Federal Court of Australia Haycraft v AF1 Services Pty Ltd [2023] FCA 774 File number: NSD 449 of 2022 Judgment of: STEWART J Date of judgment: 4 July 2023 Date of publication of reasons: 7 July 2023 Catchwords: CORPORATIONS – application for winding up of a company on just and equitable grounds under s 461(1)(k) of the Corporations Act 2001 (Cth) – where directors of the company disagree on aspects of the conduct of the business – where relevant business is profitable, solvent and has many employees – applicable principles to just and equitable winding up – whether breakdown in relationship between business partners materially frustrates the commercial viability and sensible operations of the company – whether another remedy available Legislation: Corporations Act 2001 (Cth) ss 461(1)(k), 467(4) Income Tax Assessment Act 1936 (Cth) s 97(1) Trustee Act 1925 (NSW) Cases cited: Commissioner of Taxation v Carter [2022] HCA 10; 399 ALR 521 Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [2001] NSWCA 97; 37 ACSR 672 In the Matter of Catombal Investments Pty Ltd [2012] NSWSC 775 In the matter of Crow Inn Pty Ltd (No 2) [2020] NSWSC 1749 In the matter of L&B Seafood Pty Ltd [2022] NSWSC 100 In the matter of Sirrah Pty Ltd (in prov liq) [2021] NSWSC 413; 152 ACSR 212 Mir v Mir [2023] NSWSC 408 Mudgee Dolomite & Lime Pty Ltd v Robert Francis Murdoch; In the matter of Mudgee Dolomite & Lime Pty Ltd [2020] NSWSC 1510 Division: General Division Registry: New South Wales National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Number of paragraphs: 126 Date of hearing: 27-29 June 2023 Counsel for the Plaintiff: C D Wood SC and S R Meehan Solicitor for the Plaintiff: Harris Friedman Lawyers Counsel for the Second Defendant: P Braham SC and D Neggo Solicitor for the Second Defendant: Macpherson Kelley ORDERS NSD 449 of 2022 BETWEEN: PAUL LATHAM HAYCRAFT Plaintiff AND: AF1 SERVICES PTY LTD First Defendant CHRISTOPHER PEARSON Second Defendant order made by: STEWART J DATE OF ORDER: 4 JULY 2023 THE COURT ORDERS THAT: 1. The proceeding be dismissed. 2. Subject to order 3, the plaintiff pay the costs of the second defendant. 3. Any party contending for a costs order different from order 2, apply for a variation of such order within seven days of reasons for judgment being published by filing and serving brief submissions (no more than 3 pages) and evidence, if any. 4. Brief submissions (of no more than 3 pages) and evidence, if any, in response to any submissions filed and served under order 3 be filed and served within seven days thereafter, and any submissions strictly in reply to such submissions (of no more than a page) within seven days thereafter. 5. Unless any party requests the contrary, any application to vary order 2 be decided on the papers. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT STEWART J: Introduction 1 The plaintiff, Paul Latham Haycraft, seeks an order that the first defendant, AF1 Services Pty Ltd, be wound up under s 461(1)(k) of the Corporations Act 2001 (Cth). That provision provides that the court may order the winding up of a company if the court is of opinion that it is just and equitable that the company be wound up. 2 As AF1 Services is the trustee of two trusts, the AF1 Property Trust and the AF1 Business Trust, Mr Haycraft also seeks orders under the Trustee Act 1925 (NSW) appointing a new trustee to those trusts in substitution of AF1 Services and vesting the trust property in the new trustee. Background 3 Mr Haycraft and the second defendant, Christopher Pearson, were friends in the same year at school, obtaining their Higher School Certificates in 1998. Thereafter, Mr Pearson commenced working as a sales assistant at an existing Nike store in Neutral Bay while at the same time studying at university – Nike is a multinational corporation selling footwear and other sports apparel and accessories. Mr Pearson did not complete his degree as he chose instead to focus on the development of the AF1 business which is described below. 4 Mr Pearson introduced Mr Haycraft to the owner of the Neutral Bay Nike store, who also owned another Nike store at Warringah. Mr Haycraft then came to work as a sales assistant in the Warringah store and, later, when it was sold, with Mr Pearson at the Neutral Bay store. 5 When the then owner of the store experienced financial difficulties, Mr Pearson and Mr Haycraft arranged to buy the Nike business that had operated from the Neutral Bay store, and obtained the requisite license from Nike in Australia. They established and each invested in a company for the purpose of purchasing the assets of the Neutral Bay store and operating the business, AF1 Pty Ltd (AF1 Neutral Bay). They are both the only directors and equal shareholders of that company. The name "AF1" was developed from the name of a classic Nike sports shoe, "Air Force 1". 6 Both Mr Pearson and Mr Haycraft worked in the Neutral Bay store, although initially Mr Pearson was still also studying at university. The store was very successful which caused them to expand their business, in 2009, by opening a Nike store at Westfield Bondi Junction. In doing so, they sought professional advice from an accountant, Anthony Carmody, on how to structure their business affairs. 7 Acting on that advice, they established the Business Trust as a unit trust and they each established personal family trusts, the Pearson Family Trust and the Haycraft Family Trust. The family trusts own the units in the Business Trust on a 50/50 basis. AF1 Services was incorporated and established as the trustee of the Business Trust, with Mr Haycraft and Mr Pearson its only directors and the family trusts being equal shareholders. There is no unit holders' agreement. The new store was operated through a separate company, AF1 Bondi Pty Ltd. The shares in the company are owned by AF1 Services. As with the other companies, Mr Haycraft and Mr Pearson are the only directors. 8 Both Mr Haycraft and Mr Pearson worked actively in the business. Mr Pearson's role was primarily management, including ordering stock, management of staff and wages, attending to payments and so on. Mr Haycraft's role was mostly "front of house", ie, in customer-facing activities in the stores including management of the staff employed in the stores. 9 In the years that followed, Mr Haycraft and Mr Pearson obtained licenses from Nike and leases from relevant landlords which enabled them to open a number of further Nike stores in and around Sydney. In doing so, they followed the same structure previously established on the advice of Mr Carmody. That is to say, each store was housed in a separate company of which Mr Pearson and Mr Haycraft were the only directors and the shares were owned by AF1 Services as trustee for the Business Trust. 10 In addition to the stores, as a result of increased stock storage and managerial needs, their original company, AF1 Neutral Bay, which housed the Neutral Bay store also rented an office/warehouse in Artarmon with a lease that commenced in February 2013. 11 By the time of the events particularly relevant to this case, when some difficulties between Mr Haycraft and Mr Pearson began to arise, the following were (and are) the companies in the group: Company Store Share ownership AF1 Pty Ltd Neutral Bay + warehouse 50/50 Haycraft and Pearson personally AF1 Services Pty Ltd n/a 50/50 Haycraft and Pearson family trusts AF1 (Bondi) Pty Ltd Bondi 100% AF1 Services ATF AF1 Business Trust AF1 (Castle Hill) Pty Ltd Castle Hill 100% AF1 Services ATF AF1 Business Trust AF1 Warringah Pty Ltd Warringah 100% AF1 Pty Ltd (ie, AF1 Neutral Bay) AF1 (Sydney) Pty Ltd Sydney 100% AF1 Services ATF AF1 Business Trust AF1 (Burwood) Pty Ltd Burwood 100% AF1 Services ATF AF1 Business Trust AF1 (Chatswood) Pty Ltd Chatswood 100% AF1 Services ATF AF1 Business Trust 12 It is common ground that although the shares in the original company, AF1 Neutral Bay, are owned in equal shares by Mr Haycraft and Mr Pearson personally, it was the intention that they, like the shares in the other trading companies, were to be owned by AF1 Services as trustee for the Business Trust. That would have been consistent with the overall structure recommended by Mr Carmody. Also, the shares in AF1 Warringah should apparently have been registered in the name of AF1 Services and not AF1 Neutral Bay. 13 Each of the trading companies has a lease for the premises in which it operates its Nike store, and all those leases have some time to run save for the one lease which expired more than a year ago and is now rolling over from month-to-month. The lease for the office/warehouse in Artarmon has also expired and is rolling over from month-to-month. I will return to that lease because it has been the source of some difficulty between Mr Haycraft and Mr Pearson. 14 Each of the licenses for the stores from Nike are coextensive with the leases. That is to say, when the relevant lease comes to an end, the licence will also come to an end. I understand that the licence for the one store where the lease has expired is, in effect, being rolled over from month-to-month as the lease is rolled over. The licences from Nike give each trading company the protection of not having a competing Nike store nearby, but they prevent the companies from selling products other than in-store. That is to say, the AF1 Nike business is prohibited by Nike from making online sales. That is relevant because of the impact on the business of the COVID-19 lockdowns in 2020 and 2021 when the stores were forced to close. When the stores were closed, they could make no sales. 15 AF1 Services does not have any operating or administrative role in relation to the AF1 Nike business. Its role is to receive income derived from the business in the form of dividend payments from each of the trading companies. Its role in the structure is to act as trustee of the Business Trust and the Property Trust. The dividends received from the trading companies are credited in the Business Trust and then distributed to the unit holders of the Business Trust, being each of Mr Haycraft and Mr Pearson as trustee of their respective family trust. 16 The AF1 Nike business is very profitable. The dividends received from the trading companies amounted to $2.3 million in 2020 and more than $3.4 million in 2021. The draft financial statements for 2022 show dividend income of more than $2.5 million. As AF1 Services' expenses are minimal, that income amounts almost entirely to profit which is then fully distributed every year to the family trusts. I will return to these distributions as they are the principal source of difficulties between Mr Haycraft and Mr Pearson. 17 By early 2014, the AF1 group had built up significant cash reserves. Following advice from Mr Carmody, the Property Trust was established as a unit trust. As with the Business Trust, the units are owned 50/50 by Mr Pearson and Mr Haycraft as trustees for their respective family trusts and there is no unit holders' agreement. The Property Trust bought residential properties. Using funds borrowed from the Business Trust, the Property Trust funded the deposit required for each purchase. The balance of the purchase price was paid by the family trusts which borrowed from a bank, with the property as security. The family trusts meet the loan repayments by paying to the bank the income derived from their respective entitlements to rent received via the Property Trust supplemented by distributions from the Business Trust to pay interest and finance charges. 18 Using that structure, the Property Trust purchased properties in Rose Bay, Bondi, Clovelly and Neutral Bay. It still owns those properties. The family trusts derive rental income from the properties which is paid to the bank, and the family trusts receive distributions from the Business Trust to meet their further obligations to the bank. The 2021 financial statements for the Property Trust, and the draft 2022 statements, reflect that the combined value of the properties is more than $20 million. Each family trust has a liability to the bank in respect of the properties of approximately $6 million, leaving equity in the properties of approximately $8 million. 19 In 2016, the Property Trust also purchased gold and silver bullion as an investment. It still holds that investment which has a value of more than $1 million. 20 Until February 2019, Mr Haycraft and Mr Pearson each drew a salary of $37,000 per month plus superannuation from the AF1 Nike business. In addition, each family trust received monthly distributions in the form of fully franked dividends of $27,500 from the Business Trust. The family trusts also received, as explained, distributions sufficient to meet their monthly obligations to the bank in respect of the properties in the Property Trust. I will refer to the first mentioned distributions as the additional distributions, since they were additional to the distributions to meet the obligations to the bank. The latter distributions have never ceased or been a source of contention. It is only the additional distributions that became a point of dispute between Mr Haycraft and Mr Pearson. 21 The AF1 Nike business currently employs about 150 people, about 30 of whom are permanent employees. Problems emerge 22 In 2018, Mr Haycraft decided to pursue a business opportunity in the United States independently of Mr Pearson. That caused Mr Haycraft to spend a lot of time out of the country and away from the AF1 Nike business. In the 14 month period between November 2018 and February 2020 when the COVID-19 pandemic stopped further travel by Mr Haycraft, he spent 203 days out of Australia. That amounts to nearly half of the period. 23 Although Mr Haycraft tried to downplay the adverse effect that him spending so much time out of the country had on his ability to contribute to the AF1 Nike business, clearly he was not able to perform anything like the same kind of front of house role when he was abroad. I find that his absence significantly altered his contribution to the business. 24 Mr Haycraft did not consult Mr Pearson about his decision to spend significant time in the US away from the AF1 business. Mr Pearson felt that Mr Haycraft's involvement in the business had effectively ceased as he was not involved in the day-to-day management of the business and he rarely attended the office. For those reasons, in March 2019, Mr Pearson in effect withdrew his approval for the payment of the monthly additional distributions to both family trusts. He advised Mr Haycraft of his decision in that respect by text message on 2 March 2019, saying that he was happy to discuss the additional distributions when Mr Haycraft was "back at work". 25 That decision by Mr Pearson, following on Mr Haycraft's decision to substantially absent himself from the business, led to strife between Mr Haycraft and Mr Pearson. They both engaged solicitors on the issue who inevitably traded correspondence. 26 Mr Haycraft sought various documents relating to the AF1 Nike business and the trusts from Mr Pearson and Mr Carmody. In the 2018 financial statements of the Property Trust a liability was reflected in favour of each of the family trusts in the sum of approximately $2.9 million. By letter dated 24 July 2019, Mr Haycraft demanded repayment of that sum, which he referred to as a loan, within 45 days. 27 Mr Pearson made enquiries with Mr Carmody who was responsible for preparing the financial statements and tax returns of all the companies and the trusts. As a result of those enquiries, Mr Pearson came to understand that the liabilities only arose as a result of an error when funds were moved from the Business Trust through the family trusts to the Property Trust to purchase two of the properties when the funds should have just been transferred directly from the Business Trust to the Property Trust. 28 Mr Pearson says that in about July 2019 there was a meeting attended by him, Mr Carmody, Mr Haycraft and a solicitor representing Mr Haycraft. He says that Mr Carmody explained how the error in the accounting had arisen. 29 On about 30 September 2019, Mr Haycraft gave notice of a meeting of the directors of AF1 Services on 1 October 2019 in order to propose a resolution that the company (as trustee of the Property Trust) pay the sum of $2,923,850 to the Haycraft Family Trust. 30 Although a formal board meeting did not take place on 1 October 2019, Mr Haycraft and Mr Pearson and their solicitors did meet on that date and negotiations continued. Ultimately an agreement was reached as recorded in an email from Mr Pearson's then solicitor, Mr Leahy, to Mr Haycraft's solicitor, Mr Freidman, on 4 December 2019, namely, relevantly: (1) additional distributions of $36,250 per month would be paid to each of the family trusts, as fully franked dividends, backdated to March 2019 and payable until 30 June 2020; (2) Mr Pearson's salary would be increased to $187,000 per annum plus superannuation, backdated to March 2019, and Mr Haycraft would continue to receive a salary of $37,000 per annum plus superannuation; and (3) Mr Pearson would continue to attend to the day-to-day management of the retail businesses and properties in the same manner as before, with any major decisions being referred to Mr Haycraft for approval. 31 Mr Haycraft accepted in cross-examination that the different salaries to be paid to each of him and Mr Pearson reflected the different commitments that they each made to working in the business. 32 In the meanwhile, acting on the understanding of the error with regard to the apparent liability of the Property Trust to the family trusts that he had gained from Mr Carmody, in November 2019, Mr Pearson operated on the respective bank accounts – to which he had authorised access – in order to reverse the transfers that he understood were erroneous. In respect of the apparent liability to each family trust, Mr Pearson transferred the sum of $2.9 million from the Property Trust to the family trust and then transferred the same sum from the family trust to the Business Trust. Mr Pearson made the transfers to "correct" the error without reference to Mr Haycraft. 33 On 2 March 2020, Mr Haycraft commenced a proceeding in the Supreme Court of New South Wales against AF1 Services and Mr Pearson in which he sought the appointment of new trustees to the Property Trust and payment to him of the sum of $2,728,250 plus interest from the Property Trust. That sum was said to be the amount reflected as owing, presumably to his family trust, in the draft 2019 financial statements. 34 On 25 March 2020, Mr Haycraft and Mr Pearson agreed to close all the stores and stand down the staff from the close of business the following day, 26 March, because of the COVID-19 lockdown. That meant that the business would have no income. 35 Also on 25 March 2020, Mr Pearson's new solicitor, Mr Heidtman, wrote to Mr Haycraft's solicitor with an explanation of the perceived accidental debt in the financial statements of the Property Trust and how it had been rectified. By email in reply, Mr Haycraft's solicitor said that Mr Haycraft intended to prosecute the claim in debt but that if there were any documents available to prove the alleged mistake then he was happy to look at them. Mr Heidtman replied saying that Mr Pearson was happy to share any business information with Mr Haycraft, and inviting Mr Freidman to advise of any information that Mr Haycraft was not receiving or to which he wanted access. 36 Notwithstanding that the December 2019 agreement for the payment of additional distributions was to last until only the end of June 2020 and the detrimental impact of the COVID-19 lockdown, additional distributions in the same amount ($36,250) were paid to the family trusts in July and August 2020. Thereafter, Mr Pearson was unhappy to keep paying additional distributions in that sum because of the straitened circumstances of the business. That led to a dispute about the payments in September and October 2020, but in November 2020 a new agreement was reached which, relevantly, included the following: (1) each family trust would be paid additional distributions in the form of fully franked dividends of $36,250 per month backdated to September 2020 until 30 June 2021; (2) Mr Pearson would be paid a salary of $350,000 backdated to 1 July 2020 to be increased, but not decreased, if an agreed salary advisor recommended an increase; (3) Mr Haycraft's current salary would continue to be paid and increased, but not decreased, if the agreed salary advisor recommended an increase; (4) a salary advisor would be agreed and appointed within 14 days, Mr Pearson providing Mr Haycraft with three names and Mr Haycraft to select one of them; (5) Mr Haycraft would discontinue the Supreme Court proceeding on the basis that there would be no order as to costs; (6) Mr Haycraft would continue his existing "step back" from the business until 30 June 2021 and leave day-to-day management of the business with Mr Pearson, subject to (amongst other things): (a) there would be monthly board meetings; (b) Mr Pearson would provide Mr Haycraft with all information reasonably requested; (c) neither Mr Pearson nor Mr Haycraft would correspond or communicate with Nike or landlords without the prior consent of the other except in relation to normal operational matters (but not to include negotiation of any Nike master contracts or store leases); and (d) the FY 2019 and FY 2020 accounts would be prepared and finalised not later than 15 February 2021. 37 Following that agreement, Mr Haycraft discontinued the Supreme Court proceeding. 38 At least some aspects of the November 2020 agreement, as set out at [36] above, were to end on 30 June 2021. On 21 May 2021, Mr Pearson and Mr Haycraft had a meeting. A minute of the meeting was prepared by Mr Pearson as the meeting progressed, with him reading back what he was recording in respect of each agenda item. The minute reflects discussion and agreement on a number of operational matters in relation to the business, including April sales and expenses, some work health and safety issues, communications with Nike, a refit for the Sydney store, a variety of human resource issues and some property issues. 39 One of the items, which was subsequently the subject of some dispute, is recorded as follows in the minute: j) Dividends and overall agreement between Paul and Chris post 30th June 2021 Paul is happy to continue with the status quo until 30th June 2022 40 Mr Haycraft says that there was agreement between him and Mr Pearson at the meeting that the additional dividends of $36,250 per month to each of the family trusts would continue to be paid until 30 June 2022. Mr Pearson says that Mr Haycraft had said that he was happy for the additional distributions to be paid on that basis, but that he, Mr Pearson, did not indicate any agreement with that position and that the matter was left unresolved. He said that he did not engage further on the discussion of the monthly payments as the existing agreement was still in place until the end of the following month and that he expected further discussions to take place which would include his and Mr Haycraft's respective lawyers. 41 When Mr Pearson had made no payment of the additional distributions by the middle of July 2021, Mr Haycraft, for the first and only time, accessed the relevant bank account of the Business Trust and caused the distribution to be paid from the Business Trusts to his family trust. At the same time, he advised Mr Pearson by email explaining what he had done – saying that it was following their agreement during the board meeting in May – and that he expected that Mr Pearson would take care of the payment to his family trust when he had a chance. 42 Mr Pearson says that because of the reintroduced COVID-19 lockdown in the greater Sydney area in July 2021, and the consequences that that had for the business, he was not prepared to maintain the same level of additional distributions as previously. He says that he was concerned to maintain cash reserves. 43 Correspondence between the parties' respective solicitors continued on the subject of the disputed additional distributions. There was a meeting that included the parties and their solicitors on 17 August 2021, and then further correspondence. Mr Haycraft maintained the position that it had been agreed on 21 May 2021 that the additional distributions at the previous level would continue, and Mr Pearson maintained the position that there had been no such agreement but that in any event circumstances had changed such that it was imprudent to pay additional distributions at that level. In cross-examination, Mr Haycraft accepted that even on his version of the 21 May 2021 agreement it was subject to any significant change in circumstances such as another COVID-19 lockdown. 44 On 25 August 2021, Mr Freidman for Mr Haycraft wrote to Mr Heidtman for Mr Pearson saying that Mr Haycraft was not prepared to continue to step back from the business or leave the day-to-day management of the business to Mr Pearson any longer. The correspondence also stated that there was a lack of trust and confidence between Mr Pearson and Mr Haycraft. Mr Haycraft accused Mr Pearson of intentionally reneging on the May 2021 agreement with regard to additional distributions, and of placing the AF1 Nike business at risk by intentionally not paying rent and not paying Nike when there was cash available to do so. Mr Haycraft wished to place all the properties in the Property Trust on the market and wind up the trust. Mr Freidman said that he had instructions from Mr Haycraft to make an application for the appointment of a provisional liquidator to the AF1 Nike business entities. 45 In reply, on 27 August 2021, Mr Heidtman identified the underlying cause of the "current impasse" as being Mr Haycraft's insistence that additional distributions at the level of $36,250 per month continue. He characterised Mr Freidman's letter as being an ultimatum that if Mr Haycraft did not get his way he would make an application to wind up the business entities. As a means of resolving the difference of opinion, he suggested the engagement of an expert to advise on an appropriate distribution approach and amount in the prevailing circumstances. 46 Solicitor correspondence continued, including with regard to information requested by Mr Haycraft. On 28 September 2021, Mr Heidtman stated that Mr Pearson's position included that he had continued to work with Mr Haycraft in a professional and effective manner and that both the AF1 Nike business and the Property Trust had done well, especially having regard to the difficulties in the retail sector. He denied that there was a breakdown of mutual trust and confidence. He said that Mr Haycraft had never explained why it was not appropriate for Mr Haycraft to use the mutually agreed mechanisms in the respective trust deeds (ie, for the Business Trust and the Property Trust) to be applied if one of them wanted to exit the joint arrangements. Instead, he seemed to think it appropriate that they should both exit the businesses or that Mr Pearson should otherwise pay a premium to buy out Mr Haycraft's share. 47 In November 2021, the parties attended mediation with a highly qualified and well-known mediator, but failed to resolve their differences. 48 On 4 March 2022, Mr Heidtman again recorded in correspondence that Mr Pearson was perfectly content to continue in business with Mr Haycraft on the basis previously agreed or on some other businesslike basis that they might agree. He said that Mr Pearson had offered and suggested that he and Mr Haycraft should resume regular meetings. 49 Mr Freidman replied, on 18 March 2022, saying that "regular meetings" had formed part of the interim regime that had been agreed in November 2020 and which ended on 30 June 2021. He said that although Mr Haycraft was content for that regime to continue for a further 12 months, Mr Pearson's unilateral ceasing of payment of the monthly additional distributions showed that it was Mr Pearson who had ended the arrangement. He recorded that Mr Haycraft was not content to continue to leave the ongoing operation of the trusts and the AF1 Nike business to Mr Pearson. He then stated that he and Mr Haycraft were prepared to meet Mr Heidtman and Mr Pearson "on one last occasion to see whether a resolution of the dispute can be achieved." A meeting was proposed for 8 April 2022, failing which he held instructions to commence proceedings for the appointment of a liquidator and for the appointment of new trustees. 50 Mr Heidtman replied, on 1 April 2022, again recording that Mr Pearson was happy to continue to work with Mr Haycraft. There was further correspondence with regard to arranging the proposed meeting which was then set for 13 April 2022. 51 On 7 April 2022, Mr Freidman recorded a number of "non-negotiable conditions to be agreed by Chris in advance of the meeting if it is to take place and if proceedings are to be avoided." The nine conditions included that each of the family trusts be paid additional distributions in the form of fully franked monthly dividends of $36,250 backdated to August 2021. It was then said that it was if, "and only if", the nine conditions were agreed that Mr Haycraft was prepared to negotiate the following matters with Mr Pearson: the sale or division of the Property Trust properties, the split of the gold and silver, and the scope of Mr Pearson's future management of the day-to-day operations of the Business Trust and the Property Trust. 52 Although Mr Heidtman replied saying that he and Mr Pearson were keeping the agreed date and time open for the meeting and hoped that the meeting would still take place, no meeting eventuated. 53 On 29 April 2022, Mr Haycraft signed the financial statements for the Business Trust and the Property Trust for the year ended 30 June 2021. The 2019 and 2020 financials had been signed previously. 54 On 16 June 2022, Mr Haycraft commenced the present proceeding. 55 After the commencement of the proceeding, an issue arose with regard to the renewal of the lease on the office/warehouse at Artarmon which was due to expire on 30 November 2022. The warehouse is a critical resource for the group because it is where inventory is received from Nike and from where it is despatched to the individual stores. It will be recalled that the lessee was AF1 Neutral Bay. 56 On 20 October 2022, the leasing agent, Warren Levitan, emailed both Mr Pearson and Mr Haycraft asking for their confirmation that they wished to go ahead with a new 3-year lease and setting out the proposed rental. After a few follow-ups and an exchange of positions on rental, on 29 November 2022, Mr Levitan sent a revised offer. Almost immediately, Mr Pearson emailed Mr Haycraft saying that he was happy to accept the revised offer and asking Mr Haycraft to let him know his position by close of business that day. 57 On 30 November 2022, Mr Haycraft replied saying that he was "uncomfortable" entering into a new lease without first advising the landlord and their agent about Mr Haycraft's pending winding up proceeding against AF1 Services. On 1 December 2022, Mr Pearson replied by email with an explanation as to why the landlord and the agent should not be advised of the pending proceeding. On 8 December 2022, Mr Haycraft replied accepting Mr Pearson's position "with very real reservations" and only because he had been unable to identify any legal obligation to notify the landlord of the proceeding. He repeated, however, that he considered that it would be morally appropriate to advise the landlord. He then stated that if Mr Pearson wished to proceed with the lease, "I will leave it to you to progress it." On 12 December 2022, Mr Pearson emailed the agent, copying Mr Haycraft in on the email, advising that both he and Mr Haycraft agreed to the terms previously offered and asking that the lease be sent to the company's solicitor. Mr Haycraft did not demur. 58 The objective position on 12 December 2022 was accordingly that although the lease had expired some 12 days earlier, the landlord's agent and both Mr Pearson and Mr Haycraft agreed on the material terms of a new 3-year lease which was to be prepared and sent to the company's solicitor. The prepared lease was sent to the company's solicitor on 23 December 2022. 59 Thereafter, Mr Haycraft simply did not respond to the many requests of him to sign the lease. He did not even reply to the requests, let alone offer any explanation or even say that he had changed his mind. Increasingly imploring requests were sent to him on 13 and 20 February 2023, 27 March 2023, 17 April 2023 and 11, 15 and 22 May 2023. Eventually, on 2 June 2023, Mr Haycraft wrote to Mr Pearson raising some issues about the financial statements for all the group entities for the 2022 financial year. In that context, he said that he was "also happy to discuss the lease" but stated that he felt that signing it should be held off in view of the court proceedings, thereby for the first time in six months stating a position that went back on what he had apparently agreed to. 60 Mr Haycraft's explanation in cross-examination as to why he did not respond to the many follow-ups on the lease, notwithstanding that he had agreed to the lease back in early December, was that he was considering his position and taking advice (T67:24-34). However, he did not explain what advice he had sought or been given, why it had taken six months, why he did not refer to the advice in his email on 2 June 2023, or why he had not replied to any of the many enquiries of him in the six month period to say what he was doing or what was going on. 61 Returning to the email from Mr Haycraft to Mr Pearson on 2 June 2023, as mentioned, Mr Haycraft raised issues with regard to the draft financial statements that he said that he had received from Mr Carmody on 6 April 2023. He pointed out that the draft financials recorded in respect of each entity and trust that he and Mr Pearson had met on 5 April 2023 to pass the accounts although no such meeting had taken place. He stated that he was not prepared to sign off on the accounts until they met and fulfilled the requisite statutory duties. He acknowledged that that position is a departure from what they had done in the past but said that "we are in a different world with the Court case being heard at the end of the month." 62 Attached to the email was a notice of a directors' meeting of AF1 Services to be held on 19 June 2023. Mr Haycraft's proposed resolutions were to approve fully franked monthly distributions from the Business Trust in the amount of $36,250 to each of the family trusts from June 2023 going forward, and to pay a fully franked lump sum distribution in the amount of $580,000 to each of the family trusts for the period August 2021 to May 2023. No other business was proposed by Mr Haycraft. 63 At the meeting, Mr Pearson tabled a board paper dealing with his assessment of the financial consequences of AF1 Services being wound up. That was for the stated purpose of being able to consider the proposed resolutions – one of the possible outcomes of the pending proceeding being the winding up of AF1 Services. The resolutions were voted on, with Mr Haycraft voting in favour and Mr Pearson voting against. The meeting then ended with no further business being transacted. The pleaded case for winding up 64 In his concise statement (at [46]), Mr Haycraft pleads the following as the basis for the just and equitable winding up of AF1 Services: (a) there is a deadlock between joint owners of the AF1 business in relation to the management of the business; (b) Pearson remains in day to day control of the AF1 business without Haycraft's consent; (c) there is no shareholders agreement or a unitholders agreement between Haycraft and Pearson; (d) Haycraft does not trust Pearson in relation to the conduct and management of the AF1 business; (e) Haycraft Trust is not receiving any dividends from the profits of the Nike Business; (f) winding up of the AF1 business in [sic] necessary to ensure protection of Haycraft's interests as an owner in equal share of the AF1 business. 65 In opening submissions for Mr Haycraft, it was also submitted that the removal of the trustee and appointment of a new trustee cannot be effected under the unit trust deeds without the agreement of Mr Haycraft and Mr Pearson. 66 The concise statement otherwise essentially lists a series of events in chronological order without elaboration as to how those events support the articulated bases for the relief that is sought, or states the conclusions that are then summarised in [46] (as quoted above) as being the bases for the relief. Some key disputes underlying the identification of those bases for the winding up are nevertheless identifiable in the concise statement as follows: (1) The disputed liability of the Property Trust to each of the family trusts in the sum of $2,728,250 as at 30 June 2019, the manner in which that debt was reversed or extinguished and, on Mr Haycraft's case, the failure of Mr Pearson to have explained the position. (Concise statement [17]-[19].) (2) The disputed positions with regard to the payment of additional distributions to the family trusts. (Concise statement [16], [20], [25], [30], [31] and [43].) (3) Mr Pearson and Mr Haycraft are in dispute about whether to sell the properties and the bullion. (Concise statement [35] and [45].) (4) Mr Haycraft has sought documents from Mr Pearson which have not been provided. (Concise statement [38].) Applicable principles 67 As mentioned, s 461(1)(k) of the Corporations Act provides that the court may order the winding up of a company if the court is of opinion that it is just and equitable that the company be wound up. 68 Mr Pearson also relies on s 467(4) which provides that where the application for winding up is made by members as contributories 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 (1) the applicants are entitled to relief by way of winding up and (2) that 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." It is clear that that provision applies where a winding up order is sought on the just and equitable ground: Mudgee Dolomite & Lime Pty Ltd v Robert Francis Murdoch; In the matter of Mudgee Dolomite & Lime Pty Ltd [2020] NSWSC 1510 at [293] per Black J. 69 In an often cited passage In the Matter of Catombal Investments Pty Ltd [2012] NSWSC 775 at [19], Brereton J explained that although the concept "just and equitable" is a broad one that is not capable of exhaustive definition, conventionally the decided cases are recognised as falling into a number of classes, including in particular: (1) failure of the substratum of the company; (2) deadlock or disagreement in the management of the company's affairs; (3) fraud in the formation of the company; (4) misconduct by the directors of the company; (5) constitutional and administrative vacuum in the management of the company; and, (6) lack of confidence, fairness and public interest and commercial morality. 70 Justice Brereton went on to explain (at [20]) that the court is not restricted in exercising its discretion to particular factual categories. The question whether it is just and equitable is a question of fact, in respect of which each case must depend on its own circumstances. The words "just and equitable" are general words, which must remain general, and the applicant is entitled to rely on any circumstances of justice and equity that affected him or her in his or her relations with the company or shareholdings, "at least so long as those circumstances have a direct and immediate relationship to, or bearing upon, the management or administration of the affairs of the subject company, or the conduct of its business." 71 His Honour identified (at [22]) that the rationale behind many of the grounds referred to in the decided cases, particularly in the context of corporate quasi-partnerships, is that a shareholder who has invested in a company on the basis that it will undertake a certain activity is entitled to recover his or her contribution if the activity becomes impossible. 72 The present case concerns what is essentially a partnership between Mr Haycraft and Mr Pearson. That is in essence the basis upon which they set out on their business venture together when they bought their first Nike store and formed AF1 Neutral Bay on a 50/50 shareholding. It is how they developed their business and investment interests thereafter. For that reason, cases pertinent to such arrangements are particularly relevant. In the way in which Mr Haycraft's case has been presented, it comes closest to being in the second category identified by Brereton J in Catombal, ie, deadlock or disagreement in the management of the company's affairs. 73 In that regard, the existence of irreconcilable differences among persons involved in what is, in effect, a partnership, will destroy the personal relationship involving mutual confidence that lies at the heart of the partnership analogy; the destruction of the personal relationship establishes a basis for granting relief: Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [2001] NSWCA 97; 37 ACSR 672 at [89] per Spigelman CJ. 74 An order may more readily be made where there has been a loss of trust and confidence, or the loss of confidence frustrates the commercially sensible operations of the company in accordance with the incorporator's expectations and such loss is justified: In the matter of Crow Inn Pty Ltd (No 2) [2020] NSWSC 1749 at [277] per Rees J. 75 A breakdown or loss of confidence between directors and shareholders does not necessarily provide a sufficient foundation for winding up on the just and equitable ground – 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: In the matter of L&B Seafood Pty Ltd [2022] NSWSC 100 at [148] per Henry J. 76 Although irreconcilable differences may establish a basis for winding up, a court is less likely to grant such relief if the person excluded from management as a result of irreconcilable differences was responsible for the breakdown of the relationship: Crow Inn at [278]. 77 Winding up has been described as an "extreme step" and a "last resort", particularly where the company in question is solvent, although there is no absolute rule against winding up a solvent company: Crow Inn at [279]; L&B Seafood at [151]; In the matter of Sirrah Pty Ltd (in prov liq) [2021] NSWSC 413; 152 ACSR 212 at [166] per Black J. 78 Where winding up is sought on the basis of a complete deadlock between two opposing camps, the breakdown must result in such a departure from the basis on which the company was formed or operated so as to make it just and equitable that the company be wound up: Mir v Mir [2023] NSWSC 408 at [107] per Ball J. 79 In Mir v Mir, amongst other relief, the plaintiffs sought the appointment of receivers to the assets of some trusts and dissolution of the trusts (see [129]). In respect of units trusts, his Honour observed (at [136]) that unit trust deeds generally provide a mechanism for unit holders to sell the units after first giving the remaining unit holders a right to buy the units to be sold at a price nominated by the seller or a price determined by an independent and competent valuer appointed by the trustee. Many unit trust deeds also provide a mechanism by which a unit holder can redeem its units at a price reflecting the then current value of the units. It counted against the relief in that case that the relevant person had not sought to use those mechanisms to sell or to redeem the units held by his holding company (at [137]). Consideration 80 Mr Haycraft's case for winding up can be considered in relation to a number of discrete matters. I will deal with each in turn before considering the case in a more global way. Deadlock, disagreement and dysfunction? 81 Mr Haycraft submits that he and Mr Pearson are in deadlock with regard to the management of the AF1 Nike business and that Mr Pearson has excluded him from the management of the companies. 82 The principal dispute between Mr Pearson and Mr Haycraft is what additional distributions should be paid from the Business Trust to each of the family trusts. They apparently had no difficulty up to March 2019 when, after Mr Haycraft went overseas and very substantially stepped back from day-to-day involvement in the business, Mr Pearson stopped paying the additional distributions to both family trusts. After taking differing positions and exchanging views through lawyers, in December 2019 they were able to agree on additional distributions at the level required by Mr Haycraft backdated to March. They were also able to agree on different salaries for each of them. That agreement was for the period to June 2020 but the payment of the agreed additional distributions continued to August. 83 In the meanwhile the COVID-19 pandemic threatened the business such that from September 2020 Mr Pearson ceased the additional distributions, but Mr Haycraft insisted that they remain at their previous level. A further agreement was reached in November 2020 reinstating the additional distributions, backdating them to September 2020 and committing to them going forward to June 2021. 84 The last additional distributions were paid in July 2021, ie, two years ago. Mr Haycraft and Mr Pearson have been unable to agree on the level of additional distributions to be paid since then. During the course of the dealings between the parties since then, mostly between solicitors, Mr Pearson has indicated a willingness to pay additional distributions at the level of $15,000 per month and he has proposed the engagement of an expert to advise on the optimum level of additional distributions to be paid. Despite Mr Haycraft accepting in cross-examination that the proposal to engage an expert to advise was reasonable (T57:20), he has maintained his position that additional distributions of $36,250 per month must be paid; he even made agreement to that a non-negotiable condition to having any further meeting with Mr Pearson to discuss the question of distributions and other issues. 85 There is an aspect of the dispute with regard to the payment of the additional distributions that requires some explanation. As mentioned, the financial statements and tax returns for the Business Trust, which were signed by both directors of the operating companies and AF1 Services for all the years up to and including the 2021 financial year, record all the retained earnings to have been distributed equally between the two family trusts. The dispute is therefore not about distribution of the retained earnings in that sense, but rather the payment of "cash" additional distributions. That is because the distributions over and above the additional distributions (which were paid as "cash" in the form of bank transfers) and distributions sufficient to meet the obligations of the family trusts to the mortgagee of the properties (which were also paid by bank transfer) were distributed as "unpaid present entitlements". That apparently had the effect that the distributions created the tax liability in the hands of the family trusts rather than the Business Trust. See s 97(1) in Div 6 of Pt III of the Income Tax Assessment Act 1936 (Cth) and Commissioner of Taxation v Carter [2022] HCA 10; 399 ALR 521. 86 During the course of the hearing, senior counsel for Mr Haycraft sought to make the complaint on behalf of Mr Haycraft that the unpaid present entitlements caused a tax liability for Mr Haycraft's family trust that it was not otherwise funded to meet by additional "cash" distributions from the Business Trust. It was said that that complaint underlay Mr Haycraft's insistence on continued additional distributions at a particular level. 87 The difficulty with raising the issue in that way is that it was not part of the pleaded case or the way in which the case was opened. It also does not feature in any of the correspondence or the evidence in chief of Mr Haycraft and Mr Pearson. It is therefore not an issue that could be fairly or properly explored at trial. 88 In any event, I am prepared to accept that from the perspective of his interests alone, Mr Haycraft has an urgent need or requirement for the payment of additional distributions at something like the level that he has insisted upon. However, that is only half the story because one has to also consider what the business can bear and what Mr Pearson's needs and wishes are. He and Mr Pearson are in disagreement about what the business can reasonably bear. 89 The impasse between the parties with regard to the payment of additional distributions is substantial. It cannot be swept under the carpet. Nevertheless, for reasons that I will come to, it has not disrupted the ongoing commercial activity of the group: the AF1 Nike business and the property investment business have both continued and they have done well. Also, as I will also come to, there is a way out for Mr Haycraft – even without a winding up he is not condemned forever to be in business with Mr Pearson through the structures that they have built together over the years. 90 To the extent that there is any other deadlock or disagreement between Mr Pearson and Mr Haycraft it arises from the disagreement about additional distributions. For example, Mr Haycraft accepted that up to June 2021 he had no complaint about the extent to which he was being kept abreast and involved in the business (T44:4). The minute of the meeting of 21 May 2021 shows that Mr Pearson and Mr Haycraft discussed and agreed on material issues in relation to the month-to-month running of the business. The inter-solicitor correspondence thereafter reveals that the principal stumbling block between the parties has been the question of the payment of additional distributions. Although Mr Haycraft gave evidence that he was concerned about other matters, that is not borne out by the other evidence. The evidence also does not support the contention that Mr Haycraft has been excluded from the management of the companies; he in effect excluded himself when he refused to attend a meeting to discuss any issue until a list of his non-negotiable demands was met. 91 Since Mr Haycraft commenced the present proceeding, there has been an apparent deadlock on the question of renewing the lease for the office/warehouse at Artarmon. However, I do not consider that that reflects a real or genuine deadlock or disagreement. Not only does it arise in the shadow of the litigation where it would appear that Mr Haycraft was positioning himself for the litigation, but, as I have explained above, Mr Haycraft's position in relation to the renewal is otherwise inexplicable. He agreed to the renewal, and then he simply stonewalled on signing the lease thereby putting the business at considerable risk of losing the lease to the critically important office/warehouse premises. He cannot strengthen his case for a deadlock by his own unreasonable position. 92 As mentioned, the lease for one of the stores has also expired and is being rolled over on a month-to-month basis. That has been the case since April 2022, shortly before the present proceeding was commenced. The reason for the lease not being renewed is not canvassed in the evidence, but I infer two things. First, the likely reason is the broader dispute between Mr Pearson and Mr Haycraft, rather than a dispute about the lease per se. Secondly, the business has continued without interruption with the lease being rolled over. Clearly, having no long-term lease signed makes the business vulnerable to losing those premises, but it is only one of many trading premises and does not threaten the business overall. 93 There have also been disagreements about the financing of a motor vehicle for Mr Haycraft and Mr Haycraft has made suggestions that Mr Pearson has acted imprudently in suspending some rental payments during COVID-19 lockdowns and claiming rent relief and that he purportedly retained a solicitor to act for Mr Haycraft in answer to a letter of demand concerning a domain name without Mr Haycraft's knowledge or consent. In my assessment, none of those issues is serious or represents a deadlock or impasse at the requisite level of dysfunctionality. The underlying friction arises from the disagreement about additional distributions, and the other matters are for the most part merely symptoms of that. They do not represent a deadlock in the management of the company's affairs or in the ongoing conduct of its business. 94 Mr Haycraft agreed that prior to August 2021 he remained happy to leave the management of the business to Mr Pearson (T54:44). Even since then, Mr Pearson has continued to run the business on a day-to-day basis and Mr Haycraft has continued in a front of house role, albeit not in the same full-time way that he used to. But that is his choice. He accepted in cross-examination that over the last 18 months he has been attending the stores at least three or four times a week, engaging with the store managers, meeting with them, discussing operational activities and giving them direction, and that it has been going "great" (T57:30-58:4). 95 Mr Haycraft and his mother have continued to have ongoing responsibility in the business for regularly collecting the cash received in the stores and banking it. He continues in that role. 96 Mr Pearson was cross-examined about the directors of the companies having failed to pass resolutions authorising the dividends to be paid to the Business Trust and otherwise as required by the Corporations Act, and submissions were made about that evidencing the extent of the breakdown in the management of the companies. However, resolutions were signed by both directors for all the companies up to and including the financial statements for the 2021 financial year. The 2022 financial year statements have been prepared and Mr Pearson has said that he is happy with them, but Mr Haycraft is not. The draft financials with the requisite draft resolutions were made available to Mr Haycraft in April 2023. It is not said that that is unusual or problematic. Mr Haycraft did not raise any query until early June, only weeks before the trial in this proceeding. The fact that his queries have not yet been resolved and the financials, and the resolutions, have not been signed is unremarkable in the circumstances. Loss of trust and confidence? 97 Mr Haycraft says that he has lost trust and confidence in Mr Pearson and that he does not want to be in business with him any longer. In particular, that arises out of the question of the debt reflected in the financial statements of the Property Trust in 2018 and 2019 in favour of the family trusts, and then the reversal of that debt and the transfer of it to being a debt owed by the Business Trust to the family trusts. 98 There are, however, a number of notable features of that issue. First, there is no suggestion that Mr Pearson in any way favoured himself or his family trust over Mr Haycraft or his family trust. Both family trusts were dealt with even-handedly. Whatever the exact rights and wrongs are about the accounting in relation to the debt, it does not reflect any loss to Mr Haycraft or any benefit to Mr Pearson – it is simply a matter of accounting internal to their joint enterprise. 99 Secondly, Mr Carmody is the person who has an explanation for how the error (if that is what is was) first arose and why it should be "corrected" in the way in which Mr Pearson corrected it. Mr Pearson has stated his understanding, and there is nothing to suggest that that is incorrect. Moreover, Mr Carmody is equally available to both Mr Pearson and Mr Haycraft to give an explanation or to be called as a witness. He has not only been the accountant for the business in its various entities almost since its inception, he has been the personal accountant for both Mr Pearson and Mr Haycraft. It is only "very recently" that Mr Haycraft has terminated Mr Carmody's role as accountant for him personally (T61:15). There has been no suggestion that that has had the effect of Mr Carmody being unavailable to Mr Haycraft, whether as a witness or merely to explain any relevant matter outside of the proceeding. 100 Thirdly, and particularly tellingly, Mr Haycraft signed off on the financial statements for 2020 and 2021 which record the corrected position on the liability. Although in the witness box he stated that he felt pressured to sign the financial statements, he accepted that he would not have done so if he thought they were wrong in any material particular (T60:22-32). Those signed statements record the formal accounting position of the business and, at least on one view which seems to me to be reasonable, the running is on Mr Haycraft to show why that position which he signed off on is wrong. 101 In those circumstances, I do not accept that this issue forms any reasonable basis for Mr Haycraft to distrust Mr Pearson, or even that such distrust exists to any significant extent. Mr Haycraft has not made any suggestion that Mr Pearson has sought to do anything with regard to the accounts other than in the best interests of the business as a whole. He seems to have seized on the recorded indebtedness to his family trust in order to try and get money out of the Property Trust when he needed it, rather than to have believed that anything was really remiss in the way in which the accounts were corrected. 102 Further on the question of trust, Mr Pearson continues to have access to and operating rights on the Haycraft family trust's bank account. That access enables him to pay distributions from the family trust account to Mr Haycraft's personal account (T78:20). Mr Haycraft has not sought to deny, or even restrict, that access. That demonstrates a significant level of trust in Mr Pearson. 103 It is also the case that Mr Haycraft has full access and operating rights on the business bank accounts, as demonstrated by him making the payment of the additional distribution from the Business Trust to his family trust in July 2021. That access continues. Thus, both Mr Pearson and Mr Haycraft have full access to those accounts and neither has sought to restrict the other, nor has any allegation arisen as to the accounts being operated to favour one interest over another. 104 As mentioned, Mr Haycraft and his mother are responsible for collecting cash from the stores and banking it. That practice continues up to the present. The only issue that has arisen with regard to that is that Mr Pearson says that Mr Haycraft and his mother sometimes delayed between when they collected the cash and when they banked it which could have raised a problem under the relevant insurance had there been a theft or loss of the cash. But there has been no suggestion by Mr Pearson that Mr Haycraft has not banked any of the cash at all or that he has misappropriated it. 105 It is true that Mr Pearson said in cross-examination that he does not "totally" trust Mr Haycraft, and I accept that (T122:27). I also accept that Mr Haycraft does not totally trust Mr Pearson. Nevertheless, the evidence shows that they have sufficient trust to have continued to work together and to maintain the business. The point is that whatever loss of trust and confidence there is between Mr Pearson and Mr Haycraft, it is not such as to frustrate the commercially sensible operations of the company. Another remedy? 106 Mr Haycraft has said that he does not want to be in business with Mr Pearson any longer, and also that he wants the properties and the bullion to be sold so that he can redeem his investment. Senior counsel, in opening, submitted on behalf of Mr Haycraft that Mr Haycraft wishes to extract his investment and move on with his life. Mr Pearson, on the other hand, wishes to remain in the business and to retain the investment in the properties and the bullion. So, what way out is there for Mr Haycraft other than the winding up that he seeks? 107 The trust deed governing the property trust is dated 10 April 2014. That established the trust with AF1 Services as trustee. Clauses 17 provides a mechanism for a unit holder who wishes to sell its units in the trust offering them to the remaining unit holder. Clause 19 provides that if the unit holders cannot agree on a value for the units, the trustee must appoint a valuer qualified to make, and experienced in making, valuations of shares and trust units, to determine the value of the units. The valuer must act as an expert, not an arbitrator, and their decision will be final and binding on the trustee and the unit holders. There is thus a ready mechanism for Mr Haycraft to redeem his interest in the Property Trust without necessarily requiring the sale of the assets of the trust. He has not sought to utilise that mechanism. 108 The position in respect of the Business Trust is not so straightforward. The trust deed is dated 23 September 2009. It appoints AF1 Services as the trustee. Clause 12.4 deals with pre-emption of units. It provides that a unit holder proposing to transfer any units must give notice in writing to the trustee which notice constitutes the trustee as agent for the sale of the units to the other unit holder at the net value to be fixed for that purpose by the trustee. The trustee must determine the net value of the trust fund in accordance with Australian accounting principles, and then divide that value by the number of units issued to all unit holders in order to value each unit. There is no deadlock breaking mechanism in the event that the directors of the trustee company, being Mr Pearson and Mr Haycraft, cannot agree the value. 109 Perhaps in anticipation of an impasse in agreeing a valuation, but in any event, Mr Haycraft has not sought to utilise the provided mechanism in order to dispose of his units in the Business Trust. 110 In order to avoid an impasse arising, Mr Pearson has made an open offer to agree to the appointment of an independent director and chairperson to AF1 Services and each of the operating entities on the following basis: (1) Mr Pearson and Mr Haycraft consent to and, as necessary, vote in favour of a resolution for the appointment of an independent person as a director and chairperson to AF1 Services and each of the operating entities. (2) The offer sets out an equitable basis for identifying and appointing such an independent director. 111 Mr Haycraft, self-evidently, has not accepted the offer. However, there has been no suggestion made that it is somehow inadequate or would not solve the problem of a possible deadlock in the board of the company insofar as valuing the units in the Business Trust is concerned. 112 The parties have also traded other offers as a possible means of parting ways without winding up the business. 113 On 9 June 2023, Mr Pearson made an offer to Mr Haycraft with the following essential elements: (1) Mr Pearson would purchase Mr Haycraft's units in the Property Trust and in the Business Trust, each in a single parcel described as Parcel 1 and Parcel 2 respectively. (2) At Mr Haycraft's election, the purchase price would be determined by either Option 1 or Option 2 described below. (3) In respect of Option 1: (a) the value of Parcel 1 would be determined by a valuation determined by one of a number of named valuers or, failing that, a valuer to be appointed by an independent named institute; and (b) the purchase price of Parcel 2 would be $2,500,000. (4) In respect of Option 2: (a) The purchase price for Parcel 1 would be by the same method as under Option 1; (b) The purchase price for Parcel 2 would be determined by way of valuation to be performed by the same valuer appointed for determining the value of Parcel 1. (5) Under each option, if the proposal is accepted within seven days, Mr Pearson will pay Mr Haycraft an additional sum of $200,000 (referred to as a premium). (6) The offer also sets out a number of valuation rights and principles. 114 On 22 June 2023, Mr Haycraft made a counter offer by recording various amendments in mark-up to Mr Pearson's offer. The amendments are to the following effect: (1) Mr Pearson's units in the Property Trust (Parcel 1) and the Business Trust (Parcel 2) would be purchased by Mr Haycraft. (2) At Mr Pearson's election, the purchase price would be determined under Option 1 or Option 2. (3) Option 1 is essentially the same as Mr Pearson's offer Option 1, save that the purchase price of Parcel 2 would be $4,600,000. (4) Option 2 is essentially the same as Mr Pearson's offer Option 2. (5) Payment of the premium is deleted. (6) There is an alternative offer, the effect of which is that with the same Options 1 and 2, Mr Haycraft would sell his units to Mr Pearson. (7) There is an inserted clause 10A which provides that "settlement" financial statements of the Property Trust would be prepared by independent accountants. 115 Mr Haycraft submits that his offer of $4.6 million for half the units in the Business Trust reflects the greatest good faith – that he has "put his money where his mouth is" – because it is available both ways; that is to say, he offers to buy or sell at the same price for the business and valuation for the properties (T166:19). However, Mr Pearson points out that the insertion of clause 10A has the effect that after the election is made with regard to the purchase price in Option 1 the accounting between the Business Trust and the Property Trust might change under the settlement accounts such that the value of the Business Trust, and hence its units, may change substantially. The offer therefore does not provide the certainty or represent the reasonableness that Mr Haycraft claims, or intends. 116 I accept Mr Pearson's criticism of the uncertainty in Mr Haycraft's offer created by clause 10A. In any event, Mr Pearson does not wish to sell; he wants to stay in the business. It is Mr Haycraft who wishes to get out. The question at hand is whether that can be reasonably achieved without winding up AF1 Services and thereby potentially destroying the whole enterprise. 117 On 29 June 2023, Mr Pearson made a further revised open offer of settlement. It has the following essential elements: (1) As soon as practicable, settlement financial statements of the Business Trust, the Property Trust and all the operating entities will be prepared, ie, Mr Haycraft's clause 10A. (2) Mr Pearson will purchase Mr Haycraft's units in the Property Trust (Parcel 1) and the Business Trust (Parcel 2) at purchase prices to be determined as follows: (a) the purchase price for Parcel 1 will be determined by way of valuation, to be performed by a valuer to be appointed by the Australian Valuers Institute; (b) the purchase price for Parcel 2 will be the amount determined by way of valuation to be performed by the same valuer, taking into account the settlement financial statements, plus a premium payable by Mr Pearson in the sum of $200,000 (ie, the valuation and setting the price will occur only after the settlement accounts so it will take account of whatever the settled liability position is between the various entities, and in particular between the Business Trust and the Property Trust). (3) Mr Haycraft's costs of the present proceeding will be paid by the AF1 business on an indemnity basis, which costs will be ignored by the valuer for the purposes of the valuation. However, if the offer is accepted only after notice is given by the Court to the parties that judgment is to be handed down, the question of costs will be determined by the Court. (4) The offer remains open for acceptance until the earlier of: (a) seven days after the handing down of judgment in the present proceeding: or (b) reasons being handed down in the proceeding the result of which is that a liquidator is to be appointed to AF1 Services. 118 The essential point in this dispute is that Mr Haycraft wants to get his investment out of the overall business, ie, the AF1 business and the property and bullion investments, and part ways with Mr Pearson. Mr Pearson is quite content for that to occur, but he wishes to remain in the business and keep it going. Mr Haycraft has a number of apparently viable and reasonable options available to him to get out. 119 First, in respect of the Property Trust he can exercise his rights under the trust deed which enable him to sell his units at a valuation determined by an independent valuer. He says by his senior counsel that he does not wish to subject himself to the uncertainty of a valuation and would rather the properties were sold on the market. That is an unconvincing response, in particular since the market itself offers similar uncertainty. Also, even accepting that an independent valuation might not reflect exactly what a market sale would achieve, since there are four properties it might reasonably be expected that any ups and downs on the valuations would even out. But most tellingly, Mr Haycraft agreed by the trust deed on the way in which he could get out of the joint property investment venture. It is not open to him to force a different manner and procedure of parting ways on Mr Pearson; Mr Pearson is entitled to hold him to his bargain. 120 Secondly, in respect of the Business Trust he can accept Mr Pearson's offer of the appointment of an independent director and chairperson to the board of AF1 Services. That would achieve the result of providing a deadlock breaking mechanism for the valuation of the units in the Business Trust which would enable Mr Haycraft to exercise his rights under the trust deed and sell his units at a price determined by an independent valuation. 121 Thirdly, in respect of both the Property Trust and the Business Trust Mr Haycraft can accept Mr Pearson's further revised settlement offer of 29 June 2023, which offer will remain open following dismissal of the proceeding. The result of that will be that the units in both trusts will be independently valued in order to set purchase prices, and Mr Haycraft will receive a premium of $200,000. Since, apparently, he did not accept the offer before the parties were notified of the handing down of reasons for judgment in this proceeding, he has lost out on the benefit of having his costs paid including on an indemnity basis, but the costs will remain in the discretion of the Court for its determination. Conclusion 122 For the reasons already explained, the disagreements between Mr Pearson and Mr Haycraft, and their deadlock on the question of distributions, such as it is, do not have a direct and immediate bearing on the management or administration of the affairs of AF1 Services or on the conduct of its business in the way discussed in Catombal at [20] (referred to above at [70]). But in any event, as explained in Catombal at [22] (referred to at [71] above), it would be unjust in the circumstances of a deadlock or disagreement to the requisite level of seriousness or dysfunctionality, ie, that the continuation of the business activity for which the investment was made becomes impossible, to deny a shareholder the ability to recover their contribution from the company's assets. But Mr Haycraft is not denied that ability. He has various ways of recovering his investment without destroying the business. 123 The dispute about distributions is not one that goes to the commercial operation of the company, and Mr Haycraft's refusal to sign the lease for the office/warehouse is a problem brought about by his own unreasonable conduct. 124 It is also pertinent that the business employs a significant number of people, who would likely lose their jobs in the event of a winding up, and the business is solvent and profitable. As the authorities establish, a court will be reluctant to wind up such a company. A winding up order is a remedy of last resort, or an extreme step, which is generally not justified in such circumstances. 125 In short, I am not satisfied that it is just and equitable that AF1 Services be wound up so the relief in that regard must be dismissed. As the case for the appointment of new trustees and vesting orders was put on the basis that that is what is required if there is a winding up, that relief must also be dismissed. 126 For the present, I do not see any reason why Mr Haycraft should not pay Mr Pearson's costs in accordance with the usual rule so there should be an order to that effect. However, since there may be facts that are unknown to me that may be relevant to that question, and the parties have not made submissions on it, I will give the parties the opportunity to apply to vary that order. I certify that the preceding one hundred and twenty-six (126) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Stewart. Associate: Dated: 7 July 2023