Rozaklis v Samra
[2010] FMCA 579
•6 August 2010
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| ROZAKLIS v SAMRA | [2010] FMCA 579 |
| BANKRUPTCY – Annulment pursuant to s.153B of the Bankruptcy Act – Debtor’s Petition – foreign purpose. |
| Bankruptcy Act 1966, ss.40, 55, 122 and 153B |
| Adler v Australian Securities and Investments Commission [2003] NSWCA 131 Briginshaw v Briginshaw (1938) 60 CLR 336 Clyne v Deputy Commissioner of Taxation & Ors (1984) 154 CLR 589 Edelsen v Deputy Commissioner of Taxation (NSW) & Others (1989) 86 ALR 257 Re Crowl; Ex parte Klienwort Benson Australia Ltd (1988) 17 FCR 37 Rejfek v McElroy (1965) 112 CLR 517 |
| Applicant: | DIMITRIOS ROZAKLIS |
| Respondent: | MICHAEL SAMRA |
| File Number: | ADG 64 of 2010 |
| Judgment of: | Simpson FM |
| Hearing date: | 6 July 2010 |
| Date of Last Submission: | 6 July 2010 |
| Delivered at: | Adelaide |
| Delivered on: | 6 August 2010 |
REPRESENTATION
| Counsel for the Applicant: | Mr M. Blue QC, with Mr J. Whitington |
| Solicitors for the Applicant: | Griffin Hilditch |
| Counsel for the Respondent: | Mr P. Slattery QC |
| Solicitors for the Respondent: | Lynch Meyer |
ORDERS
The bankruptcy of the respondent Michael Samra arising from the presentation of a Debtor’s Petition to the Insolvency and Trustee Service Australia on 3 March 2010 is annulled pursuant to s.153B of the Bankruptcy Act, 1966 (Cth).
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT ADELAIDE |
ADG 64 of 2010
| DIMITRIOS ROZAKLIS |
Applicant
And
| MICHAEL SAMRA |
Respondent
REASONS FOR JUDGMENT
Introduction
I have before me an application by Dimitrios Rozaklis (“the applicant”) seeking an order pursuant to s.153B of the Bankruptcy Act, 1966 (Cth) (“the Act”) that the bankruptcy of Michael Samra (“the respondent”) arising from the presentation of a Debtor’s Petition to the Insolvency and Trustee Service Australia on 3 March 2010 be annulled on the ground that the Debtor’s Petition ought not to have been presented as its presentation amounted to an abuse of process. Ms Elizabeth Orr (“Ms Orr”) was appointed Trustee of the respondent’s bankrupt estate on 3 March 2010.
In the event that the order for annulment is granted the applicant will be seeking, in other proceedings, namely Action Number ADG 19 of 2010 between the same parties, a sequestration order against the estate of the respondent in accordance with the terms of the applicant’s creditor’s petition dated 28 January 2010. Mr Nicholas David Cooper, (“Mr Cooper”) a registered Trustee, has consented to be appointed the Trustee of the respondent’s bankrupt estate should the sequestration order sought be granted.
The respondent has failed to take any part in the proceedings whether as a party or a witness.
Although not a party to the proceedings the Court has been assisted by the Trustee, Ms Orr. She has filed affidavits and has been represented by Senior Counsel. She gave oral evidence and was cross-examined.
At the commencement of the hearing I heard arguments in relation to the admissibility of certain affidavit evidence and then received the admissible evidence.
The applicant relied on the following affidavit material:
a)Affidavit of Dimitrios Rozaklis sworn and filed on 19 March 2010 other than paragraph 12 (Exhibit A1);
b)Affidavit of Nicholas David Cooper sworn and filed on 22 March 2010 other than paragraphs 14, 15 and 16 (Exhibit A2);
c)Affidavit of Nicholas David Cooper sworn and filed on 4 June 2010 (Exhibit A3);
d)Affidavit of Nicholas David Cooper sworn and filed on 2 July 2010 (Exhibit A4);
e)Affidavit of Gregory Michael Griffin sworn and filed on 4 June 2010 (Exhibit A5);
f)Affidavit of Bernard Colin Walrut sworn and filed on 1 July 2010 (Exhibit A6);
g)Affidavit of George Peliouris sworn and filed on 23 March 2010 (Exhibit A7); and
h)Affidavit of Michaela Joanne Nicholas sworn and filed on 2 July 2010 (Exhibit A8).
During cross-examination of Ms Orr, Counsel for the applicant tendered a handwritten note of a conversation that Ms Orr had with Ms Rosemary Papps of KordaMentha on 23 February 2010 which document was received into evidence as Exhibit A9.
Ms Orr put the following affidavit material into evidence:
a)Affidavit of Ms Orr sworn 29 April 2010 and filed 28 May 2010 and said to be a confidential affidavit and therefore kept in a sealed envelope (Exhibit R1);
b)Affidavit of Ms Orr sworn and filed on 29 April 2010 (Exhibit R2);
c)Affidavit of Ms Orr sworn on 27 May 2010 and filed 28 May 2010 said to be a confidential affidavit and therefore kept in a sealed envelope (Exhibit R3);
d)Affidavit of James Arthur Neate sworn and filed on 26 May 2010 other than exhibit “JAN2” (Exhibit R4); and
e)Affidavit of Stephen James Duncan sworn and filed on 1 July 2010 other than paragraph 7 thereof (Exhibit R5).
Background
The liquidation proceedings
Prior to 1995 the respondent worked for 12 years in lending with Toyota Finance. In 1995 the respondent commenced a business called Adelaide Lending Centre (“ALC”). The operation was established as Michael Christopher Samra as trustee of the Michael Christopher Samra Family Trust (“MCSFT”) trading as Adelaide Lending Centre.
Initially ALC restricted its operations to finance and mortgage broking. After a few years ALC branched into private lending and in July 1999 ALC Group Pty Ltd (ACN 088 613 156) (“ALCG”) was established. It was intended that most of the lending would be conducted through ALCG.
In 2009 both the businesses and the respondent got into financial difficulties. A detailed explanation of these difficulties is not necessary for a determination of the current application. Suffice it is to state that in August 2009 ALCG ceased trading.
On 6 August 2009 Mr Cooper and Andre Strazdins (“Mr Strazdins”), both of BRI Ferrier, were appointed joint and several liquidators of ALCG. The documents appointing them were signed by Mr Samra’s wife, Tsanvik Samra (“Mrs Samra”) pursuant to a Power of Attorney that she purported to hold on behalf of Mr Samra.
Between 6 and 17 August 2009 Messer’s Cooper and Strazdins undertook the roles and duties as joint and several liquidators of ALCG.
At about this time the difficulties being experienced by the respondent and his businesses were receiving adverse publicity in the local press.
On 7 August 2009 application was made to the Supreme Court of South Australia in proceeding number 1193 of 2009 by a number of creditors of ALCG to have the Court appoint different liquidators to ALCG. As a result of some uncertainty surrounding their appointment as liquidators of ALCG and on legal advice Messrs Cooper and Strazdins informed the Supreme Court that they would withdraw as liquidators to enable the Court to determine who should be appointed. In the event the Supreme Court appointed Stephen Duncan and Nicholas Gyss, both of KordaMentha, as the joint and several liquidators of ALCG.
Subsequent to Messrs Cooper and Strazdins withdrawing as liquidators of ALCG a number of creditors of ALCG filed applications to intervene in the Supreme Court action. Those creditors sought and obtained Mr Cooper’s consent to act as official liquidator of ALCG.
Prior to being requested to provide a consent to act as the Trustee in Bankruptcy of Mr Samra, Mr Cooper considered the issue of whether his previous involvement could in some way prevent him from professionally accepting the appointment. He considered that he did not have a conflict that would preclude him from doing so.
Mr Cooper undertook an investigation into the affairs and financial position of the Samra businesses and became familiar with the structure of both the businesses and the role played by Mr Samra as the effective controlling mind of ALCG and as the proprietor of ALC.
Mr Cooper formed the view that as at March 2010 the shortfall to creditors of the Samra businesses was in the vicinity of $50 million. This shortfall did not take into account certain other creditors of the Samra businesses who had not come forward. Mr Cooper believed that these creditors did not wish to be identified as having invested with Mr Samra and his businesses and did not want either adverse publicity or scrutiny by the relevant authorities as to their investments with him and the Samra businesses.
The bankruptcy proceedings
On 26 November 2009 the applicant obtained judgment in default of defence against the respondent in the District Court in the sum of $785,000 plus costs to be taxed or agreed.
On 14 December 2009 Registrar Christie (in Action Number ADG 338 of 2009 in the Federal Magistrates Court) ordered that personal service of the applicant’s Bankruptcy Notice issued against the respondent (Number SA 495 of 2009) dated 2 December 2009 be dispensed with and in lieu thereof a copy of the Bankruptcy Notice be served on Stephen Duncan, a liquidator of the company ALCG. This was ordered on the basis of evidence that Mr Duncan had regular contact with the respondent.
On 17 December 2009 service of the Bankruptcy Notice pursuant to Registrar Christies orders was effected on Mr Duncan.
On 28 January 2010 the applicant filed a Creditor’s Petition in this Court (Action Number ADG 19 of 2010) relying on the act of bankruptcy committed by the respondent on 27 January 2010 due to his failure to comply with the requirements of the Bankruptcy Notice. The time and date of hearing given by the Court was 2.15pm on 1 March 2010.
On 5 February 2010 the applicant’s solicitor, Mr Walrut, telephoned Rosemary Papps of KordaMentha informing her that he had documents to serve on Mr Samra. Ms Papps suggested that he obtain an order for substituted service of the documents.
On 22 February 2010 Registrar Christie ordered substituted service of the Creditor’s Petition by post to the respondent at 19 Nilpinna Street, Burnside and to Stephen Duncan of KordaMentha at his office address. Registrar Christie also ordered that the hearing date of the petition be amended to 2.15pm on 22 March 2010.
On 3 March 2010, before service of the applicant’s Creditors Petition could be effected, the respondent filed a Debtor’s Petition pursuant to s.55 of the Act and thereby became bankrupt by operation of s.40 of the Act.
Ms Orr became the respondent’s bankruptcy Trustee by virtue of her Consent to Act as Trustee dated 2 March 2010.
On 19 March 2010 the applicant commenced these proceedings.
When the matter came before this Court on 16 April 2010 I ordered Ms Orr to file a trustee’s report. The report was filed on 29 April 2010. In the report Ms Orr stated:
“My only dealings with the bankrupt prior to my appointment were as follows:
a)On 19 February 2010 I received a telephone call from the bankrupt advising that he wanted to declare himself bankrupt and asking for an appointment to meet with me.
b)On 19 February 2010 I spoke with Mr Ray Mansueto, the solicitor for the liquidators of ALC Group Pty Ltd (“ALCG”) who provided background information about the conduct of the liquidation.
c)I met with the bankrupt on 24 February 2010 to discuss the consequences of bankruptcy, the requirements for filing a debtor’s petition and the role of a trustee in bankruptcy. Also present at the meeting was the bankrupt’s solicitor, Mr Tim Hall of Kain CC, Mr Mansueto of Minter Ellison and Ms R Papps of KordaMentha. Ms Papps and Mr Mansueto provide an explanation of matters arising from the liquidation of ALCG.”
In her oral evidence Ms Orr said, and I accept, that contrary to what was said in her affidavit, her first contact in relation to the bankruptcy was when Mr Mansueto contacted her on 19 February 2010. She had had no prior contact with the respondent. The respondent contacted Ms Orr soon after Ms Orr had her discussion with Mr Mansueto. I infer therefore that there was a discussion between Mr Mansueto and the respondent between these two telephone conversations that Ms Orr has referred to in her evidence. I find that Ms Orr had conversations with various people, including the respondent in the week commencing 22 February 2010.
Annulment by Court
The onus on an annulment application is the civil onus.[1]
[1] Edelsen v Deputy Commissioner of Taxation (NSW) and Others (1989) 86 ALR 257 at 264; Briginshaw v Briginshaw (1938) 60 CLR 336; Rejfek v McElroy (1965) 112 CLR 517.
Sub-paragraph s.153B(1) of the Act says as follows:
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.
The applicant submits that the petition ought not to have been presented or ought not to have been accepted by the Official Receiver as the respondent had a foreign purpose in presenting his Debtor’s Petition and that the proceedings were therefore an abuse of process.
Reference has been made to the case of Clyne v Deputy Commissioner of Taxation & Ors (1984) 154 CLR 589 in which Gibbs CJ, Murphy, Brennan and Dawson JJ said at pages 599-600:
“It is a purpose foreign to the bankruptcy laws, and an abuse of process, for a debtor to present a petition for the purpose of making it impossible for a creditor to obtain a sequestration order on a pending petition and with the further purpose of shortening the period of relation back, possibly placing beyond the reach of the Trustee property which would otherwise vest in him.”
Counsel for the applicant also referred to the case of Edelsen v Deputy Commissioner of Taxation (NSW) & Others (1989) 86 ALR 257. In particular I was taken to a passage of the joint judgments of Lockhart, Wilcox and Pincus JJ immediately following a quote which included the sentence from Clyne’s case referred to above. Their Honours said at page 261:
“A question has arisen before us as to the import of the last sentence in the passage just quoted. The appellant submits that, by this sentence, their Honours were propounding as the appropriate test that it must appear that the debtor has a combination of two purposes: first to make it impossible for a creditor to obtain a sequestration order; and, secondly, to shorten the period of relation back, under s.115 of the Act. In the present case, unlike in Clyne, the effect of a bankruptcy occurring pursuant to the petition of the debtor rather than that of the creditor is not to shorten the period of relation back. Under either alternative the bankruptcy would relate back to 22 May 1987, the date of the only proved act of bankruptcy. Accordingly, the appellant contends that the principle enunciated in Clyne is inapplicable to this case.
We think that in the subject sentence, their Honours had in mind a case where both these purposes appeared. But it does not follow that they were of the opinion that a petition may constitute an abuse of process only in such a case. As always, the reasons for judgment must be read in their context. In Clyne the High Court was concerned with a case in which the two purposes referred to were established by the evidence. We read their Honour’s as saying no more than that, in such a case, the petition will constitute an abuse of process. The adoption by their Honour’s of the touchstone “purpose foreign to the bankruptcy laws”, combined with their use of the English decisions demonstrates that they saw the facts of the particular case as constituting merely an illustration of a more general principle. In our view, the ratio decidendi of Clyne is that a petition will constitute an abuse of process if it is presented for a purpose, whatever that purpose may be, which is foreign to the bankruptcy laws.”
It follows from Edelsen’s case that to establish abuse of process it is not necessary to prove that in presenting the Debtor’s Petition the debtor had the purposes firstly of making it impossible for a creditor to obtain a sequestration order and, second, of shortening the period of relation back. If on the balance of probabilities, either purpose (or some foreign purpose) is established, abuse of process on the basis of foreign purpose is made out.
It was submitted on behalf of the applicant that important consequences flow from whether one petition rather than another is relied upon for the bankruptcy. Further passages from Edelsen’s case were relied upon in this regard:
“The identity of the petition by virtue of which a sequestration order is made may have important practical consequences. First, the rights of creditors may be affected.’[2]
…
“Section 122 avoids preferences given in favour of a creditor within six months before the presentation of the petition upon which the debtor became bankrupt.” [3]
[2] Eldesen et al at line 28 at [259].
[3] Eldesen et al at line 41 at [259].
…
Secondly, the administration of an estate may be affected, at least in the first instance, by the identity of the petitioner. Where a registered trustee has filed a consent to act as the trustee of the estate of a particular debtor and that debtor becomes bankrupt, that registered trustee becomes the trustee of the estate: see s 156 a. It often happens that the petitioner, whether a creditor or the debtor, arranges with a particular registered trustee to give such a consent, the petitioner thus determining the identity of the trustee of the bankrupt estate. This determination may be overruled, either by the Court or by the creditors; but in most cases, it is not. And, as the Act gives substantial discretions to the trustee, much may turn upon his or her personal characteristics.” [4]
[4] Eldesen et al at line 44 at [259].
It was put on behalf of the applicant in the present case that the foreign purpose referred to in Clyne’s case can be inferred. The case of Re Crowl; Ex parte Klienwort Benson Australia Ltd (1988) 17 FCR 37 was referred to and in particular a passage from the judgment of Beaumont J:
“ … was the petition lodged "with the further purpose of shortening the period of relation back, possibly placing beyond the reach of the trustee property which would otherwise vest in him"? In Clyne's case, such a purpose was admitted by Mr Clyne. In Re Cornish; Ex parte English (1984) 6 FCR 257, Morling J could infer it from a number of dealings or transactions by the bankrupt in the relevant period.
In the present case, there is no concession of the kind made by Mr Clyne; nor is there specific evidence that in any relevant period, Mrs Crowl entered upon any particular dealing or transaction which might be susceptible of challenge under the statutory doctrine of relation back.
Mrs Crowl was not called to give evidence. … In the circumstances, it may be inferred that, if called, Mrs Crowl would not have assisted her case. At the same time, as has been said, KBA did not seek to prove that any particular dealing or transaction occurred within the earlier relation back period which would apply if the appeal to the High Court were to be allowed and a sequestration order were to be made on its petition.
On behalf of Mrs Crowl, it is submitted that the absence of any evidence of any dealings or transactions on her part is fatal to the suggestion that one of her purposes was to shorten the period of relation back. It is true that KBA must bear the general onus of proving this allegation and that there is no specific evidence of any relevant dealings or transactions. The real issue here is whether it is proper to infer the existence of such matters from the evidence as a whole, bearing in mind that the facts are peculiarly within the knowledge of Mrs Crowl. This does not mean that: "the peculiar means of knowledge of one party spares the other of the burden of adducing evidence on the issue, although very slight evidence will often suffice.”: see D M Byrne QC, J D Heydon QC, Cross on Evidence (3rd Aust ed 1986), p 190.
There is evidence that Mrs Crowl was involved, as a director and shareholder, in corporate activities on a substantial scale; that, in this connection, she incurred significant liabilities to a number of creditors; that she claims she has no assets; that she is the registered proprietor of the Wagga Wagga property which, it is claimed, is beneficially owned by another entity. In the absence of any testimony from Mrs Crowl, it is possible to infer from what is revealed in the evidence available of her financial position in late 1987 and early 1988 that she could have engaged in one or more transactions or dealings with her assets within the relation back period calculated by reference to KBA's petition but which occurred before the relation back period of her own petition.
This is not to say that it is certain or even probable that Mrs Crowl had any particular transaction or dealing in mind when she presented her petition. Rather, it is a case of inferring from her financial difficulties in 1987 that it was possible that she had such a transaction or dealing in mind when she decided to present her own petition.
Given that inference, in the absence of any other explanation from Mrs Crowl, it is appropriate to find that she presented her petition for the purpose of shortening the period of relation back, possibly placing beyond the trustee property which might otherwise be available to the general body of creditors.
This is not a proper use of the process. The bankruptcy must be annulled. Mrs Crowl must pay the costs of the application.”
For the reasons that follow, I am satisfied on material before me that it is appropriate for me to infer that the respondent had the following ulterior purposes for filing the Debtor’s Petition:
a)to prevent the applicant from obtaining a sequestration order;
b)to shorten the relation back period;
c)to have a trustee of his own choosing appointed in the hope that this would assist his purposes in the bankruptcy.
Clearly I should infer that the respondent believed that it was to his advantage to file a Debtor’s Petition. The timing of the filing of the Debtor’s Petition soon after he had committed an act of bankruptcy in failing to comply with the applicant’s bankruptcy notice indicates to me that the respondent decided that it was to his advantage to become bankrupt on a Debtor’s Petition rather than a Creditor’s Petition. By August 2009 the respondent and his businesses were in serious financial difficulty. Notwithstanding this the respondent took no action to have himself declared bankrupt. I infer that the respondent was prompted to file his Debtor’s Petition as a result of the existence of the creditor’s petition. He wanted to prevent the applicant from obtaining a sequestration order. The evidence that the respondent did nothing for such a long time after getting into financial difficulty and only acted to have himself declared bankrupt after being served with the applicant’s bankruptcy notice is, in the absence of any evidence from the respondent to the contrary, sufficient evidence for me to make the findings detailed above.
In Adler v Australian Securities and Investments Commission [2003] NSWCA 131 at [649] – Hayden J A said:-
“ unexplained failure by a party to give evidence may lead to an inference that the uncalled evidence would not have assisted that party’s case. This instance of a Jones v Dunkle inference (Jones v Dunkle [1959] 101 CLR 298), … can entitle the judge or jury more readily to accept the evidence of the opposite party which might have been contradicted, or more readily to draw any inference fairly available from the evidence called by the other party. A Jones v Dunkle inference cannot fill gaps in the evidence, or convert conjecture and suspicion into inference, but unless it is to be empty of content the inference if drawn may weigh the scales, however slightly, in favour of the opposing party.’
There was a clear advantage to the respondent in preventing a sequestration order being made on the applicant’s petition: as a result of s.122 of the Act the period for preferences which are voidable is the 27 January 2010 in a bankruptcy pursuant to the debtors petition [5] (namely the date of the act of bankruptcy on which the applicant’s creditor’s petition was based) and not later than the 28 July 2009 in a bankruptcy pursuant to the applicant’s creditor’s petition [6] (namely six months before the date of the presentation of the applicant’s creditor’s petition). As previously mentioned in these reasons, debts of the bankrupt estate and the winding up of the respondent’s company are likely to extend to many millions of dollars. So far as the respondent is concerned it is likely that he has disposed of significant assets (including monies) in the period leading up to his bankruptcy. Reducing the relation back period would have a significant advantage to the respondent in that transactions between the 28 July 2009 and 27 January 2010 could not be uncovered and the amounts recovered.
[5] By virtue of s.122 Table Item 2 and s.115 Table Item 2.
[6] By virtue of s.122 Table Item 1.
The final reason why I believe that the bankruptcy pursuant to the Debtor’s Petition ought to be annulled is that the respondent had a further ulterior purpose in filing the Debtor’s Petition namely that he saw it to his advantage to have Ms Orr appointed his Trustee in bankruptcy. Ms Orr indicated to him that she only required a sum of $15,000.00 for fees. This is a small sum of money for a bankruptcy administration that could involve many enquiries involving much time and therefore cost for the Trustee. Ms Orr is a sole practitioner with no professional and only three non-professional staff. It is reasonable to infer that the combined effect of Ms Orr’s stated fees and the concern that Ms Orr expressed about whether she and her firm have the capacity to handle the administration are likely to have caused the respondent to believe that, if Ms Orr were appointed Trustee, there would not be a major enquiry taken by her in relation to the administration. In saying this I do not intend to infer that Ms Orr would not properly conduct the administration. I am simply looking at the matter from what I consider is the respondent’s point of view. I infer that he believed that it would be to his advantage to have Ms Orr as his administrator and that this could only occur if he filed a Debtor’s Petition. I do not accept the submission by Counsel for the Trustee that the application is an attack on Ms Orr. No such attack has been made, nor should it.
In my view there are no proper grounds for saying that the annulment should not take place. I see no reason why I should not exercise the discretion given me by s.153B to make the order sought.
There will be orders as detailed at the beginning of these reasons.
I certify that the preceding forty-four (44) paragraphs are a true copy of the reasons for judgment of Simpson FM
Associate:
Date: 6 August 2010
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