American Express International Inc v Bennell (No.2)
[2008] FMCA 1551
•18 November 2008
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| AMERICAN EXPRESS INTERNATIONAL INC. v BENNELL (No.2) | [2008] FMCA 1551 |
| BANKRUPTCY – Application for substitution of petitioning creditor – application allowed. |
| Bankruptcy Act 1966 (Cth), ss.44(1), 49 Conveyancing Act 1919 (NSW), s.12 |
| Dean v QUF Industries Limited [1981] FCA 71 McNamara v Langford (1931) 45 CLR 267 Consolidated Trust Co Ltd v Naylor (1936) 55 CLR 423 Australian Litigation Fund v Mearns & Anor [2005] FMCA 1727 Hyams v Elder Smith Goldsbrough Mort Ltd (1976) 133 CLR 637 Mearns v Australian Litigation Fund Pty Ltd & Anor [2006] FCAFC 81 |
| Applicant: | AMERICAN EXPRESS INTERNATIONAL INC. |
| Respondent: | SUSAN JANE BENNELL |
| File Number: | SYG 2884 of 2007 |
| Judgment of: | Lloyd-Jones FM |
| Hearing date: | 10 November 2008 |
| Delivered at: | Sydney |
| Delivered on: | 18 November 2008 |
REPRESENTATION
| Counsel for the Applicant: | Mr J.D. O’Connor |
| Solicitors for the Applicant: | Gillis Delaney |
| Counsel for the Respondent: | Mr P. Braham |
| Solicitors for the Respondent: | Purcell Insolvency Lawyers |
ORDERS
Pursuant to s.49 of the Bankruptcy Act 1966 (Cth), Westlawn Finance Limited (ACN 096 725 218) be substituted for the petitioning creditor in Creditor’s Petition SYG 2884 of 2007 in the place of American Express International Inc.
Westlawn Finance Limited (ACN 096 725 218) be given leave to amend the Creditor’s Petition SYG 2884 of 2007 by substituting Westlawn Finance Limited as petitioning creditor.
Susan Jane Bennell be served with an amended Creditor’s Petition.
The respondent, Susan Jane Bennell, is to pay the costs of the applicant in these proceedings, Westlawn Finance Limited (ACN 096 725 218), as agreed, and in the absence of agreement, taxed in accordance with the Federal Court Rules (Cth).
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 2884 of 2007
| AMERICAN EXPRESS INTERNATIONAL INC. |
Applicant
And
| SUSAN JANE BENNELL |
Respondent
REASONS FOR JUDGMENT
The proceedings
Westlawn Finance Limited (ACN 096 725 218) (the applicant in these proceedings) seeks an order pursuant to s.49 of the Bankruptcy Act 1966 (Cth) (“the Act”) that it be substituted as the petitioning creditor in these proceedings. This matter was originally referred to me by Hedge R on 27 November 2007. A brief history of the matter follows. On 10 August 2007, the Bankruptcy Notice was served on behalf of American Express International Inc. (“American Express”) on the respondent debtor, Susan Jane Bennell. On 31 August 2007, Mrs Bennell committed an act of bankruptcy. On 19 September 2007, the Creditor’s Petition was filed on behalf of American Express. On 27 August 2008, Tesoriero R extended the period of the Creditor’s Petition to 24 months from the date of presentation of the Petition. On 17 October 2008, I dismissed the Amended Notice of Grounds of Opposition to the Creditor’s Petition in the judgment American Express International Inc v Bennell [2008] FMCA 1415.
On 24 October 2008, American Express informed the Court that it did not intend to proceed with the application for a sequestration order against Mrs Bennell. On that occasion solicitors for Westlawn Finance Ltd requested the matter be stood over to allow a motion to be filed by Westlawn Finance who sought to be substituted as the petitioning creditor. A Notice of Appearance was originally filed in these proceedings by solicitors for Westlawn Finance on 27 November 2007.
Attached to that Notice of Appearance is a letter from Gordon & Johnstone lawyers dated 9 July 2007 addressed to Mrs Bennell which contains the following:
We confirm that we act for Westlawn Finance Limited (ACN 096 725 218), (“Westlawn”).
We note that Westlawn Factors Pty Limited (ACN 081 493 263), (“Westlawn Factors”) provided cash flow finance to Total Entity Pty Limited (ACN 082 198 041) (“Total Entity”), pursuant to a factoring facility deed that at 16 February 1999, (“the facility”).
In support of the facility you entered into a deed of guarantee and indemnity of the obligations and liabilities of Total Entity to Westlawn Factors dated 16 February 1999, (“the guarantee”).
Westlawn Factors entered into a deed of assignment of securities with Westlawn Finance Limited (ACN 001 493 634) dated 31 May 2000, which included an assignment relating to the liability due and owing by you in respect of the above guarantee, which was subsequently assigned to our client.
We note that Total Entity was placed into liquidation by way of creditors’ voluntary winding up on 21 June 2004.
Our client requires the immediate payment of all amounts due and owing in connection with the facility which, as at 22 June 2007, amounts to $8,308,953.34. …
If our client has not received the payment of $8,308,953.34 by 4pm on Friday 20 July 2007, we are instructed that our client will commence without further notice, legal proceedings against you to recover the outstanding debt of $8,308,953.34, together with all continuing interest and costs.
I refer to this letter to indicate that as at the date of the act of bankruptcy referred to above, there was a debt outstanding to Westlawn Finance. The validity and quantum of that debt is yet to be established.
Mr Tierney from Gillis Delaney advised the Court that his firm had previously filed evidence in these proceedings which needed to be reviewed and counsel needed to be briefed. I adjourned the matter for one week to permit this to occur.
Application for substitution
The application for substitution on 4 November 2008 under s.49 of the Act was for the following final orders:
(i) Pursuant to s.49 of the Bankruptcy Act 1966, Westlawn Finance Limited (ACN 096 725 218) be substituted for the petitioning creditor in creditor’s petition SYG 2884 of 2007 in the place of American Express International Inc.
(ii) Westlawn Finance Limited (ACN 096 725 218) be given leave to amend the creditor’s petition number SYG 2884 of 2007 by substituting Westlawn Finance Limited as petitioning creditor.
(iii) Service of the Amended Creditor’s Petition on Susan Jane Bennell is dispensed with.
(iv) Respondent is to pay the costs of the applicant as agreed, and in the absence of agreement, taxed in accordance with the Federal Court Rules.
Section 49 of the Act provides:
Where a creditor’s petition is not prosecuted with due diligence or where for any other reason the Court considers it proper to do so, the Court may permit to be substituted as petitioner or as petitioners another creditor or other creditors to whom the debtor is indebted in the amount required by this Act in the case of a petitioning creditor, and the petition may be proceeded with as if the substituted creditor or creditors had been the petitioning creditor.
Mr O’Connor, for Westlawn Finance, submits in written submissions that substitution may occur where the debtor has reached settlement with the petitioning creditor but not with the creditor seeking substitution: McNamara v Langford (1931) 45 CLR 267. I am satisfied that this is the situation in these proceedings. On 24 October 2008, Mr R.D. Marshall (SC) appeared for HEKA Capital Pty Ltd (ACN 131 129 710), supporting creditor, and provided a cheque to the petitioning creditor, American Express, who indicated that they would accept the payment and consent to the dismissal of the Petition. At that point, Westlawn Finance indicated that it sought to be substituted as the petitioning creditor. Consequently, the following orders were made:
(i) Susan Jane Bennell to pay the costs of American Express International Inc in the proceedings to date.
(ii) American Express International Inc be excused from participating in further proceedings.
(iii) Westlawn Finance Limited is granted leave to file an amended application by Friday 31 October 2008 seeking leave as substituted creditor.
(iv) The matter be listed for interlocutory hearing on Tuesday 4 November 2008 at 10.15am.
Evidence
The following affidavit material was tendered:
a)Affidavit of Susan Jane Bennell, sworn on 3 November 2008, which states:
2. I have never received a Notice of Assignment of Debt from Westlawn Finance Limited or any of its associated entities about the assignment of any debt claimed by the supporting creditor against me.
b)Affidavit of Mark Dougherty, Director, sworn on 11 February 2008, except paragraph 10 which I conditionally accepted and paragraph 11 which was struck out except for the following sentence: “No payment was received by Westlawn Finance since that time”. Annexed to the affidavit is Exhibit Folder “MD 1” containing:
i)Tab A – Factoring Facility Deed.
ii)Tab B – Australian Securities and Investments Commission (ASIC) extracts for organisation number 082 192 041, being Total Equity Pty Ltd.
iii)Tab C – Deed of Guarantee and Indemnity
iv)Tab D – Deed of Assignment and Securities for Westlawn Factors Pty Ltd to Westlawn Finance Ltd.
v)Tab E – ASIC historical extract for organisation number 001 493 634 – Westlawn Holdings Pty Ltd.
vi)Tab F – Deed of Assignment of Facility, Guarantee and Securities from Westlawn Holdings Ltd to Westlawn Finance Ltd.
vii)Tab G – Statement for Total Entity Pty Ltd from 1 February 1999 to 31 December 2007 [conditionally admitted].
c)Affidavit of Mark Steven Tierney, solicitor, sworn on 7 November 2008, save for paragraphs 2 and 5.
d)Affidavit of Mark Dougherty, director, sworn on 7 November 2008, save for paragraphs 7, 10, 11, 13 and the first sentence of paragraph 15 which reads: “I believe that the Notice of Assignment was sent to Total Equity Pty Limited and the respondent as that is my usual business practice to send such notices” [conditionally admitted].
Subject to the material that has been ruled out, the above affidavits were read into evidence.
Westlawn Finance’s submissions
Mr O’Connor submits that the affidavit of Mr Dougherty of 11 February 2008 confirms that Westlawn Factors Pty Ltd (“Westlawn Factors”) and Total Entity Pty Ltd (“Total Entity”) entered into a Factoring Agreement on 16 February 1999 (Exhibit “MD 1”, Tab A). Mrs Bennell was a director of Total Entity (Exhibit “MD 1”, Tab B). By a Deed of Guarantee and Indemnity dated 16 February 1999, Mrs Bennell (together with her husband, Ian Robert Bennell, and a company controlled by them, Janile Pty Ltd) guaranteed the repayment of all monies paid by Westlawn Factors for and on behalf of Total Entity pursuant to a Factoring Agreement (Exhibit “MD 1”, Tab C).
By Deed of Assignment dated 31 May 2000, Westlawn Factors assigned its securities in the Factoring Agreement and Deed of Guarantee to Westlawn Finance Ltd (ACN 001 493 634) (Exhibit “MD 1”, Tab D). By Deed of Assignment dated 30 October 2002, Westlawn Holdings Ltd (formerly, Westlawn Finance Ltd (ACN 001 493 634)) assigned its securities in the Factoring Agreement and Deed of Guarantee to Westlawn Finance Ltd (ACN 096 725 218), which is the applicant in these [interlocutory?] proceedings (Exhibit “MD 1”, Tab F). Total Entity is in liquidation and has not repaid the debt owed to Westlawn Finance pursuant to the Factoring Agreement.
Mr O’Connor referred to s.12 of the Conveyancing Act 1919 (NSW) which provides that:
Any absolute assignment by writing under the hand of the assignor (not purporting to be by way of charge only) of any debt or other legal chose in action, of which express notice in writing has been given to the debtor, trustee, or other person from whom the assignor would have been entitled to receive or claim such debt or chose in action, shall be, and be deemed to have been effectual in law (subject to all equities which would have been entitled to priority over the right of the assignee if this Act had not passed) to pass and transfer the legal right to such debt or chose in action from the date of such notice, and all legal and other remedies for the same, and the power to give a good discharge for the same without the concurrence of the assignor: Provided always that if the debtor, trustee, or other person liable in respect of such debt or chose in action has had notice that such assignment is disputed by the assignor or anyone claiming under the assignor, or of any other opposing or conflicting claims to such debt or chose in action, the debtor, trustee or other person liable shall be entitled, if he or she thinks fit, to call upon the several persons making claim thereto to interplead concerning the same, or he or she may, if he or she thinks fit, pay the same into court under and in conformity with the provisions of the Acts for the relief of trustees.
Mr O’Connor accordingly submits that to establish an effective assignment for the purposes of s.12 of the Conveyancing Act, the following requirements must be met:
a)The assignment must be in writing under the hand of the assignor, which is evidenced by:
i)That the Deed of Assignment dated 31 May 2000 is signed on behalf of Westlawn Factors Pty Ltd and Westlawn Finance Ltd (ACN 001 493 634) and contains the company seal of both companies (Exhibit “MD 1”, Tab D, p.9).
ii)That the Deed of Assignment dated 30 October 2002 is signed on behalf of Westlawn Holdings Ltd (formerly, Westlawn Finance Ltd (ACN 001 493 634)) and Westlawn Finance Ltd (ACN 096 725 218) and contains the company seal of both companies (Exhibit “MD 1”, Tab F, p.3).
b)The assignment must be absolute, which is evidenced by:
i)In the Deed of Assignment dated 31 May 2000, Westlawn Factors assigned the securities referred to in Schedule 1 of the Agreement to Westlawn Holdings Ltd, including the Factoring Agreement between Westlawn Factors Pty Ltd and Total Entity, and the Deed of Guarantee between Westlawn Factors and Mrs Bennell. The assignment was not subject to any condition and was therefore an absolute assignment (Exhibit “MD 1”, Tab F). Recital B states: “The Assignor has agreed and the Assignee has agreed to take an assignment of the Assignor’s Interests in the Securities.” This is an absolute assignment of the securities described in Schedule 1 of that Deed. The Deed lists the details of Total Entity Pty Ltd as:
ii)Factoring Facility Deed between Westlawn Factors Pty Limited and Total Entity Pty Limited dated 16 February 1999.
iii)Fixed and Floating Charge number 691454 over Total Entity Pty Limited dated 14 April 1999.
iv)Deed of Guarantee and Indemnity dated 16 February 1999 between Westlawn Factors Pty Limited, Susan Jane Bennell, Ian Robert Bennell and Janile Pty Ltd.
c)By the Deed of Assignment dated 30 October 2002, Westlawn Holdings Ltd assigned the securities referred to in the Schedule to the Agreement to Westlawn Finance Ltd (ACN 096 725 218), including the Factoring Agreement between Westlawn Factors and Total Entity, and the Deed of Guarantee between Westlawn Factors and Mrs Bennell. The assignment was not subject to any conditions and was therefore an absolute assignment (Exhibit “MD 1”, Tab F). The recitals of that Deed state:
A The Assignor is the proprietor of the facility, guarantee and securities referred to in the Schedule of the Deed.
B The Assignor has agreed to assign, and the Assignee has agreed to take, an assignment of the Assignor’s interest in the securities.
d)The Schedule deals with the interests pursuant to the Factoring Facility Deed dated 16 February 1999 between Total Entity and Westlawn Factors. The Deed was subsequently assigned to Westlawn Finance which became known as Westlawn Holdings. The Schedule also lists the Deed of Guarantee and Indemnity between Mrs Bennell and Westlawn Finance Ltd. There is no requirement or condition before the assignment is given effect.
e)Express notice in writing of the assignment must be given to the debtor, which is evidenced by:
i)To be effective, the notice must indicate an express intention, in the nature of a direct and definite statement, as distinct from supplying material from which the material may be inferred: Consolidated Trust Co Ltd v Naylor (1936) 55 CLR 423 at 439 per Dixon and Evatt JJ.
f)To establish that the Notices of Assignment was given to Mrs Bennell and Total Entity, Westlawn Finance Limited relies on:
i)The Notices of Assignment of October 2002 and addressed to Total Entity and Mrs Bennell were recovered by Mr Tierney from the computer database of Gordon & Johnson Solicitors – copies of the Notices are annexed to Mr Tierney’s affidavit of 7 November 2008.
ii)The account issued by Gordon & Johnson Solicitors to Westlawn Finance Ltd dated 6 December 2002 for the preparation of the Deeds and Notice of Assignment –copies of the accounts are annexed to Mr Tierney’s affidavit of 7 November 2008.
iii)Mr Dougherty’s evidence that he was aware of the need to give notice for the purposes of s.12 of the Conveyancing Act and he instructed Gordon & Johnson Solicitors to prepare the Notices of Assignment.
Mr O’Connor submits that where the requirements of s.12 of the Conveyancing Act are satisfied, an order for substitution of the petitioning creditor should be made. In support he referred to Australian Litigation Fund v Mearns & Anor [2005] FMCA 1727 (24 November 2005) where the Australian Litigation Fund sought an order for substitution on the basis that the petitioning creditor’s debt had been assigned to the Fund. There was no issue that a Notice of Assignment of the debt had been given to the respondents, Robyn Hadyn Mearns and Willoughby Community Pre-School Inc. Federal Magistrate Barnes held at [61] that substitution should be ordered under s.49 of the Act on the basis that it was proper to do so and where there has been an absolute assignment of the debt under s.12 of the Conveyancing Act.
Her Honour noted at [63] that a substituted petitioning creditor need not prove the matters relating to its debt at the time of substitution unless there is material to suggest that a defect with the debt would make it impossible for the substituted creditor to obtain a sequestration order, see Hyams v Elder Smith Goldsbrough Mort Ltd (1976) 133 CLR 637 at 639 per Barwick CJ.
Her Honour held in Australian Litigation Fund v Mearns & Anor at [64]:
In this instance, given the consequences of an effective assignment of the debt which forms the basis for the creditor’s petition it is proper, in order to determine the dispute between the appropriate parties (who are now ALF and Mearns), to order substitution in the terms sought by ALF.
That decision was upheld in Mearns v Australian Litigation Fund Pty Ltd & Anor [2006] FCAFC 81.
Mr O’Connor then referred to the affidavit of Mr Tierney, sworn 7 November 2008 indicating that he searched the Gordon & Johnson database and attaches at Annexure “A” the Notice of Assignment addressed to Mrs Bennell which states:
Take notice that WESTLAWN HOLDINGS LIMITED (ACN 001 493 634) (FORMERLY WESTLAWN FINANCE LIMITED) has assigned to WESTLAWN FINANCE LIMITED (ACN 096 725 218) the benefit and burden of all of its rights, powers, remedies and obligations under the Deed of Guarantee and Indemnity, dated 16 February 1999 granted by Susan Jane Bennell, Ian Robert Bennell and Janile Pty Ltd (ACN 001 618 051) both in its own right and capacity and as trustee of the Janile Trust on behalf of Total Entity Pty Limited (ACN 082 192 041) in favour of Westlawn Factors Pty Limited (ACN 081 493 293), which was subsequently assigned to Westlawn Finance Limited (ACN 001 493 634) (now known as Westlawn Holdings Ltd (ACN 001 493 634) by change of name of 14 June 2001) by Deed of Assignment dated 31 May 2000.
The Notice is dated October 2002 and has been drafted to be signed by Donald Gorham Artendahl, an authorised officer of Westlawn Holdings. The affidavit of Mr Dougherty sworn 7 November 2008 sets out the role of Mr Artendahl:
14. Donald Gorham Artindale [Artendahl (“Mr Artendahl spelt incorrectly”)] was the general manager of Westlawn Holdings Pty Ltd (ACN 001 493 634) and general manager of the Factoring Division of Westlawn Finance Pty Ltd (ACN 096 725 218). Mr Artindale is no longer employed by any of the Westlawn companies having left employment in 2004. The notices of assignment referred to Mr Artindale as he was responsible for managing the Factoring Agreement with Totel Entity Pty Ltd at the relevant times.
Annexure “B” to Mr Tierney’s affidavit is a Notice of Assignment addressed to the proper officer of Total Entity Pty Ltd, being the company affected by the assignments. The document gives notice to Total Entity Pty Ltd of the assignment of the assignments from Westlawn Holdings to Westlawn Finance Limited. That document is also dated October 2002 and has been prepared for Mr Artendahl to sign.
Annexure “C” to Mr Tierney’s affidavit is a Notice of Assignment that was prepared to be sent to Mr Bennell (who is not a party to these proceedings). Mr Bennell was another guarantor pursuant to the Factoring Agreement, the Deed of Guarantee, and was also a director of Total Entity Pty Ltd. Annexure “D” is a Notice of Assignment addressed to Janile Pty Ltd and forms part of the documents prepared by Gordon & Johnson on the basis that Janile Pty Ltd was also a guarantor pursuant to the Deed of Guarantee dated 16 February 1999. Annexure “E” is a tax invoice dated 6 December 2002 and addressed to the directors of Westlawn Finance Ltd. The fees sought are include preparation of the Deed of Assignment of Facility, Guarantee and Security from Westlawn Holdings Ltd to Westlawn Finance Ltd, and for preparation of Notices of Assignment to Total Entity Ltd Limited, Janile Pty Ltd, Mr and Mrs Bennell and completion of ASIC Form 311 (Assignment of Charge).
Mr O’Connor submits that the above documents were filed in support of this application but were not signed by Mr Artendahl. However, that does not necessarily defeat the application nor establish that the Notices were not given. He submits that the documents suggest that the Notices were prepared in October 2002. Even though there is no evidence that they were sent by Gordon & Johnson, Mr Tierney’s affidavit does state:
7. The files for the work carried out by Gordon & Johnson Solicitors are held in storage. I have ordered the files from storage.
Mr O’Connor contends that it is therefore not necessary for the Westlawn Finance to prove the matters relating to its debt at the time of substitution, unless there is material before the Court suggesting a defect with the debt which would make it impossible for the new creditor to obtain a sequestration order: Hyams v Elder Smith Goldsbrough Mort (supra) at 637. He submits that as there is prima facie evidence of the debt owed by Total Entity pursuant to the Factoring Agreement dated 16 February 1999, the prima facie evidence of the Notices of Assignment of the debt were given to Total Entity and Mrs Bennell, the application for substitution should be granted.
Mr Braham’s submissions
Mr Braham, for Mrs Bennell, refers to the affidavit of Mr Tierney relied upon to prove that a Notice of Assignment was given to Mrs Bennell to make good the assignment of 30 October 2002. He submits that evidence goes no higher than what is stated in paragraph 4:
4. …I searched the computer records of Gordon & Johnson Solicitors. From my search of these computer records, I located the following documents:
(a) Notice of Assignment addressed to the respondent dated October 2002 – marked Annexure “A”
Mr Braham contends that the only significant document is the Notice of Assignment referred to at [4(a)] of that affidavit. However, Mr Tierney does not provide anything further about the significance of finding that document on the computer records of Gordon & Johnson. He does not say, for example, that a draft document in the firm’s computer records suggests, in accordance with its practice at the time, that the document would have been printed, signed by the officer of the client and sent by either Gordon & Johnson or given to the client to forward. Mr Braham submits Mr Tierney’s evidence is limited to him looking in the computer and finding the document. Mr Braham argues that this evidence does not assist other than at some stage a draft document was prepared.
Mr Braham further submits that there are two assignments which must have been perfected. The original creditor was Westlawn Factors who, in May 2000, assigned its debt to Westlawn Finance (now called Westlawn Holdings (Exhibit “MD 1”, Tab D)). In order for the second assignment to be effective there are two requirements. First, the second assignment Notice must have been given to Mrs Bennell, which the affidavit of Mr Tierney does not prove. At the time the assignment was made, the assignor (Westlawn Holdings) held the debt. However, there is no evidence before the Court that before October 2002 the assignment from Westlawn Factors to Westlawn Holdings had been perfected by Notice of that assignment having been given to Mrs Bennell. Mr Braham submits that the Gordon & Johnson computer records have not produced a document that supports that the assignment had been perfected. He submits that if that assignment was not perfected before October 2002, Westlawn Holdings had nothing to assign as of that date. Consequently, Westlawn Holdings took nothing even if the second assignment was perfected.
Mr Barham also submits that there is no evidence of a debt. Mr Braham has confirmed that he has objected to what is proffered as evidence of a debt, and if that objection is upheld, there is no evidence of any indebtedness.
Mr Braham also challenged the suggestion that the Notice of Assignment is a Notice for both assignments. For a Notice of Assign ment to be effective under s.12 of the Conveyancing Act it must be “under the hand of the assignor”. Consequently, for this Notice to satisfy s.12 it is has to be “under the hand” of Westlawn Factors. Although Mr Artendahl is named as the authorised officer of Westlawn Holdings and Westlawn Finance, Westlawn Factors is not an executing party of the Notice.
Although the earlier Assignment is referred to in a Notice of the subsequent Assignment and under the hand of the subsequent assignor, it cannot be effective for an Assignment of the earlier debt as it is not under the hand of the previous assignor. Furthermore, it is dated 30 October 2002. It could not have been sent before 30 October 2002 because the second assignment had not occurred by that date. Mr Braham further submits that it was given after 30 October 2002 that was too late because when the second assignment occurred the second assignor had nothing to assign. Mr Braham submits that in order for the second assignment to be effective the debt must have been legally and effectively assigned, and this requires notice. He submits that the one Notice cannot serve dual purposes.
Consideration
The decision in Hyams v Elder Smith Goldsbrough Mort (supra) establishes that to be successful as a substituted creditor, the applicant does not need to prove the matters relating to its debt at the time of the substitution unless there is material to suggest a defect of the debt which would make it impossible for the substituting creditor to obtain a sequestration order. The evidence that is presently before the Court from the computer files of Gordon & Johnson suggests that much of the documentation required to establish the assignment of the debt to the appropriate corporate body and the necessary notification documentation were prepared. If evidence of completion and service of these documents on the relevant parties is located and placed before the Court, it would suggest that the substituting creditor would be able to obtain a sequestration order. Mr Tierney’s affidavit has indicated that he undertook the necessary procedures to recall the relevant files from archives.
If, ultimately, the archives did not contain the relevant documents to enable the party seeking to be the substituted creditor then it will be impossible for that party to obtain a sequestration order in these proceedings, and suffer the appropriate costs penalty as a consequence. The obligations of a lender in these circumstances are clear, as are the requirements for appropriate documentation for any corporate restructure. The obligations under the Corporations Act 2001 (Cth) and those of a lending institution do not need to be ventilated here. I believe that the parties clearly acknowledge that there are major deficiencies in the evidence currently before the Court in order to obtain a sequestration order.
I am satisfied that Westlawn Finance Ltd should be provided with the opportunity to search their corporate records and present the evidence they possess. Until that exercise has been completed, a determination of whether there is sufficient evidence to permit a sequestration order cannot be made.
The effect of s.49 of the Act, read together with s.44(1), is that it must be established that at the date of Petition, the debtor owes the substituted creditor a liquidated debt of at least $2,000. However, the Act does not require the substituted creditor to hold a judgment at that date. Although it is commonplace for creditors to obtain judgment against a debtor before instituting bankruptcy proceedings, this is not essential. Whether the relevant documents have been executed and served on the debtor is simply an issue of fact to be determined upon the hearing of the Creditor’s Petition.
It is appropriate to avoid a multiplicity of Petitions. Other issues raised by way of opposition to this application can properly form part of the hearing of the Creditor’s Petition. The intent and purpose of s.49 of the Act is to enable a substituted creditor to continue proceedings on a Petition which may have been commenced by another creditor. The section clearly provides for a Creditor to be substituted as stated by the Federal Court in Dean v QUF Industries Limited [1981] FCA 71:
It helps avoid a multiplicity of petitions in that it reduces the circumstances in which it is necessary for another creditor to file an independent petition to protect his position against the possibility that the petitioner is a pending petition may be paid out or may otherwise fail to proceed.
I am satisfied that the present material before the Court suggests that appropriate evidence may exist. In the circumstances, I believe that Westlawn Finance Ltd should, pursuant to s.49 of the Act, be substituted as the petitioning creditor in these proceedings.
I certify that the preceding thirty-four (34) paragraphs are a true copy of the reasons for judgment of Lloyd-Jones FM
Associate:
Date: 18 November 2008
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