Plaintiff v Defendants

2 In 2015, Mr Lee originated the idea of the play centre and sought investment capital. Substantial investment in the Company was made by Mr Xiaoxing Liang (also known as Sean Liang) and Mr Jiawei Shi (also known as Jerry Shi) (collectively, 'the majority shareholders'). Mr Lee also made an investment in the Company. In August or September 2016, the relevant parties signed a document styled 'Partnership Agreement', which set out the contributions of each participating party and how the business of the Company was to be conducted ('the Partnership Agreement'). The Company was then registered on 2 September 2016 and issued 1,000 shares. The current shareholders are Mr Liang, Mr Shi and Mr Lee, as to 57%, 40% and 2.3% shareholding respectively. The play centre which is run by the Company is located at 352-356 Huntingdale Road, Oakleigh South, Victoria; a property leased by the Company and which comprises approximately 6,000 square metres of space ('the property').

3 Mr Lee says he initially assumed the role of entrepreneur, project manager and general manager of the Company's business, whilst the defendants made substantial financial investments to give the Company its working capital. Mr Lee also alleges that from January 2017 until February 2019, he worked approximately 11 hours a day, 7 days per week, establishing the play centre, including; designing its layout and brand, producing business plans, obtaining a building permit, a planning permit and an occupancy permit and managing the construction process. He says he received no wages for his services.

4 During the process of construction of the play centre, Mr Liang also assumed a level of authority over the conduct of the Company's affairs. Whilst both Mr Liang and Mr Lee were initially the directors of the Company, in April 2018, Mr Lee resigned as director because he could no longer exercise control of the Company's affairs. Mr Liang then became the Company's sole director. Mr Lee ultimately left the business in February 2019, holding numerous concerns about the safety of the play centre and its compliance with relevant standards. The Company operated its business for approximately 13 months before it ceased trading as a consequence of the COVID-19 pandemic.

5 By originating process filed 22 October 2019, Mr Lee commenced this proceeding under ss 232 and 233 of the Corporations Act in relation to alleged oppressive conduct in the affairs of the Company. The relief sought by the plaintiff included orders requiring that Mr Liang and Mr Shi transfer their shares in the Company to Mr Lee and the payment to Mr Lee of profit distributions under the Partnership Agreement, together with alleged outstanding wages and entitlements. On 26 November 2019, Sifris J (as his Honour then was) made an order referring the oppression proceeding for management under the Court's Oppression Proceeding Program.[1]

6 At the initial return of the matter on 12 December 2019, orders were made for the inspection by Mr Lee of the books of the Company pursuant to s 247A of the Corporations Act, the translation of the Partnership Agreement from the original Mandarin version, the appointment of joint valuer to express an opinion as to the value of the shares of the Company and the referral of the matter to judicial mediation. On 19 May 2020, the joint valuer, Mr Steven Perri of PKF, produced his expert opinion as to the value of the Company's shares.[2] As a consequence of cumulative losses and a net deficiency of assets, Mr Perri concluded that the Company did not have any commercial value.

7 Between 13 January 2020 and 4 June 2020, the parties' lawyers corresponded with one another in relation to the scope of the order for inspection of Company books. On 11 June 2020, more specific orders for inspection of Company books were made. The orders also made provision for the plaintiff to amend his originating process and to file any further affidavit material in support of an order that the Company be wound up pursuant to s 461(1)(k).

8 When the matter came before the Court on 20 October 2020, Mr Lee pressed for the just and equitable winding up of the Company on the basis of a lack of confidence in the conduct and management of the Company's affairs, the parlous financial position of the Company, and questions of commercial morality and the public interest. In particular, Mr Lee raised various safety concerns about the property and the Company's business and identified that the Company did not have in place a policy of public liability insurance. Mr Liang and Mr Shi opposed a winding up order on a number of bases, including that Mr Lee's public interest concerns were misplaced and that a less drastic remedy was available to Mr Lee as plaintiff, namely the purchase of his shares by the majority shareholders.

9 On 2 November 2020, following the winding up hearing, the defendants filed an interlocutory process seeking to re-open their case. Specifically, the defendants sought to adduce evidence of a public liability insurance policy which was obtained by the Company after the hearing. Mr Lee ultimately consented to the defendants' application to reopen and, on 5 November 2020, the Court made additional orders for the filing of any further documentary evidence by the defendants and submissions by the parties on the effect of this further evidence.

10 Section 461(1)(k) of the Corporations Act provides that the Court may order the winding up of a company if it 'is of opinion that it is just and equitable' to do so.

11 Section 467(4) of the Corporations Act is in the following terms:

Where the application is made by members as contributories on the ground that it is just and equitable that the company should be wound up or that the directors have acted in a manner that appears to be unfair or unjust to other members, the Court, if it is of the opinion that:

(a) the applicants are entitled to relief either by winding up the company or by some other means; and

(b) in the absence of any other remedy it would be just and equitable that the company should be wound up;

must make a winding up order unless it is also of the opinion that some other remedy is available to the applicants and that they are acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy.

12 In Ebrahimi v Westbourne Galleries Ltd,[3] the House of Lords held that the court's jurisdiction under the just and equitable ground will commonly be engaged when one or more of the following circumstances are present:

(a) an association formed or continued on the basis of a personal relationship, involving mutual confidence ... ;

(b) an agreement, or understanding, that all, or some ... of the shareholders shall participate in the conduct of the business; [and]

(c) restriction upon the transfer of the members' interest in the company - so that if confidence is lost, or one member is removed from management, he cannot take out his stake and go elsewhere.[4]

13 However, the categories of facts and classes of conduct which trigger the just and equitable jurisdiction are neither rigid nor closed.[5] The court must consider the factual matrix of the dispute in order to be satisfied whether sufficient reason exists to wind the company up.[6] In Re Catombal Investments Pty Ltd,[7] Brereton J further explained:

the court is not restricted in exercising its discretion to particular factual categories [Re Straw Products Pty Ltd [1942] VicLawRp 36; [1942] VLR 222 at 223]. And, the question whether it is just and equitable is a question of fact, in respect of which each case must depend on its own circumstances [Re Bleriot Manufacturing Aircraft Co Ltd (1916) 32 TLR 253 at 255].[8]

14 Other matters relevant to the question of whether a just and equitable winding up order should be made include:

(a) a failure of the main object of the company's formation;[9]

(b) a deadlock in the management of the company;[10]

(c) a breakdown in the relationship between the shareholders;[11]

(d) a lack of confidence in the conduct and management of the affairs of the company;[12]

(e) where there has been fraud, misconduct or oppression in relation to the affairs of the company;[13]

(f) serious concerns about the company's compliance with its statutory obligations,[14] including the filing of tax returns;[15]

(g) where there have been breaches of the Corporations Act, including breaches of directors' duties or an inadequacy of accounts or recordkeeping;[16]

(h) questions of commercial morality in the conduct of the company's affairs;[17] and

(i) a risk to the public interest that warrants protection.[18]

15 In determining the relative justice of a winding up, the court will balance the interests of all parties potentially affected by it.[19] As BH McPherson (as his Honour then was) observed in his article Winding Up on the 'Just and Equitable' Ground':[20]

[T]he justice and equity which falls to be considered is that which prevails between...those who support the petition and those who oppose it...and that in reaching its conclusion on this question the court is entitled to take account of 'every consideration which is fair and reasonable for [all] the interests concerned'.

16 The relevant interests to be balanced can also extend beyond the parties and encompass the broader public interest.[21]

17 In exercising its discretion, the court will also have regard to the financial position of the company and the availability of any alternative remedy. As Sifris J (as his Honour then was) said in Peter Extons & Anor v Extons Pty Ltd & Ors:[22]

Courts are 'extremely reluctant to wind up a solvent company' [International Hospitality Concepts Pty Ltd v National Marketing Concepts Inc [No 2] (1994) 13 ACSR 368, 372 (Young J)]. As the Court of Appeal has observed, '[i]t is well accepted that the winding up of a solvent and flourishing company should be a last resort' [French v Smith [2004] VSCA 207 at [122] per Charles and Chernov JJA and Harper AJA; Sassine v Ray & Sons Construction Pty Ltd [2012] NSWSC 307 at [21] per Black J]. Courts will consider whether any other relief would be preferable to a winding up order [Turner v Ulicorp Pty Ltd [2007] NSWSC 206 at [24] per Barrett J; Host-Plus Pty Ltd v Australian Hotels Association [2003] VSC 145 at [67] per Hansen J].[23]

18 However, solvency will not operate as a complete barrier to a just and equitable winding up, particularly where there have been serious and ongoing breaches of the Corporations Act.[24]

19 Similarly, the fact that a petitioner for winding up under the just and equitable ground has only a small shareholding in the company will not disentitle the petitioner from relief, although it is one of the factors which may be taken into account in the exercise of the court's discretion.[25] The petitioner must, nevertheless, have a tangible interest in the winding up.[26]

20 Importantly, even if the court is satisfied of circumstances which justify a winding up on the just and equitable ground, s 467(4) of the Corporations Act makes clear that the court must consider whether an alternative and less drastic form of relief is available.[27]

21 Mr Lee argues that the Company should be wound up pursuant to s 461(1)(k) on the following bases:

(a) the Company is insolvent;

(b) he has a justifiable lack of confidence in its conduct and management; and

(c) for reasons of commercial morality and in the public interest.

22 In relation to the first ground, it was correctly observed by counsel for the defendants that the plaintiff does not actually apply for a winding up of the Company in insolvency under s 459P of the Corporations Act. No doubt, any debt relied upon by the plaintiff for that purpose would be disputed. Insolvency itself is not a precondition for the appointment of a liquidator on the just and equitable ground.[28] Nor is it an independently recognised ground of winding up for the purposes of s 461(1)(k). Instead, the solvency of the Company is a relevant consideration in the exercise of the court's discretion, noting the court's general reluctance to wind up a solvent and flourishing company. Solvency will be considered in that context below.

23 It is clear that one or more of the factual circumstances described in Ebrahimi are present here. The Company was incorporated on the basis of a personal relationship between Mr Lee, Mr Liang and Mr Shi. Whilst that relationship may have initially been one of mutual confidence, that is plainly no longer the case. The business was set up as a quasi-partnership, in accordance with the Partnership Agreement. All three parties made financial contributions to the business, albeit of different amounts. Further, the arrangement between the parties entailed at least two of the shareholders participating in the conduct of the business. Prior to his resignation as a director, Mr Lee performed the role of project manager and general manager, although Mr Liang assumed a greater degree of involvement in the day-to-day operations over time.

24 Given these threshold circumstances are present, the Court's jurisdiction to wind up the Company under s 461(1)(k) is enlivened. It is then necessary to have further regard to the underlying factual matrix of the proceeding to determine whether a winding up order should be made as a matter of discretion.

Lack of confidence in conduct and management of Company's affairs

25 In Loch v John Blackwood,[29] Lord Shaw, who delivered the speech of the Privy Council, explained the significance of a lack of confidence in the conduct and management of the affairs of a company in the following terms:

It is undoubtedly true that at the foundation of applications for winding up, on the 'just and equitable' rule, there must lie a justifiable lack of confidence in the conduct and management of the company's affairs. But this lack of confidence must be grounded on conduct of the directors, not in regard to their private life or affairs, but in regard to the company's business. Furthermore the lack of confidence must spring not from dissatisfaction at being outvoted on the business affairs or on what is called the domestic policy of the company. On the other hand, wherever the lack of confidence is rested on a lack of probity in the conduct of the company's affairs, then the former is justified by the latter, and it is under the statute just and equitable that the company be wound up.[30]

26 A lack of confidence may arise where, 'after examining the entire conduct of the affairs of the company' the court cannot have confidence in the 'propensity of the controllers to comply with obligations, including the keeping of books, records and documents, and looking after the affairs of the company'.[31]

27 Mr Lee submits he has a justifiable lack of confidence in the conduct and management of the affairs of the Company for two reasons. First, he suggests the books of the company are manifestly unreliable. Secondly, he believes that the play centre is inherently unsafe and needlessly exposes the public to risk of injury. It is convenient to focus on the state of the Company's financial documents at this point and to deal separately with questions of safety and the public interest later in these reasons.

28 There are a number of aspects of the Company's books which are of concern. Those matters can be summarised as follows:

(a) the Company currently holds 40% of the shares in J Park Catering Pty Ltd ('J Park Catering'), a business which sells food and hosts parties at the property. However, this shareholding is not recorded as an asset in the Company's financial statements. Nor are any dividend payments recorded;

(b) despite the existence of some form of income and expense sharing arrangement between the Company and J Park Catering, the Company's financial statements do not identify any income received or expenses paid under this arrangement;

(c) there is also evidence of the existence of a further income sharing arrangement between the Company and Melbourne Twilight Food & Beverage Pty Ltd (trading as Mootea) ('Mootea'), which provides beverages and snacks for sale in the foyer area of the play centre. Again, the Company's financial records do not disclose any takings from Mootea;

(d) the Company previously held 70% of the shares in J Park Catering, however, the financial statements and other documents initially provided to Mr Lee failed to record any money paid to the Company for the transfer of 30% of the Company's initial shareholding to the new shareholder, Mr Qingping Wang, on or about 1 July 2019;

(e) the treatment of purported loans by the majority shareholders is opaque. As at 31 March 2020, the Company balance sheet showed there was a total of $932,684 owing to the majority shareholders in respect of these loans, $112,000 of which was characterised under current liabilities and $820,684 of which was classed as non-current liabilities. By 30 June 2020, these shareholder loans apparently increased to $975,400.60. Mr Lee believes that the shareholder loan accounts have been incorrectly recorded in the financial statements and instead reflect share capital invested in accordance with clause 6 of the Partnership Agreement. He suspects that Mr Liang and Mr Shi have been utilising these alleged loan accounts to justify payments to themselves from Company revenue. This suspicion is partly vindicated by a summary of Company bank transactions which shows that between April 2019 and December 2019, approximately $539,000 was transferred out of the Company's bank account with accompanying narrations such as '[i]nvestment return' and '[d]irectors fee'. Interestingly, the money paid out of the Company was apparently applied towards the loans classed as non-current liabilities on the Company's balance sheet. This is notwithstanding significant amounts owing to the Company's landlord in respect of rental arrears (see further below);

(f) Mr Steven Perri, the independent valuer engaged by the parties, observes that it is unclear whether the financial statements of the Company have been prepared on a cash or an accrual basis. He further notes that the statements also 'appear to exclude certain liabilities which are known to the parties';[32]

(g) significantly, the Company's balance sheet does not record outstanding rent owed by the Company. The rental arrears amount is at least $180,000 according to earlier evidence of Mr Liang (although his later evidence is less clear in this regard), and at least $239,893.47 according to Mr Lee's calculations;[33] and

(h) no account is made in the Company's balance sheet for Mr Lee's claims for outstanding wages of $395,000 and $37,000 in superannuation contributions. Notwithstanding those claims are in dispute, they might nevertheless have been accounted for as prospective, non-current liabilities, especially since the Company has been on notice of those claims since around July 2019.

29 The defendants' response to each of these matters is largely inadequate. In relation to the state of the accounts generally, it is submitted that they have been prepared by a qualified accountant. That is not a satisfactory answer. The accounts are plainly deficient in a number of material respects. At the hearing, it was at least conceded by the defendants that the accounts are inadequate insofar as they fail to record the value of the shares held by the Company in J Park Catering.

30 As regards the question of payment for 30% of the Company's shares in J Park Catering, Mr Liang deposes that Qingping Wang paid $200,000 into the Company's account on 2 July 2019, but that Mr Liang and Mr Shi then withdrew those funds in purported repayment of the shareholder loans.

31 Mr Liang denies that the shareholder loans actually represent share capital. Instead, he says that the plaintiff, as a former director and secretary of the Company, ought to have been aware that the share capital stated in the Company's financial reports did not exceed $1,000 at any time since the financial year ending 30 June 2017. The Company's financial statements for the 2017 and 2018 years suggest the Company only has share capital of $100, comprising 100 ordinary shares. From the 2019 financial year, the share capital apparently increased to $1,000 also for 100 ordinary shares, worth only $1 each. The financial accounts are clearly inconsistent in this regard. But more significantly, the accounts are at odds with the circumstances of the parties' initial investment in the Company. At the inception of the Company, Mr Lee says he invested at least $40,000 and ultimately received 2.3% of the shareholding, although Mr Liang suggests Mr Lee's investment was only AUD$13,500 and RMB¥105,000 (approximately AUD$34,500 in total).[34] On either calculation, this suggests Mr Lee's contribution alone constituted a higher share capital amount than that revealed in the Company's financial statements. Further, it will be recalled that Mr Liang and Mr Shi currently hold 57% and 40% of the shares in the Company, respectively. According to their initial share subscription recorded in the Partnership Agreement, Mr Liang and Mr Shi each initially invested the equivalent of AUD$600,000 in the Company. The failure of the Company's financial statements to properly document shareholder equity further undermines their reliability. Moreover, Mr Liang's insistence that the equity was never more than $1,000 is contradicted by other evidence.

32 Mr Liang also says that the majority shareholders injected around RMB¥3,920,000 and AUD$880,000 into the Company since February 2019, thereby absorbing business losses and funding the purchase of equipment to further renovate and improve the play centre. However, the defendants have not produced any records to substantiate the loan amounts recorded on the Company's balance sheet. No loan documents are relied upon to identify the terms upon which funds were apparently advanced to the Company. Similarly, the dates of loan advances are not clearly identified.

33 Given the investment necessary to achieve the large shareholdings held by Mr Liang and Mr Shi, and having regard to the absence of evidence relating to loans purportedly made by the majority shareholders to the Company, it is reasonable to infer that at least some of the approximately $539,000 withdrawn from the Company between April 2019 and December 2019 represents a withdrawal of equity by the majority shareholders. This is despite the fact that clause 6(v) of the Partnership Agreement provides that capital sums invested by the parties are 'deemed as common assets' of the Company which 'shall not be transferred while [t]he Company is in business operation [sic]'.

34 To the extent the majority shareholders have provided ongoing financial assistance to the Company by way of loans, that is only part of the equation. The defendants have failed to satisfactorily explain why it was appropriate to pay out of the Company approximately $539,000 to the majority shareholders between April 2019 and December 2019, at a time when the Company owed a substantial debt to its landlord for overdue rent.

35 It is apparent that the Company's records are beset with errors, omissions and inconsistencies. As a consequence, the records do not properly record and explain the Company's financial transactions. Further, the manner in which the assets of the Company have been handled by Mr Liang as director is less than desirable. I will deal with other matters concerning the conduct of the Company's affairs which pertain to the public interest further below.

36 In Re Data Homes Pty Ltd,[35] a case concerning a proposed scheme of arrangement designed to take advantage of tax losses, Mason JA (as his Honour then was), explained the scope of the public interest and the concept of commercial morality in the following terms:

it should not be assumed that there is any sharp dividing line between considerations which are detrimental to commercial morality and those which are opposed to the public interest. They clearly overlap. Nor should it be assumed, as the appellant would have it, that each is a narrow concept...

There is as little reason for confining considerations of commercial morality to the investigation of misconduct in the affairs of the company as there is for restricting the public interest to the pecuniary interests of existing and future creditors.[36]

37 In the context of s 461(1)(k), it is important to identify the aspect of the public interest that would be promoted by the making of a winding up order.[37] For example, the public interest may be in the protection of investors where there has been regular and repeated breaches of the law or mismanagement in the conduct of the affairs of the corporation.[38]

38 In this case, the relevant public interest identified by Mr Lee is community safety. He relies on the following matters concerning the design, construction and operation of the play centre in support of his contention that it poses a risk to the safety of the public:

(a) Mr Lee designed the layout of the play centre and spent considerable time project managing the construction process. However, he says the majority shareholders brought in 'cheap labour' from China to carry out the construction works which frequently deviated from the plans, with many structures built according to the whims of those shareholders.[39] The overseas workers generally stayed for three months at a time but some stayed for longer periods in contravention of their visa conditions;

(b) the quality of the work undertaken by the overseas workers was sub-standard and without regard to applicable Australian standards. For example, barricades, guard rails and appropriate padding were not installed, or were not properly installed. Mr Lee observed many sharp edges, corners and hard surfaces on which children could easily hurt themselves or had actually hurt themselves. Whilst the applicable Australian standard requires steel frames to be covered by foam pads of a certain thickness, the foam pads used during the construction of the play centre were half the required thickness. Mr Lee believes that the rock climbing structure, which is over 12 metres high, does not comply with the relevant Australian standard which requires a fully trained and qualified rock-climbing instructor to supervise its use and to ensure harnesses are worn securely;

(c) in or about April 2018, Mr Liang caused the Company to commence trading and opened the play centre for business. However, the Company did not have a planning permit which allowed it to trade, and it was fined by Monash City Council accordingly. The play centre was then closed for a period of time and re-opened in October 2018;

(d) the Company did not receive an occupancy permit until February 2019. There are a number of conditions attached to the occupancy permit including the periodic carrying out of routine tests and inspections with respect to safety standards. The defendants have not produced any documentation to suggest these conditions have been complied with;

(e) throughout 2019, there was a litany of injuries sustained by children who visited the play centre, a number of which were serious. Some accidents involved injuries to children's heads, backs, necks and knee joints. One child sustained an injury to her foot after it became caught in railing in an area which was deemed unsafe by staff. A child fell two metres from a net, landed on steps and injured his back. He was referred to a doctor for medical attention. Another child fell from a similar height onto the edge of a ball pit, sustained concussion and was also referred to a doctor. Another child sustained a concussion after falling from climbing equipment. One incident involved a boy hitting his head on an inadequately padded fixed object after jumping from a trampoline. He also experienced concussion, inflammation and swelling and was referred to hospital. Another child was also taken to hospital in an ambulance after a staff member failed to catch him as he came off a zip line. He suffered a concussion and a fracture to his leg. The incident report identified that there was no failsafe or padding on stairs within the play centre. Remarkably, at the time all of these injuries were sustained, the Company did not have in place any public liability insurance;

(f) there are also electrical safety issues at the property. A certificate of electrical safety exists in respect of work undertaken to install a switchboard to connect power from the grid to the play centre. However, the Company has been unable to produce any certificate of electrical safety for work done within the play centre itself. Mr Lee deposes that all electrical work undertaken within the play centre, involving extensive high-voltage wiring and the energising of ceiling lighting and fire alarms, was done by the overseas workers. He does not believe any of them were licensed to perform such work in Victoria;

(g) the fire alarm monitoring system appears to have been faulty throughout 2019 and it is unclear whether the problem has now been rectified; and

(h) staff rostering documents for the months of February and March 2020 reviewed by Mr Lee suggest that the Company had an inadequate level of staffing to supervise the play centre, especially during the weekdays. There are currently 20 casual employees on the Company's roster but no venue manager. Mr Liang operated the play centre himself on weekdays although, by his own admission, he is unable to converse fluently in English.

39 In his affidavit of 5 February 2020, Mr Liang says that the play centre was designed by Chinese designers in accordance with Australian standards provided by Mr Lee. In his later affidavit of 7 September 2020, Mr Liang states that the Company purchased most of the equipment and material for the construction of the play centre from a factory located in China. He also says the factory provided services to the Company in relation to the installation and assembly of this equipment.

40 Mr Liang blames Mr Lee for failing to ensure the construction of the play centre was carried out in accordance with industry regulations. He also suggests that this resulted in some potential safety hazards, however, 'with the help and efforts from various sectors such as WorkSafe, OHS, ABsafe, etc., [the Company] continues to improve and run its operations in a safety [sic] manner.' Similarly, in his affidavit of 7 September 2020, Mr Liang says that the Company 'has been actively improving its facilities under the professional guidance from WorkSafe as well as feedback from its customers' and that '[a]ll [the Company's] work is operated safely in accordance with legal requirements'.

41 In my view, Mr Liang's response to the very specific safety issues raised by Mr Lee is inadequate and vague. He does not properly address the allegation that elements of the design were changed by the majority shareholders or explain the high rate of injuries sustained by children using equipment in the play centre. Nor does he engage with the allegations about electrical safety. Instead of grappling with the allegation that the fire safety system may be malfunctioning, he simply maintains that the Company continues to pay a monthly fee to the provider. In some ways, Mr Liang's evidence raises more questions than it answers. For example, it is unclear to what extent WorkSafe became involved in relation to the property and the operation of the play centre. There is a suggestion in Mr Liang's evidence that the Company has sought advice from consultants about how to improve the safety of the play centre, however, the content of such advice has not been provided to Mr Lee or to the Court. Nor is it clear what aspects of the play centre have been remediated or improved to ensure it is safe for members of the public. Even if Mr Lee is partially to blame for latent safety problems in the play centre, this does not change the fact that the property is unsafe and the public is at risk of harm.

42 In their written submissions of 25 September 2020, the defendants further deflect Mr Lee's safety concerns by contending they are ultimately 'a matter for the relevant authorities responsible for occupational health and safety'. Given the number of documented injuries which have occurred at the property and the nature of the safety allegations put forward by Mr Lee, this passive deferral by the defendants to public authorities is, in my view, inconsistent with commercial morality.

43 The defendants' position in relation to public liability insurance is also unsatisfactory. In his affidavit of 21 July 2020, Mr Liang confirms that since the Company commenced trading, it did not have a policy of public liability insurance. He says the defendants had been 'trying to apply for public liability insurance and relevant business insurance since the establishment of the business' but that '[a]ll of the insurance company [sic] we have engaged does [sic] not wish to provide insurance for play centre due to the nature of the business.' In his affidavit of 7 September 2020, Mr Liang elaborates further:

[The Company] has been actively seeking to obtain public liability insurance and many related personnel is [sic] currently assisting us to follow up with this matter. I understand that [sic] whole industry is facing difficulty in procuring this type of insurance at the moment. Nevertheless, I am confident that this issue should have some progress soon in view of [the Company's] good performance and persistence on improvement of facilities over the past one year'.

44 At the time of the hearing on 20 October 2020, the Company did not have any public liability insurance in place. As previously mentioned, following the hearing, the defendants made an application to reopen their case and introduce evidence of the existence of a public liability insurance policy. By affidavit dated 12 November 2020, Mr Yunfei Wu, solicitor for the defendant, exhibited a policy of public liability insurance and other incidental documents. He also gave an undertaking on behalf of the defendants that they would not re-open the business of the Company until after 1 December 2020 when the insurance cover commenced and that all playground events except those covered by the insurance policy would be closed down. The schedule of insurance and certificate of currency includes a number of conditions precedent which must be satisfied prior to the insurer providing an indemnity. They include a requirement that 'only purpose built or manufactured equipment is installed for use by children and that this equipment is installed by either the manufacturer or a suitably qualified contractor or sub-contractor'. Mr Lee submits that this condition precedent is insurmountable for the Company because the persons who installed the equipment were not suitably qualified.

45 Having regard to the evidence about the installation of the play centre equipment, the Court shares Mr Lee's concern about the Company's capacity to satisfy this condition precedent. It is also unclear whether the Company has made adequate disclosure to the insurer given the specific safety concerns expressed by Mr Lee in this proceeding which have not been adequately addressed by the defendants. However, assuming the Company can overcome these issues and is indemnified accordingly, the reasons offered for the Company failing to hold public liability insurance prior to 1 December 2020 are unconvincing. Mr Liang has not given evidence as to what other insurers were approached, when they were approached and why those insurers declined to cover the Company.

46 This is significant because the Company traded for approximately 13 months without public liability insurance, during which time there were numerous injuries sustained by children using the play centre equipment. The fact that Mr Liang, as director, allowed the Company to operate a large indoor children's play centre for this period without public liability insurance in place is simply breathtaking. It is difficult to see how such conduct was consistent with his duty of care and diligence in accordance with s 180(1) of the Corporations Act, or with commercial morality more generally. Had a child been catastrophically injured, not only was there an absence of public liability insurance but, because of the Company's financial position at the time (discussed further below), the Company itself did not have any capacity to meet a claim brought on behalf of the child. The failure by the Company to have in place a policy of public liability insurance may have also constituted a breach of the requirements of its lease which stipulated that there be cover of $20 million or such other amount as reasonably specified by the landlord. Moreover, the failure of the Company to take out public liability insurance until just after the hearing of the matter does little to inspire confidence in the ability of Mr Liang to properly manage the Company's affairs in the future.

47 The evidence set out above suggests the business operated by the Company poses a real risk to public safety which has not been adequately addressed by the defendants. Further, the approach of the defendants to matters of safety at the property indicates an unsatisfactory attitude to corporate and management responsibility and reflects poorly on the commercial morality of the Company.

48 The financial position of the Company can neither be described as prosperous nor flourishing. It is the opinion of Mr Perri, the independent expert, that there is no commercial value in the Company's shares. The defendants do not contest this expert valuation.

49 In arriving at his valuation, Mr Perri observes that the Company's 31 March 2020 balance sheet disclosed a deficiency of net assets in the order of $435,207. This figure accounts for loans of $932,684 apparently then owed by the Company to the majority shareholders. The book value of the Company's assets was approximately $504,000, but this largely comprised shopfitting and equipment which cannot be readily realised. After Mr Perri adjusted the Company's balance sheet to allow for Mr Lee's claims for unpaid wages and superannuation, which total approximately $432,000, and rental arrears of at least $180,000, the net asset deficiency was increased to $1,047,207. Mr Perri further observes that in order for the Company to have any commercial value, the value of its shareholding in J Park Catering (which is not included in its balance sheet) would need to exceed $1,047,207. He also notes that for the 2019 financial year, there were cumulative losses of $612,267.36.

50 The most recent financial statements for the year ended 30 June 2020 also do not include Mr Lee's employment claims or the unpaid rent as liabilities, but still disclose a net asset deficiency of $486,646.15 and negative shareholder equity of the same amount. Just under $8,000 is available to the Company in current assets. The cumulative losses for the 2020 financial year are $487,646.15. This figure allows for income derived by the Company during the period in which it was able to trade.

51 The defendants submit that the business of the Company has promise but no present net worth, as evidenced by its balance sheet. They further submit the business of the Company has stalled because of the COVID-19 restrictions but that it remains viable as a consequence of the significant funds injected into the Company by the majority shareholders. Mr Liang has given evidence that he and Mr Shi 'are prepared to support [the Company] and ... have the financial resources to do so.'[40] It is submitted that the Company is not insolvent because it has been, and will continue to be, supported by the majority shareholders. Mr Liang also says that no creditor is pressing for payment of any debt. In particular, he suggests the amount of outstanding rent is exaggerated by Mr Lee and that there is an agreement in place with the Company's landlord to defer payment of an outstanding rental amount of approximately $53,000 until after the COVID-19 pandemic.

52 In relation to Mr Lee's claim for employment entitlements which total approximately $432,000, Mr Liang says Mr Lee was not paid for his initial work in the Company and that any payment of wages required shareholder approval in accordance with clause 7 of the Partnership Agreement. He says that Mr Lee specifically requested all shareholders not receive wages because his unemployment benefits would be affected. Instead, it was agreed that 10% of the Company's first year profits were to be awarded to him in lieu of wages (a term reflected in clause 16 of the Partnership Agreement). He also says Mr Lee did not make a demand for wages before he left the Company in February 2019. The defendants argue that the Court cannot make orders in this proceeding for the payment of entitlements to Mr Lee because he has not produced any agreement to support their payment; minutes of meeting of shareholders for approval of his wages under clause 7 of the Partnership Agreement; wage records; or other evidence to substantiate an assessment of the quantum claimed.

53 There are a number of problems with the defendants' evidence and submissions concerning the financial position of the Company.

54 First, given the Company's accumulated losses of $487,646.15 and the excess of liabilities of $486,646.15, as disclosed by financial statements for the financial year ending 30 June 2020, the Company is likely both cash flow and balance sheet insolvent. That has been the position for previous financial years also. Further, the figures in the Company's accounts do not include provision for rental arrears or Mr Lee's employment claims.

55 Secondly, whilst the ability of directors and shareholders to financially support a company may be relevant to an assessment of solvency,[41] and despite the plaintiff conceding that Mr Liang is very wealthy,[42] the nature and extent of the support offered by the majority shareholders is unclear. There is no evidence before the Court to explain the financial position of each of Mr Liang and Mr Shi to make good their assertion that they have the financial capacity to assist the Company in meeting its obligations going forward. They have not indicated they would forgive or defer the alleged loans owed to them to enable the Company to meet its liabilities to other creditors, such as its landlord. To the contrary, they have taken $539,000 out of the Company between April 2019 and December 2019 in purported repayment of the alleged loans. Regardless, the relative capacity of the majority shareholders to support the Company does not negate the principal arguments for its winding up.

56 Thirdly, Mr Liang's evidence regarding the amount of outstanding rent owed by the Company is inconsistent. In his affidavit of 5 February 2020, Mr Liang says the rental arrears owed by the Company at that time was $180,000 and that, following negotiations with the landlord, the Company will need to repay this amount by way of instalments. In his affidavit of 7 September 2020, Mr Liang appears to resile from his previous admission that $180,000 was owing to the landlord. He says the figure of $180,000 was problematic because the landlord was charging rent prior to the completion of the play centre and that the Company and the landlord have a 'mutual understanding' to resolve this issue in the future. Mr Liang further deposes that the only amount owing to the landlord is $53,094.95 as set out in a tax invoice issued to the Company on 16 August 2020. Mr Liang's attempt to explain the contradiction in his evidence is unsatisfactory. At its highest, his evidence can only suggest the Company and the landlord will revisit the payment of rental arrears at a future point in time. Further, the invoice relied upon by Mr Liang only provides for rent payable by the Company between 16 June 2020 and 15 September 2020. The figure claimed in that invoice does not include any rental arrears. Moreover, there is no evidence before the Court concerning the content of any negotiations between the Company and its landlord, including regarding the quantum or deferral of overdue rent. Mr Liang's assertions about those matters are non-specific and unhelpful. In the circumstances, I prefer the evidence of Mr Lee that rental arrears are at least $239,893.47 as at 31 March 2020. He has estimated that amount on the basis of actual rental payable under the lease dated 16 November 2016 in the sum of $190,000 per annum plus GST, allowing for a 3% increase each year, and comparing it to what rent has apparently been paid according to the Company's financial statements. Alternatively, the rental arrears are at least $180,000 as earlier conceded by Mr Liang and as accepted by the independent valuer in his report.

57 Fourthly, in the absence of compelling evidence, it is difficult to accept the defendants' submission that the Company has a positive future. There are no cash flow forecasts or business plans to support this view. It is notable that the independent expert was unable to assess the Company's value by reference to future cash flow because he was not provided with any prospective financial information about the Company. The ongoing economic effects of the COVID-19 pandemic also create significant uncertainty for the Company.

58 Lastly, whilst Mr Lee would ultimately need to establish his entitlement to unpaid wages and superannuation, it does not follow that such a claim should be ignored in considering the Company's financial position. The fact that Mr Lee is unable to produce wage records, in circumstances where he was never paid a wage, is unsurprising. Further, even in the absence of an employment agreement or wage records, there is nothing to prevent Mr Lee from bringing his claim on a quantum meruit basis. The defendants' reliance on an absence of shareholder approval for wages under clause 7 of the Partnership Agreement does not sit comfortably with the fact that Mr Liang was himself paid a wage and was ostensibly drawing a director's fee without any apparent shareholder approval. Notwithstanding the defendants dispute Mr Lee's employment claims, the claims likely represent contingent or prospective liabilities and are therefore relevant to an assessment of the Company's solvency in accordance with s 459D of the Corporations Act.

59 It follows that there is nothing about the Company's financial position which would constitute a restraint on the exercise of the Court's discretion to order a winding up.

60 Having regard to the entire history and circumstances of the Company, Mr Lee has a justifiable lack of confidence in the conduct and management of its affairs. That lack of confidence is shared by the Court. The Company's financial statements are intrinsically unreliable and it has failed to maintain books which properly record and explain its financial transactions. Large sums of money have left the Company's bank account and been remitted to the majority shareholders either as repayment of loans or reimbursement of capital. To the extent it is the latter, it is likely in breach of clause 6(v) of the Partnership Agreement. Regardless, the Company has been divested of hundreds of thousands of dollars instead of payment being made to the Company's landlord which is owed a significant amount in rental arrears. All of these matters tend in favour of a winding up order.

61 Moreover, the Court holds significant concerns about the capacity of the Company to keep members of the public (especially children) safe when attending the property. The evidence suggests the play centre has a poor record of injuries over a limited trading period and is inherently unsafe. The absence of public liability insurance throughout most of the period of the Company's operation is a serious indictment on its management and commercial morality. Mr Liang's approach, as director, to the conduct and management of the Company has been inattentive at best and cavalier at worst. The safety of the community is a paramount public interest which would be protected by the making of a winding up order in this case.

62 Whilst the Company's current financial position is certainly not positive, it is conceivable that its fortunes might recover following the COVID-19 pandemic. The winding up of the Company will also have a number of adverse consequences, including the termination of employment of a number of casual employees and the destruction of shareholder equity. However, to the extent the majority shareholders have already extracted equity from the Company, their prejudice may be less acute. Even though Mr Lee has a relatively small shareholding, he has an interest in the winding up of the Company because a liquidator may choose to investigate certain transactions and dealings Mr Lee has complained about and because Mr Lee may seek to prove in the winding up in respect of his employment entitlements. All of these matters are important and must be weighed in the balance. Ultimately, the relative justice of the case suggests the protection of the public should be accorded a greater importance. It is just and equitable that the Company be wound up and that its stewardship should pass to a liquidator.

63 Section 467(4) makes clear that even if the court is satisfied of circumstances which justify a winding up on the just and equitable ground, it must consider whether some 'other remedy' is available and whether an applicant is acting unreasonably in seeking to have the company wound up instead of pursuing the other remedy. The 'other remedy' referred to in s 467(4) is not restricted to a legal remedy but 'is to be understood in the wider sense of a course of action otherwise open to the party'.[43]

64 In Asia Pacific Joint Mining Pty Ltd v Allways Resources Holdings Pty Ltd,[44] McMurdo JA (with whom the rest of the Court agreed) explained the operation of s 467(4) in this way:

In my view, the reasonableness of the applicant's position is to be assessed by reference to the consequences of the events and circumstances upon which the application is founded and what is necessary to redress them. If they could be redressed only by a winding up, then the pursuit of a winding up order would not be unreasonable in the relevant sense. On the other hand, if there is an alternative remedy which would equally redress those consequences, then an applicant's preference for a winding up order would usually be considered to be unreasonable, because ordinarily the winding up of a solvent company will have far reaching effects.[45]

65 Here, an alternative remedy is the acquisition of the plaintiff's shares in the Company by the majority shareholders. They have made two open offers to acquire Mr Lee's interest in the Company. The first offer was for $50,000, with Mr Lee's rights otherwise reserved. The second offer was in the same terms but with an additional covenant by the majority shareholders to use their best endeavours to procure the release of Mr Lee from the guarantee given by him under the lease, or to indemnify him if that was not possible. Mr Lee has not accepted the defendants' offers.

66 In my view, the availability of the buy-out offers would not be effective in redressing the relevant events and circumstances which justify the making of a winding up order in this case. The extent of mismanagement of the Company and the degree of loss of confidence in the ability of those who control and conduct its affairs are such that confidence cannot be restored by an alternative remedy, such as a buy-out.[46] A winding up is also in the public interest and conducive to commercial morality. Neither of those aspects would be addressed by the majority shareholders' buy-out offers. The public would remain at risk. Further, the offers do not account for the value of Mr Lee's substantial monetary claims for employment entitlements which form part of this proceeding. Even though Mr Lee would apparently be free, under the terms of the offers, to pursue his employment claims, the evidence suggests that the Company does not have assets available to meet a judgment in any event.

67 It is submitted by the defendants that the reasonableness of Mr Lee's refusal to accept the offers to purchase his shares should be considered in the context of those shares having no commercial value. However, it is also arguable that the value assigned to the Company's shares by the independent valuer does not represent the true value of the shares because it fails to account for income streams under the arrangements with J Park Catering and Mootea, and the payments out of the Company of approximately $539,000 to the majority shareholders. Where an applicant is successful in demonstrating oppression under s 232 of the Corporations Act, the Court, in exercising its broad jurisdiction to grant relief under s 233, may determine a purchase price for a party's shares, adjusted to reflect any wrongdoing.[47] However, that would entail an extensive, expensive and time-consuming trial (noting that the defendants deny there has been any oppression). It is unlikely such an exercise would be consistent with the 'overarching purpose' set out in s 7 of the Civil Procedure Act 2010 (Vic) (the 'Civil Procedure Act'), namely to 'facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute'. That is particularly so given the Company appears to be insolvent and the costs expended by the parties may well be disproportionate to the complexity or importance of the issues and the amount in dispute for the purpose of s 24 of the Civil Procedure Act.

68 It is also suggested by the defendants that Mr Lee is motivated to reject the offers of settlement because he wishes to see the Company liquidated so he can buy its assets from a liquidator in a fire sale. There is no evidence to support this suspicion. Even if there was, it would not be improper for Mr Lee or any other shareholder to seek to salvage the assets of the Company in this way. What is important is that the affairs of the Company be brought under the independent control of a liquidator.

69 It follows that Mr Lee is not acting unreasonably in refusing to accept the defendants' offers to purchase his shares.

70 In the exercise of my discretion, I have determined to wind up the Company on the basis that it is just and equitable to do so. I will ask the plaintiff to prepare minutes of order to reflect these reasons and I will hear the parties on the question of costs.

[1] See Supreme Court of Victoria, Practice Note SC CC 8: Oppressive Conduct in the Affairs of a Company, 18 May 2018.

[2] See Affidavit of Philip Lee affirmed on 20 July 2020 and filed on 21 July 2020, Exhibit PI-2 (PKF Expert Report dated 19 May 2020).

[3] [1973] AC 360 ('Ebrahimi').

[5] Ibid. See also Australian Securities and Investment Commission (ASIC) v Kingsley Brown Properties Pty Ltd [2005] VSC 506, [96](Mandie J); Australian Securities and Investment Commission (ASIC) v Storm Financial Ltd (recs and mgrs. apptd) (admin apptd) [2009] FCA 269; (2009) 71 ACSR 81, [65] (Logan J); Australian Securities and Investments Commission (ASIC) v Letten (No 10) [2011] FCA 498, [12] (Gordon J) ('ASIC v Letten').

[6] ASIC v Letten [2011] FCA 498, [14] (Gordon J).

[7] [2012] NSWSC 775.

[9] Re Tivoli Freeholds Ltd [1972] VicRp 51; [1972] VR 445.

[10] Re Yenidje Tobacco Company Ltd [1916] 2 Ch 426; Johnny Oceans Restaurant Pty Ltd v Page [2003] NSWSC 952; Clarke v Bridges [2004] FCA 394; Booker v You Run the Business Pty Ltd [2008] FCA 1762.

[11] Nassar v Innovative Precasters Group Pty Ltd [2009] NSWSC 342; (2009) 71 ACSR 343.

[12] Loch v John Blackwood Ltd [1924] UKPC 45; [1924] AC 783, 788; Australian Securities and Investments Commission (ASIC) v ABC Fund Managers [2001] VSC 383; (2001) 39 ACSR 443, 469 [119] (Warren J) ('ASIC v ABC Fund').

1. [13] Macquarie Bank Ltd v TM Investments Pty Ltd [2005] NSWSC 608; (2005) 223 ALR 148 [11], [13] (Barrett J); Macquarie University v Macquarie University Union Ltd (No 2) [2007] FCA 844. See also B H McPherson, 'Winding Up on the "Just and Equitable" Ground' (1964) 27 Modern Law Review 282, 298-9.

[14] Australian Securities and Investments Commission (ASIC) v Barrack Mortgage Managers Pty Ltd [1999] NSWSC 272; Australian Securities and Investments Commission (ASIC) v Drury Management Pty Ltd [2004] QSC 068.

[15] Entwisle v Minken Pty Ltd (recs and mgrs apptd) (2013) 97 ACSR 361, 364 (Elliott J).

[16] Australian Securities and Investments Commission (ASIC) v AS Nominees Limited [1995] FCA 1663; (1995) 62 FCR 504, 532-3 (Finn J) ('ASIC v AS Nominees'); ASIC v ABC Fund [2001] VSC 383; (2001) 39 ACSR 443, 469 (Warren J); Australian Securities and Investments Commission (ASIC) v International Unity Insurance Pty Ltd [2004] FCA 1059 [137], [140]-[142] (Lander J).

[17] Deputy Commissioner of Taxation (Cth) v Casualife Furniture International Pty Ltd [2004] VSC 157; (2004) 9 VR 549, 580 [494]-[496], 582 [504] (Hansen J) ('DCOT v Casualife').

[18] ASIC v ABC Fund [2001] VSC 383; (2001) 39 ACSR 443.

[19] Re G Jeffrey (Mens Store) Pty Ltd (1984) 9 ACLR 193, 201; Re Docklands Chiropractic Clinic Pty Ltd [2020] VSC 364, [37]-[42] (Hetyey AsJ).

[20] B H McPherson (n 13) 283, quoting Pirie v Stewart (1904) 6 F. 847 (Lord Kinross).

[21] Re Walter L Jacob & Co Ltd (1988) 5 BCC 244, 251 (Nicholls LJ); ASIC v AS Nominees Ltd [1995] FCA 1663; (1995) 62 FCR 504, 530-1 (Finn J).

[22] [2017] VSC 14; (2017) 53 VR 520.

[23] Ibid 545 [89]. See also Re Dalkeith Investments Pty Ltd (1984) 9 ACLR 247.

[24] Australian Securities and Investments Commission v ActiveSuper Pty Ltd (No 2) [2013] FCA 234; (2013) 93 ACSR 189, 195 [24] (Gordon J).

[25] Re M'Donald Gold Mines Ltd (1898) 14 TLR 204.

[26] Re Rica Gold Washing Co [1879] UKLawRpCh 18; (1879) 11 ChD 36, 43 (Jessel MR); Bryanston Finance Ltd v de Vries (No 2) [1976] Ch 63, 75 (Buckley LJ).

[27] Re Wyndham Park Estate Pty Ltd [2019] VSC 92, [40] (Sifris J, as his Honour then was).

[28] ASIC v ABC Fund [2001] VSC 383; (2001) 39 ACSR 443, 470 (Warren J, as her Honour then was); ASIC v Sino Australia Oil and Gas Ltd [2016] FCA 201, [6] (Davies J).

[29] [1924] UKPC 45; [1924] AC 783.

[31] Galanopoulos v Moustafa [2010] VSC 380, [32] (Sifris J, as his Honour then was).

[32] Affidavit of Philip Lee affirmed on 20 July 2020 and filed on 21 July 2020, Exhibit PL-2 (PKF Expert Report) [5.6.3].

[33] See Affidavit of Philip Lee affirmed on 20 July 2020 and filed on 21 July 2020 [17].

[34] Having regard to the currency exchange rate stipulated in clause 6 of the Partnership Agreement of one Australian dollar equating to 5 Chinese Yuan.

[35] [1972] 2 NSWLR 22.

[37] Australian Securities and Investments Commission (ASIC) v Pegasus Leveraged Options Group Pty Ltd [2002] NSWSC 310; DCOT v Casualife [2004] VSC 157; (2004) 9 VR 549, 579 [488] (Hansen J).

[38] ASIC v Chase Capital Management Pty Ltd (2001) 36 ACSR 788, 793 (Owen J).

[39] See Affidavit of Philip Lee affirmed and filed on 22 October 2019 [6]; Affidavit of Philp Lee affirmed on 20 July 2020 and filed on 21 July 2020 [43].

[40] Affidavit of Xiaoxing Liang affirmed 4 September 2020 and filed 7 September 2020 [3].

[41] Re Cube Footwear Pty Ltd [2012] QSC 398; [2013] 2 Qd R 501.

[42] Affidavit of Philip Lee affirmed on 20 July 2021 and filed on 21 July 2020 [43].

[43] Host-Plus Pty Ltd v Australian Hotels Association [2003] VSC 145, [67] (Hanson J).

[44] (2018) 125 ACSR 227.

[46] See B H McPherson (n 13) 301, citing Re Newbridge Steam Laundry [1917] 1 I.R. 67, 92 (Ronan LJ); Re Martello & Sons [1945] 3 D.L.R. 626.

[47] Wain v Drapac (No 2) [2013] VSC 381.