WAM Active Limited v Keybridge Capital Limited (No 2)

[2024] NSWSC 1496

Supreme Court

New South Wales

Medium Neutral Citation:

WAM Active Limited v Keybridge Capital Limited (No 2) [2024] NSWSC 1496

Hearing dates:

11-13 November 2024

Date of orders:

27 November 2024

Decision date:

27 November 2024

Jurisdiction:

Equity - Corporations List

Before:

Nixon J

Decision:

(1)   The parties are to bring in short minutes of order, by 5pm on 4 December 2024, to give effect to these reasons for judgment.

(2)   If orders cannot be agreed, the parties are to exchange and provide to the Associate to Nixon J, by 5pm on 4 December 2024, the form of orders which each party proposes and submissions (limited to 5 pages) on those orders, indicating whether, and if so why, an oral hearing is requested to deal with the issues in dispute.

(3)   In the event that a party requests an oral hearing to deal with the issues in dispute, the matter will be listed for a hearing in respect of such issues at 9.15am on 11 December 2024, or at such other time as may be arranged with the Associate to Nixon J.

Catchwords:

CORPORATIONS – application to wind up in insolvency – where failure to comply with statutory demand after dismissal of application to set it aside – presumption of insolvency – where expert evidence led regarding solvency – presumption rebutted

CORPORATIONS – application to bring derivative action – where company agreed to pay substantial sum to managing director following successful completion of a trade of securities, contingent on his entry into a standstill agreement and following completion of two-year standstill period – where company advanced the amount of the prospective payment to a foreign company owned by the managing director by way of an unsecured and undocumented loan – grant of leave to bring derivative suit not opposed – conditions for grant of leave established

CORPORATIONS – application to wind up on just and equitable ground or alternatively by reason of oppressive conduct – where company is solvent and profitable – whether grant of leave to bring derivative suit is sufficient remedy – whether ongoing risk of mismanagement and of dissipation of assets – winding up application rejected

Legislation Cited:

Corporations Act 2001 (Cth), ss 95A, 232, 233, 236, 237, 250V, 250W, 459A, 459C, 459F, 459P, 461

Cases Cited:

Ananda Marga Pracaraka Samgha Ltd v Tomas (No 6) [2013] FCA 284

Anchorage Capital Master Offshore Ltd v Sparkes (2023) 111 NSWLR 304; [2023] NSWCA 88

Asia Pacific Joint Mining Pty Ltd v Allways Resources Holdings Pty Ltd [2018] 3 Qd R 520; [2018] QCA 048

Australian Beverage Distributors Pty Ltd v Redrock Co Pty Ltd [2007] NSWSC 966

Australian Institute of Fitness Pty Ltd v Australian Institute of Fitness (Vic/Tas) Pty Ltd (No 3) [2015] NSWSC 1639

Australian Securities and Investments Commission v ABC Fund Managers (2001) 39 ACSR 443; [2001] VSC 383

Australian Securities and Investments Commission v Activesuper Pty Ltd (No 2) [2013] FCA 234

Australian Securities and Investments Commission v Edwards (2005) 220 ALR 148; [2005] NSWSC 831

Australian Securities and Investments Commission v Gognos Holdings Ltd [2017] QSC 207

Australian Securities and Investments Commission v Lanepoint Enterprises Pty Limited (2011) 244 CLR 1; [2011] HCA 18

Australian Securities and Investments Commission v Plymin (No 1) [2003] VSC 123

Bidald Consulting Pty Ltd v Miles Special Builders Pty Ltd [2005] NSWSC 397

Bzezinski v Shaw [2022] VSCA 173

Campbell v Backoffice Investments Pty Ltd (2008) 66 ACSR 359; [2008] NSWCA 95

Chan v First Strategic Development Corporation Ltd (in liq) [2015] QCA 28

Commonwealth Bank of Australia v Begonia Pty Ltd (1993) 11 ACLC 1075

David Grant & Co Pty Ltd (rec apptd) v Westpac Banking Corporation (1995) 184 CLR 265; [1995] HCA 43

Donaldson v Natural Springs Australia Limited [2015] FCA 498

Dwyer and Davies v Chicago Bot Co Pty Ltd [2011] SASC 27

Edwards v Australian Securities and Investments Commission (2009) 264 ALR 723; [2009] NSWCA 424

Expile Pty Ltd v Jabb’s Excavations Pty Ltd (2003) 45 ACSR 711; [2003] NSWCA 163

Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (1998) 28 ACSR 688; [1998] NSWSC 413

Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (2001) 37 ACSR 672; [2001] NSWCA 97

Gerard Cassegrain & Co Pty Ltd v Cassegrain [2011] NSWSC 1156

Goozee v Graphic World Group Holdings Pty Ltd [2002] NSWSC 640

Hillam v Ample Source International (No 2) (2012) 202 FCR 336; 289 ALR 192; [2012] FCAFC 73

Hislop v Paltar Petroleum Ltd (No 3) [2017] FCA 1253

In the matter of Gladstone Pacific Nickel Limited [2011] NSWSC 1235

In the matter of Keybridge Capital Limited [2020] NSWSC 1917

Kelly v J Stockwell & Co Pty Ltd [2007] NSWSC 214

Keybridge Capital Ltd v WAM Active Ltd [2021] NSWCA 203

Kokotovich Constructions Pty Ltd v Wallington (1995) 17 ACSR 478; [1995] NSWSC 54

L & D Acoustics Pty Ltd v Pioneer Electronics Australia Pty Ltd (1982) 1 ACLC 536

Lewis (as liquidator of Doran ConstructionsPty Limited) v Doran (2005) 54 ACSR 410; [2005] NSWCA 243

Li v Ye [2024] NSWSC 1176

Loch v John Blackwood Ltd [1924] AC 783

Munstermann v Rayward; Rayward v Munstermann [2017] NSWSC 133

Queensland Bacon Pty Ltd v Rees (1966) 115 CLR 266; [1996] HCA 21

Queensland Phosphate Pty Ltd v Korda [No 2] [2019] VSCA 215

Re Bideena Pty Ltd atf the Bideena Pty Ltd Superannuation Fund [2016] NSWSC 735

Re Catombal Investments Pty Ltd [2012] NSWSC 775

Re CNPR Limited [2018] NSWSC 989

Re Custom Bus Australia Pty Ltd (in liq) [2021] NSWSC 1036

Re Etna Developments Pty Ltd [2023] NSWSC 1239

Re Pure Nature Sydney Pty Ltd [2018] NSWSC 914

Re New View Windows Pty Ltd [2020] NSWSC 1905

Re Tweed Garages Ltd [1962] Ch 406

Re Wetherill Park Holdings Pty Ltd [2021] NSWSC 282

RHG Mortgage Ltd v Ianni [2015] NSWCA 56

Sarina; Ex parte Wollondilly Shire Council (1980) 32 ALR 596; [1980] FCA 138

Shakespeares Pie Co Australia Ltd v Multipye Pty Ltd [2005] NSWSC 1338

Southern Cross Interiors Pty Limited v Deputy Commissioner of Taxation (2001) 39 ACSR 305; [2001] NSWSC 621

Sutherland as Joint Liquidators of Australian Coal Technology Pty Ltd v Hanson Construction Materials Pty Ltd (2009) 254 ALR 650; [2009] NSWSC 232

Swansson v RA Pratt Properties Pty Ltd [2002] NSWSC 583

Tomanovic v Argyle HQ Pty Ltd; Tomanovic v Global Mortgage Equity Corp Pty Ltd; Sayer v Tomanovic [2010] NSWSC 152

Treloar Constructions Pty Ltd v McMillan [2017] NSWCA 72

Tzavaras v Tzavaras & Sons Pty Ltd [2023] NSWCA 168

Williams v Spautz (1992) 174 CLR 509; [1992] HCA 34

Category:

Principal judgment

Parties:

WAM Active Limited (Plaintiff)
Keybridge Capital Limited (First Defendant)
Nicholas Francis John Bolton (Second Defendant)
Lowe Lippman Pty Ltd (First Supporting Creditor)
Kerrs Law (Second Supporting Creditor)

Representation:

Counsel:
MR Pesman SC w D Krochmalik (Plaintiff)
F Assaf SC w A Gandar (First Defendant)
S Cromb (First Supporting Creditor)
L Tindal (Solicitor) (Second Supporting Creditor)

Solicitors:
Mills Oakley (Plaintiff)
Gadens (First Defendant)
HDL Legal (First Supporting Creditor)
Kerrs Law (Second Supporting Creditor)

File Number(s):

2024/65373

Publication restriction:

Nil

JUDGMENT

1. By Amended Originating Process filed 3 October 2024, the Plaintiff, WAM Active Limited, seeks orders:

1. winding up the First Defendant, Keybridge Capital Limited, in insolvency pursuant to sections 459A and 459P of the Corporations Act 2001 (Cth) (the Act);

2. alternatively, winding up Keybridge on the basis of conduct that is oppressive, pursuant to s 233(1)(a) of the Act, or on the just and equitable ground, pursuant to s 461(1)(e), (f) or (k) of the Act.

2. The proceeding commenced as an action to wind up Keybridge in insolvency, consequent upon Keybridge’s failure to comply with a statutory demand issued by WAM Active following the dismissal of Keybridge’s application to set that demand aside.

3. Subsequently, WAM Active expanded its application to include the other grounds set out above. The submissions concerning those grounds related primarily to two transactions which Keybridge had entered with its managing director, Mr Nicholas Bolton, who is the Second Defendant. The effect of those transactions was, in broad terms, as follows:

1. first, in December 2023, Keybridge agreed to pay Mr Bolton the sum of $4.75m in return for his agreeing to enter into and comply with the terms of a standstill agreement with Magellan Financial Group Ltd, such amount being payable in December 2025, at the end of the two-year period specified in the standstill agreement (the Restraint Agreement); and

2. secondly, in June 2024, Keybridge agreed to advance to Mr Bolton and an Italian company associated with him, Crotto del Nino, S.r.l., an amount of $4.75m, which was to be repayable in December 2025 by set-off against Keybridge’s liability to pay the amount due to Mr Bolton at that time under the Restraint Agreement (the Loan Agreement).

4. Mr Bolton used the funds which were advanced pursuant to the Loan Agreement in July 2024 to buy all of the shares in Crotto, which owns a residential property on Lake Como.

5. In the event only that the Court determines not to make a winding up order, WAM Active seeks leave pursuant to ss 236 and 237 of the Act to bring a derivative suit in the name of, and on behalf of, Keybridge, alleging that Keybridge’s directors breached their duties by causing Keybridge to enter into the Restraint Agreement and the Loan Agreement, and seeking compensation from the directors and Crotto for the loss suffered as a result of such breaches.

6. Keybridge did not oppose the grant of leave to bring a derivative action. Keybridge contended that, in circumstances where this relief was available, which would provide a means to redress the concerns raised by WAM Active about the Restraint Agreement and the Loan Agreement (if those concerns were established), the Court should refuse to make a winding up order.

7. In addition, Keybridge contended that the Court should refuse to make a winding up order, on the basis that the proceeding is an abuse of process.

8. These reasons set out the factual background in relation to the proceedings, and then deal, first, with the issue of insolvency; secondly, with the allegations of abuse of process; thirdly, with the application for leave to bring a derivative action; and fourthly, with the application for Keybridge to be wound up on the basis of oppressive conduct or on the just and equitable ground.

Factual background

The parties

9. Keybridge is a public company limited by shares that was incorporated on 25 June 1999. It is listed on the Australian Securities Exchange (the ASX), although its shares are currently suspended from trading.

10. Mr Bolton is the Managing Director and Chief Executive Officer of Keybridge. At the time of Keybridge’s entry into the Restraint Agreement and the Loan Agreement, Keybridge had two other directors, Mr John Patton and Mr Anthony Catalano. Mr Patton is the non-executive chairman of Keybridge.

11. WAM Active is a public company limited by shares which is listed on the ASX as an investment company. WAM Active’s investment manager is a subsidiary and controlled entity of Wilson Asset Management (International) Pty Ltd. The Wilson Asset Management Group has over $5 billion in funds under management.

12. WAM Active and related entities hold 93,753,501 (or 44.05%) of the ordinary shares on issue in Keybridge.

13. Keybridge has not paid any dividend to its shareholders since 2019.

Witnesses

14. WAM Active led lay evidence in support of its application from Mr Geoffrey Wilson and Mr Jesse Hamilton.

15. Mr Wilson is the Chairman of each of WAM Active and Wilson Asset Management, and the Chief Investment Officer of Wilson Asset Management. Mr Hamilton is the Joint Company Secretary of WAM Active and the Chief Financial Officer of Wilson Asset Management.

16. Keybridge led lay evidence from Mr Patton, but not from Mr Bolton or Mr Catalano.

17. Each party submitted that I should make adverse credit findings in respect of the other party’s witnesses.

18. Insofar as the submissions addressed particular respects in which oral evidence was not borne out by, or was inconsistent with, contemporaneous documents, I address those matters, where relevant, below.

19. Insofar as each party submitted that the other party’s witnesses were giving anything other than their genuine recollection of matters, I do not accept such criticisms in respect of any of the three main witnesses. Having observed each of them being cross-examined at length, I am satisfied that each was, as a general matter, attempting to answer honestly and directly the questions put to them.

20. While I acknowledge that, at times, each of Mr Patton and Mr Wilson was argumentative, was slow to make concessions and used emotive language, such instances were relatively isolated and probably reflected the fact that each of the opposing personalities in this matter has entrenched, but genuinely held, views regarding the merits of the application and regarding the conduct of the opposing organisation.

21. Accordingly, I have not rejected the whole of any witness’ evidence, but have instead assessed the oral evidence of each witness in respect of particular issues by reference to the specific challenges made to such evidence in cross-examination, the contemporaneous documents and the inherent likelihood of events.

22. WAM Active submitted that Mr Catalano and Mr Bolton could have “shed light” on the issues in the case and that, in circumstances where their absence is unexplained, an inference should be drawn that any such evidence would not have assisted Keybridge’s case, referring to RHG Mortgage Ltd v Ianni [2015] NSWCA 56 at [75]-[79]. However, as Keybridge submitted, there is a divergence in interests in this proceeding between, on the one hand, Keybridge and, on the other, Mr Bolton and Mr Catalano, in circumstances where Keybridge does not oppose WAM Active being granted to bring a derivative suit against those persons, making serious allegations of breach of directors’ duties and seeking substantial compensation. In any case, WAM Active did not identify any particular inference of fact which was available on the evidence and which the Court should more confidently draw by reason of the absence of Mr Catalano and Mr Bolton.

Statutory Demand

23. On 13 November 2023, WAM Active issued a creditor’s statutory demand to Keybridge for the amount of $275,032.22 (the Statutory Demand). This represented the sum of two judgment debts obtained by WAM Active following the registration of cost certificates in respect of cost orders which had been made in its favour.

24. The first judgment debt related to cost orders made in proceeding numbered 2020/163276 which was commenced by Keybridge in this Court on 1 June 2020, alleging that WAM Active had contravened provisions of the Act in relation to an off-market takeover bid. On 24 December 2020, Ward CJ in Eq dismissed Keybridge’s claim with costs: In the matter of Keybridge Capital Limited [2020] NSWSC 1917.

25. The second judgment debt related to cost orders made in proceeding numbered 2021/17104 by which Keybridge sought to appeal that decision. On 8 September 2021, Bathurst CJ, White JA and Emmett AJA dismissed Keybridge’s appeal with costs: Keybridge Capital Ltd v WAM Active Ltd [2021] NSWCA 203.

26. On 4 December 2023, Keybridge commenced a proceeding in this Court, seeking to set aside WAM’s Active’s Statutory Demand (the Statutory Demand Proceeding).

27. On 12 February 2024, the Statutory Demand Proceeding was heard before Black J. On the same day, his Honour made orders dismissing Keybridge’s application. Black J subsequently made, on 20 March 2024, a gross sum costs order in the Statutory Demand Proceeding against Keybridge in the sum of $37,038.80.

28. A presumption of insolvency arose when Keybridge failed to pay the amount of the Statutory Demand within seven days after the dismissal of the application to set it aside, pursuant to s 459F(2)(a)(ii) and s 459C(2)(a) of the Act.

29. On 20 February 2024, WAM Active commenced this proceeding seeking that Keybridge be wound up in insolvency.

30. Keybridge sought to rebut the presumption of insolvency by leading expert evidence of an insolvency practitioner, Mr Mark Roufeil. In response, WAM Active led evidence from another insolvency practitioner, Mr Quentin Olde. The areas of dispute between the experts are addressed below.

31. Keybridge did not pay the judgment debts which were the subject of the Statutory Demand until early October 2024. Those payments were made in circumstances where, after Keybridge made disclosures to the ASX regarding the Restraint Agreement and the Loan Agreement, WAM Active brought an application for the appointment of a provisional liquidator, and Keybridge offered various undertakings to the Court on 1 October 2024, in lieu of that application being determined. The undertakings given by Keybridge included an undertaking to pay the amount of the costs judgments which were the subject of the Statutory Demand, plus post-judgment interest.

32. The gross sum costs order made in the Statutory Demand Proceeding on 20 March 2024 remained unpaid until the final day of the hearing of the winding up application, after Mr Patton was unable, in cross-examination, to identify any reason why this amount had not been paid.

33. Keybridge has a number of other creditors with unpaid debts. Its own expert Mr Mark Roufeil, stated that he “observed that Keybridge has some creditors, particularly legal expenses and adverse costs orders, which remain unpaid and outside their due dates”. Keybridge’s former solicitors on the record in these proceedings, Kerrs, appeared as a supporting creditor on the winding up application, as did Lowe Lippman, a chartered accounting firm.

34. In early October 2024, WAM Active expanded the grounds of its application, seeking, in the alternative, the winding up of Keybridge by reason of alleged oppressive conduct and on the just and equitable ground. These additional grounds relate to Keybridge’s entry into the Restraint Agreement and the Loan Agreement.

Restraint Agreement

35. The Restraint Agreement was entered at around the time that an agreement was reached between Keybridge and Magellan Financial Group Ltd for Magellan to buy-back options which Keybridge held in the Magellan Global Fund.

Agreements between Keybridge and Magellan

36. Magellan is a public listed company focussing on investment in global equities and listed infrastructure. It operates the Magellan Global Fund. Prior to December 2023, the capital structure of the Magellan Global Fund consisted of “closed class” securities traded on the ASX, “open class” securities traded on a platform known as AQUA, and options in the Magellan Global Fund (MGFO). Broadly speaking, the term “closed class” refers to a fixed number of securities on issue which trade at the prevailing market price on the ASX, as opposed to an “open class” where the number of securities may fluctuate as a result of trading on AQUA at Net Asset Value.

37. Throughout 2023, Mr Bolton caused Keybridge to acquire approximately 178 million MGFO at an average cost of 0.7 cents per option and a total cost of approximately $1.3m. The MGFO were due to expire on 1 March 2024 and would have been worthless if Keybridge was not in a position to exercise them. Keybridge did not have the capital to exercise the MGFO in its own right, which would have required over $350m.

38. On 6 December 2023, following negotiations between Keybridge and Magellan, Magellan agreed to buy-back the 178m MGFO which Keybridge held, at a price of 10 cents per option (the Magellan Trade). Keybridge made what was described as a “super profit” of around $16.55m from this trade. Magellan also agreed to accelerate the conversion of its closed class securities to open securities. This occurred in June 2024, such that there is now only one form of security in Magellan Global Fund.

39. As part of these negotiations, Magellan and Keybridge agreed to enter into a standstill agreement. This agreement was subsequently executed on 11 December 2023 by Keybridge, Magellan, Mr Bolton and Aurora Funds Management Limited (the Standstill Deed). Mr Patton agreed in cross-examination that he did not have any role in the negotiation of the Standstill Deed, which was undertaken by Mr Bolton and Mr Catalano.

36. Clause 2.1 of the Standstill Deed provided as follows:

“Restrictions

Subject to clause 2.2, each of Keybridge, Aurora and [Mr Bolton] agree that, for a period of two years after the date of this Deed, each of Keybridge, Aurora and [Mr Bolton] will not (and will procure that each of its Related Entities and Associates do not) either alone or with others, directly or indirectly:

(a)    (acquire or dispose of Securities)

(i)   make or cause to be made any offer, invitation or solicitation for; or

(ii)    acquire, purchase or dispose of, or agree to acquire, purchase or dispose of,

Securities in any [Magellan] Group Member or Magellan Fund, excluding any disposal, or agreement to dispose, any Securities that have not been acquired in contravention of this Deed to a [Magellan] Group Member;

(b)   (acquire economic interest) enter into any agreement, arrangement or understanding that would involve the conferring of rights on Keybridge, Aurora and / or [Mr Bolton] or a Representative of Associate of Keybridge, Aurora and / or of [Mr Bolton], the economic effect of which is equivalent, or substantially equivalent, to Keybridge, Aurora, [Mr Bolton] or any of their respective Representatives or Associates (as the case may be) acquiring, holding or disposing of Securities in any [Magellan] Group Member or Magellan Fund or a Relevant Interest in Securities of any [Magellan] Group Member or Magellan Fund (including any cash-settled equity swap or similar derivative relating to any of Securities in any [Magellan] Group Member or Magellan Fund);

(c)   (solicit proxies) solicit proxies from any holder of Securities or otherwise seek to influence or control the management or policy of [Magellan], any [Magellan] Group Member, any Magellan Fund (including, without limitation, seeking to call, or seeking support for the calling of, a general meeting of the securityholders of any [Magellan] Group Member or Magellan Fund);

(d)   (Prohibited Conduct): engage in any Prohibited Conduct including any steps taken to:

(i)   interfere or seek to interfere with any Magellan Fund or any business relationship between [Magellan] or any of its Related Entities and any client, customer or supplier of [Magellan], any of its Related Entities or any Magellan Fund;

(ii)   otherwise hold any discussions in relation to Prohibited Conduct or other transaction in relation to any Magellan Fund or [Magellan] or any of its businesses, assets or affairs; or

(iii)    do or say anything publicly or take any action that harms the reputation of any [Magellan] Group Member or any of their Representatives, or that would reasonably be expected to lead to adverse publicity to any [Magellan] Group Member or any of their Representatives;

(e)   (litigation): commence, undertake, participate in, fund or procure the commencement of any legal proceedings, or any legal, administrative or regulatory action, or take any other legal action or step against any [Magellan] Group Member (including any [Magellan] Group member acting in the capacity as trustee or responsible entity of a Magellan Fund), Representative or Associate and they shall not use the existence of this deed as an admission for any purpose whatsoever;

(f)   (assistance): co-operate with, assist, or enter into any agreement or arrangement of any kind with, any person relating to (or in any way connected with) any action contemplated in clause 2.1(a), 2.1(b), 2.1(c), 2.1(d) or 2.1(e).”

41. “Prohibited Conduct” was defined as follows:

“any campaign, undertaking, transaction, action or similar that has a purpose that includes seeking to:

(a)   delist;

(b)    deregister;

(c)   wind up, terminate or redeem interests in;

(d)   divest all, or substantially all of the assets of;

(e)   consolidate, combine, merge or staple one or more of;

(f)   remove or appoint one or more directors or key management personnel of;

(g)   remove an existing, or appoint a new, responsible entity or trustee of;

(h)   remove any [Magellan] Group Member as manager or investment manager of;

(i)   vote against a proposal recommended by the board or responsible entity of,

any [Magellan] Group Member or any Magellan Fund (as applicable) and for the avoidance of doubt includes:

(j)   communicating with, providing advice to or procuring a party to undertake; and

(k)   soliciting proxy votes in connection with,

any of the actions set out in paragraphs (a) to (i) of this definition.”

Restraint Agreement between Keybridge and Mr Bolton

42. On 6 December 2023, Keybridge agreed to pay Mr Bolton an amount of $4.75m as consideration for Mr Bolton entering into the Standstill Agreement (the Restraint Agreement). This sum was agreed to be payable after two years, that is, at the conclusion of the period of the restraint specified in clause 2.1 of the Standstill Deed.

43. Mr Patton gave evidence that the board of Keybridge (comprising himself and Mr Catalano, with Mr Bolton recusing himself) determined on 6 December 2023 to enter into the Restraint Agreement. There were minutes of this board meeting in evidence, which appear (based on the metadata of the Word file) to have been created on around 29 February 2024. Mr Patton explained that, if he did prepare the document on around that date, he would have done so based on the handwritten notes which he kept at the time. Although a copy of those notes were not in evidence, there were a number of other examples of the detailed handwritten notes which Mr Patton took in the course of board meetings, and which were used by him to prepare typed minutes.

44. The minutes record that the meeting between Mr Patton, Mr Catalano and Mr Bolton on 6 December 2023 was conducted by video conference, and took place between 8.38pm and 8.47pm.

45. The first item in the minutes relates to the offer by Magellan to buy the MGFO held by Keybridge for a price of 10 cents per option. The minutes record a resolution by the Board (including Mr Bolton) to proceed with this transaction.

46. The second item in the minutes is as follows:

“2. PAYMENTS TO [MR BOLTON] (WITH [MR BOLTON] BEING RECUSED)

A key condition of any proposed deal between Magellan and Keybridge involves [Mr Bolton] being personally restrained for a period of two (2) years from pursuing alternative strategies which are against the interests of Magellan and its associated entities. As such, [Mr Bolton] is required to be personally named in the Standstill Agreement with Magellan.

Keybridge is also keen that [Mr Bolton] adheres to the Magellan Standstill Agreement given the importance of this transaction for Keybridge. The concept of a special one-off payment by Keybridge to [Mr Bolton] as consideration for [Mr Bolton] entering into some form of restraint agreement with Keybridge was considered prudent. Further, a fee of up to $4.75 million payable to [Mr Bolton] was considered commercially reasonable, subject to (i) Keybridge consummating a deal, as outlined above, with Magellan, (ii) Keybridge booking an after-tax profit of circa $16.5 million, and (iii) subject to suitable documentation being prepared.”

47. In his affidavit, Mr Patton gave the following evidence regarding the basis on which he concluded that the Restraint Agreement was in the interests of Keybridge:

“I considered the substantial financial benefit which would flow to Keybridge if Mr Bolton signed the Standstill Agreement and consummated a deal around this level. I was also cognisant of the risks if Mr Bolton were to leave the Company to work for one of the hedge funds interested in the deal, given his importance to the deal, as Keybridge would be left in a precarious position with insufficient financial resources to exercise the options (as this required circa $350 million of capital, which the Company did not have). Consequently, I considered it important that Mr Bolton be ‘locked in’ so that the Company could generate a substantial gain.”

48. Mr Patton also deposed that he arrived at the amount payable under the Restraint Agreement at the conclusion of the two-year period of the Standstill Agreement (being $4.75m, with a net present value of $4.3m as at December 2023) by reference to the following matters.

1. First, the 3 cent differential between the prices at which Magellan was originally offering to purchase MGFO from Keybridge and from other option holders yielded, when applied to the number of MGFO held by Keybridge, an amount of $5.38m, which Mr Patton regarded as “a proxy for the value that Magellan placed on the Standstill Agreement”.

2. Secondly, Mr Patton considered that “investment banks like Macquarie Bank and Barrenjoey would likely pay its deal makers for such a transaction” and concluded “a fee of circa 25% to not be unreasonable” (noting that the amount of $4.3m was approximately 26% of Keybridge’s profit of $16.55m from the Magellan Trade).

49. The latter factor indicates that Mr Patton regarded the payment under the Restraint Agreement as representing, at least in part, a bonus for Mr Bolton’s role in bringing about the Magellan Trade. Mr Patton acknowledged in cross-examination that this was the case.

50. Despite the Board minutes of 6 December 2023 recording that the Restraint Agreement was “subject to suitable documentation being prepared”, the Restraint Agreement was not documented until a “Restraint of Conduct Deed” was executed on 30 September 2024. The recitals to this Deed state that Magellan agreed to buy back the MGFO held by Keybridge provided that Keybridge and Mr Bolton entered into the Standstill Agreement, and continued as follows:

“D.   In circumstances where the Standstill Agreement is breached by Mr Bolton, the Company may be liable for damages and could be required to pay back all of part of the proceeds it received from Magellan for the Company’s MGFO options.

E.    To protect itself against the possibility of this occurring and as an inducement to enter the Standstill Agreement, the Company proposed to Mr Bolton that he enter this Deed in exchange for the payment of an amount at the end of the Standstill period, conditional upon Mr Bolton complying with its terms.

F.    The Board of the Company agreed it was commercially appropriate to pay Mr Bolton the sum of $4.75 million at the end of the Standstill period, having regard to a range of factors, on the basis that Mr Bolton agreed to adhere to the restrictions in the Standstill Agreement for the benefit of the Company and any further obligations in this deed. (‘Restraint of Conduct Liability’).

G.    If Mr Bolton breaches the Standstill Agreement, and the Company suffers loss, then the amount of $4.75 million payable to Mr Bolton may be reduced by a corresponding amount.

H.    The Company hereby formalises the terms of the Restraint of Conduct Liability in accordance with this Deed.”

51. Clause 2 of this Deed provided as follows:

“2.1    Mr Bolton agrees to abide by the terms and conditions set out in the Standstill Agreement for the Benefit of the Company.

2.2   The Company agrees to pay the Restraint of Conduct Liability to Mr Bolton, or an entity connected with him, at his election, at the conclusion of the Standstill Agreement, on the basis that Mr Bolton adheres to the terms of the Standstill Agreement during its term. The amount becomes due to Mr Bolton at that time whether or not he is an employee of the Company.

2.3   In the event Mr Bolton breaches the Standstill Agreement and/or this Deed, and the Company is required to pay compensation to Magellan Financial Group Ltd, or one of its related entities, Mr Bolton will be liable to repay a corresponding amount to the Company, capped at the amount of $4.75 million within 20 business days of receiving notice from the Company.”

52. The “Restraint of Conduct Liability” was defined as “a gross amount of $4.75 million payable to Mr Bolton or entities associated with him at the conclusion of the Standstill Agreement period (being two (2) years from 11 December 2023)”.

Announcements to the ASX in December 2023

53. On 7 December 2023, Magellan published an ASX Announcement entitled “Purchase of Options over Closed Class Units in Magellan”, which included the following statement:

“[Magellan] will acquire up to 500 million outstanding Options at a price of 10 cents per Option. The purchase by [Magellan] will generally be conducted on-market and holders of Options can sell through their stockbroker or financial advisor. This includes the purchase of approximately 178 million Options from Keybridge Capital Limited, which has entered into a standstill deed in support of [Magellan’s] purchase initiative.”

54. On 12 December 2023, Keybridge published an ASX Announcement in relation to the Magellan Trade entitled “Trade Realisation and Loan Repayment”. It relevantly stated as follows:

“Magellan Global Options Trade:

Keybridge Capital Limited (Keybridge) advises that it has sold its position in the Magellan Global Fund Options (ASX:MGFO) for $17.8 million.

To facilitate the trade, Keybridge and its Managing Director Nicholas Bolton agreed to enter a standstill agreement with Magellan Financial Group Limited (MFG), limiting future dealings in MFG and its related entities for a period of 2 years.

On an after tax, costs and provisions basis, Keybridge expects its after tax NTA [Net Tangible Assets] to improve by approximately 4c per share relative to its reported 31 October 2023 NTA as a result of the realisation (noting that part of the trade profits had already been booked at this time).”

55. This announcement did not refer to the Restraint Agreement by which Keybridge had agreed to pay $4.75m in December 2025.

56. On reviewing this announcement, WAM Active realised that there was a discrepancy between the amount which Keybridge would have earned from the MGFO trade and the extent of the increase in Keybridge’s Net Tangible Assets (NTA) as a result of the trade. On 12 December 2023, WAM Active’s solicitors, Mills Oakley, sent a letter to Keybridge’s solicitors, Gadens, stating as follows:

“The Realisation Announcement appears to be defective. It announces the sale proceeds of $17.8 million will result in an increase of only $0.04 net asset backing (NTA) per share after tax. … This represents approximately $5.6 million unaccounted for.”

57. Further letters were sent by WAM Active’s solicitors regarding this discrepancy on 13 and 15 December 2023, foreshadowing an application under s 247A of the Act for an order authorising WAM Active to inspect the books of Keybridge relating to the “tax, costs and provisions” which were said, in Keybridge’s announcement, to have reduced the NTA impact of the Magellan Trade.

58. Keybridge did not respond by explaining that the identified discrepancy was primarily the result of its agreement to pay Mr Bolton an amount of $4.75m. Instead, Keybridge refused to address the issue raised by its largest shareholder, with its solicitors responding as follows on 20 December 2023:

“We are instructed to confirm that our client has complied with all its disclosure obligations and the matters raised in your correspondence dated 12, 13 and 15 December 2023 will ordinarily be addressed in our client’s audited half-yearly financial report, which will be released to the market in February 2024.

We otherwise confirm that if your client commences any application pursuant to s 247A of the Corporations Act prior to the release of the half-yearly financial report, we are instructed to defend the matter, and we will rely on this correspondence on the question of costs.”

29 February 2024 – Advice and Announcement

59. On 29 February 2024, Keybridge obtained legal advice from Allen & Overy regarding the payment which Keybridge was “contemplating agreeing to make” to Mr Bolton in return for his entry into the Standstill Agreement, which was to be payable at the end of the two-year standstill period. It is apparent from the terms in which the payment was described that Allen & Overy understood that no commitment to pay that amount had yet been made. Allen & Overy noted that when they used the term “bonus” in their advice, they intended to refer not only to a discretionary bonus of $200,000 which Keybridge was proposing to pay to Mr Bolton, but also to “the proposed standstill payment”. It is not apparent from the terms of the advice whether Allen & Overy were informed that the payment was to be in the amount of $4.75m.

60. Allen & Overy stated, in setting out the background to their advice, that Mr Bolton’s employment agreement “is currently a fixed remuneration”, and does not provide for any discretionary bonus. However, “the board has recognised that a bonus is (as a commercial matter) properly payable to Mr Bolton, particularly in lieu of the personal covenants that he has entered into in the Standstill Deed with the Magellan group”. Allen & Overy noted that they had not reviewed any of the relevant communications or documents and assumed these instructions to be correct.

61. Allen & Overy’s advice included the following opinions under the heading “Governance/Board”:

“The [Keybridge] board will need to consider the commercial rationale for any bonus. In terms of any significant bonus payment, this becomes more challenging if there was no obligation to grant a discretionary bonus and if the issue is only considered after the event.

…

The directors will need to rigorously test the rationale for the grant of any discretionary bonus. If any director has a conflict he should disclose the interest and recuse himself from consideration of the matter.

Mr Bolton should not be involved in decision making about his remuneration.

If there are no directors able to bring proper independent judgment to the matter they either need to appoint alternate directors (who will need to consider their positions) or refer the matter to shareholders.

The directors need to seriously challenge themselves why the payment is in the best interests of [Keybridge], for a proper purpose, that they have exercised their judgments and discretions in good faith and for a proper purpose. They should also consider all risks associated with the matter (including challenge from Wilson Asset Management, ASIC, ASX etc) and the potential liabilities to [Keybridge] as a result of the prior disclosures.

The board’s reasons should be documented and appropriate expert advice sought regarding the commerciality of the arrangements. For example, [Keybridge] has a policy regarding engagement of remuneration consultants – consideration of that policy should be given and documented.”

62. Mr Patton agreed that Keybridge did not comply with Allen & Overy’s recommendation to seek expert advice (for example, from a remuneration consultant) regarding the commerciality of the arrangements that it had reached with Mr Bolton. He explained that this was essentially because, contrary to Allen & Overy’s understanding that they were advising on a “proposed” payment that Keybridge was “contemplating agreeing to make”, the deal had already been done:

“Q. You didn't act in accordance with that advice, did you?

A. No.

Q. Why not?

A. Because we had already struck the arrangement.

Q. So you had already struck the arrangement prior to 29 February?

A. We'd, we'd established the framework of how it would work.

Q. There was no difficulty in getting that advice after 29 February was there?

A. The egg had already been scrambled by Mr Bolton signing the standstill agreement. We couldn’t unscramble the egg.”

63. In a section dealing with compliance with ASX Listing Rule 3.1, Allen & Overy also noted that there was an issue regarding the adequacy of Keybridge’s disclosure in December 2023 (given the unexplained variance between the amount earned from the Magellan Trade and the reported increase in NTA):

“Disclosure is required at time of material variation to employment agreement as per below. If not considered to be material variation clearly disclosure required at time of grant and should have been disclosed in the 12 December 2023 announcement (as net proceeds imply that [Keybridge] was holding back $7m).

While the appropriate NTA was disclosed on 12 December 2023, if there is a subsequent disclosure there will be real questions as to what obligations existed as at 12 December 2023 and why the issue of the potential bonus was not disclosed at that time.

…

We cannot preclude now the prospect of a stakeholder such as ASX, ASIC or a shareholder alleging that the disclosure made by [Keybridge] (or any disclosure not yet made by [Keybridge], i.e. a non-disclosure) has been misleading or deceptive.”

64. On the same day as it received this advice, 29 February 2024, Keybridge released to the ASX its report for the half-year ending 31 December 2023. This report disclosed for the first time that Keybridge had entered into an agreement to pay Mr Bolton an amount of $4.3 million (net present value), with payment to be made at the end of 2025. The report stated as follows:

“•   The Company sold its position in the Magellan Global Fund Options (ASX: MGFO) for $17.8 million. Keybridge notes that it was only able to generate the super profits achieved on the MGFO transaction because of funding provided to the Company personally by its directors and makes special mention of the continued support received from its directors. The successful outcome was also achieved despite the active interference from the Company’s largest shareholder, Wilson Asset Management, and the Board continues to be disappointed by the conduct of a shareholder which seems intent on reducing the value of its investment in Keybridge for its own shareholders and all other Keybridge stakeholders;

•   To facilitate the trade, Keybridge and its Managing Director, Nicholas Bolton, agreed to enter a Standstill Agreement with Magellan Financial Group Limited (ASX: MFG), limiting future dealings in [Magellan] and its related entities for a period of two (2) years;

•   The Company has also agreed to pay Nicholas Bolton $4.3 million (NPV) [net present value] to enter into a separate agreement with the Company, with the payment to be made at the end of the two (2) year period;”

65. Under the heading “Related party transactions”: “Transactions with Directors” the report further stated as follows:

“During the half year, Mr Bolton entered a stand still agreement for two years as a necessary condition to facilitate the company’s profitable exit of its MGFO transaction. Once the terms of the standstill are satisfied, Mr Bolton will become entitled to a fee of $4.72 million. The company has provisioned for this amount in the event it becomes payable. Mr Bolton has also been granted a $200,000 discretionary performance bonus as a result of the extraordinary profits generated for Keybridge on the MGFO transaction; Mr Bolton has undertaken to direct this bonus to a charity of his choosing.”

ASX concerns about disclosure and shareholder approval

66. On 1 March 2024, ASX Limited announced that the securities of Keybridge would be suspended from quotation immediately, under ASX Listing Rule 17.3. The Market Announcement recorded that the securities were suspended “pending response to ASX queries in relation to [Keybridge’s] half year accounts for the period ended 31 December 2023 lodged on 29 February 2024”.

67. Following a number of requests by ASX for information and a number of responses by Keybridge, ASX sent a letter to Keybridge on 23 April 2024, stating that “ASX has determined that [Keybridge] has breached Listing Rule 10.1 by entering into the Bolton Restraint Agreement”. The letter stated that ASX required Keybridge “to do the following”:

“Either:

7.1    seek the approval of the holders of [Keybridge’s] ordinary securities under Listing Rule 10.1 for the payment of the $4,385,658 restraint of trade payment to Mr Bolton, and promptly document in writing, signed by [Keybridge] and Mr Bolton, an agreement to make this payment conditional upon the approval of the holders of [Keybridge’s] ordinary securities under Listing Rule 10.1; or

7.2   reverse or cancel the agreement for [Keybridge] to pay $4,385,658 to Mr Bolton, and promptly document in writing, signed by [Keybridge] and Mr Bolton, this arrangement.”

68. ASX also required Keybridge to provide an announcement to the market, in a form satisfactory to ASX, which disclosed, inter alia, ASX’s determination regarding the Restraint Agreement and “how [Keybridge] has rectified the breach of Listing Rule 10.1 by complying with” the direction set out above.

69. Keybridge provided ASX with draft announcements on 7 and 9 May 2024. These draft documents stated that Keybridge was of the view that the arrangements with Mr Bolton “strictly comply with Listing Rule 10.1”, but set out the position adopted by ASX and stated as follows:

“Consequently, Keybridge confirms that prior to the payment of the restraint liability, which is not proposed to take place until the end of the two (2) year Standstill period, the Company will seek shareholder approval.”

70. On 7 May 2024, Mr Patton had a telephone conversation with Mr James Gerraty of ASX, who is Head of Listings Compliance. Mr Gerraty kept a detailed filenote of this call, and in cross-examination Mr Patton confirmed that the note was accurate. According to this note, Mr Patton told Mr Gerraty that: “If [Keybridge] don’t pay [Mr Bolton] he will sue. That’s what he does.” Mr Gerraty recorded that he “offered no comfort” in response, reiterating that “ASX needs all of what it has asked for and nothing less”, including that Mr Bolton sign an agreement that the $4.7m payment “is subject to LR 10.1 approval”. Mr Patton “repeated a number of times [Mr Bolton] won’t sign, and that he will sue if not paid”. Mr Gerraty recorded that Mr Patton “didn’t give a clear answer about why [Mr Bolton] had this leverage over [Keybridge] to negotiate his payment”.

71. On 14 May 2024, there was a further telephone conversation between Mr Patton and Mr Gerraty, which was also the subject of a detailed file note. In this call, Mr Patton told Mr Gerraty that Mr Bolton was “not presently contactable so nothing going forward in terms of ASX requirements (and not expected to regarding variation to restraint agreement)”. Mr Patton added that it had become apparent that Keybridge could not seek shareholder approval on the basis that, if it was not given, Keybridge would not be bound to pay Mr Bolton, and proposed this alternative:

“[Keybridge] confirms date of payment to [Mr Bolton] proposed in 2 years … and if someone wishes to object can seek to intervene prior to payment being made through court action. The market would have transparency and shares could resume trading. Otherwise suspension would continue on and on.”

72. Mr Gerraty responded that ASX would be in touch shortly about this matter.

73. On 28 May 2024, ASX sent a further letter to Keybridge. ASX referred to its previous correspondence, and stated that it was “not satisfied with the level of detail” provided by Keybridge to date in its explanation of the Magellan Trade and associated agreements, “including the Bolton Restraint Agreement”. ASX requested further information and asked Keybridge to explain, if any of the agreements was not documented (which, at this time, was the case with respect to the Restraint Agreement), “how [Keybridge] proposes to satisfy ASX of the terms of the agreement or arrangement in order for ASX to assess the implications of the arrangement under the Listing Rules”.

The Loan Agreement

Meeting of Keybridge board – 6 June 2024

74. On 6 June 2024, a meeting of Keybridge’s directors was held by videoconference, which was attended by each of Mr Patton, Mr Catalano and Mr Bolton. The minutes of this meeting also appear to have been prepared well after the meeting, but in this case Mr Patton’s contemporaneous handwritten notes were available.

75. The meeting’s minutes relevantly state as follows:

“4. [MR BOLTON] MAGELLAN PAYMENT

[Mr Catalano] asked for the status of this payment.

[Mr Bolton] requested that the Company make a loan to him for the quantum of the Restraint of Trade liability which complies with ASX Listing rule 10.1. [Mr Bolton] requested that Keybridge lends to an entity connected with him which owns real property in Italy. The loan would be unsecured however the borrowing entity is asset rich.

The loan term would be tied to the Restraint of Trade liability, thereby offsetting the liability on maturity.

The loan is a related party transaction and will be disclosed in the accounts as such.

[Mr Patton] asked that the Company obtains legal advice to confirm that the provision of such a loan to [Mr Bolton] does not give rise to any issues including the ASX Listing Rules.

[Mr Catalano] said he was ok with the advance being made and added that in his view the payment should have been made before 31 December 2023.

The Board ([Mr Catalano]/[Mr Patton], with [Mr Bolton] recused) RESOLVED that a loan be advanced to an entity connected with [Mr Bolton], subject to the receipt of legal advice confirming it satisfies ASX Listing Rule 10.1, with the repayment tied to the maturity of the Restraint of Trade liability.

[Mr Patton] outlined the structure of the Restraint of Trade payment and why it complies with ASX Listing Rule 10.1.

[Mr Catalano] asked if it would be treated as a loan and, if so, should it have an interest component. Given that [Mr Catalano] believes [Mr Bolton] should have been paid in December 2023, it was his view that no interest ought to be charged.

The loan is to be offset against the Restraint of Trade liability.”

76. This loan arrangement which the board of Keybridge resolved to enter (the Loan Agreement) essentially involved bringing forward, by some 18 months, the payment of the sum that Mr Bolton would receive under the Restraint Agreement in December 2025 in the event that he complied with the terms of the Standstill Agreement in the intervening period. The loan was to be repaid at the time of, and be offset by, Keybridge’s obligation to pay the equivalent sum under the Restraint Agreement.

77. The “entity connected with [Mr Bolton] which owns real property in Italy” was Crotto, which owns a residential property on Lake Como. It appears that the loan was sought, and granted, so as to enable Mr Bolton to complete the purchase of the shares in Crotto, and thereby acquire this property.

78. Mr Patton gave evidence that, following the meeting of closed class unitholders of Magellan in June 2024, at which those unitholders voted overwhelmingly in favour of the conversion to open class securities, and with the options having expired on 1 March 2024, Mr Patton formed the view that “the prospect of Mr Bolton then being able to disrupt the Magellan Global Fund became practically impossible, with the Magellan Global Fund having more than $8 billion in funds under management and the flexibility to issue as many Open Class units on AQUA as it desires”. (It should be noted that, as WAM Active pointed out, the relevant meeting of unitholders of Magellan occurred more than two weeks after the Keybridge board meeting of 6 June 2024, and therefore could not have factored into Mr Patton’s reasoning at the time of that board meeting.)

79. There was no evidence as to whether Keybridge investigated, prior to agreeing to enter into the Loan Agreement, whether there had been compliance with the terms of the Standstill Agreement and the Restraint Deed in the period between December 2023 and June 2024. In that regard, there was some documentary evidence, which was unexplained, of buy and sell trades being undertaken by Keybridge in MGFO in March 2024.

Advice on Loan Agreement and Advancing of Funds

80. The minutes record that the Loan Agreement was “subject to the receipt of legal advice confirming it satisfied ASX Listing Rule 10.1”. It appears that Mr Patton sought oral advice on this issue. On 2 July 2024, he sent an email to Mr Catalano, which set out this advice:

“In relation to the loan to Nick [Bolton] which was approved at our Board meeting on 6 June 2024, I have spoken with Sina Kassra from Piper Alderman who confirmed:

- loans to related parties fall outside Chapter 10.1 of the Listing Rules as they do not represent disposal of an asset, however the related party provisions of the Corporations Act still need to be considered by directors

- Chapter 2E of the Corporations Act is the relevant section that sets out the director duties considerations in relation to related party loans. Within this section, s. 210 of the Corporations Act states that shareholder approval is not required where the transaction is on a commercial arms length basis.”

81. As set out above, the extent of this advice, so far as compliance with the Act was concerned, was that the terms should be “on a commercial arms length basis”. Mr Patton continued as follows:

“As such, we need to consider the proposed terms to ensure they are commercial arms length, including:

-   Loan Amount: final amount to be determined

-   Loan term: which is tied to the period set out in the Magellan Standstill Agreement (being two (2) years from Dec 23)

-   Security: the loan is to be unsecured, although will be set off against the restraint liability, assuming compliance with the obligations under that agreement are satisfied

-   Interest rate: rate to be determined

-    Other terms: to be determined

-    Documentation: an appropriate loan agreement needs to be prepared and executed.”

82. As shown by the last of the points set out above, Mr Patton was of the view that in order for the Loan Agreement to be on a commercial arm’s length basis, it would be necessary for the agreement to be documented. This did not in fact occur until 30 September 2024.

83. Mr Patton’s email to Mr Catalano appears to have been copied to Mr Bolton, who responded shortly afterwards as follows:

"On corps act and interest, there is a carve out for employees where it is a benefit related to their employment. So there is no need to charge interest, but if there is to be interest on the instrument, then I'd want to pick it up someway under the employment side.

For present purposes, why don't we just put in the same interest rate we charged Ant on the $2.4m unsecured loan for similar circumstances - 10% pa and we can sort it out in the wash.

As discussed, it's loaning into a property backed entity with considerable net equity, so whilst unsecured, in practice there is recoverable security above and beyond the restraint payment."

84. Ten minutes later, Mr Bolton sent a further email to Mr Patton, requesting payment of part of the advance under the Loan Agreement “today”:

"Per our discussions, I at least need part of this transferred into trust today. The loan agreement can't be executed until released from trust - as the borrowing entity's director won't execute until settled - but I'll have a draft ready for exchange. Btw [By the way], I'm not the director of this entity as the vendor is staying on as director for a few months as a transition.

From my perspective the board gave approval some weeks back conditional upon confirmatory advice on LR10.1 which has been received and satisfied."

85. Mr Bolton sent another follow-up email shortly afterwards, seeking that Mr Patton “confirm that you are happy for me to transfer approx. A$2m to a notary trust account pending final documentation of this loan” (emphasis added). Mr Patton agreed with this proposal, stating as follows:

“until the loan is properly documented, I’m ok with the monies being held in trust, with the funds to be released from the trust upon execution of the loan agreement”.

86. In fact, the moneys were released from trust on 8 July 2024 and disbursed to third parties, several months before the loan was documented. There was no evidence that Mr Bolton informed Mr Patton or Mr Catalano that the moneys had been paid out of trust at that time.

87. Mr Patton confirmed that, prior to entering into the Loan Agreement and advancing funds to Crotto, the board did not seek any legal advice on Italian law, including the steps required to enforce an unsecured loan agreement against an Italian company.

Funding of advance

88. Keybridge did not, as the beginning of July 2024, have sufficient cash at bank to advance the funds to Crotto under the Loan Agreement.

89. It obtained the funds for this advance from two sources: first, by borrowing $1.35m from Yowie Group Ltd on 1 July 2024; and secondly, by borrowing $3m from Mishtalem Pty Ltd on 3 July 2024.

90. Keybridge has a relevant interest of 78.359% in Yowie, which is a public company listed on the ASX. Mr Patton is the chairman of Yowie, and Mr Bolton is its Chief Executive Officer. Mr Patton explained that the sum of $1.35m was advanced by Yowie pursuant to a reciprocal loan agreement between Yowie and Keybridge, the terms of which enabled loans to be repaid at any time without penalty or called when required; and that there has been no call on the Yowie loan.

91. The loan from Mishtalem was a short-term loan, repayable in August 2024, at an interest rate of 4.1667% per month. Prepayment was permitted, subject to a minimum payment of $125,000 (representing one month’s interest at the stipulated rate).

92. Mr Patton gave evidence that this loan was repaid on 19 August 2024, using capital realised by selling listed securities.

93. In cross-examination, Mr Patton said that Keybridge could have, as an alternative to borrowing funds, sold securities in order to fund the advance, but Mr Bolton considered that it was more economical to proceed with the Mishtalem loan:

“[Mr Bolton] could have sold securities and he would have sold them at a lesser price, and then he would have had the money. So he wanted some extra time to sell them to get a higher price, so it was more economic to take this loan for a short period of time.”

Announcements to the ASX in August 2024

94. Between the meeting of the directors of Keybridge on 6 June 2024 (at which it was resolved to enter into the Loan Agreement) and the advancing of the funds by Keybridge to Crotto on 2 July 2024, Keybridge had received a further letter from ASX on 21 June 2024.

95. In this letter, ASX noted that the Restraint Agreement “remains undocumented”. ASX “reiterate[d] the statements in its letter to [Keybridge] dated 23 April 2024 that it has significant concerns about the manner in which [Keybridge] entered into a significant undocumented transaction with a related party”. (This letter is addressed in paragraphs [67]-[68] above).

96. ASX stated that, in light of these concerns, it was not satisfied that Keybridge’s “existing Related Party Policy or procedures for managing board-level conflicts of interest are adequate and appropriate”. ASX required Keybridge to update its Related Party Policy in light of “the concerns expressed by ASX in relation to [Keybridge’s] related party transactions”, and required that “the updated policy should expressly address the management of conflicts of interest at the board level and should establish a procedure for the management of these conflicts which is practical for, and which will in practice be followed by, [Keybridge]”.

97. There followed further correspondence between ASX and Keybridge. In particular, Keybridge provided ASX with various drafts of a proposed announcement in relation to the arrangements which it had entered with Mr Bolton and in relation to the revision of its Related Party Policy.

98. On 19 August 2024, Keybridge published an ASX Announcement, which included a section headed “Keybridge Suspension Update”. This section commenced by noting that Keybridge had been suspended from quotation since 1 March 2024 while it had been corresponding with ASX regarding various matters, including the following:

“d.   An undocumented agreement by [Keybridge] to pay Nicholas Bolton $4.75m to enter into a restraint agreement prohibiting Nicholas Bolton from trading Magellan securities for two years. As disclosed in the unqualified audit reviewed financial statements for the half year ended 31 December 2023, as an essential precursor to the MGFO transaction, the Company agreed to pay Mr Bolton $4.3 million (NPV) to enter into a separate back-to-back restraint agreement, for the benefit of the Company, thereby enabling the Company (and all other MGFO holders) to then realise a considerable gain, with the restraint payment to be made at the end of the two (2) year period.

Keybridge considers that such arrangements comply with Listing Rule 10.1, as the arrangements were an essential and valuable precursor to enable the Company, as well as other MGFO holders, to realise a considerable gain that it was not otherwise entitled to at the time, thereby giving rise to the creation of an asset, rather than the disposal of an asset.

Keybridge confirms that the back-to-back agreement with Mr Bolton, once finalised, will make payment conditional upon the Magellan standstill agreement with Mr Bolton being satisfied, with payment to occur at the end of the two (2) year Standstill period.

In July 2024, Keybridge advanced an unsecured loan to an asset rich entity owned by Mr Bolton equal to the unpaid standstill fee and bonus. The loan is on commercial terms and must be repaid either by the proceeds of the restraint fee or by the asset rich borrower. Further details will be provided in the Company’s annual accounts.”

99. The announcement did not disclose that the “asset rich borrower” to which Keybridge had advanced an amount “equal to the unpaid standstill fee” was an Italian company or that the loan was undocumented.

100. Keybridge’s announcement also included a section headed “Related Party Policy”. This section referred to ASX’s concerns about Keybridge’s existing Related Party Policy and its procedures for managing board-level conflicts of interest (as set out in paragraphs [95]-[96] above) and continued as follows:

“Whilst Keybridge does not agree with the ASX’s views stated above, it has engaged an external legal practitioner to review and update the Company’s Related Party Policy, as required, which will then be lodged on the Company’s website once the review is completed.”

101. At 7:00pm on 19 August 2024, ASX made a Market Announcement that the “suspension of trading in the securities of Keybridge… is expected to be lifted from the commencement of trading on Tuesday, 20 August 2024, following the receipt of market announcements from [Keybridge] in response to requests from ASX”.

102. On 22 August 2024, ASX made a further Market Announcement entitled “Suspension from Official Quotation”. This announcement stated that Keybridge had failed to pay its annual listing fees for the year ending 30 June 2025, and would have its securities suspended from quotation immediately.

103. On 3 September 2024, Keybridge released to the ASX its Appendix 4E preliminary final report for the half-year ending 30 June 2024. This report contained the following disclosure in relation to the Restraint Agreement:

“Restraint of Conduct Liability: Keybridge agreed to pay Mr Bolton $4.75 million to enter into a Restraint of Conduct Deed with the Company that is linked to the Standstill Agreement Mr Bolton agreed to sign in December 2023 prior to the Magellan MGFO Options trade realisation being consummated.

Notably, Keybridge had no capacity, in its own right, to exercise its MGFO options (which required over $350 million of capital which Keybridge did not have at that time). Accordingly, the options would have expired worthless on 1 March 2024. As part of an alternative transaction Mr Bolton was engaged in for the benefit of [Magellan] and [Magellan Options] holders, Mr Bolton, in his personal capacity, was required to execute a standstill agreement restricting his activities in relation to Magellan for the benefit of Keybridge, thereby enabling Keybridge to generate a $17.8 million realisation of an otherwise substantially worthless asset.

As part of this negotiation process on 6 December 2023, and prior to the MGFO transaction being consummated, where the market value of Keybridge’s MGFO was less than $4.5 million, the Keybridge Board (with Mr Bolton being recused) considered the broad structure of a separate restraint arrangement for Mr Bolton (including quantum, which was subject to the receipt of tax advice and the completion of the audit for the half year ended 31 December 2023), in order for Keybridge to still realise a substantial gain on this transaction.

The payment of $4.75 million, pursuant to the Restraint of Conduct Deed, is to occur at the expiry of the Standstill Agreement (in December 2025), thereby forming part of his remuneration in the financial year ending 30 June 2026. The Company recognised a liability of $4.3 million (being the Net Present Value) which has subsequently increased to $4.5 million at 30 June 2024 (due to the NPV unwind). At the time of entering the Standstill Agreement with Magellan, the capital structure of Magellan Global Fund (MGF) comprised: 1.062 billion MGFO options, 1.381 billion Closed Class securities and 2.283 Open Class securities. On 1 March 2024, the options expired and in late June 2024, the Magellan unitholders approved the conversion of the Closed Class securities to Open Class, resulting in MGF today having one class of securities and over $8 billion of NAV. Consequently, the prospects of Mr Bolton breaching the Standstill Agreement, through activist activities, is considered by the Company to be negligible.”

104. Additionally, the preliminary final report stated that, in July 2024, Keybridge had “advanced an unsecured loan of $4.95 million to an audited asset rich entity owned by Mr Bolton, pursuant to a loan agreement, equal to the unpaid standstill fee ($4.75 million)” (the Loan Funds) “and bonus ($0.2 million)”. The report continued as follows:

“The loan is on commercial terms with an interest rate of 10% p.a., capitalising yearly and the maturity date is tied to, and is to be set off against, the restraint of conduct liability payment (in December 2025). To the extent that the loan to the audited asset rich entity results in a financial benefit to Mr Bolton, this will also form part of his remuneration in the financial year ending 30 June 2026 consistent with the Restraint of Conduct payment above.”

105. Under the heading titled “Provision for restraint of conduct expenses”, $4,467,132 was recorded by Keybridge as a non-current liability for 2024. The report provided as follows:

“As at 31 December [2023], the Company provided $4,385,658 for an amount payable to Mr Bolton in-relation to his services performed in-connection with the Magellan Option trade realisation in December 2023. Subsequent to this date, the arrangement has been formalized in a formal restraint agreement and the amount will mature and be payable to Mr. Bolton in December 2025. Consequently, the amount has been reclassified to non-current liability and the liability has discounted by $81,474 reflected its net present value given the revision to its maturity date.”

106. During this period, there was also correspondence between ASX and Keybridge regarding the draft of its revised Related Party Policy. On 29 August 2024, ASX asked Keybridge the following question:

“In order to demonstrate that the [revised Related Party] policy addresses ASX’s requirements that the policy be appropriately tailored to [Keybridge’s] circumstances to meet the directions highlighted in my previous email, please provide an explanation of how the following transactions would have been managed under the revised related party policy:

1. The restraint of trade agreement with Nick Bolton, including the agreement to pay a $4.75m restraint of trade payment to Nick Bolton.

2. The unsecured loan to an asset rich entity owned by Nick Bolton, described in Note 6 (Other Liabilities) to [Keybridge’s] market announcement titled ‘Net Asset Backing – July 2024’.”

107. On 5 September 2024, Keybridge responded, by way of letter to ASX, as follows:

“As discussed during our telephone all on 27 August 2024, the revised Related Party policy does not prohibit related party transactions from occurring, as this is not possible, however it sets out the framework to manage these situations.

In relation to the queries above, because Mr Bolton is a related party and has a conflict of interest in relation to both matters, he would be recused, and these matters would be determined by the non-conflicted directors. Further, where directors require advice in relation to specific matters, the Company may consider obtaining external professional advice.

This is also consistent with the previous related party policy.”

108. On 10 September 2024, ASX confirmed that Keybridge should proceed to release its revised Related Party Policy on the ASX market announcements platform.

109. Keybridge released its revised Related Party Policy on 11 September 2024. Paragraph 6.2 of this policy has been substantially rewritten, and now provides as follows:

“As soon as the Board becomes aware of a Related Party Transaction, it should convene a meeting and establish appropriate protocols and procedures in relation to the Related Party transaction. In putting in place protocols and procedures, the Board should consider:

(a)   who should consider and approve the proposed Related Party transaction and empower them to do so. That is, should a sub-committee of non-Conflicted Directors be established and empowered to consider and approve the Related Party transaction;

(b)    a framework for information confidentiality, including considering whether information regarding the Related Party transaction should be kept confidential from the conflicted Director;

(c)   managing any influence that the Related Party (including any Director) may have in relation to the Board’s consideration of the Related Party transaction so as to enable the Directors to act in the best interests of Keybridge without regard to the Related Party’s interests;

(d)   ensuring that any transaction which confers a financial benefit of any kind on the Related Party is conducted on an arm’s length basis. For this purpose, the Board may seek the advice of Keybridge senior management, or the advice of external advisors, as to whether the proposed Related Party transaction is on terms or conditions which are no more favourable to the Related Party than would be reasonable to expect if the parties were dealing on arm’s length terms in the same circumstances (see discussion below); and

(e)   ensuring that the Board receives independent advice with respect to the Related Party transaction. Such advice may consider whether the proposed Related Party transaction is on normal commercial terms, and, in particular, evaluate or recommend the price payable.”

110. In addition, the policy has a new paragraph 7.2 which provides as follows:

“In considering whether a Related Party transaction is on an arm’s length basis, the Board (or the relevant sub-committee) should take into consideration the following:

(a)    how the terms of the proposed Related Party transaction compare with those of any comparable transactions on an arm’s length basis;

(b)   are the terms of the proposed Related Party transaction on terms that are less favourable to the Related Party than arm’s length;

(c)   are there any other options available to Keybridge (eg. Has Keybridge undertaken a tender process);

(d)   what are the implications for Keybridge’s financial position and performance;

(e)   what expert advice has been sought by Keybridge (eg from appropriately qualified advisers);

(f)    are there valid business reasons for Keybridge to enter into the proposed Related Party transaction; and

(g)    will the proposed Related Party transaction impair the independence of the relevant Director.”

Developments in September 2024

111. On 17 September 2024, Black J made orders in this proceeding requiring Keybridge and Mr Bolton to inform WAM Active, by close of business on 18 September 2024, and by way of affidavit, of the full name of the “asset rich” entity which was the recipient of an unsecured loan from Keybridge in the amount of $4.75 million, as referred to in Keybridge’s ASX Announcement of 19 August 2024.

112. On 18 September 2024, Mr Patton deposed by way of affidavit that the “asset rich” entity which was the recipient of the loan was Crotto. The sole director of Crotto is Mr Maurizio Critelli and Mr Bolton is now the company’s sole shareholder.

113. In that affidavit, Mr Patton confirmed that there “is currently no written loan agreement between Keybridge and Crotto” and stated that Keybridge’s board approved the loan to Crotto on the following terms:

“a.    The Loan is unsecured.

b.    The loan is for $4.75million.

c.    The loan is on commercial terms and must be repaid either by the proceeds of the Restraint Liability or by Crotto del Nino, S.r.l.

d.   Interest is payable on the Loan Funds at a rate of 10 percent per annum, capitalising annually.

e.   The Loan maturity date is December 2025.”

114. On the same day, Mr Bolton deposed by way of affidavit that the Loan Funds had previously been held in the “Caspani Account”, which is the bank account of a notary public that Mr Bolton has engaged in order to pay the Loan Funds (as well as other monies) to Crotto’s creditors. Mr Bolton gave evidence that the Loan Funds had been disbursed on 8 July 2024 to these various creditors, and that by that transaction, he had become the sole shareholder of Crotto.

115. On 20 September 2024, WAM Active sought, and obtained, a freezing order against Mr Bolton. At the time of granting this order, Black J made the following observations in his reasons for judgment, regarding Mr Patton’s evidence that the loan was on “commercial terms”:

“An immediate difficulty arises in that respect, however, namely that the case law, including the often cited judgment of Santow J in Australian Securities and Investments Commission v Adler (2002) 41 ACSR 72; [2002] NSWSC 171 (‘ASIC v Adler’) has recognised that, ordinarily, a transaction between a company, and its director, would need to be documented in order to satisfy a requirement that it is on ‘arm’s length’ or commercial terms. However, Mr Patton fairly makes clear that there is no executed written loan agreement between Keybridge and Crotto.”

116. On 30 September 2024, Keybridge and Mr Bolton executed the “Restraint of Conduct Deed”, which documented the terms of the Restraint Agreement (see paragraphs [50]-[52] above).

117. Also on 30 September 2024, Keybridge, Mr Bolton and Crotto entered into a written agreement which documented the terms of the Loan Agreement. This agreement refers to Mr Bolton and Crotto, collectively, as “the Borrowers”. Clause 2.1 provides as follows:

“The Company made a loan to the Borrowers, for the Restraint of Trade Liability and Bonus, equating to the principal amount not exceeding AUD $4,950,000, on or around 2 July 2024.”

118. Clause 3.1 provided that the Maturity Date (being “the period within which the Borrower is required to repay the Loan”) “is tied to the Restraint of Trade liability owed by the Company to Mr Bolton, being a date no later than 10 December 2025”. This clause further provided that: “Alternatively, the Loan Amount shall be repaid by the Borrowers within 20 business days following a default by Mr Bolton under the Standstill Agreement and/or Restraint of Trade Deed”.

119. Clause 4 provided that the Loan would bear interest at a rate of 10% per annum, with interest being calculated on the outstanding balance of the Loan at the end of each year and added to the Loan Amount.

120. Clause 6 provided as follows:

“6.1 In the event that the Mr Bolton’s employment with the Company is terminated, either voluntarily or involuntarily, and Mr Bolton otherwise satisfies the conditions of the Standstill Agreement and Restraint of Trade Deed, the full outstanding balance of the Loan Amount shall be offset against the Restraint of Trade Liability.

6.2 In the event Mr Bolton breaches the Standstill Agreement and/or the Restraint of Trade Deed, and the Company is required to pay compensation to Magellan Financial Group Ltd, or one of its related entities, Mr Bolton will be liable to repay a corresponding amount to the Company, capped at the Loan Amount, within 20 business days.”

Events in October and November 2024

121. On 1 October 2024, the proceeding was listed for the hearing of an application by WAM Active to appoint a provisional liquidator to Keybridge pursuant to s 472(2) of the Act.

122. WAM Active did not press this application, on the basis of various undertakings which Keybridge gave to the Court and to WAM Active on 1 October 2024. These included undertakings that Keybridge would:

1. not raise capital except as permitted by the Act and the ASX Listing Rules and provided that no less than twenty-four hours’ written notice is given to WAM Active prior to the conclusion of any capital raising and WAM Active is offered pro-rata participation with no less than twenty-four hours to accept any such offer; and

2. pay the assessed amount of the cost orders that were the subject of the Statutory Demand, plus post-judgment interest at Court rates. (Keybridge subsequently paid this amount to WAM Active on 11 October 2024.)

123. On 3 October 2024, WAM Active amended its Originating Process, seeking the winding up order also on the basis of alleged oppressive conduct and on the just and equitable ground.

124. On 29 October 2024, Keybridge released to the ASX its Appendix 4E Variance Report and, on 30 October 2024, Keybridge released its audited financial statements for the financial year ended 30 June 2024. Relevantly, there was a reduction in Keybridge’s net assets as at 30 June 2024 from $17.547m in the preliminary financial report to $11.431m in the audited financial report, which was principally the consequence of a reduction in the assessed fair market value of the assets as at 30 June 2024.

125. In October 2024, Keybridge offered to place 9,090,909 ordinary shares to sophisticated investors at an issue price of 5.5 cents per share, so as to raise $500,000. Keybridge provided WAM Active with notice of this proposed capital raising, and WAM Active and its associated entities confirmed their intention to take up their full pro rata entitlement.

126. Subsequently, Keybridge sought to increase the amount of this capital raising to $1.7m. Keybridge proposed that the issue of shares to WAM Active and its associated entities be subject to approval by Keybridge, with WAM Active and its associates being unable to vote, because WAM Active was a substantial holder of Keybridge’s shares (relevantly holding more than 30% of shares on issue): see Listing Rule 10.11.

127. In response, WAM Active asserted that Keybridge’s conduct was inconsistent with its “undertaking to the Court so as not to raise capital without ensuring WAM Active could preserve its voting power”, contending that Keybridge was “now seeking to both walk away from the unconditional offer (which was accepted on Wednesday 16 October 2024 and funds delivered) and its undertakings to the Court”. Keybridge disputed this interpretation of the undertaking, and disputed that its conduct breached the undertaking.

128. On 5 November 2024, Black J made orders restraining Keybridge from raising equity in this manner, on the basis that it was seriously arguable that it was in breach of the undertaking set out in paragraph [122] above, which required that Keybridge allow WAM Active to participate in any capital raising on a pro-rata basis. In particular, his Honour held that it was seriously arguable that “a requirement for an offer of pro-rata participation is directed to the fact of pro-rata participation, not merely a future prospect” of such participation; and, on that basis, “that Keybridge must ensure that WAM is able to participate on a pro-rata basis, in order to make an offer which is in fact an offer of pro-rata participation, and it is not sufficient for Keybridge to comply with that undertaking by making an offer which may or may not bring about pro-rata participation in the offer”.

129. At the commencement of the hearing before me, Keybridge sought to be released from this undertaking. In circumstances where this undertaking had been agreed, and given, as the price for WAM Active not proceeding with its application for the appointment of a provisional liquidator, where Keybridge had not established any change in circumstances since the undertaking was given, where the undertaking would cease to operate on the determination of the winding up application (whatever the result), and where it was not established that there was, in the interim, any urgent need for a capital raising to occur, I rejected Keybridge’s application.

In relation to the second, a risk to the public interest may take several forms. For example, a winding up order may be necessary to ensure investor protection or where a company has not carried on its business candidly and in a straightforward manner with the public: International Unity Insurance at [138]; see also Australian Securities and Investments Commission v Finchley Central Funds Management Ltd [2009] FCA 1110 at [3]. Alternatively, it might be justified in order to prevent and condemn repeated breaches of the law: Kingsley Brown Properties at [96]; see also AS Nominees at 527; Australian Securities and Investments Commission v Chase Capital Management Pty Ltd (2001) 36 ACSR 778 at 793. Again, there is an overlap between matters which would pose a risk to the public interest for the purpose of s 461(1)(k) and which are relevant to the appointment of a provisional liquidator.

In relation to the third, it has been said that ‘a stronger case might be required where the company was prosperous, or at least solvent’: Kingsley Brown Properties at [96]. Solvency, however, is not a bar to the appointment of a liquidator on the just and equitable ground, particularly where there have been serious and ongoing breaches of the Act: ABC Fund Managers at [124]-[130].”

249. Similar observations were made by the Victorian Court of Appeal in Queensland Phosphate Pty Ltd v Korda [No 2] [2019] VSCA 215 at [264]-[266] (Kyrou, McLeish and Niall JJA).

250. Finally, the evaluative exercise of the Court in considering a winding up on the just and equitable ground is one which must be formed at the time of hearing, and therefore having regard to the facts and circumstances of the companies which exist at that time, although the past conduct remains relevant as part of the overall factual matrix to be considered: Australian Securities and Investments Commission v Gognos Holdings Ltd [2017] QSC 207 at [12] (Bowskill J).

Relevant Principles - Oppression

251. Section 232 of the Act provides that the Court may make an order under s 233 (including a winding up order: s 233(1)(a)) 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.

252. Whereas s 232(a) applies to a course of conduct, s 232(b) and s 232(c) can apply to a single act, omission or resolution.

253. As regards s 232(d), the issue whether the conduct of a company’s affairs is contrary to the interests of the members as a whole is to be determined objectively, having regard to accepted standards of corporate behaviour and how reasonable directors would act when attending to the affairs of the company (with the focus on the interests of an individual hypothetical member and not the actual members for the time being): Goozee v Graphic World Group Holdings Pty Ltd [2002] NSWSC 640 at [41]-[42] (Barrett J).

254. As regards s 232(e), the relevant principles as to whether there is oppression were summarised in the following terms by Stevenson J in Munstermann v Rayward; Rayward v Munstermann [2017] NSWSC 133 at [22] (which was referred to with approval by the Court of Appeal in Tzavaras v Tzavaras & Sons Pty Ltd [2023] NSWCA 168 at [74]):

“1.    The test of oppression is an objective one of unfairness ….

2.    The court must look to determine whether on the balance of probabilities the objective commercial bystander would be satisfied that the affairs of the company were being conducted unfairly ….

3. A director may act oppressively in the sense relevant to the operation of s 232 and yet not breach any fiduciary or other duty owed as a director ….

4.    Conduct of a company’s affairs may be oppressive even though the conduct is otherwise lawful ….

5.    Conduct that has the effect of paralysing a company in the operation of its business is properly characterised as conduct contrary to the interests of the members as a whole ….

6.    A shareholder of 50 per cent of the shares in a company can seek relief for oppressive conduct because they do not have control in the form of power to prevent the oppression, particularly where individual strong arm tactics are used ….

7. The court must formulate an opinion about oppression or unfair prejudice as at the date of the institution of proceedings and the issue of relief under s 233 must be determined at the date of the hearing ….

8. The discretion under s 233 is wide as to the appropriate remedy ….

9. The nature of the remedy chosen by the court under s 233 will be dependent upon the conclusions drawn by the court as to the type of oppression with which the court is dealing and the court will choose the remedy which is least intrusive ….

10. The aim of any order under s 233 must be to put an end to the oppression ….

11.    The court should only look to wind up an otherwise solvent company as a ‘last resort’ …”

255. Oppression will not be found merely on the basis that the company has been mismanaged or managed poorly: Donaldson v Natural Springs Australia Limited [2015] FCA 498 at [250] (Beach J); Ananda Marga Pracaraka Samgha Ltd v Tomas (No 6) [2013] FCA 284 at [417] (Dodds-Streeton J); Re Bideena Pty Ltd atf the Bideena Pty Ltd Superannuation Fund [2016] NSWSC 735 at [57] (Sackar J); Li v Ye [2024] NSWSC 1176 at [329] (Stevenson J).

256. Conduct that is in breach of a director’s duties may, but will not necessarily, constitute oppression in one of the senses reflected in s 232(d) and (e): Campbell v Backoffice Investments Pty Ltd (2008) 66 ACSR 359; [2008] NSWCA 95 at [214] (Basten JA). Equally, a director may act oppressively in the sense relevant to the operation of s 232 of the Act, yet not breach any fiduciary or other duty owed as a director: Gerard Cassegrain & Co Pty Ltd v Cassegrain [2011] NSWSC 1156 at [49] (Barrett J).

257. In the context of a claim for oppression (just as in the context of a winding up application on the just and equitable ground), there is no absolute rule that the Court will not wind up a solvent company in a proper case: Australian Institute of Fitness Pty Ltd v Australian Institute of Fitness (Vic/Tas) Pty Ltd (No a3) [2015] NSWSC 1639 at [111] (Sackar J); Asia Pacific Joint Mining Pty Ltd v Allways Resources Holdings Pty Ltd [2018] 3 Qd R 520; [2018] QCA 048 at [46], [52] per McMurdo JA (Gotterson JA and Jackson J agreeing); Re Pure Nature Sydney Pty Ltd [2018] NSWSC 914 at [76] (Black J).

Principles – Relevance of alternative remedy

258. Section 467(4) of the Act provides as follows:

(4)   Where the application [for winding up of a company] 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.

259. In Asia Pacific Joint Mining at [47], McMurdo JA observed that:

“The evident purpose of the proviso in s 467(4) is to avoid the extreme step of a winding up if there is an alternative and adequate remedy. Consequently a winding up will be ordered if there is no other remedy which is adequate, in that it would redress the consequences of the facts and circumstances which are the basis for relief. This is another way of saying what McPherson J said in Re Dalkeith Investments Pty Ltd about the statutory predecessor of s 467(4) namely ‘that winding up is to be regarded as a remedy of last resort and which ought not to be granted if some other less drastic form of relief is available and appropriate.’ In referring to a winding up as ‘drastic form of relief’, McPherson J was referring to the far reaching consequences of a winding up. In referring to an alternative form of relief which was ‘appropriate’, his Honour was referring to what was necessary, in the interests of the applicant, to redress the consequences of the relevant events and circumstances.”

260. Her Honour also observed (at [62]) that:

“there will often be facts and circumstances by which the court has powers both under ss 233 and 461. Conduct in the nature of oppression can make it just and equitable that a company be wound up. In such cases, s 467(4) will not be engaged by the exercise of a judicial discretion. Rather, it will be engaged by an application being of the kind described in the chapeau to the provision, and by the formation of the court’s opinion that the applicant is entitled to relief, either by winding up the company or by some other means, and that in the absence of any other remedy, it would be just and equitable that the company should be wound up. Where, as in the present case, that opinion is reached, the provision by its mandatory terms, requires a winding up order unless the court is also of the opinion which is described in the proviso. The requirements of s 467(4) cannot be avoided by a court declaring that it is exercising only the discretion under s 233.”

261. In Tomanovic v Argyle HQ Pty Ltd; Tomanovic v Global Mortgage Equity Corp Pty Ltd; Sayer v Tomanovic [2010] NSWSC 152 at [43] Austin J noted that the Court has an extremely broad discretion with respect to relief. At [44]-[46] his Honour said:

“Although a compulsory buy-out is often ordered, the granting of such relief is properly subject to the broader principle that the Court will seek to craft orders which are the least intrusive to the management of the affairs of the company, consistent with the termination of the oppression: Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (1998) 28 ACSR 688 at 742 per Young J; [1998] NSWSC 413; John J Starr (Real Estate) Pty Ltd v Robert R Andrew (A’asia) Pty Ltd (1991) 6 ACSR 63. Consequently, a compulsory buy-out should not be ordered, if less drastic remedies are consistent with the termination of oppression. Further, there will ordinarily be no occasion for a buy-out, if the oppression has otherwise been brought to an end: Campbell v Backoffice Investments Pty Ltd (2008) 66 ACSR 359 per Giles JA at [123]; [2008] NSWCA 95; see also Young CJ in Eq at [382]; Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304 at [182]; [2009] HCA 25.

With respect to orders for the regulation of the future conduct of the company, orders that have been made include an order requiring investigation of various transactions in relation to moneys expended: Parker v NRMA (1993) 11 ACSR 370; RE Spargos Mining NL (1990) 3 ACSR 1 at 50.

Winding up is to be regarded as a remedy of last resort, and one which ought not be granted if some other less drastic form of relief is available and appropriate: Re Dalkeith Investments Pty Ltd (1984) 9 ACLR 247 at 252; Fexuto v Bosnjak Holdings Pty Ltd (1998) 28 ACSR 688 at 742; [1998] NSWSC 413; Short v Crawley (No 3) [2007] NSWSC 1322 at [1222] per White J; Holt v Burnside & Hollen Australia Pty Ltd [2009] VSC 95 at [78]-[81] per Robson J.”

262. In Kokotovich Constructions Pty Ltd v Wallington (1995) 17 ACSR 478 at 494; [1995] NSWSC 54, Kirby ACJ (with Priestly and Handley JJA agreeing) said that it was an “uncontroversial proposition” that “the winding up of a successful and prosperous company is an extreme step, and one which must require a strong case”.

263. In Hillam v Ample Source International (No 2) (2012) 202 FCR 336; 289 ALR 192; [2012] FCAFC 73 at [70], the Full Court of the Federal Court (Emmett, Jacobson and Buchanan JJ) said that:

“Although in our view, contrary to the submissions of the appellants, there is no presumption against winding up of the character for which they contended we accept that the warnings given in the authorities, that an order to wind up a solvent company is an extreme step, are warnings which should be borne in mind. We have borne them in mind in the present case, as did the trial judge. An order to wind up a solvent company may often be too extreme a step to take (and therefore not justified or appropriate) but that is very different from proceeding upon any ‘principle’ or assumption that a winding up order of a solvent company is inappropriate. No such implication arises from ss 232 or 233 of the Act, or should be made in those terms. The real question is whether a winding up order was appropriate to deal with and address the grounds for relief which had been established. The answer to that question must be found in the facts of the particular case.”

264. Section 233(1) expressly contemplates that the appropriate relief where oppressive conduct is established may include an order for the company to institute or prosecute specified proceedings (s 233(1)(f)), or an order authorising a member to institute or prosecute specified proceedings in the name and on behalf of the company (s 233(1)(g)).

265. Section 233(1)(g) provides a “short circuit” permitting a shareholder to carry on the equivalent of a derivative action as part of an oppression suit: Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (1998) 28 ACSR 688 at 737; [1998] NSWSC 413 (Young J) (referring to the predecessor provision in the Corporations Act 1989 (Cth)); upheld on appeal in Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (2001) 37 ACSR 672; [2001] NSWCA 97 at [142] per Spigelman CJ, [527]-[528] per Priestley J.

Should a winding up order be made?

266. WAM Active submitted a winding up order should be made because:

1. having regard to the directors’ conduct in relation to the Restraint Agreement and the Loan Agreement, there is a justifiable lack of confidence in the conduct and management of the affairs of Keybridge, there is a real danger to the public interest in permitting the current directors to remain in control of the company, and there has been, in the management of Keybridge, patent commercial unfairness to WAM Active and other shareholders who are unrelated to the directors; and

2. “although it has sometimes been said that a winding up order is not made lightly, in the present case, there is no other mechanism to bring the oppression to an end or to deal with the ongoing corporate mismanagement of Keybridge.”

267. Keybridge submitted that no winding up order should be made because:

1. insofar as there has been oppression in the management of Keybridge’s affairs (and, in particular, by reason of the directors causing Keybridge to enter into the Restraint Agreement and the Loan Agreement), the grant of leave to bring a derivative action in respect of the directors’ conduct is a sufficient remedy; and

2. it is not just and equitable to order the winding up of Keybridge in circumstances where:

1. Keybridge is both solvent and profitable;

2. the complaints about corporate governance are confined to two related transactions;

3. the derivative action is available to prosecute any breach of duties in respect of those transactions, and to recover any compensation for loss resulting from such breaches;

4. there have subsequently been changes to the board and to Keybridge’s Related Party Policy; and

5. there is no deadlock on the board or between shareholders.

268. For reasons given above, I am satisfied that Keybridge is solvent. In addition, in the last financial year, it reported a profit of $7.158m after tax. While these matters do not present a bar to a winding up order, I recognise that the winding up of a solvent and profitable company is an extreme step and one which must require a strong case (Kokotovich at 494; Hillam at [68]); and that winding up ought be regarded as a remedy of last resort and one which ought not be granted if some other less drastic form of relief is available and appropriate (Tomanovic at [46]).

269. Further, I have determined that WAM Active is entitled to a grant of leave to bring a derivative action against the directors in respect of the Restraint Agreement and the Loan Agreement. In this action, WAM Active proposes to seek compensation for any loss or damage which Keybridge has suffered by reason of its entry into those Agreements. As noted above, Keybridge submitted (and WAM Active did not dispute) that there is “a ready pool of assets” against which any award of compensation may be enforced. Accordingly, I proceed on the basis that, if breaches of duty are established in respect of the Restraint Agreement and the Loan Agreement, and it is found that Keybridge has suffered loss, as a result of those breaches, in the amount paid to Crotto and Mr Bolton in July 2024, then Keybridge will be able to obtain compensation for those breaches.

270. The question therefore arises as to whether, in circumstances where Keybridge is solvent and profitable, the grant of leave to bring that action would be a sufficient remedy, such that it is unnecessary to take the extreme step of ordering that Keybridge be wound up.

271. As outlined above, WAM Active contended that a winding up order was the only appropriate form of relief, having regard to the gross mismanagement of Keybridge’s affairs in relation to the Restraint Agreement and the Loan Agreement.

272. In the event that I refuse the winding up application, and the derivative suit is pursued, the issues of breach of duty in relation to the Restraint Agreement and the Loan Agreement will be fully explored in that proceeding, to which each of the directors will be a party. In those circumstances, it is undesirable to express any view on the allegations of mismanagement of Keybridge’s affairs in relation to the Restraint Agreement and the Loan Agreement, except to the extent that it is necessary to do so to determine the winding up application.

273. Given that is so, I consider that the critical issue of whether the grant of leave to bring the derivative action is a sufficient remedy can be approached in the following way. Let it be assumed (without making any determination) that, as WAM Active put it, there was “gross mismanagement” of Keybridge’s affairs in relation to the Restraint Agreement and the Loan Agreement, resulting in the “dissipation” of $4.75m of Keybridge’s assets to Crotto and Mr Bolton. On that assumption, is the grant of leave to bring the derivative suit in relation to those matters a sufficient remedy, or should the Court go further and take the extreme step of ordering that Keybridge be wound up? If, on the stated assumption, the grant of leave to bring the derivative suit would be a sufficient remedy, there is no need for the Court to go on to consider whether or not the assumption is made good. Instead, this is a matter which can be, and should properly be, determined in the derivative suit.

274. In relation to this critical issue, WAM Active advanced the following contentions in its closing written submissions.

1. The grant of leave to bring a derivative action “does not prevent the ongoing gross mismanagement of Keybridge’s affairs and dissipation of cash while Keybridge remains under the control of its present directors”.

2. It is “critical to appoint a liquidator now”:

1. because “it is manifest from Mr Patton’s evidence that he is far too close to Mr Bolton (apart from anything else, he referred to him consistently as ‘Nick’ and sought consistently to defend Mr Bolton’s conduct) and has been unable objectively and dispassionately consider the best interests of Keybridge”; and

2. because “of the speed at which current management can denude Keybridge of its remaining assets, particularly noting the recent revision of Keybridge’s accounts (which led to the reduction of its net assets) and the limited remaining cash available in Yowie”.

3. Keybridge “must be wound up on the basis of oppressive conduct or on the just and equitable basis” because:

1. “this is plainly a company run for the benefit of Mr Bolton”;

2. “the current directors have consistently favoured Mr Bolton without appropriate regard to the best interests of Keybridge”;

3. “there is a real risk of ongoing dissipation of Keybridge’s assets for the benefit of Messrs Bolton and Patton”;

4. “there is no realistic offer to buy-back WAM’s shares (let alone at fair value having regard to the payment to Mr Bolton)”; and

5. “nothing less than a winding up order will bring the oppression to an end and such a remedy is otherwise just and equitable”.

275. I accept that the open offer which Keybridge made on 28 October 2024, subject to shareholder approval, for a selective buy back of all shares owned by WAM Active and its related entities can be put to one side. Although this was expressed as an offer to buy WAM Active’s shares “for fair market value as independently assessed”, it was subject to a condition that WAM Active and its related entities “forever release Keybridge and its directors and officers from all claims being the subject of the proceeding”. Given that Keybridge has not opposed the grant of leave to WAM Active to pursue a derivative claim against its directors, and has submitted that such a grant of leave was the appropriate relief for WAM Active’s oppression claim (including because, if the claim is established, it may lead to recovery of any loss or damage suffered by any breach of duties), I do not consider that WAM Active has acted unreasonably in rejecting that offer.

276. The fact that Mr Patton referred to Mr Bolton as “Nick” does not establish that Mr Patton is “too close to Mr Bolton”. Further, the submission that Mr Patton sought to defend Mr Bolton’s conduct must be seen in a context where it was Mr Patton’s evidence and, I am satisfied, his honest belief, that Mr Bolton achieved an “unbelievable result” on the Magellan Trade, in circumstances where he faced “massive interference” in relation to that trade and “persevered in the face of that criticism”. Mr Patton rejected the proposition that he “as chairman of Keybridge will just do what Mr Bolton tells” him. He accepted that he does “enjoy a good relationship” with Mr Bolton, but added: “it’s not to say that we do not have our moments”. Further, there are examples where Mr Patton has taken steps which he considered were in Keybridge’s interests, rather than in Mr Bolton’s interests. For example:

1. in relation to the Restraint Agreement, Mr Catalano had proposed that the sum of $4.75m be paid to Mr Bolton immediately in December 2023, but Mr Patton required that it only become payable at the end of the two-year period stipulated in the Standstill Agreement and conditional on compliance with that agreement; and

2. in relation to the Loan Agreement, Mr Catalano had proposed that it be interest free, but Mr Patton required an interest rate of 10% per annum.

277. There is plainly some tension between WAM Active’s submission, in the context of the insolvency argument, that it has not been established that the assets of Keybridge were liquid and its submission, in the context of the “just and equitable” argument, that it is necessary to appoint a liquidator “because of the speed at which current management can denude Keybridge of its remaining assets”.

278. In making the latter submission, WAM Active referred to two matters: “the recent revision of Keybridge’s accounts (which led to the reduction of its net assets) and the limited remaining cash available in Yowie”. As regards the first matter, the reduction in net assets, between the preliminary and the final financial report for FY2024, was primarily due to a reduction in the assessed fair value of certain investments as at 30 June 2024 (as explained in Keybridge’s ASX Announcement of 29 October 2024). As regards the second matter, I have referred above to Mr Patton’s evidence that Yowie generated substantial cash each month from its trading activities.

279. Ultimately, WAM Active’s submission was that the directors’ conduct in respect of the Restraint Agreement and the Loan Agreement established that there is “ongoing gross mismanagement of Keybridge’s affairs”; that Keybridge is “run for the benefit of Mr Bolton”; and that “there is a real risk of ongoing dissipation of Keybridge’s assets for the benefit of Messrs Bolton and Patton”.

280. One immediate difficulty with this contention is that there is no evidence of any dissipation of assets for the benefit of Mr Patton.

281. Nor did WAM Active advance submissions that there had been any wrongful dissipation of assets to Mr Bolton, other than in respect of the Restraint Agreement and the Loan Agreement. Although these are two separate agreements, six months apart, they are closely related, being agreements by which the directors of Keybridge first agreed to pay, and then paid, an amount of $4.75m to Mr Bolton. Further, that payment was regarded, at least in part, as a bonus in respect of a trade which Mr Bolton had successfully put together and executed, and by which Keybridge had earned an extraordinary “super profit” of $16.55m.

282. I do not consider that those matters provide a sufficient basis to draw an inference, in more general terms, that the company is being run for Mr Bolton’s benefit or that there is an ongoing risk that assets will be dissipated to Mr Bolton.

283. While past instances of mismanagement of a company can establish a justifiable lack of confidence in management and a real danger to the public interest, the Court must form a view as to whether it is just and equitable that Keybridge be wound at the time of the hearing, and therefore must have regard to all the facts and circumstances of Keybridge which exist at that time.

284. The current circumstances of Keybridge include that it has a new director. On 27 September 2024, each of Mr Patton, Mr Bolton and Mr Catalano signed a circular resolution appointing Mr Richard Dukes as an additional non-executive director. Mr Dukes is a lawyer in private practice specialising in taxation and commercial law.

285. Further, Keybridge’s current circumstances include that, as set out at paragraphs [106]-[110] above, it has substantially revised its Related Party Policy. Those revisions were undertaken in consultation with ASX, and in response to ASX’s concerns regarding the Restraint Agreement and the Loan Agreement.

286. WAM Active did not refer to those current circumstances in advancing its submission that there were “ongoing” risks of gross mismanagement and of the dissipation of assets.

287. Finally, WAM Active did not advance a submission that there was any deadlock between the directors or the shareholders or that, as the largest shareholder, it was shut out of any say in the management of Keybridge. In that regard, the following matters were disclosed by the evidence on this application:

1. On 17 April 2020, Mr Bolton wrote to Mr Wilson, advising him that the board of Keybridge had unanimously resolved to offer him a seat on the Keybridge board, as the representative of WAM Active, subject only to the receipt of a signed consent to act. No formal response to that offer was received from Mr Wilson.

2. In June 2022, WAM Active nominated Mr Wilson, Mr Hamilton and Mr McCathie to be elected as directors of Keybridge. However, on 5 October 2022, WAM Active advised Keybridge not to include its director nominations for the upcoming Annual General Meeting (AGM). Those matters were set out in the Notice of Meeting and Explanatory Memorandum in relation to the 2022 AGM, which was released to the ASX on 21 October 2022. Mr Patton deposed that, if this request to withdraw the nominations had not been made, the resolutions for the WAM Active director appointments would have been put to Keybridge shareholders for a vote.

3. On 31 October 2024, Keybridge issued a Notice of AGM, which is to be held on Friday, 29 November 2024. The resolutions to be put to shareholders at the AGM include a resolution to elect Mr Dukes as a director (which is required under Keybridge’s constitution, as he was appointed by the board); a resolution to re-elect Mr Catalano as a director; and an advisory non-binding resolution to adopt the remuneration report (being a resolution in respect of which each director and any closely related party of a director is excluded from voting their shares). In addition, the Notice of AGM includes a contingent resolution to hold a board re-election meeting. That is because, at the 2023 AGM, the remuneration report was not passed by shareholders. This constituted a “first strike”. If at least 25% of the votes cast at the 2024 AGM are against adopting the remuneration report, this will constitute a “second strike”, and the resolution to hold a board re-election meeting (a “spill resolution”) will be put to shareholders as an ordinary resolution pursuant to s 250V of the Act. The consequences of a “spill resolution” being passed are set out in s 250W of the Act. It is uncertain how these matters will play out at the 2024 AGM.

Conclusion – Form of relief

288. For the reasons outlined above, I am not satisfied that there is a real risk of “ongoing gross mismanagement of Keybridge’s affairs” or of “ongoing dissipation of Keybridge’s assets for the benefit of Messrs Bolton and Patton”, such as to establish “a real danger to the public interest” and such as to justify the extreme measure of the winding up of a solvent and profitable company. Insofar as there has been mismanagement of Keybridge’s affairs in relation to the Restraint Agreement and the Loan Agreement (being an issue which I have not determined), this is a matter which can be addressed by the derivative suit against the directors of Keybridge and Crotto. In those circumstances, the grant of leave to bring that suit is a sufficient remedy for any oppression in the management of Keybridge’s affairs in relation to those agreements.

289. Accordingly, I reject the application for an order that Keybridge be wound up.

orders

290. I have determined that WAM Active should be granted leave to bring the derivative action, and that its application for an order that Keybridge be wound up should be dismissed.

291. I acknowledge that this reflects the position that Keybridge adopted at the start of the hearing. However, I will give the parties the opportunity to make submissions on the appropriate costs orders, in the event that a costs order cannot be agreed.

292. Accordingly, I make the following orders.

1. The parties are to bring in short minutes of order, by 5pm on 4 December 2024, to give effect to these reasons for judgment.

2. If orders cannot be agreed, the parties are to exchange and provide to the Associate to Nixon J, by 5pm on 4 December 2024, the form of orders which each party proposes and submissions (limited to 5 pages) on those orders, indicating whether, and if so why, an oral hearing is requested to deal with the issues in dispute.

3. In the event that a party requests an oral hearing to deal with the issues in dispute, the matter will be listed for a hearing in respect of such issues at 9.15am on 11 December 2024, or at such other time as may be arranged with the Associate to Nixon J.

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Decision last updated: 27 November 2024