Re Bempascuito, F. v Ex parte Gunderman Ltd (formerly Burswood Management Ltd)

[1991] FCA 383

Re: FRANCESCO BEMPASCUITO
Ex Parte: GUNDERMAN LIMITED (FORMERLY BURSWOOD MANAGEMENT LIMITED) and
PERPETUAL TRUSTEES WA LIMITED
No. WP 521 of 1991
FED No. 383
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA

BANKRUPTCY DISTRICT OF THE STATE OF WESTERN AUSTRALIA
GENERAL DIVISION
French J.(1)

CATCHWORDS

Bankruptcy - creditor's petition - delay by creditors - poverty and low income of debtor - absence of other outstanding debts - utility of sequestration order - necessity for proper inquiries to be made - inadequacy of petition proceedings as a vehicle for such inquiries - sequestration order made.

Bankruptcy Act 1966 s.52

Federal Court of Australia Act 1976 s.52

HEARING

PERTH

#DATE 24:6:1991

Counsel for the Debtor: Ms A. Liscia

Solicitors for the Debtor: Mallesons Stephen Jaques

Counsel for the Creditor: Mr L.D. Ayres

Solicitors for the Creditor: Robinson Cox

ORDER

The Court orders that the estate of Francesco Bempascuito is sequestrated.

The petitioning creditors' costs be taxed and paid out of the estate.

Note: Settlement and entry of Orders is dealt with in Rule 124 of the Bankruptcy Rules.

JUDGE1

This is a hearing of a creditor's petition brought by Gunderman Limited, formerly Burswood Management Ltd, and Perpetual Trustees WA Limited against Francesco Bempascuito. The petition which issued on 4 April 1991 relies upon the debtor's failure to comply with a bankruptcy notice embodying a demand for payment of $93,505.35 due under an order of the Federal Court given on 29 November 1989. This sum comprises the taxed costs of proceedings brought against the respondent under the Trade Practices Act 1974 together with interest accrued on those costs. The date for compliance with the bankruptcy notice, after various extensions, was 8 October 1990. It is common ground that the notice has not been complied with. Further, there is no dispute that the petition has been properly served, that the debt continues and that there are no other bankruptcy proceedings pending against the debtor. Nor is there any previous bankruptcy outstanding from which he has not been discharged.

1. The debtor has filed a notice of intention to oppose the petition, asking that "due to special circumstances" the Court exercise its discretion to dismiss the petition. The grounds relied upon as particularised are:
   

(a) That the debtor's only outstanding debt is

that due to the creditors;

(b) The debtor entered into a Part X

arrangement with his creditors during 1986;

(c) The creditors had full knowledge of the

Part X arrangement;

(d) Notwithstanding this knowledge, the creditors continued their litigation with the debtor and others which litigation has resulted in the debt that is the basis of the petition;

(e) Since the conclusion of the Part X

arrangement the debtor has had and

continues to have no assets which could be

utilised to meet the debt in question;

(f) The petition is being used as an instrument of oppression.

There has been previous litigation between these parties under the Bankruptcy Act. The original proceedings which gave rise to the costs order were brought in October 1987 under the Trade Practices Act 1974 by Burswood Management Ltd and West Australian Trustees Limited as the petitioning creditors were then known. The applicants in those proceedings sought injunctive relief against the use of a certain trading name by the debtor and others associated with him. That application was determined by this Court in favour of the applicants and on 13 October 1989, a taxing officer certified the costs to be paid by the debtor at $85,030.28. The bankruptcy notice which issued on 12 July 1990, made demand for payment of those costs together with interest in the amount of $8,475.07 under s.52 of the Federal Court of Australia Act. On 13 August 1990, the debtor made an application to the Court to set aside the notice. That application was based upon a composition which he had entered with creditors under Part X of the Bankruptcy Act 1966. For reasons which were published on 5 October 1990, it was dismissed. At that time and by virtue of various extensions, the bankruptcy notice had three days to run before the time for compliance expired.

1. In opposition to the petition, the debtor filed an affidavit in which he referred to the background leading up to the incurring of the debt and the nature of the trade practices action as an application for injunctive relief to restrain him as a director of Burswood Casino Motel/Hotel Pty Ltd from using certain business names in trade or commerce. He referred also to the fact that the trial of the action was heard over five days in August and October 1987 and that the bill of costs was taxed in favour of the creditors. He then pointed to the Part X arrangement which he had entered in March 1986, although he has been unable to locate a copy of the documents underlying or constituting it. He exhibited a copy of the statement of affairs filed in relation to that arrangement and went on to say at para.9 of his affidavit:
   

"The creditors continued with the Action with full

knowledge of my impecuniosity and in particular, the

fact that I had entered into a Part X arrangement with my creditors in an attempt to resolve my financial situation."

He then set out his financial history and without going through that in detail, it indicated that he has very little in the way of personal assets. He apparently has a very modest personal income and no other debts outstanding apart from that owed to the petitioning creditors. By virtue of the Part X arrangement he claimed to have resolved the financial difficulties which he experienced in 1986 and has ensured since that time that he has not incurred any debts which he could not meet from his own funds.

1. The debtor argues that his only outstanding creditors are the creditors in this action and that no useful purpose would be served to them or the community at large by granting a sequestration order. He argues that the debt the subject of the bankruptcy notice was incurred by the creditors at a time when they were well aware, not only that he was insolvent, but that he had entered into a Part X arrangement to attempt to resolve his financial difficulties. He submits that the filing of the petition and the claim for a sequestration order are a means of punishing him rather than a genuine attempt to collect a debt or have him declared bankrupt for the public good. The debtor asked that I invoke the discretion of the Court under sub-s.52(2) of the Bankruptcy Act. Section 52, in the relevant parts, provides:
   

"52(1) At the hearing of a creditor's petition, the

Court shall require proof of-

(a) the matters stated in the petition (for

which purpose the Court may accept the

affidavit verifying the petition as sufficient);

(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, and, if it is satisfied with the proof of those

matters, may make a sequestration order against the

estate of the debtor.

(2) If the Court is not satisfied with the proof of any of those matters, or is satisfied by the debtor -

(a) that he is able to pay his debts; or

(b) that for other sufficient cause a

sequestration order ought not to be made

it may dismiss the petition."

Sub-sections (3), (4) and (5) of s.52 are not relevant for present purposes.

1. The question is whether in this case there is any "other sufficient cause" which would justify a refusal to make a sequestration order. The salient features of the submissions made on behalf of the debtor related to the absence of any real assets, the delay on the part of the creditors and their failure to resort to ordinary methods of enforcement to attempt to recover the costs of the 1987 proceedings. Reliance was also placed upon the knowledge that they are said to have had of the debtor's situation when proceeding with the litigation which gave rise to the costs order. As to the latter point which emerges more from the debtor's affidavit than in argument, the fact is that the creditors were seeking injunctive relief and that their claim was contested. Nothing turns on the fact, if it be the fact, that they knew or believed the debtor was impecunious at the time that those proceedings were under way. Nor do I think that there is anything in the mere fact of the delay to itself indicate that this petition is brought as an instrument of oppression or for some collateral motive or purpose. If it were a purely punitive exercise, it seems an expensive way of inflicting punishment where there is no prospect of any recovery. In any event, I am not prepared to infer that that allegation is made out. The real issue at the core of the debtor's case is whether, given the asset position as disclosed on his affidavit and his current income, it is appropriate to make an order for sequestration.

2. Poverty, of course, is no reason for not making a sequestration order. Many of the people who are brought before the Court to answer to bankruptcy petitions are in just that situation. The contention that a sequestration order will be futile because of absence of assets, is one that has to be treated with great caution, particularly having regard to the purpose of bankruptcy administration which is, in part, to enable proper inquiries and investigations to be undertaken with the aid of the coercive powers conferred by the Act into the estate of the bankrupt and the existence of any preferential payments or settlements which might be recovered for the general benefit of creditors. These are questions which, except in perhaps extraordinary cases, cannot readily be answered by a court on the basis of the debtor's evidence alone. Nor is it appropriate to expect a petitioning creditor to bring in a full answer to the debtor's contentions in that regard and agitate before the court the very matters that would be the subject for investigation and inquiry, if thought appropriate, by the trustee in bankruptcy. Accepting that the debtor has a poor asset position and a low income, I am not satisfied that this is a case in which the overriding public interest and the purposes of bankruptcy administration should be put aside.

3. It may be that the administration of this bankruptcy will be comparatively short so far as it involves inquiries into the extent of the bankrupt estate and any antecedent payments that may have been made. That is a matter for the Official Trustee. In the circumstances I am not satisfied that any sufficient cause has been shown why a sequestration order ought not to be made. The formalities having been complied with, I propose to make it. The orders will be as follows:
   

1. That the estate of Francesco Bempascuito is sequestrated.

2. The petitioning creditors' costs be taxed and paid out of the estate.