Cusack v De Angelis
[2008] FMCA 18
•29 January 2008
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| CUSACK v DE ANGELIS | [2008] FMCA 18 |
| BANKRUPTCY – Creditors petition – application for adjournment – where appeal and disputed evidence of solvency. BANKRUPTCY – Sequestration order – application for stay. |
| Bankruptcy Act1966, ss.52, 306 Corporations Act, s.601AD |
| Adams v Lambert (2006) 225 ALR 396 Rigg v Baker [2006] FCAFC 179 Westpac Banking Corporation v Carver [2003] FCA 221 |
| Applicant: | MARJORIE JOYCE CUSACK |
| Respondent: | AGOSTINO DE ANGELIS |
| File Number: | BRG 990 of 2007 |
AND
| Applicant: | AGOSTINO DE ANGELIS |
| Respondent: | MARJORIE JOYCE CUSACK |
| File Number: | BRG 334 of 2007 |
| Judgment of: | Wilson FM |
| Hearing date: | 21 December 2007 |
| Date of Last Submission: | 21 December 2007 |
| Delivered at: | Brisbane |
| Delivered on: | 29 January 2008 |
REPRESENTATION
| Counsel for the Applicant: | Mr Coulsen |
| Solicitors for the Applicant: | Flower & Hart |
| Counsel for the Respondent: | Mr Christie |
| Solicitors for the Respondent: | Aitken Wilson Lawyers |
AND
| Counsel for the Applicant: | Mr Christie |
| Solicitors for the Applicant: | Aitken Wilson Lawyers |
| Counsel for the Respondent: | Mr Coulsen |
| Solicitors for the Respondent: | Flower & Hart |
ORDERS FOR BRG 990 of 2007 (made on 21 December 2007)
The application for an adjournment of the Creditor’s Petition is refused.
A sequestration order be made against the estate of AGOSTINO DE ANGELIS.
The applicant creditor’s costs (including reserved costs, if any) be taxed and paid from the estate of the respondent debtor in accordance with the Bankruptcy Act 1966.
ORDERS FOR BRG 334 of 2007 (made on 29 January 2008)
The application to set aside the bankruptcy notice be dismissed.
The applicant pay the respondent’s costs to be taxed, unless otherwise agreed.
The application to stay the sequestration order pursuant to s.52(3) of the Bankruptcy Act 1966 is refused.
The Court notes that the date of the act of bankruptcy is 16 November 2007.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT BRISBANE |
BRG 990 of 2007
| MARJORIE JOYCE CUSACK |
Applicant
And
| AGOSTINO DE ANGELIS |
Respondent
BRG 334 of 2007
| AGOSTINO DE ANGELIS |
Applicant
And
| MARJORIE JOYCE CUSACK |
Respondent
REASONS FOR JUDGMENT
(As Corrected)
On 16 November 2007 I dismissed the respondent debtor’s application for an extension of time for him to comply with a bankruptcy notice served by the applicant creditor. I adjourned until 21 December 2007 the balance of the respondent’s application to set aside the bankruptcy notice.
The only additional basis advanced by the respondent debtor in support of the application to set aside the bankruptcy notice was that the rate of interest claimed in the bankruptcy notice was incorrect. In Adams v Lambert (2006) 225 ALR 396 the High Court of Australia revisited the test to be applied in determining whether a bankruptcy notice was invalid for failing to strictly comply with the requirements of the Bankruptcy Act 1966. That case also involved the incorrect claiming of interest on a judgment debt.
In my opinion, the sort of complaint made by the respondent is precisely the type of matter that the High Court said would not invalidate a bankruptcy notice. In this case, the bankruptcy notice complied with all of the requirements made essential by the Act. Any technical inaccuracy in the calculation of interest is a matter that should be dealt with under s.306(1) of the Act, and excused.
That is the course I propose to follow in this case. The application to set aside the bankruptcy notice will therefore be dismissed with costs to be taxed, unless otherwise agreed.
On 21 December 2007, the last sitting day of the year, I heard the applicant creditor’s petition for a sequestration order. I made a sequestration order and indicated that I would deliver my reasons for that order in due course. These are my reasons for the orders made on 21 December.
As a consequence of the orders made by me on 16 November, the respondent committed an act of bankruptcy. That is conceded by counsel for the respondent. The applicant creditor has pressed for the petition to be heard and determined. The respondent debtor has asked for the petition to be adjourned, on two bases:
a)The application for special leave to appeal to the High Court is bona fide, and the court should await the outcome of the application, and presumably any appeal, before proceeding with the serious step of sequestrating the estate of the respondent;
b)The applicant has served very late (10 am on the morning of the hearing) affidavit material to which the respondent may wish to respond, and which his counsel should have the opportunity to read.
There is no submission made by the respondent debtor as to the formal compliance of the creditor’s petition with the requirements of the Act, nor as to its service, on 5 December, 2007. The creditor’s petition was served, by agreement, on the respondent by way of his solicitors accepting service. The petition was endorsed with the date and time of hearing. The respondent and those advising him, therefore had in excess of two weeks to prepare material to oppose the creditor’s petition, if that is what the respondent wanted to do.
On 19 December the respondent’s solicitors filed a notice stating grounds of opposition to the creditor’s petition. Two grounds were relied upon:
a)The respondent debtor is able to pay his debts;
b)That for other sufficient cause, a sequestration order ought not be made.
The other sufficient cause was not particularised, but it transpired during argument that it was the currency of the application for special leave to appeal that was relied upon as constituting this ground of opposition.
In support of the respondent’s notice of opposition two affidavits were filed by his solicitors:
a)An affidavit of the respondent, filed 20 December;
b)An affidavit of Pantelis Charitopoulos, filed 19 December.
The applicant creditor then sought to rely on affidavit evidence in reply, as well as what I described as the formal affidavits of debt and search. Counsel for the respondent objected to my receiving the affidavits, on the basis of their late service and, as I have said, requested an adjournment.
That application for an adjournment was strenuously opposed by counsel for the petitioning creditor. He submitted that the respondent’s affidavit material could not be relied upon as the two deponents were not available for cross examination. If this evidence was not before the court, there was no need for the petitioning creditor to rely on its evidence in reply. It followed, it was said, that the petition could be determined effectively unopposed.
Further, Counsel submitted that any adjournment was futile as the respondent could not, even with the benefit of an adjournment, avoid the making of a sequestration order. He submitted the affidavit evidence relied upon by the petitioning creditor in reply consisted of statutory searches and the respondent’s own evidence in court proceedings in South Australia.
It seemed to me inappropriate to deny the respondent the opportunity to present evidence in opposition to the petition, if there was in fact a basis for doing so. The matter then proceeded on the basis of a contested application for adjournment. On this application, the respondent was able to read his affidavit material to enable the petitioning creditor and the court to test whether there was any point in granting an adjournment.
The respondent’s affidavit material was directed to the first ground of opposition, namely whether the respondent was solvent, or to use the language of the Act, whether he was able to pay his debts.
It is well settled that the evidentiary onus lies on the debtor to establish that he is able to pay his debts. The reasons for that are obvious. All of the relevant evidence is usually at the debtor’s disposal. Counsel for the creditor submitted that, notwithstanding having two weeks to put on evidence, the affidavit evidence relied on was so deficient or lacking in particularity that the court could not be satisfied that there was an arguable case of solvency.
That makes it necessary to look at the affidavits sought to be relied on by the respondent.
In the respondent’s own affidavit he says:
a)Funds were lent by the applicant creditor to Rateki Pty Ltd in September 2004 for the purpose of a land development project in Queensland. The respondent guaranteed the loan;
b)The applicant has security over the development project and a charge against the assets of Rateki Pty Ltd;
c)The applicant commenced proceedings in the Supreme Court of South Australia to wind up Rateki Pty Ltd on the basis of its failure to comply with a statutory demand relating to the loan facility. That application was heard on 17 December, and the decision reserved;
d)He is obtaining the amount claimed in the creditor’s petition from a third party and he is arranging for Rateki Pty Ltd to either pay it directly to the applicant or into court;
e)He is the only person entitled to the income dividends and equity in Rateki Pty Ltd;
f)He is a beneficiary of:
i)the Peregian Beach Trust, a discretionary trust;
ii)the 74 Commercial Road Property Trust, also a discretionary trust;
g)At paragraph 24: “I am solvent and able to pay all my debts as and when they become due and payable”;
h)He is a property developer through the intermediary of various corporate entitites, including Rateki Pty Ltd;
i)Rateki Pty Ltd has substantial assets including:
i)The Hindmarsh property; and
ii)The Morphett Vale property;
j)He has prepared a balance sheet for Rateki Pty Ltd as at 30 November 2007, and a profit and loss statement for the financial year ended 30 June 2007, which shows that the company has a considerable surplus of assets over liabilities and a substantial trading profit for the financial year disclosed;
k)There is currently an offer to purchase the Hindmarsh property that is being considered by Rateki in conjunction with the first mortgagee of that property;
l)If sold, the proceeds of sale of the Hindmarsh property will see the first and second ranked mortgages paid in full;
m)Although a controller has been appointed to Rateki, it is overseeing the sale of the Morphett Vale property and this will provide sufficient funds for the controller to be paid in full;
n)Upon the sale of the Hindmarsh and Morphett Vale properties Rateki will have discharged all its financial obligations;
o)Rateki also has an interest in a number of other property developments in Queensland and South Australia from which it will earn income as developer of properties owned by other companies;
p)He has no other debts other than modest credit card debts;
q)At paragraph 52:
“My assets and interests in the above entities and the properties they own, enable me to obtain moneys representing the equity in those properties which enable me to meet any debts owed (including amounts owed to the applicant) by realisation of the sale or by mortgaging or pledging those assets within a relatively short period of time and taking into account the nature of the amounts owed and the circumstances of my business.”
It is insufficient for the respondent merely to assert solvency. It appears from the respondent’s affidavit that he relies on two separate bases to support his assertion of solvency. First, through Rateki Pty Ltd, funds will be borrowed from a third party sufficient to discharge its indebtedness to the applicant creditor. Secondly, through a realisation of Rateki’s assets, or through income likely to be received by him from Rateki Pty Ltd or one of the other corporate entities or trusts referred to in his affidavit, he will have sufficient monies to pay the applicant. At first blush these two arguments appear contradictory: if Rateki Pty Ltd is so successful, and produces such income, why is it necessary for it to borrow monies to pay out the applicant creditor. Perhaps the answer to this relies on the timing of completion of various property developments, and the loan from the third party is simply to tide over the respondent in the short term.
For reasons that I discuss later in these reasons, the first basis relied on cannot succeed.
There is, as the petitioning creditor submits, a telling lack of particularity in the respondent’s affidavit. However, one matter that is disclosed is that Rateki Pty Ltd has a controller appointed. It is also the subject of a winding up application. The statutory demand issued against the company, and any affidavit material put before the Supreme Court of South Australia were not put into evidence by the respondent. Further, the respondent’s affidavit does not:
a)Put on any evidence as to the controller’s attitude to Rateki Pty Ltd paying monies to the applicant creditor;
b)Put into evidence any searches to show the respondent’s interests in the companies referred to at paragraph 48 pf his affidavit;
c)Put into evidence the trust deeds of the two trusts in which he is a discretionary beneficiary;
d)Contain any evidence as to the likelihood of him receiving a distribution of income from those trusts, by referring for example to the assets of the trusts, the income of the trusts, and past distributions that had been made to him;
e)Explain the various caveats lodged against the Hindmarsh and Morphett Vale properties. He speaks of the first and second mortgages secured against the Hindmarsh property being paid, but doesn’t descend to any particularity of any other debts that may be protected by the multiple caveats lodged against the property;
f)Explain the various caveats lodged against the Morphett Vale property. Whilst the controller may be paid out, the respondent doesn’t descend to any particularity of any other debts that may be protected by the multiple caveats lodged against the property;
g)Explain whether the offer for the Hindmarsh property has been accepted, nor disclose the extent of the indebtedness secured against this property;
h)Explain how money will be paid by Rateki Pty Ltd to him when a controller has been appointed and court proceedings are on foot seeking to wind up the company;
i)Explain why the financial statements produced by him disclose no indebtedness to the various caveators referred to in the title searches;
j)Explain whether any tax will be payable either by Rateki Pty Ltd or himself as a result of the various transactions to which he refers, the quantum of such tax.
As I have said, the onus is on the debtor to put on sufficient evidence to persuade the court he is able to pay his debts. One of those debts is of the applicant creditor for in excess of $500,000. The affidavit evidence relied upon does not explain how that debt is to be repaid via money deferred by him from any of the corporate entities with which he is concerned. The affidavit evidence as it stands demonstrates that there must be real concerns about the ability of the respondent to pay his debts if he is reliant upon the receipt of monies from Rateki Pty Ltd.
The respondent did not seek an adjournment to put on further affidavit evidence as to solvency. An adjournment was sought to respond to the applicant creditor’s late material. If that affidavit material is not received, in my view the respondent’s evidence as it presently stands is not sufficient to make out a case of solvency.
The affidavit of Mr Charitopoulos reveals:
a)He is a director of Jacem Pty Ltd;
b)Upon refinancing a property that it owns, Jacem will lend to Rateki and the respondent $600,000;
c)The loan will not be repayable to Jacem until after the applicant creditor has been paid the amount in the creditor’s petition.
There is a fundamental problem with Mr Chaitopoulos’ evidence. A search tendered to the court shows that Jacem Pty Ltd has been deregistered. Pursuant to s.601AD(1) Corporations Act upon deregistration the company ceases to exist. Pursuant to s.601AD(2) any property of the company has vested in ASIC. There is no basis on which Jacem Pty Ltd can lend the money to Rateki Pty Ltd or the respondent.
Therefore, I conclude that there is no utility in granting the respondent an adjournment to put on evidence in reply to that sought to be tendered by the applicant creditor today.
That leaves the legal argument relied upon by the respondent.
Counsel for the respondent referred to Rigg v Baker [2006] FCAFC 179 at [67] where French J said:
“When the creditor’s petition is based upon a judgment debt, the existence of a pending appeal against that judgment may also be a ground for adjourning the petition. In Ahern v Deputy Commissioner of Taxation (1987) 76 ALR 137 the Full Court said that:
“It is also well established that in general a court exercising jurisdiction in bankruptcy should not proceed to sequestrate the estate of a debtor where an appeal is pending against the judgment relied on as the foundation of the bankruptcy proceedings provided that the appeal is based on genuine and arguable grounds.”
Reliance was also placed on Westpac Banking Corporation v Carver [2003] FCA 221 at [3] – [4] and [18].
Even adopting the test most generous to the respondent, I do not think an adjournment is warranted in this case. As counsel for the applicant creditor submitted, apart from one argument, even if the respondent obtains special leave and is entirely successful that does not result in a conclusion that no money is owed by the respondent to the applicant. The judgment would be set aside, but an act of bankruptcy has occurred, and the petitioning creditor is undoubtedly a creditor, albeit for an unquantified amount, depending upon any subsequent decision as to the interest she is entitled to claim. She would still be a creditor for the principal sum guaranteed by the respondent.
That argument seems to me to be unassailable. Therefore, accepting that the application for special leave is genuine and arguable, and accepting that the judgment in the creditor’s favour may be set aside, there is no point adjourning the petition, because whatever results the applicant will still be a creditor entitled to petition.
The one argument that may defeat that reasoning is the respondent’s argument that there is no liability under the guarantee until a proper demand is served, and the demand relied on by the respondent is defective. There are two difficulties with that argument. First, it has not been relied upon at first instance or before the Queensland Court of Appeal. The notice of demand is not in evidence. Therefore, to be entitled to agitate the argument, the respondent will have to obtain leave from the High Court to adduce fresh evidence. That is most difficult to achieve, and in the circumstances of this case most unlikely to be successful. Secondly, even if the demand issued is found to be defective, the applicant is still a contingent creditor, and entitled to present a petition.
In those circumstances, I conclude that the application for an adjournment of the creditor’s petition should be refused. It must follow, having regard to my conclusions as to the respondent’s evidence as to solvency, and that no other sufficient cause is demonstrated that the petition should be adjourned because of the pending application for special leave, that a sequestration order should be made against the estate of the respondent.
The respondent sought a stay of that sequestration order, pursuant to s.52(3) of the Act. The principal basis on which the application was made was to enable the respondent to obtain the monies from Mr Charitopoulos and thereby pay the petitioning creditor the amount claimed. As I have explained above there cannot be a valid payment by Jacem Pty Ltd to either Rateki Pty Ltd or the respondent. This argument must therefore fail.
I do not consider that a stay should be granted simply to allow the respondent to consider whether to appeal against my decisions. As counsel for the applicant submitted, there is a right of appeal against any sequestration order, and something more must be shown as warranting a stay.
The petitioning creditor was also concerned that if a stay were granted it would give the respondent a 21 day period in which to organise his affairs so as to frustrate any trustee subsequently appointed. Given the complex business affairs of the respondent, and the involvement of numerous corporate entities, that concern cannot be dismissed as entirely speculative.
The two bases advanced as justifying a stay are not in my view sufficient. The application for a stay is refused.
I certify that the preceding thirty seven (37) paragraphs are a true copy of the reasons for judgment of Wilson FM
Associate: Lynnette Chin
Date: 29 January 2008
CORRECTIONS:
Front page to include both file numbers and names of parties and to include representation for both files.
Orders page to include orders for both files.
Page 1 of Reasons for Judgment to include both file numbers and names
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