Araujo v Ready Fence

Judgment 1HIS HONOUR: This is the hearing of a reference to me to determine the amount to be paid for the purchase of the shares in accordance with orders made by consent by Ward J on 14 March 2011. The orders were amended on 21 April 2011 in some minor respects.

Background facts. 2The first defendant is a company ("the Company"), which carries on a business of hiring security fencing used on construction sites and venues. It also does some minor amount of sales of such fencing. Normally it purchases fencing for the purpose of both aspects of its business from its Australian supplier. Recently during the burst of construction activity during the governments recovery boost it has sourced some of its supplies from China. Although the Chinese stock has a cheaper purchase price the terms of trade add additional costs to the purchase price. 3The two plaintiffs between them own 47.2% of the shares in the company, the second defendant, Mr John Callaghan also owns 47.2% and the third defendant Mr Grant owns the remaining 5.6%. 4The two plaintiffs were formally married but are now divorced and there are orders of the Family Court which deal with the ownership of the shares which effectively are now owned by the first plaintiff. 5The Second Defendant and his son have been operating the Company in recent years and the business relies upon them as key individuals. The Plaintiffs have made no significant recent capital or other contribution to the business. The initial capital contributions were originally in the order of $200,000 each. The capital contributions in recent years in order to expand its business have been the Second Defendant and his family's loans of $1.3 million to the Company. 6The Plaintiffs were unhappy as to the operation of the Company. Pursuant to consent Short Minutes of Order dated 14 March 2011 the parties agreed that the affairs of the Company had been conducted in breach of the Corporations Act 2001 (Cth), which then gave the Court jurisdiction to make orders for the acquisition of the shares in the Company. The shareholders of the Company consented to a regime whereby the Court was to value the shares in the Company and in default of the parties electing to buy the shares in the Company for that stated valuation the Company would be placed into liquidation. 7A copy of the short minutes of order is annexure A to this judgement. 8The parties in substance agreed in the Amended Short Minutes of Order to what is known as a "Savoy" or "Shotgun" type process. That is, the Court's valuation can firstly be taken advantage of by the Second Defendant to (within 60 days) purchase the shares of the Plaintiffs in the Company at the Court's valuation. If the Second Defendant elects not to purchase the shares within that period, then the Plaintiffs have the opportunity to (within a further 60 days) purchase the shares of the Second Defendant in the Company at the same valuation. 9Upon either party electing to purchase the shares in the Company of the other party, they must also as part of the sale process, discharge the obligations of the Company to repay the loans to the Company associated with the party selling its shares. In the case of the Second Defendant buying the Plaintiffs shares, that means that even if the shares are assessed to be of no or some value, the Second Defendant will have to cause repayment of the loan to the Company by the Plaintiffs in the amount of $194, 771 within 60 days of a determination of value by the Court plus whatever monetary sum (if any) the Court assesses is the value of the shares. 10In the case of the Plaintiffs buying the Second Defendant's shares, that means that even if the shares are assessed to be of no or some value, the Plaintiffs will have to cause repayment of the loan to the Company by the Second Defendant and his family associates in the amount of about $1.5 million within a further 60 days plus whatever monetary sum the Court assesses is the value of the shares.