Federal Court of Australia

Ghougassian v The Trustee of the Property of Ghougassian, in the matter of Ghougassian (a bankrupt) (No 3) [2023] FCA 510

ORDERS

THE COURT ORDERS THAT:

1.    The parties are to confer as to the form of orders to give effect to these reasons for judgment.

2.    The parties are to provide to the Associate to Goodman J by noon on 26 May 2023 an agreed form of orders, or failing agreement, competing orders.

3.    The proceeding is listed at 9:15am on 29 May 2023 for the purpose of hearing any argument as to the form of orders.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

GOODMAN J

INTRODUCTION

1    The applicant, Dr Ghougassian, has been bankrupt since 27 August 2020. In December 2022, on the application of the respondent trustee in bankruptcy, orders were made in proceeding NSD116/2022 requiring him to give vacant possession within 42 days of a property that he owned at Northmead. Dr Ghougassian did not comply with that order and on 13 February 2023 a writ of possession was issued. A subsequently served notice to vacate required Dr Ghougassian to vacate the property by 9:00am on 12 April 2023.

2    Dr Ghougassian did not comply with that notice. Instead, he applied to the Court during the afternoon of 11 April 2023 for an order staying the execution of the writ of possession in circumstances where he had provided to the trustee, on 23 March 2023, a proposal for a composition in satisfaction of his debts, pursuant to s 73(1) of the Bankruptcy Act 1966 (Cth); and the trustee had sent a lengthy response on 6 April 2023 setting out a series of questions and concerns about the proposal to which Dr Ghougassian had not had sufficient time to respond.

3    On 12 April 2023, Raper J made an order staying the execution of the writ of possession until 5:00pm on 19 May 2023 or until further order of the Court, provided that Dr Ghougassian: (1) continued to service a loan secured by a mortgage over the property and did not further draw down on the loan; and (2) provided a response to the 6 April 2023 letter by 5:00pm on 19 April 2023.

4    On 19 April 2023, Dr Ghougassian’s solicitor provided a partial response to the 6 April 2023 letter. No subsequent response, and no amended proposal, has been provided. In the interim, the trustee put the proposal in its original form to Dr Ghougassian’s creditors, who rejected it at a creditors’ meeting held on 18 May 2023.

5    By interim application filed on 19 May 2023, Dr Ghougassian seeks an order extending the order made by Raper J by a further 21 days. I heard that application on 19 May 2023 and extended the order until further order of the Court, pending the determination of the interim application. For the reasons set out below, the interim application should be dismissed.

BACKGROUND

6    On 27 August 2020, Markovic J made a sequestration order against Dr Ghougassian’s bankrupt estate: McInerney, in the matter of Ghougassian v Ghougassian [2020] FCA 1230.

7    In March 2021, the trustee served Dr Ghougassian with a notice to vacate the property. Dr Ghougassian did not do so.

8    In early August 2021, the trustee commenced a proceeding by summons in the Supreme Court of New South Wales for possession of the property. On 1 September 2021, Dr Ghougassian filed a cross-summons in that proceeding. On 19 November 2021, that proceeding was transferred to this Court and became proceeding NSD116/2022. On 2 May 2022, Dr Ghougassian filed an amended cross-claim in proceeding NSD116/2022. On 20 September 2022, Markovic J made an order in that proceeding that the trustee’s summons be heard and determined prior to the hearing of Dr Ghougassian’s cross-claim and published her reasons for doing so: Lo Pilato (Trustee), in the matter of Ghougassian (Bankrupt) v Ghougassian [2022] FCA 1117.

9    On 6 December 2022, Markovic J heard the trustee’s summons and on 20 December 2022, her Honour made an order for Dr Ghougassian to provide vacant possession of the property within 42 days of the date of the order, failing which a writ of possession was to be issued forthwith in favour of the trustee, and published her reasons for doing so: Lo Pilato (Trustee), in the matter of Ghougassian (Bankrupt) v Ghougassian (No 3) [2022] FCA 1532. In those reasons, her Honour rejected submissions made by counsel for Dr Ghougassian that the orders her Honour made should be stayed until the hearing of: (1) Dr Ghougassian’s cross-claim; or (2) a foreshadowed application for an order annulling his bankruptcy. (I note that on the same day the application to annul the bankruptcy was filed, giving rise to the present proceeding).

10    Dr Ghougassian has not complied with the 6 December 2022 order to provide vacant possession of the property.

11    On 13 February 2023, the writ of possession was issued.

12    On 3 March 2023: (1) Markovic J extended the time for compliance with the 20 December 2022 orders to 10 March 2023; and (2) the Office of the Sheriff of New South Wales issued a notice to vacate to Dr Ghougassian, requiring him to vacate the property by 9:00am on 12 April 2023.

13    On 23 March 2023, Dr Ghougassian served the proposal on the trustee.

14    On 6 April 2023, the solicitors for the trustee sent a letter by email to the solicitor for Dr Ghougassian. In that letter, which comprised 31 pages and 201 paragraphs, the solicitors for the trustee set out a series of concerns and questions, including as to the bona fides of the proposal. In that letter, it was noted that the trustee anticipated that his costs and remuneration for the purposes of r 75-175(2B) of the Insolvency Practice Rules (Bankruptcy) 2016 (Cth) were $15,000, and that further funds may be required if the proposal were to be amended.

15    On 11 April 2023, the day before Dr Ghougassian was required to vacate the property in accordance with the notice from the Office of the Sheriff of New South Wales, he made an application in this proceeding for an order staying the operation of the execution of the writ of possession. It is not clear to me, and no satisfactory explanation was provided, as to why the application was made in this proceeding rather than proceeding NSD116/2022, particularly as the writ of possession was issued as part of that proceeding, and an application for a stay of the orders made by Markovic J on 20 December 2022 had previously been refused by her Honour. In any event, no point to this effect was taken and the parties have requested that I determine the present application.

16    The application that was filed on 11 April 2023 was heard by Raper J during the afternoon of 11 April 2023 and again on the morning of 12 April 2023. The affidavit sworn by Dr Ghougassian in support of that application referred to the writ of possession and the notice to vacate and set out as the grounds relied upon for the (by then) urgent application for a stay of execution of the writ of possession: (1) the proposal and the 6 April 2023 letter; and (2) the annulment application in this proceeding which was listed for hearing on 19 May 2023 (in respect of which Dr Ghougassian deposed that as far as he was aware the trustee had not made an application seeking to strike out the annulment application).

17    Dr Ghougassian also deposed that: the trustee had, contrary to s 73(1A) of the Act, not registered the proposal; such failure had compromised Dr Ghougassian’s ability to raise further funds; the proposal was a genuine and bona fide attempt to settle “these proceedings”; and he believed the annulment application had “arguable” or “good” prospects of success.

18    Also on 11 April 2023, $15,000 was paid into the trust account of the trustee’s solicitors.

19    On 19 April 2023, Dr Ghougassian’s solicitor sent a letter in reply to the 6 April 2023 letter. The 19 April 2023 letter: addressed only some of the matters raised in the 6 April 2023 letter; indicated that at the time of writing, Dr Ghougassian’s solicitor anticipated that a further seven days would be required to settle an amended proposal addressing the remaining points in the 6 April 2023 letter; and suggested a meeting with the trustee to “prevent further delay in the resolution of any further anticipated defects” in the proposed amended proposal.

20    On 26 April 2023, the trustee’s solicitors responded to the 19 April 2023 letter. In that letter, the trustee’s solicitors stated that:

(1)    the trustee did not accept the matters set out in the 19 April 2023 letter;

(2)    the trustee remained of the view that to the extent that the proposal could be understood it was not a bona fide proposal;

(3)    nevertheless, the trustee noted that Dr Ghougassian intended to respond shortly to the balance of 6 April 2023 letter;

(4)    in the circumstances, and with a view to the efficient administration of the bankrupt estate, the trustee proposed to proceed with calling a meeting of creditors to consider the proposal;

(5)    any further response to the 6 April 2023 letter should be provided as soon as possible so that it could be passed onto creditors; and

(6)    the trustee was not of the view that a meeting with Dr Ghougassian and his advisers would be in the interests of creditors for various reasons, including that Dr Ghougassian was represented by counsel and a solicitor and had the benefit of the lengthy recitation in the 6 April 2023 letter of the trustee’s questions and concerns; and that it was not a proper role for the trustee to be involved in the drafting and formulation of a proposal.

21    On 2 May 2023 at 2:22pm, the trustee’s solicitors sent a letter by email to Dr Ghougassian’s solicitor in which the trustee’s solicitors pointed out that the letter from Dr Ghougassian’s solicitor dated 19 April 2023 had indicated that a further response was expected to have been provided within seven days of 19 April 2023 and that no such response had been received; and requested that any further response that Dr Ghougassian wished creditors to consider be provided by 4:30pm that day, so that a report to creditors could be issued. At 4:05pm that day, Dr Ghougassian’s solicitor responded, stating that he was formulating a response and would revert. No such response has been sent.

22    On 3 May 2023, the trustee called a creditors’ meeting for 3:00pm on 18 May 2023 in order to consider the proposal. On the same day, an employee of the trustee’s office sent an email to Dr Ghougassian providing notice of the creditors’ meeting. The email also contained the trustee’s report to creditors concerning the proposal.

23    On 12 May 2023, a mediation was held involving (at least) Dr Ghougassian and the trustee, but it was unsuccessful.

24    On 16 May 2023, an employee of the trustee’s office sent an email to Dr Ghougassian concerning the 18 May 2023 creditors’ meeting.

25    On 17 May 2023, the trustee’s solicitors sent a letter by email to Dr Ghougassian’s solicitor, confirming that the creditors meeting would proceed on 18 May 2023. The letter also invited Dr Ghougassian’s solicitor to indicate whether, if he proposed to attend the creditors meeting, he wished to do so in person or by teleconference.

26    On 18 May 2023:

(1)    at 11:55am, Dr Ghougassian’s solicitor sent a letter by email to the trustee’s solicitors foreshadowing the present application;

(2)    at 12:53pm, the trustee’s solicitors responded, reiterating that the creditors’ meeting was scheduled for 3:00pm that day and indicating that should Dr Ghougassian wish to raise any matters in respect of his proposal for the consideration of creditors this could be done at the creditors’ meeting; and

(3)    at 3:00pm, the creditors’ meeting was held. Neither Dr Ghougassian nor his solicitor attended. At that meeting, the creditors voted against a resolution to accept the proposal. Dr Ghougassian and his solicitor were notified of the outcome of the creditors’ meeting later that day.

27    Dr Ghougassian’s solicitor’s evidence is that:

(1)    an amended proposal could not be completed before the mediation held on 12 May 2023 because “money available for settlement and costs assessment…were and remain relevant factors and the presentation of the amended composition”;

(2)    Dr Ghougassian only received on 12 May 2023 several cost assessments dated 30 March 2023, including an assessment relevant to the proposal; and

(3)    the time required to complete an amended proposal is estimated to be 21 days.

Consideration

28    The order made by Raper J on 12 April 2023 was, as the transcript of the hearing before her Honour on 11 and 12 April 2023 reveals, made in the face of the imminent expiry of the time by which Dr Ghougassian was required to vacate the property and in a context in which: (1) the proposal had been made but not yet placed before creditors for their consideration; (2) the trustee had provided, on 6 April 2023, a detailed response to the proposal; (3) the period from 7 to 10 April 2023 was the Easter weekend; (4) the annulment application in the present proceeding was listed for hearing on 19 May 2023; (5) Dr Ghougassian wished to have an opportunity to address the matters raised in the 6 April 2023 letter; (6) Dr Ghougassian’s evidence was that the annulment application had at least arguable prospects of success based upon the making of the proposal, which was to be amended to the extent necessary to address the matters raised by the trustee; (7) the trustee, through his counsel, properly conceded that there would be little prejudice if Dr Ghougassian were allowed a short period of time in which to take the opportunity to address the matters raised by the trustee in his 6 April 2023 letter; and (8) $15,000 had been paid in anticipation of a creditors’ meeting to consider the proposal.

29    Since 12 April 2023, there have been significant changes in the landscape. In particular:

(1)    Dr Ghougassian has had ample opportunity to address the matters raised by the trustee in the 6 April 2023 letter and to submit any amended proposal, but has not done so. In this regard, as noted above, a partial response to the 6 April 2023 letter was provided on 19 April 2023; the 19 April 2023 response to the 6 April 2023 letter foreshadowed that a full response would be provided within a further week; the trustee chased that further response on 26 April 2023 and 2 May 2023; on 2 May 2023, Dr Ghougassian’s solicitor responded indicating that a response was being formulated and that he would revert; however, no further response (or amended proposal) was forthcoming. Thus, a full month passed from 19 April 2023 to the hearing on 19 May 2023 without any supplementation of the 19 April 2023 response or any amended proposal being provided;

(2)    on 3 May 2023, the trustee called a meeting of Dr Ghougassian’s creditors to be held on 18 May 2023 to consider the proposal in the form provided by Dr Ghougassian on 23 March 2023 in circumstances where the foreshadowed amended proposal had not been provided by 2 May 2023. That proposal was rejected by creditors; and

(3)    the annulment application has been heard and determined, adversely to Dr Ghougassian: Ghougassian v The Trustee of the Property of Ghougassian, in the matter of Ghougassian (a bankrupt) (No 2) [2023] FCA 513. For the reasons there set out (at [5] and [6]) the proposition that the proposal or any amended proposal was relevant to the determination of the annulment application was misconceived. See also Ghougassian v The Trustee of the Property of Ghougassian, in the matter of Ghougassian (a bankrupt) [2023] FCA 503 at [9] and [10].

30    By the present application, Dr Ghougassian seeks an order that would allow him a further 21 days in which to formulate an amended proposal.

31    The Court’s power to stay the execution of a judgment or order is found in r 41.11 of the Federal Court Rules 2011 (Cth). For the following reasons, I refuse to further stay the execution of the writ of possession.

32    First, the application arises in a context in which: (1) the trustee has, through the orders made on 20 December 2022, a clear entitlement to possession of the property, together with a duty to take appropriate steps to recover property for the benefit of Dr Ghougassian’s bankrupt estate; and (2) there is no extant appeal in respect of which the order sought on this application might preserve the status quo pending that appeal. Thus, the stay is not sought in aid of an appeal. This is, to adopt the expression used by Lindgren J in Endormer Pty Ltd (in liq) v Australian Guarantee Corporation Ltd [2001] FCA 15 at [13], “a striking consideration militating against the grant of a further stay”.

33    Secondly, Dr Ghougassian seeks the assistance of the Court at a time when he is in default of the orders made by Markovic J on 6 December 2022 and 3 March 2022 and has provided no explanation for his defiance.

34    Thirdly, Dr Ghougassian seeks an indulgence to allow him to put an amended proposal to his creditors in circumstances where he has squandered the indulgence granted to him by Raper J. Her Honour’s order was conditional upon Dr Ghougassian providing a response to the 6 April 2023 letter by 19 April 2023. Dr Ghougassian’s solicitor provided only a partial response by that date and despite foreshadowing that a further response would be forthcoming, no further response was provided. In effect, Dr Ghougassian has already been given an indulgence of more than five weeks (12 April 2023 to 19 May 2023) which he has squandered. Consequently, the Court can have no confidence that a further extension of time would be used by him so as to formulate an amended proposal.

35    Fourthly, no satisfactory reason has been provided for the squandering of this opportunity. In this regard:

(1)    no explanation has been provided as to what work (if any) has actually been done in preparation of a further response or an amended proposal;

(2)    I do not accept that the mediation was an obstacle to the preparation of a further response or an amended proposal particularly as that mediation had been set down by Markovic J on 24 February 2023, well before the application made to Raper J on 11 April 2023; and

(3)    there is evidence in Dr Ghougassian’s solicitor’s affidavit that Dr Ghougassian only received on 12 May 2023 a cost assessment dated 30 March 2023 relevant to the proposal. There is also an email in evidence from the Supreme Court of New South Wales addressed to various persons including Dr Ghougassian’s solicitor and dated 30 March 2023 which refers to costs assessments, including the relevant costs assessment, being attached. From the bar table, Dr Ghougassian’s solicitor explained that the costs assessments were not attached to the 30 March 2023 email that he received, and this explanation was accepted by counsel for the trustee. Accepting that the 30 March 2023 costs assessments were not received until 12 May 2023, it does not follow that the late receipt of these costs assessments stymied the preparation of a more detailed response to the 6 April 2023 letter or the preparation of an amended proposal, in circumstances where the evidence does not establish that the cost certificates were of such importance that the further response to the 6 April 2023 letter and the foreshadowed amended proposal could not have been completed after the cost certificates were received on 12 May 2023. This is particularly so when the proposal included an amount of approximately $135,000 for the particular costs order and the cost assessment that was issued with respect to that costs order was for an amount of $35,000 and it has not been suggested that any work other than adjusting the figure for the costs order is required.

36    Fifthly, I do not accept the submission made on behalf of Dr Ghougassian that the Court should take into account that he has paid the $15,000 to the benefit of the trustee and is thus out of pocket, in circumstances where those funds were provided in anticipation of costs and remuneration relating to the creditors’ meeting; the trustee called a meeting of creditors to consider the proposal; Dr Ghougassian did not, despite requests, provide any further information for creditors to consider, or attend the meeting; and any consideration by Dr Ghougassian’s creditors of an amended proposal would require the calling of a further meeting necessitated by Dr Ghougassian’s failure to provide a further response to the 6 April 2023 letter and any amended proposal in any timely manner; and in circumstances where Dr Ghougassian was put on notice by the trustee that further funds may be needed if a second meeting became necessary. Of course, to the extent that $15,000 exceeds the trustee’s actual costs and remuneration in respect of the meeting, Dr Ghougassian is entitled to a refund of the excess: r 75-175(2C).

37    Finally, Dr Ghougassian has been bankrupt since August 2020. There has been ample opportunity in the period approaching almost three years since then for him to have formulated proposals acceptable to his creditors.

Conclusion

38    Dr Ghougassian’s application for an order further extending the stay of the execution of the writ of possession must be dismissed. The trustee requested an opportunity to submit a form of orders in the event that he was successful on this application. I will make orders for the parties to confer as to the form of orders that should be made and setting a time for the Court to hear any dispute as to the form of the orders.

Associate:

Dated:    24 May 2023