Background
3 The first to eighth plaintiffs are companies in liquidation (Plaintiff Companies). On 27 November 2018, Ross Andrew Blakeley, Quentin James Olde and Paul Anthony Allen (collectively, the Provisional Liquidators) were appointed provisional liquidators of the Plaintiff Companies. The appointments were by order of Yates J made in proceeding NSD 2194 of 2018 (Winding Up Proceeding): Deputy Commissioner of Taxation v Ausmart Services Pty Ltd [2018] FCA 1912.
4 On 20 December 2018, Jagot J made an order in the Winding Up Proceeding requiring the Provisional Liquidators to provide by 1 March 2019 to the Court and the Deputy Commissioner of Taxation (Deputy Commissioner) a report as to the provisional liquidation of the Plaintiff Companies, including requiring the following matters:
(a) the identification of their assets and liabilities;
(b) an opinion as to their solvency;
(c) the likely return to creditors;
(d) any other information necessary to enable their financial position to be assessed;
(e) any suspected contravention by them of the Corporations Act 2001 (Cth) (Act); and
(f) any suspected contravention of the Act and/or any other legislation by any of their current or former directors and/or officers.
5 On 14 March 2019, the Provisional Liquidators provided a report summarising the results of the Provisional Liquidators' investigations, which addressed each of the matters required by the orders of Jagot J (Provisional Liquidators' Report).
6 The conclusions in the Provisions Liquidators' Report were that:
(a) there was a shortfall of assets to liabilities in relation to each of the Plaintiff Companies;
(b) each of the Plaintiff Companies was insolvent;
(c) the likely return to creditors in any liquidation of each of the Plaintiff Companies would be less than 100 cents in the dollar;
(d) further information was required to establish the financial position and affairs of the Plaintiff Companies, which, given the lack of appropriate records and cooperation to date by the Plaintiff Companies' directors and officers, could only be obtained through public examinations of various parties;
(e) possible contraventions of the Act by the Plaintiff Companies had been identified;
(f) multiple suspected breaches of the Act and other legislation by directors and officers of each of the Plaintiff Companies, including possible criminal offences, had been identified;
(g) substantial further enquiry was warranted into the conduct of the Plaintiff Companies, and their directors and officers;
(h) various causes of action also likely existed against those and other parties that require further investigation and pursuance; and
(i) the Plaintiff Companies should be wound up on the grounds of insolvency and/or it was just and equitable for such an order to be made.
7 On 15 May 2019, the Plaintiff Companies were wound up by order of Steward J. By those same orders, Ross Andrew Blakeley, Joseph Hansell and Paul Anthony Allen (Liquidators) were appointed as liquidators of each of the Plaintiff Companies. The Liquidators are the ninth plaintiff in this proceeding.
8 The Plaintiff Companies are part of a larger group of at least 31 associated companies, connected to Scott Shi, and his family or associates, who are active in the contract labour hire industry, predominately by supplying workers to Australian abattoirs (Shi Group).
9 By an affidavit sworn by one of the Liquidators, Paul Anthony Allen, on 16 December 2019 (Allen affidavit), the Liquidators allege that the Shi Group has been used over a period of more than ten years in an elaborate tax evasion scheme involving the failure to pay over $83 million in federal taxes and more in state taxes. The Liquidators allege that the scheme involved the diversion of vast sums of money overseas, and into primarily land assets in Australia. The Liquidators have identified payments or transfers of some $119,566,423.
10 The Liquidators seek to obtain freezing orders in respect of real property held by 11 officers or associates of the Plaintiff Companies. This relief is sought in circumstances where Yates J made findings in the Winding Up Proceeding that the plaintiff in that proceeding, the Deputy Commissioner, had established a prima facie case that the Plaintiff Companies were engaging in systematic and deliberate non-compliance with their taxation obligations involving unpaid taxes of almost $38 million.
11 The Allen affidavit deposes to the investigations which were undertaken by the Provisional Liquidators and the subsequent investigations undertaken by the Liquidators and their staff.
12 The Allen affidavit deposes that in 2013, a government funded taskforce known as the Cross Agency Trust Taskforce (Taskforce) was established. The Taskforce was established to deal with the increased manipulation of trusts as vehicles that could be at the centre of tax avoidance, tax evasion, and money laundering.
13 In early 2014, the Taskforce became aware of Scott Shi and his associated companies due to the receipt of information in connection to the meat processing industry. The Taskforce identified that Scott Shi was operating a complex web of at least 31 intertwined companies, including the Plaintiff Companies.
14 It is alleged that companies within the Shi Group operated a large business that provided labour hire services to a number of abattoirs. That business had held contracts with at least 42 abattoirs throughout Australia between 2008 and 2017. Those contracts were identified as the source of more than $349 million of revenue and involved the employment or contracting of at least 1,100 workers per year.
15 The Allen affidavit deposes that in July 2015, the Taskforce commenced an intense audit of the Shi Group and persons associated with that group. As a result of this audit, it was determined that companies in the Shi Group, including the Plaintiff Companies, had incurred taxation liabilities which include:
(a) amounts withheld from the wages of employees pursuant to Div 12 of Pt 2-5 of Sch 1 to the Taxation Administration Act 1953 (Cth) but not remitted (PAYG withholding);
(b) goods and services tax (GST) pursuant to A New Tax System (Goods and Service Tax) Act 1999 (Cth) in relation to labour hire contracts with abattoirs;
(c) superannuation guarantee charges (SGC) pursuant to s 16 of the Superannuation Guarantee (Administration) Act 1992 (Cth) in relation to employees; and
(d) income tax.
16 The Allen affidavit further deposes to the Shi Group being engaged in the following activities:
(a) large scale tax evasion involving companies within the Shi Group, including by:
(i) underreporting GST liabilities, or failing to report those liabilities at all;
(ii) failing to lodge income tax returns, lodging returns that grossly underreported the relevant company's income tax liabilities, or lodging returns that overstated the relevant company's entitlement to claim tax deductions;
(iii) failing to lodge BAS, lodging BAS that underreported the relevant company's GST liabilities, or lodging BAS that overstated the relevant company's entitlement to GST input credits;
(iv) withholding amounts from wages or similar payments to their employees on account of PAYG withholding amounts, but failing to remit those amounts to the ATO;
(v) failing to make required SGC contributions and failing to lodge SGC statements with the ATO; and
(vi) engaging in the practice of "phoenixing" (whereby the relevant company would be wound up or deregistered to avoid paying outstanding taxation liabilities, with all employees transferred, and all debtors redirected, to a newly incorporated company);
(b) labour importation, overcrowding, sham contracting and underpayment of workers, which involved:
(i) employing or contracting predominantly with Chinese, Taiwanese and/or Korean nationals without Australian citizenship, many of whom were on visas with limited rights to work;
(ii) providing workers with accommodation as part of their engagement by the Shi Group, deducting amounts from amounts paid to those workers (likely in breach of applicable legislation), and housing many workers in properties owned by entities within the Shi Group (or related parties), often in overcrowded conditions;
(iii) regularly engaging in "sham contracting" arrangements, which involved engaging workers as subcontractors rather than employees, with the intention of avoiding the payment of employee entitlements (including superannuation, annual leave, leave loading and overtime); and
(iv) deducting amounts from workers' wages in the form of an initial 'bond' payment for uniforms, tools and other expenses, and ongoing payment of "board" for the accommodation provided (despite frequent overcrowding); and
(c) overseas funds transfers, including:
(i) transferring funds received by companies within the Shi Group overseas, often via Money Chain Foreign Exchange (Money Chain), a business specialising in providing remittance services/foreign exchange trading services for Chinese citizens around the world; and
(ii) frequently transferring such funds to Chinese bank accounts held by Scott Shi and his related entities, for purposes seemingly entirely unrelated to the business affairs of the Shi Group.
17 The Allen affidavit deposes that many companies in the Shi Group have gone into liquidation or have been deregistered without paying their tax liabilities. The directors of the companies in the group usually changed a short time before each company was wound up or deregistered. The employees of each company listed in the labour hire contracts with each abattoir were transferred to a new company set up in the Shi Group. Nearly all the money received by companies in the Shi Group that was not used to pay wages or business expenses was withdrawn by Scott Shi or his associates. There are usually several companies in the Shi Group in operation at any one time, with some companies having contracts with abattoirs to supply workers and other companies using their bank accounts to pay workers.
18 The Allen affidavit deposes to the Plaintiff Companies having a total primary tax shortfall to the ATO of $37,719,923.67.
19 The Allen affidavit deposes to the analysis by the ATO of the Plaintiff Companies' bank statements, AUSTRAC records and other documents which indicate that the wound up or deregistered companies in the Shi Group had their assets stripped prior to liquidation or deregistration. In particular, the analysis shows that the funds in the Plaintiff Companies' bank accounts were not used to pay wages or other business expenses but were transferred to other companies in the Shi Group, or were withdrawn or transferred offshore for the benefit of Scott Shi, his relatives and associates.
20 The Allen affidavit deposes to the single controlling mind behind the Plaintiff Companies being Scott Shi.
21 The Allen affidavit deposes to the investigations by the Liquidators and those of the ATO. Those investigations reveal that moneys originating from the Plaintiff Companies had been used to acquire an extensive portfolio of real property or service mortgages on real property. Almost exclusively, these properties are not held in the names of the Plaintiff Companies or by Scott Shi directly. They are generally held in the names of a range of family members or associates of Scott Shi or the Shi Group business.
22 The Allen affidavit deposes that to date, the Liquidators have identified 10 properties that have been purchased at least partially with funds originating from the Plaintiff Companies and who are registered in the name of the defendants (Financed Properties). The table below summarises the Financed Properties:
No. Property Address Registered Proprietor Company Providing Funds Amount Provided
- 13 Ramel Way, Pakenham VIC 3180 Quan Fa Shi Ezyrol $44,000
4th Defendant
- 30 Northern Avenue, Newborough VIC 3825 Meiming Zheng Ezyrol $25,995
1st Defendand
- 74 Emily Street, Seymour VIC 3660 Quan Fa Shi Ezyrol $35,500
4th Defendant
- 1710/889 Collins Street, Docklands VIC 3008 Jiong Xue Gamma $70,250
6th Defendant
- 14 Fergusson Street, Camperdown IC 3260 Meiming Zheng Mondex $19,250
1st Defendant
- 253 Lagoon Street, Deniliquin VIC 3825 Meiming Zheng Mondex $21,000
1st Defendant
- 28 Jeeralang Avenue, Newborough VIC 3825 Meiming Zheng Mondex $35,000
1st Defendant
- 5 Bower Parade, Singleton NSW 2330 Meiming Zheng Mondex $41,200
1st Defendant
- 91 Decimus Street, Deniliquin NSW 2710 Meiming Zheng Mondex $12,500
1st Defendant
- 21 Burke Avenue, Berala NSW 2141 Lisen Fang Spark $91,000
7th Defendant