Company Wound Up Due to Breakdown of Relationships

In a case involving a company where there was an irretrievable breakdown of relationships between its directors and shareholders, the court wound up the company on just and equitable grounds under section 461(1)(k) of the Corporations Act 2001 (Cth).

Supreme Court New South Wales

Medium Neutral Citation: In the matter of [COMPANY] [2018] NSWSC 914 Hearing dates: 11 May 2018 and 15 – 18 May 2018 Decision date: 19 June 2018 Jurisdiction: Equity - Corporations List Before: Black J Decision: The First Defendant is to be wound up and [NAME], of [NAME], is to be appointed as liquidator of the First Defendant. This order to be stayed to 2pm on 4 July 2018. Catchwords: CORPORATIONS – oppression – application for an order for the purchase of shares by a member of a company under s 233(1)(d) of the Corporations Act 2001 (Cth) – where both parties have engaged in oppressive conduct – whether to grant order for buy-out of one party's share by the other.

CORPORATIONS – winding up – application to wind up company on just and equitable ground under s 461(1)(k) of the Corporations Act – where breakdown of relations and loss of confidence between company's members – whether company should be wound up. Legislation Cited: - Corporations Act 2001 (Cth) ss 9, 182, 183, 232, 233, 461, 466, 467 - Evidence Act 1995 (NSW) s 136 Cases Cited: - [COMPANY] v [NAME] of Fitness (Vic/Tas) [COMPANY] (No 3) [2015] NSWSC 1639; (2015) 109 ACSR 369 - Belgiorno-Zegna v Exben Pty Ltd [2000] NSWSC 884; (2000) 35 ACSR 305 - Duc v PTS Australian Distributor Pty Ltd [2005] NSWSC 98 - Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 - Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [2001] NSWCA 97; (2001) 37 ACSR 672 - Guerinoni v Argyle Concrete & Quarry Supplies Pty Ltd [2000] WASCA 170; (1999) 34 ACSR 469 - [NAME] v [COMPANY] (No 2) [2012] FCAFC 73; (2012) 202 FCR 336 - Morgan v [COMPANY] (1986) 10 ACLR 692 - Munstermann v Rayward [2017] NSWSC 133 - Nassar v Innovative Precasters Group Pty Ltd [2009] NSWSC 342; (2009) 71 ACSR 343 - Re AJ Roberts Removals & Storage Pty Limited [2017] NSWSC 1054 - Re [NAME] [COMPANY] [2012] NSWSC 1568 - Re [COMPANY] [2012] NSWSC 775 - Re [COMPANY] [2013] NSWSC 1332; (2013) 96 ACSR 1 - Re Yenidje Tobacco Company Ltd [1916] 2 Ch 426 - Ruut v Head (1996) 20 ACSR 160 - Tomanovic v Argyle HQ Pty Ltd [2010] NSWSC 152 - Tomanovic v Global Mortgage Equity Corporation Pty Ltd [2011] NSWCA 104; (2011) 84 ACSR 121 - Victory Projects Pty Ltd v AAA Self Storage Pty Ltd [2016] NSWSC 1758 and - Wayde v New South Wales Rugby League Ltd [1985] HCA 68; (1985) 180 CLR 459 - Wondoflex Textiles Ltd [1951] VLR 458 at 465; Ruut v Head (1996) 20 ACSR 160 Category: Principal judgment Parties: [NAME] (Plaintiff) [COMPANY] (First Defendant) [NAME] (Second Defendant) [NAME] (Third Defendant) Representation: Counsel: [redacted] [NAME] ([NAME])

Solicitors: [redacted] [NAME] ([NAME]) File Number(s): 2017/173357

Judgment 1. The Plaintiff, [NAME], is a shareholder in [COMPANY] ("Company") and the daughter of [NAME] and his wife, [NAME], who is director of the Company. The Second Defendant, [NAME], is a director of the Company and the wife of [NAME]. The Third Defendant, [NAME], is a shareholder of the Company and is the sister-in-law of [NAME].

2. By Further Amended Originating Process filed on 1 December 2017, [NAME] applies under ss 233(1)(d), 233(1)(j), 461(1)(f) and 461(1)(k) of the Corporations Act 2001 (Cth) for an order that [NAME] transfer her share in the Company to [NAME] for a consideration to be determined by the Court or by such other means as the Court considers appropriate. Alternatively, [NAME] seeks an order under s 461(1)(f) or s 461(1)(k) of the Corporations Act that the Company be wound up and a liquidator be appointed, although that is not her preferred position. [NAME] also seeks an order that the Second or Third Defendant, [NAME] or [NAME], pay her costs of the proceedings or that those costs be reimbursed out of the Company's property in accordance with s 466(2) of the Corporations Act. 3. [NAME] alleges that there has been an irretrievable breakdown of the relationship between the directors and shareholders of the Company and that it is just and equitable that the Company be wound up. The [NAME] and [NAME], admit aspects of that allegation, including that there has been an irretrievable breakdown of the relationship between the two directors of and between the two shareholders in the Company, but deny that that breakdown results from the matters pleaded in the Plaintiffs' Amended Statement of Claim and deny that it is just and equitable that the Company be wound up. The [NAME] contend that the breakdown of those relationships results from the conduct of [NAME] and [NAME].

4. By her Interlocutory Process filed on 25 August 2017, [NAME] in turn seeks orders under ss 233(1)(d), 233(1)(j) and 467(1)(c) of the Corporations Act that [NAME] transfer her share in the Company to [NAME] for a consideration equal to the fair value of that share as determined by a valuer to be appointed by agreement or, failing agreement, to be appointed by the Court. That order is, in effect, the inverse of the order sought by [NAME]. In closing submissions, [NAME], who appears for [NAME], recognised that that relief may not be practicable and sought to develop alternatives to it. I will return to that matter below. [NAME] does not specifically seek a winding up order, although [NAME] accepted in opening that the present position was untenable and that a winding up order would likely follow, if neither the order for the transfer of [NAME]'s share to [NAME] sought by [NAME] nor the order for the transfer of [NAME]'s share to [NAME] sought by [NAME] were made.

The factual background and affidavit evidence 1. There is a substantial degree of common ground between the parties as to relevant facts, as pleaded by [NAME]'s Amended Statement of Claim filed on 1 December 2017 and admitted by the Amended Defence filed on 12 December 2017. There is also a degree of common ground as to the facts alleged in a Points of Cross-Claim subsequently filed by the [NAME]. At the commencement of the hearing, the parties also agreed two additional agreed facts (Ex J1) as follows: "[[NAME]] is, and has been at all times since the company's incorporation, the beneficial owner of the share in the Company which [[NAME]] holds and has held at all times since the Company's incorporation; and [[NAME]] is, and has been at all times since the Company's incorporation, the beneficial owner of the share in the Company which [[NAME]] holds and has held at all times since the Company's incorporation."

1. The Company was incorporated on 6 September 2012, and was formed by [NAME] and [NAME], although their respective family members became its shareholders and directors, to take over a health food products business previously operated by [NAME] through another company, [COMPANY] ("[NAME]") from premises in Alexandria. [NAME] paid an amount of $215,000 to acquire, in the name of [NAME], a 50% interest in the Company for [NAME], of which $165,000 was attributed to goodwill and assets of the business and $50,000 was for working capital ([NAME] 30.3.18 [12]–[15]). The Company then operated and still operates a business that sells Australian natural health supplements and products to Korean tourists visiting Australia, who were brought to its shop by [NAME] by arrangement with it. The Company prepays commission to those [NAME], from which amounts of commissions payable when tourists attended its shop are then deducted ([NAME] 30.3.18 [22]–[24], T85–88, 91–92), leaving a balance recorded either in favour of the tour agent or the Company ([NAME] 30.3.18 [25]). I will address the question whether that balance was properly treated as owing to the Company from time to time, or on termination of the relationship with a tour agent, or as an asset of the Company below.

2. The parties each read several affidavits, and [NAME] and [NAME] were cross-examined. [NAME] relied on her affidavit dated 7 June 2017 which referred to correspondence requesting financial information concerning the Company which had not then been provided to her, and also indicated that she was unable to work with [NAME] in relation to the Company's operations. In fact, neither [NAME] nor [NAME] have had any substantive role in the Company's affairs. 3. [NAME] also relied on [NAME]'s affidavit dated 30 March 2018. [NAME]'s evidence was that the directors and shareholders of the Company were determined by him and [NAME] ([NAME] 30.3.18 [18]). [NAME] also addressed the manner in which the Company operated, its arrangements for commissions payable to [NAME] which brought in tour groups and for prepayment of such commission. I will address several other aspects of [NAME]'s evidence below. By a further affidavit dated 11 May 2018, filed in the course of the hearing, [NAME] led evidence to seek to support a claim in his first affidavit that he had made payments from his own funds for the purpose of marketing expenses of the Company and received reimbursement of those payments to an associated entity, [COMPANY] ("[NAME]"). I will address that matter further below. 4. [NAME], who appears for [NAME]. submits that, where there is a conflict in the evidence of [NAME] and [NAME]'s evidence should be preferred to [NAME]'s evidence, to which I refer below. [NAME] submits that [NAME] gave evidence in a careful manner, answered questions directly and made concessions where appropriate. I accept that [NAME] was more direct in his answers to questions in cross-examination than [NAME], and at least made concessions where matters adverse to his evidence were evident from documents were put to him in cross-examination. Significant aspects of [NAME]'s affidavit evidence, particularly in respect of dealings with [NAME] to which I refer below, were falsified in cross-examination. I recognise the possibility that, as [NAME] points out, this may at least partly have arisen from difficulties with the translation of his affidavit evidence or his oral evidence. Nonetheless, I consider that [NAME]'s evidence should be approached with caution unless it is corroborated by documents or adverse to his interests. 5. [NAME] also relied on the affidavits of [NAME] dated 8 June, 2 August and 6 October 2017. The first of those affidavits related to matters which are now largely uncontroversial, in respect of the exclusion of [NAME] from access to information concerning the Company. The second of those affidavits related to further requests for Company records, clarified information as to payments made by the Company to [NAME] and dealt with the relocation of the Company's business to premises also occupied by another company associated with [NAME], [COMPANY] ("[NAME]"). [NAME]'s third affidavit responded to evidence led by the [NAME] and also addressed issues in respect of the Company's financial statements and its premises. [NAME] also relied on the affidavits of [NAME] dated 10 July 2017 and 20 October 2017, relating to the notifications and other steps required to be taken prior to making a winding up order.

6. The [NAME] and [NAME], relied on [NAME]'s affidavit dated 25 August 2017, and I will refer to aspects of [NAME]'s evidence in that affidavit below. [NAME] and [NAME] also relied on a second affidavit of [NAME] dated 27 November 2017 which dealt with the nature of the business conducted by another entity associated with [NAME], [COMPANY] ("[NAME]"), the Company's move to new premises shared with [NAME], and the treatment of prepayments to [NAME]. [NAME] and [NAME] also relied on [NAME]'s further affidavit dated 27 April 2018 which also dealt with the practice in respect of pre-paid commissions to [NAME] and the circumstances in which [NAME] traded through [NAME]. [NAME] also acknowledged, in that affidavit, that it had been inappropriate for him to arrange for other persons to be named as directors of the Company, when he intended that he would be the person who would manage the Company jointly with [NAME], and for [NAME] to take a similar approach. His evidence was that he would ensure that, in future, he was correctly recorded as a director of a company where he managed the company's affairs, alone or with someone else, and that he would also ensure that that other person was recorded as a director where that other person managed the company with him ([NAME] 27.4.18 [38]). He also indicated that he would ensure that, in future, the records of the Australian Securities and Investments Commission ("ASIC") showed a person who held a share for him did not hold that share beneficially ([NAME] 27.4.18 [39]). I ultimately give little weight to these matters, where I find below that other matters warrant a winding up order in respect of the Company. 7. [NAME] submits that [NAME] was not a reliable witness and rightly points to [NAME]'s reluctance to answer questions in a responsive way, to inconsistencies in his evidence and his reluctance frankly to concede matters that were adverse to his case, including the extent to which [NAME] had relied on employees paid by the Company, increasing the Company's wage costs and reducing [NAME]'s costs. I largely accept [NAME]'s criticisms of [NAME]'s evidence and I consider his evidence, like [NAME]'s evidence, should be approached with caution unless it is corroborated by documents or adverse to his interests.

8. The [NAME] also relied on the affidavit of [NAME] dated 25 August 2017. [NAME] worked as an accounts manager at the Company and described the nature of the Company's operations. [NAME] was cross-examined at some length and he seemed to me to be an honest witness who was doing his best to provide a truthful account of events to the Court. I accept his evidence, and prefer his evidence to [NAME]'s evidence in respect of a significant conflict of evidence between them as to the Company's dealings with [NAME].

Breakdown of parties' relationship and exclusion of [NAME] from the Company's business 1. As I noted above, the fact of a breakdown of relationships between the parties and the Company's shareholders and directors is common ground between the parties. It is common ground that, since 17 December 2015, [NAME] and [NAME] have been the Company's only directors and that the directors cannot pass a resolution if they are in disagreement, by reason of cl 21.9 of the Company's constitution which provides that a resolution is lost on an equality of votes and the chair does not have a second or casting vote (Amended Statement of Claim [10]–[11]; Amended Defence [10]–[11]). There is no written shareholders agreement that would allow resolution of a deadlock. In any event, [NAME] and [NAME] do not meet or seek to make decisions as directors and have largely left the management of the Company to [NAME] and [NAME], whose relationship has also broken down, and [NAME] has now withdrawn from or been excluded from the Company's business or both.

2. It is also common ground that [NAME]'s employment was terminated by the Company on 24 March 2017 without [NAME]'s knowledge or consent as a director of the Company (Amended Statement of Claim [22], Amended Defence [22]). There is some evidence that [NAME] had previously ceased working with the Company in November 2016, although the Company continued to pay him wages, prior to termination of his employment from 24 March 2017; at least that was the position advanced by the Company in its letter terminating [NAME]'s employment (Ex J2, 500). [NAME] accepts, in his affidavit dated 25 August 2017, that he arranged for the termination of [NAME]'s employment with the Company, after he became aware that [NAME] had established another company, [COMPANY] ("[NAME]"), which was operating the same kind of business as the Company; that the Company then stopped paying wages to [NAME] and continued paying wages to [NAME]; and that [NAME] has had no involvement with the Company since March 2017. The termination of [NAME]'s employment took place without the authority of a resolution of the directors of the Company, which likely could not have been passed by reason of the deadlock that would have existed had the directors in fact managed the Company, rather than [NAME] and [NAME], and later only [NAME], doing so.

3. It is also common ground that, from at least late March 2017 until May 2017, [NAME] and [NAME] did not permit [NAME] or Mr or [NAME] access to the Company's operational and financial records (Amended Statement of Claim [24], Amended Defence [24]) and, since March 2017, [NAME] has not been given access to the Company's internet banking facility (Amended Statement of Claim [25], Amended Defence [25]). Other financial records and director's reports have not been provided to [NAME] or [NAME] (Amended Statement of Claim [30]–[34], Amended Defence [30]–[34]). On or about 3 April 2017, [NAME] requested that the Company prepare a director's report for the financial year entered 30 June 2016 under s 293 of the Corporations Act, which permits shareholders with at least 5% of the votes in a small proprietary company to give that company a direction to prepare a financial report and directors report for a financial year but that also was not done. The Company defended proceedings brought against it by [NAME] without authority of its directors acting as a board and without [NAME]'s agreement (Amended Statement of Claim [41], Amended Defence [41]). The Company also paid legal fees to the solicitor who now appears for the [NAME], in respect of the dispute between the Company and [NAME], also without the authority of its board. It is also common ground that [NAME] does not now consult [NAME] in relation to the Company's affairs, although neither of them have any real involvement in the Company's affairs; [NAME] does not consult [NAME] in respect of the Company's affairs; and members of the [NAME] do not now have any involvement in the Company's affairs. 4. [NAME] fairly accepted, in his written closing submissions, that the [NAME]' conduct in respect of the termination of [NAME]'s employment, the failure to pay remuneration to [NAME] while wages were paid to [NAME]'s wife, the denial of access to the Company's premises, bank facility and records, the failure to consult with [NAME] in respect of the conduct of the Company's affairs including the defence of the proceedings brought by [NAME], and the move of the Company's business to other premises would entitle [NAME] to relief, but for the conduct alleged by the [NAME] against [NAME] and [NAME]. I am satisfied that these matters would ordinarily establish a claim in oppression or for winding up of the Company on the just and equitable ground, by reference to the principles to which I refer below. I am also satisfied that, although [NAME]'s conduct also amounted to oppression, it did not deprive [NAME]'s conduct of its otherwise oppressive character. I address below the question whether an order should be made requiring the sale of the share held by [NAME] to [NAME], or requiring the sale of the share held by [NAME] to [NAME], or winding up the Company.

[NAME]'s competition with the Company 1. Each party alleges the other improperly competed with the Company, and each party has established this allegation against the other. It is convenient first to address [NAME]'s competition with the Company and then [NAME]'s competition with the Company.

2. The [NAME] allege that, about mid-March 2017, [NAME] caused [NAME] to commence operating a health foods business from premises in Alexandria, which was the same kind of business that the Company had been conducting since September 2012; that [NAME] has been competing with the Company from March 2017; and that [NAME], or alternatively [NAME] and [NAME], had caused [NAME] to do so. Those matters were not admitted by [NAME].

3. I now turn to [NAME]'s evidence in respect of this allegation. He refers, in his affidavit dated 30 March 2018, to the circumstances in which the Company was established and to [NAME]'s involvements with other businesses at that time, including [NAME] and [NAME]. [NAME] also refers to discussions and draft documentation in relation to the formation of the Company, which was then proposed to be established under a different name. [NAME] also refers to his involvement in another company, [COMPANY] ("[NAME]"), which he claimed operated separately to the Company, although in a similar way, selling health food supplements to incoming Korean tourists under arrangements with [NAME] to bring those tourists to its shop. [NAME]'s evidence is that he had made [NAME] aware of his involvement in [NAME] and [NAME] did not object to that involvement ([NAME] 30.3.18 [38]). 4. [NAME] also refers to his subsequent involvement in another duty free health food supplement business operated by [COMPANY] ("[NAME]"), which operated similarly to [NAME] and the Company but which [NAME] said was completely separate to the Company ([NAME] 30.3.18 [46]). [NAME]'s evidence is that he had also made [NAME] aware of [NAME], and its business, and [NAME] did not have any objection to his being involved in [NAME] ([NAME] 30.3.18 [54]). [NAME]'s evidence is that he ceased involvement with [NAME] in November 2016 ([NAME] 30.3.18 [56]); advised [NAME] that he wished to open a health food shop to provide services to the [NAME] he had previously dealt with in [NAME], and [NAME] having responded that, if [NAME] opened in the same line of business, [NAME] would have no choice but to become his competitor; and to [NAME] then advised [NAME] that: "The health food store I am going to open, is simply a continuation of the [NAME] business I operated previously. It has nothing to do with [the Company] or you. It will not be in competition with [the Company]. However, if you think like this, then let's stop trading [the Company]. Let's divide all of the company assets of [the Company], including the goodwill, the [NAME] and the tour agent pre-payments, on a 50/50 business, and let's open our own separate businesses." [NAME]'s evidence is that [NAME] indicated he was "not happy about this". 1. [NAME]'s evidence in cross-examination was contrary to his affidavit evidence as to this conversation, since he denied having discussed the Company with [NAME] in November 2016 in cross-examination. This was a significant departure from his affidavit evidence as to a significant matter and contributes to my lack of confidence in his evidence. It seems to me that [NAME]'s evidence of this conversation, taken at its highest, did not establish [NAME]'s or the Company's consent to [NAME]'s competing with the Company through BioPharma, which he then established, still less fully informed consent where [NAME]'s statement that that business would not be in competition with the Company was plainly not correct and where [NAME] did not acquiesce in [NAME]'s proposal in any event. 2. [NAME]'s evidence is also that he became aware through these proceedings that the Company continued to trade after this conversation and that he did not previously know that the Company continued to trade after that date ([NAME] 30.3.18 [61]). It is difficult to accept that [NAME] would not have anticipated that the Company would continue to trade, since [NAME] had not acquiesced in his suggestion that the Company cease trading in that conversation. [NAME]'s evidence ([NAME] 30.3.18 [57]) is that he did not have any further material conversations with [NAME] about the Company's financial affairs after that conversation, and he does not lead evidence of any further conversation which might amount to consent by [NAME], or any other person associated with the Company, to his conducting that competing business. 3. [NAME] caused the incorporation of [NAME] on 2 December 2016, with his son as its sole shareholder and director, and that company commenced trading in March 2017 and operated a health foods business in Alexandria, using [NAME] who were also used, or previously used, by [NAME]. [NAME] used by the Company, and subsequently by [NAME], included [COMPANY] and [COMPANY], and [NAME] also used another tour agent, [COMPANY], apparently without objection by the Company or [NAME]. [NAME]'s evidence as to this matter is that he formed [NAME], which continued his business with three [NAME] from [NAME] ([NAME] 30.3.18 [72]) and that: "[NAME] continues operating a similar business to that operated by [NAME] and the Company, selling health food supplements to incoming tourists from Korea, arranged through [NAME]." ([NAME] 30.3.18 [74]) 1. [NAME] also gives evidence ([NAME] 25.8.17 [35]) of steps taken by [NAME] to open a tax-free souvenir shop in Pyrmont, which appears to have competed with [NAME]'s separate business, [NAME], rather than with the Company. [NAME] also refers to a conversation with [NAME], in December 2016, in which [NAME] acknowledged that he was opening a tax-free health foods product shop, which would use [NAME] from the Company, and [NAME] protested that course, and indicated that he wished to close the Company and for each of [NAME] and [NAME] to have their own separate businesses. [NAME]'s evidence is that [NAME] did not tell him that [NAME] or [NAME] would use, or had used or was going to use, [NAME] that were being used by the Company ([NAME] 27.4.18 [24]). [NAME]'s evidence is that he had a conversation with [NAME] in November 2016, after [NAME] ceased operating, in which [NAME] declined to bring [NAME] previously used by [NAME] to the Company, indicated his wish to open a new health food shop for himself, and [NAME] responded that he did not mind if [NAME] used the same [NAME] that he had used in [NAME], but that he could not use the Company's [NAME], and [NAME] proposed the Company stop trading and its assets be divided equally so that the parties could each open their own separate health food shops. [NAME]'s evidence is that he declined that proposal ([NAME] 27.4.18 [28]).

2. It is common ground that there is an overlap in the [NAME] used by the Company and [NAME] now used by [NAME]'s company, [NAME], and [NAME]'s company, [NAME]. [NAME]'s evidence ([NAME] 30.3.18 [103]) is that [COMPANY] was originally used by the Company and is now used by [NAME] and the "Keyworld" branch of that company is now used by [NAME]. Two tour operators, [COMPANY] and [COMPANY] were originally used by the Company and are now used by [NAME]. [COMPANY] and [COMPANY] were originally used by the Company and, since March 2017, have been used by [NAME].

3. Turning now to the parties' submissions, [NAME] submits that the [NAME]' allegation that [NAME] was established by [NAME] in competition with the Company should not be accepted. [NAME] submits that both [NAME] and [NAME], without objection from the other, have conducted separate businesses which catered to inbound Korean tourists. [NAME] refers to the evidence concerning [NAME] and [NAME]'s involvement in [NAME] and [NAME]'s involvement in [NAME] and to [NAME]'s involvement in [NAME] and [NAME]'s involvement in [COMPANY]. [NAME] submits that [NAME] was formed by [NAME] in December 2016 to conduct his business with three [NAME] previously used with [NAME], and submits that the evidence indicates that [NAME] operates a similar business to that operated by [NAME] and the Company, selling health food products to incoming tourists from Korea, arranged through [NAME]. 4. [NAME] referred to several concessions made by [NAME] in cross-examination, which do not seem to me to be to the point. [NAME] accepted in cross-examination that he did not object to a tour agent moving to a different business, if the tour agent first paid back the amount of the balance of any pre-paid commission due to the Company (T94). It is difficult to see how [NAME] could have objected to such conduct by a tour agent, and a lack of objection to that conduct says nothing as to the position of [NAME] or [NAME]. [NAME] also fairly accepted that neither he nor [NAME] had an agreement they would not operate businesses, other than the Company, which sold products to Korean tourists (T135). It is apparent that both of them operated such businesses, but it does not follow that that conduct was not in breach of duty to the Company. 5. [NAME] also accepted in cross-examination that he had told [NAME] that, providing [NAME] did not take the [NAME] with which the Company was dealing, [NAME] had no objection to his operating businesses selling health products to Korean tourists (T135). That does not assist [NAME], where [NAME] and his companies did deal with those [NAME] to the Company's exclusion. [NAME] also accepted in cross-examination that he knew of businesses conducted by [NAME], and that [NAME] had told him about aspects of the conduct of those businesses, and that he had not objected to aspects of the conduct of those businesses. That evidence does not, however, extend to fully informed consent to the conduct of a competing business, still less where that competing business used [NAME] which the Company was using. [NAME] also accepted in cross-examination that he could not recall an occasion where a tour agent moved to [NAME] or [NAME] without repaying the outstanding balance owing (T136–138). Consistent with [NAME]'s prior evidence, that may have the consequence that he had no objection to the tour agent's conduct, but does not constitute fully informed consent for [NAME]'s conduct, and [NAME] did not accept that he had ever consented either to [NAME]'s competing business, or to its using the [NAME] previously used by the Company. 6. [NAME] paid limited attention, in submissions, to the identification of the basis on which [NAME]'s suggested consent to the conduct of a competing business by [NAME] could avoid a breach of duty or oppression by his conduct. It seems to me that each of [NAME] (and [NAME]) was a de facto director of the Company within the statutory definition of the term "director" in s 9 of the Corporations Act; and [NAME] (and [NAME]) owed a duty to avoid a material conflict of interest with the Company and broadly corresponding statutory duties under ss 182 or 183 of the Corporations Act. The parties had structured their affairs so that [NAME] (and [NAME]) was not a shareholder in the Company, although members of their families were its shareholders. [NAME] and [NAME] could not then, separately or together, give unanimous consent so as to limit the scope of the duties that each owed to the Company as a de facto director or ratify any breach of those duties, since they were not the Company's shareholders. In reaching that conclusion, I have not neglected the fact that the parties now agree, between themselves, that [NAME] held their shares in the Company on trust for [NAME] and [NAME] respectively, although neither party has tendered any contemporaneous evidence of the creation of such trusts. The parties also did not disclose the existence of such trusts to third parties, since the information provided to the ASIC in respect of the Company recorded each of [NAME] as beneficial owners of those shares. 7. [NAME] also submits that, viewed in its commercial context, and having regard to the history of dealings and communications between [NAME] and [NAME]'s conduct in establishing and conducting the [NAME] business, to which I have referred above, was not oppressive within the meaning of s 232 of the Corporations Act, the scope of which I will address further below. I do not accept that submission. It seems to me that that conduct was inconsistent with [NAME]'s duties to the Company, so far as he was a de facto director of the Company; and it was damaging to the Company, at least so far as it diverted business from the Company and took advantage of tour agent relationships which had previously existed within the Company, although [NAME] (unlike [NAME]) had not directly used the Company's resources to advance the interests of that competing business.

[NAME]'s competition with the Company 1. I now turn to the allegations made by [NAME], in the Amended Statement of Claim, in respect of [NAME]'s conduct of [NAME]'s business. [NAME] initially pleaded that the [NAME] interests had caused the trading name of the Company's business to be changed to "[NAME]", without [NAME]'s or [NAME]'s prior knowledge or consent, and thereby wrongfully appropriated the Company's business. The [NAME] denied that allegation. It emerged, in the course of the hearing, that that denial was maintained on the basis that there has been no change in the name of the Company and it continued to conduct business, albeit on a smaller scale, under the name "[NAME]". The [NAME] do not deny that [NAME] now trades in competition with the Company, as does [NAME]. 2. [NAME]'s evidence ([NAME] 25.8.17 [10]) is that he operated both [NAME] and [NAME] as separate businesses. [NAME] referred to discussions with [NAME] in 2012 concerning establishing a new company to "take over [NAME]'s business" and he refers to the incorporation of the Company. [NAME]'s evidence was that [NAME] stopped operating in September 2012 and that the Company commenced operating, and continued to operate, the same kind of business as [NAME] ([NAME] 25.8.17 [18]). 3. [NAME]'s evidence is that, in May 2016, a third party indicated that he could bring customers from [NAME] that did not want those customers to be brought to the Company, if they were brought to a new company. [NAME] referred to a conversation with [NAME] in late May or early June 2016 ([NAME] 25.8.17 [25]) with the effect that: [NAME]: "There is a man who can bring customers but he says he cannot bring them to [NAME]. We should form a new company for that. [NAME]: "OK."

1. It appears that an agreement was reached and signed by [NAME] and a third party relating to the operation of that new company, [NAME], in early September 2016 (Ex J1, 495–498). That agreement contemplated that the third party would establish a separate independent company which would jointly use [NAME]'s and Mr and [NAME]'s store at Alexandria and, on 1 November 2016, the shares and managing director position of that company would be transferred to that third party, and that third party would compensate [NAME] and [NAME] for the cost involved in establishing that company. That agreement also provided for sharing of costs, fairness of allocation of sales and the conduct of marketing and provided for the agreement to continue until the parties terminated it. [NAME]'s evidence is that the third party terminated that agreement in November 2016. That agreement did not authorise the subsequent operation of [NAME], by [NAME], in competition with the Company. 2. [NAME] also referred to the circumstances in which, after the third party ceased to trade through [NAME] started using that company in late March or early April 2017 to operate a duty free health food supplement business from the same shop as the Company ([NAME] 27.4.18 [19]). [NAME]'s evidence is that [NAME] moved its business to other premises in late August or early September 2017, and the Company moved its shop to the first floor of the same building at that time ([NAME] 27.4.18 [22]). I have addressed above the overlap in the [NAME] used by the Company and [NAME] now used by [NAME]. 3. [NAME] submits that [NAME] has wrongfully appropriated the Company's business for the benefit of [NAME]. He submits that the relocation of the Company's premises to premises also occupied by [NAME], without the consent of [NAME] or [NAME], facilitated the diversion of business from the Company to [NAME] and the use of staff paid for by the Company in [NAME]'s business. [NAME] has used a travel agent previously used by the Company, [NAME], without prepaid commissions which were paid to [NAME] by the Company being repaid to it (T108). As [NAME] points out in submissions, the Company incurred substantial employee expenses, amounting to between 7% and 10% of its sale income in the 2016 and 2017 years, and advertising and marketing expenses amounting to approximately 2%–3% of sales income in those years, and achieved substantially lower sales in 2018 while continuing to incur substantial wages and salary expenses, now increasing to almost 20% of the Company's sales in that period (T118). The size of these expenses, by contrast with lower employee expenses incurred by [NAME], reflects the use of employees paid by the Company in [NAME]'s business, amounting to a cross-subsidy by the Company (and the [NAME] interests as shareholders) of [NAME]. [NAME] sought to explain that matter as involving, in part, errors in recording wage expenses to the Company rather than [NAME], those errors operated to [NAME]'s advantage and the Company's disadvantage, even if they were not intentional. [NAME] also accepted in cross-examination that he preferred the interests of [NAME] over the interests of the Company (T131), although it is possible that that concession may have reflected difficulties of translation, and [NAME] also sought to emphasise his wish to assist [NAME] dealing with [NAME], where the Company had not paid the extra commission (which, I find below, was diverted to [NAME]) to the disadvantage of those [NAME].

4. In closing submissions, [NAME] also submitted that [NAME] had demonstrated misconduct by [NAME] which amounted to breaches of his duties owed as a de facto director to the Company, although it was unnecessary for the Court to find that there had been such a breach in order to find oppressive conduct by [NAME] within the meaning of s 232 of the Corporations Act. Although I accept that submission, I note that the same can be said of [NAME]'s conduct of [NAME]'s business, which I have addressed above, and [NAME]'s conduct in respect of payments to [NAME], which I address below. In response, [NAME] fairly accepted that [NAME]'s operation of [NAME] from about April 2017 was "inappropriate"; contended, by way of explanation, that [NAME] dealt only with [NAME] who refused to deal with the Company because of [NAME]'s conduct, a proposition that I have not accepted; and submitted that wages for staff of [NAME] for May and June 2017 were "mistakenly" paid by the Company instead of by [NAME].

5. It is apparent, from the documentary evidence and [NAME]'s cross-examination, that the significantly lower employee expenses incurred by [NAME], by contrast with the Company, reflect [NAME]'s use of the Company's employees in its business. At least for a substantial period, and possibly on a continuing basis, the Company incurred significant expenses of employing staff while [NAME] obtained revenue attributable to the work performed by those staff. Although I recognise that [NAME] sought to attribute aspects of these matters to human error, and to suggest that each of the Company and [NAME] used the other's employees, the differences in employee expenses between the two entities are so substantial that this conduct amounts to oppression in any event. It is not necessary to find that [NAME] deliberately caused expenses to be incurred in the Company while revenue was obtained by [NAME], so as to increase the profitability of [NAME] at the Company's expense, although that inference may be available on the evidence. It seems to me that it is sufficient to establish oppression that, at the least, [NAME] permitted that position to continue, over a significant period, while in a position of conflict as between the Company and [NAME], and to the advantage of [NAME] and the disadvantage of the Company.

6. It seems to me that [NAME]'s conduct, like [NAME]'s conduct, was inconsistent with his duties to the Company, so far as he was a de facto director of the Company; it (like [NAME]'s conduct) was damaging to the Company, so far as it diverted business from the Company and took advantage of tour agent relationships which had previously existed within the Company; and it was exacerbated by [NAME]'s use of the Company's resources to advance the interests and support the profitability of [NAME]. I have noted above that [NAME] and [NAME] could not, separately or together, give unanimous consent so as to limit the scope of the duties that each owed to the Company as a de facto director or ratify any breach of those duties, since they were not the Company's shareholders.

Conclusion as to [NAME]'s and [NAME]'s competition with the Company 1. I find that the [NAME] (and his interests) and [NAME] (and his interests) have each competed with the Company, in the same field of business and using [NAME] previously used by the Company, without the consent of the Company or the fully informed consent of its shareholders. [NAME]'s competition with the Company is exacerbated by the use of the Company's employees to staff the [NAME] business. Both parties' conduct is oppressive of the other. These matters do not support either an order that [NAME] should be able to buy out [NAME]'s share of the Company or that [NAME] should be able to buy out [NAME]'s share of the Company, but support an order for the winding up of the Company.

Other matters relied on by [NAME] to support an order for the sale of [NAME]'s share to [NAME] 1. [NAME] also relies on several other matters to support an order that [NAME] should be required to sell her share to [NAME]. There is a dispute whether, in early September 2017, the Company ceased trading at its former business premises in Alexandria without [NAME]'s knowledge. [NAME]'s evidence ([NAME] 25.8.17 [41]) was that he advised [NAME] of the termination notice from the landlord of the Company's former premises at social occasions in early 2017, in the presence of [NAME], and his evidence in cross-examination is consistent with that account. [NAME] did not deny [NAME]'s evidence in cross-examination, although he denied other aspects of [NAME]'s evidence. [NAME]'s evidence, by her affidavits and in cross-examination, was that she first learnt of notice given by the Company's lessor terminating its occupancy of the Company's initial premises in May 2017. I am not satisfied that it has been established that [NAME] did not inform [NAME], and possibly [NAME], of this matter at about the time it arose. It appears at least to be common ground that [NAME] then caused the Company's business to be relocated to new premises in Rosebery without the consent of [NAME] as a director or Mr or [NAME] (Amended Statement of Claim [48C], Amended Defence [48C]. 2. [NAME] also alleges, and the [NAME] deny, that the Company's financial statements for the financial years ended 30 June 2016 and 30 June 2017 provided to [NAME] on or about 25 August 2017 failed to disclose all of the Company's assets, including pre-payments of commissions to [NAME]. [NAME]'s evidence was that the Company's auditors had not required it to show prepaid tour agent's commissions on its balance sheets as at 30 June 2016 or 30 June 2017 ([NAME] 27.11.17 [11]). I recognise that the relevant audit reports were qualified, but that qualification appears to relate to the absence of a director's report and director's declaration, where [NAME] had not been prepared to sign such a declaration. [NAME]'s further affidavit dated 27 April 2018 dealt with the practice in respect of prepaid commissions to [NAME] and referred to [NAME]'s experience that a tour agent who terminated his association with a shop, while still holding prepaid commissions, was not sued by that shop, and that [NAME]'s experience was that [NAME] would generally be reluctant to deal with a shop that had sued an agent. [NAME]'s evidence was also that there were substantial prepaid commissions in each of the financial years ending 30 June 2013–30 June 2017, which each year were included as expenses in the Company's financial statements, and not as an asset, and that [NAME] and [NAME] had never addressed that subject, prior to the documents served by [NAME] in these proceedings ([NAME] 27.4.18 [12]–[13]). [NAME] also gave evidence, in cross-examination, of a market practice that amounts prepaid to [NAME] would only be repaid, on the cessation of the relationship, if the tour agent voluntarily made that payment, and pointed to commercial difficulties in bringing claims for such repayment. 3. [NAME] submits that oppression is established because the Company's financial statements failed to disclose all its assets, and in particular failed to disclose the amounts owed by [NAME] to the Company in respect of prepaid commissions. [NAME] responds that the treatment of prepaid commission paid to [NAME] in the Company's accounts did not amount to a relevant failure, where the auditors in the relevant years did not seek to have those amounts shown as assets in the financial statements ([NAME] 27.11.17 [11]); the amounts were shown as expenses in those accounts, consistent with the practice adopted in previous years without objection by [NAME] or [NAME] ([NAME] 27.4.18 [12]–[13], Ex J2, [246]–[304]); the characterisation of pre-paid commissions in the financial statements as expenses rather than assets is not shown to be incorrect, in the absence of expert accounting evidence; and that matter did not contribute to the breakdown in the relationship between the [NAME] and [NAME] interests in any event. [NAME] also submits that there are commercial reasons why the Company would not treat pre-paid commission balances as recoverable assets, including at least the difficulty and commercial disadvantages of undertaking recovery proceedings against [NAME] ([NAME] 27.4.18 [10]–[11], [NAME] T91–92).

4. No evidence was led as to any contractual arrangements between the Company and the [NAME] and, in particular, there is no evidence that any expectation of the Company that amounts of prepaid commission paid to [NAME] would be repaid, at least on termination of the arrangement with a particular tour agent, reflected any binding agreement with [NAME] to that effect. [NAME] pointed out that the arrangement between the Company and a tour agent had some of the elements of a "running account", so far as the balance of the account would change from time to time and may be in favour of the Company or the tour agent at any particular point, it does not follow that the balance owing by the tour agent to the Company was payable on demand, either on an ongoing basis or on termination of the relationship, absent any agreement to that effect. Even if that amount would be repaid on termination of the arrangement, there would then be a question as to whether it could properly have been recorded as an asset at the end of a financial year when that arrangement was ongoing and there was no obligation to repay it.

5. I am not satisfied that these amounts were not properly treated in the Company's accounts, as expenses rather than as assets capable of recovery, given the lack of evidence that the Company had any contractual or other legal right to recover those amounts; the commercial difficulties in undertaking recovery to which [NAME] referred, which do not depend upon any acceptance of his credit; the fact that the treatment of those amounts in the Company's accounts appears to have been accepted by [NAME] prior to the commencement of these proceedings, and by its auditors; and, perhaps most importantly, the absence of any expert accounting evidence to support the correctness of the approach for which [NAME] contends.

Other matters relied on by the [NAME] to support a sale of [NAME]'s share to [NAME]

1. By their Points of Cross-Claim, the [NAME] allege that, in September 2016 to November 2016, [NAME] transferred $86,810 to a company associated with him, [NAME], with the knowledge of [NAME]. They allege that occurred without the knowledge or consent of [NAME] and without the Company's authority and that [NAME] and [NAME] had no entitlement to those monies. [NAME] did not admit those allegations, although there was ultimately no controversy as to the fact of the payment of those monies to [NAME], and no suggestion that that payment was made in accordance with any decision made by the Company by its directors. [NAME] sought to establish, by [NAME]'s evidence, that that payment was a reimbursement of monies paid out by [NAME] for the Company's purposes, and that it was made with [NAME]'s consent, although that would not have answered the lack of corporate authority for that payment. The [NAME] contested each aspect of that claim.

2. Six invoices were issued by [NAME], in which [NAME] and his wife are the sole shareholders and of which his wife is the sole director, to the Company between late September 2016 and early November 2016 totalling $86,810.23, which are said to relate to administration and marketing fees. [NAME]'s evidence was that, in September 2016, he said to [NAME] ([NAME] 30.3.18 [89]): "I am paying some of the Company's marketing expenses from my own personal money, as you have not given me a Company credit card for expenses. I am going to reimburse myself from the Company when it has money to pay me." [NAME]'s evidence is that [NAME] said: "Yes, that is fine." 1. [NAME]'s evidence was also that he caused [NAME] to issue tax invoices for "marketing fees", which he claimed (in evidence admitted with a limiting order under s 136 of the Evidence Act 1995 (NSW) as submission) that he had paid from his own monies. The evidence later led by [NAME] identifying those expenditures indicated that those monies were not limited to marketing fees, and had largely not been paid from his own monies, at the time they were invoiced to the Company. [NAME]'s evidence was that [NAME] did not question him or raise any issues about those invoices or payments until these proceedings. That matter does not assist [NAME], where the payments were neither authorised nor the subject of prior consent by [NAME] or any person with authority to give such consent on behalf of the Company.

2. The [NAME] alleged that commissions that should have been paid to [NAME] were diverted by these payments to [NAME]. There was a conflict in the evidence as to whether extra commission was paid to [NAME] to assist them with their operating expenses, or could be used for the Company's expenses. [NAME] accepted in cross-examination that [NAME] received both a standard commission, calculated as a percentage of sales and an extra commission, and that, in September 2016, he instructed the Company's accountant, [NAME], to pay the amounts of the extra commission to [NAME] and that [NAME] or [NAME] would take care of paying the [NAME] the commissions to which they were entitled (T67). [NAME] also claimed in cross-examination that he had told [NAME] that the extra commission needed to be traded to [NAME], that he would later decide how much to pay to [NAME] and that [NAME] agreed to that course (T68). I do not accept [NAME]'s evidence in cross-examination that [NAME] had consented to that course. It seems to me highly unlikely, where [NAME] and [NAME] were business competitors in other areas, [NAME] would have so readily have consented to the payment of a substantial amount, that would otherwise be payable to [NAME], to [NAME] without any real control or accounting for how it was spent. It is apparent that [NAME] did not cause those amounts to be paid to [NAME], because they were expended by him or [NAME] for other purposes, and that is consistent with [NAME]'s evidence as to the [NAME]' discontent that they were not paid those amounts. 3. [NAME]'s evidence ([NAME] 25.8.17 [33]) was that [NAME] sought to have commissions payable to [NAME] paid to [NAME], and leave [NAME] to pay the commissions to [NAME], and that [NAME] objected to that course and insisted that the Company must make direct payment to [NAME]. [NAME]'s evidence was that he was instructed by [NAME] to pay extra commissions to a bank account nominated by [NAME] and that [NAME] would decide when he would pay [NAME] and how much. [NAME]'s evidence was also that [NAME] provided [NAME] with bank account details for [NAME], and that he made six payments to [NAME] as directed by [NAME] ([NAME] 25.8.17 [8]–[11]). In his affidavit dated 30 March 2018, [NAME] denied saying the words attributed to him by [NAME] in paragraph 9 of [NAME]'s affidavit dated 25 August 2017. I prefer [NAME]'s evidence to [NAME]'s evidence in that respect. On balance, I also find, consistent with [NAME]'s evidence, that that amount was a commission payable to [NAME], and was not to be applied for the Company's internal purposes, although it was treated as a marketing expense in the Company's accounts. It follows that the use to which [NAME], and [NAME], applied those funds was inconsistent with their intended purpose.

4. By his further affidavit dated 11 May 2018, [NAME] referred to several payments made from a Korean bank account, which totalled approximately $78,001 plus GST of $7,800, equalling approximately $85,801. [NAME] identified two of those payments as a "marketing fee" paid to a contact in Korea who could obtain customers for the Company and two of those payments as advertisement fee support for television commercials played on Korean television stations. The identification of those payments was not supported by any documentary evidence but was also not falsified on cross-examination. A fifth amount of $23,123.90 was said to relate to travel and accommodation for [NAME] in Seoul, Korea, and [NAME]'s evidence was ([NAME] 11.5.18 [3]): "The purpose of this trip was so I could meet with key personnel and directors of the [NAME] in Korea to discuss terms of trade and contracts between those agents and the Company, and also to discuss with those [NAME] how to entice more customers to visit Australia." 1. [NAME] also referred to a transaction record for [NAME], with credits said to total that amount "for items incurred in association with [his] trip to Korea". It was not possible from the face of the descriptions contained in the relevant accounts, including multiple entries for Korean restaurants and taxis, to identify whether those matters in fact related to the Company's business, and that identification depended on [NAME]'s evidence. It emerged on cross-examination that several other of those expenses did not relate to costs incurred in Korea, and included registration of vehicles and traffic infringement notices in Australia, insurance costs, charges at a local hotel, and a hardware charge. [NAME]'s evidence in cross-examination was that those matters also related to the Company's marketing business. 2. [NAME] submits that the allegation of unauthorised payments to [NAME], in the amount of $86,810.23, should not be accepted. [NAME] submits that the amounts to [NAME] were paid, with [NAME]'s knowledge and consent, by way of reimbursement of amounts paid, or on account of amounts to be paid, by [NAME] for marketing expenses of the Company which [NAME], as marketing manager, ultimately paid using his own funds. An immediate difficulty with that contention is that [NAME]'s evidence went no further than to his having sought, and on his account having obtained, consent to his "reimburs[ing]" himself from the Company for marketing expenses paid for the Company. The documentary evidence established that [NAME] did not reimburse himself for expenditures previously made, but instead invoiced the Company for substantial funds prior to incurring some expenses which he now claims were attributable to the Company's business. The consent he claims to have obtained did not extend to that conduct. 3. [NAME] responds that the use of the term "reimbursement" in [NAME]'s evidence may have reflected translation difficulties, and there did seem to be difficulties in translation in the course of [NAME]'s cross-examination as to the character of these payments. [NAME] also submits that the question whether the payments were a reimbursement "raises only a question of timing" and does not determine the substance or true character of the payments. I do not accept that submission, where any consent given by [NAME] to the payments is only put, on [NAME]'s evidence, as a consent to a reimbursement, and not payments in advance.

4. It seems to me that these payments to [NAME] also support the claim for oppression brought by the [NAME] relying on [NAME]'s conduct. As I noted above, [NAME]'s evidence goes no further than to establish [NAME]'s consent to a reimbursement of amounts paid, and [NAME]'s reference to translation difficulties cannot substitute for evidence of any wider consent by [NAME] to these payments. The amounts were not in fact paid by way of reimbursement, but in advance, of expenses which could only be attributed as marketing expenses of the Company if [NAME]'s evidence to that effect were accepted. I noted above that his evidence should be approached with caution unless it is supported by documents or against his interests. I do not accept [NAME]'s submission that those amounts did not reflect commissions that were properly payable, by way of extra commissions, to [NAME] rather than [NAME], and I prefer [NAME]'s evidence in that respect.

5. But for the conduct of [NAME] in respect of other aspects of the Company's affairs, to which I refer below, this matter may have supported an order for the transfer of [NAME]'s shares in the Company, in which [NAME] has the beneficial interest, to [NAME]. I do not consider that order is appropriate given the findings that I have reached in respect of [NAME]'s conduct above.

Whether orders should be made in respect of oppression 1. I should first refer to the applicable legal principles. I have drawn upon Counsels' submissions and my summary of those principles in Re [COMPANY] [2013] NSWSC 1332; (2013) 96 ACSR 1, Victory Projects Pty Ltd v AAA Self Storage Pty Ltd [2016] NSWSC 1758 and AJ Roberts Removals & Storage Pty Limited [2017] NSWSC 1054 in that respect.

2. Section 233(1)(d) of the Corporations Act relevantly provides that the Court may make an order for the purchase of shares by a member of a company and s 233(1)(j) allows the Court to make an order requiring a person to do a specified act. Such an order may be made where the matters specified in s 232 of the Corporations Act are established. Section 232 of the Corporations Act provides that the Court may make an order under s 233 if: "(a) the conduct of a company's affairs; or (b) an actual or proposed act or omission by or on behalf of a company; or (c) a resolution, or a proposed resolution, of members or a class of members of a company; is either: (d) contrary to the interests of the members as a whole; or (e) oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or in any other capacity."

1. Section 232 of the Corporations Act and its predecessors extend to conduct involving "commercial unfairness" or where the conduct complained of involves a visible departure from the standards of fair dealing and a violation of the conditions of fair play, or a decision has been made so as to impose a disadvantage, disability or burden on the plaintiff that, according to ordinary standards of reasonableness and fair dealing, is unfair: Morgan v [COMPANY] (1986) 10 ACLR 692 at 704; Wayde v New South Wales Rugby League Ltd [1985] HCA 68; (1985) 180 CLR 459. In Morgan v [COMPANY] above at 704, [NAME] J observed that the phrases "oppressive, unfairly prejudicial or unfairly discriminatory" in a predecessor to s 232 of the Corporations Act should be construed as "a composite whole and the individual elements mentioned in the section should be considered merely as different aspects of the essential criterion, namely commercial unfairness". His Honour also there noted that whether oppression was established was to be determined by reference to the nature of the business carried on by the company and the nature of the relations between its participants and: "whether objectively in the eyes of a commercial bystander, there has been unfairness, namely conduct that is so unfair that reasonable directors who consider the matter would not have thought the decision fair."

1. The principles applicable to a claim for oppression were summarised by Austin J in Tomanovic v Argyle HQ Pty Ltd [2010] NSWSC 152 at [39], and the Court of Appeal noted the parties did not challenge that summary of the applicable principles in Tomanovic v Global Mortgage Equity Corporation Pty Ltd [2011] NSWCA 104; (2011) 84 ACSR 121 at [140]. His Honour observed that: "(a) consistent with the principle that the purpose of relief is to terminate the effects of oppression, relief will generally be inappropriate as a matter of discretion if there is no continuing oppression: Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304, at [182]; [2009] HCA 25; (b) unfairness is assessed by reference to whether "objectively in the eyes of a commercial bystander, there has been unfairness, namely conduct that is so unfair that reasonable directors who consider the matter would not have thought the decision fair": eg, Campbell v Backoffice Investments Pty Ltd (2008) 66 ACSR 359, per Basten JA at [181]; [2008] NSWCA 95; (c) while it is recognised that conduct may be oppressive if inconsistent with the "legitimate expectations" of shareholders, expectations are not immutable. The non-fulfilment of expectations will not establish oppression, if there has been some good reason for the extinguishment of the expectation: Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (2001) 37 ACSR 672, at [85], [86], [175]; [2001] NSWCA 97; Nassar v Innovative Precasters Group Pty Ltd (2009) 71 ACSR 343, at [96]; [2009] NSWSC 342 per Barrett J; (d) "it is important when assessing corporate activities to see if there has been oppression that judges do not remain in their ivory tower": Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (1988) 28 ACSR 688, [NAME] J at 739; [1998] NSWSC 413; (e) a particular matter which will be taken in account in assessing the gravity of any allegation of oppression, is the extent to which the minority shareholder has "baited" the majority shareholder to act in an oppressive manner: Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (1988) 28 ACSR 688, at 741; [1998] NSWSC 413 …"

1. In Munstermann v Rayward [2017] NSWSC 133 at [22], Stevenson J summarised the applicable principles as follows (omitting citations): "(1) The test of oppression is an objective one of unfairness ... (2) The court must look to determine whether on the balance of probabilities the objective commercial bystander would be satisfied that the affairs of the company were being conducted unfairly … (3) A director may act oppressively in the sense relevant to the operation of s 232 and yet not breach any fiduciary or other duty owed as a director ... (4) Conduct of a company's affairs may be oppressive even though the conduct is otherwise lawful ... (5) Conduct that has the effect of paralysing a company in the operation of its business is properly characterised as conduct contrary to the interests of the members as a whole … (6) A shareholder of 50 per cent of the shares in a company can seek relief for oppressive conduct because they do not have control in the form of power to prevent the oppression, particularly where individual strong arm tactics are used … (7) The court must formulate an opinion about oppression or unfair prejudice as at the date of the institution of proceedings and the issue of relief under s 233 must be determined at the date of the hearing … (8) The discretion under s 233 is wide as to the appropriate remedy … (9) The nature of the remedy chosen by the court under s 233 will be dependent upon the conclusions drawn by the court as to the type of oppression with which the court is dealing and the court will choose the remedy which is least intrusive …. (10) The aim of any order under s 233 must be to put an end to the oppression … (11) The court should only look to wind up an otherwise solvent company as a "last resort" … (12) As a remedy for oppression, an oppressor can be ordered to sell their shares to the oppressed party …. (13) If an order is to be made for the purchase of shares under s 233 the task of the court is to fix a price that represents a fair value in all the circumstances."

1. I have also borne in mind the observation in [NAME] v [COMPANY] above that each case has to be considered on its own facts and circumstances, and by reference to the conduct as a whole.

2. I am satisfied that each of [NAME] have established oppression by the interests associated with [NAME] and [NAME] respectively. Each of [NAME]'s and [NAME]'s conduct in competition with the Company has so undermined its business as to constitute oppression, and that conduct extended beyond the scope of any consent, which was not given by a director or all shareholders with authority to approve that conduct. [NAME]'s transfer of substantial funds to [NAME], before and not in reimbursement of expenses, and without adequate documentation of the particular expenses, was oppressive of the [NAME] interests. The [NAME] interests' exclusion of the [NAME] interests from the Company's business, and the refusal to allow access to corporate records, was oppressive of the [NAME] interests. 3. [NAME] submits that where oppression is established, the Court may order the oppressor to sell its shares to the oppressed party; that, if such an order is made, the Court's task is to fix a price that represents a fair value in all the circumstances; and that that price will ordinarily be the value of the shareholding as it would have been but for the oppressive conduct. I broadly accept that submission, although its application raises issues of greater difficulty where, as here, both parties have engaged in oppressive and wrongful conduct, in respect of the other. 4. [NAME], as noted above, seeks an order allowing her to purchase [NAME]'s share. [NAME] submits that [NAME]'s conduct is the primary cause of the present deadlock and refers to evidence that [NAME] was prevented from accessing records and information to the Company prior to the termination of [NAME]'s employment with the Company, and about the same time as [NAME] was incorporated, and shortly before it appears to have commenced trading. I am not persuaded that the question which of the relevant conduct was first in time provides any real assistance in determining the cause of the present deadlock, where I have found that the conduct of both [NAME] and [NAME] contributed to that deadlock, and was inconsistent with their duties to the Company, so far as they were both de facto directors of it, in material respects. [NAME] responds that the Court should deny [NAME] the relief sought because it was [NAME]'s misconduct up to March 2017, in respect of invoices from [NAME] and the establishment of the [NAME] business, that caused the irretrievable breakdown in the relationship between the [NAME] interests and the [NAME] interests, and led to the conduct by [NAME] or the Company on which [NAME] has relied in the proceedings.

5. Conversely, [NAME] originally sought an order for [NAME] to buy [NAME]'s share. However, in closing submissions, [NAME] recognised an additional difficulty if the relief sought by [NAME] or [NAME] was granted. [NAME] observed that an order is commonly sought that an oppressor buy out an innocent party's shares, and those shares can then be bought at a value that takes into account any profits or assets that had been diverted to the oppressor. [NAME] recognised that the position was more complex where an "innocent party" seeks to buy out an oppressor's shares, and that innocent party could be disadvantaged unless an order is also made requiring the oppressor to compensate the Company for any profit or assets diverted by the oppressor. [ADDRESS] has jurisdiction to make such an order, in an oppression case, but this case did not go to hearing on the basis that such an order was sought. (I have not neglected the fact that [NAME] had brought an unsuccessful application to amend her pleading and vacated the hearing date, shortly before it commenced, which largely failed because of deficiencies in the proposed amended pleading). The complexities arising from this issue would have been exacerbated where each party identifies conduct of persons associated with that other party which might be the subject of such claims. In oral submissions, [NAME] raised the possibility that these complexities could be addressed by making an order for a buy-back by the Company of [NAME]'s shares. However, that form of relief that was not pleaded and [NAME] did not press an amendment application so as to seek such an order (T201–202). It is not necessary further to address these complexities where that relief was not sought and I have held that the Company should be wound up on other grounds.

6. I am satisfied that I should not order a buy-out of one party by the other, where that will benefit one party engaged in oppression at the expense of another party also engaged in oppression. There is no basis on which to find that either of the [NAME] interests or the [NAME] interests are significantly less culpable than the other, where the both [NAME] and [NAME] have engaged in material conduct that is adverse to the Company's interests. Such an order would also allow the party that obtained control of the Company, in practical terms, to prevent action against that party or her family members while pursuing action against the other party or that party's family members. The preferable order, for the reasons set out below, is an order to wind up the Company.

Whether the Company should be wound up 1. Sections 461(1)(f) and 461(1)(k) of the Corporations Act relevantly provide that the Court may order the winding up of a company if its affairs are being conducted in a manner that is oppressive or unfairly prejudicial to, or unfairly discriminatory against, a member or members or in a manner that is contrary to the interests of the members as a whole, or if the Court is of the opinion that it is just and equitable that the company be wound up. The circumstances in which a winding up order can be made under these sections are not closed.

2. A winding up order under s 461(1)(k) of the Corporations Act can be made 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: Ebrahimi v Westbourne Galleries Ltd [1973] AC 360; Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [2001] NSWCA 97; (2001) 37 ACSR 672; Nassar v Innovative Precasters Group Pty Ltd [2009] NSWSC 342; (2009) 71 ACSR 343 at [90], [96], [117]; Re [COMPANY] [2012] NSWSC 775 at [19]; Re [NAME] [COMPANY] [2012] NSWSC 1568 at [17]–[19]. A breakdown of relations or loss of confidence between a company's members may also support a winding up on the just and equitable ground where it frustrates the commercially sensible operations of the company in accordance with the incorporator's expectations and any loss of confidence is justified: [NAME] v [COMPANY] above at [49]–[51], on appeal as [NAME] v [COMPANY] above. [ADDRESS] may make a winding up order under s 461(1)(k) of the Corporations Act in circumstances that do not amount to oppression, although a person who is themselves responsible for the breakdown of the relationship is less likely to be afforded relief: [COMPANY] v [COMPANY] above; [NAME] v [COMPANY] above at [90], [96], [117].

3. In the alternative to the primary relief sought by [NAME] submits that an order for the winding up of the Company should be made on the just and equitable ground, where the relationship between shareholders and directors has broken down; it is most unlikely that they will be able to resolve their difficulties, not previously having done so; there is deadlock in the management of the Company; and a loss of confidence of [NAME] and [NAME] in [NAME] and [NAME]. I accept each of those submissions, with the qualification that there would also be justification for a loss of confidence by [NAME] and [NAME] in [NAME] and [NAME], a matter which reinforces the case for an order for the winding up of the Company.

4. I am satisfied that the Company was in the nature of a "quasi-partnership" including that family members of [NAME] and [NAME] became its directors and shareholders; each of them acquired an equal interest in the Company; and each was initially involved in the conduct of the business. The evidence establishes a breakdown of cooperation between the parties and the withdrawal or exclusion of [NAME] from the business, or both. Both parties' competition with the Company, [NAME]'s appropriation of funds to [NAME] and [NAME]'s using of Company staff in his competing business would frustrate the commercially sensible operations of the Company and would also warrant a lack of confidence in the conduct and management of its affairs. The matters to which I have referred above mean that there can be no expectation that [NAME] will receive dividends from the Company proportionate to the [NAME]'s investment in it, both because the Company's profitability would necessarily be affected by the diversion of business to the competing companies and the use of its employees in [NAME]'s business, as well as the likelihood that monies would be paid out as salary to the [NAME] rather than as dividends.

5. A winding up order will also allow a liquidator appointed to the Company, funded by the parties or by a third party litigation funder, to investigate and pursue the claims that may be available against each of [NAME] and [NAME] and their associated entities. I recognise that any recoveries made by a liquidator may ultimately be distributed to [NAME] as the Company's contributories, potentially to the benefit of [NAME] and [NAME] so far as each share is held beneficially for them. However, that process can properly vindicate the Company's and its shareholders' rights, without circularity, where the Company's losses arising from [NAME]'s and [NAME]'s conduct are not necessarily be the same, and larger recoveries may be made against a party that has caused greater loss to the Company. I have also not neglected the fact that a winding up order will likely make it more difficult for the Company to benefit from, or recover, prepayments made to tour operators, to the extent that [NAME] and [NAME] have not already taken advantage of those prepayments for the competing businesses they have each established. That is, however, not sufficient reason to allow one wrongdoer, or a family member holding a share at his direction, the advantage of buying out the other, as each party had sought to achieve.

6. I recognise that the Court may withhold a winding up order where a plaintiff, relevantly [NAME] (or, in substance, [NAME]) or [NAME] (or, in substance, [NAME]) lacks clean hands or has himself or herself been the primary contributor to the breakdown of the relationship: Re Yenidje Tobacco Company Ltd [1916] 2 Ch 426 at 430; Re Wondoflex Textiles Ltd [1951] VLR 458 at 465; Ruut v Head (1996) 20 ACSR 160; Guerinoni v Argyle Concrete & Quarry Supplies Pty Ltd [2000] WASCA 170; (1999) 34 ACSR 469; Re [NAME] [COMPANY] above at [22]. However, a lack of clean hands is not an absolute bar to a winding up order, since otherwise neither party could obtain a winding up order where (as here) both were at fault: [NAME] above at 162; Duc v PTS Australian Distributor Pty Ltd [2005] NSWSC 98 at [17]. In this case, the conduct on the part of both parties reinforces, rather than undermines, the strength of the case for a winding up.

7. I have also had regard to s 467(4) of the Corporations Act which provides that: "Where the application is made by members as contributories on the ground that it is just and equitable that the company should be wound up or that the directors have acted in a manner that appears to be unfair or unjust to other members, the Court, if it is of the opinion that: (a) the applicants are entitled to relief either by winding up the company or by some other means; and (b) in the absence of any other remedy it would be just and equitable that the company should be wound up; must make a winding up order unless it is also of the opinion that some other remedy is available to the applicants and that they are acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy." 1. [NAME] has, of course, not pursued a winding up order as the primary relief she seeks, and she is not acting unreasonably in pursuing it where she has not been successful in obtaining the relief she sought and the Company would otherwise be left in a state of deadlock in its board, but under [NAME]'s practical control. I recognise that the fact that an order to wind up an apparently solvent company is an extreme step should be borne in mind in making such an order, and I have had regard to that fact in determining the relief that should be ordered in these proceedings: Belgiorno-Zegna v Exben Pty Ltd [2000] NSWSC 884; (2000) 35 ACSR 305; [NAME] v [COMPANY] above per Austin J at [237]. However, the case law also establishes that there is no absolute rule that the Court will not wind up a solvent company in a proper case: [NAME] v [COMPANY] (No 2) [2012] FCAFC 73; (2012) 202 FCR 336 at [68]–[70]; Re [NAME] above at [32]; [COMPANY] v [NAME] of Fitness (Vic/Tas) [COMPANY] (No 3) [2015] NSWSC 1639; (2015) 109 ACSR 369 at [111].

Orders 1. In the circumstances that I have set out above, I am satisfied that an order for the winding up of the Company should be made. Where the Court is otherwise minded to wind up the Company on just and equitable grounds, it will often postpone a winding up order to allow the parties an opportunity to negotiate a buy-out by one party of the other: [NAME] above at 163; [NAME] v [COMPANY] above at [53]. The parties have already had ample opportunity to agree that result between themselves, before this hearing, during it and while judgment has been reserved. Nonetheless, I will stay a winding up order for no more than 14 days to allow the parties a last opportunity to seek to resolve their differences in a manner that will not bring about the likely closure of the Company's business (to the extent that it has survived [NAME]'s and [NAME]'s competition with it) and any loss of the benefit of prepayments to tour operators that may result from a winding up. 2. [NAME] has not been successful in seeking the primary relief which she sought, namely an order for the transfer of [NAME]'s share in the Company to her. [NAME] has also not been successful in seeking the relief she sought, namely the transfer of [NAME]'s share in the Company to her. [NAME] has been successful in seeking the alternative relief which she sought, namely an order for winding up of the Company, which [NAME] had fairly also accepted was likely to follow from the failure to obtain the primary relief she sought. Where each party has failed in obtaining the primary relief which she sought, it does not seem to me that it can be said that [NAME] has been any more successful than [NAME] in the outcome of the proceedings. Both have failed in their primary relief; [NAME] expressly sought alternative relief, and [NAME] acknowledged that that alternative relief that would follow if the parties each failed on their primary relief; and the true position is that both parties have failed in their primary relief and that alternative relief has then followed. In those circumstances, subject to allowing the parties a brief opportunity to be heard, it seems to me that there should be no order as to the costs of the proceedings.

3.

Accordingly, I make the following orders:

1. The First Defendant, [COMPANY] 34 160 246 257 be wound up. 2. [NAME], of [NAME], be appointed as liquidator of the First Defendant.

3. The orders made in paragraphs 1 and 2 above be stayed to 2pm on 4 July 2018.

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Amendments 13 July 2018 - Four typographical errors corrected. 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: 13 July 2018