The Court found that the appointment of voluntary administrators to a company constituted oppressive conduct under section 232 of the Corporations Act 2001 (Cth) in circumstances where it was part of a clear strategy by the controlling shareholder to gain control of the company’s business, to the exclusion of the minority shareholders. This case provides some useful observations on the operation of section 232, particularly around action by a parent company “of the affairs of” a subsidiary.
Saeco International Group SpA (Saeco International) had previously purchased 60% of the shares in Saeco Australia Pty Limited (Saeco Australia) (a coffee machine importation company) from Mr Ubertini and Ubertini Investments Pty Ltd (Ubertini Investments), with Mr Ubertini remaining as managing director. Mr Ubertini later decided to sell his and Ubertini Investments' remaining shares and entered into negotiations with Saeco International. While the negotiations were fruitful at first, the parties in time reached an impasse that eventually led to a falling out, with each party alleging that the other had engaged in conduct that was oppressive under section 232 of the Corporations Act 2001 (Cth) (Act).
Following commencement of proceedings, Saeco Australia was placed into voluntary administration by a majority vote of the directors nominated by Saeco International (with Mr Ubertini and another director voting against and a third director abstaining). Saeco Australia subsequently entered into a deed of company arrangement whereby Saeco International (through a subsidiary) acquired the business of Saeco Australia, thereby making the shares of Mr Ubertini and Ubertini Investments worthless.
After reviewing the authorities, Elliott J in the Supreme Court of Victoria made the following useful observations about the operation of section 232:
- “affairs” in section 232(a) is non-exhaustively defined in section 53 to include “control, business, trading, transactions and dealings…of the body” which includes the power of persons to exercise, or control the exercise of the rights to vote attached to shares in the body;
- sections 232(d) and (e) should be read separately such that section 232(d) is not confined to “commercial unfairness” like section 232(e);
- the words “oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member” in section 232(e) are to be viewed as a whole to ascertain whether there has been a degree of commercial unfairness that would justify an order;
- commercial unfairness must be assessed in the context of the particular relationship in issue which will often involve a balancing exercise between competing considerations, including examination of the conduct of the applicant;
- the mere fact of irreconcilable differences between the parties or the fact that a member cannot dispose of its shares is not sufficient to establish oppressive conduct; and
- when considering the conduct of parent and subsidiary companies, the reference in section 232 to conduct of the company’s “affairs” is not confined to conduct performed by nominee (or common) directors on the board of the other company (although the law on the extent of the meaning of “affairs” in this context is unsettled).
Ultimately Elliott J found, among other findings, that:
- the making of demands by Saeco International and one of its subsidiary companies to put financial pressure on Saeco Australia, together with the strategy to obtain control and ownership of the business of Saeco Australia continuing up to the decision by the Saeco International nominated directors to appoint voluntary administrators to Saeco Australia was clearly oppressive to the affairs of, and commercially unfair to the interests of, Saeco Australia. The Saeco International nominated directors were actively involved in, and fully aware of, the strategy which was designed to gain outright control of the Saeco Australia business and was concealed from Mr Ubertini and the other independent directors. This was conduct that was part “of the affairs of” Saeco Australia; and
- the Saeco International nominated directors owed a duty to Saeco Australia to disclose the harmful intentions of Saeco International and their inaction was also conduct “of the affairs of” Saeco Australia.
Elliott J also found that certain conduct by Mr Ubertini (including withholding payment to Saeco International after its decision to refuse to accept returned stock and his deliberate avoidance of board meetings) was not “without blemish”. However, Saeco International’s deliberate conduct to destroy Saeco Australia’s ability to conduct its Australian business was so disproportionate and commercially unfair, that Mr Ubertini’s conduct did not result in relief being denied.
Accordingly, the Court refused to order the winding up of Saeco Australia and ordered Saeco International to purchase the shares of Mr Ubertini and Ubertini Investments in Saeco Australia.
See the case.