Kokotovich Constructions Pty Ltd v Wallington (1995) Case Analysis

This case study examines the Kokotovich Constructions Pty Ltd v Wallington (1995) case, focusing on a dispute between Mrs. Wallington and Mr. Kokotovich. The central issue revolves around whether the company should be wound up due to breaches of fiduciary duty and section 54 of the Act. The court considered the validity of share allotments, the beneficial ownership of shares, and whether Mr. Kokotovich, as the governing director, acted appropriately. The analysis covers the court's findings regarding the violation of fiduciary duty through the issuance of shares that hampered the respondent's voting rights, deeming such actions oppressive. Ultimately, the judge declined to validate the share allotment and suggested a wind up order as the best approach to resolve the deep-seated differences between the parties. Desklib offers more case studies and learning resources for students.

Running Head: WIND UP ORDERS
Wind Up Orders
<Name>
<University>

WIND UP ORDERS 2
Kokotovich Constructions Pty Limited, the first defendant, was incorporated on 12
October 1972. The second defendant, Nicholas Kokotovich, holds a governing director's
share as well as one each of the ``A'' and ``B'' ordinary shares, whilst the plaintiff holds an
``A'' and a ``C'' ordinary class share. On 12th May 1992, Mr. Kokotovich called the plaintiff
requesting her to go to the office of a solicitor with the defendants company seal which she
declined. The following day the plaintiff received a memo from the second defendant giving
her notice that an extraordinary general meeting of the company was to be held on the 9th of
June to consider a special resolution to remove her as a director and her status as the
company secretary. The minutes of the meeting held showed that Mr. Kokotovich declared
that since he was the governing director and could act on behalf of the board of directors
solely as per the MOA and the AOA resolved that the company should raise capital for the
purposes of repayment of liabilities and that the rising of capital be by issues shares.
The issue before the court was, who beneficially owns the shares in the first
defendant, should any order be made rectifying the initial allotments, are the allotment of
December 1992 valid, and should the company be wound up. Breach of section 54 of the
Act: The court held that the allotment of class A shares falls within the provisions of the
section 54 as the shares were subscribed. The court submitted that when the shares are to be
allotted then it is necessary that apart from subscription, there must be an application by the
shareholders and a director’s resolution to allot the shares is needed. Nevertheless, this
procedure was not followed hence violating section 54 of the Act.
Violation of fiduciary duty: It was found that the second appellant has violated is fiduciary
duty by issuing shares, which has hampered the voting rights, and powers of the respondent
and the acts are considered oppressive in nature.
The courts are circumspect in making winding up orders in circumstances where the
complaint is one of oppression. In Kolotovich Constructions Pty Ltd. Vs Wallington, the

WIND UP ORDERS 3
court of appeal held that, “the winding up of a successful and prosperous company is an
extreme step, one requiring a strong case.” The judge argued that the plaintiff had beneficial
interest in the company not because she contributed financially but because of the emotional
attachment with the 2nd respondent, it was clear that the two had a sexual relationship.
Besides the plaintiff had asked that the invalidated issue of shares in 1972 must be validated
as per the section 194 of the Acts submitting that the court is empowered to validate any
order where the order is perceived to be just and equitable. The judge in his ruling held that
there was no technical defect that can be assumed on the part of the defendant while catering
his power as governing director noting that the raising of capital in 1992 was not raise money
but to make sure that no proprietary right must be acquired if any plaintiff becomes
redundant. The allotment was hence declined.
Based on the ruling, the judge argued the best approach to resolve their differences
was to issue a wind up order.