Rotstein & Associates v Slaveski

REASONS FOR JUDGMENT 1 In this matter the applicant ("Rotstein") has presented a creditor's petition and seeks a sequestration order against the estate of the respondent ("Slaveski"). The creditor's petition is founded upon an alleged debt in the sum of $7,183.56. 2 Slaveski is not legally represented and Ms Angeleska Slaveski represents Slaveski as a McKenzie friend. Ms K Milman appeared for Rotstein. 3 The alleged debt of $7,183.56 relates to a cost order made by the Magistrates Court of Victoria on 1 April 2008 in favour of Rotstein. Costs were ordered against Slaveski in the course of proceedings in the Magistrates Court commenced by Rotstein to recover unpaid professional fees from Slaveski for legal services. 4 The cost judgment was upheld by the Supreme Court of Victoria on 3 April 2009: Slaveski v Rotstein & Associates Pty Ltd [2009] VSC 111. Slaveski applied to set aside the bankruptcy notice but that application was dismissed on 17 November 2008 by Registrar Luxton. An application by Slaveski to set aside that dismissal was rejected by Burchardt FM on 6 May 2009: Slaveski v Rotstein & Associates [2009] FMCA 443. An appeal from the decision of Burchardt FM was dismissed by Marshall J on 7 December 2009: Slaveski v Rotstein & Associates Pty Ltd [2009] FCA 1428. 5 On 18 December 2009, over the opposition of Slaveski, the creditor's petition was listed for hearing on 22 December 2009. On that day, the hearing was vacated, including because of my concern as to Slaveski's capacity to manage his respondency to this proceeding. On 22 December, the Court was informed by provision of a report from a psychiatrist that Slaveski suffered from a psychiatric illness. The Court was also informed that in proceedings involving Slaveski in the Supreme Court of Victoria, the Supreme Court had appointed a litigation guardian for Slaveski. 6 The proceeding was adjourned to 9 February 2010, including for the purpose of hearing submissions from the parties as to whether or not the Court should appoint a litigation guardian for Slaveski and how the proceeding could best be progressed. On 22 December 2009 the Court was also informed that Slaveski was willing to pay off the debt claimed under the creditor's petition, but sought to do that by instalments. 7 At the directions hearing on 9 February 2010, evidence was put before me that Rotstein had made an application to the Magistrates Court for an instalment order in relation to the judgment debt of $7,115.90. On 27 January 2010 Smith M granted that application. His Honour increased the judgment debt to $8,510.00 to take into account interest on the judgment sum of $1,394.20. An order was made that the interest owing be paid on that day and that Slaveski pay the balance of the debt at the rate of $700 per month, commencing on 25 February 2010. 8 Evidence was also before me that Slaveski complied with the order made that he pay the interest sum of $1,394.20 on 27 January 2010. Following the making of that payment, Slaveski wrote to Rotstein inviting Rotstein to withdraw the creditor's petition on the basis that he would continue to make payments in accordance with the instalment order. Rotstein rejected that invitation and advised that the instalment order has no effect on the bankruptcy proceedings. 9 The making of instalment orders by the Magistrates Court of Victoria is a subject matter dealt with by the Judgment Debt Recovery Act 1984 (Vic). Section 9 of that Act provides that while an instalment order is in force and is being complied with, the instalment order shall operate as a stay of enforcement or execution of the judgment in respect of which the instalment order was made. 10 At the directions hearing on 9 February 2010, Slaveskimade an oral application for the creditor's petition to be dismissed or set aside. The basis for that application was that the instalment order had been made and that payment had been and would continue to be made in accordance with that order. 11 In opposition to the relief sought by Slaveski, Rotstein referred me to a number of decisions which were said to be supportive of the proposition that a stay of execution on the making of an instalment order has no effect on a prior act of bankruptcy and is no obstacle to the presentation of the creditor's petition. The decisions referred to were Re Pollack, Ex parte Deputy Commissioner of Taxation (1991) 32 FCR 40; Re Padagas, Ex parte Carrier Air Conditioning Pty Ltd (1977) 30 FLR 170; Re Lynch, Ex parte Depela Pty Ltd (in liq) (1998) 81 FCR 444; Re Arcuri Bankrupt; ex parte Master Lease and Rental Service Pty Ltd Creditor (Unreported, Federal Court of Australia, Cooper J 28 June 1996). 12 There is some force in the submission made by Rotstein. However, Slaveski's application to have the creditor's petition dismissed or set aside should be dealt with at the hearing of the creditor's petition and not in the course of a directions hearing convened for a different purpose. 13 The evidence relied upon by Slaveski did however raise the issue as to whether in the exercise of the Court's discretion under s 33 of the Bankruptcy Act 1966 (Cth) ("the Bankruptcy Act"), the hearing of the creditor's petition should be adjourned to a later date, with liberty for Rotstein to apply for the hearing of the creditor's petition, should the instalment order not be complied with. Slaveski sought and supported the making of orders of that kind. Rotstein opposes such orders being made. For the reasons that follow, I have decided to make the orders sought by Slaveski. 14 I provided an extended opportunity for the parties to file written submissions as to whether or not the Court should exercise its discretion under s 33 of the Bankruptcy Act. Both parties provided their submissions. By his submission of 22 March 2010, Slaveski asserted that two further payments had been made by him each of $700 leaving an outstanding balance of $5,715.78. Rotstein has not denied the making of these further payments. 15 On 21 April 2010 I made an order that pursuant to s 52(5) of the Bankruptcy Act, the date of expiry of the creditor's petition be extended to 23 April 2011. 16 Section 33(1)(a) of the Bankruptcy Act provides as follows: (1) The Court may: (a) upon such terms as it thinks fit, at any time adjourn any proceeding before it, either to a fixed date or generally 17 It is evident that s 33(1)(a) gives the Court a wide discretion in relation to the grant of an adjournment. As Sweeney J (with whom Franki J agreed) stated in Field v Commercial Banking Co of Sydney Ltd (1978) 37 FLR 341 at 349, it would be unwise to attempt to draw up an exhaustive catalogue of the circumstances to which the Court should pay regard in considering an application for an adjournment of a creditor's petition. However, the Court's discretion should be exercised with a mind to the policy objectives of the Bankruptcy Act. Relevantly to the issues before me, those objectives include the public interest in stopping individuals who are unable to meet their debts from continued insolvent trading and assisting creditors who are unable to recover debts owed to them: See Rozenbes v Kronhill (1956) 95 CLR 407 at 414. 18 In this case, Rotstein is the sole petitioning creditor. There is no evidence before me that Slaveski has other creditors. There is no evidence that Slaveski is involved in trade or commerce. There is evidence before me that a substantial part of the judgment debt has been paid and that if the instalment order continues to be adhered to the debt will be extinguished by 25 January 2011. There is nothing before me to suggest that the need to protect the public from insolvent trading would be put in jeopardy by an adjournment of the hearing of the creditor's petition to a date sufficient to allow the obligations under the instalment order to be satisfied before the creditor's petition is dealt with. 19 Rotstein relies on the cases referred to at [11]and on other cases where those decisions have been followed. Those cases are not cases where the Court's exercise of its discretion under s 33(1)(a) was considered, other than Re Hughes; Ex parte Westpac Banking Corporation (Unreported, Federal Court of Australia, Merkel J, 28 November 1997), where the adjournment sought was based on considerations of no relevance to the application before me. Rotstein complains about the various proceedings that Slaveski has brought and which are identified at [4] above. It is not apparent why those matters support the refusal of the adjournment application. 20 It is contended, without evidentiary support, that Slaveski has repeatedly stated in prior proceedings that he cannot pay the judgment debt. Even if that were true, the fact is that the evidence before me shows that the judgment debt is being paid. 21 Lastly, Rotstein complains that for a period of 22 months, Slaveski did not make any payment of the judgment debt. It says that there is a public interest that debts be enforced efficiently and expeditiously. That may be so. It is not the case however that bankruptcy proceedings are a mere debt collection tool at the disposal of creditors. Bankruptcy is not mere inter parties litigation; it involves a change of status and has quasi-penal consequences: Ahern v Deputy Commissioner of Taxation (Qld) (1987) 76 ALR 137 at 148 per Davies, Lockhart and Neaves JJ. 22 Furthermore, insofar as Rotstein's submission is intended to suggest that an adjournment will prejudice the timely payment of the judgment debt, I fail to see how that will be so. Even if the sequestration sought were to occur forthwith, the effect of the instalment order made by the Magistrates Court would not alter the effect of the instalment order. The period over which the judgment debt is to be paid was a matter determined by the Magistrates Court and done so over the opposition of Rotstein. An adjournment of the creditor's petition will not delay the repayment of the judgment debt. Even if I were satisfied that Rotstein is a creditor unable to recover its debts, a matter which in the circumstances is not established, the objective of assisting creditors who are unable to recover debts owed to them will not be compromised by acceding to Slaveski's application. 23 Finally, Rotstein asserts that there is a high likelihood that Slaveski will breach the instalment order. That assertion is speculation which may or may not turn out to be correct. However, given the orders that I intend to make, if Slaveski fails to adhere to the instalment order, Rotstein will have the capacity to make application for the creditors petition to be listed for an early hearing. 24 I will make orders that the matter be listed for a directions hearing on 2 February 2011. I will order that Slaveski's application that the creditor's petition be dismissed be adjourned and be dealt with at the hearing of the creditor's petition. I will further order that Rotstein have liberty to apply for the creditor's petition to be listed for hearing, should Slaveski fail to comply with the instalment order. I certify that the preceding twenty-four (24) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Bromberg.