Panagoulias v Official Trustee in Bankruptcy
[2010] FMCA 945
•12 November 2010
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| PANAGOULIAS & ANOR v OFFICIAL TRUSTEE IN BANKRUPTCY & ANOR | [2010] FMCA 945 |
| BANKRUPTCY – Annulment of bankruptcies under s.153(b) of Bankruptcy Act 1966. |
| Bankruptcy Act 1966, s.153(b) |
| First Applicant: | ADAM PANAGOULIAS |
| Second Applicant: | GUISEPPINA CLEMENTE |
| First Respondent: | OFFICIAL TRUSTEE IN BANKRUPTCY |
| Second Respondent: | ACCESS SCAFFOLDING A DIVISION OF HILLS INDUSTRIES LIMITED ACN 007 573 417 |
| File Number: | ADG 269 of 2010 |
| Judgment of: | Simpson FM |
| Hearing dates: | 11 & 12 November 2010 |
| Date of Last Submission: | 12 November 2010 |
| Delivered at: | Adelaide |
| Delivered on: | 12 November 2010 |
REPRESENTATION
| Counsel for the First and Second Applicant: | Mr Sallis, of counsel |
| Solicitors for the First and Second Applicant: | Hamdan Lawyers |
| Counsel for the First Respondent: | Mr Gretsas |
| Solicitors for the First Respondent: | Official Trustee in Bankruptcy |
| Counsel for the Second Respondent: | Mr Warming |
| Solicitors for the Second Respondent: | Warmings Barristers & Solicitors |
| Counsel for the Opposing Creditor: | Mr Vozzo |
| Solicitors for the Opposing Creditor: | Camatta Lempens Pty Ltd Lawyers |
ORDERS
The bankruptcies of each of the applicants are hereby annulled pursuant to s153B of the Bankruptcy Act 1966.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT ADELAIDE |
ADG 269 of 2010
| ADAM PANAGOULIAS |
First Applicant
| GUISEPPINA CLEMENTE |
Second Applicant
And
| OFFICIAL TRUSTEE IN BANKRUPTCY |
First Respondent
| ACCESS SCAFFOLDING A DIVISION OF HIILLS INDUSTRIES LIMITED ACN 007 573 417 |
Second Respondent
REASONS FOR JUDGMENT
Introduction
I have before me be an application filed on 30 September that seeks the annulment of sequestration orders that were made against Adam Panagoulias and Giuseppina Clemente made on 24 May, and that they be annulled pursuant to s153B of the Bankruptcy Act 1966. The material relied upon is as follows:
a)An affidavit of the Guiseppina Clemente sworn 25 September 2010;
b)An affidavit of Adam Panagoulias sworn 25 September 2010;
c)An affidavit of Michael Magescallo sworn 29 September 2010; and
d)An affidavit of Abby Hamden, solicitor for the applicants, affirmed on 19 October 2010.
I have also had handed up to me, without objection, certain other documents, namely:
·A letter from Cali and Co as solicitors for Westpac Bank dated 23 September 2010; a faxed letter from Gretsis and Associates, solicitors for the official trustee in bankruptcy, to Hamden Lawyers dated 25 October 2010;
·A letter from Hamden Lawyers to Gretsis and Associates dated 10 November 2010;
·A letter from Hamden Lawyers to Warming’s Solicitors for the second respondent dated 11 November 2010.
Since hearing submissions yesterday I have had the opportunity to read that material. I have also had the benefit of an outline of submissions that has been provided by counsel for the applicants.
I wish to provide background to this matter and should acknowledge the use that I make of a document that has been provided by counsel for the applicants.
Background
On 16 December 2005, the applicants purchased a property in Magill. The purpose of the purchase was to develop the property into a commercial tenancy. The second named applicant was to be the person responsible for all matters relating to the development.
Westpac Banking Corporation, the financier via a business finance agreement dated 28 August 2008, signed by the applicants on 29 August 2008, agreed to provide finance to the applicants for the development.
The arrangement with the financier was that the contractors were to perform building work on the project and either on completion or to a predetermined stage of the works, were to be paid by the financier direct following presentation of the invoices to the applicants. The financier in turn was to debit the applicant’s banking finance agreement.
Early in the project, the financier appointed a relationship manager to manage the project on its behalf. The understanding of the applicants was that all dealings in relation to the project were to be handled and managed on behalf of the financier by the relationship manager.
At or about the same time that the applicant entered into the business finance agreement, an overdraft account was put in place by the financier for the purposes of the project.
Initially, an entity by the name of Madant Consulting managed the project on behalf of the applicants. Invoices from contractors were presented to Madant Consulting to the financier, and the invoices were paid for by the financier without incident.
Some time after April 2009, there were a number of concerns in relation to the payment of contractor invoices. The second applicant initially discussed the complaints with Madant Consulting, and thereafter with the relationship manager. On each occasion, she was advised by the financier’s relationship manager that the subject invoices were either in the process of being paid or had in fact been paid. The applicants relied upon and trusted the relationship manager both in her capacity as their designated relationship manager as well as in her capacity as a representative of the bank – Westpac, the financier.
On 1 June 2009, the applicants terminated Madant Consulting’s project management role on account of the fact that “… they seemed not to be on top of things, including payment of contractors of the project.” On 1 June 2009, the second applicant commenced direct management of the project following the termination of Madant Consulting’s contract. The second applicant says that the state of affairs in relation to non-payment of contractor invoices at that point in time seemed to worsen and that despite assurances from the relationships manager, the second applicant still received complaints from several contractors regarding non‑payment.
Between June 2009 to May 2010, the second applicant contacted the relationship manager on many occasions regarding outstanding contractor invoices. On each occasion, the relationship manager stated that there had been some form of miscommunication and that the contractors had either already been paid or were in the process of being paid by the financier. On each occasion when the second applicant spoke to the relationship manager, the latter was very reassuring. She told her that everything was being taken care of by the financier, and that her husband and herself had nothing to worry about.
In May 2010, the applicant thought that the problems with contractor invoices had been attended to by the relationship manager, however, she continued to receive complaints from contractors regarding non-payment. She was finally advised that the relationship manager’s employment with the financier had been terminated on 16 August 2010. With effect from about mid August 2010, the financier appointed a new accounts manager. The accounts manager informed that the financier was having trouble deciphering what had occurred – presumably in relation to the customer’s files from the available banking records.
I turn to consider the debt the subject of the bankruptcy notices. The three Access Scaffolding invoices dated 30 April 2009, 31 May 2009 and 30 June 2009 were forwarded to and discussed with the relationship manager. The second applicant was repeatedly assured either that they either would be or had been paid. On 22 February 2010, the day upon which the relationship manager informed the second applicant the subject invoices had been paid, a Magistrates Court summons was served upon her. The relationship manager, who was immediately contacted, advised, that:
“ … that there was nothing to worry about, an account had been paid and that she would take care of it”.
The second applicant again deposes in her affidavit that the relationship manager was a very persuasive and reassuring individual, and that her assurances and reassurances were always accepted by the applicants. The same was the position when the applicants together received a copy of the judgment and later received the bankruptcy notices the subject of the present application.
The two subject bankruptcy notices was served on the applicants on 22 February 2010. Following service the second applicant again contacted the financier and was advised by the relationship manager that the invoice:
“Had in fact been paid in November 2009 and that she would trace the cheque and confirm it with the creditor”.
The second applicant believed that the entire matter was an innocent mistake on the part of Access Scaffolding.
On 24 May 2010, both applicants were declared bankrupt and sequestration orders made against their estates. After discovering this, the second applicant immediately called the relationship manager who again (and for the last time), assured the second applicant that there was nothing to worry about and that the financier had taken care of Access Scaffolding’s bills and again that the subject bill had been paid. The second applicant says that:
“A mutual decision was made earlier in the piece by both of us (ie both applicants) to trust and rely upon our relationship manager in Westpac. We did so at all times in relation to payment of the subject invoice as well as in relation to payment of other invoices”.
The second applicant continually and repeatedly telephoned and confirmed with the relationship manager that she had settled payment of all invoices as well as all legal matters that were outstanding. She was invariably told that this was the case. It was as a consequence of those assurances that both applicants believe that they were not required to attend at any court hearing and did not do so including the court hearing when the sequestration order, the subject of the within proceedings, was made. It was not until after legal representation was obtained in the first week of September 2010 that the applicants came to understand the ramifications of their failure to appear. Their legal advisor advised them that they were not entitled to accept the relationship manager’s assurances regarding resolution of legal matters as excusing them from attending court when summonsed to do so.
Decision
So far as the solvency of the applicants is concerned, an examination of the assets and liabilities of each of the applicants show a combined net asset position of $7.6 million with a net liability position of only $2.8 million. The bankruptcy notices show that the amount of the debt relied upon for the bankruptcy notice is the relatively small sum of $3,518.31. I have before me an affidavit of Michael Majascallo sworn 29 September 2010. Mr Majascallo is the head of the South Australian and Northern Region of Westpac’s commercial banking division. He confirms that a bank bill for the purpose of the proposed construction of the property was in place at the relevant times as was a loan agreement for payment of contractors on the project.
The affidavit informs me that Mr Majascallo was the employee of Westpac responsible for review of the relationship manager’s files. Having undertaken that review, Mr Majascallo found that the relationship manager caused the financier to make some payments in respect of certain invoices presented to it by contractors of the project on account of the development. Those payments were made however without following relevant procedures. The bank could not locate any evidence that it made a payment to Access Scaffolding. Mr Majascallo says that he was unable to locate a number of banking records including invoices from customers in respect of the construction it would ordinarily be expected to locate in the records. Mr Majascallo also says that:
“It is likely that the former employee made a statement to one of the customers to the effect that the bank had paid the debt owing to Access Scaffolding”.
A letter (the letter referred to a little earlier in these reasons) from Kelly & Co dated 23 September 2010, completes the picture regarding solvency. What is directly contemplated by the financier in the letter is that any unpaid creditors owed money as a consequence of the development will be paid as well as “… such other creditors that the bank confirms in writing after the date of this letter it will satisfy”.
I find that the majority, if not all, of the unsecured creditors have now been paid. I have before me the affidavit of Abbie Hampden, which affidavit is evidence that cheques have been tendered to the second respondent both on account of the underlying debt in the sum of $3,518.31 together with a second cheque on account of legal fees incurred by the second respondent in the bankruptcy proceedings in the sum of $3,596.20. Whilst those cheques were returned, Ms Hampden states that “… If the court will declare that the bankruptcy of the applicants be annulled, the abovementioned cheques will be delivered to the second respondent”.
I am referred also to a letter from the Official Trustee in Bankruptcy dated 24 September 2010. In that letter it states:
Ms Anne Barillo, the bankrupt’s relationship manager of Westpac, contacted the trustee’s office on 6 July 2010. Ms Barillo advised that the debt, the subject of the bankruptcy proceedings, had been paid to Access Scaffolding/Hill Industries in November 2009.
This is consistent with what the applicants say. The letter goes on to say that the trustee:
… does not oppose an order for annulment and on the information to hand believes such an order to be appropriate in the case of these bankrupts.
I am satisfied on the evidence that has been put before me of the following matters. Firstly, that the sequestration orders were made in circumstances where the full facts regarding the underlying debt of the second respondent and the applicants’ solvency were not known to the court. Secondly, had those facts been known by the court, it is highly likely that no sequestration orders would have been made. Thirdly, that the applicants are solvent with a vast surplus of assets over liabilities. In those circumstances, I consider it appropriate to exercise the discretion that I have under s 153(b) to make the orders sought.
I make the orders to be found at the beginning of these reasons.
I certify that the preceding twenty-eight (28) paragraphs are a true copy of the reasons for judgment of Simpson FM
Date: 10 January 2011
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