Back 2 Bay 6 Pty Ltd, Re [1994] QSC 10

IN THE SUPREME COURT OF QUEENSLAND Application No. 977 of 1993 Before the Hon. Mr justice Thomas [Re Back 2 Bay 6 Pty Ltd] IN THE MATTER of the Corporations Law -and- IN THE MATTER of BACK 2 BAY 6 PTY LTD A.C.N. 052 831 259 REASONSFORJUDGMENT-THOMASJ. judgment delivered 09/02/1994 CATCHWORDS: Companies -relief from oppression- appointment of provisional liquidator. Counsel: K. Varley for applicant R. Gallagher (solicitor) for respondents Solicitors: Pattisons solicitors for applicant Halletts solicitors for respondents Hearing date: 7th February 1994 -- 1 of 6 -- IN THE SUPREME COURT OF QUEENSLAND Application No. 977 of 1993 IN THE MATTER of the Corporations Law -and- IN THE MATTER of BACK 2 BAY 6 PTY LTD A.C.N. 052 831 259 REASONS FOR JUDGMENT - THOMAS J. judgment delivered 09/02/1994 The original application in this matter is for relief from oppression, under s. 260 of the Corporations Law. The present application is for the appointment of a provisional liquidator. The company appears to be solvent, and neither party wishes it to be wound up. The applicant and the respondents all appear to recognise that the best solution is that the respondent buy out the shares of the applicant. The applicant has a 50 per cent holding in the shares and each of the two respondents, who are husband and wife, have 25 per cent each. All three are directors, but the respondents are in a position to outvote the applicant. The male respondent is the managing director. Although ultimately there would be a deadlock between shareholders, it is not accurate to describe the situation as one of a deadlock in management, as the majority is in a position to control the company. It is however in a position to oppress the applicant, and on my assessment of the evidence the respondents have -- 2 of 6 -- 2 since at least 16th November 1993 excluded her from the management and prevented her from finding out details of the dealings of the company, its records and the way in which it has been run. This may well have resulted from a perception by the respondents that the applicant had agreed to be a passive shareholder and director, and to play the role of artist supplying patterns and little else. However that disputed allegation is not a proper answer to the claim of the applicant, whose rights as a 50 per cent shareholder and as a director remain. There is a strong circumstantial case to suggest that these rights have been prejudiced and remain in danger of being adversely affected by the conduct of the respondents. The material of the respondents confirms that irreconcilable differences between the parties have arisen. They also concede and allege that in December 1993 the parties came close to reaching an agreement for the purchase by the respondents of the applicant's shares at an agreed price. The male respondent deposes "since then, Gayle Schrodter and I have been arranging the affairs of the company in anticipation of having control over the company's affairs without the further involvement of the applicant at some time in January 1994." The applicant has been deprived of knowledge of the collection of the accounts rendered in respect of orders in the 1993 calendar year. These are on any view substantial, and it would seem that a separate bank account was set up by the respondents without the knowledge of the applicant, into which some of this money was paid. The applicant was a signatory to the former account. No directors' meeting (of which she was given any notice) occurred in relation to changing the accounts or the financial administration of the company. It would seem that the company has been preserved as a going concern under the management of the respondents. The affidavit of Mr Gallagher says that the -- 3 of 6 -- 3 administration has been honest and this may well be so, but neither the court nor the applicant is in any position to be satisfied of this. It is quite clear to me that despite the affidavits filed on behalf of the respondents, including that of Mr McCoy, the applicant has deliberately been kept in the dark in relation to the activities of the respondents for a number of months, and their attempts to obtain access to company books, records and details has been frustrated by those in control. The business has been virtually taken over by the respondents with a view to continuing to run it in the future, in the expectation that some agreement will be reached at some time to buy out the applicant's interest. This has not been done in an underhand way, in as much as they have openly been negotiating to purchase that interest. But they have at the same time denied the applicant any effective on-going information concerning the management. In short, they have acted as if the applicant no longer has any interest at a time before they have obtained that interest. It may be that upon closer examination nothing detrimental will emerge in relation to the respondent's conduct. However it is impossible for the court (or the respondent) to know whether this is so. Many of the company's dealings are with another company of which the male respondent has a considerable interest ("Active"). It is asserted that these dealings have been continually beneficial to the company. The dealings depend very much on personal and discretionary arrangements effected by or through Mr Nicholls. There is a conflict of interest involved in such dealings, and there is a high duty of disclosure of his interests to the other directors which seems to have been overlooked, especially since the decision to exclude the applicant from knowledge of the details of management of the company. -- 4 of 6 -- 4 It is surprising that the parties did not come to an agreement. The respondents offered $70,000 for the applicant's interest and the applicant counter- offered $90,000. Supplementary conditions were not particularly complex. However both parties resisted my suggestion that a valuer be appointed and that the respondents purchase the applicant's interest at the figure determined. I discern irrational and possibly hysterical attitudes on both sides of this dispute. The main choice presented to me is either to that the present condition continue under the present management or to appoint a provisional liquidator. In my view the present unsatisfactory unresolved position has gone on long enough. There is a sufficient circumstantial case to satisfy me that independent supervision is necessary, and that the failure to order it will expose the applicant to an unacceptable risk of damage that could not effectively be later reversed. It is true that the appointment of a provisional liquidator will involve expense to the company which will ultimately depreciate the entitlements of the parties, but the parties have the capacity, if they wish to exercise it, to minimise this. The appointment will preserve the goodwill and keep the business alive for the benefit of the ultimate controlling party. If satisfied that the affairs of the company are being run honestly and effectively, the appointee may well decide to allow the management of the respondents to continue. I propose to make an order for the appointment of Mr Downey as provisional liquidator, with special directions to facilitate the purchase by the respondents of the applicant's interests in the company at fair valuation, and failing this purchase by the applicant of the respondents' interests. I shall order as per the draft submitted, with the addition of the above direction, and a direction that the provisional liquidator make or cause to be made a valuation of the relevant interests -- 5 of 6 -- 5 and to report to the court within 28 days or such further time as the court may allow, with any proposals he considers appropriate for the termination of this dispute. The question of costs should depend upon the ultimate merits. Accordingly costs will be reserved. -- 6 of 6 --