This case contains relevant discussion on two areas of interest for commercial practitioners. First, it gives some consideration to the relevant factors in determining whether a company is a “quasi-partnership” for the purposes of an application to wind up the company under s 461(1)(k) of the Corporations Act 2001 (Cth). It also considers some of the factors relevant to determination of whether it would be “just and equitable” to wind up the company under that section more generally. Second, it considers the making of an order to validate a procedural irregularity pursuant to s 1322 of the Act and holds that it is the irregularity which must cause the relevant substantial injustice under that section. In this case, the irregularity was entirely caused by the deliberate inaction of the party complaining of the irregularity. In those circumstances, that party could not be said to suffer substantial injustice from the irregularity.
28 April 2017
This matter involved two applications. The first was an application by Samsara One Pty Ltd (“Samsara”) for an order winding up Citi Project Marketing (Qld) Pty Ltd (“Citi”). The second was an application for a declaration by Pointcorp Holdings Pty Ltd (“Pointcorp”), and Messrs Vitale and Gedoun, that an Extraordinary General Meeting, and resolutions passed at it, were valid. .
Messrs Vitale and Gedoun were the sole shareholders and directors of Pointcorp. Mr Patterson was the sole shareholder and director of Samsara. In 2014, following discussions between the parties, Citi was incorporated. . Its purpose was to market residential unit developments undertaken by Pointcorp and other property developers. . It was owned by Samsara and Pointcorp in one third and two third shares respectively. . Mr Patterson was the sole director of Citi. .
Messrs Vitale and Gedoun became concerned about the manner in which Mr Patterson was performing his duties. . Subsequent events transpired, culminating in Pointcorp issuing a notice calling for an Extraordinary General Meeting to remove Mr Patterson as director and to replace him with Messrs Vitale and Gedoun. . Solicitors for Mr Patterson, on behalf of Citi, called for a meeting on Saturday 24 December 2016 at their offices, but neither Mr Patterson, nor any representative of Samsara, attended. . Despite the lack of quorum, the meeting was held and the resolutions were passed. .
Samsara sought an order winding up Citi under s 461(1)(k) of the Corporations Act 2001 (Cth). . It argued that Citi was, what is sometimes referred to in the authorities as, a “quasi-partnership”, and that the principles relevant to that type of company should therefore apply.
Martin J canvassed the relevant authorities. –. His Honour referred to the leading decision in Ebrahimi v Westbourne Galleries Ltd  AC 360, in which Lord Wilberforce considered that equitable considerations could be superimposed upon the legal rights of the parties in closely held private companies if the following three elements were present:
- an association formed or continued on the basis of a personal relationship, involving mutual confidence;
- an agreement, or understanding, that all, or some of the shareholders shall participate in the conduct of the business; and
- a restriction upon the transfer of the member’s interest in the company, which has the effect, if confidence is lost or one member is removed from management, that that member cannot take out his or her stake and go elsewhere.
However, as Martin J explained, “[t]he presence of these factors does not mandate that the just and equitable clause be brought into play”. . Further, his Honour considered that the conduct of the parties could be taken into account in determining what was just and equitable. –.
It was not disputed that the relationship between the parties had broken down. . However, Martin J ultimately was of the view that Citi did not begin as, or ever became, a “quasi-partnership”. . Unlike in Ebrahimi, where it was of “cardinal importance” that the business had been carried on by the parties as “partners, equally sharing the management and the profits”, the evidence here was that the parties had a business relationship, but nothing more. .
Martin J also did not consider that Citi’s purpose had failed, such that it should be wound up on the basis that there had been a “failure of the substratum of the company”. . Citi was not established to market any particular development, and the fact that it had remained idle for some time was not decisive. . Referring to the decision of Owen J in Thomas v Mackay Investments Pty Ltd (1996) 22 ACSR 294, his Honour held that there had not been a “final and conclusive abandonment of the business”. , .
Martin J dismissed the application, noting that “[a] winding up order will not be made simply on the demand of a disgruntled shareholder”. .
As for the Extraordinary General Meeting, Martin J noted that it was “called by Mr Patterson and was deliberately rendered inquorate by Mr Patterson”. . Pursuant to s 1322 of the Corporations Act the absence of quorum was a procedural irregularity, which would not invalidate the meeting, unless the Court formed the view that it had caused a substantial injustice that could not be remedied by any order of the court. –.
Martin J took the view that as “the procedural irregularity was caused by the deliberate action (or inaction) of Mr Patterson”, it could “hardly be said by him that he [could], as a result, have been the subject of injustice”. . His Honour emphasised that it must be the irregularity and not the proceeding which causes the substantial injustice. . The irregularity caused no substantial injustice to Mr Patterson. . His Honour therefore dismissed the winding up application, and declared that both the Extraordinary General Meeting and the resolutions passed at it were valid. .