Dimopoulos v Unafood Australia Pty Ltd
[2014] VSC 327
•11 July 2014
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL COURT CORPORATIONS LIST
PRACTICE COURT
S CI 2014 3081
| NICK DIMOPOULOS TOPSHIELD UNAFOOD (AUSTRALIA) HOLDINGS PTE LTD | First Plaintiff Second Plaintiff |
| v | |
| UNAFOOD AUSTRALIA PROPRIETARY LIMITED (ACN 140643429) and OTHERS | Defendants |
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JUDGE: | Macaulay J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 27 June 2014 |
DATE OF JUDGMENT: | 11 July 2014 |
CASE MAY BE CITED AS: | Dimopoulos & Anor v Unafood Australia Pty Ltd & Ors |
MEDIUM NEUTRAL CITATION: | [2014] VSC 327 |
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CORPORATIONS – Oppression – Interlocutory orders – Whether serious question to be tried that the conduct of the company’s affairs by majority shareholders contravened Corporations Act 2001 (Cth) s 232 – Whether independent person should be appointed to manage a project to fit-out manufacturing plant for short term pending trial – Balance of convenience – Adequacy of undertaking as to damages − Corporations Act 2001 (Cth) ss 232, 233, 1324.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | P S Noonan | Jasper Lawyers |
| For the First Defendant | No appearance | |
| For the Second, Third & Fourth Defendants | J S Mereine | J W L Ebsworth Lawyers |
HIS HONOUR:
Introduction
The plaintiffs are minority shareholders in Unafood Australia Pty Ltd (the first defendant) (‘the company’). The second and third defendants are, between them, the majority shareholders in the company. The fourth defendant is a director of the company. In short, the plaintiffs complain that they have been subjected to oppression, unfair prejudice, or unfair discrimination by the defendant shareholders.
Section 232 of the Corporations Act 2001 (Cth) (Act) permits the court to make an order under s 233 of the Act if the conduct of a company’s affairs is oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members of the company. The orders the court can make, under s 233 of the Act, include the winding up of the company, regulating the conduct of the company’s affairs in the future, appointing a receiver or receiver and manager, and requiring a person to do a specified act. Additionally, s 1324 of the Act gives to the court statutory jurisdiction, where a person has engaged or is proposing to engage in contravening conduct, to grant an injunction on such terms as the court thinks appropriate. Such an injunction may restrain a person from engaging in conduct or, if in the opinion of the court it is desirable to do so, requiring that person to do any act or thing.
In this proceeding, the plaintiffs seek, by way of final relief, a declaration that the second and third defendants have contravened s 232 of the Act, declarations that the purported removal of the first plaintiff as director and purported appointment of the fourth defendant as a director, on 6 June 2014, are of no effect, and orders that the second defendant pay $44 184.07 to the company and sell his shares in the company to the first plaintiff. Alternatively, they apply for an order that the company be wound up.
Pending trial, the plaintiffs have sought interlocutory orders as follows:
1.An order that, until further order of the Court, Stam Levenderis of the National Training Institute be appointed as manager of the business and operations of the first defendant on certain specified terms.
2.An order that, until further order of the Court, the second, third and fourth defendants be restrained from:
(a)transferring, disposing of or otherwise dealing with the assets of the first defendant without the prior written consent of the first plaintiff;
(b)withdrawing or transferring any funds from any bank account of the first defendant, without the prior written consent of the first plaintiff;
(c)altering or purporting to alter the shareholdings, issued shares or appointment of directors of the first defendant, without the prior written consent of the first plaintiff.
3.Declarations and orders revoking the removal of the first plaintiff as director, and the appointment of the fourth defendant as a director..
When the matter first came on in the Practice Court on 23 June 2014 the parties agreed, upon the plaintiffs giving the usual undertaking as to damages, to interim orders restraining the second, third and fourth defendants (the currently recorded directors), pending the further hearing of the interlocutory application, from dealing with the plant and equipment, funds or shareholding of the company other than on certain conditions. The orders also required those defendants to give the plaintiffs seven days written notice before making any ‘material decision’ in relation to the company. The application was adjourned for hearing in the Practice Court, upon further material, on 27 June 2014. The parties also agreed to directions for steps to be taken towards the final hearing of the proceeding.
In substance, the plaintiffs do not press the reinstatement of the first plaintiff as director, at this stage, but seek only the appointment of an independent person (Stam Levenderis) as manager, over the next three months, to oversee the fit‑out of premises leased by the company. They argue that would be an appropriate means of overcoming what they suggest is a deadlock between the shareholders while, at the same time, preserving the interests of the company until such time as the final hearing of the proceeding can occur. The defendants oppose that course. They deny any oppressive, prejudicial or discriminatory conduct towards the plaintiff shareholders. In any event, they claim they have a more satisfactory solution to any problems that exist between them.
The parties did not dispute the test that must be applied on this application. Being an interlocutory application for injunctions (prohibitory and mandatory), the plaintiffs must first establish that there is a serious question to be tried concerning whether the defendants have engaged in the alleged contravening conduct. Secondly, they must establish that the balance of convenience favours the grant of the injunctions sought. A third issue which has been raised concerns the adequacy of the undertaking given by the two plaintiffs to pay damages to the defendants for any loss they should suffer as a consequence of the grant of the injunction if it turns out it ought not to have been granted.
Background facts
The first plaintiff (Mr Dimopoulos) is a director and majority shareholder of the second plaintiff (Topshield), a company registered in Singapore.
The company has 1 500 000 issued shares. Mr Dimopoulos owns 75 000 (5 per cent) in his own name and 450 000 (30 per cent) are owned by Topshield. Mr Dimopoulos swore that, in making his affidavit for the application, he was also authorised to make it on behalf of Topshield as well as for himself.
Yan Kai Xia (Mr Xia), second defendant, owns 562 500 (37.5 per cent) of the shares in the company. Shi Hu Xiao (Mr Xiou), the third defendant, owns 412 500 (27.5 per cent) of the shares.
Until 13 June 2014, at all relevant times the company had three directors: Mr Xia, Mr Xiao and Mr Dimopoulos. At a purported meeting of shareholders on 6 June 2014, the company shareholders resolved to remove Mr Dimopoulos as director and appoint Zude Shang (Mr Shang), the fourth defendant, as director in his place. The memorandum of the resolution of shareholders was signed on behalf of the company by Mr Xia and Mr Xiao as directors. As will appear, Mr Dimopoulos alleges that that resolution was unlawful and invalid as neither he nor Topshield received any notification of the shareholders’ meeting and did not attend it.
In early 2013 the shares in the company were owned by Zhixin Guo. The company was dormant due to lack of funds. It had previously been engaged in the production of cheese at a processing plant at 12 Capital Place, Carrum Downs in Victoria. On or about 18 April 2013, Mr Xia, Topshield and Mr Dimopoulos purchased the shares in the company from Mr Guo. Initially, the shares were transferred to Topshield and Mr Dimopoulos in the proportions they currently hold, and the balance, 65 per cent, was transferred to Mr Xia. Mr Xia held a proportion of his shares on behalf of Mr Xiao, until Mr Xiao's shares were transferred into his name in about April 2014.
Mr Dimopoulos ordinarily resides in Singapore although he is an Australian citizen and makes regular trips to Australia. He speaks English and Chinese (Mandarin). Mr Xia, Mr Xiao and Mr Shang reside in China. I gather that neither Mr Xia nor Mr Xiao speak English — a matter that has some relevance when it comes to the capacity of the defendants to direct the project works in Victoria which I will come to shortly.
At the time of the purchase of the shares in the company, in about May 2013, Mr Dimopoulos says that the company was insolvent. Mr Dimopoulos claims that he and Topshield, along with Mr Xia, injected additional capital into the business and commenced the planning and implementation of a project to fit out new plant at the Carrum Downs premises over which the company held a lease (refit project). It was intended that the premises be refitted to manufacture infant formula with the aim of establishing a business exporting the product to various Asian countries, including China. The works were to commence in November 2013 with the stripping out of the existing plant. The refitting was to be underway by about April 2014.
The parties differ over the question of what investment has been made in the company − or perhaps, more particularly, by whom. Mr Dimopoulos estimates that, as at June 2014, ‘all current shareholders’ had invested in excess of $3 000 000 by the purchase of shares and the payment of pre-existing debts owed by the company, ongoing operating costs and the costs of the refit project. On the other hand, Mr Xia and Mr Xiao claim that they alone have provided at least $3 300 000 ‘to, on behalf of, or at the direction of, Unafood Australia’ by way of shareholder loans to be used to establish the infant formula business. They appear to dispute that Mr Dimopoulos or Topshield have made any significant investment at all — at least, they do not concede that they have done so. They point to an absence of detail in Mr Dimopoulos’ affidavit material concerning the plaintiffs’ contributions. In fact, none of the parties produced any accounting or substantiation of their respective investments.
It is clear that during late 2013 and early 2014 a number of disagreements arose between the shareholders regarding the management of the company. Those disagreements included disputes over the personnel appointed for undertaking accounting and book-keeping work on behalf of the company, and the company's compliance with Australian standards and regulations in connection with the importing of plant, equipment and labour from China.
The management disagreements lead to the parties negotiating and entering into two shareholder agreements: the first dated 19 January 2014 and the second dated 12 March 2104. Under the first of the two agreements Mr Xia and Mr Dimopoulos agreed to a number of matters, including the following:
· Mr Dimopoulos and Mr Xia would be directors and Mr Xiao a non‑executive director;
· until 30 June 2014, Mr Xia would be the chief operating officer and Mr Dimopoulos the chief financial officer with those roles to be reversed once the company was in production;
· Mr Dimopoulos was also to be in charge of ‘HR’ (ie employment) matters and arranging loans from banks and financial institutions;
· a regime was agreed for the approval of company payments; and
· all shareholders were required to agree to any changes in shareholding.
Following a further disagreement about Mr Xia's plan to purchase plant and equipment from China for the Carrum Downs premises, and Mr Dimopoulos' refusal to contribute funds for that purpose, the parties made their second agreement. Under the second agreement made 12 March 2014 they agreed, amongst other things, that:
· the company's accounts would be prepared and maintained by Mr Xia's nominated book-keeper, Mr Shang, and Mr Xia's preferred accountants, LGY Accountants Pty Ltd, would be appointed in place of the accountant previously appointed by Mr Dimopoulos [paras 8–14];
· monthly company reports would be provided to the directors [para 15];
· all decisions pertaining to the management and operation of the company would require the agreement of all directors to be valid [para 18];
· shareholders would make a loan totalling around AUD$2 000 000, with each shareholder’s respective contribution to the loan in proportion to their individual share holdings, for the purpose of the installation, operation and maintenance of the plant and equipment imported from China in order to set up a functioning infant formula production line [para 19];
· Mr Xia and Mr Xiao would undertake responsibility for organising the delivery and installation of the plant and equipment from China, including obtaining necessary support, to set up a fully operational infant formula production plant [para 21];
· Mr Dimopoulos would undertake the responsibility for organising and applying for loans from Australian banks to be applied towards the company's working capital upon the complete installation of the plant and equipment [para 22]; and
· Mr Xia and Mr Dimopoulos would make loans to the company in specified amounts or to meet identified costs.
Notwithstanding those two attempts by the shareholders to regulate the conduct of the company's affairs, Mr Dimopoulos and Topshield say they continued to be concerned about the operation of the business in so far as it was left to the responsibility of Mr Xia and Mr Xiao, or their appointees. In particular, the evidence set forth in Mr Dimopoulos' affidavit suggests that:
(a)BAS statements were not being prepared on time;
(b)PAYG tax was not being paid;
(c)staff superannuation was not being paid;
(d)wages were not being paid;
(e)rent was not being paid;
(f)equipment imported from China did not comply with Australian Standards;
(g)the installation and construction of the plant and equipment, including in particular electrical work, did not comply with Australian Standards; and
(h)the building surveyor at the Carrum Downs premises had issued a stop work notice over the plant.
Mr Dimopoulos also claims that he raised a number of objections with the defendant shareholders regarding the company’s alleged failure to comply with local regulatory standards.
It was against that history and context that Mr Dimopoulos alleges that several further things occurred recently which prompt this proceeding.
First, as already mentioned, on 13 June 2014 Mr Xia and Mr Xiao purported to remove Mr Dimopoulos as director and appoint Mr Shang, without notice to Mr Dimopoulos or Topshield of the meeting of shareholders at which the resolutions were purportedly made. The affidavit filed on behalf of the second to fourth defendants in opposition to the application did not take issue with the facts alleged by Mr Dimopoulos concerning the manner of his removal as director.
Secondly, by email dated 12 June 2014 Mr Xiao wrote to the landlord of the Carrum Downs premises stating that he wanted to change the name of the tenant under the company’s lease of the premises from the companyto Mr Xiao and Mr Xia personally. That request was made without any consultation with Mr Dimopoulos.
Thirdly, on 18 July 2014, a firm of solicitors that stated that it acted on behalf of Mr Xia and Mr Xiao in their capacity as directors and shareholders of the company, wrote to a number of persons who had dealings with the company denying the authority of Mr Dimopoulos to deal with them on behalf of the company.
Fourthly, on about 28 May 2014, Mr Xiao told Mr Dimopoulos that Mr Xia may move the company’s money to China. Concerned by that comment, Mr Dimopoulos asked the Commonwealth Bank to freeze the company's account held with that bank. He later learned, however, that on 28 May 2014 all the remaining funds in the company’s bank account (then $44 187.07) had been transferred out of its account into Mr Xia's personal account held at the Commonwealth Bank. Mr Dimopoulos said that he now had a particular concern about the company’s funds due to the fact that it was soon to receive a refund for GST in an amount between $150 000 to $200 000.
Fifthly, on 13 June 2014 Mr Dimopoulos learned that, without consulting him, Mr Xiao and Mr Xia had terminated the employment of two employees of the company.
The account of facts that I have just outlined went largely unanswered by the second to fourth defendants. In submissions, the defendants simply highlighted certain gaps in the evidence of Mr Dimopoulos suggesting that those gaps should cause the court to treat some of his evidence with suspicion. Pointing to gaps is not the same as denying the allegations.
Mr Wang, a solicitor instructed by second to fourth defendants, said (in an affidavit) that he was instructed that on 24 June — the proceeding was issued on 20 June — Mr Shang (in his capacity as bookkeeper) paid rent and also paid outstanding superannuation liabilities to the Australian Tax Office. Further money was to be lent to the company by Mr Xia and Mr Xiao to enable it to meet its remaining $57 910 of debt. But it was alleged that the process had been frustrated by the lack of documents from the accountant that Mr Dimopoulos had previously retained for the company. Otherwise, Mr Wang’s affidavit concentrated on the defendant’s proposal for the future operation of the company to which I will return below.
Since the second to fourth defendants consented to the court making the interim orders, on 23 June as referred to above (see [5]), the plaintiffs allege that the defendants have, at the least, failed to act within the spirit of those undertakings. Various actions have been undertaken by the defendants that the plaintiffs claim amount to the taking of ‘material decisions’, without notice to or consultation with the plaintiffs. They include engaging a Mr Ian Frederick Foster to liaise on the company’s behalf for the purpose of dealing with the landlord of the premises, making payments on behalf of the company and dealing with the building surveyor. The company has also borrowed an additional $200 000 from Mr Xia to pay debts, and has opened a new bank account. While these are matters with which, if consulted, Mr Dimopoulos may have agreed, nonetheless he says he was not consulted about or notified of them.
A serious question to be tried?
There was little if any debate in the hearing before me as to whether there was a serious question to be tried in respect of alleged oppressive, unfairly prejudicial or discriminatory conduct to or against the plaintiff shareholders. Indeed, it appeared to be conceded. As Brennan J said in Wayde v NSW Rugby League Ltd, at a minimum, oppression imports unfairness and–
… [t]he question of unfairness is one of fact and degree which s. 320 [the antecedent provision] requires the court to determine, but not without regard to the view which the directors themselves have formed and not without allowing for any special skill, knowledge and acumen possessed by the directors. The operation of s. 320 may be attracted to a decision made by directors which is made in good faith for a purpose within the directors' power but which reasonable directors would think to be unfair. The test of unfairness is objective and it is necessary, though difficult, to postulate a standard of reasonable directors possessed of any special skill, knowledge or acumen possessed by the directors. The test assumes (whether it be the fact or not) that reasonable directors weigh the furthering of the corporate object against the disadvantage, disability or burden which their decision will impose, and address their minds to the question whether a proposed decision is unfair.[1]
[1]Wayde v NSW Rugby League Ltd (1980) 180 CLR 459, 472.
The question whether, on the evidence and according to the principles set out above, there was a serious question to be tried - being whether the director-defendants engaged in conduct contravening s 232 of the Act - could not really be doubted. Rather, the focus was directed to rival proposals for the ongoing management of the company pending the trial of the proceeding, and whether the lower risk of injustice lay in the court making or not making the orders sought by the plaintiffs.
Alternative proposals and the lower risk of injustice
Turning to those issues, the plaintiffs sought an order that Mr Stam Levenderis of the National Training Institute be appointed as manager of the business and operations of the company on the terms set out in exhibit ND-23 to the affidavit of Mr Dimopoulos. Those terms were, for a fee of $4000 (plus GST) per week:
·Project management for completion of construction and commissioning of equipment.
·Review and re-development of all compliance documentation for DFSV and DAFF Export Control Orders for Milk Products.
·Audit attendance for compliance (DFSV and DAFF).
·Management of operations at site.
·Tenure Agreement (3 months), upon which these services can be reviewed.
Mr Dimopoulos deposed that he had made enquiries with Mr Levenderis and Mr Papadopoulos, both of the National Training Institute (NTI). According to Mr Dimopoulos they ‘project managed the construction and commissioning of Australian Dairy Park, one of only two existing Australian infant formula processing plants approved for export to China’. In the letter dated 19 June 2014 (exhibit ND‑23), Mr Levenderis set out the experience of NTI in setting up and certifying food facilities, and in providing professional services in compliance and training support. He confirmed the information that Mr Dimopoulos deposed to about the Australian Dairy Park project. He listed amongst NTI’s current clients: George Weston Food Group, Tibaldi Australia, Manildra Group, Glaxo Smith Klein, PepsiCo, Cadbury Schweppes and Darrel Lea Chocolates.
Mr Levenderis stated he would be available to be retained to oversee the completion of the refit project for a period of up to three months.
Mr Kwok, the plaintiff's solicitor, also swore an affidavit, between the two hearing dates, saying that he had been informed by Mr Dimopoulos that he (Mr Dimopoulos) had subsequently received a reference from Mr Levenderis in relation to NTI’s work on the Australian Dairy Park plant.
The defendants objected to that letter being received into evidence on the basis that it amounted to ‘triple hearsay’. The reference letter is typed, addressed ‘To whom it may concern’, dated ‘June 2014’, and signed with a signature of a person who is not identified. The reference does not mention Mr Levenderis personally but purports to attest to the competency of National Training Institute as a ‘virtual “one stop shop” project management resource’. In my view, the criticisms raised by Mr Mereine, who appeared for the second to fourths defendants, go mainly to weight rather than admissibility on an interlocutory application such as this. The evidence does contain some information about the source of the information and belief that is relied upon, albeit that it is not fulsome and it does depend on a chain of communications. But, even without the reference, I am satisfied that Mr Levenderis, and NTI, is well credentialed to project manage the refit project.
Mr Noonan, who appeared on behalf of the plaintiffs, submitted that the appointment of Mr Levenderis for a short term of three months was an appropriate order for the court to make to meet the risk that the interests of the minority shareholders would be harmed pending trial, while also preserving, if not advancing, the interests of the company as a whole. In his submission, Mr Levenderis is very suitably qualified, ‘with almost uniquely perfect experience’ of successfully establishing an infant formula plant in Victoria and securing the necessary permits for export to China.
Since the company's business, at present, consists almost entirely in undertaking the refit project, and will continue to do so for some time to come, the appointment of Mr Levenderis would, in his submission, cater for most of the business operation. To the extent that Mr Levenderis’ appointment does not cover other financial and administrative tasks, he submits there is no apparent reason why those persons who Mr Xia and Mr Xiao have already appointed (LGY Accountants and Mr Shang as book-keeper) could not continue to undertake their respective responsibilities.
Mr Mereine submitted that the court ought not to appoint Mr Levenderis. He submitted that the appointment was unnecessary, expensive, and opposed by the majority shareholders and the directors of the company.[2] He also contended that the fact that Mr Xia and Mr Xiao had, on their evidence, invested the bulk of the funds in the company should have significant bearing on whose proposal ought to be accepted. Moreover, he submitted, Mr Xia’s and Mr Xiao’s proposal has the advantage of being a ‘complete package’ to meet all the company’s needs, whereas the plaintiffs’ proposal only deals with the task of refitting the premises.
[2]In this regard, he relied upon the weight sometimes attributed to the view of majority shareholders as noted by Black J in Re Courtesy Real Estate Pty Ltd (2013) 96 ACSR 593, 598 [22].
According to evidence filed on their behalves, Mr Xia and Mr Xiao wish to appoint — and, unless the court orders otherwise, will appoint — Mr Foster as general manager and, his wife, Mrs Ingrid Foster as administration manager. They say that Mr and Mrs Foster will be directed to ensure that–
(a) proper accounts and reports are prepared for consideration by the directors of the company;
(b) that, in establishing the infant formula business, the company complies with all relevant health and safety procedures and Australian Standards; and
(c) that all creditors of the company are paid.
Mr Xia and Mr Xiao further propose that Mrs Pat C Cock of Ausnutrients Pty Ltd, an expert food technologist, should continue to provide consulting services to the company for approximately 30 hours a month. In addition, they say that Mr Ron Goddard of Advanced Building Solutions will continue to provide building surveyor services to the company to ensure that the design and construction of the plant meets all relevant Australian Standards.
Finally, and significantly, it is proposed that Mr Xiao, who holds a Master’s Degree from Huazhong University of Science and Technology in China and has 15 years’ experience in the production and sale of baby milk formula products, will come to Melbourne in July 2014 to provide Mr and Mrs Foster technical support until the Carrum Downs plant is operational and all relevant licences have been obtained.
The experience of Mr and Mrs Foster was set out in the affidavit sworn by the solicitor for the second to fourth defendants. Additionally, copies of their curriculum vitae were exhibited to the affidavit. There seems little doubt that Mr and Mrs Foster have some impressive qualifications. Impressive as they are, in my view their qualifications are not as directly pertinent to the project of the refitting of an infant formula plant as are those of Mr Levenderis. Looking at the matter objectively, the qualifications of Mr Levenderis for the critical task of refitting the premises appear to be superior.
But there are other matters that are more concerning about Mr and Mrs Foster in the context of the need for a solution to the problem of shareholder division, and the prime facie case of oppression, unfair prejudice to or discrimination of the plaintiffs as minority shareholders. First, Mrs Ingrid Foster is a personal friend of Mr Xia and Mr Xiao, the majority shareholders. Secondly, recently, in dealings with some third parties who engage commercially with the company, the Fosters have described themselves as people who ‘represent the Chinese side’ of the company. Thirdly, both Mr and Mrs Foster have agreed to undertake their respective roles without any remuneration whatsoever. This last mentioned feature — which is curious, at the very least, given that it involves a significant professional service to be undertaken by persons with no apparent stake in the enterprise — goes without any explanation whatsoever.
In my view, in combination with the proposal that Mr Xiao be the person to provide technical ‘support’ for the project, these factors render Mr and Mrs Foster inappropriate as persons to take on a role which is designed to alleviate partisan tensions between the shareholders in the company and avoid harm to the interests of the minority shareholders before trial.
Mr Mereine also argued that the appointment of Mr Levenderis could cause grave damage to the company and the interests of the majority shareholders who, he submitted, had contributed and would continue to contribute the vast bulk of the money. He argued that there was inadequate assurance that Mr Levenderis could carry out the task with which he would be entrusted. The appointment of the wrong person, he submitted, could put millions of dollars of investment at risk and cause irreversible damage to the company.
There was no particular basis put forward for there being any increased probability of damage eventuating to the company by reason of the appointment of Mr Levenderis rather than the combination of Mr & Mrs Foster and Mr Xiao. Indeed, I have already formed the view, on the available evidence, that Mr Levenderis is well credentialed for the task. Mr Mereine seemed to contrast the position of Mr Levenderis, who had no personal ‘stake’ in the company, with that of Mr Xiao, as if that observation cast some doubt on Mr Levenderis’ suitability for the task. First, it does not seem to be a relevant factor when it comes to weighing competency. Secondly, for the reasons I have given, it is a factor in favour of appointing Mr Levenderis when it comes to considering whose appointment is most likely to avoid the risk of any ongoing contravention of the Act.
Adequacy of undertaking as to damages
Finally, I must consider the adequacy of the undertaking as to damages proffered by the plaintiffs. Topshield is a foreign corporation. There is no evidence it has any assets in the jurisdiction. However, Mr Dimopoulos does have assets in the jurisdiction, namely an interest in two real estate properties in NSW: one at Bankstown which he holds in his name alone, and the other at Tweeds Head which he jointly owns with his wife. The Tweed Heads property is intended for development. Each property is mortgaged. The net equity in the two properties is estimated to be in the vicinity of $239 000.
Initially Mr Dimopoulos proffered two undertakings: the first, the usual undertaking as to damages; the second, an undertaking to pay the fees payable to Stam Levenderis by way of loan to the company. Upon my invitation to Mr Dimopoulos to consider further undertakings, I am informed he is also prepared to undertake as follows -
In relation to the Bankstown Property
1.He undertakes not to sell or reduce the equity of the Bankstown Property (by way of mortgage or otherwise) until at least 14 days after the conclusion of this proceeding or order of the Court.
2.He consents to a charge over the Bankstown Property to secure any amount ordered payable pursuant to his undertaking as to damages, for the term until at least 14 days after the conclusion of this proceeding or order of the Court, that will permit the defendants to lodge a caveat on this property.
In relation to the Tweed Heads Property
Mr Dimopoulos and his wife will both give an undertaking that:
1.Other than in the ordinary course of business they will not sell the Tweed Heads Property or any subsequent strata plan of subdivision thereof; and
2.In the event that they do sell the Tweed Heads Property or any subsequent strata plan of subdivision thereof (in the ordinary course of business), the first $150,000 of the proceeds of sale, less mortgage repayment and usual sale costs (agent fees, legal fees, etc.), will be paid to a controlled money account (as defined in the Legal Profession Act 2004) held by Jasper Lawyers and retained until at least 14 days after the conclusion of this proceeding, or further order of the Court.
In view of the nature and limited duration of the orders I propose to make, I consider that that the value of Mr Dimopoulos’ assets are sufficient to protect the defendants in the event they suffer loss by the three‑month appointment of Mr Levenderis, and it turns out he should not have been appointed. I also think that the further undertakings adequately secure the undertaking as to damages proffered by Mr Dimopoulos.
Conclusion
In the circumstances, I am satisfied that there is a serious question to be tried concerning whether the second and third defendants have engaged in oppressive, unfairly prejudicial or discriminatory conduct to or against Mr Dimopoulos and Topshield in contravention of s 232 of the Act. I am further satisfied that it is necessary and appropriate to appoint an independent person to conduct the primary affairs of the business, namely the refit project, for a suitable period of time pending the trial of this action. That is, the order is necessary and appropriate to guard against the risk of further contravention of the Act before trial as well as to preserve the company, its business and assets.
Furthermore, in my opinion the lower risk of injustice lies in appointing Mr Levenderis for a three month period rather than in not appointing him. The alternative proposal put forward by the defendants carries with it too much risk of further contravening conduct and harm to the minority shareholders. In my view there is no logical basis to assume or believe that the appointment of Mr Levenderis would be likely to cause grave damage to the company's business or the majority shareholders' investment. To the contrary, the available evidence suggests that Mr Levenderis would be suitably qualified, provided that appropriate cooperation is given by all parties, to carry out the refit task. In any event, there are sufficient checks and balances in place to protect any ‘worst case scenario’. They include, first, the fact that the appointment is for a relatively short time; secondly, that Mr Dimopoulos has undertaken to pay Mr Levenderis’ costs by way of loan to the company in the first instance; and, thirdly, that the defendants have liberty to apply to the court to alter the arrangements should it emerge, on proper evidence, that real harm is being done.
I am further satisfied that is it appropriate to ‘strengthen’ the undertakings previously given by the second to fourth defendants on 23 June by making orders as requested by the plaintiffs limiting the decisions that can be made by those defendants without first giving seven days written notice to the plaintiffs.
Finally, I am also satisfied that the undertakings now proffered by Mr Dimopoulos are adequate, in the circumstances, to protect against any presently foreseeable risk to the defendants should it turn out that the orders should not have been made and that the defendants suffer damage by reason of them being made.
In those circumstances, upon the undertakings proffered by Mr Dimopoulos and his wife, and subject to any necessary refinement, I will make the following orders:
1.Until 17 September 2014 or further order of the Court, Stam Levenderis of the National Training Institute be appointed as manager of the business and operations of the first defendant, on the terms and fees set out in exhibit ND‑23 to the affidavit of Nick Dimopoulos dated 19 June 2014.
2.The parties do all things necessary to give effect to the appointment of Mr Levenderis pursuant to paragraph 1, including without limitation provide him with access to the books and records of the company.
3.By 4.00 pm on [date] July 2014 the second, third and fourth defendants provide the plaintiffs with current management accounts for the first defendant, including details of all outstanding debts and liabilities.
4.Until further order, the second, third and fourth defendants are restrained from holding any directors’ meeting or making any directors’ resolution or material decision in relation to the first defendant, including without limitation:
(a)any loan or increase in loan;
(b)any payment of any amount in excess of $20 000;
(c)any contract giving rise to an obligation to pay any amount in excess of $20 000;
without first giving at least seven days’ written notice to the plaintiff.
5.The costs of this application be costs in the cause.
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