Misconduct findings are strong indicia to wind-up on ‘just and equitable’ grounds

An unlisted public company failed on Friday in its appeal to set aside a winding up order on ‘just and equitable grounds’ (s461(1)(k) Corporations Act).

The Appeal Court found that the Judge correctly held that the misconduct of the previous board had outweighed the last minute ‘attempted’ reparations made by the new board.

Here are some of the issues identified:

  • investors were told that if they bought shares in a related party, they would receive 3 new shares in an ASX listed entity. Due to the lack of books and records, this could not happen in the reasonably foreseeable future;
  • months before the trial, the board was replaced by new directors. The Judge found that those new directors were just proxies for Mr Manasseh (a former director);
  • the replacement of directors was at first instance done contrary to the company’s constitution. This showed that the new board “lack[ed] rigour” with its responsibilities/duties;
  • extensive failure to prepare and lodge financial reports in the past 3 years (at least);
  • many misrepresentations to prospective investors;
  • the company was not clearly solvent; and
  • much, much more …

The Court concludes with these observations:

“The evidence before the court demonstrably supports the conclusion that there is a well-founded and justified lack of confidence in the conduct and management of the companies’ affairs, such as to give rise to a real risk to the public interest that warrants protection – to protect existing and the prospect of any future investors, the public, and creditors, where the companies have not carried on their business candidly and in a straightforward manner with the public, and have been mismanaged, as well as to prevent and condemn the repeated and continuing breaches of the [Corporations Act].”

The case is rather long and very fact heavy, so if you want more details, I recommend having a read. Here is a link to the case: https://jade.io/j/#!/article/597875


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