Srirekam, Hari Shotam v Commonwealth Bank of Australia

[1998] FCA 958

FEDERAL COURT OF AUSTRALIA

BANKRUPTCY – application for stay of sequestration order pending application for annulment of bankruptcy – no point of general principle

Bankruptcy Act 1966 (Cth), s 153B

HARI SHOTAM SRIREKAM AND CARALAPATI PREMRAJ v COMMONWEALTH BANK OF AUSTRALIA

NG 648  of   1998

MADGWICK J
2 JULY 1998
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NG 648  of   1998

BETWEEN:	HARI SHOTAM SRIREKAM AND CARALAPATI PREMRAJ APPELLANTS
AND:	COMMONWEALTH BANK OF AUSTRALIA RESPONDENT
JUDGE(S):		MADGWICK J
DATE OF ORDER:		2 JULY 1998
WHERE MADE:		SYDNEY

THE COURT ORDERS THAT:

1. The application for a stay is dismissed.

2. The appellants are to pay the costs of the respondent to the appeal and the costs of the supporting creditor, Pan Laboratories Australia Pty Ltd.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NG 648 of 1998

BETWEEN:	HARI SHOTAM SRIREKAM AND CARALAPATI PREMRAJ APPELLANTS
AND:	COMMONWEALTH BANK OF AUSTRALIA (ACN 123 123 124) RESPONDENT

JUDGE(S):	MADGWICK J
DATE:	2 JULY 1998
PLACE:	SYDNEY

REASONS FOR JUDGMENT
(Revised from transcript)

HIS HONOUR: In this matter the appellants lodged yesterday an appeal against sequestration orders made by Beaumont J against each of them on 11 June 1998 pursuant to s 52(3) of the Bankruptcy Act 1966 (Cth). The sequestration orders were made by consent. His Honour stayed all proceedings under those orders for a period which expired at midnight on 29 June last.

The hearing of the petition had been before his Honour on many occasions.  It is common ground that the petitioning creditor (and now respondent to the appeal), the Commonwealth Bank of Australia, had been made a number of seemingly substantial promises by the appellants that the debt outstanding to it, which lies at the heart of its petition, would be paid, by complex arrangements.  Those arrangements were to involve ultimate lenders lending to an intermediate lender who would then lend to a company, Polance Pty Ltd, the principal debtor to the bank, to enable that company to pay its debt.  The same had been proposed in relation to the supporting creditor for whom, without objection, Ms Eakin appears today.

The appellants were guarantors of the debt owed by Polance.  It appears that his Honour had previously extended time to the debtor-appellants, and on 11 June evidently felt, at the urging

of the Bank, that matters finally needed to be allowed to take their legal course.  His Honour indicated as much.

In these circumstances the parties asked his Honour to make the consent sequestration orders, subject to the stay thereof to which I have referred.  The appellants were represented by counsel and their solicitor was also present.  There is no evidence before me that either appellant did not fully understand his legal position nor that either was unaware of the effect of s 37 of the Act, namely that the Court does not have power to rescind, discharge or suspend the operation of a sequestration order.

I am very properly informed by Mr Aldridge of counsel, who appears for the appellants on this stay application, that it is a common enough commercial procedure that, in circumstances where debtors have found themselves in a similar position to the appellants, experienced lenders will agree to loans and make arrangements in escrow following the making of orders such as those made by Beaumont J, pending an application to the Court for annulment of the bankruptcy under s 153B, on the basis that a sequestration order ought not to have been made. I am informed that, in circumstances like these, where such escrow arrangements have been duly made and it is quite clear that the proposed loan transactions can go ahead, in a number of cases the Court has taken the view that it has power under s 153B to annul the bankruptcy and that it is an appropriate exercise of its discretion so to do.

In these circumstances there seems to me to be no real prospect of success of the appeal which has been lodged. 

Mr Aldridge, again with commendable frankness, indicated that at least an important purpose of the institution of the appeal was to clothe the Court with jurisdiction to further stay proceedings under the sequestration orders appealed against.  I need not determine whether the appeal was technically an abuse of the process of the Court.  There is an absence of clear demonstration, even putting aside technical questions of evidence, that funds really would be available if the 14 day stay requested were granted.  The best that can be said is that the assertion that the funds would be available rests on the say-so of one of the proposed intermediate lenders, or a person apparently controlling the proposed intermediate lender, Mr Sulejman, and on the belief of a solicitor who seems to be acting for Mr Sulejman.

In all of the circumstances it seems to me that it ought to have been possible to provide direct and clear evidence from the National Australia Bank, the proposed principal ultimate lender, under the rescue operation projected by or for the appellants, but this has not been forthcoming. 

For either or both of these reasons it seems to me that the stay application must fail.  I accept, for the sake of argument, that there is a strong public interest in persons not being made bankrupt unnecessarily and, of course, there is no question that such a change in their status is likely to be a very serious thing for the appellants who have clearly been active in the commercial world.  However unfortunate bankruptcy might be for them, they are not entitled to deny the Bank the fruits of its success at first instance unless they can demonstrate some prospect of success on the appeal.  To stay an order, the prospects of success of an appeal against which are seemingly non-existent, would, in my view, be a wrong exercise of discretion.  In circumstances such as have existed in this case, it would alternatively and additionally be wrong, in my view, to stay the order absent clear demonstration that arrangements will be put in place that would have the desired effect and fully satisfy the petitioning creditor and, if it be a relevant factor (I need not determine it), the supporting creditor.

The application for a stay is dismissed.  The appellants are to pay the costs of the respondent to the appeal and the costs of the supporting creditor, Pan Laboratories Australia Pty Ltd.

I certify that this and the preceding two (2) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Madgwick

Associate:

Dated:             2 July 1998

Counsel for the Applicant:	M Aldridge
Solicitor for the Applicant:	Stewart Levitt & Co
Solicitor for the Respondent:	Abbott Tout
Date of Hearing:	2 July 1998
Date of Judgment:	2 July 1998