Background
HX Food Group (Aus) Pty Ltd (HXFG), an Australian exporter of grains to China, was placed into members’ voluntary liquidation on 13 June 2025 with Christopher Baskerville appointed liquidator under s 495 of the Corporations Act 2001 (Cth). HXFG’s sole director since incorporation was Mr Fuqing Zhao, who was also the sole director of a related company, OK International Pty Ltd (OK). Under a written “Service Agreement,” OK received payments from Chinese customers who purchased grain from HXFG and was to remit those funds to HXFG periodically — an arrangement the Court described as prima facie unusual.
During public examinations, Mr Zhao gave vague and ambiguous answers about the financial relationship between HXFG and OK. A Registrar had also made orders in November 2025 requiring OK to produce financial records, including bank statements and invoices, but the liquidator considered OK’s compliance “materially deficient” — no financial records accounting for moneys received under the Service Agreement since 1 January 2025 had been produced. The liquidator’s concern was that OK might remit funds held on HXFG’s behalf to China before any recovery proceedings could be brought.
The liquidator applied ex parte and on an urgent basis for an interim injunction freezing OK’s bank accounts across six banks (including the Commonwealth Bank, NAB, Bank of China, Kookmin Bank, and HSBC). At the time of application, no substantive recovery proceedings were on foot; the application was brought within existing public examination proceedings. Counsel invoked r 7.01 of the Federal Court Rules 2011 (Cth), which permits injunctive relief where a party intends to commence proceedings, and undertook to file substantive proceedings within 14 days.
The Court’s Holding
Justice Derrington granted the interim injunction, finding that the liquidator had established a prima facie case and that the balance of convenience favoured restraint. Applying the two-limb test from Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57, the Court found a real likelihood that OK held funds belonging to or on behalf of HXFG — potentially recoverable as a debt, account of profits, declaration of trust, equitable compensation, or as voidable transactions under s 588FF of the Corporations Act if made during the period of HXFG’s insolvency. The Court accepted that the strength of evidence required for a prima facie case need not establish that success at trial is more probable than not; a sufficient likelihood to justify preserving the status quo sufficed.
The absence of existing substantive proceedings was addressed through r 7.01, following the approach in Foley v Butchulla Aboriginal Corporation RNTBC [2025] FCA 1270, with the undertaking to commence proceedings within 14 days satisfying that procedural requirement. On the balance of convenience, the Court found the risk of dissipation to China to be real and substantial given OK’s non-compliance with the November 2025 production orders, and concluded that damages would be an inadequate remedy if funds were transferred offshore. OK was not presently trading, so no substantial prejudice from the freeze was apparent.
The Court restrained OK — until 12:00 pm AEST on 8 July 2026 or further order — from withdrawing, transferring, or otherwise dealing with funds in any bank account in its name or under its control, with the order backed by a penal notice. The liquidator’s undertaking as to damages, secured by funds already recovered in the winding up, satisfied the Court that the standard condition for ex parte interlocutory relief was met. Costs were reserved.
Key Takeaways
- A liquidator can obtain an urgent ex parte asset freeze against a related company that holds funds on behalf of the company in liquidation, even before substantive recovery proceedings are filed, provided an undertaking to commence those proceedings within 14 days is given (r 7.01, Federal Court Rules 2011).
- Non-compliance with court-ordered document production, combined with evasive conduct during public examinations, can constitute sufficient grounds to establish a real and substantial risk of asset dissipation, satisfying the balance of convenience for injunctive relief.
- The prima facie case threshold for an interlocutory injunction does not require proof that success at trial is more probable than not — only a sufficient likelihood of success to justify preserving the status quo pending trial.
- Where a respondent company is not currently trading, the balance of convenience will more readily favour a freeze order because the respondent suffers little commercial prejudice while the applicant faces the potential for permanent loss.
Why It Matters
This decision is a practical illustration of how Australian courts will move swiftly to protect liquidation assets where there is credible evidence of a cross-border dissipation risk. The case confirms that the combination of a common director, an unusual inter-company payment arrangement, deficient document production, and evasive examination testimony can collectively meet the threshold for urgent ex parte relief — even in the absence of existing recovery proceedings — provided the procedural gap is cured through an undertaking under r 7.01.
For insolvency practitioners, the judgment reinforces the importance of acting quickly once public examination evidence raises dissipation concerns, and demonstrates that courts will treat wilful non-compliance with production orders as a significant factor tipping the balance of convenience in favour of a freeze. The case is also a reminder that related-party arrangements where a third company collects customer receipts on behalf of the insolvent entity will attract close judicial scrutiny in the winding-up context.