Solicitors:
Bartier Perry (plaintiff)
Benetatos White (second defendant)
File Number(s): 2019/306832
[2]
Judgment
Ex tempore (revised 9 October 2019)
GLEESON J: Before the court is an application for the winding up of Cartwright Transport Pty Ltd ACN 616830114 (the company) under s 461(1)(k), and to appoint a liquidator under s 472(1) of the Corporations Act 2001 (Cth).
The proceedings were originally listed for hearing today for an application for the appointment of a provisional liquidator of the company, but the second defendant has indicated its consent to orders for the winding up of the company on the just and equitable ground and for the appointment of liquidators.
Brooker v You Run the Business Pty Ltd [2019] NSWSC 1367 | Case summary | Zoe
The plaintiff, Cartwright Holdings Limited (Cartwright Holdings), and the second defendant, Fugace Pty Ltd (Fugace), are the equal shareholders of the company. It is plain that Cartwright Holdings has standing to seek an order for the winding up of the company on the just and equitable ground under s 461(1)(k) having regard to its position as a contributory of the company: s 462(c). "Contributory" is defined in s 9 of the Corporations Act to include "for a company with share capital - a holder of fully paid shares in the company".
Although the proposed orders are consented to by the second defendant, it is necessary to briefly explain why I am satisfied that the just and equitable ground has been established, and it is appropriate to exercise the court's discretion to wind up the company under s 461(1)(k): In the matter of Courtenay House Capital Trading Group Pty Ltd [2017] NSWSC 883 at [3].
Background
The company is a joint venture company incorporated on 16 January 2017. The proposed business of the joint venture was to engage in the importation, sale and distribution of heavy vehicle trailers and associated goods which would be manufactured by an English company known as SC Cartwright (Coachbuilders) Limited (Coachbuilders).
Since incorporation, the two directors of the company have been Mr Howard Hansen who represent the interests of Fugace, and Mr Mark Cartwright who represents the interests of Cartwright Holdings. A substantial part of the company's business has been devoted to working on a tender for the supply of various trailers to Woolworths. The company was successful in that regard in July 2017.
On 27 July 2017, the company, Fugace, Cartwright Holdings, Mr Cartwright and Mr Hansen entered into a director and shareholder agreement which set out the respective rights and responsibilities of each of the parties. Pursuant to cl 6 of that agreement, the parties agreed that Mr Hansen and Fugace would perform the role of general manager of the company, and that all parties were to be actively involved in the day-to-day management of the company's business.
The evidence establishes that difficulties emerged with respect to the management of the company, at least by about August 2018. Those difficulties included the following: first, Mr Cartwright has encountered difficulties in obtaining full and complete information with respect to the company's affairs from either Mr Hansen, his co-director, or Talbots, the accountants retained by the company.
Second, since about November 2018, the Cartwright Group has unsuccessfully sought to obtain information from Mr Hansen with respect to the current location of demonstrator trailers owned by Coachbuilders, which were provided to the company. Mr Hansen has not provided a response, and Mr Cartwright is unaware of the location of those trailers.
Third, although it is not possible for the Court to express any concluded view with respect to the solvency of the company, there is evidence which suggests that the company may be insolvent, or at least its insolvency is doubtful. It appears that the company has approximately $466,758.24 cash at bank, and has debts apparently owing to the Australian Taxation Office of $567,642.95, and an amount of $898,213.49 owed to Coachbuilders. On or about 13 September 2019, Mr Cartwright received a creditor's statutory demand for payment of a debt issued to a company by Coachbuilders claiming an amount of $697,501.40.
Fourth, difficulties have arisen in relation to an apparent compliance issue relating to the trailers sold by the company to Woolworths. It appears that Mr Hansen informed Woolworths of this potential issue in mid-September 2019 referring to potential roadworthiness or State compliance issues of trailers sold by the company to Woolworths, however, Mr Cartwright has been unable to obtain information from Mr Hansen which explains this issue. There is plainly the potential for possible claims against the company by Woolworths in relation to this issue, and despite its significance, the company, because of the paralysis it finds itself in, has not been able to address it with the urgency with which it demands.
Fifth, there appears to be a difficulty with the company satisfying the requirement that at least one director of the company must ordinarily reside in Australia: Corporations Act, s 201A(1). Mr Cartwright is a resident of England. The evidence indicates that Mr Hansen has decided to move from Australia to Germany. Mr Hansen is presently located in Germany. That has left the company in the position that it has or will have no Australian resident director.
Irretrievable breakdown and deadlock
The principles upon which the court will wind up a company upon the just and equitable ground are well-established. In the present case, I am satisfied that there has been an irretrievable breakdown between both the directors and the shareholders of the company, and that the affairs of the company are deadlocked: Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [2001] NSWCA 97; (2001) 37 ACSR 672; Nassar v Innovative Precasters Group Pty Ltd [2009] NSWSC 342; (2009) 71 ACSR 343 at [132] (Barrett J); Brooker v You Run the Business Pty Ltd [2008] FCA 1752 at [11]-[13] (Finklestein J). It is unnecessary to refer to the detail of the evidence in this regard.
I am of the view that given the paralysis that has affected the affairs of the company, and the irretrievable breakdown between directors and shareholders, it is appropriate that the company is wound up on the just and equitable ground. The company in its current configuration is what Barrett J has described as a "predicament of paralysis" in Shenouda v Work Safe Medics Pty Ltd [2011] NSWSC 45 at [5]. Among other things, I take into account the following matters:
1. the company has been in an effective state of deadlock because there is material disagreement between the directors representing the two shareholders about the conduct of the company's affairs including sums claimed to be owing to Coachbuilders;
2. given the parlous financial position of the company it is no longer in a position to achieve its main object for its incorporation, namely carrying on a business of importing and selling trailers manufactured by Coachbuilders in the Australian market;
3. as indicated, the relationship between the director and shareholders has irretrievably broken down such that the sensible operations of the company are frustrated;
4. the break down in relations between the directors has compromised the company's ability to address the concerns of Woolworths about allegations of non-compliant trailers supplied by the company to Woolworths;
5. given the foreshadowed absence of any company directors resident in Australia there is a legitimate cause for concern, such that the Court could not have any confidence that the company's affairs will be properly conducted in the future.
I have also taken into account the terms of s 467(4) of the Corporations Act which relevantly provides:
(4) Where the application 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.
I am satisfied that no other suitable remedy is available to the plaintiff and that the plaintiff is acting reasonably in seeking to have the company wound up.
Dispensing with notice
The plaintiff seeks orders under s 467(3)(b) dispensing with the requirements to advertise or publish notice of the application under s 465(A) and the requirement that the application be served on the company under s 470(1)(a). No substantive purpose would be achieved by compliance with those requirements in the circumstances of the present case and they would involve unnecessary costs: Carter v New Tel Ltd (in liq) (2003) 44 ACSR 661 at [23]; Re T & L Trading (Aust) Pty Ltd (1986) 10 ACLR 388 at 390. The relevant affected parties, being the shareholders, are both present before the Court and have indicated their consent to the winding up of the company. Insofar as interests of creditors ought be taken into account, I am well-satisfied that their interests are best protected by the appointment of independent persons to take control of the affairs of the company. There is evidence of consent given by the proposed liquidators.
Orders
Accordingly, the Court makes the follows orders:
1. Pursuant to s 461(1)(k) of the Corporations Act 2001 (Cth) ("Act") Cartwright Transport Pty Ltd ACN 616 830 114 ("Company") be wound up.
2. Pursuant to s 472(1) of the Act, Barry Kogan and Katherine Sozou are appointed as liquidators of the company.
3. Pursuant to s 472(6) of the Act, declare that anything that is required or authorised by the Act to be done by the liquidator of the company may be done by any one of the liquidators.
4. Pursuant to s 467(3)(b) of the Act, the requirement to advertise or publish notice of the application under s 465A and to lodge notice of the application under s 470(1)(a) be dispensed with.
5. These orders are to be entered forthwith.
[3]
Amendments
15 October 2019 - Amend "Brooke" to read Brooker
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Decision last updated: 15 October 2019