Saykan v Elhan; Elhan v Saykan
[2004] VSC 83
•26 March 2004
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. 8134 of 2002
| NEBAHAT SAYKAN and SELAHATTIN SAYKAN | Plaintiffs |
| v | |
| ADNAN (aka "ANTHONY") ELHAN and ELBEK INVESTMENTS PTY LTD | Defendants |
No. 8291 of 2002
| In the matter of Unique Doors Pty Ltd ADNAN (aka "ANTHONY") ELHAN AND ELBEK INVESTMENTS PTY LTD | Plaintiffs |
| v | |
| NEBAHAT SAYKAN and SELAHATTIN SAYKAN, SELFET COKELEK and SFK COKELEK PTY LTD | Defendants |
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JUDGE: | Hansen J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 13, 17, 18 and 19 March 2003 | |
DATE OF JUDGMENT: | 26 March 2004 | |
CASE MAY BE CITED AS: | Saykan v Elhan; Elhan v Saykan | |
MEDIUM NEUTRAL CITATION: | [2004] VSC 83 | |
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Corporations – In nature of partnership – Oppression of minority shareholder – Decision to close business – Course of conduct – Corporations Act 2001, s 232.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs in 8134/2002 and the First and Second Defendants in 8291 of 2002 | Mr C R Northrop | Goldsmiths |
| For the Defendants in 8134 of 2002 and the Plaintiffs in 8291 of 2002 | Mr I R Jones | Holding Redlich |
| The Third Defendant in 8291 of 2002 in person and, as a director, representing the Fourth Defendant |
HIS HONOUR:
A bitter falling out has occurred in the Elhan family, certain members of which commenced a business manufacturing doors for kitchen cabinets in February 2000. The business was conducted by way of a company called Unique Doors Pty Ltd ("Unique Doors") which was registered on 20 December 1999. The business went well until about June 2002 when ill feeling took over. Attempts to agree on who should continue with the company failed to achieve an amicable resolution.
The Elhan family comprises Bekir and Elbide Elhan who migrated to Australia from Turkey bringing with them their family, Ismail Elhan, Nebahat Saykan, Kerry Cokelek and Adnan Elhan.
On one side in the dispute is Adnan Elhan (who is known as and whom I shall refer to as Anthony) and Elbek Investments Pty Ltd ("Elbek") which may be regarded as Anthony's company. On the other side is Anthony's sister Nebahat Saykan, her husband Selahattin Saykan, Selfet Cokelek who is married to the sister Kerry, and Selfet's company, SFK Cokelek Pty Ltd ("SFK Cokelek").
The shareholding in Unique Doors was held as to 500 shares by each of Elbek, Nebahat, Selahattin and SFK Cokelek. Anthony, Nebahat, Selahattin and Selfet were the directors. That was the shareholding until 17 September 2002 when Selahattin transferred his 500 shares to Nebahat and resigned as a director. In December 2002, pursuant to Court order, Elbek transferred its shares to Selahattin, and Anthony resigned as a director. Subsequently, on 7 March 2003 Selfet signed a transfer of SFK Cokelek's shares to Selahattin. The result of those transfers is that the shares in Unique Doors are held by Nebahat and Selahattin as to 1,000 each.
The conflict between the parties has produced two pieces of litigation.
(a)On 14 November 2002 Nebahat and Selahattin commenced proceeding 8134 of 2002 by filing an originating motion against Anthony and Elbek as defendants seeking an order that the defendants execute the following documents:
· A resignation by Anthony as a director of Unique Doors,
· A transfer of shares by Elbek, and
· A transfer by Anthony of his director's loan in Unique Doors.
(b)On 22 November 2002 Anthony and Elbek commenced proceeding 8291 of 2002 by filing an originating process against Nebahat, Selahattin, Selfet and SFK Cokelek Pty Ltd as defendants for orders under the oppression provisions of the Corporations Act 2001 ("the Act") as follows:
· For the purchase by the plaintiffs or either of them of the shares held by the defendants,
· For regulating the conduct of the company's affairs in the future,
· Alternatively, that the company be wound up.
The relief sought in the originating motion brought by Nebahat and Selahattin was based on an agreement alleged to have been made at a meeting between the parties on 2 August 2002 and recorded in separate heads of agreement dated that day, one agreement pertaining to Anthony and Elbek, and the other to Selfet and SFK Cokelek. The essence of the agreements was that Anthony and Selfet and their companies (Elbek and SFK Cokelek respectively) would withdraw from the company in favour of Nebahat and Selahattin. They would resign as directors, transfer their director's loans and the shares controlled by them to Nebahat and Selahattin or as directed in return for which each would be paid $220,000. Anthony and Elbek refused to perform the agreement.
I had the management of both cases and heard them together throughout. At the early directions hearings counsel for Nebahat and Selahattin sought orders requiring Anthony and Elbek to perform the agreement. This was resisted by Anthony and Elbek who wished to buy all the shares in Unique Doors held by the other parties. The issue required resolution as the lease of the Unique Doors premises was to expire in January 2003 and Nebahat and Selahattin did not intend to renew the lease and planned to move the business, including the machinery, to other premises used by them. They deposed that they had the funds to make the payment of $220,000 to Anthony and Elbek. It was apparent on the evidence that Anthony and Elbek did not then have the funds to pay $660,000 for the shares of the other parties.
On 9 December 2002 I ordered in the oppression proceeding that upon Nebahat and Selahattin paying $220,000 to Anthony and Elbek on or before 16 December 2002:
(a) Anthony cease to be a director of Unique Doors;
(b)Elbek forthwith on payment of the said sum provide a signed instrument of transfer of its 500 shares in Unique Doors to Selahattin;
(c)Anthony and Elbek forthwith return to Unique Doors any of its property in their possession, power or control or in the possession, power or control of their servants or agents.
I further ordered that Anthony and Elbek do all things necessary and execute all documents required to give effect to these orders.
In addition, in each case I ordered that the two proceedings be heard and determined at the same time and that the evidence in one be evidence in the other. I referred each proceeding to mediation and adjourned the further hearing of the proceedings to 14 February 2003.
I made these orders on the basis that the matter of the value of Elbek's shares in Unique Doors had not been resolved, and that it remained an issue for determination in the litigation. The amount of $220,000 was adopted as an appropriate interim solution to deal with an urgent situation on the basis that it was the amount that Nebahat and Selahattin were willing and able to pay. However, it remained an issue for resolution whether the proper value of Elbek's shares was more or less than that amount. Unless the parties were able to agree as to the value, it was an issue which would have to be resolved in the litigation. Of course, the claim of oppression also remained to be resolved as did Nebahat and Selahattin's claim in the originating motion proceeding remain to be resolved on the merits.
The orders of 9 December 2002 were complied with. Elbek transferred its shares to Selahattin.
It is in this context that the cases come on for trial.
Evidence was given by the following persons. For Anthony and Elbek: by Bekir, Anthony and Ismail each of whom was cross-examined, and David Beaumont Andrews, whose affidavit was tendered by consent without the need for oral examination. Andrews is a solicitor and member of Holding Redlich who acted for Anthony and Elbek. As to Nebahat and Selahattin: they gave evidence and their counsel also called Selfet and Andrew Stewart Reed Hewitt, an accountant. Selfet appeared for himself and spoke for SFK Cokelek, but did not actively participate in the hearing.
I now refer to the facts. In doing so I make findings and state conclusions on some issues. Where I do not refer to some part of the evidence I have not overlooked it. I have read and re-read the evidence and submissions, and have regard to it all.
The idea of the Unique Doors business arose in discussions between Selahattin and Selfet. The business would be conducted on an equal basis. Selahattin and Nebahat were then engaged in business in their company Designerform Pty Ltd ("Designerform") which manufactured post-formed bench tops at premises at 170 Settlement Road, Thomastown. Selfet was then employed at Visy Board. Subsequent discussions led to Anthony being included on an equal basis. On 20 December 1999 Unique Doors was registered as the corporate vehicle for the conduct of the business. On registration the directors were Anthony, Selfet and Selahattin who was also secretary. There was an equal shareholding between the three interests, Anthony's shares being held by Elbek and Selfet's by SFK Cokelek. Selahattin held shares in his own name. Each contributed $80,000 as capital, on the basis that the contribution would be repaid if and when the company was able to do so.
Elbek was also registered on 20 December 1999. The directors were Anthony and Bekir who each held six shares. While the evidence is somewhat unclear as to the actual amount involved, it seems that Bekir provided funds for Anthony's contribution of $80,000. On 12 December 2002, following the transfer of Elbek's shares in Unique Doors to Selahattin, Bekir resigned as a director of Elbek and transferred his shares to Anthony. Anthony is now the sole director and shareholder of Elbek.
Selfet resigned his employment with Visy, at which time he was near to being entitled to long leave, and sold his family home to raise funds to enable him to pay his $80,000.
On 27 January 2000 Unique Doors entered into a lease of premises at 167 Settlement Road, Thomastown for a term of three years commencing on 7 January 2000 with provision for one further term of three years exercisable by written notice given not more than six months and not less than three months before expiry of the lease. Anthony, Selfet and Selahattin signed a written guarantee of the obligations of Unique Doors under the lease, dated 27 January 2000. The premises were only a few doors from the premises of Designerform.
The business of Unique Doors commenced in February 2000. At her request Nebahat became a director on 3 February 2000, and an equal shareholder with 500 shares, she also contributing $80,000. Nebahat was asked why she required that Selahattin and herself have a 50 per cent shareholding. Counsel suggested in cross-examination that she required shares, to produce this equality, because Unique Doors was to have the advantage of Designerform's resources including its customer list, the businesses being complementary in the sense that a customer for a bench top might also require doors. In answering Nebahat agreed that that was the reason in part. She also said that she moved for the shift to 50 per cent when Anthony became involved, and she also referred to having given a personal guarantee for Unique Doors. I accept these as being motivating factors. The factor concerning Anthony being involved is to be understood in this way, I find. Nebahat felt that Anthony was being advantaged in that, as she put it, he "can contribute to starting a business with no effort on his behalf". Nebahat was referring to the fact that she had worked hard for several years in developing Designerform's business and here was Anthony coming into a new business that would get a kick start by taking advantage of Designerform's customer base, and her personal guarantee, without having contributed to the development of that customer base, and with the use of money borrowed from their father.
Nebahat said, and this was the general position which I find to be the fact, that the business was to operate as a form of partnership between the four, sharing profits and losses equally.
The working arrangements were these. Anthony and Selfet were employed full-time in the business. Anthony described himself as general manager. He had studied mathematics and computing. He stated that until June 2002 he worked for more than 80 hours per week. Selfet was factory supervisor and also worked on the machinery. Anthony was responsible for administration including dealing with customers and like matters. Selahattin said that he was engaged full-time with Designerform. I accept that evidence. I note Nebahat's evidence that Selahattin performed "a lot of work" for Unique Doors. That does not sit well with Selahattin's evidence. The truth is that while Selahattin might have done some things to assist Unique Doors, Nebahat exaggerated his involvement in that respect. Nebahat said that she worked predominantly for Designerform during the working hours of 9.00 am to 5.00 pm, but that she also carried out work of an administrative nature for Unique Doors attending its premises on "a regular basis every day". Again I considered that there was an element of exaggeration there.
These references sufficiently describe the working arrangements. I have noted that the capital contributions were to be repaid if and when the company could afford to do so. As to salary, the position was this. Anthony and Selfet were to receive a salary but they were not paid for the first several months because the business could not afford to do so. In that time the partners put money into the business. From July 2000 to July 2001 they received a salary of $25,000 per annum and from then a salary of $50,000 per annum.
It was not long before the business prospered. In the period ended 30 June 2000 there was a net loss of $73,374, in the financial year ended 30 June 2001 an operating profit before tax of $78,358, and in the financial year ended 30 June 2002 an operating profit before tax of $249,973. By the end of June 2002 Unique Doors employed 15 full-time staff and had a turnover of a little under $2M. The financial success of the business enabled the shareholder/director loans to be reduced to $51,000 each at 30 June 2002.
It is evident that this success was the result of hard work and applied endeavour. Unfortunately, however, the personal relationship broke down. It is not possible to point to a particular time when this commenced to occur. At least as late as Easter 2002 the families enjoyed a happy holiday together. Of course, any working arrangements, particularly between siblings and their spouses, can have its tensions and incompatibilities, and doubtless the present situation was no exception. My impression of Anthony and Selfet is that they were somewhat different types and that they had disagreements. As a result of the events subsequent to June 2002, Selfet developed a dislike for Anthony. It is important to appreciate that these events placed him in a difficult position in respect of his investment in the company and that he had no option but to side with Nebahat and Selahattin. I formed the view that Nebahat was a person of quick judgment, intelligent and hard working, determined to get her way but handicapped by a bad temper and lacking patience and forbearance in the difficult situation that arose. The depth of her feeling toward Anthony, indeed sheer cold anger, that she manifested in the witness box was both singular and sad to observe. She was a strong force which, in the events that occurred, her husband and Selfet did not, and could not, resist. My impression of Anthony is that he too was intelligent and a hard worker who came to the view that he should be paid more. My impression of him is that in dealing with Nebahat he tended to respond, if there was tenseness, or he was confronted, in a manner which annoyed her. That can happen between siblings. My impression of Selahattin is that he had, or would have had, a reasonable relationship with Anthony but for the personal differences.
In her evidence Nebahat said that relations between the directors deteriorated over time and that in July 2002 she and her husband decided that the company could not continue. Selfet agreed but Anthony did not. What produced this state of affairs? As I have mentioned, the relationship between the three families was good until at least as late as Easter 2002. One then looks for the external indicators of things or events that led to the breakdown of the relationship between the directors. To be more precise, it was a breakdown as between Nebahat, Selahattin and Selfet on the one hand, and Anthony on the other hand.
On 18 June 2002 Anthony's wife gave birth to her second child by caesarean section. She was in hospital for five days. Their first child was aged 15 months. From the time of the arrival of the second child Anthony spent much time at home helping his wife. His attendance at Unique Doors became infrequent, although he did thereafter, as he had in the past, attend the business premises for work out of hours as well as at other times. As it happened, in May 2002 Nebahat also had had another child. Nebahat was back at work before long, taking the baby with her. The circumstances were such as to produce tiredness and stress in both Nebahat and Anthony.
Anthony sought to down play the effect of his absence from work by suggesting that by this time the business was established and required little attendance by himself, principally to attend to the computer. In my view the suggestion stretched the point too far. It may be one thing to reduce a working load of in the order of 80 hours per week, but it is another for a working director/manager to abruptly change from such hours to an infrequent attendee. Who, in lieu, was to attend to the various administrative tasks, including dealing with customers, involved in the business? Nebahat, and, I find, Selfet and Selahattin, realised that some understanding and forbearance was due on account of Anthony's personal circumstances but his absences interfered with the orderly conduct of the business and placed extra burdens on Selfet and Nebahat. Nebahat had to devote additional time to Unique Doors including spending time with a new bookkeeper, while all the time having her infant with her at work, all of which must have added to her tiredness and stress. The effect on Selfet was that he, on the production side, was not receiving appropriate support from the administrative side. This was in the context of pre-existing disagreements in the running of the business between himself and Anthony. The circumstances were conducive to tensions and disagreements, and they existed. Anthony did not respond by increasing his attendance at work during normal business hours. In the end Nebahat could take it no longer.
I referred earlier to the matter of Anthony considering he should be paid more. He sought an increase but this was not agreed. In view of his long hours he considered leaving and perhaps getting a job elsewhere. He also considered going back to Turkey with his wife. He discussed this with Selahattin in the June/July period. Selahattin said that in one discussion Anthony said he wanted a pay rise to $80,000. In another discussion he suggested his shares were worth $400,000. Anthony said that Selahattin agreed with that figure; Selahattin states that he said he did not know the value of the shares. Anthony said that in addition to offering to sell his shares for $400,000, he offered to give one of his shares to each of Nebahat, Selahattin, and Selfet so that they could run the company. On that basis he would retain the balance of his shares and withdraw from a working role in the company. Selahattin says that he suggested this course, if Anthony wanted to go to Turkey. This alternative proposition was not accepted. Selahattin said that in the course of the discussions Anthony told him that he had taken cash of around $12,000 from the business.
Selahattin advised Nebahat of the $12,000. Nebahat said that she heard of the $12,000 in July and that she had herself discovered that around $6,000 was missing. She said that the missing money caused problems when she rang customers chasing payment of invoices. Some claimed they had paid Anthony. She inquired of Anthony as to repayment of the $12,000, but he did not respond. This led her, on Friday, 26 July 2002, to visit Anthony at his home on her way to work at approximately 9.00 am. Anthony was in bed. He gave a breakdown of where the money had come from, saying that he did not have the money to repay the company and that he had made a deal with Selahattin. Nebahat became angry, and said that a meeting was needed to discuss things. Nebahat said that they agreed on 3.00 pm that day. The other directors attended a meeting at that time but Anthony did not turn up. They decided the best thing was to close the business, Nebahat explaining that the business had deteriorated, which affected sales, and there being a breakdown in relations between Anthony and Selfet. Nebahat telephoned their accountant to find out how to close the business.
Anthony's evidence differs in some respects. He says that the $12,000 was borrowed, that it "has now been repaid", and that he was unable to attend the meeting because of other commitments. He said he did not receive a formal notice of the meeting, and that is correct. In cross-examination Anthony said that he recorded the amounts he had retained in the accounts computer; that it was payments received as cash late in the afternoon which he could not leave on the premises; he had not subsequently banked the money as he did not have time; he had not spent the money; he had the money at home but had not given it to Nebahat because "there was tension between us", he just did not want to give it to her there and then; and that Nebahat wanted the money at the factory later that afternoon. He described the meeting with Nebahat as "slightly heated". He did not go to the meeting as he had other commitments with the family.
As to his evidence that the $12,000 had been repaid, in cross-examination Anthony said it had been repaid "in another way" when in November 2002 Nebahat gave their father $2,120 saying that it was Anthony's share of the business, Anthony therefore assuming that she had deducted off the $12,000. Anthony added some hearsay evidence as to Nebahat telling other people that Anthony did not owe more money. Anthony added that Bekir had been aware of the $12,000 and had offered to pay the money back and that Nebahat said that Anthony did not owe the company any more money. Anthony had not set out this explanation of the repayment in any affidavit. He had merely asserted that the money "has now been repaid". The explanation was not dealt with in Nebahat's evidence. Nor did Bekir give evidence about it.
There is an issue as to whether the $12,000 was repaid. I find that Anthony retained the $12,000, being an aggregate of amounts paid by customers. Having regard to the fact that he did not actually repay any of the money, and to the passage of time following the demand for its repayment, and to the absence of evidence from any other person (such as his wife) as to its retention, the probability is that it was spent. Having regard to the way in which Anthony gave evidence on the point, to the vague nature of the explanation, to the hearsay component, and to the absence of cross-examination of Nebahat as to the explanation, I do not accept the explanation of repayment. That, however, does not resolve the issue. That is because as I refer to below, the $12,000 was taken into account in arriving at the amount of $220,000 as the amount to be paid to Anthony for his shares. The amount of $220,000 was carried forward as the value of the shares at the meeting on 30 September 2002 to which reference is made below. However, as distinct from the earlier proposal, the payment pursuant to the Court order was of the whole $220,000 which means that $12,000 was not allowed off. The consequence is that repayment is not established.
Turning then to the decision at the meeting on 26 July 2002 to close the business, I note the following evidence of Nebahat, Selahattin and Selfet as to the reason for that decision. As to Nebahat, I have already referred to evidence in one of her affidavits. In cross-examination she acknowledged, as was the fact, that the business was doing well, and that the more advantageous course to all of them would have been to sell the business as a going concern. The three of them, however, decided to close the business. She denied being the moving party. She did not know that Anthony would be against the decision as he did not attend the meeting. She agreed that the decision was taken without regard to the financial position of the company. The business was to be closed down regardless of its financial position. "The only other option was to sell it and neither of us wanted to take on the responsibility of selling it". After she referred to speaking to Anthony on the following Monday (to which I refer below) and of having advised him of the decision, I asked Nebahat what was the urgency, to which she responded:
"We had just had enough. We wanted it to be done with quickly. I was not happy going in. I had a baby at my breast, Your Honour. I had had an operation on my foot, I am limping around, no support from Anthony. I have got two other children at home. I had a baby that cries all the way into work in the car. Do you know what it is like to listen to your six week old baby screaming all the way into work, all the way home every night – then being confronted with Anthony, trying to get answers from him, trying to justify my accounts and try to ring him. I can't get the wages done because I don't have access to computers, I don't have access to passwords. It was becoming increasingly frustrating and I thought, I don't need the headaches, what benefit do I have in this company? Apart from all the headaches associated with it I had nothing to gain.
MR JONES: But you knew that Anthony had a lot to gain by selling the business as a going concern, didn't you?
--- That Anthony?
Yes? --- Well we all did.
But Anthony was not in the financial position, to your knowledge, of you and Sam Saykan was he? --- Sorry, what do you mean by ---
He wasn't as well off as you and Sam Saykan was he?
---- Financially?
Yes? --- I guess so.
You think he was? --- No, no.
You accept he wasn't? --- I accept he wasn't because I supported him financially in a lot of other aspects.
You knew that that investment of $80,000 was a most substantial sum of money to Anthony? --- I was more concerned about that money coming from my parents and the fact that my parents might lose their life savings."
In re-examination Nebahat said that at the conclusion of the meeting she asked their accountant what was the quickest and easiest way of winding up or closing the business. He suggested winding up or voluntary administration, but he said that he did not recommend that.
Selahattin and Selfet confirmed that at the meeting none of the three directors were prepared to attend to a sale of the business as a going concern and decided to close the business. In cross-examination Selahattin said he had had enough of Anthony. He denied that he wanted to get Anthony out of the business, saying that he wanted to close it "because at the end of the day nobody have a commitment for the business to go on for the business to run it". A little later he said the business was "doing very well". Other than "the directors' conflicts" it was a good business doing well.
Selfet said in cross-examination that at the meeting Nebahat and Selahattin stated that they were going to close the company down. He said that he "had to agree with that", "I had no other option". It is clear from his evidence that his lack of options was in the financial sense. His evidence reflected the fact that the financial and business strength lay with Nebahat and Selahattin. He had to go along with their decision. The closure of the business had the potential for him to lose his investment. He said "We didn't know what I was going to end up with". He said that if the others were not going to take responsibility to market the business, why should he, so he decided not to. He added that he did not really want the business to close down. Having then been referred to the later decision to appoint an administrator and to evidence of the administrator that he was not sure that Selfet wanted to close the business, Selfet said:
"My intention was all the time that I didn't really want to close the business, but I had no other option that we – everyone was actually sick and tired of all this problems with the family, was breaking down, and business wasn't in a good atmosphere to work any more, and I was – I was carrying all the weight of the business on my shoulders on the floor that Anthony is not there on the business any more, he wasn't coming in; the customers was ringing every day, chasing some jobs that is very difficult – we needed Anthony there to do the programs for those particular jobs. I didn't want to carry it out any more, so I said, well, fine, if I lose it, I lose it, like same as everyone else, let's close it. So I had to make that decision.
Well, Anthony was coming into work, wasn't he? --- No, he was coming in at different times, but sometimes he never there for all day, sometimes he was there for half a day. Sometimes during the night---"
On the following Monday Anthony rang Nebahat as to what had happened. She told him the decision. Nebahat says that she told Anthony that if he wanted to have a meeting with the directors to discuss the matter before meeting with the administrator, the other directors would agree to it. He did not call a meeting and the directors met with Hewitt on 31 July 2002. Anthony denied that Nebahat had invited him to call a meeting. Whoever is correct, the fact is that Anthony did not seek a meeting of directors.
On 31 July, Hewitt, by arrangement made through Unique Doors’ accountant, Dario Precoma, met the directors at the company premises. He had some financial information but not the financial statements of the company for the period ended 30 June 2002[1]. The financial information he had indicated that the company was solvent, putting aside directors' loans. That was correct. As to directors' loans, Hewitt said that there was discussion of them. He said that Nebahat and Selahattin stated that they were withdrawing their financial support which included their loans and guarantees. Curiously, both Anthony and Selfet said that the directors' loans were not talked about at the meeting or at the meeting the next day at which it was resolved to appoint administrators. I accept this latter evidence. The explanation is, I conclude, that Hewitt talked to the directors separately when Nebahat intimated that she and Selahattin required payment of their loans, she knowing that unless those loans were called up the company was solvent, and that Hewitt had that intimation in mind. This conclusion is consistent with the fact that hitherto there had not been a question of the directors' loans being called up. The loans were not an issue and were not the reason for the decision on 26 July to close the business.
[1]See Exhibit D.3.
Hewitt said that he was told the directors were in dispute. Mr and Mrs Saykan said they had decided to close the company down and get their money out. Cokelek agreed with that. The profits had been down in the last three months and they did not want the company to go into liquidation. Anthony wanted the company to continue. Hewitt explained the options available to the directors. One option was to sell the business as a going concern not in administration, which would be likely to produce a better result. Nebahat and Selahattin were not interested in that because the business could not operate with the dispute going on. They wanted an independent party involved. Other options were to appoint a liquidator or an administrator. An option discussed was that of purchasing the business from the administrator. Hewitt told the directors that they should not appoint him, but to think about it further.
On the following day, 1 August 2002, Hewitt again met the directors at the premises of Unique Doors. He brought the papers for appointment of administrators, namely minutes of a director's meeting resolving on the appointment and a separate instrument containing the resolution of appointment. Each provided for signature by the four directors. Nebahat, Selahattin and Selfet supported the stated resolution "That in the opinion of the directors, the Company is insolvent and is unable to pay its debts as and when they fall due". Hewitt said that they also said they wanted their loan accounts paid. Anthony expressed disagreement with the statement as to insolvency. He also said that he wanted the company to keep going. Hewitt would accept appointment only if the four directors signed the resolution. After discussion the resolution was amended in hand. As amended the resolution stated that the opinion was that of "three of the directors" and was that the company "may become insolvent and may be unable to pay its debts as and when they fall due". It was then recorded that "Anthony Elhan did not concur with this view". It was on that basis that the directors then resolved to appoint Hewitt and Gregory John Keith of Grant Thornton as joint and several administrators for the company. The four directors signed the minutes and the resolution of directors.
Putting aside any question as to the then present obligation of Unique Doors to pay the directors' loans, or indeed of any intention of any director to call up a loan, the company was solvent. Anthony's view as to solvency reflected the then operating situation. The contrary view was the product of the desire of the other directors to peremptorily close the business down.
Furthermore, the resolution did not satisfy the provisions of s 436A of the Act which requires that the directors be of opinion that the company "is" insolvent or "is likely to become" insolvent. The necessary opinion not existing, it was not open to appoint administrators, and the appointment should not have been accepted. In truth, I find, the appointment was a contrivance undertaken for the purpose of meeting Nebahat's object that she be rid of Anthony from the company. That was the reality. It was otherwise illogical and contrary to all interests to close down a successful business and to do so without at least seeking an interim arrangement for the conduct of the business and appointing an agent for the sale of the business as a going concern. Selahattin went along with his wife. Selfet had no choice but to agree.
Following the meeting the administrators set about attending to the formalities of their appointment and obtaining a valuation of the company's plant and equipment.
Overnight the error of what they had done impressed itself upon Selahattin. In other words, logic and business sense, and reflection on the advice they had received as to the costs of administration, came to the fore in his mind. It is worth recalling that in his evidence as to the state of Unique Doors at this time, he said that "the business was doing very well", agreed that it had been highly successful, and said that there was "nothing wrong with the business". One can refer forward also to the evidence that on 2 August 2002 Selahattin expressed interest in buying the business.
It would appear from Selahattin's evidence that it was the actions of the administrators in immediately taking control of the business that changed his mind to the point that he determined that the administrators should be removed. He gave evidence of waking up that night (1 August) and yelling at Nebahat. "I said to her, we are not going to have any money left in this business because these people are going to take all the money and then my father in law's money too. How are you going to answer all these questions?" A little later in his evidence he said, referring to the administrators, "they are going to run the business, and they took all the money and everything from the company, and we never had control over the business that time". He "wanted them out of our business".
Nebahat agreed with Selahattin. In her evidence she said that when the administrators came in it became apparent that the business was not going to be sold as a going concern (which was an option they had discussed, but as to which she said it could not be done as the directors were in disagreement), "and that everybody would end up with very little at the end of it all and I personally had to consider that my parents had money in there and wanted to save some of their money for them".
As a result of enquiry he made on the morning of Friday, 2 August 2002, Selahattin was told that the only way of getting the administrators out of the business was for the four shareholders to reach an agreement. He met with Anthony and Selfet and offered them each $200,000 for their shares, or the sale of his and Nebahat's shares for a total of $350,000. Selahattin said that Anthony considered the proposal and sought an increased amount. Selahattin responded by saying that Anthony could keep the $12,000 and not pay Selahattin a debt of $9,000, which brought his offer to $220,000, of which only $200,000 would be paid. Anthony and Selahattin agreed and signed agreements which had been prepared by the company's accountant. According to Selahattin, Anthony was happy with the outcome and said that he wanted to start his own business of cutting-to-size. Selahattin said he could use their machinery.
It is necessary to set out in a little more detail the events of that day. In the first place, Selahattin and Nebahat set out to achieve a particular result. In the morning Selahattin rang Hewitt and said he wanted him out, he had not understood that the administrators would take such control of the company's affairs and therefore they had resolved their differences and wanted the administrators out. Following that conversation, Hewitt had several conversations with Nebahat. He told her that he required a letter from the directors stating their belief that the company was solvent and that they wanted to end the administration. She said that she would get that letter straight away. He imposed 4.00 pm that day as the time by which he must have the necessary material otherwise he had to send a notice convening the first meeting of creditors. At about 4.00 pm Nebahat told Hewitt that she and Selahattin proposed to buy out the other shareholders and that they had instructed their accountant to draw the necessary documents. Hewitt was satisfied that if the directors' loans were not called up, the company was solvent.
In the second place, Selahattin presented Anthony and Selfet with a sudden and unexpected situation in which a decision was required urgently, by 4.00 pm that day. Selahattin said that he told Anthony "Either you buy it or I'll buy it, just finish the case". The situation was one, with the administrators appointed, in which Anthony was contemplating that he would lose the whole business and end up with nothing at all. He had access to the company's computer to be able to peruse figures, but the time in which to consider the proposal was "very brief" and he was "under pressure", Selahattin saying that he had to sign quickly before 4.00 pm. He was not happy, but he accepted the offer as it "was a better option than the company going into liquidation". In her evidence Nebahat agreed that the urgency of events on 2 August 2002 was brought about by her insistence that the matter be dealt with quickly. Cokelek went along with the decision of Nebahat and Selahattin to end the administration. Selahattin set the 4.00 pm deadline in which to decide. He accepted Selahattin's offer as it meant that he would get some money back.
In the third place, the accountants prepared heads of agreement which were signed on 2 August 2002. In fact there were two such documents, each in identical form save that one related to Anthony and Elbek and the other to Selfet and SFK Cokelek. Anthony and Selfet signed the documents relating to them. Selahattin signed each document. Taking the document relating to Anthony and Elbek as representative, the document states:
"HEADS OF AGREEMENT
I ANTHONY ELHAN INDIVIDUALLY AND AS A DIRECTOR OF ELBEK INVESTMENTS PTY LTD ACCEPT AN OFFER OF $220,000 AS FULL PAYMENT OF MINE AND THE COMPANY'S ENTITLEMENTS IN UNIQUE DOORS PTY LTD AS OF TODAY AUGUST 2ND 2002.
THIS PAYMENT COVERS SALE OF MY SHARES, POTENTIAL DIVIDENDS, LOANS GIVEN TO THE COMPANY IN MY CAPACITY AS AN EMPLOYEE, SHAREHOLDERE AND DIRECTOR OF UNIQUE DOORS PTY LTD.
BY ACEPTING THIS OFFER I WILL MAKE NO FURTHER DEMANDS OF MONEY ON EITHER UNIQUE DOORS PTY LTD, SAM AND NEBBIE SAYKAN, DESIGNERFORM PTY LTD OR ANY OTHER PARTY.
I ACKNOWLEDGE THAT I WILL TRANSFER MY SHARES IN UNIQUE DOORS PTY LTD TO A PARTY AS DIRECTED, AND RESIGN AS A DIRECTOR OF UNIQUE DOORS PTY LTD.
THIS AGREEMENT WILL BE LEGALLY BINDING ON ALL PARTIES AND A SOLICITOR WILL BE ENGAGED TO DRAW UP ALL RELEVANT PAPERS WHICH WILL BE SIGNED BY ALL PARTIES TO THIS AGREEMENT."
Also on 2 August 2002, the four directors signed, and provided to Hewitt, a letter stating that they "have reached an agreement to take the Company out of Administration as they believe that the Company is solvent".
That was followed, on Monday, 5 August 2002, by a letter from Unique Doors, dated that day and signed by Nebahat, Selahattin and Selfet, confirming that the reason the company is solvent is that the directors' loans will not be called.
In these circumstances Nettle J, on the application of the administrators on 6 August 2002, ordered that the administration end. The directors swore affidavits in support of the application.
It was not long before Anthony had second thoughts. Approximately two weeks after 2 August he told Selahattin that he was not sure if he would go ahead with the agreement. Later in August he told the company's accountant that he did not want to proceed with the agreement, and that he wished to purchase the remaining shares himself. He made no enquires in August to see what he could afford. He said that while something had to be done to resolve the problems between them, it was not necessary to bring the company to an end. It looked as though someone had to buy everyone else out, or the company would be sold. He did not make enquiries about a sale of the business because the others disagreed.
Nebahat rang Anthony on being informed that he now wished to purchase the remaining shares. She was upset. Perhaps not surprisingly, Anthony's decision not to sell Elbek's shares caused disagreements. He was attending the company premises, he said as was required to run the company, but his attendance was on the reduced basis referred to earlier and no longer than about one hour a day.
It should be noted that Anthony was never presented with an agreement for the sale of shares for himself and Elbek to sign and the purchase price was never tendered. Nor was Cokelek's agreement carried into effect, which may have been because of the position concerning Anthony and uncertainty as to what was to happen. About the end of August Selahattin suggested to Anthony that the parties wait for Anthony's father to return from overseas, in about four weeks. He would be asked to sort the matter out, having regarding to the Turkish tradition of respect for the view of the elder.
While the parties waited for Bekir to return from overseas, the working situation continued as did the unworkable relationship between the directors. In one heated and abusive conversation in August or September, in which Nebahat told Anthony that she would do anything in her power to walk all over him, Anthony told her to do it legally because he will strap a bomb around himself and come to her house. The conversation is reflective of the state of the relations. This is a sufficient reference to the context, or stalemate, in which the parties awaited the return of Bekir.
Anthony was aware that the date by which the lease option had to be exercised was 7 October 2002.
On 17 September 2002 Selahattin transferred his shares to Nebahat for no monetary consideration. The constitutional provision requiring notice to the other shareholders was not complied with, but nothing turns on that. From this point Selahattin left all matters concerning Unique Doors to Nebahat.
On the day that Bekir returned to Australia, 30 September 2002, he and his wife attended at Unique Door's premises and met with the directors. Bekir asked why he and his wife had been invited and they were told that everyone wanted to resolve the problems between the shareholders. Bekir was asked to adjudicate the meeting. Bekir learned that there was trouble between Nebahat and Anthony. Nebahat told him that she could not continue with Anthony. He was not told about the 2 August agreement. It was not referred to. Anthony said that he did not want to sell his shares and that he did not want to manage the company any longer. Nebahat said that the company could not go on in that way because the family would not want a non-family member managing the business. In that situation Bekir proposed that the company be purchased by one director as it was clear the family partnership could not continue. Nebahat said that Selahattin had sold his shares to her and that she now spoke for him. Selahattin, who had also resigned as a director, was not at the meeting.
In accordance with Turkish tradition Bekir commenced with the eldest, Selfet. He did not wish to purchase the shares. He then asked Nebahat who also refused, saying that she had enough to do with the existing business. If, however, she were to purchase it would be on certain conditions including as to family members buying out their company cars. It was then Anthony's turn, and after suggesting in Selfet's absence that he would buy only Nebahat's shares, which Bekir rejected as unfair, Anthony said he would purchase the remaining shareholdings. Bekir then asked everyone what was the value of the company. The common answer was that each holding was worth $220,000. On that basis the other shareholders agreed to sell their shares to Anthony for $220,000 for each holding of 500 shares, a total of $660,000. Everyone, including Nebahat, Selfet and Anthony, said they were agreed on that. It was the only solution to end the fighting.
Bekir said that it was further agreed that Anthony would continue in his position as manager of the company the following morning.
There were some differences in the evidence of Bekir and Nebahat. In cross-examination Bekir referred to having made a written record; counsel did not request its production. Bekir impressed me as an independent, honest witness of truth. Wherever his evidence conflicts with that of Nebahat and Selfet, or any other witness, I prefer his evidence. By contrast with his impartiality, Nebahat remained infected with anger and personal interest, and was argumentative and emotional in evidence. Selfet similarly was bound up in the cause, and his position of weakness as a minority shareholder and in respect of his financial position gave him a strong interest to support Nebahat.
I find that Nebahat and Selfet did not request that Anthony pay the purchase price in full by the end of October 2002. I accept Bekir's evidence that they agreed that payment be made as soon as possible but that no date was set. I find that, as Bekir stated, "everybody" was aware that it would be very difficult for Anthony to organise payment within that short a time frame.
Further, there was no agreement that Anthony not interfere in the business. I accept Bekir's evidence that that was a condition of Nebahat if she purchased the shares, but it was not a condition of Anthony's purchase. I find that Nebahat said that if Anthony purchased, he could continue as manager and that when he paid all monies due the other shareholders would leave the business.
I also reject evidence of Nebahat that the purpose of the agreement on 30 September 2002 was to give Anthony a chance to buy her shares and, failing that, that the agreement of 2 August 2002 would apply. I accept Bekir's evidence that that agreement was not mentioned at the meeting on 30 September 2002. There was no suggestion of a fall back resolution. I accept Bekir's evidence that Nebahat said that she would not want to purchase the business and would rather lock the doors of the company and sell the assets.
There was an issue as to whether Nebahat required a written agreement. Bekir did not remember that being stated at the meeting and I am not satisfied that it was requested. The matter of a written agreement was raised a few weeks later.
I find that at the meeting on 30 September 2002 the shareholders present together concluded an agreement whereby Anthony was to purchase the shares of Nebahat for $440,000 and of Selfet for $220,000. It was known that Anthony would have to raise the necessary funds. The purchase price was payable as soon as possible or, it would be implied, within a reasonable time in the circumstances. The agreement is inconsistent with, and cannot stand with, the 2 August 2002 agreement signed by Anthony. That agreement had been repudiated by him, Nebahat and Selahattin had neither enforced nor rescinded it, and the parties had awaited the return from overseas of Bekir to adjudicate a resolution of the stalemate that existed between them. The adjudication resulted in the agreement made on 30 September as that which the shareholders would move forward on. Regarded objectively, the actions of the shareholders must be held to have the effect that the earlier agreement and any rights thereunder was terminated and that they moved forward on the later agreement. See CGM Investment Pty Ltd v Chelliah[2]. The subsequent actions of Nebahat and Selahattin are consistent with this conclusion. This being the case, the claim of Nebahat and Selahattin in proceeding 8134 of 2002 which is based upon the earlier agreement must fail. I should add that this conclusion concerns only the heads of agreement signed by Anthony and Elbek.
[2](2002) 196 ALR 548.
The 30 September 2002 agreement did not unleash a mutual feeling of goodwill. Selfet and Nebahat did not attend at the factory on 1 October and, it seems, for a few days. There is some evidence to the effect that they told Anthony they would not attend, but the evidence is vague as to when and why. It is inconsistent with the arrangement made during the meeting on 30 September 2002. Bearing in mind that Selfet was the factory manager and Nebahat was then acting as the financial manager, their non-attendance can only have been, and intended to have been, disruptive and calculated to cause difficulty for Anthony. Then, on 1 October Selfet's son Ferdi, the production manager, went to Designerform at lunch time and returned with a written resignation which he presented to Anthony, and walked out. The letter of resignation is dated 1 October 2002, and notifies resignation with immediate effect. No explanation was provided. Anthony then got another employee to perform Ferdi's role.
For the first week Anthony attended at Unique Doors’ premises for 10 hours or so a day. After a few days Selfet and Nebahat commenced attending. Anthony said, and I accept, that he was at the premises every day until 8 October 2002 when he had an argument with Nebahat who, having lost her temper and self control, chased him with a pair of scissors actually striking and cutting his coat. Apart from one occasion when Nebahat rang Bekir, Anthony and Nebahat did not speak again. After the scissors incident Anthony avoided going to the factory. Nebahat asked that he not come any more and said that she would pay his wage. However, he sometimes went in if Nebahat's car was not there and got computer copies of the accounts and he also went out of hours. It was clearly Nebahat's position from 8 October that Anthony not come to the premises, although she was aware that he entered after hours. She said in evidence that Anthony could come in when he wanted "but I didn't want to see him again because I think next time I could have attacked him again". Selfet expressed strong sentiment against Anthony. His attitude was that Anthony had no right to be there after 30 September. He said, and I reject the evidence, that at the meeting on 30 September Anthony was told not to attend. Selfet believed that Anthony was not supposed to be there. He did not want Anthony to come to the premises while he was there. If he wanted to come he could make an appointment. It is pertinent to mention an incident in November 2002 when Anthony attended at the premises and refused to leave at Selfet's request and Selfet spat on his face, which led Anthony to call the police. In explanation of this disgusting act Selfet said that Anthony had told one of the staff what to do, which Selfet told him he had no right to do, and that words were exchanged. Selfet said he was going to punch Anthony but "lost myself" and spat upon him. This incident reflects the intensity of the feeling that was generated towards Anthony, and the related conduct. It is not irrelevant that at this stage Selfet had not received payment for his shares, and must have been in some uncertainty as to his financial position.
It is necessary to record a number of other events which occurred subsequent to the making of the agreement on 30 September 2002. The above matters sufficiently indicate the ongoing hostility to Anthony, and to difficulties placed in his path notwithstanding the agreement of 30 September and his interest in knowing the financial position of the business. Nebahat's attitude was in part due to her doubt that Anthony would be able to pay the $660,000, and in part due to her hostility towards Anthony. As to the former factor, I accept Bekir's evidence that in the week after 30 September Nebahat rang him a couple of times – she wanted to get things finished as quickly as possible. If he is to buy it, he should, otherwise we will close it down, was what Nebahat said. She said that they needed to be finished as quickly as possible; as to that, it is to be recalled that the lease option had to be exercised by 7 October 2003. Bekir said that a week or two into October he mentioned to Nebahat a written agreement for Anthony to be able to get a loan, and Anthony was asking for one, but it did not happen.
On the matter of the resignation of Ferdi Cokelek, on 3 October 2002 Nebahat attended at Unique Doors and met Anthony. He told Anthony that she did not accept his decision in promoting an employee to fill Ferdi's position following his resignation. Nebahat tore up Ferdi's letter of resignation and stated that she rejected it and, against Anthony's wishes, reinstated Ferdi. Selfet concurred in Nebahat's action. Ferdi returned to work on 4 October. Anthony said, and I accept, that the level of stress and tension at the premises increased significantly as a consequence.
Also on 3 October, Anthony gave Nebahat a claim for $6,000 for wages owing in respect of the period prior to 1 July 2000 when he and Selfet had not been paid a wage. He was asked why he made such a claim on a company he was to fully own. He said that he did it in return for an invoice Nebahat had given him for living in the house he and Nebahat jointly owned at a rate of $250 per week. He said that Nebahat had goods stored at the house. In short it appeared that she gave him an invoice so he gave her one in return. This led Selfet, on being aware of Anthony's claim, to present his own claim on 4 October for $8,500 for unpaid wages in respect of the same period. Each claim was paid by Unique Doors.
The next event that Anthony became aware of on 8 October 2002 was occasioned by a letter dated 7 October whereby Selfet had advised the agents for the landlord of Unique Doors premises that Unique Doors "will not be renewing or entering into a new lease" of the premises. Anthony was not advised of the intention to send that letter. He said that his wish had been to extend the lease. He had known of the date for exercise of the option but in the circumstances had not exercised the right. Of course if he had done so, it must have been on terms that Nebahat, Selahattin and Selfet were not guarantors. I conclude that a significant, if not the, reason for Selfet's letter was that, as Nebahat had deposed in her affidavit, Nebahat and Selahattin planned to move the business to other premises used by them. The effect of the letter was to force the issue against Anthony, in view of his limited resources and the cost of moving the company's plant and equipment and re-establishing the business at other premises. If their concern, and that of Selfet, was as to their liability as guarantors of the lease, should it be continued, they could have dealt with that with the landlord in conjunction with Anthony.
The next and most important invoice was the Designerform invoice to Unique Doors for $259,170, dated 3 October 2002.[3] Nebahat prepared the invoice on a later date, and back-dated it to 3 October. Anthony found the invoice when he attended at Unique Doors’ premises. I accept that he found it on Saturday 12 October. The invoice bears the notation "Entered on 11/10/02". Neither Nebahat nor Selfet informed Anthony of the invoice or sought his view as to the validity of the claim. Nebahat simply processed it in terms of recording it as a claim received. The invoice claimed amounts for the use of vehicles, interest charges for a deposit on machinery, and for a variety of services in one instance going back to May 1999.
[3]Exhibit AE7 to Anthony's affidavit affirmed 22 November 2002.
The invoice was the first time that Designerform had made the claim set out in it. No agreement existed between Designerform and Unique Doors for the payment of such sums. The claim had not been mentioned to Hewitt. That is significant because the claim, assuming it to have been genuine, would have rendered Unique Doors insolvent, both when the administrators were appointed and when the Court, on a statement of solvency of the directors, including Nebahat, ordered the administration end on 6 August 2002. Why did Nebahat produce the invoice? She was frank in her evidence on this aspect, stating that she prepared the invoice out of spite for Anthony, tit for tat for his invoice for wages. I find that the invoice does not represent a bona fide claim and that the amounts claimed were not owed. I find that Nebahat prepared and provided the invoice well appreciating that the amount claimed would constitute a significant embarrassment to Anthony in any attempt he made to raise funds to finance the share purchase. As Anthony stated, it would have been impossible for him to raise the additional amount stated in that invoice, even if he considered it genuine. Such an awareness is consistent with my observations and findings as to her: intelligent, very determined and unforgiving.
Counsel for Nebahat and Selahattin submitted that the issue of the invoice was not conduct of Unique Doors and was thus irrelevant to the claim of oppressive conduct. It was a claim by a third party, Designerform, which could not be conduct of Unique Doors within the meaning of s 232 of the Act. I reject the submission. Nebahat was a director of Unique Doors and she prepared and provided the invoice for the purpose of and in connection with matters between the shareholders in Unique Doors and with the object of affecting, indeed oppressing, Anthony's position as a member of the company. It was not a genuine claim. If Anthony could be thwarted from purchasing the shares, Nebahat could achieve her ostensible aim of closing the business. In my view, however, there was a wider agenda lurking under this, and that arose from the fact that Unique Doors' business could readily fit with the Designerform business. It was illogical and made no business sense to simply close the business and sell the equipment.
The invoice came to Anthony's notice before he commenced to seek finance for the purchase. When he saw the invoice he realised that he was confronted with a changed situation. He said that "no applications [for finance] were filled out because it was uncertain what we were buying. It was uncertain whether we were buying the debt for $259,000 too".
Bekir was prepared to assist Anthony financially, but he had limited ability to do so, and certainly not to the extent of $600,000 or so. He refers to his means in cross-examination. Later in October Anthony made some inquiries about a loan but no conclusion was ever reached.
On 13 October 2002 Nebahat, objecting to a suggestion that an Asian businessman might purchase the remaining shares in the company, made an offer to Bekir to sell her shares to Anthony and Kerry Cokelek. Anthony refused because of the level of conflict within the family. I note that Nebahat denies having suggested that Anthony and Selfet own the shares, as they could not work together. I accept Bekir's evidence.
On 19 October Bekir and his wife met Nebahat, Selahattin and Selfet at the company's premises. Nebahat and Selahattin told Bekir that Anthony should "hurry up" with the purchase. Bekir said that Anthony needed more time to apply for funding.
Anthony first sought legal advice on 25 September 2002. He had considered for several weeks that it would be possible to resolve the dispute on the basis of purchasing the other shares. He said, however, that following the meeting on 19 October it became clear that his attempts to complete the purchase would be frustrated by Nebahat and Selahattin, whose true aim was to close the business down and appropriate it for their purpose. On his instructions his solicitors, Holding Redlich, wrote to Nebahat, Selahattin and Selfet on 23 October 2002 demanding: immediate access to the books and records of the company, which access was then being denied; an independent audit of the books of the company; an undertaking to do all things necessary to enable an option for a fresh lease to be renewed; and an undertaking to abide by their obligations under the Act.
Also on 23 October Nebahat caused Unique Doors to pay to Designerform $15,000 on account of the Designerform invoice dated 3 October. In cross-examination she said that she made the payment on her authority. She said that she spoke to the other directors, but did not mention it to Anthony because she was not on speaking terms with him.
On 24 October Goldsmiths, solicitors, replied on behalf of Nebahat and Selahattin, requesting advice as to whether Anthony proposed to proceed with the 2 August agreement. On 28 October Goldsmiths wrote pressing for settlement under that agreement and threatening litigation.
On Monday 28 October Nebahat had all locks and security codes of the company's premises changed. This was to prevent Anthony entering. It certainly meant that he could not enter after hours, and that was intended. He could, however, enter during business hours, although not when Nebahat was there, and I accept his evidence that it was only on occasions he could attend, and it was in difficult circumstances including humiliation when he did. The time when he was spat upon is an example, although extreme, but more than proves the point. Subject to that, on occasions he was able to have entry and copy business records but it was by no means the free and unfettered access of a working director, let alone one who had the interest of a purchaser of the remaining shares.
As to the changing of the locks and security codes, Nebahat had said that she had learned that Anthony had gained entry after hours (which she knew he was in the habit of doing) and that disks belonging to the company were missing. There were differences in the evidence on the issue as to whether Anthony removed records including disks from the company, and, on the other hand, as to whether records were removed for purpose of preventing him from seeing them. I am not satisfied on the balance of probabilities as to the truth on these matters.
The payment of Anthony's wage was terminated at the end of October.
On 6 November Anthony asked the security company to restore the codes so that he could have access after hours. The request was refused.
On 14 November Nebahat and Selahattin commenced proceeding 8134 of 2002. In effect they sought specific performance of the 2 August 2002 agreement.
On 18 November Selahattin rang Bekir and offered to sell all the remaining shares for $800,000. I accept Bekir's evidence as to this matter. Selahattin said that he did not trust Anthony's ability to purchase the remaining shares, and suggested that Elbek transfer its shares to him with a promise from him that he would give the shares to Anthony once he had the money to purchase the remaining shares. Bekir, wisely, said that he did not understand why Anthony should transfer his shares to Selahattin before he purchased the other shares. No agreement was reached.
On 19 November Selahattin rang Bekir and offered to sell Nebahat's shares to Anthony and Selfet or Kerry Cokelek so that Anthony and Selfet would hold 50 per cent each. Selahattin said that if this offer was accepted Designerform would not pursue Unique Doors for the debt of $259,170.
On 21 November 2002 Nebahat caused Unique Doors to advance $20,000 by way of loan to Designerform. She did so on her own authority, with no reference to Anthony, knowing that litigation had been commenced.
On 22 November Anthony and Elbek commenced their proceeding. At the same time they filed an interlocutory process returnable on 29 November for orders that Anthony have immediate access to the books and records at the company's premises, and for a resumption of his salary.
At 4.10 p.m. on 28 November Holding Redlich received a letter from Goldsmiths which stated that Nebahat and Selahattin were ready, willing and able to complete the 2 August 2002 agreement, or to sell their shares for $220,000 per 500 shares and cause SFK Cokelek to do likewise, on the following conditions: settlement in seven days, and releases from guarantees. If that could not be agreed or ordered the next day, "then a board meeting will be held as soon as possible in order to ask it to resolve that all equipment be sold to the highest bidder at auction and the business be closed down". The factory had to be empty by 7 January 2003. Anthony did not accept either proposal.
On 29 November I made orders providing for Anthony to have access to the company's premises for the purpose of inspecting the books and records, up to 5 December.
The purpose of these orders was to aid Anthony in deciding whether, as asserted by him in an affidavit affirmed on 29 November, he wished to proceed with the purchase of the shares. By this stage his brother Ismail was prepared to assist him financially, as was Bekir, but Anthony had not completed the process of obtaining a loan from a lending institution. Anthony believed that, all things being equal, he and Elbek would be able to complete the purchase of the remaining shares for $660,000 by 23 December 2002. I should record that I found Ismail to be an honest, balanced and reliable witness.
The matter returned to Court on 9 December when I made the orders referred to at [8]. Anthony had still not obtained finance, he was not in a position to pay for the other shares, and the prospect of him being able to do so seemed to be remote rather than immediate which did not offer a solution to the problem.
Following these orders, Elbek's shares were transferred to Selahattin and Anthony resigned as a director.
On 13 December, following the transfer of Elbek's shares, Nebahat spoke to her father. She explained the circumstances of the conversation in this way. She had previously promised her father that she would honour her intentions that, once she or she and Selahattin had acquired the shares in Unique Doors, Anthony was welcome to them, and on that day, having seen solicitors and confirmed that the transfer had taken place, she called her father and told him that, true to her word, she was happy to honour her commitment and Anthony was welcome to buy back Unique Doors at the same price, and he had until Christmas Eve to do that. Bekir passed the offer on to Anthony, but he did not accept it. The time allowed to him was too short in which to be able to raise the funds. Anthony referred to a period of only four working days. It is to be borne in mind that it took three or four working days to dismantle and move the machinery to Designerform's premises, where it was located on 20 December 2002. In reality, Anthony, who as a result of the orders on 9 December did not vigorously press his efforts to raise finance, could not have been expected to successfully resume his efforts to raise $660,000 in that time.
Unique Door's plant and equipment was moved to Designerform's premises on 20 December 2002. It took about four days to move the equipment, at around 10 hours work per day, and cost about $20,000 to $40,000 to do so, which amount Unique Doors paid. The equipment was set up on the floor of Designerform's factory, and remains there. The business continues to be conducted as before with the same employees, and Selfet managing the floor. It has continued as a distinct entity, independent of Designerform. The telephone number was retained and diverted to the new premises; the telephone is answered as Unique Doors. Selfet said it was still a good business and still had a good customer base, that it is as successful as before. There is no reason to doubt that evidence. All that has happened is that the business has relocated a few doors down the street.
On 21 February 2003 Holding Redlich wrote to Goldsmiths demanding that Unique Doors pay Anthony's loan of $51,000 within seven days. It has not been repaid.
The final matter to mention concerns the transfer of SFK Cokelek's shares to Selahattin. Selfet signed a transfer on 7 March 2003, the Friday before the case was listed for trial. Nebahat and Selahattin had not paid the purchase price under the 2 August 2002 agreement or otherwise. They had not done so in view of the uncertainty as to ownership of the company created by the litigation. Selfet said he was not in a hurry for the money. It was in those circumstances that on Friday 7 March 2003 Nebahat told Selfet that he had to sell his shares and presented him with a transfer and a bank cheque dated 7 March 2003 for $55,000 as part payment. He signed the transfer but returned the cheque as the name of the payee was misspelt. When Selfet gave evidence on 18 March he had not received a replacement cheque, or any amount at all in respect of the transfer of the shares.
I turn now to the question whether Anthony and Elbek have established a case of oppression under s 232. The submission of their counsel was that the conduct of the other directors and shareholders constituted a course of conduct from 26 July 2002 which was unfair to Anthony as a director, a shareholder (in that sense equating him with Elbek), and an employee of the company. By one act or another, the foregoing conduct of the other directors and shareholders satisfied one or other of para (a) – (c) of s 232 and was "oppressive to, unfairly prejudicial to, or unfairly discriminatory against" Elbek being the corporate vehicle by which Anthony participated in the business, within the meaning of para (e). There is no relevant distinction in this regard between Elbek and Anthony and counsel did not seek to draw any. Unique Doors was initiated and conducted in the nature of a partnership and Elbek was the alter ego of Anthony in the venture.
The resolution of this case does not require elaboration as to the law. Counsel treated the relevant principles as well established, referring in that regard to Wayde v New South Wales Rugby League Limited[4]; Morgan v 45 Flers Avenue Pty Ltd[5]; and Thomas v H W Thomas[6]. See too the judgment of the Court of Appeal in this Court in Aqua-Max Pty Ltd v MT Associates Pty Ltd[7]. I referred to some, but by no means all, of the authorities in my judgment in Foxwell v Westbury Joinery Co Pty Ltd[8]. It is now long accepted that the composite expression in para (e) of s 232 is regarded as a whole and as such is tested against the question whether, objectively considered, there has been conduct which, even if within the power of the directors and even if undertaken by them in good faith, would be regarded by reasonable directors as unfair.
[4](1985) 180 CLR 459 at 466 per Mason ACJ, Wilson, Deane and Dawson JJ, and at 470-473 per Brennan J.
[5](1986) 10 ACLR 629 at 740 per Young J, 5 ACLC 222 at 233.
[6][1984] 1 NZLR 689 at 693 per Richardson J.
[7](2001) 3 VR 473 at [60] – [62].
[8]Unreported, 6 June 1998.
In Wayde, Brennan J said[9] that:
"The question of unfairness is one of fact and degree which sec.320 requires the Court to determine, but not without regard to the view which the directors themselves have formed and not without allowing for any special skill, knowledge and acumen possessed by the directors. The operation of sec.320 may be attracted to a decision made by directors which is made in good faith for a purpose within the director's power but which reasonable directors would think to be unfair. The test of unfairness is objective … The Court must determine whether reasonable directors, possessing any special skill, knowledge or acumen possessed by the directors and having in mind the importance of furthering the corporate object on the one hand and the disadvantage, disability or burden which their decision would impose on a member on the other, would have decided that it was unfair to make that decision."
[9](1985) 180 CLR 459 at 472-473.
Counsel for Nebahat and Selahattin referred to Scottish Co-Operative Wholesale Society Ltd v Meyer[10] for the proposition that oppressive conduct is "burdensome, harsh and wrongful" conduct; to Re H R Harmer Ltd[11] for the proposition that courts are reluctant to interfere with the use of the majority voting power, subordination of a minority view not in itself constituting oppression; to Re G Jeffrey (Mens Stores) Pty Ltd[12] and O'Neill v Phillips[13] for the proposition that winding up is the appropriate relief in cases of irreconcilable difference where nobody is at fault. I have regard to these authorities and to all that counsel submitted including the reference to Re a company[14] where Lord Hoffman (at 99, 194) stated the truism that two people can find that without fault on either side they can no longer work together in a business relationship. For one to ask the other to leave does not automatically, without more, mean that he has oppressed the other in terms of the section.
[10][1959] AC 324.
[11][1959] 1 WLR 62.
[12](1984) 9 ACLR 199.
[13][1999] 1 WLR 1092 at 1104.
[14](1986) 2 BCC 99, 191.
Counsel approached the case by engaging in a thorough analysis of the facts to found their submission that there was, or was not, oppression. I do not propose to rehearse the facts again but to only refer to some aspects of them. The above discussion, in which I have recorded the facts to the extent necessary for the resolution of the case, is otherwise sufficient in my view. It discloses a trail of conduct driven by Nebahat's anger with Anthony, which Selfet came to support with vigour having no option otherwise than to support her and Selahattin, which was designed to rid the business of Anthony.
The initial decision on 26 July 2002 to close the business was commercially illogical. Here was a successful business which the parties would surely have been better off selling as a going concern. Indeed, the wisdom of the contrary could not be argued. That course was overwhelmingly in the common interest. What was required was to work out a working arrangement under which the business could be kept going with the minimum of disruption, and engage an independent person to handle the sale. They had an accountant who could have advised them as to this. He, it may be noted, had the good sense to tell Nebahat that he did not recommend entering voluntary administration, doubtless because of the costs and the directors’ loss of control, which factors Hewitt advised the directors upon. I do not accept that relations between the directors were so bad that it was out of the question to proceed, or attempt to proceed, in a manner in which a commercially prudent director would have proceeded. That course was not attempted.
In my view no reasonable director would have decided to close the business down on 26 July 2002. The decision was bred and made in anger and spite, peremptorily and without any proper consideration of the commercial alternative. Even actuated by anger and spite, driven by Nebahat, Selfet and Selahattin going along with her, why would those directors have chosen the path of simply closing the business, and have pursued that path? Why, for instance, did they not take the course of dismissing Anthony as an employee and seeking to acquire his shares at a fair value? Why throw away a good business? It was to the detriment of Anthony, as well as the others, to do so. The lack of logic and commercial sense is not, I conclude, sufficiently answered by the desire to be rid of the problem of Anthony.
The next step of the voluntary administration was contrived for the purpose of dealing with the problem of Anthony, and should not have been undertaken. The other directors continued in their peremptory manner, forcing their view upon Anthony. There had still been no reflection, and no considered advice as to the commercial alternatives had been made available to the directors for their consideration including advice as to the relative wisdom involved in the alternative. It was a headlong rush on the course dictated by anger and spite of closing the business down. The error was apparent as early as the day of the appointment of the administrators, and the consequence of that appointment was to waste a deal of the company's money on fees and costs. No reasonable group of directors would have permitted that to happen.
To rid the company of the administrators required an urgent agreement of the directors and shareholders. While Anthony had been against closing the company down, and had raised the proper objection to administration that the company was solvent, but had been overridden, he had to suffer the further peremptory pressure of making an urgent decision on Selahattin's offer. The urgency thus created was the consequence of the ill advised conduct of the other directors. Selfet had to make a decision urgently, but he may be regarded as bearing the consequence of his own conduct in participating in the decision. Furthermore, he does not complain.
By this time at least an element had emerged in the other directors' minds, and that was the wisdom of selling shares in the ongoing business rather than closing it down. If there was not to be a sale to an outside party, that was the course most likely to achieve value for the shares. I find that from this point the other directors ceased moving for a simple closure of the business. Selfet, I find, truly never wanted to close the business. That decision was plainly against his commercial interest, but that interest also gave him no option but to align himself with Nebahat and Selahattin. Further, the evidence of those three as to saying to each other on 26 July that they would not take on the responsibility of attending to a sale of the company had a contrived air about it, and I doubt the truth of it. Nevertheless I do not find that that evidence was false. I consider that it reflects the shallow and inconsiderate nature of their deliberation on that occasion.
Then, moving forward, once Anthony had agreed to purchase the remaining shares, he was subjected to further unfair conduct. Nebahat and Selfet staying away from the factory for a few days, the Ferdi Cokelek resignation and reinstatement, the contrived Designerform invoice, the continued and worsening anger and spite directed to Anthony, the pressure on Anthony to pay the purchase price when the other directors knew he would find it difficult to pay, making it difficult for him to know the state of the business when he needed to raise finance, and stopping his wage and access to the business. These actions were designed to undermine his position and make it very difficult for him to be able to complete the purchase. The Designerform invoice was, I find, created for that purpose, and had the effect, as I find Nebahat was aware it would, of putting the purchase out of his reach. It is true that Anthony retained his desire to complete the purchase but the Designerform invoice took the steam out of him in that regard, in my view.
In my view, for the above reasons and in light of all the circumstances, the affairs of Unique Doors were conducted in such a way over the period from 26 July in a manner that was unfair to Anthony, or more precisely Elbek as the member of the company.
This brings me to the matter of relief and the further disposition of the proceeding.
I have already concluded that the proceeding brought by Nebahat and Selahattin fails and that will be dismissed. I will hear counsel on the matter of costs.
As to the proceeding of Anthony and Elbek, I will give the parties an opportunity to consider their position. Counsel for Anthony and Elbek submitted that relief should be granted on the basis that Nebahat and Selahattin, being the oppressors and in control of the company, should pay Elbek the fair value of its shares as at 30 June 2002, that value being $492,472.50 in accordance with the affidavit of Hasan Kaygusuz. In other words, the transfer of Elbek's shares pursuant to the court order should stand. In addition the company should be ordered to pay Anthony the amount of his loan account of $51,000.
The issue of the fair value of Elbek's shares has not been tried. That is the only issue left over from the proceeding that remains for resolution. In addition to the matters mentioned, I will make a declaration as to the occurrence of unfair conduct under s 232. I will adjourn the further hearing for one week when I will make that declaration and hear counsel on other matters of relief including costs.
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