Entwistle v Minken Pty Ltd (receivers and managers appointed)

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

No. S CI 2013 01111

TIMOTHY JOHN ENTWISLE & OTHERS	Plaintiffs
v
MINKEN PTY LTD (RECEIVERS AND MANAGERS APPOINTED) & OTHERS	Defendants

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JUDGE:	ELLIOTT J
WHERE HELD:	MELBOURNE
DATES OF HEARING:	9-12 DECEMBER 2013
DATE OF JUDGMENT:	19 DECEMBER 2013
CASE MAY BE CITED AS:	ENTWISLE v MINKEN PTY LTD (RECEIVERS AND MANAGERS APPOINTED)
MEDIUM NEUTRAL CITATION:	[2013] VSC 709

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Corporations – Winding up – just and equitable ground – oppression – quasi-partnership - breakdown in relationship – mismanagement of company’s affairs - buy out offer – independent stewardship necessary.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	Mr D V Aghion with Ms A L Mapp	Kyard Business Law
For the Defendants	Mr N A Frenkel	MGA Lawyers

TABLE OF CONTENTS

A. Introduction............................................................................................................................. 1

B. General background.............................................................................................................. 2

C. Common ground between the parties................................................................................ 3

D. The opposing contentions.................................................................................................... 4

E. Minken..................................................................................................................................... 6

F. Henton....................................................................................................................................... 8

G. Deer Park................................................................................................................................. 9

H. Control Group...................................................................................................................... 10

Credibility of witnesses........................................................................................................ 11

I.1     McGoldrick......................................................................................................................... 11
I.2     Entwisle............................................................................................................................... 20
I.3     Conclusion on credit......................................................................................................... 20

J. Events leading up to the Dissolution Agreement............................................................ 20

K. The Dissolution Agreement?............................................................................................. 23

L. Standing................................................................................................................................. 27

L.1     Minken............................................................................................................................... 27
L.2     Henton................................................................................................................................ 30
L.3     Deer Park........................................................................................................................... 32
L.4     Control Group................................................................................................................... 32

M. Creditors of the Companies.............................................................................................. 32

N. Entwisle’s position............................................................................................................... 33

O. Oppressive conduct and a buy out proposal.................................................................. 35

P. It is just and equitable to order the winding up of the Companies............................ 37

Q. Abuse of process.................................................................................................................. 39

R. Conclusion............................................................................................................................. 39

HIS HONOUR:

A. Introduction

The plaintiffs apply to the court to have 4 companies wound up, principally on the ground that it is just and equitable to do so. Section 461(1)(k) of the Corporations Act 2001 (Cth) (“the Act”) provides that the court may order the winding up of a company if the court is of the opinion that it is just and equitable that the company be wound up.

The 4 companies the subject of the applications are the 1^st defendant, Minken Pty Ltd (receivers and managers appointed) (“Minken”), the 2^nd defendant, Deer Park Holdings Pty Ltd (“Deer Park”), the 3^rd defendant, Control Group Services Pty Ltd (“Control Group”) and the 4^th defendant, Henton Pty Ltd (“Henton”) (collectively “the Companies”).

The key individuals in this case are the 1^st plaintiff, Timothy John Entwisle (“Entwisle”) and the 5^th defendant, Ian Andrew McGoldrick (“McGoldrick”).[1] Those individuals decided to go into business together some time in 2003 or 2004. The business was, broadly speaking, property development. Entwisle and McGoldrick effectively agreed to be quasi-partners, but to conduct their business through companies. Each of Minken, Deer Park, Control Group and Henton were companies used by Entwisle and McGoldrick for this purpose.
[1]Throughout the judgment references to “Entwisle” and “McGoldrick” are references to the individuals, or the individuals and their related companies respectively.

The remaining 2 parties are companies associated with Entwisle. The 2^nd plaintiff is Baraman Holdings Pty Ltd (“Baraman”) and the 3^rd plaintiff is Timothy J Entwisle Pty Ltd (“Entwisle Co”).

The reasons advanced by the plaintiffs for the winding up of the Companies include the following:

(1)There has been an irretrievable breakdown in the relationship between Entwisle and McGoldrick.
(2)McGoldrick has failed to perform an agreement entered into on 29 June 2008 between Entwisle and McGoldrick pursuant to which the relationship was to be dissolved (“the Dissolution Agreement”).
(3)Since the Dissolution Agreement, McGoldrick has conducted the affairs of the Companies as if they were his, or at least to the exclusion of Entwisle.
(4)The Companies have been mismanaged by McGoldrick to such an extent that they ought to be wound up.
For the reasons that follow, each of the Companies must be wound up.[2]
[2]In so far as the plaintiffs make the applications as contributories, see the Act, s 467(4).

B. General background

Entwisle and McGoldrick have known each other since the mid 1960s. They were at medical school together and graduated in the same year. Entwisle graduated in psychiatry and McGoldrick graduated in obstetrics and gynaecology.

After university, Entwisle and McGoldrick remained friends. Although they did not meet with each other regularly, they kept in contact and saw each other at least once a year. In approximately 2003, Entwisle and McGoldrick discussed the prospect of property development, with McGoldrick suggesting there were good deals available in the market.

They agreed to invest together on a 50/50 basis. Although no written agreement was entered into, Entwisle and McGoldrick agreed that each company was to be owned 50/50 by entities associated with Entwisle and McGoldrick respectively; each was required to make an equal contribution to the capital, costs and liabilities of any developments; and each was to share in any losses or profits equally.

Entwisle and McGoldrick also agreed to meet on a regular basis to discuss their developments. While they remained in business together, they met on a weekly basis. They also had telephone discussions from time to time in addition to those meetings.

As to the administration of the business of the Companies, that was left to McGoldrick. McGoldrick says it was agreed he would be paid for these services. He was not challenged on this evidence. However, McGoldrick also says there were insufficient funds available to the Companies to pay McGoldrick his entitlements.

C. Common ground between the parties

Although repeating some of the matters set out above, it is important to note the following matters were common ground between the parties:

(1)The relationship between Entwisle and McGoldrick, through the Companies, was one of a quasi-partnership.
(2)The relationship between Entwisle and McGoldrick has broken down, and seriously so. (McGoldrick suggested the breakdown was not irretrievable.)
(3)Each of the Companies was suffering from financial difficulties, but there was no issue of solvency before the court. (McGoldrick, in part, blamed these difficulties upon Entwisle and his failure to make his share of the required contributions.)
(4)McGoldrick was responsible for the document management and administration of the Companies, and the affairs of the Companies in this regard had been mismanaged.[3] This included failures to file tax returns and documents required to be filed with the Australian Securities and Investment Commission (“ASIC”).
(5)Entwisle and McGoldrick both agreed to enter into the Dissolution Agreement. From 29 June 2008, both parties agreed that their joint enterprise would cease.
(6)There are ongoing and substantive disputes between Entwisle and McGoldrick in relation to the Dissolution Agreement. Both parties allege that the other party has failed to properly perform the Dissolution Agreement

[3]The evidence discloses that Entwisle’s brother-in-law has been employed by the Companies to assist with administration since August 2006. He was employed at the suggestion of Entwisle. However, given it is accepted that the affairs of the Companies have been mismanaged, very little significance attaches to the fact that someone else has also been involved in handling the affairs of the Companies.

To adopt the language of Young JA in Tomanovic v Global Mortgage Equity CorporationPty Ltd,[4] in the above circumstances it would be expected that a just and equitable winding up of the Companies was “almost automatic”.[5]
[4](2011) 84 ACSR 121, 192 [323].
[5]See, for example: Nassar v Innovative Precasters Group Pty Ltd (2009) 71 ACSR 343, 360 [98] (Barrett J); Accurate Financial Consultants Pty Ltd v Koko Black Pty Ltd [2008] VSCA 86, [119] (Dodds-Streeeton JA, with whom Ashley JA and Forrest AJA agreed); Khamo v XL Cleaning Services Pty Ltd (2004) 51 ACSR 397, 402-403 [26]-[28] (Barrett J); Malos v Malos (2003) 44 ACSR 511, 516-517 [30] (Barrett J); Thomas v Mackay Investments Pty Ltd (1996) 22 ACSR 294, 302.2 (Owen J); Ebrahimi v Westbourne Galleries Ltd [1973] AC 360, 379B-G (Lord Wilberforce, with whom Viscount Dilhorne, Lord Pearson and Lord Salmon agreed).

D. The opposing contentions

The plaintiffs urged the court to wind up the Companies principally for the reasons set out in paragraph 5 above. They submitted that the matter ought to be dealt with urgently, so that there may be a proper and independent assessment as to the state of the Companies, including the state of Entwisle’s remaining interests in the Companies.

McGoldrick put forward a number of reasons why the Companies ought not to be wound up. Principally, they were:

(1)Young JA was wrong in the obiter dictum[6] in Tomanovic v Global Mortgage Equity CorporationPty Ltd in treating the circumstances in that case as giving rise to an almost automatic winding up order on just and equitable grounds. It was submitted such an approach (also reflected by the not dissimilar approach of Sifris J in Galanopoulos v Moustafa[7]) was incorrect as, if there was fault, a court was required to ascertain which party was to blame for the breakdown. It was submitted that Entwisle was largely to blame for the unsatisfactory state of this relationship and that he ought not to now be able to benefit from his conduct in having the Companies wound up.
(2)None of the plaintiffs have the requisite standing to make the applications to wind up the Companies. Principally, this is because, by operation of the Dissolution Agreement, Entwisle ceased to have any interest in the Companies.
(3)There would be serious harm caused to the creditors of the Companies if they were wound up. This is particularly so in relation to Henton, as the development presently engaged in by Henton is yet to be completed.
(4)The relief sought is a matter for the court’s discretion, and Entwisle’s conduct in a number of respects is such that the court’s discretion should not be exercised in favour of the plaintiffs.
(5)Whatever be the position in relation to the ownership of the Companies, from 29 June 2008, pursuant to the Dissolution Agreement, Entwisle agreed to take no further part in the management of the Companies. In those circumstances there is not a deadlock in relation to the management of the Companies, and any ongoing disputes between Entwisle and McGoldrick should be sorted out in the usual manner by other proceedings. It was submitted that, as other proceedings were already on foot before this proceeding commenced (“the Other Proceedings”),[8] they were the proper means to resolve any disputes between the parties.
(6)If the court were otherwise minded to wind up the Companies, then McGoldrick should be given the opportunity to buy out whatever interest in the Companies the court determines that Entwisle owns.
(7)As an extension of the matters raised in subparagraph (5), this proceeding is an abuse of process. It was submitted that, given the Other Proceedings were commenced prior to this proceeding and concern disputes between Entwisle and McGoldrick about the affairs of the Companies, this proceeding is nothing more than an attempt to circumvent the proper disposition of the Other Proceedings. It was further submitted that winding up the Companies would allow Entwisle to avoid the repercussions of his wrongdoings. As part of this submission, it was contended that if the Companies were wound up, it was unlikely that any liquidator would pursue claims against Entwisle.

[6]On appeal, in contrast to the position at first instance, a winding up order was not sought.

[7][2010] VSC 380, esp [17], [31].

[8]Proceedings SCI 2012 05296 and SCI 2013 00330.

Before dealing with each of these matters, it is convenient to give a brief history in relation to each of the Companies. I will refer to them in the order in which the Companies became the subject of the quasi-partnership arrangements.

E. Minken

The 1^st property in which Entwisle and McGoldrick successfully invested pursuant to their arrangement was 17-27 Cotham Road, Kew (“the Kew Property”). The Kew Property is a 4 storey commercial office building. The contract of sale was entered into on 11 August 2004. It required a deposit of $425,000 to be paid. The deposit was paid by Entwisle and Entwisle Co. Although the 2 cheques were drawn on accounts held by Entwisle and Entwisle Co, Entwisle intended to purchase his share of the Kew Property, at least in part, with funds from his superannuation fund.[9]
[9]In addition to Entwisle’s evidence to this effect, there is a contemporaneous letter to his financial adviser evidencing this fact.

Pursuant to the contract of sale, Minken was nominated as the purchaser. At that time, McGoldrick was the sole shareholder of Minken. On 8 August 2004, both Entwisle and McGoldrick were appointed directors of Minken.

The Kew Property was purchased by Minken as trustee for a unit trust that was created by a deed dated 8 August 2004. That trust was known as the Kew Property Trust. At the time of the settlement of the purchase of the Kew Property, namely 10 January 2005, the units in that trust were held equally by Baraman and a company associated with McGoldrick, Racso Pty Ltd (“Racso”).

Also on 8 August 2004, McGoldrick executed a declaration of trust in favour of Baraman. McGoldrick declared that he was the bare legal proprietor of 50 ordinary shares (representing 50 per cent of the issued capital in Minken) and that he held them on trust for Baraman. McGoldrick also made a declaration of trust in relation to the other 50 ordinary shares. This declaration of trust was in similar terms and was made in favour of Racso. (At a later time, Racso was replaced as trustee, with McGoldrick’s son, Adam, appointed as the new and current trustee.)

To finance the purchase of the Kew Property, Minken borrowed moneys from Perpetual Trustee Company Ltd (“Perpetual”). In order to secure the moneys lent, Perpetual took a mortgage over the Kew Property (“the Mortgage”).

The Kew Property was tenanted from time to time. One of the leases entered into (for unit 2, level 3, 17 Cotham Road) was with Entwisle as lessee. McGoldrick alleges that Entwisle now owes Minken $118,060 in unpaid rent, plus $46,360 in outgoings.

Various renovations and refurbishments were carried out in relation to the Kew Property. McGoldrick alleges he did most of the work in relation to these activities. In contrast, Entwisle says up until the time he ceased his involvement as a director, he was also actively and substantially involved. It is not necessary to determine the level of involvement of the parties in these activities.

According to McGoldrick, the rent received was not always sufficient to pay interest due under the Mortgage. McGoldrick attested to “significant personal contributions” to cover shortfalls in relation to the Kew Property. Save for swearing that his overall contributions in relation to the Kew Property were “approximately $2,181,500”, he did not give evidence as to what, in relation to the shortfalls, these significant personal contributions were.

At a board meeting of Minken held on 14 March 2008, Entwisle resigned as a director of Minken. At this meeting a call was made upon the then unit holders of the Kew Property Trust, namely Baraman and Racso, for funds to pay creditors. Entwisle, on behalf of Baraman, refused to meet this call.

Apparently Minken defaulted in relation to the Mortgage. It is not necessary or desirable for the court to go into the reasons for the default; these matters are the subject of 1 of the Other Proceedings. By reason of the default, on 16 November 2012, Perpetual appointed receivers and managers to Minken.

At the commencement of this proceeding, Minken had 2 assets. First, the Kew Property. Secondly, it held shares in Henton. Both the Kew Property and the Henton shares were held by Minken as trustee for the Kew Property Trust.

The receivers and managers sold the Kew Property. On 3 September 2013, the balance of the proceeds of that sale, after expenses in relation to the sale and the receivership were met, being $1,382,820.52, were paid into the court, where they remain.

F. Henton

On or about 3 March 2005, Minken purchased all of the issued shares in Henton. Henton was a single project property development company which owned a multi-lot subdivision at Bacchus Marsh (“the Bacchus Marsh Property”). The shares were purchased for $2.5 million, which purchase was funded by a combination of borrowings and cash.

On 7 December 2005, Entwisle and McGoldrick were appointed directors of Henton. Entwisle ceased to be a director on 30 June 2008.

A current and historical organisational extract from ASIC suggests that there are 4 shareholders in Henton, of whom Minken is 1. Entwisle suggests that this extract is incorrect. For reasons that will become apparent,[10] nothing turns on this and I will say nothing further about it.
[10]See pars 123-131 below.

The Bacchus Marsh Property was the subject of further subdivision, and more than half the lots have now been sold. Although there was no direct evidence of the details of any sales, the court was informed that 80 of the 153 lots have been sold. There was no suggestion that Henton was receiving any net proceeds from these sales. According to McGoldrick, the development and disposition of the Bacchus Marsh Property will result in a substantial loss.

On 10 July 2008 (that is, less than 2 weeks after the Dissolution Agreement was struck), Henton entered into an agreement with Civileng Constructions Pty Ltd (“Civileng”). Civileng is a company associated with McGoldrick. Pursuant to a fixed price contract, known as the project management and funding agreement, Henton agreed to pay Civileng $4.5 million plus GST. The contract provided that, if all fees and construction loans were not paid by the end of January 2012, the amount outstanding would be “converted to a loan secured by a mortgage and charged over the assets of [Henton] until the loan is repaid”. Interest was agreed to be charged at 15 per cent per annum, which was to be capitalised until the loan was repaid.

McGoldrick did not disclose to Entwisle any intention on his part, or the part of Henton, to enter into this contract with Civileng. McGoldrick maintains that Civileng is entitled to be paid all moneys claimed by Civileng pursuant to this contract.

G. Deer Park

On 6 October 2006, Deer Park purchased a property at Brassi Road, Deniliquin in New South Wales, known as “Smythesdale” (“the Smythesdale Property”). Deer Park did so as trustee of the Deer Park Agribusiness Unit Trust. McGoldrick was unable to produce a copy of the Deer Park Agribusiness Unit Trust deed. Entwisle became a director of Deer Park from 13 June 2003. McGoldrick was a director of Deer Park from 13 June 2003 to 25 March 2004 and he was reappointed as a director on 1 August 2006.

McGoldrick stated that because of droughts between 2004 and 2013, Deer Park had not traded profitably and presently was not earning much income. McGoldrick suggested that recent rains had improved the situation and that cattle were now being agisted.

At the time the Smythesdale Property was purchased, water rights attached to it. Those rights were sold by Deer Park. According to McGoldrick, the funds were used to reduce Deer Park’s debt to a finance company and other creditors.

Grassmore Pty Ltd (“Grassmore”) is another company associated with McGoldrick. According to McGoldrick, Grassmore has been paying outstanding interest on behalf of Deer Park, as well as paying for a manager to manage the Smythesdale Property and incurring further related costs.

In 2008, Entwisle entered into a lease in relation to part of the Smythesdale Property. Entwisle never paid any rent pursuant to this lease. Entwisle ceased to be a director on 30 June 2008.

H. Control Group

On 18 April 2007, Control Group purchased another property located at Brassi Road, Deniliquin (“the Brassi East Property”). Before Entwisle and McGoldrick each acquired 50 per cent of the shares in Control Group, the company was owned by Entwisle’s son. Entwisle and McGoldrick became directors of Control Group on 15 August 2006.

The drought situation between 2004 and 2013 had a similar effect to that suffered by the Smythesdale Property. Only very recently have crops been planted on the Brassi East Property, and there is still insufficient grass to run cattle commercially. Apparently, some cattle are presently agisted on the Brassi East Property, but no details were given.

Water rights also attached to the Brassi East Property at the time of its purchase. According to McGoldrick, these were sold with the proceeds of sale being used to reduce debt to a bank and to other creditors. Grassmore has met costs associated with the Brassi East Property as well.

A lease was entered into by Entwisle in relation to the Brassi East Property. According to its terms, it commenced on 30 August 2006. The lease was in fact executed in August 2008. Similar to the Smythesdale Property, Entwisle has never paid rent in relation to this lease for the Brassi East Property.

Entwisle ceased to be a director on 30 June 2008.

Credibility of witnesses

Each of Entwisle and McGoldrick sought to seriously attack the credit of the other. Before addressing matters that require findings of fact, I will consider this aspect of the case.

I.1 McGoldrick

I found McGoldrick to be an unsatisfactory witness. Many examples may be given to support this conclusion. Without being exhaustive, I refer to the following.

First, each of the Companies failed to lodge tax returns for extended periods of time. Letters from the Australian Taxation Office, sent in December 2012, show that: Minken had failed to lodge tax returns for each year ended 30 June 2008 through to 30 June 2012; Henton had failed to lodge tax returns for each year ended 30 June 2009 to 30 June 2012; Deer Park had failed to lodge tax returns for each year ended 30 June 2005 to 30 June 2012; and Control Group had failed to lodge tax returns for each year from 30 June 2009 to 30 June 2012.

The evidence in the preceding paragraph gives some idea of the extent to which the affairs of the Companies have been ignored. No satisfactory explanation was provided by McGoldrick in relation to this failure.

Indeed, McGoldrick sought to blame the circumstances of the accountant for the Companies, Garry Angus (“Angus”), for the failure of the Companies to lodge their tax returns over many years. In an affidavit of McGoldrick affirmed 27 September 2013 (“the Principal Affidavit”), McGoldrick stated that the Companies were late filing tax returns and other documents with the Australian Taxation Office and ASIC because Angus had been unwell. McGoldrick said Angus required several admissions to psychiatric hospitals following the bushfire in Kinglake that destroyed his properties. McGoldrick said that, because of this, and that he knew that there was no tax liability, he was prepared to await the recovery of Angus.

The bushfires in question occurred in February 2009. The failure to lodge tax returns in relation to the Companies commenced in 2005. As already noted,[11] McGoldrick was a director of:

(1)Deer Park from 13 June 2003 to 25 March 2004 and was reappointed on 1 August 2006.
(2)Minken from 8 August 2004.
(3)Henton from 7 December 2005.
(4)Control Group from 15 August 2006.

This disparity in the relevant dates alone shows the attempted explanation is unsatisfactory.

[11]See pars 34, 17, 29 and 39 above respectively.

Furthermore, not only was there an absence of a proper explanation, but McGoldrick appeared to take no responsibility himself for the serious breaches that had occurred in relation to the obligations of the Companies to file tax returns.

Of course, to the extent that Entwisle was a director of the Companies, he also bears some responsibility for these serious breaches of the obligations of the Companies. But given he ceased to be a director of any of the Companies in mid 2008, a large part of the responsibility rests firmly with McGoldrick.

Secondly, rather than give evidence confined to what he knew, McGoldrick repeatedly expressed his state of apparent belief in relation to various states of affairs. In my view, he often did so opportunistically to advance what he perceived to be in the interests of his case. When he was directed by the court not to express his belief, but to restrict himself to evidence of matters within his knowledge, he effectively declined to accept the direction. Notwithstanding McGoldrick clearly understood the distinction, he continued to give evidence based on his apparent belief. Often his belief was expressed without any basis being stated.

A stark example of this is in relation to the tax returns for Minken. During the course of McGoldrick’s closing submissions, the court asked counsel for McGoldrick to identify precisely the evidence in relation to the filing of the tax returns of the Companies. When this exercise highlighted the absence of any evidence in relation to the filing of tax returns by Minken, McGoldrick’s counsel, on McGoldrick’s instructions given in court, sought to re-open the case to enable McGoldrick to give evidence as to when those tax returns were filed. Leave was granted without opposition from the plaintiffs.

When asked by his own counsel whether Minken was up to date with the filing of its tax returns, McGoldrick gave evidence that he believed it would be. He then said later in his evidence that he thought he had filed them a few weeks ago. McGoldrick persisted with his evidence under cross-examination, continually expressing his answers in terms of belief. No tax returns of Minken were produced. Having completed this evidence, the trial then continued with final addresses.

Immediately before the luncheon adjournment on the same day, McGoldrick’s counsel said he had just been handed a note and that the circumstances were regrettable. He said he had been instructed by McGoldrick that McGoldrick had made a mistake in relation to the Minken tax returns when he said that he had lodged them just a few weeks ago. He said in fact the tax returns were for Civileng.

The context in which this evidence was given heightens the level of its unsatisfactory nature. In my view, McGoldrick observed there was a gap in his case and sought to plug it with baseless assertions.

For completeness on this issue, McGoldrick also gave evidence that he thought there had been a failure to lodge tax returns with respect to the Kew Property Trust. McGoldrick said he was not sure whether they had been filed. There was no evidence before the court as to the filing of any tax returns in this regard.

Another example was evidence given by McGoldrick in relation to an entry in a bank account of Henton, known as the “Henton Pty Ltd acc no 2”. Entwisle had transferred moneys into the account from funds of Entwisle Co. McGoldrick was taken to a bank statement from that account during his cross-examination. The bank statement recorded a withdrawal of $7,714 on 18 October 2010. The transaction details on the bank statement read: “Scotch College Melb 3452331”. McGoldrick acknowledged that these were moneys drawn on Henton’s account in order to pay his son’s school fees. After this acknowledgement, the following exchange took place:

Dr Entwisle’s evidence was that he was paying money into the Henton No.2 account because you said to him that Henton needed money for the development?---That’s (indistinct).
I suggest to you there is no way that that could in any way extend to payment of school fees?---That’s correct.
It doesn’t extend to school fees does it?---No it doesn’t, no.
You say that Dr Entwisle agreed to that?---That’s right.
Was there ever any agreement to repay it?---No, no. There was no agreement to repay it.
So your evidence is that Dr Entwisle agreed that the money that he was providing to Henton for Henton expenses, he agreed that part of it could be used to pay school fees of your son?---He did, yes.
And you say there was never any agreement to repay?---There is none, however it has been repaid in reality hundreds of times over.
…
27 October 2010 on the deposit side, do you see a deposit of $7,714?---There? Just a minute, just a minute. Bank’s deposit, yes.
That is exactly the same amount as the school fees, isn’t it?---Yes.
So somebody has actually tried to repay that sum into that account, haven’t they?---Probably David has, yes.
…
And do you see several entries down ---?---I am pleased to be reminded it has been paid back.
(Emphasis added.)

In fact, the moneys had not been paid back as the cheque deposited on or about 27 October 2010 was dishonoured 2 days later. This was another example of McGoldrick expressing a belief in order to advance his case when he did not know the relevant facts, but was willing to advance that evidence in any event.

Thirdly, in my view McGoldrick was less than candid in his disclosure of the affairs of the Companies in relation to matters relevant to this proceeding. For example, when leave was given to McGoldrick to reopen his case and he was the subject of further cross-examination (as outlined above[12]), he disclosed for the first time that the Australian Taxation Office had sued each of the Companies for outstanding tax. Although he then said he could not be certain which of the Companies had been sued in the Magistrates’ Court, it is plain from his evidence that at least some of them had been. Clearly such matters were relevant to the state of the affairs of the Companies during the relevant period in question and ought to have been disclosed as part of McGoldrick’s evidence in chief.
[12]See pars 53-57 above.

Fourthly, McGoldrick’s evidence was not reliable. Again by way of example, in addition to matters already referred to, he gave evidence that the Magistrates’ Court proceedings referred to in the previous paragraph were commenced in February 2012. When he was challenged about his lack of a proper response to those proceedings, McGoldrick changed his evidence and said that the Magistrates’ Court proceedings had been commenced in February of this year. Further, the extent of his unreliability is demonstrated in the following cross-examination:

You said that you filed the Minken tax returns in the last few weeks. That was your evidence, just in answer to a question from Mr Frenkel?---Yes, I am not exactly clear when I put them in but I had to do that, yes.
Was that at the same time?---I think. I am not absolutely certain, but that is my recollection.
When you say the last couple of weeks are you saying 2 weeks, 4 weeks?---I would have to go and check the – no, it is more than 4 weeks.
We are 11 December now. Are you saying you did it in November, are you saying you did it in October, late November, early November, do you know?---Not with any certainty. No.

As noted above,[13] in fact McGoldrick had never filed the Minken tax returns.

[13]See par 55 above.

Fifthly, McGoldrick’s evidence in chief suffered from serious shortcomings. McGoldrick affirmed the Principal Affidavit in opposition to the applications to wind up the Companies. In that affidavit he said that Henton was late in filing tax returns and other documents with ASIC. McGoldrick also affirmed that Henton had complied with its lodgement requirements under the Act. He then stated:

Now produced and shown to me and marked IAM34 is confirmation from ASIC that there are no fees currently outstanding and copies of the annual returns for 2007, 2008, 2009, 2011 and 2012.

No explanation was given as to why the 2010 annual return was not exhibited. In any event, during the course of McGoldrick’s closing, when I asked counsel to take me to each of the documents contained in exhibit “IAM34” by reference to the court book, he was unable to do so. The only document in the court book referred to in exhibit “IAM34” was an email confirming there were no outstanding fees.

I then asked to be taken to the exhibit to the Principal Affidavit, so I could satisfy myself that these documents had been exhibited. Again, McGoldrick’s counsel was unable to comply with the request. The court was informed that apparently exhibit “IAM34” did not contain the documents that the affidavit said it did. I then enquired as to whether the annual returns had ever been produced to anyone in the proceeding. The court was informed that counsel had no reason to think they had been. McGoldrick’s counsel then undertook to make enquiries. He stated he could not undertake to have the documents produced because he had not seen them previously.

Leave was then granted to McGoldrick on 11 December 2012 to file and serve the annual returns referred to in exhibit “IAM34” by 4.00 pm on 12 December 2012. On the morning of 12 December 2012, counsel for McGoldrick informed the court that McGoldrick was still looking for the documents and he was hopeful the documents could be provided by 4.00 pm in accordance with the leave granted. At 3.55 pm on 12 December 2013, an email was forwarded to my associate by McGoldrick’s solicitor in the following terms:

We refer to the leave granted yesterday to our clients to provide the missing attachments to exhibit to (sic) IAM34 (court book p.2395) by 4.00 pm today. Our clients have been unable to provide copies of those documents.

Not only have the annual returns not been provided, but no explanation has been given as to how McGoldrick affirmed his affidavit on 27 September 2013 purporting to exhibit documents that did not form part of the exhibit. The position is most unsatisfactory.

Another difficulty with McGoldrick’s evidence in chief was that substantial parts of it consisted of bald assertions without any evidence to corroborate the affidavit evidence. For example, paragraph 9 of the Principal Affidavit included the following:

The total equity contributions
The total equity contributions I have made in relation to each of the Companies are approximately:
(a)     [Control Group] $1,800,000;
(b)     [Deep Park] $4,974,000;
(c)     Minken – Kew property: $2,181,500;
(d)     Minken – purchase of its shares in Henton: $1,280,000;
(e)     Henton: $1,125,000;
which totals $10,215,500.

In relation to the asserted equity contributions, no documentary evidence was provided to support these approximate figures. Also there was no breakdown as to what had been paid before and after 29 June 2008.[14] Not only were the approximate figures given inconsistent with previously affirmed evidence of McGoldrick (about which no explanation for the inconsistency was given[15]), but when he was challenged as to the absence of any documents to support the figures he now put forward, McGoldrick responded:

I provided them [ie the documents] to Barry Woods. He prepared the affidavit, I think. He didn’t, he didn’t prepare it.[16]

Later, McGoldrick said, under cross-examination, he thought some documents had been provided. Then he said he believed he had provided them “to the extent possible”. Counsel for Entwisle then made the comment: “So no doubt you will be assisted in re-examination if that is the case”. The issue was not raised in re-examination.

[14]Some minor details were provided elsewhere in the Principal Affidavit.

[15]McGoldrick’s earlier affidavit suggested he had invested $7,528,500.

[16]Barry Woods is McGoldrick’s former solicitor. In McGoldrick’s affidavit affirmed 9 October 2013, McGoldrick acknowledged he prepared the Principal Affidavit (affirmed 27 September 2013) “and [was] collecting documents for” the Principal Affidavit between 13 September 2013 and 27 September 2013. Barry Woods had ceased to act for McGoldrick before 13 September 2013.

In short, the court was given no explanation as to how these approximate figures were arrived at.

Sixthly, McGoldrick gave evidence of what he alleged to be a sham transaction involving Entwisle, a company associated with Entwisle, Line Accord Pty Ltd (“Line Accord”) and a fictitious mortgage. I do not propose to make any findings in relation to the assertions by McGoldrick that the transaction was a sham. There are critical witnesses who could give evidence about some of the documents who were not called in this proceeding.

However, for present purposes, it is of considerable significance that not only did McGoldrick allege a carefully planned sham involving large sums of money, but he also affirmed the fact that he was a knowing and willing participant in the sham transaction. Whether McGoldrick is correct or not about the transaction being a sham, on his own evidence he believed it was such a transaction and he was willing to participate in it, knowingly procuring its implementation.[17] Although his explanation for signing the documents was that he trusted Angus and Entwisle, on his account of the facts he must have believed what he was doing was, at best, deceptive.[18]
[17]McGoldrick did not elaborate in his evidence as to his understanding of the meaning of a “sham”. It has been recognised as an ambiguous term: Lewis v Condon [2013] NSWCA 204, [57], and the cases there cited. However, a sham necessarily involves an intention to deceive: ibid [63]. Also, it is clear from McGoldrick’s evidence that he was attributing such an intention to Entwisle.
[18]In the 1st of the Other Proceedings, Minken, as 2^nd defendant, is suing a company associated with Entwisle in a third party proceeding, claiming the attempted registration by Entwisle’s company of a sham mortgage caused receivers to be appointed to Minken and the consequential sale of the Kew Property. The claim, which includes receivers’ fees, penalty interest and related costs, exceeds $1.4 million.

Seventhly, McGoldrick has gone to extraordinary lengths in the past to seek to discredit Entwisle in order to obtain a commercial advantage. Without going into specifics of the allegations, in a letter to the Australian Health Practitioners Registration Agency, McGoldrick made accusations of the most serious nature against Entwisle and invited the medical board of the agency to investigate the matters. The letter was sent at a time when the parties were in dispute.

At an interlocutory hearing in this matter, Hargrave J described the making of such allegations in the context of a commercial dispute as “plainly disgraceful”. In closing submissions, McGoldrick’s counsel said he acknowledged that the allegations were completely inappropriate and he accepted Hargrave J’s description of them.

Notwithstanding this appropriate acknowledgment by his counsel, McGoldrick was resolute when giving his evidence to the court. McGoldrick said he was sincere and genuine when he originally made the allegations. He also said he maintained the views he had previously expressed in relation to Entwisle’s conduct and character. Given the nature of the allegations and McGoldrick’s insistence on maintaining them, a less functional business relationship would be difficult to conjure.

For completeness, I note that the allegations made by McGoldrick were dismissed on the basis that the “notification is lacking in substance”. I also note that McGoldrick has made complaints to the Legal Services Commission in relation to Entwisle’s former solicitor and current solicitor. The complaints alleged impropriety. They were dismissed summarily.

Eighthly, on 30 May 2013 the court ordered that McGoldrick be joined as a party to this proceeding.[19] The court further ordered that, by 4.00 pm on 14 June 2013, McGoldrick and the Companies produce certain documents for inspection for the plaintiffs.[20]
[19]The solicitors for the Companies also subsequently acted for McGoldrick. No point was made to the court of any issues relating to conflict of interest that may have arisen by reason of such an arrangement.
[20]The order provided for “all documents, books of account and records in the possession, custody or control of [McGoldrick and the Companies] or any of them which” were relevant to certain matters identified.

McGoldrick affirmed an affidavit on 9 October 2013 acknowledging that the orders made on 30 May 2013 in relation to production of documents had not been complied with. The explanation given was that it was “as a result of a misunderstanding” between McGoldrick and his former solicitor. No further details were given.

In any event, McGoldrick acknowledged he was aware by 13 September 2013 of the order for production of documents made on 30 May 2013. The documents were not available for inspection until 8 October 2013 (that is, nearly 4 months after they were ordered to be made available).

Although McGoldrick explained that the collation of the documents, in conjunction with preparing the Principal Affidavit, took over 150 hours (with the assistance of another), such non-compliance with the court orders is unsatisfactory. At the very least, it shows significant mismanagement.

I.2 Entwisle

In contrast to the view I formed in relation to McGoldrick’s evidence, I found Entwisle to be a reliable witness. During the course of his evidence, he frankly made a number of admissions that were clearly against his interest. This included acknowledgements in relation to outstanding rents for the Smythesdale Property and the Brassi East Property. Further, to the extent they were available, his evidence generally accorded with contemporaneous documents. Although, on occasions, his evidence was infected by personal feelings reflecting the state of his relationship with McGoldrick, on the whole I found him to be a credible witness.

I.3 Conclusion on credit

In short, if there is a contest in the evidence between McGoldrick and Entwisle, then, generally, I would prefer Entwisle’s evidence, unless there were contemporaneous documents to suggest Entwisle was mistaken.

J. Events leading up to the Dissolution Agreement

Before considering the question of standing, it is necessary to consider the events surrounding the Dissolution Agreement being entered into.

Some time during the course of 2007, Entwisle became concerned about the way in which the property developments conducted by the quasi-partnership were being handled. According to Entwisle, he was concerned about the manner in which money was being shifted around by McGoldrick, the absence of transparency and his lack of control. He informed McGoldrick he was becoming increasingly concerned about the state of the business and wanted to extricate himself from the arrangement.

Approximately 6 to 12 months after this initial discussion, Entwisle called a meeting with McGoldrick. He also asked the group accountant, Angus, to attend. As it transpired, there were a number of meetings discussing the possibility of a dissolution of the arrangement.

In June 2008, Angus prepared a document entitled “Settlement proposal Tim Entwisle & Ian McGoldrick” dated 12 June 2008 (“the Settlement Proposal”). The typewritten document[21] contained a number of different settlement proposals.
[21]There are some handwritten notations on the document, but they were not the subject of any evidence. Their significance is not immediately apparent and accordingly I will say nothing further about them.

In relation to the rural properties, it was suggested that Entwisle would retain Control Group and the Brassi East Property, with McGoldrick retaining Deer Park and the Smythesdale Property. It was suggested this would occur by way of a direct equity swap. This proposal was never adopted.

There was then reference to Martha Cove. Martha Cove is another property development in which McGoldrick had an interest (“the Martha Cove Property”). It is unnecessary to go into the details here.

Next, there were proposals in relation to Minken. A change in the ownership of Minken was suggested, which would reduce Entwisle’s ownership to just below 30 per cent. In return for reducing his equity in Minken, the document appears to suggest Entwisle would receive a credit of $719,000 by reference to the Martha Cove Property. Beyond what is contained in the Settlement Proposal, there was no direct evidence on this point.

The document then addressed the position of Henton. It was suggested that Entwisle’s reduced “equity in Minken” would be “transfer[red] to Henton”, making Entwisle’s ownership in Henton 33.56 per cent and McGoldrick’s ownership 66.44 per cent.

The next section of the Settlement Proposal was entitled “Some options moving forward”. Three options were then given. The 1^st option suggested a contribution of 34 per cent to all future costs. Although it does not expressly say so, this was clearly a reference to a contribution by Entwisle. According to McGoldrick, this option was reflected in the Dissolution Agreement entered into on 29 June 2008.

The 2^nd option referred to the possibility of Entwisle not contributing and his equity being eroded or reduced over time. Again, McGoldrick relied upon this as being part of the Dissolution Agreement.

The 3^rd option read:

[McGoldrick] buys remaining 35% at discount to allow for future project risks.

Contrary to Entwisle’s evidence, McGoldrick denied this 3^rd option was the subject of the Dissolution Agreement.

The Settlement Proposal concluded with a summary of with what Entwisle would be left (no doubt with various assumptions as to what Entwisle would do in relation to the various options). The matters listed included $700,000 profit/equity in the Martha Cove Property, $1,000,000 value in the Brassi East Property and $730,000 equity in Henton, with a share of 35 per cent of any profit. However, this summary does not purport to be a final position. So much is plain from, at the very least, the words “sale of Water Rights?” after the reference to the Brassi East Property. Indeed, McGoldrick acknowledged there was still a need for the parties to make final adjustments. He also said Entwisle decided not to go ahead with acquiring the Brassi East Property.

I have descended to some detail in relation to this particular document as McGoldrick put the document forward as recording part of the Dissolution Agreement. Whether the Settlement Proposal contained matters consistent with what was incorporated in the Dissolution Agreement is quite possible, but it is plain that the document was not a contractual document. To the extent that McGoldrick put this document forward as a contractual document, I reject that part of his case.

Indeed, if objection had been taken to the Settlement Proposal being tendered to establish the contractual position between the parties, it is likely I would have ruled it was inadmissible as being no more than a document reflecting possible actual intentions or expectations of the parties in the negotiation process.[22]
[22]See, for example, Codelfa Constructions Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337, 352.5. Of course, the document may have been admissible on another basis, but there is no need to explore this possibility.

K. The Dissolution Agreement?

As stated above, both parties assert a binding agreement exists. However, there is a substantial difference on the evidence of the respective parties as to its terms. The parties agreed to be bound by whatever findings this court might make in relation to the existence or otherwise of the Dissolution Agreement, and its terms. It was thought this may save costs, and also avoid a multiplicity of proceedings and the possibility of inconsistent findings. Despite this, I have decided not to make any final determination in relation to whether a binding agreement was entered into, or, if so, what the terms of any such agreement might be. There are a number of reasons for this.

First, there are no pleadings in this proceeding. I have been shown pleadings in the Other Proceedings, but the state of those pleadings is most unsatisfactory at this stage. Further, I was informed by counsel that it was intended to revisit the pleadings in relation to the relevant terms of the Dissolution Agreement.

Secondly, a critical witness in the discussions leading up to the Dissolution Agreement has not been called in this case. The accountant used by McGoldrick and Entwisle in relation to the Dissolution Agreement, Angus, was not called to give evidence by any party. All parties agree that there were lots of discussions at which he was in attendance. I expect that at a trial directed specifically to the terms and enforceability or otherwise of the Dissolution Agreement, Angus would be a material witness.

Thirdly, the content of the discussions is particularly critical to the determination of all issues pertaining to the Dissolution Agreement, given the unsatisfactory state of the documentation. Although there is a significant document entitled “Entwisle/McGoldrick Business dissolution – heads of agreement” (“the Heads of Agreement”), consisting of 8 pages and signed by each of Entwisle and McGoldrick, its terms are most unclear on their face.[23] When asked whether there was much discussion about the contents of this document, and what would be required to evidence the Dissolution Agreement other than what was recorded in the document, McGoldrick replied:

… we were both called out to [Angus]’s office in Mitcham. That’s the first time I saw the documents and they were handed to me and [Angus] said, “These reflect all the discussions we have had” and we signed them there. There was urgency to sign them so that it could be terminated before the end of the financial year.
(Emphasis added.)

[23]Angus was also involved in the execution of the Heads of Agreement. On each page Angus has witnessed McGoldrick’s signature, but not Entwisle’s signature.

Self-evidently, in these circumstances, with substantial ambiguity apparent in the written document, the evidence of the relevant witnesses as to what was said during the contractual discussions culminating in any agreement would be critical to determination of what was agreed to.

Fourthly, as an extension of the preceding issue, whether or not Angus and other witnesses were available to give evidence, the contents of the Heads of Agreement are in a shorthand form of expression and, in some circumstances, do not convey a clear intention of the parties.

Fifthly, McGoldrick gave evidence that the contents of some of the documents do not reflect the agreement at all, but only represented scenarios of possibilities that were never agreed. McGoldrick also said there were some aspects of the documents that were simply wrong in relation to the detail.[24]
[24]McGoldrick said the estimate of equity in Deer Park and Control Group at the time the Dissolution Agreement was prepared was incorrect; he also said the estimated equity in Henton was incorrect: the Principal Affidavit, [95].

Suffice to say, for the purposes of this proceeding, it is enough to observe that, whether it is binding or not, I do not accept McGoldrick’s account of the terms of the Dissolution Agreement. In short, I do not accept that Entwisle agreed in June 2008 that he would relinquish his directorship in each of the Companies, and his equity holding in relation to the Companies, with the real possibility that he would receive no return other than McGoldrick procuring releases in relation to guarantees previously given by Entwisle and entities related to him. This version of the Dissolution Agreement, as asserted by McGoldrick, is inconsistent with the contemporaneous documents available. Further, as a matter of commercial common sense, it seems highly implausible.

In addition, McGoldrick asserted that, pursuant to the terms of the Dissolution Agreement, Entwisle was required to continue to contribute “equity” to Henton at 34 per cent of the total equity contributions in order to maintain his ability to share in profits for the development at the Bacchus Marsh Property. McGoldrick asserted that this 34 per cent “equity” contribution was only for a share in the profits, but gave no rights to Entwisle with respect to the ownership of Henton. This account by McGoldrick is inconsistent with the contents of the Settlement Proposal. It also forms no part of the contents of the Heads of Agreement.

A matter McGoldrick relies upon to support his version of events is the fact payments were made on behalf of Entwisle after the Dissolution Agreement. The evidence clearly demonstrates that after 29 June 2008 Entwisle Co made payments to Henton. McGoldrick said that this was pursuant to a term of the Dissolution Agreement as outlined above.[25] I reject this evidence. For reasons I refer to below,[26] I accept Entwisle’s account of these payments, namely that they were made by way of loans.
[25]See par 90 above.
[26]See pars 126-129 below.

Further, and in any event, whatever formulation of the Dissolution Agreement might ultimately be accepted at any trial on that issue, it is plain that essential aspects of the Dissolution Agreement have still not been performed. For example, if Entwisle’s account of the Dissolution Agreement is accepted, then McGoldrick has failed to pay $2.65 million to Entwisle. Alternatively, even on McGoldrick’s account of the events, there have been no documents prepared or executed to effect the transfers of ownership from Entwisle (and his companies) to McGoldrick (and his companies).

On this point, McGoldrick said that although Baraman was the registered holder of 50 per cent of the shares in Control Group, those shares have been held on trust since 29 June 2008 “as reflected in the [D]issolution [A]greement”. McGoldrick then continued: “Those shares are held in trust whilst the necessary documentation is sorted out for the necessary transfers to occur.” Similar evidence was given in relation to Deer Park. No explanation was given by McGoldrick (or anyone else) as to why, more than 5 years later, the documentation had not been prepared and the necessary transfers had not occurred. I have no doubt that if such documentation had been forwarded to Entwisle he would have refused to sign it unless and until he was paid.

Furthermore, McGoldrick gave evidence of certain preconditions that he said needed to be met before he had any obligation to pay Entwisle anything. Without elaborating too much on the detail, this arrangement seemed to make very little commercial sense. The preconditions were said by McGoldrick to include the sale of properties in which McGoldrick had an interest. On McGoldrick’s account of the Dissolution Agreement, if the preconditions were not met, then not only did McGoldrick not have to pay Entwisle, but McGoldrick also got to keep the properties rather than pay the proceeds of any sale to Entwisle.

In any event, as I have already stated, I do not accept McGoldrick’s account of the Dissolution Agreement. In circumstances where McGoldrick has failed to perform essential aspects of his part of any agreement that may have been in existence from 29 June 2008,[27] McGoldrick cannot properly assert that Entwisle has lost his ownership in the Companies that he otherwise would have had but for the Dissolution Agreement.[28] As Entwisle put it, the Dissolution Agreement “never came into action … it would have been an entirely different scenario if I had been paid the money”.
[27]See Foran v Wight (1989) 168 CLR 385, 396.5 (Mason CJ), 417.4 (Brennan J), 433.4 (Deane J), 450.9 (Dawson J) and 455.7 (Gaudron J).
[28]In saying this, I am not ignoring the fact that McGoldrick has acted in some respects in purported performance of an agreement, eg procuring releases of guarantees previously given by Entwisle.

L. Standing

Section 462 of the Act provides that, in relation to applying for an order under s 461, certain persons have standing to apply. Those persons include a creditor (including a contingent or prospective creditor) of the company and a contributory of the company.

Creditor is not defined in the Act. It is a term commonly used in trade and commerce.[29] It was acknowledged that if Entwisle’s version of events were accepted, he would be a creditor for the purposes of the section. Contributory is defined in s 9 of the Act as follows:
[29]See, for example: Brash Holdings Ltd v Katile Pty Ltd [1996] 1 VR 24, 33.4 and the cases there cited (Brooking, J D Phillips and Hansen JJ); including Re Glendale Land Development Ltd (in liq) [1982] 2 NSWLR 563, 566F (McLelland J).

Contributory means:
(a) in relation to a company (other than a no liability company):
(i)a person liable as a member or past member to contribute to the property of the company if it is wound up; and
(ii)for a company with share capital – a holder of fully paid shares in the company; and
(iii)before the final determination of the persons who are contributories because of subparagraphs (i) and (ii) – a person alleged to be such a contributory; and

…

L.1 Minken

The issue of standing of the plaintiffs in relation to Minken is not as straightforward as the position in relation to the remainder of the Companies. The plaintiffs submit that Baraman has standing to bring the application to wind up Minken. As noted above,[30] McGoldrick has been a bare trustee for Baraman in relation to half of the issued shares in Minken since 8 August 2004.
[30]See par 19 above.

The declaration of trust executed by McGoldrick, referring to Baraman’s shares as “the Baraman share parcel”, included the following:

I hold all my right title and interest in the Baraman share parcel UPON TRUST for the beneficiary [ie Baraman] AND I FURTHER COVENANT AND AGREE with the beneficiary that I shall forthwith upon request of the beneficiary do all acts matters and things and execute and perfect all transfers, declarations, instruments or other documents as may be required to perfect and give full force and effect to the trust hereby declared and otherwise retain transfer or otherwise deal with the beneficial interest of the beneficiary in the Baraman share parcel at such times and in such manner and the beneficiary shall direct or appoint.

On 8 May 2013, solicitors for Baraman sent a letter to the solicitors for Minken and McGoldrick. The letter referred to the declaration of trust made on 8 August 2004. The letter continued:

Our client Baraman hereby demands that your client, [McGoldrick], transfer the Minken shares[31] forthwith to our client.

The letter enclosed a share transfer and a form required to complete the transfer, and sought the documents be returned no later than 4 pm on 15 May 2013.

[31]That is, “the Baraman share parcel”.

The letter also stated that, if McGoldrick failed to complete the documents enclosed, Baraman would apply for an order requiring McGoldrick to transfer the shares held on trust in Minken, alternatively that the trust vest and by reason thereof the Minken shares be transferred to Baraman as beneficiary. For completion, I note the letter also sought an accounting of any action taken by McGoldrick since 2004 in respect of the Baraman share parcel.

The court was informed during the plaintiffs’ opening that it was not in issue that McGoldrick has refused to sign the documents enclosed. Nothing was said by McGoldrick to the contrary.

In these circumstances, Baraman seeks orders from the court in order to formalise the basis upon which it might have standing to seek to wind up Minken. It seeks to do this by:

(1)a vesting order pursuant to the Trustee Act 1958 (Vic) (“the Trustee Act”).
(2)an order pursuant to s 175 of the Act to have the register of Minken corrected.

Section 51 of the Trustee Act relevantly provides:

(1)The Court may make an order, in this Act called a vesting order, which shall have effect as provided in section fifty-eight of this Act.

(2) A vesting order may be made in any of the following cases, namely—
…
(i)where a trustee neglects or refuses to convey any property, or to receive the dividends or income of any property, or to sue for or recover any property according to the direction of the person absolutely entitled to the same for twenty-eight days next after a request in writing has been made to him by the person so entitled;

…
(n)where the Court might have made a vesting order if this Act had not been passed;
(o)where property is vested in a trustee and it appears to the Court to be expedient to make a vesting order.

On the facts as set out above, it is clear that McGoldrick as bare trustee has neglected or refused to convey property belonging to Baraman, and that 28 days has lapsed after McGoldrick received a request in writing to convey the relevant property.

As the terms of s 51 of the Trustee Act make clear, the court has a discretion as to whether or not to make a vesting order. In the circumstances of this case, and in particular the unsatisfactory relationship between Entwisle and McGoldrick, it is entirely appropriate and expedient for a vesting order to be made. An order will be made accordingly.

As to the application to correct the register of Minken, it may not be necessary for any correction to be made in order to establish that Baraman has standing.[32] In any event, given the circumstances of this case, it is appropriate that an order be made recording Baraman as the owner of 50 shares in Minken.
[32]See, for example, Andco Nominees Pty Ltd v Lestato Pty Ltd (1995) 17 ACSR 239, 258.5-259.7 (Santow J).

The vesting order and the order correcting the register of Minken shall be made “now for then” so that there can be no issue as to the standing of Baraman at trial. Subject to any further submissions, I propose to make the orders effective 28 days from 8 May 2013, which is the date that the relevant demand was sent.

L.2 Henton

There is no serious issue in relation to Entwisle’s standing to bring the application for winding up against Henton. On 11 December 2011, Henton and others, including Deer Park, entered into a loan agreement with Entwisle for the sum of $52,000. The loan agreement, “for a short term loan”, was signed by both Entwisle and McGoldrick.

Pursuant to the loan agreement, $52,000 was lent by Entwisle to Henton, Deer Park, Civileng and McGoldrick. Notwithstanding demands for repayment of the moneys advanced, Entwisle has received nothing by way of principal or interest on the loan. Further, McGoldrick has refused to sell the cattle that it was contemplated, in the terms of the loan agreement, would be sold in order to make funds available to repay the loan.

Accordingly, Entwisle is a creditor of Henton and has standing to bring the application.[33]
[33]The Act, s 462(2)(b).

Further, as referred to above,[34] moneys were paid to Henton by Entwisle Co after the Dissolution Agreement was entered into (or purportedly entered into, depending on any ultimate finding on this issue). It was common ground that $389,927.38 (“the Further Funds”) was provided by Entwisle Co directly to a bank account of Henton (of which $77,805.84 has been recovered by Entwisle Co).[35]
[34]At par 105 above.
[35]It is not necessary to go into the circumstances in which these moneys were recovered.

McGoldrick says that the Further Funds were not loan funds, but were provided by way of equity. He said Entwisle started making the payments after McGoldrick reminded Entwisle of his commitment to contribute 34 per cent. However, as already observed, he also said that such contributions were only a form of equity entitling Entwisle or Entwisle Co to a share of the profits, and that such contributions did not make either of them a “contributory” within the meaning of s 9 of the Act.

Entwisle said that the Further Funds were provided by way of loan funds pursuant to an agreement to that effect. Entwisle said McGoldrick assured him “frequently” that Entwisle would get his money back. I accept Entwisle’s evidence, but not only because I found him to be a far more credible witness than McGoldrick. It seems unlikely Entwisle would have been willing to put even more money into the joint venture with McGoldrick in circumstances where, on McGoldrick’s version of events:

(1)Entwisle had already lost in excess of $2 million and could expect no return in relation to those moneys.
(2)Entwisle provided the Further Funds when Entwisle had no control over Henton and had no sensible way of protecting his investment.
(3)Entwisle was given no assurances that the development at the Bacchus Marsh Property would result in any return to Entwisle.

Also, it is curious that McGoldrick did not “remind” Entwisle of his obligations until 2009, given he says Entwisle was under an obligation to pay pursuant to the Dissolution Agreement from mid 2008.

Unless Entwisle had blind trust in McGoldrick, one would not expect him to hand over substantial sums in these circumstances. On the facts of this case, it is clear that from at least June 2008 Entwisle had no such trust in McGoldrick’s handling of the business affairs of the Companies. The reason for the transfer of the Further Funds was succinctly put by Entwisle, when he said “I was still joined to McGoldrick”.

Accordingly, the Further Funds are another means by which Entwisle has standing to make the application against Henton, namely through Entwisle Co.

In light of the findings above, it is not necessary for me to consider whether or not Baraman might have standing by means of a derivative action as a shareholder of Henton. Given the desire to deal with this matter promptly, I will refrain from considering this issue.

L.3 Deer Park

Entwisle is the registered shareholder of 50 per cent of the shares in Deer Park. As any contract that might have been created by the Dissolution Agreement has not been duly performed, he remains a shareholder. In those circumstances, he has standing to make an application to wind up Deer Park.

Further, as stated above,[36] Entwisle is a creditor of Deer Park. This fact provides a further basis upon which Entwisle has standing to prosecute this proceeding.
[36]See par 124 above.

L.4 Control Group

Baraman is the registered holder of 50 per cent of the shares in Control Group. For the same reasons that Entwisle has standing as a shareholder to bring a winding up application against Deer Park, Baraman has standing to bring such an application against Control Group.

M. Creditors of the Companies

As noted above,[37] it was submitted that serious harm would be caused to the creditors of the Companies if they were to be wound up. Without considering what effect this issue might have had on the exercise of the court’s discretion, there are a number of difficulties with this submission in any event.
[37]See par 14(3) above.

First, the court was provided with scant detail of the creditors of any of the Companies. Indeed, in closing submissions the creditors were referred to as “any” creditors. Although there may be some creditors in relation to each of the Companies, the court has been given no proper basis to make an assessment of the impact of winding up the Companies on the creditors.

Secondly, in relation to Henton, McGoldrick affirmed in the Principal Affidavit that the appointment of a liquidator to Henton would have “a devastating effect on Henton’s business because it would be a significant breach of its loan covenants and would essentially eliminate its ability to sell its lots at proper market value”. The loan covenants referred to in this evidence were not identified. Further, the basis upon which it was asserted that there would be an inability to sell the remaining lots at the Bacchus Marsh Property at proper market value was not the subject of any further evidence. I was asked to draw the inference that because a liquidator would be involved, the lots would be more difficult to sell. Given that I have no relevant evidence from anyone qualified to express such an opinion, I draw no such inference. It may be that a liquidator, being a professional, would have more success than McGoldrick in managing the sales of the remaining lots. Any view one way or the other is entirely speculative.

Thirdly, McGoldrick gave evidence that the financier involved was W & D Finance. No meaningful details were given in relation to the arrangements in place. One would expect W & D Finance to have some form of security over the land comprising the Bacchus Marsh Property. If a default is triggered under any mortgage, it may be possible for W & D Finance to recover all outstanding moneys pursuant to its security. In short, the court simply has not been informed of the relevant facts. Accordingly, I draw no inference that W & D Finance itself would be worse off if Henton was placed into liquidation.

N. Entwisle’s position

I will deal with the matters referred to in paragraph 14(4) and (5) above in this section of the judgment.

As I have already noted, in a number of respects Entwisle’s credit was attacked. No doubt this was relevant to the fact that there were competing versions as to the terms of the Dissolution Agreement. However, in so far as it might be said to be relevant to whether or not the court ought to make winding up orders in relation to the Companies, the matters raised are of limited relevance. As McGoldrick asked me to take into account the issue of blame, I have considered McGoldrick’s role in the events leading up to the Companies being in the position they now find themselves. However, in my view, there is limited, if any, utility in exploring Entwisle’s position in circumstances where it is clear that the Companies ought to be wound up in any event.

If I am incorrect about the relevance or otherwise of Entwisle’s conduct in the circumstances of this case, on the facts before the court I am of the view that McGoldrick is principally responsible for the position in which the Companies now find themselves. As stated above,[38] the reasons Entwisle wanted to cease the business relationship included his concerns about the handling of the affairs of the Companies by McGoldrick. Based on the evidence before the court, Entwisle’s concerns were well-founded.
[38]See par 83 above.

The further submission of McGoldrick relevant to Entwisle’s conduct relates to Entwisle’s decision not to be involved in the management of the Companies on and after 29 June 2008. It was submitted that because he had voluntarily chosen not to be involved in the management of the Companies, there was no deadlock. Accordingly, so it was submitted, this case was distinguishable from the many cases dealing with that situation.[39]
[39]For example, Tomanovic v Global Mortgage Equity Corporation Pty Ltd (2011) 84 ACSR 121; Galanopoulos v Moustafa [2010] VSC 380; Khamo v XL Cleaning Services Pty Ltd (2004) 51 ACSR 397; Malos v Malos (2003) 44 ACSR 511.

By reason of the findings I have made in relation to the Dissolution Agreement, this submission does not advance McGoldrick’s position any further. As I have found,[40] the reason Entwisle was willing to cease to be involved in the management of the Companies was because he was to receive a substantial payout in return for desisting in his then ongoing role as a director and manager of the affairs of the Companies. Whether the Dissolution Agreement was binding or not, Entwisle is entitled to have a say in the management of the Companies either because he did not receive what was agreed, or alternatively because there was no enforceable agreement.
[40]See par 109 above.

It was only relatively recently, perhaps mid to late 2011, when McGoldrick refused to repay the loan of $52,000, that Entwisle was likely to have lost total trust in McGoldrick and probably realised that the Dissolution Agreement was never going to be performed. In fact, it may have been later. According to McGoldrick’s evidence it was in about August 2012 that “Entwisle demanded to know when he could get his cash and land”. Having been informed by McGoldrick that, according to McGoldrick, Entwisle ranked behind creditors of the Companies, Entwisle became outraged and made assertions as to his entitlements. In any event, there was no suggestion that Entwisle had abandoned any rights he may have had in relation to the Dissolution Agreement, notwithstanding the lapse of nearly 5 years from 29 June 2008 to the time this proceeding commenced.

O. Oppressive conduct and a buy out proposal

The plaintiffs also advanced a case based on alleged contraventions of s 232 of the Act. In light of the findings already made in relation to the applications to wind up the Companies on just and equitable grounds, it is not necessary to consider this aspect of the case. Given the desirability of dealing with this matter expeditiously, I have refrained from considering whether there were alternate grounds available for winding up the Companies.

There is 1 further issue that needs to be considered in relation to the case concerning oppressive conduct. Submissions were made by McGoldrick that the Companies should not be wound up because McGoldrick is willing to buy out any interest Entwisle may have in any of the Companies. Orders were put forward by McGoldrick (if the defendants were otherwise unsuccessful in opposing the applications) for the shares of any of the Companies in which Entwisle was found to have an interest to be valued by an independent valuer as at 30 June 2013. McGoldrick stated he would abide by any such valuation.

In response, the plaintiffs submitted that the court did not have the power to order a buy out unless and until the court made findings in relation to whether there has been oppressive conduct on the part of McGoldrick. In short, it was submitted that a buy out is not something that may be ordered by the court if the basis for winding up the Companies was on just and equitable grounds. In response, McGoldrick submitted that the court did have such power.

There are authorities which might be said to support either of the 2 competing submissions made as to the ability of the court to order a buy out if it were otherwise minded to wind up the Companies. However, there is no need to determine this matter as I am firmly of the view that a buy out would be totally inappropriate in this case. This is because, for the reasons set out above, it is highly desirable that each of the Companies be placed into liquidation so that the affairs of the Companies may be properly considered and administered before the completion of the winding up of the Companies.

Further, and in any event, McGoldrick led no evidence whatsoever as to his capacity to pay in relation to any buy out figure. Indeed, the evidence available as to the financial position of McGoldrick suggested that he was under serious financial pressures because of the financial position of the Companies and, according to him, the requirement to continue to inject further funds to meet the Companies’ obligations. This evidence includes an email sent from Angus to McGoldrick on 15 May 2013, in which Angus not only recorded that McGoldrick had failed to pay him, but also that McGoldrick was “technically insolvent” and was unable to pay his debts.[41]
[41]This email was tendered by the plaintiffs. There was no objection to its tender.

In circumstances where a party moving for a buy out fails to put any evidence before the court as to its financial capacity, that may be sufficient in itself for the court to refuse to exercise its discretion to order a buy out.[42] On the evidence before the court, there is every prospect that if a buy out were ordered and an independent valuation carried out, further costs would be incurred, and further delay would be suffered, when there is a real prospect that no buy out would ever occur.
[42]Nassar v Innovative Precasters Group Pty Ltd (2009) 71 ACSR 343, 365 [122], citing John J Star (Real Estate) Pty Ltd v Andrew (Australasia) Pty Ltd (1991) 6 ACSR 63, 75-76. I note these were both cases concerning oppressive conduct.

To paraphrase Barrett J in Nassar v Innovative Precasters Group Pty Ltd,[43] compulsory purchase of Entwisle’s shares by McGoldrick is not something that can be seen to be viable in such a way that the court, when ordering that action, would have any expectation that the order was otherwise than futile. In the circumstances, any order for a buy out of Entwisle’s shares by McGoldrick in relation to any of the Companies is not appropriate.
[43](2009) 71 ACSR 343, 365 [124].

P. It is just and equitable to order the winding up of the Companies

Without limiting the matters raised throughout the judgment and in the conclusion which follows, key reasons which support the making of the orders to wind up the Companies include the following circumstances.

First, for reasons already stated,[44] McGoldrick has demonstrated over an extended period of time, up to and including the trial, that he is not a person who could be expected to act consistently with the duties and obligations imposed upon a director and shareholder of a company in which another person has a substantial interest. In my view, the Companies require the urgent attention that will come with the independent stewardship of a liquidator.
[44]See pars 45-79 above.

Secondly, according to McGoldrick, Angus now refuses to communicate at all with him. Given that Angus was the company accountant for many years, and was responsible for much of the documentation prepared in relation to the Companies, this is a most unsatisfactory position. This is particularly so given the state of the Companies’ affairs. A liquidator will have powers available to her or him that, if appropriate, may be exercised to compel meaningful responses from Angus.

Thirdly, there are serious issues about the state of the Companies’ compliance with tax returns. According to McGoldrick, 38 tax returns were filed in 1 day. The circumstances in which these tax returns were prepared and filed is entirely unclear on the evidence. Also McGoldrick was very unclear about the circumstances in which they were filed (to the extent they have been filed). This may be a matter that a liquidator would wish to investigate.

Fourthly, my views in relation to the position of the Companies concerning tax returns also extends to the records of the Companies generally. In an email sent by Angus on 12 April 2013, he recorded that all the files held by Angus in relation to the Companies “have been considered abandoned and have gone for document destruction under the relevant [A]ct”. Precisely what has been destroyed, and what remains, is not clear on the evidence.[45] In my view, this is another circumstance which needs to be independently considered, given the significant sums that have been the subject of investment in connection with the Companies.
[45]Some documents were produced in response to a subpoena, which suggest what was said in this email was not correct.

Fifthly, according to McGoldrick, “there was a need from time to time for inter-company loans” to meet the financial needs of the Companies.[46] No details of these inter-company loans were provided to the court. It may be that such transactions have been properly documented. The accounts and financial statements of the Companies were not before the court. In any event, given the state of the records of the Companies, a liquidator may think it appropriate to consider the handling and accounting of such matters. I presently have no confidence that the intermingling of funds of the Companies has been appropriate, or that any necessary adjustments to existing arrangements could be attended to properly under the current stewardship.
[46]McGoldrick’s closing submissions, par 8.

Sixthly, the relationship between Entwisle and McGoldrick is in disarray.[47] Nothing further need be said in this regard.
[47]See pars 11(2) and 74 above.

Q. Abuse of process

In light of the findings made above, the submissions in relation to abuse of process may be dealt with briefly. For reasons already stated, there is a very strong case for the winding up of each of the Companies. Although I accept that Entwisle may have been motivated in commencing this proceeding, in part, by a desire to prevent McGoldrick from continuing to prosecute proceedings against Entwisle or his related entities, it is clear that the plaintiffs also had reasonable and proper grounds for bringing the applications in any event. In my view, the applications were entirely appropriate.

Further, the submissions made on behalf of McGoldrick on this issue included a contention that, if the Companies were wound up, then it was “almost certain” that the Other Proceedings would never be heard and determined. In closing submissions, McGoldrick’s counsel accepted that “almost certain” might be stating the matter too highly, but he still submitted it was probable that the matters would not proceed to trial.

While it is entirely speculative as to what a liquidator might do in the future, if there are good causes of action against Entwisle or his related entities, I can see no good reason why a liquidator would not proceed to prosecute such claims. In the case of Minken, there are already substantial funds available to the liquidator. In relation to the remainder of the Companies, no reason has been put before the court as to why a liquidator would not be able to obtain funding to pursue a good cause of action.[48]
[48]Cf comments in Warner v Global Pacific Aerospace Pty Ltd [2012] VSC 291, [12] (Ferguson J).

R. Conclusion

To summarise, McGoldrick gave 13 reasons as to why it was submitted that it was not just and equitable to wind up the Companies. I will list the reasons submitted by McGoldrick and the court’s conclusions (in italics) on the matters raised:

(1)Entwisle elected to resign as a director of Minken, Deer Park, Control Group and Henton between 14 March 2008 and 30 June 2008 and, accordingly, chose to abdicate all management control and responsibility 5½ years ago.
Entwisle resigned based on his understanding that he would receive a substantial sum in return for those resignations, which sum was not forthcoming. But for that understanding, he would not have relinquished all control and involvement in the management of the Companies.[49]
[49]See pars 103, 106 and 109 above.
(2)Entwisle, and entities associated with Entwisle, disposed of their shareholdings in the Companies by 30 June 2008.
Entwisle agreed to the disposition of his shareholdings based on his understanding that he would receive a substantial sum in return for those dispositions. But for that understanding, he would not have so acted.[50] Further, the disposal of the shareholdings has not been completed and McGoldrick would not be entitled to have them completed until there has been compliance with any Dissolution Agreement.[51]
[50]Ibid.
[51]See pars 106-109 above.
(3)Entwisle was released from the guarantees he had given to support the Companies soon after 29 June 2008, leaving McGoldrick and [his partner] as the sole guarantors of the Companies’ debts.
While this part of any Dissolution Agreement has been performed, essential aspects of it have not been.
(4)McGoldrick has been financially supporting the Companies since about 2004 and has done so without any support or contribution from his former joint venture partner, Entwisle, since June 2008.
The extent to which, and the basis upon which, McGoldrick has been financially supporting the Companies is not clear on the evidence.[52] In any event, Entwisle ceased to provide funds to the Companies pursuant to his belief that he had entered into a binding contract, namely, the Dissolution Agreement, which substantially has not been performed.[53]
[52]See pars 67-69 above.
[53]See pars 103, 106 and 109 above.
(5)Each of the Companies has 3^rd party funding available to it on a continuing basis.
While this may be so, on the evidence the details of the extent of the 3^rd party funding available are almost non-existent. Further, this factor alone does not address or counterveil many of the reasons why the Companies ought to be wound up.

(6) Winding up will cause huge losses to the shareholders and any creditors.
There is a paucity of evidence in relation to these matters. For reasons already stated, I do not accept this submission.[54]
[54]See pars 135-138 above.
(7)In particular, the appointment of a liquidator to Henton would have a devastating effect on its business because it would be a significant breach of its loan covenants and would essentially eliminate its ability to sell its remaining 73 lots at proper market value.
For reasons already stated, I do not accept this submission.[55]
[55]See pars 137-138 above.

(8)Minken and any creditors will probably lose a significant source of funds (Minken’s claim for damages against Entwisle and Line Accord in proceeding no SCI 2012 05296) if Minken is wound up.
For reasons already stated, I do not accept this submission.[56]
[56]See pars 160-161 above.

(9)Deer Park, Control Group and any creditors of these entities will probably lose a significant source of funds (Deer Park and Control Group’s claim for rent and outgoings against Entwisle in proceeding no SCI 2013 00330) if Deer Park and Control Group were wound up.
For reasons already stated, I do not accept this submission.[57]
[57]Ibid.

(10)Entwisle’s application for winding up has been made for the improper purpose of seeking to prevent the claims made by some of the Companies (Minken, Control Group and Deer Park) against Entwisle and his company, Line Accord, and the Other Proceedings from being heard and determined.
For reasons already stated, I do not accept this submission.[58]

(11)The issues arising are of a kind that are inappropriate for determination in a proceeding such as this. For example, there are substantial contests as to the existence of all of the rights and interests asserted by the plaintiffs, which would properly be finally determined in substantive proceedings (after discovery and cross-examination) brought for that purpose.
I have been able to determine the appropriate outcome in relation to this proceeding without making final findings in relation to most of the substantive issues between the parties. Whether or not there will be substantial contests in relation to these issues will be a matter for a liquidator in the future.
(12)Minken and Deer Park are trustee companies. It is not in the interests of the unit holders that Minken and Deer Park be wound up.
This submission was not developed any further than what is stated above. It is not immediately apparent why the interests of unit holders would not be served by the appointment of trustees whose affairs are properly administered rather than the affairs being handled by trustees whose affairs are administered in an unsatisfactory manner (such as the manner in which Minken and Deer Park are presently being managed).
(13)The position of the farming companies (Control Group and Deer Park) is more positive that it has been over the last 8 years because of the water sales, improving rains and the income derived from the agistment of cattle.
There was almost no evidence to support this submission other than the drought has apparently ceased. Also the relative assertion of “more positive” is completely uninformative as to the true position of these companies. It does not provide a proper basis for changing the opinion that has otherwise been formed about the desirability of the orders sought.

[58]See pars 159-161 above.

In summary, the circumstances of the Companies are such that there is an overwhelmingly strong case for each of the Companies to be the subject of a winding up order on the basis that it is just and equitable to do so.

Finally, as already noted, I have not made findings in relation to a number of unsubstantiated allegations. Although I have not made such findings, the fact that those allegations exist reflects a situation where, given the entirely unsatisfactory state of their relationship, the control of each Company needs to be removed from McGoldrick and/or Entwisle.

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Citations

Entwistle v Minken Pty Ltd (receivers and managers appointed) [2013] VSC 709

Most Recent Citation

Entwisle v Minken Pty Ltd (Receivers and Managers Appointed) (in Liquidation) (No 2) [2014] VSC 14

Cases Citing This Decision

3

In the matter of Minken Pty Ltd (in liq) [2019] VSC 288

Entwisle v Minken Pty Ltd [2015] VSC 561

Entwisle v Minken Pty Ltd (Receivers and Managers Appointed) (in Liquidation) (No 2) [2014] VSC 14

Cases Cited

15

Statutory Material Cited

0

Accurate Financial Consultants Pty Ltd v Koko Black Pty Ltd [2008] VSCA 86

Tomanovic v Global Mortgage Equity Corporation Pty Ltd [2011] NSWCA 104

Nassar v Innovative Precasters Group Pty Ltd [2009] NSWSC 342

[2013] VSC 709

19 DECEMBER 2013