Murray v Dreger

[2014] FCCA 2040

FEDERAL CIRCUIT COURT OF AUSTRALIA

MURRAY v DREGER [2014] FCCA 2040

Catchwords:

BANKRUPTCY – Application for review of order made by Registrar dismissing application to set aside bankruptcy notice – whether secured judgment creditor must produce information in relation to efforts to realise security before application to set aside bankruptcy notice is heard – whether bankruptcy notice may be set aside because the amount demanded in the bankruptcy notice does not take into account the value of security held by the judgment creditor – application for review dismissed.

Legislation:

Bankruptcy Act 1966 (Cth), ss.41, 44(2)

Applicant: STUART MURRAY

Respondent: MARION DOROTHY DREGER

File Number: SYG 1535 of 2014

Judgment of: Judge Manousaridis

Hearing date: 25 August 2014

Delivered at: Sydney

Delivered on: 4 September 2014

REPRESENTATION

Counsel for the Applicant: Bechara & Company

Solicitors for the Applicant: Ms M. Bechara

Counsel for the Respondent: Mr S. Bell

ORDERS

1. The application for review of the Registrar’s order made on 24 June 2014 dismissing the applicant’s application to set aside bankruptcy notice BN171573 issued on 13 May 2014 is dismissed.

2. The applicant pay the respondent’s costs.

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT SYDNEY

SYG 1535 of 2014

STUART MURRAY

Applicant

And

MARION DOROTHY DREGER

Respondent

REASONS FOR JUDGMENT

Introduction

1. Before the Court is an application for the review of a decision of a Registrar of this Court made on 24 June 2014 dismissing an application to set aside a bankruptcy notice that was issued to the applicant, Mr Murray.

2. The bankruptcy notice demands payment of $199,891.35. That is the amount of a judgment the respondent, Ms Dreger, recovered from the applicant and another person in the District Court of New South Wales.

3. Mr Murray identifies the grounds on which he seeks to set aside the bankruptcy notice in an affidavit filed on 24 June 2014. I will consider these grounds later in these reasons.

The application for review

1. At the hearing of the application for review, Mr Murray was represented by Ms Bechara. Ms Bechara submitted that the main argument in support of the application for review was that the Registrar failed to afford Mr Murray procedural fairness. The basis of that ground is said to be contained in an affidavit Mr Murray swore on 15 July 2014 in which Mr Murray says:

   (a)The Registrar denied me procedural fairness when he dismissed my application without a full hearing of my application.

   (b)The Bankruptcy Notice is defective in substance because the amount claimed is substantially more than any debt alleged to be owing.

2. Ms Bechara submitted that, at the hearing before the Registrar on 17 June 2014, the solicitor for the respondent undertook to the Court to provide “all documentation relating to the security property (5 lots of properties) which [are] the subject of the judgment including details of whether the lots have been sold, details of the price and all documentation in relation to valuation of the properties” (Required Information).[1] That undertaking, Ms Bechara submitted, was not honoured. Mr Murray, therefore, was denied a full hearing of his application to set aside the bankruptcy notice because he was unable to put before the Court evidence that would reveal the true amount of the debt. Ms Bechara further submitted that I should order that Ms Dreger produce the Required Information before I determine Mr Murray’s application to set aside the bankruptcy notice.

   [1] Affidavit of S Murray, 24.06.14, [2]

Issues

1. What is before the Court is an application for review of the Registrar’s order dismissing Mr Murray’s application to set aside the bankruptcy notice. That means that I must consider afresh Mr Murray’s application to set aside the bankruptcy notice. That, in turn, means that whether or not the Registrar afforded Mr Murray procedural fairness is not relevant to the application for review.

2. Accordingly, the issues I see as requiring my consideration are, first, whether, as Ms Bechara submits, Ms Dreger should be compelled to produce the Required Information before I can hear the application to set aside the bankruptcy notice and, second, if that issue is decided against Mr Murray, whether, on the material that is before the Court, Mr Murray has any grounds for setting aside the bankruptcy notice.

Must the respondent produce the Required Information?

1. In the affidavits on which Mr Murray relies, he asserts that Ms Dreger holds security for the amount of the judgment debt referred to in the bankruptcy notice. Mr Murray identifies the property over which he asserts Ms Dreger holds security; but there is no evidence to substantiate his assertion that Ms Dreger holds security. Nor is there evidence about the nature of the security Ms Dreger holds. Nevertheless, assuming Ms Dreger does hold security over the land for the amount of the judgment debt, is there any basis on which Ms Dreger can be compelled to provide the Required Information?

2. In my opinion, the only conceivable ground on which Ms Dreger could be compelled to provide the Required Information is if there arose an issue in this application that the amount demanded in the bankruptcy notice has been paid, in part or in full. Mr Murray, however, does not allege, and there is no evidence to suggest, that any part of the amount of the judgment debt demanded in the bankruptcy notice has been paid. At most, the evidence shows that the property over which Mr Murray asserts Ms Dreger holds security for the judgment debt is in the process of being sold by a mortgagee.

3. Ms Bechara submitted that the fact that a judgment creditor who issues a bankruptcy notice is a secured creditor by itself triggers an obligation on the judgment creditor to provide information of the sort specified in the Required Information. The submission is premised on the proposition that a secured creditor is entitled to issue a bankruptcy notice only in an amount that exceeds the amount the creditor is likely to recover if the secured creditor were to realise his or her security. That premise is incorrect. Section 41 of the Act provides that a bankruptcy notice may be issued on the application of a creditor who has obtained a final judgment against a debtor for an amount of at least $5,000. Section 41 does not differentiate between secured and unsecured creditors; and it does not provide that bankruptcy notices may be issued for an amount other than the amount of a judgment.

4. Accordingly, I do not propose to order that Ms Dreger provide the Required Information before I consider the grounds on which Mr Murray seeks to set aside the bankruptcy notice.

Grounds on which Mr Murray relies

1. In his affidavit of 24 June 2014, Mr Murray relies on three grounds for setting aside the bankruptcy notice. The first is that the amount of the judgment debt demanded in the bankruptcy notice is either not owed or is substantially less than the amount claimed in the bankruptcy notice because Ms Dreger holds security for the judgment debt over property and the property has a value that, if realised, will be enough to pay for all or at least most of the debt.

2. This is not a ground for setting aside a bankruptcy notice. A bankruptcy notice demands payment of the amount specified in a judgment. That the creditor may have security which, if realised, will provide money with which to pay the judgment debt is irrelevant to the validity of the bankruptcy notice. Whether or not a creditor who has issued a bankruptcy notice is a secured creditor will, however, be relevant at the time the creditor petitions the Court for a sequestration order. Subsection 44(2) of the Act provides that a secured creditor shall be deemed to be an unsecured creditor only to the extent, if any, by which the amount of the debt owing to the secured creditor exceeds the value of the security. This demonstrates that it is only at the time a creditor applies for a sequestration order, not the time the creditor obtains or holds a bankruptcy notice, that it is relevant to consider the value of any security that a secured creditor holds.

3. The second ground on which Mr Murray relies is his desire to “join in these proceedings John James Findley who is the other judgment debtor in the judgment obtained by the Respondent”.[2] That does not afford any ground for the setting aside of a bankruptcy notice. It may be that Mr Murray has a claim for contribution or some other claim against Mr Findley. But whether or not Mr Murray has any such claim can be no answer to the liability Mr Murray has under the judgment on which the bankruptcy notice is founded.

   [2] Affidavit of S Murray, 24.06.14, [6(d)]

4. The third ground on which Mr Murray relies is that the bankruptcy notice is an abuse of process because Ms Dreger is obliged to sell the security before pursuing proceedings against Mr Murray. Mr Murray does not identify the grounds on which he asserts that Ms Dreger is obliged to sell the security before she can take enforcement proceedings against Mr Murray. I cannot accept as a generally correct proposition that a secured creditor is obliged to exercise his or her rights over the security before he or she can exercise personal remedies against the debtor. In any event, if, as Mr Murray asserts, Ms Dreger was obliged to sell the security before pursuing proceedings against Mr Murray, that is a matter that Mr Murray ought to have raised in the District Court proceedings by applying for a stay.

Conclusion and disposition

1. Mr Murray has not demonstrated any grounds for setting aside the bankruptcy notice issued against him.

2. Accordingly, I propose to dismiss the application for review, and order that Mr Murray pay Ms Dreger’s costs.

I certify that the preceding seventeen (17) paragraphs are a true copy of the reasons for judgment of Judge Manousaridis

Associate: 

Date: 4 September 2014