FEDERAL COURT OF AUSTRALIA

Miao v I Need A Massage Pty Ltd, in the matter of I Need A Massage Pty Ltd [2019] FCA 1199

File number:

QUD 699 of 2017

Judge:

REEVES J

Date of judgment:

2 August 2019

Catchwords:

CORPORATIONS – application for the winding up of a company pursuant to s 461(1)(e) and (k) or s 233(1)(a) of the Corporations Act 2001 (Cth) – where company used to buy and operate business in quasi partnership – where the plaintiff was removed as a director of the company – where the plaintiffs shareholding reduced to nil – consideration of whether plaintiff has standing under s 461 – consideration of the effect s 467(4) of the Act – application granted

Legislation:

Corporations Act 2001 (Cth)

Federal Court (Corporations) Rules 2000 (Cth)

Cases cited:

Asia Pacific Joint Mining Pty Ltd v Allways Resources Holdings Pty Ltd [2018] 3 Qd R 520; [2018] QCA 48

Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304; [2009] HCA 25

Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (1998) 28 ACSR 688

Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (2001) 37 ACSR 672; [2001] NSWCA 97

Frauenstein v Farinha [2009] FCA 55

Hillam v Ample Source International Ltd (No 2) (2012) 202 FCR 336; [2012] FCAFC 73

Kokotovich Constructions Pty Ltd v Wallington (1995) 17 ACSR 478

Mackay Sugar Limited v Wilmar Sugar Australia Limited (2016) 338 ALR 374; [2016] FCAFC 133

Munstermann v Rayward [2017] NSWSC 133

Nassar v Innovative Precasters Group Pty Ltd (2009) 71 ACSR 343; [2009] NSWSC 342

Smith Martis Cork & Rajan Pty Ltd v Benjamin Corp Pty Ltd (2004) 207 ALR 136; [2004] FCAFC 153

United Rural Enterprises Pty Ltd v Lopmand Pty Ltd (2003) 47 ACSR 514; [2003] NSWSC 910

Date of hearing:

10 April 2019

Registry:

Queensland

Division:

General Division

National Practice Area:

Commercial and Corporations

Sub-area:

Corporations and Corporate Insolvency

Category:

Catchwords

Number of paragraphs:

61

Solicitor for the Plaintiff:

Ms C Lee of Accuro Legal

Counsel for the First Defendant:

The First Defendant did not appear

Solicitor for the Second Defendant:

The Second Defendant appeared in person with the assistance of an interpreter

ORDERS

QUD 699 of 2017

IN THE MATTER OF I NEED A MASSAGE PTY LTD ACN: 600 376 163

BETWEEN:

QING MIAO

Plaintiff

AND:

I NEED A MASSAGE PTY LTD ACN 600 376 163

First Defendant

XING CHANG LUO

Second Defendant

JUDGE:

REEVES J

DATE OF ORDER:

2 August 2019

THE COURT ORDERS THAT:

1.    I Need A Massage Pty Ltd ACN 600 376 163 be wound up under s 233(1)(a) of the Corporations Act 2001 (Cth).

2.    David James Hambleton of Rodgers Reidy (QLD) Pty Ltd, a registered liquidator, be appointed liquidator of the company.

3.    The plaintiffs costs (including reserved costs, if any) be taxed and reimbursed in accordance with s 466(2) of the Corporations Act 2001 (Cth).

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

REEVES J:

INTRODUCTION

1    Ms Qing Miao, the plaintiff, was a director of, and shareholder in, the first defendant company, I Need A Massage Pty Ltd (the company). The company was used by Mr Xing Chang Luo (also known as Ross), the second defendant, and Ms Miao to purchase and operate a massage business in Albany Creek, a northern suburb of Brisbane. After a dispute arose in early 2016, Mr Luo locked Ms Miao out of the companys business premises. Then, in April 2016, he lodged a form with the Australian Securities and Investments Commission (ASIC) which resulted in Ms Miaos removal as a director of the company. Next, in June 2016, he reduced Ms Miaos shareholding in the company to nil. Finally, in mid-2017, Mr Luo sold the companys massage business to a third party and kept the proceeds of sale.

2    When Ms Miao became aware of these actions in about April 2017, she first attempted to resolve them through her lawyers. When those attempts failed, she commenced this proceeding in late 2017. In short compass, she claimed that, by his conduct described above, Mr Luo had completely sever[ed] the commercial relationship between the parties. Accordingly, she sought, among other orders, an order that the company be wound up.

THE RELIEF SOUGHT

3    In her amended originating application, Ms Miao sought the following relief:

1.    An order that I NEED A MASSAGE PTY LTD be wound up pursuant to s 461 (1) (e) and s 461 (1) (k) or alternatively, pursuant to s233(a) of the Act for which the standing of the [Plaintiff] to bring such an application is granted under s234(b) of the Act;

2.    An order pursuant to s 290 of the Act that [Plaintiff], Qing Miao, as a director to access to company financial records for the last 2 years including but not limited to:

i.    Financial statement;

ii.    Bank Statement; and

iii.    Business activity statement;

3.    An order pursuant to s 247A of the Act that [Plaintiff], Qing Miao, as a member to inspect and copy Minutes of Meetings of Directors and Annual General Meetings.

4.    As a further alternative to the order sought in Item 1, an order under s1322(4)(b) of the Act to rectify the ASIC register on grounds of procedural irregularity and the need to observe procedural fairness and a subsequent order under s 461(1) (e) & (k) of the Act to have the [First Defendant] wound up as soon as the [Plaintiff] is reinstated on the ASIC register as a director and shareholder of the [First Defendant].

(Errors in original)

4    At the hearing of this proceeding, Ms Miao did not pursue orders 2 and 3 above.

THE PLEADINGS

5    Until early 2019, Mr Luo was represented by lawyers in this proceeding. Since then, he has acted for himself. During the period he was represented by lawyers, he filed a defence to Ms Miaos statement of claim. That defence explains Mr Luos position on the events outlined above. It is therefore important to review its contents. Before doing so, it is necessary, first, to set out the paragraphs of Ms Miaos statement of claim (SOC) to which it responds, as follows: ([6][14]):

6.    ln July 2015, at the invitation of [Mr Luo] who was the Sole Director/Secretary of [the company] at the time, [Ms Miao] and [Mr Luo] formed an agreement on the following terms:

(1)    [Ms Miao] will be appointed as another Director of [the company];

(2)    parties will jointly purchase the massage shop located at Shop 22, Albany Creek Square, 700 Albany Creek Road, Albany Creek QLD 4035 (the Albany Massage Shop) under the name of [the company], with the purchase price and the associate costs being equally contributed by both Directors;

(3)    Since the Albany Massage Shop represents the first and only major asset of [the company], upon successful settlement of the purchase of the Business, [Mr Luo] will take steps to transfer fifty per cent (50%) of the shares of [the company] to [Ms Miao] in proportion to her financial contribution to the equity of [the company]. [Mr Luo] will also take steps to update the ASIC register with relevant changes; and

(4)    parties will contribute equally to the reasonable expenses incurred/or will be incurred by carrying on this Business. At the same time, parties shall enjoy equal shares of the profits derived from operating the Business paid by way of dividends (the Verbal Agreement).

7.    [Ms Miao] and [Mr Luo] subsequently complied with terms 1-3 of the Verbal Agreement.

Particulars

(a)    On 17 August 2015, [Ms Miao] was appointed as another Director of [the company] with relevant changes to officeholders made on the ASIC register;

(b)    On 18 August 2015, the Business Contract regarding the purchase of the Albany Massage Shop was signed between the Seller Good Life Chinese Massage Pty Ltd and [the company], with both Directors signing on its behalf;

(c)    [Ms Miao] contributed the sum of $15,000.00 by cash being half of the purchase price of the Business and the sum of $11,683.00 being approximately half of the associated costs with the purchase including costs for assignment of lease and set-up costs;

(d)    On 22 August 2015, [Mr Luo] made updates on the ASIC register regarding changes to the share structure and member shareholdings of [the company], specifically, by increasing the total number of shares of [the company] to 20 fully paid ordinary shares and by inserting [Ms Miao] as a member of [the company] holding 10 fully paid ordinary shares of [the company] whereas [Mr Luo] continued to hold the other half of the shares.

8.    Since commencing operation of the Albany Massage Shop, in addition to invest financially, [Ms Miao] also invested in machinery of the Business, by bringing into the Shop her own electric appliance and furniture for the temporary use of the Business.

Particulars

(a)    The electric appliances and furniture brought along by [Ms Miao] included: a Japanese Screen, a refrigerator, water bottle, steel frame massage bed, small wooden stool, small wooden table, corner stand, large vase, logo painting, carved wooden letter holder and hot rock heater.

9.    In about April 2016, the commercial relationship between [Ms Miao] and [Mr Luo] broke down irretrievably due to a personal dispute.

10.    From 13 April 2016, immediately after the breakdown of the commercial relationship, [Mr Luo] maliciously blocked [Ms Miaos] access to the Albany Massage Shop as well as her access to the financial records of the Business including the business account from which [Ms Miao] oversees the daily cash flow of the Business.

11.    On 25 May 2016, acting in good faith, [Ms Miao] made an offer to sell her shares to [Mr Luo], which [Mr Luo] failed to provide any response to or propose any counter-offer.

Particulars

(a)    The offer in the sum of $38,508.17 was made to [Mr Luo] by [Ms Miao] via email to buy out her shares within [the company], it was priced at such to take into account her contributions to both the purchase price and associated costs in relation to purchase of the business as well as setting up the business.

12.    In December 2016, [Ms Miao] discovered that [Mr Luo] secretly put up an advertisement for the sale of the Albany Massage Shop without her knowledge. Upon such discovery, [Ms Miao] immediately write to [Mr Luo] to urging him to refrain from any further steps to sell the business without the consent of [Ms Miao].

Particulars

(a)    In the email letter dated 16 December 2016 sent by [Ms Miaos] previous solicitor RB Lawyers, a copy of the advertisement discovered on Gumtree website by [Ms Miao] was enclosed.    

13.    In April 2017, [Ms Miao] became aware that she was removed from her position as a Director of [the company] on the ASIC register and her total shares held within [the company] were reduced to zero.

Particulars

(a)    On 11 April 2016, [Mr Luo] misused his position as the Secretary of [the company] and unilaterally removed [Ms Miao] from [her] position as a Director of [the company] on the ASIC register; and

(b)    On 28 June 2016, [Mr Luo] again misused his position and unilaterally reduced the fully paid ordinary shares held by [Ms Miao] by 10 so that [Ms Miao] no longer holds any shares of [the company] and correspondingly increased the number of shares held by [Mr Luo] by 10 (procedural irregularities).

14.    Immediately upon discovery of the aforementioned procedural irregularities on the ASIC register, [Ms Miao] made numerous requests in writing to [Mr Luo] for:

(1)    any Company records of meetings and resolutions passed to justify lawful decision made to remove her from the position as a Director of [the company] in accordance with s203C(b) of the Corporations Act;

(2)    any evidence of offers to buy back shares by [Mr Luo] or alternatively any Company records of meetings and resolutions passed to justify selective reduction of the shares held by [Ms Miao] in accordance with s256C and s257A of the Corporations Act.

,which [Mr Luo] has failed to provide any to date.

(Errors in original; bolded and italicised terms in original)

6    In his defence filed in July 2018, among other things, Mr Luo admitted the allegations that there was an agreement between Ms Miao and himself to purchase the massage business and he admitted that he had removed Ms Miao as a director and shareholder of the company. Furthermore, he attempted to justify the latter on the footing that he had acted to protect the assets and financial viability of the company. The apposite parts of Mr Luos defence are as follows (at [6]–[15]):

6.    As to paragraph 6, [Mr Luo] admits that he entered into an oral agreement with [Ms Miao] to share the cost of the purchase of a massage business:

(1)    [Mr Luo] denies that the allegation contained in paragraph 6(2) is correct and says that the parties entered into an oral agreement for the purchase of the business.

(2)    [Mr Luo] says that the business was purchased in the name of [the company] with [Mr Luo] paying the balance of the purchase price of $20,000.00 from monies he had transferred to the company account. The only money contributed by [Ms Miao] was an initial $5,000.00 being one half of the $10,000.00 deposit on the signing of the contract for purchase.

a.    [Ms Miao] did not contribute any money towards the security deposit required by the lessor for their assent to the transfer of the business to the purchasers. It was a term of the oral agreement that [Ms Miao] would also be a guarantor of the lease of the premises from the landlord.

(3)    [Ms Miao] had paid no money into the company account before the settlement of the contract for the purchase of the business, and all of the purchase monies were from monies deposited from [Mr Luo] deposited into the company account from his own funds.

(4)    As to the allegation in sub-paragraph 3 that [Ms Miao] would receive 50% of the shares in the company in proportion to her financial contribution, this is a correct statement, however, [Ms Miao] did not contribute proportionately to the company and the purchase of the business. [The company] complied with is an obligation under the oral agreement, but [Ms Miao] did not honour her obligation.

7.    [The company] denies that [Ms Miao] contributed equally in the purchase price and associated expenses as alleged in paragraph 6 (2) but says that this was the agreement between the parties.

8.    As to subparagraph 6 (4), [the company] denies that the parties shared equally the reasonable expenses incurred/ or will be incurred by the business. The operating expenses were mainly paid from the income from the business. [Ms Miao] did not contribute any monies towards the operating expenses for the business, but withdrew funds in excess of $8,000.00 from the business, while [the company] withdrew no monies from the business, nor did he receive any income from the business.

9.    As to paragraph 7 of the allegation, [the company] admits he complied in all aspects with the oral agreement.

a.    As to the allegation that [Ms Miao] contributed $15,000.00 and $11,683.00 [the company] denies these allegations.

10.    As to paragraph 8, [the company] denies [Ms Miao] invested in machinery into the business and says [Ms Miao] brought some items into the business for her own benefit and later took these items from the business. The items were never part of the assets of the business.

11.    The allegations contained in paragraph 9 are correct as a result of [Ms Miao] stealing $5,100.00 from the lockable drawer in the business. [Ms Miao] removed her property from the business and some equipment belonging to the business. This matter was reported to the police and [Mr Luo] have the statement made to the police on 11 April 2016.

12.    As to paragraph 11, [the company] denies that [Ms Miao] said words that the offer in the sum of $38,518.17 was made to [Mr Luo] by [Ms Miao].

13.    As to the allegations contained in paragraph 12, [the company] denies the allegation contained.

14.    As to paragraph 13, [the company] admits that in accordance with advice he removed [Ms Miao] pursuant to s233 of the Corporations Act 2000 [sic – 2001] (the Corporations Act). [The company] was placed in the position of protecting the companys assets and financial viability due to [Ms Miao] removing monies from the bank account without authority of the directors and placing the companys financial position in jeopardy due to such unauthorised transactions by [Ms Miao].

a.    [Ms Miao] had failed to pay the contributions to the company in accordance with the oral agreement and had, therefore, breached the agreement reached between the parties. [The company] exercised his duty under the Corporations Act to protect the company and its assets. Without doing so [Ms Miao] was putting the lease agreement with the lessor potentially in breach of the lease and endangering the guarantee entered into by the company and [the company].

b.    As of 30 June 2016, the company taxation returns show the company was trading whilst insolvent in that the taxation return showed a loss of $24,419.55.

15.    As to the allegations contained in paragraph 14, [the company] made the decision to legally remove [Ms Miao] in accordance with the Corporations Act.

(Errors in original)

THE EVIDENCE

7    At the trial of this matter, among other evidence, Ms Miao relied upon three affidavits sworn by her in which she described, in some detail, the events mentioned in her SOC above. For his part, Mr Luo tendered a copy of his defence and a number of documents, most of which related to the financial affairs of the company in the period between 2015 and 2017.

8    Ms Miaos lawyer cross-examined Mr Luo, however Mr Luo did not seek to cross-examine Ms Miao.

Ms Miaos affidavit evidence

9    In her affidavits, Ms Miao described how, in or about March 2015, she had obtained a job as a part-time masseuse at a massage shop in Strathpine, an outer suburb of Brisbane. It was while she was working in that job that she first met Mr Luo, who was a manager of that business. Mr Luos wife, Ms Meiying Xu (also known as Amy), also worked in the business.

10    In or about July 2015, Ms Miao said that Ross and Amy told her that they were considering purchasing a massage business located at Albany Creek, Brisbane. However, she said that they told her that the business was too expensive because the owner wanted $30,000 for it.

11    Ms Miao said in her affidavit that:

I expressed some interest in purchasing the business. The reason I did this was because my son was moving to Australia and I knew his wife would need a job. I thought that if I purchased a massage business, she could work in that business and it would give her something to do.

12    After expressing her interest to Ross and Amy and discussing the matter with them, Ms Miao said they decided to purchase the business. She said it was agreed that they would be partners and buy the business on [a] 50/50 basis. Ms Miao explained how the company became involved in the purchase in the following terms:

Ross and Amy had previously incorporated a company called I Need a Massage Pty Ltd. We decided that that company would purchase the business. Given that I was going to pay half of the purchase price, it was agreed that half of the shares in I Need a Massage would be transferred to me and that I would be one of the Directors, along with Ross.

13    In a later affidavit, Ms Miao provided some more details of this arrangement, as follows:

Because Amy did not hold permanent residency visa at the time, we reached the verbal agreement that Amy would not be added to the executive roles of the Company. Instead, Ross would first appoint me as another director of the Company and we would then acquire the Massage Shop under the name of the Company by equally contributing to the purchase price as well as any other costs associated with this business acquisition. ln exchange of my contribution to the share capital of the Company through financially contributing towards acquiring the first major asset of the Company, Ross would issue more shares and record me on the Company ASIC Register as another shareholder holding half of the company shares.

(Errors in original)

14    According to an ASIC search annexed to Ms Miaos first affidavit, she was appointed as a director of the company on 17 August 2015. The same search shows Mr Luo holding 20 and Ms Miao having held 10 ordinary fully paid shares in the company.

15    On 18 August 2015, Ms Miao and Mr Luo signed a contract to purchase the massage business. The contract document was entitled Business Contract of Sale Associated With Assignment of Lease. The purchase price was expressed in it to be $30,000. That sum was to be paid in two instalments: $10,000 on execution of the contract (cl 3) and $20,000 upon obtaining approval for the assignment of the lease from the shopping centre operator (cl 4).

16    With respect to the first instalment, Ms Miao said that both Mr Luo and she each paid $5,000 in cash to Mr Gesheng Shi, the seller, in person when the contract was executed on 18 August 2015. They then paid the balance of $20,000 – $10,000 each – in cash on either 25, 26 or 30 September 2015.

17    In addition, Ms Miao said that they each paid $1,000 to the shopping centre to apply for the shopping centres consent for assigning the lease to the [c]ompany as the proposed assignee. That consent was given on or about 14 September 2015. Ms Miao said they then each contributed equally to the security deposit for the lease in the sum of $14,482.28. Ms Miao said in her affidavit that she contributed her share of that deposit by way of a transfer of $6,000 to the companys business bank account at Suncorp Bank and cash in the sum of $1,241.14 given to Mr Luo to be deposited into the companys business bank account.

18    Ms Miao claimed that, throughout the process of acquiring the business, Mr Luo and she shared the financial responsibilities for the business approximately equally. That included obtaining insurance, legal advice, accounting advice, business brochures, telephone lines and many more. Once they began to operate the business, Ms Miao said that:

… Ross and I operated the business on a 50/50 basis. We split the income from the business 50/50 and if any consumables were purchases in cash or any expenses for the business such as furniture were incurred, whoever paid for the expense would be reimbursed by the other partner for 50%.

19    During the time she was directly involved in the business, Ms Miao claimed it had a steady performance with no losses recorded. She said that the monthly gross sales figure was in the range of $10,000 to $15,000.

20    Ms Miao claimed that the relationship between Mr Luo and herself broke down irretrievably in early 2016 following a dispute which arose over a visa application that had been made for Ms Miaos son and his family. She said her son paid Mr Luo $130,000 and, when the visa was not issued, Mr Luo would not repay that money.

21    Ms Miao said in her affidavit that, on 13 April 2016, Ross and Amy blocked [her] from working and denied [her] access to the business account by cancelling [her] bank card thereby taking control of the business. By 25 May 2016, when she claimed it had become apparent to her that the relationship had broken down completely and that the company was indeed controlled by Ross, she arranged to send a letter to Mr Luo offering to sell him her shares in the company. That letter stated in part:

You have forced me out of my own business because of a dispute over money you owe to my son.

On Wednesday 13 April 2016 you and Amy blockaded me from working and denied my access to the business bank account thereby taking control of the business.

I hereby insist that you buy my share of [the company] and demand the following amounts + damages.

22    Ms Miao then set out a series of amounts totalling $53,366.34, which included the purchase price of the business of $30,000 and the security deposit for the lease of $14,482. Thereafter, she made demands for payment of the sum of $38,508.17 and for the return of a list of property which she claimed to have left at the business premises. Following these demands, she stated: You have 24 hours to reply or I will take immediate action to wind up the company on the grounds of just and equitable’”. There is no evidence of Mr Luo ever having responded to this letter.

23    In December 2016, Ms Miao said that she discovered that Mr Luo was trying to sell the massage business through an advertisement on the Gumtree website. As a result, she instructed her lawyer to write to Mr Luos lawyer demanding an undertaking that he would take no further steps to sell the business without her consent.

24    Mr Luos lawyers responded to that letter on 20 December 2016 in the following terms:

We note that Qing Miao has indicated she intends to make a claim in respect to I Need a Massage. We are unsure if the Claim is to be against our Client or the Company. For some months we have been seeking details of the proposed claim but none have been forthcoming.

In the past your Client has been claiming money, not an interest in the business. In that event there is no good reason why the Company should not attempt to sell the business.

We have been waiting for your Client to provide details of her claim. This should be her next step.

25    In late April 2017, Ms Miao said she discovered from an ASIC search that she had been removed as a director and shareholder of the company. She said that search revealed this had occurred in April and June 2016 respectively. She said: I never resigned from either my position as a director or a shareholder of the company. Following these discoveries, Ms Miaos lawyers wrote to Mr Luos lawyers enclosing a copy of the ASIC search, stating:

As our client has never resigned her post as a director, please provide a company minute or resolution passed in general meeting of changing directors of the company.

Please provide records of your client or the company purchasing the shares from our client.

26    At about the same time, Ms Miao said she discovered that the business had been sold. Consequently, her lawyers also sought to be provided with the following documents:

1.    The business sales contract of the business;

2.    The financial statement of [the] last 12 months of the business;

3.    The distribution of sales proceeds obtained by selling the business.

27    Despite repeated requests from Ms Miaos lawyers, no substantive response was received to the requests set out above.

28    Ms Miao said that she believed the new owner of the business, Mei Ding, commenced operating the business from 1 June 2017.

29    On 17 July 2017, Ms Miao said she checked the business bank account at Suncorp and noted that there was a negative balance of $84.79. She stated in her affidavit that she reasonably believe[d] Ross ha[d] transferred all [of the] business funds to his personal account without [her] consent and any notice.

30    Ms Miao commenced this proceeding on 4 December 2017.

Mr Luos cross-examination

31    Throughout his cross-examination, Mr Luo insisted that he did not enter into an oral agreement with Ms Miao to purchase the massage business at Albany Creek. Instead, he claimed that his wife entered into that agreement and that he gave his permission for her to do so. He said that [t]his oral agreement [was] actually made between [Ms Miao] and [his] wife and that he, at the time of writing his affidavit, wanted to simplify things; not complicate things. I interpose to note the direct conflict between this evidence and the paragraphs of Mr Luos defence above (see [6] at [6]) and his affidavit referred to below (see at [32]). He also asserted that he had convened a meeting of the company to consider the removal of Ms Miao as a director and that the company had passed a resolution to that effect and to also reduce her shareholding to nil. However, he was not able to produce a copy of that resolution at the hearing. I interpose to note that there is no mention of any such meeting in Mr Luos defence above.

Mr Luos affidavit

32    During the period that he was represented by lawyers, Mr Luo made and filed an affidavit in this proceeding. At the hearing, he did not seek to rely on that affidavit. However, Ms Miaos lawyer did. She cross-examined Mr Luo on some of its contents and later tendered it. The following is a brief summary of the pertinent parts of that affidavit. First, Mr Luo agreed that he had met Ms Miao at a massage shop at about the time she claimed. As for the purchase of the massage shop in Albany Creek, he claimed that it was Ms Miao who approached him and that she proposed that they become partners in that business. He said he entered into an oral agreement with Ms Miao for the purchase of the business. He said that oral agreement required both Ms Miao and himself to each pay 50% of the expenses involved and that Ms Miao would receive a 50% share in the business.

33    Mr Luo said that he owned the company and that the oral agreement for the purchase of the massage business was a separate matter. Mr Luo claimed that Ms Miao became a shareholder of 10 Class-A shares in the company on 21 August 2015 and that the contract for purchase of the business became effective on 18 August 2015, four days earlier. Accordingly, he claimed Ms Miao could not have signed the contract for purchase as a director of the company. He did, however, say that Ms Miaos name was added to the contract in handwriting after the contract was negotiated with the seller. He denied that Ms Miao signed the contract for purchase of the business as a director of the company. Mr Luo claimed that the company did not purchase the business … [and, at best, he and Ms Miao] purchased the business as partners, not as directors of the company. Finally, Mr Luo claimed that Ms Miao did not pay the $15,000 for her half of the purchase price in two instalments as she claimed she had.

34    Mr Luo claimed that Ms Miao did not work at the massage shop on a full-time basis, but instead she “came and went as she wanted until she was barred from the business for stealing $5,000 from the cash draw”. With regard to the breakdown of the relationship between them, Mr Luo claimed that, on 13 April 2016, Ms Miao damaged company property and that, in response, he used “reasonable force” to protect the assets of the business and called the police. Further, Mr Luo claimed that, on 23 May 2017, Ms Miao and her husband took all of the items of property she contributed to the massage business. He also denied Ms Miao’s allegations that he “forcefully grabbed [her] arm to stop [her] from picking up the [phone and pushed her] … to the ground” when she returned to the shop a week later.

35    Mr Luo also claimed that the company did not at any time make a profit. He claimed that the net loss of the company as at 30 June 2017 was $53,558.73 and that Ms Miao was liable for half of that loss. He also claimed that Ms Miao owed him $5,242 plus the outlays that he had paid.

36    Finally, it should be noted that Mr Luo agreed with Ms Miao on a number of matters, including the following:

(a)    following the signing of the contract for the purchase of the massage business, they both paid $1,000 to the shopping centre operator to apply for its consent to assign the lease to the company and that they obtained that consent in September 2015;

(b)    Ms Miao transferred $6,000 to the company’s bank account in late September 2015, however, Mr Luo could not recall whether Ms Miao paid an additional $1,241.14 (the remainder of the security deposit);

(c)    $14,482.28 was paid on 28 September 2015 as a security deposit from the company’s account;

(d)    the balance of the purchase price of $20,000 was paid to the seller on 30 September 2015; and

(e)    the massage business commenced operating on or about 1 October 2015.

Mr Luos evidence

37    During the hearing, along with his defence, Mr Luo tendered the following documents:

(a)    a Queensland Police witness statement made by Mr Luo dated 12 July 2017 in which he claimed, among other things, that Ms Miao was sacked from the company due to missing funds, that Ms Miao failed to return two keys to the massage shop and that Ms Miao and her partner had removed several items from the massage shop in May 2017. Mr Luo also claimed that, after that event, $5,100 was missing from a locked drawer in the shop;

(b)    two accounting audit records; one relating to the 2015-2016 financial year and the other relating to the 2016-2017 financial year;

(c)    the companys 2016-2017 financial year taxation return; and

(d)    two pages of a bank statement showing transactions in April 2016 on which Mr Luo had circled two withdrawals: the first a withdrawal of $800 on 8 April 2016 and the second a withdrawal of $200 on 12 April 2016.

38    At the hearing, Mr Luo claimed that Ms Miao did not pay her share of the expenses of the business and, for that reason, a resolution was passed to remove her as a director and shareholder of the company. He also repeated his claims that Ms Miao stole money from the company.

THE FACTUAL FINDINGS

Based upon his presentation in the witness box and the many inconsistencies between that evidence and the admissions he made in his defence and affidavit, some of which I have highlighted above, I did not regard Mr Luo to be a truthful and reliable witness. On the other hand, since Ms Miaos affidavit evidence was not challenged by cross-examination and since it was, to a large extent, supported by contemporaneous records, I accept her evidence. I am therefore not prepared to accept Mr Luo’s evidence where it conflicts with the evidence of Ms Miao.

39    Applying this conclusion and based on the evidence summarised above, I make the following factual findings:

(a)    in or about August 2015, Ms Miao and Mr Luo entered into an oral agreement to purchase a massage business located at Albany Creek, Brisbane and to contribute equally to the purchase price of that business and to share equally in its income and expenses;

(b)    at about the same time, Ms Miao and Mr Luo made an oral agreement to use the company as the vehicle to operate the business. As a part of that agreement, Ms Miao was appointed as a director of, and issued 10 Class-A shares in, the company;

(c)    thereafter, and until approximately early 2016, Ms Miao and Mr Luo made approximately equal contributions to the company for the expenses of the business;

(d)    in or about April 2016, the business relationship between Ms Miao and Mr Luo broke down irretrievably. At about the same time, Mr Luo excluded Ms Miao from the business premises;

(e)    at about the same time, Mr Luo removed Ms Miao as a director. Ms Miao did not consent to this removal; and

(f)    in or about June 2016, Mr Luo altered the companys share register to reduce Ms Miaos shareholding in the company to nil. Ms Miao did not consent to this reduction.

CONSIDERATION

Ms Miaos removal as a director

40    It is convenient to begin with the assertion in Mr Luos defence that he removed Ms Miao as a director of the company pursuant to s 233 of the Corporations Act 2001 (Cth) (the Act) (see at [6(14)] above). That section relevantly provides:

(1)    The Court can make any order under this section that it considers appropriate in relation to the company, including an order:

(a)    that the company be wound up;

(b)    that the companys existing constitution be modified or repealed;

(c)    regulating the conduct of the companys affairs in the future;

(d)    for the purchase of any shares by any member or person to whom a share in the company has been transmitted by will or by operation of law;

(e)    for the purchase of shares with an appropriate reduction of the companys share capital;

(f)    for the company to institute, prosecute, defend or discontinue specified proceedings;

(g)    authorising a member, or a person to whom a share in the company has been transmitted by will or by operation of law, to institute, prosecute, defend or discontinue specified proceedings in the name and on behalf of the company;

(h)    appointing a receiver or a receiver and manager of any or all of the companys property;

(i)    restraining a person from engaging in specified conduct or from doing a specified act;

(j)    requiring a person to do a specified act.

Order that the company be wound up

(2)    If an order that a company be wound up is made under this section, the provisions of this Act relating to the winding up of companies apply:

(a)    as if the order were made under section 461; and

(b)    with such changes as are necessary.

41    The grounds upon which a court may make an order under s 233 are defined in s 232 as follows:

The Court may make an order under section 233 if:

 (a)    the conduct of a companys affairs; or

 (b)    an actual or proposed act or omission by or on behalf of a company; or

(c)    a resolution, or a proposed resolution, of members or a class of members of a company;

  is either:

 (d)    contrary to the interests of the members as a whole; or

(e)    oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or in any other capacity.

For the purposes of this Part, a person to whom a share in the company has been transmitted by will or by operation of law is taken to be a member of the company.

(Note omitted)

42    It is not immediately apparent how these provisions of the Act permitted Mr Luo to remove Ms Miao as a director and, beyond the statement in his defence, Mr Luo did not provide any further explanation as to why he thought they did. Moreover, there is no evidence that Mr Luo obtained any court order under s 233 of the Act, as is plainly required by that section. The only other provisions of the Act that may have been relevant to Ms Miaos removal as a director are, as mentioned in her SOC, ss 203A and 203C. They provide:

203A    Director may resign by giving written notice to company

A director of a company may resign as a director of the company by giving a written notice of resignation to the company at its registered office.

203C    Removal by members—proprietary companies …

A proprietary company:

(a)    may by resolution remove a director from office; and

(b)    may by resolution appoint another person as a director instead.

43    Based on the findings I have made above that Ms Miao did not consent to her removal as a director of the company, s 203A does not apply. While Mr Luo made a claim during his evidence that the company had passed a resolution to the effect mentioned in s 203C above, he did not produce a copy of that resolution or any other evidence of it. Given my conclusions about Mr Luos credibility above, I am not willing to accept that claim without such evidence. Accordingly, I find that Mr Luo removed Ms Miao as a director of the company without her consent and without any proper authority under the Act.

The transfer of Ms Miaos shareholding

44    In his defence, Mr Luo did not directly address the allegations in Ms Miaos SOC about the reduction of her shareholding in the company to nil. Nonetheless, at [15] of his defence (see at [6] above), he appeared to place general reliance on the provisions of the Act for this action. As is already mentioned above, since there is no evidence of a court order having been made under it, s 233 of the Act does not apply. In her SOC, Ms Miao pre-emptively raised the possibility that the company acted under s 256C or s 257A (see [14(2)] of the SOC set out at [5] above), realising, no doubt, that there is no evidence to that effect. Furthermore, there is no evidence that any other provisions of the Act were validly used to reduce Ms Miaos shareholding in the company to nil. Accordingly, in the absence of such evidence, I find that Mr Luo reduced Ms Miaos shareholding in the company to nil without her consent and without any proper authority under the Act.

The winding up application

45    I turn next to Ms Miaos application to wind up the company. She relied upon ss 461(1)(e) and (k) and s 233 of the Act. The former subsections provide:

(1)    The Court may order the winding up of a company if:

(e)    directors have acted in affairs of the company in their own interests rather than in the interests of the members as a whole, or in any other manner whatsoever that appears to be unfair or unjust to other members; or

(k)    the Court is of opinion that it is just and equitable that the company be wound up.

46    However, s 462(2) provides:

(2)    Subject to this section, any one or more of the following may apply for an order to wind up a company:

(a)    the company; or

(b)    a creditor (including a contingent or prospective creditor) of the company; or

(c)    a contributory; or

(d)    the liquidator of the company; or

(e)    ASIC pursuant to section 464; or

(f)    ASIC (in the circumstances set out in subsection (2A)); or

(h)    APRA.

47    Because Ms Miao does not claim to be a creditor of the company and because her shareholding in the company has been reduced to nil, she does not presently fall into any of the categories set out above. It follows that she does not presently have standing to bring an application to wind up of the company under ss 461(1)(e) and (1)(k) above.

48    However, s 233(1)(a) of the Act (set out above at [40]) allows the Court to make an order that a company be wound up in certain circumstances. Section 233(2) then provides that the Act applies as if an order under s 233 were made under s 461 above. The grounds for an order under s 233 are described in s 232 of the Act (see at [41] above). The persons who can apply for an order under s 233 are prescribed by s 234. That section relevantly provides that:

An application for an order under section 233 in relation to a company may be made by:

(b)     a person who has been removed from the register of members because of a selective reduction; or

(c)    a person who has ceased to be a member of the company if the application relates to the circumstances in which they ceased to be a member; or

49    Since there is no evidence to indicate how Ms Miao was removed from the register of members of the company, s 234(b) above does not apply in this instance. However, since there is no dispute that Ms Miao ceased to be a member of the company from in or about June 2016, and this application relates, at least in part, to the circumstances in which that step was undertaken, s 234(c) above avails her. That being so, the next question on this issue is whether Ms Miao has established, in the terms of ss 232(a) and (e) above, that the conduct of [the] companys affairs was oppressive to, unfairly prejudicial to, or unfairly discriminatory against her as a member, or in another capacity, namely as a director, thereby justifying the Court exercising its discretion to make an order under s 233(1)(a) to wind up the company.

50    In answering that question, it is apt to begin by noting the observations of French CJ in Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304; [2009] HCA 25 with respect to ss 232 and 233 of the Act (at [72]) that [t]heir language and history indicate that [they] are to be read broadly and that [t]he imposition of judge-made limitations on their scope is to be approached with caution. See also Frauenstein v Farinha [2009] FCA 55 per Emmett J at [14].

51    The principles relating to the application of ss 232 and 233 of the Act were helpfully summarised in Mackay Sugar Limited v Wilmar Sugar Australia Limited (2016) 338 ALR 374; [2016] FCAFC 133 (Gilmour, Jagot and White JJ) by reference to the relevant authorities as follows (at [9]–[14]):

(a)    proof of oppression or proof of unfairness [is required]: proof of mere prejudice to or discrimination against a member is insufficient (at [9]);

(b)    [i]t is not necessarily unfair for directors in good faith to advance one of the objects of the company to the prejudice of a member where the advancement of the object necessarily entails prejudice to that member or discrimination against him. Prima facie, it is for the directors and not for the court to decide whether the furthering of a corporate object which is inimical to a members interests should prevail over those interests or whether some balance should be struck between them. The directors view is not conclusive, but an element in assessing unfairness to a member is the agreement of all members to repose the power to affect their interests in the directors: [see s.78 of the Code] (at [9]);

(c)    if the directors exercise a power – albeit in good faith and for a purpose within the power – so as to impose a disadvantage, disability or burden on a member that, according to ordinary standards of reasonableness and fair dealing is unfair, the Court may intervene ... The question of unfairness is one of fact and degree (at [9]);

(d)    [t]he test of unfairness is objective and it is necessary, though difficult, to postulate a standard of reasonable directors possessed of any special skill, knowledge or acumen possessed by the directors (at [9]);

(e)    The Court must determine whether reasonable directors, possessing any special skill, knowledge or acumen possessed by the directors and having in mind the importance of furthering the corporate object on the one hand and the disadvantage, disability or burden which their decision will impose on a member on the other, would have decided that it was unfair to make that decision (at [9]);

(f)     [it] has been accepted that one no longer looks at the word oppressive in isolation but rather asks whether objectively in the eyes of a commercial bystander, there has been unfairness (at [11]);

(g)    [t]he test of unfairness requires an objective assessment of the conduct in question with regard to the particular context in which the conduct occurs. The question is whether objectively in the eyes of the commercial bystander there has been unfairness, namely conduct that is so unfair that reasonable directors who consider the matter would not have thought the conduct or decision fair. As the test is objective, whether or not the conduct is oppressive will not depend upon the motives for what was done. It is the effect of the acts that is material (at [12]);

(h)    [c]onduct may be oppressive even when the defendant believes that it is acting for proper purposes (at [12]);

(i)    the term conduct of the companys affairs appearing in [s 232 and 233] … is explained to some extent by [the] inclusive definition contained in s 53 of [the Act] and includes the internal management and proceedings of the body and the manner in which it goes about electing directors (at [13]); and

(j)    that the task of determining whether there has been commercial unfairness is to be undertaken in the context of the particular relationship which is in issue, and that the assessment of commercial unfairness will commonly involve a balancing exercise between competing considerations (at [14]).

52    Objectively assessed, I consider Mr Luos conduct in removing Ms Miao as a director of the company without her consent, reducing her shareholding in the company to nil without her consent and excluding her from any involvement in the massage business being operated by the company, was all conduct that was unfairly prejudicial to her in her capacity as both a member and a director of the company. While his subjective motives for acting as he did are irrelevant, I do not accept Mr Luos claims that, in taking these steps, he was acting to advance the objects of the company or to protect its assets and financial viability. Accordingly, I consider Ms Miao has established a ground under s 232 for an order under s 233 that the company be wound up. The next question is whether the Court should exercise its discretion to make such an order.

53    First, it is worth noting that, in exercising the broad discretionary power under s 233, courts have, in the past, had regard to the following matters:

(a)    the proportionality between the conduct involved and the remedy sought (see Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (1998) 28 ACSR 688 at 741 and, on appeal, Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (2001) 37 ACSR 672; [2001] NSWCA 97);

(b)    the object of the remedial relief, specifically whether it will put an end to the oppression (see Nassar v Innovative Precasters Group Pty Ltd (2009) 71 ACSR 343; [2009] NSWSC 342 at [125]); and

(c)    the remedies ordered in previous like cases (see United Rural Enterprises Pty Ltd v Lopmand Pty Ltd (2003) 47 ACSR 514; [2003] NSWSC 910 at [34]–[38], cited in Smith Martis Cork & Rajan Pty Ltd v Benjamin Corp Pty Ltd (2004) 207 ALR 136; [2004] FCAFC 153 at [70] and Munstermann v Rayward [2017] NSWSC 133 at [22]).

54    Next, it is necessary to address s 467(4) of the Act. It provides:

Where the application is made by members as contributories on the ground that it is just and equitable that the company should be wound up or that the directors have acted in a manner that appears to be unfair or unjust to other members, the Court, if it is of the opinion that:

(a)    the applicants are entitled to relief either by winding up the company or by some other means; and

(b)    in the absence of any other remedy it would be just and equitable that the company should be wound up;

must make a winding up order unless it is also of the opinion that some other remedy is available to the applicants and that they are acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy.

55    This subsection reflects the well-established principle that the the winding up of a successful and prosperous company is an extreme step, and one which must require a strong case (see Kokotovich Constructions Pty Ltd v Wallington (1995) 17 ACSR 478 at 494 (Kokotovich) and Hillam v Ample Source International Ltd (No 2) (2012) 202 FCR 336; [2012] FCAFC 73 per Emmett, Jacobson and Buchanan JJ at [70]). However, in Kokotovich, Kirby ACJ observed there were circumstances in which a court would set aside its reluctance to wind up a solvent company (at 494):

I can see no reason why this court should disturb the decision of Young J to wind up the company. In exercising his discretion in this matter, his Honour took into account all of the relevant considerations and gave the clearest possible attention to the gravity of the step which he was taking but also impasse reached between the parties. True, winding up the company was an extreme step. However, Young J realised and stated this. Given the continuing animosity which exists between the two shareholders, the real risk, as I would judge, of further oppression, and the very limited nature of the companys present activities, the order would seem to be soundly based.

(Emphasis added)

56    In Asia Pacific Joint Mining Pty Ltd v Allways Resources Holdings Pty Ltd [2018] 3 Qd R 520; [2018] QCA 48 (Asia Pacific), McMurdo JA (with whom Gotterson JA and Jackson J agreed) held that this subsection applied whether the winding up application had been made under s 461 or s 233 of the Act (see at [62]–[63]). Earlier in his reasons, McMurdo JA explained the purpose and effect of subsection 467(4) and, in particular, the pivotal word reasonably in the following terms (see at [46]–[47]):

[46]    In my view, the reasonableness of the applicants position is to be assessed by reference to the consequences of the events and circumstances upon which the application is founded and what is necessary to redress them. If they could be redressed only by a winding up, then the pursuit of a winding up order would not be unreasonable in the relevant sense. On the other hand, if there is an alternative remedy which would equally redress those consequences, then an applicants preference for a winding up order would usually be considered to be unreasonable, because ordinarily the winding up of a solvent company will have far reaching effects. It will not only deprive the other shareholders of their investment in a solvent enterprise, but it will also be likely to affect the interest of others, such as the companys employees and third parties whose interests from transacting business with the company would be affected. It is the likelihood of substantial and wide ranging prejudice of this kind which would cause judges to describe a winding up of a solvent company in this context as an extreme step. In Hillam v Ample Source International Ltd (No 2), the Full Court of the Federal Court (Emmett, Jacobson and Buchanan JJ) said that although there is no presumption against the winding up of a solvent company, a court should bear in mind the warnings given in the authorities, that an order to wind up a solvent company is an extreme step.

[47]    The evident purpose of the proviso in s 467(4) is to avoid the extreme step of a winding up if there is an alternative and adequate remedy. Consequently a winding up will be ordered if there is no other remedy which is adequate, in that it would redress the consequences of the facts and circumstances which are the basis for relief. This is another way of saying what McPherson J said in Re Dalkeith Investments Pty Ltd about the statutory predecessor of s 467(4) namely that winding up is to be regarded as a remedy of last resort and which ought not to be granted if some other less drastic form of relief is available and appropriate. In referring to a winding up as drastic form of relief, McPherson J was referring to the far reaching consequences of a winding up. In referring to an alternative form of relief which was appropriate, his Honour was referring to what was necessary, in the interests of the applicant, to redress the consequences of the relevant events and circumstances.

(Emphasis added; footnotes omitted)

57    I do not consider there is some other remedy available to Ms Miao which she should reasonably pursue. No other remedy was advanced by Mr Luo and, in the following circumstances, none is readily apparent. First, Mr Luo is presently the only director and shareholder of the company. Secondly, the company was used as the vehicle to acquire and operate, in quasi partnership, the massage business at Albany Creek. Thirdly, after the business relationship between Mr Luo and Ms Miao broke down irretrievably in April 2016, Mr Luo caused the company to sell the massage business in about June 2017 and retained the proceeds of that sale. Hence, winding up the company and appointing a liquidator to it is the only course by which Ms Miao may obtain some relief from the unfairly prejudicial manner in which Mr Luo conducted the company’s affairs. It is worth adding that, while there is no evidence as to its present financial position and business activities, it is unlikely that the company is the kind of successful and prosperous company referred to in Kokotovich.

CONCLUSION

58    For these reasons, I am satisfied that the company should be wound up under s 233(1)(a) of the Act.

59    Having come to this conclusion, it is unnecessary to consider the alternative claim for relief Ms Miao made relying upon s 1322 of the Act (see at [3(4)] above).

60    Finally, without listing them in detail, I am satisfied that Ms Miao has complied with the relevant procedural requirements under the Act and the Federal Court (Corporations) Rules 2000 (Cth).

61    Accordingly, the orders will be:

    1.    I Need A Massage Pty Ltd ACN 600 376 163 be wound up under s 233(1)(a) of the Corporations Act 2001 (Cth).

    2.    David James Hambleton of Rodgers Reidy (QLD) Pty Ltd, a registered liquidator, be appointed liquidator of the company.

    3.    The plaintiffs costs (including reserved costs, if any) be taxed and reimbursed in accordance with s 466(2) of the Corporations Act 2001 (Cth).

I certify that the preceding sixty-one (61) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Reeves.

Associate:    

Dated:    2 August 2019