Re Property Project Marketing Pty Ltd
[2024] VSC 45
•16 February 2024
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2019 04817
| June Chuin Wei Loh | Plaintiff |
| v | |
| Ned Gerrard & others | Defendants |
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JUDGE: | Nichols J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 31 January, further submissions 21 March, 11 April and 21 April 2023 |
DATE OF JUDGMENT: | 16 February 2024 |
CASE MAY BE CITED AS: | Re Property Project Marketing Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2024] VSC 45 |
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SUMMARY JUDGMENT — Winding up order — Just and equitable grounds — Interaction between winding up and summary judgment — Breakdown in relationship between shareholders — Management deadlock — Management of company’s financial records — Compliance with statutory obligations — Whether real defence to claim of relief — Triable issues arise — Application dismissed — Re Winter One Investments Pty Ltd [2020] QSC 233 discussed — Ebrahimi v Westbourne Galleries Ltd & Ors [1973] AC 360 cited — Civil Procedure Act 2010 (Vic), ss 61, 63 — Corporations Act 2001 (Cth), s 461(1)(k).
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | P Caillard | Moray & Agnew |
| For the Defendants | H McAvaney |
HER HONOUR:
Introduction
Property Project Marketing (PPM), the company the subject of these proceedings, has operated a real estate business selling off the plan properties in new developments and providing rental property management services. The plaintiff, June Loh, one of PPM’s four equal shareholders, commenced this proceeding alleging that she has been the subject of oppressive conduct for the purposes of ss 232 and 233 of the Corporations Act 2001 (Cth), seeking a buy‑out of her shares and alternatively, that the company be wound up. The fourth shareholder, Nandita Bangera, has commenced her own separate proceeding making similar allegations. The first and second defendants to this proceeding are Ned Gerrard and Joan Alcock, who are each shareholders of PPM.[1]
[1]PPM is the third defendant.
By the present application, Loh[2] seeks summary judgment on that part of her claim by which she seeks a winding up order, pursuant to ss 61 and 63 of the Civil Procedure Act 2010 (Vic) and Order 22 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) (Rules). Loh says that the defendants (Gerrard and Alcock) have no real prospect of defending the application for an order that the company be wound up on the just and equitable ground under s 461(1)(k) of the Corporations Act. Loh does not seek to have her oppression claims determined but says that she has established that it is just and equitable that PPM be wound up because, in summary:
[2]I will refer to the parties and principal actors by their surnames and intend no disrespect in so doing.
(a) PPM has not maintained its financial accounts and records as it is required to do by s 286 of the Corporations Act, and on that ground the Court can have no confidence in the ability of PPM’s directors to properly manage PPM going forward. It is in the interest of the parties and the public that ‘this situation is not allowed to continue any longer’.
(b) The relationship between shareholders has completely broken down and the company’s management is deadlocked.
(c) The Court can have no confidence that the parties will be able to resolve the dispute. Loh has not acted unreasonably in not accepting the defendants’ offer to buy her shares.
(d) Winding up on a summary basis will facilitate the just, efficient, timely and cost‑effective determination of the real issues in dispute, and favours the appointment of a liquidator. Liquidation of PPM, which has exhausted the purpose for which it was founded and has little current business, will have no material effect on third parties.
The defendants submit that the question whether PPM should be wound up requires consideration of triable issues of fact and law that cannot properly be determined on a summary basis. Summary judgment is not an appropriate vehicle through which the Court can embark upon the necessary legal and factual inquiry, particularly where there are complex interplays between personal and business relationships. The consequences of issuing summary judgment and appointing a liquidator and winding up the company are irreversible. The Court should be wary of making such an order in the circumstances of an interlocutory application where parties have not been afforded the opportunity to test the evidence said to found the plaintiff’s contentions that there can be no confidence in the management of the company. The power to terminate proceedings summarily should not be exercised unless it is clear that there is no real question to be tried. There are real questions for trial in this case.
The application is supported by three affidavits of the plaintiff (and affidavits of her solicitors establishing that relevant notice of the application to wind up PPM has been given). The defendants’ opposition to the application is supported by three affidavits of Gerrard.
The Proceedings
PPM was incorporated on 26 February 2013. From its commencement Loh, Gerrard and Alcock were each directors. Each remain as directors. Bangera was appointed a director on 27 September 2018 and ceased her appointment on 13 May 2019. On its commencement, the company issued 75 ordinary shares held equally between Loh, Gerrard and Alcock. On 2 July 2018 a further 25 ordinary shares were issued to Bangera.
By her originating process (supplemented by Points of Claim), Loh alleged relevantly that:
(a) Gerrard and Alcock have purported to operate under a constitution that was not validly adopted. The constitution provides that the affairs of the company will be managed by and under the direction of the directors; directors’ meetings may be proposed by any director and notice is not required in respect of the meetings if the date, place and time of meeting are agreed by a majority of directors and confirmed via electronic means; unless the board decides otherwise, the quorum for a meeting of directors is two directors; any director may be removed with or without cause by a majority of directors at a directors’ meeting for which a resolution may be decided on a show of hands; the company has a first lien on every share not paid for by a member, and for any share not paid in full that member is restricted from voting;
(b) The purported constitution effectively enables Gerrard and Alcock to jointly remove any other director without the approval of shareholders and to remove or restrict Bangera’s voting rights because a portion of the consideration for her shares remained unpaid at relevant times, and to give Gerrard and Alcock joint majority voting rights at any meeting of shareholders unless and until Bangera pays the outstanding balance of consideration for her shares;
(c) Neither Loh nor Bangera was given notice of any proposed change to the company’s constitution or the adoption of the purported constitution;
(d) In May 2019, Gerrard and Alcock convened a meeting of directors without any proper notice to Loh or Bangera of the time or venue of the meeting, and at that meeting, passed resolutions removing Bangera as a director of the company, increasing the remuneration paid by the company to Gerrard and Alcock, and reducing that to be paid to Loh, without notice of the proposed resolutions being given to Loh or Bangera;
(e) Loh has been excluded from the management of the company by Gerrard and Alcock wrongfully asserting majority control in reliance on the purported constitution and resolutions passed thereunder, by Gerrard expressly denying Loh equal right to manage the business of the company and by withdrawing moneys from the company’s bank account and by denying Loh access to certain books and records of the company;
(f) Loh is entitled to commissions on sales achieved for PPM pursuant to an Operating Agreement dated 1 July 2018 to which each of the shareholders is a party; in breach of that agreement the commissions have not been paid;
(g) Gerrard and Alcock had engaged in conduct of the company’s affairs that was oppressive to, unfairly prejudicial or unfairly discriminatory of Loh, and of members of the company as a whole and have conducted the affairs of the company in their own interests rather than in the interests of the members as a whole for the purposes of ss 232 and 461(1)I,(f) and (k) of the Corporations Act;
(h) It is just and equitable that the company by wound up pursuant to s 461(1)(k) of the Corporations Act.
By her claim, Loh seeks an order that the first or second defendant purchase her shares or that the company be wound up including on the just and equitable ground. She also seeks declarations that the purported constitution and resolutions purportedly passed in May 2019 are void, a taking of accounts of the company, and payment of commission entitlements.
By their defence, the defendants join issue with the substance of the plaintiff’s claims. Among other things they say that the purported constitution was validly adopted on the company’s incorporation, that the May 2019 meeting was properly convened and that the resolution removing Bangera as a director was validly passed, Loh and Bangera having declined to attend the meeting. They admit that had Bangera and Loh attended the meeting and opposed the resolution it would not have passed. They alleged that Loh refused to sign off on the 2019 financial statements of the company, thereby preventing it from lodging a tax return, preventing herself from receiving entitlements that she claims, and preventing the defendants from receiving their entitlements, and now seeks to take advantage of her own role.
By reply, Loh admits refusing to sign off on the 2019 financial statements, saying that they have been largely prepared by the company accountants based on information provided by Gerrard in the absence of proper accounting records being produced by him to support those figures, and that she is unable to be satisfied that the financial statements presented to her are correct.
It will be seen then, that the parties are in dispute (among other things) about PPM’s constitution and on the question of the control of the company by its directors.
The Operating Agreement to which all shareholders are party[3] relevantly provides that:
The directors [Alcock, Loh and Gerrard] have unanimously agreed to have Nadi [i.e. Bangera] join the company as both director and equal shareholder on the following terms and conditions: [terms as to consideration for the issue of shares to Bangera and as to entitlement to revenue, profits and commissions]
…
[6] All major or critical decisions, such as company re-structuring, business acquisitions, share sales or transfers, project funding etc, shall require unanimous agreement. Where less important strategic or operational decisions are involved, a majority vote will determine the outcome.
[7] No director of the company is permitted to dispose of his/her shareholding in the company unless it is unanimously agreed to by the other directors. No director is allowed to resign from his/her position for the purpose of disposing of their shareholding. In the event of a director’s death or permanent incapacity through illness or injury, then the other directors shall have the option to purchase the interest of the deceased or incapacitated director. The option is to be exercised within three (3) months of the director’s death or incapacity.
[3]The existence and terms of that agreement are not disputed.
Valuation and taking of accounts
By consent, this Court ordered on 29 April 2020 that an independent valuer be appointed to perform a taking of accounts of the company and express an opinion as to the value of the company. The parties were ordered to provide documents that they wished the valuer to consider, and to comply with all reasonable requests of the valuer including for the provision of information and documents. Mark Lipson, director of Hall Chadwick Forensics, accepted an appointment pursuant to the Court’s orders. The valuation report and taking of accounts was originally to be completed by 17 July 2020.
The Operating Agreement provides for the entitlements of Loh, Alcock, Gerrard and Bangera to commissions, listing fees, ‘profit’ and ‘project introduction fees’. At the time at which the valuer was appointed, the parties agreed that there remained significant claims to commission and related entitlements that were yet to be paid, some of which were yet to be collected from PPM’s clients, and some sales for which commission had not yet accrued because the relevant sales had not settled. The parties are in dispute as to the interpretation of the Operating Agreement with respect to the payment of commissions and related entitlements, principally in respect of the applicable commission rates and as who, among the directors, was entitled to commissions for certain sales.
In according with the Court’s orders, in July 2020 Mr Lipson was instructed to perform a taking of accounts of the company, to determine the company’s commission entitlement and the commission entitlement of each of the parties, and to express an opinion as to the value of the company as at 30 June 2019 and 30 September 2021.
Mr Lipson subsequently communicated with the Court on numerous occasions, indicating the work that had been done and what further information was required from the parties. Significant efforts had to be made to extract relevant information from the parties, who were afforded many opportunities to confer with and make submissions to the valuer, including as directed by Court order. The date for the submission of Mr Lipson’s report was extended at the request of Mr Lipson or the parties, several times. I would add that the parties participated in that process and none sought to terminate it.[4] The Lipson Report was delivered and dated 18 March 2022.
[4]To be clear, I make no criticism of Mr Lipson for the time taken to deliver the report.
As to the taking of accounts, in summary:
(a) The parties agreed to a starting balance sheet for 30 June 2016;
(b) The plaintiff put in issue certain disputed transactions. After submission of information and documents by the defendants, some transactions were posted to the profit and loss or balance sheets. Transactions that Mr Lipson determined to be unsupported were posted to a suspense account, and cash trial balances for each year were produced and restated as accrual financial statements.
(c) The taking of accounts for the financial years 2017 to 2021 and the period 1 July to 30 September 2021, was completed by the production of a profit and loss statement and balance sheet for each period.
The commission entitlements for each director were calculated on alternative bases, reflecting the plaintiff’s and defendants’ interpretations of the relevant provisions of the Operating Agreement, as at 30 June 2019 and 30 September 2021, as follows:
Commission Entitlement Calculation to 30 June 2019 ($)
June
Joan
Ned
Total
Plaintiff
800,405
734,898
360,861
1,896,164
Defendants
671,057
610,577
355,220
1,636,854
Commission Entitlement Calculation to 30 September 2021 ($)
June
Joan
Ned
Total
Plaintiff
1,181,927
819,271
523,427
2,524,626
Defendants
854,760
685,561
513,927
2,054,249
The commission entitlements affected the value of the company’s assets. Accordingly, the value of the company was determined on alternative bases, as at 30 June 2019 and 30 September 2021.
Valuation of Shares ($)
30 June 2019
30 September 2021
Plaintiff
936,648
24,520
Defendants
1,195,958
494,897
PPM – relevant history
PPM initially traded as a Century 21 franchise. After three years it moved into marketing off the plan residential apartments, including the ‘Noir’ and ‘Hawthorn Park’ residential developments, said to have been $60 million and $30 million projects respectively, for its client, Dahua Group, a property development group operating in China, Sydney and Melbourne. It separately acted as agent for a number of smaller property developers. PPM is also a rent roll manager. Both Alcock and Loh are licensed real estate agents. Gerrard is not.
As to its current business, it was not disputed that since the commencement of proceedings the projects for which PPM was appointed exclusive agent for off the plan sales have been completed, or PPM’s appointments have been terminated by the developers, such that it has no ongoing exclusive off the plan sales projects. It is also accepted that the sales commissions from most but not all sales, has been collected. PPM’s rent roll business currently covers approximately 64 properties. The rent roll had been sourced from investors buying off the plan properties, but not exclusively so.
The company’s current employees are Gerrard, Alcock, Loh and her mother Selina. Loh’s evidence was that Selina works as PPM’s part‑time office administrator, three to four hours a week, Alcock manages PPM’s rent roll, work estimated in Gerrard’s evidence to require about 35 hours a week. PPM maintains an office on St Kilda Road, Melbourne, leased on a monthly basis.
It was not in dispute that PPM is solvent.
In conducting his valuation, Mr Lipson recorded his understanding that PPM had involvement in two active sales and marketing projects as at the June 2019 valuation date but that there were no new projects that PPM was expecting to undertake and no immediate prospect of continuing revenue from new development projects. On that basis, Mr Lipson concluded that PPM should be valued on a net asset basis, and not on a going concern basis. He recognised that PPM was earning fees by managing a rent roll.
Loh submits that PPM’s business, and the primary purpose for which it was incorporated (selling off the plan apartments), is essentially concluded.
It was not disputed that PPM traded successfully and profitably in each year of its operation. Gerrard and Alcock, who do not wish the company to be wound up, say that although its present business is modest, they want to continue and expand it. Gerrard’s evidence was that PPM’s ability to list major projects for off the plan sales depends on his own professional skills (of which he gave details in his evidence). He said that, ‘by agreement with June, no new listings have been undertaken until the outstanding issues in PPM are resolved’. He went on to assert that Loh and Bangera do not have the skills to fulfil the roles assumed by himself and Alcock and that they are ’surplus’ to PPM’s needs.
Gerrard and Alcock have offered to buy Loh’s shares. That offer has been refused. Loh has herself made an offer to purchase each of Gerrard and Alcock’s shares, which they have refused.
Governing Principles
Summary Judgment
A plaintiff may apply for summary judgment in a civil proceeding pursuant to s 61 of the Civil Procedure Act on the ground that a defendant’s defence or part of that defence has no real prospect of success.[5] The Court may determine the question in accordance with the test prescribed under s 63 of the Civil Procedure Act, which provides:
[5]Civil Procedure Act 2010 (Vic), s 61.
63 Summary judgment if no real prospect of success
(1) Subject to section 64, a court may give summary judgment in any civil proceeding if satisfied that a claim, a defence or a counterclaim or part of the claim, defence or counterclaim, as the case requires, has no real prospect of success.
(2) A court may give summary judgment in any civil proceeding under subsection (1)—
(a) on the application of a plaintiff in a civil proceeding;
(b) on the application of a defendant in a civil proceeding;
(c)on the court’s own motion, if satisfied that it is desirable to summarily dispose of the civil proceeding.
Section 64 provides that if the Court decides that there is no real prospect of success, it may still refuse to dispose of the matter summarily because it is not in the interests of justice to do so, or the dispute is of such a nature that only a full hearing on the merits is appropriate.[6]
[6]Civil Procedure Act 2010 (Vic), s 64.
In Lysaght Building Solutions Pty Ltd v Blanalko Pty Ltd, the Court of Appeal said that:
[35] Upon the present state of authority:
a) the test for summary judgment under s 63 of the Civil Procedure Act 2010 is whether the respondent to the application for summary judgment has a ‘real’ as opposed to a ‘fanciful’ chance of success;
b) the test is to be applied by reference to its own language and without paraphrase or comparison with the ‘hopeless’ or ‘bound to fail test’ essayed in General Steel;
c) it should be understood, however, that the test is to some degree a more liberal test than the ‘hopeless’ or ‘bound to fail’ test essayed in General Steel and, therefore, permits of the possibility that there might be cases, yet to be identified, in which it appears that, although the respondent’s case is not hopeless or bound to fail, it does not have a real prospect of success;
d) at the same time, it must be borne in mind that the power to terminate proceedings summarily should be exercised with caution and thus should not be exercised unless it is clear that there is no real question to be tried; and that is so regardless of whether the application for summary judgment is made on the basis that the pleadings fail to disclose a reasonable cause of action (and the defect cannot be cured by amendment) or on the basis that the action is frivolous or vexatious or an abuse of process or where the application is supported by evidence.[7]
[7]Lysaght Building Solutions Pty Ltd v Blanalko Pty Ltd [2013] VSCA 158 (Lysaght), [35].
Order 22 of the Rules prescribes a procedure for the determination of the proceeding in a summary way. Under r 22.04, the application for summary judgment must be verified by the facts on which the claim to which the application relates is based, and state that in the belief of the deponent the defence to the claim has no real prospect of success. Rule 22.05 provides as follows:
22.05 Defendant to show cause
(1)The defendant may show cause against the application by affidavit or otherwise to the satisfaction of the Court.
(2)An affidavit under paragraph (1) may contain a statement of fact based on information and belief if the grounds are set out.
(3)Unless the Court otherwise orders, the defendant shall serve a copy of any affidavit and of any exhibit referred to in the affidavit or affidavits on the plaintiff not less than three days before the day for hearing named in the summons.
The Court of Appeal in Hausman v Abigroup Contractors Pty Ltd considered the requirements under rr 22.04 and 22.05, stating:
[62]… Assuming the plaintiff’s application is properly made, there will be judgment for the plaintiff unless the defendant shows cause against the application to the satisfaction of the court. The Rule provides that the defendant can show such cause ‘by affidavit or otherwise’.
[63]The defendant must satisfy the Court that, in respect of the claim to which the application for judgment relates, a question ought to be tried, or there ought for some other reason to be a trial of that claim. The Court, if so satisfied, will give the defendant leave to defend and the proceeding will continue to trial in the ordinary way. The Court will normally require an affidavit by, or on behalf of, the defendant before it will be satisfied that the defendant is entitled to leave to defend. The standard of diligence required of the defendant in preparing a case in opposition to the application, especially if under pressure of time, is perhaps not as high as that required in preparing for trial.
[64]Nonetheless, the defendant is required to use reasonable diligence to put before the Court, albeit in a summary form, all the evidence relied on in the defence. In that regard, it would generally be regarded as an injustice to the plaintiff to introduce for the first time, on appeal, evidence which was readily available for the hearing of the application, but was not produced. An affidavit filed by the defendant may contain a statement of fact based on information and belief.
[65]The authorities suggest that an affidavit in opposition to an application for summary judgment must provide sufficient particulars to enable the defence case to be properly understood. A bald denial that the defendant is indebted to the plaintiff will not suffice. The affidavit should, so far as practicable, deal specifically with the plaintiff’s claim and the facts set out in the supporting affidavit to establish that claim. It should state clearly and concisely what the defence is, and identify the facts relied upon in support of that defence.[8]
[8]Hausman v Abigroup Contractors Pty Ltd (2009) 29 VR 213 (Hausman), 225-6 [62]-[65].
Winding Up
Loh applies to wind up PPM as a contributory or a holder of fully paid shares in the company.[9] Section 461(1)(k) provides that the Court may order the winding up of a company if the Court is of opinion that it is just and equitable that the company be wound up.
[9]Corporations Act 2001 (Cth), ss 462, 9 (definition of ‘contributory’).
In Ebrahimi v Westbourne Galleries Ltd,[10] the House of Lords considered the just and equitable ground for the winding up of a company said to be a quasi‑partnership, on an application by a shareholder whose director had been removed. The case concerned provisions materially the same as those in issue in this case, and remains relevant, particularly in cases where the implications of a dissolution of shareholders’ relationships are in issue. There, Lord Wilberforce observed that:
…[T]here has been a tendency to create categories or headings under which cases must be brought if the clause [of the just and equitable ground for winding up] is to apply. This is wrong. Illustrations may be used, but general words should remain general and not be reduced to the sum of particular instances.[11]
[10]Ebrahimi v Westbourne Galleries Ltd & Ors [1973] AC 360 (Re Westbourne).
[11]Re Westbourne (n 10) 374.
Those words are equally apposite in the context of s 461(1)(k) which is in the same terms as the provision considered in ReWestbourne. The Court must have regard to the whole factual matrix of the dispute in order to be satisfied that there is sufficient reason to wind up the company.[12]
[12]See also Re Dawning Investments Pty Ltd (2022) 68 VR 226.
Lord Wilberforce endorsed the judgment of Smith J in Re Wondoflex Textiles Pty Ltd (a case in which the company was held to resemble a partnership) in which Smith J said:
… generally speaking, a petition for winding up, based upon the partnership analogy, cannot succeed if what is complained of is merely a valid exercise of powers conferred in terms by the articles: … to hold otherwise would enable a member to be relieved from the consequences of a bargain knowingly entered into by him: … but this, I think, is subject to an important qualification. Acts which, in law, are a valid exercise of powers conferred by the articles may nevertheless be entirely outside what can fairly be regarded as having been in the contemplation of the parties when they became members of the company; and in such cases the fact that what has been done is not in excess of power will not necessarily be an answer to a claim for winding up. Indeed, it may be said that one purpose of [the just and equitable provision] is to enable the Court to relieve a party from his bargain in such cases.[13]
[13]Re Wondoflex Textiles Pty Ltd (1951) VLR 458, 467, cited in Re Westbourne (n 10) 378.
Lord Wilberforce went on to say that the foundation of relevant law lay in the words just and equitable which:
…are a recognition of the fact that a limited company is more than a mere legal entity with a personality in law of its own: that there is room in company law for recognition of the fact that behind it, or amongst it, there are individuals, with rights, expectations and obligations inter se which are not necessarily submerged in company structure. That structure is defined by the company’s act and by the articles of association by which shareholders agree to be bound. In most companies and in most contexts, this definition is sufficient and exhaustive, equally so whether the company is large or small. The “just and equitable” provision does not … entitle one party to disregard the obligation he assumes by entering a company, nor the court to dispense him from it. It does, as equity always does, enable the court to subject the exercise of legal rights to equitable consideration; considerations, that is, of a personal character arising between one individual and another, which may make it unjust, or inequitable, to insist on legal rights, or to exercise them in a particular way.
It would be impossible, and wholly undesirable, to define the circumstances in which these considerations may arise. Certainly the fact that a company is a small one, or a private company, is not enough. … The superimposition of equitable considerations requires something more, which typically may include one, or probably more, of the following elements: (i) an association formed or continued on the basis of a personal relationship, involving mutual confidence — this element will often be found where a pre‑existing partnership has been converted into a limited company; (ii) an agreement, or understanding, that all, or some (for there may be “sleeping” members), of the shareholders shall participate in the conduct of the business; (iii) restriction upon the transfer of the members’ interest in the company — so that if confidence is lost, or one member is removed from management, he cannot take out his stake and go elsewhere.[14]
[14]Re Westbourne (n 10) 379.
In Tomanovic v Argyle, having set out the abovementioned passages from Re Westbourne, Austin J said that the case is not authority for the proposition that any breakdown or loss of confidence between incorporators necessarily provides a sufficient foundation for winding up on the just and equitable ground.[15] The breakdown 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 and furthermore any ‘loss of confidence’ must be justified. As Austin J said, it has been held that winding up on the just and equitable ground may be appropriate where:
[15]Tomanovic v Argyle HQ Pty Ltd [2010] NSWSC 152 (Tomanovic), [49].
(a) a working relationship founded on mutual cooperation, trust and confidence has broken down such that the continuation of such an association would be a futility;
(b) there is no real prospect that the parties can work together sensibly to reach the necessary agreement to be able to conduct the company’s business in the future, such that the company’s operations in the future will not be able to be conducted in any commercially viable and sensible way;
(c) the relationship between incorporators has completely broken down such that the company could not continue to function meaningfully;
(d) the foundation of the whole agreement that was made was that the incorporators would act with reasonable courtesy and reasonably conduct themselves in every way towards each other and there has been a breakdown in communication;
(e) there is a justifiable lack of confidence in the conduct and management of the company’s affairs or it is impossible for the partners to place that confidence in each other where each has the right to expect and that such impossibility has not been caused by the person seeking to take advantage of it. Subsequently unfounded lack of confidence should not of itself support a winding up.
Furthermore,
(a) mere disagreement is insufficient to found a winding up order;[16]
(b) without evidence that the board would refuse to register a transfer in favour of ‘a respectable transferee’ it would be extremely difficult for a plaintiff to succeed in an application to wind up on the just and equitable ground in the absence of oppression;[17] and
(c) it is recognised that an important factor in the exercise of the Court’s discretion is the extent to which the applicant is responsible for any breakdown of the relationship.[18]
[16]Tomanovic (n 15) [50].
[17]Tomanovic (n 15) [51], citing Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692 (Morgan), 708.
[18]Tomanovic (n 15) [52], citing Morgan (n 17), 708.
In cases where it is alleged that the company should be wound up by analogy to the doctrine of failure of substratum, one does not look to the subjective intentions of the parties but rather, ‘to see objectively the purpose for which the company was formed and [ask] whether that purpose is still being pursued’.[19]
[19]International Hospitality Concepts Pty Ltd v National Marketing Concepts Inc (No 2) (1994) 13 ASCR 368 (International Hospital Concepts), 370.
A ‘lack of confidence’ in this context must rest on the lack of probity in the conduct of the company’s affairs. There must be ‘misconduct sufficient to destroy a reasonable shareholder’s confidence that the business, if left in the hands of the respondents, will be conducted competently and honestly and in the interests of all of the shareholders including the petitioner’s’. The lack of confidence must be grounded on the conduct of the directors, not in regard to their private life or affairs but in regard to the company’s business.[20]
[20]International Hospitality Concepts (n 19) 371.
The question whether the moving party for a winding up order has clean hands is relevant but has been said not to be determinative.[21] Plainly, no one factor can be determinative.
[21]Exton v Extons Pty Ltd [2017] VSC 14 (Exton), [90] and the authorities there cited.
It has been recognised that courts are extremely reluctant to wind up a solvent company.[22]
[22]Exton (n 21) [89] and the authorities there cited. See also French v Smith [2004] VSCA 207, [122]; Sassine v Ray & Sons Construction Pty Ltd [2012] NSWSC 1307, [21].
Interaction between winding up and summary judgment
As to the relationship between the power to grant summary judgment and the exercise of discretion to order that a company be wound up on the just and equitable ground, the plaintiff relied upon two authorities.
The first was Re Wan Ze Property Development (Aust) Pty Ltd.[23] In that case, the plaintiff sought relief under s 233 of the Corporations Act and orders for winding up under s 461. The defendants were in serious default of procedural orders including for the filing of evidence. The plaintiff applied for summary judgment under r 13.1 of the Uniform Civil Procedure Rules 2005 (NSW) (the equivalent of r 22 in this jurisdiction). The trial judge approached the question whether summary judgment should be given on the basis that the plaintiff had filed extensive evidence in support of its claims and the defendants had not put on evidence. As the judge put it, ‘this is not a matter where a defence could not exist to the relevant claims, as a matter of fact, but instead a matter where the defendants have not sought to establish such a defence by evidence’.[24] Accordingly, the Court considered the application on the basis that the evidence that would be available at a final hearing was the evidence that had been filed by the plaintiff.[25] Having considered that evidence, the Court was satisfied that the basis for winding up the company under s 461(1)(k) was established. The decision was appealed. Loh’s submission was that the decision was not relevantly overturned.
[23]Re Wan Ze Property Development (Aust) Pty Ltd [2012] NSWSC 722 (Re Wan).
[24]Re Wan (n 23) [30].
[25]Re Wan (n 23) [30].
The New South Wales Court of Appeal held that the primary judge had failed to apply the correct test and made no reference to evidence before him which precluded the availability of summary judgment. The Court of Appeal observed that there was no challenge made to the winding up order, and properly so, because the company was and remained deadlocked. That statement cannot be read as any more than a passing observation that the reason for the parties’ position was, on the facts, obvious. It was not an exposition of the relationship between the power to grant summary judgment and the proper exercise of the discretion under s 461(1)(k) of the Corporations Act.
The plaintiff also relied on Re Winter One Investments Pty Ltd.[26] There, the plaintiff issued a proceeding seeking, among other things, an order winding up the subject company and (like the plaintiff in this case) subsequently brought an application for winding up on the just and equitable ground, on a summary basis. The company was found to be ‘a moribund investment company that has never actively traded’. There was a dispute about non‑recourse loans made by the company at the instance of its director, to himself. Relevantly the Court said:
[55]It must not be forgotten that the present application is one for summary judgment by an applicant for a winding up order in a contributories’ application. Summary judgment in such a proceeding is unusual, because they are not usually brought by claim under the Corporations Act 2001 (Cth) and applicable rules of court. But that is how this proceeding has been directed to continue. Under rules 291 and 292 of the UCPR summary judgment may be granted if the court is satisfied that the defendant has no real prospect of successfully defending all or part of the plaintiff’s claim, and there is no need for a trial of the claim or part of the claim.
[56]If it were necessary to resolve disputed questions [of fact] I would not grant summary judgment, because the hearing before me was not a final hearing to establish the relevant facts. But there are other relevant matters as previously discussed.[27]
[26]Re Winter One Investments Pty Ltd [2020] QSC 233 (Re Winter One), [55]-[64].
[27]Re Winter One (n 26) [55]-[56].
Jackson J went on to say that the members were at loggerheads and their relationship had irretrievably broken down, although he would decline to wind up the company on the basis of a breakdown in a relationship of trust and confidence.[28] Separately, the plaintiff alleged that the defendant director had breached his directors duties which breaches would not be investigated because of the plain conflict of interest of the director between his other interests and those of the company. The Court considered that those allegations could not be finally determined on the basis of the evidence before the Court.
[28]Re Winter One (n 26) [52], [60].
However, his Honour then said that it was appropriate that the company be wound up and that a liquidator who was independent of the disputants should be appointed to investigate the allegations made by the plaintiff against the defendant director and determine whether any claim should be brought against him or any other relevant entity, there being no realistic possibility that the director would ensure that the company made those investigations. It was relevant that the company had no active business. Whether the defendant director resisted the order for winding up and if so, on what basis, was not readily identifiable from the Court’s reasons. Jackson J went on to say that:
[66]…[T]he appropriate proceeding is not usually upon an application for summary judgment, where the question is whether the defendants have no real prospect of successfully defending the plaintiff’s claim. It is not correct procedurally to treat such an application as if it were the final hearing of the application to wind up and as if the defendants would and could adduce no other evidence at a final hearing. …
[67]Despite those considerations a winding up order should be made in this case. The position of the second defendant is so hopelessly conflicted that, in light of the inability of the company to realise any meaningful sum from the investments in the unite, a liquidator should be appointed to independently consider the recoverability of the loans.
[68]In my view, notwithstanding the caution to be shown in granting summary judgment that those considerations suggest, the circumstances are that the defendants have no real prospect of successfully defending the plaintiff’s claim that the company should be wound up on the just and equitable ground.[29]
[29]Re Winter One (n 26) [66]-[68].
This decision is considered further below.
Framing of the plaintiff’s application
Loh’s application, made by summons, was for orders under s 61 of the Civil Procedure Act or under Order 22 of the Rules, that the company be wound up, and that Jason Glenn Stone of PKF be appointed as liquidator.
In her written submissions delivered after the hearing of the application,[30] Loh said:
The Court should give summary judgment in relation to that part of the statement of claim to have the company wound up “just and equitable grounds” pursuant to s 461(1)(k) of the Corporations Act or otherwise exercise its inherent power to wind up the Company given a justifiable lack of confidence in the directors’ management of the company and that it is “just and equitable to do so” (see Re Winter One Investments Pty Ltd [2020] QSC 233).
Leaving aside the issue of summary judgment - there can be no serious contention the court has power to wind up if it does not have confidence in the management of PPM and it is just and equitable to do so. The issue is whether summary judgment for winding up should be given and if not, the Court decides to wind up the company in any event. That was the approach adopted in Re Winter One Investments Pty Ltd [2020] QSC 233.
(emphasis added)
[30]Written submissions were delivered by both parties after the hearing of the application, in accordance with directions made by the Court.
It was not entirely clear how the plaintiff was seeking to apply the reasoning in Re Winter One, although it is evident from the submissions set out, that the plaintiff contends that the case can be relied upon to support the determination of the winding up application on other than a summary basis.
Re Winter One does not assist Loh in this regard. It is sufficiently clear from the reasons set out earlier, that Jackson J did not in that case determine a summary judgment application as though it had been brought on a final basis. His Honour considered that there was no real defence to the claim for winding up, in the circumstances. There, the difficult relationship between the test for summary judgment and the nature of the evaluation required in order to determine whether it is a proper exercise of discretion to wind up a company on the just and equitable ground, was discussed. As it happened, on the facts, the grounds for summary judgment were made out.
In the circumstances, I do not consider it to be an appropriate exercise of power to order that the company be wound up otherwise than on the grounds that the plaintiff has established an entitlement to the relief she seeks on a summary basis – meaning that the defendants have no real defence to the claim for relief. That is how the claim was brought, and what the defendants came to meet. It is how it should be decided. The evidence did not, for example, establish that notwithstanding the form of the application, there was a pressing need to wind up the company in order to protect the public (or for some other reason).
By her submissions and supporting material Loh relied upon:
(a) A lack of confidence in the propensity of the directors to company with their obligations in respect of the keeping of books, records and documents, and in looking after the affairs of the company;
(b) A breakdown in the relationship of the shareholders;
(c) A deadlock in the management of the company;
(d) Fraud mismanagement or oppression in the affairs of the company;
(e) Serious concerns about the company’s compliance with its statutory obligations including the filing of tax returns;
(f) Breaches of the Corporations Act in respect of directors duties and inadequacy of record keeping;
(g) In light of the above, the existence of a risk to the public interest that warrants protection.
Loh emphasised that it was not necessary that she succeed in establishing that there was no real defence to all or each of the points raised. Some of the grounds to which reference was made in her material were walked‑back in oral or later written submissions. Ultimately, Loh did not seek to have her oppression claims determined and did not seek that I make findings as to breaches of statutory provisions by PPM or its directors. She said that she relied principally on the inadequacy of record keeping, which was said to have significant consequences for the proper functioning of the company and had contributed to the breakdown in relationships between the shareholders. The paucity of records also informed the reasonableness of Loh not accepting the defendants’ offer to buy her shares, the records being necessary to reach a view about the true value of the shares. In reliance on Padella Pty Ltd v Elliott, it was said that once the applicant has established the elements of its cause of action, there is ‘something akin’ to a shifting of evidential burden to the defendant.[31] Under r 22.04 of the Rules, the defendant must ‘show cause’ as to why summary judgment should not be granted. A number of the grounds were related. It is convenient to consider those grounds that were pressed in turn, noting that the exercise of a discretion to order that the company be wound up under s 461(1)(k) requires consideration of the whole of the company’s circumstances.
[31]Padella Pty Ltd v Elliott [2018] VSC 301, [26]; See also Hausman (n 8), [26].
Management of company books and records
Loh’s principal contention was that a lack of confidence had arisen over the management of the company’s financial records and books which gave rise to serious concerns regarding compliance with its statutory obligations. It was put that the failure to maintain or retain proper financial records may constitute sufficient reason to wind up a company on the just and equitable ground.[32]
[32]Australian Securities & Investments Commission v ABC Fund Managers (No 2) (2001) 39 ACSR 443 (ABC Fund Managers), 472 [130].
Section 286(1) of the Corporations Act provides that a company must keep written financial records that correctly record and explain its transactions, financial position and performance and that would enable true and fair financial statements to be prepared and audited. Financial records are defined to include invoices, receipts and working papers, and other documents needed to explain the methods by which the financial statements are made up. PPM is subject to a separate set of obligations under the Estate Agents Act 1980 (Vic).[33] It must maintain trust accounts and proper accounting records pursuant to Part VI of that Act.[34]
[33]See ‘estate agent’ as defined in Estate Agents Act 1980 (Vic), s 9.
[34]Estate Agents Act 1980 (Vic), pt VI div 1.
Loh submitted that there was uncontradicted evidence that PPM failed to keep proper and accurate financial records. She relied upon statements in the Lipson Report, and on an email prepared and sent by Gerrard in May 2019.
Loh submitted that the Lipson Report was a detailed taking of accounts pursuant to Court orders, conducted at the considerable expense of the parties over a nearly two‑year period, in respect of which Lipson said that he had made all inquiries that he considered desirable and appropriate. It was submitted that Lipson found the company’s records to be ‘not reliable’ and ‘materially incomplete’. In particular on Loh’s submission, he said that:
(a) the financial statements were ‘not reliable’;
(b) management accounts were ‘not provided’;
(c) the ability to form a concluded opinion of the commission entitlements of the parties was undermined by the absence of reconciled sales ledger recording information such as commission payable and invoices issued;
(d) the historical sales register is not reliable, materially incomplete and cannot be reconciled without supporting documents;
(e) there was insufficient information as to property settlement dates and dates of invoicing were unavailable, to enable commission to be allocated into reporting periods;
(f) the commissions received and debtors as at 31 December 2020 may not be correct;
(g) based on the 2017 financial statements it was not possible for him to conclude that transactions were not recorded correctly;
(h) the ‘commissions schedule’ is not reliable;
(i) Further, the Lipson Report revealed that the defendants had incurred personal expenses using the company’s AMEX card that were not properly accounted for in the company’s records.
Separately, Loh said that it was significant that on 10 May 2019, Gerrard wrote to Loh:
No accountant, lawyer or consultant will be able to unravel what I have designed and the only possibility is you end up without anything except a $149,000 debt to PPM for the balance of your shares.
Further, Loh had to obtain Court‑ordered access to the company’s financial records on two occasions during the course of these proceedings.
On that basis, Loh submitted that it could be concluded that PPM has not kept written financial records that correctly record and explain its transactions, financial position and performance, as required by s 286(1) and had not retained financial records for seven years after the occurrence of the relevant transactions. She said that there was no real question to be tried in respect of that issue.
Loh said that it was significant that the defendants did not contradict the findings of the Lipson Report and in fact sought to rely on the report and Lipson’s conclusions in Gerrard’s affidavit material. They could not answer the case by making general assertions that further evidence might be elicited at trial. Given the evidence adduced by Loh, the defendants had not overcome their evidentiary burden of proof to show that there was a real question whether PPM had kept its records in accordance with the Corporations Act. There was accordingly a public interest in the winding up of the company and the appointment of a liquidator, including for the protection of investor interests and the interests of any persons dealing with the company including in respect of its rent roll.
Loh submitted that she had been denied access to its records despite being a shareholder and director, with the inevitable consequence of contributing to the breakdown in the relationship of shareholders and a deadlock in management of the company. She submitted that Gerrard, particularly, had managed the company’s affairs with a lack of transparency and the other directors have been unable to ascertain their relative financial positions with any degree of accuracy.
The defendants submitted that the question whether PPM had maintained records as required by the statute and whether if it had not, there was a justifiable lack of confidence in its management and a protective function to be served by winding up the company, was plainly a triable issue in respect of which it could not be found that there was no real defence. The submissions were three‑fold. First, the plaintiff sought to draw from the Lipson Report, conclusions on a subject to which the report was not directed. Second, the plaintiff had selectively relied upon parts of the report which, taken as a whole, could not support the conclusions for which the plaintiff contended, particularly not on a summary basis. Third, there was a triable factual contest about who was responsible for maintaining PPM’s records. On this application, questions of fault (responsibility for the state of affairs said to support a winding up) were relevant.
As to the first point, the Lipson Report was prepared for a very specific purpose, namely to value the company and as an adjunct to that exercise, to perform a taking of accounts. Mr Lipson was not asked to examine whether or not the company had maintained its records in accordance with s 286 of the Corporations Act (or any other statutory provision). He was not asked to determine whether the directors had complied with their duties in that respect. At no point in the report was there any reference to non‑compliance with the Corporations Act. The report expressly disclaimed its unauthorised use. The plaintiff sought to rely upon the report beyond its intended use. In reply on that issue, Loh submitted that it was significant that the Court had ordered a taking of accounts and not just a valuation of the company, and that, ‘a taking of accounts was required because there could be no confidence that the affairs of the company had been properly managed and its financial reports were reliable or enabled true and fair financial statements to be prepared and audited’.
Relatedly, it was submitted that it would be unsafe to draw the inferences that the Court has been invited to draw based on the Lipson Report, in circumstances where the plaintiff’s affidavit in support of her application had made bare assertions about non‑compliance with record keeping obligations by selectively quoting passages from the report. Rule 22.04 requires that an application for summary judgment shall be made by summons supported by an affidavit verifying the facts on which the claim is based. The Lipson Report was not exhibited to the supporting affidavit. It was taken to have been tendered in the course of the hearing but Mr Lipson was not called as a witness. It cannot be said that Loh’s affidavit supported her application for judgment with a solid evidentiary foundation or by giving proper notice of the basis of the application.
As to the second point, the defendants submitted that Lipson had not necessarily reached the view that the financial statements of the company were inaccurate; and that the plaintiff had ‘cherry‑picked’ comments from the report and sought to impart meaning removed from its context. The evidence did not establish that there was no triable issue; i.e. that there was no real defence as to the inadequacy of the financial records. It was relevant that despite his observations about various aspects of the company’s records, Mr Lipson was nevertheless able to value the company at each relevant date. He was able to do so because he had access to sufficient financial information. That information included financial statements for the financial years 2016 to 2020, which were themselves not in evidence. The financial information available to Mr Lipson was evidently of sufficient cogency and materiality to have enabled robust calculations as to the value of the company to have been made. Significantly, Loh’s submission that Lipson had opined that the ‘financial statements are not reliable’ was factually wrong: that statement reflected an assumption made by Mr Lipson, not a finding.
As the defendants put it, the report is a document which is necessarily constrained by the designed exercise. Lipson had access to enough information to enable him to form a view about the appropriate valuation of the company, but he noted that he had limited access in some respects and did not embark on some lines of inquiry. It would be unsafe to rely on evidence given by an external expert not subject to cross‑examination, not contained in an affidavit, and provided for a different context entirely.
As to the email of 10 May 2019, the defendants submitted that the plaintiff had selectively quoted from it and that it did not support the conclusion for which it was proffered. Gerrard’s email, addressed to Loh and copied to Bangera and Alcock, was addressing what he characterised in his evidence as his ‘pitch’ to run the company. The particular passage cited was addressed to Bangera and read:
I have legally crafted a way in which your potential pay off is $532,000 by end of next year (let me know if you have ever created this much wealth for yourself in such a short time), while possibly wiping out your entire debt to the company for your shares. Because of your and June’s lack of understanding of your directors’ roles in terms of what I need from you, you are delaying and thwarting me in being able to deliver the objective you and I agreed to work towards. No accountant, lawyer or consultant will be able to unravel what I have designed and the only possibility is you end up without anything except at $149,000 debt to PPM for the balance of your shares.
That passage was part of a more lengthy exchange of correspondence between the four directors.
As to the third point, Gerrard’s evidence was that:
(a) Loh is the administrator of PPM’s ‘online systems’ including its Dropbox file repository that stores files for projects and property management, its customer relationship management system (‘agent box’), its ‘business to business marketplace’ system for selling off the plan properties, its ‘realestate.com’ portal and its business email account.
(b) Loh and her mother Selina control and manage the sales ledger (a record of each buyer, commissions received and owed). In June 2017, Selina ‘took over management of a form of sales ledger that June had created in 2013 and maintained’.
(c) Loh and Selina administer and control client billings, the commissions schedule (record of commission entitlements for all sales staff), client reports, payments to suppliers, filing of invoices and receipts, and pre‑loading and payment of directors’ debit cards.
(d) Since 1 July 2019, PPM’s financial transactions and book‑keeping have been carried out by Selina and the company’s bookkeepers, Enspira.
More generally, Gerrard said that ‘June and Selina virtually have full control over PPM’s financial system’. He said that his role during the relevant periods was to process financial information provided by Selina from the sales ledger, commission schedule, timesheets, invoices and receipts for payments to suppliers; record income received and expenses paid for the relevant financial year; reconcile transactions against PPM’s bank statements; check payments against available invoices and receipts; record and calculate wages and other entitlements payable to staff from timesheets provided by Selina; classify transactions and present them to Enspira for preparation of financial statements; and respond to any queries from Enspira. Gerrard said that copies of all relevant receipts and invoices had not been provided to him by Selina or Loh.
Loh did not respond to the detail of that evidence, saying in her evidence in reply to Gerrard, that, ‘at all relevant times Mr Gerrard controlled and was responsible for handling the financial affairs of PPM. Mr Gerrard has sought to mislead and obfuscate the extent of his role in PPM in managing the financial affairs of PPM’. She otherwise said that she did not propose to respond in detail to Gerrard as she did not consider that doing so would serve any useful relevant purpose.
Gerrard and Loh engaged on one matter in some detail, namely how PPM’s bank account with the National Australia Bank was controlled. Each gave conflicting accounts supported by different selections of correspondence obtained by each of them from the bank, about the manner in which the authority to operate the account was established and how it functioned in practice. It is unnecessary to set out the evidence and suffices to say that insofar as that issue is relevant, it is a factual contest not properly capable of resolution on a summary basis.
It was not in contest that the directors, including Loh, had signed PPM’s financial statements for the financial years ending 2016 to 2018. Loh said in her Reply that she had refused to sign off on the 2019 financial statements because they were prepared by the company’s accountants principally on the basis of figures supplied by Gerrard, in the absence of proper accounting records to be produced by Gerrard, to support those figures.
Consideration – books and records
I draw the following conclusions on the question of PPM’s financial books and records.
First, as to the Lipson Report, it is correct Mr Lipson was instructed to perform a taking of accounts, not just a valuation of the company. However, the Court order that he do so was made by consent. The Court did not consider evidence nor conclude for the purposes of making those orders, that (as Loh put it), that such an order was required ‘because there could be no confidence that the affairs of the company had been properly managed and its financial reports were reliable or enabled true and fair financial statements to be prepared and audited’. The fact that the parties sought that order and that it was made, reflected the fact that there was evidently a dispute about the adequacy and reliability of the company’s accounts. The parties and the Court considered that appointing an independent person to conduct a taking of accounts was appropriate in those circumstances.
It is also correct that Mr Lipson was not asked (either in form or substance) to ascertain whether PPM had complied with its statutory record keeping obligations. That was not the purpose of his report. A reference might have been made under Order 50 of the Rules for that purpose, but it was neither sought nor made.
Mr Lipson recorded that he had received voluminous documents for the purposes of his engagement and that the scope of his investigation had been limited by commercial realities as to time and budget constraints. The exercise was nevertheless extensive and detailed and included significant opportunity for the parties to provide documents and information to the valuer. The cost to the parties of the report was $313,687.31.
As to the financial statements, the 2016 statements were reconciled and agreed by the parties. The defendants correctly submitted that Mr Lipson did not find that the financial statements after 2016 were unreliable; rather, in describing the methodology adopted for the taking of accounts, he explained why he relied primarily upon the company’s bank accounts, given the plaintiff’s position on the issue. The relevant passage of the report read as follows:
[76]The taking of accounts is primarily based on a review of the bank statements of the Company and an attempt to identify the deposits (credits) and payments/withdrawals (debits) recorded in the bank statements. Based on this review I have completed the Financial Statements for the Review Period (refer to Section E of this report).
[77]In order to prepare a taking of accounts for the Review Period, I have relied, in the first instance on the movement of funds through the Company’s business bank account:
·NAB Business Cheque Account in the name of Property Project Marketing Pty Ltd T/as Century 21 Metro Projects, BSB 083‑321 Account number 94‑541‑3680 (Business Cheque Account)
[78] This approach was adopted as:
a.Financial statements are not reliable. I have been provided with financial statements (prepared by Enspira Financial) for the financial years ending 30 June 2016 through 30 June 2020. It is the position of the Plaintiff that the financial statements, after 1 July 2016 do not accurately record the financial performance or position of the Company;
b.Management accounts were not provided.
[79]Deposits (credits) and payments/withdrawals (debits) recorded in the Business Cheque Account were scheduled in order to document and identify the source of the deposits and the destination of the payments. All deposits and payments were scheduled (per financial year) and the closing balance as at 30 September 2021 reconciled to the balance as per the bank statement.
Extracted without context the statement on which Loh relied might be taken to have been expressing a conclusion. But read contextually, by reference to the surrounding language and the report as a whole, it was not. Because the report and taking of accounts had been commissioned for the purpose of litigation between these parties, that approach was evidently sensible, given the plaintiff’s position.
As to conclusions in the report about the availability and accuracy of financial records (including the matters on which the plaintiff relied):
(a) It is correct that management reports were not provided to Mr Lipson. There was no evidence before me about why that was so or as to the existence of management reports for the period.
(b) Mr Lipson’s assessment was that forming a concluded opinion about the commission entitlements of the parties was undermined by the fact that PPM did not have a reconciled sales ledger recording in real time clients won with projected commission revenue, invoices issued, debtors received, entitlements of agents or commission payable to agents. The parties’ attempts to retrospectively prepare and reconcile information did not achieve a consensus opinion.
(c) PPM maintained a ‘historical sales register’ which recorded property listings, PPM commission entitlements, and the allocation of commission between Loh, Alcock and Gerrard. Mr Lipson concluded that it appeared to have been created contemporaneously but was materially incomplete and could not be reconciled or verified by Mr Lipson because relevant supporting documents were not provided and the parties were not agreed about its accuracy. The document was ‘not reliable’.
(d) The parties retrospectively created a schedule of commission entitlements calculated on a property by property basis for this purpose. The completeness of the list of transactions was not disputed. The amount of commission to which PPM was entitled was not in dispute, although Mr Lipson said that its ‘completeness cannot be concluded’. There was insufficient information about property settlement dates and dates of invoicing to enable commission to be allocated into reporting periods. Mr Lipson did not have sufficient information to determine whether the commissions received and debtors valued as at 31 December 2020 were correct because those amounts appeared to include some sums paid to a company related to the defendants. There was insufficient information to determine whether those transactions were accounted for correctly as between that entity and PPM.
(e) The differences in the parties’ opinions about their respective commission entitlements predominantly concerned the agreed commission rates and the person to whom credit should be given for certain sales. Mr Lipson undertook a detailed analysis of the parties’ positions on a sale by sale basis.
(f) Separately, Loh identified a set of transactions that included withdrawals she said were not or might not have been properly incurred as company expenses, and some credits for which the source of the income was said to be in in doubt (the ‘questioned transactions’). The parties agreed upon a materiality threshold of $2,000 for the investigation because of the number of transactions that were challenged. Certain transactions were verified by supporting documentation and categorised accordingly. Those that were not (totalling approximately $180,000), were allocated to a suspense account. Loh contends that the company AMEX card was used by Gerrard for both business and personal expenses. Transactions that were agreed to have been for personal expenses or not supported by documentation were categorised as loans to directors and recognised on the balance sheet.
(g) For the purposes of valuing the company it was necessary to value the rent roll which was a key asset of PPM. In that context Mr Lipson said that the determination of a valuation approach is to some extent dependent upon the quality of rent roll financial information, and in the case of PPM, the ‘generally poor quality of financial information’ did not permit a net earnings approach. The parties did not provide a detailed rental report for the portfolio as at the valuation date. Mr Lipson was therefore unable to determine a number ‘key metrics’ which he said was significant for the purposes of the valuation exercise, the implication being that he adopted an industry rule of thumb method, or an indicative valuation approach.
(h) In taking accounts and valuing the company, Mr Lipson processed cash transactions from bank records to prepare cash trial balances, posting a series of general journals based on an analysis of the competing interpretations of the Operating Agreement and commission entitlements, which allowed a determination of the parties’ commission entitlements and likely debtors of the company, stated on alternative bases (the plaintiffs and defendants’ interpretation of the Operating Agreement). He determined the market value of the rent roll and reviewed disputed transactions (as discussed).
(i) As noted earlier, he opined as to the value of PPM at the two dates specified in his engagement, on the two alternative bases.
The position may be summarised as follows. Mr Lipson considered, and I accept, that PPM had ‘generally poor quality’ financial information. However, it was not found that PPM’s financial statements were ‘unreliable’. Loh herself had signed off on the 2017 and 2018 financial statements but now disputes their reliability. Mr Lipson was able to construct special purpose financial statements by reference to documents including bank statements, which were not said to have been incomplete. The parties are presently in dispute about their personal commission entitlements. Those disputes are factual and also concern the interpretation of their Operating Agreement. They were not shown, in the course of the exercise undertaken by Mr Lipson, to have been in dispute about PPM’s commission entitlements. What is owed to the individual agents (who are also the directors) necessarily affects the company’s debtors position. PPM’s rent roll is a significant asset and detailed rental report for the portfolio was not provided. That affected the approach required to be taken to assessing its value.
It has been established that there are gaps and inadequacies in PPM’s financial records. However, given the substance of the conclusions drawn in the Lipson Report and the scope of the task that was assigned to Mr Lipson, I consider that the question whether PPM has kept financial records that correctly record and explain its financial position and performance that would enable true and fair financial statements to be prepared and audited,[35] is contestable. That is, I do not consider that on the basis of the Lipson Report the plaintiff has established that there could be no real defence to the allegation that PPM has so failed.
[35]Corporations Act 2001 (Cth), s 286(1).
Gerrard’s 10 May 2019 email does not affect that conclusion. Although the tone of that email and some of the surrounding correspondence presents as concerning, it is nevertheless the case that the meaning of the relevant passage is obscure. What it was that Gerrard had ‘constructed’ is not readily identifiable, save that it evidently related to some means by which the shareholders would gain wealth. It might concern his dealing with the company’s financial information but it is not sufficiently clear whether it does and if so, how. Were Gerrard cross‑examined on it, its meaning and context might become clearer.
The plaintiff submitted that the defendants had not met their evidentiary burden by engaging with the plaintiff’s claims, instead making general assertions. In fact, what the defendants did was to contest, by reference to the Lipson Report, that it established that for which the plaintiff contended. In that way, they did engage with the plaintiff’s evidence.
Apart from any factual question that I consider to be contestable, further considerations must inform the question as to whether inadequacies in PPM’s maintenance and management of its financial records warrants winding up the company on a summary basis.
It is important to contextualise problems with a company’s record keeping, bearing in mind the ultimate object of the inquiry – namely whether because of those problems (and having regard to all other relevant considerations) it is just and equitable that the company be wound up. That is the question the Court must evaluate. There are two important and related attributes of the relationship between a company’s financial record keeping and the just and equitable ground. One is that a failure to properly keep financial records may bespeak and may establish a justifiable lack of confidence in the management and affairs of the company. The other is that the absence of proper financial records may create a risk to the public in its dealings with the company, which are required to be ‘candid and straightforward’.[36]
[36]See ABC Fund Managers (n 32) 469-471 [119]-[125] and the authorities there discussed.
On the public interest question, the defendant submitted that there was no evidence of any risk to the public. Furthermore, it was accepted that PPM presently has limited dealings with the public given its scope of business. The plaintiff’s submission was generally put, and was to the effect that persons dealing with the company including in relation to its rent roll, need to be able to have confidence in it. So much is obviously correct. However on the evidence, no particular risk to the public was established. It is of note that much of the dispute with which the Lipson Report was concerned related to the recording of information about the commission entitlements of the individual agent‑directors within PPM, which is not a public‑facing issue. I accept that records concerning the rent roll could in theory have relevance to members of the public who deal with the company but nothing in that respect was established on the evidence. In cases where there is substantial failure in financial record keeping for the company such that it can be concluded that the company is incapable of meeting its s 286 obligations, it might be said that a risk to the public is established or, differently put, need not be established with any more particularity, accepting that companies must be able to deal with the public in a candid and straightforward way, including by ensuring that their financial position, performance and transactions are recorded and identifiable. As I have said, on the evidence there is a triable issue about whether PPM has complied with its record keeping obligations. Furthermore, it has not been established on the evidence that there is no real defence to the claim that any such failures, having regard to their consequences, ought lead to a winding up on the just and equitable ground.
Separately, as noted earlier, questions of fault or contribution to the circumstances said to warrant winding up may be relevant. The defendant submitted that here, it could not be concluded that Loh herself had not created the circumstances of which she complained. As set out earlier, each of Loh and Gerrard had certain responsibilities for the company’s financial record keeping. Each asserted that the other had control or at least more control than the other. Gerrard’s own evidence supported a conclusion that his role was more of an executive one (providing information directly to the company’s accountants). The factual question of contribution to the poor quality of the company’s financial record keeping is in my assessment, a triable issue.
In circumstances in which record keeping failures give rise to a demonstrable risk to the public or sufficiently establish a wholesale failure or justifiable lack of confidence in the company’s management, questions of fault may become less relevant in the evaluation of whether there are grounds to wind up a company. In the context of this application (again, one for summary judgment) those things have not been established to the relevant standard.
Concerns over compliance with statutory obligations
For the reasons set out above, Loh submitted that there were serious concerns that PPM has not been in compliance with its statutory accounting and financial recording obligations under the Corporations Act. That is a contestable issue, as I have said.
As Loh submitted, a licensed real estate agent must comply with certain regulatory requirements under the Estate Agents Act. However, the evidence did not support a conclusion that PPM was in breach of any relevant requirement or that its compliance in relation to its real estate business presented a risk to the public, much less that there was no real defence to the contention that any such issue would justify the winding up of PPM.
Loh relied on the fact that Gerrard had admitted in his affidavit sworn 14 September 2020 that the company had not been making superannuation payments to himself, Alcock or Loh. That part of Gerrard’s affidavit, which was sworn in support of an application for the production of documents by Loh, said in substance that PPM had not fully made the required superannuation payments to himself, Loh or Alcock since 2014, and that the company’s accountant had advised the directors to ensure that the company paid those contributions. Gerrard went on to say that during 2020 his solicitors had made requests of Loh’s solicitors for her consent to make those payments, which consent Loh was withholding.
As the defendants submitted, the superannuation issue was mentioned only indirectly in Loh’s affidavit in support of this application. Under the heading, ‘creditors’, Loh said that:
PPM has no significant creditors other than the parties to the proceeding and the related proceeding brought by Ms Bangera and some outstanding tax liabilities... No financial statements or tax returns have been prepared for the financial year 2020 onwards. I also believe certain unpaid superannuation liabilities of former staff need to be reviewed to ensure they have received in full their proper entitlements.
Compliance with statutory obligations (apart from the obligation to maintain proper accounting records) had not otherwise been raised in Loh’s supporting affidavit.
Loh alleged that Gerrard had lodged inaccurate documents with ASIC; lodging a form 484 that represented Bangera ceased to be a director on 13 May 2019 when he later deposed that her directorship lapsed on 27 November 2018; and appointing Loh as a director in the form 201 registration of the company despite later stating, ‘I cannot recall whether [appointing Loh] was a mistake or whether this was intended to make everyone’s life easier once the Franchise was secured… In any case, her listing as an original director and shareholder was inconsistent with the agreement…’. It was submitted that the public requires protection in circumstances where publicly‑lodged ASIC documents falsely represent the company’s position and the defendants have trust and accounting obligations in a highly regulated business. The defendants submitted in response that there was insufficient evidence of the plaintiff’s allegation that inaccurate documents had been filed with ASIC or that there was a risk to the public arising from any inaccuracy. I agree.
The company entered into a payment plan with the Australian Taxation Office from October 2020. Loh submitted that that fact raised a serious question of whether the company was complying with its GST obligations. As the defendant submitted, the fact of entry into a payment plan did not support the conclusion for which Loh contended.
The defendants submitted that it was not made clear by the plaintiff’s supporting affidavit that alleged failures in respect of superannuation contributions, tax returns or other regulatory requirements were relied upon as a basis for winding up the company. Those alleged failures were not the subject of Loh’s Points of Claim. The defendants submitted that on an application for summary judgment that presented a substantial obstacle to a winding up order insofar as it relied upon those grounds, because the defendants had not been put on notice, as implicitly required by the Rules, of the basis for the application. There was force in that submission.
Section 467(4) of the Corporations Act provides:
(4)Where the application is made by members as contributories on the ground that it is just and equitable that the company should be wound up or that the directors have acted in a manner that appears to be unfair or unjust to other members, the Court, if it is of the opinion that:
(a) the applicants are entitled to relief either by winding up the company or by some other means; and
(b) in the absence of any other remedy it would be just and equitable that the company should be wound up;
must make a winding up order unless it is also of the opinion that some other remedy is available to the applicants and that they are acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy. (emphasis added).
The defendants wish to contend that Loh is acting unreasonably in seeking to have the company would up instead of accepting their offer to buy her shares or alternatively seeking a buy‑out order from the Court, consequent upon pursuing her oppression proceedings. Their case on this application is that even if Loh was otherwise entitled to a winding up order, I should conclude that she ought not be so entitled because it could not be said that there is no real defence to their contention that she is acting unreasonably. That is the correct statement of the question on this application.
Assuming the prima facie requirements for a winding up order have been met, the question is whether there is some other remedy available to the plaintiff and she is unreasonably seeking to have the company wound up instead of pursuing that other remedy. The expression ‘some other remedy’ in s 467(4) has been construed very broadly to include not only legal remedies but alternative courses of action otherwise open to the parties including commercial remedies such as an offer to purchase the applicant’s shares.[43] Robson J held in Joint v Stephens (No 2),[44] ‘some other remedy’ encompasses the plaintiff who seeks relief being offered a price for his shares which was fair.[45]
[43]Exton (n 21) [84]-[87] and the authorities there cited.
[44]Joint v Stephens (No 2) [2008] VSC 69.
[45]In this case, the issue was not, as the plaintiff put it, the prospect that the parties will never be able to agree but rather whether the Court should determine the plaintiff is being unreasonable in refusing to accept the offer that the defendant has made. The question is whether the price is a fair price taking into account of course other terms attached to the offer. I think that is a contestable issue.
On 12 August 2022, Gerrard and Alcock served on the plaintiff an offer of compromise prepared in accordance with Order 26 of the Rules. It was subsequently disclosed to the Court in the context of this application. It was not accepted by Loh. Beyond some preliminary remarks, the offer stated:
The offer is consistent with the determinations contained in the [Lipson] Report that are based on June’s own self‑assessed entitlements at the valuation date of 30 September 2021.
The offer does not reflect our position as to June’s entitlement nor should it be treated as an admission of the same.
…
Terms of the offer
1. June receives the sum of $267,578 from the moneys currently held in the Company's bank account in full settlement of her commission entitlements.
2.June transfers her shares in the Company either to us or our nominee in consideration for which we will pay to June as follows:
(a)$6,130 (calculated on Mr Lipson's valuation of the Company as at 30 September 2021 and based on June's interpretation of the Operating Agreement).
(b)an additional amount of $31,819 being that part of a share re‑valuation (based on Mr Lipson's approach) resulting from a reduction in June's share of commission entitlement to those commissions not received by the Company from Dahua Group Melbourne Investment Pty Ltd (Dahua).
The total consideration amount payable to June for the acquisition of her shares therefore is $37,949.
3.The methodology for reaching the settlement amount payable to June is set out below under the heading Settlement Amount Calculations.
4. The timing of the steps set out in (1) to (2) above is to occur simultaneously with the date to be recorded in the settlement deed referred to in (13) below.
5. June resigns as a director of the Company immediately upon entering into the settlement deed referred to below.
6. June signs all documents required to be signed and takes all necessary steps to complete the above steps.
7.June agrees not to solicit any Rental Service Provider clients (landlords) of the Company either directly or indirectly through third parties.
8.We mutually exchange releases in relation to claims relating to the Company arising from the Proceeding.
9. June provides a warranty to us stating that as at the date of the settlement deed she has not taken any steps in relation to the Company without our knowledge and consent and has otherwise not breached her director's duties to the Company.
10.We mutually sign proposed consent orders for the Proceeding to be dismissed with no order as to costs.
11.June agrees to deliver to us all Company control mechanisms, including passwords, transfer of administrator access for all online service providers to the Company (Dropbox/AgentBox, lnvestorist, Microsoft Office 365, etc.), banking authorisations, post office box and office keys and fobs, rental phone, email addresses with business and domain names owned by the Company and any books and records of the company in June's possession.. [sic]
12.June co-operates and otherwise assists the Company with any information/documentation if required to support any dispute with Dahua i.e termination of the Sales Marketing and Management Agreement with the Company.
13.We mutually enter into a settlement deed recording the above terms and which will otherwise provide for timeframes for those steps to occur as well as the usual clauses relating to warranties and representations, signing by counterparts, entire agreement provisions, confidentiality, non‑disparagement and governing law.
Settlement amount calculations
$
Commissions (1)
1,181.927
Adjustment (2)
59,589
Adjusted Commissions
1,122,338
Commissions paid
816,230
Superannuation
38,530
Total comms. Paid
854,760
Net comms payable
267,578
Adjstd. share value (3)
37,949
Premium of offer
$305,527
Notes:
(1) Valuation at 30 September 2021 - Scenario 1 in Report
(2)$127,273 of commissions assumed to have been received have not been paid by Dahua. Adjustment of this amount is determined by the proportion of commission entitlement June has against the aggregate commission payable of $2,524,625 =46.82% under this scenario.
(3)Some of June's reduction of commission entitlements from moneys withheld by Dahua (see Note 2 above) was offset by a rise in share valuation to the extent that her apportioned loss of $127,273 was only $27,770 or 21.8% ($59,589 - $31,819 = $27,770/$127,273).
Interpreting the offer
In the Commission Schedule prepared by June and submitted to Mr Lipson, she assessed her own gross commission entitlements at $1,181,927. At paragraph 131 of the Report, Mr Lipson notes that "the Plaintiff has applied a commission entitlement for sales where sales commission has not yet been received by PPM. It is assumed that this is correct and that the commission has now been received”.
The commission referred to by Mr Lipson was in fact not received as explained under Note (2) above.
Save for the adjusted amount to June’s proportion of commissions of $127,273, that in any respect she is not entitled to, Joan and I are offering to pay her what she has asked for. In addition, the revaluation of her shares from the original $6,130 to $37,949, compensates a large portion of the above adjustment and means that, If June accepts the offer, she will receive a premium of $305,527 over and above the commission entitlements of $854,760 she has already been paid.
In light of this, we consider that receiving this settlement sum is a better outcome than June could receive in a liquidation.
The terms of the offer as above remain open for acceptance by June.
Loh submitted that it was reasonable to reject the defendants’ 12 August 2022 offer of settlement, for several reasons.
First, because the parties had exhausted negotiations (including by attending two court‑ordered mediations), her summary judgment application being a ‘last resort’.
Second, the offer was a ‘package deal’ including a number of unreasonable conditions. It included a restraint of trade clause with no liminal or geographical carve outs.
Third, the amount offered was calculated by deducting from Loh’s commission entitlements the sum of $59,589 to account for commissions payable to PPM but not paid to it, by its client Dahua. Loh submitted that the calculation was unclear and arbitrary and did not explain why the commissions would remain unpaid.
Fourth, the offer adopts a valuation date of 30 September 2021 (one of the dates for the Lipson valuation). Loh contends that the appropriate date for valuation is May 2019, the date from which the oppression took effect. She has been unable to effectively manage the business since the date of oppression resulting in a ‘significant decline in share value’. Conversely, the date for calculation of commission entitlements should not reflect the date of valuation of the shares but, because they have continued to accrue, should be calculated to date.
Fifth, the offer is conditional on Loh warranting that she has not breached her directors duties to the company. It is unreasonable to expect Loh to give such warranties in the circumstances, where Loh has not had the ability to properly and lawfully manage the business where Mr Lipson has made findings that financial statements of the company are unreliable. The warranties are one‑sided and may expose Loh to further litigation but release the defendants from liability.
Sixth, the offer is conditional on Loh cooperating with any action taken against Dahua. The nature of the information and assistance required from Loh is not specified. It is of particular concern in light of the attached one‑sided warranty discussed above. The term may be productive of future disputes between the parties.
Seventh, Loh maintains here allegations against Gerrard and Alcock with respect to misuse of company moneys. Certain of the transactions she disputes were not within Mr Lipson’s scope to investigate further (being below the materiality threshold adopted for the purposes of the Lipson Report). A liquidator would have a broader investigatory toolkit at their disposal.
Eighth, Loh is not in a position in which she can fully assess the offer in circumstances where there have been findings of unreliable financial statements, there are unresolved allegations of misuse of company moneys, and she has been unable to effectively manage the company or have access to its records.
Ninth, the offer does not include provision for Loh’s legal costs in this proceeding or any interest she is entitled to on her unpaid commissions.
In the circumstances, winding up the company and appointing an external liquidator is the only available remedy. The parties have been involved in protracted litigation over two years and have been unable reach a resolution after the appointment and findings of an independent valuer and participation in two mediations. It is the last resort and the Court can have little confidence in the parties being able to resolve the dispute.[46]
[46]Re Dig-Iti Hire Pty Ltd [2022] VSC 39, [30].
The defendants submitted that the ‘price’ of the offer was the major issue between parties.
The offer comprised $267,578 for unpaid commissions which was calculated on the basis of Loh’s interpretation of the Operating Agreement, accounting for amounts already paid to Loh and an incorrect assumption made in the Lipson Report (which concerned the receipt of commissions by PPM that were in fact unpaid).
According to Loh, she is entitled to $1,181,927, representing 46.82 percent of the total commissions of $2,524,626. The defendants made the offer on the basis of a 46.82 percent entitlement for sales commissions. Mr Lipson reported that the total commissions payable were $2,524,626 on the assumption that commissions had been received by PPM.[47] Commissions to the value of $127,273 have not been received by Dahua. Loh’s counsel acknowledged that that was the case at the hearing. On that basis, Loh is entitled to $59,589 of the moneys owed by Dahua. Loh has already received $854,760 in commissions. The defendants calculated that she was entitled to $267,578, taking the original value of $1,181,927 and subtracting $59,589 for commissions not received and $854,760 for commissions already paid.
[47]Ds’ Further Submissions, [117].
The other part of the defendants’ offer represents a $37,949 payment for Loh’s shares in PPM. Lipson determined the value of the company to be $24,520. Loh holds 25 percent of the shares which is equal to $6,130. The defendants increased the buy‑out offer by $31,819 to represent a ‘premium’ on Lipson’s valuation to account for the Dahua commission not received. It was submitted that this commensurately increased the company’s balance sheet by $127,273. The premium accounts for Loh’s 25 percent entitlement to those commissions.
Addressing Loh’s submissions, the defendants said:
(a) As to the adjustment to the commission entitlements to account for unpaid commissions from Dahua, it is a ‘reality of doing business’ that some debts are not payable and all shareholders will suffer accordingly. It was not contested that the Dahua commissions had not been paid to PPM.
(b) Loh submitted that $37,949 was a ‘nominal’ valuation for her shares and expressed reservations about the reliability of the Lipson Report, building on her submissions about the unreliability of financial records. Given the extensive input from the parties into the process undertaken by Mr Lipson, in which Loh had extensive opportunity to put forward her information and documents, and the work that had evidently been undertaken to produce the valuation, those concerns are disingenuous and do not establish that rejection of the offer was reasonable.
(c) Loh asserted that the date of valuation for shares was incorrect and the offer should instead be based on the valuation at 30 June 2019 before the alleged oppressive event. If the FY2019 valuation was accepted, Loh’s entitlement to commissions would be $800,405 meaning that Loh had received an overpayment of $54,355 in commissions. Setting that overpayment against the FY2019 share valuation of $234,162 would result in an amount payable to Loh in the sum of $179,807. This is less than what was offered by the defendants.
(d) Loh had also submitted that the valuation of the shares and the commission entitlements should be taken at different points, the shares to be valued at 30 June 2019 and the commissions to be valued at 30 September 2021. That was an internally inconsistent approach that allowed Loh to cherry‑pick the more favourable valuations and ‘double dip’ on her entitlements. The commissions are liabilities to the company and would have a consequential effect on the valuation of the shares. Loh would be permitted to receive commissions without accounting for the effect to her share value.
As to the non‑financial terms the defendants submitted that they were ‘standard commercial practice’ and not demonstrably unreasonable. The non‑solicitation clause was limited to PPM’s ‘rental service provider clients (landlords)’. Releases were to be mutual (not one‑sided) and were limited to claims relating to the company arising from the proceeding. The cooperation clause was limited to Loh’s cooperation and assistance to PPM ‘with any information/documentation, if required to support any dispute with Dahua i.e. termination of the sales marketing and management agreement with the company’. That the offer does not account for parties’ legal costs is unexceptional.
In reply, the plaintiff relied upon her counter offer to the defendants to buy their shares on the same basis (i.e. calculated at a price based on their interpretation of the Operating Agreement, as applied in the Lipson valuation and calculation of commission entitlements), without the defendants’ non‑monetary conditions.
I consider that the question whether Loh is acting unreasonably in seeking to have the company wound up rather than accepting the defendants’ offer is a triable issue. It has not been established that there is ‘no real defence’ on that issue. If the defendants bear the onus of establishing that contention on this application, they have discharged it, largely for the reasons they submit.
As to the financial terms, the offer reflects Lipson’s valuation adopting Loh’s interpretation of the Operating Agreement. Loh’s principal difficulties with the valuation were the effective date, the absence of records and the deduction of commission not yet paid to PPM.
The question of the appropriate date for valuation is contestable, including because of the defendants’ contention that the valuation date and date for the computation of commission ought be the same date. That contention might not ultimately prevail, but it is by no means unarguable in the relevant sense in this context – it raises a real issue ‘in defence’ of the contention that pursuing of winding up rather than acceptance of the offer is reasonable.
Relevantly, Mr Lipson concluded that PPM’s records were of poor quality and that the parties did not provide a detailed rental report for the portfolio as at the valuation date, as a result of which a number of ‘key metrics’ concerning the rent roll were unable to be determined, and the rent roll was valued employing an industry rule of thumb method, or an indicative valuation approach. Accepting those facts, I nevertheless consider that the gaps and inadequacies in PPM’s records do not establish to the relevant standard that there can be no defence to the contention that the plaintiff is not acting unreasonably in pursuing a winding up order rather than accepting the offer. I accept as a general proposition that an absence of records might impede a party’s ability to assess the true value of a company. However, in the circumstances, in which all parties have had substantial opportunity to provide records, information and submissions to the valuer, and where it was not put that there was certain information provided or obtainable, the valuation might or could be substantially affected, the issue remains contestable.
Separately, the defendants’ explanation of the treatment in the offer of unrecovered commissions was rational and not plainly uncommercial.
As to the non‑financial conditions, for the reasons submitted by the defendants it could not be said that there was no real defence that Loh was acting unreasonably in rejecting the offer on the basis of those conditions.
That the defendants did not wish to sell their shares to the plaintiff does not materially inform the analysis.
The defendants also contended that Loh had acted unreasonably by seeking to resolve the matter summarily instead of proceeding to a trial of her oppression claim. If Loh was not prepared to accept the defendants’ offer to buy her shares, an order for a buy‑out could be obtained were the Court persuaded to exercise its jurisdiction under s 233 of the Corporations Act. That course of action would not involve the destruction of a solvent company. Loh did not go so far as to say in her submissions, that the company could never be valued for the purposes of a buy‑out order.
The plaintiff’s submission was in substance that because proceeding by way of summary judgment is less resource intensive than proceeding by way of trial, it follows (all other things being equal) that the plaintiff is not acting unreasonably in seeking to have the matter determined summarily as an alternative to proceeding to trial (at least unless the summary judgment application fails). The defendants said that Loh’s submissions assumed that the defendants’ attempts to defend and vindicate their rights are contrary to their civil procedure obligations to litigate cost effectively, which cannot be accepted. If the plaintiff’s submissions were to be read as suggesting that prima facie, seeking summary winding up in this context is to be taken as reasonable or more reasonable than proceeding to a full determination at trial, I would not accept them. Insofar as they are directed to the facts (which is the better reading) I consider that whether a party is acting reasonably in proceeding to summary judgment ought depend on the strength of their case. In circumstances where the case has been shown to raise triable issues, it cannot be said that there is ‘no defence’ to the defendants’ contention that the plaintiff was not acting reasonably in seeking to have the company wound up in the alternative to seeking a buy‑out order.
The application for summary judgment will be dismissed.
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