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[2021] VSC 345
General information, not legal advice.
Supreme Court of Victoria
2021-06-15
Connock J
Original judgment source is linked above.
CORPORATIONS LAW - Appointment of provisional liquidators - General principles - Failed development venture - Section 472 of the Corporations Act 2001 (Cth) - Winding up on the just and equitable ground - Section 461(1)(k) of the Corporations Act 2001 (Cth) - Appointment of receivers to property and assets of trust - Risk of dissipation of trust property - Preservation and protection of trust property - Section 37 of the Supreme Court Act 1986 (Vic) - of the (Vic) - Appointments consented to by defendants.
TRUSTS AND TRUSTEES - Appointment of receivers to property and assets of trust - General principles - Failed development venture - Risk of dissipation of trust property - Preservation and protection of trust property - Section 37 of the Supreme Court Act 1986 (Vic) - Rule 39.02 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) - Appointments consented to by defendants - Usual undertaking as to damages given - Security under r 39.05 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) dispensed with - Proposed form of order.
1 By its summons filed 10 June 2021 the plaintiff seeks orders that Glenn Franklin and Jason Stone of PKF Melbourne (Franklin and Stone) be appointed:
(a) as joint and several provisional liquidators of the third defendant, DIP Gailey Road Pty Ltd (Company), pursuant to s 472 of the Corporations Act 2001 (Cth) (Act); and
(b) as receivers and managers of the property and assets of the GR Funding Trust (the Trust) pursuant to s 37 of the Supreme Court Act 1986 (Vic) and r 39.02 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) (Rules).
2 The Company and the Trust are the vehicles through which a failed student accommodation development project (Project) was to be undertaken on land purchased by the Company at 152-156 Gailey Road, St Lucia, Queensland (Land). The plaintiff invested $5,900,000 in the Project by purchasing shares in the Company and units in the Trust in response to an information memorandum issued by the Company and Dysin Investment Partners. Mr Jackie Chen and Mr Rufino Villaluz are the individuals behind the Project (and other projects) and were described in the information memorandum as the Managing Partners of Dysin Investment Partners, which was to be the 'Manager' of the Project.
3 The plaintiff relied upon the affidavits of: the plaintiff's director, Xinyan Cai affirmed 14 October 2020 and 7 December 2020; Joey Lin a consulting accountant, affirmed 16 December 2020; and Chenzi Dong, the plaintiff's solicitor, affirmed 26 May 2021. Mr Cai is the plaintiff's director and secretary.
4 The court was informed that the defendants supported and consented to orders being made as sought by the plaintiff.
5 For the reasons that follow orders should be made to the substantive effect sought by the plaintiff.
6 The information memorandum stated that it related to the offer of an interest in the DIP Gailey Road Pty Ltd syndicate and subordinated debt units in the funding Trust with the intention that the offer would raise a total of $5,900,000. The plaintiff paid the full investment amount of $5,900,000 in three payments (Investment Amount). It is not currently known with certainty by the plaintiff whether there were other third party investors, although on the evidence before the court it appeared as though there were not. If that is so, it appeared that the information memorandum contemplated the Investment Amount giving the plaintiff a 75% interest in the Project with Dysin Investment Partners, as Project Manager, being entitled to a 25% carried interest, in addition to management fees and other benefits.
7 The available information regarding the dealings to date with shares in the Company and the units in the Trust is not yet as clear as is desirable. That is no fault of the plaintiff. It appears that $2,301,000 of the Investment Amount resulted in the plaintiff being allotted 390 shares in the Company at $5,900 per share. Mr Cai's evidence was that the remaining 610 shares in the Company are in the name of the second defendant, DIP GR Funding Pty Ltd (Trustee), which is the trustee of the Trust. Mr Cai believes these were acquired for only $1.00 per share.
8 The remaining $3,599,000 of the Investment Amount was, it seems, applied against the acquisition by the plaintiff of 35,900 A class units in the Trust at $100 per unit. The units are the only A class units on issue and are said not to have any voting rights. The only other units of the Trust on issue are 120 ordinary units, which were issued to the first defendant for $120, being $1.00 per share. These units have the only voting rights.
9 The information memorandum contemplated the construction of a six-storey 90-bed student accommodation complex that was to be held for about five years after its construction and then sold. The document set out certain information regarding development costs and spoke of very favourable income and capital returns. These have not eventuated and the court was informed that the Project effectively stalled and failed after the planning phase. It is understood that there has been no development or construction on the Land.
10 The plaintiff is materially concerned. It does not know what has happened with the Project, or what has become of its $5,900,000 Investment Amount that was used to acquire the shares in the Company and the A class units in the Trust.
11 Having been unable to obtain satisfactory information from the Company or the (second defendant) Trustee of the Trust over an extended period, the plaintiff commenced this proceeding seeking access to books and records and other substantive relief. Shortly thereafter the court was informed by those acting for the defendants that various Trust records would be provided to the plaintiff, and orders were also made requiring the Company to make available for inspection by the plaintiff and its advisors the books and records of the Company. Further orders were made requiring the parties to file affidavits in respect of the 'critical' documents referred to in s 26 of the Civil Procedure Act 2010 (Vic) (CPA). Despite extensions of time for compliance having been given earlier this year, the court was informed that the defendants have still not provided the Trust documents, the Company has not yet fully made available its books and records, and that the defendants have not filed an affidavit in respect of the critical documents referred to in s 26 of the CPA. There was no evidence before the court giving any explanation as to why information has not been provided and why court orders have not been complied with.
12 By its amended originating process filed 28 May 2021 the plaintiff seeks an order that the Company be wound up on the just and equitable ground pursuant to s 461(1)(k) of the Act. By its summons filed 10 June 2021 it seeks orders appointing Franklin and Stone as provisional liquidators of the Company and receivers of the property and assets of the Trust.
13 The Project is not the only venture associated with Dysin Investment Partners that has run into difficulty. Another project with an apparently similar structure but relating to a property at 21-23 Anthony Street, Melbourne, is the subject of a separate proceeding in this court. I was informed that the plaintiff was also an investor in that project through Dysin Investment Partners and that Franklin and Stone were appointed provisional liquidators to the relevant company by orders of Garde J made in February 2021. I was told that the plaintiff appeared as a supporting creditor on that application.
14 Such information as has been able to be obtained by the plaintiff has been reviewed by Mr Lin, an accountant engaged by the plaintiff. Mr Lin's and other evidence, and Mr Lin's report, reveal a number of matters of concern, including the following:
(a) Poor record-keeping and incomplete or absent books and records of the Company and the Trust.
(b) The apparent absence of any bank account held by the Company at the time the Investment Amount was paid to it by the plaintiff in early 2018.
(c) The Company's only bank account appearing to have been opened in December 2018, with bank statements not recording the deposit of the plaintiff's Investment Amount, and recording only very few transactions notwithstanding the nature of the Project.
(d) An Australian Taxation Office refund of $81,676 having been paid into the Company's bank account in November 2019 and then transferred out almost immediately.
(e) The sole director of the Company and of the Trustee, Mr Villaluz, informing Mr Lin that investors' funds were not kept in the Company bank account but were kept in another bank account belonging to Dysin Investment Partners Pty Ltd and that this other account was used for mixed projects and not set up solely for keeping Company funds.
(f) Incomplete records appearing to record loans to seemingly related third parties, including: $2,386,095 to Dysin Investment Partners Pty Ltd; $8500 to East 68th Capital Pty Ltd; and $1,089,070 to 'Rush HQ', which was said to be a company associated with Mr Chen.
(g) Incomplete and unclear records which appear to suggest there are or have been substantial borrowings from non-bank entities, including: $2,338,450.89 from Latrobe Financial; $2,606,717.35 from Archery Capital; and $1,805,850 from Prime Capital. It is not known what these loans relate to and whether or not they have been repaid. It was also said that the loans sit in tension with aspects of the information memorandum because it contemplated funding by bank debt (at a loan to development ratio of 64.55%) but the loans referred to were from non-bank lenders that were likely to charge higher interest.
(h) The latest bank statement seen for the Company (October-November 2020) records a closing balance in the Company's only bank account of $9.95.
(i) No development or building having taken place on the Land.
(j) Incomplete records suggesting that there had been operating expenditure of $913,000 and $402,000 for development costs, but with little or no evidence of such payments or expenditure in the bank records for the only bank account held by the Company.
(k) The Land appearing to be the subject of various mortgages or other security interests.
15 The plaintiff's director, Mr Cai, is fundamentally concerned about the plaintiff's Investment Amount and what has become of it. Based on that which he has seen, the accountant, Mr Lin, echoes those concerns.
16 The defendants, which include the Company and the Trustee of the Trust, were represented at the hearing by their solicitor. He confirmed that the defendants support the application and consent to the appointment of Franklin and Stone as provisional liquidators of the Company and receivers of the property and assets of the Trust, and the making of the ancillary orders sought by the plaintiff.
17 Each of Franklin and Stone have executed consents to act as provisional liquidators of the Company and receivers and managers of the property and assets of the Trust. They have also declared that they are not aware of any conflicts of interest.
18 The principles regarding the appointment of a provisional liquidator and winding up a company on the just and equitable ground are well known and have been rehearsed in many cases. There was no dispute between the parties about them, and it is efficient and convenient to set out in almost identical terms the non-controversial summary recorded in the plaintiff's written submissions,[1] which I do below.
The Court may appoint a registered liquidator provisionally at any time after the filing of a winding up application and before the making of a winding up order or, if there is an appeal against a winding up order, before a decision in the appeal is made.
20 Generally, an applicant for the appointment of provisional liquidators must satisfy the court as to two matters:[2]
21 The principles relevant to an application to wind up a company on the just and equitable ground are well established:
(a) The classes of conduct which justify the winding up of a company on the just and equitable ground are not closed, and each application will depend upon the circumstances of the particular case.[5]
(b) A company may be wound up where there is 'a justifiable lack of confidence in the conduct and management of the company's affairs' and thus a risk to the public interest that warrants protection.[6]
(c) 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'.[7] There is thus a significant overlap between matters relevant to the just and equitable ground, and the matters which weigh in favour of the appointment of a provisional liquidator.[8]
(d) There are various reasons why a court may determine that there exists a risk to the public interest. A winding up order may be necessary to ensure investor protection, or where a company has not carried on its business candidly and in a straightforward manner with the public. Alternatively, it might be justified in order to prevent and condemn repeated breaches of the law. Again, there is an overlap between matters which would pose a risk to the public interest for the purpose of s 461(1)(k) and which are relevant to the appointment of a provisional liquidator.[9]
(e) A stronger case might be required where the company was prosperous, or at least solvent.[10] Solvency, however, is not a bar to the appointment of a liquidator on the just and equitable ground, particularly where there have been serious and ongoing breaches of the Act.[11]
22 As to the principles relevant to the appointment of provisional liquidators:
(a) The court may appoint a provisional liquidator on any ground.[12] The court has a wide discretion whether or not to appoint a provisional liquidator.[13] The power is by no means limited, the grounds for an appointment are infinite, and what has to be shown is that there is a bona fide application constituting sufficient ground for the making of the order.[14]
(b) The appointment of a provisional liquidator pending the determination of a winding up application will usually be a drastic intrusion into the affairs of the company and will not be done if other measures would be adequate to preserve the status quo.[15]
(c) An applicant must show some good reason for intervention prior to the final hearing of the wind up application; for example, that the appointment is needed in the public interest or to preserve the status quo or to protect the company's assets or affairs.[16]
(d) In ASIC v Solomon,[17] Tamberlin J referred to six matters that have been addressed in many later cases. They are:[18]
(i) The court should only appoint a provisional liquidator where it is satisfied that there is a valid and duly authorised winding up application and a reasonable prospect that the order will be made.
(ii) The fact that the assets of the corporation may be at risk is a relevant consideration.
(iii) The provisional liquidator's primary duty is to preserve the status quo to ensure the least possible harm to all concerned and to enable the court to decide, after further examination, whether the company should be wound up.
(iv) The court should consider the degree of urgency, the need established by the applicant creditor, and the balance of convenience. The power is a broad one and circumstances will vary greatly. Commercial affairs are infinitely complex and various and it is inappropriate to limit the power by restricting its exercise to fixed categories or classes of circumstances or fact.
(v) It may be appropriate to appoint a provisional liquidator in the public interest where there is a need for an independent examination of the state of accounts of the corporation by someone other than the directors.
(vi) Where the affairs of the company have been carried on casually and without due regard to legal requirements, so as to leave the court with no confidence that the company's affairs would be properly conducted with due regard for the interests of shareholders, it may be appropriate to appoint a provisional liquidator.
(e) Where an application is made and an appearance is filed in opposition, it has been said that the onus is not as heavy on the applicant.[19] The court takes into account the opportunity the opponent has of putting before the court any relevant factors as to why a provisional liquidator ought not to be appointed.
23 The observations of Kirby P in Constantinidis v JGL Trading Pty Ltd,[20] are also worth noting in the current context:
(1) A provisional liquidator is not automatically appointed by the court for the mere asking ... even when the company presents its own petition.
(2) A provisional liquidator may only be appointed after presentation of a duly authorised petition which must disclose a good ground for winding up ...
...
(4) Whilst the ultimate fate of the petition must be left to the court finally hearing the matter, a provisional liquidator will not usually be appointed unless it appears in the material that a winding up order is likely ... This presupposes that there should be adequate evidence adduced on an application for appointment of a provisional liquidator to show that a winding up is, in the absence of material to the contrary, likely.
(5) A company seeking the appointment of a provisional liquidator ... is in no way limited; ... The circumstances (which may constitute sufficient ground) under which a provisional liquidator may be appointed are infinite: Re Club Mediterranean Pty Ltd (1975) 11 SASR 481, 484 ... There is no reason why the public interest should not operate in favour of or against the making of an appointment in particular circumstances ...
(7) Whilst mere evidence of insolvency alone is usually insufficient to justify the appointment of a provisional liquidator at the instance of a creditor ... such evidence in the case of an application by a company may be sufficient to show that the application is bona fide and may be capable of constituting a 'sufficient ground' ...
24 It is also to be noted that the appointment of a provisional liquidator is an interlocutory process, which enables the court to vary the powers given.[21]
25 Section 37 of the Supreme Court Act 1986 (Vic) provides that a court may appoint, whether on an interlocutory or final basis, a receiver if it is 'just and convenient' to do so. Rule 39.02 of the Rules states that the court may also appoint a receiver at any stage of a proceeding.
26 Warren J (as she then was) addressed the general principles at length in Martyniuk v King & Ors.[22] The relevant section of Warren J's reasons read in part as follows:
14. The general legal principle is that if misconduct, waste, or improper disposition of assets or that a trust is in a state of disarray can be shown, or if it appears that the trust property has been improperly managed, or is in danger of being lost or if it can be satisfactorily established that parties in a fiduciary position have been guilty of a breach of duty there is a sufficient foundation for the appointment of a receiver: Kerr on Receivers, 17th Ed. at pp.13-14. It is further observed in Kerr (at 5):
"Object of appointment. A receiver can only be properly appointed for the purpose of getting in and holding or securing funds or other property, which the court at the trial, or in the course of the action, will have the means of distributing amongst, or making over to, the persons or person entitled thereto. The object sought by such appointment is therefore the safeguarding of property for the benefit of those entitled to it. "
15. As observed in Halsbury Laws of England 4th ed. (Vol. 39, para 827), the general ground on which the court appoints a receiver is ultimately in every case the protection or preservation of property for the benefit of persons who have an interest in it. The basis upon which a receiver may be appointed has been regarded by the courts on even as wide a basis as when the circumstances render it just and convenient: see Manchester and Liverpool District Banking Co v Parkinson [1888] UKLawRpKQB 198; (1888) 22 QBD 173, CA.
16. The court may appoint a receiver of trust property where that is necessary for the well being of the trust: see Ford & Lee, The Principles of the Law of Trusts (2nd ed) at [1739]. In Jacobs' Law of Trust in Australia (6th ed. at [2306]) the situation with respect to trusts is conveniently summarised:
"The court also has jurisdiction to appoint a receiver of the trust property. Although the case law predominantly is concerned with private trusts, the court may, on the application of the Attorney‑General, in appropriate circumstances appoint a receiver to a charitable trust. If the occasion for an appointment to the assets of a private trust is refusal by one or more of the trustees to act, the court will move if there is before it the consent of those trustees who are acting as such, and of the beneficiaries; but, it seems, the court will otherwise not intervene. A receiver may be appointed on the application of one of the trustees or of any beneficiary where the appointment is required for the safety of the trust property, the basis of the jurisdiction being the jeopardy of that property. Thus, an appointment may be made if the trustees fail to get in the trust property ... "
17. In Halsbury's Laws of Australia, Vol. 27 para. 430 the relevant principles are further summarised, as follows:
"The court may, on the application of a beneficiary or one of the trustees, appoint a receiver if the security of the trust property is in jeopardy. This may be so because:
(1) the affairs of the trust are in disorder and the appointment is necessary to secure continuity of management;
(2) the trustees cannot agree in circumstances which put the trust property in jeopardy;
(3) the trustees deny or dispute the trust;
(4) a trustee has died or is incapable, or for any other reason requiring the protection of trust property.
As receivership is equitable in nature, the remedy is flexible and can be moulded to the needs of the situation."
18. In Attorney General v Schonfield, Megarry VC said at 1187:
" ... the power to appoint a receiver is purely equitable in its origin; indeed it was one of the oldest remedies of the Court of Chancery. The remedy is one to be moulded to the needs of the situation: within proper limits, a receiver may be given such powers as the Court considers to be appropriate to the particular case."
19. A similar position was adopted in Attorney‑General v St Cross Hospital [1856] EngR 214; (1856) 8 De GM&G 38, 41-42; see, also, Picarda The Law Relating to Receivers, Managers and Administrators (2nd ed.) at 6 footnote 4.
20. Further, in Picarda it is observed (at 284):
"The equitable remedy of receivership is available against both executors and trustees where the circumstances make it appropriate. The criteria for the appointment of a receiver to displace these fiduciaries are almost identical. Primarily it is jeopardy or the risk of jeopardy that justifies an application to the court. Assessing the degree of jeopardy or risk involves a qualitative judgment. A proper case must be made out: the court will not dispossess an executor or a trustee of the trust estate in favour of a receiver on slight grounds. The testator or other creator of the trust is presumed to have known what he was about; and normally the court respects the expressed wishes as to who should administer the trust estate.
What then constitutes a proper case? The cases warrant the assertion that it should be a strong case, and it must be borne in mind that receivership is a drastic and not inexpensive remedy, with the possibilities of further expensive applications to the court for directions.
Misconduct is obviously a prime ground for the appointment of a receiver where the misconduct is sufficiently grave. A strong case is necessary. Where one of several executors or trustees is guilty of misconduct the court will not, as a general rule, appoint a receiver on the interlocutory application of the beneficiaries without the consent of all the other trustees, though it seems that the court might dispense with the consent of a trustee living abroad, or one who had practically ceased to act.
On the other hand wherever all the executors or trustees are, or a sole executor or trustee is, guilty of such conduct as to endanger the property, the court will appoint a receiver. Thus in Clarke v Heathfield (No 2) trustees of a trade union who were thwarting court orders and putting union funds to the jeopardy of substantial depletion were removed and replaced by an interlocutory receiver.
If part of a trust fund has been lost, that is prima facie evidence of a breach of duty by the trustee, sufficient to justify the interference of the court by the appointment of a receiver for the purpose of preserving the remainder of the fund on the interlocutory application of a beneficiary. The fact that a sole executor or trustee is under some personal disability or is of such a character as is likely to lead to the jeopardy of the trust fund is sufficient ground for the appointment of a receiver, as for example if he is of violent conduct and drunken habits. If the maladministration is sufficiently serious the absence of any corrupt motive is by the by. Thus in Whitehead v Bennett a sole trustee who had been guilty of improvident expenditure and wilful waste in converting farming lands into a race course was guilty of conduct justifying his replacement by a receiver."
21. Further, s.37(1) of the Supreme Court Act 1986 (Vic) empowers the court to appoint a receiver when it is "just and convenient" to do so. In National Australia Bank Limited v Bond Brewing Holdings Limited [1991] 1 VR 259 at 539 the Appeal Division of the Supreme Court of Victoria said:
"The appointment of a receiver is one of the oldest remedies of the Court of Chancery, and a very useful remedy it is. But its very efficiency means that a corresponding caution must attend its employment. Where a receiver is sought to protect property of which no one is in actual possession, no one will be ousted by the appointment and probably no great harm will be done."
"The result of the authorities is that it may not now be possible to state with confidence the limits of the power to grant injunctions. But we would say that, just as an injunction may be granted for the protection of some legal or equitable right where no lesser remedy will meet the case, so may a receiver be appointed."
23. Halsbury's Laws of England, 4th Ed. Vol. 39, paragraph [831] states:
"A receiver is also appointed on the application of any beneficiary if the appointment is required for the safety of the trust property or the due administration of the trust, but not otherwise.
...
The safety of the trust property and the due administration of the trust are deemed to be imperilled where the trustee has been guilty of losing or wasting or neglecting the trust property or improperly disposing of it or of some other breach of trust, or becomes a bankrupt or insolvent, or is out of the jurisdiction or is guilty of gross misconduct.
...
A receiver may also be appointed where a trustee undertakes an obligation inconsistent with his duty as such, or where co-trustees disagree among themselves or act separately."
...
27. It is a well established principle that receivership is a last resort measure. In National Australia Bank Limited v Bond Brewing Holdings Limited, supra, the Appeal Division of the Supreme Court of Victoria observed (at 540):
"Of course in a strong enough case the court might, without warning to a trading company, divest it of control of its undertaking and assets. But it must always be borne in mind that the appointment of a receiver in such a case authorises an irresistible invasion and that even if the army of occupation is withdrawn after only a short time things may never be the same again. Rights of property and the company's privacy are violated. Only the most pressing need can warrant such an invasion without notice. Quite apart from the taking out of the companies' hands of control of their assets and the management of their businesses, there was in the present case the added consideration (which will not infrequently be present where a receiver is appointed to a company) that the making of the order might well have most serious legal consequences for the companies or for related companies having regard to the terms of securities given by them. An addition to the legal consequences there was the commercial consideration that, as Picarda, Receivers and Managers, p.4, has observed, the receiver often seen not as the company doctor but as the undertaker, so that a blow is struck to the standing and credit of the defendants.
In the present case the order sought, although interim or interlocutory, was one with extremely grave consequences for the defendants. Putting to one side a winding up order, which will in the normal course ultimately result in a company's being given its quietus, we cannot for the moment think of an order of greater consequence to a company than one which, until further order, robs it of its control over its own assets and business.
No court will make such an order unless convinced of its necessity. A case for some kind and degree of interlocutory relief may be made out which falls short of this extremely drastic remedy; for example, the court may not be satisfied ‑ and it is of course for the applicant to persuade the court that nothing less than what he seeks will do ‑ that in all the circumstances it should do more than grant an injunction. At times the court will be induced to refuse the remedy of a receiver by undertakings offered by the defendant."
28. The Appeal Division in Bond considered (at 541) the American position in relation to the appointment of a receiver and observed that it is a power that is "drastic, harsh and dangerous ... " and is to be exercised only " ... with utmost care and caution and only where the court is satisfied there is imminent danger of loss if it is not exercised".
29. Further in the judgment the Appeal Division considered the way in which a court should exercise the discretion (at 541-542):
"There has been a good deal more discussion of considerations bearing on the exercise of the discretion to appoint a receiver in the United States of America than elsewhere. According to 65 American Jurisprudence 2d, para. 20, the effect of the authorities is as follows: 'A court in exercising its discretion to appoint or refuse a receiver must take into account all the circumstances and facts of the case, the presence of conditions and grounds justifying the relief, the ends of justice, the rights of all the parties interested in the controversy and subject matter, and the adequacy and effectiveness of other remedies. This discretion is to be exercised with great caution and circumspection, after full consideration of the facts of a particular case and the interests of all parties concerned, for a reason strongly appealing to the judge to whom the application is made.'
The appointment of a receiver should be denied where it is likely to do irreparable injury to others, or where greater injury will probably result from the appointment than if none were made."
Appointment of Franklin and Stone as provisional liquidators of the Company
27 An application to wind up the Company having been filed by way of the plaintiff's amended originating process, it was common ground that the court's power to appoint a provisional liquidator under s 472(2) of the Act is enlivened. The issue for determination is whether the court should exercise its discretion in favour of the appointment of Franklin and Stone as provisional liquidators of the Company. The fact that the defendants all consent to the appointment and related orders does not relieve the court of its judicial obligations and function in the exercise of its discretion.
28 Having regard to the evidence and the applicable principles earlier referred to I am satisfied that there is at least a reasonable prospect that a winding up order will be made and that there exist factors sufficient to require the exercise of the court's discretion to appoint Franklin and Stone as provisional liquidators prior to the final hearing of the application to wind up the Company on the just and equitable ground.
29 That there is at least a reasonable prospect that the Company will be wound up on the just and equitable ground is supported by many matters. It is sufficient to mention the following.
30 First, it appears that the sole venture for which the Company was established has stalled and failed.
31 Second, having regard to the plaintiff's inability to establish what has been occurring, the Company's ongoing failure to address information requests and orders requiring the provision of information, and the matters identified by Mr Lin, there is at least a reasonable prospect that it will be established that there is a justifiable lack of confidence in the conduct and management of the Company's affairs, and a risk to the public interest warranting protection.
32 Third, it appears that the Company has no ongoing business that could or might be jeopardised by the appointment and it seems that there is no goodwill that might be adversely affected or lost.
33 Fourth, on the information currently before the court there appear to be at least material concerns regarding the Company's solvency. I refer in this regard to Mr Lin's observations regarding the bank account and bank statements, the incomplete records regarding loans from non-bank lenders, the mortgages, and the apparent related party transactions.
34 Fifth, the current application was supported by the Company in circumstances where it was known by the Company through its advisers that it is necessary to establish that there is a reasonable prospect of the Company being wound up. It may be inferred that the Company itself considers that there is at least such a reasonable prospect in circumstances where it can only be the sole director, Mr Villaluz, who is providing instructions and he may be presumed to have the greatest knowledge regarding the Company's affairs. That said, even if this is put to one side and the Company is presumed to be solvent, the first three matters referred to above provide a sufficient basis to be satisfied that it is at least likely that a winding up order will ultimately be made in respect of the Company in any event.
35 That there exist factors sufficient to require the exercise of the court's discretion to appoint Franklin and Stone as provisional liquidators is readily apparent from the above discussion regarding the likelihood of the Company ultimately being wound up on the just and equitable ground. I elaborate further below.
36 It is clear on the evidence that the application is bona fide and made for a proper purpose. The plaintiff invested almost $6 million in a project that has failed and does not know what has become of his investment or what has occurred over time with the Project. Further, the sole purpose of the Company's venture has failed and there is no ongoing business of the Company that can be jeopardised by the appointment of a provisional liquidator, nor, it seems, any goodwill that might be adversely impacted. The Company did not seek to suggest otherwise.
37 It is apparent from the evidence that there is a basis for material concern regarding the books and records of the Company and what has become of Company funds, including the whole or a substantial part of the plaintiff's Investment Amount. Further, even on the limited information that has been able to be obtained to date, Mr Lin has identified a number of irregularities and concerns. The Company's history of dilatory and inadequate document production also remains of concern, given the period of time over which information has been sought and the absence of any satisfactory explanation for the failure to provide sufficient information or comply with court orders.
38 Next, there was no suggestion by the Company itself, which was represented at the hearing, that some less 'drastic' measure is open or available to adequately protect the position or preserve the status quo. As I have said, the Company also supports the appointment.
39 It is clear that there is good reason for intervention and that the appointment of Franklin and Stone as provisional liquidators is needed to protect the Company's assets and affairs and is in the public interest. It appears that such assets as there may be remain at risk, and on the evidence there can be no doubt that there is a need for an independent examination of the state of the accounts and the affairs of the Company by someone other than the sole director of the Company. Further, the evidence suggests that the affairs of the Company may have been carried on more than casually, and potentially without regard to legal or other requirements, so as to leave the court in a position where it can have no confidence that the Company's affairs will be properly conducted with due regard for the interest of its shareholders or any creditors. It is also to be remembered that the Company's sole director is one of the two managing partners of Dysin Investment Partners and one of the two key people involved in bringing the 'opportunity' to the plaintiff, such opportunity now having stalled and failed.
40 I also accept that it is appropriate and in the public interest that Franklin and Stone, as independent provisional liquidators, investigate the Company's affairs and report back to the court as to their findings, and their opinions regarding potentially impugnable transactions.[23]
Appointment of Franklin and Stone as receivers of the property and assets of the Trust
42 The application was brought by the plaintiff who the evidence reveals is the main unit holder in the Trust and the only unit holder that appears to have contributed substantial funds to the Trust in return for its units, being a sum in excess of $3,500,000. It is far from clear what has become of these funds or any other Trust property, and the plaintiff has not been able to obtain sufficient meaningful information from the Trustee regarding the Trust property despite repeated and consistent attempts to obtain such information and the existence of court orders relating to the same. That this is so and has been left unexplained is most unsatisfactory.
43 On the evidence before the court it does appear that Trust property may have been improperly managed, or that it has been or is in danger of being lost. I refer in this regard to the matters of concern set out above in connection with the application to appoint Franklin and Stone as provisional liquidators of the Company, and particularly those matters relating to the plaintiff's Investment Amount. Given the evidence of Mr Cai and Mr Lin, and that which is raised in Mr Lin's report, it is apparent that it is just and convenient to appoint receivers to the property and assets of the Trust because it is necessary for the protection and preservation of the Trust property and for the wellbeing of the Trust.
44 That this is so is also at least inferentially supported by the defendants supporting and consenting to the proposed appointment, noting in this context that the first defendant is on the evidence the only other unit holder in the Trust, and the second defendant is the Trustee of the Trust. The sole director of each of these parties is Mr Rufino Villaluz. Given the involvement of Mr Villaluz as one of the Managing Partners of Dysin Investment Partners, and what was to be his management role in connection with the Project as recorded in the information memorandum, it is also the case that there is a need for someone impartial and independent to step in, in the interests of the Trust and its unit holders.
45 Whilst it is well accepted that the court should proceed with caution before appointing receivers, such caution has been exercised in reaching the conclusion that I have. There is a clear and demonstrated need for the appointment of receivers so as to protect and preserve such of the property of the Trust as has not already been dissipated. It also appears that there is no ongoing project, business or goodwill that could be jeopardised by the proposed appointment.
46 Further, counsel for the plaintiff has proffered the usual undertaking as to damages on behalf of the plaintiff in relation to the making of the orders sought. I also propose to make the appointment order subject to further order and to grant liberty to apply to any person, who can demonstrate a sufficient interest, upon the giving of at least three days' written notice.
47 Although counsel for the plaintiff properly raised the issue of some apparent delay in bringing the application, such delay was not a concern for the defendants and does not weigh heavily on the balance in this case in any event. It is apparent that the plaintiff acted sufficiently promptly and took various steps to preserve and protect the Trust property by seeking to obtain information prior to making the application now under consideration. Those consistent attempts having failed explains in large part why the application now made was not made earlier. Further, the application is supported by the Trustee, whose sole director is Mr Villaluz.
48 Finally, in the particular circumstances of this case I accept the plaintiff's submission that, on balance, it is appropriate to dispense with the requirement in r 39.05 of the Rules that Franklin and Stone give security of the kind referred to in that rule. Messrs Franklin and Stone are registered liquidators who are required to and, I was informed, maintain insurance, and who are subject to various obligations under the Act. Their appointment without security is sought and supported by the Trustee and the only unit holders in the Trust, including the plaintiff who has made the most significant financial contribution to the Trust. In the circumstances, and given the likely limited role of the receivers as a result of the stalled and failed Project and the absence of any ongoing business, the existence of the usual undertaking as to damages proffered by the plaintiff, and what I infer is the potential to jeopardise the appointment if security is required, compliance with r 39.05 is dispensed with.[26] It will be recalled, however, that the orders are subject to further order and that liberty to apply will be reserved for anyone demonstrating a sufficient interest to vary or discharge these orders upon the giving of at least three days' written notice.
49 For the reasons referred to above it is appropriate to appoint Messrs Franklin and Stone as provisional liquidators of the Company and as receivers of the property and assets of the Trust.
50 Subject to addressing the final form of the orders with the parties, it is proposed to make orders to the effect set out below.
(1) Pursuant to s 472(2) of the Corporations Act 2001 (Cth) (Act), Glenn Jeffrey Franklin and Jason Glenn Stone are appointed jointly and severally as provisional liquidators of DIP Gailey Road Pty Ltd (ACN 622 773 577) (Company).
in the name of or on behalf of the Company, its officers, employees or agents or any of them;
(4) By 4pm on 21 June 2021 the Company must deliver up to the provisional liquidators the property held by the Company and the books and records which relate to the Company and its property.
(5) The provisional liquidators shall, by 15 September 2021, provide to the Court a report as to the provisional liquidation of the Company, including as to:
(6) Pursuant to s 37(1) of the Supreme Court Act 1986 (Vic), Glenn Jeffrey Franklin and Jason Glenn Stone are appointed receivers and managers (Receivers) of the property and assets of the GR Funding Trust (Trust).
(7) The Court shall determine the remuneration of the Receivers.
(8) The Receivers have, in respect of the property and assets of the Trust, the powers that a receiver has in respect of the business and property of a company under s 420 of the Act and the power to apply to the Court for directions or further orders.
(9) By 4pm on 21 June 2021 the Trustee of the Trust, DIP GR Funding Pty Ltd, must deliver up to the Receivers the property held by the Trust and the books and records which relate to the Trust and its property.
(10) The requirements of r 39.05 of the Supreme Court (General Civil Procedure) Rules 2015 are dispensed with.
(11) The plaintiff's costs of and incidental to this application be paid in priority from the property of the Company and the Trust.
(12) There be liberty to apply to any person who can demonstrate sufficient interest to modify or discharge these orders on not less than 72 hours' written notice to the plaintiff.
[1] Which it became apparent was drawn from a submission drafted by different counsel in a related matter.
[2] ASIC v ActiveSuper Pty Ltd (in liq) (No 2) [2013] FCA 234; (2013) 93 ACSR 189 (ASIC v ActiveSuper (No 2)) at [15] and [25] per Gordon J; see also Re IPO Wealth Holdings No 2 Pty Ltd [2020] VSC 549 (IPO Wealth) at [33] per Robson J.
[3] Tickle v Crest Insurance Co of Australia Ltd (1984) 2 ACLC 493, 494; Australian Securities Commission v Solomon & Ors (1996) 19 ACSR 73, 80 ('ASIC v Solomon'); ASIC v ActiveSuper (No 2) at [15] and [25]; IPO Wealth at [33].
[4] ASIC v ActiveSuper (No 2) at [25]; IPO Wealth at [33].
[5] ASIC v ActiveSuper (No 2) at [19] and the authorities there cited; IPO Wealth at [35].
[6] ASIC v ActiveSuper (No 2) at [20], citing Loch v John Blackwood Ltd [1924] UKPC 45; [1924] AC 783, 788; IPO Wealth at [36].
[7] Galanopoulos v Moustafa [2010] VSC 380 at [32]; see also ASIC v ActiveSuper (No 2) at [21] and the authorities there cited; IPO Wealth at [37].
[8] ASIC v ActiveSuper (No 2) at [22].
[9] ASIC v ActiveSuper (No 2) at [23] and the authorities there cited; IPO Wealth at [38].
[10] ASIC v Kingsley Brown Properties Pty Ltd [2005] VSC 506 at [96]; IPO Wealth at [39].
[11] ASIC v ABC Fund Managers [2001] VSC 383; (2001) 39 ACSR 443 at [124]-[130]; see also ASIC v ActiveSuper (No 2) at [24]; IPO Wealth at [39].
[12] ASIC v CME Capital Australia Pty Ltd [2015] FCA 1489 per Moshinsky J at [15].
[13] Re Huntford Pty Ltd (1993) 12 ACSR 274, 277.
[14] Re New Cap Reinsurance Corporation Holdings Ltd [1999] NSWSC 536; (1999) 32 ACSR 234 at [23]; see also ASIC v ActiveSuper Pty Ltd (in liq) (No 2) at [11]-[12]; IPO Wealth at [40(a)].
[15] Lubavitch Mazel Pty Ltd v Yeshiva Properties No 1 Pty Ltd [2003] NSWSC 535; (2003) 47 ACSR 197 at [105]; see also ASIC v ActiveSuper (No 2) at [13] and the authorities there cited; IPO Wealth at [40(b)].
[16] Allstate Exploration NL v Batepro Australia Pty Ltd [2004] NSWSC 261 at [30]; ASIC, in the matter of Bennett Street Developments Pty Ltd v Weerappah (No 2) [2009] FCA 249 at [8]; ASIC v ActiveSuper (No 2) at [14]; IPO Wealth at [40(c)].
[17] ASIC v Solomon (1996) 19 ACSR 73, 80.
[18] ASIC v ActiveSuper (No 2) at [16]; IPO Wealth at [40(e)].
[19] Riviana (Aust) Pty Ltd v Laospac Trading Pty Ltd (1986) 10 ACLR 865, 866 per Young J; see also ASIC v ActiveSuper (No 2) at [18] and the authorities there cited; see also ASIC v CME Capital Australia Pty Ltd [2015] FCA 1489 at [20].
[20] (1995) 17 ACSR 625 at 636. As Kirby P observed, these were drawn from the reasons of Master Lee (as Lee J then was) in Re McLennan Holdings Pty Ltd (1983) 7 ACLR 732, which Kirby P was 'content to accept'.
[21] Ryan; re Exception Finance Pty Ltd (2006) 57 ACSR 172.
[22] [2000] VSC 319 (citations omitted). See also Yunghanns v Candoora No 19 Pty Ltd (No 2) [2000] VSC 300, [64]-[82] (Warren J).
[23] See ASIC v Tax Returns Australia Dot Com Pty Ltd [2010] FCA 715 per Dodds-Streeton J at [86].
[25] [2000] VSC 300; 35 ACSR 34, [64]-[83]. And taking into account considerations of the kind referred to by the Court of Appeal in National Australia Bank Limited v Bond Brewing Holdings Ltd [1991] VicRp 31; [1991] 1 VR 386.
[26] See also Sapphire (SA) Pty Ltd v Ewens Glen Pty Ltd (No 2) [2011] FCA 714 (Besanko J) and Re Western Port Holdings [2017] VSC 280 (Kennedy J) - but noting that here Franklin and Stone are not being appointed as provisional liquidators of the Trustee, but of the Company.
(1975) 11 SASR 481