In the decision of Global Pacific Aerospace Pty Limited [2012] VSC 291, The Supreme Court of Victoria considered a dispute between directors of a company, and whether it was just and equitable that the company should be wound up.

W and B were 50/50 shareholders in a company that bought a helicopter for $1.6m. W and B were also the company’s sole directors.

$1.12m of the purchase price was borrowed and secured by a mortgage. W and some related entities gave a guarantee in respect of that loan.

The company couldn’t make the payments. The lender caused the helicopter to be sold for a shortfall of around $457,000.00.

The lender sued W and their related entities for the shortfall pursuant to the guarantee.

Interestingly, the purchaser of the helicopter was a different company wholly owned and controlled by B, who had not given a guarantee.

W says B used his position as director of the company to negotiate a lower price for the helicopter, breaching his directors duties. W sought to bring derivative proceedings to pursue this claim.

B applied to wind up the company on the basis that it would be just and equitable to do so.

B claimed that W excluded them, treated the company as their own, breached duties in buying the helicopter for an inflated price and then failed to maintain it, and failed to manage the company’s obligations to its lender.

W said B’s claim was an attempt by B to protect themselves from the derivative claim and, as there was no money, a liquidator would not chase B for B’s breach of their directors duties.

The company had no ongoing business. Its sole assets were claims against B, W, and the lender.

The Court considered it would be just and equitable to wind up the company because: (i) it was being sued by a secured creditor, (ii) the directors’ relationship had broken down, (iii) each director alleges the other has breached their directors duties with evidence from both showing neither’s claim is frivolous.

The Court considered preferable course was for an independent liquidator to be appointed to investigate all claims and noted “liquidators commonly find a way to obtain funding if there is a potentially good cause of action available to the company”.

The company was wound up on the just and equitable ground.

Poor corporate governance can put a company’s existence at risk.