In Van Wijk (Trustee), in the matter of Power Infrastructure Services Pty Ltd v Power Infrastructure Services Pty Ltd [2014] FCA 1430, the Federal Court considered whether it was appropriate to appoint provisional liquidators to a company on the just and equitable ground in circumstances where a winding up application is on foot. Senior Associate, Sarah Drinkwater and Associate, Tim Logan, discuss the case and its implications.

The application

Mr Van Wijk, a director and shareholder of Power Infrastructure Services Pty Ltd (Power), applied to the Court to wind up power pursuant to sections 461(1)(e), (f), and, further, or alternatively, (k) of the Corporations Act 2001 (the Act). Mr Van Wijk also applied for the appointment of a provisional liquidator. This article deals with whether a provisional liquidator should be appointed. In considering whether it was appropriate for such an order to be made, consideration of section 461(1)(k) was had – being the just and equitable ground.

Background

Power is a non-wholly-owned subsidiary of HVLV Pty Ltd (HVLV) (HVLV owning 50%), which is a wholly-owned subsidiary of Viento Group Limited (Viento).

There are seven other shareholders in Power holding the remaining 50%, including Mr Van Wijk.

In March 2014, Viento took over HVLV.

Since March 2014, there were endeavours made by the various shareholders in Power to reach agreement as to the governance of their relations and the operations and management of Power. An agreement could not be reached and relations between Mr Van Wijk (on behalf of minority shareholders based in Qld) and Mr Farrell (a director of Power) irretrievably broke down.

Other issues arose. For instance, in September 2014, $500,000 was transferred from Power to Viento (approved by Mr Farrell), which was an unsecured and interest free loan.

The Court surmised that the only likely resolutions to the tension between shareholders (without Court intervention) was for the minority shareholders to be bought out by Viento, or the majority shareholders be bought out by the minority shareholders. Unfortunately, it appeared to the Court there could not be a clean buy out of either the majority or minority shareholders.

Consideration

Justice Logan, whilst acknowledging that the making of an order for the appointment of a provisional liquidator is a drastic measure, ultimately concluded that this was an appropriate matter for provisional liquidators to be appointed.

The Court considered that it was “difficult to see how the future business operations of Power can in any way be continued, given the acrimony that exists between Mr Farrell and Mr Van Wijk”, and said that the circumstances were “just an unfortunate sequel to a takeover and perhaps also a lack of understanding that Power was not a wholly-owned subsidiary within the Viento Group”.

Finally, Justice Logan concluded:-

When all is said and done, I see this as a case where the breakdown of mutual trust is such that the drastic option of the appointment of a provisional liquidator is the option which must be adopted.”

Endnote

This matter was listed in the Federal Court again on in early March 2015, with respect to the hearing of the winding up application. On 6 March 2015 it was ordered that Power be wound up pursuant to section 461 of the Corporations Act 2001 and liquidators were appointed.