Carter v New Tel Ltd

The evidence in support of the application

1. The application to wind up TIOA is supported by an affidavit affirmed 20 December 2018 of Ms Kwai Fong Gao. Ms Gao is a director and company secretary of TIOA, and a Deputy Financial Controller of Tianda Group (Australia) Pty Limited which is an Australian subsidiary of Tianda Group Ltd ("TGL"). TGL is a multinational investment holding company headquartered in Hong Kong. Ms Gao's evidence is that TGL, through a subsidiary, is engaged in geological exploration and exploitation projects in several resources in both China and Australia.
2. Ms Gao refers to the circumstances of the incorporation of TIOA in early 2008, with the intent of investing in iron ore exploration and exploitation with a joint venture partner either from China or Australia. Her evidence is that TIOL was initially the sole shareholder in TIOA, but subsequently entered an arrangement with Gansu Exploitation Bureau Tianshui Division ("Gansu") for the purpose of iron ore exploration. It appeared that, consequential upon that arrangement, three mining tenements were transferred from Tianda Resources (Australia) Pty Limited to TIOA, and TIOL and GNMA or Gansu in turn agreed that TIOL was to be treated as holding a 70 per cent interest in the venture, having contributed the relevant mining tenements, and GNMA was to be treated as holding a 30 per cent interest in exchange for providing capital in a specified amount.
3. Ms Gao's evidence is that a shareholder agreement was subsequently executed, with an incorrect reference to the name of TIOL in that agreement, which superseded the initial documentation of the parties' arrangement, and that shareholder agreement is in evidence. Relevantly, that agreement required unanimous approval of shareholders to any decision to terminate or wind up that venture.
4. Ms Gao's evidence is that TIOL and GNMA, presumably through TIOA, operated an iron ore exploration or mining business from June 2012 to December 2018, which was not successful as no iron ore or rare earth minerals were found. Ms Gao in turn refers to the circumstances in which the relevant exploration licenses expired, and were forfeited, commencing from late 2017. There is evidence that, in December 2017, TIOL and GNMA resolved that those tenements should be abandoned, in circumstances that no indication of iron ore or rare earth deposits had been observed in either tenement and no future work was recommended.
5. The parties subsequently engaged in correspondence in respect of whether TIOA should be voluntarily wound up under the Corporations Act. Over an extended period, Gansu responded to the proposal for a voluntary winding up of TIOA by contending that the balance of the funds in TIOA's bank account should be remitted to it before TIOA could be voluntarily wound up and that, once that occurred, Gansu or GNMA would support the winding up of TIOA. Gansu explained that position, in correspondence, by referring to requirements of the Chinese Ministry of Finance and Ministry of Land Resources which it was contended had the result that TIOA, or TIOL, must remit remaining budgeted funds to China. There is no evidence as to the correctness of GNMA's understanding as to Chinese law, beyond the repeated assertions of that understanding in correspondence, but that position is plainly inconsistent with the manner in which funds of a company in winding up would be distributed under Australian law, which recognises the entitlements of contributories to a surplus, proportionate to their shareholding, after claims of creditors have been met.
6. Ms Gao refers to the continuance of that correspondence, and expresses the view, plainly supported by that correspondence, that TIOL and GNMA have now reached a deadlock, so far as TIOL seeks to have the company wound up on a basis that will distribute the surplus in accordance with Australian law and Gansu or GNMA insist on the distribution of the balance of funds to Gansu before a winding up can occur. There is also reference in correspondence to arrangements with another entity, Tianda Resources (Australia) Pty Ltd, but it appears that entity has been deregistered since 2 May 2018. Ms Gao's evidence is also that TIOA has no creditors, although there has been reference in the course of submissions to a small contingent liability in respect of accounting costs, and that TIOA has no outstanding tax liabilities.

TIOL's submissions

1. As I noted above, Mr Cook supports the winding up order on the basis, first, that TIOA has suspended its business for a whole year, for the purposes of s 461(1)(c) of the Act. It seems to me that that proposition is established, since the evidence indicates that TIOA's last exploration license was forfeited in December 2017 and it thereafter ceased trading, consistent with the circular resolution of its directors passed on 13 December 2017, to which I have referred above. The only subsequent activities have related to the correspondence between the parties debating the distribution of the moneys now held in its bank account. That, it seems to me, would provide a straightforward basis for an order winding up TIOA.
2. Mr Cook also submits that it is just and equitable that TIOA be wound up in the relevant circumstances, and that a winding up order may be made where the underlying substratum of a company has fallen away: Re Tivoli Freeholds Ltd [1972] VR 445 at 468. I accept that the underlying substratum of TIOA's business has here failed, where the relevant mining tenements have been surrendered or forfeited and the company has ceased to carry on its business as noted above.
3. An order for winding up may also be made on the just and equitable ground where there is an irretrievable break down between directors or shareholders of a company such that its affairs are deadlocked: Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [2001] NSWCA 97; (2001) 37 ACSR 672; Nassar v Innovative Precasters Group Pty Ltd [2009] NSWSC 342; (2009) 71 ACSR 343 at [132]; Re The Skippy Film Company Pty Ltd [2017] NSWSC 646 at [18]. In the present circumstances, there is a deadlock between the shareholders which would support a winding up order, where it is plain that, as matters stand, TIOL seeks a distribution of the surplus in proportion to the parties' shareholdings, and Gansu and GNMA insist on a distribution of the balance of funds to it, and the difference between the two positions appears to be incapable of resolution.
4. For these reasons, I am satisfied that an order for winding up of the company can properly be made, both under s 467(1)(c) and s 461(1)(k) of the Act.

Procedural requirements

1. A consent of a liquidator is in evidence. Mr Cook has fairly pointed out that a number of procedural requirements for a winding up, including the giving of notice of the application to the Australian Securities and Investments Commission and advertising requirements under the Supreme Court (Corporations) Rules 1999 (NSW) have not been attended to. Mr Cook points out that, in other cases, orders have been made dispensing with those requirements under s 467 of the Act where a company has no creditors which would be likely to express views as to the application, and no useful purpose would be achieved by advertising the application: Carter v New Tel Ltd [2003] NSWSC 128; (2003) 44 ACSR 661 at [23]; Re Aspirion Group Pty Ltd (recs and mgrs apptd) [2014] NSWSC 39; Re The Skippy Film Company Pty Ltd above at [21]. I am satisfied that TIOA no longer trades and here has only a small contingent liability in respect to its accounting costs, and otherwise those with claims to its assets are its contributories. There is no realistic prospect of any creditor of TIOA seeking to oppose the winding up application, and I am satisfied that it is a proper course to dispense with the procedural requirements that have not been complied with under s 467 of the Act.

Costs

1. There remains a question as to costs. Mr Cook acknowledges that, in many winding up applications, an order will be made that the costs of the application be costs in the winding up, with the result that those costs have a degree of priority in respect of the distribution of the company's assets. Mr Cook points out, however, that such an order would here have the consequence that TIOL which had on several occasions proposed a voluntary winding up and pointed to the costs of a court ordered winding up, and which has been successful in the winding up application over GNMA's opposition, would ultimately bear some 70 per cent of the costs of the application, having regard to its claim to TIOA's surplus assets. It seems to me that, here, the proper order for costs under s 98 of the Civil Procedure Act 2005 (NSW) is an order that GNMA pay TIOL's costs of the application, as agreed or as assessed, on an ordinary basis. Such an order is properly made where GNMA has put TIOL to the costs of bringing a contested application, and establishing the basis for a winding up, although it has ultimately not taken an active position in opposition to the application at the hearing.
2. I note, for completeness, that TIOL sought its costs of the application on an indemnity basis. That was put on the basis that GNMA's position was unreasonable, so as to support an order for indemnity costs against it. Mr Cook submits, and I accept, that GNMA's position was plainly inconsistent with the manner in which Australian law would treat the distribution of assets on a winding up. However, the correspondence between the parties reflects the position taken by Gansu that it was bound by requirements of Chinese law, or at least Chinese policy, in respect of the distribution of the relevant assets. TIOL has not sought to establish, as a matter of evidence, that Gansu had misunderstood those requirements. To the extent that Gansu was a Chinese entity and bound by those requirements, then it would be understandable that it would seek to comply with them, notwithstanding the inconsistent approach of Chinese law and Australian law in respect of these issues. It seems to me that, in those circumstances, it could not be said that Gansu's or GNMA's position was unreasonable, either from its perspective or objectively, albeit it was inconsistent with the position which Australian law would adopt in respect of the same issues. For that reason, I am not satisfied that a basis for an order for indemnity costs against GNMA is established.

Orders

1. Accordingly, I make the following orders:
2. Order under ss 461(1)(c) and 461(1)(k) of the Corporations Act that the First Defendant, Tianda Iron Ore (Australia) Pty Ltd be wound up.
3. Order that the Second Defendant pay the Plaintiff's costs of the proceedings, on the ordinary basis, as agreed or as assessed.
4. Order that David Nicholas Iannuzzi of Veritas Advisory, be appointed as liquidator to the First Defendant.
5. Pursuant to s 467(3)(b) of the Corporations Act, dispense with any further notice of publication of the winding up application.
6. The exhibits be returned.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 14 July 2019