Metro Finance Pty Ltd v Mohen

[2021] FCCA 413

FEDERAL CIRCUIT COURT OF AUSTRALIA

Metro Finance Pty Ltd v Mohen [2021] FCCA 413

File number(s):

SYG 160 of 2021

Judgment of:

JUDGE CAMERON

Date of judgment:

17 February 2021

Catchwords:

BANKRUPTCY – appointment of trustee under s.50 of the Bankruptcy Act 1966 (Cth) – relevant considerations

Legislation:

Bankruptcy Act 1966 (Cth), s 50

Cases cited:

Makinna Pty Ltd (in liq) v Trives [2016] FCA 1247

Deputy Commissioner of Taxation v Clyne (1983) 50 ALR 118

Axess Debt Management Pty Ltd v Nottas [2014] FCCA 2746

Number of paragraphs:

12

Date of hearing:

17 February 2021

Place:

Sydney

Counsel for the Applicant:

Mr S. Sykes

Solicitor for the Applicant:

Hilton Bradley Lawyers

Counsel for the Respondent:

The respondent did not appear

ORDERS

SYG 160 of 2021

BETWEEN:

METRO FINANCE PTY LIMITED

Applicant

AND:

PETER DAMIEN MOHEN

Respondent

ORDER MADE BY:	JUDGE CAMERON
DATE OF ORDER:	17 FEBRUARY 2021

NOTING THE USUAL UNDERTAKING AS TO DAMAGES PROFFERED BY THE APPLICANT, THE COURT ORDERS THAT:

1.Pursuant to section 50 of the Bankruptcy Act 1966 (Cth), Stephen John Michell take control of the respondent debtor’s property, including the surplus proceeds of sale of the land comprised in certificate of title identifier Lot 6 DP46246, being the land situated at 33 Mimosa Avenue, Mount Claremont Western Australia 6010 (“Property”).

2.The Trustee be authorised to make payment to the respondent of such reasonable business, legal or living expenses of the respondent as are approved by the Trustee.

3.Such control cease on the making of a sequestration order in respect of the respondent or until the disposition otherwise of the creditor’s petition presented on 1 February 2021.

4.Should the respondent wish to seek to vary, discharge or set aside these orders or any of them, he do so on 2 days’ notice before the duty judge.

5.In any application to vary, discharge or set aside these orders, the applicant is to justify the continuation of the orders substantially as if the orders had been limited to expire at midnight on the day the matter is before the Court.

6.The parties have liberty to apply on 24 hours’ notice in respect of any urgent aspect of or difficulty caused by these orders.

7.These orders, the interim application dated 16 February 2016, the affidavit of Luke Whiffen affirmed 16 February 2021, the affidavit of Siam Haguthee affirmed 16 February 2021, the creditor’s petition filed 1 February 2021, the affidavit of Julianne Lawrence affirmed 29 June 2020 and the affidavit of Kurniawan Bagus Sardjono affirmed 1 February 2021 be served on the respondent on or before 5pm AWST Monday 22 February 2021.

8.The costs of the interim application be reserved.

REASONS FOR JUDGMENT

JUDGE CAMERON:

INTRODUCTION

1. This is an interim application for orders under s.50 of the Bankruptcy Act 1966 (Cth) (“Act”) directing Stephen John Michell to take control of the property of the respondent. Section 50 relevantly provides:

   50 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. The purpose of the section has been discussed in the cases, for instance in Makinna Pty Ltd (in liq) v Trives [2016] FCA 1247 to which the applicant has taken me today where, at [13], Jagot J cited Deputy Commissioner of Taxation v Clyne (1983) 50 ALR 118 at 123:

   13.The principles that apply to directions made pursuant to s 50 of the Act are clear. The section is a provision in aid of the creditors of a debtor who has committed an act of bankruptcy; it is an ancillary provision designed to enable appropriate steps to be taken to preserve and protect the debtor’s property in the event of a sequestration order being made.

   Reference has also been made in the applicant’s written submissions to Judge Simpson’s observation in Axess Debt Management Pty Ltd v Nottas [2014] FCCA 2746 at [10] that s.50 is a means to preserve the status quo for creditors.

   INTERIM APPLICATION

3. The applicant seeks the following orders:

   1.Pursuant to section 50 of the Bankruptcy Act 1966 (Cth), that Stephen John Michell take control of the respondent debtor’s property, including the surplus proceeds of sale of the land comprised in certificate of title identifier Lot 6 DP46246, being the land situated at 33 Mimosa Avenue, Mount Claremont Western Australia 6010 (the Property).

   2.In the alternative to order 1 above, order that the surplus proceeds of sale of the Property be paid into Court.

   3.Such control cease on the making of a sequestration order in respect to the respondent or earlier order of the Court.

4. The applicant relied on affidavits sworn or affirmed by Messrs Whiffen; Collins, who affirmed two affidavits; Kripal and Haguthee and Ms Lawrence. It also tendered a copy of a consent to act as trustee declaration signed by Mr Mitchell.  Short oral evidence was given by Mr Whiffen. 

   FACTS

5. This history of this matter, as it appears from the affidavit evidence, is relevantly as follows:

   (a)the applicant’s business is to provide commercial asset finance to borrowers;

   (b)the respondent was one of the applicant’s clients;

   (c)on 3 June 2020 judgment for $31,509.80 was entered for the applicant against the respondent in the Local Court of New South Wales in proceedings No.2020/00076949 (“Judgment Debt”);

   (d)on 25 June 2020 Bankruptcy Notice BN 250038 directed to the respondent (“Bankruptcy Notice”) was issued because the respondent had not paid the Judgment Debt;

   (e)on 1 February 2021, the creditor’s petition was filed;

   (f)the applicant has not received any payment in reduction of the Judgment Debt;

   (g)by 10 February 2021 the applicant was aware that the respondent’s property situated at 33 Mimosa Avenue, Mount Claremont WA 6010 (“Property”) had been listed for sale;

   (h)on 10 February 2021 a title search revealed that the respondent is the sole registered proprietor of the Property;

   (i)a search of the property sales website, ‘realestate.com.au’ on 12 February 2021 identified the property as listed for sale but “under contract”;

   (j)the property has been “under contract” since 14 January 2021;

   (k)on 10 February 2021 the applicant called the respondent’s estate agent, who confirmed that the Property had been listed for sale, was currently “under contract” and that it was a cash sale but a copy of the contract could not be provided;

   (l)on 11 February 2021 the applicant’s solicitor, Mr Whiffen, had a telephone conversation with the respondent in which words to the following effect were said:

   Mr Whiffen:     I understand that your residential property at 33 Mimosa Avenue in Mount Claremont is listed for sale.

   Respondent:     Yeah, it has sold for $1.08 million.

   Mr Whiffen:     As you are aware, Metro Finance has a judgment debt against you.  Can you please advise when the judgment debt will paid?

   Respondent:     Yeah, there’s about $600,000 of equity in the property and I'll pay that to Metro when it’s sold.

   During that conversation, the respondent provided to Mr Whiffen or confirmed to Mr Whiffen the details of his email address;

   (m)on Friday 12 February 2021 the applicant’s solicitor sent an email to the respondent saying relevantly:

   …

   Also, please confirm in writing that you charge in favour of Metro Finance Pty Limited's (Metro) all your right title and interest in 33 Mimosa for the amount of $55,348.59, which is the total amount owed to Metro inclusive of principal, interest and costs, inclusive of Metro's legal costs.

   If you do not provide the requested charge by 4:00 pm today Metro will without further notice to you make an application under section 50 of the Bankruptcy Act 1966 (Cth) seeking orders to either have a registered trustee appointed to take control of your property, including 33 Mimosa, or other orders necessary for the protection of Metro and creditors generally. Such an application may result in significant further costs which you may be required to pay.

   We look forward to your urgent reply;

   (n)no reply to that email was received by Tuesday 16 February 2021, when the applicant’s solicitor affirmed his affidavit in support of the present interim application;

   (o)a copy of the interim application and the two affidavits filed in its support, including Mr Whiffen’s, together with a covering letter and a letter to the Court were sent to the respondent by email yesterday afternoon at about 5:43pm Australian Eastern Daylight Time and, at 5:01pm Australian Western Standard Time, were hand delivered to a person at the Property who identified himself as the respondent’s brother and who said he would give the documents to the respondent when he returned home shortly;

   (p)the letter to the Court, of which a copy was sent to the respondent, relevantly said:

   We confirm that the Interlocutory Application seeks inter alia that a trustee be appointed to take control of the proceeds of the sale of the Respondent’s property pursuant to section 50 of the Bankruptcy Act1966 (Cth).

   The Applicant seeks an urgent hearing of the Interlocutory Application on the basis of the information provided in the supporting affidavits that it is concerned the Respondent may transfer his entire interest in the Property before a trustee of the Respondent’s bankrupt estate can take steps to caveat the Property, in order to protect any claim the trustee may prosecute, under s 120 and/or s 121 of the Bankruptcy Act.

6. Although the correspondence from the applicant’s solicitors to the respondent identified how he could join the telephone hearing today, he has not rung in. 

   DISCUSSION

7. It is apparent that the attempts at service do not satisfy the test of personal service and, given that at present no evidence of service of the creditor’s petition has been filed, I consider that personal service is the appropriate method to bring the present interim application properly to the respondent’s attention.  However, given the apparent urgency of the matter, even if the interim application has not come to the respondent’s attention, I consider it appropriate to proceed ex parte.

8. Section 50 of the Act identifies a number of criteria that must be satisfied before the powers it provides may be engaged. In subsection (1), it is noted that a proceeding such as this cannot be brought until a bankruptcy notice has been issued or a creditor’s petition presented. The evidence is plain that the Bankruptcy Notice has been issued and that the creditor’s petition has been presented in this Court. It is also implicit that if the Official Trustee is not to be the person the subject of the court’s direction, a trustee who is willing to take on the assignment is to be identified. The willingness of Mr Michell to accept the Court’s direction to be the trustee of the respondent’s estate may be inferred from his consent to act as trustee document which was filed in the context of the creditor’s petition.

9. Subsection (1A) of s.50 requires that a creditor apply for the direction in question, that the debtor has not complied with a bankruptcy notice and that the Court is satisfied that it is in the interests of the creditors to make the direction which is sought. The evidence supports conclusions that the applicant, who has applied for a direction that a specified trustee to take control of the debtor’s property, is a creditor of the respondent and that the respondent has not complied with the Bankruptcy Notice. I find accordingly. The remaining question posed by s.50(1A) is whether it is in the interests of creditors for the Court to make the direction sought.

10. The creditor’s petition is listed for its first return date on 9 March 2021, almost three weeks hence.  Mr Whiffen has deposed in his affidavit of 16 February 2021:

    17.Despite the discussion with, and email sent to, the Respondent, I am unclear as to when the Property will settle.  In my experience as a solicitor, it is standard for the settlement period to be approximately six or seven weeks, meaning settlement could be imminent.  I do not know whether the Respondent has any creditors other than the Applicant.  Other than the Respondent's assertion that there is $600,000 equity in the Property, I do not know the funds secured by the Property.

    18.In light of the failure to respond to my recent correspondence, I am concerned that the Respondent may transfer his entire interest in the Property before a trustee of the Respondent's bankrupt estate can take steps to caveat the Property, in order to protect any claim the trustee may prosecute, under s 120 and/or s 121 of the Bankruptcy Act.

11. On balance, I conclude that it is in the interests of creditors to make the direction sought because:

    (a)the respondent is liquidating a significant asset in circumstances where he has failed for more than half a year to satisfy a judgment entered against him in the Local Court or the related Bankruptcy Notice;

    (b)the respondent has failed to respond to Mr Whiffen’s email of 12 February 2021;

    (c)the applicant made its concerns clear in its letter to the Court of 16 February 2021, a copy of which was sent to the respondent yesterday afternoon, and yet it appears that the respondent is unwilling to engage with the applicant or to address its concerns;

    (d)the determination of the creditor’s petition will probably postdate the settlement of the sale of the Property, noting that it has been “under contract” since 14 January 2021; and

    (e)the net proceeds of the sale of the Property may be put beyond the reach of any trustee in bankruptcy appointed in consequence of the determination of the creditor’s petition.

12. In those circumstances, I consider it appropriate to make a direction under s.50 of the Act.

I certify that the preceding twelve (12) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Cameron.

Associate:

Dated:       4 March 2021