Crown Diagnostic v Sood (No.2)
[2006] FMCA 265
•1 March 2006
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| CROWN DIAGNOSTIC v SOOD (No.2) | [2006] FMCA 265 |
| BANKRUPTCY – Creditor’s petition – where debtor claims that a restraining order under Proceeds of Crime Act 2002 has the effect of rendering a judgment one that has been stayed – whether bankruptcy notice is invalid in such circumstances. |
| Proceeds of Crime Act 2002, ss.18, 24, 47 Local Courts (Civil Claims) Act 1970 (NSW), s.58(1) Bankruptcy Act 1966 s.41(3)(b) Drug Trafficking (Civil Proceedings) Act 1990 (NSW) |
| Re Richards; Ex Parte Sommers (1947) 14 ABC 112 Re Pannowitz; Ex Parte Wilson (1975) 38 FLR 184 Penning v Steel Tube Supplies Pty Limited (1998) 18 FCR 568 Sylvia Boscolo v Botany Council [1996] FCA 897 Re Ousley; Ex Parte Commissioner of Taxation (1994) 48 FCR 131 Re Ling; Ex parte Embrobook Pty Limited (1996) 142 ALR 87 Deputy Commissioner of Taxation v Stuart-Jones [2000] FCA 1022 |
| Applicant: | CROWN DIAGNOSTIC IMAGING PTY LTD |
| Respondent: | DR SUMAN SOOD |
| File Number: | SYG1633 of 2005 |
| Judgment of: | Raphael FM |
| Hearing date: | 21 February 2006 |
| Date of Last Submission: | 21 February 2006 |
| Delivered at: | Sydney |
| Delivered on: | 1 March 2006 |
REPRESENTATION
| Counsel for the Applicant: | Mr C Wood |
| Solicitors for the Applicant: | Griffith Nicholson |
| Solicitors for the Respondent: | Bowles Lawyers |
| Solicitors for the Petitioning Creditor: | Sally Nash & Co |
ORDERS
A sequestration order be made against the estate of Dr Suman Sood.
The applicant creditor’s costs (including any reserved costs) are to be taxed and paid from the estate of the respondent debtor in accordance with the Federal Court Act and Rules.
A copy of this sequestration order is to be given to the official receiver in Sydney within two days in accordance with the Bankruptcy Regulations.
The Court notes the date of act of bankruptcy is 15 June 2005.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG1633 of 2005
| CROWN DIAGNOSTIC IMAGING PTY LTD |
Applicant
And
| DR SUMAN SOOD |
Respondent
REASONS FOR JUDGMENT
This is an application for a sequestration order against the estate of Dr Suman Sood. The creditor’s petition was presented on 23 June 2005 and noted that the debtor owed the creditor the sum of $59,013.05 for a judgment debt obtained from the Local Court on 10 September 2004. The debtor made an application for an adjournment of these proceedings which I did not permit Diagnostic Imaging Pty Ltd v Sood (No 1) [2006] FMCA 264. The creditor was supported by an additional creditor United Medical Protection Limited who claimed to be owed $4,511.86 plus interest in respect of a judgment obtained on 4 August 2005 together with the sum of $190.00 costs in respect of a failed application to set aside the default judgment.
Dr Sood is a medical practitioner who has had difficulties with the Health Insurance Commission such that the Director of Public Prosecutions, on behalf of the Commission, obtained an order against her on 26 July 2004 pursuant to s.18 of the Proceeds of Crime Act 2002. The relevant paragraphs of those orders for the purposes of these proceedings are No.s 1 and 2 which are in the following form:
“1. Pursuant to section 18 of the Proceeds of Crime Act 2002 (“the Act”), all the property (within the meaning of “property” as defined in section 338 of the Act) of Suman Sood (“the Defendant”), including the property described in the First Schedule, but excluding her interest in any business, is not to be disposed of or otherwise dealt with by any person.
2. Pursuant to section 18 of the Act, specified property of another person, namely Suman Medical Pty Limited, being the property described in the Second Schedule is not to be disposed of or otherwise dealt with by any person.”
These orders were in place at the time the bankruptcy notice upon which the bankruptcy petition was based was served, being 24 May 2005. Property is defined in the Proceeds of Crime Act as:
“Real or personal property of every description, whether situated in Australia or elsewhere and whether tangible or intangible and includes an interest in any such real or personal property.”
There is provision under s.24 of the Proceeds of Crime Act for a court to allow for certain “expenses” to be met out of the property which is the subject of a restraining order:
“SECT 24 Allowance for expenses
(1) The court may allow any one or more of the following to be met out of property or a specified part of property, covered by a restraining order::
(a) the reasonable living expenses of the person whose property is restrained;
(b) the reasonable living expenses of any of the dependants of that person;
(c) the reasonable business expenses of that person;
(d) a specified debt incurred in good faith by that person.
(2) The court may only make an order under subsection (1) if:
(a) the person whose property is restrained has applied for the order; and
(b) the person has notified the DPP in writing of the application and the grounds for the application; and
(c) the person has disclosed all of his or her interests in property, and his or her liabilities, in a statement on oath that has been filed in the court; and
(ca) the court is satisfied that the expense or debt does not, or will not, relate to legal costs that the person has incurred, or will incur, in connection with:
(i) proceedings under this Act; or
(ii) proceedings for an offence against a law of the Commonwealth, a State or a Territory; and
(d) the court is satisfied that the person cannot meet the expense or debt out of property that is not covered by:
(i) a restraining order; or
(ii) an interstate restraining order;; or
(iii) a foreign restraining order that is registered under the * Mutual Assistance Act.”
After the service of the creditor’s petition the debtor made an application under ss.24 and on 27 October 2005 order 1 of the orders made on 26 July 2004 was varied to permit the defendant to realise shares held by the Suman Medical Superannuation Fund to discharge certain scheduled debts including the debt of the creditor. By consent those orders were varied on 8 December 2004 by Adams J but the effect of the varied orders did not exclude payment of the creditor’s debt.
On 16 December 2005 the matter came before me for the hearing of the petition. On that date the debtor gave certain undertakings to the court, the effect of which was to ensure the speedy sale of certain shares held in the superannuation fund and the use of the proceeds of the sale of those shares to pay the petitioning creditor. Those undertakings were not complied with to the extent that the petitioning creditor has not been paid and the matter returned to me for hearing on 21 February 2006.
The respondent opposes the making of the sequestration order on the grounds that the effect of the restraining orders made on 26 July 2004 is that execution on the judgment has been stayed. A bankruptcy notice based upon a judgment, execution of which has been stayed, is a nullity. It is now settled law that there is no necessity for an order staying execution of the judgment Re Richards; Ex Parte Sommers (1947) 14 ABC 112. What is required for a judgment that is capable of supporting a bankruptcy notice is that a creditor be in a position to obtain a writ of execution on that judgment Re Pannowitz; Ex Parte Wilson (1975) 38 FLR 184; Penning v Steel Tube Supplies Pty Limited (1998) 18 FCR 568. The question before me is whether the effect of the restraining orders is that they operate as a stay of proceedings so long as, in a practical and business sense, the order prevents the debtor from paying the judgment debt; Sylvia Boscolo v Botany Council [1996] FCA 897.
The first point to note is that there is nothing in the Local Courts Act, which was the Act that was relevant at the time of the service of the bankruptcy notice, requiring leave to be obtained before the issue of a writ of execution (s.58(1)) Local Courts (Civil Claims) Act 1970 (NSW). In their commentary upon the Act the learned authors of the service at [2293]:
“Section 58(1) of the Local Courts (Civil Claims) Act differs from its counterpart provisions in the Supreme Court Rules and the District Court Act in that these enactments contain provisions requiring the court’s leave prior to the issue of a writ of execution in certain circumstances…. Having regard to the fact that circumstances where leave is required are different in the Supreme and District Courts and that such provisions are not reproduced at all in the Local Courts (Civil Claims) Act or Rules it would appear that no such leave is required in the Local Court, a creature of statute, which presents as something of anomaly.”
The next point that must be made is that the cases in which certain orders of a court operate as a stay of execution for the purposes of s.41(3)(b) of the Bankruptcy Act 1966 do not include orders in the nature of a Mareva Injunction Re Ousley; Ex Parte Commissioner of Taxation (1994) 48 FCR 131; Re Ling; Ex parte Embrobook Pty Limited (1996) 142 ALR 87. In the latter case Lehane J indicated that the appointment of a receiver or trustee did not operate as a stay of execution on the basis that it prevented the debtor from making payment. His Honour was concerned that the making of the payment in the face of a prior order of the court vesting the property elsewhere constituted contempt of the court’s order. His Honour said in respect of a Mareva Injunction:
“More importantly, however, the purpose of a Mareva Injunction, is to prevent a defendant from dissipating assets or putting them beyond the reach of creditors in circumstances where there is a real fear that unless restrained the defendant will do so. Its purpose is not to prevent creditors from exercising their rights. And the way in which such an injunction is commonly framed reflects the limited purpose: all it does in terms is restrain, in this case Mr Ling from dealing with assets. There appears to be no good reason why the exercise or enforcement of a creditor’s rights, including by execution, where no dealing by Mr Ling is required to effect it should be regarded as contrary to the order.”
The scheme of the Proceeds of Crime Act is that a restraining order is made under s.18 and a forfeiture order is made under s.47 in the following circumstances:
“SECT 47 Forfeiture orders–conduct constituting serious offences
(1) A court with proceeds jurisdiction must make an order that property specified in the order is forfeited to the Commonwealth if:
(a) the * DPP applies for the order; and
(b) the property to be specified in the order is covered by a restraining order under section 18 that has been in force for at least 6 months; and
(c) the court is satisfied that:
(i) a person whose conduct or suspected conduct formed the basis of the restraining order engaged in conduct constituting one or more serious offences; and
(ii) for each such suspected offence that is not a terrorism offence –the offence was committed within the 6 years preceding the application for the restraining order or since that application was made.
Note: The order can be made before the end of the period of 6 months referred to in paragraph (1)(b) if it is made as a consent order: see section 316.
(2) A finding of the court for the purposes of paragraph (1)(c) need not be based on a finding as to the commission of a particular offence, and can be based on a finding that some serious offence or other was committed.
(3) The raising of a doubt as to whether a person engaged in conduct constituting a serious offence is not of itself sufficient to avoid a finding by the court under paragraph (1)(c).”
In these circumstances I would respectfully disagree with the views expressed as dicta by Her Honour Mathews J in Deputy Commissioner of Taxation v Stuart-Jones [2000] FCA 1022 at [26] in relation to a restraining order made under 10(8) of the Drug Trafficking (Civil Proceedings) Act 1990 (NSW):
“It is, in my view, at least arguable that a restraining order under s10 will have the effect of preventing the levying of execution against the person’s property in circumstances outside those described in subs(8). If this were so, the existence of a restraining order against the whole of a debtor’s property would mean that a judgment creditor was not in a position to issue immediate execution upon it. As such, a restraining order would bear a closer resemblance to the appointment of a receiver or trustee than to a Mareva injunction, with the result that it may well constitute a stay of execution under s41(3)(b) of the Act. However, it is not necessary for present purposes to reach a concluded view on this matter.”
Firstly, there is no provision such as that found in sub-s.10(8) of the Drug Trafficking (Civil Proceedings) Act 1990 (now called “Assets Recovery Act”) which relevantly stated:
“If a restraining order is in force n respect of an interest of a person in property, the restraining order does not prevent:
(a)the levying of execution against the property in satisfaction, or partial satisfaction, of the debt arising under a proceeds assessment order in force against the person.”
Secondly, I am of the view that the restraining order made against this debtor’s property fits clearly within the definition of a Mareva injunction described by Lehane J in Re Ling (supra). In that case His Honour distinguished between orders which had the effect of appointing receivers or otherwise vesting the property and those which did not before making the statement which I have already cited as to the purpose of the Mareva injunction. It seems to me that the purpose of a restraining order under s.18 of the Proceeds of Crime Act is to protect the property from dissipation pending the making of a final order after the conviction (and any appeals therefrom) of the debtor. This is not an order that would prevent the levying of execution. Indeed in this particular case execution was levied by the supporting creditor by way of notice of motion issued on 5 October 2005. On 18 November 2005 a notice of non levy was sent to the solicitors for the supporting creditor. Documents confirming these matters are contained as exhibits to the affidavit of Shauna Jarrett dated 14 December 2005.
Finally, I am of the view that it is not correct to say that the effect of the order is to prevent the debtor from making payment of the judgment debt. The Proceeds of Crime Act has a procedure whereby the debtor can apply to release moneys for the payment of debts. She argues that she had not so applied when the bankruptcy notice was issued. This is clear. But there was nothing to prevent her from making such an application immediately upon service of the notice nor to seek an extension of time for compliance with the notice if such proceedings were delayed beyond the 21 days. The fact that the debtor made such an application and was successful in it at a later time merely indicates her ability to have done so immediately after the notice was served.
The debtor has put forward no other grounds upon which she seeks to have the petition set aside or the sequestration order not made. I have received from the creditor the required formal affidavits and I am satisfied of the matters required under s.52 of the Bankruptcy Act.
I order that a sequestration order be made against the estate of Dr Suman Sood. The applicant creditor’s costs (including any reserved costs) are to be taxed and paid from the estate of the respondent debtor in accordance with the Federal Court Act and Rules. A copy of this sequestration order is to be given to the official receiver in Sydney within two days in accordance with the Bankruptcy Regulations.
The Court notes the date of act of bankruptcy is 15 June 2005.
I certify that the preceding fourteen (14) paragraphs are a true copy of the reasons for judgment of Raphael FM
Associate:
Date:
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