Monamy v Peldan [2006] FCA 1282

FEDERAL COURT OF AUSTRALIA

Monamy v Peldan [2006] FCA 1282

DENNIS ALFRED MONAMY v MICHAEL PELDAN NSD 1673 OF 2006

GRAHAM J

19 SEPTEMBER 2006

SYDNEY IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY NSD 1673 OF 2006

BETWEEN: DENNIS ALFRED MONAMY

Applicant

AND: MICHAEL PELDAN

Respondent

JUDGE: GRAHAM J DATE OF ORDER: 19 SEPTEMBER 2006

WHERE MADE: SYDNEY

THE COURT ORDERS THAT:

1. Worrells Solvency and Forensic Accountants cease to be a respondent party. 2. Michael Peldan be added as a respondent. 3. The application be dismissed. 4. The applicant pay the respondent's costs. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY NSD 1673 OF 2006

BETWEEN: DENNIS ALFRED MONAMY

Applicant

AND: MICHAEL PELDAN

Respondent

JUDGE: GRAHAM J

DATE: 19 SEPTEMBER 2006

PLACE: SYDNEY

REASONS FOR JUDGMENT 1 A sequestration order was made in respect of the estate of the applicant, Dennis Alfred Monamy on 14 June 2006. The respondent, Michael Peldan, was appointed as the Trustee of the bankrupt's estate. When these proceedings were commenced the respondent was identified as Worrells Solvency and Forensic Accountants. That is the name of the firm in which Mr Peldan is a partner. Earlier today, I ordered that Worrells Solvency and Forensic Accountants cease to be the named respondent and that Michael Peldan be added as the respondent. 2 On 12 July 2006 the bankrupt completed a statement of affairs. Question 25 required him to answer the question 'Do you have tools of trade?' which he answered in the affirmative. It also asked 'What is their estimated resale value?' to which the answer provided was '$2000'. 3 The statement of affairs disclosed the existence of eight creditors who were owed $33,203.70. The statement of affairs revealed assets having a value of well under that amount. The bankrupt, who gave evidence before me, gave as his occupation that of a floor covering layer. The bankrupt became the registered proprietor of the business name 'Simply Natural Floorcoverings' on 13 July 1999. He later became the registered proprietor of the business name 'Simply Natural Floor Coverings' on 2 March 2006. According to the respondent's statutory report to creditors of 9 August 2006, the bankrupt was the licensee in respect of three domain names registered as 'naturalfloorcoverings.com', 'naturalfloorcoverings.com.au' and 'Madog.com'. In relation to the domain names the Trustee's report stated: 'Creditors should appreciate that Mr Monamy does not hold any proprietary rights to these domain names, but rather a licence to use them for a specified period of time and subject to the licence terms and conditions.' There followed an expression of opinion on the part of the Trustee that the domain names had a zero realisable value. No issue presently arises in respect of the domain name 'Madog.com'. 4 A publication of the Australian Domain Name Administrator entitled 'Clarification of Domain Name Licence - Prohibition on Sale of Domain Name (2005-05)' published on 22 July 2005 includes a paragraph entitled '2. Prohibition on Sale of Domain Name by registrant'. That paragraph included the following: '2.1 There are no proprietary rights in a domain name. A registrant does not "own" their domain name, instead they hold a licence to use the domain name for a specified period of time and subject to the licence terms and conditions. 2.2 Because the registrant does not have a proprietary right in the domain name, it is not legally possible for the registrant to "sell" the domain name. By offering to sell their domain name to another party, the registrant is in breach of the Registrant Agreement. 2.3 It is possible for a registrant to transfer their domain name licence to another party, but only in the circumstances set out in auDA's Transfers Policy (Policy No 2004-03). A registrant who attempts to "sell" their domain name licence should be aware that such a transaction will not fall within the circumstances set out in the Transfers Policy, and therefore the domain name will not be transferred to the other party.' 5 The Transfers (Change of Registrant) Policy (2004-03) included a paragraph 3 entitled 'Circumstances of Transfer'. Within that policy paragraph 3 provided, inter alia: '3.1 A registrant may transfer their domain name licence to a proposed new registrant if: (a)(i) the registrant sells part or all of their business operations or assets to the proposed new registrant, and the Deed of Sale includes the transfer of the domain name licence.' 6 According to the bankrupt his business 'Simply Natural Floor Coverings' generated a gross income of approximately $20,000 to $30,000 per year. He says that the profit from the business is approximately $7000 to $10,000 per year. These figures demonstrate that the business name registration and the domain names contribute very little to the value of the Simply Natural Floor Coverings business. In the Trustee's report, the Trustee identified that the date of discharge of bankruptcy of the applicant would be, in the normal course of events, 14 July 2009. The bankrupt propounded that the assets available for the benefit of the creditors had a value of $3085.47. 7 The Trustee's estimate of value in respect of the assets identified was nil. Three small bank accounts had credit balances totalling a little more than $300 in respect of which the Trustee reported 'I have allowed him to retain these funds for general living expenses.' 8 The report referred to computers and a camera as assets of the bankrupt in respect of which the Trustee wrote: 'As the cost of realising these items would exceed the proceeds received from their sale, I will not be seeking to collect and sell them.' 9 In relation to the applicant's tools of trade, the Trustee reported: 'Mr Monamy disclosed tools of trade valued at $2000.00 used to trade his business - "Simply Natural Floor Coverings".' 10 The Trustee proceeded to indicate that a bankrupt was allowed to retain tools of trade up to a value of $3,050. Accordingly, the Trustee was unable to realise those assets for the benefit of the creditors. 11 It would appear that on 25 August 2006 a conversation took place between Mr Dowling of the Trustee's office and the bankrupt in which the bankrupt was informed that an offer had been received to purchase the business known as Simply Natural Floor Coverings which included the domain names naturalfloorcoverings.com and naturalfloorcoverings.com.au. There is no evidence before the Court as to the amount of this offer. 12 The bankrupt was invited to introduce an alternative purchaser for the business. The invitation to do so was confirmed in an email communication from the Trustee's office to the bankrupt of 28 August 2006. The communication included: 'You have until the close of business on Friday 1 September 2006 to arrange for an offer to be provided to my office.' 13 There is no evidence before the Court to suggest that the bankrupt solicited or procured any alternative offers for the 'business' nor is there any evidence that he sought an extension of time within which it might be possible to introduce other purchasers. 14 It would appear that the petitioning creditor, The Natural Floor Covering Centre Pty Ltd, was itself interested in acquiring the 'business'. An offer to do so for $2,100 was apparently made at about 3.15 pm on Thursday, 7 September 2006. It may be observed that that offer was made about a week after the institution of the current proceedings. Later in the same afternoon the Trustee forwarded an email advising the Trustee's willingness to accept the offer provided that the current proceedings be successfully defended and on the basis that the petitioning creditor would indemnify the Trustee with respect to the costs incurred by the Trustee in defending the current proceedings. Such an indemnity was forthcoming from the petitioning creditor on the afternoon of Monday, 11 September 2006. 15 In an amended application filed 12 September 2006, the bankrupt sought relief against the Trustee pursuant to ss 178 and 179 of the Bankruptcy Act 1966 (Cth) ('the Act'). Earlier today the bankrupt expressly abandoned the claims for relief under s 179. Relevantly, in relation to the relief sought under s 178, the bankrupt seeks an order that the respondent be restrained from selling or otherwise dealing with: '(a) The business known as Simply Natural Floor Coverings; and (b) The domain names naturalfloorcoverings.com.au and naturalfloorcoverings.com.' 16 Section 178 of the Act provides: '178(1) If the bankrupt ... is affected by an act, omission or decision of the trustee, he or she may apply to the Court, and the Court may make such order in the matter as it thinks just and equitable. (2) The application must be made not later than 60 days after the day on which the person became aware of the trustee's act, omission or decision.' 17 The relevant decision is said to be the decision of the Trustee to sell the 'business' to the petitioning creditor for $2,100. It is unnecessary for the purposes of this proceeding to consider whether a decision to sell property of the bankrupt in the manner proposed is a decision within the reach of s 178 of the Act. In Re Tyndall (1977) 30 FLR 6 at 9-10 Deane J explained that relief could be granted under s 178 without establishing that in relation to the relevant act, omission or decision, the trustee acted absurdly or unreasonably or in bad faith. His Honour said at 9-10: 'In my view, the wording of s 178 of the Act is such as to confer upon the court the widest possible discretion as to the appropriate order which should be made in the particular case and is quite inconsistent with the approach that, upon an application made pursuant to the section by a bankrupt, ... the court is only empowered to interfere with the trustee's act, omission or decision if it is of the view that the trustee has acted absurdly or unreasonably or in bad faith.' 18 However, it is important to note the observations of his Honour that then followed at 10: 'This is not, of course, to say that the court should either disregard the relevant decision of the trustee or ignore the well-established policy under bankruptcy legislation that the court should not unduly interfere with the day-to-day administration of a bankrupt's estate by a trustee. The trustee is made responsible for the administration of the bankrupt estate under the general provisions of the Act. He must, in the course of that administration, make a variety of decisions aimed at enabling the administration to be carried out with promptness and efficiency. Some of these decisions will be business or commercial decisions in which the business or commercial experience of the trustee would itself provide a basis for arguing that, unless it was shown that the trustee's decision was perverse or clearly wrong, it would be inappropriate and unjust for the court to interfere.' 19 Support for the propositions advanced by Deane J has been provided in decisions of Full Courts of this Court to which French J referred in Macchia v Nilant (2001) 110 FCR 101 at [37]. In relation to s 178 French J said at [38]: 'It is not necessary here to discern the outer limits of s 178 but rather to emphasise its importance in providing for wide ranging supervision by the Court of trustees who are appointed to administer the interests of bankrupts in the interests of creditors and, in so doing, to have regard also to the interests of the bankrupts.' (footnotes omitted) 20 Under s 116 of the Act all property that belonged to or was vested in a bankrupt at the commencement of the bankruptcy is property divisible amongst the creditors of the bankrupt. Section 116(2) introduces certain limited exceptions. Divisible property does not extend to, inter alia: '(b) the bankrupt's household property: … (ba) personal property of the bankrupt that: (i) has sentimental value for the bankrupt; and (ii) is of a kind prescribed by the regulations; and (iii) is identified by a special resolution passed by the creditors before the trustee realises the property. (c) the bankrupt's property that is for use by the bankrupt in earning income by personal exertion and: (i) does not have a total value greater than the limit prescribed by the regulation; or (ii) is identified by a resolution passed by the creditors; or (iii) is identified by an order made by the Court on an application by the bankrupt.' 21 The evidence before the Court is that the limit prescribed by regulation 6.04 of the Bankruptcy Regulations 1996 (Cth) and referred to in s 116(2)(c) of the Act is $3,050. 22 Under s 139P of the Act a bankrupt may be called upon to make contributions to the bankrupt estate where the income of the bankrupt during a contribution assessment period exceeds the income threshold amount applicable in relation to the bankrupt. I am informed that the relevant threshold is relevantly $45,000 of income before taxation. Needless to say, the income derived by the bankrupt from his 'business' does not approach that amount. 23 It was suggested by counsel for the bankrupt appearing pro bono, Mr H Altan, that the domain names to which reference has been made constituted property of the bankrupt that was for use by the bankrupt in earning income by personal exertion. Reference was made to the previous s 116(2)(c) which exempted tools of trade from a bankrupt's divisible property. In Re Vaughan; Vaughan v Official Trustee in Bankruptcy (1996) 66 FCR 121 Heerey J had to consider whether a bankrupt who taught oenology could claim that his store of wine constituted ordinary tools of trade. His Honour said, at 124: '… it seems to me inherent in the ordinary notion of a tool of trade that it is something retained permanently by the tradesman, albeit that it may wear out or have parts which need replacement from time to time, such as drill bits for a drill. Many trades require the use of consumables which partake of the nature of stock in trade. For example, a tailor has tools of trade such as scissors or a sewing machine, but also uses cloth and thread. It would not be an ordinary use of language to describe the cloth and thread as part of the tailor's tools of trade. Similarly, a portrait painter would have brushes and an easel, which would be tools of trade, but that expression would not cover paint and canvas.' 24 Whilst it is strictly unnecessary to have regard to what constituted a bankrupt's tools of trade, it is apparent from the history of the section that the focus of s 116(2)(c) of the Act is upon assets which are used by a bankrupt in earning income by 'personal exertion'. I have a complete inability to accept the proposition that a business' domain names constitute property that is used by a bankrupt in earning income by 'personal exertion'. It would seem to me that the exemption in respect of a floor covering layer would be directed at those tools of trade which one uses in the business of a floor covering layer rather than material which is in the nature of advertising for a business as a floor covering layer. 25 Counsel for the bankrupt has asserted that the Trustee's actions which need to relevantly be considered are, firstly, the failure of the Trustee to consider the future earning capacity of the bankrupt in running his business; secondly, the failure of the Trustee to consider the impact upon the bankrupt's ability to make a new start and thirdly, an improper purpose which is said to have actuated the sale by the Trustee to the petitioning creditor. It seems to me that there is no merit in the applicant's challenge to the Trustee's conduct in respect of any of these matters. The challenge for a Trustee is to get in the property of the bankrupt which is divisible property and realise it for the benefit of the creditors. 26 The Trustee owes no obligation to the bankrupt to allow him to continue with the business in which he was engaged at the time of the commencement of the bankruptcy. In relation to the alleged improper purpose of the sale, there is no suggestion that the Trustee erred in failing to have the value of the business name and the domain names determined before the Trustee embarked upon selling them. There is no suggestion that the Trustee erred in failing to allow more time for the bankrupt to introduce a potential purchaser. The highest that the bankrupt's case is put is that the intending purchaser had an 'improper purpose' of taking out a competitor or a former competitor and securing rights in relation to that former competitor's business. It seems to me that this was an entirely legitimate purpose for the purchaser to undertake. 27 What is material is whether or not by agreeing to pay $2,100 for the business that was acquired, or to be acquired, the purchaser was paying less than a proper price for the assets that were being acquired. Given the circumstances of the business it seems to me that there could be no suggestion that the price of $2,100 was other than a proper price for the assets to be acquired. In all the circumstances, I am of the opinion that the application should be dismissed with costs. I certify that the preceding twenty-seven (27) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Graham.