Sciacca v Waldron
[2011] FMCA 924
•25 November 2011
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| SCIACCA & ORS v WALDRON & ANOR | [2011] FMCA 924 |
| BANKRUPTCY – Leave to proceed against a bankrupt in Supreme Court proceedings. |
| Bankruptcy Act 1966 (Cth), s.58 Conveyancing Act 1919 (NSW), s.37A |
| Allanson v Midland Credit Ltd and Another (1977) 30 FLR 108; [1977] FCA 14 Green v Schneller and Another (2001) 164 FLR 82; [2001] NSWSC 897 |
| First Applicant: | FRANK SCIACCA |
| Second Applicant: | MAURA SPRESIAN |
| Third Applicant: | ROSIE IANELLI |
| First Respondent: | FRANCIS GERARD WALDRON |
| Second Respondent: | MICHAEL GREGORY JONES |
| File Number: | SYG 2495 of 2011 |
| Judgment of: | Barnes FM |
| Hearing date: | 15 November 2011 |
| Delivered at: | Sydney |
| Delivered on: | 25 November 2011 |
REPRESENTATION
| Counsel for the Applicants: | Mr H Stitt |
| Solicitors for the Applicants: | WKA Legal Pty Ltd |
| Respondents: | No appearance |
ORDERS
Leave is granted to the applicants pursuant to s.58(3) of the Bankruptcy Act 1966 (Cth) to commence proceedings in the Supreme Court of New South Wales against Francis Gerard Waldron a bankrupt and Michael Gregory Jones as the Trustee of Mr Waldron’s bankrupt estate for the purposes of seeking declaratory relief and orders in the nature of specific performance.
Leave is granted to the applicants to take such fresh steps in such proposed Supreme Court proceedings as are required and to continue the said proceedings up to and including a final hearing.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 2495 of 2011
| FRANK SCIACCA |
First Applicant
| MAURA SPRESIAN |
Second Applicant
| ROSIE IANELLI |
Third Applicant
And
| FRANCIS GERARD WALDRON |
First Respondent
| MICHAEL GREGORY JONES |
Second Respondent
REASONS FOR JUDGMENT
By application filed on 2 November 2011 the applicants seek an order pursuant to s.58(3)(b) of the Bankruptcy Act 1966 (Cth) that leave be granted to them to commence proceedings in the Supreme Court of New South Wales against Mr Waldron, a bankrupt, and Mr Jones as the Trustee of his bankrupt estate for the purposes of seeking declaratory relief and orders in the nature of specific performance. They also seek that leave be granted to take such steps in such foreshadowed Supreme Court proceedings as are required and to continue those proceedings up to and including a final hearing.
The applicants rely on affidavits sworn by each of them, by Mr Ng Saad, a process server, and also an affidavit of Mr Keay the solicitor for the applicants in relation to the circumstances that have led to the present proceedings.
A sequestration order against the estate of Mr Waldron was made on 8 April 2010. Mr Jones was appointed his Trustee in bankruptcy. I am satisfied that Mr Jones has been served with the documents relied on by the applicants in these proceedings and is on notice of these proceedings. In addition to service of the application and supporting affidavits, the solicitors for the applicants wrote to Mr Jones on 11 November 2011 proposing that the orders sought be made by consent. Somewhat confusingly, Mr Jones’ response of 14 November 2011 referred to outstanding amounts owed by the bankrupt and asked the solicitors for the applicants whether the bankrupt was “in a position to finance” such debts, as otherwise he, as trustee, was “not in a position to consent to the annulment of bankruptcy”. It is not entirely clear what was meant by this, as no annulment is proposed, but nonetheless it is clear that Mr Jones as Trustee of the bankrupt estate of Mr Waldron is on notice of these proceedings but has not appeared.
The background to these proceedings is that on or about 26 July 2005 the applicants loaned the total amount of $490,000 to Mr Waldron and his wife secured by way of a second mortgage over a property owned by them at Wahroonga. The Waldrons defaulted on the loan, which has not been repaid. In mid-2006 the applicants were informed that the first mortgagee of the Wahroonga property was planning to sell it at public auction to recover its loan and that Mr and Mrs Waldron had proposed obtaining a further loan from GR Finance Ltd. At the request of the Waldrons the applicants agreed to restructure their security for the loan on the basis that they receive from Mr Waldron a mortgage over a redeemable preference share held by him in Arnap Pty Ltd (Arnap) since December 2005 and convert their second mortgage over the Wahroonga property to a third mortgage over that property. Copies of the documents by which this proposed restructuring was put into effect (in mid-June 2006), including a copy of a share mortgage signed by Mr Waldron, are in evidence before the court.
It is said that after Mr Waldron had granted an interest over the redeemable preference share he had acquired in Arnap to the applicants, he defaulted under that arrangement. According to the applicants, on or about 30 April 2008, after proceedings had been commenced against Mr Waldron in the Supreme Court seeking recovery of the debt owed to the applicants he redeemed his preference share in Arnap, which was re-issued to the then only other shareholder (Mr Peter Evans) at a time at which Arnap was on notice of the applicants’ mortgage over Mr Waldron’s share.
The applicants contend that by reason of Mr Waldron redeeming his share in Arnap without first discharging their mortgage, they have a cause of action against Mr Waldron, Mr Evans and Arnap pursuant to s.37A of the Conveyancing Act 1919 (NSW) which renders an alienation of property made with an intent to defraud creditors “voidable at the instance of any person thereby prejudiced”. Leave is sought to pursue such cause of action in the Supreme Court. A copy of the proposed statement of claim is in evidence before the court.
The applicants have already commenced proceedings against some of the other parties involved in Supreme Court of New South Wales proceedings number 2011/90522. In addition, they sought a freezing order over the assets of Arnap and Peter Evans. Such order was made by Nicholas J in the Supreme Court of the New South Wales on 27 October 2011 (see Frank Sciacca & Ors v Arnap Pty Ltd & Anor (unreported, Supreme Court of New South Wales, Nicholas J, 27 October 2011)). In the course of his judgment his Honour stated that he was satisfied that the plaintiffs (the applicants in these proceedings) had an “arguable case” under s.37A of the Conveyancing Act in relation to the transfer of the redeemable preference share in Arnap to Mr Evans (at [9]). His Honour was satisfied, having regard to evidence before him of the sale of various lots of property in the name of Arnap at Mr Waldron’s direction as the holder of a power of attorney in the period from December 2007 to March 2008, that there was “a risk of disposal or other dealings” (at [11]), particularly having regard to the fact that shortly after Mr Waldron was served with the statement of claim for the recovery of the debt he redeemed the preference share in Arnap which was then issued to Mr Evans. His Honour made freezing orders until 31 October 2011 which were subsequently extended to 28 November 2011.
In these circumstances the applicants seek the leave of this court to commence and continue proceedings against Mr Waldron and Mr Jones as trustee of his bankrupt estate (as well as Arnap and Mr Evans) in the Supreme Court of New South Wales. The applicants hope that the declarations sought will result in voiding the transactions entered into by Mr Waldron and Mr Evans prior to Mr Waldron’s bankruptcy in respect of a potential provable debt.
Section 58(3) of the Bankruptcy Act is relevantly as follows:
Except as provided by this Act, after a debtor has become a bankrupt, it is not competent for a creditor:
(a) to enforce any remedy against the person or the property of the bankrupt in respect of a provable debt; or
(b) except with the leave of the Court and on such terms as the Court thinks fit, to commence any legal proceeding in respect of a provable debt or take any fresh step in such a proceeding.
It is well established that the words “in respect of” in s.58(3) should be construed widely. In Green v Schneller and Another (2001) 164 FLR 82; [2001] NSWSC 897 Barrett J concluded that proceedings in which a party sought avoidance of a transfer of a property by the bankrupt in circumstances said to have involved a fraudulent disposition within s.37A of the Conveyancing Act were in respect of a provable debt.
His Honour was of the view that a proceeding in which the disposition of property was attacked under s.37A was a “legal proceeding” for the purpose of s.58(3)(b) (at [11]) and that a creditor was “clearly” within a class of persons “thereby prejudiced” and hence qualified to invoke s.37A of the Conveyancing Act (at [15] – [17]). Moreover, notwithstanding that such proceedings were not concerned with the direct recovery or enforcement of debts said to be owed to the plaintiff in that case, but rather were proceedings commenced by the person to whom the debts were owed with a view to seek “what is effectively enforced restoration of property to the debtor” so as to “augment the assets available for all creditors proving in the bankrupt estate” (at [12] – [18]) there was nonetheless sufficient connection between the claim for a declaration that the transfer by the debtor was voidable and the debts owing by him to the plaintiff.
Barrett J continued in Green v Schneller (at [17]):
Once it is recognised that s 37A is a means whereby a creditor can seek what is effectively enforced restoration of property to the debtor, it becomes relatively easy, I think, to say that it is the circumstance that a debt is owing to that creditor by that debtor which provides access to the section. On that footing, the section is to be regarded as intended to enhance the prospects of recovery of debts notwithstanding fraudulent action by the debtor to defeat or hinder such recovery. I therefore consider the right of action available to a creditor to invoke s 37A to be one which relates in a direct and substantial way to the creditor's debt, with the result that legal proceedings by a creditor based on that right of action are proceedings "in respect of” the debt.
Hence, his Honour concluded that proceedings in which a creditor sought to have property disposed of by a person who had become bankrupt restored to him or her pursuant to s.37A were proceedings in which he or she may not take any fresh step unless granted leave to proceed under s.58(3)(b) of the Bankruptcy Act.
Similarly, in Kassem, in the matter of Koutavas v Struthers [2011] FCA 322 Yates J was of the view that a proposed claim by a creditor against a bankrupt based on s.37A of the Conveyancing Act was a legal proceeding in respect of a provable debt in the bankruptcy in relation to which leave was required (see Kassem at [18] and also Fraser v Commissioner of Taxation and Another (1996) 69 FCR 99; [1996] FCA 1701).
I am of the same view. Hence what is in issue is whether leave to proceed should be granted. I am satisfied in this case that leave should be granted for the reasons contended for by the applicants. As the applicants submitted, while success in the s.37A claim would put them in a position of secured creditors, any excess amount which it was expected would become available, would augment the bankrupt estate and would be available for the benefit of creditors generally. Further, the applicants have already commenced Supreme Court proceedings in relation to other parties relevant to the intended proceedings and have obtained a freezing order from Nicholas J in the circumstances described above. The Trustee in Bankruptcy is on notice of the intended proceedings and has not sought to appear today. There is no suggestion that there would be any disadvantage to the bankrupt’s estate or to the Trustee. Not only has the Trustee not opposed the proceedings, he has not sought any undertakings as a condition of leave being granted.
I am satisfied that the claims based on s.37A of the Conveyancing Act would be better and more comprehensively dealt with by the Supreme Court than if they were left to be dealt with on some basis by the Trustee (see Allanson v Midland Credit Ltd and Another (1977)
30 FLR 108 at 114; [1977] FCA 14 and Kassem).
I have had regard to what Yates J in Kassem at [27] described as the “primacy” of the role of the Trustee in bankruptcy in recovering assets for distribution of property among the bankrupt’s unsecured creditors. In the absence of any appearance by the Trustee there is no suggestion that pursing such claims would result in any disadvantage to the bankrupt estate. I am satisfied that the applicants’ proposed s.37A claims are bona fide. There is no suggestion that this is a case in which the Trustee might seek to set aside the disposition.
In all the circumstances I am satisfied that the grant of leave would not be contrary to the purposes of s.58(3) or of the Bankruptcy Act generally and that it is appropriate that leave is granted to the applicants to commence proceedings in the Supreme Court and, insofar as is necessary, to take such fresh steps in those proceedings to continue such proceedings against Mr Waldron and Mr Jones as his Trustee in bankruptcy up to and including a final hearing.
I certify that the preceding eighteen (18) paragraphs are a true copy of the reasons for judgment of Barnes FM
Date: 25 November 2011
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