It’s one thing to allege that creditors of a bankrupt knowingly participated in a fraudulent settlement to deny others a share of the assets. It’s another thing to allege that the participants’ lawyers were in on it.
That however is where things stand as SV Partners’ Michael Carrafa and Fabian Micheletto pursue claims for damages and equitable compensation against various associates and creditors of bankrupt Peter Ronald Evans, against Swaab Attorneys and Swaab partner Marc Baddams.
In a statement issued to iNO this morning Swaab managing partner Mary Digiglio said “All allegations of improper conduct on the part of Mr Baddams or on behalf of Swaab are firmly denied and we will continue to defend the claims made in the proceedings.” iNO makes no suggestion of wrongdoing by any party to the proceedings.
“It is to be wondered how the Official Trustee’s caveat over the property could lapse without notice being given to the Official Trustee. But the Official Trustee was indeed apparently unaware of this settlement negotiated between Cleveland, Ficaro and Mr Asfar.” Justice Michael Slattery.
The significance of what the trustees are alleging was illuminated this week in the judgment of NSW Supreme Court judge Michael Slattery, who delivered his decision in respect of an application brought by Swaab Attorneys seeking access to documents over which Carrafa and Micheletto are claiming privilege.
Those documents are potentially relevant in respect of Swaab’s defence at the upcoming trial, and while his honour ordered the parties to try and agree which documents were no longer privileged it was the claims in respect of the wider case that caught iNO’s attention.
As is outlined in Carrafa v Asfar (No. 2) [2022] NSWSC 1177 the trustees allege that a deed of settlement entered into in 2016 was a dishonest scheme which was intended to deliver to the scheme participants the benefit of a property in sought after Hardys Bay on the NSW Central Coast.
The Hardys Bay property formed part of the deceased estate of the bankrupt’s late mother, who died in 2015, only months after her son’s estate was sequestered and the Official Trustee appointed.
Carrafa and Micheletto took over the file in May 2016 but according to the evidence before the court only became aware of the settlement deed in October of that year.
By a will the deceased made in 2010 she left her entire estate to her only child, the bankrupt.
But central to the dispute is a will dated 2012 which bequeathed Ms Evans’ estate to a Mr Johnny Afsar, whose only connection to the deceased seems to be by virtue of his employment with a company to which the bankrupt had previously been a director.
Carrafa and Micheletto dispute the validity of the 2012 will. The want orders revoking it and a grant of probate made in favour of the 2010 will. Given the judge’s comments their skepticism appears justified.
“Ms Evan’s 2012 will looks quite unusual,” the judge said. “On the face of it Ms Evans gave the entirety of her estate not to her only son Mr Evans but to Mr Asfar,” the judge said.
“The 2012 will only benefitted Mr Evans if Mr Asfar predeceased him. The 2012 will was purportedly witnessed by Mr Asfar’s parents. Mr Asfar has no connection with Ms Evans either by blood or socially.”
In the aftermath of Ms Evans’ death Afsar obtained a grant of probate and within days had himself registered as proprietor of the Hardys Bay property.
Meanwhile two creditors of the bankrupt had been busy pursing debts and in 2013 Cleveland Investment Global Limited (“Cleveland”) and Ficaro Pty Limited (“Ficaro”) obtained judgments against him respectively in the sums of $259,167.23 and $110,067.23.
“Once Mr Asfar was in the position of registered proprietor of the Hardys Bay property, the plaintiffs allege that some of Mr Evans’ creditors, with the knowing acquiescence of the bankrupt himself, sought by a dishonest scheme to acquire the benefit of the Hardys Bay property to the disadvantage of the general creditors of Mr Evans bankrupt estate,” Justice Slattery said.
It should be noted here that his honour made the point that Ficaro, Cleveland and Swaab Attorneys deny that the deal was secured in a clandestine manner, deny that it was a breach of fiduciary duty or in any way improper or contrary to public policy and that Swaab partner Marc Baddams insists he was “merely acting in the role of solicitor, and did not participate in any dishonest scheme alleged against Cleveland and Ficaro”.
That scheme as alleged by the plaintiff trustees involved the judgment creditors acting on the presumption that the 2012 will created a bare trust in favour of their debtor and that Mr Afsar was therefore the bare trustee.
So Cleveland and Ficaro instructed Baddams to seek freezing orders to prevent Afsar dealing with the estate assets, and by so instructing Swaab Carafe and Micheletto argue that the judgment creditors “assumed a fiduciary duty to the plaintiffs as trustees of Mr Evans’ bankrupt estate for the benefit of all the creditors of the estate”.
The freezing orders were subsequently granted by Justice Francoise Kunc and from there the impugned settlement was negotiated.
“The settlement was recorded in a deed in which Mr Asfar paid Cleveland $400,000, in exchange for allowing a caveat that had been lodged by the Official Trustee over the Hardys Bay property to lapse and the freezing orders to be discharged,” the judge said.
“It is to be wondered how the Official Trustee’s caveat over the property could lapse without notice being given to the Official Trustee,” Justice Slattery observed, adding “But the Official Trustee was indeed apparently unaware of this settlement negotiated between Cleveland, Ficaro and Mr Asfar”.
“The plaintiffs alleged that the deal was secured in a clandestine manner, without telling the Official Trustee, the plaintiffs or any other creditor of Mr Evans.
“That allowed Cleveland, potentially the only unsecured creditor, to receive full payment of its debt ahead of all the other unsecured creditors in Mr Evans’ bankruptcy.
“The plaintiffs seek to set aside the settlement deed as contrary to public policy and as a fraud upon third parties, the creditors of Mr Evans.”
A date for hearing has yet to be allocated.
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In the current days of PEXA electronic conveyancing one would expect that there would be some level of document trail held by persons who may have served a Lapsing Notice as to the circumstances of service. Of course if it was withdrawn it would be necessary for the “Subscriber” responsible for the lodgement of the withdrawal of Caveat to have complied with the requirements of the NSW Participation Rules ver 6 as to supporting documentation and authority