Firmtech Aluminium Pty Ltd v Xie (No 2) [2022] NSWSC 1142

“Freeze those assets. You’ll need them to pay me when I win!”

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D1, D2, P2 - all natural persons - agreed to incorporate a company to sell aluminium-framed glazing products, PCo, and did in fact do so with D2 and P2 holding equal shareholdings: [5]

P2, the active plaintiff, wanted interlocutory freezing orders ahead of final s232 relief and s236 leave to pursue D2 for a breach of their DDs: [7]

Let’s discuss the freezing orders.

The Ps issued substantial NTPs for PCo’s records. The Ds produced no documents. The Ps elected to proceed nonetheless. This meant the Ps did not have balance sheets, BAS, tax returns and like documents they sought: [18], [19]

To get a freezing order, P2 had to prove they had a good claim for final relief, and there was a danger of assets being dissipated or moved out of the jurisdiction: [23], [24]

The Ds accepted P2 had an arguable claim, but said that it would fail at final hearing: [43]

P2’s role in the venture was to provide $1m funding and accounting services while D1 and D2 had experience in the industry. Over time P2 claimed they were “shut out” and D1 and D2 secretly directed business away from PCo to a Co they incorporated where PCo could have done that business: [44], [46]

D1 and D2 said the parties had agreed to go their separate ways, that P2’s loan was repaid, that in any case P2 caused themselves to be repaid, that P2 lost interest and disengaged from PCo, and that D1 and D2 directed business away to their Co because PCo did not supply the relevant product: [45], [88]

There was some evidence suggesting the Ds’ view of the diverted business held water, with PCo accepting some payments as subcontractor of one of D1 and D2’s entities: [90]

P2 was seeking freezing orders in the sum of $10m. It was not clear PCo would get this amount if successful, or that the Ds had it: [50]

The uncertainty about the value of the money diverted away from PCo, and the absence of financial documents, made it impossible to value PCo: [65]

P2 failed to show PCo’s loss in the sum of $10m. Shortcomings included making estimates assuming the 2019 profit margin of ~40% would have continued through COVID: [76] - [78]

There was a real contest about P2’s ceasing to participate in PCo’s business. D1 and D2’s suggestions were not unmerited: [93]

There was no “solid evidence” of the Ds being likely to dissipate their assets: [95]

The position was further clouded by both P2, and D1 and D2 continue to use the Pro branding after agreeing to part ways - including the perverse situation where two “PCo” entities were tendering for the same work: [102], [103]

The Court was persuaded to make orders to preserve the relevant businesses, but not the extensive freezing orders sought by P2: [106]

The Ds were further ordered to prepare accounts and to ensure the profits of the businesses were not dissipated: [109], [110]

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