McMillan, Kevin Campbell v Toledo Enterprises International Pty Ltd [1995] FCA 911

CATCHWORDS CORPORATIONS - interlocutory application - appointment of provisional liquidator - appointment of receiver and manager - whether affairs of the company conducted unfairly within the meaning of s260 Corporations Law - whether just and equitable that a provisional liquidator be appointed within the meaning of s461(k) Corporations Law - appropriate relief - whether receiver and manager should be appointed rather than provisional liquidator where the company has entered a potentially profitable contract Corporations Law s260 s461 Morgan v 45 Flers Avenue Pty Limited (1986) 10 ACLR 692 Wayde v New South Wales Rugby League Limited 180 CLR 490 Zephyr Holdings Pty Limited v Jack Chia (Australia) Limited (1988) 14 ACLR 30 Re Dalkeith Investments Pty Limited (1984) 9 ACLR 247 McGuire v Ralph McKay Limited & Ors (1987) 12 ACLR 107 Whitehouse v Carlton Hotel Pty Limited (1987) 162 CLR 285 Ebrahimi v Westbourne Galleries Limited [1973] AC 360 KEVIN CAMPBELL McMILLAN v TOLEDO ENTERPRISES INTERNATIONAL PTY LTD No. NG3605 of 1995 Beazley J 15 November 1995 Sydney

IN THE FEDERAL COURT OF AUSTRALIA ) ) No. NG3605 of 1995 NEW SOUTH WALES DISTRICT REGISTRY ) ) GENERAL DIVISION ) BETWEEN: KEVIN CAMPBELL McMILLAN Applicant AND: TOLEDO ENTERPRISES INTERNATIONAL PTY LTD First Respondent HRISTO ILIEV Second Respondent JOSEPH GOLUBINSKY Third Respondent CORAM: BEAZLEY J PLACE: SYDNEY DATE: 15 November 1995 REASONS FOR JUDGMENT BEAZLEY J: This is an interlocutory application for the appointment of a receiver and manager of the assets and business of the first respondent, Toledo Enterprises International Pty Ltd (Toledo) and for certain other injunctions relating to the conduct of the affairs of Toledo. Corporate structure Toledo was incorporated in about December 1994, the corporate name deriving from a business name, Toledo Enterprises, under which the applicant (McMillan) carried on a business unassociated with the present proceedings. Toledo's issued capital comprises three A class (voting) shares and six B class shares. The second respondent, Hristo Iliev, (Iliev) holds two of the A class shares and four of the B class shares. McMillan owns one A class share and one B class share. Another B class share is owned by McMillan's wife. Both Iliev and McMillan have contributed substantial funds by way of loan capital to Toledo. The submarine venture In about 1993, McMillan became interested in finding a Russian submarine for the purposes of public exhibition in Australia. In early 1994, he commenced negotiations with the Russian Department of Spetsvneshtechnika (Spets) for the acquisition of a submarine. In about May 1994, he entered into an option to purchase a submarine from Spets. In June 1994, McMillan, in the name of his business, Toledo Enterprises, entered into an agreement with Rosvooroushenie (ROS)- formerly Spets - for the lease and purchase of a Russian Foxtrot submarine. After some difficulties in finalising which submarine would be acquired under the lease and sale agreement, agreement was reached with ROS for the supply of a submarine named "Pluto". McMillan subsequently renamed the submarine "Scorpion". As the costs of repairs to the submarine and of towing it to Australia began to increase, McMillan became concerned about his ability to fund the project. In about October 1994, the third respondent, Joseph Golubinsky (Golubinsky) suggested he take on a partner and introduced him to Iliev. On 14 December 1994, McMillan and Iliev entered into an agreement (the shareholders' agreement) to cause Toledo to do all things necessary to complete the contract for the acquisition of the submarine. They also agreed to advance loan funds to Toledo in the sum of $200,000 and $550,000 respectively. The agreement also acknowledged that Toledo would get the benefit of an amount of $70,000 which McMillan had already expended on the project and the agreement provided that that amount would be treated in the books of the company as additional loan funds contributed by McMillan. Shortly thereafter McMillan was introduced to John Bowman, solicitor (Bowman). At that time, Bowman was Iliev's solicitor and agreed to act as solicitor for the company. On 14 December 1994, Toledo entered into an agreement with the Australian National Maritime Museum (the Maritime Museum) for the exhibition of the submarine for 20 months 16 days from the first day of public access. Ticketing income was to be split at a rate specified in the agreement. McMillan contends that subsequent to entering into the shareholders' agreement, Iliev told McMillan that McMillan should contribute his $200,000 first before Iliev made his contribution. Although McMillan was not happy with this, he said he accepted the proposal and between 13 and 30 December 1994, contributed his $200,000. Iliev denies that he imposed any such requirement. He also alleges that he has contributed the whole of his $550,000, although the evidence does not establish what funds, or when such funds, were contributed. However, it appears that Iliev has contributed substantial funds to the company. The Scorpion arrived in Sydney on or about 31 August 1995. In early September 1995, McMillan asked Iliev to organise a company cheque book for him so that he could make payments for the cleaning and repair of the submarine. He says that Iliev refused stating, "No. I don't want any cheque books floating around or cheques being written out. I will get Valery Sheinberg to look after it." When McMillan was refused a cheque book, he requested a company credit card. This was also refused, Iliev stating that he would only give him cash. Sheinberg is the office manager of Messrs Diamond Peisah, solicitors, of which Mr Bowman is a partner. Sheinberg is Russian and was a practising lawyer in Russia before he came to Australia. He met Iliev in about June 1994, when he was introduced to him by another partner of Messrs Diamond Peisah. At that time, he was asked to provide translation services to Iliev. He said he had become a friend of Iliev and had assisted him in various ways, such as in relation to opening bank accounts in Sydney and in respect of other personal financial dealings. Iliev's version of the conversation with McMillan about the provision of facilities such as a chequebook or credit card is different from McMillan's. However, he does not deny that he arranged for Sheinberg to write such cheques as McMillan required for work on the submarine. Shortly after the conversation between McMillan and Iliev on this topic, Sheinberg advised McMillan that he, Sheinberg, would be the person handling chequebooks and accounts of the company. He told McMillan, however, that he was not working for Toledo but doing Iliev a favour in attending to the affairs of the company. On or about 22 September 1995, McMillan said that Sheinberg informed McMillan that the project was running over budget. McMillan was surprised at this, given the amount of loan capital which had been contributed by him and Iliev, and said he requested to see the books. Sheinberg refused. However, he did show him a small number of chequebook stubs. Sheinberg also refused to show him the company cheque book and said he had no receipts for expenditure. McMillan again requested the books to which Sheinberg responded: "The company books will only tell you the same thing. There is no point in you looking." Sheinberg denied that he refused to show McMillan the books of the company. He said he protested that McMillan had never been interested in the books. He said he told McMillan, however, that he would prepare details of amounts spent by Toledo to show him everything that had happened. In the latter part of September 1995, McMillan, Iliev and Sheinberg had dinner at the Gazebo Hotel. On this occasion, Iliev raised the matter of the project running over budget. Iliev said that he would contribute another $150,000. McMillan also offered to contribute. According to McMillan, Iliev responded: "Don't worry about it. I'll be sure to get my money back in the long run because we will make millions out of the submarine." Iliev's version of his response is different. He said that he questioned McMillan as to whether the estimate of $150,000 for the balance of the repairs and a period of one week to have the submarine ready for exhibition was correct. He said that he told McMillan that "if it was only a matter of one week it wouldn't be his worthwhile to go and look for money for that short period of time, I would be able to finance." He also said that he told McMillan at this meeting that if the budget exceeded $150,000 McMillan would have to contribute. Iliev also alleged that at this meeting, Sheinberg gave McMillan a report upon the financial position of Toledo, but that he did not give him any written report. Sheinberg said that he gave McMillan a written report but that McMillan was not interested in it and quickly handed it back. On 2 October 1995, McMillan said that he asked Sheinberg to provide him a copy of the agreement in relation to the submarine and a copy of the agreement between him and Iliev. He again asked to see the books of the company. He said that Sheinberg refused. Sheinberg denies McMillan asked to see the books. He agreed that he was asked for copies of the agreement, but that he told McMillan he did not have them. On 15 October 1995, there was a further meeting between McMillan, Iliev and Sheinberg, this time at the Woolloomooloo Bay Hotel. McMillan said that he raised the question of the budget, asking whether any more money was needed. He said that Iliev said that he was not to worry about it, that he, Iliev would cover the expenses. McMillan said that he responded that he could not let Iliev do that and that he could mortgage his home. McMillan also offered him his 40% interest in a travel agency in Moscow known as "EuroPacific". Iliev told him that that was not necessary. McMillan said that the conversation then proceeded as follows: McMillan: "I need to have a look at the books so I can ascertain what I owe you for this. Or can you just tell me what I owe you." Iliev: "Nothing." McMillan: "Can I have a look at the books anyway." Iliev: "That's up to (Sheinberg). Let's just have lunch."