Background
Sibley Investments held 40% of Adelaide Scaffold Solutions Pty Ltd (ASS), while Oldfields Advance Scaffold held the remaining 60%. Their 2005 shareholders agreement required shareholder approval for major matters, including loans exceeding $50,000, and restricted encumbrances over ASS shares. A default entitled the non-defaulting shareholder to acquire the defaulting shareholder’s shares at 90% of fair market value.
From August 2020, ASS made substantial unauthorised advances to Oldfields entities, leaving an intercompany balance of about $1.9 million by March 2025. Oldfields Advance also had granted an all-assets security interest that covered its ASS shares without following the agreement’s transfer restrictions. Sibley served loan and security default notices and sought specific performance of the compulsory share-sale mechanism.
The Court’s Holding
McGrath J held that both default notices validly engaged the share-sale process. The loan-default notice was sufficient, and the agreement did not require Sibley to serve a further default notice after Oldfields Advance failed to remedy the loan breach within 10 days.
The security default arose immediately when Oldfields Advance encumbered its ASS shares contrary to the agreement. Pure Asset’s later deed poll releasing the shares from its security interest did not extinguish Sibley’s already-accrued right to acquire them. Proceedings later brought against ASS did not trigger automatic termination of the shareholders agreement; in any event, accrued rights for past breaches were preserved.
The Court granted Sibley specific performance of Oldfields Advance’s obligation to transfer its 60% shareholding. Damages were inadequate because the shares were in a private company and their acquisition would give Sibley full control of ASS, a value not captured by the contractual valuation formula. The precise mechanics and consideration for the transfer were left for further submissions.
Key Takeaways
- A contractual cure period does not imply a requirement for a second default notice once the breach remains unremedied.
- An unauthorised encumbrance over shares can immediately trigger a compulsory transfer right where the agreement provides no cure period.
- Specific performance may be appropriate for a private-company share parcel that confers control, even where the agreement contains a valuation formula.
Why It Matters
The decision underscores the importance of drafting and following default-buyout provisions in shareholders agreements. A shareholder that breaches loan-approval or share-encumbrance restrictions may lose its stake under an agreed compulsory-sale mechanism.
It also confirms that a later attempt to cure a breach will not necessarily undo rights that arose immediately on default, particularly where the agreement makes the transfer consequence automatic upon service of notice.