Lerinda Pty Ltd v Thornton

[2015] FCCA 1436

FEDERAL CIRCUIT COURT OF AUSTRALIA

LERINDA PTY LTD  & ORS v THORNTON & ORS [2015] FCCA 1436

Catchwords:
BANKRUPTCY – Personal Insolvency Agreement – whether a material particular was omitted from the Statement of Affairs of the first respondent – whether it is in the interests of creditors to set aside the Personal Insolvency Agreement – whether Personal Insolvency Agreement should be set aside.

Legislation:

Bankruptcy Act 1966 (Cth) ss.178, 188, 188(2C), 188(2D), 222, 222(1), 222(5), 222(5)(c)(i).

First Applicant: LERINDA PTY LTD (ACN 010 016 430) AS TRUSTEE FOR THE LUCIANO MATTIAZZI FAMILY TRUST

Second Applicants: LUCIANO GUISEPPE MATTIAZZI AND DIANNE MARGARET MATTIAZZI

First Respondent: ANTHONY GUY THORNTON

Second Respondents: PETER DINORIS AND NICK JIM COMBIS

File Number: BRG 940 of 2014

Judgment of: Judge Jarrett

Hearing date: 20 February 2015

Date of Last Submission: 20 February 2015

Delivered at: Brisbane

Delivered on: 23 February 2015

REPRESENTATION

Counsel for the First and Second Applicant: Ms Payne

Solicitors for the First and Second Applicant: Plastiras Lawyers

Counsel for the First Respondent: Mr Callanan

Solicitors for the First Respondent: Rose Litigation Lawyers

Counsel for the Second Respondents: Mr Copely

Solicitors for the Second Respondents: DCL & Associates Lawyers

ORDERS

1. The personal insolvency agreement dated 16 October, 2014 entered into by the first respondent Anthony Guy Thornton be set aside.

2. There be a sequestration order against the estate of the first respondent Anthony Guy Thornton.

3. The first respondent pay the first and second applicant’s costs of and incidental to the application to be taxed and paid in accordance with the Federal Circuit Court (Bankruptcy) Rules 2006.

4. The first respondent pay the second respondents’ costs of and incidental to the application to be taxed and paid in accordance with the Federal Circuit Court (Bankruptcy) Rules 2006.

THE COURT NOTES THAT:

1. Anne Fordyce has consented to act as trustee of the estate in bankruptcy of the first respondent.

2. The date of the act of bankruptcy is 13 August, 2014.

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT BRISBANE

BRG 940 of 2014

LERINDA PTY LTD (ACN 010 016 430) AS TRUSTEE FOR THE LUCIANO MATTIAZZI FAMILY TRUST

Applicant

LUCIANO GUISEPPE MATTIAZZI AND DIANNE MARGARET MATTIAZZI

Second Applicants

And

ANTHONY GUY THORNTON

First Respondent

PETER DINORIS AND NICK JIM COMBIS

Second Respondents

REASONS FOR JUDGMENT

revised from the transcript

1. Since about 1971, Mr and Mrs Mattiazzi have owned and operated an apple orchard near Stanthorpe in Queensland.  They have operated the farm for about 41 years.  According to Mr Mattiazzi, they worked hard and the farm became a successful and profitable orchard.  They improved their skills as farmers and demonstrated, according to his evidence, a willingness to adopt new technologies to improve their practices.  They received, according to his evidence, a number of accolades for their produce over many years.

2. After 41 years, it came time to sell the orchard.  Mr Mattiazzi says that he and his wife decided to sell the orchard because they were suffering from “some significant health issues and decided it was time to retire”.  Mrs Mattiazzi was a little more colourful in her evidence.  She told me that, “My husband had bowel cancer and my back is buggered.”  That is hardly surprising after 41 years of hard work. 

3. By the time they decided to sell the orchard in August of 2011, they had built up a considerable asset.  The orchard comprised real estate spread across a significant number of titles and the plant and equipment necessary to successfully operate the orchard business.  It was valued in August of 2011 by an independent valuer at $8.9 million as a going concern.  The real property alone was worth $7.125 million and the balance taken up in the value of plant and equipment on the orchard. 

4. They were not immediately able to sell the farm, but in 2012 they met, through the intermediary of a property agent, the respondent in these proceedings, Anthony Guy Thornton.

5. Mr Thornton and his wife wished to purchase the farm.  Mr Thornton, it seems from the material, has other interests and operates, amongst those other interests, a landscaping construction company.  He is based on the Gold Coast. 

6. As matters transpired, the parties agreed between them for Mr Thornton and his wife to purchase the orchard.  He and his wife agreed to purchase the real estate and the plant and equipment.  The purchase price was $8.3 million apportioned $7.125 million to the real property and the balance for plant and equipment.

7. The arrangement for the sale and purchase of the orchard, as counsel puts in her written submissions, was not straightforward.  It involved the payment of the purchase price by the Thorntons to the applicants partly by way of cash payment and partly by way of property swap.  In particular, Mr and Mrs Mattiazzi agreed to take a property at Sorrento owned by Mr and Mrs Thornton in part satisfaction of the purchase price.  There was also to be some vendor finance provided by them to the Thorntons.

8. Initially, that was $1 million but that was soon increased with the first applicant in these proceedings, Lerinda Proprietary Limited, which is the trustee of the Luciano Mattiazzi Family Trust, providing some vendor finance of about $1 million, and Mr and Mrs Mattiazzi personally providing finance of about $1.25 million. 

9. The vendor finance was to be secured by mortgages over the orchard’s real property, but the Thorntons imposed upon the Mattiazzis not to perfect their securities by registration.  The alarm bells ought to have been ringing.  Thereafter, the Thorntons proceeded to default on the vendor finance arrangements.  I will not detail the history of the defaults by the respondents on the vendor finance arrangements, save to say that it seems that the respondents were able to convince the applicants not to perfect the security that they held for the vendor finance arrangements until such time as the security that the respondents offered to the applicants for the vendor finance became worthless.

10. Eventually, the applicants commenced proceedings in the Supreme Court of Queensland to recover the debt owed to them by the Thorntons. The respondents counter-claimed, and I will talk a little more about that shortly, but the counter-claim, or at least the assertion of a counter-claim was sufficient, it seems, to hold the proceedings at bay whilst the first respondent dealt with other creditors who were chasing him for money. It all seems to have got too much for him in August, 2014 because, at that time, he signed an authority under s.188 of the Bankruptcy Act1966 appointing the second respondents in these proceedings, as his controlling trustees.

11. They were obliged under the Bankruptcy Act to provide a report to creditors and to convene a creditors’ meeting for the purposes of the creditors voting on a proposal by Mr Thornton to enter into a personal insolvency agreement. The agreement he proposed would see a contribution of $25,000 to his creditors. There was another payment by him, just less than $10,000 which was also to be contributed. For the purposes of the report to creditors and for the purposes of the personal insolvency agreement and the creditors meetings, Mr Thornton completed a statement of affairs.

12. To suggest that the statement of affairs was accurate is to gild the lily more than slightly.  Cross-examination of Mr Thornton revealed that there were substantial assets that he did not disclose in his statement of affairs.  He could offer no explanation for his failure to disclose them.  For example, when he and his wife purchased the orchard, they purchased the stock in trade.  There were, in cold storage, apples with a commercial value of about $3 million that were the subject of supply contracts with Coles supermarkets.  After the Thorntons took over the orchard, the apples were delivered to Coles and Mr Thornton accepted in cross-examination that they were paid about $3 million for them.  Oddly, however, Mr Thornton was not quite sure where the money for that went.  He was remarkably vague about that.

13. When he and his wife purchased the property, it seems that, and this is a matter of inference more than direct evidence, he and his wife established a company, Lerinda Apples Pty Ltd.  Again, as a matter of inference rather than direct evidence, the purpose of that company appears to have been to operate the orchard business that utilised the real estate that he and his wife had purchased and the plant and equipment that went along with it.

14. Mr Thornton appeared to suggest that Lerinda Apples Pty Ltd received the money from Coles.  Again, not entirely clear, but that seems to be the purport of his evidence.  So, that company seemingly received funds to which it was not entitled on the evidence and to which Mr Thornton and his wife were themselves entitled.  Mr Thornton’s share of that entitlement, assuming that he and his wife were both jointly entitled to the benefit of the purchase contract, would have been about one and a half million dollars.

15. There is really no explanation in Mr Thornton’s material as to where that money went or why it was used in the way in which he described in cross-examination.  He clearly has a claim against the company, which I note is also now in liquidation, for the return of those funds.  All may not be lost because depending upon what the company has done with that money, there may be the prospect of it being recovered for Mr Thornton.  As with so much of this matter and Mr Thornton’s financial affairs, that remains to be investigated. 

16. Similarly, Mr Thornton’s statement of affairs did not disclose to his creditors his interest in the plant and equipment that he had purchased under the sale contract with the applicants in this case.

17. There was at least $1.75 million in plant and equipment, or thereabouts, to which, presumably, Mr Thornton was entitled to half.  His evidence was that the plant and equipment was still at the property.  Why he did not disclose that to his controlling trustees in his statement of affairs and make it available to his creditors is explained in the evidence. 

18. The two matters to which I have just referred are, at least in my view, significant omissions from Mr Thornton’s statement of affairs. 

19. In any event, the controlling trustees prepared a report to creditors and gave it to them.  The report made it clear that there were some areas that required further investigation.  For example, Mr Thornton’s dealings with motor vehicles and what had become of a certain Lamborghini that had been in his possession.  There are some other matters of inquiry highlighted by the controlling trustees concerning Mr Thornton’s dealing with some real property.  In fact, the controlling trustees were so concerned that they recommended against the proposal that was being offered by Mr Thornton.

20. Although the return to creditors on a bankruptcy, according to the controlling trustees might not have been very great at all, they nonetheless thought that the proposal being offered by Mr Thornton was not worthy of acceptance by the creditors and they so recommended. 

21. At the creditors meeting, however, the creditors voted to accept the personal insolvency agreement that was being proposed.  The applicants are concerned that the creditors that voted in favour of the personal insolvency agreement are all, in some way or another, related either to Mr Thornton or to a person, Luke McKenzie, who is, to use the vernacular, in cahoots with Mr Thornton.

22. Certainly, the material bears out that impression, but I make no finding about it because ultimately I do not need to, save to say that the way in which the vote was carried out at the creditors’ meeting gives cause for concern.  Mr and Mrs Mattiazzi and the first applicant voted at the creditors’ meeting, but they were only permitted to vote for a nominal value.  That came about because notwithstanding that the Mattiazzis had commenced proceedings in the Supreme Court for the substantial sums they were owed, Mr and Mrs Thornton had filed a defence and counter claim in those proceedings.  Whilst the Mattiazzis had successfully applied to strike out the defence and counterclaim, the trustees obtained legal advice that nonetheless suggested that because there was the outstanding counter-claim and the proceedings were otherwise unresolved, it was best to admit the applicants for voting at the creditors meeting at a nominal sum only, not for the sum that they were in fact owed by the first respondent.  I must confess to not fully understanding that logic.  But that is what occurred.  And so the creditors voted.  And the proposal was accepted with the help of creditors who had all the outward signs of an association with Mr Thornton. 

23. Immediately thereafter, the applicants put the respondents on notice that they would apply to have the personal insolvency agreement set aside.  And this is that application. 

24. Section 222 of the Bankruptcy Act provides for the circumstances in which the Court might set aside a personal insolvency agreement. It is a lengthy section, but for present purposes, there are two subsections of particular interest. The first is s.222(1) which provides as follows:

    If a personal insolvency agreement is in force, the court may on application by a creditor make an order setting the agreement aside if the court is satisfied that the terms of the agreement are unreasonable, or are not calculated to benefit the creditors generally, or for any other reason the agreement ought to be set aside. 

25. Subsection 222(5) provides: 

    If a personal insolvency agreement is in force, the court may on application by a creditor make an order setting the agreement aside if the court is satisfied that the debtor has omitted a material particular from the statement of the debtor’s affairs given under subsection 188(2C) or (2D) or included an incorrect and material particular in that statement. 

26. The Court should not make an order under that subsection unless in all of the circumstances it is satisfied that it is in the interests of creditors to make an order setting aside the personal insolvency agreement. 

27. In this application, the applicants also seek relief pursuant to s.178 of the Bankruptcy Act in respect of the controlling trustees’ decision to only admit them to vote at the creditors meeting for a nominal sum.

28. The omissions from the respondent’s statement of affairs to which I have earlier referred were clearly omissions which were, in the terms of s.222(5)(e)(i), material. They concerned substantial assets which may have had an effect on those voting at the creditors meeting. They are material not just because they concern considerable sums, but they are material because their omission tends to indicate that the controlling trustees’ concerns about the personal insolvency agreement and the need for further investigation into the first respondent’s affairs were justified.

29. I have no doubt and no hesitation in concluding that Mr Thornton has omitted material particulars from his statement of affairs given under ss.188(2C) and (2D) of the Bankruptcy Act for the purposes of the personal insolvency agreement.

30. It must clearly be in the interests of Mr Thornton’s creditors for the personal insolvency agreement to be set aside because on the current arrangement or proposal, the creditors stand to receive only 0.109 cents in the dollar, whereas that might be increased once there are further investigations made and the estate is administered in insolvency. 

31. It follows, therefore, that I am entirely satisfied that there ought to be an order that the personal insolvency agreement entered into by the respondent be set aside pursuant to s.222(5) of the Bankruptcy Act.

32. I am also satisfied that that order is appropriate pursuant to s.222(1) of the Bankruptcy Act. The terms of this insolvency agreement are unreasonable, and in my view, are not calculated to benefit creditors generally. It is a derisory return to creditors. There is something in excess of $10 million in debt. Yet, under this proposal, only $25,000 is to be made available to creditors. There are real reasons to be concerned about the veracity of some of the debts claimed by some of the larger creditors and, in particular, the creditors associated with Mr McKenzie. It may be that those debts are entirely legitimate. But it would seem to me at least that far greater information would need to be provided to a trustee in bankruptcy to satisfy a trustee of their legitimacy.

33. Finally, to the extent that it is necessary to make comment about this – and I do not think it is – the respondent’s assertion of a counter-claim against the applicant arising out of misrepresentations made at the time that the parties entered into the contract of sale is nothing more than humbug.  His evidence in cross-examination made it plain that there were no misrepresentations at all, that what he was told about the profitability of the business was, in fact, correct.  To the extent that the first respondent now suggests that the business was a failure – this business that has nurtured the Mattiazzi family for 41 years and been nurtured by them – what appears to have occurred is simply that the respondent has not paid proper attention to the business and has not been able to generate the profits which these hard working people have been able to establish over their working lives. 

ORDERS DELIVERED

1. There is no reason not to proceed to the making of a sequestration order against the estate of the respondent. First of all, the Bankruptcy Act makes it plain that I am able to do so. There is clearly an act of bankruptcy having given the authority under s.188 of the Act. It is, in my view, entirely appropriate that the first respondent’s estate be sequestrated.

ORDERS DELIVERED.

1. I note that Ann Fordyce has consented to be the trustee of Mr Thornton’s estate in bankruptcy. 

2. The second respondents, Peter Dinoris and Nick Jim Combis, entered a submitting appearance save as to costs.  They sought the costs of the application to be paid out of the estate.  Neither party made submissions against that proposition.  It is an appropriate order. 

I certify that the preceding thirty-six (36) paragraphs are a true copy of the reasons for judgment of Judge Jarrett delivered on 23 February, 2015.

Associate: 

Date:       28 May 2015