Mansfield (Trustee) v Cruz

BETWEEN: DAVID IAN MANSFIELD AS THE TRUSTEE OF THE BANKRUPT ESTATE OF JIN HEUNG YANG First Applicant

JIM YANG NOMINEES PTY LTD (IN LIQUIDATION) ACN 137 666 614 Second Applicant

JIM YANG CONSULTANCY PTY LTD (IN LIQUIDATION) ACN 607 537 824 Third Applicant

AND: RICHARD QUESADA CRUZ First Respondent

STEAMBOAT PTY LTD ACN 609 789 488 IN ITS PERSONAL CAPACITY AND ITS CAPACITY AS THE TRUSTEE OF THE STEAMBOAT TRUST Second Respondent

NAGANO PTY LTD ACN 609 789 442 IN ITS PERSONAL CAPACITY AND ITS CAPACITY AS THE TRUSTEE OF THE NAGANO TRUST Third Respondent THOUSAND ANGELES ISLAND PTY LTD ACN 612 556 260 IN ITS PERSONAL CAPACITY AND AS TRUSTEE FOR THE THOUSAND ANGELES ISLAND TRUST Fourth Respondent

JUDGE: FARRELL J DATE OF ORDER: 9 OCTOBER 2018

BY CONSENT, THE COURT ORDERS THAT:

1. Pursuant to s 175 of the Corporations Act 2001 (Cth), the register of members of Thousand Angeles Island Pty Ltd ACN 612 556 260 be corrected to record that the shares presently registered in the name of Richard Quesada Cruz be registered in the name of David Ian Mansfield as the trustee of the bankrupt estate of Jin Heung Yang, such order to take effect nunc pro tunc.
2. The proceeding is otherwise dismissed. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

FARRELL J 1 These are reasons for orders made on 5 October 2018 and for further orders made today. 2 The applicant, Mr Mansfield, was appointed as trustee of the bankrupt estate of Jin Heung Yang (Mr Yang) pursuant to a debtor's petition filed on 21 March 2018. In that capacity, on 29 June 2018, Mr Mansfield filed an application seeking declarations and orders under s 120 and/or s 121 of the Bankruptcy Act 1966 (Cth) or, alternatively, s 37A of the Conveyancing Act 1919 (NSW) in relation to: (1) the transfer of $10,300,000 from Mr Yang and Jim Yang Nominees Pty Ltd (JYN) to the third respondent, Nagano Pty Ltd, pursuant to a deed of gift dated 24 December 2015; (2) the transfer of $1,500,000 from Mr Yang to the first respondent, Mr Cruz, pursuant to a deed of gift dated 24 December 2015 between Mr Yang, Jim Yang Consultancy Pty Ltd (JYC) and Mr Cruz; and (3) mortgages granted by Mr Yang to the second respondent, Steamboat Pty Ltd, pursuant to a loan agreement dated 24 December 2015 between Steamboat, Mr Yang and JYN. 3 At the time of Mr Mansfield's appointment as trustee of Mr Yang's bankrupt estate, Mr Yang was the sole shareholder and director of JYN, JYC and Cornerstone Investment Aust Pty Ltd. On 26 April 2017, Christian Sprouls and Michael Andrew Hogan were appointed liquidators of Consultancy pursuant to a creditors' voluntary winding up. 4 On 6 July 2018, Mr Mansfield was appointed as liquidator of JYN and JYC. 5 As trustee of Mr Yang's bankrupt estate and as liquidator of JYN and JYC, Mr Mansfield has entered into a Deed of Settlement and Release dated 19 July 2018 with Mr Cruz and companies of which he is a director, being Steamboat, Nagano and Thousand Angeles Island Pty Ltd in its personal capacity and as trustee of the Thousand Angeles Island Trust. Pursuant to the Deed of Settlement and Release, the parties sought orders joining JYN and JYC as the second and third applicants and Thousand Angeles Island as the fourth respondent. They also sought leave to file an amended application, which expands the range of relief sought, and an amended concise statement. I have marked Short Minutes of Order provided to my chambers on 3 October 2018 as Exhibit B in these proceedings. Annexed to the Short Minutes of Order was a draft application (marked as "A") and a draft concise statement (marked as "B"). The Short Minutes of Order provide for a range of declarations and orders in relation to impugned transactions between the parties identified in the amended application. 6 The parties' lawyers executed a Statement of Agreed Facts dated 3 October 2018 (a copy of which is set out in Annexure 1 to these reasons). It was tendered as Applicants' Exhibit 1. In deciding whether to make the orders proposed in the Short Minutes of Order, I have taken into account the agreed facts set out in the Statement. It is unnecessary for me to recount the agreed facts further in these reasons. 7 Mr Golledge, counsel for Mr Mansfield, advised the Court that the liquidators of Cornerstone and Cornerstone Education Group Pty Ltd are aware of the proceedings. Those liquidators may seek to raise a claim against funds recovered by Mr Mansfield as trustee of the bankrupt estate of Mr Yang or against JYC or JYN having regard to the payment of a dividend declared by Cornerstone in favour of its shareholder, Mr Yang, which was satisfied by the assignment to Mr Yang of debts owed to Cornerstone by JYC and JYN. Mr Golledge indicated that his client would have no objection to an order being made that he advise Cornerstone's liquidators of any orders made by the Court in response to his application. I considered it appropriate to make such an order. 8 The proposed consent orders included, in summary: (1) a declaration that the transfer of $10,300,000 from Mr Yang and JYN to Nagano (Nagano Gift) pursuant to the deed of gift dated 24 December 2015 is void against Mr Mansfield pursuant to s 121 of the Bankruptcy Act, it is void pursuant to s 37A of the Conveyancing Act and the proceeds of the Nagano Gift were, when received, held by Nagano on constructive trust for Mr Mansfield and JYN; (2) declarations that the mortgage granted by Mr Yang to Steamboat pursuant to a deed of mortgage dated 24 December 2015 (Yang Mortgage) is void against Mr Mansfield pursuant to s 121 of the Bankruptcy Act and the Yang Mortgage is void pursuant to s 37A of the Conveyancing Act; (3) a declaration that, pursuant to s 37A of the Conveyancing Act, the mortgage granted by JYN to Steamboat pursuant to a deed of mortgage dated 24 December 2015 is void; (4) a declaration that, pursuant to s 37A of the Conveyancing Act, the payment of $10,500,000 from Mr Cruz to Steamboat pursuant to a deed of gift dated 24 December 2015 (Steamboat Gift) is void on the basis that it constitutes an alienation of property with the intention of defrauding creditors and the proceeds of the Steamboat Gift were, when received by Steamboat, held on constructive trust for Mr Mansfield and JYC; (5) a declaration that the transfer of $1,500,000 from Mr Yang to Mr Cruz pursuant to a deed of gift dated 24 December 2015 between Mr Yang, JYC, and Mr Cruz (Cruz Bankruptcy Gift) is void against Mr Mansfield pursuant to s 121 of the Bankruptcy Act and the proceeds of the Cruz Bankruptcy Gift were, when received by Mr Cruz, held on constructive trust for Mr Mansfield; (6) a declaration that, pursuant to s 37A of the Conveyancing Act, the transfer of $9 million from JYC to Mr Cruz pursuant to the deed of gift dated 24 December 2015 (Cruz JYC Gift) is void and the proceeds of the Cruz JYC Gift were, when received by Mr Cruz, held on constructive trust for JYC; (7) an order that Nagano pay $10,300,000 to Mr Mansfield and JYN; and (8) an order pursuant to s 175 of the Corporations Act 2001 (Cth) that the register of Thousand Angeles Island be corrected to record that the shares presently registered in Mr Cruz's name be registered in Mr Mansfield's name, such order to take effect nunc pro tunc. 9 Attached as Annexure 2 to these reasons is MFI-1, a diagrammatic representation of cash flows of the transactions said to have occurred on 24 December 2015 which Mr Mansfield seeks to reverse (and other related transactions which are not impugned in these proceedings). 10 In determining whether to make the orders sought, I relied on submissions dated 3 October 2018 filed on behalf of Mr Mansfield. As noted above, Mr Mansfield was represented at the hearing by Mr Golledge of counsel. The respondents were represented by their solicitor, Mr Herman. 11 The parties recognised that the Court may have reservations about making declarations based only on their Statement of Agreed Facts, notwithstanding the terms of s 191 of the Evidence Act 1995 (Cth). Exhibit A to the Statement includes 27 documents which are said to support the factual matters in the Statement. At the hearing on 3 October 2018, Mr Golledge took the Court through Exhibit A and drew its attention to any matters that might be thought to be anomalous (for instance, the date of the deed of assignment of loans owed to Cornerstone to Mr Yang). I was satisfied by the Statement and the material in Exhibit A that there is a sufficient evidentiary foundation on which to make the declarations and related orders proposed (save for that relating to s 175 the Corporations Act) and accordingly made those orders and stood the matter over until 9 October 2018 to provide an opportunity for Mr Mansfield's legal representatives to contact him concerning aspects of possible undertakings in relation to Third Angeles Island. 12 In relation to the application for an order under s 175 of the Corporations Act, Mr Golledge explained that in May 2016, Mr Yang transferred 500,000 fully paid shares in Australian Institute of Higher Education Pty Ltd to Thousand Angeles Island for nil consideration. Mr Cruz is, and always has been, the sole shareholder of Thousand Angeles Island, a matter which is verified by a search contained in Exhibit A. Subsequently, Thousand Angeles Island transferred the 500,000 shares to GS Invest Pty Ltd for no consideration. So far as Mr Mansfield is aware, GS Invest remains the holder of the 500,000 shares. Mr Cruz was, upon its incorporation, the sole director of Thousand Angeles Island until he resigned from office in July 2018 leaving no directors in office. 13 As part of the resolution of these proceedings which has been reached between Mr Mansfield (in his various capacities) and Mr Cruz, Mr Cruz agreed to transfer the whole of his shares in Thousand Angeles Island to Mr Mansfield: Deed of Settlement and Release at [6]. It was submitted that, as there are no directors in office, it will be necessary for the share register to be corrected to record the registration of the transfer. Mr Mansfield says that this will facilitate any future recovery action which it might be appropriate to take in respect of the transfer of the 500,000 shares in Australian Institute of Higher Education to GS Invest. 14 In light of s 201A(1) of the Corporations Act, which requires a proprietary limited company to have a minimum of one director, the Court was concerned that it appeared that there was no proposal to appoint a director of Thousand Angeles Island. 15 In correspondence with the parties following the hearing on 4 October 2018, the Court raised with the parties the appropriateness of making an order under s 175 in circumstances where it was not clear why Mr Cruz could not appoint Mr Mansfield or some other person as a director of Thousand Angeles Island and it appeared from the search that strike-off action had been brought by the Australian Securities and Investments Commission between 9 August and 3 September 2018 to effect the de-registration of the company. The Court also enquired as to whether Thousand Angeles Island currently conducted business. 16 Mr Herman, on behalf of the respondents, advised that Thousand Angeles Island does not currently conduct business. 17 The solicitors for Mr Mansfield and Mr Golledge advised that: (1) Neither Mr Cruz nor any other party has offered Mr Mansfield an indemnity in relation to liabilities to which he might become subject if he were to be appointed as a director of Thousand Angeles Island. Under ss 269-15, 20 and 25 of the Taxation Administration Act 1953 (Cth), a person appointed as a director of a company becomes exposed to liability for outstanding tax liabilities of the company 30 days after their appointment and Mr Mansfield has been unable to assess the extent of any exposure he might have if he was appointed as a director of Thousand Angeles Island. If he was not in position to make that assessment within 30 days of appointment, it might become necessary to appoint an administrator to avoid personal liability and, at this point, he does not know whether that would be in the interests of the creditors whose interests he has been appointed to represent; and (2) As the shareholder of Thousand Angeles Island, he will be in a position to investigate whether there is any benefit in Thousand Angeles Island being wound up or action commenced in relation to the transfer of the 500,000 shares in Australian Institute of Higher Education to GS Invest. 18 To address the Court's concerns, and in light of the advice that Thousand Angeles Island does not carry on business or have employees, Mr Mansfield undertook as follows: (1) To pay any stamp duty payable on the assignment of shares in Thousand Angeles Island from Mr Cruz to himself; (2) Upon being recorded as a shareholder of Thousand Angeles Island, Mr Mansfield would write to ASIC to seek to defer the strike-off action for three months so as to enable him to conduct investigations into the affairs of Thousand Angeles Island and into the utility of it being wound up for the benefit of creditors of Mr Yang's bankrupt estate; (3) Within three months from the date on which he is recorded as a shareholder of Thousand Angeles Island, he would either: (a) Proceed to have Thousand Angeles Island wound up for the benefit of the creditors of Mr Yang's bankrupt estate by way of resolution at a general meeting of the members of that company; or (b) Advise ASIC that Mr Mansfield has concluded his investigations and is content for ASIC to proceed with its strike-off action against that company; or (c) Approach the Court for directions. 19 The Court has some hesitation in making an order under s 175 in circumstances where it appears that it is contemplated that no director will immediately be appointed. However, the Court accepts that if Mr Mansfield becomes the sole shareholder of Thousand Angeles Island, he will be in a position to preserve the assets of that company, including any claim it may have against GS Invest, and it would be disproportionate to require Mr Mansfield to accept (by being appointed a director of Thousand Angeles Island) an unknown liability under the Taxation Administration Act. Thousand Angeles Island does not currently conduct business and it has no employees. Mr Mansfield has offered undertakings which would ensure that its director-less state would not endure indefinitely. It is true that if Thousand Angeles Island were to be struck off its assets would be preserved, however, it would involve costs to have it reinstated, a cost which could be avoided if Mr Mansfield's undertaking is accepted and the order under s 175 is made. Further, unless Mr Mansfield becomes registered as the shareholder, he would require Mr Cruz's assistance to make an application to have Thousand Angeles Island re-registered if ASIC does not cease the progress of the strike-off proceedings. That also is likely to involve unnecessary time and cost. 20 Further, I note that the consequences of contravention of s 201A are unclear and no penalty is prescribed: see In the matter of DH International Pty Limited (Administrators Appointed) ACN 143 461 849 [2013] NSWSC 1120 at [8]-[10] per Brereton J. 21 The Court should not lightly facilitate the continuation of a circumstance contrary to that envisaged by a specific provision enacted by Parliament in the Corporations Act, albeit that it is one for which there is no penalty prescribed. On the basis that that circumstance will not be allowed to long endure and Thousand Angeles Island is not carrying on business, I am nonetheless satisfied that it is more convenient for the due administration of the bankrupt estate to accept Mr Mansfield's undertaking and make the order under s 175. I note that the Court has jurisdiction to make such an order whenever the applicant has sufficient equity to support the remedy and the power should only be exercised to give effect to some legal or equitable right on the applicant's behalf: see Price v Powers [2005] WASC 154 at [98] per Le Miere J. Having regard to the Deed of Settlement and Release at [6], I am satisfied that Mr Mansfield has such an equity and that the order should be made. 22 Accordingly, I made the proposed order under s 175 of the Corporations Act and an order otherwise dismissing the proceedings.

I certify that the preceding twenty-two (22) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Farrell.