Federal Court of Australia

Hurst, in the matter of Lloyds Curry Shop Pty Ltd (in liq) v Prasad [2021] FCA 1562

ORDERS

THE COURT ORDERS THAT:

1.    Prayer 8(a) of the applicants’ amended interlocutory process dated 23 November 2021 be dismissed.

2.    The applicants pay the first respondent’s costs of and incidental to the determination of prayer 8(a) of the amended interlocutory process.

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

REASONS FOR JUDGMENT

CHEESEMAN J:

1    This is a contested application for freezing orders.

2    By amended interlocutory application dated 23 November 2021, the first applicant, David Hurst, liquidator of the second applicant, Lloyds Curry Shop Pty Ltd (in liquidation), seeks, inter alia, an extension of the current freezing orders against the respondents to these proceedings. All the respondents save for the first respondent, Kaushik (Kosh) Prasad, consented to an extension of the current freezing orders until further order of the Court on the basis that the applicants’ undertaking as to damages was continued. Kaushik opposes the orders sought against him. These reasons concern only the freezing orders against Kaushik.

OVERVIEW

3    I will start by briefly setting out the relationships between the respondents and other relevant actors. As a number of the relevant people share a common surname I will refer to them, with no disrespect, by their first names.

4    Curry Shop was placed in liquidation on 7 August 2015. It appears, subject to what follows, that initially two liquidators were appointed on a joint and several basis. One of the liquidators subsequently resigned as liquidator on 16 April 2018 and was not replaced. Thus, there remains a single liquidator in place. There is a dispute between the parties concerning the validity of the liquidators’ appointment. That dispute appears to have if not arisen, then first been clearly articulated, very recently.

5    The dispute concerns whether Kaushik as sole shareholder of Curry Shop, was aware of, consented to or approved, a purported general meeting of Curry Shop on 7 August 2015 at which it was resolved to wind up the company voluntarily and appoint liquidators.

6    The issue was first raised in Kaushik’s defence and cross-claim filed on 22 October 2021. The substantive proceedings were commenced on the last day of the limitation period just shy of six years after the purported appointment of the liquidators. Subsequently, the applicants have sought to include in the present interlocutory application, relief directed to validating the remaining liquidator’s appointment. The respondents opposed the issue concerning the validity of the liquidator’s appointment being determined on an interlocutory basis. In the circumstances of this case it is inappropriate for that aspect of the relief to be determined on an interlocutory basis. The applicants have indicated that they will seek to amend their originating process to include a prayer for final relief directed to validating the liquidator’s appointment. Accordingly, it is not necessary on the present application to do other than to note that this issue will form part of the substantive proceedings. In the interests of brevity, I will not include the word “purported” to qualify subsequent references to the liquidator’s appointment in these reasons. References to the liquidator and the liquidation should be read in the context of this acknowledgment of the controversy concerning the appointment of the liquidators which will be determined as part of the substantive proceedings.

7    Kaushik was the sole shareholder of Curry Shop. His mother, Om Wati Prasad, was the sole director of Curry Shop. Om Wati is now a bankrupt. The Official Trustee in Bankruptcy was appointed to the administration of her estate on 21 November 2019.

8    Curry Shop was one of a group of companies involved in the operation of restaurants using the name Miss India in Queensland. Kaushik was a director of the company previously known as Miss India Franchising and Management Pty Ltd (now known as Max Training Tools Pty Ltd (in liquidation)) between 21 May 2010 and 1 June 2015. Curry Shop operated as trustee of the ND Stores Trust. Kaushik was the sole unit holder in the ND Stores Trust in his capacity as trustee of Prasad Retailing Trust.

9    On or about 6 August 2015, the day prior to its winding up, Curry Shop changed its name from ND Stores Pty Ltd to Curry Shop. On 7 August 2015, ND Stores Pty Ltd ACN 607 528 012 was incorporated in New South Wales (ND Stores NSW) with Om Wati as sole director and shareholder. ND Stores NSW replaced Curry Shop as trustee of the ND Stores Trust on or about 10 August 2015. There is an issue in relation to the date of entry into the deed.

10    By their originating application, the applicants seek to recover funds transferred from Curry Shop’s bank accounts on 7 August 2015, the day that Curry Shop was purportedly placed into liquidation.

11    The first transfer from Curry Shop comprised three separate transactions totalling $780,702.53 to an account held by MI Stores 1 Pty Ltd (in liquidation) (the initial transfers). Kaushik was a shareholder of MI Stores. MI Stores is one of the trading companies of the Miss India Group. An ASIC search for MI Stores indicates that Kaushik held his interest in MI Stores on trust. I was not taken to any material that revealed any detail in that respect. Kaushik admits that with his mother, Om Wati, he effected the initial transfers.

12    Transfers were then made from MI Stores to accounts held by the second respondent, Accolade Advisory Pty Ltd, and the fourth respondent, Reliance Financial Services (the on transfers). The on transfers occurred on 18 August 2015. The fact of the on transfers is not in dispute on the pleadings in the substantive proceedings.

13    The third and fifth respondents, Sam and David Cassaniti are related. At the time of the liquidators’ appointment, David was a director and secretary of Reliance. Reliance is the trustee of the Reliance Discretionary Trust, of which Sam is the appointer and general beneficiary. Sam is alleged to be associated with Accolade and has corresponded with Kaushik using an email address containing Accolade’s domain.

14    The sixth respondent, Carmelo Duardo, is the current director and secretary of Accolade and held those positions at the time the transfers described above were made.

RELEVANT PROCEDURAL HISTORY – FREEZING ORDERS

15    Freezing orders were obtained by the applicants on an urgent basis against Kaushik and Accolade, Sam, Reliance and David following an ex parte hearing on 6 August 2021, and against Carmelo on 20 September 2021. The applicants have given the usual undertaking as to damages.

16    The applicants first moved the Court for freezing orders one day short of six years after the liquidators had been appointed, the last day of the limitation period for the substantive relief sought against the respondents. On that same day, the applicants filed the originating process commencing the substantive proceedings.

17    The freezing orders were extended by consent and without admissions, supported by the undertakings as to damages, on 18 August 2021, 23 September 2021, 21 October 2021, and 28 October 2021. As noted at the outset, the freezing orders obtained against all respondents, save Kaushik, were again extended by consent, supported by the undertakings as to damages, until further order of the Court on 26 November 2021. On that date, on the continuing undertaking of the applicants, the freezing orders obtained against Kaushik were extended by consent and without admissions pending determination of the present application.

18    The freezing order application against Kaushik was made orally to the duty judge during the ex parte hearing of the applicants’ interlocutory application seeking freezing orders against the second to fifth respondents. The written interlocutory application, and the evidence filed in support of it, were not specifically directed to obtaining relief against Kaushik, no such relief having been sought until during the hearing of the ex parte application. Kaushik complains, inter alia, that the freezing order against him was made at the initiative of the Court and in the absence of evidence demonstrating a risk of dissipation by him.

19    On the application before me, the applicants accept that they carry the onus of establishing that a freezing order should be made against Kaushik.

20    The applicants rely on the following evidence:

(1)    Affidavits of the liquidator sworn 6 August 2021, 20 September 2021, 5 November 2021, 23 November 2021 and the exhibits thereto;

(2)    Affidavit of Nicarson Natknarajah, registered liquidator, CPA qualified accountant and Director of insolvency advice firm Roger and Carson Pty Ltd sworn 5 November 2021; and

(3)    Correspondence exchanged between Kaushik and others, including the third respondent, Sam.

21    Kaushik relies on the following evidence in resisting the freezing orders:

(1)    Affidavit of Kaushik affirmed 24 November 2021;

(2)    Affidavits of Adrian Peter Robins, solicitor for Kaushik, affirmed 16 November 2021 and 24 November 2021; and

(3)    Letters of demand dated 22 May 2017 and 18 September 2017 issued by the liquidator to Kaushik.

APPLICABLE PRINCIPLES

22    The source of the Court’s power to make freezing orders is s 23 of the Federal Court of Australia Act 1976 (Cth) and its inherent power as a superior Court of record. The Court’s power is regulated by Division 7.4 of the Federal Court Rules 2011 (Cth). The applicants rely specifically on rr 7.32 and 7.33 which relevantly provide:

Rule 7.32 Freezing order

(1)   The Court may make an order (a freezing order ), with or without notice to a respondent, for the purpose of preventing the frustration or inhibition of the Court’s process by seeking to meet a danger that a judgment or prospective judgment of the Court will be wholly or partly unsatisfied.

(2)   A freezing order may be an order restraining a respondent from removing any assets located in or outside Australia or from disposing of, dealing with, or diminishing the value of, those assets.

Rule 7.33 Ancillary order

(1)   The Court may make an order (an ancillary order ) ancillary to a freezing order or prospective freezing order as the Court considers appropriate.

(2)   Without limiting the generality of subrule (1), an ancillary order may be made for either or both of the following purposes:

(a)        eliciting information relating to assets relevant to the freezing order or prospective freezing order;

(b)        determining whether the freezing order should be made.

23    In Deputy Commissioner of Taxation v Huang [2021] HCA 43 the plurality (Gageler, Keane, Gordon and Gleeson JJ) said (at [16] - [17]) :

16     Rule 7.32, in Div 7.4 of the Rules, supplements s 23 of the Federal Court of Australia Act 1976 (Cth) ("the Federal Court Act") and the Federal Court's implied power as a superior court, each of which confers power upon the Court to make such orders as are appropriate for the proper exercise of its statutorily conferred jurisdiction and powers [Jackson v Sterling Industries Ltd (1987) 162 CLR 612 at 623; Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia (1998) 195 CLR 1 at 32-33 [35]; Cardile v LED Builders Pty Ltd (1999) 198 CLR 380 at 393-394 [25]-[26]]. That relationship is emphasised by r 7.36, which provides that nothing in Div 7.4 diminishes the inherent, implied or statutory jurisdiction of the Court to make a freezing order or ancillary order.

17    The power conferred by r 7.32(1) is expressly subject to two limitations: first, the purpose of the order must be "the purpose of preventing the frustration or inhibition of the Court's process"; and secondly, the order must address that purpose "by seeking to meet a danger that a judgment or prospective judgment of the Court will be wholly or partly unsatisfied". The first limitation corresponds with the established scope of the Federal Court's general powers to grant a freezing order, being the power to make such orders as the Court may determine to be appropriate to prevent the abuse or frustration of its process in relation to matters coming within its jurisdiction [Jackson v Sterling Industries Ltd (1987) 162 CLR 612 at 623; Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia (1998) 195 CLR 1 at 32-33 [35]; Cardile v LED Builders Pty Ltd (1999) 198 CLR 380 at 399-401 [41]; Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd (2001) 208 CLR 199 at 243 [94]; PT Bayan Resources TBK v BCBC Singapore Pte Ltd (2015) 258 CLR 1 at 18 [43]]. Rule 7.32 states explicitly the requirement, stated by this Court in relation to the Federal Court's general powers to grant a freezing order, that the power must be exercised for the purpose for which it is conferred [Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia (1998) 195 CLR 1 at 32-33 [35]; Cardile v LED Builders Pty Ltd (1999) 198 CLR 380 at 399-401 [41]]. Where the order is made in proceedings in which substantive relief is sought against the defendant, that purpose is "to prevent a defendant from disposing of his actual assets (including claims and expectancies) so as to frustrate the process of the court by depriving the plaintiff of the fruits of any judgment obtained in the action" [Jackson v Sterling Industries Ltd (1987) 162 CLR 612 at 625]. More broadly, a freezing order is directed to dispositions "which are intended to frustrate, or have the necessary effect of frustrating, the plaintiff in his attempt to seek through the court a remedy for the obligation to which he claims the defendant is subject" [Riley McKay Pty Ltd v McKay [1982] 1 NSWLR 264 at 276].

24    The applicants do not expressly rely on r 7.35 of the Rules. The plurality rejected an argument to the effect that r 7.32 is to be read as subject to r 7.35: Huang at [21].

25    The applicants must show (1) that they have a prima facie case for the relief they seek against Kaushik; (2) that there is a danger that the prospective judgment will be wholly or partly unsatisfied because the assets of the prospective judgment debtor will be disposed of, dealt with or diminished in value; and (3) that the balance of convenience favours granting the order.

26    The present application focussed on the risk of dissipation with the applicants expressly relying on their prima facie case of misappropriation and dishonesty to support an inference that Kaushik is the type of person who would, unless restrained, not preserve his assets for the benefit of a judgment creditor.

27    The relevant principles which inform the exercise of the discretionary power in this context were extrapolated in KTC v Singh & Ors [2018] NSWSC 1510 (White J) at [4] – [8]:

4    In Cardile v LED Builders Pty Ltd (1999) 198 CLR 380 the plurality (at [51]) approved what was said by the Court of Appeal in Frigo v Culhaci [1988] NSWCA 88 in relation to the Court’s inherent jurisdiction to grant a Mareva order; that the order is a drastic remedy not to be granted lightly, and its purpose is to preserve the status quo, not to change it in favour of the plaintiff. The plurality lamented (at [52]) that a reason rarely adverted to for care in exercising the power to grant a Mareva order was that there may be difficulties associated with the quantification of recovery of damages pursuant to the undertaking of damages that is required for the grant of such an order should it turn out that the order should not have been granted. The plurality also referred to the importance of discretionary considerations, including whether the applicant seeking the order has proceeded diligently and expeditiously (at [53]).

5    The purpose of the grant of a Mareva order and its statutory counterpart under UCPR r 25.11 is to prevent the frustration of the processes of the Court by a defendant whom it is apprehended will seek to put his or her assets out of the reach of the plaintiff so as to prevent enforcement of a judgment. In Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319 Gleeson CJ said at 321-322:

“The remedy is discretionary, but it has been held that, in addition to any other considerations that may be relevant in the circumstances of a particular case, as a general rule a plaintiff will need to establish, first, a prima facie cause of action against the defendant, and secondly, a danger that, by reason of the defendant's absconding, or of assets being removed out of the jurisdiction or disposed of within the jurisdiction or otherwise dealt with in some fashion, the plaintiff, if he succeeds, will not be able to have his judgment satisfied.”

6    In TZ Limited v ZMS Investments Pty Ltd [2010] NSWSC 196 Barrett J said (at [26]):

“A general law freezing order is warranted only if, in the words of Bryson J in Acquasun Pty Ltd v Coverdale Ram Pty Ltd [2000] NSWSC 1146, there has been ‘conduct on the part of the defendants which can reasonably be interpreted as potentially having the effect of frustrating the ordinary processes of the court and the enforcement of its judgments or of being intended to do so or of being in any way evasive indicating dishonesty or otherwise indicating actually or potentially that the assets of the company have been or will be dealt with in an irregular way’.”

7    The respondents emphasise what was said by Mustill J in Ninemia Maritime Corp v Trave Schiffahrtsgesellschaft mbH & Co KG (The Niedersachsen) [1984] 1 All ER 398 (at 406) that was approved in Frigo v Culhaci at 8 that:

“It is not enough for the plaintiff to assert a risk that the assets will be dissipated. He must demonstrate this by solid evidence. This evidence may take a number of different forms. ... But the evidence must always be there.”

8    In many cases the risk of dissipation of assets to avoid a judgment will be evident from the plaintiff’s strong prima facie case of the defendant’s having fraudulently misappropriated assets or of serious dishonesty. As the Court held in Patterson v BTR Engineering (Aust) Ltd such evidence may establish that it can reasonably be inferred that the defendant is the sort of person who would, unless restrained, not preserve his or her assets intact so that they might be available to a judgment creditor (at 325-326).

28    The making of a freezing order involves a discretionary exercise of power. The Court retains a discretion to refuse relief: Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319 at 321 - 322 (Gleeson CJ).

CONSIDERATION

29    This application is the first time that Kaushik has availed himself of the opportunity to oppose the continuance of the existing freezing orders that were made against him following the ex parte application before the duty judge on 6 August 2021. A significant part of Kaushik’s submissions are directed to attacking the circumstances pertaining at the time the ex parte application was made before the duty judge.

30    It is not necessary to engage in detail with the criticisms that Kaushik makes of the approach taken before the duty judge. The critical issue is whether the applicants have established on the evidence led on the present application that a freezing order should be made against Kaushik. To the extent it is necessary to address the complaints made by Kaushik in respect of the freezing orders that were made ex parte against him, I will do so in the course of determining the application that is before me. In taking this approach I am conscious that this is not an appeal from the decision of the duty judge and that I must determine whether it is appropriate to make the freezing order sought against Kaushik on the basis of the evidence that is before me on this application.

31    The focus of Kaushik’s submissions on the present application is on the absence of a proper basis to infer a reasonable apprehension that Kaushik would dissipate his assets and thereby frustrate any future judgment obtained against him by the applicants. The applicants seek to bring their case within the principle that a reasonable inference can relevantly be drawn from a strong prima facie case of dishonesty: see Patterson at 325 – 326 (Gleeson CJ with whom Meagher JA and Roger AJA agreed at 326 and 330 - 331 respectively). It is necessary for me first to consider whether the applicants have established a prima facie case. I will then consider the risk of dissipation and finally, if necessary, where the balance of convenience lies.

Prima facie case

32    The evidence relied on by the liquidator establishes the following on this interlocutory application.

33    At the time of the liquidators’ appointment on 7 August 2015, Curry Shop owed $687,586.44 to the Commissioner of State Revenue Queensland (QOSR), $681,951.46 to the Australian Taxation Office (ATO) and $638,425.70 in respect of unremitted Superannuation Guarantee Contributions. These amounts remain outstanding. In the lead up to the appointment, the debts due to the ATO and QOSR were subject to final demand and threatened legal action.

34    Correspondence concerning the debts owed to the ATO and the QOSR is in evidence. That correspondence suggests that Kaushik had some awareness of Curry Shop’s debts and proposed to engage in discussions with Sam as to managing those debts. Indeed letters were sent by the QOSR to Kaushik and Curry Shop as trustee of the ND Stores Trust on 31 May 2015 and 14 June 2015 seeking payment of the outstanding payroll tax liabilities and forewarning legal action if those liabilities remained unpaid. Kaushik was also notified of the debts owed to QOSR by Scott Pease of PPM Tax and Legal Pty Ltd, an accounting firm engaged by the Miss India Group, in an email of 1 June 2015 in which Mr Pease summarised tax liabilities of each of the companies within the Group, including Curry Shop, and indicated that further correspondence would be sent which would propose a way forward. As to Curry Shop’s ATO debt, a debt collection notice was issued by the Deputy Commissioner of Taxation to the trustee for the ND Stores Trust on 19 June 2015 demanding payment of $408,819.97, failing which insolvency proceedings would be commenced. Sometime after, on 6 July 2015, Kaushik sent an email to Sam attaching the voluntary disclosures of payroll tax liabilities made to the QOSR and stating:

"…Due to Joint and Several Liability and the wide ranging grouping provisions it is difficult to see what can be done about this liability. We are putting in measures to ensure that we do not incur in the future. I have some other ideas on how to tackle it which I would like to run past you when you are in Brisbane on Friday…"

35    The evidence of Mr Natkunarajah, an insolvency practitioner formerly in the employ of the liquidator, demonstrates that immediately prior to the liquidators’ appointment, Sam wrote to Kaushik, copied to Mr Natkunarajah and the liquidator, stating that he required “appointment documents urgently”. Kaushik denies seeing these emails. Shortly thereafter, Mr Natkunarajah provided by email to Sam the documents required to be completed to effect a creditors’ voluntary liquidation. The documents were returned to Mr Natkunarajah by Sam by email later in the afternoon of 7 August 2015. The documents on their face appear to have been executed by Om Wati, the sole director of Curry Shop. The documents which in the ordinary course are required to be executed by the member (or by a proxy for a member) similarly appear to have been executed by Om Wati, and not by Kaushik. The minutes of what purports to be the general meeting of members of Curry Shop record that Om Wati was the chair and the only person present. The minutes also record that all members were in attendance by person or by proxy. The minutes further recorded:

BUSINESS

The chairperson informed the meeting that there were concerns about the company’s solvency which required immediate discussion and resolution by the members. A verbal report on the company's financial position was given to the meeting by the chairperson.

Discussion on the chairperson’s report followed at the conclusion of which the members present expressed their opinion that the company could not by reason of its liabilities continue its business or to trade and that it was appropriate to wind up the company.

SPECIAL RESOLUTION TO WIND UP THE COMPANY

Resolved as a special resolution in that the company be wound up voluntarily.

(Record Votes) The resolution was passed unanimously.

RESOLUTION TO APPOINT LIQUIDATOR’S

Further discussion took place on the appointment of a Liquidator and the Chairperson tabled a Liquidator’s Consent to Act.

Resolved that:

"David Anthony Hurst of Level 8, 5 Elizabeth Street, SYDNEY NSW 2000 be appointed Liquidator of the company.”

36    Om Wati executed the resolutions in question. Kaushik was copied into the email from Sam to Mr Natkunarajah on 7 August 2015 seeking the appointment documents. In public examinations and in a statutory declaration sworn on 18 February 2020, Kaushik gave evidence that on 7 August 2015 he was advised by Om Wati that Curry Shop was to be put into liquidation. They then attended a Westpac branch together and effected the initial transfers.

37    The liquidator also relies on the record of examination of Om Wati. Om Wati’s evidence was that Curry Shop was placed in liquidation on the advice of Sam, that a meeting of Curry Shop was held on 7 August 2015 at which she, Sam and her husband, Raymond, were in attendance and that a special resolution was passed placing Curry Shop in liquidation and appointing the liquidators.

38    Kaushik disputes that he, as the sole shareholder, was involved in the process of placing Curry Shop into liquidation. He says he was not given an opportunity to participate in the decision-making process as a shareholder of Curry Shop and if given that opportunity, he would have objected to the company being placed into liquidation. Kaushik does not dispute knowledge of the liquidation, having become aware in around August 2015 of the steps taken by his mother and Sam to place Curry Shop in liquidation. Kaushik contends that he assumed that Om Wati as a director had the power to pass the resolution to wind up the company voluntarily and appoint liquidators and that he only saw the relevant documents when he was served ex post facto with the applicants’ evidence which had been relied upon before the duty judge. The applicants respond by pointing to correspondence dated 26 August 2016, 24 March 2017, 4 April 2017, 22 May 2017 (two) and 1 June 2017 from the liquidator to Kaushik (or his representative or lawyer) in which repeated references were made to the liquidator having been appointed “by a resolution of [Curry Shop’s] members at a duly convened members’ meeting held on 7 August 2015” or “by a resolution of [Curry Shop’s] members at a duly convened members’ meeting held on 7 August 2015”. It was not until filing his defence and cross-claim in these proceedings on 22 October 2021 that Kaushik first challenged the validity of the liquidators’ appointment although Kaushik suggests in his evidence that he queried the liquidators’ appointment orally in a conversation with the liquidator in about April 2017. The liquidator denies the oral representations upon which Kaushik relies in this respect.

39    In the substantive proceedings it is alleged that Kaushik was at all material times a de facto or shadow director of Curry Shop and as such owed fiduciary duties to Curry Shop to avoid conflicts of interest and not to use his position or knowledge to obtain a benefit or profit. It is further alleged that Om Wati conducted herself and Curry Shop’s affairs in accordance with Kaushik’s management of Curry Shop and that Kaushik directed Om Wati to make the initial transfers from Curry Shop to MI Stores on 7 August 2015. Kaushik denies these allegations.

40    In relation to the liquidation of Curry Shop the applicants allege that Sam was a financial adviser to Curry Shop and to Kaushik. Kaushik admits the allegation with respect to Curry Shop but denies it in respect of himself. The applicants allege, and Kaushik either denies or does not admit, that on 7 August 2015 Sam advised Om Wati and Kaushik to place Curry Shop into liquidation and to remove funds from Curry Shop’s accounts. It is alleged that Kaushik was aware that a director’s meeting and a member’s meeting was held on 7 August 2015 and that Curry Shop was placed into liquidation at the member’s meeting. Kaushik denies this.

41    It is common ground that on the day of the liquidators’ appointment, $780,702.53 was removed from Curry Shop’s company accounts to an account held by MI Stores, in three separate transfers of $578,000, $11,500 and $191,202.53. In his evidence, the liquidator deposes to becoming aware of these transfers shortly after his appointment. In his defence, Kaushik admits attending the Cooparo branch of Westpac on 7 August 2015 with Om Wati and also admits that they effected the initial transfers. Sam similarly admits the initial transfers.

42    Following the initial transfers to MI Stores on 7 August 2015, on 18 August 2015 at 3:55 pm, $747,038.15 was transferred out of an account held or operated by MI Stores to an account held or operated by Accolade (the Accolade transfer). The liquidator’s evidence is that he became aware of this transfer in about February 2020, around the time of public examinations of Kaushik and Sam. Kaushik has admitted to effecting the Accolade transfer. In their defences, Accolade, Sam and Carmelo admit to the Accolade transfers having occurred.

43    On the same day, and shortly after receiving the funds the subject of the Accolade transfer, approximately $746,000 was transferred from an account held by Accolade to an account held or operated by Reliance (Reliance transfers). The Reliance transfers were effected in two separate transactions of $300,000 and $446,000 at 5:15 pm and 5:36 pm respectively. The liquidator deposes that he only became aware of the Reliance transfers in about mid-2020 as a result of information produced under compulsion by Accolade and Sam. All the respondents, save for Kaushik, admit the Reliance transfers in their respective defences. Kaushik has not admitted the Reliance transfers.

44    Following the Reliance transfers, the relevant funds were disbursed by Reliance in various amounts to various entities. One of the recipients was Carmelo who, on 29 September 2015 at 9:16 am received approximately $273,650.00 from an account held or operated by Reliance in a transaction described as "Internet Wdl loan repay" (Carmelo transfer). In his second affidavit the liquidator deposes to the steps taken to investigate this transfer in March and April 2021. Those investigations revealed that the holder of the account to which the transfer was made was Carmelo. The respondents, other than Kaushik and Accolade, admit the Carmelo transfer in their defences. Each of Kaushik and Accolade do not admit the Carmelo transfer.

45    The applicants allege that the initial transfers and the Accolade transfer were “a dishonest and fraudulent design on the part of [Kaushik and/or Om Wati] to misappropriate trust property under the control of Curry Shop”. Kaushik denies this allegation.

46    The applicants allege that in making and/or procuring, and/or participating in the initial transfers and the Accolade transfer, Kaushik engaged in a breach of trust with respect to the trust property of Curry Shop and breached the fiduciary duties he owed to Curry Shop.

47    Further or in the alternative, the applicants allege that Kaushik assisted in Om Wati’s dishonest and fraudulent design to misappropriate trust property under the control of Curry Shop and had knowledge of the circumstances constituting that design.

48    The applicants further allege that Curry Shop incurred debts in the total sum of $1,228,628.23 to creditors including the ATO and QOSR in the period 30 June 2014 to 7 August 2015 and that Kaushik as a shadow or de facto director during this period is liable for Curry Shop incurring debts while insolvent.

49    The applicants seek relief against Kaushik on a number of bases. First, that he is liable as an accessory on the basis that he knowingly induced and procured the impugned transfers in breach of trust or in breach of his fiduciary duties owed to Curry Shop as a de facto or shadow director. Secondly, that he is liable in respect of Curry Shop’s insolvent trading under s 588G(2) of the Corporations Act 2001 (Cth).

50    The explanations for the impugned transfers received over time by the liquidator from Om Wati, Kaushik and Sam are addressed in the liquidator’s evidence. Those explanations include: first, that the funds comprising the transfers were held on trust by Curry Shop for Miss India Franchising in respect of monies owing under a franchising agreement with Curry Shop; second, that the funds were secured monies to which Miss India Franchising was entitled under a general security agreement between Miss India Franchising and Curry Shop; and third, that the funds were apparently funds of Miss India Franchising and were intended to be used for a deed of company arrangement. The liquidator submits that these explanations are inconsistent, equivocal and inherently improbable having regard to the contemporaneous records and the conduct of the various persons and entities involved.

51    In a file note made by Sam, a conversation between Sam and Kaushik on 20 September 2016 is recounted, which records, inter alia: “Kosh suggested that it was because the director of ND Stores just knew it was not ND Store’s money and not the liquidators and just needed to be moved in the interim. One matter needing explaining is why the decision to move the money was a decision to move to MI Stores and not to Miss India Franchise and Management”. By the time of this conversation, over a year had passed since the funds had been moved from Accolade to Reliance and then disbursed in different directions.

52    Kaushik’s statutory declaration of 18 February 2020 revealed the Accolade Transfer for the first time, ostensibly at Sam’s direction. In his statutory declaration, Kaushik deposed that he received advice from Sam on around 15 August 2015 to the effect that he should transfer the funds comprising the initial transfers, which Kaushik refers to as the “DOCA Funds” to Accolade. Kaushik deposed to being provided with bank account details to effect the transfer of the funds in question. Kaushik again asserted that the funds were secured funds of Miss India Franchising but he could “no longer recall” why he directed the initial transfers to MI Stores, only that “I gave that direction in my capacity as director of the secured creditor”, a reference to being the director of Miss India Franchising, which at the relevant time, he was not.

53    In his statutory declaration Kaushik goes on to claim that these same ‘secured’ funds were also purportedly for a deed of company arrangement but there is no evidence of Miss India Franchising’s position regarding any such proposal.

54    Despite these various explanations, in these proceedings, in response to the pleading in paragraph 62 of the Statement of Claim that “As at 7 August 2015, MI Stores had no legal entitlement to receive $780,702.53 from the Company”, Kaushik has pleaded a bare denial.

55    I am satisfied that the applicants have demonstrated for the purpose of this application that there is a strong prima facie case against Kaushik as to whether or not the impugned transfers had any lawful basis. Further, I am satisfied that there is also a strong prima facie case as to whether Kaushik was a shadow or de facto director of Curry Shop or is otherwise liable as an accessory. In light of the timing of the impugned transfers, the various explanations given at different times, the file note of the conversation between Kaushik and Sam dated 20 September 2016 and the otherwise dearth of supporting contemporaneous documentation, I am satisfied that the applicants have established a strong prima facie case as to whether the funds were misappropriated without lawful authority.

Reasonable apprehension that assets will be dissipated

56    The applicants must also show that, unless the order is granted, there is a reasonable apprehension that Kaushik’s assets will be dissipated so as to frustrate the action or execution: Cardile v LED Builders Pty Ltd [1999] HCA 18; (1999) 198 CLR 380 at 393 – 394 [26], 399 – 401 [41] - [42] (Gaudron, McHugh, Gummow and Callinan JJ). It is not essential for an applicant for freezing orders to demonstrate a positive intention on the part of the respondent to frustrate a judgment: National Australia Bank Ltd v Bond Brewing Holdings Limited [1990] HCA 10; (1990) 169 CLR 271 at 277 (Mason CJ, Brennan and Deane JJ); Cardile at [26]. Nor is it necessary for the applicants to demonstrate that the risk of dissipation is more probable than not: Deputy Commissioner of Taxation v Hua Wang Bank Berhad [2010] FCA 1014; (2010) 273 ALR 194 at 196 – 197 [8] - [10] (Kenny J); Deputy Commissioner of Taxation v Chemical Trustee Ltd (No 4) [2012] FCA 1064; (2012) 90 ATR 711 at 717 [23] (Perram J). It is enough that the applicants establish that, in the absence of relief, there is a danger or real risk that the assets will be dealt with in a way which would prevent them from recovering any future judgment: Ninemia Maritime Corporation v TraveSchiffahrtsgesellschaft mbH UND CO KG [1983] 1 WLR 1412 at 1422 (Eveleigh, Kerr and Dillon L.JJ); Beach Petroleum NL v Johnson (1992) 9 ACSR 404 at 405 - 406 (Von Doussa J).

57    Allegations of fraud will commonly provide a basis for a sufficient concern that assets are in jeopardy to warrant the granting of a freezing order: Patterson at 325 – 327 (Gleeson CJ, Meagher JA and Rogers A-JA); RRG Nominees Pty Ltd v Visible Temporary Fencing Australia Pty Ltd [2017] FCA 1352 at [12] (White J). As noted by Anderson J in Spotlight Pty Ltd v Mehta [2019] FCA 1796 (at [23]),

“[w]here, as here, allegations made against the respondents contain allegations of serious dishonesty, evidence of that nature is capable of satisfying the Court of the existence of the requisite danger to dispose of, deal with or dissipate assets”.

58    This issue was the primary battleground on the present application. It is a curious feature of this application that the applicants have not led any evidence in respect of Kaushik’s assets or of any attempt by Kaushik to alienate, diminish or dissipate such assets as he may have notwithstanding he has been on notice of the detail of the allegations against him since at least 22 May 2017. That is even more remarkable in circumstances where ancillary asset disclosure orders formed part of the ex parte relief granted on 9 August 2021 and it was asserted by Kaushik’s counsel, and not countered by the applicants’ counsel, that Kaushik has complied with the asset disclosure order by serving an asset disclosure affidavit. It is not alleged that Kaushik directly received the funds that were the subject of the initial transfers or the on transfers. At most Kaushik appears to have been a shareholder of MI Stores in a trustee capacity.

59    The applicants seek to establish the requisite risk of dissipation by Kaushik by inference based on Kaushik’s alleged conduct in 2015 and the subsequent inconsistencies and implausibilities of the various explanations given by Kaushik and others. In this regard the applicants rely on Patterson at 325 - 326 (Gleeson CJ with the agreement of Meagher JA and Rogers AJA) cited in Singh at [8] (White J as his Honour then was). The applicants submit that there is prima facie evidence of misappropriation of Curry Shop’s assets and serious dishonesty from which the Court would draw the relevant inference. In this regard the applicants point to:

(a)    the initial transfers being made on the day of appointment, with no lawful authority of Kaushik or Om Wati to do so;

(b)    the changing of Curry Shop’s name and address on the day of appointment;

(c)    the alleged backdating of the Deed of Appointment of New Trustee dated 7 August 2015, which was in fact supplied to Kaushik by Accolade on 10 August 2015;

(d)    Kaushik initially advising the liquidator that he could not recall whether or not the funds were subsequently paid to Miss India Franchising, when in truth he had transferred them to Accolade; and

(e)    non-disclosure in respect of the impugned transfers by Sam in his dealings with the liquidator on behalf of Kaushik and Om Wati, when according to Kaushik, Sam directed the Accolade transfer to be made.

60    Kaushik submits that a freezing order is designed to prevent the dissipation of an asset or assets where there is a proprietary claim either in particular property, or, where cash held by a respondent is impressed with a trust or some other equitable interest. Further, that as Kaushik is only sued on an accessorial basis, there being no suggestion he benefitted from any of the payments, to grant a freezing order would be to use the Court’s extraordinary statutory and inherent powers to obtain what is in effect, prejudgment execution. Further, that to do so would fly directly in the face of the risk of any plaintiff in adversarial litigation that “one takes one’s defendant as one finds them”. Kaushik submits that s 23 of the Act and rr 7.32 and 7.33 were not created to guard against that risk.

61    I do not accept that the power to make a freezing order, which operates in personam, whether pursuant to s 23 of the Act and r 7.32 of the Rules or in the inherent jurisdiction of the Court is limited in the way in which Kaushik submits: see e.g. Deputy Commissioner of Taxation v Wang [2020] FCA 1711; Ausmart Services Pty Ltd (in liq) v Zheng [2019] FCA 2162 (Anderson J); Basi v Namitha Nakul Pty Ltd [2019] FCA 743 (Wigney J); Noicos v Dawson [2019] FCA 2197 (White J); RRG Nominees Pty Ltd v Visible Temporary Fencing Australia Pty Ltd [2017] FCA 1352 (White J); RAB’s Plumbing Services Pty Limited; in the matter of Elite Civil Management Pty Ltd v Elite Civil Management Pty Ltd [2014] FCA 264 (Flick J). However, I am not satisfied that the applicants have discharged their onus on the present application. While they have demonstrated a prima facie case for final relief, they have not established the risk that Kaushik would attempt to put assets beyond reach of the applicants or that there is a risk that that may happen. They have not led any evidence of Kaushik’s assets.

62    Against this background the applicants contend that I should now infer the requisite risk of dissipation based on the strong prima facie case concerning Kaushik’s involvement in the impugned transfers in 2015 and the various inconsistent explanations for the transfers coupled with the fact that the applicants have now commenced proceedings. I am not prepared to draw such an inference for the following reasons. First, the applicants have not led any evidence from which I can be satisfied Kaushik has relevant assets in respect of which the status quo should be maintained. Secondly, to draw such an inference at this stage based on the strength of the prima facie case and because legal proceedings have been started would be to ignore the fact that the liquidator’s intent to bring such proceedings and the basis for the claims now made have been communicated to Kaushik over many years. The alleged misappropriation occurred on 7 August 2015, the very day of the liquidators’ appointment. The liquidator has deposed to becoming aware of at least the initial transfers shortly after his appointment. The liquidator has issued a series of letters of demand addressed to Kaushik in which the liquidator outlines and foreshadows bringing the claim that has now been filed against Kaushik. Those demands were made on 22 May 2017, 18 September 2017 and 18 March 2020. The liquidator has both interviewed and examined Kaushik on 26 April 2017 and 25 February 2020 respectively. The liquidator has not led evidence of any attempt of any kind by Kaushik to dissipate whatever assets he may have in the face of the clear articulation of the case alleged against him. I am asked in effect to infer that the horse will (finally) bolt because after making multiple demands over four years the liquidator has finally commenced proceedings. I am not satisfied that the applicants have established the utility in making an order now in the absence of any evidence of Kaushik’s assets. They have not attempted to establish in the context of the lengthy history of interaction between the liquidator and Kaushik and those that have represented him in various capacities, a reasonable basis on which to infer a real risk of dissipation.

63    In addition, the applicants’ delay in bringing the application for freezing orders is a factor which weighs against making the order against Kaushik. As noted above, the application was filed nearly six years after the liquidators were appointed. The applicants submit that it was only in about mid-2020 that the liquidator became aware of the on transfers. There is a real question about whether the additional information obtained by the liquidator in mid-2020 was critical or even necessary given that the liquidator became aware shortly after his appointment that a significant sum had been transferred out of Curry Shop’s accounts on the very day it was placed into voluntary liquidation; that the transfer was to MI Stores, a company in which Kaushik was a shareholder; and that the liquidators were unable to establish a legal basis for that transfer. Even if it is accepted that the liquidators did not have sufficient information until about mid-2020, no explanation is given for why the application was not brought prior to the last day of the limitation period, on 6 August 2021.

64    There is no reasonable basis on which to infer that there is a real risk of dissipation of assets, in circumstances where Kaushik has been free for over six years to deal with such assets as he may have; has been on notice of the substance of the liquidator’s claim for at least four years; and where the liquidator has received an asset disclosure affidavit but did not lead any evidence on this application as to Kaushik’s assets or any hint of dissipation or other dealings with such assets. I appreciate that the applicants frame their case as prophylactic against a future contingency, but in the whole of the circumstances, the applicants have not discharged their onus to establish a reasonable basis on which I could infer the requisite danger.

65    Given I have found against the applicants as to risk of dissipation, I do not consider it necessary to determine where the balance of convenience lies. The part of the applicants’ amended interlocutory application seeking to “extend” the freezing orders against Kaushik is dismissed.

66    The ordinary rule as to costs should apply and I make an order accordingly.

Associate:

Dated:    13 December 2021

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