New Age Constructions (NSW) Pty Ltd v Etlis

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FEDERAL COURT OF AUSTRALIA

New Age Constructions (NSW) Pty Ltd v Etlis, in the matter of Etlis [2013] FCA 884

Citation: New Age Constructions (NSW) Pty Ltd v Etlis, in the matter of Etlis [2013] FCA 884
Parties: NEW AGE CONSTRUCTIONS (NSW) PTY LTD ACN 058 622 950 v LANA ETLIS (AKA SVETLANA ETLIS), A DEBTOR and JOSEPH LOEBENSTEIN (AS TRUSTEE OF THE PERSONAL INSOLVENCY AGREEMENT OF LANA ETLIS, A DEBTOR)
File number: NSD 2221 of 2012
Judge: YATES J
Date of judgment: 2 September 2013
Catchwords: BANKRUPTCY AND INSOLVENCY – application by unsecured creditor to set aside personal insolvency agreement and for sequestration order against first respondent debtor’s estate – whether terms of personal insolvency agreement unreasonable or not calculated to benefit the creditors generally – whether, for any other reason, that agreement ought to be set aside  
Legislation: Bankruptcy Act 1966 (Cth) Pt X and ss 5, 120, 121, 122, 162
Bankruptcy Regulations 1996 (Cth) reg 8.09
Federal Court (Bankruptcy) Rules 2005 (Cth) r 2.04(1)
Cases cited: Augustyn v Putnin (1988) 83 ALR 514
Deputy Commissioner of Taxation v Alternative Business Solutions (Aust) Pty Ltd (Administrators Appointed) (2006) 24 ACLC 435
NZI Capital Corporation Limited v Lancaster (1991) 30 FCR 441
Osborne v Gangemi (2011) 9 ABC(NS) 257
Re Segal, Lensworth Finance Ltd v Segal and Ward (1975) 9 ALR 154
Re Tripodi; Ex parte Col Johnson Pty. Limited [1987] FCA 7
Re Van Twest and Another, Ex parte Tubemakers Australia Ltd (1986) 69 ALR 573
Re Williamson and Another, Ex parte Wearne and Others (1980) 31 ALR 598
Re: Alan Kevin Lockett Ex parte: Northern Equity Limited (ACN 009 153 468) (Receivers and Managers Appointed) and Alan Kevin Lockett [1992] FCA 184
Re: Andrew Nicholas Emmett; Ex Parte: Beneficial Finance Corporation Ltd, Kabani Pty Ltd and Pegasus Leasing Limited [1991] FCA 838
Re: John Barrymore Brennan; ex parte: Stokes (Australasia) Limited and John Barrymore Brennan and Maxwell William Prentice [1988] FCA 833
Re: John Codrington; Ex parte: Don McKay Tourist & Charter Pty Limited v. John Codrington [1989] FCA 514
Re: Peter Leigh Richards Ex parte: Beneficial Finance Corporation Limited [1986] FCA 79
Westpac Banking Corporation v Hingston and Another (No 2) (2010) 117 ALD 552
Date of hearing: 19 August 2013
Place: Sydney
Division: GENERAL DIVISION
Category: Catchwords
Number of paragraphs: 95
Counsel for the Applicant: Mr S Golledge with Mr H Durack
Solicitor for the Applicant: McGrath Solicitors
Counsel for the First Respondent: Mr D McAloon
Solicitor for the First Respondent: B2B Lawyers
Solicitor for the Second Respondent: Mr I Cull of ICA Lawyers
Counsel for Nitzachon Pty Ltd: Mr S Tisher
Solicitor for Nitzachon Pty Ltd: Barry B Moshel

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

GENERAL DIVISION

NSD 2221 of 2012
IN THE MATTER OF ETLIS
BETWEEN:

NEW AGE CONSTRUCTIONS (NSW) PTY LTD ACN 058 622 950
Applicant
AND:

LANA ETLIS (AKA SVETLANA ETLIS), A DEBTOR
First Respondent

JOSEPH LOEBENSTEIN (AS TRUSTEE OF THE PERSONAL INSOLVENCY AGREEMENT OF LANA…

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Details
Case
[2013] FCA 884
Decision Date

CaseChat Overview and Summary

The matter of New Age Constructions (NSW) Pty Ltd v Etlis was heard by the Federal Court of Australia. The primary issue was whether the terms of a personal insolvency agreement were unreasonable or not calculated to benefit the creditors generally, and if there were any other reasons why the agreement should be set aside. The applicant, an unsecured creditor, sought to set aside the personal insolvency agreement and for a sequestration order against the first respondent debtor’s estate. The applicant argued that the terms of the agreement were unreasonable and did not benefit the creditors generally, while the first respondent argued that the agreement should be upheld.

The court considered the evidence presented, which included contradictory information about the first respondent’s financial affairs and the validity of claims against her. The court found that the evidence raised more questions than answers and that the first respondent had an incomplete understanding of her financial affairs. The court also noted that the dividend offered to creditors under the personal insolvency agreement was very small and suspiciously low, considering the background evidence and the terms of the agreement itself. Based on these findings, the court determined that there were sufficient grounds to set aside the personal insolvency agreement and grant a sequestration order against the first respondent’s estate.

The court ordered the applicant to provide a draft of the orders and undertakings within seven days. It also directed the second respondent to give notice to Rambleford Pty Ltd of the order sought regarding the payment of fees and disbursements. The court further ordered that the notice be given in writing and accompanied by a copy of the orders. Lastly, the court set the hearing for the determination of the second respondent’s application for an order regarding fees and disbursements to 18 September 2013, with liberty to apply granted on two days’ prior notice.

Orders

Orders of the court

1. Within seven days, the applicant provide a draft of the orders and the undertaking referred to in [89] of the reasons for judgment published today.

2. The second respondent give to Rambleford Pty Ltd (Rambleford) notice of the order he seeks as to the payment of his fees and disbursements from funds provided by Rambleford in relation to the personal insolvency agreement executed by the first respondent.

3. The notice referred to in order 2 be given in writing to Rambleford served at its registered office, principal place of business, and at any other address that Rambleford may have provided to the second respondent for the receipt of communications, within seven days.

4. The notice referred to in order 3 be accompanied by a copy of these orders.

5. The proceeding, insofar as it concerns the determination of the second respondent’s application for the order referred to in order 2, stand over for hearing at 9.30 am on 18 September 2013.

6. Liberty to apply be granted on two days’ prior notice.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

Further, at the hearing, evidence was adduced that, on about 3 October 2012, the first respondent sold shares using an e-trade account in her own name. The proceeds of $17,606.89 were deposited in one of her bank accounts. This sale was not shown in the statement of affairs, even though the first respondent was required to disclose all assets worth more than $1,000 sold, transferred or given away in the last five years. This transaction calls into question whether the first respondent has or had other assets which should have been recorded in the statement of affairs. The first respondent’s evidence The first respondent made an affidavit on 18 July 2013, which was read in the proceeding. It appears to be an affirmed version, with minor amendments, of the unsworn draft provided to the second respondent: see [34] above. The first respondent said that Nitzachon had in fact made a loan to her and Mr Etlis and that Mr Etlis used these funds to invest in a company in Latvia. She said that this investment failed and they were unable to recover the funds. She said that some amounts were repaid to Nitzachon when she and Mr Etlis sold some property in Sydney that they had owned. She said, however, that they were unable to pay off the full amount of the loan and interest. In cross-examination, the first respondent was shown a bank statement for the period 9 August to 8 September 2003 in respect of an account jointly held by her and Mr Etlis. It shows the deposit of $740,000 on 29 August 2003. The source of the funds was shown as “Sanford Securities”. This indicates that Nitzachon did not provide that sum and, by itself, casts doubt on its present claim to have made a loan to the first respondent and Mr Etlis for that amount. This evidence must also be seen in light of Mr Morrison’s statement that Nitzachon only acted as an intermediary. Curiously, Nitzachon does not appear to have taken any steps to recover the significant liability that it now claims. The first respondent said that she was not involved in negotiating the loan. She also said that, although she had heard of the name “Sanford Securities”, she had not dealt with that entity. The first respondent’s evidence in cross‑examination suggests that her knowledge of a loan from Nitzachon is based solely on what Mr Etlis has told her. In her affidavit, the first respondent said that Mr and Mrs Morrison lent her $285,000 in about July 2005 to purchase the Hawthorn Road property. She said that the application for the loan addressed to Macquarie Mortgages in 2005 was completed by Mr Etlis, who had knowledge of her financial position. She said that she trusted him to complete the application correctly and that she signed it without reviewing it. She said that the description in the application of the sum of $285,000 as the proceeds from sale of property is incorrect. She confirmed that she had borrowed this sum from Mr and Mrs Morrison, and said that she was not certain why Mr Etlis described the sum as the proceeds of sale.

Decision

Reasons for decision

Full text does not contain this section.

Ratio Decidendi

Legal Principle Established

Finally, Nitzachon submits that an independent trustee should be appointed in the event that the Court decides that the personal insolvency agreement should be set aside and a sequestration order made against the first respondent’s estate.CONSIDERATION The evidence presents a disturbing and contradictory picture of the first respondent’s financial affairs, and challenges, amongst other things, the genuineness of the debt claimed by Nitzachon, and the genuineness of the secured debt claimed by Mr and Mrs Morrison. The validity of these claims has a significant bearing on the assets that might be available to creditors and, consequently, the extent to which creditors will be able to recover against the first respondent. It is not for the Court to determine on the present application the validity of these, or indeed other, claims against the first respondent. Nevertheless, the demonstration of a serious question as to whether significant claims against a debtor are valid, particularly where payment of those claims would materially affect the extent of recovery of other creditors taking under a personal insolvency agreement, is a relevant factor to be taken into account in determining not only whether the terms of the agreement are reasonable or are calculated to benefit the creditors generally, but whether there is “other reason” why the agreement should be set aside. I do not accept the first respondent’s submissions that there has been a “detailed and exacting review of [her] affairs” or that, with the aid of documents and other evidence obtained in this proceeding, there has been an “exhaustive investigation of [her] historical financial affairs”. These submissions do not engage the second respondent’s own evidence, which disavows any such review or investigation by him and which points persuasively to a need for investigation. The evidence before me plainly raises more questions about the first respondent’s financial affairs than it answers. It makes clear that the first respondent has, to say the least, an incomplete understanding of significant aspects of those affairs. Contrary to her submission, the first respondent’s own evidence provides no assurance at all that the terms of the personal insolvency agreement are reasonable or are calculated to benefit the creditors generally. On any view, the dividend offered to creditors under the personal insolvency agreement is very small. Indeed, it is suspiciously small, when viewed against the background of all the evidence adduced on this application and the terms of the agreement itself. First, the dividend is available to some, but not all, creditors. Those who had voted in favour of the first respondent’s proposal, but who do not take under it – representing four out of seven creditors – can only be seen to have been actuated by interests that are extraneous to the desire to recover what they claim is owing to them. The remaining creditors voting in favour of the first respondent’s proposal were Nitzachon (the genuineness of whose claim has been directly challenged) and another creditor whose claim ($14,500) is modest compared with the applicant’s undisputed claim of $224,014.31.