Supreme Court New South Wales Medium Neutral Citation: In the matter of Speedy Ventilation Pty Limited [2016] NSWSC 373 Hearing dates: 22 March 2016 Decision date: 22 March 2016 Jurisdiction: Equity - Corporations List Before: Black J Decision: Order that company be wound up and liquidator appointed. Catchwords: CORPORATIONS — Winding up — Application for order that company be wound up on the just and equitable ground under s 461(1)(k) of the Corporations Act – where parties consented to application – where company was formed on the basis of a personal relationship involving mutual confidence between shareholders which has subsequently broken down – whether just and equitable ground under s 461(1)(k) of the Corporations Act 2001 (Cth) satisfied. Legislation Cited: - Corporations Act 2001 (Cth), s 461(1)(k) Cases Cited: - Belgiorno-Zegna v Exben Pty Limited [2000] NSWSC 884; (2000) 35 ACSR 305 - Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 - Fexuto Pty Limited v Bosnjak Holdings Pty Limited [2001] NSWCA 97; (2001) 37 ACSR 672 - Re Amazon Pest Control Pty Limited [2012] NSWSC 1568 - Re Catombal Investments Pty Ltd [2012] NSWSC 775 Category: Principal judgment Parties: Kevin Gordon (Plaintiff) Speedy Ventilation Pty Ltd (First Defendant) Tracey Lee Fellows (Second Defendant) Representation: Counsel: J Bennett (Plaintiff) L T Fermanis (Second Defendant) Solicitors: Marsdens Law Group (Plaintiff) Charles G Roth (Second Defendant) File Number(s): 2015/334859 Judgment – ex tempore 1. By Originating Process filed on 13 November 2015, the Plaintiff, Mr Kevin Walsh, seeks orders under s 461(1)(k) of the Corporations Act 2001 (Cth) that the First Defendant, Speedy Ventilation Pty Limited ("Company") be wound up and that Mr Mitchell Ball be appointed as liquidator of the company. I have assumed, in that respect, that the reference to "provisional liquidator" in the Originating Process is in error, and the parties have proceeded on the basis that the application is an application for the appointment of a liquidator on a final basis. 2. The First Defendant in the application is the Company, which has, appropriately, taken no active role where the matter involves a breakdown of the relationship of shareholders. The Second Defendant, Mr Tracey Fellows, who is the other shareholder in the Company, has indicated consent to the application, other than in respect of the question of costs. I will hear the parties as to the question of costs. Although the parties consent to the application, the appointment of a liquidator under s 461(1)(k) of the Corporations Act involves the exercise of a statutory discretion and it is accordingly necessary that the Court be satisfied that that discretion is properly exercised in favour of the order sought. Plainly, as a practical matter, the Court may more readily make the orders sought, where the parties to the proceedings, each with legal representation, have consented to them. Nonetheless, I will refer to the evidence, and the applicable legal principles, below. 3. The application is supported by several affidavits, primarily an affidavit of Mr Walsh dated 13 November 2015, together with further affidavits of Mr Walsh dated 14 December 2015 and 6 March 2016. In his primary affidavit, Mr Walsh gives evidence of the history of the Company, and his work in the ventilation business, and in the Company, and of the distribution of work within the Company between Mr Walsh and Mr Fellows. He refers to the fact that financial aspects of the Company were shared equally and to difficulties arising between the two shareholders, himself and Mr Fellows, from about 2013. Mr Walsh gives evidence of a deterioration in the parties' relationship since that time, and of subsequent difficulties in completing work within time, and of a lack of information as to the work being undertaken on the Company's behalf under Mr Fellows' control. It appears that attempts were made to negotiate a buy-out arrangement in respect of the Company, but they were ultimately not successful. 4. Mr Bennett, who appears for Mr Walsh in the application, in turn refers to evidence of the establishment of a new company, which is said to have competed with the Company, and to involve former employees, in late 2015. Mr Walsh also gives evidence, which is not contested by any evidence led by Mr Fellows, of a breakdown of trust between the parties, and of the concern that Mr Fellows was seeking to build up clients for that new established company. It is ultimately not necessary for me to reach findings as to whether that was occurring, in circumstances that the application is not contested, where it is sufficient for present purposes that there was a perception on the part of one of the two shareholders and directors in a closely held company that that was occurring, and that the proposition put by Mr Walsh that a breakdown of trust has resulted is not contested by Mr Fellows. 5. Mr Walsh's further affidavit dated 14 December 2015 deals with service of the proceedings. An affidavit of his solicitor, Ms Woods, dated 11 December 2015 deals with notification of the proceedings to the Australian Securities and Investments Commission. A further affidavit of Mr Walsh dated 6 March 2016 updates the position, and refers to continuing disputes between Mr Walsh and Mr Fellows as to the adequacy of systems within the Company, and as to difficulties in dealing with clients resulting from the breakdown in the relationship between the parties and of a decline in the Company's work flow and financial situation as a result of these matters. Mr Bennett in turn points to the deterioration of the Company's financial position and business since the breakdown of the relationship between the directors. 6. As I have noted, none of this evidence was contested by Mr Fellows, who in turn does not oppose the application for the Company's winding up. 7. Mr Bennett submits that a winding up order is properly made on the just and equitable ground, as a result of a breakdown in the relationship between the shareholders in what he described as a "quasi partnership" context. Section 461(1)(k) of the Corporations Act relevantly provides that the Court may order the winding up of a company if it is of the opinion that it is just and equitable that the company be wound up. A common category of cases in which such an order can be made is the situation where a company was formed on the basis of a personal relationship involving mutual confidence or requiring material co-operation between the shareholders, and that confidence or co-operation has broken down. The decision in Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 is a classic example of a winding up on that basis, and that principle has been repeatedly referred to in subsequent cases, including, for example, the decision of the Court of Appeal in Fexuto Pty Limited v Bosnjak Holdings Pty Limited [2001] NSWCA 97; (2001) 37 ACSR 672. I have recently reviewed the authorities in Re Amazon Pest Control Pty Limited [2012] NSWSC 1568 at [17]–[19] and I need not repeat that review here. Mr Bennett in turn draws attention to the decision of Brereton J in Re Catombal Investments Pty Ltd [2012] NSWSC 775 at [19], where his Honour identified that a traditional class of case for a winding up included that of deadlock or agreement in the management of the company's affairs, and noted that the words "just and equitable" were nonetheless general words, and the applicant could rely on any circumstances of justice or equity that affect him or her in his or her relationships with a company in support of such an application. 8. Mr Bennett recognises that in some circumstances, an order short of a winding up order might be appropriate, and the court may then not make such a winding up order: Belgiorno-Zegna v Exben Pty Limited [2000] NSWSC 884; (2000) 35 ACSR 305 at 330. Mr Bennett notes that there appears to be no such alternative available in the present case, where circumstances seeking to reach a buy-out arrangement has not come to fruition. Mr Bennett also acknowledges that the evidence does not indicate that the company is insolvent, although its commercial position and trade appears to have deteriorated as a result of the difficulties between the shareholders, and refers to my observation in Re Amazon Pest Control Pty Limited above that there is no principle that a winding up order of a solvent company is inappropriate as such. In circumstances where, as here, the Company's profitability and cash flow are in decline, and the shareholders have not been able to reach agreement between themselves as to how to address that issue, then it may be that a winding up order, notwithstanding the costs which will be involved in a liquidator's involvement, may have the best prospect of realising value from the Company's assets, and ensuring that that value is distributed fairly as between the contributories. 9. I am satisfied that this is a case which falls within that class of case where it is just and equitable to order a winding up, because the relationship between the shareholders has broken down, and there is a significant degree of mistrust between them, or at least a significant degree of concern on Mr Walsh's part in respect of Mr Fellows' activities, and a degree of concern by Mr Fellows as to the way in which the Company's systems are operating, and that it is unlikely, in the extreme, that the shareholders will now be able to resolve those difficulties between them, having not previously done so. I am satisfied that that breakdown of the relationship between the two directors and shareholders of the Company, and an associated deadlock in the management of the Company, is such that it is in the circumstances just and equitable to wind up the company. 10. I should note, for completeness, that Mr Bennett has drawn attention to the existence of proceedings in the Family Court of Australia that, at least at some point, affected the position of Mr Fellows. My attention has not been drawn to any order made by the Family Court of Australia which would in any way limit the exercise of this Court's discretion, in accordance with the statutory regime established by the Corporations Act, and it is not easy to see how such an order could be made in any event. I am satisfied that, in the present circumstances, the existence of such proceedings does not affect the exercise of the Court's statutory jurisdiction to make a winding up order. 11. Both parties have indicated that they will seek to be heard as to costs, and I will give them the opportunity to be heard as to costs. Before doing so, I make the orders in respect of the application as follows: 1. Order that the first defendant, Speedy Ventilation Pty Limited, be wound up. 2. Mr Mitchell Ball of BPS Recovery be appointed as liquidator of Speedy Ventilation Pty Limited. ********** 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. Decision last updated: 07 April 2016