2018 - 2019 events
27 The applicants' submissions then identify subsequent events:
47. The first principal repayment due under the CMB Facility was in November 2018. By about March 2018, Dechang with ASA identified that HoldingCo and the ACC cash-flows were going to be unable to meet HoldingCo's liability for the November 2018 principal and interest payment [CB Tab 132, V6: P1497-1498].
48. During 2018, the cash flow position of HoldingCo and ACC did not improve. ASA recommended further capital investment in the Shamrock Station and proposed that cattle sales be deferred. Shimao became frustrated. They formed the view that ASA and Mr Champion's management was contributing to the weakened financial position and the need that would arise for Shimao to meet HoldingCo's liabilities to CMB and its working capital requirements.
49. In October 2018 Shimao communicated to Dechang that, because Dechang had not raised the money expected of it under the Cooperation Agreement, they expected HoldingCo to meet its own liabilities to CMB instead of relying on Shimao [CB Tab 135, V6: P1501]. That caused Dechang concern because, to them, there were then no other obvious financial solutions apart from Shimao injecting cash to support HoldingCo [CB Tab 132, V6: P1497-1498 and Tab 135 V6: P1520-1526].
50. Shimao proposed that if it were to advance more money, HoldingCo should enter into a loan agreement with it [CB Tab 144, V6: P1626-1630]. The Dechang interests did not agree with that.
28 The Shimao proposal was for a loan over 6 months, unsecured, at a rate of 8% interest. Mr Xue did not agree with the Shimao proposal because, in his view, that was "against our agreement" and Shimao "need[s] to support the venture". That is, Mr Xue rejected the Shimao offer of a loan based on his own unfounded beliefs about the agreements between the Shimao and Dechang interests.
29 By this time the Shimao interests, via Ms Hui, also informed Mr Xue that they considered Mr Champion's management had caused the project to fail. Ms Hui and Mr Xue had a conversation to this effect:
Carol: We want to replace Dale.
Me: I'm not opposed to this. But I need to see a comprehensive plan from the new manager, to prove the farm can be properly managed and the new manager can cooperate with the government.
Carol: Yougawalla [a station which Carol had bought, and which neighbours the Stations] is being run really well by Haydn.
Me: Ok, let me visit Yougawalla, to see how it is being managed.
Carol: No, I'm going to replace Dale right now.
Me: That would make things hard. It's Christmas and the place is in drought. Let's do a proper transition, if Dale is going to be replaced.
30 Mr Champion, who was unaware of the Shimao offer of an unsecured loan, and Mr Xue then canvassed Australian banks for a loan. Mr Champion, unlike Mr Xue, was unaware of the terms and conditions of the CMB facility, despite the facility being addressed to his residential address. Mr Xie of Dechang sent an email to Mr Zhang, copying in Ms Wang, of Shimao on 13 November 2018 which summarised the key aspects of loan proposals from various financial institutions. For one proposal which proposed using the cattle as collateral, Mr Xie noted that "it will cause a default to the China Merchants Bank facilities". Mr Xie sent another email on 20 November 2018 to Mr Zhang, copying in Ms Wang, which noted that there was a "severe deficiency in Argyle's operational cashflow, which needs money to solve urgently". Mr Champion sent an email on 27 November 2018 to Ms Hui and Mr Zhang, copying in Ms Wang, from Shimao, and Mr Xue, copying in Mr Xie, from Dechang, which noted that wages were due to be paid and stating that the best financing proposal was that of Westpac, which Mr Xie was now reviewing and the lack of capital was now a critical issue.
31 Shimao continued to provide funds to HoldingCo to enable it to meet its liabilities. As the applicants said "[i]n November 2018, Shimao paid the A$4.6 million liability of HoldingCo for interest and principal to CMB [CB Tab 141 and 142, V6: P1608 - 1611 (including 1611A)]. It did so despite Dechang's refusal to enter into a loan agreement [CB Tab 144, V6: P1626-163]. It did so consistently with the then in force letter of support and consistently with its obligations as guarantor [CB Tab 67, V4: P981]." Further, in December 2018 "Shimao had to make two further injections of cash into HoldingCo of $100,000 each [CB Tab 169, V6: P1751 and Tab 175 V6: P1764]."
32 By 13 December 2018, Mr Champion had become aware that the Shimao interests wished him to cease as manager and wanted to terminate Australian Standard Agriculture Pty Ltd's (ASA) management contract. In an email of 13 December 2018 to Ms Hui, copying in Ms Wang, Mr Champion said "[t]his distresses me immensely". He urged Ms Hui to either accept the Westpac overdraft facility or make alternative capital available.
33 On 18 December 2018, Ms Hui and Mr Zhang, as directors of Argyle Cattle Company Pty Ltd (ACC), resolved to terminate the management agreement between ACC and ASA. On the same day ACC gave ASA notice of this termination which, pursuant to the management agreement, was for a period of six months expiring on 20 June 2019. Mr Champion ultimately agreed in cross-examination that he thought this was the wrong decision and that he wanted to stay on as manager even though the funding problems continued.
34 On 31 December 2018, Mr Champion sent an email to Ms Wang and Mr Xie, copying in Ms Hui, which noted that ACC's wholesale food supplier had placed ACC on stop credit so ACC was no longer able to obtain bulk supplies of food for staff. Further, a number of other suppliers were verbally advising that they would no longer supply ACC until outstanding accounts were cleared. Mr Champion wrote again on 2 January 2019 noting that the lack of cash created a significant animal welfare risk as well as the risk of staff leaving and operations ceasing in which event the pastoral leases would be at risk. He noted that as directors of ACC, he, Ms Hui, and Mr Zhang had a legal responsibility in terms of the risk of insolvent trading. He sought an urgent direction as to whether ASA was able to incur any more expenses on ACC's behalf. Subsequently on 10 January 2019, the Shimao interests wrote to Mr Champion saying that they were willing to release him from acting as a director of HoldingCo, CAPH, CAPH2 and ACC and attached proposed board resolutions to that effect.
35 By 4 January 2019, Mr Champion, I infer with the knowledge and consent and, indeed, at the behest of Mr Xue, was writing to Westpac setting out the steps involved from his side to enter into the loan facility as follows:
1. Monday 7th, changes to company Directorships and shareholdings. Solicitor email confirming changes have been instigated will be sent to you immediately it is received to enable you to complete updated documentation. Company search confirming these changes to be available shortly thereafter.
2. Tuesday 8th, ideally I will receive, sign and return all transaction documentation and account opening forms as a priority.
3. Thursday or Friday, accounts will be open, electronic banking established, and overdraft facility operational and available.
36 By that time it is apparent that Mr Xue and Mr Champion had decided that steps should be taken to obtain control of the shares in CAPH and CAPH2 by HoldingCo by passing a majority resolution (HoldingCo's directors were Ms Hui, Mr Xue and Mr Champion) to issue a direction to Ms Hui and Mr Zhang to transfer the shares they held on trust for HoldingCo as bare trustees to Mr Champion. Mr Champion, as the sole shareholder of CAPH and CAPH2, would then resolve to remove Ms Hui and Mr Zhang as directors of each company. CAPH2 would also then resolve to remove Ms Hui and Mr Zhang as directors of ACC. These steps were set out in an email from Mr Venus, a solicitor, from whom Mr Xue and Mr Champion had sought advice. It is clear that Mr Venus was not told by Mr Xue about the terms of the CMB facility and gave no advice in this regard.
37 Mr Xue said this in his statement:
50. In or about late December 2018, I decided that ACC should borrow from an Australian financial institution to fund the continued operation of the Stations. I had several conversations with David [Mr Xie] about this. I said to David words to the effect that:
Shimao have made decisions that have damaged the interests of many people, including me. I object to this. Also, what they did in replacing Dale without any notice is contrary to the terms of the agreement signed in Australia and in China. Also, they want the Yougawalla manager to manage the farms. Our farms back on to Yougawalla. If the Yougawalla manager manages, there will be a conflict of interest. There would be nothing to stop the Yougawalla manager from taking our cattle across to Yougawalla.
51. David and I also discussed how ACC might enter into an Australian facility. At that time, Carol and Mr Zhang were two out of the three directors on the two companies involved in the leasing of the Stations (CAPH and CAPH2). They were also two of the three directors of ACC, the company that sub-leased the Stations, and they held shares in CAPH and CAPH2 on trust for HoldingCo.
52. I was aware that in order to have ACC enter into a borrowing agreement with and Australian financial institution, it would be necessary for HoldingCo to pass resolutions to remove Carol and Mr Zhang from their positions as directors and shareholders of the companies referred to above. This is because if this did not occur, Carol and Mr Zhang could block this from happening.
53. I discussed the need for this to happen with David. I said to him words to the effect:
Make sure you control the risk. Speak to the lawyers.
54. I also considered whether the entry into a secured facility would breach the CMB Facility. At or about that time, I also spoke to a lawyer in China about this. However, the lawyer told me that he could not advise me without seeing the CMB Facility, which I did not have.
55. In or about early January 2019, David told me that he had spoken to Mr Simon Venus, a lawyer who had acted for the Australian business venture for some time. David said that Simon had told him that there was no issue with removing Mr Zhang and Carol from the boards and having them transfer their shares in CAPH and CAPH2 to Dale.
56. Subsequently, on 10 January 2019, and on 12 January 2019, I signed a series of resolutions of HoldingCo. Copies of those documents are exhibited and marked JYX-1.4.
57. I made my decision to sign the resolutions referred to above and have ACC enter into a facility with Westpac because I believed that doing so was in the best interests of the company. I believed this for the following reasons:
57.1 First, the business was in a very difficult situation. It was facing litigation from a number of suppliers who weren't willing to supply it.
57.2 Secondly, ACC otherwise had no money to pay the salaries of its staff
57.3 Thirdly, ACC otherwise had no money to buy grass and nutrients. Without this, cattle at the Station would die.
57.4 Fourth, at the time, the business had applied for a licence to operate pivot irrigation. If the business got into trouble with the government (for example because it did not pay its employees), then I thought this would jeopardize the chance of obtaining this pivot irrigation licence. This would, I thought, devalue the business.
58. I was aware that the Westpac facility included security. I was aware also (based upon what Mr Zhang and Ms Hui had told me, set out at paragraphs 39 and 40 above) that the CMB Facility might have prohibited ACC from giving security to Westpac. However, in view of the dire situation facing the Stations (as discussed above), and Ms Hui's refusal to cause her companies to perform their obligations under the terms of our agreements, I thought that it was in the best interests of the venture, including in the best interests of HoldingCo, to remove Carol and Ms Zhang from their positions as directors of ACC, CAPH and CAPH2, and have them transfer their shares to Dale, so that ACC could enter into a facility with Westpac. From my perspective, without money, the Stations would not survive as an ongoing enterprise: if I didn't take the steps that I did, then my view was that animals would die, employees would leave, the companies would be sued, and then more cattle would die. It was a straightforward decision from my perspective to stop this from happening. In any event, my understanding was that the Shimao Group were required to meet any obligations arising from the CMB Facility which HoldingCo was unable to meet.
The case that has been pleaded against me
59. I understand, on the basis of the applicants' statement of claim, that it is alleged (among other things) that:
59.1 As a director of HoldingCo, I resolved to direct Ms Hui and Mr Zhang to transfer the shares they held on trust for HoldingCo in CAPH2 and CAPH to Mr Champion on trust for HoldingCo in direct response to and only because of the notice terminating ASA's Management Agreement and for the purpose only of preserving, protecting and extending ASA's management rights.
59.2 I knowingly or recklessly caused HoldingCo to breach a negative pledge in the CMB Facility not to encumber the underlying farming assets of HoldingCo;
59.3 I knowingly or recklessly caused the Shimao Interests to be exposed to CMB calling a breach of the CMB Facility and calling on them for payment pursuant to the Standing Letter of Credit up to the value of A$75 million;
59.4 I acted in a way which was not, and continues not to be, in the best interests of HoldingCo because my conduct in removing all of the representatives associated with the Shimao interests for each of either CAPH, CAPH2 and ACC was, to my knowledge, likely going to cause the Shimao interests (particularly, Shanghai Shimao Co. Ltd) to withdraw its financial support and call on all loans owing to it thus making ACC and HoldingCo insolvent.
60. I deny each of those allegations. I signed the resolutions set out at paragraph 56 above for the reasons set out in paragraphs 57 and 58 above. I regard Dale as a good manager, but I was not, and am not, wedded to him continuing in the role. I am open to having someone else replace Dale as manager, so long as they can competently manage the Stations and maintain a good relationship with the government. As I have set out above, I told Carol this.
38 Mr Champion said this in his statement:
133. Between about 3 January and 7 January 2019, David [Xie] and I called Simon Venus on several occasions. During one of those conversations, there was an exchange in words to the following effect:
David: Simon, the Shimao Interests have stopped funding ACC and it is in a very difficult position. Its suppliers have not been paid and many are no longer supplying the business. We are considering having HoldingCo pass resolutions removing Mr Zhang and Carol as directors of the subsidiary companies and having ACC enter into the funding facility with Westpac. Is this permissible?
Mr Venus: Yes. Carol and Mr Zhang hold shares as trustees for [HoldingCo]. They should act in accordance with the instructions they are given by [HoldingCo]. One issue might be that they refuse to sign but ultimately they have to follow the instructions of HoldingCo. They might go to Court to say, you've overstepped the bounds of your role as directors if you instigate such a change. But that would be a hard case for them as the court would recognise that it is their responsibility to act in accordance with such directions. Mr Xue controls the General Partner in China, and he is justified in taking the action that he wants to take to rectify the situation which ACC finds itself in. It would be hard for Ms Hui to go to Court and say you did not act in accordance with your obligations.
134. During a call on 7 January 2019, Simon Venus explained the steps that he said HoldingCo, ACC and CAPH2 should take to effect the removal of Mr Zhang and Carol as directors of ACC, CAPH and CAPH2, and to have ACC enter into the facility with Westpac. Following the call, Simon Venus sent an email which set out the technical steps that ACC could take. A copy of that email is at DJC-1.35.
135. After the call, I spoke with Simon on a couple of further occasions about whether the proposed course of action would be consistent with my obligations as a director of ACC and as a director of HoldingCo. On each occasion, we had conversations in words to the following effect:
Me: Are the resolutions that have been proposed ok? Am I acting in accordance with my responsibilities as a director?
Simon: Yes, everything you're doing is right. It's not a personal thing, you're doing it for the right reasons. But for extra comfort, to ensure you're not acting independently, you should ensure that you have a record that you are being directed to do this by Mr Xue.
39 Mr Champion said he signed the resolutions for the following reasons:
141.1 First, I thought it was necessary for ACC to enter into the Westpac facility so that ACC could obtain immediate liquidity, and pay its suppliers and staff. It was my view that without those payments, the operations of the Stations would grind to a halt, and I was extremely concerned about the welfare of the animals on the Stations.
141.2 Secondly, I was conscious that if animal welfare issues arose, CAPH's pastoral leases were at risk. This would cause enormous reputational damage and significant financial loss for the investment.
141.3 Thirdly, I was concerned about the staff and my own reputation. As I have set out at paragraph 125 above, I was closely connected with the enterprise. I felt a sense of responsibility for all connected with it. I wanted to ensure that the enterprise had some chance of succeeding for whoever it is that will be appointed to manage it, and for the investors.
141.4 Fourthly, and finally, I had received legal advice to the effect that the resolutions set out at paragraphs 136 - 140 were a permissible and an entirely justified course of action.
40 In common with Mr Xue, Mr Champion denied the allegations against him.
41 Mr Xue and Mr Champion signed a resolution of HoldingCo on 10 January 2019 which recorded the following as background:
1. Ms Hui Mei Mei Carol (Ms Hui) holds 2 ordinary shares. In the capital of Consolidated Australian Pastoral Holdings Pty Ltd CAN 611 942 002 (CAPH) upon bare trust for the Company pursuant to a declaration of trust dated 16 January 2017.
2. Ms Hui also holds 2 ordinary shares in the capital of Consolidated Australian Pastoral Holdings No. 2 Pty Ltd CAN 612 283 806 (CAPH2) upon trust for the Company pursuant to a declaration of trust dated 16 January 2017.
3. Mr Zhang Jie (Mr Zhang) holds 2 ordinary shares in the capital of CAPH upon bare trust for the Company pursuant to a declaration of trust dated 17 January 2017.
4. Mr Zhang also holds 2 ordinary shares in the capital of CAPH2 upon trust for the Company pursuant to a declaration of trust dated 17 January 2017.
5. Copies of the declarations of trust are attached to this circulating resolution,
6. Pursuant to clause 2 of each declaration of trust, both Ms Hui and Mr Zhang provided an undertaking to transfer the shares they hold in CAPH and CAPH2 (upon bare trust for the Company) to the Company or Company's nominee upon request by the Company.
7. The Company wishes to provide a written direction to both Ms Hui and Mr Zhang to transfer all the shares they hold in CAPH and CAPH2 to Mr Dale James Champion (Mr Champion) as bare trustee for the Company and pending such transfer becoming effective; to direct all voting and decision making powers in respect of those shares to give effect to the transfer of those shares and to remove Ms Hui and Mr Zhang as directors of CAPH and CAPH2.
42 The resolution was as follows:
1. That the Company forthwith issue written directions to both Ms Hui and Mr Zhang to transfer all the shares they hold in CAPH and CAPH2 (upon trust for the Company) to Mr Champion as bare trustee for the Company and pending such transfer becoming effective to direct all voting and decision making powers in respect of those shares to give effect to the transfer of those shares and to remove Ms Hui and Mr Zhang as directors of CAPH and CAPH2;
2. That Mr Champion is authorised to execute any document for and on behalf of the Company to give effect to the resolutions set out above; and
3. That as beneficial owner of the shares and absolutely entitled to them, the Company take all steps necessary to give effect to the resolutions set out about including causing the registration of the transfers by CAPH and CAPH2 and authorising the acceptance of a transfer executed by the Company as beneficiary despite any provision of the Constitution by which the trust relationship need not be recognised.
43 The declarations of trust, each from January 2017, recorded in clause 2 that the signatories (Ms Hui and Mr Zhang) "undertake to transfer those shares to the Beneficiary [HoldingCo] or to the Beneficiary's nominee or nominees upon request by the Beneficiary".
44 On the same day, Mr Xue and Mr Champion executed directions from HoldingCo as beneficiary of the shares in CAPH and CAPH2 to Ms Hui and Mr Zhang. The directions said:
In your capacity as trustee of the Trust, YOU ARE HEREBY REQUESTED, AUTHORISED AND DIRECTED to forthwith transfer the Shares to Dale James Champion of 534 Wickham Hill Road, Kuilpo SA 5201 as bare trustee for Shimao Aoya Holding Pty Ltd CAN 611 955 607 and to do all things necessary, including signing all documents, required to give effect to such transfer. A share transfer form is enclosed for that purpose.
…
If you fail or refuse to sign any documents required to give effect to such transfer in breach of your obligations as trustee you are hereby put on notice that within 24 hours of this requires, such documents will be signed by Shimao Aoyo [sic] Holding Pty Ltd (the beneficiary of the Trust), Shimao Aoyo [sic] Holding Pty Ltd as beneficiary hereby reserves all rights in relation to our failure to act in accordance with this direction, including to take such enforcement action as may be advised and claim indemnity costs.
45 On 12 January 2019, because Ms Hui and Mr Zhang did not act in accordance with the direction, Mr Champion executed standard share transfer forms which identified the relevant transferor as Ms Hui or Mr Zhang with Mr Champion signing both as transferee and as transferor above a notation stating:
Dale James Champion as director and an authorised representative of Shimao Aoya Holding Pty Ltd as beneficial owner absolutely entitled to the securities and having given a written direction to the seller to transfer the securities and the seller in breach of its trust obligations, having failed to act as directed
46 Mr Champion, as the sole shareholder as bare trustee for HoldingCo, then passed resolutions of CAPH and CAPH2 which removed Ms Hui and Mr Zhang as directors of those companies. Mr Champion as the sole shareholder of CAPH2 then caused ACC to resolve to remove Ms Hui and Mr Zhang as directors of ACC.
47 On 14 January 2019, Mr Xue and Mr Champion as directors of HoldingCo then executed a resolution which said this:
Background
1. Argyle Cattle Company Pty Ltd, a subsidiary entity within the Shimao Aoya Holding Pty Ltd group in Australia, has not made general operational supplier payments since the first payment run in November 2018.
2. Westpac Banking Corp had approved and presented to Argyle Cattle Company Pty Ltd a Business Loan facility of AU$5m that has been under consideration.
3. It has reached a point whereby ongoing payment delays are materially and detrimentally impacting the value and brand of the Argyle Cattle Company Pty Ltd. It is also placing the welfare of staff and livestock at risk as suppliers cease trading with the company.
4. It is resolved by the Directors that Argyle Cattle Company should be directed to proceed with accepting the Westpac Banking Corp Business Loan facility offer and instigate use of the facility to alleviate the mounting risks to the investment.
Resolution(s)
A. The Directors of the company confirm and direct Argyle Cattle Company Pty Ltd to proceed with the acceptance and implementation of the AU$5m Westpac Banking Corporation Business Loan facility as soon as practically possible.
B. The Directors authorise Argyle Cattle Company Pty Ltd to instigate operation of the facility including the payment of all outstanding creditors of the company.
C. The Directors of the company direct Argyle Cattle Company Pty Ltd to ensure an appropriate payment authorisation process is established between Australian Standard Agriculture Pty Ltd and a designated personnel appointed by the compnay [sic], as representative of the company and the Directors, for all payments thereafter
48 ACC then entered into the Westpac facility which involved a loan of AUD$5 million for a term of 2 years, subject to ACC executing a general security agreement over all existing and future assets and undertakings, and executing a specific security agreement over all cattle at nominated stations.