Corbett v Corbett Court Pty Ltd

[2015] FCA 1176

FEDERAL COURT OF AUSTRALIA

Corbett v Corbett Court Pty Limited, in the matter of Corbett Court Pty Limited [2015] FCA 1176

Citation:

Corbett v Corbett Court Pty Limited, in the matter of Corbett Court Pty Limited [2015] FCA 1176

Parties:

PAUL HERBERT CORBETT v CORBETT COURT PTY LIMITED (ACN 062 978 545), JOHN KEITH CORBETT, RENELLE ANTOINETTE CORBETT and AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

File number:

NSD 1432 of 2012

Judge:

FARRELL J

Date of judgment:

4 November 2015

Catchwords:

CORPORATIONS – company established by parents for benefit of eight children – one child holds half of the shares and appointed a director with both parents – other seven children hold other half of the shares in the company – company built supermarket and shopping mall using loans from other companies controlled by parents and bank debt – other companies controlled by parents and father provide guarantees of company’s bank debt – parents die intestate – anchor tenant at shopping mall threatened to reduce rent due to level of vacancies in shopping mall – sole director of company refused to appoint independent director and appointed his wife as director instead – company sought to raise capital in order to fund building work to install second anchor tenant in shopping mall – shareholders either refused or ignored two offers to subscribe for shares – seven minority shareholders refused to attend meetings of company after wife appointed as director – shares issued to directors and loans made by them to fund building work to install second anchor tenant

CORPORATIONS – oppression – whether issue of shares to directors contrary to interests of members as a whole or oppressive, unfairly prejudicial to or unfairly discriminatory against minority shareholder under s 232 of the Corporations Act 2001 (Cth) (“Corporations Act”) – whether share issue valid under company constitution – whether conduct of company prior to parents’ deaths gave rise to legitimate expectation that shareholding proportions would be maintained – whether the company needed funds at the time of the share issue – whether other sources of funds available – whether purpose of share issue was to dilute shareholding of minority – whether share issue was commercially fair – consideration of appropriate remedy to order under s 233 of the Corporations Act

Legislation:

Corporations Act 2001 (Cth) ss 232, 233

Cases cited:

Baloglow v Konstantinidis (2001) 11 BPR 20-721; [2001] NSWCA 451
Campbell v Backoffice Investments Pty Ltd (2008) 66 ACSR 359; [2008] NSWCA 95
Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304
Catalano v Managing Australia Destinations Pty Ltd (2014) 314 ALR 62; [2014] FCAFC 55
Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (1998) 28 ACSR 688; [1998] NSWSC 413
Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (2001) 37 ACSR 672; [2001] NSWCA 97
Greenhalgh v Arderne Cinemas Ltd [1946] 1 All ER 512
Harrington v Sensible Funerals Pty Ltd (2007) 61 ACSR 359; [2007] SASC 66
Kirwan v Cresvale Far East Ltd (in liq) (2002) 44 ACSR 21; [2002] NSWCA 395
Lorenzi v Lorenzi Holdings Pty Ltd (1993) 12 ACSR 398
Raymond v Cook [2000] 1 Qd R 65; (1998) 29 ACSR 252
Re Dalkeith Investments Pty Ltd (1984) 9 ACLR 247
Re Ledir Enterprises Pty Ltd (2013) 96 ACSR 1; [2013] NSWSC 1332
Territory Realty Pty Ltd v Garraway [2009] FCA 292
Turnbull v National Roads and Motorists’ Association Ltd (2004) 50 ACSR 44; [2004] NSWSC 577
Wayde v New South Wales Rugby League Ltd (1985) 180 CLR 459
White v Bristol Aeroplane Co [1953] Ch 65
Whitehouse v Carlton Hotel Pty Ltd (1987) 162 CLR 285

Date of hearing:

2-5 June 2014

Place:

Sydney

Division:

GENERAL DIVISION

Category:

Catchwords

Number of paragraphs:

208

Counsel for the Plaintiff:

Mr J Knackstredt

Solicitor for the Plaintiff:

Carters Law Firm

Counsel for the First, Second and Third Defendants:

Mr B DeBuse

Solicitor for the First, Second and Third Defendants:

Marsdens Law Group

Counsel for the Fourth Defendant:

The fourth defendant did not appear

Table of Corrections
23 November 2015	The appearances of the defendants have been corrected.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION	NSD 1432 of 2012

IN THE MATTER OF CORBETT COURT PTY LIMITED ACN 062 978 545

BETWEEN:

PAUL HERBERT CORBETT
Plaintiff

AND:

CORBETT COURT PTY LIMITED (ACN 062 978 545)
First Defendant

JOHN KEITH CORBETT
Second Defendant

RENELLE ANTOINETTE CORBETT
Third Defendant

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
Fourth Defendant

JUDGE:	FARRELL J
DATE OF ORDER:	4 NOVEMBER 2015
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1.The resolution of the directors of the first defendant (“Corbett Court”) made on or about 7 May 2012 whereby it was resolved to issue 50,000 shares to the second defendant (“John Corbett”) and 50,000 shares to the third defendant (“Renelle Corbett”) for an issue price of $1.00 per share (“Share Issue”) be rescinded and the Share Issue be set aside.

2.The issue price paid for the shares referred to in order 1 constitutes a debt by Corbett Court to John Corbett and Renelle Corbett as to $50,000 each, such debt being payable within 14 days of demand being made in writing to the Company.

3.John Corbett and Renelle Corbett must forthwith take all steps necessary to rectify the register of members of Corbett Court by deleting all reference to the Share Issue and cause to be lodged with the Australian Securities and Investments Commission (“ASIC”) by 4 pm on Wednesday, 11 November 2015 notice of correction of Corbett Court’s register of members accordingly. John and Renelle Corbett must serve on the members of Corbett Court by email notice that they have complied with this order and file a copy of that notice with the Court by no later than 4 pm on Monday, 16 November 2015.

4.The cross-claim of John and Renelle Corbett and Corbett Court filed on 5 February 2013 be dismissed.

5.Costs be reserved.

6.Paul Corbett and John and Renelle Corbett must file and serve any submissions they wish to make as to costs by 4 pm on 11 November 2015, such submissions to be no longer than three pages each. Submissions filed and served after that date will not be taken into account unless they are made in writing and at the express written invitation of the Court.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION	NSD 1432 of 2012

IN THE MATTER OF CORBETT COURT PTY LIMITED ACN 062 978 545

BETWEEN:

PAUL HERBERT CORBETT
Plaintiff

AND:

CORBETT COURT PTY LIMITED (ACN 062 978 545)
First Defendant

JOHN KEITH CORBETT
Second Defendant

RENELLE ANTOINETTE CORBETT
Third Defendant

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
Fourth Defendant

JUDGE:	FARRELL J
DATE:	4 NOVEMBER 2015
PLACE:	SYDNEY

REASONS FOR JUDGMENT

1. This is an application made pursuant to ss 232 and 233 of the Corporations Act 2001 (Cth) in relation to Corbett Court Pty Limited (“Corbett Court” or “Company”), a company all of the shares in which were, from its incorporation in December 1993 to May 2012, held by eight siblings, the children of Keith and Valerie Corbett. To avoid confusion and without intending any disrespect, I will refer to Corbett family members by their given names.

2. The central issue in these proceedings is whether the issue of an aggregate of 100,000 shares for $1.00 each to the second defendant (“John”) and his wife, the third defendant (“Renelle” or “Renee”) in May 2012 (“Share Issue”) was contrary to the interests of the members as a whole or oppressive, unfairly prejudicial to or unfairly discriminatory against the plaintiff (“Paul”) in his capacity as a member of Corbett Court or in any other capacity. John and Renelle were the only directors of Corbett Court at the time of the Share Issue. Before the Share Issue John held 42 shares and the other siblings held 42 shares in aggregate. The Share Issue had the effect of diluting the interest of Paul and each of his six siblings (“Anne”, “Clare”, “Gwen”, “Honora”, “Joseph”, “Margaret”) from approximately 7% of the shares on issue in Corbett Court to 0.005995% each.

3. References to the “defendants” do not include the fourth defendant (“ASIC”).

   INTRODUCTION

4. Keith and Valerie owned a hardware business in Picton, New South Wales. They amassed substantial assets including land holdings and shares in companies which owned land. The companies included K & V Corbett Pty Limited (“K&V Corbett”) and Menangle Pty Limited (“Menangle”). The parents each owned half of the shares in K&V Corbett and they owned two thirds of the shares in Menangle while the siblings owned the other third.

5. Corbett Court was incorporated on 30 December 1993 as the vehicle for the development of 96 Argyle Street Picton (owned by Menangle) and the adjoining property at 100 Argyle Street (owned by John). John subscribed for 42 shares and a further 42 shares in aggregate were registered in the name of each of the other siblings (as to 6 shares each). Some siblings said they paid six dollars for their shares, others indicate that their parents paid on their behalf; Honora and Anne said that they did not pay for shares in Corbett Court and dispute that they consented to be shareholders. Valerie, Keith and John were appointed the directors of Corbett Court.

6. Both Valerie and Keith died intestate. Valerie died in November 2008; she had ceased to be a director of Corbett Court in 2005 due to the onset of dementia. Keith died in April 2010.

7. At the time of Keith’s death:

   ·Corbett Court owned two properties – the IGA Supermarket and Picton Mall;

   ·The anchor tenant of Picton Mall was Coles Supermarkets Australia (“Coles”). Under clause 66 of the lease, if 40% or more of the shops in the internal mall area of Picton Mall as shown in the lease plan were vacant, the rent payable by Coles would be reduced;

   ·On 14 November 2008, Colliers International (“Colliers”) valued Picton Mall at $12 million and on about 27 April 2009, Colliers valued the IGA Supermarket at $6 million;

   ·Keith (and therefore his estate), John, K&V Corbett and Menangle were all guarantors of debt approximating $14.4 million owed by Corbett Court to the National Australia Bank (“NAB”). The NAB facility was due to expire on 31 July 2012. Corbett Court was required to ensure that the ratio of the loan to value of the property (“LVR”) did not drop below 70%;

   ·John was the sole remaining director of Corbett Court and the “estate companies” comprising K&V Corbett, Menangle and Picton Tavern Pty Limited (a lender to K&V Corbett). Until his death, Keith had been actively involved in the affairs of the estate companies and Corbett Court;

   ·Corbett Court also owed approximately $2 million to the estate companies, including K&V Corbett and Menangle; and

   ·Corbett Court had not held a general meeting (without complaint) or paid a dividend.

8. On 17 August 2010, Mr Peter Mokas, Coles’ manager of retail leasing, wrote to John querying whether the vacancies in Picton Mall exceeded 40% and accordingly whether Coles’ rent should be reduced in accordance with clause 66 of its lease. Coles had relied on this clause to reduce its rent in 2005. John said that Picton Mall was having difficulty in attracting specialty shops because of competition from new centres in nearby regions and economic conditions. John said he was concerned that Corbett Court would not be able to continue to meet repayments to NAB if Coles’ rent was reduced.

9. John pursued negotiations with Target Australia (“Target”) in relation to the installation of a “Target Country” discount department store in Picton Mall. Email correspondence reveals that on 9 September 2010, Mr Mokas threatened to instigate the reduction unless an agreement was reached with Target by 30 September 2010 with a view to Target opening a store at Picton Mall by September or October 2011. John received a letter of offer from Target on 30 September 2010. John received a quote from Kinsley and Associates estimating that the cost of conducting the work required to prepare Picton Mall for the Target tenancy would be in the order of $2.4 million. John believed that if the work was done under his direct supervision using direct labour and subcontractors, Corbett Constructions Pty Limited (a company owned by John and Renelle) could achieve the work for $1.1 million on an at cost basis.

10. On 17 November 2010, letters of administration in Keith’s estate were granted to Perpetual Trustee Company Limited (“Perpetual”) and Perpetual became the administrator of Valerie’s estate as well.

11. At Perpetual’s instigation, Mr Gary Holbrook of PKF (later known as BDO) chartered accountants replaced John as a director of the estate companies on 25 January 2011. Mr Holbrook was replaced on 27 June 2013 by Mr David Ratcliffe.

12. Without making any finding as to its accuracy, as at 7 June 2011, Mr Holbrook in his capacity as director of the estate companies estimated the fair market value of the estate companies at $10,851,468 as at the date of Valerie’s death in November 2008 and $10,664,535 as at 7 June 2011. John’s estimate was higher: between $12 million and $15 million.

13. Whatever the nature of the relationships between the siblings before the death of their parents, the relationships were put under great strain by the need for administration of their parents’ estates and a significant aggravating factor was determining the terms on which the estate companies could be extricated from guarantees to NAB in connection with Corbett Court’s indebtedness. It is in this context that the question of the need for, and funding of, work required to install Target as a tenant at Picton Mall arose.

    PAUL AND HIS CLAIMS

14. Paul is a medical doctor and he graduated in 1982 from the University of Sydney with a Bachelor of Medicine and a Bachelor of Surgery. He does not practise as a doctor and at the time of his evidence he was studying for a business certificate at Randwick TAFE and a certificate in the Mandarin language at the University of New South Wales.

15. Although all of the siblings are shareholders of Corbett Court, this action was brought only by Paul. Paul’s claims, set out in the Amended Statement of Claim filed on 29 October 2012 (“ASOC”), are narrowly cast.

    Understanding: ASOC [7]

16. Paul claims that since Corbett Court was established it was operated in accordance with the wishes and intentions of Valerie and Keith and on a basis of mutual trust and confidence, giving rise to a legitimate expectation that Corbett Court would maintain its shares on issue in the proportions of 42 shares held by John and the other 42 shares would be held by each of the other siblings as to 6 each (the “Understanding”).

17. The particulars of this claim are: (1) the shareholders of Corbett Court are siblings and the Company was established and operated in accordance with the wishes of their parents; and (2) conversations between Keith, Paul and John which were not further particularised.

    18 May 2011 letter – First Share Offer: ASOC [8]-[12]

18. Paul claims that on or about 18 May 2011, Corbett Court made offers to subscribe for shares pursuant to article 37 of its articles proportionately to their shareholding pursuant to which the Company sought to raise $1,050,000 by the issue of 1,050,000 shares and it was open for acceptance until 13 June 2011 (“First Share Offer”). The offer was not authorised by a resolution of the Company in general meeting. The only particular of this claim is the letter of 18 May 2011.

19. It is not contentious that letters were sent to all of John’s siblings to their postal address in the form sent to Paul (as written):

    Dear Paul,

    The Directors have recently undertaken a full assessment of the financial and commercial position of Corbett Court Pty. Ltd., “The Company”. As part of that assessment the Directors have given particular consideration to the following matters:

    (1)The cashflow of The Company, and in particular the effect on cashflow of the inconsistent standard of retail tenant within Picton Mall.

    (2)The possible cost to redevelop Picton Mall to attract a second anchor tenant so as to improve cashflow of the Company.

    (3)The need for The Company to refinance its existing loans with the National Australia Bank in July 2012.

    (4)The likely ability of The Company to refinance the NAB loans when required based on the current trading performance of the Company and inter company security concerns.

    (5)The possibility of selling Picton Mall ‘as is’.

    As a result of this assessment the Directors believe the most appropriate course of action for The Company is to attempt to undertake the redevelopment of Picton Mall to attract a second anchor tenant in addition to Coles so as to improve its cashflow position to be able to refinance the NAB loan when required in 2012.

    Negotiations with a second anchor tenant have been underway for some time and the Directors are confident that this tenant can be secured, provided The Company is in a position to undertake the necessary redevelopment.

    The Directors believe the cost of that redevelopment will be in the order of $1.1m.

    The Directors do not believe The Company will be able to borrow those funds on account of the existing indebtedness of The Company and its current financial position. The current level of borrowings show a loan to value ratio of 79% based on the latest valuation. NAB require a LVR of 70%. Hence The Company must increase its valuation and/or decrease its borrowings.

    Accordingly the Directors have resolved The Company should raise the necessary capital by way of an issue of further shares in The Company.

    In accordance with clause 37(a) of the Constitution therefore, the Directors intend to issue ordinary shares to the value of $1.05m in The Company at an issue price of $1.00 each.

    Under clause 38(1) of the Constitution, the Directors offer the proposed new shares to the existing shareholders in proportion to their existing shareholding. As such, the Directors intend to make the following offers of shares in The Company:

Shareholder	No of Ordinary Shares	Total Issue Price
John Corbett	525,000	$525,000
Paul Corbett	75,000	$75,000
Anne Corbett	75,000	$75,000
Honora Corbett	75,000	$75,000
Clare Kristensen	75,000	$75,000
Gwen Corbett	75,000	$75,000
Joe Corbett	75,000	$75,000
Margaret Corbett	75,000	$75,000

Therefore the Directors, by this letter, offer you the opportunity to take up 75,000 of the newly issued ordinary shares in The Company.

Please note that if you do not take up this offer the Directors may offer the shares originally offered to you in such manner as they think most beneficial to The Company.

This offer is subject to all of the shares being offered by the Directors being taken up by the Shareholders. As such, if the Shareholders do not agree to take up all of the shares being offered by the Directors, the Directors may determine not to proceed with the share offer.

If you wish to accept this offer, please sign the attached copy of this letter and return it to The Company by 13^th June, 2011. If your acceptance is not received by that date, you will be taken to have rejected the offer.

If you accept the offer and the Directors determine to proceed with the issue of the shares, you will be required to pay the relevant amount to The Company within fourteen (14) days of being requested to do so by the Directors. If you do not make this payment within that time, your right to have the shares issued to you will lapse and again those shares may be offered to other Shareholders to ensure that The Company raises the required funds.

Yours faithfully

[Signature]

John Corbett
Director
Corbett Court P/L

I,                   ,a shareholder in The Company, accept the offer of 75,000 of shares made to me in this letter. I agree that this acceptance is subject to and conditional on the terms set out in the letter.

Signed date

I,                    a shareholder in The Company, agree to take up more shares than those offered to me above if other Shareholders do not accept the offer of shares made to them * to a maximum of ___________ /to the extent of all of the shares offered to the Shareholders.

* Delete that which is not applicable

Signed date  

1. Attached to the letter were:

   ·A copy of clause 66 of the Coles lease which provides for reduction of rent if the number of specialty shops in Picton Mall that are vacant equals or exceeds 40%;

   ·A table which indicated that the capitalised value of Picton Mall/IGA Supermarket with Target as a tenant was between $18,083,674 and $24,542,129 (on yields of between 0.095% and 0.07%) based on net annual rent from Picton Mall of $1,298,392. It showed that without Target as a tenant, the adjusted net rent for Picton Mall was $866,428 and the capitalised value of Picton Mall/IGA Supermarket was between $13,536,686 and $18,371,216 (on the same yields);

   ·A proposed lease tenancy schedule after Target became a tenant;

   ·A schedule of gross annual rental (including recoveries) and annual expenditure allowances for the IGA Supermarket as at 14 October 2010;

   ·A schedule of the tenancies in the IGA Supermarket as at 14 October 2010;

   ·A schedule of proposed and current gross annual rental (including recoveries) and annual expenditure allowances for Picton Mall as at 14 February 2011;

   ·A drawing of the proposed floor plan with the Target tenancy; and

   ·A budget showing a total estimate of $1,034,827 without contingency.

2. Paul claims that the First Share Offer was not taken up by any shareholder by 13 June 2011 and that is not disputed.

   6 February 2012 email – Second Share Offer: ASOC [13]-[16]

3. Paul claims that by an email sent on 6 February 2012 (the “Second Share Offer”), John purported to extend the First Share Offer until 20 February 2012 or in the alternative he purported to make a further offer to shareholders. Paul says that the Second Share Offer was made after the expiry date of the First Share Offer, it did not specify the number of shares offered or the terms on which the shares were offered, was not specifically expressed to include a time limit within which the offer, if not accepted, would be deemed to be declined and was not served on Paul by post.

4. Paul claims at [16] of the ASOC that the Second Share Offer was made in contravention of articles 38(2) and 95 of Corbett Court’s constitution because of the deficiencies identified. See [37] below in relation to this claim.

5. It is uncontentious that on 6 February 2012 John sent an email to his siblings as follows (as written):

   Hi all,

   Upon the receipt of the signed Agreement to Lease from Target Australia P/L last Friday the Directors have resolved to proceed with the capital raising as outlined in our letter of 18^th May, 2011

   Nothing has really changed in the period between May 2011 and now except the yields seem to have gone out for commercial property of this type. The Tenancy schedules are attached for your information.

   It is necessary to proceed with the Target tenancy in order to improve income and yields. Renegotiation of bank debt later this year will necessitate higher value than is presently achievable with the current income and tenant mix.

   With this in mind it is decided to extend the rights issue as previously outlined until 20th February.

   …

   Share Issue: ASOC [17]-[20]

6. On or about 14 June 2012, the Company purported to issue 50,000 shares to John and 50,000 shares to his wife Renelle (“Share Issue”) who were then the sole directors of Corbett Court. In these reasons I will use the term “Share Issue” for consistency even though Paul refers to it as the “Purported Share Issue” and John refers to it as the “Share Sale”.

7. At ASOC [18] Paul claims that the Share Issue was not authorised by the shareholders, that it was made in contravention of the Company’s articles of association and the Understanding and that it was made for the dominant purpose, and had the effect, of diluting Paul’s proportionate shareholding and that of the other minority shareholders. There are no particulars of the alleged contravention of the Company’s articles of association. The particulars of this claim set out the names of John’s siblings at paragraph (i) and then go on (as written):

   ii.The Purported Share Issue had the effect of diluting Dr Corbett’s, and the other minority shareholders’, proportional shareholdings in the Company from 7.14285% to 0.00595% each;

   iii.The Company had available to it alternative sources of funding at the time of the Purported Share Issue which would not have resulted in the dilution of Dr Corbett’s proportional shareholding in the Company.

8. At ASOC [19]-[20] Paul claims that the Share Issue was invalid and of no effect and further, or in the alternative, the acts and omissions referred to were contrary to the interests of the members as a whole and oppressive to, unfairly prejudicial to and unfairly discriminatory against him.

   Relief sought

9. Following leave to amend his application given on the first day of the hearing, Paul seeks declarations that the Share Issue was contrary to the Company’s articles of association and therefore invalid and of no effect and that the affairs of the Company are being conducted in a manner that is, and/or the Share Issue is, in breach of s 232 of the Corporations Act.

10. Paul says that the Court should make orders requiring John and Renelle to purchase Paul’s shares for fair market value and for that purpose the Court should order that a referee be appointed for inquiry and report upon the market value of Paul’s shares. That is the primary relief sought.

11. Alternatively, Paul says that the Court should make orders setting aside the Share Issue and rectifying the Company’s share register and the register maintained by ASIC accordingly and as a result: (a) requiring the defendants (or the Court’s Registrar) to do everything necessary to modify the Company’s articles of association to reduce its authorised capital to 84 ordinary shares of $1 each and rectifying the register maintained by ASIC accordingly; (b) restraining the defendants from doing anything to dilute Paul’s proportionate shareholding without his consent or that of the Court; and (3) that one or more independent directors be appointed to the board of the Company.

12. Finally, and as a last resort, Paul says that the Company should be wound up.

    DEFENCE AND CROSS-CLAIM

13. By way of cross-claim, the defendants seek relief pursuant to s 1322 of the Corporations Act, being a declaration that any irregularity in the course of, or in respect of, the issue or allotment of shares to John and Renelle does not invalidate the Share Issue and relief from any civil liability arising from the facts alleged by Paul.

14. In support of the cross-claim, John and Renelle essentially repeat the matters raised in their defence, save that in the defence to Paul’s statement of claim they say that as Paul held 7% of the shares in Corbett Court before the Share Issue, in the circumstances, as a minority shareholder, Paul was not prejudiced by the Share Issue.

15. John and Renelle plead that:

    (1)John acted as leasing manager, designer manager, retail manager and director of Corbett Court from 1993;

    (2)The Coles lease would require rent adjustment if the rate of occupation of the internal section of the Picton Mall fell below 60% and it fell below that rate from 2009;

    (3)From early 2011, Corbett Court owed NAB approximately $13.9 million and it had indicated that it required, and would continue to require, a reduction in the amount due under the loan;

    (4)To obtain further tenants and secure the minimum occupation required by the Coles lease and Coles supermarket, the Picton Mall was required to have substantial renovations and alterations and that involved substantial risk;

    (5)The Picton Mall shopping centre was independently valued for Keith and Valerie’s estate on or about March 2012 in an amount of $13.2 million;

    (6)The cost of the alterations and renovation required to secure a further tenant sufficient to satisfy the Coles lease was estimated by design and construction managers to be approximately $2.4 million;

    (7)No reasonable alternative source of finance was available to Corbett Court;

    (8)None of its shareholders other than John and Renelle were prepared to offer guarantees of indebtedness;

    (9)John and Renelle were prepared to acquire the shares on the terms offered by Corbett Court;

    (10)None of the other directors were prepared to become directors of Corbett Court and seek to raise finance elsewhere;

    (11)The sale of “the enterprise” (which I take to mean Corbett Court’s property assets being the IGA Supermarket and Picton Mall) would have resulted in there being no funds available to return to members on a members’ liquidation or as dividends;

    (12)By the offer of shares, Corbett Court sought to raise from its existing shareholders sufficient capital to pay to complete the work necessary to install Target as a tenant for an amount of $1.1 million but none of the shareholders were prepared to take up the offer;

    (13)John and Renelle took up the offer of unsubscribed shares in the amount of $100,000 (being the Share Issue) and advanced to Corbett Court the sum of $1,052,000 (“Loan”) to pay for the renovations and the money raised by the Share Issue and the Loan were used for that purpose;

    (14)In the circumstances the Share Issue was for a proper purpose;

    (15)The Share Issue was not made irregularly and if a general meeting were required to be held, such a meeting would have passed a resolution for a Share Issue in the terms made by Corbett Court; and

    (16)John, Renelle and Corbett Court acted honestly.

16. Paul denies that he has ever been asked to raise finance for or guarantee the indebtedness of Corbett Court or that he has even been invited to be a director of Corbett Court. He also denies that there was no reasonable alternate source of finance for the renovations of Picton Mall. He says that even if shareholders had been prepared to authorise the Share Issue, it would still have been contrary to the interests of members of Corbett Court as a whole or oppressive to, unfairly prejudicial to and unfairly discriminatory against him.

    ISSUES TO BE DECIDED

    Agreed list based on pleadings

17. The agreed list of issues to be decided reflect the pleadings and can be summarised as:

    (1)Was Corbett Court established and operated on the basis of the Understanding set out at [16] above and did it endure to 14 June 2012 (the date on which ASIC was advised of the Share issue)?

    (2)If the Understanding did endure, was the Share Issue in contravention of it or was the Company entitled, by reason of its financial circumstances, to issue shares contrary to the Understanding?

    (3)Were there other factors which caused the Share Issue to be commercially unfair, including the question of whether or not it was valid under the Company’s constitution?

    (4)Was the Share Issue made for the dominant purpose of diluting the minority shareholders’ proportional shareholding in the Company?

    (5)If the Share Issue was made in contravention of the Understanding or for the dominant purpose of diluting the minority shareholders’ proportional shareholdings, was it either contrary to the interests of the members of the Company as a whole or oppressive to, unfairly prejudicial to and/or unfairly discriminatory against Paul?

    (6)What, if any, should be the relief?

    Claim that Share Issue not valid under the constitution not pressed

18. In the plaintiff’s written outline of opening submissions and in opening submissions, Counsel for Paul advised that Paul did not press the claim set out in ASOC [16] that the Share Issue was invalid because it did not comply with articles 38(2) and 95. Paul’s Counsel did not indicate that the claim for declaratory relief that the Share Issue was invalid had been abandoned. Paul’s Counsel submitted that the constitutional invalidity of the Share Issue was relevant to establishing that the Company’s affairs have been conducted in a manner which is oppressive or contrary to the interests of members as a whole and therefore made submissions on that issue.

    s 232 Corporations Act

19. The Court’s powers to make orders under s 233 of the Corporations Act derives from s 232 if the Court is satisfied that:

    (a)the conduct of a company’s affairs; or

    (b)an actual or proposed act or omission by or on behalf of a company; or

    (c)a resolution, or a proposed resolution, of members or a class of members of a company;

    is either:

    (d)contrary to the interests of the members as a whole; or

    (e)oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or in any other capacity.

    Conduct of case

20. Paul conducted a case which was broader than the “central issue” of whether the Share Issue was an “act” of Corbett Court which fell within either s 232(d) or s 232(e) as pleaded. Paul’s case also relied on an unpleaded course of conduct of the Company’s affairs which included:

    (1)The claim that from the time of his father’s death John operated the Company for the benefit of himself and his interests by invoicing the Company in 2010 for an amount of $761,244 for work done over the preceding 10 years (and the invoice was in part paid), arranging for the Company to lend Renelle $237,318 and arranging for the Company to lend Corbett Constructions $207,572 in 2010 and to lend J & R Corbett Pty Ltd $308,816 in 2011;

    (2)The appointment of Renelle as a director on 2 February 2011 and the refusal to appoint Mr David Kenney of Hall Chadwick, chartered accountants and business advisers, as an independent director;

    (3)The context of the growing animosity between the siblings as a result of family provision proceedings commenced by John in May 2011 and discontinued in August 2012; and

    (4)The claim that John knew that his siblings could not afford to take up the First and Second Share Offers (the “Share Offers”).

21. I do not consider the statement of claim was adequately pleaded to disclose the material facts on which Paul relied. I do not accept argument put by Paul’s counsel that it was not necessary to plead these matters as they went to remedy in relation to the pleaded ground of oppression that the Share Issue was made for an improper purpose and not to establish separate grounds of oppression. However, I am satisfied that John was in a position to (and did) address these issues which largely became apparent from evidence filed by Paul to which John responded with his own affidavits and with the affidavit of Mr Peter Campbell.

    CONTEXT

    John’s role in Corbett Court

22. John obtained a degree from the University of Sydney in civil engineering in 1980. He said that he and his father first discussed developing 96-100 Argyle Street in 1992 when his parents visited John and Renelle in Bangkok where he was working on a large scale expressway project.

23. With architects, John designed both the IGA Supermarket (built on 92-100 Argyle Street, incorporating a further small block acquired for the purpose by the Company) and Picton Mall (built on adjacent property acquired by Corbett Court in 2000). In the period 1995 to 2000, he set up leases, managed and constructed fit out and invoiced outgoings to tenants in the IGA Supermarket and “basically acted as building manager although not employed as one”. During this time, John took no remuneration and worked for other companies as a contract civil engineering manager or contract builder and in 1996/97 he attended the Australian National University to study and he attained a Master of Business Administration.

    John’s remuneration

24. John said that from 2000, he acted as the design and construction manager, building manager and leasing agent, maintenance manager and handyman for Corbett Court. He also worked as a contract civil engineer for other companies. He carried out design and construction work for his parents’ companies and some construction work for other companies of which he was a director.

25. Although there was some evidence that suggested that while she was able, Valerie collected rents and did book-keeping and Keith was engaged with Corbett Court (indeed, he died as a result of falling from a ladder while changing a light bulb), I accept John’s evidence that he has played these roles in relation to Corbett Court.

26. Mr Campbell had been Corbett Court’s accountant from 2005, and was the accountant for the estate companies from that time until Mr Holbrook’s appointment as director of those companies. He is also accountant to John and Renelle and their business interests.

27. It is Mr Campbell’s evidence that in the period 2004-2009, loans were made by Corbett Court to John or for his benefit in lieu of wages, so called “division 7” loans. He said that in late 2007 or early 2008, Keith and John, as directors of Corbett Court, agreed that John should be remunerated for services which he had provided himself or through his company Corbett Constructions Pty Ltd (“Corbett Constructions”) for the development and leasing of stores in Picton Mall and continued management of the property as and when cash flow allowed. Mr Campbell recalled that John told him that his father agreed that he should be remunerated on the basis of $120,000 per annum for each of the years he had provided services. John said that his father said that this should commence from 1999.

28. Mr Campbell said that by 30 June 2012, all loans to John or his companies had been repaid and $500,152 was owing to him in accrued management fees.

29. This evidence is supported by:

    (1)an undated minute prepared by Mr Campbell which appears to be signed by Keith. There is no evidence as to whether the procedures outlined in the minute were followed. Those procedures included John specifying estimates of costs, dissected between the development component of Picton Mall (as Project Manager and Development Manager), as Leasing Manager and also as Property Manager, and also dissected over each financial year of service, provision of advice from an independent professional if Keith thought John’s estimate too high, and a further minute by the directors once the costs of services had been agreed; and

    (2)a document prepared by Mr Campbell which shows a running total of accrued remuneration from the year 2000, loans to/repayments by John or Renelle (or entities associated with them) and payments by way of salary. The table shows an overall running balance of $1,530,000 in accrued remuneration and accumulated withdrawals of $1,029,848 leaving an undrawn balance of accrued remuneration of $500,152 in 2012, with payments of $530,092 in 2013 and an undrawn balance of $90,059 in that year.

30. Set out at [126] is a summary of information derived from management and financial reports supplied to Paul for the period 2009-2012 and the financial report for 2013 indicating (among other things) director and related party loans in that period.

31. I found Mr Campbell to be a credible witness on issues related to remuneration but he lacked expertise on many of the other issues he was asked to address in cross-examination. Based on the evidence of Mr Campbell and John, I accept that Keith agreed that John should be remunerated at the rate of $120,000 for the period from 2000 for ten years. I make no finding that Keith agreed that the rate of $120,000 should apply for any period after 2010 having regard to the difference in the nature of the work undertaken in earlier years and the management of established buildings. I note that shareholders have never been asked to approve John’s remuneration.

    Family meeting with officers of Perpetual on 16 December 2010

1. Notes of a meeting between officers of Perpetual and the siblings (other than Clare) which John attended by telephone on 16 December 2010 indicate that (among other things):

   ·There was commentary that while loans to individuals were undocumented and there may be grounds to consider them as gifts to beneficiaries, loans between companies were documented. John commented that it would be “unfair to wipe the slate clean for individuals but not the companies”;

   ·Mr Shamal Dass (Perpetual) advised the meeting that even though Corbett Court was not an estate asset, “other companies cannot be wound up until we have sorted out Corbett Court. Corbett Court looks to have net $1m after loans. Structures need cash to pay taxes and not just asset transfers”;

   ·John advised that Corbett Court “in its current state” could not repay loans from the estate companies and noted that it had to reduce the NAB facility in the past 18 months;

   ·John advised that Corbett Court had loans to him of $760,000 of which $250,000 dating from 2003 was a “Division 7” loan made in lieu of wages and that there had been an agreement between himself, Keith and Mr Campbell to pay him a salary of $120,000 for a ten year period for working on Picton Mall. There was also a loan to Renelle for $237,000;

   ·John advised that Corbett Court needed to get rid of small tenants and put in a larger, more reliable one, that he had an offer from Target, that it “won’t be more rent” and that it would require a refurbishment/fit-out costing $1.5 million to get Target in as a tenant;

   ·Paul asked if some shops in Corbett Court could be sold to pay off K&V Corbett;

   ·Joseph said that he had a buyer interested in Corbett Court;

   ·John said: (1) that he would like to take Corbett Court forward but could not pay out the loans, although he had “no interest in taking it forward with the current shareholders”; and (2) he would like to know of evidence of the value of Corbett Court and the suggested buyer but he would lean towards selling if the price suggested by Joseph could be achieved;

   ·Mr Dass suggested the need to set up an annual general meeting of Corbett Court early in the new year as its future was of great importance to the administration of the estate. John said that it should be sooner rather than later as he believed the market position in Picton was deteriorating;

   ·There was substantial disparity between John’s knowledge of the affairs of Corbett Court and the estate companies derived from his position as a director of those companies and that of his siblings; and

   ·John agreed to step down as a director of the estate companies in favour of Mr Holbrook.

   Directors

2. John was the sole director of Corbett Court after his father died in April 2010.

3. Following on from the meeting at Perpetual on 16 December 2010, there was discussion about the possibility of appointment of an independent director of Corbett Court additional to John. Perpetual identified Mr David Kenney, then managing partner of Hall Chadwick. In an email to Mr Kenney on 11 January 2011 (copied to all of the siblings) Paul said: “None of the 7 minority shareholders want to be a third director. This leaves the possibility of just you and John, or another third director.” Although Paul now says that he meant to say that none of the seven minority shareholders wanted Renelle to be a director, there is no evidence that there was a proposal to appoint Renelle at that time nor is there evidence that Paul sought to correct this email at any time before he provided evidence in these proceedings. I do not accept Paul’s evidence.

4. On 25 January 2011, John sent an email to his siblings giving notice of a “proposed Annual General Meeting” to be held on 9 February 2011 in Picton with the “main topics for discussion” being “1. the threats facing the company in the short term and, 2. the ownership structure for the future successful operation of the Company in light of these threats”. Although John gave short shrift to a request by Margaret to have conference facilities available for those unable to attend in person, he noted her request to add to the agenda: (1) “Repayment of all loans to the Estates of Keith Corbett and Valerie Corbett”; (2) “Sale of assets”; (3) “Potential for appointment of new director(s), receivership, voluntary administration”; and (4) “Tenancy schedule - lack of rent paid by some tenants”.

5. Anne queried whether there had been sufficient notice of the meeting and said that she was unavailable on 9 February but could attend on 10 February; she noted that “[v]arious people have also contacted David Kenney to organise a meeting - I understand about him being appointed as an independent director of Corbett Court”.

6. By email dated 1 February 2011, John told Anne: “It is better to have a meeting asap as there are several pressing matters that need to be attended to. It may be that either an agm can be called subsequent to that meeting, or in fact that no meeting is required at all.” John agreed to a meeting on 10 February 2011 and conference facilities were arranged for it.

7. John went on to say: “I have no intention of appointing David Kenney or anyone else as a director”. In evidence, John said that he meant no-one else outside the family, but he did not correct this email and there is no evidence that John invited any other family member to be a director.

8. On 2 February 2011, John appointed Renelle as a director of Corbett Court.

   10 February 2011 meeting of shareholders

9. A meeting of the shareholders of Corbett Court took place on 10 February 2011. The meeting was attended by John, Anne, Gwen, Margaret and Mr Campbell in person and Joe and Mr Kenney (as proxy for Paul and Clare) by telephone. John arranged for the attendance of Mr Campbell and five years of accounts and a copy of the constitution to be available at the meeting.

10. John said that at the meeting he told Mr Kenney that:

    ... the company has no equity. Corbett Court needs to stay solvent. If something isn’t done it will lose $500,000 a year in rent if Coles exercises the right to reduce the rent. If that happens it will default on the NAB facility. The estates will lose money if Corbett Court defaults because of the guarantees provided and the associated costs of liquidating Corbett Court.

11. In an email to Mr Kenney following the meeting on 10 February 2011, John described it as “a good start” and agreed to provide tenancy schedules, agreements in place with Target and Bendigo Bank, projected cashflows from additional tenancies, an estimate of costs to implement changes, “[a] motion to raise capital through share sales in the same proportion as existing shareholdings” and current valuations held for the properties, subject to Mr Kenney and “those shareholders for which you hold proxies” providing confidentiality agreements.

12. For attending a meeting with the siblings other than John on 8 February and the shareholders’ meeting on 10 February 2011, Mr Kenney charged $7,700 which was paid by John’s siblings pro rata. John said that he did not consider that the cost of an independent director was warranted. The proposal to appoint Mr Kenney as a director of Corbett Court was not pursued.

    18 February 2011 meeting with Perpetual

13. At a meeting of the siblings (except for Honora and Gwen) with Perpetual on 18 February 2011:

    ·in response to a question from Mr Dass as to whether the “situation of directorship” had been resolved, John told the meeting “it is resolved. Renell [sic] & John are the directors of Corbett Court.”

    ·John explained that the estate companies, John, and Keith had all given guarantees to the NAB in relation to the Company’s indebtedness and in response to a question as to whether the guarantees were open-ended, John said that they were open-ended and went on: “Guarantees would only be implemented if the money wasn’t paid. On the last valuation of Corbett Court, the value of the company is worth more than the loan. There is nothing to be concerned about. I can’t see that Menangle or K&V Corbett would be called upon.”

    ·John told the meeting that K&V Corbett could not be wound up before it was removed from the security given in connection with Corbett Court.

    ·Without suggesting how it might be done, Margaret said that “Corbett Court needs to supply more security to itself to remove the companies”. John said in response: “we’re limited to how much money we can borrow or raise. Corbett Court needs to increase it’s [sic] value. It can be done but it takes time.”

    John makes offer to buy shares in Corbett Court

14. On 24 February 2011, John made an offer to all of his siblings as follows (as written, emphasis added):

    Hi, all

    In order to promote a possible solution to Corbett Court and the relationship with the Estates I propose the following :

    1.   I buy the seven shares at $60,000 ( sixty thousand) each

    2.   The “loans” to K&V Corbett, and Menangle P/L are valued at 50% and repaid over three years.

    3.   240 Picton Road is gifted to me as to be arranged by dad in the last few weeks of his life and told to several family members

    4.   I take on all security and guarantees for the NAB loan hence The Estates are removed as guarantor and all mortgages from the Estate are returned from NAB.

    This offer is generous and over values Corbett Court on the Market place by nearly $2m, in my opinion.

    I would like to hear back from each person or their representative within seven days as to their acceptance. I have prepared a current tenancy schedule and I have emailed David Kenney that all the raw data is ready for his perusal when he returns a Confidentiality Agreement. I ask that each person completes same with him

    The offer is dependent on majority acceptance which will become binding on all parties.

    I hope you can give this genuine offer due consideration.

    …

15. John’s offer was not a simple offer for his siblings’ shares in Corbett Court and it cannot be evaluated that way; the offer to buy the shares was one of a range of issues involving estate assets and liabilities. Item 1 provided for an aggregate price of $420,000 for the siblings’ 50% of the Company. Item 2 involved a write-off of approximately $1 million of loans owned by Corbett Court to the estate companies with repayment of the other approximately $1 million over three years. Item 3 is a property which John claimed his father had gifted him but which would otherwise have formed part of his father’s estate to be divided between the eight siblings. John said that at that time the property was valued at $600,000; as at November 2012, a valuation received by Mr Holbrook put the value at $750,000. It is difficult to understand on what basis John asserted that “majority acceptance” could bind the other siblings.

16. Three of the siblings rejected this offer and four did not respond.

    Advice from Perpetual

17. By a letter of 11 March 2011, Perpetual provided the siblings as beneficiaries of the estate with an update on the administration. Among other things, the letter said:

    ·The accounts of the estate companies recorded undocumented loans to family members; the family members disputed the loans and said that they were intended as gifts. These loans were thought to be unenforceable. Loans to companies had been acknowledged in the accounts of those companies and were thought to be enforceable and would be pursued.

    ·Beneficiaries were asked to identify any estate properties which they might care to purchase.

    ·In relation to Corbett Court, Perpetual would be asking NAB to renegotiate guarantee arrangements. The letter went on to say that if repayment of loans to the estate could not be achieved, Perpetual would be required to pursue repayment “with the same vigour as would occur if the loans were on an arms length basis”, possibly involving costly legal action which would be unfortunate as “the entity is related to the beneficiaries of the estate”. The letter went on:

    Beneficiaries as with other matters, do retain the option of coming to an agreement which does not maximise the legal rights of the estate but achieves a more optimum outcome for the parties as a whole. This would be acceptable to Perpetual provided all estate beneficiaries, as with other matters, indemnify Perpetual for not having carried out its legal duty to maximise the value of the estate. Given the liquidity issues that have arisen in Corbett Court following large accrued management fee payments during the financial year to 30 June 2010, beneficiaries should consider arrangements that would avert the need for legal action in regard to the loan to this entity.

    ·The letter noted that “a few beneficiaries” had raised the possibility of legal action being taken against the estate and that that course would extend the period of the administration. Perpetual requested that if a beneficiary wanted to go down that path, they should advise Perpetual within 21 days.

    John commences family provision proceedings

18. On 16 May 2011, John commenced family provision proceedings in the Supreme Court of New South Wales in relation to Keith’s estate. They were discontinued in August 2012.

    John makes First Share Offer

19. By letters dated 18 May 2011 signed by John, Corbett Court sought to raise $1,050,000 by a proportional offer to subscribe for shares made to all of the shareholders (“First Share Offer”): see [19] above. Without detracting from the importance of all information in the First Share Offer letter, I note that it provided:

    Please note that if you do not take up this offer the Directors may offer the shares originally offered to you in such manner as they think most beneficial to The Company.

    This offer is subject to all of the shares being offered by the Directors being taken up by the Shareholders. As such, if the Shareholders do not agree to take up all of the shares being offered by the Directors, the Directors may determine not to proceed with the share offer.

20. In an email sent on 29 May 2011 to Margaret, copied to Clare, Honora, Anne, Paul and Joseph, Gwen said, among other things (as written):

    Regarding the share offer ... Marg, I just don’t know what you mean: it seems to be that John is trying to dilute the shareholding in order to resume our shares...Then there is no leverage with the loans/guarantees. Could that possibly be correct? ... I don’t think he would do that to his siblings, considering CC was set up primarily for the children. That’s what I assumed, when I payed and signed for these shares.

    I don’t think it is worth putting in too much energy into Johns offer. NAB will sort John out in the very near future. Then CC will have to be sold and game over. Karma may result and NO more talk of Corbett Court or John Corbett again. Don’t forget the old saying, “Big men fall hard”.

    …

    I will get back to you about your referencing of the Act – if I can be bothered. Lets see what Perpetual comes up with tomorrow. Its about time for some transparency and an ‘action plan’. They have no suits of armour, white horses or magic fairy wands. I think NAB will wave the magic fairy wand and get this story finished, its inevitable!!!!! Like Dad said, he was ‘bankrupt’. We have known for years there is no money coming to us from him, (just from Mums estate). The siblings who think they will get this huge inheritance will have to face reality. So sit back and watch the fireworks begin. The sooner it starts wrapping up, the soon it finishes.

    Suggestion that NAB and Perpetual should call loans

21. On 30 May 2011, in an email copied to Paul, Gwen and Margaret, Joseph raised the prospect with Perpetual that unless Perpetual approached NAB and “look[ed] into” Corbett Court, some of the siblings would. Joseph told Mr Dass that (as written):

    They want NAB to take some action and know what is going on with this company.

    If you can advise us that NAB and Perpetual need to discuss calling in their and your loans and force the Director to the table and look at options to buy or sell the company outright now. …

    There are a couple of buyers who would wish to contact, those directing the selling process, so to establish an offer.

    If the price obtained pays the estate loans remains to be seen, though now is the time to have this all out and moved on for all involved.

22. Joseph appears to have been surprised to be advised by Mr Dass that such a course could result in a “fire sale” of assets owned by Keith’s estate and the estate companies instead of NAB proceeding against Corbett Court first. In his email to Mr Dass on 31 May 2011, he said (as written, emphasis added):

    Us as shareholders would like see an end to that company, even if we end up with nothing for our shareholding.

    The estate and you as Trustees would be clear to sell the estate properties unencumbered.

    That is what we want, NAB to force the issue and start this process forward.

    ... It would be best and less hassle, money, and quicker, if, us as shareholders do not have to engage lawyers to help protect us in dealings with the Director of Corbett Court, if the Trustees could arrange a process to clear the NAB and estate from that company.

23. In cross-examination, Joseph acknowledged that the proposed buyers were the Khans (the tenant of the IGA Supermarket) and another supermarket owner. He suggested that they may have been prepared to offer $16 million, but even though Joseph forwarded their letters of intent to Perpetual, the buyers never provided a firm price to Perpetual.

    Anne’s view

24. On 4 June 2011, Anne wrote to Mr Dass (copied to others at Perpetual and to her siblings other than John) stressing that resolution of the administration of the estate, John’s family provision claim and issues related to Corbett Court were interlinked. Without endorsing Anne’s proposed solution, her careful and unemotional analysis is a useful synopsis of issues (as written):

    I have previously expressed the view that all matters involving the estates, companies, Corbett Court and now the FP claim are interlinked and need to be dealt with together.

    I think that it is in John’s interest as well to reach a resolution of all issues. This is not said to favour John in any way but because it may be our best hope of being able to resolve the situation.

    Paul rang me yesterday to discuss the possibility of legal action in relation to Corbett Court. I am not interested in legal action. ...

    Corbett Court clearly is facing financial problems. I understand that some think that John has deliberately created that situation - either to secure Target as a tenant or to make it possible for him to purchase it at a lower price. Whatever the reason or the motive we are faced wtih the reality that there are several vacancies within Picton Mall and many others in Picton. This is in a climate where there is significant uncertainty over retail in Australia generally and in outlying or regional areas in particular. Whatever the reasons for this situation we have to deal with it in the present.

    If Corbett Court deteriorates further it may not be able to pay the interest on the loans. More tenants may leave. Coles may stop paying rent or pay a reduced rent. They are entitled to do this if tenancies are not maintained at a certain level. Forcing a sale of Corbett Court is not in our interest. It is extremely unlikely in this environment that we will secure a buyer at a good price. It is quite feasible that the sale price will not cover the loan from NAB. The shortfall could be very significant. There will also be costs associated wtih all of these processes which will increase the losses. This will mean that the estate will pick up the shortfall. Obviously the loans from Corbett Court to the estate and related companies would not be paid. Meanwhile John’s FP claim is still outstanding and in these circumstances his financial position could be worsened to the point that he will be successful in his claim.

    The longer this goes on the more the estate will be devalued. Not only by repaying the loans to NAB, possibly paying John’s FP but also because the market for other properties may well deteriorate.

    It is in our collective interest to negotiate a solution whereby Corbett Court is extracted from the estate - i.e. the estate, and companies, are released from the gurantees. That at least preserves the value of the estate.

    My view is that if we will be lucky if we can reach agreement in relation to the following:

    1.   John make arrangements to renogotiate the loans between Corbett Court and NAB thereby releasing the estate and the other companies

    2.   John withdraw the FP claim

    3.   We transfer our shares in Corbett Court to John.

    The outstanding issues relate to the loans between Corbett Court and the estate and other companies and whether we are paid anything for the shares in Corbett Court.

    Obviously John will need to settle the loans as part of the agreement. Their value is such that he needs to know whether he, through Corbett Court, is liable for them in order to make financial arrangements, renegotiate the NAB loan, satisfy their security requirements, etcetera. Although it is not clear exactly what the value of Corbett Court may be there is real doubt that it is able to repay these loans now. Whether it could ever repay these in the future is unclear but as set out above there is real potential that it will go into liquidation and they will not be repaid.

    I understand that Perpetual, as the administrator of the estate and and PKF, as the director of related companies, will need to decide whether to agree to waive these debts.

    As I understand it they are in the process of assessing whether there is any real prospect of recovering the money and are able to make a commercial decision to waive them.

    That leaves the question of whether we receive any payment for the shares of Corbett Court. It appears that on any present valuation there is no equity in the company and so the shares are worthless. I doubt that we can get more than a nominal value. The amount would be so low that it wouldn’t really matter.

    I am aware that a number of people are not happy about the prospect of transferring, or selling, shares in Corbett Court to John.

    Not doing so however could be a very costly mistake, and it is costly to everyone not only to those who hold that position.

    The best thing we can do now is get out of this situation and that means getting out of Corbett Court even on conditions you are not happy with.

    Preserving the estate is much more important than winning legal actions - even if successful we lose a very large part of the estate.

    Would you all please consider this proposal and advise whether you would accept it.

    If everyone is in agreement Perpetual will be able to make some headway.

    Discussion of options with Anne

1. On 14 June 2011, there was a chain of correspondence between John and Anne copied to Honora, Clare and Mr Holbrook. John said (as written, emphasis added):

   Anne, In confidence , Without Prejudice

   I have spoken with Gary Holbrook, the director of the companies at PKF ...

   He is interested in meeting with Honora, Clare and yourself to work out a proposal for Corbett Court, the intercompany loans, guarantees to NAB and the shop.

   He is mindful of NAB calling in the loans resulting in the companies having to make up any shortfall. He proposes the companies sell $2m in shares and give it to NAB to reduce the loan and transfer the shop to Corbett Court P/L. C Court could then redraw $1m from NAB to refit for Target .

   The guarantees would then be removed and the rest of the assets sold and distributed immediately.

   His basis is the companies need to buy back their guarantees and Corbett Court is entitled to survive. I would agree if all shares in Corbett Court are transferred to me now and so withdraw the FPA claim.

   I am happy to attend or not.

   I urge a commercial settlement be reached and agreed to by the four so that Perpetual has a proposal to execute.

   Time is of the essence. I do not have a do nothing option. The only other way I see is I issue the shares in Corbett Court now, put Target in and battle out the loans and FPA claim over the ensuing years. My work for the estate is valued much higher than the value of the loans but it will take a long time to prove that to the standard of the Supreme Court.

2. Anne replied that she was prepared to meet with John and Mr Holbrook “if there was a prospect of a productive settlement”. She suggested that:

   ... a settlement would be more in line with the offer you made in February – but without the transfer of the property at Picton Road, Maldon or possibly payment of money for transfer of CC shares from siblings to yourself. The advantage to you is that you would have sole ownership of CC which would be released from the loans to the estate and related companies. The estate (directly and via the companies) would forgo recovering those loans in return for being released from the guarantees.

   [John’s proposal] requires a gifting of $2 million plus the shop to CC. You don’t mention the loans from [sic] CC which I think are listed at $2-3 million.

   I have no idea of the value of the shop. We have not heard anything from PKF in relation to the value of the company properties or proposals for sale.

   It is difficult to see that there would be agreement on gifting $2 million plus the shop to CC – which effectively means to you if all shares are transferred to you.

   Are you proposing to forgo your claim to your share of the estate in partial return?

   It is not going to be easy to reach any agreement with all of the people involved ...

3. John responded (as written, emphasis added):

   Anne

   There are several issues

   Menangle P/L and K&V Corbett P/L cannot just walk away from guarantees given. If they sell assets NAB will take the proceeds. So the estate is not gifting anything, the companies are meeting their obligations in order to be liquidated. Corbett Court is not bankable without security from Menangle and K&V Corbett p/l’s asset base. These are the issues the director is grappling with.

   Dad gave me the land at Maldon many times and again the day before he died. Everyone has to accept that. If I have that I can use it for security.

   Corbett Court has no value, why pay money for something that has no value? I made a very generous offer and was abused for it, or ignored.

   If it is sold now it may not get back the amount it owes NAB, hence costing the estate more money than it would to keep it and allow a future.

   The shop may be too contentious to put in the equation, it must be sold on the open market or amongst interested siblings.

   I have all my other work that needs to be accounted for, there are plenty of items that can be traded off.

   I believe I have worked on a solution to turn it around but clearly there is no opportunity to go forward with the present ownership structure.

   Perpetual should be able to give you global figures of net returns to each member based on differing outcomes. The total will be significant, or they can wait 4-5 years and get less. These are all adult decisions that need to be made. It is past time.

   I suggest you talk to Gary and work through a viable plan.

   I can meet at any time to progress the matter.

   …

4. Paul made a complaint to ASIC on 4 July 2011 and again in November 2011. ASIC declined to investigate noting “internal company disputes, where it is open to members to take their own civil action, fail the public interest element of ASIC’s assessment of complaint suitability for further action”.

   Perpetual asks for proposal for dealing with loans and guarantee

5. On 8 June 2011, Mr Dass wrote to the directors of Corbett Court in relation to $2,256,950 of loans from the estate companies seeking a proposal for the release of the guarantees and repayment of the loans, including evidence of NAB’s attitude and Corbett Court’s cash flow to meet any time payment request. Failing such a proposal, Perpetual threatened “such action as it deems necessary” to recover the loans.

   Honora protests dilution, acknowledges Corbett Court’s financial position, Paul’s legal advisers complain, John seeks a shareholders’ meeting

6. On 6 June 2011, Honora wrote letters to John and Renelle saying that, although she “personally [was] not interested whether or not the company makes share offers” the First Share Offer was unduly dilutive on the basis of her valuation of Corbett Court shares, which was between $12,755 per share to $43,197 per share. She said that it would not accord with Keith’s wishes that John’s siblings have 50% of the Company for John to “commandeer” value in that way. She asserted that John knew of the “financial hardship” being experienced by “most of the minorities and their [sic] level of incapacity of at least one of them to handle their affairs”.

7. On 10 June 2011, Paul’s lawyers wrote to “The Directors” of Corbett Court suggesting that article 37 of the Company’s constitution required shareholder approval to an issue of shares under the First Share Offer and that had not been obtained at the meeting on 10 February 2011. John responded on 16 June 2011 pointing out that article 37 applied to increases in authorised capital; it was article 38 which applied to the issue of shares within the authorised capital of the Company and that was a function for the directors.

8. On 10 June 2011, John responded to Honora’s letter of 6 June 2011, pointing out that it may well be that Honora had better knowledge of his siblings than he did “as they have completely cut themselves from me in all forms of communication” and he did not see their “severe disadvantages”. John went through his knowledge of his siblings’ real estate assets and employment/family situations. In relation to Paul he said

   Paul owns at least two houses, is very creative in coming up with money for lifestyle purposes but is unemployed and somewhat unstable, though he denies that. He could have problems in arranging $75,000 in a reasonable timeframe unless assisted in some way. I note he has had his hand out to dad for many years in paying off credit card debts. The directors are not his keeper. The Directors must act for the benefit of all, not one.

   After pointing out that he thought that Honora could “rustle up $75,000 should [she] feel inclined” John went on to say (as written, emphasis added):

   I do not know the absolute details and have no interest in finding out as it is not my business, personally or as a Director. I know enough to refute your absurd claim of me opportunistically putting the boot into weaker minorities.

   2.        The value of the existing shares

   Your argument values the existing $1.286m income at a yield of 7%. This is not realistic. The most recent valuation by Colliers in April 2009 valued higher income at 8.5% yield to achieve a valuation of $18m. Our trading position is worse now than then. Before you attack the current and former directors for lack of value creation you should look into both the local retail market and the broader retail commercial property market. I believe we are doing better than most. There are 24 empty shops in Picton. We at least have a potential plan to arrest the slide.

   A yield of 8.5% gives a value of $15.1m, with debts of $17.3m the share value is less than zero. I can’t issue a zero value share and the original shares were issued at a dollar.

   I made a realistic offer to buy the minority shares on 24^th February 2011. I was abused by three members and did not receive a reply from four members, yourself included. The offer is repeated here for your information. From any viewpoint it was a realistic, genuine offer to resolve the operation of the company.

   …

   3.        Current borrowings

   The company cannot borrow more money from the open market as it is well over the required LVR of 70%. Perhaps you would like to become an unsecured creditor to the company in good faith?

   4.        Managers’ salary

   I am entitled to be paid a reasonable fee for my work. I note all the shareholders earn an income, why can’t I for working for them? The company is not paying me at the rate of $120,000 per year as there is no money to pay. Similarly the accrued income not paid over the last ten years sits as a loan to me. Meanwhile, I pay loans to the company for money taken in 2002-4. It was not paid as salary at the time in order to reduce costs. I pay the company for the privilege of working for it. Since 2006 we, Renee and I, take $40,000 per year from the company as salary. I have acted in good faith since the start of the company.

   The company has, through my efforts, the chance to establish itself firmly in an otherwise down market. It needs $1m plus to do this, if I do it myself. If the Company was to employ outside parties I believe the price would be so high it would be uneconomic to proceed. We have Bendigo Bank opening in September, a project I have been involved with for two years.

   In summary,

   1. The company cannot borrow more money from the bank

   2. I have made an offer to buy out the minority shareholding at a price well above market price which was rejected.

   3. The Directors are issuing shares on the same percentage as the existing shareholding to existing members. I reject your assertion the members are “severely disadvantaged” and so cannot take up that offer.

   4. The Manager’s salary is not being paid at a market rate currently in order to preserve company funds so that solid income can be achieved in the future.

   The Director’s have acted in good faith over many years to promote the value of Corbett Court and the other Estate Entities for little or no return.

   I urge you to take up the shares and be part of the future growth of the company, though I can offer no guarantees of the future returns.

   …

9. This remains a fair summary of John’s position.

10. Honora was not persuaded that the First Share Offer was appropriate in its effect, but she was persuaded of the Company’s need to raise funds. On 12 June 2011, Honora sent an email to Mr Dass, Margaret, Anne, Clare, Paul, Gwen and Joseph, canvassing the duties of directors under “Corporations Law” and went on to say (as written):

    I see that Paul is attempting to obtain an injunction through the Courts. That may or may not be successful eventually. Certainly his solicitor’s letter has not had a positive response either. Perhaps John is just digging his heels in to see what he can get away with, or perhaps he is so isolated that he cannot see any other course of action than the one he has come up with so far. Meanwhile, your next step could be to have the corporate watchdog, ASIC, investigate and rule on the matter.

    …

    It appears John has a serious predicament in that he is a director of a company which is struggling and he has a responsibility to keep it solvent and viable. My very brief analysis based on the figures from the offer documents is attached. It appears that CC currently has a negative net shareholders’value of $0.2-2.2m. I didn’t see any profit and loss forecasts in the offer documents, so I can’t ascertain whether it is covering its interest bill currently or not. Clearly the directors have a legal responsibitly to rectify this situation.

    John has come up with a tenancy deal which could be indeed very profitable for the company (see atteched spreadsheet for the possible impact on net equity). His stated view appears correct ie CC does need more equity urgently (and definitely no more debt) so it can boost its rental stream, its value and therefore increase the net equity and lower the loan-to-valuation ratio. My very brief analysis does show that the proposed Target deal and capital injection will indeed achieve these goals. Please note: that would actually be in everyone’s interest as CC shareholders would benefit from rising rent, profit,and asset value; and therefore all estate beneficiaries would benefit as Perpetual/PKF would thenhave a much better chance of clawing back the $2.3m inter-company loans and hopefully be able to offload the guarantees. The immediately pertinent question is: how are the projected improvements in values to be shared between John and the minorities? And how is the capital injection to be funded?

    If you want to stay in CC or get a good price for your shares as per your past emails (or even try to get the estate loans repaid) then it seems to me that you are going to have to inject some capital to keep it solvent and viable and boost its net worth. This needs to be done sooner rather than later probably. The directors do have a duty to do that. Shareholders have to either support that direction (ensuring they get a fair deal of course) or sell their shares. You can’t just ignore the problem. Constructive solutions are necessary. It is not feasible to request your shares be bought for $1.5m when they are effectively worthless at present. Nor is it feasible to dig your heels in and say John can’t have CC at any price. That is cutting your nose off to spite your face. In a recent email. I noticed Anne tried to point out one possible appraoch to negotiate a possible global resolution to the impasse. It is that sort of flexible thinking, and a mature acceptance of the need to compromise, however reluctantly, that will lead you out of this mess.

    This is not a pleasant situation. Regarding your immediate problem with the share issue, ASIC appears the most direct route to a ruling. It is up to you.

    btw apart from my letter to John, I haven’t dealt with him since the last Perpetual meeting I attended. I suggest you keep your snide remarks to yourself and stop your unfounded conspiracy theories. I am over it. It is time to act very professionally and maturely.

11. Many of the siblings took great notice of Honora’s valuation but little notice of her acceptance that Corbett Court was genuinely in need of funds to the extent that John needed to be concerned about the performance of the legal requirement that he not allow Corbett Court to trade while insolvent. However, although Honora is a share analyst, I do not accept her view as an expert or as evidence of the true value of share in Corbett Court at the time.

12. On 13 June 2011, Clare sent an email to Anne, Paul, Honora, Gwen, Joseph and Margaret saying: “I cannot afford to add $75,000 to raise capital. While this may be the most commercial solution in the longer term I am not able to commit to this course of action.” She said that she would be willing to transfer her shares in Corbett Court to John if he would agree to release the guarantees. She said: “I just want release from this stressful situation. Yes I would love to be offered a substantial return for my share but this not going to happen either. The first offer was not a genuine offer. But if he took the $14 million loan then I see it as a financial benefit to me and to the estate.”

    John invites siblings to a shareholders’ meeting

13. On 10 June 2011, John sent an email to his siblings proposing a meeting to be held on 15 June 2011 for the purpose of authorising the issue of shares. No one attended.

    Mr Holbrook’s view

14. On 26 July 2011, Mr Holbrook told Mr Dass of Perpetual that:

    NAB have indicated that, should [the estate companies] call on the loans to Corbett Court, NAB will call on their own loan (which has priority over the intercompany loans) in order to protect their position. The most likely outcome of this would be for Corbett Court to be put into administration with a resulting fire sale of the security property. Given the estimated value of the security property, there will very likely be no funds remaining to repay the loans to the companies. For this reason, I believe the commercial value of the loans to Corbett Court to be nil.

15. On 23 September 2011, Mr Holbrook reported to Mr Dass about a meeting with the siblings as a result of which he approached NAB to discuss what payment they would require to release the estate and estate companies from the guarantees. NAB told Mr Holbrook to “make an offer” and confirmed that it would accept the transfer of property to Corbett Court in satisfaction of the guarantees. NAB’s preferred interest cover ratio was in the region of 2:1. On that basis, Mr Holbrook estimated that the NAB loan would need to be reduced by $4.8 million to bring it within NAB’s preferred interest cover.

    A further proposal by John for resolution

16. On 11 January 2012, John sent an email to Mr Holbrook saying (as written, emphasis added):

    I met with Perpetual on Dec 13 where it was determined I would try and take on the estate guarantees for C Court’s NAB loan. The other provisos were I would take all shares in C Court at nil cost, receive the Maldon Property I occupy and repay $1m in C Court Loans over 3 yrs at commercial terms.

    On approaching NAB after the meeting in found they are not interested in discussing the matter without current valuations.

    I have spoken to David Mc Lennan from Colliers who says yields for similar properties are currently 10-14%. I spoke with Ben Stewart from Savills who sold Tahmoor Bi Lo in October on a 13% yield. He says most are selling to cash buyers around 12% yield as there is no finance available through banks.

    If I get a valuation it will show a value of <$10m as we will lose 500k in Coles income due to excessive vacancies. If sold now the Estate will have to tip in $4m plus to NAB and loose any unsecured loans. Clearly I do not want a valuation based on this information as NAB may call in the loan.

    What is the way forward?

    I have thought for some time I should do the deal with Target. To this C Court needs $1m plus my time to make it happen. In some ways I am ready to walk away but feel it is not right to sell now, surely the market will get better.

    I believe the only immediate way forward is to increase Equity by proceeding with the Rights Issue, and install Target. This shores up the income, and gets the valuation as high as possible to see what security NAB will let go.

17. The proposal which John said was discussed with Perpetual appears to be essentially the same as the offer made to shareholders in February 2011, save that John was now not proposing to make a payment for Corbett Court shares. Correspondence between NAB and Mr Holbrook indicates that John accurately stated NAB’s position.

    Agreement for lease with Target

18. Corbett Court entered into an agreement for lease with Target on 1 February 2012.

    Mr Holbrook’s view

19. On 21 February 2012, Mr Holbrook wrote to Perpetual urging Perpetual to undertake direct negotiations with NAB, as Mr Holbrook proposed to do on behalf of the estate companies. He said (among other things):

    I understand from discussions with John Corbett that he is unable to release the Estate and Estate-owned companies from the guarantees provided to NAB as had been agreed at the mediation earlier this year. The reasoning for this appears to me to be sound.

    I believe that as things stand there is a real risk that NAB may call in the loan to Corbett Court which by virtue of the mortgages and guarantees provided, would jeopardise the assets of the companies and of the Estate. Given current market conditions, my view is that, were the loan called on, a liquidator appointed and Picton Mall sold, it is highly likely that the companies and/or the Estate would be called on to make up the shortfall.

    John tells Mr Holbrook that installing Target is urgent

1. Paul suggested that John should have obtained the Colliers valuation earlier than 19 June 2012 because it would have revealed the true value of the Corbett Court properties and that would have provided a basis for borrowing from an external lender. Paul also said that the Share Issue should not have occurred based on the Landmark White valuations or John’s assessment of value when the Colliers valuation was so imminent, being only a month after the Share Issue. John said the Share Issue had to occur in May because finance had to be arranged so that work could start and he started construction at the “latest possible time” after the Second Share Offer having tried to meet with his siblings to discuss Corbett Court’s financial situation many times. He got the “as if complete” valuation at the “most early possible time” to try and beat the re-facilitation of the NAB facility in July which was “hanging over” his head. The valuation was able to be given in June, one month after the Share Issue, because work started at Picton Mall in May.

2. I accept John’s evidence that the Colliers valuation could not be obtained earlier than it was. I accept that he would not have been a prudent director if he had not instigated the work in May which would enable the valuation to be provided sufficiently in advance of the expiry of the NAB facility in July 2012. I accept that, having regard to the Landmark White valuations, it would have not been possible for Corbett Court to obtain funding from arms-length lenders unless the security position of Corbett Court was enhanced by the provision of support from John or the estate.

3. Paul suggested that financial institutions would have been willing to lend to Corbett Court if John and Renelle had been prepared to guarantee a loan and there were therefore other sources of funding. In effect the suggestion was that it was a conflict of interest for John to fail to give the required guarantee. I do not accept this argument. It is clear that during 2011-2013 there were ongoing discussions about the extent to which (if any) the estate companies or the estate would forgive loans or provide assets to Corbett Court in consideration of being released from guarantee obligations to NAB. Alternate sources of funding required that John give guarantees to support loans to Corbett Court or the estate companies supply assets by forgiving debts. Even if banks customarily require such guarantees from a director of a private company as a condition of a loan, it cannot be seriously contended that the director has any obligation to give the security any more than the estate companies had an obligation to forgive loans or transfer properties. If John, Renelle or the estate companies refused to provide security to NAB or another lender to Corbett Court, as was their right, it cannot be said that external lenders were an available source of funds to Corbett Court.

   PURPOSE

4. The difficulty is that John could not explain why he and Renelle required the issue to them of 100,000 shares in order for them to agree to fund construction at Picton Mall to accommodate the Target tenancy; he said “we just did”. John correctly pointed out that it would have diluted minority shareholdings more significantly if they had subscribed for more or all of the shares offered in the Share Offers.

5. While lenders are free to lend on such terms as they can agree with a borrower, it is difficult to see in this instance what purpose the Share Issue served other than to overcome the impasse between John and his siblings as shareholders of Corbett Court and to give him leverage in the ongoing negotiations with the estate. John admitted a dual purpose in his 7 May 2012 email to his siblings when he said “[i]n order to meet its commitments and run the company effectively” the Company would issue shares to John and Renelle, borrow $900,000 from them and give them a second mortgage over the Company’s property subject to NAB’s consent. On 11 May 2012, John’s desire to assume control of Corbett Court was again made clear when he made a further offer for a global settlement with the estate saying “I control all shares in Corbett Court. The Current structure is clearly unworkable.” All of this is consistent with many statements made by John from 16 December 2010 onwards that he had “no interest in taking it forward with the current shareholders”: see [64], [74]-[77], [90] and [100] above.

6. John’s desire to effect a change in the shareholding structure is hardly surprising. The failure of his siblings to respond to the Share Offers and requests to attend shareholders’ meetings to discuss Corbett Court’s situation was undoubtedly provoking in light of Corbett Court’s real need for funding to install Target as a tenant. Even if this conduct of the siblings might be explained by John’s own conduct in appointing Renelle as a director immediately before the one meeting they did attend on 10 February 2011 and his commencement of the family provision proceedings immediately before the First Share Offer, it is plain that many of his siblings were unsympathetic to Corbett Court’s position and some actively sought to undermine it, as is evidenced by Joseph’s correspondence with Perpetual and correspondence between Joseph, Paul, Gwen and Margaret.

7. Paul’s actions in passing on information about Corbett Court to NAB without authorisation were underhanded, commercially naïve and inappropriate in the interests of all of the shareholders of Corbett Court at a time when not only John but Honora and Anne advised him of the jeopardy of Corbett Court’s position. John provided information about Corbett Court to Paul whenever it was requested. Paul, Joseph, Gwen and possibly Margaret might have been happy to see the end of Corbett Court but Paul’s conduct took no account of the financial interests of his other siblings or of their father’s effort in attempting to build something for his children and grandchildren over 17 years.

8. Nonetheless, the Share Issue was not required to meet Corbett Court’s need for finance; John and Renelle’s actions indicate that unsecured debt was enough. NAB did not call for additional capital to be contributed to Corbett Court and there is no evidence that it did or would object to unsecured lending by John and Renelle or the siblings.

9. I accept that Corbett Court’s position would have been materially stronger if all of the shareholders had responded to the Share Offers; there would have been no risk of insolvent trading by incurring more debt. $1,050,000 of additional equity would not only have funded the installation of Target as a tenant and secured Picton Mall’s cash flow; it would also have provided a good basis for refinancing the NAB facility and opened up options for repayment of loans from the estate companies. I have no reason to think that John would not have allotted shares in accordance with the Share Offers had all of his siblings subscribed. There would have been a clear corporate benefit served if he had underwritten the offer whether or not some or all of his siblings failed to subscribe because they could not fund the subscription (whether or not John knew that that was a likely outcome) or because they would not do so.

10. However, the contribution of $100,000 capital was insignificant in the scheme of things; all it did was dilute the shareholding of his siblings to an immaterial amount. The effect of the dilution is that any corporate benefit from installing Target as a tenant would go to John and Renelle overwhelmingly. As events transpired, it would also mean that they would share disproportionately in the forgiveness of the loans from the estate companies in November 2013.

11. Looked at objectively, the moving cause of the Share Issue was to dilute the minority shareholdings. Even though John could reasonably form the view that the interests of the Company would be served by resolving the impasse between him and his siblings, this was an improper purpose.

    WAS THE SHARE ISSUE COMMERCIALLY FAIR?

12. I have found that Corbett Court did in fact require funding to install Target and I have accepted that Corbett Court faced jeopardy to its financial viability if funding was not received and the Target tenancy was not achieved with the result that Coles acted on its right to reduce rent payments in accordance with clause 66 of its lease. I accept that it was John’s view that shares in Corbett Court were valueless unless Target was installed. I do not accept that the Understanding existed.

    No independent advice

13. Having said that, I find that the minority shareholders of Corbett Court had cause to question the integrity of the Share Offers in the context in which they occurred such that the siblings were not in a position to consider the Share Offers on their merits.

14. In the circumstances, it was incumbent on the directors of Corbett Court to provide independent expert advice as to whether the Share Offers were fair and reasonable in the interests of the minority shareholders; that advice would have taken into account the value of Corbett Court’s properties with or without Target installed as a tenant. In the absence of independent evaluation of the offers, I am not satisfied that John’s siblings were given all of the information which they reasonably required to decide whether or not to take up the Share Offers.

15. How the Share Offers would be perceived by the siblings needs to be considered in the context of the family history coupled with the administration of Keith’s estate in intestacy and the need to extricate the estate and estate companies from loans to Corbett Court and guarantees of its indebtedness gave rise to conflicts of interest between the siblings.

16. The fact that John controlled the affairs of Corbett Court and knew a great deal about the affairs of the estate companies having been a director of them and having enjoyed a close working relationship with Keith between 1993 and 2010 put his siblings at a disadvantage in negotiations concerning Corbett Court and the inextricably linked affairs of the estate companies which they clearly felt. John’s educational attainment coupled with this superior information about Corbett Court and the estate companies and a strong personality made him intimidating to some of his siblings.

17. John was isolated from his siblings and they did not trust him; he knew that. As early as the first meeting between the siblings and officers of Perpetual on 16 December 2010, John said that he would agree to step down as a director of the estate companies because “[h]e believes he has opposition to his involvement and doesn’t want nastiness. The only problem he has is that this wasn’t his dad’s wishes.”

18. Despite the fact that John knew that his siblings did not trust him, he demanded their trust in the conduct of Corbett Court’s affairs and the administration of the estate. There were many occasions on which the siblings were asked to rely on John’s word and in circumstances in which he would take a substantial benefit at the expense of the siblings.

19. First, there was John’s word that his father had agreed to pay him remuneration for 10 years from 2000 calculated at the rate of $120,000 per year. The sudden appearance of $761,244 for “accrued management fees” and a loan to Renelle in the amount of $237,318 in the financial statements for 2010 in the year Keith died would give rise to a concern as to whether John was administering the Company in his own interest. The concern would persist in subsequent years with unexplained appearance and disappearance of director loans or loans to or from related parties revealed in the financial statements without commentary by way of explanation. These payments occurred without shareholder approval. In circumstances where siblings already did not trust John, this conduct was susceptible to a perception that John benefited from Corbett Court when no dividend had ever been paid to shareholders and they were now being asked to contribute funds. Even though John made five years of management accounts and Mr Campbell available to answer questions at the meeting on 10 February 2011, these acts of transparency were not enough at a time when John also refused to allow the appointment of an independent director and appointed his wife instead.

20. Second, there were John’s claims on the estate resulting in the family provision action in the Supreme Court of New South Wales which appears to have been based on alleged verbal agreements between John and his father. Any success of those claims would have been at the direct cost of the siblings. The proceedings were commenced almost simultaneously with the First Share Offer.

21. John’s unwillingness to allow an independent director to represent the interests of minority shareholders and his appointment of Renelle as a director instead made him appear to be unwilling to be accountable and contributed significantly to establishing some siblings’ belief that he was not trustworthy. This is so in spite of the fact that John appears to have been willing to provide them with information about Corbett Court whenever asked.

22. The siblings were asked to rely on John’s word again concerning the need to bring in Target as a tenant to shore up certainty of income and avoid jeopardising the solvency of the Company. He provided only his valuation of the Company’s properties based on annualised rent returns with and without Target as a tenant. The last external valuation had been in 2008/09. While I accept John’s evidence that substantial changes to the marketplace around Picton occurred since then and the market continued to be affected by the aftermath of the global financial crisis, he was also asking his siblings to take his word for that.

23. In the highly contested situation in which the Share Offers were made, fairness required that independent advice be provided to the siblings to enable them to make an investment decision.

    Improper purpose

24. The moving cause of the Share Issue was John’s desire to resolve the impasse with his siblings in the context of the administration of the intestate estate of his parents. There was no demonstrated requirement for Corbett Court to raise only $100,000 as equity nor was there material benefit to Corbett Court resulting from it for the reasons previously given. Any benefit to the Company financially or in its ease of administration was far outweighed by the detriment suffered by minority shareholders by the dilution of their shareholdings effected by the Share Issue.

25. Neither of the Share Offers provided the minority shareholders with the option which John and Renelle said they were taking of providing funding by way of 10% equity and 90% debt. According to the terms of the mortgage which Corbett Court gave to John and Renelle, this debt bore interest (albeit only marginally above the cost of funds to John) and was said to be repayable in three years. The arrangement which John and Renelle told the siblings on 7 May 2012 that they were taking was less burdensome than the 100% equity contribution the siblings were asked to make, and make on the basis that it may not proceed unless they all subscribed. No satisfactory explanation has been offered for this difference in treatment between the Share Offers made to the siblings and the mixture of equity and debt funding used by John and Renelle. It is true that John and Renelle controlled whether or not they demanded repayment of the debt so that they ran less risk of insolvent trading by incurring that debt than they would have if they had offered the same terms to John’s siblings who would expect to be repaid on the due date. However, that is not an explanation John offered and it may well have been possible to craft a solution which did not give rise to the same concerns if John had not, at the same time, been seeking to leverage a resolution of how the loans from the estates would be dealt with.

    Conclusion on fairness

26. John said that the siblings would not fund Corbett Court. In light of the pleaded Understanding which was supported by evidence given by his siblings, John might be right; that is something we cannot know. Had the siblings been provided with expert advice as to whether the Share Offers were in the interests of minority shareholders and/or had they been offered the opportunity to subscribe for shares and lend money to Corbett Court on the same basis as John and Renelle (assisted by expert advice), it may be that some of them would have provided their share of funds or at least participated in shareholder meetings. The very fact of independent advice may have made all of the siblings more willing to engage with and trust John. Whether or not that is true, all members of Corbett Court had the right to be properly informed, to be treated equally with the directors in relation to the basis on which they were offered the opportunity to invest in the Company and the right to have the directors use their power to issue shares for a proper purpose.

27. In the circumstances it is not fair to the minority shareholders that John and Renelle should rely on articles 38(1) and (2) to make the Share Issue under article 38(3) and the impact of the Share Issue is unfairly prejudicial to them as shareholders having regard to the massive diminution in their capacity to share distributions of dividends or capital by Corbett Court and the loss of the power to veto resolutions at shareholders’ meetings when acting together. That is an ongoing detriment. I am satisfied that Paul has made out a claim under s 232(e) that the Share Issue was oppressive to, unfairly prejudicial to, and unfairly discriminatory against both himself and the six other minority shareholders.

28. I do not consider that the offer made by John to his siblings on 3 December 2012 and reiterated on 11 January 2013 to “restore the balance” mitigates the unfairness of the Share Issue (see [119] and [121] above). This is because:

    (1)John did not explain how Corbett Court would use $1,000,000 in equity or debt. If all of that money went to pay out the debts due to Corbett Constructions, the minority shareholders would have effectively paid for the building works to install Target and John would have merely provided a bridging loan. John did not explain how much had been spent in installing Target so the siblings would not know the extent to which more than $1,000,000 might have been spent. He did not explain whether any part of the $1,000,000 would be used to pay down debts Corbett Court owed to the estate companies.

    (2)If John sought to create equality, half of the shares issued in the Share Issue could have been transferred by John and Renelle to siblings at cost and the siblings could have paid out up to half of the $900,000 debt which was in fact owed to Corbett Constructions, not John and Renelle. This would be substantially less onerous, since the minority shareholders would need to raise between them only $500,000 (slightly less than the amount they were asked to provide under the Share Offers). While it is true that John bore the risk of funding Corbett Court to install Target, that was his choice and he was the person best positioned to make it. It was John who had ongoing discussions between at least March and June in relation to the provision of a Colliers valuation. John provided funding only one month before the “as if complete” valuation was provided; it is open to think that John had some comfort from Colliers that the situation would be better than that envisaged by Lankmark White.

    (3)It is extremely onerous for shareholders who have no role in management of the company to be asked to guarantee a loan.

    (4)There was no independent evaluation of this offer provided to the siblings.

    REMEDY

29. Section 233 is a remedial provision designed to empower the Court to mould relief that is appropriate to overcome the consequences of oppressive conduct. The Court can make any order that it considers appropriate in relation to the Company; it is a very wide power.

1. In this case, both Paul and John contend that the appropriate order is that John be required to buy out Paul’s shares. In the alternative, Paul seeks an order setting aside the Share Issue or (as a last resort) an order setting aside the Share Issue and winding up the Company.

2. Paul elected to plead his case for oppression very narrowly, focussed on the Share Issue; he did not plead other grounds of oppression to seek to justify a winding up of the Company on the just and equitable ground despite the apparently ongoing dysfunctional nature of the siblings’ relationship. The Share Issue affected all minority shareholders equally. Even though only Paul brought this action and his siblings either could not afford to, or would not, join as parties, Paul has demonstrated no special damage arising from the Share Issue which would not be addressed by setting the Share Issue aside.

3. John’s reason for suggesting that buying out Paul is the appropriate remedy is obvious. He submitted that the shares should be bought at their valuation in May 2012, before Target was installed. That would leave him with most of the benefits of the Share Issue which I have found to have been made for an improper purpose, on terms more beneficial to John and Renelle than those offered under the Share Offers. The Share Offers contained inadequate information for the minority shareholders to make a decision whether or not to subscribe under them. While it is true that Corbett Court’s position was improved by John’s work and the finance provided by John and Renelle in installing Target as a tenant, I note that in November 2013, since these proceedings began, the estate companies have forgiven loans to the amount of about $1.9 million, in effect continuing the support to Corbett Court to which Keith agreed. It is unfair that John should get the vast majority of this benefit which comes from companies in whose assets the siblings might expect to share equally. There is also no particular reason why the benefit of this support to Corbett Court should be reflected in the price which Paul would receive, but his siblings would not, if I accepted his submission that the appropriate value for his shares is the value at the date of judgment.

4. Given the nature of the unfairnesses which I have found, I am satisfied that the appropriate remedy is to set aside the Share Issue. I do not consider that it is necessary that John’s siblings be joined as parties to these proceedings for the purposes of that order; the Company, John and Renelle, who are the persons materially affected by the order are all parties and the other shareholders benefit from it being made without any act being required of them.

5. I have considered whether I should order Corbett Court to be wound up notwithstanding the fact that there is no reason now to believe that it is insolvent. Despite the siblings’ concerns, it is not obvious to me that John has acted with intentional dishonesty in Corbett Court’s affairs even though he aggressively prosecuted his claims in seeking a resolution of both Corbett Court’s need for financing and the administration of his parents’ estates. That would suggest that a winding up order would not be required to address the unfairness that I identified.

6. While I do not consider that John has acted with dishonest intent, he and Renelle are plainly in a position of conflicted interest in relation to the rate of remuneration which might be paid to them and the use of related entities to carry out work for Corbett Court. John has taken no steps to demonstrate to the siblings the commercial fairness of those arrangements. While article 71 allows contracts between a director and the Company notwithstanding conflicts of interest (provided the conflict is disclosed) the absence of an independent director to consider arrangements of this kind is likely to be an ongoing source of disquiet by the siblings. In saying this I acknowledge that it is likely to be difficult to identify a sibling who would have the skills, be willing to act as director and work harmoniously with John. Based on the evidence, Honora or Anne appear to have the necessary skills and temperament but claim disinterest in Corbett Court. It is not obvious that the other siblings would be willing to act or that it would be appropriate for them to do so having regard to the animosity towards John that many of them exhibit and the disdain John exhibits for some, but not all, of them.

7. One of the remedies sought by Paul was the appointment of an independent director. It would be highly desirable that an independent person be appointed to the board so that minority shareholders can have a level of assurance that the Company’s affairs are being conducted in the interests of the shareholders as a whole even if that appointment involves cost. Had Mr Kenney been appointed in 2011 it is possible that these proceedings would have been unnecessary. However I have not been advised of the name of a person who would consent to be appointed or the terms on which it is proposed that his or her appointment would take place. It is possible and (given the siblings’ dysfunctional relationship) likely that such an order would involve the Court in an inappropriate degree of supervision.

8. As Corbett Court is solvent and I do not consider John a dishonest man, I will not order that Corbett Court be wound up at this time. A further application is always possible if John manages the company in a way which is not transparently for the benefit of all members. I commend to John the appointment of an independent director, after consultation with his siblings and at the cost of the Company.

   CONCLUSION

9. For the reasons set out above, I find that the Share Issue was commercially unfair and contravened s 232(e) of the Corporations Act. I will make orders rescinding the resolution of the board of Corbett Court made on or about 7 May 2012, setting aside the Share Issue on the basis that the amount subscribed is a debt payable by the Company to John and Renelle, and requiring the defendants rectify the Company’s register of members accordingly and lodge appropriate notices with ASIC. I will dismiss the cross-claim filed by the Company, John and Renelle on 5 February 2013.

10. I will allow the parties an opportunity to make submissions as to costs. Subject to any submissions it is my current view that John and Renelle should be ordered to pay Paul’s costs as agreed or taxed on the basis that costs follow the event. The Court has not been told whether any costs or expenses have been incurred by Corbett Court in relation to these proceedings. I do not consider it appropriate that the Company bear any costs and I will order that John and Renelle indemnify the Company for any costs which it incurred in these proceedings. Any party who wishes to make submissions that costs orders should differ from this approach must file and serve notice on the other parties (other than ASIC) on or before 4 pm on 11 November 2015 together with the basis on which they claim that a result should be other than the foregoing. The submissions should be no longer than three pages. As the defence has been conducted jointly, I expect that John and Renelle’s submissions would be joint unless an appropriate reason for a different approach is given.

I certify that the preceding two hundred and eight (208) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Farrell.

Associate:

Dated:        4 November 2015