Re TM Fresh Pty Ltd
[2019] VSC 383
•6 June 2019 (given ex tempore, revised)
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2018 00337
IN THE MATTER OF TM FRESH PTY LTD (ACN 619 805 248)
| FRANCESCO TRIPODI | Plaintiff |
| v | |
| TM FRESH PTY LTD (ACN 619 805 248) | First Defendant |
| MICHAEL MARGHERITI | Second Defendant |
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JUDICIAL REGISTRAR: | Hetyey JR |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 6 June 2019 |
DATE OF JUDGMENT: | 6 June 2019 (given ex tempore, revised) |
CASE MAY BE CITED AS: | In the matter of TM Fresh Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2019] VSC 383 |
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CORPORATIONS – Corporations Act 2001 (Cth) – Part 5.4A – s 461(1)(k) - Winding up on just and equitable ground – Deadlock – Quasi-partnership - Irretrievable breakdown of relationship - Lack of confidence in the conduct and management of the affairs of the company – No other appropriate remedy – Pronouncement of winding up order delayed to allow parties further opportunity to resolve dispute.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | G S J Berlic | Belleli King & Associates |
| For the Second Defendant | Self-represented |
JUDICIAL REGISTRAR:
Introduction
The principal question before the Court is whether TM Fresh Pty Ltd (“the Company”) should be wound up pursuant to s 461(1)(k) of the Corporations Act 2001 (Cth) (“the Corporations Act”) on the basis that it is just and equitable to do so.
Background
The Company was established on 16 June 2017 in order to purchase and operate a fruit and vegetable stall at the Dandenong Market.[1] Mr Francesco Tripodi (the plaintiff) and Mr Michael Margheriti (the second defendant) are directors of the Company and each hold 50% of its shares. At the time of the Company’s incorporation, Mr Tripodi and Mr Margheriti agreed they would both be involved in its management and day-to-day operation.[2] In essence, the relationship between the shareholders, through the Company, was a quasi-partnership.
[1]Affidavit of Francesco Tripodi sworn 12 July 2018 [4] and exhibit FT-1 to that affidavit.
[2]Ibid [3].
In the second half of August 2017, the Company entered into a contract to purchase a business trading at certain stalls at the Dandenong Market. Around the same time, the Company also entered into a licensing arrangement with Dandenong Market Pty Ltd and another entity. The purchase price of the business was $210,000, with each director contributing $105,000. Mr Tripodi says he made further financial contributions to the business in the order of approximately $92,000, including in respect of equipment, fittings, a security deposit and stock.[3]
[3]Ibid [6].
Settlement of the sale of business took place on or about 31 August 2017 and the Company commenced operating from that time. However, the Company had only traded for a few months before the relationship between Mr Tripodi and Mr Margheriti deteriorated dramatically. The circumstances surrounding the breakdown in that relationship are dealt with further below. For present purposes, it is enough to note that since 21 December 2017, Mr Tripodi ceased to have any role in the Company’s management and operations.
Procedural history
Initial steps
By originating process filed on 13 July 2018, Mr Tripodi commenced a proceeding under ss 233, 461(1)(e), 461(1)(f) and 461(1)(k) of the Corporations Act in relation to his treatment as a shareholder and the conduct of the affairs of the Company. The primary relief sought by Mr Tripodi was that the Company be wound up pursuant to s 233 (the shareholder oppression ground) or s 461(1)(k) (the just and equitable ground). In the alternative, orders were sought that Mr Margheriti acquire Mr Tripodi’s shares in the Company at a price to be determined by the Court. As a shareholder, Mr Tripodi has standing to seek this relief under ss 234(a) and 462(2)(c) of the Corporations Act. Various allegations of oppression and other conduct were made by Mr Tripodi in his supporting affidavit sworn on 12 July 2018. Where relevant, those allegations are referred to further below.
On 30 July 2018, Sifris J made an order referring the proceeding for management under the Court’s Oppression Proceeding Program.[4] Prior to an initial conference listed on 30 August 2018, Mr Margheriti filed an affidavit affirmed on 28 August 2018. The affidavit was broad-ranging and contained a number of unparticularised allegations against Mr Tripodi.
[4]See Supreme Court of Victoria, Practice Note SC CC 8: Oppressive Conduct in the Affairs of a Company, 18 May 2018.
At the initial conference, Mr Margheriti appeared unrepresented. He has remained unrepresented throughout the proceeding.
Mr Margheriti’s material
Since the initial conference on 30 August 2018, the matter came back before the Court for directions on three further occasions.[5] Various orders have been made requiring that Mr Margheriti set out certain allegations against Mr Tripodi concerning Company funds in the form of a fully particularised points of claim or points of counterclaim document.[6]
[5]The matter was subsequently listed for directions on 19 November 2018, 30 January 2019 and 20 February 2019.
[6]In particular, Mr Margheriti was ordered to prepare his document having regard to the rules of pleadings set out in order 13 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) (“the Rules”), including by identifying particular transactions (by reference to dates, amounts and supporting documentation) going to any allegations of theft, misappropriation of Company funds or fraud (see orders made on 30 August 2018, 19 November 2018 and 20 February 2019).
Mr Margheriti’s material has also included assertions that the affairs of the Company are “inextricably interlinked” or “interwoven” with the affairs of a former partnership between himself and Mr Tripodi.[7] It has been explained to Mr Margheriti that any claims he might have against Mr Tripodi arising from a prior partnership are not strictly relevant to the present proceeding concerning the Company.[8]
[7]See Mr Margheriti’s documents styled: “Affidavit for Statement of Claim” and filed on 1 October 2018 and “Affidavit for Amended Statement of Claim” filed on 26 November 2018. For example, Mr Margheriti identified a truck which was apparently owned by the previous partnership, the sale proceeds of which were deposited into the Company account only to be later withdrawn by Mr Tripodi.
[8]Orders have also been made to the effect that transactions relating to any previous partnership should not be included in Mr Margheriti’s material unless they concern the proper identification of assets of the Company.
In addition, on 20 February 2019, the Court encouraged Mr Margheriti to make an appointment with the Court’s Self-Represented Litigant Coordinator to obtain assistance in complying with the Court’s orders.[9] It is unclear whether he ever did so.
[9]This was reflected in the “other matters” section of the orders of 20 February 2019.
Over the course of the proceeding, Mr Margheriti has filed a number of documents in an effort to comply with the Court’s orders.[10] The documents largely cover the same ground. In his document filed on 26 November 2018 and styled “Affidavit for Amended Statement of Claim”, he made some attempt to provide particulars of Company funds he considered were missing. He identified that sales were significantly lower than the cost of stock over the initial three month period of the Company’s trading history. He also alleged that some cash receipts were missing. As a consequence, he estimated approximately $127,000 of Company funds were unaccounted for. In his “Affidavit for Points of Counter-Claim” filed on 20 March 2019, he revised his estimated figure of missing funds to $170,000, without providing further details. Amongst other things, he also raised concerns that the Company was trading whilst insolvent.
[10]See Mr Margheriti’s documents titled: “Affidavit for Statement of Claim” filed on 1 October 2018, “Affidavit for Amended Statement of Claim” filed on 26 November 2018 and “Affidavit for Points of Counter-Claim” filed on 20 March 2019.
Not all of the matters raised by Mr Margheriti in his various documents are relevant to the question of whether the Company should be wound up. Those that are will be considered later in these reasons.
Attempts to resolve dispute
During the life of the proceeding the Court has sought to encourage the parties to seek to resolve their underlying disputes. On 30 August 2018, the matter was referred to judicial mediation on the condition that Mr Margheriti appoint a lawyer for that purpose.[11] However, because Mr Margheriti later confirmed he was not prepared to engage a lawyer, the judicial mediation scheduled for 4 December 2018 was subsequently vacated and the matter referred to private mediation to be completed by no later than 21 January 2019. That mediation was unsuccessful. Then, at a directions hearing on 30 January 2019, and following an exchange between the Court and the parties about the cost, inconvenience and uncertainty the parties would face in the event the matter proceeded to trial, the parties indicated they wished to continue their without prejudice discussions. The matter was stood down and the Court was later informed that the parties had reached a settlement in principle. The proceeding was adjourned to allow the parties to document the terms of that settlement. Unfortunately, by the time the matter returned to Court on 20 February 2019, the settlement had collapsed. The parties have been unable to reach agreement since that time.
[11]See Supreme Court of Victoria, Practice Note SC Gen 6: Judicial Mediation Guidelines, 30 January 2017, para 4.7 which provides that a case involving a litigant in person will not ordinarily be referred for judicial mediation unless that litigant is represented for the purpose of the mediation.
Non-compliance with Court orders
Orders were then made on 20 February 2019 appointing a joint expert to express an opinion as to the market value of the Company and requiring the parties to provide the expert with the necessary documentation to allow him to undertake that task. The valuation was to be completed by 30 April 2019 with the matter returning for directions on 2 May 2019. It is a matter of regret that neither party has complied with the Court’s orders concerning the briefing of the joint expert. As a consequence, there is no evidence before the Court as to the value of the Company’s shares.
Listing of matter for hearing
On 7 May 2019, I asked my Associate to write to the parties and confirm that having regard to:
(a) the parties’ non-compliance with previous orders;
(b) the protracted history of the proceeding; and
(c) the various unsuccessful attempts by the parties to resolve their dispute,
the next directions date would be converted into a hearing on the question of whether the Company should be wound up and a liquidator appointed pursuant to s 461(1)(k) of the Corporations Act on the basis that it was just and equitable to do so. Draft orders were provided for the parties’ consideration which made provision for the filing of submissions on the question. For the benefit of Mr Margheriti as a self-represented litigant, the communication noted a number of circumstances in which courts have previously invoked the just and equitable ground. The parties were also invited to address in their submissions whether a winding up or any other remedy should be granted pursuant to:
(a) ss 232 and 233 of the Corporations Act on the basis that the conduct of the affairs of the Company may be contrary to the interests of shareholders as a whole or is oppressive to, unfairly prejudicial to or unfairly discriminatory against a shareholder or shareholders; and
(b) s 461(1)(f) of the Corporations Act on the basis that the conduct of the affairs of the Company may be oppressive, or unfairly prejudicial to, or unfairly discriminatory against, a shareholder or shareholders or contrary to the interests of shareholders as a whole.
Mr Tripodi consented to the Court’s proposed orders and indicated that he pressed for the just and equitable winding up of the Company. Mr Margheriti did not comment on the form of the proposed orders. Instead, in an email dated 8 May 2019, he indicated that he did not consent to the winding up of the Company and requested that the hearing be adjourned to allow him time to file a “defence against” the Corporations Act and the Taxation Administration Act 1983 (Cth). My Associate responded by email the next day and confirmed that Mr Margheriti was entitled to raise any arguments in opposition to a winding up in his submissions. Mr Margheriti was also invited to set out any reasons for an extension of time for the filing of submissions or for the adjournment of the hearing. No response to this correspondence was received. Accordingly, the proposed orders were made setting the matter down for hearing on 6 June 2019.
The Court adopted this approach because it was the course most consistent with the Court’s obligation under section 8 of the Civil Procedure Act 2010 (Vic) (the “Civil Procedure Act”) to give effect to the “overarching purpose” set out in section 7 of that legislation, namely to “facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute”. The Court is also mindful of section 9 of the Civil Procedure Act which provides that the Court must further the overarching purpose by having regard to a number of objects including: the just determination of the proceeding; the efficient conduct of the business of the Court; the efficient use of judicial and administrative resources; minimising delay; and dealing with proceedings in proportion to their complexity and the amount in dispute.
On 23 May 2019, Mr Margheriti filed very brief submissions confirming that he did not consent to a winding up order being made and stating that he remained hopeful a resolution of the dispute was possible. On 24 May 2019, Mr Tripodi filed and served more extensive submissions in support of an order that the Company be wound up pursuant to s 461(1)(k) of the Corporations Act.
By order dated 30 May 2019, Sifris J referred the proceeding to a Judicial Registrar for hearing and determination pursuant to rule 84.03 of the Rules and rule 16B.2(3) of the Supreme Court (Corporations) Rules 2013.
A few days prior to the hearing, Mr Margheriti sought an adjournment on the basis that he wished to belatedly consult a lawyer about a possible settlement of the dispute. The adjournment was sought for a period of a number of weeks to allow time for his nominated lawyer to return from leave. Mr Tripodi initially consented to the adjournment. However, given the protracted history of the matter, the delay in its progress and the collapse of previous settlement discussions, the adjournment was not granted on the papers and the matter remained listed. Mr Margheriti again made an application for an adjournment on the morning of the hearing which was then opposed by Mr Tripodi. The Court ultimately refused the adjournment for the same reasons set out above in addition to the fact that no lawyer had filed an appearance on behalf of Mr Margheriti at the time of the hearing, with nothing preventing Mr Margheriti from retaining a lawyer who was able to advise him on a more timely basis.
Preliminary matters
Before considering the relevant legal principles and their application to this case, it is convenient to address at this stage two peripheral issues which emerge from Mr Margheriti’s filed material and correspondence.
Firstly, Mr Margheriti has repeatedly requested that the solicitors and counsel for Mr Tripodi produce certificates under s 88 of the Imperial Acts Application Act 1922 (Vic) to establish that they have taken an oath of allegiance, are admitted to practise and are entitled to represent their client in Court. Mr Margheriti relies upon a decision of Garde J in Victorian Legal Services Board v Jensen[12] as supposed authority for the proposition that legal practitioners must produce s 88 certificates before a case can proceed.
[12][2018] VSC 740 (“Jensen”).
This argument is, with respect, misconceived. Section 88 of the Imperial Acts Application Act 1922 (Vic), has long been repealed.[13] Further, the decision in Jensen does not stand for the principle Mr Margheriti seeks to invoke. The case concerned an application by the Victorian Legal Services Board (“the Board”) for an injunction under s 447 of the Legal Profession Uniform Law (Vic) to restrain various defendants from engaging in unqualified legal practice or from representing that they were entitled to engage in legal practice. The repealed legislation was briefly referred to in oral submissions by counsel for the Board as historical legislation operating at the time of an earlier decision.[14] Reference was also made to the repealed legislation by one of the named defendants in his oral argument.[15] However, neither the repealed legislation nor the point raised by Mr Margheriti is mentioned in his Honour’s judgment. There is no reason why Mr Tripodi’s lawyers should not be entitled to represent him in this matter.
[13]The provision was repealed in 1928 by s 2 of the Legal Profession Practice Act 1928 (Vic) and the schedule to that legislation. A similar provision was then inserted into s 5(2) of the Legal Profession Practice Act 1928 (Vic) and subsequently s 5(2) of the Legal Profession Practice Act 1958 (Vic). Stylistic changes to the relevant provision were then made in the form of s 5(1)(c) of the Legal Practice Act 1996 (Vic). However, as a consequence of an amendment made by s 3 of the Courts and Tribunals Legislation (Further Amendment) Act 2000 (Vic) to s 6(1)(c) of the Legal Practice Act 1996 (Vic), it is clear that an oath of allegiance to the Queen is no longer required. The requirements for admission to practice are now contained in s 16(1)(c) of Schedule 1 to the Legal Profession Uniform Law Application Act 2014 (Vic).
[14]In Re Sanderson; Ex Parte Law Institute of Victoria [1927] VLR 394. See Transcript of Proceedings, Victorian Legal Services Board v Jensen (Supreme Court of Victoria, S ECI 2018 00521, Garde J, 2 August 2018) 9 (NL Papaleo).
[15]See Transcript of Proceedings, Victorian Legal Services Board v Jensen (Supreme Court of Victoria, S ECI 2018 00521, Garde J, 2 August 2018) 44-5.
Secondly, on 18 April 2019 and 1 May 2019 the Court received correspondence from Mr Margheriti suggesting the Federal Court of Australia has exclusive jurisdiction to hear matters arising under federal legislation, including the Corporations Act. That is incorrect. The constitutional power to confer federal jurisdiction on State courts can be found in s 77(iii) of the Australian Constitution.[16] Jurisdiction is conferred on this Court to determine civil matters under the Corporations Act pursuant to s 1337B(2) of that legislation.
[16]This was referred to as the ”autochthonous expedient“ by the majority of the High Court of Australia in R v Kirby; Ex parte Boilermakers’ Society of Australia (1956) 94 CLR 254, 268 (per Dixon CJ, McTiernan, Fullagar and Kitto JJ).
Legislative provisions
Sections 232 of the Corporations Act relevantly provides as follows:
The Court may make an order under section 233 if:
(a) the conduct of a company's affairs; or
(b)an actual or proposed act or omission by or on behalf of a company; or
(c)a resolution, or a proposed resolution, of members or a class of members of a company;
is either:
(d) contrary to the interests of the members as a whole; or
(e)oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or in any other capacity.
…
Once the Court’s oppression jurisdiction is engaged, s 233 of the Corporations Act sets out a broad range of remedies available to the Court. The provision states:
(1)The Court can make any order under this section that it considers appropriate in relation to the company, including an order:
(a) that the company be wound up;
(b)that the company's existing constitution be modified or repealed;
(c) regulating the conduct of the company's affairs in the future;
(d)for the purchase of any shares by any member or person to whom a share in the company has been transmitted by will or by operation of law;
(e)for the purchase of shares with an appropriate reduction of the company's share capital;
(f)for the company to institute, prosecute, defend or discontinue specified proceedings;
(g)authorising a member, or a person to whom a share in the company has been transmitted by will or by operation of law, to institute, prosecute, defend or discontinue specified proceedings in the name and on behalf of the company;
(h)appointing a receiver or a receiver and manager of any or all of the company's property;
(i)restraining a person from engaging in specified conduct or from doing a specified act;
(j) requiring a person to do a specified act.
Sections 461(1)(e), 461(1)(f) and 461(1)(k) of the Corporations Act variously provide that the Court may order the winding up of a company if:
[s 461(1)(e)] directors have acted in affairs of the company in their own interests rather than in the interests of the members as a whole, or in any other manner whatsoever that appears to be unfair or unjust to other members; or
[s 461(1)(f)] affairs of the company are being conducted in a manner that is oppressive or unfairly prejudicial to, or unfairly discriminatory against, a member or members or in a manner that is contrary to the interests of the members as a whole; or
[s 461(1)(k)] the Court is of opinion that it is just and equitable that the company be wound up.
Lastly, s 467(4) of the Corporations Act is in the following terms:
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.
Legal principles
As McMurdo JA said in Asia Pacific Joint Mining Pty Ltd v Allways Resources Holdings Pty Ltd:[17]
… there will often be facts and circumstances by which the court has powers both under s 233 and s 461. Conduct in the nature of oppression can make it just and equitable that a company be wound up.[18]
[17](2018) 125 ACSR 227.
[18]Ibid 242-3 [62]-[63].
However, because the focus of this hearing has been on whether the Company should be wound up under s 461(1)(k) (the just and equitable ground), I will confine my summary of the applicable legal principles as they relate to the application of that provision.
The leading authority on just and equitable winding up is Ebrahimi v Westbourne Galleries Ltd.[19] In that case, the House of Lords held that the jurisdiction to wind up a company on this ground may arise where one or more of the following circumstances are present:
(a)an association formed or continued on the basis of a personal relationship, involving mutual confidence … ;
(b)an agreement, or understanding, that all, or some … of the shareholders shall participate in the conduct of the business; [and]
(c)the restriction upon the transfer of the member’s 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.
[19][1973] AC 360 (”Ebrahimi”).
If the jurisdictional threshold is met, the Court is then required to consider the factual matrix of the dispute in order to be satisfied whether sufficient reason exists to wind the company up.[20] In the matter of Catombal Investments Pty Ltd,[21] Brereton J further explained that:
[t]he court is not restricted in exercising its discretion to particular factual categories [Re Straw Products Pty Ltd [1942] VLR 222 at 223]. And, the question whether it is just and equitable is a question of fact, in respect of which each case must depend on its own circumstances [Re Bleriot Manufacturing Aircraft Co Ltd (1916) 32 TLR 253 at 255].[22]
[20]ASIC v Letten (No 10) [2011] FCA 498 [14].
[21][2012] NSWSC 775.
[22]Ibid [20].
Matters that are relevant to the question of whether a just and equitable winding up order should be made include:
(a) a failure of the main object of the company’s formation;[23]
[23]Re Tivoli Freeholds Ltd [1972] VR 445.
(b) a deadlock in the management of the company;[24]
[24]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.
(c) a breakdown in the relationship between the shareholders;[25]
[25]Nassar v Innovative Precasters Group Pty Ltd (2009) 71 ACSR 343.
(d) a lack of confidence in the conduct and management of the affairs of the company;[26]
[26]Loch v John Blackwood Ltd [1924] AC 783, 788; ASIC v ABC Fund Managers and Ors (2001) 39 ACSR 443 (“ASIC v ABC Fund“) (Warren J, as her honour then was).
(e) where there has been fraud, misconduct or oppression in relation to the affairs of the company;[27]
(f) serious concerns about the company's compliance with its statutory obligations,[28] including the filing of tax returns;[29] and
(g) a risk to the public interest that warrants protection.[30]
[27]Macquarie Bank Ltd v TM Investments Pty Ltd (2005) 223 ALR 148; Macquarie University v Macquarie University Union Ltd (No 2) [2007] FCA 844.
[28]ASIC v Barrack Mortgage Managers Pty Ltd [1999] NSWSC 272; ASIC v Drury Management Pty Ltd [2004] QSC 068.
[29]Entwistle v Minken Pty Ltd (receivers and managers appointed) (2013) 97 ACSR 361, 364.
[30]ASIC v ABC Fund.
However, there are other considerations too. As Sifris J said in Peter Extons & Anor v Extons Pty Ltd & Ors:[31]
Courts are “extremely reluctant to wind up a solvent company” [International Hospitality Concepts Pty Ltd v National Marketing Concepts Inc [No 2] (1994) 13 ACSR 368, 372 (Young J)] As the Court of Appeal has observed, “[i]t is well accepted that the winding up of a solvent and flourishing company should be a last resort” [French v Smith [2004] VSCA 207 at [122] per Charles and Chernov JJA and Harper AJA; Sassine v Ray & Sons Construction Pty Ltd [2012] NSWSC 307 at [21] per Black J]. Courts will consider whether any other relief would be preferable to a winding up order [Turner v Ulicorp Pty Ltd [2007] NSWSC 206 at [24] per Barrett J; Host-Plus Pty Ltd v Australian Hotels Association [2003] VSC 145 at [67] per Hansen J].[32]
[31](2017) 53 VR 520.
[32]Ibid 545 [89].
Further, even if the Court is satisfied of circumstances which justify a winding up on the just and equitable ground, s 467(4) of the Corporations Act makes clear that the Court must consider whether an alternative and less drastic form of relief is available.[33]
[33]In the matter of Wyndham Park Estate Pty Ltd [2019] VSC 92 [40] (Sifris J) (“Wyndham Park”).
Evidence and analysis
While most of the allegations raised by the parties are disputed, it is unnecessary for me to resolve those issues in dispute. Nor is it necessary for me to assign blame to either party.[34] It may be that they should each bear some responsibility for the breakdown in their relationship but I don’t make any findings in that regard.
[34]See also Galanopoulos v Ali Moustafa & Ors [2010] VSC 380 [17], [28] and [31] (Sifris J) and White Family No. 1 Pty Ltd v Organic Brands Pty Ltd & Anor [2011] VSC 247 [9] (Gardiner AsJ) (“White Family No 1”).
When considered in totality, the affidavit evidence, although untested under cross-examination, leaves the Court with a very distinct impression of the Company’s present position and the extent of the dispute.
It is clear on the facts that one or more of the circumstances described in Ebrahimi are present in this case. The Company was incorporated on the basis of a personal relationship between the shareholders. It also appears that the relationship was, at least initially, one of mutual confidence. Mr Tripodi has also given evidence that there was an agreement between him and Mr Margheriti that they would both participate in the conduct of the business. It was effectively set up as a quasi-partnership.
Given the necessary threshold circumstances are present, the Court’s jurisdiction to wind up the Company under s 461(1)(k) is enlivened. Turning to the particular circumstances of the case, it is clear that a winding up order should be made for the following reasons.
Firstly, it is abundantly clear that the management of the Company is deadlocked. There are only two directors, they each own 50% of the shares and they cannot agree on how the Company ought to be managed. For example, Mr Tripodi has given evidence of disagreement about the employment of Mr Margheriti’s relatives in the business, the pricing and reorganising of stock and the treatment of cash sales.[35] As a result of the deadlock, it appears that the Company has been unable to reach agreement with Dandenong Market Pty Ltd to renew the licence to operate its stalls.[36] Mr Margheriti explained in his oral submissions that whilst the licence has expired, Dandenong Market Pty Ltd is currently allowing the Company to operate on a month-to-month basis. However, he accepts that no new licence can be entered into without the agreement of both directors or the resignation of Mr Tripodi as a director. Accordingly, there is uncertainty about whether the Company will be able to conduct its business at the Dandenong Market in the future. In addition, Mr Margheriti has indicated there is a “stalemate” between himself and Mr Tripodi about whether there should be a full reconciliation and audit over alleged “missing and[/or] stolen funds”.[37] The affairs of the Company are in disarray.
[35]Affidavit of Mr Francesco Tripodi sworn 12 July 2019 [10]-[11].
[36]See Mr Margheriti’s documents titled: “Affidavit for Statement of Claim” filed on 1 October 2018 [1], “Affidavit for Amended Statement of Claim” filed on 26 November 2018 [1], “Affidavit for Points of Counter-Claim” filed on 20 March 2019 [9]-[10] and Mr Tripodi’s written submissions filed 24 May 2019 [30].
[37]Mr Margheriti’s document titled: “Affidavit for Statement of Claim” filed on 1 October 2018 [4].
Secondly, the relationship between the shareholders of the Company has irretrievably broken down. This happened within three months of the commencement of the Company’s business. Mr Tripodi has given evidence that his concerns regarding the running of the Company’s business have been met with intimidation and aggression by Mr Margheriti and his family members.[38] For his part, Mr Margheriti has also suggested that he has been disparaged and defamed by Mr Tripodi.[39] The conflict between Mr Margheriti and Mr Tripodi has resulted in this litigation which, despite numerous attempts, the parties have been unable to be resolve.
[38]Affidavit of Mr Francesco Tripodi sworn 12 July 2019 [14].
[39]Mr Margheriti’s “Affidavit for Statement of Claim” filed on 1 October 2018 [7] and “Affidavit for Amended Statement of Claim” filed on 26 November 2018 [6].
Thirdly, the parties’ original objective that they would each be involved in the management and day-to-day operation of the business has obviously failed. As already noted, Mr Tripodi deposes that he has been excluded from the management of the Company since 21 December 2017.[40]
[40]Affidavit of Mr Francesco Tripodi sworn 12 July 2019 [17].
Fourthly, each party has expressed a lack of confidence in the conduct and management of the affairs of the Company. Mr Tripodi has given evidence about management decisions made without reference to him.[41] He has also suggested that, from 21 December 2017, the balance of the Company’s bank accounts to which he was a signatory, was reduced to nil.[42] He says he does not know about the transactions which led to this situation.[43] At the same time, Mr Margheriti has repeatedly made unparticularised and unsubstantiated allegations of theft, misappropriation and fraud against Mr Tripodi. I do not make any findings in relation to the various allegations made by either party in this regard. However, the fact that each party makes such allegations reveals the extent to which confidence has been lost. It also reveals the degree of mistrust and disharmony between the shareholders. If any of the allegations have substance, they may warrant further investigation by an independent liquidator.
[41]Ibid [10].
[42]Ibid [13].
[43]Ibid.
Finally, there are real concerns about the Company’s historical compliance with tax returns. Whilst Mr Margheriti is in possession of the books and records of the Company, he has previously said that he is unable to lodge tax returns (specifically in respect of the 2017/2018 financial year) because Mr Tripodi has not yet provided him with all necessary documents relating to the period of time in which he was involved in the management of the Company.[44] In particular, Mr Margheriti says that he requires a complete set of tax invoices, tax receipts, lease payment records, bank statements, direct debit records and Mr Tripodi’s wage records.[45] On the other hand, Mr Tripodi submits that he was only in the business for a limited period of time (from August 2017 to 21 December 2017) and that he has provided Mr Margheriti with all necessary records to lodge Business Activity Statements and annual tax returns on behalf of the Company. At the hearing of the matter, Mr Margheriti submitted that he recently lodged the 2017/2018 tax return for the Company but that in the absence of the documents he believes Mr Tripodi has not yet provided, he cannot guarantee its accuracy. Mr Tripodi is unaware of whether the tax returns have now been brought up to date. Nor is there evidence before the Court confirming that to be the case. Whatever the true position, any non-compliance with the Company’s obligation to lodge accurate tax returns is exposing the Company and both of its directors to adverse consequences which may be imposed by the Australian Taxation Office.
[44]See Mr Margheriti’s documents titled: “Affidavit for Amended Statement of Claim” filed on 26 November 2018 [2] and “Affidavit for Points of Counter-Claim” filed on 20 March 2019 [8].
[45]See Mr Margheriti’s document titled “Affidavit for Points of Counter-Claim” filed on 20 March 2019 [8].
A winding up order should not be declined on the basis that this is a clearly solvent or flourishing company. In fact, the evidence suggests the opposite may be true. Mr Margheriti has previously stated the Company may be trading whilst insolvent because it cannot meet its taxation liabilities.[46] He also said the Company “owes substantial funds to … creditors” including his father.[47] There is also evidence from both parties that the Company has only modest assets. The fact that its licence at the Dandenong Market has apparently expired may have diminished the value of those assets. At the hearing, Mr Margheriti submitted that the Company is now able to pay its debts as and when they fall due but, again, there is no evidence before the Court to that effect. Further, Mr Margheriti conceded in his submissions that without a licence, the Company would be effectively insolvent.
[46]Ibid [11].
[47]Ibid, p 4.
I accept Mr Margheriti’s submission that neither shareholder will likely gain anything from the making of a winding up order. However, that of itself is not a sufficient reason for the Court to allow this unacceptable situation to continue.
Further, it is clear that no less drastic remedy or order is available or appropriate in the circumstances. It is not possible to order that Mr Margheriti buy Mr Tripodi’s shares because the Court has no way of assessing their value. That is because the parties have failed to comply with the Court’s orders to appoint a joint expert to determine that question. Nor is it appropriate for the Court to simply adjourn or dismiss the proceeding and thereby allow the Company to continue in a state of limbo. Given the history of failed negotiations, there is also no guarantee that the parties will be able to resolve the dispute if further time was granted to Mr Margheriti to engage a lawyer. The only sensible solution is to wind the Company up.
In light of the above findings, it is unnecessary to further consider the application of ss 232 and 233 of the Corporations Act or the other sections of the legislation the parties were invited to address in their submissions. However, were I required to do so, I would likely have found that the Court’s jurisdiction under the oppression provisions has been engaged, even in the absence of a trial.[48] Further, I accept Mr Tripodi’s submission that it would also have been open on the evidence to make a winding up order pursuant to s 233(1)(a) or s 461(1)(f) of the Corporations Act.
[48]Wyndham Park [48]-[49].
Conclusion
Even though I am of the view it is just and equitable that the Company should be wound up, I will adopt the approach taken in a number of earlier cases[49] and refrain from immediately pronouncing the Court’s orders to enable the parties to once again explore the possibility of a commercially acceptable settlement. The matter will be adjourned until 10 July 2019, at which time I will formally make the winding up orders and appoint the plaintiff’s nominated liquidators. It is, however, open to the parties to provide consent orders for the dismissal of the proceeding prior to that date if they are able to resolve the dispute.
[49]See In re Straw Products Pty Ltd [1942] VLR 139; Re Wondoflex Textiles Pty Ltd [1951] VLR 458 and also the obiter comments of Young JA in Tomanovic & Anor v Global Mortgage Equity Corporation Pty Ltd & Anor (2011) 288 ALR 310, 382. Cf White Family No 1 in which Gardiner AsJ declined to postpone the making of a winding up order because his Honour was not confident the parties were capable of resolving the dispute.
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