One Managed Investment Funds Ltd v Pitard

Background 7 The applicant's creditor's petition alleges that: (a) the respondent debtor owes the applicant creditor the amount of $92,396,569.24 as at 26 February 2021 for the amount due and owing under a judgment obtained against the respondent debtor in Supreme Court of Victoria proceeding S ECI 2019 03549 (taking into account amounts recovered by the applicant creditor in respect of that debt); (b) in accordance with that judgment, post-judgment interest accrues at a daily rate of $25,189.90; and (c) the applicant creditor holds security over the property of the respondent debtor to the value of $4,845,329.20, which (as at 26 February 2021) leaves an unsecured debt of $87,551,240.04 . 8 The act of bankruptcy relied on by the applicant creditor was the failure by the respondent debtor to comply, on or before 17 January 2021, with the requirements of a bankruptcy notice served on him on 17 July 2020 and the failure to satisfy the Court that he had a counter-claim, set-off or cross demand equal to or more than the sum claimed in the bankruptcy notice, being a counter-claim, set-off or cross demand that he could not have set up in the action in which the judgment referred to in the bankruptcy notice was obtained (within the meaning of s 40(1)(g) of the Act). 9 The creditor's petition further alleges that, at the time when the act of bankruptcy was committed, the respondent debtor was personally present in Australia, was ordinarily resident in Australia, had a dwelling house or place of business in Australia and was carrying on business in Australia either personally or by an agent or manager. 10 The hearing for the creditor's petition was scheduled for 1 April 2021. However, as noted above, on 31 March 2021, the respondent debtor executed the Authority pursuant to s 188 of the Act and, on the same day, the Court made orders by consent which adjourned the hearing of the creditor's petition to 29 April 2021. 11 Pursuant to the Authority, Mr Scott (as controlling trustee under Part X of the Act) scheduled a creditors' meeting for 14 May 2021. 12 On 27 April 2021, at the request of the parties and in view of s 189AAA of the Act, the Court made further orders by consent which adjourned the hearing of the creditor's petition to 27 May 2021. 13 At the creditors' meeting held on 14 May 2021, no resolutions were passed and the meeting was adjourned to 3 June 2021. 14 On 25 May 2021, the Court made further orders by consent which adjourned the hearing of the creditor's petition to 10 June 2021. 15 At the creditors' meeting held on 3 June 2021, the following resolutions were put to the creditors: (a) That the controlling trustee's remuneration calculated on a time basis at hourly rates charged by PwC using the scale of fees enclosed in the Remuneration Approval Notice fixed to the maximum amount of $177,272.73 plus GST for the period of 31 March 2021 to completion before seeking further approval from creditors. The Controlling Trustee is to be paid as work is performed or on reasonable estimates which finalising the appointment. (b) That the respondent debtor be required to execute the personal insolvency agreement. (c) That the respondent debtor's property no longer be subject to control under Division 2 of Part X of the Act. (d) That the respondent debtor be required to submit a debtor's petition within 7 days from the day on which the resolution is passed. 16 The only resolution passed by the creditors at the meeting on 3 June 2021 was the resolution in paragraph (a) above.

Section 208 order 17 On the application, it was assumed that the Authority given to Mr Scott by the respondent debtor under s 188 of the Act was effective and, by operation of s 189(1), the property of the respondent debtor had become subject to control under Division 2 of Part X. The applicant creditor sought to bring that control to an end by an order under s 208 of the Act so that a sequestration order under s 43 could be made against the estate of the respondent debtor. 18 Section 208 of the Act provides as follows: 208 Termination of control of debtor's property by the Court The Court may make an order releasing the debtor's property from control under this Division if: (a) an interested person applies to the Court for such an order; and (b) the Court is satisfied that special circumstances justify it making the order. 19 As submitted by the applicant creditor, s 204 of the Act identifies the three resolutions that creditors may pass at a creditors' meeting called in pursuance of an authority under s 188, namely: (a) that the debtor's property be no longer subject to control under Division 2 of Part X; (b) requiring the debtor to execute a personal insolvency agreement; or (c) requiring the debtor to present a debtor's petition within 7 days from the day on which the resolution was passed. 20 The applicant creditor observed that the only resolution that was passed by the creditors at the meeting held on 3 June 2021 was the approval of the controlling trustee's remuneration. The proposed resolutions under s 204 of the Act, including to the effect the respondent debtor's property no longer be subject to control under Division 2 of Part X of the Act, were not passed. 21 As no resolutions were passed under s 204 of the Act, the applicant creditor sought an order pursuant to s 208 that the respondent debtor's property be released from the control of Mr Scott in his capacity as controlling trustee under Division 2 of Part X. As submitted by the applicant creditor, the application was brought to assist the "orderly conduct" of the sequestration of the respondent debtor's estate and "out of an abundance of caution". 22 At the hearing of the application, the applicant creditor acknowledged that an order under s 208 may not be necessary to enable the applicant creditor to move on its creditor's petition. For the following reasons, I consider that the order is unnecessary and, further, the circumstances in which the Court may make an order under s 208 do not arise in this case. 23 As to the necessity of the order, the fact that an effective authority has been given under s 188 of the Act in respect of a debtor's estate does not prevent the Court from making a sequestration order under s 43. Section 189AAA of the Act provides that, where an effective authority has been given and a creditor's petition has been presented (before or after the authority became effective), proceedings relating to the petition are stayed (by force of the section) until the earlier of the adjournment or conclusion of the creditor's meeting (called in pursuance of the authority). Accordingly, once the creditor's meeting has been adjourned or concluded, the applicant on a creditor's petition may move on the petition and seek the sequestration of the debtor's estate. In the present case, the creditor's meeting was adjourned on 14 May 2021 and the statutory stay of the creditor's petition under s 189AAA expired at that time. The Act also addresses the "orderly conduct" of the sequestration of the debtor's estate in circumstances where an effective authority has been given under s 188. As noted above, s 189(1) provides that when an authority given by a debtor under s 188 becomes effective, the property of the debtor becomes subject to control under Division 2 of Part X. However, s 189(1A)(f) provides that the control continues until the debtor becomes a bankrupt. Accordingly, once a sequestration order is made, the property of the debtor ceases to be controlled under the provisions of Division 2 of Part X and becomes subject to the provisions of Division 4 of Part IV. 24 It follows that the applicant creditor does not require an order under s 208 to enable it to move on its creditor's petition. Further and unsurprisingly, the circumstances of this case do not warrant the making of such an order. The statutory condition for making an order under s 208 releasing the debtor's property from control under Division 2 of Part X is that the Court is satisfied that special circumstances justify making the order. The phrase "special circumstances" was considered by Edmonds J in Commissioner of Taxation v Johns (2005) 144 FCR 112. His Honour observed (at [109]-[110]): As was said by Burchett J in Minister for Community Services and Health v Thoo (1988) 8 AAR 245 at 262, albeit in a different statutory context: the core of the idea of "special circumstances" is that there is something unusual or different to take the matter out of the ordinary course … The phrase "special circumstances" is obviously designed to accommodate a great variety of circumstances which are "out of the ordinary course" in the sense used by his Honour, however, they must be circumstances which justify an order releasing the debtor's property from control of the controlling trustee... 25 This case does not present circumstances that are out of the ordinary course. To the contrary, the fact that the creditor's meeting called in pursuance of the Authority given under s 188 failed to pass any resolutions under s 204 is entirely ordinary. The provisions of Part X do not prevent the applicant creditor from moving on its creditor's petition and, if the respondent debtor becomes a bankrupt, control of his property under Division 2 of Part X ceases by force of s 189(1A)(f). It follows that special circumstances do not exist for an order under s 208.

Sequestration order 26 The applicant creditor seeks an order that the estate of the respondent debtor be sequestrated under s 43 of the Act. The respondent debtor has consented to the making of that order. Notwithstanding that consent, the Court must be satisfied of the statutory preconditions to the making of the order. 27 The jurisdiction of the Court to make a sequestration is governed by s 43 which provides as follows: 43 Jurisdiction to make sequestration orders (1) Subject to this Act, where: (a) a debtor has committed an act of bankruptcy; and (b) at the time when the act of bankruptcy was committed, the debtor: (i) was personally present or ordinarily resident in Australia; (ii) had a dwelling-house or place of business in Australia; (iii) was carrying on business in Australia, either personally or by means of an agent or manager; or (iv) was a member of a firm or partnership carrying on business in Australia by means of a partner or partners or of an agent or manager; the Court may, on a petition presented by a creditor, make a sequestration order against the estate of the debtor. 28 In support of the sequestration order, the applicant creditor relied on the following affidavits: (a) an affidavit of Michael Sutherland sworn 26 February 2021 verifying the creditor's petition (and included in the petition) in accordance with r 4.02 of the Federal Court (Bankruptcy) Rules 2016 (Cth) (Bankruptcy Rules); (b) an affidavit of Antonio Crupi sworn 17 July 2020 verifying service of the bankruptcy notice; (c) an affidavit of Antonio Crupi sworn 4 March 2021 verifying service of the creditor's petition; (d) an affidavit of Lucy Kathryn Anne Judge Zimdahl sworn 22 March 2021 verifying the service of documents in accordance with r 4.06(2) of the Bankruptcy Rules and the lodgement of a copy of the Trustee Consent to Act Declaration with the registry of the Australian Financial Security Authority; (e) affidavits of Christopher Michael Prestwich sworn 29 and 30 June 2021 verifying searches of the National Personal Insolvency Index in accordance with r 4.06(3) of the Bankruptcy Rules; and (f) an affidavit of Christopher Michael Prestwich sworn 29 June 2021 verifying the debt owing in accordance with r 4.06(4) of the Bankruptcy Rules. 29 I am satisfied on the evidence before me that the Court's jurisdiction to make a sequestration order has been enlivened. In particular, I am satisfied that: (a) for the purposes of s 43, the respondent debtor has committed an act of bankruptcy as alleged in the creditor's petition and, at the time when the act of bankruptcy was committed, the respondent debtor was personally present in Australia, was ordinarily resident in Australia, had a dwelling house or place of business in Australia and was carrying on business in Australia either personally or by an agent or manager; (b) the conditions set out in s 44(1) for the applicant creditor to petition, including that the act of bankruptcy was committed within 6 months before the presentation of the petition, are fulfilled; (c) the creditor's petition has been verified and is in the form as required by s 47 and the Bankruptcy Rules; (d) for the purposes of s 52(1), the facts are as stated in the petition, the petition has been served in accordance with the requirements of the Bankruptcy Rules and the debt on which the applicant creditor relies is still owing; and (e) for the purposes of s 52(4), the creditor's petition has not lapsed. 30 No submission was advanced by the respondent debtor, for the purposes of s 52(2), that he is able to pay his debts or that, for another sufficient cause, a sequestration order ought not to be made. 31 I will therefore make the sequestration order sought by the applicant creditor and consented to by the respondent debtor. I certify that the preceding thirty-one (31) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice O'Bryan.