FEDERAL COURT OF AUSTRALIA One Step Plumbing & Concrete Pty Ltd v Sellers [2002] FCA 865 PRACTICE AND PROCEDURE – stay of execution pending appeal – bankrupts' transfer of properties to appellant companies held to be void – whether appellants have made out sufficient reason why a stay should be granted – whether appellants will suffer prejudice in the absence of a stay Federal Court Rules O 52 r 17 Henderson v Amadio Pty Ltd (No 3) (1996) 65 FCR 66 at 69 followed. ONE STEP PLUMBING AND CONCRETE PTY LTD & ORS v KENNETH STEWART SELLERS (AS TRUSTEE OF THE BANKRUPT ESTATES OF WILLIAM J HUSSEN and KAYLEEN M HUSSEN) NO V 343 OF 2002 HEEREY J 3 JULY 2002 MELBOURNE IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY V 343 OF 2002 BETWEEN: ONE STEP PLUMBING AND CONCRETE PTY LTD (ACN 074 602 396) FIRST APPELLANT MANIFOLD NOMINEES PTY LTD (ACN 076 606 221) SECOND APPELLANT MCKILLOP DEVELOPMENTS PTY LTD (ACN 078 801 368) THIRD APPELLANT DRUMCONDRA INVESTMENTS PTY LTD (ACN 074 718 979) FOURTH APPELLANT GIUSEPPE'S PROPERTIES PTY LTD (ACN 075 951 852) FIFTH APPELLANT AND: KENNETH STEWART SELLERS (AS TRUSTEE OF THE BANKRUPT ESTATES OF WILLIAM J HUSSEN and KAYLEEN M HUSSEN) RESPONDENT JUDGE: HEEREY J DATE OF ORDER: 3 JULY 2002 WHERE MADE: MELBOURNE THE COURT ORDERS THAT: 1. The application, in so far as it relates to the second to fifth appellants, is dismissed. 2. The second to fifth appellants pay the respondent's costs of today's proceeding. 3. The hearing of this motion is otherwise adjourned to 10.15 on 19 August 2002. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY V 343 OF 2002 BETWEEN: ONE STEP PLUMBING AND CONCRETE PTY LTD (ACN 074 602 396) FIRST APPELLANT MANIFOLD NOMINEES PTY LTD (ACN 076 606 221) SECOND APPELLANT MCKILLOP DEVELOPMENTS PTY LTD (ACN 078 801 368) THIRD APPELLANT DRUMCONDRA INVESTMENTS PTY LTD (ACN 074 718 979) FOURTH APPELLANT GIUSEPPE'S PROPERTIES PTY LTD (ACN 075 951 852) FIFTH APPELLANT AND: KENNETH STEWART SELLERS (AS TRUSTEE OF THE BANKRUPT ESTATES OF WILLIAM J HUSSEN and KAYLEEN M HUSSEN) RESPONDENT JUDGE: HEEREY J DATE: 3 JULY 2002 PLACE: MELBOURNE REASONS FOR JUDGMENT 1 The appellants apply under O 52 r 17 of the Federal Court Rules for a stay of execution pending the hearing and determination of an appeal against the judgment and orders of Weinberg J delivered on 10 May 2002. It is likely that the appeal will be heard in the November sittings. 2 The respondent is the trustee of the bankrupt estates of William John Hussen and Kayleen Maree Hussen. The case concerned the transfers by the bankrupts of a number of properties in Geelong to the appellant companies. The first appellant, One Step Plumbing and Concrete Pty Ltd, is associated with Mr Christopher Edward Crawford. The other four appellant companies are associated with Mr George Peter Donald. The application for a stay in relation to the first appellant will be adjourned for reasons on which it is not necessary to elaborate at the moment. 3 In relation to the other four appellants, his Honour made orders pursuant to ss 120 and 121 of the Bankruptcy Act 1966 (Cth) that transfers of the properties from the bankrupts to the respective companies be declared void as against the respondent and declared that the respondent was entitled to possession of those properties. There were further declarations that the appellants held certain moneys borrowed on such properties and certain rentals and assets purchased with such moneys on a constructive trust for the respondent. 4 The basis of the application for a stay is that the appellants will suffer prejudice in the absence of a stay because each appellant is a single purpose entity and its only asset is the property, the subject of the judgment. If the judgment is not stayed, the respondent will take possession of each property and sell it. The properties are either "currently rented or awaiting rental". The repossession and sale of the properties would deny the balance of the rental income. It is said that each of the properties has "significant potential as an investment property". It is said that there is concern that a sale by the respondent would not realise the best available price and it would "not enable the further investment potential of the properties to be fully utilised". It is said that the intention of each appellant is "to retain the properties for some time, both to maximise the income-earning potential and also the capital gains potential". 5 The foregoing comes from an affidavit sworn by Mr Crawford on 29 June 2002. He further deposed that he deposed, purportedly on behalf of all appellants, that each appellant was prepared to give an undertaking to pertain to all five payments on mortgages over the properties and all required payments of rates. Accordingly, it was said, the amount by which each property is encumbered would not increase pending the hearing of the appeal. 6 In opposition to the application for the stay the respondent swore an affidavit which has set out details as to the decline of equity in the properties. In all properties, with one exception where there was an increase of a few thousand dollars, there has been a marked decrease from the time back in September when the trial was first adjourned and the appellants gave certain undertakings. To take as an example the property at 371 High Street Geelong, owned by the second appellant, Leopold Nominees Pty Ltd, as at 21 September 2001 the secured loan balance was $399,206.26 and the mortgage payments were $2669.74 per month. However, by the time of Mr Sellers' affidavit, the loan balance appears to have increased by $17,571.79 and it appears that no payments have been made in reduction of the loan during this period. 7 In response, there was an affidavit from Mr Donald who deposed: "Prior to the hearing of the proceeding at first instance in the Federal Court pursuant to a verbal arrangement with the mortgagees of the various properties the second to fifth respondents [appellants] were only required to pay to the mortgagees the net amount of rentals collected on the properties after payment of rate instalments and maintenance requirements. For this reason the amounts outstanding on the mortgages increased. However, the second to fifth respondents [appellants] will now ensure that the amounts outstanding do not increase further by applying the rental income which will be sufficient for this purpose." 8 It seems to me inherently unlikely that mortgagees would agree to the surprising sort of arrangement deposed to by Mr Donald. In any event, there is no detail whatsoever as to the abilities of the companies, still less himself and Mr Crawford, to honour any undertakings given. 9 I am satisfied that by reason of the declining equity in these properties there would be prejudice to the respondent if the stay were granted. In any event, I am not satisfied that the appellants have made out a sufficient reason why a stay should be granted: see Henderson v Amadio Pty Ltd (No 3) (1996) 65 FCR 66 at 69. It seems purely speculation, and uninformed speculation at that, to assert that between the time that a sale might be completed by the respondent, absent a stay, and the time that the properties might be returned to the appellants on the assumption that they succeed in the appeal, there would be some significant increase in the value of the properties which would amount to an irrecoverable loss for them. The properties in question are investment properties and it is not suggested that there is otherwise any special value to the appellants. 10 For those reasons the application, insofar as it relates to the second to fifth appellants, will be dismissed. I will order that the second to fifth appellants pay the respondent's costs of the motion. I certify that the preceding ten (10) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Heerey. Associate: Dated: 9 July 2002 Counsel for the Appellants: Mr P Bornstein Solicitor for the Appellants: Irlicht and Broberg Counsel for the Respondent: Mr M Galvin Solicitor for the Respondent: Deacons Date of Hearing: 3 July 2002 Date of Judgment: 3 July 2002