Macquarie a ‘knowing participant’ in shareholder oppression: judge

A Victorian Supreme Court judge says Macquarie knew a restructure of mortgage aggregator Connective was intended to circumvent rights of a minority shareholder.

The decision handed down in the Victorian Supreme Court this week by judge Ross Robson. Picture: NCA NewsWire / David Geraghty

Macquarie Group was a “knowing participant” in a scheme by the directors of mortgage aggregator group Connective to breach their duties and oppress a minority shareholder, according to a Victorian Supreme Court judge.

In a damning decision handed down this week, Justice Ross Robson found that the purpose of a Connective restructure was to sell a 25 per cent stake to Macquarie without triggering the pre-emptive rights of minority shareholder Slea.

“Macquarie was aware that the restructure might be challenged by Slea,” Justice Robson said in a lengthy judgment. “It was aware of the risk of proceeding with the sale, based on the restructure, but nevertheless went ahead.”

The judge also took a dim view of testimony from Connective chief executive Glenn Lees and director/principal Mark Haron, ruling they were unfit to act as company directors. Both men, he said, had “repeatedly displayed a willingness to act dishonestly”.

“I am satisfied that they have consciously refused to comply with court orders, destroyed relevant documents, not complied with discovery obligations, made a false affidavit (in the case of Mr Herron) and (at best) a sharp affidavit (in the case of Mr Lees) to deliberately conceal information, and have twice invoked the court’s process for a collateral purpose and as a vehicle for oppression.”

A Macquarie spokesman declined to comment.

Connective said its majority shareholders and directors had been involved in “protracted and complex” litigation with a minority shareholder who had not been involved in the business for over 13 years.

“While attempts were made to resolve the dispute at various times, ultimately they were not successful,” it said.

“While we respect the court’s process, we do not agree with many of the findings and will be appealing the decision.”

The complex case and 453-page judgment concerns the restructure of Connective in 2011 and the $5m sale in 2013 of a 25 per cent stake to Macquarie.

Sofianos Tsialtas, the principal of Slea which owned one-third of Connective, said the transactions occurred without his knowledge and were designed to remove him as a shareholder by the majority owners.

The stakes have risen since Macquarie became a shareholder.

After pulling in $42bn in annual settlements from its network of 3600 brokers, Connective attracted a $120m takeover bid in 2019 from Perth-based broker AFG Home Loans.

AFG became frustrated by the delay in the court’s judgment, saying in July last year that the merger was unlikely to proceed because conditions in the implementation deed had to be satisfied in a month.

The judge said he was not satisfied that Macquarie’s involvement had been of “significant benefit” to Connective.

“There was no evidence that Macquarie had provided some specific service that increased the value of the Connective business,” he said.

Justice Robson said Slea would still own one-third of the business if there had been no breach of their duties by the Connective directors.

Macquarie’s return should therefore not exceed its original investment plus interest.

“In view of Macquarie’s knowledge of the improper conduct of the directors in making the sale to Macquarie, I do not consider it fair and equitable, or practically just, that Macquarie should be able to profit through its own inequitable and unconscionable conduct in taking advantage of the directors’ breach of their duties,” Justice Robson said.

The judge said he would make orders to undo the sale of Connective shares to Macquarie, which would be reimbursed for the purchase price.