Owners Strata Plan No 53267, in the matter of Owners Strata Plan No 53267 v Prestia

REASONS FOR JUDGMENT 1 On 28 July 2000 The Owners Strata Plan No 53267 presented a creditor's petition seeking a sequestration order against the estate of the respondent. The petition was founded on an act of bankruptcy allegedly committed on 23 February 2000 in relation to a bankruptcy notice served on the respondent on 2 February 2000. 2 When the petition came on for hearing on 7 December 2000 Registrar Tesoriero ordered that the applicant be excused from further attendance, and adjourned the further hearing of the petition in the expectation that a supporting creditor would apply for substitution. 3 By an Amended Notice of Motion filed on 6 March 2001 Australia and New Zealand Banking Group Limited ("ANZ") seeks orders that: - ANZ be substituted as petitioning creditor in the proceedings; - leave be given to amend the creditor's petition in the form annexed to the motion; - service of the amended petition be dispensed with. 4 Section 49 of the Bankruptcy Act 1966 (Cth) ("the Act") empowers the Court where a creditor's petition is not prosecuted with due diligence, to permit another creditor to whom the debtor is indebted in the amount required by the Act to be substituted as petitioner, in which case the petition may be proceeded with as if the substituted creditor had been the petitioning creditor. 5 ANZ claims to be a creditor of the respondent in the sum of $413,440.73 pursuant to a guarantee and indemnity dated 6 March 1998 in relation to facilities made available by ANZ to Nationwide Produce Holdings Pty Ltd. ANZ alleges that it demanded payment of that sum from the respondent when, on 29 September 1999, its solicitors posted a notice of demand requiring payment of that sum to the respondent at the address specified in the security documents. There is uncontradicted evidence before me to that effect. 6 On 21 February 2000 ANZ commenced proceedings against (amongst others) the present respondent seeking to recover its debt which, as at 16 February 2000, was said to be $436,604.56. The respondent's defence admits the execution of the 6 March 1998 guarantee and indemnity, but puts in issue the principal indebtedness claimed by ANZ, the service of the demand on the respondent by notice dated 29 September 1999, and the respondent's indebtedness to ANZ as alleged. Other defendants plead more elaborate defences. 7 I am satisfied that the creditor's petition is not now being prosecuted by the original applicant. I am also satisfied that ANZ claims to be a creditor of the respondent in a sum of not less than $413,440.73 in consequence of the demand which its solicitors posted to the respondent on 29 September 1999. If that claim is sustained, then ANZ's debt was in existence at the time of the act of bankruptcy on which the original petition is founded. 8 The form of creditor's petition annexed to the Amended Notice of Motion specified, in par 4, that the petition was founded on an act of bankruptcy committed on 31 August 2000 in relation to a bankruptcy notice served on 9 August 2000. This is a nonsense, as an act of bankruptcy described in that way cannot have occurred within six months before the presentation of the petition on 28 July 2000, as is alleged by the introductory words of par 4. During argument, and over the opposition of the respondent's counsel, I permitted those dates to be amended by substituting 23 February 2000 and 2 February 2000 respectively (the dates in par 4 of the original petition), thus removing the substratum from the respondent's first argument that it would not be a proper exercise of the s 49 power to permit "substitution" of ANZ if the amended petition was grounded upon a different act of bankruptcy from that on which the original petition was grounded. I allowed the amendment because it was made to correct what was obviously an error. 9 The form of creditor's petition annexed to the Amended Notice of Motion contains an amended par 2 as follows: "The applicant creditor holds security over the property of the respondent debtor to the value of $nil and consisting of a second registered mortgage (after a first registered mortgage to Bank of New Zealand Australia Limited) over the property contained in Folio Identifier 5/250002 and known as 1066 Mamre Road, Kemps Creek in the State of New South Wales ("the Security"). The applicant creditor estimates that the value of the Security is $1,400,000.00 and that the mortgage to Bank of New Zealand Australia secures a debt of $3,000,000.00" 10 It was accepted during the course of argument that the provisions of s 44 of the Act relating to the conditions governing the presentation of petitions apply, mutatis mutandis, to the substitution of creditors as petitioning creditors: cf Re Wiggins; Ex Parte Credit Assistance Pty Ltd (1979) 36 FLR 182, where there was a common assumption to like effect. However, the respondent submits that the paragraph quoted in par 9 above does not comply with s 44 of the Act, either because the fact that ANZ is seeking possession in the Supreme Court proceedings means that the value of its security cannot genuinely be assessed at $nil, or because the petition does not state that ANZ is willing to surrender its security for the benefit of creditors generally. 11 The obligation on the part of a substituted secured creditor to comply with s 44 of the Act can only arise after the Court has permitted a change in petitioners pursuant to s 49. The fact, if it be a fact, that ANZ seeks leave to file an amended petition in an inappropriate form if a change of petitioners is permitted, would not ordinarily, and of itself, be a sufficient reason for refusing to make an order under s 49, if the operation of the section is otherwise enlivened. 12 In any event, the amended petition is not in an inappropriate form. If the facts alleged in par 2 of the petition are true then, as a matter of fact, the security held by ANZ is worthless. There is nothing illusory nor is there any lack of genuineness about a statement to that effect. The fact that the relief claimed in the Supreme Court proceedings includes a claim for possession is insufficient to establish that the matters alleged in par 2 are a fiction: cf Re Burgess; Ex parte Council of the Shire of Snowy River (1961) 19 ABC 139. (Note that Re Burgess is only a decision on its own facts.) 13 In Re O'Leary; Ex parte Bayne (1985) 61 ALR 674, a petition contained a statement that the petitioners estimate the value of their security "at nil". At 682-683 Sheppard J declined to find that the petition was defective on this account. At 683 his Honour said: "At first sight, it may seem odd that a secured petitioning creditor may claim that his security is valueless and yet not be obliged to surrender it. But I am satisfied that, upon its true construction, the Act was intended to enable this course to be taken in an appropriate case. Counsel for the debtors made no submission to the contrary." It follows that the proposed form of creditor's petition is not defective by reason of the failure to include a statement in terms of s 44(3). See also Re Vassis; Ex parte Leung (1986) 9 FCR 518 at 529-530 and Bryant v Commonwealth Bank of Australia (unreported, Beaumont, Whitlam and Moore JJ, 24 November 1995 at 12). 14 It was then submitted the existence of the relationship of debtor and creditor between ANZ and the respondent is an issue in the Supreme Court proceedings, and that I should not pre-empt the determination of that issue by the Supreme Court in proceedings instituted by ANZ. But the decision of the Full Court in Dean v Q.U.F. Industries Ltd (1981) 51 FLR 317 confirms that a party may be substituted as petitioner if it claims a debt which has accrued due before the act of bankruptcy on which the petition is founded, even if that claim is disputed. If there is a genuine dispute as to whether the respondent is indebted to ANZ then the appropriate order, when the petition comes on for hearing, may be that the petition be dismissed. But as there is evidence before me of indebtedness, which at least at this stage has not been contradicted, it would not be appropriate for me to refuse to permit substitution merely by reason of the pendency of the Supreme Court proceedings. An order for substitution is interlocutory in character, hence, contrary to the respondent's submission, it does not give rise to an issue estoppel. 15 Nor do I accept the respondent's contention that it would be appropriate to refuse substitution because so to do would circumvent the policy behind s 44(1)(c) of the Act, as the relevant act of bankruptcy occurred more than twelve months prior to the substitution application. It does not matter that the act of bankruptcy relied on in the petition occurred more than six months before the application for substitution, provided it did not occur more than six months before the petition was presented: Re Buckley; Ex parte James Hardie & Co Pty Ltd (1976) 27 FLR 496, 510; Dean (supra) at 323-324. 16 Accordingly, I propose to make the orders as sought in the Amended Notice of Motion. I certify that the preceding sixteen (16) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Hely.