Abigroup Ltd v Abignano
[1992] FCA 567
•16 JULY 1992
Re: KURT and GERALDINE PICCARDI
And: GEORGE GREGORY GRIVAS
No. W 1607 of 1986
FED No. 567
Bankruptcy
COURT
IN THE FEDERAL COURT OF AUSTRALIA
BANKRUPTCY DISTRICT IN THE STATE OF NEW SOUTH WALES
GENERAL DIVISION
Beaumont J.(1)
CATCHWORDS
Bankruptcy - application by trustee that bankrupts not be discharged by virtue of s.149 Bankruptcy Act 1966 - whether bankrupts co-operated in administration of estates - whether matters still subject of investigation - Bankruptcy Amendment Act 1991 - whether applicable to the proceedings.
HEARING
SYDNEY
#DATE 16:7:1992
The Bankrupts appeared in person
Solicitors for Trustee: Sullivans
ORDER
THE COURT ORDERS:
That order made on 18 November 1991 is varied by
substituting for the period of seven years commencing from
18 November 1986, a period expiring on 3 December 1992.
Note: Settlement and entry of orders is dealt with in rule 124 of the Bankruptcy Rules.
JUDGE1
This matter has a complicated history. In November 1986 a sequestration order was made in respect of the estate of Mr and Mrs Piccardi. Subsequently, an application was made for annulment of those orders and at first instance an application for annulment was made. However, a Full Court on appeal set aside the annulment and the history of the matter to that point of time appears in the reasons of the Full Federal Court given on 23 June 1989 and I need not repeat that history.
There was an application made on behalf of the bankrupts to the High Court of Australia for leave to appeal against the decision of the Full Court. That leave was refused in September 1989. By force of the statute the bankrupts were due to be discharged on 18 November 1991. On 15 November 1991, an application was made to the court ex parte on behalf of the trustee seeking orders that the period at the expiration of which an objection to the discharge of the bankruptcy will elapse, be a period of seven years commencing from 18 November 1986.
Alternatively an order was sought that the bankrupts shall not be discharged from bankruptcy by virtue of s.149 of the Bankruptcy Act 1966 ("the Act"). I granted short leave for that application and made the matter returnable on 18 November, which was the following Monday. I directed service of the application as soon as practicable. It will be noted that the 15 November was a Friday. The trustee endeavoured to serve the process upon the bankrupts over the intervening weekend, but as it happened, the bankrupts had at about this time moved house from Newcastle, where they had lived for some years, to Queensland.
When the matter came before me on the 18 November, I was informed by counsel then appearing for the trustee that it had not been possible to serve the bankrupts or even notify them of the trustee's application to that point of time. The dilemma that then confronted the Court was that, on the one hand, if the Court were to decline to make any order on the 18 November, the discharge would have taken place by virtue of the statute. On the other hand, if an order were made extending as it were the period of the bankruptcy without notice to the bankrupts and without giving them an opportunity to be heard on the point, an injustice to the bankrupts could have ensued. In those special circumstances I made orders on 18 November as follows:
1. Order that the period at the expiration of which an
objection to the discharge of the bankrupts will lapse, will
be a period of 7 years commencing from 18 November 1986.
2. Reserve to the bankrupts liberty to apply on such notice, if
any, as a Judge of the Court shall allow to vary or
discharge order No. 1, without bearing the onus of proof.
3. Direct the trustee to use his best endeavours to serve the
bankrupts as soon as practicable with the application and
supporting material.
I then stood the matter over to 3 December 1991.
As is apparent, my object in framing the orders in the way I have recited was on the one hand to avoid the possibility that the discharge would take place by virtue of the statute without the trustee having an opportunity to intervene, and on the other hand, taking or putting in place machinery to provide the bankrupts with the opportunity of being heard on the matter without bearing any onus of proof in that connection. Subsequently, the bankrupts did apply to vary or discharge the order in question, although the matter did not come before the Court in any substantial sense until earlier this year.
The matter is a complex one and it is unfortunate that the bankrupts have not been in a position to retain the benefit of professional representation in this matter. They have, I would expect, difficulties in funding professional advice but, given the complexity of their affairs, it is regrettable that the Court has not had the benefit of hearing the submissions that professional representation would have provided.
The first question that arises - and this is a technical matter - is the ascertainment of the law which governs the application. As I have indicated, the matter first came before the court earlier this year. It has been adjourned on a number of occasions, partly at my suggestion so that Mr and Mrs Piccardi could obtain legal advice, and partly in order to enable written submissions to be filed and served on behalf of the parties.
One consequence of this is that in the meantime the legislation in this area has been amended. As from 1 July 1992, a new regime is in place and this has been referred to in a letter from the trustee, dated 1 July 1991, addressed to the bankrupts, purporting to advise that:
"under recent amendments made to the Bankruptcy Act, all
undischarged bankrupts as at 1 July 1992 against whom an objection to discharge...has been lodged or where an Order is in force, will not be discharged until 2 July 1995, unless a further objection is lodged."
Before coming to this question I should mention the previous legislation. By s.149(12) of the Act, as it stood at the time of the making of the order in November last year, it was provided that:
"The Court may, at any time before the discharge of a
bankrupt,....direct that the bankrupt shall not be discharged from bankruptcy by virtue of this section."
By s.149(13):
"In deciding whether to make an order under subsection (12), the Court shall take into account such matters (if any) as are
prescribed for the purposes of this subsection."
By rule 51A it is provided that the following matters, inter alia, are prescribed for the purposes, inter alia, of s.149(13):
"(b) whether the discharge of the bankrupt would prejudice the
administration of his estate;
(c) whether the bankrupt has co-operated in the administration of
his estate;
(e) any matters arising out of the conduct of the bankrupt as a
bankrupt being matters that are the subject of an investigation that is not completed."
The new regime which is in force as from 1 July 1992 is different. By the provisions of s.149, as presently framed, and, in particular, by sub-s. (2) of that provision, if a bankrupt became a bankrupt before the commencement of the Bankruptcy Amendment Act 1991 and immediately before the commencement of s.27 of that Amendment Act, either s. 149(3)(c) of the Act applied in relation to the bankrupt or an order under, inter alia, section 149(12) of the Act was in force in relation to the bankrupt, the bankrupt is discharged at the end of a period of three years from whichever is the later of two dates there specified. In my opinion, the present application is governed by the provisions of s.149 as they stood before 1 July 1992. As has been noted, the order with which I am now concerned, was made in November last year and the application to vary or discharge it was made at the beginning of this year, certainly well before 1 July. I therefore propose to consider the matter by reference to the section as it stood before 1 July of this year (see Esber v The Commonwealth (1992) 66 ALJR 373).
I have already indicated that the application now made on behalf of the bankrupts is made pursuant to leave reserved by me in November last year on the footing that they bear no onus in this regard. The matter therefore is a matter of form and of substance and should be regarded as one in which the trustee bears the onus. In support of his application, the trustee relies upon paras. (b), (c) and (e) of rule 51A, which I have set out above.
Before coming to the question of whether those provisions or any of them have any application in the present circumstances, I should mention some more background material. As I have said, part of the background appears in the reasons of the Full Court given on 23 June 1989 on the annulment appeal but other events have occurred since that date which are relevant.
The bankrupts carried on business in Newcastle in a substantial way as the developers of real estate and in investment in real estate. I understand that at one stage they owned in excess of 50 properties, some of which included properties of significant value and were located in the central business district of Newcastle.
In order to finance their operations, the bankrupts borrowed substantial amounts from banks and others and in the case of one bank, the ANZ Bank, the bankrupts borrowed in the order of $4 million which was taken in a re-financing transaction in the form of a Swiss Franc foreign currency loan. As is well known, the Australian dollar depreciated substantially, vis-a-vis the Swiss Franc, with the consequence that the amount owed to the ANZ Bank is now in excess of $10 million, of which approximately $5 million has been realised by way of security held by the bank leaving a deficiency on that account alone in the order of $5 million.
There were also borrowings from Citibank on two properties in amounts which exceeded $4 million. Again security was held by that bank which has apparently been realised and it is not known what proceeds of sale were brought to account by Citibank but it appears unlikely that there will be any surplus funds available to the estates of the bankrupts. With one exception, to which I will return in a moment, no funds have been brought to the credit of the accounts of the estates of the bankrupts and no contributions have been made by the bankrupts to their estates from their income. The exception is that a sum of $120,000 approximately was negotiated as a settlement figure in proceedings in which the trustee was a party in relation to a disputed security in which the ANZ Bank was a party.
Of the sum of approximately $120,000 some amount was required to meet the costs of the litigation in that connection and the balance, I am informed, was required by way of satisfaction of the costs of the administration of the estate and of the remuneration of the trustee. It appears that in addition to the shortfall owed to the ANZ Bank, and it would appear also to the Citibank Corporation, there are unsecured creditors with claims in excess of $1.1 million. I understand that there are in the order of 30 such creditors. In short, this is, on any view, a substantial bankruptcy and present indications are that there will be no dividend for unsecured creditors whatever.
There have been several public examinations of the bankrupts with respect to their affairs. The transcript of those examinations has been tendered before me. On behalf of the trustee it is said that there are some unsatisfactory aspects revealed in the dealings of the bankrupts with two companies in particular. The first is a company known as Jontria Pty. Limited ("Jontria") and the second is a company of the name Thermab Pty. Limited ("Thermab").
Jontria did trade as the proprietor of a coffee shop business at an earlier stage and Mrs Piccardi worked in that business. It appears that Jontria is no longer trading and is a mere shell. Thermab is, however, still trading. It owns a coffee shop business on the Gold Coast in Queensland and Mrs Piccardi works in that business. It appears that, in the period after the making of the sequestration orders, the company Jontria purchased land and built a house upon that land at Eleebana in New South Wales.
A sum of $60,000 was paid to a Mr Theo Eggerth on the sale of the Eleebana property and, in a way which is not entirely clear, that sum found its way from Jontria to Mr Eggerth and then to Thermab. This is a matter that was raised in the public examination and about which the trustee claims no satisfactory explanation has been given on behalf of the bankrupts. It appears that Mr Eggerth is a friend of Mrs Piccardi's stepfather.
One of the difficulties confronting the trustee in the administration of the estate is that no books of account of Thermab or, for that matter, of Jontria have been kept or written up since the conclusion of the public examination. I have come to the conclusion that I should vary the order that I made in November last year and should reduce significantly the time contemplated by that order. It will be recalled that under the terms of the order the discharge would be deferred until November 1993. On the other hand, I think there is some force in the contention put on behalf of the trustee that the provisions of paras. (b), (c) and (e) of r. 51A have application in the present case.
I think it is fair to say that there are outstanding matters in the administration of the estate and that, in the interests of the body of creditors as a whole, the trustee should be given a reasonable opportunity to pursue these matters to their conclusion. In this connection I think it is significant that, to this point of time at least, there appear to be a number of questions surrounding the relationship of the bankrupts, Mr Eggerth and the two companies, Jontria and Thermab connection with the sale of the Eleebana property and the ownership and operation of the two coffee shop businesses, one in Newcastle and one on the Gold Coast.
It is not, of course, a matter for me at this stage to express a view, even a tentative view, as to the ultimate position in this respect. Under r.51A it is sufficient that there be evidence that the discharge would prejudice the administration of the estate. It is also material for me to consider whether the bankrupt has co-operated in the administration of the estate and whether there are any matters arising out of the conduct of the bankrupts that are subject of an investigation that is not completed.
In my discretion, the facts of the present case indicate that the provisions of paras.(b), (c) and (e) are applicable here. At the same time there must be a reasonable limit placed upon the time within which these investigations can be completed. It seems to me that fairness between the parties, having regard also to the interests of the general body of creditors, would be achieved if I were to, in effect, extend the period of the bankruptcy to 3 December this year. That is a period of 12 months from when the matter first came before the court after the making of the order on 18 November. It seems to me that this will, on the one hand, vindicate the interests of the general body of creditors in the proper administration of the estate and, on the other ensure a just result so far as the bankrupts themselves are concerned.
I propose then, to vary the order I made on 18 November, accordingly.