Bzezinski v Hugh Shaw

Case [2022] VSCA 173

SUPREME COURT OF VICTORIA

COURT OF APPEAL
S EAPCI 2021 0126
HAIM BZEZINSKI (AND OTHERS ACCORDING TO THE ATTACHED SCHEDULE) Applicants
v
CAMERON HUGH SHAW IN HIS CAPACITY AS RECEIVER AND MANAGER OF KALIMPA PARK PTY LTD (ACN 615 703 547) (RECEIVERS AND MANAGERS APPOINTED) (AND OTHERS ACCORDING TO THE ATTACHED SCHEDULE) Respondents

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JUDGES: KYROU, McLEISH and WALKER JJA
WHERE HELD: Melbourne
DATE OF HEARING: 20 June 2022 
DATE OF JUDGMENT: 24 August 2022
MEDIUM NEUTRAL CITATION: [2022] VSCA 173
JUDGMENT APPEALED FROM: [2021] VSC 654 (M Osborne J)

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CORPORATIONS – Derivative leave – Proposed proceeding challenging loan facility agreements – Lender enforced securities against company for defaults on agreements – Receivers appointed by lender sold real property to company associated with lender – Claim that no moneys advanced to company under loan facilities – Whether applicants for derivative leave acting in good faith – Inadequately explained delay in seeking leave to bring proposed proceeding – Proposed proceeding used as basis for adjourning related guarantee proceeding – Good faith not established – Whether proceeding in best interests of company – Only tenable claim in proceeding unlikely to yield significant damages because property sold at market value – No evidence applicants capable of funding proceeding – Best interests not established – Leave to appeal refused.

Corporations Act 2001 (Cth) s 237(2).

Swansson v RA Pratt Properties Pty Ltd (2002) 42 ACSR 313, discussed; Blakeney v Blakeney (2016) 113 ACSR 398, Connective Services Pty Ltd v Slea Pty Ltd (2018) 130 ACSR 321, followed.

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Counsel
Applicants: Mr I W Upjohn QC with Ms M Hardinge
Second, Third and Fifth Respondents: Mr C Möller with Ms V E Bell

Solicitors
Applicants: Mann Lawyers Pty Ltd
Second, Third and Fifth  Respondents: Latep Legal

KYROU JA

MCLEISH JA
WALKER JA:

  1. Until its collapse in 2018, Kalimpa Park Pty Ltd (‘the company’) was involved in a livestock business. It owned a property in Western Australia called Erim Downs (‘the property’), on which a related entity Kalimpa Livestock Export Pty Ltd (‘the livestock company’) conducted a livestock business. 

  2. The first applicant, Haim Bzezinski, is one of the two directors of the company. He controls the second applicant, Bzezinski Pty Ltd, which owns a one-third share of the company. The third applicant, Danny Ruschin, controls the fourth applicant, Ruschin Pty Ltd, which also owns a one-third share of the company. 

  3. The second respondent, Michael Stokie, is the other director of the company. The remaining one-third of the company is owned by interests associated with Mr Stokie. He also controls the third respondent, Hilback Pty Ltd (‘Hilback’), and the fifth respondent, Erim Downs Pty Ltd (‘EDPL’).

  4. The dispute between the parties concerns actions taken by the Stokie parties after the company encountered financial difficulties. Hilback, as lender, had executed loan agreements with the company, and enforced a related mortgage over the property. It appointed Cameron Hugh Shaw and David Ross as agents in possession and subsequently as receivers and managers of the company,…

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Details
AGLC
Bzezinski v Hugh Shaw [2022] VSCA 173
Case
[2022] VSCA 173
Decision Date

CaseChat Overview and Summary

In the case of Bzezinski v Hugh Shaw, the applicants sought derivative leave to challenge certain loan facility agreements entered into by the company with Hilback. The company had acquired a large property and faced financial difficulties, leading to the appointment of receivers by the lender who subsequently sold the property to a company associated with the lender. The applicants claimed that no moneys were advanced under the loan facilities and sought to challenge the sale of the property. The court was required to determine whether the applicants had acted in good faith and whether the proposed proceeding was in the best interests of the company.

The court considered the applicants' good faith and found that they had not adequately explained the delay in seeking leave. The applicants had also used the proposed proceeding to adjourn a related guarantee proceeding. The court held that good faith was not established. Additionally, the court examined whether the proceeding was in the best interests of the company. It noted that the only tenable claim in the proceeding was unlikely to yield significant damages as the property was sold at market value. The court also found that there was no evidence that the applicants were capable of funding the proceeding. Consequently, the court held that the best interests of the company were not established.

The court refused leave to appeal, and no further orders were made. The applicants' claims were dismissed, and the receivers' sale of the property was upheld. The court emphasised the importance of acting in good faith and demonstrating that a proceeding is in the best interests of the company when seeking derivative leave. In this case, the applicants had failed to meet these requirements, and their claims were ultimately unsuccessful.

Orders

Orders of the court

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Background

Background to the litigation

For the reasons that follow, leave to appeal will be refused.Factual background On 31 January 2017, the company acquired the property, comprising nearly 2,000 hectares, for $1.4 million. The purchase was partly funded by a loan from the Commonwealth Bank of Australia, secured by a first registered mortgage over the property (‘the property loan’).[5] The Commonwealth Bank also made loans to the livestock company, with the company as guarantor, to fund the purchase of certain machinery and equipment (‘the asset loans’). [5]The loan amount was initially $840,000, but later increased to $1,360,000. In September 2017, the company entered into two loan facility agreements with Hilback. By the first loan facility agreement, Hilback agreed to provide the company a $3 million loan facility for the purpose of purchasing and developing the property (although the purchase had by then occurred). It was a condition that certain ‘collateral securities’ be provided, including: (a)a general security deed, granted by the company in favour of Hilback; (b)a second mortgage over the property, granted by the company in favour of Hilback (‘the Hilback mortgage’); and(c)a guarantee and indemnity in respect of the company’s loan obligations, provided by Mr Bzezinski and Mr Ruschin. The required instruments were each executed on 15 September 2017. The general security deed and second mortgage were both executed by Mr Stokie on behalf of the company.[6] The deed of guarantee and indemnity was executed by Mr Bzezinski and Mr Ruschin as guarantors, the company as borrower, and Hilback as lender.[6]In each of these instruments, Mr Stokie was incorrectly described as the company’s sole director. By the second loan facility agreement, Hilback agreed to provide the company a further $1,650,000 for the purpose of on-lending funds to a related company (‘the live export company’) to fund a legal proceeding in which it was engaged.[7] The second loan facility agreement also required the provision of the ‘collateral securities’ described above. At the same time, the company entered into an agreement with the live export company to on-lend it some of the borrowed funds. [7]See AHRKalimpa Pty Ltd v Schmidt [2017] VSC 701 and Schmidt v AHRKalimpa Pty Ltd [2020] VSCA 193. The company leased the property to the livestock company. The company and the livestock company commenced works at the property to establish the infrastructure necessary for an intensive cattle feedlot business. Construction of a 12,000 standard cattle unit feedlot on the property was largely complete. There were also silos, cattle yards, dams, a weigh bridge, and fixed and transportable accommodation. On 18 April 2017, the company had purchased an insurance policy for the property, issued by QBE Insurance Australia Ltd. Critically, however, the policy did not cover the feedlot. In 2018, the company began to encounter financial difficulties. On 30 January 2018, the Commonwealth Bank had the property valued by Colliers International for the purpose of assessing whether to increase the amounts available under its various loans to the company and the livestock company, including the property loan. Colliers primarily valued the property on two bases: (a)an ‘in use’ value basis, which assumed the property’s use as a feedlot and farming enterprise, and reflected the added value of special improvements, plant and equipment; and(b)an ‘as if complete’ value basis, which assumed that all works to establish the infrastructure for an intensive cattle feedlot business had been satisfactorily completed in all respects.[8][8]Colliers also valued the property on an ‘alternative’ or ‘next best’ use basis, as a dryland farming property. The applicants did not seek to place reliance on this valuation.

Evidence

Evidence Before The Court

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Decision

Reasons for decision

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Ratio Decidendi

Legal Principle Established

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