Thompson v Back - [2007] FMCA 1866

FEDERAL MAGISTRATES COURT OF AUSTRALIA

THOMPSON v BACK & ANOR

[2007] FMCA 1866

BANKRUPTCY – Application for annulment – application for creditor to be heard – application for creditor to have leave to proceed – appropriate course to take when creditor may obtain injunctions from Supreme Court which would mean refinancing could not proceed.

Bankruptcy Act 1966, ss.58(3), 153B
Federal Magistrates Court (Bankruptcy) Rules 2006

Applicant:

JACQUELINE ANN THOMPSON

Respondents:

FRANCIS JOSEPH BACK & TONY SCHWARTZ

File number:

SYG1466 of 2007

Judgment of:

Raphael FM

Hearing date:

6 November 2007

Date of last submission:

6 November 2007

Delivered at:

Sydney

Delivered on:

6 November 2007

REPRESENTATION

Counsel for the Applicant:

Mr S Golledge, Mr E Muston

Solicitors for the Applicant:

The Argyle Partnership

Counsel for the Respondent:

Mr G Carolan

Solicitors for the Respondent:

Back Schwartz Vaughan

Counsel for Mr Silvester (interlocutory applicant)

Mr E Finnane

Solicitors for Mr Silvester:

Watts McCray

ORDERS

Michael David Silvester be granted leave to be heard in these proceedings pursuant to Rule 2.04 of the Federal Magistrates Court (Bankruptcy) Rules 2006.
Michael David Silvester be granted leave pursuant to s.58(3) of the Bankruptcy Act 1966 to take the following steps in proceeding No 5922 of 2002 in the Supreme Court of New South Wales.
(a)Seek leave to, and if granted leave, file a Second Further Amended Statement of Claim in the form of pages 1 to 23 of Exhibit MS1, known as “2FASC” in the Affidavit of Michael David Silvester sworn 19 October 2007;
(b)Apply for interlocutory relief by way of freezing Orders and/or property preservation Orders against Jacqueline Ann Thompson personally, provided that no such relief shall be sought against the Official Trustee in Bankruptcy pursuant to the leave herein; and
(c)Seek leave to file a caveat in respect of the real property of the Bankrupt at 101 Booralie Road Terrey Hills.
Michael David Silvester be granted leave, to the extent that such leave is necessary, to use in the conduct of the said Supreme Court proceedings:
(a)The affidavit of Jacqueline Thompson sworn 30 August 2007;
(b)The covering facsimile from the Argyle Partnership to Watts McCray Lawyers dated 22 October 2007;
(c)The letter from Mezecorp to Jacqueline Thompson dated Monday 22 October 2007; and
(d)Exhibits 1, 2 and 3 in the annulment proceedings and affidavit of Ms Thompson of 9 October 2007.
Application adjourned until 9.30a.m. on 20 November 2007.
Costs reserved.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
SYDNEY

SYG1466 of 2007

JACQUELINE ANN THOMPSON

Applicant

And

FRANCIS JOSEPH BACK & TONY SCHWARTZ

Respondents

REASONS FOR JUDGMENT

There comes before me two applications in the matter of the bankrupt estate of Jacqueline Ann Thompson. The first is an application filed in this court on 3 September 2007 seeking a review of the order of Registrar Tesoriero dated 25 June 2007 making a sequestration order against Ms Thompson’s estate. In the alternative the application seeks an annulment of the bankruptcy pursuant to s.153B of the Bankruptcy Act 1966 (the “Act”). The second application, (or more accurately applications), is made by a Michael David Silvester who seeks interim orders. There are two such applications. They are both entitled “Amended Interim Application” and were both filed in court on 6 November 2007 but were before the court when the review application first came before me. Mr Silvester sought leave to be heard in the proceedings pursuant to Rule 2.04 of the Federal Magistrates Court (Bankruptcy) Rules 2006 (the “Rules”). That leave is not opposed by counsel for Ms Thompson and is granted. The document which I will call the “first amended interim application” then sought orders consequent on an annulment being granted which restrained Ms Thompson’s ability to deal with a property known as 101 Booralie Road Terrey Hills. That property is the subject of a dispute in the Supreme Court of New South Wales in proceedings No 5922 of 2002.
The second interim application seeks leave pursuant to s.58(3) of the Act to take certain steps in those proceedings which would have the effect of allowing Mr Silvester to make an application for an injunction in the Supreme Court of the type sought in the first amended interim application from this court. I am satisfied that it is not appropriate for this court to grant those injunctions when the Supreme Court is seized of the dispute over the property and Mr Silvester’s ability to obtain such injunctions will depend upon the views taken by the Supreme Court of his claims. I would therefore dismiss the first interim application save for the order granting Mr Silvester leave to be heard in the proceedings which is found in paragraph 1 of the interim orders requested.
The bankrupt, through her counsel, has properly indicated to the court that there are no real grounds for seeking review of the Registrar’s decision and this matter has been dealt with on the basis that it is an application for annulment under s.153B. Notices have been sent out to the bankrupt’s unsecured creditors and a report has been obtained from the bankruptcy trustee. The report indicates that taking a value of the real property at $4,200,000.00. Ms Thompson has assets of $4,911,000.00, secured creditors of $3,112,000.00 and unsecured creditors and costs relating to the bankruptcy of $75,000.00. When the matter came before me first there was discussion between the bench and the parties as to the most convenient way in which the issues could be handled. It was suggested that if I was satisfied that an annulment should take place then such annulment could be held over for a short period of time to allow Mr Silvester to make the application to the Supreme Court that he had requested leave to proceed in. That proposal had been evolved on the basis that moneys to pay out unsecured creditors including the petitioning creditor and the trustee’s costs and expenses were available. When the matter came to court on 6 November 2007 the situation had changed somewhat.
Ms Thompson argues that the annulment should be granted because the sequestration order should not have been made as she is solvent. She argues that she is capable of paying her debts as and when they fall due and was at the time the sequestration order was made. She claims that as at that time her assets considerably exceeded her liabilities and she was able to raise further money on the equity in the Terrey Hills property. I accept the evidence of Ms Thompson that setting aside the claims of Mr Silvester, which are at the present time no more than claims although there does appear to be an admission on the evidence in the Supreme Court to a figure of approximately $120,000.00, Ms Thompson would be able to raise money to pay all outstanding debts. Not only would she be able to do so but there is evidence that she has arranged to do so, albeit at a very high rate of interest. I would therefore be justified in finding that the sequestration order should not have been made. But I am then required to consider whether or not I should exercise my discretion not to grant the annulment or to take some other step on the basis of the current financial position of Ms Thompson in the general interest of creditors.
The real situation regarding Ms Thompson’s financial position was only revealed on 6 November when there was produced to the court her documents [Exhibits 1, 2 and 3] which revealed the financing arrangements that she proposed to enter into. I was also taken to affidavits in which various estimates of the value of the Terrey Hills property were set out. In Ms Thompson’s affidavit of 30 August 2007 there is found as Annexure “C” a valuation from the North Shore Property Consultants in the sum of $3,150,000.00 as at 4 May 2007. There is another valuation (Exhibit “D”) by Colin Barry Valuations of $3,625,000.00 as at 4 March 2006 and there is a letter of appraisal from L J Hooker (Exhibit “E”) dated 20 April 2007 in the sum of $4,200,000.00 to $4,300,000.00. It is from this appraisal that the trustee presumably got his valuation of $4,200,000.00 but before this court the best and most recent evidence is the North Shore Property Consultations valuation and I propose to find that it demonstrates the clearest value of the property as at todays date.
Ms Thompson has other assets which are listed in the trustee’s affidavit but they are heavily dependent on the horse business that Ms Thompson operates out of the Terrey Hills property. If Ms Thompson was forced to sell the property then there would be little value in her Centre of Excellence for which she attributes the sum of $255,000.00.
Ms Thompson has a mortgage on the property through a company known as Bluestone to Permanent Custodians Limited. As at 5 November 2007 the principal debt due to that company was $1,865,754.03 which included arrears of $46,405.96 plus any outstanding legal or default fees. Ms Thompson has negotiated a loan through Mezecorp of $300,000.00. That money will be used to pay $81,906.00 to Permanent Custodians. The balance will be used to repay to Mezecorp the loan it proposes to give to Ms Thompson to pay out the petitioning creditor and the trustee’s fees as well as certain other costs. She would then be given $130,187.00 which would permit her to continue in business and paying her debts.
The difficulty is that this loan is entirely dependent upon Ms Thompson resisting the application for an injunction of a Mareva type to be obtained by Mr Silvester. It would appear that there is clearly not sufficient funds in the property to satisfy Mr Silvester and to pay out petitioning creditors and the other costs associated with the bankruptcy. If Mr Silvester obtains his injunction the loan will not proceed and the annulment cannot take place. I am satisfied that Ms Thompson’s solvency depends upon her access to her equity in the property and that I should not grant an annulment unless I am able to be satisfied that Mr Silvester’s claims are protected because he claims to be a creditor in the estate. Raising the moneys to effect the annulment on the security of the major asset will diminish the likelihood of money being available to pay Mr Silvester’s debt.
Mr Silvester submits that I should dismiss the annulment application and grant him leave to approach the Supreme Court of New South Wales. Ms Thompson suggests that I should grant the annulment or that I should indicate that I intend to grant an annulment and then give Mr Silvester a short opportunity to approach the Supreme Court. This latter course appeared attractive originally but it does so no longer.

I do not think it would be right to indicate that one intends to do something which, if Mr Silvester’s applications are successful, cannot be implemented. I am also not prepared to grant the annulment without giving Mr Silvester some protection for the reasons already given. The question is whether I should dismiss the application or grant Mr Silvester the leave he seeks and adjourn the matter for fourteen days. If Mr Silvester is successful in his application then the annulment will not proceed because the funds required will not be available. If he is unsuccessful then the annulment could proceed because any debt of Mr Silvester’s is not immediately due and payable and any debts of Ms Thompson that are will be capable of being paid.
Courts today are mindful of the expense of bringing proceedings and are pragmatic in the manner in which they allow litigation to be conducted. If I dismiss this application and Mr Silvester was unsuccessful in his then the bankrupt could make a new application for annulment which would require the expenditure of court fees, trustee’s fees, legal costs and court time. If I granted an adjournment I would still be seized in the matter and could make the order or see Ms Thompson withdraw her application and make appropriate orders as to costs. This is clearly the most beneficial way to proceed in the interests of justice and in particular in the interests of saving costs for the benefit of creditors and the parties.
I propose to make the following orders:
1.Michael David Silvester be granted leave to be heard in these proceedings pursuant to Rule 2.04 of the Federal Magistrates Court (Bankruptcy) Rules 2006.
2.Michael David Silvester be granted leave pursuant to s.58(3) of the Bankruptcy Act 1966 to take the following steps in proceeding No 5922 of 2002 in the Supreme Court of New South Wales.
(a)     Seek leave to, and if granted leave, file a Second Further Amended Statement of Claim in the form of pages 1 to 23 of Exhibit MS1, known as “2FASC” in the Affidavit of Michael David Silvester sworn 19 October 2007;
(b)     Apply for interlocutory relief by way of freezing Orders and/or property preservation Orders against Jacqueline Ann Thompson personally, provided that no such relief shall be sought against the Official Trustee in Bankruptcy pursuant to the leave herein; and
(c)     Seek leave to file a caveat in respect of the real property of the Bankrupt at 101 Booralie Road Terrey Hills.
3.Michael David Silvester be granted leave, to the extent that such leave is necessary, to use in the conduct of the said Supreme Court proceedings:
(a)     The affidavit of Jacqueline Thompson sworn 30 August 2007;
(b)     The covering facsimile from the Argyle Partnership to Watts McCray Lawyers dated 22 October 2007;
(c)     The letter from Mezecorp to Jacqueline Thompson dated Monday 22 October 2007; and
(d)     Exhibits 1, 2 and 3 in the annulment proceedings and affidavit of Ms Thompson of 9 October 2007.
(e)     Affidavit of Giulia Inga sworn 28 September 2007.
4.Application adjourned until 9.30a.m. on 20 November 2007.
5.Costs reserved.

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

Associate:

Date: