Greymouth liquidation bid an unattractive attempt to extort settlement terms, judge says
An attempt to have the Court of Appeal order the liquidation of Greymouth Petroleum was described by one of the three judges hearing the appeal as a tactic to "extort" the best possible price in the court-ordered sale of shares by minority shareholder John Sturgess.
The hearings are the latest chapter in a $40 million-plus stoush between Sturgess and related interests who own 14% of Greymouth, and interests of executive chairman Mark Dunphy and director Peter Masfen, who together control 86% of the local oil and gas producer.
Dunphy and Masfen dismissed Sturgess as chief operating officer in February 2011 amid allegations rehearsed in a High Court hearing last year of "repeatedly failing to report appropriately, honestly and accurately to the executive chairman or the board in relation to drilling activities, issues and decisions" in 2010 and 2011.
Sturgess is seeking a liquidation order for Greymouth from the Court of Appeal, with a condition that it lie with the court for 30 days to allow the parties to negotiate an exit price, following the High Court's order that Sturgess interests must sell their shares after finding in favour of the majority shareholders' complaints against Sturgess.
Two of the three judges hearing what is likely to be a three-day appeal made it clear that they found the liquidation argument "unattractive" and attempts to relitigate the High Court findings against Sturgess questionable.
Justice Forrest Miller said it was "inconceivable" that the court would "hand him [Sturgess] the leverage to extort the price" that he sought. "Why would the court exercise its discretion to allow him to do that when Mr Sturgess was the wrongdoer?"
The application for a 30-day negotiation period was clearly intended to strengthen Sturgess's position, otherwise the application would be for an immediate winding up.
"You are asking us to give them [the Sturgess interests] a very large club to beat them [the Dunphy/Masfen interests] with," said Justice Forrest. "That's from my perspective unattractive.
However, he agreed "the order to buy shares in this tightly held company is arguable and that is a matter for this court."
Sturgess's lawyer, Felix Geiringer, agreed a delayed liquidation order had "the ability to be a large bargaining chip in Mr Sturgess's pocket" but it was not inappropriate to test whether there was entitlement to seek such an order.
"The suggestion that that [liquidation] is a mechanism of extortion, I don't accept," he said. "If he is entitled to it, it's not wrong for the court to give the parties the opportunity in the light of that finding to talk to one another."
Justice Forrest countered: "Why would it be fair and equitable to wind the company up in the circumstances" when it was likely to reduce value for all shareholders, including Sturgess?
Mr Geiringer responded that a wind-up clause in the event of disagreement was a key factor of the Greymouth shareholders' agreement. That agreement required unanimous board decisions, with wind-up as a remedy if that process failed. Sturgess was seeking to exercise that part of the agreement, and it was not clear his position would be worse in a liquidation than in selling his shares in the court-ordered process.
Chairing judge Justice Tony Randerson challenged Geiringer's desire to argue aspects of fact from the High Court case.
"I don't think this is the sort of case where we should be taken through the evidence line by line," he said. "I see the case as coming down, in the end, to issues of remedy because not all the findings of the High Court are challenged by any means.
"The distinction as I see it is between the judge's finding your client [Sturgess] should sell his shares and, on the other, your argument that liquidation should follow, qualified by your submission that the liquidation order should lie in the court for 30 days, pending negotiation.
"I think that's going to be difficult," said Justice Randerson. "This court is unlikely to find the 30-day negotiation tool as attractive. There would have to be a wholesale overturning of the High Court finding that your client was primarily responsible for what happened."
Messrs Dunphy and Masfen sat together in the public gallery of the court, while Mt Sturgess sat on the opposite side.
Mr Geiringer told the court that among actions Mr Sturgess objected to was Mr Dunphy's attempt to sell Greymouth to Canadian methanol producer Methanex without notifying Mr Sturgess after the breakdown in their relationship, while Mr Sturgess remained a director of the company.