Federal Court of Australia

Hassan v Image Nominees Pty Ltd (in liquidation) [2023] FCA 1645

ORDERS

OTHER MATTERS:

Upon the eighth respondent by her counsel continuing the undertaking as to damages given on 26 October 2023 and renewed on 21 November 2023.

THE COURT ORDERS THAT:

1.    The proceeding be listed for further directions at 9.30 am on 8 February 2024.

2.    Image Nominees Pty Ltd, Smart Companies Group Pty Ltd, Concept Icon Pty Ltd, Physique Pty Ltd, AH International Pty Ltd and Domican Hassan Pty Ltd (the Companies) be wound up under s 461(1)(k) of the Corporations Act 2001 (Cth).

3.    Nedin Talic and Claudio Trimboli of Charles & Co, Level 1, 190 Queen Street, Melbourne, Victoria, (Liquidators) be appointed as the joint and several liquidators of the Companies.

4.    Pursuant to Part 5.6 of the Act, each of the Companies is a pooled group for the purposes of s 579E of the Act (Group).

5.    The costs of the Liquidators are to be the costs in the pooled winding up of the Group.

6.    The parties’ costs of the Liquidators’ application to wind up the Companies are costs in the cause, subject to further order of the Court.

7.    Paragraph 5(b) of the orders freezing the assets of the eighth respondent on 22 September 2023 be amended to read: “paying up to $200,000 for your reasonable legal expenses, which amount can, for the avoidance of doubt, be obtained by giving a mortgage or other security over property otherwise the subject of this order;”.

8.    The eighth respondent’s leave granted by paragraph 6 of the orders made on 2 October 2023 pursuant to s 198G(3)(b) of the Act be suspended until further order.

9.    The revocation of leave in order 8 shall not affect the eighth respondent’s undertaking referred to in Other Matters.

10.    The injunction ordered in paragraph 1 of the orders made on 26 October 2023 and extended by paragraph 1 of the orders made on 21 November 2023, be further extended until 4.00 pm on 8 February 2024.

11.    Costs reserved.

12.    Liberty to apply.

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

REASONS FOR JUDGMENT

BEACH J:

1    This matter first came before me as the Corporations Duty Judge for urgent freezing and other injunctive orders which I made.

2    Over the last few months it was convenient to keep this duty matter within my embrace and as a consequence I have dealt with various interlocutory applications concerning the modification of my initial orders, new injunction applications and also an application for the appointment of provisional liquidators to some of the respondents, which I granted. Cross claims have also been filed and cross injunction applications have also been dealt with.

3    Now before me is an application filed by the provisional liquidators for orders that the companies that they are administering the affairs of as provisional liquidators, namely, Image Nominees Pty Ltd, Smart Companies Group Pty Ltd, Concept Icon Pty Ltd, Physique Pty Ltd, AH International Pty Ltd and Domican Hassan Pty Ltd, be wound up pursuant to s 461(1)(k) of the Corporations Act 2001 (Cth).

4    By way of background, on 22 September 2023 I appointed the provisional liquidators joint and several provisional liquidators of each of the companies.

5    Further, on 21 November 2023, I directed that the provisional liquidators file and serve any application for the winding up of each of the companies whether in their capacity as provisional liquidators or as creditors or otherwise.

6    Now s 462(2)(b) provides that a creditor of a company may apply for an order to wind up that company. As at the date of filing their application, the provisional liquidators were owed $490,139 in remuneration by the companies. Prima facie the provisional liquidators are creditors under s 462(2)(b).

7    Further, s 462(2)(d) provides that the liquidator of a company may apply for an order to wind up the company. Prima facie the provisional liquidators are a form of liquidators and so fall within s 462(2)(d). In Zempilas v J N Taylor Holdings Ltd (No 5) (1991) 5 ACSR 22, Debelle J concluded that a provisional liquidator had standing under s 462(2)(d) of the then Corporations Law to apply for the winding up of the company, although he did not have the advantage of considering the more sophisticated arguments that have been put before me. I will return to these matters later.

8    In addition to the provisional liquidators’ application, Mr Hassan, the applicant in the principal proceeding, also moves for an order pursuant to s 461(1)(k) that the companies be wound up and that the provisional liquidators be appointed liquidators of the companies.

9    Now the first to eighth respondents (the Domican parties) oppose the winding up of the companies. First, they say that Mr Hassan does not have standing under s 462 to so apply. Second, they say that the provisional liquidators do not have standing under s 462 to so apply. Third, they say that in any event the companies ought not be wound up on the “just and equitable” ground.

10    Moreover, they say that if the companies are to be wound up, it would be appropriate to appoint independent liquidators, that is, not the provisional liquidators, to ensure that the companies are and are seen to be externally administered independently and not in a partial fashion.

11    On 13 December 2023 I heard the various applications and on 15 December 2023 I ordered the winding up of the companies under s 461(1)(k) and appointed the provisional liquidators as liquidators of the companies. These are my reasons for doing so.

12    Before dealing with the principal questions let me turn to some matters of background which the evidence before me in part substantiates.

Background

13    Mr Hassan was an equal co-owner in a business called “Smart Diet Solutions” with his former fiancée, Ms Domican. The parties were in a relationship for approximately 5 years between 2014 and late 2019.

14    Mr Hassan established the business in 2003 and Image was and remains the trading entity of the business, which manufactures protein bars. The business operated via several corporate entities. Prior to 12 July 2023, Mr Hassan was a director and secretary of Image, Smart and Physique, a director of AH International and a director of Domican Hassan.

15    Additionally, the business operated via the Vision Trust, which was established by deed dated 10 May 2019, pursuant to which Mr Hassan was a beneficiary, and further, Ms Domican was a beneficiary and an appointor. Ms Angelidis, Ms Domican’s mother, was also an appointor under the deed. The third respondent, Concept Icon Pty Ltd was the trustee of the Vision Trust. Mr Hassan remains a director and shareholder of Concept.

16    In 2019, Mr Hassan and Ms Domican took steps to effect Ms Domican’s acquisition of 50% of the business.

17    In late 2019, Mr Hassan and Ms Domican ended their personal relationship, but continued to occupy the same residential premises until June 2021.

18    In 2021, Mr Hassan and Ms Domican took steps to restructure the business to further reflect Ms Domican’s interest. Mr Hassan took advice from his accountant and Ms Domican as to the appropriate vehicles through which to run the business and reflect his and Ms Domican’s interests.

19    In late 2021, Ms Domican’s attitude towards Mr Hassan severely deteriorated. Between late 2021 and mid-2023, Ms Domican despite request, refused to co-sign documentation to enable her to be a co-signatory on the bank accounts of the business, which resulted in the CBA refusing to allow payments to be made from the accounts. She ceased working in the business completely from on or around August 2021 onwards. She instructed the CBA to stop withdrawals from Image’s accounts due to a dispute between herself and Mr Hassan, which resulted in Mr Hassan having to use personal funds to keep the business afloat.

20    She secretly and unilaterally removed Mr Hassan as a director and secretary from all the corporate entities in the business group save for Concept. She secretly and in consort with her mother, Ms Angelidis, used her power of appointment under the Vision Trust deed to remove Concept as trustee of the Vision Trust and appoint PTNTL Pty Ltd as trustee, a company solely owned and controlled by Ms Domican.

21    She then proceeded to transfer Concept’s shares in Smart to PTNTL. And she cut off Mr Hassan’s access to the bank accounts of Image. She then unilaterally withdrew more than $4 million in funds, dispersing at least $150,000 to Ms Angelidis and $50,000 to Robson, without Mr Hassan’s knowledge or consent.

22    Mr Hassan has not signed any forms or documents authorising his removal as a director of Image and Smart, nor authorising the transfer of shares held by Concept in Smart, nor the withdrawal of approximately $4 million from Image’s bank accounts.

23    Mr Hassan contends that he is entitled to orders winding up each of the relevant corporate respondents on just and equitable grounds. He has advanced the following points. First, the business was a quasi partnership. Second, Mr Hassan was removed as a director and secretary of each corporate respondent (save for Concept and PTNTL) and from any control of the Vision Trust. And Ms Domican removed Concept as trustee and replaced it with PTNTL. Third, Mr Hassan has been excluded from the management and access to information in bank accounts of the business. Fourth, Mr Hassan has been cut off financially from the business and has had his salary and employment terminated. Fifth, Ms Domican has, upon removing Mr Hassan, arranged for $4,084,590 to be transferred out of Image’s bank account for her personal use and/or the use of her mother, Ms Angelidis, and sister, Ms Robson, without explanation.

24    I should say now that the clear and irretrievable breakdown in the personal and business relationship between Ms Domican and Mr Hassan is such as to enliven the operation of s 461(1)(k) together with the other matters that I will turn to later.

25    Further, it would seem that prima facie there has been oppressive conduct in respect of the manner in which the affairs of the companies have been conducted.

26    Further, there are advantages to liquidation including the processes available to a liquidator under the various provisions of the Act relating to unreasonable director related transactions, unfair preferences and breaches of director’s duties. Further, there are processes available to a liquidator to recover property of Image received by some of the respondents in circumstances where it was transferred to them as a result of the actions of Ms Domican in breach of her duties as a director of Image, and so invoking either or both of the limbs in Barnes v Addy (1874) LR 9 Ch App 244.

27    Let me now turn to the standing questions.

The provisional liquidators’ standing

28    As I have said, the provisional liquidators have applied to wind up the companies under s 461(1)(k).

29    Section 461 provides:

General grounds on which company may be wound up by Court

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

(a)    the company has by special resolution resolved that it be wound up by the Court; or

(c)    the company does not commence business within one year from its incorporation or suspends its business for a whole year; or

(d)     the company has no members; or

(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

(f)     affairs of the company are being conducted in a manner that is oppressive or unfairly prejudicial to, or unfairly discriminatory against, a member or members or in a manner that is contrary to the interests of the members as a whole; or

(g)     an act or omission, or a proposed act or omission, by or on behalf of the company, or a resolution, or a proposed resolution, of a class of members of the company, was or would be oppressive or unfairly prejudicial to, or unfairly discriminatory against, a member or members or was or would be contrary to the interests of the members as a whole; or

(h)     ASIC has stated in a report prepared under Division 1 of Part 3 of the ASIC Act that, in its opinion:

(i)     the company cannot pay its debts and should be wound up; or

(ii)     it is in the interests of the public, of the members, or of the creditors, that the company should be wound up; or

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

(2)     A company must lodge a copy of a special resolution referred to in paragraph (1)(a) with ASIC within 14 days after the resolution is passed.

30    Now the provisional liquidators say that they have standing to apply for such an order under ss 462(2)(b) and/or (d).

31    Section 462 provides:

Standing to apply for winding up

(1)    A reference in this section to an order to wind up a company is a reference to an order to wind up the company on a ground provided for by section 461.

(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.

(2A)    ASIC may apply for an order to wind up a company under paragraph (2)(f) only if:

(a)     the company has no members; and

(b)     ASIC has given the company at least 1 month’s written notice of its intention to apply for the order.

(4)    The Court must not hear an application by a person being, or persons including, a contingent or prospective creditor of a company for an order to wind up the company unless and until:

(a)     such security for costs has been given as the Court thinks reasonable; and

(b)     a prima facie case for winding up the company has been established to the Court’s satisfaction.

(5)     Except as permitted by this section, a person is not entitled to apply for an order to wind up a company.

32    Now it is to be noted that by operation of s 462(5), s 462 exclusively defines who has standing. Of course, standing to apply for an order is one thing. But arguably I can make an order of my own motion under s 461 if my jurisdiction in the matter has been otherwise enlivened, which in my view it has. I will return to this later.

Standing under s 462(2)(d) – “the liquidator of the company”

33    Now the Domican parties challenge the standing of the provisional liquidators to seek a winding up order. And in an argument attractively and efficiently presented by their counsel, Mr John Ribbands, they have made the following points.

34    Sections 461 and 462 are in Chapter 5 of the Act. But a reference to a liquidator in that Chapter is not presumed to include a reference to a provisional liquidator; see the s 9 definition of “liquidator”.

35    The Domican parties say that the text of s 462 itself does not include the word “provisional” and that word should not be read into it. The context of the provision within the Act similarly suggests that provisional liquidators are not included within the meaning of “liquidator” in s 462(2)(d). It is said that one must construe the provision so that it is consistent with the language and purpose of all the provisions of the Act. The following sections draw the distinction between “liquidator” and “provisional liquidator”: s 436B; s 449C(2)(b)(ii); s 458E(1)(d)(v); s 459P(1)(e); s 474(1)(a); s 483(1); s 486A(2A)(a); s 486B(3)(a); s 530A; s 530C(1)(b); s 556(2), definition of “relevant authority”; s 595(1)(a); s 596AB(2C); s 596AC(7)(b); and s 600AA(1)(c).

36    The Domican parties say that it would be anomalous for the definition of “liquidator” to elide the distinction between liquidator and provisional liquidator only for s 462(2)(d). This is particularly so where “provisional liquidators” are given standing to apply to the Court for a company to be wound up in insolvency under s 459P(1)(e).

37    They say that the legislature should therefore be taken to have intended to exclude provisional liquidators from having standing to apply to wind up companies on the grounds delineated in s 461. It is said that although a liquidator in, for example, a members’ voluntary winding up, should be able to apply for Court oversight in particularly complex or contentious liquidations, that is not the same for provisional liquidators.

38    It is said that provisional liquidators are appointed where it appears likely that a winding up order will be made, not where an order has been made. However, if it turns out that the party applying to wind up the company does not have standing, that proceeding will be dismissed, and the provisional liquidation would be terminated as no longer serving the relevant purpose.

39    It is said that if provisional liquidators could then apply on the same grounds as the applicant who turns out to lack standing, that applicant would de facto get the relief sought but to which it was not entitled.

Standing under s 462(2)(b) – “a creditor (including a contingent or prospective creditor) of the company”

40    Further, the Domican parties say that if provisional liquidators are afforded standing on the grounds of being current, prospective or contingent creditors, then this would subvert the clear legislative intention to exclude them.

41    It is said that if provisional liquidators were afforded standing under s 462 as a creditor because of work undertaken (or to be undertaken) by that appointment, s 462(2)(d) would be rendered superfluous, void or insignificant.

Analysis

42    In my view the provisional liquidators have the necessary standing.

43    First, provisional liquidators are a class of “liquidators” within the ordinary meaning of that term. There is no good reason why they would not fall within the clear language of s 462(2)(d). A provisional liquidator is a liquidator appointed provisionally. So, the qualification is a temporal qualification. Now it has been pointed out that “liquidator” in the s 9 definition only refers to the inclusion of a provisional liquidator where Chapter 7 is involved, and I am not concerned with Chapter 7. But the definition does not expressly say that outside Chapter 7 a liquidator cannot include a provisional liquidator. Further, the prefatory words to s 9 are “[u]nless the contrary intention appears”.

44    Second, there seems to be no good reason why a provisional liquidator would not have standing. Indeed, they may be best placed to make the application given their knowledge and investigations carried out whilst they are provisional liquidators. Indeed it may be the case that there is no other applicant available to seek the order.

45    Third, the Domican parties assert that other provisions of the Act make it clear when both liquidators and provisional liquidators are embraced. So, it is said that for s 462(2)(d) one should draw a negative implication from the absence of such a dual reference. But clearly there are difficulties with drawing such a negative implication by reference to other statutory provisions.

46    Fourth, even if s 462(2)(d) does not apply, s 462(2)(b) can apply. It is not disputed that the provisional liquidators are creditors. Now the Domican parties in an argument which pushed the envelope said that if their argument concerning s 462(2)(d) was good, which arises from one negative implication, then there should be a further negative implication that a creditor referred to in s 462(2)(b) must exclude a provisional liquidator. But this is to rewrite s 462(2)(b). There is no good reason to do so, irrespective of the fact that the provisional liquidator would be a priority creditor. Indeed, on that basis a provisional liquidator should have an enhanced status as a creditor to give it standing.

47    Fifth, s 462(2)(a) could also apply. The provisional liquidators could bring an application in the name of and on behalf of the companies of which they are provisional liquidators.

48    Sixth, s 462(2)(c) could also apply given that the provisional liquidators control some of the corporate shareholders of other companies that it is said should be the subject of a s 461(1)(k) order.

49    In summary, there are many and various ways in which the provisional liquidators directly or through the companies that they control could assert standing. Finally, for completeness, it is not necessary to further consider Zempilas given the limited scope of the argument before Debelle J.

Mr Hassan’s standing

50    Now Mr Hassan claims to have standing as a creditor of each of the companies. He relies in part on an expert report of Mr Michael Smith. But the respondents have disputed various aspects of this report.

51    The Domican parties maintain that Mr Hassan is not a creditor of the companies, and they say that I should not make any factual findings in relation to Mr Hassan’s claimed debt given the limitations in the evidentiary framework before me.

52    But in my view and based upon the evidence before me, albeit with its limitations, Mr Hassan has standing as a creditor (s 462(2)(b)) of the companies to seek orders pursuant to s 461(1)(k) winding up the companies on the just and equitable ground.

53    First, Mr Hassan is a creditor of Image due to having advanced loan funds to Image from time to time. In his expert report, Mr Smith has calculated the adjusted balance of Mr Hassan’s loan account as at 30 June 2023 to be $1,387,230 owing by Image. Further, Mr Hassan’s affidavit evidence well establishes that he is a creditor.

54    Second, Mr Hassan’s standing as a creditor of Smart, Concept, Physique, AH International and Domican Hassan is established by the fact that on 20 October 2022, Mr Hassan personally paid from his own bank account ASIC tax invoices for company renewal fees issued to each of Image, Smart, Concept, Physique, AH International and Domican Hassan for which he has not been reimbursed.

55    Additionally, as a shareholder of Concept, Mr Hassan has standing pursuant to s 462(2)(c) to seek orders winding up Concept on the just and equitable ground.

56    But in all the circumstances I can put to one side the standing question concerning Mr Hassan as I am satisfied that the provisional liquidators have standing. But if I am wrong, then in my view he has standing.

The Court’s own motion?

57    In any event, in my view I have power of my own motion to make an order under s 461(1)(k) given that my jurisdiction has already been enlivened by the parties and I have, inter-alia, appointed provisional liquidators.

58    Section 461(1) on its own terms does not deny that I can so proceed on my own motion. I do not need to meet any standing question under s 462. Further, in so proceeding under s 461(1) I am not exercising any inherent or implied power but rather an express statutory power conferred upon the Court.

59    Further, my jurisdiction to so proceed is also expressly confirmed and conferred by s 1337B(1) which provides:

Jurisdiction is conferred on the Federal Court of Australia with respect to civil matters arising under the Corporations legislation.

60    So, if the provisional liquidators did not have the requisite standing, I would have proceeded on my own motion under s 461(1).

Just and equitable ground

61    The principles governing an application for an order that a company be wound up on the just and equitable ground are well established.

62    Mr Marcus Clarke KC for Mr Hassan referred to various authorities including Australian Securities and Investments Commission v AGM Markets Pty Ltd (2018) 129 ACSR 335 at [72] to [77] where I said:

There is power to wind up a company on the just and equitable ground (s 461(1)(k)), and ASIC has standing to seek such an order (ss 462(2) and 464). Generally speaking, a company may be wound up where there is a justified lack of confidence in the conduct and management of the company’s affairs such as to give rise to a real risk to the public interest that warrants protection (see Australian Securities and Investments Commission v ActiveSuper Pty Ltd (No 2) (2013) 93 ACSR 189; [2013] FCA 234 (ActiveSuper (No 2)) at [20] per Gordon J).

In relation to the exercise of this power, there are three factors that are of central significance:

(a)    First, is there a justifiable lack of confidence in the conduct and management of the relevant company or its affairs?

(b)    Second, is there a real risk to the public or the public interest that warrants protection by such an order and the consequences flowing from liquidation? For example, do investors need to be protected? Further, is it necessary to prevent repeated or threatened breaches of the law?

(c)    Third, is the relevant company solvent? A court may be reluctant to wind up a solvent company.

In ActiveSuper (No 2), her Honour at [21]–[24] elaborated on these three themes in the following terms:

In relation to the first, a lack of confidence may arise where, “after examining the entire conduct of the affairs of the company” the Court cannot have confidence in “the propensity of the controllers to comply with obligations, including the keeping of books, records and documents, and looking after the affairs of the company”…

…

In relation to the second, a risk to the public interest may take several forms. For example, a winding-up order may be necessary to ensure investor protection or where a company has not carried on its business candidly and in a straightforward manner with the public … Alternatively, it might be justified in order to prevent and condemn repeated breaches of the law …

In relation to the third, it has been said that “a stronger case might be required where the company was prosperous, or at least solvent”… Solvency, however, is not a bar to the appointment of a liquidator on the just and equitable ground, particularly where there have been serious and ongoing breaches of the Act …

As to the relevance of a company’s solvency position, if a company is solvent that may point against a winding up on the just and equitable ground, but it is not a bar. A company may still be wound up on the just and equitable ground even if solvent to prevent repeated or threatened future breaches of the law or where the management of the company is for all practical purposes non-existent or incompetent or otherwise such as to justify a lack of confidence in it. Conversely, if there is good reason to believe that a company is either cash flow insolvent or balance sheet insolvent, whether or not the formal elements of s 459A have been satisfied, I see no good reason why such circumstances cannot be taken into account under the just and equitable ground as one of the factors to consider. In other words, the two grounds are not mutually exclusive.

As to the solvency ground, it is to be noted that with leave under s 459P(2)(d), ASIC may apply under s 459P(1)(f) for an order that an insolvent company be wound up under s 459A. A person is solvent if the person is able to pay all the person’s debts as and when they become due and payable (s 95A(1)). A person who is not solvent is insolvent (s 95A(2)). A cash flow test is adopted (Noxequin Pty Ltd v Deputy Commissioner of Taxation [2007] NSWSC 87 at [14] per Barrett J). Contingent and prospective liabilities may be taken into account (s 459D). Further, a court will have regard to commercial realities.

Let me make some other points. First, the classes of conduct justifying a winding up on the just and equitable ground are not closed. There is no necessary limit to the generality of the words “just and equitable”. Second, the facts or conduct which make it just and equitable to so wind up must have a direct or immediate relationship to or bearing upon the management or administration of the affairs of the company or the subject of its business. Third, if after examining the affairs of the company the conclusion is that there is a lack of confidence in the propensity of the controllers to comply with legal obligations, including the keeping of records and looking after the affairs of the company, that is sufficient to conclude that it is just and equitable that the company be wound up.

63    The Court can look at all the circumstances of a particular company in order to determine whether it is just and equitable. Matters that are relevant include any deadlock, any mutual distrust or a breakdown in communications or any relationship which make the company unable to function in its current configuration, and whether there is a lack of confidence in the conduct and management of the company’s affairs.

64    Now it is unnecessary in an application under s 461(1)(k) to establish insolvency. Further, it is also unnecessary to establish oppressive conduct in an application to wind up a company on just and equitable grounds. And it is unnecessary to apportion blame.

65    Now in this case, the evidence before me of the current relationship between Ms Hassan and Ms Domican demonstrates a deadlock, significant mutual distrust, a complete breakdown in communication and relationship which makes the corporate respondents unable to function in their current configuration and a lack of confidence in the conduct and management of the corporate respondents’ affairs.

66    Further, the admissions contained in the defence and cross claim and the affidavit evidence of Ms Domican demonstrate that the trust and confidence between Mr Hassan and Ms Domican as co-owners has irretrievably broken down.

67    In her defence, Ms Domican admits that the business relationship between herself and Mr Hassan has broken down irretrievably. She admits that she removed Concept and appointed PTNTL as trustee of the Vision Trust by deed made on 11 July 2023 without Mr Hassan’s prior knowledge or consent. She admits that she removed Mr Hassan as director and secretary of Smart, Image, Physique, AH International and Domican Hassan on 12 July 2023. She admits that she withdrew $3,984,590 from Image’s bank account. And she admits that she terminated Mr Hassan’s access to the relevant bank accounts and excluded him from the management of the corporate respondents, save for Concept.

68    Further, in the statement of cross claim filed 5 October 2023, Ms Domican contends that Mr Hassan has breached ss 180, 181 and 182, he has misappropriated Image’s funds and engaged in wrongdoing generally, and he has misused confidential information.

69    Further, Ms Domican has deposed that “in about 2021, I became concerned about whether Sam was being truthful with what he was telling me about the business operations…” and that “…it was becoming increasingly evident that Concept Icon was no longer able to effectively function as trustee.”

70    I do not need to conduct a trial prior to ordering the appointment of a liquidator under s 461(1)(k) where there is a deadlock, mutual distrust and a complete breakdown in communication and relationship which make the company unable to function in its current configuration. Moreover, I do not presently need to make findings as to the truth of the allegations that each of Mr Hassan and Ms Domican have levelled against each other.

71    The companies clearly cannot function in their current form and there is substantial distrust between Mr Hassan and Ms Domican.

72    Moreover, despite request from the provisional liquidators, both parties have refused to inject further funds into Image in circumstances where the provisional liquidators are of the view that Image will not be able to meet its ongoing expenses by early 2024.

73    Further, the business is not currently trading given that the provisional liquidators have recently discovered a significant disparity between the representations on the labelling of its products and the nutritional value of the products upon analysis. This cessation of trading follows a significant period when the business could not trade due to occupational health and safety issues.

74    Further, the business conducted by the companies is in the process of being sold. And even on the best case scenario, the provisional liquidators still expect there to be a deficiency of assets to meet the companies’ liabilities. Accordingly, there are considerable concerns about the companies’ solvency in the near term. Moreover, there have been issues with the fulfilment of the legal obligations of the companies including the keeping of proper records and the proper management of affairs.

75    Further, the provisional liquidators have significant concerns about some transactions involving the companies’ assets. They consider it is necessary for liquidators be appointed to carry out further investigations which may reveal breaches of director’s duties and voidable transactions which may be recoverable.

76    In summary, in my view it is just and equitable to order the winding up of the companies.

Other grounds

77    Section 461(1)(e) provides:

(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;

78    The Court can make a winding up order if (as here) a company’s directors have acted in their own interests rather than the interests of shareholders as a whole. In this case, Mr Hassan is a shareholder of Concept and a primary beneficiary under the Vision Trust. Ms Domican has acted oppressively and in her own interests, by using her power of appointment under the Vision Trust deed to remove Concept as trustee of the Vision Trust and appoint PTNTL as trustee, a company solely owned and controlled by Ms Domican, whereby she then proceeded to transfer Concept’s shares in Smart to PTNTL without Mr Hassan’s knowledge or consent.

79    Further, s 461(1)(f) provides:

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

…

(f)    affairs of the company are being conducted in a manner that is oppressive or unfairly prejudicial to, or unfairly discriminatory against, a member or members or in a manner that is contrary to the interests of the members as a whole;

80    The Court may make a winding up order if the affairs of a company are being conducted in a manner that is oppressive. Clearly there is evidence of this in the present case concerning the relevant companies.

81    If I had not invoked s 461(1)(k), I would have made the necessary winding-up orders on these other grounds.

If the companies are wound up, which persons should be appointed liquidators?

82    Now a liquidator must be independent and must be seen to be independent. The relevant test for a perceived lack of independence is whether a reasonable and informed third party might reasonably form the opinion that the liquidator might not bring an independent mind to the liquidation.

83    Now the provisional liquidators were appointed to conduct the business in order to maintain the status quo pending resolution of the issues in the proceeding. They sought orders that they would be acting reasonably in suspending operations of the business of the companies which I acceded to.

84    The Domican parties say that a reasonable third party might reasonably form the opinion that the provisional liquidators will lack independence or impartiality if they were appointed as liquidators of the companies because of the following matters. They have failed to identify or provision for claims against Mr Hassan in their reports. They have accepted an uncritical account of Mr Hassan’s claims as creditor and employee. And they have not accounted for Ms Domican’s claims as creditor and employee.

85    Further, it is said that notwithstanding that the provisional liquidators were tasked with identifying and bringing under control the companies’ assets, they have failed adequately to do so.

86    Further, it is said that they have not sought copies of the relevant account statements belonging to Mr Hassan, notwithstanding that all of Image’s income since FY21 through Stripe and Paypal has been deposited into, and transferred between, his accounts.

87    Further, it is said that they have failed to reconcile the sales recorded in the online ordering system with the money claimed to have been received by Mr Hassan.

88    Accordingly the Domican parties say that it would be appropriate to appoint alternative liquidators if the companies are wound up. Further, they say that the provisional liquidators have not undertaken any significant investigations in relation to the claims made by the parties, so there would not be any significant overlap of work and associated increase in cost if new personnel were to be appointed.

89    But in my view, the Domican parties’ criticisms lack substance. They are devoid of a proper evidentiary foundation. Further, any steps that have not yet been taken by the provisional liquidators are simply explained by the fact that they have had limited time and have quite properly prioritised other matters. There is no basis for not appointing the provisional liquidators as liquidators, and every efficiency in doing so.

Pooling orders

90    The provisional liquidators, if they are appointed liquidators, have sought a pooling order. In my opinion it is appropriate that this be granted.

91    Section 579E(1) sets out the conditions that must be satisfied in relation to a group of 2 or more companies for the Court to make a pooling order:

(a)    each company in the group is being wound up;

(b)    any of the following subparagraphs applies:

(i)    each company in the group is a related body corporate of each other company in the group;

(ii)    apart from this section, the companies in the group are jointly liable for one or more debts or claims;

(iii)    the companies in the group jointly own or operate particular property that is or was used, or for use, in connection with a business, a scheme, or an undertaking, carried on jointly by the companies in the group;

(iv)    one or more companies in the group own particular property that is or was used, or for use, by any or all of the companies in the group in connection with a business, a scheme, or an undertaking, carried on jointly by the companies in the group;

the Court may, if the Court is satisfied that it is just and equitable to do so, by order, determine that the group is a pooled group for the purposes of this section.

92    The relevant companies satisfy the condition in s 579E(1)(a) and at least one of the conditions in s 579E(1)(b). Further, s 579E(10) does not operate to preclude the making of a pooling order. Moreover, the companies’ affairs are intermingled and the making of a pooling order will advantage creditors. It is just and equitable to make the appropriate order.

Leave to prosecute the cross-claim

93    Now Mr Hassan says that if the Court makes orders pursuant to s 461(1)(k) that the companies be wound up and the provisional liquidators be appointed liquidators of the companies, Ms Domican ought not be granted leave to prosecute her cross-claim on behalf of Image and Domican Hassan against Mr Hassan.

94    Now the Court retains a discretionary power to make an order authorising a person to sue in a company’s name concerning proceedings which the liquidator does not want to bring upon the person giving the liquidator and the company a secured indemnity and upon showing that the relevant claim is arguable. I should say for completeness that it should be obvious that I am not dealing with ss 236 and 237 in the present context.

95    An applicant bears the onus of satisfying the Court in applying for leave to bring the relevant proceeding that he is acting in good faith. And it must also be established that the proceedings sought to be brought are in the best interests of the company.

96    Further, it is not unimportant that where a company is in liquidation the Court should determine whether the conduct of litigation in the name of the company should be taken out of the control and supervision of a liquidator as an officer of the Court.

97    In my view, Ms Domican has not currently discharged the onus of satisfying the criteria relevant to the Court’s jurisdiction and ought at the present time not be granted leave to continue the cross claim against Mr Hassan on behalf of the companies in liquidation.

98    Further, the appropriate persons to prosecute claims or maintain proceedings on behalf of the cross-claimants are the liquidators.

99    At the present time I will not grant leave to Ms Domican. But I will hear further from the parties in due course on this question, particularly from the liquidators.

Conclusion

100    It is for the foregoing reasons that I made the 15 December 2023 orders.

Associate:

Dated:    20 December 2023

SCHEDULE OF PARTIES