Hrycenko (by His Legal Representative Hycenko) v Hrycenko

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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’s costs (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…

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Details
Case
[2021] FedCFamC2G 187
Decision Date

CaseChat Overview and Summary

In the matter of Hrycenko (by His Legal Representative Hycenko) v Hrycenko, the court was presented with a dispute concerning a debtor's petition for dismissal or adjournment of a creditor's bankruptcy petition. The debtor conceded compliance with the requirements of section 52(1) of the Bankruptcy Act 1966 (Cth) but did not assert solvency, leading to the consideration of whether there was 'other sufficient cause' for not making a sequestration order. The creditor had a charge over the debtor’s properties and the court examined whether the creditor’s failure to act on this charge constituted an abuse of process.

The central legal issue was whether the debtor had established 'other sufficient cause' for not making a sequestration order. This included whether the creditor's lack of action on a charge over the debtor's properties constituted an abuse of process. Additionally, the court needed to determine whether the creditor's extensive litigation against the debtor was being pursued for a proper purpose.

The court found that the debtor had not established 'other sufficient cause' for not making a sequestration order. The court noted the extensive litigation by the creditor against the debtor, which seemed to be a delaying tactic rather than a genuine effort to resolve the debt. Despite the creditor’s acknowledgment of owing a substantial debt, the court observed that the creditor had not made meaningful attempts to sell properties to pay off the debt. The court also highlighted the potential for the trustee to continue the creditor’s proceedings in good faith, and that the sequestration order would not necessarily inhibit the creditor's capacity to pursue actions in their own name. The court concluded that the creditor's actions were not being brought for a proper purpose, and thus, the sequestration order should proceed.

Orders

Orders of the court

Full text does not contain this section.

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

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.

Decision

Reasons for decision

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.

Ratio Decidendi

Legal Principle Established

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.