Solicitors:
McCabe Curwood (Plaintiff)
K Shu (Second Defendant) (self-represented) (via AVL)
File Number(s): 2019/178440
[2]
The matters in issue
These proceedings ultimately involve a narrow issue. I should first recognise that there may well be wider disputes between the Plaintiff, Ms Zhang and the Second Defendant, Mr Shu. These may involve, among other things, questions as to the appropriate allocation of assets on the divorce or the breakdown of their marriage, which may be matters for the Family Court of Australia. They may also involve claims of Ms Zhang or Mr Shu against the other, or claims of Mr Shu's trustee in bankruptcy against both Ms Zhang and Mr Shu, so far as Mr Shu's closing submissions indicated that Ms Zhang held assets in her name in order to, in effect, protect them from claims by his trustee in bankruptcy. I will, at the conclusion of this judgment, direct the Plaintiff to make a copy of this judgment available both to Mr Shu's trustee in bankruptcy and to the Australian Securities and Investments Commission ("ASIC"), to allow such further investigation of that matter as is appropriate to occur. I am not asked to decide, and I am not deciding, the wider issues that may be in dispute between Ms Zhang, Mr Shu, Mr Shu's trustee in bankruptcy and his creditors.
The question in this case involves a narrower issue. The company in issue, Seabay Kitchen Pty Ltd ("Seabay Kitchen" or "Company") was incorporated on 7 April 2017 (Ex P1, 38) with its registered office in Granville, New South Wales and with Ms Zhang as its initial director and Ms Zhang originally holding all 1,000 of its shares (Ex P1, 39-40). The allocation of 1,000 shares in Seabay Kitchen to Ms Zhang was recorded in a lodgement with ASIC at the time of the Company's incorporation on 7 April 2017 (Ex P1, 74-76). At the time that Seabay Kitchen was incorporated, Mr Shu was, and he remains, an undischarged bankrupt so that, had he held shares in Seabay Kitchen, they would have vested in his trustee in bankruptcy, and he was not eligible to be a director of Seabay Kitchen (Ex P1, 68-69).
After the breakdown of the marriage of Ms Zhang and Mr Shu, on 8 May 2019 Ms Zhang notified a change in the Company's registered office address to ASIC, away from the address that had been occupied by Mr Shu (Ex P1, 90-91). Presumably prompted by that act, Mr Shu on 9 May 2019 then notified ASIC of a change to the Company's directors and secretaries, appointing him as a director and secretary of the Company, and also notifying a change to the register, such that Ms Zhang's shareholding was reduced to 200 shares and Mr Shu's shareholding was increased to 800 shares, from nil. Had that transaction been genuine, the shares transferred to Mr Shu would also then have vested in Mr Shu's trustee in bankruptcy. As will emerge, there is no evidence of any underlying corporate step which warranted that notification to ASIC. On 10 May 2019, Mr Shu notified a further change to ASIC, such that Ms Zhang ceased to be a director of the Company. Each of those notifications was certified to be true and complete by Mr Shu as a director of the Company, including the notification given before he had purportedly become a director of the Company. The effect of these notifications is recorded in a current company extract of Seabay Kitchen as having the result that Mr Shu is now the sole director and the secretary of the Company and that Ms Zhang holds 200 shares and Mr Shu holds 800 shares in the Company.
Ms Zhang relies on her affidavit where she indicates, consistent with ASIC's records, that she was initially the sole director and shareholder of Seabay Kitchen and contends that she continues to remain the sole director and shareholder of Seabay Kitchen. She refers to the circumstances of the change of address, change of director and change of shareholding in the Company; and denies that she had taken steps to transfer any of her shares in the Company to Mr Shu; or had resigned as a director or secretary of the Company; or had passed a resolution or taken any step to appoint Mr Shu as director or secretary of the Company; or to approve a change of its registered office and principal place of business.
Mr Shu, who was self-represented, and appeared in circumstances of some difficulty since he is on remand in respect of another matter, led narrative evidence. In that evidence, he indicated that the Company was structured such that there was at least one other shareholder who had invested almost $400,000 to acquire 40 per cent of the Company's shares and possibly, that there were also other persons with interests in the relevant restaurants. No register of members was tendered and there is no evidence of such a shareholding in that form and there is also no indication of such a shareholding in the notifications given to ASIC, including the most recent notifications certified by Mr Shu and given on his instructions. That is, of course, not inconsistent with such an interest existing as an equitable interest in the shares or by way of some arrangement that was intended to conceal the interests for other reasons. It is sufficient to note, for present purposes, that any such interest of any third party is not reflected in legal ownership of shares in the Company. As I noted above I reach no findings as to any wider disputes, including any equitable rights of third parties in such shares.
As I noted above, Mr Shu went somewhat further in closing submissions, to emphasise his role in the management of the restaurants and to ask rhetorically how his ex-wife had funded the establishment of the restaurants when, he contends, she had not worked full time in either China or Australia. Mr Shu contended, in effect, that he was the true owner of the shares in the Company and, as I noted above, he characterised the arrangement with his ex-wife as necessary because of his bankruptcy, implicitly to conceal his ownership of shares in the Company from his trustee in bankruptcy. Again, I reach no findings as to that matter, beyond noting that it seems to me to warrant further inquiry by the appropriate regulators. Mr Shu did not, in evidence or submissions, point to any corporate act undertaken immediately before 9 or 10 May 2019 which provided a basis for the notifications given to ASIC on that date. He emphasised the need to inquire into events between 2017 and 2019 but did not suggest, for example, that his ex-wife had decided to resign as a director or transfer her shares to him immediately before he notified those transactions to ASIC.
[3]
Findings as to validity of the transactions
This matter ultimately is straightforward, from a legal perspective, although I again emphasise that I will be determining only the validity of certain notifications to ASIC and the matters to which I have referred above suggest that the legal interests in the shares in the Company may not reflect the true nature of the parties' dealings.
Mr Finnane, who appears for Ms Zhang, emphasises her evidence that she did not resign as director or authorise the transfer of "her" shares in the Company to Mr Shu, and he submits that the Forms 484 certified by Mr Shu and lodged with ASIC records a false account of the relevant transactions. I am satisfied, on Ms Zhang's evidence, and in the absence of any specific evidence to the contrary by Mr Shu, that Ms Zhang did not undertake such transactions immediately prior to 9 and 10 May 2019, although it is certainly possible that she has not given a full or frank account of the circumstances in which she came to hold the shares in the Company in the first place.
In any event, it seems clear that the relevant transactions were ineffective. So far as the transfer of shares is concerned, s 1071B of the Corporations Act provides that, subject to two exceptions that are not presently relevant, a company may only register a transfer of securities if a proper instrument of transfer has been delivered to the company. There was no evidence, and Mr Shu did not suggest, that a transfer of Ms Zhang's shares to him was ever executed by Ms Zhang or made available to the Company. The fact that no such transfer is shown to have been executed or provided to the Company in respect of Ms Zhang's shares has the consequence that she continues to have the legal title to them, whether or not that approach was originally adopted to conceal Mr Shu's interest in them.
I am also satisfied that Ms Zhang did not resign as a director of the Company and was not, and could not have been, removed as a director of the Company where she was its only shareholder and did not assent to her removal in a general meeting. Mr Shu also could not be appointed as director other than in accordance with the Company's constitution or by resolution in a general meeting under the replaceable rule in s 201G of the Corporations Act where that rule is applicable, or in another manner authorised by the Act. There is no suggestion that any of these steps took place; compare Chidiac v Bhatt [2014] NSWSC 1253 at [52].
What in fact appears to have occurred is that Mr Shu, who may have considered that his doing so was consistent with the original arrangements between the parties, simply procured the lodgement of Forms 484 with ASIC recording changes in shares and the directorship. That does not assist Mr Shu, since the lodgement of such a form is not a means recognised by the Corporations Act for the transfer of shares, the removal of directors or the appointment of directors, as distinct from the notification of those events when they otherwise validly occur: Chidiac v Bhatt above at [53].
[4]
Relief under s 1322(4)(b) of the Corporations Act
Mr Finnane submits that, in these circumstances, the Court may make an order under s 1322(4)(b) of the Corporations Act that the relevant Forms 484 lodged with ASIC be withdrawn from the registers kept by ASIC. Mr Finnane draws attention to my decision in Re DJG Equities Pty Ltd [2014] NSWSC 194 at [5]-[7] where I reviewed the applicable principles. I also addressed those principles in Re Centura Global Holdings Pty Ltd [2016] NSWSC 62; (2016) 111 ACSR 185 at [56]-[57] as follows:
"The authorities indicate that the power of rectification of a register under s 1322(4)(b) of the Corporations Act extends to permit the rectification of a register maintained by ASIC under s 1274 of the Corporations Act, which requires ASIC to keep such registers as it considers necessary in such form as it thinks fit, and also to those registers that are prescribed under reg 9.1.01 of the Corporations Regulations 2001 (Cth). In Re MIG Property Services Pty Ltd (No 2) [2012] VSC 606; (2012) 92 ACSR 234 at [64], Robson J was prepared to infer that a database maintained by ASIC under s 1274A of the Corporations Act, was an extract of the register of companies prescribed under reg 9.1.01(a) of the Corporations Regulations, and I would draw the same inference in respect of the database recording information as to the shareholdings and directorships of Centura: compare Re DJG Equities Pty Ltd [2014] NSWSC 194 at [5]. The information contained in that register would include, by reg 9.1.02(a) of the Corporations Regulation, information as to the paid-up capital of the company, and the information sought to be rectified in this case relates to the ownership of the shares in Centura. I conclude that the information relating to the shareholding in Centura is prescribed information concerning the company's shareholding contained in the prescribed register of companies.
Second, although this question has been the subject of differences of view in the case law, recent case law indicates that the Court has power to rectify such a register under s 1322(4)(b) of the Corporations Act, so as to correct incorrect information which was included in a notification required to be given to ASIC. In Demetriou v Gusdote Pty Ltd [2010] FCA 581; (2010) 78 ACSR 566 at [33], an order for rectification of ASIC's records was made, albeit without extended reasoning, in a similar case to the present case, where a change to the shareholding of a company had been made such that ASIC's records did not then reflect the true position. A broad view of the scope of rectification under s 1322(4)(b) of the Corporations Act was also taken by the Court of Appeal in Miltonbrook Pty Ltd v Westbury Holdings Kiama Pty Ltd [2008] NSWCA 38; (2008) 71 NSWLR 262 at [45]ff and also by Robson J in Re MIG Property Services Pty Ltd (No 2) above, where his Honour treated the power under s 1322(4)(b) as sufficiently wide to allow rectification of the register where the process by which the event had been included in the register was invalid. In Re Botanical Water Holdings Pty Ltd; Agao Nominees Pty Ltd v AJ Phoenix Pty Ltd [2013] VSC 96, Robson J similarly ordered that ASIC's register of companies be rectified where his Honour found that a change to the shareholding recorded in that register had not been validly made, and I took the same view in Re DJG Equities Pty Ltd above."
I am satisfied that the Court has power to rectify the register under s 1322(4)(b) of the Act to correct incorrect information which was included in a notification required to be given to ASIC. The findings that I have reached above have the result that the process leading to entry of the current information as to the directors, shareholders and registered office of Seabay Kitchen was not properly founded by any corporate process and the register should be rectified on that basis. I have not neglected the fact that Mr Shu's submissions suggested that Ms Zhang was party to an attempt to conceal Mr Shu's interest in the Company from his trustee in bankruptcy. However, there is a public interest in the adoption of a proper process for changes in directors and shareholders and for notifications to ASIC of directors and shareholdings, which warrants rectification of the register, irrespective of the underlying merit of the steps that brought about Ms Zhang's ownership of the shares. To put that another way, even if Ms Zhang was a director of the Company and held the shares for an improper purpose, she should not unilaterally be deprived of that ownership or of her position as director of the Company by lodgement of false Forms 484 with ASIC by Mr Shu.
[5]
Injunctive relief
Ms Zhang also seeks injunctive relief, initially framed as an order restraining Mr Shu from making false or misleading statements in documents lodged with ASIC in breach of s 1308 of the Corporations Act. That is no more than an injunction restraining the breach of the criminal law and I would not grant an injunction in that form. Mr Finnane refined that injunction to seek relief that identified particular steps which Mr Shu could not take, in effect, to lodge further notices where the underlying corporate steps had not been properly taken. I am satisfied that the Court has power to grant such an injunction, on the application of Ms Zhang as an interested person, under s 1324 of the Corporations Act. I am satisfied that such relief should be ordered where the approach adopted by Mr Shu in submissions suggests that he does not acknowledge the impropriety of his conduct, and would very likely repeat it if given the opportunity to do so. It is plainly unacceptable that Ms Zhang, or indeed ASIC, and the public who may rely on the registers, be exposed to the risk of repeated notifications of false information by Mr Shu, or that Ms Zhang be placed in the position she must bring repeated Court applications to correct that information.
I do not consider it necessary to grant the first paragraph of the relief sought, which prevented certification of information by Mr Shu, where it seems to me the substantive relief sought as to causing lodgements by Mr Shu will fully protect Ms Zhang's interests.
[6]
Orders
Accordingly, I make the following orders:
Pursuant to s 1322(4)(b) of the Corporations Act 2001 (Cth), the form 484s lodged with ASIC with document numbers 7EAL13393 and 7EAL17893 be withdrawn from the registers kept by the Third Defendant (ASIC) under the Corporations Act and not appear on the public view.
The Second Defendant be restrained from:
(a) causing the lodgement with ASIC of any notification of the cessation of a person in the office of director or secretary of the First Defendant without such person having resigned from that office, died, been removed, or otherwise ceased to hold such office in accordance with the Corporations Act or the constitution of the First Defendant.
(b) causing the lodgement with ASIC of any notification of the appointment of a person to the office of director or secretary of the First Defendant without such person having been so appointed to that office in accordance with the Corporations Act or the constitution of the First Defendant.
(c) causing the lodgement with ASIC of notification of any change in the shareholding of the First Defendant, unless such change has been effected in accordance with the Corporations Act, including Part 7.11 Div 2, and the constitution of the First Defendant.
(d) causing the lodgement with ASIC of any notification of any change to the registered office address of the First Defendant without the authority of a resolution of the directors to do so.
(e) causing the lodgement with ASIC of any notification of any change to the principal place of business of the First Defendant without the First Defendant having changed its principal place of business.
The Second Defendant must pay the Plaintiff's costs of these proceedings as agreed or as assessed.
Within 2 business days of the publication of the judgment, the Plaintiff, by its solicitors send this judgment to the Enforcement Division of ASIC and the trustee in bankruptcy for the Second Defendant.
These orders be entered forthwith.
[7]
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Decision last updated: 02 July 2019