FEDERAL COURT OF AUSTRALIA Chin, in the matter of Agatha Trading Pty Ltd (in liq) [2020] FCA 991 File number: NSD 699 of 2020 Judge: MARKOVIC J Date of judgment: 25 June 2020 Date of publication of reasons: 16 July 2020 Catchwords: CORPORATIONS – application for orders under s 588FF(3)(b) of the Corporations Act 2001 (Cth) (Act) extending the time for making an application under s 588FF(1) of the Act – application allowed Legislation: Corporations Act 2001 (Cth), s 588FF Federal Court of Australia Act 1976 (Cth), ss 37AF, 37AG Cases cited: Fortress Credit Corporation (Australia) II Pty Ltd v Fletcher (2015) 254 CLR 489 Pogroske, in the matter of Bower Projects Australia Pty Ltd (in liq) [2019] FCA 1688 Vaughan v Catanzariti, in the matter of Italian Prestige Jewellery Pty Limited (In Liq) [2018] FCA 1403 Date of hearing: 25 June 2020 Registry: New South Wales Division: General Division National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Category: Catchwords Number of paragraphs: 38 Counsel for the Plaintiff: Mr J R Anderson Solicitor for the Plaintiff: Bridges Lawyers ORDERS NSD 699 of 2020 IN THE MATTER OF AGATHA TRADING PTY LTD (IN LIQUIDATION) KONG YAO CHIN IN HIS CAPACITY AS LIQUIDATOR OF AGATHA TRADING PTY LTD (IN LIQUIDATION) & ORS Plaintiff JUDGE: MARKOVIC J DATE OF ORDER: 25 JUNE 2020 THE COURT ORDERS THAT: 1. Pursuant to s 37AF(1) of the Federal Court of Australia Act 1976 (Cth), on the ground that it is necessary to prevent prejudice to the proper administration of justice, the Confidential Affidavit of Kong Yao Chin, other than paragraphs 7 and 36, sworn on 24 June 2020 and Confidential Exhibit KYC-2, other than pages 26 to 37 of KYC-2, to that affidavit are to be marked "confidential" on the Electronic Court File and are not to be published or accessed, except pursuant to an order of the Court, until such time as any litigation (including any appeal) arising out of the winding up and affairs of: (a) Agatha Trading Pty Limited (in liquidation) ACN 608 209 089; (b) Australia Investment and Trade Pty Ltd (in liquidation) ACN 606 193 935; (c) Golden Ants Group Pty Ltd (in liquidation) ACN 604 290 664; (d) POMG Pty Ltd (in liquidation) ACN 611 075 373; and (e) TZ AAC Group Pty Ltd (in liquidation) ACN 603 236 924, (collectively, the Companies), is concluded, or, if no such litigation is commenced, until the conclusion of the winding up of the Companies. 2. Pursuant to s 588FF(3)(b) of the Corporations Act 2001 (Cth) (Corporations Act), the time for the making of any application in respect of, and for the benefit of, the Companies under s 588FF(1) of the Corporations Act be extended to 6 February 2022. 3. The costs of and incidental to this application be costs in the liquidations of the Companies. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT MARKOVIC J: 1 On 25 June 2020 I made orders including an order pursuant to s 588FF(3)(b) of the Corporations Act 2001 (Cth) (Act) extending the time in which the plaintiff may bring an application under s 588FF(1) of the Act to 6 February 2020. These are my reasons for making those orders. 2 The plaintiff, Kong Yao Chin (Mr Chin or Liquidator) in his capacity as the liquidator of Agatha Trading Pty Ltd (in liquidation) (Agatha), Australia Investment and Trade Pty Ltd (in liquidation) (AIT), Golden Ants Group Pty Ltd (in liquidation) (Golden Ants), POMG Pty Ltd (in liquidation) (POMG) and TZ AAC Group Pty Ltd (in liquidation) (TZ AAC) (collectively, Companies), was appointed as liquidator of the Companies on 7 July 2017 pursuant to s 499 of the Act. At the time of Mr Chin's appointment, Honghai Zhang was the sole director, secretary and shareholder of each of the Companies, having been appointed to those roles and taken up his shareholding shortly prior to that time. Mr Chin's appointment as liquidator was referred to him by Qin (Benjamin) Xiang. 3 Mr Chin swore two affidavits on 24 June 2020 in support of the application for an extension of time under s 588FF(3)(b) of the Act, the first an open affidavit and the second a confidential affidavit (Chin Confidential Affidavit). 4 There are no defendants to the proceeding and no party, other than the Australian Taxation Office (ATO) which is the major creditor of three of the Companies, Agatha, AIT and Golden Ants, had been notified of the application. confidentiality 5 As a preliminary matter the Liquidator sought an order pursuant to s 37AF of the Federal Court of Australia Act 1976 (Cth) (FCA Act) on the basis that it would prevent prejudice to the proper administration of justice in relation to the Chin Confidential Affidavit other than paras 7 and 36 thereof and Exhibit KYC-2 to that affidavit other than in relation to pages 26-37. Mr Chin gave evidence as to why that order was sought including as to the source of the documents in Exhibit KYC-2 and the reason why their disclosure and the disclosure of the contents of the Chin Confidential Affidavit would cause real prejudice to the ongoing administration of the estates of the Companies. 6 Section 37AF of the FCA Act relevantly provides: (1) The Court may, by making a suppression order or non‑publication order on grounds permitted by this Part, prohibit or restrict the publication or other disclosure of: … (b) information that relates to a proceeding before the Court and is: (i) information that comprises evidence or information about evidence; … 7 Section 37AG of the FCA Act sets out the grounds on which such an order can be made and includes, as a ground, the prevention of prejudice to the proper administration of justice. 8 I accepted, based on the nature of the information and the Liquidator's evidence, that it was appropriate to make the order sought preventing the publication, and maintaining the confidentiality, of the Chin Confidential Affidavit other than paras 7 and 36 and Exhibit KYC-2 to that affidavit other than pages 26-37. In the circumstances of this case, the order supports the public interest in the due and beneficial administration of the estates of insolvent companies for the benefit of creditors: see Pogroske, in the matter of Bower Projects Australia Pty Ltd (in liq) [2019] FCA 1688 at [22]-[23]. background 9 The following background facts are taken from Mr Chin's open affidavit. 10 The Companies were investment holding companies and at the time of the Liquidator's appointment had ceased trading. 11 The Liquidator's report to creditors of the Companies dated 10 July 2017 records that the Companies have no assets and ordinary unsecured creditors' claims totalling $25,300. That report annexes creditor listings for the Companies which in each case record unsecured creditors' claims totalling $25,300 made up of an amount of $3,300 owing to Mr Xiang and $22,000 owing to Mr Zhang. 12 On 17 May 2018 the ATO lodged the following proofs of debt with the Liquidator: (1) in relation to Agatha in the sum of $18,289,676.83; (2) in relation to AIT in the sum of $614,881.20; and (3) in relation to Golden Ants in the sum of $1,502,658.11. The Liquidator's investigations to date 13 According to the Liquidator, the Companies were associated with the purchase of real estate located at Sydney Olympic Park (Properties). The Liquidator obtained a copy of an undated procurement deed between GM Olympic Park Pty Limited (GM Olympic Park) and Australia YMCI Pty Limited (Australia YMCI) pursuant to the terms of which GM Olympic Park would assist in the procurement of the Properties for Australia YMCI from The Trust Company Limited as custodian for the IBC Trust and the Hill Road Trust and The Trust Company Limited as custodian for the Carter Street Trust (Procurement Deed). 14 Based on a media article obtained by the Liquidator, the Liquidator understands that the vendors of the Properties were associated with Goodman Group Ltd. In consideration for the procurement of the Properties for Australia YMCI, GM Olympic Park was to be paid a procurement fee. Based on the same media article the Liquidator understands that the purchase price for the Properties was approximately $660 million such that GM Olympic Park may have been entitled to a procurement fee of approximately $66 million (Procurement Fee). 15 To date the Liquidator has located title searches in relation to all but one of the titles comprising the Properties but has been unable to locate a copy of the contract for sale in relation to their sale and thus cannot determine, among other things, the final purchase price of the Properties. 16 The Liquidator has also located a trust deed dated 14 September 2015 for the GM Olympic Park Trust (GM Trust) which relevantly provides that: (1) Agatha, which was previously known as GM Olympic Park Project Holdings Pty Limited, is the trustee of the GM Trust; (2) the principals of the GM Trust are Fanglin Mei and Zheng Li. Ms Mei and Mr Li are each relevantly former directors and shareholders of Agatha; and (3) the beneficiaries of the GM Trust include Ms Mei and Mr Li and a "Beneficiary Corporation", being a company in which Ms Mei and/or Mr Li are directors or hold shares. 17 The Liquidator has also put into evidence a trust deed dated 24 September 2015 (GM Unit Trust Deed) for the GM Olympic Park Unit Trust (GM Unit Trust) which was provided to him by the ATO. That trust deed relevantly provides that GM Olympic Park is the trustee of the GM Unit Trust and GM Olympic Park Project Holdings Pty Limited (which changed its name to Agatha) owns 100% of the issued units. 18 GM Olympic Park is now deregistered. Its sole director, secretary and shareholder was Sevag Chalabian. The Procurement Deed and the GM Unit Trust Deed were both prepared by Lands Legal Pty Limited. Mr Chalabian was a director and the sole secretary of Lands Legal Pty Limited from 10 March 2004 to 1 June 2017. 19 By deed dated 2 March 2016 Agatha as trustee of the GM Trust nominated TZ AAC as a beneficiary of that trust. 20 Since his appointment the Liquidator has effected a settlement of potential claims as between TZ AAC, POMG, Mr Zhang and the former directors of those companies. Proposals for similar settlements have been put, and remain on foot, in relation to AIT and Golden Ants, but have not proceeded to finalisation. 21 The Liquidator has obtained a copy of minutes of a meeting of the directors of Agatha that took place on 4 April 2016 which record a resolution for the distribution of certain expenses (April 2016 Minutes) as follows: Distribution of Funds: It was resolved that the company pay the following expenses to: Invoices issued to: 1. Golden Ant Pty Ltd; 2. Just in Case Legal; 3. PH Legal Legal Fees; 4. Longteng Legals; and all other 5. Misc consultations, or fees It was resolved that further expenses may arise, the remainder of the balance is to be partly distributed to the beneficiaries, via electronic transfer. The Secretary was instructed to arrange for the payments to be jointly executed by the directors via RTGS transfer. 22 Based on his investigations of the Companies to date, the Liquidator believes that the fund for distribution referred to in the April 2016 Minutes is the Procurement Fee. However, the Liquidator has been unable to locate the invoices referred to in those minutes against which the payments were made. Accordingly, he is unable to determine why the invoices were issued to Agatha and the services that were apparently provided by those entities which would necessitate their payment. 23 As part of his investigations, the Liquidator has obtained bank statements for the Companies from Westpac Banking Corporation, Commonwealth Bank of Australia Limited and Australia and New Zealand Banking Group Limited. Having undertaken a review of those bank statements and conducted a tracing exercise, to the extent he is able, in relation to the payments made by Agatha it appears to the Liquidator that between 1 April 2016 and 16 June 2017 Agatha made the following payments to the following entities: 24 Based on his investigations into the Companies, the Liquidator is unable to identify any basis for Agatha to have made the payments referred to in the preceding paragraph, particularly given that each of the Companies was an investment holding company that did not undertake any substantive business activities. However, because of the difficulties the Liquidator has encountered in obtaining information, he does not have sufficient information available to form a view as to whether there is a basis for the recovery of those amounts from the respective recipients. 25 Since his appointment, the Liquidator has encountered difficulties in obtaining further documents and/or information in relation to the business and affairs of the Companies. He notes the following: (1) some of the recipients of the payments from Agatha referred to at [23] above have been deregistered as have a number of entities involved in transactions with the Companies; (2) the books and records of the Companies are incomplete and/or inadequate; (3) apart from meeting with Mr Zhang, the director of the Companies at the time of their liquidation, at the first meeting of creditors for each of the Companies on 19 July 2017 he has been unable to contact him and has been informed that Mr Zhang has left the jurisdiction and is currently in China; (4) similarly, the Liquidator has been unable to locate or make contact with other parties who may have information in relation to the business and affairs of the Companies including Ms Mei and Mr Li and believes that individuals who may have such knowledge have left the jurisdiction; and (5) because he is without funds, he has not yet been in a position to progress the investigation of the affairs of the Companies by way of public examinations. legal principles 26 Section 588FF of the Act relevantly provides: (1) Where, on the application of a company's liquidator, a court is satisfied that a transaction of the company is voidable because of section 588FE, the court may make one or more of the following orders: (a) an order directing a person to pay to the company an amount equal to some or all of the money that the company has paid under the transaction; (b) an order directing a person to transfer to the company property that the company has transferred under the transaction; (c) an order requiring a person to pay to the company an amount that, in the court's opinion, fairly represents some or all of the benefits that the person has received because of the transaction; (d) an order requiring a person to transfer to the company property that, in the court's opinion, fairly represents the application of either or both of the following: (i) money that the company has paid under the transaction; (ii) proceeds of property that the company has transferred under the transaction; (e) an order releasing or discharging, wholly or partly, a debt incurred, or a security or guarantee given, by the company under or in connection with the transaction; (f) if the transaction is an unfair loan and such a debt, security or guarantee has been assigned—an order directing a person to indemnify the company in respect of some or all of its liability to the assignee; (g) an order providing for the extent to which, and the terms on which, a debt that arose under, or was released or discharged to any extent by or under, the transaction may be proved in a winding up of the company; (h) an order declaring an agreement constituting, forming part of, or relating to, the transaction, or specified provisions of such an agreement, to have been void at and after the time when the agreement was made, or at and after a specified later time; (i) an order varying such an agreement as specified in the order and, if the Court thinks fit, declaring the agreement to have had effect, as so varied, at and after the time when the agreement was made, or at and after a specified later time; (j) an order declaring such an agreement, or specified provisions of such an agreement, to be unenforceable. … (3) An application under subsection (1) may only be made: (a) during the period beginning on the relation‑back day and ending: (i) 3 years after the relation‑back day; or (ii) 12 months after the first appointment of a liquidator in relation to the winding up of the company; whichever is the later; or (b) within such longer period as the Court orders on an application under this paragraph made by the liquidator during the paragraph (a) period. 27 In this case, the period for commencement of any proceeding pursuant to s 588FF(1) of the Act would have expired on 6 July 2020 unless an order was made under s 588FF(3)(b) extending the period in which such a proceeding can be commenced. 28 The Liquidator sought an order in the form of what is described as a "shelf order". That is, an order enabling proceedings to be brought under s 588FF(1) against any party within the period as extended under s 588FF(3)(b) of the Act. In Fortress Credit Corporation (Australia) II Pty Ltd v Fletcher (2015) 254 CLR 489 the High Court (French CJ, Hayne, Kiefel, Gageler and Keane JJ) accepted the availability of such orders. At [24] the High Court noted that the function of s 588FF(3)(b) is to confer a discretion to mitigate, in an appropriate case, the rigours of the time limit imposed by s 588FF(3)(a) of the Act. The Court referred to the policy behind Pt 5.7B of the Act and said (at [24]): … That policy included the avoidance of transactions by which an insolvent company has disposed of property in circumstances that are regarded by the legislature as unfair to the general body of unsecured creditors. It is, however, a policy qualified in its application by the requirement that liquidators be placed under a reasonable time limitation for taking action under the voidable transaction provisions. A purpose of that qualification, expressed in "clear and emphatic" terms, is to favour certainty for those who have entered into transactions with the company during the periods in respect of which designated transactions may be voidable. There is, however, no independent basis for the assertion that any extension of time which does not identify a particular transaction or transactions must be an unreasonable prolongation of uncertainty militating against a construction which would allow such an order to be made. The section provides for the exercise of discretion by the court. Questions of what is a reasonable or an unreasonable prolongation of uncertainty and the scope of such uncertainty are more appropriately considered case-by-case in the exercise of judicial discretion than globally in judicial interpretation of the provision. (Footnote omitted.) 29 In Vaughan v Catanzariti, in the matter of Italian Prestige Jewellery Pty Limited (In Liq) [2018] FCA 1403 at [31]-[32] I set out the following principles relevant to the exercise of the discretion to extend time under s 588FF(3)(b) of the Act: 31 Section 588FF(3)(b) of the Act confers a discretion on the Court. In Marsden (liquidator) v CVS Lane PV Pty Limited, in the matter of Pentridge Village Pty Limited (in liq) (receiver and manager appointed) (controller appointed) (2018) 124 ACSR 100; [2018] FCA 102 at [54]-[55] Gleeson J set out the principles which guide the exercise of that discretion: 54 The Court is required to consider what is fair and just in all the circumstances: BP Australia Ltd v Brown (2013) 58 NSWLR 322; [2003] NSWCA 216 (BP Australia) at [187]. The applicant for the extension must satisfy the Court that it should be granted: BP Australia at [183]. 55 The matters that ordinarily inform the exercise of the Court's discretion are: (1) the liquidator's explanation for the delay in taking action within the three year period provided for by the statute; (2) the merits of the foreshadowed proceeding, assessed by a "preliminary review"; and (3) any likely prejudice that would be suffered if the extension of time is granted: Parker, Re Worldwide Specialty Property Services Pty Ltd (in liq) v Worldwide Specialty Property Services Pty Ltd (in liq) [2017] FCA 687 at [15]-[16]; Walker and Moloney v CBA Corporate Services (NSW) Pty Ltd [2012] FCA 328 (Walker) at [43]. 32 In Walker and Moloney v CBA Corporate Services (NSW) Pty Limited (2012) 88 ACSR 153; [2012] FCA 328 at [44] Nicholas J said the following about the issue of the assessment of the merits of a proposed action in circumstances where an extension is sought to permit further investigation: The preliminary review of the merits of the proposed proceedings is "an investigation as to whether such proceedings would be so devoid of prospects that it would be unfair, by granting an extension, to expose the other party to the continuing prospect of suit": Green v Chiswell Furniture Pty Ltd (in liq) [1999] NSWSC 608 at [15] (Green) per Austin J. However, a review of the merits may be unnecessary if the purpose of the application for an extension of time is to allow the liquidator time in which to properly decide whether or not to bring the proposed proceedings: Green per Austin J at para [15]; see also the summary of the relevant principles of White J in New Cap Reinsurance Corporation Ltd (in liq) v Reaseguros Alianza SA (2004) 186 FLR 175; [2004] NSWSC 787 at [52]-[55]. consideration 30 Given the evidence before me and the circumstances faced by the Liquidator, I was satisfied that I should make the order sought by the Liquidator pursuant to s 588FF(3)(b) of the Act to extend the time within which he could commence proceedings under s 588FF(1). 31 In coming to that view I had regard to the following matters. 32 First, insofar as delay is concerned, Mr Chin explained the difficulties he has faced in obtaining documents and information in relation to the liquidations of the Companies and further investigation of, in particular, the payments made by Agatha as set out at [23] above. 33 Relevantly, at least until May 2018, when the ATO lodged its proofs of debt in relation to three of the Companies, creditors' claims were, as set out at [11] above, modest. As at 10 July 2017 when the Liquidator issued his first report to creditors, each of the Companies had claims made by unsecured creditors in the amount of $25,300, the majority of which in each case was a claim made by a related party. Since the crystallisation of the debts claimed by the ATO, the Liquidator has met with and, through his lawyers, continued to liaise with the ATO. The matters that have been the subject of discussion and the information exchanged are the subject of the Chin Confidential Affidavit. It is sufficient for me to note that I am satisfied that over a period of time the Liquidator has made efforts to obtain further information. However, the complexity of the matters that have been, and that continue to be, the subject of further investigation account for the time it has taken for the Liquidator to get to this point in time without being able to finalise his investigations and to determine whether he is in a position to commence a proceeding and, if so, the nature of such a proceeding. 34 In addition, to date, the Liquidator has been without sufficient funding to progress his investigations in any meaningful way including by way of public examinations. 35 Secondly, to date, the Liquidator has not formed a view as to whether there is a basis for the recovery of payments made by Agatha referred to at [23] above. Rather, the Liquidator intends to carry out further investigations in order to form an opinion about the availability and merits of any potential claims. In other words, the purpose to which the further time will be put, and thus the application for an extension of time, is to allow the Liquidator a period in which to further investigate and determine whether to bring proceedings, including against whom. In those circumstances, a review of the merits of the proposed proceeding is unnecessary and indeed cannot be carried out. In any event, I was satisfied that the evidence before me established that there was merit in permitting the Liquidator to proceed with his further proposed investigations. 36 Thirdly, the Liquidator's evidence is that he is not aware of any prejudice that is likely to be suffered by any person, should an extension be granted. In that regard, I note that, for reasons given by the Liquidator in the Chin Confidential Affidavit, which I accept, the application was not served on any party, other than the ATO. Despite that I accept the Liquidator's evidence in relation to prejudice. 37 A final matter which was raised in the course of submissions was the length of the extension of time sought by the Liquidator, namely a period of some 19 months. While this is a relatively lengthy extension and, as counsel for the Liquidator candidly submitted, a length of time for which he could find no precedent, given the apparent complexity of the matter and the need for the Liquidator to investigate properly the prospect of claims in the manner in which he foreshadows and to obtain funding for his investigations, I was satisfied that an extension of that magnitude was justified. The Liquidator has provided the Court with a realistic timeline in which he will undertake his proposed investigations. conclusion 38 For those reasons I made the orders sought by the Liquidator. I certify that the preceding thirty-eight (38) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Markovic. Associate: Dated: 16 July 2020