Chamberlain Group Pty Ltd v Kids For Life Academy Pty Ltd

Introduction 1 The plaintiffs, Peter Paul Krejci and Andrew John Cummins, who are the administrators of Union Standard International Group Pty Ltd (administrators appointed) (the company), apply by interlocutory process dated 24 August 2020 (the interlocutory process) for orders that the administration of the company be brought to an end and that the company be wound up on the just and equitable ground: see s 447A(1) and s 461(1)(k), respectively, of the Corporations Act 2001 (Cth) (the Act). 2 I am satisfied that the relief sought by the plaintiffs should be granted. The only substantial issue in dispute is whether the plaintiffs, as administrators, should be appointed as the company's liquidators. I am satisfied that they should be appointed, despite opposition to that course by the company's sole shareholder, Union Standard Group International Holdings Ltd (USG Holdings), a company registered in Samoa.

Background 3 The company operates a financial services business dealing with, amongst other things, derivatives and foreign exchange contracts. It holds an Australian financial services (AFS) licence. It provides margin trading services for foreign currency pairs or instruments (such as gold, silver or an index) via an online platform at https://www.usgfx.com/AU/. USGFX is a trading name used by the company. 4 The first defendant, Soe Hein Minn, is a director of the company. He lives in Myanmar. Mr Soe is also a director of USG Holdings, in which he holds 65% of the issued capital. The present evidence strongly suggests that Mr Soe controls USG Holdings. USG Holdings holds all the issued capital in another company, Union Standard International Group Limited, which is registered in Vanuatu (USG Vanuatu). I will explain the significance of USG Vanuatu later. 5 On 8 July 2020, the plaintiffs were appointed as joint and several administrators of the company by a resolution of the company's directors. On 10 July 2020, they issued a First Report to Creditors under s 436E of the Act. A first meeting of creditors was held on 20 July 2020, at which time a committee of inspection was appointed, comprising six members. 6 On 15 July 2020, the Australian Securities and Investments Commission (ASIC) suspended the company's AFS licence until 23 September 2020. Notwithstanding that suspension, ASIC permitted the plaintiffs to conduct certain activities under a conditional licence during the suspension period. 7 In accordance with those conditions, the plaintiffs determined that they would suspend all client trading and restrict use of the company's online platform so that no new positions could be taken. Clients would be permitted to close positions, but not make withdrawals at that time. The plaintiffs instructed the company's clients that if their open contracts were not closed by 7 August 2020, the plaintiffs would consider closing the contracts themselves. 8 The company does not control its own website, the trading platform software it uses (referred to in the evidence as the MT4 and MT5 platforms) or the servers on which the trading platform software is hosted. The servers also store the company's data in relation to the MT4 and MT5 platforms, including most of the company's books and records required to carry on its business, such as its clients' trading histories and account balances. The evidence indicates that the website, platforms and servers are controlled by USG Holdings. It also seems that USG Holdings controls funds of the company that are held by offshore entities called "money processors". 9 The plaintiffs have made extensive attempts to gain access to the company's trading platform software and servers, including through several applications to the Court. Despite orders made by the Court, the plaintiffs have been thwarted in that task. These attempts are explained in reasons for judgment published as Krejci, in the matter of Union Standard International Group Pty Ltd (Administrators Appointed) (No 2) [2020] FCA 1111; Krejci, in the matter of Union Standard International Group Pty Ltd (Administrators Appointed) (No 3) [2020] FCA 1109; and Krejci, in the matter of Union Standard International Group Pty Ltd (Administrators Appointed) (No 4) [2020] FCA 1252. 10 By way of summary only, on 30 July 2020, Mr Soe was joined as a party and ordered to provide (or cause entities controlled by him to provide) the plaintiffs with passwords, digital keys or other information that would enable them to have immediate "administrator" access to the platforms and servers. 11 The nature of "administrator" access is explained in an affidavit by Daniel Bent, who has been engaged by the plaintiffs to assist them in gaining access to, and conducting an audit of, the data held on the platforms and servers: 11. Ordinarily, 'administrator access' to the Platforms would enable a variety of reports to be generated, a review of trading logs and the configurations of the system to be readily reviewed. Although reports can be run using a lesser status of access known as 'manager access', without administrator access it is not possible to verify that those reports pertain to all clients with active accounts on the Platform. That is because it is the administrator who is able to determine the settings by reference to which reports are prepared. 12. In order to obtain complete details regarding the trading history of the Company and its clients, it is necessary to have 'administrator access' to the Platforms and the Servers. Anyone with 'administrator access' (and only someone with 'administrator access') is able to manipulate, delete or alter data and records held on the Platforms or on the Servers and is able to grant 'administrator access' to others. … 19. 'Manager access' is a lesser form of access that enables a user to access details of the trading accounts, including but not limited to personal information, trading and account history and current open positions. However, it does not enable a user to fully analyse the configuration of the platform in respect of and not limited to the products offered and groups in which clients are organised, and to review in depth the journals and logs of the server (for example, as to whether an account has been logged into from different IP addresses, and so as to understand in full the settings of the particular products available to individual clients). 12 Although served with the Court's orders, Mr Soe did not furnish the required access. The matter came back before the Court on 31 July 2020, at which time USG Holdings was joined as a party and ordered to provide (or cause entities controlled by it to provide) the plaintiffs with passwords, digital keys or other information that would enable them to have immediate "administrator" access to the platforms and servers. At that time, the plaintiffs gave an undertaking to the Court that they would not use their "administrator" access to change, delete or otherwise alter or use any of the records, information or data of any other company. 13 On 1 August 2020, USG Holdings provided the plaintiffs with "administrator" access to the platforms but did not provide "administrator" access to the servers. The plaintiffs brought the matter back to the Court on 4 August 2020, at which time USG Holdings informed the Court that it was only able to provide "administrator" access to the platforms, not the servers. According to evidence led by USG Holdings through another director (Mr Moe Tun), Mr Soe controlled "administrator" access to the servers and had not granted that access to anyone else. 14 The presiding judge, Stewart J, said that it was sophistry to say that USG Holdings could not provide the requisite "administrator" access. His Honour said that the true position was that Mr Soe would not allow USG Holdings to provide that access and that Mr Soe was "playing fast and loose" with the plaintiffs and, it would appear, the Court. 15 The Court therefore made an order that the plaintiffs would be justified in directing Beeks Financial Cloud Ltd (Beeks), the third-party entity managing the servers located in London, New York, Tokyo and Cyprus, to physically turn off the servers and/or collect the physical hard drives of the servers from their respective locations. 16 Having provided the plaintiffs with "administrator" access to the platforms on 1 August 2020, USG Holdings withdrew that access on the afternoon of 6 August 2020, ostensibly because the plaintiffs had acted in breach of their undertaking given to the Court on 31 July 2020 by closing out certain forms of trades for clients of other companies in the group. 17 The plaintiffs brought the matter back to the Court on 7 August 2020. The presiding judge (again Stewart J) observed that it was not up to USG Holdings to take matters into its own hands. His Honour made an order that USG Holdings provide the plaintiffs with "administrator" access to the platforms forthwith. This did not happen. 18 On 14 August 2020, the plaintiffs' solicitors wrote to USG Holdings' solicitors noting that USG Holdings had not complied with the orders of 7 August 2020 and that this non-compliance constituted a contempt of court. 19 On 16 August 2020, the plaintiffs' solicitors received an email from USG Holdings' solicitors purporting to provide login details which would give "administrator" access to the platforms. However, when used, the codes did not provide that access. On 18 August 2020, the plaintiffs' solicitors informed USG Holdings' solicitors of that fact. 20 Since that communication, USG Holdings has not provided further codes or an explanation for why the login details provided on 16 August 2020 did not work. 21 I am satisfied that USG Holdings is prima facie in contempt of the Court's orders made on 7 August 2020. 22 To make matters worse, the platforms have now been moved to different servers to which the plaintiffs have no access. Mr Bent believes the company's data has been transferred to those servers. 23 As a result of these matters, the plaintiffs have been unable to secure basic information about the company's financial position and the financial position of its clients in respect of their trading with the company. 24 The evidence reveals the following further disturbing events. 25 First, unauthorised persons using an email account with the domain name "@usgfx.com" have purported to give instructions to the Commonwealth Bank of Australia (where some of the company's funds are held) to transfer funds out of a trust account which the plaintiffs have requested to be frozen. 26 Secondly, unauthorised persons who appear to be connected with USG Holdings and Mr Soe, with access to email accounts with the domain name "@usgfx.com", have been directing offshore money processors who hold the company's money to ignore the plaintiffs' instructions to freeze the relevant accounts and transfer the funds to an account which they (the plaintiffs) control. The amount held in these accounts is not known precisely, but the plaintiffs estimate it to be in the order of $15.64 million. Unauthorised persons using these email accounts have given directions to certain money processors to open new accounts in the name of the company and to transfer funds held in the company's name to the new accounts. 27 Thirdly, unauthorised emails with the domain name "@usgfx.com" have been sent to clients of the company giving misleading information about the conduct of the administration. 28 Fourthly, client accounts appear to have been transferred away from the company to other entities controlled by USG Holdings, in particular to USG Vanuatu. In this connection, there has been a significant movement of the company's funds from $61 million to $1.2 million over the period 1 to 28 July 2020. The plaintiffs are unable to ascertain the reason for this decrease. However, Mr Krejci has been informed by both a former director of the company and a former CEO that they assume movements of that size could not be explained only by clients closing out their positions. The plaintiffs are concerned that the decrease may be due to USG Holdings deleting the company's client records or migrating the company's clients to entities such as USG Vanuatu. If this is so, then the potential exists for assets of the company (potential debts owed by clients) to be dissipated, denying the company the value of those accounts should they be capable of being sold. These concerns have been heightened by the fact that, at the First Meeting of Creditors held on 20 July 2020, the plaintiffs were informed by some creditors that they had been approached by USG Holdings to transfer their accounts to such entities. There are emails in evidence with the domain name "@usgfx.com" which appear to advise clients to transfer their accounts from the company to USG Vanuatu. 29 Fifthly, preliminary investigations indicate that, prior to the administration, clients of the company appear to have been offered a form of product not the subject of the company's product disclosure statement. 30 Sixthly, there is evidence that unauthorised requests have been made to transfer the company's licences to operate the platforms to USG Holdings.

Winding up 31 Mr Krejci has the primary conduct of the administration of the company and has directly supervised staff of his firm, BRI Ferrier (NSW), working on the administration. He has formed the view that there is limited value in the administration continuing in the circumstances I have described and that the most appropriate course is to put the company into liquidation immediately. In an affidavit read in support of the interlocutory process, Mr Krejci deposes that the objectives of Pt 5.3A of the Act will not be achieved in relation to the company, and that immediate liquidation of the company is in the best interest of creditors, substantially for three reasons. 32 First, the plaintiffs' investigations as administrators into the affairs of the company have been restricted as a result of the active efforts of USG Holdings and other related parties to prevent the plaintiffs gaining access to the company's platforms and servers, as outlined above. Once again, the platforms and servers store most of the company's books and records that are required to conduct its business. In his view, the plaintiffs' inability to access the platforms and servers has significantly diminished the value of the company's assets and limited the plaintiffs' ability to sell those assets or the company's business as a going concern. 33 Secondly, given the limited information available, there is no reasonable prospect that the plaintiffs, as administrators, would be in a position to identify comprehensively the company's creditors, verify and adjudicate any proofs of debt received for the purposes of voting at a second meeting of creditors, or prepare a report pursuant to r 75-225(3) of the Insolvency Practice Rules (Corporations) 2016 (Cth). 34 Thirdly, although he has not been able to form a conclusive view as to the solvency of the company, Mr Krejci is of the view that it was unlikely that the company will be able to pay the amounts claimed by creditors in the administration, for the reasons he has explained in his affidavit. 35 Notice of the application to wind up the company has been given to creditors. This notice has only been given relatively recently (31 August 2020), and r 5.6(2) of the Federal Court (Corporations) Rules 2000 (Cth) has not been complied with. Even so, no creditor has come forward to oppose a winding up order being made. Notice of the winding up application was posted on ASIC's website on 1 September 2020 and ASIC has stated that it does not oppose a winding up order being made. Further, on 18 August 2020 a meeting of the committee of inspection was convened, at which ASIC was present. The committee members were updated on the conduct of the administration, including the fact that a winding up application was in contemplation. According to Mr Krejci, the committee members present either agreed with or did not object to the company being wound up. Even USG Holdings is of the view that a winding up order should be made. 36 Having regard to the background facts summarised above, and the considered views expressed by Mr Krejci on behalf of the plaintiffs, I am satisfied that it is appropriate that the administration of the company be brought to an end and that, in light of all the circumstances, it is just and equitable that the company be wound up.

The issue 37 As I have noted above, the only real matter in dispute is who should be appointed as liquidator(s) of the company. The plaintiffs seek their own appointment to which no objection is taken by any interested person other than USG Holdings, who advances its own nominee. 38 In correspondence placed before the Court, ASIC stated that it does not oppose the appointment of the plaintiffs as liquidators, but does oppose the appointment of USG Holdings' nominee. ASIC did not express a reason for opposing the appointment of USG Holdings' nominee, but I infer from other correspondence that it contemplates that civil penalty proceedings against the company are likely to be instituted and that it is not appropriate that the company be in the hands of a liquidator who has been nominated by its sole, and therefore, controlling shareholder. 39 The plaintiffs formally oppose USG Holdings being heard given that it has failed to comply with the Court's orders and is in apparent contempt of court. As the plaintiffs put it in submissions: 23. The result of the above chain of events is not only that the Shareholder and Mr Soe are in contempt of court (and, in Mr Soe's case, contravention of his obligations under s 438B(3)), but that they have together manufactured a situation that has frustrated the course of the administration and made it necessary to wind up the Company. At the same time, they have been attempting to extract money from bank accounts held by the Company, impeding access to other accounts, and, it would seem, attract away clients of the Company to other entities controlled by them. It would be remarkable, in the above circumstances, if new liquidators were appointed on the Shareholder's application. 40 As I have said, I am satisfied that USG Holdings is prima facie in contempt of the orders made on 7 August 2020. As such, there are sound discretionary reasons for not allowing it to be heard. The need to vindicate the authority of the Court is obvious and the present evidence suggests that both USG Holdings and Mr Soe have been assiduous in their efforts to frustrate the effective implementation of the orders that have been made. 41 Nevertheless, I have permitted USG Holdings to read the affidavit of Moe Tun, one of its directors, and to make submissions. I have done so to enable the interlocutory process, which has been brought on with relative urgency, to be heard and determined as quickly and efficiently as possible, especially given the circumstances summarised at [8] - [30] above: as to the appropriateness of adopting this course, see Chamberlain Group Pty Ltd v Kids For Life Academy Pty Ltd [2015] NSWCA 241 at [17]. Having permitted this to be done, I do not wish to be taken as having condoned what appear to be, on the presently available evidence, clear and presently unexplained breaches of the Court's orders by USG Holdings and Mr Soe. 42 USG Holdings' opposition to the appointment of the plaintiffs as liquidators is that, as administrators, they have "caused damage to the company, associated companies and its customers, such as to place them in a position of actual or potential conflict between their personal interests and duty to the company". 43 In his affidavit, Mr Tun raises four complaints. 44 The first complaint is that the plaintiffs have not taken steps to satisfy themselves as to the legitimacy of the board resolution appointing them or as to the correctness of the list of recipients to whom the First Report to Creditors has been sent. 45 The complaint about the legitimacy of the board resolution is that, according to Mr Tun, the appointment of the plaintiffs was not made because of a genuine concern about the solvency of the company but because there was an impasse between directors on management issues. 46 The complaint about the circulation of the First Report to Creditors is that, according to Mr Tun, the report had been sent to former clients of the company and to clients whose positions had been closed out before the plaintiffs' appointment as administrators. According to Mr Tun, the plaintiffs have not since compiled a correct list of recipients. He says that correspondence is still being sent by the plaintiffs to clients and former clients who should not be receiving this correspondence. Mr Tun says that in order to compile a correct list of recipients, all the plaintiffs have to do is "search the account numbers and/or names of clients contained in the list on the MT4/MT5 platforms and the correct details [will] appear". 47 The second complaint is that the plaintiffs, as administrators, have failed to respond promptly to clients and investigate their requests for refunds. 48 The third complaint is that the plaintiffs have asserted an entitlement to terminate a licence agreement purportedly entered into between the company and USG Vanuatu concerning the latter's use of the MT4/MT5 platforms. 49 The fourth complaint is that, when putting a stop on new positions being opened by clients of the company (when they had access to the MT4/MT5 platforms), the plaintiffs also disabled the accounts of other users of the platforms. 50 In oral submissions, the plaintiffs argued that these complaints are without substance and do not, in any event, stand as a substantial reason for not appointing them as liquidators. 51 The hearing of the interlocutory process is not the time to determine the validity of USG Holdings' complaints. I would, however, make the following observations. 52 The complaint that the plaintiffs have not taken steps to satisfy themselves as to the legitimacy of the resolution appointing them (i.e., to determine the solvency of the company) and have failed to compile a correct list of recipients of correspondence from them as administrators, is curious given that, on the face of the evidence, USG Holdings has been complicit in thwarting the plaintiffs' access to the platforms and servers on which most of the company's records are held and by reference to which information could be provided to enable the plaintiffs to undertake these very tasks. 53 The complaint that the plaintiffs have failed to respond properly and to investigate clients' requests for refunds stands in the same position. In his affidavit, Mr Tun says it is feasible and practicable for the plaintiffs to determine these matters on documents provided by the clients themselves, without the plaintiffs requiring "administrator" access to the MT4/MT5 platforms and servers. That, it seems to me, is a matter for the plaintiffs to determine using their expertise and business judgment. The fact remains that the Court has ordered USG Holdings and Mr Soe to provide "administrator" access to the platforms and servers to enable the plaintiffs to carry out their roles as administrators, and that access has not been provided. 54 The complaint that the plaintiffs have disabled the accounts of other users of the platforms is a matter on which there is conflicting evidence. 55 USG Holdings has argued that it is inevitable that claims will be made against the plaintiffs as administrators for wrongful acts during the course of the administration and that this stands as a reason why they should not be appointed as liquidators; the liquidators will be called upon to review the conduct of the administration and that, in that process, there should be no risk of the plaintiffs being put into a position of defending their own conduct, rather than the interests of the company and its creditors.

Conclusion 56 The circumstances of the case persuade me that it would be desirable that the plaintiffs be appointed as liquidators of the company. 57 First, their work as administrators have given them an important head start in understanding the company's current circumstances, including the disposition of its assets and the difficulties that have been faced in obtaining access to the company's books and records. This advantage should not be lost. The plaintiffs are best placed to move quickly to protect the company's assets in the interests of creditors as a whole. 58 Secondly, as I have noted, no interested person other than USG Holdings has raised any objection to the plaintiffs being appointed as liquidators or, I would add, made any complaint about the way in which the plaintiffs have conducted the administration to date. ASIC has been carrying out an investigation into the company and has been kept informed of the plaintiffs' activities as administrators. It has raised no objection to the plaintiffs being appointed although, as I have said, it does oppose USG Holdings' nominee being appointed. 59 Thirdly, none of the matters raised in Mr Tun's affidavit persuade me that the plaintiffs should not be appointed as liquidators. At the present time, the only person interested in making complaints against the plaintiffs is USG Holdings, whose own conduct throughout the administration has been, as explained above, highly questionable and has caused the plaintiffs to make repeated approaches to the Court for orders to assist them in carrying out the administration. When the plaintiffs have approached the Court, they have been successful in obtaining the relief they seek or at least alternative relief to facilitate their role as administrators. If, in the future, there is any legitimate reason to question whether they can continue to fulfil the role as liquidators, in whole or in part, then that issue can be dealt with at that time. 60 Fourthly, the only alternative liquidator is USG Holdings' nominee. I accept that, in light of USG Holdings' conduct to date, it would be inappropriate to appoint its nominee as liquidator.

Disposition 61 As I have said, the administration should be brought to an end and an order should be made to wind up the company. The plaintiffs should be appointed as liquidators. The other relief sought in the interlocutory process should be granted. I certify that the preceding sixty-one (61) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Yates.