Hrycenko (by His Legal Representative Hycenko) v Hrycenko
[2021] FedCFamC2G 187
•28 October 2021
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 2)
Hrycenko (by His Legal Representative Hycenko) v Hrycenko [2021] FedCFamC2G 187
File number(s): MLG 2739 of 2020 Judgment of: JUDGE BURCHARDT Date of judgment: 28 October 2021 Catchwords: BANKRUPCY – Debtor seeking dismissal or adjournment of creditor’s petition – debtor conceding section 52(1) Bankruptcy Act 1966 (Cth) requirements complied with – creditors prima facie entitled to sequestration order - debtor not asserting solvency – whether other sufficient cause why a sequestration order should not be made – creditor having benefit of charge over debtor’s properties – whether creditor should be required to take action on the charge – whether failure to do to constitutes abuse of process – Court not satisfied other sufficient cause established - sequestration order made. Legislation: Bankruptcy Act 1966 (Cth)
Evidence Act 1995 (Cth)
Supreme Court (General Civil Procedure) Rules 2015 (Vic)
Cases cited: Australian Competition and Consumer Commission v BlueScope Steel Ltd (No 4) [2021] FCA 1162
Cherry v Boultbee (1838) 41 ER 171
Hrycenko v Hrycenko in his capacity as personal representative of the estate of Hrycenko (deceased), in the matter of Hrycenko [2021] FCCA 293
Division: Division 2 General Federal Law Number of paragraphs: 57 Date of last submission/s: 29 September 2021 Date of hearing: 29 September 2021 Place: Melbourne Counsel for the Applicant: Mr Bevan Solicitor for the Applicant: Kennedy Guy Solicitors Counsel for the Respondent: Mr Evans Solicitor for the Applicant: NOH Legal Advocate for the Supporting Creditor: Mr Hager Solicitor for the Supporting Creditor: Keypoint Law ORDERS
MLG 2739 of 2020 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
IN THE MATTER OF VICTOR HRYCENKO
BETWEEN: MR GEORGE HRYCENKO (BY HIS LEGAL REPRESENTATIVE NICHOLAS HYCENKO
Applicant
AND: MR VICTOR HRYCENKO
Respondent
AND KEYPOINT LAW
Supporting Creditor
ORDER MADE BY:
JUDGE BURCHARDT
DATE OF ORDER:
28 OCTOBER 2021
THE COURT ORDERS THAT:
1.A sequestration issue against the estate of the respondent debtor, Victor Hrycenko.
2.The applicant creditor’s
and supporting creditor’scosts (including reserved costs) be taxed and paid from the estate of the respondent debtor in accordance with the Bankruptcy Act 1966 (Cth).3.The supporting creditor’s costs (including reserved costs) be taxed and paid from the estate of the respondent debtor in accordance with the Bankruptcy Act 1966 (Cth).
4.The oral application made in Court to stay the sequestration order be adjourned to this Court for mention before Judge Burchardt on 29 October 2021 at 9.30 am.
5.Costs be reserved.
THE COURT NOTES THAT:
A.The date of the act of bankruptcy is 28 April 2020
B.A consent to act as trustee signed by MICHAEL DAVID BADGE has been filed under section 156A of the Bankruptcy Act 1966 (Cth).
C.These Orders have been amended pursuant to rule 17.05(2)(h) of the Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021.
Amended pursuant to rule 17.05(2)(h) of the Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 on 28 October 2021 and 29 October 2021..
Note: The form of the order is subject to the entry in the Court’s records.
Note: The Court may vary or set aside a judgment or order to remedy minor typographical or grammatical errors (r 17.05(2)(g) Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 17.05 Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth).
REASONS FOR JUDGMENT
JUDGE BURCHARDT
INTRODUCTORY
The matter before the Court is a creditor’s petition. The debtor is Victor Hyrcenko. It should be noted at the outset that there is no dispute as to the following matters:
(a)the requirements of section 52(1) of the Bankruptcy Act 1966 (Cth) (“the Act”) are met;
(b)the respondent (whom I shall refer to as Victor given that he bears the same or almost identical surname to that of the applicant) owes the estate of Victor’s father, George Hrycenko, a very substantial amount of money;
(c)Victor does not assert that he is solvent within the meaning of section 52(2) of the Act; and
(d)the real issue in the case is whether Victor can show
(i)whether there is other sufficient cause why a sequestration order ought not be made; and
(ii)if there is other sufficient cause, that it is appropriate for the Court to dismiss the petition.
It should be noted that these two latter points spring from a further agreed matter which is that given the requirements of section 51(1) of the Act having been complied with, the creditor has a prima facie right to have a sequestration order issued.
PRELIMINARY MATTERS – THE NOTICE TO PRODUCE AND THE ADJOURNMENT APPLICATION
On 30 August 2021, I adjourned the then posited hearing of this matter on an application by Victor. Complaint was made that there had been late service of relevant affidavits. On the same day, Victor served on the applicant (whom for the reasons already given as to similarity of name I will refer to, without disrespect, as Nicholas) a notice to produce. The notice to produce required the production of some 14 categories of documentation all relating to various aspects of costs engendered in legal proceedings to which George Hrycenko (and subsequent to his death, Nicholas as his executor) and Victor had been parties. The scope of the documentation requested is clearly very significant as is apparent from the nature of the categories of documentation required. They go back to very extensive legal proceedings commenced in 2017 by George against Victor. If the first 13 particularised categories of documentation were not felt to be enough, Victor also sought at category 14, “to the extent not covered by above, all documents evidencing any disbursements or payments on behalf of the estate” (i.e. George’s estate). Even leaving aside the three or four categories of documents apparently already provided prior to the issuing of the notice to produce, the scale of documentation sought was clearly very substantial.
In order to put this matter in perspective, it is necessary to pay a brief regard to the history of this matter in an overarching sense.
From the judgment of Lyons J given on 23 October 2019 it is apparent that the late George Hrycenko dearly loved both his sons. From time to time however, he found himself involved in litigation with first Nicholas and then Victor. These episodes of litigation followed and appear in part to have arisen out of episodes during which first Victor and subsequently Nicholas as it were had the ear of their father, who was clearly heavily influenced by them both. Lyons J found that both Nicholas and Victor had a very marked sense of entitlement to their anticipated share of the estate of George Hrycenko during his lifetime and found that this was of no credit to either of them.
On any view of the matter, in August 2016 George gave Victor a million dollars arising out of the sale of his former home in Richardson Street, Essendon. That gift has not been impugned at any stage in any of the various proceedings in which the parties have been embroiled.
In 2017 George issued proceedings in his own name in the Supreme Court seeking the return of in excess of $2,000,000 from Victor who was alleged to have abstracted these funds improperly while in possession of a power of attorney executed in his favour by George himself. The action against Victor was successful and provided for orders given on 31 January 2020 in favour of George in the sum of $2,643,395.97 together with pre-judgment interest of $441,727.28. An attempt by Victor subsequently to seek to appeal by seeking an extension of time in which to do so has been unsuccessful. Victor has, however, issued proceedings in the Supreme Court seeking remedies against Nicholas for what might be broadly described as misuse of his powers as executor of the estate. That matter is still proceeding.
Following the judgment of Lyons J, George died on 6 June 2020 and subsequently Nicholas achieved a grant of probate. Shortly before his death, George instituted what might be described as enforcement proceedings against VHY Enterprises Pty Ltd (“VHY”), a company of which Victor was the sole director and shareholder. Put shortly, Derham AsJ on 11 December 2020 gave a judgment concluding that there should be a judicial sale of two properties owned by VHY.
This order merely built upon earlier orders. Justice Keogh had made orders on 8 December 2017 by which Victor was prevented from diminishing his assets, up to unencumbered value of $2,578,873. That order was subsequently continued, but eventually discharged by Zammit J on 16 May 2018, when, on the undertakings of Victor and VHY, and upon Victor and VHY charging property in favour of the plaintiff (George, at that time), by way of charge in the sum of $2,578,873. The decision of Derham AsJ is referred to in material annexed to an affidavit of Omar El-Hissi, Victor’s solicitor, which was tendered as exhibit R1. The orders ultimately made by Derham AsJ do not appear to be before the Court, but plainly envisage the sale of a property in Frankston and a property in Safety Beach owned by VHY.
The Safety Beach property was sold, producing net receipts of sale of $138,943, and the Frankston property was sold producing net proceeds of $898,269.
One of the matters in issue between Nicholas and Victor is whether or not Nicholas ought to be required to proceed by way of further judicial sale of the two other properties owned by Victor personally, so as to draw down and extinguish the charge. There is also a significant dispute between the parties as to whether or not costs incurred by Nicholas, as claimed in this proceeding as extant, are excessive.
Although this has been a somewhat laborious excursus, it brings the notice to produce into its proper focus.
The first thing to be noted is that, of course, Nicholas and his solicitor, James O’Donnell, were both available for cross-examination, and, indeed, were ultimately cross-examined. Thus, at least in broad outline, it was open to Senior Counsel for Victor to put these matters directly to them.
Second, the costs in issue between the parties are, in broad outline, in my view, relatively clear. Over objections by Victor’s Counsel, I admitted into evidence an estimate of costs prepared by costs Registrar Walton of the Costs Court of the Supreme Court of Victoria, dated 13 July 2021, which suggests that the estimate provided, pursuant to rule 63.88(2) of the Supreme Court (General Civil Procedure) Rules 2015 (Vic), as to what the outcome of taxation costs, if the bill were taxed, will be $423,495. As I explained in my brief ruling on the admissibility of the document, that is not some wild guess, but rather, an informed estimate by an expert.
Furthermore, while there might well be room for arguments as to the costs of subsequent and ancillary proceedings, there will, on any view of the matter, be likely to be further costs in any event. Indeed, I do not understand Victor to put that general proposition in issue.
A notice to produce may be set aside on various grounds, which were set out, at least as to some aspects, in Australian Competition and Consumer Commission v BlueScope Steel Ltd (No 4) [2021] FCA 1162, at [19], where O’Bryan J noted, having referred to authority:
The grounds on which a subpoena or a notice to produce may be set aside include:
(a)where it is an abuse of process, in that it is being used for the purpose of discovery;
(b)where it is oppressive: Small at 575; and
(c)where the documents sought to be produced do not have apparent relevance to the issues in the proceeding (which may be expressed as whether the documents are reasonably likely to add, in some way, to the relevant evidence in the case).[references to authority omitted].
In my view, the scope and scale of the documentation sought was self-evidently oppressive on its face. Furthermore, I formed the view that the materials sought to be adduced would not add to a consideration of the merits of the respondent’s case. They were matters that were properly capable of being excluded, pursuant to section 135 of the Evidence Act 1995 (Cth). While it is certainly the case that Victor has taken issue with the scope and scale of the costs claimed against him, his primary position is that in effect, the application to bankrupt him is an abuse of process. That matter was, in my view, susceptible of proper determination without any of the documentation that Victor was seeking in the notice to produce. For these reasons, I set the notice to produce aside.
The application to adjourn the proceeding was wholly contingent upon the success of the point about the notice to produce. The notice to produce being set aside, there was no basis to adjourn the proceedings, and I did not understand Counsel for Victor to suggest that there was.
THE SUBMISSIONS MADE AND EVIDENCE GIVEN AT COURT
What follows is self-evidently not a transcript. It is taken from my notes.
Following the brief opening in which Counsel for the applicant for Nicholas indicated he relied essentially on the written submissions previously filed, James O’Donnell was called to give evidence. He is employed by Kennedy Guy, who are Nicholas’ solicitors. Nicholas’ affidavit, sworn 28 August 2021, was, at the request of the respondent, marked for identification as MFI1, and his affidavit of 27 September 2021 was marked as MFI2. Mr O’Donnell’s affidavit of 28 September 2021 was tendered as exhibit A1.
Senior Counsel for Victor took Mr O’Donnell to paragraph 4 of his affidavit. Mr O’Donnell confirmed that $341,469 had been paid the previous day, in addition to $129,030, paid on 6 August 2021. These were to discharge debts of the estate to Kennedy Guy. Counsel put it that there had been multiple enforcement attempts. Mr O’Donnell recalled an attempt by Victor to set aside the bankruptcy notice served upon him (which should be noted in passing was dismissed by Judge McNab). Mr O’Donnell confirmed that there had been proceedings in the Costs Court and there had been proceedings arising out of Victor’s endeavour to appeal the original decision of Lyons J. The total of $470,000 paid in relation to costs was debts in relation to six proceedings. They were not limited just to the judicial sale proceeding. A total of $414,000 was correct up until 10 August 2021 and there had been $56,000 since to produce a total of $470,000.
Associate Justice Derham had made orders on 5 March 2021 but the costs there ordered are not yet taxed. Counsel put it that the $129,030 paid on 6 August 2021 was contrary to the orders of Derham AsJ at VH137 and following of Victor’s affidavit of 27 September 2021. Mr O’Donnell said this was not necessarily the case. There was a follow up order. He was not sure he had an answer. The other order was made about one week later. He confirmed, however, that there were no orders made subsequent to the orders at VH142 and following.
Counsel returned to the order at VH140. It was put again that paying the $129,000 of executor’s costs was not in accordance with Derham AsJ’s orders. Counsel traversed again the payment of the $340,000. It was put that this was contrary to the orders of Derham AsJ. Mr O’Donnell did not agree and said that the costs were to come from the sale proceeds.
Counsel traversed Schedule 1 to Mr O’Donnell’s affidavit which included calculations of interest since judgment. Mr O’Donnell had confirmed that he had undertaken the calculations. He confirmed that he had not allowed in those calculations for the reduction occasioned by the payment of $134,000 received in August 2021. Counsel took Mr O’Donnell to VH117. Mr O’Donnell confirmed that it was his signature on the statement of land sought to be affected by warrants of seizure and sale issued against Victor. The warrants were issued on 21 July 2021. This was done on the instructions of Nick Hycenko. It was an enforcement right that was available. He was aware that warrants were issued on 26 August 2021.
It was put that he was aware that the properties owned personally by Victor at Mount Martha and Cape Schanck had a combined net value of over $4 million. Mr O’Donnell did not recall and was not sure. He had some idea of the Cape Schanck value, but did not recall. He agreed that Mr El-Hissi had put a value on those properties in his own affidavit material. He had some idea about the value of Mount Martha. It had been appraised over $2 million, and Cape Schanck had also been appraised at over $2 million. He knew the warrants had been issued by 21 August 2021. He indicated that he had delivered the warrants to the Sheriff himself. He also agreed that he had not told Mr El-Hissi about the warrants. There was no reason why he should. It was an ex parte application. He had not included the warrants in Nicholas’ affidavits for 26 and 28 August 2021. This was not because they might be thought to be adverse to the application presently before the Court. He was not sure what bearing the warrants would have and is still not sure. He has not been instructed to withdraw the warrants.
In re-examination, Counsel took Mr O’Donnell to VH140 (the 5 March 2021 orders of Derham AsJ). Mr O’Donnell confirmed that the payment of costs, charges and expenses associated with Safety Bay had been paid (order 8(a)). The registered mortgage in favour of Dnister had been paid (order 8(b)).
He was not aware whether the costs order against VHY in favour of Dnister had been paid (order 8(c)).
The Kennedy Guy invoices were issued and paid from the proceeds of sale.
The Evidence of Nicholas Hycenko
Mr Hycenko was called and indicated that he has retired and that he is the executor of his father’s will.
Nicholas confirmed that he was aware of his duties as executor. He will obtain $1 million from the estate and divide the rest equally. He became the executor after his father’s death and obtained probate. He was aware of a charge order arising out of the Supreme Court in the sum of about $2.57 million. It was put that it was open to him to enforce the charge. Nicholas said yes. He can seek orders. He got orders in respect to Safety Beach and Frankston. There were also two properties owned by Victor personally, Cape Schanck and Mount Martha. Counsel put it that these were worth over $2 million, but Nicholas said he was not sure. He has not made his own assessment. A lot of properties were inflated. He thought one was worth about $1.5 million and other close to $2 million. There is still about $1.83 million extant on the charge. He appreciates that he could go to Court on the charge.
Counsel put it that there were also warrants available. Nicholas agreed. He said his father had issued the bankruptcy notice and had not involved him. His father was an astute businessman who had capacity till his death. It was put that he obtained probate on 8 September 2020 and was aware of the application to set aside the bankruptcy notice. He agreed and said that he had continued that. It was put that he wanted to bankrupt Victor. Nicholas said it was his job to recover the debts and honour his father’s wishes. He just continued what his father had done.
It was put that warrants had been issued in July 2021 for a seizure and sale. Nicholas said that warrants had been going on for a lot longer than that. They were delayed by COVID. It was a very slow process. He thought the end result was to return the money. He just wanted to keep momentum going.
It was put that there was no mention of the warrants in his affidavits of 26 and 28 August 2021. Nicholas said that there had been a break in communications with the Sheriff. He was not sure how it recommenced. This bankruptcy seems a more secure way to get the money. He has had no direct contact with the sheriff. There were problems with service. It was long drawn out and the Sheriff’s office had a backlog. It just sits in the background, in case other things failed. He had no idea whether the warrants were active. He had said that the sheriff was taking too long.
Submissions by Counsel for Victor
Counsel formally read the affidavit of Omar El-Hissi, 31 March 2021 (exhibit R1), and the affidavits of Victor, filed 26 August 2021 (Exhibit R2) and 27 September 2021 (Exhibit R3).
Counsel submitted that it was not in dispute that, even if Victor showed other sufficient cause why a sequestration order ought not be made, the Court retained a discretion as to whether or not to make a sequestration order. It was submitted the Court can also adjourn. Victor sought the dismissal of the petition, but in the alternative, an adjournment pending realisation of the two properties. These would satisfy the balance of the judgment against him.
Counsel submitted this was an unusual case. The debt was not disputed. The quantum was not significantly disputed. The amount of the judgment and the pre-judgment interest was not disputed. George obtained the debt, and Nicholas is the executor. Interest since judgment is not much disputed, and runs at 10 per cent per annum. The judgment was obtained in January 2020, and the charge secured up to $2.578 million. Counsel referred to the affidavit of Victor at paragraphs 59 to 64, being the valuations asserted in respect of the Mount Martha and Cape Schanck properties. The combined equity in the two properties was $4.5 million. The charge had been reduced by payments up until the proceeding Monday. $900,000 had been received pursuant to the charge, and this should have been applied to the judgment debt, pursuant to Derham AsJ’s orders. It should have been received for the judgment debt. The debt was $3.08 million including interest. The estimate of Court costs was objected to. Even if it was $400,000, Victor would owe about $3 million. There will be $1 million paid to Nicholas, and then $1 million each to Nicholas and Victor. Other disbursements include $35,000 for a cost consultant, which was double-counted. Counsel referred to NH3, to Nicholas’ affidavit, which showed gross consultants fees in the sum of about $37,000, being items 2520 and 2521.
Counsel submitted that the estate has assets of $3.8 million, and liabilities of about $100,000. $1 million would go to Nick, and $2.7 million would be between Victor and Nicholas. It was submitted that to make a sequestration order, where the charge was available to specify Nicholas’ entitlements, was inappropriate. The claim for $2.35 million is matched by the charge. The charge is worth $2.578 million. The matter should not continue where Nicholas knows Victor has significant assets against which judgment could be enforced. The charge has now been reduced by $900,000. $1.8 million of the charge remains. Victor has equity in excess of $5.5 million. Nicholas sought warrants in July, which is inconsistent with seeking a sequestration order. Sequestration orders are not debt enforcement. They operate for all creditors. Victor disputes Keypoint Law (whose submissions in regard to the adjournment application I will return to) and Mornington Peninsula Legal. Victor has assets to discharge all his debts. Counsel confirmed, however, it is not put that he is solvent. He is seeking to establish other sufficient cause. Nick owes fiduciary duties to the residuary beneficiaries. If the properties are sold, the bankruptcy will be annulled anyway. Counsel conceded that Victor has not voluntarily agreed to satisfy his debts. The sequestration order would have a profound effect on Victor. Counsel, however, clarified that this was not put as being an abuse of process. The proceeding has been initiated with a view to obtaining a sequestration order. The Court should not make a sequestration order while the sale of the properties was possible. Counsel posited the possibility of mediation (something I suggested was not likely to be very productive, given the ill feeling apparent between the brothers).
Submissions for Counsel for Nicholas
Counsel was essentially content to rely upon his updated written submissions, which included the assertion that Victor’s indebtedness exceeds the value of the charge. It was assorted at paragraph 13 that interest continues to accrue on a penalty interest basis at the sum of $753.03 per day. That figure has not been put in issue by Victor.
The written submission noted that there was ongoing litigation in the Costs Court in relation to costs of the primary proceeding (i.e. the challenge to NH04). There are also proceedings in which Victor seeks to remove Nicholas as executor, and it was submitted there will be other costs orders made which would require quantification.
The written submissions also submit that Victor’s expectancy under the will is irrelevant, because it is postponed until after the debts of the estate are paid and Nicholas receives the first $1 million. In short, it was submitted at paragraph 14,
The Estate has no capacity to pay its debts or Nicholas’ first million because its only assets are the debts owed by the respondent and the respondent has resolutely withheld payment. The respondent’s expectancy is not therefore capable of ready realisation. It is a resource which will only at some time in the indeterminate future become available to the respondent when, despite his best efforts, the Estate successfully concludes legal action compelling the sale of the charged property.
The written submissions go on to traverse the rule in Cherry v Boultbee (1838) 41 ER 171. I have regard to those written submissions and note that at paragraph 21 it is observed:
In his own affidavit material, the respondent debtor “accept[s] that George’s estate has a significant judgment against me, which I (and my company VHY Enterprises Pty Ltd (VHY)) is required to satisfy”. The respondent judgment debtor cannot have recourse to the rule in Cherry v Boultbee or some cognate equitable rule without first doing equity and equity requires that he pay his debts.
In oral submissions, Counsel took issue with the alleged double counting of the cost consultant’s fees. The costs since January this year have not yet been quantified, but this will occur. It was submitted that Victor already has a net debt to the estate of about $200,000. It was submitted that the respondent has not discharged the onus upon him to prove that there is other sufficient cause why a sequestration order ought not be made. It was submitted that Nicholas’ evidence was compelling. Judicial sale took over a year. Sheriff’s warrants have been of no effect in over a year. The rule in Cherry v Boultbee requires Victor to do equity. He just chooses not to pay. He had failed to comply with the bankruptcy notice. He had not proved solvency. He has other debts and there is therefore a presumption as to a sequestration order. Some debt is ultimately unsecured and therefore he has not shown sufficient cause.
Submissions of Mr Hager, Supporting Creditor.
I set out at this point a narrative provided by Mr Hager in the context of the application for an adjournment. He said the creditor was a law firm. They acted for Victor in the case leading up to the judgment of Lyons J. The charge came after a freezing order had been taken out over assets of Victor’s. The freezing order was against VHY and the two properties of Victor. It was capped at $1.5 million. His firm acted until the 9th or 10th day of the trial and took a charge as security. Demands had not been answered. In proceedings in the County Court Victor challenged costs disclosure documentation. In the Costs Court they had sought $225,000 which was reduced by $8,000. They got judgment for about $218,000 with costs of $1500 and costs for the taxation which are being assessed but are likely to be $18,500. The resultant unpaid total was approximately $235,000.
Some Further Submissions of Counsel for Victor.
Counsel said that the Keypoint Law debt was not contested, but Victor has deposed at paragraphs 18 to 20 of exhibit R2 that he intends to file a counter-claim. The judgment debt will go as to 50 per cent to Victor after the $1 million is paid. Cherry v Boultbee is relevant. If the charge was enforced there would be no debt to the estate.
BRIEF OBSERVATIONS ABOUT THE WITNESSES
Mr O’Donnell was a careful and considered witness. I confess it struck me that he was rather trying to wriggle out of the all too obvious conclusion that the payment of the $430,000 to Kennedy Guy was technically an infraction of the order of Derham AsJ: but with that exception he struck me as very direct and straightforward. Furthermore, I note that I do not have the earlier orders that gave rise to the sale of the first property. It is not inconceivable there is some overarching order which might come to Kennedy Guy’s aid so to speak. Nonetheless, I repeat, Mr O’Donnell was a good witness.
Although Lyons J did not find either Victor or Nicholas satisfactory witnesses, noting their mutual dislike and sense of entitlement, in appearing before me Nicholas’ evidence was given very clearly and cogently. It is clear he does not like his brother. It is also clear however that he is seeking to secure repayment of the debts that Lyons J found Victor owed and will thereafter conform with the terms of the will. His answers struck me as being honest and straightforward. It is apparent that he is proceeding on a number of fronts in an endeavour to get money out of Victor who plainly does not want to pay it.
CONSIDERATION OF VICTOR’S CASE
Victor’s case is primarily that he has established other sufficient cause why a sequestration order should not be made. The primary footing on which this is put is that Nicholas should be required to execute against the charge in his favour and that the failure to do so suggests that this proceeding is not being brought for a proper purpose. This of course is subject to the qualification that Counsel conceded that the creditor’s petition was, as it were, founded on a genuine desire to achieve a sequestration order. This matter is of course assessed prima facie as at the time of issue and there is no reason to doubt that George genuinely wanted to bankrupt his son. Indeed, these matters were the subject of express findings by McNab J in the case already referred to (see Hrycenko v Hrycenko in his capacity as personal representative of the estate of Hrycenko (deceased), in the matter of Hrycenko [2021] FCCA 293 at [54]-[66]).
Taking a step back from the all too confused fray between the brothers, Victor’s position strikes me as being essentially anomalous. On the one hand he freely acknowledges that he has a substantial debt to his father’s estate which he is going to be required to pay. He has made no meaningful endeavours to sell either of the properties that would enable him to pay that debt. Rather, it is apparent from his materials taken at a whole that he proposes to litigate in the most extensive way against his brother. This will, in part, be done by challenges to costs assessment. And it will also be done, it would seem, by actions to remove Nicholas as an executor. Either as part of that proceeding or in some interrelated proceeding, he will also seek to have either set aside or brought into account the apparent transfer of another property in Richardson Street, Essendon to Nicholas’ daughter Cassie. It should be noted that that aspect of the disputation has been rumbling for a long time, but not as long as the other part of his complaint, namely the alleged disposition of a houseboat to Nicholas at an undervalue.
Accordingly, it is also put as a subsidiary argument that a sequestration order will of course disempower Victor’s capacity to pursue those latter two actions.
Before turning to the schedule to Mr O’Donnell’s affidavit, exhibit A1, I note that given that the original judgment debt was slightly more than the charge of $2.578 million it is apparent the charge could never itself have assuaged the total indebtedness to the estate. Indeed, the total indebtedness also included, even as at the date of Lyons J’s orders in January 2021, a further $441,727 of pre-judgment interest.
That brings us to Schedule 1 to Mr O’Donnell’s affidavit. There is judgment, less the amount recovered, in the sum of $1,748,096. I will use this figure even though as it transpires $400,000 plus of the amounts recovered have been applied to antecedent costs obligations. The pre-judgment interest $441,727 is still owing. A further $439,000 is now owing in post-interest judgment and is increasing at $700 a day. The costs order estimate, which is highly persuasive, is in the sum of $423,000. I agree with Senior Counsel for Victor that the cash in Schedule 1 simply should not be there. This produces the total of debts of $3 million, leaving aside the apparently disputed debts to the other firms of solicitors. The liabilities, even leaving to one side the controversy about the cost consultant, appear to be over $100,000 which reduces the figure to around about $2.9 million. Victor owes about $3 million and his net position if the estate were administered cannot be better than around about $1.4 million at the most. Additionally there are other costs orders that will be eventually quantified against him.
Victor says that Nicholas should proceed by seeking orders for sale of his own properties by enforcement of the charge. But this would have the effect of selling one or both of his two properties, which is something it is plain he has certainly not done or evinced any intention to do thus far. It would have been open to him in this proceeding to undertake to sell one of the properties and discharge his debt. It is clear he has no intention of doing so.
Furthermore, with interest accruing at over $700 per day, the monthly increase is over $20,000 and the annual increase (a timeline not by any means inconceivable) is almost $250,000 per year.
In these circumstances, albeit that it puts the matter shortly, I do not think that Victor has discharged the onus of satisfying the Court that there is other sufficient cause why a sequestration order not be made. He has not paid his debts and he has not suggested that he is solvent. He is becoming more indebted by the day. His position is almost one of, “Please sue me and run up further costs in an action which I cannot defend and which will, at the expiration of a certain period of time, lead to the sale of my properties.”
As if this were not enough, and bearing in mind that there might indeed be some measure of disputation, it would appear that the supporting creditor is owed well over $200,000.
Against this, of course, one effect of the sequestration order would be to vest Victor’s right to pursue the County Court proceedings against the supporting creditor, and his various proceedings against Nicholas, in the trustee. There are perhaps two things to be said arising from this. First, the trustee would be required to consider and exercise in good faith their option to continue any of these proceedings. There is no reason to suppose that the trustee, as an officer of the Court, would not properly discharge that obligation. Second, assuming that in the ultimate Victor is the subject of a sequestration order, I doubt that that will necessarily inhibit his capacity to pursue actions in his own name. It would be open to him to challenge any decision of the trustee, should he be minded on proper grounds to do so, in his personal capacity. There will obviously be issues as to whether or not the trustee admits the proof of debt likely to be filed by the supporting creditor and at least one other law firm. I accept in Victor’s favour, so to speak, that it is possible that the trustee would not elect to continue some or all of Victor’s ongoing proceedings.
CONCLUSION
Nonetheless, I think a sequestration order should be made. I do not think that Victor has made out his case that there is other sufficient cause for why a sequestration order ought not be made. True it is that the brothers do not like each other, but Nicholas will not be the trustee in bankruptcy. Furthermore, I uphold the submission of the applicant in an overarching sense. Whatever entitlement Victor may ultimately have when the will is formally complied with, he cannot himself be paid out until Nicholas is paid his $1 million. Nothing Victor has put suggests that he has any intention of enabling that to occur. I will make the orders as sought by the applicant.
I certify that the preceding fifty-seven (57) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Burchardt. Associate:
Dated: 28 October 2021
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