Nosred Pty Ltd v West Australian Shotcrete Pty Ltd - [2023] WASC 442

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION:   NOSRED PTY LTD -v- WEST AUSTRALIAN SHOTCRETE PTY LTD [2023] WASC 442
CORAM:   ACTING MASTER MCDONALD
HEARD:   20 JULY 2023
DELIVERED          :   21 NOVEMBER 2023
FILE NO/S:   COR 81 of 2023
BETWEEN:   NOSRED PTY LTD
Plaintiff
AND
WEST AUSTRALIAN SHOTCRETE PTY LTD
First Defendant
BECM PTY LTD
Second Defendant
FAIRMAX HOLDINGS PTY LTD
Third Defendant
SDWOODS PTY LTD
Fourth Defendant

Catchwords:

Corporations law - Application for winding up on just and equitable grounds - Breakdown in trust and cooperation between directors and shareholders - Turns on own facts - Corporations Act 2001 (Cth) s 461(1)(k)

Legislation:

Corporations Act 2001 (Cth)

Result:

Application granted
Liquidator appointed
Costs to be taxed

Category: B

Representation:

Counsel:

Plaintiff	:	R Guerrini
First Defendant	:	No appearance
Second Defendant	:	TB Lyons
Third Defendant	:	R Guerrini
Fourth Defendant	:	TB Lyons

Solicitors:

Plaintiff	:	Lawley Legal
First Defendant	:	No appearance
Second Defendant	:	Gibson Lyons
Third Defendant	:	Lawley Legal
Fourth Defendant	:	Gibson Lyons

Cases referred to in decision:

Accurate Financial Consultants Pty Ltd v Koko Black Pty Ltd (2008) 66 ACSR 325
Carpenter v Carpenter Grazing Co Pty Ltd (1987) 5 ACLC 506; BC8701391
CIC Insurance Ltd v Hannan (2001) 19 ACLC 1217; 38 ACSR 245; [2001] NSWSC 437
Citi Project Marketing (Qld) Pty Ltd and Anor v Vg Projects Pty Ltd and Ors [2017] QSC 65
International Hospitality Concepts Pty Ltd v National Marketing Concepts Inc (No 2) (1994) 13 ACSR 368
Malandris v Palmreef Pty Ltd (Unreported, FCA, Mansfield J, BC9701374, 12 March 1997)
Re Yenidje Tobacco Co Ltd [1916] 2 Ch 426
Tomanovic v Argyle HQ Pty Ltd; Tomanovic v Global Mortgage Equity Corporation Pty Ltd; Sayer v Tomanovic [2010] NSWSC 152
VCS Holdings (Aust) Pty Ltd (in liquidation) v KVG Contracting Services Pty Ltd [2023] WASC 189

ACTING MASTER MCDONALD:

This is an application by the plaintiff company to wind up the first defendant on the grounds that it is just and equitable to wind up the first defendant pursuant to s 461(1)(k) of the Corporations Act 2001 (Cth) (the Act).
There has been no appearance filed by the first defendant. The second, third and fourth defendants do not oppose the orders sought.
For the reasons that follow, I am of the view it is just and equitable to wind up the first defendant.

Application

The originating process filed on 1 June 2023 sought orders winding up the first defendant pursuant to ss 232, 461(1)(e), 461(1)(g) and 461(1)(k) of the Act. In the alternative, the plaintiff sought an order pursuant to s 233(1)(d) of the Act for the purchase of the plaintiff's shares by the third defendant or the second defendant at a value determined by an independent expert. Further, in the alternative, the plaintiff seeks an order pursuant to s 233(1)(e) of the Act for the purchase of the plaintiff's shares by the first defendant at a value determined by an independent expert, with the appropriate reduction in the first defendant's share capital.
At the hearing of the application the only order sought was that the first defendant be wound up on the grounds it was just and equitable pursuant to s 461(1)(k) of the Act and that a liquidator be appointed.[1]
[1] ts 2; Minute of Proposed Orders filed 18 July 2023.
In support of its application the plaintiff relies on the affidavit of Mr Troy William Anderson sworn on 31 May 2023 (Anderson Affidavit) and the affidavit of Mr Robert Guerrini sworn 18 July 2023 as to service.
Mr Anderson is the director of the plaintiff. At the hearing of the application on 20 July 2023, his affidavit was received without objection. In submissions subsequently filed by the second and fourth defendants on 27 July 2023 (Defendant's Submissions) the second and fourth defendants state that in consenting to the orders sought by the plaintiff, they are not accepting all the factual matters set out in the Anderson affidavit, specifically paragraphs [28] to [40].[2]
[2] See Defendant's Submissions [3].
No objection was taken to the Anderson Affidavit at the hearing of the application and no alternative factual scenario has been put forward. Therefore, for the purposes of this application I have drawn the relevant factual background from the Anderson Affidavit.

Background Facts

Incorporation and governance of first defendant

The following background facts are taken from the Anderson affidavit paragraphs [1] to [27] and are presumed to be non-contentious.
The parties are all registered Australian proprietary companies.
Mr Anderson, in addition to being the director of the plaintiff, is also the managing director of Statewest Group Pty Ltd (Statewest), a company in the business of hiring out plant and equipment to the mining industry.[3]
[3] Anderson Affidavit [9] - [10].
In about 2012, Mr Anderson, as director of the plaintiff, Mr Benjamin Crowley, the then director of the second defendant, Mr John Paul Sangalli, director of the third defendant and Mr Stephen Woods, director of the fourth defendant (together, the Company Directors) agreed to establish a business in Kalgoorlie to hire and operate specialised equipment for the mining market.[4]
[4] Anderson Affidavit [11].
On 22 May 2012, the Company Directors incorporated the first defendant company, West Australian Shotcrete Pty Ltd (WASC). Each of the Company Directors are directors of WASC.[5]
[5] Anderson Affidavit [13], [16], 'TWA2'.
Of the 180 shares issued by the first defendant, the plaintiff as trustee of the Anderson Family Trust holds 30 shares. The second defendant holds 30 of the 180 shares in WASC. The third defendant holds 30 shares and the fourth defendant holds 90 shares.
Mr Sangalli is the sole shareholder, director and secretary of the third defendant company and Mr Woods is the sole shareholder, director and secretary of the fourth defendant company.[6]
[6] Anderson Affidavit [18] - [19].
Mr Crowley was the sole shareholder, director and secretary of the second defendant company, however, Ms Eleanor Maree Crowley was appointed director on 25 May 2020. Mr Crowley's shares and role as secretary were also transferred to Ms Crowley.[7]
[7] Anderson Affidavit [17].
Mr Anderson deposes that based on the discussions had by the Company Directors prior to incorporation of the first defendant, the intention was that Mr Woods would attend to the day-to-day operations of WASC, the remaining Company Directors would assist with their expertise and Statewest would buy and then hire to WASC the equipment for hire. Mr Anderson deposes that after WASC was in a better financial position, Statewest was to issue invoices to WASC for the hire of the equipment from Statewest.[8]
[8] Anderson Affidavit [12].
WASC had premises in West Kalgoorlie (the Premises) at which mining equipment hired out by WASC to mining companies or businesses was stored.[9]
[9] Anderson Affidavit [21] - [22].
Initially Mr Anderson would periodically speak to Mr Woods in person at the Premises or at Statewest's place of business 'to see how things were running with the business of WASC and provide advice from [his] experience in matters'. The frequency of these calls or meetings decreased over time, from once per week on average for the first few years, then quarterly until about 2017 and then annually thereafter.[10]
[10] Anderson Affidavit [24].
Mr Anderson had electronic access to WASC's bank account and 'kept an eye on the funds there'. He says that by early November 2022 the balance in the account was $393,000.[11]
[11] Anderson Affidavit [25] - [27].
Mr Anderson states that from about 2015 one of WASC's directors, Mr Crowley, has not had any involvement with the business of WASC and Mr Anderson has not had any meaningful contact with him.[12]

Management and business of WASC

[12] Anderson Affidavit [20].

The following facts arise from those paragraphs of the Anderson Affidavit which the second and the fourth defendants state they do not necessarily accept. Precisely what facts are disputed are not stated.
The first defendant has issued proceedings against Mr Anderson in the District Court in respect of the transfer of money by Mr Anderson from the bank account of WASC to Statewest.[13] Whether that is the reason why the directors of the second and fourth defendants do not want to be bound by Mr Anderson's version of events in their capacity as directors of WASC in the District Court proceedings is not stated. For the purposes of this application, I rely on the unchallenged evidence of Mr Anderson for the limited purpose of determining the winding up application.

Statewest Equipment and WASC Equipment

[13] Defendant's Submissions [4] - [5].

Mr Anderson deposes that from on or about the date of WASC's incorporation:
(a)Statewest bought equipment specifically for hire to WASC (Statewest Equipment);
(b)upon purchase of the Statewest Equipment, each item was operated by WASC;
(c)Statewest hired out the Statewest Equipment to WASC pursuant to an oral contract between Statewest and Mr Woods acting for WASC (Hire Agreement); and

(d)WASC also acquired its own plant and equipment (WASC Equipment).[14]
[14] Anderson Affidavit [28] - [29].

Mr Anderson deposes that the terms of the Hire Agreement were:
(a)Statewest hired out each item of the Statewest Equipment to WASC for the same amount that it cost to buy the item. As Statewest borrowed to buy each item, the amount of hire was the monthly loan repayment (principal plus interest) that Statewest had to pay on its loan to buy the item;
(b)WASC was then to hire the item at the same amount plus a margin; and
(c)WASC would repay the hire charge to Statewest once Statewest issued an invoice, and Statewest would not issue an invoice until WASC had money to pay the invoice.[15]
[15] Anderson Affidavit [30].
Between WASC's incorporation on 22 May 2012 and 7 November 2022, Statewest had not issued any invoices for the hire of the Statewest Equipment.[16] From incorporation until 25 November 2022, Mr Anderson would drive past the Premises 'every so often' where he would see some or all of the Statewest Equipment and WASC Equipment. Mr Anderson annexed to his affidavit two lists, one being a list of the Statewest Equipment prepared in late November 2022 and the other being an undated list of the WASC Equipment.[17]

Offer by Sheppard Mining Contracting

[16] Anderson Affidavit [31].

[17] Anderson Affidavit [32] - [33], 'TWA7', 'TWA8'.

On 5 July 2022 Sheppard Mining Contracting sent an offer by way of email to Mr Woods to buy equipment in WASC's possession. This offer was forwarded onto Mr Sangalli and then subsequently to Mr Anderson on 8 July 2022. The offer included the purchase of some of the Statewest Equipment in WASC's possession.[18]
[18] Anderson Affidavit [34] - [35], 'TWA9'.
Mr Anderson deposes that from discussions with Mr Woods, his understanding was that Sheppard Mining Contracting wanted to acquire WASC's business without paying for its goodwill and wanted to pay Mr Woods to show how the business worked. Mr Anderson states that it was agreed between Mr Sangalli, Mr Woods and himself that upon the sale of the business, WASC would be wound up.[19] Although it was initially Mr Woods who dealt with Sheppard Mining Contracting, Mr Anderson deposes that he, Mr Sangalli and Mr Woods were all involved in the discussions with Sheppard Mining Contracting towards the end of the negotiations when it came to putting the agreement in writing.[20]

Mr Wood's departure

[19] Anderson Affidavit [36].

[20] Anderson Affidavit [37].

Mr Anderson deposes that in the first week of November 2022 he received text messages from Mr Woods in relation to his decision to 'close down' WASC, outlining personal reasons that Mr Anderson took as Mr Wood's resignation and his ceasing to act as a director and manager of WASC.[21] Mr Woods instructed Mr Anderson and Mr Sangalli that he had advised Mr Robert Wall, WASC's accountant, of the exit strategy and Mr Sangalli and Mr Anderson should direct questions to Mr Wall.[22]
[21] Anderson Affidavit [38] - [39].
[22] Anderson Affidavit [39], 'TWA-10'.
Mr Anderson deposes that since receiving the text messages, he has sent messages to Mr Woods only by email, through Mr Wall, or through Mr Sangalli. It is Mr Anderson's view that if Mr Woods were to cease operating the business of WASC, the business would be at an end.[23]

WASC's bank account

[23] Anderson Affidavit [39] - [40].

Mr Anderson says that WASC owed a substantial sum of money to Statewest for the hire of the Statewest Equipment. He deposes that the amount owing was far in excess of $300,000. However, he arranged for Statewest to issue an invoice to WASC for the hire of the Statewest Equipment in the sum of $300,000 dated 7 November 2022 (First Invoice) leaving a balance of approximately $93,000 so that WASC was left with sufficient funds to meet its financial obligations.[24]
[24] Anderson Affidavit [40] - [41], 'TWA11'.
Mr Anderson effected the transfer for payment in settlement of the First Invoice on 11 November 2022, having access to WASC's bank account.[25] He subsequently sent the First Invoice to Mr Wall by email on 14 November 2022.[26]
[25] Anderson Affidavit [43].
[26] Anderson Affidavit 'TWA17' (100).
On the morning of 15 November 2022 Mr Anderson checked WASC's bank account and saw that there had been a transfer of $93,156.20 to Mr Woods. On the same date Mr Anderson wrote to Mr Woods and, amongst raising other concerns, asked Mr Woods to transfer the $93,156.20 back into WASC's bank account.[27]
[27] Anderson Affidavit [44] - [45], 'TWA12'.
On 16 November 2022 Mr Woods sent an email to Mr Crowley and Mr Anderson in response and wrote 'you had without any authorisation removed $300,000 from our WASC trading account leaving insufficient funds to continue and meet our obligations'.[28]
[28] Anderson Affidavit 'TWA13'.
Mr Anderson deposes that on 17 November 2022 he advised Mr Woods and Mr Crowley that he had instructed Bankwest to put a 'no debts hold' on WASC's bank account.[29]
[29] Anderson Affidavit [47], 'TWA14'.
On 18 November 2022 lawyers acting for Mr Woods wrote to Mr Anderson. In their letter and in relation to Mr Wood's withdrawal of $93,156.20 they wrote:
8.Upon becoming aware of the Unauthorised Withdrawal, our client through Mr Woods took immediate steps to transfer the remaining funds ("Company Funds") in the WASC cheque account into an account in Mr Woods' personal name, in order to prevent any further unauthorised withdrawals and damage to the WASC's financial position. Mr Woods will utilise the Company Funds to meet WASC's ongoing liabilities.[30]
[30] Anderson Affidavit, 'TWA22' (113).
Between 18 November 2022 and 24 November 2022 a number of letters were exchanged between lawyers acting for Mr Woods and Mr Anderson addressing various issues that had arisen between the two directors.[31] Mr Sangalli had also written to Mr Woods and Mr Anderson on 21 November 2022 by email seeking to reach an agreement between the three directors without the need for lawyers.[32] Nonetheless, the conflict persisted and on 30 November 2022 Mr Anderson, on behalf of Statewest, sent a second invoice dated 30 November 2022 to WASC in the sum of $100,000 for the hire of Statewest Equipment.[33] Mr Anderson states that Mr Woods has not responded to his emails since early November 2022 and Mr Anderson believes Mr Woods has moved to Victoria.[34]

Missing Equipment

[31] Anderson Affidavit 'TWA22', 'TWA23', 'TWA24', 'TWA25'.

[32] Anderson Affidavit [48], 'TWA15'.

[33] Anderson Affidavit [50], 'TWA16'.

[34] Anderson Affidavit [49].

Mr Anderson deposes that on or about 18 November 2022 he drove to the Premises and saw sea containers on the Premises. On 25 November 2022 he drove to the Premises and went into the yard, and deposes that apart from a Statewest patrol ute, neither the Statewest Equipment nor WASC Equipment was visible at the Premises (however, the sea containers were still there).[35]
[35] Anderson Affidavit [51] - [52].
Mr Anderson subsequently discovered that Mr Woods had most of the equipment (apart from three vehicles and some trailers) at a self storage unit in Kalgoorlie. On applying for the release of the equipment an owner or employee advised he was instructed not to release it.[36]

WASC's financial records

[36] Anderson Affidavit [54].

In November 2022, Mr Anderson instructed Mr Wall, WASC's accountant, to provide him with various financial records of WASC. Ultimately this led to a dispute which caused both Mr Anderson and Mr Wall to each seek legal representation.[37] For the purposes of this application, I do not need to determine the merits of that dispute. It is sufficient to note that in November 2022 there were disputes in relation to access to WASC's financial records, ownership of the equipment leased to or operated by WASC, the authority to make withdrawals from WASC's bank account and the original terms of the oral agreement between WASC and Statewest, to name a few.

Relationships

[37] Anderson Affidavit [55] - [60].

Mr Anderson deposes that:
(a)his relationship with Mr Sangalli is good;
(b)he does not know where Mr Woods is, but believes he returned to live in Victoria;
(c)Mr Woods' relationship with both Mr Sangalli and himself has completely broken down with communication only occurring through lawyers;
(d)the fourth director, Mr Crowley, has not been involved with WASC or its business for years; and
(e)in his view, there are no prospects of the parties reconciling.[38]
[38] Anderson Affidavit [49], [65].

Legal Principles

In order to bring an application under s 461 of the Act, the applicant must have standing under s 462 of the Act. Section 462(2)(c) of the Act includes a contributory.[39] As a holder of fully paid shares in the company the plaintiff has standing to bring the application.
[39] The term 'contributory' is defined in s 9 of the Act to include a holder of fully paid shares in a company with share capital.
Section 461 of the Act provides that the court may wind up a company on various grounds. This application seeks winding up of the first defendant on the grounds it is just and equitable to do so pursuant to s 461(1)(k) of the Act.
The categories of circumstances which enliven the just and equitable jurisdiction are not closed or rigid and whether an order for winding up is just and equitable is a question of fact arising from the factual matrix of the dispute.[40]
[40] VCS Holdings (Aust) Pty Ltd (in liquidation) v KVG Contracting Services Pty Ltd [2023] WASC 189 at [37].
Recently in VCS Holdings (Aust) Pty Ltd (in liquidation) v KVG Contracting Services Pty Ltd, Solomon J summarised the circumstances that may justify the winding up of a company on this ground. I adopt those principles and for ease of reference I repeat his Honour's summary below:
It is well established that the jurisdiction to wind up a company on this ground may arise where one or more of the following circumstances are present, many of which commonly overlap or co-exist:
(a) an association formed or continued on the basis of a personal relationship, involving mutual confidence which has broken down (Ebrahimi v Westbourne Galleries Ltd [1973] AC 360, 379);
(b) generally, a breakdown in the relationship between the shareholders (Nassar v Innovative Precasters Group Pty Ltd (2009) 71 ACSR 343);
(c) an agreement, or understanding, that all or some of the shareholders shall participate in the conduct of the business which is no longer maintained (Ebrahimi v Westbourne Galleries Ltd (379));
(d) a restriction upon the transfer of the member's interest in the company, so that if confidence is lost, or one member is removed from management, she or he cannot take their stake and go elsewhere (Ebrahimi v Westbourne Galleries Ltd (379));
(e) a failure of the main object of the company's formation (Re Tivoli Freeholds Ltd [1972] VR 445);
(f) a deadlock in the management of the company (Re Yenidje Tobacco Company Ltd [1916] 2 Ch 426; Johnny Oceans Restaurant Pty Ltd v Page [2003] NSWSC 952; Clarke v Bridges [2004] FCA 394; Booker v You Run the Business Pty Ltd [2008] FCA 1762);
(g) a lack of confidence in the conduct and management of the affairs of the company (Loch v John Blackwood Ltd [1924] AC 783, 788; ASIC v ABC Fund Managers (2001) 39 ACSR 443, [119];
(h) where there has been fraud, misconduct or oppression in relation to the affairs of the company (Macquarie Bank Ltd v TM Investments Pty Ltd (2005) 223 ALR 148; Macquarie University v Macquarie University Union Ltd (No 2) [2007] FCA 844);
(i) serious concerns about the company's compliance with its statutory obligations (ASIC v Barrack Mortgage Managers Pty Ltd [1999] NSWSC 272; ASIC v Drury Management Pty Ltd [2004] QSC 068), including the filing of tax returns (Entwistle v Minken Pty Ltd (receivers and managers appointed) (2013) 97 ACSR 361, 364); and
(j) a risk to the public interest that warrants protection (ASIC v ABC Fund Managers).
Even if the court is satisfied of circumstances which justify a winding up on the just and equitable ground, s 467(4) of the Act makes clear that the court must consider whether an alternative and less drastic form of relief is available.[41]
[41] VCS Holdings (Aust) Pty Ltd (in liquidation) v KVG Contracting Services Pty Ltd [38] - [39].

In considering whether it is impossible for a company to achieve its objects or carry on its business, one must look objectively at the purpose for which the company was formed and ask whether that purpose is being pursued.[42]
[42] International Hospitality Concepts Pty Ltd v National Marketing Concepts Inc (No 2) (1994) 13 ACSR 368, 370.
The New South Wales Supreme Court in Tomanovic v Argyle HQ Pty Ltd; Tomanovic v Global Mortgage Equity Corporation Pty Ltd; Sayer v Tomanovic [2010] NSWSC 152 took the view that to enliven the just and equitable jurisdiction, the breakdown in relationship must be 'of a nature and degree that materially frustrates the commercially viable and sensible operations of the company in accordance with the incorporators' expectations'.[43]
[43] Tomanovic v Argyle HQ Pty Ltd; Tomanovic v Global Mortgage Equity Corporation Pty Ltd; Sayer v Tomanovic [50].
Examples of where orders for winding up on this ground may be appropriate include where a working relationship predicated on mutual co-operation, trust and confidence has broken down such that the continuation of such an association would be a futility,[44] where the relationship between incorporators had broken down such that the company could not continue to function meaningfully[45] or where the foundation of the whole agreement was built on reasonable courtesy and reasonable conduct between the parties and there has been a breakdown in communication.[46] 'Mere disagreement' is insufficient.[47]
[44] Tomanovic v Argyle HQ Pty Ltd; Tomanovic v Global Mortgage Equity Corporation Pty Ltd; Sayer v Tomanovic [50(a)]; referring to Accurate Financial Consultants Pty Ltd v Koko Black Pty Ltd (2008) 66 ACSR 325.
[45] Tomanovic v Argyle HQ Pty Ltd; Tomanovic v Global Mortgage Equity Corporation Pty Ltd; Sayer v Tomanovic [50(d)]; referring to Malandris v Palmreef Pty Ltd (Unreported, FCA, Mansfield J, BC9701374, 12 March 1997).
[46] Tomanovic v Argyle HQ Pty Ltd; Tomanovic v Global Mortgage Equity Corporation Pty Ltd; Sayer v Tomanovic [50(e)]; referring to Re Yenidje Tobacco Co Ltd [1916] 2 Ch 426.
[47] Tomanovic v Argyle HQ Pty Ltd; Tomanovic v Global Mortgage Equity Corporation Pty Ltd; Sayer v Tomanovic [50(g)]; referring to Carpenter v Carpenter Grazing Co Pty Ltd (1987) 5 ACLC 506; BC8701391 at (23 - 27).
The extent to which the applicant for the winding up order is responsible for any breakdown of the relationship is an important factor in the exercise of the court's discretion.[48]
[48] Tomanovic v Argyle HQ Pty Ltd; Tomanovic v Global Mortage Equity Corp Pty Ltd; Sayer v Tomanovic [52].

Disposition

The plaintiff submits that in this situation there are two potentially overlapping pillars evoking just and equitable grounds for winding up WASC, both a breakdown of the relationship between the shareholders and a deadlock in the management of WASC.[49] The Company Directors in these proceedings are directors of the first defendant. The fourth defendant owns 50% of the shares in the first defendant, with each of the plaintiff and second and third defendants owning an equal third of the remaining share pool.[50]
[49] ts 3.
[50] Anderson Affidavit 'TWA2'.
Although the plaintiff, second, third and fourth defendants all consent to orders to wind up WASC,[51] voluntary winding up by way of special resolution requires the resolution be passed by 75% of the votes cast by members who are entitled to vote on the resolution.[52] As the fourth defendant owns 50% of the shares in the first defendant, with each of the plaintiff and second and third defendants owning an equal third, the special resolution must be passed at a meeting of members by the fourth defendant and at least two of the other shareholders in order to reach the 75% threshold. This is not feasible due to the breakdown in the relationship between the Company Directors.
[51] ts 2 - 3.
[52] The Act s 250MA.
In circumstances where there has been no special resolution for the winding up of a company, express consent to a winding up order being made by counsel appearing on behalf of the company may inform the ultimate consideration of whether it is just and equitable for the company to be wound up.[53] The first defendant has not entered an appearance in the application. At the hearing counsel for the plaintiff and third defendant submitted that 'the parties… couldn't resolve to do that.'[54] This is indicative of the level of dysfunction between the Company Directors. In any event, despite having the consent of those parties which represent the shareholders of WASC, the court still needs to be satisfied it is just and equitable to wind up the first defendant.
[53] CIC Insurance Ltd v Hannan(2001) 19 ACLC 1217; 38 ACSR 245; [2001] NSWSC 437.
[54] ts 3.
The case for winding up the first defendant is compelling. The plaintiff, second, third and fourth defendants all agree that WASC is in a deadlock.[55] It is clear that it has become impossible to achieve the objects for which the company was formed. There has been a breakdown in the relationship between the shareholders and directors of the first defendant. This has resulted in a deadlock and corporate paralysis, or a 'failure of the substratum of the company'.[56]
[55] Plaintiff's Submissions [5]; Defendant's Submissions [2]; ts 3.
[56] See Citi Project Marketing (Qld) Pty Ltd and Anor v Vg Projects Pty Ltd and Ors [2017] QSC 65 [45].
The plaintiff submits that Mr Crowley has not been involved in the affairs of WASC since at least 2017.[57] Although Ms Crowley has been the director, shareholder and secretary of the second defendant since May 2020, there is no material before me to suggest she has had any involvement with WASC since becoming a director of the second defendant, until filing an appearance in these proceedings on 18 July 2023.
[57] Plaintiff's Submissions [8(a)].
The plaintiff submits that text messages received from Mr Woods in November 2022 amounted to Mr Woods resignation and intention to 'no longer be running the business'.[58] In relation to these communications the plaintiff further submitted that 'it's demonstrative of management having broken down in the sense that there is no one else to run the business of the first defendant in those circumstances'.[59] Although, the subsequent correspondence, including the letter from Mr Wood's lawyers to Mr Anderson dated 18 November 2022, seems to imply that Mr Woods intended to continue carrying on the business of WASC after these text messages to some extent.[60]
[58] Plaintiff's Submissions [8(b)].
[59] ts 4.
[60] Anderson Affidavit 'TWA22'.
Mr Sangalli unsuccessfully attempted to bridge the gap between Mr Woods and Mr Anderson in an email dated 21 November 2022, proposing that the three directors sit down and 'attempt to resolve the issues concerned'. The plaintiff submits that this offer was not taken up by the parties.[61]
[61] ts 4 - 5.
It can be gleaned from the correspondence between the Company Directors annexed to the Anderson Affidavit that the terms of the oral agreement between WASC and Statewest that gave rise to the incorporation of WASC appear to be in contention between the parties. The plaintiff denies the alleged term that at the conclusion of the lease, the Statewest Equipment would be transferred to WASC at a nominal cost.[62]
[62] Anderson Affidavit 'TWA22' (112), 'TWA25' (118).
The second and fourth defendants submit that the withdrawal by Mr Anderson on behalf of Statewest of $300,000 from the WASC bank account led to the first defendant issuing proceedings against the plaintiff in the District Court of Western Australia on the basis that the transfer was unauthorised.[63]
[63] Defendant's Submissions [3] - [5].
Mr Anderson claims that Mr Woods' withdrawal of $93,156.20 left WASC in a position where it was not able to meet its financial obligations.[64]
[64] Anderson Affidavit 'TWA12'.
The relevant directors appear to be in agreeance only to the extent that, as a result of one or both of the withdrawals referred to, WASC has insufficient funds to meet its financial responsibilities. It is not clear how the first defendant will be in a position to provide instructions in relation to progressing the District Court proceedings.
That, together with the dispute over the ownership of the equipment hired to the first defendant by Statewest, clearly demonstrates a breakdown in trust and confidence as between the shareholders and the directors of WASC. In my view the relationship between incorporators has broken down such that WASC is no longer able to function meaningfully.

Conclusion

Having regard to the breakdown in cooperation and trust between the shareholders, the Company Directors' loss of confidence in the management of WASC, the dispute as to the terms of the agreement relating to the transfer of equipment, Statewest's entitlement to payment and the inability to resolve the outstanding issues due to the deadlock, it is my view that it would be just and equitable to order the winding up of WASC.

Orders

I propose to make orders in the following terms:
1.The requirement to lodge notices under s 465A of the Corporations Act 2001 (Cth) is dispensed with.
2.Pursuant to s 461(1)(k) of the Corporations Act, the first defendant is wound up on the ground that it is just and equitable for it to be wound up.
3.Giovanni Maurizio Carrello of care of BRI Ferrier is appointed as liquidator of the first defendant.
4.The plaintiff's costs are to be taxed and paid in accordance with s 466(2) and s 556(1)(b) of the Corporations Act from the property and assets of the first defendant.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
CM
Associate to the Acting Master
21 NOVEMBER 2023