1 In proceedings 3596 of 2004, Mr Pham Thai Duc, as plaintiff, seeks an order for the winding up of PTS Australian Distributor Pty Ltd ("PTS"). He and Mr Anthony Tang have been, at all material times, the only directors and only shareholders of PTS. That company is, in essence, a partnership in corporate form.
2 At the time proceedings 3596 of 2004 were commenced, there had been on foot for some time two other relevant proceedings, being 5044 of 2000 and 1889 of 2003.
3 Proceedings 5044 of 2000 were commenced by an originating process filed on 15 December 2000. A statement of claim was filed on 21 December 2001. The plaintiffs were originally PTS and Mr Tang, with Mr Pham as sole defendant. By the time the statement of claim was filed, however, Mr Tang was the sole plaintiff and the defendants were Mr Pham, PTS and a company named LYTC Pty Limited. The main relief sought by Mr Tang in those proceedings is an order that Mr Pham purchase Mr Tang's shares in PTS. There is an alternative claim for a winding up order. There is also a claim to declaratory relief.
4 In 1889 of 2003 (commenced by statement of claim filed on 14 March 2003), Mr Pham and LYTC sued Mr Tang and PTS seeking mainly declaratory relief, but with a claim also for what was called "damages" and a claim for an order that PTS be wound up because it cannot trade profitably and is insolvent.
5 The essential background facts appear to be that PTS was formed in 1995 and commenced to carry on a grocery retailing business at Padstow; that in about 1997 it became necessary to vacate the original retail premises because of expiration of the lease; that new premises were found nearby and a lease of those premises was taken by PTS, guaranteed by Mr Pham and Mr Tang; that refurbishment and fitting out of those premises was required and took some months; that Mr Pham alone entered into a franchise agreement with the IGA organisation in respect of the new premises; that Mr Pham and his associates (including LYTC) thereafter undertook all expenditures in connection with the business and conducted it for their own account and for their own benefit to the exclusion of PTS; that that business was later sold for a price in excess of $400,000 which is held by the Pham interests on the footing that they do not recognise any interest of PTS; and that, after Mr Pham went his own way with respect to the new business, Mr Tang alone exercised de facto control over the affairs of PTS.
6 The fundamental disputes between Mr Pham and Mr Tang (being disputes the subject of proceedings 5044 of 2000 and 1899 of 2003) concern events which involved Mr Pham alone pursuing the grocery business in the new premises. Mr Tang says, in essence, that Mr Pham diverted to himself and interests associated with him corporate opportunities and benefits that properly belonged to PTS, thereby breaching fiduciary duties owed by him to PTS. Mr Pham argues that it is Mr Tang who has breached fiduciary duties owed to PTS by failing to contribute funds he had undertaken to provide in connection with the re-location of the business and by wrongfully appropriating property of PTS.
7 In proceedings 5044 of 2000, Mr Tang made application for leave under s.237 of the Corporations Act 2001 (Cth) to represent PTS and to be given carriage of the proceedings on its behalf. On 5 November 2004, having heard argument on that application, I directed that it be adjourned since I was of the view that, as matters then stood, it was not in the best interests of PTS that leave be granted to Mr Tang (s.237(2)(c)). I expressed the opinion that the best interests of PTS would be served by a hearing of Mr Pham's winding up application (in the present proceedings 3596 of 2004) since that would determine whether the warring directors of PTS were to remain at its helm or would be supplanted by a liquidator.
8 I heard that winding up application on 3 February 2005. It is based on two grounds: first, the just and equitable ground (Corporations Act 2001 (Cth), s.461(1)(k)); and, second, that PTS has suspended its business for one year (s.461(1)(c)).
9 As far as the just and equitable ground is concerned, it is clear that the relationship between Mr Pham and Mr Tang, the only shareholders and only directors of PTS, has long been in a state of irretrievable breakdown. The position was succinctly stated by Mr Tyndall of counsel, who represents the Tang interest and, on the present application, appeared formally for the defendant:
"[T]hey have fallen out, hate each other, won't talk, can't have board meetings. There are books and records that are being controlled by one or the other, bank accounts have been frozen and the business itself cannot continue to trade."
10 Mr Tyndall also submitted, however, that although there is no trading, there is a need "to keep the company alive" because there are matters that have to be dealt with, being the other litigation in which PTS plays a part.
11 The situation is one in which it is accepted that the two persons who are the directors and shareholders are totally estranged and are unable to communicate with one another. The evidence shows that Mr Tang is exercising a form of de facto control in that he alone has set the company in motion to the extent that it needs to be active in relation to legal proceedings and that he alone has attended to administrative functions such as necessary ASIC filings. He has arranged for PTS's bank statements to be sent to his home address. There is evidence that, in one document (a transfer of Telstra shares by PTS to Mr Tang's wife), Mr Tang has represented himself to be the sole director, which he is not. Among the documents Mr Tang has lodged with ASIC is an annual return dated 6 December 2002 containing a statement, signed by him, that, within one month before lodgment of that return, "the directors of the company … have … resolved that they are of the opinion that there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable". The same return records the directors as Mr Pham and Mr Tang. It is clear that in December 2002 and the preceding months, the estrangement and deadlock between Mr Pham and Mr Tang was in effect and that there was in fact no consultation between Mr Pham and Mr Tang that could conceivably be regarded as a resolution of the kind described in the relevance part of the annual return signed by Mr Tang alone. The annual return to which I have referred was lodged only after a notice of non-compliance was issued by ASIC. That notice is dated 5 August 2002.
12 Despite Mr Tang's de facto control, his solicitors wrote to Mr Pham's solicitors on 24 June 2004 referring to the application with which I am now dealing and asking that Mr Pham's solicitors forward as soon as possible "a list of the company's assets and the value of those assets according to your client". No reason for that request was given at that time but, in a follow-up letter dated 22 August 2004, Mr Tang's solicitors said that Mr Tang was minded to offer to purchase Mr Pham's shares for half the value of the assets less liabilities. That letter went on to give Mr Tang's view of what the assets and liabilities were. Further correspondence along the same lines followed, and an offer was outlined in a letter dated 14 September 2004. However, that offer was not accepted. Mr Pham preferred to press on with his winding up application.
13 The break-down in relations to which I have referred has been the source of the competing claims in the other proceedings. Each of Mr Pham and Mr Tang maintains that the other has been guilty of breaches of fiduciary duty owed to PTS. Each thus alleges that PTS has some right of recovery against his co-director. The respective allegations are denied. In those circumstances, it is perfectly understandable that Mr Tang's offer to purchase Mr Pham's shares for half the net asset value received no positive response. What is the true worth of the assets, including rights of action and possible fruits of them? What view should a valuer take of the prospects of Mr Pham in making good, for the benefit of PTS, allegations of breach of fiduciary duty by Mr Tang and of the prospects of Mr Tang in making good, for the benefit of PTS, allegations of breach of fiduciary duty by Mr Pham? These questions illustrate the problems which, at this point, attend the notion that either side should be expected to buy out the other.
14 Mr Tyndall also took me to correspondence between Mr Tang's solicitors and an insolvency practitioner as to the likely cost of a winding up. This confirms (not surprisingly) that winding up, if ordered, will cause a liquidator's remuneration to become an impost upon financial resources that would otherwise be spared that impost.
15 I am satisfied that a case for winding up on the just and equitable ground has been made out according to approaches of irreparable rupture of the kind most often associated with Re Yenidjie Tobacco Co Ltd [1916] 2 Ch 426 and Ebrahimi v Westbourne Galleries Ltd [1973] AC 360. There has been a complete breakdown in relations between Mr Pham and Mr Tang. PTS cannot be managed and administered as it should be. It is not to the point to say that the company is, in a de facto sense, being adequately administered - a proposition that, having regard to Mr Tang's actions in relation to the annual return and the representation in the Telstra share transfer, is in any event without foundation. There is a clear public interest in companies with multiple shareholders and multiple directors functioning by means of consultation among those persons in the ways company law requires. It is contrary to that public interest for one person to take over the role of the body of persons and to function in the way in which the body is meant to function. This is not a case in which there has been merely failure to comply with statutory requirements, something that, in a serious case, may itself justify a winding up order: Re Kurilpa Protestant Hall Ltd [1946] St R Qd 170. It is a case in which records have been falsified and misrepresentation has been engaged in in an attempt to mask the paralysis by which the company is afflicted.
16 It was submitted on behalf of Mr Tang that the court should, in its discretion, refuse a winding up order because of the additional layer of cost by way of liquidator's remuneration. That, of course, is an incident of every winding up. If a case for winding up is shown, it will rarely, if ever, be appropriate to regard matters of cost alone as sufficient to cause the court's discretion to be exercised against the making of an order. In the present case, the company is said by each of its principals to have a claim against the other principal. In its present configuration, the company is unable to make any informed and dispassionate decisions on those alleged claims. If a liquidator is installed, he or she will be in a position to do so, subject to practical considerations of cost and funding.
17 I mention in conclusion that this is a case in which each party has contributed to the breakdown upon which Mr Pham relies in pursuing his winding up application. In his work "Winding Up on the Just and Equitable Ground" (1978), Callaway JA (as he now is) said, at p.104-5, that, in such a case, the respective contributions to the breakdown should be assessed in determining what is just and equitable. Such an approach is borne out by observations of Santow J (as he then was) in Ruut v Head (1996) 20 ACSR 160, a partnership case to which like principles were applicable. His Honour said, at p.162:
"As a matter of logic, lack of clean hands could not be an absolute bar, else otherwise for example, where both partners are equally at fault, neither could obtain a winding up order. Nonetheless it must be an important factor in the exercise of the court's discretion along with other factors, such as whether the partnership is truly deadlocked."
18 In the present case, the immediate question is whether the degree of fault on the part of the applicant for winding up (Mr Pham) is such as to make it inappropriate to accede to his application. In my opinion, his apparent or arguable fault, viewed in the context of the fault of Mr Tang, should not deter the court from making an order for winding up on the just and equitable ground so that the paralysis to which I have referred may be eliminated, a competent functionary (in the person of a liquidator) may be placed in control of PTS's affairs and that functionary may address the question of where the best interests of PTS lie regarding the litigation affecting it: cf Malos v Malos (2003) 44 ACSR 511. If, as seems probable, the liquidator is hampered by lack of funds, the principals may make or renew applications for leave to pursue particular litigation on PTS's behalf.
19 The position I have reached makes it unnecessary for me to address the alternative ground relied upon in support of the winding up application, namely, that PTS has suspended its business for one year (s.461(1)(c)).
20 I will make an order that PTS Australian Distributor Pty Ltd be wound up under s.461(1)(k) of the Corporations Act 2001 (Cth) and an order appointing a liquidator. First, however, it will be necessary for the written consent of a liquidator to be filed. It is to be hoped that Mr Pham and Mr Tang can agree on a choice of liquidator. If they cannot, I will consider candidates proposed by both. I direct that there be filed by delivery to my Associate within seven days:
(a) written consent to act signed by a qualified liquidator agreed by Mr Pham and Mr Tang; or
(b) written consents to act signed by qualified liquidators proposed by Mr Pham and Mr Tang respectively together with, in each case, a written statement of the proposing party's reasons for preferring the person proposed by him.