Klau, C. & Ors The Official Receiver; Re Hodby

[1987] FCA 77

Re: THE BANKRUPT ESTATE OF ROSS DANIEL HODBY between THE OFFICIAL RECEIVER for
and on behalf of THE OFFICIAL TRUSTEE IN BANKRUPTCY
And: COLIN LEO KLAU; GLENYS KAY KLAU; GLENCOL PTY. LTD.; R.S.C. RYMILL PTY.
LTD.; PATRICIA JANE RYMILL; KRAKAT PTY. LTD.; MICHAEL BERNARD HART; MAUREEN
HART; DONALD PATRICK PLUNKETT; JOYCE SUSANNAH SMART and PAUL KERTESZ
No. 910 of 1986
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA

SOUTH AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
Forster J.

CATCHWORDS

Bankruptcy - Tracing payments through trust account - land and finance broker - accounts in confusion - whether particular mortgages entitled to receive payments due under mortgages.

HEARING

ADELAIDE

#DATE 24:2:1987

JUDGE1

Ross Daniel Hodby (the bankrupt) had for some years prior to his bankruptcy on 17 October 1986 carried on business as a land broker and a finance broker under the firm name Ross D. Hodby and Associates. He was also a director of a company Hodby Nominees Pty. Ltd. which until 3 June 1986 was the registered proprietor of the business name Archer Finance Brokers. The registered proprietor of this business name from 4 June 1986 to 1 July 1986 was another company Domitex Pty. Ltd. of which Hodby was also a director. In the course of these businesses Hodby received funds placed with him for investment. In some cases the loan of such moneys was secured by a registered mortgage although in some cases it may be that the security was inadequate. In other cases there was no security. It is said that during the last eight years or so some $5,000,000 of investment funds passed through Hodby's hands in one way or another. In some cases Hodby or one of the companies collected repayments of principal and interest due to mortgagees and probably less formal lenders. After deduction of commission moneys were in many cases sent to the lenders. The affairs of Hodby and the companies are said to be in a confused mess and for instance moneys paid to particular lenders came into Hodby or the companies from some source other than the borrower of the particular funds. There has been a great deal of mixing of funds in Hodby's trust account which is sworn by the Official Receiver to be in "considerable disarray". In his petition filed on 17 October 1986 Hodby revealed a deficiency in his estate of $2,069,157.

1. In all these circumstances the Official Receiver the official trustee of the bankrupt's estate applied to the court for directions. In order principally to hold the position until the official trustee might thoroughly investigate the tangled affairs of the bankrupt and the companies and in order that there might be no further loss to the estate Fisher J. on 22 December 1986 made an order with injunctions para. 1 of which was as follows-
   
   

"The respondents, all persons named in the statement of affairs of the bankrupt which is annexed hereto and marked "A", either as secured or unsecured creditors, all other creditors or persons claiming to be creditors of the bankrupt and all those persons whose names are set out in the schedule hereto and marked "B" and all persons other than those set out in the said schedule "B" who have at any time borrowed monies on loans or otherwise made through the agency of the bankrupt or any company with which the bankrupt may have been associated or otherwise from funds placed with him and those loans or some part thereof remain due and owing including all such loans in which the principal sum remains outstanding be and are hereby restrained until further order from paying or receiving any monies whether by way of interest or principal with respect to any such loans otherwise than pursuant to this order or any further order made herein."

1. Jean Hendrik Cambeen. Elsje Cambeen, Gerard van den Akker and Aaltjf van den Akker (the Cambeens) are the mortgagees with respect to registered mortgages numbers 6153438 and 6153497 the execution of which on 13 February 1986 and the transactions giving rise to which were arranged by the bankrupt. The sum secured by both mortgages, $110,000, is expressed on the face of the documents to be repayable on 17 February 1987. The respective mortgagors Elias Karounos and Katherine Karounos (the Karounos) and Krakat Pty. Ltd. (Krakat) wish to repay the money owing on the due date and the Cambeens were anxious to receive the money.

2. The name Krakat appears in the list of borrowers schedule "B". The names of the Karounos do not appear in schedule "B". The Karounos however regard themselves as being bound by the injunction as persons who have "borrowed moneys on loans...made through the agency of the bankrupt..." The Cambeens are not mentioned in either the bankrupts statement of affairs or schedule "B" to his Honour's order but they are of course affected by the order because although they are not enjoined from receiving the money due to them the mortgagees Krakat and the Karounos are enjoined from paying it. The Cambeens by a notice of motion pursuant to leave given by para. 7 of his Honour's order seek an order that the injunction be varied so as to allow Krakat and the Karounos to pay the principal and interest due to the Cambeens pursuant to registered mortgages numbered 6153497 and 6153438.

3. On 13 February 1987 I made an order the effect of which was to permit Krakat and the Karounos to repay to the Cambeens $70,000 of the amount owing on the mortgages and to permit Krakat to receive from the Cambeens a registerable discharge of mortgage number 6153497 so far as it affects the land contained in Certificate of Title Register Book volume 4189 folio 337. The remaining $40,000 originally owing under both mortgages remains secured on the land of the Karounos by mortgage number 6153438. I said that I would give short reasons later and I now do so.

4. I must first emphasise the limitations of the order which I have made. I have permitted the repayment to the Cambeens of $70,000 of the sum of $110,000 apparently owing by Krakat and the Karounos and the discharge of mortgage number 6153497 and I have not permitted the repayment of $40,000 and the discharge of registered mortgage number 6153438. I have not determined the conflicting claims between the official trustee and the Cambeens as to whether or not the Cambeens are ultimately entitled to retain the sum of $70,000 or to receive the sum of $40,000. These questions are still alive and must await further proceedings.

5. It is necessary to examine the details so far as they are now known of the transactions concerning the Cambeens, Krakat and the Karounos.

6. Since October 1982 the Cambeens had on two or three occasions through the agency of the bankrupt lent money on the security of registered first mortgages of real property which loans had been duly repaid. In late January or early February 1986 the bankrupt telephoned Jean Cambeen and informed him that he had a proposal for a loan on mortgage of $110,000. Cambeen said that he did not have $110,000 to lend. The bankrupt then suggested that $40,000 could be provided by "rolling over" a mortgage for that amount held by Cambeen and his wife over land owned by Auction Services Pty. Ltd. Precisely what was meant by the phrase "roll over" in this connection is not clear. What eventually happened was that on the morning of 17 February 1986 Cambeen handed to the bankrupt a registerable discharge of the Auction Services Pty. Ltd. mortgage and two bank cheques, one for $52,500 and one for $17,500 being funds contributed by Mr and Mrs Cambeen and Mr and Mrs van den Akker respectively and received from the bankrupt trust account receipts for each. The bankrupt banked the $70,000 in his firm's trust account and forthwith caused two bank cheques to be drawn by his bankers on his trust account, one to State Bank of S.A. for $50,000 and one to Adelaide Permanent Building Society for $51,298-96. A settlement took place at the Land Titles Office shortly before 11 a.m. on 17 February and Jean Cambeen attended this settlement. The two cheques were handed to the representatives of the State Bank and the Adelaide Permanent Building Society who in turn delivered discharges of their respective mortgages over the Karounos land and the Adelaide Permanent Building Society which was the first mortgagee presumably handed over the duplicate Certificate of Title with respect to the Karounos land. As well as the discharges of the State Bank and Building Society mortgages there were lodged for registration two mortgages one of which became mortgage number 6153438 and the other of which became number 6153497. Mortgage number 6153438 given by the Karounos was expressed to secure a loan of $110,000 from the Cambeens to the Karounos and mortgage number 6153497 given by Krakat was expressed to secure the same loan of $110,000 to the Karounos and was stamped accordingly.

7. It is necessary now to examine the state of the bankrupt's firm's trust account. Immediately prior to 17 February 1986 it had a credit balance of $7,877-53. On 17 February there was one payment in of $35,745-75 of at present unknown origin and another payment in of $70,000 which on the balance of probabilities represented the two bank cheques provided by the Cambeens. Next after this payment in there were three small debits totalling $184 and then two debits one of $50,000 and the other of $51,298-96 which on the balance of probabilities were for the two bank cheques paid to State Bank and Adelaide Permanent Building Society respectively.

8. It must be noted that although the Cambeens handed to the bankrupt a registerable discharge of their mortgage from Auction Services Pty. Ltd. on 17 February with the presumed intention that the $40,000 to be received in exchange for it would be lent to the Karounos, the $40,000 necessary to discharge this mortgage was not paid by the mortgagor to the trust account of the bankrupt's firm until 27 February 1986 some ten days after the settlement.

9. It is apparent to me that whatever the origin of the opening credit balance of $7,877-53 in the bankrupt's firm's trust account and whatever the origin of the payment in of $35,745-75 it is more likely than not upon present information that the Cambeen's payment of $70,000 can be traced to the payment out to the bank and the building society on behalf of the Karounos. Further information which is revealed by the continuing examination of the affairs of the bankrupt by official trustee may alter the position. Since the money due to the Cambeens from a discharge of the Auction Services mortgage did not come into the bankrupt's hands until 27 February 1986 it cannot I think be said that the sum of $40,000 formed part of the consideration for the two mortgages dated 17 February 1986. It seems to me that so far as the sum of $70,000 is concerned although this money passed briefly through the bankrupt's hands it can be traced and identified as going to Krakat and the Karounos or more accurately as being paid on their behalf. If this is so the two mortgages are security for the repayment of at least $70,000 to which the Cambeens are prima facie entitled ahead of the general body of creditors of the bankrupt or of any particular creditor. So far as the sum of $40,000 is concerned this money cannot be traced and identified as passing to Krakat and the Karounos or being paid on their behalf so that the mortgages should not at this stage at least be regarded as security for this sum.

10. For these reasons I made the order varying the injunction as I did.