Debnam v Stonehaus Pty Ltd; Debnam v Firehaus Pty Ltd; Yavuz v Firehaus Pty Ltd; Yavuz v Stonehaus Pty Ltd [2021] QSC 88

SUPREME COURT OF QUEENSLAND CITATION: Debnam v Stonehaus Pty Ltd; Debnam v Firehaus Pty Ltd; Yavuz v Firehaus Pty Ltd; Yavuz v Stonehaus Pty Ltd [2021] QSC 88 PARTIES: In SC No 3192 of 2021: STEPHEN ROSS DEBNAM (applicant) v STONEHAUS PTY LTD ACN 624 326 263 (respondent) In SC No 3194 of 2021: STEPHEN ROSS DEBNAM (applicant) v FIREHAUS PTY LTD ACN 636 520 191 (respondent) In SC No 3253 of 2021: SUKRU YAVUZ (applicant) v FIREHAUS PTY LTD ACN 636 520 191 (respondent) In SC No 3254 of 2021: SUKRU YAVUZ (applicant) v STONEHAUS PTY LTD ACN 624 326 263 (respondent) FILE NOS: SC No 3192 of 2021 SC No 3194 of 2021 SC No 3253 of 2021 SC No 3254 of 2021 DIVISION: Trial Division PROCEEDING: Application DELIVERED ON: 30 April 2021 DELIVERED EX TEMPORE AT: Brisbane -- 1 of 7 -- 2 HEARING DATE: 22 April 2021 JUDGE: Flanagan J ORDER: In SC No 3192 of 2021: 1. The appointment of Mr Leon Lee as provisional liquidator of the respondent, made on 22 April 2021, is terminated. 2. The application is otherwise dismissed. 3. The applicant’s costs be costs in Supreme Court proceeding 3254/21. In SC No 3194 of 2021: 1. The appointment of Mr Leon Lee as provisional liquidator of the respondent, made on 22 April 2021, is terminated. 2. The application is otherwise dismissed. 3. The applicant’s costs be costs in Supreme Court proceeding 3253/21. In SC No 3253 of 2021: 1. The respondent is wound up in insolvency. 2. Mr Leon Lee, official liquidator, is appointed as liquidator of the respondent to conduct the winding up. 3. The costs of the applicant and Mr Stephen Ross Debnam in both this proceeding and Supreme Court proceeding 3194/21 be costs in the winding up. In SC No 3254 of 2021: 1. The respondent is wound up in insolvency. 2. Mr Leon Lee, official liquidator, is appointed as liquidator of the respondent to conduct the winding up. 3. The costs of the applicant and Mr Stephen Ross Debnam in both this proceeding and Supreme Court proceeding 3192/21 be costs in the winding up. CATCHWORDS: PROCEDURE – STATE AND TERRITORY COURTS: JURISDICTION, POWERS AND GENERALLY – INHERENT AND GENERAL STATUTORY POWERS – TO PREVENT ABUSE OF PROCESS – GENERALLY – where two competing applications for the winding up of a company were brought by separate persons – where one application was filed while the other application remained on foot – where the later application was filed before the earlier application was -- 2 of 7 -- 3 reflected on ASIC registers – where the first-in-time applicant alleges that the later-in-time applicant filed his application with actual knowledge of the earlier application – whether the later application is an abuse of process – whether the Court should dismiss the later application CORPORATIONS – WINDING UP – APPLICATIONS FOR WINDING UP BY COURT – COSTS – where two competing applications for the winding up of a company were brought by separate persons – where the Court ordered the winding up on the application brought later in time – where both applications for winding up were justified and not an abuse of process – whether the unsuccessful applicant’s costs should be costs in the winding up Corporations Act 2001 (Cth), s 466 Beneficial Finance Corp Ltd v East Coast Printed Circuits Pty Ltd (1992) 7 ACSR 79, distinguished COUNSEL: P L Somers for the applicant, Debnam B Long (sol) for the applicant, Yavuz A S Cocolas (sol) for the respondents SOLICITORS: Bennett & Philp for the applicant, Debnam Celtic Legal for the applicant, Yavuz SLF Lawyers for the respondents [1] HIS HONOUR (ex tempore): There are four originating applications before the Court which seek the winding up of two companies, Stonehaus Pty Ltd and Firehaus Pty Ltd. The first two originating applications were filed on 18 March 2021. The applicant in both of those applications is Stephen Ross Debnam. Mr Debnam currently owns 30 per cent of the shares in Stonehaus and 33 per cent of the shares in Firehaus. Until about 5 November 2020, he was a director of both companies. [2] On 4 November 2020, Mr Debnam received an email from SLF Lawyers attaching a show cause letter. That letter made certain allegations which Mr Debnam disputes. The letter alleged that Mr Debnam had engaged in conduct constituting a breach of his director’s duties under the Corporations Act 2001 (Cth), allegations that he potentially committed criminal acts pursuant to Criminal Code ss 430, 442C and possibly 442D, and that he breached both companies’ shareholders agreements. [3] On 4 November 2020, Mr Debnam attended a meeting with other shareholders of the companies. At the conclusion of this meeting, he was informed that, if he did not resign as a director and employee of the companies and transfer his shareholding in each of those businesses for $1, the other shareholders reserved their rights to refer the matter to the Queensland Police Service. Mr Debnam refused to sign any documents to this effect. He was informed that his employment with the companies was terminated. According to Mr Debnam, at no time did the other shareholders offer to buy his shares. As such, he continues to hold 30 per cent of the issued shares in Stonehaus and 33 per cent of the issued shares in Firehaus. -- 3 of 7 -- 4 [4] In his originating applications filed 18 March 2021, Mr Debnam seeks the winding up of both companies on the grounds of oppression or on just and equitable grounds. Alternatively, he seeks orders that the companies or their nominees acquire his shares. Mr Debnam’s originating applications are proceedings 3192 of 2021 and 3194 of 2021. [5] The other two originating applications were filed on 19 March 2021 and are proceedings 3253 of 2021 and 3254 of 2021. The applicant in these two applications is Sukru Yavuz. His applications seek that both Stonehaus and Firehaus be wound up in insolvency pursuant to s 459A of the Corporations Act. Twenty-one days prior to the filing of his originating applications on 19 March 2021, Mr Yavuz caused to be served a statutory demand on Stonehaus for $2,354,515 and a statutory demand on Firehaus for $77,326.93. Neither statutory demand has been paid and neither Stonehaus nor Firehaus have applied pursuant to s 459G of the Corporations Act to set aside either statutory demand. [6] Mr Yavuz’s two applications came before me on 15 April 2021 in the applications list. Mr Debnam’s two applications had been set down to be heard on 22 April 2021, having been previously adjourned. On 15 April 2021, Mr Debnam applied to have the two originating applications of Mr Yavuz adjourned so that all four applications could be heard together on 22 April 2021. This was an appropriate approach. An order to this effect was made on 15 April 2021. When the four applications came before me on 22 April 2021, the parties were agreed that both Stonehaus and Firehaus should be wound up in insolvency and that Mr Leon Lee be appointed as liquidator of both companies to conduct the winding up. The only issue for determination was whether those orders should be made in relation to Mr Debnam’s applications or Mr Yavuz’s applications. [7] Both Mr Debnam and Mr Yavuz seek that their costs be costs in the winding up. Section 466(2) of the Corporations Act provides that: “The liquidator must, unless the Court orders otherwise, reimburse the applicant out of the property of the company the taxed costs incurred by the applicant in any such proceedings.” [8] Section 90-15(1) of the Insolvency Practice Schedule (Corporations), which is Schedule 2 to the Corporations Act, further provides that: “The Court may make such orders as it thinks fits in relation to the external administration of a company.” [9] Mr Cocolas, solicitor from SLF Lawyers who appears for Stonehaus and Firehaus as the respondents to Mr Debnam’s two applications, seeks the following order in the event the companies are wound up on the applications of Mr Debnam: “That the applicant’s cost of the application be in the winding up and deferred until the liquidator has made reasonable inquiry into the conduct of the applicant with respect to his conduct as director and employee of the company.” [10] On 22 April 2021, I reserved judgment until today. The parties accepted that, in the interim, it was appropriate to appoint Mr Lee as a provisional liquidator to both companies. The orders giving effect to that were made in the two applications filed -- 4 of 7 -- 5 by Mr Debnam. For the reasons which follow, I am of the view that the companies should be wound up in insolvency on the applications filed by Mr Yavuz, but that both Mr Debnam’s costs in matters 3192 of 2021 and 3194 of 2021, as well as Mr Yavuz’s costs in matters 3253 of 2021 and 3254 of 2021, should be costs in the winding up. [11] Although the two applications filed by Mr Debnam are first-in-time by one day, Mr Debnam did not seek to proceed with his applications to have the companies wound up on the ground of oppression or on just and equitable grounds. Mr Debnam, however, relies on s 459B of the Corporations Act, which provides that: “Where, on an application under section 234, 462 or 464, the Court is satisfied that the company is insolvent, the Court may order that the company be wound up in insolvency.” [12] I note that an application for the winding up of a company for oppression may be brought under s 234 and on just and equitable grounds under s 462. [13] The difficulty with Mr Debnam’s submissions is that, on the one hand, he submits that the filing of Mr Yavuz’s two applications on 19 March 2021 constitutes an abuse of process but, on the other hand, he relies on the companies’ failure to satisfy the statutory demands issued by Mr Yavuz as constituting the basis for a finding of presumed insolvency. As to the abuse of process submission, Mr Debnam identifies a number of primary facts from which the Court is invited to draw an inference that, when Mr Yavuz filed his application on 19 March 2021, he did so with actual knowledge of Mr Debnam’s applications filed the previous day. Mr Debnam relies on the following primary facts. [14] On 9 February 2021 Mr Debnam, by his solicitors Bennett & Philp, wrote to the companies’ solicitors, SLF Lawyers, calling on the other shareholders to buy out his shareholdings pursuant to the terms of their shareholder agreements. Mr Debnam proposed in the alternative that, if they did not wish to buy out his shares, he would agree to the companies being wound up. There was no response to that invitation. Instead, on 18 February 2021, Mr Yavuz issued statutory demands for the payment of debts to the companies. On 25 February 2021, the statutory demands were served on the companies by personal service on the other director of the companies, Mr North-Coombes, at the offices of Celtic Legal, who are also the solicitors for Mr Yavuz. Mr Debnam was not advised of the service of those statutory demands. [15] As I have already observed, on 18 March 2021, Mr Debnam filed his applications. They were sent by email to the companies’ solicitors that day. They were subsequently also served at the companies’ registered offices on 22 March 2021. Mr Yavuz’s applications were filed on 19 March 2021. Between 26 March and 30 March 2021, the companies’ solicitors sought an adjournment of Mr Debnam’s applications listed for 31 March 2021 and proposed a settlement conference to resolve all matters between the parties. This adjournment was consented to. [16] Mr Debnam identifies that the companies’ conduct in seeking to adjourn his applications to a date after Mr Yavuz’s applications were set down for hearing was done without informing Mr Debnam of these applications. Mr Debnam also identifies that, in spite of the adjournment from 15 April to 22 April, Mr Yavuz has not put on any material expressly denying that he had actual knowledge of Mr Debnam’s -- 5 of 7 -- 6 applications prior to filing his own applications. Mr Yavuz was in Brisbane on 18 and 19 March, and stayed the night of 18 March 2021. The companies’ accounting records show that Stonehaus paid for Mr Yavuz’s accommodation at the Meriton Hotel on the night of 18 March 2021. This was the day that Mr Debnam sent his applications to the companies’ solicitors. On 19 March, Mr Yavuz executed his affidavit in support of the applications to wind up the companies. Since the serving of the statutory demands, Stonehaus has paid Mr Yavuz a total of $478,894.58 and the legal fees of both SLF Lawyers and Celtic Legal of $13,548.97. [17] Upon these primary facts, Mr Debnam submits that the Court ought to find that, on the balance of probabilities, Mr Yavuz’s applications were filed with knowledge of Mr Debnam’s applications and, as such, are an abuse of process. The drawing of such an inference and a finding that Mr Yavuz’s applications constitute an abuse of process is a serious matter. While there is no evidence that the solicitors acting for Mr Yavuz conducted any search of the court file to see if a winding up application had already been filed, I note that Mr Debnam did not cause the filing of his applications to be entered on the ASIC records until 23 March 2021. Section 470 of the Corporations Act requires an applicant for the winding up of a company to lodge, not later than 10.30 am on the next business day after the filing of the application, notice of the filing of the application and of the date on which the application was filed. Mr Debnam did not do so. [18] The ASIC searches attached to Mr Yavuz’s affidavit in support of the winding up of the companies were both conducted after 11.00 am the day after Mr Debnam’s applications were filed. Both searches confirmed that “there are no external administration documents held for this organisation”. Mr Yavuz submits that, had Mr Debnam complied with his obligations, the Form 519 he was required to file for ASIC would have been filed and would have shown up on the ASIC register for each respondent. The mere fact that, on 9 February 2021, Mr Debnam foreshadowed that, if agreement was not made in terms of buying out his shareholding he would agree to the companies being wound up is not, in my view, sufficient in itself to have placed Mr Yavuz on notice that Mr Debnam intended to file winding up applications. [19] Importantly, Mr Yavuz caused a statutory demand to be served on the companies 21 days prior to the filing of his applications. The statutory demands, by operation of s 459F of the Corporations Act, expired at the close of business on 18 March 2021, which was 21 days after service of demands. The first day that the winding up applications could have been filed by Mr Yavuz was after the expiry of the 21-day period, being 19 March 2021. I note that Mr Yavuz is not a director or shareholder of Firehaus, but shareholder agreements for Stonehaus have been executed by him for Deezel Pty Ltd as its director and expressly nominated Mr Yavuz as Deezel Pty Ltd’s nominated director of Stonehaus. The ASIC searches do not, however, record Mr Yavuz as the director of Stonehaus. [20] Mr Debnam, in support of the submission that the filing of Mr Yavuz’s applications constitutes an abuse of process, refers to Beneficial Finance Corp Ltd v East Coast Printed Circuits Pty Ltd (1992) 7 ACSR 79, where it was held that the filing of a second winding up application with knowledge of the first winding up application was an abuse of process. I have already found that the inference that Mr Yavuz had actual knowledge of the filing of Mr Debnam’s applications cannot be drawn in the present case. Beneficial Finance is, however, otherwise distinguishable from the -- 6 of 7 -- 7 present case. Here, there is only a one day delay between the filing of the applications and Mr Yavuz’s applications were filed after the statutory 21-day period, whereas, in Beneficial, the time period was at least three months and possibly five months between the filing of separate winding up applications. In Beneficial Finance, the Court was able to make a finding that the plaintiff was “fully aware” of the filing of the previous winding up application. [21] While it is unfortunate that both Mr Debnam and Mr Yavuz have filed winding up applications one day apart, the material before me does not suggest that either party has acted other than appropriately in filing their applications. Section 466(2), which deals with the costs incurred by the applicant in proceedings to wind up a company, expressly gives the Court the power to order otherwise. [22] The orders should be that the appointment of Mr Lee as provisional liquidator of Stonehaus and Firehaus in matters 3192 of 2021 and 3194 of 2021 is terminated. Both Stonehaus and Firehaus should be wound up in insolvency and Mr Lee appointed as the official liquidator of both companies upon the applications of Mr Yavuz in matters 3253 of 2021 and 3254 of 2021. Both Mr Debnam’s and Mr Yavuz’s costs should be costs in the winding up. [23] As to the costs order suggested by Mr Cocolas, as I have already observed, the allegations against Mr Debnam are disputed by him. He remains a substantial shareholder of both companies and there is no present offer to buy out his shareholdings. In those circumstances, he was entitled to bring his applications to wind up the companies on the basis of oppression and just and equitable grounds. He should not be deprived of the protection afforded by s 466(2) in respect of his costs. The parties are to bring in orders reflecting my reasons. -- 7 of 7 --