Sfar v Totev - [2005] FMCA 948

FEDERAL MAGISTRATES COURT OF AUSTRALIA

SFAR & ANOR v TOTEV

[2005] FMCA 948

BANKRUPTCY – Review of sequestration order made by a registrar – whether the creditor’s petition was an abuse of process considered – no abuse of process where the debtor failed to meet an obligation to pay costs in unresolved proceedings in which he claims damages – prospects of success of those proceedings unclear – opportunity for the trustee to continue those proceedings if they have merit.

Federal Court Rules
Federal Magistrates Act 1999 (Cth), s.104

First Applicant:

Second Applicant:

MICHAEL SFAR

ENAYET SFAR

Respondent:

VASIL TOTEV

File Number:

SYG3647 of 2004

Judgment of:

Driver FM

Hearing date:

5 July 2005

Delivered at:

Sydney

Delivered on:

5 July 2005

REPRESENTATION

Counsel for the Applicant:

Mr N Potts

Solicitors for the Applicant:

McGrath Dicembre & Co

The respondent appeared in person

ORDERS

The application for review is dismissed.
The petitioning creditor’s and the trustee’s costs in dealing with the review application be treated as costs in the administration of the bankruptcy which, if not agreed, are to be assessed and, if necessary, taxed in accordance with the Federal Court Rules.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
SYDNEY

SYG3647 of 2004

MICHAEL SFAR

First Applicant

ENAYET SAFAR

Second Applicant

And

VASIL TOTEV

Respondent

REASONS FOR JUDGMENT

(revised from transcript)

I have before me an application filed on 31 May 2005, pursuant to s.104 of the Federal Magistrates Act 1999 (Cth) seeking the review of a sequestration order made by Registrar Hedge 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.
The application is supported by an affidavit by Mr Totev made on 20 June 2005, and a bundle of exhibits to that affidavit running to 134 pages. The affidavit was objected to by Mr Potts, for the petitioning creditor, substantially upon the basis that the affidavit was argumentative and in substance was submissions. While accepting that, I received the bulk of the affidavit on the basis that I would treat the submissions in it as submissions and deal with the factual assertions in it to the extent that they are relevant. I also received as submissions a document filed in court by Mr Totev earlier today headed, “Evidence my Complaint to the Legal Services Commissioner is a Genuine Claim”. In the course of argument, Mr Totev tendered a further document, being a letter to the petitioning creditors from their then solicitors dated 9 August 2002, which became exhibit A1.
The application is opposed by the petitioning creditors, who rely upon the affidavit of Michael Sfar, made on 4 July 2005. That affidavit also substantially contains what I regard as submissions. That is understandable on the basis that Mr Sfar was attempting in his affidavit to respond to the affidavit of Mr Totev.
The trustee in bankruptcy was represented today by Mr Barnden in order to assist the Court. I received a notice to creditors in the bankruptcy, which was filed in court today by Mr Barnden, together with a statement of affairs completed by Mr Totev on 15 June 2005.

I also had regard to the material relied upon by Registrar Hedge in making the sequestration order.
Mr Totev seeks review of the sequestration order on various grounds. He asserts generally that the Registrar erred in making the sequestration order. There is no substance to that ground of the application to the extent that it relates to any formal aspects of the documents supporting the sequestration order. Plainly, the bankrupt had committed an act of bankruptcy and the material presented to the Registrar was sufficient, on its face, to support the making of a sequestration order.
Mr Totev invites me, as he appears to have invited the Registrar, to go behind the judgment debt, but there is no basis on which the Court should do so. The judgment debt was obtained in the Local Court upon the basis of a costs certificate flowing from an interlocutory costs order made in the District Court of New South Wales on 3 June 2003. On the basis of the available material, there seems to be no real doubt that the costs order was regularly obtained, that a judgment was regularly obtained, a certificate of costs was regularly obtained, and a bankruptcy notice and creditor’s petition were subsequently properly issued and served.
Mr Totev sought to place some significance upon the assertion that the petitioning creditors had not paid any money to their solicitors relating to the costs the subject of the costs order supporting the bankruptcy notice. Whether that is right or wrong, I see no significance in it. The District Court made a costs order against Mr Totev and it was his liability to pay it, not a liability on the petitioning creditors to pay the solicitors.
Mr Totev also sought to challenge the sequestration order on the basis that he has a counter-claim, set off or cross-demand of equal or greater value than the amount of the debt due to the petitioning creditors that could not have been set up in the proceedings leading to the judgment debt. There is no substance to that argument essentially because the costs order supporting the bankruptcy notice and the creditor’s petition was made in the proceedings instituted by Mr Totev in the District Court, which are the very proceedings which, he says, constitute his counter-claim, set off or cross-demand. Not only could that counter-claim, set off or cross-demand be asserted in the proceedings leading to the costs order. It was those proceedings that led to the costs order.
The claim in the District Court proceedings, therefore, could not have been a proper basis of opposition to the bankruptcy notice. Neither could it be a proper basis of opposition to the creditor’s petition on the basis of there being a counter-claim, set off or cross-demand of equal or greater value.
The only argument advanced by Mr Totev that has any potential substance is the argument that the bankruptcy proceedings were an abuse of process. Mr Totev asserts that the bankruptcy proceedings were taken by Mr and Mrs Sfar in order to put an end to his District Court proceedings claiming substantial damages from them. Mr Sfar, in his own affidavit, in paragraph 16, suggests that he and his wife are anxious to see an end to those District Court proceedings and that the bankruptcy proceedings appeared to be the only means open to them to achieve an end. I also have before me evidence of discussion between the parties seeking to resolve the District Court proceedings short of a bankruptcy.
Mr Totev believes that there is a malign and ulterior purpose in the bankruptcy proceedings to keep him out of the damages that he believes he is entitled to. However, the motivation of a petitioning creditor is not generally relevant. An act of bankruptcy had been committed. That act of bankruptcy having been committed and a creditor’s petition verified by required affidavits having been presented then, prima facie, the petitioning creditors were entitled to the relief they sought.
There would be a basis for concern if there was evidence that the District Court proceedings had good prospects of success and if the petitioning creditors were the only creditors to benefit from a sequestration order. In those circumstances, an argument could be raised that the bankruptcy proceedings were an attempt to frustrate the administration of justice. In this case, however, there is no material of a persuasive nature that the District Court proceedings have any prospect of success. The trustee has not yet been able to determine whether those proceedings are worth pursuing.
Secondly, the petitioning creditors are not the only creditors. Although proofs of debt have not yet been lodged, the identified creditors include a range of financial institutions, the Australian Taxation Office, solicitors who formerly acted for Mr Totev, the Supreme Court of New South Wales and a Lugo Ventresca, who apparently loaned $25,000 to Mr Totev to support his legal proceedings. If there is any merit in the District Court proceedings, then it is by no means beyond the bounds of possibility that one or other of Mr Totev's creditors will see some benefit in funding the continuation of those proceedings by Mr Totev's trustee in bankruptcy.
In these circumstances, the bankruptcy proceedings did not constitute an abuse of process. The bankruptcy operates as an effective stay on the District Court proceedings until the position can be properly assessed by the trustee. That is a normal and natural consequence of the sequestration order, as was pointed out by Mr Potts in his submissions. There is no necessary consequence of concern by reference to any asserted abuse of process.
I find that there is no basis upon which the application for review can succeed and there was no error made by the Registrar in making the sequestration order. There is no basis upon which the Court should look behind the judgment debt. The bankruptcy proceedings were not an abuse of process and the sequestration order was properly made.
I will, therefore, dismiss the application for review. I will further order that the petitioning creditors’ and the trustee’s costs in dealing with the review application be treated as costs in the administration of the bankruptcy which, if not agreed, are to be assessed and, if necessary, taxed in accordance with the Federal Court Rules.

I certify that the preceding sixteen (16) paragraphs are a true copy of the reasons for judgment of Driver FM

Associate:

Date: 8 July 2005