Aviation calls "urgent" investor meeting
73 The very next day, 16 August 2016, Aviation called what it described as an "urgent" meeting of investors, to be held that night. Investors were told that the purpose of the meeting was to seek investor input in relation to the proposed sale of the Aviation land.
74 When those investors who were able to attend the meeting at such short notice arrived at the meeting, they were asked to sign two separate forms.
75 One form asked for approval to sell the Aviation land for an amount in excess of $120 million. It was not contended in this proceeding that investor approval of a sale in those, or any terms, was in fact necessary.
76 The other form asked the investors for an "acknowledgment", as follows:
As per the IM issued to me at the time of my investment, I acknowledge that I was made aware of the Founders entitlement (options) to retain the unissued shares, with the right to issue these at a later time from when the company was formed on 4 May 2011.
The founders are "Hakly Lao" and "Khay Suong Taing" or their nominated entity.
I acknowledge that the founders are not entitled to issue shares to themselves or their nominated entity if it exceeds 240,000,000.00 [sic] shares, but can do so if it is up to 240,000,000.00 [sic].
My investment is therefore a multiple of approximately 1/240 share/s in the company and will not be diluted from the founders exercising their entitlement to themselves or their nominated entity.
77 Many investors signed both forms at the 16 August 2016 meeting.
78 A number of them have given evidence by way of affidavit about what happened at the meeting.
79 Ms Gothe gave evidence, unchallenged, as follows:
24. In the afternoon of 16 August 2016 I received a telephone call advising me that an urgent investor meeting had been called for that same night at Aviation's office in Keysborough. Although I no longer recall who the caller was, I do recall that it was a woman. I had not spoken with the woman previously. The caller told me that I could choose from three time slots 6pm, 8pm and 9pm and that the same information would be conveyed to the investors at each meeting. The caller told me that there was an imminent sale of the Point Cook Land which would be discussed at the meeting. I do not recall any other proposed subject matter of the meeting being raised by the caller. Prior to this telephone call I had not heard from anyone at Aviation since I received the newsletter dated 1 May 2013. I, Kurt and my partner Emmanuel attended the meeting together. The meeting lasted around 15 - 20 minutes. There were around 15 people present. There was a presentation. I don't recall there being time allotted for questions, but if there was then I don't recall any questions being asked. There were two people presenting to the investors at the meeting. I think one of the presenters introduced herself as Marintha Lao … and the other presenter, whom I did not recognise, was a middle- aged man of Asian appearance.
25. Marintha and the male presenter told the meeting words to the effect that:
(a) Aviation had found a prospective buyer for the Point Cook Land who was willing to pay $140,000,000 and that when the land had been sold all the investors would receive a return on their investment;
(b) this was a one time offer that Aviation needed to accept now;
(c) the settlement period would be over 12 months;
(d) she had two forms that each of us needed to sign in order to allow the sale to proceed; and
(e) if we didn't sign the forms it would hold up the sale of the Point Cook Land and everyone would lose money.
26. When Marintha handed copies of the two forms to Kurt and me, she requested that we complete the name and address details on both forms. Marintha then pointed to the parts of the forms we needed to read and requested that we sign the forms. I felt pressured by her to sign both the forms immediately and I was not given time to read them. Kurt and I did sign both forms immediately and returned them to Marintha. I did not understand what I was signing except that according to Marintha it was necessary so that we wouldn't lose the buyer. Once Kurt and I had signed the forms Marintha collected them and we were not given a copy.
...
80 Ms Li also gave evidence, unchallenged, as follows:
27. On the afternoon of 16 August 2016, Marintha Lao called me while I was driving to say that there would be a meeting that night for Aviation investors at its office in Keysborough. She asked me to call my investors to get them to attend. I asked her why the meeting was being called at such short notice and she said that investor approval was urgently needed to approve a sale of the Aviation Land for $145 million. I told her that I could not expect my investors to attend a meeting at such short notice.
28. Even though I had told Marintha Lao that I could not expect my investors to attend the meeting, when I got back to my office, I sent text messages to our referred investors about the meeting that evening. I have since changed phones and do not have these text messages now. The message said that the Aviation Land would likely be sold for $145 million, that approval from investors was needed for the sale to go ahead and that there was going to be a shareholder meeting that night to approve the sale.
29. I remember that the following people called me back and confirmed that I could agree on their behalf to approve the sale of the Aviation Land:
(a) Joanna Chu of JS Fotia Pty Ltd, who also told me that she knew the Aviation Land had been sold and that she thought it was for a good price. She also said that if more investors were needed to agree with the sale then I should approve for her;
(b) Fei Wang, who lives in Sydney and who also requested me to send her a copy of any form I signed on her behalf;
(c) Kin Yuen of J Yuen Pty Ltd;
(d) Queenie Kia (who invested jointly with Katie Ho Kwok Heng);
(e) Xing You Song of Intellenet Pty Ltd; and
(f) Ping Sing Wong.
30. I did not speak to the following investor groups:
(a) Gui Fang Chen and Jing Feng Zhang;
(b) Ying Wen, Wei Xia Qu, Jing Meng and Jun Liu (except for Jing Meng);
(c) Jing Meng, Jing Lui Wang, Yi Li and Ying Wen (except for Jing Meng);
(d) Jing Dai.
This is because the person who introduced these investors to Aviation was Jing Meng and I did not have their individual contact details. However, I spoke to Jing Meng who told me that I could consent to the sale of the Aviation Land on behalf of her investors.
31. I went to the meeting, which was in a meeting room at Aviation's Keysborough office, at around 8:00 pm on 16 August 2016. I had been to the Keysborough office a couple of times before. I arrived late to the meeting. When I walked in, everyone was seated around a table. It was crowded, and we had to get an extra seat for me. I saw about 10 other investors around the table, some of whom I recognised. From Aviation, I saw Khay Taing, Huy Taing (who is Khay Taing's son), Marintha Lao (who is Hakly Lao's sister) and Kim Lao (who is Hakly Lao's mother). Hakly Lao was not at the meeting.
32. As I had arrived late, I did not see anyone make a speech or presentation. By the time I had arrived, I knew that some people had already signed forms and left the meeting because a friend, who is also an Aviation investor, had called me to say that she had signed the forms and already left. Some investors were still signing forms when I was there. Marintha Lao had a checklist and was checking off the names of Aviation investors who had attended the meeting and signed the forms.
33. After I arrived, I told Marintha Lao that some of my referred investors could not attend. I said I could sign forms on behalf of those who had given me permission. Marintha Lao gave me some blank forms that I was told needed to be signed for each of my investors. There were two forms on separate pieces of paper for each investor. They were not stapled together. I cannot remember in which order I received the forms. I was also given the checklist of names of Aviation investors. From the checklist, it looked like most investors had signed the forms because they had a tick next to their name. There were other documents on the table in front of me, but I was not given them and did not read them.
34. I looked at each form, but I did not read them carefully to understand each word because I had seen from the checklist that a lot of investors had already signed the forms. I cannot now remember in which order I read the forms. No one explained the content of the forms to me at the meeting. I thought investors had to sign both forms in order for the sale to go ahead, because the sale required 51% investor approval and the smaller investors together was not enough. I thought that one of the forms related to the founders shares because approval of the sale by the founders was required in order for there to be 51% shareholder approval.
35. I looked at the list of investor names that Marintha Lao gave me, and when I recognised the names of investors that I had referred, and who had given me permission earlier that day to approve the sale, I wrote in their name, address and investment details and then signed each form on their behalf. I did this for 10 investors / investor groups. I felt a bit rushed at the meeting because I had arrived late and I had a lot of forms to sign. I also felt some pressure to sign the forms because I did not want to lose the opportunity of the sale, especially because my referred investors had told me from time to time that the sale was taking too long and they wanted their money…
36. The process of filling in the forms manually took me a while, after which I socialised for about 10 minutes. I spent around an hour at the meeting.
37. For the purpose of this affidavit, I have read the longer form entitled "Shares Entitlement" again. The third paragraph states that "I acknowledge that I was made aware of the Founders entitlement (options) to retain the unissued shares, with the right to issue these at a later time from when the company was formed on 4 May 2011". In 2011, I had not spoken to Khay Taing or Hakly Lao about whether they owned shares in Aviation, but I assumed that, as the founders, they would have some kind of ownership in Aviation. The only information that I had received about an entitlement of the founders to retain unissued shares was what was in the IM. Before 2016, when ASIC started investigating Aviation, neither Khay Taing nor any other person had told me that he or any other person had options to purchase Aviation shares. At some stage after Aviation's involvement with ASIC began, Khay Taing told me words to the effect that he and Lao were entitled to get their shares earlier.
38. Before I signed the forms on behalf of the investors that I had referred, I did not discuss with them the specific contents of the two forms. I did not ask the investors on whose behalf I signed whether the statements in the longer form were correct. I signed the forms because the investors that I had spoken to before the meeting had told me that they were happy for me to approve the sale for $145 million, and I thought that both forms were necessary for that approval.
Subsequent developments
39. Around 5 September 2016 I received an email attaching a letter of the same date from Aviation's lawyer, Pointon Partners, addressed to Maxland. The letter attached a document they described as an option agreement, which was a document that I had not seen before. In the letter, Pointon Partners explained that earlier in 2016, Aviation had issued 76 million shares to each of Hakly Lao and Khay Taing's companies for around 0.1 cents per share. I had no previous knowledge of this share issue. I did not know anything about those companies being given options. ...
40. If it is the case that the forms I signed on 16 August 2016 say that I and the investors on whose behalf I signed the forms were aware of this option agreement, then the forms are incorrect, and I should not have signed them. When signing the forms, I did not appreciate they may have had this meaning and I would not have signed them if I had appreciated that. I did not think I would be asked to sign anything which was incorrect and believed that the forms were necessary to enable a sale of the land.
81 Mr Johnson gave evidence, about which he was cross-examined, as follows:
24. On the evening of 16 August 2016 I received a telephone call from Jenny. Jenny advised me that an urgent investor meeting had been called for the same night at Aviation's office in Keysborough. I was told by her that there was an imminent sale of the Point Cook Land which would be discussed at the meeting. I told Jenny that I could get to Aviation's offices by approximately 8pm that night. When I arrived at Aviation's office I was greeted by Jenny and I noticed that there appeared to be three groups of investors, with approximately five people in each group. I did not join any of the groups. I spoke separately to Jenny who advised me of the following:
(a) Aviation had found a prospective buyer for the Point Cook Land who was willing to pay between $125,000,000 to $140,000,000 and,
(b) when the Point Cook Land was sold investors would receive a return on their investments and,
(c) there were some forms that investors needed to sign authorising the sale of the Point Cook Land.
Jenny also gave me a calculator, and both of us together went over the numbers. We calculated that a sale of the units I owned would likely result in a profit of around $340,000 for me.
25. I recall that I spoke to Jenny for around 10 to 15 minutes. She only spoke to me about the proposed sale, I was then handed the forms by Jenny and she requested that I complete the name and address details on both forms and sign and date the forms immediately and provide them back. I decided to call William prior to signing anything. I took the forms and went outside to call William. William told me he had been at Aviation's office earlier that day and was given the same forms. William said that he had signed the forms so that the Point Cook Land could be sold and we could all get our money. I went back inside and signed the forms, Jenny witnessed my signature. I did not really take much notice of the content of the forms. I merely filled them in as requested. Once I had signed the forms they were collected, and I was not given a copy.
…
Finding out about the 17 March 2016 share issue
26. I heard no further from Aviation until around 6 September 2016 when I received in the post a letter from Pointon Partners, who acted for Aviation (Letter). The Letter explained firstly, as I had been told in the 16 August 2016 meeting, that Aviation had entered into negotiations with a prospective purchaser of the Point Cook Land at a proposed sale price of $145,000,000.
27. The second thing the Letter explained was that Aviation had issued 76 million shares to Lao Holdings Pty Ltd (Lao Holdings) and a further 76 million shares to Khay Suong Taing Aviation 3030 Pty Ltd. The Letter noted that Lao Holdings is a company controlled by Hakly Lao (Hakly), a director of Aviation, and that KST is a company controlled by a Khay Suong Taing (Khay), a former director of Aviation. The Letter further noted that each of Hakly and Khay paid $76,000 for their 76 million shares, representing a price of 0.1 cents per share. Attached to the Letter was an 'Option Agreement' dated 18 September 2012 and a copy of a further letter dated 4 May 2011 addressed to Hakly and Khay regarding Aviation and the grant of Options. This letter detailed the terms under which Aviation had granted options of 152 million shares to Hakly and Khay. I had never seen or heard of the Option Agreement dated 18 September 2012 or the letter dated 4 May 2011 before and I knew nothing of the extra shares that had been issued or the circumstances in which this had taken place.
28. The Letter further explained that due to the 152 million extra shares that had been issued I would receive less return on my investment. The Letter explained, as an example, that if Aviation made $100,000,000 profit from selling the Point Cook Land, the return on an investment of l,000,000 shares had dropped by $719,696.97. As I had bought 500,000 units I understood that the value of my units had gone down in value by half this amount. This came as a considerable shock to me…
82 During his cross-examination, the following exchanges occurred between counsel for Lao Holdings Pty Ltd and Mr Johnson:
MR NORTHROP: And the next paragraph refers to:
As per the IM issued to me at the time of my investment, I acknowledge that I was made aware of the founders' arrangement.
Did you read that? -- It says that on this document here, does it?
Yes? -- Where does it state that?
In the third paragraph? -- The founders .....
In the third paragraph? -- Yes.
So you read that and understood it? -- They:
The founders are not entitled to issue shares to themselves or the nominated entity.
Yes, I understood that.
If it exceeds 240 million? -- Yes.
All right. And - all right. So is there any part of this document that you didn't read or understand? -- No.
And then immediately above your signature, there's a proposition:
My investment is therefore a multiple of approximately one two hundred and fortieth shares in the company -
and that's just stating what was always your understanding; is that correct? -- Correct, yes.
Continuing:
…and will not be diluted from the founders exercising their entitlement to themselves or their nominated entity.
Do you see that? -- Sure.
And… ? -- It didn't say anywhere that they could issue shares to them for free as well. All right?
Well… ? -- And my assumption is - is when you - if there's ever any shares issued, it's at fair market value.
Right. Well, you yourself had gone through the process of negotiating the price of shares, had you not? -- Yes.
And would you expect everyone to pay the same price? -- Guess not.
HIS HONOUR: It's a bit different if you're negotiating with yourself.
MR NORTHROP: I will move on, your Honour.
83 Mr Pearce put ASIC's case about the meeting in the course of his oral closing address, colloquially, perhaps, but strikingly, in these terms:
So, your Honour, that - there's the evidence about that meeting and it's plain beyond any sensible argument, in my submission, that these investors were, indeed, duped. And the fact - the fact of their being duped is another very telling aspect of the conduct of these directors. ASIC wrote them a letter on 15 August saying, "We're concerned about non-disclosure of the option agreement." They hastily call a meeting. They call it on a false pretence. They stick a couple of forms in front of the investors, get the investors to sign the forms and then they like to pretend that the investors have made an acknowledgement in those circumstances.
84 It is not surprising in those circumstances that the directors of Aviation do not now seek to rely on the signed acknowledgments as amounting to anything. But the meeting was obviously a ruse. There was no need to get any investor to sign the first form, and the second form was a (now) transparent attempt to create some "evidence" to produce to ASIC in support of a case that they had not misled investors.