Minority
shareholders in a closely-held company won the battle but lost the war in their
attempt to gain a share of business profits generated by a large Defence Force
contract after they dropped out of the company.
A contract to lay data cabling was picked up by the company while
on-again off-again negotiations to buy out the minority shareholders drifted
on.
Maurice George
Stilwell and Noel Busschau Swan claimed they were entitled to between $400,000
and $600,000 as their half share in a company called Ice Group (NZ) Ltd. The Court of Appeal ruled that they had been
wronged but the effect of the court judgement is that they will get little if
any after payment of their costs.
The court was told
that Ice Group was established in 2001 to act as the New Zealand representative
of an Australian electronics supplier.
The Australian supplier went bust two years later. Ice Group was restructured leaving a Mr
Thompson with a 50 per cent interest and Messrs Stilwell and Swan holding the
other 50 per cent. Ice Group specialised
in commercial installations: CCTV systems for shops and satellite receivers for
apartment blocks. Sales were slow. By September 2004, both Mr Stilwell and Mr
Swan wanted out of the company.
Evidence was given
that no firm deal was struck between Mr Thompson and the two minority
shareholders about a buy-out figure.
Both sides thought about $5000 each was an appropriate figure with
payment to be spread over ten months. Mr
Stilwell was left “to do the calculations”. Nothing happened.
Then in 2006, Ice
Group (through Mr Thompson’s connections) picked up a large Defence Force
cabling contract. By this time, Messrs
Stilwell and Swan were still shareholders but had no continuing involvement in
the company. Mr Thompson ran the company
as if he were the sole owner.
The Court of Appeal
ruled that Mr Thompson’s actions in ignoring his other shareholders and running
the company as if it were his own amounted to “minority oppression” in breach
of the Companies Act. In these cases,
the court usually orders that the majority shareholder buy out the minority.
Messrs Stilwell and
Swan argued they should be bought out with their shares valued as at the date
of the trial – which would include profits from the Defence Force contract in
the share valuation. The Court of Appeal
ruled that the appropriate valuation date was March 2005 – before the Defence
Force contract and being balance date following the minority shareholders
decision to leave the company. This
figure could be as low as $5000 each. There
was evidence that Mr Stilwell still personally owed the company $12,000 on his
shareholder current account.
Stilwell
v. Ice Group – Court of Appeal (4.04.12)
(12.010)