Australian Securities and Investments Commission v ABC Funds Managers Ltd

Judgment 1The Plaintiff, Araz Investments Pty Limited ("Araz") seeks an order that the defendant, DJG Securities Pty Limited ("Company") be wound up under sections 461(1)(e) or s 461(1)(k) of the Corporations Act 2001 (Cth). Those sections respectively provide that the court may order the winding up of a company where, relevantly, the directors have conducted the company's affairs in their own interests rather than in the interests of the members as a whole or in any other matter that appears to be unfair or unjust to other members, or if the court is of the opinion that it is just and equitable that the company be wound up. 2Araz originally applied for the appointment of a provisional liquidator but that application was not pressed when it became clear that the Company would not contest the winding up application. 3Araz primarily relies on an affidavit of Mr Avedis Kalloghlian dated 9 May 2013. Mr Kalloghlian's evidence is that Araz previously filed proceedings against the Company, and against a related entity of the Company, Global Automotive Holdings Pty Limited ("GAH") on 5 March 2013. The Company and GAH did not file a Defence and on 2 May 2013 the Court entered default judgment in the amount of $932,565.06 inclusive of costs in favour of Araz. Mr Kalloghlian's evidence is that that amount has not been paid, and that evidence has been confirmed as at the date of this application. 4Mr Kalloghlian also gives evidence of the circumstances giving rise to Araz's claim against the Company, following an agreement by which Araz, the Company and GAH agreed to become joint venturers in the acquisition of a business which imported luxury cars from their manufacturer, and which provided for Araz to contribute $1,030,000 for a 50 per cent shareholding in GAH, part of which was to be made up by the transfer of a valuable vehicle to the Company. Mr Kalloghlian gives evidence of various payments made to the Company and other entities associated with a person associated with the Company, Mr Anthony Gee, to whom I will refer further below. Mr Kalloghlian's evidence is that Mrs Donna Gee, who is Mr Gee's wife, became sole director of the Company on 13 March 2009 and is also the Company's sole shareholder. Mr Kalloghlian's evidence is that his dealings with the Company, including the exchange of emails and other correspondence, were with Mr Gee and not with Mrs Gee notwithstanding her purported role as the sole director of the Company. Mr Kalloghlian also gives evidence of other dealings with Mr Gee and other companies with which he is associated, which it is not necessary to address. None of that evidence was contested in this application. 5Mr Kalloghlian refers to various matters which, he contends, points to the need for the appointment of a liquidator to the Company. He refers to payment of $604,000 to the Company and the transfer of a vehicle valued at $450,000, at the direction of Mr Gee, between October 2011 and September 2012, and contends that no money has been repaid by the Company or Mr Gee. As I noted above, Araz has how obtained default judgment against the Company in respect of those transactions. He notes that the moneys paid to the Company were paid out of its bank account shortly after their receipt; and gives evidence, which again has not been contested, that the Company has not filed tax returns or prepared accounts, and contends that Mr Gee has been managing the Company's affairs while he is an unregistered bankrupt. Again, the Company has not sought to contest that allegation. 6On 9 May 2013, the Court made orders abridging the time for service of the originating process and providing for service to be effected by specified means. There is evidence that the originating process, Mr Kalloghlian's affidavit in support, the consent of joint and several provisional liquidators and a notice to produce ("first notice to produce") dated 9 May 2013 was served on Mrs Gee on 9 May 2013. The documents in respect of the proceedings were also emailed to Mrs Gee and Mr Gee on 10 May 2013, in accordance with the orders for short service made by the Court. 7The first notice to produce addressed to the Company required production of, inter alia, financial reports of the Company from March 2009 to date, including financial statements, profit and loss statements and balance sheets; tax returns lodged since March 2009; business activity statements since March 2009; and similar documents for two associated entities, Autohaus Wholesalers Pty Limited and DJG Equities Pty Limited. By email sent the same date, Mrs Gee (who, as I noted above, is the Company's sole director) advised that "I have nothing to produce in relation to the notice to produce". That response must be understood as given on the Company's behalf, where the notice to produce was directed to it and not to Mrs Gee personally. 8By email also dated 10 May 2013, Araz issued a further notice to produce to the Company, which was also served on Mr Gee and Mrs Gee. That notice to produce required production of current bank statements of the Company, DJG Equities and Autohaus Wholesalers. By a further email dated 13 May 2013, Mrs Gee advised that she also had nothing to produce in relation to that further notice to produce. 9It appears, therefore, that the Company's position (or at least the position advanced by Mrs Gee as its sole director and shareholder) is that it has not, since March 2009, prepared, or at least retained, financial statements, profit and loss statements or balance sheets or tax returns or business activities statements in respect of the Goods and Services Tax. 10By email dated 13 May 2013, Mrs Gee also advised Araz's solicitors that the present proceedings, "will not be defended due to no funds available to do so". 11On 13 May 2013, Araz filed a notification of court action in respect of the winding up with the Australian Securities and Investments Commission. Also on that date, Araz's solicitors undertook a company search of the Company which indicated that no administrator had been appointed to it and no other winding up order was pending. Messrs Resnick & Silvia have consented, initially, to their appointment as joint and several provisional liquidators and confirmed that they were not aware of any conflict of interest or duty that would make it improper for them to be so appointed, and have subsequently confirmed by email that they also consent to appointment as liquidators and not only as provisional liquidators. 12With that background, I turn to the merits of the winding up application. Araz has standing to bring that application under s 462(2) of the Corporations Act, since it is a creditor of the Company by reason of the default judgment in its favour. As I noted above, the winding up application is brought under s 461(1)(e) and s 461(1)(k) of the Corporations Act. I do not consider it necessary to deal with the application brought under s 461(1)(e), which would raise subtle questions as to when it could be said that a company's directors had acted in their own interests rather than in the interests of the members as a whole when a company had only one member. 13It is, in my view, sufficient to determine this application so far as it is brought under s 461(1)(k) of the Corporations Act. It is well established that the court can make a winding up order under the just and equitable ground under that section by reason of, inter alia, lack of confidence in the conduct and management of a company's affairs, or if a company has not carried on its business candidly and in a straightforward manner with the public, or has failed to comply with the requirements of the Corporations Act with respect to financial records and reports. The authorities are numerous, but include at least Loch v John Blackwood Ltd [1924] AC 783; Australian Securities and Investments Commission v Chase Capital Management Pty Ltd [2001] WASC 27; (2001) 36 ACSR 778; Australian Securities and Investments Commission v ABC Funds Managers Ltd [2001] VSC 383; (2001) 39 ACSR 443 at [119], where Warren J (as her Honour then was) observed that a winding up on just and equitable grounds could take place where there was "a lack of confidence in the conduct and management of the affairs of the company" and "a risk to the public interest that warrants protection", and also noted that the court would be reluctant to wind up a solvent company. Those principles have subsequently been applied in Australian Securities and Investments Commission v Kingsley Brown Properties Pty Ltd [2005] VSC 506; Australian Securities and Investments Commission v Stone Assets Management Pty Ltd [2012] FCA 630; (2012) 90 ACSR 523 at [44]. Recently in Australian Securities and Investments Commission v ActiveSuper Pty Ltd (No 2) [2013] FCA 234 at [19]ff, Gordon J summarised those principles as permitting a company to be wound up where there is a lack of justifiable confidence in the conduct and management of its affairs and a risk to the public interest that warrants protection, and noted that that could be established where the Court could not have confidence that the company's controllers would comply with their obligations, including keeping books, records and documents and looking after the company's affairs. 14In the present case, it seems to me that the evidence led by Araz, and not contested by the Company and its controllers, is sufficient to establish that the Court could not have confidence that the Company's affairs would be properly conducted. It appears possible that the Company's affairs are, in truth, under Mr Gee's control and he is an undischarged bankrupt. I am conscious that inference is a serious one, but the Company has not sought to contest it in this application, albeit the Company's position has been explained by its lack of funds. It appears that the Company has not maintained, or at least has not retained, proper financial records, since they were not produced in response to the notices to produce, and has also not attended to filing of tax returns which were also not produced in response to a notices to produce. There is no suggestion that the Company is solvent, so as to tend against a winding up application in these circumstances. To the contrary, its failure to meet the judgment debt and its failure to appear in these proceedings expressly by reason of "no funds available to do so", indicate the contrary. In my view, these matters provide sufficient basis for the winding up of the Company on the just and equitable ground. 15Turning to the formal requirements for a winding application, a liquidator's consent has been filed, albeit there is a degree of informality in the process where the consent was originally given to appointment as a provisional liquidator and extended to an appointment as a liquidator by email. I will dispense with the strict application of Supreme Court (Corporations) Rules 1999 (NSW) r 5.5(3)(b) in that regard. The winding up application was not published as required by s 465A of the Corporations Act or in accordance with rule 5.6(2)(b) of the Corporations Rules. However, the Court may dispense with that requirement under s 467(3), and I note that White J did so in respect of an unopposed winding up application in Koslowski v JSVG Developments Pty Ltd [2010] NSWSC 1022. I am satisfied that I should also do so here where there is no suggestion that the failure to publish an advertisement would cause any substantial disadvantage to any other creditor, and no real likelihood that any other creditor would have sought to intervene or succeeded in persuading of the court, that these circumstances did not warrant a winding up order. 16For these reasons I order that: