TGIF 6 May 2022 – Can oppression relief still be extracted in liquidation?

This week’s TGIF considers an interlocutory decision of Ball J in the NSW Supreme Court in Aqua Botanical Beverages (Australia) Pty Ltd v Botanical Water Technologies Pty Ltd [2022] NSWSC 435, in which the Court dismissed an application to add an oppression claim where the company went into liquidation after commencing proceedings.

Key Takeaways

• Liquidation of a company will not necessarily prevent a party from seeking relief in an oppression claim in respect of the company. However, the availability of such claims remains unresolved.
  
  
• There is more likely to be continuing oppression for the purposes of a section 233 claim where a company’s business has been diverted, leaving the liquidators unfunded to recover assets.
  
  
• There are practical impediments to continuing an oppression claim without support from a company’s liquidators where the company is a necessary party having regard to the form of relief sought.

What happened?

Aqua Botanical Beverages (Australia) Pty Ltd (In Liquidation) (the Company) was established to sell water extracted from fruit and vegetables using patented processes developed by Dr Kambouris. He and the CEO Mr Driver were directors and indirectly held shares in the Company.

According to the Court’s summary of the facts, in 2017 the Company entered an agreement with My Co Pty Ltd (My Co) to establish a new company, Botanical Water Technologies Pty Ltd (BWT), for exploiting the patents internationally. My Co’s directors included Mr Terry Paule.

There were then a series of reorganisations resulting in BWT obtaining indirect ownership of the patents and security over the Company’s assets. Ownership interests in BWT also changed, following which Dr Kambouris and Mr Driver were voted out as directors of BWT.

The upshot was that in June 2021, the Company, Dr Kambouris and Mr Driver commenced the proceedings alleging, among other things, breaches by My Co and Mr Terry Paule of the reorganisation agreements and their duties to the Company.

Liquidation and application to add oppression claim

After proceedings were commenced, BWT served a notice of demand on the Company and appointed receivers under its security. The Company’s creditors then resolved to place it into liquidation.

By notice of motion, the plaintiffs (other than the Company) then sought leave to add an oppression claim in respect of the Company’s affairs under section 232 of the Corporations Act 2001 (Cth) (the Act), seeking orders under section 233 of the Act, including orders that Mr Terry Paule and/or My Co pay compensation to the Company.

Determination

Ball J ultimately dismissed the application for practical reasons, since:

• the Company was still a plaintiff to the proceedings;
  
  
• the Liquidators had not decided whether they wished to continue the Company’s claim;
  
  
• the Company had not been removed from the proceedings and the other plaintiffs could not be separately represented; and
  
  
• there were problems with the proposed form of amended pleadings.

His Honour also addressed several legal arguments raised by the defendants as to why the oppression claim should not be added and found that the section 233 claim was arguable despite these arguments.

Oppression relief can be available despite liquidation

The primary legal argument was that relief for oppression under section 233 was unavailable now that the Company was in liquidation.

This required his Honour to revisit a question left open by the High Court’s decision in Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304 (Campbell), specifically the plurality’s observations at [182] that section 233 relief should not be available following a provisional liquidator’s appointment if there is no continuing oppression.

The defendants had drawn on earlier authority from Webb v Stanfield [1991] 1 Qd R 593 (McPherson J at 598-9) that even if a company’s affairs were conducted oppressively, despite a liquidator’s appointment, then the appropriate remedy would be to apply to court for directions rather than make an oppression claim.

Ball J preferred the more recent decision of Black J in In the matter of Imperium Projects Pty Limited [2017] NSWSC 141 (Imperium Projects), rejecting an argument that liquidation in itself was a reason to refuse an application to add a section 233 claim.

The key was distinguishing the nature of the oppression and whether it ceases with a liquidator’s appointment. Whereas in Campbell the alleged oppression had ended because it was limited to management of the company, Black J found that oppression arguably continues post-liquidation in a situation where a company’s business has been diverted so that the liquidator is unlikely to take steps to retrieve assets due to lack of funding.

Accordingly, the Court left open the prospect of a claim for section 233 relief.

Other arguments 

The other arguments raised by the defendants concerned the fact that the form of relief to be sought was compensation to the Company.

Ultimately these arguments were left to be determined at final hearing. The Court found no apparent reason why, in principal, such an order could not be made. However, his Honour also found that the Company was a necessary party to such a claim because the claim was for compensation to the Company for the loss of business diverted away from it. This was different from Black J’s approach in Imperium Projects, where a similar argument was rejected but where (as in Campbell) the relief sought had been a share buyout.

The result of the Court’s finding that the Company was a ‘necessary party’ underlines the practical reasons for dismissing the application, given that the Company’s liquidators had not decided whether to support the claim.

Comment

As an interlocutory decision, this case does not resolve the question that has persisted since the High Court’s decision in Campbell nor survey all recent authority on the availability of oppression relief post-liquidation. For example, there has been recent authority in NSW that, although sections 232 and 233 are broadly drafted, they should be ‘read down’ to refer to companies that are still ‘a going concern’ as opposed to being wound up: see McMillan v Coolah Home Base (No 3) [2020] NSWSC 1325 at [132].

However, this case does serve as a reminder that liquidation itself will not necessarily preclude the availability of relief under section 233 of the Act, particularly where a company’s business has been diverted leaving liquidators with insufficient funds to take action.

As a practical matter, if such a claim is made, it may be necessary to have the liquidators’ support in case the company is a necessary party, particularly where the form of relief involves the company itself rather than a share buyout.