Aviation 3030 Pty Ltd (in liq) v Lao, in the matter of Aviation 3030 Pty Ltd (in liq) [2022] FCA 458

Aviation 3030 Pty Ltd (in liq) v Lao, in the matter of Aviation 3030 Pty Ltd (in liq) [2022] FCA 458

The March 2016 Share Issue was an unreasonable director-related transaction within s 588FDA because it significantly diluted existing shareholders’ value by issuing 76 million shares to a director’s related entity (Lao Holdings) for grossly less than market value without adequate disclosure; recovery is appropriate notwithstanding the company's solvency, and the proper remedy is to require Lao Holdings to pay $9,044,000 to the company, representing the difference between the option price paid and the median price paid by early investors, as this cures the essential inequity caused by the lack of disclosure and dilution, without conferring an unearned windfall on early investors or unduly...

Parties
First Plaintiff: Aviation 3030 Pty Ltd (in liquidation) (ACN 150 720 317); Second and Third Plaintiffs: George Georges and John Lindholm (liquidators); First Defendant: Hakly Lao; Third Defendant: Lao Holdings Pty Ltd (ACN 160 597 142); Seventh Defendant: Heng Kim Ou
Jurisdiction
Australia
Judgment Date
29 April 2022
Procedural Posture
Corporations Act Liquidation/s 588 FDA Claim / First Instance Judgment on Liability and Remedy
Outcome
Principal claim allowed against the Third Defendant (Lao Holdings); eligibility for recovery established; dismissal as to Seventh Defendant; directions for final orders reserved.
Legal Topics
Unreasonable Director Related Transaction, Liquidation, Creditor Recovery, Share Dilution, Disclosure Obligations, Breach of Director’s Duties, Solvent Liquidation
Corporations Law Unreasonable Director Related Transaction Liquidation Creditor Recovery Share Dilution Disclosure Obligations Breach of Director’s Duties Solvent Liquidation

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Parties

Aviation 3030 Pty Ltd (in liquidation) (ACN 150 720 317)

First Plaintiff

George Georges and John Lindholm (liquidators)

Second and Third Plaintiffs

Hakly Lao

First Defendant

Lao Holdings Pty Ltd (ACN 160 597 142)

Third Defendant

Heng Kim Ou

Seventh Defendant

Procedural Posture

Corporations Act Liquidation/s 588 FDA Claim / First Instance Judgment on Liability and Remedy

Legal Issues

  1. 1 Whether the March 2016 Share Issue was an unreasonable director-related transaction under s 588FDA of the Corporations Act 2001 (Cth)
  2. 2 Whether s 588FF(4) operates to allow recovery in a solvent liquidation for such a transaction
  3. 3 Whether appropriate disclosure was made to early shareholders regarding founder share options

Ratio Decidendi

The March 2016 Share Issue was an unreasonable director-related transaction within s 588FDA because it significantly diluted existing shareholders’ value by issuing 76 million shares to a director’s related entity (Lao Holdings) for grossly less than market value without adequate disclosure; recovery is appropriate notwithstanding the company's solvency, and the proper remedy is to require Lao Holdings to pay $9,044,000 to the company, representing the difference between the option price paid and the median price paid by early investors, as this cures the essential inequity caused by the lack of disclosure and dilution, without conferring an unearned windfall on early investors or unduly...

Court Disposition

Principal claim allowed against the Third Defendant (Lao Holdings); eligibility for recovery established; dismissal as to Seventh Defendant; directions for final orders reserved.

Orders

  • Declaration that the March 2016 Share Issue is an unreasonable director-related transaction within s 588FDA of the Corporations Act 2001 (Cth).
  • Pursuant to s 588FF(4), Lao Holdings Pty Ltd to pay Aviation 3030 Pty Ltd (in liquidation) $9,044,000 in respect of the shares issued to it; payment to be set off against Lao Holdings’ distribution on winding up.