Toshin Development Australia P/L

IN THE SUPREME COURT
OF QUEENSLAND

No. 8674 of 1998

Brisbane
Before Justice Wilson
[Toshin Development Australia P/L]

IN THE MATTER of the Corporations Law
- and -

IN THE MATTER OF TOSHIN
DEVELOPMENT AUSTRALIA
PTY LTD ACN 010 792 211

CATCHWORDS: CORPORATIONS LAW - winding up - directions.

COSTS - security for - court’s inherent power and pursuant to s 1335 Corporations Law - relevant factors
Corporations Law s 1335

Counsel: Mr P. Hack for the applicant
Mr A. Lyons for the respondent

Solicitors:Shand Taylor for the applicant
Gilshenan & Luton for the respondent

Hearing Date:18 November 1998
REASONS FOR JUDGMENT - WILSON J.

Delivered 5th February 1999

There is an application before the Court for the winding up of Toshin Development Australia Pty Ltd (“TDA”) on the just and equitable ground. The applicant for winding up is Toshin Kaihatsu K.K., a Japanese company, to which a Bankruptcy Administrator was appointed in October 1997.
I have to determine an application by the Japanese company for directions for the further conduct of the winding up proceedings and an application by TDA for security for costs.
The Japanese company makes the application for winding up as a contributory, asserting that it owns all but one of the two million shares in TDA. There is a dispute whether the relevant shareholding was held by the Japanese company or by Mr T. Adachi. At all material times Mr Adachi was a director of TDA. A Queensland solicitor, Mr J.F. Connors, was the other director and shareholder.
On 23 September 1998 Justice Byrne dismissed an application for the appointment of a provisional liquidator and adjourned the application for winding up to the chamber judge.
On 22 October 1998 Justice Moynihan adjourned a further application for the appointment of a provisional liquidator, adjourned an application for security for costs, directed the parties to try to reach agreement on directions, and gave liberty to apply.
The parties did not reach agreement on directions, with the consequence that the present applications came before me on 18 November 1998.
Mr Adachi is himself a bankrupt. His Bankruptcy Administrator, Mr H. Kuriyama, has said that he has seen no evidence to suggest that Mr Adachi is the owner of any shares in TDA or that he had lent money to TDA, and that he has no objection to the winding up of TDA.
The Japanese company was declared bankrupt by the Yokohama District Court Division 3 on 7 October 1997, and Mr J.Yashige was appointed as Bankruptcy Administrator. Under Japanese law the administration is being supervised by a Judge of the Yokohama District Court.
In December 1997, Mr Yashige obtained from that Court a supervision order over Mr Adachi. It seems that, being satisfied that there was a risk that Mr Adachi might conceal or dispose of property of the Japanese company, it made an order effectively prohibiting him from communicating with other persons about the affairs of the company. TDA contends that the obtaining of that order was in contempt of the Queensland Court. Although it is not necessary for me to decide whether it did amount to contempt, it is obvious that while the order stands in its present form TDA is substantially disadvantaged in preparing its response to the winding up application.
There has been correspondence between the solicitors for the Japanese company and those acting for TDA about obtaining a variation of the order, but agreement has not been reached upon whose responsibility it is to make such an application or the terms of the variation to be sought.
In adjourning the application for security for costs Justice Moynihan said:-
“Another matter that is to be disposed of is an application that the applicant company provide security for the respondent’s costs in respect of the application for winding up. The applicant is a Japanese corporation which is in broad terms in the equivalent of receivership under Japanese law. It is not altogether clear to me whether the trial necessary to resolve the outstanding issues will involve the time and expense indicated by the material and there is every reason to apprehend, at least so far as the material reveals, that the applicant may have difficulty in complying with an order for the provision of security having regard to its apparent financial position.
There are as yet unexplored issues as to any relationship between the situation in which the applicant finds itself financially and the events which might be explored if this application for winding up is pursued to its conclusion. It is likely that the applicant would be prevented from carrying out that pursuit if an order was made and in any event, it has not had a great deal of time to respond to the factual issues that are raised. In the end I think that the better course for the time being is to decline to order security at this stage and to adjourn the application for security.”
The application for security for costs was brought on before me only 3½ weeks after it had been considered by His Honour. The only new material put before me related to estimates of the costs of the proceedings and copies of correspondence between the solicitors in the meantime. The solicitors for the Japanese company estimate that the trial will take two days while those for TDA estimate five days.
If I were to make an order for security for costs, it would result in the stay of the proceedings until the security was provided, unless I ordered to the contrary.
The Court has a broad unfettered discretion to order security for costs, both as an inherent power and pursuant to s 1335 of the Corporations Law. Among the factors relevant to the exercise of that discretion are the strength and bona fides of the applicant’s case, the cause of the applicant’s impecuniosity and whether the making of an order for security would stifle the litigation.
On the material before me there is a large body of evidence that the majority shareholder in TDA is the Japanese company and not Mr Adachi. While I cannot resolve this issue at this stage of the proceedings, I am satisfied that the applicant’s case is bona fide and sufficiently strong.
The information about the financial affairs of the applicant Japanese company is incomplete. It is being administered in bankruptcy. It claims to be the majority shareholder in TDA and to be owed in excess of $4.4million by TDA. TDA purchased land in 1989 for $6,050,000. There is evidence that the Japanese company borrowed 1.2 billion Yen four days before the settlement of the property purchase. TDA sold the land in 1996 for $3,950,000. In February 1997 it lent $4.5million to Morober Pty Ltd. The loan is unsecured and not repayable for 25 years. Interest is payable as to 1½% annually in arrears and 5.75% on repayment of the principal. The relationship, if any, between Morober Pty Ltd and TDA and that between Margaret Hemingway, the only shareholder and director of Morober Pty Ltd, and Mr Adachi is as yet unclear. Thus there is some evidence from which an inference might be drawn that TDA has at least contributed to the insolvency of the Japanese company.
As Justice Moynihan observed, it is likely that the Japanese company would be prevented from continuing with the litigation if an order for security were made.
I am not satisfied that the case for security for costs has been sufficiently advanced from where it stood when it came before Justice Moynihan for me to make an order for security. I dismiss that application, but of course TDA may renew it if circumstances alter.
I give the following directions for the further conduct of the winding up application:-
(a)that the applicant Japanese company apply to the Yokohama District Court on or before 1 March 1999 for a variation of the supervision order made on 9 December 1997 as follows:
(i)that Mr Adachi be allowed to communicate with lawyers and accountants who have in the past acted for or who are now acting for him and/or TDA and past and present directors, officers, staff and members of TDA for the purpose of addressing the matters relevant to the application to wind up TDA;
(ii)that Mr Adachi be allowed to communicate with other persons and/or organizations in order to introduce them to the lawyers acting for TDA in the winding up application;
(iii)that Mr Adachi not be allowed to communicate with Margaret Hemingway or any other person who is or has been a director or shareholder of Morober Pty Ltd;
(iv)that the variation remain in effect until the determination of the proceedings for the winding up of TDA;
(b)that within fourteen days of the determination of the application to the Japanese Court as aforesaid, the applicant file and serve any further affidavits on which it intends relying in the winding up application;
(c)that within a further twenty-one days the respondent file and serve any applications on which it intends relying in the winding up proceedings;
(d)that the application for winding up be placed on the Supervised Case List;
(e)that the application for winding up be reviewed before me on Monday, 12 April 1999 at 9.15 a.m.;
(f)that there be liberty to apply;
(g)that the costs of and incidental to the applications for directions and for security for costs be costs in the cause.

[1999] QSC 17

5 February 1999