Pekar v Jess (Trustee)

Case [2020] FCA 1250

FEDERAL COURT OF AUSTRALIA

Pekar v Jess (Trustee) [2020] FCA 1250

File number: VID 81 of 2017
Judgment of: MOSHINSKY J
Date of judgment: 28 August 2020
Catchwords: BANKRUPTCY – application to vacate a stay of an order for possession of the home of the appellant and her husband (a former bankrupt) – where the order staying the order for possession had been made by consent on the basis of an agreement between the bankrupt and his trustee in bankruptcy – where that agreement had been set aside in a separate proceeding – where the premise of the stay order no longer existed – whether any other basis existed to maintain the stay of the order for possession
Legislation:

Bankruptcy Act 1966 (Cth), ss 19, 30, 120, 121, 140, Sch 2, ss 45-1 and 90-15

Insolvency Practice Rules (Bankruptcy) 2016 (Cth), r 42-40
Cases cited: Young v Thomson (2017) 253 FCR 191
Division: General Division
Registry: Victoria
National Practice Area: Commercial and Corporations
Sub-area: General and Personal Insolvency
Number of paragraphs: 59
Date of hearing: 22 July 2020
Counsel for the Appellant: Mr V Murano
Counsel for the Respondents: Mr MJ Galvin QC
Solicitor for the Respondents: Rothwell Lawyers

ORDERS

VID 81 of 2017
BETWEEN:

IDA PEKAR

Appellant
AND:

MATTHEW JAMES JESS AND MATTHEW KUCIANSKI AS JOINT TRUSTEES IN BANKRUPTCY FOR THE ESTATE OF FIMA PEKAR

Respondents

ORDER MADE BY:

MOSHINSKY J

DATE OF ORDER:

28 AUGUST 2020

THE COURT ORDERS THAT:

1.Paragraph 1 of the orders made on 18 July 2017 (whereby it was ordered by consent that paragraphs 4(3) and (4) of the orders made on 30 May 2017 be stayed) be vacated.

2.In relation to the costs of the interlocutory application dated 23 September 2019:

(a)Subject to paragraph (b), there be no order as to costs.

(b)If either party seeks a different costs order, the party may file and serve a written submission (of no more than two pages) within seven days of this order.  In that event, the other party may within a further seven days serve a responding written submission (of no more than two pages), and the issue of costs will be determined on the papers.

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


REASONS FOR JUDGMENT

MOSHINSKY J:

Introduction

  1. These reasons for judgment deal with an interlocutory application dated 23 September 2019 seeking to vacate an order made by consent on 18 July 2017, staying an order for possession made on 30 May 2017 in respect of the home of the appellant, Mrs Ida Pekar, and her husband, Mr Fima Pekar (the Property).  The interlocutory application was filed by the former trustee of the bankrupt estate of Mr Pekar, Mr Timothy Holden (the Former Trustee).  The application is continued by the current trustees of the bankrupt estate of Mr Pekar, Mr Matthew Jess and Mr Matthew Kucianski (the Trustees), who are the respondents to this proceeding.

  2. The basis upon which the…

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Pekar v Jess (Trustee) [2020] FCA 1250
Case
[2020] FCA 1250
Decision Date

CaseChat Overview and Summary

The present case involves an application by the trustee of the bankrupt estate of Mr Fima Pekar, Mr Kucianski, to vacate a stay of an order for possession of the home of the appellant, Mrs Ida Pekar, and her husband, Mr Pekar. The stay had been ordered by consent on the basis of an agreement between Mr Pekar and his trustee in bankruptcy, Mr Holden. This agreement had subsequently been set aside in a separate proceeding. The Court was required to decide whether any other basis existed to maintain the stay of the order for possession.

The Court considered the issue of whether the proposals set out in Mr Pekar’s affidavit and in Mrs Pekar’s reply submissions provided a basis to maintain the stay of the order for possession. The Court noted that the proposals were in some respects similar to the Agreement, making a sum of money available for the payment of creditors and the trustee remuneration and expenses in lieu of the Trustees enforcing the order for possession. However, the Court held that it is one thing for the parties to agree that a sum of money will be available for the administration of the estate in lieu of the order for possession; it is another for the Court to impose this on the Trustees. Further, it was not clear whether the amount of money in the NAB bank account (or the higher amount proposed in the reply submissions) would be sufficient to cover the payment of creditor claims and the trustee remuneration and expenses. As things presently stood, the amounts would be insufficient to cover the creditor claims (if accepted in full) and the trustee remuneration and expenses.

The Court held that the premise of the consent order made on 18 July 2017 (staying the order for possession made on 30 May 2017) was that the parties had entered into the Agreement. In circumstances where the Agreement has now been terminated, the premise of the consent order no longer exists and, prima facie at least, the consent order should be vacated. This will return the parties to the position they were in before the Agreement was entered into. The Court found that there was no other basis to maintain the stay of the order for possession.

The Court ordered that paragraph 1 of the orders made on 18 July 2017 (whereby it was ordered by consent that paragraphs 4(3) and (4) of the orders made on 30 May 2017 be stayed) be vacated. In relation to the costs of the interlocutory application, the Court ordered that there be no order as to costs, but gave the parties a period of time in which they can file a written submission if they wish to seek a different order. If either party seeks a different costs order, the party may file and serve a written submission (of no more than two pages) within seven days of this order. In that event, the other party may within a further seven days serve a responding written submission (of no more than two pages), and the issue of costs will be determined on the papers.

Orders

Orders of the court

1. Paragraph 1 of the orders made on 18 July 2017 (whereby it was ordered by consent that paragraphs 4(3) and (4) of the orders made on 30 May 2017 be stayed) be vacated.

2. In relation to the costs of the interlocutory application dated 23 September 2019:

(a) Subject to paragraph (b), there be no order as to costs.

(b) If either party seeks a different costs order, the party may file and serve a written submission (of no more than two pages) within seven days of this order. In that event, the other party may within a further seven days serve a responding written submission (of no more than two pages), and the issue of costs will be determined on the papers.

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

Background

Background to the litigation

In addition to the above affidavits, both parties relied on certain material that had been filed in proceeding VID 991/2018.Background facts The following summary of the background facts is based, in large part, on my judgments in proceeding VID 991/2018. In addition to the two judgments referred to above, I refer also to my first judgment in that proceeding: Pekar v Holden (Trustee) [2019] FCA 442 (Pekar (No 1)). The present interlocutory application proceeded on the basis that the parties accepted the factual findings in my three judgments in proceeding VID 991/2018. The parties also relied on the additional facts set out in the affidavits filed in relation to the interlocutory application. On 16 July 2012, Mr Pekar transferred his half interest in the Property to Mrs Pekar. The consideration for the transfer was expressed to be “desire to make a gift”. Following the transfer, Mrs Pekar became the sole registered proprietor of the property. On 2 October 2014, a Registrar of the Federal Circuit Court made a sequestration order against the estate of Mr Pekar on the basis of a creditor’s petition presented by Rickards Legal. The Former Trustee was appointed as one of two trustees of Mr Pekar’s estate. He was subsequently appointed as the sole trustee of Mr Pekar’s estate. On 12 February 2015, Judge Burchardt of the Federal Circuit Court affirmed the order of the Registrar and dismissed Mr Pekar’s application for review. On 30 April 2015, the Former Trustee applied to the Federal Circuit Court seeking a declaration that the transfer of Mr Pekar’s interest in the Property on 16 July 2012 was void, pursuant to s 120 or 121 of the Bankruptcy Act 1966 (Cth), and consequential orders for possession and sale of the Property. This was proceeding MLG 932/2015. On 20 January 2017, Judge Burchardt made the orders sought by the Former Trustee: Holden in his Capacity as Trustee of the Bankrupt Estate of Pekar v Pekar [2017] FCCA 22. The orders included the following declaration (which was not disturbed on appeal):(1)The transfer from Fima Pekar (the Bankrupt) to Ida Pekar (the Respondent) of the property recorded in Certificate of Title Volume 9940 Folio 596, being the property known as and situate at Unit 1, 64 Alexandra Street, East St Kilda (“the Property”) dated 16 July 2012, is void against the Trustee. Mrs Pekar appealed to this Court from the judgment and orders of the Federal Circuit Court. The appeal proceeding was the present proceeding, namely VID 81/2017. On 30 May 2017, Tracey J made orders dismissing the appeal: Pekar v Holden (Trustee) [2017] FCA 596. Although Mrs Pekar’s appeal was dismissed, his Honour varied the terms of the orders to recognise Mrs Pekar’s pre-existing half-interest in the property. The orders made by Tracey J relevantly included:2.The appeal be dismissed.3.Paragraphs 2, 3, 4, 5, 9, 10 and 11 of the declarations and orders made by the Federal Circuit Court on 20 January 2017 be set aside.4.In lieu thereof it be declared and ordered that:(2)The Bankrupt’s interest in the Property vests in the Applicant (the trustee of the bankrupt estate of Mr Fima Pekar).(3)The Respondent (Mrs Ida Pekar) and the Bankrupt (Mr Fima Pekar) deliver vacant possession of the Property to the Applicant on or before 30 June 2017. If the Respondent and the Bankrupt fail to comply with this order, a warrant of possession issue forthwith in favour of the Applicant.(4)The Respondent and the Bankrupt remove all personal possessions from the Property on or before 30 June 2017. Any personal property remaining at the Property after that date be deemed to have been abandoned and be disposed of in any manner as the Applicant sees fit.(5)The Applicant be appointed trustee for the sale of the Property. The Applicant is to have the sole conduct of the sale of the Property and be authorised to instruct an agent and/or an auctioneer for that purpose.(9)The costs of the sale be met from the proceeds of the sale.(10)The Applicant pay 50% of the proceeds of the sale to the Respondent.(11)The remaining proceeds of the sale, less the costs of the sale, vest in the Applicant.5.The appellant (Mrs Ida Pekar) pay the costs of the respondent (the trustee of the bankrupt estate of Mr Fima Pekar) of the appeal in this Court and of the proceeding in the Federal Circuit Court.(Emphasis added.)

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

I note for completeness that the Trustees submitted that, in the ordinary course, a bankruptcy trustee realises assets before adjudicating on proofs of debt. A similar point was made in [8] of Mr Kucianski’s affidavit dated 1 July 2020. However, it may be that, in the circumstances of this case, it would be more appropriate to adjudicate upon the proofs of debt before obtaining possession of and selling the Property; that is because the quantum admitted may be relevant (together with other relevant considerations) in determining whether it is necessary and appropriate to obtain possession of and sell the Property.Conclusion For these reasons, I will make an order that paragraph 1 of the orders made on 18 July 2017 (whereby it was ordered by consent that paragraphs 4(3) and (4) of the orders made on 30 May 2017 be stayed) be vacated. In relation to costs, it appears to be appropriate that there be no order as to costs. I will make an order to this effect, but will give the parties a period of time in which they can file a written submission if they wish to seek a different order. In that event, the other party will have a period of time in which to respond, and I will determine the issue of costs on the papers.

Ratio Decidendi

Legal Principle Established

I note that, in my view, the total amount incurred by way of trustee remuneration and expenses is very troubling. On the basis of the figures set out above, the total amount incurred by way of trustee remuneration and expenses is approximately $295,000 in respect of an estate that has only three creditors, whose claims (if accepted in full) total only approximately $98,000. The total of the trustee remuneration and expenses (even if reduced on account of the costs orders against Mrs Pekar) appears to be disproportionate to the complexity and quantum of the claims against the bankrupt estate. At the hearing before me, Mr Galvin QC, senior counsel for the Trustees, accepted that the amount was disproportionate (T13), but submitted that this was common in cases where the administration of the estate has involved litigation; he also submitted that the litigation in the present case was necessary because the Pekars did not accept that the transfer of Mr Pekar’s interest in the Property was voidable. At the hearing before me, both sides accepted that it is open to Mr Pekar to seek review of the trustee remuneration and expenses.Consideration In my view, notwithstanding my concerns as to the trustee remuneration and expenses, the resolution of the present interlocutory application is straightforward. The premise of the consent order made on 18 July 2017 (staying the order for possession made on 30 May 2017) was that the parties had entered into the Agreement. In circumstances where the Agreement has now been terminated, the premise of the consent order no longer exists and, prima facie at least, the consent order should be vacated. This will return the parties to the position they were in before the Agreement was entered into. The question, then, is whether there is another basis to maintain the stay of the order for possession. The proposals set out in Mr Pekar’s affidavit (see [43] above) and in Mrs Pekar’s reply submissions (see [48] above) do not, in my view, provide a basis to maintain the stay of the order for possession. The proposals are in some respects similar to the Agreement: they make a sum of money ($200,000 or $240,000) available for the payment of creditors and the trustee remuneration and expenses in lieu of the Trustees enforcing the order for possession. The problem, however, is that the Trustees have not agreed to this way of proceeding. It is one thing for the parties to agree that a sum of money will be available for the administration of the estate in lieu of the order for possession; it is another for the Court to impose this on the Trustees. Further, it is not clear whether the amount of money in the NAB bank account (or the higher amount proposed in the reply submissions) will be sufficient to cover the payment of creditor claims and the trustee remuneration and expenses. As things presently stand, the amounts would be insufficient to cover the creditor claims (if accepted in full) and the trustee remuneration and expenses.