Portellos v GE Finance Australasia Pty Ltd
[2013] FCCA 1044
•12 August 2013
FEDERAL CIRCUIT COURT OF AUSTRALIA
| PORTELLOS v GE FINANCE AUSTRALASIA PTY LTD | [2013] FCCA 1044 |
| Catchwords: BANKRUPTCY – Substitution of petitioning creditor – application for review of Registrar’s order for substitution – review refused as out of time and inappropriate to grant an extension of time – further application for review of Registrar’s decision to make a sequestration order – debtor argues sequestration order should not have been made as substitution of petitioning creditor should not have occurred – question of whether substituted petitioning creditor had to have debt of no less than the specified sum both at the time of the act of bankruptcy and when the bankruptcy notice was issued by the original petitioning creditor – decided only necessary to have debt at time of act of bankruptcy – Registrar’s sequestration order confirmed. |
| Legislation: Bankruptcy Act 1966 (Cth) ss.44(1), 49, 52, 52(1) and 52(2) |
| Totev v Sfar (2008) 167 FCR 193 Boutros v Santa Sabina College Ltd [2011] FCA 477 Harris v Caladine (1991) 172 CLR 84 House v The King [1936] HCA 40; (1936) 55 CLR 499 McNamara v Langford (1931) 45 CLR 267 QBM Lawyers (a firm) v Quinlivan [2011] FMCA 820 Provident Capital Ltd v Julian May Mollinger [2009] FMCA 988 |
| Applicant: | SOTIRIOS PORTELLOS |
| Respondent: | GE FINANCE AUSTRALASIA PTY LTD (FORMERLY AUSTRALIAN GUARANTEE CORPORATION LTD) ACN 100 015 485 |
| File Number: | ADG 302 of 2011 |
| Judgment of: | Judge Simpson |
| Hearing date: | 18 June 2012 |
| Date of Last Submission: | 1 August 2012 |
| Delivered at: | Adelaide |
| Delivered on: | 12 August 2013 |
REPRESENTATION
| Counsel for the Applicant: | Mr McNamara |
| Solicitors for the Applicant: | Commercial & General Law |
| Counsel for the Respondent: | Mr Douglas |
| Solicitors for the Respondent: | Minter Ellison |
ORDERS
The Application for Review filed on 25 May 2012 is dismissed.
The sequestration order of Registrar Christies of 22 May 2012 is confirmed.
The respondent’s costs are to be taxed pursuant to Part 40 of the Federal Court Rules 2011 (Cth).
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT ADELAIDE |
ADG 302 of 2011
| SOTIRIOS PORTELLOS |
Applicant
And
| GE FINANCE AUSTRALASIA PTY LTD (FORMERLY AUSTRALIAN GUARANTEE CORPORATION LTD) ACN 100 015 485 |
Respondent
REASONS FOR JUDGMENT
Introduction
For the purpose of clarity, throughout these reasons I propose to refer to Mr Sotirios Portellos as the applicant and GE Finance Australasia Pty Ltd as the respondent.
I have before me two applications for review in bankruptcy proceedings. Firstly, there is an application for review of an order for substitution of the petitioning creditor made by a Deputy Registrar on 13 February 2012. Secondly, there is an application for review of a sequestration order made by Registrar Christie on 22 May 2012.
The order for substitution substituted GE Finance Australasia Pty Ltd ACN 100 015 485, for the original petitioning creditor, JSJ & A Nominees Pty Ltd ACN 094 973 770 (“JSJ”).
Background
On 19 April 2011, JSJ had a Bankruptcy Notice issued which was served on the applicant on 2 June 2011. On 23 June 2011, the applicant committed an act of bankruptcy by failing to comply with the Bankruptcy Notice. JSJ filed a creditor’s petition on 28 November 2011. In early 2012, JSJ’s debt was fully met with the result that it no longer wished to remain as the petitioning creditor. As a result, the respondent filed an application on 9 February 2012 for an order, pursuant to s.49 of the Bankruptcy Act 1966 (Cth) (“the Act”), that the respondent be substituted as Petitioning Creditor[1].
[1] On 21 April 2011, the respondent had obtained a judgment against the applicant for the sum of $355,256.50.
On 16 January 2012, the matter came on before a Registrar. A number of supporting creditors, including Mr Simon Gerblich and the respondent, appeared and indicated that there would be an application made by one of them for substitution as petitioning creditor. The hearing of the petition was adjourned to 13 February 2012 for an application to be filed.
On 13 February 2012, the matter again came on before a Registrar. Orders were made that the respondent be substituted for JSJ as petitioning creditor. An order was made that a sealed copy of the order be served upon the applicant. The matter was adjourned to 20 February 2012.
On 20 February 2012, a solicitor, Mr McNamara, appeared for the applicant as a “friend of the Court”. He advised the Court that the applicant was in Greece and that it was hard to get in touch with him. He said that he acted for the applicant in some legal matters but not in relation to these bankruptcy proceedings. He said further that he could not guarantee that the document (ie documents referred to in the orders made that day) would reach the applicant. The following orders were made:
“1.Personal service on the respondent of the:
(a)Creditor’s Petition filed no 28 November 2011;
(b)the affidavit of service of the bankruptcy notice of Mr Philip Atkison sworn on 6 June 2011 and the affidavit of search of Ms Anne Bayan Najjar sworn on 25 November 2011; and
(c)the Trustee Consent to Act Declaration completed by Mr Gregg Johnson on 9 February 2012;
(together “the documents”) be dispensed with.
2.In lieu of personal service, a copy of the documents, and a sealed copy of this order be served upon the respondent by sending them to the respondent:
(a)By ordinary pre-paid post to the respondent’s last known address in Australia being 16A Florence Street, Norwood, South Australia;
(b)By e-mail to the respondent’s solicitor, Stephen McNamara at [email protected].
3.The documents be accompanied by a letter that states the date of posting.
4.Service in accordance with this order shall be deemed good and sufficient service of the documents upon the respondent.
5.If the service is effected in accordance with this order, the said documents shall be deemed to be served on the respondent on the 7th day after the date on which the methods of service referred to in paragraph 2 hereof have been effected.
6.Costs of and incidental to this application are reserved.
7.The hearing of the Creditor’s Petition be adjourned to 26 March 2012 at 2:15pm.”
On 26 March 2012, the matter again came on before a Registrar. Ms Greiger appeared for the applicant on instructions from Mr McNamara of Commercial and General Law. An order was made that Commercial and General Law file a Notice of Acting for the applicant. The matter was adjourned to 2 April 2012 for hearing of the petition.
On 2 April 2012, the hearing of the Creditor’s Petition was adjourned to 2 May 2012.
On 2 May 2012, the Registrar heard the argument and reserved her decision. The decision was handed down on 22 May 2012 at which time a sequestration order was made.
A hearing de novo
Section 104(2) of the Federal Circuit Court Act 1999 (Cth) provides that a party to a proceeding in which a Registrar has exercised any of the powers of the Federal Circuit Court under s.102(2), or under a delegation under s.103(1), may apply to the Federal Circuit Court for review of that exercise of power. Under s.104(3), the Federal Circuit Court may, on an application under s.104(2), or on its own initiative, review an exercise of power by a Registrar under s.102(2) or pursuant to a delegation under s.103(1) and may make any order or orders it thinks fit in relation to the matter in respect of which the power was exercised.
Rule 20.03 of the Federal Circuit Court Rules 2001 (Cth) provides that the review of an exercise of power by a Registrar shall proceed by way of hearing de novo. The current application is therefore not an appeal from the Registrar’s decision in the strict sense but is a complete re-hearing of the matter, but this time before a justice within the meaning of Chapter III of the Commonwealth of Australia Constitution Act 1900 (Cth). Emmett J clarified the true nature of the hearing de novo in Totev v Sfar (2008) 167 FCR 193[2] cited with approval by Nicholas J in Boutros v Santa Sabina College Ltd [2011] FCA 477[3].
[2] Paragraphs 12-15.
[3] Paragraphs 21-22.
“[12]A hearing de novo is different from an appeal stricto sensu and is different from an appeal by way of rehearing. In the case of an appeal stricto sensu, the question would be whether, upon the material before the registrar, the conclusion reached by the registrar was correct. In an appeal by way of rehearing, the appellate court would rehear the matter as at the date of the appeal, but on the evidence called before the registrar, subject to a power to receive further evidence where appropriate: the rights of the parties would be determined by reference to the circumstances, including the law, as they existed at the time of rehearing (Harris v Caladine 172 CLR at 125). In each case any question concerning the exercise of discretion would be subject to the restrictions imposed on an appellate court in reviewing the exercise of a discretion (see House v The King [1936] HCA 40; (1936) 55 CLR 499.
[13]In the case of a hearing de novo, however, the judge reviewing the order begins afresh and exercises for himself or herself any discretion exercised by the registrar. The parties commence the proceeding again, subject to any rules concerning the use of evidence adduced before the registrar. The hearing de novo involves the exercise of the original jurisdiction and the petitioner, in the case of a bankruptcy petition, must start again, call witnesses and make out the petitioner's case (Harris v Caladine 172 CLR at 124).
[14]Because the hearing of an application for review of a sequestration order is a hearing de novo, it would not be sufficient for the reviewing judge to be satisfied that the registrar made no error and simply to dismiss the application for review. The judge who hears the review application must hear the petition afresh and must be satisfied as to the matters referred to in s 52 of the Bankruptcy Act. Thus, the reviewing judge must herself or himself be satisfied with the proof of:
· the matters stated in the petition;
· the service of the petition; and
· the fact that the debt or debts on which the petitioning creditor relies is or are still owing.
The reviewing judge must also exercise afresh the discretions conferred by s 52(2).
[15]In particular, unless the Bankruptcy Rules are waived, the judge must have the affidavits referred to in r 4.06 of the Bankruptcy Rules, which must be sworn shortly before the hearing. Except in the case of a review on the same day as the sequestration order was made, affidavits relied upon before the registrar would not satisfy r 4.06. In the absence of fresh affidavits, it would be necessary that compliance with the Bankruptcy Rules be waived.
Sequestration orders
Section 52(1) of the Act provides that at the hearing of a Creditor’s Petition the Court must have proof of:
a)the matters stated in the petition;
b)service of the petition; and
c)the fact that the debt or debts on which the petitioning creditor relies is or are still owing.
If the Court is satisfied with the proof of those matters, it may make a sequestration order against the estate of the debtor. However, under s.52(2), if the Court is not satisfied with the proof of any of those matters, it may dismiss the petition. In addition, the Court may dismiss the petition if it is satisfied by the debtor that:
a)he or she is able to pay his or her debts; or
b)for any other sufficient cause a sequestration order ought not to be made.
In addition to the matters referred to in s.52(1), the Court also has to be satisfied that the requirements of r.4.06(3) of the Federal Circuit Court (Bankruptcy) Rules 2006 (Cth) (“the Bankruptcy Rules”) has been complied with. Rule 4.06 relevantly provides:
“4.06 Additional affidavits to be filed before hearing
(1)Before the hearing of a creditor’s petition, the applicant creditor must file the affidavits required by this rule.
(2)The applicant creditor must file an affidavit that:
(a)states that the documents required to be served under rule 4.05 have been served and when and how they were served; and
(b)has attached to it a copy of the documents that were served and proof of service in relation to the documents.
(3)The applicant creditor must file an affidavit of a person who has searched, or caused a search to be made, in the National Personal Insolvency Index no earlier than the day before the hearing date for the petition that:
(a)sets out the details of any references in the Index to the debtor; and
(b)states that there were no details of a debt agreement, about the debt on which the applicant creditor relies, in the Index:
(i) on the day when the petition was presented; and
(ii) on the day when the search was made; and
(c)has attached to it a copy of the relevant extract of the Index.
(4)The applicant creditor must file an affidavit of a person who knows the relevant facts that:
(a)was sworn as soon as practicable before the hearing date for the petition; and
(b)states that each debt on which the applicant creditor relies is still owing.
(5)The applicant creditor must file a search affidavit if the debt stated in the petition is an amount payable to the applicant creditor under a judgment of a court that ordered the amount to be paid into the court.
(6) In subrule (5):
search affidavit, in relation to a petition stating a debt ordered to be paid into a court, means an affidavit of a person who has searched in the proper office of the court, not earlier than the day before the hearing date for the petition, stating whether the amount of the debt, or part of that amount, has been paid as ordered.
Order substituting petitioning creditor
The applicant is entitled to have a review of the Registrar’s decision to order substitution of the petitioning creditor providing the application is made within time. Pursuant to r.20.01 of the then Federal Magistrate Court Rules 2001 (Cth), the application should have been filed within 7 days. This application was late by 125 days. Rule 3.05 gives the Court power to extend the time even if the time fixed has passed. Good reason for an extension must be shown. The following factors are relevant:
·The length of the delay;
·The reasons for the delay;
·The need for the extension or abridgement in order to effect justice;
·The prejudice that may be suffered by another party;
·The conduct of the parties;
·The extent to which any prejudice may be ameliorated by “the healing balm of costs”; and
·The impact upon Court resources as it affects the needs of other litigants for Court time and the public interest in the efficient use of Court resources.
Without addressing each of these factors in turn, in my opinion, this is not an appropriate case for an extension of time. The length of the delay was great and no satisfactory reason for the delay has been provided. The applicant, by his solicitor, was aware of the order for substitution during the seven day period that the applicant had to file his application for review of the substitution order. The justice of the case weighs heavily against granting an extension.
The Application for Review of the Registrar’s order for substitution is dismissed.
The sequestration order
The applicant submits that the sequestration order should not have been made. Three grounds are put forward:
a)The substituted petitioning creditor was not owed a debt of no less than the required amount under s.44(1) of the Act that existed both at the date of the issue of the Bankruptcy Notice and at the date of the act of bankruptcy;
b)There is a genuine dispute about the debt; and
c)The applicant is solvent.
Ground 1
It is common ground that pursuant to s.49 of the Act, a Court may substitute a creditor where the substituted creditor is a person whose debt was in existence at the time of the act of bankruptcy being committed (see McNamara v Langford (1931) 45 CLR 267). Counsel for the applicant argues that the substituted creditor also must have a debt of no less than the required amount also at the time that the Bankruptcy Notice was issued. The argument goes that the substituted creditor must satisfy the requirements of s.44(1).
Section 49 and subs.44(1) provides as follows:
“49 Change of petitioners
Where a creditor’s petition is not prosecuted with due diligence or where for any other reason the Court considers it proper to do so, the Court may permit to be substituted as petitioner or petitioners another creditor or other creditors to whom the debtor is indebted in the amount required by this Act in the case of a petitioning creditor, and the petition may be proceeded with as if the substituted creditor or creditors had been the petitioning creditor.”
“44 Conditions on which creditor may petition
(1)A creditor’s petition shall not be presented against a debtor unless:
(a)there is owing by the debtor to the petitioning creditor a debt that amounts to $5,000 or 2 or more debts that amount in the aggregate to $5,000, or, where 2 or more creditors join in the petition, there is owing by the debtor to the several petitioning creditors debts that amount in the aggregate to $5,000;
(b)that debt, or each of those debts, as the case may be:
(i) is a liquidated sum due at law or in equity or partly at law and partly in equity; and
(ii) is payable either immediately or at a certain future time; and
(c)the act of bankruptcy on which the petition is founded was committed within 6 months before the presentation of the petition.”
It is submitted on behalf of the applicant that for the substituting petitioning creditor to take advantage of the original creditor’s petition, they must have been in the same position as the original petitioning creditor to have been able to issue the Bankruptcy Notice on which the petitioning creditor relies for the act of bankruptcy. Put somewhat differently, the debt on which the substituted creditor relies has to have been in existence both at the date of the act of bankruptcy and at the date of the issue of the bankruptcy notice.
The applicant relies on a passage in the case of QBM Lawyers (a firm) v Quinlivan[4] in which his honour FM Burnett (as he then was) states:
“… there is authority which states that the debt ought to have existed at the time which the Bankruptcy Notice was filed: McNamara v Langford (1931) HCA 27.”
(emphasis is in the original quote).
[4] [2011] FMCA 820
The applicant submits that his Honour was limiting the decision in the McNamara case to include a requirement that the substituting petitioning creditor has to have a debt of no less than the required amount, both at the time of the commission of the act of bankruptcy, but also at the time of the issue of the Bankruptcy Notice.
In my opinion, this interpretation of what his Honour had to say misses the point. Quinlivan’s case was primarily concerned with consideration of the time at which a liability arose under the terms of a guarantee. At [1] his Honour said:
“The application turns on a short but difficult point. Was the creditor a party to whom the respondent debtor was indebted at the time that the committed the act of bankruptcy enlivening the initiating crediting petitioner’s application? If so, the applicant may be substituted. If not, it has no standing: McNamara v Langford.”
His Honour went on to consider when the liability arose under the terms of the guarantee and at [22] concluded that:
“In this case there is no evidence to contest the evidence that a debt has been incurred, and that upon the default of Equititrust it remains unpaid. It follows in my view that the debt was in existence at the time the bankruptcy notice was issued and accordingly the applicant is entitled to bring his application.”
There is nothing in his Honour’s reasons for judgment to suggest that there had been any submission that the decision in McNamara should in some way be restricted or was not good law. Any argument that his Honour’s comments were intended to limit that decision in any way and were other than a reflection of his findings in the context of the case before him is without foundation.
I am satisfied that the respondent established that it had a debt of no less than the required minimum in existence at the time of the act of bankruptcy and on that basis, was able to be substituted. The order for substitution was validly made.
The applicant also relied upon the case of Provident Capital Ltd v Julian May Mollinger[5]. This case involved an application pursuant to s.49 of the Act for substitution of the petitioning creditor. The applicant relies on the following passage:
“(counsel for the applicant) acknowledges that there is authority which states that the debt ought to have existed at the time which the Bankruptcy Notice was filed …”
[5] [2009] FMCA 988.
McNamara’s case is cited as an authority for this proposition, with the comment that s.49 may not be available. No further elaboration of the reasons for interpreting McNamara’s case was provided. This extract from the case of Provident Capital does not persuade me that I should interpret McNamara’s case in this way. For the reasons given above in relation to the extract from Quinlan’s case, I again do not consider that his Honour FM Lloyd-Jones (as he then was) was intending to so limit the decision in McNamara’s case.
Ground 2
The applicant submits that there was a “… clear and genuine dispute in relation to the debt” and that as a result, there should not have been a substitution of petitioning creditor. It is submitted that the genuine dispute arose as a consequence of the decision giving rise to the debt having been appealed by the applicant. As the applicant’s appeal to the Supreme Court of South Australia was dismissed for want of prosecution on 2 May 2012, this is a hollow argument. It is artificial of counsel for the applicant to ask the Court to ignore these more recent facts and to determine whether a substitution order should have been made as circumstances existed back on 13 February 2012.
In my view, this ground is without merit. In forming this view, I have also taken into account the applicant’s further submission in relation to this ground that there was a dispute about the debt as there had never been a trial on the merits in the District or Supreme Court.
Ground 3
The applicant submits, that based on the Statement of Affairs filed by the applicant, that he is solvent and, as a consequence, a sequestration order should not be made.
The evidence from Mr Gregg Johnson, the applicant’s Trustee in Bankruptcy does not support this submission.
The Statement of Affairs of the applicant forms part of an affidavit of Mr Johnson. Mr Johnson makes the following points:
· “The declaration contained in page 20 of the Statement has not been executed by the applicant. Accordingly, the Statement would not be acceptable for lodgement with the Insolvency and Trustee Service Australia;
· The annexures to the Statement are insufficient to support an assertion of solvency at this point in time as they are in respect to years ranging from 1998 to 2009;
· It is inconsistent for the applicant to earn income of $500,000 per year (refer to section 12 of the Statement), yet own very little cash or other assets (refer to Part C of the Statement);
· The Statement does not annex any recent or current documentation which verifies:
(a) the income earned by the applicant;
(b) the assets owned by the applicant;
(c) the money owed to the applicant by other parties; or
(d) the benefit expected to be received from Clift & Co CC (refer to section 16 of the Statement);
· The Statement does not disclose the respondent as a creditor of the applicant (refer to section 40 of the Statement); and
· The Statement does not disclose Simon Gerblich, the supporting creditor in the within proceedings, as a creditor of the applicant (refer to section 40 of the Statement).
· Since my appointment as Trustee, I have not initiated contact with any creditors of the applicant, nor have I solicited information from any of the applicant’s creditors.
· Notwithstanding that, on 29 May 2012 I was contacted by Robert Kennett, a Partner of Kelly and Co who advised me that:
· Kelly & Co. are the solicitors on record for Clipsal Australia Pty Ltd, Clipsal Integrated Systems Pty Ltd and Clipsal Technologies Australia Pty Ltd (‘Clipsal Group’); and
· The Clipsal Group has an unsatisfied judgment for costs awarded by the Federal Court of Australia and fixed in the amount of $367,315.24 against The Smart Company Pty Ltd, the payment of which was unconditionally guaranteed by the applicant by way of a Guarantee and Indemnity executed in favour of the Clipsal Group in 2005.
· I believe Mr Kennett to be a person of good character and verily believe the information advised to me by him as referred to in paragraph 7 above.
· I note that the Statement does not disclose the Clipsal Group as a creditor of the applicant (refer to section 40 of the Statement).”
In the circumstances, I find that the applicant has not satisfied me that he is solvent.
I am satisfied that the applicant committed the act of bankruptcy alleged in the petition.
I am also satisfied of the other matters required by s.52(1) of the Act and r.4.06 of the Bankruptcy Rules.
I do not see any sufficient reasons why a sequestration order should not be made. I propose to affirm the sequestration order made by the Registrar on 22 May 2012.
I make the orders to be found at the beginning of these reasons.
I certify that the preceding thirty-nine (39) paragraphs are a true copy of the reasons for judgment of Judge Simpson
Associate:
Date: 12 August 2013
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