Australian Securities and Investments Commission v Sino Strategic International Limited; In the Matter of Sino Strategic International Limited

The Relevant Facts 8 Prior to the hearing before me yesterday, ASIC forwarded to my Associate an Outline of Submissions. I will mark that Outline as MFI-1. 9 ASIC's Outline of Submissions contains an accurate and most helpful narrative of the relevant facts. It also contains appropriate and correct submissions as to the relevant legal principles and the application of those principles to the facts. I was greatly assisted by ASIC's Submissions. 10 In support of its claims for relief, ASIC read and relied upon the following affidavits: (a) The affidavit of George Yatzis affirmed on 1 July 2015; (b) The affidavit of Scott Robert Purdon sworn on 1 July 2015; (c) The affidavit of Scott Robert Purdon sworn on 9 July 2015; and (d) The affidavit of Phillip Evan Asikas affirmed on 9 July 2015. 11 ASIC tendered two folders of documents being Exhibit GY-1 to Mr Yatzis' affidavit and Exhibit SP-1 to Mr Purdon's first affidavit. 12 ASIC also tendered the Consent of Michael Basedow, official liquidator, dated 8 July 2015 which was filed electronically on the same day. 13 The affidavits of Messrs Purdon and Asikas dated 9 July 2015 proved the requisite formal matters concerning service upon representatives of the defendant, publication of the prescribed Notice of its Application and lodgment of the appropriate Notice of its Application with ASIC itself. 14 The defendant is a public company which is listed on the Australian Stock Exchange. Its listing was suspended on 2 August 2010 and remains suspended. It currently has 1,026 shareholders holding 71,326,443 ordinary shares. 15 ASIC's records indicate that the defendant presently has five directors and no company secretary. Of the five directors shown in those records, four reside permanently in China. The one Australian resident director, Xi Sun, resigned as a director on 20 September 2014 but has not lodged the appropriate form with ASIC. 16 As a result of the matters referred to at [15] above, there is no company secretary of the defendant and no director who currently resides in Australia. 17 The defendant carried on three businesses, being a gaming business, a financial services business and an internet and mobile media business. 18 The only business that is still in existence is the gaming business. That business is conducted in China. It is not operated directly by the defendant but is operated by a wholly owned subsidiary which was incorporated in the British Virgin Islands. In 2011, there was a dispute about the ownership of that subsidiary. However, a Court in China ruled that the defendant was the holding company of that subsidiary. It appears that the defendant is not currently conducting any business in Australia at all. 19 The only asset known to be held by the defendant in Australia is a sum of approximately $115,000 which is held in a Commonwealth Private Bank account with Commonwealth Bank of Australia. There is a very small credit balance in another account held with National Australia Bank Limited. The defendant appears to have Australian liabilities of approximately $80,000. 20 Mr Yatzis acted as the company secretary of the defendant for approximately 12 months between February 2013 and 30 January 2014 when he resigned as the only secretary of the defendant. Mr Yatzis gave evidence that he resigned because he was unable to contact any of the directors of the defendant who live in China and because he believed that the company lacked a "governance structure". He was also concerned about the defendant's continuing non-compliance with its statutory obligations. 21 On 28 November 2014, the Magistrates Court of South Australia convicted the defendant of various offences under the Act. The substance of the offences was that the defendant had failed to: (a) Hold its Annual General Meeting for any of the years 2010, 2011, 2012 and 2013; (b) Lodge with ASIC its Annual Reports for 2011, 2012 and 2013; (c) Lodge with ASIC its Half-Yearly Reports for 2010, 2011 and 2012; and (d) Provide its Annual Report to its members for 2010, 2011, 2012 and 2013. 22 The defendant was fined $18,356.25 in total including costs in respect of the offences to which I have referred at [21] above. 23 On 16 June 2015, Ming Tang, one of the defendant's Chinese-resident directors, sent an email to Mr Yatzis (which came out of the blue) requesting the disposal of $111,000 from the Commonwealth Bank account with $100,000 of that amount to be sent off shore.

The Relevant Principles 24 ASIC submitted that, when considering the present application, the Court should have regard to the fact that, unlike an ordinary litigant, ASIC is motivated by public interest rather than self-interest (see the remarks of Finn J in Australian Securities Commission v AS Nominees Ltd (1995) 62 FCR 504 at 530). I agree with that submission. 25 ASIC also relied upon the observations made by Gordon J (when a Judge of this Court) in Australian Securities and Investments Commission v Letten (No 10) [2011] FCA 498 at [11]-[15] as capturing the relevant principles. There, her Honour said: 11 What then are the principles relevant to an application under s 461(1)(k)? 12 As noted, under s 461(1)(k) of the Act, the Court may order the winding up of a company if the Court is of the opinion that it is just and equitable that the company be wound up. The categories of circumstances that satisfy the just and equitable ground are not closed or rigid: Australian Securities and Investment Commission v Storm Financial Ltd (2009) 71 ACSR 81 at [65] and Re Westbourne Galleries Ltd [1973] AC 360. 13 In the past, orders under s 461(1)(k) of the Act have included cases: 1. where, on application by a public authority, it is in the public interest that a company be wound up because there is a 'justifiable lack of confidence in the conduct and management of the affairs of the company': Australian Securities and Investments Commission v Green Pacific Energy Ltd (2006) 59 ACSR 142 at 181 [137] to [139]; 2. where the winding up will serve to protect investors: see Australian Securities and Investments Commission v Pegasus (2002) 41 ACSR 561 at 579 [96] to [98]; and 3. the affairs of the company have been conducted in a way which demonstrates a lack of probity productive of a justifiable lack of confidence in the administration of the company, or where there has been misconduct or illegality in the conduct of the affairs such as it is in the public interest in the protection of investors that the company be wound up: Loch v John Blackwood Ltd [1924] AC 283 at 788; Australian Securities Commission v AS Nominees Pty Ltd (1995) 62 FCR 503 at 530-533; Australian Securities and Investments Commission v ABC Fund Managers Ltd (2001) 39 ACSR 443 at [116] - [129]; Deputy Commissioner of Taxation v Casualife Furniture International Pty Ltd (2004) 9 VR 549 at [449] - [464]; Australian Securities and Investments Commission v International Unity Insurance Pty Ltd [2004] FCA 1059 at [135] - [139]; Australian Securities and Investments Commission v West (2008) 66 ACSR 143 at [140] - [160]. 14 It is now well established that in determining whether to make an order for the winding up of a company on the just and equitable ground, the Court must itself evaluate the factual matrix in order to form a view as to whether a sufficient reason for making the order is demonstrated: Australian Securities and Investments Commission v Green Pacific Energy Ltd (2006) 59 ACSR 142 at 181 [139]. 15 In Australian Securities and Investments Commission v Storm Financial Ltd (2009) 71 ACSR 81 at 109 [67], Logan J observed: That Parliament intended that ASIC would act as a scrutineer of the public interest in a case like the present is evident from s.1(2)(a) and (b) of the Australian Securities and Investments Commission Act 2001(Cth), which materially provide that it is to strive to: (a) maintain, facilitate and improve the performance of the financial system and the entities within that system in the interests of commercial certainty ...; and (b) promote the confident and informed participation of investors and consumers in the financial system. 26 The remarks made by her Honour which I have extracted above were made immediately after her Honour referred to the basis upon which ASIC had standing to seek the winding up of the corporations with which her Honour was dealing in Letten (No 10). Under s 462(2)(e) of the Act, ASIC may apply for an order to wind up a company in connection with an investigation under the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act). As was the case in Letten (No 10), the present proceeding was commenced as a result of such an investigation. In fact, here, there have been two investigations conducted by ASIC under s 13 of the ASIC Act. The first was commenced on 25 September 2013 and the second on 18 June 2015.

Decision 27 ASIC submitted that the defendant should be wound up for four main reasons: (a) The defendant has contravened and continues to contravene a number of important provisions of the Act. Most of these provisions relate to the disclosure of important financial information to the defendant's shareholders. At pars 22-28 of its Outline of Submissions, ASIC set out the contraventions upon which it relied. They may be briefly described in the following way: For most of the last five years, the defendant has not complied with its statutory obligations to lodge and/or provide to its shareholders Annual Financial Reports, Half-Yearly Financial Reports, Directors' Reports and Audit Reports. Furthermore, it has not held an Annual General Meeting since 2009. Finally, it has no secretary and no resident Australian directors. (b) Second, it no longer has a registered office. Mr Yatzis' firm, BDO South Australia, ceased to provide registered office services to the defendant from February 2014. (c) Third, the evidence suggests that the defendant may already be insolvent. A statutory demand was served upon it on 7 May 2015 in which the creditor (its former auditors) claimed $48,403.10. In the evidence filed on behalf of ASIC, there is material showing current claims for other debts totalling approximately $29,000. Historical records show that a business previously owned by the defendant was sold for an amount significantly less than the value of that business shown in the defendant's books. (d) One of the defendant's Chinese directors has recently attempted to secure control of the only real asset left in Australia. 28 As submitted on behalf of ASIC: While there may be an innocent explanation [for this recent attempt to get control of the last asset of the defendant in Australia], this is of concern given that: (a) [The defendant] owes approximately $80,000 to Australian entities; (b) [The defendant] is not conducting any business in Australia; (c) [The defendant's] listing on the ASX has been suspended since 2 August 2010; (d) [The defendant] has no director located in Australia; (e) [The defendant] has no secretary; (f) The only (rarely) contactable director of [the defendant], Mr Tang, has failed to communicate with ASIC despite requests that he do so; (g) [The defendant's] own auditors have issued a statutory demand; and (h) [The defendant] has not appeared [at the hearing]. 29 I was satisfied yesterday, for all of the reasons submitted on behalf of ASIC, that the defendant should be immediately wound up. Accordingly, I made the orders sought by ASIC. 30 Because of the speed with which this matter has proceeded, ASIC was unable to meet the requirements of r 5.6(2)(c) of the Federal Court (Corporations) Rules 2000 concerning the publication of notice of the present application. The notice was, in fact, published but not seven (7) days before the hearing. It was published on 6 July 2015 which is six (6) days before the hearing. 31 ASIC sought dispensation from the requirements of that rule and I granted an appropriate dispensation. I certify that the preceding thirty-one (31) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Foster.