Goodman Law Pty Limited v Laloma
[2013] FCCA 2094
•6 December 2013
FEDERAL CIRCUIT COURT OF AUSTRALIA
| GOODMAN LAW PTY LIMITED v LALOMA | [2013] FCCA 2094 |
| Catchwords: BANKRUPTCY – Application for stay of sequestration order – whether Court has power to issue stay of sequestration order made by a registrar other than pursuant to s.52(3) of the Bankruptcy Act 1966 – principles for granting stay pending application for review of sequestration order made by a registrar – whether there are arguable grounds for contending that the Court on review not make a sequestration order – whether the balance of convenience requires the granting of a stay – application for a stay dismissed. |
| Legislation: Bankruptcy Act 1966 (Cth), s.52(3) Federal Circuit Court (Bankruptcy) Rules 2006 (Cth), rr.2.03, 7.06 |
| Coleman v Lazy Days Investments Pty Ltd (1995) 55 FCR 297 Day v Gould [2000] FCA 1377 Totev v Sfar (2008) 167 FCR 193 Trustees of theFranciscan Missionaries of Mary v Weir [2000] FCA 574 |
| Applicant: | GOODMAN LAW PTY LIMITED (ACN 118 599 590) |
| Respondent: | JANE LALOMA |
| File Number: | CAG 6 of 2013 |
| Judgment of: | Judge Manousaridis |
| Hearing date: | 25 October 2013 |
| Delivered at: | Sydney (by telephone) |
| Delivered on: | 6 December 2013 |
REPRESENTATION
| Solicitors for the Applicant: | Goodman Law |
| The Respondent in person. |
ORDERS
The application for a stay of the sequestration order made on 6 June 2013 against the estate of Jane Laloma is dismissed.
The application for review of the sequestration order made on 6 June 2013 be stood over for directions on a date to be fixed by the Court.
The question of the costs of the application for a stay of the sequestration order be determined after the application for review of the sequestration order is determined.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT CANBERRA |
CAG 6 of 2013
| GOODMAN LAW PTY LIMITED (ACN 118 599 590) |
Applicant
And
| JANE LALOMA |
Respondent
REASONS FOR JUDGMENT
Introduction
On 27 June 2013, Ms Laloma filed an application in which she sought the following two orders:
1I seek a review of the orders CAG 06/2013 by a Judge of the Federal Circuit of Australia.
2.I seek that the Sequestration Order and Appointment of the Trustee in CAG 06/2013 in the Federal Circuit Court of Australia be stayed.
The orders referred to in the application are those made by a registrar of this Court on 6 June 2013, one of which was a sequestration order against the estate of Ms Laloma.
When the matter came before me on 25 October 2013, I was under the impression that the principal relief Ms Laloma was seeking was a review of the sequestration order. As the hearing progressed, it became apparent that the only order Ms Laloma was seeking was a stay of the sequestration order.[1] In these reasons, therefore, I will consider only Ms Laloma’s application for a stay of the sequestration order.
[1] T25.5-20
These reasons are arranged as follows. First, I set out the ground on which Ms Laloma claims the sequestration order should be stayed. Second, I set out the evidence on which Ms Laloma relies. Third, I consider whether the Court has power to order a stay of the sequestration order and, if so, the principles that should guide the Court when determining whether a stay should be granted. Finally, I consider whether Ms Laloma should be granted a stay of the sequestration order.
Ground on which Ms Laloma relies
The ground on which Ms Laloma seeks a stay is what she claims is “an accounting anomaly which is in contravention of the Superannuation Industry (Supervision) Regulation”. Ms Laloma seeks a stay of the sequestration order until “such time as the Australian Tax Office will review that matter”.[2]
[2] T25.10
The “accounting anomaly” is said to arise in the following circumstances. On 18 April 2012 the petitioning creditor (Goodman Law), a law practice, obtained a judgment against Ms Laloma in the amount of $14,844.47. The judgment was entered in relation to a claim for unpaid fees for legal services Goodman Law provided to Ms Laloma.
On 7 January 2013 Goodman Law served on Ms Laloma a bankruptcy notice demanding payment of $15,858.84. This was the sum of the amount of the judgment and interest of $1,014.37 that accrued after judgment. Ms Laloma failed to pay the amount demanded in the bankruptcy notice. On 8 February 2013 Goodman Law filed a petition for a sequestration order against Ms Laloma’s estate, relying on Ms Laloma’s failure to comply with the bankruptcy notice as the relevant act of bankruptcy.
After Goodman Law served the bankruptcy notice, but before it filed the creditor’s petition, Goodman Law applied to the debt owed by Ms Laloma the amount $6,759.08, which Goodman Law held in trust. Ms Laloma claims it is Goodman Law’s application of this amount towards the reduction of the debt that constitutes the “accounting anomaly”. Ms Laloma contends that $6,288.69 of the $6,759.08 was money that was beneficially owned, not by Ms Laloma, but by a self-managed superannuation fund which she controlled. Consequently, Ms Laloma claims Goodman Law was not entitled to apply at least $6,288.69 of the $6,759.08 it did apply to reduce the debt Ms Laloma owed to Goodman Law.
Evidence on which Ms Laloma relies
The evidence on which Ms Laloma relies for claiming that Goodman Law’s application of the $6,759.08 to reduce the debt owed by Ms Laloma was “an accounting anomaly”, is set out in an affidavit Ms Laloma made on 26 July 2013.
In that affidavit, Ms Laloma says that the $6,759.08 included an amount of $6,288.69 which was transferred to Goodman Law’s trust account from the L & J Ware Superannuation Fund on 18 November 2010. L & J Ware Superannuation Fund appears to be a self-managed superannuation fund in which Ms Laloma and her former husband, Mr Ware, had an interest, and which was the subject of orders made by this Court in proceedings brought under the Family Law Act 1975 (Cth).
Ms Laloma annexed to her affidavit the trust account receipt issued by Goodman Law in relation to the payment to it of $6,288.69. The trust receipt records that the payment was received from “Dr J Laloma C/- Canberra Secretarial Services PO Box 469 Mitchell ACR 2911” in relation to “Matter # GL/34392, Dr Jane Laloma: Family Law General – Laloma v Ware (for the liquidation of L & J Ware Pty Ltd)”. Ms Laloma also annexed to her affidavit an extract from the bank account of “Ware LA JL” which records the debiting of $6,288.69 to that account on 18 November 2010.
Ms Laloma says that the $6,288.69 held by Goodman Law in trust was “the subject of a prior Court Order made on 28 October 2010 in the Federal Magistrates Court of Australia CAM 239 of 2006”. The details recorded on the trust receipt confirm this assertion. Under the heading “Description”, there appear the words “Court ordered funds to be held in Trust”. Ms Laloma says that “[t]hese orders specify the transfer of the funds in trust for payment of Easdowns Business Specialists Accounts in relation to provision of documents required for transfer of assets from the L & W Ware Superannuation Fund to Jane Laloma’s new Self Managed Superannuation fund”. This statement is confirmed by order 1 of the orders which provides:
That forthwith the balance contained in the account for the L & J Ware Superannuation Fund with the Commonwealth Bank (being account number . . .) be transferred into the trust account for the solicitors for the wife, Goodman Law, for the payment of Easdowns Business Specialists’ (“Easdowns”) agreed or assessed fees pursuant to these Orders, and the wife and/or the husband will do all things necessary to then cause the account to be closed.
Ms Laloma annexed to her affidavit a copy of orders made on 20 December 2011. Those orders required Mr Ware to cause Easdowns Business Specialists (Easdowns) to issue a tax invoice to the Robin Creek Superannuation Fund in the sum of $20,000. The invoice was required to state that it related to work performed in compliance with orders made by this Court on “25 November and 28 October 2012 [sic] relating to Jane Laloma’s Superannuation balance transfer from L & W Superannuation Fund to the Robin Creek Superannuation Fund, including Ms Laloma’s half share of costs payable to Easdowns to allow Ms Laloma to comply with such Orders”. The orders also required Ms Laloma to provide a bank cheque for $20,000 payable to Easdowns in return for which she would receive from Easdowns an “Eligible Termination Payment Statement as at 23rd February 2009 relating to Laloma’s exists from the L & W Ware Superannuation Fund”.
There is also annexed to Ms Laloma’s affidavit a tax invoice dated 20 December 2011 issued by Easdowns for $20,000. The work covered by the invoice is stated to be:
Work performed in compliance with Federal Court Orders dated 25 November 2008 and 28 October 2010 relating to Jane Laloma’s superannuation balance transfer from L & L Ware Superannuation Fund to the Robin Creek Superannuation Fund including Ms Laloma’s half share of costs payable to Easdowns to allow Ms Laloma to comply with such orders.
Ms Laloma paid $20,000 into Court on 6 December 2012. I assume that Ms Laloma paid this amount pursuant to the orders made on 20 December 2011.
Ms Laloma says that “substitution documents were provided by Easdowns in place of those specified in the Court Orders CAM 239/2006 28 October 2010”. Ms Laloma has identified these documents to be annexure J to her affidavit. The documents are a letter dated 30 June 2009 from L & J Ware Superannuation Fund to Ms Laloma and the attachments referred to in the letter and which the letter describes as “copies of ETP Payment Summaries effecting your exit from L & J Ware Superannuation in accordance with the Family Court Orders of 25 November 2008”. The letter identifies four amounts as having been transferred to “Robin Creek Superannuation Fund” which, I assume, is Ms Laloma’s superannuation fund.
On the basis of this evidence, Ms Laloma submits that $6,288.69 of the $6,759.08 Goodman Law held on trust was held, not for Ms Laloma, but for Ms Laloma’s self-managed superannuation fund, and, for that reason, the $6,288.69 was not available to be applied by Goodman Law in partial satisfaction of the debt owed by Ms Laloma.
The question that I must decide, therefore, is whether this claim discloses a ground for staying the sequestration order.
Power to grant stay of sequestration order
Section 52(3) of the Bankruptcy Act1966 (Cth) (B. Act) confers power on the Court to stay “all proceedings under a sequestration order for a period not exceeding 21 days”. In addition, it has been held that the Federal Court had power under Order 52 r.17 of the former Federal Court Rules to stay a sequestration order pending the determination of an appeal against such order.[3] It has also been held that the Federal Court has power to extend a stay beyond 21 days where an application was made in the Federal Court to review a sequestration order made by a registrar under delegated power.[4] The source of that power was held to be s.35A(6) of the Federal Court of Australia Act 1976. Sub-section 104(3) of the Federal Circuit Court of Australia Act 1999 (FCCA Act) is similar to s.35A(6), and provides as follows:
The Federal Circuit Court of Australia may, on application under subsection (2) [which confers a right of review of decisions made by a Registrar under a delegation under s.103(1)] or on its own initiative, review an exercise of power by a Registrar under subsection 103(2) or under a delegation under subsection 103(1), and may make such order or orders as it thinks fit in relation to the matter in respect of which the power was exercised.
[3] Coleman v Lazy Days Investments Pty Ltd (1995) 55 FCR 297 (Carr J); Day v Gould [2000] FCA 1377 (Emmett J)
[4] Trustees of theFranciscan Missionaries of Mary v Weir [2000] FCA 574 (Beaumont, Burchett and Hely JJ)
In my opinion, the following passage from the reasons of judgment in Trustees of theFranciscan Missionaries of Mary v Weir apply with equal force to s.102(3) of the FCCA Act:[5]
The last portion of this subsection is in unqualified terms, and we construe it as authorising the Court, if it thinks fit, to grant a stay order, in a bankruptcy case as in other cases, pending the completion of its review, as an appropriate order "with respect to the matter with respect to which the power was exercised". When the power is exercised in a bankruptcy case, it is not limited to an order for a period of twenty-one days. We do not think s 35A(6) should be construed as failing in any respect to empower the Court to make such an order . . .
[5]Trustees of theFranciscan Missionaries of Mary v Weir [2000] FCA 574 at [23] (Beaumont, Burchett and Hely JJ)
Thus, in my opinion, the Court has power to grant a stay of the sequestration order made against the estate of Ms Laloma, either for a period not exceeding 21 days pursuant to s.52(3) of the B. Act or for a longer period pursuant to s.103(4) of the FCCA Act.
In my opinion, before the Court may order a stay, either under s.52(3) of the B. Act or under s.103(4) of the FCCA Act, it must at the very least be satisfied that the stay is sought for the purposes of or in connection with the application for review. That requirement would be satisfied if the purpose of the stay is to maintain the status quo until such time as the application for review is determined. Even if this requirement is satisfied, however, the stay will be granted only if there is some reasonable prospect that the Court when reviewing the registrar’s decision will not make a sequestration order[6] and the balance of convenience favours the granting of the stay.
[6] Where the decision sought to be reviewed is a sequestration order made under s.52 of the Bankruptcy Act1966 (Cth), the judge who hears the application for review “must hear the petition afresh and must be satisfied as to the matters referred to in s 52 of the Bankruptcy Act” Totev v Sfar (2008) 167 FCR 193 at 197 ([14] [15]) (Emmett J)
Should a stay be granted?
In determining whether the claimed “accounting anomaly” entitles Ms Laloma to the stay which she seeks, I must consider two questions. The first is whether her claim raises an arguable answer to the creditor’s petition that Goodman Law has filed. The second is, if it does, whether the balance of convenience favours a stay.
The only relevance that the validity of the claimed “accounting irregularity” can conceivably have to whether the Court should or should not affirm the sequestration order made on 6 June 2013 is whether it will affect Goodman Law’s ability to prove the matter specified in s.52(1)(c) of the B. Act, namely, that “the debt . . . on which the petitioning creditor relies is . . . still owing”.
It is clear that whether or not Ms Laloma’s asserted claim concerning the “accounting anomaly” is correct, it will not affect Goodman Law’s ability to prove that “the debt . . . on which the petitioning creditor relies is . . . still owing” as required by s.52(1)(c) of the B. Act. If the asserted claim is correct, the debt on which Goodman Law relies will be exactly the debt which was demanded in the bankruptcy notice. If the claim is incorrect, the debt on which Goodman Law relies will be the amount demanded by the bankruptcy notice less the $6,288.69 it applied from the trust account. In both cases, the debt will be “still owing”, and s.52(1)(c) will be satisfied. Accordingly, the asserted “accounting anomaly” does not raise any arguable answer to Goodman Law’s creditor’s petition.
Even if the asserted claim did raise an arguable answer to Goodman Law’s creditor’s petition, I am not satisfied that the balance of convenience requires a stay be granted. Ms Laloma has not suggested that she cannot make a complaint to the Australian Taxation Office without a stay. Nor has she suggested that the Australian Taxation Office will be unable to deal with her complaint unless a stay is granted. Given that Ms Laloma’s complaint relates to money Ms Laloma claims belongs to the trustee of her self-managed superannuation fund, it is difficult to see how a sequestration order against the estate of Ms Laloma can affect the trustee’s rights.
For these reasons, Ms Laloma’s application for a stay must be dismissed, and I propose to make an order to that effect.
Further conduct of application
This leaves unresolved the claim for review of the Registrar’s decision made in paragraph 1 of Ms Laloma’s application.
Mr Kay, who appeared for Goodman Law, submitted that Ms Laloma filed her application for review outside the time specified by the Federal Circuit Court (Bankruptcy) Rules 2006 (Cth) (Bankruptcy Rules). He submitted that an application had to be made within seven days of the making of the sequestration order. That is not correct.
An application for review of a sequestration order made by a Registrar is provided for by s.104(2) of the FCCA Act. Rule 2.03 of the Bankruptcy Rules provides that such application must be made “within 21 days after the day on which the power was exercised”. Ms Laloma filed her application for review on 27 June 2013 which is within the 21 day period allowed under r.2.03 of the Bankruptcy Rules. It is, of course, the case that r.7.06 of the Bankruptcy Rules requires that an application for review must be served on the trustee within seven days before the date fixed for the hearing of the application for review.
In these circumstances, I propose only to note that the matter will be listed for directions at a time to be fixed by the Court for the purpose of fixing a hearing date for the application for review.
Mr Kay also applied for an order for costs and that I fix the amount of those costs. In my opinion, although Goodman Law is entitled to the costs of the application for a stay, it would be inappropriate to make an order for costs until the fate of the application for review is determined. If that application for review is unsuccessful, then, subject to hearing submissions from the parties, the appropriate order might be that the costs of Goodman Law be paid out of the bankrupt estate, and that such costs have the same priority as the costs of the petition.
I certify that the preceding thirty-two (32) paragraphs are a true copy of the reasons for judgment of Judge Manousaridis
Associate:
Date: 6 December 2013
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