Written by Recently, the Supreme Court in Re Estate Soulos [2022] NSWSC 1507 considered a claim by members of a family company, alleging that the conduct of the directors were oppressive to, or unfairly prejudicial or discriminatory against the minority shareholders. The central personality in the case was the late mother of the parties, referred to in the judgement as ‘the Iron Lady of Strathfield’ who ‘left her affairs in a mess.’ The deceased was a wealthy woman with four children: James, Maria, Dennis and Nick.
The main corporate vehicle of the family was ‘Esperia Court Pty Ltd’, which was the registered proprietor of 3 parcels of land. The deceased’s children disputed their entitlements to shares in the company. Maria (supported by James and Dennis) claimed that Esperia Court should be wound up in oppression proceedings, alleging that Nick and John (Nick’s son), the directors of Esperia Court, breached their duties and fiduciary obligations.
Nick and John wanted to retain control of Esperia Court for its strategic property holdings, but Maria, James and Dennis wanted to realise any interest they had in it as shareholders, either via a winding up or via orders for management shares in Esperia Court to be distributed equally between all four children in order to enable them to participate in its management and obtain material returns on their shareholdings. This was because the A, B, C and D class shares of the company that the plaintiffs held, had no commercial value in the absence of winding up because no voting right attached to them. However, upon winding up, each of the 1000 shares would be worth $3 million.
The Court found that Nick and John acted in ‘totally disregard’ of Maria’s interest as a shareholder and had breached their directors’ duties under ss 180-182 of the Corporations Act 2001 (Cth), primarily in the acquisition of a property and the leasing of another in a transaction that was not ‘at arms length.’
In determining the appropriate remedy, the Court found that an attempt to ‘pay out’ Maria would be insufficient relief because Nick and John were incapable of paying Maria the full amount of the value of her shares predicated upon a winding up of Esperia Court. However, an order to wind up the company would be a ‘disproportionate remedy’ as the company was still solvent. As such, the Court ordered that all shares in the company be reclassified as ordinary shares of a single class, with equal rights to notice of meetings, voting, dividends, and any surplus on a winding up of the company, as well as a range of other remedies to ‘facilitate an orderly transition of the management of Esperia Court to a regime untainted by oppression.’
This case demonstrates the power of the Court to award appropriate and necessary relief under the provisions of the Corporations Act.