Kekeff v Papatriantafillou
[2011] FMCA 114
•1 April 2011
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| KEKEFF v PAPATRIANTAFILLOU | [2011] FMCA 114 |
| BANKRUPTCY – Contested creditors petition – claim of solvency – payment into court of amount due to the petitioning creditor – supporting creditor seeking to be substituted as petitioning creditor – petitioning creditor declining to accept tender of sum paid into court and pressing for a sequestration order. |
| Bankruptcy Act 1966, ss.49, 52 |
| Bank of Australasia v Hall (1907) 4 CLR 1514 Re Gentry [1910] 1 KB 825 Re Smith; ex parte Official Receiver (1929) 1 ABC 186 Rees v Bank of New South Wales (1964) 111 CLR 210 Sandell v Porter (1966) 115 CLR 666 |
| Applicant: | ZORA KEKEFF |
| Respondent: | CHRISTOS PAPATRIANTAFILLOU |
| Supporting Creditor: | NIDA GAYORGOR DREW |
| File Number: | SYG 1424 of 2010 |
| Judgment of: | Driver FM |
| Hearing date: | 28 February 2011 |
| Date of final submissions: | 16 March 2011 |
| Delivered at: | Sydney |
| Delivered on: | 1 April 2011 |
REPRESENTATION
| Solicitors for the Applicant: | Mr M Warton |
| The Respondent appeared in person |
| Solicitors for the Supporting Creditor: | Ms D Gunther Attwaters Solicitors |
ORDERS
A sequestration order is made against the estate of Christos Papatriantafillou.
The applicant creditor’s costs, including reserved costs, if any, be taxed and paid in accordance with the Bankruptcy Act 1966 (Cth).
Pursuant to s.52(3) of the Bankruptcy Act 1966 (Cth), all proceedings under the sequestration order are stayed for a period of 21 days.
The Court notes that the date of the act of bankruptcy is 21 June 2010.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 1424 of 2010
| ZORA KEKEFF |
Applicant
NIDA GAYORGOR
Supporting Creditor
And
| CHRISTOS PAPATRIANTAFILLOU |
Respondent
REASONS FOR JUDGMENT
Introduction and background
This case concerns a contested creditor’s petition presented on 29 June 2010. There is also an application filed on 21 February 2011 by
Ms Nida Drew seeking to be substituted as the petitioning creditor, pursuant to s.49 of the Bankruptcy Act 1966 (Cth) (“the Bankruptcy Act”).
The petition is supported by the affidavit in part 2 as well as the following affidavits:
a)affidavit of Zora Kekeff made on 15 October 2010;
b)
affidavits of service by Mark Warton filed on 29 June 2010,
3 August 2010 and 29 September 2010;
c)Affidavit of Search and Debt made by Zora Kekeff on 26 October 2010; and
d)Consent to Act as Trustee signed by Roderick Mackay Sutherland on 8 September 2010.
Mr Papatriantafillou filed a Notice Stating Grounds of Opposition to the petition on 19 August 2010. That referred to an appeal against the judgment debt and another case between the parties before the Supreme Court of NSW. Mr Papatriantafillou has filed affidavits in these proceedings on which he relies on 19 August 2010, 28 September 2010, 12 October 2010, 8 December 2010 and 25 February 2011.
The application for substitution is supported by the affidavit of
Nida Drew made on 21 February 2011.
In the course of the proceedings I have also received the following exhibits:
a)C1 – 2009 and 2010 Individual Tax Returns of Mr Papatriantafillou;
b)C2 – Certificate of Valuation on Property;
c)C3 – Cheque account statement from Commonwealth Bank of Mr Papatriantafillou;
d)C4 – letter from Mr Papatriantafillou to Ms Kekeff dated 12.12.2009;
e)C5 – Certificate of Determination of Costs by Costs Review Panel;
f)C6 – letter to Mr Papatriantafillou from Mark Warton, solicitor dated 23.02.2011;
g)D1 – Rocket Statement from Westpac Bank of Mr Papatriantafillou; and
h)K1 – Certificate of Determination of Costs;
The case has a somewhat lengthy procedural history. It first came before me from a registrar’s list on 5 October 2010. At that time I gave Mr Papatriantafillou the opportunity to file and serve an amended Grounds of Opposition, together with evidence in support of it by
12 October 2010. That order was made on the basis that
Mr Papatriantafillou wanted to raise an issue of solvency. No amended Notice of Grounds of Opposition was filed but it was apparent from further affidavit material filed by Mr Papatriantafillou that he was claiming to be solvent. In essence, he claimed the capacity to borrow money to pay his debts but that he was frustrated in doing so by reason of caveats placed upon his properties by the petitioning creditor. The petitioning creditor acknowledges that security in the petition but agrees to surrender it for the benefit of all creditors if a sequestration order is made.
It transpired that the only issue of substance on the creditor’s petition was the issue of solvency. On 26 October 2010 I noted an undertaking by Mr Papatriantafillou to pay into court the sum of $15,235.50 if the caveat over his property, being lot 10 of deposited plan 223887 at Charlestown, placed by the petitioning creditor was lifted and if funds previously advanced by the Westpac Bank in the sum of $17,583 were released by the bank. That undertaking reflected discussions between Mr Papatriantafillou and the petitioning creditor.
The caveats were not lifted but on 10 December 2010 Mr Papatriantafillou nevertheless paid into court the sum of $15,235.50. On 14 December 2010 I adjourned the hearing of the petition and directed that the money paid into court be held in court pending further order. It appeared at that time that the petitioning creditor might be satisfied by the tender of the money paid into court, permitting the dismissal of the petition.
However, a supporting creditor appeared on 7 February 2011 and sought the opportunity to apply for substitution, pursuant to s.49 of the Bankruptcy Act. I granted leave and liberty for that application on that day and adjourned the matter for further directions on 28 February 2011.
On 28 February 2011, the s.49 application having been made, Ms Drew sought to argue that application. However, the petitioning creditor then submitted that she was not willing to accept the tender of the money paid into court and, in the circumstances, there was no reason for the Court not to make a sequestration order on the petition as it stood. For his part, Mr Papatriantafillou continued to seek further time in which to pay his debts.
Submissions
The parties all made oral and written submissions. The petitioning creditor submits that Mr Papatriantafillou has failed to establish solvency, having regard to:
a)his assets which essentially comprise his residential property at Charlestown in which he appears to have an equity of no more than $100,000 and his interest in a company which owns the property from which he conducts his business;
b)the financial records of Mr Papatriantafillou’s business which indicate declining income;
c)Mr Papatriantafillou’s modest personal income and his significant personal debts; and
d)his failure to pay the debts due to the petitioning creditor and the supporting creditor.
In his submissions, Mr Papatriantafillou sought to cast doubt on the quantum of the debt owed to Ms Kekeff and referred to his payment into court of the sum said to be remaining due. He claimed to be preparing his residential property for sale. He asserts that the building owned by his company from which he trades is unencumbered. He further asserts that there is no due date for payment of the debt to
Ms Drew.
In her submissions, the supporting creditor draws attention to the unsupported factual assertions made in the submissions of Mr Papatriantafillou. The supporting creditor concedes that no date was specified for payment of the debt due to Ms Drew but submits that, in the circumstances, payment is required within a reasonable time. The supporting creditor relies on the District Court judgment made on
14 August 2009. The supporting creditor also relies upon the failed attempts to levy execution on that judgment.
Consideration
The issues to resolve are whether the petition should be granted or further adjourned, or dismissed, and whether the s.49 application should be granted.
Section 49 of the Bankruptcy Act provides:
Where a creditor's petition is not prosecuted with due diligence or where for any other reason the Court considers it proper to do so, the Court may permit to be substituted as petitioner or petitioners another creditor or other creditors to whom the debtor is indebted in the amount required by this Act in the case of a petitioning creditor, and the petition may be proceeded with as if the substituted creditor or creditors had been the petitioning creditor.
This is not a case where the creditor’s petition is not being prosecuted with due diligence. The reason why I gave Ms Drew the opportunity to file the application for substitution was because it had appeared that the petitioning creditor would be willing to accept a tender of the money paid into court in full satisfaction of the sum claimed under the petition. As a supporting creditor, Ms Drew sought and obtained the opportunity to take advantage of the petition in relation to the debt owed to her. However, in circumstances where the petitioning creditor is unwilling to accept the tender of the amount due, there being no obligation to do so[1] the reason for the Court to invite or entertain the s.49 application disappears. The appropriate course, therefore, is to deal with the creditor’s petition as it stands. In that regard, I see no reason to require any further updated affidavit material from the petitioning creditor. I am content to rely on the most recent affidavits of search and debt and the other affidavits supporting the petition. Prima facie, on that material, the petitioning creditor has established an entitlement to the relief sought in the petition.
[1] Re Gentry [1910] 1 KB 825 at 836
Mr Papatriantafillou has not advanced any reason for the Court to go behind the judgment debt supporting the petition. There are no current proceedings between Mr Papatriantafillou and Ms Kekeff warranting any further delay in dealing with the petition. Mr Papatriantafillou has asserted solvency. He has sought to demonstrate that solvency by payment into court of the amount remaining due to Ms Kekeff. Section 52(2) of the Bankruptcy Act provides relevantly that if the Court is satisfied by the debtor that he is able to pay his debts, it may dismiss the petition. For this purpose, “debts” means all debts that would be provable in the debtor’s bankruptcy: Bank of Australasia v Hall (1907) 4 CLR 1514. The task of determining the debtor’s solvency requires some forward looking, in relation to debts arising in the immediate future. In determining solvency, account is taken not only of the debtor’s cash resources available to meet debts as they become due and payable, but also the debtor’s ability to raise funds through realising or charging assets: Sandell v Porter (1966) 115 CLR 666. However, the ability to realise assets does not extend to those assets required to carry on the debtor’s business: Rees v Bank of New South Wales (1964) 111 CLR 210. Other relevant circumstances, including the nature of the debts and of the debtor’s business, if any, may to be taken into account in determining solvency: Re Smith; ex parte Official Receiver (1929) 1 ABC 186.
In the present case, Mr Papatriantafillou asserts a capacity to pay his debts, but for the caveats placed on his and his company’s properties. Notwithstanding those caveats, he was able to secure from somewhere the funds paid into court. Mr Papatriantafillou also asserts that he has funds available from the Westpac Bank which the bank is, however, withholding due to the action of the petitioning creditor in burdening the bank’s security by lodging the caveats. There are two caveats, the first placed by Ms Kekeff over the residential property of Mr Papatriantafillou at 21 Gari Street, Charlestown and the second placed by Ms Kekeff on Mr Papatriantafillou’s company’s business premises at 880 Hunter Street in Newcastle. Both caveats are said to arise from a charge created by a costs agreement signed by Mr Papatriantafillou.
Were it not for the debt due to Ms Drew, I would be satisfied that Mr Papatriantafillou is solvent. He has demonstrated a capacity to pay the debt due to Ms Kekeff by the payment of the necessary funds into court, albeit that the source of those funds has not been disclosed. There is evidence, which I accept, of his capacity to borrow a further $17,000 if the caveats on his property placed by Ms Kekeff were to be lifted. The debt due to Ms Drew is far more substantial than that due to Ms Kekeff. The judgment debt is for $80,000 and I accept from the affidavit of Ms Drew that interest to 18 February 2011 had accrued in the sum of $10,954.11. I also accept, from the evidence of Ms Drew, that she has made two unsuccessful attempts to recover some or all of the debt through writs of execution. Mr Papatriantafillou has had a reasonable time to pay that debt and he has not done so. In view of that evidence and the available evidence of Mr Papatriantafillou’s income, assets and liabilities (which is usefully summarised in the petitioning creditor’s written submissions filed on 11 March 2011), I am not satisfied that Mr Papatriantafillou has demonstrated a capacity to pay his debts. The appropriate course in the circumstances is to make a sequestration order for the orderly administration of the debtor’s affairs for the benefit of all creditors.
I am satisfied that Mr Papatriantafillou committed the act of bankruptcy alleged in the petition. I am also satisfied with the other matters of which s.52(1) of the Bankruptcy Act requires proof. I am not satisfied that Mr Papatriantafillou is able to pay his debts or that there is any other reason why a sequestration order ought not to be made.
Mr Papatriantafillou, while making many assertions, has made limited financial disclosure to the Court. I do not rule out the possibility that he might, from some source or other, be able to secure funds necessary to satisfy Ms Drew as well as Ms Kekeff. Clearly, he does not want to be bankrupt and I will give him a short time to consider his position. I will stay all proceedings under the sequestration order for a period of 21 days.
I certify that the preceding twenty-one (21) paragraphs are a true copy of the reasons for judgment of Driver FM
Associate:
Date: 1 April 2011
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