“Hey! That was the Co’s opportunity to sell baby formula!” | Sunnya Pty Ltd [2023] NSWSC 1104

A Co that made infant formula had two shareholders: P as to 51%, DCo as to 49%: [1], [2]

DCo was controlled by a married couple – D1 and D2 – who had roles including as the Co’s former director and former CEO: [3]

P alleged D1 and D2 breached their duties to the Co: [4]

P said D1 and D2 caused an opportunity for the Co to promote and distribute a certain brand of infant formula to be diverted away from the Co, and toward entities related to D1, D2 and members of their family: [5] – [10]

P said D1 and D2 caused the Co to transfer ownership of its trademarks to entities related to them: [11] – [15]

P said D1 and D2 caused the Co to make payments to entities related to them based on fraudulent invoices and otherwise improperly: [16]

P said the entities related to the Ds were aware of these breaches and knowingly took the benefit: [18], [19]

P sought leave to bring a derivative suit to agitate these claims, and also alleged s232 corporate oppression: [23], [24]

Interim freezing orders were made pending the outcome of this application: [24]

The Court considered the five s237(2) criteria in relation to the proposed derivative suit.

The 1st (the Co probably not commencing the proceedings), 2nd (the P coming in good faith on the basis that increasing the Co’s value would increase their shares’ value), 4th (the P showing there was a serious question to be tried) and 5th (the Ds had notice of the claim) were all met: [32] – [37]

This left the question of whether the granting of leave would be in the best interests of the Co.

P submitted that the nature of the claim, and its prospects, were so compelling in the context of the Co’s affairs that a grant of leave would be in the Co’s best interests even if supported by only a limited indemnity from P: [41], [42]

The proceedings were likely to be factually and legally complex with claims against multiple defendants and an estimated 16 days needed for the final hearing: [45]

The Court found that any grant of leave to P ought to include an indemnity from P to the Co for any adverse costs orders, but not to the extent pressed for by the Ds: [46]

Many of the relevant Ds were based in China. The cost of enforcing the judgment in China was uncertain (as were the prospects – with expert evidence suggesting no judgment of an Australian Court had been registered and enforced by a Chinese Court). The Court found it would only be in the best interests of the Co for leave to be granted if P indemnified the Co in respect of this cost: [47]

Leave was granted to P to bring the derivative suit, conditional upon the indemnities being provided: [78]

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