Bester v Mirror Trading International

BUTTON J: 1 The liquidators of Mirror Trading International (Pty) Ltd (in liq) (MTI) applied under the Cross-Border Insolvency Act 2008 (Cth) (the Act) for relief recognising a proceeding in the High Court of South Africa as a foreign proceeding and as a foreign main proceeding pursuant to Arts 17(1)-(2)(a) of the Model Law on Cross-Border Insolvency of the United Nations Commission on International Trade Law (the Model Law), and related relief. The Model Law is Sch 1 to the Act. The present application has been made pursuant to Art 15 of the Model Law, which provides that "[a] foreign representative may apply to the court for recognition of the foreign proceeding in which the foreign representative has been appointed". 2 The plaintiffs' principal affidavit in support of their application was an affidavit of Chavonnes Badenhorst St Claire Cooper sworn 3 August 2023 (Cooper Affidavit). 3 Notice of the application was given to known creditors of MTI in Australia, but none sought to appear or oppose the relief sought. 4 MTI was placed in provisional liquidation by an order of the High Court of South Africa (Western Cape Division, Cape Town) (the South African court) on 28 December 2020, and placed under final liquidation by order made on 30 June 2021. A judgment of the South African court dated 26 April 2023 sets out the background to the operations of MTI more fully, as well as that court's conclusions that (inter alia), MTI operated an illegal Ponzi-type scheme whereby members of the public invested in a bitcoin venture promising high returns. The bitcoin was to be managed with an AI trading bot on the "Trade 300" platform, but that platform did not exist. No pooled investment existed either, with returns to early investors funded by later investment monies. 5 On 16 February 2023, the South African court issued a letter of request for judicial assistance from the courts of the Commonwealth of Australia in relation to the winding up of MTI with the case reference "Master's Ref. C000906/2020" (the South African proceeding). The request for assistance extended to recognition of the liquidation of MTI, recognition of the appointment of the liquidators and their rights, powers and title, and such orders as may be made to assist the South African court in the effective administration and winding up of MTI. 6 Orders appointing the liquidators (both an original group and subsequent additions) were made in the South African proceeding. Other materials, including court orders and the judgment referred to, bear other case filing numbers. 7 Article 17 of the Model Law provides as follows: Article 17 Decision to recognize a foreign proceeding 1. Subject to article 6, a foreign proceeding shall be recognized if: (a) The foreign proceeding is a proceeding within the meaning of subparagraph (a) of article 2; (b) The foreign representative applying for recognition is a person or body within the meaning of subparagraph (d) of article 2; (c) The application meets the requirements of paragraph 2 of article 15; (d) The application has been submitted to the court referred to in article 4. 2. The foreign proceeding shall be recognized: (a) As a foreign main proceeding if it is taking place in the State where the debtor has the centre of its main interests; or (b) As a foreign non-main proceeding if the debtor has an establishment within the meaning of subparagraph (f) of article 2 in the foreign State. 3. An application for recognition of a foreign proceeding shall be decided upon at the earliest possible time. 4. The provisions of articles 15, 16, 17 and 18 do not prevent modification or termination of recognition if it is shown that the grounds for granting it were fully or partially lacking or have ceased to exist. 8 Article 17(2) distinguishes between a proceeding that is a "foreign main proceeding" and a proceeding that is a "foreign non-main proceeding". The distinction between the two emerges from the definition of those terms in Art 2. A "foreign main proceeding" is defined as "a foreign proceeding taking place in the State where the debtor has the centre of its main interests", whereas a "foreign non-main proceeding" is defined as "a foreign proceeding, other than a foreign main proceeding, taking place in a State where the debtor has an establishment within the meaning of subparagraph (f) of the present article". An "establishment" is "any place of operations where the debtor carries out a non-transitory economic activity with human means and goods or services". Both the definition of "foreign main proceeding" and the definition of "foreign non-main proceeding" harness the defined term "foreign proceeding", which is "a collective judicial or administrative proceeding in a foreign State, including an interim proceeding, pursuant to a law relating to insolvency in which proceeding the assets and affairs of the debtor are subject to control or supervision by a foreign court, for the purpose of reorganization or liquidation". 9 As may be seen, Art 17(1)(c) requires compliance with Art 15(2). Article 15(2) provides that: 2. An application for recognition shall be accompanied by: (a) A certified copy of the decision commencing the foreign proceeding and appointing the foreign representative; or (b) A certificate from the foreign court affirming the existence of the foreign proceeding and of the appointment of the foreign representative; or (c) In the absence of evidence referred to in subparagraphs (a) and (b), any other evidence acceptable to the court of the existence of the foreign proceeding and of the appointment of the foreign representative. 10 Art 16 establishes various presumptions that are to be made concerning recognition. Relevantly, Art 16(3) provides that, "[i]n the absence of proof to the contrary, the debtor's registered office, or habitual residence in the case of an individual, is presumed to be the centre of the debtor's main interests". 11 As noted above, an application may be made pursuant to Art 15(1) by a "foreign representative". The term "foreign representative" is defined in Art 2 to mean "a person or body, including one appointed on an interim basis, authorized in a foreign proceeding to administer the reorganization or the liquidation of the debtor's assets or affairs or to act as a representative of the foreign proceeding". Having regard to that definition, the definition of "foreign proceeding" and the evidence establishing the plaintiffs' appointment as liquidators of MTI, I am satisfied that the plaintiffs are authorised to make the present application pursuant to Art 15. 12 The Cooper Affidavit exhibits orders made by courts in the United States of America (United States Bankruptcy Court, Southern District of Florida, Miami Division), Belgium and Canada (Court of King's Bench of Alberta, Calgary). The orders of the United States and Canadian courts recognised the South African proceeding as a "foreign main proceeding". The orders of the Belgian court were not translated, so it is not clear what occurred in that court. In any event, the evidence of these foreign proceedings goes to satisfaction of the requirement to identify all foreign proceedings in respect of the debtor that are known to the foreign representative: Art 15(3). 13 As to the question of whether the foreign proceeding is a "foreign main proceeding" or a "foreign non-main proceeding", the Cooper Affidavit asserted that "Mirror Trading has its centre of main interests in the Republic of South Africa and, accordingly, the RSA proceeding is a foreign main proceeding". Regrettably, nothing was said in the Cooper Affidavit to establish any facts that might support this conclusory assertion. 14 At the court's instigation, the plaintiffs provided a further affidavit exhibiting a copy of a company search supplied by the South African Companies and Intellectual Property Commission. That company search recorded that MTI's registered address is in Stellenbosh, Western Cape, being an area of South Africa. This is sufficient to attract the application of Art 16(3) which, as noted above, provides that, "[i]n the absence of proof to the contrary, the debtor's registered office, or habitual residence in the case of an individual, is presumed to be the centre of the debtor's main interests". As there is no "proof to the contrary", I am satisfied on the basis of the company search and the rebuttable presumption prescribed by Art 16(3), that the company's centre of main interests is in South Africa. Accordingly, the South African proceeding is a foreign main proceeding: Art 17(2)(a). 15 Article 20(1) of the Model Law provides that, upon recognition of a foreign proceeding that is a foreign main proceeding: (a) Commencement or continuation of individual actions or individual proceedings concerning the debtor's assets, rights, obligations or liabilities is stayed; (b) Execution against the debtor's assets is stayed; (c) The right to transfer, encumber or otherwise dispose of any assets of the debtor is suspended. 16 Section 16 of the Act provides that: For the purposes of paragraph 2 of Article 20 of the Model Law (as it has the force of law in Australia), the scope and the modification or termination of the stay or suspension referred to in paragraph 1 of that Article, are the same as would apply if the stay or suspension arose under: (a) the Bankruptcy Act 1966; or (b) Chapter 5 (other than Parts 5.2 and 5.4A) of the Corporations Act 2001; as the case requires. 17 The plaintiffs sought further orders providing that, for the purposes of Art 20(2) of the Model Law and s 16 of the Act, the scope, and the modification or termination, of the stay and suspension referred to in Art 20(1) of the Model Law be the same as would apply if the stay or suspension arose under Pt 5.4B in Ch 5 of the Corporations Act 2001 (Cth) (Corporations Act) and as if Pt 5.4B applied to MTI as a company subject to liquidation proceedings under that Part, and on the basis that references in Pt 5.4B to the consent of the company's liquidators are to be references to the consent of the plaintiffs as foreign representatives. 18 While the effect of s 16 of the Act is to impose a stay automatically upon recognition, it is the usual practice to make an order giving explicit effect to Art 20 of the Model Law and s 16 of the Act: Laverty v Greensill Capital (UK) Limited (in administration), in the matter of Greensill Capital (UK) Limited (in administration) [2023] FCA 721 at [44] (Halley J). In Tai-Soo Suk v Hanjin Shipping Co Ltd [2016] FCA 1404, Jagot J (as her Honour then was) said as follows at [22] and [24]: I accept that, by the relevant provisions, the Court is required to determine what the "case requires". In context, this means that it is for the Court to identify which of the Parts of the Corporations Act would apply to the foreign proceedings if they were taking place under that Act. If it had been intended that the Court select the stays and suspensions from the nominated Parts of the Corporations Act on a discretionary basis then another criterion, not "as the case requires", would have been used. ... The stay which "should apply" is the stay the "case requires" which is determined by the nature of the foreign proceedings compared to the nature of proceedings under the relevant Parts of the Corporations Act. 19 The plaintiffs' originating process seeks relief that identifies Pt 5.4B of the Corporations Act as the applicable part. Pt 5.4B of the Corporations Act is concerned with winding up in insolvency or by the court. As such, it is the part that most closely resembles the nature of the South African proceeding and is the appropriate part to be referred to in orders confirming the nature and application of the stay in these circumstances. 20 The plaintiffs sought further relief pursuant to Art 21(1)(e) of the Model Law entrusting the administration and realisation of MTI's assets in Australia to the plaintiffs. Article 21(1)(e) provides that: 1. Upon recognition of a foreign proceeding, whether main or non-main, where necessary to protect the assets of the debtor or the interests of the creditors, the court may, at the request of the foreign representative, grant any appropriate relief, including: ... (e) Entrusting the administration or realization of all or part of the debtor's assets located in this State to the foreign representative or another person designated by the court; … 21 The plaintiffs are the duly appointed liquidators of MTI. The evidence does not disclose what, if any, assets MTI has in Australia. That said, potential recoveries from early investors who did receive proceeds funded by later investors may constitute an asset. The court was informed from the Bar table that some investors in this class are based in Australia, making it likely that there are at least some Australian assets. To the extent that MTI does have assets in Australia, it is appropriate that the liquidators have the capacity to realise those assets and deal with them in the liquidation for the benefit of MTI's creditors. The evidence discloses that the plaintiffs are, through their solicitors, aware of a large group of creditors located in Australia, and are already engaged in the process of accepting claims from Australian-based creditors. It is appropriate that orders be made authorising the plaintiffs to deal with any Australian assets of MTI. 22 Finally, the plaintiffs sought an order dispensing with the requirements of r 15A.7(1) of the Federal Court (Corporations) Rules 2000 (Cth) and, in lieu thereof, requiring publication of a notice in the form prescribed in The Australian and the Australian Financial Review newspapers, and the giving of notice by email to each Australian creditor of MTI whose claim to be a creditor of the company is known to the plaintiffs (the email addresses of investors in the Ponzi scheme are known to the plaintiffs). 23 Rule 15A.7(1) requires that, if the court makes an order for recognition of a foreign proceeding under Art 17 of the Model Law, or makes any order under (inter alia) Art 21, the plaintiff must, as soon as practicable, have the order entered, serve a copy of the entered order on the defendant, send a notice in accordance with Form 21 to each person whose claim to be a creditor is known to the plaintiff, and publish a notice in accordance with Form 21, in a daily newspaper circulating in the State or Territory where the defendant has its principal, or last known, place of business. Rule 15A.7(2) provides that the court may direct the plaintiff to publish a notice in accordance with Form 21 in a daily newspaper circulating in any State or Territory not described in paragraph (1)(d) of r 15A.7(1). 24 In view of the relief to be granted, r 15A.7(1) applies save to the extent that relief from its application is granted. I am satisfied that the alternative notification regime proposed by the plaintiffs is appropriate, save that notice should be given by email to all known creditors of MTI in Australia, not just creditors who have already made a claim. 25 Orders will be made accordingly. I certify that the preceding twenty-five (25) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Button.