Khattar v Hills Shoppingtown Pty Ltd (subject to a deed of company arrangement)

This is an application by the plaintiffs pursuant to an amended notice of motion filed in Court today that, by way of equitable execution, a receiver be appointed to certain assets of the second defendant, Ms Fayad. For the reasons which follow, that order will be made.

Mr P Knowles of Senior Counsel appeared with Mr B Dziubinski of Counsel for the plaintiffs. Mr R Notley appeared for Ms Fayad. The Court acknowledges the assistance it has received from the parties' written and oral submissions.

It is not to diminish the thoroughness of Mr Notley's submissions to begin with the observation that his essential point in resistance to the appointment of a receiver was that the plaintiffs had not pursued to its conclusion an application to make Ms Fayad bankrupt.

The essential facts were not in dispute and may be shortly stated.

By a judgment of Justice Sackar delivered in April 2021, the plaintiffs obtained a judgment against the defendants for an amount which, with interest to date, stands at approximately $21.5 million. Despite various means of enforcement being attempted, which I will more fully describe, the plaintiffs have only been able to recover approximately $425,000.

The present application is sought only in relation to Ms Fayad's assets. This is because the first defendant is under administration and the third defendant is bankrupt.

The parties accepted that enforcement in equity is not the first resort which should be relied upon by a judgment creditor. The following attempts at enforcement have been made by the plaintiffs.

First, an examination notice was issued to the second defendant in May 2022. This disclosed, among other things, that Ms Fayad said that she had liabilities including a debt to the Australian Taxation Office (ATO) of $22.5 million, with a minimum of assets to meet those liabilities.

Second, a garnishee notice was issued to Ms Fayad's former solicitors. It is unnecessary for me to record why that was thought to be a potentially productive process. It yielded nothing.

Third, a garnishee notice was issued to the Court-appointed administrator of an estate of which Ms Fayad is a beneficiary. It is that which has produced the only recoveries to date, being two interim distributions from that estate to Ms Fayad.

Fourth, a writ against Ms Fayad's personal property was issued that was not able to be executed because the sheriff was unable to gain access to where that property was located. Ms Fayad never responded to the sheriff's attempts to arrange a time to be admitted to her residence for the purposes of execution of that writ.

Fifth, a writ was sought to be issued against her real property. However, this could not be done because, as a matter of practice, such a writ could not be issued in circumstances where the register already recorded caveats in favour of other secured creditors.

The sixth form of enforcement was the service of a bankruptcy notice on Ms Fayad. For reasons which I will set out, a creditor's petition consequent upon failure to comply with that bankruptcy notice was never issued, and therefore no sequestration order was sought. Mr Notley's opposition to the appointment of a receiver primarily rested on this failure to pursue Ms Fayad to bankruptcy.

In an affidavit sworn by Ms Fayad on 1 October 2024, she recorded:

Arising from that evidence, there was no dispute that Ms Fayad does not appear to have taken any steps, notwithstanding her "fragile" financial position and her apparent intention to consult an insolvency practitioner, to present a debtor's petition with a view to taking advantage of the protection of bankruptcy for herself.

Insofar as the plaintiffs’ failure to pursue Ms Fayad to bankruptcy, Mr Knowles SC put that there were two explanations.

First, as a result of the unsurprisingly numerous investigations that the plaintiffs have made in relation to Ms Fayad's and the other defendants' affairs, it had become apparent that those affairs involved complex corporate structures. Without any criticism of the bankruptcy system, the plaintiffs were of the view that those structures would likely be subject to a more rigorous forensic investigation by a receiver appointed on their application and, it must be said, for whom they were paying, than might occur in the context of a bankruptcy.

The second reason related to Ms Fayad's resolution recorded in her affidavit to resolve her tax debt in proceedings currently before what is now the Administrative Review Tribunal. These concern an assessment that had been issued for some $20 million. Mr Knowles SC’s point was, and I accept, that if on whoever's petition Ms Fayad is made bankrupt, the pursuit of a review of that assessment in the Tribunal would come to an end.

While ultimately not dispositive, I record that Mr Notley's submissions, after referring to the failure to pursue the option of bankruptcy against Ms Fayad, also relied on the fact that some of Ms Fayad's assets that would be subject to the receivership were either quite small shares of a larger piece of property or were interests as a joint tenant or tenant in common in property belonging to the third defendant that were already under the control of his trustee in bankruptcy.

Finally, as a result of a colloquy between the bench and Mr Notley, this undertaking was proffered to the Court by Ms Fayad:

There was no dispute as to the legal principles applicable to equitable execution of the Court's judgments. An oft-cited statement of those principles is found in the decision of Ball J (as his Honour then was) in Hall v Foster [2012] NSWSC 974:

The parties focused their attention, as is common in applications of this kind, on the last sentence of his Honour's judgment which I have just quoted: "A court should only grant equitable execution where the legal remedies available are inadequate".

Without suggesting that his Honour's expression is to be given statutory force, as I have already noted, it is frequently relied upon. The present case invites consideration of what is meant by "inadequate" in his Honour's summary.

The Macquarie Online Dictionary defines "inadequate" to mean "not adequate". It is therefore necessary to turn to the definition of "adequate", which includes "Equal to the requirement or occasion, fairly sufficient, suitable or fit". This means that in determining an application to appoint a receiver in aid of execution, the Court must consider whether the legal remedies available are not fairly sufficient, suitable or fit. To do this involves an assessment of the particular facts.

Moreover, in my respectful opinion, it does not mean that all legal means must have been exhausted such that a judgment creditor must, as it were, tick all the legal enforcement "boxes", including bankruptcy, before the Court will grant equitable execution. To take that approach would be inimical to the traditionally flexible nature of equitable remedies in ameliorating any inadequacy or injustice in the particular case of the application of the remedies available at law.

In this case, there are three reasons why the Court will accede to the plaintiffs' application.

First, the legal remedy of bankruptcy is not suitable or fit in the facts of this case. This is because I accept Mr Knowles SC’s submission that the bankruptcy of Ms Fayad will almost certainly bring her challenge to her tax assessment to an end. Even without evidence as to the merits of her challenge, the Court is satisfied that will deprive the plaintiffs of any possibility that any pool of funds available to unsecured creditors may be increased by diminution of the liability to the ATO.

Second, I accept Mr Knowles SC’s submission that the reason to which I have just referred overcomes what might otherwise be the persuasive value of the undertaking.

Third, as a matter of discretion, the Court is not prepared to give the option of bankruptcy the weight for which Ms Fayad contends. This is because despite her "fragile" financial position and her indication of seeking insolvency advice within seven days of 1 October 2024, Ms Fayad has not presented a debtor's petition and is continuing to challenge her assessment in the Tribunal. I respectfully agree with Mr Knowles SC’s characterisation that it lies ill in the mouth of Ms Fayad to suggest that the plaintiffs should be thwarted in their application for a receiver by not having pursued bankruptcy in circumstances where it appears she herself has not taken any action in that regard, or put on any evidence about the outcome of her consultations, if there were any, with an insolvency practitioner.

Finally, for completeness in dealing with Mr Notley's submissions, I record that the Court is not satisfied that the fact that some parts of the assets the subject of the proposed receivership are already under the control of the third defendant's trustee in bankruptcy is a sufficient reason not to appoint the receiver. Separate controllers of the interests of joint tenants or tenants in common is a phenomenon with which the Court and experienced insolvency practitioners are well familiar. No particular problem beyond the fact of the joint ownership has been identified. To the extent such ownership could be described in and of itself as a problem (a proposition with which I disagree), it is not sufficient to militate against the appointment of a receiver.

The Court will make the orders sought in the amended notice of motion and hear the parties as to costs.