In the matter of Alu-Tech Shopfitters Pty Ltd; Dare v Keegan
[2004] VSC 342
•10 September 2004
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
CORPORATIONS LIST
No. 8397 of 2003
IN THE MATTER OF ALU-TECH SHOPFITTERS PTY LTD
| MARK CAMERON DARE | Plaintiff |
| V | |
| ALEXANDER REDPATH KEEGAN | First Defendant |
| And | |
| ALU-TECH SHOPFITTERS PTY LTD | Second Defendant |
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JUDGE: | Mandie J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 7 June 2004, 2 September 2004 | |
DATE OF JUDGMENT: | 10 September 2004 | |
CASE MAY BE CITED AS: | In the matter of Alu-Tech Shopfitters Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2004] VSC 342 | |
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CORPORATIONS – breakdown of relationship between two directors and equal shareholders – winding up on just and equitable ground.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr M Campbell (7/6/04) Mr I Upjohn (2/9/04) | Eales & McKenzie |
| For the Defendants | Mr J Lowenstein (7/6/04) Mr R Harris (2/9/04) | Merlo & Associates |
HIS HONOUR:
By originating process dated 16 October 2003, Mark Cameron Dare (“Mr Dare”) as plaintiff sought orders against Alexander Redpath Keegan (“Mr Keegan”) (the first defendant) and Alu-Tech Shopfitters Pty Ltd (“Alu-Tech”) (the second defendant). The proceeding is essentially a dispute between the two directors of and shareholders in Alu-Tech.
Mr Dare sought the following orders by his originating process. He first sought an order pursuant to s.233 of the Corporations Act 2001 (Cth) (“the Act”) for the purchase of Mr Keegan’s shares in Alu-Tech by him at a value to be determined (in default of agreement between the parties). That order was of course sought in the Court’s jurisdiction under s.232 of the Act (dealing with “oppressive conduct”). Alternatively, Mr Dare sought an order that Alu-Tech be wound up on the just and equitable ground pursuant to s.461(1)(k) of the Act.
The following facts, which are not in dispute (except where indicated), appear from Mr Dare’s supporting affidavit sworn 14 October 2003.
Mr Dare is aged 34. He left school at the age of sixteen and commenced a carpentry and joinery apprenticeship with a business known as Ringwood Shopfitters. Mr Keegan, who is 64 years old, commenced employment with Ringwood Shopfitters at about the same time. By 1988, Mr Dare had started working with Mr Keegan at Ringwood Shopfitters and got on very well with him. Five employees of Ringwood Shopfitters, including Mr Dare and Mr Keegan, decided in 1994 to commence business in their own behalf. Alu-Tech was registered on 9 November 1994 and each of the five individuals became directors, each invested $10,000 in the company and each held one fifth of the issued shares. In 1995 one of the individuals (Pickett) resigned as a director and was repaid his investment, although remaining as an employee. Mr Dare and Mr Keegan each purchased half of Pickett’s shares. In the same year another of the original investors (Nanscawen) resigned and sold his shares. Mr Dare and Mr Keegan and one Adam then became equal shareholders in Alu-Tech.
Despite some tensions between the remaining three directors, the business continued for some time under their control. By 1998 there were disputes and disagreements between Adam and Mr Keegan, and also (according to Mr Dare, to a lesser extent) between Mr Dare and Mr Keegan.
Adam resigned as a director of Alu-Tech in May 1999. His capital contribution was refunded and Mr Dare and Mr Keegan purchased his shares equally between them. Adam remained employed by Alu-Tech as a draughtsman and chief purchasing officer despite (according to Mr Dare) continuing animosity between Adam and Mr Keegan.
Since Adam’s resignation in May 1999, there have been no directors’ meetings. According to Mr Dare the reason is that both directors knew that such meetings would only give rise to arguments between them. There are now six fully paid ordinary shares of $1, three held by Mr Dare and three held by Mr Keegan.
Mr Dare deposed that “[f]rom the time that Alu-Tech became a two-director company, my relationship with [Mr] Keegan has transformed from one where there was simply tension between us, to one where our relationship is so bad that the continued existence of Alu-Tech is in danger. We simply do not trust each other and cannot get along.”
As at October 2003, Alu-Tech had ten employees with an annual turnover in the vicinity of $2M to $2.4M. The business supplies commercial aluminium windows and doors and glazing to commercial projects. The work is derived by providing estimates and quotations to builders who provide drawings to Alu-Tech. Alu-Tech does not advertise or market its business. There is substantial competition in Melbourne between companies providing a similar style of shopfitting to Alu-Tech with four or five companies substantially bigger than Alu-Tech, about 20 to 30 companies of about the same size and many smaller companies.
Mr Dare operates as the commercial manager of Alu-Tech which involves such tasks as manager, organiser of projects, liasing with the company’s accountant and bookkeeper, oversight over projects and generally all facets of Alu-Tech’s operations, as well as some quoting and estimating. According to Mr Dare, Mr Keegan’s primary function is to estimate and quote for new projects. In his affidavit Mr Dare refers to what he describes as “two major issues of contention and dispute” between himself and Mr Keegan. The first is Mr Keegan’s method of estimating and tendering with which Mr Dare takes issue. The second is the performance of Alu-Tech’s employees and the way Mr Dare supervises them with which Mr Keegan takes issue.
Mr Dare complained in his affidavit that Mr Keegan tenders to builders that were poor payers or poor builders and also complained that Mr Keegan won projects at tendered prices which resulted in substantial losses to Alu-Tech. Mr Dare deposed that a review by him of thirteen projects of Alu-Tech completed in the period April/May 2001 to April/May 2002 with a value of about $1.2M resulted in a loss overall of about $44,000. Mr Dare contrasted this with jobs for which he successfully tendered which resulted in a positive return of about 30%. Mr Dare proffered the opinion that Mr Keegan “has lost touch with estimation and has now become a burden on Alu-Tech by refusing to change his ways”. He also complained of the alleged effects of Mr Keegan’s alcohol consumption. Mr Dare deposed that he had wished to move Alu-Tech to larger premises but that this was opposed by Mr Keegan.
A notice of appearance was filed by Mr Keegan on 30 October 2003, stating grounds of opposition to a winding-up of Alu-Tech, namely, that it was not just and equitable for the company to be wound up, that no valid reason had been given by the plaintiff for the company to be wound up, and that the company was solvent and trading and was a party to a number of contracts with third parties and employed a number of staff who would otherwise be left unemployed.
An affidavit of Mario Anthony Merlo, Mr Keegan’s solicitor, was sworn on 30 October 2003.[1] In his affidavit Mr Merlo says that his firm and Mr Dare’s solicitors have been involved in correspondence and discussions since May 2003 – seeking to resolve the impasse in the relationship between Mr Dare and Mr Keegan and the question of attributing a value to their interests in the company if there was to be a buy-out by one of the other’s interest in Alu-Tech. Mr Merlo said that Mr Dare and Mr Keegan had each obtained independent valuations of the business of Alu-Tech which placed differing values on the business. Mr Merlo further deposed that Mr Keegan was concerned that Mr Dare wished to “pick up” the business at some time in the future at a cost being less than its true value because any sale of the business or shares in the company would most likely require some form of restraint to be provided by the Vendor. Mr Merlo deposed that Mr Keegan was opposed to the winding up of the company and would prefer to see the matter resolve by negotiation or mediation.
[1]A copy of this affidavit was faxed to the Court on 30 October 2003 and placed on the Court file. It does not appear that the sworn affidavit has been filed, but neither party sought to make anything of this fact and it is convenient to refer to the contents of the copy affidavit.
The proceeding came before the Court for directions on 31 October 2003. Counsel for Mr Dare said that he claimed remedies for oppression, in the alternative winding up, and sought orders for affidavit material and then mediation. Counsel for Mr Keegan sought an order for mediation prior to the filing of further affidavit material in order to avoid raising “the temperature between the parties”. However, counsel for Mr Dare said that his client wanted Mr Keegan’s response to the allegations about Mr Keegan’s quoting causing losses to the business before there was any discussion or mediation in relation to buy-out prices. Given the plaintiff’s attitude, orders were made for Mr Keegan to file and serve answering material and for any affidavit in reply and a mediation was ordered, to be completed by 21 December 2003.
An affidavit was filed by Mr Keegan sworn 21 November 2003. Mr Keegan denied having “wrongly estimated jobs” saying that he was an experienced estimator with approximately twenty-six years experience. He deposed in general terms that any losses suffered by the company were as a result of “cost blow outs on those jobs” and that Mr Dare had been directly responsible for the supervision of all projects. He further deposed that all contracts were signed by Mr Dare only after he had first checked Mr Keegan’s estimates and satisfied himself that they were reasonable, and that in some cases Mr Dare had agreed to accept projects notwithstanding that his (Mr Keegan’s) estimates showed that to do would result in a loss, because Mr Dare said that it was better to have work for the company’s employees rather than have them sit idle in the factory. Mr Keegan denied that alcohol had in any way affected his work performance and referred to a number of other matters in dispute.
Mr Keegan’s affidavit concluded:
“In the circumstances, it is clear, I believe, that Dare and I are unable to work together. That said, the reason for that being the case is not as Dare would have it. I am more than happy to – so said to Dare on more than one occasion – to buy him out of the Company so that we go our separate ways.”
The proceeding came again before the Court on 6 February 2004. The Court was informed that the mediation had been unsuccessful. Orders were made by consent as to discovery and further affidavits. The proceeding was fixed for trial on 7 June 2004. In “Other Matters” it was recorded that the parties had agreed to continue negotiating a settlement of the proceeding, such negotiations to take place within fourteen days. Counsel for Mr Dare informed the Court on 6 February 2004 that the plaintiff’s position was in substance that the company should be wound up on the just and equitable ground because both sides recognised that the shareholders and directors could no longer get along and run the business effectively. It was or should have been apparent, from what counsel for Mr Dare said, that Mr Dare’s preferred course was the winding up of the company rather than to fight a case on the basis of oppressive conduct (no doubt having regard to the difficulties of establishing such conduct on the facts, which were much disputed).
A substantial affidavit sworn 24 May 2004, was filed on behalf of Mr Keegan. In his affidavit Mr Keegan said: “I concede that there is an irretrievable breakdown of the relationship between Dare and me.” However, Mr Keegan went on to allege that Mr Dare had substantially contributed to the breakdown of the relationship. He then referred to a number of matters, including the failure of Mr Dare to keep employee timesheets for his own work, the alleged misrepresentation of the contents of a document presented to him for signature, the secretive handling of matters relating to contracts introduced to the business by Mr Dare, the non-implementation of the company’s standard trading terms and he concluded, on this aspect, saying:
“I do not wish to burden this Honourable Court with a myriad of instances where Dare has … shown scant regard for the interests of the company and me. If anything, Dare has adopted an obstructionist attitude, behaved in an oppressive manner, and has breached his fiduciary duties as a director.”
After dealing with some matters not presently material, Mr Keegan then, in his affidavit, referred to matters concerned with valuations and negotiations. He then referred to his opposition to the winding up of the company and his preference for the appointment of an administrator/receiver to realise the assets of the company and distribute the residue once debts have been paid. He expressed his concern at the “fire-sale” which would result from a liquidation and his preference for an administrator selling the business as a going concern, having regard to several contracts which were being presently being performed by Alu-Tech and those which were presently being negotiated. Mr Keegan concluded by saying that he had instructed his solicitors to consent to Order 1 as sought in the originating process (namely, an order that Mr Dare purchase Mr Keegan’s shares in Alu-Tech at a value to be determined), which consent had been communicated to the solicitors for Mr Dare and to which no substantive response had been received.
An affidavit of Mr Dare sworn 2 June 2004, was filed in reply. Mr Dare denied that any losses suffered by Alu-Tech had resulted from cost blowouts. He deposed that in most cases the company entered contracts by way of Mr Keegan sending a quotation and the builder accepting in writing, and that it was rare for him to sign a contract on behalf of the company. Further, Mr Dare said that he did not have the time to check Mr Keegan’s estimates. Mr Dare said that he was not aware that Mr Keegan disagreed with him not signing employee timesheets. He denied a number of the other allegations in Mr Keegan’s affidavit. Mr Dare contested Mr Keegan’s version of the negotiations between them (adding that they should have been treated as confidential). Mr Dare said that he would not sell his shares in Alu-Tech if he had to provide a restraint of trade to the purchaser. He disputed the Court’s power to appoint an administrator and contested the necessity for a receiver. He gave a number of reasons why it was unlikely that a receiver would find a purchaser for the shares or for the business. Among those reasons Mr Dare said “[i]n my opinion the goodwill attaches to Keegan and myself, and is really not a valuable component of the Company”. Mr Dare’s affidavit refers to further alleged losses on projects for which Mr Keegan had tendered and went into considerable detail about them.
Mr Dare’s affidavit finally referred to unsuccessful negotiations between the parties. He produced a letter from Mr Keegan’s solicitors to him dated 16 May 2003, wherein Mr Keegan offered to buy Mr Dare’s shares for $250,000, and an answering letter from Mr Dare’s solicitors dated 22 May 2003, stating, inter alia:
“My client is 32 years old and intends to continue his working life in the shopfitting industry. For that reason he is not prepared to enter into any agreement which will have the effect of restricting such trade.
I refer to our telephone conversation on 20 May 2003 and confirm that the offer to purchase my client’s shareholding for $250,000 will require a restraint of trade clause.
It would appear that the only options available to my client are to apply to the Court to wind the company up or to purchase your client’s shareholding. I am aware that two valuations have been obtained and, as always, the valuations are in dispute.”
It is unnecessary to refer to the further correspondence produced which continued up to May 2004. It is evident from the whole of the material before the Court that two of the main reasons (but not necessarily the only reasons) why the parties were unable to reach a negotiated settlement were that Mr Dare was not prepared to agree to a restraint upon his trade as the price of selling his shares, but, as Mr Dare perceived it, he could not afford to pay the price which Mr Keegan was seeking for the sale of his (Mr Keegan’s) shares.
A supplementary affidavit of Mr Keegan sworn 4 June 2004 was filed, in substance complaining of Mr Dare’s failure to respond to his agreement to the relief sought by Mr Dare in para.1 of the originating process (an order for the purchase of Mr Keegan’s shares by Mr Dare) and contending that Mr Dare had the means to purchase his shares. The affidavit concluded by saying:
“In the event of Dare refusing to take the very Order sought by him, I respectfully submit that an agent be appointed so that the business of the company may be sold as a going concern. This will be to the eventual advantage of both of us since in that event, there will not be a fire-sale and it will be to the eventual advantage of the employees, creditors and existing clients of the company where contracts remain outstanding.”
The proceeding came on for trial on 7 June 2004. The parties sought time for further discussion, but again failed to reach agreement. Counsel for Mr Dare completely abandoned all allegations of oppressive conduct and the relief sought in para.1 of the originating process, and indicated that Mr Dare sought that the company be wound up on the just and equitable ground. Counsel for Mr Dare contended that the company should be wound up on the basis of the admissions that had been made in the proceeding that there had been an irretrievable breakdown in the relationship between Mr Dare and Mr Keegan in the conduct of Alu-Tech. Counsel for Mr Dare submitted that judgment should be granted on those admissions of fact. I refused this application on the basis that a winding up order was a discretionary matter to be decided in all the circumstances, referring also to s.467 of the Act which empowered the Court to dismiss the application even if a ground had been proved, or to adjourn the hearing conditionally or unconditionally, or to make any interim or other order that the Court thought fit.
I note that in the material before the Court at trial there was no balance sheet or profit and loss statement of Alu-Tech and no sworn evidence as to the value of the business.
Mr Dare was called as a witness, confirmed the contents of his affidavits, and was then cross-examined by counsel for Mr Keegan. He was asked about a valuation of the business which had been obtained and some disputes in relation to it. He said that he considered that “most of the goodwill is with myself“ rather than attached to the business. He agreed that Alu-Tech operated a profitable business with some ten employees. He was cross-examined about the prospect of buying out Mr Keegan or himself being bought out and it again became apparent that, as I have said, Mr Dare was not prepared to agree to a restraint upon his trade as the price of selling his shares, but, as Mr Dare perceived it, he could not afford to pay the price which Mr Keegan was seeking for the sale of his (Mr Keegan’s) shares.
Mr Dare said that he believed that Mr Keegan wanted him to pay an amount of money that he did not have. In substance, the cross-examination was limited to the question of how the dispute was to be resolved rather than any of the disputes concerning what had happened in the past. No further witness was called on behalf of the plaintiff and counsel for Mr Dare did not seek to cross-examine Mr Keegan.
In argument, I put to counsel for Mr Keegan that the Court was faced with an application to wind up the company on the just and equitable ground, that it was common ground that there was an irretrievable breakdown between the parties, and that the Court had jurisdiction to wind up the company on that basis under s.461(1)(k) of the Act and asked what was the Court to do – to wind up the company, to dismiss the application and leave the parties in their irreconcilable embrace, or what? Counsel for Mr Keegan did not dispute that the just and equitable ground for winding up had been established. It emerged from further discussion with counsel that their clients might not be adverse to the appointment of an agent for the purpose of ascertaining whether the business could be sold prior to any winding up order. Given the positive indications from counsel, the proceeding was adjourned to Friday 11 June 2004, to give the parties an opportunity to agree on the terms of an order.
On 11 June 2004, the parties in effect consented to an order, the only dispute (which was resolved by the Court) being as to the particular agent to be engaged. The Court ordered that the business of Alu-Tech be sold as soon as reasonably practicable at the best available price without reserve, and that a specified company be engaged by the parties at the cost of Alu-Tech to seek offers for the purchase of the business. Various ancillary orders were made and the trial was adjourned, in effect, until 20 August 2004 (unless before that date the business had been sold).
It is unnecessary to recount in detail what transpired thereafter. It is sufficient to say that a purchaser for the business could not be found, or at least not without a restraint of trade being offered by the existing directors.
When the matter came before the Court on 20 August 2004, a further opportunity was given (principally at the request of counsel for Mr Keegan) for the agent to seek a purchaser and the trial was ordered to be resumed on 2 September 2004.
When the trial resumed on 2 September 2004, counsel for Mr Dare renewed the application for a winding up order, but requested that there be some delay in the making of the order, or its commencement of operation to give the parties a further opportunity to settle the proceeding. Counsel for Mr Keegan, on the other hand, while not contesting the Court’s power, in the circumstances, to make a winding up order, sought an order that the business be sold to Mr Keegan for a particular sum. Counsel for Mr Dare responded by noting that there was no material before the Court which would justify such an order and that a liquidator could sell the business as he saw fit, with both parties able to make offers.
Having heard the further brief submissions of counsel, judgment was reserved. Subsequently my Associate received a message that the parties were still negotiating and a request that judgment not be handed down prior to Monday 6 September 2004. My Associate was this week informed that no agreement had been reached.
It is not disputed that the just and equitable ground for a winding up of Alu-Tech has been established. The suggestion made on 7 June 2004 that a receiver be appointed was not renewed on 2 September 2004. Assuming (without deciding) that the Court has power under s.467 of the Act to order either party to buy the other’s shares, I am not satisfied that it is either just or reasonable to make such an order, either at a specified price or at one to be determined by a valuer. There is no real alternative but to wind up the company. The parties have had a more than adequate opportunity to reach a compromise but have been unable to do so. In all the circumstances, I am satisfied that a winding up order should be made.
There will be an order that Alu-Tech Shopfitters Pty Ltd be wound up pursuant to the provisions of the Corporations Act 2001 (Cth) and that a person (whose name is to be provided by the Prothonotary) be appointed as liquidator for the purposes of the winding up. It will be necessary for the plaintiff’s solicitors to obtain the name of the proposed liquidator from the Prothonotary and to obtain and file his or her consent to act.
I will hear the parties on the question of costs.
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