ACM Group Ltd v ACHRAM

[2017] FCCA 2558

FEDERAL CIRCUIT COURT OF AUSTRALIA

ACM GROUP LTD v ACHRAM [2017] FCCA 2558

Catchwords:
BANKRUPTCY – Application ex parte for order under s.50(1) of the Bankruptcy Act 1966 (Cth) (Act) for order to permit trustee to take control of debtor’s property – bankruptcy notice issued but not served – whether because of s.50(1A) of the Act it is a precondition to the making of an order under s.50(1) of the Act that the debtor has failed to comply with the requirements of a bankruptcy notice – whether the debtor failed to comply with the requirements of the bankruptcy notice by not paying the amount demanded in the bankruptcy notice even though the bankruptcy notice was not served – application dismissed.

Legislation:

Bankruptcy Act 1966 (Cth), ss.50, 50(1), 50(1A)

Applicant: ACM GROUP LIMITED
(ACN 127 181 097)

Respondent: RAFCA ACHRAM

File Number: SYG 2956 of 2017

Judgment of: Judge Manousaridis

Hearing date: 22 September 2017

Delivered at: Sydney

Delivered on: 22 September 2017

REPRESENTATION

Solicitor for the Applicant:

Ms A. Smith of

SLF Lawyers

ORDERS

1. The application made pursuant to s.50 of the Bankruptcy Act 1966 (Cth) (Act) is dismissed.

2. Such dismissal shall take effect on 26 September 2017.

3. Should the applicant be so advised, the applicant may renew its application for an order under s.50 of the Act before 26 September 2017.

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT SYDNEY

SYG 2956 of 2017

ACM GROUP LIMITED (ACN 127 181 097)

Applicant

And

RAFCA ACHRAM

Respondent

REASONS FOR JUDGMENT

(revised from transcript)

1. There came before me this afternoon on an urgent ex parte basis an application filed by the applicant, ACM Group Limited, for orders under s.50 of the Bankruptcy Act 1966 (Cth) (Act). Subsection (1) of s.50 provides as follows:

   At any time after a bankruptcy notice is issued, or a creditor's petition is presented, in relation to a debtor, but before the debtor becomes a bankrupt, the Court may:

   (a)direct the Official Trustee or a specified registered trustee to take control of the debtor's property; and

   (b)make any other orders in relation to the property.

2. Subsection (1A) of s.50 makes it clear that the direction and the making of an order referred to in subsection (1) can be made “only if” all three of the matters specified in s.50(1A) are satisfied. One of those, being the matter identified in paragraph (c), is “the debtor has not complied with the bankruptcy notice”.

3. The evidence is that a judgment has been recovered against the respondent in the Local Court of New South Wales for an amount of around $18,000. There is also evidence that a bankruptcy notice has been issued demanding payment of the judgment debt together with interest that has accrued on that judgment debt. That bankruptcy notice was issued on 7 September 2017. There is also evidence of attempts to recover payments of the judgment debt, including the issuing of garnishee process. There is in evidence a letter dated 13 September 2017 addressed to the proper officer of L&P Real Estate Proprietary Limited.  The evidence suggests that that is the real estate agent the debtor engaged in connection with the sale of the property. 

4. I should have noted earlier that the application relates to a piece of real estate of which the respondent is the registered proprietor. What has prompted the urgent application is that the property is the subject of a contract for sale which is due to settle next Tuesday, which is 26 September 2017. The agent to whom the letter dated 13 September 2017 is addressed appears to be the agent acting for the debtor on that sale. The letter encloses a copy of the bankruptcy notice issued on 7 September 2017 and a certified copy of the judgment. The letter then states:

   We are instructed to advise that in the event that the vendor fails to remedy the outstanding debt or comes to an arrangement by 15 September 2017, we will seek our client’s instructions to obtain orders for the appointment of a section 50 trustee, which will prevent the sale of the property from occurring.

5. The letter met with no response. It is apparent from that correspondence that the bankruptcy notice has not been served on the debtor.  Of course, the debtor may have received some notice of it from his agent, but there is no suggestion that the sending of the bankruptcy notice to the real estate agent is in any sense the effectation of service on the debtor.

6. The other thing I should note is that the bankruptcy notice demands payment of the judgment debt and interest noted in the bankruptcy notice within 21 days.  So even if one were to assume the bankruptcy notice had been served on 15 September, the 21 day period has not expired.  And if, indeed, one assumes that the bankruptcy notice was served on the date it was issued, the 21 day period will not have expired.

7. I then turn to the question whether I have power under s.50 of the Act to make any order. I am clearly of the view that I do not have any power. As I mentioned before, s.50(1A) of the Act requires that, before the Court may give a direction or make an order under s.50(1), it may only do so if, among other things, the debtor has not complied with the bankruptcy notice.

8. It was submitted to me that all that means in the context of this section is that the amount demanded by the bankruptcy notice has not been paid. I do not accept that submission. Compliance with the bankruptcy notice requires one to look at the terms of the bankruptcy notice and ascertain what it is that the bankruptcy notice requires the person to whom it is directed to do. And that is clear on the face of the bankruptcy notice. It requires that either the person to whom it is addressed pay the amount claimed or make arrangements to the creditor’s satisfaction for the settlement of the debt. It also requires that this be done within 21 days after service of the bankruptcy notice.

9. Before s.50 of the Act is engaged, at least where there is no creditor’s petition filed, what must occur is that the demand made in the bankruptcy notice has not been complied with. That requires two things. The first is service of the bankruptcy notice, because the matters demanded in a bankruptcy notice must be done within a certain time, the beginning of which is determined by the date on which it is served. Second, the things that are demanded by the bankruptcy notice must be done within the 21 day period, which is to say that a debtor to whom it is addressed does not comply with it if, within the 21 day period, the matters stated in the bankruptcy notice are not complied with.

10. It was submitted that on the material the creditors are in peril because, it was submitted – and I make no finding about this – that the evidence suggests that there is a real risk any equity in the property will be dissipated. That is a matter of concern to a creditor, if that is what the evidence suggests, but that is not the purpose of s.50. The purpose of s.50 is to empower the Court, for the benefit of the body of creditors of the person against whom a creditor’s petition has been filed or a bankruptcy notice has been issued, and who has failed to comply with that bankruptcy notice, to preserve the assets that comprise the estate of the debtor. But it is triggered and predicated on there being, at the very least, an asserted act of bankruptcy.

11. That is not to say that a creditor who believes that the assets of a judgment debtor will be dissipated by the debtor is without remedy.  The superior courts and, I understand, the District Court, at least in New South Wales, have undoubted jurisdiction to issue orders restraining a debtor’s dealing with assets if there are grounds for believing that the assets will be dissipated for the purpose of defeating a judgment. Those types of orders used to be known as “Mareva injunctions”, but now they are known as “asset preservation orders”. Each superior court of the land contains a detailed practice note which sets out the requirements of obtaining such an order and the manner in which it may be obtained.

12. I am certainly not suggesting, because it is not my concern, that the creditor before me has grounds for obtaining an injunction, that is, an asset preservation order. All I am saying is that a creditor who feels imperilled by the potential dissipation of assets of a debtor is not without remedy, and that s.50 of the Act is certainly not the only remedy available to creditors in that situation.

13. I have taken the trouble of giving a judgment on this matter because this is not the first occasion that an application has been made to me under s.50 of the Act before the time for complying with a bankruptcy notice has passed, and it may well be that the profession is not sufficiently aware of what I consider to be a plain precondition which is apparent on the face of the statutory provisions themselves.

14. For these reasons, therefore, the application will be dismissed.

I certify that the preceding fourteen (14) paragraphs are a true copy of the reasons for judgment of Judge Manousaridis

Associate: 

Date:  23 October 2017