Kassem, in the matter of Koutavas v Struthers
[2011] FCA 322
•6 April 2011
FEDERAL COURT OF AUSTRALIA
Kassem, in the matter of Koutavas v Struthers [2011] FCA 322
Citation: Kassem, in the matter of Koutavas v Struthers [2011] FCA 322 Parties: OZEM AZZAM KASSEM AND BRUNO SECATORE AS JOINT LIQUIDATORS OF PAN PACIFIC AGE CARE SERVICES PTY LIMITED (IN LIQUIDATION) ACN 112 742 882 and PAN PACIFIC AGE CARE SERVICES PTY LIMITED (IN LIQUIDATION) ACN 112 742 882 v IAN LAWRENCE STRUTHERS AS TRUSTEE OF THE BANKRUPT ESTATE OF HARRY KOUTAVAS File number(s): NSD 1794 of 2010 Judge: YATES J Date of judgment: 6 April 2011 Catchwords: BANKRUPTCY AND INSOLVENCY – leave to proceed against bankrupt in Supreme Court proceeding Legislation: Bankruptcy Act 1966 (Cth) ss 55, 58(3)
Conveyancing Act 1919 (NSW) s 37A
Corporations Act 2001 (Cth) ss 588G, 588M, 1371H
Family Law Act 1975 (Cth) s 90K(1)
Federal Court (Bankruptcy) Rules 2005 (Cth) r 2.04Cases cited: Allanson v Midland Credit Ltd (1977) 30 FLR 108
Fraser v Commissioner of Taxation (1996) 69 FCR 99
Green v Schneller (2001) 189 ALR 464
Silvera v Savic (1999) 46 NSWLR 124
Zavarinos v Houvardas (2004) 32 Fam LR 490Date of hearing: 30 March 2011 Place: Sydney Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 34 Counsel for the Applicants: Mr M Condon Solicitor for the Applicants: Sage Solicitors Counsel for the Respondent: The Respondent did not appear Counsel for the Contradictor: Mr J Johnson Solicitor for the Contradictor: Owen Hodge Lawyers
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
NSD 1794 of 2010
BETWEEN: OZEM AZZAM KASSEM AND BRUNO SECATORE AS JOINT LIQUIDATORS OF PAN PACIFIC AGE CARE SERVICES PTY LIMITED (IN LIQUIDATION)
ACN 112 742 882
First ApplicantsPAN PACIFIC AGE CARE SERVICES PTY LIMITED (IN LIQUIDATION) ACN 112 742 882
Second ApplicantAND: IAN LAWRENCE STRUTHERS AS TRUSTEE OF THE BANKRUPT ESTATE OF HARRY KOUTAVAS
Respondent
JUDGE:
YATES J
DATE OF ORDER:
6 APRIL 2011
WHERE MADE:
SYDNEY
THE COURT ORDERS THAT:
1.The parties submit an agreed form of orders giving effect to these reasons within 7 days.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using Federal Law Search on the Court’s website.
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
NSD 1794 of 2010
BETWEEN: OZEM AZZAM KASSEM AND BRUNO SECATORE AS JOINT LIQUIDATORS OF PAN PACIFIC AGE CARE SERVICES PTY LIMITED (IN LIQUIDATION)
ACN 112 742 882
First ApplicantsPAN PACIFIC AGE CARE SERVICES PTY LIMITED (IN LIQUIDATION) ACN 112 742 882
Second ApplicantAND: IAN LAWRENCE STRUTHERS AS TRUSTEE OF THE BANKRUPT ESTATE OF HARRY KOUTAVAS
Respondent
JUDGE:
YATES J
DATE:
6 APRIL 2011
PLACE:
SYDNEY
REASONS FOR JUDGMENT
The first applicants are the joint liquidators of Pan Pacific Age Care Services Pty Limited (in liquidation). The second applicant is the company itself. On 9 July 2010 the applicants commenced proceedings against Harry Koutavas and others in the Supreme Court of New South Wales (the Supreme Court proceeding).
On 12 July 2010 Mr Koutavas became bankrupt upon the presentation of his own petition pursuant to s 55 of the Bankruptcy Act 1966 (Cth) (the Bankruptcy Act).
The applicants now seek leave pursuant to s 58(3) of the Bankruptcy Act to continue the Supreme Court proceeding against Mr Koutavas, as first defendant.
Mr Koutavas’ trustee in bankruptcy has been joined as respondent to the present application. He has been served with the application but has not appeared. There is evidence before me that he is without funds. There is also evidence before me that the trustee does not oppose the granting of leave provided that, as a result, he is not joined as a party to the Supreme Court proceeding and is not liable for the costs of this application.
As the trustee was to play no active role in the present application, Mr Koutavas’ former wife, Kanella Koutavas, who is the third defendant in the Supreme Court proceeding, sought leave to be heard pursuant to r 2.04 of the Federal Court (Bankruptcy) Rules 2005. The applicants have not opposed the granting of that leave and the matter has proceeded with Mrs Koutavas as contradictor. I will formalise the granting of leave when making orders on this application. Mrs Koutavas contended that the leave sought by the applicants should not be granted.
THE SUPREME COURT PROCEEDING
In the Supreme Court proceeding the first applicants (as first plaintiffs) claim that, as a director, Mr Koutavas permitted the company to incur certain debts at a time when the company was insolvent, contrary to s 588G of the Corporations Act 2001 (Cth) (the Corporations Act). They claim, as a debt due to the company, relief against Mr Koutavas, pursuant to s 588M of the Corporations Act for the loss or damage allegedly suffered by his conduct (the insolvent trading claim). On 19 August 2010 the first applicants, on behalf of the company, lodged a proof of debt with the trustee for the sum of $296,751.43, representing the amount of the debt claimed in the insolvent trading claim. The trustee initially disputed that claim. The evidence before me includes the correspondence that has passed between the applicants’ solicitors and the trustee’s solicitors on that matter. It is not necessary to descend to the detail of that correspondence or to deal with the matters that were in dispute. It is sufficient for me to note that, on 25 March 2011, after the commencement of the present proceeding, the trustee advised the applicants that he would admit the claim, but only to the value of $1 until he is apprised of sufficient information to permit him to properly quantify the claim.
Allied to the insolvent trading claim is a claim by the second applicant (as second plaintiff) that Mr Koutavas breached the duties imposed by ss 180, 181 and 182 of the Corporations Act. In that connection it seeks an order for compensation pursuant to s 1317H of the Corporations Act.
Significantly for present purposes, the second applicant also claims that Mr Koutavas has alienated property with the intent to defraud his creditors, within the meaning of s 37A of the Conveyancing Act 1919 (NSW) (the Conveyancing Act). In that connection it claims that, on 23 June 2010, Mr Koutavas transferred his interest in the property known as 47 Staples Street, Kingsgrove to Mrs Koutavas, with that intent. It also claims that, on 15 September 2009, Mr Koutavas transferred his interest in the property known as 1 Alma Avenue (also referred to in the evidence as Alma Street), Campsie to Maria (or Maree) Sardisco, with that intent. Ms Sardisco is the fourth defendant in the Supreme Court proceeding.
The relief claimed in the Supreme Court proceeding is identified in an amended statement of claim filed in that proceeding on 4 March 2011. The applicants claim:
1.A declaration that Pan Pacific Age Care Services Pty Limited (in Liquidation) was insolvent on and from 1 May 2006 or such other date as this Honourable Court determines.
2.A declaration that between May 2006 and September 2007 the First and Second Defendants breached section 588G of the Corporations Act 2001 by permitting the Company to incur debts to the Australian Taxation office [sic] in the sum of $256,251.00 when the Company was insolvent.
3.A declaration that by reason of their authorising or permitting the Second Plaintiff to incur the debts, the First and Second Defendants:
(i)breached sections 180, 181 and 182 of the Corporations Act 2001; and
(ii)breached their duties to act with reasonable care, skill and diligence and in good faith in the interests of the second plaintiff.
4.An order pursuant to section 588 M(2) of the Act that the First Defendant and/or the Second Defendant pay to the Second Plaintiff compensation in the sum of $256,251.00 or such other sum as this Honourable Court determines.
5.A declaration that the transfer by the First Defendant to the Third Defendant on or about 23 June 2010, of the property situated at and known as 47 Staples Street, Kingsgrove in the state of New South Wales, being the land comprised and described in Folio Identifier 26/84988 (the “Staples Street Property”) was made with the intent to defraud creditors and is voidable pursuant to section 37A of the Conveyancing Act 1919.
6.An order that the Third Defendant do everything that is necessary to transfer the Staples Street Property to the First Defendant.
7.A declaration that the Third Defendant holds on trust for the First Defendant, the First Defendant’s former interest as joint owner of the Staples Street Property.
8.A declaration that the transfer by the First Defendant to the Fourth Defendant on or about 15 September 2009, of the property situated at and known as 1 Alma Street, Campsie in the state of New South Wales, being the land comprised and described in Folio Identifier 16/18036 (the “Alma Street Property”) was made with the intent to defraud creditors and is voidable pursuant to section 37A of he Conveyancing Act 1919.
9.An order that the Fourth Defendant do everything that is necessary to transfer the Alma Street Property to the First Defendant.
10.A declaration that the Fourth Defendant holds on trust for the First Defendant, the First Defendant’s former interest as sole owner of the Alma Street Property.
11.As against the First and Second Defendants, damages and further or in the alternative, compensation pursuant to section 1317H of the Corporations Act 2001.
12.Interest.
13.Costs.
14.Such further orders the Court thinks fit.
[Emphasis in original]
As framed, the application in the present proceeding seeks an order that the applicants be granted leave to continue with the Supreme Court proceeding against Mr Koutavas to judgment. However, on the hearing of the application, the applicants confined the application for leave to the claims made in paragraphs 5 to 10 quoted above (that is, the claims based on s 37A of the Conveyancing Act). For the avoidance of doubt, the applicants made clear that they would not pursue any claim for costs against Mr Koutavas in relation to those claims.
The applicants have expressed their preparedness to give the following undertakings to this Court (which they have provided in written form) as a condition of leave being granted.
1.To recover the interest of the Bankrupt in the properties the subject of the Supreme Court Proceedings No. 2010/229417 (the “Supreme Court Proceedings”) and not seek final relief without 7 days notice to Ian Struthers, the Trustee of the Bankrupt Estate of Harry Koutavas (the “Trustee”);
2.Not to oppose the Trustee being joined in the Supreme Court Proceedings at any time;
3.To notify the Trustee on at least 48 hours notice of any application which the Applicants may seek to make to amend substantively the orders presently sought in the Amended Statement of Claim filed in the Supreme Court Proceedings;
4.To notify the Trustee at least 7 days prior to any settlement proposed to be entered into in respect of the Supreme Court Proceedings.
[Emphasis in original]
THE PARTIES’ CONTENTIONS
Mrs Koutavas opposed the granting of leave for the following reasons.
First, Mrs Koutavas submitted that, upon Mr Koutavas’ bankruptcy, the second applicant’s claims, as a creditor of Mr Koutavas, to set aside the transfers of the Staples Street property and the Alma Street property, were converted to a right to prove in the bankruptcy in accordance with s 82 of the Bankruptcy Act.
Secondly, Mrs Koutavas submitted that the trustee was equipped by s 121 of the Bankruptcy Act to move to set aside any transfer of property should he be of the view that the main purpose in making the transfer was to prevent the property from being divisible among Mr Koutavas’ creditors. Similarly, she submitted that the trustee would have standing to move pursuant to s 90K(1) of the Family Law Act 1975 (Cth) to set aside the financial agreement entered into with respect to the Staples Street property, should he be of the view that a purpose of entering into that agreement was to defraud or defeat a creditor of Mr Koutavas or should he be of the view that the agreement was entered into with reckless disregard of the interests of any such creditor. In making that submission Mrs Koutavas did not accept that grounds existed for the trustee to seek that relief. She submitted, however, that, as a matter of public policy, there ought to be one primary person responsible for investigating and applying to set aside any transfer or agreement should it be considered that improper conduct was involved, and that the trustee, acting in accordance with the duties imposed by s 19 of the Bankruptcy Act, was the appropriate person to exercise that responsibility, not the applicants. In that connection Mrs Koutavas also submitted that the policy of the Bankruptcy Act concerned not only the relief of debtors and the equitable distribution of property among creditors, but also the protection of third parties from unnecessary litigation.
Thirdly, Mrs Koutavas submitted that the applicants had not approached the trustee about the possibility of him commencing proceedings to set aside the transfer; nor had they offered to put the trustee in funds to commence any such action. She also submitted that the trustee was not presently seized of sufficient information to consider whether any such proceedings should be taken. Implicit in this submission was the suggestion that the trustee had not foreclosed the possibility of bringing such proceedings and that it would be premature to permit the applicants to continue with the Supreme Court proceeding in those circumstances.
Fourthly, Mrs Koutavas submitted that, in the Supreme Court proceeding, it would be necessary for the second applicant to set aside the financial agreement entered into pursuant to s 90C of the Family Law Act, and not merely the transfer of the property to her. She submitted that the second applicant has not sought such relief in the Supreme Court proceeding and that, as a result, the second applicant’s claim in that regard was defective.
Fifthly, Mrs Koutavas submitted that Mr Koutavas was a necessary party in any proceeding based on s 37A of the Conveyancing Act. She submitted that if leave as now sought was refused, the Supreme Court proceeding could not be continued against her. On the other hand, if leave was granted, she would be exposed to liability for costs in the Supreme Court proceeding and her risk in that regard would increased by the applicants, in furtherance of their present application, not seeking to pursue costs against Mr Koutavas in that proceeding.
The applicants accepted that the second applicant’s claims based on s 37A of the Conveyancing Act were a legal proceeding in respect of a provable debt in Mr Koutavas’ bankruptcy. In that connection the applicants themselves relied on the reasoning of Barrett J in Green v Schneller (2001) 189 ALR 464 at [12] – [17] where his Honour said that the right of action available to a creditor under s 37A related “in a direct and substantial way to the creditor’s debt”, with the consequence that a legal proceeding based on that right was one “in respect of” the debt; see also Fraser v Commissioner of Taxation (1996) 69 FCR 99. However, they contended that there were good reasons why leave should be granted.
First, they submitted that, if successful, the claims based on s 37A of the Conveyancing Act would augment the bankrupt estate for the benefit of creditors and that, having already commenced the Supreme Court proceeding before Mr Koutavas presented his petition, they were best placed to pursue those claims.
Secondly, they submitted that, in so doing, there would be no disadvantage to the bankrupt estate or the trustee, given the confined leave that was being sought and the undertakings that they were prepared to give to the Court in respect of the Supreme Court proceeding.
Thirdly, they pointed to the fact that, without any criticism at all of the trustee, he had not, to date, taken steps to set aside the transfers and that it was apparent that he was not in any present position to do so. They submitted that it was only a speculative possibility that, in future, the trustee might take steps to set aside the transfers.
Fourthly, they submitted that the claims based on s 37A of the Conveyancing Act would be better and more comprehensively dealt with in a contested trial of the Supreme Court proceeding than could possibly be the case if they were left to be dealt with, at least in the first instance, administratively by the trustee: Allanson v Midland Credit Ltd (1977) 30 FLR 108 at 114.
Fifthly, they disputed Mrs Koutavas’ contention that the claims based on s 37A of the Conveyancing Act were not properly formulated in the Supreme Court proceeding or that, in order to obtain relief in that regard, it was necessary for the financial agreement entered into pursuant to s 90C of the Family Law Act to be set aside. In that connection the applicants submitted that s 37A of the Conveyancing Act is directed to avoiding alienations and that the Supreme Court can achieve the effect of avoiding an alienation by such measures as seem appropriate in the particular case. In that connection the applicants submitted that, arguably, in the present case, the Supreme Court could treat the financial agreement as being “spent” and make orders for the re-transfer of the relevant properties: see Silvera v Savic (1999) 46 NSWLR 124 at [72]; Zavarinos v Houvardas (2004) 32 Fam LR 490 at [67].
Finally, they submitted that the claims in the Supreme Court proceeding were made bona fide and have merit. They submitted that this was demonstrated by the fact that an asset preservation order was made in that proceeding on 9 July 2009 and subsequently continued against Mr and Mrs Koutavas in relation to the Staples Street property. I note in that connection that, at the time that that order was made, no claim had then been made by the applicants in relation to setting aside the transfer of the Alma Street property to the fourth defendant.
CONSIDERATION
I am of the view that this is an appropriate case for the granting of the leave now sought by the applicants, substantially for the reasons advanced by them.
I am satisfied that, at the present time, the applicants are best placed to pursue any claims to set aside the transfers of the two properties and that, if successful, the fruits of those claims will inure for the benefit of creditors of the bankrupt estate. I am also satisfied that, on the basis of the foreshadowed undertakings to be given to the Court, the continued prosecution of those claims will not result in any disadvantage to the bankrupt estate.
I accept, as a general principle, the primacy of the role of a trustee in bankruptcy in recovering assets for the equitable or rateable distribution of property among the bankrupt’s unsecured creditors. In that connection Beaumont J in Fraser at 114 observed:
… a central feature of the established scheme of bankruptcy is an equitable or rateable distribution of property among all unsecured creditors. Any mechanism to secure this objective can allow for the recovery of assets by one person only and that is the trustee, acting on behalf of the general body of creditors. In exercising that function, the trustee will need to make administrative decisions, or judgments, from time to time. But it is for the trustee alone to make those judgments, in the interests of creditors as a whole; even if, where appropriate, the trustee may take into account their expressed wishes. The point is that there is no scope here for any role to be played by individual creditors acting on their own initiative; and if litigation is to be instituted with a view to the recovery of assets, it is the trustee's function, and responsibility, to be the dominus litis and thus entirely in charge of the litigation to the exclusion of individual creditors. In other words, the relevant scheme of the legislation, specifically that of s 58(3), is that individual creditors have no right to decide to pursue, or not pursue, the assets of the bankrupt with a view to the satisfaction of individual debts. This is a matter, in terms of authority, as well as responsibility, for the trustee exclusively (see, eg, Morris v Murjani [1996] 1 WLR 848 at 852-3). Section 58(3) should be interpreted in a way that gives practical effect to this legislative purpose.
I also accept that it is possible in the present case that, in the absence of leave being granted as presently sought, the trustee might be persuaded to bring his own proceedings seeking to set aside the transfers. However, I do not consider that mere possibility (for that is all it is here) to be a reason why the leave presently sought should be refused. The matter of significance is that the trustee has not expressed a present preparedness to seek to set aside the transfers. Moreover, he has indicated that he does not oppose leave being granted to the applicants to enable them to continue to take the course they have proposed in that regard.
I am satisfied on the material before me that the claims based on s 37A of the Conveyancing Act are bona fide claims in the Supreme Court proceeding. In fairness, Mrs Koutavas, whilst maintaining her own position, did not seek to suggest otherwise. It is not appropriate that I should make any other observation in that regard.
The other reasons advanced by Mrs Koutavas for refusing leave, are not, with respect, persuasive. I do not regard it to be a significant consideration that, should leave be granted, Mrs Koutavas will continue to be exposed to the risk of costs in the Supreme Court proceeding. Mrs Koutavas has not indicated that she would not seek to protect her own interests by defending the transfer of the Staples Street property to her. In so protecting her interests she will inevitably be exposed to the risk of costs, regardless of whether proceedings to set aside the transfer are continued by the present applicants or brought afresh by the trustee. It is plainly a matter for Mrs Koutavas if she wishes to defend any legal claims brought against her.
Similarly, I do not regard the pleading issue raised by Mrs Koutavas to be a significant consideration in the present case. I am of the view that adjectival questions of that kind should be left to be dealt with in the Supreme Court proceeding itself. It is sufficient for me to say that, in light of the submissions made by the applicants, I am not satisfied that the s 37A claims as presently pleaded in the Supreme Court proceeding are necessarily defective. But, plainly, that is a question to be agitated, if need be, before that court and to be determined by that court according to its own procedures. In any event, it has not been suggested that any deficiency that might be found in that regard cannot be cured by appropriate amendment. In that connection the undertakings proposed by the applicants cater for notice to be given to the trustee in relation to the making of any amendments of a substantive nature to the relief that is sought.
DISPOSITION
I propose to make orders granting leave to the applicants to take all necessary steps in the Supreme Court proceeding in relation to the claims to set aside the transfer of the Staples Street property and the Alma Street property pursuant to s 37A of the Conveyancing Act, on condition that the applicants give to the Court the undertakings they have proposed. The grant of leave will include any retrospective leave that might be necessary in relation to steps already taken after Mr Koutavas became a bankrupt.
There is an additional matter. As I have noted, the trustee has indicated that he does not oppose the granting of leave provided he is not joined as a party to the Supreme Court proceeding. It will be a condition of granting leave that, in the first instance, the applicants not join the trustee as a party to the Supreme Court proceeding without his consent.
The only order I will make at the present time is that the parties bring in an agreed form of orders giving effect to these reasons. Mrs Koutavas should pay the applicants’ costs.
I certify that the preceding thirty-four (34) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Yates. Associate:
Dated: 6 April 2011
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