Sijabat v Osman, in the matter of Aden Services Pty Ltd

Introduction 1 This is an application by the Liquidator of Aden Services Pty Ltd (in liquidation) (Company) for orders to be made on an ex parte basis pursuant to s 1323 of the Corporations Act 2001 (Cth) (Act). 2 Ms Louisa Sijabat, in her capacity as the liquidator of the Company (Liquidator), has commenced these proceedings today against Shukria Awil Osman, Ali Mohamed Farah, Samaher Services Pty Ltd, Eltayeb Masri Bashir Khalefa (aka Eltayeb Masri Bashir Kalefa), ZKFK Pty Ltd and Alomda Pty Ltd, being the first to sixth defendants respectively. 3 The Liquidator seeks common law damages, equitable compensation or damages, and compensation orders pursuant to s 1317H of the Act, together with interest and costs. 4 The evidence that the Liquidator relies upon for the orders that she seeks pursuant to s 1323 of the Act comprises: (a) the first affidavit of the Liquidator affirmed 5 September 2022 and the documents in the accompanying Exhibit LS-1, (b) the second affidavit of the Liquidator affirmed 5 September 2022 and the documents in the accompanying Exhibit LS-2; and (c) the affidavit of Blake O'Neill affirmed 13 September 2022, and the documents in the accompanying Exhibit BJON-1.

Legal Principles 5 The preconditions for the making of an order pursuant to s 1323(1) of the Act relevantly include the commencement of a civil proceeding against a "relevant" person for a contravention of the Act, and that an application has been made by an "aggrieved" person for one or more of the orders that may be made under that section. 6 Section 1323(1) provides that the Court may make orders pursuant to that section where: (a) there is a person, defined as a "relevant" person, who is or may become liable to pay money, whether in respect of a debt, by way of damages or compensation or otherwise, or to account for financial products or other property; (b) the liability of the relevant person is to another person defined as the "aggrieved person"; and (c) the Court considers it necessary or desirable to make the orders "for the purpose of protecting the interests of the aggrieved person". 7 None of the particular subparagraphs of s 1323(1) of the Act empowers the Court in explicit terms to make a freezing order. It is well established, however, that where requirements of the subsection have otherwise been met, and if the Court is satisfied that it is necessary or desirable for the protection of the aggrieved persons to appoint a receiver, it may make any alternative or lesser order, including a freezing order: Re Richstar Enterprises Pty Ltd; Australian Securities and Investments Commission v Carey (No 3) (2006) 232 ALR 577; [2006] FCA 433 (Carey); Australian Securities and Investments Commission v Krecichwost (2007) 213 FLR 314; [2007] NSWSC 948; Australian Securities and Investments Commission v Banovec (No 2) [2007] 25 ACLC 1205; 2007 NSWSC 961. 8 As Barrett J explained in Australian Securities and Investments Commission v Burnard (2007) 64 ACSR 360; [2007] NSWSC 1217 at [22]: It is necessary for the court to address the question whether a case has been made out for a grant of the relief actually provided for by s 1323(1)(h), namely, the appointment of a receiver of the whole or some part of the property of a "relevant person". If that question is answered in the affirmative so that the statutory jurisdiction is enlivened, the court must, in the words of White J in Banovec (No 2) (above), "consider whether a less drastic remedy will suffice". If that question too is answered in the affirmative, the court may make the lesser alternative order in the same way as it could have made an order appointing a receiver. And that lesser order is itself an order comprehended by s1323(1)(h). 9 The purpose of the remedies provided for in s 1323 is to protect the interest of persons who might have claims against corporations and others who are subject to the provisions of the Act. Whether or not those claims flow from a breach of the Act, it achieves this by securing (a) the assets of the person, corporate or natural, against whom the relevant claims may lie for the purpose of providing security for those claims, or (b) assets for which that person may be liable to account in such a claim: Australian Securities Commission v AS Nominees Limited (1995) 62 FCR 504 at 525 (Finn J). 10 An order made under s 1323(1) preserves the status quo and the assets of the relevant person pending the outcome of an investigation, prosecution or civil proceedings which are on foot, at a stage when the Court may not be in a position to identify with precision any particular liability owed by the person the subject of the proposed order: Carey at [25].

Background 11 The Company was incorporated on 11 June 2014 and carried on a trolley collection business. 12 On 26 September 2018, the Company was wound up by an order of the Federal Court at the petition of the Deputy Commissioner of Taxation. 13 Ms Osman, the first defendant, was the sole director and secretary of the company from the time of its incorporation until 1 May 2016. Thereafter, a Mr Mohamed Soliman was appointed as the sole director and secretary of the Company. Notwithstanding that the records of Australian Securities and Investments Commission record that Ms Osman ceased to be a director of the Company from 1 May 2016, documents obtained by the Liquidator demonstrate that, as late as March 2018, Ms Osman appears to have continued to act at least as a de facto director of the Company. 14 Mr Farah, the second defendant, is Ms Osman's husband and a registered tax agent and practising accountant. Ms Osman gave evidence during the public examinations conducted by the Liquidator that Mr Farah exercised a high level of control over the affairs of the Company. 15 Mr Khalefa, the fourth defendant, is a relative of Mr Farah and Ms Osman, and the sole director and secretary of Samaher Services, the third defendant. Ms Osman gave evidence during the public examinations that Mr Khalefa exercised control, and possibly exclusive control, over the Company's bank accounts. 16 In December 2016, the Australian Taxation Office (ATO) commenced an audit of the Company's outstanding lodgements and liabilities. 17 The ATO found that the Company owed amounts under the BAS provisions and unpaid superannuation guarantee charges in an amount of $407,881.28. In addition, the Company failed to make various lodgements with the ATO, which, when assessed, may result in an increase in the Company's liability to the ATO. 18 Following her appointment, the Liquidator sought production of the Company's books and records from various sources, including Ms Osman and Mr Farah. Those attempts to obtain production of documents were largely unsuccessful. 19 On 24 September 2021, the Liquidator brought an application in the Supreme Court of New South Wales for the conduct of public examinations. Those examinations were held in November 2021 and March 2022. 20 As a result of the Liquidator's investigations, in particular the evidence that was obtained in the course of the public examinations, the Liquidator alleges in these proceedings that she has commenced in the name of the Company, funds totalling some $2,166,434 were paid out of the Company to the following persons in the following amounts for which she cannot account as having been made for any legitimate purpose: (a) $681,800 to Mr Khalefa; (b) $1,251,500 to Samaher Services; (c) $83,134.70 to Alomda, which she believes to be the company Alomda Pty Ltd ACN 601 609 900, the sixth defendant; and (d) $150,000 to ZKFK Pty Ltd, ACN 159 247 275, the fifth defendant, of which Mr Farah is the sole director and secretary. 21 The Liquidator has formed the view that the bank accounts maintained by the Company obscured the true recipient of the payments, because they bore the description in the Company's bank account statements as payments for "Aden Services PL". 22 The Liquidator, in February 2022, obtained trace records from the Commonwealth Bank, which revealed that the true recipients of the payments out of the bank accounts of the Company included the amounts identified above as being paid to each of those recipients. 23 In addition, the Liquidator is concerned at the extent to which her investigations have been obstructed or frustrated by a lack of cooperation from the defendants, in particular Ms Osman and Mr Farah, and in addition from Mr Mohamed Soliman. 24 Mr Soliman evaded all attempts by the Liquidator to contact him until March 2022, and then has only provided a partially completed report on company activities and property. 25 The Liquidator has not been able to locate Mr Khalefa. 26 The Liquidator is particularly concerned that there is a significant risk that Ms Osman and the other defendants may divest themselves of property currently held by them as soon as they become aware of the commencement of these proceedings by the Liquidator. 27 The Liquidator points to the response to her letter of demand dated 10 June 2022 to Ms Osman. In a letter from her lawyers, Sadek Lawyers, dated 5 August 2022, Ms Osman represented that the property held in her name at 13 Armstrong Street, Ashcroft (Ashcroft Property) was not beneficially owned by her, but rather had been held by her under the ASA Family Trust. She claimed that she had resigned as a trustee of that trust on 24 October 2018. The Liquidator has not been provided with any evidence of such an alleged arrangement, and as late as 2 August 2022, a Land Titles search for the Ashcroft Property still records Ms Osman as the registered proprietor. 28 In addition, the Liquidator is concerned at the extent to which Ms Osman, in the period after her alleged resignation as a director, continued to act as a director of the company in connection with a series of transactions and her attendance at a board meeting of the Company on 21 March 2017, in which the minutes record that it was resolved that she was going to borrow money for her use, but the borrower would be recorded as the Company. 29 In summary, the Liquidator is concerned at a chronic lack of cooperation from the personal defendants, the absence of appropriate records, what appears to be a deliberate attempt to hide transactions involving significant sums of money, which led to funds being dissipated from the company for no apparent commercial purpose in the period leading up to the liquidation of the Company, and the inconsistent and unlikely evidence given by Ms Osman as to the absence of any beneficial interest in the Ashcroft Property.

Consideration 30 In Purina, In the matter of Aircraft Support Industries Engineering Pty Ltd (in liquidation) [2019] FCA 898, at [12], Jagot J was satisfied that it was necessary nor desirable, within the meaning of s 1323(1), that there be an appointment of a receiver on the application of a liquidator in circumstances where there were significant irregularities in the financial records and dealings of a company. 31 Her Honour concluded in that case that those irregularities had reached a particular level of materiality which satisfied her that it was necessary or desirable for there to be an appointment of a receiver as sought by the liquidator. Justice Jagot was, however, satisfied that the lesser remedy sought in the interlocutory application, as a matter of discretion, would be a more appropriate order in that case. 32 I am satisfied that the irregularities in this case in the financial records of the Company were of a very serious nature. The records were maintained in such a fashion that the payment of very significant and unexplained funds to the defendants, as outlined above, was hidden, and it was only as a result of the Liquidator's receipt of trace records that the Liquidator was able to identify that the payments had in fact been made. 33 I am also satisfied that there has been in this case a chronic lack of assistance, both in terms of the production of financial and other records of the Company, and in assisting the Liquidator in understanding the financial affairs of the Company in the period leading up to liquidation; in particular the extent of the outstanding liabilities to the ATO, which led to the winding up of the Company and the appointment of the Liquidator. 34 The serious nature of these matters, combined with the unsatisfactory explanations given by Ms Osman concerning the Ashcroft Property, is sufficient to give rise to a real and not speculative risk of a dissipation of assets by the defendants. 35 For these reasons, I have concluded that the preconditions to the making of orders pursuant to s 1323 have been established. Civil proceedings have been commenced against the defendants, the Company is relevantly an aggrieved person, each of the defendants are relevant persons, and, given the matters that are outlined above, I have concluded that it is necessary or desirable for a receiver to be appointed over their assets, but that a lesser remedy of asset preservation orders is more appropriate in the circumstances.

Disposition 36 The orders sought on an ex parte basis in the interlocutory process will be made. I certify that the preceding thirty-six (36) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Halley.