Visnic v Sywak

Federal Court of Australia|2020-03-20|Before: Gleeson J

Pursuant to s 90-15 of the Insolvency Practice Schedule (Corporations) the plaintiff is justified in distributing the surplus of the assets of Leetong Pty Ltd (in liquidation) to the members pro rata with their shareholdings as set out below: Member Shares Held Dennis Man For Lee 1,456,348 Steven Mun Hok Li 1,456,348 Chun Ka Luk 900,793 Helen Li Cohen 900,793 Ivy Lai Fai Luk 900,793 Liza Lai Heung Li 900,793 Mimie Lai May Li 900,793 McCabe International Trustee Limited 6
The plaintiff's costs be paid from the assets of Leetong Pty Ltd (in liquidation). Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

GLEESON J: 1 By originating process filed on 13 September 2019, the plaintiff (liquidator) seeks a direction pursuant to s 90-15 of the Insolvency Practice Schedule (Corporations), Schedule 2 to the Corporations Act 2001 (Cth) (Act) that he is justified in distributing the surplus of the assets of Leetong Pty Ltd (in liquidation) (company) to its members pro rata with their shareholdings as set out in the following table: Shareholder Name Shares Held Dennis Man For Lee (Dennis) 1,456,348 Steven Mun Hok Li (Steven) 1,456,348 Chun Ka Luk (Chun Luk) 900,793 Helen Li Cohen (Helen) 900,793 Ivy Lai Fai Luk (Ivy) 900,793 Liza Lai Heung Li (Liza) 900,793 Mimie Lai May Li (Mimie) 900,793 McCabe International Trustee Limited (Trustee) 6

2 The surplus available for distribution is approximately $42,500,000.00, comprising amounts in Australian, Hong Kong and United States dollars. 3 Dennis, Steven, Helen, Ivy, Liza and Mimie are siblings, and are six of the seven children of Chung Li (Father) and Chan Wun Yin Lee (Mother). 4 The seventh child, Lai Ching Nancy Lee (Nancy), is deceased. Chun Luk is the administrator of her deceased estate. 5 The Mother died in about 1993. The Trustee is the executor of her deceased estate. 6 The Father died in about 2006. 7 In these reasons for judgment, the eight persons identified in the table above are referred to as the eight members. 8 The only persons who are interested in the application are the eight members. The liquidator has notified them of the application, as described below. None of them sought to appear at the hearing of the application. 9 Both Dennis and Steven have previously indicated support for a distribution in the manner proposed by the liquidator. Such a distribution favours them, in that they each hold approximately twice as many shares as each of their female siblings (and the deceased estate of their late sister, Nancy). 10 As to the female siblings, Liza has indicated support for the proposed distribution and has not argued against it or for a different distribution. Similarly, Chun Luk, has indicated support for the proposed distribution and has not argued against it or for a different distribution. 11 The other three female siblings, Helen, Ivy and Mimie have each communicated arguments to the liquidator against the proposed distribution and have contended, in effect, that the surplus should be distributed equally between the six siblings and Nancy's deceased estate and not in accordance with their shareholdings. However, the siblings were given an opportunity to participate in the proceeding and they have chosen not to do so. In those circumstances, there is no persuasive evidence to support a conclusion that the liquidator should distribute the surplus differently from the manner proposed by him. 12 The Trustee stated that it is not giving any consent until all or most of the eight members have given their consent.

Evidence 13 In support of the application, the liquidator relied on the following affidavits: (1) affidavits of the liquidator sworn 12 September 2019 and 30 October 2019; and (2) affidavits of Charles Bavin, solicitor sworn 5 September 2019, 15 October 2019 and 14 November 2019. 14 In addition, the liquidator tendered a bundle of 47 documents obtained from the records of the company.

1992 15 The company was registered as a company on 10 December 1992. Minutes of a meeting of the company's directors that day (attended by Graeme Donald and Ross Dalgleish) record the following allotments of shares: (1) Father 1,300,000 shares (2) Mother 1,200,000 shares (3) Dennis 555,555 shares (4) Steven 555,555 shares (5) Nancy 277,778 shares (6) Helen 277,778 shares (7) Ivy 277,778 shares (8) Liza 277,778 shares (9) Mimie 277,778 shares 16 The evidence included copies of share certificates which were issued for these share allotments. In summary, on this evidence, each female child was allotted approximately half of the shares allotted to each male child.

1993 17 Minutes of a general meeting of members of the company on 27 January 1993 record that the company adopted Articles of Association to replace the previous Articles. The minutes do not state who was present at the meeting. The liquidator's evidence is that these are the Articles of Association of the company. Article 101 provides: [I]f, in a winding-up, the assets available for distribution amongst the members shall be more than sufficient to repay the whole of the capital paid up at the commencement of the winding-up, the excess shall be distributed amongst the members in proportion to the capital paid up or which ought to have been paid up at the commencement of the winding-up on the shares held by them respectively; but this Article shall be without prejudice to the rights of the holders of shares issued upon special terms and conditions. 18 Article 2 of the articles defines "Member" to mean "member of the Company in accordance with the provisions of the Law", and "Law" to mean the Corporations Law. I accept the liquidator's premise that the definition of "Member" in Art 2 informs the meaning of "members" in Art 101. 19 The 27 January 1993 minutes also record a resolution that the company allot a further 1,000,000 ordinary shares as follows: (1) Father 250,000 shares (2) Mother 250,003 shares (3) Dennis 111,111 shares (4) Steven 111,111 shares (5) Nancy 55,555 shares (6) Helen 55,555 shares (7) Ivy 55,555 shares (8) Liza 55,555 shares (9) Mimie 55,555 shares 20 The evidence included copies of share certificates which were issued for these share allotments. Again, on this evidence, each female child was allotted approximately half the shares allotted to each male child. 21 Based on an email from Ivy, Mother died in March 1993.

1999 22 The company records include a single page of minutes of a meeting of the directors on 8 March 1999. According to the minutes, the attendees included Father, Nancy, Dennis, Liza and Steven. 23 The part minutes record a resolution to approve the following allotment of shares: (1) Father 1,033,333 shares (2) Dennis 444,444 shares (3) Nancy 222,222 shares (4) Helen 222,222 shares (5) Ivy 222,222 shares (6) Liza 222,222 shares (7) Mimie 222,222 shares 24 The evidence included copies of share certificates which were issued for these share allotments, as well as a share certificate for 444,444 shares issued to Steven and a share certificate for 966,669 shares issued to the executors of Mother's estate. 25 On this evidence, these share allotments followed the previous pattern. In particular, each female child was allotted approximately half the shares allotted to each male child.

2004 26 The company records include minutes of a directors meeting of the company held on 30 June 2004. Of the persons mentioned above, only Steven attended. The minutes record that a grant of probate for the Mother's estate was tabled. The minutes further record a resolution that 2,416,672 ordinary shares belonging to the Mother's estate be transferred and allotted to the seven siblings, with each sibling receiving 345,239 shares except for Dennis who received 345,238 shares. 27 The evidence includes copies of share certificates consistent with the minutes.

2006 28 The company records include minutes of a directors meeting of the company held on 21 December 2006. Of the persons mentioned above, only Dennis and Steven attended. The minutes record that the company secretary had inadvertently allotted one extra share to six shareholders, out of the Mother's shareholding of 2,416,672 ordinary shares. The minutes further record a resolution to cancel the six share certificates issued in 2004 for 345,239 shares and to replace them with shares certificates for 345,238 shares, as well as a certificate for six shares to be issued to the Trustee. 29 The evidence includes copies of share certificates consistent with the minutes.

2017 30 The company records include minutes of a directors meeting of the company held on 5 May 2017. The attendees were the six siblings and Chun Luk, the administrator of Nancy's deceased estate. The minutes include a resolution for the company to buy back 2,583,333 ordinary shares from the administrator of the Father's estate. 31 The liquidator was appointed on 30 November 2017, pursuant to a resolution of the company that it be wound up voluntarily. The winding up has been completed and the liquidator is in a position to distribute the surplus assets of the company to its members.

ASIC records 32 An extract of the Australian Securities and Investments Commission (ASIC) records dated 14 May 2018 records that the company has issued a total of 7,416,667 fully paid shares, held as follows: Name Shares Dennis 1,456,348 Steven 1,456,348 Luk, Chun Ka 900,793 Helen 900,793 Ivy 900,793 Liza 900,793 Mimie 900,793 Trustee 6

Stated positions concerning distribution of surplus 33 On 24 May 2018, the liquidator caused to be circulated a proposed interim distribution of the surplus funds. The distribution was proposed to be made pro rata in accordance with the shareholdings according to the ASIC records. 34 The liquidator received responses to the proposal from Dennis, Helen, Ivy and Mimie. 35 As a result of receiving these responses, on 31 October 2018, the liquidator's delegate, Daniel Cooksley, chaired a meeting of the company attended by the six surviving siblings, Chun Luk and a representative of the Trustee of the Mother's deceased estate. The minutes record the following: The Chairperson confirmed the position of each of the members on whether the Liquidator should proceed with the final distribution in accordance with the shareholdings shown in the records of the Company. Shareholder Name Shares Held Vote Chun Ka Luk 900,793 FOR Dennis Man For Lee 1,456,348 FOR Helen Li Cohen 900,793 AGAINST Ivy Lai Fee Luk 900,793 FOR Liza Lai Heung Li 900,793 FOR McCabe International Trustee Ltd 6 ABSTAIN Mimie Lai May Li 900,793 AGAINST Steven Mun Hok Li 1,456,348 FOR

36 Thus, following the 31 October 2018 meeting, the position appears to have been that a distribution of the kind the subject of this application was not opposed by six of the eight members while Helen and Mimie were opposed. 37 By letter dated 16 January 2019, Mr Bavin wrote to Helen and Mimie. Mr Bavin set out an argument as to why the surplus ought to be distributed in accordance with the shareholdings as recorded by ASIC and informed Helen and Mimie that, if they did not consent to the proposed distribution, the liquidator would commence proceedings seeking a declaration that the ASIC records are correct and an order that the assets be distributed in accordance with the recorded shareholdings. The letter concluded: We are instructed to advise that unless my client receives further cogent evidence supporting the contention that the recorded shareholdings are incorrect, or each of your written consents are received by my client to a distribution of the company's assets in accordance with the shareholdings recorded at ASIC, then my client will have little option but to commence proceedings in the Federal Court of Australia seeking the declaration and order referred to above. We therefore request that your reconsider your position and provide my client with any further information you wish to submit, or your written consent for him to distribute the assets of the company in accordance with the shareholdings currently recorded with ASIC, by 8 February 2019. If our client does not have your response by that date then proceedings will be commenced without further notice. 38 By email dated 16 January 2019, Mimie replied to Mr Bavin. Mimie contended that the assets of the company should be returned to the estates of the parents for distribution according to the Father's "legal domicile (Hong Kong) intestate status of distributing equally". Mimie also referred to a US court ruling to the effect that the Father was the 100% owner of certain companies because the parents had contributed 100% of funding capital to the companies during formation of the company. Relevantly, Mimie stated: … I have clearly indicated to the company secretary (Mr Silas Wong) multiple times and other shareholders in writing prior to Mr Cooksley's selection, I will contest to distribution of company assets according to shareholdings and favour my parent's intent of equal distribution. Of course, I can produce written prove [sic] of my objection at the time. 39 Helen also replied to Mr Bavin by email on 16 January 2019, asking whether there was "any evidence about who paid for the shares or instructions about the endorsement". 40 By letter dated 4 March 2019, Mr Bavin wrote to the eight members to inform them of the liquidator's instruction to proceed with an application to the Court for orders as to the appropriate distribution of the assets of the company. 41 By letter dated 7 March 2019, Swartz, Binnersley & Associates wrote to Mr Bavin on behalf of Helen Cohen as follows: We are instructed to advise that whilst our client does not agree with the current shareholding of Leetong Pty Limited ("Company") as filed with the Australian Securities and Investments Commission, she does not wish to incur further costs to pursue this matter. Our client is requesting that her vote, and any instructions relating to the liquidation of the Company be the same as the majority of the beneficiaries of the Estate of Li Chung. 42 By email dated 28 June 2019, Mr Bavin again wrote to the company's shareholders, stating that the liquidator would commence proceedings the following week "unless each shareholder, and in particular those who have previously indicated their disagreement to the proposed distribution, provides written consent to us that they consent to a distribution in accordance with the shareholdings recorded in the ASIC records." 43 Mr Bavin received the following responses: (1) Dennis Lee agreed with the proposed distribution; (2) CK Luk wrote: "I will not hold The Liquidator/s responsible to liquidate and distribute remaining assets of the company/companies according to current record of share holding of the company/companies." (3) Ivy Luk "noted" Mr Bavin's email; (4) The Trustee did not consent and stated: "[W]e are not giving any consent until all/most of the shareholders have given their consent to process the distributions."

Notification of proceeding to the eight members 44 By emails sent on 24 September 2019, the liquidator's solicitor informed the eight members (except Helen and Mimie) that the originating process and the supporting affidavits had been filed in the Court. 45 By email sent on 24 September 2019, Ivy acknowledged receipt of the documents and requested information as to the outcome as soon as possible. 46 By email dated 1 October 2019, Liza agreed to accept service by email. 47 By email dated 2 October 2019, the Trustee accepted receipt of the documents by email. 48 By email sent on 10 October 2019, Helen and Mimie were similarly informed. 49 By email sent 11 October 2019, Chun Luk stated: "I believe that I already agreed to email service." 50 By email sent 14 October 2019, Dennis confirmed that he accepted service of the court documents by email. 51 Steven, Helen and Mimie did not acknowledge receipt. 52 On 17 October 2019, the Court made the following orders: 1. Any shareholder of Leetong Pty Ltd (in liquidation) (Leetong) who opposes the orders sought in the originating process dated 12 September 2019 is to file a notice of grounds of opposition and any affidavit in support of such grounds on or before 14 November 2019. 2. The proceeding be listed for a further case management hearing on 21 November 2019 at 9.30 am with the intention of allocating a hearing date. 3. A sealed copy of this order be emailed to each shareholder of Leetong. 53 On 18 October 2019, Mr Bavin sent a copy of the 17 October 2019 orders by email to the eight members. He received responses from Helen, Ivy and Mimie. In summary, Helen said: In reference to your email Oct. 15th about submitting the objection of "NSD1486/2019 - APPLICATION OF PAUL WESTON AS LIQUIDATOR OF LEETONG PTY LIMITED (ACN 058 366 555) (IN LIQUIDATION)" by November; as I don't have a Australian Lawyer to represent me and the matter is simply to express my opinion, I don't see I have a case need to apply a lawyer in this matter. If you think my expression in my email is sufficient, I will leave this case at your instruction. Please be advised. Thank you. 54 By email dated 29 October 2019, Ivy put arguments as to why the surplus should be distributed equally. She attached to her email a deed of trust dated 31 January 2003 between the Father and Merrill Lynch Bank and Trust Company (Cayman) Limited which identifies the seven siblings as the ultimate beneficiaries of the trust established by the deed, each entitled to 1/7th of the capital of the trust fund. The document does not identify the trust property. 55 Ivy also attached articles of association for a company called Lee Tai Enterprises Limited. The significance of that document was not apparent. 56 Ivy also attached two documents entitled written resolution of shareholders, relating respectively to Chuen Ming and Company Limited and Lee Tai Enterprises Limited which appear to concern the resolutions of disputes between those companies and Steven. 57 By email dated 29 October 2019, Mimie wrote: I agree with Ivy, As you can see from the attachments, my father's most recent wish and instruction (prior to his death in 2006, is to distribute all his assets equally among all his children. Please make said arrangement for all undistributed estate assets (an correct assets already distributed. [sic] 58 By email sent 31 October 2019, Mr Bavin sent a final email to Ivy and Mimie, copied to Helen. The email stated: Mimie, Ivy and Helen, I note each of you have emailed me in response to my email enclosing a copy of the orders made by the Court on 17 October, 2019. Although each of you seem to have expressed the view that the liquidator ought to distribute the surplus equally to all the shareholders (other than McCabe International Trustee Limited presumably) the Court orders were that any shareholder who disagreed with a distribution other then [sic] in accordance with the shareholdings recorded on the ASIC records, was to file Notice of Grounds of Opposition and affidavit in support. Whilst we will include each of your email responses ion documents tendered to the Court at the hearing, unless you participate in the proceedings by taking the steps set out in the Court orders, and file a Notice of Grounds of Opposition and affidavit in support of any such grounds, it is likely the Court will not take your emails into account when determining what orders are to be made. Helen appears not to wish to participate. Mimie and Ivy, if you do not understand what steps are required to participate in the proceedings, and you wish to, you ought to seek legal advice from a Lawyer in Sydney.

Court power to give directions 59 By s 90-15, the Court may make such orders as it thinks fit in relation to the external administration of a company. 60 In the context of a winding up by the Court, the predecessor provision to s 90-15 (s 479(3) of the Act) has been used to assist a liquidator to resolve uncertainty concerning the distribution of a surplus in a winding up: Visnic v Sywak [2011] NSWSC 1246; 86 ACSR 569 (Visnic). 61 In Visnic, it was agreed that there was a need to determine the correct manner of dealing with the surplus in two windings up attributable to the "Visnic shareholding". The controversy involved competing positions put by two trustees in bankruptcy. Barrett J observed that the liquidator did no more than hold a surplus in respect of which competing claims were made and said (at [11]) "there is no point in his continuing to perform work attracting remuneration". His Honour gave a direction under s 479(3) that the liquidator was justified in attributing surplus in the windings up in the manner proposed and granted special leave to the liquidator to distribute the surplus except in respect of that part in either winding up attributable to the "Visnic holding". In effect, his Honour required the liquidator to retain the disputed amount pending the determination of the outstanding controversy between the trustees in bankruptcy. 62 The Court's power to give a direction under s 90-15 is expressed in slightly wider terms than s 511 which relevantly provided that, in a voluntary winding-up, the Court may exercise all or any of the powers that the Court might exercise if the company were being wound up by the Court, if satisfied that the exercise of the power would be just and beneficial: Re ACN 152 546 453 Pty Ltd (formerly Hemisphere Technologies Pty Ltd) (in liq) [2018] NSWSC 1002 at [20]. 63 In Re MF Global Ltd (in Liq) [2012] NSWSC 994; (2012) 267 FLR 27 (MF Global), Black J stated (at [7], omitting citations): Section 479(3) of the Corporations Act allows a liquidator to apply to the court for directions in relation to a matter arising under a winding up. The function of a liquidator's application for directions under this section is to give the liquidator advice as to the proper course of action for him or her to take in the liquidation ... The Court may give directions that provide guidance on matters of law and the reasonableness of a contemplated exercise of discretion but will typically not do so where a matter relates to the making and implementation of a business or commercial decision, where no particular legal issue is raised and there is no attack on the propriety or reasonableness of the decision. … 64 Although the power extends to making orders affecting the rights of third parties, in this case, the liquidator no longer seeks a declaration as to the shareholdings in the company where the eight members have not been joined as defendants to the proceeding or sought to be heard in accordance with r 2.13 of the Federal Court (Corporations) Rules 2011: cf. MF Global at [12].

Distribution of property of company in a voluntary winding up 65 Section 501 of the Act states: Subject to the provisions of this Act as to preferential payments, the property of a company must, on its winding up, be applied in satisfaction of its liabilities equally and, subject to that application, must, unless the company's constitution otherwise provides, be distributed among the members according to their rights and interests in the company.

Constitution's provision for distribution of surplus 66 Relevantly, Art 101 provides for distribution after repayment of the whole of the capital paid up at the commencement of the winding up "amongst the members in proportion to the capital paid up or which ought to have been paid up at the commencement of the winding-up on the shares held by them respectively". 67 Thus, Art 101 requires an identification of the shares held by the "members" respectively. Referring back to the relevant definitions in Art 2, the "members" are the members of the company in accordance with the provisions of the Corporations Law. As at January 1993, when the Articles of Association were adopted, by s 7 of the Corporations (New South Wales) Act 1990 (NSW), the Corporations Law was set out in s 82 of the Corporations Act 1989 (Cth) as in force immediately before the repeal of that section. The Corporations Law included s 89 of the Corporations Act 1989 (Cth) which provided that "[a] person who agrees to become a member of a company and whose name is entered in the company's register of members becomes a member of the company".

Have the eight members been provided adequate opportunity to be heard? 68 The 17 October 2019 orders were made for the purpose of giving the eight members an opportunity to be heard in relation to the liquidator's application. I am satisfied that the liquidator complied with order 3 of those orders. 69 In those circumstances, I am also satisfied that the eight members have been given an adequate opportunity to be heard in relation to the relief sought by the liquidator.

Is this an appropriate case for a direction? 70 By their correspondence, Helen, Ivy and Mimie have raised a doubt as to the propriety or reasonableness of the liquidator's proposal for distribution of the surplus. The proper approach to distribution calls for the exercise of legal judgement and a direction will enable the liquidation to proceed to a conclusion, thereby curtailing the continuing costs of the liquidation. 71 In this case, none of the eight members has sought a determination of a claim to a greater portion of the surplus, even though they have been invited to oppose the liquidator's claim for relief. Absent a direction, the completion of the winding up is liable to be frustrated by the contention that the members have equal rights to the surplus (putting aside the position of the Trustee) without any adequate steps on the part of Helen, Ivy or Mimie to vindicate that contention by seeking a determination of the Court to that effect. 72 A direction will not determine the rights of the eight members between themselves and they will remain free to litigate that issue or to reach an agreement on that matter. 73 Although the liquidator does not require special leave to make a distribution of the surplus pursuant to s 488 of the Act (Yanollee Pty Ltd (in liq) [2006] NSWSC 705 at [9]), that is not a reason why the liquidator should not have a direction to assist him in the discharge of his functions in this case. 74 Accordingly, I consider that this is an appropriate case for a direction from the Court.

Would the liquidator be justified in distributing the surplus in the manner he proposes? 75 Although there is no direct evidence of relevant agreements or of the company's register, on the available evidence, I infer that the eight members are the members within the meaning of Art 101. In drawing this inference, I rely on the ASIC records, the share certificates and the minutes of the 31 October 2018 meeting at which all eight persons were in attendance. 76 The share certificates show that the amount of $1 per share was paid for each share issued at the time of the creation of the relevant share certificate. Accordingly, the capital paid up is $7,416,667. 77 The shares held by each of the eight members are recorded in the ASIC records. 78 It follows that, subject to any entitlement to the contrary, on the available evidence, by s 501, the property of the company must be distributed to the eight members in proportion to the capital paid up on the shares held by them. 79 To date, the liquidator has not been furnished with evidence that would justify a distribution of the surplus otherwise than in accordance with Art 101 and the available evidence concerning the shares held by each of the eight members. In particular, the submissions made by Helen, Ivy and Mimie do not, without more, provide a proper basis for the liquidator to distribute the surplus in a different way.

Conclusion 80 I will make the orders sought by the liquidator. I certify that the preceding eighty (80) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gleeson.

Corporations Act 1989(Cth)ss 82, 89, 479(3), 488, 501, 511

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