Re Manormay Investments Pty Ltd
[2013] VSC 260
•19 April 2013
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL COURT
CORPORATIONS LIST
LIST G
No. S CI 2012 05552
| IN THE MATTER OF: MANORMAY INVESTMENTS PTY LTD (ACN 151 566 086) MANORMAY PTY LTD (ACN 143 962 903) KALINDA CRAFT PTY LTD (ACN 007 350 236) NEPEAN HOSPITALS PTY LTD (ACN 005 669 974) CAMBRIDGE CROYDON PTY LTD (ACN 115 149 909) VIVA CARE PTY LTD (ACN 121 473 569) CAMBRIDGE AGED CARE PTY LTD (ACN 152 094 963) CAMBRIDGE EMPLOYMENT SERVICES PTY LTD (ACN 147 040 364) BETWEEN: |
| WINTERSWYK PTY LTD as trustee for the Figjam Trust (ACN 069 987 560) First plaintiff |
| and STEPHEN GEORGE SNOWDEN Second Plaintiff |
| and KEN YEN CHENG First Defendant and |
YIU CHEUNG LUI Second Defendant and |
| LAKESIDE CARE PTY LTD Third Defendant and |
| BERKELEY LIVING GROUP PTY LTD Fourth Defendant (IN LIQUIDATION) (ACN 143 533 206) and |
| MANORMAY PTY LTD (ACN 143 962 903) Fifth Defendant and |
| SAINTLY (VICTORIA) PTY LTD (ACN 080 008 591) Sixth Defendant in its own right and as a trustee Temasek Property Investments Trust |
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JUDGE: | ROBSON J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 9, 11, 15 and 16 April 2013 | |
DATE OF JUDGMENT: | 19 April 2013 | |
CASE MAY BE CITED AS: | Re Manormay Investments Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2013] VSC 260 | |
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CORPORATIONS LAW – Application to set aside charges over shares in group of companies – Charges registered under Personal Property Securities Act 2009 (Cth) pursuant to alleged loan – Directors utilised alleged loan arrangement to misappropriate another director’s interest in group of companies – Charges declared void and of no effect and to be set aside – Registrar directed to remove charges from Personal Property Securities Registrar.
EQUITY – Breach of fiduciary duty – Directors’ actions breached fiduciary duties as directors and trustees – Directors’ actions akin to self-dealing – Tito v Waddell (No 2) [1977] Ch 106 applied.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr S.K. Wilson QC with Mr B.J. Murphy | Mr D.E. Phillips |
| For the Defendants | No appearance |
TABLE OF CONTENTS
Introduction............................................................................................................................... 2
Background................................................................................................................................ 3
Grounds for setting aside the charges......................................................................................... 7
The alleged loan by Black Oak.................................................................................................... 7
Were the loan agreement and the security documents a sham?.................................................. 9
Breach of fiduciary duty........................................................................................................... 12
HIS HONOUR:
Introduction
Mr Snowden (the second plaintiff) controls and manages five aged care facility homes through the Manormay Group of companies. The facilities are as follows:
Entity
Location
Kalinda Craft Pty Ltd (Kalinda Craft) as trustee for the Greensborough Unit Trust
Rosewood Mews, Greensborough, Victoria
Nepean Hospitals Pty Ltd (Nepean) as trustee for the Alexandra House Unit Trust
Alexandra House, Bendigo, Victoria
Mount Martha Valley Lodge,
Safety Beach, Victoria
Woodhaven Lodge Pty Ltd (formerly Cambridge Croydon Pty Ltd) (Cambridge Croydon) as trustee for the Cambridge Croydon Unit Trust
Woodhaven Lodge, Croydon, Victoria
Viva Care Pty Ltd (Viva Care) as trustee for the Essendon Unit Trust
Viva Care, Essendon, Victoria
The companies conducting the aged care facilities are also described as the “Manormay approved providers” as they are approved under the Aged Care Act 1997 (Cth) and thus entitled to received Commonwealth support.
Two of the aged care facilities (owned by Kalinda Craft and Cambridge Croydon) have been sold and settlement of the sale was due on 1 April 2013. Settlement has been held up due to the presence of charges in favour of the third defendant, Lakeside Care Pty Ltd (Lakeside), over Manormay Pty Ltd’s (Manormay) shares in the two companies, Kalinda Craft and Cambridge Croydon, and over Manormay’s unit holdings in the Cambridge Croydon Unit Trust and the Greensborough Unit Trust (the Charges). The proceeds of the sale will go to Westpac Bank (Westpac), which is owed substantial moneys by Mr Snowden.
Mr Snowden used some $7 million obtained from Westpac in controversial circumstances to purchase some of the aged care facilities. Westpac has taken proceedings to recover those moneys. The payment of the proceeds of the sale of Rosewood Mews and Woodhaven Lodge to Westpac forms part of the recovery procedure being undertaken by Westpac.
These proceedings seek extensive relief concerning directorships and shareholdings in the Manormay Group of companies.
In order to enable the sale of the two aged care facilities to proceed, I have heard an urgent application seeking orders to set aside the Charges but otherwise to defer consideration of the balance of the relief sought.
Ken Yen Cheng (Kevin) (the first defendant) and Yiu Cheung Lui (Thomas) (the second defendant) are the controllers of Lakeside. They appeared in person when this matter initially came on for hearing. A claim for damages is made against them personally in the proceeding. On 9 April 2013, that claim was adjourned to a date to be fixed. On 9 April 2013, I indicated at that time that I would hear the claim to remove the Charges on 11 April 2013. When the matter came on before me on 11 April 2013, neither the first, second nor third defendants appeared. The application continued before me unopposed.
For the following reasons, I propose to order that the Charges be set aside and that the Personal Property Securities Register (PPSR) be rectified accordingly.
Background
In September 2010, Mr Snowden, by companies under his control, acquired an interest in the Dawnville Aged Care Facility in Diamond Creek, Victoria and subsequently transferred the bed licences to Kalinda Craft, which (as mentioned above) conducts the Rosewood Mews Aged Care Facility at Greensborough.
In early 2011, Mr Snowden became aware that he was not qualified under the Aged Care Act 1997 (Cth) to control and manage an aged care approved provider facility.
Accordingly, Mr Snowden asked Kevin and Thomas, who were employed in the business as key staff members, to control and manage on his behalf the approved provider aged care facilities.
To that end, the following corporate structure was implemented. Manormay is trustee of the Manormay Unit Trust. Kevin and Thomas were appointed directors of Manormay and held those positions until October 2012, when they were removed by Mr Snowden as discussed below. The unitholders of the Manormay Unit Trust are:
(a)51 units held by Winterswyck Investments Pty Ltd (Winterswyck) (the first plaintiff) as trustee for the Figjam Trust (a trust conducted for the benefit of Mr Snowden).
(b)5 units held on trust by a company for the benefit of Marie Leone.
(c)22 units held on trust by a company for the benefit of Kevin’s interest.
(d)22 units held on trust by a company for the benefit of Thomas’ interest.
Until October 2012, the sole shareholders of Manormay were Kevin and Thomas. They hold those shares on trust for Winterswyk as trustee of the Figjam Trust. Mr Snowden holds the power to appoint the trustee of the Figjam Trust and is the effective controller of the Figjam Trust.
As mentioned above, each of the four companies owning the aged care facilities hold them as trustees for unit trusts. All the units in those unit trusts are held by Manormay. As mentioned above, Manormay holds them on trust for the benefit of the unit trust members, being the interests of Mr Snowden, Kevin, Thomas, and Marie Leone.
Thus, in effect, the aged care facilities conducted by Manormay are beneficially owned as follows:
Mr Snowden 51%
Kevin22%
Thomas22%
MarieLeone 5%
Accordingly, Mr Snowden has the majority interest.
Kevin and Thomas were appointed the sole directors of Manormay and the companies in the Manormay group. They held the shares in Manormay on trust for Mr Snowden.
In or about mid April 2012, Mr Snowden had a falling out with Kevin and Thomas. It is unnecessary for me to explore the issues about which they fell out. In July 2012, Mr Snowden became aware, from searching the ASIC company register, that Kevin and Thomas had transferred, without his knowledge or consent, the shares in Kalinda Craft, Cambridge Croydon and the other Manormay companies to Lakeside, the company owned by them.
In addition, Kevin and Thomas had transferred the registered office of the Manormay approved provider aged care facilities to Voitin Lawyers of William Street, who then acted for Kevin and Thomas as their solicitors.
Mr Snowden had no knowledge of these transfers and accordingly took steps to restore his interests in the age care facilities. The effect of the transfer to Lakeside had meant that Mr Snowden had lost his 51% interest in the aged care facilities and that the facilities were then held 100% for Kevin, Thomas, and their associates.
Mr Snowden was able to restore his interests through the use of powers of attorney that he had from both Kevin and Thomas. On 1 October 2006, Mr Snowden exercised his powers under the powers of attorney to remove Kevin and Thomas as directors of Manormay and other Manormay companies and exercised those powers of attorney to purportedly transfer the shares in Kalinda Craft, Cambridge Croydon, and the other Manormay companies back from Lakeside to Manormay.
Mr Snowden says that the transfer of the shares in the Manormay Group of Companies to Lakeside was part of an attempt by Kevin and Thomas to wrongly take control of the Manormay Group of Companies from Mr Snowden.
As mentioned above, Kevin, Thomas, and Lakeside were not represented at the hearing, therefore the affidavits they had filed were not read into evidence. The plaintiffs, however, referred to portions of Thomas’ affidavit. In substance, it appears that Kevin and Thomas claim that between 26 April 2012 and 25 May 2012 a company called Black Oak Capital Pty Ltd (Black Oak) lent Manormay or its wholly owned subsidiary Manormay Investments Pty Ltd (Manormay Investments) $420,000 pursuant to a loan agreement dated 26 April 2012 (the Lakeside loan agreement).
On the same day as the loan by Black Oak to Manormay, Black Oak purported to have assigned to Lakeside the loan including collateral security, being the purported charges over the shares in the Manormay approved providers and Manormay’s unit holdings in the Cambridge Croydon Unit Trust, Greensborough Unit Trust, Mount Martha Unit Trust, and the Alexandra Unit Trust.
Some eight days later on 4 May 2012, Lakeside issued Manormay and Manormay Investments with a notice of default pursuant to the Lakeside Loan Agreement. The notice contends that it was determined that Manormay repay the loan in full by 3 May 2012 and that the loan had not been repaid.
Three days later, on 7 May 2012, Lakeside on the one part and Manormay, Manormay Investments, and the Manormay approved providers on the other part, entered into securities whereby charges were granted over the shares in the Manormay approved providers and Manormay’s unit holdings in the unit trusts.
On 8 May 2012, Lakeside exercised its rights under the charges and transferred the shares held by Manormay in the Manormay approved providers (including Kalinda Craft and Cambridge Croydon) from Manormay to Lakeside.
The plaintiffs refer to a statement by Thomas in his affidavit that he exhibited a search of the PPSR performed on 8 October 2012 which Thomas said recorded the charges. The plaintiffs point out that the purported exhibit was not in fact exhibited or otherwise proved.
The plaintiffs tendered a search that reveals that as at 29 October 2012 the charges purportedly taken by Lakeside over the shares held by Manormay in the Manormay approved providers and Manormay’s unit holdings in the unit trusts had not been registered which, the plaintiffs say, is contrary to the evidence of Thomas. By 20 December 2012, after this proceeding was commenced, however, the purported charges taken by Lakeside over the shares held by Manormay in the Manormay approved providers and in the unit trusts had been registered.
The plaintiffs contend that the registration took place after the self-help measures effected by Mr Snowden in October 2012, which I have discussed earlier.
Grounds for setting aside the charges
The plaintiffs seek to have the Charges set aside on grounds including that:
(1)there was no loan by Black Oak to Manormay or Manormay Investments of $420,000 as contended by Thomas;
(2)the Lakeside loan and securities were not drawn up and executed in April 2012 but were in fact created in September 2012 to falsely represent that in April a formal loan agreement was entered into and security was obtained by Lakeside over the shares and unit trusts to justify the transfer of the Manormay approved providers to Lakeside which had taken place on 8 May 2012. In other words, the plaintiffs contend that loan and security documents are a sham or a fabrication; and
(3)if the loan and security documents were not a sham or a fabrication, then they should be set aside in any event as they were procured by the Kevin and Thomas as directors of Manormay as trustee of the Manormay Unit Trust in breach of their fiduciary duty to the beneficiaries of the Unit Trust and their duties as directors.
The alleged loan by Black Oak
As to the first ground, the plaintiffs say that $420,000 was in fact paid by Kevin to Manormay Investments Pty Ltd (Manormay Investments) on 26 April 2012 in circumstances where Kevin had been lent $420,000 by interests associated with a Mr K K Lam. Manormay Investments is a wholly owned subsidiary of Manormay and acted as internal bank for the Manormay Group of Companies.
The plaintiffs produced the trust account of Voitin Lawyers for Mr K K Lam (of 8/72 Barkly Street, St Kilda) that showed that the sum was advanced to Kevin by Mr Lam on 26 April 2012.
Despite $420,000 being lent to Manormay Investments, the plaintiffs led evidence from Mr Mace Rushgrove, a Chartered Accountant, of the loan transactions between Kevin and Thomas on the one hand and the Manormay approved providers on the other. Mr Rushgrove examined the various bank accounts of the four approved providers in the Manormay Group of Companies and identified the monies paid in or out of those accounts to and from Kevin, Thomas, and Lakeside. He produced a schedule that shows a net balance of $1,417,010.36 had been paid out of the business to Kevin or Thomas during the period April to October 2012. April was chosen as it is the date when Kevin and Thomas commenced to implement their plan to take over the Manormay Group of companies and October is when Mr Snowden retook control of the Manormay Group of companies.
Accordingly, on this evidence approximately $1 million was withdrawn by Kevin and Thomas from the Manormay Group during the period April to October 2012 after taking into account the $420,000 provided to Manormay Investments in April.
Thomas deposed in his affidavit that the Manormay group was experiencing severe cash flow problems in April 2012. He made this allegation in the context of the justification for the loan purportedly from Black Oak and to support the charges.
The plaintiffs contend that the Manormay Group of Companies were not experiencing severe cash flow problems in April 2012. They rely on the fact that Kevin had produced a letter in support of an application for an instalment order being sought by Mr Snowden in this Court in relation to the repayment by him of a sum in excess of $7 million to Westpac, stating that the businesses could afford to pay a debt of $8.5 million at the rate of $235,000 per month; and Kevin and Thomas had at their disposal an unconditional line of credit to the value of $2 million from a financier from 19 April 2012 and this pre-dates the alleged Black Oak loans and charges; and that the approved provider received substantial funds in the order of $1.5 million per month from the Department of Health and Ageing.
The plaintiffs say that notwithstanding that the so-called Black Oak loan was not legally authorised by Manormay or its beneficial interests, Kevin, Thomas, or Lakeside have made no attempt or given any explanation as to why:
(1)the loan could not be repaid;
(2)the default period was so short (particularly given the Manormay Group of Companies was in such a distressed financial state as they allege); and
(3)it was in their interest to keep the Manormay Group of Companies operational.
Were the loan agreement and the security documents a sham?
The plaintiffs produced a series of emails to establish that the loan and security documentation were drawn up in September 2012 after Manormay had transferred the shares in the approved provider companies to Lakeside.
In May 2012, Thomas sent an email to Kathy Pacyga for the purpose of giving and recording email addresses of people involved in the loan security transactions which said that Kathy Pacyga was “our” external accountant, Mr Ang was Mr Lam’s accountant and that Mr Steven Mun was Mr Lam’s lawyer. These people feature in a series of emails recovered by Mr Snowden from Manormay’s computers that strongly suggest that the loan agreements and securities obtained by Lakeside were not drawn up until September 2012.
On 20 September 2012, Ms Pacyga sent an email to Thomas and others stating:
Things we need to do by the end of the week for Mt Martha and Aleandra
House.
Set up audit file
Get Medicare Log in
Get all transfer of business documents (from Manormay to seperate trusts on
1 July 2011) Prove resident income (from Aims reports) Prove ACFI income
(Medicare log in required) Prove major expenses (liaise with Damon regarding
the Management & wages invoices - side note BAS for CAC have not been lodged
and therefore it may be possible to amend the Management fee to get a more
profitable result.
Mace to prove trade creditors at 30 June Mace to prove trade debtors at 30
June Mace/Michael to ensure bonds have been taken up correctly
Kathy to work through the loans and ensur ethese are documented correctly.
Kathy and Lara are working on loans and loan documents
Temasek balance sheet has been completed and sent to Voitins - this may be
need to be tidied up Lakeside/Black Capital loan of $420K needs to be
recognised in Manormay - i need to know what this loan was used for (which
payroll CACES or CAC) Lakeside will need to have its loans recognised in
CACES & CACG post May 2012 (not sure where this money went, but it came from
Lakeside)
Later on 20 September 2012, Steve Mun sent an email stating:
Dear All,
Arising from this morning's Skype Meeting, Mr. Lam wishes to note down a
couple of pertinent points so that we can coordinate ourselves on the same
page.
Point No.1 = Steven to assist wherever required on the drafting and
preparations of resolutions to record down decisions of the Board and
shareholders of Lakeside Care Pty Ltd.
Point No.2 = Priority on tidying the financial records of the Approved
Providers (more specifically Napean Hospitals Pty Ltd) to meet the dateline
of 31/10/2012 (within 4-months of financial year-end) to faclitate
submission of Annual Prudential Compliance Statement (APCS) to the
Department of Health & Ageing - audit.
Point No.3 = To obtain official documentation on the lifting of Mount Martha
Valley Lodge Hostel's Notices of Non-Compliance & Sanction dated 20/4/2012.
Point No.4 = Liquidation of Manormay Pty Ltd, Cambridge Age Care Group Pty
Ltd & Cambridge Age Care Employment Services Pty Ltd. - To tabulate
sequencing steps to achieve voluntary liquidation.
Thank you all.
My best regards,
Steven Mun
Later on 20 September 2012, Ms Pacyga sent an email Kevin, Thomas and others stating:
Dear All,
I have requested that the following loan documents be put in place to ensure
that your interest in these loans is maintained irrespective of the
liquidation process:
1. Existing loan between Black Oak Capital Pty Ltd and Manormay (has been
documented and executed) this was for the original $420,000.
2. New loans between:
Lam Family Trust and Khazanah Trust and Lakeside Care Pty Ltd
Lakeside Care Pty Ltd and Cambridge Age Care PL and Cambidge Age Care
Employment Services PL
These documents should be available from John Voitins office by mid next
week.
Should you require furthe information please contact me.
Kind regards,
Kathy
On 21 September 2012 Mr Ang sent an email to Ms Pacyga stating:
Hi Kathy,
In drafting the Loan Documents please also include the Charge Documents ie Debenture and other relevant Charges.
Thanks
Regards
Ang
On 27 September 2012, Ms Pacyga sent and email to Thomas, Kevin and others stating:
Dear All
Further to our teleconference this afternoon, i have been advised by Ash
from John Voitins office that we are able to liquidate Temasek, rather than
go through theliquidation process, accordinglyly the liquidatator
(information provided in previous email) is completing the necessary paper
work and we expect that Kevin can sign the documents first thing Monday.
I have also been advised that the liquidation of Manormay, Cambridge Aged
Care and Cambridge Aged Care Employment Services should cost no more than
$35,000 per each company.
I have promised Ash that I will have clean balance sheets for each of these
companies by Monday next week for him to review, once the balance sheets are
reviewed then we can proceed to the liquidations.
I also note that we are meeting with John Voitin and Sabine Phillips (expert
in Age Care) at 10 am next Friday to discuss teh potential outcome of the
events of this week. I will keep you updated with respect to this.
Also our tak for tomorrow is to stabilise the executive and senior staff - i
will provide you with a briefing with respect to this after the meetings.
Should you require further information please contact me.
Kind regards
Kathy
These emails also reveal that Mr Snowden was not informed of any of the proposed changes to the ownership of the Manormay approved providers, including Kalinda Craft and Cambridge Croydon.
Mr Snowden says that the transactions demonstrates that Kevin and Thomas sought to misappropriate his 51% interest in the aged care facilities.
On the evidence before me and on the balance of probabilities I accept that Mr Snowden was not informed by his associates, Kevin and Thomas, that they exercised their powers as directors of Manormay (as trustee of the Manormay Unit Trust) to effectively misappropriate Mr Snowden’s 51% interest in the aged care facilities and to give themselves complete control and ownership of the business.
Breach of fiduciary duty
The plaintiffs present an alternate basis to have the security documents and the Charges set aside. They say that if, contrary to their primary submission, the loan and security documents are not a sham or fabrication and that they were in fact entered into in April or May 2012, then nevertheless, Kevin and Thomas acted in breach of their duties as directors of Manormay in permitting Manormay to enter into a transaction that effectively resulted in the Manormay Unit Trust being deprived of its investments in the Manormay approved providers and the unit trusts, including Kalinda Craft and Cambridge Croydon and the Greensborough Unit Trust and the Cambridge Croydon Unit Trust.
I accept and find that the actions of Kevin and Thomas were in breach of their duties as directors of the trustee company (Manormay) and that accordingly Lakeside holds whatever benefit it received by reason of their actions as constructive trustee for Manormay.
I accept that the terms of the Lakeside loan agreement and the accompanying securities were such that within eight days of the purported transactions Lakeside had taken a transfer of the shares in Cambridge Croydon, Manormay Investments, Kalinda Craft, Nepean Hospitals and Capital Exchanged Financial Services Pty Ltd and Manormay’s unit holdings in the Cambridge Croydon Unit Trust, Greensborough Unit Trust, Mount Martha Unit Trust, and Alexandra Unit Trust, and a charge over Manormay Investment’s shares in Cambridge Aged Care (which managed the aged care facility businesses).
In my opinion, the actions of Kevin and Thomas are akin to a trustee that sells trust property to himself or herself. In such a case, ‘the sale is voidable by a beneficiary ex debito justitiae, however fair the transaction.’[1] In this case, the breach of trust is greater than postulated in the principle as I do not consider the transaction to have been fair to Manormay or to the beneficiaries of the unit trusts.
[1]Tito v Waddell (No 2) [1977] Ch 106, 241 (Megarry V-C); see also Ford and Lee, Principles of the Law of Trusts (2nd ed, 1990), [1735].
For these reasons I propose to order and declare as follows:
1.That any charge or security interests in favour of the third defendant Lakeside Care Pty Ltd registered over Cambridge Croydon Pty Ltd (now known as Woodhaven Lodge Pty Ltd) and Kalinda Craft Pty Ltd is void and of no effect and be set aside.
2.That any charge or security interests in favour of the third defendant Lakeside Care Pty Ltd registered over Manormay Pty Ltd’s shares in Cambridge Croydon Pty Ltd (now known as Woodhaven Lodge Pty Ltd) and Kalinda Craft Pty Ltd is void and of no effect and be set aside.
3.That any charges or securities in favour of the third defendant Lakeside Care Pty Ltd registered over Manormay’s unit holdings in the Cambridge Croydon Unit Trust and the Greensborough Unit Trust is void and of no effect and be set aside.
4.That the registrar of the personal property securities register established under the Personal Property Securities Act 2009 (Cth) forthwith remove the registration of the aforesaid charges or security interests and any record thereof pursuant to s 184(1)(e)(ii) of that Act and Regulation 5.10(2) thereto.
5.That the further hearing of this proceeding against the third defendant be adjourned to a date to be fixed.
6.That pending the final hearing and the making of any further orders the plaintiffs and the fifth defendant’s costs be reserved.
7.This order be drawn up by the solicitors for the plaintiffs and signed by the judge pursuant to Rule 60.02(2) of the Supreme Court (General Civil Procedure) Rules 2005.
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