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SHAREHOLDERS DISPUTE – FROM PROFITS TO LOSSES

Blog & Articles, Commercial Law, Commercial Lawyer, Dispute Resolution, Tang Law

Statistics show that up to 70% of business partnerships ultimately fail.

Many companies start out with the best of intentions between friends or colleagues, unified by a common goal of making profit.  Inspired by optimistic outlook, the necessity of formal agreements are often overlooked. However, when disputes between partners get out of control, it can turn a profitable business into losses – not just monetary loss, but also loss of reputation.

What are the reasons for failing?

Firstly, doing business with friends or family is risky.  Friends or family members often fail to maintain a separation between business and personal relationships.

Other common reason for failure include:

  • Unequal contributions by the partners. Nobody likes lazy partners!
  • Personality clashes
  • Loss of trust in each other
  • Differing values and visions.

A simple handshake to start a business is simply not good enough.  The sad thing is that when business fails, the relationships between friends or family will also turn sour.

Incorporated Business – Potential Problems

Where business partnership is undertaken via a company structure, it can become more complex due to the division of management (board of directors) and owners (shareholders).  Under our Company Law, owners have no right to manage the company.  Hence the first potential problem is that shareholders have no control.   If the company, controlled by the director, fails to carry out the objectives of the shareholders, what can the shareholders do?

Moreover, if you are a minority shareholder and the company decides to dilute your shares, what can you do?   In a company where there are 2 equal shareholders in 50/50 arrangement, if there is a deadlock, what can be done?

Case Study – Director’s Misconduct

Our Client was one of 2 shareholders in a company incorporated to pursue investment opportunities in Australia. The other shareholder was the sole Director responsible for the daily running of the company.  The Sole Director used his authority to transfer approximately $500,000.00 from the company for his personal purpose over the period of approximately 3 years.  Our client only became aware of it after several years.  Our client was denied access to the company books.  This is a classic case of director’s misconduct.

There were no formal documents in place to enforce a system of checks and balances on the Director’s conduct and to hold him accountable to shareholders. There are no mechanisms in a formal document to displace the Director for misconduct. What can the shareholder do against the director?

Shareholder v Director

As a shareholder, you have certain rights under the Corporations Act.  Where there is director misconduct, you may have resort to the following:

  • Statutory Derivative Actions – in the event where you suspect or have knowledge of possible skullduggery on the part of one or more of the directors, they may be willfully acting in disregard of the duties owed by a director to their company and shareholders. This may entitle you to apply to the Court to sue the directors in the company’s name.
  • Compensation – where the directors, through a breach of their duties have cause the company to experience loss, a claim for compensation may be available from the Court to address this wrong.
  • Account of Profits – where the breach if directors’ duties has caused the directors to make a gain or profit at the company or the shareholders’ expense, you may apply to the Court to strip them of the gains made in breach of their duties.
  • Disqualification – in circumstances where a director has acted in breach of their duties through quite egregious conduct, the Court may use its power to issue the directors with a ban on managing future companies for a certain time.

Shareholder v Shareholder

Where the dispute is between the shareholders themselves, the following remedies may be available:

  • Oppression Remedies – in the event you are in a dispute with either majority or minority shareholders, and that dispute is connected with unfair or oppressive behaviour, you may be able to seek a large variety of remedies including compulsory buy-outs and amendments to the constitution.
  • Winding Up – an extreme remedy in many cases, entailing the placement of the company into liquidation and selling all of its assets and ending with the company’s eventual de-registration. This remedy is sparingly used and reserved for situations where the Court believes that it is not able to operate further as in the case of deadlocks and other more drastic disputes.

Time to Gain Control

Commercial disputes are an intricate and complex area of law, especially in company law.   Experience and knowledge of your lawyer is extremely important.  Deploying effective litigation tactics can help you gain control of a losing situation.

ABOUT THE WRITER

Stephen Mintz joined Tang Law in November 2017 and was admitted at the Supreme Court of Western Australia as Barrister and Solicitor in 2018. Stephen enjoys working in environments that allow him to use all areas of legal knowledge at his disposal to assist and guide clients to develop creative, practical and effective means to achieve their aims.

Stephen has extensive experience in assisting with the provision migration advice in connection with visa applications, as well as, appealing cancelled or refused visas, including, the preparation of relevant documents and submissions for applications for merits review before the Administrative Appeals Tribunal. He has extensive experience in advising clients in the areas of Commercial Law, Criminal Law, and Civil Litigation matters before the Supreme and District Courts of Western Australia, as well as, the Federal Court of Australia.

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SUCCESSFUL LITIGATION TACTICS WHICH TURN THE CASE AROUND

Blog & Articles, Civil Litigation, Tang Law

It is normal for a civil proceedings to take 18 to 24 months to reach and complete a full trial.

In many cases, it could take even longer, up to 7 years. Legal proceedings is very costly and could cost hundreds of thousands of dollars. It is also highly risk, if you lose, you are very likely to also have to pay for the other party’s costs.

A decision on whether to litigate a matter must be made with extreme care.

Why Does It Take So Long?

The Australia legal system is very mature and the Court procedures are highly complex. There are many steps that must be taken in the normal course of proceedings before a case is ready for trial. This can easily take 12 to 18 months.

In addition to these steps in the normal course of proceedings, there are many other procedures in the process for interim applications to be made. These interim applications, if made, will delay the proceedings even more.

What is Litigation Tactic?

Litigation tactics are deployed to achieve your specific objectives, for example, to improve your position in order to facilitate a better outcome at negotiation, to improve your chance of success, to give you more clarity in a complicated situation, to secure or freeze assets of the other parties, etc.

However, do remember, every step you take or every application you make in the proceedings will cost you money, and it may also have cost implications if you were unsuccessful. Extreme caution must be used in deciding what tactic to use. To do this, you need highly skilled and experienced litigation lawyer to assist you.

Even though it is costly to make interim applications, in some situations, it can help you achieve an immediate “win”. One good example is a recent case we handled.

Case Study

Our client was sued by a business partner for misleading or deceptive conduct and breach of contract. It is my view that the claim was groundless or, at best, a very weak one. The partner was claiming around half a million as compensation. Our client was originally using another law firm and the claim in Court against our client proceeded for several months. Unfortunately for our client, the case was not properly conducted and the judge kept ordering costs against our client. They have also attempted to negotiate a settlement but have also failed.

Our client was stressed and felt helpless, and they came to see me for second opinion. In the first consultation with me, having briefly analysed the case, I told the client they are faced with several problems:

  1. Firstly, litigation is inherently costly and risky. For their case, I estimated over $100,000 in legal fees if the matter proceeds to a full trial. My question for them is even if they can afford it, do they want to incur this kind of expense?
  2. Secondly, they were stuck because they were being sued. They do not have a choice but to defend against the half a million dollar claim.
  3. Thirdly, they were not on the good side of the judge for continuously failed to comply with the court orders and procedures. This is undesirable.

The client was stuck in a very bad situation, having to try and save the business on the one hand, and having to deal with the legal case on the other hand. She had no control of the case and the judge was losing patience with her.

To save her situation, my advice and strategy was very clear:

  1. First, we must turn her position around from being reactive to pro-active. We must take control of the proceedings and take control of the overall situation. We want to dictate the rhythm of the matter. Can we do this? Of course we can, and we did, through the litigation tactics (see below).
  2. Secondly, we want to improve the client’s position, from being sued and having no bargaining power, to counterclaiming against the plaintiff and give her better bargaining position.

To achieve these, we made two interim applications to the Court:

  1. We applied and moved the matter into a Case Management List. As a result, we were able to move the case to another judge. Strategically, this was advantageous to the client.
  2. We then made an application to the Court for security for cost against the Plaintiff, as the business partner was a foreign person with no assets in Australia. Our application was opposed by the plaintiff’s lawyer. We were successful and the Court ordered that the plaintiff pays costs into the Court before the proceedings is allowed to continue. (see diagram – Court Order). Subsequently, the plaintiff failed to comply and as a result, the case has now been moved into an inactive list. (see diagram 2 – Court Order 2) This is an excellent example of how litigation tactics can help a party completely turn a case around. The client now does not need to spend over $100,000 in legal fees, and moreover, the plaintiff has disappeared and claim against our client is gone. This became an immediate “win” for the client.

ABOUT THE WRITER

Kelvin Tang has over 14 years’ experience practising law in Western Australia. He is the founder and Principal Partner of Tang Law based in Perth, Western Australia. Kelvin is a Registered Migration Agent (MARN: 1386452) and has extensive experience in providing migration advice to clients, advising on “Eligible Businesses” within the definition of the Migration Regulations, assisting migrants (investor of the business) with satisfying migration requirements, making visa applications and appealing cancelled or refused visas in the Federal Court of Australia, Administrative Appeals Tribunal and Migration Review Tribunal. Kelvin also has extensive experience in civil litigation, commercial and corporate law matters.

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MISLEADING CASES IN PROPERTY DEVELOPMENT

Appeal to AAT, Blog & Articles, Immigration Law, Migration Law, Permanent Visa, Tang Law, Visa Appeal

In the recent years, we noticed a significant increase in number of cases involving misleading or deceptive conduct and breach of contract in property development projects.

Case Study

In one of our recent cases, our client is a successful business migrant from PRC and does not speak any English. Through a friend who lives in Australia, also from China, our client was introduced to a local property development company. The company introduced land subdivision project to our client stating that:

  1. Our client needs to only invest $920k into the project company.
  2. The return on investment is 20% per year
  3. The project will be completed in 2 years.

The friend was present at all meetings and was translating for our client.  Our client relied heavily on and trusted the friend.  The friend helped the company convince our client that the project is very profitable.  Our client ultimately invested $920m and flew back to China.  After almost 6 years, our client did not receive any money back from the company.

Australia Consumer Law

Under the Australia Consumer Law (“ACL”), previously known as the Trade Practices Act, a person is prohibited from engaging in conduct that is likely to mislead another person. Intention to mislead is not required!   What is “misleading conduct”?

  • Any promise or representation made, even though it may be true at that time, but became incorrect or untrue at a later stage is false and misleading for ACL purposes.
  • Any promises or representation about a future matter made without reasonable basis is also false and misleading for ACL purposes.

Back to our client’s case, all of the representations made by the company were false. Our client never received the 20% return on investment or any money from the investment.

Upon investigation, we found that the company has used the project company’s funds to invest into other projects without our client’s consent.  We also found that that the project company and the director of the project company own properties valued between $3.5 to $4m.

We commenced action in the Supreme Court of Western Australia against the project company, the Company, and the director personally, for “misleading or deceptive conduct” and for breach of contract, claiming in excess of $4m in loss or damages.

At the same time, we made a strategic move in applying to the Court and successfully freeze all the assets of the company and the director.

The case went to trial and the Court found in our client’s favour.  Our client received compensation of approximately $3.5m.

High Court Case

“Misleading conduct” is one of the most commonly used legal ground to commence legal action.

In a High Court Case, Henville and Another v Walker and another (2001) 182 ALR 37, the appellants purchased a block of land to subdivide into smaller blocks. The representations made by the Respondent as to the anticipated selling prices of the subdivided blocks were substantially overestimated. The project was undertaken and the appellants suffered loss.

The High Court decided that the respondent’s misrepresentations contravened the Act and has caused loss sustained by the appellants.

Concluding Remark

If you suspect that you may lose your investment, you should act as soon as possible, before the company you invested in goes into financial trouble.  If the company is already in financial troubles, then we need to immediately search whether its directors and all persons involved in the misleading conduct to determine whether they have any assets.

The ACL has a very wide operation.  It catches every person who is involved in the misleading conduct and such person could become personally liable to compensate you for your loss sustained.

Also, there is a limitation period at law.  You will be barred from commencing legal action if you missed the limitation period.  Please do not wait if you suspect that your investment may be loss.

ABOUT THE WRITER

Kelvin Tang has over 14 years’ experience practising law in Western Australia. He is the founder and Principal Partner of Tang Law based in Perth, Western Australia. Kelvin is a Registered Migration Agent (MARN: 1386452) and has extensive experience in providing migration advice to clients, advising on “Eligible Businesses” within the definition of the Migration Regulations, assisting migrants (investor of the business) with satisfying migration requirements, making visa applications and appealing cancelled or refused visas in the Federal Court of Australia, Administrative Appeals Tribunal and Migration Review Tribunal. Kelvin also has extensive experience in civil litigation, commercial and corporate law matters.

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HOW TO IMPROVE YOUR SUCCESS RATE IN MIGRATION APPEAL

Appeal to AAT, Blog & Articles, Immigration Law, Migration Law, Permanent Visa, Tang Law, Visa Appeal

Appeal Statistics

In 2016-2017, migration appeal to the Administrative Appeal Tribunal (AAT) has increased substantially by 7,675 cases (up 41%) to a total of 26,604.

This is the highest number of applications since the establishment of the Migration Appeal Division. This suggests a significant increase in visa refusals and cancellations by the Department of Immigration.

Of the 26,604 total number of AAT appeal cases in 2017, it comprised of:

  • Partner visa – 4,001
  • Student Refusal – 4,418
  • Student Cancellation – 1,137
  • Nomination/Sponsor Approval – 2,067
  • Permanent Business – 1,007

Approximately 38% (i.e. less than half) of the cases finalised in 2017 was successful.  Where the case relates to refugee visa, only 11% was successful.

How To Increase Your Success Rate?

From our years of experience in successfully representing applicants in migration appeals, we have a proven method of substantially improving your chance of succeeding.

To stand a chance of succeeding, you must at least do the following.

Firstly, carefully review Immigration’s decision and formulate your grounds of appeal.

Applying to AAT for review is not just about filling in some forms, collating some documents or just writing a letter to the AAT.     You must know what grounds are there and which one of these grounds are applicable to your case and acceptable by AAT.  These grounds could be merits in nature or error of law.  You may need a lawyer who is experienced in migration law to help you with formulating these grounds.  In brief, you must know what the Tribunal is looking for.

Secondly, substantiate your ground with evidence.  You need to carefully consider what type of evidence would be convincing. You have to carefully reviewed every piece of evidence and tactfully put them together.  Your materials must not be inconsistent.   In short, you must provide the Tribunal with what they are looking for.

Thirdly, strengthen your appeal with past case law.  AAT is a quasi-judicial body.  The Tribunal member is bound by past decisions of the AAT or a higher court (e.g. the Federal Court).  The key here is to find past cases relevant specifically to your situation and use it to support your grounds.  In all, you must know the process and the framework in which the Tribunal must follow

ABOUT THE WRITER

Kelvin Tang has over 14 years’ experience practising law in Western Australia. He is the founder and Principal Partner of Tang Law based in Perth, Western Australia. Kelvin is a Registered Migration Agent (MARN: 1386452) and has extensive experience in providing migration advice to clients, advising on “Eligible Businesses” within the definition of the Migration Regulations, assisting migrants (investor of the business) with satisfying migration requirements, making visa applications and appealing cancelled or refused visas in the Federal Court of Australia, Administrative Appeals Tribunal and Migration Review Tribunal. Kelvin also has extensive experience in civil litigation, commercial and corporate law matters.

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WHAT ARE THE SUCCESS RATE AND REASONS FOR CONTESTING A WILL?

Blog & Articles , , , , , , , , , , , ,

74% of family provision claims by family (children or partners, including ex-partners) were successful.

Most wills are contested under family provision legislation.

Studies undertaken by the University of Queensland in 2015 found that:

  • 86% of claims are brought by immediate family: either children of the deceased (63%) or partners (including ex-partners) (23%) – This means adult children are the most common claimants in Will contests.
  • Contestation is most commonly driven by both exclusion and significant disparity in distribution.
  • When there is a contestation, there is a high rate of success, whether through the Court or through mediation.  74% of family provision claims by family (children or partners, including ex-partners) were successful.

Common Reasons for Contesting a Will

Contesting a Will refers to claims pursuant to the family provision legislation. The said studies also found that contestation is most commonly driven by:

  • Inadequate provisions to meet the needs of a family member.
  • Type and quality of relationship with the deceased.
  • Exclusion and significant disparity in distribution, where a family member felt a sense of entitlement to a better distribution.

Significance in Findings

The Will maker:

With 51% of estates contested were through family provision claims, if you are making  a will, you need to give very careful and detailed considerations to how you should distribute your assets. The more complex the family relationships, the higher the chance of your Will being contested and there being a dispute between your family members upon your death.

At the time of making your Will, you need to consider ways to reduce contestation risk by addressing underlying family dynamics and issues – such as obtaining strategic advice from lawyers, obtain counselling, properly communicate with family, etc.

The Executor or Administrator:

It is highly likely that the deceased representative who has obtained grant of Probate or Letter of Administration (i.e. the executor or the administrator) may find himself or herself having to spend a lot more time dealing with legal proceedings, engage lawyers to defend the contestation, and obtaining expert evidence to defend against a claim, as opposed to getting on with the task of actually administering the estate. This can be extremely time-consuming.

A family member who can be a potential claimant:

There is a high success rate for a family member who is seeking family provisions from a deceased’s estate.  Despite there being a Will in place, the Court has the discretion to make orders and award provisions to a family member.

ABOUT THE WRITER

Kelvin Tang has over 14 years’ experience practising law in Western Australia. He is the founder and Principal Partner of Tang Law based in Perth, Western Australia. Kelvin is a Registered Migration Agent (MARN: 1386452) and has extensive experience in providing service on Commercial Law, Dispute Resolution & Litigation, Family Law, Wills & Estate Planning and Settlements.

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