In the matter of The Skippy Film Company Pty Limited [2017] NSWSC 646

Background

1. The Company was incorporated on 10 December 2009. It presently has five shareholders: Barrenjoey holds 25 shares, Harbourside holds 15 shares, Licentia and Bedivere each hold 25 shares, and Right Course holds 10 shares. The directors of the Company are presently Mr Bryan Lowe, Ms Lynne Dalzell, Ms Jane McDermott-Austin, Mr Phillip Austin, and Mr James Gelston. Mr Michael Austin was previously a director, but ceased to be a director upon his bankruptcy on 6 June 2016.
2. The Company was established to operate a production business for the purpose of producing feature films and a television series based on the "Skippy the Bush Kangaroo" television series. On 10 December 2009, the Company entered into a deed with Fauna Productions Pty Limited (Fauna) described as the Skippy Feature Film and Television Deed. The recitals to the deed recorded that Fauna is the owner of the copyright in the character "Skippy the Bush Kangaroo". By cl 1 of the deed, Fauna granted the Company all rights, title and interest in the copyright and intellectual property rights of the character "Skippy" on certain terms for ten years.
3. From 2009 to 2015, attempts were made by the Company to produce a "Skippy" feature film, however, those attempts were unsuccessful.
4. In February 2015, the shareholdings in the Company were restructured, to reflect the current shareholdings referred to above. Mr Bryan Lowe was appointed as director and chief executive officer of the Company, and Ms Dalzell was appointed as a director responsible for the administration of the Company. The present shareholders entered into a shareholders agreement in February 2015 to regulate their agreement for the management and control of the Company and the conduct of its business.
5. Disputes arose later in 2015 when Mr Lowe submitted to the directors of the Company, a script for a "Skippy" feature film, together with a deed of option for literary property. Mr Gelston, Ms Dalzell and Mr Michael Austin took the view that Mr Lowe was attempting to take over the whole brand and ongoing intellectual property rights in relation to the "Skippy" character. Another director, Mr Phillip Austin, negotiated what he thought was an acceptable arrangement with Mr Lowe, however, that arrangement was unacceptable to the other directors.
6. Mr Phillip Austin deposed that since about 2016, relations between Mr Michael Austin and Mr Gelston on the one hand and Mr Lowe on the other continued to deteriorate such that the operation of the Company became dysfunctional.
7. As mentioned, on 6 June 2016 Mr Michael Austin became a bankrupt. He ultimately resigned as a director of Bedivere and appointed Ms McDermott-Austin as Bedivere's representative on the Board of the Company.
8. Relations between directors deteriorated further at a Board meeting on 7 July 2016. Since that date, no attempt has been made to progress a "Skippy" feature film or any "Project" as envisaged by the shareholders agreement.
9. For the year ended 30 June 2016, the profit and loss statement for the Company records a loss of $247. The balance sheet as at June 2016 records negative net assets of $128,096.15. The Company's assets comprised cash of $913.25 and a loan owing by Mr Michael Austin of $2,750. The liabilities of $131,759 comprised debts owing to its shareholders, which were classified as long-term liabilities.
10. There is evidence given on information and belief by the plaintiffs' solicitor, Mr Brenden Miller, of his instructions that the only creditors of the Company are those set out under the heading "Liabilities" in the balance sheet at June 2016 referred to above, and Mr Lowe in respect of script writing fees payable to him and/or Harbourside, of which Mr Lowe is the sole director.
11. In December 2016 and February 2017, Licentia issued notices of default to Harbourside and Barrenjoey respectively alleging various breaches of the shareholders agreement. The alleged breaches related to matters going back to 2015, and were disputed by Harbourside and Barrenjoey. It is not necessary to refer to the detail of those allegations.
12. Ms Dalzell commissioned a valuation of the Company with a view to invoking cl 17 of the shareholders agreement, in particular, cl 17.2 which provided a buy-out mechanism in respect to the shares of a defaulting party. A draft valuation was prepared by Mr Otto, chartered accountant, dated 3 March 2017 and submitted to the shareholders for comment. Mr Lowe disputed the authority of the valuer to carry out the valuation. Nonetheless, the valuer finalised his report, as instructed by Ms Dalzell, which he issued dated 14 March 2017. The valuer assessed a nil value attaching to the shares in the Company as at 31 January 2017.
13. Mr Phillip Austin deposed that in his opinion, the Board of the Company is no longer able to function effectively due to the breakdown of various relationships, lack of communication and the distrust between various directors. He also expressed the opinion that it would be impossible to launch a "Skippy" feature film or any similar project as contemplated by the shareholders agreement.
14. Following the commencement of these proceedings, interlocutory relief was granted on 10 April 2017 restraining Licentia, Bedivere and Right Course from taking any steps in connection with the notices of default referred to above. As indicated, the shareholders have now reached agreement in relation to the disposition of these proceedings. The terms of their agreement include, relevantly, that the Company be wound up on the just and equitable ground, that Mr Woodgate be appointed liquidator, that there be no order as to costs and that the proceedings be otherwise dismissed.

Irretrievable breakdown and deadlock

1. I am satisfied that the evidence supports the conclusion that there has been an irretrievable breakdown between both the directors and shareholders of the Company and that the affairs of the Company are deadlocked: Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (2001) 37 ACSR 672; [2001] NSWCA 97; Nassar v Innovative Precasters Group Pty Ltd (2009) 71 ACSR 343; [2009] NSWSC 342 at [132] (Barrett J); Brooker v You Run the Business Pty Ltd [2008] FCA 1752. The Company, in its current configuration, is in what Barrett J described as a "predicament of paralysis" in Shenouda v Work Safe Medics Pty Ltd [2011] NSWSC 45.
2. In view of the paralysis that has affected the affairs of the Company and the irretrievable breakdown between the directors and shareholders, it is appropriate that the Company be wound up on the just and equitable ground.

Procedural matters

1. There is evidence that Mr Woodgate has given his consent to being appointed as liquidator.
2. Notice of the application has not been lodged with the Australian Securities and Investments Commission (ASIC) as required by s 465A(a) of the Corporations Act, nor served on the Company as required by s 465A(b), nor has the application been advertised as required by s 465A(c) and Supreme Court (Corporations) Rules (Corporations Rules) r 5.6(1). The plaintiffs seek an order pursuant to s 467(3)(b) of the Corporations Act dispensing with those requirements. Section 467(3)(b) empowers the Court to "dispense with any notices being given or steps being taken that are required by this Act, or by the Rules, or by any prior order of the Court". Reference was made in written submissions by the plaintiffs' counsel to the observations of Austin J in Carter v New Tel (2003) 44 ACSR 661; [2003] NSWSC 128 at [23]; White J, in Kozlowski v JSB Developments Pty Ltd [2010] NSWSC 1022; and Black J in Re Aspirion Group Pty Ltd [2014] NSWSC 39. In Kozlowski v JSB Developments, White J said at [15]: The purpose of advertising would primarily be to bring notice of the application to any other creditors of the defendant, particularly if creditors wish to support the application and be substituted as creditor if for any reason the applicant did not wish to proceed. But it might also be open to a creditor to oppose the application if the winding up, and the costs incidental thereto, might prejudice its ability to recover a debt or the amount that could be recovered.
3. The evidence establishes that the Company no longer trades and the only liabilities of the Company are the shareholder loans and script writing fees payable to Mr Lowe. Mr Lowe is the sole director and secretary of Harbourside and has sworn an affidavit in support of the application for the winding up of the Company. There is no realistic prospect of any creditor of the Company opposing the application. As indicated, each of the shareholders is a party to the proceeding and each has consented to the winding up of the Company and to an order appointing an independent liquidator.
4. I will dispense with the requirements of lodging notice of the application with ASIC, serving the application on the Company and advertising or publishing the application. No substantive purpose would be achieved by compliance with those requirements and they would involve unnecessary costs and delay.
5. I should add that counsel for the plaintiffs confirmed in the written submissions referred to above that the plaintiffs will comply with the procedural requirements after the making of any order winding up the Company, namely, lodgment of the orders with ASIC as required by s 470(1)(b) of the Corporations Act and publication of the winding up order and the liquidator's appointment as required by the Corporations Rules, rr 2.11, 5.11(3) and 5.11(4).

Orders

1. For the above reasons, I make the following orders: 1. Pursuant to s 461(1)(k) of the Corporations Act 2001 (Cth) (the Act), order that the first defendant, The Skippy Film Company Pty Limited (ACN 141 058 326) (the Company) be wound up. 2. Pursuant to s 472(1) of the Act, order that Giles Woodgate be appointed liquidator of the Company. 3. Pursuant to s 467(3)(b) of the Act and r 5.6(1) of the Supreme Court (Corporations) Rules 1999 (NSW), the requirements in ss 465A(a), (b) and (c) of the Act and Supreme Court (Corporations) Rules, r 5.6(1) (as the case may be), to lodge notification of the application with ASIC, to serve the application on the Company, and to advertise or publish notice of the application be dispensed with. 4. There be no order as to costs. 5. The proceeding be otherwise dismissed. 6. That these orders be taken out forthwith. 7. The Court notes the agreement between the parties that the second, third and fourth defendants will not take any further steps in relation to the notices of default issued on 22 December 2016 and 19 January 2017 (including without limitation, any attempt to transfer shares in the first defendant).

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 24 May 2017