Reported Decision : (2007) 25 ACLC 141 New South Wales Supreme Court CITATION : David Alexander Grace v Deborah Sharon Grace & 5 ors [2007] NSWSC 6 HEARING DATE(S) : 21, 22 December 2006 JUDGMENT DATE : 18 January 2007 JURISDICTION : Equity Division Corporations List JUDGMENT OF : Brereton J DECISION : Provisional liquidator appointed to third and fourth defendant companies, but not fifth defendant. Interlocutory injunction granted restraining fifth defendant from alienating encumbering or dealing with assets except with consent of plaintiff or upon 7 days notice to plaintiff, and restraining first and second defendant directors from causing or permitting any prohibited dealing. Order for delivery of books of fifth defendant to neutral premises with all directors to have supervised access. CATCHWORDS : CORPORATIONS – External administration – winding up – provisional liquidation – circumstances in which appointment made – where winding up application based on oppression and just and equitable grounds – where "buy-out order" more likely than winding up order - where seriously arguable case that plaintiff should be entitled to control of two companies but not third company - where defendants consent to final winding up order but not to appointment of provisional liquidator in respect of the two companies, and oppose winding up of third – where significant risk that company resources will be expended on defence of majority, but otherwise no jeopardy to assets - significance of probable destination of future control of companies LEGISLATION CITED : (CTH) Corporations Act, ss 233, 461(1)(k) (CTH) Family Law Act 1975, s 79 Alessi v The Original Australian Art Co Pty Ltd (1989) 7 ACLC 595 Australian Securities Commission v Solomon (1996) 19 ACSR 73 Re Carapark Industries Pty Ltd (in liq) [1967] 1 NSWR 337 Re Club Mediterranean Pty Ltd (1975) 11 SASR 481; 1 ACLR 36 Constantinidis v JGL Trading Pty Ltd (1995) 17 ACSR 625 Re D G Brims and Sons Pty Ltd (1995) 16 ACSR 559 Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (1998) 28 ACSR 688 CASES CITED : Re J N Taylor Holdings Ltd; Zempilas v J N Taylor Holdings Ltd (1990) 3 ACSR 600 Lubavitch Mazal Pty Limited v Yeshiva Properties No 1 Pty Limited (2003) 47 ACSR 197 Re McLennan Holdings Pty Ltd (1983) 7 ACLR 732; 1 ACLC 786 Natural Extracts Pty Ltd v Stotter (unreported, FCA, 18 December 1998, Hely J) O'Toole & O'Toole (1991) 105 FLR 339; (1991) 15 Fam LR 265; (1992) FLC 92-285 Rural Industries Cooperative Society Ltd v Porky Pigs Pty Ltd (1988) 12 ACLR 794 Triulcio v Chase Property Investments Pty Ltd [2003] NSWSC 861 Wimborne v Brien (1997) 23 ACSR 576 Zempilas v JN Taylor Holdings Ltd (No 2) (1990) 55 SASR 103; 3 ACSR 518 David Alexander Grace (plaintiff) Deborah Sharon Grace (first defendant) Julienne Grace (second defendant) PARTIES : Nevilda Holdings Pty Ltd (third defendant) Nevilda Investments Pty Ltd (fourth defendant) Sharander Pty Ltd (fifth defendant) Dutchie Pty Ltd (sixth defendant) FILE NUMBER(S) : SC 5626/06 D L Williams SC w N J Kidd (plaintiff) COUNSEL : A Bouris (first, second defendants) J B Whittle (third, fourth, fifth defendants) Nova Legal Pty Ltd (plaintiff) SOLICITORS : Teece Hodgson & Ward (first, second defendants) Yates Beaggi Lawyers (third, fourth, fifth defendants) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST BRERETON J Thursday 18 January 2007 5626/06 David Alexander Grace v Deborah Sharon Grace & 5 ors JUDGMENT 1 HIS HONOUR: The plaintiff Mr David Alexander Grace claims the appointment of a provisional liquidator to the third defendant Nevilda Holdings Pty Limited, the fourth defendant Nevilda Investments Pty Limited, and the fifth defendant Sharander Pty Limited (the Grace Companies), and alternatively interlocutory injunctive relief against them and the first defendant his sister Ms Deborah Sharon Grace and the second defendant his mother Dr Julienne Grace – who, with Mr Grace, are the directors of and entitled (directly or indirectly) to all the shares in each of the Grace Companies - for the preservation of their assets and access to their documents pending the final hearing of these proceedings, in which he claims: · orders that Ms Grace and Dr Grace transfer to him certain shares in Holdings and Investments to which he claims to be beneficially entitled, in which event David will control Holdings and Investments; and · orders under Corporations Act, s 233(c), regulating the affairs of Holdings, Investments and Sharander, or alternatively that those companies be wound up for oppression pursuant to s 233(a), or on the just and equitable ground under s 461(1)(k). 2 The defendants (as I will refer collectively to Ms Grace, Dr Grace, Holdings, Investments and Sharander) do not oppose the winding up of Holdings and Investments, but they do of Sharander. However, Mr Williams SC, who appears for Mr Grace, has made clear that, if Mr Grace succeeds in establishing that the disputed shares are beneficially his, then winding up is not his preferred result. Although Ms Grace and Dr Grace have indicated that they consent to orders for the winding up of Holdings and Investments, they oppose the appointment of a provisional liquidator to those companies; and they oppose both the winding up of, and the appointment of a provisional liquidator to, Sharander, as does Sharander itself. Background 3 At present, Mr Grace holds 50% (300) of the ordinary shares in Holdings (the other 300 being held by Grace Securities Pty Ltd, a company in which the only two shares are held, one each, by Ms Grace and Dr Grace), and 33% (677) of the cumulative preference shares, Dr Grace and Ms Grace each holding 668. The cumulative preference shares carry voting rights, dividend participation rights, a prior right to repayment of capital in a winding up, but no right to participate in surplus assets or profits on a winding up. Holdings' assets comprise two parcels of real estate, and 100 of the 112 ordinary shares in Investments. 4 Mr Grace presently holds 9% (10) of the 112 ordinary shares in Investments, 100 being held by Holdings, and one each by Dr Grace and Ms Grace. Investments' assets comprise five parcels of real estate. 5 In Sharander, Mr Grace presently holds 10% (100) of the 1000 A class shares. 17.5% (175) are held by the sixth defendant Dutchie Pty Ltd (a company in which Mr Grace holds 99.3% (1005 ordinary shares) of the capital, the remainder being held by Ms Grace (6 ordinary shares) and Dr Grace (1 ordinary share)). Grace Securities holds 275 of the A class shares in Sharander, Dr Grace 150 and Ms Grace 300. Mr Grace holds 50% (200) of the B class shares, the other 200 being held by Ms Grace. Sharander's assets comprise an investment property at 1/2 New Beach Road, Darling Point, and about $2.5 million cash on deposit. 6 In or about April 2006, disagreements emerged between Mr Grace and Dr Grace, and though he was a director of each of the Grace Companies, his access to the premises, books and records of the companies was restricted. 7 Mr Grace claims that in April 2006 he discovered that under the will of his late father Colin Grace, who died on 1 September 1992, he was entitled to inherit the residuary estate, including 2003 cumulate preference shares in Holdings and 12 ordinary shares in Investments, which would have given him effective control of both of those companies, but that Ms Grace, with the knowing participation of Dr Grace, in breach of the trusts of Colin's Will, by unconscionable conduct, fraud or undue influence, procured him to transfer to each of them 667 of his shares in Holdings, and procured certain other shares to be transferred to themselves, with the result that together they have controlled both companies. Mr Grace says that although 2001 of the 2003 shares in Holdings which were in his father's residuary estate were initially transmitted to him, on 16 January 1995 he executed share transfers as a result of which 667 were transferred to each of Dr Grace and Ms Grace. He says that he was then 19 years of age, had just finished school, did not understand the forms, and signed them at Dr Grace's request upon her representation that his signature was required to resolve an outstanding claim by his grandmother on his father's estate. 8 On 5 May 1995, orders were made in the Family Court of Australia, by consent of Dr Grace (as applicant wife) and Ms Grace (as respondent legal personal representative of Mr Grace Snr's estate) by way of alteration and settlement of property interests pursuant to (CTH) Family Law Act 1975, s 79, for the transfer to Dr Grace of 667 cumulative preference shares in Holdings, and also of real property at 272 Birrell Street Bondi, which were assets of the residuary estate. Mr Grace says he had no notice or knowledge of this application, and there is at present no evidence to the contrary. 9 Since April 2006, Mr Grace has been engaged in an investigation of the affairs of the companies, in the course of which he has made numerous and extensive requests for information, documentation, and access to books and financial records relating to the affairs of the companies. According to some notes in files produced to Mr Grace for inspection by Mr Ashton, the accountant for the Grace Companies, on 18 October 2006, there are indications that during the period 2000 to 2004, benefits such as dividends and management and directors fees were paid only to Dr Grace and Ms Grace, or if (notionally) paid to Mr Grace were, without his knowledge or consent, "lent back" to the companies. There is also some evidence that in 2004, upon the winding up of another company, Debid Pty Ltd, which appears to have been controlled by Ms Grace, she advanced $800,000 to Investments, of which (the defendants say) $400,000 was absorbed in renovations of real property of Investments occupied by Dr Grace and other expenses of Investments, and the remaining $400,000 was on-lent to Grace Securities, on terms and for purposes which at this stage have not been clarified. 10 As a result of the inspection of documents on 25 August 2006, Mr Grace has identified 18 payments, totalling $25,489, made by Sharander during the financial year ending 30 June 2005, which are recorded as "loans" to Grace Securities or "dividends" to Ms Grace, Dr Grace and, in one case, himself, and repayment to Dr Grace of a loan. He says that he is unaware of the terms of or reasons for any loan to Grace Securities, and has no knowledge of the declaration of any dividend. Investments has also apparently made payments described as "dividends" to Grace Securities, but Mr Grace says that none have ever been received by him. As a result of the production at the hearing of cheque butts of Investments for the financial year ending 30 June 2004, twelve payments (totalling $47,754) which appear to be to or for the benefit of Dr Grace, as well as a loan to Dutchie of $1,100, have been identified. Mr Grace complains that there has been inadequate production of documents and provision of information to substantiate or explain these transactions, and/or that they have been inadequately documented. He says that he had no involvement in any of these payments, but on the present state of the evidence it is probable that he wrote and signed some of the cheques in question. 11 On 18 April 2006, Ms Grace gave Mr Grace notice of a board meeting of Sharander to be held on 19 April, to consider the sale of an apartment block at Curlewis Street, Bondi. Mr Grace did not attend. On 28 April, he received a copy of the minutes, recording a resolution to set the reserve price at at least $3.2 million. On 19 May, Mr Grace noticed that a sign at the property advertised an auction on 14 June, and he initiated further inquires by his solicitors as to the status of the sale and the reserve price. On 29 May, the solicitors then acting for Ms Grace and Dr Grace, Curwoods, sent Mr Grace notices of meetings of the directors of the Grace Companies to be held on 28 June. On 14 June, Curwoods informed Mr Grace's solicitors, Nova, that the auction was being postponed and would be discussed at the board meeting of Sharander to be held on 28 June. According to Mr Grace, at that meeting Dr Grace said that the auction would be "in a month's time". On 11 and 14 July, Mr Grace endeavoured to acquire information from the selling agent, who did not at that time return his calls. Ultimately, on 18 July, the agent responded by email, and Mr Grace shortly afterwards ascertained that the property had been sold at auction on 12 July for $3,065,000. Thus Mr Grace, though a director of Sharander, was not informed in advance of the date of the auction, and on his version was misled about it; nor was he consulted in respect of any reduction of the reserve below the $3.2 million referred to in the minutes of the 28 April meeting. 12 The proceeds of the sale were applied to discharge a mortgage over Sharander's New Beach Road property, and the balance (about $2.5 million) placed into term deposits, for which Ms Grace and Dr Grace were the sole signatories. However, Mr Grace was not consulted about the application of the proceeds, and it was not until 25 October that, despite requests made on 1 and 21 August, and 6 and 25 September, that he was informed where the balance proceeds after discharge of the New Beach Road mortgage had been placed. 13 The agenda for the meeting of Investments to be held on 28 June included "Sale of 46 Boston Ave, East Malvern – Valuation". The Boston Avenue property is occupied by Ms Grace as her home. Ms Grace and Dr Grace proposed the transfer of Boston Avenue by Investments to Ms Grace, in consideration for the repayment of the loan which Ms Grace claims to have advanced to Investments from the proceeds of the winding up of Debid, the balance of which is said to be now $748,000 plus interest. This loan is undocumented, and Mr Grace complains that no details have been provided to him, despite requests. Ms Grace and Dr Grace also proposed to cause Holdings to sell its property at Thredbo to Grace Securities. 14 By letter dated 8 August 2006, Curwoods, in response to a demand for much more extensive undertakings, confirmed that, until the issues were resolved, "on a no admissions basis, that our clients will not dispose of any material assets of Grace Companies nor incur any material expenses of Grace Companies otherwise than in the ordinary course of business of the Grace Companies". 15 On 23 October 2006, Ms Grace sent Mr Grace a notice of Annual General Meeting of the members of Sharander, to be held on 6 November 2006 at the offices of Curwoods at 1630, including notice of a resolution that Mr Grace be dismissed as a director. On the same day, Mr Grace issued a notice of Extraordinary General Meeting of the members of Dutchie, to be held on 6 November 2006 at the offices of Nova at 1515, including notice of resolutions for the removal of Dr Grace as director and public officer, the retirement of Ms Grace as secretary, and the appointment of Mr Grace as public office and secretary. He says he did this because he was concerned that if Ms Grace and Dr Grace continued to control the board of Dutchie, in which Mr Grace held 99.3% of the shares, they might approve a transfer of Dutchie's shares in Sharander to Grace Securities, which they had previously proposed (at independent valuation, as part of a proposed separation of interests). On 24 October 2006, Ms Grace sent Mr Grace a notice of Annual General Meeting of the members of Holdings, to be held on 7 November 2006 at the offices of Curwoods at 1000, including notice of a resolution that Mr Grace be dismissed as a director. On 30 October 2006, Ms Grace sent Mr Grace a notice of a Directors' Meeting of Dutchie, to be held on 6 November 2006 at 41/10 Etham Avenue, Darling Point, at 1200 – 3 hours 15 minutes before the meeting which Mr Grace had convened - including notice of a resolution to accept an offer made by Grace Securities on 23 July to purchase the 175 A shares held by Dutchie in Sharander at independent valuation. On 1 November, Nova on behalf of Mr Grace sought undertakings that Ms Grace and Dr Grace would not proceed with the proposed meetings of directors of Dutchie and shareholders of Sharander and Holdings. Curwoods responded on 2 November that, as insufficient notice was alleged, the notices of the proposed shareholders meetings of Sharander and Holdings were withdrawn and those meetings would not proceed, but the directors meeting of Dutchie would proceed. 16 On 3 November, Mr Grace commenced these proceedings and applied to the Court for an injunction restraining the convening of the meeting of the directors of Dutchie. Later that day, White J made an order which, while permitting the meeting to proceed, required that it be held at Nova's offices, and prohibited Ms Grace and Dr Grace from putting to it any resolution for the sale of the Sharander shares. 17 Between 7 November and 1 December 2006, Mr Grace (and Nova on his behalf) sought information about the affairs of the companies, and confirmation of the undertaking given on 8 August 2006, from Ms Grace (and the solicitors acting for Ms Grace and Dr Grace, Teece Hodgson & Ward). The information requests elicited no substantive reply, and no confirmation of the undertaking was given. On 16 November, Teece Hodgson advised Nova that Ms Grace and Dr Grace had given instructions that they were agreeable to Mr Grace having access to company records, provided that a third party arranged by them was present to prevent removal of material from the files, that the matter was to be discussed with counsel that afternoon, and that a considered response would follow. On 28 November, Ms Grace responded to requests which Mr Grace had made and repeated in letters of 7, 14, 16 and 24 November, to the effect that as he had commenced proceedings, legal advice would have to be sought before any of his questions could be answered. On 1 December, Nova wrote to Teece Hodgson, complaining that no meaningful response had been received to the requests for information and undertakings, and that despite the promise of "a considered response" to follow, no further communication had been forthcoming, and offering "a final opportunity" to avoid an application for appointment of a provisional liquidator by giving undertakings to the effect that the Grace Companies would not, without 7 days prior written notice to Mr Grace, purchase or sell any material asset, nor incur any liabilities or pay any expenses incurred other than in the ordinary course of business, nor transfer funds between the companies, nor declare or pay any dividend, nor make any loan; and would deliver all books and financial records to an agreed neutral location at which all directors and their advisers could have equal unfettered access, and provide Mr Grace electronic access to all current bank accounts and term deposits. No meaningful response was forthcoming, and on 8 December 2006 Mr Grace's application for appointment of a provisional liquidator was filed, returnable on 20 February 2007, and served. 18 Prior to the institution of these proceedings, Curwoods acted for Ms Grace and Dr Grace. Mr Grace objected that there was a conflict in Curwoods acting for the Grace Companies as well as for Ms Grace and Dr Grace, and although the position may at times have been confused, Curwoods maintained that they acted only for Ms Grace and Dr Grace. Immediately prior to 3 November, they indicated that they held no instructions at that time, although Counsel presumably instructed by them appeared on the afternoon of 3 November. In any event, Curwoods ceased to act by 7 November. On 9 November, Teece Hodgson & Ward (Mr Maitland) filed a Notice of Appearance for Ms Grace and Dr Grace. On 30 November, Yates Beaggi filed a Notice of Appearance for Holdings, Investments and Sharander. Mr Grace was not consulted about the proposal to retain solicitors to act separately for the Grace Companies, and no directors' meetings were convened to consider that issue. Yates Beaggi have to date rendered costs totalling $41,140 (inclusive of GST), which include conferences with and attendances upon Dr Grace and Ms Grace and their solicitor Mr Maitland, and briefing senior and junior counsel. 19 Meanwhile, after Yates Beaggi's Notice of Appearance was served, Mr Field of Nova and Mr Amirbeaggi of Yates Beaggi had a telephone discussion on 7 and/or 8 December, in which the latter apparently indicated that he had strongly recommended to the Grace Companies that they give undertakings to provide full access to documents and not dispose of assets. However, despite repeated telephone calls from Nova, there was no further response from Yates Beaggi, and on 14 December Nova wrote to Yates Beaggi and Teece Hodgson indicating that, in the absence of any meaningful response from either of them to the requests for information and undertakings, application would be made to expedite the hearing of the application for appointment of a provisional liquidator. 20 At 1721 on 14 December, Mr Amirbeaggi sent an email to Mr Field, as follows: I note you have called some 5 times. I am presently in a conference, and with the level of work I have had over the last couple of days have not had an opportunity to see or speak with my clients to seek instruction (in fact have not had a chance to advance anything after our discussion). I'm in a conference at the moment, however will call the clients when out to seek instruction, and revert. The only instruction I do have in an email from the client is to forthwith prepare an application for the liquidation of the Nevilda entities. I'll seek instructions and respond. I simply cannot move any faster under a threat that an application may be brought. 21 The memoranda of costs issued by Yates Beaggi give a rather different picture. Following a 54 minute telephone conversation with Mr Field on 7 December, Mr Amirbeaggi spent 48 minutes composing and sending an email to his clients. Thereafter, between 8 and 14 December, he spent a total of 26 hours on the matter, including, on 8 December, 3 hours 36 minutes on "various attendances upon John Maitland, Julienne Grace and Debbie Grace including review of emails and replies"; on 13 December, 1 hour 18 minutes conferring with Dr Grace; and on 14 December – the very date of the above email – 24 minutes "perusal of emails from clients and reply", 90 minutes perusing files in preparation for conference with Mr Maitland and "settle form of undertaking", 72 minutes in conference with Dr Grace, Ms Grace and Mr Maitland, 3 hours 36 minutes drafting Originating Process, and 4 hours 12 minutes drafting an affidavit of Dr Grace. 22 On 19 December, Mr Grace obtained leave to file the present application, returnable on 21 December, the effect of which was to expedite the earlier interlocutory application. 23 Mr Grace exhibited, to his affidavit of 19 December 2006, what purported to be the Financial Statements for Sharander for the year ended 30 June 2005. Although undated and unsigned, they bore no indication that they were a draft. On 1 December 2006, Ashtons forwarded to Mr Grace a copy of Sharander's Financial Statements for 2006, together with a copy of its Income Tax Return lodged for that year. Those Financial Statements used, as the comparative 2005 figures, those from the 2005 Statements which Mr Grace had exhibited to his affidavit. However, in her affidavit of 21 December 2006, Ms Grace said that the 2005 Financial Statements exhibited to Mr Grace's affidavit were drafts and not final, and exhibited what she described as a further draft. There are extensive differences between the two versions of the 2005 Financial Statements, particularly in the loan account balances, both as at 30 June 2005, and in the comparative 2004 figures. 24 Nova foreshadowed that the retainer of Yates Beaggi would be challenged, as it had not been duly authorised. On the evening before the hearing commenced, Ms Grace and Dr Grace convened meetings of the directors to ratify the retainer of the lawyers acting for the companies, to be held the following morning. Mr Grace did not attend and the resolutions were adopted. The meetings were convened following notification by Mr Grace's solicitors that the retainer of the companies' solicitors would be challenged. 25 A recent bank statement for Investments obtained on 20 December and tendered during the hearing by Mr Grace, reveals thirteen debits on 18 and 19 December, totalling $30,273.78, including two each of a round $2,000. It is not self-evident that the payments were of expenses incurred otherwise than in the ordinary course of business of the Grace Companies. The purpose of these payments is otherwise unexplained, but as the issue arose without during notice during the hearing I do not think any adverse inference can be drawn from the absence of an explanation. Appointment of a provisional liquidator 26 A provisional liquidator is not automatically appointed by the court for the mere asking, even where the company itself is the applicant [Re McLennan Holdings Pty Ltd (1983) 7 ACLR 732; 1 ACLC 786; Constantinidis v JGL Trading Pty Ltd (1995) 17 ACSR 625, 636 (NSWCA)]: although an appointment is more readily made where the company is the applicant, since it is implicit in the application that the Board has concluded that such appointment is necessary or beneficial [Re Club Mediterranean Pty Ltd (1975) 11 SASR 481; 1 ACLR 36, 38 (Bright J)], the applicant company must at least show that the application is for a bona fide purpose [Re McLennan Holdings; Constantinidis v JGL Trading, 636]. 27 The power to appoint a provisional liquidator is not limited, and the circumstances which may constitute sufficient ground under which a provisional liquidator may be appointed are infinite, and in an appropriate case include public interest considerations, which may operate in favour of or against the making of an appointment in particular circumstances [Re Club Mediterranean; Re McLennan Holdings; Constantinidis v JGL Trading, 636]. As the primary duty of a provisional liquidator is to preserve the status quo, so as to ensure the least possible harm to all concerned and to enable the court to decide, after a proper final hearing, whether the company should be wound up, the usual, although not the only, purpose for which a provisional liquidator is appointed is to preserve the assets of the company and the status quo in relation to its affairs, pending a final determination of whether the company should be wound up [Re Carapark Industries Pty Ltd (in liq) [1967] 1 NSWR 337; Wimborne v Brien (1997) 23 ACSR 576, 582 (Dunford AJA); Zempilas v JN Taylor Holdings Ltd (No 2) (1990) 55 SASR 103, 104-5; 3 ACSR 518, 520 (King CJ, with whom Cox and Olsson JJ agreed); Lubavitch Mazal Pty Limited v Yeshiva Properties No 1 Pty Limited (2003) 47 ACSR 197, [105]. 28 The appointment of a provisional liquidator pending determination of a winding up application is a drastic intrusion into the affairs of the company and is not to be contemplated if other measures would be adequate to preserve the status quo [Zempilas v JN Taylor Holdings (No 2) (at SASR 107; ACSR 522) (King CJ); Constantinidis v JGL Trading, 635 (Kirby P, with whom Meagher JA agreed); Lubavitch Mazal v Yeshiva Properties, [105]. While the appointment of a provisional liquidator may be appropriate in a case involving a dispute between parties to a joint venture, possibly sufficient to give rise to a deadlock in the operations of the companies employed in that venture, where all other expedients have failed, that course is not lightly to be adopted [Re Club Mediterranean; Alessi v The Original Australian Art Co Pty Ltd (1989) 7 ACLC 595; Rural Industries Cooperative Society Ltd v Porky Pigs Pty Ltd (1988) 12 ACLR 794; Constantinidis v JGL Trading, 637-8, 639]. 29 Thus, while the circumstances in which a provisional liquidator will be appointed are infinite and there is a wide discretion, such an appointment involves the taking of a serious step and requires the exercise of very great care, and the decision whether the court should take the serious step of awarding a judicial remedy of a wholly extraordinary nature by way of drastic intrusion into the affairs of the defendants, is usually approached - - in a manner broadly analogous to that applicable to other forms of interim preservation, such as an application for the appointment of an interim receiver or an interlocutory injunction - by reference to two main questions: first, whether there are good prospects of the plaintiff obtaining a winding up order; and, secondly, whether, having regard to the whole of the circumstances and in particular the measures already in place, the assets of the company are in jeopardy such that they need to be put under the protection of a provisional liquidator pending trial [Natural Extracts Pty Ltd v Stotter (unreported, FCA, 18 December 1998, Hely J); Triulcio v Chase Property Investments Pty Ltd [2003] NSWSC 861, [23]-[26] (Barrett J); Lubavitch Mazal v Yeshiva Properties, [106]]. 30 First, an applicant must establish that there is a reasonable prospect that a winding-up order will be made [Australian Securities Commission v Solomon (1996) 19 ACSR 73, 80 (Tamberlin J); Lubavitch Mazal v Yeshiva Properties, [106]]. A provisional liquidator may only be appointed after an application has regularly been made disclosing a good ground for winding up, and while the ultimate fate of the application must be left to the court finally hearing the matter, a provisional liquidator will not usually be appointed unless it appears that a winding up order is likely, which presupposes that there should be adequate evidence adduced on an application for appointment of a provisional liquidator to show that a winding up is, in the absence of material to the contrary, likely [Re McLennan Holdings; Constantinidis v JGL Trading, 636]. 31 However, where the winding up order is sought under Corporations Act, s 233 (the oppression ground), or on the just and equitable ground, it is sufficient that there is a reasonable prospect that some form of relief under s 233 ultimately being granted, even if that relief not include a winding up order, so long as the assets are in some degree of jeopardy. In Re J N Taylor Holdings Ltd; Zempilas v J N Taylor Holdings Ltd (1990) 3 ACSR 600, in a judgment which was upheld by the Full Court on appeal [Zempilas v J N Taylor Holdings Ltd (No 2) (1990) 3 ACSR 518] Debelle J said (at 614):- Generally speaking, a provisional liquidator will be appointed only if the court is satisfied that there is a valid and duly authorised winding up application and there is a reasonable prospect that a winding up order will be made: Re McLennan Holdings Pty Ltd (1983) 7 ACLR 732; Montgomery Windsor (NSW) Pty Ltd v Ilopa Pty Ltd (1984) 2 ACLC 224. However, as Young J observed in Alessi v The Original Australian Art Co Pty Ltd (1989) 7 ACLC 595, this is not a rule of law and in the appropriate extraordinary circumstances the court will appoint a provisional liquidator, notwithstanding that it is unlikely that the company will finally be wound up. In Re Brylyn No 2 Pty Ltd (1988) 12 ACLR 697, Senior Master Lee QC came to a like conclusion. In that case, the application was made to wind up the company on the just and equitable ground. Master Lee decided that the fact that the court might grant a remedy other than a winding up order was no reason for not deciding to appoint a provisional liquidator if, in all the circumstances, the application was justified. In such a case, if the applicant has made a prima facie case for relief, be that relief a winding up order or some other order, the court may appoint a provisional liquidator. Other examples of where a provisional liquidator has been appointed notwithstanding that there was a real possibility that the winding up proceedings might not ultimately proceed are Tickle v Crest Insurance Co of Australia Ltd (1984) 2 ACLR 493, admittedly, a case on its own special circumstances ; Re Nerang Investments Pty Ltd (1985) 9 ACLR 646, where a provisional liquidator was appointed because there was a strong possibility that, unless the appointment was made, the affairs of the company would be conducted for the benefit of one of the directors and not for the benefit of the company as a whole; and South Downs Packers Pty Ltd v Beaver (1984) 2 ACLC 541, where it was not possible for the directors to meet civilly and discuss and manage the affairs of the company. In short, the circumstances in which a provisional liquidator might be appointed are various: see, for example, the observations of Bright J in Re Club Mediterranean Pty Ltd (1975) 11 SASR 481 at 484, where the fact of the conflict of interest between the directors and the proper interests of the company was recognised as a ground to justify the appointment of a provisional liquidator. Such is the variety of commercial affairs that it would be imprudent to limit the circumstances in which a provisional liquidator might be appointed. 32 Consistently with that view, in Triulcio v Chase Property Investments Pty Ltd [2003] NSWSC 861, Barrett J said (at [26]) As to the first question, it is, as I have said, conceded by the defendants that orders should eventually be made allowing the parties to go their separate ways, although the defendants have in contemplation orders under which the Elias interests would buy out the plaintiff. On that basis, I think I must answer the first question in the affirmative. 33 Nonetheless, given the serious interference with the affairs of a company involved in the appointment of a provisional liquidator, and the extraordinary nature of the remedy, the degree of likelihood that a winding up order be made is a relevant consideration, and while there is undoubtedly power to appoint a provisional liquidator where some other relief is more likely, the probability that final relief in a form other than a winding up order will be granted is a relevant discretionary consideration which may weigh against appointment of a provisional liquidator and favour some other, less intrusive, form of interlocutory relief. 34 If an arguable case for a winding up order (or other relief under s 233) is established, the court then considers the balance of convenience, including the degree of urgency and need established by the applicant [Re Club Mediterranean (at SASR 484; ACLR 39); Australian Securities Commission v Solomon; Lubavitch Mazal v Yeshiva Properties, [106]]. Usually, the main consideration in this respect is whether, having regard to the whole of the circumstances and in particular the measures already in place, the assets of the company are in jeopardy such that they need to be put under the protection of a provisional liquidator pending trial [Natural Extracts v Stotter; Triulcio v Chase Property Investments, [23]-[26]]. Weight must be given to the adverse consequences which would follow from the appointment of a provisional liquidator [Constantinidis v JGL Trading, 638]. 35 Although there is some controversy as to whether an undertaking as to damages may be required [in Zempilas, Debelle J thought that none could be required, and on appeal King CJ (at SASR 107; ACSR 522) left the question open], in New South Wales the view prevails that such an undertaking can be required [Lubavitch Mazal v Yeshiva Properties, [109]], and in practice it routinely is. Prospects of winding up order or other relief 36 Against that background I turn first to consider whether there is a reasonable prospect that a winding-up order will be made, or some other form of relief under s 233 granted. 37 Although Mr Whittle SC, who appeared for the Grace Companies, fairly submitted out that, in the context of a short-notice application such as the present one, and the absence of a real opportunity to respond, the Court should not draw adverse inferences from the absence of evidence to contradict the applicant's case, and should be cautious in evaluating its strength, nonetheless Mr Grace's evidence of the circumstances on which he relies has been known to the other parties since 3 November 2006; it descends to considerable detail; and it is supported in significant respects by documentary material - in particular, the proceedings in the Family Court. Moreover, the Family Court orders were made after Mr Grace Snr's death, notwithstanding that Dr Grace had withdrawn her application for property settlement (filed on 9 June 1989) in February 1991, before his death. In those circumstances, it is at least arguable that there were no proceedings with respect to property pending at the date of Mr Grace Snr's death, and no jurisdictional basis for the continuation of the proceedings after his death [Family Law Act, s 79(8)], the case of O'Toole & O'Toole (1991) 105 FLR 339; (1991) 15 Fam LR 265; (1992) FLC ¶92-285, on which the Registrar who made the orders apparently relied, being arguably distinguishable since, in the present case, a formal order was made granting leave to withdraw the application, with both parties represented, whereas in O'Toole there was no formal withdrawal and no communication of it. 38 There is a serious question to be tried that Mr Grace is beneficially entitled to the shares which he claims. If Mr Grace ultimately succeeds, he will be entitled to all of the cumulative preference shares in Holdings, and will control its board. He will be entitled to two additional ordinary shares in Investments (presently held by Dr Grace and Ms Grace), but his control of Holdings will give him effective control of Investments also. And he will be entitled to two additional ordinary shares in Dutchie, one each from Dr Grace and Ms Grace, but he and Dutchie together will remain entitled to 27.5% of Sharander. 39 The history recited above contains several matters which, if established at the final hearing, could found a case of oppression. These include: · Apparently preferential treatment of Dr Grace and Ms Grace (directly and through Grace Securities) in respect of dividends, management fees, loans and other benefits from the Grace Companies; · Exclusion of Mr Grace from management and access to information since April 2006; · Exclusion of Mr Grace from consultation and information about the sale of Curlewis Avenue; · Convening meetings to remove Mr Grace as a director; · Retaining solicitors to act separately for the Grace Companies in these proceedings, without consultation with Mr Grace, in circumstances where it is at least arguable that resources of the companies are being expended not merely on protection of the separate interests of the companies, but on the defence of the interests of the majority, and that the majority are getting at least some of their legal work done at the expense of the companies [Re D G Brims and Sons Pty Ltd (1995) 16 ACSR 559 (Byrne J); Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (1998) 28 ACSR 688, 732-4 (Young J)]. 40 As has been mentioned, the defendants consent to final orders being made for the winding up of Holdings and Investments. In those circumstances, there must be a reasonable prospect that an order will be made in respect of those companies. However, Mr Grace seeks relief for oppression, including a winding up order, in respect of those companies only as an alternative to his principal claim, which is to compel the transfer of Ms Grace's and Dr Grace's shares to him – in which event control will also pass to him. 41 As to Sharander, Mr Grace's interests will in any event remain a minority interest. The present dispute arises in the context of proposals for the separation of the interests of the shareholders, in circumstances where their relationship has broken down. Mr Whittle SC, for Sharander, did not submit that there was no arguable case for a winding up order. On the present state of the evidence I am prepared to accept that there is some prospect of Mr Grace establishing the grounds for a winding up order in respect of Sharander on the just and equitable ground, or for oppression. However, I also accept Mr Whittle's submission to the effect that if Mr Grace obtains any relief in respect of Sharander, a "buy-out" order is a far more likely remedy, and that a winding up order is not a likely outcome. Although this does not preclude the appointment of a provisional liquidator, it is a relevant consideration. 42 Accordingly, the prospects are that, as to Holdings and Investments, either Mr Grace will acquire control, or they will be wound up; whereas as to Sharander, control will remain with Ms Grace and Dr Grace, and while it is possible that they may be required to "buy-out" Mr Grace, a winding up order, though not impossible, is unlikely. Jeopardy and balance of convenience 43 I turn next to consider whether, having regard to the whole of the circumstances, and in particular the measures already in place or which might be put in place, the assets of the company are in jeopardy such that they need to be put under the protection of a provisional liquidator pending trial. Mr Grace's case for appointment of a provisional liquidator has as its starting point the seriously arguable case that Ms Grace and Dr Grace have already shown a propensity to engage in dubious conduct through their procuring the transfer to them of the shares bequeathed to Mr Grace, and proceeds as follows: · There is a risk that the defendants may cause the Grace Companies to dispose of assets at an undervalue (and possibly to or for the benefit of Ms Grace and Dr Grace), or otherwise deal with assets of the companies so as to prefer their interests to those of Mr Grace, as appears from the sale of Curlewis Street, the proposals to sell Boston Avenue to Ms Grace and Thredbo to Grace Securities, the proposal to sell Dutchie's shares in Sharander, the history of "dividends" and "loans" to Ms Grace, Dr Grace and Grace Securities, and the refusal of the defendants, until the last minute, to offer any undertaking to preserve the status quo, or to answer the information requests; · In addition, there is a likelihood that the Companies will improperly incur further expense in their separate defence of the proceedings, in which they are essentially supporting the majority; · There is also a risk that the defendants will tamper with the accounts to the advantage of Ms Grace and Dr Grace and the detriment of Mr Grace; · The previous undertaking (of 8 August) has apparently been breached, so that undertakings and injunctions are insufficient protection; · The management of the Grace Companies is now so dysfunctional that the directors cannot adequately manage their affairs; · There is a likelihood that the defendants will continue to convene directors' meetings and "run roughshod" over Mr Grace's rights as a director to participate in the process; · The defendants are refusing to provide Mr Grace full access to the books and financial records of the Grace Companies; · Appointment of a provisional liquidator will have no adverse effect on the companies, because of the nature of their affairs as property-holding companies. 44 Risk of disadvantageous dealings. Although Ms Grace and Dr Grace may have caused Sharander to sell its real property in Curlewis Street Bondi, and dealt with the proceeds of sale, without prior notice to Mr Grace, despite his clear interest, there is no suggestion that the price obtained was not a proper one. It is very unfortunate that Mr Grace was not more extensively consulted and kept informed about the sale of Curlewis Street, and the failure to do so has no doubt contributed to the current level of distrust between the parties, but the proceeds were appropriately applied to discharge the mortgage on Sharander's New Beach Road property, and the balance invested. The dealing with Curlewis Street is not demonstrative of any jeopardy to the assets. 45 The sale of Curlewis Street, and the proposed transactions in respect of New Beach Road, Boston Road, Thredbo and Dutchie's Sharander shares, were all steps in a process proposed by Ms Grace and Dr Grace to effect the return to each party of his and her capital, so that the interests of Mr Grace, Ms Grace and Dr Grace might thereby be separated. The proposals involved obtaining valuations for those transactions which were not at arms length. Save for the sale of Curlewis Street, the transactions have not proceeded. In the context of the breakdown of their relationship, proposals to facilitate a return of capital and separation of interests do not bespeak jeopardy to the assets. In any event, ample protection can be afforded by injunctions. 46 Sharander's "loans" to Grace Securities, and "dividends" and other payments to of for the benefit of Ms Grace and Dr Grace during the 2005 financial year - of which Mr Grace has known since at least 25 August 2006 - total $25,489. The payments apparently for the benefit of Dr Grace by Investments during the 2004 financial year total $47,754. These are not large amounts in the overall context. In private family companies, advances to directors and/or shareholders are commonplace, as is the absence of supporting documentation. Neither the fact that such transactions have taken place in the past, nor the informality of the loan arrangements, is surprising, and those matters are not demonstrative of jeopardy to the companies' assets. For the future, such transactions can be prohibited on an interim basis by injunction. 47 Mr Grace and his solicitors persistently sought information and undertakings from the defendants, in respect of access to documents and preservation of the status quo, in order to avoid an application such as the present. The defendants did not provide any meaningful responses, apparently despite advice from their lawyers that they should give at least some undertaking, until the last moment. Some of their responses have the prima facie appearance of dissembling and delay. This is most regrettable, because the present application could easily have been avoided had the undertakings been offered, without significant detriment to the defendants (as proposed, they were limited to requiring seven days notice before any relevant dealing), and in those circumstances the failure to give any of the undertakings sought inevitably arouses more suspicion. In the present context, however, I am not prepared to infer that the refusal to offer undertakings indicates a risk of adverse dealings with the assets of the companies. That context is a family dispute, in which emotions are highly charged, and there is a high index of suspicion and distrust: Mr Grace, having recently discovered the terms of his father's will, believes that he has been cheated by his mother and sister. They are no doubt affronted by his allegations, and as a result dig in their heels and are reluctant to concede the undertakings. Unfortunately, that reluctance only serves to heighten the level of Mr Grace's suspicion. 48 I therefore do not accept that there is a significant risk that the defendants may cause the Grace Companies to dispose of, or otherwise deal with, assets of the companies disadvantageously. 49 Risk of dissipation of assets on separate defence. The majority (s Grace and Dr Grace), and the companies, are separately represented. There is nothing necessarily improper or inappropriate in that, unless the companies' defence goes beyond merely protecting their discrete interests so as to constitute support of the majority. Mr Grace had earlier objected that there was a conflict in Curwoods acting for the companies as well as for Ms Grace and Dr Grace. 50 It is impossible to say, at this stage, to what if any extent the legal work performed and to be performed at the cost of the companies has included or will include work that goes beyond their proper defence and amounts to support of the majority. Yates Beaggi have rendered costs totalling $41,140 (inclusive of GST), which include conferences with and attendances upon Dr Grace and Ms Grace and their solicitor Mr Maitland, and briefing senior and junior counsel. At the conclusion of the hearing, Ms Grace and Dr Grace proffered an undertaking that in the event of the appointment of a liquidator (not being a provisional liquidator) they would not, from the close of business on the date on which such appointment is made, incur on behalf of Holdings or Investments any legal costs or disbursements in respect of these proceedings, until the liquidator assumed control of the companies' property and affairs or further order. As this undertaking would take effect only on the making of a winding up order, which may never be made, it does not address the problem: it does not prevent dual representation until a final order is made – including at the final and any further interlocutory hearings. 51 In Fexuto v Bosnjak Holdings, Young J explained that where company resources were inappropriately expended in the defence of the majority interest in oppression proceedings, the remedy was for the majority to compensate the company for the unauthorised expenditure; and where the minority was to be bought ought, the valuation should bring to account an actual or notional accounting for the moneys which should be returned by the majority to the company, including so much of the costs incurred in the company's defence which were attributable to support of the majority rather than defence of the company: In my view, the extent of the defence by the company went beyond merely protecting its discrete interests. Doubtless some part, perhaps even up to 2/3 of the company's legal costs may well have been properly incurred. However, the balance of probabilities is that at least ⅓ of these costs were incurred to support the majority. This was authorised by the majority who did not just instruct Mr Mostyn to look after the company's discrete interests, but to defend vigorously. This Mr Stitt QC and Freehill, Hollingdale & Page, both renowned for their vigour, duly did up to the first day of hearing. This went beyond what was a proper course for the board to take and is oppressive. The remedy again, however, is merely that the majority compensate the company for the unauthorised expenditure: Martin v Australian Squash Club Pty Ltd (1996) 14 ACLC 452 at 477. The amount of the unauthorised expenditure can be assessed by the Master or by a referee. 52 I accept that there is a significant risk that company resources will be inappropriately expended in the defence of the interests of the majority. As Young J held in Fexuto, the remedy is merely that the majority compensate the company for the unauthorised expenditure, which can be assessed by the Master or by a referee, and taken into account in any buy-out order. However, that does not mean that the majority should be permitted to have recourse to the company assets in the meantime, on the basis that if it can later be shown to be inappropriate it can then be recovered. 53 Accounting irregularities. Correspondence on behalf of Mr Grace has expressed a concern that the defendants may tamper with the accounts, to the advantage of Ms Grace and Dr Grace and the detriment of Mr Grace, and the changes in the "drafts" of the 2005 accounts lend some support to these concerns. The accounts for 2006 are apparently "final" – since they have been used for the preparation and lodgement of tax returns – and it is difficult to understand how there could be final accounts for 2006 if the 2005 accounts are now said not to have been finalised. However, the differences between the first and second versions of the 2005 accounts do not appear, overall, to favour the majority. Whereas the first draft showed as current assets of Sharander, in addition to cash at bank and prepayments, only a loan to Grace Securities of $24,644 (2004: $7,644), the second draft shows a loan to Grace Securities of $71,644 (2004: $50,644), to Debid of Nil (2004: $56,096), to Dr Grace of $9,388 (2004: $6,500), to Ms Grace of $2,292 (2004: $2,292), and to Mr Grace of $4,000 (2004: $4,000). The first draft showed current liabilities, in addition to bank overdrafts, other creditors and provisions, debts to Holdings of $4,148 (2004: $4,148), Investments $7,320 (2004: $31,543), Dutchie $19,739 (2004: $19,739), Dr Grace $2,930 (2004: $8,248), Mr Grace $2,000 (2004: $5,000), and Ms Grace $5,000 (2004: $5,000); whereas the second draft shows as liabilities Holdings $3,498 (2004: $3,498), Investments $33,514 (2004: $22,514), and Dutchie $13,739 (2004: $13,739), with nothing recorded for the others. Thus the differences between the two drafts involve debt of the majority increasing from $24,644 to $83,324 and debt to the majority reducing from $7,930 to nil, a net change adverse to their position of $66,610, while debt of Mr Grace increases from nil to $4,000 and debt to Mr Grace and Dutchie reduces from $21,739 to $13,739, a net adverse change of $12,000. Intercompany debt, to the Nevilda companies, increases from nil to $11,468, which operates to David's overall advantage, particularly if his claim to beneficial control of the Nevilda companies succeeds. These curiosities in the accounts show that the precise financial position of Sharander is or may require clarification, and perhaps that not all transactions have been correctly booked in the past, but even coupled with the lack of documentation and absence of explanation for the "related party" transactions, they do not establish that the assets are in jeopardy, or even that there is a risk of tampering with the accounts, which are apparently prepared by a firm of chartered accountants. Moreover, it is not apparent how the appointment of a provisional liquidator would ameliorate the supposed risk of tampering with the accounts: while it may, as a result of the provisional liquidator assuming control of the books, avoid further entries being made which could further confuse the position, it should be possible in any event for the parties to identify entries in the ledgers; it will be necessary for all parties to investigate and establish the true position, and appointment of a provisional liquidator will not avoid a dispute as to the accuracy of either, or any further, set of accounts, nor the need for investigation of the accounts to enable that dispute to be resolved. 54 Alleged breach of previous undertaking. Although the evidence reveals some payments by Investments since the undertaking of 8 August 2006 which are presently unexplained, I am not prepared to conclude that those payments were of expenses incurred otherwise than in the ordinary course of business of the Grace Companies, and it has therefore not been shown that there has been any breach of the undertaking. 55 Dysfunctional management. It is common ground that the boards of Holdings, Investments and Sharander have become dysfunctional, with allegations and counter-allegations of intimidatory and threatening behaviour. But it does not follow that a provisional liquidator should be appointed: while it may be appropriate to appoint a provisional liquidator in a case involving a dysfunctional board, that will usually only be so if all other expedients have failed and the result is likely to be jeopardy to the company [Re Club Mediterranean; Alessi v The Original Art Co; Rural Industries Cooperative Society Ltd v Porky Pigs Pty Ltd; Constantinidis v JGL Trading Pty Ltd, 637-8, 639]. Here, the boards of the Grace Companies are not deadlocked, and are not unable to make decisions. It is noteworthy that, in his affidavit of 3 November 2006, Mr Grace's evidence [para 110(e)] is to the effect that it has been possible to hold board meetings and conduct company business. The companies are property-holding entities, and do not conduct businesses which require frequent decision-making by their directors. In this case, the breakdown of the relationship between the directors is not of itself likely to result in jeopardy to the assets of the companies; the disagreements and difficulties between the directors do not jeopardise the ability of the boards to make appropriate decisions in respect of the companies' assets. 56 Attempts to remove Mr Grace as director and otherwise convene meetings. Mr Grace suggests that, in view of the recent history of directors' meetings being convened, often on short notice, to address and resolve issues adversely to him, in respect of which he has had to seek undertakings not to proceed and on one occasion obtain an injunction, it is likely that such a pattern will continue, and further applications to the court necessitated, and that appointment of a provisional liquidator would prevent the defendants from continuing to convene directors' meetings and "running roughshod" over his rights as a director to participate in the process. 57 The convening of the meetings proposed to be held on 6 and 7 November 2006 to remove Mr Grace as a director is evidence of attempts to exclude him from management. Those attempts were not pursued, once an undertaking not to proceed was sought and given, on the basis that there had been insufficient notice. 58 As to the meetings convened on the evening before the hearing, to ratify the retainer of the lawyers acting for the companies, following notification by Mr Grace's solicitors that the retainer of the companies' solicitors would be challenged, the very short notice was unavoidable given the notification of the challenge to the retainer and the imminence of the hearing, and those meetings were a reasonable response to the challenge to the retainer: any competent lawyer would have advised the Grace Companies to convene such meetings and ratify the retainer prior to the hearing. 59 Accordingly I do not accept that this reveals a likelihood that the defendants will continue to convene meetings at short notice and conduct the affairs of the companies in a manner that "rides roughshod" over Mr Grace's rights as a director to participate in the process, which might require repeated applications to the Court. If further meetings are convened, each can be dealt with on its merits. It also needs to be born in mind that Ms Grace and Dr Grace will remain the majority in Sharander and accordingly are entitled to exercise control of that company. On the other hand, as the prospects are that Holdings and Investments will either pass into the control of Mr Grace or be wound up, there is less reason to defer to their rights in respect of those companies. 60 No adverse effect. It is not correct that an appointment will have no adverse effect: it will visit on the companies the not inconsiderable burden of the costs of the provisional liquidator. It is far from clear that there will be a corresponding saving in legal costs: while it is possible that appointment of a provisional liquidator might avoid the costs of some further interlocutory applications, it will not necessarily do so. But I accept that the impact of an appointment would be less in this case than in a case of a trading company, and that is of some relevance to the balance of convenience. However, this factor is two-edged: the need for a provisional liquidator is reduced by the nature of the companies' affairs. 61 Accordingly, on the application for appointment of a provisional liquidator, the significant matters are: · There is a seriously arguable case that Ms Grace and Dr Grace misappropriated Mr Grace's interest in his father's estate, including control of Holdings and through it Investments, and as a result have exercised control when they ought not have been in a position to do so; · There is a significant risk that company resources will be inappropriately expended in the defence of the interests of the majority. Though this may be capable of remedy by taking into account, in any buy-out order, the compensation which the majority ought to provide to the company, that is a less perfect remedy than prevention. Given the consent to the winding up of Holdings and Investments, there is no apparent reason why those companies should incur legal costs of defending the winding up application; · There is not otherwise a significant risk that the assets of any of the Grace Companies will be jeopardised pending the final hearing, particularly if interlocutory injunctive relief is granted; · Although the relationship between the directors has broken down, it has not yet produced a state of affairs which paralyses management so as to require appointment of a provisional liquidator. However, there are indications that Ms Grace and Dr Grace have since April 2006 tended to minimise Mr Grace's role in management and access to information of the Grace Companies, and have sometimes been disingenuous in their dealings with Mr Grace and his lawyers. There is a significant risk that Mr Grace's role will continue to be minimised. This is more significant in respect of Holdings and Investments than in respect of Sharander, because there is a seriously arguable case that Mr Grace is entitled to control of Holdings and Investments, whereas Ms Grace and Dr Grace prima facie are and will remain entitled to control Sharander and manage its affairs. 62 The differences in the present positions of the companies, the probable destination of their future control, and the attitudes of the defendants to a winding up are significant. Appointment of a provisional liquidator to Sharander would be a serious interference with management of that company, in circumstances where a winding up order though possible is improbable, and Ms Grace and Dr Grace prima facie are and will remain entitled to control Sharander and manage its affairs. I do not think that sufficient jeopardy to the assets has been shown to justify that serious interference. On the other hand, Holdings and Investments will probably either pass to David's control or be wound up, and as Ms Grace and Dr Grace consent to a winding up order (and have even proposed to seek such an order themselves), and the companies made no submission in opposition to the appointment of a provisional liquidator (though Ms Grace and Dr Grace did), there seems no reason why they should retain control in the interim, and potentially make significant decisions about their assets, when it is seriously arguable that it is Mr Grace who should be entitled to do so. Appointment of a provisional liquidator to those two companies would, in those circumstances, be a far less significant interference with management. 63 In my opinion, therefore, the strength of Mr Grace's case that he is entitled to control Holdings and Investments, the consent of the defendants to those companies being wound up, the probability that they will either pass to Mr Grace's control or be wound up, the inappropriateness of Ms Grace and Dr Grace retaining control in those circumstance, the risk that (if they do retain control) company resources may be used to fund the majority's defence (notwithstanding the consent to these two companies being wound up), the minimal detriment involved in the appointment of a provisional liquidator where Mr Grace seeks it and Ms Grace and Dr Grace consent to a winding up order, and the insignificance of the interference with management involved in appointing a provisional liquidator in those circumstances, justify the appointment of a provisional liquidator to Holdings and Investments. However, the improbability of a winding up order ultimately being made in respect of Sharander, the prima facie entitlement of Ms Grace and Dr Grace to retain its control, the serious interference with their rights and management of Sharander that would be involved in appointment of a provisional liquidator, and the absence of jeopardy to the assets (other than through expenditure of resources on the defence of the majority, which can be taken into account in valuing any buy-out order) tell against appointing a provisional liquidator to Sharander. Injunctive relief 64 Alternatively to the application for the appointment of a provisional liquidator Mr Grace seeks interlocutory injunctions (1) restraining the companies from, without the prior written consent of Mr Grace, acquiring alienating or encumbering any asset worth in excess of $1,000, transferring or paying any moneys to Ms Grace or Dr Grace, transferring or paying any moneys or incurring any liabilities between one or more of the Grace Companies, declaring or paying any dividends, advancing or agreeing to advance any loans, or incurring any liabilities or paying any expenses incurred otherwise than in the ordinary course of business; (2) restraining Ms Grace and Dr Grace from causing permitting or procuring any of the Grace Companies to do any such thing; and (3) granting access to Mr Grace and his advisers to all books and financial records of Holdings, Investments, Sharander, Dutchie and another related company, Debid Pty Ltd; requiring delivery up of those books and records to a serviced office or other agreed location for that purpose; and granting Mr Grace electronic viewing access to all current bank accounts and term deposits of the Grace Companies. As I will appoint a provisional liquidator to Holdings and Investments, this requires consideration only in respect of Sharander. 65 The companies' solicitors, on 21 December 2006 (the first day of the hearing), proffered on behalf of Sharander undertakings, on a "without admissions" basis, as follows:- · Not to deal with or dispose of Sharander's right title and interest in New Beach Road and any other of its assets, until further order or agreement between the parties, this undertaking not to prevent Sharander from conducting its usual day-to-day business activities in the ordinary course. This undertaking is not acceptable to Mr Grace, the chief objection being that it does not make clear that it extends to prevent payments or transfers to directors or related companies, since such payments or transfers have historically been made and might therefore be regarded as in the ordinary course of business. While the defendants apparently accept that loans and dividends would not be in the ordinary course of business, they say that reimbursement of directors' out-of-pocket expenses would be, and should be permitted. · By no later than 5pm on Friday 29 December 2006, to take all necessary steps to have delivered to the offices of Pitcher Partners, Chartered Accountants, all its Books and Financial Records (within the meaning of the Corporations Act), with instructions to Pitcher Partners to provide to all directors supervised access to those documents as sought in paragraphs 5(a) and (c) of the Interlocutory Process. ["Supervised access" has since been clarified to include the documents being boxed and taken to a professional copier for copying and return]. No objection to the sufficiency of this proposed undertaking has been identified. 66 In my view, whatever may have been the practice in these companies in the past, in the context of the present dispute it is desirable that any further "related party" dealings by Sharander occur only with Mr Grace's knowledge. That said, I accept that they should not be entirely prohibited: as Mr Whittle submitted, there is no reason why directors' expenses properly incurred should not be reimbursed, and as Holdings apparently has no liquid assets, related party transactions may be necessary to fund payment of its expenses. Accordingly, in my opinion, the appropriate course is to require sufficient notice to be given to Mr Grace of proposed dealings to allow him a proper opportunity to consider and if so minded object to them, and, if so advised, to approach the Court. In that event, the Court would not likely restrain proper reimbursements or transactions to fund expenses, but might well restrain loans to directors. Orders 67 My orders are: UPON the plaintiff by his counsel giving to the Court the usual undertaking as to damages:- 1. ORDER that Geoffrey Reidy be appointed liquidator of the third defendant Nevilda Holdings Pty Limited and the fourth defendant Nevilda Investments Pty Limited provisionally. 2. ORDER that until further order: 2.1 the fifth defendant Sharander Pty Limited be restrained from, except (a) with the prior written consent of the plaintiff David Grace or (b) upon having given to the plaintiff seven days written notice of its intention so to do, such notice to particularise the nature of, parties to and quantum of the proposed transaction: 2.1.1 purchasing alienating encumbering or otherwise disposing of any asset worth in excess of $1,000; 2.1.2 transferring or paying any moneys to the first defendant Deborah Sharon Grace or the second defendant Julienne Grace, 2.1.3 transferring or paying any moneys or incurring any liabilities between one or more of Nevilda Holdings Pty Limited, Nevilda Investments Pty Limited, and Sharander Pty Limited, 2.1.4 declaring or paying any dividends, 2.1.5 advancing or agreeing to advance any loans, or 2.1.6 otherwise incurring any liabilities or paying any expenses except in the ordinary course of business; 2.2 the first defendant Deborah Sharon Grace and the second defendant Julienne Grace be restrained from, by themselves their servants or agents, causing procuring permitting facilitating or suffering the fifth defendant Sharander Pty Limited to do any thing that is prohibited by Order 2.1. 3. ORDER that the first defendant Deborah Sharon Grace and the second defendant Julienne Grace within seven days deliver to the provisional liquidator all of the books and records of the third defendant Nevilda Holdings Pty Limited and the fourth defendant Nevilda Investments Pty Limited which are in their hands. 4. ORDER that the Provisional Liquidator permit each of the plaintiff David Grace, the first defendant Deborah Sharon Grace and the second defendant Julienne Grace, upon having given at least one business day's notice, to inspect and make copies of such books and records of the third defendant Nevilda Holdings Pty Limited and the fourth defendant Nevilda Investments Pty Limited as are in the Provisional Liquidator's possession custody or power. 5. ORDER that the fifth defendant Sharander Pty Limited within seven days deliver to the offices of Pitcher Partners, Chartered Accountants, all its Books and Financial Records (within the meaning of the Corporations Act), and instruct Pitcher Partners to provide to the plaintiff David Grace, the first defendant Ms Grace and the second defendant Dr Grace, and their respective professional advisers, supervised access to those documents at all reasonable times, such access to include having the documents boxed and taken to a professional copier for copying and return. 6. ORDER that the fifth defendant Sharander within seven days do all things and execute all documents necessary to cause the plaintiff David Grace to have electronic viewing access to all current bank accounts and term deposits of Sharander. 7. VACATE the appointment for hearing on 20 February 2007 of the Interlocutory Process filed on 8 December 2006. 8. ORDER that costs of the interlocutory applications filed on 8 December 2006 and on 19 December 2006 be costs in the proceedings. 9. ORDER that the exhibits be returned. 10. DIRECT that these orders be entered forthwith. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.