Faataape v Fordyce - [2010] FMCA 1028

FEDERAL MAGISTRATES COURT OF AUSTRALIA

FAATAAPE v FORDYCE

[2010] FMCA 1028

BANKRUPTCY – Creditor’s application for leave to take step in a proceeding.

Bankruptcy Act 1966, ss.58, 58(3)

Applicant:

OLGA FAATAAPE

Respondent:

ANN FORDYCE AS TRUSTEE FOR THE BANKRUPT ESTATE OF DARRELL BROEDERLOW

File Number:

BRG 1265 of 2010

Judgment of:

Burnett FM

Hearing date:

22 December 2010

Date of Last Submission:

22 December 2010

Delivered at:

Brisbane

Delivered on:

22 December 2010

REPRESENTATION

Counsel for the Applicant:

Mr N.M. Cooke

Solicitors for the Applicant:

Rostron Carlyle Solicitors

The respondent appeared on her own behalf

ORDERS

That the applicants be granted leave pursuant to section 58(3) of the Bankruptcy Act to proceed with and take steps in Supreme Court of Queensland matter number BS 5616 of 2010 against the bankrupt estate of Darrell Broederlow.
That the application be adjourned for mention to 10.00am on 4 February 2011.
That there be no order as to costs.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA
AT BRISBANE

BRG 1265 of 2010

OLGA FAATAAPE

Applicant

And

ANN FORDYCE AS TRUSTEE FOR THE BANKRUPT ESTATE OF DARRELL BROEDERLOW

Respondent

REASONS FOR JUDGMENT

(Revised from transcript)

The applicants, Olga Faataape and Richard Faataape, make application pursuant to section 58(3) of the Bankruptcy Act 1966 (Cth) to proceed with and take steps in Supreme Court of Queensland matter number BS 5616 of 2010 against the bankrupt estate of Darrell Broederlow. The relevant background facts briefly are these: the applicants, through the entity Coco Bella Corporation Pty Ltd, are the proprietors of a café business located at 75 Welsby Street, New Farm. The corporation through which the applicants purchased the business entered into a contract for the purchase of that business for the sum of $90,000 in late 2009.
The business was then the subject of proceedings brought by the bankrupt and another in the Queensland Supreme Court, in Supreme Court proceeding 5616 of 2010, such proceedings having been commenced on 1 June 2010. In those proceedings, the bankrupt and co-plaintiff sought declarations that they, as plaintiffs, together with the applicants in this application and the corporation Coco Bella Proprietary Limited, had entered into an oral partnership agreement between 9 and 25 November 2009 in respect of the acquisition of the café business at 75 Welsby Street, New Farm. In addition, they sought declarations that the partnership had been dissolved on 31 May 2010 and for incidental orders including orders for the winding up of the partnership, the taking of accounts and interim relief by way of an order for the appointment of a receiver and manager.
Orders were made on 25 June 2010 pursuant to undertakings granted by the applicants in these proceedings, in their own right and in their capacity as directors of the company Coco Bella Corporation Proprietary Limited, to refrain from selling, transfer, assigning or encumbering, or otherwise dealing with the assets of the business, to refrain from paying either of the applicants any wages or drawings for an amount not in excess of $500.00 per week, and for other consequential orders which relate to the provision of information relating to the trading of the business.
A defence and counterclaim was filed by the applicants and their related corporate entity on 19 July 2010, and aside from putting the bankrupt and his partners’ contentions in issue, raised a cross-claim which was alleged as a set off in respect of the claim prosecuted by the plaintiffs. In particular, the set off claim was one maintained by the applicant, Richard Faataape, against the bankrupt in respect of moneys that were payable to him pursuant to an unrelated agreement concerning a business entity known as Diamond Venue Security.
In the defence and counterclaim, it is specifically alleged that if the court were to find that a partnership agreement existed and the defendants have a liability to the first and second plaintiffs, then the second defendant, on his own behalf and on behalf of the first and third defendants, would seek to offset all such moneys which are owing by him to the bankrupt trading as Diamond Venue Security. The claim is for a sum of $228,868.00 in respect of a breach of an agreement which is alleged to have been entered into on 30 October 2006, but either of which I will not descend into particularising here.
This has all become relevant, because on 8 December 2010, Mr Broederlow was made the subject of a sequestration order, and the respondent to this application, that is, his trustee in bankruptcy, was appointed his trustee.
It seems that in recent times, the applicants have been anxious to try and sell the café business. The business has not been trading well, and the first applicant, Olga Faataape, has had the day-to-day conduct of the business. She is about five and a half months pregnant and is having difficulty attending to the needs of the business. She says that it is unlikely she will be able to continue managing the business because of the stress involved in managing the number of staff and ensuring that the stock is ordered, maintaining the business and the plant in a suitable condition, and superimposed upon those day-to-day obligations, the additional reporting requirements arising by reason of the orders made on 25 June.
For those reasons, she wishes to sell the business. There has been some interest in the business, but because of the current orders made in the Supreme Court on 25 June, it has been difficult to do so, particularly because of the undertaking to refrain from selling the business provided for in order 1. It is for that reason that an application has been brought in the Supreme Court which is returnable tomorrow, 23 December 2010, for a release from paragraph 1 of the undertakings that were provided, for orders permitting the applicants to do all such things required to sign a contract of sale of the business operated by the third defendant, that is, the corporate entity, within three months of the date of the order for a price of no less $120,000.00 plus stock.
Given the application is in a proceeding in which the bankrupt is a plaintiff, the applicant is required to bring this application. There is, in my view, no doubt that the applicant in this application has, prima facie, a claim in respect of a provable debt in the Supreme Court proceedings, that being the set off claim which is maintained in the defence and counterclaim.
It follows then by operation of s.58, leave is required. Section 58(3) relevantly provides that except as provided by this Act, after a debtor has become a bankrupt, it is not competent for a creditor to enforce any remedy against the person or the property of the bankrupt in respect of a provable debt, all except with the leave of the court and on such terms as the court thinks fit to commence any legal proceeding in respect of a provable debt or to take any fresh step in such a proceeding. In this instance, a proceeding has already commenced, and what is sought by the applicant is to take a fresh step in such a proceeding, that is, to seek orders for relief from its undertakings contained in the orders of 25 June 2010.
In my view, it is clear that it is appropriate, that the application be allowed and the relief sought be granted. First, the trustee in bankruptcy does not oppose the application and simply is content to abide the order of the Court. She was only recently appointed and has conceded that she is not in any position to form a view as to (a) the merits of the application prosecuted by the bankrupt in the Supreme Court or (b) to form a view as to its merits, and how it is that she should deal with the matter.
The matter of the business itself, whether it be the subject of a successful application by the bankrupt in a Supreme Court proceedings or otherwise, however, is not in contest. It is a business which is fraught with danger, in a commercial sense. The principal operator of the business is unable, by reason of her present medical state, to continue the conduct of the business in a manner which is no doubt consistent with the time and effort required to maintain the business on an ongoing basis. I note her observations that she spends approximately 60 hours per week, over a four-day week, which constitutes a significant physical burden on anybody irrespective of somebody in her present condition.
I am conscious of the fact that so far as the present financial state of the business is concerned, there are a sizable number of creditors whose overall value appears to approximately equate with the value contended for of the business at the moment, and to that end, it is desirable that the applicants be able to dispose of the business, if they are able to do so, in an orderly way in order to ensure that the creditors in this instance are not unduly prejudiced by the further operation of the business.
Further, the nature of the orders that were made and the orders that are sought in the present application would see that is by proposed order 3 – the proceeds of sale for accounting for business, creditors and expenses will be held in trust in the account of the applicant’s solicitors. So to that end, it cannot be said that the bankrupt’s interest, if there be any interest established in the business, would be prejudiced. Clearly the bankrupt has an obligation to see the creditors of the business discharged in advance to any sum being released to him, just as any other proprietor would, and it does not appear from the orders proposed in the Supreme Court that there would any preference afforded to the creditors of the business conducted by Coco Bella Corporation Pty Ltd, to the disadvantage of creditors to the bankrupt, because of the legal separation of the various parties.
It follows, in my view, that orders ought be made in terms as sought.

I certify that the preceding fifteen (15) paragraphs are a true copy of the reasons for judgment of Burnett FM

Date: 17 March 2011