MARSHAN v Kocer - [2004] FMCA 430

FEDERAL MAGISTRATES COURT OF AUSTRALIA

MARSHAN v KOCER

[2004] FMCA 430

BANKRUPTCY – Application for sequestration order – where debt clearly owed and not disputed – where first and second respondents have separated –whether second respondent’s request to have the matter transferred to the Family Court to allow for family law property settlement to be heard with the creditor’s petition should be granted where applicant has not applied for a transfer of the family law proceedings to Federal Magistrates Court – whether public policy considerations and likely delay of hearing in the Family Court favour the sequestration order being made – whether sequestration order should be stayed for 21 days to allow second respondent another chance to re-finance the property.

Bankruptcy Act 1966 (Cth), ss.35A, 50, 52
Family Law Act 1975 (Cth), s.79

Baumgartner v Baumgartner (1987) 164 CLR 137
Re Sharp; Ex parte Powell v Donnelly (unreported, Lindgren J, 17 October 1996)
Re Maas: Ex parte Maas v Brien (unreported, Whitlam J, 17 July 1997)
Sutherland v Khanafer [2000] FCA 463

Applicant:

MAURICE MARSHAN

Respondent:

ALI ERKAN KOCER

File No:

SZ 555 of 2004

Delivered on:

22 June 2004

Delivered at:

Sydney

Hearing date:

22 June 2004

Judgment of:

Raphael FM

REPRESENTATION

Solicitors for the Applicant:

Sally Nash & Co

Solicitors for the Respondent:

Bizannes & Associates

ORDERS

The estate of Ali Erkan Kocer be sequestrated and the official trustee for the Bankruptcy District of New South Wales be appointed the trustee of the bankrupt's estate.
The costs of the application be payable out of the estate of the bankrupt to be taxed if not agreed pursuant to the Federal Court Act and Rules.
These orders to be stayed, but not the order under s.50 previously made, until 12 July 2004.
The costs order will include any reserve costs.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
SYDNEY

SZ 555 of 2004

MAURICE MARSHAN

Applicant

And

ALI ERKAN KOCER

Respondent

REASONS FOR JUDGMENT

These proceedings consist of an application for a sequestration order by way of a creditor’s petition dated 3 March 2004 indicating that the respondent debtor owes the applicant creditor the amount of $36,408.30 together with interest making a total of $37,575.36. I also have before me an application made by the second respondent to the proceedings, the wife of the debtor, seeking to have the matter transferred to the Family Court of Australia pursuant to s.35A Bankruptcy Act 1966 (Cth) (the “Act”).
The matter first came before me on 18 May 2004 at which time I made an order under s.50 of the Act appointing the Official Trustee as a controlling trustee of the estate of the first respondent until today or further order. On that occasion the debtor appeared. The matter was adjourned so that the debtor and the second respondent could together make an application for finance which would have the effect, if granted, of enabling the creditor to be paid out and the creditor’s petition to be dismissed.
At the hearing on 18 May it was acknowledged by the debtor that he had recently been in prison and that he was not in gainful employment. The debtor was informed of today's hearing but is not in attendance and I am advised by Mr Finch, who appears on behalf of the second respondent, from the bar table, that the debtor has in all probability returned to custody. The reason why the second respondent seeks to have this matter transferred to the Family Court is so that an application which she has recently made under s.79 of the Family Law Act 1975 for orders in the nature of property settlement can be heard together with the creditor’s petition.
In those proceedings she seeks to have orders made which would give her a larger share of the matrimonial home than that to which she is entitled at law, being a joint tenant of the property. On her behalf it was submitted that in any application being made to the Family Court she would accept that her husband should be awarded at least sufficient funds to pay out the creditor. In the proceedings before me today Ms Nash, who appears on behalf of the creditor, provided me with the necessary affidavits of debt, service and search and argued that I should not make the order under s.35A for a number of reasons with which I will now deal.
The first reason given by Ms Nash is that the second respondent has not provided any real evidence of what has occurred between the last hearing and today so far as her attempts to obtain finance in respect of the home are concerned. This is correct. I have received certain information from Mr Finch from the bar table and I do not doubt for one moment his bona fides in providing that to me. However, it is not in affidavit form and I simply do not know what the second respondent and the debtor together did or did not do in this regard.
It did seem to me at the last hearing that there was a real prospect that an effort would be made to re-finance the property. I noted then as I do now that there was a very small mortgage on a property that is worth many hundreds of thousands of dollars and that therefore the raising of finance might not prove too difficult. When I say the raising of finance, I mean sufficient finance to repay this particular creditor and now the public trustee. The figure required according to Ms Nash who submitted a letter to the solicitors for the second respondent on 24 May 2004 was $52,588.34.
The second matter raised by Ms Nash was the interesting question of public policy. Ms Nash points out that the right to grant a sequestration order is a right granted to the Federal Court and the Federal Magistrates Court of Australia. It is a right given to those courts in the interests of public policy so that all the creditors of a debtor can be made known and participate in the division of any assets that may remain available. For this purpose applications for sequestration orders or creditor’s petitions, as they are more commonly known, are matters heard in public with advertising by way of publication in court lists and hearings open to all.
The judicial officer hearing the application decides the matter on the basis of evidence provided by the creditor and possibly supporting creditors. Where there is a notice of objection filed by a debtor the judicial officer considers the matter in accordance with the decided cases and in particular in accordance with public policy unfettered by considerations of the rights of any one particular creditor. If the matter is transferred to the Family Court of Australia the matter will be heard under the rules of that court in private. According to Ms Nash the lists published will not reveal the names of the parties.
In any event, she says, a creditor of the debtor would not go looking for the hearing of a petition in the Family Court lists. I am not too sure that Ms Nash is right concerning the right of the public to sit in on hearings but I am aware that hearings cannot be reported and that names of parties are frequently excluded from judgments particularly where children are involved. I most certainly accept that any other creditor of this particular debtor will be unlikely to go looking for the hearing of a sequestration application in the Family Court.
In addition to this public policy argument Ms Nash says that the matter may well be delayed by reference to the Family Court and she points to the fact that the second respondent has hardly been prompt in making the application which she now makes. In fact she is out of time according to the Family Law Rules already having separated from her husband more than three years ago. Only after this case was before me did she make application to the Family Court for leave to file the application out of time which application has now been granted.
The second respondent has also now applied for the application to be expedited. This application was only made yesterday even though the matter has been pending in this court for some weeks. The result of that application will not be known until late July. In the meantime Ms Nash says that the debtor could continue to indebt himself further at a time when it is quite clear that he is about to be made bankrupt for an admitted debt. It is not disputed by the people who have appeared before me today that a sequestration order would be granted. That is the expected outcome. What is hoped to be gained by the second respondent is a prior order which gives her a higher portion of the property being the only asset that she currently has.
At a previous proceeding Ms Nash also submitted that if the second respondent really wanted the matter to be heard expeditiously and in a way that the creditor would approve she would apply not to have these proceedings transferred to the Family Court of Australia but to have the Family Law proceedings transferred to this court. This court is unique in having jurisdiction in both family law and bankruptcy. The second respondent has made no such application and insists on pursuing the s.35A request.
I would also note that before these proceedings commenced the second respondent may or may not have been living in the matrimonial home and that she did make efforts to dispose of the property and it was advertised for sale. That sale did not progress once the current proceedings became known to her.
I am also reminded that, based upon what has fallen from Mr Finch concerning his client's payment of the mortgage and outgoings in relation to the family property for some considerable time and the dicta in Baumgartner v Baumgartner (1987) 164 CLR 137, the second respondent will be able to argue in bankruptcy proceedings that she does have a greater entitlement to the matrimonial property than would appear at law from her moiety. The presentation and acceptance of a bankruptcy petition and the making of a sequestration order would not hinder this.
The last time the matter was before me Mr Bizannes, who then appeared on behalf of the second respondent, pointed to a number of cases in which orders under s.35A had been made. These included Re Sharp: Ex parte Powell v Donnelly (unreported, Lindgren J, 17 October 1996); Re Maas: Ex parte Maas v Brien (unreported,Whitlam J, 17 July 1997); Sutherland v Khanafer [2000] FCA 463. But I note that all these cases refer to bankruptcy proceedings after the sequestration order had been granted. Maas and Sharp refer to applications for annulment, and Sutherland was a matter concerning an uncommercial transaction. I have not been provided with, nor can I find, any reported case of the transfer of a creditor's petition to the family court in a situation such as this one.
I take the view that the public interest requires me to make a sequestration order in this case. I do not think that the making of a sequestration order where a debt is clearly owed and is not disputed should be held up whilst a creditor argues that her entitlement is greater than that which appears at first sight, particularly in circumstances where that argument can be substantially heard at a later time without prejudice. Public policy requires that the interests of all creditors be considered by this court when acting in its bankruptcy jurisdiction, and as this court has not been asked to act in its family law jurisdiction that matter should take any priority.
I would further point out that in this particular case given that the amount of the debt to the petitioning creditor is so small in comparison with the value of the estate, that it is likely that any order that might be made under s.79 of the Family Law Act which could be made under the Baumgarter principles would be covered and is more likely to be able to be covered than if I gave leave as requested and continued the trusteeship under s.50 because of the costs involved in that situation and the continuing costs involved in the public trustee having to attend hearings at the Family Court.
What I am prepared to do with the second respondent, however, is to stay my orders for the maximum period of 21 days so that he can make one more, and real, effort to re-finance the property and pay out the petitioning creditor so that in the absence of any substituting creditors coming along, the petition can be dismissed. I am satisfied as to the matters required under s.52 of the Act. I order that the estate of Ali Erkan Kocer be sequestrated and that the official trustee for the Bankruptcy District of New South Wales be appointed the trustee of the bankrupt's estate. I order that the costs of the application be payable out of the estate of the bankrupt to be taxed if not agreed pursuant to the Federal Court Act and Rules. I note that the date of the act of bankruptcy is 4 February 2004. I stay these orders, but not the order under s.50 previously made, until 12 July 2004. The costs order will include any reserved costs. The s.50 order to continue until 12 July 2004.

I certify that the preceding eighteen (18) paragraphs are a true copy of the reasons for judgment of Raphael FM

Associate:

Date: 7 July 2004