MOTTAGHI v Subway Shoe Diffusion Pty Ltd
[2011] FMCA 246
•18 March 2011
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| MOTTAGHI v SUBWAY SHOE DIFFUSION PTY LTD | [2011] FMCA 246 |
| BANKRUPTCY – Review of Registrar's decision in relation to Sequestration Order – exclusion of evidence in relation to settlement negotiations. |
| Bankruptcy Act 1966, ss.52(2)(a), 52(2)(b) Evidence Act 1995, s.131 Federal Magistrates Act 1999, s.104 |
| Seven Network Limited v News Limited [2006] FCA 343 McIntosh v Shashoua (1931) 46 CLR 494 |
| Applicant: | MAJID MOTTAGHI |
| Respondent: | SUBWAY SHOE DIFFUSION PTY LTD |
| File Number: | MLG 1466 of 2010 |
| Judgment of: | Whelan FM |
| Hearing date: | 15 March 2011 |
| Date of Last Submission: | 15 March 2011 |
| Delivered at: | Melbourne |
| Delivered on: | 18 March 2011 |
REPRESENTATION
| Solicitors for the Applicant: | Pace Lawyers |
| Counsel for the Respondent: | Mr Fary |
| Solicitors for the Respondent: | Collins & Stephens Lawyers |
ORDERS
The Sequestration Order made by Registrar Hetyey dated 23 December 2010 be affirmed and remains in full force and effect.
The application for review be dismissed.
The Petitioning Creditor’s costs of and incidental to the petition, including reserved costs, be taxed pursuant to Order 62 of the Federal Court Rules and paid in accordance with the statute.
The Trustee in Bankruptcy’s costs in relation to these proceedings be taxed pursuant to Order 62 of the Federal Court Rules and paid in accordance with the statute.
AND THE COURT NOTES THAT:
A. The date of the act of bankruptcy is 20 September 2010.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT MELBOURNE |
MLG 1466 of 2010
| MAJID MOTTAGHI |
Applicant
And
| SUBWAY SHOE DIFFUSION PTY LTD |
Respondent
REASONS FOR JUDGMENT
(Revised from transcript)
Introduction
This is an application for review pursuant to s.104 of the Federal Magistrates Act 1999 of the exercise of power of Registrar Hetyey on 23 December 2010 in which a Sequestration Order was made against the estate of Majid Mottaghi. The petitioning creditor set out a brief chronology of the relevant events and I refer to them now. On 23 April 2010, judgment was obtained by the creditor against the debtor in the sum of $10,432.29 in the Magistrates Court at Melbourne. On 30 August 2010, a bankruptcy notice was served on the debtor in the amount of $10,633.43, and as the debt was not paid, nor arrangements made to settle the debt within 21 days, an act of bankruptcy occurred on 20 September 2010. On 22 October, a creditor’s petition was presented, and this was served on the debtor on 11 November 2010.
The matter was listed before Registrar Pringle on 16 December and was adjourned, at the debtor’s request, until 23 December 2010. The debtor did not appear on the adjourned date and a Sequestration Order was made by Registrar Hetyey on that date. On 12 January 2011, the application for review was filed. On 16 February, the Orders of the Registrar were stayed on certain conditions and the hearing set down for 15 March 2011.
It was not disputed that the petitioning creditor had satisfied the requirements of s.52 of the Bankruptcy Act 1966 (Cth) (“the Act”). Affidavit material before the court established proof of:
a)the matters stated in the petition;
b)the service of the petition; and
c)the fact that the debt on which the petitioner relied was still owing.
The debtor in these proceedings relies on the provisions of s.52(2), in particular:
a)that he is able to pay his debts; and
b)that for other sufficient cause, a sequestration order ought not to be made.
Section 52(2)(a)
I refer, firstly, to those matters concerning s.52(2)(a). In support of the proposition that he was able to pay his debts, the debtor relied on the following material:
a)two affidavits sworn by the debtor dated 11 February and 1 March 2011;
b)the affidavit of Sonia Ganesh dated 11 February 2011;
c)the affidavit of Monica Polewski dated 15 February 2011; and
d)the affidavit of Warren White dated 15 February 2011.
The Applicant’s first affidavit establishes that, from 1 November 2007, he operated a business trading as Charm Shoes and Accessories with two partners. In October 2010, one of the partners died. Prior to that date and at least from January 2010 but possibly earlier, the business was experiencing difficulties. In his second affidavit, the debtor states that the business has approximately $8,400.00 in its bank account and holds approximately $80,000.00 in stock. No profit and loss statements were presented for the business, nor any documentation in relation to its income, outgoing or liabilities. It also appears that no business activity statement has been lodged by the debtor since the September quarter of 2005.
Neither of his affidavits set out in any particularity the debtor’s income. The second affidavit states that the debtor received money by requesting that his wife, who lives in Dubai, transfer money from her Dubai bank account to a joint account held by them with the ANZ Bank.
In submissions, the debtor also stated that he derived income from rent of $640.00 per fortnight paid for ‘Windsor Gardens’ and rent of between $750.00 and $950.00 per fortnight for ‘Parkside’. ‘Windsor Gardens’ is a property in which the debtor has a one per cent interest and his wife has a 99 per cent interest. The debtor estimated the value of this property at $360,000.00, although there was no sworn valuation before the court. The debtor states that the Commonwealth Bank has a mortgage secured against Windsor Gardens in the sum of approximately $216,025.00 and also a line of credit of approximately $67,570.00
‘Parkside’ is a property jointly owned by the debtor and his wife. The debtor stated that he believed the value of this property to be $870,000.00, although the report of the Trustee in Bankruptcy notes that this property has been listed for sale by estate agents at $760,000.00 to $780,000.00 for some time and has attracted little interest. Perpetual Trustees Victoria Limited hold a mortgage registered over this property of approximately $516,000.00.
The debtor identified payments from ‘Smallacombe Sand’ as being rental payments for this property. There appear to have been no payments made into the account from that entity after 15 November 2010.
The debtor disclosed no other bank accounts save for the joint account with his wife and no other source of income. Apart from three ATM withdrawals of $100.00 each in August of 2010, the payments out of this bank account appear to be loan repayments and payments of home and motor vehicle insurance. The debtor disclosed during the proceedings that the motor vehicle was used by him but owned by his wife.
I am unable to ascertain from this evidence the income of the debtor or its source. The debtor has not lodged a Statement of Affairs with the Trustee in Bankruptcy and has not lodged an income tax return in any year from June 2004. The Trustee in Bankruptcy’s investigations, as at 15 February 2011, disclose that the debtor had a credit balance of $618.89 in a bank account with the ANZ, and a credit balance of $5,380.15 in a business account with the Commonwealth Bank. The debtor stated that he had funds sufficient to satisfy all of his unsecured creditors available to him from sources which included his wife’s Dubai bank account.
As previously noted, there was no evidence before the court of this account, and no affidavit from the wife indicating her willingness to make such funds available. I note in this regard that the evidence presented in relation to the joint bank account appears to indicate that the money deposited by the wife was used to pay loans on property in which she had a substantial interest and to pay for the insurance on that property.
Aside from ‘Windsor Gardens’ and ‘Parkside’, the debtor also cited ‘Park Holme’ as a property from which he could derive funds. This is property in which the wife holds a one-third interest, the other owners being Armin Atighi and Parviz Atighi. The Westpac Bank has a mortgage over this property. The debtor stated that the wife intended to sell her interest in this property to the other owners. There was, however, no direct evidence of the wife’s intentions in this regard before the court.
The Trustee in Bankruptcy, in his report, identified the debtor’s unsecured creditors as at 7 February 2011 as:
a)ANZ Australia with a debt of $20,286.27;
b)City of Adelaide/Enfield with a debt of $958.00;
c)Commonwealth Bank with a debt of $67,153.83;
d)GE Capital Finance Australia with a debt of $4,666.13;
e)Subway Shoe Diffusion Pty Ltd with a debt of $10,449.00; and
f)the Westpac Bank with a debt of $8276.00.
The debtor accepts this as an accurate assessment apart from the amount owed to the Commonwealth Bank which he says is secured against the ‘Parkside’ property.
The debtor has given no evidence of his ongoing expenditure, although in submissions he claimed that he lived with his mother who paid the vast majority of the household living expenses. The Applicant debtor submitted that he was able to service his debts from the overdraft facility on the ANZ account and the funds advanced from his wife. The Applicant states that he is willing to repay his unsecured creditors in full from funds available to him from his wife in Dubai, and his secured creditors from the proceeds of sale of the assets against which those creditors are secured.
The Respondent creditor submits that a person is solvent if and only if they are able to pay all of their debts as and when they become due and payable. The creditor accepts that the debtor’s own monies are not limited to cash resources immediately available, but also to money which he can procure by sale or mortgage or pledge of his assets within a relatively short time. The debtor in this case has not set out details of his income, his debts, or his capacity to pay. There was no evidence of when any monies could be realised from the sale of property. The only evidence is that there has appeared to be some difficulty in selling the ‘Parkside’ property.
The debtor is entirely reliant on his wife’s generosity and even on his evidence this appears to be limited. The creditor refers to clause 32 of the Applicant’s affidavit of 1 March 2011 in this regard. There is no accounting for the financial position of the business partnership. There is no clear evidence on the value of ‘Parkside’, and the court clearly does not have the whole picture.
Findings
At best, the Applicant debtor has shown that his wife has provided funds to pay the mortgage liabilities on the properties in which she has an interest, and insurance on those properties and a motor vehicle which is also in her name.
There was no reliable evidence before the court of the Applicant debtor’s income or outgoings or that of the business partnership. On the evidence, he appears to be effectively living on nothing. He has a joint interest in property with his wife which they appear to be having difficulty in selling, and a one per cent interest in other property, the value of which is unknown and about which there is no direct evidence from the owner of the other 99 per cent interest.
There is an assertion of funds being available from an account in Dubai about which no details are provided and which appears to be controlled by a person who has provided no evidence in these proceedings. The Applicant debtor asserts a contingent agreement by the wife to meet his debts, but there is no direct evidence of this. The onus is on the debtor to establish that he is able to pay his debts. I am not satisfied that he is able to do so or that he has done so in these proceedings.
I now turn to the arguments in relation to s.52(2)(b). The debtor asserts that for other sufficient cause a sequestration order ought not to be made. The Applicant relies on what is said to be an offer to pay made on 22 December 2010, the day prior to the order being made. In the course of the proceedings, I accepted a submission from the Respondent creditor that evidence in the affidavit of Sonia Ganesh, which purported to be a record of a conversation with the creditor’s solicitor, should not be admitted because of s.131 of the Evidence Act 1995 (Cth) (“the Evidence Act”).
The material in question contained in the affidavit of Sonia Ganesh, and also referred to in paragraphs 37 to 39 of the debtor’s affidavit of 11 February 2011, related to conversations between Ms Ganesh, acting on behalf of the debtor, and Mr Stephens, solicitor for the petitioning creditor, following a letter sent to the debtor on 20 December 2010. The petitioning creditor objected to the admission of the evidence on the basis that it was the evidence of settlement negotiations within the meaning of s.131(1)(a) of the Evidence Act. That section provides that evidence is not to be adduced of a communication that is made between persons in dispute in connection with an attempt to negotiate a settlement of the dispute.
The section covers both oral and written communications.[1] The type of disputes covered is defined in s.131(5)(a) as ‘a dispute of a kind in respect of which relief may be given in an Australian or overseas proceeding’.[2] Further, s.131(5)(c) makes it clear that a reference to a communication by a person in dispute includes a reference to a communication made by an ‘employee or agent’[3] of such a person. I am satisfied that the conversation between Ms Ganesh and Mr Stephens, as recorded – and I note Mr Stephens challenges the veracity of the content – was a communication between agents of the debtor and the creditor which was in connection with an attempt to settle the matter and avoid the proceedings listed before the court the following day. It, therefore, falls squarely within the exclusion in s.131(1)(a).
[1] Seven Network Limited v News Limited [2006] FCA 343 at [44].
[2] Evidence Act 1995 (Cth).
[3] Ibid.
Even if I were to accept that the debtor made an offer to pay the amount of $10,000.00 the day prior to the hearing, there is no obligation on the creditor to accept such an offer.[4] Further, there is reason to doubt that the debtor could have paid the debt on that day. As late as 15 December 2010, the debtor was asserting that the maximum he was able to pay was an amount of $2000.00 and $500.00 per week in satisfaction of the debt ‘after a full analysis of the turnover of the business’.[5]
[4] McIntosh v Shashoua (1931) 46 CLR 494
[5] Correspondence received 15 December 2010.
Additionally, the evidence does not disclose how the debtor could have paid an amount of $10,000.00 on 22 December from the accounts disclosed. The ANZ bank account on that date had a balance of $311.00.
Where there is prima facie proof of the matters in s.52(1), the debtor will need to show some sufficient cause to override the rights of the individual creditors and the public interest in limiting the dealings of debtors who are insolvent. The Applicant’s submission that the creditor made an improper demand is based on the material which was rejected on the basis of the provisions of s.131 of the Evidence Act 1995 (Cth), and for that reason alone cannot be entertained.
For these reasons, the application for review is dismissed. The sequestration order made by the Registrar and dated 23 December 2010 is affirmed and remains in full force and effect. The application for review is dismissed.
I certify that the preceding twenty-nine (29) paragraphs are a true copy of the reasons for judgment of Whelan FM
Date: 12 April 2011
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