Cosco v Tsatsoulis

Alternatively, the Respondents seek dismissal of the petition under s 52(2)(b) of the Bankruptcy Act on the basis that: (a) the Respondents have no assets of any value; (b) the Respondents have no prospects of acquiring any assets; and (c) the manner in which the Applicants have sought to enforce the bankruptcy notice and the repeated threatened attempts by Westpac Banking Corporation to join the Applicants' Amended Petition constitute oppression and an unfair use of the Court's processes. The Amended Notice of Intention to Oppose the amended petition no longer contains an offer to pay the sum referred to in the amended creditors petition into Court, nor does it contain any offer to pay that sum to the applicants. 13 An affidavit of Mary Tsatsoulis dated 8 March 2002 filed in support of the notice of opposition reveals that her assets consist of a joint interest with her husband in the following property: - family home at Croydon Park valued at about $380,000 but fully encumbered; - block of land at West Marsden Park valued at about $7,000, but fully encumbered; - household furniture valued at about $2,000; - 1978 Mercedes Benz valued at about $2,000. 14 Those assets total $391,000. In addition, the respondents conduct a cleaning business "through" GM Operations Pty Ltd, but I have no information as to the value of the shares which I infer that the respondents hold in the capital of that company. It does not appear to be a large-scale operation. 15 Joint liabilities total $453,000 apart from legal costs owing to the applicants which are the subject of these proceedings. The affidavit therefore discloses a deficiency of at least $62,000. It is clear from the affidavit that the respondents are insolvent. One of the liabilities is a sum of $400,000 secured upon the home at Croydon Park by a mortgage granted in favour of Thomas Alexopoulos. The date in the mortgage has been left blank but the mortgage was stamped at $400,000 on 24 May 2001. 16 The affidavit also includes the following: "12. My husband and I have access to the sum of $48,000 which is immediately available to satisfy the applicants' debt which is the subject of these proceedings." Counsel for the respondents informed me, as is in any event apparent on the face of the affidavit, that the $48,000 does not form any part of the assets of the respondents. 17 On 29 January 2002, in response to an enquiry on the part of the respondents, the solicitor for the applicants stated that the total amount owing to his clients is $98,147.46, and he provided a schedule of the outstanding debts, interest and costs which go to make up that sum. I have not been able to reconcile the amounts shown on that schedule with the amounts referred to in the amended petition. The affidavit of Mr Cosco of 11 March 2002 as to the indebtedness of the respondents is consistent with the petition as the debts there disclosed, including interest, total $47,255.03. 18 Paragraph 19 of the affidavit of Mary Tsatsoulis dated 8 March 2002 is as follows: "My Husband and I have not paid the amount of $47,255.03. We are uncertain as to the correct amount owing to the Applicants having regard to the letter from the Applicants' Solicitor comprising the annexure marked "H" to this Affidavit, in which the amount claimed is $98,147.46." 19 I am satisfied with the proof of the matters referred to in s 52(1) of the Bankruptcy Act 1966 (Cth) ("the Act"). Subject to the question of the validity of the bankruptcy notice, the respondents have not shown that for "other sufficient cause" a sequestration order ought not to be made. The matters relied upon by counsel for the respondents in that respect were that it would be a waste of public funds for a sequestration order to be made as the debtors have no assets to speak of. The law on this topic was reviewed by the Full Federal Court in Radich v Bank of New Zealand (1993) 45 FCR 101, in particular at 111 and following. In the present case, the respondents have assets albeit overall there is a deficiency. One of the purposes of the bankruptcy law is to secure the distribution of those assets to the creditors of the bankrupt's estate. It cannot be said here that the making of a sequestration order will be an exercise in futility. There is also the possibility (and on the evidence, it is no more than a mere possibility) that a trustee might wish to investigate the circumstances of the mortgage granted in May 2001 over the matrimonial home, which is the principal asset of the respondents. 20 Counsel for the respondents submitted that the refusal on the part of the solicitors for the applicants to confirm that payment of the amount stated in the petition would be "the end of the matter" itself amounted to other sufficient cause. Alternatively, it demonstrated lack of good faith on the part of the applicants who were "not transparent" and who used the processes of the Court unfairly. There is no dispute but that the respondents are indebted to the applicants in the sum claimed in the petition on account of the judgments particularised in the petition. That being so, an assertion on the part of the solicitor for the applicants that the respondents are also liable to the applicants on judgments other than those referred to in the petition cannot amount to "other sufficient cause". As the High Court said in Cain v Whyte (1933) 48 CLR 639 at 645-646 (quoted by the Full Federal Court in Ling v Enrobook Pty Ltd (1997) 74 FCR 19 at 24), it is for the debtors to show: "some cause overriding the interest of the public in the stopping of the unremunerative trading, and the rights of individual creditors who are unable to get their debts paid to them as they become due. Something has to be put before the Court to outweigh those considerations before it can be said that sufficient cause is shown against the making of the sequestration order." 21 Similarly, the complaint about Westpac cannot amount to "other sufficient cause". Westpac is entitled to appear as a supporting creditor, and to seek substitution if circumstances arise which make that an appropriate course for Westpac to adopt. 22 Accordingly, if I were satisfied, as the amended petition asserts, that the respondents committed an act of bankruptcy by failing on or before 28 November 2001 to comply with the requirements of the bankruptcy notice, then I would have made a sequestration order. Whether I can be so satisfied depends upon whether that bankruptcy notice was invalid by reason of the defects referred to above. 23 The Australian Steel Company (Operations) Pty Ltd v Lewis (2000) 109 FCR 33 is a decision of the Full Federal Court consisting of five judges of the Court which considered the validity of bankruptcy notices which were defective inasmuch as they stated that interest was claimed "pursuant to s 101 of the Supreme Court Act 1986 (Vic)" whereas the applicable provision was s 100(7) of the Magistrates' Court Act 1989 (Vic). The Court was divided on that question. Three of the judges were of the opinion that the bankruptcy notice was invalid, whereas two members of the Court were of a contrary opinion. 24 Counsel for the applicants submitted that I should not follow the majority decision in Australian Steel Company (supra) as it is inconsistent with the decision of the High Court in Kleinwort Benson Australia Limited v Crowl (1988) 165 CLR 71, and my duty is to follow the decision of the High Court. In Kleinwort Benson (supra), the defect was an understatement in the bankruptcy notice of the amount of interest accrued. The defect in Australian Steel Company and in the present case lies in an incorrect statement of the legislative provision pursuant to which interest was claimed. Apart altogether from that point of distinction, the majority in Australian Steel Company purported to apply Kleinwort Benson. It is not open to me, as a single judge, to conclude that their Honours failed to do so. 25 After considering Kleinwort Benson, the majority in Australian Steel Company said at 43: "Thus essentiality of the requirement which the notice fails to meet and capacity of the notice to reasonably mislead a debtor are alternative ways in which a defect or irregularity may be found to be 'substantive'. It must logically follow that a notice which fails to meet a requirement made essential by the Act will contain a substantive defect even if the notice could not reasonably mislead a debtor as to what was necessary for compliance." 26 At 45 the majority said that the purpose of the requirement that the source of the creditor's entitlement to interest be stated is to enable the debtor to verify that the amount claimed is in fact due: "Having a regard to the purpose behind the requirement that the provision under which interest is being claimed, and correctly claimed, be included in the notice, that requirement is made essential by the Act, and a notice issued in breach of the requirement will be invalid." In the present case, it did not matter that the rate of interest payable under the applicable Act was correctly stated. Nor did it matter whether or not the debtor might be misled as to the amount that he or she needed to pay. The erroneous statement of the provision under which interest is being claimed is sufficient of itself to invalidate the bankruptcy notice, as the requirement that the source of the interest entitlement be correctly stated is made essential by the Act. 27 Counsel for the applicants sought to distinguish the decision in Australian Steel Company on two grounds. First, prior to the issue of the bankruptcy notice, the respondents had acknowledged that a further sum of interest of $4,953.43 is due on the judgment debt, and that the dismissal of the petition was without prejudice to the applicant creditor's right to claim and receive payment of the further sum of $4,953.43. Second, the respondents paid the amount of the bankruptcy notice, albeit after the date of the commission of the act of bankruptcy. However, these two matters only go to the question as to whether in the particular circumstances of the present case, the defects or irregularities in the notice were likely to mislead the debtors. On the reasoning of the majority in Australian Steel Company, this is irrelevant and the bankruptcy notice is invalid for non-compliance with a requirement made essential by the Act. 28 The petition should be dismissed with costs. I certify that the preceding twenty-eight (28) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Hely.

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