Allied Mills Pty Ltd v Kiriakidis
[2006] FMCA 1164
•31 July 2006
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| ALLIED MILLS PTY LTD v KIRIAKIDIS | [2006] FMCA 1164 |
| BANKRUPTCY – Application to terminate Part IX debt agreement – section 185Q Bankruptcy Act – creditor’s petition. |
| Bankruptcy Act 1966, s.185Q |
| Re Collier, Ex parte Dan Rylands Ltd (1891) 8 Mor 80 |
| Applicant: | ALLIED MILLS PTY LTD ACN 000 008 739 |
| Respondent: | NOLA MAY KIRIAKIDIS T/AS ‘SEA BOUNTY’ WHOLESALERS |
| File Number: | SYG1158 of 2006 |
| Judgment of: | Barnes FM |
| Hearing date: | 31 July 2006 |
| Delivered at: | Sydney |
| Delivered on: | 31 July 2006 |
REPRESENTATION
| Solicitors for the Applicant: | Streeter Commercial Lawyers |
| Respondent: | No Appearance |
THE COURT ORDERS THAT:
The Part IX Debt Agreement entered into by the respondent be terminated pursuant to Section 185Q of the Bankruptcy Act 1966 (Cth).
The respondent pay the applicant’s costs of and incidental to the interim application.
THE COURT FURTHER ORDERS THAT:
A sequestration order be made against the estate of Nola Mary Kiriakidis T/AS ‘Sea Bounty’ Wholesalers.
John Richards Park and Lachlan Stuart McIntosh be appointed trustees of the bankrupt’s estate.
The applicant creditor’s costs (including any reserved costs) be taxed in accordance with the Federal Court Rules and paid from the estate of the respondent debtor in accordance with the Act.
A copy of this sequestration order be given to the Official Receiver in Sydney within 2 days.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG1158 of 2006
| ALLIED MILLS PTY LTD ACN 000 008 739 |
Applicant
And
| NOLA MAY KIRIAKIDIS T/AS 'SEA BOUNTY' WHOLESALERS |
Respondent
REASONS FOR JUDGMENT
(Revised from transcript)
This matter is before the Court by way of an interim application for termination of a debt agreement under Part IX of the Bankruptcy Act 1966 and also for the hearing of a creditor’s petition. The applicant relies on the following documents:
i)
Affidavit of Final Search – Mark Geoffrey Streeter sworn
31 July 2006.
ii)Affidavit of Final Debt – Dianne Eaton sworn 28 July 2006.
iii)Affidavit of Service of creditor’s petition – Affidavit of Anthony John Weaver sworn 25 May 2006.
iv)Affidavit of Craig Savage sworn 22 June 2006.
v)Affidavit verifying service of 7 July 2006 sworn by Craig Savage in relation to the service of notices to creditor on various unsecured known creditors.
vi)Affidavit of Service of Interim Application sworn 14 July 2006 by Anthony John Weaver.
vii)Affidavit of Service of Craig Savage sworn 26 July 2006 annexing letter to Respondent Debtor notifying her of the time, date and place of the adjourned hearing.
viii)Affidavit of Service sworn by Craig Savage sworn 26 July 2006 deposing to service of the notice to creditor on the secured creditor, Liberty Funding Pty Ltd.
ix)Affidavit of Craig Savage sworn 26 July 2006 annexing encumbrance search in relation to the property and noting that the creditors shown in relation to those encumbrances are the same as appear in the debt proposal and for the same debts.
x)Letter from Financial Crisis Recovery 25 July 2006 (tendered as exhibit).
The background to these proceedings is that the applicant obtained judgment against the respondent on 9 January 2006 in proceedings in the Downing Centre Local Court, Sydney Number 145562/2005 for the sum of $2149.53. A bankruptcy notice was issued on 24 February 2006 for the sum obtained in the judgment together with interest from 9 January 2006 until 22 February 2006, giving a total debt of $2172.85. It was served on the debtor on 8 March 2006.
On or about 12 April 2006 the respondent submitted a Part IX debt agreement proposal to the Insolvency and Trustee Service of Australia. A copy of that proposal is annexed to the affidavit of Craig Savage, sworn in these proceedings on 22 June 2006.
On 20 April 2006 the applicant presented and filed a creditor’s petition seeking that a sequestration order be made against the estate of the respondent. On 26 June 2006 the applicant filed an interim application seeking orders that the agreement under Part IX of the Bankruptcy Act 1966 (Cth) entered into by the respondent be terminated pursuant to section 185Q of the Bankruptcy Act. A copy of the interim application was served on the respondent, as deposed in an affidavit of service of 14 July 2006.
The matter has been before the Court on a number of occasions (1 June 2006, 4 July 2006 and 18 July 2006). There was no appearance by or for the respondent on any prior occasion.
There is no appearance by or for the respondent today. Nor has any notice of intention to oppose the petition been filed. The solicitors for the applicant notified the respondent of the adjournment of the proceedings until today and of today's hearing of the interim application and creditor’s petition as deposed in the affidavit of Craig Savage of 26 July 2006 and, indeed, the court sent her a copy of the orders made on the last occasion.
The solicitor for the applicant also served copies of documents filed in connection with the interim application on all of the unsecured creditors listed in the debt agreement proposal as deposed in the affidavit of Mr Savage sworn 7 July 2006. There has been no appearance or notification by or for any of these creditors. When the matter came before this Court on 18 July 2006 it was noted that in addition to the creditors who had been notified there was another creditor, Liberty Funding Pty Ltd. The hearing was adjourned.
The applicant has notified Liberty Funding Pty Ltd by service on it of the documents in the interim proceedings as deposed to in the affidavit of 26 July 2006 of Craig Savage. Also before the Court is an affidavit of 26 July 2006 of Craig Savage that addresses the fact that the certificate of title for a property owned by the debtor jointly with Irakhs Kiriakidis (as discussed below) records not only a mortgage to Liberty Funding Pty Ltd but also two other encumbrances (property seizure and sale orders). I am satisfied by this evidence that these encumbrances are encumbrances appearing in the debt agreement proposal (one relates to the debt of the applicant) and that the creditors have been notified of these proceedings.
In these circumstances the applicant seeks that hearing of the interim application and the creditor’s petition proceed in the absence of the debtor. The debtor has been given the opportunity to appear. She has not done so on any of the occasions the matter has been before the Court. Nor has she notified the court of any reason for non-appearance. In all the circumstances it is appropriate to proceed in her absence.
The first matter before the Court is an application to terminate the debt agreement under Part IX of the Bankruptcy Act 1966.
The debt agreement proposal listed a number of unsecured creditors of the debtor and Iraklis Kiriakidis, including the applicant. It made a proposal for repayment of what would amount to 77 cents in the dollar in relation to these creditors. It also listed “Liberty Financial Pty Ltd” as a creditor who would not be paid by the administrator. It recorded the amounts to be paid direct to that creditor and listed under the heading. “Details of assets held by creditors for security including an estimate of their market value and include an estimate of the amount owed to the creditor” the following words: “7 Ryan Way, Lesmurdie, WA.”
The agreement also listed assets owned outright which were to be retained by the debtors. It was signed on 12 April 2006.
The administrator completed the remaining part of the agreement and consented to act as administrator on 12 April 2006. The creditor’s petition was stayed due to the Part IX debt agreement.
However by letter sent in or about May 2006 ITSA reported to the creditors, including the applicant, that the debtor had failed to disclose all of the matters required in the debt agreement proposal. The debtors had advised that they would be maintaining payments to Liberty Financial Pty Ltd outside the proposal and provided the address of the property. However the value of the property and amount owing to Liberty Financial (as disclosed on the debtor’s later statement of affairs) was not included as required. The letter set out that according to the debtor’s statement of affairs (which had not been verified) there was an amount owing to Liberty Financial Pty Ltd of $293,103 and an estimated re-sale value of the property of $385,000. On the calculations of ITSA this would provide an estimated equity of $91,897 less any other encumbrances over the property.
A certificate of title annexed to the same affidavit indicates that the property in question is owned by the debtor and Iraklis Kiriakidis as joint tenants. Also tendered in these proceedings is a copy of a letter from Financial Crisis Recovery dated 25 July 2006 to ITSA enclosing a financial statement showing the current balance owing to Liberty Financial is $316,115 and a copy of a valuation of the property at $380,000 as at 10 July 2006.
In these circumstances the applicant seeks first that the debt agreement be terminated pursuant to section 185Q of the Bankruptcy Act 1966. Section 185Q provides that certain persons may apply to the court to terminate a debt agreement. I am satisfied, based on the material before me including the bankruptcy notice, the creditor’s petition and a copy of the certificate of judgment on which the bankruptcy notice is based, that the applicant is a creditor of the debtor.
Under 185Q(4) the prerequisites for making an order terminating a debt agreement are as follows:
Prerequisites for making an order terminating a debt agreement
(4) The Court may make an order terminating a debt agreement if it is satisfied:
(a) that the debtor (or the debtor’s personal representative if the debtor has died) has failed to carry out a term of the agreement and that it is in the creditors’ interest to terminate the agreement; or
(b) that carrying out the agreement would cause injustice or undue delay to the creditors or the debtor (or the debtor’s estate if the debtor has died); or
(c) that for any other reason the agreement should be terminated and that it is in the creditors’ interest to do so.
The applicant relies on s.185Q(4)(c). The basis for the application for termination is the respondent’s failure to make a full disclosure in the debt agreement proposal in relation to the debt due to Liberty Funding Pty Ltd. While the name of the creditor, the address of the property and the amount proposed to be paid was disclosed, the applicant failed to include in the proposal the estimated market value of the property and an estimate of the amount owed to the creditor. Information has been put before the Court in relation to both of those matters.
In particular, the most recent information is that the outstanding liability to Liberty Funding is $316,115 and that as at 10 July 2006 the property was valued at $380,000 (the respondent having estimated a value of $385,000 in the statement of affairs).
Taking the more conservative approach to value and noting that the other encumbrances noted on the certificate of title are not additional debts but relate to debts which had already been disclosed, these figures indicate that there would be something in the order (allowing for sale and transaction costs) of $64,000 of additional funds potentially available to creditors if a sequestration order was made. Although the property is owned jointly by the debtor and Mr Kiriakidis the debts are also said to be owed by both Mr and Mrs Kiriakidis. Even if the estimated equity of the debtor in the property would not provide for a full payment of creditors, as suggested, nonetheless it is clear that there is a significant additional amount that was not disclosed that would be available to her creditors.
The creditors listed in the debt agreement have all been notified of these proceedings. There has been no appearance for any of these creditors. In these circumstances I am satisfied that it is in the interests of the creditors that the debt agreement be terminated. There has been a material non-disclosure in the debt agreement proposal. So long as the debt agreement remains in place the sequestration order cannot proceed. If the creditor’s petition succeeds and the sequestration order is made then on the material indicated above there would be a further amount available for distribution to creditors. The respondent has not appeared or provided any evidence to the Court to oppose termination of the agreement.
Accordingly I will make the order sought in the interim application that pursuant to s.185Q of the Bankruptcy Act 1966 the Part IX debt agreement entered into by the respondent be terminated.
The respondent should pay the applicant’s costs of and incidental to this application.
The applicant may simultaneously apply for a sequestration order (s.185Q(2)). In this case the application for a sequestration order had already been filed. Under s.185Q(5) if the Court makes an order terminating the debt agreement it may also make a sequestration order.
The creditor seeks a sequestration order today. The applicant has been notified of this fact. There is no appearance by or for the applicant. For the reasons given above the petition should be dealt with in her absence. The creditor relies on the documents referred to above.
The bankruptcy notice relied on is based on the judgment of the Local Court described above. The bankruptcy notice was issued on
24 February 2006 and was served on 8 March 2006. The date of the act of bankruptcy relied upon is 29 March 2006. The creditor’s petition was presented on 20 April 2006.
One issue in relation to the creditor’s petition was brought to the attention of the court. That is that in part one, paragraph one of the petition the basis for the debt is spelt out, initially correctly, as being that the respondent debtor owes the applicant creditor the amount of $2,149.53 for goods sold and delivered by the applicant to the respondent being for the amount due under a final judgment obtained in the Local Court of New South Wales at Sydney on 9 January 2006 with interest thereon at the rate of nine per cent per annum from
9 February 2006 to 22 February 2006 which amounts to $23.32 making a total of $2,172.85.
However, that paragraph continues that the consideration for such debt is unpaid workers compensation insurance premiums by the applicant creditor for the respondent debtor. This is an error said to result from the use of a precedent by the solicitor for the applicant. Annexed to an affidavit sworn by Mark Geoffrey Streeter, the solicitor for the creditor, on 31 July 2006 is a letter dated 19 July 2006 which the solicitors for the creditor caused to be sent to Ms Kiriakidis referring to the fact that the matter had been adjourned to today, giving her notice that the creditor would be seeking orders that the debt agreement be set aside and that the sequestration order be made and an order for costs and also drawing her attention to the defect in the creditor’s petition in that it incorrectly states that the debt owed was due to unpaid workers compensation insurance premiums. The letter also stated that, as the debtor was aware through her previous business relationship with the creditor, through the statement of claim served her on 5 December 2005 and through her admission in the debt agreement proposal, the debt was “due to unpaid goods sold and delivered.”
In these circumstances it is contended by the solicitor for the creditor that the error is no more than a formal defect that is of no significance. If necessary, the creditor seeks to rely on section 306 of the Bankruptcy Act, which provides that:
“Proceedings under this Act are not invalidated by a formal defect or a mere irregularity unless the Court before which the objection on that ground is made is of the opinion that substantial injustice has been caused by the defect or irregularity and that the injustice cannot be remedied by an order of that court.”
I note that no notice of objection has been filed and there has been no appearance by the debtor. The attention of the debtor has been drawn to the “defect” by the letter of 19 July 2006. This gave her an opportunity, if she sought to take issue with the defect, to bring it to the attention of the Court. The creditor’s petition otherwise provides a full and correct explanation of the basis for the debt. There is no suggestion of any defect in the bankruptcy notice.
There is authority that defects or irregularities in a creditor’s petition will, unless the debtor has been misled or unfairly prejudiced, normally be permitted to be cured under s.306 (see Re Collier, Ex parte Dan Rylands Ltd (1891) 8 Mor 80). The misdescription is an additional reference to workers compensation. Insofar as there is a defect, given the correct and complete description of the debt that precedes it, it is not such as to be regarded as a material fact. I am satisfied on the material before me that s.306 should apply to such a defect so that it does not invalidate proceedings.
On all the material before me I am satisfied that the debtor committed the act of bankruptcy alleged in the creditor’s petition on 29 March 2006. I am satisfied with the proof of the matters required under section 52(1) of the Bankruptcy Act 1966. The debtor has not appeared and has not sought to put evidence of solvency before the Court. There is some evidence before the Court in relation to the financial position of the debtor in the debt agreement proposal. It is not such however as to establish the solvency of the debtor. Indeed in the proposal the debtor described the cause of her insolvency and circumstances which led to her not being able to pay her debts as they fell due. No material has been put before the court to establish that the sequestration order ought not to be made in this case.
I note that a consent to act as trustee has been signed by John Richard Park and Lachlan Stuart McIntosh. Being satisfied of the matters required I make a sequestration order against the estate of Nola May Kiriakidis trading as "Sea Bounty" Wholesalers. I order that the applicant creditor’s costs, including any reserved costs, be taxed in accordance with the Federal Court Rules and paid from the estate of the respondent debtor in accordance with the Act. I order that a copy of the sequestration order be given to the Official Receiver in Sydney within two days.
I certify that the preceding twenty-nine (29) paragraphs are a true copy of the reasons for judgment of Barnes FM
Associate:
Date: 24 August 2006
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