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High Court of Fiji |
IN THE HIGH COURT OF THE REPUBLIC OF FIJI
AT LAUTOKA
Winding Up No. 6 of 2013
IN THE MATTER of CUMBERLAND HOLDINGS LIMITED a limited liability company having its registered office at HLB Crosbie and Associates, Top Floor HLB House, 3 Cruickshank Road, P O. Box 10973, Nadi Airport, Nadi, Fiji Islands
AND
IN THE MATTER of the COMPANIES ACT
AND
IN THE MATTER of an application for appointment of an interim liquidator pursuant to section 27(1) of the Companies Act [Cap 247]
CHRISTOPKER VINIL TIKARAM of P.O.Box 25, Sigatoka, Fiji islands, Company Director.
First Respondent
JENNIFER LEE TIKARAM of P.O.Box 25, Sigatoka, Fiji Islands, Secretary
Second Respondent
Messrs Lowing & Associates, Barristers & Solicitors for the Petitioner
Messrs O' Driscoll & Co. Barristers & Solicitors for the Respondents
Date of Hearing: 30 September 2013
Date of Decision: 24 October 2013
RULING
INTRODUCTION
[1] Mr Mark Samuel Tidswell of 100 Quarry Lane, Ewingsdale, NSW 2481, Australia, a Foreign Investor (the Petitioner) presented and filed on 13 February 2013 an application along with his affidavit in support with annexures marked "MT1- MT10" for a winding up order pursuant to section 212 and 220 of the Companies Act and prayed for the following orders:
[2] The grounds upon which the Petitioner made this application are:
[3] The Respondents filed affidavit of Jennifer Lee Tikaram (2nd Respondent) in opposition together with annexure "JLT1" being the Sale and Purchase Agreement made on 1 February 2013 whereby they seek that the petition and all orders made to date be dismissed with costs. The Respondents through their affidavit (see para 9) response as follows:
[4] On 1 March 2013 Honourable Master Anare Tuilevuka (as then he was) made an order upon ex parte application made by the Petitioner appointing HLB Crosbies Associate, Nadi as interim liquidator to preserve the status quo pending determination the determination of the Petition. Afterwards, on 30 April 2013 another order by consent was made upon inter-parte notice of motion authorizing the Directors of Cumberland Holdings Limited (the Company) to execute necessary documents for the sale and purchase of company assets and proceeds of the sale to be paid to the interim liquidator.
FACTUAL BACKGROUND
[5] The Company is a liability company having its registered office at HLB Crosbie and Associates, Top Floor HLB House, 3 Cruickshank Road, P.O. Box 10973, Nadi Airport, Nadi, Fiji Islands. The Company was incorporated on 21 September 2004 under the Companies Act [Cap 247] as a private company limited by shares. The nominal capital of the Company is $10,000.00 divided into 10,000 shares of $1.00 each.
[6] The Petitioner by himself is a minority shareholder and a director of the Company, but as such does and has not partake in the day to day running of the Company. The affairs of the Company were usually and generally attended to by the respondents.
[7] The Respondents are husband and wife. The 2nd Respondent (wife) is Company secretary and shareholder of the company and holds 160 shares in it representing 16% of the issued shares. The 1st Respondent (husband) holds 510 shares in the company representing 51% of the issued shares.
[8] The objectives of the company includes carrying on business as land and estate agents, Auctioneers stock and station agents, consultants, advisers, appraisers, valuers, brokers, commission agents, insurance agents, surveyors and general agents.
[9] In 2011 the Petitioner gave consent to the Respondents to purchase a piece of land belonging to the company for their residential use (the Land) for an amount of $250,000.00. They purchased the land then immediately sold the same to a third party for an amount of $460,000.00. The petitioner did not know about the undisclosed sale until the Fiji Inland Revenue and Customs Authority (FRCA) contacted him for payment of VAT. The Petitioner says that the Respondents had failed to inform him of the sale to other interested buyers. He complains that the affairs of the Company are being conducted in a manner oppressive to him as a minority shareholder and that he wants the Company wound up on just and equitable ground.
ISSUES
[10] The issues to be determined by the Court are as follows:
THE LAW
[11] The Companies Act provides as follows:
219. The Supreme Court (now the High Court) shall have jurisdiction to wind up any company registered in Fiji.
220. A Company may be wound up by the court, if-
(a) ...;
(b) ...;
(c) ...;
(d) ...;
(e) ...;
(f) the court is of opinion that it is just and equitable that the company be should be wound up;
(g) ... (Emphasis added).
235. For the purpose of conducting the proceedings in winding up a company and performing such duties in reference thereto as the court may impose, the court may appoint a liquidator or liquidators.
[12] In Lock v. John Blackwood Ltd [1924] UKPC 45; [1924] A.C. 783, the Privy Council held that a small company be wound up because the directors showed lack of probity or fair control in managing the affairs of the company. A strong indication of this was that the directors denied information regarding the company's affairs, to the minority shareholders. This was done to enable the directors to acquire their shares at a low price. Lord Shaw stated:
"It is undoubtedly true at the foundation of applications for winding up on the 'just and equitable rule' there must lie a justifiable lack of confidence in the conduct and management of the company's affairs. But this lack of confidence be grounded on conduct of the directors, not in regard to their private life or affairs, but in regard to company's business. Furthermore, the lack of confidence must spring not from dissatisfaction at being outvoted on the business affairs, or on what is called the domestic policy, of the company. On the other hand, whenever the lack of confidence is rested on a lack of probity in the conduct of the company's affairs, then the former is justified by the latter and it is, under the statute, just and equitable that the company be wound up."
[13] In Re Straw Products Ltd [1942] VicLawRp 36; [1942] V. L. R. 222, the company was wound up on the just and equitable ground in the circumstances where the breach of duty stemmed from a conflict
of interest which enabled to make undisclosed profits.
DISCUSSION AND DECISION
[14] The Petitioner, a minority shareholder petitioned that the company be wound up by the court on the grounds of oppression and on the just and equitable ground.
[15] The High Court is vested with jurisdiction by section 219 of the Companies Act. Pursuant to section 220 of the Act a company may be would up by the court if the court is of opinion that is just and equitable that the company should be wound up. This power is discretionary.
[16] A solvent company was also ordered to be wound up in Bernhardt v. Beau Rivage Pty Ltd (1989) 7 A.C.L.C. 639. A minority shareholder sought to wind up a company on the just and equitable ground as its substratum had disappeared. An offer to purchase his shares by a majority was refused. The minority shareholder was not acting unreasonably because he could have obtained a greater return more promptly if his winding up application was granted.
[17]The courts have made a winding up order on the just and equitable ground in a number of different circumstances, these include situations where there is:
The just and equitable ground is, however, not confined to these categories.
[18] In his affidavit in support the Petitioner stated that he has lost all trust and confidence in the Respondents. The company was built on trust and confidence which no longer exist.
[19] Mr Vakacakau, on behalf of the Petitioner, submitted that the respondents' acts of purchasing the piece of land from the company for $250,000.00 and on the same day transferred the same piece of land for the consideration of $460,000.00 to a bona fide purchaser show that the Respondents would have known of the bona fide purchaser before they made the representation to the Petitioner to buy the same for their residential use.
[20] The 2nd Respondent in her affidavit in opposition does not deny the undisclosed sale, but states that only her husband (1st Respondent) purchased the land and it was sold on within two months or so to third parties, the transfers were simultaneously registered. She further states that the property had a 3 year rental agreement in place with the company and was never intended to be used by herself and her husband as their personal residence. She also states that her husband agreed to pay this price and the petitioner accepted the price. Any subsequent dealings in light of the agreement of the Petitioner to the price are outside the bounds of a company action.
[21] Initially, the Respondents had made representation to the Petitioner that they are going to buy the land which belonged to the company for their residential use for $250,000.00. The Petitioner would have agreed to the proposal as the directors of the company wanted the land for their personal use. They purchased the land on the pretext that they are going to use it for their residential use and transferred the same on the same day to a third party for $450,000.00. Apparently, the Respondents had organized a potential buyer before making representation to the Petitioner with regard to the land. This clearly shows that the Respondents had sinister intention in the dealings of the company property. They have gained personal profits from this undisclosed sale. They had purchased the land to a lower price and sold it to a third party at a higher price without informing to the Petitioner. As the directors of the company, they had a fiduciary duty to inform the Petitioner of the sale. Thereby the Respondent had conducted the affairs of the company in a manner 'unfairly discriminatory' or in a manner that was contrary to the interest of a member or to members as a whole. In other words, the Respondents had acted in the affairs of the company in their own intent rather than the intents of the members as whole, or in any other manner whatsoever that appears to be unfair and unjust to the members, in this instance to the minority shareholders. I reject the contention of the Respondents that the sale was outside the bounds of a company action. By this undisclosed sale the Petitioner has lost confidence in the Respondents. This lack of confidence had sprung from the undisclosed sale. The Respondents as the directors by their actions had showed lack of probity or fair control in managing the affairs of the company.
[22] Honourable Master Anare Tuilevuka (as then he was) when delivering his ruling on 1 March 2013 appointing interim liquidator pending determination of this petition made the following conclusion, which I wholeheartedly endorse in this ruling:
"CONCLUSION
I have decided to grant Order in Terms of all prayers set out in the summons (save for of the prayer that HLB Crosbie be allowed to convert company assets to cash in the best interest of the contributors). I grant Order in Terms based on the following:
(i) the alleged lack of probity in the conduct of the Tikarams is borne out by the memorials in Certificate of Title 21529 (Lot 2) which is exhibited in Tidwell's affidavit – and which conduct also amounts to a gross breach of their fiduciary duty to CHL – which duty is to act always on the best interest of CHL, especially when it involves company assets. As directors, the Tikarams should have informed Tidwell and CHL of the interested purchaser and the price he was willing to pay.
(ii) the Tikarams, from the facts alleged in the petition, used their position as directors of CHL to orchestrate the sale to them of Lot 2 and subsequently, from them to the third party – for their own personal benefit.
(iii) that, following from the above, Tidwell's lack of confidence in the Tikarams would be wholly justifiable and would support a winding up of the company on the "just and equitable grounds".
(iv) the fact that the Tikarams are: majority shareholders, in control of CHL, husband and wife – means to me that Tidwell's fears are well-founded that, if an interim liquidator is not appointed by the court to protect the status quo and assets of CHL, there is nothing stopping the Tikarams from further dissipating CHL assets.
(v) the fact that the Tikarams were prepared to sell their shares to Tidwell upon Tidwell signing a Deed of Release and Acknowledgement, suggests to me, when contextualized against their actions in hastily selling Lot 2, that they are well apprehensive of their own (alleged) lack of probity. Also, given that Tidwell is not willing to sign the said Deed, is indicative of a "deadlock".
(vi) I am convinced that the appointment of an interim liquidator is, in the circumstances, the ideal means to preserve the status quo pending the determination of the petition and that there is no other alternative".
[23] There has been no offer by the Respondents to buy the Petitioner's minority shares out. The balance sheet of the company (annexure MT-10 of the affidavit in support) shows the Petitioner, as a foreign investor has invested more than $2,000,000.00 into the company. I accept the submission advanced by Mr Vakacakau on behalf of the Petitioner that his interests as a creditor as well as a shareholder have been adversely prejudiced by the Respondents conducts. The Respondents seek to be indemnified once all company shares are transferred to the Petitioner. This offer has been refused by the Petitioner as the deed of release (annexure MT-10 of affidavit in support) contained issues unknown to the Petitioner.
[24] The above circumstances had brought the company to a deadlock situation. The just and equitable ground is established where the shareholders in a company are deadlocked to the extent that the company is unable to function property.
[25] The undisclosed sale dispute did in itself show an irretrievable breakdown of confidence or deadlock between the Petitioner and the Respondents, shareholders.
[26] The Petitioner had every standing under section 212 of the Companies Act to prefer this Petition to the Court to have the company wound up on the ground of just and equitable rule as contributor and/or minority shareholder.
[27] I am of the view that the Respondents had conducted the affairs of the company in manner oppressive to, unfairly prejudicial to or unfairly discriminatory against the Petitioner.
[28] For these reasons, in my judgment, the Petitioner therefore has made out a case for a winding up order on the ground of just and equitable ground. Accordingly, the Petitioner is entitled to a remedy under section 212 of the Companies Act.
ORDERS
[29] I therefore make the following orders:
M H Mohamed Ajmeer
Acting Master
At Lautoka
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URL: http://www.paclii.org/fj/cases/FJHC/2013/560.html