Kyriackou v Official Trustee in Bankruptcy

[2005] FCA 921

FEDERAL COURT OF AUSTRALIA

Kyriackou v Official Trustee in Bankruptcy [2005] FCA 921

MICHAEL KYRIACKOU v OFFICIAL TRUSTEE IN BANKRUPTCY

VID 186 OF 2005

NORTH J
30 MAY 2005
MELBOURNE

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VID 186 OF 2005

BETWEEN:	MICHAEL KYRIACKOU APPLICANT
AND:	OFFICIAL TRUSTEE IN BANKRUPTCY RESPONDENT
JUDGE:	NORTH J
DATE OF ORDER:	30 MAY 2005
WHERE MADE:	MELBOURNE

THE COURT ORDERS THAT:

1.The application and the notice of motion filed on 16 May 2005 by the applicant are dismissed.

2.The applicant is to pay the costs of the respondent, and of Shield Mercantile Pty Ltd, of the application including the motion and including reserved costs.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VID 186 OF 2005

BETWEEN:	MICHAEL KYRIACKOU APPLICANT
AND:	OFFICIAL TRUSTEE IN BANKRUPTCY RESPONDENT

JUDGE:	NORTH J
DATE:	30 MAY 2005
PLACE:	MELBOURNE

REASONS FOR JUDGMENT

1. Before the Court is an application filed initially on 11 March 2005 by Mr Kyriackou.  The application was supported by a statement of claim of the same date.  The details of the claim included six paragraphs, of which two are now presently relevant.  The relevant two paragraphs claim the following relief: 

   C.Pursuant to Regulation 4.08 of the Bankruptcy Act [sic] 1966 (Cth) an assessment of damages resulting from the Defendant’s control of the Plaintiff’s property;

   D.an order that the Defendant pay to the Plaintiff the sum so assessed.

2. As a result of directions made by the Registrar, the applicant filed a notice of motion on 16 May 2005. The notice of motion claimed relief, including that the applicant’s damages be assessed ex parte by the Court pursuant to reg 4.08(c) of the Bankruptcy Regulations1996 (Cth) (the Regulations) and when so assessed, that the creditor pay to the applicant the amount assessed pursuant to reg 4.08(d).

3. The applicant relies on reg 4.08, which relevantly provides: 

   Where:

   (a)the Court has made a direction or other order under subsection 50(1) of the Act; and

   (b)the creditor’s petition against the debtor is subsequently dismissed;

   the debtor may, within 21 days after the day on which the petition is dismissed, apply to the Court for an order for:

   (c)the assessment of the amount of any damage resulting from the control of the property of the debtor by the Official Trustee or a registered trustee in accordance with the order; and

   (d)the payment by the creditor to the debtor of an amount so assessed.

4. Section 50(1) of the Bankruptcy Act 1966 (Cth) (the Act) provides:

   At any time after a bankruptcy notice is issued, or a creditor’s petition is presented, in relation to a debtor, but before the debtor becomes a bankrupt, the Court may:

   (a)   direct the Official Trustee… to take control of the debtor’s property; and

   (b)   make any other orders in relation to the property.

5. The relevant factual background upon which the applicant relies is as follows.  On 26 June 2003 a sequestration order was made against the estate of the applicant.  On 28 June 2003 the applicant signed a contract for the sale of a property for the sum of $261,000.  Presumably, because the applicant was then a bankrupt, he applied under s 178 of the Act to have the Official Trustee adopt the sale of the property.  That application was heard by the Chief Federal Magistrate on 28 August 2003 and was unsuccessful. 

6. On 22 October 2004, Weinberg J set aside the sequestration order which had been made on 26 June 2003 and ordered that the creditor’s petition be dismissed.  His Honour set aside the sequestration order as a result of a successful challenge to the bankruptcy notice. 

7. The applicant says that as a result of the respondent’s administration of the estate, the property was sold by mortgagee sale for $245,000 and settlement of that sale occurred on 1 June 2004.  This amount was less than the amount of the contract which the applicant had secured.  He seeks to invoke the provisions of reg 4.08 to have that loss, together with other consequential loss, assessed by the Court and paid by the respondent.   

8. There is an initial difficulty for the applicant in his reliance upon reg 4.08(a). That regulation requires that the Court has made a direction or order under s 50(1) of the Act. If that has happened, and the creditor’s petition is subsequently dismissed, there is a procedure by which any loss resulting from the control of the property by the Official Trustee can be assessed and payment required from the creditor. However, that procedure depends upon the Court making a direction or other order under s 50(1). No such order or direction was made in this case.

9. The scheme of the Act provides that such an order is to be made after a bankruptcy notice is issued or a petition presented, but before the debtor becomes bankrupt.  In effect, it provides the scheme for any complaints about the way the Official Trustee has administered property prior to the making of the sequestration order.  Once the sequestration order has been made, different procedures are available to control the exercise by the trustee of his functions.  One such procedure is for the debtor to apply under s 178 of the Act to require the Official Trustee to adopt a transaction.  This step was taken in the present case and was unsuccessful. 

10. In light of the failure of the qualifying condition being met, namely the making of an order under s 50(1) of the Act, reg 4.08 was not brought into operation in this case. The applicant was aware of this potential problem, and argued that the Court should in some way or other deem that an order or direction was in fact made under s 50(1)(a) of the Act. The argument, it seems, went somewhat as follows. The effect of the judgment setting aside the sequestration order meant that there was no such order in operation. The position must be viewed, so it was argued, as if no bankruptcy notice had been issued and no creditor’s petition presented. That was said to have been the effect of the setting aside of the sequestration order by Weinberg J. It was then said that the respondent undoubtedly took control of the property in question. The only source of power of the respondent to take control of the property was s 50(1) of the Act. Consequently, the Court should deem that the respondent had acted within power in accordance with a direction of the Court.

11. I do not accept this argument. Regulation 4.08 depends on the making of a direction by the Court. No such direction was made. Even on the deemed facts proposed by the applicant, there would have been no warrant for the Court to make a direction under s 50(1)(a). It follows that the application cannot be sustained and must be dismissed.

I certify that the preceding eleven (11) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice North.

Associate:

Dated:             4 July 2005

Solicitor for the Applicant:	W P Edwards
Counsel for the Respondent:	Mr M Lhuede
Solicitor for the Respondent:	Piper Alderman
Date of Hearing:	30 May 2005
Date of Judgment:	30 May 2005