In the Matter of Innovateq Pty Ltd [2018] VSC 124 (24 April 2018): Corporations, bringing proceedings under s 237 Corporations Act, application to wind up company, section 461

May 2, 2018 |

Justice Kennedy in In the Matter of Innovateq Pty Ltd [2018] VSC 124 considered an application under section 237 of the Corporations Act for leave to commence proceedings in a derivative action.  Judgments regarding leave applications are relatively uncommon.


The proceeding involved two applications:

  • leave to the plaintiff pursuant to s 237 of the Corporations Act 2001 (Cth) (Act) to commence court proceedings in the name of Innovateq Pty Ltd (ACN 132 372 242) (Company) against Mr Daniel Phillips (a former employee) and two companies associated with him, Certeq Pty Ltd and Certeq NZ Pty Ltd (Certeq) (Leave Application); and
  • for an order that the Company be wound up (Winding Up Application).

The Company, in its capacity as trustee for the Innovateq Unit Trust (IUT), under the name ‘Innovateq’, provided audio visual and IT solutions until 16 December 2015 [4].

Daniel Hadjiantonakis (“Hadjiantonakis”) and Mr Ross Barnes (“Barnes”) each:

  • held 1 of a total of 2 ordinary shares in the Company
  • were both directors.
  • were unit holders in the IUT by entities controlled by each of them.

In about May 2015, Barnes and Hadjiantonakis had discussions regarding one of them exiting the business [6] and by 31 July 2015  agreed that ‘both parties have been equally keen to end their business relationship for some time’ [7]

The relationship deteriorated as:

  • by September 2015, Hadjiantonakis served a notice of default on Barnes and his wife, claiming a breach of a principal’s agreement alleging that  Barnes failed to ‘ensure his area of responsibility works in mutual harmony with Mr Hadjiantonakis’ area of responsibility’ [8].
  • by December 2015, the relationship had broken down completely with Hadjiantonakis saying that Barnes and Phillips were undermining the business [13].

On 17 December 2015, Hadjiantonakis  instituted proceedings in the name of  entities controlled by the plaintiff: DHJH Pty Ltd and A&S Investment Holdings Pty Ltd (Hadjiantonakis entities), against:

  •  Barnes & his wife,
  • Phillips,
  • the Company,
  • Innovateq Services Pty Ltd and the
  • Certeq entities

seeking damages for alleged breach of duties by Mr Barnes and Mr Phillips (2015 Proceeding) [15].

Barnes sought orders designed to prevent his exclusion from the Company’s business [16] and on 23 December 2015, Riordan J made orders restraining  Hadjiantonakis and his entities from taking any step to enforce any suspension of  Barnes’ employment in the Company  subject to mutual undertakings that the business continue to operate [17].

Hadjiantonakis alleged that Barnes has breached the undertakings, which was denied by Barne [18].

The parties entered into a deed of settlement on 8 March 2016 which included the Company executing the Deed and undertaking obligations under it. The Certeq entities were not parties to the Deed [19]. The relevant provisions were:

  • a division of assets of the Company between Barnes and Hadjiantonakis (or his entities) including the transfer of all intellectual property owned by the Company to DHJH Pty Ltd (cl 4.1(d)).
  • payment by Hadjiantonakis (or his nominee) of $100,000 to Mr Barnes (or his nominee) within 30 days of the ‘operative date’ (7 March 2016) (cl 4.1(f)).
  • cessation of trading by the Company on the operative date ‘with a view to paying all of its liabilities and being voluntarily deregistered on or before 30 September 2016’ (cl 4.1(g) and (i)).
  • the vesting of the trust on or before 30 September 2016 (cl 4.1(h)).
  • the appointment of ‘an independent, accountant, agreed on by the parties… as a consultant to assist in winding up of Innovateq, the Innovateq Unit Trust and Innovateq Services Pty Ltd’ (cl 4.1(j)) to  ensure prompt recovery of invoices, prompt payment of creditors, as well as ensuring deadlocks were ‘broken’.
  • no restraint from carrying on any business in any marketplace in which the Company competed (cl 4.1(k)).
  • the 2015 Proceeding would be dismissed with no order as to costs (cl 9).

Litigation against Phillips and the Certeq entities remained on foot brought in the name of the Hadjiantonakis entities (as replacement trustees) – and not the Company [22].

In March 2016, the Company ceased operating the business [23] with an independent accountant appointed to assist with the winding up of the Company.

The IUT was not vested, nor was the Company deregistered or wound up [24].

Barnes was employed by Certeq.

Hadjiantonakis entities conducted, under the name ‘Innovateq’, a similar business to that being conducted by the Certeq entities. [26]

The 2015 Proceeding  was struck out before an Associate Judge and then on appeal by McDonald J who held that the chose in action in respect of the alleged wrongful acts:

  • remained with the original trustee and did not vest in the new trustee and
  • the right to sue had not vested in the new replacement trustee absent a vesting order under s 51 of the Trustee Act 1958 (Vic) [27].

Hadjiantonakis accepted that the replacement had not been effective and that the unit holding had not been forfeited[30].

According to an overview report  the Company had a net deficiency of assets of $142,710.10 as at 11 October 2017. This included a very high number of debts which had been owing for more than 90 days [31].

As at the day of the hearing Hadjiantonakis:

  • confirmed that the Company still owed outstanding debts of $141,165 though he had made some repayments (in the order of $460).
  • stated that he was prepared to personally undertake to repay all of the Company’s outstanding debts on an ‘unconditional basis’ [32] but rather seemed to be  contingent on the plaintiff being granted leave to bring the derivative action[32]
  • adduced evidence that eight of the Company’s creditors had consented to his application with a further two creditors indicating that they would provide such consent.


In  the Originating motion, the plaintiff claimed :

  • that Phillips:
    • diverted business to the Certeq defendants, using the confidential information of Innovateq,
    • breached his employment, fiduciary and statutory duties,
  • remedies in the nature of:
    • restitution,
    • damages; and
    • injunctive relief

in order to recover the harm done to the trust property and to prevent further harm.

The Plaintiff produced a proposed statement of claim which, at [10] & [12]:

  • included claims brought by the Company as trustee against Mr Phillips and Certeq.
  • alleged that Mr Phillips was employed by the Company, in its capacity as a trustee, as a senior project manager until 11 December 2015.
  • alleged that breached contractual duties; fiduciary duties and statutory duties.
  • claimed that that Certeq had knowledge of the breaches of fiduciary duties
  • the relevant conduct occurred between September 2015 to December 2015 to:
    • set up a business in competition;
    • divert business relating to Launceston Airport;
    • divert away an opportunity to quote in respect of Foxtel;
    • obtain confidential information relating to McDonald’s; and approaches to other customers.
  • the loss of ‘one off projects’ was said to be some $11.6 million of lost profits while loss of ‘ongoing projects’ was allegedly $2.7 million [12]

The Plaintiff’s oral submissions was to the effect that

(a) emails suggested that  Phillips and Barnes were setting up the competing Certeq entities as early as September 2015, while they were still at the Company;

(b) there was evidence of redirection of customers; and

(c) there was evidence that Phillips utilised confidential supplier and customer information belonging to the Company.

By way of opening consideration the Court stated:

  • section 236 of the Act allows a member of a company (acting with the leave of the Court granted under s 237) to bring proceedings on behalf of the company, in the name of the company [40]
  • under 237(1), such a person may apply to the Court for leave to bring or intervene in, such proceedings
  • section 237(2) provides:

The Court must grant the application if it is satisfied that:

(a) it is probable that the company will not itself bring the proceedings, or properly take responsibility for them, or for the steps in them; and

(b) the applicant is acting in good faith; and

(c) it is in the best interests of the company that the applicant be granted leave; and

(d) if the applicant is applying for leave to bring proceedings— there is a serious question to be tried; and

(e) either:

(i) at least 14 days before making the application, the applicant gave written notice to the company of the intention to apply for leave and of the reasons for applying; or

(ii) it is appropriate to grant leave even though subparagraph (i) is not satisfied.

  • Hadjiantonakis bore the onus of establishing each of the five elements in s 237(2) on the balance of probabilities [42]
  • regarding Barnes it was probable that the Company will not itself bring the proceeding such that s 237(a) is satisfied, as was accepted by Senior Counsel for Mr Barnes.
  • there was evidence that the requisite notice was given under s 237(e) and Senior Counsel for Mr Barnes also did not suggest otherwise [44]

Section 237(2)(b) – Good faith

The Court stated that in  Swansson v RA Pratt Properties Pty Ltd & Anor (Swansson) the 2 non-exhaustive factors to which the court will have regard in determining whether the good faith requirement of s 237(2)(b) is satisfied:

(a) whether the applicant honestly believes that a good cause of action exists and has a reasonable prospect of success; and

(b) whether the applicant is seeking to bring the derivative action for a proper purpose as opposed to a collateral purpose.

The court noted that there was authority for the proposition that if an applicant is in reality seeking to further his or her own personal interests rather than the interests of the company as a whole, then the onus will not have been discharged[47].

While Hadjiantonakis swore that the contents of the proposed statement of claim were correct and had a proper basis, and appeared to honestly believe that a good cause of action existed which had reasonable prospects of success Barnes in claiming Hadjiantonakis made the application for the benefit of the companies that he controls, rather than for the benefit of the Company [49] pointing to:

  • Hadjiantonakis was conducting the business previously conducted by the Company in competition with Certeq;
  • the amended originating motion which indicated that the derivative action will seek injunctive relief to recover harm done ‘and to prevent further harm’ but the Company no longer operates.  Accordingly the real purpose is to advance the interests of the business now being conducted by Hadjiantonakis;
  • the causal link could not be established given that the Company’s directors had fallen out in 2015 and each alleged the other was trying to usurp the business. No compensation will be available in equity;
  • Hadjiantonakis seeking to obtain relief to transfer the ownership of the Certeq entities to the Company as trust property,
  • Hadjiantonakis was litigating to obtain control of a business which is a competitor to one of his related companies and hence to eliminate a competitor from the market; and
  • the action was in breach of the Deed.

The court noted that while Mr Hadjiantonakis is a current shareholder and director  ordinarily good faith would be demonstrated however the following factors which suggested a lack of good faith [51]:

  • Hadjiantonakis was essentially seeking relief against competitor entities, thereby highlighted his personal interest in the proposed litigation [52].
  • as at the time of the Deed, the relevant stakeholders (including Mr Hadjiantonakis) saw no need to specifically preserve a right of action in the interests of the Company and it was appropriate for the Company to be deregistered within six months (and later wound up) notwithstanding that any action was unlikely to be finalised within such a short period of time. This was because the plaintiff wrongly considered that, having (ineffectively) purported to replace the Company as trustee, he could sue his competitors directly in the name of the Hadjiantonakis entities. The desire to now institute this litigation in the name of the Company suggests that the current attempt may not be motivated by the interests of the Company [54].
  • the extreme remedy sought of transferring the ownership of the (competitor) Certeq entities to the Company was consistent with a desire to bring the action in order to eliminate a competitor from the market [55].

In taking those matters into account the Court was not satisfied that the application is being brought for the interests of the Company itself, rather than to advance the personal interests of Hadjiantonakis (in damaging a competitor) [56].

Section 237(2)(c) – Best Interests

In considering the Best Interests test the court cited Swansson which stated that s 237(2)(c) is not satisfied if the proposed derivative action may be, or appears to be, or is likely to be, in the best interests of the company [59]. There should, at [60], be evidence:

(a) as to the character of the company.

(b) of the business, if any, of the company so that the effects of the proposed litigation on its proper conduct may be appreciated.

(c) enabling the court to form a conclusion whether the substance of the redress which the applicant seeks to achieve is available by a means which does not require the company to be brought into litigation against its will.

(d) as to the ability of the defendant to meet at least a substantial part of any judgment in favour of the company in the proposed derivative action so that the court may ascertain whether the action would be of any practical benefit to the company.

The court found

  • the character and business of the Company is reflected in the Deed and that the controlling minds decided that the Company would cease trading and cease being in existence (by being deregistered then wound up) [67].
  • the plaintiff also accepted that a winding up would be inevitable;
  • it is appropriate for a winding up order to be made now in this case on the basis of the suspension of business for over a year as well as on the ‘just and equitable’ ground [68].
  • the option of liquidation will also not necessarily stymie the litigation [70] because:
    • a liquidator:
      • is given power to bring or defend legal proceedings in the name of the company under s 477(2)(a) of the Act.
      • may apply to the court for directions on any matter arising under the winding up [71]
  • while the trust deed provides that the office of trustee will be determined and vacated on liquidation such that the Company will be a bare trustee & the trustee will be generally released from all obligations under the Deed ‘arising after the date of such retirement ’ the existing bare trustee will still retain duties which existed by reason of the office of trustee and the liquidator could (at least) still consider whether or not to pursue the litigation
  • other steps could then be taken if litigation was to actually proceed including:
    • the appointment of a replacement trustee with an appropriate vesting order and/or the making of orders under s 63 of the Trustee Act 1958 (Vic) and/or
    • the appointment of a receiver [73].
  • although there may be funding issues, there are options available to manage this taking into account the commercial interests of the Company [74]

The court was not satisfied that the substance of redress sought will be unavailable absent the grant of leave [75] and found that  appointment of a liquidator will:

  • ensure that a person independent of the two warring factions will be able to exercise professional judgment as to whether a claim ought be pursued in the commercial interests of the Company.
  • take into account the best interests of the Company and in circumstances where liquidation is inevitable in any event [76].


Section 237(2)(d) – Serious question

The Court relied on South Johnstone Mill Ltd v Dennis where a serious question to be tried was satisfaction that there is a sufficient likelihood of success to justify it going to trial [79].

The court was satisfied that the material raises a sufficient likelihood of success to satisfy the test however there were issues as to:

  • quantum and causation,
  • likely success of any such claim as well as the real benefit of such action for the Company [84].

Winding up

The Winding Up Application sought the winding up of the Company on:

  • the ‘just and equitable’ ground (s 461(1)(k) of the Act) and/or
  • the basis the Company has suspended business for a whole year (s 461(1)(c) of the Act)
  • the ground that the Company is insolvent (s 459P of the Act) [91].


The court found that each of the first two grounds are established in this case[92]

In relation to the just and equitable ground the court :

  • noted circumstances include where there is a deadlock between those who control the company and there has been a breakdown of the personal relationship between them [95] where the appropriate course is to:


.. appoint an independent party, such as a liquidator, to take control of the Company, its remaining assets, and bring an objective view, unrestrained, unrestricted and unencumbered by the views of the parties, in order to determine the fate of the company.

  • took into account the following factors, at [97]:
    • overwhelming evidence of a breakdown of trust and confidence in a relationship which was predicated on mutual co-operation, trust and confidence;
    • the relevant stakeholders had already determined that the Company should have been deregistered/ liquidated some two years ago;
    • the parties (as well as an accountant) have been unable to finalise the affairs of the Company and resolve the deadlock despite having had ample opportunity to do so;
    • the Company does not have any ongoing business which might be adversely impacted by the liquidation; and
    • an independent liquidator will be best able to investigate whether it is in the commercial interests of the Company for the proposed action to be taken.


Hadjiantonakis opposed a winding up stating that:

(a) the application is a defensive tactic brought for an improper collateral purpose ;

(b) Barnes does not come to the Court with clean hands;

(c) there was no utility to the application;

(d) if successful, there will simply be another level of administrative expenses and legal costs; and

(e) the creditors, largely, do not require the Company to be placed into liquidation [100].

The Court:

  • was unable to find any collateral purpose in circumstances where the allegations the subject of the proposed claim have not been established or tested. The late filing of the Winding Up Application (which was also cited) does not establish any collateral purpose.
  • found that a lack of clean hands is not an absolute bar [104]
  • found the alleged breaches were matters for trial while the alleged breaches of undertakings were also not the subject of any probative evidence [105] and that the objective evidence also suggested that the relationship between these parties had also broken down at some point earlier than July 2015. As such the situation of breakdown was not created by any misconduct [106]
  • noted that while the liquidator would be a bare trustee was again highlighted this would not prevent the proceeding [107]
  • stated that extra costs are a consideration but ensure that an independent liquidator may assess the merits of any litigation removed from the pressure of warring factions [106]
  • was not satisfied that any other less drastic alternative relief was appropriate [107]
  • stated that regarding the creditors were concerned, the consents do not weigh against a winding up in circumstances where the winding up order is to be made on the non-trading/just and equitable grounds [108].
  • stated that notwithstanding the Deed (which contemplated deregistration and vesting ), the Company remains deadlocked, and is not trading.  [109]

As a consequence:

  • the Leave Application was dismissed [119].
  • there will be an order for the winding up of the Company with Mr Handberg appointed liquidator of the Company [120].



This was a particularly hard fight. The latest in a line of hard fights between two directors that had fallen out badly.  It is a very useful decision in considering the principles of what constitutes good faith and, to a lesser degree, best interests.

The acrimonious history, the terms of the Deed and other actions of the Plaintiff acted to compromise the application.  The court espied intent by the Court which overcame the Defendant’s problem with unclean hands.

In my experience the acrimony between directors in a breakdown in the management of a Company can lead to documentary evidence which can both work for and against parties in oppressions and winding up applications.  It is difficult to predict what other litigation may arise but the trail of documentation can thwart subsequent applications, as was the case here.

The decision is also a useful reminder that the court will wind up a company where there is deadlock and the Company is performing no useful function.  In this case the Court was very concerned that it was necessary to remove the warring parties from the Company.

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