In the matter of Catalina Genetics Pty Ltd (in liquidation)

This is an application by John Farren-Price for an order pursuant to s 482 of the Corporations Act 2001 (Cth) terminating the winding up of Catalina Genetics Pty Ltd (in liquidation).

Mr Farren-Price is the majority shareholder and sole director of Catalina Genetics and therefore has standing to bring the application as a contributory pursuant to s 482(1A)(a) of the Corporations Act. The other shareholders are Jenin Polanco and a company associated with Mr Farren-Price, Catalina Trading Co Pty Ltd.

Catalina Genetics operates a business providing advanced equine reproduction services, such as cloning, embryo transfer and ICSI (which is intracytoplasmic sperm injection, an artificial breeding technique similar to in vitro fertilisation).

On 18 March 2024, Black J ordered, inter alia, that:

The Liquidators do not oppose the termination of the winding up of Catalina Genetics.

By reason of the extraordinary circumstances set out below, I have reached the conclusion that the winding up of Catalina Genetics should be terminated.

Catalina Genetics is the only business providing advanced equine reproduction services in Australia and has very few global competitors, with the only known businesses in the United States of America and Argentina, neither of which provide a full range of these services.

Catalina Genetics operates from leased premises in Kurmond, New South Wales and employs approximately 10 people. Catalina Genetics has generated only minimal revenue to date, having been in a pre-commercialisation phase, building up its laboratory, technology and collection of genetic material, while being funded by Mr Farren-Price, before it can commence to sell its services in a commercialisation phase. Catalina Genetics is now selling its services and has entered into contracts with five customers for the cloning of horses in return for payment ranging between $60,000 and $140,000 (inclusive of GST), with a total revenue of $455,000 and expenses of $165,000, resulting in an estimated total profit margin of $290,000 on those contracts.

Mr Farren-Price believes that most of the value of Catalina Genetics is in its know-how and processes that have been built up during the pre-commercialisation phase and that the business with can be viable and have substantial value if it continues to operate as a going concern.

Catalina Genetics uses two bank accounts for all its transactions at Commonwealth Bank of Australia (CBA), being an account for which Mr Farren-Price is the only person able to authorise transactions (Director Account) and an account to which multiple employees of Catalina Genetics have access and the ability to authorise transactions (Staff Account). The practice of Catalina Genetics is to pay all of its expenses through either the Director Account or the Staff Account to ensure that Catalina Genetics’ expenses are clearly identifiable and not in any way mixed with the finances of Mr Farren-Price or any other company associated with him. This has been important for Catalina Genetics to be able to claim substantial research and development tax incentives from the Australian Taxation Office (ATO) for its expenses.

For some time, Catalina Genetics had been in dispute with WCNI regarding the calculation of workers compensation premiums payable by Catalina Genetics to WCNI. In summary, WCNI assessed Catalina Genetics as if it was a horse training business (a high-risk business type), resulting in a very high premium. Catalina Genetics disputed this assessment on the basis that its business was more akin to that of a laboratory, which attracts a much lower premium.

WCNI then issued a statutory demand to Catalina Genetics which was posted to the registered office address of Catalina Genetics. It appears that Mr Farren-Price will did not receive the statutory demand, was not told about it and is unable to explain what happened to it. As a result, no action was taken by Catalina Genetics in response to the statutory demand.

On 4 December 2023, the winding up proceedings against Catalina Genetics were commenced in this court. Mr Farren-Price says that the first time he learnt of the statutory demand was when these proceedings were served on Catalina Genetics.

Even though the proceedings were still on foot, Catalina Genetics continued to dispute the position taken by WCNI in relation to the premium to be paid by Catalina Genetics. WCNI then accepted that it had incorrectly assessed the workers compensation premiums payable by Catalina Genetics and reduced the amount it claimed, although continued to press for the payment of past premiums as well as the premiums for the financial year ending 30 June 2024 together with the costs of the proceedings.

On 18 March 2024, Mr Farren-Price appeared for Catalina Genetics at the hearing of the winding up application before Black J in these proceedings. At the conclusion of the hearing, Black J handed down judgment, making the orders winding up Catalina Genetics in insolvency and appointing the Liquidators and staying those orders to 4pm on 25 March 2024, with those orders to have no effect if, by that time, Catalina Genetics paid the amount of $37,363.93 in cleared funds to WCNI.

On 19 March 2024, Mr Farren-Price then attempted to pay the amount of $37,363.93 by logging into his electronic banking platform with CBA but found that the Director Account and the Staff Account had been removed from his electronic banking platform. He then contacted CBA and was told that it had removed his access to the Director Account and the Staff Account as CBA had been provided with a copy of the orders made on 18 March 2024.

Mr Farren-Price then communicated with the solicitor for WCNI and the Liquidators about his access to the Director Account and the Staff Account and sometime between 19 and 24 March 2024, he was provided with access to those accounts in his electronic banking platform.

On 25 March 2024, Mr Farren-Price electronically transferred $38,135.40 from his personal account into the Director Account and then electronically transferred $37,363.93 from the Director Account to the trust account of the solicitors for WCNI. At 12:20pm on 25 March 2024, Mr Farren-Price then sent an email to the solicitors for WCNI to which he attached a payment remittance of that amount to the credit of their trust account. Mr Farren-Price said that after this was done, he finished work for the day and had no reason to think the payment had not gone through.

It appears that the payment did not go through. The first time that Mr Farren-Price was alerted to any possible problem with the payment was when he received an email on 28 March 2024 from the solicitors for WCNI, stating that they had not received payment into their trust account despite the remittance advice and they would inform the Liquidators that they had not received payment.

The banking records for Catalina Genetics show that the funds transferred by Mr Farren-Price into the Director Account left his personal account but later bounced back into his personal account, which meant that the funds never arrived into the Director Account at all and were not there to be transferred to the trust account of the solicitors for WCNI. The only available explanation which arises as a matter of inference is that CBA had taken some steps to restore access to the bank accounts of Catalina Genetics, but there was some residual restriction upon those accounts which prevented the transfers sought to be made by Mr Farren-Price from taking effect.

It is clear on the evidence that CBA issued its payment receipt in apparent confirmation that the payments had gone through and it was only on 28 March 2024 that Mr Farren-Price found out the payments did not occur when the solicitors for WCNI informed Mr Farren-Price that they had not been paid. By this time, the winding up order made on 18 March 2024 had automatically taken effect pursuant to its terms and there was nothing further which could be done about it.

I consider that Mr Farren-Price genuinely believed that he had made the necessary payment to the trust account of the solicitors for WCNI on 25 March 2024.

Since the winding up order took effect after 4pm on 25 March 2024, Mr Farren-Price has cooperated with the Liquidators by providing his report as to affairs as requested and he has complied with all of their demands of him.

The following steps have been taken in relation to the financial affairs of Catalina Genetics:

The outcome of these steps is that if the winding up of Catalina Genetics is terminated then it will be debt free (other than in relation to the secured debt of Innovation to be paid out of the imminent tax refund), will have minimal ongoing obligations to non-related parties and will be in a position to proceed with its business of bringing its services to the market.

The amount of the expected ongoing monthly expenses of Catalina Genetics are:

Mr Farren-Price and Catalina Stud are prepared to continue to support Catalina Genetics but it is the expectation of Mr Farren-Price that such support would not be required beyond a period of about six months if the winding up was terminated. This is because Catalina Genetics expects a net tax refund of $741,784 and an income tax refund of over $1 million after 30 June 2024 and to receive revenue of $455,000 from existing contracts with customers, with expenses of $165,000, generating an estimated profit margin of $290,000.

Catalina Stud has a strong financial position, having been profitably run for the past three financial years, earning a net profit of $726,781.05 in 2022, a net profit of $1,556,377.99 in 2023 and a net profit of $1,021,062.36 in 2024 (to date).

The balance sheet of Catalina Genetics recorded liabilities of $169,612 owed to two former shareholders of Catalina Genetics. I am satisfied that this was a historical bookkeeping error, that the former shareholders have been notified of this application and neither has raised any dispute.

The Liquidators have identified three individuals who assert potential rights against Catalina Genetics for the “return of genetic material” but only one of those individuals had any dealings with Catalina Genetics, with the other two having dealt with Catalina Stud, and that person has confirmed that she supports Catalina Genetics continuing to hold her horse’s genetic material.

Section 482 of the Corporations Act relevantly provides:

The principles pursuant to which I exercise the discretion in s 482 of the Corporations Act are long standing. They were conveniently collected in Re MWM Sydney Pty Ltd (in liquidation) [2016] NSWSC 688, by Black J at [16]–[21] as follows:

The interests of the public and an adherence to commercial morality by the directors loom large in the exercise of the discretion. In Re Telescriptor Syndicate Limited [1903] 2 Ch 174, Buckley J at 180 said:

There, Buckley J was referring to the scenario of an application made in bankruptcy to rescind a receiving order or to annul an adjudication, but noted that the discretion to stay a winding up of a company constituted an “analogous jurisdiction”, saying (at 180):

Further, the court’s role is to strongly protect the public interest where there is no contradictor in an application to terminate a winding up. In Re Modena Imports Pty Ltd (in liq); Leveraged Capital Pty Ltd (in liq) v Modena Imports Pty Ltd (in liq) [2010] NSWSC 739, Palmer J at [8]–[9] said:

Turning to the application of the relevant factors from the authorities in the exercise of my discretion, I have weighed each of the following matters:

Accordingly, in substance this is a case in which all the creditors are to be paid out, the Liquidators’ costs and expenses are covered and the members agree, these being the considerations mentioned in Apostolou to which reference was made in Glass Recycling, and which, where present, would usually result in the making of an order terminating a winding up.

For the reasons stated above, I propose to make the following orders: