Plaintiffs/Defendants by Counterclaim v Defendants/Plaintiffs by Counterclaim

1. As I have found that there has been oppression, my jurisdiction to order relief under s 233 is enlivened. In this section, I consider the appropriate remedy.
2. I note that L&K no longer seeks to be a purchaser and the defendants do not seek that Madison and/or Menlo's shares be purchased by L&K. Both sides agree that the defendants are the purchaser in any buy-out. The areas of disagreement between the parties concern whether such buy-out order should be compulsory or permissive, the price, and whether a winding-up should be ordered in the event that there is no buy‑out.

1. L&K submits that the defendants' proposed relief of an entitlement (rather than an obligation to purchase L&K's shares (ie an order for an optional buy out) is without any basis. L&K says this highlights how Lazzaro is not prepared to pay fair value and therefore seeks to force L&K to remain a shareholder. L&K says that the parties should not be left to their own devices or to follow the transfer notice process in the SHA. The mechanism would not work as Lazzaro's position is that he is not prepared to buy L&K's shares other than at a price he agrees with and he does not want to sell his interest in Lendly.
2. L&K also submits that Lazzaro's evidence in support of the parties being left to the SHA mechanism was deficient: no evidence was led by Lazzaro to the effect that he told Lakin that he could sell his shares to whomever he wanted.
3. Further, L&K submits that the process in cl 15.8 of the SHA is a lengthy process requiring L&K to locate a third party willing to acquire a minority stake in Lendly, whom Lazzaro would be willing to take on. If Lazzaro is unwilling, the business would then need to be sold, but L&K says that the parties could not work together and agree on all of the matters needed to sell without further court intervention. If sold to a third party, the L&K shares would likely be subject to a minority discount and it is submitted that the interest is otherwise 'unsaleable'.
4. L&K says that if I make a finding that the Withdrawals were oppressive then the withdrawal amount should factor into the buy-out price. Should there be a buy-out order made and no compliance on the part of the defendants, L&K says that Lazzaro or Madison should be ordered to pay damages, either to Lendly to restore Lendly's bank account or of 40% of the amount withdrawn to L&K representing the entitlement to the cash as a surplus asset, proportionate to its shareholding.
5. L&K also says that many issues with respect to relief (such as might concern double recovery) can be the subject of submissions after I have made my findings and given reasons on the substantive questions.
6. The case of Snell v Glatis (No 2) was canvassed in L&K's oral closings.[141] In that case, in the context of a company with substantial land holdings which did not actively trade, the trial judge ordered the oppressor to pay a large sum ($66 million) to buy out the oppressed within 30 days. The New South Wales Court of Appeal determined that in circumstances where the oppressor was not in a position to pay that sum, the better course was to wind up the company, in the context where the company was not actively trading.[142] L&K highlights that the oppressor in that case had made a forensic decision not to adduce evidence of his capacity to buy-out the oppressed or funds available to him.[143] They say the same forensic decision was made by the defendants in this proceeding.[144]
7. In connection with s 232(d) of the Act, L&K refers to the decision of Black J in Beaumont:[145]

I am also satisfied that quite apart from any acknowledgement or admission that is implicit in the parties' consent to the consent orders, the Court can be comfortably satisfied that LPH's affairs are being conducted in a manner that is oppressive to its members, and very likely both Mrs Beaumont and Mr Peel, so far as they are left in a position where the board is in deadlock, unable to conduct its affairs with appropriate decision-making by the board, and with no apparent means of resolving that deadlock. That does not require any finding of fault on the part of either of Mrs Beaumont and Mr David Peel as to the circumstances in which that deadlock arose. I recognise that, as Mr Dick fairly pointed out, a breakdown of relationship is not necessarily in itself sufficient to establish oppression, but here, as I have noted, that breakdown of relationship is combined with a consequential inability to manage the company's affairs in a proper manner.

1. The above is cited for the proposition that the inability of the directors to manage a company's affairs in a proper manner by virtue of the deadlock and breakdown of the relationship can enliven the jurisdiction to order a compulsory buy-out. This is also said to be supported by the decision in Melrob Investments.[146]
2. L&K submits that the grant of a remedy for oppressive conduct is discretionary and remedies are moulded to bring the oppression to an end and compensate the oppressed for the effects of oppression.[147] The Court's focus is on the appropriateness of the remedy at the time of trial.[148]
3. L&K submits that the repayment of Withdrawals as a sole remedy would not alleviate or relieve against the oppression; these have caused the very conduct and irreconcilable positions of the parties that has led to the current predicament.
4. They also point to a comment of Robson J in Re Hollen Australia,[149] that the impecuniosity of an oppressor should not be a relevant factor in ordering them to purchase the oppressed party's shares.

1. The defendants characterise this proceeding as a 'corporate divorce'.[150] They say that much has been written about how the legislative scheme I am being asked to apply here is ill-adapted to achieve a corporate divorce.[151]
2. The defendants say that there was no oppression on the part of Madison or Menlo. However, even if there was oppression, the defendants submit that a buy-out order does not automatically follow from a finding of oppression. In this regard, the defendants point to the statement of Young J in Fexuto Pty Ltd v Bosnjak:[152]

...my view is that the section should be applied by first considering whether orders can be made for regulating the company's affairs in the future so that there is no further oppression or unfair conduct, if that cannot be done, to see if there should be a buy-out by one faction of another: ... . The remedy chosen should be the least intrusive: ... . Only as a last resort is the court to make a winding up order of an otherwise solvent company under the section.

The flavour of the section also is that the court is only to give the remedy which removes the oppression. ... Thus it is not enough merely to find oppression and then proceed to find some remedy that might bring peace to the company generally. The court should only grant the remedy that removes the oppression found.

1. The defendants also emphasise the decision of Argyle HQ, in which Austin J held that 'a compulsory buy-out should not be ordered, if less drastic remedies are consistent with the termination of oppression.'[153] The defendants submit that the Court will order no more than is necessary to remedy, rectify or remove the burden of the oppressive conduct. They say that the Court will not order a share sale, let alone compel it, when some other lesser relief will suffice.[154]
2. As regards the Withdrawals, the defendants say that any oppression can be remedied in a less drastic fashion by an order for repayment. Repayment would bring the oppression to an end.[155] They say that this is less drastic than a compulsory buy-out.
3. The defendants submit that the irreparable relationship breakdown between Lazzaro and Lakin, without more, is insufficient to order a share sale.[156]
4. The defendants seek what can be described as a permissive buy-out order: an entitlement to buy out L&K's shares, but not an obligation to do so. Lazzaro's evidence at trial was that he seeks an optional buy-out because he would like to have the ability to make a decision about what he buys based on whether he considers it to be good value.
5. The defendants note that the Court has an absolute and unfettered discretion as to the relief that it may order.
6. They say a powerful factor in how I exercise that discretion is the existence of the SHA mechanism which has never been invoked. They refer to the following statement of LS Sealy: 'the shareholder agreement stands available as a draftsman's device to reimpose certainty where company law might otherwise deny it'.[157]
7. Further, the defendants point to Madison and/or Menlo's capacity to pay as a factor for my consideration.[158] A compulsory buy-out order should only be made if the Court is satisfied that the buyer can comply with it within the timeframe specified.[159] They say that this proposition from the New South Wales Court of Appeal should be followed unless it can be distinguished or it is plainly wrong.
8. In this regard, they say that the Court can neither assume nor infer that Madison or Menlo have access to funds to acquire L&K's shares, and note that L&K objected to evidence of the financial standing of Madison or Menlo being adduced. I should point out here that the defendants only sought to adduce that evidence in re-examination of Lazzaro. As a result, they say I am left in the invidious position of knowing nothing about whether Madison or Menlo can comply with a compulsory buy-out order. They say that I cannot be satisfied that the defendants can pay, so I cannot make a compulsory buy-out order.
9. While an application to adduce evidence of Lazzaro's inability to pay might have been made after the deadline for filing evidence had passed and L&K clarified that it sought to sell its shares in the proceeding, as considered in the case of Snell v Glatis, the defendants say that the Court of Appeal still found that a compulsory buy-out order should not have been made.
10. The defendants say that a permissive buy-out order in those circumstances is preferable and most consistent with the authorities, and what was set out in the SHA (being the voluntary buy-out mechanism). The defendants also submit that, irrespective of whether a permissive or compulsory buy-out order is made, if the defendants cannot pay it, they won't. Therefore, the defendants say there might be no practical difference between a permissive or compulsory buy-out order.

1. For the reasons that follow, I consider it appropriate to order the compulsory purchase of L&K's shares in Lendly by the defendants.
2. I do not consider that the repayment of the amount of the Withdrawals is a sufficient remedy for oppression in this case. Therefore, repayment does not present a less-drastic means of remedying the oppression.
3. Insofar as the Second Withdrawal is concerned, I would not order its repayment anyway. The defendants were entitled to that amount and it was only the manner of its withdrawal (timing and lack of unanimity) that made it oppressive. In those circumstances, and also in circumstances where there are other grounds of oppression relied upon, I do not consider it necessary to order repayment of the Second Withdrawal so as to remedy the oppression constituted by the Second Withdrawal.
4. The situation is vastly different in respect of the First Withdrawal. It is money that the defendants are not entitled to and it is appropriate that the amount should be repaid. However, repayment is not sufficient by itself to remedy the oppression. The First Withdrawal in particular contributed to the breakdown in the parties' relationship, resulting in them not being able to conduct the affairs of the company properly. Repaying the First Withdrawal will not remedy, or reverse, that situation.
5. In light of all that has gone before and the fact that this is now the conclusion of a long-running court proceeding which has undoubtedly done further damage to the parties' relationship, I do not think it is feasible for the parties to be left to the mechanism for buy-out in the SHA. I accept the submission of L&K regarding the lengthy process, and consider it unlikely that Lakin would find a third party to purchase the minority stake with whom Lazzaro would agree to work alongside. Even if Lakin found a buyer for the stake, that buyer would have to be approved by Lazzaro and Lakin may need to sell for a substantial discount. If a buyer is found but rejected by Lazzaro, the parties would have to sell the business after all and it is possible that they may even need to return to the Court for assistance with that process. If no buyer is found, the SHA contains no mechanism for resolving the impasse. Accordingly, enforcement of the mechanism in the SHA for the sale of L&K's shares has a number of uncertainties and contingencies. Importantly, there is no certainty that it would remedy the oppression. Rather, there is every likelihood that it would not.
6. The Court was not assisted by the defendants on the topic of the appropriate remedy. The defendants' counsel in opening submissions asserted that there was some precedent in the caselaw for an optional buy-out order but acknowledged in closings that this precedent had not been found. I do not need to consider whether there is precedent for a permissive, rather than compulsory, buy-out. This is because I am not satisfied that a permissive buy-out would remedy the oppression. If I made such orders and the defendants did not take up that option, the parties would be left in the situation they are in now.
7. It was suggested that Lazzaro may be unable to purchase L&K's shares, but no evidence was led as to his capacity to pay.
8. L&K suggests that this was a forensic decision made by the defendants. L&K says no evidence was led about the capacity of the defendants to afford L&K's shares so that I would be in a position where I could not be satisfied that the defendants have the ability to afford the buy-out, and would therefore not order it. The defendants deny that such a forensic decision was made. They also made the submissions I have set out above. Those submissions have a somewhat curious end point. The defendants say that there is no evidence they can afford the buy-out and so on the basis of Snell v Glatis, I should not order one. But in that case, the New South Wales Court of Appeal said that the trial judge should, instead of a buy-out, have ordered a winding up. This is where the curiosity arises, because the defendants oppose a winding up order as well. In any event, if the defendants had wanted to lead evidence on this point they should have sought to do so in a proper way and not attempt to plug what was likely a late‑realised gap in their evidence by dealing with it in re-examination.
9. Orders will therefore be made that the defendants purchase L&K's shares and the value of the First Withdrawal will be factored into the price which the defendants must pay for L&K's shares. If they do not comply with that order, then the orders will require Lazzaro to repay the First Withdrawal to Lendly.
10. Having found oppression, winding up is an available remedy pursuant to s 233(1)(a) of the Act. In my view, the only remedies that would remedy the oppression are a buy-out or a winding up. A buy-out is a less drastic remedy and is to be preferred, particularly in circumstances such as these were the company is a profitable one which continues to trade. However, winding up is the appropriate remedy if a buy-out is not effected. This means the issue confronted by the New South Wales Court of Appeal in Snell v Glatis does not arise.
11. It is not in anybody's interest for this proceeding to drag on without resolution. I prefer, in these circumstances, to make orders which have a cascading operation. I will order a compulsory buy-out. If the defendants do not comply with that order, then I will order that the company be wound up.
12. I discuss winding up on other grounds at section N of these reasons.

1. I adopt the same approach as summarised in the decision of Renex regarding valuation in oppression.[160]
2. A more succinct explication of these principles was provided by Delany J in Joint v Program IT Pty Ltd & Ors.[161] Relevantly:

(a) Section 233 of the Act provides that courts 'can make any order under this section that it considers appropriate in relation to the company'. Consistent with this provision, courts have been held to have a 'very wide discretion' as to the relief that may be granted where oppressive conduct is established.

(b) Such relief is expressly contemplated by both sub-sections 233(1)(d) and (e) of the Act. The Court's discretion under s 233 is, as noted, very wide. The section says nothing about the price for which purchase of shares can be ordered, or the basis for calculation of such a price. The only legal restriction on the way in which the price may be calculated is that it be a proper exercise of judicial discretion.

(c) The granting of appropriate relief requires the Court to fix a price which is fair in all the circumstances.

(d) The value that is fair is a value which the shares would have had, had it not been for oppressive conduct.

(e) The price to be paid is compensatory in nature and is aimed at redressing the wrong done (the oppressive conduct).

(f) Consequently, the price to be paid will not always reflect the actual or real worth of the shares that might be obtained on the open market.

(g) Further, the method of determining the price is not confined to ordinary valuation principles.

(h) The relevant question is what is a 'fair value' to be attributed in all the circumstances and there is room for different approaches to valuation.

(i) As the Full Court of the Federal Court stated in Dynasty Pty Ltd v Coombs, it is not just a question of value; it is a matter of fixing a price that should be paid.

1. According to Kirby P in Electricity Commission of New South Wales v Arrow:[162]

Valuation is not a science. It is an imprecise, opinionative activity involving the consideration of many variables, sometimes with equally legitimate outcomes.

1. In dealing with ascertaining the fair value of shares to be acquired in a case of oppression, Young J said in ES Gordon Pty Ltd v Idameneo (No 123) Pty Ltd:[163]

The flavour of the judgments in the company oppression cases is that in looking to the fair value one must look at all the circumstances of the case and seek to put the oppressed in the same position as nearly as can be as if there had been no oppression, erring, if there is to be erring, on the side of the oppressed.

1. In assessing expert valuation evidence, the Court's task is to evaluate the valuations in issue critically and accept the expert evidence of the valuer whose valuation best withstands critical scrutiny, rather than piecing together a valuation of its own.[164] It is not the Court's role to 'bring a third set of opinions into the arena'.[165] It is also clear that it is not permissible to 'average' valuations because the result 'would be a figure not arrived at by the application by the Court of the established principles of valuation'. As Croft J explained in Challenger, 'that does not mean, however, that the evidence of one valuer must be accepted on all issues'.[166]
2. Both parties submitted that I would need to arrive at the price to be paid after making determinations on the matters contested between the Experts. I do not consider that this involves bringing in a third set of opinions as warned against in Challenger. Rather, it is accepting one opinion/approach over the other on each of the contested matters, which obviously may result in a figure different to that of each of the Experts.

M.2 Approach taken by the Experts to valuation of Lendly

1. It was common ground between the Experts that the Future Maintainable Earnings (FME) methodology is the appropriate approach to valuing the shares of Lendly.
2. It was also common ground between the Experts and the parties that valuing Lendly using the FME methodology involves the following four steps:

(a) calculate the FME and make any appropriate adjustments;

(b) multiply this adjusted FME by the earnings multiple, which produces the Enterprise Value;

(c) add the Enterprise Value and the net surplus assets, which produces the Equity Value; and

(d) calculate 40% of the Equity Value and subtract from it the Vendor Loan, which produces the value of L&K's shareholding.

1. Both Experts calculated the value of the shares in Lendly under the following four scenarios:

Scenario one: assuming the quantum of the First Withdrawal only is an asset of Lendly and thus a liability of Madison.

Scenario two: assuming the quantum of the Second Withdrawal only is an asset of Lendly and thus a liability of Madison.

Scenario three: assuming the sum of both the First Withdrawal and the Second Withdrawal is an asset of Lendly and thus a liability of Madison.

Scenario four: assuming the quantum of the First Withdrawal and the Second Withdrawal are not an asset of Lendly.

M.2.1 Summary of Experts' separate opinions on valuation of Lendly

1. Set out below is a table summarising the separate conclusions on the valuation of Lendly, reached by each of the Experts based on their own calculations of FME, Enterprise Value, Net Surplus Assets and Equity Value, together with their own preferred earnings multiples. The below table is based on their separate opinions prior to their conferral and preparation of the Joint Statement.

Scenario one: First Withdrawal only an asset of Lendly

Scenario two: Second Withdrawal only an asset of Lendly

Scenario three: Both Withdrawals assets of Lendly

Scenario four: Neither Withdrawals an asset of Lendly

1. In the Joint Statement, the Experts outline various matters upon which they agree. Those matters are summarised below.
2. When assessing the FME of Lendly, adjustments should be made to the company's profit and loss statements to account for a number of matters, and the amounts of those adjustments were agreed.[167] The Experts each provided updated FME calculations, taking into account the adjustments which they had agreed (Adjusted FME). There were further adjustments that would need to be determined (either by further agreement between the Experts, concession by one party or the other, or by the Court), which would then give rise to the Assessed FME.
3. Other assumptions/propositions agreed between the Experts were:

(a) the directors of Lendly, being Lazzaro and Lakin, are paid below market rates. The market rate for a director at a company of Lendly's size is $242,500 per annum;

(b) Lendly is susceptible to changes in legislation, notably the Fringe Benefits Tax (FBT) regime, that could affect its operations;[168]

(c) $244,000 of cash should remain in the Lendly accounts to cover working capital requirements, with the remaining balance to be recognised as surplus cash. The amount of surplus cash therefore totals $1,484,000 as at 30 June 2023;

(d) Lendly will most likely incur a penalty for not lodging tax returns for FY2021, FY2022 and FY2023. Therefore, there could be an inclusion of a general interest charge as a debt-like item;

(e) the director loan and shareholder loan will not be extinguished through dividend distributions and should be recorded as a surplus asset; and

(f) the acquisition of ABM Corporation by Smartgroup Corporation Ltd (ABM Transaction), which involved an EBITDA multiple of 5.2 times historical earnings, is relevant to Lendly and should form part of the basis of the valuation of the shares in Lendly, along with other appropriate transactions;

1. At the time of the Joint Statement, Higgs and Malcolm disagreed with each other on seven principal matters. Those matters, as well as the position of each Expert, are summarised in the Joint Statement as follows:

Adjustments to profit & loss for normalised earnings of Lendly.

Adjusts for rent, web development costs, office fit out costs, repairs and maintenance and computer expenses.

Does not adjust for web development costs, office fit out costs, repairs and maintenance and computer expenses.

Calculation of FME: FY2023 or annualised for 1 December 2022 to 30 June 2023?

Low range based on financial year ending 30 June 2023, high range based on annualised seven-month period December 2022 to June 2023.

5.2 times to 5.8 times based on six comparable transactions, five of which are based on proprietary information which cannot be independently verified but Higgs asserts they are actual transactions that he worked on and supports his view based on his expertise in this sector.

3 to 4 times based on four comparable transactions, four listed companies and taking into consideration the business related factors specific to Lendly.

Higgs has been instructed that two directors are not required to run Lendly and therefore there is no requirement for both directors to be included. Higgs is of the view that once an agreement has been reached on the number of required directors, the leave provisions should align with the number of directors employed.

Director provisions should be included in leave provisions balance as they are employees of Lendly and entitled to their leave balance.

Based on instructions provided, the Trade Creditor account actually relates to the Fleet Liability account and therefore should not be included in working capital.

The Trade Creditor account is a normal Trade Creditor account and forms part of working capital.

Based on information from Lakin, no additional staff are required to maintain the performance of Lendly achieved in FY2023.

Based on information from Lazzaro, additional staff are required to maintain the performance of Lendly achieved in FY2023.

Based on instructions from Lakin, only one director is required to operate Lendly.

Mrs Lazzaro performs a 0.4 full time equivalent (FTE) role.

Based on instructions from Lazzaro, two directors are required to operate Lendly.

1. The seven matters not agreed between the Experts will be discussed in detail below, where relevant - noting that by the time of closing submissions, there were additional areas of agreement between the parties. I note that items 2, and 4 to 7 in the above table all impact upon the calculation of FME.
2. Based on the areas agreed between them, the Experts provided updated valuations in the Joint Statement using their separate approaches in respect of the areas in which they were in disagreement. Reflecting these updated valuations in the same sort of table to the one in paragraph 748 above:

Scenario one: First Withdrawal only an asset of Lendly

Scenario two: Second Withdrawal only an asset of Lendly

Scenario three: Both Withdrawals both assets of Lendly

Scenario four: Neither Withdrawal an asset of Lendly

M.3 Disputed elements for valuation of Lendly

1. After the Joint Statement, the Expert Conclave and the parties' closing submissions, the areas of disagreement as to the elements of the valuation had narrowed significantly. The Experts and the parties are all to be commended on reaching this point.
2. The remaining disputed elements which remain for determination by the Court are summarised as follows:

(a) valuation date;

(b) approach to calculating FME: FY2023 or 1 December 2022 to 30 June 2023 annualised;

(c) FME adjustments for remaining disagreed matters, being rent and director roles;

(d) calculation of net surplus assets; and

(e) the earnings multiple to be used.

1. Each of these are dealt with below, setting out the Experts' views, the parties' submissions, and my consideration.

1. The Experts both used a valuation date of 30 June 2023, in accordance with their instructions.

1. The defendants submit that there is no hard rule as to the appropriate valuation date to adopt in an oppression case. The Court has a 'wide and absolute' discretion, subject to the requirement that the chosen valuation date effects 'fairness and justice to both parties in all the relevant circumstances of the case'.[169] One of the possibilities which is regularly used as the appropriate date is the date of the commencement of the proceeding.
2. The defendants note that both Experts used a valuation date of 30 June 2023. However, the defendants submit that is not the date the Court should adopt. After submitting their reports, the Experts were presented with financial data up to 31 March 2024; they were asked questions about sales performance figures up to 30 April 2024; and there was evidence before the Court of economic factors affecting the novated leasing industry and Lendly from March and April 2024. As such, the defendants submit that the most appropriate valuation date is 30 April 2024 or, alternatively, 30 March 2024.
3. Counsel for the defendants expanded upon this during oral closings, submitting that:

(a) a member of the sales team has resigned in circumstances where the deadlock between Lakin and Lazzaro impedes hiring a replacement;

(b) Lendly has lost one of its two finance partners, which places the company in a very precarious position;

(c) the financial performance of Lendly is displaying signs that it might not be sustainable or that it might not continue to trend upwards; and

(d) Lakin ought not receive a windfall from an earlier date, when there are micro/macro-economic factors acting upon the company that have caused its valuation to change.

1. L&K submits that the trial proceeded on the basis of a valuation date of 30 June 2023, looking forward with the agreed position that there would be an updated amount reflecting the cash at bank. L&K submits that the suggestion that 30 June 2023 is out of date should be rejected. Further, L&K complains of the defendants' late change to their position as to the valuation date, particularly in light of what had occurred regarding the valuation date prior to trial.
2. In this regard, the facts can be shortly stated. On 19 January 2024, L&K's solicitors wrote to the defendants' solicitors proposing that a joint communication be sent to the Experts requesting that they provide an updated valuation of Lendly as at 31 December 2023 in the Joint Statement (which was at that point still being prepared). The defendants did not consent to this course. L&K then instructed Higgs to prepare an addendum to the Higgs Report using that later valuation date (Higgs Addendum). On 28 February 2024, L&K's solicitors informed the defendants' solicitors that they intended to serve and rely upon the Higgs Addendum, once it was received. At a directions hearing on 1 March 2024, counsel for the plaintiffs raised this matter and foreshadowed that L&K may make an application for leave to rely on the Higgs Addendum. L&K's solicitors received the Higgs Addendum on 13 March, which was served on 19 March 2024. L&K sought consent from the defendants for leave to rely on the Higgs Addendum, for the defendants to file and serve any response to it, and for the Experts to reconvene and provide an updated Joint Statement.[170] The defendants did not agree to this proposal. At a directions hearing on 27 March 2024, L&K made an application to this effect, which was opposed by the defendants. After hearing argument, I refused to grant the application to rely on the Higgs Addendum and for the other orders sought by L&K, for reasons given ex tempore that day.

1. The Court has a wide discretion when deciding the appropriate date for valuation.
2. I recently summarised the key principles and authorities regarding the selection of a valuation date in Renex.[171] That summary is set out below:

There is no definite rule as to the appropriate date for determining the value of shares for the purposes of setting a price for a purchase under s 233(1)(d) of the Act.

In Foody v Horewood, Chernov JA stated that "there is no firm rule by which the relevant date of valuation is to be selected, and that the observation of Nourse J in In re London School of Electronics Ltd that 'prima facie an interest in a going concern ought to be valued at the date on which it is ordered to be purchased' was only a starting point for the enquiry." Rather, stated Chernov JA, "the overriding requirement is one of fairness and justice to both parties in all the relevant circumstances of the case."

Chernov JA went on to cite London School of Electronics in more detail, where Nourse J said:

If there were to be such a thing as a general rule, I myself would think that the date of the order or the actual valuation would be more appropriate than the date of the presentation of the petition or the unfair prejudice. Prima facie an interest in a going concern ought to be valued at the date on which it is ordered to be purchased. But whatever the general rule might be it seems very probable that the overriding requirement that the valuation should be fair on the facts of the particular case would, by exceptions, reduce it to no rule at all. That that is so is already suggested by such authorities as there are on this question.

Chernov JA then observed that in London School of Electronics, Nourse J concluded that fairness in that case required that the shares be valued as at the date of the presentation of the petition.

The date on which proceedings commence is a date regularly used for valuation of shares in oppression proceedings.

In Rankine v Rankine, the Queensland Court of Appeal observed that factors favouring the date on which proceedings commence as the valuation date include:

(a) the petition date is the point at which the claimant elects to claim the remedy; and

(b) equity leans against a dilatory claimant gaining benefits in an expanding business.

Other commonly used dates for valuation include as at the date of the order, immediately before the acts of oppression, and as at the date of the last balance sheet.

1. I am not convinced that the factors relied upon by the defendants provide sufficient justification for bringing forward the valuation date.
2. The trial of this matter proceeded on the basis of a valuation date of 30 June 2023. As was submitted by L&K, this date was agreed between the parties and was relied upon by the Experts in the making of their reports.
3. In this matter, 30 June 2023 is the date by which the Experts have assessed Lendly's FME, company expenses, asset depreciation, leave entitlements, surplus cash requirements, and tax liabilities. To bring the valuation date forward to March or April 2024 would require another lengthy and expensive exercise in expert investigation and valuation. In the circumstances where this exercise has already been performed separately by both Higgs and Malcolm, and then updated by the Joint Statement, I do not consider it just or fair to order that a new valuation exercise be undertaken. These are effectively the same reasons as why I refused L&K's application on 27 March 2024 regarding a valuation date of 31 December 2023.
4. True it is that the Court was taken to evidence relating to aspects which may go to valuation from points in time after 30 June 2023. However, this evidence was adduced to confirm that Higgs' approach of annualising the seven-month period ending in June 2023 had accurately reflected the boost in Lendly's sales performance brought about by changes to the FBT regime. Apart from the update contained in the Higgs Addendum, to which I have not had regard, none of this additional financial data or sales performance figures were the subject of an updated valuation.
5. Further, the updated material adduced by the defendants, particularly as to recent sales data, had not been subject to any rigorous analysis and had not been considered by the Experts, other than aspects of it being put to them in the Expert Conclave.
6. It is also true that Lendly has lost one of its two finance partners. However, the uncontested evidence of Lakin was that only 1% of Lendly's finance deals were secured through Macquarie. Instead, 99% of financing was secured through Lendly's remaining finance partner, Pepper Finance. Furthermore, Higgs gave evidence that he has encountered many businesses of Lendly's size that have operated successfully with only a single financier. As such, I consider that this factor carries little if any weight in terms of determining the appropriate valuation date.
7. For the reasons given, I do not consider it appropriate to adopt the defendants' later proposed valuation dates. Rather, it is appropriate that the date for valuing L&K's shares in Lendly remains 30 June 2023.

M.5 Approach to calculating FME: financial year for FY2023 or annualization of the last seven months of FY2023?

1. The Experts do not agree on the approach to be taken in determining the FME range, specifically with the Higgs Report approach of annualising the last seven‑month period of FY2023 of Lendly.
2. The Higgs Report calculates the FME of Lendly in two alternative ways:

(a) First, an assessment of FY2023 full year earnings inclusive of normalisation adjustments (Higgs' 'low number').

(b) Second, an annualization of the seven-month period ending in June 2023 (Higgs' 'high number').

1. According to Higgs, changes to the FBT regime in November 2022 with respect to electric and hybrid vehicles resulted in an immediate material benefit to Lendly, as evidenced by:

(a) an uplift observed in Lendly's financial performance;

(b) a 20% increase in new enquiries in the four-month period of October 2022 to January 2023;

(c) ASX-listed salary packaging and novated leasing companies have been quoted in the Australian Financial Review as experiencing up to a 60% increase in enquires for novated leases following the legislation change;

(d) analyst coverage reports expect the change in legislation to drive material interest in novated leases for electric vehicles; and

(e) a list of all financed leases from FY2022 provided by Lakin highlights the increased share of electric vehicle leases, representing 4% of all leases in FY2022, 24% of all leases in FY2023, and 34% in the period subsequent to FY2023.

1. Higgs is of the opinion that this material benefit will last into the future and that, therefore, the period 1 December 2022 through 30 June 2023 (as a discrete period rather than a full financial year) should be annualised when calculating Lendly's FME, as it is 'more reflective of the ongoing operations of the business'. During the Expert Conclave, Higgs explained that since preparing his report he had been provided with Lendly's earning results for the six months to December 2023. According to Higgs, Lendly's actual earnings for the 12-month period ending December 2023 were in excess of the 'high number' calculated by annualising the seven months ending June 2023.
2. The Malcolm Report calculates the FME of Lendly with regard to the following:

(a) Lendly has achieved year on year growth in revenue;

(b) Lendly has improved its normalised EBITDA margin from -1.9% in FY2021 to 18.8% in FY2023;

(c) current growth is reflective of the tax incentives available on electrical vehicles, which is expected to continue for four years from November 2022; and

(d) further growth in Lendly is currently being restricted by the current proceedings and because the directors cannot agree in respect of the hire of new sales staff.

1. Malcolm notes that, due to the FBT changes, Lendly experienced an initial boost of revenue and earnings in December 2022 and January 2023, which then stabilised to normal levels across the remaining months to 30 June 2023.
2. According to Malcolm, it is not appropriate to annualise the seven-month period because:

(a) analysis of Lendly's financial results across FY2021, FY2022 and FY2023 shows a consistent pattern of seasonality in the business, characterised by an increase in revenue during the second half of the financial year;

(b) Lakin considers there to be slight seasonality, with the novated leasing industry seeing an increase in sales towards the end of the financial year and a slow down during the end and beginning of the calendar year; and

(c) it is uncertain whether the benefit to Lendly from the change to FBT will be maintainable, or whether Lendly experienced an initial, one-off impact.

1. During the Expert Conclave, Malcolm maintained her position as to the uncertainty of the FBT changes. When asked whether the 2023 calendar year performance data supports the annualised seven-month approach taken by Higgs, Malcolm said the following:

The definition of future maintainable earnings comes about to whether or not it is likely that this one change in legislation - which essentially has driven the revenue and earnings uplift for the financial year ended 2023, and which appears to have continued to December 23 - whether or not that is likely to continue into the future, and whether Lendly has the ability to generate this level of earnings into perpetuity.

1. Malcolm also expressed uncertainty as to how long the FBT changes would remain in place, as a recent amendment to information provided by the Australian Tax Office (ATO) indicated that the legislation would be changed from 1 April 2025.

1. L&K submits that the Court ought to adopt the higher FME calculated by Higgs for the following reasons:

(a) The seven-month annualised figure in the Higgs Report has been exceeded when compared against the further six months of trading performance of Lendly for the period 1 July 2023 to 31 December 2023. In those figures, there was a demonstrable increase in the number of novated leases for electric vehicles.

(b) It is appropriate to recognise the impact in the change in electric vehicle legislation in Lendly's FME. This can be done by either increasing the FME and/or by allowing for a larger earnings multiple.

(c) During the Expert Conclave, Malcolm agreed that Lendly's most recent profit and loss figures support the idea that the change to the electric vehicle legislation has had a significant effect on Lendly's trading performance.

(d) The independent research undertaken by Higgs supported a longer-term position that earnings would remain buoyant.

(e) In the Expert Conclave, Higgs said that if he were to undertake the exercise now, he would probably remove the low range FME and rely on the actual earnings in the 12 months to 31 December 2023.

(f) The changes to the electric vehicle legislation which have positively affected Lendly's trading performance are likely to persist until mid-2027.

(g) Malcolm's opinion that the ATO (not the parliament) is going to change the FBT legislation from April 2025 is unsubstantiated, and Malcolm concedes that she could not verify the expected duration of the tax incentives.

1. The defendants note that Higgs is of the view that the post-October 2022 period is more representative of Lendly's expected future performance. However, the defendants submit that there is a more recent 12-month period of financial data available: April 2023 to March 2024. During the Expert Conclave, Higgs accepted that he would normally use the most recent figures to form a view on FME. The defendants submit that, having regard to the decrease in average monthly revenue, Higgs' approach of annualising the December 2022 to June 2023 period is not appropriate.

1. Neither party has taken a conventional approach to calculating the FME of Lendly. Both Higgs and Malcolm provided in their reports a calculation of FME based on an assessment of Lendly's FY2023 earnings, inclusive of any necessary adjustments. However, L&K submits that a more appropriate approach would involve annualizing the seven-month period ending in June 2023. On the other hand, the defendants submits that the most appropriate approach would be to use the company's most recent financial data from the 12-month period ending in March 2024.
2. Determining which of these two approaches is the more appropriate first requires careful analysis of the Experts' findings.
3. According to Higgs, changes to the FBT regime with respect to electric and hybrid vehicles resulted in an immediate material benefit to Lendly. Lendly experienced a 20% increase in new enquiries in the four-month period following the legislation change compared to the preceding four-month period.
4. As outlined in the Higgs Report (emphasis added by me):

Lendly's average monthly revenue for the period 1 July 2022 through 30 November 2022 was $159,000, with the period immediately following the introduction of the new FBT Legislation of 1 December 2022 through 30 June 2023 averaging $216,000 per month.

This represents a roughly 36% increase in Lendly's average monthly revenue.

1. According to information provided to Higgs by Lakin, in FY2022 electric vehicle leases accounted for just 4% of all leases managed by Lendly. However, by the start of FY2024 this had reportedly grown to 34%. This evidence was not contested by the defendants and to my mind it shows that the growth in Lendly's electric vehicle leasing was at least partially the result of the Government's new tax incentives. Furthermore, industry commentary and analysis on the topic of changes to the FBT regime also appears to support the conclusion that these changes are likely to drive continued interest in novated leases for electric vehicles.
2. Malcolm does not dispute that changes to the FBT regime have had a positive impact on Lendly's business. In her report, she notes that Lendly has achieved year-on-year revenue growth, and that the company's current growth is reflective of the tax incentives available for electrical vehicles.
3. The question then is whether Lendly's improved financial performance ought to be reflected in the company's FME.
4. The relevant changes to the FBT regime came into effect on 25 November 2022. In Higgs' view, Lendly's earnings in the period from July 2022 to November 2022 are therefore not reflective of the company's newfound profitability. L&K submits that the Court ought to adopt the higher FME calculated by Higgs. By annualising the seven-month period starting from when the FBT changes were first introduced and ending in June 2023, the Court will reach a number more reflective of Lendly's true FME.
5. In Malcolm's view, it would be inappropriate to annualise the seven-month period. Malcolm suggests that Lendly often experiences a pattern of seasonality, with an increase in revenue during the second half of the financial year. Lakin appears to agree that the novated leasing industry sees an increase in sales towards the end of the financial year and a slow down during the end and beginning of the calendar year. Further, Malcolm says it is uncertain whether the benefit to Lendly from the change to FBT will be maintainable.
6. I prefer Higgs' opinion on this question. It is clear that changes to the FBT regime have increased consumer interest in leasing electric vehicles, and that this has improved Lendly's sales performance and earnings. As was submitted by L&K, in the first six months of FY2024 Lendly did not just match the annualised FY2023 earnings calculated by Higgs, but in fact surpassed them. During this period, Lendly experienced a marked increase in the number of novated leases for electric vehicles.
7. According to L&K, the changes to the FBT regime which have led to Lendly's improved trading performance are likely to persist until mid-2027. During the Expert Conclave, Malcolm stated that a recent amendment to the legislation, which she stated was made by the ATO, indicated that the ATO would change the legislation from 1 April 2025.[172] However, the plaintiffs submit that this opinion is unsubstantiated. I was not taken to any ATO or legislative instrument to clarify this. In any event, Malcolm conceded that she could not verify the expected duration of the tax incentives. There was no clear evidence before me to suggest that these FBT incentives would be changed before 2027. Accordingly, I am unable to accept Malcolm's opinion in this regard.
8. Based on the above, I consider it appropriate to adopt the higher FME calculated by Higgs, which is based on the annualised figure and with the adjustments as agreed in the Joint Statement. This gives an Adjusted FME of $1,254,000. This number is more reflective of Lendly's improved sales performance and increased revenue following the government's changes to the FBT regime.
9. This issue is not to be confused with the valuation date. The valuation date used by Higgs (and Malcolm) was 30 June 2023. The issue is whether, in calculating the FME as at the valuation date of 30 June 2023, the figures for the FY2023 should be the basis for the calculation (Malcolm's approach) or whether it should be the figures for 1 December 2022 to 30 June 2023 normalised for the FY2023 (Higgs' approach). I have concluded, for the above reasons, that the Higgs' approach should be followed in this regard.

M.6 FME adjustments for matters which are still not agreed

1. By the time of the parties' closing submissions, the remaining adjustments to be determined by the Court had been reduced significantly. Of the matters which the Joint Statement noted in items 1, 4, 5, 6 and 7 of the table reproduced at paragraph 752 above, only the issues of rent and director roles remained relevantly in dispute. I note that item 5 of the table (trade creditor account treatment) remained disputed between the parties, however, it was common ground that this had no impact on the calculations and so did not need to be considered further.

1. In respect of rent, the Experts agreed that it was appropriate to either add $25,000 to the Adjusted FME on each of their low cases, or add $32,000 to the Adjusted FME on each of their high cases. The adjustments were agreed to be necessary due to Lendly leasing premises much too large for its needs, such that a prospective purchaser would note that the lease was by then on a month‑to‑month basis and would therefore treat Lendly as needing to pay less rent if it changed premises than it currently did. An alternative basis for the adjustments was that Lendly currently sub-lets some of its premises for which it receives income, which income has not been reflected in the accounts. Either way, Higgs contended, and Malcolm agreed in the Expert Conclave, that an adjustment was necessary. On that basis, Malcolm was content to adopt the range of $25,000 to $32,000 used by Higgs.
2. In respect of rental expenses, the defendants accept that this was agreed between Higgs and Malcolm during the Expert Conclave.
3. However, it was difficult to follow how Higgs arrived at that range. I could not ascertain the basis for his actual calculation.
4. Given the agreement between the Experts and the fact that this is no longer being disputed by the parties, I am content to adopt the approach taken by Higgs of increasing the FME by between $25,000 and $32,000. However, given the concern expressed in the previous paragraph, I prefer to take the lower figure. Hence, I will make an allowance of $25,000 for rent when arriving at the Assessed FME.

1. The Experts agree that Lakin and Lazzaro, as directors of Lendly, are paid below the market rate of $242,500 per annum and that the company's earnings should therefore be adjusted. However, the Experts were provided with differing instructions regarding the number of directors required in the business. Higgs was instructed to assume that only one director is required to operate Lendly. In Higgs' experience, a business of Lendly's size could just as easily be run by two directors 'not running it full time' or one full-time director.
2. Malcolm was instructed to assume that the roles currently performed by both directors would be required going forward. Malcolm also points out that Lendly's EBITDA earnings margin currently sits at 30%, which is close to the comparable transactions referenced by both Experts. However, if Lendly were to start operating with only one director, the earnings margin would jump up to around 60%, which is 'pretty significant' compared to similar businesses. According to Malcolm, this indicates that another director would likely need to be brought in to replace Lakin. However, Higgs contested the 60% earnings margin, stating that it was in fact 50% and that some of the businesses the Experts had referenced in their reports had an earnings margin of as high as 43-44%.
3. The question here is whether the FME calculation of Higgs or Malcolm ought to be increased or decreased by $242,500 respectively to account for there being one or two directors in the business moving forward.
4. Both Experts agree that a third scenario exists where there is one full-time director and a second person that is paid at a lower rate to perform duties similar to a director.

1. L&K submits that the Court should find that Lendly only requires one director to maintain the business going forward, given the size of the business and the transition of Lendly into a purely novated leasing business. L&K highlights that Malcolm's position that two directors were required was based purely on instructions from Lazzaro.
2. L&K notes that both Experts agreed that a hybrid position may be used to replace the director/sales manager role previously performed by Lakin. As such, L&K submits that an adjustment of around $100,000 may be required to factor in an allowance for this hybrid position.
3. The defendants first note that the Experts agree a market salary for a director at a business of Lendly's size is $242,500, but that Lazzaro and Lakin were only paid $90,000 each. The defendants also rely on the observation made by Malcolm that if Lendly were to operate with only one director, the EBITDA margin would jump to 60% - an unheard of figure. The defendants submit that Malcolm's opinion should be preferred, given the historical performance of the business with two directors, and the more realistic EBITDA figure of 30%.
4. The defendants submit that it seems tolerably clear that even with one director, Lendly would need another senior executive. The defendants refer to the Higgs Report, where Higgs states that:

I have assumed that an appropriate wage for a Director of a Business of Lendly's size is approximately $235,000 . . . where the average of a Commercial Chief Operating Officer/Executive General Manager for a Business of turnover below $50 million attracts an average wage of $250,000, and a Lending Operations General Manager attracts an average wage of $220,000.

1. The defendants submit that the Court may as well accept that each executive at Lendly would be paid $235,000, noting that Lendly's FME has already been adjusted by $180,000 to account for the current director salary of $90,000 each.

1. The Experts agree that a market annual salary for a director at a business of Lendly's size is $242,500, but that Lazzaro and Lakin were only paid $90,000 each per annum. I accept the submissions on this topic and consider it appropriate that an adjustment was made to Lendly's FME to correct for this discrepancy. However, the question remains as to how many directors Lendly will required to maintain its business going forward.
2. The evidence is that Lazzaro is responsible for operations, customer contracts and accounts, compliance, reporting, workflows and automations, while Lakin was responsible for business development and sales operations (including managing and training of staff) as well as supplier and product management.
3. I consider that the appropriate course for assessing the FME is to take the Experts' alternative of a hybrid position: being one director but the addition of a sales manager, to perform the employee role previously performed by Lakin. My reasons for this course are as follows:

(a) First, I accept L&K's submission that the focus of the business has narrowed, and that Lendly now operates wholly in novated leasing. Prior to this transition, part of the business still performed brokerage services, with Lendly earning commissions from introducing commercial and retail clients to motor vehicle finance products. During his time with Lendly, much of Lakin's focus was on spearheading this transition. However, now that the transition is complete, only Lakin's role as a senior sales manager needs to be filled.

(b) Second, given that there is to be a buy-out by the defendants of L&K's shares, it is likely that Lendly will become a one-director company.

(c) Third, Lendly currently only requires three of the 18 desks available in the office space it rents. I find it hard to accept that a business of this size would require two full-time directors each on a salary of $242,500. Rather, it is more likely that Lendly will simply need to hire a replacement sales manager, who might also take over responsibility for supplier and product management.

(d) Fourth, as highlighted by L&K, Malcolm's position that Lendly would need two directors going forward was based purely on instructions from Lazzaro.

(e) Fifth, I am not persuaded by the defendants' submission relating to the EBITDA margin that may result were Lendly to scale down from two directors to one. To my mind, the leadership needs of a business are dictated by the scale and nature of its operations, rather than the earnings margin it might achieve were it to operate with more or fewer directors.

1. For these reasons, I consider it appropriate that an adjustment be made to Lendly's FME to reflect the fact that the business may operate with only one director going forward, but that a hybrid position as described above will need to be filled.
2. No evidence was adduced as to what salary such a hybrid position might attract. I would expect that it would be less than the $242,500 market rate for a director. However, I consider that it would likely be more than the middle range figure of $100,000 nominated by L&K. Accordingly, I will make an adjustment of $150,000 for director roles/wages when assessing the FME.
3. Utilising a similar format to the table in the Joint Statement, the calculation of FME based on FY2023 earnings, adopting the matters which were agreed by the time of closing submissions or as found by me above, is set out in the below table. This shows the further adjustments required in order to arrive at the Assessed FME, as assessed by the Court. This will then be the figure used for the calculation of the Enterprise Value of Lendly (being the Assessed FME multiplied by the chosen earnings multiple).

Found by Court: see paragraph 795 above

Found by Court: see paragraph 801 above

Found by Court: see paragraph 815 above

1. Therefore, the Assessed FME for Lendly is $1,129,000.

M.6.3.1 Experts' opinions on the earnings multiple

1. The Experts do not agree on the earnings multiple range to be used to value the shares of Lendly.
2. Both Experts agree that the ABM Transaction is relevant to Lendly due to the size of the company and the nature of its operations, and should form part of the basis of the valuation of the shares in Lendly.
3. The ABM Transaction:

(a) involved the purchase of a dedicated novated leasing company (whereas other comparable businesses merely had a novated leasing department) by a publicly listed company;

(b) had transaction information (purchase price, name of purchaser, date of acquisition, historical earnings generated by the business at the time of acquisition, etc.) that was publicly available; and

(c) involved an (implied) EBITDA multiple of 5.2x historical earnings.

1. Higgs grouped the transactions he analysed based on the size of the company being acquired and the businesses it operated, concluding that 'small provider novated leasing companies' whose majority (if not all) revenues are derived from novated leasing and had less than 3,000 novated leasing packages were the most comparable. Of the completed transactions in this group, the earnings multiples ranged between 4.2x and 6.2x, with an average of 5.1x.
2. The Higgs Report adopts a range of 5.2x to 5.8x, based on what Higgs regarded as the six comparable transactions. During the Expert Conclave, Higgs explained that the low and high points of this range represent the inclusion or non-inclusion of Lendly's increased earnings after the changes to the FBT regime discussed in section M.3.2 above. If Lendly's increased earnings after November 2022 are included in the FME assessment, they should not be factored into the earnings multiple, and vice versa.
3. Malcolm is of the view that the transactions used by Higgs do not consider the size of the comparable businesses used in the comparable transactions. However, according to Higgs, the transactions referred to in his report were chosen based on their comparability to Lendly in terms of size and business operations. Five of the six transactions relied on use proprietary data from transactions he has previously been involved with through his corporate financing and advisory role . As such, they remain confidential therefore Malcolm would be unable to confirm them and she did not take them into account. This was the view expressed in the Malcolm Report and recorded in the Joint Statement. Orders were made after the preparation of the Joint Statement and prior to trial for some of the details and data of these transactions to be provided to Malcolm on a confidential basis. This information was also made available to the Court.
4. During the Expert Conclave, Higgs was asked whether there were any of the proprietary transactions that he wished to highlight as being more relevant or more applicable than the others in his report. Higgs referred to 'Transaction I' of his report, a sale of only a novated leasing business with an EBITDA multiple of 6.2x, as being highly relevant.
5. The Malcolm Report adopts a range of 3.0x to 4.0x, based on four comparable transactions combined with perceived risks to Lendly identified by Malcolm. Malcolm does not agree with the five comparable transactions in the Higgs Report that rely on proprietary data, as no public information is available to support or verify the comparability of the operations, financial data or implied multiples. Malcolm is of the opinion that only transactions which can be verified should be relied upon. However, during the Expert Conclave, Malcolm conceded that if she were to accept Higgs' subsequently provided information as correct, it would be sufficient information upon which to assess and provide a view as to whether it was a comparable transaction or not.
6. Higgs does not agree with three of the four transactions referenced in the Malcolm Report, these being:

(a) RACV Salary Solutions, because it is not relevant to Lendly as it is not a purely novated leasing company, but rather is a provider of salary packaging administration and novated leasing services;

(b) Paywise Pty Ltd, because the earnings multiple provided to the public, which was used in the Malcolm Report, is understated as compared to the multiple provided in the acquiring company's announcement to the ASX; and

(c) Fleet West Pty Ltd, because it is not relevant to Lendly as it is a specialist fleet management provider to the not-for-profit sector.

1. In adopting an EBITDA multiple range of 3.0x to 4.0x, the Malcolm Report considered the following business-related factors specific to Lendly:

(a) while Lendly is a currently on a revenue growth trajectory, the novated leasing industry is highly exposed to changes in legislation, namely, any changes to FBT; and

(b) Lendly might suffer sales and expertise loss in the case of staff departure; noting that Lazzaro advised that a key sales staff member generated 57% of new sales in FY2023.

1. When asked during the Expert Conclave to explain why she had adopted an EBITDA multiple range of 3.0x to 4.0x, Malcolm gave evidence as to the following:

(a) Lendly has one employee who generates almost 60% of the company's revenue, yet doesn't have any equity interest in the business and is not paid an exorbitant salary. If this employee were to leave, it would cause detriment to Lendly.

(b) The management team of Lendly is dysfunctional, as evidenced by the present proceedings and Lakin and Lazzaro's lack of agreement in decision-making for issues such as the filing or paying of tax returns.

(c) Lendly recently lost Macquarie Bank as one of its two finance partners. This creates a significant risk given that if Lendly were to lose its remaining financier it would have no ability to fund new business.

(d) With the exception of 2023, Lendly has historically not performed strongly as a business. It made a loss of $100,000 in FY2021, which is something that a potential purchaser would regard as risky.

(e) Given that the average duration of a sales lead at Lendly from inception to settlement is six weeks, the full extent of falling sales performance as contained in Lazzaro's Supplementary Statement has not yet been revealed in the financial data.

1. Higgs agreed that it was appropriate to reduce the multiple where there is a risk to FME, but only when comparing against a transaction that doesn't feature the same risk. According to Higgs, when comparing against a transaction that already contains a similar risk, due to similarities in business scale and operations, a further reduction to account for something such as key personnel risk is not necessary. However, Higgs conceded that if half of Lendly's sales team has left the company, resulting in falling sales performance, it may affect the earnings multiple.

M.6.3.2 Parties' submissions on the earnings multiple

1. In terms of the earnings multiple that the Court ought to adopt, L&K notes that the ABM Transaction:

(a) was agreed by the Experts to be the most relevant to Lendly and should form the basis for the valuation of the shares;

(b) had a multiple of 5.2x historical earnings;

(c) occurred prior to the change in electric vehicle legislation that provides an FBT exemption in respect of eligible electric vehicles; and

(d) was a novated leasing company, where other comparable transactions had other diversified parts to their business.

1. L&K submits that Malcolm's proposed multiple of between 3.0x to 4.0x should be rejected for the following reasons:

(a) None of the comparable transactions relating to small novated leasing companies referred to by either of the Experts adopted a multiple in the range proposed by Malcolm. They were in the range suggested by Higgs, with an EBITDA multiple of at least 5.2x.

(b) Higgs has experience in corporate finance, doing advisory and valuation work, and has been involved in the sale of novated leasing businesses over the past 15 - 20 years.

(c) Even if one was to speculate about changes to FBT, this would not justify a reducing the earnings multiple below 5.2x, especially where the ABM Transaction occurred before the beneficial changes to FBT regime.

(d) There is no evidence, other than an unsupported instruction, regarding any key sales staff member generating 57% of new sales in FY2023. Speculation that Lendly might suffer sales and expertise loss based on unverified client instruction is not a proper basis to significantly depart from the ABM Transaction multiple.

(e) While Lendly did recently lose Macquarie Bank as one of its finance partners, 99% of its finance deals were done with the remaining financier, Pepper Finance, who was Lendly's principal novating lease finance partner.

1. Instead, L&K submits that the correct approach to be taken is the one summarised by Higgs during the Expert Conclave (emphasis added):

(a) First, start with a base average multiple of 5.1x - 5.2x historical earnings (based on historical transactions most comparable to Lendly).

(b) Then, if the positive impact on Lendly of changes to the FBT legislation is not reflected in the company's FME, the earnings multiple should be increased to 5.8x to account for this impact. However, if this is reflected in Lendly's FME, then the earnings multiple should remain at 5.1x - 5.2x historical earnings.

1. The defendants submit that the Court should adopt Malcolm's multiple of 3.0x - 4.0x historical earnings.
2. The defendants submit that little to no weight should be afforded to Higgs' view as to the appropriate earning multiple. According to the defendants, Higgs accepted during the Expert Conclave that his use of confidential client data to inform the appropriate earning multiple was contrary to his ethical obligation of confidentiality owed pursuant to APES 110 Code of Ethics for Professional Accountants. The defendants say that the Court should condemn, and not sanction, an admitted breach by an expert of his ethical obligations to former clients. The Court should attribute no weight (or very little weight) to Higgs' evidence about transactions informed by confidential information. That means that Higgs' opinion as to the appropriate multiplier must be regarded as being based upon only a single transaction (that being the ABM Corporation). The defendants submit that an opinion supported by only a single transaction must be regarded as very weak and of extremely limited evidentiary value.

M.6.3.3 Consideration regarding the earnings multiple

1. In arriving at their suggested multiple, each Expert assessed a number of transactions that were said by one or the other to be comparable to Lendly in terms of size and business operations. As stated in the Higgs Report:

The selection of a multiple takes into account the unique features of the Company including its business profile, assessed risks and the industry within which it operates.

1. However, there is significant disagreement between the Experts as to the comparability of the transactions referred to in their respective reports. Malcolm is of the view that five of the six transactions relied on by Higgs do not consider the size of the businesses in question and have no public information available to support or verify the comparability of the operations, financial data or implied multiples. The defendants also submit that little to no weight should be given to Higgs' evidence about transactions informed by confidential information. Meanwhile, Higgs criticises three of the four transactions relied on by Malcolm as having either low relevance to the novated leasing industry, or an understated earnings multiple.
2. However, the Experts agree that the ABM Transaction is relevant to Lendly due to the size of the company and the nature of its operations, and should form part of the basis of the valuation of the shares in Lendly. As outlined earlier, the ABM Transaction involved the purchase of a dedicated novated leasing company by a publicly listed company, with publicly available purchase data, and an earnings multiple of 5.2x.
3. Given the disagreement between the Experts on every transaction referred to bar one, I see no good reason why I should not use the one common transaction (being the ABM Transaction) as a useful starting point for my consideration. The defendants submit that an opinion supported by only a single transaction must be regarded as very weak and of extremely limited evidentiary value. However, I disagree. Each Expert conducted rigorous research to identify and assess those transactions they deemed most comparable to Lendly. After writing their individual reports, each Expert then had an opportunity to critique the transactions relied upon by the other. By a robust process of elimination, one transaction remains as the best metric by which the Court can determine the appropriate earnings multiple in this case. I consider this sufficient for the present purposes. That being the case, any concerns as to Higgs' use of confidential client data for some of his comparable transactions do not arise. I found the defendants' submissions and attack on Higgs in this respect, accusing him of breaching his obligations of confidentiality to former clients and his obligations under the various professional valuations standards to be overblown and I do not need to make any findings in that regard.
4. Higgs is of the view that the earnings multiple should be increased from 5.2x to 5.8x if Lendly's increased earnings after November 2022 are not included in the FME assessment. Given that I have included those increased earnings in the FME assessment, there is no justification for adopting Higgs' 5.8x as the earnings multiple.
5. Malcolm is of the view that various factors inhibit Lendly's potential earning multiple namely exposure to legislative changes, key staff risks, dysfunctional management, the recent loss of a finance partner, and historically-weak earnings performance.
6. I will address each of Malcolm's concerns in turn below, when considering whether a discount ought to be applied to the 5.2x earnings multiple.
7. In my view, the 5.2x earnings multiple, being the starting point as referred to in paragraph 838 above, should be reduced for the following six reasons. Based on this, I consider it appropriate that a multiple of 4.6x be applied to Lendly's historical earnings for the purpose of valuation.
8. First, as I have concluded in section M.5.3 above, recent changes to the FBT regime have been a boon for Lendly. To say, as Malcolm does, that the boost to Lendly's earnings should not be accounted for in the company's FME but should then also be considered a risk to the company were the new tax incentives to be removed is, to my mind, a hard sell. It is akin to not counting it at all. Malcolm conceded during the Expert Conclave that she could not verify the expected duration of the tax incentives. As such, I see no reason why the earnings multiple should be heavily reduced to account for the risk posed by exposure to legislative changes.
9. Second, in terms of the risk posed to Lendly by the departure of key staff, I consider that:

(a) no evidence was adduced which would indicate the immediate or even likely departure of the particular staff member in question;

(b) if that person was to leave the business, Lendly could look towards hiring new staff. I accept, however, that some allowance would need to be made for new staff to reach similar levels of sales to that of existing key staff; and

(c) regard must be had to Lakin's role in the business and the fact that he will no longer be involved. Given his key sales role, his departure is highly likely to have at least a short-term impact on the financial performance of the business.

1. Third, true it is that dysfunctional management has hamstrung decision making at Lendly since as early as April 2021. This has undermined the company's ability to deal with, for example, its tax obligations or the subleasing of its excess office space. It is likely that the freeze on executive decision-making will thaw with the conclusion of this proceeding and the subsequent making of orders by the Court. Nonetheless, I consider it appropriate that a small discount to the earning multiple be made to account for the damage already done by Lakin and Lazzaro's inability to work together since the breakdown of the relationship.
2. Fourth, Malcolm notes that Lendly made a loss of $100,000 in FY2021, which is something that a potential purchaser may regard as indicative of risk. It should be noted that Lendly's reported net profit was $576,000 in FY2022 and $991,000 in FY2023. Given the changes to the FBT regime and the resulting boost to Lendly's sales performance and revenue, it is possible that the company's net profit for FY2024 may go up once more. However, I do consider Malcolm's concern to be valid. Despite Lendly's recent success, it was in the red only three years ago. This is indeed something that a potential purchaser may regard as indicating risk. As such, I consider it appropriate that a small discount to the earning multiple be made to account for the inconsistency of Lendly's past financial performance. Further, given the level of dysfunction within Lendly for FY2024, Lakin's resignation, and other employee resignations who have not been replaced due to the directors' inability to agree on anything, a discount on the earnings multiple used in the ABN Transaction is justified.
3. Fifth, none of these risks or uncertainties have been taken into account when calculating the Assessed FME. It is appropriate, therefore, that any such risks or uncertainties are factored into the earnings multiple.
4. Sixth, while the ABM Transaction is the closest to the situation pertaining here, it is not completely equivalent, including the acquisition being by a public company. Higgs stated, and I agree, that it is appropriate to reduce the multiple where there is a risk to FME when comparing against a transaction that does not feature the same risk. Here, I have found that certain risks exist in respect of Lendly's FME but do not have evidence as to whether those risks were present in the ABM Transaction. In my view, the appropriate course in those circumstances is to reduce the multiple.
5. On this basis, the Enterprise Value of Lendly is to be calculated by multiplying $1,129,000 (the Assessed FME, see paragraph 817 above) by 4.6 (the earnings multiple, see paragraph 842 above). Thus, the Enterprise Value of Lendly is $5,193,400.

M.7 Calculation of Net Surplus Assets so as to be able to calculate the Equity Value of Lendly

1. It was common ground that the Net Surplus Assets were to be added to the Enterprise Value so as to arrive at the Equity Value for Lendly.
2. The components which may make up the Net Surplus Assets were also common ground. These components were as follows, noting however, that the amount of them was not necessarily agreed and it was also not agreed that all of the components should be taken into account:

(a) surplus cash;

(b) add amount of First Withdrawal;

(c) add Second Withdrawal in the amount of $80,000;[173]

(d) add related party loans; and

(e) subtract tax liability.

(a) the parties agreed that as at 1 May 2024, the surplus cash was $2,464,108. This amount consists of Lendly's bank account balance of $2,707,107.63 less the amount of $244,000 agreed between the Experts as being necessary to cover working capital requirements;

(b) the amount of the related party loans in the Joint Statement was $252,000; and

(c) Lendly's tax liability as at 30 June 2023 was agreed in the Joint Statement to be $555,000.

1. While the parties had differed on most of these components, by the conclusion of closing submissions a significant amount of common ground had been reached. In this regard:

(a) the defendants acknowledged, in oral closing submissions, L&K's point that if Lazzaro was entitled to the $80,000 component of the Second Withdrawal, then the related party loans should have been adjusted by that amount in the accounts, but had not been. The defendants submit that, if the parties are separating and there is a buy-out, then the related party loans should be treated as extinguished but the $80,000 should be credited to the accounts as it had been paid. Counsel for the plaintiffs said they would accept that approach. Accordingly, an amount of $80,000 will need to be added when calculating the Net Surplus Assets; and

(b) in respect of Lendly's tax liability, L&K submits that as well as the $555,000 referred to in the Joint Statement, a further provision of $244,777 should be included so as to provide for estimated tax based on the additional surplus cash in Lendly's bank account since the Joint Statement was prepared. The defendants adopted an amount of $800,000 for Lendly's tax liability. No explanation was provided by the defendants for this amount. However, I note that both parties figures for Lendly's tax liability are very similar: L&K's figure comes to $799,777; the defendants' figure is $800,000. Accordingly, I will use the figure of $800,000 as Lendly's tax liability.

1. Therefore, it was really only whether the First Withdrawal should be added which was in dispute. L&K submits that it should be; the defendants submit that it should not.
2. Given that I have already found that the defendants were not entitled to the amount of the First Withdrawal, Lendly is to be valued on the basis that $530,000 is an asset of Lendly. Therefore, it must factor into the calculation of the Net Surplus Assets.
3. My calculation of the Net Surplus Assets is set out in the below table:

Found by the Court: see paragraph 855 above

Agreed by the parties: see paragraph 853(a) above

Agreed by the parties: see paragraph 853(a) above

Found by the Court: see paragraph 853(b) above

1. Thus, the Equity Value of Lendly is $7,466,508, comprising the Enterprise Value of $5,193,400 plus the Net Surplus Assets of $2,273,108.

M.8 Conclusion regarding valuation and the price to be paid for L&K's shares

1. It was conceded by L&K that it was appropriate that the Vendor Loan should be factored into the price to be paid for L&K's shares if a buy-out was ordered.
2. The Vendor Loan as at 1 May 2024 is $806,052. This is the same date used to calculate the surplus cash. L&K submits that these numbers should be updated to reflect the situation as at the date orders are made, however I will not do so. I will use the 1 May 2024 amounts for the surplus cash and Vendor Loan when calculating the price to be paid.
3. L&K submits that the net amount payable to L&K is $3,670,960, being L&K's 40% of Lendly's Equity Value (which they calculate to be $3,477,012),[174] less the Vendor Loan as at 1 May 2024. It says that a fair value in all the circumstances, taking into account the early repayment of the Vendor Loan, would be an amount of $3 million.
4. I do not accept this. No evidence was led as to the appropriate calculation for early repayment of the Vendor Loan and this submission was made very late in the piece.
5. In my view, the fair price to be paid by the defendants for L&K's shares in Lendly is $2,180,551, calculated in the manner set out in the below table. This fairly reflects the value of L&K's shareholding in the company, adjusted so as to ameliorate or remedy the effects of the oppression.

1. There is manifold evidence that the parties are in a state of dysfunction as it concerns ongoing operations of the business and their relationship with each other. I will not restate all of this evidence here.

1. With respect to winding-up relief, L&K alleges that:

(a) Lazzaro has acted in affairs of Lendly in his own interests rather than in the interests of the members as a whole, and, or in a manner that is unfair or unjust to L&K;

(b) Lendly's affairs are being conducted in a manner that is oppressive or unfairly prejudicial to, or unfairly discriminatory against, L&K; and

(c) Lazzaro, Madison and Menlo have irreparably destroyed the relationship between Lendly's shareholders, and between Lazzaro and Lakin - in particular the level of mutual co-operation and trust required for the smooth running of Lendly's business and day-to-day management - and created an irreparable level of distrust and conflict between Lendly's shareholders and between Lazzaro and Lakin.

1. L&K submits that, notwithstanding that L&K is a 40% shareholder of Lendly, the jurisdiction of the Court is clearly enlivened to make an order to wind up the company. The jurisdiction is enlivened where the management and control of Lendly is 'effectively deadlocked' as a result of the breakdown and irreparable damage to the working relationship between Lazzaro and Lakin and the now impossible requirement that all decisions affecting Lendly and the business must be unanimous, pursuant to cl 6 of the SHA.
2. Winding up Lendly is not L&K's preferred outcome. Nevertheless, if there is no compulsory buy-out they say that Lendly must be wound up because the parties cannot continue to work together going forward.
3. L&K submits that it is clear on the material that when Lakin joined Lendly, the business was a form of quasi-partnership arrangement, established on the basis of mutual confidence, similar to the business arrangement context of Re Munja Bakehouse. The mutual cooperation and a level of trust and confidence between the parties is destroyed, which are essential for smooth day-to-day management of a company.[175] As a result, L&K says the jurisdiction to wind up the company is clearly engaged.
4. L&K points to the following matters, identified in Re Admiral Cove Pty Ltd (as trustee for the Admiral Cove Property Trust), as reasons that a just and equitable winding up order is available:[176]

(a) There is a deadlock in the management of the company.[177]

(b) The company is in a state of corporate paralysis.[178]

(c) There is a breakdown in the relationship between the shareholders.[179]

1. L&K says that the breakdown in the relationship is unquestioned, and emphasises Lakin's evidence of Lazzaro's asserted:

(a) threats to delete family photos;

(b) attempts to manufacture breach of Vendor Loan;

(c) reducing Drop Box Storage;

(d) cancelling Lakin's wife's mobile phone account;

(e) negotiating Lendly's Lease unilaterally;

(f) agitating and then abandoning allegations concerning FBT; and

(g) threats to deduct pay and remove access.

1. L&K relies on Re Munja Bakehouse,[180] where Black J cited the following observations of Stewart J in Haycraft v AF1 Services Pty Ltd:[181]

... it is generally necessary to show that the breakdown is of such a nature and degree that it materially frustrates the commercially viable and sensible operations of the company in accordance with the shareholders' expectations, that the loss of confidence is justified and that there is a restriction on the transferability of the shares of the party seeking to wind up the company.

1. L&K says that there is clear evidence that the relationship breakdown is of such a nature and degree that it materially frustrates the commercially viable and sensible operations of Lendly. L&K points to the failure to hire personnel as one example of the frustration of Lendly's operations.
2. L&K submits that there is no absolute rule against winding up a solvent company, although it will be a last resort.[182]

1. The defendants say that a winding-up would be an extreme step and unnecessary in the event the counterclaim succeeds.[183] A winding-up order is not to be 'lightly made'.[184] Lendly is a profitable company and it is rare that the Court will wind up a solvent company.[185]
2. In their opening submissions, the defendants had suggested that the relationship breakdown between the parties was not of the nature and degree that materially frustrates the commercially viable and sensible operations of the company and that the evidence at trial would show that the directors have continued to work together.[186]
3. However, the defendants have since accepted that there is a fundamental breakdown in the relationship. They accept that the trust and confidence between the directors was destroyed and can never be regained or rebuilt.

1. Lakin and Lazzaro's relationship has broken down irretrievably. It is tolerably clear that the management of the company is deadlocked, such that even the most fundamental of tasks such as preparation of financial statements and tax returns are not able to be performed. As both parties submit, it is impossible for the two to continue to make decisions for Lendly in line with the SHA requirement that decisions be made unanimously. There is no mechanism in that document or elsewhere for resolving disagreement. It is clear that their involvement in the company was to be on the basis of a relationship of mutual trust and confidence: despite Lazzaro controlling the majority shareholders, decisions affecting the company and its business were to be unanimous. The paralysis of the company in the present circumstances is such that I am of the opinion that it would be just and equitable for Lendly to be wound up, pursuant to s 461(1)(k) of the Act.
2. The Court's jurisdiction to wind up Lendly has been established. In the circumstances, and for the reasons expressed, I consider it appropriate that the discretion to wind up Lendly be exercised. It is clear that things cannot go on as they have been.
3. However, the winding up of a solvent company is a grave step and should only be taken as a last resort. It is not for the Court to interfere in a profitable company to place it into liquidation where there is some alternative available which allows the business to continue to exist, employee staff, service clients, pay wages and tax, and generate profits for its shareholders.
4. Here, there is an available alternative to winding up Lendly. As set out earlier, I have already determined that the appropriate remedy in respect of the found oppression is an order that the defendants purchase L&K's shares at the amount determined by the Court to be fair value. The net amount to be paid for those shares is $2,180,551. Nevertheless, it may be that Lazzaro does not comply with an order for the compulsory purchase of L&K's shares. In that eventuality, I consider it appropriate to order that, in the event that there is non-compliance with the compulsory buy-out order by a designated date, Lendly is to be wound up pursuant to s 461(1)(k) of the Act. For completeness, based on the findings above with respect to oppression, it is evident that this Court could also make such order pursuant to s 461(1)(e) or (f), or s 233(1)(a).
5. I will not make any order or indication at this time regarding who should be appointed as liquidator in the event of a winding up. Should matters progress such that a winding order must be made, the matter can be listed for the making of a winding-up order and the defendants will have an opportunity at that time to make submissions on the identity of the appointee.
6. For the sake of completeness, I note that s 467(4) of the Act is met, as L&K has sought an alternative (and preferred) remedy, being a buy-out.

1. For the reasons set out above, I have concluded the following:

(a) By undertaking each of the First and Second Withdrawals:

(i) Lazzaro breached the No Funds Agreement; and

(ii) the defendants breached clauses 3.2, 6 and 24(c) of the SHA.

(b) By undertaking the First Withdrawal, Lazzaro breached his duties under s 181(1)(b) and s 182 as a director of Lendly.

(c) By undertaking the First Withdrawal and by breaching the SHA, the defendants have conducted the affairs of Lendly in a manner which is contrary to the interests of members as a whole and oppressive to, unfairly prejudicial to, or unfairly discriminatory against L&K.

(d) The claims made in the defendants' counterclaim (being rectification of the SHA, estoppel in respect of the First Withdrawal, and allegations that Lakin and/or L&K have acted oppressively) must fail.

(e) The preferred remedy in this case is that the defendants purchase L&K's shares in Lendly for the net amount of $2,180,551, by a specified date.

(f) The orders should provide for the following, if the defendants do not comply with the order that they purchase L&K's shares in Lendly for the net amount of $2,180,551:

(i) for Lazzaro to pay Lendly compensation for breaching his directors' duties in the amount of $530,000; and

(ii) for Lendly to be wound up.

1. By way of summons filed on 8 August 2024, L&K made an application for:

(a) an order directing that the sum of $2,600,000 (the Preserved Funds) be transferred from Lendly's bank account into the trust account of the solicitors on record for L&K; and

(b) an order directing the transfer of the Preserved Funds into an interest-bearing controlled money account, to remain in place until further order of the Court or by unanimous agreement of the parties.

1. This application was heard by me on 16 August 2024, which was after I had reserved my judgment in this trial and prior to handing down the judgment. I note for the parties' benefit that these reasons had been substantially prepared prior to hearing that application and the application has not played any role in or influenced my reasons.
2. By 18 September 2024, the parties are to confer to provide my Chambers with a proposed form of orders to give effect to these reasons, including as to costs. If they are unable to reach agreement, then by 18 September 2024, each party should provide my Chambers with their preferred form of order and a written outline of submissions of no more than 5 pages in support of their preferred orders, and the proceeding will be listed for 20 September 2024 for the making of final orders.

in its own capacity and in its capacity as the trustee of the Lakin Family Trust ABN 72 186 936 074

in its own capacity and in its capacity as the trustee

in its own capacity and in its capacity as the trustee of the Menlo Park Trust A.B.N. 65 900 746 177

[1] A novated lease is a motor vehicle lease which has been novated, that is, the obligations in the contract have been transferred from one party to another. A lease is novated with a three-way agreement (deed of novation) between the lessee, the lessor (usually a finance company), and a third party, under which all parties agree that the third party will take on some or all of the lessee's obligations under the lease (generally this is making the rental payments instead of the lessee).

[2] On 28 March 2024, Lakin gave notice of his resignation as an employee of Lendly. Lakin ceased his employment on 12 April 2024.

[3] For completeness, I note that references to the 'plaintiffs' throughout this judgment are made for convenience, however, the only claim brought by both L&K and Lendly is the breach of directors' duties claim.

[4] That previous business partner had held 50% of the shares in Lendly. Lazzaro funded the purchase from that previous shareholder with a loan from Lendly to Menlo.

[5] In correspondence to Lakin dated 16 December 2017, Lazzaro describes the Menlo Park Trust as an entity 'created solely for purpose of acquiring Lendly shares through shareholder buy-out agreement in the final share buyback. It is a holding trust only'.

[6] At the time, CharterNet were Lakin's personal accountants. Later, they were also Lendly's accountants for a time.

[7] Lazzaro said at the hearing that the words 'in related' suggested a typographical error, he could not be sure what he had originally meant by that sentence, but may have meant to say 'IP related'.

[9] I note that the MoU did refer to an advancement by Lendly to Lakin of relocation costs, to be set off against or deducted from later payments.

[10] The drafts were prepared with assistance from their legal representatives. The legal representatives did not contact each other in this process. Lazzaro, Madison and Menlo were represented by Falcone & Adams and Lakin was represented by Hitch Advisory Pty Ltd.

[11] The defendants submit that this evidence should be accepted, as it is consistent in terms of timing and content with the advice he received from Maric. They say that it is 'unlikely in the extreme' that Lakin would have proceeded with a transaction whereby he agreed to pay $600,000 for 30% of Lendly if the matter of the repayment of the Menlo Loan was truly outstanding, and that it is more likely that Lazzaro told Lakin that the Menlo Loan would remain on the balance sheet and be paid down over time from retained earnings. In this regard, they highlight Lakin's evidence that he never expected to get the proceeds of the Menlo Loan.

[12] In its own capacity and as trustee of the Lakin Family Trust.

[13] As defined in cl 1.1 of the SPA, the Sale Shares were 1,440 shares held by Menlo in Lendly.

[14] Note that this is appears to be a clear drafting error in the SHA, in that 'without' should be 'with'. I understand that the parties to the agreement intended that prior written consent of all shareholders be required before the actions could be taken by a shareholder. This did not appear to be in dispute between the parties.

[15] Market Price is defined in the SHA as the price reached in accordance with cl 16. Clause 16 provides for the determination of a market price if a fair market price is not agreed by the shareholders within five days of a shareholder issuing (or being deemed to have issued) a Transfer Notice under sub-clause 14.2, including provision for the appointment of an independent valuer.

[16] Cl 1 and Items 1 and 3 of the attached schedule to the Loan Agreement. Item 4 provided that interest would capitalise on a monthly basis.

[17] Unless the loan is repaid earlier or the date is varied by mutual agreement in writing: cl 1 and Item 7 of the attached schedule to the Loan Agreement.

[18] According to Lazzaro, in the event, he did not lend Lendly working capital at this time, because Lendly had accrued sufficient cash in its bank account from sales, however, at a later date when deciding on the dividend policy for FY2018, it became apparent that Lendly needed some working capital. Lazzaro then decided to re-categorise the withdrawal of $145,736 as a dividend entitlement, which meant that the amount was effectively loaned to Lendly and could be drawn down later by Lazzaro. Lakin states that he was not informed or aware that the amount had been so re-classified.

[19] The calendar invitation was in evidence. It was named 'Zvonko Maric - Introduction' and provided for a meeting duration of 45 minutes. It was put to Lazzaro that the meeting, in fact lasted 45 minutes rather than 2-3 hours as Lazzaro claims, this was rejected by Lazzaro.

[20] The inferences or implications said to be are drawn from Lakin's receipt of correspondence involving Lendly's accountant (CharterNet) referring to matters including the Menlo Park Trust debit loan, receipt of interest and payment of licence fees, sent on 5 March 2020, 11 March 2020, 8 April 2020 and 30 June 2021, to which Lakin did not respond or do anything in response, and that Lakin signed Lendly's financial statements for FY2019 and FY2020 which both recorded receipt of interest from Menlo, payment of licence fees to Menlo, and the reduction of the Menlo Loan.

[21] Counsel for the defendants submitted that equitable must be read in the context of the three options proposed at that meeting, one of which would have meant Lakin lost a large capital gains tax advantage, and one of which involved Lazzaro's entities not receiving franking credits, which would mean that Lazzaro lost some value. The option which they say was adopted was the most equitable.

[22] Lakin's accountant CharterNet had referred a large number of clients to Lendly while Maric had not referred any, and this was one factor that Lazzaro and Lakin were considering in their discussions of which accountant Lendly should use.

[23] Lakin also says that Maric provided him with information around a relocation tax benefits for which Lakin did not think he was eligible.

[24] Ms Cartwright then recategorized the licence fees in Lendly's bookkeeping software to loan advances.

[25] Maric charged $550 in connection with the meeting and noted that the meeting was to discuss future tax structure and other tax considerations for Lendly.

[26] Lakin gave evidence that in this period, he had had to focus on recruitment and maintaining finance broker revenue due to staff turnover and absences, such that he had not had sufficient time to dedicate to the novated leasing side of the business.

[27] Lakin was shown this email in cross-examination and acknowledges that it is not a journal entry only.

[28] Lazzaro said in respect of these hires that he agreed for them to be hired and based in Sydney because they were known to Lakin, trained by him and not requiring on-boarding. They were a 'revelation' to Lendly because they could be bolted on straight away.

[29] Those allegations concerned, among other things, allegations that Lakin: repeatedly refused to attend video conferences and discuss employee performance or share his schedule and daily activities with Lazzaro; refused to approve Lendly's financial statements for FY2021, FY2022 and FY2023; proposed new lease terms with Lendly's landlord and sought to negotiate the lease unilaterally, such that the lease has expired without entry into a new lease; caused Lendly to pay employee bonuses in excess of $15,000 without any application of eligibility criteria; in September 2021, unilaterally submitted (and subsequently withdrew) a small business funding application concerning hardship due to COVID which materially overstated Lendly's pre COVID revenue; and deleted or refused to provide Lazzaro with access to files on the Lendly Dropbox.

[30] Lazzaro clarified his statement as being in the context of working in Lakin's sale manager role, in the business, based in Melbourne.

[31] While the defendants denied the whole of the paragraph in which this term of the No Funds Agreement was pleaded, as will be seen below, Lazzaro's evidence of the discussion was that Lakin stated he would prepare a proposal.

[32] Being the amount owing under the Loan Agreement.

[33] This meeting was recorded and a copy of the recording (along with a transcript of the call) was before the Court.

[34] The defendants state that the financial statements for FY2021 (which would have recorded the $80,000 as paid) and following were not finalised because Lakin instructed CharterNet to stop their efforts. They say Lakin caused this problem, knowing that he could have signed the accounts under objection (as he had done for FY2020).

[35] I note that this would produce a value of all the shares in Lendy of $378,050.

[36] I note that claims in respect of ss 180 and 181(1)(a) are no longer pressed.

[37] L&K's case changed from its written pleadings by the time of closing submissions. One ground of oppression claimed in the L&K's pleadings was not pressed at trial. This ground, identified as the 'second ground' in the FASOC, concerns the alleged removal of Confidential Information from Lendly's Dropbox. L&K relies on this conduct only as an example of the breakdown of the relationship between the parties.

[38] These decisions to take leave are said to be decisions affecting Lendly and the business within the meaning of cl 6 of the SHA, and were not unanimous.

1. [39] Fox v Percy (2003) 214 CLR 118, 129. L&K also refers to the principles to be applied when evaluating evidence as summarised in Timeless Sunrise Pty Ltd v BigJ Enterprises Pty Ltd (No 10) [2023] VSC 524, [288] - [289) (Delany J) (Timeless Sunrise).

[40] [2016] VSC 779, [866].

[41] On this point, however, the defendants must accept that Lazzaro's evidence has just as much chance of being tainted in those circumstances.

[42] Here, the defendants note that Lakin appeared to recollect details of meetings in his outline but could not recollect another meeting on 26 January 2018 which did not feature in his outline; although during re-examination and after refreshing his memory from an email in the Court Book, he gave a more fulsome recollection.

[43] At [288]. They also refer to cases cited by Delany J for that proposition, including Sangha v Baxter [2009] 25 NSWCA 78; (2009) 52 MV4 492, [155]-[156].

[44] L&K says, in particular, that Lakin was not challenged as to his evidence of the 19 April 2021 meeting regarding the No Funds Agreement.

[46] [2003] NSWSC 161; (2003) 13 BPR 24,431, [95]-[99].

[48] Relying on Masterton Homes Pty Ltd v Palm Assets Pty Ltd [2009] NSWCA 234; (2009) 261 ALR 382, [104].

[49] Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298, 320 (Jones v Dunkel). See also Australian Securities and Investments Commission v Hellicar (2012) 247 CLR 345, 412-3 [165]-[167] (French CJ, Gummow, Hayne, Crennan, Kiefel and Bell JJ); 432 [232] (Heydon J) (Hellicar).

[50] Sagacious Legal Pty Ltd v Wesfarmers General Insurance Ltd [2011] FCAFC 53; (2011) 16 ANZ Insurance Cases 61-885, [78] (Sagacious Legal).

[51] At [870] and [877] (Robson J).

[53] With reference to ASIC v Flugge. T.642.

[54] With reference to ASIC v Flugge.

[56] (1982) 149 CLR 337 (Codelfa).

[57] [2015] HCA 37; (2015) 256 CLR 104; [46]-[50] (French CJ, Nettle and Gordon JJ) (Mount Bruce Mining).

[58] [2023] VSC 782 (Nichols J) (GJB Building).

[59] [2024] VSC 54 (Matthews J) (Newman). Those decisions in turn refer to and rely on earlier decisions which have relevantly summarised the applicable principles including United Petroleum Australia Pty Ltd v Herbert Smith Freehills [2018] VSC 347 (Elliott J) (United Petroleum v HSF); Oliana Foods Pty Ltd v Culinary Co Pty Ltd (in liq) [2020] VSC 693 (Connock J); and VicBeef Holdings Pty Ltd v Chen [2021] VSC 546 (M Osborne J).

[60] At [2050] - [2052], citations and footnotes omitted. See also Newman, [635] - [637].

[61] At [2054] - [2058], citations and footnotes omitted.

[62] [2016] HCA 47; (2016) 260 CLR 85 (Simic).

[63] [2020] VSCA 282, [51] (McLeish, Niall and Sifris JJA) (Queenfield), citing Perpetual Ltd v Myer Pty Ltd [2019] VSCA 98 [115] (Whelan, Niall and Hargrave JJA) (Perpetual v Myer); Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; (2009) 76 NSWLR 603 , 713-14 [459]-[461] (Campbell JA, Allsop P and Giles JA relevantly agreeing at 620 [30] and 621-2 [42]) (Metcash); citing Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329, 345 (McLelland AJA) (Carlenka); see also Property Investors Alliance Pty Ltd v C88 Project Pty Ltd (in liq) [2023] NSWCA 291, [130] (Kirk JA).

[64] See for example, Perpetual v Myer, [115].

[66] GLP Batesford Pty Ltd v 68 Bridge Road Land Pty Ltd [2024] VSC 182, [156] (M Osborne J) (GPL Batesford), citing Metcash, [451] (Campbell JA).

[67] (1988) 164 CLR 387, 428-9. See also Commonwealth v Verwayen (1990) 170 CLR 394; Commonwealth v Clark [1994] VicRp 66; (1994) 2 VR 333, 360; Edensor Nominees Pty Ltd & Ors v Anaconda Nickel Ltd [2001] VSC 502, [164].

[68] [1995] NSWCA 497; (2000) 49 NSWLR 315,318-319, (emphasis supplied).

[69] Section 234 of the Act sets out who can apply for an order under s 233 in relation to a company.

[70] [2024] VSC 244, [93]-[97], (Renex).citations and footnotes omitted.

[71] O'Neill v Phillips [1999] UKHL 24; [1999] 1 WLR 1092, 1102 (O'Neill); Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [2001] NSWCA 97; (2001) 37 ACSR 672, 745 [422] (Fexuto).

[72] [2010] NSWSC 152, [39(c)] (citations omitted) (Argyle HQ).

[73] Donaldson v Natural Springs Australia Limited [2015] FCA 498, [248]-[249] (Beach J) (Natural Springs).

[74] Peter Exton & Anor v Extons Pty Ltd & Ors [2017] VSC 14; (2017) 53 VR 520, 529 [34] (Sifris J) (Exton v Extons Pty Ltd).

[75] Bosnjak, 742 (Young J); Ananda Marga Pracaraka Samgha Ltd v Tomas (No 6) (2013) 300 ALR 492; [2013] FCA 284, [417] (Dodds-Streeton J); Natural Springs, [250] (Beach J).

[76] Arhanghelschi v Ussher [2013] VSC 253; (2013) 94 ACSR 86, [52]-[54] (Ferguson J).

[77] Natural Springs, [250] (Beach J), citing O'Neill, 1104.

[78] Tomanovic v Global Mortgage Equity Corp Pty Ltd [2011] NSWCA 104; (2011) 288 ALR 310, [199] (Campbell JA) (Tomanovic).

[80] [2023] FCA 280, [19]-[23], citations omitted. See also Re Munja Bakehouse Pty Ltd [2024] NSWSC 6, [22] (Black J) (Re Munja Bakehouse).

[81] [1994] VicRp 53; [1994] 2 VR 32, 81 (Vroon).

[82] I note that the date referred to by defendants' counsel, 15 April 2021, appears to be an error and that it was in fact 15 April 2020. The signed FY2019 financial statement is signed by both Lakin and Lazzaro and bears the date of 15 April 2020 next to both their signatures. It is also an agreed fact between the parties that Lakin signed them on 15 April 2020.

[83] For the body of law which has developed concerning s 1305 of the Act and when financial statement entries will be displaced by other evidence, the defendants refer by way of example to Hoh v Ying Mui Pty Ltd [2019] VSCA 203, [190]ff (Hoh).

[84] Australian Securities and Investments Commission v Rich [2009] NSWSC 1229; (2009) 236 FLR 1, 82.

[85] Australian Karting Association Ltd v Karting (New South Wales) Incorporated [2022] NSWCA 188, [136], adopting the approach in Hoh.

[86] Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61; (2001) 53 NSWLR 153, 179.

[87] Goldsbrough Mort & Co Ltd v Quinn [1910] HCA 20; (1910) 10 CLR 674, 678 (Griffith CJ).

[88] NC Seddon and MP Ellinghaus, Cheshire and Fifoot's Law of Contract (Lexis Nexis Butterworths, 9th ed, 2008) [3.13]; JD Heydon, Heydon on Contract (Lawbook, 2019) [2.150].

[90] Englisch v Sully [2021] VSC 434 (footnotes omitted), adopted with approval in Sully v Englisch [2022] VSCA 184; (2022) 406 ALR 456, [62]. See also Queensland Phosphate Pty Ltd v Korda [2017] VSCA 269, [37]; Nurisvan Ivestment Ltd v Anyoption Holdings Ltd [2017] VSCA 141, [109], both cited by the Court of Appeal, [62].

[91] Scammell (G.) & Nephew Ltd. v. Ouston (1941) AC 251, cited with approval in Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd [1968] HCA 8; (1968) 118 CLR 429, 437 (Upper Hunter County District Council).

[92] Thorby v Goldberg [1964] HCA 41; (1964) 112 CLR 597, 607.

[93] Upper Hunter County District Council, 436.

[94] [1982] Ch 204.

[95] See the submissions summarised at paragraph 440 above.

[96] He is a defendant by counterclaim, but that does not assist him here.

[97] That involvement being 'authorising, causing, effecting, and/or allowing'.

[98] United Petroleum v HSF [640] - [646].

[99] At [2051] - [2052], set out in paragraph 333 above.

[101] Chan v Zacharia [1984] HCA 36; (1984) 154 CLR 178.

[103] Simic, [103]-[104]; CA and CA Ballan v Oliver Hume (Australia) Pty Ltd [2017] VSCA 11; (2017) 55 VR 62, [32]-[75]; Caringbah Investments Pty Ltd v Caringbah Business and Sports Club Ltd (in liq) [2016] NSWCA 165, [40].

[104] Codelfa; Mount Bruce Mining, [46]-[50].

[105] [2014] HCA 7; (2014) 251 CLR 640, 656-7 [35].

[107] Queenfield Pty Ltd v Gordon Finance Pty Ltd & Ors [2019] VSC 857; (2019) 60 VR 118, [81].

[109] See, for example, Simic, [41]-[46]; Perpetual v Myer, [115]; Carlenka, 345.

[111] Con-Stan Industries of Australia Pty Ltd v Norrich Winterthur Insurance (Australia) Ltd [1986] HCA 14; (1986) 160 CLR 226, 244-5.

[112] Grundt v Great Boulder Pty Gold Mines Ltd [1937] HCA 58; (1937) 59 CLR 641, 676; Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65; (2007) 69 NSWLR 603, adopted by the Court of Appeal in FJ & PN Curran Pty Ltd v Almond Investors Land Pty Ltd [2019] VSCA 236, [214].

[113] [2007] NSWSC 5; (2007) 13 BPR 24,713, [33].

[114] Relying on Australian Competition and Consumer Commission v TPG Internet Pty Ltd [2013] HCA 54; (2013) 250 CLR 640, [39] and [49] (French CJ, Crennan, Bell and Keane JJ).

[115] Relying on Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304, [25] (French CJ) (Backoffice Investments).

[116] Re Skytraders, [30] citing O'Neill, 1099-1101.

[117] Catalano v Managing Australia Destinations Pty Ltd [2014] FCAFC 55; (2014) 314 ALR 62, [9].

[118] Exton v Extons Pty Ltd, [39] (Sifris J).

[119] Beaumont v Peel & Ors [2018] NSWSC 95, [11]-[13] (Black J) (Beaumont).

[120] This would entail a shortfall owing by L&K on the Vendor Loan of $563,567.

[123] (2022) 141 SASR 1 (Melrob Investments).

[125] [1983] 2 All ER 36.

[126] (1990) 20 NSWLR 703, 707 (McWilliam).

[127] (1984) 9 ACLR 193, 199 (Re G Jeffrey).

[128] [2002] NSWSC 448, [43] (Lucy v Lomas).

[129] [2014] VSC 47; (2014) 98 ACSR 138, [497].

[130] Siah v Wong [2021] WASC 19, [60] citing Lucy v Lomas.

[135] [1984] 1 NZLR 686; (1984) 2 ACLC 610.

[137] Reviewing the transcript of this, it appears that either 'pretence' is either a mistranscription or an error by Lakin, as the word 'pretext' is more likely to have been the word used or intended.

[138] The MoU only contains a reference to Menlo advancing payment for relocation expenses.

[140] See paragraph 42 above.

[141] [2020] NSWCA 166 (Snell v Glatis).

[144] The defendants dispute that a forensic decision was made: L&K said it was a buyer of Madison and Menlo's shares until February 2024, which was after the time for the witness statements to be filed.

[147] Vigliaroni v CPS Investment Holdings Pty Ltd [2009] VSC 428; (2009) 74 ACSR 282, [[85] (Davies J), citing Szencorp Pty Ltd v Clean Energy Council Ltd [2009] FCA 40; (2009) 69 ACSR 365, [71] (Goldberg J) (Szencorp); Natural Springs, [270] (Beach J).

[148] Szencorp, [69]-[71] (Goldberg J).

[149] [2009] VSC 95, [88].

[150] The expression was first used in the Australian jurisdiction by Hayne J during the hearing of Campbell v Backoffice Investments Pty Ltd [2009] HCATrans 6.

[151] The Defendants refer to the English decision of Tosi Ltd v 99 Hippos Ltd & Anor [2023] EWHC 852 (Ch), [160], where it was remarked that there is no such thing as no-fault corporate divorce within the meaning of the applicable provision of the Companies Act 2006; Natural Springs, [250].

[152] Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [1998] NSWSC 413; (1998) 28 ACSR 688, 742 (citations omitted) (Bosnjak).

[154] Re Enterprise Gold Mines NL (1991) 3 ACSR 531, 539, 590; see further Bosnjak, 742. See also Campbell v Backoffice Investments Pty Ltd [2008] NSWCA 95; (2008) 66 ACSR 359, [123].

[155] Re Dernacourt Investments Pty Ltd (1990) 20 NSWLR 588, 619-20.

[156] Beaumont, [13]; Backoffice Investments, [177].

[157] PD Finn (ed), Equity and Commercial Relationships (Lawbook, 1987) 108.

[158] Ample Source International Ltd v Bonython Metals Group Pty Ltd (No 6) [2011] FCA 1484; (2011) 285 ALR 488, [331]-[343]; Snell v Glatis, [41], [45]; Re Crow Inn Pty Ltd (No 2) [2020] NSWSC 1749, [269] and [271].

[161] [2020] VSC 867 [79].

[162] (1994) 85 LGERA 418, 419.

[163] (1994) 15 ACSR 536, 540.

[164] Challenger Property Asset Management Pty Ltd v Stonnington City Council [2011] VSC 184; (2011) 34 VR 445 (Challenger), [17]; cited with approval in Caradi Pty Ltd v Secretary to the Department of Transport [2020] VSCA 197, [109]-[111].

[167] These were other income; COVID-19 payment income; commission income; fines; employee leave provisions (except for Lakin and Lazzaro); credit notes; licence fee expenses; director fee accrual; an adjustment for credit notes issued in FY2023 should be applied to the periods in which the original invoices relate, the vast majority of which related to prior financial years, resulting in a net increase to the reported revenues and earnings for FY2023; licence fee expense should be adjusted from the earnings of Lendly for both FY2021 and FY2022; the director fee journal raised in FY2020 relates to prior years and should be adjusted in FY2020's normalised earnings; the fixed assets listed on the balance sheet as at 30 June 2023 should be depreciated by $5,000, resulting in a nil balance on an adjusted basis.

[168] On 12 December 2022, the Treasury Laws Amendment (Electric Car Discount) Act 2022 introduced an FBT exemption for novated leases of certain vehicles, which has had a positive impact on Lendly's business. This legislation provided an FBT exemption for eligible electric vehicles and applied retrospectively to benefits provided for 1 July 2020.

[169] Foody v Horewood (2007) 62 ACSR 576, [35] and [37].

[170] By this stage, the Joint Statement had been filed.

[171] At [643]-[649], citations omitted.

[172] This description cannot be right, given where the power to change legislation lies.

[173] This was L&K's position by closing submissions, as they were no longer pursuing the return of the rest of the Second Withdrawal.

[174] Based on L&K's calculation of total Equity Value of $8,692,531.

[175] Re Munja Bakehouse, [22]. See also Nassar v Innovative Precasters Group Pty Ltd [2009] NSWSC 342; (2009) 71 ACSR 343 (Barrett J) (Nassar).

[176] [2023] VSC 537, [46].

[177] Ibid citing Re Yenidje Tobacco Company Ltd [1916] 2 Ch 426; Johnny Oceans Restaurant Pty Ltd v Page [2003] NSWSC 952; Clarke v Bridges [2004] FCA 394; Booker v You Run the Business Pty Ltd [2008] FCA 1762; Re Dawning Investments Pty Ltd [2022] VSC 641; (2022) 68 VR 226.

[178] Ibid citing Re Vision Image (Aust) Pty Ltd Cheng v Yeo [1998] WASC 38 ; CIC Insurance Ltd v Hannan & Co Pty Ltd [2001] NSWSC 437; (2001) 38 ACSR 245 ; Great Australian Resources Pty Ltd; Re Platinum Mining Ventures Ltd [2011] FCA 1472.

[181] [2023] FCA 774; (2023) 168 ACSR 489, [75], which in turn cited the decision Re of L&B Seafood Pty Ltd [2022] NSWSC 100, [148] (Henry J).

[183] Re Pure Nature Sydney Pty Ltd [2018] NSWSC 914, [76] (Pure Nature).

[184] Re Amazon Pest Control Pty Ltd [2012] NSWSC 1568, [19].