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Rozaklis v Samra [2010] FMCA 579 (6 August 2010)
Last Updated: 9 August 2010
FEDERAL MAGISTRATES COURT OF AUSTRALIA
BANKRUPTCY – Annulment pursuant to s.153B of
the Bankruptcy Act – Debtor’s Petition – foreign
purpose. |
|
Delivered on:
|
6 August 2010
|
REPRESENTATION
Counsel for the
Applicant: |
Mr M. Blue QC, with Mr J. Whitington
|
Solicitors for the Applicant: |
Griffin Hilditch
|
Counsel for the Respondent: |
Mr P. Slattery QC
|
Solicitors for the Respondent: |
Lynch Meyer
|
ORDERS
(1) The bankruptcy of the respondent Michael Samra
arising from the presentation of a Debtor’s Petition to the Insolvency and
Trustee Service Australia on 3 March 2010 is annulled pursuant to s.153B of the
Bankruptcy Act, 1966
(Cth).
|
FEDERAL MAGISTRATES
COURT OF AUSTRALIA
AT
ADELAIDE
|
ADG 64 of
2010
Applicant
And
Respondent
REASONS FOR JUDGMENT
Introduction
- I
have before me an application by Dimitrios Rozaklis (“the
applicant”) seeking an order pursuant to s.153B of the Bankruptcy Act,
1966 (Cth) (“the Act”) that the bankruptcy of Michael Samra
(“the respondent”) arising from the presentation of
a Debtor’s
Petition to the Insolvency and Trustee Service Australia on 3 March 2010 be
annulled on the ground that the Debtor’s
Petition ought not to have been
presented as its presentation amounted to an abuse of process. Ms Elizabeth Orr
(“Ms Orr”)
was appointed Trustee of the respondent’s
bankrupt estate on 3 March 2010.
- In
the event that the order for annulment is granted the applicant will be seeking,
in other proceedings, namely Action Number ADG
19 of 2010 between the same
parties, a sequestration order against the estate of the respondent in
accordance with the terms of the
applicant’s creditor’s petition
dated 28 January 2010. Mr Nicholas David Cooper, (“Mr Cooper”) a
registered
Trustee, has consented to be appointed the Trustee of the
respondent’s bankrupt estate should the sequestration order sought
be
granted.
- The
respondent has failed to take any part in the proceedings whether as a party or
a witness.
- Although
not a party to the proceedings the Court has been assisted by the Trustee, Ms
Orr. She has filed affidavits and has been
represented by Senior Counsel. She
gave oral evidence and was cross-examined.
- At
the commencement of the hearing I heard arguments in relation to the
admissibility of certain affidavit evidence and then received
the admissible
evidence.
- The
applicant relied on the following affidavit material:
- Affidavit
of Dimitrios Rozaklis sworn and filed on 19 March 2010 other than paragraph 12
(Exhibit A1);
- Affidavit
of Nicholas David Cooper sworn and filed on 22 March 2010 other than paragraphs
14, 15 and 16 (Exhibit A2);
- Affidavit
of Nicholas David Cooper sworn and filed on 4 June 2010 (Exhibit
A3);
- Affidavit
of Nicholas David Cooper sworn and filed on 2 July 2010 (Exhibit A4);
- Affidavit
of Gregory Michael Griffin sworn and filed on 4 June 2010 (Exhibit A5);
- Affidavit
of Bernard Colin Walrut sworn and filed on 1 July 2010 (Exhibit A6);
- Affidavit
of George Peliouris sworn and filed on 23 March 2010 (Exhibit A7); and
- Affidavit
of Michaela Joanne Nicholas sworn and filed on 2 July 2010 (Exhibit
A8).
- During
cross-examination of Ms Orr, Counsel for the applicant tendered a handwritten
note of a conversation that Ms Orr had with Ms
Rosemary Papps of
KordaMentha on 23 February 2010 which document was received into evidence as
Exhibit A9.
- Ms
Orr put the following affidavit material into evidence:
- Affidavit
of Ms Orr sworn 29 April 2010 and filed 28 May 2010 and said to be a
confidential affidavit and therefore kept in a sealed
envelope (Exhibit
R1);
- Affidavit
of Ms Orr sworn and filed on 29 April 2010
(Exhibit R2);
- Affidavit
of Ms Orr sworn on 27 May 2010 and filed 28 May 2010 said to be a confidential
affidavit and therefore kept in a sealed
envelope (Exhibit
R3);
- Affidavit
of James Arthur Neate sworn and filed on 26 May 2010 other than exhibit
“JAN2” (Exhibit R4); and
- Affidavit
of Stephen James Duncan sworn and filed on 1 July 2010 other than paragraph 7
thereof (Exhibit R5).
Background
The liquidation proceedings
- Prior
to 1995 the respondent worked for 12 years in lending with Toyota Finance. In
1995 the respondent commenced a business called
Adelaide Lending Centre
(“ALC”). The operation was established as Michael Christopher Samra
as trustee of the Michael
Christopher Samra Family Trust (“MCSFT”)
trading as Adelaide Lending Centre.
- Initially
ALC restricted its operations to finance and mortgage broking. After a few
years ALC branched into private lending and
in July 1999 ALC Group Pty Ltd (ACN
088 613 156) (“ALCG”) was established. It was intended that most of
the lending
would be conducted through ALCG.
- In
2009 both the businesses and the respondent got into financial difficulties. A
detailed explanation of these difficulties is not
necessary for a determination
of the current application. Suffice it is to state that in August 2009 ALCG
ceased trading.
- On
6 August 2009 Mr Cooper and Andre Strazdins (“Mr Strazdins”), both
of BRI Ferrier, were appointed joint and several
liquidators of ALCG. The
documents appointing them were signed by Mr Samra’s wife, Tsanvik Samra
(“Mrs Samra”)
pursuant to a Power of Attorney that she purported to
hold on behalf of Mr Samra.
- Between
6 and 17 August 2009 Messer’s Cooper and Strazdins undertook the roles and
duties as joint and several liquidators of
ALCG.
- At
about this time the difficulties being experienced by the respondent and his
businesses were receiving adverse publicity in the
local press.
- On
7 August 2009 application was made to the Supreme Court of South Australia in
proceeding number 1193 of 2009 by a number of creditors
of ALCG to have the
Court appoint different liquidators to ALCG. As a result of some uncertainty
surrounding their appointment as
liquidators of ALCG and on legal advice Messrs
Cooper and Strazdins informed the Supreme Court that they would withdraw as
liquidators
to enable the Court to determine who should be appointed. In the
event the Supreme Court appointed Stephen Duncan and Nicholas Gyss,
both of
KordaMentha, as the joint and several liquidators of ALCG.
- Subsequent
to Messrs Cooper and Strazdins withdrawing as liquidators of ALCG a number of
creditors of ALCG filed applications to intervene
in the Supreme Court action.
Those creditors sought and obtained Mr Cooper’s consent to act as official
liquidator of ALCG.
- Prior
to being requested to provide a consent to act as the Trustee in Bankruptcy of
Mr Samra, Mr Cooper considered the issue of whether
his previous involvement
could in some way prevent him from professionally accepting the appointment. He
considered that he did
not have a conflict that would preclude him from doing
so.
- Mr
Cooper undertook an investigation into the affairs and financial position of the
Samra businesses and became familiar with the
structure of both the businesses
and the role played by Mr Samra as the effective controlling mind of ALCG and as
the proprietor
of ALC.
- Mr
Cooper formed the view that as at March 2010 the shortfall to creditors of the
Samra businesses was in the vicinity of $50 million.
This shortfall did not
take into account certain other creditors of the Samra businesses who had not
come forward. Mr Cooper believed
that these creditors did not wish to be
identified as having invested with Mr Samra and his businesses and did not
want either adverse
publicity or scrutiny by the relevant authorities as to
their investments with him and the Samra businesses.
The bankruptcy proceedings
- On
26 November 2009 the applicant obtained judgment in default of defence against
the respondent in the District Court in the sum
of $785,000 plus costs to be
taxed or agreed.
- On
14 December 2009 Registrar Christie (in Action Number ADG 338 of 2009 in the
Federal Magistrates Court) ordered that personal service
of the
applicant’s Bankruptcy Notice issued against the respondent (Number SA 495
of 2009) dated 2 December 2009 be dispensed
with and in lieu thereof a copy of
the Bankruptcy Notice be served on Stephen Duncan, a liquidator of the company
ALCG. This was
ordered on the basis of evidence that Mr Duncan had regular
contact with the respondent.
- On
17 December 2009 service of the Bankruptcy Notice pursuant to Registrar
Christies orders was effected on Mr Duncan.
- On
28 January 2010 the applicant filed a Creditor’s Petition in this Court
(Action Number ADG 19 of 2010) relying on the act
of bankruptcy committed by the
respondent on 27 January 2010 due to his failure to comply with the requirements
of the Bankruptcy
Notice. The time and date of hearing given by the Court was
2.15pm on 1 March 2010.
- On
5 February 2010 the applicant’s solicitor, Mr Walrut, telephoned Rosemary
Papps of KordaMentha informing her that he had
documents to serve on Mr Samra.
Ms Papps suggested that he obtain an order for substituted service of the
documents.
- On
22 February 2010 Registrar Christie ordered substituted service of the
Creditor’s Petition by post to the respondent at 19
Nilpinna Street,
Burnside and to Stephen Duncan of KordaMentha at his office address. Registrar
Christie also ordered that the hearing
date of the petition be amended to 2.15pm
on 22 March 2010.
- On
3 March 2010, before service of the applicant’s Creditors Petition could
be effected, the respondent filed a Debtor’s
Petition pursuant to s.55 of
the Act and thereby became bankrupt by operation of s.40 of the Act.
- Ms
Orr became the respondent’s bankruptcy Trustee by virtue of her Consent to
Act as Trustee dated 2 March 2010.
- On
19 March 2010 the applicant commenced these proceedings.
- When
the matter came before this Court on 16 April 2010 I ordered Ms Orr to file
a trustee’s report. The report was filed on
29 April 2010. In the report
Ms Orr stated:
“My only dealings with the bankrupt prior
to my appointment were as follows:
- On
19 February 2010 I received a telephone call from the bankrupt advising that he
wanted to declare himself bankrupt and asking for
an appointment to meet with
me.
- On
19 February 2010 I spoke with Mr Ray Mansueto, the solicitor for the liquidators
of ALC Group Pty Ltd (“ALCG”) who
provided background information
about the conduct of the liquidation.
- I
met with the bankrupt on 24 February 2010 to discuss the consequences of
bankruptcy, the requirements for filing a debtor’s
petition and the role
of a trustee in bankruptcy. Also present at the meeting was the
bankrupt’s solicitor, Mr Tim Hall of
Kain CC, Mr Mansueto of Minter
Ellison and Ms R Papps of KordaMentha. Ms Papps and Mr Mansueto provide an
explanation of matters
arising from the liquidation of
ALCG.”
In her oral evidence Ms Orr said, and I accept,
that contrary to what was said in her affidavit, her first contact in relation
to
the bankruptcy was when Mr Mansueto contacted her on 19 February 2010. She
had had no prior contact with the respondent. The respondent
contacted
Ms Orr soon after Ms Orr had her discussion with Mr Mansueto. I infer
therefore that there was a discussion between Mr
Mansueto and the respondent
between these two telephone conversations that Ms Orr has referred to in her
evidence. I find that Ms
Orr had conversations with various people, including
the respondent in the week commencing 22 February 2010.
Annulment by Court
- The
onus on an annulment application is the civil
onus.[1]
- Sub-paragraph
s.153B(1) of the Act says as follows:
- If the
Court is satisfied that a sequestration order ought not to have been made or, in
the case of a debtor’s petition, that
the petition ought not to have been
presented or ought not to have been accepted by the Official Receiver, the Court
may make an
order annulling the bankruptcy.
- The
applicant submits that the petition ought not to have been presented or ought
not to have been accepted by the Official Receiver
as the respondent had a
foreign purpose in presenting his Debtor’s Petition and that the
proceedings were therefore an abuse
of process.
- Reference
has been made to the case of Clyne v Deputy Commissioner of Taxation &
Ors [1984] HCA 44; (1984) 154 CLR 589 in which Gibbs CJ, Murphy, Brennan and Dawson JJ said
at pages 599-600:
- “It
is a purpose foreign to the bankruptcy laws, and an abuse of process, for a
debtor to present a petition for the purpose
of making it impossible for a
creditor to obtain a sequestration order on a pending petition and with the
further purpose of shortening
the period of relation back, possibly placing
beyond the reach of the Trustee property which would otherwise vest in
him.”
- Counsel
for the applicant also referred to the case of Edelsen v Deputy Commissioner
of Taxation (NSW) & Others (1989) 86 ALR 257. In particular I was taken
to a passage of the joint judgments of Lockhart, Wilcox and Pincus JJ
immediately following a quote which
included the sentence from Clyne’s
case referred to above. Their Honours said at page 261:
- “A
question has arisen before us as to the import of the last sentence in the
passage just quoted. The appellant submits that,
by this sentence, their
Honours were propounding as the appropriate test that it must appear that the
debtor has a combination of
two purposes: first to make it impossible for a
creditor to obtain a sequestration order; and, secondly, to shorten the period
of
relation back, under s.115 of the Act. In the present case, unlike in Clyne,
the effect of a bankruptcy occurring pursuant to the
petition of the debtor
rather than that of the creditor is not to shorten the period of relation back.
Under either alternative
the bankruptcy would relate back to 22 May 1987, the
date of the only proved act of bankruptcy. Accordingly, the appellant contends
that the principle enunciated in Clyne is inapplicable to this case.
- We think
that in the subject sentence, their Honours had in mind a case where both these
purposes appeared. But it does not follow
that they were of the opinion that a
petition may constitute an abuse of process only in such a case. As always, the
reasons for
judgment must be read in their context. In Clyne the High Court was
concerned with a case in which the two purposes referred to
were established by
the evidence. We read their Honour’s as saying no more than that, in such
a case, the petition will constitute
an abuse of process. The adoption by their
Honour’s of the touchstone “purpose foreign to the bankruptcy
laws”,
combined with their use of the English decisions demonstrates that
they saw the facts of the particular case as constituting merely
an illustration
of a more general principle. In our view, the ratio decidendi of Clyne is that
a petition will constitute an abuse
of process if it is presented for a purpose,
whatever that purpose may be, which is foreign to the bankruptcy
laws.”
- It
follows from Edelsen’s case that to establish abuse of process it
is not necessary to prove that in presenting the Debtor’s Petition the
debtor had the
purposes firstly of making it impossible for a creditor to obtain
a sequestration order and, second, of shortening the period of
relation back.
If on the balance of probabilities, either purpose (or some foreign purpose) is
established, abuse of process on
the basis of foreign purpose is made out.
- It
was submitted on behalf of the applicant that important consequences flow from
whether one petition rather than another is relied
upon for the bankruptcy.
Further passages from Edelsen’s case were relied upon in this
regard:
- “The
identity of the petition by virtue of which a sequestration order is made may
have important practical consequences. First,
the rights of creditors may be
affected.’[2]
- ...
- “Section 122
avoids preferences given in favour of a creditor within six months before the
presentation of the petition upon
which the debtor became bankrupt.”
[3]
- ...
- Secondly,
the administration of an estate may be affected, at least in the first instance,
by the identity of the petitioner. Where
a registered trustee has filed a
consent to act as the trustee of the estate of a particular debtor and that
debtor becomes bankrupt,
that registered trustee becomes the trustee of the
estate: see s 156 a. It often happens that the petitioner, whether a
creditor
or the debtor, arranges with a particular registered trustee to give
such a consent, the petitioner thus determining the identity
of the trustee of
the bankrupt estate. This determination may be overruled, either by the Court or
by the creditors; but in most
cases, it is not. And, as the Act gives
substantial discretions to the trustee, much may turn upon his or her personal
characteristics.”
[4]
- It
was put on behalf of the applicant in the present case that the foreign purpose
referred to in Clyne’s case can be inferred. The case of
Re Crowl; Ex parte Klienwort Benson Australia Ltd (1988) 17 FCR 37
was referred to and in particular a passage from the judgment of Beaumont
J:
- “ ...
was the petition lodged "with the further purpose of shortening the period of
relation back, possibly placing beyond
the reach of the trustee property which
would otherwise vest in him"? In Clyne's case, such a purpose was admitted by
Mr Clyne.
In Re Cornish; Ex parte English (1984) 6 FCR 257, Morling J
could infer it from a number of dealings or transactions by the bankrupt in the
relevant period.
- In the
present case, there is no concession of the kind made by Mr Clyne; nor is
there specific evidence that in any relevant period,
Mrs Crowl entered upon any
particular dealing or transaction which might be susceptible of challenge under
the statutory doctrine
of relation back.
- Mrs Crowl
was not called to give evidence. ... In the circumstances, it may be inferred
that, if called, Mrs Crowl would not have
assisted her case. At the same time,
as has been said, KBA did not seek to prove that any particular dealing or
transaction occurred
within the earlier relation back period which would apply
if the appeal to the High Court were to be allowed and a sequestration
order
were to be made on its petition.
- On behalf
of Mrs Crowl, it is submitted that the absence of any evidence of any dealings
or transactions on her part is fatal to
the suggestion that one of her purposes
was to shorten the period of relation back. It is true that KBA must bear the
general onus
of proving this allegation and that there is no specific evidence
of any relevant dealings or transactions. The real issue here
is whether it is
proper to infer the existence of such matters from the evidence as a whole,
bearing in mind that the facts are peculiarly
within the knowledge of Mrs Crowl.
This does not mean that: "the peculiar means of knowledge of one party spares
the other of the
burden of adducing evidence on the issue, although very slight
evidence will often suffice.”: see D M Byrne QC, J D Heydon
QC, Cross
on Evidence (3rd Aust ed 1986), p 190.
- There is
evidence that Mrs Crowl was involved, as a director and shareholder, in
corporate activities on a substantial scale; that,
in this connection, she
incurred significant liabilities to a number of creditors; that she claims she
has no assets; that she is
the registered proprietor of the Wagga Wagga property
which, it is claimed, is beneficially owned by another entity. In the absence
of any testimony from Mrs Crowl, it is possible to infer from what is revealed
in the evidence available of her financial position
in late 1987 and early 1988
that she could have engaged in one or more transactions or dealings with her
assets within the relation
back period calculated by reference to KBA's petition
but which occurred before the relation back period of her own petition.
- This is not
to say that it is certain or even probable that Mrs Crowl had any
particular transaction or dealing in mind when she
presented her petition.
Rather, it is a case of inferring from her financial difficulties in 1987 that
it was possible that she
had such a transaction or dealing in mind when she
decided to present her own petition.
- Given that
inference, in the absence of any other explanation from Mrs Crowl, it is
appropriate to find that she presented her petition
for the purpose of
shortening the period of relation back, possibly placing beyond the trustee
property which might otherwise be
available to the general body of
creditors.
- This is not
a proper use of the process. The bankruptcy must be annulled. Mrs Crowl must
pay the costs of the application.”
- For
the reasons that follow, I am satisfied on material before me that it is
appropriate for me to infer that the respondent had the
following ulterior
purposes for filing the Debtor’s Petition:
- to
prevent the applicant from obtaining a sequestration order;
- to
shorten the relation back period;
- to
have a trustee of his own choosing appointed in the hope that this would assist
his purposes in the bankruptcy.
- Clearly
I should infer that the respondent believed that it was to his advantage to file
a Debtor’s Petition. The timing of
the filing of the Debtor’s
Petition soon after he had committed an act of bankruptcy in failing to comply
with the applicant’s
bankruptcy notice indicates to me that the respondent
decided that it was to his advantage to become bankrupt on a Debtor’s
Petition rather than a Creditor’s Petition. By August 2009 the respondent
and his businesses were in serious financial difficulty.
Notwithstanding this
the respondent took no action to have himself declared bankrupt. I infer that
the respondent was prompted
to file his Debtor’s Petition as a result of
the existence of the creditor’s petition. He wanted to prevent the
applicant
from obtaining a sequestration order. The evidence that the
respondent did nothing for such a long time after getting into financial
difficulty and only acted to have himself declared bankrupt after being served
with the applicant’s bankruptcy notice is, in
the absence of any evidence
from the respondent to the contrary, sufficient evidence for me to make the
findings detailed above.
- In
Adler v Australian Securities and Investments Commission
[2003] NSWCA 131 at [649] – Hayden J A said:-
- “
unexplained failure by a party to give evidence may lead to an inference that
the uncalled evidence would not have assisted
that party’s case. This
instance of a Jones v Dunkle inference (Jones v Dunkle [1959] HCA 8; [1959] 101 CLR
298), ... can entitle the judge or jury more readily to accept the evidence of
the opposite party which might have been contradicted,
or more readily to draw
any inference fairly available from the evidence called by the other party. A
Jones v Dunkle inference cannot fill gaps in the evidence, or convert
conjecture and suspicion into inference, but unless it is to be empty of content
the inference if drawn may weigh the scales, however slightly, in favour of the
opposing party.’
- There
was a clear advantage to the respondent in preventing a sequestration order
being made on the applicant’s petition: as
a result of s.122 of the Act
the period for preferences which are voidable is the 27 January 2010 in a
bankruptcy pursuant to the
debtors petition
[5] (namely the date of
the act of bankruptcy on which the applicant’s creditor’s petition
was based) and not later than
the 28 July 2009 in a bankruptcy pursuant to the
applicant’s creditor’s petition
[6] (namely six months
before the date of the presentation of the applicant’s creditor’s
petition). As previously mentioned
in these reasons, debts of the bankrupt
estate and the winding up of the respondent’s company are likely to extend
to many
millions of dollars. So far as the respondent is concerned it is likely
that he has disposed of significant assets (including monies)
in the period
leading up to his bankruptcy. Reducing the relation back period would have a
significant advantage to the respondent
in that transactions between the 28 July
2009 and 27 January 2010 could not be uncovered and the amounts
recovered.
- The
final reason why I believe that the bankruptcy pursuant to the Debtor’s
Petition ought to be annulled is that the respondent
had a further ulterior
purpose in filing the Debtor’s Petition namely that he saw it to his
advantage to have Ms Orr appointed
his Trustee in bankruptcy. Ms Orr indicated
to him that she only required a sum of $15,000.00 for fees. This is a small sum
of
money for a bankruptcy administration that could involve many enquiries
involving much time and therefore cost for the Trustee.
Ms Orr is a sole
practitioner with no professional and only three non-professional staff. It is
reasonable to infer that the combined
effect of Ms Orr’s stated fees and
the concern that Ms Orr expressed about whether she and her firm have the
capacity to handle
the administration are likely to have caused the respondent
to believe that, if Ms Orr were appointed Trustee, there would not be
a major
enquiry taken by her in relation to the administration. In saying this I do not
intend to infer that Ms Orr would not properly
conduct the administration. I am
simply looking at the matter from what I consider is the respondent’s
point of view. I infer
that he believed that it would be to his advantage
to have Ms Orr as his administrator and that this could only occur if he filed
a
Debtor’s Petition. I do not accept the submission by Counsel for the
Trustee that the application is an attack on Ms Orr.
No such attack has been
made, nor should it.
- In
my view there are no proper grounds for saying that the annulment should not
take place. I see no reason why I should not exercise
the discretion given me
by s.153B to make the order sought.
- There
will be orders as detailed at the beginning of these reasons.
I
certify that the preceding forty-four (44) paragraphs are a true copy of the
reasons for judgment of Simpson FM
Associate:
Date: 6 August 2010
[1] Edelsen v
Deputy Commissioner of Taxation (NSW) and Others (1989) 86 ALR 257 at 264;
Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336; Rejfek v McElroy (1965)
112 CLR 517.
[2]
Eldesen et al at line 28 at
[259].
[3]
Eldesen et al at line 41 at
[259].
[4]
Eldesen et al at line 44 at
[259].
[5] By virtue
of s.122 Table Item 2 and s.115 Table Item
2.
[6] By virtue of
s.122 Table Item 1.
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