Yan v The Won Capital Pty Ltd

The Relevant Facts

1. The facts necessary for determination of the two remaining issues were not really in dispute. I set them out below.
2. On 5 November 2017, the Won Loan Agreement was entered into, pursuant to which, relevantly: 1. Mr Yan agreed to loan AUD 10,000,000 to The Won; 2. Interest was payable on the loan at an annual interest rate of 5% to be calculated from 6 November 2017 (clause 2); 3. The term of the loan was "one year, starting from the date the fund is deposited into [The Won's] nominated bank account" (see clause 3) which was nominated in clause 11 of the agreement as an account of Mr Liu's in China; 4. The loan was to be used to "bid for the project land in Hurstville, NSW Australia" (clause 4); 5. Mr Yan was obliged to "transfer the RMB equivalent of AUD 10,000,000 to [The Won's] nominated bank account by telegraphic transfer. At the exchange rate of 5.1:1 the amount to be transferred is RMB 51,000,000" (clause 5); 6. The "repayment for the principal and interest of the loan is to be made in AUD. The repayment is to be made to [Mr Yan's] nominated bank account in Sydney, Australia" (clause 6).
3. On 6 November 2017, Mr Yan transferred RMB 51,000,000 into the account in China nominated in clause 11 of the Won Loan Agreement.
4. On 19 December 2017, Mr Yan, GR Capital and Mr Liu entered into the GR Capital Loan Agreement, pursuant to which, relevantly: 1. Mr Yan agreed to loan "the equivalent of AUD 10,000,000 in RMB Yuan" to GR Capital and Mr Liu (clause 1); 2. Interest was payable on the loan at an annual interest rate of 6% from the day the loan amount was transferred into the bank account nominated (clause 2), which was nominated under clause 10 as a bank account of Mr Liu's in China; 3. The loan was to be used for a specific purpose as set out in clause 3 of the GR Capital Loan Agreement, being the purchase of land in Hurstville; 4. The term of the loan was stated to depend upon the time when Mr Yan was required to pay for a certain loan purchase (see clause 4); 5. By clause 5, Mr Yan agreed to "transfer the RMB equivalent of AUD 10,000,000 to [GR Capital and Mr Liu's] nominated bank account by telegraphic transfer". By clause 6, the exchange rate between RMB and AUD for the purpose of the loan was 5:07:01; 6. Repayment for the principal and interest of the loan is to be made in AUD (see clause 7).
5. On 19 December 2017, Mr Yan transferred RMB 51,700,000 into Mr Liu's account in China nominated by clause 10 of the GR Capital Loan Agreement.
6. Mr Liu used two "dealers" in Australia to transfer certain of the monies advanced to him from his bank account in China to certain Australian bank accounts. This occurred by Mr Liu transferring the relevant funds in RMB to the relevant dealer's account in China, and the dealer then transferred the AUD equivalent of the RMB amount that he had deposited into the dealer's account in China into the relevant Australian bank accounts.
7. In total, AUD 15,503,701.10 of the loan funds were transferred to Australia in this way between 13 November 2017 and 27 September 2018.
8. On 28 June 2018, an amount of AUD 500,000 was repaid under the Won Loan Agreement.
9. On 3 July 2018, Mr Yan and The Won entered into a further agreement relevantly extending the time for repayment under the Won Loan Agreement to February 2019. Also on 3 July 2018, Mr Yan, GR Capital and Mr Liu entered into a further agreement relevantly extending the time for repayment under the GR Capital Loan Agreement to the end of February 2019.
10. On 18 October 2018, Messrs Peter Krejci and Brian Silvia were appointed joint and several administrators of GR Capital, as well as another company, The One Capital Group Pty Ltd (being a company which, on Mr Liu's account, had received some of Mr Yan's loan funds) (The One).
11. On 26 October 2018, Messrs Phil Quinlan and Ryan Eagle were appointed receivers and managers to the assets and undertakings of GR Capital by Everest Private Pty Ltd (Everest).
12. On 14 November 2018, Messrs Krejci and Silvia published a Second Report to Creditors of GR Capital. Section 9.6 of that report contains an assessment of insolvency in relation to GR Capital. The conclusion reached on the material then available and reviewed was: …it is our preliminary view that the Company has been insolvent since at least December 2017, upon the expiration of the Facility Agreement with Xinfeng.
13. Section 9.6.1 of the report contained the following observations in relation to the potential amount of an insolvent trading claim: Determining the value of an insolvent trading claim will generally involve a forensic review of the debts incurred after the date on which it can be maintained that the Company was insolvent. For the purposes of this Report, we have prepared a preliminary assessment of the claim, assuming the Company was insolvent since December 2017. Our investigations indicate that an insolvent trading claim may be valued at up to $7.1M, being the anticipated shortfall to Xinfeng on completion and sale of The One Hurstville and realisation of the Jubilee Pocket land. This quantification assumes forbearance and forgiveness (if effect) of all related party creditors. We note that the actual loss may be materially different, where, for example, we have not allowed for the costs of the Receivers which are unknown and have assumed that all construction costs will be met moving forward. Overall, the claim represent [sic] the losses on the development (to unrelated parties), which appear to have arisen as a result of delays and escalation in the construction costs. The continued construction since at least December 2017 (or earlier June 2017) has escalated Everest's debt as the first ranking secured creditor, to the detriment of other creditors, in particular Xinfeng. Further analysis of such a claim will be required in a Liquidation scenario, including possible public examinations of relevant parties to determine what was known and at when. As noted earlier, the records provided to us are incomplete and we have been unable to reconcile the movement of funds, in particular the funding from Xinfeng. The effect being that should it be proven that certain funds have not be accounted for, and that shortfall is recoverable as a debtor, such amount(s) would be a reduction to any insolvent trading claim given that it effectively represents the loss suffered by unrelated parties.
14. On 22 November 2018, Messrs Krejci and Silvia convened the second meetings of creditors of GR Capital and The One. The meetings were adjourned. At the second meetings, Mr Liu submitted a proof of debt in the administration of GR Capital. By that proof of debt dated 21 November 2018, Mr Liu claimed that he was owed AUD 16,638,256.99 by GR Capital in respect of funds which he had apparently advanced to GR Capital. Mr Liu supported that proof of debt by exhibiting, among other things, foreign exchange contracts, which, in these proceedings, Mr Liu says were actually transfers of Mr Yan's loan funds. That is to say, and this is not disputed, Mr Liu appropriated Mr Yan's loan funds and claimed that these were a debt which GR Capital owed him, rather than a debt owed by GR Capital to Mr Yan. From the documentation provided by Mr Liu, it appears that AUD 11,260,718.98 of the AUD 16,638,256.99 was in fact sourced from Mr Yan.
15. On 7 December 2018, a further company, The One, proposed a DOCA.
16. On 12 December 2018, Messrs Krejci and Silvia published a Supplementary Second Report to Creditors. That report recorded their view that it was in the interest of creditors to wind up, inter alia, GR Capital.
17. On 20 December 2018, Messrs Krejci and Silvia held a further meeting of creditors at which time the meetings were again adjourned, to permit the formulation of a DOCA proposal.
18. At 5pm on 18 January 2019, the defendants' present lawyers communicated, on behalf of Mr Liu and his wife, Lan Liu (presently the sole director of The Won and GR Capital) (Mrs Liu) new DOCAs. On 21 January 2019, Messrs Krejci and Silvia produced a Supplementary Second Report to Creditors. It remained the view of Messrs Krejci and Silvia that GR Capital, inter alia, ought to be wound up.
19. Messrs Krejci and Silvia observed in the Supplementary Second Report to Creditors on 18 January 2019 that the proposed DOCAs (one for GR Capital and the other for The One) were holding DOCAs, seeking to provide time for the completion of The One Hurstville development (Hurstville Development) and to impose a moratorium on creditors whilst that occurred.
20. On 30 January 2019, at the adjourned meeting, the creditors of GR Capital resolved that the company execute the GR Capital DOCA. The resolution was against the recommendation of the administrators and was passed "on the voices".
21. The Form 531B - List of Persons Present at Meeting of Creditors - records that, in total, informal and formal proofs of debt were received in the sum of AUD 61,666,007.54. Two creditors, namely Xinfeng Australia International Investments Pty Ltd (Xinfeng) and Everest were secured creditors of GR Capital and, as set out below, were exempted from the operation of the GR Capital DOCA. They were admitted to vote, for a total of AUD 48,364,706.08. There was a dispute as to whether the entirety of Mr Liu's debt was in fact his, or whether in part it belonged to Xinfeng, who had apparently advanced monies to Mr Liu's bank account in China. In the end, of Mr Liu's proof of debt, AUD 8,338,787 was admitted to vote. As noted above, Mr Liu's proof of debt appropriated substantial sums of money, which, in these proceedings, it is admitted were actually Mr Yen's loan funds.
22. In total, 84 creditors are recorded as being present either in person or by proxy and approximately half were admitted to vote. Apart from Xinfeng, Everest and Mr Liu, the only other substantive creditors (over AUD 20,000) were WDL International Investments Pty Ltd (AUD 3,059,989.00), Gencorp Pty Ltd (AUD 531,604.83), D'Angelo Solicitors (AUD 66,697.91) and Ching Wah (AUD 158,001.00).
23. The terms of the GR Capital DOCA included: 1. The Deed Administrator was appointed by the directors, being Mrs Liu and Mr Liu (see Recital A). That Deed Administrator was Mr Porter, the seventh defendant; 2. The object of the GR Capital DOCA was to allow the company time to complete the Treacy Street Development, being the development of an 11-storey residential and commercial tower at Treacy Street, Hurstville (see Recital E of the GR Capital DOCA and clause 1.1), otherwise referred to as the Hurstville Development. The Treacy Street development is one of the developments for which funds were advanced under the GR Capital Loan Agreement (see clause 3 of the GR Capital Loan Agreement); 3. Under the GR Capital DOCA, the day-to-day control and stewardship of GR Capital was to revert to Mr Liu and Mrs Liu subject (inter alia) to the terms of the GR Capital DOCA (see clause 7.1); 4. Subject to an irrelevant exception, it does not bind a Capital Secured Creditor, being a person who was a Security Interest in respect of that person's debt to the extent that the person is entitled to exercise rights in respect of any property of GR Capital (see clause 1.1); 5. The GR Capital DOCA specifically does not bind Xinfeng or Everest as secured creditors (see clause 9.3 and 9.4); 6. Until the termination of the GR Capital DOCA, a Creditor (that is, not a person who has a claim to the extent it is secured against property of GR Capital) must not instigate or continue any proceedings against GR Capital in relation to any assets or property of GR Capital or a co-obligor (see clause 9.6(2)). Recital E stated that the moratorium was in anticipation of such claims being satisfied once the Treacy Street Development being complete.
24. It is not in dispute that at no time prior to entry into the GR Capital DOCA, Mr Yan was not aware that GR Capital had entered into administration or that a DOCA had been executed in relation to GR Capital. It was not until some time after entry into the GR Capital DOCA and the commencement of these proceedings on 14 March 2019, that Mr Yan became so aware. No monies were repaid under either the Won Loan Agreement or the GR Capital Loan Agreement apart from the AUD 500,000 paid on 8 June 2018.
25. On 11 November 2021, Mr Liu became bankrupt pursuant to a debtor's petition. Mr Liu's statement of affairs declared that he owed AUD 20,000,000 to Mr Yan.
26. On 27 July 2022, the Federal Court granted leave to Mr Yan to continue these proceedings against Mr Liu: see Yan & Spyrakis Trustee in Bankruptcy for Liu [2022] FCA 872.
27. On 5 February 2024, Mr Yan obtained leave to proceed nunc pro tunc against GR Capital pursuant to s 444E(3)(c) of the Act.
28. It would appear that the development of the Treacy Street property continued after entry into the GR Capital DOCA. The development was under the control of the receivers. On 19 July 2019, Deposited Plan 1253495 was registered, being a plan of subdivision of the Treacy Street property. On 25 September 2019, that deposited plan was cancelled and replaced by Strata Plan 91614, which provides for the subdivision of the prior plan into 77 units. All of those units are no longer by GR Capital, suggesting that the units have all been sold.
29. Further, by letter dated 19 December 2023 from the active defendants' solicitors to the Deed Administrator (Mr Porter), it was stated that the first ranking secured creditor, Everest, has realised in excess of AUD 53,000,000 from the realisation of the assets of GR Capital and/or The One, although it is still owed in excess of AUD 10,000,000.
30. On 25 July 2023, the solicitors for Mr Yan wrote to the Deed Administrator confirming that Mr Yan maintains that he is a creditor of GR Capital and inquiring as to whether a meeting of creditors had been convened as required under clause 10.3 of the GR Capital DOCA. The letter also stated that, because Mr Liu had been made bankrupt, this gave rise to a breach of clause 7 of the GR Capital DOCA and as such, a meeting of creditors should be convened.
31. It would appear that there then was some correspondence between the Deed Administrator and the solicitors for Mr Yan. That correspondence refers to a plan to hold a meeting of creditors on 8 September 2023 for the purposes of seeking a vote from creditors to terminate the GR Capital DOCA, wind up the company and appoint a liquidator. At some stage, the lawyers for GR Capital, being the present solicitors for the active defendants, advised the Deed Administrator that they would like to put forward a proposal to vary the GR Capital DOCA. On 1 October 2023, the Deed Administrator notified the solicitor for Mr Yan that he had been chasing the solicitors for Everest, the major creditor, about their view on a DOCA variation, but had not yet been able to speak with them.
32. The proposal to vary the DOCAs for GR Capital and The One appears to have been finally provided by the solicitors for the active defendants to the Deed Administrator by way of a letter dated 19 December 2023. That letter outlines a "proposal" for the two DOCAs to be varied. The highlights of the proposal are: 1. Mrs Liu will contribute the sum of AUD 10,000 to cover the Deed Administrator's reasonable costs and expenses of administering the varied DOCAs; 2. Mrs Liu will procure a contribution of AUD 500,000 (First Tranche) from her family in China to be held by the Deed Administrator, in his capacity as Deed Administrator of GR Capital, as the deed fund (Deed Fund); 3. Unsecured creditors of The One and GR Capital will prove for the purposes of sharing in the Deed Fund, and will share pari-passu in a distribution of the Deed Fund based on their admitted unsecured debt; 4. Upon a distribution of the First Tranche, participating creditors will assign their claims against the companies - being GR Capital and The One - to The Won, which will then hold those assigned debts for the purposes of investigating whether any claims exist and pursuing recovery of them; 5. Mrs Liu will provide funding to The Won as and when required to carry out the steps set out above, up to a maximum amount of AUD 100,000; 6. To the extent that any recoveries are made by The Won, those recoveries, net of the funding costs provided by Mrs Liu, will be paid to the Deed Administrator as a further contribution to the Deed Fund, for the purposes of a further distribution to the participating creditors on the same terms as the First Tranche; 7. The claims of participating creditors will be released on payment of the second tranche (if there is any) or otherwise when The Won advises that there is no likelihood of a recovery for a second tranche; 8. The varied DOCAs will not bind creditors to the extent they hold security over any property of the companies.
33. The letter also advised that: 1. The first ranking secured creditor, Everest, has realised in excess of AUD 53,000,000 from the realisation of the assets of GR Capital and/or The One; 2. Despite these realisations, Everest alleges it is still owed in excess of AUD 10,000,000. Interest continues to accrue on the Everest debt at a rate of around 18% per annum, ie circa AUD 150,000 per month. This means that Everest will not be paid out by the companies; 3. The proposed varied DOCAs aim to provide participating creditors with a structured and feasible mechanism to get a greater return than would be available in a winding up of the companies.
34. By letter dated 6 February 2024, the solicitors for Mr Yan wrote to the Deed Administrator requesting that the Deed Administrator defer calling any creditor meeting to consider the proposal to enter into the varied DOCA, until after judgment has been delivered in these proceedings.
35. It does not appear that any meeting of creditors has been held.
36. Mr Yan seeks to have the GR Capital DOCA terminated, thereby placing GR Capital in liquidation, so as to enable a liquidator (who will be Mr Porter) to investigate the insolvent trading claims that were foreshadowed in the Second Report to Creditors. In an affidavit made 10 June 2024 and filed during the hearing, Mr Yan stated that he was prepared to provide funding less than AUD 20,000 to Mr Porter to conduct investigations into GR Capital's affairs.
37. There is now a substantial degree of urgency in relation to any such investigations. If the Court terminates the GR Capital DOCA, then GR Capital is taken (as at that date) to have passed a resolution under s 491 of the Act that the company be wound up voluntarily: see s 466AA(2)(a) of the Act. Pursuant to s 513B(d)(a)(i) read with s 513C(b) of the Act, the winding up of GR Capital is taken to have commenced on 18 October 2018, being the day on which administrators were appointed to GR Capital. An insolvent trading claim may only be brought within 6 years after the beginning of the winding up: see s 588M(4) of the Act. In other words, a liquidator appointed to GR Capital can only file a claim for insolvent trading before 18 October 2024.

Relevant legal principles

1. Mr Yan seeks to terminate the GR Capital DOCA pursuant to 445D(1) of the Act. Reliance is placed on sub-paragraphs (a) and (g) of s 445D(1). Sub-paragraph (a) relevantly provides that the Court may make an order terminating a DOCA if it is satisfied that: (a) information about the company's business, property, affairs or financial circumstances that: (i) was false or misleading; and (ii) can reasonably be expected to have been material to creditors of the company in deciding whether to vote in favour of the resolution that the company execute the deed; was given to the administrator of the company or to such creditors.
2. Sub-paragraph (g) provides that the DOCA should be terminated for "some other reason."
3. Under s 445D(1)(a)(i), whether information is false is misleading is determined by the objective quality of the information judged at the time of the hearing: see Bidald Consulting Pty Ltd v Miles Special Builders Pty Ltd (2005) 226 ALR 510 per Campbell J at [147] (Bidald). The inquiry is directed to the adequacy of the information provided: see Sino Group International Limited & Anor v Toddler Kindy Gymbaroo Pty Ltd (subject to a Deed of Company Arrangement) (ACN 006 166 141) & Ors (2023) 168 ACSR 311; [2023] FCAFC 110 (Sino) at [62].
4. Under s 445D(1)(a)(ii), "material" means something which was relevant and did affect, or might have affected, the outcome. The test is an objective one: Bidald at [165]-[166].
5. In relation to s 445D(1)(g) - "some other reason" - the words are very broad and should be applied in a way consistent with the policy of the Act and other public policies to which the law gives effect. Giving effect to the general policy of the Act, that insolvent companies should not continue to trade, it is well within a legitimate use of s 445D(1)(g): see Bidald at [261].
6. In Australian Securities and Investments Commission v Midland Hwy Pty Ltd (admin apptd) (2015) 110 ACSR 203; [2015] FCA 1360, Beach J stated at [71]: [71] Where the relevant company is not trading and there is no likelihood of its resuming its former business, the public interest in placing the company in the hands of a liquidator may prevail over the interests of creditors…
7. Further at [73]-[74], Beach J stated: [73] Generally, the breadth of s 445D(1)(g) is such that in a particular case the public interest can justify the termination of a DOCA even where it is not established that this would necessarily be in the creditors' interests. [74] Finally, in any event, the preclusion of an effective investigation by a liquidator into relevant transactions and the opportunity for greater returns may render a DOCA contrary to the creditors' interests overall …
8. These remarks have often been approved: see, for example, ACN 613 909 596 Pty Ltd (formerly Minle Wine Negociants of Australia Pty Ltd) (subject to Deed of Company Arrangement) [2023] NSWSC 753 at [65]ff per Black J.
9. In Tivo, Inc and Tivo Brands LLC v Vivo International Corporation Pty Ltd (subject to Deed of Company Arrangement) [2014] FCA 789 (Vivo), Gordon J stated in the context of s 445D(1)(g) that the circumstances in which a DOCA may be terminated are not closed. Each case will depend upon its own facts and combination of circumstances, which must be mutually balanced: see Vivo at [59].
10. Even if one or more of the statutory pre-conditions for terminating a DOCA are made out, there is a further step of the Court actually deciding in its discretion that it should do so.
11. In Sino at [71], a Full Court of the Federal Court stated: [71] There are many factors that the Court will take into account when considering if the discretion to terminate a DOCA, once enlivened, should be exercised. Many of the relevant factors in the authorities relate to the interests of creditors as a whole on the one hand, and the public interest on the other. Public interest may be understood as whether the continuation of the DOCA is conducive or detrimental to commercial morality and to the interests of the public at large. The Court must carefully balance the interests of creditors with the public interest in considering whether it is appropriate to exercise the discretion to terminate a DOCA.
12. At [72], the Full Court set out a list of non-exhaustive factors that are relevant to the exercise of the Court's discretion, although the Court noted at [73] that the list of factors relevant to the Court's exercise of the discretion is not closed.
13. Added to the list, and of relevance in the present case, is the fact that delay in bringing the application is a particularly important discretionary factor: see Bidald at [298].
14. In Vivo at [67], Gordon J observed that: [67] Whether one or more of the jurisdictional grounds in s 445D(1)(f) and (g) has been established and, if so, whether, in the exercise of the court's discretion, the DOCA should be set aside can be treated as two distinct issues… At least in the case of termination "for some other reason" under s 445D(1)(g), however, the identification of "some other reason" and the determination of whether that reason warrants termination of the DOCA are necessarily interconnected.

Determination of whether the GR Capital DOCA should be terminated

1. Mr Liu admits that in advance of the resolution passed by the creditors of GR Capital to enter into the GR Capital DOCA, he did not inform the administrators appointed to GR Capital or its creditors, of: 1. The terms of the GR Capital Loan Agreement; 2. The terms of the GR Capital supplementary agreement; 3. That the GR Capital loan had been made; and 4. That the GR Capital loan had not been repaid.
2. Mr Liu did not admit the allegation that, by reason of the failure to disclose the matters set out above, the information that was given about GR Capital's affairs and financial circumstances to GR Capital's administrators and to its creditors: 1. was information that was misleading; and 2. could reasonably be expected to have been material to creditors of GR Capital in deciding whether to vote in favour of the resolution that GR Capital enter into a DOCA.
3. No submissions were advanced, however, by senior counsel for the active defendants, as to why I would not be satisfied of these matters in light of the admitted non-disclosure. The conduct of Mr Liu, in failing to alert creditors and the administrators, to the fact that Mr Yan had loaned GR Capital money under the GR Capital Loan Agreement which had not been repaid, but instead passed off money, including money which Mr Yan had loaned to GR Capital, as money which he himself had loaned to GR Capital, clearly satisfies the requirements of s 445D(1)(a). It is to be remembered that Mr Liu was the third largest creditor (by value) admitted to vote at the meeting, with the two largest being Xinfeng and Everest, the secured creditors who were not subject to the GR Capital DOCA and thus may be presumed not to care, one way or the other, whether the GR Capital DOCA was entered into. As it was, Mr Liu was able to pass himself off as a substantial creditor of GR Capital and vote in favour of the DOCA, which he had proposed.
4. But for the misleading information, the voting composition would have been materially different.
5. In any event, admitting Mr Liu to vote at a meeting on the false premise that he was a creditor to the extent that he was admitted, and permitting him to vote in favour of the DOCA he proposed, amounts to another reason to terminate the GR Capital DOCA.
6. The focus of the debate at the hearing was whether, as a matter of discretion, the Court should terminate the GR Capital DOCA.
7. For the reasons set out below, the GR Capital DOCA should be terminated.
8. The principal discretionary matter relied on by the active defendants as to why the GR Capital DOCA should not be terminated is the delay in seeking an order terminating the GR Capital DOCA.
9. It is clear that delay is an important discretionary matter. It is obvious that delay may, in certain circumstances, make it difficult, or indeed impossible, to terminate the DOCA in circumstances where considerable expense has been incurred in implementing the DOCA and/or third parties have changed their position in reliance on the DOCA being valid and being given effect to. It is, however, simply one matter to be considered in the exercise of the discretion.
10. It is clear that Mr Yan first sought an order terminating the GR Capital DOCA under s 445D(1) in October 2019. Other relief was also sought at this time seeking to attack the GR Capital DOCA, but this has since been abandoned.
11. It also seems relatively clear that there has been some delay in the prosecution of the proceedings. The procedural history was, to some extent, set out in a recent judgment of Richmond J on an application by Mr Yan to amend his statement of claim: see Yan v The Won Capital Pty Ltd [2023] NSWSC 1506.
12. Mr Yan sought to respond to the criticism of delay on several bases. First, that there was no delay in seeking the order to terminate the GR Capital DOCA because this relief has been on the table since October 2019. It was then contended that there has been a delay for a variety of reasons in having the matter heard until now, especially the defendants' now abandoned illegality defence. As I understood the argument advanced by Mr Yan, it was to the effect that in order to have standing to seek to terminate the GR Capital DOCA, Mr Yan would need to demonstrate that he was a creditor of GR Capital and that, until the recent abandonment of the illegality defence, it was not conceded that he was. As senior counsel for the active defendants pointed out, however, the Court would not need to determine, if the application for relief under s 445D was pressed, whether as a matter of fact Mr Yan was in fact a creditor, or was arguably so. Reliance was placed by senior counsel for the active defendants on the decision of Austin J in Allatech v Construction Management Group Pty Ltd [2002] NSWSC 293, where his Honour held that an "other interested person" in s 445D(2) would include a person who claims to be a creditor where the claim is based on grounds that are genuinely arguable. In Bidald at [295]-[296], Campbell J stated that the fact that a debt is disputed can be a proper factor to be taken into account in determining whether to terminate a DOCA and that the weight to be given to that factor will depend upon the apparent strength of the dispute.
13. I am not in a position to form any view as to why it is that the proceedings are not being heard until now, nor do I regard it as necessary to do so in the circumstances of the present case. The fact is that it has been five years since the GR Capital DOCA was entered into. Similarly, the fact that other options may have been open to Mr Yan to vary or terminate the GR Capital DOCA - a matter relied on by the active defendants - proceeded on the basis that Mr Yan was a creditor of GR Capital. Until the Friday before the commencement of the hearing, the active defendants denied that Mr Yan was in fact a creditor.
14. The relevant question is whether, having regard to the circumstances as they exist today, the delay is such that the GR Capital DOCA should not be terminated.
15. It is to be remembered, in this regard, that the GR Capital DOCA was, as the administrators' observed at the time, a holding DOCA to enable the Hurstville Development to be completed with a moratorium on creditors pursuing any claims during the period of the DOCA.
16. It appears to be common ground that the purpose of the GR Capital DOCA has been achieved in that the Hurstville Development has been completed. It also appears to be common ground that Everest is still owed approximately AU 10,000,000.
17. I turn now to consider the balancing exercise required by the authorities between the interests of the creditors and the public interest.
18. In relation to the interests of creditors, it is a little difficult to predict what will happen if the GR Capital DOCA is not terminated. This is because the GR Capital DOCA is a holding DOCA and what will occur depends upon the outcome of any future meeting of creditors of GR Capital. Although the Hurstville Development is complete, there does not appear to be any evidence that anything was being done - either by the Deed Administrator or creditors - to convene a meeting of creditors of GR Capital to determine what is to occur. On the evidence, it appears that it was Mr Yan that first agitated for a meeting of creditors. This then prompted, after some considerable delay, the letter from the solicitors for the active defendants in late December 2023 outlining a proposal for a varied DOCA. The solicitors for Mr Yan then requested that any further meetings of creditors not be held until after the determination of the present proceedings and this request appears to have been agreed to by the Deed Administrator.
19. No evidence was put before the Court as to the attitude of creditors to the application or whether any creditor would suffer any prejudice if the GR Capital DOCA was terminated now.
20. It is far from clear to me what in fact will occur if the GR Capital DOCA is not terminated. I believe I am entitled to be somewhat sceptical as to whether, if the GR Capital DOCA is not terminated, a meeting will in fact be held where a proposal for a varied DOCA is put to the meeting, either at all or along the lines of that proposed in the 19 December 2023 letter from the solicitors for the active defendants. It appears that it was only the agitation by Mr Yan's solicitors for a creditors meeting to be held last year that prompted, again after considerable delay, the proposal for a varied DOCA to be floated in the 19 December 2023 letter.
21. No undertaking was proffered by senior counsel for the active defendants that a proposal for a varied DOCA, either along the lines floated in the 19 December 2023 letter or at all, would be formalised and put to a meeting of creditors of GR Capital.
22. It is far from clear to me that even if a proposal for a varied DOCA along the lines floated in the 19 December 2023 letter was in fact formalised, it would likely yield significant benefit to the creditors of GR Capital viewed as a whole. It seems relatively clear from the letter dated 19 December 2023 that Everest is still owed approximately AUD 10,000,000. The First Tranche of any Deed Fund would be AUD 500,000, to be provided from money received from China by Mrs Liu. There is no evidence, however, of the current value of creditors of GR Capital and what return would therefore be received by each unsecured creditor on a pari-passu distribution of the First Tranche. On any view, it would likely be small. Whether there would be a second tranche is even more opaque. The letter dated 19 December 2023 refers in general terms to the nature of the claims that would be investigated by Mrs Liu and, if so advised, pursued. What does seem clear, however, is that those claims would not include the insolvent trading claims identified by the administrators prior to the GR Capital DOCA being entered into, including against Mrs Liu. The varied DOCA would thus not investigate the claims which Mr Yan seeks to have investigated, being the very claims identified by the administrators several years ago.
23. Having regard to the evidence before me, such as it is, it seems to me to be unlikely that there will be a significant return to unsecured creditors if the GR Capital DOCA is not terminated.
24. If the GR Capital DOCA is terminated, then there will likely be at least some further investigation by the liquidator of GR Capital of the insolvent trading claim identified in the Administrators' Report to Creditors, funded by Mr Yan. Whilst the AUD 20,000 figure offered by Mr Yan in his affidavit dated 10 June 2024 is not much, this is a floor, and not a ceiling, as to what Mr Yan will contribute. It will permit at least some further investigation to be carried out.
25. It is of some significance, in this regard, that the Administrators' Report to Creditors expressed the preliminary view that GR Capital was insolvent as at December 2017. This is the time at which Mr Yan advanced monies to GR Capital. The initial estimate of the value of the claim - AUD 7,100,000 - is also considerably larger than the First Tranche, although it is only an estimate of the value of a potential claim.
26. Consistent with the authorities set out above, there is a strong public interest in upholding commercial morality and investigating relevant transactions by a liquidator.
27. In the circumstances of the present case, that public interest, in my view, coupled as it is with the potential for the investigations by the liquidator to identify causes of action to be pursued, for the benefit of creditors, predominates over the speculative outcome if the GR Capital DOCA is not terminated.
28. Senior counsel for the active defendants contended that, rather than terminate the GR Capital DOCA now, thereby placing GR Capital into immediate liquidation, I should permit a further meeting of creditors to be held to vote on the future of GR Capital, including any varied DOCA proposal that may be put. Whilst I was initially attracted to this proposal, it seems to me that in circumstances where no undertaking was proffered by the active defendants to in fact put a varied DOCA proposal to any such meeting, together with the fact that even if a proposal along the lines of that floated in the 19 December 2023 letter was put, it would not so obviously likely result in a better outcome for unsecured creditors, and most importantly the fact that there is now a very limited window for any investigation and commencement of proceedings, the better course is to terminate the GR Capital DOCA now.
29. In all of the circumstances, the GR Capital DOCA should be terminated now.

Costs

1. At the hearing on 11 June 2024, counsel for Mr Yan contended that I should make an order that the first, second and third defendants are to pay the costs of these proceedings up to 30 June 2021 on the ordinary basis and from 30 June 2021, on the indemnity basis.
2. This was subject to a carve out that the costs of and associated with Mr Yan's application under s 445D(1) of the Act to terminate the GR Capital DOCA are reserved.
3. These orders were proposed against the background of the now consent position that judgment should be entered for the plaintiff against the first defendant in respect of the Won Loan Agreement and as against the second and third defendants in respect of the GR Capital Loan Agreement.
4. The date of 30 June 2021, being the date from which the costs should be paid on an indemnity basis, was chosen having regard to the decision of Parker J in Xinfeng Australia International Investment Pty Ltd v GR Capital Group Pty Ltd [2021] NSWSC 614, which was handed down on 31 May 2021. In that judgment, 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 these proceedings before me. No appeal was filed from the decision of Parker J and the date of 30 June 2021 was chosen on that basis - namely to give GR Capital time to consider whether it would appeal, and having decided not to appeal, it must be taken to have accepted the correctness of that decision and thus the incorrectness of the illegality defence.
5. Senior counsel for the active defendants contended that, putting to one side the costs associated with the application to terminate the GR Capital DOCA - which I believe both parties accepted should be determined separately from the costs of the remainder of the proceedings - the appropriate costs order was that each party should pay its or their own costs. This was put forward on the basis that both parties had dropped a number of issues shortly prior to the hearing. In the case of Mr Yan, it was contended that he had dropped his claim to recover the monies on the basis of a Quistclose trust, and also the claims to recover considerable sums under the varied loan agreements, which the active defendants contended were a penalty.
6. The relevant principles in relation to costs are not in dispute. Section 98 of the Civil Procedure Act 2005 (NSW) provides that, subject to the rules of Court, costs are within the discretion of the Court. The discretion is a broad one. Uniform Civil Procedure Rules 2005 (NSW) r 42.1 provides that: …if the Court makes any order as to costs, the Court is to order that the costs follow the event, unless it appears to the Court that some other order should be made as to the whole or any part of the costs.
7. Having regard to the approach advocated by the active defendants, it should also be recorded that, where there are multiple issues in a case, the Court generally does not attempt to differentiate between the issues on which a party was successful and those on which it failed. Unless a particular issue or group of issues is clearly dominant or separable, it will ordinarily be appropriate to award costs of the proceedings to the successful party without an attempt to differentiate between those particular issues on which it was successful and those on which it failed: see Waters v PC Henderson (Aust) Pty Ltd (1994) 254 ALR 328; [1994] NSWCA 338 per Mahoney JA.
8. In terms of indemnity costs, the relevant principles were recently summarised by Mitchelmore JA (with whom Simpson AJA and Meagher JA agreed) in Cappello v Home Building Pty Ltd (2023) NSWCA 109 at [46]-[48] in the following terms: [46] The Court has a discretion to award costs on an ordinary or indemnity basis. Usually costs will follow the event, unless the Court considers that some other order ought to be made: Civil Procedure Act 2005 (NSW), s 98; Uniform Civil Procedure Rules 2005 (NSW), r 42.1; Collier v Country Women's Association of New South Wales [2018] NSWCA 36 at [116] (Collier). [47] For an order of indemnity costs to be made, the conduct of the party against whom such costs are sought must usually exhibit some special or unusual feature: Collier at [117]. The focus is on the way the litigation was conducted: Mead v Watson [2005] NSWCA 133 at [8] -[9] . For example, the discretion may be enlivened where a party persists in what should have been seen to be a hopeless case, such as where the case was unduly prolonged by groundless contentions: Ferella at [36]; Liverpool City Council v Estephan (Executor and Administrator of the Estate of the late Jocelyn Estephan ) [2009] NSWCA 161 at [93] (Liverpool City Council). It has also been said that indemnity costs may be awarded where the unsuccessful party's conduct was unreasonable or delinquent: Amirbeaggi v Matrix Group Co Pty Ltd [2021] NSWCA 21 at [18] . [48] The categories of circumstances in which the discretion may be exercised are not closed: Liverpool City Council at [93]. Ultimately, the question must always be whether the particular facts and circumstances of the case in question warrant the making of an order for payment of costs other than on the ordinary basis: Liverpool City Council at [93].
9. To this, I would add the following passage from Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 where Woodward J at 401: I believe that it is appropriate to consider awarding 'solicitor and client' or 'indemnity' costs, whenever it appears that an action has been commenced or continued in circumstances where the applicant, properly advised, should have known that he had no chance of success. In such cases the action must be presumed to have been commenced or continued for some ulterior motive, or because of some wilful disregard of the known facts or the clearly established law.
10. In the circumstances of the present case, it is appropriate to make the costs order sought by Mr Yan in relation to the costs of the proceedings other than the costs associated with the application to terminate the GR Capital DOCA.
11. Nothing was put by senior counsel for the active defendants to explain the dropping of the illegality defence on the last working day before the hearing. The only conclusion is that it was a capitulation by the active defendants on an appreciation that it was unlikely to succeed. Nothing was said by senior counsel for the active defendants to suggest that the argument now being propounded was in any substantive sense different to that dismissed by Parker J in the judgment handed down on 31 May 2021. It ought to have been appreciated by the active defendants, on and from 30 June 2021, that the illegality defence was not going to succeed. The circumstances are such that, in my view, it is appropriate to order the costs of the proceedings (other than the costs associated with the application to terminate the GR Capital DOCA) on an indemnity basis.
12. It is not appropriate to discount the costs to be awarded to Mr Yan on account of the fact that he no longer pressed his claim for monies owing on the basis of a Quistclose trust, or for the recovery of the additional sums which were contended by the active defendants to amount to a penalty. As to the former, there was no need to press the claim for a Quistclose trust in circumstances where the active defendants were otherwise consenting to judgment for the amount of the debt and interest. It also did not involve any substantial additional facts. As to the second matter - the claim for the additional amounts which were said to be a penalty - these allegations did not, in my assessment, result in significant additional costs being incurred in the preparation of the matter. No evidence was adduced by either party which related to the issue. The argument would largely have hinged on a legal one, namely whether the amounts were a penalty. The abandonment of these claims does not, in any relevant sense, alter the event - namely the entry of judgment in the amounts ordered on account of the principal and interest under the two loan agreements.
13. In relation to the costs associated with the application to terminate the GR Capital DOCA, it is appropriate that these costs be paid by the active defendants on the ordinary basis.

Conclusion and Orders

1. In addition to the judgment entered on 11 June 2024, I make the following orders: 1. Pursuant to s 445D(1) of the Corporations Act 2001 (Cth), the Deed of Company Arrangement for the third defendant dated 18 February 2019 be terminated. 2. Subject to order 3 below, the first, second and third defendants pay the costs of these proceedings: 1. up to 30 June 2021 on the ordinary basis; and 2. from 30 June 2021, on the indemnity basis. 1. The first, second and third defendants pay the costs of and associated with the plaintiff's application under s 445D(1) of the Corporations Act 2001 (Cth) to terminate the Deed of Company Arrangement dated 18 February 2019.

Amendments 25 June 2024 - Correct typographical error on coversheet and paragraph 102 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: 25 June 2024