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Lifestyle Pacific (Fiji) Pte Ltd, In re [2020] FJHC 986; HBM32.2018 (25 November 2020)

IN THE HIGH COURT OF FIJI
WESTERN DIVISION AT LAUTOKA
COMPANIES JURISDICTION

HBM CAUSE NO. 32 OF 2018

Appearances : Mr E. Sailo for the applicant
Mr N. Kumar with Ms S. Sonika for the respondent
Date of Hearing : 09 November 2020
Date of Decision : 25 November 2020

D E C I S I O N
[on oppression]

Introduction

[01] This is an application for relief from oppression.

[02] By his application filed 31 October 2018, the applicant seeks the following orders:

1. That Alick George Richard Wallis purchase all shares held by the applicant in the company at a price of $10.00 per share or at another price the court determines; or
   
2. That the company be wound up under Companies Act 2015; and
   

100. That such further or other as may be just, including an order that the respondent pay the costs of and incident to this application.

[03] The respondent opposes the application.

[04] At the hearing, counsel representing both parties informed the court that they will rely on their respective affidavits and written submissions. There was no oral hearing.

Background

[05] Lifestyle Pacific (Fiji) Pte Ltd, the respondent (the “company” or the “respondent”) is registered company in Fiji. It was incorporated on 6 December 2016.

[06] Antonio Catanzariti, the applicant (the “applicant”) is a member/shareholder of the company by virtue of 10,000 shares in the company. The applicant alleges that it was agreed between the respondent and him (applicant) that the applicant will have 50% share in the company.

[07] The other member of the company is Alick George Richard Wallis who holds 90,000 shares in the company (the “respondent”).

[08] The applicant alleges that the respondent’s conduct in operating the company is oppressive or unfairly prejudicial or contrary to the interest of the applicant. On that basis the applicant seeks relief from the court.

Legal framework

[09] Sections 176 and 177 of the Companies Act 2015 (“Com Act”) are relevant to this application. Both sections fall under Part 16 of the Com Act. Part 16 deals with members’ rights and remedies for oppressive conduct of affairs of a company.

[10] Section 176 provides:
“Grounds for court order

176(1) The court may make an order under section 177 if—

(a) the conduct of a company's affairs;

(b) an actual or proposed act or omission by or on behalf of a company; or

(c) a resolution, or a proposed resolution, of members or a class of members of a company,

is either—

(i) contrary to the interests of the members as a whole; or

(ii) oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or in any other capacity.

(2)For the purposes of this Part, a person to whom a share in the company has been transmitted by will or by operation of law is taken to be a member of the company.”

[11] Com Act, section 177, sets out orders the court can make

“Orders the court can make

177 (1) The court can make any order under this section that it considers appropriate in relation to the company, including an order—

(a) that the company be wound up;

(b) that the company's existing articles of association be amended or repealed;

(c) to regulate the conduct of the company's affairs in the future;

(d) for the purchase of any shares by any member or person to whom a share in the company has been transmitted by will or by operation of law;

(e) for the purchase of shares with an appropriate reduction of the company's share capital;

(f) for the company to institute, prosecute, defend or discontinue specified proceedings;

(g) authorising a member, or a person to whom a share in the company has been transmitted by will or by operation of law, to institute, prosecute, defend or discontinue specified proceedings in the name and on behalf of the company;

(h) appointing a receiver or manager of any or all of the company's property;

(i) restraining a person from engaging in specified conduct or from doing a specified act; or

(j) requiring a person to do a specified act.

(2) If an order that a company be wound up is made under this section, the provisions of this Act relating to the winding up of companies apply—

(a) as if the order were made under Part 39; and

(b) with such changes as are necessary.

(3) If an order made under this section repeals or modifies a company's articles of association, or requires the company to adopt articles of association, the company does not have the power under section 46(7) to change or repeal the articles of association if that change or repeal would be inconsistent with the provisions of the order, unless—

(a) the order states that the company does have the power to make such a change or repeal; or

(b) the company first obtains the leave of the court.”

The evidence

Applicant’s affidavit in support

[12] The applicant in the affidavit in support states:

1. He is a member/shareholder of Lifestyle Pacific (Fiji) Pte Ltd (‘the company’) and has 10,000 shares in it. He says that it was agreed between the respondent and him that he will have 50% share in the company.
2. The company was incorporated in Fiji as a company having share capital on 6 December 2016.

100. The other member is Alick George Richard Wallis who holds 90,000 shares in the company.

4. Since the incorporation of the company, the respondent has not filed annual report with the Registrar of the company.
5. The respondent has not given him any moneys profited by the company since its operation.
6. The respondent has refused and is refusing to hold Annual General Meeting and/or any meeting with him (applicant) despite several requests.
7. He has invested almost $100,000.00 towards the company including air fares for the respondent and him (applicant) together with accommodation and meals but in return he (applicant) has not received any profit from the company since its incorporation.
8. He has also lent cash and advance to the respondent but the respondent has refused and/or neglected to pay the moneys that he (applicant) had advanced.
9. He arranged a meeting at Crows Nest Resort, Sigatoka on 17 July 2017, but the respondent refused to provide any information about the company stating that his (respondent) solicitors has advised him the meeting is illegal.
10. The respondent removed him (applicant) as a Director without any company resolution and/or giving any prior notice to him. He came to know about it after a company search on 29 August 2018.

Respondent’s affidavit in opposition

[13] The respondent in his affidavit in opposition states:

1. On 9 November 2016, he was issued a Foreign Investment Registration Certificate by Investment Fiji for the respondent company.
2. on 28 February 2017, he received a letter from the Fiji Revenue and Customs Authority notifying that the respondent company being registered for Value Added Tax (VAT) and providing the respondent company’s tax identification number.

100. On 29 March 2018, he obtained a Tax Compliance Certificate confirming that the respondent company has been in compliance with all tax obligations in terms of the lodgement and payment for taxation.

4. He further applied for a New Investor’s Permit and obtained the same via letter dated 26 March 2018.
5. He has been issued a work permit to reside and work in Fiji.
6. The applicant was a director and shareholder of the respondent company however he was terminated on 2 August 2017.
7. The applicant was only allocated 10,000 shares at $1.00 each.
8. He personally injected the funds needed to allow the respondent company to start functioning.
9. No annual reports were submitted as the business was not trading since 6 December 2016.
10. That there have been no profits generated by the company.
11. There were meetings between the two of us (applicant and respondent) and also with Anilesh Amitesh Kumar, the other director.

50. He attended the meeting at Crows Nest Resort, Sigatoka on 17 July 2017, and all information needed was provided to the applicant.

13. He never acted against the interest of the company nor the applicant.
14. The applicant was terminated pursuant to a directors meeting because the adverse conduct of the applicant against the other directors and company.

Discussion

[14] The applicant applies to this court for relief against oppressive conduct of the affairs of the company. He seeks orders for the company either:

(i) The respondent buy out all the share held by him (applicant) in the company at a price of $10.00 per share or at another price that the court determines; or

(ii) The company be wound up.

[15] The applicant makes this application on the basis that he is a member of the company, minority shareholder. An application for an order under s. 177 in relation to a company may be made by a member of the company, even if the application relates to an act or omission that is against-(i) the member in a capacity other than as a member; or (ii) another member in their capacity as member. A person who has been removed from the register of members because of selective reduction of capital can also bring such an application (see Com Act, s.178).

[16] In this instance, the applicant has made this application as a member of the company and/or removed director of the company against the respondent, another member and managing director of the company.

[17] It was not in contest that the applicant is member/or shareholder of the company with 10,000 shares of $1.00 each and that the respondent is other member and director who holds 90,000 shares of $1.00 each.

[18] The applicant claims that initially, it was agreed between the respondent and applicant that the applicant will have 50% share in the company.

[19] The Com Act provides a range of substantive remedies to shareholders in the face of a company’s actual or proposed act of mismanagement.

[20] Here, the situations appear to be a management deadlock in “quasi-partnership arrangements”; situations typically involving two business partners controlling a company, each assuming the combined roles of shareholders and directors.

Minority Oppression

[21] The remedy against oppression of minority shareholders (oppression remedy) is found in section 176 of the Com Act. This section provides a bae of substantive rightsights for protecting an individual shareholder’s interests in the face of a company’s mismanagement. The oppression remedy gihe court the discretionary power to grant relief in circumsrcumstances where an actual or proposed act or omission by or on behalf of a company is either--

(i) contrary to the interests of the members as a whole; or

(ii) oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or in any other capacity.

[22] In such circumstances, shareholders may have the option of obtaining relief under section 177 of the Com Act provided they can show the conduct or act falls within either “limb” of these criteria. The court has tscretion toon to grant any relief.

[23] The oppression remedy provides an important safeguard for the rights of an indivishareholder whose interests may risk of abuse from them the majority shareholdersRs’ mismanagement of the company’s affairs.

[24] The appropriate oppression remedy in any given instance can be fashioned according to the needs and circumstances of the parties and bus arrangement involved. Ted. The order the court may make include:

(a) that the company be wound up;

(b) that the company's existing articles of association be amended or repealed;

(c) to regulate the conduct of the company's affairs in the future;

(d) for the purchase of any shares by any member or person to whom a share in the company has been transmitted by will or by operation of law;

(e) for the purchase of shares with an appropriate reduction of the company's share capital;

(f) for the company to institute, prosecute, defend or discontinue specified proceedings;

(g) authorising a member, or a person to whom a share in the company has been transmitted by will or by operation of law, to institute, prosecute, defend or discontinue specified proceedings in the name and on behalf of the company;

(h) appointing a receiver or manager of any or all of the company's property;

(i) restraining a person from engaging in specified conduct or from doing a specified act; or

(j) requiring a person to do a specified act. (Com Act, s.177)

[25] The categories of oppressive conduct are not closed and will depend on the specific facts of each case. Oppressive conducts might include:

1. Misappropriation of company funds or assets;
2. Running the company in a party’s own interests to the exclusion of (or indifference to) the interests of othar shlders;

100. Denial of access to company information or unfair exclusion from&#16ticip in the comp company&#any’s management;

4. Payment of excessive remuneration to company officers, possibly at the expense of paying dividends;
5. Improper diversion of company business to other entities / individuals;
6. An improper issue of shares which might include, for example, one that is calculated to achieve a decisive majority shareholding or voting righ60;in that enat entity (or, conversely, dilute another party&#82.

[26] Both parties claim injecting thd to allow the company to start functioning. According to the applicant, he had injected moed more than $100,000.00 in various ways.

[27] Since the formation tion of the company, the respondent has refused to provide any information about the company including its income and its financial position. This shows that the respondent has not been transparent towards his conduct of the company’s affairs.