Toma v Commonwealth Bank of Australia
[2009] FMCA 494
•3 March 2009
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| TOMA v COMMONWEALTH BANK OF AUSTRALIA | [2009] FMCA 494 |
| BANKRUPTCY – Challenge to bankruptcy notice and application for extension of time to comply with it. |
| Bankruptcy Act 1966 (Cth), ss.5, 30, 44 |
| Brunninghausen v Glavanics [1998] FCA 230 Cavoli & Etl [2007] FCA 1191 Etl v Cavoli [2007] FMCA 356 |
| Applicant: | ALISTER SAM TOMA |
| Respondent: | COMMONWEALTH BANK OF AUSTRALIA |
| File Number: | SYG 215 of 2009 |
| Judgment of: | Driver FM |
| Hearing date: | 3 March 2009 |
| Delivered at: | Sydney |
| Delivered on: | 3 March 2009 |
REPRESENTATION
| Solicitors for the Applicant: | Mr P Beazley Beazley Singleton Lawyers |
| Counsel for the Respondent: | Mr Coleman |
| Solicitors for the Respondent: | Freehills |
ORDERS
The Court orders that:
The application is dismissed with costs.
Order 1 will take effect on 17 March 2009 and that the time for compliance with the bankruptcy notice be extended up to and including that date.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 215 of 2009
| ALISTER SAM TOMA |
Applicant
And
| COMMONWEALTH BANK OF AUSTRALIA |
Respondent
REASONS FOR JUDGMENT
(revised from transcript)
I have before me an amended application filed on 3 March 2009 seeking orders setting aside bankruptcy notice NN4114 of 2008 as an abuse of process or, in the alternative, an extension of time for compliance with the bankruptcy notice up to and including 21 days after the respondent creditor gives notice to the applicant debtor that it has disposed of the property known as "Barclay Hotel" at 17 Bayswater Road, Potts Point, and, in the alternative, acceptance, possibly, in the form of a declaration, that the applicant debtor is entitled to offset the value of the security property being the Barclay Hotel, plus costs.
The amended application is supported by the affidavit of Alister Sam Toma, made on 29 January 2009, and filed with substantial annexures.
The application is opposed by the respondent creditor which filed a notice of opposition on 3 March 2009, the grounds of which I incorporate into this judgment:
1. [T]he application and affidavit served by the Applicant do not disclose any recognised grounds on which the Court should order that Bankruptcy Notice NN4114/08 (‘the Bankruptcy Notice’) be set aside.
2. [I]n any event:
(a) the Applicant does not dispute that the debt claimed in the Bankruptcy Notice is due and payable by the Applicant to the Respondent;
(b) the Applicant does not have a counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt under the final order on which the Bankruptcy Notice is based, being a counter-claim, set-off or cross demand that the Applicant could not have set up in the action or proceeding in which the judgment was obtained; and
(c) the Bankruptcy Notice was issued for a proper purpose, being to invoke the Court’s insolvency jurisdiction in respect of the Applicant.
The notice of opposition is supported by the affidavits of Grant Dene Sparks made on 5 February 2009 and Leyton Ian Cronk made on the same day.
The parties both rely on written submissions which were augmented orally today. The first and probably principal submission of Mr Toma is that the bankruptcy notice is an abuse of process. The general principles relating to that issue are dealt with in Butterworths Bankruptcy Law and Practice Service at page 10,247. The learned authors note there is no express power of the Bankruptcy Act 1966 (Cth) (“the Bankruptcy Act”) to set aside a bankruptcy notice but such a power arises by necessary implication and is within the general powers of the Court conferred by s.30.
There is no general discretion to set aside a bankruptcy notice. The grounds upon which a bankruptcy notice may be set aside must relate to the form or content of the notice, the existence of the debt upon which it is based, arguably service of the notice, or abuse of process. In relation to abuse of process, the Court has an implied jurisdiction to set aside the notice. If it is apparent that the purpose of the bankruptcy notice is to put pressure on the debtor to pay the debt rather than to invoke the Court's jurisdiction in relation to insolvency, then the filing of the bankruptcy notice is an abuse of process: Brunninghausen v Glavanics [1998] FCA 230. The time to judge abuse of process is the time that the bankruptcy notice is issued. It is not an abuse of process if the creditor genuinely intends to pursue the matter if there is default in complying with the notice and there is no evidence of collateral purpose or undue pressure.
I was taken by counsel to the decision of Etl v Cavoli [2007] FMCA 356 as an example of case where a bankruptcy notice was found to be an abuse of process and set aside where there appeared to be evidence of a scheme to avoid the consequences of s.44(3) of the Bankruptcy Act. That decision was set aside on appeal by the Federal Court in Cavoli & Etl [2007] FCA 1191, but the general proposition in this Court's judgment was not disturbed that an abuse of process may be demonstrated by evidence of some scheme or design by a creditor to avoid the consequences of being put to an election pursuant to s.44.
In this matter, the debtor submitted that the bank had no real intention to pursue this matter to a creditor's petition because the bank held security over the property, being the hotel, and that it was impossible to believe that the bank would be willing to surrender that security having a value in excess of $7 million for the benefit of all creditors. Neither is there any evidence of a shortfall because the hotel has not been sold. There is evidence of some effort by the Commonwealth Bank to dispose of the hotel property but there has been no sale to this point.
I accept that, in this matter, the proposition that the bank is seeking to avoid the consequences of s.44 is a red herring inasmuch as the property is not held by the debtor but by a company with which the debtor was associated. Section 5(1) of the Bankruptcy Act defines "secured creditor" in relation to a debtor as "a person holding a mortgage, charge or lien on property of the debtor as a security for a debt due to him or her from the debtor". Section 44(2) of the Bankruptcy Act relevantly provides that a secured creditor shall be deemed to be a creditor only to the extent, if any, by which the amount of the debt owing to him or her exceeds the value of his or her security.
The Commonwealth Bank has the benefit of a judgment debt obtained by consent arising out of a personal guarantee given by Mr Toma. In addition, the bank enjoys a mortgage over the hotel property owned by the company which is now in liquidation. In my view, the bank is not a secured creditor of Mr Toma because the security: the mortgage, relates to a property owned by a third party and the bank would not be put to an election pursuant to s.44, either to surrender the security or to petition only for any shortfall in the value of the security.
Even if I were wrong in that, I would not find an abuse of process because there is insufficient evidence of improper purpose by the bank. On the available material, the position appears to be that, while the bank enjoys mortgage security over the hotel property, the value of that property in the present economic environment is uncertain. The most recent valuation is of an amount exceeding the judgment debt but no sale has been effected for that value.
It is possible that the hotel may be revalued for a lower price or may be sold for a lower price. There is a reasonable prospect that, in the foreseeable future, a shortfall in the value of the security may be established. There is no reason in principle, in my view, why a creditor should not protect its interests by pursuing its rights against a debtor based on a guarantee, at the same time as making efforts to realise the value of a security in the form of a mortgage. If the bank took no serious steps to deal with the mortgaged property at the time the Court was considering a creditors' petition, there may be a basis upon which the Court might consider that there was another sufficient reason for it not to make a sequestration order, but I am not persuaded that an abuse of process is established in this case.
It was suggested by the solicitor for Mr Toma that the bank may have some purpose in preventing his client from taking legal proceedings against the bank based upon a dispute over representations made in relation to the property. That submission, however, was only lightly put and the material provides scant, if any, support for it.
Mr Toma concedes that he does not have a counter-claim, set-off or cross-demand that could not have been set up in the proceedings resulting in the judgment debt. That is, in my view, sufficient to dispose of that aspect of the matter.
Mr Toma also seeks an extension of time for compliance with the bankruptcy notice. I accept that, in terms of general principle, the Court should not extend the time for compliance with the bankruptcy notice beyond the time at which the application to set aside the bankruptcy notice is determined. In addition, I am troubled by the proposition that the Court is invited to extend time for compliance with the bankruptcy notice for an uncertain period.
I have come to the conclusion that insufficient reason has been advanced for the Court to grant the relief sought in the amended application and, in the circumstances, the appropriate order is for the application to be dismissed with costs. I so order.
In consequence of the order that I have made, the solicitor for Mr Toma sought an extension of time for compliance with the bankruptcy notice in order to take instructions from his client based upon the oral reasons that I have given. It would be inconsistent with those reasons to grant an extension of time operating after the dismissal of the application to set aside the bankruptcy notice. However, an extension of time for a short period may be appropriate in the form of deferral of the date of effect of the order dismissing the application to set aside the bankruptcy notice.
Judgment today has been delivered orally. Although I have not been asked to provide written reasons it may be that, after the solicitor for Mr Toma has consulted his client, written reasons may be required. He should not be disadvantaged through the unavailability of written reasons immediately.
I certify that the preceding eighteen (18) paragraphs are a true copy of the reasons for judgment of Driver FM
Associate:
Date: 26 May 2009
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