Exelerate Funding v Puels (No.2)
[2004] FMCA 404
•25 June 2004
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| EXELERATE FUNDING v PUELS (No.2) | [2004] FMCA 404 |
| BANKRUPTCY – Act of bankruptcy – whether debtor absented himself with intent to delay creditors – where debtor walked out of a meeting with creditor and became unavailable until petition issued – whether it is necessary for debtor’s whereabouts to be impossible to find – where debtor has misled creditor as to his financial position – whether provision of P O Box details and mobile phone number is sufficient to negate a claim – debtor “absented” himself. |
Bankruptcy Act 1966 ss.40, 52
Russell v Bell (1842) Meeson and Welsby’s Reports
Ex Parte Meyer, In Re Stephany (1871-72) Ch Appeal Cases 188
In re Alice Alderson Ex Parte Jackson (1894) 1QB 183
In Re Walshe (1922) VLR 153
Edge Technology Pty Ltd v Wang [2000] FCA 1586
| Applicant: | EXELERATE FUNDING PTY LTD (ABN 58 089 290 835) |
| Respondent: | RUPERT EDGERTON PUELS |
| File No: | SZ 327 of 2004 |
| Delivered on: | 25 June 2004 |
| Delivered at: | Sydney |
| Hearing date: | 21 June 2004 |
| Judgment of: | Raphael FM |
REPRESENTATION
| Counsel for the Applicant: | Mr S Robb QC |
| Solicitors for the Applicant: | Deacons |
| Counsel for the Respondent: | Mr A Martin SC |
| Solicitors for the Respondent: | Daniels Bengtsson Pty Limited |
ORDERS
I make a sequestration order against the estate of the debtor Rupert Edgerton Puels.
I appoint David John Kerr as Trustee of the Bankrupt’s estate.
I order that the costs of the application be paid out of the estate of the debtor and be taxed, if not agreed, pursuant to the Federal Court Act and Rules.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SZ 327 of 2004
| EXELERATE FUNDING PTY LIMITED (ABN 58 089 290 835) |
Applicant
And
| RUPERT EDGERTON PUELS |
Respondent
REASONS FOR JUDGMENT
Introduction
These are proceedings for a sequestration order based upon a creditor’s petition filed on 10 February 2004. In the petition as filed the creditor claimed that the following acts of bankruptcy were committed by the debtor.
The following act of bankruptcy was committed by the respondent debtor within 6 months before the presentation of this petition:
(a)in Australia made a conveyance that would, if he became a bankrupt, be void against his trustee.
Particulars
Transfer on 7 January 2004 of a one half interest in the land described in NSW certificate of title folio identifier 3/SP8509.
(b)with intend to defeat or delay his creditors:
(i)he departed from his dwelling house;
(ii)he departed from his usual place of business;
(iii)he otherwise absents himself (within the meaning of section 40(1)(c)(iii) of the Bankruptcy Act 1966;
(iv)he began to keep house on or about 5 February 2004;
(c)he gave notice to the petitioning creditor on 5 February 2004 that he was has suspended or is about to suspend payment of his debts.
At the hearing of the petition Mr Robb QC indicated that the creditor was proceeding only on the ground set out in 4(b)(iii) of the petition, namely that with intent to defeat or delay his creditors the debtor absented himself (within the meaning of section 40(1)(c)(iii) Bankruptcy Act 1966 (the “Act”).
Both parties were represented and a number of affidavits were read. The debtor and a director of the creditor company were both cross examined.
Evidence
The debtor is a director of a company known as Select Commodities Australia Pty Limited (“SCA”). It was a business which traded in cottonseed. The creditor provided SCA with a trade finance facility by which it paid 100% of the value of approved invoices of SCA suppliers within five business days of delivery to enable SCA to take advantage of early payment discounts and the benefits of reputation which go with early payment. SCA assumed obligations to repay Exelerate the amount dispersed on the invoice plus a fee. The debtor personally guaranteed SCA’s obligations to Exelerate (Affidavit Philip Carden
10 February 2004 [4]).
The guarantee was given on 20 March 2003 at a time when extended facilities were being provided by the creditor to SCA. On 20 March 2003 the debtor signed a statutory declaration annexing a statement of his assets and liabilities which indicated that he had net assets of $979,050.00 made up most significantly by a property known as 3/22 Lamrock Avenue Bondi Beach.
As part of its normal business activity SCA would hedge its liability against variations in the Australian dollar in the purchase and sale of cottonseed. However, at some stage it began to trade in its own account in Australian dollar futures. In December 2003 JCA began to short the Australian dollar which was then standing at a price of approximately 72.4c. The price had gone up to 75c by 31 December 2003 and was 76c on 5 January 2004. This meant that any open positions were incurring significant losses. The creditor found out about what was going on, on or around 19 January 2004 when Mr Carden had a conversation with the debtor. The debtor indicated that the financial situation of SCA was dire. On 21 January 2004 the creditor appointed Mr A M Sims and Mr N G Singleton as receivers and managers of SCA. On that day there was a meeting at the offices of SCA. The true position of the company was revealed. There was a very substantial deficit. Mr Carden asked the debtor what the situation was with regard to his own personal assets because the creditor would be relying on his personal guarantee. At that time the debtor revealed that he had disposed of the property at Lamrock Avenue. He said that he had used the proceeds of sale to repay loans to his parents, the mortgage and a debt to the Department of Taxation. He claimed to have $100,000.00 in his bank account. He did not have $100,000.00 in his bank account. He may have had more than $100,000.00 in cash. The facts of the sale were that the property was transferred to his parents or to an entity controlled by them. There were set offs for the alleged debts including a debt of $100,000.00 allegedly owed by the debtor to a Ms Cardillo. The tax office was paid, although this debt was not a personal debt of the debtor’s but a debt of another company which he was a director of. The balance of the proceeds of sale (the sale price being $725,000.00) was paid to the debtor in cash by his mother. The debtor had indicated in evidence that most of this money has been spent on “living expenses”.
Between 21 and 23 January 2004 a series of e mails were sent by the debtor to Mr Carden which are found between pages 202 to 205 of Exhibit PC1 to Mr Carden’s affidavit. The first of these explains the current state of the company’s cash account, the second deals with what I assume to be a proposal by the debtor as director of SCA to appoint an administrator of the company, which does not appear to have been approved of by the applicant. Like the first e mail it gives a P O Box address for SCA but also a phone and fax number. It also gives a mobile telephone number for the debtor. The third e mail discusses the winding down of the outstanding futures contracts as does the fourth. The fifth refers to payment of some staff severance pay and requests advice from the applicant as to how to deal with this and the sixth, dated 23 January 2004, is in the following form:
“Phil,
You have said that you will work with the company and I to recover the debt due amicably. As I see I there is at least A$350,000 of receivables to due to Select. A receiver/manager has been appointed however we also require Sims to act as the ‘administrator” per our fax request yesterday. Can you also advise me full contact details for further correspondence with the receiver to include them in our dialogue.
Can you advise me the course of action you intend to take to recover this amount to secure your debt. My involvement is required I assume however again it is difficult for me to take action without the appropriate advice. I hope that this action you have taken so far is not to the detriment of securing your funds.
I am also prepared to work with you regarding the personal liabilities covered under the Directors Guarantees. I believe that this will enable everyone to obtain the best result from this difficult situation.
Finally please forward all future correspondence in hard copy via mail to P O Box 7502 Bondi Beach NSW 2026.
Yours truly,
Rupert Puels
Director”On 4 February 2004 the applicant served a demand on the debtor under the guarantee for payment of $1,480,801.93. On 5 February 2004 Mr Carden attended the premises of SCA at 15 Cross Street Double Bay. Present at the premises were representatives from the receivers and the debtor. Mr Carden deposes to having served the demand under the guarantee on the debtor. He then deposes to a lengthy conversation with the debtor which commenced with a discussion about how Mr Carden felt that he had been misled by the debtor and his activities in commodity trading. It continues relevantly:
“I said:
“You misled me. You obtained a financial advantage from me by deceiving me. You misled me and then you tried to get rich quick on the market. I am not happy about that but you can still do the right thing. You can work to repay us. So what are you going to do with your creditors if you are legitimate about this? What about the money you gave to your mother?”
Puels said:
“I owed her the money. I did not know about anything to do with other creditors and my obligations.”
I said:
“Well how much have you got now?”
Puels said:
“About 3,000.00.”
I said:
“What happened to the $100,000 you told me you had last week. Where is it?”
Puels said:
“I don’t know. I’ve got seven bank accounts. [Here under cross examination the debtor said that he had said he had “several bank accounts”]. I don’t know what is in them. How can I help you?”
I said:
“Well write me out a cheque. Get your mother to write out a cheque too. You have got a problem on your hands. I will never leave you alone until you repay Exelerate’s money.”
Puels said:
“I’m going overseas next week. I need a holiday.”
I said:
“Rupert, where do you live? I need to know where you live because I need to serve you with a notice of bankruptcy.”
Puels said:
“I don’t know where I live. I live with friends.”
I said:
“What is your address Rupert? Stop avoiding me and your financial responsibilities.”
Puels said:
“I don’t know where the friends live. I stay with friends. If you need me you can call my mobile.”
Under cross examination the debtor accepted that Mr Carden’s version of this conversation was essentially correct. He agreed that he had told Mr Carden that he only had $3,000.00 but in fact he still had a considerable amount of the $150,000.00 in cash that his mother had given him. He denied saying to Mr Carden that he did not know where the money was but agreed that he said that he did not know where he lived. He explained that he was staying with friends and that he wasn’t sure of the exact street address although he could find the property. I note here that the actual street address that he was staying at was in Lamrock Avenue Bondi, the street in which he had lived previously.
After the conversation deposed to above had taken place (but before Mr Carden felt that it had ended) the debtor took a call on his mobile telephone. He walked out of the room in which the conversation was being held and then out of the backdoor of the premises. Mr Carden deposes to the fact that he has not seen the debtor since but that he attempted to get hold of him on his mobile phone on a number of occasions thereafter without success. The debtor agrees that he left the office out of a back door and that he got in his car and drove away. He agreed that he had not been of any assistance after that to the receivers and had not provided a Return of Affairs to them. He claimed that he did not know Mr Carden wished to talk to him and that he didn’t do anything to avoid a situation which might result in him being requested to ask his parents and Ms Cardillo to repay the moneys given to them on the sale of the property. The debtor claimed that he left the meeting because he felt that Mr Carden was being abusive. Mr Carden said that he had rung the debtor on four or five occasions, sometimes he left messages, sometimes the phone just rung out. On 28 February 2004 the debtor informed Mr Carden in a telephone conversation that he was living at 5/10 Lamrock Avenue Bondi. This statement was contained in his affidavit and was not challenged under cross examination. Mr Carden did not speak to Mr Puels again until 9 March.
Discussion
The Notice of Demand under which the debt to the creditor under the guarantee crystallised came to the attention of the debtor on 5 February. The bankruptcy petition was issued on 10 February. The applicant had disposed of his flat at 3/22 Lamrock Avenue Bondi on 7 January 2004 and on 19 January 2004 his mother requested that he move from the property. This request is deposed to in an affidavit from Mrs Dawn Puels and she was not cross examined upon it. I must accept that the request was made. The debtor deposed to the fact that he moved out of the premises on 20 January 2004 to a friend’s flat 5/10 Lamrock Avenue Bondi. This evidence is contained in an affidavit of the debtor and in corroborating affidavits of Charmian Orr and Mrs Dawn Puels. It was not challenged and I must accept it. It was also not challenged that the debtor attended at the premises of the business and assisted the receiver from 22 January to 5 February 2004. On that day he handed his keys to the receiver, the premises were vacated and the locks were changed.
The act of bankruptcy alleged against the debtor must have occurred by the time the petition was issued. I must therefore look at the period before 10 February 2004 to ascertain whether or not the act of bankruptcy was committed. Section 40 of the Bankruptcy Act 1966 relevantly states:
Acts of Bankruptcy
(i)A debtor commits an act of bankruptcy in each of the following cases
(c) if, with intent to defeat or delay his or her creditors:
(i) …;
(ii) …;
(iii) he or she otherwise absents himself or herself; or
(iv) …The applicant submits that the debtor tried to create an elaborate sham to suggest that the failure of SCA came out of the blue in January after he had made arrangements with his parents to dispose of the property in December. I am satisfied from the evidence which I have heard that the debtor was well aware that things were not travelling well with SCA and that he was taking large currency risks that could go against the company. The sale of the property to his parents in those circumstances and the repayment of loans from them and from Ms Cardillo must be looked at with suspicion. Likewise the payment of the balance of the purchase price to him in cash and his inability to explain where that money went, his misleading of Mr Carden as to how much of the money he still retained and his failure to tell Mr Carden that he had paid $100,000.00 to Ms Cardillo all point to an intention to defeat his creditors. But what the section requires is that this intention is the reason for him absenting himself. It is not sufficient for the intention to exist on its own. The creditor submits that after 5 February 2004 the debtor gave the receivers and managers no further assistance, he walked out of the premises in the middle of a conversation and did not return and thereafter made himself unavailable to the creditor whose attempts to communicate with him were frustrated. The creditor argues that the debtor absented himself so that the creditor could not be assisted in finding out what had happened to the money which he received on the sale of his unit.
The act of bankruptcy alleged in this case has been on the statute book in more or less the same form since prior to 1842 where in Russell v Bell (1842) Meeson and Welsby’s Reports 340 at [351] Lord Abinger C.B. said:
“That case that has been quoted from the Nisi Prius Reports is only one of numerous examples of the same sort, in which the parties have made an appointment at a house, not the usual house of the bankrupt, and he failing to keep it, it has not been deemed an act of bankruptcy; but if, to avoid his creditors a man says, I will meet you at a public-house, or I will meet you at such a place, at such a time, in such a way, and then pay you money, and he is not there at all, that has been held to be an act of bankruptcy. The cases are numerous, but they have not found their way into the reports, except that one case. I think it is clear there was an act of bankruptcy.”
In Ex Parte Meyer, In Re Stephany (1871-72) Ch Appeal Cases 188 at [190] Sir W M James L.J. said:
“A man’s intention of keeping away from any place where he would, in the ordinary course of things, be, is absenting himself.”
But it is not necessary in order to satisfy the section to show that a debtor has physically absented himself from a particular place; In re Alice Alderson Ex Parte Jackson (1894) 1QB 183 at [188]. The matter was considered in Australia in In Re Walshe (1922) VLR 153 where the debtor departed from his ordinary place of residence, an hotel, as he had been bought out by his partners. Mann J discharged the order nisi saying at 155:
“It is clear, I think, on the evidence, that, as one of the results of this sale by Walsh and his departure from the hotel, difficulties were thrown in the way of his other creditors. Difficulties arose in finding out his new whereabouts, and there is, I think, evidence that Walsh was not at all unwilling to have the benefit of those difficulties so arising in the path of his other creditors, and it is urged that he took no steps whatever to acquaint his other creditors with his new abode, or to help them to get into contact with him at any new address. I think that is so, but I do not think his failure to do that is sufficient to constitute the ground of insolvency referred to in this sub section. His departure from the dwelling house seems to have been brought about as the inevitable consequence of the sale of his interest to the other partners and the facts as to that transaction have not been controverted on the part of the petitioning creditor – indeed, it was in the circumstances impossible that they should be.”
Finally, the matter was considered by Conti J in Edge Technology Pty Ltd v Wang [2000] FCA 1586. His Honour noted that a crucial element for determination was the intent of the debtor and that unless this results in intentional delay the provisions of s 40(1)(c) will not be satisfied. His Honour cited In Re Alderson as authority for the proposition that:
“A party is likely to have absented himself or herself where, with intent to defeat or delay his or her creditors, he or she has so acted as to render it impossible for his or her creditors to ascertain his or her whereabouts.” [7]
With respect to His Honour I do not think that the case is authority for quite such a limitation. Ms Alderson had not made it “impossible” to be found, she merely made it difficult for her solicitor to be used as a channel for process being served upon her by not informing him of her current address. I make this point because the debtor has relied on His Honour’s finding and on the decision in Re Walshe to argue that by telling the creditor of his address in late January and providing him with a mobile telephone number at which he could be contacted he had not made it impossible for his whereabouts to be ascertained. The debtor argued that he had only left his ordinary premises because he was required to do so as a result of the sale in similar circumstances to that which pertained in Re Walshe.
But it seems to me that there are differences between these cases. Firstly, the “absenting” consisted not of the debtor leaving his home but of walking out of the meeting with Mr Carden and then not making himself further available until March after the issue of a petition. I accept that the debtor made known to the creditor that he had moved out of his former home at Unit 3/22 Lamrock Avenue and into 5/10 Lamrock Avenue in late January but given the answers made by the debtor to the creditor on 5 February 2004 about his whereabouts, the creditor could not be sure that he was still there and available. To tell someone who you know has a considerable interest in wanting to know where you can be found that you are unable to remember the address of a unit only a few houses down the road from one you have occupied for many years and expect them to believe you can readily be considered disingenuous. I do not think that the debtor has put himself into the Re Walshe position; rather he falls within that of Alice Alderson in that he told the creditor that he could not remember his address “lest a messenger should be sent who might see him and serve him with process.” Re Alderson at [188].
The failure to advise the creditor of the debtor’s address was compounded by him not responding to calls on the mobile telephone, which was the only source of contact then available to the creditor. True it is that the debtor had sent e mails giving a post office box, a telephone and a fax number but these were clearly associated with SCA and the creditor knew that the receivers had closed the business down. The creditor was not to know that the applicant had made efforts to have mail transferred from the business address to that post office box or that he was, between 5 February and the time the petition was filed, likely to attend and remove items from the post office box. In that situation the failure of the debtor to respond to calls upon his mobile telephone is sufficient to satisfy me that I can find, consistent with the authorities, that the applicant absented himself. I am also satisfied that whilst the debtor may have decided to become incommunicado because of the pressure being placed upon him by the creditor he was well aware that in doing this he was delaying the creditor in its attempt to seek recovery. I am entitled to draw this inference from the facts and in particular from the fact that the debtor did not make an honest declaration of his financial situation to the creditor when asked in that he hid the existence of cash moneys paid to him by his mother. This, to my mind, would tend to indicate that in him going incommunicado he sought delay the creditor and that was his purpose.
There was produced to me at the commencement of the hearing the necessary affidavits confirming debt, service and search. I am otherwise satisfied of the matters required under s.52 of the Act and I make a sequestration order against the estate of the debtor Rupert Edgerton Puels noting that the date of the act of bankruptcy is 5 February 2004. Having received a consent to act as Trustee from David John Kerr I appoint him Trustee of the Bankrupt’s estate. I order that the costs of the application be paid out of the estate of the debtor and be taxed, if not agreed, pursuant to the Federal Court Act and Rules.
I certify that the preceding seventeen (17) paragraphs are a true copy of the reasons for judgment of Raphael FM
Associate:
Date:
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