While the winding up of a company is a last resort in the context of shareholder oppression, the discretion to order a winding up will be exercised by the Courts if the circumstances dictate that it is the most appropriate remedy, such as where it will provide finality and certainty for the shareholders without undermining the value of the company’s projects to a potential purchaser on winding up.
The plaintiff, Sino Oakleigh International Development Pty Ltd (Sino) and the defendant, Mainland Projects (Oakleigh) Pty Ltd (Mainland) entered into a joint venture agreement, with Sino holding 50.1% and Mainland holding 49.9% of the joint venture vehicle, Huntingdale Estate Nominees Pty Ltd (Huntingdale). This case involved an application by the plaintiff for the winding up of Huntingdale after the joint venture partners fell out.
The issue for decision was whether the appropriate remedy was winding up or compulsory acquisition by one joint venturer of the other’s shares in Huntingdale. Mainland had previously offered to purchase Sino’s interest in Huntingdale, and had begun seeking a new partner and financing facility. However, Sino had declined the offer based on its concerns that Mainland lacked the ability to pay the price it was offering and that accordingly, the sale proposal was just delaying an inevitable winding up.
The Court considered existing case law in which the courts have sought to do justice to an injured shareholder by ordering that the oppressor purchase their shares at a good price. While noting that such cases have limited application in cases such as this where there is no apparent oppressor or victim and the parties wish to avoid the attribution of blame, the Court referred to some general principles enunciated in Re Hollen Australia Pty Ltd that assist where the choice is between winding up and an order for acquisition, namely:
- generally the purpose of granting a remedy under s233 is to bring an end to the oppression and to compensate the person oppressed;
- oppression can typically be ended where the oppressor is ordered to acquire the oppressee’s shares at fair value;
- winding up is a remedy of last resort and an extreme step, requiring a strong case to be made; and
- the choice of remedy under section 233 of the Act is a discretion and bearing in mind the above principles, circumstances may dictate that winding up is the most appropriate remedy to bring an end to oppression and compensate the oppressed party.
The Court also noted that the above principles have more relevance where there is a business of the company that is worthy of protection and may be injured or destroyed on winding up.
In ordering that Huntingdale be wound up, the Court noted that Huntingdale’s land development project was in its infancy and the value created by preparation for development approvals would not be lost if a winding up order was made. The questionable capacity of Mainland to fund the purchase price, the appropriateness of the current land valuation (which might not equate with what a liquidator could achieve) and the absence of information about Huntingdale’s liabilities also weighed against the option of ordering Mainland to acquire Sino’s shares (even though the latter two concerns could operate to favour Sino). The Court further noted that Mainland would be free to bid for the land in the winding up.