In the matter of SRD Property Pty Limited [2023] NSWSC 441
In the recent matter of SRD Property Pty Limited the Supreme Court of New South Wales considered a scenario where there was a corporate oppression claim made along with an application for a winding-up and share buyout. However, the shares were worthless.
The plaintiff commenced oppression proceedings seeking buyout orders, or a windup.
The first company was owned 50-50 between the plaintiff and the second defendant and bought a site for $4.6m.
The second company was owned 50-50 between the plaintiff and the second defendant and bought a site for $2.9m.
The plaintiff said they contributed $1.3m to finance and the first defendant and the second defendant contributed $700K between themselves. Further funds were also contributed to all companies by both.
A third company was owned 50-50 between the plaintiff and second defendant and agreed to buy a site for $6.1m in the future.
During the hearing, the plaintiff showed debts owed by the first company requiring urgent payment, revealing the companies needed the plaintiff to meet their debts.
The first defendant said the second defendant’s spouse, was little more than a figurehead. The first defendant said that they operated in the company’s day to day.
The first defendant said the plaintiff agreed to provide additional funding for the company’s projects without the defendants needing to contribute.
The Court did not accept the first defendant’s evidence, and the second defendant did not give evidence; the inference arising that it would not have assisted the defendants.
The parties did not record their arrangement.
The plaintiff said the parties agreed to share the company’s expenses and profits 50-50.
Neither the plaintiff nor the first defendant proved the agreement they said was made.
In late 2022, the first defendant instructed the company’s builders to stop work on the company’s projects and stopped a finance application.
The plaintiff said the defendant’s failure to pay 50%, the purported termination of the alleged agreement, and the defendant’s instructing some construction and a finance application to cease were contrary to section 232 of the Corporations Act.
The Court found the defendant’s failure to contribute their 50% was enough to support either a buyout order or a winding up.
The breach of the alleged agreement was not seen as oppressive as the agreement was not proved as pleaded, nor was the ceasing of construction and finance.
The defendants also said, unsuccessfully: the plaintiff caused inaccurate books to be prepared, and that the plaintiff breached their directors’ duties. The defendants also said the relationship had broken down. This was made out, but not a defence to the plaintiff’s claim.
The next issue was: should relief be a share sale or a winding up (noting that a buyout order can be made for no consideration)?
The plaintiff made various submissions in support of a buyout order.
The defendants accepted the relationship had broken down but were pressed for a winding up.
On balance, the Court found a buyout order was appropriate for company one, two and three.
Noting the indebtedness of each of the companies to the plaintiff and the defendants, the value of each company as nil making the value of the defendant’s shares in each company nothing.
Having found buyout orders were appropriate, the Court did not need to consider the plaintiff’s claim for a winding up.
Noting the nil value of the defendant’s shares, the Court ordered that the plaintiff had to pay certain amounts into Court on account of the company’s debts to the defendants and once paid, cause the transfer of the shares to the plaintiff.
This case illustrated the importance of recording agreements in writing and how a buyout order can be made. If you would like advice in relation to share sales or winding-up a company, please do not hesitate to reach out to our team.
This article was prepared with the assistance of Christie Preston.
If you have any questions or concerns please contact Stipe Vuleta on 02 6188 3600