Re SP Private Holdings Pty Ltd
[2021] VSC 142
•23 March 2021 (ex tempore, revised)
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2020 03824
IN THE MATTER of SP PRIVATE HOLDINGS PTY LTD (ACN 612 916 122) and SP PRIVATE PTY LTD (ACN 612 619 104)
| SUZAN IRENE BLAKE | Plaintiff |
| - v - | |
| SEAN PAUL DULLARD (and others according to the attached schedule) | Defendants |
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JUDGE: | Gardiner AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 23 March 2021 |
DATE OF JUDGMENT: | 23 March 2021 (ex tempore, revised) |
CASE MAY BE CITED AS: | Re SP Private Holdings Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2021] VSC 142 |
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CORPORATIONS – Application by shareholder in closely held companies for relief from alleged oppression by co-shareholder – Plaintiff fifty per cent shareholder in companies with first defendant holding the other fifty per cent of the issued shares – Plaintiff and first defendant the only directors of the companies – Application amended to seek winding up on the just and equitable ground pursuant to s 461(1)(k) of the Corporations Act 2001 (Cth) and for the appointment of a provisional liquidator – Court determined to proceed to consider the application for the appointment of a liquidator rather than provisional liquidator – Evidence pointed to clear deadlock and dysfunction within the management of the companies – Deadlock was intractable and not amenable to any other remedy than a winding up order – Orders made for winding up on the just and equitable ground - Re Docklands Chiropractic Clinic Pty Ltd [2020] VSC 364.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr J Kohn | MGA Lawyers |
| For the First Defendant | In person |
HIS HONOUR:
This proceeding was commenced by originating process filed 6 October 2020. Initially, the primary relief sought by the plaintiff, Suzan Blake, claimed relief under s 233 of the Corporations Act 2001 (Cth) (‘the Act’) in respect of alleged oppressive conduct on the part of the first defendant, Sean Dullard. On 15 October 2020, the proceeding was referred by Connock J for management under Practice Note SC CC 8 – Oppressive Conduct in the Affairs of a Company (Second Revision), more commonly known as the Oppression Proceeding Program.
As will be seen, the proceeding assumed a different complexion when, on 25 February 2021, Ms Blake sought an order for the appointment of a provisional liquidator by interlocutory process filed that date. The ground for winding up relied upon was the just and equitable ground under s 461(1)(k) of the Act. Ms Blake relies on her status as contributory to make that application.
The originating process was served on Mr Dullard on 22 October 2020. Prior to the first hearing there were several communications from the plaintiff’s solicitors, MGA Lawyers, by email to Mr Dullard reminding him of the forthcoming hearing, to which there was no response.
The matter first came before me for an initial conference conducted under the auspices of the Oppression Proceeding Program on 26 November 2020 and Mr Dullard, who was not represented at that time, sought an adjournment. I observed when making the orders that day that the principle purpose of the adjournment was to enable Mr Dullard to secure legal representation. I indicated that on the return date, 16 December 2020, it was to be expected that orders would be made in respect of the further conduct of the proceeding, including orders regarding access by Ms Blake to the books and records of the Companies and the filing of affidavit material, including by Mr Dullard.
The hearing today, and all previous hearings, were conducted by audio link to accommodate Mr Dullard’s difficulties in securing the appropriate internet access for the matter to be heard by video link, the manner which has largely been adopted in the COVID-19 environment. Each of those hearings, except for the mention on 22 February 2021 when no orders were made, has been requested to be transcribed.
On 16 December 2020, the proceeding was stood down to enable Mr Dullard to contact and to obtain the assistance of Mr Collins, a solicitor who ultimately appeared by audio link that day for Mr Dullard. On that occasion, I made orders for the further conduct of the proceeding, including provision for inspection of the books and records of the Companies pursuant to s 247A of the Act, as well as provision and inspection of certain other documents referred to in the affidavit of Ms Blake’s solicitor, Ms Shaft affirmed 15 December 2020. Mr Dullard was also required to provide discovery of all bank statements recording payments from or on behalf of the Companies for the period 1 July 2016 to 15 December 2020. I also made orders that Mr Dullard file and serve an affidavit in response to Ms Blake’s affidavit and made other directions in respect of Ms Blake’s foreshadowed application for leave to bring a derivative action against Mr Dullard. The proceeding was adjourned to 19 February 2021.
When the matter came on for hearing on 19 February 2021, it was indicated that Mr Collins no longer acted on behalf of Mr Dullard. The reasons for Mr Collins no longer acting was not explained but Mr Dullard made reference at the hearing to a conflict arising from Mr Collins’ communications with Ms Blake’s solicitors. I made directions that Mr Dullard file and serve any evidence and written submissions in opposition to the application for leave to bring a derivative action by 26 February 2021 and adjourned that application to 1 March 2021.
At the hearing on 19 February 2021, an issue was also raised in relation to the welfare of horses at the property occupied by the defendants at 230 Oaklands Road, Oaklands Junction, Victoria (‘the Property’). In an affidavit sworn 16 February 2021, Ms Blake exhibited photographs of the horses and the inside of the dwelling on the Property, which were graphic and disturbing. Because a concern had been raised on behalf of Ms Blake for the welfare of the horses at the Property, and which are property of one or other of the two corporate plaintiffs, I required Mr Dullard to obtain a report of a veterinary surgeon on their condition and for the matter to be mentioned on the Monday of the following week, 22 February 2021.
At the hearing of the mention on 22 February 2021, the plaintiff was represented by her solicitor, Mr Andolfatto. At that hearing, Mr Dullard (who was not represented) provided a report of a veterinary surgeon, Dr Emma Nicol, which allayed my immediate concerns as to the horses’ welfare.
Shortly afterwards on 25 February 2021, the plaintiff issued an interlocutory process returnable on 1 March 2021 making application under s 461(1)(k) of the Act and seeking leave to file an amended originating process by which Mr Michael Carrafa of SV Partners was to be appointed as provisional liquidator of the second and third defendants (‘the Companies’) pursuant to s 472(2)(2) and have the plaintiff’s costs be costs in the winding up pursuant to s 556(1)(b) of the Act.
On the return of that application on 1 March 2021, which Mr Dullard participated in, I indicated that, rather than consider whether a provisional liquidator should be appointed, it was more appropriate to proceed to consider the application for the appointment of a liquidator on the just and equitable ground. I could see no good purpose for a liquidator to be appointed provisionally, especially given I was in a position to hear the matter at an early return after Mr Dullard had been given an opportunity to file evidence in opposition to that application. Although Ms Blake filed some additional evidence, for the main part, she relied on the affidavit evidence she had previously filed in support of her application for relief from oppressive conduct.
Mr Dullard indicated to the Court that he intended to secure new legal representation to resist the application for the Companies to be wound up. I ordered Mr Dullard to file any evidence in opposition to Ms Blake’s application that the Companies be wound up on the just and equitable ground by 15 March 2021. I also ordered Ms Blake to file any evidence in response and written submissions by 18 March 2021 and set down the hearing of the application for winding up for today, 23 March 2021. I adjourned the plaintiff’s application for leave to bring a derivative action to a date to be fixed as I saw no immediate purpose in considering that application in the circumstances of the existence of the winding up application. If required, the application for leave to bring a derivative action could be dealt with at a later time.
On 15 March 2021, a solicitor, Mr Silverstein, filed a notice of appearance on behalf of Mr Dullard, however his involvement was short lived as on 22 March 2021 Mr Silverstein filed a notice that he no longer acted on behalf of Mr Dullard. I note at this point that despite several opportunities to both obtain legal representation and to file evidence in resistance to the position being put by Ms Blake in her various applications including the current one to wind up the Companies, Mr Dullard has not filed any evidence in opposition to the plaintiff’s applications but he has sent a number of emails to the Court which outlines his position.
I now turn to consider Ms Blake’s application before the Court today, the application that the Companies be wound up on the just and equitable ground. In doing so it is necessary to set out some background to the matter.
The plaintiff, Ms Blake, is the mother of the first defendant, Mr Dullard. They are each the directors of and 50 per cent shareholders in the Companies, and hold 12 shares each. The second defendant, SP Private Holdings Pty Ltd, is the trustee of a discretionary trust, called the SP Investments Trust, of which Ms Blake and Mr Dullard are the primary beneficiaries. Mr Silverstein, before going off the record, in an email of 15 March 2021 to the plaintiff’s solicitors, attached a copy of the trust deed in respect of the SP Investments Trust and a copy of the constitution of SP Private Holdings Pty Ltd. They are not in evidence but they have been sent to the Court by email this morning.
At the hearing of this matter today Mr Dullard sought a further adjournment of the matter on the basis that he wished to make further submissions “on the papers” as to why the winding up orders for each of the Companies should not be made. I heard his application and refused it as, in my view, the matters he referred to when I enquired what he would be putting in those submissions, to my mind, only emphasised the existence of extremely dysfunctional relationship between the parties giving rise to the present deadlock and the application should therefore not be the subject of further adjournment. It was apparent to me that the position has been reached that there is utter deadlock in the Companies which is intractable and irredeemable and it is untenable for it to continue.
For the purposes of the present application, Ms Blake relies on her affidavits sworn 26 November 2020, 20 January 2021 and 25 February 2021 and the affidavits of her solicitor Ms Shaft affirmed 15 December 2020 and 19 March 2021. Ms Blake also relies on her affidavit dated 16 February 2021, which was unsworn due to the COVID-19 lockdowns in place in Victoria at that time. It is often the case that evidence put forward in respect of alleged oppressive conduct also constitutes evidence of deadlock and lack of confidence in the management of the company so as to form the basis for the Court exercising its discretion to wind up a company on the just and equitable ground.
It is obvious from the evidence filed in the proceeding, the exchanges which have occurred between Mr Dullard and myself in the various hearings, including today, and the emails Mr Dullard has forwarded to the Court that Ms Blake and Mr Dullard have fallen out and are in bitter dispute about, amongst other things, how the affairs of the Companies should be conducted. The degree of acrimony is underscored by the fact that on 17 July 2020, Ms Blake obtained an intervention order against Mr Dullard which, amongst other things, directed him not to commit acts of family violence against Ms Blake, and prevented Mr Dullard from approaching, telephoning or otherwise contacting Ms Blake or being within 5 metres from her personally or within 200 metres of her residential address unless in the company of a police officer for the purposes of obtaining any of his personal property.
On 9 September 2016, the second defendant entered into a contract for the purchase of the Property for a purchase price of $2,600,000. Ms Blake says that a deposit was paid on 19 December 2016 with settlement to occur on 9 September 2021. That same day, the second defendant entered into a five-year lease of the Property with the vendors of the Property on a rental of $69,360 per annum. Ms Blake and Mr Dullard jointly and severally guaranteed the obligations undertaken by the second defendant under these agreements.
On 1 December 2016, the third defendant purchased the business known as ‘Peppercorn Equestrian Centre Oaklands’ which was to operate from the Property. Ms Blake deposes that she personally paid $600,000 towards the settlement of the sale of the business and the deposit payable under the contract for the purchase of the Property and that it was expected that Mr Dullard would also contribute half, but, despite demand, he has not. Mr Andrew Tripepi, an accountant, was retained by Mr Dullard as the tax agent for the third defendant and, on the evidence before me, filed an income tax return for the year ended 30 June 2019 and a business activity statement (‘BAS’) for the December 2019 quarter. There is no evidence as to what the position is in regard to compliance with lodging returns with statutory authorities for either defendant company since that time.
In her affidavit of 26 November 2020, Ms Blake deposes that on 16 December 2016, a business loan of $960,000 for the purpose of having access to emergency funds for the business and in the event that there was a shortfall in paying out the balance of the purchase price of the Property was taken out with ANZ Bank, secured by a mortgage over Ms Blake’s house.
As I have said, the primary relief originally sought by Ms Blake in the originating process was in respect of oppressive conduct against Mr Dullard. In her affidavits she alleges in the context of her oppression claim certain matters in respect of Mr Dullard’s conduct including:
(a) that Mr Dullard had withdrawn money from the bank account of the third defendant without her consent and continues to do so without her consent or to explain the purpose of the withdrawals or to repay the money withdrawn. Ms Blake has personally paid the balance owing to the bank and the account has been closed;
(b) on 8 November 2019, the second defendant entered into an on-sale agreement for the Property, which is the subject of the purchase contract due to settle in September 2021, for a purchase price of $3,600,000. Under the terms of the on-sale agreement a deposit of $360,000 was payable on 30 April 2020 after completion of a due diligence period, originally 7 January 2020 but which was extended to 30 April 2020, Ms Blake says without her consent. It is said that Mr Dullard has failed and refused to advise Ms Blake as to whether that deposit has been paid and if so, what has become of the deposit money;
(c) Ms Blake states that she became aware that the second defendant had not paid rent under the lease agreement and that she has personally paid the rent for the Property for the months of September to November 2020 inclusive. It is not mentioned in the evidence whether rent has been paid for more recent periods;
(d) to date, despite orders of the Court, Ms Blake states that she has not had access to the books and records of the Companies, which she contends are in the control of Mr Dullard;
(e) Ms Blake complains that she has never been paid a wage for working in the business and that Mr Dullard is currently living rent free in a home located on the Property. She asserts that the Companies’ funds are being used to pay his living expenses and that he has failed to account for these costs to the Companies;
(f) Mr Dullard has failed to pay public liability insurance and other insurances required under the lease agreement and has purported to revoke Ms Blake’s authority to correspond with the insurance providers;
(g) Ms Blake states that Mr Dullard continues to drive a car owned by the third defendant and uses the Companies’ funds to pay for expenses related to this car;
(h) Ms Blake asserts that Mr Dullard is disposing of property and assets, such as horses and equipment without her authority or consent and it is not known whether the proceeds of these sales are being deposited in the Companies’ banking accounts;
(i) Ms Blake asserts that Mr Dullard has failed to account for money earned by the Companies;
(j) she contends that Mr Dullard is causing damage to the Companies’ property and is failing to remediate it; and
(k) Ms Blake also asserts Mr Dullard is failing to care for the horses, which are the property of the Companies, and for this reason the horses are not fit for use in the day-to-day activities of the Companies. Ms Blake does not specify which of the companies owns the horses.
Ms Blake states that the purchase of the Property, the lease and sale of business agreement are interlinked in such a way that breach of one agreement amounts to breach of the other agreements. Ms Blake states that she has received two notices from the vendors (who are also the landlords) of the Property dated 7 December 2020 and 18 March 2021. Both notices specify they have been issued by reason of the failure of the second defendant to provide the required insurance certificates required under the lease agreement. The latest notice specifies that the lease of the Property will be forfeited on 25 March 2021 if no insurance certificate is received.
There are many facts and issues which remain in contention between the parties however I do not consider they are required to be resolved for the purposes of the application under s 461(1)(k) of the Act.[1] It is clear to me that the affairs of these two companies are in complete deadlock by reason of the deep acrimony between Ms Blake and Mr Dullard and that this has been the case for some time. Other than the matters referred to by Ms Blake in her evidence as to the alleged conduct on Mr Dullard’s part, the original source or reason for such acrimony is not apparent but the relationship has clearly irretrievably broken down and has been dysfunctional for quite some time. This is exemplified by the intervention order being taken out by Ms Blake against Mr Dullard. In the context of the management of a corporate enterprise, the situation is untenable.
[1]Re Yenidje Tobacco Company Ltd [1916] 2 Ch 426, 430; Re TM Fresh Pty Ltd [2019] VSC 383, [36].
It is unclear what the financial position of the Companies are, save that Ms Blake contends that she has injected substantial funds into the Companies which, presumably, would be reflected in loan accounts owing to her if the books have been maintained and were available for inspection, but they are not. In this regard, Ms Blake has said to have put several hundreds of thousand dollars of her own funds towards the deposit for the contract to purchase the Property and for the sale of the business. As I have mentioned, Ms Blake has received notice from the landlords that the failure to maintain several different types of insurance mentioned in the lease terms would result in forfeiture of the lease and termination of the contract of sale for the Property, the latest of which requires provision of certificates of insurance by 25 March 2021.
Legal principles
Section 461(1)(k) of the Act provides that the Court may make a winding up order against a company if the Court is of the opinion that it is just and equitable that the company be wound up. Section 467(4) of the Act provides:
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.
Section 462(2) provides relevantly:
Subject to this section, any one or more of the following may apply for an order to wind up a company:
…
(b)a creditor (including a contingent or prospective creditor) of the company; or
(c) a contributory; or
…
The plaintiff would have it that she is both a creditor and a contributory but I take it from my exchange with her counsel that she makes this application in her capacity as a contributory.
The categories which trigger the exercise of the jurisdiction under s 461(1)(k) are not fixed or prescribed. The authorities dealing with the exercise of the jurisdiction under s 461(1)(k) are numerous and were recently collected by Hetyey AsJ in Re Docklands Chiropractic Clinic Pty Ltd.[2] Matters which have been said to be relevant to the question as to whether an order for the winding up of the company on the just and equitable ground include:
[2][2020] VSC 364, [17]-[25].
(a) a deadlock in the management of the company;[3]
[3]Re Yenidje Tobacco Company Ltd [1916] 2 Ch 426; Johnny Oceans Restaurant Pty Ltd v Page [2003] NSWSC 952; Clarke v Bridges [2004] FCA 394; Booker v You Run the Business Pty Ltd [2008] FCA 1762.
(b) a breakdown in the relationship between the shareholders;[4]
(c) a lack of confidence in the conduct and management of the affairs of the company;[5] and
(d) the company’s failure to comply with its statutory obligations, including the filing of taxation returns and documentation of that ilk;[6]
[4]Nassar v Innovative Precasters Group Pty Ltd (2009) 71 ACSR 343.
[5]Loch v John Blackwood Ltd [1924] AC 783; ASIC v ABC Fund Managers (2001) 39 ACSR 443.
[6]ASIC v Barrack Mortgage Managers Pty Ltd [1999] NSWSC 272; ASIC v Drury Management Pty Ltd [2004] QSC 068; Entwistle v Minken Pty Ltd (receivers and managers appointed) (2013) 97 ACSR 361.
The Court, when faced with the situation of a deadlocked company, is obliged in exercising the discretion to have regard to the availability of alternative remedies other than winding up, which is considered a drastic and last resort remedy. While Courts are reluctant to wind up solvent enterprises, this is not an impediment to a just and equitable winding up if the circumstances otherwise justify it.
In Accurate Financial Consultants Pty Ltd v Koko Black Pty Ltd, Dodds-Streeton JA observed:
Winding up is the characteristic remedy in circumstances where a working relationship predicated on mutual co-operation, trust and confidence has broken down, whether resulting in deadlock or otherwise. Equity would not ordinarily order the continuation of such an association where it would be a futility, would require continuing supervision or would be tantamount to specific enforcement of a contract of personal services.[7]
[7]Accurate Financial Consultants Pty Ltd v Koko Black Pty Ltd (2008) 66 ACSR 325, 341 [119].
Ms Blake contends that she has standing to apply for an order under s 461(1)(k) pursuant to ss 462(3)(b) and (c) of the Act, which entitles a creditor or a contributory to apply to the Court for a company to be wound up on a ground provided for by s 461. It is clear that she has standing as a contributory to bring this application.
In Ms Blake’s written submissions it is submitted that the Companies be wound up on the just and equitable ground for the following reasons:
(a) the relationship between Ms Blake and Mr Dullard has broken down;
(b) Mr Dullard has operated the Companies without reference to Ms Blake;
(c) Ms Blake has been excluded from the management of the Companies;
(d) Ms Blake and Mr Dullard have not conducted any director's meetings or had any discussions regarding the affairs of the Companies;
(e) the breakdown of the relationship between Ms Blake and Mr Dullard has caused a management deadlock;
(f) the management deadlock is irretrievable;
(g) Ms Blake has no confidence that Mr Dullard has the capacity or ability to run the business of the Companies;
(h) Ms Blake believes no current accounts or record keeping has been prepared or undertaken by Mr Dullard;
(i) Ms Blake is unaware as to whether all (if any) income tax returns or business activities statements have been lodged with the Australian Taxation Office of recent times;
(j) a member’s voluntary winding up is unlikely to occur because of Mr Dullard’s opposition to the application for the winding up of the Companies on the just and equitable grounds; and
(k) a winding up of the Companies is ultimately inevitable for the reasons outlined above.
Consideration
As I have said, it is not necessary for me to determine where fault lies in these particular circumstances. When I invited Mr Dullard to respond to the contentions the subject of counsel for the plaintiff, Mr Kohn’s, submissions the response was that he denied the majority of the contentions in that regard. It was apparent to me in the exchanges with Mr Dullard that if I granted any adjournment for him to put on material, the nature of the material would merely be argumentative and emphasise the deadlock that exists.
I consider that there is abundant evidence to conclude that the affairs of the Companies are in complete disarray and that an order be made that they both be wound up on the just and equitable ground. The continuation of the enterprise conducted by the Companies is futile. In deciding to wind up the Companies I have considered what possible alternatives there are which would address the dysfunctional management of the Companies. Certainly, I do not consider there is any prospect of a buy out or similar such avenue of relief being appropriate. It is clear that Ms Blake and her son are very unfortunately in deadlock and conflict and that the position in this regard is irretrievable and intractable. In my view, if winding up orders are not made this impasse will persist and the position of the Companies will deteriorate further.
It is not possible to identify the source of the acrimony which has resulted in this deadlock, nor is it necessary to determine why the situation has arisen. The deadlock is exemplified by the failure of the conduct of any directors meetings, or any discussions concerning the day-to-day affairs of the Companies. Further, there are real questions concerning the Companies’ compliance with their statutory obligations, including those to revenue authorities.
Mr Dullard, despite being given several opportunities to do so, did not file any evidence in response to the application but his assertions and contentions in emails sent to the Court and circulated to Ms Blake’s solicitors highlight and emphasise the degree of conflict between the parties which will only be resolved by the appointment of a liquidator to each of the Companies.
I will order that both of the Companies be wound up on the just and equitable ground and appoint Mr Carrafa as the liquidator of each of the Companies. The second defendant, SP Private Holdings Pty Ltd, is the trustee of a discretionary trust and consideration will need to be given as to the effect of the winding up order on that company by the liquidator appointed.
I consider that as the plaintiff was justified in commencing the application which was ultimately transformed into an application for winding up. The evidence which she relied upon originally for relief from oppression also constituted the evidence illustrating the deadlock within the Companies. I consider it appropriate that she have her costs paid out of the windings up of the Companies and I will make orders accordingly. This will have the effect that if there is any surplus in the windings up, such costs are effectively borne by Ms Blake and her son equally as equal shareholders in the Companies.
SCHEDULE OF PARTIES
| S ECI 2020 03824 | |
| BETWEEN: | |
| SUZAN IRENE BLAKE | Plaintiff |
| - and - | |
| SEAN PAUL DULLARD | First Defendant |
| SP PRIVATE HOLDINGS PTY LTD (ACN 612 916 122) | Second Defendant |
| SP PRIVATE PTY LTD (ACN 612 916 104) | Third Defendant |
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