Plaintiff v INNOVATEQ PTY LTD

1 This proceeding concerns the return of two applications:

(a) for the grant of leave to the plaintiff pursuant to s 237 of the Corporations Act 2001 (Cth) (Act) to commence court proceedings in the name of Innovateq Pty Ltd (ACN 132 372 242) (Company) against Mr Daniel Phillips (a former employee) and two companies associated with him, Certeq Pty Ltd and Certeq NZ Pty Ltd (Certeq) (Leave Application); and

(b) for an order that the Company be wound up (Winding Up Application).

2 The Leave Application (in proceeding S ECI 2017 00255) is opposed by Mr Ross Barnes, a shareholder in the Company, who in turn made the Winding Up Application in proceeding S CI 2018 00915.

3 The applications are supported by the following (substantive) affidavits:

(a) Affidavits of Daniel Hadjiantonakis of 30 October 2017, 1 March 2018, 21 March 2018, and 26 March 2018;

(b) Affidavits of Ross Barnes of 13 February 2018 and 7 March 2018; and

(c) Affidavits of Thomas John Lynch of 13 March 2018,[1] 19 March 2018, and 23 March 2018.[2]

4 Until 16 December 2015, the Company, in its capacity as trustee for the Innovateq Unit Trust (IUT), carried on the business known as 'Innovateq', providing audio visual and IT solutions, with offices in Melbourne and Sydney. The business supplied high-end audio visual systems to national and multi-national clientele in Australia and New Zealand.

5 Mr Daniel Hadjiantonakis and Mr Ross Barnes each hold 1 of a total of 2 ordinary shares in the Company and are both directors. The unit holders in the IUT (established in July 2010) were also held by entities controlled by Mr Barnes and Mr Hadjiantonakis.[3]

6 From about May 2015, Mr Barnes and Mr Hadjiantonakis were in discussions relating to one of them exiting the business. Mr Hadjiantonakis obtained legal advice in relation to the disposal of units in the trust as early as 13 May 2015.[4]

7 There is no agreement as to the genesis for this. However by 31 July 2015, it was agreed that 'both parties have been equally keen to end their business relationship for some time'.[5]

8 In September 2015, Mr Hadjiantonakis served a notice of default on Mr Barnes and his wife, contending that they were in breach of a principal's agreement. He claims that he did so because Mr Barnes was not acting properly in the business. The notice of default alleges, inter alia, that Mr Barnes was in breach of cl 12(2) of the principal's agreement for failing to 'ensure his area of responsibility works in mutual harmony with Mr Hadjiantonakis' area of responsibility'.

9 In his Amended Originating motion, the plaintiff claims that:

During the course of [his] employment Phillips diverted business to the Certeq defendants, using the confidential information of Innovateq, in breach of his employment, fiduciary and statutory duties, by reason of which the business of the trust suffered loss and damage. Innovateq seeks remedies in the nature of restitution, damages and injunctive relief in order to recover the harm done to the trust property, being the business of Innovateq, and to prevent further harm.

10 A proposed statement of claim was produced, which included claims brought by the Company as trustee against Mr Phillips and Certeq. Mr Phillips was said to be employed by the Company, in its capacity as a trustee, as a senior project manager until 11 December 2015. It is alleged that by virtue of a range of actions, Mr Phillips breached contractual duties; fiduciary duties and statutory duties (paragraph 22). Further, that Certeq had knowledge of the breaches of fiduciary duties (paragraphs 24-25). The relevant actions included conduct which occurred between September 2015 to December 2015 to set up a business in competition; divert business relating to Launceston Airport; divert away an opportunity to quote in respect of Foxtel; obtain confidential information relating to McDonald's; and approaches to other customers (paragraphs 14-21).

11 A high volume of documentary material was adduced into evidence in support of this claim, though it was not always clear (without accompanying oral evidence) what was actually taking place. Nevertheless, in oral submissions, Senior Counsel highlighted the following:

(a) that there were emails to suggest Mr Phillips and Mr Barnes were setting up the competing Certeq entities as early as September 2015, while they were still at the Company;

(b) that there was evidence of redirection of customers. In particular, in an email from Mr Barnes to Mr Phillips of 11 November 2015, it was stated 'should we put [the Launceston Airport client] through Certeq'. There was also email notification from Foxtel on 8 December 2015, wherein Ms Porter of Foxtel said she was being told by Mr Phillips that Certeq would be quoting on a project; and

(c) that there was evidence that Mr Phillips utilised confidential supplier and customer information belonging to the Company. In one instance, there was an email of 21 November 2015, which suggested that Mr Phillips required or sought the assistance of an Innovateq employee in order to obtain technical information in relation to the client McDonald's (although it was unclear whether the information actually belonged to McDonald's rather than the Company).

12 In the proposed statement of claim, the loss of 'one off projects' was said to be some $11.6 million of lost profits while loss of 'ongoing projects' was allegedly $2.7 million. In his affidavit of 30 October 2017, Mr Hadjiantonakis baldly alleges that the revenue lost 'is in the order of approximately $25 million' over the two years following December 2015 (despite the fact that the Company was not trading during that time), while his affidavit in reply states (without explanation) that the amounts are those set out in the proposed statement of claim (at paragraph 15). As will be seen below, I have determined that such conclusory statements deserve little weight.

13 By December 2015, the relationship between the two men had broken down completely. Mr Hadjiantonakis says that the relationship broke down only by reason of his discovery that Mr Barnes and Mr Phillips were undermining the business. In particular, when Mr Hadjiantonakis received the communication from Ms Porter of Foxtel on 8 December 2015.

14 On 17 December 2015, Mr Hadjiantonakis' solicitors wrote to Mr Barnes' then solicitors, citing the wrongful acts of Mr Barnes in diverting clients. The correspondence further stated that Barnes was considered to be a withdrawing unit holder; alternatively that there was a deemed redemption of the units. Further, that the current trustee was deemed to have resigned with a new trustee appointed. Mr Barnes was also to be denied access to the Company's premises or servers.

15 On 17 December 2015, Mr Hadjiantonakis also instituted proceedings in the name of the replacement trustees, being two entities controlled by the plaintiff: DHJH Pty Ltd and A&S Investment Holdings Pty Ltd (Hadjiantonakis entities), against Mr Barnes, his wife, Mr Phillips, the Company, Innovateq Services Pty Ltd and the Certeq entities - seeking damages for alleged breach of duties by Mr Barnes and Mr Phillips (2015 Proceeding).

16 Mr Barnes in turn sought orders designed to prevent his exclusion from the Company's business.

17 By orders made on 23 December 2015, Riordan J made orders restraining Mr Hadjiantonakis and his entities from taking any step to enforce any suspension of Mr Barnes' employment in the Company. This order was subject to mutual undertakings that the business continue to operate.

18 Mr Hadjiantonakis alleges that Mr Barnes has breached these undertakings. However, this is denied by Mr Barnes.

19 On 8 March 2016, a Deed of Settlement (Deed) was entered into by Mr Barnes and his wife (Ms Emma Rose), Mr Hadjiantonakis (pursuant to cl 3.2) and the Hadjiantonakis entities. The Company also executed the Deed and undertook obligations under it. However, the Certeq entities were not parties to this Deed.

20 Recital D of the Deed recorded that the parties were desirous of settling all matters between them without further costs and expense and the uncertainty of litigation.

21 Clause 4 of the Deed provided for the 'full and final settlement of all matters in dispute' between the parties to the Deed, via steps that included the following:

(a) The division of assets of the Company between Mr Barnes and Mr Hadjiantonakis (or his entities). This included the transfer of all intellectual property owned by the Company to be transferred to DHJH Pty Ltd (cl 4.1(d)).

(b) The payment by Mr Hadjiantonakis (or his nominee) of $100,000 to Mr Barnes (or his nominee) within 30 days of the 'operative date' (7 March 2016) (cl 4.1(f)).

(c) The cessation of trading by the Company on the operative date 'with a view to paying all of its liabilities and being voluntarily deregistered on or before 30 September 2016' (cl 4.1(g) and (i)).

(d) The vesting of the trust on or before 30 September 2016 (cl 4.1(h)).

(e) The appointment of 'an independent, accountant, agreed on by the parties... as a consultant to assist in winding up of Innovateq, the Innovateq Unit Trust and Innovateq Services Pty Ltd' (cl 4.1(j)). This accountant's role was, inter alia, to ensure prompt recovery of invoices, prompt payment of creditors, as well as ensuring deadlocks were 'broken'.

(f) Both Mr Hadjiantonakis and Mr Barnes agreed that neither of them nor their entities were to be restrained from carrying on any business in any marketplace in which the Company competed (cl 4.1(k)).

(g) The parties agreed on terms of releases and further agreed that orders would be made as between the plaintiffs and the first and second defendants that the 2015 Proceeding would be dismissed with no order as to costs (cl 9).

22 There was no reference to the pursuit of any litigation by the Company. Rather, the litigation against Mr Phillips and the Certeq entities remained on foot brought in the name of the Hadjiantonakis entities (as replacement trustees) - and not the Company.

(a) In March 2016, the Company ceased operating the business that it had previously conducted.

(b) On or around 30 March 2016, Mr Hamish McKinnon of Bent & Cougle was appointed as the independent accountant to perform the role of assisting with the winding up of the Company.

24 However, the IUT has not been vested, nor has the Company been deregistered or wound up.

25 In the time following execution of the Deed, Mr Barnes says that he secured employment with Certeq.

26 Thereafter, the Hadjiantonakis entities conducted, under the name 'Innovateq', a similar business to that being conducted by the Certeq entities. The Hadjiantonakis entities and Certeq entities are therefore competitors.

27 The 2015 Proceeding continued as against the Certeq entities in the name of the alleged replacement trustees. However on 14 October 2016, the 2015 Proceeding was struck out before an Associate Judge and also on appeal on 3 February 2017 by McDonald J who held that the chose in action in respect of the alleged wrongful acts remained with the original trustee and did not vest in the new trustee.[6] In particular, his Honour found that the right to sue had not vested in the new replacement trustee absent a vesting order under s 51 of the Trustee Act 1958 (Vic).

28 This leave application was then issued in November 2017.

29 There was considerable confusion in the material as to whether Mr Hadjiantonakis was asserting that the trustee of the IUT had in fact been replaced. Thus, consistent with the approach taken in the 2015 Proceeding, Mr Hadjiantonakis appeared to allege in a number of places that the replacement had validly occurred.[7] However, this was not made completely clear. In fact there was even inconsistency in the Deed given that, although the Hadjiantonakis entities are described as 'ATF' the IUT, Recital B states that the Company is the trustee of the IUT.

30 Nevertheless, during the course of the hearing (in Reply), Junior Counsel for Mr Hadjiantonakis finally clarified the position and accepted that the replacement had not been effective and that the unit holding had not been forfeited.[8]

31 Some two years after the entry into the Deed, the Company appeared to be insolvent according to an overview report of Mr McKinnon, which showed that the Company had a net deficiency of assets of $142,710.10 as at 11 October 2017. This included a very high number of debts which had been owing for more than 90 days.

32 As at the day of the hearing, Mr Hadjiantonakis confirmed that the Company still owed outstanding debts of $141,165 though he had made some repayments (in the order of $460). However, he ultimately stated that he was prepared to personally undertake to repay all of the Company's outstanding debts on an 'unconditional basis'.[9] Nevertheless, although this statement was made, it appeared that the undertaking was not truly unconditional but rather was contingent on the plaintiff being granted leave to bring the derivative action.[10]

33 Mr Hadjiantonakis also adduced evidence that eight of the Company's creditors had consented to his application. A further two creditors had also indicated that they would provide such consent.

34 Counsel for Mr Barnes filed a handwritten list of objections.

36 The first group raised objection on the basis that certain statements made were conclusory/submission/argumentative opinions. For example, this included the conclusory statements about the quantum of the loss suffered without appropriate reference to relevant accounts.[11] By way of further example, it also included a statement made that Mr Barnes acted inconsistently with his undertakings given to Riordan J without any objective foundation beyond a set of allegations made in a solicitor's letter.

37 I have generally taken these statements as evidence of Mr Hadjiantonakis' position only and given little weight to these statements, absent any objective foundation.

38 The second group of objections concerned the requests for consents from the trade creditors and their relevant responses. As well as being said to be conclusory, the Court was invited to exclude this evidence under s 135 of the Evidence Act 2008 (Vic) on the basis that Counsel was unable to properly test the circumstances in which the unilateral request for consent had been made (and noting that the evidence was only provided by Mr Hadjiantonakis' affidavits of 21 and 26 March 2018). Moreover, that the creditors were not apprised of the full picture, which included Mr Hadjiantonakis' personal interest in pursuing the litigation.

39 I do not propose to exclude the evidence in the exercise of my discretion. Rather, I have given these consents little weight in circumstances where the process has been untested by Mr Barnes and where the creditors do not appear to have been given complete information, including details of Mr Hadjiantonakis' personal interest, and the risks associated with the proposed action.

40 Section 236 of the Act allows a member of a company (acting with the leave of the Court granted under s 237) to bring proceedings on behalf of the company, in the name of the company.

41 By s 237(1), such a person may apply to the Court for leave to bring or intervene in, such proceedings. Section 237(2) provides:

The Court must grant the application if it is satisfied that:

(a) it is probable that the company will not itself bring the proceedings, or properly take responsibility for them, or for the steps in them; and

(c) it is in the best interests of the company that the applicant be granted leave; and

(d) if the applicant is applying for leave to bring proceedings - there is a serious question to be tried; and

(i) at least 14 days before making the application, the applicant gave written notice to the company of the intention to apply for leave and of the reasons for applying; or

(ii) it is appropriate to grant leave even though subparagraph (i) is not satisfied.

42 Mr Hadjiantonakis bears the onus of establishing each of the five elements in s 237(2) on the balance of probabilities.[12]

43 Given the stance of Mr Barnes, it is probable that the Company will not itself bring the proceeding such that s 237(a) is satisfied, as was accepted by Senior Counsel for Mr Barnes.[13]

44 There was also evidence that the requisite notice was given under s 237(e) and Senior Counsel for Mr Barnes also did not suggest otherwise.[14]

45 In Swansson,[15] Palmer J identified two non-exhaustive factors to which the court will have regard in determining whether the good faith requirement of s 237(2)(b) is satisfied:[16]

(a) whether the applicant honestly believes that a good cause of action exists and has a reasonable prospect of success; and

(b) whether the applicant is seeking to bring the derivative action for a proper purpose as opposed to a collateral purpose.

46 The exposition of Palmer J has been applied by the Court of Appeal in Chahwan[17] as well as in a number of other decisions.[18]

47 In Chahwan,[19] the NSW Court of Appeal further observed that if an applicant is in reality seeking to further his or her own personal interests rather than the interests of the company as a whole, then the onus will not have been discharged.[20]

48 Mr Hadjiantonakis has sworn that the contents of the proposed statement of claim are correct and have a proper basis, and appears to honestly believe that a good cause of action exists which has reasonable prospects of success.

49 However, Mr Barnes alleges that he has a collateral purpose, that is, that Mr Hadjiantonakis has made the application for the benefit of the companies that he controls, rather than for the benefit of the Company.

• that Mr Hadjiantonakis is now conducting the business previously conducted by the Company in competition with Certeq;

• that the amended originating motion indicated that the derivative action will seek injunctive relief to recover harm done 'and to prevent further harm'. Given that the Company no longer operates, this suggests the real purpose is to advance the interests of the business now being conducted by Mr Hadjiantonakis;

• that the causal link will not be established given that the Company's directors had fallen out in 2015 and each alleged the other was trying to usurp the business. In circumstances where the business was unlikely to continue, no compensation will be available in equity;

• that given Mr Hadjiantonakis seeks to obtain relief to transfer the ownership of the Certeq entities to the Company as trust property, Mr Hadjiantonakis would be litigating to obtain control of a business which is a competitor to one of his related companies and hence to eliminate a competitor from the market; and

• that the pursuing of the action was also in breach of the Deed.

51 Given that Mr Hadjiantonakis is a current shareholder and director, it might ordinarily be thought that good faith would be demonstrated.[21] However, there are a number of factors which suggest a lack of good faith in this case.

52 First, Mr Hadjiantonakis is essentially seeking relief against competitor entities, thereby highlighting his personal interest in the proposed litigation.

53 Second, it is significant that, as at the time of the Deed, the relevant stakeholders (including Mr Hadjiantonakis) saw no need to specifically preserve a right of action in the interests of the Company. Thus, as has been highlighted above, it was seen as appropriate for the Company to be deregistered within six months (and later wound up) notwithstanding that any action was unlikely to be finalised within such a short period of time.

54 The reason for this appears to be because the plaintiff wrongly considered that, having (ineffectively) purported to replace the Company as trustee, he could sue his competitors directly in the name of the Hadjiantonakis entities. The desire to now institute this litigation in the name of the Company (some two years later), only after this process failed, suggests that the current attempt may not be motivated by the interests of the Company.

55 Finally, there is the nature of the remedies sought. In particular, Mr Hadjiantonakis has indicated a desire to seek the extreme remedy of transferring the ownership of the (competitor) Certeq entities to the Company. This is consistent with a desire to bring the action in order to eliminate a competitor from the market.

56 As highlighted already, Mr Hadjiantonakis bears the onus of establishing that he is acting in good faith. Taking the matters outlined into account, I am simply unable to be satisfied that the application is being brought for the interests of the Company itself, rather than to advance the personal interests of Mr Hadjiantonakis (in damaging a competitor). I am therefore unable to be satisfied that the applicant is acting in good faith.

57 Given each element must be satisfied in order to obtain leave, it follows that the application must fail.

58 I will however consider the other elements, below, for the sake of completeness.

59 In Swansson v RA Pratt Properties Pty Ltd & Anor (Swansson),[22] Palmer J stated that s 237(2)(c) is not satisfied if the proposed derivative action may be, or appears to be, or is likely to be, in the best interests of the company. The court must be satisfied that the proposed action is in the best interests of the company.[23]

60 Palmer J also enunciated four relevant factors in order to establish that the grant of leave is in the best interests of the company.[24] These factors have also been endorsed by the Full Court of the SA Supreme Court in Ragless v IPA Holdings Pty Ltd (in liq)[25] and cited more recently by Sifris J in Daiwa Can Company v Barokes Pty Ltd:[26]

(a) There should be evidence as to the character of the company.

(b) There should be evidence of the business, if any, of the company so that the effects of the proposed litigation on its proper conduct may be appreciated.

(c) There should be evidence enabling the court to form a conclusion whether the substance of the redress which the applicant seeks to achieve is available by a means which does not require the company to be brought into litigation against its will.

(d) There should be evidence as to the ability of the defendant to meet at least a substantial part of any judgment in favour of the company in the proposed derivative action so that the court may ascertain whether the action would be of any practical benefit to the company.

61 In his Amended Originating motion, Mr Hadjiantonakis alleges that it is in the best interests of the Company to bring the proceeding as the Company 'is under a duty to recover damage to trust property and prevent further loss.' He further relied on the decision in Cemcon, Re Hall Concrete Constructions (Vic) Pty Ltd[27] (Cemcon), wherein Gordon J accepted that the derivative action was in the best interests of the company even though the trustee was no longer trading and notwithstanding there were other forms of redress such as the appointment of a new trustee or liquidator.

62 It was also emphasised that the plaintiff would meet the costs of the litigation, as compared with the appointment of a liquidator (which would add further layers of costs).

63 Finally, that equity could fashion a remedy (citing the transfer of the ownership of the Certeq entities to the Company as trust property).

64 Mr Barnes emphasised that there is no utility in granting leave where a winding up order was inevitable, since a liquidator will have full power to deal with any causes of action. Thus a liquidation would enable an independent person to take control (rather than a person antagonistic to the interests of the other shareholder).

65 He also suggested that the grant of leave would actually be a breach of the Deed, which showed that the controlling minds had agreed the Company would be deregistered and wound up within six months. Embarking on speculative litigation more than two years later was not contemplated.

66 Finally, there was no evidence that the defendants to the proposed claim would be able to satisfy a judgment with one of the Certeq entities based in New Zealand.

67 Turning to the factors identified by Palmer J, it is significant that the character and business of the Company is one reflected in the Deed. I accept the submission of Mr Barnes that the controlling minds therein decided that the Company would cease trading and cease being in existence (by being deregistered then wound up).

68 Senior Counsel for the plaintiff also accepted that a winding up would be inevitable;[28] the sole issue between the parties being when a winding up would occur, rather than whether it would occur. However, as will be seen below, I am satisfied that it is appropriate for a winding up order to be made now in this case on the basis of the suspension of business for over a year as well as on the 'just and equitable' ground.

69 The cessation of trading also immediately distinguishes the case from Cemcon, wherein her Honour observed that the relevant company stood in a position to not only recoup the relevant business but also to 'continue trading and resume its activities in a relatively prompt fashion'.[29]

70 The option of liquidation will also not necessarily stymie the litigation.

71 Thus, first, a liquidator is given power to bring or defend legal proceedings in the name of the company under s 477(2)(a) of the Act. He/she may also apply to the court for directions on any matter arising under the winding up.[30] There is also no reason why any appropriate remedy would be excluded simply because a liquidator was prosecuting the action.

72 Second, it is true that the trust deed provides that the office of trustee will be determined and vacated on liquidation such that the Company will be a bare trustee.[31] Further, that the trustee will be generally released from all obligations under the Deed 'arising after the date of such retirement'.[32]

73 However, the existing bare trustee will still retain duties which existed by reason of the office of trustee. Thus, in the decision of CGU Insurance Ltd v One.Tel Ltd (in liq), the High Court stated that one such pre-existing obligation which exists by virtue of the very office (absent negation) is the obligation to 'get the trust property in, protect it, and vindicate the rights attaching to it'.[33] These duties have even included a right to bring proceedings in order to protect the assets of the trust.[34] In any event, as Counsel for the plaintiff accepted, the liquidator could (at least) still consider whether or not to pursue the litigation.[35] Other steps could then be taken if litigation was to actually proceed. These could include the appointment of a replacement trustee with an appropriate vesting order and/or the making of orders under s 63 of the Trustee Act 1958 (Vic) and/or the appointment of a receiver.

74 Finally, although there may be funding issues, there are options available to manage this taking into account the commercial interests of the Company.[36]

75 I am therefore not satisfied that the substance of redress sought will be unavailable absent the grant of leave. Indeed, not only is the option available, but the appointment of a liquidator will ensure that a person independent of the two warring factions will be able to exercise professional judgment as to whether a claim ought be pursued in the commercial interests of the Company. This may be compared to the scenario where leave was to be given in circumstances where the litigation would be handed over to one of the competing parties. Senior Counsel for Mr Hadjiantonakis suggested that the solicitor could conduct the action. However, this was unsatisfactory and did not offer the independent professional judgment which could be provided by a liquidator.

76 I am therefore not satisfied that the Company should be brought into litigation against its will in circumstances where a liquidation offers scope for appropriate redress, taking into account the best interests of the Company and in circumstances where liquidation is inevitable in any event.

77 It is unnecessary to go further, save to observe that, although Mr Phillips appears to be a registered proprietor of property, there otherwise appeared to be no evidence cited about the ability of the Certeq entity which is resident in New Zealand to meet a judgment.

78 I am not satisfied that it is in the best interests of the company that the applicant be granted leave.

79 In South Johnstone Mill Ltd v Dennis,[37] Middleton J summarised the requirements for determining that there is a serious question to be tried as satisfaction that there is a sufficient likelihood of success to justify it going to trial.[38] This principle has also been cited with approval by others.[39]

80 Mr Hadjiantonakis relies on the particularised proposed statement of claim and suggests that there is substantial loss. In so doing he sought to rely on evidence from Mr Barnes, who himself accepted that the Company had earned substantial sales turnover (of some $20 million over two years).

81 Mr Barnes highlighted issues regarding the nature of the confidential information (which would now be in the hands of Mr Hadjiantonakis given the Deed); causation; and valuation issues.

82 However, Senior Counsel made a number of appropriate concessions as follows:

• that the material shows steps were being taken 'at an arguable level' to deal with customers;[40]

• that Mr Hadjiantonakis might have a real chance of success of some claims and not others;[41]

• that there was a real question on the issue of the conduct;[42] and

• that he was not saying that there was not a triable issue (in relation to some clients).[43]

83 As highlighted by Mr Hadjiantonakis, although there was a defence filed which generally denied the allegations, there is otherwise little in the way of affidavit evidence to explain/refute some of the allegations.

84 Consistent with the above concessions, I am therefore satisfied that the material raises a sufficient likelihood of success to satisfy the test. However, given issues as to quantum and causation, serious issues remain as to the likely success of any such claim as well as the real benefit of such action for the Company.

85 Thus in terms of quantum, there is little, if any, evidence which particularises the value of the alleged claim including the true value of lost projects.

86 In terms of causation, the conduct appears to have occurred in the last few months of trading in circumstances where the relationship of the parties had already broken down; the parties agreed to cease trading shortly; and the intellectual property was given to the Hadjiantonakis entities in any event. In such circumstances, difficult causation issues are likely to arise, particularly as to a claim that 'ongoing' projects were actually lost.

87 I nevertheless accept Mr Hadjiantonakis' submission that, in the context of a leave application, these would be matters for any trial. I consider however that a liquidator might be well advised to obtain appropriate advice on these matters so as to determine the commerciality of pursuing any such action.

88 I am unable to be satisfied that the applicant is acting in good faith.

89 I am also not satisfied that it is in the best interests of the Company that the applicant be granted leave.

90 It follows that the application must be refused.

91 The Winding Up Application seeks the winding up of the Company on the 'just and equitable' ground (s 461(1)(k) of the Act) and/or on the basis that the Company has suspended business for a whole year (s 461(1)(c) of the Act) and/or because the Company is insolvent (s 459P of the Act).

92 Each of the first two grounds are established in this case - neither of which was challenged by Mr Hadjiantonakis.

93 First, the Company has been dormant for two years such that s 461(1)(c) is clearly made out.

94 Second, there is the 'just and equitable' ground.

95 There are many circumstances in which the Court will wind up a company on the just and equitable ground. In the decision of Inon Nominees Pty Ltd, Re; Giacobbe v Giacobbe, Ferguson J (as the Chief Justice then was) identified that such circumstances include where there is a deadlock between those who control the company and there has been a breakdown of the personal relationship between them.[44]

96 Moreover, as has been helpfully stated by Sifris J, where there is a situation of ongoing unresolvable 'deadlock' an appropriate course is to:

... appoint an independent party, such as a liquidator, to take control of the Company, its remaining assets, and bring an objective view, unrestrained, unrestricted and unencumbered by the views of the parties, in order to determine the fate of the company.[45]

97 I am of the opinion that it is just and equitable that the Company be wound up. In so saying, I have taken into account:

• that there is overwhelming evidence of a breakdown of trust and confidence in a relationship which was predicated on mutual co-operation, trust and confidence;

• that the relevant stakeholders had already determined that the Company should have been deregistered/ liquidated some two years ago;

• that the parties (as well as an accountant) have been unable to finalise the affairs of the Company and resolve the deadlock despite having had ample opportunity to do so;

• that the Company does not have any ongoing business which might be adversely impacted by the liquidation; and

• an independent liquidator will be best able to investigate whether it is in the commercial interests of the Company for the proposed action to be taken.

98 It follows that a winding up order is, prima facie, appropriate in circumstances where Mr Hadjiantonakis himself accepted that winding up was ultimately inevitable.

99 In terms of the insolvency ground, the matter was somewhat unclear. The better view would appear to be that, given the undertaking to pay creditors appeared to be contingent on leave being granted, that the Company remains insolvent absent leave. In any event, given the other two grounds are established, it is unnecessary to consider the additional insolvency ground as a separate independent basis.

100 The opposition to the winding up was also based on discretion rather than whether grounds existed to make it. In particular, Mr Hadjiantonakis submitted that:

(a) the application is a defensive tactic brought for an improper collateral purpose (citing the allegations made in the proposed action);

(b) Mr Barnes does not come to the Court with clean hands;

(c) there is no utility to the application;

(d) if successful, there will simply be another level of administrative expenses and legal costs; and

(e) the creditors, largely, do not require the Company to be placed into liquidation.

101 Mr Hadjiantonakis also suggested that Ms Rose (as a unit holder) ought to be a party for a winding up on just and equitable grounds.

102 I am unable to find any collateral purpose in circumstances where the allegations the subject of the proposed claim have not been established or tested. The late filing of the Winding Up Application (which was also cited) does not establish any collateral purpose.

103 In relation to clean hands, Counsel for Mr Hadjiantonakis again cited the alleged wrongful conduct as well as alleged breaches of undertakings.

104 However, lack of clean hands is not an absolute bar.[46]

105 In any event, the alleged breaches are, again, matters for trial, while the alleged breaches of undertakings were also not the subject of any probative evidence.

106 The objective evidence also suggested that the relationship between these parties had also broken down at some point earlier than July 2015. In such circumstances, not only is the misconduct not yet proven, but I am unable to find that the situation of breakdown was created by any misconduct (which is alleged to have taken place on or after September 2015).

107 In relation to utility, the fact that the liquidator would be a bare trustee was again highlighted. However, for reasons given already, this would not prevent the proceeding. The extra costs are a consideration, but ensure that an independent liquidator may assess the merits of any litigation removed from the pressure of warring factions. I am also not satisfied that any other less drastic alternative relief was appropriate. Indeed, no other alternative was really suggested in circumstances where the accountant appears to have been unable to break the deadlock as contemplated by the Deed.

108 Finally, insofar as the creditors were concerned, the consents do not weigh against a winding up in circumstances where the winding up order is to be made on the non-trading/just and equitable grounds (rather than insolvency).

109 Notwithstanding the Deed (which contemplated deregistration and vesting two years ago), the Company remains deadlocked, and is not trading. It is undesirable to prolong the existence of this Company and let the proposed litigation proceed under the control of one of two warring parties. Rather, the only appropriate remedy is for a liquidator to be appointed who will be best placed to objectively assess the Company's position, and resolve the Company's fate. This will include an orderly assessment as to whether the cause of action ought to be pursued, which takes due account of the interests of the Company's creditors.

110 Subject to certain formal matters raised below, it is therefore appropriate that a winding up order be made.

112 First, pursuant to r 5.6(2)(b)(i) of the Supreme Court (Corporations) Rules 2013 (Vic) (Rules), publication of a notice of the application for winding up should occur at least 3 days after the originating process was served unless the Court otherwise orders. Given that service occurred on 14 March 2018, it followed that publication on 16 March 2018 was too early. However, in circumstances where no substantial prejudice was identified or demonstrated, I propose to 'otherwise order' such that strict compliance with r 5.6(2)(b)(i) of the Rules will be dispensed with.

113 Second, pursuant to s 470(1)(a) of the Act, an applicant is to lodge a Form 519 notification of filing not later than 10.30 am on the next business day, being 15 March 2018, after the filing occurred. Here, the relevant notice was not lodged until 1.05 pm. However, again, absent any prejudice, in circumstances where the Company is not trading, it is appropriate to dispense with the requirement pursuant to s 467(3)(b).

114 I should add that, in any event, I am not satisfied that any substantial injustice has been caused by reason of the above defects. It follows that, pursuant to s 467A of the Act, the application ought not be dismissed in any event.

116 First, that only s 459P was ticked on the Form 519. However, this appears responsive to the way the form is framed inviting an applicant to tick only one box if the application cites s 459P of the Act. I therefore do not consider any order to be necessary.

117 Second, in terms of Ms Rose, no provision was identified which suggested she needed to be joined. Rather, it is Mr Barnes who has standing to bring the Winding Up Application on the just and equitable/no trading grounds as a shareholder pursuant to s 462(2)(c).[47]

118 A liquidator, Mr Geoffrey Niels Handberg, has also provided his consent to being appointed.

120 There will be an order for the winding up of the Company with Mr Handberg appointed liquidator of the Company.

121 Strict compliance with r 5.6(2)(b)(i) of the Rules will be dispensed with.

122 There will also be dispensation with the requirements of s 470(1)(a) of the Act.

123 The parties should provide a form of order to give effect to these Reasons.

[1] Though only exhibit TJL-5 to the Affidavit of Thomas John Lynch of 13 March 2018 was relied upon: Transcript of Proceeding (26 March 2018) 122.

[2] Exhibit TJL-3 to the Affidavit of Thomas John Lynch of 23 March 2018 was excluded given the parties accepted that this Court was entitled to have regard to the entry next to 13 May 2015, in the judgment of Digby J in Hadjiantonakis v Madgwicks [2017] VSC 397 [13]; Transcript of Proceeding (26 March 2018) 2, 3.

[3] A&S Investment Holdings Pty Ltd (ACN 144 986 612) held 50 A Class Units and 50 C Class Units; Ross Barnes and Emma Rose as trustees for the R&E Family Trust held 50 A Class Units and 50 C Class Units and Innovateq Services Pty Ltd (ACN 144 988 690) held 100 B Class Units: Exhibit DH2 of the Affidavit of Daniel Hadjiantonakis of 30 October 2017 (First Hadjiantonakis Affidavit).

[4] Hadjiantonakis v Madgwicks [2017] VSC 397 [13].

[5] Exhibit DH-22 of the Affidavit of Daniel Hadjiantonakis of 21 March 2018.

[6] Innovateq Australia Pty Ltd v Barnes & Ors [2017] VSC 16.

[7] For example, see the First Hadjiantonakis Affidavit, [12]; Submissions of the Plaintiff dated 8 March 2018, [5] and [9].

[8] Transcript of Proceedings (26 March 2018) 132.

[9] Transcript of Proceedings (26 March 2018) 63.

[10] Transcript of Proceedings (26 March 2018) 43, 136 and 140.

[11] First Hadjiantonakis Affidavit, [24]; Affidavit of Daniel Hadjiantonakis of 1 March 2018, [15].

[12] Re Connective Services Pty Ltd [2017] VSC 609 [51].

[13] Transcript of Proceedings (26 March 2018) 54.

[14] Transcript of Proceedings (26 March 2018) 54.

[15] [2002] NSWSC 583; (2002) 42 ACSR 313.

[16] Swansson [2002] NSWSC 583; (2002) 42 ACSR 313, 320 [36].

[17] [2008] NSWCA 52; (2008) 245 ALR 780.

[18] Daiwa Can Company v Barokes Pty Ltd (2016) 113 ACSR 505, 512 [39] and cases cited therein.

[19] [2008] NSWCA 52; (2008) 245 ALR 780 [44].

[20] See Chahwan [2008] NSWCA 52; (2008) 245 ALR 780, 798 [83] (Tobias JA, Beazley and Bell JJA in agreement) and cases cited therein.

[21] Swansson [2002] NSWSC 583; (2002) 42 ACSR 313, 320 [38].

[22] [2002] NSWSC 583; (2002) 42 ACSR 313.

[25] [2008] SASC 90; (2008) 65 ACSR 700, 709 [35].

[26] (2016) 113 ACSR 505, 517 [64].

[27] [2009] FCA 696.

[28] Transcript of Proceedings (26 March 2018) 44.

[29] Cemcon [2009] FCA 696 [21].

[30] Section 90-15 in Schedule 2 - Insolvency Practice Schedule (Corporations) to the Corporations Act 2001 (Cth), as introduced by the Insolvency Law Reform Act 2016 (Cth).

[31] Clause 11.4.2 of the Deed in Exhibit DH-2 of the First Hadjiantonakis Affidavit.

[32] Save for an obligation to assist in vesting the Trust Fund in any new Trustee: Clause 11.5 of the Deed in Exhibit DH-2 of the First Hadjiantonakis Affidavit.

[33] CGU Insurance Ltd v One.Tel Ltd (in liq) [2010] HCA 26; (2010) 242 CLR 174, 182 [36].

[34] Bruton Holdings Pty Limited (In Liq) v Commissioner of Taxation [2011] FCAFC 79; (2011) 193 FCR 442.

[35] Transcript of Proceedings (26 March 2018) 140

[36] Galanopoulos v Ali Moustafa & Ors [2010] VSC 380 [36].

[37] [2007] FCA 1448; (2007) 163 FCR 343.

[38] [2007] FCA 1448; (2007) 163 FCR 343, 357 [80]-[81].

[39] See, for example, Re Connective Services Pty Ltd [2017] VSC 609 [175] and Wood v Links Gold Tasmania Pty Ltd (No 2) [2013] FCA 143 [50].

[40] Transcript of Proceedings (26 March 2018) 51.

[41] Transcript of Proceedings (26 March 2018) 100.

[42] Transcript of Proceedings (26 March 2018) 53.

[43] Transcript of Proceedings (26 March 2018) 75.

[44] [2012] VSC 285 [14].

[45] See Galanopoulos v Ali Moustafa & Ors [2010] VSC 380 [34].

[46] Malos v Malos [2003] NSWSC 118; (2003) 44 ACSR 511, 516 [26], citing Ruut & Charest Pty Ltd v Head, Yantan Pty Ltd & Weleri Pty Ltd (1996) 20 ACSR 160, 161 (Santow J).

[47] Note that a 'contributory' includes a holder of fully paid shares, pursuant to part (a)(ii) of the definition of 'contributory' in s 9 of the Act.