Scott v Dimov
[2012] FMCA 903
•26 September 2012
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| SCOTT v DIMOV | [2012] FMCA 903 |
| BANKRUPTCY – Interim Application under s.50 of the Bankruptcy Act 1966 (Cth) for the appointment of a controlling trustee pending substantive judgment – whether trustee should take control of respondent’s property – application allowed. |
| Bankruptcy Act 1966 (Cth) ss. 30, 50, 109, 187 Corporations Act 2001 (Cth) ss. 201F, 206B |
| Banov v Ciric [2008] FMCA 353 Deputy Commissioner of Taxation v Clyne (1983) 50 ALR 118 Efstathiou & Anor v Fenwick [2007] FMCA 1450 Lane & Anor v McConochie [2006] FMCA 376 Malcolm Slater Pty Ltd v Thompson & Anor [2010] FMCA 120 McEntee & Anor v Khoury [2006] FMCA 696 Smith v Varley [2006] FMCA 1572 Talacko v Talacko [2010] FCA 193 |
| Applicant: | ANTONINA CATERINA SCOTT |
| Respondent: | JOHN DIMOV |
| File Number: | SYG 1393 of 2012 |
| Judgment of: | Lloyd-Jones FM |
| Hearing date: | 21 September 2012 |
| Date of Last Submission: | 21 September 2012 |
| Delivered at: | Sydney |
| Delivered on: | 26 September 2012 |
REPRESENTATION
| Solicitors for the Applicant: | Ms S. Nash of Sally Nash & Co |
| The Respondent: | The Respondent appeared in person |
ORDERS
Pursuant to section 50 of the Bankruptcy Act 1966 (Cth) and the Bankruptcy Regulations 1996 (Cth) Giles Geoffrey Woodgate be appointed Controlling Trustee to take control over the Respondent Debtor’s property.
The control of Giles Geoffrey Woodgate over the Respondent Debtor’s property end upon delivery of the reserved judgment by Barnes FM in these proceedings.
The Respondent Debtor pay the Applicant’s costs of the Interlocutory Application filed 18 September 2012.
Liberty to apply is granted on 2 days’ notice.
Notice be given to the Official Receiver in Sydney and Giles Geoffrey Woodgate, The Respondent Debtor and Joseph Grassi & Associates within 24 hours of this order being sealed and received.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 1393 of 2012
| ANTONINA CATERINA SCOTT |
Applicant
And
| JOHN DIMOV |
Respondent
REASONS FOR JUDGMENT
Introduction
On 26 June 2012 the applicant creditor, Ms Scott, filed a creditor’s petition in this Court against the respondent debtor, Mr Dimov. Her Honour, Barnes FM, heard the petition on 11 September 2012 and has reserved her judgment. On 18 September 2012 Ms Scott filed an application in a case (the “Application”), supported by affidavit, seeking the following orders:
1. Pursuant to Section 50 of the Bankruptcy Act, 1966 and Bankruptcy Regulations that Giles Geoffrey Woodgate be appointed Controlling Trustee to take control over the Respondent debtor’s property and to take control of the proceeds of sale of: -
a) Folio identifier 1/SP82152, and
b) Folio identifier 2/SP82152.
to the sum of $180,000.00 or such other sum as may be ordered.
2. Such further or other order as the Court may order.
3. Costs.
4. Notice be given to the Official Receiver and Giles Geoffrey Woodgate within 24 hours of this order being sealed and received.
This Application was referred to my chambers as the Duty Bankruptcy Federal Magistrate. I listed the matter for hearing before me on 21 September 2012. Ms S. Nash of Sally Nash & Co appeared for Ms Scott and Mr Dimov appeared in person. After hearing argument and submissions from both parties, I made following orders:
1. Pursuant to section 50 of the Bankruptcy Act 1966 (Cth) and the Bankruptcy Regulations 1996 (Cth) Giles Geoffrey Woodgate be appointed Controlling Trustee to take control over the Respondent Debtor’s property.
2. The control of Giles Geoffrey Woodgate over the Respondent Debtor’s property end upon delivery of the reserved judgment by Barnes FM in these proceedings.
3. The Respondent Debtor pay the Applicant’s costs of the Interlocutory Application filed 18 September 2012.
4. Liberty to apply is granted on 2 days’ notice.
5. Notice be given to the Official Receiver in Sydney and Giles Geoffrey Woodgate, the Respondent Debtor and Joseph Grassi & Associates within 24 hours of this order being sealed and received.
These reasons give effect to those orders.
Section 50 of the Bankruptcy Act
Section 50 of the Bankruptcy Act 1966 (Cth) (the “Bankruptcy Act”) relevantly states:
50 Taking control of debtor’s property before sequestration
(1) At any time after a bankruptcy notice is issued, or a creditor’s petition is presented, in relation to a debtor, but before the debtor becomes a bankrupt, the Court may:
(a) direct the Official Trustee or a specified registered trustee to take control of the debtor’s property; and
(b) make any other orders in relation to the property.
(1A) The Court may give a direction or make an order only if:
(a) a creditor has applied for the Court to make a direction; and
(b) the Court is satisfied that it is in the interests of the creditors to do so; and
(c) the debtor has not complied with the bankruptcy notice.
(1B) If the Court directs a trustee to take control of the debtor’s property, the Court must specify when the control is to end.
…
Hearing 21 September 2012
Evidence
Ms Nash, appearing for Ms Scott, sought to rely on the following evidence at the hearing:
a)Affidavit of Christie Boyd sworn 10 September 2012;
b)Affidavit of Christie Boyd sworn 17 September 2012;
c)Affidavit of Debt of Antonina Caterina Scott sworn 10 September 2012;
d)Affidavit of Search of Megan Zhang sworn 13 August 2012;
e)Affidavit of John Dimov sworn 27 August 2012;
f)Affidavit of Service of the Bankruptcy Notice of Sally Susan Nash sworn 13 April 2012; and
g)Affidavit of Service of the Creditor’s Petition of Clark Frank Shaw sworn 23 July 2012.
Ms Nash also filed written submissions and a Consent to Act as Controlling Trustee form of Giles Geoffrey Woodgate. Mr Dimov provided a bank statement to the Court and filed some written submissions that were handed up at the hearing.
Applicant Creditor’s Submissions
Ms Nash submits that the purpose of this application is to provide interim protection to the creditors pending the determination be her Honour Barnes FM of the Creditor’s Petition in the same proceeding. Ms Nash submits that Mr Dimov is the sole director and sole shareholder of a company, Sanctuary Homes Pty Ltd (“Sanctuary Homes”), a company that holds title over two unencumbered properties, both of which are under contracts for sale. Ms Nash refers the Court to Mr Dimov’s affidavit at Annexure “C” where the relevant contracts for sale and certificates of title are annexed, along with a discharge of mortgage of the two properties from Westpac Banking Corporation.
Ms Nash submits that the creditor does not seek an order for payment from the proceeds of sale, rather, seeks a preservation order from the proceeds of each contract. There is no evidence of the current financial position of Sanctuary Homes before the Court and Ms Nash concedes that the company will have its own set of creditors. All creditors of Mr Dimov must be treated equally, as prescribed by s.109 of the Bankruptcy Act. Ms Nash submits that if a controlling trustee were to be appointed this would not affect Mr Dimov’s being a director of Sanctuary Homes. The Corporations Act 2001 (Cth) at s.206B does not preclude someone the subject of an order under s.50 of the Bankruptcy Act from being a director of a company. However, in this instance, the shares owned by Mr Dimov in the company would vest in the trustee. The trustee would gain control of them, and the shareholder is the primary controller of the company, whereas the director is simply the person to deal with the affairs of the company. If appointed, the controlling trustee could then make any application in relation to Sanctuary Homes. Ms Nash submits that where a company is involved, the Court can nevertheless make an order under s.50: Efsathiou & Anor v Fenwick [2007] FMCA 1450.
Ms Nash sought to draw the Court’s attention to the Affidavit of Service of the Creditor’s Petition of Clark Frank Shaw sworn 23 July 2012 and filed in court before Barnes FM on 11 September 2012. This affidavit relevantly annexes the Creditor’s Petition (Annexure “A”), affidavits verifying paragraphs 1, 2, 3 and 4 of the Creditor’s Petition (Annexures “B” and “C”) and an affidavit of service of the Bankruptcy Notice of Sally Susan Nash upon which the petition is based (Annexure “D”). Ms Nash submits the affidavit verifying paragraph 4 of the Creditor’s Petition sets out that there was service of the Bankruptcy Notice on 13 April 2012, and there was failure to comply with the Notice by 4 May 2012, and there was then an application made by the respondent to set aside the Bankruptcy Notice on 8 May 2012 (Proceedings SYG991/2012) which was dismissed on 21 May 2012 as the act of bankruptcy had already taken place.
Ms Nash contends that orders under s.50 have previously been made by this Court and refers the Court to Malcolm Slater Pty Ltd v Thompson & Anor [2010] FMCA 120 per Barnes FM and McEntee & Anor v Khoury [2006] FMCA 696. Ms Nash also refers the Court to his Honour Raphael FM’s decision in Smith v Varley [2006] FMCA 1572 where his Honour found that where there was insufficient evidence for the court to be satisfied that assets may be removed the court ought not to make an order. However, Ms Nash contends that it is Mr Dimov’s own evidence that he intends to use the proceeds of the sales to pay his separated wife in settlement of their affairs and “fight this case” (Affidavit of John Dimov sworn 27 August 2012 at [61] and [62]). An order made under s.50 is a serious order. A breach of it can be contempt either by the debtor or those advising him: Lane & Anor v McConochie [2006] FMCA 376.
Ms Nash also seeks her costs as attempts have already been made for a sensible resolution of the matter prior to the filing of the Application and refers the Court to the affidavit of Christie Boyd sworn 17 September 2012 which annexes correspondence between Ms Nash’s firm and Mr Dimov.
Respondent’s Submissions
Mr Dimov argues that he has not been ruled insolvent by this Court and, as such, s.50 is not required for protection of his assets. Mr Dimov refers the Court to s.187 that defines a debtor as a person who is insolvent, which he is not. He argues that the proceeds of sale referred to in Order 1 of the Application are not his property within the meaning of s.50(1) of the Bankruptcy Act as they are owned by Sanctuary Homes. Sanctuary Homes has its own creditors who are not party to this proceeding and would be unfairly disadvantaged if an order of this kind was made.
Mr Dimov argues that Ms Scott is seeking these orders for her benefit only, not for the benefit of all the creditors. The applicant has furnished no evidence that Mr Dimov would seek to deprive the applicant of equal treatment. Mr Dimov also refers the Court to the judgment in McEntee & Anor v Khoury (supra) but argues that in this proceeding the Court has not determined that a debt exists.
Mr Dimov refers the Court to the decision in Malcolm Slater Pty Ltd v Thompson & Anor (supra) at [20]. He submits that he has been forthright in supplying evidence to both the applicant and the Court without reservation about the potential impact of the evidence. This clearly demonstrates the willingness by Mr Dimov to deal with the relevant issues. Mr Dimov also cites Smith v Varley (supra), a matter where a s.50 application was refused and Banov v Ciric [2008] FMCA 353 where his Honour Smith FM dismissed a s.50 application.
Mr Dimov contends that the purchaser of Lot 1 of the two properties owned by Sanctuary Homes has rescinded and the property has now been placed back on the market. This rescinding has greatly reduced any monies that may become available making the Application inappropriate in this instance. Mr Dimov submits that is a sum of money should be quarantined and that sum should be retained in the trust account of Joseph Grassi & Associates.
Mr Dimov also made oral submissions in respect of matters not covered by his written submissions. He submits that he is the sole director and shareholder of Sanctuary Homes and has converted some of the company’s assets into cash for the purposes of getting himself out of the mess he is in. His marriage has broken down and he is trying to come to an arrangement with his estranged wife to reach a settlement without involving lawyers. She may also be entitled to some of his assets. Mr Dimov has lost 25 kilograms as a result of the litigation and his license has been suspended. Mr Dimov submits that he was given the wrong advice in respect of the CTTT Proceedings and the attempted appeal to the District Court of NSW. The CTTT made a decision on the basis that he did not comply with the Building Code of Australia and he has now ended up in this Court as the result of a bad decision and this bad decision may have ramifications on builders all over Australia. Mr Dimov submits that this Court has an obligation to do the right thing and consider the facts before making a decision.
Applicant Creditor’s Reply Submissions
Ms Nash, in reply, submits that the proposal to have some of the money quarantined is not acceptable to the applicant. Joseph Grassi & Associates no longer act for the respondent, only for Sanctuary Homes. If they did act for Mr Dimov the position may be different. Ms Nash also cited a judgment of her Honour Dodds-Streeton J in Talacko v Talacko [2010] FCA 193 where her Honour makes an order for freezing some of the respondent’s assets as well as an order appointing a controlling trustee. Ms Nash is not currently asking the Court for an order of this sort, but, if appointed, the trustee may make such an application. Ms Nash submits that proceedings of this nature are matters that are decided on their facts.
Ms Nash submits that an order of the nature sought by the applicant is in the best interests of all the creditors, as well as Ms Dimov and any potential creditors she may have. Ms Nash, through her firm, has tried to negotiate with Mr Dimov to reach a “middle ground” by granting a caveat which Ms Nash’s client would undertake to withdraw on settlement of either of the properties, and provide an irrevocable authority for the amount to be held in a controlled moneys account in the name of the two solicitors. No meaningful response was received to that offer. There are no mechanisms in place to settle the account between the parties and, if that were the case, this Application may not have been needed to be made. This is why the applicant has come to court to seek these orders to be made.
Consideration
In Deputy Commissioner of Taxation v Clyne (1983) 50 ALR 118 his Honour Neaves J stated:
[Section 50 of the Bankruptcy Act] is clearly a provision in aid of the creditors of a debtor who has already committed an act of bankruptcy and has a creditor's petition pending against him. It is a necessary and ancillary provision designed to enable appropriate steps to be taken to preserve and protect the property of a debtor so that, in the event of a sequestration order being made, that property will be available for distribution equitably amongst them in accordance with the statutory provisions contained elsewhere in the Bankruptcy Act 1966. That this is its purpose is reinforced by a consideration of the provisions contained in s 50(2) with their emphasis on obtaining information concerning the debtor or his trade dealings, property or affairs.
I am satisfied, based on the evidence relied upon by Ms Nash, that the respondent debtor Mr Dimov committed an act of bankruptcy on 4 May 2012 by failing to comply with Bankruptcy Notice No. 1286 of 2012 served on him on 13 April 2012 (Affidavit of Service of Creditor’s Petition of Clark Frank Shaw sworn 19 July 2012), pursuant to judgment of the CTTT being entered in favour of the applicant creditor in the Local Court of NSW in the sum of $56,726.75 on 30 January 2012. I am satisfied that this debt has not been paid and remains outstanding.
I am also satisfied that, until judgment in respect of the hearing of the Creditor’s Petition is handed down, a Controlling Trustee should be appointed pursuant to s.50 of the Bankruptcy Act. The evidence in Mr Dimov’s affidavit is that Sanctuary Homes has entered a contract for sale for at least one of the two properties at St Marys and it is possible that a contract for sale may be entered into for the other property in the near future. I am assisted by the submissions of Ms Nash in this respect at [5] – [9] above. It is in the interests of all of the creditors, not just the applicant creditor, as well as the respondent debtor and his estranged wife that a controlling trustee be appointed to take control of the respondent debtor’s property until judgment in respect of the Creditor’s Petition is handed down.
I am also satisfied that the applicant should be awarded her costs in respect of the Application. It is clear from the affidavit of Christie Boyd sworn 17 September 2012 that attempts were made by the applicant to achieve a resolution of this aspect of the proceedings without coming to court. Therefore, I make orders in the form of those noted at [2] above.
I certify that the preceding twenty (20) paragraphs are a true copy of the reasons for judgment of Lloyd-Jones FM
Date: 26 September 2012
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