Allphones Retail Pty Ltd v Davids - [2010] FMCA 368

FEDERAL MAGISTRATES COURT OF AUSTRALIA

ALLPHONES RETAIL PTY LTD v DAVIDS

[2010] FMCA 368

BANKRUPTCY – Creditor’s petition – whether debtor satisfied court that able to pay his debts – sequestration order.

Bankruptcy Act 1966 (Cth), s.52

McIntosh v Shashoua (1931) 46 CLR 494; [1931] HCA 56
Re Sarina; Ex parte Council of the Shire of Wollondilly (1980) 43 FLR 163; [1980] FCA 66
Sandell v Porter and Another (1966) 115 CLR 666; [1966] HCA 28

Applicant:

ALLPHONES RETAIL PTY LIMITED

ACN 008 168 090

Respondent:

DEREK DAVIDS

File Number:

SYG 302 of 2010

Judgment of:

Barnes FM

Hearing date:

20 May 2010

Delivered at:

Sydney

Delivered on:

20 May 2010

REPRESENTATION

Solicitors for the Applicant:

Eakin McCaffery Cox

Respondent:

In person

ORDERS

A sequestration order be made against the estate of Derek Davids.
The applicant creditor’s costs (including any reserved costs) be taxed (in accordance with the Federal Court Rules) and paid from the estate of the respondent debtor in accordance with the Act.
Under the Bankruptcy Regulations a copy of this sequestration order be given to the Official Receiver in Sydney within 2 days.
All proceedings under the sequestration order be stayed for 21 days from today’s date.

THE COURT NOTES THAT:

The date of the act of bankruptcy is 17 August 2009.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA
AT SYDNEY

SYG 302 of 2010

ALLPHONES RETAIL PTY LIMITED

ACN 008 168 090

Applicant

And

DEREK DAVIDS

Respondent

REASONS FOR JUDGMENT

(Revised from transcript)

The applicant creditor, Allphones Retail Pty Limited (Allphones), seeks that a sequestration order be made against the estate of the respondent debtor, Derek Davids. A creditor’s petition was filed and presented on 16 February 2010. The creditor’s petition claims that Mr Davids owes Allphones the amount of $8,692.20 pursuant to a judgment entered on 27 May 2009 against the debtor in the Downing Centre Local Court in proceedings number 1649 of 2009.
The petition relies on an act of bankruptcy said to have been committed by the respondent debtor within six months before presentation of the petition, in that Mr Davids is said to have failed to comply, on or before 17 August 2009, with the requirements of a bankruptcy notice served on him on 27 July 2009 or to satisfy the court that he had a counter-claim, set-off, or cross demand equal to or more than the sum claimed in the bankruptcy notice that he could not have set up in the action in which the judgment referred to in the bankruptcy notice was obtained.
The creditor has filed the usual affidavits in these proceedings in relation to the requirements of the Bankruptcy Act 1966 (Cth) (see s.52(1)). It is necessary to say something first about the affidavit of service of the bankruptcy notice sworn by Daryl John West on 27 July 2009. It is not in the proper form, lacking any heading or reference to the Federal Magistrates Court of Australia. Insofar as it fails to comply with the requirements of the Federal Magistrates Court Rules in its form, the court has power to dispense with compliance with those rules. I would, insofar as necessary, dispense with compliance with such requirements. I am satisfied that in all other respects the affidavit contains the necessary details. A copy of this affidavit was served on the debtor at the same time as the creditor’s petition. No issue was taken by the debtor in relation to the form of the affidavit.
On the basis of that affidavit I am satisfied with service of the Bankruptcy Notice on the debtor on 27 July 2009 by personal service. A copy of Bankruptcy Notice NN2879/09 is annexed to the affidavit to which is attached a sealed copy of the judgment made and entered on 27 May 2009 in the Local Court of New South Wales. I am satisfied that the Bankruptcy Notice was issued on 6 July 2009 in correct form for a debt of $2,000 or more and that it relies on a final judgment or order not more than six years old.
It is not in dispute that the debtor did not comply with the Bankruptcy Notice. I am satisfied on the evidence before the court that the date of the act of bankruptcy was 17 August 2009. Hence the creditor’s petition, which was presented on 16 February 2010, was presented within six months of the date of the act of bankruptcy. It is in correct form, for a debt of $2,000 or more and otherwise satisfies the requirements of the Bankruptcy Act, Rules and Regulations.
Also before the court are affidavits verifying the petition, including an affidavit verifying paragraph 4 and affidavits of service of that affidavit and of the creditor’s petition. I am satisfied with service of this affidavit and with service of the creditor’s petition. Affidavits of final search and final debt were filed at the commencement of the hearing. As the debtor was appearing by way of telephone link and was self-represented, those affidavits were read to him. No issue was taken with that material.
While the debtor opposed the creditor’s petition, he did not take issue in his notice of opposition or in oral submissions with any of the formal matters relied on by the creditor. I am satisfied that the debtor committed the act of bankruptcy alleged in the petition and with proof of the other matters required by s.52(1) of the Bankruptcy Act.
The grounds of opposition are first that the respondent is “solvent and in a capacity to repay [his] debts” and second that “the action taken by the creditor may affect [his] employment and thus [his] ability to maintain a capacity to repay [his] debts”.
It is necessary to consider s.52(2) of the Act which provides:
If the Court is not satisfied with the proof of any of those matters, or is satisfied by the debtor:
(a) that he or she is able to pay his or her debts; or
(b) that for other sufficient cause a sequestration order ought not to be made;
it may dismiss the petition.
In support of the notice of opposition the debtor relied on an affidavit sworn on 17 May 2010, which very shortly stated that he opposed the creditor’s petition on the grounds that he was “solvent and in a financial capacity to repay [his] debts within a reasonable period of time” and in which he proposed to repay the debt over a four month period commencing on 10 June 2010 under an annexed schedule. The annexure contains a proposal for repayment of the debt by instalments of $1,000 a fortnight from 27 May 2010 (sic) over four months (the last instalment being $693) and stated that if any “extra income” was “encounter[ed]” the debtor would repay the creditor such amount.
Included in the annexure was a claim that the debtor’s income (from an undisclosed source) was $1,593 paid fortnightly. He listed fortnightly expenses, which together with an amount of $1,000 a fortnight would come to $1,523 a fortnight. He was not required for cross-examination.
The debtor contended on the basis of his affidavit that he had the financial capacity to repay the debt due to the creditor. He claimed he had factored it into his budget to ensure that the debt was repaid within a schedule for repayment of four months.
However Mr Davids has not put any evidence before the court of assets or as to whether he has any other debts and did not seek to do so, although this was drawn to his attention. There is no suggestion that he has any assets. He did not disclose whether he had any other debts. His proposal made provision only for payment of “fortnightly” expenses of rent, transport, food, utilities, entertainment and “[o]ther” and the debt owed to the creditor. He has not put any evidence before the court of any ability to borrow to repay the debt, or of any ability to repay the whole of the debt other than by way of the suggested repayment schedule. There is no suggestion that he has paid or tendered any part of the debt relied on by the creditor.
The solicitor for the creditor indicated that the debtor’s proposal was not acceptable to the creditor.
Solvency in the sense provided for in s.52(2) requires that the respondent debtor be able to pay his debts as they fall due (see Re Sarina; Ex parte Council of the Shire of Wollondilly (1980) 43 FLR 163; [1980] FCA 66). What is in issue is whether the debtor has established that he is in a position to pay all the debts he owes within a reasonable time. In this case there is, however, no evidence before the court as to whether the debtor has any other debts.
The test in s.52(2) does not necessarily require the debtor to have sufficient cash at hand or available (for example, on deposit) to pay all creditors in full immediately. The funds treated as being available to the debtor to pay his or her debts are not limited to immediately available cash resources and may extend to moneys which he can procure by realisation by sale, or by mortgage or by pledge of assets within a reasonably short period, relative to the size and amount of the debts and to the circumstances, including the nature of the business of the debtor (Sandell v Porter and Another (1966) 115 CLR 666; [1966] HCA 28). However there is no suggestion in this case that the debtor has other realisable assets as discussed in Re Sarina.
The debtor does not seek to rely on a capacity to borrow money to pay his or her debts. He does not suggest that he is able to obtain a loan, that he would be in a position to secure or otherwise repay any such loan (which would constitute a new debt) or that on such a basis he is able to pay his debts (or indeed, the debt to the creditor). Hence it is not necessary to consider the authorities in relation to whether an ability to pay one’s debts includes an ability to pay debts from the money of other people.
Neither of the parties addressed me on what constitutes the ability to pay debts as they fall due or within a reasonable time. The solicitor for the creditor contended that the debtor had not established his claim of solvency and referred to the fact that his proposal involved a strict budget with no provision for contingencies, that it revealed that very limited funds would be available even on the applicant’s proposal, and that it was a proposal for repayment over a lengthy period of time.
I have borne in mind the size of the debt owed to the creditor and the debtor’s proposal. However, evidence as to whether the debtor has any other debts and/or assets is not before the court. This is not a case in which I can be satisfied that the debt on which the creditor relies is the only debt. I am not satisfied by the debtor on the incomplete evidence before the court that he has the ability to pay or to borrow to repay his debts. While this issue was raised with the debtor, there was no suggestion by him that he would have the means to borrow or that he was otherwise in a position to repay the debt to the creditor apart from in accordance with the proposal in his affidavit.
The applicant did not suggest that he was able to pay his debts as and when they fell due. Rather, he proposed that over a period of time he may be able to repay the debt to the creditor from future income. He made no allowance for contingencies. While I accept Mr Davids’ unchallenged evidence in relation to the quantum of income from his present employment, there is otherwise very limited evidence before the court. On the evidence before the court the proposal for repayment of the debt owed to the creditor by instalments is not such as to establish solvency in the s.52(2)(b) sense. On balance, I have not been satisfied by the debtor that he is able to pay his debts as provided for in s.52(2)(a) of the Act.
I have considered whether for other sufficient course a sequestration order ought not to be made. While the debtor has made a proposal to repay the amount due to the creditor, it is well-established that after the commission of an act of bankruptcy and presentation of the petition, even if the debtor tenders to the creditor the whole or part of the debt (which has not happened in this case) that would not, in itself, be other sufficient cause within s.52(2)(b) of the Act. The creditor is entitled to refuse such tender, McIntosh v Shashoua (1931) 46 CLR 494; [1931] HCA 56. Hence the debtor’s proposal does not of itself constitute other sufficient cause.
No other basis for dismissing the creditor’s petition has been suggested, except that it is claimed that the action taken by the creditor may affect the applicant’s employment and thus his ability to maintain a capacity to repay his debts. As I explained to Mr Davids, there is no evidence before the court in support of this proposition. The statement to this effect in the notice stating grounds of opposition is not such as to establish other sufficient cause.
On the other hand, on the evidence before the court the circumstances are not such that there cannot be any basis on which money may be recovered were a sequestration order to be made, such as to constitute other sufficient cause.
Although not expressed in these terms, I have also considered whether the debtor’s contentions might be taken as seeking an adjournment in order to enable him to repay the debt in accordance with his proposal for repayment of $1,000 a fortnight out of an income of $1,593 per fortnight over a period of four months (the last instalment being $693).
The petition has been before the court on a number of occasions since 8 April 2010. A creditor has a prima facie right to the making of a sequestration order. Having regard to the interests of the parties and the interests of the administration of justice and the importance of avoiding or minimising delay once bankruptcy proceedings have been instituted, on the incomplete evidence from the debtor as to his financial position and in the absence of any evidence as to negotiations which would result in obtaining funds from some other source for the payment of the debt relied on by the creditor, I am not satisfied that this is a case in which it is appropriate to adjourn the creditor’s petition.
Accordingly, being satisfied with the matters in s.52(1) of the Bankruptcy Act and not satisfied by the debtor that he is able to pay his debts within s.52(2)(a) of the Act or that for other sufficient cause a sequestration order ought not to be made, I make a sequestration order against the estate of Derek Davids with the usual order as to costs.
As discussed with the solicitor for the creditor, and in the absence of opposition to such a procedure, I will in the particular circumstances of this case also order that all proceedings under the sequestration order be stayed for 21 days.

I certify that the preceding twenty-seven (27) paragraphs are a true copy of the reasons for judgment of Barnes FM

Associate:

Date: 10 June 2010