Mansfield v Thousand Angeles Island Pty Ltd, in the matter of Thousand Angeles Island Pty Ltd

Federal Court of Australia|2019-03-15|Before: Farrell J

Leave is granted to the plaintiff to amend the originating application so that the grounds of the application are amended to include the ground provided for in s 461(1)(k) of the Corporations Act 2001 (Cth) (the Act).
The originating application, as amended, is made returnable instanter before the Court.
The plaintiff must file an amended application in accordance with the leave granted in Order 1 at or before 4:00 pm on Friday, 15 March 2019.
Compliance with any requirement for service or publication of the amended originating application is dispensed with.
The defendant be wound up pursuant to s 461(1)(k) of the Act.
David Ian Mansfield and Michael James Billingsley be appointed as joint and several liquidators of the defendant.
The plaintiff's costs be fixed in the amount of $5,946.90 to be paid from the assets of Thousand Angeles Island Pty Ltd in accordance with s 466(2) of the Act and in the order of priority established by s 556 of that Act. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

BACKGROUND 2 The circumstances forming the background to this application are set out in Mansfield (trustee) v Cruz [2018] FCA 1525. 3 Submissions in support of the application were filed on 7 March 2019. In those submissions, it is noted that Richard Quesada Cruz, the former shareholder of the Company, had assigned all of his shares in the Company to Mr Mansfield under a deed of assignment (dated 4 October 2018, in accordance with a deed of settlement dated 19 July 2018 to which Mr Cruz and Mr Mansfield are parties). The submissions went on to state that Mr Mansfield is the sole shareholder of the Company, which currently has no director or secretary. 4 The submissions summarise the evidence in relation to the formal notification requirements in relation to an application for a winding up order. I am satisfied that those requirements were met in relation to an application for winding up of the Company. 5 Mr Mansfield and Mr Billingsley signed a consent to act as liquidators on 21 December 2018. In the consent they note that, although Mr Mansfield is trustee for Mr Yang's bankrupt estate, they consider that they have no conflict in being appointed liquidators for the reasons set out in an affidavit sworn by Mr Mansfield on 21 December 2018. In the affidavit and in the submissions, Mr Mansfield sets out the reasons why it would be beneficial for Mr Yang's bankrupt estate that Mr Mansfield and Mr Billingsley be appointed as liquidators of the Company. 6 In the affidavit, Mr Mansfield explains matters relevant to the background of this application and the reasons for his belief that there is no conflict of interest which would render it inappropriate for Mr Billingsley and him to be appointed as as liquidators of the Company: Disposition of shares to Thousand Angeles Island 16. My investigations have revealed that from 11 April 2007 to 31 December 2015, Mr Yang was the director of a vocational education company, known as the Australian Institute of Higher Education Ltd (formerly Cornerstone Education Pty Ltd) (AIHE). 17. Mr Yang was also the holder of 500,000 fully paid shares in AIHE from 11 April 2007 to 26 May 2016. …. 18. On 23 May 2016, Mr Yang executed a document transferring 500,000 fully paid shares in AIHE to Thousand Angeles Island. … 19. An ASIC Current and Historical Organisation Extract for Thousand Angeles Island appears at page 212 and indicates that: (a) Thousand Angeles Island was registered on 23 May 2016, the day on which Mr Yang transferred the 500,000 fully paid shares in AIHE to it; (b) The sole director of Thousand Angeles Island from 23 May 2016 to 23 July 2018 was a Richard Quesada Cruz (Mr Cruz); and (c) From the date of Thousand Angeles Island's registration, Mr Cruz was, and remains registered as, the sole shareholder of Thousand Angeles Island. 20. My investigations into the affairs of Mr Yang revealed a number of potentially voidable transactions involving Mr Cruz, Mr Yang, and entities related to each of them. 21. On 27 June 2018 my solicitors filed proceedings (Federal Court Proceeding No. NSD1128/2018) seeking to set aside a number of those transactions (Cruz Proceedings). … 23. On 20 July 2018, I entered into a Deed of Settlement with Mr Cruz in relation to a number of transactions which were the subject of the Cruz Proceedings. … 24. On 3 October 2018, Mr Cruz, myself, and a number of other parties to the Cruz Proceeding executed an Agreed Statement of Facts in respect of the Cruz Proceedings … … 26. At paragraph 15 of the Agreed Statement of Facts, Mr Cruz admitted that Mr Yang approached Mr Cruz and asked him for help in protecting his assets from creditors. 27. At paragraph 42 of the Agreed Statement of Facts, Mr Cruz admitted that Thousand Angeles Island did not give any consideration to Mr Yang for the shares in AIHE. 28. At paragraph 40 of the Agreed Statement of Facts, Mr Cruz admitted that, upon the instruction of a firm of solicitors acting on behalf of Mr Yang, Whittens & McKeough, he executed a share transfer document on behalf of Thousand Angeles Island transferring the 500,000 fully paid shares in AIHE from Thousand Angeles Island. … 29. The share transfer document executed by Mr Cruz was subsequently registered with ASIC to record the transfer of the 500,000 ordinary shares in AIHE from Thousand Angeles Island to an entity by the name of GS Invest Pty Ltd ACN 615 057 737 (GS Invest). This is confirmed by the ASIC Form 484 which appears at page 270. 30. At paragraph 42 of the Agreed Statement of Facts, Mr Cruz admitted that Thousand Angeles Island did not receive any consideration for the transfer of shares to GS Invest. 31. On 3 October 2018, Mr Cruz and I entered into a Deed of Assignment whereby Mr Cruz assigned all of his right title and interest in 100% of the issued share capital of Thousand Angeles Island to me absolutely, and for no consideration. … 32. One of the limbs of relief sought in the Cruz Proceeding were orders pursuant to section 175 of the Corporations Act 2001 that the register of members of Thousand Angeles Island be corrected to record that the shares registered in the name of Mr Cruz be registered in the name of the first applicant, such order to take effect nunc pro tunc. 33. On 9 October 2018, I undertook to the Court that: (a) I would pay any stamp duty payable on the assignment of shares in Thousand Angeles Island from Mr Cruz to me; (b) Upon being recorded as a shareholder of Thousand Angeles Island, I would write to ASIC to seek to defer its strike-off action against the Company for three months so as to enable me 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; (c) within three months from the date on which I was recorded as a shareholder of Thousand Angeles Island, I would either: i. 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; ii. Advise ASIC that I have concluded my investigations and am content for ASIC to proceed with its strike-off action against that company; or iii. Approach the Court for directions. 34. Upon giving the undertaking above, her Honour Farrell J made the following order on 9 October 2018: "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 Jan Mansfield as the trustee of the bankrupt estate of Jin Heung Yang, such order to take effect nunc pro tunc.". … Action taken subsequently to the Cruz proceeding 36. On 22 October 2018, I instructed my solicitors, Corrs Chambers Westgarth (Corrs) to write to ASIC in accordance with the undertaking described at paragraph 33 above. … 37. On 13 November 2018, Corrs received a response from ASIC to their letter of 22 October 2018. … 38. On 21 December 2018, pursuant to section 249B of the Corporations Act 2001 and as the single holder of all the shares in the capital of Thousand Angeles Island, I resolved that Thousand Angeles Island be wound up by the Court. … Identity of liquidator 39. On 21 December 2018, myself and Michael James Billingsley, a Partner at Deloitte and a registered liquidator, executed a consent to act as liquidators of Thousand Angeles Island. … 40. In that consent to act, my appointment as the trustee of the bankrupt estate of Mr Yang and liquidator of the Yang Companies was disclosed. 41. At page 351 is a copy of an email from the solicitor acting for Mr Cruz in the Cruz Proceeding to my solicitors, Corrs, in with Mr Cruz' solicitor states as follows: "I am instructed by my client that: 1. to the best of his knowledge, Thousand Angeles Island Pty Ltd has never conducted any business or trading operations; 2. as at the date of his resignation and to the best of his knowledge, Thousand Angeles Island Pty Ltd did not have any assets other than the shares it received from Mr Yang, which were subsequently transferred to a third party; and 3. as at the date of his resignation and to the best of his knowledge, Thousand Angeles Island Pty Ltd did not have any liabilities or debts owing." 42. As a result of the above, the fact that Thousand Angeles Island was incorporated on the same day it received the shares from AIHE from Mr Yang, and based on my investigations to date, I do not believe that Thousand Angeles Island has any creditors other than Mr Yang's bankrupt estate. 43. The primary task of any liquidator appointed to Thousand Angeles Island will be to investigate the disposition of the shares in AIHE to GS Invest, and if appropriate, commence recovery action as against GS Invest. In doing so, the liquidator will likely be acting solely for the benefit of Mr Yang's bankrupt estate, being the sole creditor of Thousand Angeles Island. 44. I consider that the appointment of my partner Michael James Billingsley and myself as the liquidator of Thousand Angeles Island would be beneficial for the following reasons: (a) We and our staff at Deloitte have spent a significant amount of time investigating the conduct, affairs and dealings of Mr Yang and Mr Cruz. The knowledge we have obtained in the process of carrying out these investigations is likely to lead to the winding up being conducted more efficiently and cost effectively than if a liquidator from a different firm was appointed as the liquidator of Thousand Angeles Island; (b) The interests of creditors of Mr Yang's bankrupt estate, the most significant of whom is the Deputy Commission of Taxation for the sum of approximately $26,709,769, are likely to be advanced where the trustee of Mr Yang's bankrupt estate is able to investigate and commence recovery action in respect of dispositions of assets by Mr Yang through Thousand Angeles Island, on the instruction of Mr Yang; (c) As set out at paragraph 42 above, my investigations to date do not indicate that Thousand Angeles Island has any other creditors whose claims may conflict with those of Mr Yang's bankrupt estate. If during the course of the winding up, other creditors of Thousand Angeles Island are identified whose claims may give rise to conflict issues, I undertake to return to the Court to seek directions.

CONSIDERATION 7 As noted in Robson's Annotated Corporations Legislation (Thomson Reuters, Update 106) at [461.10], there are few instances of the Court being asked to make orders under s 461(1)(a) of the Corporations Act, since a company may be wound up by special resolution without the need for an order of the court. 8 Shortly before the hearing on 14 March 2019, the Court drew to the attention of the solicitors acting for Mr Mansfield that, although a resolution purporting to be passed on 21 December 2018 under s 249B of the Corporations Act was signed by Mr Mansfield as "the single holder of all the shares in the capital of the Company at the date of the resolution" was in evidence, no copy of the register of members was in evidence and the only search of the records of the Australian Securities and Investments Commission in evidence indicated that Mr Cruz remained the sole shareholder of the Company. Accordingly, counsel would be asked to address the Court on how in such circumstances Mr Mansfield could pass the resolution required under s 461(1)(a). 9 At the hearing, Mr Golledge, counsel for Mr Mansfield, submitted that it was unnecessary for Mr Mansfield to be actually registered as the holder of the shares in the Company in light of the order made on 9 October 2018 under s 175 of the Corporations Act that the Company's share register be corrected to record Mr Mansfield (in his capacity as trustee of Mr Yang's bankrupt estate) as the holder of shares registered in Mr Cruz's name and the fact that it has no directors or secretaries in office. No authorities for that proposition had been cited in the submissions filed in support of the application. 10 Section 175 provides as follows: 175 Correction of registers (1) A company or registered scheme or a person aggrieved may apply to the Court to have a register kept by the company or scheme under this Part corrected. (2) If the Court orders the company or scheme to correct the register, it may also order the company or scheme to compensate a party to the application for loss or damage suffered. (3) If: (a) the Court orders a company or scheme to correct its register of members; and (b) the company or scheme has lodged a list of its members with ASIC; the company or scheme must lodge notice of the correction with ASIC. Note: A proprietary company may also have to notify certain particulars under Part 2C.2 of this Chapter. 11 Mr Golledge relied on the decision of Wigney J in Taylor (trustee), in the matter of Kwok v Goldana Investments Pty Limited (receivers and managers appointed) (No 2) [2015] FCA 947; 236 FCR 298. In that case, Mr Taylor was the trustee in bankruptcy of Mr Kwok. The Court had ordered that 100 shares in Goldana Investments Pty Limited be re-transferred to Mr Kwok in Taylor (Trustee), in the matter of Kwok v Goldana Investments Pty Ltd (receivers and managers appointed) [2015] FCA 517. The shares vested in Mr Taylor under s 58(1)(b) of the Bankruptcy Act 1966 (Cth). However, Mr Kwok's former wife was the sole director of Goldana. Mr Kwok and his former wife had "gone to ground", so that it did not appear that there were any books and records of Goldana and Mr Taylor was unable to be registered as the holder of the shares. As the registered holder of the shares, he would have standing under s 462 of the Corporations Act to seek the winding up of Goldana under s 461(1)(k), the just and equitable ground. Despite the complexities, Wigney J made orders under s 175 that Goldana's register of members be corrected and that it be immediately wound up under s 461(1)(k). 12 Justice Wigney noted (at [16]) the rights of a trustee in bankruptcy under s 1072C of the Corporations Act. That section confers the same rights on a trustee in bankruptcy as a bankrupt shareholder would have had if he or she was not bankrupt, whether or not the trustee is the registered holder of the shares. Those rights would include the right to be registered as the holder of the shares following the order of the Court made in [2015] FCA 517. At [18], Wigney J said that s 175 is "plainly a beneficial provision and should be construed broadly" and at [19] found that an order under s 175 to record the shares registered in Mr Kwok's name be registered in the name of his trustee would be sufficient to give his trustee standing to apply to have Goldana wound up. Justice Wigney noted that that was the position taken by Emmett J in Francis v Blue Ribbon Enterprises (NSW) Pty Ltd [2009] FCA 1364; 76 ACSR 13. Justice Wigney found it unnecessary for the Court to order that a register of members be created, finding that the task of creating and correcting a register could be carried out by the liquidator in due course. At [21], his Honour noted that the sole director and secretary now appeared to reside overseas and to have no involvement in the management or control of Goldana, it appeared to carry on no business and it appeared to have no books and records and found that it was appropriate to wind up the company. 13 I note that in Francis v Blue Ribbon Enterprises at [16] Emmett J expressed doubt that, even having regard to s 1072C of the Corporations Act, trustees could properly be descried as the holder of the shares registered in the name of the bankrupt, although there was no doubt that the trustee was entitled to be so registered. At [18], Emmett J noted that, upon correction of the register by recording the trustees as the holder of the issued share, the trustees would then have standing to apply to the Court for the winding up of the defendant. In circumstances where the only director and secretary was bankrupt and therefore could not hold office and the trustees will be the only shareholder, it would be just and equitable that the company be wound up. At [19], his Honour also found it appropriate that the costs of the application be paid out of the assets of the company in the priority provided by s 556 of the Corporations Act. 14 A similar approach to that taken in Taylor (trustee), in the matter of Kwok v Goldana Investments Pty Limited (receivers and managers appointed) (No 2) and Francis v Blue Ribbon Enterprises was also taken by Yates J in Scott (Trustee) v Icicek Holdings Pty Limited, in the matter of Icicek Holdings Pty Limited [2015] FCA 1387. 15 Mr Golledge submitted that the order made by the Court on 9 October 2018 under s 175 of the Corporations Act had been based on recognition of the equity of Mr Mansfield because of his entitlement under the deed of assignment and the deed of settlement to be registered as the holder of the shares then registered in the name of Mr Cruz. It appears that neither Mr Cruz nor Mr Mansfield has had access to the books and records of the Company and it has not, since July 2018, had a director or secretary in office. Having regard to the authorities referred to above, the Court was satisfied that Mr Mansfield had standing to make the winding up application and that, in the circumstances disclosed in Mr Mansfield's affidavit of 21 December 2018, it was just and equitable that the Company be wound up. However, the Court had some concern about relying on those authorities in the context of s 461(1)(a), when Mr Mansfield was not, in fact, registered as the holder of the shares in the Company. Accordingly, on behalf of Mr Mansfield, Mr Golledge sought leave to amend the originating process to also rely on s 461(1)(k) and that leave was granted. The Court also thought it appropriate to make a lump sum costs order on the same basis as that in Francis v Blue Ribbon Enterprises.

CONCLUSION 16 For the reasons set out above, the Court made orders that leave be granted to amend the originating process to rely on s 461(1)(k) of the Corporations Act, the process as amended be returnable instanter, notification of a winding up application having been given, that compliance with any requirement for service or publication of the amended originating application is dispensed with, that the Company be wound up under s 461(1)(k) of the Corporations Act, that Mr Mansfield and Mr Billingsley be appointed as liquidators of the Company and that the plaintiff's costs be fixed in the amount of $5,946.90 to be paid from the assets of Thousand Angeles Island in accordance with s 466(2) of the Corporations Act and in the order of priority established by s 556 of that Act. I certify that the preceding sixteen (16) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Farrell.

Corporations Act 2001(Cth)ss 175, 249B, 461, 426, 466, 556, 1072C

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