ANZ v Gary Michael Berman
[2011] FMCA 987
•15 December 2011
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| ANZ v GARY MICHAEL BERMAN | [2011] FMCA 987 |
| BANKRUPTCY – Jurisdiction – prospective bankrupt resides overseas – previously resided in Australia at time of alleged act of bankruptcy – alleged act of bankruptcy was the transfer of assets under value within prescribed period – evidence of transfer was bankrupt’s Debtor’s Petition (Application to become bankrupt) filed by him in support of his own unsuccessful Debtor’s Petition –act of bankruptcy proved. |
| Bankruptcy Act 1966, ss.40(1)(b), 40(1)(c), 43(1)(b), 120 and 267(2) |
| Applicant: | AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED |
| Respondent: | GARY MICHAEL BERMAN |
| File Number: | MLG 1676 of 2010 |
| Judgment of: | O’Dwyer FM |
| Hearing date: | 29 June 2011 |
| Date of Last Submission: | 3 August 2011 |
| Delivered at: | Melbourne |
| Delivered on: | 15 December 2011 |
REPRESENTATION
| Counsel for the Applicant: | Mr Fary |
| Solicitors for the Applicant: | Piper Alderman |
| Counsel for the Respondent: | Mr Kohn |
| Solicitors for the Respondent: | Kalus Kenny Lawyers |
THE COURT DECLARES THAT:
Pursuant to s.40(1)(b)(i) of the Bankruptcy Act 1966 the
Respondent committed an act of bankruptcy in June 2010.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT MELBOURNE |
MLG 1676 of 2010
| AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED |
Applicant
And
| GARY MICHAEL BERMAN |
Respondent
REASONS FOR JUDGMENT
Introduction
By its application, the Applicant seeks to petition for the sequestration of the Respondent’s estate. A number of unusual issues arise in this matter, principally because the Respondent, together with his family, have left the jurisdiction of Australia to reside permanently in the United States. His residence there has caused frustration to the Applicant on a number of counts in the prosecution of its application. One has been the alleged ill health of the Respondent which precluded him from travelling to Australia to respond to the application and another has been the inability to arrange a video link between the Court and the Respondent that would allow the Applicant to cross-examine him in respect of affidavit material filed by him; or, more generally, about the circumstances of him realising assets in Australia and the reason for his change of residence outside of the jurisdiction.
As a consequence, the Applicant abandoned the initial ground relied on pursuant to s.40(1)(c)(i) of the Bankruptcy Act 1966 (the Act) where a debtor is said to have committed an act of bankruptcy if he departs the jurisdiction with intent to defeat or delay his creditors. The Applicant seeks to rely upon an amended ground under s.40(1)(b)(i) of the Act where it alleged the transfer and gift of paintings under value within the prescribed period was an act of bankruptcy.
Background
The Respondent was a Director and the controlling mind behind two corporations, Ed Hardy Operations Proprietary Limited and Ed Hardy Proprietary Limited, through which he conducted a multi-outlet retail business in Australia known as Ed Hardy (the business).
The Respondent, in November 2007, gave a personal guarantee to the Applicant in respect of loans advanced to the business.
The Respondent at this time resided in Australia.
On 28 July 2010, the business defaulted in its obligations to the Applicant who, on that day, served a demand for $4.3 million.
On 9 August 2010, administrators were appointed to the business and on 9 September 2010 the Applicant served a demand pursuant to the guarantee on the Respondent. On 3 September 2010, liquidators were appointed to the above corporations.
Significantly, on 30 November 2010 the Applicant’s petition to sequestrate the Respondent’s estate was presented. Thereafter, there were some difficulties in effecting service of the petition on the Respondent. However, by 11 March 2011 the Respondent’s solicitors were instructed to accept service on the Respondent’s behalf and on that day the Applicant’s petition was served.
The matter was listed for a first Directions Hearing on 24 March 2011 on which occasion procedural orders were made and the matter fixed for a Hearing before me on 23 May 2011. On 23 May 2011, because it was indicated that the Respondent intended to file his own petition, the matter was adjourned to 30 May 2011 to allow that to happen.
The Respondent attempted to file his own petition but it was rejected on the basis he was not a resident of Australia at the time of filing, having by this time removed himself and his family to the United States of America to, ostensibly, live permanently.
On 30 May 2011 the Court was informed that the affidavit of the Respondent ordered at the Directions Hearing on 24 March 2011 was not yet complete, but was in an advanced stage of drafting.
On that day I made further orders adjourning the matter to
29 June 2011 and also granted leave to the Applicant to amend its petition to allow for a further ground, which it is now relying on for the making of a sequestration order. The amendment reads as follows:
4.2In the alternative, in June 2010 in Australia the Respondent Debtor made a transfer or other disposition of part of his property that would, if he became a bankrupt, be void against a trustee.
Particulars
The property transferred is various pictures/paintings detailed in answer to question 33 of the Respondent Debtor’s petition. The transfers would be voidable pursuant to s.120 of the Act.
On that day, my directions also provided that should the Respondent desire to appear by video link or telephone; he must make an application to that effect, supported by affidavit. It was understood he would otherwise appear in person on 29 June 2011. I also made a notation at the bottom of the orders to the effect that the Applicant has indicated it seeks to cross-examine the Respondent and his attendance at the hearing was required.
On 29 June 2011, the Respondent had indicated his inability to attend Court in person, which assertion was supported by a medical certificate from an American-based medical practitioner. At this time the Applicant indicated that it did not wish to proceed with the original ground in the petition, namely that the Applicant left Australia to avoid his creditors as an act of bankruptcy, but intended to rely upon the amended ground granted on 30 May 2011. In support of that ground, the Applicant intended to rely upon the statements made by the Respondent in his own Debtor’s Petition (Application to become bankrupt) presented by the Respondent in support of his unsuccessful application.
The Applicant therefore abandoned its request to cross-examine the Respondent.
The Respondent was not ready and able to argue the strength and merits of his case on this ground and, in an indulgence to the Respondent, it was agreed that the matter should be considered on the papers after receiving submissions from both parties.
Those submissions have now been made and I am in a position to determine the issues as outlined below.
Of significance in the determination of this matter, and indeed the basis of the Applicant’s submissions and reason for abandonment of the ground under s.40(1)(c) of the Act and the waiver of the right to
cross-examine the Respondent, was the content of the Debtor’s Petition filed on 17 May 2011. In answer to question 33 where he was required to list transfers or gifts of assets within the last 5 years he wrote:
“Various Pictures/Painting Given to Various Friends June 2011”
The details provided in a Debtor’s Petition are required to be accurate and should the requisite declaration that the details are correct made in support of the application prove to be false there is the potential of a criminal sanction of imprisonment for 12 months.[1]
[1] See s.267(2) of the Bankruptcy Act 1966
In my view, such Debtors’ Petitions and requisite declarations are generally not to be frivolously or carelessly completed or made.
This is no less so in this case where the debts were very large, the creditors potentially numerous and the consequence of bankruptcy far reaching in its impact on others.
On the face of it, based upon the then unchallenged evidence under declaration relied on by the Applicant, the gift of the pictures/paintings within the 6 months of the presentation of the Applicant’s petition was an act of bankruptcy.[2]
[2] See Affidavits of Brendan Wain sworn 30 November 2010, Justin Patrick Evans sworn 20 and 27 May 201 respectively and Simon Alexander Wallace-Smith sworn 25 February 2011
However, after the hearing on 29 June 2011 and in support of his submissions, the Respondent sought to file and rely on a further affidavit sworn on 26 July 2011 and filed on 29 July 2011.
The Applicant takes strong objection to the acceptance of this affidavit for reasons discussed below. Suffice to say, that affidavit attempts to explain away the Respondent’s answer to question 33 so as to expunge the pictures/paintings from the assets of the Respondent at the time they were given away.
The issues for determination
The issues for determination are:
(i)whether this Court has jurisdiction to make the orders sought;
(ii)whether fresh evidence should be entertained by the Court in response to the submissions provided by the Applicant;
(iii)whether the Respondent is bound by his declaration in his Debtor’s Petition; and
(iv)whether the Respondent has committed an act of bankruptcy.
The Question of Jurisdiction
Under s.43(1)(b) of the Act the Court has jurisdiction to make a sequestration order where at the time when the act of bankruptcy was committed the debtor (the Respondent):
(i)was personally present or ordinarily resident in Australia;
(ii)had a dwelling-house or place of business in Australia;
(iii)was carrying on business in Australia, either personally or by means of an agent or manager; or
(iv)was a member of a firm or partnership carrying on business in Australia by means of a partner or partners or of an agent or manager.
The evidence in this case establishes the Respondent was personally present and ordinarily resident at the date of the commission of the alleged act of bankruptcy. This is supported by the affidavits of Simon Alexander Wallace-Smith and Brendan Wain[3]. In addition,
the Respondent himself declared he was “personally present in Australia, or ordinarily resident in Australia” as at 17 May 2011 when he made his declaration as to the truth of the matters set out his Debtor’s Petition[4]. The Respondent gave his previous address as
11 Airdire Road, Caulfield North which he sold in March 2010,
but which did not settle until 15 July 2010[5]. At the time of the alleged act of bankruptcy he was a registered proprietor of a dwelling in Australia.
[3] See affidavits of Wallace-Smith at [10] and Wain at [2]
[4] See Debtors Petition: Exhibit JPE -1 to affidavit of Evans sworn 27 May 2011
[5] See affidavit of Gary Michael Berman sworn 24 June 2011 at [36] and answer to question 19, Exhibit JPE-1, Evans affidavit sworn 27 May 2011
There is persuasive evidence, in my view, that s.43(b)(i) and (ii) are satisfied and that the Court’s jurisdiction is enlivened.
New evidence
After the respective cases of the parties closed on 29 June 2011, pending final written submissions, the Respondent sought, as stated,
to rely on a later affidavit. In that affidavit, the Respondent sought to explain the circumstances giving rise to the disposal of the “various pictures/paintings” by asserting, in essence, they were not his and belonged to a third party; namely a deregistered company, Entertainment Development Group Pty Ltd. Supposedly in support of this assertion, various ASIC records were exhibited to his affidavit.
As far as these assertions and the associated conjecture set out in the affidavit, these exhibits are of no probative value.
The Applicant strongly objects to the admissibility of this affidavit and in support of that objection relies on the following:
(i)it was improper for the Respondent’s solicitors to attempt to introduce new evidence when no provision was made by the Court for its reception;
(ii)no leave has been sought to file the further affidavit;
(iii)
the Applicant is prejudiced by the late filing of the affidavit as it elected, based upon affidavits filed as at 29 June 2011, not to pursue its right to cross-examine the Respondent and further not to proceed with an application under s.40(1)(c)(i) of the Act, which by necessity, would have required the
cross-examination of the Respondent;
(iv)the Applicant has been denied a right to cross-examine on the new affidavit – one which it may have exercised if the affidavit had been filed and served in accordance with the Court’s orders; and
(v)the Respondent has a long history of delinquency in complying with Court orders and has been given numerous indulgences in the past.
In my view, the grounds for the rejection of the late affidavit,
as articulated by the Applicant, carry significant force and effect.
As such, the affidavit should not be considered.
Should I be wrong in that regard, and the late affidavit is admissible and should be taken into account, then I find that the evidence, as set out therein is unpersuasive and of very limited weight.
The late filing has precluded the testing of the assertions made therein by way of cross-examination. In my view, the new evidence amounted to mere assertion and conjecture without support and has no probative value.
Act of bankruptcy
For the reasons outlined above, the Respondent should be bound by his declaration made in his own Debtor’s Petition and there is, in my view, no admissible evidence contrary to the statement made in his petition in answer to question 33; or in any event, no probative evidence.
Having regard to that finding, I am satisfied:
(i)as to the Court’s jurisdiction as outlined above;
(ii)as to the service of the Application and petition on the Respondent; and
(iii)that within six months of the presentation of the Applicant’s petition (30 November 2010) the Respondent gifted or transferred assets of $5,000 (June 2010) which would be voidable as against a trustee of the Respondent’s estate should a sequestration order be made.
Conclusion
For the above reasons I find that the Respondent committed an act of bankruptcy pursuant to s.40(1)(b)(i) when he gifted pictures/paintings to various friends in June 2010, a time within 6 months of the presentation of the Applicant’s petition, and that such gift is void against a trustee of his estate should he become bankrupt.
I certify that the preceding twenty-eight (28) paragraphs are a true copy of the reasons for judgment of O’Dwyer FM.
Date: 15 December 2011
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