Can a party seek oppression when a company is in liquidation?

Shareholders have a variety of remedies available to them in instances where directors or shareholders abuse their positions or breach their duties.  This generally known as shareholder oppression.  This article discusses how the Courts approach a shareholder oppression relief claim where a company is in liquidation, with particular reference to the case of Aqua Botanical Beverages (Australia) Pty Ltd v Botanical Water Technologies Pty Ltd [2022] NSWSC 435.

Background to shareholder oppression

Shareholder oppression may arise from various circumstances such as disagreements between members or other instances where a minority shareholder is treated unfairly.  See our article “Shareholder oppression – the early warning signs”.  Oppressive may take a variety of forms including for example, improper share issues, misuse of company funds or the intentional exclusion from participation in the management of the company.  Section 233 of the Corporations Act 2001 (Cth) (Act) provides remedies that the minority shareholders who have been oppressed may seek.  These remedies include, but are not limited to:

  • the company being wound up (liquidation);
  • the company’s constitution be amended;
  • the purchase of shares with an appropriate reduction of the company’s share capital.

Section 234 of the Act sets out who may apply (or has standing) for an order under section 233.  These individuals include, but are not limited to a:

  • shareholder of the company;
  • person who has been removed from the register because of a selective reduction; or
  • person who has ceased to be a shareholder and the application relates to the circumstances in which they were removed.

If a company goes into liquidation is a remedy still available to the oppressed shareholder?

When a company is determined to be insolvent, it is no longer able to trade.  In addition, insolvent companies are unable to apply to the Australian Securities and Investments Commission (ASIC) for voluntary deregistration.  Therefore, the only way for the company to cease trading is for it to appoint a liquidator.  The liquidator, once appointed, will assess the company’s financial affairs and where possible, make payments to existing creditors in order to attempt to settle its debts.

This raises the question of whether the remedy for shareholder oppression is still available if a company is in liquidation.

Case law – shareholder oppression and liquidation

In Aqua Botanical Beverages (Australia) Pty Ltd v Botanical Water Technologies Pty Ltd [2022] NSWSC 435, (Botanical Beverages) the New South Wales Supreme Court was asked to determine whether a claim for oppression could still be made when after a company went into liquidation.

Facts of Botanical Beverages

In this case, Aqua Botanical Beverages (Australia) Pty Ltd ACN 153 681 228 (Botanical Beverages), went into liquidation.  The company was established in order to sell water extracted from fruit and vegetables using patented processes developed by Dr Kambouris whom, alongside the CEO, Mr Driver, were directors.

In 2017, Botanical Beverages entered into an agreement with My Co Pty Ltd (My Co) to develop a new company under the name Botanical Water Technologies Pty Ltd (BWT).  My Co’s directors included Mr Terry Paule.  Subsequently, numerous reorganisations occurred which led to BWT obtaining indirect ownership of the patents and security over Botanical Beverages’ assets.  In addition, Dr Kambouris and Mr Driver were voted out as directors of BWT.

Dr Kambouris and Mr Driver commenced proceedings in June 2021, alleging breaches by My Co and Mr Terry Paule of the reorganisation agreements and their duties to Aqua.  Following the commencement of proceedings, BWT served a notice of demand on Botanical Beverages.  Botanical Beverages’s creditors then resolved to place the company into liquidation.  In addition, the plaintiffs (other than Aqua) sought leave to add an oppression claim to the existing claim under section 232 of the Act, seeking relief under section 233 of the Act and ordering My Co to pay compensation to Aqua.

Summary of Ball J’s decision and reasoning

Ball J ultimately dismissed the application for practical reasons but opened the discussion around section 233.  Ball J, relied on the decision of Black J, in In the matter of Imperium Projects Pty Limited [2017] NSWSC 141 (Imperium Projects) which rejected the argument that liquidation itself was sufficient fail to consider a claim for relief under section 233 of the Act.

In this case, the main issue involved determining the nature of the oppression and whether such oppression ends with a liquidator’s appointment.  Black J found that oppression arguably continues post-liquidation in a situation where a company’s business has been diverted so that the liquidator is unlikely to take steps to retrieve assets due to lack of funding.

The Court held that relief for oppression would still be available

In short, the Court left the prospect of a section 233 relief claim open.  Ultimately, the Court found no reason, in principle, why such an order could not be made but placed emphasis on the practical reasons for dismissal since Botanical Beverage’s liquidators had not decided whether or not to support the claim.

Takeaways for the oppressed

 The lesson from Botanical Beverages is that the appointment of liquidators to a company will not necessarily exclude the ability of an oppressed shareholder from applying for relief under section 233 of the Act.  Practically however the support of the liquidator is required where the company itself is a party.  This of course will depend on the relief sought.

Links and further references

Related articles

Shareholder oppression – a taxonomy of corporate wrongs

Shareholder oppression remedies – to buy-back or wind up?

Shareholder oppression in equal ownership situations

Shareholder oppression – combined effect adds up

Just and equitable winding up for shareholder oppression

Read more about litigation and dispute resolution services

Litigation and dispute resolution

Legislation

Corporations Act 2001 (Cth)

Cases on shareholder oppression

Aqua Botanical Beverages (Australia) Pty Ltd v Botanical Water Technologies Pty Ltd [2022] NSWSC 435,

In the matter of Imperium Projects Pty Limited [2017] NSWSC 141

Further information

If you need advice on seeking a remedy for shareholder oppression contact us for a confidential and obligation free and discussion:

Malcolm Burrows

 

Malcolm Burrows B.Bus.,MBA.,LL.B.,LL.M.,MQLS.

Legal Practice Director

Telephone: (07) 3221 0013 (Preferred)

Mobile: 0419 726 535

e: mburrows@dundaslawyers.com.au

 

Disclaimer

This article contains general commentary only.  You should not rely on the commentary as legal advice.  Specific legal advice should be obtained to ascertain how the law applies to your particular circumstances.

 

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