Federal Court of Australia

Groves v Tas Fumigation and Pest Services Pty Ltd [2025] FCA 1089

ORDERS

THE COURT DECLARES THAT:

A.    The share held by Morris Pest Control (Tas) Pty Ltd in the First Defendant is held on trust beneficially in the following percentages:

1.    Justin Allen 10%;

2.    the Plaintiff 20%;

3.    the Second Defendant 70%.

B.    The Second Defendant has breached the duty to exercise reasonable care and diligence in the management and direction of the First Defendant’s affairs by:

(i)    failing to cause the First Defendant to produce all financial statements and tax returns of the First Defendant for the Financial years 30 June 2020 to present; and

(ii)    failing to cause the First Defendant to comply with its taxation obligations resulting in unpaid superannuation guarantee charge and unpaid PAYG withholding liabilities, the subject of director penalty notices issued to the Plaintiff on or about 28 April 2022.

(iii)    The Second Defendant has breached the duty not to make secret profit or gain contrary to the interests of the First Defendant and its members as a whole by causing loans and director’s fees to be paid to himself in the 2017, 2018 and 2019 financial years.

(iv)    The First and Second Defendants are jointly and severally liable to pay to the Commissioner of Taxation a penalty equal to the First Defendant’s unpaid tax obligations pursuant to s 269-20 of Schedule 1 to the Taxation Administration Act 1953 (Cth).

THE COURT ORDERS THAT:

1.    Pursuant to s 461 (e), (f), (k) and 233 (1) (a) of the Corporations Act 2001 (Cth), the First Defendant be wound up and Ms Kiara Calvert and Mr Barry Hamilton are appointed joint and several liquidators of the First Defendant.

2.    Pursuant to s 233 (1) (j) of the Corporations Act 2001 (Cth), within 14 days of these orders, the First and Second Defendants pay to the Plaintiff the sum of $7,673.15 as an indemnity for taxation liabilities paid by the Plaintiff to the Commissioner of Taxation on account of the First Defendant's unpaid taxation liabilities.

3.    Pursuant to s 233 (1) (j) of the Corporations Act 2001 (Cth), within 14 days of these orders, the First and Second Defendants pay to the Plaintiff the sum of $42,597.42, being the balance of unpaid taxation liabilities payable by the Plaintiff pursuant to director penalty notices issued on 28 April 2022.

4.    The Defendants pay the Plaintiff’s costs of and incidental to the further amended interlocutory application filed 25 August 2025 on an indemnity basis; otherwise, the Defendants pay the Plaintiff’s costs of the proceeding.

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

REASONS FOR JUDGMENT

O’CALLAGHAN J:

1    On 1 September 2025, I made the declarations and orders set out above, which the plaintiff (Mr Groves) sought pursuant to a further amended interlocutory application dated 22 August 2025. The application sought the relief granted pursuant to rr 5.23(2)(c)–(d) and 26.01(1)(e) of the Federal Court Rules 2011 (Cth) (Federal Court Rules).

2    Mr Groves brought the application in light of the persistent failure of the first defendant, Tas Fumigation and Pest Services Pty Ltd (the Company), to comply with an order made by a judge of this court in March 2025 for the provision of all of its financial statements and tax returns for the financial years 30 June 2020 to the present. The second defendant is Mr Morris.

3    I said at the hearing that I would provide brief reasons explaining why I was satisfied that the granting of the declaratory relief and the making of the orders were warranted in all the circumstances. These are those reasons.

4    Mr N Terracall appeared for Mr Groves. Mr M Anderson appeared for the defendants.

5    Mr Terracall relied on three affidavits affirmed by Mr Groves on 18 February, 12 May and 21 August 2025, respectively; an affidavit of Mr Justin Allen affirmed on 16 June 2025; and his own affidavit affirmed on 26 February 2025.

6    Mr Groves, the plaintiff, commenced this proceeding on 18 February 2025 by way of originating process, alleging that the Company’s affairs had been operated: (i) contrary to his interests as a minority shareholder; and/or (ii) oppressively. A judge of this court subsequently ordered that the matter proceed by way of pleadings.

7    Mr Groves duly filed a statement of claim on 18 March 2025, and the defendants filed a defence to it on 24 June 2025.

8    The defendants admitted most of the incontrovertible facts. The factual summary below was agreed, other than in those instances where I say otherwise.

9    On and from 4 August 2016 to 31 January 2019, Mr Groves was an appointed director of the Company.

10    From 4 August 2016 to 4 February 2019, Mr Groves was the sole shareholder of the Company.

11    By reason of Mr Groves being a shareholder of the Company on its registration, he is a member of it within the meaning of ss 9 and 231 of the Corporations Act 2001 (Cth) (Corporations Act).

12    Mr Morris has been a director or officer of the Company since 4 August 2016.

13    From approximately 4 February 2019, Morris Pest Control (Tas) Pty Ltd became the sole shareholder in the Company.

14    Mr Morris was, at all material times, the sole director and shareholder of Morris Pest Control (Tas) Pty Ltd.

15    Mr Morris admitted that, from 4 August 2019 onwards, he owed various duties to the Company at law and in equity, including:

(a)    to exercise the powers and duties of a director with a reasonable degree of care and diligence;

(b)    to act in good faith in the interests of the Company and for a proper purpose;

(c)    not to improperly use his position as director to gain an advantage for himself or someone else or cause detriment to the Company;

(d)    to act honestly and loyally and not to preference his own interests over the interest of the Company and its members as a whole; and

(e)    not to make a secret profit or gain contrary to the interests of the Company and its members as a whole.

16    Mr Morris also admitted that from 4 August 2016, and pursuant to s 269-15 of Schedule 1 to the Taxation Administration Act 1953 (Cth) (the TAA), he has had an obligation to cause the Company to comply with its obligations as set out in s 269-10 of Schedule 1 to the TAA.

17    In around 2016, Mr Groves, Mr Morris and Mr Allen agreed to establish a fumigation and pest control business (the Business) in Tasmania (the joint enterprise agreement).

18    The terms of the joint enterprise agreement stated, among other things, that:

(a)    a company would be incorporated to carry on the Business;

(b)    the Business would be conducted by the Company; and

(c)    each of Mr Groves, Mr Morris and Mr Allen would hold an equitable beneficial interest in the Company in the following proportions:

(i)    Mr Allen – 10%;

(ii)    Mr Groves – 20%; and

(iii)    Mr Morris – 70%.

19    On or about 4 August 2016 and pursuant to the joint enterprise agreement, Mr Groves caused the Company to be incorporated, with one share issued in his name.

20    Between June 2016 and January 2017, Mr Groves undertook tasks to establish the Business so that it could trade.

21    From around January 2017, Mr Morris took control of the Company’s financial affairs and management, including the:

(a)    preparation and lodgement of the Company’s tax returns;

(b)    preparation and lodgement of the Company’s Business Activity Statements;

(c)    payment of employees’ super guarantee amounts;

(d)    management of the Company’s bank account;

(e)    payment of the Company’s creditors; and

(f)    collection of the Company’s debtors.

22    In the financial year ending 30 June 2017, the Company declared that $12,484 had been loaned to Mr Morris.

23    In the financial year ending 30 June 2018, the Company declared that $326,459 had been loaned to Mr Morris.

24    In the financial year ending 30 June 2019, the Company declared that two separate sums — one in the amount of $286,607 and the other in the amount of $976,934 — had been loaned to Mr Morris.

25    Mr Groves alleged, and the defendants denied, that those loans were made without his knowledge or consent.

26    He also alleged, and the defendants “d[id] not admit”, that in the financial year ending 30 June 2019, the Company paid to Mr Morris $597,660.48 on account of directors’ fees. By virtue of rule 22.05 of the Federal Court Rules, that allegation is deemed to have been admitted.

27    Mr Groves further alleged — and, by the time of the hearing dated 1 September 2025, the defendants did not dispute — that between 1 January 2018 and 31 December 2018, the Company failed to meet its obligations:

(a)    pursuant to Subdivision 16-B of Schedule 1 to the TAA, to pay amounts withheld under Division 12 of Schedule 1 to the TAA to the Commissioner of Taxation (the Commissioner) on the due date (totalling $36,002); and

(b)    in accordance with the Superannuation Guarantee (Administration) Act 1992 (Cth), to pay the superannuation guarantee charge for the relevant quarters (totalling $58,726).

28    Mr Morris also admitted that, as a director of the Company at the time that it failed to meet those unpaid taxation obligations, he is liable to pay to the Commissioner a penalty under s 269-20 of the Schedule 1 to the TAA.

29    Mr Groves alleged, and Mr Morris denied, that by reason of Mr Morris’ conduct set out above, he breached the duties alleged by:

(a)    using his position to obtain a financial advantage for himself and not for a proper purpose of the Business or the Company;

(b)    making secret personal profits to the value of the loans made to him personally;

(c)    making secret personal profits to the value of the directors’ fees paid to him in the financial year ending 30 June 2019, which were excessive;

(d)    failing to ensure that the Company met its unpaid tax obligations;

(e)    failing to act honestly by secretly taking money from the Company and recording it as a “loan” or “directors fees”; and

(f)    making payments to himself without regard to the interests of the Company.

30    In April 2022, Mr Groves received two Director Penalty Notices (DPNs) issued by the Deputy Commissioner of Taxation. The DPNs related to the Company’s unpaid taxation obligations between 1 January 2018 and 31 December 2018, and were equal to the sums specified in paragraph 27 above.

31    Pursuant to s 269-20 of Schedule 1 to the TAA, Mr Groves became liable to pay the unpaid tax obligations of the Company.

32    On 6 June 2023, the Commissioner deducted the total sum of $5,607.35 from a tax refund otherwise due to Mr Groves and applied it in reduction of the Company’s unpaid tax obligations.

33    On 4 October 2023, the Commissioner deducted the total sum of $2,065.80 from a tax return otherwise due to Mr Groves and applied it in reduction of the Company’s unpaid tax obligations.

34    On 8 January 2024, Mr Groves received a demand for payment from the Australian Tax Office alleging that a total amount of $70,499.87 was then payable by him in respect of the Company’s unpaid taxation obligations.

35    Mr Groves further alleged, and the defendants did not dispute, that pursuant to s 269-45 of Schedule 1 to the TAA, he is entitled to:

(a)    be indemnified by the Company to the extent that he has discharged the Company’s unpaid tax obligations;

(b)    be subrogated to the Commissioner’s rights to collect the unpaid tax obligations from the Company and is a creditor of the company;

(c)    receive contributions from the defendants in respect of the tax obligations met by him.

36    Mr Groves also alleged that “[a]t all material times from in or around January 2017 to April 2024, [Mr Morris] has refused and/or failed to provide [Mr Groves] with the [Company’s] books and records”. The defendants’ response was curious, namely: “the Defendants state that the applicable period is from around 2019 to around March 2023 at which time production of documents commenced and was finalised by around April 2024”. Whatever that means, it was not disputed at any of the many case management hearings that the defendants had failed to produce a host of relevant books and records going to the question of the loans made to Mr Morris and to the issue of valuation for the financial years 30 June 2020 and following.

37    Mr Groves alleged, and the defendants denied, that by reason of the matters set out above, the conduct of:

(a)    the Company’s affairs in the period between January 2017 and 4 February 2019;

(b)    Mr Morris in excluding Mr Groves from the control and management of the Company, including by refusing to show to Mr Groves the Company’s books and records and produce such records until 26 April 2024;

(c)    the Company in failing to discharge its unpaid tax obligations, including in the period following Mr Groves’ receipt of the DPNs; and

(d)    Mr Morris in failing to cause the Company to discharge its unpaid tax obligations, including in the period following Mr Groves’ receipt of the DPNs,

is and has been:

(e)    contrary to the interests of the Company’s members as a whole; and/or

(f)    oppressive or unfairly prejudicial to, or unfairly discriminatory against, Mr Groves in his capacity as a member and former appointed director of the Company.

38    The uncontradicted evidence also demonstrated that the failure of the defendants to provide all the relevant books and records pre-dates this proceeding. Before this proceeding was commenced, Mr Groves had endeavoured to extract them from the defendants in a proceeding brought in the Supreme Court of Tasmania. As Mr Groves deposed in his 12 May 2025 affidavit:

8.    After I received the Director Penalty Notices … I commenced proceedings in the Supreme Court of Tasmania to obtain financial records from the First Defendant relevant to my time as director of that entity (between 4 August 2016 and 31 January 2019).

9.    The First and Second Defendants repeatedly failed to comply with orders made by the Supreme Court to produce the financial records.

10.    I eventually instructed my solicitor to make an application seeking orders for contempt of court.

11.    The application seeking orders for contempt of court was listed before Justice Brett on 14 March 2024. …

12.    On the day of the contempt application hearing, the Defendants agreed to produce the relevant financial records and agreed to an order requiring payment of my costs on an indemnity basis in a fixed amount. …

13.    As a consequence of the Supreme Court proceedings (and the ultimate application seeking orders for contempt), I was provided with the First Defendant's financial documents up to 30 June 2020.

39    In the proceeding before this court, Mr Groves sought declaratory relief and orders along the lines of the declarations and orders made on 1 September 2025.

40    As is apparent from what I have said, most of the factual allegations were admitted.

41    At the hearing, Mr Anderson consented to the making of declaration B(iv) (to the extent that it concerned the liability of Mr Morris), consented to the amounts contained in orders 2 and 3, and did not oppose order 4.

42    Mr Anderson asked for another adjournment so that he could hand over the matter to another solicitor in his firm (as he has been suffering some personal issues), but I declined to accede to that application because of the inordinate delay by the defendants in producing the long-promised books of accounts.

43    Declaration A is supported by admitted facts, and by Mr Allen’s uncontradicted evidence about his 10% holding.

44    I was satisfied, and Mr Anderson did not dispute, that the defendants have failed to comply with the order made in March 2025 that they produce all financial statements and tax returns of the Company for the financial years 30 June 2020 to the present.

45    I was also satisfied that that Mr Groves is entitled to the relief claimed in the statement of claim in light of the admitted facts and the evidence.

46    As Yates J said in Chamberlain Group, Inc v Giant Alarm System Co, Ltd (No 2) [2019] FCA 1606 at [13]–[14]:

The power to give judgment against a defaulting party is undoubtedly discretionary. The discretion must be exercised cautiously. Where the defaulting party is a respondent to a pleaded claim, the giving of judgment for final relief on the application will deliver complete success to the applicant without investigation of the merits of the pleaded claim … There is no requirement that the act or acts of default be intentional or amount to contumelious conduct. There is no requirement that the act or acts of default result in inordinate or inexcusable delay. That said, such features, if present, will be relevant to the exercise of the Court’s discretion. So too will conduct that persuades the Court that the defaulting party is manifesting an inability or unwillingness to cooperate with the Court and the other party or parties to the proceeding.

Rule 5.23(2)(c) requires the Court to be satisfied that the applicant is entitled to the relief claimed in the statement of claim. This requirement has been interpreted as meaning that the Court must be satisfied that “on the face of the statement of claim” the applicant is entitled to the relief that is claimed. It is not a requirement that the applicant prove its claim by way of evidence. Put another way, the facts alleged in the statement of claim are taken to have been admitted … If, on inspection of the statement of claim, the Court is satisfied that the applicant would be entitled to the relief sought then this requirement of r 5.23(2)(c) will be met … The Court may permit further evidence to be adduced, but not evidence that would alter the pleaded case …

(Citations omitted.)

47    I was also satisfied that it was an appropriate exercise of discretion to grant declaratory relief in the form sought. I have no doubt that the failure to abide by the discovery order was a deliberate one, including because at no time during any of the many case management hearings that were convened was there ever any explanation proffered for non-compliance. In those circumstances, the contravening conduct calls for the marking of the court’s disapproval, which is achieved, in part, by the making of the declarations sought.

48    I turn to the winding up order.

49    Section 461(1) of the Corporations Act provides that the court may order the winding up of a company if, relevantly:

(f)    affairs of the company are being conducted in a manner that is oppressive or unfairly prejudicial to, or unfairly discriminatory against, a member or members or in a manner that is contrary to the interests of the members as a whole; or

…

(k)    the Court is of opinion that it is just and equitable that the company be wound up.

50    Mr Groves has standing to seek the relief sought pursuant to s 461 of the Corporations Act as a “creditor”: see s 462(2)(b). He is a “creditor” as a consequence of s 269-45 of the TAA because he has made payments to the Commissioner in respect of the Company’s taxation obligations and is entitled to recover those sums.

51    In Hylepin Pty Ltd v Doshay Pty Ltd (2021) 288 FCR 104 at 128–129 [124]–[129], the Full Court (Markovic, Banks-Smith and Anderson JJ) summarised the primary judge’s review of relevant principles in relation to remedies for oppressive conduct, as found in s 232 of the Corporations Act:

The primary judge commenced a review of the oppression principles under s 232(e) by noting that “oppressive to, unfairly prejudicial to, or unfairly discriminatory against” is a compound expression …

… [T]he phrase in s 232(e) is concerned with “commercial unfairness’; or “a departure from the standards of fair dealing, or where a decision has been made so as to impose a disadvantage, disability or burden on the plaintiff that, according to ordinary standards of reasonableness and fair dealing, is unfair”.

… [T]he relevant test as to unfairness in the context of oppression is “whether reasonable directors, possessing any special skill, knowledge or acumen possessed by the directors and having in mind the importance of furthering the corporate object on the one hand and the disadvantage, disability or burden which their decision will impose on a member on the other, would have decided that it was unfair to make that decision”. Whether there has been unfairness in the requisite sense is to be judged objectively … [T]he section requires proof of oppression or proof of unfairness. Proof of mere prejudice to or discrimination against a member is insufficient to attract the court’s jurisdiction to intervene …

…

It was noted that mismanagement alone does not constitute oppression, and a court is concerned “to avoid an unwarranted assumption of the responsibility for management of the company” …

… [W]hether conduct is “contrary to the interests of the members as a whole” is also objectively ascertained … and is determined by an assessment of whether the conduct adheres to “accepted standards of corporate behaviour” or is in accordance with how reasonable directors would act in attending to the affairs of the company.

(Citations omitted.)

52    In this case, as Mr Groves submitted, the Company’s affairs (including its acts or omissions) were contrary to the interests of the Company’s members as a whole and unfairly prejudicial to, or unfairly discriminatory against, Mr Groves because:

(1)    the defendants failed to provide him with books of account between at least 2019 and March 2023, which refusal caused Mr Groves to apply to the Supreme Court of Tasmania for orders;

(2)    repeated orders were made by the Supreme Court of Tasmania requiring production of the Company’s books and records, non-compliance with which resulted in an application seeking orders for contempt of court;

(3)    the Company has failed to comply with the orders made on 21 March 2025 in this proceeding, and every extension of it;

(4)    the Company has failed to meet its taxation obligations for the period between 1 January 2018 and 1 October 2018;

(5)    the defendants admit that:

(a)    the sum of $326,459 was loaned to Mr Morris by the Company in the financial year ending 30 June 2018; and

(b)    the sums of $286,607 and $976,934 were loaned to Mr Morris during the financial year ending 30 June 2019;

(6)    further so-called “directors’ fees” in the amount of $597,660.48 were paid to Mr Morris in the year ending 30 June 2019;

(7)    the inability of the Company to meet its taxation obligations resulted in DPNs being issued to Mr Groves some three years after his resignation as director of the Company; and

(8)    the fact that Mr Groves was burdened with penalties equivalent to the Company’s unpaid taxation obligations relevant to a period in which Mr Morris was diverting funds for his own benefit is manifestly unfair.

53    I should add, for the sake of completeness, that the procedural precondition of notice of the application for a winding up order being published on the Australian Securities and Investment Commission’s insolvency notices website has been completed (see Mr Terracall’s 26 February 2025 affidavit), and that the requirements of r 5.6 of the Federal Court (Corporations Rules) 2000 (Cth) were dispensed with pursuant to orders made in this proceeding on 21 March 2025.

54    For the foregoing reasons, I made the declarations and orders set out above.

Associate:

Dated:    5 September 2025