Scott (Trustee), in the matter of Stolyar (Bankrupt) v Stolyar

Federal Court of Australia|2024-01-30|Before: Markovic J

THE COURT ORDERS THAT:

Within 21 days of the date of publication of these reasons the parties are to confer and: (a) if they can agree on a form of orders reflecting these reasons, they are to provide draft orders, including in relation to the question of costs, to the Associate to Markovic J to be made in chambers; or (b) if they cannot agree on a form of orders, they are to provide their competing sets of orders to the Associate to Markovic J, including on the question of costs, and the proceeding will thereafter be listed for case management hearing. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

MARKOVIC J: 1 On 31 May 2019 Andrew Scott in his capacity as the trustee of the bankrupt estates of Ian Stolyar and Beth Ngoc Nguyen who, without intending any disrespect and for ease, I will refer to as Ian and Beth, commenced this proceeding as applicant. Faina Stolyar, Ian's mother and Beth's mother-in-law, and Fanchel Pty Limited, a company of which Mrs Stolyar is sole director and shareholder, are the first and second respondent respectively. 2 The proceeding was listed for hearing before me for a period of 10 days in April and June 2021. 3 On 16 June 2022 I delivered judgment: see Scott (Trustee), in the matter of Stolyar (Bankrupt) v Stolyar [2022] FCA 691 (Scott v Stolyar). 4 On 6 September 2022 I made orders giving effect to the judgment published on 16 June 2022 (September 2022 Orders). 5 The September 2022 Orders included the following declarations and orders including in relation to a property situated at 3/10 Longworth Avenue, Point Piper, New South Wales (Longworth Avenue): THE COURT DECLARES THAT: … 5. Immediately before her sale of the property known as 2C Dumaresq Road, Rose Bay, being folio identifier A/33652 and C/33652F (Rose Bay), on 29 April 2020, the first respondent held 38.1% of the legal title of Rose Bay on trust for the applicant. 6. Upon completion of the sale of Rose Bay on 29 April 2020, the first respondent received 38.1% of its net sale proceeds (Rose Bay Proceeds) as resulting trustee for the applicant. 7. The first respondent holds the legal title to the property known as 3/10 Longworth Avenue, Point Piper, being folio identifier 3/SP64914 (Longworth Avenue) subject to a charge securing payment to the applicant of the Rose Bay Proceeds. THE COURT ORDERS THAT: … Other orders 25. Order 5 made on 23 April 2020 in this proceeding continue until further order. 26. The first respondent pay the applicant $1,011,302.07. 27. The second respondent pay the applicant $286,553.65. 28. The first respondent and second respondent jointly and severally pay the applicant a further $4,533,480.39. …. 30. An accounting be taken of the profits earned by the first respondent in respect of her ownership of Rose Bay (such accounting to disregard any interest or other expenses relating to the first respondent's mortgage debt secured upon Rose Bay), and the first respondent pay the applicant 38.1% of the said profits. 31. An accounting be taken of the net sale proceeds of Rose Bay, and the first respondent pay the applicant: (a) 38.1% of the said net sale proceeds; and (b) pre-judgment interest upon that amount from 29 April 2020, calculated in accordance with Practice Note GPN-INT. … Stay of orders 35. Execution of Orders 9 to 17, 26 to 28, 29 to 33 (but not so as to prevent the taking of the accounts the subject of those Orders), and any orders as to the costs of the proceeding be stayed until the earliest of the following: (a) 5.00 pm on 20 September 2022, if no appeal against these Orders is commenced by the respondents by that time; (b) the determination of any appeal against these Orders by the respondents; or (c) any order of this Court that the stay should come to an end. 36. The first respondent is not to encumber, transfer, or otherwise deal with Longworth Avenue until 14 days after the expiry of the stay the subject of Order 35 above. 6 Order 5 made on 23 April 2020 was made by consent between the parties and is in the following terms: Until further order and upon the applicant by his senior counsel giving the Court the usual undertaking as to damages: (a) the applicant be secured against any or all of the First Respondent's Remaining Properties for any amount to which the applicant is found by the Court to be entitled in respect of the Rose Bay, Campbell Parade and 11/2 Ocean Street properties; (b) the applicant shall be entitled to lodge a caveat on the title to 5/41 Francis Street to notify his interest under these Orders; (c) the first respondent shall not deal with the First Respondent's Remaining Properties without first giving 21 days' notice in writing to the applicant. For the purposes of that order the term "First Respondent's Remaining Properties" is defined to mean: (1) 701/152-162 Campbell Parade, Bondi Beach (Campbell Parade); (2) 27/26 Ocean Street, North Bondi (27/26 Ocean Street); (3) 11/2 Ocean Street, North Bondi (11/2 Ocean Street); (4) 5/41 Francis Street, Bondi (5/41 Francis Street). 7 By an interlocutory application filed on 13 November 2023 the trustee seeks orders for the sale of Longworth Avenue. Mrs Stolyar opposes the making of those orders and contends that she should be permitted to sell Longworth Avenue.

Background 8 As set out above, pursuant to the September 2022 Orders Longworth Avenue is subject to a charge in favour of the trustee securing payment of 38.1% of the net sale proceeds of a property of which Mrs Stolyar was formerly the registered proprietor located at 2C Dumaresq Road, Rose Bay, New South Wales (Rose Bay Property). 9 The trustee explains that the quantification of the amount secured by the charge is the subject of an accounting to be undertaken pursuant to the September 2022 Orders and which is currently being conducted before a registrar of this Court. As to the accounting the trustee notes that: (1) Mrs Stolyar contends that the sale proceeds for the Rose Bay Property were $5,655,786.16, implying that the trustee's 38.1% share is $2,154,854.53 before prejudgment interest; (2) he considers Mrs Stolyar's contention to drastically understate the true position and calculates the sale proceeds to be $16,436,835.80, implying his share to be $6,262,434.44 before prejudgment interest. The resolution of the amount secured by the charge is not a matter which is to be addressed on the application currently before me. 10 While the trustee believes Mrs Stolyar's calculation to be incorrect he does not understand there to be any dispute that at a minimum he is entitled to receive the amount that would be owing based on Mrs Stolyar's calculation of the net sale proceeds, namely $2,154,854.53 plus prejudgment interest, and that amount is secured on Longworth Avenue. The trustee's calculation of prejudgment interest from 29 April 2020 to 27 September 2023 amounts to $366,933.13. Thus, the total owing to the trustee based on Mrs Stolyar's contention of the net proceeds from sale of the Rose Bay Property and secured by the charge over Longworth Avenue is $2,521,787.66. 11 Pursuant to orders 26 and 28 of the September 2022 Orders (see [5] above) judgment was given in the trustee's favour against Mrs Stolyar for a total of $5,544,782.46. The trustee has undertaken a calculation of post judgment interest on that amount up to 27 September 2023 which amounts to $508,517.32. Thus, the total amount owing for the money judgments against Mrs Stolyar is $6,053,299.78. Those judgments remain unsatisfied. 12 The trustee has procured the issue of a writ for levy of property in enforcement of the judgments referred to in the preceding paragraph and has caused the writ to be registered on the title of Longworth Avenue. 13 The trustee is not aware of any way in which Mrs Stolyar could pay the liabilities referred to at [10]-[11] above without the sale of Longworth Avenue. The trustee observes that: (1) on the assumption that Mrs Stolyar's contentions about the sale proceeds for the Rose Bay Property are accepted, the debts referred to at [10]-[11] above total in excess of $8.5 million; (2) Mrs Stolyar's recent evidence in this proceeding is that she is experiencing financial hardship and is having difficulty paying her own lawyers; and (3) based on his calculation of Mrs Stolyar's overall asset and liability position, Mrs Stolyar has a significant deficiency of assets over liabilities and no apparent assets from which the amount owing to the trustee could possibly be paid other than Longworth Avenue.

Longworth Avenue - value and current state 14 On 22 June 2023 the trustee's solicitors received an email from the New South Wales Sheriff's Office attaching a Notice of Non-Levy in relation to the writ. The trustee believes it to be inevitable that Longworth Avenue will need to be sold, either by the Sheriff, pursuant to the writ, or by way of equitable execution ordered by the Court. This is so even if Mrs Stolyar is completely successful in her contention as to the net sale proceeds from the Rose Bay Property and the current accounting exercise. 15 The trustee does not have access to Longworth Avenue to value it. However, the most recent information available to him is that the property is worth in the order of $11 million to $14 million. This is based on appraisals carried out by local real estate agencies and a valuation prepared as at 10 November 2021 by National Property Valuers (NPV Valuation) who undertook its valuation on Mrs Stolyar's behalf. 16 The NPV Valuation includes under the heading "improvements": I note as of the date of inspection that the property is in the middle of renovations in a below-average state featuring issues such as removed flooring, skirting and plasterboard walls and various works are required to bring the property up to a habitable standard. Refer photographs. 17 On 20 November 2023 the trustee's solicitors spoke with the strata managers for the owners' corporation of which Longworth Avenue forms part. They were told that Ian has been carrying out works at Longworth Avenue, in particular by removing flooring, without any approval as required by the owners' corporation's by-laws. 18 The trustee does not have access to Longworth Avenue to enable him to understand what has been occurring but is concerned that it could be damaged by unapproved works that would need rectification or removal, diminishing its effective value. 19 The trustee has the financial backing of his firm (and litigation funder, if required) to consider funding works to the extent they are necessary to market Longworth Avenue for sale. 20 As at 20 November 2023 an amount of $74,112.50 for outstanding strata levies plus interest on that amount of $6,578.75 was owing for Longworth Avenue. The owners' corporation for Longworth Avenue has given instructions for proceedings to be commenced to recover the overdue strata levies. The trustee is concerned that if the sale of Longworth Avenue is not brought about it will continue to accrue strata levy arrears and interest and enforcement costs relating to those arrears. 21 The trustee is also concerned that Longworth Avenue, which has not been occupied by Mrs Stolyar since she acquired it, may be subject to a land tax liability. A search undertaken by the trustee of the records maintained by the Valuer General for the valuing year of 1 July 2022 valued Longworth Avenue at $7,385,000.

Proposed sale process 22 Given the nature of Longworth Avenue as a high value prestige property the trustee believes that it is unsuited to realisation by way of a Sheriff's auction and considers that such an auction would be unlikely to maximise its sale price particularly in circumstances where he understands the Sheriff would not have possession of the property to market it to potential purchasers. The trustee is of the opinion that if he is given possession of the property and control of its sale process, so that he could undertake an appropriate marketing campaign, he will likely achieve a better outcome which will be to the benefit of both Mrs Stolyar and the trustee. 23 Further, in circumstances where the trustee is, on any view, owed a multimillion dollar debt secured by way of the charge on Longworth Avenue, he believes that he would in the ordinary course otherwise be entitled to equitable execution in enforcement of that charge.

Mrs Stolyar's evidence 24 As at 28 November 2023 Mrs Stolyar had come to an arrangement with Beth for Beth to: (1) arrange for all necessary repairs to Longworth Avenue to make it habitable including "cosmetic renovations, i.e. putting the kitchen back together, fixing floors, painting, and cleaning"; and (2) pay all future strata levies. 25 In return, Beth and her family would be able to occupy Longworth Avenue.

Consideration 26 The trustee seeks an order for the sale of Longworth Avenue by judicial sale or the appointment of a receiver. In the alternative the trustee could force the sale of Longworth Avenue by the Sheriff pursuant to the writ. However, he is of the opinion that a sale under his supervision will achieve a better outcome in terms of sale price and therefore a better outcome for the trustee, creditors and Mrs Stolyar. 27 Mrs Stolyar opposes the Court making the order sought by the trustee and submits that she should be given the opportunity to sell Longworth Avenue herself. Ian, who with leave appeared on Mrs Stolyar's behalf, submitted that: (1) the renovation of Longworth Avenue is almost complete; (2) Longworth Avenue should not be dealt with at the moment. Any orders in relation to it and its sale should await the outcome of the accounting exercise currently before a registrar of this Court and the resolution of issues in relation to another property which has now been sold which was located at Campbell Parade, North Bondi, New South Wales (Campbell Parade Property); (3) the outcome of those exercises will show how much money Mrs Stolyar will receive from the proceeds of sale of the Campbell Parade Property and how much is owed to the trustee secured against Longworth Avenue. At that point Mrs Stolyar can undertake, if necessary, the sale of Longworth Avenue; (4) Mrs Stolyar is experienced in selling properties. By way of example she sold the Rose Bay Property for $16.6 million and first sold the Campbell Parade Property for $9 million, which is more than the amount ultimately achieved on its sale by the trustee; (5) any sale by Mrs Stolyar would not be subject to trustee fees; and (6) if left to sale by the trustee, Longworth Avenue will be sold for less than its value, Mrs Stolyar "will need every cent she can get" and if she is permitted to sell Longworth Avenue at a convenient time and can sell it, for example, for $16 million, she will probably be left with $6 - 7 million to meet any other obligations she might have. 28 The Court has power pursuant to s 53 and/or s 57 of the Federal Court of Australia Act 1976 (Cth) to order the sale of Longworth Avenue either by judicial sale or the appointment of a receiver, if it is satisfied that is appropriate. That said the trustee's preferred course is for sale via a receivership. 29 Section 53 of the Federal Court Act provides: (1) Subject to the Rules of Court, a person in whose favour a judgment of the Court is given is entitled to the same remedies for enforcement of the judgment in a State or Territory, by execution or otherwise, as are allowed in like cases by the laws of that State or Territory to persons in whose favour a judgment of the Supreme Court of that State or Territory is given. (2) This section does not affect the operation of any provision made by or under any other Act or by the Rules of Court for the execution and enforcement of judgments of the Court. 30 Section s 57 of the Federal Court Act empowers the Court, at any stage of a proceeding on such terms and conditions as the Court thinks fit, to appoint a receiver by interlocutory order in any case in which it appears to be just or convenient to do so. 31 In Riva NSW Pty Ltd v Key Nominees Pty Ltd [2023] NSWSC 711 Meek J considered the power of the Supreme Court of New South Wales to appoint a receiver in aid of execution of a judgment. At [265] his Honour observed that the appointment of a receiver to facilitate execution is not ordinarily "the first port of call for a judgment creditor" and that it is evident from prior decisions that the Court has expressed reluctance to appoint a receiver as a means of enforcing judgments. At [266]-[267] his Honour referred to the decision in Hall v Foster [2012] NSWSC 974 as follows: [266] In Hall v Foster, Ball J addressed equitable execution in the following terms at [16]-[19]: 16. Finally, the Court has an inherent equitable jurisdiction to enforce judgments, which is often referred to as "equitable execution". As Bryson J explained in DM & BP Wiskich Pty Ltd v Joseph Saadi) at pp 4-5: Before the Judicature reforms equitable remedies were from time to time given to enable judgments to be enforced in circumstances where the remedies available under the common law were inadequate. In the complex and technical history of the law relating to execution, a number of valuable interests could not be the subject of execution under common law process. Many of the difficulties were overcome by legislation … However equitable execution continues to be possible, and while quite uncommon, from time to time orders are made appropriating funds in Court or otherwise under the control of the Court to the satisfaction of judgments without the intervention of any writ for levy of property or other formal execution process. 17. This inherent jurisdiction includes a power to appoint a receiver. As Waddell J said in Corporate Affairs Commission v Smithson [1984] 3 NSWLR 547 at 552: [R]eceivers may be appointed … under the inherent jurisdiction, for the purpose of equitable execution where the appointment may be made to enable a judgment creditor to obtain payment out of property which cannot be reached by legal execution. 18. It is unclear whether the inherent power to appoint a receiver should be seen as being embodied in s 67 of the Supreme Court Act 1970 (NSW) or whether s 67 should be seen as conferring an additional power. That section provides: The Court may, at any stage of proceedings, on terms, appoint a receiver by interlocutory order in any case in which it appears to the Court to be just or convenient so to do. 19. In DM and BP Wiskich, Bryson J appears to have regarded the power to appoint a receiver for the purposes of equitable execution as being governed by s 67: at p 5. However, in my opinion, s 67 should be seen as conferring a separate power. The wording of s 67 suggests that it is concerned with the interim preservation of the subject matter of the litigation pending a final resolution of the proceedings, not with the appointment of a receiver as a final order to give effect to a judgment that has been delivered. A Court should only grant equitable execution where the legal remedies available are inadequate. [267] His Honour in Hall v Foster declined to make an order appointing a receiver. One of the reasons given was because his Honour did not think that the legal remedies available to the plaintiff were inadequate: at [21]. 32 At [268]-[269] after referring to commentary to the effect that the Court may appoint a receiver but only where it proves impossible to obtain the cooperation of a judgment debtor to pay a judgment debt and the ordinary process of execution will not reach the property of the judgment creditor, Meek J noted that it was not necessary for execution at law to be impossible before equitable execution by way of the appointment of a receiver may be ordered. 33 At [272]-[274] his Honour said: [272] The Court must seek to give effect to and best advance the overriding purpose of facilitating the just, quick and cheap resolution of the real issues in any proceedings when it interprets and exercises any power given to it by the CPA and UCPR: ss 56(1), (2), 57(2) CPA. [273] Thus, where the Court is requested to consider making available a form of execution of a judgment there are various matters to consider. At least one important consideration is whether the proposed method will be a just, quick and cheap method of giving effect to implementation of the order of the Court. [274] Costs associated with execution are an important consideration. In particular, in any proceedings, the practice and procedure of the Court should be implemented with the object of resolving the issues between the parties in a way that the cost to the parties is proportionate to the importance and complexity of the subject matter in dispute: s 60 CPA. 34 In University of Western Australia v Grey (No 6) [2006] FCA 1825 at [71] French J also adopted a flexible approach to the appointment of a receiver. His Honour observed that: The power of the Court to appoint a receiver is statutory. It has its origins, however, as an equitable remedy. An order in the nature of an equitable remedy can be made under s 23 of the Act. The class of circumstances in which such power may be exercised is not closed. Nor are the purposes for which a receiver may be appointed and the powers and conditions attaching to such an appointment. There may be many circumstances of considerable diversity which would warrant such an order and it is important that the discretion not be unnecessarily confined by any particular line of cases to which it has been applied. 35 It is apparent that the Court has power to appoint a receiver to aid in the execution of a judgment. In determining whether in the particular circumstances that course is appropriate, the question to resolve is whether, to adopt the requirements of s 37M of the Federal Court Act, the quick, inexpensive and efficient way for the judgment to be enforced is by ordering the sale of the relevant property by equitable means by the appointment of a receiver or, on the facts before me, by leaving it to the trustee to pursue a sale by the Sheriff pursuant to the writ or, as Mrs Stolyar submits, by leaving it to her to undertake a sale in due course. 36 Having regard to the evidence before me and the parties' respective submissions, I am satisfied that it is appropriate to appoint the trustee as receiver for the purpose of effecting a sale of Longworth Avenue in aid of enforcement of the trustee's money judgments. My reasons for reaching that conclusion follow. 37 First, as the trustee points out, Longworth Avenue is a unique property. An appropriately qualified person, such as the trustee, should be appointed to oversee the sale. This would be a preferable alternative to sale by the Sheriff at auction who, it seems, will not have access to the property to undertake its marketing and sale nor, as discussed below, the ability to undertake any improvements to it nor to complete necessary work. 38 Longworth Avenue is a prestige waterfront apartment with a significant value, based on the valuations obtained to date. Its sale will require an appropriate marketing campaign if its value is to be maximised. Further, both Mrs Stolyar and the trustee accept that the property is currently in an uninhabitable state. It is anticipated that it will require work and expenditure to be put into a condition to enable it to be sold. The trustee is in a position to both oversee and fund such works. As I have already observed it is unlikely that the Sheriff could do so. 39 Secondly, the trustee submits that the costs of the sale of Longworth Avenue will be less if he sells than if the Sheriff sells. This is because of Longworth Avenue's value. Relevantly, the trustee points out, and I accept, that in addition to any actual sale costs the Sheriff imposes a fee of 3% on the proceeds of sale of any property sold pursuant to a writ: see Sch 2, Item 5, Civil Procedure Regulation 2017 (NSW). Given the current estimate of value of Longworth Avenue (see [15] above) that would be a considerable additional cost. Even though the trustee cannot state what his costs of selling Longworth Avenue will be, he anticipates that they will be less than those associated with sale by the Sheriff. 40 Thirdly, the trustee would likely be entitled in due course to the sale of Longworth Avenue by reason of the charge created by the September 2022 Orders. That being so, orders for a sale at this stage does not give the trustee a remedy to which he would not otherwise be entitled. There is simply a timing difference: the trustee will have his remedy now rather than at a later stage. 41 Relatedly, the evidence is that a delay, whether in organising a sale by the Sheriff or by requiring the amount secured by the trustee's charge to be quantified before allowing a sale, is likely to affect the net value of the asset and thus not be in any relevant stakeholder's interests. This is because charges such as strata levies and land tax continue to accrue on Longworth Avenue and there is evidence that unauthorised works are being carried out. 42 Fourthly, I would not accede to Mrs Stolyar's request that she be permitted to sell Longworth Avenue. 43 It appears that she wishes to await the outcome of the ongoing taking of accounts and the resolution of the dispute in relation to the available net proceeds from sale of the Campbell Parade Property before taking any steps to sell Longworth Avenue. For the reasons given at [37]-[41] above that would not be in the interests of the trustee, the creditors of Ian's and Beth's estates or Mrs Stolyar. 44 Further, the evidence given by Mrs Stolyar in relation to proposed arrangements with Beth do not assist: there is no evidence from Beth about the agreement or how she could fund the expenses identified, namely the cost of renovation and the payment of future strata levies, while she remains an undischarged bankrupt; and it remains the fact, based on the current evidence, that Mrs Stolyar cannot meet the money judgments in favour of the trustee without the proceeds from the sale of Longworth Avenue.

Conclusion 45 It follows from the above that I am satisfied that orders should be made for the sale of Longworth Avenue by way of equitable execution. The trustee's preferred course is that he be appointed as receiver to undertake the sale, particularly given the likely need for works to be undertaken to ready the property for sale. I am satisfied that in the circumstances, that is the appropriate course. 46 The trustee provided draft orders which give effect to paragraphs 5 to 14 of his interlocutory application subject to some amendments which have been explained in written submissions filed on his behalf. While those orders appear to be appropriate, at the close of argument senior counsel for the trustee suggested that the parties be given time to address the form of orders to be made. Accordingly, I will allow a period of 21 days for the parties to confer and, if they agree, to provide a form of draft orders, including in relation to the question of costs, to my Associate to be made in chambers. If the parties cannot agree on the form of proposed orders to give effect to my reasons they should, within that same period, provide their competing sets of orders to my Associate. The proceeding will thereafter be listed for case management hearing at which time I will hear argument on the proposed orders. 47 I will make orders accordingly. I certify that the preceding forty-seven (47) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Markovic.

Associate: Dated: 30 January 2024 Schedule of parties No: NSD861/2019 Federal Court of Australia District Registry: New South Wales Division: General Second Respondent FANCHEL PTY LTD

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (9 paragraphs)

Parties

Legislation Cited (3)

Cases Cited (4)

Cited By (2)