Re George Velickovich (Debtor) Ex Parte: Atomic Hire Centre Pty Limited T/As Seven Hills Hire Centre (Creditor) and Canon Australia Pty Limited (Creditor) [1987] FCA 41 (17 February 1987)

FEDERAL COURT OF AUSTRALIA

Re: GEORGE VELICKOVICH (Debtor)
Ex Parte: ATOMIC HIRE CENTRE PTY. LIMITED t/as SEVEN HILLS HIRE CENTRE
(Creditor) and CANON AUSTRALIA PTY. LIMITED (Creditor)
Nos. P1053 and P1451 of 1986
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA
GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES AND THE AUSTRALIAN CAPITAL TERRITORY
Jackson J.

CATCHWORDS

Bankruptcy - failure to comply with bankruptcy notice - deed executed for payment of judgment debt - whether prevents further prosecution of creditor's petition - whether sequestration order ought not to be made - existence of claim in arbitration - effect of proposed loan.

Bankruptcy Act 1966 ss.40(1)(g), 52(2)(b)

Pepper v. McNiece [1941] HCA 27; (1941) 64 CLR 642

HEARING

SYDNEY
17:2:1987

DECISION

In each of these proceedings the petitioning creditor seeks the making of a sequestration order in respect of the estate of George Velickovich ("the debtor"), the acts of bankruptcy relied on being, to put it shortly, failure to comply with the requirements of bankruptcy notices served upon him. See s.40(1)(g) of the Bankruptcy Act 1966.

2. The judgment debts which are the subject of the bankruptcy notices are, in the case of the petition by Atomic Hire Centres Pty. Limited $21,383.81 plus interest and, in the case of the petition by Canon Australia Pty. Limited, $3,798.00 plus interest.

3. It may be said immediately that what I have so far said is not put in issue in these proceedings nor, save for two matters, one minor and one major, is it suggested on behalf of the debtor that the cases - if considered in isolation from each other - are not ones where it would be appropriate to make sequestration orders.

4. The minor matter arises only in relation to the petition by Atomic Hire Centres Pty. Limited, and it derives from the existence of a deed dated 1 December 1986 to which the parties are the petitioning creditor, the debtor and Toplica Investments Pty. Limited ("Toplica Investments").

5. By that deed, the debtor's indebtedness to the petitioning creditor in the amount of the judgment and interest was acknowledged (Recitals A and B and cl. 1), and it was stated (Recital B) that the debtor had made arrangements for Toplica Investments to pay that amount to the petitioning creditor. Toplica Investments, it may be observed in passing, is a company of which the debtor is a director, as are his wife and sons. The debtor claims to have no beneficial interest in that company, a claim the correctness of which I am prepared to assume for present purposes but which I would otherwise treat, as I would the remainder of the debtor's oral evidence, with considerable reserve.

6. The deed, having recited the existence of the petition presently in question, then provided that $26,607.08 (which was the then amount of the judgment debt and interest) was to be paid to the petitioning creditor by the debtor or by Toplica Investments by a payment of $5,000.00 on or before 15 January 1987 and by payment of the balance on or before one of two dates neither of which has yet arrived. See cll. 2,3 and 4. The $5,000.00 referred to in cl. 2 was not paid on or before 15th January 1987 and has not yet been paid.

7. The deed then provided in cll. 5, 6 and 7 that: -

"5. In the event that any of the several

amounts referred to in Clauses 2 and 3
above are not paid to Atomic on or before
their respective due dates Atomic shall
be at liberty to proceed against
Velickovich and/or Toplica for recovery
of the amount of $26,607.08 plus interest
in accordance with Clause 7 hereof and
costs due to Atomic subject to bringing
into account any payments received from
Velickovich or Toplica made in reduction
of the said amount of $26,607-08.

6. In consideration of the convenants above
Atomic agrees to adjourn its Creditor's
Petition against Velickovich to a date
after the 1st January, 1987 and if the
sum in Clause 2 hereof has been paid to
it further agrees to request the Federal
Court of Australia Bankruptcy Division to
further adjourn the said Petition No:
P1053 of 1986 to a date after the 31st
August, 1987 provided that if the said
amount referred to in Clause 2 has not
been paid to Atomic then Atomic shall be
at liberty to proceed for recovery of the
full amount of $26,607.08 plus interest
thereon in accordance with Clause 7
hereof as against Velickovich and/or
Toplica as it shall see fit.

7. In the event that the several amounts
referred to in Clauses 2 and 3 are not
paid on or before their respective due
dates the parties hereto agree that
interest shall continue to accrue on the
amount of $21,383.81 at the rate of 13.5%
per annum from the 12th February (sic)
1985 which said interest shall be
recoverable from Velickovich and/or
Toplica in accordance with the terms of
this Deed."

8. The point which arises in relation to these clauses is that it is said that the expression in cl. 6 "shall be at liberty to proceed for recovery of the full amount of $26,607.08 plus interest thereon in accordance with Clause 7" is inapt to describe the further prosecution of a creditor's petition.

9. I am unable to accept this contention. The expression in question must be read in the context in which it appears and that context is one where judgment had already been obtained against the debtor. It would be possible, though curious, if the petitioning creditor's only remedy were then to be the institution of fresh proceedings upon the obligation contained in the deed. Further, and perhaps more importantly, the terms of cl. 6 seem clearly to be directed to saying that if the $5,000.00 were paid timeously the petitioning creditor would not proceed with the petition until after the later of the dates referred to in clause 3, but if the $5,000.00 were not paid timeously the petitioning creditor might proceed to prosecute the petition for a sequestration order. Further, the expression "to proceed for recovery" is not necessarily inappropriate to describe the prosecution of proceedings for a sequestration order, as the cases on the ambit of similar powers in powers of attorney show. See e.g. Pepper v. McNiece [1941] HCA 27; (1941) 64 CLR 642 at 647, 649, 654-655.

10. The issue to which I have referred was admittedly the minor argument advanced on behalf of the debtor. The major argument was that in the exercise of the discretion conferred by s.52(2)(b) of the Bankruptcy Act the sequestration order ought not to be made, and the petition should be dismissed. Alternatively, it was put, the hearing of the petition should be adjourned until the resolution of the arbitration to which I shall refer below.

11. The arbitration in question was set in train by a notice of dispute addressed to G.E. Hurst (Constructions) Pty. Limited, a company which was contractor to the Commonwealth for certain works to be carried out at St. Marys Munitions Filling Factory. Toplica Investments was sub-contractor to G.E. Hurst (Constructions) Pty. Limited for carrying out certain earthworks required for performance of the head contract.

12. Toplica Investments apparently claims that it was directed to use materials from a specified area for the purposes of the earthworks and that it had major difficulty in consolidating the material to the satisfaction of the engineers responsible for the works, it being much more difficult to obtain the degree of compaction necessary than would normally be the case. The additional costs claimed in the arbitration were occasioned in achieving the desired degree of compaction. The notice of dispute was not given until 4 February 1987.

13. The debts which are the subject of the petitions are debts which apparently were incurred by the debtor in order to assist Toplica Investments in the performance of the activities of that company.

14. The argument which is put is that the only effect of the making of a sequestration order would be to require the debtor to resign as a director of Toplica Investments, that for practical purposes he has no assets and that it would be to no-one's advantage if he were made bankrupt. By comparison if he were not made bankrupt and the arbitration proceeded the creditors would have some prospect of obtaining some dividend.

15. I do not accept that proposition. I am not at all satisfied that the debtor has no interest in Toplica Investments and I fail to see why the interests of the petitioning creditors should be denied to them pending the resolution of an arbitration which by its very nature is speculative.

16. It was further suggested that the resolution of the proceedings should be delayed because a loan might be made available to Toplica to enable it to pay out all the creditors of itself and of the debtor. I accept that some steps have been taken to seek to obtain a loan for Toplica Investments for these purposes, but there is no solid evidence as to the prospects of obtaining it.

17. It seems to me in the result that the application to adjourn the proceedings should be refused and that there is no basis upon which I could exercise my discretion under s.52(2)(b) to decline to grant a sequestration order.

18. It is accepted by Canon Australia Pty. Limited that if I am minded to make a sequestration order, I should do so on the petition of Atomic Hire Centre Pty. Limited, and I shall proceed to do so. I shall dismiss the petition by Canon Australia Pty. Limited.