Owners Of Strata Plan No 58260 v Spinocchia [2011] FMCA 769 (6 October 2011)

Last Updated: 12 October 2011

FEDERAL MAGISTRATES COURT OF AUSTRALIA

OWNERS OF STRATA PLAN NO. 58260 v SPINOCCHIA

[2011] FMCA 769

BANKRUPTCY – Contested creditors petition – error in creditors petition – incorrect name included – whether the debtor would have been misled considered – whether the debt claimed had been paid in whole or part and whether the bankruptcy notice supporting the petition came to the attention of the debtor considered – whether the fact that the property the subject of the debt due to the petitioning creditor is subject to a mortgage and that the mortgagee has obtained a writ of possession is a reason for the Court to refrain from making a sequestration order considered.

Bankruptcy Act 1966 (Cth), ss.52, 306 Bankruptcy Regulations Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth)

Applicant:

OWNERS OF STRATA PLAN NO 58260

Respondent:

ANDREW JOSEPH SPINOCCHIA

File Number:

SYG 472 of 2011

Judgment of:

Driver FM

Hearing date:

6 October 2011

Delivered at:

Sydney

Delivered on:

6 October 2011

REPRESENTATION

Solicitors for the Applicant:

Mr D Radman Grace Lawyers Pty Ltd

The Respondent appeared in person

ORDERS

(1) Pursuant to s.306 of the Bankruptcy Act 1966 (Cth), leave is granted to the applicant creditor to amend Part 1 of the creditor’s petition to delete the name “Andrew John Stewart” and to substitute “Andrew Joseph Spinocchia”.
(2) Service of the amended creditor’s petition be dispensed with.
(3) A sequestration order be made against the estate of Andrew Joseph Spinocchia.
(4) The petitioning creditor’s costs, including any reserved costs, be taxed and paid in accordance with the Bankruptcy Act 1966 (Cth).
(5) The Court notes that the date of the act of bankruptcy is 7 March 2011.
(6) The Court notes that a Consent to Act as Trustee has been signed by Roderick Mackay Sutherland on 14 March 2011.

FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY

SYG 472 of 2011

OWNERS OF STRATA PLAN NO. 58260

Applicant

And

ANDREW JOSEPH SPINOCCHIA

Respondent

REASONS FOR JUDGMENT

(revised from transcript)

1. I have before me a creditors petition, presented on 16 March 2011, seeking a sequestration order against Andrew Joseph Spinocchia. The petition is supported by the affidavit of Wissam Chassani made on
   15 March 2011, verifying paragraph 4 of the petition, and the affidavit of Angela Smith made on 21 July 2011, verifying service of the petition in accordance with orders for substituted service made by this Court. The evidence presented in support of the petition also includes an affidavit of service of the bankruptcy notice upon which the petitioning creditor relies, in accordance with regulation 16 of the Bankruptcy Regulations (“the Bankruptcy Regulations”), the affidavit of Wissam Chassani made on 18 April 2011, in which he deposes at to a number of matters, including service of the statement of claim leading to the judgement debt supporting the bankruptcy notice, service of the bankruptcy notice, service of the creditor’s petition, and correspondence between the parties. Further, I have before me the affidavit of Angela Smith made on 12 August 2011, providing additional evidence in relation to those matters, and a claim by Mr Spinocchia that he had paid the debt due to the petitioning creditor.
   I accepted for filing in court by leave today updated affidavits of search and debt. I also note that a consent to act as trustee has been signed by Roderick Mackay Sutherland. The evidence on behalf of the petitioning creditor was completed by exhibit A1, which is the affidavit of service of Cale Thurston sworn on 13 August 2011, concerning service of the statement of claim in the Local Court.
2. The background to this matter is that Mr Spinocchia is the purchaser of a strata property at Gymea. He purchased that property from his former de facto partner, Michelle Leonie Neal. It is apparent that Mr Spinocchia and Ms Neal were experiencing difficulties in their relationship, and the sale to Mr Spinocchia of the property appears to have reflected those difficulties, as well as financial difficulties being encountered by Ms Neal. Although he may not have been aware of the details, it is apparent from Mr Spinocchia’s evidence and statements from the bar table that he was aware of an issue of unpaid strata fees at the time of the purchase. Indeed, on his account, he took steps for payment of those strata fees at the time of the purchase, although it does not appear that any payment that may have been made to Ms Neal for the purpose of paying strata fees was applied to that purpose.
3. Mr Spinocchia opposes the making of a sequestration order. He relies upon a notice stating grounds of opposition filed on 27 July 2011. That notice is supported by Mr Spinocchia’s affidavit made on 27 July 2011. Mr Spinocchia also tendered in court today some documents - exhibit R1 is a copy of an order by Registrar Hannigan of this Court made on 11 February 2011, making a sequestration order and a costs order against Michelle Leonie Neal. It is conceded by the petitioning creditor that the amount claimed in those proceedings overlaps in part the amount claimed against Mr Spinocchia in these proceedings. Exhibit R2 is a cash receipt for $32,000 dated 26 November 2011, and apparently signed by Ms Neal. Exhibit R3 is a bundle of two envelopes, apparently processed by Australia Post on 15 August 2011.
4. This matter was before me on 30 August 2011, after a series of earlier hearings before a registrar. On 30 August, I adjourned the hearing of the petition to give Mr Spinocchia the opportunity to amend his notice of grounds of opposition to raise the issue of solvency and to provide evidence of solvency. There was discussion at that time about Mr Spinocchia paying into court the amount then due. No evidence of solvency has been presented and the notice of grounds of opposition has not been amended. Subject to one matter, I am satisfied that prima facie the petitioning creditor has complied sufficiently with the requirements of the Bankruptcy Act 1966 (Cth) (“the Bankruptcy Act”), the Bankruptcy Regulations, and the Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth).
5. The exception relates to an error in the creditors petition, pointed out at hearing today by Mr Spinocchia. While the creditors petition is clearly directed to Mr Spinocchia and refers to him at various points as the judgment debtor, part 1 of the petition identifying the person against whom a sequestration order is sought erroneously identifies a different person. The misidentification of the debtor in a creditor’s petition is a serious matter, and in many circumstances might invalidate the petition because of the confusion which may result from that misidentification. In the present case, there was, in fact, no confusion. Mr Spinocchia conceded that the error only came to his attention four days ago and it was raised before me in court for the first time today, in proceedings which have been on foot since March this year.
6. The question is, however, not whether Mr Spinocchia was in fact confused but whether, a debtor in his position would have been confused. While the contrary is arguable, I have come to the conclusion that the error was not confusing. Mr Spinocchia is elsewhere clearly identified in the creditors petition and the debt due from him is clearly identified.
7. The evidence satisfies me that previous dealings between the parties would have left Mr Spinocchia in no doubt as to what was being claimed against him and that he was liable to be the subject of a sequestration order. Mr Spinocchia himself conceded that there has been considerable dealings between the parties over the issue of the unpaid strata fees. He was aware of the difficulties his former partner, Ms Neal, had encountered in relation to unpaid strata fees, and sought to resolve that problem through the purchase of the property.
8. It is unclear whether or not, and to what extent, he was misled as to whether the issue had been resolved at the time of purchase. It is possible that he was misled by Ms Neal, but he was made abundantly aware thereafter that there was an ongoing and increasing liability. Ultimately, and perhaps because of his feelings of grievance against Ms Neal and the owners of the strata plan, Mr Spinocchia became a recalcitrant debtor.
9. I have concluded that the creditors petition is not confusing, notwithstanding the misidentification of the debtor under part 1 of the petition, and I will grant leave for the petition to be amended to correctly identify the person against whom the sequestration order is sought, pursuant to s.306 of the Bankruptcy Act. I am satisfied that the petition otherwise complies with the formal requirements of the Bankruptcy Regulations.
10. In his notice of opposition, Mr Spinocchia asserts that all moneys due to the owners of the strata plan were paid at the time he purchased the property. However, that assertion founders against the weight of evidence advanced by the petitioning creditor that whatever moneys may have been exchanged between Mr Spinocchia and Ms Neal, they were not applied to the purpose of payment of all of the strata fees and other charges then outstanding. In fact, I accept that no payments have been made for several years. The amount of unpaid strata fees, interest and charges has continued to increase substantially over time.
11. Mr Spinocchia also contests that the bankruptcy notice supporting the petition was served on him. Personal service is not asserted, but I accept from the affidavit evidence concerning service that service in accordance with regulation 16 of the Bankruptcy Regulations was effected by leaving a copy at the property owned by Mr Spinocchia at Gymea. He asserts that he was not, at the time, living at the premises, because of an Apprehended Violence Order taken out against him, but I accept from an email from Mr Spinocchia to an officer of the strata administrator on 14 February 2011, that he was made aware of the bankruptcy notice by another person apparently resident in the premises. I am not satisfied that Mr Spinocchia has advanced evidence that the bankruptcy notice did not come to his attention within the period limited for payment of the amount claimed in it.
12. I have considered whether there are other reasons why a sequestration order should not be made. One matter of interest is the sequestration order made against Ms Neal. That raises the possibility that a part of the amount claimed from Mr Spinocchia may ultimately be recovered from the estate of Ms Neal. That is, however, a matter of speculation.
13. I also note that the property the subject of the strata fees is mortgaged and that the bank holding the mortgage has sought and obtained a writ of possession. In the circumstances, it would appear reasonably likely that the bank will take steps to sell the property, providing an opportunity for the owners of the strata plan to recover from a future purchaser the unpaid strata fees, interest, and other charges which have accumulated on the property.
14. As against that, there is a public interest in the orderly administration of the affairs of an insolvent debtor. In the absence of any evidence of solvency, I conclude that Mr Spinocchia is insolvent. He is a recalcitrant debtor, who has determined not to deal with the debts claimed against him. While a potential sale by a mortgagee in possession may provide funds to the petitioning creditor, that is not certain. There may be some equity in the property which might not be realised in a sale by a mortgagee in possession.
15. The preferable course in the interests of creditors would be for a trustee in bankruptcy to cooperate with the mortgagee to arrange a sale at a fair market price, which would, as far as practicable, satisfy the mortgagee as well as the owners of the strata plan, and any other creditors of Mr Spinocchia. In all the circumstances, I have concluded that the Court should not refrain from making a sequestration order.
16. I am satisfied that Mr Spinocchia committed the act of bankruptcy alleged in the petition. I am satisfied with the proof of the other matters of which s.52(1) of the Bankruptcy Act requires proof.
17. I will order that a sequestration order be made against the estate of Andrew Joseph Spinocchia. The petitioning creditor’s costs, including any reserved costs, are to be taxed and paid in accordance with the Bankruptcy Act.
18. I note that the date of the act of bankruptcy was 7 March 2011, and I further note that a consent to act as trustee was signed by Roderick Mackay Sutherland on 14 March 2011.

I certify that the preceding eighteen (18) paragraphs are a true copy of the reasons for judgment of Driver FM

Associate:

Date: 11 October 2011