; and
(e) revised written submissions received by the court on 3 November 2021, which replaced an earlier written submission filed on 25 October 2021.
The defendants’ solicitor, Mr Nurse, appeared for all defendants, with his firm being the defendants’ solicitor on the record.[2] Shortly before the hearing commenced, and at the hearing, Mr Nurse informed the court that the defendants consented to the orders sought being made.
[2]Insofar as that appearance related to the third defendant, the appearance was more formal rather than substantive, given the operation of s 198G of the Act and that the Company is in provisional liquidation.
Leave to be heard was sought and granted to the solicitor acting for Franklin and Stone in their capacity as provisional liquidators of the Company, Ms Lim. The court was informed that Franklin and Stone also consented to the orders sought being made and they sought some additional directions regarding the determination by the court of their remuneration as provisional liquidators of the Company and receivers of the assets of the Trust.
The hearing of this application had been delayed by various procedural and other issues that have now been addressed by the plaintiff. As a consequence, and given the circumstances, there was a need for the application to be addressed with a level of urgency.
For the reasons that follow, orders should be made winding up the Company, appointing Franklin and Stone as joint and several liquidators of the Company, and directing that the plaintiff’s costs of its winding up application be costs in the liquidation of the Company. Orders will also be made facilitating the making of an application by Franklin and Stone for the determination of their remuneration as provisional liquidators of the Company and receivers of the assets of the Trust.
Background
The background to the appointment of Franklin and Stone as provisional liquidators of the Company is also relevant background to the current application. That background was set out in the June Reasons and it is convenient and efficient to repeat in almost identical terms what I then said on the topic, which I do below.[3]
[3]See Re DIP Gailey Road Pty Ltd [2021] VSC 345, [6]–[17]; see also [27]–[40] regarding the basis upon which it was considered appropriate to appoint Franklin and Stone as provisional liquidators of the Company.
The information memorandum circulated to investors stated that it related to the offer of an interest in the DIP Gailey Road Pty Ltd syndicate and subordinated debt units in the funding Trust with the intention that the offer would raise a total of $5,900,000. The plaintiff paid the full investment amount of $5,900,000 in three payments (Investment Amount). It was not known with certainty by the plaintiff whether there were other third party investors, although on the evidence before the court it appeared as though there were not. That being so, it appeared that the information memorandum contemplated the Investment Amount giving the plaintiff a 75% interest in the Project with Dysin Investment Partners, as Project Manager, being entitled to a 25% carried interest, in addition to management fees and other benefits.
The available information regarding the historical dealings to date with shares in the Company and the units in the Trust was not yet entirely clear. That is no fault of the plaintiff. It appears that $2,301,000 of the Investment Amount resulted in the plaintiff being allotted 390 shares in the Company at $5,900 per share. Mr Cai’s evidence was that the remaining 610 shares in the Company were understood to be in the name of the second defendant, DIP GR Funding Pty Ltd (Trustee), which is the trustee of the Trust. Mr Cai believes these were acquired for only $1.00 per share. That said, it appeared to me on this application that there were some inconsistencies in the evidence regarding the ownership of the remaining 610 shares in the Company, which I raised with the parties. It was confirmed by counsel for the plaintiff that there was an error in the affidavit and that the remaining 610 shares in the Company were registered in the name of the first defendant, not the Trustee. This was also apparent from the ASIC extract in evidence.
The remaining $3,599,000 of the Investment Amount was, it seems, applied against the acquisition by the plaintiff of 35,900 A class units in the Trust at $100 per unit. The units are the only A class units on issue and are said not to have any voting rights. The only other units of the Trust on issue are 120 ordinary units, which were issued to the first defendant for $120, being $1.00 per share. These units have the only voting rights.
The information memorandum contemplated the construction of a six-storey 90-bed student accommodation complex that was to be held for about five years after its construction and then sold. The document set out certain information regarding development costs and spoke of very favourable income and capital returns. These have not eventuated and the court was informed that the Project effectively stalled and failed after the planning phase. There was no development or construction on the Land.
The plaintiff was and remains materially concerned. It does not know what happened with the Project, or what has become of its $5,900,000 Investment Amount that was used to acquire the shares in the Company and the A class units in the Trust.
Having been unable to obtain satisfactory information from the Company or the (second defendant) Trustee of the Trust over an extended period, the plaintiff commenced this proceeding seeking access to books and records and other substantive relief. Shortly thereafter the court was informed by those acting for the defendants that various Trust records would be provided to the plaintiff, and orders were also made requiring the Company to make available for inspection by the plaintiff and its advisors the books and records of the Company. Further orders were made requiring the parties to file affidavits in respect of the ‘critical’ documents referred to in s 26 of the Civil Procedure Act 2010 (Vic) (CPA). Despite extensions of time for compliance having been given earlier this year, the court was informed that the defendants have still not provided the Trust documents, the Company has not yet fully made available its books and records, and that the defendants have not filed an affidavit in respect of the critical documents referred to in s 26 of the CPA. There was no evidence before the court giving any explanation as to why information has not been provided and why court orders have not been complied with. At the risk of understatement, that this is so is unsatisfactory.
The Project is not the only venture associated with Dysin Investment Partners that has run into difficulty. Another project with an apparently similar structure but relating to a property at 21–23 Anthony Street, Melbourne, was the subject of a separate winding up proceeding in this court (Anthony Street Proceeding). The court was informed that the plaintiff was also an investor in that project through Dysin Investment Partners and that Franklin and Stone were appointed liquidators of the relevant company by orders of Lyons J made on 26 March 2021.
Such information as has been able to be obtained by the plaintiff has been reviewed by Mr Lin, an accountant engaged by the plaintiff. Mr Lin’s and other evidence, and Mr Lin’s report, revealed a number of matters of concern, including the following:
(a) Poor record keeping and incomplete or absent books and records of the Company and the Trust.
(b) The apparent absence of any bank account held by the Company at the time the Investment Amount was paid to it by the plaintiff in early 2018.
(c) The Company’s only bank account appearing to have been opened in December 2018, with bank statements not recording the deposit of the plaintiff’s Investment Amount, and recording only very few transactions notwithstanding the nature of the Project.
(d) An Australian Taxation Office refund of $81,676 having been paid into the Company’s bank account in November 2019 and then transferred out almost immediately.
(e) The sole director of the Company and of the Trustee, Mr Villaluz, informing Mr Lin that investors’ funds were not kept in the Company bank account but were kept in another bank account belonging to Dysin Investment Partners Pty Ltd and that this other account was used for mixed projects and not set up solely for keeping Company funds.
(f) Incomplete records appearing to record loans to seemingly related third parties, including: $2,386,095 to Dysin Investment Partners Pty Ltd; $8500 to East 68th Capital Pty Ltd; and $1,089,070 to ‘Rush HQ’, which was said to be a company associated with Mr Chen.
(g) Incomplete and unclear records which appear to suggest there are or have been substantial borrowings from non-bank entities, including: $2,338,450.89 from Latrobe Financial; $2,606,717.35 from Archery Capital; and $1,805,850 from Prime Capital. It was not known by Mr Lin what these loans relate to and whether or not they have been repaid. It was also said that the loans sit in tension with aspects of the information memorandum because it contemplated funding by bank debt (at a loan to development ratio of 64.55%) but the loans referred to were from non-bank lenders that were likely to charge higher interest.
(h) The latest bank statement for the Company seen by Mr Lin (October–November 2020) records a closing balance in the Company’s only bank account of $9.95.
(i) No development or building having taken place on the Land.
(j) Incomplete records suggesting that there had been operating expenditure of $913,000 and $402,000 for development costs, but with little or no evidence of such payments or expenditure in the bank records for the only bank account held by the Company.
(k) The Land appearing to be the subject of various mortgages or other security interests.
The plaintiff’s sole director, Mr Cai, remains fundamentally concerned about the management and solvency of the Company and the plaintiff’s Investment Amount and what has become of it. Based on that which he has seen, the accountant, Mr Lin, echoed those concerns.
Additional steps have been taken since the making of the Appointment Orders. Most relevantly, Franklin and Stone have carried out investigations and provided a written report to the court (PL Report) as required by paragraph 5 of the Appointment Orders. The PL Report addresses, among other things, the assets and liabilities of the Company and an opinion regarding the solvency of the Company and the likely return to creditors. The report presents a bleak and concerning picture, with the provisional liquidators concluding, among other things, that the Company is ‘clearly insolvent’ and that there is likely to be a significant shortfall to unsecured creditors.[4]
[4]This is addressed in detail on pp 6 to 14 of the provisional liquidators’ report, although I have had regard to the entirety of its content.
The report also records that:
(a) The sole director, Mr Villaluz, failed to provide a Report on the Company Activities and Property (ROCAP) and that this has been referred to ASIC.
(b) There is an estimated shortfall in excess of $6.5 million.[5]
[5]Subject to realisation costs, legal costs, provisional liquidators’ remuneration and disbursements.
(c) The Land was sold by a mortgagee and settlement was anticipated to occur in September 2021. Ms Lim informed the court that settlement has occurred.
(d) The Company’s books and records are incomplete, inaccurate, and include material undisclosed matters and misstatements.
(e) Based on a reconstructed and adjusted balance sheet, liabilities of the Company exceed its assets by $6,852,264 and as at the date of their appointment as provisional liquidators on 15 June 2021, the Company had a net liability position in that amount.
(f) Based on the various facts and matters referred to in the PL Report, the Company clearly failed the balance sheet and cash flow solvency tests.
(g) The Company was clearly insolvent as at 15 June 2021, with the key indicators including: no cash at bank available; a net asset deficiency position of over $6.8 million; significant expenses incurred since incorporation coupled with minimal revenue; a debt to asset ratio of 3.28:1; doubtful recoverability of asset loan accounts; and no known access to alternative finance or equity capital.
(h) It is unlikely that there will be funds to pay any dividend to unsecured creditors.
(i) Various potential claims may be available and require further investigation. These include claims against the current and former directors for breach of director’s duties associated with various matters, including the obtaining of investor funds, misleading conduct, dealing with Company money and property, and other matters.
Each of Franklin and Stone have signed a consent to act as liquidators of the Company and declared that they are not aware of any conflicts of interest.
As mentioned, on the morning of the hearing and shortly before its commencement, the defendants indicated through their solicitor that they consented to orders being made winding up the Company and appointing Franklin and Stone as liquidators.
Winding up on the just and equitable ground – s 461(1)(k) of the Act
Section 461(1)(k) of the Act provides that:
(1) The Court may order the winding up of a company if:
…
(k) the Court is of the opinion that it is just and equitable that the company be wound up.
Relevant principles regarding the operation and application of s 461(1)(k) of the Act have been well rehearsed in many cases and are not relevantly controversial. They were briefly referred to in the June Reasons, where reference was also made to the helpful observations of Robson J in Re IPO Wealth Holdings No 2 Pty Ltd (No 2).[6] There was no issue between the parties on the topic and it is convenient to set out what was recorded in paragraph 21 of the June Reasons:[7]
[6][2020] VSC 733 (Robson J) at [64] (IPO Wealth).
[7]As was noted in the June Reasons, this non-controversial summary was drawn from submissions of the plaintiff, which it became apparent had been drawn from a submission drafted by different counsel in a related matter.
The principles relevant to an application to wind up a company on the just and equitable ground are well established:
(a)The classes of conduct which justify the winding up of a company on the just and equitable ground are not closed, and each application will depend upon the circumstances of the particular case.[8]
(b)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.[9]
(c)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’.[10] There is thus a significant overlap between matters relevant to the just and equitable ground, and the matters which weigh in favour of the appointment of a provisional liquidator.[11]
(d)There are various reasons why a court may determine that there exists a risk to the public interest. 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 in order to prevent and condemn repeated breaches of the law. Again, 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.[12]
(e)A stronger case might be required where the company was prosperous, or at least solvent.[13] Solvency, however, is not a bar to the appointment of a liquidator on the just and equitable ground, particularly where there have been serious and ongoing breaches of the Act.[14]
[8]ASIC v ActiveSuper (No 2) at [19] and the authorities there cited; IPO Wealth at [35].
[9]ASIC v ActiveSuper (No 2) at [20], citing Loch v John Blackwood Ltd [1924] AC 783, 788; IPO Wealth at [36].
[10]Galanopoulos v Moustafa [2010] VSC 380 at [32]; see also ASIC v ActiveSuper (No 2) at [21] and the authorities there cited; IPO Wealth at [37].
[11]ASIC v ActiveSuper (No 2) at [22].
[12]ASIC v ActiveSuper (No 2) at [23] and the authorities there cited; IPO Wealth at [38].
[13]ASIC v Kingsley Brown Properties Pty Ltd [2005] VSC 506 at [96]; IPO Wealth at [39].
[14]ASIC v ABC Fund Managers [2001] VSC 383; (2001) 39 ACSR 443 at [124]–[130]; see also ASIC v ActiveSuper (No 2) at [24]; IPO Wealth at [39].
In Re Catombal Investments Pty Ltd, Brereton J explained that:[15]
19 … [a]lthough the concept “just and equitable” is a broad one incapable of exhaustive definition, conventionally the decided cases are recognised as falling into a number of classes, including in particular: (1) failure of the substratum of the company; (2) deadlock or disagreement in the management of the company’s affairs; (3) fraud in the formation of the company; (4) misconduct by the directors of the company; (5) constitutional and administrative vacuum in the management of the company; and, (6) lack of confidence, fairness and public interest and commercial morality.
20 However, the court is not restricted in exercising its discretion to particular factual categories [Re Straw Products Pty Ltd [1942] VLR 222 at 223]. And, the question whether it is just and equitable is a question of fact, in respect of which each case must depend on its own circumstances [Re Bleriot Manufacturing Aircraft Co Ltd (1916) 32 TLR 253 at 255]. The words “just and equitable” are general words, which must remain general, and the applicant is entitled to rely on any circumstances of justice and equity that affect him or her in his or her relations with the company or shareholdings [Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 (Ebrahimi), 374], at least so long as those circumstances have a direct and immediate relationship to, or bearing upon, the management or administration of the affairs of the subject company, or the conduct of its business [Re Nestor Pty Ltd (1981) 6 ACLR 114 at 119 (Powell J)].
[15][2012] NSWSC 775, [19]–[20].
In Queensland Phosphate Pty Ltd v Korda [No 2], Kyrou, McLeish and Niall JJA made the following observations about general principles regarding the winding up of a company under s 461(1)(k):[16]
[16][2019] VSCA 215, [263]–[266].
263 Three ‘general fundamental principles’ relevant to winding up a company on the just and equitable ground in s 461(1)(k) of the Corporations Act were identified by Warren J in Australian Securities and Investments Commission v ABD Fund Managers as follows:
There are general fundamental principles applied by the courts with respect to a winding-up application on the just and equitable ground. 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.[17]
264 In relation to the first principle, it has been said that the lack of confidence relates to the directors’ conduct in regard to the company’s business.[18] 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 document, and looking after the affairs of the company’.[19]
265 Regarding the second principle, the public interest can take several forms and can include where ‘a company has not carried on its business candidly and in a straightforward manner with the public’.[20]
266 As to the third principle, although courts will be reluctant to wind up a solvent company and will require a strong case for doing so, solvency is not a bar to winding up on the just and equitable ground.[21]
[17](2001) 39 ACSR 443, 469–70 [119] (citations omitted). See also Australian Securities Commission v AS Nominees Ltd (1995) 62 FCR 504, 531–3.
[18]ASIC v Planet Platinum Ltd [2015] VSC 682, [18] (citations omitted).
[19]ASIC v Activesuper Pty Ltd [No 2] (2013) 93 ACSR 189, 195 [21] (‘Activesuper’) quoting Galanopoulos v Moustafa [2010] VSC 380, [32]. See also AS Nominees Ltd (1995) 62 FCR 504, 532–3; ASIC v International Unity Insurance Pty Ltd (2004) 22 ACLC 1416, 1428–9 [135]–[139].
[20]Activesuper (2013) 93 ACSR 189, 195 [23].
[21]ABC Fund Managers (2001) 39 ACSR 443, 470 [124]; ASIC v Kingsley Brown Properties Pty Ltd [2005] VSC 506 [96]; Activesuper (2013) 93 ACSR 189, 195 [24].
Submissions
As earlier noted, the plaintiff pressed only its application under s 461(1)(k) of the Act.[22]
[22]Counsel for the plaintiff also expressly confirmed during the hearing that it was not seeking an order that the Company be wound up in insolvency.
The plaintiff relied upon the affidavit evidence earlier referred to and its claimed basis for the application was set out in its written submissions, which were supplemented orally by counsel. Heavy reliance was placed upon the concerns and issues raised by Mr Lin and the more recent information set out in the PL Report.
In substance the plaintiff submitted that:
(a) The PL Report established that the Company is insolvent.
(b) The court could be satisfied on the evidence that the Company has: misled investors; mismanaged or engaged in misconduct in relation to the Company’s affairs; contravened provisions of the Act, including in relation to the adequacy of accounts and record keeping; dissipated funds to the detriment of the Company, investors and creditors and to the benefit of the wider DIP Group; diminished the value of the Company and the property which was to be the subject of the invested funds to the detriment of the Company’s members and creditors; and acted with a lack of transparency and displayed a willingness not to comply with orders made by this court in relation to disclosure of information.
(c) There is a justifiable lack of confidence in the conduct and management of the Company’s affairs and a risk to the public interest that warrants protection.
(d) The conduct of the Company was not in the interests of the members as a whole.
(e) Making of orders in this case is supported by similar orders having been made in the Anthony Street Proceeding by Lyons J.[23]
(f) The winding up of the Company and the appointment of Franklin and Stone as experienced independent liquidators is the only appropriate course for the court to take.
[23]Wu v Dysin Investment partners Pty Ltd (Unreported, Supreme Court of Victoria, S ECI 2020 04338, 26 March 2021).
The solicitor for the defendants, Mr Nurse, made no substantive submissions on the issue other than to convey that it was appropriate that the orders be made and that on behalf of the defendants he consented to the orders being made. The provisional liquidators also supported the plaintiff’s position but made no additional substantive submissions.
Notice of the application was given to ASIC and receipt of the same was acknowledged by it. ASIC did not seek to appear or be heard.
Consideration and disposition
Having regard to the evidence, the applicable principles, and the plaintiff’s submissions, I am of the opinion[24] that it is just and equitable that the Company be wound up. The evidence reveals that this is a clear case where such an order is warranted and should be made. Given that which I have referred to in the background section above, my reasons for so concluding can be shortly stated.
[24]See s 461(1)(k) of the Act.
It is plain that there is a justifiable lack of confidence by at least the plaintiff in the conduct and management of the Company’s affairs. This lack of confidence is justified by the matters raised by Mr Cai and Mr Lin and the matters raised in the PL Report referred to above. It is sufficient to observe that these matters include (but are not limited to): the failed development project; the ‘clearly insolvent’ position of the Company; the incomplete and inaccurate state of the books and records of the Company; the extent of the net asset deficiency; the concerns raised by the provisional liquidators and Mr Lin regarding the manner in which Company moneys may have been dealt with by the current and former directors; and the nature and extent of the claims against current and former directors that require further investigation.
In this context it is also to be noted that no evidence was presented nor submissions made as to why the lack of confidence in the conduct and management of the Company’s affairs was not or might not be justifiable. This occurred in circumstances where the sole director of the Company, Mr Villaluz, is also the sole director of the first and second defendants. Plainly he was aware of the application given that he was instructing the defendants’ solicitors as the sole director of each defendant.[25]
[25]But subject to the point made earlier regarding s 198G of the Act and the Company being in provisional liquidation.
Further, the application was supported by the only shareholders of the Company, being the plaintiff and the first defendant.
Next, although the plaintiff expressly was not seeking an order that the Company be wound up in insolvency pursuant to s 459B of the Act, the question of insolvency is nonetheless relevant to the just and equitable ground, and particularly so given the circumstances of this case. On the evidence before the court the Company has failed the balance sheet and cash flow solvency tests and the provisional liquidators have concluded that the Company is ‘clearly insolvent’. Given the nature of its failed business venture, the manner in which funds were raised and appear to have been lost, and the extent of the net deficiency, the insolvent position of the Company weighs in favour of a winding up order being made.
In addition, based on the content of the PL Report and the circumstances referred to in the evidence of Mr Cai and Mr Lin, if the provisional liquidation was to end without liquidators being appointed there is no sound basis upon which the court can have confidence in the propensity of the current director (or other controllers if there be any) of the Company to comply with relevant obligations, including the keeping of proper books and records and looking after the affairs of the Company. This concern arises from the evidence regarding the incomplete, misstated, and inaccurate books and records and is further underscored by incomplete information being provided to the provisional liquidators, and the evidence regarding Mr Villaluz’s failure to complete the ROCAP. I also note that none of the defendants sought to contend otherwise.
It is also the case that what appears to have been the Company’s sole venture has now wholly failed and the Land the subject of the venture has been sold to a third party.
Having regard to the manner in which funds were raised for the Company and the Project through the information memorandum, Mr Cai’s and Mr Lin’s evidence regarding the lack of transparency, the content of the PL Report, and the insolvent position of the Company, making a winding up order is also in the public interest and desirable for past, and potentially future,[26] investor protection. As submitted, this material also suggests that the Company has not conducted its business or affairs in a straightforward manner — and it was not submitted otherwise by the defendants.
[26]It is recognised that the prospect of future development through the Company seems remote, although it is possible that things could change if the provisional liquidation were to end without the Company being wound up.
Finally, it is noted that the making of the winding up order is now supported by and consented to by the defendants which, as I have said, include the other shareholder of the Company, being the first defendant. Whilst such consent does not, and cannot, relieve the court of its judicial function and task under s 461(1)(k) of the Act, it is a relevant circumstance to take into account. That said, the result in this case would be no different even if such support and consent had been absent.
Having regard to the above, it is not necessary to address specifically the other matters raised in support of the application. Given the claims to be investigated by Franklin and Stone when appointed liquidators, it is also desirable in the circumstances to say nothing further regarding the conduct referred to in the PL Report that is to be further investigated.
In the circumstances of this case, and applying the principles earlier referred to, I am of the opinion that it is just and equitable that an order be made that the Company be wound up. Indeed, the cumulative effect of the matters raised makes this a clear case for making such an order, although it may be noted that certain factors alone would warrant making such an order. In the particular circumstances of this case these factors include the justifiable lack of confidence in the conduct of the Company’s affairs, the clearly insolvent position of the Company, the public interest and investor protection considerations, and the absence of any sound basis for the court to have confidence in the propensity for the controllers of the Company to comply with relevant obligations.
For completeness I add two further observations. First, although I of course accept that a winding up order was made in the Anthony Street Proceeding, on the limited evidence before the court regarding that matter it does not in my view provide support for the making of an order in this case. Although linked to what is described as the Dysin Group, the Company in question here is a different company to that considered by Lyons J and it is trite that each case depends on its own facts and circumstances.
Secondly, and unrelated to the first point, it is desirable to confirm a matter addressed with the parties that ultimately became common ground between them. The short point is this: Franklin and Stone were correct in their contention that, relevantly, the Appointment Orders appointed them as receivers of the property and assets of the Trust and not receivers of the (second defendant) Trustee. The defendants’ contrary contention between the parties in advance of the hearing was misplaced. So much is apparent from the express terms of paragraph 6 of the Appointment Orders and, among others, paragraphs 1, 41, 49 and 50(6) and (8) of the June Reasons.
Conclusion and proposed orders
For the reasons referred to above the plaintiff’s application to wind up the Company on the just and equitable ground should succeed and it is appropriate to appoint Franklin and Stone as liquidators of the Company.
Subject to addressing the final form of the orders with the parties, I propose to make orders to the following effect:
(a) The third defendant be wound up on the just and equitable ground pursuant to s 461(1)(k) of the Corporations Act 2001 (Cth).
(b) Glenn Franklin and Jason Stone be appointed jointly and severally as liquidators of the third defendant.
(c) The plaintiff’s costs of its application to wind up the third defendant are costs in the liquidation of the third defendant.
I will also address with the parties the need for any consequential directions or orders. This will include consideration of the appropriateness or otherwise of joining Franklin and Stone as parties to the proceeding in connection with their foreshadowed application to have their remuneration as provisional liquidators and receivers of the property and assets of the Trust determined by the Court as contemplated by the June Reasons and the Appointment Orders.
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