Brother has fallen out with brother in the face of declining profitability for their Auckland marine chandlery business. Faced with increased competition from online suppliers and new local competitors, Sailor’s Corner at Westhaven has seen annual gross revenue of over five million dollars in the 1990s reduce to $1.5 million by the 2010s.
Minority shareholder Evan Innes-Jones unsuccessfully sued brother Rex asking the High Court to order a compulsory buy-out of his 44 per cent shareholding. The Companies Act gives rights to minority shareholders where there has been ‘minority oppression’. Justice Jagose ruled there had been no ‘oppression’ in this case.
The court was told their business operated through two companies: Sailor’s Corner Ltd ran the chandlery business with a second company Ijay Properties Ltd owning the building, on a groundlease from Viaduct Harbour Holdings. Over the years, income was extracted in the form of wages for time spent on the shop floor and rent paid to Ijay Properties for use of the site. Family dynamics changed when Evan suffered a heart attack in 2003. Rex spent more time than his brother on the shop floor, receiving a proportionately greater share of the business income. Rental payments to Ijay Properties had varied over the years. Rental payments reduced as gross revenue declined. By March 2013, further working capital had to be injected after Sailor’s Corner suffered trading losses. No rental was being paid to Ijay Properties. Evan objected. He was dependent on this passive income through his part-ownership of Ijay. He refused to sign off on company accounts and demanded company cheques be delivered to his home 45 minutes away when requiring his joint signature. With family relationships becoming dysfunctional, Evan asked for a court order requiring Rex buy him out.
Justice Jagose said the business had continued to operate throughout their dispute along the same formula as previously: the two companies were treated as one with an hourly rate paid for work on the shop floor and ‘rentals’ to Ijay Properties dependent on profitability of the chandlery business. Evan could not claim to be ‘oppressed’ when this same formula was applied after his withdrawal from day to day trading activities. There was no evidence of any past practice giving each brother a return on their investment in priority to wages.
Innes-Jones v. Innes-Jones – High Court (27.07.18)
18.150