BRISBANE LAWYERS AITKEN WHYTE LAWYERS BRISBANE – LITIGATION AND DISPUTE RESOLUTION LAWYERS AND SOLICITORS FOR BRISBANE, QUEENSLAND
A recent decision by the New South Wales Supreme Court in Re Munja Bakehouse Pty Ltd [2024] NSWSC 6 has provided valuable insight into the application of sections 233(1)(a) and 461(1)(k) of the Corporations Act 2001 (Cth), in resolving corporate disputes involving companies structured as trusts, with the plaintiff acting as a trustee in a quasi-partnership. Aitken Whyte Lawyers have experience representing clients in similar matters involving corporate oppression and where ‘just and equitable’ winding up is sought.
Under sections 232 and 233 of the Corporations Act, the Court has broad powers to grant relief where there is corporate ‘oppression’. Conduct may be oppressive if it is contrary to the interests of the members of the company as a whole, or if it is unfairly prejudicial to a member of the company.
Section 233(1)(a) empowers the court to order the winding up of a company if deemed appropriate.
Section 461(1)(k) outlines the general grounds for ordering the winding up of a company, specifying that the Court may wind up a company if it considers it “just and equitable.”
A quasi-partnership is an informal business arrangement between individuals, often with close personal relationships, where the business is built on mutual trust and confidence. While quasi-partnerships share similarities with formal partnerships, they differ by not formally falling under the Partnership Act. Legally, they maintain the characteristics of a limited company but retain key features commonly associated with partnerships.
For example, 3 individuals may set up a company to carry on a business, with all 3 acting as directors and holding shares in the company. Even though a company was set up, a Court may view the 3 individuals as being in a ‘quasi-partnership’ and find that they owe each other fiduciary duties.
There are numerous cases on the successful application of sections 233(1)(a) and 461(1)(k) for the winding-up of companies on just and equitable or oppression grounds.
As indicated above, the winding up of a company is not the only relief that the Court may grant especially if there is oppressive conduct found.
The case of Re Munja Bakehouse Pty Ltd [2024] NSWSC 6 is significant as it recognizes that a member of a company may be oppressed even if the company is a trustee and the member is being oppressed in its capacity as a beneficiary of a trust.
A trustee company is unable to avoid relief being granted under section 233 of the Corporations Act on the basis that it is a trustee.
The Plaintiffs:
The Defendants:
Munja and Smith Street were a quasi-partnership. The relationship between the plaintiffs and defendants deteriorated, leading to a breakdown in trust and cooperation. The plaintiffs sought the winding up of the companies under section 461(1)(k) of the Corporations Act on the grounds that the breakdown made continued cooperation unfeasible. The plaintiffs also requested the appointment of a liquidator to act as receiver of the trust assets, a common remedy in such circumstances. The defendants, on the other hand, sought a buyout of shares, arguing that the court could make such an order under section 467(1) of the Corporations Act if a winding-up order was issued under section 461(1)(k).
Justice Black ultimately focused on section 461(1)(k) (just and equitable winding up), as neither party pursued an order under section 233(1)(a) (oppression).
Justice Black ordered the winding up of Munja and Smith Street, appointing the liquidator of Smith Street as receiver of the trust assets.
Justice Black concluded that “just and equitable” grounds for winding up the company existed, given the irreparable breakdown in the relationship between the parties. This made further cooperation impractical. However, the court dismissed the defendants’ request for a forced buyout, finding that the provisions did not permit such an order.
The concept of “just and equitable” grounds is broad and fact dependent. In this case, the breakdown of trust in a quasi-partnership, hindering the company’s ability to operate, was sufficient to justify a winding-up order. Additionally, Justice Black also examined section 232(1)(a) in the event it had been invoked by the parties. He noted that section 232(1)(a) addresses conduct involving “unfairness,” and the Court must assess whether, on the balance of probabilities, an objective commercial observer would conclude that the company’s affairs were being conducted unfairly. He further highlighted that section 232(1)(a) is likely applicable to companies acting as trustees, particularly when the trust’s interests are part of a quasi-partnership relationship between the companies involved. The case also reinforced that Courts have routinely made such appointments, ensuring that the liquidator takes control of the trust’s assets.
The decision of Black J in Re Munja Bakehouse Pty Ltd is consistent with the most recent decisions of Courts in Australia on the issue of whether orders for corporate oppression under section 232 and 233 of the Corporations Act may be made when the relevant company is a trustee. These recent decisions include Tsavaras v Tsavaras & Sons Pty Ltd [2023] NSWAC 168 at [62] and Re Central Stone [2024] VSC 822 at [470]-[478].
These decisions run contrary to previous decisions of Kizquari Pty Ltd v Prestoo Pty Ltd and Re Polyresins Pty Ltd to the effect that equitable interests cannot be dealt with by the Court under section 233 of the Corporations Act.
The ruling in Re Munja Bakehouse Pty Ltd [2024] NSWSC 6 underscores the significant legal mechanisms available under sections 233(1)(a) and 461(1)(k) of the Corporations Act 2001 (Cth) to address disputes within quasi-partnerships, particularly in cases involving trusts.
This decision highlights the crucial role of trust and confidence in these business relationships (quasi-partnerships) and affirms that a loss of this trust can justify the winding-up of companies. The case also serves as an important reminder of the powers of the Court available to members of a company facing corporate oppression by even a trustee company.
If you find yourself in a similar situation, it is crucial to seek legal guidance to safeguard your entitlements. Aitken Whyte Lawyers have significant experience in resolving corporate disputes, particularly those involving companies structured as trusts and quasi-partnerships. To discuss how we can assist you, please contact our Brisbane office.
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