Galante v Orinoco Organics Ltd
| Jurisdiction | New Zealand |
| Judge | Cull J |
| Judgment Date | 30 November 2020 |
| Neutral Citation | [2020] NZHC 3154 |
| Docket Number | CIV-2020-442-21 |
| Court | High Court |
Under Section 174 of the Companies Act 1993
[2020] NZHC 3154
Cull J
CIV-2020-442-21
IN THE HIGH COURT OF NEW ZEALAND
NELSON REGISTRY
I TE KŌTI MATUA O AOTEAROA
WHAKATŪ ROHE
Family, Companies — application for orders under s174 Companies Act 1993 (prejudiced shareholders) for the liquidation of first defendant and that the second defendant, her de facto spouse, pay market rent for his exclusive occupation of the family home held by first defendant — whether there had been oppressive conduct — whether it was just or equitable that first defendant be wound up before the resolution of their relationship property matters
A S Shaw and L C Yong for the Plaintiff
E M Horner and A D Goble for the Second Defendant
Dorit Galante (Dorit) applies for orders under s 174 of the Companies Act 1993 (the Act) for the liquidation of Orinoco Organics Ltd (the Company) and that her de facto spouse of 20 years, Mr Gilad Grinberg (Gilad), pay market rent for his exclusive occupation since August 2018 of the family home held by the Company (the Property).
Gilad opposes the application, denying that there has been oppressive conduct and claiming that it is neither just nor equitable that the Company be wound up before the resolution of their relationship property matters.
Dorit and Gilad have been in a de facto relationship for approximately 20 years, until their separation in August 2018 when Dorit left the Property. 1 They incorporated the Company in May 2009, with the intention of conducting a business in the line of organic products. Both Dorit and Gilad are co-directors of the Company and equal shareholders holding 50 shares each.
The Company's major asset is the 5.6 hectare Property, on which is placed the former family home. The Company acquired the Property in 2011, and the parties have occupied it as their family home until their separation in August 2018. The Company owns various chattels and there are alpacas and horses on the Property, as well as equipment and vehicles, including a horse float.
The Company has not actively traded nor had any employees since 2015. The parties have a son who is 17 years old and has lived with Dorit since August 2018. After the separation, Dorit left the Property and sought alternative accommodation for herself and the son (who was 15 years old at the time) and Gilad has remained in sole occupation of the Property since separation.
Dorit and Gilad have interests in property in New York, held by two limited liability companies (109 Norfolk LLC and 509 Grand LLC). The companies respectively own substantial real estate. There is a third New York company, NY Brite Inc, which operated a cleaning company. Dorit claims this is her separate property.
Dorit seeks relief under s 174 of the Act, seeking orders for the sale of the Property, the division of the net proceeds of sale between the shareholders, and the liquidation of the Company. Her claim is that in her capacity as a 50 per cent shareholder of the Company, she is prejudiced, because Gilad has effective control over the Company and its only asset. Her allegations are essentially that Gilad has not filed the necessary company office annual returns and failed to ensure the Property was insured. Among a number of other allegations, which it is not necessary to canvas
in full, Dorit seeks that Gilad account to the Company payment for market rent because of his exclusive occupation of the Property since 2018. Dorit issued a statutory demand for approximately $50,000, being her calculation of occupation rental, which was ultimately paid by GiladGilad defends Dorit's claims, saying it would be unfair for her to be permitted to pursue the remedy she is seeking in relation to the Company without resolving the wider relationship property issues concerning their property interests in New York, which are in the process of being realised in part. Gilad understood that he and Dorit had wanted to deal with all property issues together and that he has offered to buy out her share of the Company once he has access to funds by way of the New York-based property assets.
The relationship between Dorit and Gilad is acrimonious, and neither are speaking to each other. Gilad has not kept Dorit informed about the Property in New Zealand and nor has he asked her for her consent to rent the Property or allow tenants to stay in it. Further, he has undertaken some minor renovations and made changes to the Property, also without her consent and without seeking the necessary building consents.
Dorit is in communication with the third director of the New York companies, Mr Shine, who deals exclusively with Dorit and who has offered to speak to Gilad by phone, but not in writing. Gilad considers that Mr Shine is not acting in his interests and has not spoken to Mr Shine. As a result, Gilad has not been informed, apart from the disclosure of estimated values in these proceedings and in the relationship property proceedings, about the status and current position of the New York companies interests. Gilad has just issued relationship property proceedings in the Family Court in September 2020 and a further step is required of Dorit, to file a narrative affidavit in response. No case management hearing has yet been undertaken.
As a consequence of the acrimony and non-communication between Dorit and Gilad, their relationship as directors of the Company is dysfunctional.
This proceeding was sent down for hearing in Nelson on 16 November 2020. On 30 October 2020, Gilad applied for a stay of the proceeding until the determination of all relationship property issues between the parties. The stay application was heard and declined by Associate Judge Johnston on 12 November 2020. 2 He found that the stay application came too late and it was “not at all obvious” that Gilad would be prejudiced by the disposal of the claim in the present proceeding. 3 He also observed:
[12] There is no doubt that the circumstances of this case are such as to trigger s 174 of the Companies Act. The company is deadlocked which means that it cannot discharge its obligations in respect of the filing of returns and matters of that sort. Neither party suggests otherwise.
Section 174 of the Act provides:
174 Prejudiced shareholders
(1) A shareholder or former shareholder of a company, or any other entitled person, who considers that the affairs of a company have been, or are being, or are likely to be, conducted in a manner that is, or any act or acts of the company have been, or are, or are likely to be, oppressive, unfairly discriminatory, or unfairly prejudicial to him or her in that capacity or in any other capacity, may apply to the court for an order under this section.
(2) If, on an application under this section, the court considers that it is just and equitable to do so, it may make such order as it thinks fit including, without limiting the generality of this subsection, an order—
(a) requiring the company or any other person to acquire the shareholder's shares; or
(b) requiring the company or any other person to pay compensation to a person; or
(c) regulating the future conduct of the company's affairs; or
(d) altering or adding to the company's constitution; or
(e) appointing a receiver of the company; or
(f) directing the rectification of the records of the company; or
(g) putting the company into liquidation; or
(h) setting aside action taken by the company or the board in breach of this Act or the constitution of the company.
…
In the decisions applying s 174, the following principles emerge:
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(a) The relief is remedial but not punitive. 4
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(b) An offer for buy out of a shareholder's interests is the most frequently awarded. 5
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(c) Liquidation is an “extreme” form of relief. 6
The issues of determination on this application reflect the statutory wording under s 174. There are three issues:
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(a) whether the affairs of the Company have been conducted in a manner that is oppressive, unfairly discriminatory, or unfairly prejudicial to Dorit;
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(b) whether it is just and equitable for the Court to make orders under s 174; and
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(c) if so, what is the appropriate relief to be granted?
I deal with each of these in turn.
The leading authority on s 174 is still Thomas v H W Thomas Ltd, 7 as confirmed by the Court of Appeal more recently in Sturgess v Dunphy. 8 Richardson J for the Court of Appeal in Thomas emphasised that it was not necessary for a petitioner shareholder to prove a lack of probity or want of good faith towards him or her on the part of those in control of the company. 9 There must be a balancing of all the interests involved and fairness should not be assessed in a vacuum or from one member's point of view. In examining the statutory words “oppressive, unfairly discriminatory or unfairly prejudicial”, Richardson J said: 10
The three expressions overlap, each in a sense helps to explain the other, and read together they reflect the underlying concern of the subsection that conduct of the company which is unjustly detrimental to any member of the company whatever form it takes and whether it adversely affects all members alike or discriminates against some only is a legitimate foundation for a complaint under s 209. The statutory concern is directed to instances or courses of conduct amounting to an unjust detriment to the interests of a member or members of the company. It follows that it is not necessary for a complainant to point to any actual irregularity or to an invasion of his legal rights or to a lack of probity or want of good faith towards him on...
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