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[2022] FCA 725
Federal Court of Australia
2022-06-17
Yates J
Original judgment source is linked above.
Division: General Division
Registry: New South Wales
National Practice Area: Commercial and Corporations
Sub-area: Corporations and Corporate Insolvency
Number of paragraphs: 63
Dates of hearing: 14 June 2022, 17 June 2022
Counsel for the Plaintiff: Mr D Krochmalik
Solicitor for the Plaintiff: Swaab Attorneys
Counsel for the First, Second and Fifth Defendants on 17 June 2022: Mr A Wilson
Solicitor for the First, Second and Fifth Defendants on 17 June 2022: Cockburn & Co Lawyers
Counsel for the Third Defendant on 17 June 2022: The Third Defendant did not appear
Counsel for the Fourth Defendant on 17 June 2022: The Fourth Defendant did not appear
ORDERS NSD 444 of 2022 IN THE MATTER OF PENNY WORLD PTY LTD ACN 123 180 503 (RECEIVERS AND MANAGERS APPOINTED) BETWEEN: SCOTTISH PACIFIC BUSINESS FINANCE PTY LTD ACN 008 636 388 Plaintiff
AND: SHADI QAQOUR First Defendant
WIZLY PTY LTD ACN 168 729 182 Second Defendant
MARK MAXIMOS (and others named in the Schedule) Third Defendant
order made by: YATES J DATE OF ORDER: 14 JUNE 2022
(b) by 4pm and 16 June 2022, swear or affirm and serve on the plaintiff an affidavit setting out the above information. (5) (a) This paragraph (5) applies if you are not a corporation and you wish to object to complying with paragraph (4) 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; (ii) are liable to a civil penalty. (b) This paragraph (5) also applies if you are a corporation and all of the persons who are able to comply with paragraph (4) on your behalf and with whom you have been able to communicate, wish to object to your complying with paragraph (4) 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; (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. 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; (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. (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 defendant or the defendant's assets. Schedule B Affidavits Relied On
ORDERS NSD 444 of 2022 IN THE MATTER OF PENNY WORLD PTY LTD ACN 123 180 503 (RECEIVERS AND MANAGERS APPOINTED) BETWEEN: SCOTTISH PACIFIC BUSINESS FINANCE PTY LTD ACN 008 636 388 Plaintiff
AND: SHADI QAQOUR First Defendant
WIZLY PTY LTD ACN 168 729 182 Second Defendant
MARK MAXIMOS (and others named in the Schedule) Third Defendant
order made by: YATES J DATE OF ORDER: 17 JUNE 2022
Freezing orders against respondents
Issued at the request of Scottish Pacific Business Finance Pty Ltd ACN 008 636 388, whose address for service is: Swaab Level 4, 20 Hunter Street SYDNEY NSW 2000 Ref: NAD/KVM223367 Email: [REDACTED] Details of subpoena You must comply with this subpoena: (a) by attending to produce this subpoena or a copy of it and the documents or things specified in the Schedule of documents below at the date, time and place specified for attendance and production; or (b) by delivering or sending this subpoena or a copy of it and the documents or things specified in the Schedule of documents below to a Registrar at the address below, or if there is more than one address below, at any one of those addresses, so that they are received not less than 2 clear business days before the date specified for attendance and production. (See Notes 5-9) Date, time and place at which you must attend to produce the subpoena or a copy of it and documents or things, unless you receive a notice of a later date or time from the issuing party, in which case the later date or time is substituted: Date: June 2022 Time: 10.15 am Place: Federal Court of Australia, Law Courts Building, Queens Square Sydney NSW 2000. Address, or any address, to which the subpoena (or copy) and documents or things may be delivered or posted: The Registrar Federal Court of Australia New South Wales District Registry Level 17, Federal Court of Australia Law Courts Building Queens Square Sydney NSW 2000 Schedule of documents The documents and things you must produce are as follows:
INTRODUCTION 1 On 14 June 2022, on the application of the plaintiff, Scottish Pacific Business Finance Pty Ltd, I made the following interlocutory orders, ex parte, as the presiding Commercial and Corporations Duty Judge in New South Wales (CCDJ). 2 First, I made freezing orders against the first, second, third, and fourth defendants: Order 4(a). These orders were expressed to remain in effect until 4.00 pm on 17 June 2022. 3 Secondly, I made an order that the first defendant make and serve on the plaintiff an affidavit detailing the transfer of certain funds from a bank account maintained by the fifth defendant with the Commonwealth Bank of Australia (CBA): Order 4(b). 4 Thirdly, I abridged the time for service of the originating process and the three affidavits that were relied on for making the freezing orders: Order 3. 5 Fourthly, I made an order that the relief sought in prayers 4 and 7 of the originating process be listed for further hearing at 10.15 am on 17 June 2022: Order 5. 6 Prayer 4 of the originating process concerned the freezing orders. The effect of Order 5, in that regard, was that the matter would come before the Court on 17 June 2022 for the continuation of the freezing orders for a further limited time or until further order. 7 Prayer 7 of the originating process sought the appointment of a provisional liquidator to the fifth defendant pursuant to s 472(2) of the Corporations Act 2001 (Cth) (the Corporations Act). 8 When the matter came before me on 17 June 2022, the first, second, and fifth defendants appeared by counsel. The third and fourth defendants did not appear. On that occasion I made the following orders. 9 First, I extended the freezing orders made on 14 June 2022 until 11.59 pm on 24 June 2022. The first and second defendants did not oppose the extension. 10 Secondly, on the application of the first defendant, I extended the time for making and serving the affidavit referred to at [3] above, to 4.00 pm on 23 June 2022. 11 Thirdly, I appointed a provisional liquidator to the fifth defendant. The fifth defendant sought an adjournment of that application. I was not persuaded that an adjournment was warranted or should be granted in the circumstances. 12 Fourthly, I made freezing orders against three additional companies and joined them as parties to the proceeding. These freezing orders were expressed to remain in effect until 11.59 pm on 24 June 2022. 13 Fifthly, I granted leave to the plaintiff to file and serve an amended originating process. 14 Sixthly, I granted leave for a subpoena to be issued to the CBA returnable at 2.15 pm on 24 June 2022 before the CCDJ. I abridged the time for service of the subpoena to 5.00 pm on 17 June 2022. 15 Seventhly, I adjourned the proceeding for case management before the CCDJ at 2.15 pm on 24 June 2022. I also made an order listing the matter for further hearing at that time in relation to the freezing orders I had made against the additional defendants. Although no express order was made concerning any further hearing in relation to the freezing orders I had made on 14 June 2022, the clear understanding was that, absent consent by the first, second, third, and fourth defendants to the further continuation of those orders, the plaintiff would make an application for continuation at that hearing. 16 These are my reasons for making the orders on 14 and 17 June 2022.
BACKGROUND 17 The plaintiff's primary business is the provision of debtor finance to borrowers (whom it calls clients). In providing this finance, the plaintiff requires its clients to: assign to it particular debts which are due and payable to the client by the client's own debtors (whom the plaintiff calls customers); grant security to the plaintiff; and procure personal guarantees to be given by the directors of the client and, sometimes, associated entities. The plaintiff then advances to the client amounts which are subject to facility limits. The plaintiff seeks payment directly from the customers based on the value of the debts that have been assigned (as shown on applicable invoices). Payment is made by the customers into a bank account which the plaintiff controls. 18 The plaintiff's ability to recover amounts that the client has invoiced to its customers is a key aspect of the plaintiff's debtor finance agreement with the client. In this connection, the plaintiff's usual practice is to obtain and rely on warranties given by the client about the recoverability of the amounts that the client has invoiced to the relevant customers; to periodically check that the invoices are due and payable following the client's supply of goods or services to the customers; and to rely on information obtained as a result of the checking process, to determine whether to make further funding available to the client. 19 On 11 December 2019, the plaintiff entered into a debtor finance facility agreement with the fifth defendant, Penny World Pty Ltd. The facility was guaranteed by three guarantors: the first defendant, Shadi Qaqour; the second defendant, Wizly Pty Ltd; and Penny Panel Machine Pty Ltd. 20 The first defendant is the sole director, secretary, and shareholder of the fifth defendant and the second defendant. He was also the sole director and shareholder of Penny Panel Machine Pty Ltd, but that company has now been deregistered. Previously, the third defendant, Mark Maximos (who is said to be the first defendant's business partner and best friend), and the first defendant's ex-wife, Nisrin Jebril, were directors of Penny Panel Machine Pty Ltd. 21 The fifth defendant's debtor finance facility with the plaintiff is in default. The fifth defendant owes the plaintiff $3,120,489.85. The plaintiff advanced this amount to the fifth defendant based on invoices that now appear to have been fabricated. 22 The sums advanced by the plaintiff were deposited by it in a bank account maintained by the fifth defendant with the CBA. These funds were then transferred, apparently by the first defendant, from that account into an account maintained by the second defendant, also with the CBA. I say "apparently by the first defendant" because the first defendant is the only signatory for the fifth defendant's CBA account. 23 The fifth defendant's CBA account now has a nil balance. At the present time, it is not known whether, and if so what, funds transferred from the fifth defendant's CBA account, and sourced from the advances made by the plaintiff, remain in the second defendant's CBA account. 24 At the time it entered into the debtor finance facility, the fifth defendant represented that its business was "wholesale building materials". The facility limit was, originally, $800,000. The facility limit varied from time to time. On 21 June 2021, the facility limit was increased to $5,000,000. 25 Under the terms and conditions of the facility, the fifth defendant warranted that: (a) the details given to the plaintiff of the account, the related rights, the customer, the invoice, the agreement, and the goods or services, are true and correct; (b) any copy invoice given to the plaintiff is exactly the same as the invoice given to the customer or, if the invoice is a recipient created tax invoice, is exactly the same as the invoice given by the customer; (c) the fifth defendant has performed all obligations required for the enforcement of the account; (d) the account is an existing, legal, valid, binding, undisputed, and enforceable payment obligation for its net value as evidenced by an invoice, is payable in full by the customer by no later than the recourse date, and is capable of being transferred by the fifth defendant to the plaintiff; and (e) the fifth defendant will immediately give the plaintiff any information that it obtains in relation to the validity of an account, the creditworthiness of the fifth defendant's customer, any dispute or possible dispute about the account, the related rights, the agreement, or the goods and services, and anything else that might affect the collection of the account. 26 The plaintiff has two types of funding limits. The first is a limit on the total amount which the client will be permitted to owe the plaintiff at any given time. The second is a limit on the amount which the plaintiff will advance having regard to the client's debtor concentration. 27 On 3 May 2022, the fifth defendant sought an increase in respect of the second limit for some of its customers. When the plaintiff reviewed this request, it noted some anomalies in respect of some invoices which the fifth defendant had presented. For example, there were no references in the invoices and delivery documents to addresses for construction sites. Some customers appeared to be retail and grocery convenience stores, not customers involved in the building or construction industry in which the fifth defendant said it was engaged. There were other matters relating to the customers which raised the plaintiff's concerns. As a result, the plaintiff decided to make further enquiries. 28 In the course of undertaking these enquiries, the plaintiff discovered that a large number of the fifth defendant's customers had websites that were registered by the third defendant or by the fourth defendant, Omar Eddine. Further, the plaintiff noted that there appeared to be associations between the guarantors under the facility and some of the fifth defendant's supposed customers. When the plaintiff attempted to contact customers by telephone, it was met with automated messages, or the telephone line was disconnected. 29 The plaintiff investigated the bank account it maintained with Australia and New Zealand Banking Group Ltd (ANZ) into which the fifth defendant's customers were required to make payments. When it traced the source of funds represented as having been deposited into the account by some of the fifth defendant's customers, the plaintiff discovered that, on 11 out of 19 occasions, the deposit had been made by Constructions AU Pty Ltd, now the sixth defendant. The third defendant is the sole director, secretary, and shareholder of the six defendant. He was the signatory for the sixth defendant's bank account with the Bank of Queensland. On five occasions, the deposit had been made by AndConstruction Pty Ltd, now the seventh defendant. The fourth defendant is the sole director, secretary, and shareholder of the seventh defendant. He was the signatory for the seventh defendant's bank account with the Bank of Queensland. 30 The fourth defendant is also the sole director, secretary, and shareholder, of CCS 136 Castlereagh Pty Ltd, now the eighth defendant. The eighth defendant was listed as one of the fifth defendant's customers. It conducts a convenience store in Sydney's Central Business District. It does not appear to have any business connection with the building and construction industry. The evidence indicates that it did not receive the invoice that the fifth defendant had presented to the plaintiff as one of the invoices that supported the plaintiff's financing. 31 On 18 May 2022, the first defendant had a meeting with the plaintiff's General Manager for NSW/ACT, Mr Doczy. The meeting was held at the first defendant's request in the foyer of the building in which the plaintiff's office is located. The meeting was also attended by other employees of the plaintiff. In an affidavit made 14 June 2022, Mr Doczy deposed to the following conversation: DOCZY: Thanks for meeting, it would have been better to meet at your premises. QAQOUR: I'm too busy. DOCZY: We could also have met up in our office. QAQOUR: No, I know how you guys operate - I'm busy and don't have long. DOCZY: Ok - as you know after attempting to verify and approve your new invoicing - it has not met our approval requirements and as such has been disapproved. We also re-conducted this process on all other active invoices and the result was the same. This has resulted in your account being overdrawn by more than three million dollars and this amount is due and payable to Scotpac - when can you repay that? QAQOUR: I need you to give me 60 days to refinance your facility - but I need you to fund my invoices in the meantime. DOCZY: We cannot fund invoices that don't meet approval. What additional security can you offer us to be able to agree to a period to secure refinance? QAQOUR: I don't have any assets. DOCZY: What about the other ledger you have - the invoices you don't give to Scotpac? QAQOUR: Oh, they're all the same - to debtors that are developers - they just pay me when they get paid. DOCZY: You are obliged to send all invoicing to Scotpac. QAQOUR: Look, you have to give me time to refinance your facility otherwise we will find ourselves in a very dark place. DOCZY: Is that a threat? QAQOUR: No, I mean a dark place financially. JURJEVIC: Are any of the invoices collectable? QAQOUR: You already know the answer to that. DOCZY: We will be issuing you with a breach letter and demand. QAQOUR: No, you can't do that as it might affect my refinance - you can't discuss this with other financiers either. DOCZY: Have you got a current offer? QAQOUR: From a long time ago. [As Qaqour said that, I saw him make a scrolling motion on his mobile telephone, and the conversation continued]. DOCZY: Who have you been speaking to? QAQOUR: Matthew Erwin and others." [I understood the reference to Matthew Erwin to be to another invoice financier, of Cashman Consulting]. DOCZY: Who are the others? QAQOUR: I can't remember. I can't find the emails. Do not send the breach and demand DOCZY: It is required - it does not show on public record but it will be sent and you will need to respond. VEERANI: Can you please update us on the progress of refinance facility with debtor finance providers? QAQOUR: Yes, I will let you know. 32 Mr Doczy heard nothing further from the first defendant. 33 On 19 May 2022, the plaintiff issued notices of default under the debtor financing facility to the fifth defendant, and to the first defendant and the second defendant as guarantors. 34 On 23 May 2022, the plaintiff appointed receivers and managers (Grahame Ward and Domenic Calabretta of Mackay Goodwin) (the receivers) to the fifth defendant. 35 The receivers' investigations have uncovered the following facts. 36 The fifth defendant's registered office is given as Unit 24, 809 Pacific Highway, Chatswood. When Mr Ward attended the address on 24 May 2022 (a commercial high-rise), he was informed by the female occupant of the premises that: she conducted a business called Wealthpool; she had occupied the premises for several years; and that she had never heard of Penny World. 37 The invoices issued by the fifth defendant record its address as Suite 903, Level 9, 10 Help Street, Chatswood. When Mr Ward attended the address on 24 May 2022 (also a commercial high-rise), he observed that Suite 903 had signage which showed the occupant as WHG Oceania Pty Ltd. The premises were unattended. Mr Ward saw nothing that would suggest that the premises had anything to do with the fifth defendant. 38 A property search conducted against the second defendant revealed that it is the tenant of premises at 3/7 Exell Street, Banksmeadow. This is a large industrial unit. When Mr Ward attended the premises on 24 May 2022 he observed a sign recording the name Penny World or Penny Panel (Mr Ward could not recall the exact name) on the front entrance window. The premises had an upstairs office space with a sign showing the name Penny World. The premises contained large machinery primarily used for packaging and manufacturing (such as for boxing and labelling), but not building materials. Mr Ward observed items associated with the packaging and sale of tobacco-related products. He did not observe any activity consistent with the premises being used for the supply of building or construction materials. Amongst the items he found at the premises was a cheque book for the account name Opal International Pty Ltd. The fifth defendant represented this company as one of its customers. 39 The receivers' investigations revealed that many of the premises of the fifth defendant's customers are, in fact, convenience stores. Some of the premises had closed. A number of the premises were not connected with the customer said to have been operating from the premises. The occupants of the premises that were visited had never heard of Penny World and had not received the invoices from the fifth defendant, on the faith of which the plaintiff had made the advances. 40 The fifth defendant's bank statements, in relation to its CBA account, for the period 25 March 2022 to 31 May 2022, show large deposits by the plaintiff in that period (29 March; 1, 6, 12, 14, 20, 26, and 28 April; and 3, 4, 9, and 13 May) in respect of the advances it had made, in most cases followed by what appears to have been the almost immediate withdrawals of funds in round figures corresponding to the deposited amounts. None of the withdrawals have a clear and obvious relationship with the fifth defendant's represented business. 41 Overwhelmingly, the withdrawals appear to have been for personal expenditure (apparently, the first defendant's personal expenditure), including overseas travel. In this latter regard, the bank statements show what is obviously the purchase of an airline ticket with Emirates, international ATM withdrawal fees, international transaction fees, in-flight service fees, hotel accommodation in Jordan, and expenditure in Dubai, to name just a few entries. The entries include a transfer to RTGS Constructions, which is meant to be one of the fifth defendant's customers. The entries also include a transfer to "Omar". This appears to be a reference to the fourth defendant. 42 The receivers' investigations revealed that the third defendant is, or was, a director of many of the entities represented as being the fifth defendant's customers. As I have noted, the fourth defendant is the sole director of the eighth defendant (one of the represented customers). He replaced the third defendant in that role.
THE FREEZING ORDERS 43 The originating process seeks relief against the first, second, third, and fourth defendants under ss 236, 237, and 243 of the Australian Consumer Law (Sch 2 to the Competition and Consumer Act 2010 (Cth)) (ACL) based on the alleged contravention of s 18 thereof. The evidence summarised above demonstrates, at the very least, a prima facie case for that relief. It was on that basis that I made the freezing orders on 14 June 2022. I was satisfied that, in light of the above facts, and what seems to have been fraudulent conduct perpetrated on the plaintiff, there was a clear and present danger that, without such orders, any prospective judgment sought against those defendants would be wholly or partly unsatisfied. 44 The additional evidence before me on 17 June 2022, established that the round sum withdrawals from the fifth defendant's CBA bank account were transferred to the second defendant's CBA bank account. As I have said, at the present time it is not known whether, and if so what, funds sourced from the advances made by the plaintiff remain in the second defendant's CBA account. 45 At that time, I was also satisfied that the evidence demonstrated a prima facie case for relief under the ACL against the sixth, seventh, and eighth defendants who appear to have been involved in the fifth defendant's prima facie contraventions of s 18. The evidence also demonstrated a prima facie case that the eighth defendant had engaged in misleading or deceptive conduct by representing to the plaintiff that the fifth defendant's invoice raised against it was genuine, when other evidence indicates that this was not the case. I was satisfied that, given their involvement in the apparently fraudulent conduct, there was a clear and present danger that, without such orders, any prospective judgment against the sixth, seventh, and eighth defendants would be wholly or partly unsatisfied.
APPOINTMENT OF PROVISIONAL LIQUIDATOR 46 The additional evidence before me on 17 June 2022, showed that the fifth defendant did not own any real property and did not have an income stream of any kind. Mr Ward's evidence was that, in the course of the receivers' investigations, there had been nothing to indicate that the fifth defendant has carried on business supplying building materials. Indeed, there was nothing to indicate that the fifth defendant had any ongoing trading activity at all. 47 The receivers obtained a valuation from Lloyd's Auctions of the property found at the Banksmeadow property. In Lloyd's Auctions' opinion, the total market value of the inventory is $52,000. However, the total estimated realisable value of the inventory is only $10,920. The receivers were not aware of any other property which might be owned by the fifth defendant, other than a computer which remains in their possession. 48 The matters referred to in [46] - [47] above indicated that the fifth defendant could not possibly meet any judgment that the plaintiff might obtain against it for the very large debt it owes. 49 Apart from this, there was evidence which pointed to the fact that the fifth defendant had falsified the address of its registered office as well as the address given on its invoices as its place of business. 50 At the hearing on 17 June 2022, the plaintiff pointed to all these matters (including the fifth defendant's apparently fraudulent conduct) as indicating a strong case that the fifth defendant should be wound up by the Court under the just and equitable ground: s 461(1)(k) of the Corporations Act, as sought in prayer 9 of the originating process. The plaintiff also contended that all the above circumstances warranted the appointment, now, of a provisional liquidator pursuant to s 472(2) of the Corporations Act. 51 In Deputy Commissioner of Taxation v Ausmart Services Pty Ltd [2018] FCA 1912, I noted (at [22]): 22 The Court's power to appoint a provisional liquidator is a wide one. The appointment is, however, a drastic intrusion into the affairs of the company, and an appointment will not be made unless the Court is satisfied, firstly, that there is a reasonable prospect that a winding up order will be made on the application to wind up and, secondly, some good reason is shown for placing the affairs of the company under external control prior to the hearing of the winding up application, such as public interest considerations, to preserve the status quo, or to protect the company's assets and affairs: Allstate Explorations NL v Batepro Australia Pty Ltd [2004] NSWSC 261 at [27] and [30]; Australian Securities and Investments Commission v Uglii Corporation Ltd [2016] FCA 1099; 116 ACSR 389 at [72]. It may be appropriate to appoint a provisional liquidator 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 will be properly conducted: Australian Securities Commission v Solomon (1996) 19 ACSR 73 at 80, citing Montgomery Windsor (NSW) Pty Ltd v Ilopa Pty Ltd (1984) 2 ACLC 224. 52 In an appropriate case, particularly in circumstances involving fraudulent conduct (Carr v Darren Berry International Marine Pty Ltd (No 1) [2013] FCA 1150), it might be appropriate to appoint a provisional liquidator on an ex parte basis. 53 In the present case, the fifth defendant was before me, represented by counsel. The fifth defendant was on notice that, on that occasion, the plaintiff would be seeking the appointment of a provisional liquidator. The fifth defendant was also on notice of the substance of the serious allegations made against it. Indeed, these allegations had been canvassed in correspondence with the first, second, and fifth defendant's solicitors from about 24 May 2022, at the time of the receivers' appointment. In a letter dated 31 May 2022, the plaintiff's solicitors made clear the plaintiff's view that the sums it had advanced had been fraudulently misappropriated. 54 As I have recorded, although the fifth defendant sought an adjournment of the plaintiff's application for the appointment of a provisional liquidator, I was not persuaded that an adjournment was warranted or should be granted in the circumstances. No convincing reason was advanced for such an adjournment. 55 The principles applicable to winding up a company on the just and equitable ground are conveniently summarised by Gordon J in Australian Securities and Investments Commission v ActiveSuper Pty Ltd (No 2) [2013] FCA 234; 93 ACSR 189 at [20] - [24]: 20 It has long been established that 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: Loch v John Blackwood Ltd [1924] AC 783 at 788. In Australian Securities and Investments Commission v ABC Fund Managers (2001) 39 ACSR 443 at [119], Warren J (as her Honour then was) set out three "general fundamental principles": "First, there needs to be a lack of confidence in the conduct and management of the affairs of the company … Second, in these types of circumstances it needs to be demonstrated that there is a risk to the public interest that warrants protection. Third, there is a reluctance on the part of the courts to wind up a solvent company." (Citation omitted.) 21 In relation to the first, 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": Galanopoulos v Moustafa [2010] VSC 380 at [32]; see also Australian Securities Commission v AS Nominees Limited (1995) 62 FCR 504 at 532-3; ABC Fund Managers at [117]-[118]; Australian Securities and Investments Commission v International Unity Insurance Pty Ltd (2004) 22 ACLC 1416 at [135]-[139]. 22 There is thus a significant overlap between the matters relevant to the just and equitable ground and the matters which weigh in favour of the exercise of the Court's discretion to appoint a provisional liquidator. For example, matters which indicate "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" might also demonstrate that "the company's affairs have been conducted in a manner without regard to legal requirements or accepted principles of corporate management". 23 In relation to the second, a risk to the public interest may take several forms. For example, 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: International Unity Insurance at [138]; see also Australian Securities and Investments Commission v Finchley Central Funds Management Ltd [2009] FCA 1110 at [3]. Alternatively, it might be justified in order to prevent and condemn repeated breaches of the law: Kingsley Brown Properties at [96]; see also AS Nominees at 527; Australian Securities and Investments Commission v Chase Capital Management Pty Ltd (2001) 36 ACSR 778 at 793. 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. 24 In relation to the third, it has been said that "a stronger case might be required where the company was prosperous, or at least solvent": Kingsley Brown Properties at [96]. 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: ABC Fund Managers at [124]-[130]. 56 In Hipages Group Pty Ltd v Reach Aussie Pty Ltd [2017] FCA 112 at [47] - [48], Perry J said: 47 … it is well established that the Court may order that a company be wound up on the ground that it is just and equitable where the company in question is simply being used as a vehicle to carry on unlawful conduct: Re London and County Coal Company (1866) 3 LR Eq 355. Subcategories of the just and equitable ground include where there has been serious fraud, misconduct or oppression in the conduct of the company's affairs, or where a company has operated an illegally managed investment scheme: see the discussion by Barrett J in Macquarie Bank Ltd v TM Investments Pty Ltd [2005] NSWSC 608; (2005) 223 ALR 148 at [11]-[13]. It may also be just and equitable to wind up a company in circumstances where "the management are operating fraudulently, misleadingly or in breach of the law": Australian Securities & Investments Commission v Centro Financial Synergy Group [2007] FCA 2084 at [5] (Gilmore J). Similarly, Lander J said in Australian Securities & Investments Commission v International Unity Insurance Pty Ltd [2004] FCA 1059 at [139]: "An order may be made if a company has not carried on its business candidly and in a straightforward manner with the public: Australian Securities & Investments Commission v Austimber Pty Ltd [1999] FCA 566; (1999) 17 ACL C 893. Such an order would also be appropriate where the corporation has acted fraudulently or entered into sham transactions." 48 In Australian Securities & Investments Commission v Stone Assets Management Pty Ltd [2012] FCA 630, Besanko J, after holding that the power of the plaintiff to seek this form of relief on public interest grounds is well established, held that a winding up order should be made having regard to a number of factors: "47 In the present case, I have found that the defendant has engaged in repeated contraventions of the Act, and as such, there is a real risk to actual and potential investors that such breaches will continue. This is particularly so in a case where the defendant has no director present in Australia, against whom any required action could be taken. Further, and perhaps most relevantly, the defendant failed to comply with the interim injunction I made on 8 December 2011, requiring the company to cease publication of its website (www.aftfx.com.au). In addition, the affidavit of Lily Yang, sworn 27 January 2012, and the translation therein contained, shows that the defendant continued to publish a Chinese language version of the website (www.aftfx.com) which persisted in making reference to the possession of an AFSL licence. Such conduct, in clear disregard of the orders of this court, also favours the order sought by the plaintiff. Finally, the overall misconduct and mismanagement of the defendant justifies a finding that there is cause for a lack of confidence in the future conduct and management of the defendant, should it be allowed to continue trading. The defendant does not have a director who ordinarily resides in Australia and appears never to have had such a person (s 201A(1)). It appears to have been prepared to make false or misleading statements contrary to subs 1308(2) in relation to the address of Ms Liang (ss 205B and 205D) and the defendant's principal place of business in its application for registration as an Australian company. For all these reasons I will make the winding up order sought by the plaintiff under s 461(1)(k) of the Act." 57 These observations are particularly apposite to the present case. 58 On the evidence before me, I was satisfied that the fifth defendant was not carrying on any trading activity, let alone one involving the supply of building products. I was satisfied that it had minimal assets, no apparently legitimate income stream, and no realistic prospects of meeting any judgment that the plaintiff might obtain against it in respect of its indebtedness. 59 Further, I was satisfied that, absent any convincing explanation to the contrary, the fifth defendant had been used as the vehicle for fraudulent conduct. I had no confidence that the affairs of the fifth defendant would be appropriately managed and conducted under the control of the first defendant. 60 I was satisfied that, in light of all the matters discussed above, and absent substantial countervailing evidence, there were more than reasonable prospects that the fifth defendant would be wound up under s 461(1)(k) of the Corporations Act. 61 In all the circumstances, I was persuaded that it was appropriate to appoint a provisional liquidator to the fifth defendant now. In reaching that conclusion, I was mindful of the fact that receivers and managers had already been appointed to the fifth defendant and were exercising control over it in that capacity. A court will generally decline to appoint a provisional liquidator pending final determination of a winding up application if some suitably stabilising interim regime is in place: Labraga v Pomfret [2005] NSWSC 490 at [33]; Triulcio v Chase Property Investments Pty Ltd [2003] NSWSC 861 at [30]; In the matter of Crow Inn Pty Limited [2020] NSWSC 601. 62 I was persuaded, however, that the appointment of a provisional liquidator would provide greater control over the fifth defendant, with the provisional liquidator exercising powers that the receivers did not have: see, for example, ss 486A, 530C, 596A, and 596B of the Corporations Act; see also the observations of Robson J in Vasco Trustees Limited v IPO Wealth Holdings No 2 Pty Ltd [2020] VSC 549 at [90] - [91]. 63 In the present case there was, of course, no realistic prospect that the appointment of a provisional liquidator would cause reputational or commercial damage to the fifth defendant. I certify that the preceding sixty-three (63) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Yates.
SCHEDULE OF PARTIES NSD 444 of 2022 Defendants Fourth Defendant: OMAR JAMAL EDDINE Fifth Defendant: PENNY WORLD PTY LTD (RECEIVERS AND MANAGERS APPOINTED) ACN 123 180 503 Sixth Defendant: CONSTRUCTIONS AU PTY LTD ACN 652 441 104 Seventh Defendant: ANDCONSTRUCTION PTY LTD ACN 638 960 899 Eighth Defendant: CCS 136 CASTLEREAGH PTY LTD ACN 157 791 869
Scottish Pacific Business Finance Pty Ltd
Qaqour, in the matter of Penny World Pty Ltd
[2020] VSC 549
[2010] VSC 380
(1995) 62 FCR 504
(2005) 223 ALR 148