IT is very common for family and small businesses, including farming enterprises, to be owned and operated through corporate entities.
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Such entities provide many benefits, including taxation benefits for shareholders and protection from liability.
However, when there is a breakdown of the family relationships, these business structures can often be the cause of costly and lengthy disputes.
It is not uncommon when such disputes arise for the remaining shareholders to manoeuvre the assets and income of a corporate entity in such a way that is oppressive and causes detriment to the ousted shareholder who is also a minority shareholder and has no control over the conduct of the corporate entity.
In such circumstances it can often be the position of the ousted shareholder to seek the winding up of the corporate entity and for its assets to be divided among the shareholders.
However, there are alternatives to such action, including the purchase of the ousted shareholder's shares by other shareholders or the entity itself (buy back).
Such action also avoids the cost and inconvenience of appointing a liquidator for the winding up of an entity and the remaining shareholders having to re-establish a commercial or farming enterprise to continue trading.
Such circumstances were considered in the matter of Yard v. Yardoo Pty Ltd (2007) VSCA 35.
In this matter, a farming enterprise and other garage businesses were being conducted by Yardoo Pty Ltd, the shareholders of which were Gladys Yard, her son, Trevor Yard, and Trevor's wife, Lorraine Yard.
The farming enterprise and other enterprises conducted through Yardoo and an associated partnership were successful enterprises.
However, subsequent to the separation of Lorraine and Trevor, Trevor and Gladys conducted the affairs of Yardoo, including assigning the businesses conducted by Yardoo to other partnerships, to the exclusion of Lorraine so as to prevent Yardoo from generating income, with the intention of destroying the value of Lorraine's shares in Yardoo.
The Justices of the Court of Appeal agreed with the Supreme Court Judge's decision that the conduct of Trevor and Gladys was "overwhelmingly oppressive".
However, the Court of Appeal Justices accepted Trevor's legal counsel's submission that it was wasteful to incur the cost of winding up Yardoo, as requiring that all the properties and assets owned by Yardoo be sold would be unnecessarily and unduly burdensome upon Yardoo.
Rather, the court accepted, as Lorraine sought nothing more than to realise her interest of those properties, that an appropriate alternative remedy was for an order for Yardoo to buy back Lorraine's shares in Yardoo, rather than Yardoo be wound up.
Nettle JA held that, "Where a member of a company seeks to have the company wound up on the just and equitable ground, the court will generally refuse to intervene if a member can extricate himself or herself by selling shares at a fair price... there is no point in imposing the cost and disruption of a winding up when it is possible to apply the just remedy by means of the purchase of shares".
Accordingly the court ordered that Lorraine's shares in the value of $526,248 be compulsorily purchased by Yardoo, and should Yardoo fail to do so within the prescribed time that only then Yardoo be wound up.
Disclaimer: Readers should seek independent legal advice as this article is for information purposes only. Matt Barkla is an associate at Beck Legal, Bendigo.
