1. in respect of the Milsons Point property:

Payee Amount

1 North Sydney Council $3,448.75 2 Sydney Water $712.30 3 Owners Corporation SP63731 $7,859.88 4 National Australia Bank Ltd $750,000.00 5 Aojia Investment Pty Ltd $400,000.00 6 Ming Yang & Co $4,730.00 7 Ming Yang $2,243.72 8 Revenue NSW $213,510.00 9 Buyan Xu $1,099,550.86 10 Zhang Shijing Lawyers $3,100.00 11 Pancific Legal $880.00 12 Pancific Legal $880.00 13 Pancific Legal $43,240.00 14 Qiao Wang $16,551.43 Total: $2,546,706.94

1. In addition, Ms Wang gives evidence that the balance of the purchase price was deducted from the debt that Mr Xu owed her. In support of that assertion, she refers to a declaration dated 13 September 2018 signed by Mr Xu which relevantly says: I, Lawrence Xu, hereby declare that I have made the agreement with Qiao Wang regarding to two property contracts. I have received the full amount of deposit payment totally [sic] $2,340,000.00 from Qiao Wang. This deposit payment has been agreed and deducted from the business between Qiao Wang and me. I fully recognize this payment.
2. At the time Hammerschlag J extended the injunction, his Honour imposed two conditions. The first was that Super Vision commence proceedings under s 37A of the Conveyancing Act 1919 (NSW) seeking relief in respect of the transfer of the two properties to AC Holdings. That section provides: (1) Save as provided in this section, every alienation of property, made whether before or after the commencement of the Conveyancing (Amendment) Act 1930, with intent to defraud creditors, shall be voidable at the instance of any person thereby prejudiced. (2) This section does not affect the law of bankruptcy for the time being in force. (3) This section does not extend to any estate or interest in property alienated to a purchaser in good faith not having, at the time of the alienation, notice of the intent to defraud creditors.
3. The second condition was that Super Vision's parent company, China Orient Asset Management (International) Holding Limited (COAMI), file a written undertaking as to damages. Both those conditions have been satisfied.
4. Following the granting of the freezing order, on 21 December 2018, Golden J Wealth served a notice of default on AC Holdings alleging that AC Holdings was in default under clause 233(y) of the Mortgage "in that the mortgagee has determined that you have suffered a material degradation in your ability to comply with the terms of the Mortgage as a result of the freezing order made against you on 26 November 2018". The notice stated that, as a result, Golden J Wealth had elected to accelerate repayment of the principal and to demand payment of all moneys due under the Mortgage. In a letter dated 8 February 2019, Bransgroves Lawyers, the solicitors for Golden J Wealth, wrote to AC Holdings stating that, as a result of the default, Golden J Wealth was entitled to interest payments at the "Higher Rate" set out in the Mortgage.
5. On 18 February 2019, Bransgroves Lawyers wrote to Zhang Shijing Lawyers, the solicitors for AC Holdings, giving a more detailed explanation of their client's position. Relevantly, the letter said: Material Degradation (Default) 3. As advised in our letter of 13 February 2019, the mortgagee has determined that the borrower has suffered a material degradation in its ability to comply with the terms of the mortgage as a result of the freezing order over the above security properties and as a result of the actions of the plaintiff in those proceedings. 4. We note that our client is not required to "indicate the process of reasoning" used to reach the above conclusion. Pursuant to clause 233(y), our client is merely required to hold the opinion that a material degradation has occurred. Whether or not you or your client agree with our client's determination is completely irrelevant. 5. However, for clarity we note that having received the freezing order: a. our client was concerned that the freezing order would prevent your client from being able to make its interest payments under the mortgage or from selling the property or refinancing in order to discharge. b. we wrote to the solicitor for the plaintiff to confirm that interest payments could be made by AC Holdings; c. the response (enclosed), alarmed our client (the Plaintiff's Letter). There is a clear suggestion that the plaintiff may bring a claim against our client and seek to clawback interest that has been paid by your client. 6. As a result, there is a risk that, through no fault of its own, our client will become embroiled in lengthy and costly proceedings. Even should our client ultimately succeed, the costs and delay in recovery may mean that there is insufficient debt in the Securities to discharge our client's debt. It is also time and costs our client does not wish to expend (and is not required to). 7. As such, your client has suffered a material degradation in the ability to comply with the security documents, because amounts that it will repay may be clawed back and it may not be liable to sell the Securities or refinance. 8. Our client cannot continue to be exposed to that risk. The sooner it is repaid, the less exposure it will have to future clawback proceedings. 9. We appreciate that you have advised that your client will be contesting the freezing orders at the hearing on 20 February 2019. However, the lifting of the freezing orders will not solve the problem as our client will still be exposed to a claim to clawback the interest paid. The claim foreshadowed in the Plaintiff's Letter is not solely reliant on a breach of the freezing orders. It is likely the plaintiff will still continue with its claim against Lawrence Xu even if it does not extend the freezing order with respect to the Securities. The Plaintiff's Letter also claims that the interest rate is extortionate. That claim may be made regardless of the freezing order and may still be made if they succeed in their main claim against Mr Xu. 10. That means that our client will continue to be exposed and it remains a possibility that the plaintiff will in due course seek to recover sums paid to our client as foreshadowed in the Plaintiff's Letter. 11. Accordingly, the default cannot be rectified.
6. Subsequently, on 1 March 2019, Golden J Wealth commenced proceedings in the Common Law Division seeking possession of the two properties.
7. There was no appearance by Mr Xu on the application to continue the freezing orders on 1 April 2019. I was informed by Mr Knackstredt, counsel for Super Vision, that Mr Xu had indicated that he did not oppose the continuation of the freezing orders against him. However, AC Holdings opposes the continuation of the freezing orders against it.

The parties' submissions

1. It is common ground that in order to be entitled to a continuation of the freezing order, Super Vision must establish: 1. that it has a good arguable case for final relief; 2. there is a danger that a judgment or a prospective judgment of the Court will be wholly or partly unsatisfied if the order is not made; 3. the balance of convenience favours making the order. See Uniform Civil Procedure Rules 2005 (NSW) (UCPR) r 25.11(1); Cardile v LED Builders Pty Ltd (1999) 198 CLR 380; [1999] HCA 18.
2. As to whether there is a good arguable case, Super Vision relies on its s 37A proceedings. It also submits that if it is successful in the current proceedings it will obtain a judgment against Mr Xu. The likelihood is that Mr Xu will then be made bankrupt in which event his trustee in bankruptcy would have power under ss 120 to 122 of the Bankruptcy Act 1966 (Cth) to have the transfers of the two properties to AC Holdings declared void on the grounds that they occurred at an undervalue or were made for the main purpose of preventing the transferred property from becoming divisible among Mr Xu's creditors. In its submission, that would provide a sufficient basis for the granting (or continuation) of a freezing order. As the High Court said in PT Bayan Resources TBK v BCBC Singapore Pte Ltd (2015) 258 CLR 1; [2015] HCA 36 at [47]: The actual holding in Cardile v LED Builders Pty Ltd illustrates that the prospective enforcement process that a court might protect by making a freezing order can be a process contingent on factors in addition to the outcome of a substantive proceeding in that court. The holding was that a freezing order can be made against a third party against whom no present cause of action exists and against whom no present proceeding has commenced. It is enough that some future legal process (which might be contingent, for example, on the appointment by another court of a liquidator or a trustee in bankruptcy) may be available pursuant to which the third party may be obliged to contribute to the funds of the judgment debtor to help satisfy the judgment against the judgment debtor. [Footnote omitted]
3. As to the other conditions, Super Vision submits that, unless the freezing order is continued, there is a substantial risk that the properties will be sold and that the net proceeds of sale dissipated before its claim under s 37A of the Conveyancing Act is resolved or before a trustee in bankruptcy could take any steps to set aside the sales. It contends that there are good reasons to believe that the two properties were sold to AC Holdings at an undervalue. The sales were not at arms-length. According to the material before the Court, Golden J Wealth was willing to lend AC Holdings $7.2 million on the basis that that represented 70 percent of the value of the two properties, suggesting that the two properties were worth approximately $10 million. That is consistent with a "kerb-side" valuation obtained by Super Vision from Mr Scott Adams, who valued the Sandringham property at $5.5 million and the Milsons Point Property at $4.25 million. As a result of the sale, the sum of approximately $1.1 million was paid to Buyan Xu, who appears to be related to Mr Xu. The sales occurred at a time when, to Ms Wang's knowledge, Mr Xu was in financial difficulties. She must have appreciated or at least suspected that the sales were made with the intention of defeating any claims by Mr Xu's unsecured creditors, including Super Vision.
4. On the other hand, Super Vision submits that AC Holdings is adequately protected by the undertakings as to damages. The evidence is that Super Vision itself has assets worth in the order of $14 million because of its rights in respect of unsold units in the Hurstville development. COAMI is a substantial company with assets in Hong Kong and the laws of Hong Kong provide for the recognition and reciprocal enforcement of judgments obtained in this Court.
5. AC Holdings takes issue with these submissions. As to the question whether Super Vision has a good arguable case, it points out that, contrary to the assertion in the Commercial List Statement filed in the s 37A proceedings that "AC Holdings did not in fact pay any valuable consideration to Xu in respect of the Transfers" (para 16), AC Holdings paid a very substantial amount to acquire the two properties. In addition, Ms Wang forgave part of the debt owed to her, with the result that Mr Xu received the market value for the properties. Moreover, the rights of third parties have intervened - in particular, the rights of Golden J Wealth, with the result that there is no reasonable prospect that Super Vision will obtain relief under s 37A of the Conveyancing Act.
6. As to the balance of convenience, the effect of the freezing order has been to put AC Holdings in default under its Mortgage with the result that it is at risk of having the properties sold in a forced sale and is unable to rent them out as originally planned because of the uncertainty surrounding its ownership. Even if the assertion of Golden J Wealth's solicitors that the breach arising from the freezing order cannot be remedied is correct, continuation of the freezing order may deprive AC Holdings of the right to obtain relief against forfeiture. Moreover, AC Holdings should not be left to rely on the undertaking as to damages, particularly when there is no evidence of Super Vision's and COAMI's net assets. Nor should it be left to the uncertainty and difficulties of enforcing against COAMI's assets in Hong Kong.

Consideration

1. I have concluded that the freezing order should continue against AC Holdings at least until the s 37A proceedings are resolved.
2. I am satisfied that Super Vision has a good arguable case that the two properties were sold to AC Holdings at an undervalue and that the sales occurred for the purpose of Mr Xu defeating claims his unsecured creditors might have to the net equity that Mr Xu had in the two properties. The clearest evidence that that is so is the unexplained payments totalling approximately $1.1 million to Buyan Xu.
3. However, in my opinion, there is also a good arguable case that the sale to AC Holdings was at an undervalue. For the reasons I have given, the sales were not arms-length. The amount actually paid by AC Holdings, was approximately 70 percent of the likely value of the properties. Ms Wang gives evidence that she gave additional consideration in the form of the forgiveness of part of the debt said to be owing to her by Mr Xu. However, the evidence that Mr Xu owed Ms Wang the amount claimed is unsatisfactory. Ms Wang gives evidence of various loans made by her to Mr Xu. Some of those loans are said to be evidenced by written agreements. However, it is plain from the agreements that the loans were made to Hua Cheng by a company that it might be inferred is associated with Ms Wang.
4. The principal loan made by Ms Wang is said to be a loan of approximately $4.5 million (CNY20,000,000). Ms Wang says that the relevant advances were arranged by her older sister in China on her instructions through various money transfer companies. But the relevant payment slips do not show payments from Ms Wang or AC Holdings to Mr Xu or even Hua Cheng; and in the absence of any further evidence it cannot readily be inferred that the $4.5 million was owing by Mr Xu.
5. In addition, I am satisfied that Super Vision has a good arguable case that AC Holdings was not a purchaser in good faith who, at the time of the alienation, had no notice of the intent to defraud creditors so as to be entitled to the benefit of s 37A(3). It is arguable that AC Holdings was put on notice that the purpose of the sales was to defraud creditors by the fact that, apart from payments to secured creditors and transaction costs, the only part of the purchase price was not paid to Mr Xu but a person who appears to be a relative. More significantly, if Super Vision succeeds in establishing that Mr Xu did not owe the amount claimed by Ms Wang, then Super Vision appears to have a good case that the sale to AC Holdings was at a clear undervalue, and that consequently the alienation to it was not in good faith.
6. AC Holdings submits that no relief could be granted under s 37A in circumstances where AC Holdings paid substantial consideration for the properties and the rights of Golden J Wealth have intervened and it has not been joined as a party to the s 37A proceedings. However, there is no apparent reason why the transaction could not be avoided against AC Holdings, leaving the Mortgage in favour of Golden J Wealth in place. Moreover, if Mr Xu is made bankrupt, his trustee in bankruptcy may well be able to pursue rights under ss 120 to 122 of the Bankruptcy Act. Section 120 provides that a transfer of property is void against the trustee if the transfer took place without proper consideration and occurred within a specified period. Section 121 provides that a transfer of property is void against the trustee if the property would have probably formed part of the estate and if the main purpose of the transfer was to prevent the property from being divisible among creditors or to inhibit that process. Section 121A extends the application of ss 120 and 121 to circumstances where a transferee of property gives some or all of the consideration for the transfer to a third party. Section 122 provides that a transfer of property is void against the trustee if the transfer provided a preference to a creditor over other creditors and occurred within a specified period.
7. I accept that unless the freezing order is continued, there is a danger that any judgment against Mr Xu will go unsatisfied in whole or in part. Apart from the two properties in question, there is no evidence that Mr Xu has other assets available to him to meet any judgment that Super Vision obtains against him. To the extent that the properties were sold at an undervalue, Super Vision has reasonable prospects of recovering the amount of the undervalue. There is a substantial risk that unless the freezing orders are continued the properties will be sold and the proceeds of sale dissipated. In that event, the prospects of recovering the amount of the undervalue will be lost.
8. In addition, in my opinion, the balance of convenience favours a continuation of the freezing order. The evidence is that Golden J Wealth intends to press ahead with its possession proceedings whatever happens to the freezing order. There is a serious question whether those proceedings will succeed. Golden J Wealth relies on the fact that it has formed the opinion that AC Holdings has suffered a material degradation in the ability to comply with the security documents as a consequence of the freezing orders. However, it is at least arguable that the opinion must be formed in good faith, and there is a question whether acting in good faith Golden J Wealth could really have formed that opinion. If Golden J Wealth fails, then it is likely that AC Holdings will have a claim for the costs of defending those proceedings under the undertaking as to damages. Similarly, if Golden J Wealth succeeds, AC Holdings will be entitled to claim the losses it suffers under the undertaking as to damages provided the Court is satisfied that those losses arise from the freezing order and the claim against AC Holdings ultimately fails.
9. AC Holdings submits that its prospects of retaining the properties would be greater if the freezing order were not extended because it would have a greater chance of resisting the possession proceedings, either on the basis that it was not in breach of the Mortgage or, if it was, on the basis that it was entitled to relief against forfeiture. Three points may be made about that submission. First, to some extent that concern could be ameliorated if the possession proceedings and the s 37A proceedings were heard together. There appear to be good reasons why the two proceedings should be heard together because the question whether the alienation of the properties to AC Holdings and the question whether AC Holdings had any notice of Mr Xu's intention to defraud creditors (if he had such an intention) may be relevant to whether Golden J Wealth is ultimately entitled to relief. Second, there is no evidence that AC Holdings or Ms Wang has any personal interest in the properties. The evidence is that AC Holdings acquired the properties with the intention of renting them out on short-term leases. Consequently, any loss suffered by AC Holdings will be capable of quantification. Third, AC Holdings will be protected by the undertakings as to damages.
10. As I have said, AC Holdings takes issue with the value of the undertakings as to damages because there is inadequate evidence of Super Vision's and COAMI's financial position and because of difficulties that it may incur in enforcing any judgment in Hong Kong. However, the evidence is that Super Vision was a special purpose company established by COAMI for the sole purpose of making the loan to Hua Cheng. There is no reason to think that it has any liabilities. COAMI is itself wholly owned by China Orient Asset Management Co Ltd (COAMC), a one trillion Yuan Chinese state-owned enterprise. It is apparent from COAMC's website that COAMI itself is a very substantial company based in Hong Kong. In the absence of any other evidence, there is no reason to doubt the information contained on the website. No reason was advanced for why it would be difficult to enforce any judgment obtained in respect of the undertaking as to damages in Hong Kong. According to Ms Wang, she conducts business in both Australia and China. Consequently, she is unlikely to have any difficulties in instructing lawyers in Hong Kong to enforce any judgment there which was obtained here. In those circumstances, I am satisfied that AC Holdings is adequately protected by the undertakings as to damages.

Orders

1. It follows that the orders of the Court are that the freezing orders made by the Court against the defendant and AC Holdings Co Pty Ltd on 26 November 2018 continue until further order of the Court.
2. I will hear the parties in relation to costs.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 05 April 2019