Nature's Care Holdings Pty Ltd v Chen [2024] NSWSC 107 | Case summary

Supreme Court of NSW|2024-02-07|Before: Stevenson J

Solicitors: Clifford Chance (Plaintiffs) Norton Rose Fulbright (First and Second Defendants) Lander & Rogers (Third Defendant) File Number(s): 2024/23372

JUDGMENT

The plaintiffs are five companies which form part of the Nature's Care Group. The first plaintiff, Nature's Care Holdings Pty Ltd is, as its name suggests, the holding company for the group. The second plaintiff, Nature's Care Group Pty Ltd, and the sixth plaintiff, Australia Nature's Care Biotech Co. Ltd, are the trading companies.
The Nature's Care Group is an Australian vitamins and dietary supplements business. It has a manufacturing facility at Belrose in Sydney and distributes its products in Australia, North America and Asia. The group's business is substantial. It employs some 240 people and in August 2023 was forecast to have an EBITDA for the calendar years 2023 and 2024 of $23.7 million and $32.8 million respectively.
The current shareholding in Nature's Care Holdings is: 1. JIC Nature Pte Ltd, a Chinese state-owned corporation, incorporated in Singapore as to 45%; 2. Tamar Alliance Health Ltd, also a Chinese state-owned corporation but incorporated in the Cayman Islands as to 30% (together, the "Majority Shareholders"); and 3. Ms Jina Chen, the first defendant, and her son Mr Michael Wu, the second defendant (together the "Wu Parties") as to the remaining 25%.
These proceedings were commenced on 19 January 2024 before the vacation duty judge arising from the acquisition on 17 January 2024 by the third defendant, AS Investment Vehicle Pty Ltd ("ASIV"), a company evidently associated with the Wu Parties, of the rights of 93% of Nature's Care Holdings' "Senior Lenders" under a Syndicated Facility Agreement dated 6 August 2018. That facility has been in default since 8 August 2023; some $138 million is due. ASIV purchased those Senior Lenders' rights at par, using funds made available to it by Ms Chen.
The plaintiffs contend, in circumstances that I will discuss in more detail below, that Ms Chen and Mr Wu procured that ASIV acquire these rights in circumstances where they were acting in breach of their fiduciary duties to the plaintiffs.
On 23 January 2024, Rees J restrained the defendants from enforcing any rights under the Syndicated Facility Agreement that ASIV has purchased. [1]
On 5, 6 and 7 February 2024, I heard argument as to whether those orders should be continued until the final hearing of these proceedings.

Decision

I do not propose to continue the orders.

The Nature's Care Group

Ms Chen founded the Nature's Care business in 1990.
Until 2018, Ms Chen ran the business with her husband, Mr Alex Wu, and with Mr Wu, (together the "Wu Family") and another son, Mr Jack Wu.
In 2018, the Majority Shareholders, JIC and Tamar, acquired a 75% interest in the Nature's Care Group for a price of approximately $585 million, being 75% of what was then said to be the "enterprise value" of the group of $780 million. $280 million of the purchase price was funded by debt.
To give effect to the acquisition, the first plaintiff, Nature's Care Holdings, became the holding company in the group, the shareholding of which then became as I have set out at [3] above.
The debt component of the purchase price for the Majority Shareholders' 75% in the Nature's Care Group was funded by a syndicate of banks, the Senior Lenders, under the Syndicated Facility Agreement to which I have referred at [4].
Various entities within the Nature's Care Group provided security in favour of the Senior Lenders to secure the performance of Nature's Care Group's obligations under the Syndicated Facility Agreement.
On completion of the Majority Shareholders' purchase of their 75% interest on 10 August 2018, Nature's Care Holdings, JIC, Tamar and the Wu Family entered into a Subscription and Shareholders Agreement (the "Shareholders Agreement"). I return to that document below.
On 6 July 2020, JIC, Tamar and an entity representing the Wu Family entered into an agreement with Nature's Care Holdings (the "Shareholder Loan Agreement"). Pursuant to that agreement, amongst other things, JIC, Tamar and the Wu Family, as "Junior Lenders", agreed to advance $120 million to Nature's Care Holdings in proportion to their shareholdings. A further $12 million was, in 2022, advanced in the same proportions.
The debt of the Junior Lenders is subordinated to the debt of the Senior Lenders according to the terms of a Priority and Subordination Deed also made on 6 July 2020, to which I will return below.
In around June 2022, Ms Chen and Mr Wu departed the business and handed management of it over to the Majority Shareholders. However, after their departure, it appears that the financial position of the plaintiffs deteriorated.
It is the position of the Wu Parties that the plaintiffs' position deteriorated so much so that in or around August 2022, the Majority Shareholders invited Ms Chen and Mr Wu to return to manage the business. Ms Chen was then appointed Chief Executive Officer. Ms Chen and Mr Wu re-joined the board.
These matters were recorded in an amendment to the Shareholders Agreement dated 15 September 2022.
By that document: 1. Ms Chen was appointed Chief Executive Officer; 2. JIC, Tamar and the Wu Family agreed to advance as "Junior Debt" the further $12 million to which I have referred at [16]; and 3. the parties agreed to amend the "Drag Along" rights in the Shareholders Agreement in the manner I describe below.
The current directors of the Nature's Care Group are nominees of the Majority Shareholders, including Mr Huayi (also known as "Bob") Niu. Mr Ryan Rabbitt was appointed as an independent director by the directors representing the Majority Shareholders (the "Majority Directors") on 27 December 2023, in the circumstances I describe below.
Ms Chen and Mr Wu were directors until 13 October 2023. They resigned as directors that day. It is accepted for present purposes that Ms Chen resumed her role as a director on 28 December 2023 and again resigned on 11 January 2024. The parties allege that Ms Chen was at all other times either a shadow or de facto director of the plaintiffs. I return to these matters below.
After resigning as directors on 13 October 2023, Ms Chen retained her position as Chief Executive Officer and Mr Wu remained as General Manager pursuant to a consultancy agreement. They were removed from these positions on 27 December 2023 in circumstances to which I will return.

The "pleaded case"

It is important to examine carefully the manner in which the plaintiffs articulated their case in their Amended Commercial List Statement.
Under the heading "Duties of First and Second Defendants" the plaintiffs alleged: "48. By reason of [Ms Chen and Mr Wu being either a director or a shadow or de facto director at all relevant times and an officer and employee of the plaintiffs until 27 December 2023], Chen and Wu each owed to the Plaintiffs a fiduciary duty to: (a) act in good faith; (b) not to put herself or himself in a position where her duties or interests may conflict with those of the Plaintiffs; (c) not to profit from her or his role as a fiduciary of the Plaintiffs; and (d) make material disclosure to the Plaintiffs of all relevant circumstances pertaining to her or his acquisition (either directly or indirectly by themselves, their agents or affiliates) of an interest as a Lender under the [Syndicated Facility Agreement] and Finance Documents."
There is no dispute that directors and company employees owe the proscriptive duties referred to in subpars (b) and (c) of that paragraph. [2]
There is a controversy in Australia as to whether parties in the position of Ms Chen and Mr Wu owed the prescriptive duty to make material disclosure referred to in subpar (d).
The current position in this Court is that they do not. Thus, in Diakovasili v Order of AHEPA NSW Incorporated, [3] Black J, after reviewing the authorities including that of the Western Australia Court of Appeal in Westpac Banking Corporation v Bell Group Limited (in liq) (No 3), [4] said that "Australian courts only recognise fiduciary duties of proscriptive or prohibitive character … and the existence of a fiduciary relationship does not impose a positive legal duty on the fiduciary to act in the beneficiary's interest".
The plaintiffs then allege that Ms Chen and Mr Wu owed the plaintiffs the statutory duties set out in ss 181, 182, 183 and 191 of the Corporations Act 2001 (Cth).
Having alleged the duties owed to the plaintiffs by Ms Chen and Mr Wu, the Amended Commercial List Statement then makes the following allegations under the heading "Breach of Duty by the First and Second Defendants".
The plaintiffs allege that Ms Chen and Mr Wu knew of "Confidential Finance Information", defined as being the information referred to in the Syndicated Facility Agreement (not the Shareholders Agreement, see below), together with knowledge that: 1. the first plaintiff was in default of its obligations under the Syndicated Facility Agreement; and 2. the Senior Lenders could exercise the "Enforcement Rights" under the Syndicated Facility Agreement to take control and ownership of the business of the plaintiffs and to appoint a receiver and thereby potentially damage the business of the plaintiffs (referred to as the "Confidential Default Information").
Then, under the heading "Non disclosure by the Defendants", the plaintiffs allege: "51. The Plaintiffs sought full disclosures from Chen and Wu of their material personal interests in ASIV, ASIV's interests as an offeror and ASIV's rights as Lender under the [Syndicated Facility Agreement] and Finance Documents, which interests they were each and all obliged to disclose, but Chen and Wu: (a) failed to provide such disclosures; and (b) dishonestly sought to conceal from the Plaintiffs the acquisition by ASIV of rights as Lender under the [Syndicated Facility Agreement] and Finance Documents. Particulars (i) [matters not pressed in submissions] (ii) By correspondence on 28 December 2023, Wu purported to disclose to the Plaintiffs an offer covering 100 cents in the dollar for 100% of the Senior Lender Debt but failed to disclose the identity of the party or circumstances of the making the offer. (iii) By correspondence on 1 January [2024], Wu purported to disclose to the Plaintiffs an offer to purchase 100% of the Senior Lender Debt at par value but failed to disclose the identity of the party making the offer or circumstances of the making of the offer. (iv) On 12 January 2024, Mr Huayi Niu sent letters to the First and Second Defendants respectively asserting that the First and Second Defendants were in a position of conflict given their proposals to either: (A) purchase the business of the Plaintiffs; or (B) purchase the Senior Debt under the [Syndicated Facility Agreement]. Chen and Wu did not respond to Mr Niu denying that they were intending to purchase the Senior Debt. (v) Over the period 9 January 2024 to 18 January 2024, Clifford Chance (on behalf of the Plaintiffs) and Norton Rose Fulbright (the solicitors for the First and Second Defendants) exchanged correspondence in relation to the First and Second Defendants' offer to acquire some or all of the senior secured debt. On 17 January 2024, Clifford Chance requested information regarding, amongst other things, the First and Second Defendants' offer in respect of the acquisition of the senior secured debt and the current status of that acquisition (which request was repeated on 18 January 2024). Norton Rose Fulbright declined each request."
The plaintiffs do not allege that Ms Chen and Mr Wu had breached their fiduciary obligations by causing ASIV to acquire the rights of the Senior Lenders under the Syndicated Facility Agreement. The allegation is of dishonest non-disclosure, following a request for full disclosure, of that acquisition.
Next, under the heading "Interference in operation of Plaintiffs' business by First and Second Defendants", the plaintiffs allege that Ms Chen and Mr Wu interfered in the operation of the plaintiffs' business after they were dismissed as Chief Executive Officer and General Manager on 27 December 2023. Ms Chen and Mr Wu gave undertakings to Rees J not to engage in such conduct until the final hearing of these proceedings. Those undertakings were continued before me.
Accordingly, it is not necessary to consider them further, save in the context of consideration of the plaintiffs' allegation that Ms Chen and Mr Wu were shadow or de facto directors during the periods that they were not actually directors.
Next, under the heading "The operation of competing businesses by the First and Second Defendants", the plaintiffs allege that Ms Chen and Mr Wu operated competing businesses contrary to terms of the Shareholders Agreement. These matters are not directly related to the plaintiffs' contentions concerning ASIV's position as assignee of the Senior Debt.
This aspect of the Amended Commercial List Statement concluded with: "57. In the premises, the matters pleaded in the paragraphs immediately above create a circumstance of conflict between the interests of Chen and Wu and their duties to the Plaintiffs."
The plaintiffs' allegations of conflict between interest and duty are thus confined to the matters I have set out at [31] to [36] above.
Under the subheading "Breaches of Duty", being a subheading to the heading "Breach of Duty by the First and Second Defendants" referred to at [31] above, the Amended Commercial List Statement alleges: "58. By reason of the matters pleaded above: (a) Chen has breached each of her duties pleaded in paragraphs [48 to 49] above; (b) Wu has breached each of his duties pleaded in paragraphs [48 to 49] above."
The Amended Commercial List Statement then made the following allegations concerning ASIV: "59. ASIV: (a) has the knowledge of the confidential information of the Plaintiffs known to Wu arising from his role as a fiduciary of the Plaintiffs at the time of its incorporation; (b) has the knowledge of the default of the Plaintiffs under the [Syndicated Facility Agreement] and the Finance Document known to Wu arising from his role as a fiduciary of the Plaintiffs at the time of its incorporation; (c) was incorporated by Wu for the purpose of acquiring the rights as a Lender under the [Syndicated Facility Agreement] and Finance Documents; (d) was not qualified under clause 26.1 of the [Syndicated Facility Agreement] to become a Lender under the [Syndicated Facility Agreement] and Finance Documents; (e) remains under the control of the Wu and Chan [5] through their nominee, Chan; (f) has the knowledge of the confidential information of the First to the Fifth Plaintiffs known to Chan through his role as a fiduciary of the First to the Fifth Plaintiffs at the time of him becoming its sole director and shareholder; (g) has the knowledge of the default of the Plaintiffs under the [Syndicated Facility Agreement] and the Finance Documents known to Chan through his role as a fiduciary of the First to the Fifth Plaintiffs at the time of him becoming ASIV's sole director and shareholder; (h) is the corporate alter ego of Chen and Wu, and/or Chan as defaulting fiduciaries, and is to be held liable in the same manner as Chen and Wu."
Finally, the Amended Commercial List Statement alleges: "60. In the alternative: (a) Chen and Wu's breaches of fiduciary duty pleaded above comprised a dishonest and fraudulent design; (b) ASIV was a knowing participant in that dishonest and fraudulent design because it was incorporated by Wu for the purpose of acquiring rights as a Lender under the [Syndicated Facility Agreement] and Finance Documents; (c) ASIV had knowledge of Chen and Wu's dishonest and fraudulent design; (d) ASIV was a knowing recipient of the rights as a Lender under the [Syndicated Facility Agreement] and Finance Documents procured by reason of Chen and Wu's breach of fiduciary duty."
All of these allegations are premised on the earlier alleged breaches of fiduciary duty and statutory duty, particularised as I have set out.
Finally, the Amended Commercial List Statement alleges that the "Consequences" of these matters is that: "61. In the premises: (a) the rights against the Plaintiffs acquired by ASIV under the [Syndicated Facility Agreement] and the Finance Documents are held on constructive trust for the Plaintiffs and the appointment of a receiver to that trust is necessary to give effect to it; (b) ASIV may not exercise rights against the Plaintiffs under the [Syndicated Facility Agreement] and/or the Finance Documents: (i) because it is not qualified in the terms required by clause 26.1 of the [Syndicated Facility Agreement]; (ii) without the prior consent of the Plaintiffs; and/or (iii) contrary to the interests of the Plaintiffs; and (c) any purported exercise by ASIV of rights against the Plaintiffs under the [Syndicated Facility Agreement] and/or the Finance Documents is liable to be restrained by injunction whether under the general law or under s 1324 of the Corporations Act."

The Shareholders Agreement

The Shareholders Agreement was entered into on 10 August 2018 and amended on 24 January 2020 and again, as I have set out, on 15 September 2022 when Ms Chen and Mr Wu returned to the business after a short absence.
I have mentioned the provisions in the Shareholders Agreement concerning the obligations of JIC, Tamar and the Wu Family to advance funds to members of the Nature's Care Group; as I have said, the amount of such Junior Debt was originally $120 million. The Junior Debt is now $132 million and has been advanced by JIC, Tamar and the Wu Family in proportion to their shareholding. The Shareholders Agreement describes these amounts as the "Second Funding Amount". The Shareholders Agreement makes provision for a "Third Funding Event", but this obliges only JIC and Tamar, and not the Wu Family, to make further advances to the Group.
The Shareholders Agreement also makes provision for "Drag Along" rights to which I have referred at [21] above, pursuant to which if JIC and Tamar receive a bona fide offer from a third party for the purchase of the entire issued share capital of Nature's Care Holdings, provided the cash price per share is no less than the "Price Floor", JIC and Tamar have the right to require the Wu Family to transfer their shares to the third party purchaser. By the 15 September 2022 amendment to the Shareholders Agreement, JIC and Tamar agreed not to exercise the Drag Along rights if, relevantly, the "enterprise valuation" of the Nature's Care business was less than $600 million. The 15 September 2022 amendment also gave all shareholders a right of first refusal if any shareholder wished to sell to a third party.
As I set out below, much of the activity of the Majority Shareholders leading to the commencement of these proceedings was directed to means by which the sale of the plaintiffs' business could be effected in a way that avoided these provisions being enlivened.
I shall refer to other provisions in the Shareholders Agreement below.

The Syndicated Facility Agreement

As I have mentioned, the Syndicated Facility Agreement provided for Senior Debt of $280 million which was used by the Majority Shareholders to purchase their interest in Nature's Care Holdings.
The loan, now some $138 million, was due for repayment on 8 August 2023. ASIV has now acquired, at par, the rights of 93% of the Senior Lenders under the Syndicated Facility Agreement.
As the loan is in default, it is now open to ASIV to exercise any or all of the rights, remedies, powers and discretions referred to in the "Finance Documents".
Those powers are extensive and include an entitlement to: 1. do anything in respect of the plaintiffs' property that "an absolute beneficial legal owner of the property could do"; 2. sell any of the plaintiffs' property; 3. carry on the plaintiffs' business; 4. vary, rescind or terminate any documents (including the Shareholders Agreement); 5. commence, defend, conduct, settle or discontinue proceedings (including these proceedings); 6. appoint a receiver. [6]
Although these powers are very broad, they would, at the very least, be subject to an obligation to exercise the powers in good faith so as to not wilfully or recklessly sacrifice the interests of the plaintiffs, [7] and, were ASIV to appoint a receiver, the constraints of s 420A of the Corporations Act.

The incorporation of ASIV and its acquisition of rights under the Syndicated Facility Agreement

ASIV was incorporated on 27 December 2023.
Its original shareholder was an entity associated with Mr Wu. Mr Wu was then the sole director and secretary. On around 10 January 2024, Mr Chan, a person evidently associated with the Wu Family, became sole shareholder and director. Mr Chan is mentioned in the allegation in the Amended Commercial List Statement I have set out at [41] above.
ASIV acquired the rights of 93% of the Senior Lenders under the Syndicated Facility Agreement on 17 January 2024.

The course of events

The events relevant to the question before me occurred between August 2023 and January 2024.
As I have mentioned, the Syndicated Facility Agreement was due for payment on 8 August 2023. An amount of some $138 million was then payable. It was known to the directors of the plaintiffs at the beginning of August that the plaintiffs could not repay the loan.
In those circumstances, on 2 August 2023, Mr Wu made an offer on behalf of the Wu Parties to acquire the shares of JIC and Tamar. The offer price was $50 million and was conditional on the Senior Lenders either waiving all breaches of the Syndicated Facility Agreement or agreeing to a three month standstill in relation to enforcement; and on JIC and Tamar forgiving their Junior Debt. The offer was made on the assumption that the plaintiffs would continue to be liable for the Senior Debt.
On 8 August 2023, the Senior Lenders by their Security Agent, Standard Chartered Bank (Hong Kong) Ltd, served a Notice of Default under the Syndicated Facility Agreement.
On the same day, the solicitors for the Security Agent, Allen & Overy, wrote on behalf of the "Supportive Lenders" (said to be some 48.04% of the Senior Lenders) to the plaintiffs' solicitors, Clifford Chance, offering an interim "Standstill Period" until 29 August 2023, subject to various conditions concerning provision of financial information and details of any exit strategy that the plaintiffs proposed.
On 29 August 2023, that standstill agreement was extended to 11 September 2023.
At some time during August 2023, the Wu Parties proposed a "Trade Sale Process" whereby JIC and/or Tamar sought a purchaser of 100% of the shares in the plaintiffs on the basis that: 1. "the Wu Family will have a right of last offer in respect of the Sales Process, whereby they have the right (but not the obligation) to purchase all Shares they do not already hold offered under the Sales Process"; and 2. that "any Sales Process is conditional upon repayment or refinancing of [the Senior Debt]".
On 5 September 2023, the directors of the plaintiffs, including Mr Niu, Ms Chen and Mr Wu, attended what was described as a "Board Meeting" but which was, in effect, also a shareholders meeting. The "Meeting Minute" runs for some 21 pages and appears to be, in effect, a transcript of what was said at the meeting.
There was an extensive discussion of "Refinancing of Senior Debt".
The JIC appointed directors expressed their "trust in Jina Chen".
The minute noted: "Jina Chen's (JC) unique position in the company as both a shareholder and an operator. SL [Shaohua La; a director representing JIC] praised the company's recent accomplishments and underscored the importance of differentiating between the two roles JC undertakes. He reminded everyone of the discussions that took place around March and April, recognising JC as an operator for her commendable work, given the responsibilities and challenges associated with the role. SL proposed that as the company expands, the compensation should mirror the dual roles and the respective contributions made. He suggested not only looking at monetary rewards but ensuring that the balance between Jina's roles as a shareholder and an operation is adequately maintained."
There was discussion about the need to preserve the plaintiffs' reputation with the Senior Lenders and other prospective lenders.
Mr Niu is recorded as having "firmly stated that shareholder rights are paramount and [the Majority Shareholders] would never encroach on the Wu Family's equity stake" and that the main focus for the Majority Shareholders was "to cooperatively manage the company to improve its performance" and to find a "potential solution where both parties could provide a guarantee to settle the bank debt".
The minutes also record: "Michael Wu (MW) added that based on Bob Niu's (BN) current proposed sale process the family will opt not to proceed. MW expressed that under the current circumstance the process must be as quick as possible. MW suggests that if it were to take this long then likely only 75% of the company will be available for sale, and if we were to look at selling the entirety of the company then the valuation must exceed AUD 600 million. MW notes that this might not be a possible valuation for the company."
Mr Wu's reference to the need for a sale price to exceed $600 million was a reference to Drag Along rights in the Shareholders Agreement. [8]
On 11 September 2023, the plaintiffs wrote to Allen & Overy, the solicitors for the Security Agent. The letter was expressed to be "signed by the representatives of the Board of NC Holdings and for and on behalf of" each of the shareholders of NC Holdings.
The letter recorded: "As matters stand, the NC Parties have been unable to agree a way forward in relation to the refinancing of the Facility. The NC Parties will continue to engage with each other with a view to progressing the refinancing of the Facility".
The letter annexed copies the Majority Shareholders' proposed sale process and the Wu Parties' proposed sale process.
I have set out at [64] above the sale process that the Wu Parties proposed.
The sale process proposed by the Majority Shareholders was a "fair trade sale" to achieve a "fair valuation" but on condition that "the Wu's shall not have a right of first or last refusal" [9] on the basis that "this would discourage any third parties from participating in the sale process".
The letter to Allen & Overy continued: "As currently constructed, the JIC / Tamar proposed M&A / sales process terms are not acceptable to the Wu Family as they are inconsistent with the terms of the Shareholders Agreement. The Wu Family proposed M&A / sales process terms are not acceptable to JIC / Tamar / The Wu Family parties remain committed to discussing a solvent M&A / sale process which is consistent with the terms of the Shareholder Agreement."
There was thus open discussion between the Majority Shareholders and the Wu Parties on the one hand, and the Senior Lenders, through Allen & Overy, on the other, of the competing positions of the Majority Shareholders and the Wu Parties concerning a sale process the object of which was to procure repayment of the Syndicated Facility Agreement. The discussion in the letter took place on the basis of the mutually known fact that the facility was in default. Dividing the parties was whether the Wu Parties should forgo their entitlement under the Shareholders Agreement not to sell at a price less than $600 million and thus to, in effect, exercise a right of last refusal.
This is significant because, as I describe below, Mr Niu later developed what he described as a "strategy" to cause the plaintiffs' business to be sold without regard to the rights of the Wu Parties under the Shareholders Agreement ("the Strategy").
On the same day, Allen & Overy wrote to the plaintiffs' solicitors Clifford Chance. It is not clear whether this letter was written in reply to the plaintiffs' letter to which I have referred.
Allen & Overy stated: "The Lenders are becoming increasingly concerned with the lack of direct, timely and committed engagement by the Obligors regarding the Acknowledged Default and the remediation of that Acknowledged Default. The Lenders are particularly concerned with the inability over the past month of the Obligors - acting through their boards of directors - to provide meaningful updates as to the progress of any potential debt refinance or sale process, especially when these are likely to be the only realistic avenues to repay the Lenders under the [Syndicated Facility Agreement]."
Later in the letter, Allen & Overy said: "Practically speaking, while it is ultimately a matter for the directors of the Obligors to determine, we think it is plain that implementation of a refinance or failing that a sale through a proper, transparent process is the clear path for the Obligors that delivers on the duties of their directors. If that path is not taken, or is not given serious consideration, then the Lenders will be in a difficult position as to whether to continue to provide any sort of standstill or forbearance for the Obligors."
On 28 September 2023, Allen & Overy wrote to Clifford Chance and to Norton Rose Fulbright, who were by then acting for the Wu Parties, stating that the "Supportive Lenders" [10] agreed to extend a standstill on enforcement action until 6 October 2023 "so that the Obligors can organise the commencement of a sale process" but on condition that, amongst other things, "shareholders [would] waive any pre-emptive … rights" as this "would interfere with the sale process".
Allen & Overy were referring to the Wu Parties' rights under the Shareholders Agreement.
On 6 October 2023, Norton Rose Fulbright, for the Wu Parties, wrote to Clifford Chance, who were by then acting both for the plaintiffs but also for the Majority Shareholders: "Our clients are very mindful of their obligations as directors as well as shareholders and the potential for a conflict to arise between those positions. You say you understand our client intends to participate in the sales process but at no point have they given any indication that they will do so and they may decide not to do so since they have made no decision on this issue. They have made it clear however that they will not pre-emptively waive their contractual rights under the Shareholders' Agreement or the lease but consider any proposal on its merits. If they do decide to participate as a bidder we will communicate that intention to this group and discuss corporate governance measures to address this such as exclusion from a Board committee running the process or they would resign as directors."
Clifford Chance replied: "Our clients position as representative directors of the Obligors is that to discharge their duties an unfettered, transparent sales process is required. For such a sales process to be achieved the directors need to be clear of any conflicts. Even if your clients simply reserve their rights, let alone decide to participate in the sales process, it is our clients view that your clients' representative directors are conflicted and should resign from the various boards."
There is controversy between the parties as to whether Clifford Chance were themselves in a position of conflict by reason of acting both for the plaintiffs and for the Majority Shareholders, and for directors appointed to the Board of the plaintiffs on behalf of the Majority Shareholders. That complaint was ventilated in correspondence during the later months of 2023 and in the hearing before me. As no application has been made to restrain Clifford Chance from being involved in these proceedings, I do not consider it appropriate for me to make any observations or findings about that controversy.
On 9 October 2023, Allen & Overy wrote to Clifford Chance enquiring as to the "appetite for [the Majority Shareholders] to embrace a bilateral deal with the Wu family" and stating that "I appreciate that [the Majority Shareholders] don't like this outcome - but the counterfactual to this outcome is looking less and less rosy for the company".
Allen & Overy continued: "Were that scenario to be entertained: we of course want to help in applying pressure to the Wu family to come up with a satisfactory deal for [the Majority Shareholders], especially noting the junior-secured debt - and that might involve the Wu family up-ing their proposed price (we do no know the amount of the most recent offer made by the Wu family to [the Majority Shareholders]). But this outcome would also require [the Majority Shareholders] to make some concessions - including moving away from the proposed sale process and dealing with the Wu Family on a bilateral basis. Of course - if [the Majority Shareholders] want to own the business, then we are open to that outcome as well. This isn't about picking winners/losers for us - it is about liquidating the senior debt in a timely way." (Emphasis added.)
Clifford Chance replied the same day: "In terms of brokering a deal between our clients and the Wu family we think that will be difficult because of the nature of our clients and the approval processes they are both subject to from the bureaucracy they report to in China. … As a result, it's been made very clear to us that our clients marching orders from China are to get the business sold for the best price possible. The reason is that the superiors in China [are] very focused on the sort of price discovery that comes from running a sales process. Any deal with the Wu family, at least at this stage, could not be bench marked against a sale comparator so the ability on our clients even to engage in such a discussion with the Wu family is limited. … Our clients share your clients frustration but in terms of timing, all things being equal, the only path forward that we can see at the moment is a sales process either run by our clients (with your clients support) or by your clients through the enforcement of their security. Under either scenario there will be challenges with managing the Wu family and its unfortunately unlikely to get your clients repaid as soon as they and our clients would like." (Emphasis added.)
Thus, Clifford Chance stated that the "marching orders" from the Majority Shareholders' "superiors in China" were to look for a sale on the open market to achieve the "price discovery that comes from running a sales process", and without regard to the Wu Parties' rights under the Shareholders Agreement.
The passages I have emphasised in Allen & Overy's letter at [90] (enquiring whether the Majority Shareholders "want to own the business") and Clifford Chance's letter at [91] (stating that the "only path forward" was a sales process run by the Majority Shareholders with the support of the Senior Lenders or by the Senior Lenders themselves) appear be the genesis of what Mr Niu described as "the Strategy".
In his affidavit, Mr Niu described the Strategy as follows: "[A] strategy in conjunction with [the Senior Lenders] [that] would achieve an open, transparent sale through a 'light-touch' receivership appointment to the holding companies in the group, together with changes to the Nature's Care Group's management being implemented to avoid a likely bidder in the sale process being involved in the day to day management of the business."
As I have said, on 13 October 2023, Ms Chen and Mr Wu resigned as directors of the plaintiffs, with Ms Chen retaining her position as Chief Executive Officer and Mr Wu remaining General Manager.
Three days after Ms Chen and Mr Wu resigned as directors of the plaintiff, Mr Wu wrote to the Majority Directors attaching "on behalf of the Wu Parties" a "term sheet detailing our proposal to acquire the operating subsidiaries" of one of the holding companies in the plaintiffs' group for an amount equal to 70% of the Senior Debt.
On 26 October 2023, Allen & Overy wrote to Clifford Chance suggesting a discussion between members of the consulting firm FTI Consulting "regarding what a receivership will look like". This appears to be a response to Clifford Chance's 9 October 2023 suggestion that there be a sale process run by the Senior Lenders "through the enforcement of their security".
There is in evidence an email that Ms Chen had received a month earlier, on 19 September 2023, from a representative of one of the Senior Lenders, Taishin Bank, stating that "the banking group has reached a majority decision and instructed the lawyers to prepare legal documentation for a receiver".
There is no context in the evidence for this email. It predates and appears to be unrelated to Allen & Overy's 9 October 2023 enquiry as to whether the Majority Shareholders wished to "own the business", Clifford Chance's 9 October 2023 suggestion to Allen & Overy that the process be run by the Senior Lenders "through enforcement of their security", or Allen & Overy's 26 October 2023 suggestion of a discussion as to "what a receivership will look like".
By 10 November 2023, Mr Henry Lister from FTI Consulting had been identified, I infer by Allen & Overy, as being a potential receiver of the plaintiffs.
On 10 November 2023, Mr Lister wrote to Clifford Chance and Allen & Overy (but not to Norton Rose Fulbright for the Wu Parties) stating that a "funding facility" of approximately $20 million is "likely to be required by the Receivers and Managers".
Mr Lister said he had adopted a "conservative approach to estimating the likely funding requirement for the appointment of Receivers and Managers" to the plaintiffs because of, amongst other things, "[the] significant reduction in recent trading performance" of the plaintiffs in August and September 2023 and also "[the] likely disruption to the customer relationship arising from the Management takeover".
It thus appears that, by this time, an element of the Strategy was not only the appointment of the receiver to the plaintiffs but, as Mr Niu described, also a change in the management structure.
Mr Niu, with the assistance of Clifford Chance, set about developing the Strategy.
Thus, he deposed: "During the period from JIC and Tamar's rejection of the Wu Offer on 19 October 2023 until shortly prior to Christmas, I therefore engaged in numerous and extensive discussions and negotiations with my fellow directors (who, during this period, were all nominee directors of JIC and Tamar and no other parties), the Senior Lenders and their advisers, with a view to working constructively with the Senior Lenders to find a resolution. It was clear to me that all parties involved in the discussions were of the same view that the only realistic way to achieve a repayment of the Senior Debt by the Nature's Care Group in the short-term was by a trade sale conducted through an open, transparent sales process. However, the parties were also aware of the limitations on the Nature's Care Group's ability to deliver such a sale in light of the restrictions in the [Shareholders Agreement] and the approach being taken by the Wu Parties."
Mr Niu's reference to his "fellow directors" was a reference to the Majority Directors: as Mr Niu pointed out, by this time Ms Chen and Mr Wu had resigned as directors and the Wu Parties had no representation on the board of the plaintiffs. Mr Niu's references to the "restrictions" in the Shareholders Agreement and to the "approach being taken by the Wu Parties" was a reference to the reservation by the Wu Parties of their entitlement to rely upon their rights under the Shareholders Agreement to, in effect, have a right of last refusal if the sale price of the business was to be less than $600 million.
In his affidavit, Mr Niu described the development of the Strategy as follows: "In light of those limitations and the other concerns outlined above, the board (which at this time was still comprised solely of me and my fellow JIC and Tamar nominee directors) developed and agreed with the Senior Lenders and their advisers to progress a strategy under which: a. The Senior Lenders would appoint receivers and managers to the non-trading companies in the Nature's Care Group, with a view to an eventual sale being executed by those receivers and restrict the application of any of the limitations in the SHA or Junior Debt documents under which the Wu Parties could prevent the sale from completing. … b. The directors of the companies in the Nature's Care Group would use their powers to instigate a series of management changes in order to protect the value in the business and resolve the position of conflict that arose from having prospective bidders also running the business on a day-to-day basis, which would include: i. the removal of [Mr Wu] and [Ms Chen] from their management roles; ii. the appointment of a new management team to run the business; and iii. the appointment of a new independent director to the trading entities; and c. the Senior Lenders would grant a longer-term standstill to the operating companies not subject to the receivership."
Thus, the Strategy was that the Senior Lenders appoint receivers and managers to the plaintiffs, to enable a sale to take place without regard to the Wu Parties' rights under the Shareholders Agreement; and to dismiss Mr Wu as General Manager and Ms Chen as Chief Executive Officer, notwithstanding that Ms Chen had been appointed Chief Executive Officer by reason of the 15 September 2022 amendment to the Shareholders Agreement.
As Mr Niu was to later observe, this would enable the Majority Shareholders "to take over the company". [11]
On the face of it, that appears to have been the precise object of the Strategy.
It is clear from the evidence before me that an essential part of the Strategy was that it be kept secret from the Wu Parties.
In cross-examination, Mr Niu agreed that he could not recall whether he told Ms Chen or Mr Wu about the Strategy. It is clear that he did not.
Thus, on 13 November 2023, a representative from FTI Consulting wrote to Clifford Chance: "We don't know what the Wu's reaction might be and this could cut across the sale process, management, the lease and other stakeholders - for example, if they don't go quietly from management and tried to evict us from the premises, then there is likely to be significantly more cost attached to the enforcement process."
Part of the Strategy was that Mr Wu and Ms Chen be dismissed as General Manager and Chief Executive Officer simultaneously with the appointment of the receiver.
Thus, on 29 November 2023, Clifford Chance wrote to Allen & Overy: "Please also note that, having discussed extensively with our clients yesterday, both JIC and Tamar are of the view that the proposed management changes should be implemented simultaneously with the appointment of the receiver and with the standstill being in place."
The requirement that the Strategy be kept secret from the Wu Parties was emphasised in further emails sent by Clifford Chance to Allen & Overy on 5 December 2023: "Can we please hold off on sending the term sheet to the Lenders at this stage and try and progress the documents as quickly as we can. I understand from Dave that the concern on your side is around how slow some of the Lenders are in coming back to you with instructions, which I really understand having dealt with these types of syndicates regularly. We are obviously concerned about giving the Wu's any bigger window than absolutely necessary to cause mischief before the management changes and the appointment of receivers so there is a balance to be struck here in terms of timing." (Emphasis added.)
Allen & Overy replied on 6 December 2023: "We appreciate your concerns with providing the term sheet at this stage, however we will be clear in our communications to Lenders that the term sheet is not to go in any data room. The same concerns regarding leakage of information to the Wu parties are likely to crop up with JIC/Tamar calling the banks and/or progressing to long-form documents first." (Emphasis added.)
Clifford Chance wrote to Allen & Overy later on 6 December 2023: "To the extent you consider it necessary to socialise any aspect of the proposed plan to your clients before our clients are happy with the construct our clients reserve their rights with respect to any damage caused by the current management team to the business as a result of your clients breaching their duties of confidentiality to the Natures Care Group." (Emphasis added.)
And again, on 7 December 2023: "As I mentioned to you in our call on Tuesday evening there are concerns on our side around your clients' ability to comply with their duties of confidentiality and the very real business risk those potential breaches (which I personally assume will occur as soon as you tell your clients anything) pose to the ordinary course business decisions that the existing management team may make or may elect not to make when they realise what is exactly coming down the pipe and the timing of when those changes will be made. I don't make those statements as a criticism of you, FTI or frankly your clients as I've been around the block enough times to know that pretty much all syndicates leak, particularly in distressed situations where a syndicate may be in the early stages of rolling over. That being said I don't think it's in either of our respective clients interests to give the Wu family any room to take decisions that may serve their interests and be contrary to the interests of our respective clients. In terms of mitigating those risks we may well need to consider whether or not a pre-enforcement letter needs to be sent to Norton Rose to protect everyone." (Emphasis added.)
The "pre-enforcement letter" to which Clifford Chance referred was in fact not sent.
Matters continued to proceed apace.
Thus, on 12 December 2023, Clifford Chance wrote to Allen & Overy: "In terms of timing, could you please let us know if the Agent has all the votes and instructions they need to be able to progress the appointment of the Receivers and the execution of the standstill, or if there are further lender instructions required in this regard, I think you were going to check and confirm this point at least in relation to the receivership appointment following our call last week. JIC/Tamar's preference is to have the receivership take place first, followed very shortly thereafter by the management changes, and so we just want to start thinking about mapping out the timing of the relevant steps to bring all this together."
The following day, 13 December 2023, Allen & Overy wrote to Clifford Chance: "On timing - we want to get going with an appointment. We will now get the standstill out for lender instructions today - but obtaining those instructions is going to take a little while. Our preference would be to get on, appoint the receivers and make management changes - with the standstill to then follow ASAP. For discussion on our call."
Over the next few days, Clifford Chance pressed Allen & Overy for information as to the agreement of the Senior Lenders to proceed with the Strategy.
Ultimately, on 20 December 2023, Mr Niu wrote to Clifford Chance: "I just want to quickly let you know that PAG [12] sent an email within lenders group 15 minutes ago, and mentioned that they do not agree giving the Standstill to [Nature's Care] company. Can you please also let [Allen & Overy] and FTI [Consulting] know the updates. Can [Allen & Overy] and FTI [Consulting] make the enforcement without the standstill, and allow us to take over the company? PAG did not mention any reason for that, I think that it is PAG's best interest not to agree the standstill while they are purchasing the loan from SC, Rabo, and other lenders, they are buying the time before the standstill, they do not care the company's valuation at moment, since their cost of purchase is lower than other lenders. We will definitely need to have an all lender call after the take-over, to boost up the confidence of the lenders, and to avoid the further loan to be sold to PAG." (Emphasis added.)
This email appears to reveal the object to which the Majority Shareholders saw the Strategy as being directed: "to take over the company".
On 22 December 2023, Allen & Overy wrote to Clifford Chance saying that "[r]eceiver appointment documents are ready to go" and that "[we] expect to have signed documents ready for 27 December" and asking for a "short update for sharing with lenders on readiness to make the senior management changes …".
Later on 22 December 2023, Clifford Chance wrote to Allen & Overy: "The documents to implement the management changes are all finalised and being signed this evening in readiness for Wednesday, together with a suite of immediate comms to go to the relevant stakeholders (employees, Wus, NRF). Bob [Niu] will be on site on Wednesday morning to deliver the various letters/notices. Ryan and his team will also be on site."
On 24 December 2023, one working day before the Majority Shareholders proposed to give effect to the Strategy, the Wu Parties wrote to the Senior Lenders offering to purchase the Senior Debt at par. On the evidence before me, they took this step ignorant of the fact that the Strategy was in place and was to be implemented the next working day.
The offer stated that the buyer "will be an Australian incorporated investment company established for the purpose of investing in financial assets". This was a requirement in the Syndicated Facility Agreement for any assignment by the Senior Lenders of the Senior Debt.
There is no direct evidence of the Senior Lenders' immediate response to this offer. However, it must have appeared to them to be commercially irresistible, assuming it to be capable of implementation. Rather than participate in implementation of the Strategy by appointing a receiver, dismissing Ms Chen and Mr Wu and other senior management personnel and facing the uncertainties of a sale by the receiver of the business, the Senior Lenders were offered a safe exit: payment out at par.
On 27 December 2023, the Majority Directors passed a Directors' Circulating Resolution to: 1. dismiss Mr Wu as General Manager; 2. dismiss Ms Chen as Chief Executive Officer; 3. appoint Mr Ryan Rabbitt from KordaMentha as an independent director; and 4. enter employment contracts with Mr Hawk Ling who was "to provide management services" including "Chief Operating Officer and General Manager Services", and Mr Vincent Cheung to provide "independent management services".
On the same day the directors resolved to suspend the employment of the plaintiffs' Human Resources Management, its Finance Director and its Export Sale Manager.
Also on 27 December 2023, ASIV was incorporated.
Ms Chen and Mr Wu were notified of the decisions made in the Circulating Resolution the following day, 28 December 2024.
Mr Wu immediately wrote to the directors: 1. asserting that the 27 December 2023 Circulating Resolution was invalid; 2. purporting to appoint Ms Chen and Mr Jack Wu as directors of the plaintiffs; and 3. demanding that Ms Chen be reinstated as Chief Executive Officer of the plaintiffs "to oversee the entire Nature's Care Group".
Dr Ward SC, who appeared with Ms King for the plaintiffs, accepted, for the purposes of the present application, that Ms Chen was thereby effectively reappointed to be a director of the plaintiffs.
Critically, Mr Wu continued: "4. Concerns Regarding Board Conduct: It has come to our attention that certain members of the board may have engaged with senior lenders and their consultants in advocating for a receivership of the company. This includes propositions to support the receivership process through loan provision, despite the presence of an offer for the acquisition of the senior debt. We note that these actions, along with effort to remove the existing management team, particularly in light of an offer covering 100 cents in the dollar for 100% of the Senior Lender[s] Debt which stipulates the non-removal of the existing management team, may potentially contravene directors' duties as stipulated by corporate governance norms. We urge all directors to reflect on their responsibilities and the implications of their actions in this context." (Emphasis added.)
Mr Wu did not say in his email that the "offer covering 100 cents in the dollar for 100% of the Senior Lenders Debt" was made by the Wu Parties.
But Mr Niu assumed this to be the case.
In his affidavit, he said: "While that email does not say that the proposal to acquire the Senior Lender[s] Debt (also called the Senior Debt) was by the Wu Parties, I could infer from the email that the Wu Parties were the purchaser."
Mr Williams SC, who appeared with Mr Riordan for ASIV, took the matter up in cross-examination: "Q. You believed that offer had come from the Wu family interests, didn't you? At the time when you first became aware of it, at least by 28 December 2023. A. That - your Honour, that's - that's my best guessing. That was my best guessing at the time when Michael Wu mentioned in the email that there's offer. I suspect that probably from the - the Wu family. HIS HONOUR Q. Could you think of anyone else who might have made such an offer to the lenders at the time? A. Your Honour, to my - to my knowledge and to my - to my experience in interacting, working on Nature's Care situation, after the August 2023, the loan become to default. I think probably the offers made by the Wu family. That's as my best guessing. I don't think any other potential creditor - sorry, investor's pay would buy - would buy - put the price of 100 cents to dollar. That's my best understanding at the time. Q. It would have been a very risky investment for an outside investor, wouldn't it? A. Your Honour, the answer is it depends because what outside investors who's buying the company, they must know the business, they must have been down a lot of due diligence. As a logical investor, they will pay 100 cents to dollar or any price to buy this loan. But, I mean, because we have a - since that - before that time, we have heard - I have heard some rumours that the market, there are - there were buyers buying the debt. Any buyer could buy Nature's Care's debt as a financial investor, and they all pay the discounted price. And based on - I don't know what they have done in their job, but if - if there are - if there is someone sends through the offer for 100 cents to dollar, they must know the business very well, they must think they can recover their cost in a - you know, in the future. WILLIAMS Q. For that reason, you believed the only possible persons who could be behind those offers were the Wu family interests. Correct? A. Your Honour, the company has three shareholders, JIC, Tamer, and the Wu family. And all these shareholders know more about the company's operations, the industry sectors, the market performance, the market trendings. So, they have the best knowledge, and they have most confidence to put 100 cents to dollar to buy the senior loan from the lenders. And to my understanding, JIC and Tamer haven't put any offer to buy the senior lender's loan. So, there's one left, which is going to be the Wu family. That's my best guessing."
Accepting that English is not Mr Niu's first language, I think Mr Niu understated matters somewhat. It must have been, and I find it was, obvious to him when he received Mr Wu's 28 December 2023 email that the offer to the Senior Lenders had been made by the Wu Parties. As he said, a party offering to purchase the Senior Debt at par "must know the business very well". That could only be the Majority Shareholders or the Wu Parties; and Mr Niu knew the offer had not been made by the Majority Shareholders.
Thus he, and the Majority Directors, knew from the outset that the Wu Parties had offered to purchase the Senior Debt at par. It must also have been obvious to Mr Niu and to the Majority Directors that the Senior Lenders could not resist accepting that offer, provided the Wu Parties could show that they were good for the money; a matter about which there seems no reason to doubt.
This is confirmed by the unchallenged evidence of Ms Rachel Mu, a Human Resources Director employed by the plaintiffs, who deposed that, on 29 December 2023, Mr Niu said to Ms Chen: "I know you are buying the debt, you may have conflicts of interest so the board has terminated you straight away. If you buy back 100% of the company we will leave quietly, but so far you haven't brought it back, so we still can make this board decision".
On 1 January 2024, Mr Wu wrote to the directors of the plaintiffs stating, amongst other things: "It appears that the proposed removal of Jina Chen is part of a strategy aligned with the senior lender's consultant's plan for receivership, a troubling indication of potential collusion. Notably, there exists an offer to purchase 100% of the debt at par value, which could immediately avert potential insolvency." (Emphasis added.)
Again, it must have been obvious to the Majority Directors that the offer to which Mr Wu referred had been made by the Wu Parties.
That is confirmed from the terms of the letter Clifford Chance sent, on behalf of the Majority Directors, to Allen & Overy on 5 January 2024: "In the meantime, we understand that an offer has been made recently by the minority shareholders to acquire some or all of the senior debt. Neither we nor our clients have any visibility as to the nature of terms of that offer, although we understand that it may be highly conditional. However, in circumstances where the management changes referred to above are being resisted and therefore the on-going management of the Group remains, at best, unclear, and, at worst, deadlocked, we understand that your clients now appear to be currently collectively unable to make a decision as to whether to proceed with the 'light-touch receivership or whether to adopt some other course of action (or indeed take any action at all) whilst that offer is further explored and negotiated."
That letter makes clear that the Majority Directors understood that the offer to the Senior Lenders had been made by the Wu Parties.
Throughout January 2024, Clifford Chance and Norton Rose Fulbright exchanged letters accusing the other's clients of acting in positions of conflict. I do not find it necessary to set out the detail of that correspondence.
On 11 January 2024, Ms Chen and Mr Jack Wu resigned as directors of the plaintiffs and purported to appoint Mr Louis Chen in their place.
The companies continue to trade, albeit now with new management that the Wu Parties contend to be inexperienced and unsuitable.
Between 10 and 15 January 2024, Mr Chan became the sole director and shareholder of ASIV.
On 17 January 2024, 93% of the Senior Lenders assigned to ASIV their entitlements under the Syndicated Facility Agreement. Ms Chen funded the acquisition by making a payment of some $138 million that ASIV used to fund the acquisition.
It was only on that day that Clifford Chance requested Norton Rose Fulbright to provide full details of the Wu Parties' proposed "Debt Acquisition"; by which time the assignment had already taken place or was imminent.
These proceedings were commenced two days later, on 19 January 2023.

The test on an application for an interlocutory injunction

The purpose of an interim injunction is to preserve the status quo until the rights of the parties can be determined at a final hearing. [13] In deciding whether to grant an interlocutory injunction, the Court must consider whether there is a serious question to be tried and then whether the balance of convenience and questions of hardship and related factors warrant the grant of an interlocutory injunction. [14]

Serious Question to Be Tried

First, the plaintiff must prove a serious, not a speculative, case which has a real possibility of ultimate success and that property or other interests might be jeopardised if no interlocutory relief is granted. [15] The plaintiff must show that if the evidence were to remain as it is, there would be a probability that at the trial of the action the plaintiff would be held entitled to relief. [16] How strong that probability needs to be depends upon the nature of the rights asserted by the plaintiff and the practical consequences likely to flow from the orders sought. [17] Put another way, the plaintiff must show a sufficient likelihood of success to justify the preservation of the status quo pending the trial. [18]
At the time of seeking injunctive relief, the plaintiff must articulate, with some specificity, the final relief it seeks, together with the cause of action on which it relies. [19] In other words, the plaintiff must articulate a sufficient colour of right of the kind sought to be vindicated by final relief. If the plaintiff cannot demonstrate that colourable right, the foundation for the claim for interlocutory relief disappears. [20]

Balance of Convenience

Then, it becomes a matter of analysing if in all the circumstances of the case, considering the balance of convenience, issues of hardship and related factors, the Court should nonetheless exercise its discretion by declining to issue an interlocutory injunction. [21] It is whether the inconvenience or injury which the plaintiff would be likely to suffer if an injunction were refused outweighs or is outweighed by the injury which the defendant would suffer if an injunction were granted. [22]
The related factors to which the Court will have regard include the adequacy of damages, the possibilities of alternative remedies, whether there has been any laches or delay, the strength of the grounds of defence suggested by the defendant, and what, if any, undertakings the defendant is prepared to give, but hardship and the balance of convenience are important. [23] If any infringement of a plaintiff's right between writ and hearing would be properly compensated in damages, that fact alone can, but not must, be a ground for declining an injunction. [24] That is, an applicant for an interlocutory injunction must demonstrate that damages are an inadequate remedy.

The adequacy of the undertaking as to damages

The usual undertaking as to damages is required in every case where an interlocutory injunction is sought, unless exceptional circumstances apply. [25]
If a plaintiff's undertaking as to damages is probably of little or no value this is "a powerful discretionary factor against the grant of an interlocutory injunction". [26]
The plaintiffs have given the Court the usual undertaking as to damages in relation to the interim order made by Rees J and offer that undertaking in relation to the proposed continuation of those orders.
The Syndicated Facility Agreement matured on 8 August 2023 and, in default of their obligations under that facility, the plaintiffs have failed to repay their debts. The facility remains in default, with the plaintiffs owing some $138 million; now to ASIV. Default interest is continuing to accrue.
The most recent consolidated group of accounts show that the group had a net current asset deficiency of approximately $123 million as at 31 December 2022. The financial accounts for the year ended 31 December 2023 are not available, but there is no evidence to suggest that the position has improved. The presentation given by FTI Consulting, the proposed receivers, to JIC and Tamar on 10 November 2023 predicted that $20 million in additional funding would be required upon their appointment. This was due in part to the perceived adverse impact that the termination of the employment of the Wu Parties' representatives would have on the business and this time was due to volatile trading additions. The presentation also spoke of the need for $3.9 million in borrowings "to maintain the solvency" of the operating companies and "to bring all overdue creditors within the payment terms".
In those circumstances, the solicitors for both the Wu Parties and for ASIV have written to the solicitors for the plaintiffs pointing these matters out and demanding that JIC and Tamar, who in substance stand to benefit from a successful outcome of this application, themselves provide security. JIC and Tamar have refused to provide such an undertaking.
The plaintiffs have pointed out that none of the defendants has adduced evidence that they will be prejudiced were the interim orders extended. However, ASIV has purchased, at par, the entitlement of 93% of the Senior Lenders under a facility that is in default and due and payable and is prejudiced to that, considerable, extent.
The plaintiffs also suggest that I could consider, and if appropriate, order security for the undertaking as to damages. But that is not the point. The question is the adequacy of the undertaking as to damages currently offered. The undertaking appears to be of doubtful value.
I find this to be a significant factor weighing against the continuation of the interim orders.

No payment into Court

A further factor relied upon by ASIV is that the plaintiffs do not offer, as the price for a continuation of the interim orders, to pay into Court the amount owing under the Syndicated Facility Agreement, or any part of it.
The general rule, in relation to applications to restrain the exercise by a mortgagee of a power of sale, is that the undisputed amount of the debt be paid into Court. [27]
Dr Ward submitted that this principle does not apply unless a mortgagee in possession unsuccessfully seeks payment of the full amount of the debt and in any event, has no application "where the allegation involved is one of breach of duty or conflict".
It is true that many of the reported cases dealing with this issue involve circumstances where the mortgagee has demanded, but has not been paid, the amount of the debt. However, I do not understand that such demand is a condition precedent to a requirement that a party in the position of the plaintiffs pay into Court the amount owed. Further, there is authority supporting the proposition that a claim for damages against a defendant mortgagee for breach of duty as a director would not itself obviate the requirement for payment into Court. [28]
I find this to be a further factor weighing against the continuation of the interim orders.

That ASIV was the nominee of the Wu Parties

Although Mr Chan is now the sole director and shareholder of ASIV, it was established at the instigation of Mr Wu and for the purpose of acquiring the rights of the relevant Senior Lenders under the Syndicated Facility Agreement.
I am satisfied that there is a serious question to be tried that ASIV is the nominee of the Wu Parties.

Existence of fiduciary duties

As I have said, Ms Chen and Mr Wu resigned as directors on 13 October 2023. Ms Chen purported to reappoint herself as a director on 28 December 2023 and then resigned as director on 11 January 2024.
On 2 January 2024, Ms Chen sent an email to "Members of the Nature's Care Team", describing herself as "CEO & Managing Director" and stating that "we have resolved to engage our legal representatives to thoroughly review and evaluate the restructuring process" and that "during this review period, I will continue to serve as the Chief Executive Officer of Nature's Care".
There is also evidence that, during January 2024, both Ms Chen and Mr Wu purported to make decisions on behalf of the plaintiffs.
It was not until 23 January 2024, during the hearing before Rees J, that Ms Chen and Mr Wu accepted that their roles as Chief Executive Officer and General Manager had effectively been terminated by the Circulating Resolution of 27 December 2023. As her Honour observed, "that concession may be tinged with self-interest, installing distance between Ms Chen, Mr Wu, and the Nature's Care Group companies at the time of contentious events". [29]
In those circumstances, there is a serious question to be tried as to whether Ms Chen was either a director or a de factor or shadow director at all relevant times, and as to whether Mr Wu was acting as a senior executive at all relevant times. Accordingly, there is in my opinion a serious question as to whether Ms Chen and Mr Wu, at all relevant times, owed a fiduciary duty to the plaintiffs.
As I set out above, their duty included the proscriptive requirements to not act in conflict and to declare any secret profit.
Whether they also owed the prescriptive duty of material disclosure is more problematic.

Confidential information?

The plaintiffs allege that, prior to the incorporation of ASIV, Ms Chen and Mr Wu knew the confidential information as defined in the Syndicated Facility Agreement.
Neither Ms Chen or Mr Wu were a party to the Syndicated Facility Agreement. In those circumstances, it is hard to see how they could have come into possession of any "Confidential Finance Information" as is specified in the Amended Commercial List Statement.
The further confidential information that Ms Chen and Mr Wu are said to have been aware of is what is described as the "Confidential Default Information", namely that: 1. the plaintiffs had defaulted under the Syndicated Facility Agreement; 2. such default gave rise to the Enforcement Rights that could be exercised by the Senior Lenders; 3. the exercise of such Enforcement Rights could result in the acquisition by the lender of the "control and ownership of the business of the Plaintiffs without the prior consent of the Plaintiffs" and the appointment of a Receiver; and 4. the exercise of the Enforcement Rights had the potential to damage the value of the business of the plaintiffs.
The allegation is that Ms Chen and Mr Wu knew of these matters by reason of being directors, shadow or de facto directors or senior executives of the plaintiffs.
However, there is a considerable body of evidence suggesting that Ms Chen and Mr Wu came to know of this information by reason of being shareholders of the plaintiffs, rather than, or at least in addition to, by reason of their position as directors or senior executives.
For example, the Priority and Subordination Deed of 6 July 2020: [30] "Option to Purchase Senior Debt If a Senior Event of Default occurs and is continuing and: (a) a Senior Finance Party accelerates all or part of the Senior Debt; or (b) a Senior Finance Party takes enforcement action under the Senior Securities, the Junior Lenders may, at their election, acquire all of (but not part of) the rights and obligations of the Senior Lenders under the Senior Finance Documents (which includes any hedging), at par, by paying to the Senior Lenders an amount equal to all Senior Debt under the Senior Finance Documents, including all due and accrued interest, fees and break costs (if any)."
There is no suggestion that this clause has been enlivened, but it shows that the Junior Lenders, including the relevant Wu Parties' company, in their capacity as shareholders or representatives of shareholders of the plaintiffs, had a vital and legitimate interest in knowing that plaintiffs had caused a "Senior Event of Default" under the Syndicated Facility Agreement.
Further, in the letter sent by the plaintiffs to Allen & Overy of 11 September 2023, [31] there was an open discussion about the "way forward in relation to the refinancing" of the Syndicated Facility Agreement, of which discussion was premised on the mutually known fact that the plaintiffs were in default and which was sent by the three named directors, including Mr Wu, for and on behalf of the shareholders they represented: in Mr Wu's case "for and on behalf of the Wu Family Shareholders". This was a letter sent to Allen & Overy on behalf of the shareholders of the plaintiffs and contained an open discussion about what was to be done in light of the plaintiffs' default under the facility.
There thus appears to be a strong case for the proposition, advanced by the defendants, that to the extent that the fact that the plaintiffs were in default under the Syndicated Facility Agreement was confidential, this was information known to Ms Chen and Mr Wu by virtue of being shareholders, rather than directors of the plaintiffs.
In any event, there is a serious question as to whether the information is confidential at all, bearing in mind the plaintiffs' likely obligations of disclosure under the applicable accounting standards and under the Corporations Act.
To the extent that there is a serious question to be tried that the Confidential Default Information was confidential information that Ms Chen and Mr Wu had in their capacity as directors, it is a weak one.

Non-disclosure?

As I set out above, the key allegation that the plaintiffs make concerning the alleged breach of fiduciary duty by Ms Chen and Mr Wu is that they did not disclose that they were planning to use ASIV to acquire the rights of the Senior Lenders under the Syndicated Facility Agreement.
The particular allegation in the Amended Commercial List Statement is that "the plaintiffs sought full disclosures from [Ms] Chen and [Mr] Wu of their material personal interests in ASIV, ASIV's interests as an offeror and ASIV's rights as Lender under the" Syndicated Facility Agreement, but that Ms Chen and Mr Wu: 1. failed to provide such disclosures; and 2. dishonestly sought to conceal ASIV's acquisition of the Senior Lenders' rights.
But it was not until 17 January 2024, two days before these proceedings were commenced, that Clifford Chance on behalf of the plaintiffs sought detail of what was proposed, despite having referred to it in a number of communications with Norton Rose Fulbright during January 2024.
Further, on 28 December 2023, and again on 1 January 2024, Mr Wu did disclose the offer. Although Mr Wu did not, in terms, state that the offer was made by or on behalf of the Wu Parties, it was, I have found, obvious to Mr Niu that this was the case.
There appears to be no substance at all in the allegation that Ms Chen and Mr Wu "dishonestly sought to conceal from the Plaintiffs the acquisition by ASIV of rights as Lender". During argument, I asked Dr Ward whether that allegation was pressed. He said that it was. I see no basis for the plaintiffs to have made, and maintained, such a grave allegation.
If there is a serious question to be tried concerning this aspect of the matter, it can only be that Ms Chen and Mr Wu did not make a more detailed disclosure of their plans in relation to ASIV's acquisition. I see their case as being, on the evidence so far adduced, very weak.

Interference with the operation of the plaintiffs' business

There is some evidence of Ms Chen and Mr Wu purporting to play a role in the plaintiffs' business between 27 December 2023 and the commencement of these proceedings, particularly Ms Chen's letter of 2 January 2024 to which I have referred.
As I have said, the defendants have provided undertakings not to engage in such conduct pending the hearing and those undertakings continue.

Operation of competing businesses

One of the plaintiffs' customers is an entity known as Provita Health Pty Ltd, the sole director and shareholder of which is apparently a nephew of Ms Chen.
There is evidence that Provita is receiving market subsidies greater than those being offered by the plaintiffs to other customers. However, the evidence does not enable me to conclude from this that Ms Chen and Mr Wu are engaging in conduct in breach of their duty to the company. There may be good commercial reasons for Provita to be placed in such preferred position as it finds itself.
There was also a suggestion that the Wu Family was operating a competing business though an entity known as Belrose. The plaintiffs' submissions in relation to that aspect were not developed.

Conclusion on serious question to be tried

I am satisfied that there is a serious question to be tried that ASIV acquired the rights of the Senior Lenders under the Syndicated Facility Agreement as nominee of the Wu Parties and that Ms Chen and Mr Wu owed the prescriptive, although not the proscriptive, fiduciary duties contended for by the plaintiffs.
It may be that the plaintiffs have established a serious question to be tried that Ms Chen and Mr Wu acquired the Confidential Default Information in their capacity as directors, although I see this as being weak.
I am not satisfied that the plaintiffs have established the particular breach of the fiduciary duties for which they contend, namely dishonestly failing to respond to the disclosure sought by the plaintiffs of their plan to cause ASIV to acquire those rights.

"The Strategy"

I have set out above how Mr Niu and the other Majority Directors of the plaintiffs developed the Strategy from October 2023.
That Strategy represented the implementation of the "marching orders from China" to the Majority Shareholders to "get the business sold for the best price possible" so that "the superiors in China" can enjoy the "price discovery that comes from running a sales process". [32]
Those "marching orders" led to the Majority Shareholders, whose nominee directors comprised the entire board of the plaintiffs from 13 October 2023, to seek to procure that the Senior Lenders appoint a receiver who would be empowered to sell the business free from what I would infer to be the carefully negotiated entitlements of the Wu Parties under the Shareholders Agreement.
The object of the Strategy was, as Mr Niu said on 20 December 2023, "to take over the company". [33]
The correspondence that I have set out above shows that it was an essential element of the Strategy that it be kept secret from the Wu Parties.
It appears that the Christmas Eve offer by the Wu Parties to acquire the rights of the Senior Lenders under the Syndicated Facility Agreement had the effect of thwarting the Strategy with the result that only one of its three elements was put into effect. That element was the removal of senior management of the plaintiffs; Ms Chen, Mr Wu as well as three senior managers. The second and third elements of the Strategy, the appointment of a receiver and the entry into a standstill agreement between the plaintiffs and the Senior Lenders could not be implemented, no doubt because the Senior Lenders were giving close attention to the obviously attractive offer from the Wu Parties to purchase their interest in the Senior Debt at par.
There is a serious question as to whether that conduct was itself conduct oppressive of the interests of the Wu Parties as minority shareholders.
It is neither necessary nor appropriate that I express any final views about this, but I see it as a factor, on the balance of convenience, weighing against granting the plaintiff the interlocutory relief.

What is it feared the defendants will do?

Dr Ward submitted that the parties had a "real concern about what ASIV might do" and that, absent restraint, it was likely that ASIV would sell to a "nominee for the lowest price they think achievable", or "sell tomorrow to an associated company created for the purpose in the same interests for the price of the debt thereby retiring the debt and obtaining total control and management and ownership of the company … leaving everybody else hanging out to dry".
I see no basis upon which I could come to those conclusions.
First, as the Wu Parties must know, ASIV's powers are not unconstrained and are subject, at least, to the obligation of good faith to which I have referred above.
Further, the Wu Parties, through a related company, is one of the Junior Lenders to the plaintiffs and has invested $33 million in the enterprise.
No doubt the Wu Parties thought it to be to their commercial advantage to, through Ms Chen, invest some $138 million to enable ASIV to acquire rights under the Syndicated Facility Agreement.
It is also true, as Dr Ward emphasised, that there is no evidence before me, directly or indirectly, from Ms Chen or Mr Wu as to their intentions.
But it remains to be seen what steps the Wu Parties take.
If and when they take steps that might be seen to be contrary to the interests of the plaintiffs and beyond the steps that an arm's length secured lender (such as the syndicate banks) might take, then the plaintiffs, or the Majority Shareholders, directly or derivatively, may approach the Court.
I see this as a further reason, on the balance of convenience, to decline to grant the plaintiffs the relief they seek.

The freezing order

The plaintiffs referred to a freezing order made in the Federal Court of Australia on 22 December 2023 against Ms Chen and Mr Wu, at the instigation of the Federal Commissioner of Taxation, and evidently arising from the circumstances of the sale of their shares to the Majority Shareholders in 2018.
I do not see this order as having any bearing on the question before me. It contains exceptions that make clear that the plaintiffs' businesses will not be affected.

The status quo

As the plaintiffs have pointed out, the Syndicated Facility Agreement confers very wide powers on, now, ASIV, including a power to restore management control of the plaintiffs to the Wu Parties.
But this was the position before, in implementation of the Strategy, the Majority Directors caused the Circulating Resolution to be passed on 27 December 2023 removing Ms Chen and Mr Wu, as well as senior employees evidently thought to be aligned with them, from management of the company.
The company is currently managed by new employees who have no previous experience in the plaintiffs' business and who, their own evidence suggests, are having difficulties effectively managing the plaintiffs' business.
I do not see this factor as weighing as heavily in the balance as those I have considered earlier but nonetheless, it is a factor weighing against continuation of the order.

Prejudice

Dr Ward also submitted that Ms Chen and Mr Wu have not adduced any evidence that ASIV would be prejudiced were it to be restrained from exercising any rights pending the final hearing.
It is true that no evidence has been adduced that, in terms, addresses this issue. However, as I have said, the fact is that ASIV is now the owner of the Senior Debt, has purchased it at par and is in the position of a secured lender of a facility in default and under which interest continues to accrue at default rates. It is obviously prejudiced to that, considerable, extent.

Conclusion

The freezing orders made by Rees J will expire at 5pm today. I do not propose to extend them. The plaintiffs' application is dismissed with costs. I stand the proceedings over to the Commercial List for directions on 16 February 2024.

Endnotes

Nature's Care Holdings Pty Ltd v Chen [2024] NSWSC 14.
See Breen v Williams (1996) 186 CLR 71; [1996] HCA 57 at 113 (Gaudron and McHugh JJ).
[2023] NSWSC 1282.
(2012) 44 WAR 1; [2012] WASCA 157 (Lee, Drummond and Carr AJJA)
See [56] below.
Clause 12 and Sch 2 of the General Security Deed of 6 August 2018, as amended by a Waiver and Amendment Letter of 6 July 2020.
Kennedy v De Trafford [1897] AC 180 at 185 (Lord Herschell); Pendlebury v Colonial Mutual Life Assurance Society Ltd (1912) 13 CLR 676 at 680 (Griffith CJ), at 695 (Barton J), at 701-2 (Isaacs J); [1912] HCA 9; Forsyth v Blundell (1973) 129 CLR 477 at 481 (Menzies J); [1973] HCA 20.
See [21(c)] and [47] above.
Which was their entitlement under the Shareholders Agreement: see [47] above.
See [62] above.
See [125] below.
Evidently an entity representing the one Senior Lender, referred to in the evidence as "Hampstead", that did not assign its interest in the Syndicated Facility Agreement to ASIV.
Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd (2001) 208 CLR 199; [2001] HCA 63 at [64] (Gummow and Hayne JJ).
Goulston v Sundell as executor of the estate of the late Sundell [2024] NSWSC 12 at [25]-[27] (Slattery J) .
Ibid; see also JD Heydon, MJ Leeming and PG Turner, Meagher, Gummow & Lehane's Equity: Doctrines & Remedies (5th ed 2014, LexisNexis Butterworths) at [21-350].
Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618; [1968] HCA 1 at [4] (Kitto, Taylor, Menzies and Owen JJ).
Australian Broadcasting Corporation v O'Neill (2006) 227 CLR 57; [2006] HCA 46 at [71]; Beecham Group Ltd v Bristol Laboratories Pty Ltd (supra) at [4] (Kitto, Taylor, Menzies and Owen JJ).
Goulston v Sundell (supra) at [25]-[27] ; Australian Broadcasting Corporation v O'Neill (supra) at [65].
Kriketos v Eisman [2007] NSWSC 1038 at [28]-[30] (Barrett J).
Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd (supra) at [15] (Gleeson CJ).
Goulston v Sundell (supra) at [25]-[27] ; see Meagher, Gummow & Lehane's Equity: Doctrines & Remedies (supra) at [21-375].
Beecham Group Ltd v Bristol Laboratories Pty Ltd (supra) at [5].
Goulston v Sundell (supra) at [25]-[27] .
Goulston v Sundell (supra) at [25]-[27] ; McCarty v The Council of the Municipality of North Sydney (1918) 18 SR (NSW) 210; (1918) 35 WN (NSW) 85 (Street CJ).
Goater v Commonwealth Bank of Australia [2014] NSWCA 265 at [92] (Ward JA).
Donnelly v Amalgamated Television Services Pty Ltd (1998) 45 NSWLR 570 at 575 (Hodgson CJ); [1998] NSWSC 509.
Inglis v Commonwealth Trading Bank of Australia (1972) 126 CLR 161 at 168-9 (Walsh J, with whom Barwick CJ, Menzies and Gibbs JJ agreed); [1972] HCA 74.
French v Chapple [2001] NSWSC 574 at [24] (Windeyer J).
Nature's Care Holdings Pty Ltd v Chen at [50].
See [17] above.
See [73] and [74] above.
See [91] above.
See [125] above. 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: 15 February 2024

Nature's Care Holdings Pty Ltd v Chen

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