Credit Suisse AG v Gu

These proceedings were commenced in the Possession List by filing a statement of claim on 2 November 2020. The plaintiff sought possession of land at 10 Superba Parade, Mosman, judgment against the first defendant in the sum of $6,023,362.08, the removal of caveats lodged on the property by the second to the ninth defendants, and an order concerning how the proceeds of sale of the property should be dealt with.

The first defendant was the borrower and mortgagor under a loan agreement with the plaintiff dated 20 March 2017.

Shortly prior to the commencement of the proceedings the plaintiff had, on 1 October 2020, appointed receivers and managers to the property. On about 18 November 2020 the receivers sold the property for $12,000,000. The plaintiff’s secured debt was repaid and its mortgage discharged. The balance of the proceeds of $5,446,462.18 are held in a controlled monies account. The receivers have sought the parties’ consent to withdraw their remuneration and legal fees from those funds, and for the balance of $5,287,560.97 to be paid into court.

The remainder of the proceedings concern a priorities dispute concerning the competing interests in the property of the remaining active defendants.

On 15 July 2020 Barry Wight, Jeremy Nipps and Alan Walker were appointed administrators of I-Prosperity Pty Ltd. They were also appointed as joint and several administrators of 11 other companies in the I-Prosperity Group. On 19 August 2020 those persons were appointed as liquidators of I-Prosperity and the other 11 companies. On 31 March 2021 Mr Walker resigned as a liquidator.

I-Prosperity was named as the eighth defendant in the proceedings, on the basis of a caveat it had lodged on the property on or about 21 August 2020 claiming an equitable interest in the land arising from a “purchase money resulting trust”.

In March, April and May 2021 the liquidators of I-Prosperity issued subpoenas to National Australia Bank Ltd, HSBC Bank Australia Ltd, Crown Melbourne Ltd (“Crown”), and the Department of Home Affairs. Each of those parties produced documents in answer to the subpoenas. The third to the sixth defendants in the proceedings have also issued subpoenas, including a subpoena addressed to the Department of Home Affairs.

By an amended notice of motion filed 10 June 2021 the eighth defendant and its liquidators seek to be released from the implied Harman undertaking (Harman v Secretary of State for the Home Department [1983] 1 AC 280) in respect of documents specified in the annexure to the notice of motion, to enable the liquidators to use the documents for the purposes of the winding up of the eighth defendant and the other companies in the I-Prosperity Group.

Each of the producing parties has said that they do not oppose the release of the undertaking.

The relevant principles have been concisely stated by Ward CJ in Eq in Vickers v Commonwealth of Australia [2020] NSWSC 1762 as follows:

The documents produced by NAB and HSBC are account statements maintained by them in respect of accounts held with them by each of Menghong Gu (the first defendant), Yingzi Xu and Zhou Xiang Huang. In addition, NAB produced, pursuant to a second subpoena, account statements of a number of other companies in the I-Prosperity Group.

Messrs Gu and Huang are two of the key individuals within the I-Prosperity Group. Mr Gu was a director of all of the companies, and Mr Huang was the chief financial officer. They apparently left Australia on 26 July 2020 and have not been able to be contacted by the liquidators since that time. Ms Xu is the wife of Mr Gu. Investigations to date show that on occasions, funds were transferred to the company’s bank accounts to an account in which Ms Xu was one of the account holders. She is apparently ordinarily resident in China.

The documents produced by Crown are records of transactions between Crown and each of Mr Gu, Mr Huang and Ms Xu, including details of their respective memberships with Crown. It appears from documents produced by Crown that hundreds of thousands of dollars, if not millions, have passed through the accounts held by Mr Gu and Mr Huang with Crown. Investigations suggest that some of the funds passing through those accounts with Crown may have been funds belonging to the companies.

The documents produced by the Department include records of Mr Gu’s arrival and departure into and out of Australia, details of his application for permission to leave Australia during the COVID-19 pandemic, and details of his application to sponsor Ms Xu for a spouse visa. The liquidators believe that Mr Gu’s travel records and the matters he refers to in his sponsorship application may assist in their investigations into his activities in the months prior to the companies going into administration.

The companies comprise part of the broader I-Prosperity Group. Its core business involved funds and investment management, dealing primarily in real estate assets for high net worth foreign investors, some of whom were within the Special Investor Visa Program regulated by Austrade.

The liquidators’ investigations into the affairs of the companies and their financial position show that the companies’ books and records are intermingled, which has significantly added to the complexity of the liquidators’ investigations. Investigations to date indicate that substantial amounts of funds received from investors have been used by the I-Prosperity group and its various directors for purposes other than the specific investment purpose for which the funds were apparently provided. There is also evidence of a number of transactions, including with third parties, which may be deemed uncommercial transactions within the meaning of s 588FB of the Corporations Act 2001 (Cth), including certain payments made to the directors, in particular Mr Gu, and Mr Huang.

The liquidators say that their investigations have been limited, not only by the state of the company’s books and records, but also by the fact that the liquidators have limited assets available to them to undertake the required work. Unless the liquidators are able to recover some of the funds, which appear to have been misappropriated from I-Prosperity and other companies in the I-Prosperity group, or to prosecute other causes of actions that may be available, it is unlikely that creditors will receive a return from the companies.

The liquidators expect that the documents produced on subpoena in the present proceedings are likely to contain information which may assist them in their investigation into the I-Prosperity Group’s affairs. The liquidators consider that the documents may assist them in tracing the flow of payments from the companies to Messrs Gu and Huang and Ms Xu, which may lead to recovery of assets for the benefit of creditors of the I-Prosperity Group.

It is not without significance that the Corporations Act gives the liquidators powers to compel the production of documents through the public examination process. Since, however, the relevant persons are not within Australia and are not contactable, public examinations may not be feasible. Even if they were, issuing similar notices for production of the documents produced on subpoena would be an unnecessary duplication and waste of resources.

In circumstances where there is no opposition from the producing parties, where there is nothing in the documents produced in respect of which any claim of privilege could be made, and where any defence by the eighth defendant and its liquidators in the proceedings will involve some aspects of the same investigation that the liquidators would be making generally, I consider that special circumstances have been shown to justify releasing the eighth defendant and the liquidators from their implied undertaking in relation to the subpoenaed documents.

Accordingly, I make the following orders: