Consideration
32 Mr Harris seeks to appoint a provisional liquidator pursuant to s 472(2) of the Act in order to protect the assets of the Company pending the determination of the application to wind up the Company under s 233 or s 461(1)(k) of the Act. He offers an undertaking as to damages in the usual terms in support of this application, although Counsel for Mr Evans queried whether Mr Harris' financial position supported that undertaking.
33 Mr Harris has outlined eight primary reasons that he contends should cause concern for the Court, being:
the removal of Mr Harris as a director from a tightly held company with two founding parties, without notice, only after Mr Harris confronted the Mr Evans about questionable transactions exceeding $2.6 million from the Company accounts;
the issue of 25 new ordinary shares, without notice to Mr Harris, which diluted Mr Harris' rights in the Company;
the questionable transactions relating to the first defendant in excess of $2.6 million;
the cancellation of Mr Harris' corporate credit card one day after the first defendant was confronted by Mr Harris in relation to the questionable transactions;
the suspension of Mr Harris' access to all Company records, including financial records, soon after the first defendant was confronted about the questionable transactions;
the removal of more than $100,000 from the Company bank account in the days surrounding the removal of Mr Harris as a director;
doubt as to the solvency of the Company; and
the breakdown of trust and confidence between the founding directors such that Mr Harris is banned from entering the Company's premises.
34 Mr Harris further submits that Mr Evans is preferring his own interests to that of the Company by:
failing to explain the questionable transactions;
engaging lawyers on his own behalf and on behalf of the Company;
being a director of Canford Estate Agents Pty Ltd, which appears to be in competition with the Company; and
taking steps to remove Mr Harris as a director of the Company.
35 Mr Evans in response submits, in summary, that:
he has not engaged in questionable transactions;
he has offered to purchase Mr Harris' interest in the Company at a fair value, however Mr Harris rejected that offer;
any appointment of a provisional liquidator would destroy the Company's business and reputation;
the appointment of a provisional liquidator is not justified given that there are other measures which would be adequate to preserve the status quo and secure the ends sought by the application;
Mr Harris' undertaking as to damages is of little value; and
Mr and Ms Evans are supporting the Company financially.
36 Section 472(2) of the Act provides for the appointment of official liquidators in the following terms:
The Court may appoint an official liquidator provisionally at any time after the filing of a winding up application and before the making of a winding up order or, if there is an appeal against a winding up order, before a decision in the appeal is made.
37 As I noted earlier, the substantive application to wind up the Company has been brought pursuant to s 461(1)(k) of the Act on the just and equitable ground or, in the alternative, s 233 of the Act on grounds of oppression within the meaning of s 232 of the Act. For the purposes of making an order under s 233 of the Act, s 232 provides:
The Court may make an order under section 233 if:
(a) the conduct of a company's affairs; or
(b) an actual or proposed act or omission by or on behalf of a company; or
(c) a resolution, or a proposed resolution, of members or a class of members of a company;
is either:
(d) contrary to the interests of the members as a whole; or
(e) oppressive to, unfairly prejudicial to, or unfairly discriminatory against a member or members whether in that capacity or in any other capacity.
38 When determining whether to appoint a provisional liquidator, the Court is to have primary regard to two questions, namely:
(1) whether there are reasonable prospects of the plaintiff obtaining a winding up order; and
(2) whether, having regard to the whole of the circumstances and in particular the measures already in place, the assets of the company are in jeopardy such that they need to be put under the protection of a provisional liquidator pending trial.
See Grace v Grace [2007] NSWSC 6 at [29]; Australian Securities and Investment Commission v Uglii Pty Ltd [2016] FCA 1099.
39 It is well established that the appointment of a provisional liquidator is a drastic intrusion into a company's affairs, and that such an appointment will not be made if any less intrusive measure will satisfactorily address the circumstances of the case: Australian Securities and Investments Commission v Uglii Pty Ltd [2016] FCA 1099 at [75]; Australian Securities and Investments Commission v Tax Returns Australia Dot Com Pty Ltd [2010] FCA 715 at [86]; Lubavitch Mazal Pty Ltd v Yeshiva Properties No 1 Pty Ltd and Others[2003] NSWSC 535; (2003) 47 ACSR 197 at [105].
40 This evening when I queried the parties as to possible alternatives to the appointment of a provisional liquidator, Counsel for Mr Harris submitted that the reinstatement of Mr Harris as a director under s 233 on grounds of oppression would also be a satisfactory means of dealing with Mr Harris' concerns. However, I am not persuaded that this measure would be less "invasive" than the appointment of a provisional liquidator. As explained in such cases as Catley v Waipa Corporation Ltd (2004) 2 NZCCLR 50 and Re Courtesy Real Estate (NSW) Pty Ltd (2013) 96 ACSR 593, the Court is reluctant to order reinstatement of a director notwithstanding claims of oppressive conduct, because such an order potentially imposes the damage of having the governance of the company changed against the will of those who voted in favour of a director's removal.
41 No alternative measures were proposed by Counsel for the defendants other than Mr Evans purchasing Mr Harris' shares in the Company at fair value. For similar reasons to those identified by Logan J in an Wijk (Trustee), in the matter of Power Infrastructure Services Pty Ltd v Power Infrastructure Services Pty Ltd [2014] FCA 1430 at [20]-[26], I consider it likely that any process of purchase of Mr Harris' shares by Mr Evans would be attended by the acrimony currently existing between them.
42 Turning now to the question whether there are reasonable prospects of the plaintiff obtaining a winding up order - I consider there are such prospects. The facts before me fall neatly into that category of case where Courts have been prepared to wind up companies on the just and equitable ground because of a breakdown in the mutual trust and confidence of members, and allegations of oppression in the conduct and management of the company's affairs. A detailed discussion of relevant authorities such as Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 can be seen for example in Lipton, Herzberg and Welsh, Understanding Company Law (19th edition) (Law Book Company, 2018) at [17.365] et seq. In this case - the Company was established as a "quasi-partnership" between Mr Evans and Mr Harris on the basis of their personal relationship involving mutual trust and confidence. The present litigation demonstrates that that mutual trust and confidence has dissipated. The share structure has altered so as to dilute Mr Harris' shareholding, which has been the subject of recriminations by Mr Harris by way of claims of conduct oppressive to him. Mr Harris has been, in effect, shut out of the Company and the management of its affairs. Although it is possible that the Company is solvent, nonetheless in the circumstances there is a reasonable likelihood that an order for winding up of the Company will be made.
43 In respect of the second question, namely whether the assets of the Company are in jeopardy - it appears that there has been some "stripping out" of cash in the Company's bank accounts, and further that Mr Evans as sole director and Ms Evans as majority shareholder have sole control over and access to those funds. Mr Evans has given detailed explanations for this, however, I am not persuaded that his explanations are demonstrative of him acting in the best interests of the Company (as distinct from the best interests of himself and his family). I am concerned by Mr Evans' evidence concerning the possible destruction of the Company's business and the loss of its employees in the event a provision liquidator is appointed. However, I also consider that, in the circumstances of this case, the preservation of the status quo for the benefit of all shareholders so far as is possible favours the appointment of a provisional liquidator, notwithstanding that it is a drastic step.
44 I note Mr Evans' contention that Mr Harris' undertaking as to damages is of little value. However Mr Harris has signed such an undertaking, in the usual terms. This is a serious undertaking, and I am not prepared on the basis of the material before me to find that it is of little value. Accordingly, the concern raised by Logan J in Van Wijk at [27] relating to the consequences of a failure to offer an undertaking as to damages is not relevant.
45 Finally, I note that the provisional liquidator proposed by Mr Harris, Ms Anne-Marie Jane Barley of AMB Insolvency Pty Ltd, has consented to act as provisional liquidator of the Company. This consent was filed on 5 November 2018. Provisional liquidators have powers prescribed by sections 472(3) and 472(4) of the Act. It follows that I am prepared to make the interlocutory orders sought by the plaintiff.
I certify that the preceding forty-five (45) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Collier .