Solicitors:
Lancaster Law & Mediation (Plaintiffs)
Vincent Young (Defendants)
File Number(s): 2023/442217
[2]
Application for winding up on just and equitable ground
By Originating Process filed on 6 December 2023 the Plaintiffs, Benfield Investments Pty Limited ("Benfield") and others brought an application for, inter alia, the appointment of a provisional order for access to information in respect of the first defendant, Rynever Pty Limited ("Rynever"), the appointment of a provisional liquidator, made claims of oppression and breach of duty and sought an order for the winding up of Rynever on the just and equitable ground under s 461 of the Corporations Act 2001(Cth), in the alternative to the relief sought in respect of oppression.
The applicable principles appear to be common ground between the parties and it is now common ground that Rynever should be wound up on the just and equitable ground. The Court nonetheless needs to be satisfied that that is an appropriate exercise of discretion. I will first refer, briefly, to the applicable principles, before turning to the evidence on which the parties rely. The case law has long recognised that a winding up order may be made on the just and equitable ground where there is a breakdown of the substance of the relationship between shareholders, particularly where a company is formed on the basis of a personal relationship involving mutual confidence or requiring co-operation between shareholders and that confidence or co-operation has broken down: Fexuto Pty Limited v Bosnjak Holdings Pty Limited (2001) 37 ACSR 672 and see my summary of the applicable principles in Re A J Roberts Removals and Storage Pty Limited [2017] NSWSC 17054 and again in Re Munja Bakehouse Pty Limited [2024] NSWSC 6.
It is common ground between the parties that Rynever was originally incorporated in circumstances that there were relationships, analogous to those of partnership, between its three shareholders. One of those shareholders is now deceased and the Plaintiffs in these proceedings are, or are associated with, his descendants. The confidence of co-operation between the other participants in Rynever and those descendants has plainly broken down. The evidence amply demonstrates that matter, if it were necessary to do so beyond the fact of commencement of the proceedings. Benfield and the other Plaintiffs read several affidavits which indicate their concerns with the management of Rynever and, in particular, refer to issues which have concerned them as to the level of access to information available to them in respect of Rynever's affairs. The fact that those concerns are relevant to whether a winding up should now be ordered by consent on the just and equitable ground, without the need to determine whether they are justified. In his affidavit dated 15 February 2024, Mr Trenton Benfield also refers to another concern as to ownership of a trademark relating to the business of an operating company, which is a subsidiary of Rynever, although it is again not necessary to address the question whether that concern is justified for present purposes.
Messrs Hall and Lewis, who are Defendants to the proceedings and are also shareholders in Rynever, also lead evidence, which emphasises that they also lack confidence in, and do not wish to remain in business with the Plaintiffs. They refer to the genesis of Rynever, as established as a business involving the late Mr Geoffrey Benfield in the late 1970s, and the continuance of the business for a significant time since that date. They refer to the fact that the late Geoffrey Benfield and they were equal shareholders in Rynever, with their corporate entities, and to Mr Geoffrey Benfield's retirement and then death. They refer to steps which were subsequently taken, unsuccessfully, to negotiate an acquisition of the shares in Rynever or operating companies from Mr Benfield's descendants, and an attempt which was made, also unsuccessfully, to bring about the voluntary liquidation of Rynever. Mr Hall indicates, for several reasons, that he supports a winding up of Rynever and the consequential sale of a property which it holds, and, in particular, he indicates that he does not wish to be in business with the Plaintiffs, and that Rynever and its operating subsidiaries are in a difficult financial position which may be addressed by a sale of the property it holds, which will at least allow the discharge of debts owed to its creditors and a potential distribution to its shareholders. Mr Lewis expresses essentially the same view, noting both the cash flow constraints upon Rynever and the operating business and his lack of interest in being in business with the Plaintiffs.
I am satisfied, in these circumstances, that the personal relationship on the basis of which Rynever was established has failed, not least by reason of the death of the late Mr Geoffrey Benfield, and that has undermined the substratum of the business, and irreconcilable differences have also emerged between the present shareholders in Rynever, and these matters support a winding up order. The existence of financial difficulties within Rynever and the operating companies also reinforces the basis for making that winding up order. For these reasons, I am satisfied that a winding up order should be made in respect of Rynever on the just and equitable ground and I make that order. I note there is a dispute between the parties as to the identity of the persons to be appointed as joint and several liquidators of Rynever, and I will hear the parties in respect of that dispute.
[3]
Identity of liquidators
Turning now to the dispute as to the identity of the liquidators to be appointed to Rynever, Mr Krochmalik, who appears for the Defendants, drew attention to my observations in Re FW Projects Pty Limited (in liq) [2019] NSWSC 892 in respect of the matters which are relevant to the identity of a liquidator to be appointed. He acknowledged the case law in this Court, and in the Federal Court of Australia, recognising a practice that, all things being equal, the Court will appoint the Plaintiffs' nominee where there is a contest as to the identity of the appropriate appointee as liquidator and there is no reason to prefer one nominee over another as to their respective fitness, qualification or costs. Mr Krochmalik submitted that that principle did not apply here because, in substance, the Defendants had initiated a winding up process, by the Plaintiffs' agreement to a voluntary winding up of Rynever, and the Plaintiffs have sought a range of relief, including potentially a buyout, and it was not clear, until recently, that they placed priority on a winding up order, when a consensus arose between the parties that such an order should be made.
It seems to me that an extended judgment is not required as to the basis on which the Court reaches conclusion as to which of the two alternative liquidators should be appointed. I have regard to the voluminous evidence led by the parties, and, in particular, to an affidavit dated 12 February 2024 of Mr Kelly, who was proposed by the Defendants as voluntary liquidator, and records of work done in respect of the proposed voluntary winding up. I have regard to the fact that, at least in the early stage, it appears that Mr Kelly met with the Plaintiffs' representatives, including their solicitor, and that there is no record of concerns being expressed as to his appointment as voluntary liquidator, if a voluntary liquidation proceeded. I proceed on the basis that no criticism is here made on the preparatory work done by Mr Kelly for such an appointment. To the extent that there are concerns expressed as to the level of information provided to the Plaintiffs, I do not determine that matter, and note that those criticisms arise in the wider context of the shareholders' respective complaints as to each other.
I have concluded that the Plaintiffs' nominee as liquidators should be appointed, essentially for two reasons, without reaching any conclusion that it is in any way adverse to Mr Kelly or the other persons working with him or his firm. First, the practice to which I have referred above has, of its nature, a somewhat arbitrary quality, but it fairly recognises that the Court should not ordinarily reach decisions as to the respective merits of liquidators, all of whom are regulated by the Australian Securities and Investments Commission, and all of whom would, from time to time, be appointed by the Court as Court-appointed liquidators or receivers. That practice operates to provide a straightforward basis to choose between liquidators, in circumstances that the Court used to, but no longer maintains, a list which permits an appointment of a liquidator identified on a random basis from that list. It seems to me that, for the purposes of that practice, this matter can properly be characterised as an application by the Plaintiffs for a winding up, which is what it was, in part. That ordinary practice applies in it, notwithstanding that the Defendants had also been pursuing a voluntary winding up prior to these proceedings.
Second, and more importantly, it seems to me that relatively complex questions will arise in the liquidation as to the basis on which assets of operating companies which are subsidiaries of Rynever will be realised. Mr Kelly, after he was approached by the Defendants with a view to a potential voluntary winding up, had addressed some of those questions in documents to which I have been taken in the course of submissions, including a PowerPoint presentation. It seems to me that Mr Kelly's analysis of those issues is sensible, and, in particular, there is no basis for any criticism of his observation that a loss-making company may well have no value. Nothing about the content of his analysis is a reason that he should not be appointed as liquidator by the Court. However, the fact that he has undertaken that analysis, at the request of the Defendants and their solicitors, seems to me to have two consequences. First, it raises the possibility of an apparent lack of independence, arising from the analysis which he has performed in order to assess the potential course of a voluntary liquidation, notwithstanding his entirely appropriate recognition of the importance of independence in that analysis. Second, and importantly, it raises the real possibility that, notwithstanding his independence in fact, the Plaintiffs will lack confidence in him, and any recommendation that he makes. That can be tested simply and pragmatically. If Mr Kelly, as Court-appointed liquidator, were now to determine that one of the operating companies, or the underlying business, should be sold to one of the shareholders who had approached him to undertake the voluntary winding up, at nil consideration because the business is loss-making, then it is entirely predictable that the Plaintiffs will resist that course, on the basis that that decision is a product of his previous work done in connection with the Defendants' voluntary winding up proposal. If, by contrast, a newly appointed Court-appointed liquidator, not previously involved in that matter, reaches the same view, it would likely be perverse for the Plaintiffs then to contest that view. The practical prospect that an approach now taken by an obviously independent Court-appointed liquidator will be accepted, whereas the same approach taken by Mr Kelly would be disputed, seems to me to be a significant reason now to appoint a liquidator other than Mr Kelly.
For these reasons, notwithstanding the subtlety of the submissions put by Mr Krochmalik, it seems to me that the pragmatic and appropriate course is plainly to appoint the joint and several liquidators proposed by the Plaintiffs, to conduct the winding up of Rynever, again emphasising that that decision is in no way adverse to, or critical of, the work previously undertaken by Mr Kelly. The parties have agreed that the costs of the winding up should include the reasonable remuneration and disbursements of Mr Kelly and other persons within Ernst & Young who had done work in respect of the proposed voluntary winding up, and I will amend the orders accordingly. I should emphasise that Mr Kelly should not be held to the generous suggestion, in his affidavit, that he would not seek to recover those costs, where it would be unfair to now appoint another liquidator, who will potentially have the advantage of the work that Mr Kelly has done in investigating potential means of realisation of the assets in the voluntary winding up, without compensating Mr Kelly and his firm for that work.
For these reasons, I make orders in accordance with the short minutes of order initialled by me and placed in the file. The first of those orders, for the parties' information, is the change of the title of the proceedings, which I accept is properly made; the second is the winding up order; the third is the appointment of the Plaintiffs' nominees as liquidators; the fourth is the order, by consent of the parties, for the costs of the proceedings (including the costs of the proposed voluntary winding up) to be costs of the winding up.
[4]
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Decision last updated: 26 February 2024