Seifert v Chaudhary
[2012] FMCA 515
•22 June 2012
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| SEIFERT v CHAUDHARY | [2012] FMCA 515 |
| BANKRUPTCY – Application for review of Registrar’s decision – application dismissed with costs. |
| Bankruptcy Act 1966 (Cth), ss.41(6A), 41(6C) Supreme Court (General Civil Procedure) Rules 2005 (Vic), r.64.25 |
| Byron v Southern Star Group Pty Ltd (1997) 73 FCR 264 Hovan v Goycolea-Silva [2003] FCA 234 Re Geard; Ex parte Reid (unreported, Federal Court, 11 February 1994) Re Taylor; Ex parte Deputy Commissioner of Taxation (1983) 74 FLR 377 Seifert v Chaudhary [2012] VSCA 17 Sidhom v Euphoric Pty Ltd [2006] FMCA 827 |
| Applicant: | BERNHARD ULRICH SEIFERT |
| Respondent: | HERMANT CHAUDHARY |
| File Number: | MLG 460 of 2012 |
| Judgment of: | Hartnett FM |
| Hearing date: | 13 June 2012 |
| Delivered at: | Melbourne |
| Delivered on: | 22 June 2012 |
REPRESENTATION
| Counsel for the Applicant: | Ms Dalbo |
| Solicitors for the Applicant: | Simon Nixon |
| Counsel for the Respondent: | Mr Campbell |
| Solicitors for the Respondent: | White Cleland Pty Ltd |
THE COURT ORDERS THAT:
The application for review filed 29 May 2012 is dismissed.
The orders made by Registrar Burns on 22 May 2012 are confirmed.
The applicant pay the costs of the respondent as agreed and, in the absence of agreement, taxed in accordance with the Federal Court Rules 2011 (Cth).
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT MELBOURNE |
MLG 460 of 2012
| BERNHARD ULRICH SEIFERT |
Applicant
And
| HERMANT CHAUDHARY |
Respondent
REASONS FOR JUDGMENT
This matter comes before the Court on an application for review filed 29 May 2012. That application seeks review of orders made by Registrar Burns on 22 May 2012. The orders made by Registrar Burns were on an application filed by the applicant on 20 April 2012. The orders of Registrar Burns were as follows:
“(1) The time for compliance with the bankruptcy notice be extended to 4:30 pm on 29 May 2012.
(2) The application be otherwise dismissed.
(3) The applicant to pay the respondent’s costs, to be taxed in default of agreement.”
The application filed 20 April 2012 sought final orders such that the Bankruptcy Notice number 1787 of 2012 (‘the Bankruptcy Notice’) (which was served on the applicant on 30 March 2012) be set aside. On the hearing of this matter, being a hearing de novo, the applicant does not proceed to seek such order and withdraws from that application.
The order sought by the applicant at hearing was an order that the time for compliance with the Bankruptcy Notice be extended up to and including the hearing and determination of the appeal of the County Court proceeding number CI-11-0327 being Supreme Court of Victoria - Court of Appeal number S APCI 2011 0162.
The applicant relied upon two affidavits sworn by him, the first being filed on 20 April 2012 and sworn in April 2012 on a date unknown and the second being an affidavit filed on 29 May 2012 and sworn on that date. The applicant also relied upon an outline of submissions handed to the Court on the date of the hearing and dated 13 June 2012.
The respondent sought that the applicant’s application be dismissed and that the applicant pay the respondent’s costs. The respondent relied upon an affidavit sworn by his solicitor, Mr Graham William Hills, dated 14 May 2012 and filed 16 May 2012.
History of the matter
By County Court proceeding number CI-11-0327 the respondent instituted proceedings against the applicant with such proceedings being instituted on 5 July 2011. By summons filed 5 September 2011, the respondent sought summary judgment against the applicant. On 29 September 2011, the applicant was ordered to pay the sum of $1,280,516.90 together with costs to the respondent. A stay on execution of the judgment of 14 days was granted by the County Court.
By notice of appeal dated 13 October 2011, the applicant appealed to the Supreme Court of Victoria - Court of Appeal against the orders made in the County Court. On 29 November 2011, the applicant applied to the Supreme Court of Victoria - Court of Appeal for an order that the orders of Anderson J, dated 29 September 2011 in County Court proceeding number CI-11-0327 be stayed. That application came on for hearing before Weinberg JA. and Kyrou AJA. in the Supreme Court of Victoria - Court of Appeal on 9 February 2012.
The applicant’s application for a stay of execution of the County Court judgment was refused. Annexed to the affidavit of Mr Graham William Hills and marked with the letters “GWH2” is a copy of the Supreme Court of Victoria - Court of Appeal’s judgment.
In paragraph 14 of that judgment, Weinberg JA. said as follows:
“The principles that govern the grant of a stay pending appeal are well settled. Basically, in a case such as this, the applicant for the stay must satisfy the Court that the appeal enjoys reasonable prospects of success, that it will be rendered nugatory if a stay is not granted, and that the grant of a stay will not cause serious injustice to the respondent. It goes without saying that the desire to avoid bankruptcy is not, of itself, sufficient to warrant the grant of a stay.”
When dealing with the prospects of success, the Court noted that the applicant proposed to contend on appeal that Mr Chaudary’s failure to procure the execution of the relevant security documents had the effect in law of avoiding a guarantee.
Background facts
Mr Seifert was, at all relevant times, the sole director and shareholder of RJ & RC Electrical Solutions Proprietary Limited (‘the Company’). The Company was the first defendant in the proceedings in the County Court, but it is now in liquidation. Mr Seifert resigned as a director of that Company in September 2010.
The loan agreement that led to the debt that was the subject of summary judgment, stipulated that Mr Chaudary would be entitled to security by way of a second mortgage over a property situate at 11 Clark Road Ivanhoe in the State of Victoria. The Company was the registered proprietor of that property. The loan agreement also provided for additional security in the form of a second ranking registered fixed and floating charge over the assets of the company.
By deed of loan executed on 29 June 2010, Mr Chaudary lent the sum of $1 million to the company. Mr Seifert personally guaranteed that loan. The loan was specified to be for a period of 12 months. Interest was to be paid at the rate of 20 per cent and was to be capitalised monthly in arrears. Mr Chaudary took no steps to secure the mortgage over the property or the additional security over the assets of the company for some eight months until about February 2011.
The Supreme Court of Victoria - Court of Appeal found in all likelihood the failure to take such steps was simply an oversight on Mr Chaudary’s part. In any event, from about February 2011 onwards, Mr Chaudary sought to have the various security documents executed. However, the Company, which was by that stage, no longer in Mr Seifert’s hands, proved to be uncooperative. Finally, on 2 May 2011, by notice of default, Mr Chaudary demanded payment of the amount that was owing and still unpaid.
On 2 December 2011, the Bank of Western Australia, the first mortgagee of the Clark Road Ivanhoe property, arranged for its sale for the sum of $2,550,000. In the interim, Mr Chaudary had obtained judgment against Mr Seifert in the County Court on 29 September 2011.
On 22 November 2011, Mr Chaudhary’s solicitors advised Mr Seifert that they had instructions to issue and serve a bankruptcy notice against him. On 30 November 2011, Mr Seifert’s solicitors wrote to Mr Chaudhary advising that Mr Seifert would be seeking a stay of the judgment against him, pending appeal, pursuant to r.64.25 of the Supreme Court (General Civil Procedure) Rules 2005 (Vic).
On that same day Mr Chaudhary made an open offer to Mr Seifert, indicating that he would consent to a stay of the orders of 29 September 2011, pending the conclusion of the appeal, if the entire sum owing was paid to Mr Chaudhary’s solicitors, to be held on trust for the successful party to the appeal. That offer was not accepted.
The Supreme Court of Victoria - Court of Appeal noted in paragraph 22 of its judgment that in September 2010 Mr Seifert not only resigned as a director, but also arranged for his replacement to be a person who his Counsel, frankly, conceded in oral submissions before the Court, was not at arms length. Mr Seifert, at the time of resignation, was fully aware that Mr Chaudhary had not obtained the relevant securities over the property and assets of the Company. By his own actions he ceded control over the company and rendered it impossible for him to facilitate the execution of the relevant security documents for Mr Chaudhary who ultimately sought to have his rights under the deed of loan vindicated.
Weinberg JA. in his judgment in the Supreme Court of Victoria - Court of Appeal said as to Mr Seifert’s prospects of success on that appeal the following, at paragraph 27:
“In short, the present case is one in which Mr Seifert seeks to make an entirely unmeritorious answer to a perfectly valid claim for recovery of a debt owing on a personal guarantee. In my opinion, the prospects of success on the appeal should be regarded as doubtful.”
Thereafter, Weinberg JA. said, as to Mr Seifert’s argument that his appeal would be rendered nugatory if he was denied a stay, at paragraph 30:
“it is sufficient to say simply that there is no proper foundation for that submission. It is by no means clear, on the material before this Court, that even if Mr Seifert is bankrupted, his trustee would not, if persuaded that the appeal had merit, pursue it. That is particularly so since there is evidence that funding for an appeal would be available from a third party associated with Mr Seifert.”
He added at paragraph 31 that the evidence suggests that:
“Mr Seifert has, until very recently, been unforthcoming, and uncooperative, in providing information about his financial position.”
The Bankruptcy Notice was subsequently served on the applicant on 30 March 2011. On 20 April 2012, the application to set aside the notice and extend time for compliance to determination of appeal was before this Court on an ex parte hearing and Registrar Burns made, on that occasion, orders extending time for compliance with the Bankruptcy Notice to 22 May 2012.
Other matters
On 17 November 2011, Judicial Registrar Pedley, of the Supreme Court of Victoria - Court of Appeal, made orders in the appeal proceedings. The applicant failed to comply with the totality of orders and to prosecute his appeal, in failing to file and serve his outline of submissions and list of authorities on or before 15 February 2012.
An email was forwarded by the applicant’s solicitors to the Supreme Court of Victoria - Court of Appeal on 9 May 2012, advising that there had been an inability by the Solicitor on record to comply with this order, as funds had not been made available. Thereafter the appeal proceedings were called over before the Chief Justice of the Victorian Supreme Court, on 14 May 2012. The applicant was ordered to file and serve his submissions on or by 18 May 2012 and the appeal was fixed for hearing on 10 September 2012.
In a separate County Court proceeding, number CI-10-06019, on 21 December 2011, Anderson J. gave judgment in favour of the respondent against the applicant, in a sum of $550,929.70. That judgment remains unsatisfied and Counsel for the applicant submits to the Court that an appeal has been lodged in respect of that judgment.
A further judgment was entered in County Court proceeding number CI-10-03196 in favour of the Deputy Commissioner of Taxation against the applicant on 13 February 2012 in the amount of $288,359.49. Counsel for the applicant had no instructions as to whether that judgment has been satisfied.
The applicant says in paragraph 8 of his affidavit filed 20 April 2012, the following:
“The appeal is bona fide and genuine. There has been no delay in prosecuting it.”
Further he says, in his affidavit sworn 29 May 2012 and in paragraph 6 therein:
“If the extension of time to the Bankruptcy Notice is not granted it will render the appeal process nugatory and will cause me irreparable damage as it will not be possible for me to be restored substantially to my former position if the appeal were to succeed.”
In respect of the latter assertion there is no evidence before the Court in the application before me that Mr Seifert will suffer “irreparable damage” if an extension is refused.
In respect of the former assertion by the applicant, the Court finds the applicant has not pursued his appeal with diligence in the failure to comply with an order of the Supreme Court of Victoria - Court of Appeal between 15 February and 18 May 2012.
The law
Section 41(6A) of the Bankruptcy Act 1966 (Cth) (‘the Act’) provides:
“Where, before the expiration of the time fixed for compliance with the requirements of a bankruptcy notice:
(a) proceedings to set aside a judgment or order in respect of which the bankruptcy notice was issued have been instituted by the debtor; or
(b) an application has been made to the Court to set aside the bankruptcy notice;
the Court may, subject to subsection (6C), extend the time for compliance with the bankruptcy notice.”
Section 41(6C) of the Act is as follows:
“Where:
(a) a debtor applies to the Court for an extension of the time for complying with a bankruptcy notice on the ground that proceedings to set aside a judgment or order in respect of which the bankruptcy notice was issued have been instituted by the debtor; and
(b) the Court is of the opinion that the proceedings to set aside the judgment or order:
(i) have not been instituted bona fide ; or
(ii) are not being prosecuted with due diligence;
the Court shall not extend the time for compliance with the bankruptcy notice.”
The discretion conferred on the Court by s.41(6A) is “at large,” subject only to s.41(6C) [Re Taylor; Ex parte Deputy Commissioner of Taxation (1983) 74 FLR 377 at 10].
I note the following authorities: “The principles to be applied where the question is whether a petition should be adjourned or dismissed are not necessarily those which should guide the exercise of the discretion to set aside, or extend time for compliance with, a bankruptcy notice. The commission of an act of bankruptcy is, undoubtedly, a serious matter; it is, however, of a different order of gravity from the change of status brought about by the making of a sequestration order” Byron v Southern Star Group Pty Ltd(1997) 73 FCR 264 (Lehane J).
Accordingly, while in the case of a creditors’ petition, the existence of a genuine arguable appeal may be grounds for an adjournment or dismissal:
“the Court should (only) extend time for compliance with the bankruptcy notice on the ground of the existence of an appeal (or an application for leave to appeal) where no stay has been obtained or sought (in an exceptional case).”
(Byron v Southern Star Group Pty Ltd (1997) 73 FCR 264 citing the reasoning of Shepherd J. in Re Geard; Ex parte Reid (unreported, Federal Court, 11 February 1994)).
In the judgment of Sidhom v Euphoric Pty Ltd [2006] FMCA 827, Barnes FM said as to an extension of time for compliance with a bankruptcy notice (at paragraph 35):
“It is clear that the preponderance of authority cited is to the effect that in the absence of a stay the Court should be reluctant to extend time for compliance with a bankruptcy notice where all that is established is the existence of an arguable appeal which has been instituted in good faith and has been diligently prosecuted. In other words, if a stay has not been sought, an arguable appeal would not, of itself, and in the absence of other relevant factors, constitute the “quite special circumstances” referred to in (Re Geard; Ex parte Reid (unreported, Federal Court, 11 February 1994)) or the “exceptional case” described in (Byron v Southern Star Group Pty Ltd (1997) 73 FCR 264).”
On 9 February 2012, the applicant’s stay application to the Supreme Court of Victoria - Court of Appeal was rejected. Nothing in the applicant’s material, in support of the current application, allows the application to be characterised as “exceptional”.
As the application for extension is based upon the pending appeal against the judgment on which the bankruptcy notice is founded, the merits of the appeal are relevant to the exercise of this Court’s discretion. I refer to the Supreme Court of Victoria - Court of Appeal’s assessment of the appeal’s prospect of success in the extract from the judgment cited in paragraph 19 herein. In this application, the Court gives considerable weight to the fact that no stay has been granted in respect of the judgment supporting the Bankruptcy Notice.
The characterisation by the Supreme Court of Victoria - Court of Appeal of the applicant’s case on the stay application as:
“an entirely unmeritorious answer to a perfectly valid claim for recovery of a debt owing on a personal guarantee”
leads the Court to conclude that any further delay in denying the respondent an opportunity to recover the debt owed, tips the balance of prejudice in his favour.
The date of the commission of the act of bankruptcy is significant to determine the commencement of the bankruptcy if a sequestration order is made and the property of the bankrupt is divisible among the bankrupt’s creditors. Further delays are prejudicial to the respondent.
In Hovan v Goycolea-Silva [2003] FCA 234 at 9, Emmett J. declined to extend time in the absence of evidence of:
“irreparable damage that could be occasioned to the Debtor.”
In these proceedings, no attempt has been made by the applicant to establish that irreparable damage could be occasioned to him.
The applicant has not established that the circumstances are such that the Court should exercise its discretion to extend the time for compliance with the bankruptcy notice until the applicant’s appeal has been determined.
The application should be dismissed with costs.
I certify that the preceding forty-three (43) paragraphs are a true copy of the reasons for judgment of Hartnett FM
Date: 22 June 2012
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