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Queensland Judgments
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  •   Notable Unreported Decision

Re Winter One Investments Pty Ltd

 

[2020] QSC 233

 

SUPREME COURT OF QUEENSLAND

 

CITATION:

Re Winter One Investments Pty Ltd [2020] QSC 233

PARTIES:

COWLEY SUPER PTY LTD A.C.N 602 737 879

(First Plaintiff)

AND

COWLEY CUSTODIAN PTY LTD A.C.N 602 736 470

(Second Plaintiff)

AND

J & R COWLEY SUPER PTY LTD A.C.N 616 582 202

(Third Plaintiff)

v

WINTER ONE INVESTMENTS PTY LTD A.C.N 603 454 628

(First Defendant)

AND

MARK ANDREW WILLIAMS
(Second Defendant)

FILE NO/S:

BS 7591 of 2019

DIVISION:

Trial Division

PROCEEDING:

Application filed 11 June 2020

ORIGINATING COURT:

Supreme Court at Brisbane

DELIVERED ON:

7 August 2020

DELIVERED AT:

Brisbane

HEARING DATE:

14 July 2020

JUDGE:

Jackson J

ORDER:

The order of the Court is that:

  1. Pursuant to section 461(1)(k) of the Corporations Act 2001 (Cth) the first defendant be wound up.
  2. Marcus Watters be appointed liquidator.

CATCHWORDS:

PROCEDURE  – CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS  – ENDING PROCEEDINGS EARLY – SUMMARY DISPOSAL  – SUMMARY JUDGMENT FOR PLAINTIFF – OTHER CASES AND MATTERS – where the proceeding was started by originating application for orders that the first respondent be wound up – where it was ordered that the proceeding continue as if started by claim – where application is made for summary judgment for a winding up order  – where the company does not trade – where the company’s assets are likely not valuable or recoverable – where the company’s assets have been transferred in substantial amounts to or at the sole director’s direction to benefit him and his family personally - where the winding up application is made by a minority shareholder whose shares are not transferrable - where there is prima facie evidence of  breaches of duty by the sole director - where disputed questions of fact cannot be finally decided or determined – whether the defendants’ have no real prospect of successfully defending the plaintiffs’ claim – where the court ordered that the company be wound up on the just and equitable ground

CORPORATIONS  – WINDING UP  – OTHER GROUNDS FOR WINDING UP  – JUST AND EQUITABLE  – IMPOSSIBILITY OF EFFECTIVELY CARRYING ON BUSINESS – where the company does not trade – where the company’s assets are likely not valuable or recoverable – where the company’s assets have been transferred in substantial amounts to or at the sole director’s direction to benefit him and his family personally - where the winding up application is made by a minority shareholder whose shares are not transferrable - where there is prima facie evidence of  breaches of duty by the sole director – whether an independent liquidator should be appointed to investigate the allegations and determine whether any claim should be brought against the second defendant and others

Corporations Act 2001 (Cth), s 461

Trusts Act 1973 (Qld), s 72

Uniform Civil Procedure Rules 1999 (Qld), r 2.2, r 14, r 291, r 292, r 995, Schedule 1A

China and Others v Smith (aka With) and Others (No 4) (2014) 99 ACSR 105, discussed

Coast Corp Pacific Pty Ltd v Stockland Development Pty Ltd [2018] QSC 305, cited

Coldham-Fussell v Commissioner of Taxation (2011) 82 ACSR 439, cited

Hope v RCA Photophone of Australia Pty Ltd (1937) 59 CLR 348, cited

Loch v John Blackwood Limited [1924] AC 783, cited

Palermo v National Australia Bank [2017] QCA 321, cited

Re Caratti Holding Co Pty Ltd (1975) 1 ACLR 87, discussed

Re SJG Securities Pty Ltd [2013] NSWSC 588, discussed

Re Wondoflex Textiles Pty Ltd [1951] VLR 458, cited

Scottish Cooperative Wholesale Society Ltd v Meyer [1959] AC 324, cited

Shaw v Deputy Commissioner of Taxation [2016] QCA 275, cited

Waipuna Investments Pty Ltd [1956] VLR 115, cited

Warner v Global Pacific Aerospace Pty Ltd [2012] VSC 291, discussed

COUNSEL:

P O’Brien for the Plaintiffs

Second Defendant for the Defendants

SOLICITORS:

Morgan Conley for the Plaintiffs

Jackson J:

  1. [1]
    This proceeding was started by originating application under the Uniform Civil Procedure Rules 1999 (Qld) (“UCPR”) [1] for orders that the first defendant be wound up pursuant to the Corporations Act 2001 (Cth), ss 461(1)(e) and (k).  The proceeding was ordered to be continued as if started by claim,[2] with directions for the filing of pleadings and the making of disclosure. There were delays in the second defendant making disclosure. Following those steps, the present application is brought for summary judgment[3] for a winding up order pursuant to either s 461(1) (e) or (k).
  2. [2]
    The factual circumstances relied upon are somewhat extensive, but the plaintiffs’[4]principal contentions resolved into five points.  In order to understand them, it is important to set out some undisputed background facts. 
  3. [3]
    The first defendant (“the Company”) was registered on 19 December 2014 as an Australian proprietary company limited by shares.  On registration, the second defendant was appointed sole director.  He remains so.
  4. [4]
    The Company is an investment vehicle which has 14,706,000 issued shares held as follows:

Shareholder

Number of ordinary shares

First plaintiff

2,500,000

Second plaintiff

2,353,000

Third plaintiff

2,353,000

Second defendant

7,500,000

TOTAL

$14,706,000

  1. [5]
    Each of the plaintiffs is also a registered Australian proprietary company limited by shares. John Cowley is a director and shareholder of each of them, either solely or with his wife Rhonda. 
  2. [6]
    From April 2014, the second defendant and John Cowley discussed the latter’s potential investment in a business being developed by the second defendant and another investor constituting a network of internet sites and real estate portals intended to cover real estate and hotels within Australia and internationally.  The plans were to develop the business then “monetise” it, including by floating a company on the stock exchange once development was completed.  Based on an estimated potential value of $20 million, John Cowley’s investment was to be $2.5 million for a quarter shareholding in the Company that would, in turn, hold a half interest in the business.  The second defendant and John Cowley agreed on a contribution of $2,500,000 by the latter in exchange for 2,500,000 shares to be issued in the Company with 7,500,000 shares to be issued to the second defendant.
  3. [7]
    On 24 December 2014, a shareholders agreement was entered into between the Company, the first and second plaintiffs and the second defendant (“the shareholders agreement”). 
  4. [8]
    Clause 2.1 of the shareholders agreement provided that the objectives of the Company were to carry on the business as defined, to develop and expand the business in accordance with business plans as determined by the second defendant from time to time in his sole and absolute discretion and to maximise the value of the business. 
  5. [9]
    The business was defined to mean that described in Annexure A to the shareholders agreement, contained in 13 numbered paragraph with subparagraphs.  Paragraph 1 provided that upon completion of internal restructuring, the Company was to hold a 50 percent interest in a trust then known as the SchwartzWilliams Trust and noted that Mr Schwartz owned the balance of 50 percent interest in the trust through an interposed trust structure.  Paragraph 2 provided that upon completion of the internal restructuring, the Company and/or the trust and their respective affiliates or associates would own and operate either directly or indirectly through interposed entities, 95 percent approximately of the website business of Thehomepage.com.au and  millionplus.com.au, and eight percent of housing Japan. 
  6. [10]
    Paragraph 4 of Annexure A provided that the trust was finalising the IT development of new portal infrastructure due for completion in December 2014 that aimed to provide the platform for the next generation of the Homepage.com.au, plus new non-residential portals including (targeted for launch in the first quarter of 2015 approximately):
    1. (a)
      thebusinesspage.com;
    2. (b)
      Snowhomes.com; and
    3. (c)
      thehomepage.com.au, (“TPH” micro portals.)

There were other business proposals contained in the balance of the 13 paragraphs.

  1. [11]
    Importantly, cl 2.1 of the shareholders agreement further provided:

“For the avoidance of doubt, and without limiting the Company’s objectives, the Company may advance moneys to or at the direction of Mark Williams as it may in its absolute discretion see fit, including to attempt to achieve the said objectives.  Notwithstanding clause 1.2(g), a reference to Mark Williams in this clause does not include his executors, administrators, successors and permitted assigns

  1. [12]
    Clause 2.2 provided, relevantly:

“(a) The Board has full control of the Company and the decisions to be made over strategy and management in relation to the Business.

  1. (b)
    Notwithstanding clauses 1.2(m) and 2.2(a), and consistent with the Company’s general duties, the Board will consider the interests of all Shareholders and make decisions that the Board considers are in best the interests of all Shareholders in developing the Business.
  1. (c)
    While Mark Williams retains capacity, and … is a Shareholder, he shall be the managing director of the Company and shall seek to have the Company meet the objectives of the Company.
  1. (d)
    Mark Williams will consult with [John Cowley] on vital strategic decisions relating to the Business and keep [John Cowley] informed as to the progress of developing the Business (including any material problems facing the Business and the options being considered for addressing those problems).

…”

  1. [13]
    The shareholders agreement provided further that it did not create any relationship between the shareholders under which one shareholder was liable generally for the acts or omissions of another or may share profits. 
  2. [14]
    Clause 4 of the shareholders agreement provided for the Company to give each shareholder financial statements and for each shareholder to have access to the books, accounts and financial records of the company. 
  3. [15]
    Clause 5 of the shareholders agreement provided for the first and second plaintiffs to subscribe and make payments for 2,500,000 shares in tranches over the period between execution of the shareholders agreement and 1 November 2015 in consideration of the Company issuing 2,500,000 shares as soon as practicable after the execution of the shareholders agreement.
  4. [16]
    Clause 6.1(b) provided that the shares issued to the first and second plaintiffs would remain in escrow until 1 November 2019 and cl 6.14 provided that following expiry of that period, the first and second plaintiffs may wish, but were not obliged, to exit their shareholdings.
  5. [17]
    Clause 20.9 provided that the shareholders agreement together with the transaction documents under it constituted the entire agreement between the parties in connection with their subject matter and superseded all previous agreements or understandings between the parties in connection with their subject matter. 
  6. [18]
    In October 2018, Mr Cowley telephoned the second defendant to seek an update on the Company’s affairs.  He was looking for a return on his investment in the Company.  The second defendant said that the Company required a further capital injection to complete the development of the business of the network/portals so that it could get to a position where it could be floated on the share market or sell the portals independently.  After discussion, in which Mr Cowley said he wanted to pursue an exit at a high valuation and as soon as possible, the second defendant and Mr Cowley agreed that a further capital injection of $1.25 million would be required. 
  7. [19]
    It was agreed that Mr Cowley or his companies’ further contribution of $1.25 million would result in an increase in his or his companies’ holding in the Company to 49 percent.  The second defendant’s shareholding was to be diluted accordingly. 
  8. [20]
    Between May and September 2018, the second and third plaintiffs made further investments totalling $1,250,000 in exchange for 4,706,000 further issued shares in the Company. 
  9. [21]
    The Company holds units[5] in the W Media Holdings Unit Trust (formerly known as the SchwartzWilliams Unit Trust). The business is described in the shareholders agreement as an asset of the trust.  W Media Holdings Pty Ltd is the trustee.[6]
  10. [22]
    W Media Holdings Pty Ltd is a proprietary company limited by shares.  The second defendant is the sole director.  The shares are held equally as between the Company and Complete (Qld) Pty Ltd, another company associated with the second defendant.
  11. [23]
    The second defendant says that although the value of the units held by the Company in the trust is recorded in the Company’s financial statements as ten dollars that is the issue price of the ten units, and does not reflect the current value of the business.  He says further that he does not have a current valuation of the business as some parts are “in start-up or early monetisation phase, and/or maturing phase; however substantial progress has been made in growing and developing the business since the investments made by the plaintiff.” 
  12. [24]
    However, the value of the units is not referable to the value of the business as such, but is to be measured by or referable to the proportionate value of the net assets of the trust.  The evidence includes a copy of the unaudited financial report for the trust for the year ended 30 June 2016.  At that date, the total trust funds were negative net assets of $550,365 represented by an excess of total liabilities comprising current liabilities of $1,441,742 and non-current liabilities of $67,696 over total assets of $959,073 including current assets of $598,447 of which only $2,556 was cash and the balance were receivables.  There is no evidence as to what proportion of the units in the trust are presently held by the Company.
  13. [25]
    As at 31 October 2018, W Media Holdings Pty Ltd’s management financial statements showed a total equity of negative $2,938,483 represented by the excess of total liabilities of $3,468,430 (including a loan recorded from Mr Cowley of $1,450,000) over total assets of $529,947, including current assets of only $1,296 in bank deposits and a balance of receivables and prepayments. 
  14. [26]
    That is to say, the evidence of financial statements as to the value of the first defendant’s interest in the trust is that that trust was financially insolvent as at 30 June 2016 and the trustee of that trust was financially insolvent as at 31 October 2018. 
  15. [27]
    There is no more up to date or other evidence as to the current value of the units in the trust, or the total trust funds or the assets comprising the business conducted by W Media Holdings Pty Ltd as trustee of the trust except for the second defendant’s statement of opinion, which is not admissible evidence of value, that it is “substantial”. 
  16. [28]
    It is to be noticed that this proceeding was started on 18 July 2019.  In an affidavit filed on 5 August 2019, the second defendant said he expected the business to continue to grow and that it had “enormous potential”, as well as that he had had preliminary discussions with a number of parties who he believed may be interested in purchasing an interest in the business.  The second defendant said then that he believed that within a relatively short timeframe he may be able to find an investor to pay out the plaintiffs.  That did not happen. 
  17. [29]
    In an affidavit filed on 13 July 2020, the second defendant said that he was repositioning four of the listing portals to mirror a changing market and customer needs, and that he was having discussions with a number of parties who were interested in purchasing an interest in the business.  He expressed the opinion that there are good prospects that a sale of the business may be able to be achieved within the next 12 to 18 months and that would enable the amount invested by the plaintiffs to be returned to them. 
  18. [30]
    At this point, the Company is a moribund investment company that has never actively traded.  That conclusion is supported by a profit and loss account of the Company produced for the year ended 30 June 2020 and a balance sheet for the year ended 30 June 2020, both produced by the second defendant, that are described as management accounts. 
  19. [31]
    The profit and loss account shows no income for each of the years ended 30 June 2016 to 30 June 2020 inclusive.  The only expenses are minor amounts for bank charges and filing fees (presumably company returns).  The Company accordingly made no profit and nominal losses for each of the relevant financial years. 
  20. [32]
    As to the balance sheet, the Company has had no current assets at 30 June of any year since 2016, except for a maximum bank account balance amount of $223.  The non-current assets include the units held in the W Media Holdings Unit Trust as valued at ten dollars in each of those years.  They show an asset described as “investment in Housing Japan Asset Management” of $24,893 for each of those years.  The only other non-current assets are the loans described as follows:

Asset

2020

2019

2018

2017

2016

Loan – Winter One (Australia) Ltd

$118,056

$118,056

$118,056

$118,056

$118,056

Loan –
W Media Holdings Pty Ltd

$1,250,000

$1,250,000

$60,000

$0

$0

Loan – Mark Williams

$2,330,600

$2,330,620

$2,330,720

$2,331,151

$2,331,631

TOTAL

$3,698,656

$3,698,676

$2,508,776

$2,449,207

$2,449,687

  1. [33]
    In substance, the whole of the first and second plaintiff’s 2015 investment of $2.5 million in the company had been disbursed as at 30 June 2016 as a loan to the second defendant as to $2.33 million and a loan to Winter One Australia Ltd as to $118,056.  Second, the whole of the second and third plaintiffs 2018 investment of $1.25 million had been disbursed as at 30 June 2019 as a loan to W Media Holdings Pty Ltd in the amount of $1,250,000.[7]  If those loans are not recoverable, the Company has no assets and has lost the whole of its invested capital, unless the units in the trust have some realisable value. 
  2. [34]
    Against that background, on 9 May 2019, the Company entered into two unusual written loan agreements. 
  3. [35]
    First, the Company, acting by the second defendant as sole director, entered into a loan agreement as lender with the second defendant personally as borrower in respect of the advances made to the second defendant before 30 June 2016 of $2,331,262.  The loan agreement records, historically, that at the second defendant’s request, the Company agreed to provide a cash advance loan on “the following terms”.  Those terms are set out below:

Agreed Terms

At the Borrower’s request, the Lender has agreed to provide an AUD cash advance loan (Loan) to the Borrower on the following terms.  The terms of this Agreement are to remain confidential to the parties. 

Facility Limit:

A$2,331,262

Facility term:

No final date for payment. Refer ‘Repayment’ below.

Drawdown:

The parties acknowledge that the Loan has already been advanced in multiple drawings up to the Facility Limit during the period up to and including June 2016.

Repayment:

The Borrower must pay the outstanding balance of the Loan to the Lender if and when and only to the extent that the Borrower (or a related party of the Borrower) receives an actual cash dividend (including by way of return of capital) from the Lender arising after and as result of a sale of units held by the Lender (indirectly via Winter One Australia Pty Ltd) in the W Media Holdings Unit Trust.

Interest Rate:

The Loan is not interest bearing

Non-recourse:

The parties acknowledge that the Loan is unsecured and non-recourse in nature to the Borrower.  The Lender will only have recourse to the cash proceeds actually received by the Borrower (or a related party of the Borrower) as and when they become available in the circumstances described under ‘Repayment’ above. 

Representations and Warranties:

Each party represents to the other party that this agreement constitutes legal, valid and binding rights and obligations of each party, enforceable by and against that party in accordance with its terms.

Payments:

The Borrower may repay early all or part of the Loan at any time.

All payments will be made in AUD and in freely transferable same day funds.

Amendment:

An amendment, waiver or consent by the Lender in relation to this Agreement must be in writing, signed by the Lender and will be effective only for the specific purpose for which it is given.

Notices:

All notices under this Agreement must be in writing and sent to the address of the recipient specified in the notice details for that party or to any other address it may have notified the sender in writing. 

Governing law:

This Agreement is governed by the law of Queensland and the parties submit to the non-exclusive jurisdiction of the courts of Queensland.

  1. [36]
    On the same day, the Company, by the second defendant as sole director, resolved to approve the execution of that loan agreement.
  2. [37]
    Second, on the same day, the Company, acting by the second defendant as sole director, entered into a loan agreement with Williams (sic) Media Holdings Pty Ltd, also acting by the second defendant as sole director, in respect of the advances made by the first defendant to W Media Holdings Pty Ltd in the sum of $1,250,000 in 2018 as referred to above.  The terms of the loan agreement are as follows:

Agreed Terms

At the Borrower’s request, the Lender has agreed to provide an AUD cash advance loan (Loan) to the Borrower on the following terms.  The terms of this Agreement are to remain confidential to the parties. 

Facility Limit:

A$1,250,000

Facility term:

No final date for payment. Refer ‘Repayment’ below.

Drawdown:

The parties acknowledge that the Loan has already been advanced in multiple drawings up to the Facility Limit during the period up to and including December 2018.

Repayment:

The Borrower must pay the outstanding balance of the Loan to the Lender if and when and only to the extent that the Borrower (or a related party of the Borrower) receives an actual cash dividend (including by way of return of capital) arising after and as result of a trade sale of all of the assets and businesses owned directly or indirectly by the W Media Holdings Unit Trust.

Interest Rate:

The Loan is not interest bearing

Non-recourse:

The parties acknowledge that the Loan is unsecured and non-recourse in nature to the Borrower.  The Lender will only have recourse to the cash proceeds actually received by the Borrower (or a related party of the Borrower) as and when they become available in the circumstances described under ‘Repayment’ above. 

Representations and Warranties:

Each party represents to the other party that this agreement constitutes legal, valid and binding rights and obligations of each party, enforceable by and against that party in accordance with its terms.

Payments:

The Borrower may repay early all or part of the Loan at any time.

All payments will be made in AUD and in freely transferable same day funds.

Amendment:

An amendment, waiver or consent by the Lender in relation to this Agreement must be in writing, signed by the Lender and will be effective only for the specific purpose for which it is given.

Notices:

All notices under this Agreement must be in writing and sent to the address of the recipient specified in the notice details for that party or to any other address it may have notified the sender in writing. 

Governing law:

This Agreement is governed by the law of Queensland and the parties submit to the non-exclusive jurisdiction of the courts of Queensland.

  1. [38]
    As in the case of the loan agreement with the second defendant personally, the Company by the second defendant as sole director, resolved to approve the execution of the loan agreement with Williams (sic) Media Holdings Pty Ltd.
  2. [39]
    In each case, the critical terms of the loan agreement were those as to repayment and non-recourse.  Prior to that, there was no agreement or contract that had been made between the Company as lender and either of the borrowers under which the lender would only have recourse “to the cash proceeds actually received by the borrower… as and when they become available in the circumstances described under Repayment”. 
  3. [40]
    For the loan agreement to the second defendant, “Repayment” was if and when and only to the extent that the second defendant receives an actual cash dividend from the first defendant arising after and as result of a sale of units held by the first defendant in the W Media Holdings Unit Trust. 
  4. [41]
    For the first defendant to receive a cash dividend from the sale of the units a number of steps are required, including sale of the units (which is subject to the sole control of the second defendant as sole director of the Company) and a distribution of the proceeds of such sale (after payment by the Company of any liabilities in respect thereof, including tax) to the second defendant as a shareholder of the Company in a 51 percent proportion. Because the plaintiffs are also shareholders, they would receive a 49 percent proportion.  Only at that point would the second defendant be liable to repay any of his loan. The Company would receive that payment as an asset.  Repayment of the whole of the second defendant’s loan would require over $4.5 million to be available to the Company from the sale of the units.  At that point the plaintiffs, through their 49 percent shareholding in the Company, might stand to receive a further benefit on account of their 49 percent shareholding. 
  5. [42]
    As to the loan to W Media Holdings Pty Ltd, the non-recourse and repayment terms are even more curious.  Again, the loan is non-recourse against that company, except for cash proceeds actually received by W Media Holdings Pty Ltd “as and when they become available in the circumstances described under Repayment”.  The circumstances described under Repayment are that the outstanding balance of the loan is payable if and when and only to the extent that W Media Holdings Pty Ltd receives an actual cash dividend, including by way of return of capital, arising after and as a result of a trade sale of all of the assets and businesses owned directly or indirectly by the W Media Holdings Unit Trust. 
  6. [43]
    Those provisions are nonsensical.  On the evidence, W Media Holdings Pty Ltd does not hold units in the W Media Holdings Unit Trust.  It is the trustee of that trust.  It may be entitled to recoup or exonerate itself from the trust assets in respect of liabilities properly incurred as trustee from the trust assets,[8] but would not otherwise be entitled to receive any proceeds from a sale of the assets of the trust.  With one possible exception, there is no evidence as to any rights of recoupment or exoneration from the trust assets. 
  7. [44]
    In the balance sheet of the trust at 30 June 2016, W Media Holdings is not shown as a creditor of the trust.  However, in the October 2018 balance sheet of W Media Holdings Pty Ltd as at 31 October 2018 Mr Cowley is shown as a creditor for $1,450,000.  It is possible that entry reflects the advances by the Company to W Media Holdings Pty Ltd.  But W Media Holdings Pty Ltd would only be entitled to recoupment or exoneration for the trust assets for that debt if it was a properly incurred expense of the trust.  An affidavit of Peter Hamilton filed on 11 June 2020 as to receipts and payments shows that of the $1.25 million contributed by the second and third defendants to the Company in 2018, $150,000 was paid to the second defendant’s credit card account to pay off substantial sums in those accounts for personal and luxury expenses and there were also substantial sums paid out towards the personal expenses of the second defendant and his family from the balance that was paid to W Media Holdings Pty Ltd’s accounts.
  8. [45]
    In any event as at October 2018, as shown above, W Media Holdings Pty Ltd was a financially insolvent company.  Overall, no apparent basis exists for concluding that it will receive any sum which will be available to pay the outstanding balance of the loan to the Company. 
  9. [46]
    No provision of the shareholders agreement authorised the second defendant as sole director of the Company to enter into non-recourse loan agreements.  The control of the board of directors of the Company that was vested in the second defendant as sole director by clause 2.2 of the shareholders agreement which expressly required:
  • the board to consider the interests of all shareholders and to make decisions that the board considered are in the best interests of all shareholders, in developing the business; and
  • the second defendant to consult Mr Cowley on vital strategic decisions relating to the business and to keep him informed as to the progress for developing the business, including any material problems facing the business and the options that are being considered for addressing those problems. 
  1. [47]
    The facts described so far would reveal a strong prima facie case of breach of duty and breach of contract by the second defendant in entering into the non-recourse loan agreements. 
  2. [48]
    That conclusion is strengthened by the existence in the shareholders agreement of an entire agreement clause as follows:

“This agreement together with the transaction documents constitute the entire agreement between the parties in connection with the subject matter and supersede all previous agreements or understandings between the parties in connection with their subject matter.”

  1. [49]
    However, by his affidavit filed 5 August 2019, the second defendant says that in April 2014 (approximately 8 months before the shareholders agreement was executed on 24 December 2014), he agreed with Mr Cowley that the loans to be made to him or to his related entities would be non-recourse, no interest would be payable on the loans and the loans would be paid back once the business had sufficient profits and cash flow to pay them back.   If that was a term of the proposed investment by Mr Cowley and his companies in the first defendant, it is surprising that it was not reflected in the express terms of the shareholders agreement drafted by Minter Ellison as the solicitors for the second defendant. 
  2. [50]
    The plaintiffs deny the existence of such a term and say that even if it had been made in April 2014, it was superseded as a previous agreement or understanding between the parties by cl 20.9 of the shareholders agreement[9]
  3. [51]
    The plaintiffs rely upon two of the grounds for winding up a company under s 461(1) of the Corporations Act 2001 (Cth) as follows:

“(1)  The Court may order the winding up of a company if:

  1. (e)
    directors have acted in affairs of the company in their own interests rather than in the interests of the members as a whole, or in any other manner whatsoever that appears to be unfair or unjust to other members; or

  1. (k)
    the Court is of opinion that it is just and equitable that the company be wound up.”
  1. [52]
    The plaintiffs submit that it is just and equitable that the Company be wound up because there has been a significant breakdown in the relationship of trust and confidence between Mr Cowley and the second defendant, in circumstances where the relationship can be characterised as a “quasi-partnership” or a “majority controlled business requiring mutual cooperation and a level of trust”. 
  2. [53]
    In my view, it is not clear to the requisite degree for summary judgment that the plaintiff should succeed on that basis.  First, neither the constitution of the Company nor the shareholders agreement is consistent with the characterisation of the affairs of the company as being a quasi-partnership or a majority controlled business requiring mutual cooperation and a level of trust.  On the contrary, both the constitution and the shareholders agreement gave effective control of the Company to the second defendant, although subject to both contractual obligations under the shareholders agreement and the statutory and equitable obligations as an officer and member under both the Corporations Act 2001 (Cth) and the general law in the exercise of relevant management powers. 
  3. [54]
    Second, there is a substantial factual dispute about what was the plaintiffs understanding, by Mr Cowley, as to the prospect of the Company making loans to the second defendant or other entities.  Although Mr Cowley in his affidavit says that he was not aware of the loans that were to be made, clause 2.1 of the shareholders agreement set out above is not consistent with the second defendant being precluded from borrowing any of the funds of the Company.  In support of that, the second defendant says that in April 2014 it was discussed between him and Mr Cowley that he would need some funds for living expenses because he was going to devote his full time to the development of the business which, at that point, was not cash flow positive. 
  4. [55]
    It must not be forgotten that the present application is one for summary judgment by an applicant for a winding up order in a contributories’ application.  Summary judgment in such a proceeding is unusual, because they are not usually brought by claim under the Corporations Act 2001 (Cth) and applicable rules of court.  But that is how this proceeding has been directed to continue.  Under rules 291 and 292 of the UCPR summary judgment may be granted if the court is satisfied that the defendant has no real prospect of successfully defending all or part of the plaintiff’s claim, and there is no need for a trial of the claim or part of the claim. 
  5. [56]
    If it were necessary to resolve the disputed questions as to the discussions between the second defendant and Mr Cowley in or about April 2014, I would not grant summary judgment, because the hearing before me was not a final hearing to establish the relevant facts.  But there are other relevant matters as previously discussed. 
  6. [57]
    The plaintiffs have offered to sell their shareholding in the Company to the second defendant.  The second defendant expresses no interest in acquiring those shares.  There is no suggestion that the shares are otherwise commercially transferrable.
  7. [58]
    Notwithstanding the breakdown of the relationship between the second defendant and Mr Cowley, the second defendant’s control of the Company is entrenched in accordance with the Constitution and shareholders agreement, subject to his contractual, statutory and equitable obligations.  So far as he may have breached his duties as an officer of the Company, there is no realistic prospect that the second defendant would investigate or bring proceedings in respect of those breaches.
  8. [59]
    There is some similarity between the circumstances of this case and Re Caratti Holding Co Pty Ltd.[10]  In that case, a liquidator of a closely held trading company had used company funds to make loans to meet personal income tax liabilities, debts of members of his family and in speculation by the director, on the stock exchange.  It was held that this amounted to having acted in affairs of the company in their own interests rather than in the interests of the members as a whole.[11]
  9. [60]
    There is also some similarity between the present case and Warner v Global Pacific Aerospace Pty Ltd.[12]  The Company does not have an ongoing business.  The members are at loggerheads and it seems to me their relationship has irretrievably broken down.  Mr Cowley makes allegations, in effect, of breach of director’s duty against the second defendant.  The matters of complaint are not frivolous and there is sufficient evidence to take them beyond mere assertions.  The response by the second defendant does not provide an unchallengeable answer to them.  The dispute cannot be finally decided or determined on the basis of the evidence as it stands. 
  10. [61]
     Re SJG Securities Pty Ltd[13] is another case showing some similarities to the present, although the facts were stronger. It was held that when the court could not have confidence that the company’s controllers would comply with their obligations it was permissible to make a winding up order on the just and equitable ground.[14]
  11. [62]
    Lastly, in China v Smith (No 4),[15] it was held that where a single purpose company had failed in its purpose, the company should be wound up on the just and equitable ground.[16]
  12. [63]
    These instances reflect the broad base of the court’s power to wind up a company on the just and equitable ground reflected in older cases of high authority concerning a justifiable lack of confidence in the directors’ management of the company.[17]
  13. [64]
    In my view, it is appropriate that the Company be wound up on the just and equitable ground under s 461(1)(k) of the  Corporations Act 2001 (Cth) and that a liquidator, who is independent of the disputants, should be appointed to investigate the allegations made by Mr Cowley against the second defendant and to determine whether any claim should be brought against him or W Media Holdings Pty Ltd or anyone else.
  14. [65]
    The appointment of a liquidator will not affect any ongoing trading business.  The Company has no active business.  It only has the prospect of recovering the loans and possibly some amount for the value of the units.  There is no reason to think that the appointment of a liquidator to the Company will immediately affect the business of the trust.  A liquidator may be able to cause the Company to consider its position as a member of W Media Holdings Pty Ltd.
  15. [66]
    Nevertheless, in my view, the appropriate proceeding is not usually upon an application for summary judgment, where the question is whether the defendants have no real prospect of successfully defending the plaintiff’s claim.  It is not correct procedurally to treat such an application as if it were the final hearing of the application to wind up and as if the defendants would and could adduce no other evidence at a final hearing.  Instead, the argument would run, because of what does appear on the hearing of this application, the proceeding could be set down for trial at the earliest opportunity, with directions to make sure that it proceeds on that occasion.
  16. [67]
    Despite those considerations, in my view, a winding up order should be made in this case.  The position of the second defendant is so hopelessly conflicted that, in the light of the likely inability of the Company to realise any meaningful sum from the investment in the units, a liquidator should be appointed to independently consider the recoverability of the loans.
  17. [68]
    In my view, notwithstanding the caution to be shown in granting summary judgment that those considerations suggest, the circumstances are that the defendants have no real prospect of successfully defending the plaintiffs’ claim[18] that the Company should be wound up on the just and equitable ground.

Footnotes

[1] Uniform Civil Procedure Rules 1999 (Qld), r 995 and Schedule 1A, r 2.2.

[2] Uniform Civil Procedure Rules 1999 (Qld), r 14(2) (a).

[3] Uniform Civil Procedure Rules 1999 (Qld), r 291.

[4]  From the date of filing the statement of claim, the title of the parties was amended to show the applicants as plaintiffs and the respondents as defendants.

[5]  The units are apparently registered as held by Winter One Australia Pty Ltd but the second defendant says that it does so as trustee for the first defendant.  No trust instrument is in evidence.

[6]  Neither the trust instrument nor the register of unit holders is in evidence.

[7]  Which appears to be represented by the loan in that company’s account described as being to John Cowley.

[8] Trusts Act 1973 (Qld), s 72 or equivalent.

[9]  See Coast Corp Pacific Pty Ltd v Stockland Development Pty Ltd [2018] QSC 305, [116]-[138]; Hope v RCA Photophone of Australia Pty Ltd (1937) 59 CLR 348, 363.

[10]  (1975) 1 ACLR 87

[11]  (1975) 1 ACLR 87, 101.

[12]  [2012] VSC 291.

[13]  [2013] NSWSC 588.

[14] Re SJG Securities Pty Ltd [2013] NSWSC 588, [13] – [14].

[15] China and Others v Smith (aka With) and Others (No 4) (2014) 99 ACSR 105.

[16] China and Others v Smith (aka With) and Others (No 4) (2014) 99 ACSR 105, 107-108 [10] and 109 [25].

[17] Loch v John Blackwood Limited [1924] AC 783, 788; re Wondoflex Textiles Pty Ltd [1951] VLR 458, 465; Scottish Cooperative Wholesale Society Ltd v Meyer [1959] AC 324;  Waipuna Investments Pty Ltd [1956] VLR 115.

[18] Palermo v National Australia Bank [2017] QCA 321, [69]; Shaw v Deputy Commissioner of Taxation [2016] QCA 275, [31];  Coldham-Fussell v Commissioner of Taxation (2011) 82 ACSR 439, [98]-[101].

Close

Editorial Notes

  • Published Case Name:

    Re Winter One Investments Pty Ltd

  • Shortened Case Name:

    Re Winter One Investments Pty Ltd

  • MNC:

    [2020] QSC 233

  • Court:

    QSC

  • Judge(s):

    Jackson J

  • Date:

    07 Aug 2020

  • White Star Case:

    Yes

Appeal Status

Please note, appeal data is presently unavailable for this judgment. This judgment may have been the subject of an appeal.
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