Australian Securities and Investments Commission v Aviation 3030 Pty Ltd

1. The applicant's interlocutory application dated 21 March 2019 be dismissed. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

O'CALLAGHAN J: 1 On 20 March 2019 I ordered the first respondent to pay ASIC its costs of its successful application to wind up the first respondent. 2 At the same time, at ASIC's request, I reserved liberty to ASIC to apply to have that order varied. 3 ASIC now seeks an order that certain non-parties indemnify the first respondent in respect of the costs it has been ordered to pay. 4 These reasons assume knowledge of the reasons in Australian Securities and Investments Commission v Aviation 3030 Pty Ltd [2019] FCA 377. 5 Hakly Lao and Chong Huy Taing (known as Huy Taing) are current directors of the defendant companies in Australian Securities and Investment Commission v Aviation 3030 Pty Ltd [2019] FCA 377. Khay Suong Taing (Huy's father) is a former director. Lao Holdings Pty Ltd (the Lao company) is a corporate vehicle of Hakly Lao, beneficially owned and controlled by him. Khay Suong Taing Aviation 3030 Pty Ltd (the Taing company) is beneficially owned and controlled by the Taing family. The Lao company and the Taing company assert an entitlement to over 60% of the shareholding in the first respondent, an entitlement which is disputed. Both the Lao company and the Taing company were granted leave to intervene in the present proceeding and actively opposed the making of the winding up orders. 6 The parties did not dispute that the court has the power to order that the Lao and Taing interests bear the costs of the winding up application. See s 43 of the Federal Court Act 1976 (Cth). The power is, of course, discretionary, and should only be exercised in the clearest of cases. See Dunghutti Elders Council (Aboriginal Corporation) RNTBC v Registrar of Aboriginal and Torres Strait Islander Corporations (No 4) (2012) 200 FCR 154 at 171, [96]. 7 ASIC relies on the following factors to justify the costs order, namely: (i) Mr Lao and the Taings were effectively in control of the first respondent. (ii) They caused the company to oppose the making of the winding up order. (iii) Their corporate vehicles intervened to oppose the winding up order. (iv) The March 2016 share issue which is challenged in the proceeding was for their benefit. (v) If that share issue stands they will benefit by more than $60 million. (vi) There have been numerous other conflicted dealings by them, e.g. the other share issues at an undervalue; the related party loans; the Kayla arranger's fee; and the management fees. (vii) These transactions show that they have conducted the affairs of the company for their personal benefit and not for the benefit of the company. (viii) Prima facie findings of contraventions of s 286 of the Corporations Act 2001 (Cth) are available on the facts. (ix) It would be unjust for the other investors to have to bear some of the cost of the application. (x) The Lao and Taing interests can properly be regarded as the real litigants standing behind the first respondent. 8 In my view, this is not an appropriate case to exercise the discretion to make an order of the type sought by ASIC. To do so would require the court to be satisfied about facts concerning the conduct of the directors and shareholders which the liquidator will be best placed to investigate, including the matters upon which ASIC relies concerning the role of each of the respondents to this application in Aviation 3030's unsuccessful opposition to ASIC's application for the making of a winding up order. The liquidator will also be well placed to investigate whether personal interests motivated the defence of the proceeding and the nature of the legal advice that was received, among other things. Compare Dunghutti Elders Council (Aboriginal Corporation) RNTBC v Registrar of Aboriginal and Torres Strait Islander Corporations (No 4) (2012) 200 FCR 154 at 171-172, [96]-[102]. 9 As in that case, in my view, the appropriate order to have been made is the order that I in fact made, namely that the first respondent pay ASIC's costs. That will leave it to the liquidators to take whatever proceedings they consider appropriate consequential upon that order. 10 The interlocutory process will be dismissed. There will no order as to the costs of the application. I certify that the preceding ten (10) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice O'Callaghan.