Macquarie Bank Ltd v TM Investments Pty Ltd

1 By originating process filed on 27 April 2005, the plaintiff seeks, in respect of each of two companies (the third defendant, Capital Investments Group Australia Pty Ltd, and the fourth defendant, Progressive Investments Security Pty Ltd), an order that the company be wound up and, in respect of the second defendant (Progressive Securities Pty Ltd), an order that ASIC reinstate its registration and an order that it be wound up. 2 The winding up applications are advanced on the ground stated in s.461(1)(k) of the Corporations Act 2001 (Cth), that is, that the court is of the opinion that it is just and equitable that the company be wound up. The applications based on the just and equitable ground are somewhat unusual in that they are not made by ASIC or by a contributory but rather by a party which considers it is a creditor of each company. That party is the plaintiff, Macquarie Bank Ltd. 3 I allowed, over opposition, the filing by Mr Tunde Doja of a notice of intention to oppose the making of the winding up orders. I did this on the basis that there were grounds for considering Mr Doja to be a creditor of the first two companies, even though there was no basis for determining the amount he was owed. Mr Doja sought an adjournment of the hearing of the winding up applications by reference to s.440A, the third and fourth defendants being under Part 5.3A administration. When that was refused, his counsel merely indicated opposition to the making of winding up orders without seeking to advance submissions. 4 The convenient course is to consider first the evidence relevant to the plaintiff's standing, leaving to one side for the moment the point that the second defendant has been deregistered. 5 During 2004 and earlier, the plaintiff advanced funds on the faith of what it believed to be genuine applications and genuine agreements relating to financial loan products in the nature of margin lending facilities made available to persons wishing to invest the loan proceeds in certain forms of investments. The apparent borrowers were introduced to the plaintiff, so far as human activity is concerned, by Mr Doja and a Mr Zareei. The introductions were made under arrangements entitling the second, third and fourth defendants to commissions from the plaintiff. Those defendants acted as investment advisers and in that capacity forwarded to the plaintiff loan applications ostensibly on behalf of clients. 6 An affidavit of Mr Kim, a solicitor employed by the plaintiff, says that as at 6 June 2005 the plaintiff had paid commissions of $20,652.06 to the fourth defendant, being $399.66 supposedly due to the fourth defendant, $16,242.55 supposedly due to the second defendant and $3,569.12 supposedly due to the third defendant - and when I say "supposedly due", I intend to convey that the respective sums were paid upon an understanding of the plaintiff that events giving rise to an obligation to pay commissions had occurred and that the second and third defendants directed the plaintiff that commissions to be paid to them should be paid into the bank account of the fourth defendant. The sums I have mentioned appear in each case to be merely an established part of a potentially larger total. 7 On the evidence before me, it is clear that some of the transactions ostensibly entered into by the plaintiff with borrowers introduced by Mr Doja and Mr Zareei, on behalf of the second, third and fourth defendants, were sham transactions in that the supposed borrowers, although existing, never signed relevant documents, never received the loan proceeds and were quite mystified to find the plaintiff claiming to be their creditor. In several instances, the supposed borrower says that the signature on the loan and associated documentation is not his or her signature and that some of the information with respect to him or her in the application is untrue. In some cases, the supposed applications were accompanied by copies of supposed tax returns, which were not returns of the persons concerned. 8 In these circumstances, the plaintiff says that it is a creditor of each of the second, third and fourth defendants because it paid commissions in respect of loans which were never in truth made, so that there was a total failure of consideration giving rise to a claim for recovery of the commissions as money had and received. I am satisfied, having regard to the evidence concerning the applications and loan agreements, that a right to recover commissions upon a common money account can be said to have accrued to the plaintiff as against each of the second, third and fourth defendants, with the result that the plaintiff must be regarded as a creditor of each for the purposes of s.462(2) of the Corporations Act, which is concerned with standing to bring a winding up application. The amounts do not matter. It is sufficient that a claim exists for any amount as against each of the defendants. 9 I return to the evidence. The third defendant is shown by ASIC records to have a Mr Bir and a Ms Doja as directors and the first defendant (TM Investments Pty Ltd) as sole shareholder. The sole director of the fourth defendant is shown as a Ms Enares. Mr Doja is shown as a former director. The first defendant is recorded as the sole shareholder. The second defendant is shown as having been deregistered on 20 March 2004, at which time its directors were Mr Doja and Mr Zareei and they, along with a Mr Samways, were shown as the members. The deregistration of the second defendant is recorded as having occurred under s.601AA, which must mean that action towards it was initiated by the company itself or a director or member. According to the search information Ms Doja is the sole director of the first defendant and Mr Doja holds all the shares. I add that the first defendant (TM Investments Pty Ltd) is in the course of winding up. 10 I infer from all of this that, before the intervention of the winding up of the first defendant, Mr Doja occupied, through that company, a position of influence in the affairs of the third and fourth defendants and that the same situation prevailed in relation to the second defendant before it was deregistered. 11 In arguing that a case has been made out for the winding up of the third and fourth defendants (and also the second defendant, subject to its registration being reinstated), the plaintiff says that the just and equitable ground comprehends circumstances where a company has been conducted without regard to what the Vice-Chancellor, Sir William Page Wood, in Re London and County Coal Company (1866) LR 3 Eq 355 called "justice and propriety". There is, accordingly, a subcategory of the just and equitable ground which covers situations where, in the words of Young J in International Hospitality Concepts Pty Ltd v National Marketing Concepts Inc (No. 2) (1994) 13 ACSR 368, "there has been serious fraud, misconduct or oppression in regards to the affairs of the company". His Honour was quoting there from an article by B H McPherson at (1964) 27 MLR 282. The relevant circumstance is a lack of probity in the conduct of the company's affairs, productive of a justifiable lack of confidence in the administration of the company. 12 In Re Producers Real Estate and Finance Company Ltd [1936] VLR 235, Mann CJ said that it is appropriate to wind up a company on the just and equitable ground where its business cannot be carried on consistently with candid and straightforward dealings with the public from whom further capital must be obtained if the company's existence is to be prolonged. One would extend that comment to candid and straightforward dealings with a clientele upon whose custom the company's business is dependant. 13 It was observed by Owen J in Australian Securities and Investments Commission v Chase Capital Management Pty Ltd (2001) 36 ACSR 778 that if a company has operated an illegal managed investment scheme, the case for winding up not only the scheme but also the company is compelling. In Australian Securities Commission v AS Nominees Ltd (1995) 18 ACSR 459, Finn J made winding up orders where, in his words (at p.519): "There has been misconduct and mismanagement in the conduct of the trust business in such degree as to make it unacceptable for these three companies to solicit, hold, manage and deal with investors' money on a fiduciary basis."

Winding up was there said to be "the appropriate expression of the lack of confidence one must have in the directors of these companies in their conduct and management of the affairs of their companies". 14 It is clear from the evidence to which I have already referred that governance systems in place within the second, third and fourth defendants were such as to permit Mr Doja and Mr Zareei to cause credit applications to be submitted to the plaintiff through the second, third and fourth defendants in circumstances where the applications were, in whole or in part, fabrications. The applications were supposedly submitted without their knowledge by persons shown to be unsophisticated who have neither the means nor the experience to undertake the relevant investments and borrowings and the risks they entail. The second, third and fourth defendants were all engaged in the business of providing financial intermediation services to clients. The two main actors in the conduct of these activities were Mr Doja and Mr Zareei. In January 2005 they were banned by ASIC for life from acting as financial advisers. 15 The third and fourth defendants went into Part 5.3A administration on 29 April 2005 by virtue of a decision of the sole director in each case. In the case of the third defendant, the sole director failed to respond to the administrator's questionnaire and to provide reasons for the company's failure. The administrators have established that the company did not keep proper books and records. The administrators formed the opinion that the company was insolvent and was no longer trading and was incapable of resuming trading. In the case of the fourth defendant, the sole director said that the decision to appoint administrators flowed from the banning of Mr Doja and Mr Zareei and the pendency of these proceedings, which the company did not have the financial capacity to defend. The director of the fourth defendant also informed the administrators that the company had no assets and no liabilities, a statement which the administrators have established to be false. The administrators are of the opinion that the company is insolvent. 16 The evidence establishes, in relation to each of the third and fourth defendants, in my opinion, that each company's operations were dependent on the personal efforts of Mr Doja and Mr Zareei as investment advisers, which efforts are no longer available. The sole director has recognised, in each case, that the company is insolvent or likely to become so and the administrators have formed a view that the company is insolvent. These circumstances exist in a context where it has been shown that the human actors caused the companies to become involved in transactions that were, at best, highly irregular and, at worst, dishonest, being transaction based on fabrications calculated to produce, for the companies contractual rewards that they had not in reality earned. 17 The administrators do not oppose the making of winding up orders in relation to the third and fourth defendants. They also say that they recognise the real possibility of preference recoveries and insolvent trading recoveries in relation to both the third defendant and the fourth defendant in the event of a winding up. 18 I am satisfied that in the whole of the circumstances to which I have referred it is just and equitable that the third and fourth defendants should be wound up. The court will therefore make a winding up order in each case. 19 I turn now to the second defendant in relation to which there is, as I have said, an application for an order that ASIC reinstate its registration, coupled with a winding up order. All the evidence shows in relation to the second defendant is that it was a recipient of some of the commissions attributable to the financing transactions arranged by Mr Doja and Mr Zareei with the plaintiff that have been shown to have been irregular and to have given rise to the claim for recovery that makes the plaintiff a creditor. It is said, on behalf of the plaintiff, however, that with the second defendant now non-existent, the plaintiff has no way of asserting its claim or, by that means, of seeking to hold accountable individuals who, by their conduct, may have rendered themselves liable to the second defendant. While there is no direct evidence of any such claims on the part of the second defendant, the fact that its modus operandi was apparently the same as that of the third and fourth defendants and involved the same individuals in circumstances where the administrators of the third and fourth defendants have formed an opinion that preference recoveries and insolvent trading recoveries represent a real possibility, the same possibility must be a real and cogent one in relation to the second defendant. Persons accountable cannot escape by the simple expedient of pursuing an application to ASIC for the deregistration of the company. 20 I am satisfied that in these circumstances the plaintiff is a person aggrieved by the deregistration of the second defendant for the purposes of s.601AH(2). This is because the non-existence of the second defendant makes the plaintiff unable to pursue its claim to recover moneys against the second defendant and, likewise, unable to obtain whatever advantage may indirectly be available through recovery proceedings that the second defendant itself may pursue against its principals. I am also of the opinion that it is just for the purposes of s.601AH(2) that the registration of the second defendant be reinstated so that the plaintiff may see a liquidator installed and, through that medium, see steps taken towards possible recoveries from involved individuals that will go towards satisfaction of the plaintiff's claims. 21 In this respect the circumstances of this case resemble those with which I dealt in Donmastry Pty Ltd v Albarran (2004) 49 ACSR 745. The present case is perhaps slightly less compelling than that one was, although there is here the added factor of events involving the third and fourth defendants which add weight to the proposition that there may be recoveries available to the liquidator of the second defendant. These factors make winding up just and equitable. Also, ASIC has stated that it does not oppose the reinstatement. I will make both an order for reinstatement and a winding up order in relation to the second defendant. The advertising requirement may be dispensed with. 22 Consents to act as liquidators have been filed. Mr Lord and Mr Morgan, the existing administrators, have consented to act as liquidators of the third and fourth defendants. Mr Sims has consented to act as liquidator of the second defendant. There is no reason why the proposed appointees are not appropriate. 23 I now make orders in accordance with the short minutes which I initial and date. The order may be taken out forthwith.

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Judgment (14 paragraphs)

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