Probis Financial Services Pty Limited (Administrators Appointed) v Mars Cap Limited
[2023] NZHC 2215
•16 August 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2023-404-1714
[2023] NZHC 2215
UNDER Sections 241 and 246 of the Companies Act 1993 AND
Part 32 of the High Court Rules 2016
BETWEEN
PROBIS FINANCIAL SERVICES PTY
LIMITED (Administrators Appointed) Plaintiff/Applicant
AND
MARS CAP LIMITED
Defendant
Hearing: 16 August 2023 Appearances:
J K Goodall KC and M Kersey for the Plaintiff/Applicant No appearance for or by Defendant
Judgment:
16 August 2023
JUDGMENT OF LANG J
This judgment was delivered by Justice Lang On 16 August 2023 at 4.00 pm
Pursuant to r 11.5 of the High Court Rules Registrar/Deputy Registrar
Date:…………………………
Solicitors/counsel:
Russell McVeagh/J Goodall KC, Auckland
PROBIS FINANCIAL SERVICES PTY LTD v MARS CAP LTD [2023] NZHC 2215 [16 August 2023]
[1] In this proceeding Probis Financial Services Pty Ltd (Administrators Appointed) (Probis) seeks an order placing the defendant, Mars Cap Ltd (Mars Cap), in liquidation. The application is listed for first mention on 29 September 2023 at
10.00 am.
[2] Probis has applied on a without notice basis for an order under s 246 of the Companies Act 1993 (the Act) appointing interim liquidators to take control of the assets of Mars Cap prior to the substantive application being heard. It says this is necessary to preserve Mars Cap’s assets and to avoid creditors being repaid in a way that will lead to voidable preference claims being made in the future. Probis also contends there are significant issues about the management of Mars Cap’s affairs that require investigation by the interim liquidators.
[3] The proceeding was served on Mr Kong by email on 11 August 2023 so he could appear on a “Pickwick” basis when the application was heard. On 15 August 2023 Associate Judge Brittain also directed that Probis was to serve on Mr Kong a copy of his minute allocating the application a fixture today at 2.15 pm. Probis’ solicitors sent a copy of the Associate Judge’s minute to Mr Kong by email at 7.16 pm that day. Mr Kong did not appear and was not represented when the application was called at 2.15 pm today.
Background
[4] Mars Cap is a New Zealand company that was incorporated on 20 March 2019. Companies Office records show that Mars Cap’s sole shareholder and director is Mr William Kong, who is said to reside in Queensland.
[5] Probis was incorporated in Australia and operates a financial services business from Sydney. It also had an office in Japan. It was in the business of offering financial products to clients, including foreign exchange contracts and contracts for difference. It provided an online trading platform that its customers used to enter into transactions in which they provided Probis with payments by way of collateral or margin.
[6] On 15 November 2019, Probis and Mars Cap entered into a liquidity provider agreement (the agreement) under which Mars Cap agreed to provide liquidity services
to Probis. The agreement provided for Mars Cap to open an account in Probis’ name. This would operate as a clearing account for trades that Probis might execute on behalf of clients. It would also hold cash and any margin monies on leverage trades. It was agreed that Mars Cap would remit funds back to Probis on a monthly basis. The purpose of the arrangement was for Mars Cap to hold margin or collateral on behalf of Probis and make payments to Probis when Probis required this for trading purposes with its own clients.
[7] Between 2020 and 2021, several of Probis’ clients entered into trading transactions with Probis. These resulted in those clients paying funds to Probis by way of collateral or margin. Probis then transferred the funds to Mars Cap under the agreement. During the period between 2020 and 2022 Probis transferred a total of USD 125 million to Mars Cap under the agreement. Of this sum, USD 24,990,187 was repaid. A total of USD 100,009,812 remained outstanding.
[8] Probis stopped trading with Mars Cap in or about June 2021. It is not clear why the funds that Mars Cap still held on Probis’ behalf at that time were not repaid. The administrators say their investigation indicates that the funds may have been retained for future trading activities that never occurred.
[9] On or about 12 June 2023, Probis and Mars Cap novated the interest of two of Probis’ clients in the amount outstanding by Mars Cap. The effect of the novation deeds was to reduce the amount owing by Mars Cap to Probis to USD 38,402,194. From that point on Mars Cap owed the balance of USD 61,607,617 to two entities based in the Cayman Islands. They are Al Quantum High Income Money Fund (Al Quantum) and JY SPC Fund (JYSPC).
[10] On 22 June 2023, Probis issued a formal written demand to Mars Cap for payment of the sum owing to it. On 10 July 2023, Mr Kong responded by email. He did not dispute the fact that the monies were immediately due and payable. Rather, he advised that “most of” Mars Cap’s “capital” sat with third party liquidity providers. He named these as being PT Eternity Futures and City Credit Capital (Labuan) Ltd (City Credit). He said Mars Cap needed to withdraw funds from these entities in order to pay Probis. Mr Kong said these arrangements were in train but that one of the third
party liquidity providers was in liquidation and the other had had its license suspended by its regulator. It has now been established that City Credit was placed in liquidation on 23 June 2023, the day after Probis had made demand on Mars Cap.
[11] On 17 July 2023, Probis was placed in voluntary administration. On 28 July 2023, the administrators’ solicitor contacted Mr Kong by telephone. During this discussion, Mr Kong advised that he anticipated Mars Cap would receive sufficient funds to repay Probis by 4 August 2023, and in any event no later than 11 August 2023. On 31 July 2023, the administrators issued Mars Cap with a further formal written demand for payment of the amount owing to it. They also requested details of Mars Cap’s liquidity providers, together with correspondence and statements of account relating to those entities. To date Mr Kong has not provided any of this information.
[12] On 9 August 2023, Mr Kong sent an email to the administrators advising that he was withdrawing “40 Mil from the liquidity provider.” To date, however, Mars Cap has not paid anything to Probis. Nor has Mr Kong confirmed that Mars Cap has received any funds.
Relevant principles
[13] Rule 31.23 of the High Court Rules 2016 permits the Court to appoint an interim liquidator once a liquidation proceeding has been filed.
[14] Section 246(1) of the Act sets out the circumstances when an interim liquidator may be appointed:
246 Interim liquidator
(1)If an application has been made to the court for an order that a company be put into liquidation, the court may, if it is satisfied that it is necessary or expedient for the purpose of maintaining the value of assets owned or managed by the company, appoint a named person, or an Official Assignee for a named district, as interim liquidator.
…
[15] In one of the earlier cases, Robert Bryce & Co v Chicken & Food Distributors Ltd, Eichelbaum CJ held that an applicant seeking the appointment of a provisional liquidator must have filed a valid liquidation application and be able to show it is likely
the application will succeed.1 The applicant will also need to demonstrate a need for interim control. In evaluating this requirement, the Court will consider whether assets are in jeopardy, whether the status quo should be maintained and whether the interests of creditors will be safeguarded by the appointment.
[16] In Shen v An Ying International Financial Ltd, Heath J observed that recent cases established the “controlling principle” to be that interim liquidators would be appointed if this was thought necessary to protect the private interests of creditors or where the public interests require an appointment.2
Decision
[17] In the present case there is ample evidence to suggest that Mars Cap owes Probis the sum of approximately USD 38 million and that to date it has been unable to repay that debt. It also appears likely that Mars Cap owes approximately USD 61 million to AI Quantum and JYSPC pursuant to the deeds of novation. As matters currently stand, it therefore appears highly likely that the application to place Mars Cap in liquidation will succeed.
[18] I also consider Probis has established that it is appropriate in the circumstances of the present case to make an order appointing interim liquidators to take control of Mars Cap’s assets until the liquidation application has been determined. First, it is apparent from Mr Kong’s discussions with the administrators’ solicitors that Mars Cap does not have control of the funds required to pay its creditors. These are apparently to come from third party liquidity service providers. However, there is evidence to suggest Mr Kong has an affiliation with these companies and this may prevent him from exercising an independent mind in taking recovery action on Mars Cap’s behalf. Concern about this is exacerbated by the fact that Mr Kong has failed to provide Probis’ administrators with any information about them.
[19] Secondly, difficulties are likely to be encountered in recovering the debt given the fact that City Credit is now in liquidation and it appears that PT Joint Ventures Ltd
1 Robert Bryce & Co v Chicken & Food Distributors Ltd (1990) 5 NZCLC 66,648 at 66,649.
2 Shen v An Ying International Financial Ltd HC Auckland CIV-2006-404-3088, 28 July 2006 at [13].
is subject to regulatory suspension. The interim liquidators are likely to be better placed than Mr Kong to negotiate their way through the complex issues that are likely to arise in obtaining funds from these entities.
[20] Thirdly, there is a risk that Mr Kong will make payments to creditors that may constitute voidable preferences given that Mars Cap appears to be insolvent. This could occur, for example, if he arranged for Mars Cap to repay AI Quantum and/or JYSPC rather than Probis. If this occurs it could be very difficult in practical terms for permanent liquidators to challenge the payments. It is therefore essential that any funds that Mars Cap now receives are preserved so they can be distributed to creditors in accordance with New Zealand’s insolvency regime.
[21] Fourthly, Probis’ administrators have identified several issues that they say require investigation. This would largely be a matter for permanent liquidators to undertake rather than the interim liquidators. However, it demonstrates that there is a need at this stage for the interim liquidators to take control of Mars Cap’s affairs so that the interests of creditors are protected.
The proposed liquidators
[22] Probis proposes that two of Probis’ administrators, Mr Richard Albarran and Mr Brent Kijurina, be appointed as interim liquidators. They are partners in the accounting firm Hall Chadwick, which is one of the largest accounting groups in Australia. They are both highly experienced insolvency practitioners and now have background knowledge of the issues likely to arise with Mars Cap. They are also licensed insolvency practitioners in New Zealand and registered liquidators in Australia. They have provided a schedule of the rates they would charge if appointed as interim liquidators.
[23] I am satisfied the proposed interim liquidators are suitable appointees for present purposes.
Orders
[24] I make an order under s 246 of the Companies Act 1993 appointing Mr Richard Albarran and Mr Brent Kijurina as interim liquidators of Mars Cap Ltd. They are to have the rights and powers set out in the draft orders tendered by counsel for Probis at the hearing, other than in relation to the costs payable to Probis.
[25] I reserve leave to the interim liquidators to apply further (by memorandum in the first instance) for such orders and directions they may require to properly preserve the assets of Mars Cap Ltd.
Costs
[26] At this stage I reserve the issue of costs. That issue can be considered when the substantive application is determined.
Lang J
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