Ao Qing Investment Pty Ltd v 52 Lord St East Perth Pty Ltd

Federal Court of Australia|2023-03-24|Before: Jackson J

THE COURT NOTES THAT:

For the purpose of these orders, Asset means the land at 52 Lord Street, East Perth WA 6004, held by 52 Lord St East Perth Pty Ltd (ACN 602 041 242) (52 Lord PL).

THE COURT ORDERS THAT:

For the purposes of today's hearing, and pursuant to s 47B of the Federal Court of Australia Act 1976 (Cth) (FCA Act), counsel for Pindan Capital East Perth Pty Ltd (PCEP) is permitted to deliver oral submissions by way of video link.

Appointment of receivers 2. Pursuant to ss 23 and 57 of the FCA Act Samuel John Freeman, Vincent Anthony Smith and Colby Rhys O'Brien of Ernst & Young of 11 Mounts Bay Road, Perth WA 6000 are appointed joint and several receivers (Receivers) of the property (as defined in the Corporations Act 2001 (Cth)) of 52 Lord PL (Receivership Property) without security. 3. The purpose of the appointment of the Receivers to the Receivership Property is to do the following on behalf of and in the interests of 52 Lord PL: (a) all things necessary to complete the sale of the Asset on or before 30 March 2023 pursuant to the contract for sale of land between 52 Lord PL and Lord Street Sub Pty Ltd entered into on 25 November 2022 (Contract); (b) at settlement of the Contract, do all things necessary to ensure the mortgagee of 52 Lord PL is paid out in full and all costs of sale associated with the Contract, including without limitation, the commission, advertising and conveyancing fees are paid out in full as settlement adjustments, with any surplus funds to be paid into a trust account (Trust Account) held by the Receivers pending further court order; (c) after completion of the Contract, and in accordance with court directions, apply any proceeds from the sale of the Asset that have become part of the Receivership Property to discharge the liabilities of, or satisfy the interests in, 52 Lord PL; and (d) otherwise act in accordance with and give effect to these orders. 4. The Receivers have the following powers: (a) the power to require, by request in writing, any third party (not limited to current and former directors, shareholders, or contributories), to provide such reasonable assistance (including access to any documents, books or records to which 52 Lord PL has a right of access or control) to the Receivers as may be required from time to time; and (b) the powers set out in s 420(1) and s 420(2)(a), (b), (g), (h), (k), (p), (q) and (r) of the Corporations Act. 5. Without limiting the Receiver's duties under paragraph 3 above, before dealing with any proceeds from the sale of the Asset that have been paid into the Trust Account, the Receivers must: (a) give any interested party notice in writing of their intention to deal with the proceeds of sale and inform those interested parties that they must: (i) advise the Receivers within 5 business days if they object, stating the basis of their objection; and (ii) provide documentary evidence in support of their objection; and (b) seek directions from a court of competent jurisdiction in relation to their intention to deal with the proceeds of sale. 6. Subject to further court order, the Receivers must disburse the proceeds of the sale of the Asset as follows on settlement: (a) to discharge the mortgage over the Asset; (b) to pay settlement adjustments including the payment of all costs of the sale, including commissions, advertising and conveyancing fees; and (c) to pay the balance of the proceeds of sale into the Trust Account managed by the Receivers to be held pending further court order. 7. On or before 4.00 pm AWST on 14 April 2023, the Receivers must file and serve a report regarding: (a) the assets and liabilities of 52 Lord PL; (b) the amount of proceeds received by 52 Lord PL from any sale of the Asset pursuant to the Contract; (c) a minute of proposed consent orders regarding the payment and distribution of those proceeds of sale; and (d) the Receivers' remuneration, costs and expenses. 8. The receivers must in applying for any directions as to the disbursement of funds in Trust Account bring to the court's attention the 'Settlement and Release Deed - Commercial' dated 5 August 2022. 9. Paragraphs 2-8 above do not affect the rights of any creditor holding security over any Receivership Property.

Remuneration 10. The Receivers will be entitled to such reasonable remuneration properly incurred in the performance of their duties arising in connection with their appointment and in the exercise of their powers, together with all costs, expenses and disbursements reasonably incurred. 11. The Receivers' costs, expenses and remuneration in respect of work undertaken to attend to the matters set out in these orders are payable from the Receivership Property. 12. Subject to paragraph 10 above, the Receivers' remuneration is to be calculated on the basis of time reasonably spent by the Receivers, and any partner or employee of the Receivers, at the rates set out in the Consent of Liquidator: Federal Court (Corporations) Rules 2000 (Cth) Form 8 filed on 8 March 2023. 13. Subject to any further order, the Receivers are indemnified out of the assets of 52 Lord PL against any claim, liability, proceedings, cost, charge or expense however arising and whether past, present or future, fixed or ascertained, actual or contingent, known (actually or contingently) or unknown which they may incur or be subject to, as a result of, or in connection with, any reasonable action taken by them in accordance with their appointment. 14. The Receivers must not pay, disburse or otherwise take out of the Receivership Property, including the funds of the Trust Account, any costs, remuneration and expenses, without first getting the approval of a court.

General 15. Costs of the application filed by PCEP on 13 March 2023 are the Receivers' costs in the cause. 16. On or before 4.00 pm AWST on 27 March 2023, the Receivers must: (a) serve these orders on the registered office of 52 Lord PL; and (b) provide a copy of these orders to the directors of 52 Lord PL at their last known email addresses. 17. The matter is listed for a case management hearing at 9.30 am AWST on 28 June 2023 at the same time as proceeding WAD 286 of 2020.

Orders made 2 March 2023 18. The receivers of PCEP as defined in the orders made on 2 March 2023 must not henceforth pay, disburse or otherwise take out of any receivership property as defined in the orders made on 2 March 2023 any costs, remuneration or expenses without first obtaining the approval of a court. 19. Paragraph 1 of the orders made on 2 March 2023 is amended so that where the word 'Street' appears the second time it is amended to 'St'. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

JACKSON J: 1 On 24 March 2023 I made orders appointing receivers over the property of the first defendant, 52 Lord St East Perth Pty Ltd. The orders were made on the application of the majority shareholder of the company, the second defendant Pindan Capital East Perth Pty Ltd (PCEP). The other shareholder of 52 Lord St, the plaintiff Ao Qing Investment Pty Ltd, indicated that it opposed the orders. But shortly before the hearing, it terminated the lawyer who was on the record, and did not replace him, so it did not make any submissions against the orders sought. 2 These are my reasons for making the orders. As will be described in more detail, I considered that a significant asset of 52 Lord St, probably its only asset, was likely to be tied up for an indefinite period in costly further dispute if the receivers were not appointed, and that this was associated with a lack of trust between persons respectively controlling the two shareholders. This appeared to make the internal management of 52 Lord St unworkable and so put the asset in jeopardy, or at least subject it to a serious risk of being tied up and potentially dissipated in costly further litigation. Other particular factors which contributed to the exercise of the discretion to appoint the receivers are described below.

Background 3 Considerable background to the matter appears in the decision Ao Qing Investment Pty Ltd v 52 Lord St East Perth Pty Ltd [2022] FCA 743 (Ao Qing (No 1)). Points of present relevance are as follows: (1) 52 Lord St is a corporate vehicle for a property investment at the said address, in East Perth (Property). (2) The two participants in the investment were, in broad terms, the Pindan Group of companies, via PCEP, and Ao Qing. According to forms lodged with the Australian Securities and Investments Commission (ASIC), PCEP holds 70% of the issued shares in 52 Lord St and Ao Qing 30%. There is, or at least was, dispute between the two sides as to the true level of their shareholdings based on the level of equity contributions they had each in fact made. But on any view, PCEP is the majority shareholder and Ao Qing the minority shareholder. (3) Other entities which are holding companies of PCEP are in liquidation. Three partners in the professional services firm Ernst & Young are the liquidators (in order to avoid confusion between the various administrations involved I will refer to those three individuals simply as Ernst & Young). One of those entities, Pindan Capital Ltd (PCAP), is a defendant in this proceeding. But neither PCEP nor 52 Lord St are in liquidation. (4) A proposed development of the Property into residential apartments did not eventuate and it was put up for sale. The Property is mortgaged to Commonwealth Bank of Australia trading as Bankwest, to secure a loan which was drawn down in the amount of $5 million. (5) This proceeding was commenced in October 2020. In it, Ao Qing sought leave to bring derivative proceedings in 52 Lord St's name against PCEP and the third defendant, PCAP, for alleged breaches of a shareholders' agreement in connection with the issue of share capital in 52 Lord St and in connection with the Bankwest loan, as well as alleged misleading or deceptive conduct and promissory estoppel concerning the circumstances of the loan. Ao Qing also brought proceedings in its own name for alleged oppression and in relation to the share capital. (6) By interlocutory application in the same proceeding, PCEP sought leave to bring its own derivative action in 52 Lord St's name against Qing Xia, a former director of the company who was the then representative of Ao Qing. (7) The persons who have been notified to ASIC as the current directors of PCEP are Youwei Zhang and his mother, Jingxiao Li. (8) According to ASIC's records, the current directors of 52 Lord St are Jingxiao Li and Mengdie Kuang (who is Ms Xia's daughter). Mrs Li purports to represent PCEP on the board of 52 Lord St, since she also purports to be a director of PCEP. Ms Kuang represents Ao Qing. 4 The reason I speak in terms of Mrs Li purporting to represent and be a director of PCEP is because Ernst & Young query the validity of her appointment as a director of each of PCEP and 52 Lord St. Although PCAP holds all of the shares in PCEP, Ernst & Young as its liquidators do not know the circumstances in which Mrs Li and Mr Zhang came to be appointed as directors, and do not necessarily accept that their appointments are valid. But nor do Ernst & Young point to any specific reason to think that they are invalid.

Developments since Ao Qing (No 1) 5 In Ao Qing (No 1) the Court gave leave to both Ao Qing and PCEP to bring the derivative proceedings. Those orders were made on 28 June 2022. However no steps were then taken to pursue those proceedings or the other (non-derivative) causes of action. As is about to be described in more detail, it seems that is because those who purported to represent PCEP, and those who represented Ao Qing, agreed to a settlement of at least some of their disputes, but Ernst & Young, as the liquidators of the third defendant PCAP, considered that they could not agree to take part in the settlement without more information. 6 The relevant matters and developments can be summarised as follows. These are drawn from numerous affidavits sworn by Mr Samuel Freeman, one of the three Ernst & Young partners, as well as the Court's own knowledge of the proceeding before it. 7 The liquidation of PCAP is essentially unfunded, except to the extent that PCAP may recover any money from its position as a shareholder (indirectly) in 52 Lord St. 8 In December 2021 two companies in the Pindan group, Pindan Group Pty Ltd and Pindan Contracting Pty Ltd, entered into interlocking and interdependent deeds of company arrangement. This reflects the circumstances that the affairs of the Pindan group are intertwined and subject to a number of different insolvency administrations which, it appears, are being conducted by Ernst & Young. This has led to a number of applications for directions and other orders before the Supreme Court of Western Australia. 9 On 27 August 2022 Squire Patton Boggs (SPB), the solicitors for Ernst & Young, received a letter from Auyeung Hencent & Day (AHD), the then solicitors for Ao Qing, saying that PCEP and Ao Qing had reached a commercial settlement via a document styled 'Settlement and Release Deed - Commercial' dated 5 August 2022 (Commercial Deed). The letter asked PCAP as a party to this proceeding and a related proceeding to enter into a deed of settlement and release so that the proceedings would be dismissed. But it did not provide a copy of the Commercial Deed between Ao Qing and PCEP. The proposed deed of settlement with PCAP is also not in evidence but according to Mr Freeman it provides that 'various rights and entitlements of PCAP were to be compromised for no return or benefit, whatsoever' and it would involve 'compromising PCEP's creditors' potential rights and entitlements to a distribution arising out of a sale of [the Property]'. 10 On 9 September 2022 SPB on behalf of Ernst & Young, in their capacity as liquidators of PCAP, asked Ao Qing and PCEP for disclosure of the Commercial Deed, as well as basic financial information about 52 Lord St, namely a balance sheet, a valuation of the Property, bank statements showing cash and bank debt and estimated surplus funds following the sale of the Property. Basic financial information about PCEP was also requested. SPB said this was necessary if the proceedings were to be resolved without further unnecessary costs. 11 By 6 October 2022, AHD had not responded on Ao Qing's behalf to SPB's request for information, despite several follows up requests. AHD's silence prompted SPB to ask for confirmation on 6 October as to whether they were still acting for Ao Qing. 12 On 7 October 2022 AHD emailed SPB with some information about the settlement. According to AHD, the Commercial Deed fell short of a full resolution of the dispute, and signed copies had not been exchanged. AHD declined to provide more information, including a copy of the Commercial Deed, saying that disclosure was a 'matter as between PCEP and its shareholder', that is, PCAP. AHD said that the only appropriate course was the dismissal of the proceedings with no order as to costs and attached consent orders. After further correspondence, AHD continued not to provide disclosure of the terms of the Commercial Deed or the financial information that SPB had requested. 13 The basic financial information SPB requested was still not forthcoming by the time Mr Freeman swore his first affidavit, on 19 October 2022. At that time Mr Freeman did not consider that Ernst & Young (at that stage relevantly as liquidators of PCAP) could consent to the dismissal of the proceeding or the entry, implementation or satisfaction of any agreement between Ao Qing and PCEP. 14 On 24 October 2022 Mr Freeman attended a meeting with a representative of Mr Zheng and Mrs Li where he learned something about the content of the Commercial Deed and the likely realisation from a sale of the Property. 15 On 1 November 2022 Mr Freeman received a copy of the Commercial Deed. However he appears to consider that confidentiality clauses in it prevent him from putting it into evidence before the Court. 16 On 21 November 2022 Ms Kuang emailed Mr Freeman (after having had a without prejudice meeting with him the week before) saying that the Bankwest loan was due to expire on 31 December 2022 and asking who was the director appointed by PCEP to 52 Lord St's board. Ms Kuang asked whether it was Mrs Li 'and if she is not, why you not doing anyting [sic] about it as you are the sole shareholder of Pindan Capital East Perth Pty Ltd'. Ms Kuang went on to say 'Due to the urgency of time, please reply to me as soon as possible, otherwise I think you have acquiesced to Ms Li's identity'. 17 Mr Freeman replied on 22 November 2022 saying that Ernst & Young did not accept that the directors of PCEP or 52 Lord St have been validly appointed or were authorised to act. He did not accept that Mrs Li represented PCAP's interests. He said it was highly likely that Ernst & Young would need creditor or court approval to permit any asset sales to occur or to relinquish any of PCAP's rights or entitlements. He said that he had 'no visibility on the loan expiry' and asked for the relevant documents. 18 On 25 November 2022 52 Lord St entered into a contract for the sale of the Property (Contract of Sale) to Lord Street Sub Pty Ltd (Purchaser). The purchase price is $11,550,000. The sale is due to complete on or before 30 March 2022. Mr Freeman expects that after fees and adjustments and paying out the Bankwest mortgage (that debt having been paid down already in part), more than $7 million will be payable to 52 Lord St or at the direction of its directors or lawyers. According to Mr Freeman, that company was created as an investment vehicle on behalf of PCEP and Ao Qing for the purchase of the Property so that, on completion of the sale, it will serve no purpose and likely need to deregistered or wound up. 19 By 2 March 2023, when Mr Freeman swore a further affidavit, he said that it was not apparent to Ernst & Young: the basis upon which the current directors of 52 Lord Street, propose to lawfully and equitably: (a) complete the Contract for Sale in circumstances where the company only has two directors and, given Mrs. Li is in China, and Ms. Kuang's interests may potentially be conflicted as she is the controlling mind and will of Ao Qing (the minority shareholder in 52 Lord Street) which stands to gain a material benefit under the terms of the Commercial Deed. (b) hold, in trust, the proceeds of the Contract for Sale, pending determination of the relevant (competing) interests (if any) including, importantly, the interests of third parties who may not be aware of their entitlements in connection with PCEP, PCAP or their ultimate parent companies, and distribute monies accordingly, having firstly accounted for monies owed to the secured creditor, BankWest, and other outgoings (etc.) at settlement. 20 Mr Freeman said (as at 2 March 2023) that he did not know what was intended to occur at settlement of the contract of sale insofar as the funds payable to 52 Lord St are concerned, who is giving instructions or directions on behalf of 52 Lord Street about the contract of sale and the intended distribution of the sale proceeds, or who has control of any accounts belonging to the company which may be used for the receipt of those proceeds. 21 On 2 March 2023, on the application of PCAP, I appointed Ernst & Young as receivers of PCEP. The application had been made by the 100% shareholder in PCEP and was unopposed by its directors (whether actual or putative) and by Ao Qing. So there was no need to deliver reasons for the decision. But in broad terms, it did not seem clear to me that those directors were actively managing PCEP's affairs at a critical juncture, given the impending sale of its sole underlying asset, and it seemed preferable to give Ernst & Young more direct power to ensure that the asset or the proceeds of its sale, and the interests of PCEP and its shareholders and creditors, were protected. The purposes of the receivership as expressed in the orders included doing, on behalf of and in the interests of PCEP, all things necessary to complete the sale of the Property by 30 March 2023 and after completion, to apply any sale proceeds to discharge the liabilities of PCEP. 22 In early March 2023 there was correspondence between AHD and SPB about an undertaking to the Court from Ms Kuang concerning the sale proceeds which AHD expected to get instructions to proffer. 23 On 5 March 2023 SPB again wrote to AHD asking for details of the conveyancers, solicitors, contractors or agents acting on either side of the Contract of Sale and details of the bank accounts open in the name of 52 Lord St. It also asked Ms Kuang to take steps to ensure that Mr Freeman would be an authorised signatory on all those accounts and that Ms Kuang would copy SPB in on all correspondence with settlement agents, government bodies and the like in relation to the Property. SPB followed this request up on 6 March 2023. AHD replied on 7 March 2023 saying that it was obtaining instructions and that since Ms Kuang was 'not based in Sydney' that it took time to do so. 24 On 8 March 2023 Mrs Li (who, despite earlier querying the validity of her appointment, Mr Freeman now calls 'the PCEP appointed director of 52 Lord St') wrote to SPB indicating that she consents to the appointment of Ernst & Young as receivers of 52 Lord St. Mrs Li also said that she understood that Ms Kuang was in China. 25 The interlocutory application to appoint Ernst & Young as receivers to 52 Lord St was filed on 13 March 2023. 26 On 14 March 2023, Ms Kuang provided a signed undertaking to the Court in which she undertook: (a) to 'exercise' her duties as a director of 52 Lord St 'with a view to' applying the proceeds of sale of the Property to discharge the Bankwest debt, to pay all costs of the sale and then to pay the balance into an unspecified 'current bank account' of 52 Lord St not to be disbursed without giving five days' notice to Mr Freeman; (b) to consent to Mr Freeman becoming a joint signatory to 52 Lord St's accounts and to take reasonable steps to execute such documents as is necessary to permit that to occur; and (c) to inform Mr Freeman as soon as practicable 'upon being informed of' any change to the proposed settlement date. 27 In an affidavit of 16 March 2023, Mr Freeman says that it is not going to be possible to open a joint account to receive the surplus sale proceeds in time, because of identification and anti-money laundering requirements that need to be fulfilled and which are complicated by Ms Kuang's overseas domicile. It is not clear whether those difficulties make it impossible for Mr Freeman to become a signatory to 52 Lord St's existing bank accounts. 28 On 16 March 2023 Ms Kuang emailed Mr Freeman asking for his 'thoughts' about a routine email received from what appears to be the property manager for the Property concerning issues with fire alarm equipment. Ms Kuang's email also said: Besides, I am very busy dealing with the business of 52 lord st and have no time to waste with reply to the lawyers. All the things you raised in court are related to the daily operation, so anything you want to discuss please direct contact myself. Or you can call my by phone. My number is [redacted]. If you insist on contacting through your lawyer, then I seriously doubt your motives. 29 Ms Kuang followed this up with another email on the same day saying: I have done my duty to send those emails to you and Ms Li (PECP's [sic PCEP] director), but not received any instructions or thoughts from PECP side. And I have said I am open to talk to you both in related to the sales process etc, but still, you have not contacted me at all. Secondly, I feel ridiculous that you want to become the receiver over 52 Lord St, have you done anything for 52 Lord St or reply any of my emails? In addition, can you please explain your relationship with Ms Li, otherwise I will doubt your current signatures. 30 Mr Freeman replied by email on 17 March 2023 saying: I am not a director of PCEP or 52 Lord St and it is not apparent to me on what basis you seek my thoughts. I cannot, and will not, express general thoughts in relation to matters raised that have no, or little, nexus to the court's standing orders and in circumstances where I have no insight into all the relevant background facts. Mr Freeman said that they should communicate through lawyers, including because Ms Kuang, he asserted, did not 'understand the nature of the court's current orders and my role as a joint and several receiver of PCEP'. 31 Also on 17 March 2023, Ms Kuang emailed Mr Freeman asking for his consent for a payment of $500 associated with a surrender of lease over the Property that was necessary to obtain before settlement of the Contract of Sale. She followed this up with an email saying she had spoken to Mrs Li who had no issue with the payment. Mr Freeman replied on the same day again saying that he was not a director of PCEP or 52 Lord St and did not 'have the relevant background information to make an informed decision', however he did not object to the payment in order to facilitate the settlement. 32 On 17 March 2023 Ms Kuang replied to one of Mr Freeman's emails as follows: Please find attached letter sent to solicitors for receiver on 10 March 2023 as well as a copy of the sealed undertaking to court. All the things I have done include ask your payment approvals are your requirments, so you better to ask your solicitor. Secondly, I am overseas right now but I can easily fly back anytime if needed, and more importantly I have done and dealing everything ontime. If it weren't my effort, then bank will takeover this property and the company will face the risk of default. You have been involved in that for a very long time, it is irresponsible to say you have no background of the business of 52 Lord St. Additionally, Ms LI JINGXIAO is your appointed director, and you are the receiver and liqudator of PECP, so it is your responsibility to remove or appoint new director of PECP if you do not trust her. But you have not done that, so anything in related to her signatures are bonding to you personally. Furthermore, the court have the record that you have made an offer to ask for $225,000 to settle this case, that is totally not act in good faith as a liquidator. I hope you understand that your actions and inconsistency between words and acts are effect the reputation of EY and you personally. Last, It was your lawyer's request that we communicate directly, which is the most cost-effective way to do so. If you insist on contacting a lawyer for normal business matters, then all costs will be on your account. 33 Also on 17 March 2023, AHD filed notices in both proceedings indicating that they had ceased to act for Ao Qing. That was in circumstances where PCEP had applied for the appointment of receivers to 52 Lord St and the application had been listed for the following Friday, 24 March 2023. My Chambers made it clear to Ms Kuang that under r 4.01(2) of the Federal Court Rules 2011 (Cth), as a company, Ao Qing would need to be represented by a lawyer in the proceeding (unless the Court were to dispense with that requirement under r 1.34). However no lawyer had filed a notice of address for service by the time of the hearing. Ms Kuang watched the hearing by video link but did not seek leave to speak. 34 According to correspondence between SPB and the solicitors for the Purchaser, and between Ernst & Young and Bankwest, it appears that neither of those two important third parties would object if receivers were appointed to 52 Lord St. The Purchaser's solicitor said that it would remain committed to completing the contract. There was no term of the Contract of Sale that permitted it to unilaterally terminate the contract on the ground of any such appointment.

The grounds of the application to appoint receivers 35 The reasons why Ernst & Young seek the appointment of receivers to 52 Lord St are encapsulated in the last few pages of Mr Freeman's affidavit of 7 March 2023, which pages I choose to receive as a submission. In summary: (a) Ms Kuang and Mrs Li both being in China, Mr Freeman is 'concerned as to how it is intended that the affairs of 52 Lord Street are to be managed lawfully and equitably when both of its directors are overseas, and the current Contract of Sale is on foot with settlement imminent and, further still, with competing interests that remain unresolved'; (b) because of what Mr Freeman describes as 'the lack of engagement and willingness on behalf of Ms Kuang to provide the critical information sought', or a revised undertaking sought by SPB, or confirmation as to what is going to be done with the surplus sale proceeds, Mr Freeman is concerned that those proceeds 'may be dissipated'; (c) that concern is heightened, Mr Freeman says, because if Ms Kuang is in China there is no practical way that any undertaking to the Court can be enforced against her; (d) as a representative of a 30% shareholder alone, it is not clear how Ms Kuang can bind 52 Lord St or how she can 'from overseas, ensure that reasonable, lawful, equitable and timely steps are taken'; (e) Mr Freeman also asserts that Ms Kuang has a conflict of interest, apparently on the basis that Ao Qing stands to benefit from the Commercial Deed, which apparently provides for distribution of sale proceeds in a manner more favourable to Ao Qing than its 30% shareholding would mandate, so that the Commercial Deed 'sought to prejudice PCEP's interests in material ways'; (f) the two shareholders of 52 Lord St, Ao Qing and PCEP, have been involved in protracted litigation; (g) Ms Kuang sought to deal directly with Mrs Li and Mr Zhang as directors of PCEP despite Ernst & Young's concerns about their appointments and authority; (h) the requests for information about 52 Lord St's accounts and control of those accounts have not been complied with; and (i) what Mr Freeman calls 'the lack of engagement from and resistance shown by, Ms. Kuang and an apparent unwillingness to recognise PCEP's 70% shareholding in 52 Lord Street and, to take appropriate steps as would ordinarily be expected in the face of a court appointed receivership'. 36 Mr Freeman expressed all these concerns before Ao Qing ceased to have lawyers on the record in the proceeding. He submits (via his affidavit of 8 March 2023) that the appointment of receivers will allow an application to be brought before the Court as to the appropriate distribution of the sale proceeds and that this will not prejudice Ao Qing. 37 In a later affidavit (sworn 16 March 2023) Mr Freeman also submits that 'the drawn out process' by which the undertaking of 14 March 2023 was provided 'is indicative of the clear difficulty PCEP's Receivers are faced with in dealing with a person (Ms. Kuang) who is domiciled overseas and against whom PCEP's Receivers have no recourse in China' and that 'it is not apparent to me how Ms Kuang proposes to deal with the ongoing affairs of 52 Lord St from afar'. According to Mr Freeman, 'Ao Qing has a propensity to engage in a delayed manner, often right before court listings or during court hearings only, such that a path forward is temporarily agreed but subsequently complicated by unexplained delays, a lack of assistance or engagement'. 38 In a yet later affidavit, sworn after Ao Qing's lawyers had ceased to act, Mr Freeman expressed the opinion (which I again receive as a submission) that the termination of AHD's engagement compounded his concern about whether Ms Kuang intended to 'discharge her duties lawfully and equitably as a director of Ao Qing and, more importantly, 52 Lord St, whilst being overseas', that Ms Kuang did not appear to understand the objectives of the orders of 2 March 2023 appointing Ernst & Young as receivers of PCEP, and that there was 'clearly still a level of distrust and disengagement between those who purported to act as "directors" of PCEP and Ms. Kuang such that it is, in my opinion, unlikely that Ms. Kuang will act reasonably at the time of completion of the Contract'. Mr Freeman was also concerned that Ms Kuang appeared to be engaging with Mrs Li and Mr Zhang as directors of PCEP even though the receivers had been appointed to that company. He further submitted in his affidavit that Ms Kuang was delayed with delivery of her undertaking, which he maintained did not adequately protect the stakeholders or creditors of PCAP and PCEP, and: Ms. Kuang clearly does not understand how receiverships operate, remains domiciled in China, no longer has the benefit of legal representation in these proceedings and openly questions (without any basis) the intentions of PCEP's Receivers, despite her own conflicted position.

Why receivers were appointed to 52 Lord St 39 Section 57(1) of the Federal Court of Australia Act 1976 (Cth) gives the Court the power, at any stage of a proceeding, to appoint a receiver by interlocutory order in any case in which it appears to the Court to be just or convenient to do so. The power is not confined to a closed class of circumstances, but ultimately the general ground on which it will be exercised is the protection or preservation of property for the benefit of persons who have an interest in it: Sapphire (SA) Pty Ltd v Ewens Glen Pty Ltd [2011] FCA 600 at [15] (Besanko J). 40 Beyond that, cases in which receivers have or have not been appointed are inevitably fact dependent, and it would be wrong to try to extract general principles. By way of illustration only, receivers (or receivers and managers) have been appointed where there was 'a serious and operative state of mistrust and disharmony' between the directors of a company which was to undertake a potentially profitable enterprise (McMillan v Toledo Enterprises International Pty Ltd & Iliev (1995) 18 ACSR 603 at 619) or a dispute between two groups of shareholders, including dispute about entitlement to funds in company bank accounts, which led to a deadlock in the company (Allen, in the matter of North East Wiradjuri Co Limited (Administrators Appointed) [2010] FCA 1248), or where no person interested in the company had unchallenged authority to make decisions on behalf of the company, reflecting a deadlock in management of the company emanating from conflict at the shareholder level (Kanjian v Kanjian [2019] NSWSC 166 at [25]-[27]). 41 In this case I did not entirely accept the grounds that PCEP put forward for the appointment of Ernst & Young as receivers of 52 Lord St. In particular, I saw no reason why the mere fact that the directors of the company are in China would raise doubt about their ability to manage the affairs of the company 'lawfully and equitably' or to do so 'from afar'. The days where business was always, or even mostly, required to be conducted face to face are long gone and the usual communication technologies that would allow for the proper conduct of a company's affairs reach to China. I did accept that the apparent lack of any director of 52 Lord St domiciled in Australia, and so the apparent lack of compliance with s 201A of the Corporations Act 2001 (Cth), is a relevant factor, although it is hardly determinative (and was not suggested to be). I also accepted that where there are language difficulties, as there seem to be in the case of Mrs Li, distance can exacerbate them and increase the practical difficulty of managing the affairs of the company. But none of that by itself justified the drastic remedy of appointing receivers. 42 Nor were my orders based in any sense on the assertion that the Commercial Deed is unfavourable to PCEP or PCAP. I will not entertain any submission on that basis when it is made by a party who declines to put the deed into evidence before me. It was not clear to me why the confidentiality provisions in the Commercial Deed represented an insurmountable obstacle to doing so. The placing into evidence of instruments that contain such provisions is commonplace in the courts. It appears that the submission that Ms Kuang was in a position of conflict was also based on the contents of the Commercial Deed, so I do not give that point any weight either. 43 Nor did I see any imminent risk that the sale proceeds were going to be misappropriated. Notwithstanding the difficulties that Mr Freeman seems to have encountered in engaging constructively with Ms Kuang, there is no suggestion in the evidence that she intended to take the proceeds for the benefit of herself, Ao Qing or some third party. To the extent that Ernst & Young may be suggesting that there is a risk of that kind when they say that the proceeds may be 'dissipated', I do not accept it. 44 Rather, I made the orders based on what I perceived to be a broader risk to the sale proceeds, and so to the interests of 52 Lord St and its shareholders, and their shareholders and creditors. The risk arose because on the evidence summarised above there was no one who could unimpeachably represent the company, take steps to complete the settlement, and deal with the sale proceeds. Ms Kuang was only one of two directors (where the shareholders' agreement governing 52 Lord St's affairs contemplated that there would be three). She represented a shareholder with only 30% of the registered shares, and while there is a dispute about whether the percentage should be different, it appears that on any view Ao Qing is a minority shareholder (see Ao Qing (No 1) at [4]-[7]). 45 Further, Ernst & Young have raised doubts about the validity of the appointment of the other director, Mrs Li, who purports to be a nominee of PCEP, and in circumstances where, as receivers of PCEP, Ernst & Young effectively controlled that company, there was at least serious cause to doubt that Mrs Li had authority to manage the affairs of 52 Lord St. In any event, there is no suggestion in the evidence that she has made any attempt to do so, beyond giving her approval to minor items of expenditure in the course of completion of the Contract of Sale. So 52 Lord St was effectively rudderless in circumstances where it was about to receive approximately $7 million in cash. The imminence of that receipt meant that the need to ensure orderly completion of the Contract of Sale and appropriate custody of the sale proceeds was urgent. 46 In addition to that, I accepted that the course of events did show that there had been limited constructive engagement by Ao Qing with Ernst & Young as liquidators of PCAP and, in time, as receivers of PCEP, the majority shareholder of 52 Lord St. It could hardly be expected that they, in the former capacity, would agree to compromise the proceedings with no visibility about the underlying settlement between Ao Qing and PCEP, yet that is what they were asked to do. Then, on 9 September 2022, they made a reasonable request for basic information about the settlement and the affairs of 52 Lord St. It took nearly two months for the Commercial Deed to be provided and it appears that none of the other information requested was ever given to Ernst & Young despite numerous follow up requests. Similarly reasonable subsequent requests for information about bank accounts and the completion of the sale of the Property have also gone unanswered. 47 The direct communications between Mr Freeman and Ms Kuang have tended to be antagonistic, with Ms Kuang attempting to depict Mr Freeman as having taken a position on the authority of Mrs Li to represent PCEP and questioning his bona fides, but declining to give him the information about 52 Lord St or the sale of the Property. There appears to be no trust between Ms Kuang and Mr Freeman. Also, Ms Kuang showed no awareness of the need to satisfy PCEP's receivers and PCAP's liquidators as to the destination of the sale proceeds, pending necessary applications for court approval of the disbursement of the funds on the PCEP side. To the extent that communications came from AHD, they contained little substantive information of use to Ernst & Young, and appeared designed to defer the production of that information. 48 The unexplained termination of the retainer of AHD as Ao Qing's lawyers in the face of the present application raised significant doubt about Ao Qing's ability or willingness to understand and comply with its legal obligations in these circumstances. Overall, I did accept PCEP's submission, recorded above, about Ao Qing's propensity to engage in a delayed manner so that matters are complicated by unexplained delays and a lack of assistance or engagement. 49 The undertaking to the court which Ms Kuang signed on 14 March 2023 did not give me confidence that the sale proceeds would be dealt with appropriately. As PCEP submits, it is vague as to what will be done with the sale proceeds, and will be difficult if not impossible to enforce against a person domiciled in China. 50 That was all against a background of protracted litigation between PCEP and Ao Qing over the affairs of 52 Lord St, with every indication that the litigation would continue to be lengthy and costly. There was a risk that at least some of those costs would eat into the sale proceeds. But if Ernst & Young have control of those proceeds, they will obtain directions of an appropriate court as to how they are to be disbursed, which is likely to be a more cost effective way of winding up the affairs of 52 Lord St and ensuring payment of the moneys to those who are entitled to them. 51 Other factors in favour of the appointment of receivers to 52 Lord St were that: (1) the application was made by the majority shareholder in the company (even after allowing for the dispute about how much capital of PCEP was paid up); (2) 52 Lord St is not trading, and its sole function from now on appears to be to sell the property and distribute the proceeds, so a receivership will not interfere with any material business activities; and (3) the important counterparties, Bankwest and the purchaser of the Property, appeared to have no objection to the appointment, and the appointment of receivers will not jeopardise the sale. 52 None of this is to say that the conduct of Ernst & Young has been above criticism. With respect, in the correspondence summarised above Mr Freeman has also shown an unwillingness to engage constructively with Ms Kuang. For example, to cavil at a request to approve minor expenditure on the basis that Mr Freeman was not a director of PCEP, when he was in fact a receiver of all of PCEP's property and so had effective control of it, was not constructive. I say this in order to remark that I was conscious that I was appointing one of the antagonists in the relationship with Ao Qing to be the receivers of 52 Lord St. However to appoint a new, entirely independent person or persons as receivers of the company would lead to even more costs. Despite this criticism of Ernst & Young, there is no reason to think that they will handle the sale proceeds other than in accordance with their legal obligations, and they will be subject to the direction of an appropriate court. 53 For those reasons receivers were appointed to 52 Lord St. The matter was set down for a case management hearing in three months' time to give an opportunity to review whether that appointment, and the appointment of receivers to PCEP, should be terminated. I certify that the preceding fifty-three (53) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Jackson.

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Judgment (11 paragraphs)

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