Turtle Productions Pty Ltd v Hawa
[2011] FMCA 460
•22 June 2011
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| TURTLE PRODUCTIONS PTY LTD v HAWA | [2011] FMCA 460 |
| BANKRUPTCY – Application to set aside a debt agreement on the agreement that the debt agreement was deficient because it omitted material particulars – debt agreement set aside – application for a sequestration order granted. |
| Bankruptcy Act 1966 (Cth), ss.44(1)(a), 44(1)(b), 44(1)(c), 185, 185C, 185T, 185U |
| Applicant: | TURTLE PRODUCTIONS PTY LTD (ACN 067 364 416) |
| Respondent: | GEORGE STEPHAN HAWA |
| File Number: | SYG 889 of 2011 |
| Judgment of: | Lloyd-Jones FM |
| Hearing date: | 17 June 2011 |
| Delivered at: | Sydney |
| Delivered on: | 22 June 2011 |
REPRESENTATION
| Advocate for the Applicant: | Mr Gazic (solicitor of Norton Rose ) |
| The Respondent: | No appearance |
ORDERS
A declaration pursuant to s.185U(5) of the Bankruptcy Act 1966 (Cth) that the statement of affairs lodged by the Respondent with the debt agreement was deficient as it omitted a material particular, namely the indebtedness of the Respondent to the Applicant.
A declaration pursuant to s.185U(1) of the Bankruptcy Act 1966 (Cth) that the Part IX Debt Agreement of George Stephan Hawa, Administration Number QLD 9698/10/2 entered into the National Insolvency Index on 9 December 2010, be declared void in full.
That a sequestration order be made against the estate of George Stephan Hawa pursuant to s.185U(4) of the Bankruptcy Act 1966 (Cth).
The Applicant’s costs (including reserved costs, if any) be taxed and paid from the estate of the Respondent in accordance with s. 185U(5) the Bankruptcy Act 1966 (Cth).
THE COURT NOTES:
That the act of bankruptcy under s.40(1)(ha) of the Bankruptcy Act 1966 (Cth) is 9 December 2010.
The Applicant must within 2 days give a copy of this order to the Official Receiver in Sydney.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 889 of 2011
| TURTLE PRODUCTIONS PTY LTD (ACN 067 364 416) |
Applicant
And
| GEORGE STEPHAN HAWA |
Respondent
REASONS FOR JUDGMENT
Introduction
This matter was in the Registrar’s list on 14 June 2011 and at the request of the Applicant was referred to this Court for resolution. This is an application to set aside a debt agreement that George Stephan Hawa entered into on 9 December 2010 and a concurrent application for a sequestration order. I believe it is in both parties’ interest to know with some certainty the future progress of this matter. Consequently, I made orders at the completion of the hearing and indicated I would publish my reasons for those orders at a later date.
Mr Hawa is currently serving a custodial sentence at St Heliers Correctional Centre, McCulleys Gap Road Musswellbrook and did not make an appearance. He has been served with appropriate documentation advising him of these proceedings and the orders being sought by the Applicant.
Evidence
Mr Gazic tendered and relied on the following evidence:
a)Affidavit of service of Bruce Michael Aulich, licensed commercial agent sworn 3 June 2011;
b)Affidavit of Paul Raymond Turner sworn 3 May 2011;
c)Affidavit of Simon Walter Johnson sworn 14 June 2011; and
d)Trustees consent executed by David John Kerr on 10 June 2011.
Background
George Stephan Hawa conducted services for investors investing in the share market. Mr Hawa had represented to various people that he had certain experience in trading in the share market. Turtle Productions Pty Ltd invested $2 million with Mr Hawa and a loan agreement was entered into (affidavit of Mr Turner, p. 6). That agreement was dated 16 February 2009 which records Turtle Productions Pty Ltd advancing $2 million to Mr Hawa. The loan agreement was executed by Mr Turner and Mr Hawa respectively (affidavit of Mr Turner, p.18).
An agreement titled “Policy of Twenty Per Cent (20%) Draw Down Notice” dated 16 February 2009 states:
It is agreed, between TURTLE PRODCUTIONS PTY LTD and GEORGE STEPHAN HAWA that any loss that reaches or exceeds 20% of the value that is lent as stated in the loan agreement signed between both individuals on 12th February, 2009, shall have GEORGE STEPHAN HAWA notify TURTLE PRODUCTIONS PTY LTD a continuous of investment or a ceasing of all investments and agreements. The option chosen by TURTLE PRODUCTIONS PTY LTD is what shall be executed as per this agreement.
This document is executed by the same parties (affidavit of Mr Turner, p.20).
A Macquarie Bank Ltd cheque was drawn on the account of Turtle Productions Pty Ltd in the amount of $2 million to pay George Hawa Family Trust dated 12 February 2009 (affidavit of Turner, p.22). A confirmation letter dated 18 February 2009 signed by George Hawa confirms the receipt of $2 million and that the full amount had been transferred into the investment account controlled by Mr Hawa Forex Capital Markets LLC with Forex Capital Markets LLC (Markets, llc in New York for investment in the Spot Foreign Exchange Market through a leveraging account (affidavit of Turner, p.24).
A further loan agreement which provided for the reinvestment of Investment Profits dated 18 February 2010 was executed by the parties. This agreement was entered into as a consequence of Mr Hawa indicating that there was some $800,000 paper profit that had been made which this subsequent loan agreement was to facilitate the investments of those monies. The agreement specifies the amount as $2,805,840.10 (affidavit of Mr Turner, pp. 26-38).
On Tuesday 3 August 2010, Mr Hawa issued a facsimile transmission in the following terms.
Dear Investor,
Before I begin, please excuse me if this is being addressed to you as though I don’t know your positions or relationships with me, I have made this letter as if it would be addressed to everyone as a group and not to everyone as an individual. I am very aware of who each of my investors are and my relationship with each and every single one of you.
I would like to take this opportunity to write to you and discuss a few very important points regarding your investment with me over the period in which you had put it in my care. One of the points I would like to detail on is the point of trust that you have shown myself over time you have placed your hard earned money into my bank account. The other point amongst others is the point of the state of your investment currently.
Trust as defined by the Merriam Webster’s Collegiate dictionary states:
1 a) to commit or place in one’s care or keeping
b) to permit to stay or go or to do something without fear or misgiving.
2. to place confidence.
I for one am wholly honoured by your trust in me. I want to thank you so very much and I don’t think for a second over the last five years I have been investing, not thought about this one point and how much I owe every single person for the opportunities afforded to me by this trust.
Unfortunately and regrettably, I must confess something that has ached myself for so very long.
I have unfortunately, been lying for the last five years to you about my performance and how much money you do have with me currently. Whether it was if you came on board five years or whether you came on recently.
I am so very sorry.
At this moment I have no money left to give to any of my investors. As I have lost it all.
I know this will come as a shock to you and once again I cannot express how deeply regretful and remorseful and upset I am to be breaking this to you. I understand I have abused your trust and also quite possibly hurt you in the process. Although this was never my intention, I have created big damage by just announcing this to you.
I understand right now, you could be feeling upset, hurt, angry, confused and a whole bunch of other emotions. I never wanted it to be this way.
I began this process of investing for others as someone who wanted to help others through them achieving financial freedom. I had seen what financial stress had caused to people who were close to me from a young age and I was determined to help people in this area. I even set up a business where I went to schools around QLD and NSW and educated students in high school about effective financial management.
I took on money from family at first, then friends, then friends of friends and then finally acquaintances to invest in the foreign exchange markets. As time went on, I was unable to deliver the competence required to be a successful trader for the people who had trusted me. I hid the truth. I believed that if I carried on, that I could eventually make the money back for my investors. I did this by taking on new money and with this new money trying to trade and make the money I had lost back.
In the process of trying to make the money back, I had upswings and downswings but was never fully successful in being able to make the money back for the group as a whole. I carried on for five years however, believing that I could make the money back for people who I had lost large amounts of their life savings for.
In the process of stress and pressure I experienced from trying my very best to get everyone’s money back. I’d put on over 40 kilograms in weight, developed a deteriorating eyesight, had dangerously high blood pressure and would often fight off other health problems. I was a mountain of stress 24 hours a day, 7 days a week since 2005. By telling you this I don’t want to sound like a victim as I am everything but, I tell you this, because I want to be apparent that I did everything I could to ensure I made the money back that everyone had placed into my care. I was so determined that at times I would have 1 or 2 hours sleep for 4 or 5 days in a row.
I lost more than my fair share emotionally, mentally, physically and financially. I took out personal bank loans to the point where I could not borrow anymore. It is a very high chance that now I will be bankrupt and my own marriage to my fiancé is not going ahead. I have lost a considerable amount of mine and my own family’s money.
I did begin this at the age of 20, which now looking back I was very young and inexperienced. I wanted to run before I could walk. I’d like to admit I was naïve.
I did lie to the faces of my investors, I was never comfortable doing this and this was never an okay thing to have done. I lied to not only investors, but to loved ones, including my own family, fiancé and to close friends.
And so, I have finally decided to come out with the truth, as I began to realise that what I was doing is not making anything any better and I am only making things worse. Unfortunately due to my stubbornness and ignorance to find ways to make everyone’s money back it took myself a while to fully realise this.
Many people in this circumstance would run and hide, I do not want to choose that path and I do not want to be the coward. I am ready to confront this situation.
This is no one else’s responsibility but mine, not my family’s or fiance’s, not my friends, not my business associates – no one else’s but mine. I am taking full responsibility and have handed myself into the police and am ready to confront and undergo the punishment of the law.
It was quite possible for myself to continue at this moment taking on new investors money and even money from current investors and it was possible for myself to have kept this up for possibly many more months or even years until I was able to make back the money I had lost. I however know this is wrong and that this should all just stop right now.
I intend in also taking responsibility for this by not disappearing in the dark after this is all over within the courts and after what they decide is adequate punishment. I am sorry for what I have done and I want to make amends.
I ask that my family and loved ones be left out of any gripe in future you may have with myself as they were in the dark as much as you were. I know I have a lot to answer and I look forward to answering your questions through the courts of law.
I wish you the very best for the future and I hope one day I will again earn your trust and respect once again.
If you have any further questions please contact Detective Andrew Gill on (02) 9956 3199.
Sincerely
George Hawa
(affidavit of Turner, annexure F, pp.40-41)
As a result of the above email, Mr Hawa presented himself to police on 3 August 2010. Police investigation ensued for fraud. He was later charged with 58 counts of fraud. On 4 April 2011 Mr Hawa was sentenced in the Hornsby Local Court by Magistrate Daphne Kok to two years imprisonment as a result of a guilty plea. Mr Hawa will be eligible for parole on 4 October 2012. Mr Hawa was serving his custodial sentence at St Heliers Correctional Centre McCullys Gap Road Musswellbrook.
Mr Hawa entered into the debt agreement on 29 November 2010 (affidavit of Turner, Annexure J, p.54-62). At item D – unsecured debtors (list all creditors) it is recorded:
total amount of unsecured debt is $65,511
(affidavit of Turner, Annexure “J”, p.56)
Significantly within that list of creditors there is no reference to Turtle Productions Pty Ltd which is a material omission in the debt agreement. Mr Gazic argues that the debt agreement was lodged on 9 December 2010 which is the date where the act of bankruptcy occurred.
Mr Gazic referred the Court to the affidavit of Simon Walter Johnson, a partner of Norton Rose, sworn 14 June 2011 which contains the relevant form 13 notices to creditors (Annexure “K”). The affidavit of Bruce Michael Aulich sworn 3 June 2011 contains the details in respect to service of the application and the affidavit in support.
Submissions
Pursuant to s.185T(1) of the Bankruptcy Act 1966 (Cth) a creditor of a debtor has standing to apply to the Court for an order declaring that all, or a specific part, of a debt agreement is void. In this matter, Turtle Productions Pty Ltd have a provable debt of $2,805,840.10 plus interest (affidavit of Turner para 20). Mr Gazic submits that Turtle Productions Pty Ltd has standing to apply for an order to have all the debt agreement entered into by George Stephan Hawa set aside.
Section 185T states:
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.
The debtor cannot give the official receiver a debt agreement proposal at a particular time (the proposal time) if:
When a debtor cannot give a debt agreement proposal
(4) A debtor cannot give the Official Receiver a debt agreement proposal at a particular time (the proposal time ) if:
(a) at any time in the 10 years immediately before the proposal time the debtor:
(i) has been a bankrupt; or
(ii) has been a party (as debtor) to a debt agreement; or
(iii) has given an authority under section 188; or
(b) at the proposal time the debtor's unsecured debts total more than:
(i) the threshold amount; or
(ii) if the regulations prescribe a greater amount for this purpose--the amount prescribed; or
(c) at the proposal time, the value of the debtor's property that would be divisible among creditors if the debtor were bankrupt is more than the threshold amount; or
The threshold limit for the purpose of s.185C(4)(b) and (c) is $92,037.40 (in compliance with the Indexed Amounts published by Insolvency and Trustee Service Australia).
Mr Gazic submits that there is sufficient doubt on a specific ground that all or part of the debt agreement was not made in accordance with s.185T(2) namely, that the debt agreement could not be opposed as the unsecured debt was more than $92,037.40. Further the debt agreement was deficient because it omitted a material particular, namely the existence of the debt of Turtle Productions Pty Ltd in Mr Hawa’s statement of affairs (affidavit of Turner, p.59-62).
Mr Gazic submits that s.185T(4) of the Act permits a creditor seeking a declaration of annulment, of a debt agreement to concurrently apply for a sequestration order under s.185U(4) of the Act as a creditor’s petition. In respect of the conditions precedent to the presentation of a creditor’s petition the debt is in satisfaction of s.44(1)(a) and s.44(1)(b)(i) and (ii) of the Act while the proposal of a debt agreement is prima facie an act of bankruptcy for the purposes of s.44(1)(c) of the Act.
Consideration
On the material before the Court I am satisfied that the debt agreement was not made in accordance with s.185 of the Bankruptcy Act because George Stephan Hawa could not propose a debt agreement if the secured debt was above the threshold amount of $92,037.40. This threshold amount complies with the Indexed Amounts published by Insolvency and Trustee Service Australia. The Notice to Creditors (Form 156) indicates that an application for a sequestration order would be sought at a hearing listed at 9.45am on Tuesday 14 June 2011. This satisfies the requirement that the notice must be given at least five days before the hearing. No other creditor filed an appearance or sought to be heard.
On its face, it would appear that the debt agreement complies with that requirement. However, given the omission of the debt to Turtle Productions Pty Ltd which is a material omission, a declaration of annulment of the debt agreement filed with the official trustee by George Stephan Hawa should be made. Further, a sequestration order pursuant to s.185U(4) of the Bankruptcy Act should be made as the proposal of the debt agreement is prima facie act of bankruptcy for the purposes of s.44(1)(c) of the Bankruptcy Act. I make the appropriate orders.
I certify that the preceding nineteen (19) paragraphs are a true copy of the reasons for judgment of Lloyd-Jones FM
Date: 22 June 2011
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