Fujie Holdings Pty Ltd v Shanlin L Property Pty Limited, in the matter of Shanlin L Property Pty Limited [2025] FCA 1383

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Delivered ex tempore, Revised from Transcript

1. By interlocutory process dated 21 October 2025, the plaintiff (Fujie) seeks leave to apply to wind up the first defendant (Shanlin), under s 459A of the Corporations Act 2001 (Cth) (the Act), and seeks an order that a provisional liquidator be appointed to Shanlin under s 472(2) of the Act. Fujie is a shareholder of Shanlin, holding 34% of its issued capital. The third defendant, (Kelin), is the only other shareholder of Shanlin, holding 66% of its issued capital. The two directors of Shanlin, Ms Ji, and the second defendant (Ms Li) are the sole directors of Fujie and Kelin respectively.
2. Shanlin, Fujie, and Kelin are parties to a Shareholders' Agreement dated 11 August 2021, which was entered into when Fujie became a shareholder of Shanlin.
3. Shanlin is a special purpose vehicle which owns the property at 4-6 McKye Street, Waverton, New South Wales (the Property), on which it has constructed a four-story building consisting of eight units, two levels of basement, and associated infrastructure and landscaping. An occupancy certificate was obtained in December 2024, and it appears that the units have been on the market since January 2025, or at least available for sale, even if off-market. The eight units remain unsold.
4. Counsel for Ms Li and Kelin accepts that disputes have arisen between Ms Li and Ms Ji as to whether the units should be sold and, if so, at what price. There is apparently an accepted offer now in relation to one unit, at $3 million, but Ms Ji opposes the exchange of contracts in light of the present winding up application. There is no evidence to indicate that the disputes between Ms Li and Ms Ji, in relation to the sales of units and their prices, are all in the past. On the contrary, I infer that those disputes are ongoing.
5. On 3 October 2025, the solicitors for Kelin and Ms Li wrote to Fujie saying that the Shareholders' Agreement was terminated under cl 15.1(4), as at 2 September 2025, because Shanlin had become insolvent by that date. The letter referred to various amounts owed by Shanlin that were due and payable, and which Shanlin could not pay. The letter also notified Fujie of a general meeting of Shanlin on 29 October 2025 at 10 am. The letter said that as the Shareholders' Agreement no longer applied, any matters that previously required the joint approval of both shareholders could now be decided by a simple majority under the constitution. As matters have transpired, that last proposition was overly simplistic.
6. The notice of general meeting for 29 October 2025 is dated 3 October 2025. It gives Zoom meeting details, and includes a resolution to remove Ms Ji as director, under cl 4.12(a) of the constitution. Clause 4.12(a)(i) provides that the company may, by resolution of the members, remove a director from office.
7. The evidence adduced by Kelin and Ms Li includes a report by Mr Alfonso, who appears to be a chartered accountant, dated 2 October 2025, as to Shanlin's current insolvency. That report shows a cashflow deficiency in September 2025 of $20,584,329. Mr Alfonso expresses his understanding that Shanlin would not be able to realise the Property in a short period of time, to allow funds to become available to meet the claims of creditors. Further, Mr Alfonso expresses the opinion that the inability of Shanlin to pay its debts that are due and payable represents an endemic shortage of working capital, rather than a temporary lack of liquidity. Mr Alfonso says that Shanlin has been insolvent since 2 September 2025.
8. On 8 October 2025, the solicitors for Fujie and Ms Ji requested the provision of certain documents by Shanlin and Ms Li. That was responded to by a solicitor's letter saying that the Shareholders' Agreement had been terminated, and therefore Fujie was no longer entitled to documents, under cl 4.6 of the Shareholders' Agreement. It was accepted that s 290 of the Act entitled Ms Ji, as a director, to access any financial or sustainability records of Shanlin, and offered access to certain specified documents to Ms Ji, upon the execution of a confidentiality deed.
9. On 29 October 2025 at 10 am, Ms Ji attempted to log into the general meeting of Shanlin, using the Zoom meeting details that had been provided, but using her solicitor's device. Ms Ji was not admitted to the meeting, and sent three emails to Ms Li requesting to be admitted. The constitution of Shanlin provides for a quorum of two members, except where the company has only one member: cl 7.18. Relevantly, if there is no quorum, the meeting is adjourned to the same day, time, and place the following week: cl 20(a)(ii).
10. If no quorum is present within thirty minutes at the adjourned meeting, the board may declare the general meeting dissolved, or deem that those members present in person form a quorum, and may transact business: cl 7.21. The quorum for a board meeting is two directors if the company has more than one director, which it presently does: cl 6.6. Ms Ji does not intend to attend any general meeting of Shanlin on behalf of Fujie, or any board meetings while Ms Li and Kelin propose to remove her as a director of Shanlin: Ms Ji's Affidavit of 3 November 2025 at [58]. As there was no quorum for the meeting of 29 October 2025, any resolution to remove Ms Ji as a director would have been invalid. At the adjourned meeting yesterday, the board would have been incapable of resolving that those present may transact business for want of a quorum of board members, although I am instructed by senior counsel for Kelin and Ms Li that the meeting yesterday, if it was held, did not purport to pass any resolution.
11. The upshot is that Shanlin is unable to conduct any board meeting or general meeting now, and for the foreseeable future.
12. Mr Alfonso provided a further report as to the solvency or insolvency of Shanlin, on 31 October 2025. In that second report, Mr Alfonso refers to instructions that the real estate agent who has been appointed for the prospective sale of the units of the Property holds the opinion that the units will be able to be sold within approximately seventy days, at a total net realisable value of $26,836,000, which would be sufficient to yield a cashflow surplus in January 2026 of $1,558,158. One problem with that material is that there are only forty-three days until Christmas, when the real estate market typically ceases to conduct effective business until about the middle of January. Another problem is that the evidence indicates that there will be a GST liability upon the sales of units, in total of about $1.7 million, which has not been taken into account by Mr Alfonso, and which would be sufficient to overwhelm his projected surplus in January 2026 of about $1.5 million. I note that one of Shanlin's creditors, namely Yilin Investment International Pty Limited, has agreed to deferral of its debt of $10,203,741 until all sales of units have been completed, provided that no external administrator, liquidator or receiver is appointed to Shanlin, and I have taken that matter into account.
13. The assumptions adopted by Mr Alfonso include that there is now only one director of Shanlin and there is thus no dispute between the directors which would preclude, delay or hinder the sale of the units which form the Property. That is plainly an erroneous assumption, for the reasons given above. There are two directors, and they appear to remain in dispute concerning whether the units should be sold and their prices, or at least as to the latter. I note also the various other criticisms made by Fujie of Mr Alfonso's cashflow accounting, but it is not necessary for me to deal with them in order to resolve the present interlocutory dispute.
14. Fujie's application for winding up of Shanlin is based alternatively on s 459A, 461(1)(k) and 233(1)(a) of the Act. As a contributory, Fujie needs the court's leave to apply for an order that Shanlin be wound up in insolvency under s 459A: see s 459P(2). Given the opinions as to insolvency in Mr Alfonso's report dated 2 October 2025, and the fact that his change of mind on 31 October 2025 was based on the erroneous assumption that there is now only one director of Shanlin and no ongoing dispute as to the sale of units and their prices, there is a prima facie case of insolvency sufficient to warrant the grant of leave under s 459P(2).
15. As to the appointment of a provisional liquidator, it is well established that the court should consider the six matters identified by Tamberlin J in Australian Securities Commission v Solomon (1996) 19 ACSR 73 at 80 (ASC v Solomon).
16. The first of those matters is whether there is a valid and duly authorised winding up application, and a reasonable prospect that a winding up order will be made. In the present case, there is a valid and duly authorised winding up application and, as I have said, it is appropriate to grant leave to Fujie pursuant to s 459P(2). There also appears to me to be, at the very least, a reasonable prospect that a winding up order would be made, either on the basis of insolvency under s 459A or on the just and equitable ground under s 461(1)(k). The material before me is insufficient for me to express a view as to the likelihood of an order for winding up being made on the ground of oppression under s 233(1)(a), noting that ordinarily a winding up order is regarded as a last resort in cases where oppression is established.
17. I have already indicated the basis for finding that there is a prima facie case of insolvency, based on the reports of Mr Alfonso. It strikes me as remarkable that Ms Li could have relied on Mr Alfonso's report of 2 October 2025 to seek to terminate the Shareholders' Agreement, but then decide to continue to trade without seeking any form of external administration, whether by way of the appointment of a voluntary administrator or acceding to Fujie's application for a provisional liquidator. It certainly appears to be contrary to the public interest to allow a company which Ms Li unequivocally regarded as insolvent a month ago, and which does not appear to have received any significant revenue since then, to continue to trade without any external administration, in circumstances where the company will incur debts such as council rates, strata levies and conveyancing costs, and where potential purchasers of units are being sought to pay deposits. Moreover, Ms Li has not provided the undertaking sought by Fujie on 16 October 2025 that, in relation to the amount of about $650,000 in Shanlin's bank accounts, Ms Li will not use that money to pay Ms Li's own claimed debts in priority to other debts of Shanlin.
18. As to whether there is a prima facie case for winding up on the just and equitable ground, the conventional categories of cases include a deadlock or disagreement in the management of the company's affairs, and a constitutional and administrative vacuum in the management of the company: Re Catombal Investments Pty Limited [2012] NSWSC 775 at [19] (Brereton J). I have referred above to Kelin's failed attempt to remove Ms Ji as a director on 29 October 2025 and Ms Ji's declared intention not to attend a general meeting on behalf of Fujie or a board meeting while Ms Li is seeking to remove her as a director. For the foreseeable future, the evidence indicates that there cannot be a quorate board meeting or general meeting. Absent further evidence, which is not at present available to the court, that strikes me as constituting a reasonable basis for anticipating that a winding up order on the just and equitable ground is likely to be made.
19. Turning to the second factor referred to by Tamberlin J in ASC v Solomon, that is whether the assets of the company may be at risk, in my opinion they are. Ms Li has refused to undertake not to procure that Shanlin pay her debts in priority to other debts out of the cash presently on hand of about $650,000. That is despite there being a reasonable case that Shanlin is insolvent. Further, it appears that Ms Li is currently seeking to procure Shanlin to continue to trade, by selling the units at the Property, and did so in October 2025 at a time when she was asserting unequivocally that Shanlin was insolvent. I note that Ms Li has offered an undertaking to pay the net proceeds of sale of units into her solicitors' trust account, to be disbursed only by court order or pursuant to the agreement of the parties, but that undertaking does not extend to the cash of about $650,000 presently held by Shanlin. Further, the efficacy of the undertaking depends on a fundamental anterior question if there is to be a sale of units so as to generate net proceeds, namely what price (if any) the directors will agree upon for a sale. I cannot see any realistic prospect of the directors agreeing to resolve their disputes as to the sale of the units and the price thereof,and the company is likely to remain deadlocked unless a provisional liquidator is appointed.
20. The third matter is the duty of the provisional liquidator to preserve the status quo and ensure the least possible harm to all concerned and to enable the court to decide, after further examination, whether the company should be wound up. That matter favours the appointment of a provisional liquidator.
21. The fourth matter is the degree of urgency and the balance of convenience. In circumstances where Shanlin is continuing to trade while prima facie insolvent, the matter is urgent and the balance of convenience favours the appointment of a provisional liquidator.
22. The fifth matter is the public interest, where there is a need for an independent examination of the state of accounts by the company by someone other than the directors. I regard that as a relatively neutral matter in the present case.
23. The sixth matter is whether the affairs of the company have been carried on casually and without due regard to legal requirements, so as to leave the court with no confidence that the company's affairs would be properly conducted with due regard for the interests of shareholders. The fact that Ms Li has been determined that Shanlin continue to trade at a time when she unequivocally stated that it was insolvent, together with the fact that there is a constitutional and administrative vacuum in the company's management having regard to the constitution, this matter favours the appointment of a provisional liquidator.
24. In all circumstances, it is appropriate that a provisional liquidator be appointed to Shanlin. Mr Daniel O'Brien, an official liquidator, has consented to act, and it is appropriate that he be appointed. Neither party has suggested any less intrusive measure which would meet the circumstances of the case, other than the undertaking by Ms Li to pay the net proceeds of sale into her solicitors' trust account, which I do not regard as meeting the exigencies of the case. Ms Li and Kelin submit that the appointment of a provisional liquidator would be an event of default under Shanlin's banking facility with Westpac, but I do not regard that as a sufficient reason not to make the appointment.
25. I do not think it appropriate to require Fujie to give an undertaking as to damages. Ms Li and Kelin asserted unequivocally on 3 October 2025, that Shanlin is insolvent and they have not provided sufficient material to persuade me that they were wrong to do so.
26. As to costs, Ms Li and Kelin do not make any submission as to why they should not pay the costs of Fujie of the interlocutory application, and I regard it as appropriate that they do so.

I certify that the preceding twenty-six (26) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Jackman.