Macks v Vandenberg - [2011] FMCA 325

FEDERAL MAGISTRATES COURT OF AUSTRALIA

MACKS v VANDENBERG

[2011] FMCA 325

BANKRUPTCY – Declaration of termination of Personal Insolvency Agreement – whether sequestration order should follow.

Bankruptcy Act 1966 (Cth), ss.40, 52 & 222

Re Bilen; Ex Parte Sistrom (Federal Court of Australia Judgment No. 706/1983 – 11 April 1985 unreported)

Keay’s Insolvency (Sixth Edition, 2008)

Applicant:

PETER IVAN MACKS

Respondent:

LEON GERARD VANDENBERG

File Number:

ADG 60 of 2011

Judgment of:

Lindsay FM

Hearing date:

3 May 2011

Date of Last Submission:

3 May 2011

Delivered at:

Adelaide

Delivered on:

6 May 2011

REPRESENTATION

Counsel for the Applicant:

Mr Neate

Solicitors for the Applicant:

Lynch Meyer

Counsel for the Respondent:

Mr Carragher

Solicitors for the Respondent:

Thomsons Lawyers

ORDERS

That a sequestration order be made against the estate of Leon Gerard Vandenberg.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA
AT ADELAIDE

ADG 60 of 2011

PETER IVAN MACKS

Applicant

And

LEON GERARD VANDENBERG

Respondent

REASONS FOR JUDGMENT

On 8 March 2011 Mr Macks as controlling trustee of the estate of the respondent filed an application seeking a declaration pursuant to s.222D of the Bankruptcy Act 1966 (Cth) (hereinafter “the Act”) that the Personal Insolvency Agreement (hereinafter the “PIA”) entered into by the respondent on 7 December 2009 has terminated.
In the alternative, an order was sought pursuant to s.222(5)(e)(i) seeking an order that the PIA be set aside upon the basis that Mr Vandenberg omitted a material particular from his statement of affairs.
Ultimately, the declaration sought pursuant to s.222D was not opposed by Mr Vandenberg.
Section 222D of the Act provides:
A personal insolvency agreement is terminated by the occurrence of any circumstance or event on the occurrence of which the agreement provides that it is to terminate.
The trustee contended and ultimately Mr Vandenberg did not dispute that the PIA terminated because he had not complied with a notice to remedy defaults on his obligations under the PIA within a period of three months of having been given notice of demand by the trustee to remedy same. These matters are set out in some detail in the affidavit of Mr Macks filed on 8 March 2011. The declaration I made was made pursuant to my power to make declaratory orders which is set forth in s.30(1)(b) of the Act.
It is not disputed that Mr Vandenberg is indebted to his creditors in the amount of approximately $800,000 nor that he is presently insolvent.
What is controversial is the status of a judgment debt obtained against Mr Vandenberg by Newcom Holdings Pty Ltd (hereinafter “Newcom”) in the United States of America in the sum of $US36,000,000. Newcom filed a proof of debt with the trustee on 7 February 2011.
Mr Vandenberg concedes that Newcom has entered default judgment against him in the United States in that amount but he does dispute the debt. His affidavit filed on 2 May 2011 sets out the circumstances in which the judgment debt arose. The judgment debt has been entered against Mr Vandenberg and three other persons and a company they formed called Funge Merger Corp. Two of those four natural persons and the corporation have been successful in setting the judgment debt aside. Mr Vandenberg contends, and it is reasonable to accept his contention, that he did not dispute the claim in the United States given the costs that would have been incurred in relation thereto but intended to seek to set the judgment aside should any steps be taken to enforce the debt within Australia.
His affidavit sets out the commercial arrangements which led to the institution of the proceedings in the United States.
The trustee seeks a further order that a sequestration order be made against the estate of Mr Vandenberg.
Section 222 of the Act sets out the circumstances in which the Court may set aside a PIA. Those circumstances include those where the Court is satisfied that the terms of the agreement are unreasonable or are not calculated to benefit the creditors generally (subsection (1)); those where the agreement was not entered into in accordance with the Act (subsection (2)); and those where the Court is satisfied that the debtor has given false or misleading material or omitted material particulars (subsection (5)).
In each of those circumstances the Act goes on in subsection (10) of s.222 to provide that the trustee or a creditor may include in an application for the setting aside of the PIA an application for a sequestration order against the debtor.
There is no specific provision in s.222 nor in any other part of the Act which provides a creditor or a trustee with an opportunity of seeking a sequestration order in circumstances where a PIA has terminated. It will be recalled that in the instant case, the PIA has terminated pursuant to its own terms and the Court has simply made a declaration recognising that circumstance.
There is, however, specific provision in s.40 of the Act that the termination of a PIA constitutes an act of bankruptcy (see s.40(m)).
In the commentary which appears at paragraph 8.255 of Keay’s Insolvency (Sixth Edition, 2008) in relation to the circumstances in which a sequestration is made in the wake of the setting aside of a PIA, the learned authors make the unexceptional point that when determining whether to make a sequestration order in such context the Court must have regard to the same kind of considerations that apply when the Court is exercising its discretion under s.52 to make a sequestration order on a creditor’s petition.
There is no contest in relation to the fact of Mr Vandenberg’s insolvency, even leaving to one side the Newcom debt. The PIA was terminated because he fell into arrears in respect of his payments under the agreement and was unable to remedy them within the three month period of notice he was given to do so.
Section 30(1) of the Act provides:
(1) The Court:
(a)has full power to decide all questions, whether of law or of fact, in any case of bankruptcy or any matter under Part IX, X or XI coming within the cognizance of the Court; and
(b)may make such orders (including declaratory orders and orders granting injunctions or other equitable remedies) as the Court considers necessary for the purposes of carrying out or giving effect to this Act in any such case or matter.
The provisions of s.30 are facultative and not limiting. As Neaves J said in Re Bilen; Ex Parte Sistrom (Federal Court of Australia Judgment No. 706/1983 - 11 April 1985 unreported) at p.3, the provision is one:
… giving the court full power, within the limits of its jurisdiction to be found elsewhere, to make such orders as it considers should be made in order to carry out and give effect to the Act. The words used are not words of limitation but of extension.
So I have specific provisions in the Act providing that the termination of the PIA is an act of bankruptcy and I have specific provisions enabling the Court to proceed to make a sequestration order where the PIA is set aside (rather than terminated by its own terms). There is thus a lacunae in the Act, namely there is no specific provision authorising the making of a sequestration order at the time that a declaration that the agreement has terminated has been made.
I can see no reason in principle or in logic as to why the Court should not be able to proceed to make a sequestration order in such circumstances if it is otherwise appropriate to make the order.
One of Mr Vandenberg’s creditors is Premier Capital Partners who are owed an amount in excess of $180,000. I had before me in the form of an annexure to Mr Vandenberg’s affidavit a statutory declaration of a director of that company, a Mr Kilpatrick, indicating his preference that Mr Vandenberg “continue on with the original Part X or invoke in separate dealings with each of his creditors”.
Mr Vandenberg is unable to proceed with the PIA. It has ceased pursuant to its own terms. It is not clear to me what Mr Kilpatrick means when he says that he prefers that Mr Vandenberg would deal separately with each of his creditors. He is clearly concerned about the status of the Newcom debt and the circumstance in which it was entered.
I accept that Mr Vandenberg may well be successful in setting aside the Newcom debt. Two of the other four non-corporate persons against whom the debt was entered have been successful in so doing. He is given a rational and understandable explanation as to why he permitted the judgment to be entered in the first place.
However, there are creditors (leaving to one side Premier Capital Partners) with proofs of debt exceeding $600,000 who remain unpaid and it is an agreed fact that Mr Vandenberg is presently insolvent.
In the circumstances, I propose to make the sequestration order as sought. I would make such an order on any creditor’s petition that was before me based on the act of bankruptcy constituted by the termination of the PIA. I should make it now.
I order accordingly.
Any application for costs by a party should be made by written notice to my Associate and be accompanied by a short written submission setting out those matters said to warrant an order for costs. The costs application will be listed at a time which will permit the respondent to file any short responsive submission.

I certify that the preceding twenty-seven (27) paragraphs are a true copy of the reasons for judgment of Lindsay FM

Date: 6 May 2011