Re Kerbside Waste Services Pty Ltd
[2014] VSC 607
•2 December 2014
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S CI 2014 000085
IN THE MATTER of KERBSIDE WASTE SERVICES PTY LTD (ACN 130 191 990)
BETWEEN:
| GARY ROBERT BEATTIE | Plaintiff |
| v | |
| KERBSIDE WASTE SERVICES PTY LTD (ACN 130 191 990) | First Defendant |
| DEBRA ELIZABETH CONNELL | Second Defendant |
---
JUDGE: | Gardiner AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 13 November 2014 |
DATE OF JUDGMENT: | 2 December 2014 |
CASE MAY BE CITED AS: | Re Kerbside Waste Services Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2014] VSC 607 |
---
CORPORATIONS – Affairs of company being maladministrated by sole director and 50 per cent shareholder – Denial of access to financial records by director – Director despite opportunities to do so has not contradicted evidence filed by plaintiff – Orders made giving access to financial records for purpose of valuing shares in company – Orders made that plaintiff purchase shares of second defendant for a value to be determined by expert.
---
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr M G R Gronow | Karavias and Associates |
| For the Defendants | No appearance |
HIS HONOUR:
The plaintiff (‘Mr Beattie’) makes application by an originating process filed on 12 September 2014 for orders arising from the alleged wrongful conduct of the second defendant, Ms Debra Elizabeth Connell, in her capacity as the director of the first defendant (‘Kerbside’).
The application is made pursuant to several provisions of the Corporations Act 2001 (Cth) (‘the Act’) including ss 232 and 233 relating to oppression, the provisions of s 461(e), (f), (g) and (k) which provide grounds for winding up and the provisions dealing with the appointment of provisional liquidators in s 472. In addition, at the hearing of this matter on 13 November 2014, I gave leave to Mr Beattie to amend the originating process to include an application under s 247A of the Act for orders that he and his legal and accounting advisers have leave to inspect the books of Kerbside.
Mr Beattie makes the application in his capacity as a 50 per cent shareholder of Kerbside’s issued capital. Mr Beattie’s application is supported by his affidavits of 30 September 2014 and 10 November 2014, affidavits of his solicitor, Mr Danny Karavias, sworn 30 September 2014 and 16 October 2014, affidavits of his brother, Mr Rod Beattie, sworn 10 November 2014 and 12 November 2014 and an affidavit of Mr Mark Russell Lipson, affirmed 12 November 2014. Mr Lipson is an accountant who is experienced in valuing company shares and businesses. In addition, there are numerous affidavits relating to service upon Kerbside and Ms Connell.
Mr Gronow, counsel for Mr Beattie contended that this is a classic case of a company whose continuation has become effectively and practically impossible in its current state, due to the ‘deadlock’ between the two shareholders, Mr Beattie and Ms Connell. It is said that it is not possible for the present disputes to be resolved by the shareholders in a general meeting, as Ms Connell would either not attend the meeting or if she did attend, would vote against any resolution for her removal as a director or the appointment of other directors to manage the company properly. It is contended that on this basis, the Court should grant the relief to Mr Beattie under s 232 of the Act.
Mr Beattie asserts that due to the mismanagement of Kerbside by Ms Connell, the ‘conduct of the company’s affairs’ is … ‘contrary to the interest of the members as a whole’ and is ‘oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members’ namely Mr Beattie within the meaning of those expressions in s 232(a), (d) and (e) of the Act. It is contended that Ms Connell’s lack of attention to basic management tasks such as, the timely paying of rent and suppliers’ invoices is putting Kerbside’s assets and business at risk. It is said there is no indication that she is likely to change that conduct, and that indeed her failure and refusal to participate or become involved in this proceeding or to cooperate with Mr Beattie in any way in relation to the affairs of the company suggests she will not change her attitude in relation to Kerbside affairs. As will be seen, Ms Connell has been given several opportunities to put on evidence in opposition to this application and to appear but has not done so.
In his submission at the hearing of the proceeding, Mr Gronow stated that although the originating process seeks a winding up order, Mr Beattie’s preferred relief is for an order pursuant to s 233(1)(c) or (d) of the Act, that Ms Connell’s shares be acquired at a fair market value by either Mr Beattie or his brother, Mr Rod Beattie, who is currently employed in the business as a manager and who has a good relationship with Mr Beattie. Mr Gronow submits that this is an appropriate case for a compulsory share purchase order under s 233(1)(c) or (d) because such an order would bring an end to the oppression and fairly compensate the person oppressed. It would also ‘put the company back on the rails and avoid the causes of conflict and oppression’.[1]
[1]Re Hollen Australia Pty Ltd (2009) 27 ACLC 199, 89.
Mr Gronow states that it would not be appropriate for the Court to order Ms Connell to purchase Mr Beattie’s shares because there is no evidence that she has the financial capacity to do so, she has not indicated any willingness to do so and that it is her mismanagement of the company and its business that has given rise to the oppression and other problems which the plaintiff seeks to rectify by bringing this proceeding.
On 19 September 2014, a sealed copy of the originating process was served on Kerbside by hand delivery to its registered office. On 1 October 2014, Mr Beattie’s affidavit of 30 September 2014 and Mr Karavias’ affidavit of 30 September 2014 were served on Kerbside by hand delivery at the registered office of the company, 30-32 Plummer Street, Laverton North. Ms Connell was personally served with a sealed copy of the originating process on 22 September 2014. On 30 September 2014, Mr Beattie’s affidavit of 30 September 2014 and Mr Karavias’ affidavit of 30 September 2014 were personally served on Ms Connell.
On 3 October 2014, the application came before Ferguson AJ. Mr Beattie was represented by Mr Gronow of counsel. There was no appearance for Kerbside or Ms Connell. Ferguson AJ made orders that the defendants file and serve any affidavits on which they wished to rely by 24 October 2014. The plaintiff was ordered to file and serve any affidavits in reply by 7 November 2014. The proceeding was adjourned for further directions on 17 October 2014. Her Honour directed that an authenticated copy of the orders be served personally on the defendants by the plaintiff’s solicitors.
On 8 October 2014, Kerbside was served with a copy of the orders of Ferguson AJ made on 6 October 2014 by Mr Beattie’s solicitor, Mr Karavias, who personally attended the registered office at Kerbside and handed the envelope containing the authenticated copy of the orders to Ms Connell, the sole director of the company, who identified herself. On the same occasion, she was personally served with a copy of such orders.
ASIC were also served with a sealed copy of the originating process on 18 September 2014 and with a copy of Mr Beattie’s and Mr Karavias’ affidavits on 1 October 2014.
On 17 October 2014 the matter returned to Court pursuant to Ferguson AJ’s orders of 6 October 2014. Mr Gronow of counsel appeared again for Mr Beattie. There was no appearance by the defendants, nor had they filed any affidavit material in accordance with her Honour’s orders of 6 October 2014.
Her Honour set the matter down for hearing on 13 November 2014 and ordered that Mr Beattie file and serve any affidavit by an expert accountant concerning the valuation of Kerbside and Ms Connell’s shares in Kerbside, seven days prior to the hearing. Her Honour ordered that a copy of her orders of that day be served personally on the defendants by Mr Beattie’s solicitors as soon as practicable.
On 23 October 2014, Ms Connell and Kerbside were each served personally with a copy of Ferguson AJ’s orders of 17 October 2014.
In his affidavit of 30 September 2014, Mr Beattie deposes that he has been the owner of six of the 12 shares issued in Kerbside since March 2008. Ms Connell is the holder of the remaining six shares and she is the sole director and secretary of the company. These matters are confirmed by a current and historical extract for Kerbside obtained from the ASIC database on 29 September 2014.
Mr Beattie deposes that he was not aware of his shareholding in Kerbside until quite recently. He has never received any financial benefit from his shareholding, nor had he ever received any financial documents or reports in relation to the company or its business. He states that Ms Connell, who is the sole director of the company and the executor of their late father’s will, did not inform him of his interest in Kerbside and has in fact denied this to be the case previously.
Kerbside was incorporated in March 2008. Mr Beattie believes that he was given the shareholding in Kerbside by his father, Mr Trevor Robert Beattie, in return for assisting him financially some 25 years ago when his father became bankrupt as a result of business and financial difficulties.
Kerbside commenced trading operations in early 2008 and was set up following the sale in 2007 of a previous company and business owned and conducted by Mr Beattie’s father, Fine Paper Pty Ltd, to a company called Shred X Pty Ltd for $4.2 million. Fine Paper Pty Ltd was involved in paper recycling and secure destruction. Mr Beattie believes that the shares in Fine Paper Pty Ltd were owned by Trecia Pty Ltd which acted as trustee of his father’s family trust. Some $900,000 of the proceeds of the sale of the business were distributed amongst Mr Beattie and his siblings, and some $400,000 were used to pay out the leases on certain equipment and machinery, including a baling machine. Mr Beattie does not know what became of the balance of the sale proceeds.
Shred X Pty Ltd did not wish to take on the part of the business that was involved in the purchase, baling up and re-sale of plastic, cardboard and paper waste. Kerbside took over this aspect of the enterprise.
As part of its business, Kerbside purchases cardboard, paper and plastic waste, ties it up with baling wire and on sells it. It does contract work for a number of major customers, including Visy, Australian National Recyclers, and other concerns. Mr Beattie believes that the company has a turnover of about $2 million a year, although this assertion is not substantiated. Mr Beattie says that the company has a number of employees, including his brother Mr Rod Beattie, who works about six days a week as a manager, Ms Connell who works some seven or eight hours per week and several other employees.
Mr Beattie has requested copies of the company’s financial information from Ms Connell, both personally and through his accountants and solicitors to which there has been no response. The correspondence which details the approaches in that regard are exhibited to his affidavit.[2]
[2]Exhibit GRB-3.
On 16 October 2013, solicitors acting for Ms Sharon Beattie, in relation to the Estate of Trevor Robert Beattie, wrote to Ms Connell requesting, among other things, a full set of the financial records for Kerbside for the past three years.[3] In response, lawyers acting on Ms Connell’s behalf (identified in their letter as Ms Debbie Beattie (previously known as Debbie Connell)), stated that they were instructed that Mr Trevor Robert Beattie was not a director or shareholder of Kerbside and that therefore no documents relating to the company would be provided.[4]
[3]Exhibit GRB-3.
[4]Exhibit GRB-3.
The solicitors then wrote back to Ms Connell’s solicitors on Mr Beattie’s behalf on 25 November 2013, but there was apparently no response.[5]
[5]Exhibit GRB-3.
Also exhibited to Mr Beattie’s affidavit is correspondence from Kerbside’s accountants, Brandi and Co, who indicate by a letter dated 20 June 2014 that they no longer act on behalf of the company.[6] The author of the letter indicates that Kerbside is indebted to that firm for unpaid fees and that the firm had not received any of the documents required to prepare the 2013 financial statements and were therefore unable to provide the documents which were requested in that regard. Mr David Brandi of that firm was a longstanding accountant and adviser to Mr Beattie’s late father. Mr Beattie considers the disengagement of Brandi & Co to be a tactic by his sister, Ms Connell, to prevent him from obtaining access to the financial records of the company.
[6]Exhibit GRB-4.
Mr Beattie states that he is concerned about the day to day management of the company and that as far as he knows, Kerbside has not paid any dividends or prepared or lodged any financial statements since Ms Connell assumed control of it following their father’s death. He asserts that Kerbside conducts a business that in the past has been very profitable and valuable. He does not state his basis for this. He states that Ms Connell has, for some years, had problems with drinking and gambling and these have adversely affected her management of the company.
Mr Beattie states that he believes that the company’s business is currently struggling and not meeting its financial obligations, including the obligations to pay rent on the factory and business premises it occupies at 30-32 Plummer Road, Laverton North, and to pay for essential items such as baling wire. The landlord’s solicitors, Turks Legal, state in correspondence that the company is in arrears of rent.[7] In an email of 2 September 2014, Turks Legal indicate that the lease of the premises from which the company operates would expire on 30 September 2014 and the option to renew it for a further term has not been exercised. Turks Legal indicate that rental arrears total $60,000 inclusive of GST, with arrears of outgoings in the order of $17,000. The author notes that the landlord holds a bank guarantee from NAB for $58,080 which it intended to call up if the arrears were not immediately brought under control. Mr Beattie exhibits an invoice for $4,910.40 addressed to Australian Cardboard Recyclers of 32 Plummer Road, Laverton North, Victoria, for baling wire.[8] There is no evidence as to whether it remains unpaid.
[7]Exhibit GRB-5.
[8]Exhibit GRB-6. Australian Cardboard Recyclers is a trading name used by Kerbside.
Mr Beattie has been informed by his solicitor, Mr Karavias, and his brother, Mr Rod Beattie, that Ms Connell offered to sell the company’s business to a company called Australian Paper Recovery Pty Ltd for $450,000. When this offer was rejected, an offer was made by Ms Connell to sell the business for $200,000. Australian Paper Recovery Pty Ltd is controlled by a family friend, Mr Darren Thorpe. Mr Beattie states that he was not informed of the sale offers and he is concerned about it since he believes that if the business is sold by Ms Connell she will retain any proceeds of sale for herself and will not account to him. Mr Beattie is also concerned that the sale price significantly under values the company.
In his affidavit of 30 September 2014, Mr Karavias confirms the matters in reference to the attempts to sell Kerbside’s business by Ms Connell. He states that on 16 July 2014 he telephoned Mr Thorpe, the director of Australian Paper Recovery Pty Ltd, who informed him that Ms Connell had offered to sell him Kerbside’s business for $450,000 and when this offer was rejected, for $200,000. He exhibits a file note which he made in that regard recording that conversation.[9]
[9]Exhibit DK-1.
In his second affidavit sworn 16 October 2014, Mr Karavias exhibits material in regard to the financial position of the company. Turks Legal indicated in an email of 8 October 2014 that the landlord had instructed them to lodge the bank guarantee for payment with the company’s banker. The author of the email also indicated that, as Kerbside was now overholding after the conclusion of the lease, the landlord would, unless satisfactory arrangements were made as to future occupancy, consider instituting possession proceedings.[10] In a separate email from Mr Rod Beattie of 14 October 2014, it was stated that the wages that were due to employees on the Friday were not paid until the Saturday and only then by reason of a fortuitous advance payment from a customer. A fuel card used by one of the workers was declined as there were no wages in his account. It was also indicated to Mr Rod Beattie on 10 October 2014 that one of Kerbside’s biggest cardboard suppliers would not be dropping off material at Kerbside until outstanding accounts were paid.
[10]Exhibit DK-1.
In his affidavit of 10 November 2014, Mr Beattie exhibits emails from Mr Rod Beattie, who is employed as a manager at Kerbside and from a company Hystandard Pty Ltd dated 28 October 2014.[11] Mr Rod Beattie in those emails lists the creditors of the company. He asserts $38,000 is owing in rent, $9,820 for wire, $2,925 in wages owed to him and $5,338 for forklift hire, an amount owing of $7,000 to SITA, one of the paper suppliers, $1,100 to Supergas and $14,600 to Veolia. The amounts owing to the forklift hire lessors, Hystandard Pty Ltd, have been paid by Mr Rod Beattie’s wife Anne Beattie.
[11]Exhibit GRB-1.
In his affidavit of 10 November 2014 Mr Rod Beattie states his belief that the business conducted by the company is struggling and still not meeting its financial obligations as they fall due, including its obligations to pay rent, wages, lease payments and suppliers to the business.
Mr Rod Beattie states that he has had conversations with the landlord at the premises who has confirmed that the rent for the premises is approximately $38,000 in arrears. He confirms that he is owed $2,925 in unpaid wages. He confirms the matters in respect of the hire of the forklift.
Mr Beattie also relies on an affidavit of Mr Lipson affirmed 12 November 2014. Mr Lipson had been engaged by Mr Beattie’s solicitors to value the business and shares of Kerbside, but this had not been able to be done because neither Mr Beattie nor the company’s accountant had been able to obtain Kerbside’s financial statements and records. Mr Lipson states that he is unable to value the company’s business and shares for the purpose of this proceeding or otherwise without the company’s financial statements or access to its banking records, Business Activity Statements and other accounting records. In a letter of 11 November 2014 to Mr Karavias which is exhibited to Mr Lipson’s affidavit, Mr Lipson elaborates on the difficulties and impossibility of valuing the shares in the company. He states that the professional cost to prepare financial statements from incomplete records can be significant and perhaps prohibitive. He regards it as being essential that the cooperation of Brandi & Co be obtained.[12]
[12]Exhibit MRL-1.
At the hearing of this matter on 13 November 2014, I enquired of Mr Gronow why his client, having regard to the unknown financial position of the company, would want to buy out his sister’s shares. In response Mr Gronow stated that he was instructed that under proper management it would be returned to financial health very quickly. Mr Beattie and his brother, Mr Rod Beattie, were well acquainted with the company’s affairs and were most anxious to take on that task. In order for this to happen, it is accepted that the company will require financial support from Mr Beattie and his brother. Both are prepared and willing to do so because it is a fundamentally sound business which employs several people and if restored to proper management would again become a profitable enterprise.
In the course of discussion with Mr Gronow, I canvassed the alternative that the company, which is apparently completely deadlocked without any mechanism to resolve such deadlock, should be wound up on the just and equitable ground. In response, Mr Gronow stated that this course would pose several problems, the first of which would be the relationship with the landlord. He was instructed that the landlord had offered a renewal of the lease which has now expired, once Ms Connell was out of the company’s management.
In regards to the resolution of the issue with Mr Brandi, Mr Gronow contended that if the amount he was owed was relatively modest, the most simply and expedient solution would be to pay him and obtain access to the accounting records.
I am impressed by the willingness of Mr Beattie and his brother to place the company’s affairs back on a proper footing by application of their own financial resources. This is exemplified by Mr Rod Beattie’s wife making payments on behalf of the company on her credit card.
Ms Connell has not at any point, despite being served with the orders and affidavit material to which I have referred, sought to participate in the proceeding and oppose the relief being sought by Mr Beattie. In my view, such an unexplained failure on Ms Connell’s part to file any evidence in opposition to the application entitles me to infer as the fact finder that she had no evidence to present which would have assisted her case.[13]
[13]Jones v Dunkel (1959) 101 CLR 298 (referred to in the context of oppression proceedings by Robson J in Re Hollen Australia Pty Ltd (2009) 27 ACLC 199, 95).
I am satisfied that on the evidence, Mr Beattie has established that there has been oppression on the part of Ms Connell over some considerable period of time. She has continually refused to inform him about the company’s financial affairs. In going about the directorship, she has failed to maintain proper and up to date financial records and attend to payment of the company’s creditors on a day to day basis. In my view, the conduct of Ms Connell described in the evidence is ‘contrary to the interests of the members as a whole’ or is ‘oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members’ namely Mr Beattie.[14] That prejudice is clear in that, if the present situation is allowed to continue it seems inevitable that an unpaid creditor will seek to have the company wound up in insolvency with all that involves, including the discharge of the company’s employees from their employment. The situation has been brought about by the conduct of Ms Connell in her administration of Kerbside’s affairs. The company is presently only meeting its obligations it seems because members of the Beattie family are assisting it to do so. The evidence indicates that if the property which the company owns in the form of plant and equipment were to be sold on a liquidation basis it would fetch considerably less than its value as a going concern.
[14]See section 232(a), 232(d), 232(e).
Mr Gronow indicates that upon acquisition of Ms Connell’s shares, she will be removed as a director and replaced by Mr Beattie. If a buy-out of Ms Connell’s shares takes place and the company restored to normal trading, the external creditors’ interests will be protected.
In the face of the wish by Mr Beattie and his brother to restore the company to profitable trading and good management, I will not make a winding order as it is potentially a profitable company. The oppression which I consider to be occurring can be terminated by an order that Mr Beattie purchase Ms Connell’s shares at valuation. I will hear counsel on the form of orders to affect them.
0