Langdon v Nixon
[2021] FCCA 1952
•23 August 2021
FEDERAL CIRCUIT COURT OF AUSTRALIA
Langdon v Nixon [2021] FCCA 1952
File number(s): MLG 2008 of 2021 Judgment of: JUDGE SYMONS Date of judgment: 23 August 2021 Catchwords: BANKRUPTCY – s. 50 of the Bankruptcy Act 1966 (Cth) – Official Trustee to take control of debtor’s property – interests of the creditors – genuine and appreciable risk assets will be transferred Legislation: Bankruptcy Act 1966 (Cth), ss 5, 43, 50 Cases cited: Deputy Commissioner of Taxation v Clyne (1983) 14 ATR 540
Ewert v Martin [2018] FCA 1931
Number of paragraphs: 31 Date of last submissions: 23 August 2021 Date of hearing: 23 August 2021 Place: Melbourne (via Microsoft Teams) Solicitor for the First and Second Applicants: Mills Oakley Lawyers Counsel for the First and Second Applicants: Ms C.F. Gobbo The Respondent: In person ORDERS
MLG 2008 of 2021 IN THE MATTER OF STEPHEN CRAIG NIXON
BETWEEN: PAUL LANGDON (AS LIQUIDATOR OF CCV AUSTRALIA PTY LTD (ACN 612 521 258)(IN LIQUIDATION)
First Applicant
CCV AUSTRALIA PTY LTD (ACN 612 521 258)(IN LIQUIDATION)
Second Applicant
AND: STEPHEN CRAIG NIXON
Respondent
ORDER MADE BY:
JUDGE SYMONS
DATE OF ORDER:
23 AUGUST 2021
THE COURT ORDERS THAT:
1.Direct that Anthony Robert Cant of Romanis Cant be appointed as Trustee pursuant to s. 50 of the Bankruptcy Act 1966 (Cth) (‘Act’) to take control of all “property” as defined in s. 5 of the Act of the respondent, including, but not limited to the property situated at 70 Waverley Park Drive, Mulgrave, in the State of Victoria 3170, being the land described in certificate of title Volume 11059 Folio 040 and the shares held by the respondent in Eden Heavenly Springs Pty Ltd (ACN 111 966 904).
2.The respondent hereby be restrained, without the prior approval of the Court, from dealing with or in any way disposing of:
(a)the property situated at 70 Waverley Park Drive, Mulgrave, VIC 3170; and
(b)the shares held by him in Eden Heavenly Springs Pty Ltd (ACN 111 966 904).
3.Declare that the respondent’s property ceases to be subject to the control of the Trustee upon the determination of the creditor’s petition filed 25 June 2021 in proceeding MLG1413/2021.
4.The parties have liberty to apply.
5.The respondent pay the applicants costs of this application.
REASONS FOR JUDGMENT
(Revised from Ex tempore reasons)
JUDGE SYMONS:
BACKGROUND
I have before me an application for orders made under s. 50 of the Bankruptcy Act 1966 (Cth) (‘Act’) for a direction that a registered trustee take control of certain property pending the hearing and determination of a creditor’s petition as described below.
The application is made by Paul Langdon, in his capacity as liquidator of the second applicant, Concrete Concepts Victoria (‘CCV’) Australia Pty Ltd (ACN 612 521 258) (in liquidation) (‘the Company’) (collectively ‘the applicants’).
The application was filed on 11 August 2021 and was given a return date of 11 October 2021. For reasons that will become apparent, this listing was vacated and listed instead before me on 23 August 2021.
The respondent is the subject of a creditor’s petition that was presented in this Court on 25 June 2021 in proceeding MLG1413/2021. The petitioning creditor is Boral Resources (Vic) Pty Ltd (ACN 004 620 731) (‘Boral’). The applicants have filed notices of appearance as supporting creditors in this separate proceeding. The attitude of Boral to this application is not known, however, this is not an impediment to the application being either brought or determined.
The creditor’s petition was first returnable on 29 July 2021. The creditor’s petition is now listed for hearing on 9 September 2021, on which date this Court will either make a sequestration order under s. 43 of the Act or dispose of Boral’s creditor’s petition.
The application is supported by an Affidavit of Paul William Langdon filed on 11 August 2021 (‘the Langdon Affidavit’). Given the interim nature of the application, Mr Langdon was not cross-examined and his Affidavit was read. Based on the Langdon Affidavit and the submissions made by the applicants’ Counsel (and despite submissions and assertions from the Bar table made by Mr Nixon this morning), I am satisfied that the orders sought by the application should be made.
So far as is material, s. 50 of the Act reads:
Taking control of debtor’s property before sequestration
(1)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 or a specified registered trustee to take control of the debtor’s property; and
(b)make any other orders in relation to the property.
(1A) The Court may give a direction or make an order only if:
(a)a creditor has applied for the Court to make a direction; and
(b)the Court is satisfied that it is in the interests of the creditors to do so; and
(c)the debtor has not complied with the bankruptcy notice.
(1B) If the Court directs a trustee to take control of the debtor’s property, the Court must specify when the control is to end.
(2)-(5)…
This section of the Act has been described as “a codified power of Court to protect the integrity of its own proceedings” and is relevantly indistinguishable from “many other powers exercised by Courts when the judgments or processes are sought to be undermined by litigants who seek to dispose of their assets before judgment can be enforced”: Ewert v Martin [2018] FCA 1931 at [16].
In a regularly cited passage from Deputy Commissioner of Taxation v Clyne (1983) 14 ATR 540, Neaves J of the Federal Court of Australia said, of s. 50 of the Act, at p. 545:
The section is, clearly, a provision in aid of the creditors of a debtor who has already committed an act of bankruptcy and has a creditor’s petition pending against him. It is a necessary and ancillary provision designed to enable appropriate steps to be taken to preserve and protect the property of a debtor so that, in the event of a sequestration order being made, that property will be available for distribution equitably amongst them in accordance with the statutory provisions contained elsewhere in the Bankruptcy Act 1966. That this is its purpose is reinforced by a consideration of the provisions contained in subs 50(2) with their emphasis on obtaining information concerning the debtor or his trade dealings, property or affairs.
SHOULD AN ORDER UNDER S. 50 OF THE ACT BE MADE?
Whether it is properly characterised as a limit on the Court’s power to make a direction or a pre-condition to the exercise of the power, it is the case that the time for making a direction occurs strictly between the happenings of two contingencies. The first contingency (when time starts) is after the issue of a bankruptcy notice, or the presentation of a creditor’s petition in relation to a debtor; and the second contingency (when time ends) is when the debtor becomes a bankrupt.
As noted above, the respondent is the subject of a creditor’s petition that was filed in this Court on 25 June 2021 (the first contingency) and although those creditors prosecuting or supporting the petition seek this outcome, the respondent has not yet become a bankrupt (the second contingency). This question is reserved for determination on 9 September 2021 and it is not for this Court to anticipate what may or may not occur on this date. In the circumstances, the temporal pre-condition to the making of a direction under s. 50(1) of the Act is satisfied.
Sub-section 50(1A) of the Act then identifies three further conditions that must be satisfied before a direction can be made. The first which might be characterised as a de facto standing provision is that a creditor has applied for the Court to make a direction.
In this case, perhaps somewhat unusually, the application is not pursued by the crediting petitioner. However, s. 50(1A) of the Act requires only that ‘a creditor’ seek the direction.
The Langdon Affidavit records the following:
2. The respondent is a director and equal shareholder of the Company.
…
5.As a result of my investigations in the liquidation of the Company to date, I have concluded that the Respondent (along with his fellow director, Mr Tony Iannetta) traded the Company whilst it was insolvent during the period 30 June 2017 and 7 August 2019, during which time the Company incurred unsecured debts totalling $4,938,552.01.
6. I successfully intervened in the Family Court of Australia proceeding MLG8877/2018 to pursue the insolvent trading claims against the both Respondent and Mr Iannetta.
8. However, upon Mr Iannetta becoming bankrupt, the Company’s insolvent trading claim became a provable debt in Mr Iannetta’s bankrupt estate and it was no longer appropriate to pursue the Company’s insolvent trading claim against the respondent in that forum.
I am satisfied on the evidence contained in the Langdon Affidavit (as described above), and in light of the fact that the Company (and Mr Langdon) has filed a notice of appearance in proceeding MLG1413/2021 (and therefore has the status of supporting creditor), that the requirement that ‘a creditor’ has applied for the Court to make a direction (under s. 50(1) of the Act), is satisfied.
A second consideration is whether the Court is satisfied that the respondent (as a debtor) has not complied with the bankruptcy notice. Whilst there is no direct evidence before me as to whether a bankruptcy notice was served on the respondent or, for that matter, whether the respondent failed to comply with any such notice, I am prepared to infer that this is the case. I have before me a copy of a creditor’s petition which is founded upon the respondent’s failure to comply with (in other words, to make monetary payment) of a judgment debt identified in a notice of bankruptcy served on the respondent on 4 May 2021. As orders made under s. 50(1) of the Act are interlocutory in character, questions such as ‘has there been an act of bankruptcy committed’ are decided on a provisional or prima facie view of such questions. In any event, I understood the respondent to say that he expected to go bankrupt, an assertion which contained a tacit acknowledgement that a bankruptcy notice had been served on him and he had failed to comply with it.
The final consideration, which encapsulates the objective of the provision, is whether the Court is satisfied that it is in the interests of the creditors of the debtor to make a direction or order under s. 50(1) of the Act.
The Langdon Affidavit relevantly records the following matters that reflect investigations carried out by Mr Langdon.
Firstly, the respondent is working as a registered tax agent with a registration that lapses on 1 August 2023. He does so through the vehicle of Michael and Nixon Pty Ltd (ACN 074 695 006) (‘Michael and Nixon Pty Ltd’).
As at 9 July 2021, the respondent was:
(1)A director of Michael and Nixon Pty Ltd and held 50 shares;
(2)A director of Nixon’s Pineview Pty Ltd (ACN 005 819 947);
(3)A director and secretary of Odyssey 7 Pty Ltd (ACN 111 966 904) and held 100 shares in that entity; and
(4)The holder of 50,000 shares in Eden Heavenly Springs (ACN 111 966 904), which appear to have a paid-up value of $50,000.
After the filing of Boral’s creditor’s petition and prior to its original return date on 29 July 2021, the respondent took the following steps:
(1)The respondent resigned as director of Michael and Nixon Pty Ltd and disposed of his shares in the company. Matthew Stephen Nixon became a director in the respondent’s place and acquired 50 shares in Michael and Nixon Pty Ltd, apparently for $50;
(2)The respondent resigned as director of Nixon’s Pineview Pty Ltd, leaving Sandra Elizabeth Nixon as the sole director; and
(3)The respondent resigned as director and secretary of Odyssey 7 Pty Ltd and disposed of his shares in the company. Matthew Stephen Nixon became a director and secretary in the respondent’s place and acquired 50 shares in Odyssey 7 Pty Ltd, apparently for $100.
The inquiries made by Mr Langdon (recorded in the Langdon Affidavit) also disclose that the respondent is the registered proprietor of 70 Waverley Park Drive Mulgrave VIC 3170 (‘the Mulgrave property’), which property is encumbered by a mortgage to National Australia Bank and by caveats lodged by Boral and by Big River Group Pty Ltd. The Mulgrave property has an approximate current market value of $920,000 to $1,180,000.
The Langdon Affidavit contains evidence from which I am asked to infer that Matthew Stephen Nixon (identified in connection with Michael and Nixon Pty Ltd and Odyssey 7 Pty Ltd) is an associated entity of the respondent. This evidence includes that Matthew Nixon’s residential address is identified as a property located in Wheelers Hill, which the respondent previously co-owned with Susan Joanne Nixon, before transferring his interest to her in 2012 and further, that Mr Nixon’s LinkedIn profile identifies his role at Michael and Nixon Pty Ltd as that of an assistant accountant.
I am also asked to infer that Sandra Elizabeth Nixon (associated with Nixon’s Pineview Pty Ltd) is an associated entity of the respondent. This is for the reason principally that Mrs Nixon’s residential address (stated in the search of Nixon’s Pineview Pty Ltd) is the Mulgrave property. Having regard to this information, I am prepared to draw the inferences and find, for the purpose of this application, that both Matthew and Sandra Elizabeth Nixon have a relationship to the respondent.
When invited this morning to make submissions as to why the orders sought by the applicants should not be made. Mr Nixon told the Court that:
(1)In relation to Nixon’s Pineview Pty Ltd, he had disposed of his shareholding (not directorship) for purely administrative purposes and in contemplation of his forthcoming bankruptcy. He described the company as one involved in small investments that benefitted his mother;
(2)The Mulgrave property is the subject of a mortgage held by National Australia Bank in the order of $800,000 and by caveats lodged by Boral and Big River Group Pty Ltd. Mr Nixon told the Court that when these interests were accounted for, there was no equity remaining in the property. Mr Nixon made the submission that had he formed any intention to dispose of the Mulgrave property, he could have done so many months ago and that to the extent he sought to do so, he would be inhibited by the presence of two caveats over the property; and
(3)Mr Nixon also sought to challenge the underlying basis of the applicants’ insolvent trading claim against him by making the submission, unsupported by evidence, that he had not been responsible for transfers of funds moving from the second applicant to the related entity, Concrete Concepts Victoria Pty Ltd.
Despite these submissions and notwithstanding that Mr Nixon offered what appeared to be an undertaking not to take steps to dispose of either the Mulgrave property or his shareholding in Eden Heavenly Springs Pty Ltd (which Mr Nixon, without evidence, asserted was essentially worthless), I am satisfied that the orders sought by the applicants’ should be made.
I am satisfied on the basis of the evidence before the Court that it is in the interests of the creditors for the Court to give a direction under s. 50(1) of the Act appointing Mr Tony Cant to take control of the property of the respondent until the making of a sequestration order under s. 43 of the Act, or otherwise the disposition of Boral’s creditor’s petition.
The governing factor is the interests of the creditors, of which there are at least three presently identifiable (the applicants, Boral and Big River Group Pty Ltd). It is this group to whom the relief contemplated is directed. The uncontroverted evidence is that during a period closely proximate to the first return date of the creditor’s petition, the respondent took steps to dispose of his shares in two companies and to relinquish his office as director and/or secretary in three companies. Further, the evidence indicates that a unifying characteristic of these transactions is that they involved a person who has, or appears to have, some connection (most likely familial) with the respondent.
The respondent acknowledged both that a sequestration order would likely be made against him and that this eventuality was a motivating factor behind his decision to distance himself from Nixon Pineview Pty Ltd. The respondent did not provide any explanation for the actions taken to dissociate himself from Michael and Nixon Pty Ltd or Odyssey 7 Pty Ltd. These responses do not, to my mind, ameliorate the risk that between now and the relatively short time before the hearing of the creditor’s petition, the respondent will take further steps to adjust arrangements with respect to (including to dispose of) “property”, as that term is broadly defined in s. 5 of the Act.
In these circumstances, I am satisfied that there is a genuine and appreciable risk that the respondent will take steps to transfer his remaining assets (including, but not limited to the Mulgrave property and the shares in Eden Heavenly Springs) prior to the hearing of the creditor’s petition on 9 September 2021. The applicants indicated that the undertaking proffered by the respondent was not acceptable, and I agree. The appropriate course is that the status quo be maintained pending the determination of the creditor’s petition and that this occur by way of a direction given by the Court.
In these circumstances, I make the following orders:
(1)Direct that Anthony Robert Cant of Romanis Cant be appointed as Trustee pursuant to s. 50 of the Bankruptcy Act 1966 (Cth) (‘Act’) to take control of all “property” as defined in s. 5 of the Act of the respondent, including, but not limited to the property situated at 70 Waverley Park Drive, Mulgrave, in the State of Victoria 3170, being the land described in certificate of title Volume 11059 Folio 040 and the shares held by the respondent in Eden Heavenly Springs Pty Ltd (ACN 111 966 904).
(2)The respondent hereby be restrained, without the prior approval of the Court, from dealing with or in any way disposing of:
(a)the property situated at 70 Waverley Park Drive, Mulgrave, VIC 3170; and
(b)the shares held by him in Eden Heavenly Springs Pty Ltd (ACN 111 966 904).
(3)Declare that the respondent’s property ceases to be subject to the control of the Trustee upon the determination of the creditor’s petition filed 25 June 2021 in proceeding MLG1413/2021.
(4)The parties have liberty to apply.
(5)The respondent pay the applicants costs of this application.
I certify that the preceding thirty-one (31) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Symons. Associate:
Dated: 24 August 2021
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