Shenzhen Xinhe Hongshi Investment and Consultancy Co Ltd v Shandong Ruyi... [2025] FCA 1471 | Case summary

[1981] HCA 40Shenzhen Xinhe Hongshi Investment and Consultancy Co Ltd v Shandong Ruyi... [2025] FCA 1471 | Case summary | Zoe

[43]

The plaintiff and the defendant are both Chinese corporations. The defendant is indebted to the plaintiff in a sum equivalent to more than $85 million. The debt arises from proceedings commenced by the plaintiff in the Shenzhen Municipal Intermediate People's Court in which it obtained judgment against the defendant on 31 December 2021 for an amount equivalent to more than $44 million. After taking into account a modest recovery, the current quantum of the debt is ascribed to the accumulation of interest.
By amended originating process, in the principal proceeding the plaintiff seeks, amongst others, orders recognising the foreign judgment and winding up the defendant under s 583 of the Corporations Act 2001 (Cth). That section confers power on the Court to wind up a "Part 5.7 body" where, relevantly, the Part 5.7 body is unable to pay its debts (s 583(c)(i)). The principal proceeding is listed for final hearing in April next year.
Further background is set out in Shenzhen Xinhe Hongshi Investment and Consultancy Co Ltd v Shandong Ruyi Technology Group Co Ltd [2025] FCA 860 at [1]- [3] (Shenzhen v Shandong (No 1)), in which I considered the defendant's application to set aside the amended originating process and orders concerning service.
On 19 November 2025, the plaintiff sought by interlocutory application a freezing order against a non-party to the proceeding, Forever Winner International Development (Australia) Pty Ltd (FWIDA), and that FWIDA be joined to the proceeding as second defendant solely for that purpose. More specifically, the plaintiff sought a freezing order restraining FWIDA from removing from Australia or in any way disposing of, dealing with or diminishing the value of its assets in Australia up to the unencumbered value of $10,832,620. That amount represents a loan debt repayable on demand said to be owed by FWIDA to the defendant, the prospective judgment debtor in this Court.
As FWIDA is not the prospective judgment debtor, the freezing order sought against it is commonly referred to as a third party freezing order.
I was satisfied that a freezing order should be made against FWIDA but not that it should be joined to the principal proceeding, and I made orders accordingly on 19 November 2025. These are my reasons for making the orders.
Both respondents to the interlocutory application, FWIDA and the defendant, opposed the making of the freezing order - FWIDA made the principal submissions which were joined in and supplemented by the defendant.

[47]

FWIDA accepted that both those bases for the application of r 7.35 are met in this case with respect to the registration or enforcement of a foreign judgment. That is to say, FWIDA accepted that the plaintiff has at this stage made out "a good arguable case" that the Chinese judgment will be enforced by the making of a judgment in this Court. FWIDA did not contest that this would also extend to the plaintiff's case for the winding up of the defendant. The defendant also did not contest that, noting that it previously accepted that the plaintiff had established an arguable case on winding up: as recorded in Shenzhen v Shandong (No 1) at [10].
Importantly, r 7.35 does not "affect[] the power of the Court to make a freezing order or ancillary order if the Court considers it is in the interests of justice to do so" (r 7.35(6)) and nothing in Div 7.4 diminishes the inherent, implied or statutory jurisdiction of the Court to make a freezing order (r 7.36). That is to say, the more generally expressed powers given by s 23 and r 7.32 are not restricted by r 7.35. As was said in Huang (at [21]): "Rather, r 7.35 extends the scope of r 7.32, including by confirming the rule's application to cases that may have otherwise been in doubt, namely where there is a 'prospective' cause of action and in relation to processes of a foreign court. Where r 7.35 applies, r 7.35(4) supplements the power in r 7.32 by identifying reasons why the Court may be satisfied, having regard to all the circumstances, that a danger of the kind specified in both r 7.32 and r 7.35(4) exists." That applies equally to r 7.35(5).
Rules 7.35(4) and (5) contain the specific requirements for the extended powers, the former in relation to freezing orders against judgment debtors or prospective judgment debtors and the latter in relation to freezing orders against third parties. Although the plaintiff relied in its written submissions on rr 7.35(4) and 7.35(5), it is apparent from the wording of the former that it is not applicable to third party freezing orders and hence this case.
Rule 7.35(5) is in the following terms:

[50]

The plaintiff principally relied on r 7.35(5)(b). It should be noted that the applicability of r 7.35(5)(b) (unlike rr 7.35(4) and (5)(a) picking up the language of r 7.32) is not expressly premised on the jurisdictional requirement of "a danger that a judgment or a prospective judgment will be wholly or partly unsatisfied"; rather, it is the existence of a "process" which is in issue. Whether or not the existence of such a danger is a requisite element because of r 7.32 even when relying on r 7.35(5)(b) or whether it is in any event an important factor to consider in the exercise of the Court's discretion does not really matter - in either event the question of danger must be considered.
That said, I consider that although r 7.35 does not restrict r 7.32 but rather extends it in certain respects as explained above, the requirements expressed in r 7.32 govern the exercise of power under r 7.35. It is inconceivable that a freezing order may be granted where there is no danger that a judgment or prospective judgment will be wholly or partly unsatisfied. The presence of an express requirement in r 7.35(5)(a) of there being such a danger and not in r 7.35(5)(b) is explained by the causal nexus required by the use of "because" in the former which is absent from the latter.
The plaintiff identified two alternative and possibly sequential processes in the Court each of which it contends is, within the meaning of that provision, "a process in the Court [that] ... may ultimately be available to [it] as a result of a judgment or prospective judgment, under which process the third party may be obliged to disgorge assets or contribute toward satisfying the judgment or prospective judgment".
The first such process is the attachment of FWIDA's debt to the defendant by way of a garnishee order under s 53 of the FCA Act or r 41.10 of the FCR referring to and in that way applying ss 117, 118 and 123 of the Civil Procedure Act 2005 (NSW) (CPA). The second such process is the winding up of the defendant and the appointment of a liquidator who would then have the power and the obligation to get in (or at least consider getting in) the debt owed by FWIDA to the defendant.
The plaintiff also relied on r 7.35(5)(a)(ii) in respect of which it asserted that FWIDA "is in possession of, or in a position of control or influence concerning, assets (including claims and expectancies)" of the defendant, the prospective judgment debtor. More particularly, it submitted that FWIDA is in a position to "influence" the debt that it owes to the defendant which is an asset, claim or expectancy of the defendant.
Thus, the plaintiff sought to advance different avenues to the same result in the form of r 7.35(5)(a)(ii), r 7.35(5)(b) and, possibly, the general power in r 7.32.

[54]

Ms Qiu swore an affidavit in the principal proceeding on 23 December 2024 in which she stated that the defendant had a shareholder loan account in FWIDA in credit to the defendant's favour in the sum of $10,832,620. She stated that the loan "remains owing and is recorded in the financial accounts of FWIDA". The most recent financial report of FWIDA, which is for the year ended 31 December 2022, records that debt as a related party non-interest bearing loan payable on demand. The financial report was signed by Ms Qiu as director and by EY as accountants on 30 April 2024. The financial report is not audited. It records that the director is solely responsible for the information contained in the report.
Mr Qiu swore an affidavit in the principal proceeding on 20 December 2024 in which he also stated that the balance of $10,832,620 remained owing by FWIDA to the defendant.
Subsequent to those affidavits and financial report, the plaintiff sought the freezing order in this proceeding in reliance on the debt owed by FWIDA to the defendant. In defence of that application, FWIDA served and later read an affidavit of Wayne Materne dated 7 November 2025. Mr Materne is the CEO of Lempriere (Australia) Pty Ltd (Lempriere). He assumed that position in January 2022. He was CFO of Lempriere from March 2019 to December 2021. FWIDA itself has no employees and engages contractors, including Lempriere, to provide it with various services. Lempriere provides accounting, tax and treasury services to FWIDA, including the maintenance of its general ledger and other accounting records, the administration of its bank account and credit card, and its office serves as FWIDA's registered office.
Mr Materne stated that he was authorised to make his affidavit "on behalf of FWIDA".
Mr Materne stated that Ms Qiu had informed him that when she deposed in her affidavit to the FWIDA debt to the defendant, she did so in reference to, and in reliance on, FWIDA's financial accounts and not from personal knowledge. He did not deal in his affidavit with Mr Qiu's evidence about the debt which is to the same effect as Ms Qiu's.
Mr Materne then stated that he is "presently in the process, on behalf of FWIDA, of undertaking a detailed reconciliation of the purported loan from [the defendant] to FWIDA, components of which date back to 2012, with many individual transactions increasing and decreasing the loan balance since then". He stated that his "initial investigations indicate that a significant portion of the loan balance may have been provided by (and be repayable to) entities other than [the defendant]".
Finally, Mr Materne stated that the "reconciliation process is very detailed and still ongoing" and that he expected it to take up to one further month to complete, ie to about the end of the first week of December.

[59]

As already mentioned, the requirement that the plaintiff establish that there is a danger that the prospective judgment will be partly or wholly unsatisfied arises from r 7.32(1), and is also reflected in r 7.35(5)(a)(ii). If it is not a requirement that attaches to r 7.35(5)(b), it is in any event a matter that is highly relevant to the exercise of the Court's discretion.
That there is a danger that the prospective judgment will be partly or wholly unsatisfied is not a requirement that the applicant for a freezing order establish "an unjustifiable disposition of assets": Aqualand North Sydney Lavender Development Pty Ltd v Owners - Strata Plan No 102081 [2025] NSWCA 143 at [27] per Mitchelmore JA, Ball and Free JJA agreeing. In that case, "it was reasonable to infer that unless restrained [the respondent to the freezing order] would continue to distribute [its] profits": at [36] per Ball JA, Free JA agreeing. This is an analogous case in as much as it is reasonable to infer that unless restrained FWIDA will distribute the proceeds of sale of the Larundel Estate.
FWIDA's principal answer to such a contention was that it cannot do so without Dynamic Day being in breach of its undertaking in the BVI proceeding. That is to say, FWIDA submitted that because of the undertaking by Dynamic Day in the BVI proceeding, there is no relevant or appreciable, or sufficient, danger that FWIDA will distribute the proceeds of sale.
There are a number of reasons why that submission must fail.
First, Dynamic Day is challenging the injunction in the BVI proceeding with the result that its undertaking may be short lived. That is to say, it is an interim undertaking.
Secondly, the undertaking is by Dynamic Day, not by FWIDA, and it is not to this Court and cannot be enforced in this Court. Also, if FWIDA independently, ie other than on Dynamic Day's instructions, distributes the proceeds of sale that will not be a breach of Dynamic Day's undertaking. It is not to the point that Ms Qiu is the sole director of both Dynamic Day and FWIDA. If Ms Qiu as director of FWIDA causes FWIDA to distribute the proceeds of sale, it is not clear that that would constitute a breach by Dynamic Day of its undertaking. But in any event, Ms Qiu is not an executive director of FWIDA and FWIDA's daily affairs are dealt with by Mr Materne or others at Lempriere. Quite conceivably, Mr Materne could cause FWIDA to distribute the proceeds sale.
The concern that that may occur is exacerbated by Mr Materne's evidence in relation to FWIDA's debt to the defendant. Despite the evidence of Ms Qiu and Mr Qiu (which is not sought to be qualified in the way in which Mr Materne seeks to qualify Ms Qiu's evidence) and the existing financial records of FWIDA all supporting the debt, Mr Materne says that it may be that that is wrong and that the debt is owed to other entities. That carries with it the implication that if Mr Materne reaches that conclusion he will or at least might disperse the sale proceeds to those entities; certainly, neither he nor FWIDA have committed to not doing so.
Part of the concern is that any debts identified by Mr Materne may be to offshore companies. Indeed, given that Mr Materne's explanation is that his "initial investigations indicate that a significant portion of the loan balance may have been provided by (and be repayable to) entities other than [the defendant]", the position seems to be that it is other entities in the same group of companies as the defendant that may be identified as being the relevant creditors. Those are likely to be offshore companies. If payments are made to them in respect of debts that ultimately turn out not to be true debts, the payments may not be able to be readily recovered in due course.
The risk of payments being made to entities that are not true creditors of FWIDA is the reason for my satisfaction as to the need for and appropriateness of putting a $10,000 limit on the standard form exception to the freezing order that the enjoined party not be prevented from dealing with or disposing of any of its assets "in the ordinary and proper course" of its business, including by, relevantly, "repaying any loans". That exception is contained in paragraph 9(d) of Annexure A to the freezing order that I made on 19 November 2025. On Mr Materne's evidence, any conclusion by him that any part of the FWIDA debt to the defendant is really a debt to some other entity carries with it the implication that he might repay that debt and, in that way, disperse the sale proceeds. In circumstances where any such conclusion is likely highly contestable, that should not be able to be done without the opportunity for further scrutiny by the plaintiff and, if necessary, by the Court. If FWIDA can show that they are real debts that can and should be paid in the ordinary course of business then it can seek a variation of the freezing order.
Returning to the question of the danger that in the absence of the freezing order, the prospective judgment may be at least partially unsatisfied, FWIDA submitted that the reference to "danger" is to a risk of that outcome and that the "risk or danger must be real or substantial, as opposed to a remote, speculative or theoretical possibility": Zirk-Sadowski v University of New South Wales [2025] FCAFC 64 at [46] per Snaden J, Wheelahan and McElwaine JJ agreeing. I am satisfied that the danger is real and is not a remote, speculative or theoretical possibility. That that is so is further evidenced by the defendant's failure to pay the Chinese judgment and to the close relationship between the defendant and FWIDA.
In the latter regard, there are at least grounds for concern as to whether FWIDA is genuinely independent of the defendant. That need not be decided at this stage, but aside from the apparent overlap in roles and responsibilities of Ms Qiu between the two companies and the family connection with Mr Qiu, it is notable that neither the defendant nor FWIDA has put on any evidence of the circumstances in which the defendant's shareholding in FWIDA was transferred to Dynamic Day. Mr Materne has sought to explain why it may be that at the time of the transfer the shares in FWIDA had no value, but that does not explain why they were transferred or on what terms, or why the defendant would transfer the shares for no consideration while still being owed more than $10 million by FWIDA. These are all matters peculiarly within the knowledge of FWIDA and the defendant.
Further, the BVI solicitors for Dynamic Day, in response to a letter from the BVI solicitors for the plaintiff seeking confirmation that the proceeds of sale of the Larundel Estate would be retained by FWIDA, stated in a letter dated 2 October 2025 that it would not be inconsistent with the undertakings given in the BVI proceeding for the proceeds of sale to be used to pay FWIDA's creditors. That amounts to an acceptance that the undertakings will not protect the plaintiff's position. In circumstances where there is reason to doubt that the creditors are genuine, there is the requisite danger.

[61]

FWIDA rightly pointed out that if the defendant is wound up in the principal proceeding, then no garnishee process will be able to be pursued against FWIDA because any such process would be prevented or, if already on foot, stayed by the effect of s 471B of the Corporations Act. For that reason, FWIDA focussed on the plaintiff's contemplated winding up relief against the defendant. I will return to consider that, but the garnishee relief cannot be so easily put to one side. That is because the plaintiff sought both judgment on the Chinese judgment against the defendant and that the defendant be wound up, and there is no certainty which of those forms of relief it will be granted, if either. It may be that it gets judgment, which would allow it to restrain the payment of the sale proceeds by FWIDA other than to it under a garnishee order, and that it does not get a winding up order. Indeed, the most debatable issue in the principal proceeding appears to be in relation to the winding up, in particular whether or not the defendant carries or carried on business in Australia, rather than in relation to the judgment. Or, the plaintiff may get judgment and only later a winding up order. Thus, the garnishee process must be considered.
It is to be noted that the language of s 117 of the CPA is that a "all debts that are due or accruing from the garnishee to the judgment debtor" can be the subject of a garnishee order. A debt payable on demand, such as FWIDA's debt to the defendant, is in the absence of a demand from the defendant not yet due and payable but it is accruing: Clyne v Deputy Commissioner of Taxation [1981] HCA 40; 150 CLR 1 at 15 per Mason J. By providing that if a garnishee order attaches a debt that falls due after the date on which the order is served on the garnishee, then payment must be made within 14 days "after the date on which the debt falls due", s 118 of the CPA puts it beyond doubt that a debt that is not yet due can be the subject of attachment under a garnishee order.
For those reasons, the process available to the plaintiff to attach the defendant's chose in action against FWIDA for the repayment of the loan account debt is a process of the Court that may ultimately be available to the plaintiff as a result of its prospective judgment against the defendant. Under that process, FWIDA may be obliged to contribute toward satisfying the prospective judgment. The requirements of r 7.35(5)(b) are thus established with reference to the proposed garnishee order.
Turning now to the winding up of the defendant as an alternative process on which to base the freezing order, the Court has the requisite power to make, on the application of a creditor of a company, a freezing order that will preserve the claims that may be brought by a liquidator appointed to the company: Re HPack Investments Pty Ltd [2020] NSWSC 1638; 149 ACSR 303 at [47]- [49] per Black J. Such an order is "directed to preventing the frustration or inhibition of the Court's winding up process by seeking to meet a danger that a prospective judgement that could be obtained by a liquidator consequent on that process will be wholly or partly unsatisfied": HPack at [48].
As already mentioned, neither FWIDA nor the defendant disputed that the plaintiff has a good arguable case for the winding up of the defendant and thus for the appointment of a liquidator to the defendant. In that scenario, the liquidator would have the responsibility of investigating the merits of the defendant's claim against FWIDA, and in their discretion to pursue it in the interests of the creditors of the defendant. The exercise of that discretion by the liquidator would be subject to the supervision of the Court on the application of a creditor, including the plaintiff: s 90-15 of Sch 2 to the Corporations Act, the Insolvency Practice Schedule (Corporations).
Given the strength of the evidence in support of the defendant's claim against FWIDA, and the speculative quality of Mr Materne's evidence in seeking to throw doubt on the strength of the claim, I am satisfied that a liquidator would likely choose to pursue the claim against FWIDA if funded to do so. This case is therefore similar to HPack (at [49]) in that regard and dissimilar to Costagliola v Autore [2025] FCA 35 (at [178]-[179]), noting that in the latter case Wigney J accepted that the process of a trustee in bankruptcy in pursuing a debt against a third party is relevantly analogous to that of a liquidator in a winding up for the purposes of a freezing order against the third party (at [79]).
I consider HPack and Costagliola to be good authority for the proposition that the process of winding up and the liquidator then pursuing the debt comes within the meaning of a process referred to in r 7.35(5)(b). I reject the submission to the contrary. There is no reason why such a two staged process is not a process "available to the applicant" - certainly winding up the debtor is a process that is available to the applicant for the freezing order against a third party, and the pursuit by the liquidator under the supervision of the Court is a continuation of that process. Indeed, that continuation, representing, as it does, the fulfillment by the liquidator of their obligation to bring in the assets of the company, necessarily follows on from the winding up in the manner I have identified.
This is supported by the statement of principle in Cardile (at [57]) from which the wording of r 7.35(5)(b) is derived: see Viterra BV v Shandong Ruyi Technology Group Company Ltd [2022] FCA 215; 291 FCR 640 at [49]. In Cardile, the High Court explained that a relevant factor in whether a freezing order should be granted in relation to a third party is whether "some process, ultimately enforceable by the courts, is or may be available to the judgment creditor as a consequence of a judgment against that actual or potential judgment debtor, pursuant to which, whether by appointment of a liquidator, trustee in bankruptcy receiver or otherwise, the third party may be obliged to disgorge property or otherwise contribute to the funds or property of the judgment debtor to help satisfy the judgment against the judgment debtor" (emphasis added). The third party freezing order against Mr and Mrs Cardile in that case was on the basis that the liquidator of the debtor company could in due course recover funds from them, ie the process of the liquidator was a process available to the applicant for the freezing order (at [69]).

[64]

Notwithstanding what has been said about the requirements for the exercise of the relevant powers as described above, whether under rr 7.32, 7.35(5)(a)(ii) or 7.35(5)(b), the actual exercise of those powers to grant a freezing order is ultimately discretionary. It is an intrusive remedy, especially upon a third party to a proceeding. A high degree of caution is necessary before making such an order: Cardile at [50]. In addition to the matters already mentioned, I consider that the following matters support the exercise of the discretion in making a freezing order in the present case.
First, the balance of the sale proceeds appear to be FWIDA's only remaining asset of any significance. I infer that from the fact that the Larundel Estate was FWIDA's principal asset from which it conducted a farming business and all the assets associated with that business have, on Mr Materne's account, been sold. He gave evidence that its only other asset, being shares in its Indian subsidiary, has no value. Although FWIDA submitted that this fact counts against the granting of a freezing order because such an order would stifle FWIDA from carrying on any business with its only remaining asset, to my mind the reverse is true. No evidence has been adduced by FWIDA with regard to any intention in dealing with the sale proceeds - no other business plan or opportunity is identified. Nor is there evidence about what business activities FWIDA presently carries out having sold its principal asset - it would appear to conduct no business. In the circumstances, the freezing order does not stifle FWIDA from continuing any business, but rather merely maintains the status quo and prevents the most obvious next course of dealing with the sale proceeds which would be to pay them to Dynamic Day in dividends.
Secondly, and relatedly, I do not consider that FWIDA will suffer particular prejudice as a consequence of the freezing order pending the determination of the relief sought in the principal proceeding. Further in relation to that, on FWIDA's case there is no or insufficient risk that the sale proceeds will be paid out because to do so would be in breach of the undertakings given in the BVI proceeding. On that approach, there is no additional prejudice in making the freezing order.

Shenzhen Xinhe Hongshi Investment and Consultancy Co Ltd v Shandong Ruyi Technology Group Co Ltd

At a glance

Court

Decision date

Before

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Judgment (66 paragraphs)

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Legislation Cited (3)