Citi Project Marketing (Qld) Pty Ltd v VG Projects Pty Ltd [2017] QSC 65 [2018] 1 Qd R 100

SUPREME COURT OF QUEENSLAND CITATION: Citi Project Marketing (Qld) Pty Ltd and Anor v VG projects Pty Ltd and Ors [2017] QSC 65 PARTIES: CITI PROJECT MARKETING (QLD) PTY LTD ACN 602 230 419 (first applicant) SAMSARA ONE PTY LTD ACN 162 172 205 (second applicant) v VG PROJECTS PTY LTD ACN 150 396 311 (first respondent) CHRISTOPHER JOHN VITALE (second respondent) PAUL GEDOUN (third respondent) POINTCORP HOLDINGS PTY LTD ACN 168 808 151 (fourth respondent) SAMUEL BRIAN PATTERSON (fifth respondent) FILE NO/S: BS No 12975 of 2016 DIVISION: Trial Division PROCEEDING: Application ORIGINATING COURT: Supreme Court at Brisbane DELIVERED ON: 28 April 2017 DELIVERED AT: Brisbane HEARING DATE: 3 February 2017 JUDGE: Martin J ORDER: 1. The winding up application is dismissed. 2. It is declared that the Extraordinary General Meeting of 24 December 2016 and the resolutions passed at it were valid. CATCHWORDS: CORPORATIONS – WINDING UP – WINDING UP IN INSOLVENCY – OTHER GROUNDS FOR WINDING UP – JUST AND EQUITABLE – IMPOSSIBILITY OF EFFECTIVELY CARRYING ON BUSINESS – where the relationship between shareholders has broken down – whether the corporation is a quasi-partnership – whether the purpose of the corporation has failed – whether the -- 1 of 17 -- 2 corporation should be wound up on the just and equitable ground CORPORATIONS – MANAGEMENT AND ADMINISTRATION – MEETINGS – MEETINGS OF DIRECTORS – QUORUM – where Extraordinary General Meeting lacked quorum – where lack of quorum constituted a procedural irregularity – whether that irregularity caused a substantial injustice that could not be remedied by any order of the Court – whether the Extraordinary General Meeting and the resolutions passed at it should be declared valid Corporations Act 2001 Chalet Nominees (1999) Pty Ltd v Murray [2012] WASC 147 Cumberland Holdings Ltd v Washington H Soul Pattinson & Co Limited (1977) 13 ALR 561 Ebrahimi v Westbourne Galleries Limited [1973] AC 360 Greig v Australian Building Industries Pty Ltd [2002] QSC 138 Guerinoni v Argyle Concrete & Quarry Supplies Pty Ltd (1999) 34 ACSR 469 Malos v Malos (2003) 44 ACSR 511 Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692 Neena v ASIC (2011) 198 FCR 32 Netbush Pty Ltd v Fascine Developments Pty Ltd (2005) 189 FLR 320 Re Compaction Systems Pty Ltd [1976] 2 NSWLR 477 Re Dalkeith Investments Pty Ltd (1984) 9 ACSR 247 Re Pembury Pty Ltd [1993] 1 Qd R 125 Re Tivoli Freeholds Ltd [1972] VR 445 Re Yenidge Tobacco Co Ltd [1916] 2 Ch 426 Ruut v Head (1996) 20 ACSR 160 Stapp v Serge Holdings Pty Ltd (1999) 31 ACSR 35 Thomas v Mackay Investments Pty Ltd (1996) 22 ACSR 294 Turner v Ulicorp Pty Ltd [2007] NSWSC 206 Whitehouse v Capital Radio Network Pty Ltd (2004) 13 Tas R 27 COUNSEL: D Savage QC and M Jones for the second applicant and fifth respondent -- 2 of 17 -- 3 P Dunning QC and M D Alexander for the second, third and fourth respondents SOLICITORS: Tucker & Cowen for the second applicant and fifth respondent HWL Ebsworth for the second, third and fourth respondents [1] There are two applications before the court. The first, by Samsara One Pty Ltd (‘Samsara’), seeks an order winding up Citi Project Marketing (Qld) Pty Ltd (‘Citi’). The second, by Messrs Vitale and Gedoun and Pointcorp Holdings Pty Ltd (‘Pointcorp’), seeks a declaration that an Extraordinary General Meeting of 24 December 2016 and the resolutions passed at it were valid. [2] The evidence was confined to numerous affidavits, without any deponent being cross- examined. The parties [3] VG Projects Pty Ltd (‘VG Projects’) wholly owns Pointcorp. Mr Vitale and Mr Gedoun are directors of both VG Projects and Pointcorp. Pointcorp is a member of the Pointcorp group of companies which carries on the business of acquiring, developing and selling properties. [4] In January 2013, VG Projects contracted with Samsara to perform general sales duties on residential development projects for the Pointcorp group of companies by way of off the plan contract sales on a commission only basis. Samuel Patterson is the sole shareholder and director of Samsara. [5] Between November 2013 and October 2014 discussions took place about a new trading name. In November 2013, Mr Vitale sent an email to Mr Gedoun and Mr Patterson in which he set out the terms upon he which he had applied to register the business name Citi Project Marketing. It included the following: “This entity will be a division of Pointcorp, and Pointcorp will provide 100% of the working capital to fund the business … The strategy behind this entity is to list high quality inner city residential projects from 3rd party developers who do not want to pay 6% to property developers.” [6] In October 2014, Messrs Vitale and Gedoun decided to establish a company to undertake project marketing for developments of the Pointcorp Group. Discussions then took place between those two and Mr Patterson. [7] The restructure proposal was formulated in this way by Mr Vitale in a letter to Mr Patterson: -- 3 of 17 -- 4 “We propose to set up a new company Citi Project Marketing Pty Ltd which will obtain its own real estate licence with Paul Gedoun as the licensee. Sam Patterson will be appointed as a director of Citi Project Marketing Pty Ltd. Pointcorp Holdings Pty Ltd will fund any shortfall of the costs associated with running the project marketing business until it is trading profitably. These costs are estimated at $36,000 per month. These funds are to be treated as a loan and will be repaid prior to any profit shares being paid to shareholders. Sam Patterson will act as the sales manager of the business and be paid as an agent for each of the sales he makes on any projects he sells, the sales commission paid to the agents for Project sales as per the cash flows provided is .7% of each sale. Sam Patterson will receive an override for all project sales of .3% subject to all Sales Manager KPIs being met. Chris Vitale will provide overall strategy and direction to the business, and be classed as general manager of the business. Subject to profitability, and retention of cash reserves to fund the business, profit share is to be distributed once every month to the shareholders of the business. Samsara Pty Ltd shareholding will be 33.33% Pointcorp Holdings Pty Ltd shareholding will be 66.66%.” [8] Citi was incorporated in 2014 (in accordance with that proposal) with the intention that it would market residential unit developments undertaken by Pointcorp and other developers. On 2 November 2014, Citi’s share capital consists of 90 shares. Of those, 60 are owned by Pointcorp and 30 by Samsara. It was agreed that Pointcorp would be responsible for the books of account and financial management of Citi. As part of the new venture it was agreed that Samsara would have the commission of 2% which had previously applied reduced to .7% with a .3% override if certain conditions were met. [9] The shareholders and directors of Pointcorp are Messrs Vitale and Gedoun (who, together with Pointcorp, will be referred to as the “Pointcorp parties”). [10] Mr Patterson was the sole director of Citi until he was removed on 24 December 2016. A short history of the disputes [11] Difficulties arose in the relationship with Samsara almost immediately. In particular, Messrs Vitale and Gedoun became concerned about the manner in which Mr Patterson was conducting his duties. In November 2014, Mr Patterson told Mr Vitale and Mr Gedoun that “he was struggling to manage Samsara and its creditors”. Some six months later he stated that “he could not continue to manage Citi Projects as Samsara had no money and could not meet its obligations”. The three then had discussions about the -- 4 of 17 -- 5 problem and agreed to alter the payment regime so that Mr Patterson would receive a salary of $150,000 a year with no commission payments. [12] Mr Patterson successfully sought an increase in his salary to $211,200 in June 2015. From that time until April 2016 he was paid $17,600 a month. [13] Mr Patterson’s financial position deteriorated further and, in September 2015, he told Mr Vitale and Mr Gedoun that Samsara was in financial difficulty again, that it had failed to meet its tax obligations, and that the ATO had demanded payment of $120,000. This issue was discussed and, later that month, Mr Patterson produced a payment plan and told them that he would require a loan of $5,000 a month to meet the ATO commitments. This was agreed to and payments of $5,000 were made to Samsara on a monthly basis. [14] Apart from Mr Patterson, Citi also employed other sales and support staff. It also maintained three bank accounts which can be referred to as General, Trust and Marketing. Those accounts could only be operated by at least two of the three signatories – Mr Vitale, Mr Gedoun and Mr Patterson. [15] The history of events and relationships is in dispute and Mr Patterson denies parts of the history related by Mr Vitale. He does not, though, often descend to giving his reasons for those denials. Many of the disputes need not be resolved at this time. [16] In late 2016, a dispute arose about the balance of commissions due to be paid by Citi to Samsara and VG Projects on the sale of units in a particular development. This dispute has not been resolved. [17] Another dispute arose with respect to allegedly unauthorised operations on Citi’s trust account. Mr Patterson asserts that Citi’s financial accounts contained irregularities and were not being managed by Pointcorp in the best interests of Citi. [18] In January this year, actions were taken by Mr Patterson which led the Pointcorp parties to seek and obtain freezing orders against Mr Patterson. His conduct requires some examination as it relevant to both of the applications. [19] On 25 November 2016, Mr Vitale became aware that the existing authority to operate Citi’s ANZ bank accounts had been revoked and replaced with a new authority that only one director could operate the accounts. This was done by Mr Patterson. He had also: (a) removed the internet access previously available to Mr Gedoun and Mr Vitale to the bank accounts; and (b) changed the corporate key with ASIC. [20] Upon becoming aware of those actions, Mr Gedoun (through his solicitors) sought undertakings from the Mr Patterson that he would: (a) not access the bank account funds without advising him and Mr Vitale; (b) only use the bank account funds as agreed; and -- 5 of 17 -- 6 (c) immediately reverse the change to the bank authority, so that the signature of two directors was required. [21] Mr Patterson’s solicitors responded and gave some but not all the assurances sought. The events which followed may be summarised in this way: 28.11.16 Pointcorp issued a notice calling for an Extraordinary General Meeting to remove Mr Patterson as director and be replaced by Mr Vitale and Mr Gedoun 29.11.16 Mr Gedoun instructed Mr Jenkins of HWL Ebsworth to notify Mr Patterson's solicitor at Tucker and Cowan Solicitors that both Mr Vitale and he were seeking to be appointed to the board and become directors of Citi and that if Mr Patterson agreed to that, they would withdraw the proposal to have him removed as a director. 02.12.16 On behalf of Citi, Tucker and Cowan called an EGM for 2pm on Saturday 24 December 2016 at their offices to consider resolutions including the removal of Mr Patterson as a director of Citi and the appointment of Messrs Gedoun and Vitale as directors. 21.12.16 Mr Patterson registered Duke Realty Pty Ltd and began operating this business in competition with Citi. 22.12.16 Mr Patterson transferred $580,000 into the Duke Realty Pty Ltd CBA bank account from Citi's Bank Accounts. 23.12.16 Mr Russell (on behalf of Pointcorp) wrote to Tucker and Cowan, notifying them that he had been appointed the Corporate Representative of Pointcorp to attend the general meeting and enquiring as to the arrangements which they would make to permit him to gain access to the venue for the meeting at 2.00 pm on 24 December 2016. 24.12.16 At 1:40pm, Mr Russell attended at the offices of Tucker and Cowan. There was no one in attendance. Telephone calls to Mr Tooth, Mr Tucker and Mr Patterson were not answered. At 2:20pm, when none of Mr Tucker, Mr Tooth or Mr Patterson returned any of the above calls, Mr Russell and Mr Jenkins held the meeting called by Mr Tucker and the resolutions were passed. 27.12.16 Mr Tucker sent the following email: Dear Colleagues, We refer to the General Meeting of Citi Project Marketing (Qld) Pty Ltd (‘Citi’) convened for 2.00pm on 24 December 2016. Our client, Samsara One Pty Ltd, did not attend this meeting. -- 6 of 17 -- 7 Accordingly, a quorum was not present pursuant to clause 20.7 of Citi’s Constitution. As a result, the meeting has been adjourned to the same time and place on 31 December 2016 under clause 20.9(c) of Citi’s Constitution. No explanation was given for the failure to attend the meeting or why the venue for the meeting was locked. 30.12.16 Mr Gedoun was informed by the accountants for Citi that there had been some “significant withdrawals” from the Citi accounts. Those withdrawals amounted to approximately $1,400,000. They had taken place between 30 November 2016 and 28 December 2016. 31.12.16 Again, neither Mr Patterson nor Samsara One attend the “adjourned EGM”. 03.01.17 The Pointcorp parties obtained, on an ex parte basis, various freezing orders and injunctions. On the return date of 6 January and again on 12 January, Mr Patterson was ordered to explain the whereabouts of the withdrawn funds and to return them to a secure account. [22] The case presented by Samsara was in a number of parts. First, in its written submissions, it concentrated on what it described as the “particular principles [which] apply in the case of companies which fall within the ‘quasi-partnership’ analogy”. It was submitted that this “is a paradigm example of a quasi-partnership company”. In oral submissions it was said that the “written submissions … dwell upon the prospect that the company is what’s sometimes called in the authorities a quasi-partnership; that is, it’s a small proprietary company with personal interests, the operation of which depend upon the trust and faith reposed in the parties”. [23] But, in the submissions in reply, Samsara changed emphasis and argued that its case did not “depend upon quasi-partnership. It depends upon there being … two shareholders in which the substance of the company – or the business purpose of the company [has] ceased”. [24] In addition to the argument based on the principles which apply to quasi-partnerships, the grounds relied upon by Samsara may be summarised as follows: 1. Citi was formed for the particular purpose of marketing property developments. That business has come to an end, primarily through the actions of the Pointcorp parties. 2. There is a deadlock between the two shareholders. 3. Pointcorp appears to be intent on excluding Samsara from information about Citi and the benefits of its business. -- 7 of 17 -- 8 4. The relationship between the shareholders has broken down. They communicate only through their solicitors. 5. Pointcorp has not properly maintained Citi’s accounts. There are disputes about whether various debts have been paid. [25] As I have noted above, there was no cross-examination of the deponents and so in many instances I am left with nothing more than assertion and counter-assertion which cannot be resolved. This, in any event, is not the time to attempt such a resolution. Rather, it is part of the background against which I must decide whether Pointcorp has established its case. I bear in mind that a winding up order is not available simply for the asking. It is a drastic remedy which will ordinarily be ordered as a last resort in the absence of any alternative remedy.1 What is a quasi-partnership? [26] The provision of the Corporations Act 2001 under which Samsara seeks the winding up order is s 461(1)(k). It provides that the court may order the winding up of a company if “the court is of opinion that it is just and equitable” to do so. [27] The term “just and equitable” has been the subject of frequent examination and through those cases a number of categories for its application have arisen. But the term is very broad and incapable of exhaustive definition. As Owen J said in Thomas v Mackay Investments Pty Ltd:2 “The classes of conduct which will justify a winding up order on the just and equitable ground are not closed. Much will depend on the circumstances of each case. Some typical examples of when an order will be made include the failure of the corporate substratum and the breakdown of a quasi- partnership.”3 [28] A leading authority in this area is the decision of the House of Lords in Ebrahimi v Westbourne Galleries Limited.4 In that case, Lord Wilberforce briefly described the facts in the following way: “… The issue in this appeal is whether the respondent company Westbourne Galleries Limited should be wound up by the court on the petition of the appellant who is one of the three shareholders, the personal respondents being the other two. The company is a private company which carries on business as dealers in Persian and other carpets. It was formed in 1958 to take over a business founded by the second respondent (Mr Nazar). It is a fact of cardinal importance that since about 1945 the business had been carried on by the appellant and Mr Nazar as partners, equally sharing the management and the profits. When the company was formed, the signatories 1 Re Dalkeith Investments Pty Ltd (1984) 9 ACSR 247; Netbush Pty Ltd v Fascine Developments Pty Ltd (2005) 189 FLR 320 at 337; Turner v Ulicorp Pty Ltd [2007] NSWSC 206. 2 (1996) 22 ACSR 294. 3 At 300. 4 [1973] AC 360. -- 8 of 17 -- 9 to its memorandum were the appellant and Mr Nazar and they were appointed its first directors. … Soon after the company’s formation the third respondent (Mr George Nazar) was made a director, and each of the two original shareholders transferred to him 100 shares, so that at all material times Mr Ebrahimi held 400 shares, Mr Nazar 400 and Mr George Nazar 200. The Nazars, father and son, thus had a majority of the votes in general meetings. … On August 12, 1969, an ordinary resolution was passed by the company in general meeting, by the votes of Mr Nazar and Mr George Nazar, removing Mr Ebrahimi from the office of director.”5 (emphasis added) Later, when referring to the facts of the case, Lord Wilberforce said: “The appellant after a long association in partnership, during which he had an equal share in the management, joined in the formation of the company. The inference must be indisputable that he, and Mr Nazar did so on the basis that the character of the association would, as a matter of personal relation and good faith, remain the same. He was removed from his directorship under a power valid in law. Did he establish a case which if he had remained in the partnership with a term providing for expulsion, would have justified an order for dissolution?”6 [29] His Lordship took the finding made by the primary judge to be that the respondents were not entitled, in justice and equity, to make use of their legal powers of expulsion and that the only just and equitable course was to dissolve the corporation. He said two factors strongly supported that. First, Mr Nazar had made it clear that he did not regard Mr Ebrahimi as a partner, but did regard him as an employee. But, his Lordship said that there was no possible doubt as to Mr Ebrahimi’s status so that Mr Nazar’s refusal to recognise it amounted to a repudiation of the relationship. Secondly, Mr Ebrahimi, as a result of being removed as a director, lost his right to share in the profits through director’s remuneration, retaining only the chance of receiving dividends as a minority shareholder. [30] After a review of the authorities, Lord Wilberforce said: “The foundation of it all lies in the words ‘just and equitable’ and, if there is any respect in which some of the cases may be open to criticism, it is that the courts may sometimes have been too timorous in giving them full force. The words are a recognition of the fact that a limited company is more than a mere legal entity, with a personality in law of its own: that there is room in company law for recognition of the fact that behind it, or amongst it, there are individuals, with rights, expectations and obligations inter se which are not necessarily submerged in the company structure. … The ‘just and equitable’ provision does not … entitle one party to disregard the obligation he assumes by entering a company, nor the court to dispense him from it. It does, as equity always does, enable the court to subject the exercise of legal rights to equitable consideration; considerations, that is, of a personal character arising between one individual and another, which may make it 5 At 373-374. 6 At 380. -- 9 of 17 -- 10 unjust, or inequitable, to insist on legal rights, or to exercise them in a particular way.”7 [31] Later, his Lordship remarked that these considerations do not arise simply because a company might be a small one. He said that the superimposition of equitable considerations requires something more and that may typically include one or probably more of the following elements: (a) an association formed or continued on the basis of a personal relationship, involving mutual confidence, for example, where a pre-existing partnership has been converted into a limited company; (b) an agreement, or understanding, that all, or some of the shareholders shall participate in the conduct of the business; and (c) a restriction upon the transfer of the member’s interest in the company which has the effect, if confidence is lost or one member is removed from management, that that member cannot take out his or her stake and go elsewhere.8 [32] The presence of these factors does not mandate that the just and equitable clause must be brought into play. As his Lordship remarked, “these, and analogous, factors … may bring into play the just and equitable clause”.9 [33] To similar effect are the remarks of Young J (as he then was) in Morgan v 45 Flers Avenue Pty Ltd:10 “… The danger in this area of the law is projecting the principles which were enunciated in [Re Yenidge Tobacco Co Ltd11 and Ebrahimi v Westbourne Galleries Limited] with respect to special types of situations into all cases of privately held companies. The kernel of the two decisions referred to is that even though what is really a partnership has in law taken the form of an incorporated company, and even though the primary obligations which govern the parties are legal obligations arising out of the articles of association and the law of companies there may still be super imposition of equitable obligations between the parties: see the Westbourne Galleries case at 379. Lord Wilberforce at that page indicated that three elements would often be found in a case which would give rise to such equitable considerations. However merely because these three elements may exist in a particular case does not mean that the court will draw the inference that there were superimposed equitable obligations on the company law rights and duties, nor will the court assume that just because that once was the case, that it is so for all time because it is always competent for the parties to alter their relationship.”12 7 At 379. 8 At 379. 9 At 379. 10 (1986) 10 ACLR 692. 11 [1916] 2 Ch 426. 12 At 707. -- 10 of 17 -- 11 [34] There is another element which may exist. There are some authorities to the effect that a company resisting this type of application may rely on an argument that the applicant does not have “clean hands”. This defence was not raised as such by Citi but reference was made to the behaviour of Mr Patterson as being a matter to take into consideration. [35] In Ebrahimi, Lord Cross said: “A petitioner who relies on the ‘just and equitable’ clause must come to court with clean hands, and if the breakdown in confidence between him and the other parties to the dispute appears to have been due to his misconduct he cannot insist on the company being wound up if they wish it to continue.”13 [36] The approach of Lord Cross has not been uniformly followed and I prefer the analysis of Young J in Morgan v 45 Flers Avenue where he says: “… I wonder whether the better view of the matter is that one takes the plaintiff’s conduct into consideration in determining whether it is just and equitable to wind the company up in the same way at Nourse J did in Re London School of Electronics Ltd so that it is unnecessary to consider the plaintiff’s conduct again as a matter of defence.”14 [37] The conduct of the parties is, in any event, part of the relevant factual background which must be considered. Is Citi a quasi-partnership? [38] It is not disputed that the relationship between the parties has broken down – so much was accepted by Mr Dunning. However, Pointcorp argues that Citi did not begin as, or ever became, a quasi-partnership. I accept that. Mr Patterson was only ever engaged, either personally or through a corporate vehicle, as a marketing agent. This was not an association formed or continued on the basis of a personal relationship, involving mutual confidence. These were parties who had had contractual relationships but nothing more. In this respect, this is not a case like Ebrahimi where, for Lord Wilberforce it was “a fact of cardinal importance that since about 1945 the business had been carried on by the appellant and Mr Nazar as partners, equally sharing the management and the profits”. The evidence supports little more than a conclusion that, before the incorporation of Citi, the Pointcorp parties and Mr Patterson had an ordinary business relationship. Intractable differences? Excluding Samsara from information? [39] Samsara argues that there are a number of intractable issues between the parties which cannot be resolved in the absence of the appointment of a liquidator. These include: (a) Pointcorp’s refusal to provide information to Mr Patterson; (b) the improbability of Pointcorp making payments which would result in one third of the resulting profit flowing to Samsara; 13 At 387. 14 At 708. See also Ruut v Head (1996) 20 ACSR 160 at 162; Guerinoni v Argyle Concrete & Quarry Supplies Pty Ltd (1999) 34 ACSR 469 at 479 [38]-[39]; Malos v Malos (2003) 44 ACSR 511 at 516 [26]. -- 11 of 17 -- 12 (c) problems with the debt recovery process; and (d) inadequacies in Citi’s financial accounts. [40] All of these matters have been raised in the material relied upon by Samsara but, if accepted, they evidence difficulties within the company which are not reflected in the external relationships which the company has with, for example, third-party creditors. So far as the assertion that Samsara has not been provided with information is concerned, there are other avenues of redress available short of a winding up order. [41] Since at least the freezing orders were made in January, a regime has been put in place which has assured the payment of creditors, the regularising of the financial accounts, and the recovery of debts. The state of Citi’s books [42] An affidavit from Mr Morgan, a partner at KPMG, contained information about the steps which have been taken to bring the financial statements of the company into the proper form and to adequately assess the state of the company itself. Mr Morgan also says that KPMG has been engaged by Pointcorp for approximately 18 months to provide accounting and taxation services to it and other entities within the Pointcorp Group which includes Citi. [43] Mr Morgan deposes to what appears to be a failure by Citi to meet its superannuation obligations for some time. These matters are addressed in the financial report for the year ended 30 June 2016 which was created on 31 January 2017. [44] Those accounts show that, for the 2016 financial year, Citi had an after-tax profit of $625,596 with net assets of $625,720. The evidence also supports a conclusion that Citi is now able to pay its debts as and when they fall due. Has Citi’s purpose failed? [45] The second area upon which Mr Savage concentrated was the status of the company as a business. It is true that the activity, or lack of it, of a company is a relevant consideration. This is sometimes referred to as the failure of the substratum of the company. [46] In order to determine whether or not the substratum has in fact failed, it is necessary to consider the primary objects of the company. It was put this way by Owen J in Thomas v Mackay Investments Pty Ltd:15 “A company may be wound up where it has become impossible for it to achieve its main objects. If the company engages in conduct which is outside the scope of that which was within the general intention or common understanding of the members when they became members then the company can be wound up … There must be more than a mere discontinuance of the business activities of the company and even a lengthy 15 (1996) 22 ACSR 294. -- 12 of 17 -- 13 discontinuance will not suffice. There must be a ‘final and conclusive abandonment of the business’”16 [47] Of course, if a company has not ceased to operate and can be seen to be successful and to be properly managed, then winding up is an extreme step which requires a strong case to be made.17 [48] Citi was not established to market any particular development. From its first incarnation as a business name it was intended to be used to market properties of other developers as well as those of Pointcorp. While it may have not been active for some time, that is not decisive. Mr Gedoun deposes to what he sees as the importance of retaining Citi when, in his affidavit filed on 31 January 2017, he says: “Citi and its practices are well established. As such, I intend to continue to use it for the purposes of the Pointcorp Group loan agreement generally and the developments that will be ongoing. It would cause significant detriment to the operations of the Pointcorp Group if Citi was wound up.” [49] The applicant has not established that Citi has ceased to function in the sense that there has been a final and conclusive abandonment of the business. It remains available to be used and it has a reputation in the marketplace which may be of benefit to its shareholders. Prejudice to shareholders [50] Mr Gedoun deposes to the damage which could be occasioned by a winding up order. He says it would “cause significant detriment to the operations of the Pointcorp Group if Citi was wound up.” This, he says, would come about in at least two ways: (a) first, through the negative publicity which would accompany the making of such an order, and (b) secondly, “the winding up of an entity of [which Mr Vitale and Mr Gedoun] are shareholders and … directors … would be an act of default under many of Pointcorp Group’s loan accounts. Currently there are approximately one hundred loan facilities with different financiers executed by Mr Vitale [and Mr Gedoun] , on behalf of Pointcorp Group.” Conclusion on the winding up application [51] The evidence allows for the following conclusions: (a) Citi is not and never was a quasi-partnership; (b) there has been a breakdown in relationships between the shareholders; (c) the breakdown has not prevented the company from functioning and paying its creditors; 16 At 300. Quoted with approval by Katz J in Stapp v Serge Holdings Pty Ltd (1999) 31 ACSR 35 at [41]. See also Re Tivoli Freeholds Ltd [1972] VR 445 at 469-470. 17 See Cumberland Holdings Ltd v Washington H Soul Pattinson & Co Limited (1977) 13 ALR 561 at 566-567. -- 13 of 17 -- 14 (d) Citi’s purpose has not failed; (e) Citi is liquid; and (f) There are other avenues for redress available for Mr Patterson. [52] A winding up order will not be made simply on the demand of a disgruntled shareholder. The application is dismissed. The EGM of 24 December 2016 [53] The Extraordinary General Meeting of 24 December 2016 was called by Mr Patterson and was deliberately rendered inquorate by Mr Patterson. Samsara argues that the absence of a quorum is an irregularity but one that has caused Samsara and Mr Patterson no substantial injustice. [54] Section 1322 of the Corporations Act 2001 deals with irregularities and, so far as is relevant, provides: “(1) In this section, unless the contrary intention appears: (a) a reference to a proceeding under this Act is a reference to any proceeding whether a legal proceeding or not; and (b) a reference to a procedural irregularity includes a reference to: (i) the absence of a quorum at a meeting of a corporation, at a meeting of directors or creditors of a corporation, at a joint meeting of creditors and members of a corporation or at a meeting of members of a registered scheme; and (ii) a defect, irregularity or deficiency of notice or time. (2) A proceeding under this Act is not invalidated because of any procedural irregularity unless the Court is of the opinion that the irregularity has caused or may cause substantial injustice that cannot be remedied by any order of the Court and by order declares the proceeding to be invalid. … (4) Subject to the following provisions of this section but without limiting the generality of any other provision of this Act, the Court may, on application by any interested person, make all or any of the following orders, either unconditionally or subject to such conditions as the Court imposes: (a) an order declaring that any act, matter or thing purporting to have been done, or any proceeding purporting to have been instituted or taken, under this Act or in relation to a corporation is not invalid by reason of any contravention of a provision of this Act or a provision of the constitution of a corporation; -- 14 of 17 -- 15 (b) an order directing the rectification of any register kept by ASIC under this Act; (c) an order relieving a person in whole or in part from any civil liability in respect of a contravention or failure of a kind referred to in paragraph (a); (d) an order extending the period for doing any act, matter or thing or instituting or taking any proceeding under this Act or in relation to a corporation (including an order extending a period where the period concerned ended before the application for the order was made) or abridging the period for doing such an act, matter or thing or instituting or taking such a proceeding; and may make such consequential or ancillary orders as the Court thinks fit. (5) An order may be made under paragraph (4)(a) or (c) notwithstanding that the contravention or failure referred to in the paragraph concerned resulted in the commission of an offence. (6) The Court must not make an order under this section unless it is satisfied: (a) in the case of an order referred to in paragraph (4)(a): (i) that the act, matter or thing, or the proceeding, referred to in that paragraph is essentially of a procedural nature; (ii) that the person or persons concerned in or party to the contravention or failure acted honestly; or (iii) that it is just and equitable that the order be made; and (b) in the case of an order referred to in paragraph (4)(c)—that the person subject to the civil liability concerned acted honestly; and (c) in every case—that no substantial injustice has been or is likely to be caused to any person.” [55] The section requires consideration of whether any “substantial injustice” has been caused by the irregularity. When Mr Patterson called the meeting (at the request of Mr Vitale and Mr Gedoun) he must have known that the Pointcorp parties were aware of and concerned by his conduct. In his affidavit filed on 31 January he contends that he was concerned that the meeting was “merely a tactic” employed by Pointcorp to remove him as director – a “tactic” which, I observe, was always open to the Pointcorp parties as the major shareholder of Citi. He goes on to say that he decided that neither he nor Samsara would attend the meeting or any adjourned meeting. Thus, he says, the lack of a quorum means that the resolutions purportedly passed at the meeting of 24 December were invalid. -- 15 of 17 -- 16 [56] The absence of a quorum is a procedural irregularity.18 The question is whether it has been established that that irregularity has caused a “substantial injustice that cannot be remedied by any order of the Court.”19 [57] In Chalet Nominees (1999) Pty Ltd v Murray,20 Le Miere J reviewed a number of authorities dealing with procedural irregularities. In particular, he considered whether s 1322(2) was available where an irregularity was deliberately achieved. The balance of the decisions21 favour the conclusion that a procedural irregularity can include deliberate acts of noncompliance. [58] In any event, in this case, the procedural irregularity was caused by the deliberate action (or inaction) of Mr Patterson and it can hardly be said by him that he can, as a result, have been the subject of injustice. The nature of such an injustice was considered by Bowen CJ in Eq in Re Compaction Systems Pty Ltd22 where he said: “In my view, the word “injustice” in this provision requires the Court to consider any real, and not merely insubstantial or theoretical, prejudice which will be suffered by, for example, a member by the making of an order, and to weigh this in the scales against the prejudice to the company, other members and creditors, if an order be not made. In other words, it is insufficient to show that there may be some prejudice to a member if, on a consideration of the whole matter, the overwhelming weight of justice, as it were, is in favour of making the order …”23 [59] As Le Miere J (in Chalet Nominees) further observed: “[28] It must be the irregularity which causes the substantial injustice not the proceeding: Re Pembury Pty Ltd: ‘The burden Creevey and East bear is to show that one or other of the irregularities occasions a “substantial injustice”: not that the “proceeding” (the meeting and its resolutions) caused or may yet cause substantial injustice: cf Broadway Motors Holdings … where Powell J said, “It must be shown that there is a nexus between the procedural irregularity which has occurred and the matters of prejudice relied upon as constituting the injustice.’”24 [60] The evidence does not support a finding that the procedural irregularity caused any substantial injustice. The meeting and the resolutions passed at it were valid. 18 Corporations Act 2001 s 1322(1)(b)(i). 19 Ibid s 1322(2). 20 [2012] WASC 147. 21 Re Pembury Pty Ltd [1993] 1 Qd R 125; Whitehouse v Capital Radio Network Pty Ltd (2004) 13 Tas R 27; Greig v Australian Building Industries Pty Ltd [2002] QSC 138; Neena v ASIC (2011) 198 FCR 32. 22 [1976] 2 NSWLR 477. 23 At 493. 24 At [28]. -- 16 of 17 -- 17 Orders [61] I make the following orders: (a) The winding up application is dismissed. (b) It is declared that the Extraordinary General Meeting of 24 December 2016 and the resolutions passed at it were valid -- 17 of 17 --