Premraj v Irani [2006] VSC 3

What the court decided

In the first of two proceedings heard together, Mary Premraj, her husband Caralapati Premraj and Victoria Hall (Aust) Pty Ltd sued Carsten director Boman Irani and others, including Thirteenth Corp, which Mr Irani controlled [1], [4]. Victoria Hall held ten of Carsten's twelve shares, and Mr Premraj had held the other two as trustee for Mrs Premraj [1], [10]. Under a 1999 deed, the Litigation Deed, Mr and Mrs Premraj, purportedly as Carsten's "sole shareholder", authorised Thirteenth Corp to sue Law Mortgages Queensland Pty Ltd in Carsten's name [7].

Leave sought under section 236 of the Corporations Act 2001 (Cth) (the Act) was no longer pursued [2]–[3]. The defendants did not resist cancelling 3032 shares issued to Thirteenth Corp or oppose a declaration that Mr and Mrs Premraj and Don Titus Rajapaksha were validly appointed directors [3]. The only substantive issue left in the proceeding was a debenture charge Carsten granted to Thirteenth Corp on 8 October 2004 [3].

Mr and Mrs Premraj and Victoria Hall relied on sections 232 and 233 of the Act, seeking to have the charge set aside or its enforcement restrained [31]. The defendants submitted that when Carsten granted the charge, Thirteenth Corp was both a creditor and the only existing shareholder [33].

Mandie J was satisfied that the grant was "contrary to the interests of the members of Carsten" [34]. His Honour identified the majority shareholder at that time as the holder of the twelve shares, more likely the Australian Securities and Investments Commission than Victoria Hall or Mrs Premraj, citing section 601AD [34]. Victoria Hall had been deregistered in December 2002 [23]. The charge served only Thirteenth Corp's interests and no identifiable interest of Carsten, its members or its majority shareholder [35]. It served the purposes of Thirteenth Corp to have the potential to keep control of Carsten, while the Litigation Deed was, "one way or another", inoperative or at an end [35]. As Carsten was insolvent, the charge also served Thirteenth Corp in seeking to obtain priority over other unsecured creditors should the Law Mortgages litigation bear fruit [35].

His Honour said it would be ordered that the charge be set aside and discharged by Thirteenth Corp [36]. The orders to be made also cancel the shares, deem the three directors validly appointed and otherwise dismiss the originating process [42]. The parties were to be heard on costs [43].

In the second proceeding, Mr Irani and Thirteenth Corp sought a receiver or, alternatively, Carsten's winding up in insolvency, and his Honour dealt first with the winding up application [4], [37]. Mr and Mrs Premraj and Victoria Hall submitted that the new board, which included Mr Irani, be permitted to run Carsten and that a liquidator's costs would end any realistic chance of Carsten's litigation being continued successfully [39]. As his Honour understood it, they did not dispute the legal basis for a winding up order [40]. He found the section 459P power beyond doubt on the uncontradicted evidence; they sought a discretionary refusal [40].

His Honour found Carsten insolvent with substantial unpaid debts, Mr Irani and Thirteenth Corp entitled to a winding up order and no good discretionary reason for refusing it [41]. In his Honour's view, it was not in the public interest for "this wholly insolvent company" to continue under its directors' control [41]. With shareholders and directors in continuing litigation and disputation, there was every good reason to interpose an objective controller to ascertain Carsten's liabilities and decide the fate of its litigation [41]. He stated that a winding up order would be made in that proceeding [44].

Why it matters

Mandie J was satisfied that this charge, serving only Thirteenth Corp's interests, was contrary to the interests of Carsten's members and said it would be set aside [34]–[36]. His Honour favoured winding up over leaving the new board in control [39], [41], [44]. It is a trial decision on its facts; the current Act and later authority are worth checking.

Numbers in square brackets are paragraph numbers of the judgment. This note summarises a decided case for education and is not legal advice. See how the notes are written.