FEDERAL COURT OF AUSTRALIA

Corbett v Corbett Court Pty Limited, in the matter of Corbett Court Pty Limited [2015] FCA 1176

IN THE MATTER OF CORBETT COURT PTY LIMITED ACN 062 978 545

THE COURT ORDERS THAT:

1.    The resolution of the directors of the first defendant (“Corbett Court”) made on or about 7 May 2012 whereby it was resolved to issue 50,000 shares to the second defendant (“John Corbett”) and 50,000 shares to the third defendant (“Renelle Corbett”) for an issue price of $1.00 per share (“Share Issue”) be rescinded and the Share Issue be set aside.

2.    The issue price paid for the shares referred to in order 1 constitutes a debt by Corbett Court to John Corbett and Renelle Corbett as to $50,000 each, such debt being payable within 14 days of demand being made in writing to the Company.

3.    John Corbett and Renelle Corbett must forthwith take all steps necessary to rectify the register of members of Corbett Court by deleting all reference to the Share Issue and cause to be lodged with the Australian Securities and Investments Commission (“ASIC”) by 4 pm on Wednesday, 11 November 2015 notice of correction of Corbett Court’s register of members accordingly. John and Renelle Corbett must serve on the members of Corbett Court by email notice that they have complied with this order and file a copy of that notice with the Court by no later than 4 pm on Monday, 16 November 2015.

4.    The cross-claim of John and Renelle Corbett and Corbett Court filed on 5 February 2013 be dismissed.

5.    Costs be reserved.

6.    Paul Corbett and John and Renelle Corbett must file and serve any submissions they wish to make as to costs by 4 pm on 11 November 2015, such submissions to be no longer than three pages each. Submissions filed and served after that date will not be taken into account unless they are made in writing and at the express written invitation of the Court.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

IN THE MATTER OF CORBETT COURT PTY LIMITED ACN 062 978 545

REASONS FOR JUDGMENT

1    This is an application made pursuant to ss 232 and 233 of the Corporations Act 2001 (Cth) in relation to Corbett Court Pty Limited (“Corbett Court” or “Company”), a company all of the shares in which were, from its incorporation in December 1993 to May 2012, held by eight siblings, the children of Keith and Valerie Corbett. To avoid confusion and without intending any disrespect, I will refer to Corbett family members by their given names.

2    The central issue in these proceedings is whether the issue of an aggregate of 100,000 shares for $1.00 each to the second defendant (“John”) and his wife, the third defendant (“Renelle” or “Renee”) in May 2012 (“Share Issue”) was contrary to the interests of the members as a whole or oppressive, unfairly prejudicial to or unfairly discriminatory against the plaintiff (“Paul”) in his capacity as a member of Corbett Court or in any other capacity. John and Renelle were the only directors of Corbett Court at the time of the Share Issue. Before the Share Issue John held 42 shares and the other siblings held 42 shares in aggregate. The Share Issue had the effect of diluting the interest of Paul and each of his six siblings (“Anne”, “Clare”, “Gwen”, “Honora”, “Joseph”, “Margaret”) from approximately 7% of the shares on issue in Corbett Court to 0.005995% each.

3    References to the “defendants” do not include the fourth defendant (“ASIC”).

Introduction

4    Keith and Valerie owned a hardware business in Picton, New South Wales. They amassed substantial assets including land holdings and shares in companies which owned land. The companies included K & V Corbett Pty Limited (“K&V Corbett”) and Menangle Pty Limited (“Menangle”). The parents each owned half of the shares in K&V Corbett and they owned two thirds of the shares in Menangle while the siblings owned the other third.

5    Corbett Court was incorporated on 30 December 1993 as the vehicle for the development of 96 Argyle Street Picton (owned by Menangle) and the adjoining property at 100 Argyle Street (owned by John). John subscribed for 42 shares and a further 42 shares in aggregate were registered in the name of each of the other siblings (as to 6 shares each). Some siblings said they paid six dollars for their shares, others indicate that their parents paid on their behalf; Honora and Anne said that they did not pay for shares in Corbett Court and dispute that they consented to be shareholders. Valerie, Keith and John were appointed the directors of Corbett Court.

6    Both Valerie and Keith died intestate. Valerie died in November 2008; she had ceased to be a director of Corbett Court in 2005 due to the onset of dementia. Keith died in April 2010.

7    At the time of Keith’s death:

    Corbett Court owned two properties – the IGA Supermarket and Picton Mall;

    The anchor tenant of Picton Mall was Coles Supermarkets Australia (“Coles”). Under clause 66 of the lease, if 40% or more of the shops in the internal mall area of Picton Mall as shown in the lease plan were vacant, the rent payable by Coles would be reduced;

    On 14 November 2008, Colliers International (“Colliers”) valued Picton Mall at $12 million and on about 27 April 2009, Colliers valued the IGA Supermarket at $6 million;

    Keith (and therefore his estate), John, K&V Corbett and Menangle were all guarantors of debt approximating $14.4 million owed by Corbett Court to the National Australia Bank (“NAB”). The NAB facility was due to expire on 31 July 2012. Corbett Court was required to ensure that the ratio of the loan to value of the property (“LVR”) did not drop below 70%;

    John was the sole remaining director of Corbett Court and the “estate companies” comprising K&V Corbett, Menangle and Picton Tavern Pty Limited (a lender to K&V Corbett). Until his death, Keith had been actively involved in the affairs of the estate companies and Corbett Court;

    Corbett Court also owed approximately $2 million to the estate companies, including K&V Corbett and Menangle; and

    Corbett Court had not held a general meeting (without complaint) or paid a dividend.

8    On 17 August 2010, Mr Peter Mokas, Coles’ manager of retail leasing, wrote to John querying whether the vacancies in Picton Mall exceeded 40% and accordingly whether Coles’ rent should be reduced in accordance with clause 66 of its lease. Coles had relied on this clause to reduce its rent in 2005. John said that Picton Mall was having difficulty in attracting specialty shops because of competition from new centres in nearby regions and economic conditions. John said he was concerned that Corbett Court would not be able to continue to meet repayments to NAB if Coles’ rent was reduced.

9    John pursued negotiations with Target Australia (“Target”) in relation to the installation of a “Target Country” discount department store in Picton Mall. Email correspondence reveals that on 9 September 2010, Mr Mokas threatened to instigate the reduction unless an agreement was reached with Target by 30 September 2010 with a view to Target opening a store at Picton Mall by September or October 2011. John received a letter of offer from Target on 30 September 2010. John received a quote from Kinsley and Associates estimating that the cost of conducting the work required to prepare Picton Mall for the Target tenancy would be in the order of $2.4 million. John believed that if the work was done under his direct supervision using direct labour and subcontractors, Corbett Constructions Pty Limited (a company owned by John and Renelle) could achieve the work for $1.1 million on an at cost basis.

10    On 17 November 2010, letters of administration in Keith’s estate were granted to Perpetual Trustee Company Limited (“Perpetual”) and Perpetual became the administrator of Valerie’s estate as well.

11    At Perpetual’s instigation, Mr Gary Holbrook of PKF (later known as BDO) chartered accountants replaced John as a director of the estate companies on 25 January 2011. Mr Holbrook was replaced on 27 June 2013 by Mr David Ratcliffe.

12    Without making any finding as to its accuracy, as at 7 June 2011, Mr Holbrook in his capacity as director of the estate companies estimated the fair market value of the estate companies at $10,851,468 as at the date of Valerie’s death in November 2008 and $10,664,535 as at 7 June 2011. John’s estimate was higher: between $12 million and $15 million.

13    Whatever the nature of the relationships between the siblings before the death of their parents, the relationships were put under great strain by the need for administration of their parents’ estates and a significant aggravating factor was determining the terms on which the estate companies could be extricated from guarantees to NAB in connection with Corbett Court’s indebtedness. It is in this context that the question of the need for, and funding of, work required to install Target as a tenant at Picton Mall arose.

Paul and his claims

14    Paul is a medical doctor and he graduated in 1982 from the University of Sydney with a Bachelor of Medicine and a Bachelor of Surgery. He does not practise as a doctor and at the time of his evidence he was studying for a business certificate at Randwick TAFE and a certificate in the Mandarin language at the University of New South Wales.

15    Although all of the siblings are shareholders of Corbett Court, this action was brought only by Paul. Paul’s claims, set out in the Amended Statement of Claim filed on 29 October 2012 (“ASOC”), are narrowly cast.

Understanding: ASOC [7]

16    Paul claims that since Corbett Court was established it was operated in accordance with the wishes and intentions of Valerie and Keith and on a basis of mutual trust and confidence, giving rise to a legitimate expectation that Corbett Court would maintain its shares on issue in the proportions of 42 shares held by John and the other 42 shares would be held by each of the other siblings as to 6 each (the “Understanding”).

17    The particulars of this claim are: (1) the shareholders of Corbett Court are siblings and the Company was established and operated in accordance with the wishes of their parents; and (2) conversations between Keith, Paul and John which were not further particularised.

18 May 2011 letter – First Share Offer: ASOC [8]-[12]

18    Paul claims that on or about 18 May 2011, Corbett Court made offers to subscribe for shares pursuant to article 37 of its articles proportionately to their shareholding pursuant to which the Company sought to raise $1,050,000 by the issue of 1,050,000 shares and it was open for acceptance until 13 June 2011 (“First Share Offer”). The offer was not authorised by a resolution of the Company in general meeting. The only particular of this claim is the letter of 18 May 2011.

19    It is not contentious that letters were sent to all of John’s siblings to their postal address in the form sent to Paul (as written):

Dear Paul,

The Directors have recently undertaken a full assessment of the financial and commercial position of Corbett Court Pty. Ltd., “The Company”. As part of that assessment the Directors have given particular consideration to the following matters:

(1)    The cashflow of The Company, and in particular the effect on cashflow of the inconsistent standard of retail tenant within Picton Mall.

(2)    The possible cost to redevelop Picton Mall to attract a second anchor tenant so as to improve cashflow of the Company.

(3)    The need for The Company to refinance its existing loans with the National Australia Bank in July 2012.

(4)    The likely ability of The Company to refinance the NAB loans when required based on the current trading performance of the Company and inter company security concerns.

(5)    The possibility of selling Picton Mall ‘as is’.

As a result of this assessment the Directors believe the most appropriate course of action for The Company is to attempt to undertake the redevelopment of Picton Mall to attract a second anchor tenant in addition to Coles so as to improve its cashflow position to be able to refinance the NAB loan when required in 2012.

Negotiations with a second anchor tenant have been underway for some time and the Directors are confident that this tenant can be secured, provided The Company is in a position to undertake the necessary redevelopment.

The Directors believe the cost of that redevelopment will be in the order of $1.1m.

The Directors do not believe The Company will be able to borrow those funds on account of the existing indebtedness of The Company and its current financial position. The current level of borrowings show a loan to value ratio of 79% based on the latest valuation. NAB require a LVR of 70%. Hence The Company must increase its valuation and/or decrease its borrowings.

Accordingly the Directors have resolved The Company should raise the necessary capital by way of an issue of further shares in The Company.

In accordance with clause 37(a) of the Constitution therefore, the Directors intend to issue ordinary shares to the value of $1.05m in The Company at an issue price of $1.00 each.

Under clause 38(1) of the Constitution, the Directors offer the proposed new shares to the existing shareholders in proportion to their existing shareholding. As such, the Directors intend to make the following offers of shares in The Company:

Therefore the Directors, by this letter, offer you the opportunity to take up 75,000 of the newly issued ordinary shares in The Company.

Please note that if you do not take up this offer the Directors may offer the shares originally offered to you in such manner as they think most beneficial to The Company.

This offer is subject to all of the shares being offered by the Directors being taken up by the Shareholders. As such, if the Shareholders do not agree to take up all of the shares being offered by the Directors, the Directors may determine not to proceed with the share offer.

If you wish to accept this offer, please sign the attached copy of this letter and return it to The Company by 13th June, 2011. If your acceptance is not received by that date, you will be taken to have rejected the offer.

If you accept the offer and the Directors determine to proceed with the issue of the shares, you will be required to pay the relevant amount to The Company within fourteen (14) days of being requested to do so by the Directors. If you do not make this payment within that time, your right to have the shares issued to you will lapse and again those shares may be offered to other Shareholders to ensure that The Company raises the required funds.

Yours faithfully

[Signature]

John Corbett

Director

Corbett Court P/L

I,         ,a shareholder in The Company, accept the offer of 75,000 of shares made to me in this letter. I agree that this acceptance is subject to and conditional on the terms set out in the letter.

Signed date

I,         a shareholder in The Company, agree to take up more shares than those offered to me above if other Shareholders do not accept the offer of shares made to them * to a maximum of ___________ /to the extent of all of the shares offered to the Shareholders.

* Delete that which is not applicable

Signed date                        

20    Attached to the letter were:

    A copy of clause 66 of the Coles lease which provides for reduction of rent if the number of specialty shops in Picton Mall that are vacant equals or exceeds 40%;

    A table which indicated that the capitalised value of Picton Mall/IGA Supermarket with Target as a tenant was between $18,083,674 and $24,542,129 (on yields of between 0.095% and 0.07%) based on net annual rent from Picton Mall of $1,298,392. It showed that without Target as a tenant, the adjusted net rent for Picton Mall was $866,428 and the capitalised value of Picton Mall/IGA Supermarket was between $13,536,686 and $18,371,216 (on the same yields);

    A proposed lease tenancy schedule after Target became a tenant;

    A schedule of gross annual rental (including recoveries) and annual expenditure allowances for the IGA Supermarket as at 14 October 2010;

    A schedule of the tenancies in the IGA Supermarket as at 14 October 2010;

    A schedule of proposed and current gross annual rental (including recoveries) and annual expenditure allowances for Picton Mall as at 14 February 2011;

    A drawing of the proposed floor plan with the Target tenancy; and

    A budget showing a total estimate of $1,034,827 without contingency.

21    Paul claims that the First Share Offer was not taken up by any shareholder by 13 June 2011 and that is not disputed.

6 February 2012 email – Second Share Offer: ASOC [13]-[16]

22    Paul claims that by an email sent on 6 February 2012 (the “Second Share Offer”), John purported to extend the First Share Offer until 20 February 2012 or in the alternative he purported to make a further offer to shareholders. Paul says that the Second Share Offer was made after the expiry date of the First Share Offer, it did not specify the number of shares offered or the terms on which the shares were offered, was not specifically expressed to include a time limit within which the offer, if not accepted, would be deemed to be declined and was not served on Paul by post.

23    Paul claims at [16] of the ASOC that the Second Share Offer was made in contravention of articles 38(2) and 95 of Corbett Court’s constitution because of the deficiencies identified. See [37] below in relation to this claim.

24    It is uncontentious that on 6 February 2012 John sent an email to his siblings as follows (as written):

Hi all,

Upon the receipt of the signed Agreement to Lease from Target Australia P/L last Friday the Directors have resolved to proceed with the capital raising as outlined in our letter of 18th May, 2011

Nothing has really changed in the period between May 2011 and now except the yields seem to have gone out for commercial property of this type. The Tenancy schedules are attached for your information.

It is necessary to proceed with the Target tenancy in order to improve income and yields. Renegotiation of bank debt later this year will necessitate higher value than is presently achievable with the current income and tenant mix.

With this in mind it is decided to extend the rights issue as previously outlined until 20th February.

…

Share Issue: ASOC [17]-[20]

25    On or about 14 June 2012, the Company purported to issue 50,000 shares to John and 50,000 shares to his wife Renelle (“Share Issue”) who were then the sole directors of Corbett Court. In these reasons I will use the term “Share Issue” for consistency even though Paul refers to it as the “Purported Share Issue” and John refers to it as the “Share Sale”.

26    At ASOC [18] Paul claims that the Share Issue was not authorised by the shareholders, that it was made in contravention of the Company’s articles of association and the Understanding and that it was made for the dominant purpose, and had the effect, of diluting Paul’s proportionate shareholding and that of the other minority shareholders. There are no particulars of the alleged contravention of the Company’s articles of association. The particulars of this claim set out the names of John’s siblings at paragraph (i) and then go on (as written):

ii.    The Purported Share Issue had the effect of diluting Dr Corbett’s, and the other minority shareholders’, proportional shareholdings in the Company from 7.14285% to 0.00595% each;

iii.    The Company had available to it alternative sources of funding at the time of the Purported Share Issue which would not have resulted in the dilution of Dr Corbett’s proportional shareholding in the Company.

27    At ASOC [19]-[20] Paul claims that the Share Issue was invalid and of no effect and further, or in the alternative, the acts and omissions referred to were contrary to the interests of the members as a whole and oppressive to, unfairly prejudicial to and unfairly discriminatory against him.

Relief sought

28    Following leave to amend his application given on the first day of the hearing, Paul seeks declarations that the Share Issue was contrary to the Company’s articles of association and therefore invalid and of no effect and that the affairs of the Company are being conducted in a manner that is, and/or the Share Issue is, in breach of s 232 of the Corporations Act.

29    Paul says that the Court should make orders requiring John and Renelle to purchase Paul’s shares for fair market value and for that purpose the Court should order that a referee be appointed for inquiry and report upon the market value of Paul’s shares. That is the primary relief sought.

30    Alternatively, Paul says that the Court should make orders setting aside the Share Issue and rectifying the Company’s share register and the register maintained by ASIC accordingly and as a result: (a) requiring the defendants (or the Court’s Registrar) to do everything necessary to modify the Company’s articles of association to reduce its authorised capital to 84 ordinary shares of $1 each and rectifying the register maintained by ASIC accordingly; (b) restraining the defendants from doing anything to dilute Paul’s proportionate shareholding without his consent or that of the Court; and (3) that one or more independent directors be appointed to the board of the Company.

31    Finally, and as a last resort, Paul says that the Company should be wound up.

Defence and Cross-claim

32    By way of cross-claim, the defendants seek relief pursuant to s 1322 of the Corporations Act, being a declaration that any irregularity in the course of, or in respect of, the issue or allotment of shares to John and Renelle does not invalidate the Share Issue and relief from any civil liability arising from the facts alleged by Paul.

33    In support of the cross-claim, John and Renelle essentially repeat the matters raised in their defence, save that in the defence to Paul’s statement of claim they say that as Paul held 7% of the shares in Corbett Court before the Share Issue, in the circumstances, as a minority shareholder, Paul was not prejudiced by the Share Issue.

34    John and Renelle plead that:

(1)    John acted as leasing manager, designer manager, retail manager and director of Corbett Court from 1993;

(2)    The Coles lease would require rent adjustment if the rate of occupation of the internal section of the Picton Mall fell below 60% and it fell below that rate from 2009;

(3)    From early 2011, Corbett Court owed NAB approximately $13.9 million and it had indicated that it required, and would continue to require, a reduction in the amount due under the loan;

(4)    To obtain further tenants and secure the minimum occupation required by the Coles lease and Coles supermarket, the Picton Mall was required to have substantial renovations and alterations and that involved substantial risk;

(5)    The Picton Mall shopping centre was independently valued for Keith and Valerie’s estate on or about March 2012 in an amount of $13.2 million;

(6)    The cost of the alterations and renovation required to secure a further tenant sufficient to satisfy the Coles lease was estimated by design and construction managers to be approximately $2.4 million;

(7)    No reasonable alternative source of finance was available to Corbett Court;

(8)    None of its shareholders other than John and Renelle were prepared to offer guarantees of indebtedness;

(9)    John and Renelle were prepared to acquire the shares on the terms offered by Corbett Court;

(10)    None of the other directors were prepared to become directors of Corbett Court and seek to raise finance elsewhere;

(11)    The sale of “the enterprise” (which I take to mean Corbett Court’s property assets being the IGA Supermarket and Picton Mall) would have resulted in there being no funds available to return to members on a members’ liquidation or as dividends;

(12)    By the offer of shares, Corbett Court sought to raise from its existing shareholders sufficient capital to pay to complete the work necessary to install Target as a tenant for an amount of $1.1 million but none of the shareholders were prepared to take up the offer;

(13)    John and Renelle took up the offer of unsubscribed shares in the amount of $100,000 (being the Share Issue) and advanced to Corbett Court the sum of $1,052,000 (“Loan”) to pay for the renovations and the money raised by the Share Issue and the Loan were used for that purpose;

(14)    In the circumstances the Share Issue was for a proper purpose;

(15)    The Share Issue was not made irregularly and if a general meeting were required to be held, such a meeting would have passed a resolution for a Share Issue in the terms made by Corbett Court; and

(16)    John, Renelle and Corbett Court acted honestly.

35    Paul denies that he has ever been asked to raise finance for or guarantee the indebtedness of Corbett Court or that he has even been invited to be a director of Corbett Court. He also denies that there was no reasonable alternate source of finance for the renovations of Picton Mall. He says that even if shareholders had been prepared to authorise the Share Issue, it would still have been contrary to the interests of members of Corbett Court as a whole or oppressive to, unfairly prejudicial to and unfairly discriminatory against him.

Issues to be decided

Agreed list based on pleadings

36    The agreed list of issues to be decided reflect the pleadings and can be summarised as:

(1)    Was Corbett Court established and operated on the basis of the Understanding set out at [16] above and did it endure to 14 June 2012 (the date on which ASIC was advised of the Share issue)?

(2)    If the Understanding did endure, was the Share Issue in contravention of it or was the Company entitled, by reason of its financial circumstances, to issue shares contrary to the Understanding?

(3)    Were there other factors which caused the Share Issue to be commercially unfair, including the question of whether or not it was valid under the Company’s constitution?

(4)    Was the Share Issue made for the dominant purpose of diluting the minority shareholders’ proportional shareholding in the Company?

(5)    If the Share Issue was made in contravention of the Understanding or for the dominant purpose of diluting the minority shareholders’ proportional shareholdings, was it either contrary to the interests of the members of the Company as a whole or oppressive to, unfairly prejudicial to and/or unfairly discriminatory against Paul?

(6)    What, if any, should be the relief?

Claim that Share Issue not valid under the constitution not pressed

37    In the plaintiff’s written outline of opening submissions and in opening submissions, Counsel for Paul advised that Paul did not press the claim set out in ASOC [16] that the Share Issue was invalid because it did not comply with articles 38(2) and 95. Paul’s Counsel did not indicate that the claim for declaratory relief that the Share Issue was invalid had been abandoned. Paul’s Counsel submitted that the constitutional invalidity of the Share Issue was relevant to establishing that the Company’s affairs have been conducted in a manner which is oppressive or contrary to the interests of members as a whole and therefore made submissions on that issue.

s 232 Corporations Act

38    The Court’s powers to make orders under s 233 of the Corporations Act derives from s 232 if the Court is satisfied that:

(a)    the conduct of a company’s affairs; or

(b)    an actual or proposed act or omission by or on behalf of a company; or

(c)    a resolution, or a proposed resolution, of members or a class of members of a company;

is either:

(d)    contrary to the interests of the members as a whole; or

(e)    oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or in any other capacity.

Conduct of case

39    Paul conducted a case which was broader than the “central issue” of whether the Share Issue was an “act” of Corbett Court which fell within either s 232(d) or s 232(e) as pleaded. Paul’s case also relied on an unpleaded course of conduct of the Company’s affairs which included:

(1)    The claim that from the time of his father’s death John operated the Company for the benefit of himself and his interests by invoicing the Company in 2010 for an amount of $761,244 for work done over the preceding 10 years (and the invoice was in part paid), arranging for the Company to lend Renelle $237,318 and arranging for the Company to lend Corbett Constructions $207,572 in 2010 and to lend J & R Corbett Pty Ltd $308,816 in 2011;

(2)    The appointment of Renelle as a director on 2 February 2011 and the refusal to appoint Mr David Kenney of Hall Chadwick, chartered accountants and business advisers, as an independent director;

(3)    The context of the growing animosity between the siblings as a result of family provision proceedings commenced by John in May 2011 and discontinued in August 2012; and

(4)    The claim that John knew that his siblings could not afford to take up the First and Second Share Offers (the “Share Offers”).

40    I do not consider the statement of claim was adequately pleaded to disclose the material facts on which Paul relied. I do not accept argument put by Paul’s counsel that it was not necessary to plead these matters as they went to remedy in relation to the pleaded ground of oppression that the Share Issue was made for an improper purpose and not to establish separate grounds of oppression. However, I am satisfied that John was in a position to (and did) address these issues which largely became apparent from evidence filed by Paul to which John responded with his own affidavits and with the affidavit of Mr Peter Campbell.

Context

John’s role in Corbett Court

41    John obtained a degree from the University of Sydney in civil engineering in 1980. He said that he and his father first discussed developing 96-100 Argyle Street in 1992 when his parents visited John and Renelle in Bangkok where he was working on a large scale expressway project.

42    With architects, John designed both the IGA Supermarket (built on 92-100 Argyle Street, incorporating a further small block acquired for the purpose by the Company) and Picton Mall (built on adjacent property acquired by Corbett Court in 2000). In the period 1995 to 2000, he set up leases, managed and constructed fit out and invoiced outgoings to tenants in the IGA Supermarket and “basically acted as building manager although not employed as one”. During this time, John took no remuneration and worked for other companies as a contract civil engineering manager or contract builder and in 1996/97 he attended the Australian National University to study and he attained a Master of Business Administration.

John’s remuneration

43    John said that from 2000, he acted as the design and construction manager, building manager and leasing agent, maintenance manager and handyman for Corbett Court. He also worked as a contract civil engineer for other companies. He carried out design and construction work for his parents’ companies and some construction work for other companies of which he was a director.

44    Although there was some evidence that suggested that while she was able, Valerie collected rents and did book-keeping and Keith was engaged with Corbett Court (indeed, he died as a result of falling from a ladder while changing a light bulb), I accept John’s evidence that he has played these roles in relation to Corbett Court.

45    Mr Campbell had been Corbett Court’s accountant from 2005, and was the accountant for the estate companies from that time until Mr Holbrook’s appointment as director of those companies. He is also accountant to John and Renelle and their business interests.

46    It is Mr Campbell’s evidence that in the period 2004-2009, loans were made by Corbett Court to John or for his benefit in lieu of wages, so called “division 7” loans. He said that in late 2007 or early 2008, Keith and John, as directors of Corbett Court, agreed that John should be remunerated for services which he had provided himself or through his company Corbett Constructions Pty Ltd (“Corbett Constructions”) for the development and leasing of stores in Picton Mall and continued management of the property as and when cash flow allowed. Mr Campbell recalled that John told him that his father agreed that he should be remunerated on the basis of $120,000 per annum for each of the years he had provided services. John said that his father said that this should commence from 1999.

47    Mr Campbell said that by 30 June 2012, all loans to John or his companies had been repaid and $500,152 was owing to him in accrued management fees.

48    This evidence is supported by:

(1)    an undated minute prepared by Mr Campbell which appears to be signed by Keith. There is no evidence as to whether the procedures outlined in the minute were followed. Those procedures included John specifying estimates of costs, dissected between the development component of Picton Mall (as Project Manager and Development Manager), as Leasing Manager and also as Property Manager, and also dissected over each financial year of service, provision of advice from an independent professional if Keith thought John’s estimate too high, and a further minute by the directors once the costs of services had been agreed; and

(2)    a document prepared by Mr Campbell which shows a running total of accrued remuneration from the year 2000, loans to/repayments by John or Renelle (or entities associated with them) and payments by way of salary. The table shows an overall running balance of $1,530,000 in accrued remuneration and accumulated withdrawals of $1,029,848 leaving an undrawn balance of accrued remuneration of $500,152 in 2012, with payments of $530,092 in 2013 and an undrawn balance of $90,059 in that year.

49    Set out at [126] is a summary of information derived from management and financial reports supplied to Paul for the period 2009-2012 and the financial report for 2013 indicating (among other things) director and related party loans in that period.

50    I found Mr Campbell to be a credible witness on issues related to remuneration but he lacked expertise on many of the other issues he was asked to address in cross-examination. Based on the evidence of Mr Campbell and John, I accept that Keith agreed that John should be remunerated at the rate of $120,000 for the period from 2000 for ten years. I make no finding that Keith agreed that the rate of $120,000 should apply for any period after 2010 having regard to the difference in the nature of the work undertaken in earlier years and the management of established buildings. I note that shareholders have never been asked to approve John’s remuneration.

Family meeting with officers of Perpetual on 16 December 2010

51    Notes of a meeting between officers of Perpetual and the siblings (other than Clare) which John attended by telephone on 16 December 2010 indicate that (among other things):

    There was commentary that while loans to individuals were undocumented and there may be grounds to consider them as gifts to beneficiaries, loans between companies were documented. John commented that it would be “unfair to wipe the slate clean for individuals but not the companies”;

    Mr Shamal Dass (Perpetual) advised the meeting that even though Corbett Court was not an estate asset, “other companies cannot be wound up until we have sorted out Corbett Court. Corbett Court looks to have net $1m after loans. Structures need cash to pay taxes and not just asset transfers”;

    John advised that Corbett Court “in its current state” could not repay loans from the estate companies and noted that it had to reduce the NAB facility in the past 18 months;

    John advised that Corbett Court had loans to him of $760,000 of which $250,000 dating from 2003 was a “Division 7” loan made in lieu of wages and that there had been an agreement between himself, Keith and Mr Campbell to pay him a salary of $120,000 for a ten year period for working on Picton Mall. There was also a loan to Renelle for $237,000;

    John advised that Corbett Court needed to get rid of small tenants and put in a larger, more reliable one, that he had an offer from Target, that it “won’t be more rent” and that it would require a refurbishment/fit-out costing $1.5 million to get Target in as a tenant;

    Paul asked if some shops in Corbett Court could be sold to pay off K&V Corbett;

    Joseph said that he had a buyer interested in Corbett Court;

    John said: (1) that he would like to take Corbett Court forward but could not pay out the loans, although he had “no interest in taking it forward with the current shareholders”; and (2) he would like to know of evidence of the value of Corbett Court and the suggested buyer but he would lean towards selling if the price suggested by Joseph could be achieved;

    Mr Dass suggested the need to set up an annual general meeting of Corbett Court early in the new year as its future was of great importance to the administration of the estate. John said that it should be sooner rather than later as he believed the market position in Picton was deteriorating;

    There was substantial disparity between John’s knowledge of the affairs of Corbett Court and the estate companies derived from his position as a director of those companies and that of his siblings; and

    John agreed to step down as a director of the estate companies in favour of Mr Holbrook.

Directors

52    John was the sole director of Corbett Court after his father died in April 2010.

53    Following on from the meeting at Perpetual on 16 December 2010, there was discussion about the possibility of appointment of an independent director of Corbett Court additional to John. Perpetual identified Mr David Kenney, then managing partner of Hall Chadwick. In an email to Mr Kenney on 11 January 2011 (copied to all of the siblings) Paul said: “None of the 7 minority shareholders want to be a third director. This leaves the possibility of just you and John, or another third director.” Although Paul now says that he meant to say that none of the seven minority shareholders wanted Renelle to be a director, there is no evidence that there was a proposal to appoint Renelle at that time nor is there evidence that Paul sought to correct this email at any time before he provided evidence in these proceedings. I do not accept Paul’s evidence.

54    On 25 January 2011, John sent an email to his siblings giving notice of a “proposed Annual General Meeting” to be held on 9 February 2011 in Picton with the “main topics for discussion” being “1. the threats facing the company in the short term and, 2. the ownership structure for the future successful operation of the Company in light of these threats”. Although John gave short shrift to a request by Margaret to have conference facilities available for those unable to attend in person, he noted her request to add to the agenda: (1) “Repayment of all loans to the Estates of Keith Corbett and Valerie Corbett”; (2) “Sale of assets”; (3) “Potential for appointment of new director(s), receivership, voluntary administration”; and (4) “Tenancy schedule - lack of rent paid by some tenants”.

55    Anne queried whether there had been sufficient notice of the meeting and said that she was unavailable on 9 February but could attend on 10 February; she noted that “[v]arious people have also contacted David Kenney to organise a meeting - I understand about him being appointed as an independent director of Corbett Court”.

56    By email dated 1 February 2011, John told Anne: “It is better to have a meeting asap as there are several pressing matters that need to be attended to. It may be that either an agm can be called subsequent to that meeting, or in fact that no meeting is required at all.” John agreed to a meeting on 10 February 2011 and conference facilities were arranged for it.

57    John went on to say: “I have no intention of appointing David Kenney or anyone else as a director”. In evidence, John said that he meant no-one else outside the family, but he did not correct this email and there is no evidence that John invited any other family member to be a director.

58    On 2 February 2011, John appointed Renelle as a director of Corbett Court.

10 February 2011 meeting of shareholders

59    A meeting of the shareholders of Corbett Court took place on 10 February 2011. The meeting was attended by John, Anne, Gwen, Margaret and Mr Campbell in person and Joe and Mr Kenney (as proxy for Paul and Clare) by telephone. John arranged for the attendance of Mr Campbell and five years of accounts and a copy of the constitution to be available at the meeting.

60    John said that at the meeting he told Mr Kenney that:

... the company has no equity. Corbett Court needs to stay solvent. If something isn’t done it will lose $500,000 a year in rent if Coles exercises the right to reduce the rent. If that happens it will default on the NAB facility. The estates will lose money if Corbett Court defaults because of the guarantees provided and the associated costs of liquidating Corbett Court.

61    In an email to Mr Kenney following the meeting on 10 February 2011, John described it as “a good start” and agreed to provide tenancy schedules, agreements in place with Target and Bendigo Bank, projected cashflows from additional tenancies, an estimate of costs to implement changes, “[a] motion to raise capital through share sales in the same proportion as existing shareholdings” and current valuations held for the properties, subject to Mr Kenney and “those shareholders for which you hold proxies” providing confidentiality agreements.

62    For attending a meeting with the siblings other than John on 8 February and the shareholders’ meeting on 10 February 2011, Mr Kenney charged $7,700 which was paid by John’s siblings pro rata. John said that he did not consider that the cost of an independent director was warranted. The proposal to appoint Mr Kenney as a director of Corbett Court was not pursued.

18 February 2011 meeting with Perpetual

63    At a meeting of the siblings (except for Honora and Gwen) with Perpetual on 18 February 2011:

    in response to a question from Mr Dass as to whether the “situation of directorship” had been resolved, John told the meeting “it is resolved. Renell [sic] & John are the directors of Corbett Court.”

    John explained that the estate companies, John, and Keith had all given guarantees to the NAB in relation to the Company’s indebtedness and in response to a question as to whether the guarantees were open-ended, John said that they were open-ended and went on: “Guarantees would only be implemented if the money wasn’t paid. On the last valuation of Corbett Court, the value of the company is worth more than the loan. There is nothing to be concerned about. I can’t see that Menangle or K&V Corbett would be called upon.”

    John told the meeting that K&V Corbett could not be wound up before it was removed from the security given in connection with Corbett Court.

    Without suggesting how it might be done, Margaret said that “Corbett Court needs to supply more security to itself to remove the companies”. John said in response: “we’re limited to how much money we can borrow or raise. Corbett Court needs to increase it’s [sic] value. It can be done but it takes time.”

John makes offer to buy shares in Corbett Court

64    On 24 February 2011, John made an offer to all of his siblings as follows (as written, emphasis added):

Hi, all

In order to promote a possible solution to Corbett Court and the relationship with the Estates I propose the following :

1.    I buy the seven shares at $60,000 ( sixty thousand) each

2.    The “loans” to K&V Corbett, and Menangle P/L are valued at 50% and repaid over three years.

3.    240 Picton Road is gifted to me as to be arranged by dad in the last few weeks of his life and told to several family members

4.    I take on all security and guarantees for the NAB loan hence The Estates are removed as guarantor and all mortgages from the Estate are returned from NAB.

This offer is generous and over values Corbett Court on the Market place by nearly $2m, in my opinion.

I would like to hear back from each person or their representative within seven days as to their acceptance. I have prepared a current tenancy schedule and I have emailed David Kenney that all the raw data is ready for his perusal when he returns a Confidentiality Agreement. I ask that each person completes same with him

The offer is dependent on majority acceptance which will become binding on all parties.

I hope you can give this genuine offer due consideration.

…

65    John’s offer was not a simple offer for his siblings’ shares in Corbett Court and it cannot be evaluated that way; the offer to buy the shares was one of a range of issues involving estate assets and liabilities. Item 1 provided for an aggregate price of $420,000 for the siblings’ 50% of the Company. Item 2 involved a write-off of approximately $1 million of loans owned by Corbett Court to the estate companies with repayment of the other approximately $1 million over three years. Item 3 is a property which John claimed his father had gifted him but which would otherwise have formed part of his father’s estate to be divided between the eight siblings. John said that at that time the property was valued at $600,000; as at November 2012, a valuation received by Mr Holbrook put the value at $750,000. It is difficult to understand on what basis John asserted that “majority acceptance” could bind the other siblings.

66    Three of the siblings rejected this offer and four did not respond.

Advice from Perpetual

67    By a letter of 11 March 2011, Perpetual provided the siblings as beneficiaries of the estate with an update on the administration. Among other things, the letter said:

    The accounts of the estate companies recorded undocumented loans to family members; the family members disputed the loans and said that they were intended as gifts. These loans were thought to be unenforceable. Loans to companies had been acknowledged in the accounts of those companies and were thought to be enforceable and would be pursued.

    Beneficiaries were asked to identify any estate properties which they might care to purchase.

    In relation to Corbett Court, Perpetual would be asking NAB to renegotiate guarantee arrangements. The letter went on to say that if repayment of loans to the estate could not be achieved, Perpetual would be required to pursue repayment “with the same vigour as would occur if the loans were on an arms length basis”, possibly involving costly legal action which would be unfortunate as “the entity is related to the beneficiaries of the estate”. The letter went on:

Beneficiaries as with other matters, do retain the option of coming to an agreement which does not maximise the legal rights of the estate but achieves a more optimum outcome for the parties as a whole. This would be acceptable to Perpetual provided all estate beneficiaries, as with other matters, indemnify Perpetual for not having carried out its legal duty to maximise the value of the estate. Given the liquidity issues that have arisen in Corbett Court following large accrued management fee payments during the financial year to 30 June 2010, beneficiaries should consider arrangements that would avert the need for legal action in regard to the loan to this entity.

    The letter noted that “a few beneficiaries” had raised the possibility of legal action being taken against the estate and that that course would extend the period of the administration. Perpetual requested that if a beneficiary wanted to go down that path, they should advise Perpetual within 21 days.

John commences family provision proceedings

68    On 16 May 2011, John commenced family provision proceedings in the Supreme Court of New South Wales in relation to Keith’s estate. They were discontinued in August 2012.

John makes First Share Offer

69    By letters dated 18 May 2011 signed by John, Corbett Court sought to raise $1,050,000 by a proportional offer to subscribe for shares made to all of the shareholders (“First Share Offer”): see [19] above. Without detracting from the importance of all information in the First Share Offer letter, I note that it provided:

Please note that if you do not take up this offer the Directors may offer the shares originally offered to you in such manner as they think most beneficial to The Company.

This offer is subject to all of the shares being offered by the Directors being taken up by the Shareholders. As such, if the Shareholders do not agree to take up all of the shares being offered by the Directors, the Directors may determine not to proceed with the share offer.

70    In an email sent on 29 May 2011 to Margaret, copied to Clare, Honora, Anne, Paul and Joseph, Gwen said, among other things (as written):

Regarding the share offer ... Marg, I just don’t know what you mean: it seems to be that John is trying to dilute the shareholding in order to resume our shares...Then there is no leverage with the loans/guarantees. Could that possibly be correct? ... I don’t think he would do that to his siblings, considering CC was set up primarily for the children. That’s what I assumed, when I payed and signed for these shares.

I don’t think it is worth putting in too much energy into Johns offer. NAB will sort John out in the very near future. Then CC will have to be sold and game over. Karma may result and NO more talk of Corbett Court or John Corbett again. Don’t forget the old saying, “Big men fall hard”.

…

I will get back to you about your referencing of the Act – if I can be bothered. Lets see what Perpetual comes up with tomorrow. Its about time for some transparency and an ‘action plan’. They have no suits of armour, white horses or magic fairy wands. I think NAB will wave the magic fairy wand and get this story finished, its inevitable!!!!! Like Dad said, he was ‘bankrupt’. We have known for years there is no money coming to us from him, (just from Mums estate). The siblings who think they will get this huge inheritance will have to face reality. So sit back and watch the fireworks begin. The sooner it starts wrapping up, the soon it finishes.

Suggestion that NAB and Perpetual should call loans

71    On 30 May 2011, in an email copied to Paul, Gwen and Margaret, Joseph raised the prospect with Perpetual that unless Perpetual approached NAB and “look[ed] into” Corbett Court, some of the siblings would. Joseph told Mr Dass that (as written):

They want NAB to take some action and know what is going on with this company.

If you can advise us that NAB and Perpetual need to discuss calling in their and your loans and force the Director to the table and look at options to buy or sell the company outright now. …

There are a couple of buyers who would wish to contact, those directing the selling process, so to establish an offer.

If the price obtained pays the estate loans remains to be seen, though now is the time to have this all out and moved on for all involved.

72    Joseph appears to have been surprised to be advised by Mr Dass that such a course could result in a “fire sale” of assets owned by Keith’s estate and the estate companies instead of NAB proceeding against Corbett Court first. In his email to Mr Dass on 31 May 2011, he said (as written, emphasis added):

Us as shareholders would like see an end to that company, even if we end up with nothing for our shareholding.

The estate and you as Trustees would be clear to sell the estate properties unencumbered.

That is what we want, NAB to force the issue and start this process forward.

... It would be best and less hassle, money, and quicker, if, us as shareholders do not have to engage lawyers to help protect us in dealings with the Director of Corbett Court, if the Trustees could arrange a process to clear the NAB and estate from that company.

73    In cross-examination, Joseph acknowledged that the proposed buyers were the Khans (the tenant of the IGA Supermarket) and another supermarket owner. He suggested that they may have been prepared to offer $16 million, but even though Joseph forwarded their letters of intent to Perpetual, the buyers never provided a firm price to Perpetual.

Anne’s view

74    On 4 June 2011, Anne wrote to Mr Dass (copied to others at Perpetual and to her siblings other than John) stressing that resolution of the administration of the estate, John’s family provision claim and issues related to Corbett Court were interlinked. Without endorsing Anne’s proposed solution, her careful and unemotional analysis is a useful synopsis of issues (as written):

I have previously expressed the view that all matters involving the estates, companies, Corbett Court and now the FP claim are interlinked and need to be dealt with together.

I think that it is in John’s interest as well to reach a resolution of all issues. This is not said to favour John in any way but because it may be our best hope of being able to resolve the situation.

Paul rang me yesterday to discuss the possibility of legal action in relation to Corbett Court. I am not interested in legal action. ...

Corbett Court clearly is facing financial problems. I understand that some think that John has deliberately created that situation - either to secure Target as a tenant or to make it possible for him to purchase it at a lower price. Whatever the reason or the motive we are faced wtih the reality that there are several vacancies within Picton Mall and many others in Picton. This is in a climate where there is significant uncertainty over retail in Australia generally and in outlying or regional areas in particular. Whatever the reasons for this situation we have to deal with it in the present.

If Corbett Court deteriorates further it may not be able to pay the interest on the loans. More tenants may leave. Coles may stop paying rent or pay a reduced rent. They are entitled to do this if tenancies are not maintained at a certain level. Forcing a sale of Corbett Court is not in our interest. It is extremely unlikely in this environment that we will secure a buyer at a good price. It is quite feasible that the sale price will not cover the loan from NAB. The shortfall could be very significant. There will also be costs associated wtih all of these processes which will increase the losses. This will mean that the estate will pick up the shortfall. Obviously the loans from Corbett Court to the estate and related companies would not be paid. Meanwhile John’s FP claim is still outstanding and in these circumstances his financial position could be worsened to the point that he will be successful in his claim.

The longer this goes on the more the estate will be devalued. Not only by repaying the loans to NAB, possibly paying John’s FP but also because the market for other properties may well deteriorate.

It is in our collective interest to negotiate a solution whereby Corbett Court is extracted from the estate - i.e. the estate, and companies, are released from the gurantees. That at least preserves the value of the estate.

My view is that if we will be lucky if we can reach agreement in relation to the following:

1.    John make arrangements to renogotiate the loans between Corbett Court and NAB thereby releasing the estate and the other companies

2.    John withdraw the FP claim

3.    We transfer our shares in Corbett Court to John.

The outstanding issues relate to the loans between Corbett Court and the estate and other companies and whether we are paid anything for the shares in Corbett Court.

Obviously John will need to settle the loans as part of the agreement. Their value is such that he needs to know whether he, through Corbett Court, is liable for them in order to make financial arrangements, renegotiate the NAB loan, satisfy their security requirements, etcetera. Although it is not clear exactly what the value of Corbett Court may be there is real doubt that it is able to repay these loans now. Whether it could ever repay these in the future is unclear but as set out above there is real potential that it will go into liquidation and they will not be repaid.

I understand that Perpetual, as the administrator of the estate and and PKF, as the director of related companies, will need to decide whether to agree to waive these debts.

As I understand it they are in the process of assessing whether there is any real prospect of recovering the money and are able to make a commercial decision to waive them.

That leaves the question of whether we receive any payment for the shares of Corbett Court. It appears that on any present valuation there is no equity in the company and so the shares are worthless. I doubt that we can get more than a nominal value. The amount would be so low that it wouldn’t really matter.

I am aware that a number of people are not happy about the prospect of transferring, or selling, shares in Corbett Court to John.

Not doing so however could be a very costly mistake, and it is costly to everyone not only to those who hold that position.

The best thing we can do now is get out of this situation and that means getting out of Corbett Court even on conditions you are not happy with.

Preserving the estate is much more important than winning legal actions - even if successful we lose a very large part of the estate.

Would you all please consider this proposal and advise whether you would accept it.

If everyone is in agreement Perpetual will be able to make some headway.

Discussion of options with Anne

75    On 14 June 2011, there was a chain of correspondence between John and Anne copied to Honora, Clare and Mr Holbrook. John said (as written, emphasis added):

Anne, In confidence , Without Prejudice

I have spoken with Gary Holbrook, the director of the companies at PKF ...

He is interested in meeting with Honora, Clare and yourself to work out a proposal for Corbett Court, the intercompany loans, guarantees to NAB and the shop.

He is mindful of NAB calling in the loans resulting in the companies having to make up any shortfall. He proposes the companies sell $2m in shares and give it to NAB to reduce the loan and transfer the shop to Corbett Court P/L. C Court could then redraw $1m from NAB to refit for Target .

The guarantees would then be removed and the rest of the assets sold and distributed immediately.

His basis is the companies need to buy back their guarantees and Corbett Court is entitled to survive. I would agree if all shares in Corbett Court are transferred to me now and so withdraw the FPA claim.

I am happy to attend or not.

I urge a commercial settlement be reached and agreed to by the four so that Perpetual has a proposal to execute.

Time is of the essence. I do not have a do nothing option. The only other way I see is I issue the shares in Corbett Court now, put Target in and battle out the loans and FPA claim over the ensuing years. My work for the estate is valued much higher than the value of the loans but it will take a long time to prove that to the standard of the Supreme Court.

76    Anne replied that she was prepared to meet with John and Mr Holbrook “if there was a prospect of a productive settlement”. She suggested that:

... a settlement would be more in line with the offer you made in February – but without the transfer of the property at Picton Road, Maldon or possibly payment of money for transfer of CC shares from siblings to yourself. The advantage to you is that you would have sole ownership of CC which would be released from the loans to the estate and related companies. The estate (directly and via the companies) would forgo recovering those loans in return for being released from the guarantees.

[John’s proposal] requires a gifting of $2 million plus the shop to CC. You don’t mention the loans from [sic] CC which I think are listed at $2-3 million.

I have no idea of the value of the shop. We have not heard anything from PKF in relation to the value of the company properties or proposals for sale.

It is difficult to see that there would be agreement on gifting $2 million plus the shop to CC – which effectively means to you if all shares are transferred to you.

Are you proposing to forgo your claim to your share of the estate in partial return?

It is not going to be easy to reach any agreement with all of the people involved ...

77    John responded (as written, emphasis added):

Anne

There are several issues

Menangle P/L and K&V Corbett P/L cannot just walk away from guarantees given. If they sell assets NAB will take the proceeds. So the estate is not gifting anything, the companies are meeting their obligations in order to be liquidated. Corbett Court is not bankable without security from Menangle and K&V Corbett p/l’s asset base. These are the issues the director is grappling with.

Dad gave me the land at Maldon many times and again the day before he died. Everyone has to accept that. If I have that I can use it for security.

Corbett Court has no value, why pay money for something that has no value? I made a very generous offer and was abused for it, or ignored.

If it is sold now it may not get back the amount it owes NAB, hence costing the estate more money than it would to keep it and allow a future.

The shop may be too contentious to put in the equation, it must be sold on the open market or amongst interested siblings.

I have all my other work that needs to be accounted for, there are plenty of items that can be traded off.

I believe I have worked on a solution to turn it around but clearly there is no opportunity to go forward with the present ownership structure.

Perpetual should be able to give you global figures of net returns to each member based on differing outcomes. The total will be significant, or they can wait 4-5 years and get less. These are all adult decisions that need to be made. It is past time.

I suggest you talk to Gary and work through a viable plan.

I can meet at any time to progress the matter.

…

78    Paul made a complaint to ASIC on 4 July 2011 and again in November 2011. ASIC declined to investigate noting “internal company disputes, where it is open to members to take their own civil action, fail the public interest element of ASIC’s assessment of complaint suitability for further action”.

Perpetual asks for proposal for dealing with loans and guarantee

79    On 8 June 2011, Mr Dass wrote to the directors of Corbett Court in relation to $2,256,950 of loans from the estate companies seeking a proposal for the release of the guarantees and repayment of the loans, including evidence of NAB’s attitude and Corbett Court’s cash flow to meet any time payment request. Failing such a proposal, Perpetual threatened “such action as it deems necessary” to recover the loans.

Honora protests dilution, acknowledges Corbett Court’s financial position, Paul’s legal advisers complain, John seeks a shareholders’ meeting

80    On 6 June 2011, Honora wrote letters to John and Renelle saying that, although she “personally [was] not interested whether or not the company makes share offers” the First Share Offer was unduly dilutive on the basis of her valuation of Corbett Court shares, which was between $12,755 per share to $43,197 per share. She said that it would not accord with Keith’s wishes that John’s siblings have 50% of the Company for John to “commandeer” value in that way. She asserted that John knew of the “financial hardship” being experienced by “most of the minorities and their [sic] level of incapacity of at least one of them to handle their affairs”.

81    On 10 June 2011, Paul’s lawyers wrote to “The Directors” of Corbett Court suggesting that article 37 of the Company’s constitution required shareholder approval to an issue of shares under the First Share Offer and that had not been obtained at the meeting on 10 February 2011. John responded on 16 June 2011 pointing out that article 37 applied to increases in authorised capital; it was article 38 which applied to the issue of shares within the authorised capital of the Company and that was a function for the directors.

82    On 10 June 2011, John responded to Honora’s letter of 6 June 2011, pointing out that it may well be that Honora had better knowledge of his siblings than he did “as they have completely cut themselves from me in all forms of communication” and he did not see their “severe disadvantages”. John went through his knowledge of his siblings’ real estate assets and employment/family situations. In relation to Paul he said

Paul owns at least two houses, is very creative in coming up with money for lifestyle purposes but is unemployed and somewhat unstable, though he denies that. He could have problems in arranging $75,000 in a reasonable timeframe unless assisted in some way. I note he has had his hand out to dad for many years in paying off credit card debts. The directors are not his keeper. The Directors must act for the benefit of all, not one.

After pointing out that he thought that Honora could “rustle up $75,000 should [she] feel inclined” John went on to say (as written, emphasis added):

I do not know the absolute details and have no interest in finding out as it is not my business, personally or as a Director. I know enough to refute your absurd claim of me opportunistically putting the boot into weaker minorities.

2.     The value of the existing shares

Your argument values the existing $1.286m income at a yield of 7%. This is not realistic. The most recent valuation by Colliers in April 2009 valued higher income at 8.5% yield to achieve a valuation of $18m. Our trading position is worse now than then. Before you attack the current and former directors for lack of value creation you should look into both the local retail market and the broader retail commercial property market. I believe we are doing better than most. There are 24 empty shops in Picton. We at least have a potential plan to arrest the slide.

A yield of 8.5% gives a value of $15.1m, with debts of $17.3m the share value is less than zero. I can’t issue a zero value share and the original shares were issued at a dollar.

I made a realistic offer to buy the minority shares on 24th February 2011. I was abused by three members and did not receive a reply from four members, yourself included. The offer is repeated here for your information. From any viewpoint it was a realistic, genuine offer to resolve the operation of the company.

…

3.    Current borrowings

The company cannot borrow more money from the open market as it is well over the required LVR of 70%. Perhaps you would like to become an unsecured creditor to the company in good faith?

4.    Managers’ salary

I am entitled to be paid a reasonable fee for my work. I note all the shareholders earn an income, why can’t I for working for them? The company is not paying me at the rate of $120,000 per year as there is no money to pay. Similarly the accrued income not paid over the last ten years sits as a loan to me. Meanwhile, I pay loans to the company for money taken in 2002-4. It was not paid as salary at the time in order to reduce costs. I pay the company for the privilege of working for it. Since 2006 we, Renee and I, take $40,000 per year from the company as salary. I have acted in good faith since the start of the company.

The company has, through my efforts, the chance to establish itself firmly in an otherwise down market. It needs $1m plus to do this, if I do it myself. If the Company was to employ outside parties I believe the price would be so high it would be uneconomic to proceed. We have Bendigo Bank opening in September, a project I have been involved with for two years.

In summary,

1. The company cannot borrow more money from the bank

2. I have made an offer to buy out the minority shareholding at a price well above market price which was rejected.

3. The Directors are issuing shares on the same percentage as the existing shareholding to existing members. I reject your assertion the members are “severely disadvantaged” and so cannot take up that offer.

4. The Manager’s salary is not being paid at a market rate currently in order to preserve company funds so that solid income can be achieved in the future.

The Director’s have acted in good faith over many years to promote the value of Corbett Court and the other Estate Entities for little or no return.

I urge you to take up the shares and be part of the future growth of the company, though I can offer no guarantees of the future returns.

…

83    This remains a fair summary of John’s position.

84    Honora was not persuaded that the First Share Offer was appropriate in its effect, but she was persuaded of the Company’s need to raise funds. On 12 June 2011, Honora sent an email to Mr Dass, Margaret, Anne, Clare, Paul, Gwen and Joseph, canvassing the duties of directors under “Corporations Law” and went on to say (as written):

I see that Paul is attempting to obtain an injunction through the Courts. That may or may not be successful eventually. Certainly his solicitor’s letter has not had a positive response either. Perhaps John is just digging his heels in to see what he can get away with, or perhaps he is so isolated that he cannot see any other course of action than the one he has come up with so far. Meanwhile, your next step could be to have the corporate watchdog, ASIC, investigate and rule on the matter.

…

It appears John has a serious predicament in that he is a director of a company which is struggling and he has a responsibility to keep it solvent and viable. My very brief analysis based on the figures from the offer documents is attached. It appears that CC currently has a negative net shareholders’value of $0.2-2.2m. I didn’t see any profit and loss forecasts in the offer documents, so I can’t ascertain whether it is covering its interest bill currently or not. Clearly the directors have a legal responsibitly to rectify this situation.

John has come up with a tenancy deal which could be indeed very profitable for the company (see atteched spreadsheet for the possible impact on net equity). His stated view appears correct ie CC does need more equity urgently (and definitely no more debt) so it can boost its rental stream, its value and therefore increase the net equity and lower the loan-to-valuation ratio. My very brief analysis does show that the proposed Target deal and capital injection will indeed achieve these goals. Please note: that would actually be in everyone’s interest as CC shareholders would benefit from rising rent, profit,and asset value; and therefore all estate beneficiaries would benefit as Perpetual/PKF would thenhave a much better chance of clawing back the $2.3m inter-company loans and hopefully be able to offload the guarantees. The immediately pertinent question is: how are the projected improvements in values to be shared between John and the minorities? And how is the capital injection to be funded?

If you want to stay in CC or get a good price for your shares as per your past emails (or even try to get the estate loans repaid) then it seems to me that you are going to have to inject some capital to keep it solvent and viable and boost its net worth. This needs to be done sooner rather than later probably. The directors do have a duty to do that. Shareholders have to either support that direction (ensuring they get a fair deal of course) or sell their shares. You can’t just ignore the problem. Constructive solutions are necessary. It is not feasible to request your shares be bought for $1.5m when they are effectively worthless at present. Nor is it feasible to dig your heels in and say John can’t have CC at any price. That is cutting your nose off to spite your face. In a recent email. I noticed Anne tried to point out one possible appraoch to negotiate a possible global resolution to the impasse. It is that sort of flexible thinking, and a mature acceptance of the need to compromise, however reluctantly, that will lead you out of this mess.

This is not a pleasant situation. Regarding your immediate problem with the share issue, ASIC appears the most direct route to a ruling. It is up to you.

btw apart from my letter to John, I haven’t dealt with him since the last Perpetual meeting I attended. I suggest you keep your snide remarks to yourself and stop your unfounded conspiracy theories. I am over it. It is time to act very professionally and maturely.

85    Many of the siblings took great notice of Honora’s valuation but little notice of her acceptance that Corbett Court was genuinely in need of funds to the extent that John needed to be concerned about the performance of the legal requirement that he not allow Corbett Court to trade while insolvent. However, although Honora is a share analyst, I do not accept her view as an expert or as evidence of the true value of share in Corbett Court at the time.

86    On 13 June 2011, Clare sent an email to Anne, Paul, Honora, Gwen, Joseph and Margaret saying: “I cannot afford to add $75,000 to raise capital. While this may be the most commercial solution in the longer term I am not able to commit to this course of action.” She said that she would be willing to transfer her shares in Corbett Court to John if he would agree to release the guarantees. She said: “I just want release from this stressful situation. Yes I would love to be offered a substantial return for my share but this not going to happen either. The first offer was not a genuine offer. But if he took the $14 million loan then I see it as a financial benefit to me and to the estate.”

John invites siblings to a shareholders’ meeting

87    On 10 June 2011, John sent an email to his siblings proposing a meeting to be held on 15 June 2011 for the purpose of authorising the issue of shares. No one attended.

Mr Holbrook’s view

88    On 26 July 2011, Mr Holbrook told Mr Dass of Perpetual that:

NAB have indicated that, should [the estate companies] call on the loans to Corbett Court, NAB will call on their own loan (which has priority over the intercompany loans) in order to protect their position. The most likely outcome of this would be for Corbett Court to be put into administration with a resulting fire sale of the security property. Given the estimated value of the security property, there will very likely be no funds remaining to repay the loans to the companies. For this reason, I believe the commercial value of the loans to Corbett Court to be nil.

89    On 23 September 2011, Mr Holbrook reported to Mr Dass about a meeting with the siblings as a result of which he approached NAB to discuss what payment they would require to release the estate and estate companies from the guarantees. NAB told Mr Holbrook to “make an offer” and confirmed that it would accept the transfer of property to Corbett Court in satisfaction of the guarantees. NAB’s preferred interest cover ratio was in the region of 2:1. On that basis, Mr Holbrook estimated that the NAB loan would need to be reduced by $4.8 million to bring it within NAB’s preferred interest cover.

A further proposal by John for resolution

90    On 11 January 2012, John sent an email to Mr Holbrook saying (as written, emphasis added):

I met with Perpetual on Dec 13 where it was determined I would try and take on the estate guarantees for C Court’s NAB loan. The other provisos were I would take all shares in C Court at nil cost, receive the Maldon Property I occupy and repay $1m in C Court Loans over 3 yrs at commercial terms.

On approaching NAB after the meeting in found they are not interested in discussing the matter without current valuations.

I have spoken to David Mc Lennan from Colliers who says yields for similar properties are currently 10-14%. I spoke with Ben Stewart from Savills who sold Tahmoor Bi Lo in October on a 13% yield. He says most are selling to cash buyers around 12% yield as there is no finance available through banks.

If I get a valuation it will show a value of <$10m as we will lose 500k in Coles income due to excessive vacancies. If sold now the Estate will have to tip in $4m plus to NAB and loose any unsecured loans. Clearly I do not want a valuation based on this information as NAB may call in the loan.

What is the way forward?

I have thought for some time I should do the deal with Target. To this C Court needs $1m plus my time to make it happen. In some ways I am ready to walk away but feel it is not right to sell now, surely the market will get better.

I believe the only immediate way forward is to increase Equity by proceeding with the Rights Issue, and install Target. This shores up the income, and gets the valuation as high as possible to see what security NAB will let go.

91    The proposal which John said was discussed with Perpetual appears to be essentially the same as the offer made to shareholders in February 2011, save that John was now not proposing to make a payment for Corbett Court shares. Correspondence between NAB and Mr Holbrook indicates that John accurately stated NAB’s position.

Agreement for lease with Target

92    Corbett Court entered into an agreement for lease with Target on 1 February 2012.

Mr Holbrook’s view

93    On 21 February 2012, Mr Holbrook wrote to Perpetual urging Perpetual to undertake direct negotiations with NAB, as Mr Holbrook proposed to do on behalf of the estate companies. He said (among other things):

I understand from discussions with John Corbett that he is unable to release the Estate and Estate-owned companies from the guarantees provided to NAB as had been agreed at the mediation earlier this year. The reasoning for this appears to me to be sound.

I believe that as things stand there is a real risk that NAB may call in the loan to Corbett Court which by virtue of the mortgages and guarantees provided, would jeopardise the assets of the companies and of the Estate. Given current market conditions, my view is that, were the loan called on, a liquidator appointed and Picton Mall sold, it is highly likely that the companies and/or the Estate would be called on to make up the shortfall.

John tells Mr Holbrook that installing Target is urgent

94    On 22 February 2012, John wrote to Mr Holbrook saying (as written):

I write to inform you Corbett Court P/L must proceed with installing Target as a tenant or face the position of being unable to pay its debts as they fall due.

Peter Mokas of Coles property rang today enquiring when Target will be trading as they have been lenient in their payment of rent under cl66 of the lease which relates to excessive tenancies. He asked specifically if Corbett Court has finance in place to install Target.

With a substantially reduced Coles rent Corbett Court P/L would not pay its debts as they fall due. I must urgently install Target or look at putting the company into administration. On a reduced rent basis the value of the company is below the debt owed to NAB

I seek your urgent advice.

Landmark White valuation and commencement of work to install Target

95    On 16 March 2012, Mr Holbrook obtained valuations of the IGA Supermarket and Picton Mall on behalf of the estate companies. Landmark White valued the IGA Supermarket at $4.5 million. Picton Mall was valued at $9.4 million or, if Coles exercised its right to decrease rent under clause 66 of its lease, at $8.7 million.

96    In his report to Perpetual on 5 October 2012, Mr Holbrook made the point that at this time the amount outstanding on the NAB facility was $14.1 million with the result that Corbett Court was in a net liability position of $200,000, possibly leading to the appointment of a liquidator. In a “fire sale” circumstance together with the liquidator’s costs, it was Mr Holbrook’s commercial assessment that it would have led to Corbett Court being in a net liability position of $2m, to which the estate companies would have been exposed. For this reason he forbore to call for repayment of loans made by the estate companies to Corbett Court. Mr Holbrook’s letter noted that this work could commence “in the knowledge that I was not immediately going to call in the loans from the Estate companies”.

John seeks a meeting of shareholders

97    On 29 March 2012, John sent an email to his siblings seeking their “suitable dates in the next week” for a meeting to discuss finance arrangements for the Company. John received no response to this email.

Corbett Court board meeting on 7 May 2012

98    A minute of a meeting of the board of Corbett Court dated 7 May 2012 indicated that the meeting was attended by John and Renelle. The minute was signed by John and Renelle and witnessed on 10 May 2012. The minute provided:

It was resolved to issue 50,000 one dollar shares to each of John Corbett and Renelle Corbett to be paid with seven days.

It is noted there has been no reply to correspondence of 29 March 2012 seeking a meeting on the finance options for the Company nor of 6th February in regards to rights issues.

It is noted the Company needs certain assurances money is available to pay creditors for the current Target construction works undertaken by Corbett Constructions P/L on a cost only basis.

99    John advised his siblings of this meeting by email on 7 May 2012 as follows (as written, emphasis added):

Hi All,

Further to our correspondence of 6 February, as no doubt you are aware Corbett Court has commenced construction to install Target Australia in Picton Mall. This is necessary to increase the value of Corbett Court P/L. We note the current value is less than the NAB debt. We have received no reply to our request for meeting of 29 March nor our correspondence of 6 February.

In order to meet its commitments and run the company effectively Corbett Court will issue 50,000 one dollar shares to John Corbett and 50,000 one dollar shares to Renelle Corbett along with a loan from John and Renelle Corbett for $900,000 secured by a second mortgage over the assets of Corbett Court P/L, subject to the approval of NAB.

…

John makes further compromise offer to Mr Holbrook

100    On 11 May 2012, John made a further offer to Mr Holbrook by email copied to Mr Anton Murphy of Perpetual (as written, emphasis added):

Gary,

Considering the current valuation of Corbett Court I would like to make the following suggestion.

I will inject the funds necessary to install Target and take on the guarantees from the estate if:

1.    The inter company “loans” are forgiven, as they can’t be repaid in any case unless action is taken to increase the value of the properties and the company cannot borrow in its own name currently. These loans on the Menangle and K&V Corbett P/L balance sheet should now be valued as zero this financial year. If they went back to the companies they would have to be taxed in any case.

2.    I can purchase 35 & 45 Marion St and Turner St, Thirlmere properties for $1.75m , settled in twelve months

3.    I can purchase 2-6 Progress Tahmoor for 610,000, settled in 12 months and construct the buildings now.

4.    240 Picton Rd Maldon is transferred to me as was dad’s last clear wish and I have my office and workshop here.

5.    I control all shares in Corbett Court. The Current structure is clearly unworkable.

This way gives me a chance to create the capital needed to take on the guarantees for Corbett Court, the estates are clear to be distributed, my desire to have recognition for the work I have done over many years is achieved and the estates have not lost anything they have got now, except some interest on the sale of two properties.

Please discuss with perpetual and hold off the sale of these properties until this option is considered.

…

PKF consents to mortgage and Paul’s lawyers complain

101    On 19 May 2012, John informed Mr Holbrook that Corbett Court had issued 100,000 shares to John and Renelle and asked if there was an objection to Corbett Court giving a second mortgage in favour of John and Renelle for $900,000 in order to install Target. He noted that Mr Holbrook agreed that Corbett Court “currently has nil value”. By email of 22 May 2012, Mr Holbrook indicated that he had no objection to the second mortgage without demurring as to John’s comment as to the value to be attributed to Corbett Court. NAB refused to consent to the registration of this mortgage.

John seeks a meeting of shareholders

102    On 22 May 2012, John sent an email to his siblings saying:

Shareholders,

Further to my email of 29 March 2012, I again call a meeting of the company at 240 Picton Road, Maldon, NSW, at any date and time that is convenient to most, preferably next week.

Failure to respond and set a time and date and meet will be taken as abandonment of the company.

Correspondence with Paul’s lawyers

103    On 22 May 2012, Paul’s lawyers wrote to “The Directors” of Corbett Court saying that the proposed Share Issue was invalid having regard to articles 37, 38(1) and 95(1) and threatening to take action to seek an injunction. On 24 May 2012, John responded noting, among other things, his many attempts to have a meeting with shareholders. He also said:

We note from an affidavit by Paul of 1st August 2011 Paul has considerable debt and living costs beyond his means. Unless his circumstances have since changed we have grave concerns he could pay our legal costs for this frivolous action.

104    John responded to Paul’s lawyers on 24 May 2012 saying that the work required to install Target as a tenant commenced on 26 March 2012. John’s evidence was that work commenced in May 2012 and I accept that evidence.

105    John concluded the response to Paul’s lawyers with: “We do not revoke the issue of shares nor the mortgage. The ability of the Company to meet its financial commitments relies on this finance.”

Commonwealth Bank

106    On 28 May 2012, the Commonwealth Bank advised John that it had approved an increase in his previously approved line of credit from $656,000 to $1,600,000. This was a personal line of credit and Renelle provided a guarantee in relation to it. It is John’s position that this loan was used to fund the works undertaken by Corbett Constructions at Picton Mall to install the Target tenancy. Bank statements indicate that as at 15 May 2012, this account was slightly in credit when payments commenced to be made from this account to Corbett Constructions from 15 May 2012 to 31 January 2013. The aggregate of the payments in this period was an amount of $1.02 million. I accept this evidence and conclude that work to install Target at Picton Mall commenced around 15 May 2012.

Perpetual’s view

107    On 29 May 2012, Mr Peter Whitehead of Perpetual wrote to Mr Holbrook having regard to the Landmark White valuations. He said:

I note your advice that you have obtained a valuation of Corbett Court Pty Limited which was well below the $18m valuation figure discussed by NAB. Although you have not disclosed the quantum of the recent valuation you have requested further clarification from the valuer about the impact of the possibility of Coles enforcing their right to reduce rent. The reduced valuation show that there is little, if any, equity in Corbett Court Pty Limited over the current loans to NAB.

…

The base case scenario

If John Corbett cannot lease to Target, NAB will not renegotiate loans without further security being offered. NAB may need to call up loans or take action as mortgagee to sell. Our exposure would be as guarantor of the estate ... I believe that both of [the guarantees from the estate companies] would be called in before the estate’s guarantee.

... A further impact of a sale by NAB would be that the loans to Corbett Court Pty Limited would be not recoverable.

Additionally the family members who own 50% shares in Corbett Court Pty Limited would not receive any benefit from the company as its principal asset would be sold.

The likely scenario

NAB or another source will refinance loans with Corbett Court Pty Limited based on a revaluation of the company at $17m following lease to Target and current rental from Coles being retained.

In this scenario we would not be a party to continuing the guarantee from the estate with a new lender. Additionally, the corporate guarantees would not have to be given to a new lender owing to the need for the shareholders interests being put first.

Accordingly it will be more likely that John Corbett will retain NAB as mortgagee unless he had personal assets he was going to offer as security. I have perused the terms of the guarantee and the Corporate Letter of Offer to Corbett Court Pty Limited. If John does not renegotiate the loans the holding over provisions will apply which provide for:

•    The terms of the facility to continue until otherwise advised by the Bank

•    And until the Agreement has been extended, amended or replaced.

108    This element of the likely scenario is in fact what occurred. Mr Whitehead went on to contemplate that:

... if the valuation was $17m, NAB would only lend $11.05m and would be requiring $3.25m repaid, or the loan of $14.3m supported by additional security to the total value of $22m. The additional security would first need to come from John Corbett as principal shareholder. If we instructed you not to continue with the guarantee at the existing level, and John could not satisfy NAB’s requirements, the risk will be that the base case scenario will be the option.

If Corbett Court Pty Limited was able to continue the family members would retain a shareholding, albeit reduced in value if the proposal by John to make a rights issue and dilute the shareholding. Additionally the loans to Corbett Court could be kept in the equation just in case they would ever be repaid if Corbett Court Pty Limited became more liquid.

...

Colliers valuations of 19 June 2012

109    Colliers delivered valuations dated 19 June 2012. The Picton Mall valuation was rendered on an “as if complete” basis; that is, on the assumption that development works for the Target tenancy were completed. Picton Mall was valued at $15.5 million and the IGA Supermarket was valued at $6.75 million with an aggregate value of $22.25 million.

NAB’s position

110    On 2 July 2012, NAB advised Perpetual that Corbett Court’s properties were being valued and as soon as that had occurred it would be in a position to determine the adequacy of its security position and consider the release of the estate from its guarantees.

111    Although the NAB facility was due to expire on 31 July 2012, it was extended for the short term.

112    On 5 October 2012, Mr Holbrook advised Perpetual that having regard to the Colliers valuations, NAB was prepared to release the guarantees given by Keith and the estate companies, but would require a payment of $1.37 million to Corbett Court and for John to continue providing personal guarantees for Corbett Court’s indebtedness.

Corbett Constructions sends invoice to Corbett Court

113    On 1 September 2012, Corbett Constructions provided an invoice to Corbett Court for $1,149,313.84. It was a “Progress Claim for Construction Work at Picton Mall”. Further invoices were sent on 30 January 2013 (for $39,363.50) and on 11 April 2013 ($45,276). All invoices were GST inclusive and the aggregate amount of the invoices in evidence is $1,233,953.34.

Target commences lease

114    On 27 September 2012, Target commenced its lease in Picton Mall.

John’s position as at October 2012

115    On 3 October 2012, John sent an email to his siblings seeking to call a general meeting of the Company “at any date and time that is convenient to most.”

116    Mr Holbrook’s letter of 5 October 2012 disclosed that John was prepared to co-operate with NAB’s proposal provided that the estate companies’ loans to Corbett Court of approximately $2 million were written off in consideration of which he would assist with the sale of certain land for $1.2 million which had recently been valued at $600,000. Mr Holbrook thought that there would be scope for negotiation and suggested that rather than forgive the loans, they should be converted to non-voting shares in Corbett Court and distributed in specie to its shareholders.

Joseph’s position

117    On 14 November 2012, Joseph responded to John’s request to have a meeting with a near incoherent and bitter diatribe of complaints concerning the harshness and hard work of their parents’ lives and bemoaning (among other things) the impact on their parents’ assets of the decision to develop Picton Mall and concluding “[m]aybe time to sell half or all of Corbett Court Pty”.

118    On 29 November 2012, Joseph sent a further response to John as follows (as written):

To John:

It is a response of Morals and Decency is what was sent.

If you could present your agenda, as most shareholders are not able to attend a meeting.

Perpetual referred an advisor, though one has not been appointed yet, to my knowledge, and may not be with the current legal proceedings.

Perpetual were asked by PDO to ascertain what we would accept for our Legal 7% shareholding in the company.

The history is well documented so no need to revisit that now.

I Had no objections from the 6 shareholders of my offer. Though you can offer directly with them.

PDO would have presented this to you by this time.

Option A

I will accept $1.5million for my shareholding.

Though as a package and with others i will accept to 1-12-2013,

$1 Million, as will Gwen and Margaret. with Paul and Clare $500 000 each.

Anne and Honora to cancel theirs, as they did not want or agreed to becoming shareholders in the 1st place.

That is only $4 million, for you to take the company very cheaply, for your parents half, which they contributed far more than this.

Otherwise you would have no company at all or any money.

Option B

Is to sell the company. Market it and sell the IGA and Coles complexes. Buyers have contacted Perpetual and PDO and are waiting.

Then you can continue your own direction and back to what you are more suited to.

Option C

Will be legal action which will continue into 2013.

Which will ultimately cost you more than $4 million,loss of Directorships of any companies,and convictions.

There is much leverage for past Director operations that will be used, this could be ‘forgiven’ if you enter into option A offer.

Before it becomes to late and legally you leave it too late.

I won’t enter into any more correspondence. This my offer, Final.

Which is fair after all we have been through.

Or will see how Option C develops.

Joseph Corbett

John makes an offer to “restore the balance”

119    On 3 December 2012, John sent an email to his siblings with the subject line “Restore the balance” as follows (as written):

Dear members, sons and daughters of Keith and Val

I propose to issue a total $100000 to the seven member who currently own six shares each so long as they collectively and in any proportion they see fit lend the company $900000 on the same terms Renee and I have and take on a guarantors role of the major nab debt. In this way the balance is restored prior to the capital raising of may 2012 and all members take part in the risk and rewards of the company. You may like to thank me for the considerable personal effort and financial risk Renee and I undertook in increasing the value of the company above the debt owed to the nab by installing target.

Your agreement is sought.

...

120    This email was re-sent on 4 December 2012. The 4 December 2012 email also said:

Dear members

In reference to the previous message I should clarify of course the intention is to issue $100000 of the existing shares thus restoring the share balance amongst members. In this way you get the benefit of mine and Renee’s work without doing a thing or taking any risk. We spent our time skills and money to salvage something of the mess of Keith and Val. It’s laid on a platter for you to take part even though not one of you had the guts decency or moral fibre to do so when asked prior to the event, when the heat was on.

John

121    On Friday 11 January 2013, John re-iterated the offer saying (as written):

Dear members

It’s been more than one month since I made an offer to return the shareholding of Corbett Court to what it was prior to the rights issue made to raise capital to install Target in may 2012.

I will extend the period for your consideration of this very attractive offer for three weeks. The offer will then forever more be closed and Corbett Court will stay as it is now or until more capital is required for future expansion.

Think clearly on your position and let me know within the next three weeks.

Regard john

122    Joseph replied to John (copying the siblings) stating that the shareholding in Corbett Court should be restored in accordance with their parents’ intentions and reiterating many of his complaints about the course that Corbett Court took.

Release of estates

123    Between the end of January 2013 and November 2013, a number of proposals for settlement of the relationships between the estate and Corbett Court were considered. During the last quarter of 2013, the estate agitated with NAB to impose penalty interest if Corbett Court did not move to formalise a new facility rather than holding over under the facility which expired on 31 July 2012. Ultimately NAB extended the facility only until 30 November 2013.

124    On 14 November 2013, Mr Ratcliffe confirmed that should Corbett Court refinance its arrangements with NAB such that the guarantees by the estate companies and Keith’s estate of the NAB facility were released, the estate companies would, on settlement, release claims against Corbett Court (and Corbett Constructions, John and Renelle), for the amounts owed (approximately $1.9 million).

125    On 29 November 2013, the NAB facility was refinanced by Corbett Court with the Commonwealth Bank, effecting the release of guarantees given by Keith’s estate and the estate companies. John and Renelle gave guarantees of that indebtedness.

Summary information

126    The following summary information is derived from Corbett Court’s financial statements and draft financial statements in the period 2009-2013:

Principles

127    The parties made no submissions as to whether there are any relevant differences which the Court must consider in determining whether the Share Issue was “contrary to the interests of the members as a whole” within s 232(d) or “oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or in any other capacity” within s 232(e). It has been pointed out that s 232(d) does not require an element of commercial unfairness (see Turnbull v National Roads and Motorists’ Association Ltd (2004) 50 ACSR 44; [2004] NSWSC 577 per Campbell J). The language and history of s 232 indicate that it should be read broadly, and each case is to be considered on its own facts and circumstances.

128    Section 232(e) is directed to commercial unfairness to a member or members of a company; its individual elements are different aspects of that essential criterion: Territory Realty Pty Ltd v Garraway [2009] FCA 292 (“Territory Realty”) at [310] per Mansfield J. The test of unfairness requires an objective assessment of the conduct in question with regard to the particular context in which the conduct occurs. Conduct will be oppressive if that conduct is unfair according to ordinary standards of reasonableness and fair dealing.

129    Paul’s claim that the Share Issue was not made for a proper purpose implies but does not plead a breach of directors’ duty. Conduct which is in breach of a directors’ duty may be, but is not necessarily, “oppressive” within s 232(d) or (e): Campbell v Backoffice Investments Pty Ltd (2008) 66 ACSR 359; [2008] NSWCA 95 at [214] per Basten JA. Paul concedes that where a company needs to raise funds by way of issuing shares, the fact that the issue will incidentally reduce the proportional share of one or more members need not necessarily give rise to a remedy under s 233. In cases of multiple purposes, an allotment will generally be a breach of directors’ duty if an impermissible purpose (whether or not the dominant purpose) was causative in the sense that, but for its presence, the power would not have been exercised: Whitehouse v Carlton Hotel Pty Ltd (1987) 162 CLR 285 at 294 per Mason, Deane and Dawson JJ. Paul accepts that if a company needs capital and there is only one avenue for raising capital, then even though the person who is subscribing the extra capital has a dominant purpose in obtaining control and is a director, there may be no improper purpose in making the allotment: Kirwan v Cresvale Far East Ltd (in liq) (2002) 44 ACSR 21; [2002] NSWCA 395 at [302] per Young CJ in Eq, Meagher JA agreeing at [2]. Paul does not concede that there was a need for capital, and if he is wrong in that contention, he does not concede that subscription for 100,000 shares by John and Renelle in May 2012 was the only avenue to raise it.

130    Nonetheless, conduct which has the effect of reducing the proportional share capital of one or more members so as to make it valueless in practical terms may fall within s 232(e): Re Dalkeith Investments Pty Ltd (1984) 9 ACLR 247 at 252-253 per McPherson J; Territory Realty at [314]. An act of a person who thinks he or she is “acting rightly” may be oppressive: Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304 at [176] per Gummow, Hayne, Heydon and Kiefel JJ. It is the effect of the acts that is material. Whether or not conduct is oppressive will not depend upon the motives for what was done: see Catalano v Managing Australia Destinations Pty Ltd (2014) 314 ALR 62; [2014] FCAFC 55 at [19] per Siopis, Rares and Davies JJ. Determining whether conduct is oppressive involves an objective assessment of whether the impugned conduct is so unfair that reasonable directors who consider the matter would not have thought it fair to make the decision having balanced the importance of furthering the corporate objective on one hand and the disadvantage, disability or burden which would be imposed on the member or members on the other: Wayde v New South Wales Rugby League Ltd (1985) 180 CLR 459 at 472-473 per Brennan J.

131    In some contexts, conduct inconsistent with arrangements or understandings in relation to the maintenance of fixed proportions may be so unfair that it amounts to oppression: Raymond v Cook [2000] 1 Qd R 65; (1998) 29 ACSR 252 (a joint venture); Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (2001) 37 ACSR 672; [2001] NSWCA 97 (“Fexuto”) (an incorporated partnership operated by two brothers who had made joint decisions); Harrington v Sensible Funerals Pty Ltd (2007) 61 ACSR 359; [2007] SASC 66 (an incorporated partnership with shareholders actively involved as directors and an attempt to exclude from directorship and dilute a 50% shareholder). In a family situation, fairness must be considered against the treatment of the whole body of shareholders having regard to the history of the family and the company and the purpose for which the company was formed and the company’s constitution: Re Ledir Enterprises Pty Ltd (2013) 96 ACSR 1; [2013] NSWSC 1332 per Black J at [178] and the cases there cited. A matter which will be taken into account in assessing the gravity of any allegation of oppression is the extent to which the minority shareholder has “baited” the majority shareholder to act in an oppressive manner: Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (1998) 28 ACSR 688; [1998] NSWSC 413 at 739 per Young J. While conduct may be oppressive if it is inconsistent with the “legitimate expectations” of shareholders, expectations are not immutable. The non-fulfilment of an expectation will not establish oppression if there has been some good reason for the extinguishment of the expectation: Fexuto at [86]-[90], [175] per Spigelman CJ.

Was the Share Issue valid under the Company’s constitution?

132    The contravention of the Company’s articles of association pleaded at ASOC [18] contains no particulars as to which article Paul alleges to have been contravened, nor is there any particular which would indicate why it was relevant that the Share Issue was not authorised by shareholders. The pleading that no shareholder authorisation was obtained to the First Share Offer (ASOC [9]) is unparticularised as to why authorisation might be required.

Article 37

133    ASOC [8] pleads that the Company purported to make the First Share Offer under article 37. Article 37 relates to an increase, consolidation, subdivision or cancellation of authorised capital and any of those actions requires approval by the Company, that is, by shareholders by resolution. A contention that the Share Issue was invalid based on non-compliance with article 37 was not addressed in Paul’s submissions but it was raised in correspondence between Paul’s lawyers and John on 10 June 2011 and again on 22 May 2012. As the Company had an authorised capital of $10 million divided into 10 million $1 shares and article 100 classified the shares as to 9 million ordinary shares and a further 1 million shares of varied classes, it is plain that article 37 had no operation in relation to the Share Issue since the shares allotted to John and Renelle were in the same class as those on issue.

Articles 38 and 95

134    Even though Paul elected not to press ASOC [16] as a ground of invalidity of the Share Issue, in opening and closing submissions Paul relied on alleged contraventions of articles 38 and 95 as evidence that the Company’s affairs had been conducted in an oppressive manner or contrary to the interests of the members as a whole and the defendants’ closing submissions addressed those contentions.

135    Article 38 provides:

38(1)    Subject to any direction to the contrary that may be given by the company in general meeting, all unissued shares shall, before issue, be offered to such persons as at the date of the offer are entitled to receive notices from the company of general meetings in proportion, as nearly as the circumstances allow, to the sum of the nominal values of the shares already held by them.

38(2)    The offer shall be made by notice specifying the number of shares offered and limiting a time within which the offer, if not accepted, will be deemed to be declined.

38(3)    After the expiration of that time or on being notified by the person to whom the offer is made that he declines to accept the shares offered, the directors may issue those shares in such manner as they think most beneficial to the company.

38(4)    Where, by reason of the proportion that shares proposed to be issued bear to shares already held, some of the first-mentioned shares cannot be offered in accordance with sub-regulation (1), the directors may issue the shares that cannot be so offered in such manner as they think most beneficial to the company.

38(5)    Subject to any direction to the contrary that may be given by the company in general meeting, if at any time the capital of the company is divided into various classes of shares, then the unissued shares of a class shall before issue be offered to the the [sic] existing holders of shares of that class in proportion, as nearly as circumstances allow, to the sum of the nominal values of the shares of that class already held by them. The provisions of regulations 38(2), 38(3) and 38(4) hereof shall then apply.

136    Article 95 provides that notices to shareholders must be given by post; there is no provision for notice to be given to shareholders by email.

137    Paul submitted that as there is no specified time after the expiration of an offer made under articles 38(1) and (2) by which the directors may exercise their powers under article 38(3), the power must be exercised within a reasonable time. Paul relies on Baloglow v Konstantinidis (2001) 11 BPR 20-721; [2001] NSWCA 451 at [90] per Priestley JA and [148] per Giles JA, Mason P agreeing with both. I accept that submission. Paul did not suggest what a reasonable time might be, but what is “reasonable” must be determined in the context of the nature of the power and the circumstances of the Company.

138    Paul submitted that: While the First Share Offer was given to members by post, the Second Share Offer was provided by email and it did not contain the detail required by article 38(2) because it simply referred to the First Share Offer. The Second Share Offer was therefore not validly made and the Share Issue in May 2012 occurred too long after 13 June 2011 (when the First Share Offer expired) for the directors to rely on the First Share Offer to enliven their powers under article 38(3). I note that on the issue of invalidity, Paul did not raise an argument that it was not open to the directors to issue some but not all of the shares which had been offered to members under articles 38(1) or (2); I have therefore not addressed that question.

139    John submitted that: It had become the habit of Corbett Court’s shareholders to communicate by email. Paul admits that he received both the First Share Offer and the email containing the Second Share Offer. The 6 February 2012 email making the Second Share Offer effectively repeated the First Share Offer, indicating that “[n]othing has really changed in the period between May 2011 and now”. The email provided information as to the major events (the fact that the Agreement for Lease with Target had been entered into) and attached a tenancy schedule. Any invalidity of the Share Issue for these technical reasons is not indicative of oppression and it would be an appropriate case for the Court to make an order under s 1322.

140    I accept John’s submissions. Had the 6 February 2012 email attached a copy of the First Share Offer, the technical requirements of article 38(2) would have been satisfied and in a context where the construction of alterations to Picton Mall to accommodate Target as a tenant commenced around May 2012, the timing of the Share Issue would not be unreasonable. In the context of a family company with siblings accustomed to communicating by email, that is an effective form of communication. Further, even if the Second Share Issue was technically invalid, the stated purpose of the First Share Offer was to fund the work to Picton Mall required to install Target as a tenant in order to forestall Coles from reducing rent payable under clause 66 of its lease. That issue did not change. In context, I consider that the Share Issue was made within a reasonable period and complied with article 38(3).

Articles 4(1) and (3)

141    Paul raised one further ground of invalidity of the Share Issue for the first time in closing submissions. That ground was that shareholder approval was required to the Share Issue even though the shares issued to John and Renelle were in the same class as those held by the siblings. This argument was based on the terms of articles 4(1) and (3) and the fact that article 100 divides the authorised capital into seven classes.

142    Articles 2, 4(1) and (3) provide:

2    Without prejudice to any special rights previously conferred on the holders of any existing shares or class of shares but subject to the Law, shares in the company may be issued by the directors and any such share may be issued with such preferred, deferred or other special rights or such restrictions, whether with regard to dividend, voting, return of capital or otherwise, as the directors, subject to any resolution, determine.

4(1)     If at any time the share capital is divided into different classes of shares, the rights attached to any class (unless otherwise provided by the terms of issue of the shares of that class) may, whether or not the company is being wound up, be varied with the consent in writing of the holders of three-quarters of the issued shares of that class, or with the sanction of a special resolution passed at a separate meeting of the holders of the shares of the class.

4(3)    The rights conferred upon the holders of the shares of any class issued with preferred or other rights shall, unless otherwise expressly provided by the terms of issue of the shares of that class, be deemed to be varied by the creation or issue of further shares ranking equally with the first-mentioned shares.

143    At common law, the issue of further shares in a class on issue does not vary the rights attaching to that class, even though it may affect the extent of economic enjoyment, for instance, by increasing the number of shares among which profits must be shared upon the payment of a dividend or assets shared on a winding up: see White v Bristol Aeroplane Co [1953] Ch 65 and Greenhalgh v Arderne Cinemas Ltd [1946] 1 All ER 512.

144    Counsel for Paul did not draw the Court’s attention to any case or legislative background relevant to his submission. Articles 2 and 4 appear to be in the form of Table A to Schedule 1 to the Corporations Law as it existed before amendments designed to eliminate the concepts of par value (obviating as well the concept of “authorised capital”) which came into effect on 1 July 1998. There may be some force to Paul’s argument that having regard to the existence of article 100, the issue of further ordinary shares requires approval from members: the words “preferred or other rights” in article 4(3) appear to be wide enough to contemplate ordinary shares, since they would normally have the right to vote, participate in dividends and on a winding up (as do the ordinary shares in Corbett Court in accordance with article 100). There is some support for this view to be derived from a finding made by Santow J in Lorenzi v Lorenzi Holdings Pty Ltd (1993) 12 ACSR 398. In that case, the issued share capital was divided into founder A class and B class shares and the articles of association provided as well for C class shares. The articles contained an article in the same terms as article 4(3). At 401, Santow J said:

It will be seen that the express provisions of art 12 contained in the articles provide that the B class (and C class) shares have the rights provided in art 14. Article 14 in turn provides that the A and B shares are the only shares which confer the right to vote at any general meeting of the company.

Clearly they have rights differentiated from the rights of other shares either issued (founder’s share) or capable of being issued in the case of the C shares and are thus shares issued with “preferred or other rights”. Thus it is clear that the issue of further B class shares would, under the deeming provisions of the articles of association, whatever might have been the position under general law, constitute a variation of class rights within the scope of the relevant paras 4 and 5. ...

145    Having regard to the stage of the proceedings at which this argument arose, the defendants had no opportunity to provide submissions. There are arguments which might be raised suggesting that where only one class of shares was on issue at the time of the Share Issue, article 4(3) did not operate to require shareholder approval. Those arguments include:

(1)    Table A did not have an equivalent of article 100 and accordingly insofar as the opening words of article 4(1) provide a “trigger”, article 4(3) could have no operation at a time when there was only one class on issue. It is difficult to see why the situation should be different where article 100 exists but there are only ordinary shares on issue. If it were intended to make all share issues subject to approval, it is odd to achieve that by the combination of articles 100 and 4(3). The article could simply have provided: any issue of shares in a class or of shares ranking equally with a class of shares requires approval by resolution of the holders of shares in the class.

(2)    There may be an argument that the phrase “preferred or other rights” in article 4(3) should be read as “preferred or other special rights” having regard to its context, in particular article 2.

(3)    Despite the breadth of the language employed by Santow J quoted above, in Lorenzi there were two classes of shares on issue and the central issue was whether the issue of more shares in one of those classes triggered the operation of the variation of rights article.

146    The failure to obtain required shareholder approval to the Share Issue would clearly have relevance to the question of whether the Share Issue was oppressive. Given John’s incapacity to hold a shareholders’ meeting attended by a quorum after 10 February 2011 because of his siblings’ unwillingness to attend a meeting, I do not accept John’s pleading that if such a meeting had been held a resolution would have been passed and it is difficult to see that it would be an appropriate case for the exercise of the Court’s powers under s 1322 of the Corporations Act. Ultimately it is unnecessary for me to make a finding in relation to Paul’s argument based on articles 4(1) and (3) for the reason that in my view the Share Issue, in the context in which it occurred, was unfair to the minority shareholders.

Did the Understanding exist?

147    I find that the Understanding did not exist and accordingly the answer to issues (1) and (2) as set out in [36] must be “no” because, as pleaded, the Understanding admits of no circumstances in which the fixed proportions might change.

148    Paul said that Keith told him at various times between 1994 and 2010 words to the effect that “[w]e are happy to put money into the company because we know we are providing for our children’s future” and “[t]he money that has been put into Corbett Court came from the hard work of your parents. We want to give you the money out of love.”

149    Clare said that Valerie told her in 1993 words to the effect that: “We’re starting a new company for all you kids to have the land on Argyle Street. We’re going to call it Corbett Court because it is for all the Corbett kids and everybody is going to get a benefit out of it. You have to buy in for $6.” As Clare said she could not afford it, Valerie paid the $6 on Clare’s behalf. Clare said that her mother also told her: “It will be for the eight kids” and “[i]t will be for the grandkids and their education”.

150    Gwen said that Keith told her in 1993: “I’m going to build a shopping centre on the James block. It’s going to be for all of you kids” and “I’ve set up a company to own the James block. It’s called Corbett Court because it’s for you kids. When I’m gone I want all the family to have something. That’s why I set it up. Not for Val and I, but for you lot. You will need to pay $7 for the shares.” Gwen’s evidence was that the James block included 100 Argyle Street; that is inconsistent with John’s evidence that the James block was 96 Argyle Street and 100 Argyle Street was known as the Twarloh’s block. I prefer John’s evidence on this point. Gwen said that Keith told her in 2009: “The Company is in a lot of debt. It will be a long time before it makes dividends but it will and it will be worth a lot of money to you and your brothers and sisters in the future.”

151    Joseph said he made a number of complaints to his father about the fact that while he put work into helping with clearing the land on which the IGA Supermarket was built and later in its construction (leaving a job in South Australia to do so), John would have half of the shares in Corbett Court. He said he queried why Corbett Court would not be owned by his parents. He said that Keith’s responses were to the effect that:

(1)    “[John] owns the land. He’s only going to help with this if he gets half of it.” “... Johnny’s going to do it for the family, it’s going to be for the family. It’ll work out in the future. Money will be paid as dividends every year and that will be for the grandkids.”

(2)    “I think it is a good idea for you to all have something in a company away from me and your mum. I will put money in the company and you will have money come to you in years to come, through dividends and when it is sold.” “It’s ok, you will benefit later on.”

(3)    “Don’t worry about that, it is for all of you kids. When the loan is paid off you will all get the dividends.”

152    I do not consider that any of these statements by Keith or Valerie give rise to a representation that the percentage holdings would be unchanged no matter what. To the extent that Paul seeks to rely on correspondence between the siblings after the First Share Offer was made which indicates that some of the siblings made that assumption, I accept the defendants’ submission that there is no evidence of any act of John’s which would give rise to any legitimate expectation to that effect.

153    John said that it was Keith who initiated the idea that the land held by Menangle and John at 96-100 Argyle Street would be sold to a newly created company. John agreed to it on the basis that he would subscribe for half of the shares and he knew that it was Keith’s intention that John’s siblings would be issued the other half. I accept the defendants’ submission that the 42 shares allotted to John were not given in consideration of the transfer of 100 Argyle Street to Corbett Court; John was paid for that land by 1997. John’s evidence was that he subscribed for the shares and I accept that evidence.

154    There is no evidence that John undertook any unusual obligations by reason of subscribing for half of the shares and undertaking his role as a director of Corbett Court. Despite the particulars to ASOC [7] (see [17] above), none of Paul, Joseph, Gwen, Clare or John gave evidence of a conversation between John and any of his siblings in which he accepted any obligations to act in the interests of his siblings when he subscribed for his shares. Paul admits that John never indicated that in dealing with John’s interest in Corbett Court he would look after Paul’s interests: T 104. Joseph’s evidence that his father told him that “Johnny’s going to do it for the family” can only be evidence that his father made such a statement. There is no evidence that John was aware of any representation made by his father of the kind alleged by Joseph; it is difficult to see how Paul could rely on a representation made to Joseph even if it could be established that it was made.

155    John’s seven siblings contributed little to Corbett Court. With the exception of Joseph, the most John’s siblings contributed was $6 and some did not even do that. Honora and Anne said that they did not pay for their shares or consent to be a shareholder. Joseph complained about John having 50% of the shares on the basis that Joseph left other lucrative employment when asked to do so by Keith and provided labouring and work as an electrician in 1993 and 1994. That is work for which he was paid, albeit that it might not have been at the rate he received in other employment; he made no other contributions. Joseph’s actions were obedience to his father’s wishes rather a basis for a suggestion that Corbett Court was a family enterprise to which the siblings’ contributions were relevant in determining whether there was the Understanding as pleaded. None of them appear to have sought a role in Corbett Court during their parents’ lifetimes or to have complained that there were no shareholders’ meetings held while Keith lived.

156    The lack of trust and confidence in John and between the siblings is disclosed by:

(1)    The fact that Anne felt it necessary to contradict theories which had been put forward by some of the siblings that (contrary to John’s explanation of the need to install Target at Picton Mall) John sought to do the work necessary to install Target as a tenant simply because he wanted Target as a tenant or as a measure designed to reduce the value of Corbett Court so that the siblings could be bought out cheaply (see [74] above);

(2)    Honora’s impatience with “unfounded conspiracy theories” to which she was subject for being willing to speak to John in June 2011 (see [84] above);

(3)    Joseph, Paul, Gwen and Margaret (through Joseph) canvassed with Perpetual in May 2011 that it should approach NAB with a view to NAB and the estate companies calling in loans to Corbett Court because they would like to see an “end to that company” even if the result was that they ended up with nothing (see [71]-[72] above). In cross-examination Paul admitted to copying NAB in on correspondence concerning Corbett Court directly. I do not accept his evidence that he did not intend to influence NAB’s conduct by doing that. In November 2011, Anne told her siblings (other than John) that NAB calling in its loans was a “disaster” which PKF and Perpetual were “rightly trying to avoid” and went on to say: “Holding positions to punish John punishes other people who did nothing to create the situation. Fairness is a concept that is hard to apply in this situation”.

(4)    After 10 February 2011, the siblings would not attend a meeting of shareholders of Corbett Court to address its financial situation or the proposed rights issue despite attempts by John to convene meetings on many occasions including proposed meetings for 15 June 2011, 29 March 2012, 22 May 2012, 3 October 2012, 1 December 2012 (offer to meet any time) and 15 November 2013. I note John sought to convene these meetings at short notice and in some cases not within required notice periods.

(5)    Joseph, Paul and Clare gave evidence that they are unwilling to speak with John personally. Joseph explains the failure to attend Corbett Court shareholder meetings on the basis that Perpetual had said that they would find a representative to speak for the siblings but that had not happened. Joseph’s evidence reveals that he has antipathy towards John which appears to be of some years’ standing because he blames John for financial stress felt by Keith caused by the development of Picton Mall (among other things). Paul’s evidence was that he does not trust John and they were not on speaking terms from time to time between 1993 and 2010 (that is, even during their father’s lifetime). He also appears to be unwilling to speak to John except through a representative. It is plain that John does not respect Paul’s lifestyle choices or work ethic. Clare is reluctant to speak with John for fear of being bullied.

(6)    John appears to have been isolated from his siblings other than Anne and Honora since the death of his parents. His more intimate knowledge of the affairs of Corbett Court and the estate companies coupled with his claims on Keith’s estate through the family provision proceedings and the need to extricate the estate and estate companies from guarantees and loans supporting Corbett Court contributed significantly to that distance and distrust.

157    I accept the defendants’ submission that Corbett Court’s business is of a kind which might be expected to require funding from time to time either to expand or maintain premises appropriately to a standard fit for tenants. During their lifetimes Keith and Valerie elected to support Corbett Court for this purpose through the provision of loans from and guarantees by the estate companies and Keith’s personal guarantee in relation to NAB’s loans to Corbett Court. I accept that John’s siblings would have expected their parents to provide that support rather than being called upon to do so themselves. However, the fact that their parents were willing to do this is no basis for a reasonable expectation of how John might behave. I found commercially naïve and self-serving the evidence given by Gwen, Joseph and Paul of their expectation that their shareholding would remain in fixed proportions, in effect, come what may. There is no basis for an expectation legally enforceable by his siblings that after Keith’s death John would step into his parents’ shoes as benefactor to his adult siblings in ensuring Corbett Court’s continuing financial viability, especially at a time when it was proposed that the support provided by Keith’s estate and the estate companies should be withdrawn.

Was there a need for funds?

158    Paul said that Corbett Court’s assets “comfortably” exceeded its third-party liabilities (including the NAB loan) and it was solvent at all times. He submits that there is no evidence that at the times of the First Share Offer, the Second Share Offer or the Share Issue Corbett Court needed funds. I reject that submission. I am satisfied that there was urgency for Corbett Court to install Target as a tenant by May 2012 and that it needed to raise funds in excess of $1 million for that purpose.

159    Paul relied on statements made by John at a meeting with his siblings and Perpetual on 18 February 2011 that “[o]n the last valuation of Corbett Court, the value of the company is worth more than the loan. There is nothing to be concerned about. I can’t see that [the estate companies] would be called upon”: see [63] above. That comment was made in answer to a question whether the guarantees given to NAB were open-ended or not. John’s statement that the existing valuations were more than the outstanding amount of the NAB loan was true at that time: the 2008/2009 valuations were for an aggregate amount of $18 million and the financial statements for 2011 indicate that the NAB loan was in the order of $14.3 million; he had warned his siblings in December 2010 that the valuation might not be reliable. I do not take much from this brief interchange. It was not directed to Corbett Court’s capacity to pay all of its debts; it was only directed to whether or not the NAB loan would be covered if Corbett Court’s assets had to be sold so that the guarantees would not be called on.

160    It is true that Corbett Court paid its operational expenses (including interest on the NAB facility) throughout the period under consideration and John suggested to the Commonwealth Bank on 17 October 2011 that a loan reduction of $400,000 per annum was “achievable”. John’s statement to the Commonwealth Bank was predicated on Target being installed as the chain of emails in exhibit JKC-1 at pp 1033-1034 indicates. However, at the meeting with Perpetual on 16 December 2010 (see [51] above), John told his siblings that “in its current state” Corbett Court could not repay the loans from the estate companies. John told Mr Kenney on 10 February 2011 that Corbett Court would not remain solvent if Coles reduced its rent.

161    Correspondence between John and Mr Mokas of Coles confirms that Picton Mall was not achieving the required number of specialty shop tenants by August 2010 and that would trigger a rent decrease under clause 66 of the Coles lease. While some of John’s siblings suggested that as he was the leasing manager, any failure to attract specialty tenants was his responsibility, that understanding (wilfully or otherwise) does not take into account changing market conditions resulting from the introduction of competitors in nearby areas. I am satisfied that John was entitled to take the view that Corbett Court was in financial jeopardy if it did not undertake the work to install Target as a tenant and that work needed to be funded. It was a view shared by Honora and Anne upon their analysis of the material provided by John in the First Share Offer and by Mr Holbrook following receipt of the Landmark White valuations.

162    John’s correspondence with Coles also confirms that work to install Target was the price of Coles’ forbearance in exercising its right to reduce its rent from August 2010 onwards and Coles’ decision not to abate its rent contributed to Corbett Court’s capacity to meet its obligations as they fell due. I found John a credible witness on this issue. There was no evidence submitted which would support the concern apparently held by some of the siblings that installation of Target was merely fulfilling John’s wish to have Target as a tenant or an action designed to make it easier for him to acquire shares in Corbett Court from them (see [156(1)] above).

163    Paul suggested that John’s statement at the meeting with Perpetual and his siblings on 16 December 2010 that the installation of Target “won’t be more rent” should be construed as meaning that it would not affect Corbett Court’s cash flow and therefore would not affect the Company’s valuation on a capitalised rental basis. I reject that contention. While the “headline” rent of Target might not exceed the aggregate rent payable had the specialty shops been fully tenanted and paid their rent on time, the assurance of regular payments for the same aggregate amount by a substantial company coupled with the certainty that Coles’ rent would not be reduced under clause 66 of its lease would support a higher valuation of Corbett Court on a capitalised basis. That position was confirmed by the Lankmark White valuations procured by Mr Holbrook which valued Corbett Court’s buildings at $13.2 million (without the Target tenancy) and $13.9 million predicated on whether Coles enforced its rights under clause 66 of its lease. It is also confirmed by the “as if complete” basis of Colliers’ valuations dated 19 June 2012 for an aggregate of $22.25 million ($6.75 million for the IGA Supermarket and $15.5 million for Picton Mall).

164    Paul submitted that there is no evidence that NAB ever threatened to, or intended to, call in its loan and points to the fact that while the loan was due to expire on 31 July 2012, it was not in fact repaid until November 2013. This is not to the point. There is evidence that when John approached NAB in January 2012 with a view to obtaining release of the estate companies and the estate from their guarantees, NAB indicated that it would not consider the matter until it had current valuations. John did not want to obtain valuations then because he was concerned that if he did, NAB would call in the loan. This was a concern shared by Mr Holbrook who did not just rely on John but he also obtained the Landmark White valuations which would indicate that as at 26 March 2012, John’s concerns were well-founded having regard to the 70% LVR requirement of the NAB facility: see [90] and [93]. Based on these valuations, had NAB come to know of them, there was a real risk NAB would call on the guarantees given by the estate companies at the end of July 2012 (if not before) because the 70% LVR requirement was clearly breached and it appeared that the amount of the loan exceeded the value of the buildings. This jeopardised the siblings’ interests not only as shareholders of Corbett Court but also as beneficiaries of the estate because the estate and the estate companies would be in jeopardy of having to honour the guarantees to the extent of any shortfall in repayment of the NAB loan. I accept John’s evidence that he was only able to obtain the Colliers “as if complete” valuations in late June 2012 to give NAB in July because the work was underway to install Target to a point that the valuer was satisfied he could give the valuations on that basis.

165    Paul suggested that the work to install Target could have been funded by John paying back to Corbett Court management fees accrued in the 2010 financial year including loans to John, Renelle or their companies disclosed in the accounts. Mr Campbell explained that those loans were in lieu of payment of management fees and Keith had agreed to the payment to John of $120,000 a year for the 10 years ending in 2010. Mr Campbell said, and demonstrated by the schedule of accrued fees and payments to John, Renelle and their related entities set out in Annexure PC-2 to his affidavit, that the accrued fees were at all times greater than the amount of the loans. Further, that schedule demonstrates that loan balances to John and Corbett Constructions accrued during Keith’s lifetime. John had a right to treat the accrued fees as being offset against the loans which appear in the related party disclosures in the accounts. Paul was in effect suggesting that in order to fund Corbett Court for the benefit of all of the shareholders John should work for free for the period 1993-2010; I reject that argument.

166    Paul further contended that John and Renelle did not pay for their shares or make the loan as Corbett Court’s financial statements for 2012 and 2013 do not disclose a related party loan from John and Renelle for $900,000 and John could not explain the exact way in which he and Renelle had paid for their shares. Mr Campbell could not explain how the shares had been paid for and he accepted that it would be usual for a loan from the directors to be recorded as a related party loan. However, it is not contested that the work on Picton Mall required to install Target was in fact done and Target was installed in September 2012. Both John and Mr Campbell suggest that the significant amount set out against the item “trade creditors” in the 2013 accounts most probably reflects debt to Corbett Constructions, even though the invoice for this amount was not rendered until 1 September 2012 and Corbett Constructions is a related party of John so any indebtedness should appear under related party disclosures as well. Significantly, the explanations offered by John and Mr Campbell did not suggest the amount in the item “trade creditors” was a loan from John or Renelle to fund the work performed by Corbett Constructions.

167    I do not accept Paul’s contention that this is proof that Corbett Court did not require finance to carry out the work to install Target at Picton Mall. I do accept that the advances made to John by the Commonwealth Bank for payments to Corbett Constructions referred to at [106] above were in fact payments made to Corbett Constructions for the purpose of undertaking that construction. Further, having regard to a ledger entry in Corbett Court’s annual general ledger, a copy of which appears in the joint tender bundle at p 557 and Annexure PC-2, I accept that John and Renelle paid for their shares in Corbett Court out of John’s accrued management fees.

Available sources of funds

168    Having said that, the deficiencies in Corbett Court’s financial statements do have relevance.

169    There is no dispute that the work to install Target was in fact done and Target was installed in September 2012. Contrary to Paul’s submissions that Corbett Court did not require funding for the construction work to install Target, I accept evidence given by John and Mr Campbell that the “trade creditors” expense recorded in the 2013 financial statements of $1,584,093 includes amounts invoiced by Corbett Constructions in relation to that work: see [126] above. It is difficult to know how much of the amount for trade creditors relates to Corbett Constructions but the first invoice was issued by Corbett Constructions on 1 September 2012 for $1,149,313.84 and Corbett Court’s financial statements would indicate that that invoice and subsequent invoices which are in evidence had not been paid as at 30 June 2013. On this basis, Corbett Constructions, not John or Renelle, is Corbett Court’s creditor for the work required at Picton Mall for the installation of the Target tenancy. The unregistered mortgage in favour of John and Renelle would therefore not secure repayment to John of moneys paid to Corbett Constructions from John’s line of credit because the funding arrangement is not in practice that which John advised his siblings of on 7 May 2012, even though John and Renelle did fund Corbett Constructions to undertake the work. While it would be simple for John to fund Corbett Court to pay the invoiced amounts to Corbett Constructions that is not what the financial statements reveal had happened up to June 2013. It is fair to say that John and Renelle did take on financial liability so that Target could be installed as a tenant to the benefit of Corbett Court. It is also true that Renelle’s liability at this point was limited to the Commonwealth Bank facility; she did not undertake liability to NAB for its much more extensive loan.

170    Paul suggested that John should have obtained the Colliers valuation earlier than 19 June 2012 because it would have revealed the true value of the Corbett Court properties and that would have provided a basis for borrowing from an external lender. Paul also said that the Share Issue should not have occurred based on the Landmark White valuations or John’s assessment of value when the Colliers valuation was so imminent, being only a month after the Share Issue. John said the Share Issue had to occur in May because finance had to be arranged so that work could start and he started construction at the “latest possible time” after the Second Share Offer having tried to meet with his siblings to discuss Corbett Court’s financial situation many times. He got the “as if complete” valuation at the “most early possible time” to try and beat the re-facilitation of the NAB facility in July which was “hanging over” his head. The valuation was able to be given in June, one month after the Share Issue, because work started at Picton Mall in May.

171    I accept John’s evidence that the Colliers valuation could not be obtained earlier than it was. I accept that he would not have been a prudent director if he had not instigated the work in May which would enable the valuation to be provided sufficiently in advance of the expiry of the NAB facility in July 2012. I accept that, having regard to the Landmark White valuations, it would have not been possible for Corbett Court to obtain funding from arms-length lenders unless the security position of Corbett Court was enhanced by the provision of support from John or the estate.

172    Paul suggested that financial institutions would have been willing to lend to Corbett Court if John and Renelle had been prepared to guarantee a loan and there were therefore other sources of funding. In effect the suggestion was that it was a conflict of interest for John to fail to give the required guarantee. I do not accept this argument. It is clear that during 2011-2013 there were ongoing discussions about the extent to which (if any) the estate companies or the estate would forgive loans or provide assets to Corbett Court in consideration of being released from guarantee obligations to NAB. Alternate sources of funding required that John give guarantees to support loans to Corbett Court or the estate companies supply assets by forgiving debts. Even if banks customarily require such guarantees from a director of a private company as a condition of a loan, it cannot be seriously contended that the director has any obligation to give the security any more than the estate companies had an obligation to forgive loans or transfer properties. If John, Renelle or the estate companies refused to provide security to NAB or another lender to Corbett Court, as was their right, it cannot be said that external lenders were an available source of funds to Corbett Court.

Purpose

173    The difficulty is that John could not explain why he and Renelle required the issue to them of 100,000 shares in order for them to agree to fund construction at Picton Mall to accommodate the Target tenancy; he said “we just did”. John correctly pointed out that it would have diluted minority shareholdings more significantly if they had subscribed for more or all of the shares offered in the Share Offers.

174    While lenders are free to lend on such terms as they can agree with a borrower, it is difficult to see in this instance what purpose the Share Issue served other than to overcome the impasse between John and his siblings as shareholders of Corbett Court and to give him leverage in the ongoing negotiations with the estate. John admitted a dual purpose in his 7 May 2012 email to his siblings when he said “[i]n order to meet its commitments and run the company effectively” the Company would issue shares to John and Renelle, borrow $900,000 from them and give them a second mortgage over the Company’s property subject to NAB’s consent. On 11 May 2012, John’s desire to assume control of Corbett Court was again made clear when he made a further offer for a global settlement with the estate saying “I control all shares in Corbett Court. The Current structure is clearly unworkable.” All of this is consistent with many statements made by John from 16 December 2010 onwards that he had “no interest in taking it forward with the current shareholders”: see [64], [74]-[77], [90] and [100] above.

175    John’s desire to effect a change in the shareholding structure is hardly surprising. The failure of his siblings to respond to the Share Offers and requests to attend shareholders’ meetings to discuss Corbett Court’s situation was undoubtedly provoking in light of Corbett Court’s real need for funding to install Target as a tenant. Even if this conduct of the siblings might be explained by John’s own conduct in appointing Renelle as a director immediately before the one meeting they did attend on 10 February 2011 and his commencement of the family provision proceedings immediately before the First Share Offer, it is plain that many of his siblings were unsympathetic to Corbett Court’s position and some actively sought to undermine it, as is evidenced by Joseph’s correspondence with Perpetual and correspondence between Joseph, Paul, Gwen and Margaret.

176    Paul’s actions in passing on information about Corbett Court to NAB without authorisation were underhanded, commercially naïve and inappropriate in the interests of all of the shareholders of Corbett Court at a time when not only John but Honora and Anne advised him of the jeopardy of Corbett Court’s position. John provided information about Corbett Court to Paul whenever it was requested. Paul, Joseph, Gwen and possibly Margaret might have been happy to see the end of Corbett Court but Paul’s conduct took no account of the financial interests of his other siblings or of their father’s effort in attempting to build something for his children and grandchildren over 17 years.

177    Nonetheless, the Share Issue was not required to meet Corbett Court’s need for finance; John and Renelle’s actions indicate that unsecured debt was enough. NAB did not call for additional capital to be contributed to Corbett Court and there is no evidence that it did or would object to unsecured lending by John and Renelle or the siblings.

178    I accept that Corbett Court’s position would have been materially stronger if all of the shareholders had responded to the Share Offers; there would have been no risk of insolvent trading by incurring more debt. $1,050,000 of additional equity would not only have funded the installation of Target as a tenant and secured Picton Mall’s cash flow; it would also have provided a good basis for refinancing the NAB facility and opened up options for repayment of loans from the estate companies. I have no reason to think that John would not have allotted shares in accordance with the Share Offers had all of his siblings subscribed. There would have been a clear corporate benefit served if he had underwritten the offer whether or not some or all of his siblings failed to subscribe because they could not fund the subscription (whether or not John knew that that was a likely outcome) or because they would not do so.

179    However, the contribution of $100,000 capital was insignificant in the scheme of things; all it did was dilute the shareholding of his siblings to an immaterial amount. The effect of the dilution is that any corporate benefit from installing Target as a tenant would go to John and Renelle overwhelmingly. As events transpired, it would also mean that they would share disproportionately in the forgiveness of the loans from the estate companies in November 2013.

180    Looked at objectively, the moving cause of the Share Issue was to dilute the minority shareholdings. Even though John could reasonably form the view that the interests of the Company would be served by resolving the impasse between him and his siblings, this was an improper purpose.

Was the Share Issue commercially fair?

181    I have found that Corbett Court did in fact require funding to install Target and I have accepted that Corbett Court faced jeopardy to its financial viability if funding was not received and the Target tenancy was not achieved with the result that Coles acted on its right to reduce rent payments in accordance with clause 66 of its lease. I accept that it was John’s view that shares in Corbett Court were valueless unless Target was installed. I do not accept that the Understanding existed.

No independent advice

182    Having said that, I find that the minority shareholders of Corbett Court had cause to question the integrity of the Share Offers in the context in which they occurred such that the siblings were not in a position to consider the Share Offers on their merits.

183    In the circumstances, it was incumbent on the directors of Corbett Court to provide independent expert advice as to whether the Share Offers were fair and reasonable in the interests of the minority shareholders; that advice would have taken into account the value of Corbett Court’s properties with or without Target installed as a tenant. In the absence of independent evaluation of the offers, I am not satisfied that John’s siblings were given all of the information which they reasonably required to decide whether or not to take up the Share Offers.

184    How the Share Offers would be perceived by the siblings needs to be considered in the context of the family history coupled with the administration of Keith’s estate in intestacy and the need to extricate the estate and estate companies from loans to Corbett Court and guarantees of its indebtedness gave rise to conflicts of interest between the siblings.

185    The fact that John controlled the affairs of Corbett Court and knew a great deal about the affairs of the estate companies having been a director of them and having enjoyed a close working relationship with Keith between 1993 and 2010 put his siblings at a disadvantage in negotiations concerning Corbett Court and the inextricably linked affairs of the estate companies which they clearly felt. John’s educational attainment coupled with this superior information about Corbett Court and the estate companies and a strong personality made him intimidating to some of his siblings.

186    John was isolated from his siblings and they did not trust him; he knew that. As early as the first meeting between the siblings and officers of Perpetual on 16 December 2010, John said that he would agree to step down as a director of the estate companies because “[h]e believes he has opposition to his involvement and doesn’t want nastiness. The only problem he has is that this wasn’t his dad’s wishes.”

187    Despite the fact that John knew that his siblings did not trust him, he demanded their trust in the conduct of Corbett Court’s affairs and the administration of the estate. There were many occasions on which the siblings were asked to rely on John’s word and in circumstances in which he would take a substantial benefit at the expense of the siblings.

188    First, there was John’s word that his father had agreed to pay him remuneration for 10 years from 2000 calculated at the rate of $120,000 per year. The sudden appearance of $761,244 for “accrued management fees” and a loan to Renelle in the amount of $237,318 in the financial statements for 2010 in the year Keith died would give rise to a concern as to whether John was administering the Company in his own interest. The concern would persist in subsequent years with unexplained appearance and disappearance of director loans or loans to or from related parties revealed in the financial statements without commentary by way of explanation. These payments occurred without shareholder approval. In circumstances where siblings already did not trust John, this conduct was susceptible to a perception that John benefited from Corbett Court when no dividend had ever been paid to shareholders and they were now being asked to contribute funds. Even though John made five years of management accounts and Mr Campbell available to answer questions at the meeting on 10 February 2011, these acts of transparency were not enough at a time when John also refused to allow the appointment of an independent director and appointed his wife instead.

189    Second, there were John’s claims on the estate resulting in the family provision action in the Supreme Court of New South Wales which appears to have been based on alleged verbal agreements between John and his father. Any success of those claims would have been at the direct cost of the siblings. The proceedings were commenced almost simultaneously with the First Share Offer.

190    John’s unwillingness to allow an independent director to represent the interests of minority shareholders and his appointment of Renelle as a director instead made him appear to be unwilling to be accountable and contributed significantly to establishing some siblings’ belief that he was not trustworthy. This is so in spite of the fact that John appears to have been willing to provide them with information about Corbett Court whenever asked.

191    The siblings were asked to rely on John’s word again concerning the need to bring in Target as a tenant to shore up certainty of income and avoid jeopardising the solvency of the Company. He provided only his valuation of the Company’s properties based on annualised rent returns with and without Target as a tenant. The last external valuation had been in 2008/09. While I accept John’s evidence that substantial changes to the marketplace around Picton occurred since then and the market continued to be affected by the aftermath of the global financial crisis, he was also asking his siblings to take his word for that.

192    In the highly contested situation in which the Share Offers were made, fairness required that independent advice be provided to the siblings to enable them to make an investment decision.

Improper purpose

193    The moving cause of the Share Issue was John’s desire to resolve the impasse with his siblings in the context of the administration of the intestate estate of his parents. There was no demonstrated requirement for Corbett Court to raise only $100,000 as equity nor was there material benefit to Corbett Court resulting from it for the reasons previously given. Any benefit to the Company financially or in its ease of administration was far outweighed by the detriment suffered by minority shareholders by the dilution of their shareholdings effected by the Share Issue.

194    Neither of the Share Offers provided the minority shareholders with the option which John and Renelle said they were taking of providing funding by way of 10% equity and 90% debt. According to the terms of the mortgage which Corbett Court gave to John and Renelle, this debt bore interest (albeit only marginally above the cost of funds to John) and was said to be repayable in three years. The arrangement which John and Renelle told the siblings on 7 May 2012 that they were taking was less burdensome than the 100% equity contribution the siblings were asked to make, and make on the basis that it may not proceed unless they all subscribed. No satisfactory explanation has been offered for this difference in treatment between the Share Offers made to the siblings and the mixture of equity and debt funding used by John and Renelle. It is true that John and Renelle controlled whether or not they demanded repayment of the debt so that they ran less risk of insolvent trading by incurring that debt than they would have if they had offered the same terms to John’s siblings who would expect to be repaid on the due date. However, that is not an explanation John offered and it may well have been possible to craft a solution which did not give rise to the same concerns if John had not, at the same time, been seeking to leverage a resolution of how the loans from the estates would be dealt with.

Conclusion on fairness

195    John said that the siblings would not fund Corbett Court. In light of the pleaded Understanding which was supported by evidence given by his siblings, John might be right; that is something we cannot know. Had the siblings been provided with expert advice as to whether the Share Offers were in the interests of minority shareholders and/or had they been offered the opportunity to subscribe for shares and lend money to Corbett Court on the same basis as John and Renelle (assisted by expert advice), it may be that some of them would have provided their share of funds or at least participated in shareholder meetings. The very fact of independent advice may have made all of the siblings more willing to engage with and trust John. Whether or not that is true, all members of Corbett Court had the right to be properly informed, to be treated equally with the directors in relation to the basis on which they were offered the opportunity to invest in the Company and the right to have the directors use their power to issue shares for a proper purpose.

196    In the circumstances it is not fair to the minority shareholders that John and Renelle should rely on articles 38(1) and (2) to make the Share Issue under article 38(3) and the impact of the Share Issue is unfairly prejudicial to them as shareholders having regard to the massive diminution in their capacity to share distributions of dividends or capital by Corbett Court and the loss of the power to veto resolutions at shareholders’ meetings when acting together. That is an ongoing detriment. I am satisfied that Paul has made out a claim under s 232(e) that the Share Issue was oppressive to, unfairly prejudicial to, and unfairly discriminatory against both himself and the six other minority shareholders.

197    I do not consider that the offer made by John to his siblings on 3 December 2012 and reiterated on 11 January 2013 to “restore the balance” mitigates the unfairness of the Share Issue (see [119] and [121] above). This is because:

(1)    John did not explain how Corbett Court would use $1,000,000 in equity or debt. If all of that money went to pay out the debts due to Corbett Constructions, the minority shareholders would have effectively paid for the building works to install Target and John would have merely provided a bridging loan. John did not explain how much had been spent in installing Target so the siblings would not know the extent to which more than $1,000,000 might have been spent. He did not explain whether any part of the $1,000,000 would be used to pay down debts Corbett Court owed to the estate companies.

(2)    If John sought to create equality, half of the shares issued in the Share Issue could have been transferred by John and Renelle to siblings at cost and the siblings could have paid out up to half of the $900,000 debt which was in fact owed to Corbett Constructions, not John and Renelle. This would be substantially less onerous, since the minority shareholders would need to raise between them only $500,000 (slightly less than the amount they were asked to provide under the Share Offers). While it is true that John bore the risk of funding Corbett Court to install Target, that was his choice and he was the person best positioned to make it. It was John who had ongoing discussions between at least March and June in relation to the provision of a Colliers valuation. John provided funding only one month before the “as if complete” valuation was provided; it is open to think that John had some comfort from Colliers that the situation would be better than that envisaged by Lankmark White.

(3)    It is extremely onerous for shareholders who have no role in management of the company to be asked to guarantee a loan.

(4)    There was no independent evaluation of this offer provided to the siblings.

Remedy

198    Section 233 is a remedial provision designed to empower the Court to mould relief that is appropriate to overcome the consequences of oppressive conduct. The Court can make any order that it considers appropriate in relation to the Company; it is a very wide power.

199    In this case, both Paul and John contend that the appropriate order is that John be required to buy out Paul’s shares. In the alternative, Paul seeks an order setting aside the Share Issue or (as a last resort) an order setting aside the Share Issue and winding up the Company.

200    Paul elected to plead his case for oppression very narrowly, focussed on the Share Issue; he did not plead other grounds of oppression to seek to justify a winding up of the Company on the just and equitable ground despite the apparently ongoing dysfunctional nature of the siblings’ relationship. The Share Issue affected all minority shareholders equally. Even though only Paul brought this action and his siblings either could not afford to, or would not, join as parties, Paul has demonstrated no special damage arising from the Share Issue which would not be addressed by setting the Share Issue aside.

201    John’s reason for suggesting that buying out Paul is the appropriate remedy is obvious. He submitted that the shares should be bought at their valuation in May 2012, before Target was installed. That would leave him with most of the benefits of the Share Issue which I have found to have been made for an improper purpose, on terms more beneficial to John and Renelle than those offered under the Share Offers. The Share Offers contained inadequate information for the minority shareholders to make a decision whether or not to subscribe under them. While it is true that Corbett Court’s position was improved by John’s work and the finance provided by John and Renelle in installing Target as a tenant, I note that in November 2013, since these proceedings began, the estate companies have forgiven loans to the amount of about $1.9 million, in effect continuing the support to Corbett Court to which Keith agreed. It is unfair that John should get the vast majority of this benefit which comes from companies in whose assets the siblings might expect to share equally. There is also no particular reason why the benefit of this support to Corbett Court should be reflected in the price which Paul would receive, but his siblings would not, if I accepted his submission that the appropriate value for his shares is the value at the date of judgment.

202    Given the nature of the unfairnesses which I have found, I am satisfied that the appropriate remedy is to set aside the Share Issue. I do not consider that it is necessary that John’s siblings be joined as parties to these proceedings for the purposes of that order; the Company, John and Renelle, who are the persons materially affected by the order are all parties and the other shareholders benefit from it being made without any act being required of them.

203    I have considered whether I should order Corbett Court to be wound up notwithstanding the fact that there is no reason now to believe that it is insolvent. Despite the siblings’ concerns, it is not obvious to me that John has acted with intentional dishonesty in Corbett Court’s affairs even though he aggressively prosecuted his claims in seeking a resolution of both Corbett Court’s need for financing and the administration of his parents’ estates. That would suggest that a winding up order would not be required to address the unfairness that I identified.

204    While I do not consider that John has acted with dishonest intent, he and Renelle are plainly in a position of conflicted interest in relation to the rate of remuneration which might be paid to them and the use of related entities to carry out work for Corbett Court. John has taken no steps to demonstrate to the siblings the commercial fairness of those arrangements. While article 71 allows contracts between a director and the Company notwithstanding conflicts of interest (provided the conflict is disclosed) the absence of an independent director to consider arrangements of this kind is likely to be an ongoing source of disquiet by the siblings. In saying this I acknowledge that it is likely to be difficult to identify a sibling who would have the skills, be willing to act as director and work harmoniously with John. Based on the evidence, Honora or Anne appear to have the necessary skills and temperament but claim disinterest in Corbett Court. It is not obvious that the other siblings would be willing to act or that it would be appropriate for them to do so having regard to the animosity towards John that many of them exhibit and the disdain John exhibits for some, but not all, of them.

205    One of the remedies sought by Paul was the appointment of an independent director. It would be highly desirable that an independent person be appointed to the board so that minority shareholders can have a level of assurance that the Company’s affairs are being conducted in the interests of the shareholders as a whole even if that appointment involves cost. Had Mr Kenney been appointed in 2011 it is possible that these proceedings would have been unnecessary. However I have not been advised of the name of a person who would consent to be appointed or the terms on which it is proposed that his or her appointment would take place. It is possible and (given the siblings’ dysfunctional relationship) likely that such an order would involve the Court in an inappropriate degree of supervision.

206    As Corbett Court is solvent and I do not consider John a dishonest man, I will not order that Corbett Court be wound up at this time. A further application is always possible if John manages the company in a way which is not transparently for the benefit of all members. I commend to John the appointment of an independent director, after consultation with his siblings and at the cost of the Company.

Conclusion

207    For the reasons set out above, I find that the Share Issue was commercially unfair and contravened s 232(e) of the Corporations Act. I will make orders rescinding the resolution of the board of Corbett Court made on or about 7 May 2012, setting aside the Share Issue on the basis that the amount subscribed is a debt payable by the Company to John and Renelle, and requiring the defendants rectify the Company’s register of members accordingly and lodge appropriate notices with ASIC. I will dismiss the cross-claim filed by the Company, John and Renelle on 5 February 2013.

208    I will allow the parties an opportunity to make submissions as to costs. Subject to any submissions it is my current view that John and Renelle should be ordered to pay Paul’s costs as agreed or taxed on the basis that costs follow the event. The Court has not been told whether any costs or expenses have been incurred by Corbett Court in relation to these proceedings. I do not consider it appropriate that the Company bear any costs and I will order that John and Renelle indemnify the Company for any costs which it incurred in these proceedings. Any party who wishes to make submissions that costs orders should differ from this approach must file and serve notice on the other parties (other than ASIC) on or before 4 pm on 11 November 2015 together with the basis on which they claim that a result should be other than the foregoing. The submissions should be no longer than three pages. As the defence has been conducted jointly, I expect that John and Renelle’s submissions would be joint unless an appropriate reason for a different approach is given.

Associate:

Dated:    4 November 2015