Protocom Holdings Pty Ltd v Kent St Chambers Pty Ltd; In the Matter of Kent St Chambers Pty Ltd

The Relevant Facts 6 Kent was first registered on 8 July 2013. At that time, its directors were Adam Gulfam Ahmed and Terence Anthony Clee. Its registered office was care of Mr Ahmed at Unit 523, 66 Mt Alexander Road, Travancore Vic 3032. Its principal place of business was c/- Hemsley Lawyers at Level 6, 447 Kent Street, Sydney, NSW, 2000. Mr Ahmed was the principal of Hemsley Lawyers and Mr Clee was involved in the business of Hemsley Lawyers. 7 Both Messrs Ahmed and Clee resigned as directors of Kent on 25 November 2014. As I have already mentioned, Kent currently has no directors. 8 The issued capital of Kent at the time of its registration was 10,000 ordinary shares. 9 At the present time, Protocom is the only shareholder of Kent. It holds the entire issued capital of Kent. 10 Shortly after Kent was first registered, on 11 July 2013, Protocom and three other companies, Kent St Chambers Holdings Pty Ltd (ACN 164 703 593) (KCH), Size 5 Foot Pty Ltd (ACN 164 697 269) (S5) and TACT ON KENT Pty Ltd (ACN 164 701 642) (Tact) entered into a Shareholders' Agreement designed to govern the way in which the affairs and business of Kent would be conducted. The original shareholdings were to be as follows: Protocom - 3,500 shares; S5 - 2,250 shares; Tact - 2,250 shares; and KCH - 2,000 shares. 11 Mr Ahmed controlled S5. Mr Clee controlled Tact. KCH was in the joint control of Messrs Ahmed and Clee. 12 Under the Shareholders' Agreement, Kent was to operate a business described in the Agreement as a "serviced offices and virtual office business". 13 Protocom is, and at all relevant times, has been, the registered proprietor of certain office premises comprising Suites 401 and 601 at 447 Kent Street, Sydney, NSW, 2000 (the Kent St premises). 14 Between July 2013 and 25 November 2014, Kent conducted its business from the Kent St premises. 15 Kent leased the whole of the Kent St premises from Protocom. It then sublet or licensed office space at those premises to third party subtenants or licensees for a fee. In the period prior to 24 November 2014, Hemsley Lawyers was one such subtenant or licensee. 16 By December 2014, Kent had been in arrears of rent since 1 July 2014. 17 On or about 24 November 2014, Protocom took possession of the Kent St premises and locked Kent out of those premises. Messrs Ahmed and Clee then tried to re-enter possession of the Kent St premises. Faced with that circumstance, Protocom commenced proceedings in the Supreme Court of New South Wales on or about 25 November 2014 against Messrs Ahmed and Clee claiming possession of the Kent St premises and ancillary relief designed to prevent Messrs Ahmed and Clee from re-entering those premises. It also claimed damages for trespass. 18 On 25 November 2014, both Messrs Ahmed and Clee resigned as directors of Kent. 19 On 25 November 2014, Mr Clee prepared, signed and lodged an ASIC Form 484 in respect of Kent. By that document, he informed ASIC that, on 25 November 2014, S5, Tact and KCH had ceased to be shareholders in Kent and that Protocom thereafter owned all of the shares in Kent. The form suggested that there had been a transfer from each of S5, Tact and KCH of their shares in Kent to Protocom, although there was no direct evidence of this. 20 In his affidavit, Mr Lo said that he was unaware that Mr Clee had lodged that form until early December 2014. 21 On 26 November 2014, Protocom obtained interim relief from the Supreme Court by which Messrs Ahmed and Clee were effectively excluded from the Kent St premises for the time being. 22 On 19 January 2015, the Supreme Court proceedings were settled upon the basis that Protocom would retain exclusive possession of the Kent St premises and that Messrs Ahmed and Clee would be permanently restrained from entering those premises. 23 In the meantime, on or about 8 December 2014, Protocom served upon Kent a Creditor's Statutory Demand for Payment of Debt under s 459E(2)(e) of the Act requiring payment of outstanding rent and interest totalling $94,161.41. The validity of that claim was verified by an accompanying affidavit affirmed by Mr Lo. 24 The Creditor's Statutory Demand was served at the registered office of Kent, being care of Mr Ahmed at the Travancore property. The envelope containing the Demand was returned unopened to Protocom's solicitors on or about 24 December 2014. 25 From 1 January 2015, rent relating to the first half of 2014, which had previously been deferred, began to fall due. The deferred rent accrued at the rate of $11,091.67 per month. In total, there was six months' deferred rent all of which has now fallen due. 26 On 8 January 2015, Mr Ahmed signed a letter which he lodged with ASIC by which he withdrew his consent for the registered office of Kent to be at the Travancore property. 27 Mr Lo testified that he is not prepared to be a director of Kent. He has also mentioned the existence of an audit of Kent currently being undertaken by the ATO. 28 The evidence before me established that, on 16 February 2015, the solicitors for Protocom sent to the last known address of each of Mr Ahmed and Mr Clee and to the registered office of each of S5, Tact and KCH by way of service a copy of Protocom's Originating Process and a copy of Mr Lo's affidavit. Copies of those documents were also sent to Messrs Ahmed and Clee by email. Copies of those documents were also served upon Diamond Conway, Lawyers. That firm had acted for Messrs Ahmed and Clee in the Supreme Court proceedings instituted by Protocom against them. However, that firm does not act for them in relation to this proceeding. Personal service of the Originating Process and the affidavit of Mr Lo was effected upon Mr Clee on 25 February 2015. 29 In addition, the solicitors for Protocom served a copy of the Originating Process upon the ATO. Service was effected on or about 19 February 2015. 30 On 23 February 2015, notice of Protocom's application for a winding up order was published on the ASIC website as required by s 465A(c) of the Act and reg 5.4.01A of the Corporations Regulations 2001 (Cth). 31 ASIC was formally notified of Protocom's application to wind up Kent on or about 13 February 2015 when Protocom lodged with ASIC a duly completed ASIC Form 519. 32 Brent Kijurina of Hall Chadwick, Chartered Accountants, has consented to be appointed as the sole liquidator of Kent. An appropriate Consent was filed on 2 March 2015. 33 In the period from 24 February 2015 to 10 March 2015, emails and correspondence were exchanged between Mr Clee and Mr Ahmed, on the one hand, and Mr Lo and Protocom's lawyers, on the other hand. 34 It is not necessary to traverse the substance of these communications in any detail. It is sufficient for present purposes if I note the following matters: (a) It appears from the evidence that the ATO notified Kent by letter dated 13 November 2014 that it had commenced a tax audit of Kent. The audit was to initially cover, but would not be limited to, the tax periods from 1 October 2013 to 30 September 2014. It appears that the ATO suspected that Kent may have understated its income in its Quarterly Business Activity Statements and its Income Tax Returns. (b) A further letter was sent by the ATO to Kent on 22 December 2014. (c) When the Originating Process and the affidavit of Mr Lo were served upon Mr Clee, he sent an email to Mr Lo. That email was sent on 24 February 2015 at 8.30 pm. In that email, Mr Clee accused Mr Lo of wanting to wind up Kent in order to avoid the consequences of the ATO audit. Mr Clee chastised Mr Lo for not answering the earlier correspondence received from the ATO. By the time that Mr Clee sent that email, the ATO had sent a further letter to Kent dated 16 February 2015 to which was attached a Notice pursuant to s 353-10 of Sch 1 to the Taxation Administration Act 1953 (Cth). (d) On 1 March 2015, Mr Ahmed also sent an email to Mr Lo in which he asserted that he was taking active steps to avoid prosecution for Mr Lo's actions. In his email, Mr Ahmed recorded that the claim for rent by Protocom was very much in dispute and that the Creditor's Statutory Demand was based upon a debt which was in dispute. (e) Further correspondence between Messrs Clee and Ahmed and the solicitors for Protocom ensued. In that correspondence, both Mr Ahmed and Mr Clee suggested repeatedly that Protocom's ultimate motive in bringing the present proceeding was to subvert the audit being conducted by the ATO. 35 The evidence establishes that Protocom ensured that the Originating Process was served upon the ATO soon after this proceeding was commenced. Further, in early March 2015, the ATO was in communication with Protocom's lawyers concerning information about the affairs of Kent for which the ATO was then searching. 36 There is no doubt that the ATO was made aware of Protocom's application to wind up Kent as soon as the present proceeding was commenced. Notwithstanding that it was made aware of that application, the ATO chose not to attend at Court when the matter was returned before the Court on 12 March 2015. Further, despite the accusations made in correspondence and in emails and the acrimonious tenor of the communications between Mr Ahmed and Mr Clee, on the one hand, and Mr Lo and Protocom's lawyers, on the other hand, neither Mr Ahmed nor Mr Clee appeared upon the return of Protocom's Originating Process. There is no doubt that both Mr Ahmed and Mr Lo were aware that Protocom had commenced the present proceeding and of the date when it was to be returned before the Court (12 March 2015). 37 At 10.52 pm on 11 March 2015, Mr Clee sent an email to the Registry. That email was in the following terms, omitting formal parts: Dear The Hon Justice Foster, Re: NSD115/2015 Protocom Holdings v Kent St Chambers - before your honour for directions on Thursday 12 March 2015 at 9:30am Please note that I have copied Mr Ben Beukes of Streeter Law (for Protocom Holdings) in to this email and I trust that Mr Beukes will also raise this email to your honour's attention. Your honour, I thought it necessary to write to you as I am uncertain why I have been served documents in this matter. I have not been involved with Kent St Chambers in any way since November 2014, in particular: 1) I wish to advise that myself and my family company were served documents in relation to this matter. 2) I am not a director nor am I a shareholder. My family company is not a shareholder. 3) A company that ASIC is deregistering was also served. 4) I am uncertain of whether the plaintiff has also attempted to serve the other former director, but as far as I am aware he is not a director and not a shareholder either and has not been involved in any way since November 2014. 5) The solicitors for Protocom Holdings Pty Ltd wrote to me in late 2014 advising me and the other former director that we had no standing in relation to Kent St Chambers. As far as I am aware, there is only one company involved in Kent St Chambers - this company is Protocom Holdings Pty Ltd which owns 100% of the shares. Therefore, it is Mr Lo (and his family) who are 100% shareholders of Protocom Holdings Pty Ltd and 100% shareholders of Kent St Chambers Pty Ltd. As far as I am aware, Jason Lo is the only remaining director of Kent St Chambers, as he was at all times a shadow director within the meaning of the Corporations Act and remained as such after the resignation of myself and the other former director. As far as I am aware, Kent St Chambers is currently under investigation by the ATO and has tax liabilities owing. We offered to assist Jason Lo in resolving these tax issues. Unfortunately, he rejected our offer of assistance and instead sought permanent injunctions against us to prevent us being involved. I understand the Assistant Commissioner of Taxation is involved in the audit of Kent St Chambers. Yours faithfully, Mr Terence Clee [contact details omitted] 38 I propose to treat this email as a submission and not as evidence. In his email, Mr Clee did not oppose Protocom's application to wind up Kent. He said nothing at all about that application.

Consideration 39 As is obvious from the above recitation of the relevant facts, I am satisfied that the substance of Protocom's present claims was brought to the attention of the ATO, Mr Ahmed and Mr Clee well before Protocom's Originating Process was returned before the Court on 12 March 2015. Notwithstanding that each of Mr Ahmed, Mr Clee and the ATO were aware of the present proceeding, none of them chose to attend at Court on 12 March 2015. 40 Protocom now holds 100% of the issued capital of Kent. Thus, Protocom is a contributory of Kent and, as such, is entitled to apply for an order winding up Kent (s 462(2)(c) of the Act). In the case of the company with a share capital, a contributory is a holder of fully paid shares in that company (see the definition in s 9 of the Act). 41 Section 461(1)(k) of the Act provides: (1) The Court may order the winding up of a company if: … (k) the Court is of opinion that it is just and equitable that the company be wound up. 42 Section 467(4) of the Act is in the following terms: (4) 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. 43 It is well established that, where there is no prospect of the company continuing to operate and where the company has no directors and no prospect that any directors will be appointed to it, the company should be wound up on the just and equitable ground (see CIC Insurance Ltd v Hannan (2001) 38 ACSR 245 at 248 [13] per Barrett J; and Re Platinum Mining Ventures Ltd [2011] FCA 1472 at [13]-[17] per Barker J). 44 As submitted by Counsel for Protocom, in the present case Kent is suffering from "corporate paralysis" because: (a) There are no directors of Kent at the moment; (b) Mr Lo has deposed that he will not become a director of Kent; (c) There is no prospect of anyone else being appointed a director of Kent; (d) The ATO has served a notice requiring certain books and records of Kent to be produced to it and there is no public officer of Kent to answer that notice; (e) Very serious allegations have been made concerning the affairs of Kent; (f) Kent is not trading; (g) Kent has no functioning registered office or principal place of business; and (h) An independent person (such as a Court-appointed liquidator) is needed to take control of Kent, to obtain its books and records and to deal with the ATO. 45 It was also submitted on behalf of Protocom that the substratum for the creation and operation of Kent has disappeared and for that reason it ought to be wound up (see Strong v J Brough & Son (Strathfield) Pty Ltd (1991) 5 ACSR 296 at 300 per Young J). Given that Kent has been excluded from the Kent St premises, it no longer has control of an essential component of its business model viz the Kent St premises. In any event, it is no longer trading. Its substratum has indeed disappeared. 46 In all the circumstances and for the reasons set out at [40]-[45] above, I think that it is appropriate that the Court make an order winding up Kent. I propose to make that order and to appoint Mr Kijurina as Kent's liquidator. 47 There will be orders accordingly. I certify that the preceding forty-seven (47) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Foster.