HER HONOUR: On 30 November 2023, his Honour Justice Ball made an ex parte freezing order against the second defendant, Luke Glazenburg, and a third party to these proceedings, NCC Group AU Pty Limited. His Honour stood the matter over for hearing today inter partes, as to whether the freezing orders should continue in effect, and if so, until when.
Today, counsel appeared for Mr Glazenburg, and by consent, orders were made to extend the freezing order against him until 5pm on 9 February 2024. It remains to consider whether the freezing order made against NCC Group should also be extended. There was no appearance for that company today, notwithstanding that the company was served with the motion, affidavit in support, the orders made by his Honour on 30 November 2023 and the transcript of the ex parte hearing.
Notwithstanding that NCC Group has not appeared today, it remains necessary for the Court to consider whether it is appropriate to extend the freezing order. The considerations which apply are uncontroversial. An applicant for a freezing order must establish, first, a good arguable case and, second, a risk that any judgment will go unsatisfied by reason of the other party dealing with their assets to place them out of the reach of the applicant: Tomasetti v Brailey [2012] NSWCA 6 at [14] -[15]; Samimi v Seyedabadi [2013] NSWCA 279 at [72] -[74]. It must be shown that there is a risk, not a mere assertion, that a respondent may dispose of or deal with their assets in such a manner as to leave any judgment unsatisfied: Samimi v Seyedabadi at [72] -[74] .
The basis on which the freezing order is sought against NCC Group is that the first defendant, LMG Building Pty Limited (in liquidation) has been "phoenixed", with the assets of LMG Building transferred to NCC Group. "Phoenixing" is winding up a company to avoid paying liabilities but transferring assets and employees to a new company: Commissioner of Taxation v Iannuzzi (No 2) (2019) 140 ACSR 497; [2019] FCA 1818 (per Stewart J) at [114] and [123].
In support of the application to extend the freezing order, the plaintiff relied on the affidavit evidence of her husband, Jason Hones, and a substantial amount of documentary material. In addition, the plaintiff tendered a Report to Creditors by the administrator of LMG Building (the company then being in administration). A tolerably clear position emerges from this material.
[3]
Facts
Mr Glazenburg was the sole director and shareholder of LMG Building. In July 2021, the plaintiff entered into a construction contract with LMG Building to complete alterations and additions to her Mosman property for $2.75 million. By August 2022, the plaintiff had fallen into dispute with LMG Building.
On 20 March 2023, the plaintiff served a notice of default on LMG Building. On 28 March 2023, LMG Building lodged an adjudication application under the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOPA) in respect of progress claim No 9 in the amount of some $219,000. On 3 April 2023, LMG Building responded to the notice of default and, on 4 April 2023, the plaintiff issued a notice of termination.
On 27 April 2023, an adjudication determination was made in LMG Building's favour in the sum of some $213,000. The plaintiff was then concerned as to the solvency of LMG Group and proposed to pay that money into Court. On 1 May 2023, LMG Group responded to the plaintiff's proposal by providing evidence of solvency, including a profit and loss statement and a statement of work in progress (WIP). LMG Building's solicitors advised that LMG Building was "financially stable" and was "not indebted to any third parties".
According to the Report to Creditors, the assurances given by LMG Building's solicitors were ill-founded. Prime Capital advanced some $900,000 to LMG Building in April 2023 to discharge existing loans and tax debt. (Prime Capital registered a charge on the company on 1 May 2023.) That is, LMG Building was then indebted to third parties. As the plaintiff was unaware of this, she paid the adjudicated amount to LMG Building on 3 May 2023.
On 18 May 2023, LMG Building issued a final payment claim for some $312,000. The plaintiff issued a payment schedule in the amount of $nil. On 2 June 2023, the plaintiff again expressed concerns as to the solvency of LMG Building. On 8 June 2023, LMG Building's solicitor again provided evidence of solvency, including a profit and loss statement as at May 2023, representing that the company then enjoyed a profit of some $99,000. An updated WIP schedule was also provided, representing that the company had unbilled WIP of $1.5 million in respect of a project at Fraters Ave, San Souci.
Again, it would appear from the Report to Creditors that the assurances provided by LMG Building's solicitors were ill-founded. First, by 30 June 2023, the company had a loss of some $750,000. The fact that such a sizeable loss was reported just a month after the May 2023 profit of $99,000 suggests that either a very substantial change in the company's financial performance had occurred in June 2023 or the information provided to the plaintiff was incorrect. Second, according to information provided by Mr Glazenburg to the administrator, the Fraters Avenue project had not yet commenced; there was no contract, let alone WIP.
On 16 June 2023, LMG Building applied for adjudication in respect of its final payment claim. An adjudication determination was issued on 10 July 2023 in the builder's favour in the amount of some $250,000. Judgment was entered in the District Court of New South Wales on 18 July 2023. On 20 July 2023, a garnishee order was made. On 21 July 2023, some $270,000 was garnisheed from the plaintiff's bank account.
On 24 July 2023, the plaintiff commenced proceedings No 2023/235082 in this Court, challenging the adjudication determination. The plaintiff also sought interlocutory orders, including that the garnisheed sum be paid into Court. On 26 July 2023, Ball J refused the plaintiff's interlocutory application in the absence of evidence of a risk that the money might not be repaid.
On 28 July 2023, the plaintiff commenced these proceedings against LMG Building, Mr Glazenburg and two other defendants, seeking damages in respect of building defects. As against LMG Building, judgment was sought for some $2.72 million, together with general damages.
The challenge to the adjudication determination was heard by Ball J on 7 August 2023. On 23 August 2023, Ball J gave judgment, concluding that the adjudicator had erred.
On 25 August 2023, Glazenburg Investments Pty Ltd was incorporated. Mr Glazenburg and his brother Matthew were appointed as directors. Luke Glazenburg may then have been the sole shareholder of the company, although this is not entirely clear. NCC Group was also incorporated. Luke Glazenburg was appointed as the sole director and secretary; Glazenburg investments became the sole shareholder.
After further written submissions were exchanged, on 19 September 2023, Ball J handed down a further judgment and made orders in proceedings No 2023/235082 to quash the adjudication determination. LMG Building was ordered to repay the garnisheed funds plus interest, then in the amount of $273,329.97, together with the costs of the proceedings. On 22 September 2023, the plaintiff issued a statutory demand to LMG Building. On 29 September 2023, the plaintiff filed a motion seeking an interlocutory injunction restraining LMG Building from dealing with, or disposing of its assets, save for the purpose of complying with the order of Ball J to repay the garnisheed funds to the plaintiff.
On 1 October 2023, according to information since provided to the administrator, LMG Building transferred its plant and equipment, office equipment and computer equipment to NCC Group for nil consideration. Prime Capital also refinanced with that company.
On 10 October 2023, LMG Building filed a motion seeking to set aside subpoenas and notices to produce, apparently directed to LMG Building's financial circumstances, together with an order that it pay the judgment debt by 12 monthly instalments.
Consent orders were made on 19 October 2023 by Stevenson J: LMG Building gave an undertaking not to deal with its assets up to some $273,000. At odds with that order, on 23 October 2023, LMG Building sold a motor vehicle, albeit it appears it had been subject to finance.
On 25 October 2023, LMG Building went into administration. On 3 November 2023, Matthew Glazenburg appears to have become a shareholder of Glazenburg Investments. On 20 November 2023, Luke Glazenburg ceased to be a director and shareholder of NCC Group but, according to the company's Facebook page, continues to work as the general manager of that company. The Facebook page mentions LMG Building and has posted a number of photographs which predate the existence of NCC Group. It appears that the building work may, in fact, be that of LMG Building.
The administrator issued a Report to Creditors on 21 November 2023, having formed the preliminary view that a transfer of business and assets may have occurred to NCC Group. In forming this view, the administrator had regard to the timing of the incorporation of the company, the cross-over between the shareholders and officeholders of that company with Glazenburg Investments and LMG Building, the fact that the Prime Capital loan was refinanced with NCC Group, that NCC Group's principal place of business is at the same place as LMG Building, and that both companies use the same accountants. The administrator has reason to suspect that NCC Group is employing the same employees and is using the same operating platform. NCC Group has acquired the assets of LMG Building for no consideration.
On 29 November 2023, LMG Building went into liquidation. As mentioned, on 30 November 2023, Ball J made ex parte freezing orders against Luke Glazenburg and NCC Group.
[4]
Conclusion
As to whether there is a good arguable case, there is no doubt that the plaintiff is entitled to be repaid the garnisheed moneys, where this is the subject of Ball J's judgment and orders. More broadly, the plaintiff has obtained a building defects report: Aaron Kyle of Quest Associates Pty Ltd has formed the view building defects exist, which will cost some $566,000 to remedy.
As to whether there is a risk that any judgment will go unsatisfied by reason of a respondent disposing of or dealing with their assets in such a manner as to leave any judgment unsatisfied, it does appear on the evidence on this application that LMG Building and its director Luke Glazenburg, have engaged in a classic case of phoenixing. Given the timing of the steps taken, in parallel with the plaintiff's efforts to retrieve the garnisheed funds, it would appear that the steps were taken in order to avoid repaying the garnisheed funds to the plaintiff. LMG Building's assets and business appear to have been transferred to NCC Group. Where Luke Glazenburg and his brother run that company, I consider that this is an appropriate case to continue the freezing order against that company to prevent a repetition of such behaviour, thereby frustrating the plaintiff's efforts to recover the moneys to which she is, or may be, entitled.
For these reasons, I make the following order:
1. Extend Order 3 made by Ball J on 30 November 2023 until further order.
[5]
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Decision last updated: 19 December 2023