Mishme Enterprises Pty Ltd v Nticed Pty Ltd
[2013] VSC 187
•11 April 2013 (revised 23 April 2013)
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
CORPORATIONS LIST
PRACTICE COURT
No. SCI 2013 1710
| MISHME ENTERPRISES PTY LTD (ACN 126 963 719) | Plaintiff |
| V | |
| NTICED PTY LTD (ACN 115 793 345) | Defendant |
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JUDGE: | FERGUSON J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 11 April 2013 | |
DATE OF JUDGMENT: | 11 April 2013 (revised 23 April 2013) | |
CASE MAY BE CITED AS: | Mishme Enterprises Pty Ltd v Nticed Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2013] VSC 187 | |
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CORPORATIONS – Interlocutory injunction sought to restrain holding of meeting of members – Meeting called by defendant who appears as shareholder in ASIC extract - Notice of Meeting proposes removal of current directors and replacement with new directors – Current directors contend uncertainty about identity of shareholders and that no share register in existence - Current directors resolved to postpone meeting – Whether power to postpone exercised arbitrarily – Corporations Act 2001 (Cth) ss 169, 249F.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Dr O Bigos | Maddocks |
| For the Defendant | Mr D Luxton | Tress Cox Lawyers |
HER HONOUR:
Mr Easterby-Wood is the sole director of the defendant, Nticed Pty Ltd, and until February 2013 was the managing director of the plaintiff, Mishme Enterprises Pty Ltd, a company which he established in August 2007.
The current directors of Mishme are Mr Steven Wright, Mr Peter Bares and Mr Lee Cronly-Dillon. Companies with which Mr Wright and Mr Bares are associated have paid over a million dollars for shares in Mishme and an ASIC[1] company extract lists those entities as shareholders. The ASIC company extract also lists Nticed as a shareholder with over 4 million shares in Mishme. Nticed did not pay cash for any shares.
[1]Australian Securities and Investments Commission.
Mishme seeks an interlocutory injunction to restrain Nticed, its officers and agents from arranging to hold, holding or purporting to hold a general meeting of Mishme pursuant to a notice of meeting purportedly given under s 249F of the Corporations Act 2001 (Cth). The notice is dated 19 March 2013 and purports to call a meeting for 12 April 2013. The notice of meeting contains proposed resolutions to remove the current directors and to replace them with new directors (including Mr Easterby-Wood).
On 3 April 2013, the current board of directors resolved that the meeting be postponed until 12 July 2013. They did so under clause 14.3(a) of Mishme’s constitution. Clause 14.3 (a) reads as follows:
The Directors may postpone or cancel any general meeting whenever they think fit but can only postpone or cancel a general meeting convened as a result of a request from a Member or Members under section 249D of the Corporations Act, if they have received a signed notice from that Member or Members withdrawing their request for the meeting.
Essentially, the current directors say that they are concerned that:
(a)there is no share register that accurately records the shareholding in Mishme;
(b)ASIC’s records as to the shareholding in Mishme may be unreliable;
(c)there is conflicting information about what, if any moneys or other consideration, were given for some of the shares that may have been issued.
The evidence as to alleged discrepancies relating to the shares is contained in the affidavit material filed by Mishme. Mr Easterby-Wood has responded to that material. Given the urgency and nature of the application, I will not set out all of that evidence. Suffice to say that amongst other things it raises questions as to the entitlement of Nticed to the shares which are recorded in the ASIC extract as being held by it.
All in all, the directors say that the uncertainty surrounding the shareholding in Mishme needs to be investigated and resolved so that a proper share register can be created and if a meeting of shareholders proceeds, it can do so with certainty that it has been properly called and with certainty as to who is entitled to vote at such a meeting. To this end, the directors propose that a forensic accountant be engaged to examine the relevant records in order to assist with the task of creating a share register. That will take some time. It is in that context that the directors resolved to postpone the meeting to 12 July 2013. The minutes of the directors meeting record that the chairman explained that since the resignation of Mr Easterby-Wood, attempts had been made to try to create a company register of members and to determine (among other things) to whom shares had been issued and for what consideration and whether they are fully paid, partly paid or unpaid shares. The minutes also record that the Chairman explained matters relating to the alleged uncertainties about shareholding in Mishme. Finally, the minutes record the following:
The Chairman noted that under clause 14.3 of the Constitution, the directors have the power to postpone or cancel a general meeting convened as a result of a request from a member. The Chairman proposed that the meeting of members called by Nticed under section 249F be postponed for three months until 12 July 2013 pending rectification of the share register, as this was in the best interests of the Company. The Chairman proposed that during the period of the postponement, every effort be made by the company to obtain orders for the rectification of the register, so that a proper shareholders meeting could be convened.
The minutes then record two resolutions as follows:
1. the meeting called by Nticed under its notice dated 19 March 2013 be postponed until 12 July 2013 to be held at the offices of TressCox Lawyers, Level 9, 469 La Trobe Street, Melbourne at 11:00am on that day.
2. the Company should make application under s 175 of the Act for orders for rectification of the share register and that the share register be rectified as soon as practical, once all enquiries and investigations have been completed.
In addition to the injunctive relief sought in the Originating Motion, a declaration is sought that the resolution of the directors postponing the meeting was valid.
Plaintiffs seeking an interlocutory injunction must establish that they have a prima facie case for the relief that they seek and that the balance of convenience favours the granting of an injunction.[2] The Court will consider either separately or as part of the consideration of the balance of convenience, whether the plaintiffs are likely to suffer injury for which damages would not be an adequate remedy.[3] In considering how strong the plaintiff’s case needs to be, the Court will take into account ‘The nature of the rights [the plaintiff] asserts and the practical consequences likely to flow from the order he seeks’.[4] The Court should take whichever course appears to carry the lower risk of injustice if it should turn out to have been wrong to grant or refuse the injunction.[5]
[2]Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57 (‘ABC v O’Neill’).
[3]Ibid 68, 82.
[4]Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618, 622.
[5]Bradto Pty Ltd v State of Victoria [2006] 15 VR 65 (‘Bradto’).
Consequently, in part I must consider whether the plaintiff has made out a prima facie case for the relief that it seeks (which includes the declaration as to the validity of the directors’ resolution to postpone the meeting).
There is no doubt that the directors have power under clause 14.3(a) of the constitution to postpone a general meeting under s 249F of the Corporations Act.[6] The power should not be exercised inappropriately.[7] As Emmett J said in Central Exchange v Rivkin Financial Services:
…the circumstances in which it will be proper for the board to postpone or change the place for a meeting called pursuant to s 249F, or to cancel such a meeting, will be limited and such powers must, of necessity, be exercised extremely sparingly so as not to frustrate the right conferred by s 249F. If the directors change the place, as well as the time, they must have some justification for doing so. The Directors cannot arbitrarily postpone or change the place for the meeting.[8]
[6]Central Exchange v Rivkin Financial Services (2004) 213 ALR 771.
[7]Pinnacle VRB Pty Ltd v Ronay Investments Pty Ltd (2000) 35 ACSR 240.
[8] (2004) 213 ALR 771, 779 [33].
Here, Nticed says that the directors have acted arbitrarily in postponing the meeting. First it submits that there is no doubt about who is a member of Mishme and entitled to call a meeting pursuant to s 249F because that is determined by the share register. Section 169 of the Corporations Act specifies the information that is required to be contained in a share register. The section reads as follows:
169 Register of members
General requirements
(1)The register of members must contain the following information about each member:
(a)the member’s name and address;
(b)the date on which the entry of the member’s name in the register is made.
Index to register
(2)If the company or scheme has more than 50 members, the company or scheme must include in the register an up‑to‑date index of members’ names. The index must be convenient to use and allow a member’s entry in the register to be readily found. A separate index need not be included if the register itself is kept in a form that operates effectively as an index.
Companies with share capital
(3)If the company has a share capital, the register must also show:
(a)the date on which every allotment of shares takes place; and
(b)the number of shares in each allotment; and
(c)the shares held by each member; and
(d)the class of shares; and
(e)the share numbers (if any), or share certificate numbers (if any), of the shares; and
(ea)the amount paid on the shares; and
(eb) whether or not the shares are fully paid; and
(f)the amount unpaid on the shares (if any).
Note 1:Transfers of shares are entered in the register under section 1071D. Section 1072E deals with the registration of trustees etc. on the death, incapacity or bankruptcy of the shareholder.
Note 2: For the treatment of joint holders see subsection (8).
(4)The register does not have to show the amount unpaid on the shares (see paragraph (1)(f)) if:
(a)all of the company’s shares were issued before 1 July 1998; and
(b)the register continues to show the par values of the shares as they were immediately before 1 July 1998.
(5)The register does not have to show the amount unpaid on the shares (see paragraph (1)(f)) if:
(a)all of the company’s shares were issued before 1 July 1998; and
(b)the company is not a listed company.
Non‑beneficial ownership—companies other than listed companies
(5A)The register of a company that:
(a)has a share capital; and
(b)is neither a listed company (within the meaning of section 603) nor a company covered by an order under section 707;
must indicate any shares that a member does not hold beneficially.
Note:See also section 1072H (in particular, subsection 1072H(8) which contains relevant presumptions about beneficial ownership).
(6)In deciding for the purposes of subsection (5A) whether a member holds shares beneficially or non‑beneficially, the company is to have regard only to information in notices given to the company under section 1072H, 672B or 672C.
Registered schemes
(6A)The register of a registered scheme must also show:
(a)the date on which every issue of interests takes place; and
(b)the number of interests in each issue; and
(c)the interests held by each member; and
(d)the class of interests; and
(e)the amount paid, or agreed to be considered as paid, on the interests.
Former members
(7)A register of members must also show:
(a)the name and details of each person who stopped being a member of the company or scheme within the last 7 years; and
(b)the date on which the person stopped being a member.
The company or scheme may keep these entries separately from the rest of the register.
Joint holders
(8)For the purposes of this section:
(a)2 or more persons who jointly hold shares in the company or interests in the scheme are taken to be a single member of the company or scheme in relation to those shares or interests; and
(b)2 or more persons who have given a guarantee jointly are taken to be a single member of the company.
They may also be members of the company or scheme because of shares or interests that they hold, or a guarantee that they have given, in their own right or jointly with others.
Nticed contends that there is no need for a share register to be marked as such and here Mishme’s share register is constituted by the Form 484s (notifying ASIC of the changes in shareholdings) in conjunction with a company extract obtained from ASIC. On that basis it says that the Board’s resolution was made upon an improper basis and cannot have been a proper exercise of the power to postpone. In oral submissions, counsel for Nticed added that the resolution made by the directors proceeds on the basis that there will be rectification of the register yet, at least at present, there is no proper basis to apply for rectification. Counsel submitted that it was also relevant that the postponement was for a lengthy period of three months. He submitted that the period could not be justified even if investigations into the shareholding in Mishme were necessary because there are a discrete number of members and a discrete number of transactions that might be relevant. Taking all of these matters into account, Nticed submitted that the decision to postpone the meeting was arbitrary.
Mishme submitted that the Form 484s and ASIC extract do not constitute a register for the purposes of s 169. It submitted that the forms are required as a result of s 178A. In essence that section provides that a proprietary company must notify ASIC of certain alterations or additions to a particular in the share register it maintains under s 169. Mishme submitted that in that context, the forms do not have a secondary role as the share register itself.
As to Nticed’s submission that the resolution was only based on ‘the pending rectification of the share register’, Mishme contended that the minutes must be read as a whole and, when this is done, it is clear that underpinning the directors’ decision is the desire of the current directors to investigate and clarify the uncertainty which they say exists about the shareholding in the company, including the uncertainty surrounding Nticed’s shareholder position. In this regard, Mr Wright deposed that the forensic accountant would assist with the task of creating the share register and that he did not believe that a meeting of shareholders can be convened until such time as the share register is created and it is clear as to exactly who the shareholders are and how many shares they hold.
Mishme submitted that the balance of convenience is in favour of an injunction, as granting interlocutory relief to Mishme carries the lower risk of injustice. It contended that if the meeting proceeds and the resolutions are carried, detrimental consequences are likely to follow. Mishme points to Mr Easterby‑Wood’s position that Mishme’s board had no power to postpone the meeting. It follows, so Mishme says, that if the meeting proceeds, and the resolutions for the change of directors is purportedly passed, he and his associates may seek to hold themselves out as directors of Mishme when they have not been validly appointed. If two different sets of people contend that they are the directors, then Mishme says that the company will be effectively deadlocked, as competing instructions could be given to persons such as its bank, accountants and lawyers. For example, Mishme says that the ‘Easterby‑Wood board’ may hold themselves out as having authority with regard to potential commercial transactions and with clients. Mishme also submitted that it will also be extremely confusing and concerning for staff, who were previously engaged by Nticed but have been recently re‑employed by Mishme, with such confusion potentially leading to their departure. According to Mishme, significant work needs to be done to create an accurate register of members, and that work will not be carried out by the Easterby‑Wood board, given that it may call into question his past conduct. Therefore Mishme contends that the risk to it, if the injunction is not granted, is that it will not be able to operate effectively, and that confusion will be created, making funding difficult and placing the solvency of the company at risk. According to Mishme, this outweighs any prejudice to Nticed as a result of the postponement of the meeting.
Nticed relied on Tang v Bongreen Pty Ltd (‘Tang’).[9] In that case, McDougall J considered (among other things) a situation whereby the plaintiff was the holder of 87 per cent of the issued shares in the first defendant company. The plaintiff issued a notice under s 249D of the Corporations Act. In part, that provision requires directors to call and arrange to hold a general meeting on request by members with at least five per cent of the votes that may be cast at the general meeting. If the directors fail to do so within 21 days, then under s 249E, the members may call and arrange the meeting. In Tang, the directors failed to act upon the notice within 21 days. The directors sought to restrain the plaintiff from proceeding under s 249E. His Honour considered the judgment of the Full Court of the Supreme Court of South Australia in Paringa Mining and Exploration Co Plc v North Flinders Mines Ltd.[10] On the basis of that decision, McDougall J concluded as follows:
The plaintiff is a shareholder in the first defendant. As a shareholder she has present rights, including, as I have already noted, those accruing to her under s 249D of the Corporations Act. That is the status quo. An order that would prevent her exercising those rights does not preserve the status quo. It would change it.[11]
[9](2003) 47 ACSR 400.
[10](1988) 52 SASR 22.
[11]Ibid 405 [31] (emphasis added).
In my view, that case is distinguishable from the present because in Tang there was no issue as to whether the plaintiff was a shareholder and entitled to call a meeting. In fact, it was conceded in Tang that the share register showed the plaintiff’s shareholding and that the plaintiff was a member of the relevant company because the register had not been rectified. Further, on the facts, the Court was not satisfied that the agreement for the plaintiff to subscribe for and be allotted shares in the capital of the relevant company was a sham (as had been alleged by the defendants).
No other submissions were made by Nticed in respect of the balance of convenience. However, in paragraph 49(f) of his affidavit, Mr Easterby‑Wood deposed:
I am gravely concerned about what the current directors of Mishme will do in respect of Mishme if the meeting does not proceed on 12 April 2013. There are substantial contracts in Mishme and significant value in the commercialisation of technology that NTICED has worked hard to achieve. With me out of the company, Mishme does not have the technology know how to deliver this complex technology. I have discussed this matter with other members of Mishme who represent the majority of voting power. From those discussions, other members share my concerns that the current directors will use their position of directors to retrospectively cancel shares, dilute the shareholding in Mishme or retrospectively change the share register to grant themselves a greater stake in Mishme without providing consideration. To date, I believe that the actions of the current directors have been done in an effort to gain a significant windfall by inheriting a company I worked very hard to build and develop. I have no doubt that cloning the servers and accessing or trying to access the passwords by unauthorised third parties has all been undertaken by or under the direction of the current Mishme representatives.
Mr Easterby‑Wood may have intended that those general unsubstantiated assertions address the issue of the balance of convenience. They do not.
Taken as a whole, I am satisfied that the evidence establishes a proper basis for the grant of an interlocutory injunction. There is a sufficiently strong prima facie case in respect of the declaration sought as to the validity of the resolution postponing the meeting. There are real questions to be determined at trial about whether a share register within the meaning of s 169 exists (as outlined in the submissions made by each of the parties) such that the identity of the shareholders and their shareholding is known and whether the directors’ resolution was an arbitrary decision (taking into account the basis for the resolution and the length of the postponement). Here, the balance of convenience strongly favours the grant of an injunction. There is no evidence that the postponement of the meeting to July will have any negative effect at all on either Nticed or Mishme. This is not a case (such as in Tang) where it is accepted that Nticed is a shareholder such that without more it might be accepted that it would suffer detriment because it was being deprived of exercising its rights as a shareholder. The practical consequence of granting an interlocutory injunction in this case is that the meeting will not be held immediately, but that does not seem to create any real difficulty. On the other hand, if no injunction were granted at this stage, this would likely lead to significant issues for the company going forward. There would be real potential for two competing ‘boards’ seeking to operate at the one time. This would very likely lead to real confusion and detriment to Mishme, particularly in its dealings with staff and third parties. In the words of Bradto, the course with the lower risk of injustice is to grant the interlocutory injunction. Subject to the plaintiff giving the usual undertaking as to damages, I will grant the plaintiff’s application.
I should add that, Nticed submitted that if, contrary to its submissions, there is no share register, that ought not result in Mishme succeeding in this application because Mishme ought not be permitted to take advantage of its own continuing wrong in failing to maintain a register. As counsel for Nticed noted, the obligation to create and maintain the register rests with Mishme under s 168 of the Corporations Act. In its written submissions, Nticed contended that:
The current board’s concerns as to the accuracy or reliability of the Mishme ASIC record of stakeholders does not absolve it of its responsibility to have — in existence — a register. Such a register could and should be formulated forthwith. Mishme has in its possession the ASIC record of shareholders. Indeed, on 20 February 2013 the Mishme board (of Mr Cronly‑Dillon and J‑Deon Easterby‑Wood) considered a ‘Reconciliation of Shares Register’ document authorised by Bryan Jenkins and Lee Martin. The minutes to that meeting — as signed by Mr Dillon — state that the directors
‘resolve and accept that the shareholders are as per the Share Register [Reconciliation] presented in this report.’
Further, Mishme on 8 March 2013 held a general meeting of shareholders — convened by Mr Dillon — presumably in reliance upon the Form 484s and or the Reconciliation.
In support of the position for which it contended, Nticed relied on Tang. For the reasons I have given, that case is distinguishable on its facts. Further, there the board in control of the company had been the same throughout. Its argument was that there was a sham transaction as a result of which the plaintiff had been allotted shares. As I have mentioned the court was not satisfied that there was a sham transaction but, if there had been, the directors at the time of the transaction were the same directors who alleged that it was a sham. Here, Mishme is under the control of a relatively new board with two of the three directors having only been appointed for less than two months. The effect of a change in control was considered in the decision of the Court of Appeal of NSW in Karl Suleman Enterprizes Pty Ltd (in liquidation) v Babanour.[12]Having regard to what was said there, based on the present evidence, I cannot be satisfied that the doctrine of clean hands ought apply to prevent the grant of the interlocutory relief sought.
[12](2004) 49 ACSR 612.
I will hear the parties as to the form of orders to be made to reflect these reasons.
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