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[2023] QSC 93
In this case, the issue was whether leave should be granted to allow two shareholders to bring proceedings in the name of the company, pursuant to s 237 Corporations Act 2001 (Cth). Martin SJA refused leave, on the basis that it was not in the best interests of the company to grant leave when similar outcomes could be achieved through existing oppression proceedings in the name of the shareholders.
Martin SJA
5 May 2023
Background
This case concerned an application by Mr and Mrs Cooke for leave to bring claims in the name of Snap Fire Systems Pty Ltd (“Snap”). [1]. They both owned shares in Snap, and units in a trust related to the operation of the business. [2]. They have various complaints about the management of the Snap business, which they seek to resolve through these proceedings. [2].
In the result, Martin SJA determined not to grant them leave to bring the proceedings in the name of Snap. [24].
Why leave was not granted to bring proceedings in the name of the company
Section 236 Corporations Act 2001 (Cth) enables a person to bring proceedings on behalf of a company if, amongst other things, the person is a member, and leave is granted under s 237. Section 237(2) relevantly provides that a court must grant leave if it is satisfied that (emphasis added):
“(a)it is probable that the company will not itself bring the proceedings, or properly take responsibility for them, or for the steps in them; and
(b)the applicant is acting in good faith; and
(c)it is in the best interests of the company that the applicant be granted leave; and
(d)if the applicant is applying for leave to bring proceedings – there is a serious question to be tried; and
(e)[summarising: either written notice has been given to the company, or it is nonetheless appropriate to grant leave].”
In this case, the issue on which the application was contested was whether it was in the best interests of Snap that Mr and Mrs Cooke be granted leave. [13].
Martin SJA considered that to obtain leave, an applicant must do more than show a “prima facie indication” that the proposed proceeding is in the best interests of the company. Instead, the Court must be satisfied that it “actually is in the company’s best interests and not merely that it may be or appears to be” (citing Fiduciary Ltd v Morningstar Research Pty Ltd (2005) 53 ACSR 732). [17].
Further, his Honour noted authority to the effect that “if the applicant can achieve the desired result in proceedings in his or her own name it is not in the best interests of the company to be involved in litigation at all” (per Swansson v Pratt (2002) 42 ACSR 313). [19].
As to this case, his Honour noted that on reading the statement of claim and other material, the “dispute sought to be advanced is one between shareholders”, and that a similar result could be obtained through an “existing oppression proceeding”. [20]. Consequently, it was “not in the company’s interests” to be engaged in litigation when the relief sought by the applicants could be “obtained by other means”. [23].
Accordingly, leave pursuant to s 237 of the Corporations Act 2001 (Cth) was refused. [24].
W Isdale of Counsel