Re Bendel, David Ex Parte Lowe Lippmann (a firm)
[1996] FCA 262
•19 APRIL 1996
CATCHWORDS
Bankruptcy - Creditor's Petition - Execution of an authority to a trustee to call a meeting of creditors and take control of the debtor's property under Part X of the Bankruptcy Act 1966 (C'th) - Consideration of discretionary factors arising on an application for adjournment of hearing of petition - Application refused - Order for sequestration made.
Bankruptcy Act 1966 (C'th) ss.33(1)(a), 40(1)(g), 44(1)(c), 52(1)(a)
Field v. Commercial Bank (1978-79) 22 ALR 403
Zarro v. White Industries, Spender J. 30 June, 1992 - unreported
VP 131/96 RE DAVID BENDEL EX PARTE LOWE LIPPMANN (A FIRM)
MERKEL J.
MELBOURNE
19 APRIL 1996
IN THE FEDERAL COURT OF AUSTRALIA
GENERAL DIVISION
No. VP 131/96
BANKRUPTCY DISTRICT OF THE
STATE OF VICTORIA
RE:DAVID BENDEL
EX PARTE:LOWE LIPPMANN (A FIRM)
MINUTES OF ORDER
JUDGE MAKING ORDER: MERKEL J.
DATE OF ORDER: 18 APRIL 1996
WHERE MADE: MELBOURNE
THE COURT ORDERS THAT:
A sequestration order be made against the estate of David Bendel.
The petitioning creditor's costs of and incidental to the petition in this matter be taxed and paid in accordance with the Bankruptcy Act 1966 (C'th).
The injunctions granted herein on 17 April 1996 and varied on 18 April 1996 against John M. Sparke are discharged.
Liberty to apply reserved in relation to any matters arising out of the injunctions including questions of costs.
NOTE: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules.
IN THE FEDERAL COURT OF AUSTRALIA
GENERAL DIVISION
No. VP 131/96
BANKRUPTCY DISTRICT OF THE
STATE OF VICTORIA
RE:DAVID BENDEL
EX PARTE:LOWE LIPPMANN (A FIRM)
Coram: MERKEL J.
PLACE: MELBOURNE
DATE: 19 APRIL 1996
REASONS FOR JUDGMENT
The present application is yet another step in what has been a long, costly and acrimonious dispute between David Bendel, a judgment debtor, and the judgment creditor, Lowe Lippmann, a firm of accountants of which he was formerly a member.
At the conclusion of a long hearing in the Supreme Court of Victoria, on 10 October 1995 Lowe Lippmann obtained judgment against David Bendel in the sum of $14,304.29 plus costs to be taxed.
After the alleged service of certain bankruptcy documents, which were based on the failure to pay the judgment debt, a creditor's petition was filed on behalf of Lowe Lippmann on 12 February 1996. It was served on the debtor on 12 March 1996.
When the hearing of the petition came on before me on 17 April 1996 the debtor applied for an adjournment.
The application was based upon the fact that the debtor had executed an authority under s.188 of the Bankruptcy Act 1966 to bring his property under the control of John M. Sparke as the controlling trustee and to call a meeting of creditors. That meeting was to be held at 10 a.m. on 18 April 1996 but as a result of orders made by me, the meeting was adjourned.
At the meeting it was proposed to consider the debtor's proposal to assign all his divisible property to a trustee, that $30,000 be paid from an external source and, subject to payment of expenses, that property and the sum of $30,000 be paid in full discharge of all provable debts.
A special resolution is necessary to bind creditors if the proposal is to be accepted. That resolution requires a majority in number and at least 3/4th in value of the creditors present.
Absent special circumstances, one may accept that an adjournment of the hearing of a bankruptcy petition to enable the creditors to consider a fair and bona fide Part X proposal, may enjoy reasonable prospects of success.
However, it is put on behalf of Lowe Lippmann that the circumstances of the present case are special, to say the least, and that the Part X proposal is neither fair or bona fide.
The evidence is that the debtor has enjoyed very substantial remuneration from his accounting and commercial activities over the years using his family and family entities or trusts. He still appears to be actively engaged in a number of accounting and commercial activities.
Yet, in his Statement of Affairs prepared for the meeting of creditors the debtor states his assets to be "nil", his liabilities, $1,402,555, with a total deficiency of $1,402,555. Later evidence suggests that his creditors may well total an additional $133,761 (to a family entity) and $4.85 million to the ANZ Bank.
The debtor's list of unsecured creditors also raises questions. Apart from 3 creditors, all the other listed creditors are either the debtor's family, family entities or entities closely related to a longstanding friend and business associate.
Lowe Lippmann, in evidence called by it, and by cross-examination by its counsel, raised a number of serious issues as to the quantum of and basis for a number of the creditors' claims.
The three major "friendly" creditors in respect of the sums $709,015 and $584,158 and later $133,761 are said to be in respect of debts which have been incurred some time ago. No demand has been made for payment and no satisfactory reason is put forward as to why they are now sought to be finalised or paid out under a Part X arrangement.
The implication is that either the convenience of the debtor or frustration of payment of the judgment debt is the real reason for the calling of the meeting of creditors.
The 3 outside creditors are Rigby Cooke ($95,357 - for legal costs) Westpac ($9,500) and the petitioning creditor. The evidence suggests that Rigby Cooke has had a longstanding, extensive and continuing relationship with the debtor and his commercial associates and clients. Although the firm is a third party creditor its engagement is continuing notwithstanding non-payment of past fees. Current and new fees are apparently being paid by the debtor's family and friends. The evidence was that, notwithstanding the hopeless "insolvency" of the debtor, the firm is still in the process of being offered a proposal from the debtor for payment of its past fees.
Whilst there may be nothing improper or untoward about that occurring from an external source it does suggest somewhat unusual circumstances. The above factors may explain why the firm sees its interests as benefited by co-operating with, rather than confronting, the debtor.
My concerns about the extra-ordinary current situation were confirmed by the manner in which the debtor has resolved Westpac's debt. Westpac recently proposed to join in seeking a winding up order - it was very quickly paid out by a "friend" of Mr. Bendel. T.D.J. Australia Pty. Ltd. took an assignment of the Westpac debt by payment of the amount due. That company is controlled by a Mr. Tucci. Mr. Bendel made the necessary arrangements for that to occur.
The only outside party listed in the Statement of Affairs with a simple debt with no benefits, favours or associations attached, is the petitioning creditor.
It has a prima facie entitlement to proceed with its petition.
I am not satisfied that the circumstances of the present case warrant an adjournment, displacement or postponement of that right.
I have reached this conclusion for a number of reasons. First, the petitioning creditor may be prejudiced by the adjournment. Its debt is a small one. If it wishes to raise issues as to the assets or creditors of the debtor, or to challenge the Part X arrangement, the onus and the expense fall entirely upon it. If it does not take such steps it receives little or nothing.
A sequestration order, rather than the vagaries and uncertainties of the Part X arrangement proposed in the present case, constitutes a more appropriate vehicle in the
present circumstances. Two examples suffice. The simplicity of the present proposal would have the trustee under Part X complete his role almost immediately if the $30,000 is paid - before enquiries or investigations are undertaken. Also, no challenge to invalid preferences is available under Part X. That may be a real issue in the present matter.
Second, given the serious questions raised about assets and creditors, including quantum, of the debtor, it is my view that such matters are best determined by a trustee after a sequestration order (if one is to be made) rather than in an arrangement voted on previously, mainly by interested or friendly parties, whose entitlement to do so is properly, and seriously, raised as an issue by the petitioning creditor. That such issues arise is beyond question. Some of the family or friendly entity debts are payable on demand. However, due to their antiquity some may be statute barred (See Ogilvie v. Adams (1981) VR 1041). Also an issue is raised as to whether some of the family or other arrangements in relation to "friendly" debts were intended to create legal relations between the parties. Other issues are also likely to arise.
Third, the so-called benefit flowing from the arrangement to creditors, is somewhat illusory.
At best it is apparently 2 cents in the dollar. I say "at best", as in the course of the hearing the previously mooted donor of the $30,000, Napha Nominees Pty. Ltd. was said by Mr. Bendel to have now declined to give. Its controller, Mr. Orbach, a friend of Mr. Bendel, said no arrangement was ever made for it to give.
I am told from the bar table that the presently mooted donor is Mr. Tucci. There is no evidence of any obligation on his part to make the payment and I have no basis for concluding it will, or even is likely to be, made. The evidence tells me little or nothing about Mr. Tucci or his company.
In those circumstances I am not satisfied that the adjournment is likely to be for the benefit of any of the creditors as such. Even if the money eventuated the benefit may be said to be truly "derisory". (See Zarro v. White Industries Spender J. unreported 30 June 1992 at p.9).
Fourth, there is an air of unreality about the issues before me. There is no evidence of anyone, including external creditors, seriously pressing for, or insisting upon, immediate payment, other than the petitioning creditor. When Westpac insisted upon payment it was paid out. Rigby Cooke appeared to be heading in the same direction. In these circumstances there are reasonable grounds for inferring that the creditors' meeting is really another step in continuing an acrimonious saga between the debtor and his former firm. Mr. Bendel's evidence and demeanour in court tended to confirm that view.
Fifth, on the debtor's own statement and evidence he is hopelessly insolvent. Yet, he appears to have access to, or control over, substantial assets and income. A Part X arrangement with "friendly" entities does not sit comfortably with that situation.
Sixth, two external debts are not satisfactorily provided for in the Part X proposals. The ANZ claims $4.85 million yet that is not acknowledged in the proposal. Taxing of the costs of the judgment creditor is proceeding and will run into significant sums. Yet the quantum of those amounts are also not satisfactorily provided for in the Statement of Affairs.
Seventh, authority fully supports the approach I propose to take in this matter. Whilst I accept that each case must be decided on its own facts, the factors referred to in Field v. Commercial Bank (1978-9) 22 ALR 403, 411-412 and Zarro v. White Industries (supra), when considered in the light of the foregoing facts, fully support a decision not to exercise my discretion in favour of granting an adjournment.
Finally, the adjournment application is made under s.33(1)(a) which confers a broad discretion on the Court. The present case is one which is quite unsatisfactory for the Part X arrangement proposed by the debtor.
The debtor has not satisfied me that the circumstances are such that it is fair, appropriate, proper or in the interests of justice that I postpone, displace or adjourn the prima facie entitlement of the judgment creditor to have a sequestration order made if it has otherwise satisfied me that the statutory pre-conditions for such an order have been met.
Accordingly, I turn to deal with the Petition.
The only other basis put forward for not making a sequestration order is that a Bankruptcy Notice was not served on the debtor prior to the issue of the Petition.
The debtor's evidence by Affidavit, and in the witness box, is that on or about 11 January 1996 he was served with an Application for the issue of a Bankruptcy Notice but not with a Bankruptcy Notice. If that evidence is accepted the Petition must be dismissed as no act of bankruptcy was committed prior to its issue (ss.40(1)(g), 44(1)(c) and 52(1)(a)).
The process server, Ms. Denise Pereira has sworn, both, in an Affidavit sworn at the time, and in her evidence before me in the witness box, that she personally served the Bankruptcy Notice and the Application for its issue on Mr. Bendel on 11 January 1996.
I turn to consider the evidence on this issue.
By a letter dated 11 January 1996 Clayton Utz forwarded a letter to its process servers, Quartermain Pty. Ltd. The letter stated that it enclosed an Application for the issue of a Bankruptcy Notice and a Bankruptcy Notice for personal service on David Bendel.
The evidence of Ms. Pereira is that, in her capacity as a process server employed by Quartermain Pty. Ltd., she was given each of the documents in duplicate and served an Application and a Bankruptcy Notice on David Bendel on 11 January 1996. She stated that she was "certain" that she served the Bankruptcy Notice on him.
Subsequently she gave instructions for the preparation of an Affidavit of Service which exhibited duplicates of the Application and Bankruptcy Notice which she swore were served by her on Mr. Bendel. She also swore that at the time of service she asked Mr. Bendel whether he was the person referred to in the Bankruptcy Notice as the judgment debtor and he replied - "Yes".
Ms. Pereira appeared to be an experienced process server and was conscious of the difference between the Application and the Notice. She was aware that only service of the Notice was required. She said that service of an Application does not occur "terribly often".
Whilst service of a wrong document or of one rather than two documents, is always within the realm of human error and possibility, in the present case the objective facts are not supportive of such an error. Those facts are, that on any view, -
(a)the letter of Clayton Utz enclosed and gave specific instructions for the service of a Bankruptcy Notice and an Application;
(b)Ms. Pereira was aware of the difference between the two documents and of the requirement to serve the Notice on the debtor;
(c)shortly after service Ms. Pereira gave instructions for an Affidavit of Service, albeit in standard form, in respect of both documents;
(d)the Affidavit of Service was duly sworn by Ms. Pereira some days after service.
In addition, in the witness box Ms. Pereira was very positive that she had served the Notice.
Against that evidence is the evidence of Mr. Bendel that he was only served with the Application. Although that issue was first raised with the solicitors for the petitioning creditor very late in the piece, Mr. Bendel informed his own solicitor of his allegation about service on 14 February 1996.
It is said by his counsel that I should accept Mr. Bendel's evidence and reject that of Ms. Pereira. I am not prepared to do so.
In general Mr. Bendel's evidence did not instil in me a great deal of confidence in his credibility. The matters which emerged in the running did not assist him in that regard. His role in relation to the assignment of the Westpac debt, the non-disclosure to creditors of the magnitude of the ANZ debt ($4.85 million) and the denial by Mr. Orbach that his company Napha Nominees Pty. Ltd. had offered to contribute $30,000 to the Part X arrangement are some examples.
Further, Mr. Bendel's evidence in relation to his short meeting with Ms. Pereira was unsatisfactory. Initially he was adamant in his denial of any conversation whatsoever with her. Later, after being confronted with Ms. Pereira's version of the short meeting he admitted saying that he was David Bendel and to Ms. Pereira responding "This is for you". Whilst that evidence is not of great importance in itself, the latter version is supportive of Ms. Pereira's evidence.
In all of those circumstances I have no hesitation in accepting the evidence of Ms. Pereira on the issue of service in preference to the evidence of Mr. Bendel.
Mr. Bendel raised the issue of non-service of the Notice with his solicitor early in the piece. That rebuts the recent invention allegation made against him. It does little more. Even if it was open to me to draw an inference in his favour from that fact I would not do so. By the date of the communication of the omission in relation to service to his solicitor, Mr. Bendel had already consulted others in relation to the matter and was well aware of the significance of the alleged omission.
Accordingly I find that the Bankruptcy Notice relied upon in the Petition was served on the debtor on 11 January 1996.
There being no other grounds on which I ought to decline to make a sequestration order, I am satisfied that the act of bankruptcy alleged in paragraph 4 of the petition was committed by the judgment debtor and of other matters of which the Act requires proof.
I make a sequestration order against the estate of David Bendel. I also order that the costs of the petitioning creditor, of and incidental to the petition, be paid in accordance with the Act.
Finally, there appears to no longer be any purpose in continuing the injunction granted by me on 17 April and varied on 18 April 1996 in relation to the meeting called by the controlling trustee. Accordingly I propose to discharge that injunction forthwith.
I certify that this and the preceding 12 pages are a true copy of the Reasons for Judgment of the Honourable Justice Merkel
Associate:
Dated:19 April 1996
Heard:17, 18 April 1996
Place:Melbourne
Judgment:19 April 1996
Counsel for the debtor: Mr. M. Galvin
instructed by: J.M. Smith and Emerton
Counsel for the petitioning creditor: Mr. M. Derham Q.C.
with Mr. S. Gardiner
instructed by: Clayton Utz
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