The Regulations
Regulation 4.06 of the Bankruptcy Regulations requires service of the s 50 order together with the application, and supporting documents. Regulation 4.07 provides for the expenses of the trustee before sequestration and reg 4.08 provides for an award of damages where a s 50 order has been made on a creditors' petition, which is subsequently dismissed. In view of this latter provision, in the circumstances of the present case, I am not persuaded that any undertaking as to damages by the creditor is appropriate as a condition of the making of the order. However, in relation to Mr and Mrs Anastasiou, I consider that an undertaking in favour of those parties for damages is appropriate and that the undertaking in their favour ought to be required as a condition of continuance.
As Pincus J indicated in Re Mader; ex parte Henderson (unreported, 17 July 1986), on a s 50 application decisions on such questions as to whether the applicant was a creditor or whether there had been an act of bankruptcy fall to be decided on an interlocutory basis. The Judge must take a preliminary viewwith the consequence that any decision on these questions will not give rise to an issue estoppel.
It is submitted for the debtor that there was not sufficient evidence to justify the making of the order and that there was not sufficient disclosure made to warrant either the making or the continuance of an ex parte order.
There is evidence before me that the bankruptcy notice, dated 3 September 1998, was served on the debtor on 4 September 1998. This is verified by an affidavit of Mr Mitchelson, dated 4 September 1998. There is also, in evidence, a letter under seal of the Local Court at Sydney of a consent judgment against the debtor and his wife, Mary Leondaris, in the sum of $33,124.97, which included interest of $3,264.97 and costs, on an indemnity basis, assessed from 16 December 1997 to the date of judgment. A creditors' petition was filed on 12 October 1998 based on non-compliance with the bankruptcy notice. As at the hearing dates this had not been served. On the evidence, I am satisfied that a bankruptcy notice has been issued; that an application has been made on behalf of a creditor for a direction under s 50, and that the debtor has failed to comply with the bankruptcy notice.
The remaining requirement is that the Court be satisfied that it is in the interest of the creditors to make such an order.
The evidence before me, on the making of the order, was that there was a judgment in the above amount and that a bankruptcy notice had been served and not complied with. I was also informed of the previous history of the matter concerning the issue of an earlier bankruptcy notice, which was set aside on the basis that an order for payment by instalments had been made. In particular, I was informed of an application before the Registrar in the Downing Centre Local Court, when the instalment order made by that Court on 11 June 1998 was rescinded. One of the grounds for rescission was that the debtor had not disclosed, as part of his assets, an interest in a sandwich shop business. There is also, in evidence, a Sequestration Order made by Einfeld J on 6 October 1998 against the debtor's wife, Mary Leondaris. Furthermore, there were copies in evidence of cheques drawn by Mary Leondaris in an account entitled "S Leondaris, M Leondaris". Also, I was furnished with a copy of the affidavit as to the property and means of the judgment debtor filed in the Local Court to support an application for payment by instalments. This affidavit makes no reference to any interest of Mr Leondaris or his wife in any sandwich shop business. It does refer, however, to a loan from J and E Anastasiou, who are the parents of Mrs Leondaris, in an amount of $40,000, and a judgment debt to Ray White of Maroubra for $7,500.
There is in evidence a bill of sale, dated 15 May 1997, between the debtor and the parents of his wife in relation to a loan and advance of $45,000. The place of business of the debtor was there stated to be "Shop F3.03(A) Market City Retail Centre, Quay Street, HAYMARKET" and the business name was described as "LEONDARDO'S SANDWICH BAR." The bill of sale was lodged in the Land Titles Office on 22 May 1997. The concern of the creditor is that the sandwich shop business is largely a cash income business and that if assets are removed from the business premises by the debtor, the value of the business will be diminished. I am satisfied that there was sufficient evidence before me to warrant the making of the ex parte orders on 12 October 1998. This view has been confirmed by subsequent evidence filed by the creditor. The question remaining is whether these orders should be continued.
On 16 October 1998, further evidence was filed by the creditor in support of the continuation of the orders. This contains a statement by Mrs Leondaris that the debtor had negotiated to sell the business and that the sale was just about completed. When asked who the purchasers were, Mrs Leondaris is alleged to have said that they were the persons who hold a bill of sale over the premises; that is to say her parents. She was unable to give any details as to the price negotiated for the sale. It appears from the evidence that mention was made before the Registrar of the Local Court that the business may be worth approximately $100,000. There is also in evidence an invoice in an amount of $4,375, which was sent to Mary Leondaris of "Leondaris Sandwiches, F3.03a Haymarket" in respect of promotions and rent. There is reference in the evidence to outstanding invoices to Market City Properties Pty Limited in an amount of $8,750. In addition, there is a letter from the trustee, dated 16 October 1998, in relation to the sandwich bar, in which the trustee estimates the weekly turnover as approximately between $6,500 and $7,400 per week. The trustee was unable to make any accurate determination as to the value of the business but it appears to have some substantial value.
In support of his application to rescind the orders made on 12 October 1998, the debtor tendered a business names extract, which shows that the business name "Leonardo's Sandwich Bar" was registered on 12 September 1996; that the principal place of business is "Shop F3 03A Market City, Haymarket NSW", and that the person carrying on the business is the debtor. There is no reference in this search to Mary Leondaris. A copy of a registered sub-lease M3725230, which has been executed by the parties, indicates that the only sub-lessee is the debtor. There is a live dispute between the parties as to whether the business is owned by the debtor alone or as co-owner with his wife.
In an affidavit dated 15 October 1998, Mr Jim Anastasiou, one of the holders of the bill of sale, states that the son-in-law defaulted in two payments, thereby breaching the provisions of the bill of sale. This was said to be by reason of a judgment and an attachment against his property by the appointment of the trustee. He states that he has been advised of the orders and wishes to enter into possession of the business pursuant to his security in order to protect the value of the business.
There is further evidence from Mr Anastasiou, filed on 20 October 1998, as to the circumstances in which the bill of sale was entered into and the moneys were advanced. He states that his understanding from the debtor and Mary Leondaris was that the whole of the moneys were applied towards outfitting and completing the shop. The circumstances in which the moneys under the bill of sale were advanced is also dealt with by Mary Leondaris in an affidavit sworn and filed on 20 October 1998.
Mr Robert John Djundja, the solicitor for the debtor, has stated that he advised the Local Court that the failure to include the value of the business was an oversight by the debtor due to his poor understanding of the matters that were meant to be disclosed in the affidavits of assets and means and that the omission was not intended to mislead the Court. However, the submissions of Mr Djundja were not successful in persuading the Registrar, in the light of the new disclosure as to the existence of the business, that the judgment debtor could not afford to pay and the order was rescinded.
Principles