Axess Debt Management Pty Ltd v Haykal, in the matter of Haykal

The Applicant's claims 57 As noted earlier, Axess sought orders that it be paid its own legal costs and orders that those costs and the Judgment Debt (together with accrued interest) be paid from the proceeds of sale of the Williamstown property or, alternatively, priority in the First and Second Respondents' bankrupt estates. 58 Mr Nelson did not contest the entitlement of Axess to have its costs as against the Respondents and I am satisfied that an order to that effect is appropriate. 59 Initially, Axess asked the Court to fix now the quantum of its costs but counsel's ultimate position was that an order should be made that these costs be taxed or agreed. In particular, counsel for Axess indicated that he did not have the necessary instructions with which to engage in a detailed assessment of the total costs claimed by Axess. Counsel for Mr Nelson supported that position. I am conscious that, if the Court proceeded to fix the costs now, there would be some likely saving to the costs which the parties would incur in that respect. However, I will accede to the approach with respect to costs for which counsel contended, but at the same time indicate my expectation that, in any negotiated agreement with respect to the costs claimed by the Applicant, or on a taxation, regard will be had, amongst other things, to the issues concerning the extent of the claimed costs which I raised with counsel in the course of submissions. 60 In relation to alternative forms of priority it sought, Axess referred to s 109(10) of the Act. Section 109(1) provides for the order of priority to be adopted by a trustee in applying the proceeds of the property of a bankrupt. Subsection (11) provides that, subject to one qualification, the debts in each of the classes specified in subs (1) are to rank equally between themselves. Subsection (10) provides for one circumstance in which the Court may order that a creditor have priority over other creditors. It provides: (10) Where in any bankruptcy: (a) property has been recovered, realized or preserved under an indemnity for costs of litigation given by a creditor or creditors; or (b) expenses in relation to which a creditor has, or creditors have, indemnified a trustee have been recovered; the Court may, upon the application of the trustee or a creditor, make such orders as it thinks just and equitable with respect to the distribution of that property and the amount of those expenses so recovered with a view to giving the indemnifying creditor or creditors, as the case may be, an advantage over others in consideration of the risk assumed by creditor or creditors. 61 The principles relating to the application of s 109(10) are well established and were summarised by Jagot J in Grandsky Pty Ltd v Horne in his capacity as Trustee for the Bankrupt Estate of Van Oost [2014] FCA 119. I gratefully adopt, without repeating, that summary. The authorities indicate, in particular, that the discretion conferred by subs (10) is to be exercised having regard to the desirability, in the public interest, of encouraging creditors to provide an indemnity to a trustee so as to permit claims arising out of a bankruptcy to be pursued. It allows recognition by way of reward to be given to the risk undertaken by the indemnifying creditor, even when that creditor has been fully reimbursed. That is because it is in the public interest that the property of a bankrupt should be available to the creditors of the bankrupt. 62 The discretion is of a broad kind and permits the Court to order that a creditor have a complete or partial priority or a priority in respect of all or part of the amount available in the bankrupt's estate. 63 By his interlocutory application, Mr Nelson sought adjournment of the Court's consideration of Axess' application for priority. He did so in order to give him time to obtain further clarity regarding the liabilities of the bankrupt estates. In particular, Mr Nelson submitted that the determination of Axess' entitlement to priority should be deferred until the amount available for distribution to the creditors is known. 64 One of the matters identified by Nicholas J in Woodgate, in the Matter of Eaton (a Bankrupt) [2010] FCA 550 at [5] as relevant to the exercise of the discretion under s 109(10) is "the proportions between the debts of the indemnifying creditor and the other debts". Accordingly, it would be of assistance to have more information concerning the two bankrupt estates. 65 However, Mr Nelson has provided the Court with relatively little information concerning the two estates. He annexed to his affidavit the statements of affairs provided by the two bankrupts but did not provide the Court with any analysis of those statements or with any report of his investigations into the debts and liabilities disclosed by the bankrupts. Mr Nelson deposed, on the basis of his discussions with the bankrupts, that there may be additional claims against the joint estates in the vicinity of $300,000 arising from personal guarantees they have provided to the landlords of retail properties. Again, that was at a level of generality. In addition, Mr Nelson deposed to a belief that there may be other undisclosed creditors but did not provide the Court with any particulars of that belief. 66 I also note that Axess' application had initially been listed for hearing on 6 July 2017. Mr Nelson did not attend at that hearing nor provide any indication that he did not wish to be heard. His affidavit tends to imply that he would have been content for the Court to deal with the application of Axess at that time even in his absence. 67 I am also concerned about the prospect of yet further costs being incurred if the adjournment application is allowed. 68 For these reasons, although the position is not entirely satisfactory, I do not accede to Mr Nelson's application for adjournment of the consideration of Axess' priority claim. 69 The amount of Axess' priority claim (before accrued interest) is $150,042.89. I am satisfied that the action of Axess in seeking the appointment of Mr Ambrose did have the effect of preserving at least one significant asset for the creditors, namely, the net proceeds of the Williamstown property. There is no indication that any other creditor of the Respondents had been willing to take that action. Nor is it suggested that Axess acted opportunistically in order to secure for itself a benefit in the anticipated bankruptcies. Mr Nelson has informed the known and advised creditors of the bankrupts of the application by Axess for priority for its debt of approximately $150,000 and reports that no creditor has objected to that claim. 70 The governing criterion fixed by s 109(9) is the justice and equity of the case. 71 On my assessment, Axess should be rewarded for the risk which it undertook in seeking the appointment of Mr Ambrose and the resultant action which has resulted in a benefit for the creditors generally. In my opinion, it is just and equitable that Axess have priority with respect to the legal costs it incurred (which as noted above are to be taxed if not agreed) and with respect to 50% of the Judgment Debt. I exclude from the claimed priority any post-judgment interest. The priority is granted with respect to the bankrupt estates and not with respect to the proceeds of the sale of the Williamstown property.