James Legal Pty Ltd v Milanos and Anor (No.2)
[2018] FCCA 2796
•28 September 2018
FEDERAL CIRCUIT COURT OF AUSTRALIA
| JAMES LEGAL PTY LTD v MILANOS & ANOR (No.2) | [2018] FCCA 2796 |
| Catchwords: BANKRUPTCY – Application to set aside a personal insolvency agreement – interests of the creditors generally – consideration of factors – application dismissed. |
| Legislation: Bankruptcy Act 1966 (Cth), ss.120, 121, 122, 222, 222C |
| Cases cited: James Legal Pty Ltd v Milanos & Anor [2016] FCCA 3202 Re Richards: Ex parte Beneficial Finance Corporation Limited [1986] FCA 74 Re Mills: Ex parte Lloyd's [1997] FCA 223; (1997) 73 FCR 551 National Bank of Australia Limited; In the matter of Nemeth [2003] FCA 866 Re Codrington: Ex parte Don McKay Tourist and Charter Pty Ltd [1989] FCA 349 Re Palazzolo: Ex parte Discusso [1991] FCA 317 Bendigo and Adelaide Bank Limited v Clout [2016] FCA 119 RDN Developments Pty Ltd v Shtrambrandt [2012] FMCA 437; (2012) 262 FLR 464 Augustyn v Putnin [1988] FCA 372; (1988) 83 ALR 514 |
| Applicant: | JAMES LEGAL PTY LTD ACN 097 306 397 |
| First Respondent: | NICHOLAS MILANOS (AS TRUSTEE OF THE PROPERTY OF ALFRED MICHAEL VINCENT ATTARD) |
| Second Respondent: | ALFRED MICHAEL VINCENT ATTARD |
| File Number: | SYG 2710 of 2015 |
| Judgment of: | Judge Nicholls |
| Hearing date: | 1 July 2016, 27 October 2016 and 11 December 2017 |
| Date of Last Submission: | 11 December 2017 |
| Delivered at: | Sydney |
| Delivered on: | 28 September 2018 |
REPRESENTATION
| Counsel for the Applicant: | Mr S Epstein |
| Solicitors for the Applicant: | James Legal Pty Ltd |
| Representative for the First Respondent: | Mr N Fasullo |
| Counsel for the Second Respondent: | Mr S A Wells |
| Solicitors for the Second Respondent: | Lazarus Legal Group |
ORDERS
The application made on 5 October 2015 is dismissed.
The applicant pay the second respondent’s costs as agreed or assessed.
The applicant pay the first respondent’s costs set in the amount of $2437.00
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 2710 of 2015
| JAMES LEGAL PTY LTD ACN 097 306 397 |
Applicant
And
| NICHOLAS MILANOS (AS TRUSTEE OF THE PROPERTY OF ALFRED MICHAEL VINCENT ATTARD) |
First Respondent
| ALFRED MICHAEL VINCENT ATTARD |
Second Respondent
REASONS FOR JUDGMENT
This is an application made by James Legal Pty Ltd ACN 097 306 397 (“James Legal”) pursuant to the Bankruptcy Act 1966 (Cth) (“the Act”) on 5 October 2015 seeking an order that the Personal Insolvency Agreement (“PIA”) made between Nicholas Milanos (as Trustee of the Property of Alfred Michael Vincent Attard) (the first respondent) and Mr Alfred Michael Vincent Attard (the second respondent) be set aside pursuant to s.222, or terminated pursuant to s.222C of the Act. James Legal also seeks that the Court issue a sequestration order against Mr Attard.
Before the Court
While both respondents were represented before the Court, only Mr Attard played an active part in the proceedings. Mr Milanos filed a Submitting Notice with the Court on 23 October 2015, however he was represented at the final hearing. I understood his involvement in the hearing, despite the filing of a Submitting Notice, to be in response to allegations raised by James Legal regarding his conduct.
A detailed chronology of the history of these proceedings before this Court is set out in a previous judgment, James Legal Pty Ltd v Milanos & Anor [2016] FCCA 3202 at [2].
In summary, the final hearing of this matter commenced on 1 July 2016. The hearing did not conclude within the time estimated by the parties, and the parties were given the opportunity to file further evidence in relation to an issue that arose during the hearing on that day. The matter was listed for resumption of the final hearing on 27 October 2016. On that day, James Legal sought leave to amend its Statement for Setting Out Grounds for Relief (“SSOGR”) filed on 6 June 2016. This was opposed by Mr Attard. Ultimately, leave to amend the SSOGR was refused (see James Legal Pty Ltd v Milanos & Anor [2016] FCCA 3202). The final hearing resumed on 11 December 2017.
Evidence before the Court
James Legal read the following affidavits into evidence:
a)The affidavit of Mr Peter Richard James, solicitor, affirmed on 3 October 2015 (including exhibit “PJ”), filed with the originating application.
b)The affidavit of Mr Peter Richard James, solicitor, affirmed on 14 December 2015 (including exhibit “PJ2”).
c)The affidavit of Mr Peter Richard James, solicitor, affirmed on 6 June 2016 (including annexures).
James Legal tendered the following documents as exhibits:
a)A bundle of documents including the Report to Creditors dated 5 August 2015 and the PIA dated 14 July 2015 (“AE1”).
b)An Australian business number lookup for Advocate Financial Group dated 15 December 2015 (“AE2”).
c)A current and historical company extract for Jessica Investments Pty Ltd (“AE3”).
d)A current and historical company extract for Rosefield Investments Pty Ltd (“AE4”).
e)A folder containing documents produced in response to subpoenas by Jetz Homes & Developments Pty Ltd and Jetz Nominees Pty Ltd (“AE5”).
Mr Attard read the following affidavits into evidence:
a)The affidavit of Mr Alfred Michael Vincent Attard, licensed builder, sworn on 8 March 2016 (including annexures).
b)The affidavit of Mr Alfred Michael Vincent Attard, licensed builder, sworn on 24 June 2016.
c)The affidavit of Mr Alfred Michael Vincent Attard, licensed builder, sworn on 16 November 2016 (including annexures).
Mr Attard tendered the following documents as exhibits:
a)A document with the heading, “Billing time lyrics” (“RE1”).
b)A six page bundle of documents including Mr Attard’s “Contractor Licence Renewal Application” (“RE2”).
The objections to the affidavit evidence, and the disposition of those objections, are set out in a table at Schedule 1 to this judgment.
Mr Attard also handed up a schedule setting out the position with respect to each of the creditors’ votes at the creditors’ meeting on 18 August 2015, and as at 2017. The Court had regard to this document as an “aide memoire”. It is set out at Schedule 2 to this judgment.
Relevant legislation
Section 222 of the Act is in the following terms:
“Section 222 Court may set aside personal insolvency agreement
Setting aside on grounds of unreasonableness etc.
(1) If a personal insolvency agreement is in force, the Court may, on application by:
(a) the Inspector-General; or
(b) the trustee; or
(c) a creditor;
make an order setting the agreement aside if the Court is satisfied that:
(d) the terms of the agreement are unreasonable or are not calculated to benefit the creditors generally; or
(e) for any other reason, the agreement ought to be set aside.
Setting aside on grounds of non-compliance with this Part etc.
(2) If a personal insolvency agreement is in force, the Court may, on application by:
(a) the Inspector-General; or
(b) the trustee; or
(c) a creditor; or
(d) the debtor;
make an order setting the agreement aside if the Court is satisfied that:
(e) the agreement was not entered into in accordance with this Part; or
(f) the agreement does not comply with the requirements of this Part.
(3) The Court must not make an order setting aside a personal insolvency agreement on the ground that it does not comply with the requirements of this Part if the agreement complies substantially with those requirements.
(4) The Court must not make an order under subsection (2) unless the application for the order is made before all the obligations that the personal insolvency agreement created have been discharged.
Setting aside on grounds of false or misleading information etc.
(5) If a personal insolvency agreement is in force, the Court may, on application by:
(a) the Inspector-General; or
(b) the trustee; or
(c) a creditor;
make an order setting the agreement aside if the Court is satisfied that:
(d) the debtor has given false or misleading information in answer to a question put to the debtor with respect to any of the debtor's conduct or examinable affairs at the meeting of creditors at which the resolution requiring the debtor to execute the agreement was passed; or
(e) the debtor has:
(i) omitted a material particular from the statement of the debtor's affairs given under subsection 188(2C) or (2D); or
(ii) included an incorrect and material particular in that statement; or
(f) the debtor was subject to a requirement under Division 75 of Schedule 2 (including rules made under that Division) to table a statement, and the debtor has:
(i) omitted a material particular from that statement; or
(ii) included an incorrect and material particular in that statement; or
(g) the controlling trustee has:
(i) omitted a material particular from the declaration given by the controlling trustee under subsection 189A(3); or
(ii) included an incorrect and material particular in that declaration; or
(h) the controlling trustee was subject to a requirement under Division 75 of Schedule 2 (including rules made under that Division) to table a statement, and the controlling trustee has:
(i) omitted a material particular from that statement; or
(ii) included an incorrect and material particular in that statement; or
(i) a person who became the trustee of the agreement has:
(i) omitted a material particular from the declaration given by the person under subsection 215A(3) or (4); or
(ii) included an incorrect and material particular in that declaration.
(6) The Court must not make an order under subsection (5) unless it is satisfied that it would be in the interests of the creditors to do so.
(7) The Court must not make an order under subsection (5) unless the application for the order is made before all the obligations that the personal insolvency agreement created have been discharged.
Ancillary orders
(8) If the Court makes an order under subsection (1), (2) or (5), the Court may make such other orders as the Court thinks fit.
(9) An order under subsection (8) may be an order directing a person to pay another person compensation of such amount as is specified in the order. This subsection does not limit subsection (8).
Application for sequestration order
(10) The trustee or a creditor may include in an application under 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 the sequestration order sought.
(11) The making of an application by the trustee or a creditor for a sequestration order under this section is taken, for the purposes of this Act, to be equivalent to the presentation of a creditor's petition against the debtor, but the provisions of subsection 43(1), sections 44 and 47, subsections 52(1) and (2) and Part XIA do not apply in relation to such an application.
Court may dispense with service on debtor of notice of application
(12) The Court may, if it thinks fit, dispense with service on the debtor of notice of an application by the Inspector-General, the trustee or a creditor under this section, either unconditionally or subject to conditions.”
Section 222C of the Act is in the following terms:
“222C Court may terminate personal insolvency agreement
1) If a personal insolvency agreement is in force, the Court may, on application by:
(a) the trustee; or
(b) a creditor; or
(c) the debtor; or
(d) if the debtor has died--the person administering the estate of the debtor;
make an order terminating the agreement if the Court is satisfied:
(e) that:
(i) the debtor; or
(ii) if the debtor has died--the debtor or the person administering the estate of the debtor;
has failed to carry out or comply with a term of the agreement; or
(f) that the agreement cannot be proceeded with without injustice or undue delay to:
(i) the creditors; or
(ii) the debtor; or
(iii) if the debtor has died--the estate of the debtor; or
(g) that, for any other reason, the agreement ought to be terminated.
(2) The Court must not make an order terminating a personal insolvency agreement on the ground specified in paragraph (1)(e) or (g) unless it is satisfied that it would be in the interests of the creditors to do so.
Ancillary orders
(3) If the Court makes an order terminating a personal insolvency agreement, the Court may make such other orders as the Court thinks fit.
(4) An order under subsection (3) may be an order directing a person to pay another person compensation of such amount as is specified in the order. This subsection does not limit subsection (3).
Application for sequestration order
(5) The trustee or a creditor may include in an application under subsection (1) 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 terminating the personal insolvency agreement, it may, if it thinks fit, immediately make the sequestration order sought.
(6) The making of an application by the trustee or a creditor for a sequestration order under this section is taken, for the purposes of this Act, to be equivalent to the presentation of a creditor's petition against the debtor, but the provisions of subsection 43(1), sections 44 and 47, subsections 52(1) and (2) and Part XIA do not apply in relation to such an application.
Court may dispense with service on debtor of notice of application
(7) The Court may, if it thinks fit, dispense with service on the debtor of notice of an application by the trustee or a creditor under this section, either unconditionally or subject to conditions.”
As set out above, James Legal sought orders pursuant to s.222 and s.222C of the Act. That is, to set aside, or terminate, the PIA made between Mr Milanos (as Trustee) and Mr Attard (as debtor).
James Legal’s written submissions, filed on 1 July 2016 (“James Legal’s first written submissions”), provide a short outline of the background to the PIA. This background was not disputed by Mr Attard (see [4] – [6] of James Legal’s first written submissions):
“[4] The Personal Insolvency Agreement was approved at a meeting of Mr Attard's creditors on 18 August 2015.
[5] The minutes of the meeting[1] record 6 creditors totalling approximately $1.389 million voting against the proposal and 8 creditors totalling approximately $5.883 million voting in favour[2]. This vote satisfied the formal requirement of the Bankruptcy Act for a special resolution in this respect, which involves a majority in number and 75% in value of creditors present and voting[3].
[1] Exhibit “PJ” to the affidavit of P R James 3.10.15 pp 45 – 53.
[2] Exhibit “PJ” to the affidavit of P R James 3.10.15 pp 52 – 53.
[3] Section 204; Section 5 – definition of “special resolution”.
[6] The voting at the meeting was as follows[4]:
[4] Exhibit “PJ” to the affidavit of P R James 3.10.15 pp 52 – 53.
In favour of the Personal Insolvency Agreement
Attard Family Trust $2,989,967.50
Jetz Homes & Developments 2,104,559.14
Alexandra Attard 499,000.00
Jessica Investments Pty Limited 250,000.00
Lazarus Legal 30,388.93
Biagio Abignano 3,750.00
Advocate Financial Services 2,750.00
John Sukari 2,250.00
Total $5,882,665.57
(80.89%) in value
Against the Personal Insolvency Agreement
James Legal $1,085,961.83
Australian Taxation Office 153,092.10
American Express 64,905.33
National Australia Bank 38,640.09
Westpac Bank 37,514.57
Brunskill McClenahan (town planners) 9,349.76
Total $1,389,463.68
(19.11% in value)”
Through its application to the Court, James Legal asked that the Court set aside the PIA pursuant to s.222(1) of the Act. There was no dispute that James Legal was “a creditor” of Mr Attard (s.222(1)(c) of the Act).
The particulars of this request were that the terms of the PIA are “unreasonable or are not calculated to benefit the creditors generally” (s.222(1)(d) of the Act), or, “for any other reason, the agreement ought to be set aside” (s.222(1)(e) of the Act) (see [1] – [9] of the SSOGR and [11] of James Legal’s first written submissions).
James Legal also asserted in its first written submissions that the PIA be set aside alternatively on the basis that the PIA was not entered into in accordance with Part X of the Act, or did not comply with the requirement of Part X of the Act (s.222(2) of the Act) (see [12] of James Legal’s first written submissions). However, this did not appear to have been subsequently pressed before the Court.
A further basis for setting aside the PIA was also said to be that the “debtor” (Mr Attard) omitted a “material particular” from his Statement of Affairs, or included an “incorrect and material particular” in that statement (s.222(5) of the Act) (see [13] of James Legal’s first written submissions). However, this was also not subsequently pressed before the Court.
In its first written submissions and its SSOGR, James Legal also raised s.222C(1) of the Act to ask the Court in the alternative, to terminate the PIA. James Legal relied on s.222C(1)(f) and (g) of the Act to argue that the Court should be satisfied such as to terminate the PIA because, “the agreement cannot be proceeded with without injustice or undue delay to the creditors” (s.222C(1)(f) of the Act), or based on “for any other reason the agreement ought to be terminated” (s.222C(1)(g) of the Act) (see [17] of James Legal’s first written submissions).
Similarly, the Court’s power to terminate PIAs pursuant to s.222C(1)(g) of the Act is also “limited” to cases where the Court is satisfied that it would be in the interests of creditors to terminate the PIA (see [17] of James Legal’s first written submissions and [5] of Mr Attard’s written submissions of 24 June 2016).
This “limitation” does not apply to s.222(1) and s.222C(1)(f) of the Act (see [16] – [17] of James Legal’s first written submissions and [11] of Mr Attard’s written submissions of 24 June 2016).
This also did not appear to be the subject of subsequent submissions before the Court.
There was no dispute between the parties that the Court’s power to set aside PIAs pursuant to s.222(5) of the Act is “limited” to cases where the Court is satisfied that it would be in the interests of creditors to set aside the PIA (see [16] of James Legal’s first written submissions and [5] of Mr Attard’s written submissions of 24 June 2016).
There appeared to be a dispute between the parties as to s.222(2) of the Act. James Legal submitted that the power under s.222(2) of the Act is “limited” as set out above in relation to s.222(5) of the Act (see [16] of James Legal’s first written submissions). Mr Attard submitted that the limitation does not “expressly apply to” s.222(2) of the Act (see [11] of Mr Attard’s written submissions of 24 June 2016).
Nonetheless, Mr Attard argued that the exercise of the Court’s discretion as to whether or not to grant the relief under s.222(2) or s.222(5) of the Act should take into account the interests of the creditors. The submission was that consideration of the interests of the creditors was “central” to the Court’s discretion (see [11] of Mr Attard’s written submissions of 24 June 2016).
The only version of the PIA in evidence before the Court is the version tendered by James Legal and contained in the bundle marked as exhibit “AE1”. This version is dated 14 July 2015.
As noted above, the background to the issues arising from the application, and with reference to the voting of the creditors on the PIA, is concisely set out in James Legal’s first written submissions (see above at [14]).
The factual background which was not in dispute is as follows. Mr Milanos (the first respondent) was at relevant times, a partner in an insolvency practice. Mr Attard (the second respondent) was at relevant times, a builder and developer of residential property. His business was conducted through various entities, including family trusts.
On 14 July 2015, Mr Attard appointed Mr Milanos as the “controlling trustee” under Part X of the Act. On 31 July 2015, Mr Milanos (in his capacity as “controlling trustee”), advised Mr Attard’s creditors of his appointment, and put them on notice of his intention to call a meeting to consider whether or not to accept a PIA which was proposed to deal with Mr Attard’s debts (see Mr James’ affidavit of 3 October 2015 at [4] – [6]).
A Report to Creditors was prepared by Mr Milanos on 5 August 2015 (see “AE1”). The creditors meeting took place on 18 August 2015. The creditors voted, by majority, for the PIA. James Legal now says the voting was as set out above at [14].
James Legal relied on various authorities to extract a number of factors which it says bear on the exercise of the Court’s discretion under s.222 and s.222C of the Act (see [26] of James Legal’s first written submissions, and see Re Richards: Ex parte Beneficial Finance Corporation Limited [1986] FCA 74, Re Mills: Ex parte Lloyd's [1997] FCA 223; (1997) 73 FCR 551, National Bank of Australia Limited; In the matter of Nemeth [2003] FCA 866, Westpac Banking Corporation v Hingston (No 2) [2010] FCA 1116; (2010) 117 ALD 552 on appeal Hingston v Westpac Banking Corporation [2012] FCAFC 41; (2012) FCR 493, Osborne v Gangemi [2011] FCA 1252, Moran v Robertson [2012] FCA 371, New Age Constructions (NSW) Pty Ltd v Etlis: In the matter of Etlis [2013] FCA 884, Re Brennan: Ex parte Stokes (Australasia) Ltd (unreported) FCA 31 May 1988, Re Codrington: Ex parte Don McKay Tourist and Charter Pty Ltd [1989] FCA 349 and Re Palazzolo: Ex parte Discusso [1991] FCA 317).
It is helpful to note these factors (see [26] of James Legal’s first written submissions):
“[1] that the amount available for distribution is trivial or negligible when compared to the debtor's total debts[5];
[2] where the debtor has incurred debts of such huge proportions relative to the debtor's disclosed assets that it is in the public interest that the debtor's affairs be dealt with in bankruptcy, rather than under the more bland provisions of Part X of the Act[6];
[3] the closeness of the vote of creditors and particularly so where the result may have been influenced by creditors who were not at arms-length from the debtor or whose interests coincided with the debtor's interests in avoiding bankruptcy rather than the interests of creditors generally[7];
[4] whether creditors who had voted in favour of a composition had indicated that they would not participate in any distribution of assets and, to the extent that it is known, the reasons for their non-participation[8];
[5] whether the trustee had recommended the acceptance or rejection of the proposed insolvency agreement and the factual basis for that recommendation, including whether there was any reasonable basis for a conclusion that the controlling trustee may not have acted with diligence or impartiality[9] ;
[6] where serious issues are raised by dissipation of assets, the validity or enforceability of ‘loans’ from associated parties and, in particular, whether any ‘friendly’ debts were intended to create Legal relations[10];
[7] where the debtor's affairs call for further investigation and insufficient information was available to creditors for them to have made an informed decision that a more advantageous outcome may have been achieved through the debtor's bankruptcy[11];
[8] the extent to which the personal insolvency agreement has already been implemented[12].
[The “factors” have been numbered for ease of reference.] [Footnotes have been renumbered.]
[5] Re Richards: Ex parte Beneficial Finance Corporation Limited [1986] FCA 74 at [7] - Jackson J; Re Mills: Ex parte Lloyd's [1997] FCA 223; (1997) 77 FCR 551 at 560 - Merkel J; National Bank of Australia Limited; In the matter of Nemeth [2003] FCA 866 at [10]-[l l] and [21]- Stone J; Westpac Banking Corporation v Hingston [2010] FCA 1116 at [68]-[83]-Cowdroy J, on appeal Hingston v Westpac Banking Corporation [2012] FCAFC 41; (2012) FCR 493; Osborne v Gangemi [2011] FCA 1252; (2011) 9 ABC(NS) 257 at [47] - Bromberg J; Moran v Robertson [2012] FCA 371 at [16]-[24] - Flick J; New Age Constructions (NSW) Pty Ltd v Etlis: In the matter of Etlis [2013] FCA 884 at [56]-[58]- Yates J.
[6] Re Richards: Ex parte Beneficial Finance Corporation Ltd at [7]; Re Brennan: Ex parte Stokes (Australasia) Ltd (unreported) FCA 31 May 1988 - Morling J: Re Codrington: Ex parte Don McKay Tourist and Charter Pty Ltd [1989] FCA 349 - Burchett J; Re Palazzolo: Ex parte Discusso [1991] FCA 317 - Neaves J.
[7] Osborne v Gangemi at [47].
[8] Moran v Robertson at [17]; Bendigo and Adelaide Bank Limited v Clout at [17]; New Age Constructions at [81].
[9] Moran v Robertson at [17]; Bendigo and Adelaide Bank Limited v Clout at [17].
[10] Re Mills at 560-1; National Bank of Australia Limited; In the matter of Nemeth at [10]-[11].
[11] Osborne v Gangemi at [47].
[12] Osborne v Gangemi at [47].
As noted above, James Legal filed a SSOGR on 6 June 2016. The SSGOR operates, helpfully, as a concise summary of James Legal’s arguments as they related to each of the subsections of the Act on which James Legal sought to rely. I understood these arguments to have been put in light of the authorities to which James Legal referred, and the principles and approach said to be derived from these authorities.
Mr Attard also sought to rely on the authorities identified by James Legal, although with a different emphasis and focus (see further below). One additional case relied on by Mr Attard was RDN Developments Pty Ltd v Shtrambrandt [2012] FMCA 437; (2012) 262 FLR 464.
What the authorities, in my respectful view, make clear, is that there are potentially a large number of factors which may bear upon the exercise of the Court’s discretion under s.222 and s.222C of the Act.
It is helpful to consider the factors (as drawn from various authorities), nominated by James Legal as being of relevance to the exercise of the discretion in the current case.
As set out above, Mr Attard, understandably, given the terms of, in particular, s.222(1)(d) of the Act, described the “main proposition” as to why the PIA should not be set aside as being referable to the interests of creditors. However, I did not understand Mr Attard to rely only on that proposition.
The parties differed in matters of emphasis as to what to relevantly draw from the authorities to which they both referred, and differed in matters of how certain evidence should be viewed, or preferred. However, they both generally agreed on the subject matter attracting the Court’s focus to determine the dispute.
With this in mind, it is still helpful to begin with the “factors” to which James Legal referred. For clarity, I emphasise that this is not a “checklist”.
The questions posed by s.222 of the Act (and for that matter s.222C of the Act), as set out above, require the proper exercise of the Court’s discretion to be focused on whether the PIA, in its terms, is unreasonable (see s.222(1)(d) of the Act), whether the debtor has failed to comply with the terms of the PIA (see s.222C(1)(e) of the Act), or whether the PIA is not calculated to benefit the creditors generally (see s.222(1)(d) of the Act).
With respect to the consideration of whether the PIA is not calculated to benefit the creditors generally (or terminating the PIA if the Court is satisfied that it is an appropriate “other reason” (s.222C(1)(g) of the Act)), then, although a factor, the discretion would not be properly exercised, if the determination of what was in the interests of the creditors, was to simply conduct a mathematical comparison between the debts and the amount offered under the PIA to the creditors (Moran v Robertson [2012] FCA 371 and New Age Constructions (NSW) Pty Ltd v Etlis: In the matter of Etlis [2013] FCA 884).
James Legal argued that the benefit offered to the creditors under the PIA is negligible (“trivial”) and that there is a substantial discrepancy between that benefit and the total amount owing to creditors by Mr Attard.
The creditors who voted in favour of the PIA, to whom the level of indebtedness was in excess of $5.8 million did so in the knowledge that no amount (“nil”, see clause 7 of the PIA – “Terms of Proposal” and see the Report to Creditors at “AE1”) would be made available to them under the PIA. Further, that only $50,000 would be available by way of contribution (also noting the costs of the controlling trustee in preparing the PIA, see cl.7.2 of the PIA).
That is, $50,000 in contributions compared to a level of indebtedness of $5,882,665.57 (in relation to the creditors that voted in favour of the PIA). The Report to Creditors noted that 3.1 cents in the dollar was the “potential dividend to non-priority creditors” (see the table at page 11 of the Report to Creditors at “AE1”).
Mr Attard submitted that the amount (of $50,000) could not be referred to as “trivial”. Before the Court, he sought to make good this point, in part, by distinguishing the circumstances of this case from those in Westpac Banking Corporation v Hingston (No 2) [2010] FCA 1116; (2010) ALD 55 and on appeal, Hingston v Westpac Banking Corporation [2012] FCAFC 41; (2012) FCR 493 (“Hingston”), a case on which James Legal relied.
In Hingston the unsecured creditors’ claims were over $10,750,000. The amount available to creditors was 0.004 cents in the dollar. In this light, Mr Attard submitted that 3.1 cents in the dollar could not be described as “trivial”, given that it was considerably more than what was on offer in Hingston.
I did not understand James Legal’s reference to Hingston to be for the purpose of setting some formulaic test as to what can be considered “trivial”, or not.
Rather, in this instance, James Legal’s reliance was for the proposition that one factor, in a number of factors, as to what is reasonable in the terms of the PIA, and whether it is calculated to benefit the creditors, is to look at the entirety of the level of indebtedness (and indeed the other contextual matters relevant to it) and what is being offered in terms of available assets and contributions, and to determine whether that comparison, in the circumstances of the case, is reasonable or of benefit to creditors.
Although, plainly, it is not determinative of the question posed in s.222(1)(d) of the Act, on its face, the amount offered is, as was described by James Legal before the Court, “paltry”, such that it supports the allegation that this part of the terms of the PIA was unreasonable, and not in the interests of creditors (Moran v Robertson [2012] FCA 371 at [16] – [24] per Flick J and New Age Constructions (NSW) Pty Ltd v Etlis: In the matter of Etlis [2013] FCA 884
at [56] – [58] per Yates J).
James Legal also referred to what was said to be the “closeness” of the vote of creditors in accepting the PIA.
On its face, the vote was not “close” in terms of the amount of the debts owed to the creditors. Those who voted in favour of the PIA were creditors in respect of over 80% of the total indebtedness. Those who voted against the PIA amounted to just under 20% of the total indebtedness. However, as set out above, those who voted in favour of the PIA were eight in number, while those who voted against the PIA were six in number. This can be described as “close”.
However, I understood James Legal’s argument to be that the relevance of the “closeness” of the vote of creditors particularly arises in circumstances where the result of the vote was influenced by creditors who were not at arm’s length from the debtor (Osborne v Gangemi [2011] FCA 1252). In that sense, a distinction may be drawn between the coincidence of the interests of those who voted in “favour” of Mr Attard, in avoiding bankruptcy, rather than the interests of the creditors generally.
James Legal identified the “non-independent” creditors as follows. It identified Jetz Nominees Pty Ltd, Jetz Homes & Developments Pty Ltd and Alexandra Attard (Mr Attard’s wife) as “related entities” (see the SSOGR at [8](a)) (however I note that Jetz Nominees Pty Ltd was not listed as a creditor in the Report to Creditors, see page 15 of the Report to Creditors at “AE1”). Before the Court, Mr Attard was unable to satisfactorily argue that he had a “debtor/creditor” relationship with these entities. The Statement of Affairs, and indeed the Report to Creditors were, of themselves, sufficient to show that these were entities “related” to Mr Attard (see the Statement of Affairs at page 18 of exhibit “PJ2” to Mr James’ affidavit 14 December 2015).
Jessica Investments Pty Ltd was shown as a related entity in its Statement of Claim and Proxy (see page 152 of exhibit “PJ2” to Mr James’ affidavit of 14 December 2015). However, it was not identified as a related entity in the Report to Creditors. In oral submissions, James Legal submitted that there was some “discrepancy” between the actual amount of debt relating to Jessica Investments Pty Ltd, but in any event, James Legal submitted that it was in fact a related entity (see the SSOGR at [8](e)). I accept that submission and further, the fact of the “discrepancy”.
James Legal also submitted that Advocate Financial Services was not an independent creditor, as it was a provider of financial advice to Mr Attard (see [9] of James Legal’s written submissions). There is no reason not to accept that submission.
No submissions were made by James Legal in relation to the Attard Family Trust, however I note the Report to Creditors states (at page 15) that it was noted as a related entity in the Statement of Affairs (and see page 18 of exhibit “PJ2” to Mr James’ affidavit of 14 December 2015).
Those also said by James Legal not to be at arm’s length to Mr Attard were Lazarus Legal Group Pty Ltd, Mr Abignano and Mr Sukari (see the SSOGR at [8](c) and (d)).
Two things relevantly emerge from the evidence. One, in relation to those entities with a “familial” relationship, no satisfactory attempt was made by Mr Attard to counter, either by way of evidence or submission, that these entities were at arm’s length from his own interests.
Two, and also in relation to the other creditors who voted in favour of the PIA, I agree with James Legal that the information and material placed before Mr Milanos at the relevant time was inadequate, and in some cases deficient, in revealing that a debtor/creditor relationship truly existed. For example, the lack of explanation, let alone appropriate detail, in relation to the situation of Mr Abignano and Mr Sukari.
In his written submissions of 24 June 2016, Mr Attard (at [12]) emphasised and relied upon what was said by Bromberg J in Osborne v Gangemi [2011] FCA 1252 at [44]:
“…A fundamental question will be whether and to what extent the composition on offer will likely be improved upon should the alternative of bankruptcy be insisted upon by the creditors….”
In essence, Mr Attard’s argument was as follows. In the current case, there is only one creditor (James Legal) “insisting” on bankruptcy. That is, if the PIA is set aside, or for that matter, terminated, then the likelihood of a sequestration order being made against Mr Attard becomes a real possibility.
In this light, Mr Attard argued that a “fundamental” question is whether, and to what extent, the composition on offer arising from the PIA will likely be improved in the event of a sequestration order being made against Mr Attard. That is, whether the creditors would be able to potentially achieve a “superior result” if the PIA were to be set aside and a sequestration order subsequently made.
I agree with James Legal’s submission that the “list” of authorities to which the parties referred illustrates the difficulty in approaching this question in some formulaic manner.
That difficulty is illustrated as follows. The composition under the PIA and the return to creditors is known. The likelihood of what would occur if a sequestration order is made is, at best, variable, and subject to the outcome of investigations that are available under the Act in relation to the estate of a bankrupt. I respectfully understood the caution urged by the authorities (as set out above) to, in part, flow from this circumstance.
James Legal argued that the “attack” on the PIA, as set out in the authorities to which it referred, is of a more “general” character, than the “simpler” defence proposed now by Mr Attard.
That is, Mr Attard’s “defence” of the PIA was characterised by James Legal as, in essence, being that “three cents in the dollar” is a better outcome for the creditors than insolvency.
James Legal argued that when put in this way, it is “rare” that such an argument can be “directly denied”.
I understood the argument to be that Mr Attard described the 3.1 cents in the dollar, central to the composition, as not being “trivial” or “negligible”, particularly when seen in light of the “uncertainty” of the outcome of any investigation, if any, under a bankruptcy scenario.
There are subtleties to both sides of the argument that must be acknowledged. For its part, James Legal submitted that what the authorities “emphasise” is the desirability of “formal bankruptcy”, to enable the procedures under the Act, which are available in such circumstances, to secure a more favourable return to creditors.
These, for example, could be to investigate antecedent transactions pursuant to s.120, s.121 and s.122 of the Act. James Legal also submitted that recently introduced amendments to the Act (Division 4A) provide available procedures in relation to property controlled by an entity which, in turn, is “controlled” by a bankrupt.
The submission was that the circumstances of this case are particularly relevant to these procedures, given that Mr Attard was “associated” with various companies, trusts, and relatives, in the administration of his personal affairs.
When viewed in this light, James Legal argued that the real possibility of a better return to creditors should be permitted to be examined in the current case.
Mr Attard, for his part, emphasised that a “mere speculative possibility is not of itself enough” (Re Armando Tripodi Ex parte: Col Johnson Pty Limited [1987] FCA 8 at [50] per Burchett J and see Moran v Robertson [2012] FCA 371 at [19] per Flick J).
For context, the whole of the following extract from Moran v Robertson [2012] FCA 371 at [19] per Flick J is instructive:
“When considering the terms of the former s 222(5) and the phrase ‘in the interests of the creditors’, in Re Tripodi; Ex parte Col Johnson Pty Limited (unreported, 22 January 1987) Burchett J observed:
… I think a broad view should be taken, and in a proper case it may be held that it is in the interests of creditors that there should be the full opportunity for inquiry which bankruptcy may entail, even though there is no assurance that inquiry will in fact uncover any further assets. But, as has been said, a mere speculative possibility is not in itself enough – the circumstances must raise an inference entitling the Court to conclude that the order would be in the interests of the creditors.”
Further, that “it is sufficient that there be a real possibility of a financial benefit” (Augustyn v Putnin [1988] FCA 372; (1988) 83 ALR 514 at [23] per French J).
In all, the relevant requirement may be described as being either that the Court is able to reasonably infer from the circumstances presented, or can find that a “real possibility” exists, of a greater return on bankruptcy, as opposed to what is offered by the composition.
The difficulty for James Legal is that it has been unable to point to any real possibility of a better dividend for creditors with reference to the circumstances presented. In particular, to the antecedent transactions, or to what James Legal now says are the greater opportunities for investigation under the Act.
It is important to note the distinction between a real possibility, and a theoretical possibility.
The evidence before the Court makes reference to a number of transfers of property involving Mr Attard. These can be identified, from the affidavit evidence of Mr James, as follows:
Date Dealing Evidence 19 October 1994 Purchase by Mr and Mrs Attard as joint tenants of 14/A/5571 and 756/752031 (25 Glenview St, Gordon 2072) for $475,000 Exhibit “PJ2”, pp. 719, 736 10 February 1999 Transfer of 14/A/5571 and 756/752031 (25 Glenview St, Gordon 2072) for $475,000 from Mr and Mrs Attard as joint tenants to Mr Attard (1%) and Mrs Attard (99%) as tenants in common Exhibit “PJ2”, pp.721, 738 16 November 1999 Purchase of 24/E/5571 (24 Darnley St, Gordon 2072) for $800,000 by Mr Attard (1%) and Mrs Attard (99%) Exhibit “PJ2”, pp.726, 743 23 December 1999 Sale of 14/A/5571 and 756/752031 (25 Glenview St, Gordon 2072) for $1,155,000 Exhibit “PJ2”, pp.723, 740 10 January 2007 Sale of 24/E/5571 (24 Darnley St, Gordon 2072) for $2,650,000 Exhibit “PJ2”, pp.727, 744 9 February 2007 Purchase of 151/1060782 (37 Burns Road, Wahroonga 2076) for $4,100,000 by Mr Attard (1%) and Mrs Attard (99%) Exhibit “PJ2” pp.478, 730, 747 25 June 2008 Transfer of 9/285961 (110 Governors Way, Macquarie Links 2565) from Jessica Investments Pty Ltd to Mr Attard (1%) and Mrs Attard (99%) Exhibit “PJ2” pp.754 30 June 2008 Transfer of 115/1118223 (21 Ironbark Cl, Gloucester 2422) from Worrigee Developments Pty Ltd to Mr and Mrs Attard (as joint tenants) as to 71% as trustees for the Attard Superannuation Fund and Worrigee Developments Pty Ltd (as to 29%) Exhibit “PJ2”, p.771 1 July 2008 Transfer of 115/1118223 (21 Ironbark Cl, Gloucester 2422) from Worrigee Developments Pty Ltd to Mr and Mrs Attard as joint tenants as trustees for the Attard Superannuation Fund The affidavit of Peter James of 14 December 2015 at [23] and Exhibit “PJ2” pp.771 16 February 2009 Sale of 9/285961 (110 Governors Way, Macquarie Links 2565) for $470,000 Exhibit “PJ2”, p.756 25 June 2009 Sale of 115/1118223 (21 Ironbark Cl, Gloucester 2422) by Mr and Mrs Attard as trustees for the Attard Superannuation Fund for $360,000 Exhibit “PJ2”, p.773 21 June 2010 Transfer of 135/1152297 (Jacks Road, Gloucester 2422) from Worrigee Developments Pty Ltd to Mr and Mrs Attard (as joint tenants) as trustees for the Attard Superannuation Fund for $149,500 Exhibit “PJ2”, p.775 6 November 2013 Sale of 151/1060782 (37 Burns Road, Wahroonga 2076) from Mr and Mrs Attard for $6,000,000. Exhibit “PJ2”, pp.477, 731, 748 20 November 2013 Purchase of 12/1128746 (102 Grosvenor Street, North Wahroonga NSW 2076 by Mr Attard (1%) and Mrs Attard (99%) See Mr Attard’s affidavit of 8 March 2016 at [26]
Mr Attard also made reference to these transfers of properties in his affidavit of 8 March 2016 in reply to what was set out in Mr James’ affidavit of 14 December 2015, as follows (at [20] – [27]):
“[20] In reply to paragraph 9 of Mr James’ affidavit sworn 14 December 2015, I respond as follows:
a. The property at 25 Glenview Street, Gordon was owned by my wife and I as tenants in common with me owning 1/100 share and my wife 99/100 shares. See Exhibit PJ2 at page 721 of James' affidavit. The property was purchased on the 19 October 1994. In February 1999 the arrangement between my wife and I with respect to the proportion of our ownership as tenants in common (99: 1) commenced.
b. From the proceeds of the sale of 25 Glenview Street, my wife and I on 5 October 1999 purchased 24 Darnley Street Gordon for an amount of $800,000.00. This property was similarly purchased by my wife and I as tenants in common as to 1/100 to me and 99/100 to my wife. We sold that property on or about 10 January 2007 for $2.65 million, see Exhibit PT2 at 727.
c. From the proceeds of the sale of 24 Darnley Street, my wife and I as tenants in common purchased 37 Burns Road, Wahroonga, for an amount of $4.1 million. During the period my wife and I resided in this property, we undertook extensive renovations to the property and eventually sold it on 6 November 2013 for $6 million dollars. From the proceeds of the sale, the mortgage to National Australia Bank in the sum of approximately $3.75 million dollars was repaid. A copy of the Settlement Sheet evidencing the payment made to the bank from the proceedings of the sale is annexed and marked "AA3". The settlement sheet evidences that the amount of $5,613414.31 was paid to National Australia Bank from the proceeds of the sale.
d. Following the sale of the Burns Road property, 102 Grosvenor Street, Wahroonga, was purchased. There is a current balance owing to the National Australia Bank on this property for the sum of $1,863,729.78. A copy of the NAB Internet Banking Transaction history for the period 29 November 2015 to 8 March 2016 for the account number 47 577 8078 is annexed and marked "AA4".
[21] In paragraph 21 of Mr James affidavit sworn 14 December 2015, Mr James makes reference to the financial statement and tax return of Worrigee Development Pty Ltd for the year ending 30 June 2014 and in particular to an item in the Balance sheet referring to land tax of$3,017,554.51. A copy of a letter from John Newton from Haywards Chartered Accountants (Haywards) dated 11 February 2016 is annexed and marked "AA5". Haywards are the accountants for Worrigee Development Pty Ltd. Haywards' letter notes the land at a cost of $3,017,554.51. However, the 2014 financials of the company also show current liabilities of $3,568,900.88. The letter also indicates that the cost of the land is above market value. [The final sentence of this paragraph was not pressed by Mr Attard.]
[22] In reply to paragraph 23 of Mr James' affidavit sworn 14 December 2015, the land to which Mr James refers to in that paragraph was transferred to my wife and I in our capacity as Trustees for the Attard Superannuation Fund. A house was subsequently built on that land and the Trust subsequently sold the house and land in 2009.
[23] In Reply to paragraph 24 of the affidavit of Mr James dated 14 December 2015 the land referred to in this paragraph, being lot 135 of Deposit Plan 152297, was also purchased by my wife and I in our capacity as trustees for the Alfred Superannuation Fund.
[24] In reply to paragraph 25 of Mr James' affidavit dated 14 December 2015, Mr James refers to the financial statements and tax return of Monezt Developments for year ended 30 June 2014 and in particular to the items Current Assets Inventories Lot 2-3 New England Highway Muswellbrook NSW at Capitalised Establishment Cost of $2,142,558.64. Mr James fails to note that the 2014 financials also show current liabilities of $4,914,858.63. The company showed an excess of liabilities over assets of$203,472.21. See Annexure "AA5" (Haywards' letter dated 11 February 2016).
[25] In reply to paragraph 28 of Mr James' affidavit dated 14 December 2015, Mr James refers to the Financial Statements and Tax Return of Eastbrook Rural property Trust for the year ended 30 June 2014; and in particular to the item "Properties for Resale at Directors valuation $38,009,000.00". The Financial Statements also show that ANZ and Abacus Property Group are owed $41,735,425.00. The trust showed an excess of liabilities over assets of$1,281,298.50. See Annexure "AA5" (Haywards' letter dated 11 February 2016).
[26] The property at 102 Grosvenor Street Wahroonga was acquired for $2.5 million. The property is registered in the name of my wife and I as to 1/100 and 99/100 respectively as has been the custom going back to February 1999.
[27] The current market value of 102 Grosvenor Street Wahroonga is about $3 to 3.1 million. There is a mortgage on the property with National Australia Bank of $1,863,729.78. A copy of that mortgage with the National Australia Bank is exhibited at PJ2 pages 287 to 291 of Mr James' affidavit sworn 14 December 2015. See Annexure "AA4" (the NAB Internet Banking Transaction history for the period 29 November 2015 to 8 March). In addition to the mortgage there are cross collateral loans supported by the property to National Australia Bank of:
a. $250,000.00 overdraft to Jetz Nominees which is fully overdrawn, exhibited at PJ2 pages 293 to 299 of Mr James' affidavit sworn 14 December 2015;
b. $3.712 million loan to Jetz Luxury Homes for construction of a development in Leichhardt, exhibited at PJ2 pages 301 to 367 of Mr James' affidavit sworn 14 December 2015;
c. $630,000.00 mortgage to Jetz Nominees over property, Jack's Road, Glouster owned by Worrigee Developments Pty Ltd, exhibited at PJ2 pages 293 to 299 of Mr James' affidavit sworn 14 December 2015;
d. There is no surplus value (equity) in this property.”
Mr James’ evidence is set out in each of his three affidavits (made on 3 October 2015, 14 December 2015 and 6 June 2016). While there are various references to these properties in his evidence (for example, as to locations where Mr Attard has resided), for current purposes, the following is relevant (and also with reference to Mr Attard’s evidence).
One, the purchase and sale of the Glenview Street, Gordon property (14/A/5571 and 756/752031) was in 1994 and 1999 respectively. The arrangement that arose in relation to this property (which was the residence for Mr and Mrs Attard at the time) was that Mr Attard held 1% of the interests in the property and Mrs Attard held 99%. This arrangement commenced in February 1999 (see Mr Attard’s affidavit of 8 March 2016 at [20]).
Mr Attard provided an explanation for this arrangement (see Mr Attard’s affidavit of 8 March 2016 at [20](a) and his affidavit of 24 June 2016 at [8]). This evidence was not challenged in cross examination. I agree with Mr Attard that he has provided a satisfactory explanation for this arrangement as between him and Mrs Attard.
It is to be remembered that James Legal referred to transactions such as those identified above as being part of the circumstances which would be amenable to investigation under the Act if bankruptcy were to ensue after the setting aside, or, I note also for the sake of completeness, termination, of the PIA.
The issue now, however, is how the setting aside of the PIA to enable an investigation under the Act to take place could realistically assist James Legal in its argument in the current case.
One, there is nothing in the circumstances to indicate that there is a real possibility that any investigation under the Act would result in the creditors receiving a greater dividend than what is currently on offer in the composition under the PIA.
Two, the property at Darnley Street Gordon (24/E/5571) was purchased in November 1999 for $800,000 and sold in 2007 for $2.65 million. Again, the same arrangement in the share as between Mr and Mrs Attard (1% and 99% respectively) was utilised. That is, Mr Attard’s share was only 1% of the amount for which the property was sold. Again, there is nothing in the sale transaction to provide a real possibility of a better outcome for creditors.
Three, Mr and Mrs Attard purchased the property in Burns Road Wahroonga (151/1060782) (“the Burns Road property”) in February 2007 for $4.1 million. Again, in the same arrangement in the share between Mr and Mrs Attard (1% to 99% respectively). This property was sold in November 2013 for $6,000,000. Mr Attard’s evidence was that an amount of $5.6 million was paid out to the National Australia Bank (“NAB”) (see Mr Attard’s affidavit of 8 March 2016 at [20](c)). There is nothing in Mr James’ evidence to dispute this.
This left Mr Attard’s “asset” as being 1% of the remaining $400,000 (after the payment to the NAB was made). That is, $4,000. In submissions before the Court, Mr Attard described this as being “a negligible amount”.
In circumstances where the transaction does not indicate any real possibility of “attack” under the Act, it is fair to say that the amount left as the asset of Mr Attard is indeed, a negligible amount.
More recently, in November 2013, Mr and Mrs Attard purchased a property in Grosvenor Street Wahroonga (12/11228746) (“the Grosvenor Street property”) with the same arrangement in the share between Mr and Mrs Attard (1% to 99% respectively). Mr Attard’s evidence was that the purchase involved an amount of $1.86 million owed to the NAB (see Mr Attard’s affidavit of 8 March 2016 at [20](d)).
As noted above, James Legal has put into evidence the Report to Creditors prepared by Mr Milanos in August 2015 in anticipation of the creditor’s meeting of 18 August 2015 (“AE1”).
The Report to Creditors makes reference to the Grosvenor Street property which is currently owned by Mr and Mrs Attard (see pages 11 to 13 of the Report to Creditors at “AE1”). This part of the Report to Creditors is instructive for current purposes and is important in the disposition of this application.
The Report to Creditors notes (at page 11) that in his Statement of Affairs, Mr Attard has indicated that the property is owned in the same 1% to 99% share ratio to the previous properties (as outlined above).
He also reports that Mr Attard indicated the value of the Grosvenor Street property to be $2.5 million in his Statement of Affairs. However, Mr Milanos states, “it is clear that the property is potentially worth substantially more” (see page 11 of the Report to Creditors at “AE1”).
In this light, Mr Milanos obtained two valuations of the Grosvenor Street property. These were $3.2 million (as at 23 July 2015) and $3.8 million (as at 20 July 2014) (see page 12 of the Report to Creditors at “AE1”). On this basis, Mr Milanos calculated the amount available to the “owners” (Mr and Mrs Attard) if the property were to be sold.
Mr Milanos’ analysis is set out at the “table” that appears at page 12 of the Report to Creditors. Taking into account the amount owing to the NAB (which supplied funds to secure the purchase of the property), and other expenses, Mr Milanos calculated that, at best, what was left for Mr Attard was $15,199.
The extensive notes following at pages 12 and 13 of the Report to Creditors explain the basis for the calculations. Importantly, these notes reveal that Mr Milanos examined, and based his calculations, with reference to a number of other entities which comprised a part of the arrangements under which James Legal now says Mr Attard conducted his business. That is, Mr Milanos considered the wider network in which Mr Attard conducted his business affairs.
The importance of this is that, in essence, it represents, and exemplifies, that an investigation of Mr Attard’s affairs did take place, and it did so before the creditors meeting.
Plainly, it was not the type of “investigation” that utilised the mechanisms available under the Act if a sequestration order had been made.
However, it represents an “independent” examination conducted by Mr Milanos. Mr Milanos did not simply accept Mr Attard’s claim as to the value of the Grosvenor Street property. Rather, he pursued, and confirmed, his own view that the property was worth potentially more than had been claimed by Mr Attard. While some of the calculations were based on other claims made by Mr Attard, these were supported by documentary evidence. For example, while Mr Attard supplied various emails, these were emails from the NAB which linked other amounts in respect of the Grosvenor Street property to entities which were part of the Attard business arrangements.
The basis for these emails, as with other parts of the Report to Creditors, were also put as part of the evidence given separately in these proceedings by Mr Attard – evidence which was either not challenged, or not successfully challenged before the Court, and therefore is evidence to be accepted.
It is important to continue to bear in mind that the relevant questions arising from the Act are whether the terms of the PIA are unreasonable, or are not calculated to benefit the creditors generally.
In this light, the evidence as to what the creditors knew when they voted on the PIA is of importance. While their own views are not necessarily and ultimately determinative as to what is of benefit to them (they need at least to be seen as acting reasonably), those views are plainly not irrelevant to the Court’s consideration (see also Osborne at [42] and see below at [111]).
In this regard, the Report to Creditors is extensive. No evidence was given now to say that any substantial errors, or misrepresentations, are contained in the Report to Creditors.
The Report to Creditors also sets out correspondence that Mr Milanos received from James Legal on 4 August 2015 (see [4.2] at page 14 and Annexure A at pages 19 to 21 of the Report to Creditors at “AE1”).
That correspondence makes specific reference to the purchase and sale of the Burns Road property and purchase of the Grosvenor Street property, and provides details.
Mr Attard submitted that all of the creditors were put on notice of the matters raised by James Legal in relation to these properties, both by the relevant contents of the Report to Creditors and the attached correspondence.
I agree with Mr Attard that, in that sense at least, the creditors would have voted with full knowledge of James Legal’s concerns.
Further, the Report to Creditors also makes specific reference to the companies which James Legal now describes as being part of the entities and structures through which Mr Attard conducted his business (see page 13 of the Report to Creditors at “AE1”). These references also include a report on the debt structure relevant to those companies, and to others, that applied to Mr Attard at the time of the drafting of the report.
As was, with respect, said in Osborne v Gangemi [2011] FCA 1252 at [43], “the will of creditors, when exercised reasonably and in the interests of all creditors generally, will usually provide a sure and safe path to achieving the best result out of a bad situation”.
On one level, James Legal’s prosecution of the current proceeding is understandable. There is no relevant dispute that the debt owed to James Legal by Mr Attard was over $1 million. Yet, under the PIA James Legal stands to receive, at most, 3.1 cents in the dollar. That is, at best, an amount of around $11,000.
However, as the relevant legislation (and the authorities) make clear, the relevant consideration is not focused on one creditor, but whether the PIA is not calculated to benefit all the “creditors generally”.
In his submissions, Mr Attard asserted that of all of the creditors, only two would now vote against the PIA if another vote were to be held. Further, that there is no evidence of any other creditor who supports James Legal’s current application to set aside, or even terminate, the PIA.
I understood the thrust of Mr Attard’s submission to be both an extension of the argument as to the will of the creditors, but also put in light of the proposition involving the interests of the “creditors generally”.
I understood Mr Attard’s argument to be that a reasonable inference could be drawn, that from the “pool” of creditors who voted against the PIA in the first place, given other events as set out in Mr Attard’s evidence (see his affidavit of 8 March 2016) that they would have no interest in voting against the PIA now.
James Legal submitted, in effect, that there is a difference on the one hand between individual creditors who either have been paid in full (for example, the Australian Taxation Office (“ATO”)), or judgment debts being set aside in light of some other settlement (e.g. American Express $0.10 in the dollar) and on the other hand, that this “proves” that such creditors who voted against the PIA would now have another view.
It is to be remembered that these are creditors who voted against the PIA. Even if they maintained their earlier position, this still would not change the “balance” with those who voted in favour.
Further, some care must be taken to imputing views to creditors in the absence of relevant evidence. Mr Attard’s evidence in this regard is directed to the “satisfaction” of some of the debts to some of the creditors (see his affidavit of 16 November 2017). I agree with James Legal’s submissions in this regard.
However, those actions in “satisfying” these debts intervene to make a comparison between what those individual creditors voted in relation to the PIA in August 2015, and what they may vote now, a theoretical exercise at best. In a practical sense, they are no longer “creditors” (see cl.5(b) of the PIA at “AE1”).
When viewed in this light, what is left, is that the creditors, who have cause to press, or support, the setting aside, or for that matter termination of the PIA, are down to two (other than James Legal) (see Mr Attard’s affidavit of 16 November 2017 at [11]) (I also note that Citibank, while listed as a creditor in the Report to Creditors, did not appear to have voted on the PIA). The question arises as to whether the others would continue to act as “disinterested judges of their own commercial well-being”. In the case of the ATO for example, it has been paid in full.
In any event, the exercise of the discretion centres around reasonableness, and the interests of the creditors generally.
Understandably, as is set out above, in submissions each party emphasised those elements or factors in the circumstances of this case that, respectively, were said to call for the exercise of the discretion in their favour.
I agree with James Legal that those creditors at the time of the vote on the PIA who could reasonably be said to be at arms-length from Mr Attard’s interests, voted against the PIA.
I further agree that questions arise given the lack of evidence, about the involvement of such creditors as Mr Abignano and Mr Sukari.
Yet further, I also agree that as a general proposition, a, if not the, paramount consideration, is the “wishes” of the creditors who can be said to be acting as “disinterested judges in their own commercial well-being”.
In that latter light, James Legal sought to argue that those who voted for the PIA were not so “disinterested”, and those who voted against the PIA were.
However, it is at this point that the balance in the Court’s consideration shifts in favour of Mr Attard. It is clear now that other than for two of those creditors (not including James Legal), all the others have “benefited” from other “arrangements”, as set out above (see above and see also Mr Attard’s affidavit of 16 November 2017).
While, as James Legal submitted, it does not automatically follow that these creditors’ positions, on the evidence, can be known, a reasonable inference can be drawn that at least they would now, as opposed to the time of the vote on the PIA, need to seriously consider whether the “accommodation” they have reached in the intervening time, would be jeopardised if the PIA were set aside, or even terminated, and the matter would proceed under the provisions of the Act which are available after a sequestration order is made.
This also raises the question as to the position of James Legal. Since the making of the PIA, James Legal’s position, when compared with other creditors, has “worsened”. This has occurred in a situation where the debt to James Legal is over $1 million as compared to the next in the list of debts (of those who voted against the PIA), that is to the ATO, which was just over $150,000 (and has now been satisfied).
But as set out above, the relevant question is not what is in the interests of one creditor, but in the interests of creditors generally. It must not be forgotten that those creditors include those who are in a familial relationship with Mr Attard, or are controlled by him. They still remain as creditors. Therefore, they must form a part of the consideration of what is in the interests of creditors generally.
In this light, for the reasons set out above, I am not satisfied, given the state of the evidence, that the creditors’ interests as a whole and generally, would be better served by setting aside the PIA and by the making of a sequestration order (s.222(1) of the Act).
Nor, for similar reasons, as those set out above, had it been pressed, am I satisfied that any other reason exists for terminating the PIA and similarly allow the making of a sequestration order (s.222C of the Act).
Conclusion
The application should be dismissed. I will make the appropriate order. I will hear the parties on costs.
I certify that the preceding one hundred and thirty-four (134) paragraphs are a true copy of the reasons for judgment of Judge Nicholls
Date: 28 September 2018
Schedule 1 – Objections to Affidavit Evidence
| Affidavit | Objection | Basis for Objection | Disposition |
| Peter James sworn 3 October 2015 | [22] – [31] | Relevance (ss.55 and 56 of the Evidence Act 1995 (Cth) (“the EA”)) | Objection upheld |
| Peter James sworn 14 December 2015 | [16], first sentence | Form | Evidence not pressed |
| Peter James sworn 6 June 2016 | [4] | Submission | Evidence not pressed |
| [7], second sentence | Submission | Evidence not pressed | |
| [8] | Submission | Evidence not pressed | |
| [9] | Submission | Evidence not pressed | |
| [10] | Form; Submission | Evidence not pressed | |
| [11] | Evidence was withdrawn in light of rulings on the admissibility of other evidence (no objection) | N/A | |
| [12] | Evidence was withdrawn in light of rulings on the admissibility of other evidence (no objection) | N/A | |
| [19] | Form; Submission | Evidence not pressed | |
| [20] | Submission | Evidence not pressed | |
| [21] | Submission | Evidence not pressed | |
| [22] | Submission | Evidence not pressed | |
| [24], from the words, “…which confirms that…” to the end of the sentence | Submission | Evidence not pressed | |
| [25], from the words, “…which provides that…” to the end of the sentence | Submission | Evidence not pressed | |
| Alfred Michael Vincent Attard sworn 8 March 2016 | [2], final sentence, to the words, “and I were particularly concerned and we” | Relevance (ss.55, 56 of the EA); Deponent cannot prove the state of mind of Mr Henry (s.76 of the EA) | Objection not upheld on the basis that it is read as evidence only of Mr Attard’s concerns |
| [4] | Relevance (ss.55, 56 of the EA); purported proof of the content of documents otherwise than by the tender of the documents or satisfying the alternative requirements of the EA (ss.48 and 69 of the EA) | Objection not upheld on the basis that the evidence is contextual | |
| [5], second and third sentences | Relevance (ss.55, 56 of the EA); Purported proof of the content of documents otherwise than by the tender of the documents or satisfying the alternative requirements of the EA (ss.48 and 69 of the EA) | Objection not upheld on the basis that the evidence is contextual | |
| [7], including annexure “AA1” | Relevance (ss.55, 56 of the EA); Purported proof of the content of documents otherwise than by the tender of the documents or satisfying the alternative requirements of the EA (ss.48 and 69 of the EA) | Objection not upheld on the basis that the evidence is contextual | |
| [8], first sentence, to the words “and just before he issued the accounts seeking to recover the sum of $750,641.07” | Relevance (ss.55, 56 of the EA); Purported proof of the content of documents otherwise than by the tender of the documents or satisfying the alternative requirements of the EA (ss.48 and 69 of the EA) | Objection not upheld on the basis that the evidence is contextual | |
| [14], second sentence | Relevance (ss.55, 56 of the EA); Purported proof of the content of documents otherwise than by the tender of the documents or satisfying the alternative requirements of the EA (ss.48 and 69 of the EA) | Objection not upheld on the basis that the evidence is contextual | |
| [15], from to the words, “I recall a conversation with Mr James”, to the end of the paragraph | Relevance (ss.55, 56 of the EA) | Objection upheld | |
| [16] | Relevance (ss.55, 56 of the EA) | Objection upheld | |
| [17], to the words, “refusing to entertain any meaningful discussion on payment of his fees” | Relevance (ss.55, 56 of the EA) | Objection upheld | |
| [19] | Relevance (ss.55, 56 of the EA); Purported proof of the content of documents otherwise than the tender of the documents of satisfying the alternative requirements of the EA | Objection not upheld on the basis that the evidence is contextual | |
| [21], from the words, “A copy of a letter from John Newton” to the words, “at a cost of $3,017,554.51”, the final sentence and annexure “AA5” | Purported proof of the content of documents otherwise than the tender of the documents of satisfying the alternative requirements of the EA | Final sentence not pressed. Objection not upheld in relation to the remainder of the paragraph. | |
| [22], to the words, “in our capacity as trustees for the Alfred Superannuation Fund” and the words, “and the Trust” | Purported proof of the content of documents otherwise than by the tender of the documents (s.48 of the EA) | Objection not upheld not the basis that the evidence be treated as merely in relation to the state of mind of Mr Attard | |
| [23] to the words, “in our capacity as trustees for the Alfred Superannuation Fund” | Purported proof of the content of documents otherwise than by the tender of the documents (s.48 of the EA) | Objection not upheld not the basis that the evidence be treated as merely in relation to the state of mind of Mr Attard | |
| [24], final sentence and annexure “AA5” | Purported proof of the content of documents otherwise than by the tender of the documents or satisfying the alternative requirements of the EA (ss.48 and 69 of the EA) | Objection not upheld | |
| [25], final sentence and annexure “AA5” | Purported proof of the content of documents otherwise than by the tender of the documents or satisfying the alternative requirements of the EA (ss.48 and 69 of the EA) | Objection not upheld | |
| [27], final sentence | Purported proof of the content of documents otherwise than by the tender of the documents or satisfying the alternative requirements of the EA (ss.48 and 69 of the EA); Opinion (s.76 of the EA) | Objection not upheld on the basis that the evidence be read as no more than an assertion | |
| [28], final sentence | Opinion (s.76 of the EA) | Objection not upheld | |
| [32], final sentence | Hearsay (s.59 of the EA); Purported proof of the content of documents otherwise than by the tender of the documents (s.48 of the EA) | Evidence not pressed | |
| Michael Vincent Attard sworn 24 June 2016 | [6], final sentence | Purported proof of the content of documents otherwise than by the tender of the documents (s.48 of the EA) | Objection upheld on the basis that leave is granted to the respondents to correct deficiencies in the evidence |
| [7], to the words, “on the re-sale” to the end of the paragraph | Purported proof of the content of documents otherwise than by the tender of the documents (s.48 of the EA) | Objection upheld on the basis that leave is granted to the respondents to correct deficiencies in the evidence | |
| [8], to the words, “in repayment of the $400,000 that I borrowed” to the end of the paragraph | Purported proof of the content of documents otherwise than by the tender of the documents (s.48 of the EA) | Objection upheld on the basis that leave is granted to the respondents to correct deficiencies in the evidence |
Schedule 2 – Aide Memoire
In favour of the Personal Insolvency Agreement [as at 2015]
Attard Family Trust $2,989,967.50
Jetz Homes and Developments 2,104,559.14
Alexandra Attard 499,000.00
Jessica Investments Pty Limited 250,000.00
Lazarus Legal 30,388.93
Biagio Abignano 3,750.00
Advocate Financial Services 2,750.00
John Sukari 2,250.00
Total: $5,882,665.57 (80.89% in value)
Against the Personal Insolvency Agreement
James Legal $1,085,961.83
Australian Tax Office 153,092.10
American Express 64,905.33
National Australia Bank 38,640.09
Westpac Bank 37,514.57
Brunskil McLenahan 9,349.76
Total: $1,389,463.68 (19.11% in value)
In 2017 favour of the Personal Insolvency Agreement
1. Attard Family Trust $2,989,967.50
2. Jetz Homes and Developments 2,104,559.14
3. Alexandra Attard 499,000.00
4. Jessica Investments Pty Limited 250,000.00
5. Lazarus Legal 30,388.93
6. Brunskil McLenahan 9,349.76
7. Biagio Abignano 3,750.00
8. Advocate Financial Services 2,750.00
9. John Sukari 2,250.00
Total $5,892,015.33 (In number 9 favour 81.8%) (84% in value)
In 2017 Against the Personal Insolvency Agreement
1. James Legal $1,085,961.83
2. Westpac Bank 37,514.57
Total: $1,123,476.40 (In number 2 against 18.2%) (16% in value)
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