Tolhurst Ltd v Thomas

[2007] FMCA 1111

FEDERAL MAGISTRATES COURT OF AUSTRALIA

TOLHURST LTD v THOMAS [2007] FMCA 1111

BANKRUPTCY – Application pursuant to s.185T of Bankruptcy Act set aside Debt Agreement – whether non-compliance with Part IX of Bankruptcy Act – whether Sequestration Order should be made.

Bankruptcy Act 1966, s.185

Applicant:

TOLHURST LTD (FORMERLY TOLHURST NOALL LIMITED)

ACN 003 237 536

Respondent: GEOFFREY THOMAS

File number: MLG 665 of 2007

Judgment of: McInnis FM

Hearing date: 3 July 2007

Delivered at: Melbourne

Delivered on: 12 July 2007

REPRESENTATION

Counsel for the Applicant: Mr R. Watson-Jones

Solicitors for the Applicant: Lewis Holdway Lawyers

Respondent: In person

ORDERS

1. The Debt Agreement Administration Number QLD4072/6/2, entered into under Part IX of the Bankruptcy Act 1966 ("the Act") by the Respondent on 6 November 2006 ("the Debt Agreement") be declared void in its entirety pursuant to s.185T of the Act.

IT IS DECLARED:

1. The statement of affairs lodged by the Respondent with the Debt Agreement referred to in paragraph 1 hereof was deficient as it omitted a material particular namely, the indebtedness of the Respondent to Applicant. 

AND IT IS FURTHER ORDERED:

1. The Debt Agreement be set aside.

2. A Sequestration Order be made against the estate of Geoffrey Thomas.

3. The Applicant creditor's costs (including reserved costs, if any) be taxed and paid from the estate of the Respondent pursuant to the Act.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
MELBOURNE

MLG 665 of 2007

TOLHURST LTD (FORMERLY TOLHURST NOALL LIMITED) ACN 003 237 536

Applicant

And

GEOFFREY THOMAS

Respondent

REASONS FOR JUDGMENT

1. The Applicant, by an application filed 24 May 2007, seeks the following orders:

   “1.That the Debt Agreement Administration Number QLD 4072/6/2 entered into under Part IX of the Bankruptcy Act 1966 (“the Act”) by the Respondent on 6 November 2006 (“Debt Agreement”) be declared void in its entirety pursuant to section 185T of the Act.

   2.A Declaration that the statement of affairs lodged by the Respondent with the Debt Agreement referred to in paragraph 1 was deficient, as it omitted a material particular.

   3.That the Debt Agreement be set aside.

   4.That a Sequestration Order be made against the estate of Geoffrey Thomas.

   5.The Applicant Creditor’s costs be taxed and paid from the estate of the Respondent in accordance with the Act.”

2. The background to the application is conveniently set out in an affidavit in support of the application sworn by Peter Samuel Bolitho on 23 May 2007 ("the Bolitho affidavit").  In his affidavit, Mr Bolitho deposes that Geoffrey Thomas (the Respondent) operated a private client share trading account with the Applicant by entering into a Client Services Agreement with the Applicant.  Mr Bolitho exhibits a copy of the Agreement and notes that pursuant to that agreement, the Respondent opened what is described as an option trading account with the Applicant on 10 June 2003.

3. Mr Bolitho deposes that between November 2003 and February 2004, the Respondent conducted the option trading account with the Applicant.  He produces details of what is described as the "Financial Details Statement" in relation to the account (annexure PSB-2).  There is no dispute that the Financial Details Statement correctly identifies the trading history between the Respondent and the Applicant subject to certain criticisms made of the document by the Applicant which in my view are not relevant to this application.

4. Mr Bolitho deposes that as at 13 April 2004, the balance of the Respondent's account with the Applicant was "a debit of $86,900.62".

5. Arising out of the debit, Mr Bolitho instructed solicitors to commence proceedings in the County Court of Victoria by Writ number C1-04-01618 ("the County Court proceedings").  Those proceedings were issued on 13 April 2004 and served upon the Respondent on 28 April 2004.  Again there is no dispute in relation to the commencement of the County Court proceedings, nor indeed in relation to the service of those proceedings.  It is clear that the Respondent in the County Court proceedings filed a Notice of Appearance and Defence and the parties were then ordered to attend mediation which occurred on 13 April 2005. 

6. Arising out of mediation, the parties entered into Terms of Settlement.  The Terms of Settlement are an exhibit to Mr Bolitho's affidavit (see exhibit PSB-5).  It is noteworthy that the Terms of Settlement involved a payment by the Respondent to the Applicant of an amount of $86,900 in full and final settlement on or before 13 October 2005.  It is not in dispute that the Terms of Settlement also provided for the right of reinstatement and that upon default, the Applicant exercised the right of reinstatement and indeed obtained a judgment in the County Court on 1 December 2005 which appeared to reinstate the claim and make orders that the Respondent pay the Applicant the claim of $86,900 and interest of $16,322.94 together with costs of $860.20, making a total of $104,083.14.

7. It is significant to note that the Terms of Settlement included, amongst other terms, the following handwritten term:

   “7A.Upon the execution of these Terms by the Defendant (evidence by his signature above) the Defendant releases the Plaintiff from all matters, action, things and rights of action, whenever and however so arising in relation to the subject matter of the proceeding including by not limited to the counterclaim.”

8. It is evident from cl.7(A) of the Terms of Settlement that the parties at least contemplated at the time of entering into those Terms of Settlement a release by the Respondent of any amounts owed by the Applicant to the Respondent.  Hence any suggestion made during the course of this hearing by the Respondent that he is owed a debt of an amount equal to or exceeding the claim by the Applicant in my view cannot be sustained as the evidence he relies upon relates to claims which clearly predate 13 April 2005 being the terms of settlement. 

9. After the judgment was entered against the Respondent in default of the Terms of Settlement, the Applicant then sought to enforce the orders by means of warrant of seizure and sale and a warrant on title.  Those enforcement methods did not result in recovery of the amount owing.  According to the Bolitho affidavit, he then instructed solicitors to issue a bankruptcy notice on 2 March 2007 which I am satisfied was served on the Respondent on 10 March 2007.  Again there is no dispute concerning the issuing and service of the bankruptcy notice, nor is there any dispute that the Respondent had failed to comply on or before 31 March 2007 with the requirements of the bankruptcy notice exhibited to the Bolitho affidavit.

10. On or about 4 April 2007, Mr Bolitho instructed solicitors to issue and serve a creditor's petition against the Respondent, relying upon non‑compliance with the bankruptcy notice.  During the course of searches of the National Personal Insolvency Index it was revealed, according to the Bolitho affidavit, that the Respondent had put forward a Debt Agreement proposal to creditors for consideration pursuant to Part IX of the Bankruptcy Act 1966 ("the Bankruptcy Act").  One Debt Agreement proposal was lodged on 5 September 2006 and rejected by creditors.  Another Debt Agreement proposal lodged on 6 November 2006 was purportedly accepted by creditors. 

11. In his affidavit, Mr Bolitho relevantly deposes:

    “21.The Applicant had no knowledge of either of the Debt Agreements proposed until notified by my solicitors of their findings from searching the Index on 19 April 2007.  No correspondence from ITSA or the Debt Agreement Administrator was received by the Applicant.”

12. The Debt Agreement, purportedly approved by creditors on 6 November 2006, does not include any reference to the Applicant. It is noted that the total amount to be paid to creditors according to the Debt Agreement proposal is $64,690. The creditors include the Commonwealth Bank of Australia, the ANZ Bank, the HSBS Bank and another creditor named "GE". There is no dispute that each of the creditors have been notified of the current proceedings and that the requirements of the Bankruptcy Act in relation to notification have been complied with in the manner referred to in the affidavit of Karen Darmanin sworn 18 June 2007.

13. It is noted that although Mr Bolitho claims that the Applicant had no knowledge of the Debt Agreements, it would seem to be conceded that the solicitors for the Applicant did receive advice from the Respondent concerning at least the attempt to put forward a proposed Debt Agreement to creditors.  However, I find that Mr Bolitho was correct in the sense that the Applicant was not directly advised of the attempt to put forward a Debt Agreement proposal.  In any event, it is clear that the proposal did not include any reference whatsoever to the Applicant and it is noted that this was the case on both the first and second occasions when proposals were put to the Creditor.

14. Mr Bolitho deposes that the debt due to the Applicant remains unpaid and calculates that the Respondent is indebted to the Applicant in the sum of $121,628.99, "being the unpaid Judgment Debt and interest to date".

15. The Applicant has also relied upon affidavits affirmed by Amanda Victoria Melanie Carruthers.  The first affidavit affirmed on 24 May 2007 by Ms Carruthers confirms details concerning attempts to enforce the orders made in favour of the Applicant against the Respondent.  She deposes, at the conclusion of reciting those attempts, as follows:

    “10.  I verily believe that the Respondent was well aware of his ongoing indebtedness to the Applicant at the time that he submitted his Debt Agreement Proposal.”

16. I accept, as deposed by Ms Carruthers, that the Respondent's state of knowledge appears to be as deposed by her namely, that at all material times prior to and after submitting the relevant Debt Agreement proposal, the Respondent was aware of the indebtedness to the Applicant.  The Respondent does not appear to deny that, although before this Court sought to challenge the debt and/or asserted, contrary to the Terms of Settlement referred to earlier in this judgment, that he has a claim equal to or greater than the amount of the debt.  I reject both assertions as they are clearly not consistent with the evidence.  In the alternative, it is not appropriate for this Court to now explore and/or go behind the default judgment obtained as a direct consequence of the Respondent's breach of the terms of settlement.

17. In her second affidavit affirmed 18 June 2007, Ms Carruthers deposes that she received a facsimile from the Insolvency and Trustee Service Australia Debt Agreement department of the statement of affairs submitted by the Respondent which had accompanied the Debt Agreement proposal.  Again it is noted, and I accept, that the statement of affairs, when listing "unsecured creditors", makes no mention of the Applicant.

18. Ms Carruthers further deposes in her second affidavit that she caused to be carried out searches of the Victorian Land Registry Database in relation to a number of properties.  She produces titles to those properties showing that the Respondent is registered as the proprietor.  The searches also reveal that each of the properties is subject to a mortgage.  It is noted that in the statement of affairs provided together with the Debt Agreement proposal, no reference is made to the mortgagees who are clearly, at least prima facie, secured creditors.

19. Ms Carruthers further deposes that on 14 May 2007 she received a letter from the Debt Agreement administrator.  That letter, annexed to Ms Curruthers' second affidavit, clearly indicates that no further dividends will be distributed to creditors of the Respondent until further instructions have been obtained from the Insolvency and Trustee Service Australia.  The letter included a copy of correspondence from Mr John Maloney, investigation manager of bankruptcy fraud investigation at ITSA, referring to an assessment of alleged offences committed by the Respondent.

20. Ms Carruthers deposes that on 18 May 2007 she received a copy of a Proposal for Termination of Debt Agreement that had been provided to the Applicant.  She annexes a copy of that agreement together with attachments (see exhibit AVMC-7).  Again there does not appear to be any dispute that the creditors resolved to terminate the Debt Agreement as the contributions required of the Respondent had not been complied with and therefore distributions to creditors were not possible.  This occurred, and it is not disputed, on 20 June 2007 at a meeting of creditors. 

21. In his affidavit affirmed on 27 June 2007, the Respondent, as indicated earlier in this judgment, appears to take issue with the debt owed to the Applicant.  During the course of submissions he otherwise indicated a willingness and desire to reach what he described as a sensible agreement with the Applicant to pay the debt.  Hence I conclude that there is no real issue concerning the indebtedness but rather whether the Applicant is able to enter into a further arrangement to pay the debt due.  It is clear, however, that there are indeed a number of other creditors, and this again does not appear to be denied by the Applicant.

22. The Respondent otherwise claimed in his affidavit that he had not sought to "hide" from the Applicant the Debt Agreement proposal.

Relevant Law

1. It is clear that s.185K of the Bankruptcy Act prevented the Applicant from presenting a petition while the Debt Agreement was in force and the details of it are entered in the National Personal Insolvency Index. Hence the current application was filed.

2. It is relevant, however, to set out the section now relied upon by the Applicant in relation to the orders sought in the application; namely, s.185T of the Bankruptcy Act which relevantly provides:

   “Applying for an order declaring a debt agreement void

   Persons who may apply for an order

   (1)The debtor (or the debtor's personal representative if the debtor has died), a creditor or the Official Receiver may apply to the Court for an order declaring that all, or a specified part, of a debt agreement is void.

   Grounds for applying for an order

   (2)A person mentioned in subsection (1) may apply for an order only if:

   (a)there is doubt on a specific ground that all or part of the debt agreement was not made in accordance with this Part or does not comply with this Part; or

   (b)the statement of affairs lodged with the debt agreement was deficient because it omitted a material particular or because it was incorrect in a material particular.

   Time limit on applying for an order

   (3)A person cannot apply for an order declaring a debt agreement void after all the obligations created by the agreement have been discharged.

   Simultaneous application for a sequestration order

   (4)A creditor may include an application for a sequestration order in an application for an order declaring all or part of a debt agreement void.

   Effect of applying for a sequestration order

   (5)For the purposes of this Act, making an application for a sequestration order under subsection (4) is taken to be presenting a creditor's petition against the debtor, but subsection 43(1), sections 44 and 47, subsections 52(1) and (2) and Part XIA do not apply in relation to the application.”

3. It is evident from that section that the Applicant may apply for an order that the Debt Agreement is void and at the same time may apply for a sequestration order.

Submissions and reasoning

1. The Applicant's representative submitted that, having regard to the chronology of events and background set out earlier in this judgment, it is clear that the Debt Agreement in question was not made in accordance with Part IX of the Bankruptcy Act or otherwise did not comply with that part. It was submitted that, in contravention of s.185C(4)(b), the debtor should not have been permitted to give a Debt Agreement proposal where at the time of the proposal the debtor's unsecured debts totalled more than the threshold amount, which in this instance is an amount of approximately $49,000 having regard to the definition of "threshold amount" which appears in s.185C(5) of the Bankruptcy Act. It is not necessary for the Court to calculate precisely that amount as it is clear that this submission is correct even without allowing for the debt of the Applicant which was not disclosed by the debtor in the Debt Agreement, nor in the statement of affairs.

2. It is further submitted, and I accept, that the statement of affairs was deficient because it omitted a material particular namely, the debt owed by the debtor to the Applicant and any secured debts. It is the debt owed to the Applicant which in my view is sufficient in terms of materiality to enable the Court to make a finding that the statement of affairs was deficient for the purposes of s.185T(2)(b) of the Bankruptcy Act.

3. The finding in relation to the deficiency in the statement of affairs together with my finding in relation to the Debt Agreement not being made in accordance with Part IX provide a proper basis upon which the Court is prepared to make an order declaring the Debt Agreement void.  Each of those grounds can be relied upon separately in order to provide a proper basis upon which the Court can make the appropriate declaration.

4. It remains for the Court to further consider the question of whether or not it is in the interest of creditors to declare the agreement void.  In the present case it is submitted on behalf of the Applicant that it is clearly in the interests of the creditors to do so.  In my view, having regard to the steps that have been taken in order to terminate the Debt Agreement and having regard to the nature and extent of the Applicant's indebtedness together with his own admission regarding difficulties in reaching agreement, it is clearly in the interest of creditors to make the declaration sought. 

5. All creditors have received notice of these proceedings and the Applicant, which is clearly the major creditor, has pursued the relevant declaration and, I am satisfied, has done so as it is the appropriate and indeed only avenue now reasonably available.  It is noteworthy that the history in this matter clearly involves an attempt to recover the debt through other means:  a non-disclosure and what I find to be a misuse of the Part IX provisions by the Respondent together with a failure on his part to meet payments either under a Terms of Settlement or indeed under the Debt Agreement which he sought to rely upon.  In those circumstances I am satisfied that it is appropriate for the declarations to be made in the interests of creditors.

6. On the material before me, it is clear that the Respondent is insolvent.  I therefore conclude that in addition to making the declarations sought, it is also appropriate that a sequestration order be made against the estate of Geoffrey Thomas.

I certify that the preceding thirty-one (31) paragraphs are a true copy of the reasons for judgment of McInnis FM

Associate: 

Date: 13 July 2007