Consequences of Deadlock in Corporate Relations

The case of Nassar v Innovative Precasters Group Pty Ltd highlights the complexities that companies face when a breakdown in corporate relations occurs, leading to the winding up of the company. The case illustrates how a deadlock between the management and shareholders can result in the just and equitable ground for winding up, despite the absence of oppressive conduct by the management. This decision serves as a key guidance for companies, clarifying that winding up is a justified remedy when corporate relations break down, and highlighting the importance of directors' duties towards each other.

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Introduction
The Corporations Act, 2001 (Cth) is the main legislation which is applicable for the companies
in Australia. Through Part 2D.1 of this act, the directors and the officers of the companies have
been given certain duties, which have to be fulfilled as a statutory requirement (Latimer, 2012).
Apart from this, the common law also imposes certain duties on the directors, which have to be
adhered to in a strict manner. The reason for this is that a breach of director duties results in
pecuniary penalties, disqualification orders and even attracts criminal liabilities (Cassidy, 2006).
Nassar v Innovative Precasters Group Pty Ltd (2009) NSWSC 342 was one of the cases where
the court concurred that there was the need for mutual cooperation and a particular trust level for
running the day to day management of the company in a smooth manner. The court in this stated
that the winding up of the company, based on the present circumstances, was merely a remedy to
the situation which was present, where the working relationship required trust, confidence and
mutual co-operation and these were broken down (Chamberlains, 2017).
The following parts analyses this case, particularly in terms of the duties and responsibilities
which were contravened.
Nassar v Innovative Precasters Group Pty Ltd (2009)
In this case, the proceedings were related to the activities carried on by the individuals regarding
the three companies that had been created and owned by them, i.e., the Innovative Precasters
Group Pty Ltd, herein referred to as IPG, the IP Group Pty Ltd, herein referred to as Group, and
the DGN Investments Pty Ltd, herein referred to as DGN, and these three were the defendants of

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this case, along with the others. In the first company, the shares were held by Marfern Pty Ltd
and by the two companies respectively held by Grass and Oliveira. In the latter two companies,
Nassar, Grasso and Oliveira were the only directors (Australasian Legal Information Institute,
2009a).
The allegations which were made in this case were related to the affairs of the company not been
conducted in a proper manner as they were contrary to the members’ interests as a whole, owing
to the conduct being unfairly prejudicial or oppressive or unfairly discriminatory particularly
against the plaintiffs of this case (McInerney, 2015). Nassar and Marfern made the claim against
the two companies in which they were shareholders and Nassar alone made a claim for the
company in which Marfern was not a member. The key relief which the plaintiff sought was the
three companies to purchase the shares of the plaintiff and the alternative claim was for the
company to be wound up (Jade, 2009).
Duties/ Responsibilities breached
The directors of each and every company owe certain duties towards the shareholders of the
companies. This is in particular reference to protection of the minority shareholders, owing to the
far reaching remedies which are given to the oppressed minority shareholders (Paolini, 2014).
The directors have the duty under section 181 whereby the directors and the key officers of the
company have to use their powers and fulfil their obligations for the proper purpose, in good
faith and in the best interest of the company (Australasian Legal Information Institute, 2017).
The breach of this section attracts civil penalties under section 1317E of this act (Federal
Register of Legislation, 2017). Derived from this duty is the duty of the directors towards the
interests of all the shareholders.

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The duty towards minority shareholders of the company is enhanced because the minority
shareholders do not have the ability of influencing the affairs of the company. Hence, it is
important for the directors to act fairly for these shareholders and make it their duty to ensure
that the decisions taken by them promote the interest of all the shareholders and the company. In
case the directors fail to do so, they not only breach their statutory duties, but also have the risk
of being engaged in oppressive conduct, where section 232 and 233 apply (Easton, 2013).
The basis of the claim was the oppressive conduct of the management of the company and so, the
section 232 and 233 were applied. The statutory jurisdiction which is created under these
sections provides a way through which the legal rights can be looked beyond by the court and
such action is undertaken which is equitable and just. The partnership between Oliveira and
Grasso was a key part which led to the oppression in this case. Though, this claim of the plaintiff
could not stand. In order to hold Oliveira and Grasso liable, it was shown before the court that
they had failed in taking the requisite steps, which was required on by being the directors of the
company. They failed to avoid the conduct which was unfairly discriminatory, unfairly
prejudicial or oppressive conduct, which was a mechanistic and simple approach (Jade, 2009).
For avoiding these charges, the member on whom the expectation of facilitating the adherence of
fair terms has been placed are not required to make immediate detailed offers which are
construed in isolation from negotiation and discussion, which could fulfil the criteria of fairness
led by lord Hoffmann. It was stated by the court that Nassar had the right to expect a reasonable
approach towards a negotiated exist. However, Nassar deliberately chose not to negotiate on
reasonable terms of withdrawal. This did not deny the fact that the management was indulged in
oppressive conduct. So, not only were there shortcomings in the conduct of the plaintiff also,
there was an absence of oppressive conduct in the view of the court after they considered the

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events which took place in formation of the three companies in which the common directors
were present, and the events which took place in late 20007, 2008 and 2009 (Jade, 2009).
And yet the directors failed in their directors duties as the court held that the winding up of the
company was a just and equitable thing to do, owing to the application made by Nassar pursuant
to section 461(I). The directors not only owe a duty of care to the shareholders, but also towards
each other. They have a duty to work mutually and with a level of trust towards each other. The
breach of this very duty on part of the directors led to the court making a winding up order (Jade,
2009).
Decision of Court
The court in this case had held that in this case, there had been no breach of section 232 and
section 233 which relates to oppressive conduct on part of the management (Australasian Legal
Information Institute, 2009b). The provisions of section 232 provides that in case the
management of the company indulges in unfairly discriminatory, prejudicial or oppressive
conduct, then pursuant to section 233, the court can pass an order to ask for the purchase of
shares of the minority shareholder, to windup the company, to ask a director to do something or
to refrain from doing something and the like (ICNL, 2017). However, for this, section 232 has to
be fulfilled. However, the claims of plaintiff fell short on proving this. Had this been successful,
the Oliveira and Grasso would have been ordered pursuant to section 233 to purchase the shares
of Nassar. As the plaintiff failed in showing that the conduct was oppressive, there was no
possibility of the court making an order under section 233 (Jade, 2009).

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The court in this accepted that by forming their companies, the three participants of this case had
the entitlement and the expectation to participate in the daily management of the company. In the
views of the court, these three were in such a position owing to the nature and the informality
which attended the daily relationships, where there was a need for them to have a level of trust
and mutual co-operation. The submission which was made by the three individuals, i.e., between
Nassar, Grasso and Oliveira, in this case that they were partners was not accepted by the court.
However, there relationship was such where there was a need of certain level of trust and mutual
co-operation. The court also stated that they came to be associated together in a form which can
be only deemed as quasi-partnership (BRI Ferrier, 2015).
However, in this case, the parties had differences which could not be reconciled and due to these
reasons, they did not participate in the daily activities of the company, requiring the quasi
partnership to end. Considering it as a just and equitable thing to do, the court thus made a
winding up order in this case and accepted that winding up, was the typical remedy which could
be applied in the situation which was present, in which a working relationship which required
trust, confidence and mutual co-operation was shattered. In order to come to the conclusion
regarding the exclusion from the daily management of Nassar, the court referred to the breach of
understanding regarding the participation of Nassar in the management. The participation had
continued till it was abruptly ended in Nov 2007. And in the days to follow, Nassar stopped
being active in the management of the company. And this is one of the reasons why Nassar failed
to indulge in talks with Grasso and Oliveira, where the matter could have been resolved with
ease (Jade, 2009).
As the counsel of both Grasso and Oliveira accepted that this was a classic case for a winding up
order to be made on the grounds of the irretrievable breakdown in the relationship which was

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present between the members, the making up of a winding up order was deemed as a justified
thing to do. For coming to this decision, a reference was made to Accurate Financial Consultants
Pty Ltd v Koko Black Pty Ltd [2008] VSCA 86; (2008) 66 ACSR 325, where it was stated that
winding up is a remedy for such cases where the trust, confidence and mutual co-operation
breaks down. This is because equity is not an ordinary order for continuing with the association
where the same is futility, and would need a constant supervision; further it would require
specific enforcement of personal services. The court, after analysing the case, thus passed an
order for the IPG and DGN to be wound up and appointed liquidators for both the companies
(Jade, 2009).
Impact of Decision
This case acts as a key guidance for all the companies in the nation as it presents to them the case
where a claim of oppression and mismanagement would fail. This case also clarifies that in such
cases where there is a deadlock in the management and there is a breakdown in the corporate
relations, the winding up of the company is deemed as a just and equitable thing to do. This
power has been aptly given the courts pursuant to section 461(1)(k) of this act (WIPO, 2015).
Hence, instead of making a claim of oppressive conduct, or any other matter, the shareholders of
the companies could opt for this section and save both time and efforts of the court.
Conclusion
The case of Nassar v Innovative Precasters Group Pty Ltd highlights the complexities which the
companies have to face and the manner in which the company can be wound up, when it is
deemed as a just and equitable thing to do, even absence of oppressive conduct of the

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management. This case highlighted the failure on part of Nassar in showing that there had been
an incident of oppressive, unfairly prejudicial or unfairly discriminatory conduct, merely because
of a deadlock between the management of the company. The directors of the companies not only
owe a duty of care towards the shareholders but also towards each other. However, this is not a
statutory duty and a common law duty. The only statutory duty which could be applied in this
case was the duty of best interest. As the directors failed to come together and work for the
company, this duty could be deemed to have been contravened. However, the decision which
was made in this case was related to the winding up of the company as this was deemed as a just
and equitable thing to do.

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References
Australasian Legal Information Institute. (2009a) Nassar v Innovative Precasters Group Pty Ltd
[2009] NSWSC 342 (1 May 2009). [Online] Australasian Legal Information Institute. Available
from http://www.austlii.edu.au/cgi-bin/viewdoc/au/cases/nsw/NSWSC/2009/342.html?
context=1;query=Nassar%20v%20Innovative%20Precasters%20Group%20Pty%20Ltd
[Accessed on: 07/09/17]
Australasian Legal Information Institute. (2009b) Nassar v Innovative Precasters Group Pty Ltd
[2009] NSWSC 513 (10 June 2009). [Online] Australasian Legal Information Institute. Available
from: http://www.austlii.edu.au/cgi-bin/viewdoc/au/cases/nsw/NSWSC/2009/513.html?
context=1;query=Nassar%20v%20Innovative%20Precasters%20Group%20Pty%20Ltd
[Accessed on: 07/09/17]
Australasian Legal Information Institute. (2017) Corporations Act 2001. [Online] Australasian
Legal Information Institute. Available from:
http://www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/ [Accessed on: 07/09/17]
BRI Ferrier. (2015) Breakdown in corporate relations: winding up on the just and equitable
ground. [Online] BRI Ferrier. Available from: http://briferrier.com.au/news/breakdown-in-
corporate-relations-winding-up-on-the-just-and-equitable-ground [Accessed on: 07/09/17]
Cassidy, J. (2006) Concise Corporations Law. 5th ed. NSW: The Federation Press.

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Chamberlains. (2017) Winding up on just and equitable grounds: quasi-partnerships. [Online]
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equitable-grounds-quasi-partnerships/ [Accessed on: 07/09/17]
Easton, M. (2013) Don’t forget minority shareholders. [Online] Australian Institute of Company
Directors. Available from
http://www.austlii.edu.au/cgi-bin/viewdoc/au/cases/nsw/NSWSC/2009/342.html?
context=1;query=Nassar%20v%20Innovative%20Precasters%20Group%20Pty%20Ltd
[Accessed on: 07/09/17]
Federal Register of Legislation. (2017) Corporations Act 2001. [Online] Australian Government.
Available from: https://www.legislation.gov.au/Details/C2013C00605 [Accessed on: 07/09/17]
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McInerney, A. (2015) Anthony McInerney SC. [Online] New Chambers. Available from:
http://www.newchambers.com.au/wp-content/uploads/2015/04/McInerney-CV-update-February-
2017.pdf [Accessed on: 07/09/17]

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Paolini, A. (2014) Research Handbook on Directors Duties. Northampton, MA, USA: Edward
Elgar.
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http://www.wipo.int/wipolex/en/text.jsp?file_id=370817 [Accessed on: 07/09/17]