STEWART J:
1 By originating process dated 14 October 2021, the plaintiff, Bridging Capital Holdings Pty Ltd (BCH), applied for interlocutory orders pursuant to s 472(2) of the Corporations Act 2001 (Cth) that provisional liquidators be appointed to the third defendant, Exelsuper Pty Ltd, or, alternatively, orders pursuant to s 233(1) of the Corporations Act or s 57(1) of the Federal Court of Australia Act 1976 (Cth) (FCA Act) for the appointment of receivers and managers to Exelsuper and ancillary relief. BCH also applied for final orders that Exelsuper be wound up pursuant to ss 461(1)(k) or 233(1)(a) of the Corporations Act, or alternatively orders that the first and/or second defendant (SDSF and Whisbee Nominees Pty Ltd respectively) purchase BCH's interests in Exelsuper.
2 On 20 October 2021, the proceeding was listed for interlocutory hearing on 8 November 2021 and orders were made for the exchange of further evidence and submissions in relation to the application for interlocutory relief.
3 In its written submissions for the interlocutory hearing filed on 4 November 2021, SDSF indicated that it was prepared to purchase BCH's shares in Exelsuper at their market value as a means of resolving the application for interlocutory relief. By 8 November 2021, it was also agreed between the parties that upon the joinder of the fourth and fifth defendants (Exelsuper Advice Pty Ltd and Mr Christopher Harris respectively), SDSF and Mr Harris would consent to orders being made for the purchase of BCH's shares in both Exelsuper and Exelsuper Advice at market value.
4 By way of background, Exelsuper operates a financial planning and self-managed superannuation administration business together with Exelsuper Advice, which holds an Australian Financial Services Licence. BCH, SDSF and Whisbee are the shareholders of Exelsuper. Mr Ari Ben Moses and Mr Harris are joint directors of Exelsuper. BCH and Mr Harris are the shareholders of Exelsuper Advice. Mr Moses and Mr Harris are also joint directors of Exelsuper Advice.
5 BCH acquired its shares in each of Exelsuper and Exelsuper Advice pursuant to the terms of a Share Sale Agreement entered into in March 2021. Its equity interest in Exelsuper amounts to 43.61%, and its equity interest in Exelsuper Advice amounts to 45%. Since that time, the relationship between the directors and shareholders of these entities has been strained, and Mr Moses complains that he has been deprived of complete access to the business records of Exelsuper and Exelsuper Advice, including financial records required to verify the nature of various payments from Exelsuper's bank accounts. It appears to be common ground that the directors and shareholders are at loggerheads and that the companies cannot survive unless there is a parting of ways.
6 Between 8 and 22 November 2021, the parties corresponded regarding the appropriate form of orders to implement the purchase of BCH's shares and determine their market value. On 22 November 2021, consent orders were made pursuant to s 233(1)(d) of the Corporations Act for the purchase of BCH's shares in Exelsuper and Exelsuper Advice by SDSF and/or Mr Harris and the question of the value to be applied to BCH's shareholdings was referred to a referee, Mr Nicholas Navarra, pursuant to r 28.61 of the Federal Court Rules 2011 (Cth).
7 It is to be noted that the questions determined for the referee to answer deliberately left open the resolution of a point of dispute between the parties, namely whether BCH's minority shareholding should be valued with or without a minority shareholding discount. The referee was required to determine the market value of the shares on alternative bases, i.e., with and without applying such a discount.
8 On 8 December 2021, Mr Navarra provided his written report. The report sets out, amongst other things, the following key conclusions reached by Mr Navarra in respect of the valuation of BCH's interests in Exelsuper and Exelsuper Advice.
9 First, Mr Navarra concluded that the market value of BCH's interest in Exelsuper, applying no minority discount, falls between $87,460 and $384,885, with a mid-point of $236,173. With a minority discount applied, the market value falls between $72,154 and $336,775, with a mid-point of $200,747. The difference between the mid-points is accordingly approximately $36,600.
10 Secondly, Mr Navarra concluded that the market value of BCH's interest in Exelsuper Advice, applying no minority discount, falls between $41,459 and $50,672, with a mid-point of $46,066. With a minority discount applied, the market value falls between $35,240 and $45,605, with a mid-point of $40,307. The difference between the mid-points is accordingly approximately $5,700.
11 The parties agree that the referee's report should be adopted by the Court, in whole, pursuant to s 54A(3) of the FCA Act and that the price to be paid by SDSF and Mr Harris for the purchase of BCH's interests in Exelsuper and Exelsuper Advice should reflect the mid-point of the value range determined by Mr Navarra. However, the following issues remain to be determined by the Court:
(1) whether or not the minority discounts calculated by Mr Navarra should be applied to the valuation figures; and
(2) whether or not the values found by Mr Navarra in relation to the value of BCH's interest in Exelsuper should be adjusted in light of the operation of certain indemnities contained in the Share Sale Agreement.
12 In respect of the latter issue, BCH submits that certain contested debts of Exelsuper to third parties are the subject of indemnities by SDSF to Exelsuper with the result that the debts, even if ultimately found to be valid and in whatever amount, are neutral with regard to the valuation of the company and should therefore not be taken into account in valuing the shares. SDSF and Mr Harris contest that those debts are covered by the indemnities, but submit that in any event this issue has already been taken into account by Mr Navarra in his valuation of the shares.
13 Given the difference between the parties and the time of year, the indemnities issue was not ripe for decision in the hearing yesterday. The parties are, however, agreed on a programme for the resolution of this issue to be determined at a hearing on 6 April 2022. Depending on how it is resolved, it may have no impact on the valuation of the shares, or it may result in a necessary adjustment to the share value which will have to be given effect to in an order for the payment of a sum of money, one way or the other.
14 In the meanwhile, the parties are agreed that there is significant urgency to the resolution of the share purchase so as to extricate BCH, the minority shareholder, from the companies and thereby remove any difficulties in the operation of the companies caused by the breakdown in the relationship between the shareholders. The parties are accordingly agreed that I should resolve the first issue (the minority discount issue) and make orders for the payment of the provisional share value and the transfer of the shares, and that any adjustments to that value can be made once the second issue has been resolved in April. The parties have not adduced any evidence on the minority discount issue other than the report of the referee.
15 BCH submits that it is not appropriate to apply any minority shareholding discount in circumstances where the order for the purchase of the plaintiff's interests has been made pursuant to s 233(1)(d) of the Corporations Act and following an application for such relief brought by the plaintiff on the basis of alleged oppressive conduct. In particular, BCH relies on Re Bird Precision Bellows Ltd [1984] Ch 419 which it says is materially on point and has been approved in Australia.
16 SDFS and Mr Harris submit that the minority discount they seek is only inappropriate where the Court orders a compulsory share purchase after a finding of oppression. Here, they agreed to the share purchase order so it is not a compulsory purchase order and there is no finding of oppression; any allegation by BCH as to oppressive conduct has been denied by them from the outset. They say that the underlying reasons for the breakdown in the relationship have not been determined, and will not be determined in this proceeding. Therefore, it should be accepted for the purpose of the valuation that the breakdown could have arisen equally from the conduct of either shareholding interest, and not necessarily from their conduct. They say that since it is a minority shareholding that they are purchasing, a minority shareholding discount should be applied.
17 In Bird Precision Bellows the minority shareholders complained of oppression. When the matter first came on for hearing, it was ordered by consent that the majority shareholders should jointly and severally purchase the shares in the company registered in the names of the petitioners "at such price as the court shall hereafter determine" (at 425). When the petition came on again for a determination of the appropriate purchase price, the first question which arose was whether the respondents, by consenting to the purchase order, had effectively admitted that they had been conducting the affairs of the company in a manner unfairly prejudicial to the minority interests. It was held that there was no such admission - the respondents had merely agreed to buy out the petitioners at a price to be determined by the court (at 426).
18 After surveying the authorities (at 427-430), Nourse J reasoned as follows (at 430):
I would expect that in a majority of cases where purchase orders are made under section 75 in relation to quasi-partnerships the vendor is unwilling in the sense that the sale has been forced upon him. Usually he will be a minority shareholder whose interests have been unfairly prejudiced by the manner in which the affairs of the company have been conducted by the majority. On the assumption that the unfair prejudice has made it no longer tolerable for him to retain his interest in the company, a sale of his shares will invariably be his only practical way out short of a winding up. In that kind of case it seems to me that it would not merely not be fair, but most unfair, that he should be bought out on the fictional basis applicable to a free election to sell his shares in accordance with the company's articles of association, or indeed on any other basis which involved a discounted price. In my judgment the correct course would be to fix the price pro rata according to the value of the shares as a whole and without any discount, as being the only fair method of compensating an unwilling vendor of the equivalent of a partnership share.
19 Nourse J then summarised the position as follows (at 431):
In summary, there is in my judgment no rule of universal application. On the other hand, there is a general rule in a case where the company is at the material time a quasi-partnership and the purchase order is made in respect of the shares of a quasi-partner. Although I have taken the case where there has in fact been unfairly prejudicial conduct on the part of the majority as being the state of affairs most likely to result in a purchase order, I am of the opinion that the same consequences ought usually to follow in a case like the present where there has been an agreement for the price to be determined by the court without any admission as to such conduct. It seems clear to me that, even without such conduct, that is, in general, the fair basis of valuation in a quasi-partnership case, and that it should be applied in this case unless the respondents have established that the petitioners acted in such a way as to deserve their exclusion from the company.
20 It is that passage, in particular, that BCH relies on in submitting that the present case is on all fours and the minority discount should not apply because, there being no evidence, it has not been established that BCH acted in such a way as to deserve its exclusion from the companies.
21 In Dynasty Pty Ltd v Coombs [1995] FCA 610; 59 FCR 122 at 146 per Spender, O'Loughlin and Branson JJ, the passage from Bird Precision Bellows quoted at [18] above was quoted with approval. It was also noted that the decision of Nourse J was upheld by the Court of Appeal in Re Bird Precision Bellows Ltd [1986] Ch 658, and although this was on the basis that this was a proper exercise of the judge's discretion, Oliver LJ made it clear (at 674B) that he would not himself have come to any other conclusion. Also, as Balcombe LJ noted in Re Abbey Leisure Ltd [1990] BCLC 342 at 350: the cases "show a general inclination towards a pro rata basis for valuation".
22 The legal principles governing the exercise of the discretion conferred by s 233 of the Corporations Act were identified in some detail in Martis Cork & Rajan Pty Ltd v Benjamin Corporation Pty Ltd [2004] FCAFC 153; 204 ALR 136 at [70]-[78] per Wilcox, Marshall and Jacobson JJ. They relevantly include (at [70]) that the authorities make it clear that once the discretion conferred by s 233 has been enlivened by a finding of oppression under s 232, the court has a wide discretion as to both the appropriate remedy and, if it orders the compulsory purchase of shares, as to the mode of valuation of the shares. Also (at [71]), if the court considers it is appropriate to make an order that the other members purchase the shares of the oppressed shareholder, its task is to fix a price that represents a fair value in all the circumstances. The passage from Bird Precision Bellows that had been quoted and approved in Dynasty was again cited with approval (at [78]).
23 Of course, the point made on behalf of SDSF and Mr Harris is that there has been no finding of oppression in the present case; thus, the principles identified in Martis Cork are inapplicable. SDSF and Mr Harris refer to a number of first instance Supreme Court decisions that consider the valuation of a minority shareholding in the exercise of the court's discretion under s 233, but none disapproves of the guiding approach identified by Nourse J in Bird Precision Bellows that in the case of a consensually ordered majority buyout of a minority shareholding in a quasi-partnership, a minority discount should not be applied unless it is established that the minority interests conducted themselves in such a way as to deserve their exclusion from the company.
24 I am required, in the exercise of my discretion, to arrive at a result which is just and equitable between the parties. With reference to what I have described as the guiding approach identified by Nourse J, but not applying it slavishly, I have come to the conclusion that the minority discount should not apply. Mr Moses, through BCH, purchased the shares in the two companies only very recently. He finds himself having to leave the companies because of the parties having fallen out. In view of the parties' agreement with regard to the sale of the shares, no blame is to be ascribed for that falling out. The result of that is that it is not established that Mr Moses, through BCH, is deserving of his exclusion from the companies. He should accordingly have the value of the shares without reference to the minority discount. That is to say, a pro rata valuation of the shares should be applied which will give them the same value, per share, as the shares already held by Mr Harris's interests. That is the most just and equitable outcome.
25 The value at which the shares must be purchased is accordingly:
(1) Exelsuper - $236,173; and
(2) Exelsuper Advice - $46,066.
26 The other orders were agreed by the parties.
I certify that the preceding twenty-six (26) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Stewart.