Sydney Markets Credit Services Co-Operative Limited v Pisciuneri
[2011] FMCA 968
•7 December 2011
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| SYDNEY MARKETS CREDIT SERVICES CO-OPERATIVE LIMITED v PISCIUNERI | [2011] FMCA 968 |
| BANKRUPTCY – Application for adjournment of creditor’s petition – personal insolvency agreement – where petition stayed by virtue of s.189AAA of Bankruptcy Act1966 – where stay lifted upon adjournment of creditors meeting – where meeting called by purported Controlling Trustee – whether appointment of controlling trustee invalid – where Part B of Controlling Trustee Authority incomplete but signed by purported controlling trustee – whether substantial compliance – where no substantial compliance – whether form valid in accordance with s.306 of Bankruptcy Act – whether formal defect or irregularity – whether form completed in a manner that answered the essential requirements of the Bankruptcy Act – whether controlling trustee appointed – whether adjournment should be granted. BANKRUPTCY – Application for adjournment of creditor’s petition – personal insolvency agreement – whether adjournment should be granted for continuation of creditors meeting to reach proposed PIA – where petitioning creditor opposed trustee report upon which PIA to be agreed – where trustee report contains insufficient information to conclude that PIA would be of general advantage of creditors – where indication of lack of transparency as to debtor’s assets – where petitioning creditor an outside creditor – where petitioning creditor’s debt minor compared to those debts sought to be utilised to vote in favour of PIA. BANKRUPTCY – Creditor’s petition – where debtor’s application for adjournment formed only basis of submission that court apply its discretion under s.52(2)(b) – where adjournment denied – where court satisfied that act of bankruptcy committed – where court satisfied of other requirements under s.52 – whether discretion should be exercised – whether sequestration order should be granted. |
| Bankruptcy Act 1966, Part X, ss.33(1)(a), 52(2)(b), 73, 188, 188(1), 188(2)(a), 189A(2), 189AAA, 306 Acts Interpretation Act 1901, s.25C |
| Re Curry; Ex parte Goldsea Pty Ltd (1992) 40 FCR 32 Adams v Lambert [2006] 225 ALR 396 Irani v Hollyburton UK Ltd [2007] 163 FCR 329 Malek v Macquarie Leasing Pty Ltd [2007] FCAFC 14 Australian Steel Co (Operations) Pty Ltd v Lewis [2000] 199 ALR 68 Bendigo Bank Ltd v Williams [2001] 173 ALR 175 Minister for Immigration and Multicultural Affairs v A [1999] 57 ALD 550 Project Blue Sky v Australian Broadcasting Authority [1998] HCA 28 Kleinwort Benson v Crowl [1988] 165 CLR 71 David Bendel Ex Parte: Low Lippmann (A Firm) [1996] FCA 1400 HP Mercantile Pty Ltd v V Turco and Marinelli & M Turco [2010] FMCA 114 Field v Commercial Banking Company of Sydney Ltd (1978) 37 FLR 341 |
| Applicant: | SYDNEY MARKETS CREDIT SERVICES CO-OPERATIVE LIMITED |
| Respondent: | NATALE PISCIUNERI |
| File Number: | SYG 1972 of 2011 |
| Judgment of: | Raphael FM |
| Hearing date: | 24 November 2011 |
| Date of Last Submission: | 24 November 2011 |
| Delivered at: | Sydney |
| Delivered on: | 7 December 2011 |
REPRESENTATION
| Counsel for the Applicant: | Mr F. Carnovale |
| Solicitors for the Applicant: | Manion McCosker Solicitors |
| Solicitors for the Respondent: | Watson Mangioni Lawyers |
ORDERS
A sequestration order be made against the estate of Natale Pisciuneri.
The Applicant Creditor’s costs (including any reserved costs) be taxed (in accordance with the Federal Magistrates Court (Bankruptcy) Rules 2006) and paid from the estate of the Respondent Debtor in accordance with the Act.
Under the Bankruptcy Regulations a copy of this sequestration order be given to the Official Receiver in Sydney within 2 days.
THE COURT NOTES:
(i)That the date of the act of bankruptcy is 12 August 2011.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 1972 of 2011
| SYDNEY MARKETS CREDIT SERVICES CO-OPERATIVE LIMITED |
Applicant
And
| NATALE PISCIUNERI |
Respondent
REASONS FOR JUDGMENT
Mr Pisciuneri, the debtor in these proceedings was, to use a neutral term because of the complexity of the structures, a principal in the fruit marketing business known as Duffy Bros. The business involved a number of retail fruit markets situated in suburbs in the Sydney area. The structure of the business included ownership of real estate, companies and trusts. A number of other individuals was associated with Mr Pisciuneri including his brother. Some of the obligations of the entities which made up the structure were secured by way of mortgages on real estate and/or by personal guarantees of Mr Piscuineri and other associates. One such obligation was that to the Sydney Markets Credit Services Co-Operative Limited to whom one of the companies in the structure, Duffy Bros. Fruit World Pty Limited ACN 050 034 118, was indebted in the sum of $635,553.03 (including costs) pursuant to a Judgment in the District Court obtained on 9 May 2011. Mr Piscuineri was a guarantor of that obligation.
On 22 July 2011 the creditor issued a bankruptcy notice claiming a total sum of $644,350.65 being the judgment sum plus interest to date. No challenge was made to the bankruptcy notice. The notice was served on 22 July 2011. The last day for compliance was 15 August 2011. By not complying with the notice Mr Piscuineri committed an act of bankruptcy on 15 August 2011. On 5 September 2011 the Sydney Markets presented a petition to this court in which it claimed that Mr Piscuineri owed it $677,906.67 but noted that it held security and therefore claimed as an unsecured debt the sum of $150,000.00 only. A month later, on 6 October 2011, Mr Piscuineri purported to execute a controlling trustee authority pursuant to Part X of the Bankruptcy Act 1966 (the “Act”) and ss.188, 189A(2) and Regulation 10.02(3) of the Bankruptcy Regulations 1996 (the “Regulations”). Mr Piscuineri purported to appoint Mr Phillips Aggs as his controlling trustee.
The first return date of the creditor’s petition was 10 October 2011 but by virtue of s.189AAA of the Act a stay of the petition was presumed to be in effect:
“Stay of proceedings relating to creditor's petition until meeting of debtor's creditors
(1) If:
(a) an authority signed by a debtor under section 188 has become effective; and
(b) either:
(i) a creditor's petition was presented against the debtor before the authority became effective; or
(ii) a creditor's petition is presented against the debtor after the authority became effective but before the first or only meeting of the debtor's creditors called under the authority;
proceedings relating to that petition are, by force of this subsection, stayed until:
(c) the conclusion of the meeting; or
(d) the adjournment of the meeting;
whichever is the earlier.
(2) This section does not limit subsection 206(1).”
On 1 November 2011 Mr Aggs prepared a report to creditors in advance of a creditors’ meeting that was due to take place on 11 November. That meeting did take place but for reasons that are dealt with in more detail hereafter, the meeting was adjourned until 28 November 2011. The effect of the adjournment was that the stay of the proceedings was lifted so that the court was able to hear the petition. In order to prevent this occurring and having a sequestration order made against his estate Mr Piscuineri made an application to this court under s.33(1)(a) that the hearing of the petition be adjourned until after the adjourned creditor’s meeting or alternatively, pursuant to s.52(2)(b) of the Act, the court should exercise its discretion and not proceed to make the sequestration order.
Two issues arise for consideration. The first is whether Mr Aggs was ever appointed controlling trustee under Part X and was entitled to hold the meeting of creditors that took place on 11 November. The second was that if Mr Aggs’ appointment was valid whether the court should grant the adjournment in the light of a number of issues raised by the creditor with Mr Aggs prior to the first meeting that put in doubt both the disclosure made by the debtor in his statement of affairs and the treatment of those matters that were disclosed in the report by the controlling trustee. I shall deal with each in turn.
The validity issue
The actions of a debtor who wishes his affairs be dealt with under Part X without his estate being sequestrated are controlled by s.188 and the Regulations. Relevantly, s.188(1), 188(2)(a) and Regulation 10.02(3) and 10.03(1):
“s.188Debtor may authorise trustee or solicitor to be controlling trustee [see Table B]
(1) A debtor who desires that his or her affairs be dealt with under this Part without his or her estate being sequestrated and:
(a) is personally present or ordinarily resident in Australia;
(b) has a dwelling-house or place of business in Australia;
(c) is carrying on business in Australia, either personally or by means of an agent or manager; or
(d) is a member of a firm or partnership carrying on business in Australia by means of a partner or partners or of an agent or manager;
may sign an authority in accordance with the approved form naming and authorising a registered trustee, a solicitor or the Official Trustee to call a meeting of the debtor's creditors and to take control of the debtor's property.
(2) An authority signed by a debtor under this section is not effective for the purposes of this Part unless:
(a) if the person authorised is a registered trustee or solicitor--the person has consented in writing to exercise the powers given by the authority; and
Reg 10.02 Information to be given to debtor (Act ss 188 (2AA) and (2AB))
(3) A person authorised under subsection 188 (1) of the Act to take control of a debtor's property must not consent to exercise the powers given by the authority unless the debtor has given the person a signed acknowledgement (which may be included with or appended to the authority) that the debtor has received and read the prescribed information.
Reg 10.03 Documents under section 188 of Act
(1) A registered trustee or solicitor who consents to exercise the powers given by an authority under section 188 of the Act must sign a consent in accordance with the approved form.”
It is not in dispute that the approved form is the form issued by the Insolvency and Trustee Service Australia entitled “Controlling Trustee Authority” which was utilised by Mr Pisciuneri in the instant case. The form contains two parts, Part A to be completed by the debtor and Part B to be completed by the controlling trustee. Completion of Part A satisfies the requirements of Regulation 10.02(3).
Part B of the form as “completed” is reproduced below.
“Annexure A attached”.
The debtor argues that the name and address of the proposed trustee is not completed, neither is the consent to exercise the power given by way of ticking the box. A signature does appear under the heading “Signature of controlling trustee” but whether or not that is the signature of Mr Aggs cannot be derived from the document itself. There being no purported written consent in accordance with the approved form any consent assumed to have been given by Mr Aggs attending at ITSA and paying the fee or acting as the controlling trustee and holding the meeting does not constitute a valid consent under the Act and therefore the debtor’s s.188 authority never became effective.
In Re Curry; Ex parte Goldsea Pty Ltd (1992) 40 FCR 32 Spender J considered a situation in which a debtor signed a Part X authority under a previous iteration of sub-s.188(2) that relevantly provided:
“An authority signed by a debtor under this section is not effective for the purposes of this Part unless —
(a)... the solicitor named in it has consented, in writing, to call the meeting of creditors, as the case may be;
(b)the signature of the debtor to the authority and the signature of the ... solicitor to the consent are each attested by a witness; and
(c)within 10 days before signing the authority, the debtor gave to the ... solicitor:
(i)a statement of the debtor's affairs; and
(ii)a statement indicating how the debtor proposes that his or her affairs be dealt with under this Part.”
His Honour noted:
“It appears that the authority by Mrs Curry was signed by her on 19 November 1991 at Brisbane but the statement of her affairs was not given to the solicitor until 20 November 1991. The authority contains a consent by Douglas Macleod Beames, a solicitor, to call a meeting of creditors, but that consent is dated 24 November 1991. The notice of meeting is dated 19 November 1991, which predates the consent of Mr Beames to act pursuant to Pt X.
It seems to me that the authority signed by Mrs Curry is not effective for the purposes of Pt X, not only because of want of compliance with s 188(2)(a) but also because the evidence establishes want of compliance with s 188(2)(c).”
This case is thus authority for the proposition that if no consent is given the appointment is ineffective. It does not answer the question as to whether consent is given in the circumstances pertaining here where a signature appears on the form but there is no confirmation of acceptance of the appointment or any indication that the person whose signature appears on the form is the person nominated by the debtor or is in fact a registered trustee.
There are two statutory provisions which have relevance to the issue. The first is s.25C of the Acts Interpretation Act 1901:
“Compliance with forms
Where an Act prescribes a form, then, unless the contrary intention appears, strict compliance with the form is not required and substantial compliance is sufficient.”
The second is s.306 of the Bankruptcy Act:
“Formal defect not to invalidate proceedings
(1) Proceedings under this Act are not invalidated by a formal defect or an irregularity, unless the court before which the objection on that ground is made is of opinion that substantial injustice has been caused by the defect or irregularity and that the injustice cannot be remedied by an order of that court.
(2) A defect or irregularity in the appointment of any person exercising, or purporting to exercise, a power or function under this Act or under a personal insolvency agreement entered into under this Act does not invalidate an act done by him or her in good faith.”
Could it be said that Part B as completed constitutes substantial compliance with the form? In Adams v Lambert [2006] 225 ALR 396 which, like most of the bankruptcy cases dealing with the section relates to a bankruptcy notice, the High Court stated at [22]:
“The difficulty is that in a case such as the present, where there is a specific requirement to state a provision, it is not substantial compliance to state a different provision. In such a case, the problem cannot be avoided by looking at the form as a whole and observing that, like the curate's egg, it is bad only in part.
In Irani v Hollyburton UK Ltd [2007] 163 FCR 329 Middleton J opined at [21]:
“Substantial compliance is a matter of degree. The court is concerned to look to the practical effect of what has been provided by way of information and the practical effect of what the form sought to achieve.
In Malek v Macquarie Leasing Pty Ltd [2007] FCAFC 14 the Full Court Branson, Conti and Siopis JJ said at [11]:
“Understandably, neither party contended that a bankruptcy notice which wholly omits the note to par 7 nonetheless substantially complied with Form 1 within the meaning of s 25C of the Acts Interpretation Act (see Adams v Lambert (2006) 225 ALR 396 at [22]). For this reason the critical issue to be determined on this appeal is whether s 306 of the Act operates to validate the bankruptcy notice served on Ms Malek.”
In Australian Steel Co (Operations) Pty Ltd v Lewis [2000] 199 ALR 68 the Full Court Black CJ, Heerey and Sunberg JJ in part of the judgment that was unaffected by the decision in Adams v Lambert said at [43]:
“A provision as to substantial compliance, assuming it applies at all, cannot make unessential that which purpose reveals as essential. It can hardly be said that there has been substantial compliance with a prescribed form where the form fails to include information made essential by an enactment.”
In Bendigo Bank Ltd v Williams [2001] 173 ALR 175 the Full Bench Moore Kiefel and Lehane JJ stated at [19]:
“We do not know of any case, and counsel were unable to refer us to any, in which it has been held that a complete failure to incorporate any information of a kind required by either the Act or the Regulations (including the form), or their predecessors, has been held not to amount, in the terminology of Kleinwort Benson, to a failure to meet a requirement made essential by the Act. That, perhaps, is not surprising. First, though we would not exclude the possibility of exceptional cases it might perhaps be thought strange, where the legislature and the executive have required a notice to take a particular form and to include a number of specified items of information, for the Court to take the view in the absence of a clear legislative licence to do so, that some of those items are essential but others are not. Secondly, counsel for the appellant conceded, rightly in our view, that he could not suggest that, in circumstances where an item was wholly omitted, there was substantial compliance with the form within the meaning of s 25C of the Acts Interpretation Act (on the assumption, contrary to our view, that the section has an operation in relation to the contents of the form as opposed to its format) or r 6 of the earlier Bankruptcy Rules 1968 (Cth).”
In Minister for Immigration and Multicultural Affairs v A [1999] 57 ALD 550 Merkel J opined at [43]:
“I can see no reason for discerning a legislative intent that a failure to complete an approved form in accordance with any or every direction in it should necessarily result in the application being invalid for the purposes of the Act. There is much to be said for the view that the intent of the legislative scheme is that information necessary to enable the Minister or his delegate to decide the substantive issues raised by a visa application must be provided as directed in an approved form. However, I do not accept that the same intent exists in respect of all of the information sought in an incomplete form irrespective of the significance or relevance to the outcome of the application or the uncompleted parts of it.”
Finally, in Project Blue Sky v Australian Broadcasting Authority [1998] HCA 28 McHugh, Gummow and Kirby, Lehane JJ said at [93]:
“A better test for determining the issue of validity is to ask whether it was a purpose of the legislation that an act done in breach of the provision should be invalid. This has been the preferred approach of courts in this country in recent years, particularly in New South Wales. In determining the question of purpose, regard must be had to "the language of the relevant provision and the scope and object of the whole statute.”
What I take from these authorities is in considering a question of substantial compliance one must look at what it is that the statute requires and that the form sets out to provide. In this case the statute requires the consent of the trustee and the form provides for that by identifying the trustee and then requiring him to indicate his consent by ticking the box. In the instant case the trustee is not identified and there is no indication of consent being given. In my view even the signature does not specifically identify the trustee, it is just a signature. In those circumstances I do not believe that it could be said that there has been substantial compliance with the form.
Notwithstanding the failure to substantially comply with the form the actions of the trustee might be saved by the provisions of s.306 if it could be said that the defect is merely a formal one or an irregularity. In Adams & Lambert supra the High Court said at [18]:
“The questions whether the defect or irregularity is a formal defect or irregularity, and whether substantial injustice has been caused and cannot be remedied, are separate and distinct, the latter question arising only if the former is answered in the affirmative. It may be accepted that, if a defect could cause substantial injustice, it may not easily be classified as a formal defect or irregularity. But the absence of claimed injustice does not conclude the separate question that arises under s 306 about whether the defect or irregularity is a formal defect or irregularity.”
The court in Lambert relied heavily upon what fell from it in Kleinwort Benson v Crowl [1988] 165 CLR 71. They accepted that a bankruptcy notice would be a nullity if it failed to meet a requirement made essential by the Act and then said at [27]:
“If, as in the present case, what is in question is an error in the form of a misdescription of a statutory provision, then a consideration of the general purpose of the Act, and the particular purpose of the legislative scheme relating to bankruptcy notices, leads readily to a conclusion that if the error could reasonably mislead a debtor as to what is necessary to comply with the notice it is not merely a formal defect or irregularity..”
That is not suggested to have been the case here but at [28] in Adams their Honours said:
“The other exclusionary aspect of the expression "a formal defect or an irregularity" in s 306 was said [in Kleinwort Benson] to consist in a failure to meet a requirement made essential by the Act.”
But that question is not answered by my merely observing that there has been a failure to meet a requirement. The court in Lambert expressly excluded as a requirement made essential by the Act the correct completion of the form in all respects. But it still had to be completed in a way that answered the essential requirements. It seems to me that for the same reason that the form was not substantially complied with it was not completed in a respect that was made an essential requirement by the Act, namely the consent of the trustee. In this case it is not just the failure to tick the box, it is the failure to tick the box AND complete the contact details so that the trustee is properly identified. The fact that a trustee is nominated by the debtor might give rise to an assumption that the person who completes the form is that nominated person, but without any identification it is not an assumption that can be elevated into an inference. For these reasons I do not believe that s.306 is available to save the appointment which I find never to have been validly made.
The discretionary issues
The proposal put by Mr Pisciuneri in his Draft Deed of Personal Insolvency Agreement submitted to his creditors, was that he would make contributions of $2,500.00 per month for a period of twenty-eight months, which in the draft deed was totalled to a figure of $68,500.00 but which in fact would total $70,000.00. From this sum the controlling trustee would take $16,000.00 for his fees. In the documents submitted with the report at Annexure D there is a listing of creditors that indicates the total for unsecured creditors of $4,901,680.00 and for all creditors of $8,701,680.00. However, as an inducement to the remaining unsecured creditors to vote in favour of the scheme it was said that creditors are to the value of $4,039,180.00:
“Have agreed to stand aside their debts for dividend distribution purposes. I advise that confirmation of same from the individual creditors is yet to be received. Those creditors whom elect to stand aside for distribution purposes will still retain their rights to vote in the upcoming creditor’s meeting.”
There is no indication in the report that those creditors who had elected not to claim in this administration had agreed to release Mr Pisciuneri from his obligations to them or whether they were going to obtain reimbursement through some other means, most probably by recourse to other joint obligors under the various guarantee arrangements pursuant to which the debts had been incurred. It was accepted that these debts were not personal debts of Mr Pisciuneri, that rather those of the Duffy Bros.’ business.
The report to creditors and the statement of affairs are detailed documents found as Exhibit “NP1” to the affidavit of Mr Pisciuneri sworn on 14 November 2011. Within that exhibit is a letter dated 9 November 2011 from Messrs Toomey Pegg, the lawyers for the petitioning creditor. It is a letter of some ten pages. Section 2 of the letter sets out the nature of the creditor’s concerns:
“(2) Our client:
(a)has serious concerns with:
(i) the Report you have issued;
(ii) the “summary of the Debtor’s “Statement of Affairs” contained in the Report (the summary suggests a number of possibilities which include, without limitation:
(A)the Debtor has not disclosed material assets and the Debtor has not disclosed material liabilities; or
(B)in preparing the Summary of the Statement of Affairs you have omitted material information; and
(iii) the recommendation you made in relation to the Debtor’s proposed Personal Insolvency Agreement contained in the Report and the bases for that recommendation;
(b)does not consider you have properly exercised your powers or discharged your duties under Section 190 of the Act nor that you have properly discharged your duties under Section 190A of the Act;
(c)does not consider, on the basis of the Report, you have properly discharged your obligations to make appropriate enquiries and investigations in connection with the debtor’s property and examinable affairs [the words/expressions in italics have defined meanings under the Act];
(d)is of the view that you have not exercised your powers and functions in a commercially sound way nor in an impartial and independent manner;
(e)is of the view the Report:
(i) is misleading;
(ii) contains material omissions and misstatements of facts;
(iii) has not been prepared in a prudent manner;
(iv) discloses a failure to properly understand or properly treat information within your knowledge and discloses a failure to have proper regard for information within your knowledge; and
(v) does not contain information such as to justify the recommendation to the creditors contained in it;
(f)considers the inadequacy of the information made available to you and/or gathered by you impugns the integrity of the Report and as such makes it an unsuitable basis upon which to make any recommendation to the creditors and unsuitable for the purposes of the creditors making any decision as to the acceptance or rejection of your recommendations;
(g)is of the view you have not put up a proposal for acceptance by the Creditors which is in the interest of the Creditors to accept;
(h)it is of the view you have not, pursuant to your obligations under Section 189A of the Act, discharged your duties in a manner such as to properly gather, and properly consider, the available information about the Debtor’s affairs so as to properly summarise and comment on the Debtor’s affairs nor put yourself in a position such as to enable you to properly recommend a resolution that “the Debtor executes a Personal Insolvency Agreement”;
(i)has serious concerns that you are recommending a Personal Insolvency Agreement (“PIA”) which includes a statement that the antecedent transaction provisions of the Act should not apply to the Debtor; and
(j)is unable to understand how you could properly make any recommendations of the kind made by you on the basis of the limited material reviewed by you and without undertaking appropriate searches of public registers (or undertaking those searches in a proper manner) or obtaining copies (inter alia) of the accounts of various companies and trusts and copies of relevant trust deeds relevant to the affairs of the Debtor and, in turn, considering them in a commercially sound manner.
The balance of the letter gives specific instances of the concerns raised by the creditor. Amongst those concerns are the failure of the trustee or the debtor to indentify two pieces of real estate from the property in respect of which Mr Pisciuneri holds a beneficial interest being Lot 59 in DP 29834 and Lot 6 in DP 880227. The lawyers also raised concerns about a company known as Adore Pty Limited and the Adore Investment Trust. The concerns raised in the letter at [3(l) and (m)] are paraphrased in Mr Carnavale’s helpful written submissions at paragraphs 31 – 33:
“[31]Statement of Affairs (item43D) states that the Debtor owns shares in the above company but fails to state, as required by the form, whether the Debtor is owed money by the company. Report does not point out this failure. Nothing in the Report specifically deals with the company’s financial position.
[32]Statement of Affairs (item 44) refers to the above trust (of which the above company is stated to be the trustee) as a trust in which the Debtor is, or in the last 5 years has been, a unit holder or beneficiary. It states that the trust owns a property at Goulburn valued at $1,300,000 and that the trust owes the Debtor $275,000. Yet the Report, at para 7.1, states the trust has no assets, and that the trustee came to that conclusion from information sought from the Debtor’s accountant and from a review of the trust’s financial statements. No explanation is given in the Report as to why the Goulburn property referred to in the SOA is not an asset of the trust.
[33]In addition, it is not clear what financial statements he reviewed given his statement in para 6 of the Report about the unavailability of up-to-date financial statements and other relevant information.”
The letter goes on to deal with other concerns of the creditor, some of which are more fully articulated in Mr Carnavale’s submissions. They point out discrepancies between the statement of affairs and the trustee’s report and looks at the various Duffy companies which make up the structure. For example, in relation to Duffy Bros.’ Fruit Markets (Campbelltown) Pty Limited and the Duffy Bros. Campbelltown Unit Trust Mr Carnavale points out:
“[45]Statement of Affairs (item 43D) refers to the above company as a company in which the Debtor owns shares, but fails to state, as required by the form, whether the Debtor is owed money by the company. Report does not point out this failure.
[46]Statement of Affairs (item 44) refers to the above trust (of which the above company is stated to be the trustee) as a trust in which the Debtor is, or in the last 5 years has been, a unitholder or beneficiary, and states that the trust owes him $3.9 million but that the trust has no assets. The trust is mentioned in para 6.10 of the Report where it deals with the above company but the trust is not mentioned elsewhere. In para 6.10 the trustee states that the likelihood of recovery of the debt, quantified there as approximately $4,000,00, is “nil”, but there is no disclosure in the Report of the basis for that opinion. If it should be inferred that the basis is the financial statements cited in that paragraph (though they are cited only for the statement that the Debtor is owed approximately $4,000,00), the problem is that it is unclear what financial statements were reviewed given the statement in para 6 of the Report about the unavailability of up-to-date financial statements and other relevant information.”
In respect of Duffy Bros. Country Fresh Unit Trust it is noted:
“[52]The Report (para 6.1) says that Debtor is a shareholder of the above company and was a director until 27 July 2011. Statement of Affairs fails to mention the company at all in item 43D. Report does not point out the failure. Report (para 6.11) states that, according to information from the Debtor’s accountant, the company is currently operating a supermarket but states that the trustee cannot provide details of the company’s current financial statements requested by the trustee. There is no evidence of any attempt to obtain the information from the company itself.
[53]Statement of Affairs (item 44) refers to the Duffy Bros Country Fresh Unit Trust (of which the above company is stated to be the trustee) as a trust in which the Debtor is, or in the last 5 years has been, a unitholder or beneficiary, and states that the trust owns plants, equipment, stock etc valued at $900,000 but charged to St George Bank and that the trust owes him $720,000. Report (para 7.4) states that the unitholder are two companies. Nothing is said about the Debtor’s present or past status as a unitholder or beneficiary as disclosed in item 44 of the SOA. Report (para 7.4) states that the controlling trustee cannot comment on the trust’s financial position because of the unavailability of information from the Debtor’s accountant.”
The concerns raised in the examples set out above are repeated in respect of other Duffy Bros.’ entities and trusts.
The trustee’s report provides a comparison between the return available from acceptance of the PIA and bankruptcy although it is to be noted that the comparison does not take into account the concerns raised by the creditor. It shows a distribution to unsecured creditors under the PIA of 5¢ in the Dollar and under a bankruptcy of nil, although to be fair it indicates the unsecured creditors at $873,500.00 of which $650,000.00 is made up of the petitioning creditor who can only be admitted to proof for $150,000.00 at this stage. It also shows that the figure of $68,500.00 by way of contribution is reduced to $41,386.00 for creditors after deduction of ITSA and the controlling trustee’s costs and expenses.
The substantive objections of the petitioning creditor are:
1.The proposal is based upon inaccurate information and insufficient investigation.
2.The proposal excludes investigation of antecedent transactions.
3.The decision upon the proposal is being made by creditors the value of whose debts is open to dispute but who do not intend to participate in the arrangement. Whilst it is not known whether those creditors are going to release their debts, if they did not do so then it is unfair to the petitioning creditor to force it to take a small percentage in the dollar when those creditors may have the opportunity of a much larger sum. If they are going to release the debtor then what interest do they have in the PIA.
There are a number of similarities between this case and two others in which a similar adjournment was sought. In David Bendel Ex Parte: Low Lippmann (A Firm) [1996] FCA 1400 Merkel J considered an application where:
“[19]The only outside party listed in the Statement of Affairs with a simple debt with no benefits, favours or associations attached, is the petitioning creditor.
[20] It has a prima facie entitlement to proceed with its petition.”
His Honour refused the adjournment for reasons which include some of relevance to the current proceedings. At [21] his Honour says:
“[21]I have reached this conclusion for a number of reasons. First, the petitioning creditor may be prejudiced by the adjournment. Its debt is a small one. If it wishes to raise issues as to the assets or creditors of the debtor, or to challenge the Part X arrangement, the onus and the expense fall entirely upon it. If it does not take such steps it receives little or nothing.
[22] A sequestration order, rather than the vagaries and uncertainties of the Part X arrangement proposed in the present case, constitutes a more appropriate vehicle in the present circumstances. Two examples suffice. The simplicity of the present proposal would have the trustee under Part X complete his role almost immediately if the $30,000 is paid - before enquiries or investigations are undertaken. Also, no challenge to invalid preferences is available under Part X. That may be a real issue in the present matter.
[23] Second, given the serious questions raised about assets and creditors, including quantum, of the debtor, it is my view that such matters are best determined by a trustee after a sequestration order (if one is to be made) rather than in an arrangement voted on previously, mainly by interested or friendly parties, whose entitlement to do so is properly, and seriously, raised as an issue by the petitioning creditor. That such issues arise is beyond question. Some of the family or friendly entity debts are payable on demand. However, due to their antiquity some may be statute barred (See Ogilvie v. Adams [1981] VicRp 92; (1981) VR 1041). Also an issue is raised as to whether some of the family or other arrangements in relation to "friendly" debts were intended to create legal relations between the parties. Other issues are also likely to arise. “
The second case is HP Mercantile Pty Ltd v V Turco and Marinelli & M Turco [2010] FMCA 114 per Barnes FM where there were also questions of non-disclosure at [8] and [9]. Questions of related parties [13]. At [44] her Honour opined:
“Smith FM suggested in Munro & Anor v McLeod [2006] FMCA 388 (at [25]) it is a “foundation proposition” that “the Court should not adjourn a petition to allow consideration of a Part X agreement unless it considers such an adjournment would be for the general benefit of the creditors, and that the considerations in favour of the adjournment outweigh the prima facie entitlement of the petitioning creditor to proceed on its petition”. More generally, I note that in exercising the discretion to grant an adjournment of a creditor’s petition due weight must be given not only to the prima facie right of a petitioning creditor to obtain a sequestration order but also to the importance of avoiding or minimising delay once bankruptcy proceedings have been instituted (see Abignano; in the matter of Abignano v Wenkart [1999] FCA 1695).”
Her Honour also made reference to the decision of Sweeney J (with whom Frankie J agreed in Field v Commercial Banking Company of Sydney Ltd (1978) 37 FLR 341 that was accepted as authority in these matters by Merkel J in Bendel. His Honour said at [349]:
“It would be unwise to attempt to draw up an exhaustive catalogue of the circumstances to which the court should pay regard in considering an application for an adjournment of a creditor's petition. However, to illustrate the point that the one circumstance of the execution of an authority should be looked at in the general context of each individual case, one may usefully refer to some other relevant circumstances in such a case, as for example: 1. the course of dealings between the parties, from the time when the obligation to the petitioning creditor is said to have arisen to the date of the hearing; 2. the attitude to the application of the petitioning creditor, as prima facie, on proof of the matters mentioned in s 52 (1) of the Bankruptcy Act 1966, the court will proceed to make an order for sequestration (see Rozenbes v. Kronhill(2)); 3. the general financial position of the debtor; 4. the relation between the debt of the petitioning creditor and the total liabilities of the debtor, as it may be seen, for example, that the petitioning creditor's opposition would be sufficient to defeat any special resolution proposed at a creditors' meeting; 5. any attitude to the application disclosed by other creditors; 6. any evidence bearing upon the question whether it would be for the advantage of the creditors that the debtor's affairs be administered under Pt X of the Act; 7. the likelihood that the debtor would be able to place before a meeting of creditors a particular proposal, or evidence of his general circumstances, calculated to persuade them to vote for the administration of his affairs under Pt X. It will at once be obvious that many of these circumstances will be within the knowledge of the debtor, rather than of the petitioning creditor, and it will be for the former to give evidence of them. Such evidence should, where practicable, be in affidavit form.”
Barnes FM declined to grant an adjournment noting at [52]:
“It is difficult on the evidence before the court to assess the merits of the PIA proposals given the lack of certainty about the debtors’ financial circumstances.”
And at [54] she stated:
“Moreover Merkel J [in Re Bendel] also suggested, (at [12] and [20] – [23]), that the court is entitled to take into account possible prejudice to the petitioning creditor caused by an adjournment of this nature, especially where other creditors who will vote on any proposed Part X arrangement appear to be related or “friendly” creditors.
As in Turco there are here related creditors in relation to some of whom there are unresolved issues.
In the instant case it is accepted by the debtor and those appearing for him that there is much work to be done to respond to the matters raised by the petitioning creditor in the letter of 9 November. Because of the considerable amount of work one could not come, at this stage, to a positive conclusion that it would be to the general advantage of creditors that the debtor’s affairs be administered under Part X as distinct from bankruptcy. Like her Honour I take the view that the absence of information that is within the knowledge of the debtor is a factor against granting the adjournment he seeks. The level of disclosure in the statement of affairs would appear to indicate that Mr Pisciuneri is not being completely transparent about his assets and in this regard the exclusion of antecedent transactions in the draft deed is of particular concern. In regard to the matters raised by Sweeney J in Field I am unable to say that there is anything in the course of dealings between the parties that would influence me either way.
I have not been told very much about how the debt arose but I can see that enforcement has been prompt and the petitioning creditor is opposed to the application for the reasons given. The general financial position of the debtor is difficult to ascertain, he appears to owe a very large sum of money by virtue of his guarantor obligations. It would appear that the only substantial outside creditor is the applicant. But that should not exclude the applicant from its opportunity to have all the affairs of the debtor investigated by a bankruptcy trustee.The petitioning creditor’s debt is minor in relation to those others which are sought to be utilised to vote in favour of the PIA but who will not benefit directly from it. This is itself a cause for some concern. I can see no evidence that there is an advantage to the creditors for this debtor’s affairs to be administered under Part X because so much of his affairs is opaque. Mr Pisciuneri will argue that the PIA provides an efficient, inexpensive and simple means of dealing with the one creditor who seeks to enforce his rights. But that does not answer the question as to why that creditor should be forced into acceptance of the proposal by the intervention of persons who would appear to have little interest in it. It is always open to a bankrupt to put a proposal to his creditors under Division 6, s.73 of the Act at a time when the true nature of his financial position is known.
In the instant case this seems to me to be preferable course of action. The misgivings which the creditor holds about the current proposal are shared by myself and I am therefore not minded to grant the adjournment sought under s.33(1)(a). The only ground put forward by Mr Pisciuneri for the exercise of discretion under s.52(2)(b) was the forthcoming adjourned meeting. Although the meeting was scheduled for only a few days after this hearing I have no evidence that the many queries raised by the applicant creditor will be able to be answered at that time and the likelihood is that a further adjournment will be needed. I am not prepared to grant the adjournment under s.33 I would not propose to exercise my discretion in favour of the debtor under s.52. As I am satisfied that the debtor committed the act of bankruptcy alleged in the petition and as I am satisfied with the proof of the other matters required by s.52 of the Act I shall make a sequestration order against the estate of Natale Pisciuneri and I order that the applicant’s costs (including reserved costs, if any), be taxed and paid from the estate of the respondent in accordance with the Act. Under the Bankruptcy Regulations a copy of this Sequestration Order be given to the Official Receiver in Sydney within two days. The court notes the date of the act of bankruptcy is 12 August 2011.
I certify that the preceding twenty seven (27) paragraphs are a true copy of the reasons for judgment of Raphael FM
Date: 7 December 2011
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