In the matter of Crow Inn Pty Limited (No 2) [2020] NSWSC 1749
Hearing dates:
25 August 2020
Date of orders:
7 December 2020
Decision date:
07 December 2020
Jurisdiction:
Equity
Before:
Rees J
Decision:
Amend share register under s233 Corporations Act; wind up companies on just and equitable ground; stay orders for 14 days to permit share buy-out; appoint receiver to family trust.
Catchwords:
CORPORATIONS – OPPRESSION – principles at [217]-[224] – oppression of majority shareholder by minority shareholder – majority shareholder did not have control – minority shareholder with operational control excluded majority shareholder from management and obstructed efforts to remove capital on reasonable terms: at [247]-[248].
CORPORATIONS – Family engaged in hotel businesses – grandparents retire – grandparents fund land and construction of hotel in Wagga as gift to son and grandson – son is majority shareholder – grandson operates hotel, being his first hotel – son mentors and supervises grandson from Sydney – shareholders agreement – grandson to be general manager for 5 years in return for $1m and further 10% shares in operating company – grandson buys land to build hotel nearby without telling son – son issues buy-out notice – grandson rescinds shareholders agreement – CCTV feed relied on by son in Sydney is cut – sustained delay in implementing resolutions to sell land and business – grandson progresses own development over son’s protest – bad behaviour – police called – grandson resigns and claims $1.6m wages – deadlock – irretrievable breakdown of relations.
CORRECT SHARE REGISTER – s175 Corporations Act – principles at [257]-[258] – not applicable where shares transferred under contract later repudiated when part-performed.
OPPRESSION – remedies – principles at [259]-[261] – buy-outs at [268]-[270] – grandson offers to buy shares in operating company but not landholding company – won’t cure oppression – ample time to agree – won’t order buy-out but will stay winding up order for 14 days to permit buy out – amend share register.
CORPORATIONS – winding up on just and equitable grounds – s 461(1)(k), s 467(4) Corporations Act – deadlock – irretrievable breakdown of relationship in family companies – companies are solvent – whether able to co-operate in one company but not the other – liquidator appointed to both companies.
LIQUIDATORS – choice of liquidator – principles at [290]-[292] – no evidence that plaintiffs’ nominated liquidator lacked independence – cost advantages.
RECEIVERS – ipso facto clause – trust constitution requires consent between deadlocked directors to appoint new trustee – interim receiver of assets of operating company appointed as receiver to assets of family trust.
[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.
[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.
[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.
Consideration
[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.
[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.
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AGLC
In the matter of Crow Inn Pty Limited (No 2) [2020] NSWSC 1749
Case
[2020] NSWSC 1749
Decision Date
CaseChat Overview and Summary
In the matter of Re Crow Inn Pty Ltd (No 2), the court was asked to decide upon various issues related to the management and winding up of two companies, Crow Inn Pty Ltd and Crow Inn Trust, which were involved in the operation of hotels in Wagga. The primary dispute was between the majority shareholder, the son, and the minority shareholder, the grandson, who was also the general manager of the hotel. The son, who held the majority of shares in the companies, had funded the construction of the hotel as a gift to his son and grandson. The grandson had been operating the hotel and had entered into a shareholders agreement that gave him a management role and additional shares in return for a payment of $1 million.
The court was required to determine whether the actions of the grandson constituted oppression of the majority shareholder under the Corporations Act, whether the share register of the companies was correct, and if the winding up of the companies on just and equitable grounds was appropriate. The court also had to decide on the appointment of liquidators and receivers for the companies and trust.
The court found that the grandson's actions did amount to oppression of the majority shareholder, as he had excluded the son from management and obstructed his efforts to remove his capital on reasonable terms. The court rejected the argument that the share register should be corrected to reflect the repudiated share transfer, holding that it was not applicable where the shares had been transferred under contract but later repudiated when part-performed. Regarding the winding up, the court found that the deadlock and irretrievable breakdown of the relationship between the son and grandson justified the winding up of the companies on just and equitable grounds. The court also appointed the plaintiffs' nominated liquidator and an interim receiver of the assets of the operating company as the receiver of the assets of the family trust.
The court stayed the winding up order for 14 days to allow the parties to attempt to reach a buyout agreement. The court held that the grandson's offer to buy the shares in the operating company but not the landholding company would not cure the oppression, and that there had been ample time to reach an agreement. The court also rejected the argument that the plaintiffs' nominated liquidator lacked independence and appointed the interim receiver of the assets of the operating company as the receiver of the assets of the family trust due to the trust constitution's requirement for consent between the deadlocked directors to appoint a new trustee.