Zheng v Jun Yue Investment Ltd
[2023] NZHC 1824
•13 July 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2022-404-001743
[2023] NZHC 1824
BETWEEN YINJI ZHENG
First Plaintiff
FUJUN LIU
Second PlaintiffAND
JUN YUE INVESTMENT LIMITED
First Defendant
PING FAN
Second DefendantYUE YANG
Third Defendant
HONGTAO ZHANG
Fourth Defendant
Hearing: 12 July 2023 Counsel:
JWA Johnson and C Jiang for Plaintiffs
SRG Judd and Z Chen for First and Second Defendants
Judgment:
13 July 2023
JUDGMENT OF DOWNS J
This judgment was delivered by me on Thursday, 13 July 2023 at 11 am
pursuant to r 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Solicitors/Counsel:
Tompkins Wake, Auckland. Righteous Law, Auckland. JWA Johnson, Auckland.
SRG Judd, Auckland.
ZHENG v JUN YUE INVESTMENT LTD [2023] NZHC 1824 [13 July 2023]
The case
[1] On 22 December 2022, Powell J made interim orders to protect the position of the plaintiffs.1 The plaintiffs now seek additional interim orders, the most significant of which is the appointment of an interim liquidator to the first defendant,
Jun Yue Investment Ltd.2
[2] This judgment should be read with that of Powell J, and his subsequent decision concerning payment of legal fees.3
A restatement of the background
[3]The plaintiffs allege:
(a)They entered a joint venture with the second, third, and fourth defendants, in relation to the development and sale of land at 171 Murphys Road, Flat Bush, Auckland.
(b)Jun Yue was incorporated to implement the joint venture, albeit with shareholding to address the Overseas Investment Act 2005.
(c)The defendants breached the joint venture and engaged in oppressive conduct under s 174 of the Companies Act 1993, in turn jeopardising the plaintiffs’ $13.5 million contribution to the joint venture.
[4] Powell J concluded the plaintiffs had a good arguable case; “a substantial risk of dissipation of assets” existed unless interim relief was ordered;4 and the interests of justice favoured such relief.
The interim orders
[5] Put broadly, the Judge’s interim orders do two things: (a) they require Jun Yue to provide the plaintiffs information, including by ongoing notice of proposed
1 Zheng v Jun Yue Investment Ltd [2022] NZHC 3605.
2 Jun Yue.
3 Zheng v Jun Yue Investment Ltd [2023] NZHC 616.
4 Zheng v Jun Yue Investment Ltd, above n 1, at [30].
payments by Jun Yue of more than $5,000; and (b) they restrain Jun Yue and Ping Fan, the second defendant and Jun Yue’s director, from developing a commercial lot on the land.
[6]The interim orders do not prevent Ms Fan from continuing to direct Jun Yue.
A précis of the competing cases
[7] The plaintiffs contend the interim orders do not provide adequate protection for their position pending trial.5 They say Jun Yue’s financial position appears precarious, and an interim liquidator is now needed. The plaintiffs also contend Ms Fan cannot be trusted to responsibly manage Jun Yue, particularly given her lack of candour about the company. So, they say Benjamin Francis should be appointed as interim liquidator.6
[8] Jun Yue and Ms Fan contend the interim orders provide adequate protection for the plaintiffs, and they should focus on preparing for trial rather than bringing another round of interlocutory applications.
Analysis
[9] I am not persuaded to appoint an interim liquidator. Two reasons loom large. First, jurisdiction is unclear. Under s 246 of the Companies Act 1993 and r 31.23 of the High Court Rules 2016, an interim liquidator may be appointed if an application has been made to the Court to place the company in liquidation. The plaintiffs have not filed an application to place Jun Yue in liquidation, and their statement of claim does not pursue liquidation as a remedy. Second, I would not appoint an interim liquidator even if there were jurisdiction. Jun Yue may be viable. If so, liquidation would prejudice it and Ms Fan, who has a 76 percent shareholding in the company.
[10] I am, however, persuaded to appoint an interim receiver to manage Jun Yue’s affairs.7 I make five points.
5 A trial date has not yet been allocated.
6 Mr Francis consents to being appointed an interim liquidator or receiver.
7 I treat this remedy as an implicit alternative to the appointment of an interim liquidator. I invited Jun Yue and Ms Fan to address the prospect of an interim receiver by Minute of 10 July 2023.
[11] First, Jun Yue’s financial affairs remain opaque despite (two) reports by Khov Jones on behalf the plaintiffs and a report by Price Waterhouse Coopers (Consulting) New Zealand LP8 on behalf of Jun Yue and Ms Fan. These reports address discrete transactions and do not address the viability of Jun Yue or its financial situation more generally.
[12] Second, to the extent Jun Yue’s financial affairs are known, the company appears to be in difficulty, or at least under pressure. The most recent statement of Jun Yue’s cash reserves is dated 25 January 2023; the company then had cash reserves of $412,817. Since then, the company has disclosed receiving $546,400.37 from the sale of lot 32, and these outgoings or anticipated outgoings:
(a)$120,000 in capitalised interest for the new loan facility.
(b) $191,111.54 in rates.
(c) $178,278.75 to PWC.
(d)$132,031.04 in legal fees.
(e)$260,000 in payments on the company’s GST instalment plan.
(f)$36,524.78 in office rental.
[13] Other recurring liabilities include monthly office rental payments of $5,922.50. On 15 December 2023, $2 million is due to be repaid, this being the principal of a loan facility. Doubt therefore attaches to whether Jun Yue will be able to meet its debts as they fall due.
[14] I do not overlook the company has significant property assets. Mr Judd says these are such there is no risk of the plaintiffs going unsatisfied (if successful at trial) and for this reason alone, an interim receiver is unnecessary. The difficulty with this contention has already been identified: Jun Yue’s financial affairs are opaque.
8 PWC.
The same difficulty addresses Mr Judd’s allied submission that Jun Yue has little left to do beyond conveying three outstanding titles.
[15] Third, Ms Fan has been less than forthcoming about Jun Yue’s affairs, and her related testimony is contradictory. Furthermore, Ms Fan has given materially inaccurate evidence. I elaborate. Ms Fan has sworn five affidavits. In her third affidavit, Ms Fan said, “I have not taken any money out of the company”. That statement was unqualified. In her most recent affidavit, Ms Fan acknowledges withdrawing $1.698 million from the company across three withdrawals (on 25, 26 and 30 August 2022); transferring the money to her personal bank account; and using $593,000 to pay her husband, the third defendant, for alleged services to Jun Yue.
[16] Ms Fan acknowledges this was “an unusual and drastic move” but says she did so in response to the plaintiffs withdrawing money from the company. Ms Fan adds:
After discussions with my lawyers, I now realise that I should have told them last year about these transfers and payments to the third defendant and I should have referred to these things in my earlier affidavits. Although the transactions occurred before any court orders were made. I accept that these transactions should have been disclosed to the court in connection with the hearings last year.
[17] I pause to record Powell J described some of Ms Fan’s explanations (in relation to Jun Yue’s financing) as “simply unbelievable”.9 Of course, the Judge was not aware Ms Fan had withdrawn $1.698 million from the company as she had not told him that. Rather, Ms Fan had represented she had not taken any money from the company.
[18] Fourth, taken together, these features mean the substantial risk of asset dissipation identified by Powell J endures (despite the interim orders). This risk requires the appointment of an interim receiver. In short, Ms Fan cannot be relied on to appropriately manage Jun Yue’s affairs.
[19] Fifth, appointment of an interim receiver is consistent with the interests of justice. Appointment will not prejudice Jun Yue (beyond cost). Appointment will not
9 Zheng v Jun Yue Investment Ltd, above n 1, at [26].
prejudice Ms Fan’s shareholding. And, appointment will allow Jun Yue to continue to do business—free of accusation.
[20] As I hope is apparent, I am satisfised the circumstances are sufficiently exceptional to warrant the significant, identified step.10
Terms of appointment
[21] Mr Johnson helpfully gave me proposed terms of appointment at the hearing. These include a direction Mr Francis conducts legal proceedings on behalf of the company, including this case. Mr Judd offered no opposition to the direction.
[22] I am satisfied the direction is apt. Jun Yue’s interests and Ms Fan’s interests do not coincide. The direction reflects that. It follows Jun Yue and Ms Fan will need to reconfigure their representation (they are currently represented by the same lawyers).
[23]I add two directions to the proposed terms:
(a)Mr Francis is to report to the Court within three months, and six-monthly thereafter.
(b)Mr Francis may apply to the Court for any directions he considers necessary.
Result
[24] The application for the appointment of an interim liquidator to Jun Yue is dismissed in favour of the appointment of an interim receiver to the company.
[25] Mr Francis is appointed on the proposed terms with the additional directions at [23].
10 Cameron v Cropmark Seeds Ltd [2010] BCL 79 at [67].
Costs
[26] I am inclined to award the plaintiffs 2B costs in relation to a single interlocutory application. If the parties disagree, they may file memoranda of not more than five pages:
(a)The plaintiffs on or before 17 August 2023.
(b)Jun Yue on or before 24 August 2023.
(c)Ms Fan on or before 31 August 2023.
……………………………..
Downs J
4