Khazali v Lion Finance Pty Ltd

[2016] FCCA 3095

FEDERAL CIRCUIT COURT OF AUSTRALIA

KHAZALI v LION FINANCE PTY LTD [2016] FCCA 3095

Catchwords:
BANKRUPTCY – Application to review Registrar’s decision to make sequestration order – where applicant represented himself and was given several opportunities to establish his solvency – where other creditors evidence – application dismissed.

Legislation:

Bankruptcy Act 1966, s.52

Cases cited:

Bank of Australasia v Hall (1907) 4 CLR 1514

Sandell v Porter (1966) 115 CLR 666

Totev v Sfar [2006] FCA 470

Applicant: HOMAYOUN KHAZALI

Respondent: LION FINANCE PTY LTD
ACN 095 926 766

File Number: SYG 2287 of 2015

Judgment of: Judge Altobelli

Hearing date: 20 June 2016

Date of Last Submission: 20 June 2016

Delivered at: Sydney

Delivered on: 20 June 2016

REPRESENTATION

The Applicant appeared in person

Solicitors for the Respondent: CLH Lawyers

Solicitors for the Trustee in Bankruptcy: Stacks Champion

ORDERS

1. Leave be granted to the trustee to file in court the affidavit of Mr Pallav Lodha sworn 16 June 2016 and an affidavit of search sworn today on the basis that the original copy is electronically filed in the usual manner within 48 hours.

2. Compliance be dispensed with in relation to any rule or regulation that has not been hitherto complied with.

3. The Application for Review filed 14 December 2015 be dismissed.

4. The Notice stating the grounds of opposition filed 1 February 2016 be dismissed.

5. The costs of the petitioning creditor as agreed or as assessed are to be paid as part of the administration for the bankrupt estate.

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT SYDNEY

SYG 2287 of 2015

HOMAYOUN KHAZALI

Applicant

And

LION FINANCE PTY LTD ACN 095 926 766

Respondent

EX TEMPORE REASONS FOR JUDGMENT

1. In this matter Mr Khazali, the bankrupt, represents himself, Mr Singh, the Trustee in Bankruptcy, and Mr Behman appeared for Lion Finance Pty Ltd, the petitioning creditor. 

2. On 18 August 2015, a Creditors Petition was filed as a result of a Local Court of New South Wales judgment debt against Mr Khazali, dated 13 January 2015. 

3. The basis of the petition was failure to comply with a Bankruptcy Notice that was served on him on 9 July 2015.  A learned Registrar of this Court made a Sequestration Order against Mr Khazali on 1 December 2015, as well as ordering costs.  On 14 December 2015, Mr Khazali filed an Application for Review, supported by an Affidavit, and in addition a Notice Stating Grounds of Opposition to the Petition on 1 February 2016.  His main Affidavit appears to be 29 January 2016.  

4. The Trustee also filed various affidavits:

   ·Affidavit of Pallav Lodha, sworn 13 May 2016;

   ·Affidavit of Debt of Pallav Lodha, sworn 16 June 2016; and

   ·Affidavit of Search of Jatinder Singh, sworn 20 June 2016.

5. Today I grant leave to file an Affidavit of Search, and in particular there is an Affidavit before the Court of 16 June which is for all practical purposes an Affidavit of Debt.

6. The Court is satisfied that all of the matters that need to be established on behalf of the Trustee to make a fresh Sequestration Order today have in fact been satisfied. The Court, of course, in considering Mr Khazali’s Application for Review treats the matter as an application de novo and thus needs to be satisfied that all of the matters referred to in s.52 of the Bankruptcy Act 1966 are, in fact, satisfied.  The Court is so satisfied.

7. It is necessary to go back through some in this matter.  When the matter first came before me on 14 March 2016, it became apparent from the material before the Court that this was going to be an estate that could in the fullness of time be a surplus estate.  In other words, it has been from the time of filing and continues to be the case today that Mr Khazali’s assets exceed – indeed, substantially exceed – his debts.  The matter was adjourned on 14 March because it seemed to the Court that the continuation of the bankruptcy could be avoided if Mr Khazali were given a reasonable opportunity to pay his debts. 

8. Mr Khazali’s matter came back before me on 16 May 2016.  It is clear that he had made substantial inroads into the debt of the petitioning creditor as well as the costs of the Trustee, including costs.  However, even on 16 May 2016, it was quite apparent that he had other debts that included, for example, taxation debts.  The report as to creditors is dated 28 January 2016, and whilst suggesting an anticipated surplus estate, also pointed to the existence of other creditors. 

9. By the time the matter came before me this morning, it is clear that for all except in relation to the costs of the petitioning creditor, the petitioning creditor’s debt had been paid.  The Trustee had still not been paid in full and it was apparent that there were other unsecured creditors that are listed in the Annexure A to the Affidavit of Mr Loder, sworn 16 June 2016. 

10. The Trustee says that the amount of the other creditors could total as much as $110,000, of which Mr Khazali disputes about $77,975, but still leaves undisputed $32,416.  The issue that was foremost in the Court’s mind was whether, in the exercise of its discretion it would, in effect, set aside the Sequestration Order, or decline to, in effect, make a Sequestration Order de novo in circumstances where there were other unsecured creditors in respect of whom arrangements had not been made.

11. What is clear to the Court from all the evidence before it is that whilst using a balance sheet test, Mr Khazali is probably solvent, but using any other test of bankruptcy he is unable to pay his debts as and when they fall due: Sandell v Porter (1966) 115 CLR 666 at 670; Bank of Australasia v Hall (1907) 4 CLR 1514 at 1527-28.

12. The focus turns to the unsecured creditors.  What becomes clear abundantly is that there is a debt to Volkswagen Financial Services, being a car loan in the sum of $6,555 in respect of which there appears to be little contention.  There is a debt to BMW Australia Finance Pty Limited, another car loan of $68,742, again, which is not in contention.   There is a telephone bill of $9,233 in respect of which there is some contention by Mr Khazali, but it is by no means clear what is the nature of the contention and whether he has any form of set off or cross-claim.  He does refer to a potential claim against Canterbury BMW, but the claim is in such general terms that it would be impossible in the present circumstances to give it any weight. 

13. In relation to the tax debt, the clarification of whether he owes to the Australian Tax Office, $20,000 or, as he asserts, merely $200 depends on the filing of a tax return in respect of a business which he says could happen in a short period of time.  But clearly this is something that has been in existence for quite some time. 

14. Every time this matter comes back before the Court, the amount of costs that is owed to the petitioning creditor and to the Trustee increases.  The Court is put in a very difficult position.  Whilst on the one hand it has sought to assist Mr Khazali, who is an unrepresented litigant, to give him time to do the things that he needs to do to clear up his financial affairs, on the other hand he has had ample time to do these things.  It is not in the public interest that these matters be kept in limbo with an unresolved Application for Review before the Court. 

15. The fact is on the evidence before the Court today that Mr Khazali is insolvent.  Even if the Court were to grant him a further adjournment, as it did on 14 March 2016 and 16 May 2016, the Court is not satisfied that he would be in a position to adduce evidence that would somehow change the conclusion that he is insolvent in the sense that he is unable to pay his debts as and when they fall due.  Indeed, he himself refers to the fact that he needs to refinance in order to pay his debts and that, in effect, and much to his frustration depends upon the cooperation of the Trustee, some of which has not been forthcoming. 

16. The Court notes that in his Notice of Opposition he raises a number of matters, e.g. about Orders being made in his absence.  But again, that in itself is not a basis for setting aside the Sequestration Order in circumstances where he has had so much time to deal with the issues before the Court.  It is in the public interest that this matter be brought to a head.  It is quite possible – all parties recognise that on the sale of a property there will be a surplus and that he will then be entitled to bring an application, the effect of which would be to annul his bankruptcy.

17. It is not without hesitation, the Court notes, that it takes the action that it has.  But the public interest is greater in this case: Totev v Sfar [2006] FCA 470. Hence the Orders that have been made.

I certify that the preceding seventeen (17) paragraphs are a true copy of the reasons for judgment of Judge Altobelli

Date:         5 December 2016