Westpac Banking Corporation v Faress [2011] FMCA 26 (24 January 2011)

Last Updated: 3 May 2011

FEDERAL MAGISTRATES COURT OF AUSTRALIA

WESTPAC BANKING CORPORATION v FARESS

[2011] FMCA 26

BANKRUPTCY – Creditor's petition – debtor overseas resident – carrying on business in Australia.

Bankruptcy Act 1966, ss.43(1)(b)(iii), 52

McIntosh v Shashoua [1931] HCA 56; (1931) 46 CLR 494 Re Brauch; Ex parte Brittanic Securities & Investments Ltd [1978] Ch 316 (CA) Re Vassis; Ex parte Leung (1986) 9 FCR 518 Turner v Trevorrow [1994] FCA 1091; (1994) 49 FCR 566 Morpizitis v Bernasconi [2003] EWCA Civ 1514; [2003] All ER (D) 33

Applicant:

WESTPAC BANKING CORPORATION

Respondent:

ADIB FARESS

File Number:

BRG 735 of 2010

Judgment of:

Jarrett FM

Hearing date:

8 October, 2010

Date of Last Submission:

8 October, 2010

Delivered at:

Brisbane

Delivered on:

24 January, 2011

REPRESENTATION

Counsel for the Applicant:

Mr Goodwin

Solicitors for the Applicant:

Minter Ellison

Solicitors for the Respondent:

No appearance

Solicitor for the creditors Walsh & Dennis:

Ms Petty

Solicitors for the creditors Walsh & Dennis:

Allens Arthur Robinson

Solicitor for the creditor Commissioner for Taxation:

Ms Haskic

Solicitors for the creditor Commissioner for Taxation:

ATO Legal Services Branch

ORDERS

(1) That a sequestration order be made against the Estate of Adib Faress.
(2) That the Petitioning Creditor’s costs of and incidental to the Creditor’s Petition be taxed and paid from the estate of the respondent debtor in accordance with the Bankruptcy Act 1966.

FEDERAL MAGISTRATES COURT OF AUSTRALIA AT BRISBANE

BRG 735 of 2010

WESTPAC BANKING CORPORATION

Applicant

And

ADIB FARESS

Respondent

REASONS FOR JUDGMENT

1. The applicant seeks a sequestration order pursuant to s.52 of the Bankruptcy Act 1966 (Cth) against the respondent, Adib Faress. Mr Faress did not appear at the hearing of the petition, either in person or by representative.
2. Apart from the petitioning creditor, two other creditors appeared in support of the petition. Mr Faress owes $9,600 to Justin Walsh and Richard Dennis, the former receivers and managers of Beaconsfield Australia Pty Ltd (a company to which I shall refer below). Mr Faress also owes approximately $30,000 to the Australian Government for taxation of one description or another.
3. The issue to be determined is one of jurisdiction given that Mr Faress is no longer a resident of Australia and was not in Australia when the relevant act of bankruptcy was committed.

Background

4. Mr Faress owes $15,517.80 to the petitioning creditor pursuant to two costs judgments obtained by it on 1 December, 2009 against him in the Supreme Court of Queensland.
5. Relying upon the two costs judgments, the petitioning creditor caused a bankruptcy notice to issue to Mr Faress on 2 March, 2010.
6. An order for substituted service of the bankruptcy notice was made by Registrar Belcher on 9 June, 2010. Service of the bankruptcy notice was carried out in accordance with that order: see the affidavit of Michael de Waard filed 21 July, 2010. According to the terms of Registrar Belcher’s order, if service of the bankruptcy notice was effected by 11 June, 2010 in the ways set out in his order, the bankruptcy notice would be deemed to have been served on Mr Faress on 25 June, 2010. Mr de Waard’s affidavit reveals that it was so served before 11 June, 2010. Mr Faress is therefore deemed to have been served with the bankruptcy notice on 25 June, 2010.
7. Mr Faress did not comply with the terms of the bankruptcy notice, nor did he apply to have it set aside. On the evidence relied upon by the petitioning creditor, Mr Faress committed an act of bankruptcy on 16 July, 2010.
8. The creditor’s petition was issued on 21 July, 2010. An order for substituted service of the creditor’s petition was made by Registrar Belcher on 18 August, 2010. Service of the creditor’s petition was carried out in accordance with that order: see the affidavit of Michael de Waard filed 1 September, 2010. According to the terms of Registrar Belcher’s order, if service of the creditor’s petition was effected by
   23 August, 2010 in the ways set out in his order, the creditor’s petition would be deemed to have been served on Mr Faress on 9 September, 2010. Mr de Waard’s affidavit reveals that it was so served before
   23 August, 2010. Mr Faress is therefore deemed to have been served with the creditor’s petition on 9 September, 2010.
9. Mr Faress attempted to pay the debt by arranging payment of the amount claimed in the bankruptcy notice directly into the petitioning creditor’s solicitor’s trust account well after the petition had been issued and served. Although the deposit was made, the tender was rejected by the petitioning creditor and the sum repaid. The petitioning creditor was not obliged to accept the tender of payment: McIntosh v Shashoua [1931] HCA 56; (1931) 46 CLR 494. Payment of the debt does not cure the act of bankruptcy.
10. I am satisfied that the debts the petitioning creditor relies are still owing.
11. Jurisdiction to make sequestration orders is provided for in s.43 of the Bankruptcy Act. That section is in the following terms:
    • Jurisdiction to make sequestration orders
    • (1) Subject to this Act, where:
      • (a) a debtor has committed an act of bankruptcy; and
      • (b) at the time when the act of bankruptcy was committed, the debtor:
        • (i) was personally present or ordinarily resident in Australia;
        • (ii) had a dwelling-house or place of business in Australia;
        • (iii) was carrying on business in Australia, either personally or by means of an agent or manager; or
        • (iv) was a member of a firm or partnership carrying on business in Australia by means of a partner or partners or of an agent or manager;
      • the Court may, on a petition presented by a creditor, make a sequestration order against the estate of the debtor.
12. Subsection 43(1)(b)(iii) is relied upon by the petitioning creditor as the basis for jurisdiction to make the sequestration order it seeks. It must rely upon that ground because it is conceded by the petitioning creditor that at the time the act of bankruptcy was committed by Mr Faress:
    1. he was not personally present or ordinarily resident in Australia;
    2. he did not have a dwelling-house or place of business in Australia;
    100. he was not a member of a firm or partnership carrying on business in Australia by means of a partner or partners or of an agent or manager.
13. Two matters must be demonstrated by the evidence to engage s.43(1)(a)(iii), namely:
    1. that the debtor was carrying on business in Australia; and
    2. the debtor was doing so when the act of bankruptcy was committed.
14. As to the first element, the authorities demonstrate a broad view of what constitutes “carrying on business”.
15. “Carrying on business” extends to situations where active trading has ceased, but the business is still being wound up and debts are being collected or paid. The phrase was explained in Re Vassis; Ex parte Leung (1986) 9 FCR 518 at 525–526 as follows:
    • If it had not been the proper conclusion that Vassis was ordinarily resident in Australia, the question might have arisen whether within s 43(1)(b)(iii) he “was carrying on business in Australia, either personally or by means of an agent or manager”. In Re Mendonca; Ex parte FC of T (1969) 15 FLR 256 at 260–1 Gibbs J (as he then was) referred to “the somewhat wide understanding of those words [ie ‘was carrying on business'] that has come to be established in bankruptcy law”. Gibbs J cited Theophile v Solicitor-General [1950] AC 186; and Re Bird v IRC; Ex parte The Debtor [1962] 1 WLR 686. In Theophile's case Lord Porter (at p 201) said:
      • “Trading does not cease when, as the expression is, ‘the shutters are put up’, but continues until the sums due are collected and all debts paid.”
    • In this sense, it seems clear that at the relevant time Vassis “was carrying on business in Australia”, since the winding up of the business of his practice and the payment of its debts had not been concluded. The payment of the debts of a business, in order to conclude its carrying on, is to be understood in no narrow sense, as the second case cited by Gibbs J shows.

see also Morpizitis v Bernasconi [2003] EWCA Civ 1514; [2003] All ER (D) 33.

16. However, the relevant business must have been the debtor’s own. Employment in a business carried on by someone else or some other entity is not by itself sufficient. Thus, in Turner v Trevorrow [1994] FCA 1091; (1994) 49 FCR 566, the Full Court of the Federal Court pointed out:
    • 22. In our opinion it must be shown that the debtor was carrying on his or her own business. It is not sufficient that the debtor was engaged as an employee in the business of somebody else. That conclusion follows, we think, as a matter of the ordinary and natural meaning of the language of the statute. It is harmonious with s.43(1)(b)(iv) which speaks of a debtor as "a member of a firm or partnership carrying on business"; both paragraphs are concerned with debtors carrying on business as principals, either as sole traders (par (iii)) or in partnership (par (iv)).
    • 23. There is long-established authority to the same effect. In Graham v Lewis (1888) 22 QBD 1 the English Court of Appeal held that a clerk employed by a solicitor in London did not "carry on business within the City of London" for the purposes of s.12 of the Mayor's Court (Extension) Act 1857. Lord Esher MR said (at 3):
      • “... we ought to give the words their primary business sense, already well known in the City, namely, the carrying on of business by the person whose business it is."
    • 24. The next question is whether the respondents are right in their contention that the business of the company really was Mr Turner's. In Brauch the English Court of Appeal rejected a similar argument. Goff LJ said (at 1013h) after referring to Salomon v Salomon and Co Ltd (1897) AC 22:
      • “... it would be wrong to hold that s.4(1)(d) (of the Bankruptcy Act 1914 which conferred jurisdiction where a debtor “has carried on business in England, personally or by means of an agent or manager”) applies to a man who is running his company’s business even though he be the sole beneficial shareholder and in complete control.”
17. It might sometimes be said, however, that a person is carrying on a business through the use of companies as tools for carrying on that business. An example is Re Brauch; Ex parte Brittanic Securities & Investments Ltd [1978] Ch 316 (CA).
18. In this case, the petitioning creditor points to the following facts and argues that I should conclude that Mr Faress was carrying on business in his own right as at the date of the act of bankruptcy:
    1. a search of the records kept by the Australian Securities and Investments Commission indicates that Mr Faress has been the director or secretary or both of thirty-three companies since 1990;
    2. of those thirty-three companies, the petitioning creditor has provided financial accommodation to five of those companies;
    100. of those five companies, four:
         1. had all of their shares owned beneficially by the fifth company, Emerald Developments (Aust) Pty Ltd;
         2. had as their sole director, Mr Faress;
         3. had been provided with financial accommodation by the petitioning creditor for the express purpose of purchasing real property specified in each individual application for accommodation; and
         4. offered a limited guarantee by Mr Faress to secure the accommodation.
    4. Emerald Developments (Aust) Pty Ltd:
       1. Had, at relevant times, Mr Faress as its sole director and shareholder;
       2. had received financial accommodation in the form of an overdraft account from the petitioning creditor for the purpose of meeting “day to day transactional requirements, predominantly GST payment”;
       3. offered a limited guarantee by Mr Faress to secure the overdraft account.
    5. All companies save for one – Beaconsfield Australia Pty Ltd – have been deregistered;
    6. Beaconsfield Australia Pty Ltd is in liquidation;
    7. The affairs of Beaconsfield Australia Pty Ltd have not been finalised, inter alia, because its indebtedness to the petitioning creditor has not been paid.
19. On the evidence, I am prepared to find that Mr Faress carried on business on his own account as a property developer and for that purpose he utilised various companies for the various properties in which he was interested. His debts remain to be paid, as do those of Beaconsfield Australia Pty Ltd. That was the case as at the date of the act of bankruptcy. I am therefore satisfied that as at the date of the act of bankruptcy, Mr Faress carried on business in Australia.
20. Mr Faress did file a notice of appearance and a notice stating grounds of opposition to the petition. The first ground upon which he relied was that he was not carrying on business in Australia as alleged by the petitioning creditor as at the date of the act of bankruptcy. However, as I indicated at the commencement of these reasons, Mr Faress did not appear to press his contentions and filed no evidence to support his claim.

Conclusion

21. The formal requirements for a sequestration order have been satisfied. The court has jurisdiction to make the sequestration order because the respondent was carrying on business in Australia at the time of the act of bankruptcy.
22. There is, otherwise no sufficient cause for not making the sequestration order sought.

I certify that the preceding twenty-two (22) paragraphs are a true copy of the reasons for judgment of Jarrett FM

Date: 24 January, 2011