Leader Computers Pty Ltd v Johnson

IN THE MATTER OF THE BANKRUPT ESTATE OF ROBERT WILLIAM JOHNSON BETWEEN: LEADER COMPUTERS PTY LTD ACN 093 139 354 AS TRUSTEE FOR THE LEADER COMPUTER WHOLESALE TRUST AND SYNNEX AUSTRALIA PTY LTD ACN 052 285 882

AND: Robert william johnson and CIARA O'BRIEN (IN HER CAPACITY AS TRUSTEE OF THE BANKRUPT ESTATE OF ROBERT WILLIAM JOHNSON)

JUDGE: BESANKO J DATE: 6 JULY 2012 PLACE: ADELAIDE

REASONS FOR JUDGMENT 1 On 26 June 2012, Leader Computers Pty Ltd ACN 093 139 354 as trustee for the Leader Computer Wholesale Trust ("Leader") and Synnex Australia Pty Ltd ACN 052 285 882 ("Synnex") issued an originating application against Robert William Johnson and Ciara O'Brien (in her capacity as Trustee of the Bankrupt Estate of Robert William Johnson). Mr Johnson is a bankrupt. The applicants sought orders under subs 58(3) of the Bankruptcy Act 1966 (Cth). 2 On 3 July 2012, I made the following orders: 1. Leave be granted to the applicants to take fresh steps in and continue with District Court of South Australia proceedings number DCCIV-10-2267 and DCCIV-11-534 ("the District Court proceedings") against the respondents to the extent necessary: a. To enable the District Court to determine the applicants' entitlement to relief specified in the Summons and Statement of Claim in the proceedings specified in paragraph 1 above; b. Seeking leave to join the second respondent, or any registered trustee in bankruptcy appointed in lieu of the second respondent that may consent to administer the bankruptcy, to the District Court proceedings as a defendant; 2. For the purpose of Order 1, leave to continue with the District Court proceedings be deemed to have been granted on 15 November 2011. 3. It be a condition of leave being granted that the applicants not take any step to enforce any judgment given or order against the first respondent or the second respondent herein by the District Court of South Australia without further leave of this Court, other than: a. To enforce any charge over or equitable interest in the property at 45 Wattle Avenue, Hove SA 5048 being the whole of the land comprised in Certificate of Title Register Book Volume 5256 Folio 194. 4. Liberty to apply. 3 I said that I would deliver reasons for making these orders and these are my reasons. 4 Leader is the plaintiff in an action in the District Court of South Australia (Action No 2267 of 2010). The defendants are Robert William Johnson, Fay Johnson and the Registrar-General South of Australia. The action was commenced in the District Court on 28 October 2010. In the action, Leader seeks the following orders, relevantly: 1. Judgment for the plaintiff as against the first defendant in the sum of $237,819.88; 2. A declaration that the Memorandum of Transfer made by the first defendant to the second defendant has been avoided pursuant to s 86 of the Law of Property Act 1936; 3. An injunction restraining the first defendant, the second defendant and the third defendant from proceeding to register the said Memorandum of Transfer at the Lands Titles Office; 4. A declaration that the plaintiff is entitled to register and maintain the caveat lodged on 20 October 2010 on the certificate of title register book volume 5256 folio 194 over land situate at 45 Wattle Avenue, Hove, SA 5048; 5. Costs incurred by the plaintiff in respect of the lodgement of a caveat and incidental thereto, over the defendant's real property, in accordance with clause 6 of the guarantee. 5 The basis of Leader's claim as disclosed in its statement of claim is as follows. At all material times, Mr Johnson was the sole director of ARCOM Computer Pty Ltd ACN 080 253 309 trading as "A & R Computer Services" ("the company"). Mrs Johnson is the wife of Mr Johnson. Leader is and was at all material times a company trading in the wholesale of computers, computer components and electrical goods and accessories to registered retail stores and registered businesses. By a guarantee and indemnity in writing executed on 6 December 2007 Mr Johnson, in consideration of Leader continuing to supply goods to the company, agreed with Leader to guarantee the due payment of amounts due by the company to Leader and to indemnify Leader against all loss and damage that it may suffer by reason of any default on the part of the company. By the terms of the guarantee, Mr Johnson charged his interest in real estate, being various properties including a property at 45 Wattle Avenue, Hove, South Australia ("the Hove property") as security for the liability previously referred to. The company failed to make payments to Leader of amounts due to it, and on 20 October 2010, and pursuant to the charge, Leader lodged a caveat over the properties of which Mr Johnson was the registered proprietor. Mr Johnson was the registered proprietor of the Hove property as a joint tenant. On 20 October 2010, an administrator was appointed to the company and at that time the company had debts of approximately $2 million. Leader claims that the company owes it the amount of $237,819.88 for the supply of goods. 6 On 20 October 2010, a memorandum of transfer was lodged at the Lands Titles Office seeking to transfer Mr Johnson's interest in the Hove property to Mrs Johnson. On 22 October 2010, Leader was advised by an employee at the Lands Titles Office that Mr Johnson had lodged a memorandum of transfer earlier on 20 October 2010, and that as a result, Leader's caveat could not be registered on the certificate of title of the Hove property. 7 Leader claims that at the time of the lodgement of the memorandum of transfer by Mr Johnson or Mrs Johnson they were aware that an administrator of the company had been appointed. Leader also alleges that at the time of lodging the memorandum of transfer, Mr and Mrs Johnson were aware of the debts that Mr Johnson would have been liable for pursuant to the guarantee and indemnity he entered into with Leader. Leader alleges that at the time the memorandum of transfer was lodged, Mrs Johnson was or should have been aware of the financial position of the company, the appointment of the administrator, and Mr Johnson's liabilities to Leader pursuant to the guarantee. Leader alleges that in lodging the memorandum of transfer Mr Johnson was seeking to divest his interest in the Hove property so as to defraud creditors, and that in those circumstances, and pursuant to s 86 of the Law of Property Act 1936 (SA) ("Law of Property Act"), the conveyance pursuant to the said memorandum of transfer was voidable at the instance of Leader who was prejudiced thereby. Leader alleges that the memorandum of transfer was made with the intent to defraud creditors. It elects to avoid the conveyance pursuant to s 86 of the Law of Property Act. 8 Mr Johnson was made bankrupt by an order made by this Court on 15 November 2011 on the petition of Tonnex International Pty Ltd. The official trustee is the trustee of his bankrupt estate. 9 Mr Johnson filed a defence in the District Court action on 18 November 2010 and a third defence on 17 January 2011. Leader filed a reply on 29 November 2011. The trial in the District Court proceedings has been set down to commence on 23 July 2012. 10 The caveat which Leader lodged at the Lands Titles Office on 20 October 2010 claimed an equitable interest as chargee over, among other properties, the Hove property. As I have said, on 22 October 2010, Leader was advised that the caveat could not be registered on the Certificate of Title of the Hove property as a memorandum of transfer had been lodged in respect of that property. 11 On 2 November 2010, a Judge of the District Court noted an undertaking by Mr Johnson and Mrs Johnson to refrain from taking any further step to register the transfer of the interest of Mr Johnson in the Hove property, and made an order restraining the Registrar-General South Australia from registering any interest in the Hove property until further order. 12 Ms Toni Monteleone swore an affidavit in this proceeding. She is Leader's solicitor. She deposed to the fact that Mr Michael Agar is the solicitor for Synnex in its District Court action (see paragraph 14 below). At a listing conference in the District Court actions, Mr Agar advised her that he had undertaken an ITSA search to ascertain if Mr Johnson had been declared a bankrupt, and that the search had indicated that Mr Johnson had not been made a bankrupt. On 4 June 2012, Mr Agar sent an email to Ms Monteleone, advising her that Mr Johnson was bankrupt and that the date of the bankruptcy was 15 November 2011. On 12 June 2012, Ms Monteleone sent a letter to the Official Trustee advising him of the District Court action and the date the trial was due to commence. She asked for certain information and said the request was made so that Leader could file an application in this Court seeking leave to continue the action. Ms Monteleone did not receive a response and she wrote again to the Official Trustee on 19 June 2012. She advised the Official Trustee that Leader would be seeking leave under subs 58(3)(b) of the Bankruptcy Act 1966 (Cth) ("the Act") to continue the District Court action. She advised the Official Trustee that the trial was due to commence on 23 July 2012, and asked the Official Trustee to advise her in writing as to his position in respect of such an application. Ms Monteleone asked for a consent in writing in the event that the Official Trustee did not oppose such an application. At the date of swearing her affidavit in this proceeding, Ms Monteleone had not received a response to the letter. 13 Leader sought the orders which I made on 3 July 2012 as a matter of urgency in view of the trial date for the District Court action. 14 On 11 March 2011, Synnex commenced an action in the District Court against Mr Johnson, Mrs Johnson and the Registrar-General South Australia. I do not need to set out the details of that action. Synnex also claims a declaration that the memorandum of transfer has been avoided pursuant to s 86 of the Law of Property Act and a declaration that it has an equitable charge over the Hove property. An order has been made that the Leader action and the Synnex action be heard and determined at the same time, subject to any ruling about that to be made by the trial judge when a trial judge is appointed. 15 Mr Agar swore an affidavit in this proceeding. He is Synnex's solicitor. He deposed to the fact that on 31 January 2012, he conducted a search of the National Personal Insolvency Index, which returned no record of Mr Johnson. He said that he advised those present at the listing conference for the District Court actions of that search. A further search was conducted on 7 June 2012 and it showed that a sequestration order was made on 15 November 2011 and entered into the National Personal Insolvency Index on 28 February 2012. 16 Between 4 June 2012 and 25 June 2012, Mr Agar communicated by telephone, fax, letter and email with Ms Ciara O'Brien, a case officer at ITSA, concerning the progress of Mr Johnson's bankruptcy, and the identity and position of other creditors of the bankrupt estate. He was advised that there were three creditors apart from Synnex and Leader and they were Multimedia Technology Pty Ltd, Dynamic Supplies Pty Ltd and Tonnex International Pty Ltd. Mr Agar ascertained details of the debts of those entities. I do not need to set out those details. 17 On 25 June 2012, Mr Agar contacted Ms Emily Okoth at ITSA and advised her that an application under subs 58(3)(b) of the Act was about to be made. He was told that an application to substitute a private trustee in bankruptcy was proposed and that his email correspondence had been forwarded "… to the relevant department for actioning. They will get back to you within the next two days". 18 On Friday 29 June 2012, Mr John Kennedy for the Official Receiver wrote to my chambers stating that the purpose of his letter was to seek an adjournment of the proceeding for a period of 6 to 8 weeks. Mr Kennedy also said: On 27 June 2012, the Official Trustee commenced the process to transfer the above bankruptcy administration to a registered trustee in bankruptcy pursuant to s 181A of the Bankruptcy Act 1966. This provision of the bankruptcy legislation deals with the streamlined method for replacing a trustee. The process is due for completion on 11 July 2012, however, this is contingent upon no objection being received from creditors of the bankrupt estate. Although the Official Trustee may not bind the incoming trustee, I provide the contact details for the new Trustee as Mr Michael Carrafa, Registered Trustee of SV Partners, Level 17, 200 Queen Street, Melbourne, Vic 3000. As no funds are held in the bankrupt estate and this office has no representation in Adelaide, I do apologise the Official Trustee does not intend to appear at court on Tuesday 3 July 2012. 19 On Monday 2 July 2012, my associate wrote to Mr Kennedy in the following terms: I refer to your letter of 29 June 2012. As it appears this communication was not copied to the applicants in this matter, I ask you to note that all future communications with the Court must also be sent to the other parties involved in the proceeding. I have referred your correspondence to his Honour. All matters relevant to the applicants' application will be considered at the hearing listed for tomorrow, Tuesday 3 July 2012. 20 On 3 July 2012, counsel appeared on behalf of Leader and Synnex. The solicitor acting for Mr and Mrs Johnson in the District Court actions also appeared. Counsel for Leader and Synnex opposed the application for an adjournment of the application. The solicitor for Mr and Mrs Johnson also opposed any adjournment of the application by Leader and Synnex on the ground that it was likely to delay the trial of the District Court actions. 21 I decided not to adjourn the hearing of the application. It seemed to me that the merits of the application strongly favoured the orders sought by the applicants. The Official Trustee had notice of the proposed application from 12 June 2012. At the same time, I recognise the difficulties of his position in that no funds are held in the bankrupt estate. The applicants' failure to ascertain the fact of Mr Johnson's bankruptcy until recently is a relevant consideration, but, at the same time, they did conduct a search on 31 January 2012, which was over two months after the order had been made and just under one month before it was entered in the National Personal Insolvency Index. These were matters I took into account in refusing the application, but the decisive consideration was that an adjournment for 6 to 8 weeks would mean that the trial date for the District Court actions would be vacated; even a shorter adjournment of the present application was likely to have that effect. I recognise that the foreshadowed application in the District Court actions to join the trustee of the bankrupt estate of Mr Johnson also has the potential to affect the trial date in the District Court actions. 22 As to the merits, they favoured the making of the orders set out in paragraph 2 above. For the reasons given by Barrett J in Mango Media Pty Ltd v Velingos (2008) 216 FLR 176, I do not think the actions by Leader and Synnex respectively fall within subs 58(5) of the Act. Even if that not be the case, this is an appropriate case for leave to be granted under subs 58(3) of the Act. 23 The factors which are relevant to a consideration of whether leave should be granted under subs 58(3) of the Act have been considered in a number of recent cases. They were considered by Jacobson J in the recent decision of Stoker (Trustee), in the Matter of Starr (Bankrupt) v Starr [2011] FCA 746 ("Starr"). That case has a number of features which are similar to this case. It is sufficient to refer to those features in general terms. First, the respective claims of Leader and Synnex are effectively proprietary claims. Secondly, the respective claims involve a person other than Mr Johnson, namely, Mrs Johnson. Thirdly, the facts and legal issues concerning the proprietary claims are complex, and, like Jacobson J, I think they are more appropriately dealt with by the District Court than by the trustee in bankruptcy pursuant to the proceeding under a proof of debt. Fourthly, if Leader and Synnex lodge proof of debts it may be argued that they have surrendered their equitable charge under s 90 of the Act. Fifthly, it appears that there may be no dividend in the bankruptcy. Unlike Starr, I do not have any indication by the trustee in bankruptcy as to whether he opposes the application. However, that fact, although relevant, is outweighed by the fact that the trial of the District Court actions is due to commence on 23 July 2012, and it is appropriate to deal with the application as a matter of urgency. Finally, the District Court actions were commenced well before Mr Johnson's bankruptcy. Leader and Synnex are not seeking to obtain an advantage over other creditors by reason of the District Court actions, save to the extent that they may obtain a declaration that they are secured creditors of the bankrupt estate (see Starr at [22]). 24 It was for these reasons that I made the orders I did on 3 July 2012. I certify that the preceding twenty-four (24) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Besanko.