Shareholder Disputes: Winding up or purchase of shares of a solvent trading company?
In Asia Pacific Joint Mining Pty Ltd v Allways Resources Holdings Pty Ltd & Ors  QCA 48, a dispute had arisen between the shareholders of a company, Samgris Pty Ltd which was incorporated to undertake coal exploration in Queensland.
The minority shareholders in the company claimed that the affairs of the company had been conducted in a manner which was oppressive or unfairly prejudicial to, or unfairly discriminatory against, them as the minority and further or alternatively claimed that the company’s affairs had been conducted in a manner which was contrary to the interests of the members as a whole.
The relief sought was for an order for the winding up of the company under s461 of the Corporations Act 2001 (Cth), or, alternatively, that the majority shareholder purchase their shares at a price to be determined by the court once the court had decided that they should have that relief under s233 of the Corporations Act 2001 (Cth).
Here, the company was well and truly solvent. Its draft financial accounts for the year ended 31 December 2015 showed net assets of in excess of $18 million before having any regard to a disputed $33 million.
In the first instance, the trial judge (Bond J) held that the relationship between the appellant and the respondents, as the shareholders of the company should be characterised as a “quasi-partnership” or “a majority controlled business requiring mutual cooperation and a level of trust”. He found that the relationship between the parties had irretrievably broken down and that this had been caused by the majority shareholder’s conduct. He further held that the conduct had been oppressive and unfairly prejudicial to, or unfairly discriminatory against, the minority within the meaning of s232(e) and that the respondents had established an entitlement to a remedy also under s232(d) and ordered a winding up of the company.
He found that the company was a “quasi-partnership” and was:
“..not functioning, and cannot reasonably be expected in the future to, in the way intended and … There is no real prospect that the directors nominated by the two sides can work together sensibly to reach the necessary agreement to be able to conduct the company’s business in the future. In the circumstances of this case, in the absence of any other remedy, it would be just and equitable that Samgris should be wound up.”
In this instance, the majority shareholder appealed the decision of the trial judge, but the appeal was unanimously dismissed.
In this instance, the court of appeal also reflected that:
“the critical considerations are that not only would the valuation of the respondents’ shareholding be an extensive, expensive and time consuming process, but there is also a real uncertainty as to whether the appellant would be willing and able to pay the price which is ultimately determined.”
In the face of such uncertainty-the court could not impose a buy-out order, affirming the original decision to order a winding up.
This decision reaffirms the approach taken when a dispute between shareholders is to be characterised as a quasi- partnership and the appropriateness of a winding up order.
It further highlights that if a party involved in a shareholder dispute wishes a buy-out order to be made, then it needs to demonstrate not only the appropriate basis for such an order-but the financial capacity and willingness to meet such an order.
If you are involved in or wish to obtain advice on have any aspects of shareholder disputes, then please contact us.