Limnios, G. v Tambu Pty Ltd

[1995] FCA 15

CATCHWORDS

CORPORATIONS - Winding Up - application by 49% shareholder for appointment of a provisional liquidator - 49% shareholder also company's financier and landlord - 51% shareholder the "active partner" in company's business - irretrievable breakdown of relationship between only two directors/shareholders - allegation by 51% shareholder of misappropriation of the company's property (including goodwill) by 49% shareholder to shelf company acquired by him for the purpose - possibility that appointment of a provisional liquidator would mean that proceedings would not be brought against 49% shareholder and that wrong to company would go un-remedied - possibility of derivative action by 51% shareholder.

CORPORATIONS - Management and Administration - meetings - quorum requirements two shareholders (51% and 49%) the only directors - refusal of minority shareholder/director to attend meetings, thereby precluding quorum - company in default in respect of holding first annual general meeting - power under s 251 of the Corporations Law to order meeting of the company be convened with a quorum of one - power under sub-s 245 (10) to order holding of annual general meeting.

Corporations Law ss 245, 251

Re Sticky Fingers Restaurant Ltd (1992) 10 ACLC 3,011.
Rural Industries Co-operative Society Ltd v Porky Pigs Pty Ltd (1988) 12 ACLR 794.

GERHARD LIMNIOS v TAMBU PTY LIMITED & ANOR

No NG 3593 of 1994

Lindgren J
Sydney
25 January 1995

IN THE FEDERAL COURT OF AUSTRALIA )
NEW SOUTH WALES DISTRICT REGISTRY )    No NG 3593 of 1994
GENERAL DIVISION                 )

IN THE MATTER OF TAMBU PTY LIMITED (ACN 060 270 804)

BETWEEN:

GERHARD LIMNIOS
Applicant

AND:

TAMBU PTY LIMITED
First Respondent

OLGERD TABENSKY
Second Respondent

AND BETWEEN:

OLGERD TABENSKY
Cross Claimant

AND:

GERHARD LIMNIOS
First Cross Respondent

AND:

TAMBU PTY LIMITED
Second Cross Respondent

CORAM:Lindgren J

PLACE:Sydney

DATE:25 January 1995

MINUTE OF ORDERS

THE COURT:

1. ORDERS that the second respondent bring in draft short minutes of orders to give effect to these Reasons.

1. DIRECTS that the proceedings stand over to Monday 30 January 1995 at 11.00 am for the making of orders.

NOTE:     Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA )
NEW SOUTH WALES DISTRICT REGISTRY )    No NG 3593 of 1994
GENERAL DIVISION                 )

IN THE MATTER OF TAMBU PTY LIMITED (ACN 060 270 804)

BETWEEN:

GERHARD LIMNIOS
Applicant

AND:

TAMBU PTY LIMITED
First Respondent

OLGERD TABENSKY
Second Respondent

AND BETWEEN:

OLGERD TABENSKY
Cross Claimant

AND:

GERHARD LIMNIOS
First Cross Respondent

AND:

TAMBU PTY LIMITED
Second Cross Respondent

CORAM:Lindgren J

PLACE:Sydney

DATE:25 January 1995

REASONS FOR JUDGMENT

NATURE OF PROCEEDINGS

The applicant ("Limnios") holds 49% of the shares in the capital of the first respondent ("the Company") and the second respondent ("Tabensky") holds the remaining 51%.  They are the
directors of the Company. By his application which was filed on 15 November 1994, Limnios seeks an order that the Company be wound up and that an official liquidator be appointed as liquidator of the Company. The ground relied on is that provided for by s 461(k) of the Corporations Law, namely that the Court "is of the opinion that it is just and equitable that the company be wound up".  By a notice of motion filed on 16 November 1994, Limnios seeks an order that an official liquidator be appointed liquidator of the Company provisionally.

By a cross claim filed on 17 November 1994, Tabensky seeks the following relief:

"1.A declaration that the First Cross Respondent is no longer a Director of the Second Cross Respondent.

2.An order that the First Cross Respondant [sic] shall, pursuant to section 251 of the Corporations Law convene a meeting of the company to be held at such time and place as the Court shall think fit for the purpose of considering and thought fit, passsing [sic] the resolution set out in the Schedule hereto.

3.That at such meeting one member present or by proxy shall constitute a quarum [sic].

4.That the Court may give such further directions as to the manner in which the said meeting is to be called, held and conducted and all ancilary [sic] and consequential directions as it may think expedient.

5.Costs."

Tabensky seeks no interlocutory relief but resists Limnios's motion for the appointment of a provisional liquidator.  That motion was heard on 29 November and 6 December 1994.  There were subsequent written submissions the last of which was received on 19 December 1994.  There has been no final hearing.  Although I will necessarily give an account of "facts" I make no factual findings and do not resolve factual conflicts.

The parties also made submissions as to what should be the fate of Tabensky's cross-claim, although no order had been made for the final hearing of the cross-claim.  Limnios's motion for interlocutory relief and Tabensky's cross-claim are interrelated.  I think it appropriate to indicate the orders which I would make on the cross-claim in the light of the present state of the evidence, and to list the matter for any oral submissions which the parties may wish to make as to why those orders should not be made now.

FACTS

Background
For some period not identified by the evidence down to July 1993, a courier and taxi truck business known as "Astral Couriers & Taxi Trucks" was carried on by a company named Astral Couriers Pty Ltd ("Astral") in which Tabensky and his sister were the shareholders.  Apparently she financed the business and provided a guarantee in reliance on which finance was also provided for it from elsewhere.

In October 1992 Tabensky invited Limnios to become a shareholder and director in place of his sister, taking over her role as financier and guarantor.  According to Limnios, Tabensky said "I've got a company where I cannot get along with my partner who is my sister".  Limnios accepted Tabensky's invitation.  Tabensky held 51% of the shares and Limnios held 49%.  Both were directors.  Limnios had not previously had any experience in a business of the kind in question.  He was to be a "silent partner" and Tabensky was to be an active one.

In May 1993 Limnios borrowed from National Australia Bank ("NAB"), or provided security to NAB for a borrowing of, $120,000.00 for Astral's business purposes.

According to Limnios, in July 1993 he told Tabensky that he (Limnios) was not prepared to continue to be a director of Astral as it was "insolvent".  He suggested the setting up of a new company which would purchase the goodwill, furniture and fittings of Astral and in which he and Tabensky would hold the share capital in the same percentages as those in which they already held the share capital of Astral.  Limnios and Tabensky acquired the Company as a shelf company for the purpose of purchasing the business from Astral.  In July 1993 Astral sold the business to the Company for $13,645.00 being $10,000.00 for goodwill and $3,645.00 for fittings.  Of course those figures were fixed by Limnios and Tabensky.  The evidence does not suggest that the amount of $10,000.00 represented their best estimate of the "true value" of the goodwill of the business.

The Company carried on the business under the same name from about 17 July 1993 until 29 July 1994 when it ceased trading in the acrimonious circumstances with which this case is concerned. 

The case was conducted on the basis that Tabensky had 51% of the shares and the voting power in general meeting, and that Limnios had 49%: see articles 10-18 of the Company's articles of association.

Limnios had provided security for financial accommodation (an overdraft and loan facility) provided by the NAB to Astral.  When the Company bought the business from Astral, apparently some $120,000.00 was owing.  There was an agreement between Limnios and Tabensky that the Company would repay the $120,000.00 to the NAB "for and on behalf of the shareholders".  On a later occasion (in fact at a meeting of Limnios and Tabensky as Astral's directors on 11 July 1994) it was recorded that Tabensky was to be responsible for half of the amount of $120,000.00.  What matters at present is that Limnios was effectively the financier of the business.  Apparently in May 1994 NAB effected a re-financing under which Astral's debt was paid out and Limnios became NAB's debtor.  This does not seem to alter the position that ultimately the Company was liable to pay the amount provided by the NAB, whether directly to the NAB or by way of indemnifying Limnios.

It was a term of the loan that NAB was to be paid $300.00 each Wednesday commencing on 11 May 1994.  Apparently the Company made the payments down to the cessation of its business on 29 July 1994 and has made no payments since then.

Modus operandi of the Company
Tabensky was the managing director of the Company.  Most orders were placed by customers over the telephone.  Ronald Silver ("Silver") was the general manager and Adrian Matheson ("Matheson") was the operational manager.   Margaret Golledge and Ellicia Woods were the telephone/ computer operators.  Seventeen drivers worked under sub-contract arrangements with the Company.  They provided their own vehicles.  They made the deliveries which the Company undertook to its customers to carry out.  The Company provided each vehicle with a two-way radio.  It leased the radios from Mowbray Radios.  The trucks were fitted with a logo reading "Astral Couriers & Taxi Trucks".  According to Tabensky, when the Company ceased to trade at the end of July 1994 it had some 200 active customers.  The Company maintained a computer which contained a record of the names, addresses, telephone numbers and contact persons in respect of its customers.

A company named "Cosmoderm Pty Ltd" ("Cosmoderm") was a lessee of premises being Unit 5A, 9 Winbourne Road, Brookvale 2100.  Limnios and his wife were the directors and shareholders of Cosmoderm.  About 60% of the premises leased by Cosmoderm was sub-leased from it by the Company.  That was the office from which the Company's business was carried on.  Cosmoderm apparently paid a rental of some $700.00 per month to the lessor and the Company paid rent of $100.00 per week to Cosmoderm in respect of the part of Unit 5A occupied by it.  In the remaining 40% of the premises, Cosmoderm carried on its own business activities.  Limnios worked there.  The evidence did not reveal how, if at all, the premises were divided up physically as between Cosmoderm and the Company.  In effect, Limnios, as well as being a financier of the Company, was a very present landlord too.

Limnios had some ability in computer programming.  He developed a computer program for the Company.  Apparently he carried out this work in Cosmoderm's office.   The Company paid Cosmoderm for it.  The program's function was to record bookings, drivers' records, accounts, job records and other matters.  Tabensky had some input in connection with development of the computer program but most of it was Limnios's work.  

The Company "factored" its book debts with Howard Finance Holdings Ltd ("Howard Finance").  The detail of this arrangement was not in evidence.  It suffices to say that Howard Finance was a second source of finance on which the Company depended.
June/July 1994
In late June and early July 1994 there were discussions between Limnios and Tabensky in which Limnios said that he was not satisfied with the way in which Tabensky had conducted himself with the Company's staff and clients.  He said that unless there was a change in the management of the business, the Company would probably lose staff and drivers and the business would collapse.   Limnios said that he would withdraw his financial support unless he was given managerial control. Precisely what was meant by the threatened withdrawal of financial support was not made clear by the evidence.  Tabensky rejected Limnios's approach.  There were discussions as to one or other buying out the other.

While these discussions with Tabensky were taking place in early July, unbeknown to Tabensky Limnios and his wife, on 8 July 1994, acquired a shelf company called Lamena Pty Ltd ("Lamena") of which they became the only shareholders and directors.  Its role will become apparent.  In cross-examination, Limnios said that on 20 July he transferred his share to his wife and that from that time she was Lamena's only shareholder (see below as to Silver's replacement of Limnios as a director).

Limnios said that on 15 July 1994 and 18 July 1994 respectively, Silver and Matheson tendered their resignations to him, and that each said that the reason for the resignation was that he could not work with Tabensky.  Silver's letter of resignation referred to interference by Tabensky in his (Silver's) day to day running of the Company as the reason for his resignation.  Matheson referred to the rift between Limnios and Tabensky as being beyond resolution and said, "the imminent departure of Ron Silver and the timing of it indicates to me that our problems are far more deep-seated than I was aware".

On 22 July Limnios and Tabensky signed a character reference for Silver which praised him as an "excellent manager of people".  Little did Tabensky know of the events which were shortly to occur.

On 25 July 1994 Limnios resigned as a director of Lamena and has not been a director of it since.  Silver replaced him.  Mrs Limnios continued as the other director.

On Tuesday 26 July 1994 Cosmoderm (Limnios) wrote to Northern Beaches Security requesting it to provide a security guard from 7.00 pm on 29 July to 7.00 am on 1 August and indicating that after 1 August a guard might be required daily from 7.00 pm to the following morning at 7.00 am until Friday 5 August.  The letter said "nobody to enter the premesis [sic] without my present [sic]".  Apparently Limnios expected trouble on Friday 29 July.  Subsequently he wrote to Northern Beaches Security extending the morning period from 7.00 am to 9.00 am down to Monday 1 August.

Friday 29 July 1994
Friday 29 July 1994 was eventful.  Limnios told Tabensky that he had decided to withdraw his financial support from the Company and intended to address the staff at a meeting that day and tell them of this.  He delivered a letter to Tabensky signed by him and his wife, addressed to "Tambu Pty Ltd" for the attention of "The Directors" advising that Limnios and his wife withdrew "all personal and directors' guarantees" for all debts incurred by the Company after 29 July 1994.  The letter contained the following paragraph:

"This decision has been made due to the increasing instability and disharmony between management and staff.  We feel that our investment is no longer safe and we have had no other alternative but to take this step, especially after the resignation of the company's key personnel being the General Manager and the Sales Manager."

The letter went on to advise that notification of the withdrawal of the guarantees had been sent to some six particular named businesses (no doubt ones with which the Company was accustomed to deal) and to "all Staff and Drivers of Astral Couriers & Taxi Trucks".  At the foot appeared "cc sent by registered mail".  The letter was clearly intended to affect the legal relationship of the parties. 

Also on 29 July 1994, Cosmoderm (Limnios) wrote to the Company for attention of "the directors" advising that access to the premises would be restricted to business hours between 9.00 am and 5.00 pm from Monday to Friday as from 29 July 1994.  The letter concluded "cc by registered mail".

According to Limnios, at 9.15 am on 29 July, Tabensky called the staff into his office.  Limnios informed the staff that he intended to withdraw his financial support for the Company, that it was a matter for the staff what they wished to do, and that he would be addressing them at a meeting late that afternoon.  The morning meeting was attended by Margaret Golledge and Ellicia Woods and some drivers.  During the day, Tabensky attempted to cancel the meeting of staff which Limnios had arranged for that evening, but Limnios told the drivers by radio that the meeting would be going ahead regardless of whether Tabensky was present, that the matters to be discussed would include the future of the Company, and that he (Limnios) wished all the drivers to attend.

Limnios gave evidence that at about 4.00 pm Margaret Golledge and Ellicia Woods resigned by delivering letters of resignation to him and saying "Mr Tabensky cannot guarantee that we will be paid".  As will be seen below they were to begin working for Lamena the next working day, Monday 1 August.

At 5.00 pm Cosmoderm gave notice to the Company to vacate the premises within seven days.  Again "cc by registered mail" appeared at the foot of the letter.  Limnios sent a copy of this notice to quit to Howard Finance.  This was intended to ensure that the Company's other source of finance was aware that the Company would not have premises after 5 August. 

At about 7.00 pm on 29 July a meeting was held at the Company's premises attended by Limnios, Tabensky and 16 of the Company's drivers. According to Limnios he told the drivers that he could not manage the Company with Tabensky and that he intended to withdraw his financial support for the Company.  He referred to the resignation of the general manager, sales manager and other staff as being "the last straw".  According to Limnios's affidavit, he said:

"The Executive Manager and Sales Manager have set up another company and I will be giving my financial support to that company.  It is a matter for you whether you wish to continue with the company and Mr Tabensky or whether you wish to offer your services to the new company."

and Tabensky said:

"Please stay with me, I have the full support of Howard Finance.  I will guarantee the debts of the company for the short term."

This was the first occasion when Tabensky was told about the setting up of "another company" and he learned of it in the context of a representation by Limnios that it had been set up by Silver and Matheson.  As will be seen, Silver, Matheson, Margaret Golledge, Ellicia Woods and most, if not all, of the drivers commenced working for Lamena on Monday 1 August. 

I interrupt this chronological narrative to note that it was false for Limnios to tell the drivers that Silver and Matheson had "set up" another company since Limnios and his wife had done so when they had acquired Lamena as a shelf company on 8 July.  If Silver and Matheson were involved in the period from their resignations on 15 and 18 July down to 29 July in putting Lamena in a position to appropriate to itself the Company's business on Monday 1 August, what Limnios told the drivers might be considered to be partially true.  But in cross-examination Limnios said that he did not discuss Lamena with Silver before the end of July; that when he acquired Lamena on 8 July, although he had done so for the purpose of conducting a courier and taxi truck business, he had had no knowledge of the then impending resignations of Silver and Matheson and had not had the slightest idea how Lamena would establish a client base; and that even when Silver and Matheson resigned in mid July he did not discuss his proposed new business with them.

According to Tabensky, the relevant words spoken by Limnios to the drivers were as follows: 

"I am setting up a new company and I will have full control over the company, the executive manager and the sales manager will be coming with me into this new company.  Mr Tabensky cannot guarantee your wages or monies due to you ..."

On its face (I refrain from forming a concluded view) this version is more consonant with facts objectively established or admitted by Limnios.

I return to the narrative.  One of the drivers asked Limnios and Tabensky to leave the room so that the drivers could decide what to do.  Limnios and Tabensky left the room.  Upon their return, one of the drivers informed them that they had "voted" and had "decided to quit unanimously".  The drivers handed in their radios. 

According to Limnios, at 8.30 pm Tabensky removed his personal computer and a number of financial documents of the Company including records of aged debtors and pre-booked jobs and left the premises.   According to Tabensky, he took only his "cabinet drawer" and "desk" and the records as to outstanding debts owed by the Company.  He said that the latter were sparse, suggesting that there were almost no outstanding debts. 

As arranged by Limnios, Northern Beaches Security began to guard the premises.

Copies of letters from Limnios to Howard Finance dated 29 July and 3 August 1994 were in evidence.  By the former, Limnios advised that he withdrew all personal and directors' guarantees in respect of the Company as principal debtor, the reason for his doing so, and the fact that notice had been given to the six named entities with which the Company dealt and all staff and drivers.  By the second letter, he requested Howard Finance to pay staff and drivers out of monies payable by Howard Finance to the Company.  He undertook to forward to Howard Finance a list of the persons to be paid, their account details and the amounts to be paid to them.  He informed Howard Finance that this would be the last pay for the drivers and termination payment for the staff.

There were in evidence two important "flyers" which were faxed to virtually all clients of the Company. One was signed by Limnios and the other by Silver.  A copy of that signed by Limnios on behalf of the Company trading as "Astral Couriers & Taxi Trucks" is annexure "A" to these Reasons.  A copy of that signed by Silver on behalf of Lamena trading as "Sun Express Couriers and Taxi Trucks" is annexure "B" to these Reasons.  As can be seen, the style of print is similar.  Silver said that the flyer faxed by him was generated on 1 August by a computer at Lamena's business premises.  It seems clear that the two flyers were faxed at about the same time.  Limnios and Silver said unequivocally that there was no liaison between them at the time of the sending out of the two flyers, and each said that he was unaware of the dispatch of the other's document.  Limnios said in cross-examination that it appeared to be fortuitous that the documents went out at the same time.  Indeed, he said that he had not seen Silver's "Sun Express" flyer until he saw a copy annexed to Tabensky's affidavit in these proceedings.  Tabensky said that he became aware of Limnios's fax only in August after Lamena had begun trading.

Tabensky gave evidence that an aerial purchased by the Company for the purpose of its radio system had been used by Lamena since 1 August and that all computer hardware, office furniture and telephone remain in the premises formerly occupied by the Company and are used by Lamena which trades from the same address.  There was evidence from Limnios and Margaret Golledge contradictory of this.

Events immediately following Friday 29 July 1994
At about 7.00 pm on Sunday 31 July 1994, the security guard at the premises telephoned Limnios and advised him that Tabensky had arrived with a truck and his wife and five removalists at 3.00 pm that day to remove all Company property at the premises.  He said that he (the security guard) had called the police who were allowing Tabensky to effect the removal.  Limnios went to the premises shortly after 7.00 pm.  He said that he observed evidence that the telephone lines had been cut and that the alarm system and power supply had also been cut and that Tabensky had told him to get out of the way.  Those items which had not yet been placed in the van were then put in an office which was then locked.

Tabensky agreed that he attended the premises to remove the Company's property and said that he did so in order that the Company might re-establish its business at a new location, given that it had received the notice to quit from Cosmoderm.  He said that he succeeded in removing only his desk, personal belongings and a cabinet containing records relating to creditors of the Company and to payment to them.  He denied cutting off the telephone and/or power supply.

On Friday 5 August 1994 Howard Finance advised Limnios that Tabensky had indicated to it that he was broadly in agreement with the proposal in Limnios's letter dated 3 August for payment by Howard Finance of the company's staff and drivers, but asked that Limnios make available to him for perusal, details of the proposed payments.  Howard Finance asked Limnios to contact it once Tabensky had seen the paperwork, after which Howard Finance would make the necessary payments.

On Thursday 11 August Limnios wrote a letter to Tabensky which was as follows (including spelling errors):

"Dear Olgerd,

It is noted that I have been waiting for you at our trading address Unit 5A 9 Winbourne Rd. Brookvale since Monday the 1st.8.94 without success.

Even I have notified you by Security Mail and Fax via Australia Post on Wednesday the 3rd.8.94 that I was expected you in the office to attend to our duties as company directors to pay staff/drivers, taxes, ......, you have chosen not to appear.

It is also noted that you agreed to my request via our accounntant Mr G Venados to wind the company up.

I have been attending to, and will be attending to the companies unfished business as required.  A bill for those services will be forwarded on completion.

I have also used my best endevour to stop the company accruing any more debts.

Regards

Gerhard Limnios

G Limnios

(Director)

cc. Howard Finance"

On Friday 12 August 1994 the balance to the credit of the Company's account at the Brookvale branch of the Commonwealth Bank of Australia ("CBA") was $6,544.40.  On that day, Tabensky withdrew $6,540.00.  Limnios learned of this on or about 22 August from Graham Gogam, the manager of the CBA at Brookvale.  The cheque was drawn in favour of "Segal Litton & Chilton", Tabensky's solicitors.  It bore signatures of Limnios and Tabensky on behalf of the Company.  Limnios explained that it had been the practice within the Company for directors from time to time to sign cheques in blank for specific purposes.  He said, no doubt correctly, that he had not consented to the Company's funds being paid to the trust account of Tabensky's solicitors.  He also said that on 16 August, Tabensky had asked him to sign a cheque which he needed in order to get some groceries for the business and that in response he had signed a cheque in blank.

The sum of $6,540.00, being funds of the Company, are not lawfully available to pay legal costs incurred by Tabensky.  On the other hand, they are in a safe place since they cannot be paid away without the Company's authority.  Tabensky says that he caused the amount to be paid into his solicitors' trust account to protect the Company's assets.  But it is difficult to see how Limnios could have had access to the Company's bank account without Tabensky's signature.  There was no suggestion that Limnios also held a cheque or cheques in blank signed by his co-director.

Limnios put into evidence a course of correspondence between his solicitors, Gordon & Johnstone, and the solicitors for Tabensky, Segal Litton & Chilton, over a period from 17 August 1994 to 14 November 1994 (the latter being the day immediately preceding the date of the filing of the application).  Limnios complained that the Company owed group tax and had not paid the entitlements of its former staff.  He proposed a winding up.  Tabensky asserted that the Company had not traded since 29 July, that its assets were not at risk, that the Company was not incurring further liabilities, and that it was because Limnios would not join with Tabensky in paying the Company's debts that they were not paid.

Other evidence of appropriation of the Company's property (especially goodwill) to Lamena.

Tabensky led evidence directed to showing that Limnios had caused the Company's goodwill to be misappropriated by Lamena. 
There was in evidence a bundle of contracts in standard form entered into between Lamena and drivers who had previously worked for the Company.

There was evidence from a legal secretary employed by Tabensky's solicitors that she had made a telephone call to the telephone number of "Astral Couriers" seeking services.  She spoke to a person who identified himself as Limnios.  He asked whether she had received a fax "from us last week" to which she said "not that I know of".  There was eventually a return telephone call to her number when the following conversation occurred:

Male caller: 

"I am calling in relation to the courier.  I am Ron Silver, Adrian Matheson and I sent you a letter saying that Astral Couriers have not been operating since last Friday and Sun Express will now be handling Astral since operations ceased last Friday."

Legal secretary:

"When did this happen."

Male caller:

"Friday 29th July, but this is the same staff as Astral, we have all the same drivers and the same girls you used to speak to, Allicia [sic] or Margaret."

In response to her inquiry, he quoted her a price to hire a one tonne truck to travel from North Sydney to Westmead and the following conversation ensured:

Legal secretary:

"Can I have your name."

Male caller:

"Ron Silver."

Legal secretary:

"Can I have your phone number to get back to you"?

Male caller:

"907 1111."

There was evidence that Lamena has been using customer booking coupons and price lists copied to a substantial extent from those of the Company. 

There was also evidence that Lamena has copied a method of operation alleged by Tabensky (denied on the other side) to have been unique to the Company.

Evidence of Silver
Silver said that he had known Limnios for slightly less than ten years and had been employed as general manager of the Company.  He volunteered in his affidavit that he "did not sign any contract of employment or any restraint of trade".  He said that he had experienced difficulty in carrying his job due to interference by Tabensky.  According to Silver, at a meeting with both directors in March 1994, Tabensky undertook not to interfere with the day to day running of the business and to leave the administration and running of the business to him.  He (Silver) had said that he was happy with that, but that if Tabensky did not adhere to the arrangement, he (Silver) would leave the Company.  He said that on or about 15 July 1994 he resigned as general manager of his own free will because of continued constant interference by Tabensky. 

Annexed to his affidavit was a letter addressed "To Whom it May Concern" dated 22 July 1994 signed by Tabensky and Limnios commenting favourably on the employment of Silver over a period of 26 months as general manager of the Company.  Silver said that it was on that day, 22 July, and not before, that he became aware that Limnios was starting another company.  He became its manager.  Silver agreed that he faxed flyers in the form of annexure "B" to virtually all of the Company's clients but made the point that many of them were also clients of courier companies other than the Company.  Moreover, Silver said that he had known many of the Company's customers to whom he sent the flyers since July 1975 and said that he did not want them to think that he had "just disappeared".  He agreed that during the period from his resignation on 15 July to the beginning of his employment by Lamena on 1 August, he had solicited clients for Lamena and tried to build the client base for Lamena and had been in contact during that period with Limnios.

Evidence of drivers
There were affidavits from 13 courier drivers employed by Lamena trading as "Sun Express Couriers & Taxi Trucks".  Each courier driver said that he had commenced employment with Lamena on 1 August 1994 and had previously been employed by the Company; that it had been a term of his contract with the Company that he was to be paid every two weeks in arrears for work done by him; that if he sought to leave the business he could resign at short notice; that at the meeting on 29 July 1994 he formed the belief that he would not be paid for the work performed by him and so chose to hand in his resignation; that on 29 July he was owed a certain amount by the Company which had still not been paid; and that when he commenced employment with Lamena he did so of his own free will.  Tabensky said that the Company was not liable to pay the drivers because they did not give notice of termination.

One driver, Steve Hatt, was cross-examined.  He said that he had signed a contract with Lamena; knew that there was an industry award governing contract couriers; did not know that he was required to give one week's notice of termination; agreed that he had not given a week's notice to the Company, and agreed that it could cause disruption to a business when a contract courier left without giving notice.  The "Transport Industry Courier and Taxi Truck Contract Determination" which was provided to me without objection in the course of submissions did indeed require the giving of one week's notice of termination by a contract driver.

Evidence of Margaret Golledge
Margaret Golledge gave evidence that she was currently employed by Lamena and that down to 29 July 1994 she had been employed by the Company.  She said that on 29 July 1994 Tabensky had told her that he was not sure that he could guarantee payment of her wages after 29 July, that she did not find this situation acceptable, and that she therefore handed in her resignation and commenced employment with Lamena on 1 August of her own free will.  Her affidavit said that as at 29 July 1994 she was owed $1,885.25 by the Company which had still not been paid and that on 23 November 1994 she had forwarded a letter to the Company demanding payment.  Tabensky said that the Company was not liable to pay this amount because she had resigned without notice. 

In cross-examination she said that she first heard of the setting up of Lamena from Silver about a week prior to 29 July and had had no conversation with Limnios about the matter until 29 July.  She said that for a period of some eight weeks from 1 August, Lamena carried on business from another address before operating from the premises previously occupied by the Company.  She said that Lamena did not use the furniture and equipment which the Company had used, that "we got all new desks and computer systems and everything was new", and that the Company's furniture and equipment were locked in a room to which the staff did not have access.

The Company's assets and liabilities
There was evidence from the Company's accountant, George Theo Venardos (largely adopting the evidence of Limnios including an apparent arithmetical error which has been corrected in these Reasons) to the effect that the Company's liabilities were approximately as follows:

Creditors$12,000.00

Tax (pps and paye - June)                   $11,500.00

Tax (pps and paye - July)                   $11,000.00

Staff termination  $3,000.00

Drivers' last week pay  $8,350.00

Accountancy fees  $3,000.00

Bad debts$11,000.00

Penalty tax$800.00

Debt to Astral  $42,478.00
     Debt to NAB or to Limnios                  $118,000.00

$221,128.00

Limnios gave evidence that the assets of the Company comprised the following:

Auction value of tangibles                   $8,000.00

Debtors  $68,000.00

$76,000.00

As well, it will be recalled that in July 1993 Limnios and Tabensky had put a figure of $10,000.00 on the goodwill for the purpose of the sale of it from Astral to the Company.  On these figures there is a substantial deficiency of assets as against liabilities unless the true value of goodwill is much greater than $10,000.00.

There was evidence that a statutory demand dated 20 September 1994 had been served on the Company demanding payment of $3,399.35 for transport services, invoices of which had been sent to Tabensky.  Limnios says that the Company is insolvent and Tabensky denies this.  Tabensky has proffered an undertaking to pay the company's tax liability and trade creditors (including the debt the subject of the statutory demand) if he should have access to the Company's funds.

Tabensky gave evidence that the Company's assets were as follows:

Assets

Goodwill (as at July, 1994)                $250,000.00

Furniture and equipment (approximately)     $27,140.00
     Funds held in trust account of
       Tabensky's solicitors  $6,400.00

Balance at the Company's bank account        $6,955.40

Debtors (recoverable) (approximately)       $40,000.00

Balance held in credit by Howard
       Finance (unknown)  $........ .

Money owing by a driver, Kurt   $3,000.00

$333,495.40

Liabilities

Deputy Commissioner for Taxation

(approximately)                $17,000.00

Astral Couriers Pty Ltd          $13,645.00  $30,645.00

$302,850.40

This leaves out of account the company's indebtedness to NAB or to Limnios of $118,000.00 which would reduce the net figure to $184,850.40.

John Torpy of John Bentley, Business Brokers & Consultants, expressed the view that a buyer would pay $260,000.00 for goodwill on the basis that it showed a net profit of $79,242.00 before tax but after management salaries.  His valuation was based on the figures provided to him by Tabensky and on the assumption that those figures could be substantiated.

Tabensky received a cheque from Howard Finance for some $19,000.00-20,000.00 which he said he tried to bank in the Company's account at the CBA but without success because the account was closed.  He said that he gave that cheque to his solicitors.  As well, he said that he had received a cheque from a debtor for $1,300.00 which was also handed to his solicitors. 

The true position as to the assets and liabilities of the Company and as to the value of the business which it conducted as at 29 July 1994 and as to its solvency or insolvency at that time is not clear from the evidence.

Position of Tabensky since 29 July 1994
About a month after the business of the Company was taken over by Lamena, Tabensky became employed as an area manager for Citylink Couriers.  He said that he has no financial interest in that business.  He agreed that he had, as an employee of Citylink, solicited persons who had formerly been customers of the Company and had subsequently become customers of Lamena, to divert their custom from Lamena to Citylink Couriers.

Prospective proceedings against Limnios and Lamena
Prima facie the Company has a case against Limnios for breach of duty involving misappropriation of the entire business of the Company.  Tabensky said in an affidavit that if a "receiver" was appointed to the Company he would not have sufficient financial resources to fund that receiver to bring proceedings against Limnios but that he would be able to bring such proceedings through his present solicitors "because of an arrangement ... with that firm".  The precise nature of that arrangement was not in evidence. Tabensky seemed to be saying that the solicitors did not require him to put them in funds as a condition of their commencing proceedings in his name.  On that basis, he is and has always been able to commence proceedings in the nature of a derivative action, naming the Company as a defendant/respondent.  In the course of Tabensky's cross-examination, the following emerged:

"Q.So far as your arrangement with your solicitors are [sic] concerned, what do you understand the position to be in terms of the solicitors being paid if the Company is not ultimately in a position to authorise payment?

A.I don't think I will be able to continue in that case.

Q.The moneys that have been paid to the solicitors sit in a solicitors' trust account, is that right?

A.That's correct.

Q.And they are not to be used unless [the] Company is properly authorised to spend the money?

A.That's correct."

This suggests that the envisaged proceedings would not be launched unless Tabensky gained control of the Company, and through the Company control of its funds.  This understanding of the position is supported by the facts that Tabensky has not yet begun proceedings and that he seeks through his cross-claim, to be put in a position of controlling the Company.

The present question is resolved by Tabensky's written submissions which included the following:

"(b)The company does not have a large number of assets even though they are sufficient to pay debts.  The cost of a Receiver would be a disproportionate impost upon the company's resources.

(c)The payment of costs out of the assets of the company would be a matter in respect of which the Court could and should exercise a supervisory role as to the application of the company's funds towards costs but the Court must note that the company's trading debts will be paid first and that, to the extent that funds are insufficient after payment of those debts to fund the action, the action will be maintained on a speculative basis by the solicitors that Mr Tabensky has retained.

(d)There is no real prospect of a Receiver being given the security which he or she would normally seek as a condition of maintaining that action.

(e)If a Receiver is appointed, the prospects are likely in the extreme that no action will ever be maintained against Mr Limnios and others concerned in the actions which are the subject of complaint.

(f)To the extent that company assets are thereafter used for the maintenance of the action, it is, on the fairly extensive material relating to the conduct complained of, justified."

Tabensky proffered undertakings to the Court.  It would be a condition of the granting of relief directed to enabling Tabensky's exercising his majority voting control in general meeting that he undertake to the Court that the Company's tax liability and trade creditors will be paid and that no funds of the Company will be applied towards the proposed proceedings unless and until they have all been paid.

RELEVANT PROVISIONS OF MEMORANDUM AND ARTICLES OF ASSOCIATION OF THE COMPANY AND ATTEMPTS BY TABENSKY TO CONVENE MEETINGS

The following articles of association are relevant to the present case:

"63.... The Directors may whenever they think fit and shall on requisition made by the shareholders in accordance with the provisions of any enactment in that behalf convene an extraordinary general meeting.

66.The business of an annual general meeting shall be to receive and consider the profit and loss account the balance sheet and the reports of the Directors and of the Auditors to elect Directors and other officers to declare dividends and to transact any other business which under these Articles ought to be transacted at any annual general meeting and any business which is brought under consideration by the report of the Directors, issued with the notice convening such meeting.  All other business transacted at an annual general meeting and all business transacted at an extraordinary general meeting shall be deemed special.

67.No business shall be transacted at any general meeting until a quorum of members entitled to vote is present at the time the meeting proceeds to business.  Two such members present in person shall be the quorum for any general meeting for all purposes.

85.The number of Directors shall not be less than two nor more than ten.

88.The Directors shall have power from time to time and at any time to appoint any person as a Director either to fill a casual vacancy or as an addition to the Board but so that the total number of Directors shall not exceed the maximum number fixed by or in accordance with these Articles and any Director so appointed shall subject to these Articles hold office until the next annual general meeting of the Company.

89.The Company in general meeting may by special resolution remove any Director before the expiration of his period of office and may by a resolution
appoint another person in his stead.  The person so appointed shall hold office during such time only as the Director in whose place he is appointed would have held the same if he had not been removed.

96.The Directors may meet together for the dispatch of business and adjourn and otherwise regulate their meetings as they think fit.  At the request of any Director the Secretary of the Company shall convene a meeting of Directors.

98.Until otherwise determined by the Company in general meeting the quorum for every meeting of the Directors shall be two Directors.

99.Every question at meetings of the directors shall be determined by a majority of the votes of the Directors present every Director having one (1) vote and in the case of an equality of votes the chairman at such meeting shall have a second or casting vote." (emphasis supplied)

Tabensky purported to convene by notice an extraordinary general meeting of the Company to be held at the office of his solicitors at 10.00 am on 2 September 1994 for the purpose of considering and if thought fit passing the following resolutions:

"1.That Gerhard Limnios be removed as a director of the company.

2.That Tony Prior be appointed a director of the company instead of the said Gerhard Limnios."

Limnios did not attend.  It suffices to say that Tabensky was not entitled at that stage unilaterally, whether in his capacity as a director or as majority shareholder, to convene an extraordinary general meeting of shareholders.  In any event without the presence of Limnios, the quorum of members prescribed by article 67 for general meetings could never be obtained. 

Tabensky gave a further notice purporting to convene a directors' meeting to be held at the office of his solicitors at 10.00 am on 17 November 1994 for the purpose of considering and if thought fit passing, a resolution "that Tony Prior be appointed an additional director of the Company".  The giving of this notice was the immediate cause of Limnios's commencing these proceedings before me as Duty Judge on 15 November 1994.  Limnios, through his counsel, made it clear before me that he had no intention of attending any meeting of directors purportedly convened by the notice and Tabensky undertook that if Limnios did not attend, no further action would be taken on the purported notice other than by way of the seeking of relief by way of a cross claim in these proceedings.  It suffices to say that without the presence of Limnios, the quorum of directors prescribed by article 98 for meetings of directors could never be obtained.

REASONS
Cross Claim

The prospects of Tabensky's obtaining the relief sought by him in his cross-claim is relevant to Limnios's application for the appointment of a provisional liquidator.  It is convenient to address the cross-claim first.

There is no evidence to support the making of the declaration sought that Limnios is no longer a director of the Company.

Sub-sections 251 (1) and (2) of the Corporations Law provide as follows:

"(1)If for any reason it is impracticable to convene a meeting in any manner in which meetings may be convened or to conduct the meeting in the manner prescribed by the articles or this Law, the Court may, either of its own motion or on the application of any director or of any member who would be entitled to vote at the meeting, order a meeting to be convened, held and conducted in such manner as the Court thinks fit, and may give such ancillary or consequential directions as it thinks expedient, including a direction that 1 member present in person or by proxy shall be deemed to constitute a meeting.

(2)Any meeting convened, held and conducted in accordance with any order made pursuant to this section shall, for all purposes, be deemed to be a meeting duly convened, held and conducted."

Article 64 of the Company's articles of association provide that "the directors" may convene an extraordinary general meeting.  Because the two directors are at loggerheads, I am satisfied that it is "impracticable" for the purpose of sub-s 251 (1) for a meeting to be convened in the manner prescribed by the articles.  Accordingly, the discretionary power given to the Court by sub-s 251 (1) is enlivened.  If I were to exercise the power and as well to make a direction that one member present in person or by proxy be deemed to constitute a meeting, this would enable Tabensky to procure the passing of any ordinary resolution which a general meeting might properly pass.

But are the members entitled by ordinary resolution at any time to appoint an additional director?  This raises a question of construction of the Company's articles of association, and in particular, it apparently raises the question whether the members' inherent power to appoint directors from time to time by ordinary resolution in general meeting has been taken away from them by the articles of association: see Blair Open Hearth Furnace Co Ltd v Reigast (1913) 108 LT 665; Worcester Corsetry, Limited v Witting [1936] 1 Ch 640; Grant v John Grant & Sons Pty Ltd (1950) 82 CLR 1; Integrated Medical Technologies Ltd v Macel Nominees Pty Ltd (1988) 13 ACLR 110 (NSW/Bryson J); and see Ford's Principles of Corporations Law (6th ed, Butterworths, 1992) at para [1415].

I do not find it necessary to embark upon a discussion of this question, because there is at hand a ready means by which the members in general meeting can appoint an additional director, and that is by means of the holding of the Company's annual general meeting, part of the business of which is, by the express provision of article 66, the election of directors. 

According to the company extract in evidence, the due date for the Company's annual general meeting for 1994 is 2 December 1994.  This is borne out by the fact that the Company was incorporated by registration on 2 June 1993, and Article 62 provides, relevantly, that it must hold its annual general meeting within six months after the end of its financial year and in the case of its first annual general meeting within 18 months after incorporation.  The latter period expired on 2 December 1994.  These articles reflect the requirements of sub-ss 245 (1) and (2) of the Corporations Law. The mandatory nature of an annual general meeting provides a further reason why the holding of it should be facilitated without delay. Sub-section 245 (10) provides that if default is made in holding an annual general meeting, the Court may, on the application of a member, order a general meeting to be convened.

In submissions, counsel for Tabensky said that if I should be minded to make orders directed to the holding of the Company's annual general meeting, he would seek leave to lead evidence that the first annual general meeting of the Company has not been held, if this should be a matter of dispute.

Orders can be made under sub-ss 245 (10) and 251 (1) for the holding of the Company's first annual general meeting and for one member present in person or by proxy to be deemed to constitute the meeting.  It would be possible, assuming that he complies with the requirements of the Corporations Law and the Company's articles of association, for Tabensky, by dent of his voting power as a member, to cause the director of his choice to be elected at the annual general meeting.  A director need not be a shareholder: article 90. 
Tabensky said that he has no intention now of removing Limnios as a director and wishes only to have an additional director in office and would give an undertaking to the Court accordingly.  Reference was made in his submissions to Re Sticky Fingers Restaurant Ltd (1992) 10 ACLC 3,011. I understand Tabensky, in conformity with his stated position in relation to the non-removal of Limnios as a director and to his reference to that case, to proffer an undertaking to cause Limnios to be re-elected at any annual general meeting to be held, and not thereafter to cause him to be removed from office. Prima facie, subject to the giving of such an undertaking (which goes some way to preserving Limnios's position as a quasi-partner) orders should be made under sub-ss 245 (10) and 251 (1).

Appointment of Provisional Liquidator

The Company is a quasi-partnership.  This view of it is not precluded by the fact that Limnios was to be a "silent partner" and Tabensky was to be the "active partner".  There is a suggestion in the evidence that Tabensky has, over a long period, had difficult working relationships with his "partner" in the business of "Astral Couriers & Taxi Trucks"; at first his sister and then Limnios.  As well, there was disharmony between him and Silver.  It may be that he lacks those qualities which are necessary to perform the role which he was intended to play.  If so, there is some reason for sympathy for Limnios's position as a person put at financial risk by his partner's difficult personality.  But this did not entitle him to take the course which he took.

Limnios and Tabensky acquired the Company and caused it to purchase the business from Astral on the basis of mutual trust and confidence.  Moreover, Limnios was intended to be a very present financier/landlord.  The relationship has apparently broken down irretrievably and on the present evidence it seems to be inevitable that the Company will be wound up. 

The Company's custom has gone to Lamena, to Citylink Couriers, and perhaps to other courier companies.  Even if it were possible for the Company to be re-established in its business, Limnios should not be required to remain a 49% shareholder, having regard to the breakdown in trust and confidence which has occurred.  Nor should he be required, if the Company could  resume its business, to be one of three directors as this is inconsistent with his and Tabensky's original understanding and assumption that they would have equality of votes on the board.

The fact that it seems inevitable that the Company will be wound up does not, however, alone signify that a provisional liquidator must be appointed: cf Clemada Pty Ltd v Hire It Pty Ltd (No 2) (1990) 3 ACSR 202 (NSW/Young J); Bulktec Pty Ltd v Geothetis Pty Ltd (1994) 13 ACSR 716 (FCA/Drummond J). Sub-section 472 (2) prescribes no guidelines as to the exercise of the discretion to appoint a provisional liquidator. A reason which is commonly put and accepted as justifying an appointment is the threat of dissipation of assets. I do not think that this will occur here. The business is not being carried on but its debtors will no doubt continue to pay the Company. Although Tabensky attempted to use the Company's money to fund his solicitors, he attempted to do so in aid of a derivative action. Moreover, he has now proffered an undertaking to the Court that the Company's monies will not be applied otherwise than in payment of the Company's tax liability and trade creditors and that only any balance will be applied towards the costs of the proposed proceedings.

A strong consideration weighing against the appointment of a provisional liquidator is the fact that Tabensky does not have the means to fund a provisional liquidator to bring the proceedings with the result that an apparently strong cause of action of the Company against Limnios would never be asserted (I say nothing as to the amount of any award in favour of the Company).  On a company of small assets, a provisional liquidator's charges are a substantial impost.  A provisional liquidator must first spend substantial time in becoming acquainted with the facts and perhaps with the law.   It is easy to imagine that in this case a provisional liquidator might not launch proceedings against Limnios for the reason that the available funds of the Company are exhausted in his arriving at a conclusion that the proceedings should be commenced!  Tabensky, on the other hand, will no doubt employ his energies enthusiastically and free of cost to the Company in pursuing the proceedings.  In view of the apparent strength of the Company's case against Limnios, it is in the Company's interest that this course of events should be facilitated.

Limnios relied heavily on Rural Industries Co-operative Society Ltd v Porky Pigs Pty Ltd (1988) 12 ACLR 794 (SA/von Doussa J). That case is distinguishable. First, in that case the company's cause of action against its former directors could not be "elevated to a status higher than 'possible'" (at 799) and "the merits of the assertions of the minority shareholders [were] uncertain" (at 800), whereas there seems to be clear evidence of breach of fiduciary duty by Limnios in the present case. Secondly, in that case there was no suggestion that the appointment of a provisional liquidator would have the effect that the litigation would not be able to be pursued whereas there is evidence to that effect in the present case. Thirdly, in that case the proceedings were brought at the instigation of the minority shareholders, whereas in the present case they would be brought in accordance with the wishes of the majority shareholder.

CONCLUSION

Limnios should not be permitted to use the quorum provision to prevent the holding of the annual general meeting as required (under penalty) by the Corporations Law as well as by the Company's articles of association, and to prevent the 51% shareholder from exercising his voting rights at that meeting; cf Re El Sombrero Ltd [1958] Ch 900; In re H R Paul & Son Ltd (1973) 118 Sol J 166; Re Opera Photographic Ltd (1989) 5 BCC 601; Re Sticky Fingers Restaurant Ltd (1992) 10 ACLC 3,011. On Tabensky's cross-claim my present intention is to order that the Company's annual general meeting be convened by not less than 14 days' notice in writing given by Tabensky alone and that one member present, in person or by proxy, be deemed to constitute the meeting. Although Tabensky has a right to requisition the holding of a general meeting (see Corporations Law, s 246 and article 63 of the Company's articles of association) what I propose is a more expeditious, direct and efficacious remedy.

In relation to Limnios's motion, the appropriate exercise of discretion at this stage is, in my view, that I decline to appoint a provisional liquidator, with liberty for Limnios to re-list his motion for that purpose at any time upon two days' notice. My declining to make the appointment is on the basis of Tabensky's giving, in satisfactory form, the various proffered undertakings to which I have referred, and on the basis that the proposed proceedings against Limnios are commenced without delay.  In view of the fact that Tabensky's  solicitors have agreed to undertake the proceedings on a speculative basis, there seems to be no reason why the proceedings should not be commenced now in the name of Tabensky as a derivative action.  On the assumption that after the holding of the annual general meeting, a majority of the directors will favour the Company's becoming applicant/plaintiff in place of Tabensky, an application could be made for the substitution of the Company for Tabensky in that capacity.

The undertaking as to the application of the Company's funds would be an undertaking that they be applied as soon as practicable in payment of the Company's tax liability and trade creditors, and that only any residue be available to be applied in paying the proper and reasonable costs of the plaintiff/applicant of the envisaged proceedings.

There will be a direction that Tabensky bring in draft short minutes of orders to give effect to these Reasons.  The proposed form of notice of annual general meeting in conformity with the Corporations Law and the Company's articles of association should be included.  That notice itself should include a reference to the election of the three directors.  The short minutes will include comprehensive and detailed undertakings to the Court as proffered by Tabensky and referred to in the foregoing Reasons.

Tabensky should provide a copy of the proposed short minutes of orders to Limnios in time for the parties to reach agreement on them.  The legal representatives of the parties should seek to reach agreement on all aspects of the orders and undertakings.  The proceedings will be listed before me on Monday 30 January 1995 at 11.00 am when the parties will have the opportunity of addressing, as necessary, any unresolved aspects of the form of short minutes of orders.  There will then be an opportunity for Limnios to make submissions as to why final orders should not be made on the cross-claim on the basis of the existing evidence.  The question of Tabensky's application to re-open to lead evidence that the first annual general meeting of the Company has not in fact yet been held can also be then addressed if this matter is seriously in dispute.

COSTS

I am presently disposed to order that Limnios pay Tabensky's costs on the usual party and party basis on Tabensky's cross-claim and that the costs of Limnios's motion be the parties' costs of the application for an order for winding-up.  When the short minutes of orders are brought in the parties will have an opportunity, in the light of the above Reasons, to address on costs if different orders are sought.

I certify that this and the preceding 41 pages are a true copy of the Reasons for Judgment of the Honourable Justice Lindgren.

Associate:

Dated:25 January 1995

Heard:       29 November, 6 December 1994
Place:       Sydney
Decision:     25 January 1995

Appearances:  Mr D Ronzani of counsel instructed by Gordon & Johnstone for the applicant.

Mr G Segal of counsel instructed by Segal Litton & Chilton appeared for the respondents.