HP Mercantile Pty Ltd v Vitorio Turco; HP Mercantile Pty Ltd v Marinelli; HP Mercantile Pty Ltd v Mario Turco (No.2)
[2010] FMCA 149
•19 March 2010
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| HP MERCANTILE PTY LTD v VITORIO TURCO HP MERCANTILE PTY LTD v MARINELLI HP MERCANTILE PTY LTD v MARIO TURCO (No.2) | [2010] FMCA 149 |
| BANKRUPTCY – Contested creditors petition –whether the Court should look behind the judgment debt considered – competing consents by three different trustees lodged with the Official Receiver in Perth and Sydney – whether the Court bound to accept all the consents considered – where there are competing consents the Court may direct one trustee to administer the bankrupt estate pending the resolution of the competing consents. |
| Bankruptcy Act 1966 (Cth), ss.30, 50, 52, 156A, 157, 178, 181, 181A, 188, 189AAA Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth) |
| Boral Montoro Pty Ltd v McLachlan [2007] FMCA 533 Burrell v Connell [1998] 84 FCR 383 Clyne v Deputy Federal Commissioner of Taxation (1984) 154 CLR 589 Glover & Anor v Roche & Anor [2003] FMCA 576 HP Mercantile Pty Ltd v V Turco, Marinelli & M Turco [2010] FMCA 114 Peter Clyne v Deputy Commissioner of Taxation; Official Trustee in Bankruptcy v William Edward Andrew [1984] FCA 9 Turco v HPM Mercantile Pty Ltd, Marinelli v HPM Mercantile Pty Ltd, Turco v HPM Mercantile Pty Ltd (No 2) [2009] NSWCA 209 Wren v Mahoney [1972] 126 CLR 212 |
| Applicant: | HP MERCANTILE PTY LTD |
| Respondent: | VITORIO TURCO DOMINIC MARINELLI MARIO TURCO |
| File Number: | SYG 1387 of 2009 SYG 1388 of 2009 |
| Judgment of: | Driver FM |
| Hearing dates: | 2-3 March 2010 |
| Date of Last Submission: | 3 March 2010 |
| Delivered at: | Sydney |
| Delivered on: | 19 March 2010 |
REPRESENTATION
| Counsel for the Applicant: | Mr A Spencer |
| Solicitors for the Applicant: | Versace McKenzie Lawyers |
| Solicitors for the Respondent: | Ms S Nash Sally Nash & Co |
ORDERS
Sequestration orders are made against the estates of Victor Turco aka Vitorio Vincenzo Turco and Mario Turco.
The applicant 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 in each case is 2 May 2009.
The Court notes that consents to act as a trustee in each case have been signed by Geoffrey Reidy (lodged with the Official Receiver in Sydney), and George Aubrey Lopez and Evan Robert Verge (lodged with the Official Receiver in Perth).
Pursuant to s.30 of the Bankruptcy Act, the Court directs Geoffrey Reidy to take control of and administer the bankrupt estates pending any further action in relation to the consents of Mr Lopez and Mr Verge.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 1387 of 2009
SYG 1388 of 2009
SYG 1389 of 2009
| HP MERCANTILE PTY LTD |
Applicant
And
| VITORIO VINCENZO TURCO DOMINIC MARINELLI MARIO TURCO |
Respondents
REASONS FOR JUDGMENT
(as corrected)
Introduction and background
The applicant in these proceedings is the petitioning creditor, HP Mercantile Pty Ltd (“HP Mercantile”). There are three respondents and three petitions.
On 10 June 2009 HP Mercantile presented separate creditor’s petitions in relation to each of Victor Turco, Mario Turco and Dominic Marinelli which in each case asserted that the debtor owed the creditor an amount due under a judgment obtained in the District Court of New South Wales at Sydney on 21 July 2008. The amount claimed in relation to Mario Turco was $550,795.42, being the amount of the judgment in case number 5593 of 2002 together with interest. The same amount was claimed in relation to Victor Turco consisting of the amount of the judgment in case number 5594 of 2002 together with interest. The sum of $232,713.76 was said to be due from Mr Marinelli being the amount of the judgment in case number 4413 of 2002 together with interest. In each case the creditor relied on a failure by the debtor to comply with the requirements of a bankruptcy notice.
On or about 21 October 2008 the respondent debtors each filed a notice of appeal in the New South Wales Court of Appeal against the District Court judgment on which each bankruptcy notice was based. On 4 November 2008 the debtors filed applications to set aside each bankruptcy notice in this court. On 2 April 2009 the debtors filed an application in the Court of Appeal for a stay of proceedings pending the hearing of the appeals. The stay applications were dismissed on 28 April 2009. On 1 May 2009 the applications to set aside the bankruptcy notices were dismissed by this Court. On 20 July 2009 the appeals against the District Court judgments were dismissed by the New South Wales Court of Appeal.
The creditor’s petitions have been before a registrar of this Court on a number of occasions. On or about 15 December 2009 each of the respondents signed an authority under s.188 of the Bankruptcy Act 1966 (Cth) (the Bankruptcy Act) appointing George Lopez as a controlling trustee. In each case a stay of proceedings relating to each creditor’s petition came into effect pursuant to s.189AAA of the Bankruptcy Act until the earlier of the conclusion of the first meeting of creditors called under the s.188 authority or the adjournment of the meeting. On 22 December 2009 each matter was adjourned until 9 February 2010 in light of the s.189AAA stay.
The controlling trustee sought more time to permit further investigations into the debtors’ financial affairs following preliminary investigations and a report by him. On 1 February 2010 at the meeting of creditors, resolutions were passed in relation to each debtor to adjourn the creditors meeting for a period of 10 weeks or such lesser period as the controlling trustee, in his absolute discretion, determined. The effect of the adjournment was to lift the stay on the bankruptcy proceedings[1].
[1] See s.189AAA of the Bankruptcy Act
On 8 February 2010 each debtor filed a notice stating grounds of opposition to the creditor’s petitions. Each debtor also sought that the hearing of the creditor’s petition be adjourned to enable the adjourned meeting of creditors under Part X of the Bankruptcy Act to be concluded. That application was heard on 9 February 2010 and on 25 February 2010 her Honour Federal Magistrate Barnes delivered a reserved judgment in which she refused the adjournment applications[2]. At the time of handing down her judgment, her Honour also ordered that the matter be adjourned until 9.45am on Tuesday, 2 March 2010 before the registrar conducting the bankruptcy list. On that day the matter was referred to me at the request of all of the parties.
[2] HP Mercantile Pty Ltd v V Turco and Marinelli & M Turco [2010] FMCA 114
On that day the three respondents renewed their application for an adjournment of the hearing of the creditor’s petition. In an ex tempore judgment I refused that application as I was not satisfied that anything of substance had been advanced additional to that which was already dealt with by Federal Magistrate Barnes in her reserved judgment. I did adjourn the hearing of the creditor’s petition until the following day due to the lateness of the hour.
Evidence and submissions
In each case the applicant creditor relies upon an amended creditor’s petition filed on 2 March 2010. In each case the petition is supported by an affidavit within it of Dean McKenzie verifying paragraphs 1 to 4 of the petition. In each case the petitions are further supported by affidavits of service by Jeffrey Raymond Denton and Geoff Versace and Phillip Chris Botsis. Each amended petition is further supported by an affidavit of debt by Anthony Lee filed in court on 3 March 2010 and an affidavit of search of Dean McKenzie filed on the same day.
On 10 June 2009 the petitioning creditor lodged with ITSA in Sydney a Consent to Act as Trustee signed by Geoffrey Reidy in relation to Mario Turco[3]. Consents to Act as Trustee by Mr Reidy were lodged with ITSA in the other two matters on the same day[4].
[3] Exhibit A1
[4] Exhibits A2 and A3
The respondent debtors rely upon a further Notice Stating Grounds of Opposition filed in court on 2 March 2010. The request in that Notice for an adjournment of the hearing of the amended creditor’s petition is pressed notwithstanding the rejection of that application by me on 2 March 2010. I understand the debtors to be asserting that the issues in relation to the adjournment request provide another reason for the Court not to make a sequestration order[5]. In essence, the Court is invited to go behind the judgment debt relied upon by the petitioning creditor on the basis that new evidence puts into doubt assignments of debt that the creditor successfully relied upon in the District Court and on appeal in the Court of Appeal.
[5] See s.52(2)(b) of the Bankruptcy Act
I received as evidence in each matter the affidavit of Vitorio Vincenzo (Victor) Turco in support of the further Notice of Grounds of Opposition. I rejected a challenge to that affidavit and received the evidence on the limited basis that it was evidence that the debtors are in receipt of additional information about which they seek the advice of senior counsel with a view to considering whether to attempt to re-open the judgment of the District Court relating to the assignments of debt.
On 26 February 2010 each of the three debtors lodged with ITSA in Perth a Consent to Act as Trustee signed by George Aubrey Lopez and Evan Robert Verge. The debtors assert that Mr Lopez and Mr Verge should administer their estates in the event that the Court makes sequestration orders because they are located in Perth (where the debtors are located) whereas Mr Reidy is located in Sydney and it would be unreasonable to require the debtors to travel to Sydney to attend meetings of creditors and the like.
Consideration
Subject to the consideration of the grounds of opposition to the making of sequestration orders, I am satisfied that there has been adequate compliance with the formal requirements for the making of such an order under the Bankruptcy Act and the Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth) (“the Bankruptcy Rules”).
The further Notice of Opposition in each case is in the following terms:
1. This is an opposed creditors petition for a sequestration order. The [C]ourt is asked to adjourn the matter so that Senior Counsels advice may be sought urgently in relation to whether new evidence (which has just come to hand) and which was neither before the primary judge nor the Court of Appeal should now be made the subject of further proceedings before the Court of Appeal or whether this Court should be asked to look behind the judgment relied upon on the basis of new evidence.
2. The creditors petition was filed and presented by the petitioning creditor, HP Mercantile Pty Ltd (“HPM”) on 10 June 2009 asserting that the debtor owes the creditor an amount due under a judgment/order obtained in the District Court of New South Wales at Sydney on 21 July 2008.
3. The petitioning creditor sued the debtor for debt. On 4 July 2008, the primary judge gave reasons for judgment in favour of HPM. On 21 July 2008 the primary judge gave judgment for a specified sum of money plus interest.
4. The creditor relies on a failure by the debtor to comply with the requirements of a bankruptcy notice.
Background to claims
5. The claim is based on loans made to the debtor made by Tumut River Orchard Management Limited (“TROM”) in connection with tax effective horticultural investment projects promoted by TROM.
6. The petitioning creditor claimed to be the assignee of the debts. The original lender was TROM which on or about 28 June 1996 purportedly assigned parts of the debts to a company known as Core Finance Pty Ltd (“Core”).
7. On or about 28 June 1997 TROM purportedly assigned the remaining relevant debts to a company known as Symsung Pty Ltd (“Symsung”).
8. Core and Symsung purportedly on or about 15 March 2000 assigned to Merilbah Investments Pty Ltd (“Merilbah”), which later assigned to the petitioning creditor on or about 31 August 2001.
9. The debtor relies on the narrative of facts set out in New South Wales Court of Appeal judgment in Turco v HPM Mercantile Pty Ltd, Marinelli v HPM Mercantile Pty Ltd, Turco v HPM Mercantile Pty Ltd (No 2), [2009] NSWCA 209. The petitioning creditor claim that:
First Assignments
(a) loans in respect of two of the projects (called the Queensland and [Coonabarabran] projects) were assigned to Core on 28 June 1996;
(b) loans in respect of the other relevant project (called the Treetop Project) were assigned to Symsung on 28 June 1997;
Second Assignment
(c) the loans were assigned by Core and Symsung respectively to Merilbah on 15 March 2000 1997; and
Third Assignment
(d) the loans were assigned by Merilbah to HPM on 31 August 2001 1997.
10. The issue contested at trial was whether there was an assignment or an agreement to assign to Merilbah prior to 31 August 2001 i.e. whether the Second Assignment actually took place after the Third Assignment thus rendering invalid the Third Assignment to the petitioning creditor. The primary judge resolved that issue in favour of the petitioning creditor and held that the Second Assignment preceded the Third Assignment and therefore the Third Assignment was valid. At trial there was no issue regarding the validity of the First Assignments.
11. The debtor appealed on the basis that there was fresh evidence to show that the First Assignments did not occur and that if such evidence had been available the First Assignments would have been put in issue and that the fresh evidence was sufficient to justify a new trial going to this issue.
12. The petitioning creditor relied on the affidavit of Andrew Charles Purcell (“Purcell”) dated 17 November 2003 in which Purcell gave evidence at trial concerning the First Assignments.
13. Purcell stated that he had been a director of TROM, Core (formerly known as Finco) and Symsung. In his affidavit he stated that TROM had made a written offer of sale of loans to Finco dated 28 June 1996 (which could only be accepted orally accompanied by payment) and that on the same day a meeting of the directors of Finco resolved to accept the offer and that he orally accepted the offer and executed and delivered to TROM a promissory note for the purchase price. The affidavit exhibited a copy of a written offer of sale of loans from TROM to Core dated 28 June 1996, which was signed by Mr Purcell warranting that he had been duly authorised to make the offer. The affidavit asserted that on 28 June 1996 Purcell attended a meeting of directors of Core of which he was a director [where] it was resolved to accept the offer and Purcell accepted the offer and executed and delivered a promissory note from Core to the price. The affidavit exhibited a copy of the minutes of the directors meeting showing attendance of Purcell, his broth Mr Garth Doolan and a Mr Peter Forsyth.
14. He also stated that on 28 June 1997, TROM made an offer of sale of loans to Symsung (which could only be accepted orally accompanied by payment) and that he orally accepted the offer and executed and delivered to TROM a cheque from Symsung for the purchase price. Purcell’s affidavit exhibited a copy of a written offer of sale loan from TROM to Symsung date 28 June 1997. The affidavit asserted that on 30 June 1997 Purcell orally accepted this offer on behalf of Symsung and executed and delivered a cheque from Symsung to purchase price. It asserted that Purcell attended a meeting of directors of Symsung on 5 July 1997 where the board ratified acceptance of the offer, a copy of the minutes of that meeting was annexed showing attendance by Mr Purcell and his brother.
15. There was no information available to the debtors to suggest that they should put in issue Purcell’s evidence on these points and no such information could have been discovered by reasonable diligence.
16. Before a Deputy District Registrar Segal in Federal court and a liquidators examination on 3 April 2009 Purcell gave evidence that Core never resolved to accept the TROM offer, that Core did not authorise him to sign documents to give effect to resolutions, that Core did not accept the offer, that he did not on behalf of Core orally accept the offer, that there was no meeting of directors of Core held on 28 June 1996, or at all, that he created various documents after the alleged events including a confirmation of acceptance of verbal offer sometime in 2002 after litigation have been commenced by the petitioning creditor and at the request of a Mr Ross Chapman who acts in some capacity on behalf of the petitioning creditor. Purcell also stated that he did not think that TROM ever made demand on Core finance to pay the amount of $5 million pursuant to the promissory note and that he signed an endorsement of the promissory note from TROM to Tumut Reward Share Limited which endorsed it back to Core. He said that if there was a payment it was by round robin or cheque swap. Purcell also stated that there was no meeting of Symsung directors held on 5 July 1997, that he did not verbally accept TROM’s offer on behalf of Symsung, that Symsung never verbally responded in acceptance of the offer or by any other method or by conduct, that the board of Symsung never ratified any such acceptance and that Symsung got a cheque for $4.7 million from TROM and paid it back to TROM by way of cheque swap.
17. The Court of Appeal was required to determine whether this evidence satisfied the requirements for fresh evidence in such a way as to justify allowance of the appeal and the ordering of a new trial. Three requirements had to be satisfied in relation to the reception of fresh evidence and justification for the ordering of a new trial.
17.1. Firstly the evidence must not have been reasonably available at the original trial;
17.2. Secondly the evidence had to be credible; and
17.3. Thirdly the evidence must lead to a high probability of a different result if there was a new trial.
The Court of Appeal considered that the fresh evidence did not satisfy the second and third requirements.
18. On the question of whether the evidence was credible, Purcell was found by the primary judge to have been dishonest in numerous respects and the Court of Appeal considered that no reasonable basis had been shown for considering that the evidence now sought to be led by Mr Purcell in relation to the First Assignments as being more credible than that dealt with by the primary judge. The deficiency in relation to credibility of evidence was exacerbated by the fact that there was no corroborative evidence by any of the other persons said to have been involved in the transaction namely Mr Doolan, Mr Forsyth and Mr Purcell’s brother.
New Developments (as at 1 March 2010)
19. The debtor has now obtained statements from Mr Doolan and Mr Forsyth. Their evidence is to the effect that neither of them had ever seen the offers before, they had not seen the directors minutes either and were not present at meetings showing attendance by them. What is alleged now is not the mere absence of specific oral communication of acceptance. The new evidence now casts real doubt on the 1st Assignments and supports the conclusion(s) that:
(a) offers were never made;
(b) the directors meetings never took place either formally or informally; and
(c) the First Assignments never happened as alleged.
The fact that a cheque for the price of the assignment is shown to have passed from the assignee to TROM in exchange for a cheque going the other way supports the contention that the assignments were each a sham. Purcell himself gave evidence on 3 April 1009 that the document “MM” was created by him to provide “evidence of something that did not happen”. It is submitted that further evidence of Mr Doolan and Mr Forsyth corroborates the events as now stated by Purcell and supports the conclusion that the purported First Assignments never happened as alleged, alternatively were a sham and that the consideration for them was illusory and was not real consideration.
Going behind the judgment
20. Where a creditor is relying upon an unsatisfied judgment for its standing to present a petition the Court has power to look behind the judgment to ascertain if in truth a debt really exists or whether the judgment was founded on a real debt. The existence of a judgment is only prima facie evidence of a debt. A judgment is never conclusive in bankruptcy; the Court has a wider discretion. It has been said that the [rationale] for this approach is that the making of a sequestration order not only [affects] parties to the proceedings but the rights of all other creditors. See Burrell v Connell [1998] 84 FCR 383, Wren v Mahoney [1972] 126 CLR 212.
21. Examples of circumstances in which the Courts have found there is in truth no debt is where a judgment was obtained by fraud or fresh (previously unavailable) evidence has been discovered.
22. Although the original judgment in this case was the subject of an unsuccessful appeal, the new evidence now sought to be relied on was not before primary judge and nor did the Court of Appeal have the benefit of it to corroborate and support Purcell’s changed account. There has been no trial of the new evidence that is now sought to be relied upon. The primary Court’s decision is based upon the existence of an absolute (statutory) assignment in law of choses in action from TROM to Core and Symsung. The new evidence puts in doubt the 1st Assignments. In order for the Court to be satisfied that TROM could have become bound in some other way (or the debt arose in some other way), any alternative basis would have to now be proven but that is an entirely different case to the one which was tried at first instance in which there was no alternative plea put forward by the petitioning creditor that TROM became bound (or that the debt arose) in some other way.
Federal Magistrate Barnes, in her interlocutory judgment, dealt with the issues in relation to the assignments in the following terms:
The Controlling Trustee’s circulars also addressed information provided by each debtor “which suggests that there is a possibility that the [unsuccessful] appeal [to the New South Wales Court of Appeal in relation to the HPM matter] may be re-opened and the judgement (sic) stayed”. The Controlling Trustee observed that if this were to occur “it would have significant impact to the claims in the Estate and would affect the final outcome”. In each case it was said that there was a suggestion that “if the HPM claim [could] be eliminated, the Debtor may be able to seek release from control and to deal informally with his creditors”. The circulars indicated that while the Controlling Trustee was “not in a position to determine the merits or otherwise of the additional information the Debtor claim[ed] to possess”, he believed that “given the significant effect of a PIA or bankruptcy” it was in the interests of justice that the debtor “be given the opportunity to have the matter heard by the Courts”. It was said to be incumbent on each debtor to “ensure that the matter [was] heard and adjudicated by the Court” of Appeal within a ten week period. Each circular advised that a further supplementary Controlling Trustee’s report would be prepared before the next meeting of creditors. The debtors did not put any evidence before the court in relation to any current proceedings in the Court of Appeal.
…
I have taken into account all the material before the court in relation to each adjournment application including (but not limited to) the considerations suggested in Field. While there are considerations both ways, on balance the debtors have not satisfied me that the adjournments sought should be granted.
First, insofar as it is relevant to have regard to the course of dealings between the parties from the time the obligation to the petitioning creditor is said to have arisen, the petition in each case is based on a judgment obtained in the District Court of New South Wales on 21 July 2008. It appears from the limited information before the court and the submissions for the parties that HPM acquired certain debts prior to this time and then had to sue for them. While the relevance of any assignment is a matter said to be of significance to the value of HPM’s debt for voting purposes and was the reason given in Mr Lopez’s affidavit for adjournment of the creditors’ meeting, I note that none of the grounds in the notices of opposition take issue with the existence of debts to HPM. The creditor’s petitions rely on judgment debts based on contested District Court proceedings which in each case formed the basis for a bankruptcy notice. The debtors unsuccessfully sought to set aside the bankruptcy notices. As counsel for HPM pointed out, nineteen months have passed since this judgment. Applications for stay and appeals to the Court of Appeal were dismissed by 20 July 2009. No payments have been made since that time.
While the Controlling Trustee’s circulars to creditors refers to information from each debtor suggesting a possibility that the appeal may be re-opened and the judgment in favour of HPM stayed (and that this could be done within a ten week period), the debtors have put no evidence in this respect before this court. There is no evidence that the debtors have brought any proceedings to have the Court of Appeal judgment re-opened (as the Controlling Trustee understood they sought to do and contemplated would occur). These matters do not support the adjournment applications.
I rejected the renewed request for an adjournment on 2 March 2010 on the basis that all that had happened since her Honour’s judgment was that the debtors had obtained additional information in affidavit form about which they wished to obtain the advice of senior counsel as to the merits of seeking to re-open the District Court judgment. I was not persuaded that that additional information and the possibility that counsel might advise the debtors to make such an attempt provided a sufficient reason to go behind the District Court judgment which was supported on appeal by the Court of Appeal. Both courts rejected attacks upon the assignments by the debtors and the additional information could and should, in my view, have been raised in the earlier proceedings. The additional information (the veracity of which is untested) does not provide a substantial reason for questioning whether, behind the judgment of the District Court there was, in truth and reality, a debt due to the applicant creditor[6]. The fact that the debtors continue to question the validity of the assignments found valid by the District Court and the Court of Appeal is not a sufficient reason for this Court to refrain from making sequestration orders against the debtors.
[6] Wren v Mahoney [1972] 126 CLR 212
There is also a question of whether the fact that there are competing Consents to Act as Trustee, and the consent relied upon by the applicant creditor is of a trustee located in Sydney while the debtors are located in Perth, is another reason why the Court should not make a sequestration order. There is also a question whether the Court can, or should, by order, determine which of the three trustees should administer the bankrupt estates in the event that sequestration orders are made. The debtors point out that rule 4.05 of the Bankruptcy Rules requires service on a debtor of a trustee’s consent, presumably so that the debtor might object to a particular trustee. There will occasionally be circumstances where a particular choice of trustee provides a reason for the Court not to make a sequestration order: see Boral Montoro Pty Ltd v McLachlan [2007] FMCA 533 at [15]-[17]. It is noteworthy that Federal Magistrate Wilson in that case proceeded on the basis that the making of a sequestration order would necessarily result in the “appointment” of the trustee whose consent the petitioning creditor had obtained, notwithstanding the fact that consents had been obtained from other trustees, because the trustee about whom an objection was raised had not withdrawn his consent.
Leaving aside s.157(7) of the Bankruptcy Act, the Court does not appoint trustees upon the making of a sequestration order. A registered trustee who consents becomes the trustee in bankruptcy by force of the operation of the Bankruptcy Act. I dealt with that issue in Glover & Anor v Roche & Anor [7] at [5]-[10] where I said:
[7] [2003] FMCA 576
I have had the benefit of seeing written submissions and also hearing oral submissions from Mr Cowen and Mr Hassall. I have also heard from Mr Begbie. I thank them for the assistance rendered to the Court in the resolution of what is an unusual situation and a novel issue. Sections 156A and 160 of the Bankruptcy Act are particularly relevant. Section 160 of the Bankruptcy Act provides that:
If at any time there is no registered trustee who is the trustee of the estate of a bankrupt, the Official Trustee shall, by force of this section, be the trustee of the estate.
It follows that the default position under the Bankruptcy Act is that the Official Trustee is the trustee of a bankrupt estate. It is, in my view, also apparent from the scheme of the legislation that there cannot be a bankruptcy under the Act without there being a trustee to administer the bankrupt estate. Section 156A of the Bankruptcy Act relevantly provides as follows. Subsection (1) provides that:
A registered trustee may, by instrument signed by him or her and filed with the Official Receiver, consent to act:
a) as the trustee of the estate of the debtor specified in the instrument in the event that the debtor becomes a bankrupt; or
b) as the trustee of the joint and separate estates of such of the debtors specified in the instrument, being members of a partnership or joint debtors who are not in partnership with one another, as may become bankrupts, or, if only one of those debtors becomes a bankrupt, as the trustee of the estate of that debtor.
Subsection (2) provides that an instrument under subsection (1) shall be in accordance with the approved form. Subsection (3) provides that:
Where:
a) at the time when a debtor becomes a bankrupt, a registered trustee has, under subsection (1), consented to act as the trustee of the estate of the debtor and the consent has not been revoked, the registered trustee becomes, at that time, by force of this subsection, the trustee of the estate of the bankrupt; and
b) at the time when 2 or more debtors, being members of the partnership or joint debtors who are not in partnership with one another, become bankrupts, a registered trustee has, under subsection (1), consented to act as the trustee of the joint and separate estates of those debtors and the consent has not been revoked, the registered trustee becomes, at that time, by force of this subsection, the trustee of the joint and separate estates of those bankrupts.
It is possible that Federal Magistrate Rimmer and some of those appearing before her proceeded in the belief that it was open to the Court to appoint a trustee. If that belief was held, it was an erroneous belief. For the purposes of ss.156A(3) and 160 of the Bankruptcy Act, the Court does not appoint a trustee. I do not rule out the possibility that a trustee may be appointed by order of the Court in other circumstances[1], but for the purposes of these proceedings, I do not see any circumstance as being relevant at this time.
There is practically no authority on the point. However, I have been referred to an unreported decision of His Honour Pincus J on 19 June 1985 in the matter of Neil Keith Smith; ex parte Kern Corporation Limited. In that decision on page 3, His Honour said:
Lastly, it was argued on behalf of the debtor that I had a discretion not to appoint the registered trustee who had consented to act, Mr Burns. That appears not to be correct: see s.156A(3). The effect of that provision is that once the trustee has consented to act the sequestration order has the effect of making him the trustee of the estate; it is for that reason that the usual form of order merely notes that the registered trustee has consented to act and does not appoint him. I will make a sequestration order.
I agree with His Honour's reasoning. In my view, that is the only interpretation open from a plain reading of ss.156A and 160. It follows that the question to be resolved by me is one of fact, namely, did a registered trustee consent to act as the trustee of these bankrupt estates pursuant to s.156A(3) prior to the debtors becoming bankrupt?
There is no doubt that Mr Reidy has consented to act as the trustee in each matter and those consents have been lodged with ITSA. Prima facie therefore (and subject to the issue of the competing consents, to which I shall return), Mr Reidy would become the trustee in bankruptcy upon the making of sequestration orders. There is no evidence of any conflict of interest existing as was the case in Boral Montoro. The issue raised is one of convenience and the perceived unfairness of making debtors resident in Perth deal with a trustee in Sydney. In my view, that inconvenience, while real, is not a sufficient reason for the Court not to make a sequestration order. If the debtors were unable to attend to their responsibilities in Sydney at a particular time they could request a change of time or venue or the opportunity to attend by telephone or videolink. An unreasonable decision of the trustee in response to such a request could be reviewed by the Court[8]. Ultimately, a trustee who misbehaves may be removed by the Court or the creditors.
[8] See s.178 of the Bankruptcy Act
The remaining question is what, if anything, the Court should do with the competing consents signed by Messrs Lopez and Verge. The Bankruptcy Act does not envisage a circumstance where a creditor and debtor propose different trustees on a creditors petition. The scheme of the legislation envisages that on a creditors petition it is the creditor rather than the debtor who proposes a registered trustee. That is why the creditor must serve a consent on the debtor. The position is the reverse on a debtor’s petition. That is why a copy of a trustee’s consent must be filed with a debtor’s petition (see Bankruptcy Regulation 4.12). It is the creditor who may file with the Court an application to remove a trustee who has given consent pursuant to s.156A(3) of the Bankruptcy Act on the grounds of unfitness or partiality (s.156A(4)). Because the legislation does not envisage there being competing consents by registered trustees at the time of the making of a sequestration order, I take the view that ITSA should not receive a consent from a registered trustee in relation to the potential bankrupt estate of a particular debtor where another consent has already been received and has not been withdrawn or revoked and it does not appear that the second trustee will administer the estate jointly with the first trustee. I also take the view that ITSA should not receive a Consent to Act as Trustee lodged by a debtor on a creditors petition. A debtor is only entitled to nominate a trustee on a debtor’s petition. Nevertheless, the consents by Messrs Lopez and Verge have been received by ITSA, having been lodged on behalf of the debtors.
A similar circumstance arose in the case of Peter Clyne v Deputy Commissioner of Taxation; Official Trustee in Bankruptcy v William Edward Andrew[9]. In that case a trustee’s consent had been filed with a debtors petition and had not been revoked. A different trustee’s consent had been filed with the creditors petition and it also had not been revoked. The Full Federal Court concluded that in the unusual circumstances of that case, both trustees became trustees of the bankrupt estate but that the problem could be resolved by either the creditors or the Court, on application by one of the trustees or the controlling trustee under s.50 of the Bankruptcy Act.
[9] [1984] FCA 9. cf Clyne v Deputy Federal Commissioner of Taxation (1984) 154 CLR 589.
In the present case, there is no controlling trustee under s.50. No action was taken pursuant to that section. In my view, the consequence of competing consents having been given and accepted by ITSA is that, upon the making of a sequestration order, each of the trustees would be a trustee in bankruptcy of the estates of the debtors by operation of s.156A(3)(b) of the Bankruptcy Act. That inconvenient position can be resolved in a number of ways. It can be resolved on the application of a creditor, pursuant to s.156A(4) of the Bankruptcy Act. It can be resolved by the Official Receiver, pursuant to s.181A. It can be resolved by resolution of a meeting of creditors, pursuant to s.181.
In the meantime, some action is needed in order to direct who should take control of the administration of the bankrupt estates in the event that a sequestration order is made. In my view, the Court has power under s.30 of the Bankruptcy Act to make appropriate orders. That is the course that I will take. In my view, Mr Reidy should administer the bankrupt estates upon the making of sequestration orders. He is the trustee of choice of the petitioning creditor and his consent was first in time and has not been withdrawn or revoked. The later consents lodged by the debtors should not have been accepted by ITSA.
I am satisfied that the debtors committed the acts of bankruptcy alleged in the amended petitions. I am satisfied with the proof of the other matters with which s.52(1) of the Bankruptcy Act requires proof. I am not satisfied that the debtors have advanced any sufficient reason for the Court to refrain from making sequestration orders.
On 18 March 2010 the solicitors for the petitioning creditor wrote by facsimile to the Court to advise that a settlement had been reached with Mr Marinelli and that the creditor would be seeking leave to withdraw and dismiss the petition against him with no order as to costs. The solicitors advised that they would still proceed against Victor and Mario Turco. Accordingly, I have proceeded in this judgment only to make orders in the cases of Victor and Mario Turco.
I make a sequestration order against each of the estates of Victor Turco aka Vitorio Vincenzo Turco and Mario Turco.
I order that the applicant creditor’s costs, including any reserved costs, be taxed and paid in accordance with the Bankruptcy Act.
The Court notes that the date of the act of bankruptcy in each case is 2 May 2009. The Court further notes that consents to act as a trustee in each case have been signed by Geoffrey Reidy (lodged with the Official Receiver in Sydney), and George Aubrey Lopez and Evan Robert Verge (lodged with the Official Receiver in Perth).
Pursuant to s.30 of the Bankruptcy Act, the Court directs Geoffrey Reidy to take control of and administer the bankrupt estates pending any further action in relation to the consents of Mr Lopez and Mr Verge.
ADDENDUM
On 16 June 2010 my associate received an email from Mr Paul Rodionoff of counsel which relevantly states:
I have recently come across His Honour's decision in HP Mercantile v Vitorio Turco [2010] FMCA 149. In the course of that decision his honour relied upon the case of Peter Klein v DCT [1984] FCA 9. That case is reported with the surname spelled as Clyne in 52 ALR 657. The decision was overturned on appeal to the High Court. See (1984) 154 CLR 589.
If you feel it is useful to do so, you may wish to bring to His Honour's attention the fact that the Full Federal Court decision was overturned on appeal, so that if he is hearing a case with similar facts he does not have in his mind that the views of the Full Federal Court were the last word on these issues.
I have examined the decision of the High Court referred to by Mr Rodionoff which turned on a different question, namely the power of a bankruptcy court to make a sequestration order on a creditor’s petition after presentation of a debtor’s petition and the power to annul a bankruptcy where the presentation of a debtor’s petition is an abuse of process. Apart from the correction of the citation of the Federal Court decision and the amendment of the footnote, I am satisfied that no action is required.
I certify that the preceding thirty-one (31) paragraphs are a true copy of the reasons for judgment of Driver FM
Associate:
Date: 18 June 2010
CORRECTIONS
Paragraph 21, line 1 – delete “Klein” insert “Clyne”
Paragraph 21, line 3 – “cf Clyne v Deputy Federal Commissioner of Taxation (1984) 154 CLR 589” added to footnote
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