Hodges v Australian Corporate Developments Pty Ltd [2005] NSWSC 1119

New South Wales Supreme Court

CITATION : Hodges v Australian Corporate Developments Pty Ltd [2005] NSWSC 1119

HEARING DATE(S) : 28/10/05

JUDGMENT DATE : 7 November 2005

Equity Division JURISDICTION : Corporations List

JUDGMENT OF : Barrett J

DECISION : Application for appointment of provisional liquidator dismissed

CATCHWORDS : CORPORATIONS - winding up - application for appointment of provisional liquidator - whether jeopardy shown - no matter of principle

Lubavitch Mazal Pty Ltd v Yeshiva Properties No 1 Pty Ltd (2003) 47 ACSR 197 CASES CITED : Natural Extracts Pty Ltd v Stotter (Hely J, unreported, FCA, 18 December 1998)

Paul Rodney Hodges - Plaintiff PARTIES : Australian Corporate Developments Pty Ltd - Respondent

FILE NUMBER(S) : SC 3077/05

Mr D.J. Durston - Plaintiff COUNSEL : Mr A.J. O'Brien - Defendant

Searle & Associates - Plaintiff SOLICITORS : Heckenberg Associates Solicitors Pty Limited - Defendant

LOWER COURT JURISDICTION :

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST

BARRETT J

MONDAY, 7 NOVEMBER 2005

3077/05 PAUL RODNEY HODGES v AUSTRALIAN CORPORATE DEVELOPMENTS PTY LTD JUDGMENT 1 The plaintiff is one of three shareholders and three directors of the defendant. The other shareholders and directors are Mr Tan and Mr Dy, each of whom is resident in the Philippines. 2 The plaintiff has filed an originating process seeking an order for the winding up of the defendant on the just and equitable ground. He seeks, in the first instance, the appointment of a provisional liquidator. It is to the latter application that this judgment relates. 3 The defendant was established by Mr Tan, Mr Dy and the plaintiff to operate a business of importing and selling scaffolding. After the establishment of the defendant, it employed as its bookkeeper a Mr Ong who is said by the plaintiff to be related to both Mr Tan and Mr Dy. An affidavit sworn by Mr Ong was filed and read by the defendant. In it, he gives as his address an address at Holsworthy in Sydney and deposes that he is the "financial controller and manager" of the defendant. 4 The plaintiff says in his affidavit in chief that, despite periodic requests to Mr Ong, he was never allowed to look at the defendant's accounts and that, as a result, he "continued to get anxious about the company's financial affairs". He expresses concern that the defendant was engaging in transfer pricing to its own detriment and to the benefit of offshore counterparties, being interests associated with Mr Tan and Mr Dy who were thereby "stealing". He further says that, after the defendant had been in operation for about seven months and he had "not received any or any sufficient information regarding the company's financial affairs", he proposed to Mr Tan and Mr Dy that he buy them out. He then says that he "caused an audit to be conducted by Simmons Business Centre Pty Ltd". A report by that company dated 9 December 2004 has been introduced into evidence by the plaintiff. I shall say more about it presently. Soon after that report was received by him, the plaintiff gave a copy to Mr Tan and Mr Dy in the context of his discussions with them about a possible buy-out. 5 The report just mentioned refers, as will be seen, to another company called Golden Sphere Global Resources Pty Ltd the directors of which are Messrs Tan, Dy and Ong, the shareholders being Messrs Tan and Dy and their wives. These particulars appear from a search annexed to the plaintiff's affidavit. The plaintiff's affidavit goes on to say that, after receipt of what he calls "the audit report", he "had no faith in continuing business with Tan and Dy". He says that in November 2004 he activated a shelf company he had and changed its name to "ACD Access Systems Pty Ltd t/as Access Solutions" (referred to as "Solutions"). He says that, between 4 January and 12 February 2005, Solutions paid $700,000 to Tan and Dy for "the business and stock as well as assets", it being his understanding that he had an agreement with them under which Solutions was to buy those items from the defendant for $1,876,000. The plaintiff's affidavit continues: "The rest of the money was to be paid to them after the auditor, or an independent administrator, had made the necessary adjustments to the accounts to demonstrate the real position of the company and the value of the transfer pricing which should have been credited back to the company." 6 The plaintiff further deposes that Mr Tan and Mr Dy were to attend his home in the suburbs of Sydney on 12 February 2005 to give him executed share transfers and directors' resignations but they failed to attend, since when he has not heard from either of them or received those documents. Solutions, however, has "taken over $700,000 worth of stock which it is selling through my new business". This stock appears to be stock sourced from the defendant. 7 On 1 April 2005, solicitors purportedly acting for Messrs Tan, Dy and Ong wrote to the plaintiff alleging that the plaintiff, although a director of the defendant, was "interested in" businesses trading as "Australian Corporate Developments Manufacturing" and "Australian Corporate Developments Access". The letter drew attention to the duties of company directors and alleged breach of duties of that kind owed by the plaintiff to the defendant. A claim for an account of profits was foreshadowed, as was the possibility of a meeting of members of the defendant with a view to removal of the plaintiff as a director. The letter gave 30 days notice of termination of a "commission agreement" with the defendant. 8 The plaintiff's affidavit in chief concluded: "Creditors of the company are looking to me to pay the company's outstanding debts both as a director and pursuant to personal guarantees I have provided." 9 The plaintiff says that, on the basis of this evidence in chief, "I no longer repose trust and confidence in my fellow directors", adding that "even if Mr Ong runs the company for them he is not a director". 10 I return to the report dated 9 December 2004. It is on the letterhead of Simmons Business Centre Pty Ltd, described as "public accountants, taxation consultants and business advisers". It carries the signature of Mr Jerome Simmons and is addressed to the plaintiff, described as "Director, Australian Corporate Developments Pty Ltd". 11 The content should be quoted in full: " RE MANAGEMENT REPORT - AUDIT As per your instructions our firm has conducted an audit of Australian Corporate Developments Pty Ltd (ACDPL) and Golden Sphere Global Resources Pty Ltd for the period 30 June 2004 and from 1st July to 31st October 2004. I present the following for your consideration: The financial reports of ACDPL & Golden Sphere may be flawed due to the following reasons: 1) No separation of accounting functions/duties. 2) A conflict of interest with regards to Eddie Ong as accountant for both companies. 3) A conflict of interest with the Directors wives being shareholders of Golden Sphere and Eddie Ong being a sole director of Golden Sphere. 4) Substantial Internal adjustments have been made to Stock for both companies. 5) Aged Trade debtors and Trade creditors seem to be different to that recorded on the companies general ledger.