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Connective wins court case appeal

by Annie Kane15 minute read

The major aggregator has won its appeal against the Supreme Court of Victoria’s judgment relating to its shareholder stoush.

On Monday morning (18 December), the Appeals Court of the Supreme Court of Victoria handed down its judgment for three separate action appeals relating to the Connective shareholder court case.

While the core of the trial judge decision remains intact, 68 grounds upon which the findings were based had been challenged by the majority shareholders of Connective and were therefore appealed.

These related to certain grounds relating to an oppression proceeding, a derivative proceeding, and an approval proceeding relating to a proposed transaction involving Connective and AFG.


The primary objective of the appeals appears to be to overturn the relief granted by the judge and instead secure orders that grant the major shareholders a first option to buy the minority shareholder’s shares. If that is declined, then the minority shareholder would have the option to purchase the shares belonging to those parties.

While upholding many of the original grounds, the three judges behind the Full Court appeal decision unanimously agreed that the trial judge “erred in certain findings”, in particular in respect to what was identified as “the financial pressure strategy” relating to behaviour in 2008, which formed a significant part of the case against the defendants in the oppression proceeding.

In reviewing the three actions, the Supreme Court of Victoria judges Mcleish, Macaulay, and Lyons found that there was “insufficient support for [the] trial judge’s finding of financial pressure strategy at an early point in time.

The application for the leave to appeal in respect to the oppression and derivative proceedings was therefore granted.

The court said that the appeals should be allowed and that the disputed orders of the trial judge in relation to those proceedings should be set aside.

The majority of the court also granted leave for appeal for the AFG proceeding, however one judge said he did not find that the judge had erred in his findings relating to the AFG transaction and therefore said he would grant leave to appeal, but dismissed the appeal.

Background to the case

The key individuals involved in the disputes are (principally):

  • Connective co-founder and chief executive Glenn Lees.
  • Connective executive director Mark Haron.
  • Sofianos Tsialtas, who was a co-founder and director of the Connective companies from their incorporation in 2003 until he resigned as a director in 2008. However, he retained a minority shareholding following his resignation.

Millsave (of which Mr Lees is a director) and Mr Haron are the two-thirds majority shareholders in the Connective companies.

Mr Tsialtas is the sole director of Slea, which holds the minority shareholding. He is also now Liberty Financial Group national sales manager.

In its essence, the trial case questioned the reorganisation and sale of Connective Services Pty Ltd (Services) and Connective OSN Pty Ltd (OSN), examining the actions of its directors during this process.

The focal point of the issue centred around the restructuring of the Connective companies in 2011 and the subsequent sale of a 25 per cent stake to Macquarie in 2013 for $5 million, purportedly without Mr Tsialtas’ knowledge. Additionally, the case argued that the deliberate ‘starving out’ of Mr Tsialtas by the plaintiffs led to him being placed into financial difficulty.

The appeals relate to the original judgment, handed down in March last year, which found that the directors had been “oppressive to, unfairly prejudicial to, and unfairly discriminatory” against the minority shareholder and had breached their duties as directors in carrying out a restructure and sale of the Connective companies. (After the restructure, which was found to have been unbeknown to Slea, a 25 per cent interest in the business was sold to Macquarie.)

The trial judge found that Mr Lees and Mr Haron were “unfit to act as company directors” and had “displayed a willingness to act dishonestly, failed to comply with court orders, and were dishonest witnesses”.

Majority shareholders can now opt to buy out Slea

The court made orders last year requiring, among other things, that Slea had the option of selling its shares to the majority shareholders or purchasing shares if it wished to do so. It determined that a majority buyout order would be an appropriate remedy given the “oppressive” conduct.

However, at the appeal judgment hearing on Monday, the court overruled some of the original orders, given it found that the trial judge had erred.

In their place, the judges said it should be ordered that Millsave and Mr Haron would instead have the option of acquiring Slea’s shares “for a fair value”, failing which, Slea should have the option of acquiring the shares of Millsave and Mr Haron for a fair value.

The judges said that there is no neat divide by which one party can be designated a ‘seller’ and the other a ‘buyer’” given that both plaintiff and defendant wish to acquire the other’s shares.

The judgment read: We do not gainsay the egregious and pervasively oppressive manner in which the majority has conducted the affairs of the Connective companies, the dishonesty that the judge identified (including flagrant breaches of the obligations on parties to litigation), or the complete lack of acceptance that the conduct in question was both in fundamental breach of the duties of the directors and profoundly unfairly prejudicial to Slea. Slea was right to emphasise these matters and to submit that the oppression in this case has been unusually broad in scale and scope.

But we have concluded that the relief that responds most appropriately to the oppression is that Millsave and Mr Haron have the option of acquiring Slea’s shares for a fair value, failing which Slea should have the option of buying their shares, again for a fair value.

Glenn Lees and Mr Haron are overwhelmingly responsible for the prosperous state that the Connective business now enjoys and that is a position that has been reached, not only through their work in the business, but with the benefit of their personal guarantees. There would be a real element of injustice in compelling a sale of their interest to Slea, which has not contributed in the same way. Although that is doubtless in part attributable to the oppressive conduct, the fact that the business has thrived under the majority’s stewardship cannot be overlooked.”

Nevertheless, the judges did not overturn the findings that Mr Lees and Mr Haron were unfit to act as company directors.

They went on to state: We conclude that the effect of the oppression is appropriately undone by an order that Millsave and Mr Haron have the option of acquiring Slea’s shareholding for a fair value. In our view, such an order strikes a balance between relieving Slea of the oppression and enabling Glenn Lees and Mr Haron to continue to operate the business they have developed.

The parties will now work to agree on the form of those orders, including the costs of the appeals that Millsave and Mr Haron must reimburse to Slea. It is expected that the court will make final orders without a further hearing.

The court ordered that the parties should each file and serve a draft form of orders to give effect to the decision of the court together with short written submissions, including as to the costs of the appeals, by 29 January 2024.

The second order will be for any short submissions in reply to be filed on or before 12 February 2024.

The Macquarie transaction is to be unwound pursuant to the orders made by the trial judge.

In a statement following the judgment, Connective said: “Today the judgment in relation to the majority shareholder appeal was handed down. The judgment was in favour of the majority shareholders, Glenn Lees and Mark Haron, in a number of important respects.

“We will continue to focus our attention on supporting our members as we have done over the last 20 years. Connective has grown to be the leading aggregator in Australia, with a membership of over 4,500 brokers who last year settled over $94 billion in loans.”

[Related: Judgment released in Connective shareholder court case]



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