Hrycenko v Hrycenko in his capacity as personal representative of the estate of Hrycenko (deceased), in the matter of Hrycenko
[2021] FCCA 293
•19 February 2021
FEDERAL CIRCUIT COURT OF AUSTRALIA
Hrycenko v Hrycenko in his capacity as personal representative of the estate of Hrycenko (deceased), in the matter of Hrycenko [2021] FCCA 293
File number(s): MLG 1374 of 2020 Judgment of: JUDGE MCNAB Date of judgment: 19 February 2021 Catchwords: BANKRUPTCY – application to review Registrar’s decision – application to set aside bankruptcy notice – hearing de novo – applicant alleges bankruptcy notice is an abuse of process – issue of the applicant’s solvency – applicant not solvent for the purposes of the bankruptcy notice – issue of extending time for compliance of bankruptcy notice on the basis of a prospective appeal of bankruptcy notice in Supreme Court of Victoria proceedings – grounds of appeal without merit – appeal dismissed by Supreme Court of Victoria – bankruptcy notice issued for legitimate reasons – application dismissed. Legislation: Bankruptcy Act 1966 (Cth) ss 40(1), 41.
Federal Circuit Court of Australia Act 1999 (Cth) s 104.
Federal Court Rules 2011 (Cth) r 9.09(2).
Property Law Act 1958 (Vic) s 91.
Supreme Court (General Civil Procedure) Rules 2015 (Vic)
r 64.08(1).
Cases cited: Australia and New Zealand Banking Group Ltd v Foyster [2000] FCA 400
Brunninghausen v Glavanics [1998] FCA 230
Bryant v Commonwealth Bank of Australia (1994) 217 ALR 251
Conlan v Mladenis [2007] FCA 1129
Culleton v Balwyn Nominees Pty Ltd [2017] FCAFC 8
Hrycenko (by his litigation Guardian Michael Kornitschuk) v Hrycenko [2019] VSC 700
Hrycenko v Hrycenko [2020] VSCA 324
Killoran v Duncan, in the matter of Killoran [1999] FCA 1574
Lindholdt v Merritt Madden printing Pty Ltd [2002] FCA 260
Re Sterling; Ex parte Esanda Ltd [1980] FCA 75
Royal v Nazloomian, in the matter of Royal [2019] FCA 555
Sandell v Porter [1966] HCA 28
Slack v Bottoms English Solicitors [2002] FCA 1445
William v Spautz [1992] HCA 34
Yarranova Pty Ltd v Shaw (No 2) [2014] FCA 616
Young v Cooke [2017] FCA 26
Number of paragraphs: 67 Date of last submission/s: 2 October 2020 Date of hearing: 2 October 2020 Place: Melbourne Counsel for the Applicant: Mr J Evans Solicitor for the Applicant: NOH Legal Counsel for the Respondent: Mr T Bevan Solicitor for the Respondent: Kennedy Guy Solicitors ORDERS
MLG 1374 of 2020 IN THE MATTER OF GEORGE HRYCENKO, DECEASED
BETWEEN: VICTOR HRYCENKO
Applicant
AND: NICHOLAS HRYCENKO (IN HIS CAPACITY AS PERSONAL REPRESENTATIVE OF GEORGE HRYCENKO, DECEASED)
Respondent
ORDER MADE BY:
JUDGE MCNAB
DATE OF ORDER:
19 FEBRUARY 2021
THE COURT ORDERS THAT:
1.The application filed on 6 August 2020 be dismissed.
2.The Applicant pay the Respondent’s costs to be taxed in default of agreement.
REASONS FOR JUDGMENT
Judge McNab:
INTRODUCTION
By an application filed on 6 August 2020, the Applicant, Mr Victor Hrycenko (“Victor”), seeks pursuant to s104 of the Federal Circuit Court of Australia Act 1999 (Cth) to review a decision of the Court (by Registrar’s Order) where the Court ordered that:
1.Nicholas Hrycenko, in his capacity as personal representative of the estate of George Hrycenko, deceased, be substituted as respondent under r 9.09(2) of the Federal Court Rules 2011, and the title of the proceeding be amended accordingly.
2. The Subpoena issued by the respondent on 22 May 2020 is set aside.
3. The applicant’s Notice to Produce filed on 25 May 2020 is set aside.
4. The Interim application filed by the respondent on 14 May 2020 be dismissed.
5. The Application filed by the applicant on 28 April 2020 be dismissed.
6. The applicant pay 75% of the respondent’s costs of the Application.
The Applicant seeks that:
(1)orders 5 and 6, as made by Judicial Registrar Ryan (“Registrar Ryan”) of this Court on 16 July 2020, as set out above, be set aside; and
(2)orders be made allowing the application to set aside Bankruptcy Notice Number BN249152 (dated 3 March 2020), and which was issued against him by Mr George Hrycenko (“George”) (by his litigation guardian Mr Michael Kornitschuk), in the sum of $3,115,092.97, on 7 April 2020 (“the Bankruptcy Notice”).
This review proceeding is conducted as a hearing de novo and the Court begins afresh and exercises for itself any discretion decided or exercised by the Registrar: see Conlan v Mladenis [2007] FCA 1129 at [4] – [5].
BACKGROUND
This matter has an extensive history in the Supreme Court of Victoria (“the SCV”), the Victorian Court of Appeal (“the VSCA”) and in the Federal Circuit Court of Australia (“the FCCA”).
This Court has the benefit of the background in this matter as set out in in:
(1)Registrar Ryan’s decision in the FCCA made on 16 July 2020, of which there is a transcript: see Mr El Hissi’s affidavit filed on 6 August 2020, annexure ‘OEH’, at page ‘OEH 1’ to OEH 5’; see also Nicholas’ affidavit filed on 28 September 2020 annexure ‘NH’, at page ‘NH 1’ to ‘NH 5’;
(2)Judicial Registrar Pedley’s (“Register Pedley”) decision in the VSCA proceedings made on 18 August 2020 (Proceeding S EAPCI 2020 0054); and
(3)the VSCA’s decision (Tate and McLeish JJA) made on 15 December 2020: see Hrycenko v Hrycenko [2020] VSCA 324.
For clarity, Registrar Pedley’s decision in the VSCA was in relation to an application made by the Applicant, pursuant to r64.08(1) of the Supreme Court (General Civil Procedure) Rules 2015 (Vic), that time be extended for the filing and serving of an application for leave to appeal the decision of Justice Lyons in a SCV proceeding of this matter: see Hrycenko (by his litigation Guardian Michael Kornitschuk) v Hrycenko [2019] VSC 700. The decision of Tate and McLeish JJA was in relation to a subsequent redetermination of whether to grant the Applicant an extension of time to file and serve an application for leave to appeal Justice Lyon’s decision.
SCV and VSCA Proceedings
The act of bankruptcy relied on by the Respondent is a judgment debt obtained by the Respondent against the Applicant in the SCV on 31 January 2020 in the sum of $3,088,093.25.
In October 2018, Victor was the defendant in proceedings brought by George, his now late father, in the SCV. George sought recovery of payments made to Victor in the sum $2,250,000, claimed to have been obtained by unconscionable conduct, undue influence and breach of fiduciary duty.
Registrar Pedley’s decision in the VSCA proceedings helpfully provides a further summary of the background in this matter at [5] – [10]:
“5. Nick [Victor’s brother] and Victor have been estranged since the early 2000’s, which had a significant impact on George. George and Nick were also estranged from mid-2015 until late 2017 following court proceedings issued by Nick in late 2015 and early 2016 against Victor, George and the trustee company of the family trust.
6. On 30 July 2015, George appointed Victor as his enduring power of attorney. Following the death of his wife Ludmilla on 8 December 2015, George moved into a nursing home at Safety Beach near Victor’s home in Mount Martha. Victor cared for George and managed his financial affairs.
7. The issue in the lower court proceedings was the manner in which Victor exercised his power of attorney in relation to George’s financial affairs. Between April 2016 and October 2017, Victor received over $3.5 million from George in gifts.
8. In late 2017 George became aware of his true financial position and with the assistance of Nick, issued proceedings against Victor by writ filed in the Supreme Court of Victoria. A statement of claim was filed on 30 January 2018.
9. George alleged that during the relevant period, when Victor was in charge of his financial affairs, Victor had:
(1) breached the fiduciary duties owed as donee of the power of attorney in making payments totalling $396,365.97 listed in Schedule A to the amended statement of claim (the ‘Schedule A payments’); and
(2) engaged in unconscionable conduct and exercised undue influence over George in relation to payments made to Victor totalling $2,250,000 listed in Schedule B to the amended statement of claim (the ‘Schedule B payments’).
10. George’s capacity to conduct the proceedings became a concern during the course of his evidence at trial. Subsequently, Justice Lyons appointed Michael Kornitschuk as litigation guardian to act on his behalf on 30 November 2018.
In the course of the proceedings the parties agreed to a charge being granted in favour George in the sum of $2,578,873 in relation to properties owned by Victor and VHY Enterprises Pty Ltd, a company of which Victor was sole director and shareholder (“the charge”).
George ultimately obtained judgment against Victor when reasons for Judgment were published on 23 October 2019 by Justice Lyons, and a further supplementary judgment was published on 29 November 2019. Justice Lyons found that the causes of action for breach of fiduciary duty, undue influence and unconscionable conduct had been made out.
On 31 January 2020, Justice Lyons made orders by consent for Victor to pay George the sum of $2,646,365.97, together with interest in the sum of $441,727.28 and costs on an indemnity basis. This judgment debt forms the basis of the Bankruptcy Notice. Enforcement of the judgment was stayed, by consent, until 17 February 2020.
On 30 June 2020, the Applicant filed an application for leave to appeal and the application for an extension of time.
On 18 August 2020, Registrar Pedley, in his role as Registrar of the Court of Appeal, ultimately refused the Applicant’s application for an extension of time to file and serve an application for leave to appeal in the SCV proceedings. Registrar Pedley’s decision was effectively based on the following factors, as stated at [65] of his decision:
“Firstly, there was inexcusable delay by the applicant in filing and serving an application for leave to appeal. Secondly the grounds are weak and ground 4 is very weak given the presumption that applied against Victor in the circumstances. Thirdly, if an extension of time were granted, the respondent would suffer some prejudice, albeit less prejudice than a situation where a respondent does not have a charge over property or where a stay of lower court orders has been granted. It follows, from those conclusions, that the application for an extension of time for the filing and serving of an application for leave to appeal must be refused.”
Victor sought a redetermination of Registrar Pedley’s decision on 10 September 2020. On 15 December 2020, the VSCA also dismissed Victor’s application for an extension of time to file an appeal.
FCCA Proceedings
Following Justice Lyon’s decision in the SCV, the Respondent issued the Bankruptcy Notice on 3 March 2020. The Respondent initially attempted to first serve the notice on the Applicant on 20 March 2020, but was not able to serve the notice on that date. The Bankruptcy Notice was successfully served on the Applicant on 7 April 2020. The Bankruptcy Notice required payment within 21 days of service.
On 28 April 2020, the Applicant filed an application before this Court, seeking orders setting aside the Bankruptcy Notice. Judicial Registrar Hird (“Registrar Hird”) extended the time for compliance with the Bankruptcy Notice until 4.30pm on 10 June 2020. The time for compliance was subsequently extended again by Registrar Ryan until 4.30pm on 16 July 2020. The matter was heard by Registrar Ryan at 11.00am on that day, and the orders that the Applicant seeks to be set aside, as set out above, were made.
On 6 June 2020, during the extension of time ordered by Registrar Hird, George passed away. Victor’s brother, Mr Nicholas Hrycenko (“Nicholas”) had been previously named as the executor of the estate in his father’s will, which was executed on 17 July 2018. On that basis, Nicholas, in his capacity as personal representative of his father’s estate, applied under r9.09(2) of the Federal Court Rules 2011 (Cth) to be substituted as the Respondent in this proceeding. As Victor consented to the application, Registrar Ryan made orders substituting Nicholas as the Respondent in the FCCA proceedings on 16 July 2020.
While this hearing is heard afresh, Registrar Ryan’s decision in these proceedings, and his reasons for making that decision, remain relevant. In deciding that there was no basis to set aside the Bankruptcy Notice, Registrar Ryan made a number of findings against the Applicant including that:
(1)the evidence does not support the proposition that the Applicant is solvent and that “the applicant’s solvency is not of itself a basis to set aside the Bankruptcy Notice although it may be relevant to whether a Bankruptcy Notice is an abuse of process”: see Registrar Ryan’ decision at what would be page 2 – 3, [16] – [18];
(2)it is not appropriate to grant the Applicant’s proposal to further extend the time for compliance with the Bankruptcy Notice “…in circumstances where no stay has been sought or granted in relation to the underlying judgment in the SCV”, and further that the application for an extension of time “…will not prevent Victor from prosecuting any appeal and any such appeal may ultimately be relevant at the hearing of any subsequent Creditor’s Petition presented by the respondent”: see Registrar Ryan’s decision at what would be page 3 – 4, [19] – [21];
(3)Registrar Ryan was not “satisfied on the evidence that the issuing of the Bankruptcy Notice by the respondent is an abuse of process” and further that he was not “satisfied that there is anything improper in the respondent pursuing bankruptcy proceedings against the respondent [sic] notwithstanding the existence of the charge over the properties of the applicant and VHY Enterprises”: see Registrar Ryan’s decision at what would be page 4 – 5, [22] – [23];
(4)the Bankruptcy Notice is not defective, effectively on the basis that Registrar Ryan was “satisfied that the respondent was entitled to charge interest from 31 January 2020” and, accordingly, he was “not satisfied that there has been any misstatement of the amount owed in the bankruptcy notice under s41(5) of the [Bankruptcy] Act.”: see Registrar Ryan’s decision at would be page 5, [24] – [26]; and
(5)in the circumstances of the proceeding, there is no basis for the Bankruptcy Notice to be set aside: see Registrar Ryan’s decision at what would be page 5, [27].
The application for review of Registrar Ryan’s decision, pursuant to s104 of the Federal Circuit Court of Australia Act 1999 (Cth), was then made on 6 August 2020. The matter was heard on 2 October 2020 and Judgment was reserved.
LEGISLATIVE FRAMEWORK
Section 41(1) of the Bankruptcy Act 1966 (Cth) (“the Act”) empowers an Official Receiver to issue a bankruptcy notice on the application of a creditor who has obtained a final judgment or final order against a debtor that is of the kind described in s40(1)(g) of the Act and is for an amount of at least $5,000.
Section 40(1)(g) of the Act relevantly provides:
(1) A debtor commits an act of bankruptcy in each of the following cases
…
(g) if a creditor who has obtained against the debtor a final judgment or final order, being a judgment or order the execution of which has not been stayed, has served on the debtor in Australia or, by leave of the Court, elsewhere, a bankruptcy notice under this Act and the debtor does not:
(i) where the notice was served in Australia—within the time specified in the notice; or
(ii) where the notice was served elsewhere—within the time fixed for the purpose by the order giving leave to effect the service;
comply with the requirements of the notice or satisfy the Court that he or she has a counter‑claim, set‑off or cross demand equal to or exceeding the amount of the judgment debt or sum payable under the final order, as the case may be, being a counter‑claim, set‑off or cross demand that he or she could not have set up in the action or proceeding in which the judgment or order was obtained;
Section 30 of the Act sets out the general powers of Courts in bankruptcy matters. Relevantly, s30 provides that the Court has full power to decide all questions, whether of law or fact, in any case of bankruptcy or any matter coming under Pt IX, X or XI of the Act within the cognisance of the Court, and may make such orders as the Court considers necessary for the purposes of carrying out or giving effect to the Act.
EVIDENCE RELIED UPON
The Applicant relies upon:
(1)an affidavit of Mr El-Hissi filed on 28 April 2020;
(2)an affidavit of Mr El-Hissi filed on 15 July 2020, at [15] – [20];
(3)an affidavit of Mr El-Hissi filed on 6 August 2020 at [19] – [27]; and
(4)an affidavit of Victor filed on 21 September 2020 at [22] – [42].
The Respondent relies upon:
(1)an affidavit of Mr O’Donnell filed on 14 May 2020;
(2)an affidavit of Mr O’Donnell filed on 15 July 2020;and
(3)an affidavit of Nicholas filed on 28 September 2020;
CONSIDERATION
As stated above, this review of the Registrar’s decision is conducted as a hearing de novo and the Court begins afresh, exercising for itself any discretion decided or exercised by the Registrar.
Initially, the Applicant relied on four grounds to set aside the Bankruptcy Notice, those being:
(1)the Applicant is solvent;
(2)the Applicant will lodge an appeal in the SCV proceedings;
(3)the Bankruptcy Notice amounts to an abuse of process; and
(4)the Bankruptcy Notice is defective.
At the hearing on 2 October 2020, Senior Counsel for the Applicant advised the Court that only one ground would be relied upon, that being that the Bankruptcy Notice was an abuse of process. As part of that submission, it was put that the Applicant is solvent and that service of the Bankruptcy Notice, when appeal proceedings were on foot, was an abuse of process.
The Applicant’s Solvency
Section 5(2) of the Act states that “a person is solvent if, and only if, the person is able to pay all the person’s debts, as and when they become due and payable”. Conversely, s5(3) states that a person who is not solvent is insolvent.
The onus of demonstrating solvency rests with the Applicant: see Australia and New Zealand Banking Group Ltd v Foyster [2000] FCA 400 (“Foyster”) at [17]. Further, the Applicant must demonstrate that he is able to pay his debts when they become due and payable, or in a relatively short period of time, and it is not enough to show that he has assets which exceed liabilities: see Foyster at [17].
In Sandell v Porter [1966] HCA 28, Barwick J stated at [15] that the debtor is “…not limited to his cash resources immediately available. They extend to moneys which he can procure by realization by sale or by mortgage or pledge of his assets within a relatively short time…”.
Further, solvency in of itself is not a basis to set aside the Bankruptcy Notice: see Bryant v Commonwealth Bank of Australia (1994) 217 ALR 251, 254. However, solvency may be relevant to whether the Bankruptcy Notice is an abuse of process.
The Applicant, by way of an affidavit filed on 15 July 2020 by Mr El-Hissi, the Applicant’s Solicitor, provides a summary of his assets and liabilities at [9] as follows:
Particulars
Asset Value ($)
Liabilities ($)
Net Position ($)
31 Mount Martha Road, Mount Martha
E2,500,000 – 3,500,000
486 Neapean Hwy, Frankston
E2,500,000
6 Dromana Parade, Safety Beach
E650,000
Mortgage Dnister Ukrainian Credit Co-Operative
E1,850,000
3,800,000 – 4,800,000
Caveat Nr Keypoint Law
E220,000
Caveat Nr Mornungton Peninsula legal Service
E100,000
Caveat Nr George Hrycenko (Final Orders subject to appeal)
E3,000,000
480,000 – 1,480,000
231 Old Cape Schanck Road, Boneo
E1,300,000
1,780,000 – 2,780,000
Total:
E6,950,000 – 7,950,000
E1,780,000 – 2,780,000
At [24(b)] of Mr El-Hissi’s affidavit filed on 28 April 2020, it is stated that, at the time the affidavit was filed, there is a combined mortgage over the Mount Martha, Frankston and Safety Beach properties in the sum of approximately $1.7 million.
At [25] of Mr El-Hissi’s affidavit, Mr El-Hissi indicates that, “…it appears the Applicant has significant equity available in the above-mentioned properties to satisfy the Judgment”, and that the Respondent in this proceeding is aware of that equity. On that basis the Applicant contends that he is solvent.
The Respondent submits that “…it is doubtful that the applicant is solvent”, effectively on the basis that “the ad hoc patchwork evidence that he has adduced is insufficient to establish solvency”: see Respondent’s submissions filed on 2 October 2020 at [16], [23].
Relevantly, the Respondent contends that the Applicant has not disclosed any liquid assets and that the Applicant’s financial resources are significantly depleted. Further, the Respondent contends that the Applicant has disclosed that his only real assets are the four properties, two of which are held on trust, being the Frankston and Safety Beach properties. The Respondent says that:
(1)no sworn valuation has been provided for the four properties, although some unsworn valuations of varying estimations have been provided, as set out above; and
(2)the Applicant has deposed in his affidavit filed on 21 September 2020 that he is unable to borrow against these properties, as the Applicant’s former solicitors have lodged caveats in respect of their legal fees: see Respondent’s submissions at [20].
The Respondent also contends at [23] that the Applicant has not filed a statement of affairs or balance sheet, and therefore there is little evidence to substantiate that the Applicant is solvent.
The evidence relied upon by the Applicant does not support a finding that he is solvent. In relation to the property at 31 Mount Martha Road, Mount Martha (“the Mount Martha Property”), the property at 231 Old Cape Shank Road, Boneo (“the Boneo Property”) and the properties held on trust, namely at 486 Nepean Highway, Frankston (“the Frankston Property”) and 6 Dromana Parade, Safety Beach (“the Safety Beach Property”), no sworn valuation has been adduced. The proposals which have been obtained put the value of the Frankston Property at $2.6 – $2.8 million by Conley Luff Real Estate Services (see Applicant’s affidavit filed on 17 September 2020, exhibit ‘VH-70’) and $3.5 – $3.7 million by JP Dixon Real Estate Pty Ltd (see El-Hissi affidavit filed on 28 April 2020, exhibit ‘OH-39’).
In the Respondent’s affidavit filed on 28 September 2020, the Respondent provides as an annexure which is an affidavit of the Applicant dated 11 May 2020. At page ‘NH34’ – ‘NH-36’, the Applicant reports a conversation with a real estate agent in relation to the Safety Beach Property that VHY would “need to in effect conduct a fire sale at a substantial discount from the otherwise achievable market price” and, in relation to both the Safety Beach Property and the Frankston Property, that “properties are not generally selling and in order to sell either of the properties, would have to consider discounting significantly”.
In addition to the charge on the property lodged by his father, the real estate owned by the Applicant and VHY Enterprises is also subject to charges by Keypoint Law and Mornington Peninsula Legal Services Pty Ltd: see Applicant’s affidavit filed on 21 September 2020 at [39]. By an affidavit down on 17 September 2020, the Applicant refers to affidavits that he relied upon in the SCV proceedings which were sworn on 16 March 2018 and 3 May 2018 (which he refers to as ‘solvency affidavits’). In those affidavits he deposed that he had cash balances of between $1.4 million and $1.5 million in Commonwealth Bank accounts. In answer to a summons for examination in the SCV on 7 May 2020, he disclosed that he had just over $12,000 in the bank: see affidavit of James O’Donnell filed on 14 May 2020 at [9(a)].
In an affidavit sworn by Mr El-Hissi filed in support of an application to the Court of Appeal (annexed to Mr O’Donnell’s affidavit sworn on 15 July 2020), Mr El-Hissi deposes to the effect that the trial in the Supreme Court placed the Applicant under significant financial stress, and that:
(1)the Applicant was suffering financially because of high costs in the Supreme Court trial;
(2)from early April 2020 until mid-May 2020, the Applicant had approached a number of personal friends to obtain a loan; and
(3)whilst the Applicant believed his properties had equity available, he could not arrange any finance against the properties because of the charge and a number of caveats registered on the title.
In the decision of Registrar Pedley of 18 August 2020 in the SCV (which is annexed to an affidavit of the Respondent filed on 28 September 2020), Registrar Pedley refers at [58] to affidavit material filed in the Supreme Court. In particular, he refers to an affidavit of the Applicant sworn on 30 June 2020 in which the Applicant deposed that, due to charges over his property, and an undertaking he had made in May 2018 not to further encumber the properties, the Applicant was not able to use the equity in those properties to obtain funds for an appeal. That evidence shows that:
(1)the Applicant had sought to obtain funds from his friends rather that financial institutions;
(2)received default notices in relation to loan payments between December 2019 and April 2020;
(3)did not receive funding from a friend until about mid to late May 2020 to fund the appeal; and
(4)the Applicant’s sole source of income, being rent, are insufficient to cover mortgage repayments;
(5)the Applicant has been issued with default notices by the mortgagee on his mortgages: see affidavit of James O’Donnell filed on 14 May 2020 at [11] and [14].
No balance sheet has been adduced by the Applicant, and no further evidence has been placed before the Court to displace the effect of his own evidence in the Supreme Court which was to the effect he was insolvent.
For these reasons this ground must fail.
Prospective Appeal
A bankruptcy notice is liable to be set aside where there is a stay on execution of judgment: see Lindholdt v Merritt Madden printing Pty Ltd [2002] FCA 260.
Otherwise, the relevance of an appeal of the underlying judgment to a bankruptcy notice is confined to the operation of s41(6A) and s41(6C) of the Act, which provide as follows:
(6A) Where, before the expiration of the time fixed for compliance with a bankruptcy notice:
(a) proceedings to set aside a judgment or order in respect of which the bankruptcy notice was issued have been instituted by the debtor; or
(b) an application has been made to the Court to set aside the bankruptcy notice;
the Court may, subject to subsection (6C), extend the time for compliance with the bankruptcy notice.
(6C) Where:
(a) a debtor applies to the Court for an extension of the time for complying with a bankruptcy notice on the ground that proceedings to set aside a judgment or order in respect of which the bankruptcy notice was issued have been instituted by the debtor; and
(b) the Court is of the opinion that the proceedings to set aside the judgment or order:
(i) have not been instituted bona fide; or
(ii) are not being prosecuted with due diligence;
the Court shall not extend the time for compliance with the bankruptcy notice.
As set out in the background of this matter, the Applicant filed an application for an extension of time for leave to appeal in the VSCA on 30 June 2020. Registrar Pedley, and subsequently Tate and McLeish JJA, dismissed the application to extend time.
Registrar Pedley noted at [55] of his decision that the application for an extension of time was filed four months out of time in the SCV proceedings of this matter, being that orders of the Court were made on 31 January 2020 and the application was accepted for filing on 1 July 2020. Registrar Pedley further states at [61] of his decision that “the delay has not been satisfactorily explained” and that “there is no adequate reason for the delay”.
Tate and McLeish JJA stated at [52] – [53] of their decision that, while they are “not persuaded by the respondent’s assertion of prejudice, constituted by having spent money pursuing recovery of the judgment debt”, that they were “far from satisfied that there has been full disclosure about the reasons for the delay.”
At [54] of their decision, their Honours ultimately declined to form a view as to the effect of the delay in filing the application for an extension of time, because they were “firmly of the view that the proposed appeal would be bound to fail. As such, an extension of time would be futile.”
Both Registrar Pedley and their Honours effectively found that the proposed grounds of appeal did not warrant an extension of time being granted. I note that the decision of Tate and McLeish JJA was delivered after final submissions were filed in this proceeding and after the final hearing before this Court.
On the basis of the VSCA’s refusal to grant an extension of time to file an appeal in the SCV proceedings, and noting the Court’s comments in relation to delay of filing the application and the proposed appeal would be bound to fail, this ground must fail. There was no abuse of process engaged in by the Respondent in issuing the Bankruptcy Notice when the appeal proceedings had been filed, given that the application to appeal was significantly delayed and the grounds of appeal had no reasonable prospects of success.
Abuse of Process
The issuing of a bankruptcy notice is a legitimate mechanism to secure payment of a debt, where there is an intention that the debt be paid, and in the event of default, to proceed by way of petition for sequestration: see Slack v Bottoms English Solicitors [2002] FCA 1445 at [21]; Young v Cooke [2017] FCA 26 at [105] per Gleeson J.
However, it is well established that the Court has power to set aside a Bankruptcy Notice as an abuse of process where it is in the interests of justice to do so: see Re Sterling; Ex parte Esanda Ltd [1980] FCA 75 at [82]; see also Brunninghausen v Glavanics [1998] FCA 230; Yarranova Pty Ltd v Shaw (No 2) [2014] FCA 616; Culleton v Balwyn Nominees Pty Ltd [2017] FCAFC 8.
To establish an abuse of process, the Applicant bears a significant onus of proof (see William v Spautz [1992] HCA 34 at [42]), as an abuse of process is “a “serious” allegation; it is not one that can be made without a sufficient factual foundation”: see Royal v Nazloomian, in the matter of Royal [2019] FCA 555 at [37].
As is contended by the Applicant in this proceeding, the body of authority supports the proposition that it is an abuse of process to issue a bankruptcy notice, if the purpose of the notice is to put pressure on a debtor to pay a debt rather than to invoke the Court’s jurisdiction in relation to insolvency.
The time to judge an abuse of process is the time the Bankruptcy Notice is issued, while following events have only some relevance to the circumstances foreseen at the time of the issue of the notice: see Killoran v Duncan, in the matter of Killoran [1999] FCA 1574 (“Killoran”) at [13] per Gyles J. However, his Honour further states in Killoran at [14] that:
If, contrary to my view, however, there were a prima facie case of abuse of process, the remedy is discretionary and, in my view, if circumstances following that time had altered significantly so that it would not be appropriate to set aside the notice, I think that the jurisdiction of the Court is wide enough to give effect to that. I have in mind here that whilst the immediate parties to the application are those with the most interest in the matter, the body of creditors generally also have an interest and I cannot be certain one way or the other about the position of solvency. It may be most unfortunate if a bankruptcy notice were set aside in circumstances where the debtor is in fact insolvent.
The Applicant effectively submits that the Bankruptcy Notice was originally issued by George due to the influence of Nicholas, with who Victor has a difficult relationship. The Applicant further submits that the Bankruptcy Notice was issued despite him being solvent, for reasons that are set out above. The Applicant submits at [18] of Mr El-Hissi’s affidavit filed on 28 April 2020 that:
18. […] The Respondent [George], driven by the zealous actions of Nicholas, has issued the Bankruptcy Notice, while, subsequent, issuing the Related Proceeding, seeking enforcement of the monies owed under the Judgment, despite in the Related Proceeding claiming being the holder of the "Charge" securing the sum of $2,578,873. Given the Judgment was only authenticated on 10 February 2020, and, given the admission in the Francis Affidavit as to available equity to satisfy the Judgment from the sale proceed of the Frankston Property, coupled with the unprecedented conditions caused by COVID-19, it is submitted, the Respondent's actions appear to be "heavy handed" and an abuse of process.
The reference to the ‘Related Proceeding’ refers to proceedings commenced by the Respondent, being George at the time, in the SCV. The Respondent sought orders, pursuant to s91 of the Property Law Act 1958 (Vic) or the jurisdiction of the SCV, that the properties, as set out above, be sold and the proceeds of sale be applied, amongst other things, to discharge the charge and to pay the judgment debt owed by Victor.
In support of the contention that the issuing of the Bankruptcy Notice is an abuse of process is driven by a want for ‘revenge’ by Nicholas, the Applicant further submits at [53] of his affidavit filed on 21 September 2020 that:
53. It remains unexplained why the Respondent has not sought any enforcement against properties owned by me personally that are also subject to the Charge. Instead, the Respondent has chosen to issue bankruptcy proceedings. I believe it is irrational, illogical and serves no commercial purpose. At the time of issuing the Bankruptcy Notice both Nick and George were well aware of my solvency position, and, knew that I was entitled, under [George’s] Will, to receive 50% of proceeds of the sum recovered from the judgment debt. I believe the only explanation for the issuing of the bankruptcy proceedings is Nick’s ulterior motives to seek revenge on me and make me a bankrupt.
The Respondent submits at [38] of the submissions filed on 2 October 2020 that the issuing of the Bankruptcy Notice was done with no improper purpose, and “…the steps taken to recover the judgment debt are reasonable in light of the objective circumstances.” In support of this contention, the Respondent submits at [36] – [37] that:
36.The bankruptcy notice was issued while George Hrycenko was still alive. At the time, it was not clear at the time that Victor Hrycenko was solvent and there was no good reason to conclude that the notice would not be ultimately effective in leading to sequestration of the applicant’s estate. (This remains true).
37.The judgment debt is very large and only partly secured by the charge. The applicant has not offered further security or any prospect of payment. The respondents attempts to negotiate some payment had received no response. There is no evidence, other than mere assertion by the applicant, that the notice was being used for any purpose other than to genuinely invoke the Court’s jurisdiction. The respondent’s solicitor has given sworn evidence that he considered the service of the bankruptcy notice to be necessary and in the interests of the respondent.
(References removed)
The Applicant has not established that the Bankruptcy Notice was issued for an improper purpose. The fact that the Applicant may have had an alternative remedy by seeking to pursue his rights under the charge does not render the issuing of the Bankruptcy Notice an abuse of process. The Bankruptcy Notice was issued whilst George was still alive and initially Nicholas sought for another person to be appointed litigation guardian for their father: see Nicholas Hrycenko affidavit filed on 28 September 2020 at [24].
I note that there was no significant delay between obtaining the judgment debt against the Applicant and the issuing of the Bankruptcy Notice. There is no evidence before the Court to support a finding that the Respondent was not genuinely intending to invoke the insolvency jurisdiction of the Court.
In relation to the claim that the Bankruptcy Notice is an abuse of process due to the fact that the Respondents are pursuing bankruptcy rather than exercising their rights under the charge over the Applicant’s properties and VHY Enterprises, there is no evidence before the Court that there are sufficient funds in the value of those properties to satisfy the judgment debt.
For these reasons, this ground must fail and the application for review must be dismissed.
CONCLUSION
For the reasons set out above, the application filed on 6 August 2020 must be dismissed with costs.
I certify that the preceding sixty-seven (67) numbered paragraphs are a true copy of the Reasons for Judgment of Judge McNab. Associate:
Dated: 19 February 2021
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