Late, in 2012, the Supreme Court had to consider how to deal with a company whose shareholders were in dispute.  One of the shareholders had sought orders requiring the resignation of certain directors of the company, made assertions regarding oppression and demanded that a receiver be appointed to the assets of the company.

The company owned land in Holroyd and the two groups of shareholders held equal rights in respect of the company. One of the shareholders had offered to leave on the basis that the others acquired the shares, but those negotiations also broke down. It was apparent to the Court that the company was dysfunctional and in a state of deadlock.

Both parties indicated to the Court that they considered liquidation of the company to be a last resort only. The Court also noted that that it is well recognised that the liquidation of an insolvent company – as a remedy – is a remedy of last resort.In determining how to deal with such a matter the Court noted that its considerations are not closed or rigid, but that it would need to look at circumstances related to mismanagement or a lack of confidence in the conduct and management of the company’s affairs. The court noted that where a company was based on an association formed on the basis of personal information involving mutual confidence and that confidence has broken down, it needed to consider seriously the future of that company. The Court also took into account conduct of directors in denying access to information to shareholders and the exclusion of directors and shareholders from major decisions.

A break down of relations, or loss of confidence between a company’s members, may support a winding up on just an equitable grounds where the consequent dysfunction frustrates the commercially sensible operations of the company. Although there is often oppression on one party by another, that is not always the case and the court can exercise its discretion in relation to remedies whether, or not, one party is ‘at fault’ in relation to the breakdown of the relationship. In the case before the Court neither party sought to blame the other and neither lead any evidence to establish that the other party was primarily responsible for the breakdown of the relationship.  Both agreed, however, that the shareholders were in deadlock.

Having heard evidence from the parties, the Court considered it had no alternative but to wind up the company and made an order that a liquidator be appointed.

The reality of that outcome is that the property owned by the company was put in the hands of liquidators whose role it was then to sell all material assets and distribute net proceeds to the shareholders.

It is possible that some of the issues between the shareholders could have been dealt with by an effective shareholder agreement.  The negotiation of such agreement (even between friends) would disclose differences between the parties.  If the issues were dealt with at the time, the subsequent litigation (which lasted approximately five years) could have been avoided, and, it is likely that the shareholder agreement would have saved each of the parties tens of thousands, if not hundreds of thousands of dollars in legal fees.