FEDERAL COURT OF AUSTRALIA Huang v PEEQ Global Education Pty Limited, in the matter of PEEQ Global Education Pty Limited [2019] FCA 722 File number(s): NSD 153 of 2019 Judge(s): FARRELL J Date of judgment: 20 May 2019 Catchwords: CORPORATIONS – application by one of two directors of defendant company under ss 290 and 1324 of the Corporations Act 2001 (Cth) to compel defendant company to permit access to its financial records – where the defendant company has failed to provide access to its financial records despite repeated requests by director – whether it is appropriate that access be provided forthwith – whether it is appropriate that an order be made requiring continuing compliance by the defendant company with obligation under s 290(1) of the Corporations Act – application granted Legislation: Corporations Act 2001 (Cth) ss 9, 290, 1303, 1324 Date of hearing: 20 May 2019 Registry: New South Wales Division: General Division National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Category: Catchwords Number of paragraphs: 23 Counsel for the Plaintiff: Mr M Young SC Solicitor for the Plaintiff: Dixon Holmes Lawyers Counsel for the Defendant: The Defendant did not appear ORDERS NSD 153 of 2019 IN THE MATTER OF PEEQ GLOBAL EDUCATION PTY LIMITED ACN 621 268 693 BETWEEN: SHAOJUN HUANG Plaintiff AND: PEEQ GLOBAL EDUCATION PTY LIMITED ACN 621 268 693 Defendant JUDGE: FARRELL J DATE OF ORDER: 20 MAY 2019 PENAL NOTICE TO: PEEQ GLOBAL EDUCATION PTY LIMITED ACN 621 268 693 IF YOU (BEING THE PERSON BOUND BY THIS ORDER): (A) REFUSE OR NEGLECT TO DO ANY ACT WITHIN THE TIME SPECIFIED IN THIS ORDER FOR THE DOING OF THE ACT; OR (B) DISOBEY THE ORDER BY DOING AN ACT WHICH THE ORDER REQUIRES YOU NOT TO DO, YOU WILL BE LIABLE TO IMPRISONMENT, SEQUESTRATION OF PROPERTY OR OTHER PUNISHMENT. ANY OTHER PERSON WHO KNOWS OF THIS ORDER AND DOES ANYTHING WHICH HELPS OR PERMITS YOU TO BREACH THE TERMS OF THIS ORDER MAY BE SIMILARLY PUNISHED. THE COURT ORDERS THAT: 1. On any day or days between 3 and 7 June 2019 nominated by the plaintiff in writing to the defendant's registered office on or before noon on 31 May 2019, the defendant must provide to the plaintiff access to the defendant's financial records, including but not limited to all documents related to or in connection with: (a) The payment of the sum of $50,000.00 ("The First Sum") on or about 12 September 2017 by the defendant's solicitors to the Liao Trust from the plaintiff's share subscription money of $2,200,000 held by the defendant's solicitors ("subscription money") and the subsequent disbursement of The First Sum; (b) The payment of the sum of $1,825,965.00 ("The Second Sum") on or about 14 September 2017 by the defendant's solicitors from the plaintiff's subscription money and the subsequent disbursement of The Second Sum; and (c) The payment of the sum of $40,000.00 ("The Third Sum") on or about 12 September 2017 by the defendant's solicitors from the plaintiff's subscription money and the subsequent disbursement(s) of The Third Sum, such access to be for reasonable periods during business hours (9 am to 5 pm) at the defendant's registered office or at such other place as the plaintiff and the other director of the defendant may agree in writing. 2. Without limitation on the plaintiff's personal right to access the financial records of the defendant, that Donald Martin Junn be authorised to inspect the defendant's records on the plaintiff's behalf. 3. Without limitation on the plaintiff's personal right to access the financial records of the defendant, that Sidney Tan be authorised to inspect the defendant's records on the plaintiff's behalf. 4. The defendant must pay the plaintiff's costs of these proceedings as agreed or taxed. 5. The plaintiff must, within seven days of the date of these orders, provide a copy of these orders and the Court's reasons for making them to: (a) The defendant's director, Jingwen Liao, at her residential address 1 Warra Court, Mudgeeraba, Queensland 4213 by prepaid registered post; (b) Graham Liao by email to gliao@vustar.com.au; and (c) The defendant's registered office at '1 11' 401 Docklands Drive, Docklands Victoria 3008. (d) The defendant's solicitors, Macpherson Kelley Lawyers, by email to Alex.Ninis@mk.com.au. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT (REVISED FROM THE TRANSCRIPT) FARRELL J: 1 This application is made by Shaojun Huang, who is a director of the defendant company (PEEQ). By an application filed on 7 February 2019, Mr Huang seeks orders under ss 290 and 1324 of the Corporations Act 2001 (Cth) to compel PEEQ to provide access to PEEQ's financial records to him and to Donald Martin Junn and Sidney Tan (both Mr Huang's solicitors) on his behalf. 2 The orders sought were as follows: (1) An order that the defendant provide access forthwith to the defendant's financial records. (2) An order that the defendant provide ongoing access to the defendant's financial records at all reasonable times. (3) An order (without limitation on the defendant's personal right to access the financial records of the defendant) that David Martin Junn be authorised to inspect the defendant's records on the plaintiff's behalf. At the hearing, the application was amended to include an application for an order that Sidney Tan also be authorised to inspect the defendant's records on the plaintiff's behalf, in recognition of the fact that Mr Tan resides in Melbourne (where PEEQ's registered office is also located) and Mr Junn may be absent from Australia at a time at which inspection may take place. (4) Costs. Mr Huang's evidence 3 Searches of the records of the Australian Securities & Investments Commission (ASIC) as at 24 December 2018 and 16 May 2019 indicate that: (1) Mr Huang is one of two directors of PEEQ. His address is in Kowloon, China. (2) Power Goal International Limited (PGI) holds 25% of all ordinary shares issued by PEEQ (25,000 shares). Its address is the same as Mr Huang's. (3) The other director, secretary and holder of all other issued shares in PEEQ (that is, 75,000 shares) is Jingwen Liao. Her address is in Queensland. (4) PEEQ's registered office is said to be '1 11' 401 Docklands Road, Docklands, in Melbourne, Victoria. 4 By affidavit affirmed on 31 January 2019, Mr Huang gave the following evidence. He is a director of PGI. On 23 August 2017, he received an email from PEEQ's solicitors, Macpherson Kelley Lawyers (M+K Lawyers) containing a Share Subscription Offer from PEEQ. By that letter, PGI was offered the opportunity to acquire 25,000 ordinary shares of one dollar each in PEEQ for $2,200,000, with a deposit of $200,000 to be paid by 28 August 2017 and the balance to be transferred to M+K Law's trust account. The offer was accepted on 25 August 2017 and he transferred the deposit to M+K Lawyer's trust account on that day and the balance of the subscription monies on 7 September 2017. 5 Mr Huang has been a director of PEEQ since 12 September 2017. Since 12 December 2017, he has attempted to obtain access to PEEQ's financial records but those attempts have been largely unsuccessful. Annexed to Mr Huang's affidavit is evidence of communications by various lawyers instructed by Mr Huang with M+K Lawyers on 12, 13 and 19 December 2017, 9, 15, 16 and 23 January 2018 and 2, 5 and 6 February 2018 seeking access to PEEQ's financial records. 6 Also annexed to Mr Huang's affidavit are draft minutes of a shareholders meeting held on 17 April 2018. It appears that they were drafted by M+K Lawyers on that day. The draft minutes indicate that a resolution was passed to the effect that Graham Liao (Jingwen Liao's husband) would instruct the defendant's accountant to supply financial statements to Mr Huang within seven days. Mr Huang says that that did not occur. The draft minutes indicate that Mr Liao refused to identify PEEQ's accountant when Mr Huang's lawyer (Mr Tan) requested that information as PGI's representative. On 24 April 2018, in response to an email following up the provision of financial statements, M+K Lawyers provided to Mr Tan by email details of bank transfers from M+K Lawyer's trust account "to trust accounts nominated for an (sic) on behalf of the Liao Trust" in relation to moneys subscribed for shares by PGI and M+K Lawyers indicated that "notwithstanding his current medical situation", Mr Liao was "assembling the financial statements of the company" and he would provide them "today" or "as expeditiously as possible", but no further documents were forthcoming. 7 Mr Junn, acting as Mr Huang's solicitor, wrote to M+K Lawyers on 14 December 2018, again, seeking access to PEEQ's financial records on Mr Huang's behalf. Mr Junn said: We act for Shoajun Huang who is, as you know, a director of your client, PEEQ Global Education Pty Ltd ACN 621 268 693 ("PEEQ"). As a director, he has a statutory right of access under s 290(1) of the Corporations Act at all reasonable times to the financial records of PEEQ. You will be well aware from the many months of correspondence conducted with your firm by Mr Huang and his representatives in late 2017 and early 2018 that since December 2017 our client has been seeking access to the financial records of PEEQ. You may also recall that on 17 April 2018 there was a shareholders' meeting of PEEQ at which Mr Grahame Liao undertook that he would provide the financial records to our client within 7 days. Other than details provided on 24 April 2018 by your firm in relation to trust account payments, however, no documents have been received from Mr Liao or PEEQ since it shareholders' meeting. Our client hereby puts your client on notice that he wishes, by no later than next Thursday, 20 December 2018, to assert his right to access all of the financial records of PEEQ including those relating to all the dealings, uses, transfers of the funds comprising the $2.2 million paid by our client to your firm's trust account and their subsequent disbursement by your firm and by the Company. He is happy to attend the registered office of PEEQ to do so, the officers of your firm or such other address as PEEQ may reasonably specify. Please advise immediately the date (no later than 20 December 2018) the time within business hours) and the location for the inspection by our client of the financial records. We put your client on notice that should access to all of the financial records of PEEQ not be arranged by 20 December 2018, our client intends to immediately and without further notice commence proceedings under the Corporations Act to compel PEEQ to provide both present and ongoing access to the company's financial records. 8 On 17 December 2018, Alex Ninis, principal of M+K Lawyers, responded: Dear Sirs, we acknowledge receipt of your letter and have forwarded it to our client's other director for further instructions. On 21 December 2018, Alex Ninis advised by email: Dear Sirs, notwithstanding sending your letter to our client and a number of follow-up messages, we have not heard back from the other director of PEEQ Global Education Pty Ltd and do not therefore have any instructions in respect of issues raised in your letter. We suggest that you make contact with the other director through the company's registered office. 9 On 21 December 2018, Mr Junn sent a letter to PEEQ at its registered office (which has a different address to M+K Lawyers) and at Ms Liao's residential address as set out in ASIC's records, enclosing a copy of the letter sent to M+K Lawyers and providing a further deadline of 31 December 2018 for the provision of access to PEEQ's financial records failing which proceedings may be commenced. 10 By affidavit affirmed on 17 May 2019, Mr Junn gave evidence that the application, Mr Huang's affidavit sworn on 31 January 2019 and notice of filing and hearing was served on PEEQ at its registered office by registered post sent on 8 February 2019 and notice of today's hearing was sent to PEEQ's registered office by letter dated 24 April 2019. No notice of appearance has been filed by PEEQ and it did not appear at today's hearing. Relevant provisions of the Corporations Act 11 Mr Huang relies on the definition of "books" in s 9 of the Corporations Act and ss 290(2), 1303 and 1324(2) and (7) of that Act. "Financial record" is also defined in s 9. 12 Section 9 of the Corporations Act relevantly provides: books includes: (a) a register; and (b) any other record of information; and (c) financial reports or financial records, however compiled, recorded or stored; and (d) a document; but does not include an index or recording made under Subdivision D of Division 5 of Part 6.5. … financial records includes: (a) invoices, receipts, orders for the payment of money, bills of exchange, cheques, promissory notes and vouchers; and (b) documents of prime entry; and (c) working papers and other documents needed to explain: (i) the methods by which financial statements are made up; and (ii) adjustments to be made in preparing financial statements. 13 Section 290 of the Corporations Act provides: 290 Director access Personal access (1) A director of a company, registered scheme or disclosing entity has a right of access to the financial records at all reasonable times. Court order for inspection on director's behalf (2) On application by a director, the Court may authorise a person to inspect the financial records on the director's behalf. (3) A person authorised to inspect records may make copies of the records unless the Court orders otherwise. (4) The Court may make any other orders it consider appropriate, including either or both of the following: (a) an order limiting the use that a person who inspects the records may make of information obtained during the inspection; (b) an order limiting the right of a person who inspects the records to make copies in accordance with subsection (3). 14 Section 1303 of the Corporations Act provides: 1303 Court may compel compliance If any person in contravention of this Act refuses to permit the inspection of any book or to supply a copy of any book, the Court may by order compel an immediate inspection of the book or order the copy to be supplied. 15 Section 1324 of the Corporations Act relevantly provides: 1324 Injunctions … (2) Where a person has refused or failed, is refusing or failing, or is proposing to refuse or fail, to do an act or thing that the person is required by this Act to do, the Court may, on the application of: (a) ASIC; or (b) any person whose interests have been, are or would be affected by the refusal or failure to do that act or thing; grant an injunction, on such terms as the Court thinks appropriate, requiring the first-mentioned person to do that act or thing. … (7) The power of the Court to grant an injunction requiring a person to do an act or thing may be exercised: (a) whether or not it appears to the Court that the person intends to refuse or fail again, or to continue to refuse or fail, to do that act or thing; and (b) whether or not the person has previously refused or failed to do that act or thing; and (c) whether or not there is an imminent danger of substantial damage to any person if the first-mentioned person refuses or fails to do that act or thing. Consideration 16 Section 290(1) of the Corporations Act establishes an unqualified right of a director of a company to have access to the financial records of that company "at all reasonable times". The Court may authorise a person to inspect the financial records on the director's behalf: s 290(2). A person authorised to inspect financial records may make copies of the financial records unless the Court limits that right in some way: s 290(3) and (4). 17 Mr Huang's evidence establishes that he has made ongoing requests in 2017 and in December 2018 for access to PEEQ's financial records. The requests have been made not only to M+K Lawyers, PEEQ's lawyers, but also by service at PEEQ's registered office and to the address of Ms Liao, PEEQ's other director, at the residential address specified in ASIC's records. It is plain that PEEQ has failed to comply with the statutory obligation imposed by s 290(1) of the Corporations Act even though, as submitted by senior counsel for Mr Huang, at the shareholders' meeting held on 17 April 2018, it was agreed that access would be provided within seven days, and on 24 April 2018 Mr Liao (through M+K Lawyers) indicated that it would be provided that day or as expeditiously as possible. 18 The Court is satisfied that Mr Huang is a person whose interests have been, are or would be affected by the failure of PEEQ to provide him with access to its financial records within the meaning of s 1324(2)(b) of the Corporations Act. Mr Huang has duties as a director of PEEQ and as a director of the company which owns 25% of the shares issued by PEEQ. In either case it is difficult for him to perform his duties without access to PEEQ's financial records and in circumstances where it might be questioned whether moneys subscribed by PGI have been used for a proper purpose. The Court is satisfied that it would be appropriate to make an order under s 1324(2) having regard to PEEQ's continuing failure to provide access to its financial records to Mr Huang. 19 The Court would also be empowered to make orders under s 1303 of the Corporations Act in relation to financial records but the Court is not satisfied that it would be appropriate to make an order that access be provided "forthwith" as suggested by draft orders provided to the Court on Mr Huang's behalf. The draft orders seek the inclusion of a penal notice warning of potential consequences of failing to comply with the order to PEEQ and "any other person who knows of this order and does anything which helps or permits you to breach the terms of the order". This is plainly designed to give PEEQ and those who currently have control of PEEQ's financial records notice of an intention to take enforcement action in the event that the Court's orders are not complied with. In those circumstances, it is the Court's view that there should be provision in the orders for a certain time by which the financial records must have been provided and a place at which that must occur. Mr Huang does not appear to be aware of where the records might be, but it is notable that PEEQ's registered office is in Melbourne while Ms Liao appears to be resident in Queensland. The draft orders provide for access to be provided at PEEQ's registered office unless the other director and Mr Huang agree to a different location. 20 Mr Huang also seeks an order which is, in effect, for continuing compliance by PEEQ with s 290(1). Taken together with the proposed penal notice, that would indicate an intention to take contempt proceedings whenever, in Mr Huang's view, PEEQ fails to comply with its statutory obligation. The Court is not satisfied that that is appropriate, albeit that that might mean that Mr Huang must approach the Court in the future if PEEQ does not do as the Corporations Act requires. If PEEQ continues to fail to observe s 290, there may be other remedies, such as winding up on the just and equitable ground, which may be more appropriate. 21 Mr Huang is generally resident in China and Mr Junn and Mr Tan are his lawyers. Each has consented to be authorised to inspect PEEQ's financial records. It therefore appears to be appropriate for the Court to make orders under s 290(2) authorising Mr Junn and Mr Tan to inspect PEEQ's financial records on Mr Huang's behalf. The Court sees no reason to make orders under s 290(4) limiting the use to which those records may be put or limiting the right to take copies. 22 In the circumstance that neither PEEQ nor Ms Liao has responded to any of Mr Junn's correspondence in December 2018 and having regard to the consequences which may flow from PEEQ's continued failure to provide access to its financial records to Mr Huang, the Court considered it appropriate to direct that copies of the orders and the Court's reasons be served on Ms Liao at the residential address specified in ASIC's records, to Mr Liao by email (as Mr Huang's counsel submitted that Mr Huang does not have Ms Liao's email address), by mail to PEEQ's registered office and to Alex Ninis of M+K Lawyers by email. 23 It is also appropriate to order that the defendant pay the plaintiff's costs as agreed or taxed. I certify that the preceding twenty-three (23) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Farrell. Associate: Dated: 22 May 2019