Royal Express Pty Ltd (Receivers and Managers Appointed) (Administrator Appointed) v Huang, in the matter of Royal Express Pty Ltd

SCHEDULE A UNDERTAKINGS GIVEN TO THE COURT BY THE PLAINTIFF (1) The plaintiff undertakes to submit to such order (if any) as the Court may consider to be just for the payment of compensation (to be assessed by the Court or as it may direct) to any person (whether or not a party) affected by the operation of the order. (2) As soon as practicable, the plaintiff will file and serve upon the defendants copies of: (a) this order; (b) the application for this order for hearing on the return date; (c) the following material in so far as it was relied on by the plaintiff at the hearing when the order was made: (i) affidavits (or draft affidavits); (ii) exhibits capable of being copied; (iii) any written submission; and (iv) any other document that was provided to the Court. (d) a transcript, or, if none is available, a note, of any exclusively oral allegation of fact that was made and of any exclusively oral submission that was put, to the Court; (e) the originating process, or, if none was filed, any draft originating process produced to the Court. (3) As soon as practicable, the plaintiff will cause anyone notified of this order to be given a copy of it. (4) The plaintiff will pay the reasonable costs of anyone other than the defendants which have been incurred as a result of this order, including the costs of finding out whether that person holds any of the defendant's assets. (5) If this order ceases to have effect the plaintiff will promptly take all reasonable steps to inform in writing anyone to who has been notified of this order, or who he has reasonable grounds for supposing may act upon this order, that it has ceased to have effect. (6) The plaintiff will not, without leave of the Court, use any information obtained as a result of this order for the purpose of any civil or criminal proceedings, either in or outside Australia, other than this proceeding. (7) The plaintiff will not, without leave of the Court, seek to enforce this order in any country outside Australia or seek in any country outside Australia an order of a similar nature or an order conferring a charge or other security against the defendants or the defendants' assets. SCHEDULE B AFFIDAVITS RELIED ON Name of deponent Date affidavit made (1) Salvatore Algeri 28 May 2021

NAME AND ADDRESS OF PLAINTIFF'S LAWYERS The plaintiff's lawyers are: Allens Level 37, 101 Collins Street, Melbourne VIC 3000 Tel: (03) 9613 8561 Fax: (03) 9614 4661 Email: Matthew.Whittle@allens.com.au

Introduction 1 By originating process dated 28 May 2021, the plaintiff seeks relief against the defendants in respect of alleged breaches of ss 181 and 182 of the Corporations Act 2001 (Cth) and/or misappropriation of the plaintiff's assets for the benefit of the defendants. 2 By interlocutory process also dated 28 May 2021, the plaintiff made an ex parte application for freezing orders and ancillary orders against the first and third defendants. The interlocutory application was supported by an affidavit of Salvatore Algeri dated 28 May 2021. The application was returnable before me yesterday as duty judge. At the hearing of the application, the plaintiff also sought an ancillary order against the second defendant, which is discussed below. 3 The Court has power to make a freezing order generally under s 23 of the Federal Court of Australia Act 1976 (Cth) and Division 7.4 of the Federal Court Rules 2011 (Cth). As stated in r 7.32 of the Federal Court Rules, the purpose of a freezing order is to prevent the frustration or inhibition of the Court's process by seeking to meet a danger that a judgment or prospective judgment of the Court will be wholly or partly unsatisfied. Under r 7.33 of the Federal Court Rules, the Court may make an order ancillary to a freezing order or a prospective freezing order, including an order made for the purpose of eliciting information relating to assets relevant to the freezing order or prospective freezing order. The plaintiff seeks such orders by its application. 4 The principles governing the grant of freezing orders are well-established. The plaintiff must show that: (a) it has a good or reasonably arguable case; (b) there is a danger that the prospective judgment will be wholly or partly unsatisfied because the assets of the prospective judgment debtor or another person will be removed from Australia or the assets will be disposed of, dealt with or diminished in value; and (c) the balance of convenience favours granting the order. 5 For the reasons given below, the plaintiff has satisfied me on each of these elements and I will make the orders sought by it.

Reasonably arguable case 6 Before a freezing order is made, the plaintiff must show that there is a reasonably arguable case on legal and factual matters or a sufficiently realistic prospect of success on the proceedings: Cardile v LED Builders Pty Ltd (1999) 198 CLR 380 (Cardile) at [68]; Pearce v Waterhouse [1986] VR 603 (Pearce) at 605; Re Donnelly; Hancock v Porteous [2001] FCA 345 at [9]. 7 The following facts are established, on a prima facie basis, by the affidavit of Mr Algeri. Mr Algeri is a partner of the firm Deloitte and is a registered liquidator. He is one of the joint and several receivers and managers appointed to the plaintiff (by National Australia Bank Ltd (NAB) as secured creditor), together with Timothy Bryce Norman (the Receivers). 8 The plaintiff operated a business of international air cargo transportation. It arranged for the receipt, shipment and delivery of customers' goods to destinations overseas, primarily to China. The plaintiff's director is the first defendant, Mr Huang.

Invoice Finance Facility 9 On 4 September 2019, the plaintiff entered into an agreement with NAB whereby NAB agreed to provide the plaintiff with an Invoice Finance Facility with a credit limit of $17,000,000 (the Invoice Finance Facility). In general terms, under the Invoice Finance Facility NAB agreed to provide finance to the plaintiff in respect of unpaid invoices issued by the plaintiff to its customers. On the same date, the plaintiff executed a general security agreement which granted NAB a security interest in all of the plaintiff's present and future property (the GSA). The GSA is registered on the Personal Property Securities Register. Mr Huang also executed a guarantee in favour of NAB. 10 Following NAB becoming aware that there was a concentration of debtors evident within the plaintiff's debtor book and a failure by the majority of the debtors to pay debts due to the plaintiff, on 16 April 2021 NAB engaged Deloitte to investigate the affairs of the plaintiff, including: (a) the nature of the plaintiff's business activities, which appeared to NAB to have changed since the Invoice Finance Facility was entered into in September 2019; (b) the operation of the Invoice Finance Facility; and (c) debtor exposure. 11 By reason of the investigation, Deloitte has determined that the Invoice Finance Facility has been drawn upon almost exclusively to pay invoices issued by the plaintiff on the following entities: (a) Fusion J Pty Ltd (Fusion J); (b) Ialphal Pty Ltd (Ialphal); (c) P&H Luxury Travel Pty Ltd (P&H Luxury); (d) Royal Intelligent Distribution Logistics Pty Ltd (Royal Intelligent); and (e) Royal International Logistics Pty Ltd (Royal International), the third defendant in these proceedings, (collectively, the Debtor Companies), 12 On 30 and 31 March 2021, letters were provided by the Debtor Companies which purport to confirm the amount of the debt owed by each Debtor Company to the plaintiff. The total purported indebtedness of the Debtor Companies to the plaintiff is approximately $22,133,954.58. Each of the Debtor Companies is in default of its obligations to make payments to the plaintiff. As at 28 May 2021, no payments have been made to the plaintiff by any of the Debtor Companies, except for Royal International which has paid the total sum of $160,366.11, since 1 April 2021.

Appointment of Receivers 13 On 29 April 2021, NAB served a notice of default under the Invoice Finance Facility on the plaintiff. 14 On 7 May 2021, NAB served a further notice on the plaintiff advising that the default had not been remedied, that the amount of $16,679,285.11 was owed under the Invoice Finance Facility, and that NAB intended to enforce its security without further notice. 15 On 7 May 2021, Messrs Algeri and Norman were appointed by NAB as receivers and managers. 16 On 11 May 2021, David John Coyne of BRI Ferrier was appointed by Mr Huang, in his capacity as the director of the plaintiff, as a voluntary administrator of the plaintiff. As at 28 May 2021: (a) Mr Huang had not provided the administrator with a Report on Company Activities and Property; (b) Mr Huang had not provided any additional assistance to the administrator; and (c) there had been no discussions about a proposal for a deed of company arrangement in respect of the plaintiff.

Invoices issued to the Debtor Companies 17 As noted above, the amounts currently loaned to the plaintiff under Invoice Finance Facility (and which are outstanding) have been used almost exclusively to pay invoices issued by the plaintiff to the Debtor Companies. 18 There are a number of connections between the Debtor Companies and the plaintiff including: (a) each company has the same accountant; (b) the third defendant, Royal International, and Ialphal have the same registered office and place of business as the plaintiff; (c) Mr Huang is married to Jun Yan who is a director and shareholder of Fusion J; (d) the second defendant, Ms Mengqiu Ji (also known as Maggie Ji), is a director of the third defendant, Royal International, and is also general manager of the plaintiff and also a former shareholder of the plaintiff (and a former shareholder of Ialphal); and (e) Mr Yifei Wang (also known as Warren Wang) is a director of Ialphal and was also a manager of the plaintiff. 19 Mr Xu Jin (also known as James Jin), who appears in ASIC records as the director of Royal Intelligent, has advised the Receivers that he was never involved in the management and running of Royal Intelligent and he believes that the company is controlled by Mr Huang and Ms Ji. Mr Jin took instructions in relation to the company from Ms Ji. While Mr Jin signed two documents when the company was formed, he understood that he was a shareholder. The evidence suggests that at least one document of the company purports to have been signed by Mr Jin, but Mr Jin denies that he signed the document and the signature has a different appearance to Mr Jin's signature on his driver's licence. 20 The indebtedness of Royal International to the plaintiff is $4,310,790.53. On 7 May 2021, Deloitte wrote to Royal International demanding payment of that amount, but no response was received to the letter. 21 Mr Huang has asserted in correspondence with the Receivers that Royal International is a customer of the plaintiff, and that the plaintiff had borrowed funds from Royal International. 22 The evidence indicates that the plaintiff and Royal International both operate from the same premises at 55-65 Sky Rd, Melbourne Airport, they use very similar websites and have published near-identical terms and conditions of carriage on those websites. 23 The Receivers have examined a number of invoices issued by the plaintiff over time. A significant number of invoices to customers are for amounts up to $2,000 each. The details relating to those invoices indicate that the invoices are legitimate in that they were issued for services actually provided by the plaintiff. However, the Receivers have also identified a significant number of invoices issued to the Debtor Companies which are for amounts between $50,000 and $59,999. These invoices are for amounts that are substantially higher than the amounts raised by invoices ordinarily issued by the plaintiff on customers. Invoices submitted by the plaintiff to NAB for amounts greater than $60,000 required additional supporting documentation before NAB would agree to fund the invoices under the Invoice Finance Facility. Between 24 December 2020 and 3 February 2021, the plaintiff issued at least 12 invoices that were funded by NAB under the Invoice Finance Facility, ten of which are for amounts between $58,000 and $59,999. These invoices include a common one-line description, being "freight and custom clearance". The invoices record two reference numbers. The first appears to refer to an air waybill, with the prefix numbers referring to the carrier, and the second refers to the number of a matching proof of delivery form. The Receivers have identified irregularities in the numbers used which indicate that the invoices do not relate to real transactions and are likely to be fraudulent documents. 24 As noted earlier, the amount loaned by NAB on the basis of the invoices issued to the Debtor Companies is more than $16.5 million. The Receivers are not presently aware of how those funds have been used or applied by the plaintiff or where those funds have gone.

Diversion of business and payments to Royal International 25 On or about 14 April 2021, the plaintiff purported to change its business operations such that it would only provide import services. Since that date, it appears that the plaintiff has not issued any invoices to customers. 26 A former employee of the plaintiff, Wenxuan Wang (also known as Candice Wang), informed the Receivers that: (a) Ms Wang was employed by the plaintiff from 20 January 2021 to 7 May 2021. Her direct supervisor was Warren Wang. Her duties included booking flights for shipments out of Australia, communicating flight details for shipments with customers, and checking and monitoring shipment tracking details. (b) In the course of her employment, Ms Wang used a company mobile device with the messaging application "WeChat" installed on it for the purpose of communicating with the plaintiff's customers. Ms Wang also had access to WeChat and the plaintiff's flight booking system on a company computer and her personal computer. (c) In April 2021, Warren Wang informed Ms Wang of the existence of Royal International. Warren Wang told her that Royal International had a different International Air Transport Association (IATA) number than the plaintiff and to only use this number when requested by him. (d) Also during April 2021, the plaintiff's information technology department created a Royal International email account for Ms Wang. On 14 April 2021, Warren Wang asked Ms Wang to use the Royal International email account to send an email to one of the plaintiff's cargo sales agents, Sylvan International Logistics Pty Ltd (Sylvan) stating that, in future, when Sylvan books shipments with the plaintiff, the IATA number for Royal International will be used, not the IATA number for the plaintiff. (e) In the week beginning 3 May 2021, Ms Wang was told to return her work mobile device to Warren Wang to be reformatted. When Ms Wang gave her device to Warren Wang, she noticed that he had several other mobile devices in his possession which appeared to be from other members of the plaintiff's staff. Since that time, Ms Wang has not had any access to this mobile device. (f) On 7 May 2021, Warren Wang told all staff at the plaintiff's premises at 55-65 Sky Road, Melbourne Airport that Mr Huang requested that they vacate the premises because an important customer was arriving. Warren Wang requested that all staff continue to work from home. Later that evening, Warren Wang contacted Ms Wang and told her to cancel all flight bookings with China Eastern Airlines and China Southern Airlines for Saturday 8 May 2021 and Sunday 9 May 2021. On the same evening, when Ms Wang attempted to access computer systems associated with the plaintiff from her personal computer, she found that her access was denied. (g) On Sunday 9 May 2021, Warren Wang contacted Ms Wang and told her to take a week off from work for the plaintiff. On around Wednesday or Thursday the following week, Ms Wang contacted Warren Wang to enquire about her employment status. Warren Wang told Ms Wang "we are all unemployed". 27 The general Manager of Sylvan, Zhengqi Wang (also known as Jacky Wang), informed the Receivers that: (a) He has known Mr Huang for approximately 3 years. During this time, Sylvan was a cargo sales agent for the plaintiff. (b) In around January 2021, he became aware that Mr Huang also operated Royal International. From around that time, he has received and paid invoices from Royal International for services provided by the plaintiff. (c) In the week beginning 5 April 2021, an employee of Sylvan received a message from the plaintiff via WeChat requesting that all flights booked from Melbourne use Royal International's IATA number, rather than the plaintiff's (although Sylvan did not make any cargo flight bookings under Royal International's IATA number). (d) On 7 May 2021, an employee of Sylvan received an email from Ms Wang requesting that all of the plaintiff's flight bookings for 8 May 2021 and 9 May 2021 be cancelled. (e) On 12 May 2021, he became aware that the plaintiff had been placed into external administration. During the same week, he was contacted by Mr Huang via a WeChat phone call. Mr Huang informed him that the plaintiff had an outstanding debt of $17,000,000 to NAB and had been placed into external administration due to cash flow issues. Mr Huang requested that all communications with him be held on WeChat. (f) Later in May, he had a conversation with one of the plaintiff's customers, who he identified as "PBX". He was told by PBX's representative that the plaintiff had requested that PBX pay all outstanding invoices issued by the plaintiff to Royal International. (g) He also had a conversation with a representative of another of the plaintiff's customers, who he identified as "ZDExpress". He was told by ZDExpress' representative that the plaintiff had requested that ZDExpress pay all outstanding invoices issued by the plaintiff to Royal International. 28 From their appointment on 7 May 2021, the Receivers took possession of the plaintiff's warehouse premises. The warehouse holds a significant amount of stock being pallets of goods that were apparently to be transported by the plaintiff in the course of its business. The Receivers have located air waybills relating to goods to be shipped by the plaintiff (which include details of the shipper, the consignee, the carrier and the carrier's agent). Certain of those air waybills relate to goods currently held at the plaintiff's premises on behalf of ZDExpress Pty Ltd. The Receivers have also identified invoices that have been issued by Royal International to ZDExpress Pty Ltd. The invoices bear the same reference number as the air waybills issued for goods to be shipped by the plaintiff. The second line item of each invoice is also identical to the gross weight of the goods recorded on the air waybill issued for goods to be shipped by the plaintiff. The invoices provide bank account details for an account in the name of Royal International with Australia and New Zealand Banking Group, BSB number 013 225, Account number xxx xxx 544 (redacted for confidentiality). ZDExpress Pty Ltd paid those invoices to the account in the name of Royal International.

Conclusion on first issue 29 I am satisfied on the basis of the forgoing matters that there is a good arguable case that the defendants have either contravened (in the case of Mr Huang and Ms Ji) or been involved in contraventions of (in the case of Royal International) ss 181 and 182 of the Corporations Act. This is demonstrated by the available evidence, which: (a) strongly suggests that false invoices have been created and issued to the Debtor Companies for the purpose of obtaining finance from NAB pursuant to the Invoice Finance Facility in circumstances where services were not in fact provided by the plaintiff; (b) indicates the defendants arranged, made, approved or otherwise brought about changes to the plaintiff's customer booking and payment arrangements for the purpose of diverting payments for services performed by the plaintiff and properly payable to the plaintiff away from the plaintiff and to Royal International; and (c) further indicates employees of the plaintiff were directed to format or wipe computer hard drives relating to the business operated by the plaintiff.

Reasonable apprehension that assets will be dissipated 30 The plaintiff must also show that, unless the order is granted, there is a reasonable apprehension that assets will be dissipated so as to frustrate the action or execution: Cardile at [26], [41]-[42] (Gaudron, McHugh, Gummow and Callinan JJ); Hyder Consulting (Victoria) Pty Ltd v Transfield Pty Ltd [2002] VSC 315 at [15]-[16]. It is not essential for an applicant for freezing orders to demonstrate a positive intention on the part of the respondent to frustrate a judgment: National Australia Bank Ltd v Bond Brewing Holdings Limited (1990) 169 CLR 271 at 277 (Mason CJ, Brennan and Deane JJ); Cardile at [26]. Nor is it necessary for the applicant to demonstrate that the risk of dissipation is more probable than not: Deputy Commissioner of Taxation v Hua Wang Bank Berhad (2010) 273 ALR 194 (Hua Wang Bank) at [8]-[10] (Kenny J); Deputy Commissioner of Taxation v Chemical Trustee Ltd (No 4) [2012] FCA 1064; 90 ATR 711 at [23] (Perram J). It is enough that the applicant establishes that, in the absence of relief, there is a danger or real risk that the assets will be dealt with in a way which would prevent the applicant from recovering judgment: Ninemia Maritime Corporation v Trave Schiffahrtsgesellschaft mbH UND CO KG [1983] 1 WLR 1412 at 1422; Beach Petroleum NL v Johnson (1992) 9 ACSR 404, Von Doussa J at 405-406 . As recently noted by Anderson J in Spotlight Pty Ltd v Mehta [2019] FCA 1796 (at [23]), "[w]here, as here, allegations made against the respondents contain allegations of serious dishonesty, evidence of that nature is capable of satisfying the Court of the existence of the requisite danger to dispose of, deal with or dissipate assets". 31 The evidence adduced by the plaintiff, as outlined above, establishes a reasonably arguable case that the defendants have been engaged in a scheme of dishonest behaviour involving the falsification of invoices and other documentation. Further, there is a reasonably arguable case that the defendants have been involved in a scheme by which the business and custom of the plaintiff is being transferred to Royal International and monies owing to the plaintiff have been diverted to Royal International. There is a reasonably arguable case of dishonesty and misappropriation of funds. In my view, the conduct engaged in by the defendants establishes a danger or real risk that the assets will be dealt with in a way which would prevent the applicant from recovering judgment.

Balance of convenience 32 The plaintiff must show that the balance of convenience favours the making of the order: Pearce at 607; Hua Wang Bank at [13]. 33 In favour of the making of the orders is the risk that assets will be dissipated, which I consider to be a significant risk having regard to the dishonesty alleged. 34 Against the making of the order is the recognition that such an order is an extraordinary remedy and inevitably causes prejudice to the parties subject to the orders. In the present case, the prejudice is reduced by three considerations. First, the plaintiff is prepared to give an appropriate undertaking as to damages. Second, the order sought by the plaintiff on this urgent ex parte application will continue only for a short period until the return date, which I will set as 7 June 2021, at which time the defendants will have an opportunity to be heard. The plaintiff will then bear the onus of satisfying the Court that the order should continue. Third, the terms of the orders will permit the defendants to pay their reasonable legal expenses, will permit Mr Huang a reasonable amount for living expenses and permit Royal International to meet obligations incurred in the ordinary course of business. 35 Weighing the foregoing considerations, I am satisfied that the balance of convenience presently favours the making of the freezing orders until the return date.

Ancillary orders 36 The plaintiff also sought ancillary orders requiring each of the defendants (including the second defendant, who is not the subject of an order freezing her assets), at or before the further hearing on the return date (or within such further time as the Court may allow), to the best of their ability inform the plaintiff in writing of: (a) all their assets world-wide, giving their value, location and details (including any mortgages, charges or other encumbrances to which they are subject) and the extent of their interest in the assets; (b) in respect of the first defendant, the current location of funds received from NAB in connection with the Invoice Finance Facility, and if the current location of the funds is not known, details as to where and when those funds were paid or used, and for what purpose; and (c) in respect of the third defendant, the current location of funds received from ZDExpress Pty Ltd on account of specific invoices and, if the current location of the funds is not known, details as to where and when those funds were paid, and for what purpose. 37 The plaintiff also sought an order that the defendants, within 10 working days after being served with this order, swear and serve on the plaintiff an affidavit setting out the above information. 38 The proposed ancillary orders were subject to the usual exemptions in respect of the privilege against self-incrimination and the privilege against exposure to a penalty. 39 I am satisfied that it is appropriate to make the proposed ancillary orders in respect of the first and third defendants because the orders will assist the plaintiff in identifying all of the assets of those defendants, including the existence of assets overseas, and thereby assist in preventing the dissipation of assets. The orders will also assist in the tracing of funds which appear to have been misappropriated. In relation to the ancillary orders in respect of the second defendant, there is power to make orders that are ancillary to a prospective freezing order. A prospective freezing order is one which is "in prospect" in the sense that it is within the bounds of expectation that it will be made in the future: Parbery v QNI Metals Pty Ltd (2018) 358 ALR 88 at [68] (Bond J). On the basis of the evidence outlined above, I am satisfied that a freezing order against the second defendant is in prospect and that the proposed ancillary order against the second defendant is appropriate because it will assist the plaintiff in preventing the dissipation of assets.

Conclusion 40 In conclusion, I am satisfied that it is appropriate to make freezing orders largely in the form proposed by the plaintiff at the hearing on 31 May 2021. I certify that the preceding forty (40) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice O'Bryan.