In the matter of Moula Money Pty Limited

The first defendant—Moula Money Pty Limited (ACN 164 875 325) (Moula)—is primarily engaged in the business of making loans to small businesses on terms of one to two years.

The plaintiff—Enares Pty Ltd (ACN 001 060 359) (Enares)—is a minority shareholder in Moula.

The second defendant—Beat Services Pty Ltd (ACN 121 451 803) (Beat)—is also a shareholder in Moula. Beat presently holds approximately 53.87 per cent of the shares in Moula.

In these proceedings, Enares seeks:

For the reasons that follow, I have determined that there should be an order against Moula for preliminary discovery of the documents in categories 1, [1] 3, and 5, that there should be an order against Beat for preliminary discovery of the documents sought in category 11, [2] and that the proceedings should otherwise be dismissed.

The terms of rule 5.3 of the UCPR, and the principles that apply to the exercise of the Court’s power to order preliminary discovery under that rule, were recently summarised by Ball J in Racing New South Wales v Racing Victoria Limited (No 2) [3] with reference to authority, including the judgment of the Court of Appeal in O’Connor v O’Connor. [4] I gratefully adopt his Honour’s summary, which it is convenient to set out here in full (emphasis in original): [5]

Although rule 5.3 sets a low threshold for establishing that an applicant for preliminary discovery may be entitled to make a claim for relief, a potential claim that is so weak as to be untenable or unarguable will not suffice. [6] However, the Court does not embark upon an examination of the merits of the applicant’s potential claim. [7]

Enares contends that it may be entitled to make:

On 8 March 2023, Enares filed Points of Claim in these proceedings which contain more than 100 paragraphs of positive assertions of facts, matters and events, and allegations of wrongdoing, that form the foundation of Enares’ articulation of the claims that it says it may be entitled to make against Moula and Beat. I accept Moula’s submission that this, by itself, raises a real question about whether Enares reasonably needs any more information to decide whether to commence proceedings. However, that does not absolve the Court from the requirement to assess the substance of the information that Enares already has, and to consider whether it may be entitled to make a claim for relief against Moula and/or Beat, whether it reasonably needs any or all of the further documents in respect of which it seeks preliminary discovery orders against Moula and Beat in order to decide whether to commence proceedings, whether Moula and/or Beat may have those documents, and whether inspection of those documents would assist Enares to decide whether to commence proceedings.

The information that is already in the possession of Enares is extensive. At the hearing, Enares read three affidavits of Mr James Thompson [8] —a director and company secretary of Enares—and tendered approximately 2,000 pages of Moula Board meeting minutes, shareholder updates, notices of meeting and explanatory memoranda, financial records, and other documents already in the possession of Enares. That evidence is summarised below, as a record of the substance of the information already available to Enares.

Throughout the summary of the evidence below, I have referenced the key sources of the information referred to, without endeavouring to reference every source. I have also referenced the Points of Claim on the assumption that, although the Points of Claim are not verified, Enares and its solicitors have taken care to ensure that information available to them provides a proper basis for each allegation in the Points of Claim. Those allegations are relevant for the purpose of determining Enares’ preliminary discovery application, even where they are disputed in the defendants’ Points of Defence, or in the defendants’ evidence and submissions.

For the reasons explained above, the summary of evidence should not be understood as findings of fact.

Moula is a private company that was incorporated on 18 July 2013. [9]

The shareholders of Moula at the time of its incorporation were Auor Pty Limited (formerly known as Adansa Pty Limited) (Auor), Bazkat Pty Limited (Bazkat) and Mr Piers Paul Moller (together, the Founders). [10]

The directors of Moula at the time of its incorporation were Mr Aris Allegos (nominated by Auor) and Mr Andrew Watt (nominated by Bazkat). Mr Allegos served as the Chief Executive Officer of Moula until early 2023. Mr Watt was, and remains, the Chief Operating Officer of Moula. [11]

Mr Thompson has given evidence that Moula is in the business of making small business loans to Australian businesses in the amount of between $5,000 and $250,000 on terms of between about 12 and 24 months. In late 2019, Moula established a business-to-business point of sale finance offering that businesses can use to pay online, instore or by invoice, with three months interest free. [12] These two lines of Moula’s business are referred to as the Term Loan Business and the Moula Pay Business, respectively.

On or about 29 April 2015, Moula adopted a Constitution and entered into a Shareholders Agreement with the Founders and the other shareholders. [13]

Clause 4.1 of the Constitution provides that the provisions of the Shareholders Agreement prevail to the extent of any conflict with the provisions of the Constitution, and that each Shareholder and the Company must exercise all voting and other rights and power available to that Shareholder or the Company (as the case may be) to give effect to the provision of the Shareholders Agreement. [14]

Clause 61 of the Constitution relevantly provides: [15]

Clause 3 of the Shareholders Agreement requires each Shareholder to exercise its voting and other rights as a shareholder to give full effect to the Shareholders Agreement, and to ensure that any director appointed by that Shareholder from time to time exercises their voting rights and other powers as a director to give full effect to the Shareholders Agreement. [16]

Clause 4.1 of the Shareholders Agreement requires each Shareholder to exercise its rights as a Shareholder to ensure that the composition of the Board of Directors is as set out in Schedule 3 to the Shareholders Agreement. Schedule 3 relevantly provides (emphasis in original): [17]

The term “Founder” is defined in the Shareholders Agreement as meaning Auor, Bazkat, and Mr Moller. [18]

The term “Founder” is defined in the Shareholders Agreement as meaning Auor, Bazkat, and Mr Moller. [19]

The term “Strategic Shareholder” is defined as meaning a Shareholder who is appointed as a “Strategic Shareholder” by “Special Majority Approval” of the shareholders. [20]

The term “Special Majority Approval” is defined as meaning: [21]

Clause 7 of the Shareholders Agreement relevantly provides that Moula must not do or commit to do a thing listed in Schedule 4 to the Shareholders Agreement without the Special Majority Approval of Shareholders. The things listed in Schedule 4 include: [22]

Clause 11.2 of the Shareholders Agreement requires the Board to make a pro rata offer to all Shareholders of “Equity Securities” that the Board resolves to issue, except under an “Excluded Issue”. As noted above, the term “Equity Securities” is defined as meaning ordinary shares, preference shares, options, convertible notes, warrants or other securities convertible into shares. The definition of “Excluded Issue” relevantly includes: [24]

Clause 13.1 of the Shareholders Agreement contained a “drag along” provision which provided that, if a Shareholder holding at least 70 per cent of the shares in Moula proposed to sell all of its shares to a third-party buyer, that Shareholder could require all other Shareholders to sell their shares to the proposed buyer, subject to certain conditions set out in clause 13.1. [25]

Clause 24 of the Shareholders Agreement provides that it prevails over any inconsistent provision in the Constitution. [26]

As at 29 April 2015—being the date on which Moula adopted the Constitution and entered into the Shareholders Agreement—the Founders collectively held approximately 58.4 per cent of Moula’s issued share capital, approximately 32 per cent was held by Liberty Financial Pty Limited (Liberty Financial), and the remaining share capital was held by eight Shareholders, each of which held between 5.7 per cent and 0.3 per cent. [27]

On or about 5 May 2015, Beat acquired shares in Moula, became a party to the Shareholders Agreement, and caused Mr Sherman Ma to be appointed as a director of Moula. By 14 January 2020, Beat held approximately 25.45 per cent of the issued share capital of Moula. Beat held in excess of 20 per cent of the issued shares at all times thereafter. [28] At the time of his appointment as a director of Moula on 5 May 2015, Mr Ma was also a director of Beat, a director of Liberty Financial, and a director of Secure Funding Pty Limited (Secure Funding). Mr Ma remained a director of those companies at all times relevant to these proceedings. Mr Thompson has given evidence that Liberty Financial and Secure Funding provide warehouse funding to Moula under a loan facility that funds Moula’s lending business (the Loan Facility). [29]

According to Mr Thompson’s evidence, Beat is now a wholly owned subsidiary of Hestia Holdings BV (Hestia Holdings), and Hestia Holdings is also the ultimate holding company of Liberty Financial and Secure Funding. It is not clear from Mr Thompson’s evidence and from the documents tendered in these proceedings when Beat, Liberty Financial, and Secure Funding became part of the same corporate group. Hestia Holdings was first established on 28 November 2019 and registered in the Netherlands on 5 December 2019. [30]

Enares characterises Liberty Finance and Secure Funding as Affiliates of Beat within the meaning of the Shareholders Agreement. [31]

Mr Nathan Cher was appointed as a director of Moula on the same date as Mr Ma’s appointment on 5 May 2015. [32]

Mr Christopher Ridd was appointed as a director of Moula on 14 July 2016. [33]

On or about 18 December 2017, Enares acquired shares in Moula and became a party to the Shareholders Agreement pursuant to a Deed Poll of Accession executed by Enares on that date. [34] The directors of Enares at that time were a Mr Neil Raymond Sutton and a Mr Scott David Sutton. Mr Thompson became a director of Enares on 3 December 2021. [35]

On 26 August 2020, Moula executed an Unsecured Convertible Note Deed Poll in favour of the holders of convertible notes issued under that Deed Poll (the Convertible Note Deed). [36]

Clause 2 of the Convertible Note Deed provided that, subject to the Shareholders Agreement, the directors of Moula may create and issue unsecured convertible notes on the terms set out in Schedule 1 to persons nominated by the directors, with an aggregate value of up to $12,000,000. Clause 5 provided that Moula must only apply the proceeds received on the issue of the notes for Moula’s working capital requirements. [37]

The total face value of notes issued under the Convertible Note Deed was $12,050,407, 39.6 per cent of which were issued to Beat (with a face value of $4,777,051) and 5.4 per cent of which were issued to Enares (with a face value of $635,145). [38] It is convenient to refer to notes issued under the Convertible Note Deed as the 2020 Notes.

The 2020 Notes were issued on terms that they automatically converted into shares on the “Maturity Date”, which was nine months after the issue of the first note under the Convertible Note Deed. The Convertible Note Deed contemplated that a “Subsequent Equity Round” would take place prior to the Maturity Date, the proceeds of which would fund the redemption of the 2020 Notes, except to the extent that the Noteholders had elected by written notice to convert them into shares on the date of completion of the Subsequent Equity Round. The “Subsequent Equity Round” was defined as Moula accepting investments in an aggregate amount of at least $15,000,000 for shares, with at least 50 per cent of the amount raised coming from persons who are not Shareholders or Affiliates of Shareholders. The “Conversion Price” was defined by reference to the lowest issue price of a share under the Subsequent Equity Round, or, if no Subsequent Equity Round occurred, “a price determined by way of a fully transparent auction bookbuild process with certain existing shareholders of the Company invited to participate, which is (i) conducted by a broker appointed by the Board; and (ii) is equal to the clearing price based on bids received in the bookbuild”. [39]

Clause 6.3 of the Convertible Note Deed provided that, during the “Term”, Moula must not do specified things without “Majority Noteholder Approval”, including: [40]

The “Term” was defined as the period from the date of the Convertible Note Deed until the date of either the redemption and payment of the 2020 Notes or the conversion of the 2020 Notes into shares. [41]

The “Majority Noteholders” were defined in clause 1.1 and Schedule 2 of the Convertible Note Deed as the noteholders who together hold 50.01 per cent of the notes on issue at any relevant time, including (to the extent that they remain noteholders at any relevant time) Beat, Enares, and certain other named noteholders. The term “Majority Noteholder Approval” was defined in clause 1.1 as meaning a decision of the Majority Noteholders (by resolution or by agreement in writing signed by those noteholders). [42]

Mr Ridd ceased to be a director of Moula on 23 February 2021. [43]

In early to mid-2021, the Board of Moula took steps towards undertaking the Subsequent Equity Round contemplated by the Convertible Note Deed. To that end, the Board engaged in discussions with Churchill Asset Management (Churchill), Afterpay Limited (Afterpay), and the group of companies to which Liberty Financial and Secure Funding by then belonged (the Liberty Group). [44] Each of Churchill, Afterpay, and the Liberty Group expressed interest in a potential equity investment in Moula. [45] These matters are recorded in draft minutes of meetings of the Board of Moula during the period from 27 January 2021 to 31 March 2021, copies of which are in the possession of Enares. [46] Mr Thompson has given evidence that he was informed about these matters at the time in conversations with Mr Allegos (who was then the Chief Executive Officer and a director of Moula), in Mr Thompson’s capacity as a director of Enares, which was both a Shareholder of Moula and one of the Majority Noteholders. Mr Thompson was not provided with written information at that time about offers made by third parties. [47]

Enares is in possession of draft minutes of a meeting of the Board of Moula on 31 March 2021 which record that Churchill was interested in investing $17.5 million. [48]

From no later than 8 April 2021, Mr Ma was opposed to Churchill becoming a Shareholder of Moula. [49] Enares is in possession of a redacted copy of draft minutes of a meeting of the Moula Board held on 8 April 2021 which record that Mr Ma “commented that Churchill is not a strategic investor”, “questioned whether they [Churchill] should be added to the register”, and “asked what implication of shareholders holding greater than 20% equity not agreeing to the Churchill placement”. [50]

From no later than 28 April 2021, Mr Ma promoted Liberty Group to the other directors of Moula as being interested in investing further in Moula. [51] Enares is in possession of a copy of draft minutes of a meeting of the Moula Board held on 28 April 2021, which record that Mr Allegos presented the key terms of the agreed form of the subscription agreement from Churchill and informed the meeting that no other formal proposal had been received. The draft minutes record that Mr Ma “questioned the need for introducing new shareholders that are not strategic”. Mr Cher acknowledged Mr Ma’s point but “reiterated the need to execute SER while trying to accommodate demand from the existing shareholding base”. I infer that the reference to “SER” in the draft minutes is a reference to the “Subsequent Equity Round” referred to in the Convertible Note Deed. The draft minutes record that Mr Ma then “indicated interest from Liberty at $30 million” and “reiterated the need to consider supporting long-term shareholders and their desire to invest”. [52]

In about late April or early May 2021, Churchill submitted to Moula a proposal that provided for Churchill to subscribe for $17,500,000 in shares at $4.79 per share, on the basis that existing Shareholders would subscribe for $10,000,000, in shares at the same price, implying a total valuation of $179,000,000 for Moula. The proposal provided for Churchill to appoint one director to Moula (the Churchill Subscription Proposal). In its Points of Claim filed in these proceedings, Enares contends that the Churchill Subscription Proposal did not require any amendment to the Shareholders Agreement or Convertible Note Deed. [53] However, draft minutes of meeting of the Board of Moula on 28 April 2021 record that the “key terms of the agreed form of the subscription agreement from Churchill” included “down round protection” (protecting Churchill from subsequent dilution) and a Board seat. [54]

On 3 May 2021, the Board of Moula resolved: [55]

The first resolution was unanimous. Mr Ma dissented from the second resolution. [56]

Enares is in possession of a copy of draft minutes of meeting of the Board of Moula held on 3 May 2021 recording those resolutions along with Mr Ma’s dissent to the second resolution. [57]

Enares has requested a copy of the Churchill Subscription Proposal. Moula has not provided that document to Enares. [58]

On 10 May 2021, Afterpay made a non-binding offer to acquire the whole of the shares in Moula for approximately $165,000,000 (the Afterpay Acquisition Offer). [59]

On 14 May 2021, Churchill advanced the Churchill Subscription Proposal by providing an executed offer letter to Moula (the Churchill Offer). [60]

At a meeting on 21 May 2021, the Board of Moula discussed the Churchill Offer and the Afterpay Acquisition Offer. Despite having earlier resolved to accept the Churchill Subscription Proposal (subject to Special Majority Approval of Shareholders), the Board agreed to allow Beat time to make its own equity investment offer. Mr Mathew Ryan was permitted to attend this Board meeting as an observer on behalf of Beat. [61]

Enares is in possession of draft minutes of the Board meeting on 21 May 2021. Mr Thompson has given evidence that Enares has written to Moula seeking an explanation for the Board’s decision to reverse its earlier decision to accept and proceed to formalise the Churchill Subscription Proposal, in favour of permitting Beat to prepare an offer. According to Mr Thompson’s evidence, Enares has not received any meaningful response to that request. [62]

The Board of Moula held two meetings on 26 May 2021. The Board discussed an offer that had been made by Beat to subscribe for $17,500,000 shares in Moula at $5.15 per share on the basis that existing shareholders would subscribe for $10,000,000 in shares at the same price, implying a value for Moula of approximately $188,000,000 (the Beat Offer). The terms of the Beat Offer included an amendment to the “drag along” provisions in clause 13.1 of the Shareholders Agreement that would change the threshold shareholding level required to trigger the “drag along” rights from 70 per cent to a level set at 1.75 per cent above Beat’s position following completion of the proposed transaction. Enares contends in its Points of Claim that the terms of the Beat Offer required certain further changes to the Shareholders Agreement, including an amendment to confer on Beat the right to appoint two directors, as well as changes to the Convertible Note Deed. Mr Ryan was again permitted to attend these Board meetings as an observer on behalf of Beat. [63]

At the Board meetings on 26 May 2021, the directors undertook to support the Beat Offer (including in their capacity as Shareholders and Noteholders), to work with Beat to document the Beat Offer, not to solicit any new offers or changes to existing offers, and not to discuss the terms of the Beat Offer with other parties. [64] Enares is in possession of draft minutes of both meetings held on 26 May 2021. [65]

In its Points of Claim filed in these proceedings, Enares contends that the undertakings given by the directors at the meetings on 26 May 2021 were not in the best interests of Moula or its Shareholders (other than Beat) because: [66]

Enares further contends that the matters referred to immediately above were known, or ought to have been known, to the directors of Moula, including Mr Ma. [67]

On 11 June 2021, the Board of Moula resolved by circular resolution to approve the Beat Offer with revised terms that provided for Beat to subscribe for $15,000,000 shares in Moula (rather than $17,500,000) on the basis that existing Shareholders would subscribe for $12,500,000 shares (rather than $10,000,000), and that provided for Beat to have the right to appoint an additional director of Moula. Mr Ma and each other director of Moula voted in favour of this resolution. The resolution noted that the Beat Offer was conditional on Special Majority Approval, amendments to the Shareholders Agreement, Majority Noteholder Approval, and amendments to the Convertible Note Deed. [68] Enares is in possession of signed copies of the circular resolution. [69]

In its Points of Claim filed in these proceedings, Enares contends that, on the basis of the terms of the Beat Offer and the Churchill Offer referred to above (and assuming that there were no other relevant terms of those offers of which Enares is aware, noting that Enares does not have copies of the Beat Offer, the Churchill Subscription Proposal and the Churchill Offer), it was in the interests of Moula to accept and implement the Churchill Offer, and to reject the Beat Offer, including for the following reasons: [70]

Enares further contends that the matters referred to immediately above were known, or ought to have been known, to the directors of Moula, including Mr Ma. [71]

The Board of Moula distributed a proposed circular resolution to Shareholders on 15 June 2021 for the approval of the Beat share placement under the Beat Offer and the associated amendment to the Shareholders Agreement. [72] Enares received an email attaching that proposed resolution together with a proposed Deed of Amendment and Restatement – Shareholders Agreement, on 15 June 2021. [73]

On 24 June 2021, the Board advised Shareholders by email that the approval process for the Beat Offer had been suspended, that recent inquiries had “prompted a review of historical matters requiring further clarification”, and that the review was expected to take four weeks, following which an update would be provided to Shareholders. However, the Board did not subsequently provide any update to Shareholders in relation to either the review process or the Beat Offer. [74] As a Shareholder in Moula, Enares received the 24 June 2021 email. [75] Mr Thompson has given evidence that, despite Enares requesting reasons for the failure of the Beat Offer, no cogent explanation has been forthcoming from Moula. [76]

In its Points of Claim filed in these proceedings, Enares states that it is not aware of any steps taken by either Moula or Mr Ma to revive the Churchill Offer or the Afterpay Acquisition Offer after the approval process for the Beat Offer was suspended. [77] Mr Thompson has given evidence to that effect. [78]

Enares is in possession of draft minutes of a meeting held by the Board of Moula on 25 June 2021, which record that Mr Cher was to “formulate a timeline for bookbuild, business review”, and that Mr Allegos and Mr Watter were to update Moula’s staff. The draft minutes state that the “messaging” to staff “needs be bland and notify staff that the cap raise has been pushed back a bit”. [79]

Mr Thompson has given evidence that, having regard to the matters referred to at [45]–[67] above, he is concerned that the Board of Moula may have failed to conduct the equity raise process in an independent and professional manner in the interests of all of Moula’s shareholders. Mr Thompson deposed: [80]

Mr Moller was appointed as a director of Moula on 20 August 2021. [81]

On or about 10 September 2021, Moula, Beat, and the Founders—Auor, Bazkat, and Mr Moller—entered into a Confirmation Letter. [82] Moula did not seek or obtain Special Majority Approval of Shareholders to enter into the Confirmation Letter. [83] Moula has declined to provide a copy of the Confirmation Letter to Enares. [84]

Mr Moller ceased to be a director of Moula on 22 September 2021. [85]

By no later than October 2021, Moula was experiencing liquidity stress, and the directors were considering placing Moula into voluntary administration. [86]

Mr Ma and Mr Cher ceased to be directors of Moula on 18 October 2021. [87]

Following the resignations of Mr Moller, Mr Ma, and Mr Cher, Moula had two directors during the period from 18 October 2021 until 9 January 2023—Mr Allegos and Mr Watt. [88]

On or about 28 October 2021, Moula, Liberty Financial, and Secure Funding entered into a Forbearance and Funding Deed. Moula did not seek or obtain Special Majority Approval of Shareholders or Majority Noteholder Approval to enter into the Forbearance and Funding Deed. Moula has declined to provide a copy of the Forbearance and Funding Deed to Enares. [89] Enares is in possession of a circular resolution signed by Mr Allegos and Mr Watt, and dated 28 October 2021, which states (emphasis in original): [90]

Mr Thompson has given evidence that he does not know why it was necessary for Moula to enter into a Forbearance and Funding Deed with Liberty Financial and Secured Funding. Through its solicitors, Enares has requested an explanation about why this was necessary. The reply from the solicitors for Moula has not identified any breaches of the Loan Facility that prompted Moula to enter into the Forbearance and Funding Deed. The solicitors for Moula have merely stated that it was “in need of funds”. Mr Thompson has given evidence that he therefore does not know if the execution of the Forbearance and Funding Deed could have been avoided if the Board of Moula had not abandoned its initial decision to accept and implement the Churchill Subscription Proposal. [91]

Enares is in possession of several documents that refer to the Forbearance and Funding Deed as providing “liquidity” and “operating cashflows”, consistently with the preamble to the 28 October 2021 circular resolution referred to above. [92]

Enares is in possession of a valuation report prepared by Ernst & Young on the instructions of the “Independent Board Committee” of Moula, dated 10 November 2021 (the EY Valuation Report). The report states that EY was instructed to value Moula’s Term Loan business and its Moula Pay business under Moula’s current corporate structure, and on an alternative basis assuming that those two businesses were operating separately under the proposed Project Barton restructure. After setting out the information and assumptions on which EY had relied, the report recorded EY’s conclusions that: [93]

The EY Valuation Report noted that EY’s valuation ranges were lower than the valuations implied by Moula’s most recent capital raise and other offers received, including: [94]

In relation to the Churchill Subscription Proposal and the Beat Offer, EY recorded their understanding that Moula did not proceed with the Churchill Offer because it “subsequently received a ‘superior’ offer from BEAT”, and that circumstances changed after the Beat Offer was received, in that Beat was provided with new information about Moula’s financial situation that Beat had not previously known, and had not factored into the terms of its offer, and further State-wide lockdowns in Moula’s key markets in New South Wales and Victoria threatened to dampen the Moula’s near term growth prospects. [95]

Moula, Beat, and the Founders entered into an updated Confirmation Letter on or about 11 November 2021. [96] Moula did not seek or obtain Special Majority Approval of Shareholders to enter into the updated Confirmation Letter. [97] Moula has declined to provide a copy of the updated Confirmation Letter to Enares. [98]

On a date unknown to Enares, Moula, Beat, and the Founders entered into a Second Confirmation Letter. [99] Moula did not seek or obtain Special Majority Approval of Shareholders to enter into the Second Confirmation Letter. [100] Moula has declined to provide a copy of the Second Confirmation Letter to Enares. [101]

Moula, Liberty Financial, and Secure Funding entered into Deeds of Variation to the Forbearance and Funding Deed on 7 January 2022, 8 February 2022, 4 March 2022, 31 March 2022, 10 May 2022, and 7 June 2022. Moula did not seek or obtain Special Majority Approval of Shareholders or Majority Noteholder Approval to enter into the Deeds of Variation. Enares is in possession of minutes of resolutions of the Board of Moula to enter into the Deeds of Variation, but Moula has declined to provide a copy of the Deeds of Variation to Enares. Enares does not know whether any further Deeds of Variation were entered into after 7 June 2022. [102]

The Points of Claim filed by Enares in these proceedings describe the Confirmation Letter, updated Confirmation Letter, and Second Confirmation Letter referred to at [71], [77], and [83] above as the Confirmation Letters. I will adopt the same terminology in these reasons.

The Points of Claim filed by Enares in these proceedings describe the Forbearance and Funding Deed dated 28 October 2021 and the Deeds of Variation executed between 7 January 2022 and 7 June 2022, collectively, as the Forbearance and Funding Deeds. I will adopt the same terminology in these reasons.

As referred to above, Enares does not have copies of the Forbearance and Funding Deeds and of the Confirmation Letters. Mr Thompson has given evidence that Enares also does not have a copy of the Loan Facility agreement. Mr Thompson expects that Enares will need a copy of that agreement in order to understand the terms of the Forbearance and Funding Deeds. [103]

Mr Thompson has given evidence that, although he has not seen the Forbearance and Funding Deeds and the Confirmation Letters, he believes that they may have been entered into in breach of clause 7 of the Shareholders Agreement (which prohibits Moula from, inter alia, entering into agreements with Shareholders and Affiliates of Shareholders without Special Majority Approval), or in breach of the Convertible Note Deed (which requires Majority Noteholder Approval for borrowing or acceptance of financial accommodation). [104]

On 23 March 2022, Moula sent an email to Shareholders which stated that, since June 2021, Moula had been working to resolve an impasse amongst key Shareholders with respect to the strategy, governance, and direction of Moula. The email stated that the Board had commenced exploring a “demerger” in late August 2021 with a view to resolving the impasse, and that an “Independent Board Committee” had concluded that a demerger was in the best interests of all Shareholders. The email referred to the EY Valuation Report, which had valued the businesses as being worth more separately rather than under the existing structure (in which both businesses were part of Moula). The email provided further information about Project Barton, and attached an Explanatory Memorandum together with a circular resolution that would need to be passed unanimously by shareholders in order to effect the proposed demerger (the Project Barton EM and the Project Barton Resolution). [105]

Enares contends that it does not know the nature of the impasse referred to in the EY Valuation Report and in the 23 March 2022 email. [106]

Paragraph 2.6 of the Project Barton EM disclosed the following formation about the existence, and contents, of the Forbearance and Funding Deeds and Confirmation Letters: [107]

Paragraph 3.11 of the Project Barton EM referred to the “liquidity provided by Liberty under the Forbearance and Funding Deed, and used to provide operating cashflows to the Company as and when required”. [108]

The reference to “Leda Universal” is a reference to a subsidiary of Moula, Leda Universal Pty Limited (Leda), and the reference to the “Leda Universal Business” is a reference to the Moula Pay Business. [109]

On 3 April 2022, Mr Allegos sent an email to Mr Thompson attaching a Demerger Implementation Deed and other transaction documents proposed to be entered into in order to give effect to Project Barton. [110]

Mr Thompson has given evidence that, on the basis of his review of the Project Barton EM, the Project Barton Resolution, and the additional documents that he received on 3 April 2022, he understood that Project Barton had the following key elements: [111]

The Points of Claim filed by Enares in these proceedings refers to the following additional elements of Project Barton referred to in the Project Barton EM and the Project Barton Resolution: [112]

The Project Barton EM and the Project Barton Resolution stated that the directors were of the view that, if the Shareholders did not approve the demerger proposal, then the only other alternative would be to put Moula into voluntary administration. [113]

Mr Thompson has given evidence that, although the Project Barton was referred to as a “demerger” in the Project Barton EM and other documents provided to Shareholders, he understood that it was in fact an in-specie distribution of assets by way of a dividend, which he considered would have future tax consequences. Mr Thompson has deposed that it appears to have been intended that, following the dividend in-specie, Moula (operating the Term Loans Business) and Leda (operating the Moula Pay Business) would carry on separate businesses under separate management. [114]

In its Points of Claim filed in these proceedings, Enares contends that the demerger proposal set out in the Project Barton EM and the Project Barton Resolution would have had the result of: [115]

Enares further contends that the Project Barton EM and Project Barton Resolution provided for corresponding changes in relation to Leda, which was to run the Moula Pay Business following the proposed demerger, with the difference being that the Founders would have effective control over Leda’s board of directors, management, and operations, whereas Beat would have effective control over Moula’s board of directors, management, and operations. [116]

Mr Thompson has given evidence that he was concerned about the outcomes referred to at [99]–[100] above. [117]

Mr Thompson has given evidence that he was also concerned that the possibility of Beat purchasing shares from existing Shareholders of Moula at a price of approximately $3.60 appeared to be illusory, based on information provided to him during a video conference with the Moula board and a number of other Shareholders and Noteholders in about April or May 2022. [118]

For the purpose of considering Project Barton, Enares requested—and Moula provided to Enares—copies of the EY Valuation Report, financial reports and financial forecasts of Moula, and minutes of a meeting of the directors of Moula on 30 November 2021. [119]

On 10 May 2022, Enares advised Moula that it did not intend to execute the Project Barton Resolution. It was therefore not possible for Moula to achieve the requisite unanimous approval of Shareholders. [120]

Contrary to the indication that had been given by the directors of Moula in the Project Barton EM, Moula was not placed into voluntary administration. [121]

On 16 May 2022, Enares’ solicitors wrote to Moula, referring to information previously provided by Moula that, prior to executing the Forbearance and Funding Deed, Moula did not have cash available to continue operating, and that the Forbearance and Funding Deed had “provided the framework for funding the operating cash flow of Moula while pursuing the implementation of Project Barton”. Enares’ solicitors asked whether, following the failure to achieve unanimous Shareholder and Noteholder approval for Project Barton, Moula was now back in the position that it lacked the cash flow to continue operating. Enares’ solicitors referred to Moula’s representation and warranty under clause 6.1(d) of the Convertible Note Deed that, on the date of Convertible Note Deed and on each day during the Term, Moula is not insolvent. Enares’ solicitors asked whether that representation had been breached at any time, and whether it remained true. [122]

Moula’s solicitors replied by letter dated 20 May 2022 that: [123]

Mr Thompson has deposed that: [124]

On 2 June 2022, Mr Allegos, on behalf of Moula, wrote to Shareholders and Noteholders stating that the Board remained committed to pursuing the demerger process envisaged at the outset of Project Barton, given the overwhelming support of Shareholders. Mr Allegos stated: [125]

On 7 June 2022, the solicitors acting for Enares and Neil Sutton Family Superannuation Pty Limited sent an open letter to Moula’s solicitors, and to all Shareholders of Moula, stating that Enares did not intend to participate in the new convertible notes and did not consent to its 2020 Notes being redeemed for cash. This precluded Moula from proceeding with the proposed capital raise to redeem all 2020 Notes. [126]

On 8 July 2022, Mr Allegos sent an email to Shareholders stating that, due to material deterioration in market conditions, the Board had decided that it was not in the best interests of Moula and its Shareholders to proceed with the proposed demerger of Moula and Leda at that time. The email continued (emphasis in original): [127]

On 4 August 2022, Moula issued a Notice of General Meeting and a Notice of Noteholder Meeting to put to those meetings a proposal that included amending the Convertible Note Deed by deferring the Maturity Date to 31 January 2023, and by conferring on Moula the right to redeem the 2020 Notes. The Explanatory Memorandum accompanying the two notices stated that, if the proposed resolutions were not passed by Special Majority Approval of Shareholders, and if the proposed amendments to the Convertible Note Deed were not authorised by Majority Noteholder Approval, then Moula would undertake a bookbuild process in order to determine the conversion price at which the 2020 Notes would convert to shares in accordance with the Convertible Note Deed. Enares voted against the proposed resolutions and proposed amendments. As Enares is a Majority Noteholder, the proposed amendments to the Convertible Note Deed could not be made and the proposal set out in the notices of meeting did not proceed. [128]

As at 8 November 2022, Beat held 8,288,840 shares in Moula, representing 26.48 per cent of its issued share capital. [129] Enares held 1,133,297 shares in Moula, representing 3.62 per cent of its issued share capital. [130]

On 10 November 2022, Moula issued a Notice of General Meeting to consider and vote on two proposed resolutions relating to the transfer of 2020 Notes and a proposed bookbuild process. [131]

The Board had appointed Moelis & Company to design the proposed bookbuild process, which involved the following steps: [132]

In its Points of Claim filed in these proceedings, Enares contends that the bookbuild process terms were inconsistent with the Convertible Note Deed, including the because the Convertible Note Deed provided that the notes issued under it would convert automatically on the Maturity Date (as defined in the Convertible Note Deed), being 25 June 2021. [133]

In mid-late November 2022, Enares was provided with access to a data room containing information that Moula made available to shareholders for the purpose of their consideration of the resolutions and bookbuild process proposed in the 10 November 2002 notice of annual general meeting. Mr Thompson has given evidence that the documents made available in the data room comprised a draft Moula Term Loan three year forecast, a Moula Term Loan update dated November 2022, draft Moula financial reports for the 2022 financial year and for the first quarter of the 2023 financial year, a draft Leda three year forecast, a Leda update dated November 2022, a list of the shareholders and noteholders in Moula and their respective holdings, and correspondence between Moula’s solicitors and Enares’ solicitors. The draft financial reports for Moula for the 2022 financial year showed that: [134]

The data room also included a set of presentation slides dated November 2022, entitled “Moula – Term Loans Update”. The presentation slides included graphs showing the origination volumes for Moula’s Term Loan Business month by month for the period from March 2019 to October 2022, and the size of Moula’s Term Loan portfolio month by month for the same period. The slides recorded that Moula’s portfolio had “peaked” prior to the COVID-19 pandemic, and that it had been in “general decline” since that time due to a “combination of poor origination volumes and accelerated amortisation”. The graphs showed that origination volumes had decreased from June 2021, with a corresponding decline in the Term Loan portfolio from approximately $107.9 million in May 2021 to approximately $57.9 million in October 2022. This was attributed to “Strategic deadlock relating to Moula Pay and Term Loans” and a loss of focus on “critical key Term Loan business due to issues over Moula’s strategic direction, followed by Project Barton”. The declining portfolio was described as the “principal driver of reduced revenues and profitability”. The slides stated that Moula had “lost key capabilities across important operational areas (sales, underwriting, marketing and IT) as staff respond to ongoing uncertainty”. [135]

Enares voted against the two resolutions proposed in the 10 November 2022 Notice of General Meeting, but those resolutions received Special Majority Approval of Shareholders at the general meeting on 2 December 2022. [136] The bidding process for the bookbuild commenced shortly thereafter, and was completed on 9 December 2022. Enares informed Moula that it would participate “under protest” due to its concerns about the process that it had communicated to Moula and its solicitors. [137]

Mr Thompson has given evidence in these proceedings describing Enares’ concerns about the bookbuild process. Mr Thompson has deposed that: [138]

In addition, Enares was concerned that the bookbuild process rules which would force some Noteholders to sell their notes to others in round 2 and round 3 were contrary to the terms of the Convertible Notes Deed, which provided in clause 4.1 that the 2020 Notes were to be converted into shares in Moula on the Maturity Date. Noteholders required to sell their 2020 Notes to others in rounds 2 and 3 of the bookbuild process would have their shareholdings in Moula diluted, whereas the Noteholders who acquired those notes, which were then converted into shares at the price determined in round 3, would have their shareholdings in Moula increased. [139] Enares was also concerned that the bookbuild process would be affected by an “information asymmetry”, in that Beat would have access to greater information than other bidders—including Enares—at the time of placing bids. [140]

Enares’ concerns referred to above—particularly in relation to information asymmetry—were expressed by Mr Thompson during a video conference between Mr Allegos, Mr Watt, Mr Thompson, and representatives of other shareholders in Moula on 23 November 2022. [141] Enares’ concerns were reiterated in a letter from its solicitors, Baker McKenzie, to Moula’s solicitors, MinterEllison, dated 29 November 2022, to which MinterEllison responded on 9 December 2022. [142]

In round 1 of the bookbuild process, Enares submitted a bid for the value of its 2020 Notes and accrued interest at $0.05 per share. [143]

In round 2, Enares’ round 1 bid carried over, and Enares submitted an additional bid for $100 of 2020 Notes at $0.50 per share. [144]

Enares did not submit any additional bid in round 3. The bookbuild price determined in round 3 was $0.85. [145]

As Enares’ bid fell below the bookbuild price, its 2020 Notes were transferred to Beat following the bookbuild process, which concluded on 9 December 2022. [146]

As a consequence of the bookbuild process: [147]

In its Points of Claim filed in these proceedings, Enares contends that, as a result of the bookbuild process: [148]

Enares further contends that, at the time of the bidding process for the bookbuild, it did not have access to the same information that was available to Beat and the Founders because: [149]

Enares contends that it therefore suffered from an “information asymmetry” compared to Beat and the Founders in relation to the bookbuild process, and was consequently at a significant disadvantage in formulating a price at which to bid in the bookbuild process. [150]

Mr Thompson’s evidence about the alleged “information asymmetry” emphasises that Mr Ma had been a director of Moula until 18 October 2021. At the time of the bookbuild process, Mr Ma was the sole director of Beat, which was Moula’s largest Shareholder and Noteholder. Mr Ma was also a director of Liberty Financial and Secure Funding. Mr Thompson understands that Mr Ma would therefore have had unique access to information about Moula’s funding arrangements, including the Loan Facility with Liberty Financial and Secure Funding, the Forbearance and Funding Deeds, and the Confirmation Letters. Mr Thompson expects that Liberty Financial and, through it, Mr Ma, is likely to have had rights under the terms of the Loan Facility and the Forbearance and Funding Deeds to access extensive information about Moula, although Mr Thompson is unable to confirm this because Moula has declined to provide the terms of the Loan Facility, Forebearance and Funding Deeds, and Confirmation Letters to Enares. Moreover, Mr Thompson deposed that: [151]

In relation to Mr Allegos and Mr Watt, Mr Thompson has given evidence that, at the time of the bookbuild process, they were the only directors of Moula, they were the nominees appointed as directors by Auor and Bazkat (respectively), and they were the Chief Executive Officer and Chief Operating Officer of Moula (respectively). Mr Thompson deposed that, by reason of those positions, Mr Allegos and Mr Watt possessed highly detailed contemporaneous information about Moula’s financial position, financing arrangements, the status of its loan books and customer base, any challenges it may face, and the “go-forward strategic position”. Mr Thompson deposed that this knowledge would have been available to Auor and Bazkat, through Mr Allegos and Mr Watt, in comparison to the “sparse” information provided to Enares and other shareholders referred to at [117] above. [152]

Mr Thompson has given evidence that, taking all of these matters into account: [153]

Mr Thompson has deposed that information about Moula’s current financing arrangements would have been relevant to his decision about the amount of the bid made by Enares during the bookbuilding process, if that information had been available to him. [154]

Mr Ma was reappointed as a director of Moula on 9 January 2023. [155]

Mr Gavin Slater was appointed as a director of Moula on 9 January 2023. In early 2023, Mr Slater replaced Mr Allegos as the Chief Executive Officer of Moula. Mr Slater also holds the position of Group Manager – Strategic Alliances at Liberty. [156]

On 12 January 2023, Moula issued a subscription offer to Enares to subscribe for 283,324 additional shares at $0.85 per share as part of an entitlement offer of a total of 11,856,424 shares (the Entitlement Offer). [157]

Enares did not subscribe for any shares under the Entitlement Offer. [158]

On 1 March 2023, Moula announced by email to shareholders that: [159]

In its Points of Claim filed in these proceedings, Enares contends that these matters further diluted its shareholding in Moula, and further increased Beat’s shareholding in Moula. [160]

Mr Watt and Mr Allegos ceased to be directors of Moula on 2 March 2023. Mr Watt became the company secretary at that time, and continued in his role as the Chief Operating Officer of Moula. [161]

As at 7 March 2023, Beat held 31,933,115 ordinary shares and the same number of Class A shares in Moula, being 58.84 per cent of the shares on issue. Enares held 1.92 per cent of the shares on issue, comprising an equal number of ordinary shares and Class A shares. [162]

On 22 March 2023, Moula issued a Notice of Extraordinary General Meeting and Information Statement in relation to a proposed equal reduction of the share capital to give effect to the demerger of Leda Group from Moula by an in-specie distribution of shares in Leda Group to holders of Class A shares in Moula on a pro-rata basis, followed by the cancellation of the Class A shares in Moula for no additional consideration. [163]

For reasons that will become apparent below, it is relevant to note that the evidence adduced by Enares in these proceedings discloses that Mr Neil Sutton is a director and shareholder of Enares, and a director and shareholder of Neil Sutton Family Superannuation Pty Limited (Neil Sutton Super). Neil Sutton Super owns approximately 2.46 per cent of the issued shares of Moula on trust for the Sutton Family Superannuation Fund. Neil Sutton Super was also a Noteholder under the Convertible Note Deed. [164]

Mr Thompson has given evidence that Enares is considering whether to make the following claims for relief. [165]

Based on the matters referred to at [45]–[69] above, Enares contends that it may be entitled to apply for leave under s 237 of the Corporations Act to commence proceedings on behalf of, and in the name of, Moula, against Beat, for compensation under s 1317H of the Corporations Act on the basis that Beat was involved in breaches by Mr Ma of his duties owed as a director of Moula under ss 180–183 of the Corporations Act, and that Moula suffered damage as a result those alleged breaches. The potential grounds on which Enares contends that it may be entitled to make that claim are that Mr Ma’s conduct during the period from March to June 2021: [166]

I will refer to this potential claim as the Derivative Claim.

Moula accepts that Enares may be entitled to make the Derivative Claim.

Beat disputes that Enares may be entitled to make the Derivative Claim. Beat submits that the Derivative Claim is founded on two propositions—first, that the Beat Offer may have been made for the purpose of preventing the Board of Moula from accepting the Churchill Offer; and, second, that it was contrary to the duties of the directors of Moula not to have caused Moula to accept the Churchill Offer. It was submitted that both propositions are “nonsensical” because the Churchill Offer could never have been accepted without Special Majority Approval of Shareholders, which could not be achieved unless Beat voted to approve acceptance of the Churchill Offer. Beat submits that, in circumstances where the Board knew that the Churchill Offer was opposed by Beat, and that it therefore would not receive Special Majority Approval of Shareholders, no director acting rationally could have considered it to be in the interests of Moula to seek to press ahead with the Churchill Offer. Beat further submitted that the terms of the Beat Offer were superior to the Churchill Offer in any event, including by reason of the higher price and the absence of any down round protection against dilution for Beat.

Beat’s submissions overlook that the evidence presently before the Court is to the effect that the genesis of the Beat Offer was an expression of interest from Liberty in funding up to $30 million, that Mr Ma had conveyed Liberty’s interest to the Board only after the Board had considered the Churchill Subscription Proposal (at meetings at which Mr Ma was present), and that the terms of the Beat Offer were drafted after Churchill had provided an executed offer letter to Moula (which the Board had also discussed at meetings where Mr Ma was present). Mr Ma was a director of Beat and a director of Liberty, in addition to being a director of Moula, at the time of these events. [167]

Beat’s submissions also overlook that the evidence presently before the Court indicates that the sole grounds of Mr Ma’s opposition to the Churchill Offer (as expressed by Mr Ma at meetings of the Board of Moula) were that: (a) for reasons that are not recorded in the minutes of those Board meetings, Mr Ma did not consider that Churchill was a “strategic investor”; and (b) Mr Ma urged on the Board “the need to consider supporting long-term shareholders and their desire to invest”, notwithstanding that the Convertible Note Deed provided that the Subsequent Equity Round would involve Moula accepting investments in an aggregate amount of at least $15,000,000, at least 50 per cent of which was to be raised from persons who were not Shareholders or Affiliates. [168] As Beat submitted, Moula could not have accepted the Churchill Offer unless Beat voted in favour of that course at the requisite meeting of Shareholders. However, this does not render untenable the contention that Mr Ma breached his duties as a director of Moula by taking steps that resulted in no offer being available to be put to Shareholders for Special Majority Approval that complied with the conditions for a Subsequent Equity Round, as defined in the Convertible Note Deed, and that resulted in the Beat Offer—which may have been formulated with the benefit of Beat knowing the terms of the Churchill Offer—being the only offer available to be put to Shareholders. Contrary to Beat’s submissions, the evidence presently before the Court does not establish that Beat would necessarily have voted against the Churchill Offer at a meeting of Shareholders in May or June 2021, even if rejection of the Churchill Offer would have been likely to result in Moula proceeding at that time with the bookbuilding process required to determine the Conversion Price prior to the Maturity Date.

Bearing in mind that the question whether an applicant for preliminary discovery may be entitled to make a claim is a low threshold, it is my opinion that the evidence establishes that Enares may be entitled to make the Derivative Claim against Beat. I consider that Moula’s concession to that effect was appropriately made, and I reject Beat’s submissions to the contrary.

Based on the matters referred to at [71], [76]–[77], [82]–[84], and [87] above, Enares contends that, depending on the contents of the Confirmation Letters, it may be entitled to claim that: [169]

I note that Mr Ma was a director of Beat when the Moula entered into the first Confirmation Letter on 11 September 2021, but that he had ceased to be a director by the time Moula entered into the subsequent Confirmation Letters and the Forbearance and Funding Deeds.

Enares further contends that, depending on the contents of the Forbearance and Funding Deeds, it may be entitled to claim that: [170]

Enares contends that those potential breaches of the Shareholders Agreement by Moula and Beat, and potential breaches of the Convertible Note Deed by Moula, may entitle Enares to claim damages for breach of contract against Moula and Beat.

I will refer to these claims, collectively, as the Contract Claims.

Moula accepts that Enares may be entitled to make the Contract Claims.

Beat’s submissions implicitly accept that Enares may be entitled to make the Contract Claims, as the submissions were directed entirely to the question whether Enares already has sufficient information to decide whether to commence proceedings.

In my opinion, the concession by Moula—and the implicit concession by Beat—that Moula may be entitled to make the Contract Claims, are appropriate having regard to the terms of clause 7 of the Shareholders Agreement, [171] the terms of clause 6.3 of the Convertible Note Deed, [172] the information provided by Moula to Shareholders and Noteholders (which suggests that it is at least arguable that the Confirmation Letters are arrangements between Moula and some of its Shareholders, and that the Forbearance and Funding Deeds have provided a form of financial accommodation to Moula), and the undisputed fact that Moula did not seek Special Majority Approval of Shareholders and Majority Noteholder Approval before entering into the Confirmation Letters and the Forbearance and Funding Deeds. [173]

Enares contends that it may be entitled to bring a claim for relief against Moula and Beat for oppression under ss 232 and 233 of the Corporations Act on the following grounds: [174]

It is convenient to refer to this as the Oppression Claim.

Moula accepts that Enares may be entitled to make the Oppression Claim insofar as it concerns the Churchill and Beat Offers and the Entitlement Offer.

Beat does not accept that Enares may be entitled to make the Oppression Claim.

In my opinion, the evidence summarised at [13]–[143] above, read as a whole, establishes that Enares may be entitled to make the Oppression Claim. The elements of the Oppression Claim summarised at [161] above are interrelated, in that each element of the alleged oppression appears to have given rise to—or at least contributed to—the matters that are alleged to constitute one or more of the subsequent elements of oppression. For example, the evidence suggests that the alleged failure to progress the Churchill Offer (including by renegotiating its terms, which may or may not have made a difference to the attitude of Mr Ma and Beat) gave rise to the circumstances in which Moula required whatever financial accommodation it received under the Forbearance and Funding Deeds. Moula’s decision to enter into those deeds on the terms that it did obliged Moula to effect a demerger of its Term Loan and Moula Pay businesses. A protracted “impasse” or “strategic deadlock” about this contributed to significant decline in Moula’s Term Loan portfolio, revenues, and profitability, which may have influenced the differential between the November 2021 EY Valuation and the bookbuild price established by the process undertaken in December 2022. [175] In my view, it is artificial to characterise the Oppression Claim as a series of separate claims, rather than as one claim arising from an alleged course of conduct. In my opinion, the evidence relating to that course of conduct that is before the Court in these proceedings satisfies the low threshold that Enares may be entitled to make a claim for relief on the grounds that the course of conduct was oppressive. [176]

Enares has made extensive requests for information from Moula. In response to those requests, Moula has provided Enares with copies of financial information and forecasts for the 2020, 2021, and 2022 financial years, and minutes of meetings of the Board of Moula and circular resolutions of the Board during the period from July 2020 to June 2022 (many of which are in draft form, and are partly redacted). [177]

Enares is also in possession of the notices of general meeting and explanatory memoranda that it received as a shareholder of Moula. [178] Enares is also in possession of the EY Valuation Report. [179]

Enares does not have any Board minutes for the period prior to 1 July 2020 or for the period after 6 June 2022, does not have unredacted, signed copies of Board minutes for the period from July 2020 to June 2022, and does not have copies of the Board packs, papers, or other documents provided to the Board in connection with those meetings. [180] Moula’s solicitors have informed Enares’ solicitors that the minutes that are in draft form were never finalised or signed at the time of the relevant meeting, and were never adopted by Moula as final, but that those draft minutes nevertheless constitute “the Company’s proper record of the particular meeting”. Moula’s solicitors have also informed Enares’ solicitors that redactions in the copies of the minutes provided to Enares are for legal professional privilege. [181]

Enares does not have documents of the kind referred to in the nine categories of documents in respect of which Enares seeks preliminary discovery orders against Moula. Enares requested those documents from Moula shortly before commencing these proceedings, and Moula declined to provide them to Enares. [182]

I accept Enares’ submission that it has made reasonable inquiries for the purpose of UCPR r 5.3.

Subject to one qualification, there is no suggestion that Moula may not be in possession of the nine categories of documents in respect of which Enares seeks orders for preliminary discovery against it. The qualification relates to signed Board minutes, for the reasons referred to at [168] above.

The nine categories of documents are helpfully identified in a schedule annexed to Enares’ written submissions in reply dated 4 May 2023. I have considered all of the parties’ written and oral submissions in relation to each category, irrespective of whether those submissions are expressly referred to in these reasons.

Enares submits that it requires the documents in category 1 to assist its decision whether to commence proceedings in respect of the Contract Claims and the Oppression Claim.

Enares submits that the Forbearance and Funding Deeds and Confirmation Letters (including all amendments to those documents) are required in order for Enares to:

Mr Thompson has given evidence to the same effect as the submissions set out above. [183]

Enares further submits that it is necessary for it know the terms of the Loan Facility in order to consider what options were available to Moula when it entered the Forbearance and Funding Deeds. It was submitted that “[i]t cannot seriously be suggested that it is not necessary to know the terms of the Loan Facility in order to assess the terms of the Forbearance and Funding Deeds and the propriety and reasonableness of Moula’s actions in entering into the latter.” I assume that the reference to “the propriety and reasonableness of Moula’s actions” in entering into the Forbearance and Funding Deed is a reference to the question whether entry into that deed was in the interests of Moula and its shareholders as a whole. Enares submits that this question depends, in part, on what forbearance was afforded to Moula under the Forbearance and Funding Deeds, and whether there were any alternatives available to Moula other than entering into the Forbearance and Funding Deeds. Moula’s submissions accept that the availability (or lack of availability) of alternatives is important to the Oppression Claim, and criticises Enares for failing to articulate in its Points of Claim or submissions what those alternatives might have been, having regard to the negative undertakings in clause 6.3 of the Convertible Note Deed that precluded Moula from borrowing or accepting financial accommodation without the approval of Majority Noteholders, which included Enares and Beat. [184] Enares submits that the terms of the Loan Facility, of the Forbearance and Funding Deeds, and of the Confirmation Letters, will be relevant to the availability of alternatives, and that, in addition to being relevant to the Oppression Claims, this is also relevant to the question whether the impact of the Forbearance and Funding Deeds and Confirmation Letters on Moula has caused loss to Enares. It is necessary for Enares to identify whether it has suffered loss in order to make a decision whether to commence proceedings in relation to the Contract Claims.

I accept Moula’s submissions that the Points of Claim and Enares’ detailed written and oral submissions in these proceedings demonstrate that Enares is already in possession of extensive information pertaining to liability questions that will arise if proceedings are commence in respect of the Contract Claims. [185]

However, I accept Enares’ submissions that it reasonably requires the category 1 documents in order to decide whether to commence proceedings. In particular, I accept that it is reasonably necessary for Enares to know the full terms of the Loan Facility (including in relation to the rights of Liberty as lender in the event of any default), and the full terms of the forbearance and additional funding provided under the Forbearance and Funding Deeds, in order to form a view about the likely counterfactual scenarios if Moula had not entered into the Forbearance and Funding Deeds. In my opinion, that view will be an important consideration in Enares’ assessment of its prospects of proving loss for the purpose of the Contract Claims (and the likely nature and potential extent of any such loss), and its assessment of whether Moula’s entry into the Confirmation Letters and Forbearance and Funding Deeds can arguably be characterised as oppressive. Each of those assessments are important factors in the decision whether to commence proceedings in respect of the Contract Claim and the Oppression Claims. For those reasons, I am satisfied that Enares lacks sufficient information to decide whether to commence proceedings against Moula in respect of the Contract Claim and the Oppression Claims, that Enares reasonably requires the category 1 documents for that purpose, and that inspection of the category 1 documents would assist Enares to decide whether to commence those proceedings.

There will therefore be an order pursuant to UCPR r 5.3 requiring Moula to give discovery to Enares of all category 1 documents that are or have been in Moula’s possession.

In his affidavit affirmed on 9 March 2023, Moula’s solicitor on record, Mr Nicholas Anson, gave evidence that Moula considers the category 1 documents to be highly commercially sensitive information because they concern the past, present, and future provision of finance to Moula. In particular, the Loan Facility document includes commercially sensitive information about the amount of funding available, the applicable interest rate, the level of subordination required, and eligibility criteria setting out what constitutes a loan receivable that may be funded under the Loan Facility. Mr Anson also gave evidence that the category 1 documents are subject to confidentiality obligations which prohibit dissemination of the documents to persons who are not parties to them. [186]

I reject Enares’ submission that there is no justification for any confidentiality regime to apply in respect of category 1 documents discovered by Moula in these proceedings. However, I accept Enares’ submission that the terms of the confidentiality deed proposed by Moula are inappropriate. [187] Those terms are inappropriate because they would limit disclosure of the documents to Enares’ legal representatives, and because the permitted uses of the documents specified in clause 2 of the proposed confidentiality deed do not extend to assisting Enares to make a decision whether to commence proceedings. That decision is one for the directors of Enares.

The order for preliminary discovery of the category 1 documents will be conditional on: (a) the recipients of those documents being limited to directors of Enares, and to Enares’ legal representatives and other persons referred to in clauses 4 and 5 of the draft confidentiality deed prepared by Moula; and (b) those recipients signing a confidentiality deed substantially in terms of the draft deed prepared by Moula, subject to changes to clauses 2, 4, and 5 to address my criticisms of the draft deed above.

Enares submits that it requires the documents in category 2 to decide whether to commence proceedings in respect of the Derivative Claims and the Oppression Claim.

Enares submits that it requires the communications in category 2 to be able to assess the reasons why Moula did not follow through with its 3 May 2021 resolution to seek Special Majority Approval of Shareholders to accept the Churchill Subscription Proposal, the reasons why Moula resolved on 21 May 2021 to allow Beat time to formulate its own offer after Mr Ma and Beat had been privy to the terms of the Churchill Offer, the reasons why Moula agreed with Beat not to afford Churchill any opportunity to revise or improve its offer, and the reasons why Moula favoured the Beat Offer over the Churchill Offer. [188]

I accept that those matters would be relevant to Enares’ decision whether to commence proceedings in respect of the Oppression Claim and (to the extent that they relate to Mr Ma) the Derivative Claim. However, category 2 is drafted in such wide terms that it is very likely to capture a large volume of documents that do not record or evidence those matters. As Moula submitted, category 2 would require discovery of all communications between a wide range of persons that merely refer to the Churchill Offer or the Beat Offer. Having regard to the extensive information that Enares already possesses, and the documents that are to be discovered under category 1 above, and under categories 3 and 5 below, I am not satisfied that Enares reasonably requires the documents in category 2 in order to make the decision whether to commence proceedings.

There will be no order for preliminary discovery in respect of category 2.

Enares submits that it requires the documents in category 3 to assist its decision whether to commence proceedings in respect of the Derivative Claim and the Oppression Claim.

Moula submits that the terms of the Beat Offer and the Churchill Offer are “sufficiently recorded” in other documents already available to Enares for it to make a decision about whether to commence proceedings. I understand Moula to be referring to the Board minutes, proposed circular resolution, and other documents identified at [45]–[65] above. Whilst those documents contain information about key commercial terms of the Churchill Offer and the Beat Offer, an assessment of the whole of the terms of each of those offers that were considered by the Board is important to the question of whether Moula’s actions in preferring the Beat Offer to the exclusion of the Churchill Offer, and in foregoing the opportunity to seek or entertain any revised offer from Churchill or any proposal from any other potential investor, can properly be characterised as oppressive.

For those reasons, I reject Moula’s submissions, and accept that the category 3 documents are reasonably necessary for Enares to decide whether to commence proceedings against Moula (and Beat) in respect of the Oppression Claim, and that inspection of the category 3 documents would assist Enares to make that decision.

That conclusion renders it unnecessary to consider category 3 by reference to the Derivative Claims.

There will be an order pursuant to UCPR r 5.3 requiring Moula to give discovery to Enares of all category 3 documents that are or have been in Moula’s possession.

Enares submits that it requires the category 4 documents for the same reasons that it requires the category 2 documents, but that category 4 captures a wider range of types of documents, in that it is not limited to documents recording communications, and it is not limited to documents passing between the Board of Moula and Beat. Enares submits that this is because communications between the Board of Moula and Churchill, and between members of the Board of Moula, are “critical to an assessment of the postulated claims”. Enares provides the example that, if the directors of Moula attempted to re-enliven the Churchill Offer, and that attempt failed, that would be “highly relevant to the prospects of the Churchill Claims”.

I reject Enares’ submissions for the same reasons explained in relation to category 2 above, [189] and for the following two additional reasons. First, the submissions are predicated on an assumption that material communications may have occurred between directors of Moula, without the substance of the issues raised by any such communications being mentioned in minutes of Board meetings at which the Churchill Offer and the Beat Offer were discussed. There is no evidence of any reason to believe that this may have occurred. Second, the submissions are based on an equally speculative assumption that the directors may have attempted to re-enliven the Churchill Offer, notwithstanding their undertaking to Beat on 26 May 2021 not to do so.

It is possible for any prospective plaintiff contemplating commencing proceedings to articulate an infinite variety of hypothetical events that, if they occurred, would be known only to the prospective defendant, and would be capable of affecting the prospective plaintiff’s claims or the prospects of success of those claims. By throwing up the speculative assumptions on which it relies in relation to category 4, Enares is simply seeking further and better information about its potential claims, in circumstances where the extensive information already in its possession, together with the further information that it will obtain from preliminary discovery of the documents in categories 1, 3, and 5, is sufficient for Enares to make a decision whether to commence proceedings.

There will be no order for preliminary discovery in respect of category 4.

I accept Enares’ submissions that the documents in category 5 are likely to disclose the reasons why Moula did not follow through with its 3 May 2021 resolution to seek Special Majority Approval of Shareholders to accept the Churchill Subscription Proposal, the reasons why Moula resolved on 21 May 2021 to allow Beat time to formulate its own offer after Mr Ma and Beat had been privy to the terms of the Churchill Offer, the reasons why Moula agreed with Beat not to afford Churchill any opportunity to revise or improve its offer, and the reasons why Moula favoured the Beat Offer over the Churchill Offer. [190] I accept that those reasons are important matters that will inform Enares’ decision whether to commence proceedings in relation to the Oppression Claim and the Derivative Claim, and I consider that Enares reasonably requires those documents in order to make that decision. I note that Moula accepted that, if any order for preliminary discovery were to be made in respect of category 5, then the scope of that category was appropriately confined by the wording set out above.

There will be an order pursuant to UCPR r 5.3 requiring Moula to give discovery to Enares of all category 5 documents that are or have been in Moula’s possession.

Enares submits that it requires the documents in category 6 to assist its decision whether to commence proceedings in respect of the Derivative Claim and the Oppression Claim. Enares submits that documents specifically concerning why the Beat Offer did not complete are crucial to an assessment of the efficacy and strength of the Oppression Claim and the Derivative Claim, including enabling Enares to understand any loss caused by the conduct of Moula and of Mr Ma, and to understand “the motivations of Beat”. In relation to loss, Enares submits that it needs to know the reasons why the Beat Offer did not complete because, if the Churchill Offer would have failed to complete for the same reasons, then Enares may fail to establish that the conduct caused any loss. Enares submits that category 6 has been included to guard against the possibility that documents relating specifically to reasons why the Beat Offer did not complete may not be captured by the categories above.

I am not satisfied that category 6 is reasonably necessary for Enares to make a decision whether to commence proceedings. Category 5 is sufficiently broad to cover any documents of the kind referred to in Enares’ submissions. In my opinion, it would be inconsistent with the overriding purpose in s 56 of the Civil Procedure Act 2005 (NSW) to exercise the discretion under UCPR r 5.3 to make preliminary discovery orders in terms that burden the prospective defendant with the task of giving preliminary discovery by reference to multiple overlapping categories of documents for no valid reason.

There will be no order for preliminary discovery in respect of category 6.

Enares submits that category 7 relates to the prospective Contract Claim, Derviative Claim (to the extent that it captures documents in the period up to 30 June 2021), and the Oppression Claim.

Enares submits that copies of papers considered by the Board of Moula “will shed light on” the reasons why the Board has acted as it has in not accepting the Churchill Offer, in accepting the Beat Offer, in entering into the Confirmation Letters and Forbearance and Funding Deeds, in seeking to implement the demerger of the Term Loan and Moula Pay businesses in various ways since late 2021, including through the bookbuild process, and the reasonableness of those actions. Enares submits that the category 7 documents would also “shed light” on the degree to which Moula’s affairs have been hampered by the shareholder dispute between Beat and the Founders.

Moula submits that category 7 is, in effect, a “royal commission into Moula’s management decisions over a lengthy period of time”.

Moula has suggested that the plaintiff should propose amendments to category 7 so that it is tethered to the prospective claims. Enares has responded to this suggestion by pressing the category in its present terms in the absence of any proposed amendment formulated by Moula.

I accept that the extremely broadly drafted category would catch documents that would be likely to “shed light” on the matters identified in Enares’ submission. It does not follow, however, that Enares reasonably requires such documents—in addition to the extensive information already in its possession—to make a decision whether to commence proceedings. Enares’ submissions simply do not address the requirements of r 5.3 in relation to proposed category 7. For example, Enares does not articulate why it requires any further documents to “shed light” on the degree to which Moula’s affairs have been hampered by the dispute between Beat and the Founders, in circumstances where Enares is already in possession of the information contained in the November 2022 “Moula – Term Loans Update” referred to at [118] above. It is not appropriate for Enares to purport to delegate to Moula the task of formulating a proposed category in a manner that reflects r 5.3 and the principles applicable to its application.

There will be no order for preliminary discovery in respect of category 7.

Enares seeks an order for preliminary discovery in relation to category 8 for the same reasons that it articulated in relation to category 7 above. Moula raises the same objection that proposed category 8 is too broad.

Again, Enares has failed to articulate why this category—the terms of which are untethered to the prospective claims under consideration—is reasonably required for it to make a decision whether to commence proceedings. Enares submits that the category is not burdensome, but that is not the test under r 5.3.

There will be no order for preliminary discovery in respect of category 8.

Category 9 is extremely broadly drafted. It extends to any communications between the relevant representatives that merely refers to the Forbearance and Funding Deed, the Confirmation Letter, and/or the Second Confirmation Letter, at any time since the first of those documents was entered into.

Enares submits that it seeks preliminary discovery of the category 9 documents because it is “critical” for the Oppression Claim and the Contract Claim “to determine (i) the reasons why the Confirmation Letters and Forbearance and Funding Deeds were entered into; (ii) what their purpose and intended effect were; (iii) whether there is a direct link between the letters and the deeds; and (iv) what each of Moula, Beat and Liberty/Secure Funding stood to gain or lose from them”.

In my opinion, the documents in category 1 will yield information in relation to each of the four matters identified in Enares’ submissions. Enares does not articulate why any additional information that may be contained in documents falling within proposed category 9 is information that it reasonably requires in order to make a decision whether to commence proceedings.

There will be no order for preliminary discovery in respect of category 9.

Enares does not have the documents referred to in the three categories of documents in respect of which Enares seeks preliminary discovery orders against Beat. Enares requested those documents from Beat shortly before commencing these proceedings, but Beat has declined to provide them. [191]

I accept Enares’ submission that it has made reasonable inquiries for the purpose of UCPR r 5.3.

There is no suggestion that Beat may not be in possession of the three categories of documents in respect of which Enares seeks orders for preliminary discovery against it.

The three categories of documents in respect of which Enares seeks orders for preliminary discovery against Beat are helpfully identified in a schedule annexed to Enares’ written submissions in reply dated 4 May 2023. Again, I have considered all of the parties’ written and oral submissions in relation to each category, irrespective of whether those submissions are expressly referred to in these reasons.

Category 10 overlaps with categories 2, 4, and 6, in respect of which Enares seeks an order for preliminary discovery against Moula.

There will be no order against Beat for preliminary discovery in respect of category 10, for the same reasons as I have explained above in relation to categories 2, 4, and 6. [192]

In opposing any order for preliminary discovery in respect of category 11, Beat relied primarily on the submissions that I have recorded and rejected at [149]–[152] above.

Beat submitted in the alternative that, if any order for preliminary discovery were to be made in respect of category 11, then the order should be limited to documents of the kind described recording (rather than relating to) the purpose for the Beat Offer being made. I accept the submission that the words “relating to” in this context are too broad, and extend proposed category 11 beyond the scope of documents reasonably required by Enares to decide whether to commence proceedings, having regard to the extensive information that is already in its possession and to the further information that Enares will receive from Moula by way of preliminary discovery of the category 5 documents referred to above. [193] Category 11, being limited to documents recording the purpose for making the Beat Offer, will pick up any such documents created by and in the possession of Beat, whereas category 5 is unlikely to capture any such documents. I am satisfied that Enares reasonably requires such documents as may exist within that more confined version of category 11 to decide whether to commence proceedings. For the avoidance of doubt, having regard to the matters relied on by Enares as giving rise to the potential Derivative Claim and the potential Oppression Claim, I am not satisfied that Enares reasonably requires documents recording or relating to the reasons why the Beat Offer was withdrawn or did not complete.

There will be an order pursuant to UCPR r 5.3 requiring Beat to give discovery to Enares of all documents that are or have been in Beat’s possession dated between 1 March 2021 and 30 June 2021 that record the purpose for the Beat Offer being made.

There will be no order against Beat for preliminary discovery in respect of category 12, for the same reasons as I have explained above in relation to category 9. [194]

If and to the extent that its application for preliminary discovery against Moula is not successful, Enares seeks an order under s 247A of the Corporations Act permitting it to inspect the category 1 to 9 documents referred to above. The application under s 247A is therefore relevant only to categories 2, 4, 6, 7, 8, and 9 above.

Section 247A of the Corporations Act relevantly provides:

As Enares accepted, it bears the onus of establishing that it is acting in good faith and that the proposed inspection is for a proper purpose. It is well established that this is a composite notion, and the Court will determine objectively whether it has been demonstrated. [195]

The matters relied on by Enares as demonstrating that it is acting in good faith in seeking to inspect the documents in categories 2, 4, 6, 7, 8, and 9 above, and that its proposed inspection of those documents is for a proper purpose, are that Enares may be entitled to make the Derivative Claim, the Contract Claim, and the Oppression Claim, “but seeks further documents to enable it to make an informed decision about whether or not to commence proceedings against Moula and/or Beat”. Enares also submitted that recent events have seen a significant dilution of its shareholding in Moula, and a sharp decline in the value of those shares. Enares submitted that it is reasonable for it to “wish to investigate those events in more detail and ensure that it has done all it can to investigate those events in more detail”. [196]

For the reasons already explained above in relation to preliminary discovery, I reject Enares’ submission that the objective purpose of the proposed inspection of the documents in categories 2, 4, 6, 7, 8, and 9 is for Enares to make an informed decision about whether or not to commence proceedings. The extensive information that Enares already has, together with the category 1, 3, and 5 documents that it will receive by way of preliminary discovery, are sufficient for Enares to make that decision on an informed basis.

The events that have resulted in the dilution and diminution in value of Enares’ shareholding in Moula are extensively documented in the information that is already in the possession of Enares. At least some of those events have their genesis in the terms of the Shareholders Agreement to which Enares became a party when it first acquired shares in Moula and/or in the Convertible Note Deed pursuant to which Enares acquired the 2020 Notes. Enares has not identified any investigative step that it wishes to take in order to protect its rights as a Shareholder, or its investment in Moula, other than making a decision whether to commence the proposed proceedings and acting accordingly.

For all of those reasons, Enares has not discharged its onus of demonstrating that, in all the circumstances of this case and having regard to the extensive information that it already possesses and the further documents that it will receive by way of preliminary discovery, it is acting in good faith in seeking to inspect the documents in categories 2, 4, 6, 7, 8, and 9, and that its proposed inspection of those documents is for a proper purpose.

For those reasons, there will be an order dismissing prayers 5 to 7 of the further amended originating process.

As noted at [144] above, Mr Neil Sutton is a director and shareholder of Enares, and a director and shareholder of Neil Sutton Super, which owns approximately 2.46 per cent of the issued shares of Moula on trust for the Sutton Family Superannuation Fund. Neil Sutton Super was also a Noteholder under the Convertible Note Deed. [197]

In his first affidavit affirmed, Mr Thompson deposed that: [198]

Enares seeks an order that such documents as are ordered to made available to it be permitted to be disclosed by Enares to officers or members of Neil Sutton Super, and to any solicitor retained by Neil Sutton Super. The sole basis for the order was said to be that it merely recognises that it would be “artificial” to require Mr Thompson, Mr Neil Sutton and Mr Scott Sutton—each of whom are officers of Enares and of Neil Sutton Super—to “divorce from their minds matters learnt as directors of Enares in relation to Moula” when considering whether Neil Sutton Super should commence proceedings against Moula or Beat.

I accept Moula’s submission that it is not appropriate to make such an order on that basis in circumstances where Neil Sutton Super is not a co-plaintiff in these proceedings, there is no evidence about whether Neil Sutton Super may have a claim and is considering commencing proceedings against Moula and/or Beat, and there is no evidence relevant to whether Neil Sutton Super would be acting in good faith and for a proper purpose if it were permitted to inspect documents in respect of which (hypothetically) an order had been made in favour of Enares under s 247A of the Corporations Act. The evidence discloses that there are four directors of Neil Sutton Super (Mr Neil Sutton, Ms Jade Sutton, Mr Scott Sutton, and Mr Benjamin Sutton), and that the company has two secretaries (Mr Thompson and Mr Neil Sutton). [199] There is no evidence that Mr Neil Sutton, Mr Scott Sutton, and/or Mr Thompson are (individually or collectively) the controlling mind of Neil Sutton Super. As Moula submitted, there is no reason why Mr Neil Sutton, Mr Scott Sutton, and/or Mr Thompson cannot be expected to take care not to disclose to Neil Sutton Super information that is disclosed to them in their capacity as directors of Enares pursuant to orders for preliminary discovery in these proceedings.

For those reasons, there will be an order dismissing prayer 8 of the further amended originating process.

The parties are directed to bring in short minutes of order giving effect to these reasons within 14 days, including annexing the form of confidentiality undertaking to be signed by recipients of the category 1 documents referred to above.

The short minutes of order should also address the question of the costs of these proceedings, and the costs to be incurred by Moula and Beat in complying with the preliminary discovery orders. [200] To the extent that there is disagreement between the parties in relation to costs, the short minutes should indicate the costs orders for which each party contends.