Metropolitan Demolitions Pty Ltd v Gialouris, Jim

[1998] FCA 292

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NG 7833 of 1997

BETWEEN:	METROPOLITAN DEMOLITIONS PTY LIMITED APPLICANT
AND:	JIM GIALOURIS RESPONDENT

JUDGE:	SACKVILLE J.
DATE:	26 MARCH 1998
PLACE:	SYDNEY

REASONS FOR JUDGMENT

HIS HONOUR: The proceedings were instituted in the form of an application filed by Metropolitan Demolitions Pty Limited (the applicant), in which it seeks orders pursuant to section 222 of the Bankruptcy Act 1966 (Cth) (“Bankruptcy Act”) to avoid a deed of arrangement entered into between the first respondents (the debtors), and the second respondent (the trustee).

The deed of arrangement was entered into on 20 March 1997, pursuant to Part X of the Bankruptcy Act.  Pursuant to the deed, the debtors covenanted to pay the trustee the sum of $10,000 and assigned to the trustee their divisible property upon trust to deal with that property in accordance with the provisions of the deed.  The deed which is in the usual form for a deed of arrangement, provides that upon payment of the sum of $10,000 the debtors were to be released from all provable debts.

The applicant has put forward a large number of grounds for setting aside the deed of arrangement; it is not necessary to detail all of these. They include a claim that the deed of arrangements should be declared void pursuant to s 222 of the Bankruptcy Act because there was only one creditors’ meeting held.  It is said by the applicant that there should have been separate meetings held because, so it is asserted, there were separate debts due by one or both debtors to creditors.  The applicant also relies upon what is said to have been false and misleading information given to the Chairman at the meeting by the debtors.

The applicant now applies to amend the particulars of the grounds on which it relies to support the relief sought in the application and to adjourn the proceedings to enable further inquiries to be undertaken.  Mr Johnson, who appears on behalf of the applicant, informed me that certain information had come to the applicant’s attention only late yesterday.  That information has led to the production of documents this morning, some of which have been tendered in support of the present application.

The documents tendered in evidence indicate, among other things, that the male debtor, Mr Gialouris, may be indebted to a company called Terrace Guardians Ltd in the sum of approximately $347,000.  The documentation suggests that that indebtedness arose as the result of financial accommodation provided to Mr Gialouris and to Mrs Angela Karozis who, on the evidence, appears to be Mr Gialouris' mother-in-law.

The documentation also indicates that Mr Gialouris is a trustee of a trust known as the Karozis Family Trust.  There is also evidence to suggest that a company known as Bonfat Pty Ltd is a trustee for the Gialouris Family Trust.  No evidence has been tendered as to the beneficiaries of these trusts.

The evidence shows that the debtors' statement of affairs did not disclose any information relating to these trusts.  Mr Gialouris' statement of affairs does indicate that he has been a director or shareholder or had a management role in Bonfat Pty Ltd.  However, the statement of affairs does not reveal that Bonfat Pty Ltd was a trustee of a trust apparently relating to the affairs of the Gialouris family.

By letter of 3 November 1997 addressed to the solicitors for the applicant, the trustee answered certain queries that apparently had been raised by the applicant.  The letter identifies the creditors who had lodged proofs of debt. That list includes Terrace Guardians Ltd.  However, there is no indication in that letter that Terrace Guardians Ltd was owed money by Mr Gialouris, and not by Mr and Mrs Gialouris jointly.  The heading to the letter suggests that it is concerned with the joint debts of the debtors.  I should add that the letter also refers to a proof of debt having been lodged by Fired Earth Gallery Pty Ltd.  No details of that debt were provided in the letter.   The evidence suggests that the debt of approximately $950 due to Fired Earth Gallery Pty Ltd might have been due to the company by one of the debtors only.  However, that is a matter that cannot be resolved clearly today.

The significance of the material relied upon by the applicant is that, on the face of it, the material supports the argument that separate meetings should have been held in respect of each of the debtors.  I am, of course, not prejudging that issue.  The point is that the evidence at this stage appears, subject to further explanation and argument, to add force to the applicant’s contentions.

The material also may be significant in another way.  It suggests, subject again to further evidence and submissions, that the debtors may have failed to disclose to the Chairman of the creditors’ meeting information bearing on their affairs and relevant to the issues to be determined at that meeting.  Again, I am not to be taken as having formed any final view on this issue.

In my view, subject to one matter I shall mention shortly, the documentation supports the proposition that the applicant should have an opportunity of exploring the further factual issues that may arise in connection with its claim for relief.  While it is regrettable that the fresh questions have been raised at such a late stage, there appears to be some force in Mr Johnson's contention that the blame for any delay should not be sheeted home to the applicant.  I do not think that the information supplied by the trustee was in a form that should have alerted the applicant to the fact (if such is the case) that the debt due to Terrace Guardians Ltd was due by Mr Gialouris alone.  Nor is there anything to suggest that the applicant should have alerted to the existence of the trusts.  Subject to the matter I shall mention shortly, I think that in the interests of justice there should be an opportunity for the applicant to explore these issues in the litigation, however regrettable a delay may be. 

The matter that has been raised by Mr Higgs of Senior Counsel, who appears with Miss Kaur-Bains for the debtors, is that on his instructions the likelihood is that there will be funds no available to the debtors for them to be legally represented at any adjourned hearing.

Having regard to the lateness at which the fresh issues have been raised, I accept Mr Higgs’ statement made from the bar table.  This is a very important consideration that must be taken into account in determining what course should be adopted in these proceedings.  If it could be said that the debtors could not be held in any way responsible for the lateness of these matters coming to the attention of the applicant, there would be considerable force in Mr Higgs’ submission that the applicant should not at this stage be given an opportunity to amend the grounds upon which it intends to rely.

There is no evidence from the debtors as to the circumstances in which their statement of affairs were completed.  The statement of affairs themselves contain no reference to the trusts.  I am not in a position to make any finding as to the nature of the interests (if any) held by the debtors in the trusts or the extent to which Mr Gialouris provided information concerning his apparent indebtedness to Terrace Guardians Ltd.  It is enough for present purposes to say that, on the evidence presently before me, it appears that the debtors did not disclose all material relevant to the issues the applicant now wishes to agitate.  Whether that will remain the position at the conclusion of the evidence I cannot say.  It is always a difficult question to balance the interests of the parties in a case such as this.  However, taking into account what Mr Higgs has said, nonetheless I think the appropriate course is to permit the applicant to amend its grounds and for the matter to be adjourned to enable those issues to be explored in an appropriate way.

The final question is that of costs.  One way, of course, of overcoming the potential prejudice to which Mr Higgs referred is to grant an order for costs in favour of the debtors.  If I had decided to grant the adjournment, notwithstanding that the evidence showed the debtors had played no part in the lateness of these matters coming to the attention of the applicant, it may have been appropriate to protect the debtor's position by an award for costs.  However, on the material before me, I do not think I can reach that conclusion, although the position may be different when the evidence is complete.

Accordingly, I think the appropriate course is for the costs of the proceedings today to be reserved.

I certify that this and the preceding four (4) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Sackville

Associate:

Dated:  1 April 1998

Counsel for the Applicant:	Mr J Johnson
Solicitor for the Applicant:	Andrew P Quigley & Co
Counsel for the Respondent:	Mr D Higgs SC, and Ms S Kaur-Bains
Solicitor for the Respondent:	Stewart Levitt & Co
Date of Hearing:	26 March, 1998
Date of Judgment:	26 March, 1998