FEDERAL COURT OF AUSTRALIA Australian Securities & Investments Commission v Stone Assets Management Pty Ltd (No 3) [2014] FCA 1426 Citation: Australian Securities & Investments Commission v Stone Assets Management Pty Ltd (No 3) [2014] FCA 1426 Parties: AUSTRALIAN SECURITIES & INVESTMENTS COMMISSION v STONE ASSETS MANAGEMENT PTY LTD ACN 141 699 854 File number: SAD 277 of 2011 Judge: BESANKO J Date of judgment: 23 December 2014 Catchwords: CORPORATIONS – winding up – application by liquidator for directions – where sole director and shareholder, and only persons making claim against funds in liquidation, resident in People's Republic of China – where liquidator has access to limited books and records – whether liquidator justified in not taking steps to advertise for creditors in People's Republic of China – whether liquidator justified in proceeding on the basis that she has taken all reasonable steps to obtain, and has obtained, all books and records reasonably available – Corporations Act 2001 (Cth) s 479(3). Held: Application allowed. Legislation: Corporations Act 2001 (Cth) ss 461, 479, 533D Corporations Regulations 2001 (Cth) reg 5.6.48 Cases cited: Australian Securities and Investments Commission v Stone Assets Management Pty Ltd [2012] FCA 630; (2012) 205 FCR 120 Australian Securities & Investments Commission v Stone Assets Management Pty Ltd (No 2) [2014] FCA 1099 Re Ansett Australia Ltd (No 3) [2002] FCA 90; (2002) 115 FCR 409 Re G B Nathan and Co Pty Ltd (In liq) (1991) 24 NSWLR 674 Sanderson v Classic Car Insurances Pty Ltd (1985) 10 ACLR 115 Date of hearing: 5 December 2014 Place: Adelaide Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 28 Counsel for the Liquidator: Mr S Evans Solicitor for the Liquidator: Fenwick Elliott Grace IN THE FEDERAL COURT OF AUSTRALIA SOUTH AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION SAD 277 of 2011 BETWEEN: AUSTRALIAN SECURITIES & INVESTMENTS COMMISSION Plaintiff AND: STONE ASSETS MANAGEMENT PTY LTD ACN 141 699 854 Defendant JUDGE: BESANKO J DATE OF ORDER: 23 December 2014 WHERE MADE: ADELAIDE THE COURT ORDERS THAT: 1. Pursuant to s 479(3) of the Corporations Act 2001 (Cth), the Court directs in the winding up of Stone Assets Management Pty Ltd (In Liquidation) ("the Company") that its Liquidator, Hillary Elizabeth Orr, will be justified in: 1.1 not taking further steps to advertise for creditors in the People's Republic of China or elsewhere; and 1.2 proceeding in the winding up on the basis that she has taken all reasonable steps in the circumstances to obtain the Company's books and records and that what she has obtained are all that are reasonably available to her. 2. The costs of the Liquidator of and incidental to the Amended Interlocutory Process filed on 10 June 2014 are to be paid from the assets of the Company. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA SOUTH AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION SAD 277 of 2011 BETWEEN: AUSTRALIAN SECURITIES & INVESTMENTS COMMISSION Plaintiff AND: STONE ASSETS MANAGEMENT PTY LTD ACN 141 699 854 Defendant JUDGE: BESANKO J DATE: 23 december 2014 PLACE: ADELAIDE REASONS FOR JUDGMENT 1 This is an application by the liquidator of a company for directions under s 479(3) of the Corporations Act 2001 (Cth) ("the Act"). On 19 June 2012, I made an order that Stone Assets Management Pty Ltd ("the company") be wound up, and that Ms Hillary Orr be appointed liquidator of the company. As I will explain, the liquidator has had difficulty in obtaining reliable information about the company, and she now seeks directions that she will be justified in not taking any further steps to advertise for creditors in the People's Republic of China or elsewhere, and in proceeding in the winding up of the company on the basis that she has taken all reasonable steps in the circumstances to obtain the company's books and records, and that what she has obtained by way of books and records are all that are reasonably available to her. She also seeks an order that her costs of and incidental to the amended interlocutory process filed on 10 June 2014 be paid from the assets of the company. That is the process wherein the liquidator seeks directions under s 479(3) of the Act. 2 The state of the administration of the company at this stage is that the liquidator has one proof of debt under consideration. She intends to adjudicate on the proof of debt and then take steps to finalise her administration of the company. 3 The applicant for the winding up of the company was the Australian Investments and Securities Commission ("ASIC"). The order for winding up was made on the just and equitable ground in the Act (s 461(1)(k)). At the same time as making the order for winding up, I made declarations that the company had contravened various sections of the Act dealing with the carrying on of a financial services business and the making of false and misleading statements in the course of conducting such a business. My reasons, and the orders I made, are set out in Australian Securities and Investments Commission v Stone Assets Management Pty Ltd [2012] FCA 630; (2012) 205 FCR 120. 4 In my previous reasons, I found that the company was incorporated and registered as a company under the Act on 28 January 2010. It carried on a business of promoting and facilitating online access for the trading of contracts for difference in forex, among other things, via an online trading platform known as MetaTrader4. The company's sole director and shareholder is Ms Qing Liang. I found that Ms Liang had never entered Australia. I found that the company operated a bank account in Australia with the Commonwealth Bank. There was evidence before me that the funds received into the bank account of the company had substantially been transferred to a Chinese bank account in the name of Ms Liang. I found that the company's records showed that a sum totalling $10,397,612.42 was deposited in the company's foreign currency account in the period from 1 April 2010 to 30 December 2011. I considered it proper to infer that these sums were paid by way of commission, charged by the company for allowing access to MetaTrader4. There was evidence before me in the form of an affidavit from one of the ASIC investigators that, during the period 1 April 2010 to 30 December 2011, there were 2,748 credits totalling $10,397,612.42 to the bank account operated by the company, and 3,434 debits from the account totalling $9,734,004.31. 5 The liquidator swore an affidavit on 25 February 2014, and, in that affidavit, she set out the action she had taken since the winding up of the company with a view to performing her obligations as liquidator. 6 In July 2012, the liquidator made inquiries of a firm of solicitors in Sydney, Wang & Associates, which had for a time represented the company during the proceeding for its winding up. She tried to make contact with Ms Liang through Wang & Associates. She sent a letter to Ms Liang care of Wang & Associates pointing out to Ms Liang her obligations as an officer of the company on its liquidation. Plainly, the liquidator was anxious to receive a Report as to Affairs and to have the books and records of the company delivered to her. She did not receive a response from Ms Liang until some months later. 7 The liquidator did receive an archive box of documents from Wang & Associates, but those documents comprised, primarily at least, copies of the affidavit material filed by ASIC in the proceeding for the winding up of the company and communications with third parties about the possibility of the company obtaining an Australian Financial Services Licence. The documents delivered by Wang & Associates did not include any of the company's source documents. In her affidavit sworn on 25 February 2014, the liquidator outlined the source documents which she considered the company ought to have as a minimum. She expressed the opinion that the books and records were critical to her ability to identify the assets and liabilities of the company. 8 The liquidator has received two claims during the liquidation. On 31 August 2012, she received a written notification that an investor with the company, Mr Dong Wang, had a claim as a creditor in the sum of USD13,914.31. On 19 December 2012, she received a letter from solicitors who stated that they were acting for a Mr Yong Qiang Lu who claimed that he had deposited amounts totalling $1,929,000 into the company's bank account by way of a series of transfers for the purpose of trades in contracts for difference. 9 In September 2013, the liquidator retained solicitors, Hunt and Hunt, in Shanghai to assist her in locating the sole director of the company, Ms Liang. On 9 October 2013, she forwarded to those solicitors all the documentation which she had previously sent to Ms Liang care of Wang & Associates. In December 2013, she received a letter from Ms Liang which was in the following terms: I refer to your letter of 9 October, 2013 requesting information about Stone Assets Management Ltd (the "Company") and return the completed Form and questionnaire (which were received by me in late November due to various misunderstanding) as requested. My apology of not reverting to you sooner as I do not know English very well and this letter and the documents have been completed with the translation provided by my friend. So it took me long time to do this and I hope these forms can fulfill your requirements. With the benefit of hindsight, my venture into the establishment of the company in Australia was obviously a faulty one. Unfortunately, I do not keep the books and records of the Company here and could only be able to provide this information according my memory. Once again, my sincere apology for the delay in responding to you. 10 The Report as to Affairs attached to the letter contains no useful information. In answer to a question as to whether the books and records of the company had been lost or destroyed, Ms Liang stated: Lost possibly destroyed by landlord. 11 Ms Liang also stated as follows: All creditors were paid from my memory but for one substantial creditor as there was insufficient fund. From memory, that creditor is approximately $2 m. All investors were reimbursed prior to commencement of proceeding and I do not have documents nor recall the name and address of these investors. 12 In February 2014, the liquidator held the view that, based on the books and records of the company which she had seen, any creditors of the company will be based or resident in China rather than in Australia. She proffered a tentative view at that stage of the costs of advertising for creditors in China. She said that she was unable to adjudicate on any claim or proof of debt submitted in the liquidation of the company "due to the complete lack of information contained in the RATA [Report as to Affairs] produced by Qing Liang and the almost complete absence of the books and records of the company". She also expressed the following opinions: I have no documentation whatsoever which evidences the source of a large proportion of the funds deposited into the Company's bank account, nor to indicate the recipients of funds disbursed from the account. That information could only be obtained by doing searches on each and every transfer in or out of the bank account which comprises several thousand transactions. It may not be successful in identifying the investors and their contact details. Such an exercise would significantly deplete the funds in the administration without any guarantee of success. In assessing any claim I would be wholly reliant on the documentation produced by the claimant to support their claim and would be unable to cross check or verify this against any books or records of the Company; For the reasons set out in this affidavit I have formed the view that the claim by Yong Qiang Lu is not a genuine claim. I could neither be confident nor in a position to investigate and assess, whether any other claim which has been made, or may in the future be made, is genuine in the absence of any documentation of the Company to assess this. 13 The liquidator also said that, because she was unable to adjudicate on any claim or proof of debt, she had also formed the view that taking steps and incurring costs to advertise for, or locate, potential creditors would be futile and wasteful given her inability to assess or adjudicate on any such claim. 14 In an affidavit sworn on 23 July 2014, the liquidator provided details of events since she swore her earlier affidavit on 25 February 2014. On 3 June 2014, the liquidator required any debts or claims of creditors of the company to be proved formally (s 553D(1) of the Act). She gave a notice under reg 5.6.48 of the Corporations Regulations 2001 (Cth) ("the Regulations"), in which she fixed 27 June 2014 as the date by which creditors should formally prove their debts or claims in the winding up of the company. The notice was given in accordance with the provisions of reg 5.6.48(2). As far as reg 5.6.48(2)(b) is concerned, the liquidator gave notice to Mr Wang and Mr Lu. 15 At one point, Mr Wang claimed that he had a proprietary interest with respect to the sum of USD13,914.31. However, he has not pursued that claim, nor has he pursued a claim as a creditor of the company. He was given notice of the liquidator's application for directions, but did not appear or take any part in the proceeding. At one point, Mr Lu also claimed that he had a proprietary interest with respect to the amount he claimed. However, he has abandoned that claim and now seeks to be admitted as an ordinary creditor of the company. Details of Mr Lu's claim, albeit at a time he was asserting a proprietary claim, are set out in my reasons on an application for security of costs against him by the liquidator: Australian Securities & Investments Commission v Stone Assets Management Pty Ltd (No 2) [2014] FCA 1099. Mr Lu was aware of the liquidator's application for directions, but he has not sought to be heard on the application. It is convenient to add at this point that ASIC was aware of the liquidator's application and did not seek to be heard on the application. 16 Apart from the claims made by Mr Wang and Mr Lu, no proof of debt, whether formal or informal, has been lodged in the winding up of the company, and the liquidator has not been contacted by any person claiming to have a debt or claim in the winding up of the company. She is not aware of any person who may have a debt or claim in the winding up of the company, and she states that the limited books and records of the company which she holds do not disclose the identity or details of any potential claimant or creditor. The liquidation bank account of the company has a credit balance of AUD577,000. The liquidator's remuneration, certain disbursements, and the costs of ASIC, have not been deducted from those funds. 17 With respect to the books and records of the company, the liquidator has the documents contained within the affidavit material filed by ASIC in this action in support of its application for winding up and other orders. She also has one archive box of documents delivered to her by the company's former solicitors, Wang & Associates, which primarily comprises copies of the affidavit material filed by ASIC in the winding up proceeding and communications with third parties about the possibility of obtaining an Australian Financial Services Licence. She also has limited documents provided to her by Mr Wang and Mr Lu in support of their claims. 18 The liquidator states that she does not have any books, records, or other information which would enable her to assess the source or character of the funds standing to the credit of the liquidation bank account. 19 The liquidator does not consider Ms Liang's statements about the books and records of the company to be credible. 20 The liquidator's estimate of the costs of undertaking an advertising process in China for creditors of the company is between AUD36,000 and AUD50,000. She expresses the opinion that the figure may be lower or higher, depending on the complexity of the process. She has no specific or general information that any creditors or other claimants are resident in China and would be identified if she caused print media advertising to take place in China. She expresses the opinion that, although she cannot be sure, she does not expect that she would receive any further claims in the winding up of the company if she caused advertisements to be placed in China. Furthermore, she expresses the opinion that, even if she received notice of new claims in the winding up of the company, she would be unable to determine their validity without books and records of the company. The liquidator states that, given that Ms Liang resides in China and not Australia, she has not sought to summons or otherwise compel Ms Liang to give evidence or produce the books and records of the company. 21 The two matters about which the liquidator seeks directions are linked. If the liquidator should take further steps to obtain the books and records of the company, then it is probably premature to decide whether she should take further steps to advertise for creditors in China, or in particular places in China. If the liquidator is justified in not taking any further steps to obtain the books and records of the company, then that bears on whether she should advertise for creditors in China because, without the books and records of the company, it is likely to be difficult, and may well be impossible, for the liquidator to rule on any proofs of debt that might result from such advertising. 22 The two matters about which the liquidator seeks directions are matters which may be the subject of directions under s 479(3) of the Act. Whether, in the circumstances of this case, the liquidator should take further steps to obtain the books and records of the company, and whether the liquidator should advertise for creditors in China, raise questions about the nature and extent of a liquidator's legal obligations on the winding up of a company: Re G B Nathan and Co Pty Ltd (In liq) (1991) 24 NSWLR 674; Sanderson v Classic Car Insurances Pty Ltd (1985) 10 ACLR 115; Re Ansett Australia Ltd (No 3) [2012] FCA 90; (2002) 115 FCR 409. 23 In terms of the books and records of the company, the only further steps the liquidator might take involve a potentially expensive course of action which may nevertheless prove entirely fruitless. It would be to pursue legal action against the sole director and shareholder of the company in China. Ms Liang is not cooperating and claims the books and records of the company have been destroyed. Even if there is a legal mechanism to obtain an appropriate order and to enforce it against her, it is far from certain that any books or records (assuming for present purposes that there are books and records) would be produced. This is in a context where the liquidator holds, relatively speaking, limited funds. 24 In terms of advertising for creditors in China, there is some evidence to suggest that there may be creditors or claimants in China. The two individuals who have made claims are both, it seems, resident in China. 25 The authors of McPherson's Law of Company Liquidation (5th ed, Gronow and Mason, Thomson Reuters looseleaf, para 8.2160) state: ... The liquidator's first task is to ascertain the extent of the liabilities and the identity of the respective creditors. This may be accomplished partly by examining the books of the company and the statement of affairs submitted by directors ...; but the liquidator is also required to invite claims by advertisement and, if necessary, by personal communication with creditors who have failed to prove their debts. ... (Citation omitted). 26 Apart from what I have identified above (at [17]), the liquidator does not have any books or records of the company, and, even if she advertised for creditors in China and received proofs of debt, she would have difficulty ruling on them without reliable books and records. The Report as to Affairs provided by the sole director and shareholder does not provide any reliable information to the liquidator. The liquidator has complied with her obligation to advertise as provided in the Act and Regulations. There are no creditors known to the liquidator with whom she can communicate. 27 The liquidator does not consider it worthwhile to incur the considerable expense of advertising for creditors in China. She has had regard to the matters set out above and, in particular (I infer), the likely amount available for distribution and the absence of reliable books and records of the company. 28 In the circumstances, I think the liquidator is justified in taking the course she proposes, and I will make the directions sought in the application. I certify that the preceding twenty-eight (28) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Besanko. Associate: Dated: 23 December 2014