Reuther v Wallace - [2022] SASCA 44

SUPREME COURT OF SOUTH AUSTRALIA
(Court of Appeal: Civil)
REUTHER & ANOR v WALLACE
[2022] SASCA 44
Judgment of the Court of Appeal
(The Honourable Chief Justice Kourakis, the Honourable Justice Doyle and the Honourable Justice Bleby)
12 May 2022
CORPORATIONS - MANAGEMENT AND ADMINISTRATION - FINANCIAL INFORMATION AND AUDIT - FINANCIAL REPORTS - RELIEF FROM REQUIREMENTS AS TO ACCOUNTS AND RECORDS OR FINANCIAL REPORTS
CORPORATIONS - MEMBERSHIP, RIGHTS AND REMEDIES - MEMBERS' REMEDIES AND INTERNAL DISPUTES - OPPRESSIVE OR UNFAIR CONDUCT - WHAT CONSTITUTES - CONDUCT OF OR RELATING TO DIRECTORS
Appeal against a decision of a single judge.

Ms Reuther and Mr Wallace were the directors of AWS, a small proprietary company conducting business in maintaining and constructing wind turbines. They were also in a personal relationship. Each was an employee, and each held 50 per cent of shares in AWS. Their relationship ended acrimoniously, and after falling into dispute regarding the value of the shares and the ability to access records of the company, Mr Wallace ceased his employment with AWS.
Ms Reuther and Mr Wallace reached a mediated settlement regarding AWS. They agreed that Ms Reuther would purchase the shares held by Mr Wallace, valued as at the date of the agreement. That value would be determined by a third-party professional, who would also provide a General Reconciliation, making adjustments for any personal benefits that either party had received in the relevant years. There would be opportunities for the parties to make submissions before the third‑party made final determination of the value of the shares.
On the execution of the mediated agreement on 21 October 2017, Mr Wallace resigned as a director. The effect of the mediated agreement was that Mr Wallace would continue to hold his 50 per cent of shares in AWS, until the date that he would be required to transfer them to Ms Reuther in accordance with the mediated agreement.
Subsequent to execution of the agreement, but prior to completion of the General Reconciliation and valuation, Mr Wallace served notices on AWS pursuant to s 293 of the Corporations Act 2001 (Cth) (‘the Act’), directing it to prepare and send to all shareholders an audited financial report and a directors’ report for the financial years ended 30 June 2019 and 2020, that is, for periods after the date at which the shares were to be valued for the purpose of the mediated agreement.
On 5 January 2021, a judge dismissed Ms Reuther’s application to set aside the notices. On appeal, a single judge of the Supreme Court held that the obligation placed on the company under s 293 to prepare and have audited the reports was a proposed act by or on behalf of the company within the meaning of s 232(b) of the Act. However, he concluded that the issuing of the notices was not contrary to the interests of the members of the company as a whole within the meaning of s 232(d), nor that it was oppressive, unfairly prejudicial to, or unfairly discriminatory against, Ms Reuther within the meaning of s 232(e). Further, he concluded that even if he was wrong in either of these conclusions, he would nevertheless have declined to grant relief under s 233.
The issues on appeal are:
•whether the facility in s 293 of the Act, by which shareholders in a small proprietary company may give a direction to the company to prepare a financial report and directors’ report for a financial year, is subject to the oppressive conduct provisions in Part 2F.1 of the Act, specifically, ss 232 and 233;
•more particularly, whether any conduct constituted by, or required by reason of, the giving of a direction under s 293, falls within the contemplation of ss 232(a), (b) or (c) of the Act;
•if so, whether the giving of directions in the present case met the criteria in ss 232(d) or (e) of the Act; and
•if so, whether this Court should exercise its discretion under s 233 to set aside the directions that the respondent gave to AWS pursuant to s 293.
Held:
per Bleby JA (Doyle JA agreeing):
1.Given the definitions in s 53(a) and (c) of the Corporations Act, the preparation of a financial report and a directors’ report, and the sending of those reports to shareholders pursuant to the obligation under s 292(2)(a), consequent upon a direction under s 293(1), constitute the conduct of a company’s affairs within the meaning of s 232(a).
per Kourakis CJ (dissenting):
2.The distinction between the affairs of a body corporate and the recording of its affairs made by the judge on appeal should be adopted.
per Bleby JA (Kourakis CJ and Doyle JA agreeing) allowing the appeal:
3.The consequences of a direction under s 293 also fall within the scope of s 232(b).
4.There was no reason to think that the results of the investigation into Mr Wallace’s allegations, as incorporated into the General Reconciliation, would not also be reflected in the financial statements for 2019 and 2020. That investigation was the result of agreement between the parties. In the circumstances, the consequences of the s 293 directions visited upon the company were contrary to the interests of the members as a whole, within the meaning of s 232(d).
5.Mr Wallace had a legal entitlement to 50 per cent of the shares. Ms Reuther had a 50 per cent legal entitlement and a 100 per cent beneficial entitlement to the shares. The directions conferred no benefit on Mr Wallace. In those circumstances, the company having to prepare audited, Australian Accounting Standards-compliant financial statements for 2019 and 2020 was not only unfairly prejudicial to Ms Reuther in the circumstances of the mediated agreement, but also unfairly discriminatory against her.
6.There was no benefit to Mr Wallace personally in the company preparing the audited financial statements, and therefore no detriment to him in the directions being set aside. In the circumstances of the mediated agreement, the directions conferred little, if any material benefit upon the company. They placed a not insignificant cost on the company, which would ultimately be borne by Ms Reuther. The discretion to grant relief under s 233 should be exercised.

Corporations Act 2001 (Cth) ss 45A, 53, 232, 233, 249D, 293, 294, 296, 298, 301, 340; Pt 2M.3, 2M.6, 2F.1; Australian Securities Commission Act 1989 (Cth) s 30 (b), referred to.
Reuther & Anor v Wallace [2021] SASC 107; Turnbull v National Roads and Motorists’ Association Ltd (2004) 186 FLR 360; Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304; Australian Securities Commission v Lucas (1992) 36 FCR 165; Cousins v Corporate Affairs Commission (1977) 3 ACLR 398; Turnbull v National Roads and Motorists’ Association Ltd (2004) 186 FLR 360; Catto & Ors v Hampton Australia Ltd (In Liq) & Ors (No 3) [2004] SASC 242; Goozee v Graphic World Group Holdings (2002) 170 FLR 451; Reid v Bagot Well Pastoral Co Pty Ltd (1993) 61 SASR 165; Exton & Anor v Extons Pty Ltd (2017) 53 VR 520, considered.

REUTHER & ANOR v WALLACE
[2022] SASCA 44
Court of Appeal – Civil: Kourakis CJ, Doyle and Bleby JJA

KOURAKIS CJ: I would allow the appeal for the reasons given by Bleby JA save that I respectfully differ in one respect from His Honour’s application of s 53 of the Corporations Act 2001 (Cth) (‘the Act’) to s 232(a) of the Act in the circumstances of this case.
The preparation of a financial statement is plainly an act of a company. When a direction is given to a company pursuant to s 293 of the Act that it prepare a financial statement, the preparation of that statement becomes a proposed act of the company. It follows that the giving of the direction by Mr Wallace satisfies the ground in s 232 (b) of the Act and the Court may therefore, if it considers it appropriate, make orders pursuant to s 233(1) of the Act. The orders which are most apt in the circumstances of this case are those for which s 233(1)(i) or (j) of the Act provide: an order requiring Mr Wallace to withdraw the direction or restraining the company Australian Wind Services Pty Ltd (‘AWS’) from preparing the financial statements.
The respect in which I differ concerns the width of the definition of ‘affairs’ found in s 53 of the Act. Section 53 appears in part 1.2 of Ch 1 of the Act which contains the Act’s interpretative provisions. Section 53 is an inclusive definition of ‘the affairs of a body corporate’. The ordinary meaning of ‘affairs’ is anything which is done or to be done or that which requires action or effort. It may also mean a person’s business[1]. Subparagraph (a) of the statutory definition of affairs which refers to the promotion, formation and membership of a body corporate concerns that which is done to constitute a body corporate and is more significant in its application to the definition of examinable affairs in s 9 of the Act but does not bear on the question arising on this appeal. The remainder of subparagraph (a) refers to the business activities, assets, liabilities, income and expenses of a corporation. Those affairs concern, consistently with the ordinary meaning of that word, what the corporation does, not the records or reports it keeps of those affairs. Importantly s 9 of the Act defines the books of a corporation to be its records, including its financial statements. Many of the Act’s provisions deal with the rights and obligations of persons in respect of the books of a corporation but there is no reference to those books in s 53 of the Act.
[1] Macquarie Dictionary (online at 5 May 2022) ‘affairs’ (n).
Subparagraph (b) of the definition applies to a body corporate which is a trustee. Unlike subparagraph (a) the affairs of a corporate trustee extend to ‘matters concerned with the ascertainment of the identity of beneficiaries and their rights under the trust’. The affairs of a trustee may therefore extend to the keeping of records discussing the identity and interests of the beneficiaries of a trustee company but that is only because the matter is defined by reference to the ascertainment of those things.
Subparagraph (c) includes within the affairs of a corporation its internal management and proceedings. Again, that subparagraph of the definition is of greater relevance in its application to the definition of examinable affairs in s 9 of the Act. Nonetheless, it is noteworthy that the subparagraph refers only to the management and proceedings themselves and not to the records of that management or those proceedings.
Subparagraphs (d), (e), (h) and (j) of the Act have no relevance for present purposes.
Subparagraph (f) of the Act deals with powers of management and control of the corporation but is not expressed in a way that captures the preparation of documentary evidence of the exercise of those powers.
Subparagraph (g) of the Act includes within the affairs of a body corporate ‘matters concerned with the ascertainment of the persons’ who have an interest in the success or failure of the body corporate or are able to control or influence its policies. The affairs to which subparagraph (g) of the Act refers may extend to documents evidencing those matters but again that follows only from the use of the word ascertainment.
Subparagraph (k) of the Act does extend the affairs of a company to ‘matters relating to or arising out of the audit of, or working papers or reports of an auditor concerning, any matters referred to in a preceding paragraph’. That express extension to documents can be contrasted with the absence of any reference to the books of the body corporate in the preceding paragraphs.
The books of a body corporate may be required to be produced for the purposes of an examination into the affairs of the corporation.[2] There is, therefore, no reason to include the books of a corporation within the definition in s 53 of the Act of the affairs of the body corporate. The explanation for the express inclusion of matters relating to audits in subparagraph (k) may be that not all audit documents come within the definition of the books of a body corporate.
[2] See 596 D(2) and s 597A and s 597(9) of the Act.
For the above reasons, I agree with the distinction made by Parker J between the affairs of a body corporate and the recording of its affairs.
Even if it were to be accepted that the preparation of a financial statement, or the failure to prepare a financial statement, is an affair of a body corporate there is a further obstacle in the way of the application of s 232(a) of the Act. AWS has not yet embarked on the preparation of the financial statement, and but for the giving of the direction by Mr Wallace pursuant to s 293 of the Act would not have proposed to do so. The giving of the direction by Mr Wallace is not the conduct of the affairs of AWS. It is the conduct of Mr Wallace as a shareholder in giving a direction to AWS to engage in certain conduct. It follows that AWS has not yet conducted any of its affairs in a way which is oppressive. The failure of a body corporate to comply with a direction may be a proper ground on which to wind up the body corporate pursuant to s 461 of the Act, or might be oppression under s 232(b) of the Act or for failure to conduct the affairs of AWS conformably with the Act. However, Ms Reuther does not complain that the failure to prepare the report after Mr Wallace gave the direction is oppressive. Indeed, her position is that AWS should not prepare the financial report.
On the appropriateness of the giving of relief pursuant to s 233, I agree with the reasons of Bleby JA. I would emphasise that not only is Mr Wallace’s interest in his shares an equitable one but that interest is limited to the value of the shares as at 21 October 2017. The value as of that date cannot be affected by the outcome of the financial statements Mr Wallace has directed AWS to prepare.
I would hear the parties as to the form of the orders which should be made pursuant to s 233(1) of the Act.
DOYLE JA: I agree with Bleby JA’s reasons for concluding that the preparation of financial statements and directors’ reports consequent upon notice under s 293 of the Corporations Act 2001 (Cth) constitutes an act or proposed act by or on behalf of a company under s 232(b) of that Act.
Despite the force of the Chief Justice’s reasons, and for the reasons given by Bleby JA, I also consider that the preparation of those documents constitutes ‘the conduct of a company’s affairs’ under s 232(a), by reason that it falls within ss 53(a) and (c) of the inclusive definition of ‘the affairs’ of a company under s 53. The authorities have tended to take a broad approach to the interpretation of that definition. Further, to my mind, the express inclusion within that definition, through s 53(k), of matters arising out of the work of an (external) auditor in relation to the matters otherwise falling within the definition of “the affairs” of a company, supports a construction of that definition that would include not only the company’s own prudential controls and other internal audit type activities, but also its recording keeping and reporting activities. In my view, these activities, even if they do not fall within s 53(a), nevertheless form part of the ‘internal management and proceedings of the body’ under s 53(c).
For the reasons given by Bleby JA, I agree that the giving of the s 293 direction in the present case met the criteria under s 232(d) and (e), such that the appellant is entitled to relief under s 233.
I would therefore allow the appeal, and hear the parties further as to the form of the relief.
BLEBY JA: The questions raised on this appeal by detailed grounds and contentions, contained in the Notice of Appeal and Notice of Alternative Contention respectively, concern:
·whether the facility in s 293 of the Corporations Act 2001 (Cth) (‘the Act’), by which shareholders in a small proprietary company may give a direction to the company to prepare a financial report and directors’ report for a financial year, is subject to the oppressive conduct provisions in Part 2F.1 of the Act, specifically, ss 232 and 233;
·more particularly, whether any conduct constituted by, or required by reason of, the giving of a direction under s 293, falls within the contemplation of ss 232(a), (b) or (c) of the Act;
·if so, whether the giving of directions in the present case met the criteria in ss 232(d) or (e) of the Act; and
·if so, whether this Court should exercise its discretion under s 233 to set aside the directions that the respondent gave to Australian Wind Services Pty Ltd pursuant to s 293.
Background
Australian Wind Services Pty Ltd (‘AWS’) conducts a business of constructing and maintaining wind turbines. It commenced operations in 2009. The appellant, Ms Linda Reuther and the respondent, Mr Kelley Wallace, were the directors and shareholders (each as to 50 per cent) of AWS, as well as employees. They were also in a personal relationship which, by late 2017, had broken down in acrimonious circumstances. They fell into dispute about the value of the shares in AWS and the ability of Mr Wallace to access records of AWS. On 28 September 2017, Ms Reuther terminated Mr Wallace’s employment on behalf of AWS.
On 21 October 2017, the parties reached a mediated settlement of their disputes relating to AWS. The effect of the settlement was that Ms Reuther agreed to purchase the shares in AWS held by Mr Wallace. The price was to be fixed by Mr Hugh McPharlin of Edwards Marshall (now Nexia Edwards Marshall). Clause 3 of the mediation agreement provided:
3. Edwards Marshall are to:
3.1provide a general reconciliation, for the period from 27 April 2010 to 21 October 2017 (Relevant Period), identifying any expenses incurred by Australian Wind Services Pty Ltd (Company) which were personal in nature and not properly expenses of the Company (General Reconciliation);
3.2determine what adjustments, if any, ought to be made to the financial statements of the Company to reflect the General Reconciliation;
3.3with respect to a dispute between the Parties as to the level of remuneration paid to [Mr Wallace] by the Company during the Relevant Period, make a determination as to the appropriate level of remuneration that ought to have been paid to [Mr Wallace] by the Company and to make a determination as to whether any adjustment should be made to that remuneration (Wage Reconciliation);
3.4determine what adjustments, if any, ought to be made to the financial statements of the Company to reflect the Wage Reconciliation; and
3.5having regard to the General Reconciliation and Wage Reconciliation, together with all other information presented to Edwards Marshall, value [Mr Wallace’s] 50 percent shareholding in the Company as at 21 October 2017 (Valuation).
The mediation agreement further provided that Edwards Marshall would provide a Preliminary Report to the Parties who, within seven days of receipt, could provide written submissions to Edwards Marshall in relation to that Preliminary Report. The agreement then contemplated that Edwards Marshall would provide a Final Report, which would be binding on the parties. Then:
12. Within 7 days of receipt of the Final Report:
12.1[Ms Reuther] agrees to enter into a Share Sale Deed for her purchase of [Mr Wallace’s] shares for the amount in the Valuation; and
12.2the Parties will execute all necessary documentation for the transfer of [Mr Wallace’s] shares to [Ms Reuther];
(together, the Share Transfer Documents)
13. Settlement on the share transfer is to occur 21 days after the execution of the Share Transfer Documents (Completion Date).

Mr Wallace resigned as a director of AWS on 21 October 2017 on the execution of the mediation agreement, as contemplated by that agreement. However, the effect of the mediation agreement was that he would continue to hold his 50 per cent of the shares until the Completion Date, when he was under a contractual obligation to transfer those shares to Ms Reuther, in exchange for the amount in the Valuation assessed as at 21 October 2017.
On 21 December 2017, the parties agreed to the terms Mr McPharlin proposed by which he would undertake the reconciliation and valuation exercises.
Difficulties in implementing the mediation agreement arose. On 17 July 2018, Mr Wallace commenced proceedings complaining of oppression, based on a claim that AWS had failed to comply with the mediation agreement. He sought orders under s 233 for the appointment of a receiver and manager of the company, who was to conduct a forensic audit of the accounts and provide a report to shareholders.
Auxiliary Judge Roder accepted that a failure to comply with the agreement could be oppressive but found that the matters Mr Wallace alleged were not so serious as to warrant the relief sought. He also accepted that the omission by AWS to comply with the agreement in a timely fashion was both contrary to the interests of the members as a whole and oppressive to Mr Wallace. However, he declined to grant any relief, concluding:[3]
The parties have agreed. They need to carry their agreement out. The court can supervise that.
[3] Reasons for Decision of Auxiliary Judge Roder at [18].
Matters went from bad to worse. On 4 December 2018, the Magistrates Court made intervention orders against Mr Wallace. Ms Reuther was named as a protected person. The allegations on which the application for intervention orders proceeded are disputed.
On 11 April 2019, Mr McPharlin advised the parties about how he proposed to proceed. On the reconciliation, he requested, among other things, that Ms Reuther’s solicitors provide a range of documentation. This included AWS’s accountants’ working papers and/or journals relating to certain adjustments and balance sheet items, financial statements and all Visa credit card statements and bank statements for company accounts for the period 1 July 2011 to 21 October 2017.
On 16 October 2019, Mr McPharlin sought submissions as to any item or expense the parties identified in the material as personal, rather than company‑related, why they identified it as such and who the beneficiary was. On 21 October 2019, Ms Reuther’s solicitors responded that Ms Reuther’s position was that all items recorded as business expenses were, as far as she was aware, properly recorded. They suggested that the easiest way to proceed was for Mr Wallace to identify any transactions he queried as personal and explain the query, so that Ms Reuther could respond.
On 25 November 2019, Mr McPharlin sought a response from Ms Reuther relating to certain identified cash withdrawals from AWS, and submissions from both parties in respect of a credit card analysis that identified certain transactions as being potentially personal in nature.
Both Ms Reuther and Mr Wallace provided a large number of submissions in relation to matters relevant to Mr McPharlin’s report. On 25 March 2020, Ms Reuther’s solicitors provided a submission in relation to the cash withdrawals. On 30 April 2020, Mr Wallace’s solicitor also provided a submission on this topic.
On 29 June 2020, and then on 1 July 2020, Mr Wallace served notices on AWS pursuant to s 293 of the Act, directing it to prepare and send to all shareholders an audited Financial Report and a Directors’ Report for the financial years ending 30 June 2019 and 30 June 2020, respectively. Section 315(2) required these reports to be provided within two and four months, respectively. Mr Wallace’s position was that because of information provided about the AWS financials, he had concerns about the manner in which Ms Reuther, now the sole director, had been managing, and was continuing to manage, the finances of AWS. This is notwithstanding that his shares were being valued by Mr McPharlin as at 17 October 2017. The directions contained in these notices are the subject of the present proceeding.
On 9 July 2020, Mr McPharlin issued his Preliminary Report.
Neither party had, by this stage, provided comprehensive responses to the credit card analysis Mr McPharlin had sent them on 25 November 2019. Mr McPharlin concluded that by reason of the broad similarity between his credit card analysis and expense analysis, adequate adjustment had been made to AWS’s reported profits as a result of the separate expense analysis.
With respect to ATM withdrawals, Mr McPharlin concluded that the parties had shared the benefit of cash withdrawals totalling $21,570.40, drawn largely from ATMs at or near the Crown Casino. In relation to other cash withdrawals, Mr McPharlin concluded that Ms Reuther had received the benefit of sums totalling $120,000. He made an adjustment to reflect that conclusion.
On 31 July 2020, Ms Reuther filed an interlocutory application seeking orders that the s 293 notices (that is, the directions given by the notices) be set aside. On 28 August 2020, Judge Bochner heard argument on that application.
Meanwhile, on 17 August 2020, orders were made requiring the parties to instruct Mr McPharlin to withdraw the Preliminary Report, take into account any submissions made by Mr Wallace, and issue a fresh Preliminary Report. Mr McPharlin issued a revised Preliminary Report on 14 September 2020.
On 5 January 2021, Judge Bochner dismissed Ms Reuther’s application to set aside the notices and published her reasons. In essence, she found:
·section 293 provides a shareholder with a statutory right to require a company to produce audited accounts when served with a notice, whether or not the shareholder holds the shares on trust;[4]
·the conduct of which Ms Reuther complained did not fall within s 232, so no remedy under s 233 was available;[5]
·by issuing the notices under s 293, Mr Wallace was doing no more than exercising a statutory right. The exercise of such a right cannot be the conduct of the company’s affairs, even if it requires the company to do an act. Neither is it a proposed act or an omission by or on behalf of the company, as it is not the company that is the driving force of the conduct;[6]
·it was irrelevant that there may be no proper purpose in issuing the notices, as s 293 does not require the shareholder issuing the notice to have any purpose.[7]
[4] Reasons of Judge Bochner, 5 January 2021 at [21]-[22].
[5] Reasons of Judge Bochner, 5 January 2021 at [23].
[6] Reasons of Judge Bochner, 5 January 2021 at [24].
[7] Reasons of Judge Bochner, 5 January 2021 at [25].
Ms Reuther applied for leave to appeal against Judge Bochner’s decision. On 3 September 2021, Parker J granted leave to appeal but dismissed the appeal. He published reasons on 13 September 2021.[8] His Honour’s reasons differed, in part, from those of Judge Bochner, in that he concluded that the obligation placed on the company under s 293 to prepare and have audited the reports was a proposed act by or on behalf of the company within the meaning of s 232(b).[9] However, he concluded that the issuing of the notices was not contrary to the interests of the members of the company as a whole within the meaning of s 232(d),[10] nor that it was oppressive, unfairly prejudicial to, or unfairly discriminatory against, Ms Reuther within the meaning of s 232(e).[11] Finally, he concluded that even if he was wrong in either of these conclusions, he would nevertheless have declined to grant relief under s 233.[12]
[8] Reuther & Anor v Wallace [2021] SASC 107.
[9] [2021] SASC 107 at [66].
[10] [2021] SASC 107 at [75].
[11] [2021] SASC 107 at [78].
[12] [2021] SASC 107 at [80].
This appeal is against that decision of Parker J.
The legislative framework
AWS is a small proprietary company as defined in s 45A(2) of the Act. Part 2M.3 of the Act sets out the financial reporting requirements of small proprietary companies. This Part was amended in 2010, with an apparent purpose of simplifying the reporting requirements for small proprietary companies.
Section 292 identifies the types of entities and companies that are required to prepare a financial report and a directors’ report for each financial year. Section 292(2) provides that a small proprietary company is only required to do so if it is directed to under ss 293 or 294, or in other circumstances not presently relevant.
Section 294 empowers ASIC to give a direction to a small proprietary company. Section 293 provides:
Small proprietary company--shareholder direction
(1)[Shareholders direction to prepare report] Shareholders with at least 5% of the votes in a small proprietary company may give the company a direction to:
(a)     prepare a financial report and directors' report for a financial year; and
(b)     send them to all shareholders.
(2)     [Form of direction] The direction must be:
(a)     signed by the shareholders giving the direction; and
(b)     made no later than 12 months after the end of the financial year concerned.
(3)     [Terms of direction] The direction may specify all or any of the following:
(a)     that the financial report does not have to comply with some or all of the accounting standards;
(b)     that a directors' report or a part of that report need not be prepared;
(c)     that the financial report is to be audited.
The three matters the subject of 293(3) are not, in the ordinary course, required of a small proprietary company, by reason of ss 296(1A), 298(3) and 301(2). The combination of these sections and the terms of the directions given to AWS by Mr Wallace have the effect that:
·each direction having failed to specify that the financial report does not have to comply with some or all of the accounting standards, the report is in each case required to comply with the accounting standards;
·a directors’ report is required to be prepared in each case; and
·the financial report is required to be audited in each case, that being specified in the direction.
Section 340, and the sections following in Part 2M.6, empower ASIC to make an order in writing relieving a company from all or specified requirements of the Act, including those in Part 2M.3, in which s 293 is located. It appears that this facility is not presently the subject of regulatory guidance. Be that as it may, and noting that it may be cumbersome for a company to avail itself of these provisions, the provisions are relevant to a contextual analysis of the amenability of s 293 to the oppression provisions in in Part 2F.1 of the Act. There appears to be no other facility under the Act by which a direction under s 293 might be challenged.
Section 232 provides:
Grounds for Court order
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.
For the purposes of this Part, a person to whom a share in the company has been transmitted by will or by operation of law is taken to be a member of the company.
Section 233 sets out the orders the Court may make if any of the grounds in s 232 is satisfied. The orders that may be made are expressed in inclusive terms, and extend, by s 233(1)(c), to an order regulating the conduct of the company’s affairs in the future. Section 234 identifies who can apply for an order; as a member of AWS, Ms Reuther is such a person.
The notion of company’s affairs is defined in the following terms in s 53 of the Act:
Affairs of a body corporate
For the purposes of the definition of examinable affairs in section 9, section 53AA, 232, 233 or 234, paragraph 461(1)(e), section 487, subsection 1307(1) or section 1309, or of a prescribed provision of this Act, the affairs of a body corporate include:
(a)the promotion, formation, membership, control, business, trading, transactions and dealings (whether alone or jointly with any other person or persons and including transactions and dealings as agent, bailee or trustee), property (whether held alone or jointly with any other person or persons and including property held as agent, bailee or trustee), liabilities (including liabilities owed jointly with any other person or persons and liabilities as trustee), profits and other income, receipts, losses, outgoings and expenditure of the body; and
(b)in the case of a body corporate (not being a licensed trustee company or the Public Trustee of a State or Territory) that is a trustee (but without limiting the generality of paragraph (a)) matters concerned with the ascertainment of the identity of the persons who are beneficiaries under the trust, their rights under the trust and any payments that they have received, or are entitled to receive, under the terms of the trust; and
(c)     the internal management and proceedings of the body; and
(d)any act or thing done (including any contract made and any transaction entered into) by or on behalf of the body, or to or in relation to the body or its business or property, at a time when:
(i)    a receiver, or a receiver and manager, is in possession of, or has control over, property of the body; or
(ii)     the body is under administration; or
(iia)   a deed of company arrangement executed by the body has not yet terminated; or
(iib)   the body is under restructuring; or
(iic)   a restructuring plan made by the body has not yet terminated; or
(iii)    a compromise or arrangement made between the body and any other person or persons is being administered; or
(iv)    the body is being wound up;
and, without limiting the generality of the foregoing, any conduct of such a receiver or such a receiver and manager, of an administrator of the body, of an administrator of such a deed of company arrangement, of a restructuring practitioner for the body, of a restructuring practitioner for such a restructuring plan, of a person administering such a compromise or arrangement or of a liquidator or provisional liquidator of the body; and
(e)the ownership of shares in, debentures of, and interests in a managed investment scheme made available by, the body; and
(f)the power of persons to exercise, or to control the exercise of, the rights to vote attached to shares in the body or to dispose of, or to exercise control over the disposal of, such shares; and
(g)matters concerned with the ascertainment of the persons who are or have been financially interested in the success or failure, or apparent success or failure, of the body or are or have been able to control or materially to influence the policy of the body; and
(h)the circumstances under which a person acquired or disposed of, or became entitled to acquire or dispose of, shares in, debentures of, or interests in a managed investment scheme made available by, the body; and
(j)where the body has made available interests in a managed investment scheme--any matters concerning the financial or business undertaking, scheme, common enterprise or investment contract to which the interests relate; and
(k)matters relating to or arising out of the audit of, or working papers or reports of an auditor concerning, any matters referred to in a preceding paragraph.
Before coming to whether either of s 232(a) or s 232(b) operates upon the directions given by Mr Wallace under s 293, the respondent challenged the capacity for any relationship between s 293 and s 232 as a matter of legislative structure. This challenge can be understood by reference to the decision of Campbell J in Turnbull v National Roads and Motorists’ Association Ltd[13] (‘NRMA’).
The legislative structure of ss 293 and 232 and the NRMA case
[13] (2004) 186 FLR 360.
The NRMA case concerned an invocation of s 232 and 233 in response to a notice given under s 249D of the Act as in force at that time. While the subject matter of s 249D is different from that of s 293, it operates in a materially similar way, although it places an obligation on the directors, rather than the company itself:
249D Calling of general meeting by directors when requested by members
(1) [Where directors compelled to call meeting] The directors of a company must call and arrange to hold a general meeting on the request of:
(a)members with at least 5% of the votes that may be cast at the general meeting; or
(b)at least 100 members who are entitled to vote at the general meeting.
…
The giving of the notice under s 249D in NRMA occurred in the context of an industrial dispute between the NRMA and the union representing its employed patrol officers. The industrial dispute was resolved. No party retained any enthusiasm for proceeding with the special general meeting required by the notice. The cost of doing so would have been formidable, given the size of the membership of NRMA.
Campbell J concluded that the mandatory operation of s 249D, when engaged, was subject to the possibility of the Court making an order under ss 232 and 233. As he observed, the power is conferred in very wide terms,[14]
which would be confined as a matter of construction only to the extent that the scope and purpose of the statutory enactment may enable the Court to see that some exercises of the power would be definitely extraneous to any objects the legislature could have had in view…
[14] Turnbull v National Roads and Motorists’ Association Ltd (2004) 186 FLR 360 at [42].
The High Court has since confirmed this understanding.[15]
[15] Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304 at [72] (French CJ).
Campbell J went on to hold that having regard to the non-exhaustive list of possible orders in s 233(1), an order that a meeting not be held ‘comfortably’ fell within the scope of the description in s 233(1)(c), of an order ‘regulating the conduct of the company’s affairs in the future’.[16] In doing so, he had regard to the extended definition of ‘the affairs of a body corporate’ in s 53, which includes ‘the internal management and proceedings of the body’. That includes the calling and holding of meetings; to order that a meeting should not be called or held was a regulation of the conduct of the company’s affairs.[17]
[16] Turnbull v National Roads and Motorists’ Association Ltd (2004) 186 FLR 360 at [48].
[17] Turnbull v National Roads and Motorists’ Association Ltd (2004) 186 FLR 360 at [48].
In the present case, Parker J considered the reasoning of Campbell J to be correct, noting the important aspect of the conclusion in NRMA that the exercise of a statutory right by a member is capable of being contrary to the interests of the members as a whole. He accepted that great care must be exercised when determining that question.[18] His Honour also noted that Campbell J had analysed the question by reference to the actions that the company was required to take on being served with the statutory notice, concluding that the requirement that NRMA conduct a general meeting was a proposed act by the company within the meaning of s 232(b). Parker J accepted the correctness and applicability of the approach of Campbell J in NRMA to the present case.
[18] [2021] SASC 107 at [47].
The respondent challenged the applicability of NRMA. First, they submitted that the qualifying conduct in in NRMA was contemplated by s 232(c), that is, a resolution, or a proposed resolution, of members or a class of members of a company. That is precisely the conduct contemplated by the operative section in NRMA, s 249D. By this means, Parliament had manifestly intended that a direction given under s 249D was amenable to relief under s 233. There being no part of s 232 that responded to s 293 in the way that s 232(c) responds to s 249D, it should be inferred that Parliament did not intend that such relief should be available.

Further, as noted above, s 340, and the sections following in Part 2M.6, empower ASIC to make an order in writing relieving a company from all or specified requirements of the Act. The respondent submitted that this is a deliberate structural element by which Parliament has manifested an intention that there be only one potential course of relief from the obligations consequent on a direction under s 293.
The respondent therefore approached the matter on the basis that there was an initial, structural barrier to s 293 being subject to the oppressive conduct provisions at all. On that approach, this question preceded that of whether any conduct constituted by, or required by reason of, the giving of a direction under s 293, falls within the contemplation of ss 232(a), (b) or (c) of the Act.
The respondent further contended that Parker J had erred in conflating the applicability of s 232 to a direction under s 293 on the one hand, and its applicability to the consequences of a direction under s 293 on the other, that is, the actual obligations that then inhered in the company. He pointed out that Ms Reuther’s application is to set aside the notices constituting the directions given under s 293. It was not aimed at the consequences of those directions, that is, the preparing and sending of the reports.
The immediate difficulty with this submission is that the setting aside of the directions is relief sought under s 233, not s 232. It does not require a conflation of concepts to accept the possibility that relief in the nature of setting aside a direction would be available because of the oppressive nature of what the company would be required to do because of that direction, that is, of the consequences of the direction, as the respondent expressed it. That is nothing more than the tailoring of relief, under an inclusive regime, to address the particular nature of the oppression in question. Whether that relief is actually available depends on the breadth of the sections.
In my view, it is artificial to treat the structural aspects of the analysis as posing a separate question. Whether any conduct constituted by, or required by reason of, the giving of a direction under s 293, falls within the contemplation of ss 232(a), (b) or (c) of the Act, is best approached through an orthodox analysis of text, context and purpose of the provisions. The structural aspects that the respondent singled out, specifically the absence of an equivalent to s 232(c) and the presence of Part 2M.6, provide contextual and purposive elements of the analysis.
Directions given under s 293 and s 232(a): the ‘conduct of the company’s affairs’
Parker J observed that the proposed meeting the subject of the s 249D request in NRMA was held to constitute ‘the affairs of a body corporate’ within the meaning of s 53(a), on account of the inclusion in that definition of ‘the internal management and proceedings of the body’. That is to say, Campbell J looked to the consequences of the s 249D request, to use the respondent’s phrasing, being the obligations thereby placed on the company, rather than just the s 249D request itself.[19]
[19] [2021] SASC 107 at [45], [48].
Parker J therefore framed the issue in terms of ‘whether the requirement imposed by the s 293 notices that audited financial statements and directors’ reports be prepared is “the conduct of a company’s affairs” within the meaning of s 232(a)’.[20] Having necessary regard to the matters encompassed within s 53(a), he reasoned:[21]
The material sought by Mr Wallace, particularly the audited financial statements, will contain information about those matters. In that sense, the reports will concern or relate to the affairs of a body corporate. However, the reports will not themselves be the affairs of the body corporate in the sense of its profits, losses and so forth. The reports will also not be the profits, losses and the like of the body although they will refer to those matters.
(Emphasis in original)
[20] [2021] SASC 107 at [49].
[21] [2021] SASC 107 at [50].
To this end, his Honour distinguished Australian Securities Commission v Lucas,[22] which concerned a notice issued by the ASC to a firm of auditors under s 30(b) of the Australian Securities Commission Act 1989 (Cth) requiring production of its audit papers relating to a company relating to the ‘affairs of the body’. That Act provided that the meaning of ‘affairs’ was the same as in s 260(1)(b) of the Corporations Law, as defined by s 53 (which was not in materially different terms as it is now). Section 53(k) of the Corporations Law, as with the current s 53(k) of the Act, included in the definition of ‘affairs’, ‘matters relating to or arising out of the audit of, or working papers or reports of an auditor concerning, any matters referred to in a preceding paragraph’. His Honour observed:[23]
I also note that s 53(a) of the Act is couched in different terms to s 30(b) of the ASC Act which was before Drummond J in Lucas. The latter provision referred to “specified books relating to the affairs of the body” whereas s 53(a) is concerned with the relevant affairs themselves, whether they be profits, losses, expenditure or so forth, rather than reports relating to those matters.
(Emphasis in original)
[22] (1992) 36 FCR 165.
[23] [2021] SASC 107 at [53].
Parker J also referred to Cousins v Corporate Affairs Commission,[24] in which Helsham CJ in Eq held that questions asked in the exercise of a statutory investigative power about the work of an auditor were properly categorised as the affairs of a company (where the auditor may have had an ongoing role in advising the company on decisions the subject of the investigation). Parker J concluded with respect to the application of s 53(a) as informing the phrase, ‘the conduct of the company’s affairs’ in s 232(a):[25]
Because the auditor will stand outside the company when reviewing its affairs, rather than be an element of its decision making as was the situation in Cousins, I do not consider that the preparation of audited financial statements will be within the scope of paragraph (a) of s 53.
[24] (1977) 3 ACLR 398 at 401-402.
[25] [2021] SASC 107 at [54].
Parker J took the same view with respect to the application of s 53(c) to the preparation of audited financial statements, in that they were not ‘the internal management and proceedings of the company’. Similarly, he concluded that neither s 53(a) nor s 53(c) applied to the requirement that director’s reports be prepared. He did not consider that any other subsection of s 53 was capable of applying. He accepted that something not specifically covered by s 53 might still be the ‘affairs of a body corporate’ for the purpose of s 232(a), given that the list of definitions was inclusive rather than exclusive. Having regard to dictionary definitions, he concluded:[26]
These definitions confirm that the phrase “the conduct of a company’s affairs” will cover the full breadth of decision-making, management and performance relating to the functions and activities of the company, whatever those may be. However, as I have already discussed, the notices issued under s 293 by Mr Wallace seek information about the conduct of the company’s affairs but are not themselves part of that conduct. I therefore consider that satisfaction of the obligations placed upon the company by the notices does not constitute the conduct of its affairs within the meaning of s 233(a) [sic – 232(a)].
[26] [2021] SASC 107 at [63].
His Honour therefore concluded that not only was the giving of the directions under s 293 not the conduct of the company’s affairs, but the conduct thereby required of the company did not constitute its affairs within the meaning of s 232(a).
To this end, Parker J drew a distinction, at its simplest, between ‘the full breadth of decision-making, management and performance relating to the functions and activities of a company…’[27] on the one hand, and the reporting of those matters, on the other. The passage quoted above indicates that he placed emphasis on his conclusion that the notices issued by Mr Wallace were not part of the conduct of the company’s affairs, in concluding that the consequent required preparation and auditing of the financial statements, and compilation of the directors’ reports were also not.
[27] [2021] SASC 107 at [63].
I agree with his Honour that the actual giving of a direction under s 293 by five percent or more of the shareholding vote does not sit well with the concept of the ‘affairs’ of the company itself. However, I respectfully consider that to be of little, if any, consequence. Even if the giving of a direction under s 293 is properly excluded from the concept of a company’s affairs, that does not necessarily mean that the obligations thereby placed on the company are not the conduct of its affairs.
For example, to take up a submission to which his Honour accorded weight, s 232(c) provides that a resolution, or a proposed resolution, of members or a class of members of a company (being the subject of s 249D), may be contrary to the interests of the members as a whole or oppressive for the purposes of s 233. A direction covered by s 293 is not separately listed. However, there is no reason to think that the consequence of a resolution, or a proposed resolution, of members or a class of members of a company may not also constitute the affairs of the company.[28]
[28] Turnbull v National Roads and Motorists’ Association Ltd (2004) 186 FLR 360 at [48].
In my view, the absence of an equivalent provision to s 232(c), to cover a direction given under s 293, does not support the proposition that the preparation of audited financial statements and the compilation of the directors’ reports (i.e., the consequence of a direction under s 293) will not constitute the conduct of the company’s affairs. That the external source of an obligation on a company might not be the conduct of a company’s affairs does not mean it necessarily follows that the conduct thereby required of the company is not.
Rather, the starting point for considering whether the conduct required by directions given under s 293 is the conduct of the company’s affairs within the meaning of s 232(a), is the acknowledged breadth of the concept of the ‘affairs’ of a body corporate as defined, inclusively, in s 53.
Section 53 contains an inclusive list of things: nouns that come within the concept of the ‘affairs’ of the company. These include, in s 53(a), the business, trading and transactions of the company, as well as the profits and other income, receipts, losses, outgoings and expenditure of the company. Section 232(a) contemplates that each of these things is conducted. As Parker J observed, the ordinary meaning of conduct extends to direction or management and execution.
In my view, conduct constituting the management and execution of a company’s business, trading and transactions, income, profits, receipts, losses, outgoings and expenditure, each of which is included within the definition in s 53(a), incorporates the record keeping necessarily associated with these activities. Further, at least to the extent that reporting upon these things (e.g., income, outgoings, profits, losses, etc) is required by law, this is no less a necessary incident of the conduct (management and execution) of those things. So too does such record keeping come within the concept of the ‘internal management’ of the body, within the meaning of s 53(c).
If a direction is made under s 293, s 292(2)(a) then causes legal obligations to inhere in the company, namely, to prepare a financial report and directors’ report for a financial year. These are, as Parker J observed, reports on the affairs of the company. The company is also required to send those reports to shareholders. In my view, as a matter of text and context, the combined language of ss 53(a) and (c) and s 232(a) supports the conclusion that the preparation and sending of those reports, pursuant to a legal obligation, form part of the conduct of a company’s affairs.
Mr Wallace pointed to the facility in s 340 for ASIC to make an order in writing exempting the directors, the company, scheme or entity, or the auditor, from obligations arising under Part 2M.3 (which includes s 293) and several other Parts. He submitted that this provides a contextual and purposive indicator that ss 232 and 233 are not intended to address the situation arising from a s 293 direction. This is a relevant contextual indicator, but it is weak. That there is one legislated avenue for relief does not necessarily foreclose the existence of another.
Further, the focus of the provisions is different. Section 232 is focused on the interests of members as a whole and the prospects of oppression, unfair prejudice and unfair discrimination against, a member or members, that is, the effect of the conduct of the company’s affairs on its members. By contrast, s 340(3) limits the facility to make an application to ASIC for an order under s 340(1):
(3)     [Application for order] The application must be:
(a)      authorised by resolution of the directors; and
(b)     in writing and signed by a director; and
(c)      lodged with ASIC.
The provision of a facility for the directors to apply for relief from any of several obligations, including those arising from a direction under s 293, says little about the application of a different relief provision that is focused on the interests of members. It is problematic to infer a contextual limit on s 232(a) from s 340, against the readily available textual reading that extends s 232(a) to the consequences of a s 293 direction. Section 340 is concerned with the interests of the company as represented by its directors. Section 232 is concerned with interests of members that may be in tension with those company interests. In my view, s 340 provides little contextual support for the proposition that the legislature intended members, in their capacity as members, to be denied relief where the consequence of a s 293 direction is oppressive in the sense contemplated by s 232(d) or (e).
Consideration of the purpose of the provisions supports this conclusion. The breadth of the concept of ‘affairs’ of the company directs attention to whether a posited application of the concept ‘would be definitely extraneous to any objects the legislature could have had in view’.[29] Where a direction is given under s 293, s 292(2)(a) places an obligation on a small proprietary company to do things by way of exception to the ordinary state of affairs.
[29] Turnbull v National Roads and Motorists’ Association Ltd (2004) 186 FLR 360 at [42].
This obligation may be onerous, depending on whether the direction incorporates obligations to comply with the accounting standards or to have the financial report audited. Those obligations have been imposed in the present case. They will require (possibly considerable) expenditure on the part of the company. There would appear to be no purposive reason to distinguish between such required reporting on the affairs of the company as required by law, and other conduct of those affairs, especially when that reporting will require further conduct, such as expenditure, that is expressly included in the definition of the ‘affairs’ of a company.
Against this, the respondent submitted that the mandatory nature of the obligation imposed by s 292, once a direction is made under s 293, ‘doesn’t sit comfortably’ with the notion of oppression or, for that matter, decided authority. Once a direction is given under s 293, s 292 places a statutory obligation on the company and the hand of the company is stayed. That is, the respondent drew a distinction between acts initiated by the company on the one hand, and acts required of the company on the other, for the purpose of the application of s 232.
To this end, the respondent relied on Catto & Ors v Hampton Australia Ltd (In Liq) & Ors (No 3).[30] In that case, a resolution of company in general meeting that it wind up voluntarily was attacked as (among other things) being oppressive to the minority shareholders. Vanstone J held:[31]
The very nature of the winding up procedure and liquidation is such that s 232 cannot be applied to it. The resolution to wind up the company could not be characterised as “contrary to the interests of the members as a whole” or “oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members” of the company. The plaintiffs have not and could not demonstrate commercial unfairness in relation to the resolutions. The concept of winding up is not susceptible of being labelled “fair” or “unfair”. The exercise of the right to wind up the company does not involve the destruction of one interest to the advantage of another. Any desire of the minority to keep the company afloat is, no doubt, frustrated by the majority voting to wind up. But the rights attached to the shares of the minority are not discriminated against in any way. Rather, the legal consequences of the resolution to wind up apply, in like manner, to all shares and shareholders.
[30] [2004] SASC 242.
[31] Catto & Ors v Hampton Australia Ltd (In Liq) & Ors (No 3) [2004] SASC 242 at [94].
This conclusion was specific to the procedure of winding up and liquidation. However, her Honour went on to say:[32]
My reasoning to this point is based in part on the conclusion that voting to wind up a company is the exercise of a right rather than a power.
[32] Catto & Ors v Hampton Australia Ltd (In Liq) & Ors (No 3) [2004] SASC 242 at [95].
I infer from this statement that Vanstone J gave some weight, in her conclusion that a resolution to wind up the company was not amenable to the oppression provisions, to the source of the resolution being a statutory right, rather than a discretionary power. The respondent sought to draw an analogy with his ‘right’ to give a direction under s 293. However, the weight given in Catto to the ‘right’ to wind up would appear to be inseparable from the exigency that the ‘right’ was incapable of being exercised in a way that ‘involve[s] the destruction of one interest to the advantage of another’.
It is not necessary to consider the correctness of Catto. The sentence relied on by the respondent is inextricably linked with Vanstone J’s conclusions about the incapacity of a resolution to wind up to meet the descriptions in s 232(d) or (e). That reasoning does not translate to the consequences of a minority shareholding’s exercise of a ‘right’ to give a direction under s 293. The question becomes, rather, whether the consequence of such a direction meets the description in either s 232(d) or (e). That a minority shareholding interest has a right to give a direction under s 293 does not present a disqualifying feature to the availability of ss 232 and 233, in the face of the textual, contextual and purposive considerations that favour of the availability of those provisions.
It follows that in my view, the preparation of a financial report and a directors’ report, and the sending of those reports to shareholders pursuant to the obligation under s 292(2)(a), and consequent upon a direction under s 293(1), constitute the conduct of a company’s affairs within the meaning of s 232(a) of the Corporations Act.
Consistently with this, s 233 is expressed inclusively. There is no reason to think that an order setting aside a direction to the company under s 293 would not be an order ‘in relation to the company’. On the analysis above, an order setting aside a s 293 direction would nonetheless constitute an order regulating the conduct of the company’s affairs in the future within the meaning of s 233(1)(c). It would have the effect of altering (i.e., removing) an obligation on the company to prepare and send the reports.
Directions given under s 293 and s 232(b): an actual or proposed act or omission by or on behalf of a company
Parker J did consider that the requirement in the s 293 notice that the company prepare, or take steps to have prepared on its behalf, financial reports and directors’ reports for the specified financial years was a proposed act by the company within the meaning of s 232(b):[33]
Although the parties did not refer to s 232(b) in their submissions, that provision was decisive in the NRMA case. Campbell J held that the requirement imposed by the s 249D notice that the NRMA conduct a general meeting was a proposed act by the company and therefore within the scope of s 232(b). In the present case, the s 293 notice requires that the company prepare, or take steps to have prepared on its behalf, financial statements for the two relevant years and then arrange for those statements to be audited. I consider that those actions fall within the ordinary meaning of the words used in s 232(b). I can see no basis upon which the preparation of financial statements and the auditing of those statements on behalf [of] the company can be distinguished from the calling and conduct of a general meeting considered by Campbell J.
[33] [2021] SASC 107 at [66].

For the reasons given above in the analysis of the applicability of s 232(a) to the consequences of a direction under s 293, I would hold that Parker J was correct in concluding that the consequences of a direction under s 293 fall within the scope of s 232(b). It is a necessary consequence of the above analysis that the scope of each of ss 232(a) and 232(b) overlap; this is an instance of them doing so.
Whether the giving of directions in the present case met the criteria in ss 232(d) or (e) of the Act
In approaching the potential application of s 232(d) and 232(e), Parker J was prepared to proceed on the basis that the cost of preparing the audited financial statements for the two years would not be insignificant. He doubted that the obligation to prepare the directors’ reports would add any further significant cost. There was no evidence as to the actual cost, but as counsel for the appellant pointed out, the added requirement for the financial statements to be prepared in accordance with the Australian Accounting Standards (AAS) would likely increase the cost materially.
On the application of s 232(d), Parker J accepted that whether conduct is contrary to the interests of the members as a whole should be approached by reference to the interests of an ‘individual hypothetical member’, citing Goozee v Graphic World Group Holdings[34] and Reid v Bagot Well Pastoral Co Pty Ltd.[35] He accepted that in circumstances where Mr Wallace had made allegations that Ms Reuther had diverted some $692,000 from the company to her personal use in the period from 2012 to April 2017 without the creation of a loan account, which he described as an untested allegation, ‘a hypothetical individual shareholder would hold a genuine concern about the ongoing financial management of the company’. He continued:[36]
In view of the allegation that company funds have been diverted, it seems to me that as part of the audit process, enquiries would need to be made as to whether any of the impugned payments ought to be shown in the financial statements as monies owed to the company even though the allegation of use of company funds for private purposes relates to payments made some years ago.
For that reason, the concern of Mr Wallace about the alleged diversion of company monies in earlier years is relevant to his demand that audited financial statements be prepared for the 2019 and 2020 financial years. Accordingly, I do not consider that the issue of the s 293 notices was contrary to the interests of the members of the company as a whole within the meaning of s 232(d).
[34] (2002) 170 FLR 451 at [42].
[35] (1993) 61 SASR 165.
[36] [2021] SASC 107 at [74]-[75].
In Goozee v Graphic World Group Holdings, Barrett J said:[37]
A decision as to what is “contrary to the interests of the members as a whole” focuses attention not on the interests of the persons who are in fact the members for the time being but on the interests of “an individual hypothetical member” …
[37] (2002) 170 FLR 451 at [42].
Barrett J cited Reid v Bagot Well Pastoral Co Pty Ltd,[38] where Debelle J considered, in the context of the exercise of shareholders’ voting powers, a predecessor to s 232(d), s 320(1)(a) of the Companies (South Australia) Code. This was expressed in materially the same terms. The passage in Reid on which Barrett J (and in turn, Parker J in the present case) relied was strictly an application of accepted authority as to the interpretation of a different phrase:[39]
Voting powers conferred on shareholders and powers conferred on directors must be used bona fide and for the benefit of the company as a whole: Ngurli Ltd v McCann (1953) 90 CLR 425 at 438; Whitehouse v Carlton Hotel Pty Ltd (1987) 162 CLR 285. … The phrase “the company as a whole” does not mean the company as a commercial entity as distinct from its shareholders; it means its shareholders as a whole: Greenhalgh v Arderne Cinemas Ltd [1951] Ch 286. That is to say, the case may be taken of an individual hypothetical member and it may be asked whether what is proposed is, in the honest opinion of those who have voted in its favour, for that person’s benefit: Greenhalgh v Arderne Cinemas Ltd (supra) (at 291) and Ngurli Ltd v McCann (at 438).
[38] (1993) 61 SASR 165.
[39] (1993) 61 SASR 165 at 174-175.
Here, the question is not whether a resolution is in the interests of the members as a whole, but whether the consequences of a s 293 direction are in those interests. This requires consideration from the perspective of the individual hypothetical member.
That perspective cannot be equated with the subjective perspective of Ms Reuther, who at the relevant time held legal title to half the shares in AWS and was beneficially entitled to all the shares. In Goozee, one issue was whether the sole member of a company could seek leave under s 237 to seek relief under s 232 in derivative proceedings. Barrett J noted the ‘air of unreality’ of a sole shareholder being the subject of oppression or unfair prejudice, given the powers available to the shareholder. However, he said:[40]
These considerations point towards a conclusion that the member of a single-member company can never be a complainant under s 232. But closer analysis shows, I think, that such a conclusion cannot be supported. This is because what the section really does is to prescribe statutory norms of conduct non-adherence to which vests a cause of action. The section is concerned with conduct within or in relation to the company which is, according to accepted standards of corporate behaviour, burdensome harsh and wrongful, productive of unfair prejudice or “contrary to the interests of the members as a whole”. The several descriptions probably reflect a single concept unconfined by “technical distinction”: Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (2001) 37 ACSR 672 per Spigelman CJ.
What I have termed “accepted standards of corporate behaviour” are formulated, in part, by reference to the way in which “reasonable directors” would act in attending to the affairs of the company: Wayde v NSW Rugby League Ltd (1985) 180 CLR 459. Reference may also be made to the comments of Lord Denning in the Scottish Co-operative case to the effect that, by acting inconsistently with their duties, directors conducted the company’s affairs in an oppressive manner. Courses that would be taken by responsible and diligent directors in the due and proper discharge of their duties thus represent one aspect of the standards of corporate behaviour which go to make up the norms of conduct with which the provisions are concerned.
[40] (2002) 170 FLR 451 at [40]-[41].
The present case does not involve a sole shareholder at the relevant time. The relevant conduct is not of the directors. The passage quoted above nonetheless assists in framing the inquiry into the interests of the hypothetical member, where Ms Reuther has the entire beneficial entitlement, by reference to whether the s 293 directions were contrary to the interests of the members as a whole according to accepted standards of corporate behaviour.
In this regard, the interests of the individual hypothetical member should not be assessed as complete abstractions. While they should not be equated with the subjective interests of Ms Reuther, they are still required to be assessed by reference to the actual circumstances of the company.
As identified above, Parker J approached the question by reference to accepted standards of corporate behaviour in the circumstances of Mr Wallace’s allegations. These being allegations of diversion of funds in earlier years, the 2019 and 2020 financial statements would have to reflect those alleged, earlier diversions, should they be established. Parker J’s conclusion, set out above, appears orthodox by reference to the application of accepted standards of corporate behaviour, given the parameters he set to the inquiry.
However, those parameters were defined only by Mr Wallace’s allegations. The steps already taken by or on behalf of the company, or the members as a whole, to address the allegations are equally relevant as part of the factual matrix.
As set out above, Mr Wallace and Ms Reuther entered into a mediated settlement. That required Mr McPharlin to prepare a report that included a General Reconciliation. This necessitated Mr McPharlin making adjustments for any personal benefits Ms Reuther had received in the years under consideration. These were the very matters the subject of Mr Wallace’s allegations, which are said to have motivated the s 293 directions.
Mr McPharlin’s General Reconciliation was directly relevant to the position as at 21 October 2017. It would necessitate adjustments to the financial statements up to and including the 2018 financial year. It would thereby contribute to the Valuation of AWS for the purpose of the share sale from Mr Wallace to Ms Reuther. However, there is no reason to think that the results of Mr McPharlin’s investigation into Mr Wallace’s allegations, as incorporated into the General Reconciliation, would not also be reflected in the financial statements for 2019 and 2020.
Further, when assessing the interests of the individual hypothetical member, it is relevant that both Mr Wallace and Ms Reuther, that is, 100 per cent of the shareholders, agreed that Mr McPharlin would undertake this investigation and conduct the General Reconciliation with specific attention to the allegations. In the unusual circumstances of this case, it is hardly in the interests of the individual hypothetical member, expressed as good corporate practice, that the company should then go to the further expense of having to prepare audited financial statements, in compliance with the AAS, for the subsequent years.
This is a small proprietary company with two members. The directions would necessitate replicating, or even going beyond, Mr McPharlin’s work, effectively undermining the intent of the members’ agreement. Against the background of that agreement, the putative benefit of the directions can only be to ensure that the alleged diversion of funds is accounted for in the (subsequent) 2019 and 2020 financial statements. That will require nothing more than an elemental comparison between those statements and the adjusted statements for the earlier years.
For these reasons, I respectfully disagree with Parker J and Judge Bochner, and would hold that in the circumstances of this case, the consequences of the s 293 directions visited upon the company are contrary to the interests of the members as a whole, within the meaning of s 232(d).
With respect to whether those consequences are oppressive to, unfairly prejudicial to, or unfairly discriminatory against Ms Reuther, Parker J said:[41]
In view of the circumstances that I have referred to at [9]-[11] [detailing the nature of and response to Mr Wallace’s allegations], I do not consider that a commercial bystander would objectively consider the action of Mr Wallace in issuing the s 293 notices to be unfair. While it is true that Ms Reuther will indirectly bear the cost of the preparation of the audited financial statements, the affidavit material placed before the Court demonstrates that as a continuing shareholder Mr Wallace holds a legitimate concern about the financial management of the company. Whether or not his concerns are ultimately substantiated is not to the point. The matters he has raised provide a legitimate basis for enquiry by a shareholder.
[41] [2021] SASC 107 at [78].
In Exton & Anor v Extons Pty Ltd, Sifris J observed of s 232(e):[42]
From a review of the more relevant authorities, the critical issue is commercial unfairness, judged objectively. It usually results in some harm or prejudice by such conduct that is not reasonably or commercially justifiable. Of course all of the facts and circumstances and context needs to be examined in order to determine whether such conduct alleged is oppressive. Further, upon such examination conduct that may appear unfair may be fully justified. … Each case must depend on its own facts and circumstances.
[42] (2017) 53 VR 520 at [48].
There was no contest that Ms Reuther would, ultimately, bear the cost of the preparation of the audited financial statements. As explained above, however, Mr Wallace had already agreed on a course designed to address his concerns about the diversion of funds. The fact that this agreement was primarily for his own benefit did not mean that Mr McPharlin’s conclusions would not also be applied to the benefit of the company and its sound management.
At the hearing of the appeal, counsel for Mr Wallace readily accepted that his client did not obtain any personal benefit from making the directions. He submitted that Mr Wallace was determined to proceed ‘on principle’. He did not specify the nature of the principle motivating Mr Wallace. In the circumstances of the patently acrimonious breakdown of the relationship, speculation is best avoided.
However, we are thereby left with the position where one shareholder, with a legal entitlement to 50 per cent of the shares, has determined to impose a cost on the other shareholder, who has a 50 per cent legal entitlement and a 100 per cent beneficial entitlement to the shares. With no benefit flowing to Mr Wallace, I consider that the company having to prepare audited, AAS-compliant financial statements for 2019 and 2020 is not only unfairly prejudicial to Ms Reuther in the circumstances of the mediated agreement, but also unfairly discriminatory against her.
I accept the observations of Judge Bochner and Parker J that the Act draws no distinction between a shareholder who holds shares on trust and one who holds the beneficial interest in their own rights.[43] However, the question is whether there is unfair prejudice or unfair discrimination in all the circumstances of the case. The circumstances here are unusual and cannot be divorced from the factual background of the mediated settlement between the only two shareholders.
[43] [2021] SASC 107 at [79].
Exercise of the discretion under s 233
Having concluded, contrary to Parker J’s determination, that both ss 232(d) and (e) are engaged, the question of the discretion under s 233 arises afresh. In my view, the circumstances giving rise to the adverse conclusions under s 232(d) and (e) give good reason to exercise the discretion to grant relief. There is no utility to Mr Wallace personally in the company preparing the audited financial statements, and therefore no detriment to him in the directions being set aside. In the circumstances of the mediated agreement, the directions confer little, if any material benefit upon the company. They place a not insignificant cost on the company, which would ultimately be borne by Ms Reuther. I would exercise my discretion to grant relief under s 233.
Conclusion
I would allow the appeal. I would make orders pursuant to s 233(1) relieving AWS of the consequences of the directions given by Mr Wallace on 29 June 2020 and 1 July 2020. I would hear the parties further as to the form those orders should take.