GLEESON JA: Application is made by the first and second defendants Hoang Tri Nguyen and Hong Jie Huang by interlocutory process filed 29 March 2017 for a winding-up order under s 461(1)(k) of the Corporations Act 2001 (Cth) (Corporations Act) against the fourth defendant Seedz Investments Pty Ltd, the sixth defendant Snap Fitness Double Bay Pty Ltd, the eighth defendant Yelneh Industries Pty Ltd and the ninth defendant Fitness Management Company Pty Ltd (together the defendant companies). The first and second defendants, who I shall refer to as "Tri" and "Jie" for convenience, are each one-third shareholders of each of the defendant companies and, accordingly, have standing to make the application: Corporations Act s 462(2)(c).
The plaintiff, Mr Jacob Henley, is the other one-third shareholder of each of the defendant companies. Mr Henley's solicitor filed a notice of ceasing to act on 13 February 2017. Mr Henley has not appointed a new legal representative, nor appeared in the proceeding since 6 February 2017. The originating process, together with affidavits of Jong Jie Huang dated 29 March 2017 and John Hunt dated 29 March 2017, was sent by email on 29 March 2017 to two email addresses, which the evidence establishes, were maintained by Mr Henley. On 3 April 2017, I made an order for informal service pursuant to Uniform Civil Procedure Rules 2005 (NSW), r 10.14 that Mr Henley is taken to have been served with a copy of the interlocutory process and those affidavits by transmitting a copy of those documents to the two email addresses maintained by Mr Henley.
Mr John Hunt, solicitor, has deposed to notification given to Mr Henley by email on 8 May 2017 of today's hearing and of the first and second defendants' instructions to seek orders for the winding-up of the defendant companies.
Ms Diane Prichard, a solicitor, deposed to having sent to Mr Henley, by email on 19 May 2017 at 4.46pm, copies of the affidavit of Mr Hunt affirmed 18 May 2017 and the affidavit of Ms Prichard affirmed 19 May 2017 in support of the winding up applications. Ms Prichard also deposed to having sent to Mr Henley, by email on 19 May 2017 at 5.41pm, the consents of Mr Gavin Moss and Mr Henry Kwok to act as liquidator of the defendant companies. There is evidence of receipt of those emails transmitted to Mr Henley at his email address on 19 May 2017.
[3]
Background
The background to the present application is as follows. Mr Henley conducted a number of franchised gyms from leased premises. He did so through a series of related entities which have been loosely referred to in the evidence as the Henley group of companies. Over time, Mr Henley introduced Jie and Tri to his businesses. They became directors and members of the various companies. Unfortunately, the business of the group did not prosper. Parts of an affidavit of Mr Henley sworn 22 December 2016 were tendered in evidence on the present application. Mr Henley deposed that Gym and Tonic Pty Ltd (Gym & Tonic) and TVH Enterprise (Australia) Pty Ltd (TVH), among others, were franchisees of the Snap Fitness gyms. TVH was the operator of the Snap Fitness gym at Kensington, which the evidence establishes was sold for a substantial sum of $2.6 million of which TVH received approximately $2.05 million. Gym & Tonic was the franchisee for seven gyms. Mr Henley deposed that Tri had invested approximately $300,000 into TVH. Tri gave evidence that he has not received repayment of any of his loans to that company, notwithstanding the sale of its business with respect to the Kensington gym. Mr Henley also deposed that Jie and other persons or companies related to Jie had loaned approximately $1.4 million to Gym and Tonic, TVH and The Henley Group Pty Ltd (THG). The evidence establishes that none of those loans have been repaid by those companies.
The present position is that all of the companies within the Henley group have ceased trading. For those companies which conducted Snap Fitness Gyms pursuant to franchise agreements at premises that were leased, all franchise agreements were terminated prior to or on 24 January 2017 and the franchisor has elected to assume possession of the leased premises or the leases have been terminated by the lessor for failure to pay rent.
During 2016 numerous legal proceedings involving the Henley group were commenced. One proceeding was commenced by Mr Henley against several individual defendants, including Tri and Jie, and involved a claim by Mr Henley that he had been unlawfully removed as the sole director of TVH. That contention was rejected by Black J in TVH Enterprise Australia [2016] NSWSC 1734.
Another proceeding was commenced by Tri and Jie against Mr Henley and 11 companies within the group, making allegations of oppression. That proceeding remains on foot, although nothing seems to have occurred in terms of preparation of the proceeding for hearing for some time.
A third proceeding involved the winding-up of Gym & Tonic. That company was wound up on 6 February 2017: In Re Gym & Tonic [2017] NSWSC 50.
A fourth proceeding, commenced by Mr Henley in December 2016, involved claims by Mr Henley that he was unlawfully removed by Tri and Jie as director and member of various companies in the Henley group on 20 December 2016. That is the proceeding presently before the Court and in which Tri and Jie have filed their interlocutory process, seeking an order that the defendant companies be wound up on the just and equitable ground under s 461(1)(k) of the Corporations Act.
The evidence as to the nature of the business of each of the defendant companies is not entirely clear. There is evidence that Seedz Investments Pty Ltd borrowed a sum of approximately $300,000 in or about May 2016 to assist Mr Henley to meet obligations of other companies in the group to creditors. The business of Snap Fitness Double Bay Pty Ltd, as its name implies, was part of the fitness centres operated by companies in the Henley group. The evidence does not identify the business of Yelneh Industries Pty Ltd other than that it seems to be the trustee of the Henley's Gone Primal Trust and the Henley's Wholefoods Alexandria Unit Trust. Fitness Management Company Pty Ltd seems to have operated a group bank account with Westpac Banking Corporation.
The shareholders in the defendant companies - Mr Henley on the one hand and Tri and Jie on the other - have been in dispute in relation to the management of the companies in the group since early 2016. As I have indicated, the parties commenced proceedings against the other, making allegations of impropriety in the management of companies within the group.
Mr Henley has not taken any active part in this proceeding since 6 February 2017. Although having commenced the proceeding in December 2016 and obtaining interlocutory relief against Tri and Jie, Mr Henley failed to comply with the terms of that interlocutory regime, which included that he provide a weekly schedule listing payments made by him from the bank accounts of the third to tenth defendants for the immediately preceding week. The default first occurred for the week ending Thursday, 20 January 2017 and has continued unexplained. On 3 April 2017 I made orders varying the interlocutory regime made on 23 December 2016 on the basis that there had been a material change of circumstances.
Counsel for Tri and Jie submit that it may be inferred that Mr Henley has, in effect, abandoned this proceeding by reason of his non-appearance since 6 February 2017 and his failure to appoint any new legal representative on his behalf. As indicated, Mr Henley has not appeared in the proceeding since 6 February 2017.
[4]
Irretrievable breakdown and deadlock
I am satisfied that the evidence supports the conclusion that there has been an irretrievable breakdown between the directors and shareholders of the four defendant companies and that the affairs of those companies are deadlocked: see Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [2001] NSWCA 97; (2001) 37 ACSR 672; Nassar v Innovative Precasters Group Pty Ltd [2009] NSWSC 342; (2009) 71 ACSR 343 at [132] (Barrett J); Brooker v You Run the Business Pty Ltd [2008] FCA 1752. The defendant companies in their current configuration are in what Barrett J described in Shenouda v Work Safe Medics Pty Ltd [2011] NSWSC 45 as a "predicament of paralysis". In view of the paralysis that has affected the affairs of the defendant companies and the irretrievable breakdown between the directors and shareholders, it is appropriate in my view that each of the defendant companies be wound up on the just and equitable ground.
[5]
Procedural Matters
There is evidence that Mr Moss and Mr Kwok have each given their consent to being appointed as liquidator.
Notice of this application has not been lodged with the Australian Securities and Investments Commission (ASIC) as required by s 465A(a) of the Corporations Act; nor has the application been advertised as required by s 465A(c); nor has the application been served on the defendant companies as required by s 465A(b). Tri and Jie seek an order pursuant to s 467(3)(b) of the Corporations Act dispensing with those requirements.
Section 467(3)(b) empowers the Court to "dispense with any notices being given or steps being taken that are required by this Act, or by the rules, or by any prior order of the Court".
I am satisfied that it is appropriate to dispense with the requirements of lodging notice of the application with ASIC, service of the application on the company and publication in the present case. Each of the shareholders of the defendant companies is a party to this proceeding. The evidence indicates that the defendant companies no longer trade and that seems to have been the position for some little time. There does not seem to be any realistic prospect of any creditor of the defendant companies opposing the application. I do not consider that any substantive purpose could be achieved by compliance with the requirements referred to above: Carter v New Tel (2003) 44 ACSR 661 at [23].
[6]
Orders
For the above reasons, I make the following orders:
1. Pursuant to s 461(1)(k) of the Corporations Act 2001 (Cth) (the Act), order that each of the fourth defendant Seedz Investments Pty Ltd ACN 163 750 481, the sixth defendant Snap Fitness Double Bay Pty Ltd ACN 603 346 541, the eighth defendant Yelneh Industries Pty Ltd ACN 164 784 623 and the ninth defendant Fitness Management Company Pty Ltd ACN 164 326 185 (the Companies) be wound up.
2. Pursuant to s 472 of the Act, order that Gavin Moss and Henry Kwok be appointed joint and several liquidators of each of the Companies.
3. Pursuant to s 472(6) of the Act, declare that anything required or authorised by the Act to be done by the liquidator may be done by any one of the liquidators of the respective Companies.
4. Pursuant to s 467(3)(b) of the Act, order that the requirements contained in ss 465A(a), (b) and (c) of the Act relating to the lodgement of the winding-up application, service of the application on the company and advertising of the application, be dispensed with.
5. The plaintiff pay the first and second defendants' costs of the interlocutory process filed on 29 March 2017.
6. These orders shall be taken out forthwith.
7. Stand over the balance of these proceedings to 29 May 2017 before the Corporations Judge at 10am.
[7]
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 26 May 2017