Australian Competition and Consumer Commission v Australian Securities and Investments Commission

Affidavit evidence

1. Mr Gu relied on his affidavit dated 29 October 2018 in order to seek to establish the background to the application and the solvency of AXF Ashbury. He there noted that he was the sole director and sole shareholder of AXF Ashbury, which is in turn a unitholder in the Ashbury Developments Unit Trust ("Ashbury Trust"), of which Ashbury Developments is trustee, together with two other unitholders. Mr Gu's evidence was that AXF Ashbury had been incorporated solely to be the corporate trustee of another trust, the AXF Group (Ashbury Developments) Unit Trust, and that remained its only purpose. Mr Gu indicated in that affidavit that he had caused the funding of loan obligations and other moneys required of AXF Ashbury by Ashbury Developments in the past, and he referred to a loan of a substantial amount made to Ashbury Developments pursuant to previous call notices issued by that entity. Mr Gu also referred to the arrangement by which such funding was provided, namely, that he would pay the called loans from one of the companies he controlled, or more precisely, one of those companies would pay those loans, and that money would then be recorded as a loan by that company to AXF Ashbury, without formal loan documentation. It is to be noted that that pattern of behaviour provides no basis for an inference that AXF Ashbury, from its own resources, could discharge payments due in respect of call notices from Ashbury Developments.
2. Mr Gu also referred to the fact that he, or more precisely AXF Ashbury, had not paid several outstanding call amounts, and had continued to receive call notices while negotiating for his exit from the relevant arrangement, and had also not paid such amounts. Those amounts are in turn the subject of a creditor's statutory demand which was issued by Ashbury Developments to AXF Ashbury, which it did not seek to set aside, for reasons to which Mr Gu refers in his affidavit, and of the winding up application brought by Ashbury Developments which is presently stayed.
3. Mr Gu also refers in that affidavit to his having borrowed money from a company associated with Mr Goh, Jhato Pty Ltd ("Jhato"), and that loan agreement is in evidence. He refers to the fact that no demand for payment has been made under that loan, although, as will emerge below, it appears that loan may be presently due and payable. The relevant liability is not recorded in AXF Ashbury's accounts, although AXF Ashbury is jointly and severally liable on that loan. Mr Gu also refers to the fact that he will not cause two other companies to call upon loans to AXF Ashbury until Ashbury Developments repays amounts which have been lent to it. That is, of course, not a binding undertaking of Mr Gu, still less of the companies that had made the relevant loans. Mr Gu says, by way of assertion, that he believes that AXF Ashbury is solvent because he has the means to, and intends to, continue to make funding available to AXF Ashbury, although he provides no evidence as to where that funding is to emerge from.
4. The loan agreement between Jhato and AXF Ashbury indicates that AXF Ashbury, in its capacity as trustee for the AXF Group (Ashbury Developments) Unit Trust, is a joint and several borrower under that facility, which has a facility limit of $10 million less the amount of any prepayment or reduction or cancellation of the limit. There is no evidence of the amount presently due under the facility. The term of the facility begins on the Commencement Date, defined as the day on which the facility was first made available to, or at the request of, a borrower, and ends on the Termination Date, which is 12 months after the Commencement Date. There is no evidence as to the date of the commencement of the facility, although I note it is dated 6 October 2016 and, if it was drawn down shortly after it was created, then its term would have expired. The question when the loan was drawn down by the relevant borrowers was plainly a matter as to which AXF Ashbury could have led evidence, if that would have assisted its position in this application. The loan agreement provides for events of default, including non-payment of the loan when due, and there is no evidence as to whether the lender has relied on that event of default. Events of default also arise, and appear now to have arisen in this case, where proceedings are commenced to wind up a borrower and not withdrawn or dismissed within seven days, or where a step was taken to cancel the registration of the borrower, as has occurred in this case under s 601AB of the Corporations Act. The loan agreement provides for the consequences of an event of default, including that the lender may declare the money owing payable, and there is no evidence as to whether the lender has done so.
5. Mr Gu in turn relied on an affidavit of his accountant and tax agent, Ms Shi, dated 29 October 2018, which refers to the preparation of financial statements for AXF Ashbury, which are not signed or verified by Mr Gu as a director, and as to which Ms Shi has also not signed the statement as to the application of accounting standards. Ms Shi's affidavit refers to her knowledge of the loan agreement with Jhato but, surprisingly, the accounts do not record any liability of AXF Ashbury as a joint and several borrower under that agreement. Ms Shi appears to have proceeded on the basis of an instruction by Mr Gu that, despite the fact that AXF Ashbury was jointly and severally liable under the loan agreement, and despite the fact that the loan agreement had a specified term, it was to be treated as a long-term liability of another entity, AXF Group Pty Ltd, as parent entity. The balance sheet, which, as I have noted, is not signed or verified by Mr Gu, in turn refers to an excess of net assets over net liabilities of $100, which does not establish AXF Ashbury's ability to meet its liabilities as and when they fall due on a cash flow basis. That balance sheet records, as I noted earlier, significant amounts advanced by two other companies within the AXF Group.
6. Mr Gu in turn refers, in an affidavit dated 14 February 2019, to the fact that Ashbury Developments has issued call notices to unitholders from time to time, requesting funding for the relevant project; that AXF Ashbury has advanced significant funds on that basis; that AXF Ashbury has borrowed funds from related entities to do so and not repaid those amounts; and he there acknowledges that AXF Ashbury is a borrower under the loan facility with Jhato and is jointly and severally responsible for the relevant debts, notwithstanding the absence of reference to them in the financial statements of AXF Ashbury.
7. A further affidavit of Mr Gu dated 21 February 2019 refers to correspondence with ASIC, by which AXF Ashbury or interests associated with it have paid the applicable fee in respect of a reinstatement, and ASIC has indicated that it has no objection to reinstatement on specified conditions.

Whether it is just to reinstate AXF Ashbury

1. Turning now to the applicable authorities, the Court may order that a company's registration be reinstated if it is just to do so, on application by a person aggrieved by the company's deregistration: Australian Competition and Consumer Commission v Australian Securities and Investments Commission [2000] NSWSC 316; (2000) 34 ACSR 232. I am satisfied that Mr Gu is a person aggrieved by AXF Ashbury's deregistration, so far as he has an economic interest in AXF Ashbury. I am satisfied that, subject to the question of solvency, it would be just to reinstate AXF Ashbury, where it plainly has claims in respect of the relevant project conducted by Ashbury Developments, albeit it potentially also has liabilities in respect of call notices issued in respect of that project, which it disputes.
2. However, the evidence to which I have referred leaves me wholly unsatisfied that AXF Ashbury is presently solvent, and indicates that it is more likely that it is not presently able to meet its liabilities, including liabilities arising under the Jhato loan and the call notices as and when they fall due. I do not, in reaching that conclusion, treat any presumption of insolvency arising from the issue of the creditor's statutory demand as applicable in reinstatement proceedings, and it is plainly not applicable in such proceedings. However, the evidence to which I have referred does not establish that AXF Ashbury can meet liabilities as they are incurred in respect of tax and registration fees payable to ASIC (quite apart from call notices issued by Ashbury Developments, whether treated as debts or as contractual claims as Mr Gu contends) from its own resources or committed funds, as distinct from having a hope that Mr Gu will cause it to be put in funds to meet them, as he has done in the past in some cases but not in respect of recent call notices issued by Ashbury Developments.
3. For these reasons, it seems to me that Mr Gu's undertaking to place AXF Ashbury in voluntary liquidation is essential to the exercise of a discretion to reinstate its registration. The case law recognises that, in a proper case, an order for reinstatement may be made prior to a company's entry into voluntary winding up under s 491 of the Corporations Act. Where a company will be placed in voluntary winding up, the Court need not be concerned that its reinstatement, which operates of course for all purposes, will allow an insolvent entity to return to the marketplace, even if its activities are within narrow scope. I am satisfied that, with that undertaking and on the basis that a liquidator will be appointed when AXF Ashbury enters voluntary liquidation, then it is just to reinstate it, so that it may assert its rights and defend any claims by Ashbury Developments.

Leave for voluntary winding up

1. Counsel pointed out that a winding up application is pending in respect of AXF Ashbury, albeit that application is presently stayed. In those circumstances, s 490 of the Corporations Act has the result that AXF Ashbury cannot resolve that it be wound up voluntarily, except with the leave of the Court. Both counsel accepted that such leave could be granted in such an application, relying on s 601AH(3) of the Corporations Act, which allows the Court to make any other order it considers appropriate when it makes an order reinstating the registration of a deregistered company. It does not seem to me to be necessary to rely on that section, where the provision for leave in s 490 of the Act itself confers the power on the Court to grant that leave. Such leave should be granted to give effect to the undertaking given by Mr Gu, which is an essential aspect of the reinstatement order.

Costs

1. There will be no order for the costs of this application, where Coronation Developments Pty Ltd, a shareholder in Ashbury Developments, has been heard under r 2.13 of the Supreme Court (Corporations) Rules 1999 (NSW). The usual position in respect of a person heard under that rule is that it obtains a qualified immunity against an order for costs against it, but at the same time does not ordinarily have an expectation that an order for costs will be made in its favour. It seems to me that no order as to costs is, in any event, appropriate in circumstances that this application has had, to say the least, an unfortunate history, having regard to its interaction with the other proceedings between the parties.

Orders

1. Accordingly, I make the following orders:
2. On the undertaking given by Mr Mingfeng (Richard) Gu to the Court, in the form marked MFI 1, that within seven days of the reinstatement by the Australian Securities and Investments Commission of AXF Group (Ashbury Developments) Pty Ltd ("AXF Ashbury"), he will cause that company to enter into voluntary liquidation, order that ASIC reinstate the registration of AXF Group (Ashbury Developments) Pty Ltd ACN 169 945 500.
3. Order that AXF Ashbury have leave under s 490 of the Corporations Act to resolve that it be wound up voluntarily, notwithstanding that an application for it to be wound up in insolvency has been filed, in order to comply with the undertaking noted above.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 24 March 2019