Federal Court of Australia

Entama Enterprise Pty Ltd v Consystex Pty Ltd, in the matter of Consystex Pty Ltd [2025] FCA 468

ORDERS

THE COURT ORDERS THAT:

1.    The second and third defendants’ interlocutory application for the appointment of receivers and managers to the first defendant, filed on 3 April 2025, is dismissed.

2.    In relation to the first and second plaintiffs’ interlocutory application filed on 21 March 2025, the parties are to confer with a view to providing consent orders giving effect to these reasons for judgment or, to the extent that consent orders are not able to be agreed, competing proposed orders accompanied by written submissions of no more than three pages, by no later than 4:00pm on Wednesday 14 May 2025.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

OWENS J:

1    Pending the final determination of their dispute, the opposing interests in these proceedings each seek interlocutory relief directed to overcoming disagreements between them that are affecting the ongoing operation and management of the first defendant, Consystex Pty Ltd.

2    On one side are the plaintiffs, Mr Villaescusa and his company Entama Enterprise Pty Ltd. On the other are the second and third defendants, Mr Tsihlis and his company Halifax Central Pty Ltd. Consystex is not taking an active role in the proceedings, and so when I refer to the defendants I mean the active defendants.

3    Entama and Halifax each own half of the shares in Consystex, and Mr Villaescusa and Mr Tsihlis are its only two directors. Consystex was established in 2012 by Mr Villaescusa and Mr Tsihlis, and it conducts a concrete formwork business, employing over 40 people, with over 1,200 customers, and with substantial annual revenue. From its inception, Mr Villaescusa has been responsible for the customer-facing operations of Consystex, and Mr Tsihlis has been responsible for the company’s financial and administrative operations. One consequence of that division of responsibilities that is relevant for present purposes is that Mr Tsihlis has always been the only person authorised to operate Consystex’s bank account and accounting software.

4    In October 2023, the plaintiffs commenced these proceedings in which they allege that Mr Tsihlis and Halifax have engaged in oppressive conduct contrary to s 232 of the Corporations Act 2001 (Cth). In March 2024, Mr Tsihlis and Halifax filed a cross-claim seeking the appointment of receivers and managers to Consystex (for the purpose of effecting its orderly sale), or, alternatively, that it be wound up on the just and equitable ground. In December 2024, the plaintiffs commenced separate proceedings seeking leave to bring a derivative action on behalf of Consystex against Mr Tsihlis, Halifax and a number of other related entities.

5    The plaintiffs filed their interlocutory application on 21 March 2025, and the defendants filed their interlocutory application on 3 April 2025. In broad terms:

(a)    The plaintiffs seek interlocutory injunctive relief of various kinds. In the interlocutory application itself, the primary orders sought were ones directed to securing authority for Mr Villaescusa to operate Consystex’s bank account and accounting software, along with a regime pursuant to which both Mr Villaescusa and Mr Tsihlis could each make payments of up to $50,000 each week, with agreement required for amounts beyond that. In argument before me, however, the focus switched to the alternative relief sought; namely, that all payments and accounting entries be the subject of agreement.

(b)    The defendants seek the appointment of receivers and managers pursuant to s 1323(1)(h) of the Corporations Act and/or s 57 of the Federal Court Act 1976 (Cth), inter alia, to conduct and manage the business of Consystex and effect its orderly sale.

6    The extent to which the operations and management of Consystex are being affected by the disharmony attending the relationship between Mr Villaescusa and Mr Tsihlis was itself a matter of controversy. The defendants submitted that there has been an absolute breakdown in the relationship, leading to an effective stalemate in relation to the management of the company, with the company’s affairs thus being detrimentally affected. The plaintiffs, while accepting that there has been a breakdown in the personal relationship between the directors, submitted that the consequences for the management of the company were more limited.

7    Overall, for reasons that I will explain, I am satisfied that the plaintiffs’ assessment of the situation is closer to the truth. That is to say, it seems to me that, on the whole, the business of the company continues to operate reasonably effectively, with the examples of seriously disruptive disagreements being relatively confined. In those circumstances, and having regard to the potentially dire consequences that may flow, I am not persuaded that it is appropriate to appoint receivers and managers to the company. At the same time, I do not think that the rather sweeping regime for which the plaintiffs contend would be likely to produce much in the way of benefit. Rather, a more tailored set of orders directed towards specific issues, and ensuring transparency in the parties’ conduct in relation to the operation and management of the company, is appropriate.

8    In circumstances where neither party has been provided with an opportunity to make submissions in relation to the specific regime I am disposed to order, the appropriate course is for me to give the parties a short opportunity to consider these reasons and address me in relation to any issues arising out of them before I proceed to make interlocutory orders.

not appropriate to appoint a receiver

9    The basis upon which the defendants submitted a receiver should be appointed was that doing so was necessary or desirable to preserve property the subject of a pending claim (i.e., Consystex). (The defendants cited Leney & Sons Ltd v Callingham and Thompson [1908] 1 KB 79 at 84, but see also, e.g., Sapphire (SA) Pty Ltd v Ewens Glen Pty Ltd [2011] FCA 600 at [15], per Besanko J; University of Western Australia v Gray (No 6) [2006] FCA 1825 at [71]-[74], per French J; Ao Qing Investment Pty Ltd v 52 Lord St East Perth Pty Ltd (No 2) [2023] FCA 293 at [40], per Jackson J). The threat to Consystex that was said to give rise to the need to protect it pending the outcome of the proceedings was the fact, about which it was submitted there could “be no real doubt”, that there had been an “absolute breakdown” in the relationship between Mr Villaescusa and Mr Tsihlis, and that by reason of “the lack of trust and the effective stalemate” in the management of Consystex, “the affairs of the company have and continue to be detrimentally affected”.

10    The appointment of a receiver is recognised to be almost inevitably of very great consequence to a company, in that it “robs it of its control over its own assets and business”: National Australia Bank Limited v Bond Brewing Holdings Limited [1991] 1 VR 529 at 540, per Kaye, Murphy and Brooking JJ. Other serious consequences may be found in the operation of the terms of the company’s contracts or securities, or in the willingness of suppliers and customers to trade with the company, or the terms upon which they will do so. Although it has been said that “no court will make such an order unless convinced of its necessity” (NAB v Bond at 540), and there are many similar expressions of extreme caution being required, it is important to bear in mind that the statutory powers sought to be invoked by the defendants are not limited in those terms: see Woods v Harrison, in the matter of Telco Service Holdings Pty Ltd (in liquidation) [2017] FCA 732 at [36], per Beach J.

11    Various instances of an inability of the directors to agree on some matter to the detriment of Consystex were raised, but the two examples upon which the defendants’ submissions focussed were as follows:

(a)    There is a disagreement concerning the basis upon which financial statements and tax returns should be prepared for the 2023 and 2024 financial years. That disagreement is really a product of a series of other disputes between the directors concerning the existence or validity of a range of other transactions involving the company and its directors. Those underlying disputes form part of the subject matter of the substantive proceedings. The fact that those accounts and tax returns have not been finalised means that the company is not just in default of its obligations under the general law, but also under contractual obligations it owes to a lender under the terms of the loan agreement. The company is compliant with its obligations to file quarterly Business Activity Statements, but the defendants contend that they may need to be amended depending on the resolution of underlying disputes.

(b)    There is a dispute between the directors about whether certain creditors of the company should be paid. The most significant example of this issue concerns a particular creditor, whose solicitor has written to the company threatening legal proceedings if $377,375.56 is not paid immediately. In broad terms, the plaintiffs contend that the company is contractually obligated to pay that debt, whereas the defendants refuse to pay it on the basis that they suspect some impropriety on the part of the plaintiffs in incurring it. If legal proceedings are commenced, then the defendants say that it will be impossible to instruct solicitors in relation to the claim. There are a range of other disputes about whether particular expenses were properly incurred for the benefit of Consystex and, accordingly, whether they should be paid. None of those disputes, however, has yet reached a point where it appears to threaten the business or its value.

12    Other issues were also revealed in the evidence. While many of the disputes did not appear likely to affect the future conduct of the company’s business, some plainly had the potential to do so. For example, the term of the lease of the premises from which the company operates in New South Wales has expired, and Consystex is currently on a holding over period month-to-month. The defendants have apparently declined to authorise the company to renew the lease.

13    It is important to place those, admittedly substantial, issues in perspective. The company continues to trade. It is apparently doing so profitably. It employs more than 40 staff, and has substantial cash at bank (more than $800,000). The disputes between the parties are not affecting the operation of the business as a whole; rather they are discrete disagreements about particular matters with relatively confined impacts. None of them seem to me to give rise to an imminent risk to the viability of Consystex, and to the extent that they give rise to a risk that the value of the company will be impaired, the degree and magnitude of the risk is not such as to justify the appointment of a receiver.

14    In relation to the question of tax returns, it is plainly undesirable that the company be in default of its obligations. There was no evidence, however, that the ATO had raised any complaint, much less that any specific adverse consequences were in prospect. Equally, it was not in dispute that no approach had been made to the ATO to obtain an extension of time, or otherwise to explain why preparation of the company’s returns had not been possible. Quarterly BAS returns are being submitted, and amounts owing under them being paid. State taxes, wages, and superannuation entitlements are all being paid. The delay in filing the annual tax returns is not, it must be said, of such a magnitude that it is necessarily, or even likely (at least yet), to lead to any impact on the value of the company prior to resolution of the substantive proceedings.

15    Similar observations apply in relation to the company’s inability to finalise financial statements, and provide them and tax returns to its lender: there was no evidence that the lender had raised any issue whatsoever with the failure to comply with contractual obligations to provide financial statements and tax returns, or that any consequences for the company’s loan facility were likely. Once again, therefore, I am not persuaded that there is any imminent substantial risk to the value of Consystex by reason of the failure to finalise financial statements and tax returns.

16    Of course, it is possible that the situation could develop in a way that did give rise to the potential for the value of Consystex to be adversely affected. Whether that happened would no doubt depend on a variety of factors, chief among them being the way in which the parties responded to unfolding circumstances. The point of present relevance is that I do not think the current impasse in relation to financial statements and tax returns poses a threat to the existence of Consystex, and to the extent that it threatens the value of the company, it is not such as to justify the appointment of a receiver. If circumstances did change, then the question of the appointment of a receiver could be revisited in light of the then-prevailing situation, and the events leading up to it.

17    In relation to the threat of litigation by a company creditor, it may be accepted that the risk to the company is greater. Even then, however, some perspective is required. At the most basic level, neither side suggests that the amount claimed, if paid, would imperil the company. More than that, however, there does not appear to be any dispute that goods and services, required for Consystex’s business, were provided by the creditor. The issue seems to be that the defendants consider that the plaintiffs caused Consystex to agree to pay more than fair market value for those goods and services. This application is plainly not the occasion to enter into a consideration of the merits of the competing positions. But as even that brief summary of the dispute makes plain, the issue is unlikely to be as binary as the parties presently perceive it to be.

18    For one thing, it may be that consideration needs to be given to distinguishing between the rights and obligations that exist as between Consystex and the creditor, and those that exist as between the parties to these proceedings. Even if, after that consideration, there remains a disagreement between the parties about Consystex’s obligations to the creditor, and that it is not in truth a dispute as to rights that the parties to this proceeding may have against one another, or that Consystex may have against the parties, then the parties may wish to consider whether it is common ground that at least some amount is owed by the company to the creditor. The outcome of a more careful and nuanced assessment of the situation in that way may, it thus seems to me, cast the significance of this dispute to the value of the company in a very different light. If nothing else, given the relatively early stage at which the dispute with the creditor presently exists, I do not think I can infer that either of the parties would be likely to act in a way, whichever way things develop, that would cause irremediable harm to the company.

19    Once again, therefore, it seems to me to be premature to assume that the dispute between the parties about the payment of this creditor will inevitably lead to (a) an inability of the company to instruct lawyers to advise it, (b) an inability to form a consensus view that may avoid litigation by the creditor (or at least change the nature and scope of the claims advanced), (c) even if the creditor does sue, an inability to defend those proceedings, and (d) the company being subject to a successful winding up application. As with the disagreements underpinning the inability to prepare financial statements and tax returns, the point at which a receiver might be appointed has not yet been reached (and it is pointless to speculate now about what that point may look like, and how it might come about).

20    Similar observations may be made in relation to the other disputes about expenses purportedly incurred on behalf of the company. At least insofar as I could discern, the primary character of those disputes was disagreement between the parties as to whether particular expenses are of benefit to Consystex. In that sense, they represent a disagreement between the parties in relation to discrete items of expenditure, arising out of differing views at the periphery as to how best to run the business. I do not consider that the disputes to which I was taken demonstrate a sufficiently fundamental and pervasive dispute as to how the business should be run. Once again, it would be useful for the parties to distinguish clearly between the rights and obligations of the company and its creditors, and the rights and liabilities of the parties against one another.

21    In terms of the issue concerning the non-renewal of Consystex’s NSW factory lease, the evidence was largely silent other than as to the fact of the dispute. To the extent that a reason for the disagreement was suggested, it appeared to be little more than caution in entering into a long-term arrangement in circumstances where these proceedings were ongoing. I am not, in any event, in a position to understand the stage that the dispute has reached, whether there truly is an impasse, the full extent of the reasons that underly it, nor the magnitude of the risk (if any) that it may pose to the company. There was certainly no evidence that the lessor may, much less is likely to, terminate the month-to-month tenancy. If such an intention were manifested, then, because I know very little about the underlying issue between the parties, I simply do not know how they would be likely to react (other than that both sides have an interest in preserving the value of Consystex). Once again, therefore, it seems to me that it is premature to regard this dispute (whatever its nature and extent) as one involving any real threat to the existence or value of the company. If the situation changes in the future, then the matter can be revisited.

22    Similar observations may be made in relation to all of the other disputes to which reference was made. None of them seemed to me to constitute, individually or collectively, a threat to the company or its value such as to warrant the appointment of a receiver.

23    All of the disagreements and issues that were relied upon need to viewed in the context of the otherwise successful ongoing conduct of the company’s business. This context shows that the breakdown in the relationship between the parties is not such as to render the enterprise incapable of being carried on, or even to impair it except in discrete respects. It follows that I am not satisfied that there is a real threat to the existence or value of Consystex or its business at this time, such as to warrant the appointment of a receiver to preserve its value pending determination of the parties’ substantive claims.

24    To the extent that there are disagreements impacting upon the operation of the company, and to the extent that there does exist a deadlock in relation to some issues, I consider that an alternative regime of interlocutory orders is appropriate. I will explain what I have in mind below, in the context of dealing with the plaintiffs’ application. The availability of less drastic orders is, however, itself a factor that I take into account when considering whether to exercise the discretion to appoint a receiver.

25    I am also persuaded that there would be likely to be significant adverse consequences of appointing a receiver to Consystex. That is a powerful consideration against the appointment. The potential impacts flowing from the appointment of a receiver include:

(a)    Consystex has an interest-only loan facility, upon which it owes over $1.2 million. The facility is secured against all of the assets and undertaking of the company. The appointment of a receiver would constitute an event of default, entitling the lender to enforce its security. (There was initially some debate as to whether s 434J of the Corporations Act would prohibit the lender from enforcing the loan agreement in these circumstances. Ultimately, I did not understand the defendants to dispute that s 434J would not apply to this particular security, on the basis that the exception specified in cl. 5.2.50 of the Corporations Regulations 2001 (Cth) applies. At the very least, I understood them to accept that there was a real risk that s 434J would not apply.) The plaintiffs submitted that the lender would be likely to find the more than $800,000 Consystex holds in its bank account an attractive initial target for recovering the borrowed funds. The plaintiffs also submitted that more serious consequences (such as the appointment by the lender of its own receiver, and a forced sale of Consystex’s business) may follow. The defendants submitted that any receiver appointed by the lender, as a secured creditor, would be likely to stand by while the Court-appointed receiver sold the business as a going concern. Ultimately, I do not think it is necessary for me to make findings as to the precise consequences that would flow from the appointment of a receiver. It is plain, on any view, that very great disruption to the company’s finances, and business, would result. (I should add that the defendants relied on the fact that the loan facility was also secured by guarantees given by Mr Tsihlis, and his related entities. The fact that the appointment of a receiver would potentially affect him directly was relied upon as demonstrating the strength of the defendants’ conviction that a receiver was necessary. It does not, however, change the balance in the exercise of my discretion.)

(b)    Consystex is a solvent, profitable, and successful business. There was evidence that its present value is more than $6 million. It employs over 40 people throughout Australia, and is contracted to provide concrete formwork to many government and private clients around the country. In the ordinary course, it would be expected that there may be a loss in the confidence that suppliers, customers and employees have in Consystex. That loss in confidence may well result in harm to the business. The situation would be even worse to the extent that the receiver, having regard to ss 419 and 419A of the Corporations Act, was unwilling to incur personal liability for debts incurred in continuing to trade.

26    (I pause to note that, initially, it was submitted that the appointment of a receiver would permit the company’s landlords to terminate their leases. It was, however, ultimately common ground that s 434J of the Corporations Act would prevent that from happening.)

27    Overall, therefore, I am not persuaded that the appointment of a receiver to sell the company would in fact preserve the value of the business. To the extent that the defendants submitted that that would benefit the plaintiffs (because they could acquire Consystex for less than its current worth), that seems to me to be no answer at all. At the very least, any sale prior to the resolution of the substantive proceedings has the potential to be conducted on a basis that reflects the oppressive conduct of which the plaintiffs complain (I say, of course, nothing as to the merits of those allegations). Once the potential impacts on the business, its customers, and employees are taken into account, the appointment of a receiver could be said to “preserve” Consystex only in a way that is redolent of the final submission of the second woman appearing before King Solomon: “let it be neither mine nor thine, but divide it”.

28    The potential harm that may be caused to Consystex by reason of the appointment of a receiver, in circumstances where an alternative and more targeted regime is capable of ensuring the preservation of the subject matter of these proceedings pending final determination, is thus an additional reason why I do not regard such an appointment as appropriate.

29    A range of other matters were raised by the plaintiffs in opposition to the defendants’ application, including the fact that the appointment of receivers was, in effect, the final relief sought in the proceedings, that there had been delay in the bringing of the application, and various other considerations. In light of the conclusion I have reached, it is not necessary to deal with those additional arguments. I will say something, however, in relation to some issues that were raised in connection with the defendants’ reliance on s 1323 of the Corporations Act.

30    The defendants framed their application in the first instance as an application under s 1323(1)(h)(ii) of the Corporations Act, and only in the alternative pursuant to s 57 of the Federal Court Act. The reason for that was because, so they submitted, the effect of s 1323(4) was to forbid the Court from requiring an undertaking as to damages (whereas it was accepted that such an undertaking would otherwise almost inevitably be required: NAB v Bond [1991] 1 VR 386 at 559-561, per Kaye, Murphy and Brooking JJ; National Australia Bank Limited v Bond Brewing Holdings Limited (1990) 169 CLR 271 at 277, per Mason CJ, Brennan and Deane JJ).

31    The defendants could only apply for an order under s 1323 if they are an “aggrieved person” within the meaning of that section. In the present circumstances, the defendants could only be an aggrieved person if they were persons to whom a party in the proceedings is, or may become, liable to pay money. As things stand, there is no pleaded cause of action in the proceedings pursuant to which any party is said to be liable to the defendants (the cross-claim brought by the defendants only seeks orders for the appointment of receivers to Consystex, for the company to be wound up, and ancillary relief). The defendants sought to overcome this difficulty by submitting that it was possible that they may amend their cross-claim to seek monetary relief from Consystex. In those circumstances, it was submitted that Consystex “may become liable” to pay them money (and thus that they were an “aggrieved person”).

32    I do not accept that the possibility of an unarticulated future claim is capable of satisfying the words “may become liable” in s 1323. The presence of those words is explained by the fact that s 1323 authorises orders that may be made in advance of the final determination of the liability of a person against whom proceedings have been commenced. The general purpose of the orders authorised by the section is to preserve the utility and effectiveness of the principal proceedings in relation to which they are sought: see Australian Securities and Investments Commission, in the matter of Richstar Enterprises Pty Ltd v Carey (No 3) [2006] FCA 433 at [25]-[27], per French J. The “interests of a person” that the Court may make orders to protect are interests arising out of or in connection with a claim of liability that has been raised in proceedings. The words “may become liable” do not operate to expand the power conferred by s 1323 so that it may be deployed in protection of the interests of an aggrieved person generally, let alone a person who has not yet asserted a liability.

33    In any event, the fundamental premise of the defendants’ preference for an appointment pursuant to s 1323 was flawed. The defendants sought an order under s 1323(1)(h). Sub-section 1323(4) does not prohibit the Court from requiring an applicant to give an undertaking as to damages before making an order under sub-s (1). The prohibition in sub-s (4) relates only to the granting of interim relief under sub-s (3). That is to say, where an applicant has sought relief under sub-s (1) but, before considering that application, the Court is persuaded that an interim order under sub-s (3) should be made, no undertaking is required. Here the defendants did not seek interim relief pending the determination of their application under sub-s (1). It follows that the Court would not have been prohibited from requiring an undertaking as to damages in the event that it had been found to be appropriate to appoint a receiver.

34    That conclusion would have thrown into sharp focus the plaintiffs’ contentions in relation to the adequacy of the undertakings as to damages that were offered by the defendants. Given the potential significant adverse impact on Consystex of the appointment of a receiver and the conduct of a sale process prior to the resolution of the substantive issues in these proceedings, it would have been necessary for the defendants to satisfy me that their undertaking was of substantial value. In light of the conclusion I have reached, however, it is not necessary for me to address that question.

The Plaintiffs’ Application for Interlocutory Relief

35    I have already mentioned that the focus of the relief sought by the plaintiffs, as it was articulated in their interlocutory application, was to secure for themselves equal rights to transact on Consystex’s bank account and to operate the company’s accounting software. The proposed regime would have seen both parties having a right to pay amounts on behalf of the company up to $50,000 per week, with all amounts beyond that requiring the consent of both sides. It was accepted that granting such a right to the plaintiffs would involve a material change to the way that the business had been operated since its inception. That fact explained the emphasis in the defendants’ submissions in opposition to the application on what were asserted to be the slender prospects of the plaintiffs succeeding at trial in establishing an entitlement to be involved in the financial management of Consystex.

36    During the course of oral argument, however, the primary relief sought by the plaintiffs was articulated as follows:

1.    Forthwith and from 5 May 2025, the First and Third Defendants do all things and provide all consents necessary to give the Second Plaintiff access, transacting rights, privileges, administrative and signatory rights, logins and passwords, and to be a signatory, to the First Defendant’s bank account … (Bank Account), for both in person and online internet banking transactions.

2.    Forthwith and from 5 May 2025, the First and Third Defendants do all things and provide all consents necessary to give to the Second Plaintiff … access, transacting rights, privileges, administrative and signatory rights, logins and passwords, to the First Defendant’s existing MYOB accounting software (MYOB).

3.    After compliance with order 1 above, any withdrawals from the Bank Account are to be done or caused only by the prior agreement in writing of the Second Plaintiff and the Third Defendant.

4.    After compliance with order 2 above, any entries, deletions or variations in the MYOB are to be done or caused only by the prior agreement in writing of the Second Plaintiff and Third Defendant.

5.    The First and Second Plaintiffs and the First, Second and Third Defendants are to cause the First Defendant to apply to the Australian Taxation Office (ATO) for extension of the time to file the company tax returns of the First Defendant for the financial years ending 30 June 2023 and 30 June 2024 including by providing the ATO with a copy of the pleadings in these proceedings, the submissions in respect of the interlocutory processes filed in these proceedings on 21 March 2025 and 3 April 2025 and any reasons for judgment of Justice Owens in these proceedings.

6.    Until further order, the First and Second Plaintiffs and the First, Second and Third Defendants are not to cause the First Defendant to loan further monies to the First or Second Plaintiffs, the Second or Third Defendants, and any of their respective related entities.

37    I am persuaded, for the reasons I give below, that the plaintiffs have made out a case for the grant of interlocutory relief, but not (or at least not entirely) in the form sought by them. I consider it to be plain that at least some of the orders sought by the plaintiffs should not be made:

(a)    In relation to proposed Orders 1 and 3, I do not consider that they would in any way assist in resolving any disagreement between the parties, or ameliorating the effects of those that cannot be resolved. By requiring every transaction on the company’s bank account to be subject to the prior written agreement of both Mr Villaescusa and Mr Tsihlis seems to me both surplus to requirements (in that there is no suggestion that the vast bulk of transactions are anything other than uncontroversial), and likely to be futile in those relatively rare instances where there is a disagreement (in that a requirement for written consent will not assist in resolving the dispute). Overall, to give both parties control over the company’s bank account would appear likely to create significant additional potential for disputation. I thus consider that making orders in terms of proposed Orders 1 and 3 would be, at best, pointless and, at worst, would be likely to engender even greater disputation and conflict than presently exists.

(b)    In relation to proposed Orders 2 and 4, similar observations apply. To require prior written agreement for every entry in the company’s MYOB accounts will simply create a pointless additional hurdle for the vast bulk of uncontroversial transactions, and will do nothing to resolve those disputes that do exist. To give both parties control over the company’s accounting software seems to me likely to give rise to very serious practical problems.

38    Rather, it seems to me that the features of an interlocutory regime that might have some practical utility would include:

(a)    A means of providing visibility over the company’s financial operations to the plaintiffs. Transparency in the financial operation of the company will in itself encourage restraint and impose discipline, focussing the parties’ minds on the best interests of Consystex rather than their own positions, while also allowing the early identification of any potential issues, permitting the parties to engage with one another at the earliest opportunity to resolve them and, if that fails and it is otherwise appropriate, seeking the intervention of the Court. I would imagine that this could be achieved by providing Mr Villaescusa with read-only access to the company’s MYOB accounting system, but I will of course hear from the parties as to whether the objective of transparency could be better achieved by some other means.

(b)    A prohibition on related-party transactions with Consystex without the consent of both parties. While the order proposed by the plaintiffs was limited to related-party loans, it seems to me that that does not go far enough. The disputes between the parties concerning related-party loans appeared to go well beyond the fact of the making of a loan, and extended to other transactions by which Consystex was charged for services alleged to have been provided by related parties (with those amounts being set off against the amount of loans made to the party in question). Imposing a moratorium on future related-party loans, transactions in relation to existing loans, and other related-party dealings (save where both sides agree that the transaction is in the best interests of the company) pending the resolution of the proceedings, will remove the most likely source of serious friction in relation to the ongoing operation and management of the company. I will of course hear from the parties as to whether a general prohibition of the kind I have in mind would be too blunt an instrument.

(c)    The use of reasonable endeavours to agree on the appointment of an independent solicitor to advise the company in relation to the demand for payment by the creditor I have described above. As I have already indicated, it seems to me that there may be utility in the question of the company’s rights and obligations vis-à-vis that creditor receiving separate consideration to the dispute between the parties to these proceedings. If an independent solicitor is put in possession of the relevant undisputed facts, plus the competing contentions of the parties to these proceedings, it may be that useful legal advice can be given to the company that does not depend on acceptance of the correctness of one or other party’s position. Receipt of such advice, if it is able to be given, may prove of significant assistance to the parties in overcoming one aspect of their disagreement capable of adversely affecting Consystex. Again, of course, I will hear from the parties as to whether such a course of action would be attended by any difficulties that I have not foreseen.

(d)    An approach to the ATO to seek an extension of time.

(e)    A general regime for the sharing of information designed to ensure transparency to one another in relation to the substantial issues arising and the decisions taken within each side’s respective spheres of traditional authority for the management of the company. Once again, such transparency seems likely to me both to encourage a useful discipline in each party’s approach to the discharge of their obligations to Consystex, and to facilitate the early identification of any specific issues requiring the parties’, or the Court’s, attention.

39    Because the regime I have in mind differs in substance from that proposed by the plaintiffs, it is appropriate that the parties have a short period of time within which to consider these reasons for judgment, confer with a view to proposing a consent regime or, failing that, provide competing submissions in relation to their respective proposed regimes.

40    The reasons why I am persuaded that interlocutory relief of the general kind I have outlined is appropriate are as follows:

(a)    I am satisfied that the plaintiffs have established the existence of a prima facie case to be tried. At the very least, the pleaded allegations concerning the propriety of various related party transactions are all coherently articulated in the pleadings, and find at least superficial support in the extensive affidavit evidence filed in the proceedings. That is not to say, of course, that the claims are anything other than arguable, and that the defendants’ denial of those claims is not also arguable. The defendants have not yet served their evidence in response to that of the plaintiffs, but they tendered some documents on this application that show, on their face, that there will be a vigorous contest about at least some of the plaintiffs’ contentions. The contest in relation to these various transactions is a sufficient basis upon which I am able to find the existence of a serious issue to be tried.

(b)    The real question is thus the balance of convenience. The threat to the status quo identified by the plaintiffs was that “the business and assets of Consystex [may be] scuttled prior to the final determination of the proceedings”. In that way, there was an obvious similarity between the basis upon which the defendants urged the appointment of a receiver (which I have rejected), and the basis upon which the plaintiffs sought to justify the granting of interlocutory injunctive relief. The difference, of course, lies in the magnitude of the risk, and the likelihood of it coming to pass. As will be apparent, I do not accept that the situation is as terminal as the defendants (or possibly even the plaintiffs) would have it. In circumstances where I have accepted a much more modest characterisation of the threat to Consystex, but a threat nonetheless, the balance of convenience favours a much less drastic regime than the appointment of a receiver, and an interlocutory regime much more targeted than that proposed by the plaintiffs.

(c)    I do not consider that the general dispute between the parties concerning the extent to which the plaintiffs are entitled to participate in the financial management of Consystex is a dispute that is putting at risk the existence or value of the company pending the resolution of the substantive proceedings. Rather, as I have already outlined, it is particular disagreements about discrete matters that are the real source of conflict and immediate risk to the company. Save in those particular respects, Consystex appears to be continuing to operate and trade successfully in accordance with the broad division of responsibilities that has applied since its inception. Particularly in circumstances where the plaintiffs accept that interlocutory relief in the terms that they sought would effect a fundamental change to the way that the company had operated since its inception, such relief would go well beyond that necessary to preserve the status quo. (The relevant status quo being, of course, the present value of Consystex, rather than the manner of its operation.)

(d)    I am persuaded, however, that the breakdown in the parties’ relationship does give rise to a real risk that some specific disputes may arise or escalate in such a way as to impair the value of the company. For the reasons I have given in relation to the defendants’ application for the appointment of a receiver, at least thus far, it seems to me that even the most significant disputes that presently exist have some way to go before they are likely to endanger the company. The undoubted personal antipathy that exists between the parties may well be leading them to view those disputes as more intractable than they in fact are, if not fundamentally to misunderstand or mischaracterise them. It is this potential for the parties’ personal relationship to deflect them, when dealing with the particular issues that have arisen, from their true duty to act in the best interests of Consystex that strikes me as the greatest threat to the value of company.

(e)    Preservation of the status quo (i.e., the stable and prudent operation and management of the successful business operated by Consystex, thereby maintaining its value) will thus best be achieved by a regime that effects as little change to the way in which it has successfully operated over more than a decade, while providing to each side full transparency and visibility in relation to the conduct of the other so that trust can be maintained and, to the extent there are disagreements, they can be promptly identified, on the basis of accurate information, and their resolution facilitated.

(f)    The sharpest disputation between the parties appears to relate to historical transactions, most commonly being with, or involving in some way, a related party. The merits of the parties competing contentions in relation to those disputed transactions will be determined at the final hearing of these proceedings. The ultimate outcome of that contest may or may not result in an augmentation of Consystex’s balance sheet. For present purposes, however, it is sufficient to note that no party suggested that awaiting the final adjudication of those disputes would produce any irremediable prejudice to the company (save the defendants’ submissions, dealt with above, in relation to legal action by creditors and the inability of the company to finalise its tax returns and accounts). While those disputes can await a final judgment, the possibility of future related-party transactions did seem to me to give rise to the possibility of irremediable harm to the company and thus the status quo. For that reason, preservation of the status quo will be served by a prohibition on related-party transactions other than those to which all parties consent.

(g)    In relation to threatened legal action against the company, I am concerned that the parties’ focus on their own dispute may be obstructing their view of matters from the company’s perspective. A process by which the company receives advice from an independent lawyer may assist the parties to perceive more clearly the critical issues affecting Consystex, and avoid the company suffering unnecessary harm.

(h)    Finally, I consider that the regime I propose represents a minimal intrusion on the freedom and rights of the parties. In that way, it does not alter the balance between them more than absolutely necessary to preserve the stable operation of the business, in the circumstances of their dispute, pending final resolution of their respective claims.

41    In light of the limited nature of the regime that I have determined is appropriate, I would expect that the potential for loss to be suffered as a result of the making of the interlocutory orders is very low. In those circumstances, I do not consider it to be necessary to resolve the controversy between the parties as to the adequacy of the plaintiffs’ undertaking as to damages. Even if it is the case that the plaintiffs’ assets are limited to a half share of Consystex, that seems to me to be sufficient.

42    So: I will give the parties the opportunity to consider these reasons, to see if they can agree on the terms of the interlocutory regime to be put in place, and, if they can’t, to propose competing orders accompanied by written submissions of no more than three pages. That should all be done by 4:00pm on Wednesday 14 May 2025.

43    Insofar as costs are concerned, my present inclination is that the appropriate order is that the costs of both applications should be costs in the cause, but the parties may contend for a different costs order in any submissions filed in relation to the substantive orders.

Associate:

Dated:    12 May 2025