In the decision of Gearhouse BSI Pty Ltd [2021] NSWSC 98, The Supreme Court of New South Wales considered the circumstances in which it might make an order to wind up a company on the “just and equitable” basis pursuant to s461(k) of the Corporations Act 2001 (Cth).

B and G founded a company, Co, and entered into a shareholders agreement.

B and G’s intention was to cause Co to provide in-car cameras for race cars to be used in TV broadcasts of car races.

In 2015 the Co entered into an agreement with a TV broadcaster to provide the in-car camera services for a fixed term of 5 years, concluding at the end of 2020.

B and G each transferred equipment to the Co for the Co’s exclusive use. B’s was valuable, “unique” technical equipment.

On termination of the shareholders agreement, each shareholder had the right to buy back equipment from the Co at fair market value:

B commenced proceedings seeking to wind up the Co on the just and equitable basis, s461(k).

The broadcaster sought expressions of interest for the next 5 year period and the Co didn’t respond (though B’s parent company did).

After the last race in October 2020 B came to take back its equipment, but G prevented that.

B’s later requests for info about its equipment were met with no response.

Later in 2020, the broadcaster, having not named anyone else, asked the Co to provide its services for 2021.

G pressed for the Co to go ahead with the 2021 deal. B refused.

B sought confirmation G would not use B’s equipment. Instead, G sent it to racing venues in January 2021 without B’s knowledge or consent.

B wanted to buy back the camera equipment from the Co to meet its other contractual commitments.

B said the substratum of the Co’s business had failed and so it should be wound up.

G disagreed, saying the Co’s substratum was not limited to 2016 – 2020, but that it could continue (with an offer on the table).

The Court found the Co couldn’t do what it was meant to do because of the war between the shareholders, meaning the Co’s substratum failed.

Reasons included: broadcaster’s offer was a mere agreement to agree, with terms to be worked out later; the loss of trust and confidence meant the prospects of successfully continuing the Co were “so remote as to be fanciful”.

The Court found B had justifiably lost confidence in G.

The Co was solvent, and there was no prejudice to creditors of employees (there were none) if it was wound up.

Due to (i) breakdown in cooperation and trust, (ii) B’s justified loss of confidence in G, (iii) G’s improper deployment of B’s equipment, the Co’s substratum failed meaning it would be just and equitable to wind up the Co in the absence of an alternative remedy.

There being no appropriate alternative remedy (including by way of dispute resolution clauses in the shareholder agreement), the winding up orders were made.

This case illustrates the importance of getting the shareholders agreement right at the commencement of any new venture. If parties are bound to an inappropriate arrangement, then the outcome can be dire, and expensive.