Commonwealth Bank of Australia v Heinrich

Federal Court of Australia|2005-12-14|Before: Nyland J, Kirby J, Finn J

REASONS FOR JUDGMENT 1 This application is brought by a trustee in bankruptcy, Alan Geoffrey Scott ("the Trustee") to distribute the dividends of the estate amongst the creditors. The application seeks an order that he be entitled, in accordance with Div 5, Pt VI of the Bankruptcy Act 1966 (Cth), to proceed with a distribution of a dividend to the Commonwealth Bank of Australia ("CBA") as if the bankrupt had filed a statement of affairs and CBA had been stated to be the only creditor: s 146. 2 The current position of the Estate as well as the proposed distribution of the dividend has been outlined in an affidavit by the Trustee. This also provides a concise history of the dealings of the Trustee, the Bankrupt and CBA since the sequestration order was made.

Sequestration and Appeal 3 In 1993, Nyland J sitting in the Supreme Court of South Australia found that as at 12 January 2000, Mr Stephen Heinrich ("the bankrupt") was indebted to CBA in the sum of $673,358.81 ("the judgment debt") together with interest from that date pursuant to a mortgage over farming land known as "Section 36". In a counterclaim, Mr Heinrich challenged the validity of the mortgage, a challenge which was dismissed by her Honour. No appeal was raised against Nyland J's decision. 4 A sequestration order was made by a judge of this Court on 6 September 2000 on the petition of CBA which was founded on Mr Heinrich's failure to comply with a bankruptcy notice in respect of the judgment debt: see generally Commonwealth Bank of Australia v Heinrich [2000] FCA 1255. The Trustee was appointed on the same day. 5 On 27 September 2000, Mr Heinrich appealed to the Full Court of this Court against the sequestration order. The Court unanimously dismissed the appeal. Mr Heinrich then made an ex parte application to the High Court of Australia for an order of mandamus addressed to the three judges who dismissed the appeal. The application was heard and dismissed by Justice Kirby.

Statement of Affairs 6 Following the appointment of the Trustee, the bankrupt was notified in writing of his obligation to provide a Statement of Affairs in order to commence the three year period of bankruptcy. In reply, Mr Heinrich sent a document entitled "Acknowledgement of Admitted Facts and Law" requiring the Trustee to give an undertaking that he had, inter alia, read and understood the Bankruptcy Act and various pieces of criminal legislation. The Trustee, understandably, did not sign this document. Despite further requests by the Trustee, Mr Heinrich has refused to file a statement of affairs. That position remains to this day. 7 Since the making of the sequestration order there has been voluminous litigations in a variety of jurisdictions. While the substantive detail of the proceedings themselves is not of current significance, they shed some light on the position of the estate as it presently stands.

Public Examinations and Legal Proceedings 8 Between 2001 and 2003, Mr Heinrich, his wife, two of his sons, their accountant and Mr Philip Heinrich were summonsed for and appeared at public examinations. The period of time over which these examinations took place is explicable. 9 In 2002, the Trustee commenced proceedings against Tower Trust (SA) Ltd and Sarabe Pty Ltd to recover property of the bankrupt's. Proceedings were also commenced against Mr Heinrich's son to recover other property. In the same year, the Trustee was himself a defendant in a proceeding in relation to a caveat he had placed over Section 36, the property in question in this matter. All of these proceedings were resolved in 2003 pursuant to a Deed of Settlement and judgment was obtained against Sarabe Pty Ltd for $1,650,000.00. The amount was paid on 22 January 2004. In accordance with that Deed, the Trustee transferred Section 36 to one Benjamin James Heinrich and paid the sum of $570,000.00 to CBA in discharge of the bank's mortgage over the property. 10 Mr Heinrich has commenced some number of private prosecutions against the Trustee, Mr Brown (the solicitor of the Trustee), and CBA. Briefly, these proceedings alleged breaches of the Crimes Act 1914 (Cth), and claims that CBA had obtained the judgment in the judgment debt action fraudulently. 11 On 14 April 2002, the bankrupt applied to the Federal Magistrates Court seeking to stay all proceedings including the public examinations until the private prosecutions had been determined. The application to stay was refused and on 2 May 2002, those complaints and informations came before Magistrate Prescott. All complaints, some 10 or so in number, were dismissed and Mr Heinrich was ordered to pay costs in the sum of $3,000 within 28 days. These costs have never been paid. Three remaining informations, which were also heard on that day, were adjourned to July 2002. 12 On 20 June 2001, CBA, Mr Brown and the Trustee sought a permanent stay of Mr Heinrich's prosecutions and an order prohibiting him from issuing further proceedings except by leave of the Supreme Court. Such an order was made by Debelle J on 12 September 2003. Likewise on 25 October 2002, CBA issued proceedings in the Federal Court seeking, inter alia, an order pursuant to O21 r 2 that Mr Heinrich not, without leave of the Court, institute any proceedings against CBA in the Federal Court of Australia. These orders were declined by Mansfield J on the same day as the sequestration order was made. 13 In 2003, a non-lawyer who had represented Mr Heinrich in the Full Court appeal against the sequestration order commenced proceedings claiming payment from the Trustee and CBA pursuant to an alleged right to recover amounts for alleged crimes in the administration of the Estate. This action too was dismissed by Adams J in the New South Wales Supreme Court. 14 Finally, and most relevantly, Mr Heinrich sought an annulment of the sequestration order made by this Court on the ground of alleged new evidence. On 6 June 2003 Mansfield J dismissed the application.

Indemnification by CBA 15 Until the payment of $1,650,000.00 from the 2003 judgment against Sarabe Pty Ltd, in January 2004, there have been no funds available to the Trustee to conduct or defend the various proceedings as referred to above. Consequently, CBA has indemnified the Trustee in relation to costs and expenses incurred in the administration of the Estate. This has included: (1) The conduct of the public examinations and other examinees; (2) The prosecution of the recovery of property proceedings; (3) The defence of the proceedings relating to the caveat over Mr Heinrich's property; (4) The defence of the private prosecutions in the Magistrates Court; (5) The prosecution of the proceedings for a permanent stay of the private prosecutions; and (6) The NSW proceedings. 16 The costs now total payments made to the sum of $597,526.63.

Proof of Debt and the Current Position of the Estate 17 On 15 April 2005, the Trustee received a proof of debt from CBA in relation to the Estate. The claim pursuant to the proof was rejected to the extent of $94,200.00 (in respect of legal costs) and was ranked for dividend in the amount of $464, 718.79. This decision has not been challenged by CBA. 18 Further correspondence between Mr Heinrich and the solicitors of the Trustee, indicate that he is now of the belief that his Bankruptcy was annulled by reason of the consent judgment against Sarabe Pty Ltd. 19 The current position of the Estate is that an amount of $861,748.57 is standing to the credit of the Estate and the administration is complete except for the distribution of a dividend to CBA. No other proofs of debt have been received by the Trustee in relation to the Estate after advertisement.

CONSIDERATION 20 I am satisfied that this is an appropriate matter in which to make an order under s 146 of the Bankruptcy Act. It is over five years since the making of the sequestration order; no statement of affairs has been filed notwithstanding the trustee's attempts; Mr Heinrich's continuing lack of cooperation stems apparently from a belief that his bankruptcy was annulled; there is only one known debtor, i.e. CBA, which is proved. No purpose would be served by further deferring a distribution to CBA. There is no reason to apprehend that any prejudice will be caused by CBA's proof being paid in full. 21 Accordingly I will order that distribution of a dividend of $464,718.79 to CBA shall proceed in accordance with Div 2 of Pt VII of the Bankruptcy Act 1966 as if Mr Heinrich had filed his statement of affairs and the CBA had been stated to be a creditor in it. 22 The distribution will result in the estate having a surplus of approximately $393,000.00. In his affidavit, Mr Scott has indicated that he proposes to pay this sum as well to the CBA as, "as at 1 September 2005 an amount of $630,998.66 was due and owing to it by Mr Heinrich by way of interest on the judgment debt from the date of bankruptcy". How Mr Scott considers he is entitled to take this course in the face of the provisions of s 58(3), s 82(1) and s 82(3B) of the Bankruptcy Act remains unexplained. A letter from the bank simply asserts "an entitlement to payment of this amount in priority to any claims which the bankrupt may have in relation to any surplus". The alleged source of that "entitlement" is not revealed. 23 I merely comment that the course proposed by the trustee will, on the material before me, be at his own personal risk. I certify that the preceding twenty-three (23) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finn .

Associate: Dated: 14 December 2005 Counsel for the Applicant: Mr S Lane

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