In the recent decision of Alon Pty Ltd [2021] NSWSC 1021 the Supreme Court of New South Wales considered the application of the administrator of a deceased person’s estate to have the deceased’s shares in a company transferred to him in the face of resistance from the company’s director (who was also the deceased’s son).

Years ago, mum and dad incorporated a company and, among other things, became shareholders of the company’s Class “A” voting shares.

The company held assets in its own capacity and also in its capacity as trustee of the family trust.

Mum and dad’s two sons, S1 and S2, eventually became directors of the Co.

In 2011, Mum retired leaving S1 and S2 as sole directors. In the same year the family trust deed was amended effectively placing the company in complete control of the trust, as both trustee and appointor.

In 2018 S2 ceased being a director, leaving S1 as sole director.

In 2019 mum died. In 2020 an administrator was appointed to mum’s estate.

The administrator found the company then had 11 Class “A” shares issued – 9 owned by mum, and one each owned by S1 and S2.

The administrator served on S1 an application to transfer mum’s shares to him.

If the application was registered, the administrator would hold 9 voting shares, allowing him to instal new directors and take control of the company.

The administrator chased S1 a number of times to seek to become registered as the true holder of mum’s shares, and threatened Court proceedings and an indemnity costs order if the matter was litigated

S2, in 2021, then transferred mum’s Class “A” shares to himself and allotted more shares of other classes to himself.

In May 2021 the administrator commenced the proceedings seeking to rectify the company’s share register to reflect his ownership (as administrator) of Mum’s shares and to reverse the allotment.

The Court found there was no just cause for S2 to fail to register the share transfer and made orders causing it to be registered.

S2 did not have power to allot himself extra shares as the Co required two directors and, from 2018, S2 was its sole director.

The transfer of mum’s shares and S2’s purported allotment of further shares to himself were both made without power and had no effect.

Due to S2’s intransigence, the administrator pressed for an indemnity costs order.

An indemnity costs order arises from the unreasonable conduct of the litigation itself, not the conduct that led to the litigation.

S2’s intransigence and attempt to seize control as “majority shareholder” came before the litigation was commenced.

However the administrator warned heavily of the possibility of an indemnity costs order in the correspondence sent before litigation was commenced, S2’s defence was hopeless, and the Court found the estate should not be depleted by S2’s unreasonable refusal to agree to the orders sought.

The administrator got essentially what he came for, including the indemnity costs order.

This is a lesson in understanding what rights you have as a director, and the difficult outcomes you can face if you try to do what you’re not supposed to.