Royal Express Pty Ltd (Receivers and Managers Appointed) (Administrator... [2023] FCA 164 | Case summary

Royal Express Pty Ltd (Receivers and Managers Appointed) (Administrator... [2023] FCA 164 | Case summary | Zoe

[4]

FREEZING OF ASSETS (6) You must not remove from Australia or in any way dispose of, deal with or diminish the value of any of your assets in Australia or outside Australia. (7) For the purposes of this order, (a) your assets include: (i) all of your assets, whether or not they are in your name and whether they are solely or co-owned; (ii) any asset which you have the power, directly or indirectly, to dispose of or deal with as if it were your own (you are to be regarded as having such power if a third party holds or controls the asset in accordance with your direct or indirect instructions); and (iii) the following real property assets in particular (collectively, the Cheng Real Property Assets): (A) the property known as 6 Palmerston Street, Camberwell VIC 3124, being the property described in Certificate of Title Volume 06044 Folio 644 (Camberwell Property) or, if any or all of the assets have been sold, the net proceeds of the sale; (B) the property known as 53 Beacon Vista, Port Melbourne VIC 3207, being the property described in Certificate of Title Volume 10431 Folio 162 (Port Melbourne Property) or, if any or all of the assets have been sold, the net proceeds of the sale; (C) the property known as Unit 309, Level 3, 499 St Kilda Road, Melbourne VIC 3004, being the property described in Certificate of Title Volume 11880 Folio 106 (Melbourne Property) or, if any or all of the assets have been sold, the net proceeds of the sale; and (D) the property known as Unit 401D, 604 Swanston St, Carlton VIC 3053, being the property described in Certificate of Title Volume 10823 Folio 986 (Carlton Property) or, if any or all of the assets have been sold, the net proceeds of the sale; and (iv) the following shareholdings in particular (collectively, the Cheng Shareholdings): (A) your direct shareholding in the fourth defendant, Fusion J Pty Ltd (ACN 607 541 202); (B) your direct shareholding in Quantum Fund Investment Pty Ltd (ACN 630 628 858) (Quantum Fund); (C) your direct shareholding in Parkside Capital Pty Ltd (ACN 630 622 329) (Parkside); (D) your direct shareholding in Homy Pty Ltd (ACN 627 142 723); (E) your indirect shareholding in Windsor Air and Ground Service Pty Ltd (ACN 630 736 999), through Quantum Fund; (F) your indirect shareholding in P&H Luxury Pty Ltd (ACN 630 371 943), through Parkside; (b) the value of your assets is the value of the interest you have individually in your assets.

[5]

PROVISION OF INFORMATION (8) Subject to paragraph (9), you must: (a) at or before the further hearing on the Return Date (or within such further time as the Court may allow) to the best of your ability inform the plaintiff in writing of, or provide copies of (as appropriate): (i) all your 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 your interest in the assets; (ii) without limiting the generality of sub-paragraph (8)(a)(i), the following matters in particular: (A) confirmation and evidence of the purchase price paid by you for the Carlton Property; (B) confirmation of your equity in the Cheng Real Property Assets, particularly the Carlton Property; (C) copies of: 1. the most recent statement for each loan account held by you in respect of the Cheng Real Property Assets, particularly the Carlton Property; and 2. all documents relating to any refinance of the loan(s) associated with the Carlton Property in or about 2020; and (D) copies of: 1. all agreements between you, Guoying Xu and Yuqing Cheng dated 29 October 2022 that are referenced in the caveats lodged by Guoying Xu and Yuqing Cheng over the Camberwell Property, the Port Melbourne Property and the Melbourne Property (the Charge Agreements); and 2. any loan agreements associated with the Charge Agreements; (E) confirmation and evidence of the current amount owing by you under any loans associated with the documents described at sub-paragraph D above; (F) confirmation as to the reason(s) for your entry into the documents described at sub-paragraph D above; and (G) confirmation of your relationship to Guoying Xu and Yuqing Cheng; (H) confirmation of the reason for causing Parkside's shares in Global Trades Melbourne Pty Ltd (ACN 605 33 819) (Global Trades) to be transferred to the other shareholder of Global Trades (an individual named Zhibo Yi); (b) within 5 working days after being served with this order, swear and serve on the plaintiff an affidavit setting out the above information and annexing the above documents (where appropriate). (9) (a) This paragraph (9) applies if you are not a corporation and you wish to object to complying with paragraph (8) on the grounds that some or all of the information required to be disclosed may tend to prove that you: (i) have committed an offence against or arising under an Australian law or a law of a foreign country; or (ii) are liable to a civil penalty. (b) This paragraph (9) also applies if you are a corporation and all of the persons who are able to comply with paragraph 8 on your behalf and with whom you have been able to communicate, wish to object to your complying with paragraph (8) on the grounds that some or all of the information required to be disclosed may tend to prove that they respectively: (i) have committed an offence against or arising under an Australian law or a law of a foreign country; or (ii) are liable to a civil penalty. (c) You must: (i) disclose so much of the information required to be disclosed to which no objection is taken; and (ii) prepare an affidavit containing so much of the information required to be disclosed to which objection is taken, and deliver it to the Court in a sealed envelope; and (iii) file and serve on each other party a separate affidavit setting out the basis of the objection.

[8]

PERSONS OTHER THAN THE PLAINTIFF AND DEFENDANT (13) Set off by banks This order does not prevent any bank from exercising any right of set off it has in respect of any facility which it gave you before it was notified of this order. (14) Bank withdrawals by the defendant No bank need inquire as to the application or proposed application of any money withdrawn by you if the withdrawal appears to be permitted by this order. (15) Persons outside Australia (a) Except as provided in subparagraph (b) below, the terms of this order do not affect or concern anyone outside Australia. (b) The terms of this order will affect the following persons outside Australia: (i) you and your directors, officers, employees and agents (except banks and financial institutions); (ii) any person (including a bank or financial institution) who: (A) is subject to the jurisdiction of the Court; and (B) has been given written notice of this order, or has actual knowledge of the substance of the order and of its requirements; and (C) is able to prevent or impede acts or omissions outside Australia which constitute or assist in a disobedience of the terms of this order; and (iii) any other person (including a bank of financial institution), only to the extent that this order is declared enforceable by or is enforced by a court in a country or state that has jurisdiction over that person or over any of that person's assets. (16) Assets located outside Australia Nothing in this order shall, in respect of assets located outside Australia, prevent any third party from complying or acting in conformity with what it reasonably believes to be its bona fide and properly incurred legal obligations, whether contractual or pursuant to a court order or otherwise, under the law of the country or state in which those assets are situated or under the proper law of any contract between a third party and you, provided that in the case of any future order of a court of that country or state made on your or the third party's application, reasonable written notice of the making of the application is given to the plaintiff

[9]

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, and to the extent that this has not already occurred, the plaintiff will file and serve upon the defendant 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 defendant 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 defendant or the defendant's assets.

[12]

MCEVOY J: 1 By interlocutory process filed 21 February 2023, the plaintiff seeks freezing orders over the assets of Ms Xiaojuan Cheng, the ninth defendant, and other ancillary relief, pursuant to r 7.32 and r 7.33 of the Federal Court Rules 2011 (Cth). Although a short period of notice of the application was given, and Mr Guo (a solicitor) appeared for Ms Cheng, the application has proceeded effectively as an ex parte application. 2 The application is made in a context where the Court has already made freezing orders in the proceeding on earlier occasions. On 31 May 2021, the Court made freezing and ancillary orders against the first and third defendants: Royal Express Pty Ltd (Receivers and Managers Appointed) (Administrator Appointed) v Huang, in the matter of Royal Express Pty Ltd [2021] FCA 585 (Royal Express (No 1)). The freezing order against the third defendant was subsequently discharged by orders on 19 September 2021 following its liquidation. On 2 June 2021, the Court made freezing orders against the fourth to seventh defendants: Royal Express Pty Ltd (Receivers and Managers Appointed) (Administrator Appointed) v Huang, in the matter of Royal Express Pty Ltd (No 2) [2021] FCA 593 (Royal Express (No 2)). Those orders were subsequently extended by orders made on 7 June 2021. On 17 June 2021, the Court made freezing orders against the eighth defendant: Royal Express Pty Ltd (Receivers and Managers Appointed) (Administrator Appointed) v Huang, in the matter of Royal Express Pty Ltd (No 4) [2021] FCA 691 (Royal Express (No 4)). Those orders were subsequently extended by orders made on 12 July 2021, and then discharged by orders made on 20 July 2021; however the eighth defendant remains enjoined from dealing in any way with specified real property assets as set out in those orders. The freezing orders against the first and fourth to sixth defendants remain in place. 3 In support of the interlocutory application, the plaintiff relies on: (a) an affidavit of Salvatore Algeri sworn 21 February 2023 (Algeri affidavit); (b) an affidavit of Emily Haw affirmed 23 February 2023; (c) an affidavit of Cassandra Mortimer affirmed 23 February 2023; (d) the plaintiff's outlines of submissions dated 21 February 2023; and (e) the reasons for judgment in Royal Express (No 1), Royal Express (No 2) and Royal Express (No 4).

[14]

The receivership and the proceeding 5 The plaintiff, Royal Express Pty Ltd, entered into receivership on 7 May 2021 and Salvatore Algeri and Timothy Bryce Norman were appointed as the joint and several receivers. 6 The proceeding was commenced by originating process filed on 28 May 2021. Thereafter, the plaintiff sought (and was granted) the freezing orders described above in paragraph 2. 7 The plaintiff filed an amended originating process on 8 June 2021, and a statement of claim on 13 August 2021. 8 Between 29 November 2021 and 28 February 2022, the Court issued summonses under s 596A or s 596B of the Corporations Act 2001 (Cth), and during the period from 7 February 2022 to 20 May 2022 the receivers conducted public examinations of eight individuals in relation to the examinable affairs of Royal Express. 9 Ms Cheng was examined as part of the examinations conducted by the receivers on 22 and 24 February 2022. That examination was deemed to have concluded on 24 August 2022. 10 On 5 December 2022 the plaintiff filed an amended statement of claim (ASoC) and further amended originating process joining Ms Cheng and the tenth defendant to the proceeding. 11 The claims made against Ms Cheng are found at paragraphs 46I, 46R and 96 to 103 of the ASoC. In the ASoC the plaintiff relevantly alleges that Ms Cheng was a participant in a fraudulent and dishonest scheme to defraud the creditors of Royal Express created and orchestrated by the first defendant, Mr Di Huang, and the second defendant, Ms Mengqiu Ji, including by: (a) assuming a position as a director of companies which issued fraudulent invoices to the plaintiff, and which received payments from and made payments to the plaintiff, in circumstances where the invoices and the payments had no legitimate business purpose; (b) retaining the benefit or a portion of the benefit of transfers made by the plaintiff to companies of which she was a director, in circumstances where she knew that those transfers had no legitimate business purpose; (c) obtaining a refinance of properties she owned; and (d) acting at the direction of Mr Huang and Ms Ji in relation to the fraudulent scheme alleged by the plaintiff. 12 The ASoC thus alleges that: (a) Ms Cheng has contravened both s 181(2) and s 182(2) of the Act; (b) further or alternatively, Ms Cheng knowingly assisted in Mr Huang and Ms Ji's dishonest and fraudulent breaches of fiduciary duty, in circumstances where she was acting in concert with Mr Huang and, or alternatively, Ms Ji in order to secure a mutual benefit; and (c) further or alternatively, Ms Cheng received funds as a result of Mr Huang and Ms Ji's dishonest and fraudulent breaches of fiduciary duty, in circumstances where she was acting in concert with Mr Huang and, or alternatively, Ms Ji in order to secure a mutual benefit. 13 By way of relief the plaintiff seeks an order for equitable compensation on a joint and several basis, or alternatively, an account of profits, as against Ms Cheng.

[16]

Information obtained by the receivers following Ms Cheng's examination 18 Following Ms Cheng's examination, a Registrar of the Court made orders requiring Ms Cheng to produce to the Court all documents relating to the refinancing of the Disclosed Properties. Ms Cheng produced some documents in response to this order (the Cheng Documents). 19 On 14 April 2022 a Registrar made orders requiring the CBA to produce to the Court all documents relating to the refinancing of the Disclosed Properties. It is submitted by the plaintiff that the documents produced to the Court by the CBA (the CBA Documents) contained a number of additional documents which appeared to have been provided by or on behalf of Ms Cheng to the CBA as part of the refinance of the Disclosed Properties which had not been produced to the Court as part of the Cheng Documents. 20 Subsequent investigations by the solicitors for the receivers apparently revealed the existence of an additional property of which Ms Cheng has been the registered proprietor since 21 October 2008 (the Carlton Property). The Carlton Property is referred to in a document titled "The Home Loan/Investment Home Loan Application 90606004214" (the Refinancing Application) which formed part of the CBA Documents. The Refinancing Application is said to be an internal document prepared by the CBA that is based on information provided by or on behalf of Ms Cheng. Under the heading "Details of what you own House/land at (give address)", both the Disclosed Properties and the Carlton Property are listed. 21 Investigations conducted by the receivers' solicitors have also revealed three caveats that were lodged on 30 November 2022 over the Disclosed Properties (but not over the Carlton Property) on behalf of Guoying Xu and Yuqing Cheng, purportedly based on their interests in the Disclosed Properties as chargees arising from an agreement with Ms Cheng dated 29 October 2022 (the Caveats). Yuqing Cheng's address is that of the Port Melbourne Property. 22 The receivers are also aware that a form was lodged with ASIC on 3 March 2022 (one week after the conclusion of Ms Cheng's examination) disposing of shareholdings owned by companies controlled by Ms Cheng and about which Ms Cheng was questioned during her examination.

[19]

CONSIDERATION 30 The applicable principles are well known, and are in any event set out in Royal Express (No 1) at [3]-[4], [6], [30], [32] and [39]. 31 In my view, on the basis of the matters set out in the Algeri affidavit, there is a proper basis to make the freezing and ancillary orders which are sought against Ms Cheng. 32 First, the matters the subject of the Algeri affidavit demonstrate a good arguable case that Ms Cheng has contravened both s 181(2) and s 182(2) of the Act, and knowingly assisted in, and/or knowingly received funds in consequence of, fraudulent breaches of fiduciary duty by Mr Huang and Ms Ji in circumstances where Mr Huang, Ms Ji and Ms Cheng were acting in concert to secure a mutual benefit. 33 This is demonstrated by the presently available evidence, which would seem to indicate that: (a) Ms Cheng has a close interpersonal relationship with Mr Huang and with the eighth defendant, Ms Jun Yan, who is Mr Huang's wife; (b) false invoices may have been issued by companies of which Ms Cheng is a registered director for the purpose of the plaintiff obtaining finance from the National Australia Bank (NAB) pursuant to an invoice finance facility provided by NAB to the plaintiff, in circumstances where services were not in fact provided by the plaintiff; (c) payments were made to and from the plaintiff to companies of which Ms Cheng was a registered director when there was no obvious legitimate business purpose for those payments to occur; (d) payments made by the plaintiff to companies of which Ms Cheng is or was a registered director, for which there was no obvious legitimate business purpose, are unaccounted for; and (e) Ms Cheng may have provided, or caused to be provided, falsified documentation relating to Fusion J to the CBA in order to obtain a refinance of the Disclosed Properties in or around May 2020. 34 Secondly, there presently exists a reasonable apprehension that a prospective judgment would be wholly or partially unsatisfied because Ms Cheng's assets may be dissipated. The evidence presently before the Court would seem to indicate that: (a) Ms Cheng, along with the other defendants in the proceeding, has been engaged in a scheme of dishonest behaviour involving the falsification of invoices and other documentation; (b) Ms Cheng did not disclose the existence of the Carlton Property in examination, when she was required by law to do so; (c) Ms Cheng did not disclose the entirety of her shareholdings in examination, when she was required by law to do so; (d) Ms Cheng gave evasive and apparently dishonest answers in examination that she only sought to correct when confronted with contradictory evidence by counsel for the receivers; (e) Ms Cheng has failed to produce to the Court all documents relating to the refinance of the Disclosed Properties in May 2020 when she was required by order of the Court to do so, as evidenced by the discrepancies between the Cheng Documents and the CBA Documents; (f) the Caveats were lodged over the Disclosed Properties following Ms Cheng's examination in circumstances where: (i) she knew of the existence of the proceeding and would reasonably have anticipated her joinder; (ii) she shares a surname with one of the purported caveators; and (iii) that caveator's home address is a property owned by Ms Cheng; (g) Ms Cheng has not responded to reasonable requests for information from the receivers and has not responded to correspondence from the receivers indicating their concern about the prospect of the dissipation of her assets; (h) the quantum of the prospective judgment against Ms Cheng is in excess of $16 million; and (i) some assets of Ms Cheng have been identified by the receivers such that freezing orders will have utility. 35 Further, the evidence presently available suggests that Ms Cheng is not the sort of person who would, unless restrained, preserve her assets intact so that they might be available to a judgment creditor. To the contrary, Ms Cheng's behaviour to date would seem to indicate that she will actively seek to conceal her assets from both the receivers and the Court, even where compelled by law or Court order to disclose them. Accordingly, there is a reasonable apprehension that Ms Cheng's assets will be dissipated so as to frustrate the proceeding. 36 Thirdly, the balance of convenience favours the grant of the freezing orders as: (a) the orders sought allow for the payment of Ms Cheng's ordinary living expenses and reasonable legal expenses; (b) the plaintiff is prepared to give an undertaking as to damages in substantially the same form as that found in the example orders provided in the Court's Freezing Orders Practice Note (GPN-FRZG); and (c) in light of the available evidence, the risk that assets will be dissipated is properly viewed as high, particularly having regard to the dishonesty alleged and Ms Cheng's conduct since she has become aware of the proceeding. 37 In the present circumstances it is also appropriate to make orders for the disclosure of assets requiring Ms Cheng to provide: (a) information as to the nature (including value, location, and details) of all of her assets worldwide; (b) details of the purchase and current value of the Carlton Property and her equity in it and her other real property assets; (c) all agreements between Ms Cheng, Guoying Xu and Yuqing Cheng referenced in the Caveats, including loan agreements; (d) details of the nature of the agreements referred to in the above sub-paragraph, including Ms Cheng's reason for entry into the agreements, evidence of amounts owing under the agreements, and confirmation of the nature of Ms Cheng's relationship with Guoying Xu and Yuqing Cheng; and (e) confirmation of the reason for causing Parkside Capital Pty Ltd's shares in Global Trades Melbourne Pty Ltd to be transferred to the other shareholder of Global Trades (an individual named Zhibo Yi). 38 At the hearing of the freezing order application on 23 February 2023 Mr Guo appeared for Ms Cheng. He was not in a position to file responding material on behalf of Ms Cheng, however he submitted (on what basis it was not clear) that the plaintiff could not, on balance, show the level of dishonesty required for a freezing order to be made. Mr Guo submitted that there was no material evidence to support the allegation that Ms Cheng was at risk of dissipating her assets, and that the evidence put forward by the plaintiff was circumstantial and inferential. 39 In the circumstances which I have outlined above I indicated to Mr Guo that I was satisfied that the freezing and ancillary orders should be made on an interim basis pending a further hearing, by which time Ms Cheng would have had an opportunity to file answering material and could make further submissions. Senior counsel for the plaintiff sought a return date within 10 business days. However Mr Guo, on behalf of Ms Cheng, indicated that a longer period would be required to assemble the relevant material and sought 3 April 2023 as the return date. 40 I made orders accordingly, as set out at the commencement of these reasons. I certify that the preceding forty (40) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice McEvoy.

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

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Judgment (20 paragraphs)

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Legislation Cited (2)

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