Chen v Blockchain; Abel & Ors v Blockchain Global Ltd [2022] VSC 93

1 On 22 November 2021, Blockchain Global Ltd ('Blockchain'), by summonses filed in proceeding no S ECI 2021 03329 ('the Abel proceeding') and in proceeding no S ECI 2020 03554 ('the Chen proceeding'), applied for orders in each proceeding that the proceeding is stayed pursuant to s 440D of the Corporations Act 2001 (Cth) ('Corporations Act') and that the proceeding be otherwise adjourned to a date not before 25 February 2022.

2 The parties relied upon written submissions and affidavits on the applications as follows:

(a) Blockchain (first defendant in the Abel proceeding and the Chen proceeding): submissions dated 30 November 2021 (together with a bundle of authorities), affidavits of Mr Yeo, an administrator of Blockchain, sworn 25 November 2021 in each proceeding and an affidavit of Mr Hogg, formerly the solicitor for both Blockchain and Mr Guo, affirmed 2 July 2021 in the Chen proceeding;

(b) Plaintiffs in the Abel proceeding: submissions dated 30 November 2021 (together with a bundle of authorities) and an affidavit of Mr Stathopoulos, solicitor for the plaintiffs, sworn 13 September 2021;

(c) Mr Chen (fifth defendant in the Abel proceeding and the plaintiff in the Chen proceeding): submissions dated 30 November 2021 (together with a bundle of authorities) and tender bundles of documents dated 25 November 2021 in each proceeding (identical in each proceeding); and

(d) Mr Guo (second defendant in the Chen proceeding): submissions dated 1 December 2021 (together with a bundle of authorities) and the affidavit of Mr Hogg I have referred to earlier in these reasons at [2(a)].

3 On 16 October 2021, Mr Yeo and Mr Cull were appointed as joint and several voluntary administrators of Blockchain pursuant to s 436A of the Corporations Act.

4 The second meeting of creditors will likely be held between 13 January 2022 and 25 February 2022.

5 Mr Yeo gave evidence, inter alia, that he seeks a stay of each proceeding or that the proceedings otherwise be adjourned to a date after 25 February 2022 to allow him to conduct a thorough investigation of the administration of Blockchain and to provide a considered report to creditors. He also gave evidence in the Chen proceeding that he is not currently in a position to form an opinion on whether the Bitcoin (ie a form of cryptocurrency) contained in the 'Security Wallet', as defined in the amended statement of claim in the Chen proceeding, is property of Blockchain.

6 At the commencement of the hearing of the applications, the Court outlined a possible course in each proceeding as follows:

(a) the making of interlocutory orders, including orders in the Abel proceeding for a statement of claim and defences by the defendants, other than Blockchain; and

(b) adjourning the proceedings, including the further hearing of the applications, for further directions until after the second creditors' meeting of Blockchain, which as I have said earlier in these reasons is to occur by 25 February 2022.

7 The Court proposed this course as it considered that this would enable the issues to be further clarified on the applications, including whether the Abel proceeding or the Chen proceeding are in relation to any of the property of Blockchain for the purposes of s 440D(1) of the Corporations Act.

8 Mr Chen and Mr Guo agreed with the course proposed by the Court.

9 The plaintiffs in the Abel proceeding said they did not oppose the course proposed by the Court.

10 The administrators of Blockchain said that they 'fully' supported the course proposed by the Court save for what they described as a 'jurisdictional issue'. The administrators explained that, at this stage, they do not submit that the Abel proceeding or the Chen proceeding are in relation to any of the property of Blockchain for the purposes of s 440D(1) of the Corporations Act. They submitted that they do not seek a stay of the proceedings on this basis. They said that this is still under investigation. However, the administrators submitted that by reason of s 440D(1) of the Corporations Act, the proceedings against Blockchain, and all other parties, are each nonetheless stayed as they are a proceeding in a court against the company [ie Blockchain]. The administrators submitted:[1]

To be clear, the administrators are not seeking the court make a finding at this stage that the proceeding is in relation to the property of Blockchain, thereby enliven the second limb of s 440D. The administrators are unable at this stage to make that claim of ownership. The administrators merely point to the fact that the 'proceeding' is not appropriately split as between causes of action against Blockchain and causes of action against Mr Guo - the factual matrix and the interrelationship between the causes of action is such that all claims ought properly be considered as one proceeding.

11 The administrators relied upon a decision of Warren J of this Court in Rodgers v Radly[2] in which her Honour stayed an oppression proceeding as she found it was 'against the company' for the purpose of s 440D of the Corporations Act.

12 The administrators submitted that if the Court did not accept their submission then they agreed with the course proposed by the Court.

13 Section 440D(1) of the Corporations Act provides:

440D Stay of proceedings

(1) During the administration of a company, a proceeding in a court against the company or in relation to any of its property cannot be begun or proceeded with, except:

(a) with the administrator's written consent; or

(b) with the leave of the Court and in accordance with such terms (if any) as the Court imposes.

14 In Foxcroft v The Ink Group Pty Ltd,[3] Young J stated:

The provisions of Pt 5.3A, as exemplified in sections such as 437C, 437F, 440C and 440D, provide that there shall be a complete freeze of proceedings against the company during the administration so that the administrator can have time to assess the situation, and the company's creditors have an opportunity to work out the net position and adopt an attitude under s 439C which will be in their common interest. To allow one creditor or potential creditor to proceed would not only take the administrator's attention from what he needs to do under the division in a relatively short period of time, but it would also involve costs in running the legal action on behalf of the administrator, as well as perhaps giving the claimant some advantage over the other creditors or potential creditors.

15 During the administration of Blockchain, the Abel proceeding and the Chen proceeding against Blockchain cannot be proceeded with except:

(a) with the administrator's written consent; or

(b) with the leave of the Court and in accordance with such terms (if any) as the Court imposes.

16 All parties accepted, correctly, this position. No consent or leave has been given.

17 The issue that arises upon Blockchain's applications is whether, in the Abel proceeding and the Chen proceeding, the proceedings against Blockchain include, for the purposes of s 440D of the Corporations Act, the proceedings against the other defendants.

18 For the reasons I am about to give, I do not accept the administrators' submission that the proceedings against Blockchain include, for the purposes of s 440D of the Corporations Act, the proceedings against the other defendants. As a result, the proceedings against the other defendants in the Abel proceeding and the Chen proceeding are not stayed pursuant to s 440D of the Corporations Act and may proceed.

19 First, the words of s 440D of the Corporations Act are plain and unambiguous. They relevantly refer to 'a proceeding in a court against the company'. The proceeding that cannot be proceeded with is the proceeding against the company in administration. That is, the proceeding in which relief is sought against the company in administration. In Re Featherston Resources Ltd[4] Brereton J said in the context of a provision of a New Zealand statute concerning a deed of company arrangement similar to s 440D:

In my view, an application for leave to bring proceedings in the name and on behalf of the company is not a proceeding against the company or its property in the relevant sense. It does not seek relief against the company, and it does not target any of its property. Accordingly, the leave application does not itself require the leave of the New Zealand court.

20 Secondly, s 440D is not expressed as concerning proceedings 'involving' the company in administration or concerning proceedings to which the company in administration is a party. It is limited, relevantly, to proceedings 'against the company'.

21 Thirdly, I accept Mr Chen's submissions that:[5]

... the broad interpretation for which the Administrators contend divorces the words 'proceedings against a company' from the balance of the section. That is impermissible: the Court must give all the words of the section meaning and effect. The words 'or in relation to any of its property' ... contemplate a circumstance where a proceeding may not be 'against' a company in administration but nonetheless must be stayed because it relates to that company's property. That distinction implicitly recognises that proceedings which 'involve' or 'relate to' the company in some way are not necessarily caught by s 440D [Corporations Act]. If the Court were to broaden the scope of s 440D [Corporations Act] as the Administrators urge, it would render the second half of the limiting phrase redundant.

22 Fourthly, I also accept Mr Chen's submission that examples abound where s 440D has been applied in relation to the relevant corporate defendant (in administration) alone, notwithstanding the continuation of the proceeding against the other defendants.[6] For example, TW McConnell Pty Ltd as trustee for the McConnell Superannuation Fund v SurfStitch Group Ltd (administrators appointed); Nakali Pty Ltd v SurfStitch Group Ltd (administrators appointed)[7] concerned allegations that, inter alia, a corporate defendant and a lay defendant, being the corporate defendant's former chief executive officer and director (named Mr Cameron), had made statements that misled or deceived the market. The corporate defendant, namely SurfStitch, subsequently went into administration. In that case, Stevenson J relevantly stated:[8]

17 Because of the appointment of the administrators ... the McConnell ... proceedings are stayed as against SurfStitch. ... McConnell [does not have] have any present intention of seeking leave under s 440D of the Corporations Act 2001 (Cth) ... to proceed against SurfStitch.

18 The McConnell proceedings are proceeding against Mr Cameron and have reached the stage where Mr Cameron has filed a Commercial List Response.

23 Fifthly, the decision of Warren J in Rodgers v Radly[9] may be readily distinguished from the present proceedings. Her Honour found that the proceeding was 'against the company' as the oppression proceeding concerned relief against the company that included, inter alia, the reinstatement of a person as a director of the company (in administration).

24 Sixthly, the administrators did not refer the Court to any authority in which a court has held that the whole of the proceeding was stayed on the basis, in effect, that 'the factual matrix and the interrelationship between the causes of action is such that all claims ought properly be considered as one proceeding'.[10]

25 Seventhly, even if a purposive approach to construction to s 440D is adopted, I accept Mr Chen's submissions that:[11]

... as part of its purposive approach to interpretation, the Court should also consider the consequences of the competing constructions of s 440D [Corporations Act]. Where two meanings are open, the meaning which would avoid irrational and unjust consequence, or which produces less hardship and interference with the legal rights of a subject is to be preferred. If Mr Chen's construction is wrong, and s 440D [Corporations Act] imposed a blanket stay as the Administrators contend, then mischievous directors could readily avoid (or at least strategically delay) direct liability by voting to place a company into administration or voluntarily winding it up. A plaintiff would then be required to apply for leave to proceed, in circumstances where the courts have repeatedly held that such leave should rarely be granted. Such a consequence would risk commercial absurdity and manifest injustice (for example, where it would prevent the enforcement of security); and lacks harmony with other provisions of the Act which seek to impose individual accountability on directors and company officers, and which are regularly invoked where a company has entered external administration.

26 Finally, I note that the summonses also do not accord with the wording of s 440D of the Corporations Act. The summonses seek a stay of the 'proceeding' and not a stay of the proceeding against the company.

27 As a result, I am of the view, that the proceedings against:

(a) the second to fifth defendants in the Abel proceeding; and

(b) the second defendant in the Chen proceeding;

are not proceedings against Blockchain within the meaning of s 440D of the Corporations Act and the proceedings against those other defendants are not stayed pursuant to that section.

28 As a result, I will dismiss the summonses filed 22 November 2021.

29 I will hear the parties on the form of orders and costs.

[1] Administrators' submissions dated 30 November 2021, [10].

[2] [2000] VSC 570; (2000) 160 FLR 85.

[3] (1994) 15 ACSR 203, 204.

[4] [2014] NSWSC 1139; (2014) 288 FLR 265, 276 [46].

[5] Mr Chen's submissions dated 30 November 2021, [17] (citations omitted).

[7] [2017] NSWSC 1755.

[9] [2000] VSC 570; (2000) 160 FLR 85.

[10] Administrators' submissions dated 30 November 2021, [10].

[11] Mr Chen's submissions dated 30 November 2021, [19] (citations omitted).