Re Melt Pty Ltd; Simon v Goldberg
[2001] VSC 197
•22 June 2001
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
CORPORATIONS LIST
IN THE MATTER OF MELT PTY LTD
No. 4748 of 2000
| TRACEY NICOLE SIMON | Plaintiff |
| v | |
| NICOLE GOLDBERG & ORS | Defendants |
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JUDGE: | Mandie J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 8-9 November 2000 | |
DATE OF JUDGMENT: | 22 June 2001 | |
CASE MAY BE CITED AS: | Re Melt Pty Ltd; Simon v Goldberg | |
MEDIUM NEUTRAL CITATION: | [2001] VSC 197 | |
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Corporations – dispute between equal shareholders and former co-directors – quasi-partnership – whether any oppressive conduct.
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APPEARANCES: | Counsel | Solicitors |
| For the plaintiff | Mr P. Finkelstein | F.L.A. Partners |
| For the first second & fourth defendants | Mr D. Williams | George Erlichster |
| For the third defendant | No appearance |
HIS HONOUR:
By originating process dated 22 March 2000 the plaintiff (Tracey Nicole Simon) made application under s.246AA of the Corporations Law relating to oppressive conduct of the affairs of a company, Melt Pty Ltd (“Melt”). In fact s.246AA had been repealed and replaced by Part 2F.1 containing ss.232-235 of the Corporations Law but the parties did not seek to make anything of this point. The plaintiff alleged that she had been treated in a manner that was oppressive or unfairly prejudicial to or discriminatory against her as a member of Melt. The first defendant is Nicole Goldberg, the other member of Melt and formerly a director along with the plaintiff. The second defendant is Mark Goldberg and the fourth defendant is Supply Warehouse Pty Ltd. At trial no relief was sought against the second and fourth defendants. The third defendant is Melt itself.
By points of claim the plaintiff made the following allegations:
1.The plaintiff and first defendant were equal shareholders in Melt and both directors of Melt until the plaintiff resigned as director on 26 February 2000. This was admitted.
2.Melt commenced trading activities in May 1999 in the design, manufacturing and retailing of glass homeware products and in which the division of sales and responsibilities was that the plaintiff was responsible for administration, part of the manufacturing process and the marketing of the products to retail outlets and the first defendant was responsible for designing, the remainder of the manufacturing process and promotional tasks. This was denied in Points of Defence. The first defendant alleged that she was responsible for design and manufacture and the plaintiff for marketing, promotion and administration.
3.The business was conducted from premises at Ground Floor, 9 Capella Crescent, Moorabbin, permissively occupied rent-free with the consent of the fourth defendant (a company owned and controlled by the second defendant and the first defendant’s sister). The address of the premises was admitted but otherwise the allegations were denied and it was alleged that Melt was obliged to pay, by way of rent, the electricity bill for the whole of the premises.
4.Melt traded solvently and profitably reaching a high point at a Melbourne Gift Show on 6 February 2000. This was not admitted.
5.Commencing mid-December 1999 and continuing to 6 February 2000, the plaintiff and first defendant fell into dispute concerning the first defendant’s arrangements to take annual leave during the December 1999 – January 2000 holidays period, a time critical to Melt’s success at the Gift Show (due to the need for additional manufacturing and for promotional activities). This was denied and the first defendant alleged that her leave had been agreed in advance and did not hinder Melt’s participation in the Gift Show.
6.As a consequence of differences of a personal nature between the plaintiff and the defendant which had existed prior to December 1999 but were exacerbated by the additional work and responsibility placed upon the plaintiff leading up to the Gift Show, the plaintiff and the first defendant each completely lost trust in the other concerning the activities of Melt. The first defendant admitted that she had lost trust in the plaintiff concerning the activities of Melt but otherwise denied the allegations.
7.From mid-December 1999 the first defendant began acting more in her own interests than in the interests of Melt. This was denied. The plaintiff particularised this allegation as follows:
“7.1The first defendant failed to act both diligently and honestly in the conduct of the affairs of the Company.
7.2The first defendant failed to account to the plaintiff in respect of stock and monies received from sales.
7.3The first defendant conducted a “liquidation sale” of stock on 8 March 2000 without the prior consent of the plaintiff, with the intent of disposing of the principal assets of the Company in a secretive manner.”
8.The first defendant, while still a director of Melt, commenced business in direct competition with Melt in the production and sale of glass homewares, in respect of which the first defendant registered the business name “Swelt” on 23 March 2000 operating from the same premises. This was denied.
9.The first defendant made the following additional allegations in Points of Defence:
“9.Further to the foregoing, the plaintiff and the first defendant agreed on 18 February 2000 that the plaintiff would acquire the first defendant’s shares in the company but repudiated that agreement on 26 February 2000.
10.The plaintiff resigned as a director and secretary of the company on 26 February 2000 and left Australia on that day without prior notice and without handing over to the sole remaining director the books and records of the company in the plaintiff’s possession.
11.After 26 February 2000 the first defendant acted responsibly in realising the stock and other assets of the company so as to enable the company to meet its obligations to its creditors.
12.The company now has no significant assets, and should be wound up.”
Factual background
The plaintiff had a marketing background with some years of business experience while the first defendant was a glass designer, having studied the craft for six years and having qualifications in the field of formed glass design. They had been friends for some years.
The plaintiff, who was running her own business, saw commercial potential in the first defendant's work and began working part-time as a sales agent for her. By August 1998, the plaintiff had achieved some sales of the first defendant’s products.
The first defendant registered the business name ‘Melt’ in Victoria in her proprietorship on 15 August 1998. Throughout the latter half of 1998 the plaintiff continued to be involved as a sales agent for the first defendant and began devoting more time to this activity and taking on some administrative functions.
The plaintiff and the first defendant ("the parties") operated for about six months as partners and then decided to incorporate a company whose business was to be the design, manufacture and retailing of glass homeware products.
On 24 May 1999 a company incorporated some years previously changed its name to Melt Pty Ltd with a registered office at the address of Abacus Corporate Consulting, which became Melt’s accountants.
Melt was the vehicle for what was in commercial reality a partnership. The first defendant became a co-director and equal shareholder of Melt on 24 May 1999. The plaintiff was allotted 12 of the 24 issued $1 ordinary shares and the first defendant was allotted the other 12 shares. They were the only directors of Melt.
It was agreed by the parties that the plaintiff was to be responsible for financial administration and the marketing of the completed products to various retail outlets and that the first defendant was to be responsible for the design and manufacture of those products. Whether some overlapping of roles was originally agreed or subsequently developed, and to what extent, need not be decided. I accept that the plaintiff was trained in at least some of the manufacturing processes by the first defendant, sometimes spending weekends building up their stock.
Trading commenced on or about 24 May 1999 and the design and manufacturing operations were conducted at premises at Ground Floor, 9 Capella Crescent, Moorabbin.
The arrangements made regarding the Moorabbin premises were made between Melt and the occupier of the premises, the fourth defendant. The chief executive officer of the fourth defendant was the first defendant’s father, Mr B. Buntman. It was agreed that Melt would pay all electricity costs for the entire building, including the offices of the fourth defendant which were also on the premises.
From May to mid-December 1999, Melt traded successfully. However the relationship between the parties started to deteriorate for personal reasons. Then a dispute relating to arrangements for the first defendant's "annual leave" erupted in mid-December 1999, leading in due course to a breakdown in their personal and business relationship.
The parties had agreed that the first defendant would be able to take annual leave overseas from 8 January 2000 to 28 January 2000 and that the plaintiff would remain in Melbourne, operating the business during this time in order to organise a range of products for a Gift Show due to take place in Melbourne on 5 February 2000.
On Thursday 23 December 1999 the first defendant telephoned the plaintiff and informed her that, at the insistence of the first defendant’s father, the business premises would be locked up during her leave and that the plaintiff would not have access. The first defendant also informed the plaintiff that she was taking one “Bronwyn” Woodward overseas with her as a “nanny” for her children. According to the plaintiff Bronwyn was the “sole employee” of the business. The plaintiff testified that what was thus conveyed to her by the first defendant meant that she would have been unable to complete arrangements for the Gift Show, or have Bronwyn’s assistance for this and be unable to pack and deliver a number of outstanding orders.
The plaintiff’s version of what happened next, and her reaction to it, is set out in a two-page fax to the first defendant dated 27 December 1999:
“1. On Wednesday 23rd December, you informed me via a mobile phone call, that whilst you are away on your annual holiday, I would have no access to our premises. Since its your father who is the landlord, makes this matter the more delicate – in any other situation we would have taken immediate action. Melt has been the legal tenant for 9 months therefore we have the right to access our business!! – (This has been legally advised to me). I am loathe to believe that you, and your fathers actions are contrived, and that you have a ‘hidden agenda’ but your actions strongly suggest this. Certainly these actions are contrary to Melts’ best interests!
2.It is most unprofessional to take Melts sole and certainly key employee on an overseas trip. May I remind you, of the investment in time and effort employed in training Bronwyn, as well as the costs associated with sending her on a glass cutting course in order to replace you in your absence. Funds were then allocated for $2200 for glass to be cut in the month of January to produce $10,000 worth of stock, this would have further been able to keep up with orders to supply our current 45 stores nationally in the manner to which Melts goodwill has been built.
I am particularly alarmed that you decided, with no prior consultation with myself, to take our key employee away with you as a ‘nanny’, not only for the above reasons, but as it also renders Melt deficient of her availability to work. Your actions Nicci are contrary to the best interests of the company! Your unnecessary ‘familiarity’ with our employee is neither business like or useful to improve the situation.
3.The net affect of your conduct Nicci, is to severely compromise Melt, and as result me. By rendering Melt inoperative for a period of 3 weeks at this crucial time, will deal a severe blow to this company’s viability, and ongoing liquidity. Further we would not be able to participate in the planned February 5th 2000 Melbourne Gift Show, and accordingly miss out on the projected $50,000 of sales!!
4.I am further alarmed of your actions in continuing to blatantly ignore this major issue, as it clearly does not suit you!
After my consistent calls and SMS’, and your obvious refuse to revert to me you finally agree to a directors meeting on Thursday December 23rd. I advised you in this meeting that I do not accept that your father shuts down the premises for his ‘own reasons’ during this time. You then stated that you no longer want to be in Melt and you don’t care’, basically you wanted to abandon the company signing it to me and confirming this in 24 hrs.
After again chasing you, finally on Saturday 25th you, casually inform me (again on my mobile), that you don’t mind ‘plodding along until end of financial year’ and ‘not sure’ if you want to ‘DO Melt!’. You highlighted that under no circumstances would I be permitted to enter into my business in your absence as YOU had a meeting with your father and he said ‘no way’! Then you revert to offering me $20,000 for my shares! (An insultingly low offer, even for a company under such compromise imposed by your self).
Nicci you are causing me great anxiety please be assured that I will do everything in my power to ensure the survival and ongoing success of this business, which I have built up and upon which I depend upon for my lively hood!
In conclusion, Melt has significant liabilities, for this reason as well as my commitment to the ongoing survival of the company, - to say nothing of my fiduciary duty, I feel that decisive and immediate action be taken; accordingly Nicci, if you do not or cannot reconsider and remedy your conduct, Melt will be forced to vacate the premises on or before you and your father’s departure dated being January 8th.
Alternatively, (and considering that you now want Melt, due to the fact that you made the offer) for your consideration;
Based projections of current figures and calculations of profits over the next 18 months, as well as the fact that I would avoid the confrontation you seem content on causing, I will accept $45,000 to dissolve this partnership no later than January 8th 2000.
My resignation would include, my signing over all of the assets, & data-base and all company records I have managed. I reassure you that I will not be involved in the glass-homewares market nor go into competition with Melt in any capacity what so ever in the future.
Please Note that offer of sale is valid until 5:00 pm Tuesday 28th January 2000. If you do not respond I will assume that Melt is vacating on or before January 8th 2000, and will begin negotiations into re-locating the studio/factory and its belongings of Melt Pty Ltd immediately.”
This fax led to a further meeting between the parties at the business premises on Tuesday 28 December 1999. The parties signed a handwritten document agreeing to a number of points including:
¨ plaintiff to have access to the premises in January during first defendant’s absence;
¨ Melt would participate in the Gift Show;
¨ wages to each director from 8 January 2000 of $200 per week “while they are an active director”;
¨ drawings of $4000 to each director for 1999 work;
¨ Bronwyn “to go on the books” from February 2000.
On 8 January 2000 the first defendant left for overseas. The plaintiff worked 12 hours per day, seven days per week in the premises and organised the stock, display, staffing, promotions and other matters for the Gift Show on 5 February 2000.
On Wednesday 2 February 2000, Melt received 30 days’ written notice to quit the premises (in peremptory terms) signed by the first defendant’s father as CEO of the fourth defendant.
The Gift Show took place over four days from Saturday 5 February 2000 to Tuesday 8 February 2000.
On Wednesday 9 February 2000 the parties exchanged faxes. In one fax the plaintiff said:
“Over the last 8 weeks, I have had to endure numerous disputes with the landlords (your family), yourself, as well as your own personal marital problems, which continually affect Melt’s growth. As I foresee this being a on-going issue for the company, and having tried to accommodate you in every way both personally and professionally, I have decided that I can no longer sustain our partnership and continue running the company under these circumstances.
As an eviction notice has been served this matter must be resolved immediately.
Please consider your choice of either taking over full control of the company or resigning as a director and shareholder.
It is regretful that it has come to this point, however to be able to continue with the success that Melt is receiving I see no other option.
Accordingly please think about what you want and let me know no later, than midday Friday 11th February 2000.”
By a fax in reply the first defendant informed the plaintiff that she intended “to seek the immediate winding up of the company”. I am satisfied that the relationship between the parties had completely broken down by 9 February 2000.
On Thursday 10 February 2000 the plaintiff drew a cheque for $5000 on the Melt bank account. This emptied the account. It was placed in Melt’s accountants’ trust account. On the same date the first defendant removed from the premises some of the books and records of Melt and discovered this payment.
On 11 February 2000, the first defendant changed the locks, locking the plaintiff out of the business premises outside business hours.
A meeting between the parties on Tuesday 15 February 2000 resolved nothing. The first defendant required, but the plaintiff would not agree, that Melt be wound up. The plaintiff offered to buy out the first defendant for $50,000, alternatively to sell out for the same amount – subject to the resigning party agreeing not to compete with Melt.
A matter of contention which arose on 15 February was that the first defendant had discovered that the plaintiff had taken a household cabinet from a customer in lieu of payment of the sum of $874.55 due to Melt. Subsequently the first defendant drew a cheque for $1474 representing equalising payments of $874 in respect of the cabinet and $600 in respect of other drawings made by the plaintiff in January 2000. Another matter debated was the cheque for $5000 drawn by the plaintiff which the first defendant persuaded the plaintiff to have the accountants repay to Melt.
On Wednesday 16 February 2000 the parties met at the business premises. A set of handwritten minutes signed by the parties purported to record an agreement which included the following matters:
¨ the plaintiff would buy the first defendant’s share for $50,000 and the first defendant would resign as director;
¨ Melt would continue and the first defendant would be responsible for filling all orders until 2 March 2000;
¨ no cheque would be drawn over $500 without two signatures until 2 March 2000;
¨ the first defendant agreed “to not compete with Melt in the future until the sale of Melt”;
¨ “… a legal document will be drawn to confirm and be signed officially.”
The plaintiff alleged that on 18 February 2000 the first defendant closed the business down by preventing delivery of orders. I am not satisfied that this occurred. The draft of a formal agreement was subsequently produced by the first defendant’s solicitor but this did not wholly accord with the minutes and an agreement was never completed. On 26 February 2000 the plaintiff resigned as director and secretary of Melt.
By letter dated 2 March 2000 the plaintiff’s solicitors wrote to the first defendant’s solicitors as follows:
“We confirm that we act on behalf of Ms Tracey Simon as a co-Shareholder and former Director/Secretary of the above Company, currently in South Africa for her forthcoming marriage, and confirm her resignation from those two positions as from the date of her departure overseas, last Saturday 26th February 2000.
We note that you act separately in respect of Ms Nichol Goldberg as the other shareholder and continuing Director in dealing with the future operation of this Company.
We have been instructed that your client proposed to conduct a ‘liquidation sale’ on behalf the Company this coming Wednesday 8th March 2000, apparently to coincide with the termination of the tenancy of its business premises. If so, then we assume that the sale will be confined to disposing of unsold stock only…
In our view, as the personal relationship between both parties has now completely failed, it will be more expedient (and certainly less expensive in terms of legal and accountancy costs) if the Company were to:
¨Cease trading forthwith.
¨Take steps to realise all non-money assets as soon as possible.
¨Effect payment of all company creditors from the net proceeds, including the separate sum of $5,000.00 on deposit for that purpose with the Company Accountants, Abacus Corporate Consulting.
Subject to these steps being taken, the fairly considerable expenses of a formal winding-up can be avoided through a consensual process of de-registration through the A.S.I.C. instead, as the Company will have ceased trading altogether and will have neither assets nor liabilities remaining in its name.
For the record, we will make the obvious point that anything more formal by way of resolution of shareholders for winding-up of the Company will, of course, require our client’s consent as one of the two equal shareholders, either by proxy from South Africa or through her father Charles Simon who holds her Power of Attorney generally.
We have been instructed also to take this opportunity to place two formal warnings on the record as follows:
(a)that our client will commence legal proceedings for damages pursuant to the ‘oppression’ provisions of the Corporations Law, if your client is found (on past or future acts) to have conducted the affairs of the Company to the personal or financial detriment incurring losses to our client as shareholder.
(b)That any defamatory remarks by your client concerning our client cease forthwith…”
The first defendant proceeded to organise a stock liquidation sale for 8 March 2000. On the day before the sale the plaintiff purported to circularise customers cancelling the sale but it went ahead. On 9 March 2000 the first defendant resigned as a director of Melt. On 22 March 2000 this proceeding was commenced. On 23 March 2000 the first defendant registered the business name “Swelt” describing the nature of the business as “glass homewares architectural”.
The first defendant has retained tools of trade and a small kiln which she says are her property. A larger kiln owned or leased by Melt has been sold.
The foregoing account does not cover all of the matters deposed to in a series of contentious affidavits by the parties. Each party has made a number of allegations about the way in which the other has conducted certain relatively minor transactions for or in the name of the company and as to what moneys or value may have been received. Those are matters for a liquidator to investigate if he or she sees fit. In her final affidavit sworn 31 October 2000 the plaintiff accepted that Melt should be wound up.
In addition a number of claims on Melt have been made by alleged creditors, some or all of whom seem to be allied with the plaintiff. Again this is a matter for a liquidator to deal with if proofs of debt are received.
In opening, counsel for the plaintiff, although conceding that Melt should be wound up (a concession later withdrawn), said that the plaintiff sought an order that the first defendant buy her shares in Melt for $50,000 or that the plaintiff sought “an order against the first defendant for $50,000 plus interest and costs”.
Oppressive Conduct
The applicable provisions of the Corporations Law, so far as relevant, are:
“Grounds for Court order
232 The Court may make an order under section 233 if:
(a) the conduct of a company’s affairs; or
(b)an actual or proposed act or omission by or on behalf of a company, …
is either:
(d)contrary to the interests of the members as a whole; or
(e)oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or in any other capacity.
Orders the Court can make
233(1)[Court orders] The Court can make any order under this section that it considers appropriate in relation to the company, including an order:
(a)that the company be wound up …
(h)appointing a receiver or a receiver and manager of any or all of the company’s property
(i)restraining a person from engaging in specified conduct or from doing a specified act
(j)requiring a person to do a specified act…
Who can apply for order
234An application for an order under section 233 in relation to a company may be made by:
(a)a member of the company…”
An accepted approach to the question for the Court is whether, looking objectively at the conduct of the affairs of the company as a whole, or some particular act or decision, in the eyes of a commercial bystander, there has been commercial unfairness[1]. In the end the language of each part of the current provisions must govern and be applied.
[1]See Wayde v NSW Rugby League Ltd (1985) 180 CLR 549; Morgan v 45 Flers Avenue Pty Ltd (1987) 5 ACLC 222 and cases therein cited.
Turning first to the Points of Claim and the Particulars to paragraph 7:
(a)I am not satisfied that the first defendant failed to act honestly or diligently in the conduct of the affairs of Melt. No dishonesty was shown. So far as diligence is concerned, no lack of diligence was identified which rose to the level of unfairness or oppression in the conduct of Melt’s affairs or was contrary to the interests of members as a whole;
(b)I consider that the first defendant may have failed to fully account to Melt in respect of stock and moneys received from sales but this occurred (if it occurred) at a time when the relationship between the parties had broken down and the business was ceasing. I do not think that any s. 232 grounds have been made out on this score. I note also that there are grounds, probably stronger grounds, for suspecting that the plaintiff has similarly failed to fully account to Melt. In any event, the appropriate remedy would be the appointment of a liquidator.
(c)I am satisfied that it was appropriate and reasonable for the first defendant to conduct a “liquidation sale” of stock on 8 March 2000 in all the circumstances. The “principal assets” of the company were not disposed of in a “secretive manner”.
Turning to paragraph 8 of the Points of Claim, I find that the first defendant did not start her new business under the name “Swelt” until after she had resigned as a director of Melt.
Turning to specific submissions made by counsel for the plaintiff, I have reached the following conclusions:
(a)I find that the plaintiff was locked out of Melt’s business premises, but only outside normal business hours, on and after 11 February 2000. It was in my view not unreasonable for the first defendant to take this action given the plaintiff’s unilateral emptying of Melt’s bank account;
(b)The notice to quit given by the fourth defendant was not conduct of the first defendant in the affairs of the company;
(c)I am not satisfied that the small kiln or the tools of the trade were the property of Melt and I am not satisfied that the first defendant took any physical assets of Melt for her own benefit.
Counsel for the plaintiff also submitted in effect that the first defendant had appropriated the goodwill and value of Melt by commencing a new but similar business under the name “Swelt”. In my view, this submission is misconceived. The relationship between the parties had completely broken down by 9 February 2000 and both had resigned as directors of Melt before this new business was started. The goodwill of Melt had already been substantially destroyed because the parties were unable to work together.
The plaintiff has made out no grounds or basis for any orders under s. 233 of the Corporations Law and certainly no basis for the order sought that she be paid $50,000 by the first defendant for her shares, or otherwise as “compensation”.
It is clear that Melt ought to be wound up on the just and equitable ground and I will make such an order when supplied with the name and consent of a proposed liquidator.
I will hear the parties on the question of costs.
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