Van Wijk (Trustee), in the matter of Power Infrastructure Services Pty Ltd v... [2014] FCA 1430 | Case summary

REASONS FOR JUDGMENT 1 Mr Dean Van Wijk (Mr Van Wijk) has applied for the winding up of Power Infrastructure Services Pty Ltd, ACN 162 324 496 (Power). The grounds upon which Mr Van Wijk seeks the winding up of Power are those specified in s 461(1)(e), (f), and, further, or alternatively, (k) of the Corporations Act 2001 (Cth) (the Act). Mr Van Wijk has also applied for the appointment of a provisional liquidator to Power. Power resists the appointment of a provisional liquidator. 2 For the purposes of the application for the appointment of a provisional liquidator, Mr Van Wijk asks the court to look no further than whether or not he has reasonable prospects in respect of an order for the winding up of the company under s 461(1)(k) of the Act; in other words, reasonable prospects in respect of the ground that the court is of the opinion that it is just and equitable that the company be wound up to secure the appointment of a provisional liquidator. 3 It is not just that Mr Van Wijk must demonstrate prospects of securing ultimately the winding up, he must also show that the balance of convenience favours that particular course. In that regard, Power points to s 467(4) of the Act as raising considerations that are relevant. That subsection provides where the application is made by members on the ground that it is just and equitable that the company should be wound up, the court, if it is of the opinion that: (a) the applicants are entitled to relief either by winding up the company or by some other means; and (b) in the absence of any other remedy it would be just and equitable that the company should be wound up, must make a winding up order unless it is also of the opinion that some other remedy is available to the applicants and that they are acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy. 4 While that particular subsection is directed to the position in respect of the making of a winding up order, rather than the appointment of a provisional liquidator, I accept the submission made on behalf of Power that it does, nonetheless, intrude to the extent that if, on the facts, there is a likelihood that, because of unreasonable action on the part of an applicant or the existence of some other remedy or a combination thereof, a court may not make a winding order, that intrudes upon the question of reasonable prospects. 5 Before turning to authorities, it is first necessary to outline, at least in the general way, the background circumstances to the provisional liquidation application. 6 Power is a subsidiary, but not a wholly-owned subsidiary, of another company, HVLV Pty Ltd (HVLV). HVLV is, in turn, a wholly-owned subsidiary of a listed public company; Viento Group Limited. HVLV is not the only subsidiary in what might conveniently be called the Viento Group. I annex to these reasons for judgment, a chart which sets out the structure of the Viento Group (exhibit 1 in the proceedings). It must be said that chart there is but assertion for the annotating on it about "HVLV by virtue of Perihelion owning 15% of Power on trust for Viento". There is no evidence of such a trust relationship. As it happens, the existence or otherwise of that is not material. 7 The current shareholders of Power are: HVLV - 50%; Perihelion Investments Pty Ltd - 15%; Julian Rauwendaal - 4.5%; Stuart Kemp, or more particularly, an entity controlled by him, Zears Pty Ltd - 4.5%; Mr Van Wijk; Malcolm Guy & Associates Pty Ltd - 10%; Mr Robert Gruszka - 4.5%, and Thomrolla Pty Ltd - an entity controlled by a Mr Ian Thomas, 4.5%. 8 Power's business entails the design and construction of switchgear. The switchgear is used to control, protect and isolate electrical equipment, both on the high and the low voltage side of large power transformers. When used on the low voltage side of large power transformers, the switchgear is to be found in buildings and also in industrial applications. 9 Power operates in two States; in Queensland and in Western Australia. In that geographic division is also to be found a geographic split as between minority shareholders; by that, I mean that Mr Malcolm Guy's company, Malcolm Guy & Associates and Mr Thomas's company, Thomrolla, are minority shareholders associated with the West Australian operations of Power's business. Messrs Rauwendaal, Kemp (via his company Zears) and Mr Van Wijk are associated with the Queensland operations of Power's business. Messrs Guy, Van Wijk, Raymond Munro, Anton Bekker and John Farrell are the directors of Power. Mr Van Wijk's holding of the office of director continues by virtue of undertakings earlier given to the court. There was an endeavour earlier to remove him as a director. 10 Two further persons ought also to be mentioned. They are Mr Brad Miller and Mr Luke Davies. Those gentlemen were once directors of Power. Mr Miller and Mr Davies at present hold office as directors of WA Electric Systems Pty Ltd (WA Electronic Systems). WA Electric Systems provides contracting services to Power. It is contracted both by Power directly and through HVLV to complete electrical equipment installation and switch rooms for a client at the Yandi Mines. 11 About 70% of Power's revenue comes from the provision of products for use in switchgear. In order to supply these products, it must, in turn, source the parts for them from suppliers. It is part of Power's business that it must necessarily stay on good terms with its suppliers. That, in turn, enables Power to compete in the market for the supply of its products for use in switchgear. 12 Power commenced trading in April 2013. It has enjoyed since then a continuum of business which has been, on the evidence, successful so long as good relationships with suppliers are assured. Part and parcel of that assurance is the prompt settling of amounts outstanding to suppliers. 13 The listed company, Viento, was established in 2001 as a fund manager. It has moved beyond that in terms of its business interests. It is now a provider both of asset management as well of labour, infrastructure and equipment hire to clients in the resources, earthworks and energy sectors in Western Australia. Its subsidiary, HVLV, specialises in building transportable switch room buildings for the mining, oil and gas sectors, as well as for industrial and public utility clients. 14 In January this year, an announcement was made to the stock exchange that Viento would take over HVLV. That takeover occurred in March 2014. Part of the takeover entailed Viento becoming guarantor of HVLV's $8 million loan facility. 15 I have set out something of the businesses of more senior members in the Viento Group, because it was a material part of the submissions made on behalf of Power that a reason why a provisional liquidator would not be appointed, particularly, as is the case, in the absence of the usual undertaking as to damages by Mr Van Wijk, was because of the affect that would occur, not just to Power, but also at least potentially to other entities within the Viento Group; in other words, the impact on third party interests within the Viento Group was said to be relevant. 16 The evidence discloses that, since about March this year, endeavours have been made as between the shareholders in Power to reach agreement by way of a shareholder agreement as to the governance of their relations inter se and the operation and management of Power. It suffices to say that no such agreement has been reached, nor on the evidence do I have any confidence at all that any such agreement would ever now be reached. The long and the short reason for that is that relations, particularly between Mr Van Wijk in his capacity as the representative director of the Queensland-based minority shareholders and Mr Farrell have irretrievably broken down. And broken down to the extent where, even after the initial filing of the winding up application, exchanges of language in the most acrimonious terms have occurred between them with respect to the future operation of at least the Queensland side of Power's business. 17 Further, and perhaps fuelling that acrimony, in September 2014, the board of Power on 12 September resolved that intercompany transfers would be required to be authorised by Mr Van Wijk or by Mr Malcolm Guy. On the board, Mr Malcolm Guy represents the West Australian minority shareholder interests. Notwithstanding this resolution, on 19 September 2014, there was a transfer of half a million dollars from Power's bank account to Viento's bank account. That transfer was said to have the approval of Mr Farrell, who, in turn, claims approval from two directors, Messrs Bekker and Munro. 18 It should be noted as well that this loan was both unsecured and interest free. It was only after the institution of proceedings for the winding of Power and then in the context of an endeavour also to remove Mr Van Wijk as a director that an endeavour was made by the board of Power to ratify this particular transaction. 19 The impression which is created on the material is that there is probably an inevitable tension, in light of personalities, between the interests in the conduct of Power's business and Power's place as a subordinate, but not wholly-owned subordinate in the Viento Group. That particular tension, on the evidence, is most unlikely to be removed other than by an acquisition by minority shareholders of majority shareholding interest in Power and the exit of Power from the Viento Group or, alternatively, an acquisition of minority shareholding interests by majority shareholding interests and an exit of minority shareholders from Power with Power then becoming but a completely owned subordinate in the Viento Group. 20 Those two particular alternatives have been earlier pressed; pressed with the accompanying suggestion that the acquisition, one way or the other, occur with the assistance of an independent valuer. The difficulty about that, as I see it, is that, almost inevitably, there would emerge questions as to whether particular behaviours on the part of Mr Farrell have intruded in the period following the takeover of HVLV to the extent of intruding upon the worth of the value of Power and its business; in other words, there is about the prospect of a buyout either of minority or majority in turn a prospect of acrimony of the same kind that is so eloquently revealed, even as late as this week, in relations between Mr Van Wijk and Mr Farrell to the extent where there just would not be any clean buyout of either majority or minority. 21 As I have mentioned, it is a feature of Power's business that its relations with suppliers are critical. There is evidence that Mr Van Wijk has been the subject, repeatedly, of queries from suppliers in relation to outstanding payments owed by Power. Mr Van Wijk, though a director, has had particular and ongoing difficulty in securing the latest accounts of Power. The most recent exchanges between Mr Farrell and Mr Van Wijk occurred in the context of Mr Van Wijk's ongoing endeavours to secure further business in Queensland for Power. It is quite evident that Mr Van Wijk's, and hence, the company's ability to secure ongoing business, is being affected, in my view, terminally affected, by the state of relations between him and Mr Farrell. It has hitherto have been Mr Van Wijk's special responsibility to secure new business in Queensland for the company. 22 Power has 24 fulltime employees in Western Australia and eight fulltime employees in Queensland. Five of its shareholders are Western Australian-based; three are Queensland-based. Since the takeover of HVLV, Viento has, at least purportedly, pledged Power's assets to the Commonwealth Bank as part of the security for a $27 million loan facility. It is necessary to say "purportedly" because that particular pledging is again, on the evidence, controversial and forms part of the breakdown in relations in respect of the governance of Power. That breakdown, at least in hindsight, on the evidence to hand, seems to have been a consequence of the takeover of HVLV by Viento. 23 It is not necessary for present purposes to form any concluded view about whether the pledging was authorised. What is patent is that it was, and remains, controversial as between those responsible for the day-to-day conduct of Power's business. 24 Power also has a contract with BHP Billiton. It is a feature of that contract that a winding up application, and certainly the making of an order for the appointment of a liquidator, would enliven an ability on the part of BHP Billiton to terminate. Further, the facility with the Commonwealth Bank contains a call up right which can be triggered by the filing of an application for winding up of Power. So the long and the short of it is that there are particular wider effects which are at least potential, either as a consequence of the filing of the winding up application itself, or, the making of an order for the appointment of a provisional liquidator. 25 What then are the authorities which intrude? It has been said more than once that the making of an order for the appointment of a provisional liquidator is a drastic measure. What is put by Mr Van Wijk, is that this is one of those cases which might accurately be described as arising in respect of a company the ongoing conduct of whose business requires material cooperation and a level of trust. It was that description, rather than one which one sometimes sees in other cases namely, "quasi partnership", which commended itself to Black J in Re David Ireland Productions Pty Ltd [2014] NSWSC 1411 at [5] (Re David Ireland). My preference also is for the description used by Black J in Re David Ireland for just the reason which his Honour gives; namely, the terminology "quasi partnership" can be misleading. 26 Subject to, and with all respect to those who have preferred the title or the description "quasi partnership," the following passage in an earlier judgment of Black J, referring to a judgment of Barrett J in Doughty v Abboud [2010] NSWSC 721 at [218] to [228] and, Re David Ireland is pertinent at [6]: Although the circumstances in which such an order can be made are not closed or rigid, they include circumstances where a company was formed on the basis of a personal relationship involving mutual confidence and that confidence has broken down so that continuation of that association would be futile: Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [2001] NSWCA 97; (2001) 37 ACSR 672; Accurate Financial Consultants Pty Ltd v Koko Black Pty Ltd [2008] VSCA 86; (2008) 66 ACSR 325 at [119]; Nassar v Innovative Precasters Group Pty Ltd [2009] NSWSC 342; (2009) 71 ACSR 343 at [90], [96], [117]. Such an order may more readily be made where a company is in the nature of a quasi-partnership and there has been a loss of trust and confidence in respect of the entities: Ebrahimi v Westbourne Galleries Ltd [1973] AC 360. It has been suggested that the language of "quasi-partnership" can be misleading and this issue is better approached by reference to whether the Company is "a majority controlled business requiring material cooperation and a level of trust": MMAL Rentals Pty Ltd v Bruning [2004] NSWCA 451; (2004) 63 NSWLR 167 at [71]; Nassar v Innovative Precasters Group Pty Ltd above at [77]-[79]. ... A breakdown of relations or loss of confidence between a company's members may also support a winding up on the just and equitable ground where it frustrates the commercially sensible operations of the company in accordance with the incorporator's expectations and any loss of confidence is justified: Tomanovic v Argyle HQ Pty Ltd [2010] NSWSC 152 at [49] - [51], on appeal as Tomanovic v Global Mortgage Equity Corporation Pty Ltd [2011] NSWCA 104; (2011) ACSR 121. The Court may make a winding up order under s 461(1)(k) of the Corporations Act in circumstances that do not amount to oppression, although a person who is themselves responsible for the breakdown of the relationship is less likely to be afforded relief: Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd above; Nassar v Innovative Precasters Group Pty Ltd above at [90], [96], [117]. A winding up order in these circumstances is not "lightly made" and must be "just and equitable not just for the applicant, but for all": Re G Jeffrey (Mens Store) Pty Ltd (1984) 9 ACLR 193; Byrne v AJ Byrne Pty Ltd [2012] NSWSC 667 at [81]. 27 In cases such as the present, there is always a discretion as to whether to order the appointment of a provisional liquidator pending the hearing of the winding up application. Very often the absence of an undertaking as to damages will be fatal, at least to the success of an application for the appointment of a provisional liquidator. And that because it leaves the court in a position of a lack of satisfaction that the balance of convenience will favour the appointment of a provisional liquidator, having regard to affects which might occur both on the company as well as non-parties. 28 It will be obvious from the summary that I have given that there are potential effects; both within the Viento Group and also beyond by the appointment of a provisional liquidator. Further, I do not, for any moment, underestimate the potential that exists for the throwing out of employment of the existing workforce of Power. That is a decision which would fall to the provisional liquidator to make, but it is not difficult to see how events might evolve in a way whereby it became difficult to retain present staff, having regard to the impact on the business of Power of the appointment of a provisional liquidator. 29 Equally though, it is difficult to see how the future business operations of Power can in any way be continued, given the acrimony that exists between Mr Farrell and Mr Van Wijk. 30 I have asked myself whether this is really recalcitrance on the part of a minority shareholder? In the end, the view to which I have come is that it is not that; it is just an unfortunate sequel to a takeover and perhaps also a lack of understanding that Power is not a wholly-owned subsidiary within the Viento Group. That lack of understanding extends also on the evidence to the group's chief financial officer. So whilst I accept that the absence of an undertaking as to damages is relevant, I do not consider it fatal in this case. Nor do I consider that there is, in a practical sense, particularly having regard to the inability over many months to reach agreement in respect of a shareholder's agreement, any prospect of resolution of differences which affect the day-to-day operations of the company. Nor, realistically, do I see that there is any particular prospect of an uncontroversial buyout following an endeavour to make a valuation by an independent valuer. 31 When all is said and done, I see this as a case where the breakdown of mutual trust is such that the drastic option of the appointment of a provisional liquidator is the option which must be adopted. I certify that the preceding thirty-one (31) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Logan.

Van Wijk (Trustee), in the matter of Power Infrastructure Services Pty Ltd v Power Infrastructure Services Pty Ltd

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