Sourlos v Luv a Coffee Lismore Pty Ltd (No.2) - [2008] FMCA 772

FEDERAL MAGISTRATES COURT OF AUSTRALIA

SOURLOS v LUV A COFFEE LISMORE PTY LTD (No.2)

[2008] FMCA 772

BANKRUPTCY – Bankruptcy notice – where there exists an asset protection order – whether the order prevents sale of property and use of funds to pay debt – whether this is a bar to execution so that notice shall be set aside.

Federal Magistrate's Court (Bankruptcy) Rules 2006

National Australia Bank v Pollak (2001) 186 ALR 44
Boscolo v Botany Council [1996] FCA 897
Ling v Enrobook Pty Ltd (1997) 74 FCR 19
Re Sedgwick; Ex parte Sedgwick (1888) 5 Morr 262
Ousley, Re; Ex parte Commissioner of Taxation (1994) 48 FCR 131

Applicant:

THEO SOURLOS

Respondent:

LUV A COFFEE LISMORE PTY LTD ACN 109 736 414

File Number:

SYG 779 of 2008

Judgment of:

Raphael FM

Hearing date:

28 May 2008

Date of Last Submission:

28 May 2008

Delivered at:

Sydney

Delivered on:

28 May 2008

REPRESENTATION

Counsel for the Applicant:

Mr R B Wilson

Solicitors for the Applicant:

McLachlan Chilton

Solicitors for the Respondent:

Harris & Co

ORDERS

Application dismissed.
Applicant pay the respondent's costs to be taxed, if not agreed, in accordance with the Federal Magistrate's Court Bankruptcy Rules.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
SYDNEY

SYG 779 of 2008

THEO SOURLOS

Applicant

And

LUV A COFFEE LISMORE PTY LTD
ACN 109 736 414

Respondent

REASONS FOR JUDGMENT

In this matter an applicant debtor seeks to set aside bankruptcy notice numbered NN0825/08 issued by the Official Receiver on

11 March 2008
under which the judgment creditor seeks payment of the sum of $344,940.55.
The ground upon which it is said that the bankruptcy notice should be set aside is that there exists by virtue of orders of the District Court of New South Wales, made originally on 26 October 2006 and renewed on 26 October 2007, a bar to the debtor dealing with his funds in such a way as to satisfy the bankruptcy notice.
In reading the affidavits and submissions filed in these proceedings I have ascertained that the creditor obtained judgment against the debtor and then was concerned that the debtor might attempt to divest himself of his assets before the creditor had an opportunity to enforce the judgment. It sought from the District Court a form of Mareva injunction known as an asset protection order.
The form of the order signed by Rolfe J, states inter alia:
"Upon the plaintiffs, by their counsel, giving to the Court:
(a)…
(b) an undertaking to move promptly to pursue the remedies provided by the District Court Act, the Civil Procedure Act and/or the Bankruptcy Act for enforcement of any judgment obtained against the defendant in these proceedings."
The order then proceeds to restrain the debtor from disposing of certain assets including a property at 147 James Street, Goonellabah.
Sub-para (e)(iv) states:
"Such proceeds of sale to be dealt with as an asset restrained as set out in order 1.”
In other words, the order permits the sale of the property but restrains the proceeds of sale. It is this that the debtor relies upon to distinguish his position from that in the large number of cases that have been heard in the Federal Court which deal with arguments of this type in relation to Mareva injunctions. A summary of these cases and consideration of them is found most recently in a decision of Madgwick J in

National Australia Bank v Pollak
(2001) 186 ALR 44 at [41] et sec.
His Honour referred to such seminal cases as Boscolo v Botany Council [1996] FCA 897, Ling v Enrobook Pty Ltd (1997) 74 FCR 19 and the original decision in this type of matter; Re Sedgwick; Ex parte Sedgwick (1888) 5 Morr 262. The applicant seeks to put this case in the class of cases considered by Jenkinson J in Boscolo where his Honour refers to the decision of Lord Esher in Sedgwick stating:
"No doubt, an“equity” of the type envisaged by Lord Esher would disentitle a judgment creditor from proceeding to immediate execution but, in my view, this is not an exhaustive statement of the matters that may disqualify a judgment creditor from issuing a bankruptcy notice. There is no reason of logic or otherwise to limit the operation of s.41(2)(b) to cases where the debtor can establish an “equity”. In my opinion, the existence of any relevant circumstances sufficient to disentitle a judgment creditor from proceeding immediately to execution falls within the implied prohibition contained in s.41(3)(b).”
The applicant accepts that the existence of a Mareva injunction itself is not sufficient to prevent a bankruptcy notice being issued. He says that in this particular case the order of the District Court is so worded that even though the property may be sold the proceeds of sale cannot be used for the purposes of satisfying the judgment debt.
The respondent argues to the contrary. First he says that the applicant has not established, as he is required to, the necessary evidence that any attempt to sell the property has been foiled by the existence of the order. It appears that whilst this property has been listed for sale for some considerable time, no sale has taken place and no contract has been entered into.
The respondent refers to the wording used by his Lord Esher MR in Sedgwick:
“It cannot be said that the attachment legally prevents the debtor from selling these shares. There is nothing to show that he is in business or law prevented from selling. It seems clear that the owner of the goods attached can sell them if, when sold, he is prepared to satisfy the attachment. Perhaps it does put a difficulty in the way in such a case as this as the company may require the consent of the creditor to the transfer. But if notice is given to the creditor by the debtor that he has sold and can pay him on transfer, he can oblige the creditor to consent to the transfer. It does not in fact prevent him from selling. It does not in fact prevent him from paying the debt, and the Registrar was therefore right in refusing to set aside the bankruptcy notice.”
I have considered the form of order, parts of which I have extracted earlier in these reasons. I am of the view that an order of the District Court should be given a purposive reading. If that is done it is quite clear the only reason for restricting the ability of the debtor to deal with his assets is so that this particular judgment could be paid. Therefore, the injunction issued was in aid of execution and not to prevent it. As Madgwick J says in National Australia Bank at [45], considering the decision of Heary J in Ousley, Re; Ex parte Commissioner of Taxation (1994) 48 FCR 131:
"His Honour noticed that the principal underlying a Mareva injunction is to prevent an abuse of the court's processes by the disposition of assets preventing the enforcement of Court's orders, and that the purpose of such injunctions was to 'aid' in execution.”
I am satisfied that the purpose of Rolfe J's order was to aid in execution and that it should not be used as a shield by the debtor to prevent the very thing that it was intended to ensure. For this reason I am satisfied that the property is capable of being sold and that if sold the judgment debt could be paid. In those circumstances there is no stay or other equity preventing the issue of a bankruptcy notice.
I will not set aside the bankruptcy notice. The time for compliance has been extended until today which means that the debtor has until 11.59p.m. tonight to effect payment. I order the applicant to pay the respondent's costs to be taxed, if not agreed, in accordance with the Federal Magistrate's Court (Bankruptcy) Rules 2006.

I certify that the preceding eleven (11) paragraphs are a true copy of the reasons for judgment of Raphael FM

Associate:

Date: