5.2 Disposition of the amended application
35 It should be emphasised at the outset that I was not asked to, and do not, make any findings of misconduct by the Trustee. Nonetheless, I accept the Applicant's submission that it is in the best interests of the bankruptcy that the Trustee be replaced by Mr Robinson as the trustee of the Estate for four cumulative reasons.
36 First, I accept that there are at least three matters which would, on their face, appear to be beneficial for a trustee to investigate.
37 The first is that there is evidence to support that Mr Liu may have assets in China which have not been investigated by the Trustee. Pursuant to their two loan agreements, Mr Yan transferred a total of 101,700,000 RMB into a Chinese bank account in Mr Lui's name. Yet the Trustee's report does not refer to the Trustee having undertaken any investigations as to the existence (or otherwise) of any overseas assets, particularly assets in China. Mr Yan stated in his affidavit affirmed on 27 October 2023 that he has no knowledge of the Trustee providing any further reports to the creditors: at [20]. In those circumstances, I infer that there is a real possibility that the Trustee has not investigated whether Mr Liu continues to hold assets overseas despite the real possibility that substantial assets which could potentially be realised for the benefit of the Estate may be located abroad.
38 The second matter for investigation is that there is inconsistent evidence about the size of a debt owed to Mr Liu by GR Capital. In the Trustee's report, the Trustee recorded, based on Mr Liu's Statement of Affairs, that the bankrupt estate was owed $678,000 by GR Capital. However, Mr Liu had earlier submitted a proof of debt dated 21 November 2018 in the administration of GR Capital claiming to be owed $16,638,256.99 by GR Capital in respect of funds which he had apparently advanced to GR Capital: see Yan v The Won at [22]; the Supplementary Second Report to Creditors under Insolvency Practice Rules (Corporations) 75-225 with respect to GR Capital (Administrators Appointed) (Receivers & Managers Appointed). The Applicant submits that it is unlikely that the discrepancy arose due to repayment of the loan by GR Capital because on 18 February 2019 GR Capital entered into a Deed of Company Arrangement which restricted the company's ability to pay creditors, except employee claims in the ordinary course of business. The Applicant also appropriately drew my attention to the finding in Yan v The Won at [22] that the proof of debt provided in support of Mr Liu's claim to GR Capital in fact misappropriated "Mr Yan's loan funds and claimed that these were a debt which GR Capital owed" to Mr Liu, as opposed to a debt owed by GR Capital to Mr Yan. Given this finding and the significant inconsistency in the value of debt owed to the Estate, I agree with the Applicant that this is a significant matter which appears worthy of investigation.
39 The third matter for investigation is whether the Estate holds any equity in a property in Sylvania NSW which could be realised. Mr Liu disclosed to the Trustee that the property was worth $3 million. The Trustee's report recorded that the property is subject to a mortgage in the sum of $2,041,752. It also stated that caveats have been lodged on the title to the property by three of the unsecured creditors in the Estate, namely, Everest Private Pty Ltd, Xinfeng, and Mr Yan, as well as Ms Lui whose claim is based on alleged contributions to the initial purchase of the property and subsequent payments in relation to it. These matters suggest that an investigation into the property may also be in the interests of the bankruptcy.
40 Secondly, in the Trustee's report it was estimated that the Estate owes $63,991,460 to all known unsecured creditors. I accept Mr Yan's evidence that he is "prepared to fund the entire cost of the examination of Mr Liu" if Mr Robinson is appointed as the trustee of the Estate but is "not willing to provide funding to the Bankrupt Estate if [the Trustee] remains as the trustee of the Bankrupt Estate": Mr Yan's affidavits affirmed on 14 June 2024 at [6] and on 27 October 2023 at [42] respectively. In this regard, not only is Mr Yan owed $12,337,534.25 (as ordered by Pike J), but he has also paid $70,000 into his solicitor's trust account for this purpose. Given the size of the debts owed by the Estate to Mr Yan and other, it would plainly be in the best interests of the Estate to receive this funding in order to conduct further investigations with respect to the potential recovery of assets for the Estate.
41 The Applicant made submissions on the competing offer of funding made by Ms Liu in her affidavit affirmed on 17 April 2024. Ms Liu stated that she is "prepared to fund the [Trustee] between $20,000 and $40,000 to conduct investigations in the bankruptcy" and believed another creditor, Kai Li, was also prepared to contribute funding to the Trustee: at [5].
42 The Applicant submits that the funding offer from Mr Yan should be preferred for two reasons. First, the offer by Mr Yan is for a greater sum of money and has greater certainty because it has been paid into his solicitor's trust account.
43 Second, the applicant submits that in choosing a trustee "the views of those with a vested interest in minimising investigations, such as those involved in or benefiting from transactions likely to be impugned, should be discounted": Glenfyne International Holding Ltd v Glenfyne Farms International AU Pty Ltd (in Liq) [2019] NSWCA 304; (2019) 101 NSWLR 358 at 67 (Bell P, with Bathurst CJ agreeing at [1] and Macfarlan JA agreeing at [76]); see also Mokhtar at [34] (Perry J) as to the potential application by analogy of principles regarding liquidation in bankruptcy matters.
44 The short point is that, in circumstances where Ms Liu was not granted leave to intervene in the proceeding and her affidavit was not read on the substantive application for relief, there is no evidence before me as to her intention to fund any investigation into the bankruptcy. In any event, it is unlikely that I would have given that evidence any real weight. It will be recalled in this regard that Mr Yan lent AUD$10,000,000 to Mr Lui and GR Capital in late 2017 pursuant to the GR Capital Agreement, and this is one of the significant debts claimed in the bankruptcy by Mr Yan. As Ms Liu was a director of GR Capital when the Agreement was entered into, she would appear to have a vested interest in minimising the proposed investigations.
45 Thirdly, the replacement of the Trustee by Mr Robinson is supported by the majority of creditors in value. As identified above, the Estate owes approximately $63,991,460 to unsecured creditors. The Trustee's report also finds that the following creditors are owed money as part of that total: Ruifa Wang ($7,851,170); Y Liu and Xinfeng ($15 million); and Mr Yan ($20 million). Rufia Wang affirmed an affidavit on 28 February 2024 stating their support for replacing the Trustee with Mr Robinson "[o]n the basis that Jianhua Yan is prepared to contribute funding to the Bankrupt Estate for investigations if [the Trustee] is replaced by Mark Julian Robinson as trustee": at [4]. Yuqing Liu is a director of Xinfeng and a joint creditor of the Estate with Xinfeng: affidavit of Yuqing Liu affirmed on 13 March 2024 at [1]-[2]. Yuqing Liu and Xingeng support the replacement of the Trustee with Mr Robinson on the same basis: at [5]. Although, Mr Yan's debt has now been determined in the Supreme Court Proceeding to be a lesser amount than originally estimated in the Trustee's report, I accept that the majority of creditors in value support the application.
46 Finally, I accept the Applicant's submission that the Trustee has made decisions which may not necessarily have been in the best interests of the bankruptcy. In this respect, I make two preliminary observations. First, the Applicant did not submit that these decisions by the Trustee were beyond power or improper, nor do I make any such findings. Second, as noted above, the Court should not unduly interfere with the administration of a bankrupt's estate by a trustee. Accordingly, considered in isolation, these unusual decisions by the Trustee would not suffice to substantiate an application for his removal. However, when these decisions are considered together with the other factors which I have set out above, they lend further support to the orders sought by the Applicant.
47 The first issue concerned the process by which the Trustee appointed Ms Liu as the director of The Won. As earlier explained, the relevant sequence of events was that on 24 August 2023, Dentons wrote to Hugh & Associates advising that the Applicant intended to seek that The Won be wound up in the Supreme Court Proceeding. On 25 August 2023, Hugh & Associates wrote to the Trustee requesting that Ms Liu be appointed as director of The Won in order to allow The Won to continue to defend the Supreme Court Proceeding. On 31 August 2023, the Trustee appointed Ms Liu as director of The Won without consulting the Estate's creditors.
48 The issue with the Trustee's decision is that on 31 May 2021 Parker J handed down judgment in Xinfeng Australia International Investment Pty Ltd v GR Capital Group Pty Ltd [2021] NSWSC 614 in which "his Honour rejected an illegality argument advanced by GR Capital that was either identical to, or certainly very similar to, the arguments said to be advanced by GR Capital" in the Supreme Court Proceeding: Yan v The Won at [92] (Pike J). On this basis, Pike J ordered that the active defendants in the Supreme Court Proceeding (including The Won) pay the Applicant's costs on the indemnity basis from 30 June 2021. The Applicant submits that if the Trustee had consulted with the creditors, then the Trustee may have made a different decision with respect to the appointment of a director to The Won. I accept that while the Trustee was not under a legal obligation to consult the creditors on this issue, the process adopted by the Trustee was not necessarily in the best interests of the bankruptcy.
49 The second questionable decision by the Trustee was the failure to call a meeting of the creditors when directed by the Applicant. On 14 August 2023, Dentons wrote to the Trustee directing the Trustee to convene a meeting of the creditors pursuant to s 75-15(1)(c) of the Schedule of the Bankruptcy Act for the creditors to vote on the following resolutions:
1. Resolution 1
Remove [the Trustee] as trustee of the bankrupt estate of Wensheng LIU.
2. Resolution 2
Mark Julian Robinson be appointed as trustee of the bankrupt estate of Wensheng LIU.
(Emphasis in original.)
50 It appears that the Trustee may not have received this correspondence until 14 September 2023. On 27 September 2023, the Trustee responded to this correspondence and his reply included the following statement:
With respect to your client's request for a meeting of creditors to change the trustee, I will provide a formal response in due course. Please note that a change of trustee in a bankrupt estate requires the support of a majority of creditors in number and a majority of creditors in value and after a review of the creditors disclosed in the Statement of Affairs it appears unlikely that this would be supported by the creditors.
(Emphasis added.)
51 I agree with the Applicant that the Trustee appears to have prejudged the outcome of the creditors meeting without a clear basis. As a result, in my view, the failure to call the creditors meeting was not necessarily in the best interests of the bankruptcy.
52 The Applicant also sought an order for costs on the amended application. However, in circumstances where the Trustee did not participate in the proceeding, I am not prepared to make this order.