Finikiotis and Anor. v Sandhurst Trustees - [2001] FMCA 69

FEDERAL MAGISTRATES COURT OF AUSTRALIA

FINIKIOTIS & ANOR v SANDHURST TRUSTEES [2001] FMCA 69

BANKRUPTCY – application to review decision of Registrar seeking an adjournment of petition because of pending appeals to Supreme Court of South Australia, Federal Court of Australia and High Court of Australia – sequestration should not proceed where appeal pending against judgment relied on as foundation of bankruptcy proceeding where appeal is based on genuine and arguable grounds – no genuine and arguable grounds found in respect of which appeals likely to succeed – Registrar’s decision agreed with – discretion to grant adjournment exercised against applicants because of failure to co-operate with trustee, failure to complete statement of affairs and to inform of assets, and inappropriate behaviour in filing affidavit relating to an agreement and failing to state that no payments were made and offer of agreement not taken up.

Bankruptcy Act 1966 (Cth) s 52

Martin & Anor v Commonwealth Bank of Australia 2001 FCA 87 followed

Ahearn v Deputy Commissioner of Taxation (1987) 76 ALR 137 followed

BBC Hardware Limited v Boutros [1998] 217 FCA followed

McDonald, Henry and Meek: Australian Bankruptcy Law and Practice,
5^th edition, LBC Information Services

Applicants:

EFSTATHIOS FINIKIOTIS & CHRISSAFINA ZERVOS

Respondent:

SANDHURST TRUSTEES LIMITED

File No:

AZ 116 of 2000

Delivered on:

23 August 2001

Delivered at:

Adelaide

Hearing Date:

23 August 2001

Judgment of:

Raphael FM

REPRESENTATION

For the Applicant:

Dr E Finikiotis

Counsel for the Respondent Creditor:	Mr D Howard
Counsel for the Trustee:	Mr D Colovic

Solicitors for the Respondent:

Mr Scott of Lynch & Meyer

ORDERS

Application dismissed.
Sequestration Order confirmed.
Costs of applicant and Trustee be assessed in accordance with Part 21 R 21.10 of Federal Magistrates Court Rules.

FEDERAL MAGISTRATES COURT OF AUSTRALIA AT ADELAIDE

AZ 116 of 2001

EFSTATHIOS FINIKIOTIS and CHRISSAFINA ZERVOS

Applicants

And

SANDHURST TRUSTEES LIMITED

Respondent

REASONS FOR JUDGMENT

This matter came before me for hearing on 23 August 2001 in Adelaide.
After hearing Dr Finikiotis for himself and his sister (the debtors), Mr Howard of counsel for the potential creditor and Mr Colovic for the trustee and after receiving an up to date affidavit regarding matters required by section 52 of the Bankruptcy Act 1966, I dismissed the application and held that I was satisfied that the debtors had committed the acts of bankruptcy alleged in the petition and that I was satisfied with the proof of the other matters required by section 52 of the Bankruptcy Act 1966. In this regard I relied on both the affidavits that had been filed before the Registrar, and the affidavit of 23 August 2001 previously referred to. I made consequential orders for costs, which I will repeat at the conclusion of these reasons.
This is an application for a review of the decision of Registrar H Baldwin dated 19 February 2001. A sequestration order was made against the estates of both applicants. The matter is one of considerable history. It has occupied the time of the Supreme Court of South Australia and the Federal Court of Australia. There are on the file judgments of the Master, of Williams J and of the full bench of the South Australian Supreme Court. There are judgments of Von Doussa J and the full bench of the Federal Court and reasons for judgment of Registrar Baldwin. I am advised that on the 23 August 2001 there were outstanding in respect of these previous proceedings the following:
i)Judgment upon an application to extend the time for appealing to the full bench of the South Australian Supreme Court against the decision of Williams J.
ii)An application for leave to appeal to the High Court against the decision of the full bench of the Federal Court of Australia which had refused to set aside the Bankruptcy Notice on which this petition is based.
iii)An appeal to the full bench of the Federal Court against decision of O’Loughlin J dismissing the proceedings numbered S71 of 2000 which seem to constitute the debtors cross-claim in the original proceedings.
The debtor sought to convince me that I should adjourn the petition because of these pending appeals. He also argued stridently that the original Bankruptcy Notice was invalid and should have been set aside because the act of bankruptcy alleged was based upon a judgment wrongly obtained. In short, the applicant alleged that at the time Sandhurst Nominees issued the Notice of Demand and then took possession of the mortgaged premises there was no money due and owing to it. This argument was subsumed within the argument for the stay pending appeal because the decision concerning the setting aside of the Bankruptcy Notice was itself still the subject of an application for special leave to the High Court.
The procedure for conducting a review of a Registrar’s decision was discussed in detail by the full bench of the Federal Court in Martin & Anor v Commonwealth Bank of Australia 2001 FCA 87. This authority required me to hear the application in de novo, and I allowed Dr Finikiotis to speak to his points at length. However, in the end the decision that is before me is the same as that which came before Registrar Baldwin and which was articulated in her judgment as follows:
In Ahearn v Deputy Commissioner of Taxation (1987) 76 ALR 137 the Full Court of the Federal Court laid down the governing principle concerning an application for adjournment of a creditors petition in circumstances where there is a pending appeal. It is 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 proceeding, provided the appeal is based on genuine and arguable grounds.
Like the Registrar I had regard to the material that was filed on behalf of the debtors and the judgments which were being appealed against. I support the Registrar’s conclusion in respect of the appeal to the High Court of Australia that there is no new question of law which is likely to enliven that Court’s interest in the matter, and I do not believe there is any serious likelihood of special leave being granted. I also note that there has been some considerable delay in pursuing this application, and it may well be that this will militate against such leave.
I also have serious doubts about the possibility of success in the appeal to the Full Court from the judgment of O’Loughlin J. Even if this was successful it would only reinstate proceedings which have not advanced very far. It is true that the creditor is a party to those proceedings, but only tangentially. The major complaint is made against the firms of valuers. If the applicant was successful in his appeal he would then have to make a further application for an adjournment of the petition whilst the case itself was heard.
Finally, there is the appeal to the Full Bench of the Supreme Court of South Australia. It is to be remembered that in this matter the Master gave summary judgment against the debtors. That summary judgment was upheld and full reasons were given by Williams J. Although an appeal lay as of right, the debtors appear to have been advised by the Court that leave to appeal was required. An application for leave to appeal was made within the appropriate time limits, both of the Rules of the Supreme Court of South Australia, and within the time limit set by section 41 (6)A of the Bankruptcy Act1966.
The application to the Full Bench of the Supreme Court has been argued and judgment is awaited. In normal circumstances it might be reasonable to assume that the Full Bench would be sympathetic to the situation in which Dr Finikiotis found himself, and they might well grant leave to appeal out of time. However, the substance of any defence (as opposed to a counter-claim) is, so far as I can see from the papers before me, the question of whether or not there was a sum of $69, 622.83 due as at 4 May 1999, the date upon which the Notice of Demand was served. This is a matter which was before Williams J and was dealt with in his judgment, from which he refused leave to appeal. I am not clear as to whether the documentation which was provided to me which purported to show certain payments had been made was before Williams J, but if it was not, it should have been because it came from the debtor and could easily have been provided. Whilst, as I have said, I can see a possibility that leave to appeal would be granted, I do not see any genuine or arguable grounds in respect of which the appeal is likely to be successful.
For the reasons given above I would therefore respectfully agree with the decision of the learned Registrar and would myself grant a sequestration order in this case.
In their commentary to Rule 8 of the Bankruptcy Rules in McDonald Henry & Meek the learned authors state as follows:
“When reviewing the decision of a Registrar to make a sequestration order, a Judge can take into account the interests and attitude of unpaid and unsecured creditors, in the same way as the Court would in making an annulment order pursuant to section 153B, even if it clear that the order should not have been sought or made, for example because a petitioning creditors debt had already been paid: BBC Hardware Limited v Boutros [1998] 217 FCA.”
To the extent that that judgment supports the contention set out above, and to the extent to which I have any discretion to refuse the adjournment, I would say that even if I was convinced that otherwise I should upset the order of the learned Registrar I would not have done so in this case because of the contents of the report received from the trustee. This report indicates that neither of the debtors have co-operated with the trustee, neither of them have completed a statement of affairs and both of them have failed to inform him of the existence of assets in the nature of real estate which they own. I raised these matters with Dr Finikiotis and his only response was that the trustee should have obtained this information from the liquidator of two companies of which he and his sister were directors. That is not an appropriate response. In addition, Dr Finikiotis filed an affidavit which related to an agreement that he had purportedly made with the trustee concerning the purchase of the rights of action against the creditor and the valuers which became the property of the trustee pursuant to the sequestration order. I had a discussion with Dr Finikiotis about this matter when I suggested to him that if he had purchased the rights of action then he was not inconvenienced by the bankruptcy. At no time during that discussion did Dr Finikiotis tell me that neither the first nor second instalments had been paid, nor, that because of what he considered to be the trustee’s association with the creditors, he had decided not to take up the offer. These matters were revealed later, and I informed Dr Finikiotis that I considered that to be inappropriate conduct on his part. This inappropriate conduct and the matters referred to in the report of the trustee would lead me to exercise such discretion as I may have against the applicants and against granting any adjournment of the petition.
On the day of the hearing I made the formal orders set out at the commencement of this judgment. I also make the following orders as to costs:
1)That the costs of the applicant and of the trustee (including any reserve costs) be assessed in accordance with Part 21 Rule 21.10 of the Federal Magistrates Court Rules.
2)I grant an advocacy certificate pursuant to Part 21.15 of the Rules to counsel for the creditor and to counsel for the Trustee, and;
3)Order that the costs be paid from the estate of the respondent debtors in accordance with the Act. For the avoidance of doubt I note the act of bankruptcy took place on 14 July 2000.

I certify that the preceding thirteen (13) paragraphs are a true copy of the reasons for judgment of Raphael FM

Associate:

Date: 28 August 2001