By Second Further Amended Originating Process filed today, by leave, the Plaintiffs, Ms Zhang and Ms Tian, seek orders in respect of two companies, New Seabay Kitchen Pty Limited ("New Seabay"), and Chinese Noodle Bar Pty Ltd ("CNB"), first, rectifying the register maintained by the Australian Securities and Investments Commission ("ASIC") so as to exclude certain documents lodged by the Third Defendant, Mr Shu, from the register. They also seek injunctive relief under s 1324 of the Corporations Act 2001 (Cth) preventing Mr Shu from lodging further documents which would bring about, variously, changes in the officers or shareholders of those companies and other relevant corporate information.
Importantly, the Plaintiffs recognise that the Court should note that these orders will not prevent any party from bringing proceedings as to the identity of the officers and shareholders of New Seabay and CNB, since that the question of the persons who are, in law or in equity, entitled to the shares on those companies may well be different from the question of the proper position in respect of the several forms lodged with ASIC which are to be determined in this application.
The Third Defendant, Mr Shu, appears by his solicitor Mr Ngo, and consents to the relief sought. The Fourth Defendant, ASIC, has filed a submitting appearance in the proceedings. The Fifth Defendant, Ms Beadle in her capacity as trustee in bankruptcy of Mr Shu has sworn an affidavit, which has been read, indicating her attitude to the previous version of the Originating Process, which consented to the relief sought by the Plaintiffs, but expressly reserving her rights as trustee of the bankrupt estate of Mr Shu in relation to any legal or equitable interest in New Seabay and CNB that may have vested in her, as trustee of Mr Shu's bankrupt estate. Ms Beadle notes her intention to investigate that issue further and seek to resolve the matter with the Plaintiffs for the benefit of the creditors of Mr Shu's estate. That reservation properly recognises the fact that, whatever the position in respect of the forms lodged with ASIC, there may well be an underlying issue as to the legal and equitable ownership of the relevant shares. While Ms Beadle's affidavit was sworn prior to an amendment made in the Second Further Amended Originating Process, which seeks to address one additional form lodged with ASIC, there is no realistic prospect that that amendment would affect Ms Beadle's position.
Seven other persons were joined as additional Defendants, so far as they are proper parties to the application, where they are recorded as appointed to positions in or as having interests in respect of the companies by forms which are sought to be removed from ASIC's register by this application. There is evidence of service of the proceedings on each of those Defendants, and in respect of three of them whom are affected by the further change sought to be made by the Second Further Amended Originating Process, there is evidence of service of that document upon them. None of those persons appeared when the matter was called. For that reason, and because the application in any event requires the exercise of a judicial discretion by the Court, as to whether it is satisfied that the relevant orders should be made, the relevant evidence has been read and I have been taken to submissions by Mr Finnane.
The Plaintiffs rely on affidavits of Ms Zhang dated 24 June 2019, 5 July 2019 and 11 July 2019 and Ms Tian dated 24 June 2019, 5 July 2019 and 11 July 2019. Those affidavits extend to issues as to substantive conduct in respect of the relevant companies which are not necessary to address in this application. This application instead raises a narrower issue, of the kind which I considered in respect of another company involving the same persons in Re Seabay Kitchen Pty Ltd [2019] NSWSC 790.
Here, Mr Finnane points out that New Seabay was incorporated on 1 March 2018 and, at the time of its incorporation, or at least shortly thereafter, the Second Plaintiff, Ms Tian, was appointed as a director and secretary, and acquired 60 shares in the company. Mr Finnane points to evidence that Ms Zhang acquired 40 shares in the company at about the same time. Each of Ms Tian and Ms Zhang lead evidence that they did not subsequently take steps to transfer their shares in New Seabay to Mr Shu or anyone else.
There may be a question as to whether the shares were properly issued to Ms Tian or Ms Zhang, so far as the evidence of any compliance with corporate formalities in respect of the issue of those shares is scant. However, that question is not to be resolved in this application and, whatever the status of the underlying shareholdings of Ms Tian and Ms Zhang, there is no proper basis on which their position as recorded by ASIC should be changed by lodgement of forms with ASIC which are not authorised by any corporate resolution, do not reflect any proper corporate transaction and, in respect of several forms, were certified by Mr Shu when he was disqualified from acting as a director of New Seabay.
Mr Finnane summarises the several forms which are in issue, which variously bring about changes in the directorship and persons who are secretaries of the company, including that Ms Tian ceases to be a director and secretary; Mr Shu is purportedly appointed as a director and secretary; Ms Zhang and Ms Tian purportedly dispose of their shares to Mr Shu; and there are then further acquisitions of shares by Mr Shu and Ms Tian. There is no evidence that any of those transactions involved a transfer of shares compliant with the Act, or, in respect of changes in directorships and secretaries, involved a resignation of a director or any proper corporate step for removal of that director. Mr Finnane points out that these steps could not have occurred without the consent of the Plaintiffs, or at least a proper corporate step in which they were involved, and each of them deny that that occurred. Mr Shu, of course, does not lead evidence contesting the absence of such corporate steps, or contending for Ms Zhang's or Ms Tian's consent to the steps which were taken, and I may more readily accept their evidence as to these matters where it is not contested, and when Mr Shu consents to the relief which is sought.
Similar events occurred in respect of CNB. Ms Zhang was initially purportedly appointed as director and secretary of CNB on January 2016, and purportedly acquired one million shares in CNB in mid June 2016. Again, there may be a question as to the validity of those transactions, where there is little evidence that they involved any proper corporate steps, but that is not a question I presently need to decide. Ms Zhang's evidence is that she did not take any steps to transfer any of her shares in CNB to Mr Shu, or to issue shares to Mr Shu, or to cease to be a director or secretary. Again, several forms were lodged with ASIC in respect of CNB which record, inter alia, changes in the registered office address and principal place of business; that Ms Zhang ceased to be a director and secretary of the company; and Mr Shu was appointed as a director and secretary; and that Ms Zhang disposed of her shares in the company to Mr Shu; and subsequently shares in CNB were issued to other Defendants and two new directors were appointed to the company.
Mr Finnane again points out that these steps could not have occurred without Ms Zhang's knowledge and consent, or at least proper corporate formalities, and her evidence is that she did not give such consent and there is no evidence that such formalities occurred. Again, I may more readily accept that evidence where it is not contested by Mr Shu, who consents to the relief sought, and the other Defendants who are affected by that relief have not appeared or sought to contest that evidence.
Mr Finnane in turn points to the availability of relief under s 1322(4)(b) of the Corporations Act in respect of incorrect information notified to ASIC, and I will refer further to that question below. Mr Finnane submits that this is a proper case for rectification of the register, where the forms under challenge record information of corporate events that did not occur, or at least did not occur in a manner authorised by the Corporations Act, and were, in respect of the majority of the forms, signed by Mr Shu as a director at a time that he was disqualified from acting as a director by his bankruptcy. He also submits that this is a proper case for injunctive relief under s 1324 of the Corporations Act, where there is now a history of Mr Shu lodging such forms with ASIC, bringing about such changes in shareholdings and officers of these companies and another company, at a time that he is disqualified from acting as a director, and where such conduct would be in breach of s 1308(2) of the Corporations Act, so far as the documents lodged were misleading.
As I noted above, I have dealt with substantially the same issues, in respect of another company associated with Ms Zhang and Mr Shu, in Re Seabay Kitchen Pty Ltd above. I there noted that, so far as the transfer of shares were concerned, they could not take effect where there was no suggestion that s 1071B of the Corporations Act had been complied with, by a proper instrument of transfer of the shares. I noted that the Court could be satisfied, on the evidence, as it can be satisfied here, that the persons then purporting to be directors did not resign as directors of the company, and could not have been removed as directors of the company without their assent, either as director or as shareholder in general meeting, or at least as the person then recorded as shareholder in general meeting, and the same position arises here. I there referred to the authorities as to the application of s 1322(4)(b) of the Act, and to my summary of the relevant principles in Re Centura Global Holdings Pty Ltd [2016] NSWSC 62; (2016) 111 ACSR 185 at [56]-[57]. I need not repeat that summary here.
I am here 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 the notifications required to be given to ASIC, where those notifications reflect steps which are not supported by underlying corporate transactions. I have again recognised the possibility, expressly reserved by the orders that the Plaintiffs seek and noted in Ms Beadle's affidavit, that the position as to the legal or equitable ownership of shares in the companies may ultimately not be properly recorded by the position notified to ASIC, as it was prior to the relevant forms being lodged. However, there is still 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, and that is sufficient to support rectification of the register, irrespective of the previous position as to the legal and equitable ownership of the shares, at least so that ASIC's records are put in proper order. Any contest as to the legal and equitable ownership of the shares will raise wider issues, which are likely to involve inquiries well beyond the scope of what is recorded in ASIC's records as to that matter.
I am satisfied that injunctive relief sought by the Plaintiffs, to which Mr Shu consents, is appropriate, given that there are now several documents which have been lodged with ASIC in respect of these companies and SeaBay Kitchen Pty Ltd, which was addressed in the previous judgment, which incorrectly recorded changes of information that did not reflect underlying corporate transactions.
For these reasons, I make orders in accordance with the form of orders initialled by me and placed in the file.
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Decision last updated: 30 December 2019