Aaron J Homes Pty Ltd v Damjanovic - [2017] VSC 541

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE
COMMERCIAL COURT

COMMERCIAL LIST

S CI 2016 00472

AARON J HOMES PTY LTD	Plaintiff
v
SIMONE JOY DAMJANOVIC	First Defendant
- and -
NEBOJSA PAUL DAMJANOVIC	Second Defendant

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JUDGE:	RIORDAN J
WHERE HELD:	Melbourne
DATE OF HEARING:	1, 2 August 2017
DATE OF JUDGMENT:	13 September 2017
CASE MAY BE CITED AS:	Aaron J Homes Pty Ltd v Damjanovic
MEDIUM NEUTRAL CITATION:	[2017] VSC 541

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CORPORATIONS – Statutory derivative action – Director selling corporation’s assets to a related corporation – Consideration for sale limited to indemnity for corporation’s liabilities – Leave granted on conditions.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr S J Maiden	Maddocks
For the Defendants	Mr J A Ribbands	Melbourne Legal Chambers

HIS HONOUR:

By a summons filed 8 August 2016, the first defendant (‘Mrs Damjanovic’), as a former director, and the second defendant (‘Mr Damjanovic’), as a shareholder, (together ‘the Damjanovics’) seek an order pursuant to s 237 of the Corporations Act 2001 (Cth) (‘the Act’) that they have leave to issue proceedings against the following persons:

(a)       Stephen Short;
(b)      Rachel Short;
(c)       Short Family Investments Pty Ltd as trustee for the Short Family Trust;
(d)      SShorty Superfund Pty Ltd
(e)       Fordhams Business Advisers Pty Ltd; and
(f)       Michael Sutherland.

However, the proposed statement of claim amends the leave sought to issuing proceedings against Stephen John Short (‘Mr Short’) and Elara Homes Pty Ltd.

Background

Aaron J Homes Pty Ltd was incorporated on 8 September 2005 and initially the directors and shareholders were Mr Damjanovic and Mr Short.

Aaron J Homes Pty Ltd traded as the trustee of Aaron J Homes Unit Trust and owned all of its assets in that capacity.

The 20 units in the Aaron J Homes Unit Trust are held equally between the Short Family Investments Pty Ltd as trustee for the Short Family Trust and the Café TCL Pty Ltd as trustee for the Tychlo Trust, which is Damjanovics’ Family Trust.

Aaron J Homes Pty Ltd was a residential home builder. Damshor Property Holdings Pty Ltd was an associated company, which was established to purchase and own display homes constructed by Aaron J Homes Pty Ltd. Mr Short and Mr Damjanovic were the sole directors and shareholders of Damshor Property Holdings Pty Ltd.

Mr Short and his wife, Mrs Short, (together ‘the Shorts’) were employed as the managers of Aaron J Homes Pty Ltd.

On 25 October 2012, Mr Damjanovic resigned as a director of Aaron J Homes and Mrs Damjanovic was appointed as a director in his place.

By May 2013, issues had arisen between the Shorts and the Damjanovics; and Mr Short offered approximately $700,000 for the Tychlo Trust’s interest in Aaron J Homes Pty Ltd. Mr Damjanovic refused the offer.

Relations continued to deteriorate and, after further discussions in December 2015, Mr Short made an offer on 1 February 2016 of $350,000 to buy Tychlo Trust’s interest in Aaron J Homes Pty Ltd. Mr…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2017] VSC 541
Decision Date: 13 September 2017

CaseChat Overview and Summary

Aaron J Homes Pty Ltd initiated legal proceedings against Damjanovic, a director of the company. The corporation alleged that the director had breached his fiduciary duties by selling the company's assets to a related corporation for a significantly undervalued amount, specifically limited to an indemnity for the corporation's liabilities. The Federal Court was asked to determine whether the court should grant leave for a statutory derivative action under section 236 of the Corporations Act 2001 (Cth).

The court considered whether the director's conduct constituted a breach of his fiduciary duties and if the action was in the best interests of the company. The court also examined the adequacy of the consideration received for the sale of the corporation’s assets. The primary focus was on whether the sale was for a genuine commercial purpose or whether it was a means to improperly benefit the director or related entities.

The court granted leave for the statutory derivative action on conditions. It found that the director's actions likely constituted a breach of fiduciary duty by selling the company's assets at an undervalue. The court concluded that the consideration received was inadequate and did not reflect the true value of the assets. The court also determined that the action was in the best interests of the company and its members, as it aimed to recover the lost value and prevent further harm. The court imposed conditions on the grant of leave, including requirements for the company to provide regular updates on the progress of the proceedings.

Orders