Pascoe v Leite (No. 3)

[2005] FMCA 969

FEDERAL MAGISTRATES COURT OF AUSTRALIA

PASCOE v LEITE (No. 3) [2005] FMCA 969

BANKRUPTCY – Application for review of Registrar’s decision – where the proceedings which founded the bankruptcy are called into question – where proceedings have been brought in the Supreme Court alleging that the actions of the liquidator constituted misfeasance and where parties seek an order that the liquidator be perpetually and unconditionally restrained – whether in the circumstances the requirements are such that the court would decline to make a sequestration order – whether declining to adjourn the petition until the applicants have brought proceedings for summary judgment in the Supreme Court would allow the applicants to avoid investigation with reference to their actions in this liquidation.

Corporations Act 2001, ss.536, 1321
Bankruptcy Act 1966

Ahern v The DCT (1987-88) 76 ALR 137
In the matter of Douglas Dragan - disp0#disp0Jovanovic; Slavko Govedarica & Anor v Douglas Dragan Jovanovic [1998] 463 FCA
Re Glew; Glew v Harrowell of Hunt & Hunt Lawyers
Re Tresidder; Tresidder v Harrowell of Hunt & Hunt Lawyers [2003] FCA 73 and 198 ALR 331

Applicant: SCOTT DARREN PASCOE (GYPSET PTY LIMITED)

Respondent: ANTONIO LEITE

File Number: SYG 3468 of 2004

Judgment of: Raphael FM

Hearing date: 8 July 2005

Date of Last Submission: 8 July 2005

Delivered at: Sydney

Delivered on: 8 July 2005

REPRESENTATION

Counsel for the Applicant: Mr B Skinner

Solicitors for the Applicant: Turks Legal

Counsel for the Respondent: Mr T Hall

Solicitors for the Respondent: Hal Lawyers

ORDERS

1. Application for review of registrar’s decision dismissed

2. Mr Woodgate cease to be the trustee of the estates of Antonio Leite and Lewis Leite and the Official Trustee be appointed in his place

3. Any costs payable to Mr Woodgate in acting as trustee shall be paid to him with the priority accorded by the terms of the Bankruptcy Act

4. The costs of this application be paid by the respondents from their estates with the same priority as the costs of the sequestration proceedings.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
SYDNEY

SYG 3648 of 2004

SCOTT DARREN PASCOE (GYPSET PTY LIMITED)

Applicant

And

ANTONIO LEITE

Respondent

REASONS FOR JUDGMENT

1. The proceedings before me today seek review of a decision of Registrar Tesoriero made on 7 June 2005 to make a sequestration order against the first and second respondents and also to refuse an adjournment of those proceedings.  I am advised by counsel for the parties that if I should decline to grant review then no objection is taken to the statutory requirements under section 52 having been accepted by Registrar Tesoriero to the extent that no further affidavits are required.

2. The short history of this matter is as follows:  the two respondents were directors of the second applicant.  The second applicant did not pay its workers compensation premiums.  The second applicant was placed into liquidation.  Mr Pascoe was made liquidator of the second applicant and is the first applicant in these proceedings in that capacity.  The second applicant commenced proceedings against the first and second respondents claiming that they indulged in insolvent trading of the second applicant and seeking reimbursement in the sum of $76,000. The first and second respondents defended those proceedings which were sent to arbitration by the District Court of New South Wales.  The arbitrations were lengthy.  Eventually in June 2004 the proceedings were compromised and a consent judgment made without admissions was entered.  The sequestration proceedings before me were based upon the existence of that judgment and the failure of the respondents to comply with the bankruptcy notice founded upon that judgment.

3. In February 2004 a Mr Topp, a member of the firm of Sims Partners of which Mr Pascoe is a partner attended a seminar on insolvency matters at the offices of a prominent firm of solicitors.  He is alleged to have made certain comments at that seminar which indicated that when acting as liquidator of a company he took proceedings against directors for insolvent trading in what can be described as a "robust" manner.  Knowledge of those remarks was in the hands of the first and second respondents prior to their signing the consent judgment. 

4. The first and second respondents considered that they had been badly treated by Mr Pascoe and his staff and that the proceedings which were being brought against them for insolvent trading were part of what they described as Mr Topp's "insolvent trading scheme". They did not seek to argue this fact in the proceedings. They did not seek to set aside the judgment. They did not seek to appeal the judgment. What they did was to commence some proceedings in the Supreme Court of New South Wales under the provisions of the Corporations Act.

5. On 2 June 2005 an application entitled “interlocutory process” was filed in the original winding-up proceedings of the second defendant in the Supreme Court of New South Wales. The application seeks leave to bring proceedings under sections 536 and 1321 of the Corporations Act. It also seeks an order irrevocably staying the judgment in the District Court proceedings. What it does not do is to seek to set aside the judgment in the District Court proceedings. Section 536 of the Corporations Act is in the following form:

   Supervision of liquidators

   (1A) In this section:

   "liquidator" includes a provisional liquidator.

   (1) Where:

   (a) it appears to the Court or to ASIC that a liquidator has not faithfully performed or is not faithfully performing his or her duties or has not observed or is not observing:

   (i) a requirement of the Court; or

   (ii) a requirement of this Act, of the regulations or of the rules; or

   (b) a complaint is made to the Court or to ASIC by any person with respect to the conduct of a liquidator in connection with the performance of his or her duties;

   the Court or ASIC, as the case may be, may inquire into the matter and, where the Court or ASIC so inquires, the Court may take such action as it     thinks fit.

   (2) ASIC may report to the Court any matter that in its opinion is a    misfeasance, neglect or omission on the part of the liquidator and the Court may order the liquidator to make good any loss that the estate of the company has sustained thereby and may make such other order or orders as it thinks fit.

   (3) The Court may at any time require a liquidator to answer any inquiry in relation to the winding up and may examine the liquidator or any other person on oath concerning the winding up and may direct an investigation    to be made of the books of the liquidator.

   Section 1321 of the Corporations Act is in the following form:

   Appeals from decisions of receivers, liquidators etc.

   A person aggrieved by any act, omission or decision of:

   (a) a person administering a compromise, arrangement or scheme referred to in Part 5.1; or

   (b)  a receiver, or a receiver and manager, of property of a corporation; or

   (c) an administrator of a company; or

   (ca) an administrator of a deed of company arrangement executed by a company; or

   (d) a liquidator or provisional liquidator of a company;

   may appeal to the Court in respect of the act, omission or decision and the Court may confirm, reverse or modify the act or decision, or remedy the omission, as the case may be, and make such orders and give such directions as it thinks fit.

6. The evidence upon which the respondents rely in their application to the Supreme Court of New South Wales is evidence, much of which has been filed in this court, concerning the conduct of the liquidator of the second applicant.  The problem I have with the proceedings that are being brought in the Supreme Court is that it does not seem to me that they will really result in any impugning of the judgment which the applicants entered into voluntarily.  That judgment may be stayed, but it will not have been stayed as at the time of the issue of the bankruptcy notice.  The judgment not having been stayed at that time an act of bankruptcy would still have been committed by the respondents.

7. I am sensible, however, of the fact that the court must be reluctant to make a sequestration order when the proceedings which founded the debt are called into question. It has been the practice of the courts as evidenced by cases such as Ahern v The DCT (1987-88) 76 ALR 137 and In the matter of Douglas Dragan - disp0#disp0Jovanovic; Slavko Govedarica & Anor v Douglas Dragan Jovanovic [1998] 463 FCA  to adjourn or even decline to grant sequestration orders where that has occurred.

8. The authorities are circumspect in making these orders.  The courts require some indication that there is an arguable case.  They require some indication of how that case is to be made out and the time it might take to deal with it.  Lindgren J set out the requirements for declining to make a sequestration order in the case of Re Glew; Glew v Harrowell of Hunt & Hunt Lawyers;Re Tresidder; Tresidder v Harrowell of Hunt & Hunt Lawyers [2003] FCA 73 and 198 ALR 331. Whilst accepting that the hurdle which had to be jumped by an applicant was not high it was still there.

9. The proceedings which have been brought in the Supreme Court seek inquiry about decisions of the liquidator to commence and prosecute the proceedings in the District Court and suggest that the liquidator extorted the consent of the plaintiffs in the Supreme Court proceedings to the terms of settlement.  It seeks other declarations that the actions of the liquidator constitute misfeasance and it seeks, as I have mentioned before, an order that Mr Pascoe be perpetually and unconditionally restrained from enforcing on behalf of himself or as liquidator of Gypset Pty Limited (in liquidation) the compromise. But I cannot see that this is enough. If the respondents were able to satisfy the Supreme Court that there was something wrong with the manner in which Mr Pascoe or his staff conducted the liquidation of Gypset then a new liquidator could be appointed.  That liquidator could enforce the compromise even if Mr Pascoe could not.  It seems to me that the failure to impugn the judgment or to put forward some action which indicates a cross-claim against the actual petitioning creditor - the company - is fatal to the respondent's cause.

10. I think this case can be distinguished from Jovanovic.  In Jovanovic the claim of a secret partnership was raised directly against those persons to whom Mr Jovanovic owed money.  That is not the case here.  Mr Hall has not, so far as I can see, argued that the two respondents did not engage in insolvent trading.  What he seems to be saying is that they were pressured into agreeing that they had been so acting when they may not well have done so in other circumstances. The person who placed the pressure upon them was Mr Pascoe through his agent Mr Topp. But if what happened was wrong there seems to me to be an action against them rather than a cross claim against the company in liquidation. Mr Hall says I should grant review and set aside the sequestration order and adjourn the petition at least until the applicants have brought proceedings to strike out the action in the Supreme Court.  He argues that if I do not do that then the applicants have achieved the result of avoiding an investigation into the affairs of Sims Partners with particular reference to their actions in this liquidation.

11. If I was convinced that the only way in which these allegations could be aired was by proceedings brought by the debtors I would be more sympathetic to that argument than I am. But proceedings under 536 can be brought both to the court and to the Australian Securities and Investment Commission and the power to inquire is given to both the court and the commission. Whilst I can see that if the respondents are bankrupt it may be difficult for them to continue the current proceedings in the Supreme Court there is nothing to prevent them from reporting their concerns to ASIC and if ASIC believe that there is a case to be made out then that organisation can deal with the matter. Of course, ASIC cannot order the stay of proceedings in the District Court but, frankly, I doubt whether the Supreme Court can either. When I say that, obviously the Supreme Court can make a stay in an application brought by way of an appeal but I do not see how the Supreme Court can make an order to stay execution of a judgment granted in the District Court when dealing with an application under section 536 or an application under section 1321. I believe that is another problem that the respondents face.

12. For these reasons I am disinclined to grant review of a decision of Registrar Tesoriero.  However, there is one additional matter. When the sequestration order was granted the consent of Mr Giles Woodgate to act as trustee when the estate of the first and second respondents was filed and I am informed by Mr Skinner that Mr Woodgate has commenced so to act. I do not suggest for one moment that Mr Woodgate is in any way connected with Mr Pascoe nor that he would have been influenced in anything he did in the conduct of the bankruptcy of these two respondents by his association or knowledge of Mr Pascoe but I am mindful that given the allegations made it is important to ensure that the administration of their estates is conducted in the most transparent manner.

13. I would therefore order that Mr Woodgate cease to be the trustee of the estates of Antonio Leite and Lewis Leite and that the Official Trustee be appointed in his place. Whilst I would not seek in any way to fetter the discretion of the Official Trustee to delegate his responsibilities to another private trustee I would hope that any such delegation be carried out in consultation with the bankrupts and avoid any suggestion that the delegate trustee is in any way associated with Mr Pascoe. Any costs payable to Mr Woodgate in acting as trustee shall be paid to him with the priority in accordance with the terms of the Bankruptcy Act. I order that the costs of this application be paid by the respondents from the estate with the same priority as the costs of the sequestration proceedings.

I certify that the preceding thirteen (13) paragraphs are a true copy of the reasons for judgment of Raphael FM

Associate: 

Date: