Perpetual Nominees Limited v Pahos - [2012] FMCA 698

FEDERAL MAGISTRATES COURT OF AUSTRALIA

PERPETUAL NOMINEES LIMITED v PAHOS

[2012] FMCA 698

BANKRUPTCY – Creditors petition – notice of objection – where challenge to value of security contained in petition – where valuation based on yield assessment of current rental – where no current alternative valuation produced by respondent – whether valuation so low that amount of unsecured debt could not exceed $5,000.00 – where respondent questioned conduct of mortgagee in possession – where conduct of mortgagee previously questioned in Supreme Court of New South Wales – where cross-claim or stay of execution of judgment not brought in that Court – where requirements of s.52 of Bankruptcy Act 1966 met – whether to grant sequestration order.

Bankruptcy Act 1966 (Cth), s.52

Applicant:

PERPETUAL NOMINEES LIMITED

Respondent:

DENNIS PAHOS

File Number:

SYG 1160 of 2012

Judgment of:

Raphael FM

Hearing date:

6 August 2012

Date of Last Submission:

6 August 2012

Delivered at:

Sydney

Delivered on:

6 August 2012

REPRESENTATION

Solicitors for the Applicant:

Bartier Perry

For the Respondent:

In Person

ORDERS

Notice of opposition dismissed.
A sequestration order be made against the estate of Dennis Pahos.
The Applicant’s costs be fixed in the amount of $5,897.90 and paid from the estate of the Respondent in accordance with the Act.
Under the Bankruptcy Regulations a copy of this sequestration order be given to the Official Receiver within 2 days.

THE COURT NOTES
That the date of the act of bankruptcy is 30 January 2012.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA
AT SYDNEY

SYG 1160 of 2012

PERPETUAL NOMINEES LIMITED

Applicant

And

DENNIS PAHOS

Respondent

REASONS FOR JUDGMENT

There comes before me today an application for a sequestration order against the estate of Dennis Pahos. Mr Pahos has filed a notice of grounds of objection. In accordance with my usual practice, I heard the formal matters from the creditor and then allowed Mr Pahos to make his submissions in relation to his notice of objection.
The background to the petition is that the creditor was the holder of a mortgage over two shops in the Hunter Connection in Hunter Street, Sydney, owned by the respondent. The respondent borrowed $1,400,000 against the security of those two shops, based upon the valuations that had been obtained by the lender and by himself for sums in excess of that amount in 2006/07. For reasons which are not entirely relevant to these proceedings, Mr Pahos came into default under those mortgages, and in 2009 the mortgagee went into possession. Although it has been in possession since that date, the mortgagee appears to have had little success, either in renting the property or in selling it.
Mr Pahos’ objection to the sequestration order has two limbs. The first is that he does not accept the valuation or assessment of the value of the security contained in the petition that values the security at $441,800. Mr Pahos says that the valuation is based upon a yield assessment on the current rental of the property. In his view, the property is worth at least $2,000,000, which is in excess of the amount allegedly owed. Mr Pahos has not produced any valuation other than the original 2006/2007 valuations.
It is necessary for a creditor who holds security over a property to value that security for the purposes of indicating the amount for which the sequestration order is being sought. But there is no requirement for that valuation to be uncontroversial. If Mr Pahos was able to establish that the valuation was so low, and that the real valuation of the property was so high, that the amount of unsecured debt could not exceed $5,000.00, it would be open to me to refuse to grant a sequestration order against him on the grounds that the amount owed was less than the statutory minimum. But he has not done that, and whilst it does seem to me that the valuation is remarkably conservative, I am unable to say that the true value of the property is of an amount that would negate Mr Pahos’ unsecured debt or make it less than $5,000.00.
The second ground upon which Mr Pahos objects to the sequestration order being made is that he has complaints as to the manner in which the applicant has conducted itself as mortgagee in possession. In particular, he has complaints about the way in which the applicant has dealt with finding new tenants for the property and the way in which it acted towards tenants that he already had in the property, or tenants that he found for it.
The difficulty here is that these were matters that were clearly made known to McCallum J of the Supreme Court of New South Wales who heard the proceedings in which the applicant obtained its judgment against Mr Pahos. Those proceedings were for summary judgment, but Mr Pahos appeared on his own behalf and indicated to her Honour the nature of what she describes as his cross-claim.
Although her Honour refused an adjournment, for reasons which were disclosed in her judgment, she said this at [21]:
“I make it clear that I have formed no opinion as to the force of those allegations but since they have been raised and remain untested and in circumstances in which Mr Pahos has plainly not taken advantage of any legal advice he may have obtained as to how to articulate those complaints in a cross-claim, I am reluctant to visit upon him the consequence of the principle to which I have referred [payment of indemnity costs].”
Her Honour gave judgment against Mr Pahos but it would have been clear to him that he had excited her Honour’s sympathy in relation to his cross-claim, which he could have attempted to bring and at the same time attempted to obtain a stay of execution in relation to the judgment. His failure to do so makes it very difficult for this court to interfere with the applicant’s right to obtain the sequestration order that it seeks, because it is not in this court that Mr Pahos’ cross-claim can be properly tested. As articulated by Mr Pahos today, it excites my sympathy as it excited her Honour’s, but that is all. There is nothing before me that would indicate that the value of the cross-claim is such that it would reduce the debt below that for which a sequestration order can be made.
Mr Pahos tells me, in relation to his personal position, that he is currently unemployed; he has no assets and that he has a number of other creditors, including the NAB and St George Bank. He tells me that he has made arrangements, at least with the NAB, and he is honouring those arrangements.
I am sensible of the fact that if I make the sequestration order, those arrangements will be negated, and that the prospects of Mr Pahos reducing the debt owed to the applicant, by virtue of his cross-claim against them, will be very small indeed. But Mr Pahos has not suggested to me today that if I adjourn the hearing he would do anything about it, or have the ability to do anything about it, and he has not done anything about it since her Honour’s judgment of 6 October 2011, almost a year ago.
The applicant is entitled to its order. I am satisfied that the respondent committed the act of bankruptcy alleged in the petition. I am satisfied with the proof of the other matters required by s.52 of the Bankruptcy Act 1966 (Cth)[1] and make a sequestration order against the estate of Dennis Pahos. I order, that the applicant’s costs be fixed in the amount of $5,897.90 paid from the estate of the respondent in accordance with the Act, and under the Bankruptcy Regulations a copy of the sequestration order be given to the Official Receiver in Sydney within two days. The court notes that the date of the act of bankruptcy is 30 January 2012.
[1] “Act”.

I certify that the preceding eleven (11) paragraphs are a true copy of the reasons for judgment of Raphael FM

Date: 10 August 2012