Australian Securities and Investments Commission v Uglii Corporation Ltd

DAVIES J: 1 On 8 September 2016, the Court ordered pursuant to section 472 of the Corporations Act 2001 (Cth) ("the Act") that Robyn-Lee Erskine and Adrian Hunter, official liquidators of Brooke Bird, be appointed as joint and several provisional liquidators to each of the defendants, including Global Ads System Pty Ltd (provisional liquidators appointed) (formerly known as Uglii Ads System Pty Ltd) ("Global Ads"). Subsequently, ASIC applied for orders to wind up, and appoint a liquidator to, each of the defendants on the ground of insolvency pursuant to section 459B of the Act. On 6 December 2016, the Court made orders that each of the defendants, apart from Global Ads, be wound up in insolvency: Australian Securities and Investments Commission v Uglii Corporation Ltd (No. 2) [2016] FCA 1511. 2 There was cogent evidence that Global Ads was also insolvent. According to the company's Report as to Affairs the company had one creditor, being a debt owing to Konak Solutions Pty Ltd in the sum of $58,135 but, on the information available to the provisional liquidators, the company had no readily realisable assets available to it out of which to meet this liability from its own resources and the provisional liquidators had not been provided with any substantive information that would indicate that the company has access to funds from third parties that would allow this liability to be met. They were therefore of the opinion that the company is insolvent. However, after preparing their report on the solvency of the company it came to the attention of the provisional liquidators that the Konak debt may no longer be owed. Accordingly, the wind up application in respect of Global Ads was adjourned to enable this to be investigated. Those investigations have since been completed and ASIC now seeks to proceed with its application to wind up Global Ads. 3 ASIC relies on a report to the Court prepared by the provisional liquidators on 15 February 2017. In that report the provisional liquidators stated: Konak solutions Pty Ltd - $58,135: On 28 September 2016 we received a letter Mr Ian Barnes, director of Konak advising that the debt owed by Global Ads to Konak of $52,135 and the debt owed by Uglii Corporation to Konak of $284,840 had been purchased by him, which totalled $342,975. Notwithstanding, our investigations identified an email from Ms Ann Zhu, Company Secretary of both Uglii and Global Ads, to Ms Maggie Zha of Konak dated 20 October 2016 which confirmed a debt of $324,440 as being outstanding by "Uglii". It is unclear from the email as to whether Ms Zhe [sic] was making reference to Uglii Corporation Ltd or the Uglii group of companies (incl Global Ads), as was commonly the case. Mr Barnes subsequently advised us via email on 30 January 2017 that the debt due by Global Ads had been written off by him on 20 October 2016 [Annexure 17]. In this regard we note that "writing off" is an internal accounting procedure. Unless there has been an agreement for consideration, or a deed, the effect of which is to release or waive the amount outstanding, on a legal as opposed to accounting basis the debt would still exist and probably be payable/recoverable. We have not been provided with any such legal release. Notwithstanding the above communications, an email trail between Mr Knorr, Ms Zhu and Mr Barnes in October 2016 indicates that despite the purported write-off of this debt, payment upon the sale of Konak's 'Nice billing system' for $1m to Global Ads will have an additional $60,000 component to repay this written-off debt. Accordingly, this debt appears to have been written-off in an accounting process only and remains a legally enforceable outstanding debt [Annexure 18]. (Annexures omitted) 4 In addition the provisional liquidators reported that: (a) Global Ads has employee liabilities of $9,314 which have not been discharged. The report stated: Employees- $9,314: The accounting records of Global Ads disclose that it had during the 2016 Financial Year two employees. The Employee Entitlement Balance report obtained from the Global Ads MYOB records discloses that as at 30 June 2016, one of those employees, Mr Aka Samara, was owed $2,254.47 in annual leave entitlements [Annexure 14]. An email was sent from Mr Samara to Mr Knorr on 8 May 2016 resigning as the Marketing Manager [Annexure 15]. Accordingly, Mr Samara's entitlements ought to have been discharged prior to 30 June 2016. The Global Ads Account Transactions extracted from MYOB as at 8 September 2016 also discloses a debt of $7,060 outstanding in respect of Superannuation [Annexure 16]. Our review of the accounts for Global Ads does not record the discharge by Global Ads of these employee debts. (Annexures omitted) (b) a proof of debt for $206.80 has been lodged by Allianz Australia Workers' Compensation (Victoria) Ltd; and (c) there may be amounts owing by Global Ads in respect of services provided by translators. 5 The report concludes that the provisional liquidators have not been able to identify any assets or revenue streams from which Global Ads is able to satisfy its creditors. 6 The report also addressed other concerns of the provisional liquidators which led them to form the view that if the company is not wound up in insolvency it should be wound up on the just and equitable ground. ASIC does not seek a winding up order on that ground though, but only on the basis that the evidence establishes that Global Ads is insolvent. 7 I am satisfied that the evidence does establish that Global Ads is insolvent. First, the evidence shows that company has existing liabilities - there is no evidence to rebut the claim of the provisional liquidators that employee liabilities of $9,314 are owed; the evidence discloses that the debt of $58,135 owed to Konak Solutions Pty Ltd remains legally enforceable; and, whilst the amount is de minimus, an amount is due to Allianz Australia Workers' Compensation (Victoria) Limited. Secondly, the evidence before the Court is that Global Ads has been reliant upon Uglii Corporation Limited to meet its liabilities as and when they fall due. Uglii Corporation Ltd is being wound up in insolvency and the provisional liquidators have not identified any other source out of which Global Ads would be able to meet its liabilities. In the absence of any evidence which would otherwise demonstrate that the company has the capacity to meet its liabilities as and when they fall due, I am satisfied that the evidence establishes that the company is insolvent. Accordingly, an order should be made that Global Ads be wound up in insolvency pursuant to section 459B of the Act. I certify that the preceding seven (7) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Davies.