Pavlakis v Equmen Pty Limited

REASONS FOR JUDGMENT (REVISED FROM TRANSCRIPT) 1 This application comes before the Court on an urgent basis. The plaintiff seeks an order for the winding up of the defendant on the just and equitable ground: see s 461(1)(k) of the Corporations Act 2001 (Cth) (the Act). The plaintiff is a creditor of the defendant: see s 462(2)(b) of the Act. He is the Chief Executive Officer of the defendant whose wages have not been paid since 11 July 2014. 2 The background facts can be stated briefly. The defendant conducts the business of selling proprietary pressure-support underwear. It conducts its business internationally through a website. The business is currently in its start-up phase and has not reached commercial maturity. 3 The defendant has lost approximately $3 million thus far. The evidence before me indicates that it is unable to pay its debts as they fall due. The defendant has stocks of clothing in warehouses in the United States of America, the United Kingdom and Australia. Its stock in the United States of America is frozen for non-payment of warehouse invoices. This stock has been frozen since 22 July 2014. As a result, the defendant has not been able to service the orders of its United States customers and may need to return funds to these customers because of unfulfilled orders. 4 An historical search of the defendant shows that it has two directors and two shareholders. The directors are shown as Gavin Stuart Jones and Corie Kim Chung. The shareholders are shown as Gavin Jones Communications Pty Limited (Gavin Jones Communications), as to 75 shares, and Corie Kim Chung, as to 25 shares. 5 The present evidence indicates that Ms Chung resigned as a director, or at least abandoned her appointment as a director, in about May 2012 and that, at about the same time, she executed a share transfer of her shares in the defendant to Gavin Jones Communications. 6 Ms Chung's cessation as a director has not been recorded with the Australian Securities and Investments Commission (ASIC) or in the defendant's register of directors. Moreover, it seems that the share transfer has not been executed by Gavin Jones Communications or registered by the defendant. 7 The evidence before me is that Ms Chung has played no role in the defendant's business or its affairs since at least May 2012. Accepting, for present purposes, the fact of Ms Chung's resignation or abandonment of office, and her transfer of shares to Gavin Jones Communications, the sole director of the defendant and its sole beneficial shareholder since about May 2012 has been Mr Jones and Gavin Jones Communications, respectively. I should add that Mr Jones is recorded in ASIC's records as the sole director and sole shareholder of Gavin Jones Communications. 8 Mr Jones died on 12 July 2014. At the time of his death, he was the sole authorised operator of the defendant's bank accounts both nationally and internationally. Further, on 7 August 2014, Gavin Jones Communications was placed in voluntary administration. Its sole administrator is David Joseph Levi, an official liquidator. 9 Although the plaintiff remains the Chief Executive Officer of the defendant, the defendant no longer has any acting directors and, to use the plaintiff's words, is "directionless". 10 The plaintiff has indicated that he is not prepared to take on the role of director of the defendant and that he is not aware of any other person who would be willing to undertake that role. The defendant's major shareholder, Gavin Jones Communications, is without its sole director and shareholder and is not itself in a position to appoint a director to the defendant. 11 The plaintiff has given evidence that he has unsuccessfully attempted to contact Ms Chung at her last known addresses being, reportedly, in Tel Aviv and in the United States of America. 12 Since Mr Jones' death, the creditors and staff of the defendant have not been paid. Despite not having been paid since about 11 July 2012, the defendant's employees continue to attend work. At the present time, their full entitlements are unclear. What is clear is that the defendant's liabilities to creditors are continuing to be incurred. Its website is still operational. It is continuing to incur outgoings in relation to warehousing. 13 The defendant owns a number of designs registered variously in Europe, Israel, China, South Korea, Japan, Canada, Australia and New Zealand. Renewal fees for a number of these registrations are due. Some of these registrations will lapse within the next few weeks because of the non-payment of renewal fees. Other registrations will enter into a grace period. If the renewal fees for those registrations are not paid within that period, they will also lapse. 14 The plaintiffs seek the winding up of the defendant today. I am not persuaded that I should take that step, although the evidence does show a clear case that the defendant should be immediately placed in the hands of an independent person who can manage its business and affairs. For that reason, the better course, in my view, is to appoint a provisional liquidator and to then allow the application for winding up to proceed in accordance with the Act and the Federal Court (Corporations) Rules 2000 (Cth). 15 Mr Levi has indicated his preparedness to act as liquidator. He has deposed that in the course of his administration of Gavin Jones Communications, he has not discovered any dealing or transaction between Gavin Jones Communications and the defendant that would require investigation by a liquidator of the defendant or by him as administrator of Gavin Jones Communications. He has deposed that he is not presently aware of any matter that is likely to give rise to any conflict between his role as administrator of Gavin Jones Communications and that of liquidator of the defendant, should he be appointed to that office. He has deposed that if such a conflict does emerge, then he would seek the Court's directions as to how that conflict should be resolved. 16 In these circumstances, I am satisfied that it is appropriate that Mr Levi be appointed as liquidator of the defendant provisionally. Thereafter, as I have indicated, the application for the winding up of the defendant can proceed in the usual fashion. 17 I will make orders in accordance with the short minutes of order that have been amended during discussions with counsel in the course of submissions. I certify that the preceding seventeen (17) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Yates.