Prime Capital Securities Pty Ltd v Papoutsakis

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Federal Circuit Court of Australia

Prime Capital Securities Pty Ltd v Papoutsakis [2021] FCCA 1594

File number: SYG 534 of 2018
Judgment of: JUDGE CAMERON
Date of judgment: 15 July 2021
Catchwords: BANKRUPTCY – Application for annulment of bankruptcy – relevant considerations.
Legislation:

Bankruptcy Act 1966 (Cth) ss 5, 54, 80, 109, 139U, 153B, 154, 265

Corporations Act 2001 (Cth) s 206A

Federal Circuit Court (Bankruptcy) Rules 2016 (Cth) r 7.06

Cases cited:

Rigg v Baker (2006) 155 FCR 531

Bulic v Commonwealth Bank of Australia Ltd (2007) 5 ABC(NS) 122

Francis v Eggleston Mitchell Lawyers Pty Ltd (2014) 12 ABC(NS) 25

Sandell v Porter (1966) 115 CLR 666

Stankiewicz v Plata [2000] FCA 1185
Number of paragraphs: 71
Date of hearing: 16, 17 June 2021
Place: Sydney
Counsel for the Applicant: No appearance by or on behalf of the Applicant
Counsel for the Respondent: The Respondent appeared in person
Solicitor for the Trustee: Mr C. Groves (Dobson Mitchell Allport)
Table of Amendments

30 August 2021

The dollar figure on paras.17 line 2 and 66, line 1 has been removed and replaced with the letter “A”.

The dollar figure on para.28, line 5 has been removed and replaced with the letter “B”.

The dollar figure on para.28, line 6 has been removed and replaced with the letter “C”.

The dollar figure on para.28, line 8 has been removed and replaced with the letter “D”.

The dollar figure on para.30(b) has been removed and replaced with the letter “E”.

The dollar figure on para.33, line 7 has been removed and replaced with the letter “F”.

The dollar figure on para.33, line 8 has been removed and replaced with the letter “G”.

The dollar figure on para.34, line 5 has been removed and replaced with the letter “H”.

The word “his” on para.41, line 12 has been removed and replaced with the word “their”.

The dollar figure on para.55, line 12 has been removed and replaced with the letter “I”.

ORDERS

SYG 534 of 2018
BETWEEN:

PRIME CAPITAL SECURITIES PTY LTD ACN 168 662 173

Applicant
AND:

ANTONIOS PAPOUTSAKIS

Respondent

ROBERT TENBENSEL
Interested person

order made by:

JUDGE CAMERON

DATE OF ORDER:

15 July 2021

THE COURT ORDERS THAT:

1.The application for annulment of the respondent’s bankruptcy be dismissed.

REASONS FOR JUDGMENT
(As Amended)

JUDGE CAMERON

Introduction

  1. This proceeding commenced as a late application for review of the order made by Registrar Wall on 21 May 2018 that the estate of the respondent, Antonios Papoutsakis, be sequestrated.  However, at the hearing, Mr Papoutsakis changed tack and instead sought an annulment of his bankruptcy. 

  2. The applicant, Prime Capital Securities Pty Ltd (“PCS”) has been deregistered and has not participated in this stage of the proceeding.  The trustee of Mr Papoutsakis’s bankrupt estate, Robert Tenbensel (“Trustee”), has participated as an interested person.  He also provided a report to the Court pursuant to r.7.06 of the Federal Circuit Court (Bankruptcy) Rules 2016 (Cth).

    BAckground

  3. In 2016 Mr Papoutsakis and his wife, Marietta Papoutsakis (“Ms Papoutsakis”)…

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Details
Case
[2021] FCCA 1594
Decision Date

CaseChat Overview and Summary

In the Federal Court of Australia, Justice Cameron heard an application by Prime Capital Securities Pty Ltd ("PCS") for the annulment of the bankruptcy of Mr Papoutsakis. PCS, the applicant, had been deregistered and did not participate in the proceedings. The trustee of Mr Papoutsakis's bankrupt estate, Robert Tenbensel, participated as an interested person and provided a report to the Court. The dispute arose from a debt of $26,606.63 allegedly incurred by Papou Pty Ltd, of which Mr Papoutsakis was a director, for application fees and expenses related to a proposed loan that did not proceed. Following an unpaid invoice, PCS obtained default judgment against Papou Pty Ltd and Mr Papoutsakis, leading to a bankruptcy notice and ultimately the sequestration of Mr Papoutsakis's estate on 21 May 2018.

The Court was required to determine whether the sequestration order ought not to have been made, pursuant to section 153B of the *Bankruptcy Act 1966* (Cth), and if so, whether to exercise its discretion to annul the bankruptcy. The trustee's report detailed significant difficulties in administering the bankrupt estate, including a lack of cooperation from Mr and Ms Papoutsakis in the sale of jointly owned properties and associated entities. The trustee also expressed the preliminary view that Papou Pty Ltd was significantly insolvent and that Mr Papoutsakis was likely insolvent at the time of the sequestration order, even if the debt to PCS was not valid.

Justice Cameron noted that the application for annulment had been subject to long and largely unexplained delay. Furthermore, no adequate proposal for paying the trustee's fees and expenses had been put forward, and it had not been demonstrated that Mr Papoutsakis was presently solvent. The Court also considered that creditors would not be in a better position if the bankruptcy were annulled. Consequently, even if the Court had concluded that the sequestration order ought not to have been made, it would not have exercised its discretion to annul the bankruptcy.

The application for the annulment of Mr Papoutsakis's bankruptcy was dismissed.

Orders

Orders of the court

THE COURT ORDERS THAT:

1. The application for annulment of the respondent’s bankruptcy be dismissed.

Background

Background to the litigation

The applicant, Prime Capital Securities Pty Ltd (“PCS”) has been deregistered and has not participated in this stage of the proceeding. The trustee of Mr Papoutsakis’s bankrupt estate, Robert Tenbensel (“Trustee”), has participated as an interested person. He also provided a report to the Court pursuant to r.7.06 of the Federal Circuit Court (Bankruptcy) Rules 2016 (Cth).BAckground In 2016 Mr Papoutsakis and his wife, Marietta Papoutsakis (“Ms Papoutsakis”) were intended guarantors of a proposed loan by PCS to Papou Pty Ltd, of which Mr and Ms Papoutsakis were both directors. This loan did not proceed and the principal amount was never advanced. However, application fees and expenses were allegedly incurred and in that regard on 30 March 2017 PCS issued an invoice to Papou Pty Ltd for $26,606.63. The invoice was not paid and PCS commenced proceedings in the Local Court of New South Wales at Sydney (“Local Court”) against Papou Pty Ltd and Mr and Ms Papoutsakis as guarantors. On 24 July 2017 default judgment against Papou Pty Ltd and Mr Papoutsakis was entered. On 29 September 2017 a bankruptcy notice was served on Mr Papoutsakis for a total debt of $28,969.05 and on 28 February 2018 PCS presented a creditor’s petition. Mr Papoutsakis failed to file any notice stating grounds of opposition or affidavit in support and on 21 May 2018 Registrar Wall ordered that Mr Papoutsakis’s estate be sequestrated.legislation Sections 153B and 154 of the Bankruptcy Act 1966 (Cth) relevantly provide:153B Annulment by Court(1) If the Court is satisfied that a sequestration order ought not to have been made or, in the case of a debtor’s petition, that the petition ought not to have been presented or ought not to have been accepted by the Official Receiver, the Court may make an order annulling the bankruptcy.(2) In the case of a debtor’s petition, the order may be made whether or not the bankrupt was insolvent when the petition was presented.(3) The trustee must, before the end of the period of 2 days beginning on the day the trustee becomes aware of the order, give to the Official Receiver a written certificate setting out the former bankrupt’s name and the bankruptcy number and the date of the annulment.…154 Effect of annulment(1)If the bankruptcy of a person (in this section called the former bankrupt) is annulled under this Division:(a)all sales and dispositions of property and payments duly made, and all acts done, by the trustee or any person acting under the authority of the trustee or the Court before the annulment are taken to have been validly made or done; and(b)the trustee may apply the property of the former bankrupt still vested in the trustee in payment of the costs, charges and expenses of the administration of the bankruptcy, including the remuneration and expenses of the trustee; and(c)subject to subsections (3), (6) and (7), the remainder (if any) of the property of the former bankrupt still vested in the trustee reverts to the bankrupt.…Mr Papoutsakis’s Evidence

Evidence

Evidence Before The Court

Mr Papoutsakis also deposed to having given notice of this proceeding to his creditors.the TRUSTEE’S evidence The Trustee deposed that he is a chartered accountant and a registered trustee in bankruptcy with over 32 years’ experience in the area of corporate and personal insolvency.Background The Trustee’s affidavit affirmed 1 June 2021 contained his report to the Court. It was deposed at a point between exchange and settlement in the recent sale of the conjoined shop properties at 644 Sandy Bay Road, Sandy Bay and 1 Beach Road, Sandy Bay. In that affidavit the Trustee recorded that Mr and Ms Papoutsakis had run a number of shops in Hobart that traded under the name “Fresco” but the couple was now separated and a Family Court property proceeding was on foot between them. The Trustee deposed that, relevantly, Mr Papoutsakis was associated with two companies, Papou Pty Ltd (which was deregistered on 19 November 2017 and re-registered at some point between 21 May 2018 and 3 July 2018) and Papou Properties Pty Ltd (which was deregistered on 7 May 2017 and re-registered on 6 August 2018 after payment to ASIC of outstanding fees). Mr Papoutsakis’s shares in those companies vested in the Trustee upon his appointment. A further associated entity was the Papoutsakis Family Trust and Mr Papoutsakis’s beneficial interest in that trust also vested in the Trustee. The Trustee deposed that:(a)28 Shepherd Street, Sandy Bay had been jointly owned by Mr and Ms Papoutsakis up to the date on which Mr Papoutsakis was made bankrupt, when the joint tenancy was severed;(b)621-623 Sandy Bay Road, Sandy Bay is owned by Papou Properties Pty Ltd as trustee of the Papoutsakis Family Trust; (c)644 Sandy Bay Road, Sandy Bay was solely owned by Mr Papoutsakis; and(d)1 Beach Road, Sandy Bay was [solely] owned by Papou Properties Pty Ltd as trustee of the Papoutsakis Family Trust.Administration of estate The Trustee deposed to the difficulties he had had in bringing about the sale of the properties at 644 Sandy Bay Road and 1 Beach Road arising out of a lack of co-operation from Mr and Ms Papoutsakis in the sale process, particularly in relation to setting a price range and agreeing on a sale price, notwithstanding that the Family Court had made orders as early as 6 February 2019 for the effectuation of such a sale. The Trustee obtained formal valuations of the property but the values advised were not acceptable to Mr and Ms Papoutsakis who had been told by real estate agents that the properties were worth more than the valuations indicated. The Trustee and Mr and Ms Papoutsakis marketed the property separately, the latter without the Trustee’s authority or agreement. The best offer received by the Trustee exceeded the figure in the more recent valuation but he had not been told by Mr and Ms Papoutsakis how they had fared in their marketing campaign. On 1 April 2021, after agreement could not be reached to sell the property for the amount offered to the Trustee, the Family Court appointed him as trustee for sale.

Decision

Reasons for decision

In circumstances where there has been a long and largely unexplained delay in bringing this proceeding, where an adequate proposal for paying the Trustee’s fees and expenses has not been made, where it has not been demonstrated that Mr Papoutsakis is presently solvent and where it would appear that creditors would not be better off with an annulment, even if I had concluded that the sequestration order ought not to have been made, I would not have exercised the discretion to annul Mr Papoutsakis’s bankruptcy.CONCLUSION The application for the annulment of Mr Papoutsakis’s bankruptcy will be dismissed.

Ratio Decidendi

Legal Principle Established

The Trustee deposed that:(a)28 Shepherd Street, Sandy Bay had been jointly owned by Mr and Ms Papoutsakis up to the date on which Mr Papoutsakis was made bankrupt, when the joint tenancy was severed;(b)621-623 Sandy Bay Road, Sandy Bay is owned by Papou Properties Pty Ltd as trustee of the Papoutsakis Family Trust; (c)644 Sandy Bay Road, Sandy Bay was solely owned by Mr Papoutsakis; and(d)1 Beach Road, Sandy Bay was [solely] owned by Papou Properties Pty Ltd as trustee of the Papoutsakis Family Trust.Administration of estate The Trustee deposed to the difficulties he had had in bringing about the sale of the properties at 644 Sandy Bay Road and 1 Beach Road arising out of a lack of co-operation from Mr and Ms Papoutsakis in the sale process, particularly in relation to setting a price range and agreeing on a sale price, notwithstanding that the Family Court had made orders as early as 6 February 2019 for the effectuation of such a sale. The Trustee obtained formal valuations of the property but the values advised were not acceptable to Mr and Ms Papoutsakis who had been told by real estate agents that the properties were worth more than the valuations indicated. The Trustee and Mr and Ms Papoutsakis marketed the property separately, the latter without the Trustee’s authority or agreement. The best offer received by the Trustee exceeded the figure in the more recent valuation but he had not been told by Mr and Ms Papoutsakis how they had fared in their marketing campaign. On 1 April 2021, after agreement could not be reached to sell the property for the amount offered to the Trustee, the Family Court appointed him as trustee for sale. In relation to the net value of the remaining properties, the Trustee recorded that there was a debt of $452,000 secured against 28 Shepherd Street and that council rates of $47,000 owed in respect of that property were to be paid from the sale of 644 Sandy Bay Road and 1 Beach Road. He also recorded that outstanding council rates of $95,000 and land tax of $131,501 in relation to 621-623 Sandy Bay Road and 1 Beach Road were to be paid from the proceeds of sale of 1 Beach Road. As to other assets, the Trustee deposed that although Mr Papoutsakis had claimed to have rights of action against many of his creditors and former advisers, he not provided the Trustee with information sufficient to assess the merit of such claims. The Trustee expressed the preliminary view, based on facts he cited, that Papou Pty Ltd was, and had for some time been, significantly insolvent.He also expressed the view that even if the debt to PCS was not a valid debt, Mr Papoutsakis was nevertheless significantly insolvent as at the date of the sequestration order and that as at 21 May 2018 the estimated value of his unsecured liabilities, including the PCS claim, was $B. In that regard he deposed that Mr Papoutsakis had disclosed in his statement of affairs liabilities totalling $C whereas the Trustee estimated those and other liabilities that had not been disclosed in the statement of affairs to total $D.