Sfar & Anor v Totev
[2008] FMCA 775
•30 June 2008
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| SFAR & ANOR v TOTEV | [2008] FMCA 775 |
| BANKRUPTCY – Creditor’s Petition – proof of matters requiring proof in relation to the petition – grounds of opposition to the petition considered – appropriate form of orders on review of a sequestration order made by a registrar considered – bankrupt discharged from bankruptcy prior to judgment on the review – inappropriateness of a further sequestration order following that discharge. PRACTICE & PROCEDURE – Need for different procedures in relation to review application following a sequestration order to avoid the difficulties that arose in these proceedings. |
| Bankruptcy Act 1966 (Cth), ss.40, 52, 54, 149, 149B, 149D Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth) |
| CGU Workers Compensation v Maraache [2007] FMCA 245 Totev v Sfar [2006] FCA 470 |
| First Applicant: | MICHAEL SFAR |
| Second Applicant: | ENAYET SFAR |
| Respondent: | VASIL TOTEV |
| File Number: | SYG 3647 of 2004 |
| Judgment of: | Driver FM |
| Hearing date: | 12 June 2008 |
| Date of last submissions: | 27 June 2008 |
| Delivered at: | Sydney |
| Delivered on: | 30 June 2008 |
REPRESENTATION
| Counsel for the Applicants: | Ms L Goodchild |
| Solicitors for the Applicants: | Employment Lawyers |
The Respondent appeared in person
ORDERS
Orders 1 and 2 made by Registrar Hedge on 10 May 2005 are affirmed.
The application for review filed on 31 May 2005 is dismissed with costs.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 3647 of 2004
| MICHAEL SFAR |
First Applicant
ENAYET SFAR
Second Applicant
And
| VASIL TOTEV |
Respondent
REASONS FOR JUDGMENT
Introduction and background
I have before me, for the third time, an application filed on 31 May 2005 seeking review of a sequestration order made by a registrar of this Court on 10 May 2005. Although not specifically stated in the application for review, the applicant, Mr Totev, is seeking orders setting aside the sequestration order and the accompanying costs order made by Registrar Hedge and also seeking the dismissal of the creditor’s petition with costs.
I dealt with the application first on 5 July 2005 in an ex tempore judgment[1]. Mr Totev appealed to the Federal Court against my decision and was successful in that his Honour Allsop J found that I had erred in two respects in dealing with the review application[2]. Allsop J found that I had erred in directing my consideration of proceedings Mr Totev had been agitating in the District Court of New South Wales against Mr and Mrs Sfar to the question of whether those proceedings amounted to a counter-claim, set off or cross demand of equal or greater value than the judgment debt obtained by Mr and Mrs Sfar against Mr Totev[3]. His Honour found that I should have directed my consideration to the question of whether the District Court proceedings constituted “other sufficient cause” for the purposes of s.52(2)(b) of the Bankruptcy Act 1966 (Cth) (“the Bankruptcy Act”). His Honour also found that, probably in consequence of that misdirection, I incorrectly found that the District Court proceedings did not have any prospects of success.
[1] Sfar & Anor v Totev [2005] FMCA 948
[2] Totev v Sfar [2006] FCA 470
[3] see s.40(1)(g) of the Bankruptcy Act 1966 (Cth).
In a supplementary judgment[4] Allsop J stated that the only basis of review legitimately remaining open after that appeal was the operation of s.52(2).
[4] Totev v Sfar (No 2) [2006] FCA 586 at [4]
I dealt with the review application a second time in a reserved judgment delivered on 19 March 2007[5]. I dismissed the review application with costs (as I had also done on the first occasion). Mr Totev appealed against that decision to the Federal Court and the appeal was heard by a Full Court. The Full Court found[6] that I had erred (on both of the earlier reviews) by not dealing with all of the requirements of a hearing de novo, which must be conducted on a review of a sequestration order made under the Bankruptcy Act by a registrar. In particular, I erred in not dealing with the requirements of rule 4.06 of the Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth) (“the Bankruptcy Rules”).
[5] Sfar & Anor v Totev [2007] FMCA 245
[6] Totev v Sfar [2008] FCAFC 35
The Full Court also dealt with an issue raised by me in my second judgment of whether the creditor’s petition had become stale by effluxion of time, given that, by the time of my second judgment, more than 24 months had elapsed since the presentation of the petition and there had been no order under s.52(5) of the Bankruptcy Act extending the currency of the petition. In a dissenting judgment, his Honour Emmett J found that the petition was stale and that the only order I could have made in my second judgment was to dismiss the petition. However, her Honour Bennett J (with whom his Honour Cowdroy J agreed) found that, because a sequestration order had been made prior to the expiration of 12 months from the presentation of the petition no extension of the petition was required and the petition had not become stale[7].
[7] see s.52(4) of the Bankruptcy Act and Totev v Sfar [2008] FCAFC 35 at [61]
The third hearing
Consistently with the decision of the Full Court, I conducted a de novo hearing on the petition on 12 June 2008. I have before me the amended creditor’s petition filed on 11 February 2005, the affidavit of Michael Sfar made and filed on 3 February 2005 verifying paragraphs 1, 2 and 3 of the amended petition, the affidavit of Suzanna Mihic made on 9 May 2005 and filed on 10 May 2005 verifying paragraph 4 of the amended petition, the affidavit of Michael Sfar made on 26 April 2005 and filed in court on the same day establishing service of the original creditor’s petition and a consent to act as trustee, service of the amended creditor’s petition, and service of a copy of the amended creditor’s petition and Mr Sfar’s affidavit verifying paragraphs 1, 2 and 3 of that petition and service of the affidavit of service of the bankruptcy notice (establishing the act of bankruptcy) upon Mr Totev. That affidavit further supports paragraph 4 of the amended petition. I also have before me an updated affidavit of search made on 11 June 2008 by Adrian Garfield Barwick and filed on the same day and an updated affidavit of debt also made on 11 June 2008 by Mr Barwick and filed on the same day. Finally, I have before me exhibits R1 and R2 tendered on 2 March 2007.
I satisfied myself, on the basis of that material, that the requirements of Part 4 of the Bankruptcy Rules had been met. I note, in that connection, that the prescribed form of creditor’s petition and verifying affidavits has changed since the documents before me were prepared and filed and, to that extent, I excused strict compliance with rule 4.02(1) and rule 4.02(2) of the Bankruptcy Rules. I also excused further compliance with rule 4.06 of the Bankruptcy Rules (to the extent that such further compliance might be considered necessary) between the de novo hearing and the delivery of my reserved judgment.
Mr Totev relies upon his application for review and his notice of intention to oppose the petition filed on 5 February 2005. The application and notice are supported by the affidavit of Mr Totev made and filed on 20 June 2005, and the affidavit of Mr Totev made and filed on 31 October 2006. I also have before me the exhibits referred to in those affidavits. Further, I received as evidence Mr Totev’s statement of affairs filed in court on 5 July 2005. Mr Totev states that that statement of affairs, which was signed on 15 June 2005, was filed with the trustee on 23 June 2005. I note that the copy relied upon by Mr Totev was filed in court in these proceedings on 5 July 2005. Finally, I received as an exhibit[8] a bundle of income tax assessments stating a zero taxation assessment for the financial years 2000 to 2007.
[8] exhibit A2
Submissions
Counsel for Mr and Mrs Sfar submits that, now that the formal requirements for the making of a sequestration order have been established afresh, and given that the issues raised by Mr Totev in opposition to the petition have all previously been dealt with and nothing new of substance has been raised, a sequestration order should be made. Mr Totev, who appeared in person, sought to re-agitate the issues that he had previously raised in opposition to the petition. Further, Mr Totev submits that his statement of affairs overstates his current indebtedness and that, while that statement of affairs, even allowing for the changes Mr Totev asserts should be made, points to debts of something in excess of $40,000, he considers that most of those related to the expenses of the District Court proceedings he instituted against Mr and Mrs Sfar and, if he is ultimately successful in those proceedings, he can expect to recover those expenses in addition to an award of damages. Mr Totev also submits that he anticipates being discharged from bankruptcy on 23 June 2008 at which time he believes he can reactivate his proceedings in the District Court.
I decided to reserve judgment and invite written submissions from the parties within 14 days on the question of the appropriate form of orders I should make if I found in favour of the petitioning creditors. I was concerned that more than three years had elapsed since the sequestration order was made by the registrar and that the making of a sequestration order now (especially if it operated only prospectively from the date of its making) seemed anomalous and might give rise to doubt as to the status of the administration of the estate based upon the first sequestration order. I was particularly concerned about the potential effect of a prospective second sequestration order upon the length of the bankruptcy, given that, ordinarily, a bankrupt is discharged from bankruptcy three years from the date on which he files his statement of affairs[9] and that time was about to arrive. I was further concerned that the trustee did not attend the hearing on 12 June 2008 and might wish to make submissions as to the appropriate form of orders in his own interest. I asked counsel for the petitioning creditors to seek the views of the trustee and to deal with those in written submissions.
[9] s.149(4)
Written submissions were filed on behalf of the petitioning creditors on 25 June 2008. Relevantly, those submissions are as follows:
Additional information for consideration
On 16 June 2008, representatives for the respondents sent correspondence dated 16 June 2008 to Mr Christopher Palmer of O’Brien Palmer Chartered Accountants, who is Mr Totev’s trustee in bankruptcy. This correspondence requested whether Mr Palmer either proposes to file a Notice of Objection to the discharge of the bankruptcy with the Official Receiver pursuant to 149B of the Bankruptcy Act, or otherwise believes that any grounds exists within section 149D of the Act that justifies the filing of a Notice of Objection with the Official Receiver.
On 18 June 2008, the representatives for the respondents received correspondence from Mr Palmer dated 18 June 2008 indicating that that he does not propose to file a Notice of Objection pursuant to s.149B of the Bankruptcy Act with the Official Receiver. A copy of this correspondence is annexed to these submissions.
Submissions
In respect of the Court’s determination that the sequestration order had been properly made, the respondents rely on the submissions made by counsel before His Honour on 12 June 2008. The respondents submit that all administrative requirements pursuant to s52(1) of the Bankruptcy Act 1966 in respect of the sequestration order had been properly adhered to. Moreover, it is submitted that as the Applicant in these proceedings has not filed any further material in respect of s.52(2) of the Act, and that any likelihood of success in district Court proceedings does not satisfy the threshold in s.52(2), that there is no credible reason for the Court to dismiss the petition.
In respect of His Honour’s request for submissions as to the nature of the appropriate order the respondents rely on the authority of Allsop J in Cottrell v Nicholls (Trustee) in the [m]atter of Cottrell (Bankrupt) [2004] FCA 247. Such authority confirms that the appropriate order in such circumstances is that the order made by the Registrar be affirmed so that the date of sequestration is the date when the original order was made by Registrar Hedge on 10 May 2005.
It is also submitted that the bankruptcy runs from the date of filing of the Statement of Affairs for three years until discharge. As Mr Totev filed his Statement of Affairs on 23 June 2005 (as no objection has been lodged by the Trustee to the Official Receiver) pursuant to s.149 of the Bankruptcy Act 1966 the bankruptcy is automatically discharged on 23 June 2008.
The Respondents also respectfully requests that the Court makes an order that the costs of the Respondents in respect of these proceedings be paid by the Applicant.
Mr Totev filed written submissions on 27 June 2008. Relevantly, those submissions assert that:
a)at all material times since 10 May 2005 when the sequestration order was made by Registrar Hedge, his status as a bankrupt has not been altered, and therefore his discharge from bankruptcy on 23 June 2008 is legally effective;
b)the respondents insist that at all material times he has been insolvent;
c)a search of the National Personal Insolvency Index on 26 June 2008 confirms that he is no longer bankrupt;
d)the former bankruptcy was “not fair”; and
e)a person cannot be punished twice for the same thing.
Consideration
I am satisfied that the formal requirements for the making of a sequestration order on the petition have been met. In my first judgment I found that the petition was not an abuse of process and I confirm that finding. I also confirm my decision in that judgment to decline to go behind the judgment debt. In my second judgment I found that Mr Totev’s proceedings against Mr and Mrs Sfar in the District Court did not constitute an “other sufficient cause” why a sequestration order ought not to be made[10] and I confirm that finding. Mr Totev has not raised anything new to alter my view on that issue. I also confirm my earlier finding (affirmed on appeal in the first appeal proceedings) that Mr Totev is insolvent. Mr Totev appears to assume that, in the event that he is successful in his District Court proceedings, all interlocutory costs orders made against him would be discharged and he would recover his non legal expenses of the proceedings. That is, in my view, a false assumption. Mr Totev also saw significance in taxation assessments between 2000 and 2007 showing that he was not liable to pay any income tax for those years. If anything, the making of nil tax assessments for the last seven financial years by the Australian Taxation Office underscores Mr Totev’s very meagre financial circumstances. He is unable to pay his debts as and when they fall due or within a reasonable period.
[10] s.52(2)(b)
I reject the grounds of opposition to the petition. I am satisfied that Mr Totev committed the act of bankruptcy alleged in the amended petition. I am satisfied with the proof of the other matters with which s.52(1) of the Bankruptcy Act requires proof. In the ordinary course, a sequestration order and a costs order would now be called for. The question is whether it is now appropriate to make a sequestration order, given that more than three years have elapsed since the sequestration order was made by the registrar and Mr Totev has been discharged from bankruptcy. It seems to me strongly arguable that the making of a fresh sequestration order now would have the effect of prolonging Mr Totev’s bankruptcy given the requirements of s.54 of the Bankruptcy Act. Hypothetically, it might be open to me to make a sequestration order nunc pro tunc, with effect from the date of the registrar’s sequestration order. It is also possible for me to simply affirm the sequestration order made by the registrar. That was the course adopted by Allsop J in Cottrell v Nicholls [2004] FCA 247, albeit in different circumstances. The reasons for that form of order were explained by Allsop J in Cottrell v Nicholls [2004] FCA 358 at [3] and [4]. Importantly, his Honour was concerned to ensure that the only operative sequestration order in that case was the one made by the registrar.
In all the circumstances and having regard, in particular, to the fact that Mr Totev has now been discharged from bankruptcy, I have come to the view that the appropriate form of orders is to affirm the orders made by the registrar on 10 May 2005 and to dismiss the review application with costs. I will make those orders, recognising that, on the basis of the reasoning of the Full Court, a fresh sequestration order on a review application which fails would normally be the appropriate form of order, but bearing in mind the very unusual circumstance that has arisen since the judgment of the Full Court.
I conclude by observing that this case points to a need for either legislative amendment[11] to clarify the status and conduct of a review of a sequestration order by a registrar or avoidance altogether of the performance of that function by registrars or avoidance of the conduct of reviews where there has been delay. It may be that in future registrars should not deal with contested creditor’s petitions at all. It may also be that if a review application cannot for some reason be dealt with promptly, the Court should in future consider whether the application should be dealt with as an application for annulment[12].
[11] of the Bankruptcy Act or the Bankruptcy Rules
[12] Pattison v Hadjimouratis (2006) 155 FCR 226 at [10]-[20] per Nicholson J and CGU Workers Compensation v Maraache [2007] FMCA 245 at [5]
I certify that the preceding sixteen (16) paragraphs are a true copy of the reasons for judgment of Driver FM
Associate:
Date: 30 June 2008
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