DH Corrosion Investments Pty Ltd v Bakaimis
[2000] FMCA 4
•16 October 2000
FEDERAL MAGISTRATES COURT OF AUSTRALIA
D H Corrosion Investments Pty Ltd v Bakaimis [2000] FMC MZ047
BANKRUPTCY – Creditors Petition – Judgment founding petition – no appeal – onus of proof of debt – solvency – satisfaction of debt - cross claim or set-off – whether sufficient cause to dismiss petition – Bankruptcy Act 1966 s 40(1)(g) s 52 (1) and (2)(b)
ApplicantD H Corrosion Investments Pty Ltd
Respondent: John Bakaimis
File No:MZ047/00
Delivered on: 23rd October 2000
Delivered at: Melbourne
Hearing Date: 16th October 2000
Judgment of: McInnis FM
REPRESENTATION:
Counsel for the Applicant: Mr J Nolan
Solicitors for the Applicant: Mason Sier Turnbull
Counsel for the Respondent: Mr K Baker
Solicitors for the Respondent: Macpherson and Kelley
ORDERS:
The estate of John Bakaimis be sequestrated.
The petitioning creditor’s costs including any reserved costs be taxed and paid in accordance with the Bankruptcy Act 1966 (Cth).
IN THE FEDERAL MAGISTRATES COURT OF AUSTRALIA
MELBOURNE REGISTRY
No MZ47 of 2000
BETWEEN:
D H CORROSION INVESTMENTS PTY LTD
Applicant
And
JOHN BAKAIMIS
Respondent
REASONS FOR JUDGMENT
Introduction
D H Corrosion Investments Pty Ltd (the Applicant) applies to the Court for a sequestration order pursuant to s 43 of the Bankruptcy Act 1966 (the Bankruptcy Act) against the estate of John Bakaimis (the Respondent).
A bankruptcy notice was served on the Respondent on 4 May 2000 based upon a judgment of the Dandenong Magistrates Court on 30 July 1999 whereby the Respondent was ordered to pay to the Applicant the sum of $42,600.03. The creditor’s petition claims that the Respondent owes the Applicant the sum of $43,632.58 comprising $42,600.03 outstanding pursuant to the judgment of the Dandenong Magistrates Court (the Dandenong judgment) together with $1,032.55 penalty interest.
In this application no issue has been taken by the Respondent in relation to the form of the bankruptcy notice or indeed any other procedural matters. The issues between the parties are confined to the grounds set out in the Respondent’s Notice of Intention to Oppose the Petition (the Respondent’s Notice) namely:-
“1. The Respondent has a Cross-Claim/Counterclaim which greatly exceeds the amount of the alleged debt;
2. The Respondent is solvent;
3.The debt has been satisfied in full.”
The Applicant relies upon the following Affidavits:-
Affidavit of Heinz Otto Herman Dehn sworn 26 July 2000.
Affidavit of Herbert Roger Fischbacher sworn 26 July 2000.
Affidavit of Heinz Otto Herman Dehn sworn 11 September 2000.
Affidavit of continuing debt sworn by Heinz Otto Herman Dehn on 16 October 2000.
Affidavit of search sworn by Louise Woolf sworn 16 October 2000.The Respondent relies upon the following Affidavits:-
Affidavit of John Bakaimis sworn 24 August 2000.
Affidavit of John Bakaimis sworn 5 September 2000.
Affidavit of Kevin Bourchier sworn 5 September 2000.
Affidavit of Nina Mavroudis sworn 5 September 2000.
Affidavit of Stella Konstantopoulos sworn 10 October 2000.
Affidavit of John Bakaimis sworn 10 October 2000.The Respondent had made an application in the Federal Court of Australia proceeding number V7271/00 (the Federal Court proceeding) to set aside the bankruptcy notice. That application was dismissed by Registrar Efthim on 7 July 2000. It was agreed that this Court should receive a photocopy of an Affidavit of Herbert Roger Fischbacher sworn 9 June 2000 in the Federal Court proceeding.
A preliminary issue was raised at the hearing which required a ruling as to whether the Court should go behind the Dandenong judgment. I ruled that the Court should not go behind the Dandenong judgment for reasons which were delivered ex tempore. I note in passing it is agreed by the parties that at the Dandenong Magistrates Court hearing both parties were represented during the two day hearing and an interpreter was present to assist the Respondent.
Despite the ruling in relation to the issue of going behind the Dandenong judgment submissions were made by Mr Baker on behalf of the Respondent that I should have regard to the issue of whether in fact a debt has been properly established and/or if so whether that debt has been satisfied in full. It was in my view appropriate for the Court in those circumstances to at least have material before it which identified the complaint, particulars of claim and defence which were before the Dandenong Magistrates Court. These documents are exhibited to the Affidavit of Mr Fischbacher sworn 9 June 2000.
The parties agreed that at the Magistrates Court hearing, at least on 30 July 1999, the Respondent had instructed his then solicitors to prepare a Notice of Counterclaim in the form of the document dated 20 July 1999 which forms part of Exhibit HRF4 to the Affidavit sworn by Herbert Roger Fischbacher on 9 June 2000 in the Federal Court of Australia proceedings to which I have already referred.
Until January 1999 the Applicant was the registered proprietor of land situated at 86A Ordish Road Dandenong in the State of Victoria (the premises). An agreement was reached between the Applicant and the Respondent whereby the Respondent would lease the premises at a rental of $3000 per month for the purpose of conducting a timber treating business. Although it appears a written lease was prepared by the Applicant’s solicitors it was not executed and accordingly the Respondent occupied the premises on the basis of a periodic tenancy from 1993 until 11 December 1998.
The Applicant took possession of the premises due to alleged rental arrears on 22 September 1998 and again on 11 December 1998.
Following re-entry on 11 December 1998 the Dandenong Magistrates Court proceedings were commenced claiming in part the alleged rental arrears.
Applicant’s Evidence
In the Affidavit of Heinz Otto Herman Dehn sworn 11 September 2000 (the Dehn Affidavit) reference is made to the background history leading up to the agreement between the parties for the lease of the premises. According to Mr Dehn’s Affidavit the Respondent operated the timber treatment business under the name Sawmill Treated Timber Pty. Ltd. (Sawmill). Mr Dehn notes that the Respondent was made bankrupt on or about 14 October 1994 and states:-
“At about this time I reached an agreement with Mr Bakaimis to the effect that in consideration of the Applicant foregoing rental arrears that were owed to the Applicant certain plant and equipment owned by Sawmill Treated Timber Pty. Ltd. and used by Mr Bakaimis in the conduct of the timber treatment business would be transferred to the Applicant. This plant and equipment was worth approximately $20,000”.
In the Dehn Affidavit it is claimed that Mr Bakaimis continued to work at the premises and was paid a salary until March 1996 when a further agreement was entered into between the parties whereby Mr Bakaimis would pay rent and outgoings for the premises and use of the plant and equipment owned by the Applicant and that Mr Bakaimis could then operate the timber treatment business and cease to be an employee.
The Dehn Affidavit states:-
“On or about 22nd September 2000 I locked the gates to the premises because of the substantial rental and outgoings arrears that had accrued. I agreed to allow Mr Bakaimis to re-enter the premises on the basis that he would pay the sum of $1,000 each week on account of the said rental and outgoings arrears and that once his residence had been sold he would pay the balance owing”.
Annexed to the Dehn Affidavit marked with the letters “HOHD3” is a handwritten copy of a letter addressed to the Applicant from Mr Bakaimis. The letter dated 22 September 1998 states:-
“I, John Bakaimis put the offer to you that I will pay you $1,000 cash every Thursday until my house is sold then I will pay you the balance owing in default of payment you can lock the gate”.
In the Dehn Affidavit reference is made to several discussions with the Respondent in relation to the possibility of the Respondent purchasing plant and equipment of the freehold to the premises and ultimately no agreement was reached between the parties. According to Mr Dehn the property was sold pursuant to a Sale of Land Agreement to “Superior Treated Timber Pty. Ltd.” Exhibit “HOHD4” to the Dehn Affidavit only provides an extract of the Sale of Land Agreement and it is noted that the price was $390,000 with the day of sale being “the earlier of the date of the Contract or acceptance date of any prior contract note namely 29 of October 1998”. The settlement date is “the date upon which vacant possession of the property and chattels must be provided namely upon acceptance of the title and payment of the price"
It is not evident from the documentary material that plant and equipment was sold at the same time though Mr Dehn does refer to the difference in valuation of the plant and equipment as acquired in 1994 compared with its value in 1998. Mr Dehn denies that the Respondent asserted ownership of the plant and equipment or demanded its return.
Reference is made in the Dehn Affidavit to a foreshadowed Counterclaim to be brought by the Respondent against the Applicant for the plant and equipment. That was apparent at a meeting between the parties held on 25 March 1999.
Respondent’s Evidence
In his Affidavit sworn 24 August 2000 (the first Affidavit) the Respondent states “On 27 March 1996 I became the registered proprietor of the business name `Ace Treated Timber Dandenong’”. He then stated in the same Affidavit, “Since January 1998 I have owned and operated a timber treating business under the name “Ace Treated Timber Dandenong (the business) from premises at 86A Ordish Road Dandenong in the State of Victoria (the premises).”
The Respondent deposes that he leased the premises for a rental of $3000 per month.
The Respondent deposes that on or about 11 December 1998 the Applicant again re-entered and took possession of the premises and the re-entry was due to rental arrears. The Respondent claims that he had been told by Mr Dehn that the plant and equipment at the premises had been sold to a company trading as “Carraway Timber”. This part of the Affidavit of the Respondent was not the subject of any response by the Applicant.
In the first Affidavit the Respondent after referring to the Dandenong judgment states, “In November 1999 I consulted Mr Graham Scott of McPherson & Kelley for advice in relation to my rights against the Applicant”.
He further states in the first Affidavit that Mr Scott advised that he had an action for conversion of the business or alternatively for conversion of plant and equipment and that such a claim could have been brought by way of counterclaim in the earlier Magistrates Court proceedings, The Respondent states in the first Affidavit:-
“I do not understand why my earlier solicitors did not advise me of the existence of a counterclaim given that I provided them with all necessary instructions”.
The Respondent claimed that as a result of being evicted from the premises he suffered extreme financial hardship and his health deteriorated and as a result he has very little income. He states:-
“By reason of the conduct of the Applicant in selling off my plant and equipment for a sum I believe to be $470,000 any indebtedness on my part has been satisfied by that sale the Applicant is indebted to me for the difference between the amount of which the plant and equipment and business were sold and the amount of the Court Order namely $426,367.42.”
In the Respondent’s Affidavit sworn 10 October 2000 (the second Affidavit) further detail is provided in relation to the plant and equipment and payments claimed to be made by the Respondent to the Applicant which are said to satisfy the debt in this matter for rental arrears.
Exhibit JB1 to the second Affidavit is a company extract prepared by the Australian Security and Investments Commission in relation to the Sawmill and it shows that the company started on 28 September 1993 and was deregistered on 1 August 1997. The extract shows that the Respondent was appointed a director under the name “Ioannis Bakaimis” on 28 September 1993 and ceased to be a director on 2 September 1994. The Respondent is not listed as a shareholder of the company.
In the second Affidavit the Respondent states that he became bankrupt on 14 October 1994 and thereafter Mr Dehn’s company “Ace Treated Timber Pty Ltd” (Ace) entered into a partnership with the Respondent.. It is asserted that the timber treatment business was to be operated by both Ace and the Respondent with the parties sharing profits on a 50/50 basis. However in relation to plant and equipment the Respondent states :“Sawmill Treated Timber Pty Ltd continued to be the owner of the plant and equipment”.
The Respondent claims that he worked pursuant to the arrangement with Ace “for approximately 63 weeks and received only three cheques, two in the sum of $400.00 each and one in the sum of $2,000.”
From the material it would appear that this arrangement involving payment over 63 weeks would have continued until approximately the end of 1995. The Respondent was discharged on 15 October 1997. There is no evidence that any claim was made by the Respondent against the Applicant for money due pursuant to the arrangement.
The Respondent denies entering into any agreement with Mr Dehn to transfer plant and equipment owned by Sawmill to the Applicant.
In the Respondent’s second Affidavit he refers to the arrangement with Ace coming to an end and that the Respondent’s niece, Mrs Stella Konstantopoulos and her husband Mr Arthur Konstantopoulos became the owners “of the business operating from the premises at 86A Ordish Road Dandenong trading under the registered business name “Ace Treated Timber Dandenong”.
The Respondent claims that he “continued to be responsible for the day to day conduct of the business affairs”. He further states, “The plant and equipment continued to be owned by Sawmill Treated Timber Pty Ltd”.
The Respondent denies any agreement with Mr Dehn of the Applicant in relation to the payment of outgoings and otherwise takes issue with the alleged acquisition of plant and equipment by the Applicant and/or the value of the plant and equipment so acquired.
The Respondent denies the assertion by the Applicant that during the period March 1996 to December 1998 “substantial rental and outgoing arrears accrued”
It is claimed by the Respondent that on 22 September 1998 the Applicant had “wrongly and without just cause locked me out of the premises …”
In the second Affidavit the Respondent states:-
“The letter exhibited to the Dehn Affidavit (Exhibit `HOHD3’) was written for me by Kevin Bourchier as I cannot read or write English. The purpose of the letter, which was written after I had spoken to Mr Dehn about being locked out, was to assure him that the alleged overdue rental payments in the sum of $2,500 would be paid as soon as possible”.
No reference is made in the Affidavit of the Respondent to the further payments to be made upon the sale of the Respondent’s house. He provides further detail as to payments paid and suggests that he was “substantially ahead in rent payments”.
The Respondent notes the sale of the premises on 29 October 1998 “some 43 days before I was locked out of the premises …”. He notes further that the Applicant fails to exhibit the complete Contract of Sale of Land and has not exhibited the contract for the sale of plant and equipment.
The Respondent itemises the plant and equipment in the Respondent’s second Affidavit and attaches a value of “approximately $250,000 to that plant and equipment”. He refers to it as “my plant and equipment”.
The Respondent asserts that the Applicant had no legal entitlement to the plant and equipment and the business and that there were no arrears of rent owing at the time the sale of business agreement was entered into by the Applicant.
In the second Affidavit he states that he was discharged from bankruptcy on 1 January 1998 and then became the proprietor of the registered business name “Ace Treated Timber Dandenong”. He refers to Exhibit JB3 of his Affidavit which he states “shows that I first became the registered proprietor of the business name on 1 January 1998 and not 27 March 1996 as shown in the certificate relating to the registration of business name exhibited JB1 to the Respondent’s first Affidavit. “ He states the date of registration shown on the certificate issued 14 January 1998 is incorrect. He asserts that the “plant and equipment used in the business operations was transferred to me by Sawmill Treated Timber Pty Ltd”.
Hence it would appear that the Respondent claims that the plant and equipment used in the business was transferred to him by Sawmill Treated Timber Pty Ltd after the Respondent was discharged from bankruptcy on 1 January 1998 and without corroboration suggests that he did not become the registered proprietor of the business name Ace Treated Timber Dandenong until 1 January 1998.
Agreed Evidence
It is agreed that Sawmill was registered on 28 September 1993 and that on that date the Respondent became a director. On 2 September 1994 the Respondent ceased to be a director of Sawmill. On 14 October 1994 the Respondent was declared bankrupt. On 1st August 1997 Sawmill was deregistered. On 1 January 1998 the Respondent was discharged from bankruptcy.
It is common ground that in the event that the Respondent acquired the plant and equipment of the value claimed by the Respondent prior to discharge from bankruptcy then that property would be regarded as “after acquired property” pursuant to s 58(1) (b) of the Bankruptcy Act and the property would then vest in the Official Trustee.
It is also common ground that plant and equipment acquired by Sawmill upon deregistration on 1 August 1997 would be subject to s 576 of the Corporations Law. It is noted s 576 was repealed by Act No 61 of 1988 Schedule 2 Item 393 effective 1 July 1998. Thereafter s 601 AD (2) applies. Hence, upon deregistration all of Sawmill’s property vests in the Australian Securities and Investments Commission.
In addition to the facts set out in the Respondent’s Affidavits it was also conceded by Counsel for the Respondent that there is no further evidence concerning the date of acquisition, the price paid, the source or delivery of any item referred to as plant and equipment. There are no supporting documents available in relation to the acquisition of any items, plant and equipment.
Applicant’s Submissions
Mr. Nolan’s submissions may briefly be summarised as follows:-
· It is appropriate in this case to make a sequestration order against the estate of John Bakaimis and that the Applicant’s costs of and incidental to the petition including reserve costs should be taxed and paid according to statute.
·Mr Nolan submitted that on any interpretation of the facts there is no legitimacy however put in relation to the counterclaim and/or set off. It is relevant to take into account the fact that there are no proceedings which are currently in place by the Respondent against the Applicant. A proposed counterclaim had been referred to in the Respondent’s Notice of Defence in the Dandenong Magistrates Court proceedings (see Exhibit HRF2 to the Affidavit of Herbert Roger Fischbacher sworn 9 June 2000). The Defence upon which the counterclaim was foreshadowed was filed on 4 February 1999. The counterclaim dated 20 July 1999 was agreed between the parties to have been prepared though not filed or relied upon at the Dandenong Magistrates Court hearing on 30 July 1999. At least since February 1999 the Respondent had foreshadowed a counterclaim and apart from drawing a document no action has been instituted by the Respondent against the Applicant.
· Reference should be made to the contents of the counterclaim which is drafted in terms of a breach of s 52 of the Trade Practices Act and s 11 of the Fair Trading Act 1985 and/or claims breach of agreement and/or damages for conversion. The amount of the counterclaim is $200,000 which obviously exceeds the jurisdiction of the Magistrates Court.
· There are no proceedings on foot at all and no appeal from the Dandenong judgment despite the fact that it is now more than twelve months since the judgment was delivered.
· If the Respondent acquired a right to plant and equipment after the re-entry in September 1998 then it would have been property acquired after Sawmill had been deregistered on 1 August 1997. The assets of that company vest in the Australian Securities and Investments Commission and hence the company would not have the capacity to transfer ownership of the plant and equipment to the Respondent.
· The Respondent has the onus to prove solvency, to prove the counterclaim and to prove that there is no debt or that any debt owing has been satisfied.
· If the Court is unable to make a finding of fact to determine an arguable case on the material provided then it is the Respondent which has failed to discharge the onus and adverse orders should be made accordingly.
· Whilst applications can be made to reinstate a company and therefore reinvest the company with property there is no evidence that such an application has been made in this case and it is noted that the Respondent was at no stage a shareholder in Sawmill.
· No weight can be given to the assertion that the Respondent owns the plant and equipment.
· It is no answer in bankruptcy proceedings to suggest that a Respondent could not afford to pay to commence legal proceedings in circumstances where it is asserted a valid claim existed.
Respondent’s Submissions
Mr Baker for the Respondent referred to the Affidavit material in some detail and then argued that the totality of the evidence showed that there were no outstanding arrears and despite the Dandenong judgment there was no debt.
In the alternative he submitted that there was indeed a valid counterclaim on the evidence in relation to the plant and equipment and its disposal. He was critical of the Applicant’s lack of detail in relation to the acquisition and disposal of the plant and equipment.
Mr Baker otherwise in some detail drew my attention to the deficiencies of the Applicant’s affidavit material and in particular the inconsistency in terms of ownership of plant and equipment which had been referred to by the Applicant compared with the Contract of Sale. Essentially he referred to the matters which had been raised in some detail in the Affidavit material relied upon by the Respondent.
The Respondent though having a good claim was unable to pursue it earlier due to financial circumstances.
The absence of other creditors should enable the Court to draw an inference that the Respondent is solvent apart from the debt claimed by the Applicant.
During the course of submissions it was conceded by both Counsel that any action which would to be taken by the Respondent against the Applicant would need to be in the Supreme Court of Victoria in the event that the claim was for plant and equipment valued at $250,000 unless by consent the matter could be heard in the County Court. In any event it was agreed the matter could not be commenced or continued in the Magistrates Court and there would be a need to uplift the Magistrates Court action in order to accommodate the counterclaim by the Respondent.
The Law
The law in relation to the issue of a cross claim has been sesinktly referred to in the Decision of Sundberg J in St George Bank Ltd vHelfenbaum (1999) FCA 1337 (24 September 1999) where His Honour states:-
“The existence of a cross-claim may be a “sufficient cause” within s 52(2)(b) for declining to make a sequestration order. Ling v Enrobook Pty Ltd (1997) 74 FCR 19 at 25. It is for the debtor to establish the existence of “sufficient cause”. Cain v Whyte (1933) 38 CLR 639 at 645-646; Ling at 24. He must establish that he has a real claim against the creditor that is likely to succeed. If the Court is satisfied that there is such a claim, and that its quantum is likely to equal or exceed the creditor’s claim, it will not make a sequestration order. If the claim is likely to be less than the creditor’s claim, the Court will require the debtor, if he is to avoid a sequestration order, to pay the difference between the judgment debt and the amount he is likely to recover on his claim. See Re Player (1962) 19 ABC 277 at 282: Re Schmidt: Ex parte Anglewood Pty Ltd (1968) 13 FLR 111 at 115-116; ling at 25-26; Commonwealth Bank v McDonald [1999] FCA 984. A debtor does not establish a real claim that is likely to succeed merely by producing a statement of claim in an action against the creditor: Re Rivett; Ex parte Edward Fav Ltd (1932) 5 ABC 182; Player at 282, or by pointing to the existence of current litigation against the creditor: cf Re Douglas Griggs Engineering Ltd [1963] 1 Ch 19 at 23. While the Court does not try the cross-claim in advance, the debtor must adduce sufficient evidence to show that it is a real claim which is likely to succeed: cf Vogwell v Vogwell (1939) 11 ABC 83 at 88; Player at 282”.
Reasoning
It is appropriate to deal with the grounds raised in the Notice of Opposition.
In my view the only ground which has some merit is the issue of whether the Respondent has a cross claim which greatly exceeds the amount of the alleged debt.
On the material before me there is insufficient evidence to suggest that the Respondent is solvent or that the debt has been satisfied in full.
Consistent with my ruling that I would not look behind the Dandenong judgment it is my view that there is ample evidence to support the conclusion that the judgment was correct or at the very least insufficient evidence provided in the Affidavit material of the Respondent to persuade this Court that it should draw any other conclusion.
The judgment debt has been in existence for more than twelve months and no action whatsoever has been taken by the Respondent by way of appeal against the judgment debt or indeed commencement of any proceedings of any nature by the Respondent against the Applicant to challenge the Dandenong judgment or assert entitlement to other claims by the Respondent against the Applicant.
It is insufficient in my view for a Respondent to simply assert that the debt has been satisfied in full and/or that there is no debt in circumstances where I am satisfied that those matters were properly agitated before Magistrates Court over a two day hearing with both parties represented and where the Respondent had the assistance of an interpreter. The Dandenong Court documents which are now before this Court clearly demonstrate that the Defendant raised in his Defence a denial of the claim which included a claim for arrears and it is not seriously argued before this Court that that matter was not properly agitated before the Magistrate at Dandenong.
It is clear that the submissions made in support of the ground that the debt has been satisfied in full are based essentially on the further argument that the payment had been made prior to the commencement of the Dandenong Court proceedings and in that sense simply part of an argument that the judgment should not have been entered.
It is difficult to reconcile the assertions by the Respondent that the judgment has been paid in full with other evidence before this Court and in particular reference is made to the letter written on behalf of the Respondent which is Exhibit HOHD3 to the Affidavit of Mr Dehn sworn 11 September 2000. That letter clearly makes reference to further payments being made by the Respondent to the Applicant after the sale of his house and in the meantime payments would be made at $1000 every Thursday. It is inconsistent for the Respondent to now seek to argue that even as far back as September he was not indebted to the Applicant and in the circumstances I am satisfied that he was so indebted and that it is inappropriate for this Court to find otherwise particularly in circumstances where after a two day hearing in the Magistrates Court at Dandenong judgment was entered against the Respondent.
Counsel for the Respondent has urged me to consider adjourning the proceedings in order to enable the Respondent to pursue his claim against the Applicant in relation to the plant and equipment and other matters which may arise in his dealings with the Applicant. The Court is mindful of its obligation to carefully exercise its discretion in this regard and notes the relevant authorities which have been referred to by Sundberg J in St George Bank v Helfenbaum [1999] FCA 1337.
On the facts as presented however the Respondent would not be able to establish ownership of the plant and equipment. The first and most obvious difficulty for the Respondent is the date of acquisition. Secondly the amount paid for the items and thirdly proof of ownership.
I accept the submissions made by Mr Nolan on behalf of the Applicant that in the present case there is simply no documentary evidence which would establish to the appropriate standard of proof ownership and/or acquisition of the plant and equipment.
When one examines the chronology the difficulties for the Respondent are further highlighted by the fact that there is a real conflict on the Respondent’s own Affidavit material as to whether the plant and equipment was owned by him or Sawmill. Whilst he asserts that Sawmill transferred the plant and equipment to him at a particular point in time without precisely identifying the date, it would appear on the balance of probabilities that any such transfer would be defeated as a result of Sawmill being deregistered on 1 August 1997. Alternatively, it is inconceivable that the Applicant having been declared a bankrupt on 14 October 1994 and then discharged from bankruptcy on 1 January 1998 would have been able to acquire plant and equipment of the value now claimed. Had the plant and equipment been obtained prior to discharge then as conceded by both Counsel that property would be “after acquired” property and subject to the operation of s 58(1)(b) of the Bankruptcy Act.
Hence it can be seen from the brief analysis of the chronology that even if there was sufficient evidence of ownership and/or acquisition then difficulties will arise as to the ownership of the plant and equipment which would make it extremely unlikely that any claim by the Respondent against the Applicant would succeed.
In my view there is insufficient evidence to establish a legitimate claim.
In the present case there is no evidence to suggest that the Respondent has pursued with any diligence any proceedings to set aside the Dandenong judgment and/or pursue any claim against the Applicant despite being aware of the general nature of the claim since at least 4 February 1999 which is the date of his defence in the Dandenong Magistrates Court proceedings where he asserted that he had a claim against the Applicant.
During submissions I was referred by Mr Nolan to the case of Adamopoulos and Anor v Olympic Airways SA and Anor (1990) 95 ALR 525. I consider that the present case is quite different to the facts in that case where the Full Court examined the material and concluded there was a genuine dispute and indeed the judgment referred to in the bankruptcy notice had been challenged by an appeal which had not been heard. Although there had been some delay in that case the fact remained that there was an appeal pending against the judgment found in the bankruptcy notice.
In Adamopoulos the Court followed the principles set out in Ahern vDCT (Qld) (1987) 76 ALR 137 where the Court states:-
“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: Re Rhodes: Ex parte Heyworth (1884) 14 QBD 49; Bayne v Ballieu (1907) 5 CLR 64 and Re Verma; Ex parte DCT (1985) 4 FCR 181.
These cases rest on the broad principle that before a person can be made bankrupt the court must be satisfied that the debt on which the petitioning creditor relies is due by the debtor and that if any genuine dispute exists as to the liability of the debtor to the petitioning creditor it ought to be investigated before he is made bankrupt. Bankruptcy is not mere inter parties litigation. It involves change of status and has quasi-penal consequences. It will of course be observed that the principle is stated in terms which acknowledge the existence of exceptions; it operates “in general”. For situations which were held to raise considerations making them fall outside the general rule, see Re Verma; Re Lewin and Glasson; Ex parte Milner (1986) 67 ALR 591.”.
Applying those principles it is clear that the Court must be satisfied the debt on which the creditor relies is due to the debtor and as indicated earlier if there is any genuine dispute as to the liability then the matter should be investigated before the debtor is made bankrupt.
Whilst the Court is mindful of the fact that bankruptcy is a significant change of status and that is has quasi appeal consequences, it is appropriate to ensure that a Respondent in seeking to establish its grounds of opposition does so having discharged its onus by providing appropriate proof of a genuine claim.
Having reviewed the Affidavit material I accept the submissions made by Mr Nolan on behalf of the Applicant and for the reasons advanced I am satisfied that there is no genuine dispute and/or challenge to the Dandenong judgment and/or that the Respondent has any claim against the Applicant yet to be instituted which could be regarded as a real claim which is likely to succeed.
Accordingly the Court orders that:-
3.The estate of John Bakaimis be sequestrated.
4.The petitioning creditor’s costs including any reserved costs be taxed and paid in accordance with the Bankruptcy Act 1966 (Cth).
The Court notes that the date of the act of bankruptcy is 7 July 2000.
I CERTIFY THAT THIS AND THE PRECEDING 77 PARAGRAPHS CONSTITUTE A TRUE COPY OF THE REASONS FOR JUDGMENT OF McINNIS FM
DATED 23 OCTOBER 2000
ANTONIJA CURIC, ASSOCIATE
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