These reasons for judgment deal with the application made by Further Amended Interlocutory Process filed on 26 November 2020 for orders winding up Matrix Global Investment Group Sydney Pty Limited (the Company) and appointing Mr Daniel O'Brien as liquidator of the Company.
The applicants are the first defendant (Ms Jiali) and the third defendant (Mr Sha) in this proceeding (together, the Applicants).
The respondents to the Further Amended Interlocutory Process are the Company, Mr Yikai Chen (Mr Chen), and Ms Mingxia Shao (Ms Shao) (together, the Respondents).
A current and historical extract for the Company dated 2 February 2021 annexed to the affidavit of the Applicants' solicitor, Kit Yan Mak (Ms Mak), affirmed on 3 February 2021 records that:
1. the Company was incorporated on 8 September 2016;
2. between them, Ms Jiali and Mr Sha presently own 45% of the Company's shares;
3. Ms Jiali is presently one of the two directors of the Company, and has been a director since the Company was incorporated;
4. Mr Chen is presently the owner of 55% of the Company's shares;
5. Mr Chen is presently a director of the Company, and has been a director since the Company was incorporated; and
6. Ms Shao is a former shareholder and was a director of the Company from the time of its incorporation until 20 July 2020.
The Applicants dispute that Mr Chen and Ms Shao remained directors of the Company after about December 2017 and January 2018 (respectively).
The orders for winding up are sought under s 461(1)(k), ss 232 and 233 and/or ss 459A and 459P of the Corporations Act 2001 (Cth). However, the Applicants' submissions focussed principally on the just and equitable ground for winding up under s 461(1)(k).
The Applicants read the following evidence in support of the winding up application:
1. the affidavit of Ms Jiali affirmed 2 July 2020;
2. the affidavit of Ms Jiali affirmed 11 October 2020;
3. the affidavit of Ms Jiali affirmed 26 October 2020;
4. the affidavit of Ms Jiali affirmed 23 November 2020;
5. the affidavit of Mr Sha affirmed 2 July 2020;
6. the affidavit of Mr Sha affirmed 11 October 2020;
7. the affidavit of Mr Sha affirmed 26 October 2020
8. the affidavit of Mr Sha affirmed 23 November 2020;
9. the affidavit of Ms Mak affirmed 27 November 2020;
10. the affidavit of Ms Mak affirmed 16 December 2020;
11. the affidavit of Ms Mak affirmed 3 February 2021;
12. paragraph 10 of the affidavit of Mr Chen affirmed 12 June 2020;
13. the affidavit of Mr Chen affirmed 15 November 2020; and
14. the affidavit of Ms Shao affirmed 15 December 2020.
The Applicants also tendered the consent of Mr O'Brien to be appointed by the Court and to act as liquidator of the Company. That consent was filed on 17 November 2020.
Mr O'Brien is a registered liquidator and is presently the provisional liquidator of the Company, having been appointed pursuant to orders made by Black J on 16 December 2020.
As shareholders, the Applicants have standing to apply for a winding up order under s 461(1)(k) of the Corporations Act: see s 462(2)(c).
The following chronology of matters relevant to the winding up application is drawn from the evidence read by the Applicants and orders made and judgments delivered in these proceedings to date.
As I have already noted above, the Company was incorporated on 8 September 2016. On incorporation, Mr Chen held the majority of the shares in the Company and Ms Jiali and a Mr Zhenling Tong were the minority shareholders. The Company's directors were Mr Chen, Ms Shao and Ms Jiali. Mr Tong was the Company secretary. According to ASIC's records, Mr Tong continues to hold that office, but he is no longer a shareholder.
The Company's main business was as an agent for purchasers of apartments and units in new property developments, purchased off the plan. The Company's main source of income was commission payments from vendors and developers. The Company sometimes paid referral fees to third parties who introduced potential purchaser clients to the Company.
During the period up to December 2017, each of Mr Chen, Ms Shao and Ms Jiali actively participated in the Company's business. Mr Sha was also involved in the day to day business in that he assisted Ms Jiali, to whom he is married. Decisions were made informally during oral discussions or conversations on WeChat. Each director was entitled to a proportion of the commission received by the Company in respect of sales introduced and conducted by that director.
In about December 2017, there were arguments between Ms Jiali and Mr Sha on the one hand, and Mr Chen on the other hand, about how to run the Company's business. Mr Chen told Mr Sha that he wanted to start a new company and run his own business focussing on real estate agency and bank mortgage loan referrals. It was then agreed between Mr Chen, Ms Jiali and Mr Sha that Mr Chen would run his own business and that he would "quit" the Company. Mr Chen incorporated Merit Property Group Pty Ltd (MPG) on 5 December 2017. He was (and remains) the sole director and shareholder of MPG.
In a separate conversation with Mr Sha in January 2018, Ms Shao indicated that she wished to resign as a director of the Company and transfer her shares in the Company to Mr Sha.
By February 2018, Mr Chen and Ms Shao had ceased to do any work for the Company or introduce any clients to the Company. However, they did not tender their resignations in writing and no steps were taken to notify ASIC of their resignation or to remove them as directors. Mr Chen and Ms Shao retained their shares.
Ms Jiali and Mr Sha continued to operate the Company's business after February 2018. Property sales procured by the Company from that time onwards were procured by Ms Jiali and Mr Sha. This included certain sales of apartments in a property being developed by Crown Group known as the Waterfall project.
In July 2018, there was some discussion between Mr Chen, Ms Shao, Mr Tong, Ms Jiali and Mr Sha about deregistering the Company. This did not proceed.
The Company ceased engaging in new business by the end of 2018, and its activities after that time were limited to working towards the settlement of property sales already procured. The Company left its bank account open in order to receive commissions that would become payable in the future on settlement of those sales and so that the funds standing to the credit of the bank account would continue to serve as security in connection with the Company's lease of its office premises.
In May 2020, Ms Shao signed a letter stating that she "will quit" the Company and wanted to transfer her shares to Mr Sha, after which Mr Sha "will take over all my duties and responsibilities of [the Company]". The share transfer was registered with ASIC, but no steps were taken at that time to remove Ms Shao as a director of the Company or to notify ASIC of her resignation.
In June 2020, the Company received a significant commission payment on settlement of the sale of an apartment in the Waterfall project. Ms Jiali and Mr Tong transferred part of that commission from the Company's bank account to a third party to pay a referral fee.
On 11 August 2020, Mr Chen and Ms Shao purportedly signed a circular resolution of the directors of the Company resolving to commence these proceedings against Ms Jiali and the other defendants and to remove Ms Jiali as a signatory from the Company's bank account. I refer to this circular resolution as having "purportedly" been signed because, as I have noted earlier, there is a dispute about whether Mr Chen and Ms Shao had resigned as directors in December 2017 and January 2018 respectively, albeit that ASIC had not been notified of any such resignations. In addition, the Applicants contend that directors of the Company could not validly pass a resolution by circular resolution. In any event, Ms Jiali was not informed of the resolution until 31 August 2020.
These proceedings had been commenced by Mr Chen and the Company against Ms Jiali, Mr Shao and others on 12 June 2020. Essentially, Mr Chen claimed that the Company's money received in respect of commissions for the Waterfall project had been transferred out of the Company's account without authorisation.
On 5 October 2020, Mr Tong sent to Ms Jiali notice of a meeting of the directors of the Company to be held on 6 October 2020 to vote on the resolutions ratifying the Company's commencement and conduct of these proceedings appointing solicitors to act for the Company in the proceedings, appointing Mr Chen as "agent to deal with this litigation" and to instruct the solicitors on behalf of the Company and authorising Mr Chen to settle the proceedings on behalf of the Company against any or all of the defendants "on such term or terms as he seems fit".
The meeting (or purported meeting, noting the Applicants' contentions that Mr Chen and Ms Shao had already ceased to be directors) proceeded by way of WeChat voice call on 6 October 2020 over the objections of Ms Jiali. Specifically, Ms Jiali objected that she had insufficient information to make decisions on the proposed resolutions, including insufficient information about whether the Company had sufficient funds to fund the proceedings and no explanation of Mr Chen and Ms Shao's reasons for forming the view that it was in the Company's best interests to carry on the proceedings. Ms Shao participated in the meeting, notwithstanding that information that she subsequently lodged with ASIC stated that she ceased to be a director on 20 July 2020. According to Ms Jiali's evidence, Mr Chen and Ms Shao talked over the top of her during this meeting. After the meeting, they did not reinstate Ms Jiali's online access to the Company's bank account despite her requests that they do so, although some statements for the bank account were emailed to her.
On or about 27 October 2020, Mr Chen sent an email to Ms Jiali stating that a directors meeting would be held later that day in order to resolve where to keep a fund of $80,000 that was then standing to the credit of the Company's bank account, and various other issues. Ms Jiali then caused her solicitors to write to the solicitors on the record for Mr Chen and the Company in these proceedings stating that:
1. Ms Jiali did not accept that Mr Chen and Ms Shao were directors of the Company or that Mr Chen was entitled to call a directors meeting;
2. further, Ms Jiali did not accept the validity of the notice of meeting or the period of notice;
3. the parties could consider asking the court to order that the sum of $80,000 be paid from the Company's bank account into court; and
4. if Ms Jiali attended the purported meeting, this would be without prejudice to her contentions set out in the letter.
Neither Mr Chen nor his solicitors responded to this letter.
Ms Jiali did attend the meeting on 27 October 2020 via WeChat audio chat. Ms Shao participated in this meeting, even though documents later lodged with ASIC state that she ceased being a director on 20 July 2020. Mr Chen proposed that the $80,000 be transferred to "my company's trust account" but refused to clarify when asked by Ms Jiali which account he was proposing to transfer the money to and avoided answering a specific question whether he was proposing to transfer the money to MPG's trust account. Ms Jiali again proposed payment into Court. Mr Chen told Ms Jiali to stop speaking and terminated the audio chat, thereby excluding her from further participation in the meeting.
Ms Jiali later discovered, upon reviewing bank statements of the Company and an affidavit of Mr Chen sworn on 15 November 2020 and served in these proceedings, that the sum of $87,000 had been transferred from the Company's bank account on 22 October 2020 to Mr Chen's personal account (as to $30,000) and to MPG (as to $57,000), leaving the Company with only $0.50 in its bank account. These transfers had occurred some five days prior to the meeting called by Mr Chen on 27 October 2020.
The Applicants' application for the appointment of a provisional liquidator was listed for hearing on 30 November 2020. The application did not proceed to a hearing on that occasion because the Applicants and Respondents agreed to orders requiring the Company, Mr Chen and Ms Shao to cause the payment of all funds of the Company into Court and an order that no part of the Company's funds be used for any purpose until further order of the Court. Those orders were made by consent and without admissions.
At a hearing before Justice Black on 14 December 2020, the Court was informed that the solicitors previously acting for the Company, Mr Chen and Ms Shao had ceased to act, and that Mr Chen had "removed" himself as first plaintiff in the proceedings by "notices of discontinuance and dismissals against each of the other defendants that was either by consent or by order of the Court granting leave". I interpolate to note that Mr Chen (as first plaintiff) did indeed file a notice of discontinuance of the proceedings as against the first, third, fourth and fifth defendants on 20 November 2020, pursuant to leave granted on 12 October 2020. The Court was also informed that the order made on 30 November 2020 requiring payment of the Company's funds into Court had not been complied with.
In those circumstances, Black J made the following directions and orders:
"1. Direct Matrix Global Investment Group Sydney Pty Ltd, if it wishes to continue the proceedings, to cause a notice of appearance of solicitors acting for it to be filed and served by 4pm on 21 December 2020.
2. Stay the proceedings brought by Matrix Global Investment Group Sydney Pty Ltd, reserving the position as to the further amended interlocutory process filed by other parties, pending the filing and service of a notice of appearance of a solicitor acting for it.
3. Order that Matrix Global Investment Group Sydney Pty Ltd, Mr Yikai Chen and Ms Mingxia Shao comply with order 1 made by Gleeson J on 30 November 2020 in this proceeding (regarding payment of funds into Court) by no later than 4pm on 15 December 2020 and, by that time, serve affidavit evidence indicating that they have done so on the defendants and send a copy of that affidavit to the associate to Black J.
4. Relist the proceedings before Black J at not before 10am on 16 December 2020, for hearing by telephone with a view to the appointment of a provisional liquidator if order 1 made by Gleeson J has not then been complied with.
…"
Order 3 above was not complied with. Black J made orders appointing the provisional liquidator following a hearing on 16 December 2020, at which there was no appearance on behalf of the Company or Mr Chen. Ms Shao appeared in person and did not oppose the appointment of the provisional liquidator.
Black J considered evidence of the purported resolution of the directors of the Company on 27 October 2020 to pay $80,000 to MPG's account, the payment of that sum to Mr Chen and MPG, and the Respondents' failure to comply with the orders made on 30 November 2020. His Honour was satisfied that there were sufficient grounds for the exercise of the Court's power to appoint a provisional liquidator under s 472 of the Corporations Act, applying the principles applicable to the exercise of that power: see, for example, Re Therma Truck Pty Ltd [2016] NSWSC 266 at [18]-[20]; Australian Securities and Investments Commission v Active Super Pty Ltd (No. 2) (2013) 93 ACSR 189; [2013] FCA 234 at [13]-[14]; Re New Cap Reinsurance Corporation (1999) 32 ACSR 234; [1999] NSWSC 536 at [22]-[23]. His Honour said:
"Generally, the Court proceeds on the basis that the applicant for the appointment of a provisional liquidator must establish that there is a reasonable prospect that a winding up order will be made on the application. I am satisfied that there is a reasonable prospect that such an order will be made both because of the breakdown of the relationship between the Company's directors and shareholders and, more fundamentally, the fact that the Company's loss of control of its own funds would support a winding up order on the just and equitable ground, to allow a liquidator to take steps to recover those funds.
The order for the appointment of the provisional liquidator also ordinarily requires, as Ms Mee points out, that the applicant shows some good reason for intervention prior to the final hearing of the winding up application, for example, that the appointment is needed to preserve the status quo or to protect the Company's assets: Australian Securities and Investments Commission v Active Super Pty Ltd No 2 [2013] 93 ACSR 189; [2013] FCA 234.
In this case, it may be too late to protect the Company's assets, so far as the payment has already been made out of the Company to Merit, but it seems to me that the appointment of a provisional liquidator is desirable so than an independent person can take steps, including if necessary by seeking a freezing order, so as to preserve the Company's funds where there are now in Merit's possession. The basis for such an order is reinforced by the deadlock in the Company's management, and the non-compliance with the order made by Gleeson JA which emphasises, as Ms Mee points out, that something short of the appointment of a provisional liquidator will not preserve the Company's position or address the loss of its funds.
For these reasons, I am satisfied that a case has been made for the appointment of a provisional liquidator."
Following the appointment of the provisional liquidator, the Further Amended Interlocutory Process was stood over to today for hearing of the winding up application. Black J also made the following directions on 1 February 2021:
"1. Direct the Defendants to file and serve all remaining evidence in respect to the winding up application and their submissions by 4pm on 3 February 2021 and send a copy to Associate to Black J.
2. Direct the First Plaintiff and the provisional liquidator to advise the Associate to Black J and the parties by 4pm on 3 February 2021 whether the Plaintiffs pursue any claims against the Defendants.
3. Direct the Plaintiffs and Ms Shao if they oppose the winding up order to serve and send to Associate to Black J their evidence and submissions by 4pm on 5 February 2021."
In relation to direction 2 above, the provisional liquidator's firm sent an email to the Associate to Black J on 1 February 2021 stating that the provisional liquidator was not presently aware of any claims to pursue against the defendants in the proceedings.
In relation to direction 3 above, no correspondence was received from the plaintiffs (that is, the Company and Mr Chen) or Ms Shao by 4pm on 5 February 2021.
At the hearing on 8 February 2021, Ms Mee of counsel appeared for the Applicants. There was no appearance for the Respondents. The Applicants led evidence demonstrating that the Respondents had been served with the Further Amended Originating Process and supporting affidavits and that notice of the winding up application had been lodged with ASIC and published as required by s 465A(1) of the Corporations Act.
As I have already stated, the Company ceased undertaking new business by the end of 2018. It presently has no ongoing business activities.
Common scenarios in which winding up orders are made under s 461(1)(k) include where there has been a breakdown of trust, confidence and/or co‑operation between shareholders who founded the company on the basis of a personal relationship involving mutual trust and confidence or requiring material co-operation between them, or where there has been a breakdown of relations or a justified loss of confidence between shareholders that is frustrating the company's sensible commercial operations. However, winding up orders under s 461(1)(k) are not limited to these scenarios. An applicant may rely on any circumstances of justice or equity that affect him or her in his or her relationship with the company in support of the application for winding up on the just and equitable ground. The circumstances need not necessarily amount to oppression: In the matter of AJ Roberts Removals & Storage Pty Ltd [2017] NSWSC 1054 at [72] and the authorities there cited; In the matter of Austral Alloys Pty Ltd [2017] NSWSC 1833 at [18]-[30] and the authorities there cited; In the matter of Pure Nature Sydney Pty Ltd [2018] NSWSC 914 at [70] and the authorities there cited.
In this case, I am satisfied that it is just and equitable to wind up the Company having regard to the evidence that I have summarised above. There has been a complete breakdown of relations between the shareholders. The majority shareholder transferred the whole of the Company's funds to accounts controlled by him over the objection of the other shareholders and subsequently called a meeting to approve that transfer without disclosing that it had already occurred. This transpired in circumstances where those other shareholders dispute that Mr Chen is even a director of the Company. Whilst the Company has no ongoing business activities, the dispute about who are the directors and Mr Chen's conduct in transferring the whole of the Company's funds into his own account and MPG's account is frustrating the sensible operations of the Company in dealing with the proceeds of property sales that it procured prior to February 2018. The Applicants have already endeavoured to avail themselves of an alternative remedy, namely the Court order requiring the Company's funds to be paid into Court. Mr Chen failed to comply with that order. In all of those circumstances, Ms Jiali's loss of confidence in Mr Chen is justified and the Applicants cannot be said to be acting unreasonably in applying to wind up the Company. Ms Jiali has given evidence to the effect that the Company requires the whole of its funds to pay creditors. Mr Chen's conduct has deprived the Company of the ability to make any payments at all to creditors. The liquidator will be able to take such steps as he may be advised in relation to the Company's funds.
Having reached that conclusion, it is not necessary to address the alternative grounds of the winding up application (that is, ss 232 and 233 and ss 459A and 459P of the Corporations Act) which received little attention in the Applicants' submissions.
For those reasons, I will make an order that the Company be wound up pursuant to s 461(1)(k) of the Corporations Act and an order appointing Mr Daniel O'Brien, registered liquidator, as liquidator of the Company. Those orders will dispose of prayers 12, 12A and 13 of the Further Amended Interlocutory Process.
I will also make an order dismissing prayer 10 of the Further Amended Interlocutory Process, as the Applicants invited me to do if I was persuaded to make a winding up order.
I note that all other aspects of the Further Amended Interlocutory Process have been disposed of by orders made previously, with the exception of the declaratory relief sought in prayers 2 to 7 concerning the Company's constitution, directors and the validity of the resolution purportedly passed on 6 October 2020, and with the further exception of the question of costs.
The Applicants requested that the matter be listed in 2 to 3 weeks' time for a hearing concerning the costs of the proceedings (including the costs of the Further Amended Interlocutory Process) and a potential application foreshadowed by the Applicants to have some or all of the Respondents punished for alleged contempt of court in failing to comply with the orders made on 30 November 2020 and 14 December 2020.
The Applicants submitted that they may wish to pursue their claims for declaratory relief in prayers 2 to 7 of the Further Amended Interlocutory Process in connection with their application for costs order against Mr Chen and/or Ms Shao, or in connection with the foreshadowed application concerning alleged contempt of court. I say nothing further about that submission at this stage other than to record it.
I will stand the Further Amended Interlocutory Process over to the Corporations List on 1 March 2021 for directions. That will allow the Applicants time to determine whether they wish to press for the declaratory relief in prayers 2 and 7, to consider what costs orders they wish to seek in relation to the Further Amended Interlocutory Process and the proceedings, to consider whether to apply to discharge the stay of the proceedings ordered on 14 December 2020 in order to pursue any such costs orders and to file and serve any notice of motion concerning alleged contempt of court in accordance with Part 55 of the Supreme Court Rules 1970 (NSW).
I will make a direction that the Applicants send a copy of those directions and orders, together with these reasons for judgment to the liquidator, Mr Chen and Ms Shao and file and serve an affidavit evidencing that they have done so by 4.00pm on 24 February 2021.
[2]
Orders
1. Order pursuant to s 461(1)(k) of the Corporations Act 2001 (Cth) that Matrix Global Investment Group Sydney Pty Ltd (ACN 614 718 339) be wound up.
2. Order that Daniel O'Brien, registered liquidator, be appointed as liquidator of Matrix Global Investment Group Sydney Pty Ltd (ACN 614 718 339) (the Liquidator).
3. Order that paragraph 10 of the further amended interlocutory process filed on 26 November 2020 is dismissed.
4. Stand the further amended interlocutory process over for directions in the Corporations List at 9.15am on 1 March 2021.
5. Direct the Applicants to send a copy of these orders together with the reasons for judgment of Williams J published on 12 February 2021 to the Liquidator and the Respondents and to file and serve an affidavit evidencing that they have done so by 4pm on 24 February 2021.
[3]
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Decision last updated: 12 February 2021