Re Paligorov, B.

[1994] FCA 404

JUDGMENT No. ..... !kj?.k../ ,%L

C A T C H W O R D S

BANKRUPTCY - creditor's petition based on non-compliance with bankruptcy notice - debtors prosecuting an action against petitioning creditor seeking damages in amount exceeding judgment debt - action ready for trial - whether "for other sufficient cause a sequestration order ought not to be made" - factors relevant to exercise of Court's

discretion pursuant to sub-s.52(2) of Bankru~tcv	Act 1966.
Bankru~tcv	Act 1966 SS.52, 306; Sub-SS.52(1), 52(2)

Trade Practices Act 1974 Pt.V; ss.52, 80, 82, 87

Re Dolman: Ex Darte Elder Smith, Goldsborouah, Mort Ltd.

(19671 10 F.L.R. 384

rie~ chidt; Ex Darte Analewood Ptv. Ltd. (1968) 13 F.L.R. 111

State of Western Australia v. Wardlev Australia Ltd. (1991)

102 A.L.R. 213

RE: BILL PALIGOROV AND PHILIP RICHARDSON: EX PARTE ACTUS
AUSTRALIA LIMITED

NO. WP1372 OF 1993

26 APRIL 1994

LEE J.
PERTH

IN THE FEDERAL COURT

OF AUSTRALIA
GENERAL DIVISION
BANKRUPTCY DISTRICT

OF THE STATE OF	)
WESTERN AUSTRALIA	) NO. WP1372 OF 1993

RE: BILL PALIGOROV

AND PHILIP RICHARDSON

EX PARTE: ACTUS AUSTRALIA

LIMITED

MINUTES OF ORDER

JUDGE MAKING ORDER:	LEE J.
DATE OF ORDER:	26 APRIL 1994
WHERE MADE:	PERTH
THE COURT ORDERS THAT:

1.        The hearing of the petition be adjourned until further order.

2.        The petitioning creditor have liberty to apply to relist the petition for hearing subject to filing appropriate affidavit in support.

1. The application for an order to amend the petition pursuant to s.306 of the Bankru~tcv Act 1966 be adjourned to allow the petitioner to file further affidavits in support of the application.

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

IN THE FEDERAL COURT

OF AUSTRALIA

GENERAL DIVISION	)
BANKRUPTCY DISTRICT	)
OF THE STATE OF	1
WESTERN AUSTRALIA	1 NO. WP1372 OF 1993

RE: BILL PALIGOROV

AND PHILIP RICHARDSON

EX PARTE: ACTUS AUSTRALIA

LIMITED

CORAM: LEE J.
PLACE: PERTH

DATE : 26 APRIL 1994

EX TEMPORE REASONS FOR JUDGMENT

This is an application under the Bankruotcv Act 1966 ("the Act") by Actus Australia Limited for sequestration orders against the respective estates of Mr Paligorov and Mr Richardson ("the debtors"). The petition was presented on 22 October 1993.

On 13 September 1993 a bankruptcy notice issued at

the request of Actus Australia Limited, made on 26 August

complied with the notice and an act of bankruptcy was	1993, was served on each of the debtors. Neither debtor
committed by each debtor on 5 October 1993.
The bankruptcy notice was based upon a judgment of the Supreme Court of Western Australia entered on 4 January
1991. The judgment was obtained by Actus Australia Limited
against Actus Australia Pty. Limited, as first defendant, and the debtors as second and third defendants, in default of a defence by any defendant to a proceeding by action commenced by Actus Australia Limited in July 1990. The proceeding was in respect of monies due under a contract made between Actus Australia Limited and Camila Pty. Ltd. in August 1989. The debtors were guarantors of the due performance by Camila Pty. Ltd. of its obligations under that contract.
At some point after August 1989 the name Camila Pty. Ltd. was changed to Actus Australia Pty. Limited and back to Camila Pty. Ltd. in or about August 1990.
In August 1990 the debtors and Camila Pty. Ltd. issued an application in the Victoria District Registry of this Court seeking, inter alia, an order under s.80 of the Trade Practices Act 1974 restraining "Actus Australia Ltd." from commencing or continuing proceedings threatened against the applicants.
On 2 October 1990 on the motion of Actus Australia Limited, a Judge of this Court ordered that the proceeding commenced in this Court be transferred to the Supreme Court of Western Australia. The transfer of the proceeding from Victoria to Western Australia appears to have been delayed because the number assigned to that matter upon transfer to the Supreme Court of Western Australia was 1090 of 1991.
On 2 October 1990 Actus Australia Limited was converted to a proprietary company and the name of the company changed to Actus Australia Pty. Limited.
After 2 October 1990 steps should have been taken in the Supreme Court of Western Australia to amend the name of the plaintiff in the proceeding commenced in that Court and the name of the relevant defendant in the proceeding transferred to the Supreme Court from this Court and to change to Camila Pty. Ltd. the name of the first defendant in the former matter. In addition, consideration should have been given to an application to consolidate the two proceedings. No such steps were taken.
The judgment entered on 4 January 1991 was incorrectly entered as a judgment in favour of Actus Australia Limited instead of a judgment in favour of Actus Australia
against Actus Australia Pty. Limited when it should have been Pty. Limited. It was also entered incorrectly as a judgment
entered as a judgment against Camila Pty. Ltd.
The request for the issue of a bankruptcy notice made on 26 August 1993 was improperly made in the name of Actus Australia Limited, notwithstanding that in the body of the application the present name of the applicant was stated. Similarly, the presentation of the petition on 22 October 1993 in the name of Actus Australia Limited as petitioning creditor was incorrect.
On 16 March 1994 application was made to the Supreme Court of Western Australia to amend the judgment entered on 4 January 1991 by changing the name of the plaintiff from Actus Australia Limited to Actus Australia Pty. Limited. The order was made by consent on 17 March 1994. No application was made to amend the name of the first defendant and the amended judgment as extracted will show Actus Australia Pty. Limited as judgment creditor and Actus Australia Pty. Limited as one of the judgment debtors. Application is now made for an order under s.306 of the Act to remedy the irregularity in this proceeding.
Assuming, without deciding, that the petition is a valid proceeding, the question for determination on the hearing of the petition is whether the Court should make a sequestration order under s.52 of the Act based upon the
proven act of bankruptcy.
The debtors do not contest that sufficient proof has been provided of the matters set out in sub-s.52(1) of the Act but seek the exercise of the Court's discretion pursuant to sub-s.52(2) of the Act by an order adjourning the further hearing of the petition or dismissing the petition. The debtors submit that for other sufficient cause sequestration orders ought not to be made, namely, that sequestration orders would serve to hinder the prosecution of the debtors' action against Actus Australia Pty. Limited transferred to the Supreme Court of Western Australia by which their indebtedness to the petitioning creditor may be discharged by set-off of the award of damages sought to be recovered in that action.
It is said that the circumstances pertinent to the transferred litigation, and those relevant to the proceeding in which judgment was obtained against the debtors in the Supreme Court, are intertwined.
The debtors contend that they contracted, as guarantors, with Actus Australia Pty. Limited in reliance upon misleading or deceptive conduct by Actus Australia Pty. Limited in trade or commerce in contravention of s.52 of the
Trade Practices Act. The debtors claim they have sustained loss or damage by reason of that conduct and pursuant to s.82
of the Trade Practices Act seek to recover the amount of that loss or damage. The debtors and Camila Pty. Ltd. also seek orders under s.87 of the Trade Practices Act varying the terms of the agreement made with Actus Australia Pty. Limited., the effect of which may be to set aside liabilities the debtors may have to Actus Australia Pty. Limited.
The transferred proceeding has been entered for trial in the Supreme Court of Western Australia. The date of hearing of the trial will be fixed at a call-over proceeding in the Court in June, July or August of this year. The explanation offered for the delay in the progress of that proceeding was that soon after initiating the proceeding the debtors found themselves without funds, so that they were unable to instruct solicitors to prosecute the matter and were lacking the skill to continue the proceedings on their own behalf. Subsequently the debtors have been provided with funds by an interested, and undisclosed, third party to instruct solicitors to prosecute the litigation and, as a result, the matter has been prepared for trial and is now ready for hearing.
There was considerable uncertainty as to when the hearing of the matter may take place. Unless there is a
Court, perhaps by the use of urgent temporary measures similar reorganization and reallocation of the workload of the Supreme to those used by the Court in August last year, the prospect of the matter being heard this year is slight.
On the face of the material presented, the petitioning creditor may expect a sequestration order to be
made, however, certain factors germane to the exercise of the Court's discretion must be addressed.
In seeking sequestration orders the petitioning creditor does not rely on the need for the early appointment of a trustee in bankruptcy to administer the affairs of the debtors, to conduct prompt examinations and enquiries in respect of the affairs of debtors, and, if necessary, to commence proceedings to recover assets improperly severed from the debtors ' estates. There was no reliance by the petitioning creditor upon an apprehension of assets having been disposed of by the debtors either by way of preference or by avoidable dispositions.
In the course of submissions by counsel for the petitioning creditor, allusion was made to a change in the debtorsr positions in relation to CO-ownership of the respective "matrimonial homes". An affirmative finding in that regard was not possible given that no evidence was
adduced as to what constituted the change or when it occurred.
The petitioning creditor's submissions in support of the application for sequestration orders noted that the debtors have a number of creditors in addition to the petitioning creditor. The debtors say that those creditors remain undischarged by reason of the harm caused by the

business transactions entered into by Camila Pty. Ltd. and the debtors in reliance upon the conduct of the petitioning creditor for whlch the debtors seek redress in their action in the Supreme Court. The fact remains, however, that the debtors have a number of creditors, although it was not suggested that any of those creditors was pressing for a sequestration order to be made to have the estates of the debtors administered by trustees.

It is well established that the Act is to be administered with public interest considerations in mind, and, in particular, with regard to the due administration of the estates of debtors especially where the debt is for a substantial sum. It should be noted, however, that public interest is also relevant to the prosecution of actions which

rely upon the Trade Practice Act. (See: State of Western Australia v. Wardlev Australia Ltd. (1991) 102 A.L.R. 213 at p.224. )

Enforcement of Pt.V of the Trade Practices Act has been left, in the main, to orders that may be made in litigation brought pursuant to the rights of action created in ss.82 and 87 of the Trade Practices Act. The sanction to be imposed for contravention of Pt.V of the Trade Practices Act, including contravention of s.52, is not manifested in the form of a penalty but by the liability to suit at the election of a

person who has suffered loss. The public interest in the maintenance of deterrence to misleading or deceptive conduct in trade or commerce is put in the hands of litigants who may sue to recover loss incurred by reliance upon such conduct. It is the intention of the legislature that the exercise of such rights of action will dissuade persons in trade or commerce repeating like conduct and will ensure adherence to desirable norms of commercial and trading behaviour.

In prosecuting such an action in the Supreme Court, the debtors rely upon financial assistance received from a third party in order to redress what is perceived to be a commercial wrong. The Court would be entitled, in the absence of any clear evidence to the contrary, to draw an inference that the willingness of that party to provide funds would be unlikely to continue if sequestration orders were made and the decision to pursue the action left to the discretion of a trustee. A trustee would require a full and complete indemnity before undertaking or continuing litigation against

third party who may be prepared to contribute periodically	the petitioning creditor. The inference could be drawn that a
upon request and under an informal arrangement would refrain from entering into any formal arrangement with a trustee to be liable for the whole of the trustee's costs. The prospect of litigation being pursued on behalf of the debtors after a trustee has been appointed to the estate of the debtors would be most unlikely.
As the debtors have no assets, litigation is possible only by reason of contributions of a third party and while such contribution involves the accrual of indebtedness to that party, it does not imperil any assets now in existence which could otherwise be distributed to creditors. As there is no real or potential prospect of creditors generally being prejudiced by the debtors' pursuit of litigation in the Supreme Court, it is not necessary to undertake a closer analysis of the benefits to be gained by that litigation against the frittering away of assets by reason of that litigation.
As stated at the adjournment of the petition on 9 March 1994 there is no difficulty in respect of the extension of the relation back period by reason of an application to prolong the life of the petition. If there is any hint of oppression surrounding such an extension it would fix upon the
debtors alone but would not be of a nature to occasion the
dismissal of the petition.
Balancing all these interests and applying a reasoning process which endeavours to obtain a result which, as far as possible, is just having regard to the respective interests of the parties (see: Re Dolman: Ex Darte Elder Smith, Goldsborouah. Mort Ltd. (1967) 10 F.L.R. 384), I am satisfied that a sequestration order ought not to be made at this time. The hearing of the creditor's petition should be adjourned until the Supreme Court has determined the debtors' claim under the Trade Practice Act. (See Re Schmidt: Ex Darte Analewood Ptv. Ltd. (1969) 13 F.L.R. 111.)
The costs should be reserved and there should be liberty to apply to re-list the petition in the event of a change of circumstances, for example fresh evidence relating to the disposition of property by the debtors or failure of the debtors to continue to prosecute the Supreme Court action with due diligence.
The application for an order to amend the petition pursuant to the power vested in the Court under 6.306 of the Act to remedy an irregularity in a proceeding, will continue to stand adjourned to allow the petitioner to file further affidavits to support the application, in particular, dealing
with the question whether the proceedings in bankruptcy were commenced in the name of Actus Australia Limited as an advised
choice or as the result of inadvertence.

I certify that the preceding
eleven (11) pages are a true copy of the

Reasons for Judgment of his Honour Mr Justice Lee.

~ssociate: f? P&&

Date: 2b \994.

Counsel for the Creditor: M.W. Odes

Solicitors for the Creditor: Messrs Karp Monaghan Margaretic

Counsel for the Debtors: R.J.L. McCormack

Solicitors for the Debtors: Corser & Corser

Date of Hearing:  2 6 April 1994

Date of Judgment: 2 6 April 1994