Claim of oppression against Tinkler Group and Messrs Tinkler, Todd and Dempsey
235Relations between Mr Tinkler and Mr Sommers deteriorated in the months following the first board meeting held on 9 January 2009. Mr Sommers was concerned at Mr Tinkler's autocratic style of management and his subjecting SIH to liabilities that had not been approved by the directors. Mr Sommers also became concerned at Tinkler Group's failure to honour a promise in the shareholders' agreement to provide a $1,000,000 capital loan facility with the first $500,000 of the facility to be available within six months. The facility, if implemented, would have provided substantial savings to the group against the existing lease finance facilities. Mr Sommers was also concerned that Mr Tinkler did not introduce another 40 members to the Club, which Mr Tinkler had told Mr Sommers he could do. He was concerned that Mr Tinkler purchased two motor vehicles for the Club, including a Rolls Royce motor vehicle at a cost of $740,000, without prior approval. He was also concerned that Mr Tinkler, without Mr Sommers' consent, decided that a Mr Richard Glenn should be appointed as financial controller at a substantial salary. All these concerns were legitimate.
236Mr Tinkler insisted that Mr Sommers confine his activities to attracting new customers and that Mr Glenn should take over day-to-day general management. On 7 July 2009 Mr Sommers advised senior staff that from 10 July Mr Glenn would be taking over the role of general manager and that Mrs Sommers would be leaving her " enforced finance role " and working on the events side of the business.
237Mr Glenn had difficulty getting financial information and control of expenditure. On 15 July he advised Mr Tinkler that he had received the profit and loss statement and balance sheet for TSC up to May, but he could not get the whole picture because Amanda Edwards at Moneypennies had not brought the TSCCF and SIH accounts up to date. Mr Glenn said " She blames Sue and Tim and they blame the bookkeepers ". Mr Glenn arranged for new accounts to be opened with the National Australia Bank. However, Mrs Sommers would not give him access to the old online accounts because she said that they were private accounts.
238Mrs Sommers wrote to Mr Glenn on 16 July. She said:
" The bank are trying to work out a way to get a login to the bank accounts with access only to the last few years, the reason being these accounts were actually personal accounts that were changed into business accounts and at the moment the bank tells me it shows 7 years which for obvious reasons I would prefer not to share. What they can do is give me a login which will allow you to see the balances of the accounts and in the meantime I can still make payments when they fall due etc as that is all easy ".
239This was a poor excuse for not providing access to the companies' bank accounts. If company moneys were mixed with Mrs Sommers' own moneys, that was the fault of Mrs Sommers. It was no reason not to allow the financial controller access to the companies' bank accounts. Mr and Mrs Sommers resisted Mr Glenn's attempt to obtain control over what moneys were spent from the Commonwealth Bank accounts.
240As noted above, Mr Sommers contended that Tinkler Group and Mr Tinkler had engaged in oppressive conduct by failing to honour an obligation under the shareholders agreement to provide a working capital facility. Clause 13.17 provided that Tinkler Group would provide a working capital loan facility of up to $1 million to be used in the business as expansion capital. The first tranche of the facility was to be drawn on or about 1 June 2009 for an amount of $500,000. The balance was to be advanced at a time to be determined by the board in accordance with approved budget and business plans. In correspondence Mr Sommers complained that the facility had not been provided. Mr Tinkler criticised Mr Sommers for handing out a " begging bowl ". In an email of 1 July 2009 Mr Sommers rejected that contention and insisted that he was merely expecting fulfilment of a contractual obligation. However, draft minutes of a meeting of management of what was called the Supercar Club and the Jet Club held on 4 June 2009 said to have been attended by Mr Sommers, Mr Tinkler and Mr Glenn recorded:
" $500,000 contract payment - NT enquired with TS if cash injection was required and TS advised not. Post meeting referred to term sheet and the $500K is payable by Tinkler Group as consideration for shares (see attached). "
241It seems that the attachment was the signed term sheet referred to at para [131] above. Mr Sommers disputed the correctness of the minutes. However, a copy was sent to him on 17 June 2009 and so far as the evidence reveals, he raised no objection. The minutes were prepared by Mr Glenn. It was not put to Mr Glenn in cross-examination that there was any error in the draft minutes.
242However, shortly after the meeting Mr Sommers took the position that the working capital facility was required. Tinkler Group contended that companies associated with it did provide a facility to SIH and its subsidiaries under which funds of in excess of $1,500,000 were advanced up to 11 February 2010. According to a schedule of expenses prepared by an accountant for Tinkler Group, Mr Palmer, by 31 August 2009 companies associated with Tinkler Group had paid $771,985.30 paid on behalf of SIH and its subsidiaries. This amount included $306,006 for the purchase of a Porsche motor vehicle. According to Mr Sommers that vehicle was purchased by Mr Tinkler for his own use, but using the business letterhead (I assume of TSCCF). There is no other evidence that it became an asset of the company. $156,000 was paid to purchase a Nissan GTR motor vehicle. According to Mr Sommers that vehicle was purchased through a company called Aston Resources owned by Mr Tinkler, albeit that it was supposed to have been purchased through the facility to be provided by the Tinkler Group. Mr Sommers did not say that the payment was not made on behalf of or for the benefit of TSCCF. I infer that this vehicle did become an asset of TSCCF.
243By 9 September 2009 companies associated with Tinkler Group had advanced moneys to SIH or its subsidiaries or paid moneys on their behalf totalling $577,259.74 (not including the payment of $306,006 in respect of the disputed Porsche vehicle). Thus although there was delay in the provision of a credit facility, funds of in excess of $500,000 were provided by September 2009.
244It was contended for Mr Sommers that Mr Tinkler had a duty to SIH to demand the funds from Tinkler Group for the benefit of SIH, and that his omission to do so was conduct falling within s 232(a) or (b) of the Corporations Act . I accept that Mr Tinkler's acts or omissions as a director of SIH can fall within those paragraphs and I accept that his omission to demand on behalf of SIH that Tinkler Group establish a credit facility of $500,000 for SIH's benefit by 1 June 2009 was contrary to the interests of the members of SIH as a whole. However, that omission was substantially rectified by September 2009 through the provision of funds for the benefit of SIH and its subsidiaries and would not by itself warrant the making of an order under s 233.
245Mr Sommers also complained about the holding of the directors' meeting of SIH on 26 August 2009 after he had purportedly removed Mr Dempsey as a director. Clause 3.3 of the shareholders agreement provided relevantly:
" 3.3 Appointment and removal of directors
Directors will be appointed and removed as follows:
(a) (initial board appointments): the Board will initially comprise 4 persons nominated in writing by the Shareholders as follows, namely:
(i) 2 persons nominated by Tim Sommers; and
(ii) 2 persons nominated by TG.
With 1 person appointed to act as the chairperson in accordance with clause 3.4;
...
(c) (removal of directors) : a person will be automatically removed as a Director without the need for any other action by the Company or the Director:
(i) if the Shareholder that nominated the person as a Director gives written notice to the Company that the person ceases to be a Director.
(d) (replacement of nominee directors) : if a Shareholder that nominated a person as a Director gives written notice to the Company that the person ceases to be a Director under clause 3.3(c)(i), the Shareholder may (without the need for any other actions by the Company or the Directors) appoint another person as a Director to replace the person who has ceased to be a Director. "
246Clause 3.8 provided that subject to clause 3.3 the quorum for a board meeting was three directors.
247The constitution of SIH did not reflect clause 3.3(c) of the shareholders agreement. Clause 11.13 of the constitution provided that directors could be removed by resolution of the Company in general meeting. SIH was a public company. Although it could have converted to a proprietary company, it had not done so. Pursuant to s 203D of the Corporations Act Mr Dempsey could have been removed as a director by a resolution of SIH, but as he was appointed to represent the interests of particular shareholders, namely Mr Sommers, a resolution to remove him as director would not take effect until a replacement was appointed. Notwithstanding clause 3.3(c) of the shareholders agreement, Mr Sommers' purported removal of Mr Dempsey as a director was ineffective.
248Mr Sommers did not attend the directors' meeting on 26 August 2009. He contended that because Mr Dempsey had been removed as a director, there was no quorum.
249Mr Tinkler had convened the meeting to consider proposed resolutions that:
" (i) ... Mr Sommers be stood down from his position as Managing Director of the Company without pay (and to not have any active involvement in the affairs of the Company or contact with employees, creditors, or members) for the period of time it takes to enable a Statutory Audit of the Companies [sic] affairs to be undertaken to identify any compliance issues and fully understand the financial position of SCC;
(ii) Mr Sommers to return all company assets in his possession including motor vehicles
(iii) Peter Dempsey to be appointed as Managing Director
[(iv)] The directors authorise Troy Palmer to approach the Australian Taxation Office to obtain any information that may be required to enable the present taxation position of the Company to be ascertained; and
[(v)] The directors authorise Troy Palmer to approach the CBA to obtain copies of bank statements for the period commencing 1/1/2006 to date. "
250Resolutions (ii)-(v) were passed unanimously by Messrs Tinkler, Todd and Dempsey. Two resolutions of which notice had not been given were also passed, but no point has been taken about that. The first resolution was passed in an amended form, namely:
"(i) That Mr Sommers be stood down from his position as Director of the Company (and to not have any active involvement in the affairs of the Company) for the period of time it takes to enable a Statutory Audit of the Companies [sic] affairs to be undertaken to identify any compliance issues and understand the complete financial standing of the Group."
251On 26 August 2009 Mr Tinkler advised management that: " Tim Sommers has been stood down as director of the Supercar Club, effective immediately. This removes any authority from Tim to act on behalf of the company including contact with employees, members or creditors. " He announced that Mr Dempsey had been appointed managing director. Whilst the board had power to decide who from time to time should be the managing director of SIH, it had no power to " stand down " Mr Sommers as a director of SIH.
252As the sole shareholder of TSC and TSCCF, SIH could have resolved to remove Mr Sommers as a director of TSC and TSCCF, but that was not the resolution proposed for the directors' meeting of SIH, nor passed. Nonetheless, from 26 August 2009 Mr Sommers was excluded from acting as a director of SIH or its subsidiaries.
253Mr Tinkler was motivated to take these steps by his falling out with Mr Sommers and his concern that Mr Sommers had misappropriated the funds Tinkler Group subscribed. On 4 August 2009 Mr Tinkler had proposed calling a board meeting for 4 September. He then complained that Mr and Mrs Sommers had not provided accurate financial information and that he proposed that an independent auditor be appointed to address the question of where the subscription funds had gone. On the same day he complained that Mrs Sommers refused to provide financial accounts and that employees were facing angry creditors. He pressed Mr Sommers to provide bank statements. Mr Tinkler accused Mr Sommers of not paying wages due to employees and said that he had had to pay $20,000 to employees in the previous week. Mr Sommers' response was to say that Mr Glenn had had full access to all the MYOB files and had full bank statements for SIH up to 1 July 2009, for TSC to 24 July 2009, and for TSCCF to 31 July 2009, and that he should be quite capable of providing accurate trading statements and cashflow projections. Mr Sommers denied any misappropriation of funds. On 5 August 2009 Mr Tinkler sent a text message to Mr Sommers saying that he only wanted to hear " how I get my millions back ".
254On 7 August 2009, Mr Sommers sent an email to Mr Todd, Mr Tinkler and Mr Dempsey enclosing what he called a " full CBA bank download to excel for the SIH accounts ". He said that the summary showed that he had drawn a total of $234,000 from SIH and that there was $471,000 still due to him as at 30 June 2009, together with contracted salary of $75,000 from three subsidiary companies, and unclaimed expenses of $11,000 so that the total amount due to him was $503,500. The Excel spreadsheet in fact showed payments from SIH to Mr Sommers of $50,000 on 7 January 2009, $12,500 as director's fees on 21 January 2009, two payments of $50,000 and $100,000 on 5 February 2009, $12,500 for director's fees on 23 February 2009, $15,000 on 7 April, $9,000 on 11 May, $5,000 on 22 May, $18,000 on 3 June, and $12,000 on 9 June 2009 (a total of $284,000). It also showed ten payments having been made from accounts of TSC and TSCCF between 23 January 2009 and 15 June 2009 totalling $53,500.
255Mr Tinkler's response was:
" If this is true then what has all the carry on been about? Why withhold all information and create conflict? ... I sincerely hope that the numbers vindicate your story as I have had enough of the drama associated with this investment over the last few weeks and any type of investigation reflects poorly on us all. [O] ne thing that appears to be certain is that business is performing disgracefully and this is the only reason I can see for your actions ."
256In these proceedings the plaintiffs allege that the above payments by SIH had been misappropriated by Mr Sommers. Mr Tinkler did not dispute the propriety of the payments when Mr Sommers disclosed them on 7 August 2009. Nor did he dispute Mr Sommers' claim, which I have found to be substantially justified, that he was owed further moneys for the share purchase.
257It is not clear what prompted Mr Tinkler's notice of 25 August 2009 calling the meeting for directors the following day. Mr Sommers had served a notice pursuant to the shareholders agreement identifying a dispute to be referred to mediation pursuant to that agreement. The dispute of which he gave notice was that the Tinkler Group had not provided working capital as provided for by clause 13.17 of the shareholders agreement. Mr Sommers and Mr Todd discussed various issues on which there was conflict between Mr Sommers and Mr Tinkler. That was one of them. It was noted that there had been a complete breakdown in communication between the two of them. In email correspondence Mr Sommers noted that he had been informed by staff that Mr Tinkler had told them that Mr and Mrs Sommers had stolen $700,000 of funds and were not to be trusted. Mr Todd noted that if the statements were made and were found to be unfounded, then appropriate apologies would be given.
258It is possible that between 12 August and 25 August accounting staff engaged by Mr Tinkler ascertained that on 14 August Mr Sommers had withdrawn a further $180,000. Mr Dempsey deposed that at the board meeting on 26 August each director said " I did not authorise Sommers paying himself $180,000 ", although the fifth resolution authorised Mr Palmer to approach the Commonwealth Bank to obtain bank statements after 1 January 2006, and Mr Dempsey also said that the bank statement showing the withdrawal of $180,000 was received on 27 August 2009. Nonetheless this appears to have been the catalyst for Mr Tinkler's giving notice on 25 August of the directors' meeting the following day.
259The Supercar proceedings were commenced by summons on 28 August 2009. The relief sought was orders that Mr and Mrs Sommers deliver up the two Audi motor vehicles and books and records of the plaintiff, and a declaration that Mr Sommers held $180,000 on constructive trust for SIH. There was also a claim for equitable compensation and damages. At the same time an application was made to the duty judge ex parte for orders requiring delivery up of the motor vehicles and any books and records of the plaintiff and for a freezing order to restrain Mr Sommers from dealing with any of his assets up to an unencumbered value of $180,000. A freezing order was made up to 1 September 2009. Orders were also made requiring Mr and Mrs Sommers to swear an affidavit as to the whereabouts of the two motor vehicles and to deliver to the court the books and records of SIH. SIH's application was supported by an affidavit of Mr Dempsey sworn on 28 August 2009. Mr Dempsey deposed to the missing Audi motor vehicles and to the changing of the locks of the Mosman premises. He also deposed that on 27 August 2009 management had obtained access to an account of SIH with the Commonwealth Bank that showed that Mr Sommers had withdrawn $180,000 on 14 August 2009. He said that at the directors' meeting held on 26 August each of the directors said that he had not authorised Mr Sommers to pay himself $180,000. He made no disclosure of the fact that Mr Sommers had asserted on 7 August 2009 that he was still owed over $500,000 for fees and the balance of the price for the purchase of shares, nor that Mr Tinkler had not disputed that claim.
260On 1 September 2009 orders were made by consent and without admissions to extend the freezing order and the time for the defendants to swear an affidavit in relation to the whereabouts of the two Audi motor vehicles. Orders were also made that Mr Sommers provide a copy of books and records to the plaintiff that were in his possession, custody or power by 3 September by delivering the same to the chambers of the plaintiff's counsel.
261On 9 September 2009, further orders were made by consent including on extension of the freezing order. The orders included that the plaintiffs give Mr Sommers copy of the management accounts and bank statements on the first Monday of each month, and that he give verified discovery of the books and records of the plaintiffs by 23 September 2009. The parties agreed jointly to engage an expert to report on the financial position of the plaintiffs and as to any moneys paid by Mr Sommers to meet debts of the plaintiffs and as to any money of the plaintiffs transferred to Mr Sommers. (No report of the expert to be engaged was tendered.) The plaintiffs were also ordered to give Mr Sommers seven days' written notice of any intention to buy or sell any motor vehicle. The parties agreed to an order that the plaintiffs pay " the first defendant's service contract ".
262The plaintiffs did not give Mr Sommers the management accounts and bank statements as they were ordered to do. Nor did the plaintiffs pay any moneys to Mr Sommers in respect of any of his service contracts. On 7 October 2009 Slattery J held that this last order was too uncertain to be enforceable. On 9 November 2009 Brereton J dissolved the freezing order.
263In my view Mr Tinkler and Tinkler Group conducted the affairs of SIH in a way that was oppressive to and unfairly discriminatory of Mr Sommers. Notwithstanding that he had been the founder of the club and was a 49 per cent shareholder, he was excluded from management before Mr Tinkler had established whether he had misappropriated funds. In fact he had not. Whilst Mr and Mrs Sommers' delays in providing bank statements and financial information were a contributing cause of Mr Tinkler's pre-emptive action, another contributing cause was the falling out between them. That falling out was partly due to Mr Tinkler's having made unilateral decisions in the management of SIH. Another factor was Mr Sommers' having complained about Tinkler Group's not providing the working capital facility, and his invoking agreed procedures to attempt to resolve that dispute.
264The purported resolution of the board of 26 August 2009 " standing down " Mr Sommers as a director was unauthorised. SIH then obtained ex parte injunctive relief against Mr Sommers without making full disclosure of material facts. All of the plaintiffs obtained a continuation of that relief on the basis that they would " pay the first defendant's service contract ". Although that order was found to be too vague to be enforceable, it was unfair for the plaintiffs to have obtained the extension of the orders binding Mr Sommers on the basis of their agreement to that term when, as I infer, they had no intention of paying anything.
265However, the finding that Mr Tinkler and Tinkler Group engaged in oppressive conduct does not mean that Mr Sommers is entitled to an order for the compulsory purchase of his shares. Mr Tinkler's conduct is partly explained, although not excused, by Mr and Mrs Sommers' reluctance to provide full financial information and access to bank statements and accounts. In any event, it would not be just to require Tinkler Group to pay any substantial sum for Mr Sommers' shares. The apparent inability of any party to provide financial statements after 30 June 2008 also shows that a valuation of his shares would be fraught with difficulty, expense and delay.
266Whilst Tinkler Group has not proved its allegations that SIH and its subsidiaries were not profitable as at 22 December 2008, it does appear that by August 2009 SIH and its subsidiaries were in financial difficulties. As at 30 September 2009 SIH had trade creditors with debts exceeding $220,000 of which $87,312 were more than 90 days overdue. Tinkler Group had had to inject funds so that the plaintiffs could pay their debts. These financial difficulties were not substantially due to oppressive conduct by Tinkler Group. It seems likely that Tinkler Group's investment of over $2,000,000 was substantially lost, although no financial statements after 30 June 2008 were in evidence. Whilst Tinkler Group has not proved its claim that it was induced to subscribe for and pay for shares by misleading conduct of Mr Sommers, it would not be just to compel it to purchase Mr Sommers' shares for any greater consideration than an amount Mr Sommers might obtain on a winding-up. That is because both Mr Sommers and Mr Tinkler bear equal responsibility for the performance of the Group after 22 December 2008 and up to 26 August 2009, and there is no evidence that Tinkler Group, or Messrs Tinkler, Todd and Dempsey did anything after 26 August 2009 that would depress the value of Mr Sommers' shareholding. Moreover, not only was there no evidence as to the value of the shares as at 26 August 2009, but there was no evidence as to what might be required to place a value on the shares at that date. The parties agreed to orders for the appointment of a joint expert to report on the financial position of SIH, but no report was tendered by either party. So far as the evidence reveals, there were no complete financial statements for the year ended 30 June 2009.
267Counsel for Mr Sommers submitted that no expert valuation would be required to determine the price for a compulsory purchase, as there was sufficient evidence before the court to determine that value. Counsel submitted that the price could be based upon either the price paid by the Tinkler Group on 22 December 2008 to acquire a 49 per cent shareholding ($2,115,427) or an amount of $700,000 calculated by reference to a price of $300,000 discussed between Mr Sommers and Mr Tinkler in July 2009 as a price that might be paid for Mr Tinkler to purchase from Mr Sommers a further 21 per cent shareholding.
268I do not accept that either basis would be appropriate for calculating a price to be paid for the compulsory purchase of Mr Sommers' shares. I have found that Tinkler Group is not entitled to recover damages in respect of its acquisition of the shares. It does not follow that I am satisfied that the price Tinkler Group paid to acquire a 49 per cent shareholding was a fair value for the shares. Moreover, Mr Sommers accepted that there had been a deterioration in the financial performance of the company after 22 December 2008. I do not think that a price paid at 22 December 2008, even if it reflected fair value for the shares at that date, would be an indicator of a fair value of the shares as at 26 August 2009 when Mr Sommers was excluded from management.
269The second proposed basis for valuing Mr Sommers' shares related to discussions in July 2009. Mr Sommers deposed that on 22 July 2009 he had a conversation with Mr Tinkler to the following effect:
" Tinkler: 'Where is my $2.2 million? If this business needs $2 mil every six months, then I am fucking out.'
[Sommers]: 'Firstly Nathan, it's not $2.2 million! It's $1.4 million.'
'You bought the minority shareholders out with $700,000 or so. The rest is invested in the business and you owe another $500,000.
Tinkler: 'How much do you personally need?'
[Sommers]: '$300,000.'
Tinkler: 'You can have the $300,000, but I want 70% equity'
[Sommers]: 'OK Nathan, but as long as I get an option to buy the shares back at the same price.'
Tinkler: 'OK, I agree.'
..."
270That proposal did not proceed. The price of $300,000 mentioned was not related to the value of the shares, but to Mr Sommers' asserted personal need for funds.
271Mr Sommers arranged for an agreement to be prepared whereby he would transfer a 21 per cent shareholding to Tinkler Group with an option to buy them back on the basis that he would receive $300,000 from his loan account. He said that that way of structuring the transaction would have tax advantages. The transaction did not proceed. On 29 July 2009 Mr Todd advised Mr Sommers that he had spoken to Mr Tinkler and that Mr Tinkler " ... is saying that the agreement was that we needed to get a handle on the cash position of the club and forecast numbers/budget before the $300k happens " (7/1881). Clearly the sum of $300,000 is not a reliable indicator of the value of a 21 percent shareholding as at August 2009.
272Further, whilst Tinkler Group and Mr Tinkler engaged in oppressive conduct in particular in purportedly having Mr Sommers " stood down " as a director on 26 August 2009, his position as managing director was lawfully terminated on 18 September 2009. On that day Mr Anthony Foate, the solicitor for SIH, sent Mr Sommers an email stating " Please note the directors yesterday terminated your agreement with the above company immediately ". The reference to the above company was to SIH. The reference to " your agreement " was correctly understood by Mr Sommers to be his services contract with SIH. SIH was entitled to terminate summarily Mr Sommers' employment as managing director because of his conversion of the two Audi motor vehicles and his continued detention of the four motorbikes.
273A meeting of shareholders was convened to be held on 21 October 2009 for the purpose of removing Mr Sommers as a director. Palmer J granted an injunction until further order to restrain SIH from removing Mr Sommers as a director of TSCCF or TSC and restrained Tinkler Group from voting on the resolution to remove Mr Sommers as a director of SIH. Mr Sommers resigned as a director of SIH, TSC and TSCCF on 25 February 2010.
274In the case of an apparently solvent company, a winding-up order under s 233 is a remedy of last resort. In the present case there was no up to date evidence of SIH's financial position and it was not possible to say whether it was apparently solvent or not. The fact that by September 2009 a substantial proportion of the debts due to creditors had been outstanding for over 90 days and suppliers were chasing bills, supports an inference that by that time SIH and its subsidiaries were not solvent. The subsidiaries were placed in administration.
275In this case both parties acted oppressively towards the other. The appropriate order is that SIH be wound up. Even if there were no grounds for making that order under s 233, the company should be wound up on the just and equitable ground. I decline an order for the compulsory purchase or the compulsory sale of Mr Sommers' shares.