BM2008 Pty Ltd (in Liquidation) v Iliopoulos (No.2)

[2011] FMCA 249

FEDERAL MAGISTRATES COURT OF AUSTRALIA

BM2008 PTY LTD (IN LIQUIDATION) v ILIOPOULOS (No.2) [2011] FMCA 249

BANKRUPTCY – Creditor’s Petition – matters required by s.52(1) of the Bankruptcy Act proved – no assertion by debtor of solvency – application to dismiss or adjourn petition until after related Supreme Court appeal and/or related proceeding in Federal Court WA Registry.

Bankruptcy Act 1966, ss.52(1), 52(2)(b)

Iliopoulos v BM2008 Pty Ltd (In Liquidation) [2010] FCA 787
Neate, Ex Parte Pegasus Leasing Ltd (1995) 57 FCR 40
Perth Freight Lines Pty Ltd v BM2008 Pty Ltd (in liq) [2011] VSCA 62
Malhotra v Tiwari [2007] VSCA 101
Ling v Enrobook Pty Ltd (1997) 143 ALR 396
Commonwealth Bank of Australia v Jeans [2005] FCA 1852
Cain v Whyte (1933) 48 CLR 639

Applicant: BM2008 PTY LTD (IN LIQUIDATION)

Respondent: STEVE ILIOPOULOS

File Number: MLG 1731 of 2010

Judgment of: Burchardt FM

Hearing date: 25 March 2011

Date of Last Submission: 25 March 2011

Delivered at: Melbourne

Delivered on: 13 April 2011

REPRESENTATION

Counsel for the Applicant: Mr G. Bigmore QC and Mr D. Harrison

Solicitors for the Applicant: Cooper Mills Lawyers

Counsel for the Respondent: Mr D. Denton SC and Mr L. Watts and
Ms Djohan

Solicitors for the Respondent: Belleli King & Associates

ORDERS

1. A Sequestration Order be made against the estate of Steve Iliopoulos. 

2. The Applicant Creditor’s costs be taxed in accordance with the Federal Court Rules and paid from the estate of the respondent debtor in accordance with the Bankruptcy Act 1966. 

   The Court notes that the date of the act of bankruptcy is 27 July 2010.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA
AT MELBOURNE

MLG 1731 of 2010

BM2008 PTY LTD (IN LIQUIDATION)

Applicant

And

STEVE ILIOPOULOS

Respondent

REASONS FOR JUDGMENT

1. This is a creditor’s petition presented in respect to Steve Iliopoulos whom it is clear, from the materials filed in this and antecedent proceedings relating to the bankruptcy notice that gave rise to the petition, is involved in substantial amounts of litigation. 

2. Mr Iliopoulos presents a number of arguments as to why the Court ought not make a sequestration order but for the reasons that follow, I do not think that any of those arguments can be sustained.  I have decided that the sequestration order should be made against his estate and to make the usual consequential order as to costs.  

The preliminary adjournment application

1. When the matter first came on, counsel for Mr Iliopoulos sought that the hearing and determination of the creditor’s petition should be adjourned until after a hearing due in just a matter of days before the Supreme Court of Victoria – Court of Appeal or alternatively until after another appeal due to be heard in May 2011.  I declined to adjourn and said I would give my reasons in my judgment.  These are those reasons. 

2. Counsel for the debtor indicated that he had instructions to appeal (probably more accurately to seek leave to appeal) my earlier rulings as to service and related matters.  He indicated, as indeed was the fact, the engrossed form of those reasons had not yet been provided.  He submitted that as a result of this deficiency, the Court should not proceed to hear and determine the matter.  I did not accede to that submission.  Two counsel and a solicitor were present at judgment and should have been able to take notes sufficient for any notice to be drawn. 

3. Further, the creditor’s petition was filed on 13 December 2010 and the matter has already been the subject of extensive interlocutory argument before the Court.  It is axiomatic that bankruptcy matters are of their nature inherently urgent. 

4. It was clear from the notice of opposition filed by Mr Iliopoulos that the question of adjourning until after the proposed appeal hearings was a live one in the grounds of opposition to the making of the sequestration order in any event. 

5. Given that the parties had already committed themselves to the substantial expense involved in the hearing of the petition and given the Court’s pressure of work (other hearing dates are very hard to find) it seemed clear to me that as an exercise of my discretion, I should proceed to hear argument in full.  The net effect of this decision was simply that I heard full argument on all matters including the adjournment application rather than that application alone.  No prejudice was occasioned to Mr Iliopoulos save, of course, that I am in a position to rule on all matters if I think it appropriate to do so. 

A background to the litigation

1. In Iliopoulos v BM2008 Pty Ltd (In Liquidation) [2010] FCA 787, an appeal from an earlier decision of mine in relation to the bankruptcy notice which granted this proceeding, Finn J set out at [7]-[10] what his Honour described as background circumstances as follows:

   “I can for present circumstances oversimplify somewhat the factual setting.

   (i) On 25 June 2008 BM sold its business to interests controlled by Mr Iliopoulos.  A significant part of the purchase price was paid but several million dollars remained outstanding.  [BM is the applicant in these proceedings]. 

   (ii) On 22 December 2008 a liquidator of BM was appointed pursuant to a members’ voluntary winding up.  By an agreement of 11 March 2009 an arbitrator was appointed to hear disputes between the parties to the sale agreement.  It resulted in an award in the order of $2.5 million in favour of BM.  On

   
   

   19 November 2009 the award was made enforceable as a judgment of the Supreme Court of Victoria in the sum of $2,577,072.49.  A costs order was also made.  This judgment founded the bankruptcy notice.

   (iii)  The nominal share capital of BM (which has been registered for 30 or more years) comprised 100 A-class $2 shares and 99,900 B-class $2 shares.  By February 1991 when a Mr Sartori purchased one A-class share for $2,500, only four such shares had been issued.  Subsequently further shares of both classes were issued.  Mr Sartori then acquired 1,249

   
   

   B-class shares.  The validity of those subsequent issues is to be contested in the Perth proceedings.  Mr Sartori sold his one

   
   

   A-class and his B-class shares to Mr Iliopoulos and two of his companies “as joint proprietors” on 28 November 2009 for $2,500.  On the same date Mr Sartori assigned to the same three purchasers “as joint proprietors” for the sum of $20, all his beneficial interests in all causes of action he had against BM, its directors and former directors and against another company, Ataquil Pty Ltd. It is noteworthy that the deed of assignment of the causes of action described particular claims Mr Sartori was entitled to bring against BM’s directors and former directors and against Ataquil as “derivative actions” in the absence of those claims being brought by BM.  This would appear to be a reference to the statutory derivative action of Part 2F.1A - p2f.1a of the Corporations Act 2001(Cth). I would note in passing that despite the terms of the share sale and of the assignment,

   
   

   Mr Iliopoulos has been treated by the parties both before his Honour and on this appeal as being the full beneficial owner both of the share for liquidation purposes, and of the choses in action.”

2. That very helpful brief recitation does not of course cover the whole gamut of litigation between these interrelated parties.  I will return to other aspects of it when they are raised by the various grounds of opposition. 

Creditor’s petition – the formal matters

1. When the matter commenced, counsel for the applicant referred the Court to the petition and to the various matters required to be proved in order to satisfy the requirements of s.52(1) of the Bankruptcy Act 1966 (“the Act”).  These matters can be dealt with shortly.  The appropriate affidavits have all been filed and there is indeed no contest as to those matters.  Plainly I should be satisfied, and am satisfied, that the matters stated in the petition are proved, as is service, and also as to the fact that the debt on which the petitioning creditor relies is still owing. 

2. As I understood the matter, both parties agree that those matters having been satisfied, the Court has the discretion whether or not to make a sequestration order against the estate of the debtor (s.52(1) of the Act).

3. What the debate before the Court concerned was whether or not the Court should for other sufficient cause not make a sequestration order. 

4. It is convenient to approach the matters in dispute, as the parties did in submissions, by reference to the grounds of opposition set out in

   
   

   Mr Iliopoulos’ notice filed 22 March 2011. 

Ground 1 – the date upon which the petition relies

1. This ground was put as a matter of form only because, as counsel for Mr Iliopoulos conceded, I had already ruled against this argument in my earlier ruling given on 18 March 2011.  It is not necessary to deal with it further.  I simply refer to my earlier judgment. 

Ground 2 – the error in the Supreme Court judgment

1. This ground raises the alleged erroneous nature of the original judgment upon which the bankruptcy notice and petition are based.  Counsel for Mr Iliopoulos conceded that the judgment of the Supreme Court of Victoria upon which the bankruptcy notice and consequent act of bankruptcy are based is still extant.  The submissions made in respect of this ground are inter-related with ground 3 and I deal with them under that heading. 

Ground 3 – the irregularity of the original Supreme Court judgment

1. From the affidavit of David Rewell filed on 22 March 2011 it is clear that on 21 February 2011 Mr Rewell filed and served a summons together with an affidavit of support in the Court of Appeal of the Supreme Court of Victoria seeking leave to appeal out of time against the order of Hargrave J made 19 November 2009 (the original judgment which has given rise ultimately to these proceedings). 

2. That summons was returnable on 1 April 2011.  Mr Rewell’s affidavit exhibits submissions in support of the application and also an affidavit in support of the application which sets out a substantial number of background materials. 

3. The point pressed by Mr Iliopoulos is that he was never primarily liable to pay the award of the honourable Mr Gillard QC.  It was submitted that he was conditionally liable only and that a firm known for these purposes as PFF was the principal debtor.  The other two parties, who were Mr Iliopoulos and another company VFS, were only liable as guarantors. 

4. When the award was sought to be registered in the Supreme Court

   
   

   Mr Iliopoulos resisted the application and Hargrave J ultimately overruled those objections. 

5. Counsel for Mr Iliopoulos submitted that for reasons not expressly indicated, the judgment of Hargrave J, unlike the award itself, made

   
   

   Mr Iliopoulos jointly and severally liable whereas as a guarantor it was submitted he could only be conditionally so.  That alteration in his status is the subject of the application for leave to appeal to which I have referred. 

6. It was asserted that the applicant’s representatives (the applicant was of course the plaintiff in the proceeding before Hargrave J) had denied that it was them, so to speak, who provided minutes of the orders that were ultimately made.  Inquiries made of counsel acting on behalf of Mr Iliopoulos at that time (Mr Sifris QC as his honour then was and

   
   

   Mr Watts) have been unable to shed any light on the matter. 

7. It was submitted that if the application to the Court of Appeal is ultimately successful then the judgment upon which the bankruptcy notice and ultimately the petition are based would no longer stand and that the petition should be dismissed. It was submitted that this circumstance amounted to “other sufficient cause” within the meaning of s.52(2)(b) of the Act and that great injustice would be caused if the matter proceeded to a sequestration order when it was so close to the determination of the appeal.

8. It was conceded that there was a liability pursuant to Mr Gillard’s award but under the Commercial Arbitration Act (Vic) it was simply not reflected in Hargrave J’s order. 

9. From the summons in the Court of Appeal proceeding (exhibit DAR4) it is apparent that the application filed on or about 21 February 2011 seeks to appeal out of time the decision of Hargrave J delivered on
   19 November 2009.  The application is therefore clearly well out of time. 

10. The outline of argument filed in support of the appeal (exhibit DAR5) asserts inter alia that the applicants seek to appeal against the formal wording of the judgment as authenticated as it does not replicate the actual terms of the final award, and that “the application causes no prejudice to the judgment creditor; it merely corrects the wording of an order to align itself with the former wording of the final award for which leave was given to enforce (not change).  The application is more akin to an application of the slip rule”. 

11. The outline goes on to assert that the delay in making the application has been explained and asserts that insofar as the matter should perhaps have been picked up by senior counsel or junior counsel at the time, it is more plausible that this was simply a mistake of all counsel on both sides. 

12. Mr Iliopoulos submitted that in the event that the appeal is successful, the judgment will be corrected to reflect exactly the terms of

    
    

    Mr Gillard’s award.  This would, it was submitted, have the effect that Mr Iliopoulos would be liable only for the balance of the award that PFF does not pay. 

13. It was submitted, and indeed it is clear that it is the case that there has been no endeavour to execute on the judgment against PFF and it was put accordingly that the Court should either adjourn until after the various hearings in the Supreme Court of Victoria posited for 1 April 2011 and May 2011 are heard and determined or alternatively, that the petition should be dismissed because Mr Iliopoulos was never liable primarily for the original debt. 

14. Counsel referred the Court to re Neate, Ex Parte Pegasus Leasing Ltd (1995) 57 FCR 40, a judgment of O’Loughlin J, in which his Honour held that where the liability of two debtors is several, as for example where one is sued as the principal debtor and the other as guarantor, separate judgments against each are required and that in those circumstances a joint judgment against both debtors is flawed and a bankruptcy notice based on it is a nullity. It was submitted that these were the circumstances here.

15. Counsel for the applicant pointed to the circumstances in which Hargrave J’s judgment had been given.  It was submitted that by the time that judgment was given it was clear that PFF had not paid the amounts ordered by Mr Gillard’s award and that a reasonable time had elapsed by the time of the judgment in November 2009 from the final award on 14 August 2009.  It was implicit in counsel’s submissions that I should find that Hargrave J had made the orders in the form that he did as a result of this consideration. 

16. Counsel for the applicants also sought to distinguish Neate on the facts.  In that case at p-43 C – D, O’Loughlin J held that the judgment upon which the bankruptcy notice was based was flawed.  At p-42 at D – E his Honour went behind the judgment and observed that the judgment debtors incurred their debts under different contracts.  It was of course a case of a default judgment. 

17. Here the applicant pointed to exhibit GC1 to the earlier affidavit of

    
    

    Mr Catalogna which itself is exhibit DAR3 to the affidavit of

    
    

    Mr Rewell, which itself is exhibit DAR6.  That document is the business acquisition agreement dated 23 June 2008 pursuant to which PFF bought the business of what is now BM2008 Proprietary Limited.  There were numerous parties to that agreement.  A company called Viking Fleet Service Proprietary Limited (referred to in paragraph 18 above as VFS) and Mr Iliopoulos were guarantors and pursuant to clause 6.6 they as guarantors “unconditionally and irrevocably guaranteed to the Vendor and PFL Properties that the Purchaser will perform all of its obligations under this Agreement (including payment of all monies, such as the purchase price)”. 

18. The execution pages of the agreement show that PFF executed the agreement by its sole director and company secretary as did Viking Fleet Service Proprietary Limited.  It is clear from the exhibit that the signature in each instance of the sole director and company secretary was Mr Iliopoulos because his signature at page 27 of the agreement is clearly identical to the preceding two to which I have referred. 

19. It was submitted that the circumstances of this agreement engaged the following passage of the judgment of O’Loughlin J in Neate at p-42:

    “As a general rule, the liability incurred by the principal debtor and the guarantor is several, unless, on a proper construction, the contracts are contained in a single promise.”

20. In Neate the promises were made separately.  One was contained in a livestock lease agreement and the other in a contract of guarantee and indemnity.  His Honour found this made their respective liability several. 

21. When one looks at the transcript of the proceeding before Hargrave J (exhibit DAR5 to exhibit DAR6) it is clear that the burden of the debate was not about the formal final orders to be made but about various criticisms advanced by Mr Iliopoulos and his associated companies of the arbitrator’s decision.  Nonetheless at transcript p-79 and following there was discussion about the form of the orders.  When his Honour raised this matter at p-79 Mr Sifris did not raise this aspect of the matter in terms.  Mr Sifris did say however:

    “We would seek one additional order…that order to, that’s dealing with the payment to the plaintiffs with the monetary sum…be stayed for a period of 28 days.”

22. Mr Sifris continued also on p-79:

    “We’re not prepared at the moment for anything other than an informal application from the Bar table.  We’re unaware of whether it’s proposed or not but the two corporate defendants and the individual, they are business people.  Time is required to consider the decision and not be faced tomorrow with a statutory demand…we realise the plaintiff is entitled to hold on to the judgment and we don’t want to seek anything other than a 28 day stay under order 66 which provides for a wide discretion for a court to stay execution of a judgment…and not an uncommon event when defendants are facing a multi-million dollar claim.”

23. At p-80 Mr Harrison who appeared then for the applicant in this proceeding said:

    “Now as to the question of a stay, we say that it wouldn’t normally be opposed but it is in this instance…this was money that started to fall due in December of last year.”

24. His Honour indicated that he understood what Mr Harrison was saying and Mr Harrison continued at p-81:

    “When we got that letter which, I’ve already said, the hallmarks of stalling tactics.  With respect, his Honour was being somewhat kind with that expression.  Now we haven’t received a single cent at any stage in this proceeding.  We received the interim award and then we received the final award.  There were delays partly occasioned not at the fault, as such, of the appellants but they chose to change their legal representation.

    The summons was issued – the summons to appeal was issued on the last day it could be after the interim award was handed out – handed down.  The summons – I’m sorry, the originating motion.  The summons on originating motion, I think, was then a day late.  We don’t really take issue with that but that wasn’t returnable for five weeks, an extraordinary period of time, and the matter has finally come on for hearing today.  …there is no proper basis for the exercise of your discretion to grant a stay.  My learned friend naturally speaks with his client’s concerns.  They’ve known about this case and this obligation to pay from the day they signed the contract and they’ve had the obligations under the award from the date of the interim award.  There’s nothing in your Honour’s ruling or judgment today that will make the serving of the statutory demand any more or less likely than it was yesterday.

    This is not the sort of case where it is appropriate to grant a stay.  Were this an instance of a, dare I say, a little old lady about to lose her house I would probably concede the point but we’re dealing, with respect, with corporate entities and business people.  Given the delays in the history of this matter, the advent of the stay isn’t going to assist the plaintiffs in any realistic way.  If they wish to take advantage of any further rights they have, that may be a matter for them, but it’s not an appropriate case for a stay.”

1. On p-82 Mr Sifris said:

   “Your Honour, we said 28 days.  We don’t want to bargain with anyone at the court, but a short stay is not unusual for the plaintiffs now to consider their position which has changed substantially in light of the enforcement of the award…so if your Honour is not minded to write a 28 day stay, we would seek a limited 14 day stay.”

2. At p-82 his Honour said:

   “The general position of course is that there should be no stay unless some exceptional special circumstances are shown, and that’s even the case where a notice of appeal has been filed.  However, I do accept that in the case of a trading entity and such as the first plaintiff, are not withstanding the delays which have already occurred, a period of time to enable the money to be got together and paid and avoid the effect which might result from the service of the statutory notice with disclosures to financiers and so on, is a commercial fact of life that the court should recognise.  In those circumstances I will provide a short period of stay until 5 pm on 30 November or further order.”  (Emphasis added)

3. No-one knows what was in his Honour’s mind and no-one knows exactly how the orders came to be taken out by his Honour in the form that they were.  It seems, however, more probable to me than otherwise, given the transcript exchanges which I have set out above, that his Honour had it in mind that the parties should be made jointly and severally liable precisely because the contingent liability of

   
   

   Mr Iliopoulos to pay had already in effect accrued. 

4. I do not accept that the circumstances such as those that obtained here, namely the initial underwriting by Mr Iliopoulos of the purchaser’s obligations of PFF’s meant that it was incumbent upon the applicant to execute judgment against PFF before proceeding against Mr Iliopoulos. 

5. The judgment was regularly entered following attendance by senior counsel and junior counsel on behalf of Mr Iliopoulos and extensive argument before his Honour. 

6. I accept the submissions of the applicants that this is not a case such as that in Neate, and that the liability of Mr Iliopoulos could properly have been made joint and several in the circumstances by the time the matter came before Hargrave J. 

7. In any event, it is not for me to say that a Justice of the Supreme Court of Victoria is in error.  That is plainly a matter only for the Court of Appeal. 

8. That brings me to an ancillary matter.  It has been submitted that, in any event, this Court ought not proceed to hear and determine this matter before the Court of Appeal has dealt with the application for leave to appeal.  That is so both because it is said that to do so will cause great unfairness to Mr Iliopoulos, depriving it as it prima facie would of his opportunity of pursuing that application, and, although I do not recall that this was necessarily said in submissions, it is scarcely an elegant position for an inferior Court such as this to be making pronouncements on a matter that is actively before a superior Court. 

9. As chance would have it I was not able to address these Reasons for Judgment before 1 April 2011.  The date of dictation of these reasons is 7 April 2011 and I have not been forwarded any information by either party as to the outcome of the proceeding listed on 1 April 2011 in the Court of Appeal. 

10. In these circumstances I think that I am required to exercise my own judgment as to the matter before me. 

11. The fact is that even if Mr Iliopoulos is successful in obtaining leave to appeal out of time, a matter about which I express no opinion as it is self-evidently wholly for the Court of Appeal, the net result would still be that Mr Iliopoulos has committed an act of bankruptcy.  So much arises from the decision of Justice Finn and indeed counsel for

    
    

    Mr Iliopoulos expressly conceded this was so (transcript p-7). 

12. As I have earlier indicated, in my view this proceeding would not be rendered a nullity by the operation of Neate for the reasons I have already given.  In my view, as a matter of substance, Mr Iliopoulos has been liable to pay the award, at the very least, from a reasonable period after it was first made and PFF failed to discharge its obligations under the award to pay the relevant sums to the applicant.  It is common cause that no such moneys have ever been paid by anyone.  

13. It should be noted, as counsel for the applicant submitted, that

    
    

    Mr Iliopoulos has never asserted that he is solvent and, indeed, there is no evidence to suggest that he is in any way capable of discharging the payments required by the bankruptcy notice and the petition. 

Ground 4 – the cross-claim arising from the Court of Appeal proceeding on 16 May 2011

1. This matter concerns matters said to flow from the appeal presently under way in the Supreme Court of Victoria Court of Appeal due to be heard on 16 May 2011.  It is an appeal against a decision of Davies J delivered 11 August 2010 by which her Honour dismissed an originating motion filed by Mr Iliopoulos.  That proceeding concerned the liquidator’s refusal to transfer shares from Mr Sartori to

   
   

   Mr Iliopoulos (and his companies) unless he paid the amount owing under the award.  From the appellant’s outline, the argument filed in the proceeding (exhibit DAR2) it is apparent that there are two grounds relied upon.  Put simply, it is submitted that the end result of this appeal will be that, assuming Mr Iliopoulos is successful, he will become the proprietor of shares amounting to a quarter of the shares of the applicant company.  This will enable him to participate in a distribution pursuant to the winding up and he would thereby receive substantial amounts. 

2. There is a further issue raised by Mr Iliopoulos as to whether or not it is possible for what is described as a derivative action to be brought in respect of a company placed into voluntary liquidation. 

3. Davies J was also required to consider whether she should set aside statutory notices of demand.  The application for leave to appeal her Honour’s decision in that regard (being VFS Group Pty Ltd v BM2008 Pty Ltd (in liq); Perth Freight Lines Pty Ltd (No.2) v BM2008 Pty Ltd (in liq) [2010] VSC 593) came before the Court of Appeal constituted by Maxwell P and Kyrou AJA who heard and determined the matter on 11 February 2011. The decision is Perth Freight Lines Pty Ltd v BM2008 Pty Ltd (in liq) [2011] VSCA 62.

4. I have read that decision. 

5. Counsel for Mr Iliopoulos said before me that Kyrou J had embarked upon his judgment without hearing any significant argument.  That may be so, but I note that in the judgment of Maxwell P his Honour said, at [62]:

   “In conclusion I would say this. The Court’s ability to deal on the spot with a matter of this character is attributable to the clarity of the reasons given by the judge below and the clarity and thoroughness of the submissions filed on both sides.  The parties are to be commended for their preparation for the application which has enabled us in advance to give careful consideration to the matters raised and then, on the basis of that consideration, to deal with the arguments in court.”

6. All I would say is that, having read the decision of the Court of Appeal in that case, it would not imbue, in me at least, any greater confidence that the appeal posited to be heard on 16 May 2011 is likely to succeed. 

7. Furthermore, all this, in the ultimate, is by the by.  I accept the submissions of the applicant that even if the appeal is successful it will not assist the debtor.  As the applicant submits:

   “It was assumed in his favour at the hearing of the application to set aside the bankruptcy notice that he was entitled to be the registered owner of 25 per cent of the shares in the applicant.”

8. This assertion is clearly correct, (see the judgment of Finn J at [19]). 

9. Justice Finn found that there was no claim capable of exceeding the judgment debt, and I accept the submissions of counsel for the applicant that there was no evidence of any other offsetting claim than that.  There is, in my view, no room for me to find in the face of

   
   

   Finn J’s judgment that there is a cross-claim which would justify dismissal of the petition for other sufficient cause. 

10. I also note the finding of Finn J at [27] where his Honour said:

    “Once BM went into voluntary liquidation, Mr Sartori lost his right to bring a derivative action under Part 2F.1A - p2f.1aof the Corporations Act. The Court of Appeal of New South Wales has so held in Chahwan v Euphoric Pty Ltd (2008) 227 FLR 43. I am, for present purposes, required to follow that decision: Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 at [135].”

11. Counsel for Mr Iliopoulos said that there is a conflict between the New South Wales Court of Appeal in Chahwan and a decision of the Court of Appeal of the Supreme Court of Victoria in Malhotra v Tiwari [2007] VSCA 101. Indeed, it was promised that I would be sent copies of those decisions but that has not occurred.

12. That conflict, if such it be, was referred to by Kyrou J in the decision I have referred to at [48] as “the difference between the approach of the New South Wales Court of Appeal and the approach of this Court.” 

13. Nonetheless, in the circumstances, Finn J has decided the matter on the basis that the New South Wales decision is correct, and that decision, for the reasons I gave earlier in my judgment as to service and related matters, is binding on me. 

14. Accordingly, this ground cannot be sustained. 

Ground 5 – the proper course is to require Mr Iliopoulos only to pay the difference between his cross-claim and the amount of the award

1. Counsel for Mr Iliopoulos conceded that this could not be further advanced beyond the arguments already put in relation to the cross-claim generally.  It was conceded that this depends upon the outcome of the appeal.  I have, in substance, already dealt with this in dealing with Ground 4. 

Ground 6 – the petition should be dismissed or alternatively adjourned until a date after the hearing of the appeals due to be heard on 1 April 2011 and 16 May 2011

1. Here counsel for Mr Iliopoulos referred to a number of authorities commencing with Ling v Enrobook Pty Ltd (1997) 143 ALR 396. There, the Full Court of the Federal Court held that (see head notes):

   “The fact that the debtor has pending before a court a legitimate claim to funds sufficient to satisfy the petitioning creditor’s debt may amount to “other sufficient cause” not to make a sequestration order.”

2. The Court also held that:

   “The circumstance that the legitimate claim of the debtor is one against the judgment creditor is likely to be a significant circumstance for the purposes of s.52(2)(b).”

3. The Court also held:

   “As a general proposition there is no apparent reason why a petitioning creditor should not be entitled to have a sequestration order made, if the requirements of section 52 are otherwise satisfied, simply because the debtor may have a counterclaim or cross-demand against some other creditor.”

4. Here, counsel for Mr Iliopoulos correctly submitted that the parties are all the same.  There is no question of Mr Iliopoulos’ claims being against third parties.  It was submitted that his claim in the Federal Court’s Western Australian Registry is a legitimate claim within the meaning of Ling v Enrobook. 

5. That case, to which I have not previously referred in this judgment, is a claim interrelated with the appeal due to be heard in Victoria on
   16 May 2011.  Putting the matter crudely, if Mr Iliopoulos is declared to be the beneficial owner of the shares previously owned by
   Mr Sartori, he will be able to proceed with his claim that the subsequent allocations of shares have been unlawful and invalid and that, therefore, he should obtain a quarter of the assets of the company.  He will also, if otherwise successful, be able to pursue what are described as his derivative claims in respect of moneys involving a Mrs Cox, Ataquil and what is alleged to be a sham factoring scheme, to which reference was made in both the judgments of Finn J (at least in general terms) and my own earlier judgment about the bankruptcy notice. 

6. There is copious authority on the issue of whether a claim or appeal by a debtor will constitute “other sufficient cause” for the purposes of s.52(2)(b) (see McDonald, Henry & Meek, Australian Bankruptcy Law & Practice, 6^th Edition at paragraph 52.2.22).  While each case turns on its own facts I note that in Commonwealth Bank of Australia v Jeans [2005] FCA 1852 (a case referred to by counsel), Wilcox J at [14] quoted the decision in Ling, at [26], to this effect:

   “The authorities also show that satisfaction that the debtor is well advanced with litigation likely to result in the debtor being in a position to pay his or her debts may well provide a basis for a finding that there is a "sufficient cause" for a sequestration order not to be made … But the authorities do not suggest that it is in the public interest to allow insolvent debtors to prosecute litigation generally.  They only recognise that it is not in the public interest for a debtor to be forced into bankruptcy by reason of a state of insolvency likely to be of only short duration.”

7. His Honour applied that passage in the Jeans case.  His Honour heard the matter in December 2005 and adjourned it until February 2006 by which time “the decision of the Court of Appeal will almost certainly be known”. 

8. A delay from 12 December till the second week of February, in the context of the judicial vacation, was a short one and it was clear that on the facts of that case a vital decision would have been known by the return date.  That is not the case here.  Whatever may happen in May, it is clear that the most that the decision would do, at least as best I understand it, would be to clear the way for the case in the Federal Court Western Australian registry to proceed.  In the light of the statement of claim, which has been exhibited, that proceeding will undoubtedly continue for a lengthy period of time and, indeed, it seems entirely possible that all the decisions that may yet be brought down will themselves be the subject of further appeals. 

9. Finally, I note that it was put that by counsel for Mr Iliopoulos that the only person in respect of whom there could be any prejudice if the matter was not adjourned was Mr Iliopoulos.  In a sense that is true.  It fails to acknowledge, however, the obvious prejudice to the applicant (and to any other possible creditors) if the matter is adjourned.  Plainly, the applicant has been striving to achieve judgment against

   
   

   Mr Iliopoulos for a considerable period of time.  There have been numerous proceedings, all hard fought and no doubt very expensive. 

10. In all the circumstances it is in my view wholly inappropriate to adjourn these proceedings pending the outcome of other proceedings, the outcome of which is by no means clear and which are, in any event, likely to take a very long time.  In saying that the outcome is by no means clear, I may well be being over charitable to Mr Iliopoulos.  The decision of Kyrou J and Maxwell P to which I have referred, while not determinative in any way of the totality of the other matters on foot, strongly suggests, as do the decisions of Finn J and Davies J, that his prospects of success are extremely debatable. 

Conclusion

1. It is clear that upon proof of the matters set out in s.51(1) of the Act the Court has a discretion and is not bound to make a sequestration order. The learned authors of McDonald Henry & Meek, Australian Bankruptcy Law & Practice, 6^th Edition, Thomson Reuters, encapsulate the position at paragraph 52.1.25 as follows:

   “A petitioning creditor has a prima facie right to a sequestration order unless the debtor establishes some very special circumstances which would justify the court in departing from its usual practice.”

2. Authority is then referred to including Cain v Whyte (1933) 48 CLR 639 at 646 per Henchman J whose judgment was affirmed by the High Court.

3. The learned authors continue:

   “The court has a discretion to exercise; it is a wide discretion and must be exercised in the light of all the circumstances.”

4. I do not understand any submissions to have been made that would suggest that this was not a correct approach for the Court to adopt in this instance. 

5. In the light of the conclusions I have set out above, about each and every one of the matters raised in opposition by Mr Iliopoulos, it is clear that the proper exercise of my discretion is to make the sequestration order sought. 

6. None of the matters raised by Mr Iliopoulos, whether taken singly or collectively, lead to the conclusion that the sequestration order should not be made. 

7. I will therefore make a sequestration order together with the usual order for costs.  It will come as no surprise that the Court will note the date of bankruptcy as that of the decision of Finn J. 

I certify that the preceding eighty-four (84) paragraphs are a true copy of the reasons for judgment of Burchardt FM

Associate: 

Date:  13 April 2011