Fitzgerald v Tin Shed Distilling Co Pty Ltd

[2015] SASC 97

SUPREME COURT OF SOUTH AUSTRALIA

(Civil)

FITZGERALD & ORS  v  TIN SHED DISTILLING CO PTY LTD & ORS

[2015] SASC 97

Reasons of Judge Dart a Master of the Supreme Court

3 July 2015

CORPORATIONS - WINDING UP - APPLICATIONS FOR WINDING UP BY COURT - WHO MAY APPLY - CONTRIBUTORIES

Contributory's application on the just and equitable ground - Corporations Act 2001 s 461(1)(k).

Corporations Act 2001 (Cth) s 461(1)(k), s 462, s 596A, referred to.
In the matter of Catombal Investments Pty Ltd [2012] NSWSC 775; Ebrahimi v Westbourne Galleries Ltd [1973] AC 360, considered.

FITZGERALD & ORS  v  TIN SHED DISTILLING CO PTY LTD & ORS
[2015] SASC 97

JUDGE DART:

1. Earlier today I made an order winding up the third plaintiff, Southern Coast Distillers Pty Ltd (“Southern Coast”) on the just and equitable ground.  These are my reasons for doing so.

2. These proceedings deal generally with the falling out between people who were in business together.  Three couples went into the venture together.  A member of each of the couples was a director and the couples arranged the shareholding in a way convenient to each couple.  Southern Coast was the vehicle for the conduct of the business, which was a distillery business. 

3. The businesses stopped trading about two years following a breakdown in the relationship between the parties. 

4. An interlocutory application was brought in these proceedings to wind up Southern Coast. The application is brought by the second plaintiff (the applicant), who is a shareholder. The application was brought on the just and equitable ground provided for in s 461(1)(k) of the Corporations Act 2001 (“the Act”). As a shareholder she had standing pursuant to s 462 of the Act to make the application.

5. The just and equitable ground is often relied upon in respect to a breakdown in a relationship between people who are conducting a business through the vehicle of a small proprietary company.  This is such a case. 

6. The dispute has been ongoing for a number of years.  At a meeting of shareholders and directors on 3 July 2012 it was minuted that there was a breakdown in the relationship between the shareholders and directors and that an impasse had been reached.  Since that time, the position has, if anything, deteriorated. 

7. In In the matter of Catombal Investments Pty Ltd[1] Brereton J had to consider the meaning of just and equitable in the Act. He said: [2]

   Although the concept “just and equitable” is a broad one incapable of exhaustive definition, conventionally the decided cases are recognised as falling into a number of classes, including in particular:  (1) failure of the substratum of a company;  (2) deadlock or disagreement in the management of the company’s affairs;  (3) fraud in the formation of the company;  (4) misconduct by the directors of the company;  (5) constitutional and administrative vacuum in the management of the company;  (6)     lack of confidence, fairness and public interest and commercial morality.

   His Honour also said: [3]

   The words “just and equitable” are general words, which must remain general, and the applicant is entitled to rely on any circumstances of justice and equity that affect him or her in his or her relations with the company or shareholdings.

   His Honour was there referring to the well-known decision of Ebrahimi v Westbourne Galleries Ltd.[4]

   [1] [2012] NSWSC 775.

   [2]    In the matter ofCatombal Investments Pty Ltd [2012] NSWSC 775 at [19].

   [3]    In the matter ofCatombal Investments Pty Ltd [2012] NSWSC 775 at [20].

   [4] [1973] AC 360.

8. All parties agree that the relationships have broken down and that the management of Southern Coast is hopelessly deadlocked.

9. The applicant points to other matters as well.  The matters which are alleged in the applicant’s affidavit of 20 June 2015[5] include breach of fiduciary duties by directors in respect of rental premises, breach of director duty in relation to the payment of wages; sale of assets for less than market value, sale of stock to related entities and the creation of a phoenix company to take over the business of Southern Coast.  The allegations are denied by the defendants.

   [5]    FDN29.

10. The Court does not need to make a determination the moment as to whether some or all of these allegations will be made good.  It is sufficient for the present purposes that they are raised and are matters which could properly be investigated by a liquidator, if appointed.  If no liquidator is appointed, presumably the matters will not be investigated.

11. When the idea of winding the company up was first raised, all parties agreed to it and the application was made.  When the application first came on the defendants, who are the other directors and shareholders of Southern Coast, advised the Court that they then opposed the making of a winding up order.

12. The grounds of opposition include:

    1The winding up of the company will not resolve all issues between the parties.

    2The winding up of the company may result in an adverse credit rating assessment of the directors and shareholders.

    3That the company ceased trading two years ago and there is no intention that it will trade again.

    4That it would be best for the directors and shareholders if the company simply were to be deregistered.

13. Whilst the position of the directors and their credit rating is an appropriate matter for consideration, it is not a matter which would carry the day if the other facts and circumstances point to the need to appoint a liquidator.  That is the situation here.  The breakdown of the relationship is not in dispute.  The company is deadlocked.  The defendants say that the plaintiffs cannot prosecute the current claim against them because the defendants in their capacity as directors have not consented to that course.  That is correct.  That is a matter which justifies the appointment of a liquidator to review the matter independently and determine whether the claim should be pursued against the defendants.

14. It might be true that the winding up of Southern Coast will not resolve all issues between the parties to this litigation. However, the vast majority of the claims put forward by the plaintiffs are claims of Southern Coast. The appointment of a liquidator will allow an independent person to form a dispassionate view as to whether or not there is any merit in continuing with this litigation. The liquidator has the enhanced powers of investigation provided in s 596A of the Act and is therefore well placed to properly consider the allegations made against the defendants. Further, the company has money in the bank at the moment. There is a deadlock between the directors and shareholders. Someone needs to take control of those funds. The defendants’ proposition is that the company should simply be deregistered. From a public policy point of view, that is unsatisfactory, when there are unresolved allegations of misconduct.

15. In my opinion, all the facts and circumstances are such that this was an appropriate matter in which to wind the company up on the just and equitable ground, which is why I did so.