BARRO GROUP PTY LTD v POLJAKOVIC & JACARANDA COOPERATIVE HOUSING SOCIETY LTD
[2011] FMCA 706
•23 August 2011
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| BARRO GROUP PTY LTD v POLJAKOVIC & JACARANDA COOPERATIVE HOUSING SOCIETY LTD | [2011] FMCA 706 |
| BANKRUPTCY – Application to rescind setting aside of sequestration order – application successful. |
| Bankruptcy Act 1966 (Cth), s.37 |
| Papps v Tapp (1997) 78 FCR 524 |
| Applicant: | BARRO GROUP PTY LTD |
| Respondent: | BRIAN POLJAKOVIC |
| Other Party: | JACARANDA COOPERATIVE HOUSING SOCIETY LTD |
| File Number: | MLG 14 of 2011 |
| Judgment of: | Hartnett FM |
| Hearing date: | 23 August 2011 |
| Delivered at: | Melbourne |
| Delivered on: | 23 August 2011 |
REPRESENTATION
| Counsel for Jacaranda Cooperative Housing Society Limited: | Mr Hackett |
| Solicitors for the Jacaranda Cooperative Housing Society Limited: | Colwell Wright Solicitors |
| The Respondent: | In Person |
UPON APPLICATION MADE TO THE COURT in application filed by Jacaranda Cooperative Housing Society Limited on the 3rd day of June 2011 wherein the named Respondents are Brian Poljakovic and Barro Group Pty Ltd, with Mr Hackett of Counsel appearing for the Applicant and Brian Poljakovic appearing in person
THE COURT ORDERS THAT:
Pursuant to s.37(1) of the Bankruptcy Act 1966 Order 1 of the Orders made by this Court on 12 May 2011 is rescinded, such that the Sequestration Order made against the estate of Brian Poljakovic on
8 March 2011 be reinstated.
The Applicant’s costs of these proceedings be taxed and paid from the estate of the Respondent debtor.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT MELBOURNE |
MLG 14 of 2011
| BARRO GROUP PTY LTD |
Applicant
And
| BRIAN POLJAKOVIC |
Respondent
And
| JACARANDA COOPERATIVE HOUSING SOCIETY LIMITED |
Other Party
REASONS FOR JUDGMENT
On 11 January 2011 a creditor’s petition was filed by Barro Group Pty Ltd with the named respondent, Mr Brian Poljakovic. On 8 March 2011 Registrar Luxton ordered that a sequestration order be made against the estate of Mr Poljakovic and that the applicant’s costs be taxed and paid from the estate of the respondent debtor in accordance with the Bankruptcy Act 1966 (Cth) (“the Act”). The court noted that the date of the act of bankruptcy was 22 November 2010 and the court further noted that a consent to act as Trustee had been signed by Mr Daniel Peter Juratowitch.
Subsequently, an application for review of the decision of Registrar Luxton was filed by Mr Poljakovic on 29 March 2011. On the hearing of the matter pursuant to that application, orders were made on 12 May 2011 which were either consented to and/or not opposed by each of the parties (which included the Trustee of the bankrupt estate) such that order 1 provided that the sequestration order made 8 March 2011 be set aside, conditionally on the following:
“(a) Barro Group Limited be paid $26,630.20 by 4 pm 12 May 2011
(b) The Trustee, Daniel Peter Juratowitch, be paid $12,000 by bank cheque delivered to the office of Harris Carlson on or before 4 pm 23 May 2011.”
The proceedings were otherwise adjourned to 3 June 2011, and on the adjourned date, the above order was varied such that order 1(b) now provided that the Trustee, Mr Juratowitch, be paid $12,000 by direct deposit into the trust account of Harris Carlson Lawyers on or before 30 May 2011. Otherwise all proceedings in the matter were discontinued. The court order noted that the sequestration order made 8 March 2011 was set aside by order of 12 May 2011.
On 3 June 2011, but not before the conclusion of the proceedings and taking out of the order, an interim application was filed by Jacaranda Cooperative Housing Society Limited (“Jacaranda Ltd”, the applicant in these proceedings) seeking an order pursuant to s.37(1) of the Act to rescind the order made on 12 May 2011. That application also sought, alternatively, an order pursuant to s.49 of the Act, but that ground was abandoned on the hearing of the matter before me this day.
At the time of the making of the order on 12 May 2011 setting aside the sequestration order of 8 March 2011, the court had before it an affidavit sworn by Mr Poljakovic on 29 March 2011 wherein he swore that he was solvent. He commenced that affidavit in paragraph 1 as follows:
“I am the Applicant in this application for review. I make oath and say that the contents of this affidavit are true and correct to the best of my knowledge, information and belief. All the financial information stated in this affidavit is accurate as at
29 March 2011. I have made full and frank disclosure of my assets and means in this affidavit, to the best of my knowledge, information and belief, and have no other assets and means aside from what has been disclosed in this affidavit.”
He went on to state in paragraph 4 of that affidavit that he was employed by Five Star Home Group Proprietary Limited (“Five Star Pty Ltd”) as a builder. He claimed to be a former director of Five Star Pty Ltd and a 100 per cent shareholder. In fact, as detailed in the affidavit of Ms Tanya Joy Ludlow sworn 13 July 2011 and relied upon by the applicant in these proceedings, he was not a 100 per cent shareholder as evidenced by the records held with the Australian Securities and Investments Commission (“ASIC”). In fact,
Mr Poljakovic was a 25 per cent shareholder. Further, at the time of swearing his affidavit, the records held with ASIC recorded
Mr Poljakovic as the sole director and secretary of the company and not a former director. Mr Poljakovic also swore in paragraph 5 of that affidavit that he was a former director of Quality Living Builders Proprietary Limited (“QLB Pty Ltd”) and was a 100 per cent shareholder. Again, that statement was incorrect in that the records held with ASIC showed him to be the sole director and secretary of the company and not a former director as claimed by him. He swore his financial affairs were all integrated with these companies.
The company QLB Pty Ltd has now been wound up in insolvency under the provisions of the Corporations Act 2001 (Cth) (“the Corporations Act”) pursuant to order made by Registrar Pringle on 1 August 2011 in the Federal Court of Australia.
In paragraph 8 of Mr Poljakovic's affidavit sworn 29 March 2011,
Mr Poljakovic claimed that his personal financial status was that he was solvent. He said:
“My accountant of four years, Mr Michael Clemens has of yesterday, produced balance sheets for myself and the said companies showing my personal financial status as being solvent with having equity to the value of $452,981.00. Now shown and produced to me and marked with the letters “BP-1” is a true copy of a letter from Mr Clemens explaining the over all financial position, a combined balance sheet for myself and Five Star Home Group Pty Ltd and a balance sheet for Quality Living Builders Pty Ltd.”
Annexure “BP-1” referred to in the preceding paragraph noted that the statement prepared by Mr Clemens was based on information given to him by Mr Poljakovic. The document referred to as the combined balance sheet for Mr Poljakovic and Five Star Pty Ltd and a balance sheet for QLB Pty Ltd did not include an amount owing to Suncorp Metway Limited of $4,753,272.23 under a personal guarantee given by Mr Poljakovic in relation to moneys loaned to Greenhills Grange Proprietary Limited, that being a company of which Mr Poljakovic was formerly a director. In these proceedings Mr Poljakovic admitted signing the personal guarantee given by him to Suncorp Metway Ltd.
The applicant relied further upon the following affidavits:
(a)
an affidavit sworn by Ms Frances Carolyn Fernandez sworn
1 June 2011;
(b)a further affidavit sworn by Ms Frances Carolyn Fernandez sworn 12 July 2011; and
(c)an affidavit sworn by Mr Daniel Peter Juratowitch of 11 May 2011 but filed 2 June 2011. This affidavit was not before the court on
12 May 2011 when the orders which are sought to be rescinded were made.The respondent in the proceedings relied upon the affidavit sworn by him on 29 March 2011.
Mr Poljakovic did not seek to cross-examine any of the witnesses whose affidavits are relied upon by the applicant. The contents of their affidavits are unchallenged, and I accept their factual accuracy. They have annexed to them independent records which go to establishing facts in dispute.
The affidavit of Mr Juratowitch has annexed to it a Trustee’s report to creditors detailing the Trustee’s investigations into the bankrupt’s affairs to 11 May 2011. That Trustee’s report notes that the bankrupt listed as an asset in his application for review a loan to QLB Pty Ltd in the sum of $1,289,206. This is the company that has now been wound up in insolvency under the provisions of the Corporations Act, pursuant to the order of Registrar Pringle made 1 August 2011.
The unsecured creditors, as noted by the Trustee, included omissions from the financial details as provided by Mr Michael Clemens, practising accountant of Mr Poljakovic including the loan from Suncorp Metway Ltd in the sum of $4,753,272. There were other unsecured creditors listed, with unsecured creditors totalling $6,775,352.
At the time of preparation of the Trustee’s report, the bankrupt had still to file his statement of affairs. The independent investigations of the Trustee as to the bankrupt’s financial position noted that there was unlikely to be any available equity in the real estate property of
Mr Poljakovic and that as to the other assets they totalled, if accurate and/or recoverable, $1,443,409 but were offset by unsecured creditors totalling $6,775,352.
The Trustee’s report noted that the bankrupt was a current director, secretary and sole shareholder of Five Star Pty Ltd, was the current director, secretary and sole shareholder of QLB Pty Ltd, and provided a guarantee for funds advanced to this company by Jacaranda Ltd, and was personally liable for amounts totalling $1,730,126.75 in relation to that guarantee.
The Trustee’s report also noted that the bankrupt was formerly a director and secretary of Greenhills Grange Pty Ltd during the period 11 October 2006 to 28 June 2010. He provided a guarantee for funds that were advanced to this company by Suncorp Metway Ltd and, pursuant to that guarantee, was personally liable for amounts totalling $4,753,272.23.
The Trustee noted that based on the available information it was unclear whether funds would be available in the administration for distribution to creditors.
The sequestration order made on 8 March 2011 was made in the absence of Mr Poljakovic, who claims that he had incorrectly diarised the court date to be 18 March 2011, and thus he failed to attend.
The original creditors’ petition filed 11 January 2011 relied on the act of bankruptcy of the respondent debtor failing to comply on or before 22 November 2010 with the requirements of a bankruptcy notice served on him on 1 November 2010.
That bankruptcy notice related to a judgment obtained in the Magistrates’ Court of Victoria at Melbourne on 11 September 2010 for a judgment debt of $71,347.67 with $1,302.70 costs and judgment interest of $8,933.33, less payments received since judgment of $64,500, together with interest in the sum of $8,273.31 calculated pursuant to s.100(7) of the Magistrates’ Court Act 1989 (Vic) and at the rates prescribed by the Penalty Interest Rates Act 1983 (Vic).
In his affidavit sworn 29 March 2011, Mr Poljakovic noted that he was required to pay Barro Group Pty Ltd the sum of $17,133.28, becoming aware of this obligation having been served with the creditors’ petition, and that he entered into arrangements to pay the amount owing together with costs. He swore in his affidavit that, as at that date, QLB Pty Ltd had $49,203 in cash at the bank. The attached letter from
Mr Clemens, certified practising accountant (annexure BP-1), to Five Star Pty Ltd and Mr Poljakovic said in paragraph 5 therein:
“Based upon the information supplied from various sources and shown in the attached business & personal assets & liability statement as at 28/03/2011 it is my opinion that Brian Poljakovic and his business are currently solvent…”
In the accompanying business and personal assets and liability statement, the loan from Jacaranda Ltd was included as a liability in the sum of $1,289,206, being personal to Mr Poljakovic, but no reference was made to the Suncorp Metway Ltd loan. At the time of the setting aside of the sequestration order, the solicitor for Mr Poljakovic had received and read the affidavit of the Trustee indicating insolvency on the part of his client and, likewise, the counsel representing the Trustee had witnessed the affidavit of the Trustee which indicated that
Mr Poljakovic was insolvent.
Ms Ludlow’s evidence was that she is a director of Plan B Accounting Services Proprietary Limited and a chartered accountant and registered tax agent. One of her clients is Jacaranda Ltd. Her evidence was unchallenged; she said in paragraph 4 of her affidavit:
“The matters set out in my letter are true and correct to the best of my knowledge. As set out in that letter, when revised to comply with generally accepted accounting methods, the financial information provided in the Respondent’s affidavit indicates that he had a deficit in net assets of $286,423 rather than the surplus those figures originally indicated. If adjustments are made to reflect the matters set out in my letter, that deficit was $978,998.”
The letter referred to above was a letter to Ms Fernandez of 13 July 2011. Ms Ludlow was replying to a request to review the financial information provided in the affidavit of 29 March 2011 sworn by Mr Poljakovic.
She noted also that the cash shown in QLB Pty Ltd account of $49,203 would have been significantly reduced since 27 March 2011. She noted that there was a deficit in net assets of $286,423 based on the consolidated figures supplied with the affidavit, and a deficit in net assets of $978,998 based on the updated consolidated figures. Thus, not only did
Mr Poljakovic and his companies appear to be technically insolvent, they did not appear to be able to readily convert assets to cash to pay their debts as and when they fell due.Ms Ludlow also referred to inconsistent statements made by
Mr Poljakovic in his personal balance sheet and in statements made by him in his examination of a judgment debtor form. His personal balance sheet showed his home as being valued at $500,000 and his share in the sum of $150,000. In his examination of a judgment debtor form, he stated the value of the home to be $395,000 and claimed that he owned the same with his wife. In the same form, the mortgage was shown to be $310,000 with various caveats over the property.
Ms Fernandez’s evidence was as follows. In or about late 2006
Ms Fernandez, a director of Jacaranda Ltd, met Mr Poljakovic at a trade fair in Victoria. Mr Poljakovic represented himself as a builder.
He and Ms Fernandez discussed the proposition of his obtaining finance for a company he controlled, being QLB Pty Ltd, to purchase land in Greensborough in order to construct eight units on the land.
As a consequence, Mr Poljakovic made application to Jacaranda Ltd for a loan in the sum of $250,000, that loan being subsequently approved. Jacaranda Ltd advanced the whole of the moneys to
Mr Poljakovic on 14 December 2009. Subsequently, Jacaranda Ltd agreed to lend a further $400,000 on certain terms and conditions and thus entered into a second loan agreement which, as was the first, was secured by a deed of guarantee by the company and by Jacaranda Ltd’s mortgage over the land purchase.
As a result of Mr Poljakovic’s failure to comply with his obligations to make monthly repayments under either the first loan agreement or the second loan agreement; and as a result of construction not being completed within time and, in fact, still not being completed pursuant to the terms of the second loan agreement; and as a result of no payments at all having been received from, or on behalf of,
Mr Poljakovic in respect of his liabilities under both the first loan agreement and the second loan agreement since 24 November 2008, Mr Poljakovic is indebted to Jacaranda Ltd pursuant to the first loan agreement, and at the time of the swearing of the affidavit of
Ms Fernandez on 1 June 2011 in the sum of $1,015,008.49, and pursuant to the second loan agreement at the same time in the sum of $753,100.99. Included in those moneys owing, Jacaranda Ltd had paid for a range of construction work on the land purchased pursuant to the second loan agreement and debited the expenditure to Mr Poljakovic's loan accounts. Further, those loan accounts were debited with default fees and enforcement expenses in accordance with the first loan agreement and the second loan agreement.
Ms Fernandez's affidavit of 1 June 2011 also addressed the facts claimed as being true and correct in the affidavit of Mr Poljakovic sworn 29 March 2011. She noted the extract of records maintained by ASIC in respect of Five Star Pty Ltd, noting that Mr Poljakovic was a 25 per cent shareholder of Five Star Pty Ltd and not a 100 per cent share owner. Further she noted that neither Five Star Pty Ltd nor
Mr Poljakovic were builders. On 30 May 2011, she caused a search of the register of building practitioners maintained by the Victorian Building Commission to be undertaken in respect of the company and Mr Poljakovic personally. No practitioners were found matching the search criteria.
Ms Fernandez also dealt with the matters as contained in the letter from Mr Clemens, and the enclosed assets and liabilities statement of
Mr Poljakovic and Five Star Pty Ltd and sets out in paragraphs 25 to 28.15 of her affidavit sworn 1 June 2011 matters which contradict the letter from Mr Clemens and the assets and liabilities statement.
Her evidence was that there was no prospect of Mr Poljakovic having any access to any cash flows from the development and sale of the "second major project" (that is, lot A) which it had been claimed would be extremely successful in generating substantial cash flows.
The assets and liabilities statement of the company listed lot A land as an asset of that company. In fact, lot A is jointly owned by Furmac Investments Proprietary Limited and the company as revealed in a title search of lot A conducted on 30 May 2011. Ms Fernandez, in her affidavit, said in paragraph 28.15 thereof:
“in the result, I believe that the Company (QLB Pty Ltd) is insolvent. I believe that the "loans to Quality Living" shown as an asset of Brian in his assets and liabilities statement are, in fact, of no real value, as is the "equity in Quality Living Builders Pty Ltd" shown as an asset of Brian's.
She was correct. QLB Pty Ltd has now been wound up in insolvency.
In her subsequent affidavit, again containing unchallenged evidence, sworn 12 July 2011, Ms Fernandez provided further evidence as to the court having been materially misled by the respondent debtor in his affidavit of 29 March 2011 wherein she noted that Jacaranda Ltd had served a creditor's statutory demand on QLB Pty Ltd for money owed to it, and that the company did not comply with the demand or apply to a court to set it aside. As a result, she noted that Jacaranda Ltd had issued winding up proceedings against the company in the Federal Court of Australia which came to fruition on 1 August 2011 in the earlier referred to orders of the Federal Court of Australia. She further noted that in the financial information annexed to his affidavit of
29 March 2011, the respondent did not include any reference to his indebtedness to Suncorp Metway Ltd.
Ms Fernandez’s evidence referred to that of Mr Juratowitch, the Trustee, in his affidavit sworn 11 May 2011 wherein he noted that Suncorp Metway Ltd claimed to be owed the sum of $4,753,272.23 under a personal guarantee given by Mr Poljakovic in relation to moneys loaned to Greenhills Grange Pty Ltd. Further in that affidavit, Ms Fernandez set out the discrepancies in the evidence provided by
Mr Poljakovic in his affidavit of 29 March 2011 to this court, and the evidence provided by Mr Poljakovic in his form 67B examination of a judgment debtor sworn 9 March 2011 before a registrar of the Magistrates’ Court of Victoria. The contradictory evidence in the two documents is as set out by her in paragraph 3 of her affidavit.
It is clear that when the matter proceeded before the court on 12 May 2011, Mr Poljakovic was hopelessly insolvent. The Trustee did not consent to the making of the order to set aside the sequestration order made 8 March 2011, but did not oppose the making of the order.
The affidavit sworn by the Trustee on 11 May 2011 was not before the court. The evidence provided by the applicant in these proceedings is unchallenged, independent and contemporaneous. Counsel for the applicant referred the court to the unreported decision of Papps v Tapp (1997) 78 FCR 524 in the Federal Court of Australia, South Australia District Registry of O’Loughlin J. That case concerned an application pursuant to s.37 of the Act to rescind an order made earlier which annulled the bankruptcy of Mr Papps.
As in these proceedings, a bankruptcy notice issued following the obtaining of a judgment debt and following non-compliance an act of bankruptcy was committed by Mr Tapp. Thereafter, a creditor's petition was served on the debtor, and in his absence a sequestration order was made against his estate. In that case, the court was satisfied that Mr Tapp had failed to present an accurate statement of his financial affairs at the time when he applied for an annulment of the sequestration order and that failure led to the court making an order rescinding the earlier order which annulled the sequestration order.
In that case, O’Loughlin J said at page 541:
“An order of rescission would be made because of the uncertainties concerning the debtor’s financial circumstances, because of his failures to give notice to secured creditors and certain unsecured creditors of his intention to apply for an annulment and, most of all, because of his failure to place all relevant facts before the Court. If an order rescinding the order of annulment is made and the debtor’s bankruptcy thereby revives he will not be prevented, on a subsequent occasion, from making a fresh application to the Court for annulment. On that occasion however, he would be well advised to have regard to the several areas of complaint that have been identified in these reasons. He would be well advised to ensure that meticulously accurate information is placed before the Court so that the Court might make a proper assessment of his circumstances and exercise its discretion accordingly.”
The debtor’s claimed solvency as disclosed in his affidavit sworn
29 March 2011 was not real. All of the evidence is that the debtor was not, and is not now, able to pay his debts as and when they fall due and become payable. I am satisfied that the totality of the true facts were not before the court when the order to set aside the sequestration order was made.
It was incumbent on the debtor to make a full and true disclosure to the court upon the occasion of his application to set aside the sequestration order. He glaringly failed to do so.
The solicitor for the debtor had read the affidavit of the Trustee sworn 11 May 2011 before the orders were made on 12 May 2011.
The debtor’s solicitor had a duty to the court to assist the court in its deliberation. The information as set out by the Trustee in his Trustee report to creditors contained information that should have been given to the court. Without that information the court was unable to have a complete and accurate picture of the solvency or otherwise of
Mr Poljakovic.
O’Loughlin J said at pages 531-532 of the earlier referred to decision of Papps v Tapp as to the burden of proof:
“In my opinion the test to be applied when a person comes before the court seeking an annulment of his or her bankruptcy is one that is akin to “full and true disclosure”. It is incumbent upon such an applicant to place before the court all relevant material with respect to his or her financial affairs so that the court may be properly informed and may make a judgment that is based on the full facts and the actual circumstances of the applicant.
A person who seeks an annulment carries a heavy burden. If, as has occurred in this case, the application is made very quickly, the debtor’s trustee would have little, if any, chance to investigate the affairs of the debtor. For that reason, the trustee would not be in a position to act as a contradictor to the application. Therefore the court is compelled to place its trust in the applicant, relying upon his or her integrity and honesty. If, subsequently, it is found that the court’s trust has been misplaced, the confidence of the court in the applicant is thereby diminished and perhaps, destroyed.
The court’s trust was severely misplaced.
I certify that the preceding thirty-six (36) paragraphs are a true copy of the reasons for judgment of Hartnett FM
Date: 9 September 2011
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