PAPALIA v ROMEO

[2013] FCCA 913

FEDERAL CIRCUIT COURT OF AUSTRALIA

PAPALIA & ANOR v ROMEO [2013] FCCA 913

Catchwords:
PRACTICE & PROCEDURE – Amendment of Petition where applicant insufficiently dealt with their security over debtor’s property.

Legislation:

Bankruptcy Act 1966 (Cth), ss.5, 44, 44(3)

Sandell v Porter (1966) 115 CLR 666

First Applicant: FRANK PAPALIA

Second Applicant: JULIE RANCE

Respondent: GIUSEPPE ROMEO

File Number: SYG 993 of 2013

Judgment of: Judge Raphael

Hearing date: 17 July 2013

Date of Last Submission: 17 July 2013

Delivered at: Sydney

Delivered on: 17 July 2013

REPRESENTATION

Solicitors for the Applicant: Christopher Henry Shaw

Counsel for the Respondent: Mr R Perla

Solicitors for the Respondent: Dettman Longworth

ORDERS

1. Leave to amend petition within seven days.

2. Applicant to pay Respondent’s costs thrown away, including the costs of today.

3. Respondent to file any Amended Notice of Opposition by 31 July.

4. Applicant to file and serve Outline of Case and List of Authorities fourteen days prior to the hearing.

5. Respondent to file and serve Outline of Case and List of Authorities seven days prior to the hearing.

6. Liberty to apply on two days’ notice.

7. Hearing 27 August 2013 at 11.30a.m..

FEDERAL CIRCUIT COURT OF AUSTRALIA

AT SYDNEY

SYG 993 of 2013

FRANK PAPALIA

First Applicant

JULIE RANCE

Second Applicant

And

GIUSEPPE ROMEO

Respondent

REASONS FOR JUDGMENT

1. During the course of this morning I have heard what has been a preliminary point in relation to a creditor’s petition in this matter.  The essence of the argument related to whether or not the applicant was a secured creditor within the meaning of s.44 of the Bankruptcy Act 1966 (Cth)[1] and s.5, which defines security, to the extent that the entire debt was covered by security and therefore the applicant was not a person who could properly present a petition.

   [1] “Act”

2. There has now been put to me a request that I accept an amendment to the petition which purports to deal with the security question.  I should state that it is common to all parties that the applicant holds unregistered mortgages against the property of the debtor but that these mortgages are postponed to the rights of certain others whose mortgages are either registered or earlier in time.  These mortgages are set out in paragraph 3 of the proposed amended petition. 

3. In Arguendo I made it clear to the solicitor for the applicant that I felt that the creditor’s petition in the form that it was currently, was confusing in regard to the question of security. I believe that this has come about as a result of a wish on the part of the petitioner to “have it both ways”. Though he appears to believe in his heart of hearts that there is no value in the security that he holds he does not wish to let it go in case, perchance, the property might be worth more money than is owed to the superior secured creditors. If the situation was otherwise, he would clearly have made the statement required by s.44(3) of the Act and surrender his security.

4. In allowing the amendment and any re-amendment that this applicant might consider appropriate if made within seven days rather than dismissing the Petition, I have particularly taken into account the fact that this respondent appears to be indebted in a very large sum of money. I have in court with me three supporting creditors, one of whom has a judgment against the respondent in excess of $5 million and is unsecured. If I decline to grant the amendment and move to dismiss the petition a respondent who appears to me to be clearly unable to pay his debts as and when they fall due will be allowed to go on trading and incurring debt for a further period of time whilst new proceedings issue. On the other hand, it is not fair to the respondent to be asked to deal with the amendment on the run, and he has clearly been disadvantaged by what has occurred today. And so in permitting the amendment I must provide him with time to respond to it and any re-amendment that I have indicated will be permitted.

5. With this concession, of course, comes the question of costs. In my view it is only appropriate that the applicant pay the respondent’s costs of today and those thrown away in responding to the current petition. 

6. I have expressed concern that it appears from the evidence filed that this case is about to descend into a heated dispute over the value of a piece of property at a time when there is no indication that the property is for sale, or if it was, how long it might take to secure such a sale. These arguments could, of course, all be avoided by an application under s.49 to substitute for the secured creditor the unsecured creditor, because it seems to me that if one adopts the dicta in Sandell v Porter (1966) 115 CLR 666 on the current evidence, this debtor is insolvent. I say only seems, because that matter has not been ventilated, and of course, it is open to the respondent to attempt to establish solvency at any time.

I certify that the preceding six (6) paragraphs are a true copy of the reasons for judgment of Judge Raphael

Date:  24 July 2013