Investec Bank (Australia) Limited v Mortimer
[2013] FCCA 334
•22 May 2013
FEDERAL CIRCUIT COURT OF AUSTRALIA
| INVESTEC BANK (AUSTRALIA) LIMITED v MORTIMER & ORS | [2013] FCCA 334 |
| Catchwords: BANKRUPTCY – Application to set aside personal insolvency agreement by judgment creditor – judgment debtor consents to setting aside insolvency agreement and the making of a sequestration order – leave sought to file a Debtor’s Petition – leave resisted – issue extant as to whom should act as trustee(s) in bankruptcy – whether judgment creditor’s choice or judgment debtor’s choice. |
| Legislation: Bankruptcy Act 1966, ss.55(6), 188, 1888AAA, 222, 222(10), 222C |
| Re The Bankrupt Estate of Costas, Official Receiver (Applicant) [1999] FCA 1050 |
| Applicant: | INVESTEC BANK (AUSTRALIA) LIMITED |
| First Respondent: | PETER ROLLAND MORTIMER |
| Second Respondent: | STIRLING LINDLEY HORNE |
| Third Respondent: | PETR VRESCKY |
| File Number: | MLG 1095 of 2012 |
| Judgment of: | Judge O'Dwyer |
| Hearing date: | 13 May 2013 |
| Date of Last Submission: | 13 May 2013 |
| Delivered at: | Melbourne |
| Delivered on: | 22 May 2013 |
REPRESENTATION
| Counsel for the Applicant: | Mr Gronow |
| Solicitors for the Applicant: | Baker & McKenzie |
| Counsel for the First Respondent: | Mr Minahan |
| Solicitors for the First Respondent: | Madgwicks |
| Counsel for the Second and Third Respondents: | Ms McCredden |
| Solicitors for the Second and Third Respondents: | White Cleland Pty Ltd |
ORDERS
The personal insolvency agreement dated 28 August 2000 between the First Respondent, Second Respondent and Third Respondent be set aside pursuant to section 222(1) of the Bankruptcy Act 1966 (Cth)
A sequestration order against the estate of the First Respondent be made pursuant to section 222(10) of the Bankruptcy Act 1996 (Cth).
The Applicant's costs of this proceeding be paid out of the bankrupt estate with priority and on an indemnity basis.
The First Respondent's application filed on 3 May 2013 is dismissed.
The Applicant's costs of and incidental to the First Respondent's application filed on 3 May 2013 be paid out of the bankrupts estate with priority and on an indemnity basis.
Mr Nick Mellos of Grant Thornton Australia be appointed as trustee in bankruptcy of the First Respondent's estate.
Otherwise, all extant applications are dismissed.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT MELBOURNE |
MLG 1095 of 2012
| INVESTEC BANK (AUSTRALIA) LIMITED |
Applicant
And
| PETER ROLLAND MORTIMER |
First Respondent
| STIRLING LINDLEY HORNE |
Second Respondent
| PETR VRESCKY |
Third Respondent
REASONS FOR JUDGMENT
Introduction
This proceeding was initiated by the Applicant seeking an order to set aside the personal insolvency agreement (“the agreement”), dated
28 August 2012, between the First, Second and Third Respondents pursuant to s.222(1) of the Bankruptcy Act 1966 (“the Act”).
The Applicant is a judgment creditor and the First Respondent is a judgment debtor. The Second and Third Respondents are the trustees appointed under the agreement.
However, when this matter came before me the parties had resolved the substantive issue and there was consent by the First Respondent to set aside the agreement and order a sequestration of his estate.
Pursuant to an Application in a Case filed by the
First Respondent on 3 May 2013 he sought leave under s.55(6) of the Act to issue a Debtor’s Petition to have the agreement set aside pursuant to s.222C of the Act. The Applicant resisted the granting of such leave and urged the Court to set aside the agreement under s.222, which in turn enlivened s.222(10) of the Act giving the Court a discretion to make a sequestration order. The significance of the distinctions being made as to how I make a sequestration order centred on who would be appointed trustee(s) in bankruptcy of the
First Respondent’s estate. Under the First Respondent’s approach, the Second and Third Respondents would act as trustees as they were the First Respondent’s choice and they had indicated their consent to act as trustees. Under the Applicant’s approach Mr Nick Mellos of Grant Thornton Australia would be the trustee, having consented to act as such.
There is a similar substantive application, and similar issue to be determined, in a related matter involving the same Applicant but a different judgment debtor; namely, Mr Peter Kenneth Mann (file no: SYG 1203/2012). The factual matrix applying to both cases is essentially the same and the orders sought are the same in both cases.
Background
The Applicant obtained judgment against the First Respondent
(and Peter Kenneth Mann in respect of the related proceedings) in the Supreme Court of Victoria on 13 March 2012.
The First Respondent failed to pay the judgment debt and the Applicant caused Bankruptcy Notice BN1531/2012 to be issued against the First Respondent. The First Respondent was served with that Bankruptcy Notice on 18 May 2012 pursuant to orders for substituted service.
The First Respondent was required to comply with the Bankruptcy Notice on or before 8 June 2012, which he failed to do.
On 18 June 2012 the Applicant's Creditor’s Petition was issued against the First Respondent relying on the act of bankruptcy committed by him on 8 June 2012 as a consequence of his failure to comply with the Bankruptcy Notice. The Creditor’s Petition was issued at the Melbourne Registry of this Court. The First Respondent was served with the Creditor’s Petition on 18 June 2012 through his solicitors, Madgwicks Lawyers. However, on or about 20 July 2012, the First Respondent signed a notice pursuant to s.188 of the Act with the effect that the Creditor’s Petition was automatically stayed pursuant to s.189AAA of the Act. That Creditor’s Petition is still extant.
In support of its application under s.222 of the Act the Applicant made various and significant allegations against the conduct of the Second and Third Respondents in how they went about securing the agreement. It is not necessary for me to specify the nature of the allegations made; but in respect of each, the Second and Third Respondents have an answer. The attendance of Ms McCredden for the Second and Third Respondents was to ensure their right to reply to the allegations and protect their status as independent trustees acting as required under the Act in respect of the agreement. Both Counsel for the Applicant and the First Respondent were at pains to urge me not to conduct a hearing, as would be necessary, if I was to make any findings in respect of the conduct of the Second and Third Respondents. Accordingly, I am not in a position to make any findings as to the conduct of the Second and Third Respondents. Once assured that no such findings would be made, Ms McCredden took no further part in the proceeding other than to say her clients were ambivalent as to whether they were appointed trustees in the bankruptcy or not. It is fair to say, however, that clearly from the material before me the Applicant has a view of such conduct, which diminishes its confidence in how the bankrupt estate of the First Respondent may be administered by the Second and Third Respondents.
It is also to be noted that there are significant concerns expressed by the Applicant about the nature of relationships between other significant creditors. Whilst I certainly cannot make any findings adverse to the conduct of the Second and Third Respondents, it ill behoves me, in my view, to ignore a reality, whether it is justified or not, that the Applicant does not have confidence in the Second and Third Respondents. The factual circumstances surrounding this case (and the other related case) are characterised by complexity and the suggestion of close relationships between significant creditors and the First Respondent and Mr Mann in the related proceeding.
Submissions
The Applicant's submissions are predicated upon the reality that in order for a Creditor’s or Debtor's Petition to be given effect, it is necessary first to set aside the agreement. The Second and Third Respondents have the status of trustees and a role to play as such pursuant to the agreement, but they are not trustees in bankruptcy and once the agreement has been set aside they do not retain any further role to be played per se.
It was submitted that once the Court has determined to set aside the agreement, as is urged by the Applicant and the First Respondent, section 222(10) of the Act is enlivened. That subsection states:
The trustee or a creditor may include in an application pursuant to subsection (1), (2) or (5) an application for a sequestration order against the estate of the debtor. If the Court, on the first mentioned application, makes an order under this section setting the personal insolvency agreement aside, it may, if it thinks fit, immediately make a sequestration order sought.
The substantive application under s.222(1) does also seek a sequestration order as envisaged by s.222(10).
The Applicant urged the Court to exercise the discretion clearly within s.222(10) and make the sequestration order sought as properly sought by the Applicant as a creditor.
In support of the exercise of my discretion the Applicant, as I understood the submissions on its behalf, asked that consideration be given to the history of the matter and the concerns expressed, whether justified or not, by the Applicant in respect of the conduct of the Second and Third Respondents.
The implication, as I understood it, of the Applicant's submissions was a concern that if its confidence was not forthcoming, the administration of the estate may very well be complicated by conflict between the Applicant and the Second and Third Respondents. Indeed, Counsel for the First Respondent suggested that should the Second and Third Respondents not perform to the satisfaction of the Applicant, the Applicant had remedies under the Act to have them removed.
The prospect of this happening in the future, in my view, foreshadows the potential frustration of the efficient administration of the estate, with consequent incursion of unnecessary costs.
The First Respondent's submissions are predicated on leave being granted for the issue of a Debtor’s Petition and thereafter the setting aside of the agreement with the consequential situation that before the Court there would be a contest between a Creditor’s and a Debtor’s Petition. In that contest, it was submitted, the Debtors Petition would have primacy over the Creditor’s Petition and the First Respondent, in those circumstances, is entitled to choose his own trustees, being the Second and Third Respondents.[1]
[1] See Re The Bankrupt Estate of Costas, Official Receiver (Applicant) [1999] FCA 1050, where Emmet J. Set out the scheme of the Act in these regards.
In the exercise of my discretion, the First Respondent urged me to take into account the anxiety about the unnecessary incursion of further costs that would result if a new party was introduced (namely, the Applicant's choice of trustee), as the Second and Third Respondents are familiar with the parties and factual circumstances relevant to the administration of the estate. It was suggested that there may very well be a duplication of costs associated with the Applicant's choice of trustee gaining an understanding of the issues involved in administration of the estate.
The explanation provided by the First Respondent for consenting to a sequestration order being made against him, and for the setting aside of the agreement, was that the Applicant's conduct to date in issuing its
s.222 application, had frustrated the administration of the agreement and caused, in his view, unnecessary delay. To put an end to that frustration and delay, he consented to the bankruptcy.
The First Respondent urged the Court to make any orders for the sequestration of his estate pursuant to s.222C of the Act, or the Debtor’s Petition..
Considerations
The initiating and substantive application before the Court is that filed by the Applicant pursuant to s.222(1) of the Act, under which, if an order is made to set aside the agreement, consideration is to be given to s.222(10). That subsection allows for the making of a sequestration order as sought in the substantive application if, in the exercise of the Court’s discretion, it thinks fit to do so. Both the Applicant and First Respondent agree that the agreement should be set aside and that a sequestration order ought to be made. In my view, the application which has primacy before me is that of the Applicant and because of that application, s.222(10) is enlivened. As the parties agree, the agreement should be set aside and an order made.
I am of the view that this should be given effect. There is also the alternative of a sequestration order under the stayed Creditor’s Petition.
In respect of the issue of costs as raised by the First Respondent, there was no evidence before me that persuaded me that this is a significant and weighty aspect to be considered in the exercise of my discretion. My understanding from what was told to me from the bar table is that the question of costs of the Second and Third Respondents to date have been catered for, although I am unsure as to how that has been done. There is the question of unnecessary costs to the estate, but there was conflicting evidence as to how much work was done by the Second and Third Respondents that would be duplicated by the introduction of Mr Mellos as trustee. The issue of costs, should the trustee be Mr Mellos, is not one that carries more weight than the issue, in my view, of the question of the confidence of the Applicant in the appointed trustee and the avoidance, as best as practicable, any contest of wills between any trustees and the Applicant into the future should the Second and Third Respondents be appointed.
In respect of the question as to whether leave should be granted to allow the filing of a Debtor’s Petition, I am not persuaded that should leave should be granted. If there is not leave, as I have determined there should not be, then the contest between competing Petitions does not arise, and the scheme of the Act relied on by the First Respondent to afford him his choice of trustee is not enlivened.
Conclusion
For the above reasons, the orders sought by the Applicant, in my view, are the most appropriate and shall be made accordingly.
I certify that the preceding twenty-two (22) paragraphs are a true copy of the reasons for judgment of Judge O'Dwyer.
Associate:
Date: 22 May 2013
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