Skalkos v Tzovaras Legal Pty Ltd [2008] FMCA 141

[2008] FMCA 141

Federal Magistrates Court of Australia|2008-02-12

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At a glance

AI case summary

Result

defendant. Application dismissed with costs. Exhibits to be returned forthwith.

Key principles

For the purposes of s 40(1)(g) of the Bankruptcy Act 1966 (Cth), a debtor must demonstrate mutuality of parties between the creditor named in the bankruptcy notice and the...
The existence of a proceeding alone is insufficient to establish a counter-claim, set-off or cross-demand for the purposes of s 40(1)(g). The debtor must satisfy the Court that...

Issues before the court

Whether the debtor has a counter-claim, set-off or cross-demand of equal or greater value to the debt claimed for the purposes of s 40(1)(g) of the...
Whether the debtor has demonstrated a genuine claim with a fair prospect of success
Whether the proceeding in the District Court could have been raised in the earlier proceedings seeking recovery of costs

Cited legislation

No linked legislation citations have been extracted yet.

Plain English Summary

A person who owes money to a company cannot use a claim they have against the company's owner personally as a reason to stop the company from making them bankrupt. The law requires that the parties be the same on both sides - you must owe money to the same person that you are claiming against. Additionally, simply filing a court claim is not enough; you need to show there is some real evidence supporting your claim and that it has a reasonable chance of success.

AI-generated legal information, not legal advice. Zoe can make mistakes. Check the cited source, and for advice about your situation consult a qualified Australian lawyer.

Judgment (4 paragraphs)

[1]

(1) The application is dismissed with costs.

(2) Exhibits in the proceedings be returned forthwith.

[2]

I have before me an application filed on 25 October 2007 seeking to set aside bankruptcy notice NN3915/2007 served on the applicant. The application is supported by an affidavit by the applicant, Mary Skalkos, in which she refers to the bankruptcy notice and to a proceeding she has instituted in the District Court of New South Wales against Mr Ted Tzovaras (her former solicitor) for professional negligence. The debt claimed in the bankruptcy notice is unpaid costs for legal services provided by Mr Tzovaras' firm.
The applicant asserts that the bankruptcy notice should be set aside and pursuant to s.41(7) of the Bankruptcy Act 1966 (Cth) ("the Bankruptcy Act") the applicant enjoys an automatic extension of time for compliance with it given that the applicant asserts that she has a counterclaim, set-off or cross-demand referred to in s.40(1)(g) of the Bankruptcy Act, and the Court has not before today resolved that issue.
The matter came before me this morning from the registrar's list. I enquired of the parties whether the matter was ready to be heard today and I was told by the parties' representatives that they did seek a hearing of the matter today. On that basis the hearing proceeded, although during the course of legal argument, Mr Broun, for the applicant, sought an adjournment in order to attempt to deal with issues raised by Mr Tzovaras which he submits are fatal to the application before the Court. In particular, Mr Tzovaras submits that the application cannot succeed because the bankruptcy notice was issued in the name of a company, Tzovaras Legal Pty Ltd, whereas the action in the District Court is against Mr Tzovaras personally. Thus, there is no mutuality of parties as between the bankruptcy notice and the asserted counterclaim.
The issue exercising the mind of Mr Broun on behalf of his client is whether the costs claimed by the business Tzovaras Legal were due, if at all, to the company or to Mr Tzovaras. That is not entirely clear from the certificate of judgment annexed to the bankruptcy notice. It simply refers to the business name Tzovaras Legal.
It is possible that further documents might have become available to clarify the party seeking and obtaining costs from Ms Skalkos, but that cannot affect the simple fact that the bankruptcy notice is issued by a company and Mr Tzovaras personally has been sued in the District Court. There is no challenge to the validity of the bankruptcy notice based on its form.
I formed the view that the parties having sought a hearing today and the issue of the identity of the parties being apparent on the documents before me that there would be no point in an adjournment and I refused it.
It does seem to me that the identification of different parties, the creditor being the company, and the defendant in the District Court being a natural person, is fatal to the claim that the applicant has a set-off, a cross-claim or counterclaim against the creditor. She has a claim which is being agitated in the District Court against a natural person who is the principal of the company seeking to recover a debt from her, but in the circumstances, the claim in the District Court being against a different legal person, it cannot support the application to set aside the bankruptcy notice[1].
If I was wrong in that, there would be a further issue of whether the proceeding in the District Court established a claim of sufficient substance to justify setting aside the bankruptcy notice.
The affidavit of Mary Skalkos has annexed to it the statement of claim filed in the District Court which makes allegations of breach of duty by Mr Tzovaras. However, there is no evidence before me to support those allegations in that pleading.
Lockhart J in Re Brink; Ex Parte Commercial Banking Co of Sydney Ltd [1980] FCA 78; (1980) 44 FLR 135 at 141 observed that the Court does not have to undertake a preliminary trial of the cross-demand. What is required was that the Court must be satisfied that the debtor has a fair chance of success. His Honour suggested it was necessary to have regard to the meaning of the relevant words in s.41(7) of the Bankruptcy Act. The simple fact of the existence of a proceeding is not sufficient. It is not necessary that the applicant establish that there are reasonable grounds for believing that she will establish her action or be successful in it, but the debtor must satisfy the Court that she has a genuine claim, something more than a bona fide claim.
I need to be satisfied that the claim has a fair prospect of success. On the material before me, the simple allegations made without supporting evidence are not sufficient to persuade me of that. For that reason also I would decline to set aside the bankruptcy notice on the basis of the mere existence of the District Court proceeding.
I enquired of the parties whether there might be a third issue of whether the proceeding in the District Court could have been set up in the earlier proceedings seeking the recovery of the costs of Tzovaras Legal. While I accept that the issue of professional negligence could not have been raised in the cost assessment and enforcement in the Local Court, it would have been possible for Ms Skalkos to complain to the Legal Services Commission which would, as I understand it, have had the effect of deferring the cost assessment and the recovery process. That was the process that was followed in Snelgrove v Roskell [2006] FMCA 503 at [4].
I was told from the bar table by Mr Broun that that process was, indeed, followed by Ms Skalkos in this matter, that the Legal Services Commission considered that the issues raised needed to be dealt with by a court and the Commission declined to intervene in her favour.
I conclude that the application before the Court fails because there is no mutuality of parties as between the creditor on the bankruptcy notice and the defendant in the asserted counter-claim and because there is insufficient material before the Court to satisfy me that there is any real prospect of success in the District Court proceeding.
For those reasons I will order that the application be dismissed with costs.
That is not to say that the issues raised in argument today are not relevant to the ultimate issue of whether Ms Skalkos is, indeed, indebted to Tzovaras Legal Pty Ltd and if she is so indebted whether a sequestration order should be made prior to the resolution of the claim against Mr Tzovaras in the District Court. Those are matters that can and may well be dealt with at a later stage should Ms Skalkos fail to comply with the bankruptcy notice and should a creditor's petition be filed. I will say no more about it at this stage.