Young v Capocchiano
[2015] FCCA 3346
•17 December 2015
FEDERAL CIRCUIT COURT OF AUSTRALIA
| YOUNG v CAPOCCHIANO & ANOR | [2015] FCCA 3346 |
| Catchwords: BANKRUPTCY – Creditor’s Petitions – application for Sequestration Orders – Notice of Opposition to Creditor’s Petitions – whether the Court should exercise its discretion to go behind the judgment on which the debt is based in considering whether the respondents are creditors of a company of which the first respondent is a director and shareholder (“the Company”) – where decision of Supreme Court of New South Wales determined that neither the first nor second respondent is a creditor of the Company – whether the Bankruptcy Notices comply with the Bankruptcy Act 1966 (Cth) – whether the Creditor’s Petitions comply with the Bankruptcy Act 1966 (Cth) – Sequestration Orders made. |
| Legislation: Bankruptcy Act 1966 (Cth) ss.41, 43, 44, 52 Bankruptcy Regulations 1996 (Cth) reg.4.02 Federal Circuit Court Rules 2001 (Cth) |
| Cases Cited: Katter v Melhem (No 2) [2014] FCA 1176 Ramsay Health Care Australia Pty Ltd v Compton [2015] FCA 1207 Capocchiano v Young [2013] NSWSC 879 Capocchiano v Shellharbour City Council [2015] NSWLEC 28 |
| Applicant: | DAVID GREGORY YOUNG IN HIS CAPACITY AS LIQUIDATOR OF GREAT WALL RESOURCES PTY LTD (IN LIQUIDATION) ACN 080 224 808 |
| First Respondent: | FRANK CAPOCCHIANO |
| Second Respondent: | ITALIA CAPOCCHIANO |
| File Number: | SYG 1321 of 2015 |
| Judgment of: | Judge Emmett |
| Hearing date: | 8 December 2015 |
| Date of Last Submission: | 8 December 2015 |
| Delivered at: | Sydney |
| Delivered on: | 17 December 2015 |
REPRESENTATION
| Counsel for the Applicant: | Mr Stephen Ipp |
| Solicitors for the Applicant: | Kemp Strang |
| The first respondent appeared in person with the assistance of an Italian interpreter. No appearance by or on behalf of the second respondent. |
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 1321 of 2015
| DAVID GREGORY YOUNG IN HIS CAPACITY AS LIQUIDATOR OF GREAT WALL RESOURCES PTY LTD (IN LIQUIDATION) ACN 080 224 808 |
Applicant
And
| FRANK CAPOCCHIANO |
First Respondent
| ITALIA CAPOCCHIANO |
Second Respondent
REASONS FOR JUDGMENT
This is an application for Sequestration Orders against the Estates of each of the first and second respondents.
The applicant is the liquidator of Great Wall Resources Pty Ltd (in liquidation) (“the Liquidator”) (“Great Wall”). The first respondent is a director and shareholder of Great Wall. The second respondent is the wife of the first respondent and is neither a director nor a shareholder of Great Wall.
On 3 August 2015, the respondents filed a Notice of Opposition to the applicant’s Creditor’s Petitions (“the Petitions”).
The Statement of Opposition was expressed to be on the following grounds:
“1. I, Frank Capocchiano respondent in this matter and as former sole director, shareholder and sole orchestrator of all of Great Wall Resources pty ltd financial matter including buying and selling and financing purchases of all properties for Great Wall Resoures and comserv no.1074 pty, ltd and declare that by my estimation the applicant has recovered a surplus of three million dollars from the sale of all assets and has a duty to pay the remaining creditors which includes Mr Anthony Autore former solicitor for Great Wall Resources from those funds. I have requested from the applicant over the past 54 months for a full report of the outcome and the whereabouts of those funds and formally ask the applicant and this court that I review this report as I am the only person that can confirm that all sales have been included.
2. Frank Capocchiano as the respondent in these proceedings was the sole director, shareholder and a financier to Great Wall Resources. I was not given the opportunity by the applicant at any point at the commencement of the liquidation or the after to respond or give evidence to the running of the company prior to the applicant selling assets, I have been accused of taking $1,920,419.21dollars from the company without explanation as to how they came to this conclusion as I was the sole beneficiary it is a ridicule accusation as there was no reason to take money from myself as sole shareholder. The applicant proceeded to sell company assets without first determining who the true creditors were and the true position of the company and as it is the proceedings of the proof of debt which has brought about this petition and those proceedings have not deter med the respondents as creditors or debtors to the company, it would be fair to suggest that this court, orders the applicant and respondents to determine this via mediation as It should have been done prior to selling any assets as I was the sole operator of the company and only I can verify if the applicant has carried out this liquidation truthfully and honestly. The applicant ·has always denied me access to all of the information surrounding this liquidation and we the applicants are true creditors to Great Wall Resources. I strongly urge this court not to grant the applicant this petition until the outcome of what has happened to all the surplus monies received by the applicant from the 14 properties that were sold and the reason why the liquidation has not yet been finalise-dafter 54 month is known.” (Errors in original.)
On 21 July 2015, Registrar Segal was requested by counsel for the Liquidator, Mr Stephen Ipp, that the Petitions be heard by a Judge. Registrar Segal directed the respondents to file and serve any further amended Notice of Grounds of Opposition and all evidence by way of affidavit on which they intended to rely in support of their Grounds of Opposition by 24 July 2015.
At the first court date before me on 15 September 2015, there was no appearance by either of the respondents. I noted the Orders made by Registrar Segal on 21 July 2015 and extended time to the respondents to file any further Grounds of Opposition to 25 September 2015 and to file and serve all affidavit evidence by 2 October 2015. I also made the following Order:
“5. In the absence of any further document being filed in accordance with Order 4, the Court will accept the grounds reflected in the document headed ‘Amended Notice of Grounds of Opposition’ filed on 3 August 2015 as the grounds of opposition.”
The Petitions were listed for hearing before me on 8 December 2015 at 10:15am.
The first respondent was unrepresented at the hearing although had the assistance of an Italian interpreter. There was no appearance by the second respondent. It was apparent that the first respondent had significant physical difficulties in speaking. The first respondent was also apparently distressed and frustrated at his inability to communicate directly with the Court. At times, he would make noises through his throat and thump hard on the Bar table; and turn his chair around so that his back was facing me if something was said either by me or counsel for the Liquidator with which the first respondent disagreed. I had to warn the first respondent on more than one occasion that he was required to abide by normal Court etiquette, including allowing counsel for the Liquidator to complete his submissions. The first respondent was also somewhat aggressive and intimidating with the interpreter. He would regularly make noises at her and gesticulate whilst invading her personal space. To her great credit, the interpreter made no complaint about this behaviour and conducted her interpretation under unusually difficult circumstances in the most professional manner.
In support of the Liquidator’s Petitions, Mr Ipp read an affidavit of David Gregory Young, sworn on 16 October 2015 exhibiting a bundle of documents which were provided in 21 Annexures. Those documents together were marked Exhibit 1A. Mr Ipp also read a Final Affidavit of Debt, sworn by David Gregory Young on 8 December 2015, and an Affidavit of Search sworn by Adam Benjamin Israel on 7 December 2015.
At the outset of the hearing, the first respondent appeared to be seeking to provide to the Court various untranslated documents that he wished the interpreter to read to the Court. I heard from the interpreter those parts of those documents that appeared to be in the nature of submissions. I did not understand any further part of the first respondent’s complaints to involve issues beyond those identified in the Grounds of Opposition filed on 3 August 2015.
I understood, over the course of the hearing, that the first respondent had the uncorroborated belief that Great Wall may have had surplus assets available for distribution to, inter alia, himself as a shareholder, apart from his claim to be a creditor of Great Wall. No evidence was filed by the respondents to that effect.
The first respondent cross-examined the Liquidator about the assets of Great Wall. The first respondent was then provided with a list of the sale of various assets of Great Wall, following which the first respondent ceased his cross-examination.
Based on the evidence before me, I am satisfied that that Bankruptcy Notices issued on 6 March 2015 and served on the respondents on 7 April 2015 complied with s.41(2) of the Bankruptcy Act 1966 (Cth) and reg.4.02 of the Bankruptcy Regulations 1996 (Cth).
The Bankruptcy Notices were for a total debt amount of $203,179.02. That amount was the subject of a Judgment/Order issued on 3 February 2015 (“the Judgment Debt”).
The Judgment Debt arose from an unpaid costs Judgment following a six day hearing in June 2013 before Kunc J in the Supreme Court of New South Wales. The proceeding arose from a rejection of a Proof of Debt lodged by the Liquidator in the winding-up of Great Wall.
Kunc J found that the respondents failed to demonstrate that the Liquidator erred in rejecting the respondents Proof of Debt. Kunc J found that the Liquidator was correct to reject the Proof of Debt and found that the respondents had not proved that they are creditors of Great Wall for any amount at all. Kunc J noted that, having been unsuccessful, no persuasive reasons were advanced by the respondents as to why costs should not follow the event and ordered that the respondents pay the costs of the Liquidator. Following a costs assessment, dated 12 November 2014, the costs were assessed to be in the amount of $203,179.02.
The first respondent confirmed at the hearing that the Grounds of Opposition upon which he relied were accurately summarised in the Liquidator’s Outline of Submissions as follows:
“It appears from the Grounds that the respondents oppose the petitions on the following grounds:
(a) the Liquidator has recovered a $3 million surplus from the sale of assets of Great Wall and has a duty to pay that surplus to creditors;
(b) the Liquidator has sold assets of Great Wall without first determining “who the true creditors were”;
(c) the proof of debt proceedings have not determined whether the respondents are creditors or debtors of Great Wall, this should be determined “via mediation” before the sale of any assets;
(d) the Liquidator “has always denied me access to all of the information surrounding this liquidation and we the applicants are true creditors to Great Wall Resources”.”
I accept that the effect of those grounds is intended to be a submission by the respondents that there is no debt by them owing to the Liquidator and that the Court should exercise its discretion to go behind the Judgment Debt upon which the Petitions, served on the respondents on 8 June 2015, are based.
The Petitions were filed on 14 May 2015 and relied on the failure of the respondents to comply with the Bankruptcy Notices served on each of the first and second respondents.
Based on the evidence before me, I am satisfied that the Acts of Bankruptcy occurred on 28 April 2015 and that the Petitions comply with the relevant legislative scheme under the Act and the Regulations. I am also satisfied that the Petitions and affidavits were served on the respondents in accordance with the Federal Circuit Court Rules 2001 (Cth) on 8 June 2015. The Petitions were presented on 14 May 2015 in accordance with ss.43 and 44 of the Act.
Further, as referred to above, an Affidavit of Final Search and Affidavit of Final Debt were filed and served in accordance with the statutory regime.
In relation to the Court’s discretion to go behind the Judgment Debt, the following principles were summarised by Wigney J in Katter v Melhem (No 2) [2014] FCA 1176 (“Katter”) at [69] to [80]. At [72] his Honour stated:
“Second, if the judgment in question followed a full investigation at a trial at which both parties appeared, the Court will not reopen the matter unless a prima facie case of fraud or collusion or miscarriage of justice is made out: Corney v Brien at 356-357 (Fullagar J). In Re Flatau; Ex parte Scotch Whisky Distillers Ltd (1888) 22 QBD 83 at 86, Fry LJ said: “this power has never, so far as I am aware, been extended to cases in which a judgment has been obtained after issues have been tried out before a [c]ourt”. In Corney v Brien, Fullagar J said (at 358) that he had not been able to find any such case since Fry LJ made this statement in 1888.”
In Ramsay Health Care Australia Pty Ltd v Compton [2015] FCA 1207 Flick J considered the discretion at [13] to [19]. His Honour stated at [19]:
“The concern of the Court, it is considered, must constantly remain whether it is just to permit a judgment debtor to “go behind” a judgment and attempt to show that there is “in truth and reality” no debt due to the petitioning creditor: Wren v Mahoney (1972) 126 CLR at 224. Bankruptcy, it must constantly be recalled, “is not mere inter partes litigation”: Ahern (1976) 76 ALR at 148. The different expressions employed by different Judges are an attempt to identify those circumstances in which it is just to permit a judgment debtor to do so.”
I accept the Liquidator’s submission that none of the circumstances in which the Court might exercise its discretion exist in this case for the following reasons:
a)The respondents were found by Kunc J not to be creditors of Great Wall (see Capocchiano v Young [2013] NSWSC 879) (“Capocchiano v Young”) following a six day fully contested hearing.
b)Both respondents were ordered to pay costs of the proceeding and those costs ground the Bankruptcy Notices and the Petitions.
c)Neither respondent took any step to appeal the decision of Kunc J in Capocchiano v Young.
d)Neither respondent took any step to set aside the costs Judgment upon which the Petitions are based.
To the extent that the first respondent’s complaints centre around a belief that there would be a surplus following the liquidation of Great Wall in which the first respondent is entitled to share as a shareholder, no such entitlement exists in the second respondent. The second respondent is not a shareholder of Great Wall and, accordingly, would not benefit from any surplus flowing from its liquidation. In the circumstances, the second respondent remains liable for the costs of the proceeding in Capocchiano v Young.
In any event, I accept the evidence of the Liquidator that Great Wall is not solvent and cannot and will not be able to pay all its debts in full. In the circumstances, there will be no surplus available for distribution to shareholders of Great Wall.
Further, pursuant to a proceeding by the respondents in the Land and Environment Court of New South Wales in Capocchiano v Shellharbour City Council [2015] NSWLEC 28, the respondents were awarded compensation in the amount of $310,000 and costs of $62,592. As stated above, the Liquidator has not received any payment from either of the respondents in relation to the Judgment Debt.
In the circumstances, I am satisfied that the Court’s discretion should not be exercised in favour of the respondents to go behind the Judgment Debt.
There is no evidence before the Court that either of the respondents is able to pay the Judgment Debt.
Accordingly, in light of being satisfied that the Petitions comply with s.52 of the Act; and, not being satisfied that either of the respondents is able to pay the Judgment Debt; and, that no other sufficient cause exists such that a Sequestration Order should not be made, a Sequestration Order should be made against the Estates of each of the first and second respondents.
The Liquidator’s costs should be taxed and paid from the Estates of the respondents in accordance with the Act.
I certify that the preceding thirty-one (31) paragraphs are a true copy of the reasons for judgment of Judge Emmett
Associate:
Date: 17 December 2015
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