American Express Australia Limited v Kerr (No.2)
[2008] FMCA 1569
•17 November 2008
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| AMERICAN EXPRESS AUSTRALIA LIMITED v KERR (No.2) | [2008] FMCA 1569 |
| BANKRUPTCY – Bankruptcy petition – whether agreement or arrangement with creditor before expiration of time for compliance with bankruptcy notice – proposal for creditor to take security did not reach agreement – insufficient evidence of solvency – no other reasons for refusing sequestration order – considerations of public interest – sequestration order made. |
| Bankruptcy Act 1966 (Cth), ss.5, 42, 44(2), 44(3), 52(1), 52(1)(a), 52(2), 52(3), 60(2) Bankruptcy Regulations 1996 (Cth), reg.16.01 Uniform Civil Procedure Rules 1999 (QLD), r.103 |
| Australia & New Zealand Banking Group Pty Ltd v Foyster [2000] FCA 400 Cain v Whyte (1933) 48 CLR 639 Deputy Commissioner of Taxation v Catanese [1999] FCA 564 Stankiewicz v Plata [2000] FCA 1185 Totev v Sfar [2006] FCA 470 Wolff v Donovan (1991) 29 FCR 480 |
| Applicant: | AMERICAN EXPRESS AUSTRALIA LIMITED (ACN 108 952 058) |
| Respondent: | JOYE MAREE KERR |
| File Number: | SYG 642 of 2008 |
| Judgment of: | Smith FM |
| Hearing dates: | 21 August, 6 and 17 November 2008 |
| Delivered at: | Sydney |
| Delivered on: | 17 November 2008 |
REPRESENTATION
| Counsel for the Applicant: | Mr S Docker |
| Solicitors for the Applicant: | Kemp Strang |
| Representing the Respondent: | Mr I Kerr (with leave of the Court) |
ORDERS
A sequestration order be made against the estate of JOYE MAREE KERR.
The applicant creditor’s costs, including all reserved costs, be taxed and paid from the estate of the respondent debtor in accordance with the Bankruptcy Act 1966 (Cth).
Note that the date of the act of bankruptcy is 28 November 2007.
The applicant must within 2 days give a copy of this order to the Official Receiver in Sydney.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 642 of 2008
| AMERICAN EXPRESS AUSTRALIA LIMITED (ACN 108 952 058) |
Applicant
And
| JOYE MAREE KERR |
Respondent
REASONS FOR JUDGMENT
(revised from transcript)
This is a petition filed on 17 March 2008, in which American Express Australia Limited (“Amex”) relies upon a judgment debt in the amount of $116,449.33, owing under a judgment entered in the District Court on 11 October 2007. The judgment was entered by consent pursuant to terms of settlement entered into by Mrs Kerr and Amex in contested proceedings in the District Court.
The terms of settlement drew a line under contested issues concerning Mrs Kerr’s outstanding liabilities under an Amex credit card facility. The facility had been used by Mrs Kerr in the course of a pharmacy business, as a running account which she had authorised a supplier of pharmaceuticals, Australian Pharmaceutical Industries (Queensland) Pty Ltd (“API”), to debit. The evidence before me suggests that there were obscurities as to how the pharmaceutical company had debited amounts to the Amex credit account, and records concerning these matters may not have been readily available. They remain unavailable.
Although Mrs Kerr initially conceded a liability to Amex which was reflected in the judgment debt, she now wishes to withdraw that concession and to dispute the amount of her liability. She has in the past litigated with API her liabilities relating to the Amex account and other debts, and the taking of security for those debts by API. The nature of her past litigation with API is not clearly shown in the evidence before me. Similarly, the prospects of her successfully challenging these debts in new litigation which she has commenced against API in recent months in the District Court of Queensland are not clear.
Throughout the proceedings in this Court, Mrs Kerr has been represented by her husband, whom she has appointed to represent her under a power of attorney. All the evidence has been presented by Mr Kerr, and Mrs Kerr has never sworn an affidavit of her own. Mr Kerr is not a lawyer, but he has, in my opinion, been given a very full opportunity to present evidence and arguments in support of his wife’s contentions in opposition to the petition. I have, indeed, received a great deal of evidence of dubious relevance and admissibility, which he has tendered or referred to in the course of his submissions.
It did, however, become necessary to draw the line on an affidavit containing substantial new evidence, which he sought to rely upon towards the end of his oral submissions today. The affidavit and evidence had not been served on Amex, and today’s adjourned hearing had been appointed for the purpose of closing submissions only. Evidence had been completed at the hearing conducted on 6 November 2008. In any event, as I explained when disallowing the tender of the new material, it would not, in my opinion, have altered the conclusions which I have drawn in the matter.
Mr Kerr’s various contentions on behalf of his wife have been presented to the Court in numerous outlines of submission, which he tendered at every listing of the matter before me, and also in a notice of grounds of opposition. I shall attempt to isolate and address all his substantial contentions.
Mr Kerr’s first area of contention invited the Court to look behind the judgment debt in the District Court, so as to arrive at a conclusion that “in truth and reality” no debt is owing to Amex as claimed.
The Court is not bound to look behind a judgment debt which is relied upon in a petition, and authorities including those cited in Wolff v Donovan (1991) 29 FCR 480, point to a reluctance of the Bankruptcy Court to embark on a retrial of issues which have been fully determined in contested proceedings whether by consent order or judgment after trial. The present is such a case, notwithstanding that ultimately the judgment which was entered against Mrs Kerr was a default judgment on amounts owing which were outstanding under terms of settlement signed by Mrs Kerr.
Where a debtor presents evidence to the Bankruptcy Court inviting it to embark on a trial of factual issues going to the existence of the debt, an initial threshold issue arises, which is sometimes referred to as a discretion in the Bankruptcy Court. It requires a provisional assessment of the evidence which the debtor is inviting the Court to receive, so as to decide whether the Court should exercise its power to be satisfied by the creditor’s affidavit of debt, as permitted by s.52(1)(a), or whether it should allow a full trial as to the existence of the indebtedness. In the present case, I have decided that the Court should not embark on a trial as to Amex’s conduct of Mrs Kerr’s credit card account, in particular, by examining whether within the amount now claimed as outstanding under the consent judgment there were any incorrect or unauthorised debiting of the account by API.
Mr Kerr’s submissions and evidence contain assertions that there was such debiting, and he makes inadequately verified estimates of the alleged overcharging. However, the challenged debiting goes back many years, and the original agreements between Mrs Kerr, API and Amex were made many years ago. Critical documents no longer exist. I am not persuaded on such evidence as has been presented to me that Amex should not now be permitted to rely upon the terms of settlement and the debt arising under its terms.
I am reinforced in my conclusions by reason of the fact that Mrs Kerr, during the pendency of the petition, unsuccessfully applied to the District Court to set aside the judgment now relied on by Amex. Her application was addressed by Curtis DCJ on 12 August 2008, in a considered judgment in which he assessed evidence presented by Mr Kerr in support of his challenge both to the terms of settlement and the underlying indebtedness to Amex. The material presented to Curtis DCJ appears to have been more extensive than the evidence presented to this Court in support of the challenges to the manner in which Amex allowed debits to be made to the credit facility.
His Honour addressed Mr Kerr’s central challenge to API’s debiting of the Amex account, which is that its authority to do this cannot be established because of the absence of relevant evidence in 2008. However, as his Honour points out at [21] of his judgment:
Although American Express required, in respect of each Recurrent Billing Charge, the submission of an agreed form particularising the charges, American Express did not undertake to Mrs Kerr that it would retain those forms for an indefinite period of time.
His Honour was not persuaded by Mr Kerr’s submission that cogent evidence existed to establish the absence of relevant authorisations by Mrs Kerr and unauthorised debiting by API. I find myself in the same position as his Honour.
In relation to Mr Kerr’s challenge to the terms of settlement, his Honour was not persuaded that Mrs Kerr’s consent was “vitiated by any ignorance on her part concerning the merit of the case against her, or the availability of any defence”. I am of the same opinion as his Honour, including due to the absence of any evidence from Mrs Kerr herself on her relevant state of mind.
In my opinion, the failure of Mrs Kerr’s application to set aside the judgment debt relied upon by Amex in support of the petition provides further reason for the Court to decline itself to embark upon a trial of the underlying correctness of Amex’s claim under the credit card facility. I am, therefore, not persuaded that the Court should not accept the affidavit verifying the debt, and I am satisfied that the debt relied upon in support of the petition exists.
A related contention by Mr Kerr is that the petition should be dismissed because he has claims against API arising from the unauthorised debiting of the credit card facility and its subsequent conduct to secure and recover debts owing to it by Mrs Kerr and Mr Kerr. However, so far as Amex is concerned, I am not satisfied that these contentions identify any “counter‑claim, set‑off or cross demand” that Mrs Kerr could not have set up in the District Court action in which the judgment debt was obtained by Amex, which was relied upon in the bankruptcy notice which was served on Mrs Kerr on 7 November 2007 and which is now also relied upon in the petition. They therefore do not provide any reason for setting aside the bankruptcy notice or treating it as invalidly issued.
Mr Kerr conceded that the bankruptcy notice NN4373/07 was served on Mrs Kerr on 7 November 2007 at 6.15 pm, personally by a process server. However, he disputed that she committed an act of bankruptcy 21 days after service of that notice.
In his submissions, this was because Mrs Kerr and the creditor arrived at “an arrangement to the creditor’s satisfaction for settlement of the debt”, which was one of the alternatives which the debtor was required to achieve within 21 days of service, pursuant to the terms of the notice. It is submitted by Mr Kerr that this was arrived at on 29 November 2007 and before the expiry of the 21 day period, so that no act of bankruptcy occurred as is relied upon in the petition. His submission required the Court to find that 21 days should be counted so as to include 29 November 2007, rather than in the manner submitted by Amex, in which the 21 days expired at midnight on 28 November 2007.
Mr Kerr submitted that the notice should be deemed to have been served on 8 and not 7 November 2007, because it was served after 4 pm. He relied upon r.103 of the Uniform Civil Procedures Rules 1999 (QLD), which he claims provides that: “If a document is served on a person after 4.00p.m., the document is taken to have been served on the next day”.
However, I accept the submissions of Amex that this rule has no relevance to the computation of time for the purposes of the Bankruptcy Act and, in particular, for the computation of time for compliance with a bankruptcy notice. Such notices are served under reg.16.01 of the Bankruptcy Regulations 1996 (Cth), and service is not the subject of any rules of Court whether Federal or State. The regulations make no provision for a time by which service must be effected, and in my opinion they allow personal service to be effected at any time. Their effect is that time should be counted from the date of actual service. I therefore am satisfied that the act of bankruptcy occurred on 28 November 2007.
Since Mr Kerr did not contend that any “arrangement” had been reached before 29 November 2007, it is not necessary for me to examine the communications on that day which he relies upon. However, these were part of a subsequent series of exchanges which I shall need to examine below in relation to other contentions of Mr Kerr, and it is appropriate that I note my conclusion about what happened on 29 November 2007.
Both parties referred me to Deputy Commissioner of Taxation v Catanese [1999] FCA 564, where Kenny J discussed relevant authorities as to the meaning of an “arrangement” in the context of compliance with a bankruptcy notice. Although the word might suggest that some relaxation to normal principles of contract law might apply, Kenny J appears to have been of the view that it at least needs evidence of some consensual plan or understanding arrived at between creditor and debtor, so that there has been a meeting of minds on critically significant terms under which a creditor promises not to press for immediate payment of the debt. In my opinion, the evidence which I shall recount below, clearly never arrived at such a consensus in the exchanges between Amex and Mrs Kerr, or their agents, before and on 29 November 2007.
Mr Kerr also relies upon his exchanges with Amex in support of a contention that the petition should be dismissed on the ground that it cannot rely upon the judgment debt, by reason of s.44(2) of the Bankruptcy Act 1966 (Cth). He argues that his exchanges on 29 November 2007 and subsequently had the result that Amex became a secured creditor, and that it has not disclaimed its security.
That section provides:
(2)Subject to subsection (3), a secured creditor shall, for the purposes of paragraph (1)(a), be deemed to be a creditor only to the extent, if any, by which the amount of the debt owing to him or her exceeds the value of his or her security.
There is provision in s.44(3) for a secured creditor, in effect, to disclaim its security so as to rely upon a secured debt when bringing a bankruptcy petition. Such a disclaimer is not found in the petition or submissions of Amex in the present case.
Under s.5 of the Bankruptcy Act, a secured creditor is “a person holding a mortgage, charge or lien on property of the debtor as a security for a debt due to him or her from the debtor”.
Mr Kerr contends that the arrangements made by him on Mrs Kerr’s behalf with Amex gave rise to the possession by Amex, at least by the time that it filed its petition, of such a security. In effect, he alleges that it had obtained an equitable mortgage or charge arising from an agreement by Mr and Mrs Kerr to give a mortgage over their home. He suggests that, indeed, they have executed such a security document pursuant to their agreement, although it has not been delivered to Amex.
The evidence, while unclear, suggests that there were exchanges between the parties after Mrs Kerr defaulted in her payments under the terms of the settlement in the District Court made on 22 February 2007. Mr Kerr gave evidence that after she was served with the bankruptcy notice, he instructed a solicitor, Mr Law, to contact Amex and its solicitors at Kemp Strang Lawyers about the debt. He agreed that he had no relevant communications himself, until 29 November 2007.
Mr Law wrote to Kemp Strang by facsimile sent on 26 November 2007 at 12.44 pm, saying:
We have been asked by our client to request you not to proceed on the Bankruptcy Notice as our client has a program under way to realise moneys that will pay out your client and other creditors. We enclose details of the program.
We respectfully request that you contact us again at the end of January 2008 to discuss the stage reached then and what further steps are to be taken.
The enclosures were a series of emails sent by Mr Kerr to Mr Law and some valuations of his home. In his last email to Mr Law, Mr Kerr is asking for time to pay, being “end of January please (= 2 months wait)?” It is clear that, on Mr Kerr’s instructions, Mr Law was doing no more than asking for an ill defined period of delay before Amex took further action. He was offering only some vague proposals for a “block split process” of the real estate or some other process of realisation of that asset. Certainly, this letter gives no suggestion that there was a concluded arrangement at the time that it was sent, nor that, indeed, it was expected that any arrangement was about to be arrived at.
On 29 November 2007, Mr Kerr decided to make direct contact with Amex and its solicitors. He gave evidence of telephoning the relevant operations manager at Amex, Mr Grieve. Mr Grieve agrees that he received a call from Mr Kerr, but has little memory of what was said in it. Mr Kerr’s memory is not extensive, but he gave evidence that a conversation occurred, and he made a note of it in a diary. His note was that Mr Kerr said to Mr Grieve: “we will not contest notice ‑ will settle”. Clearly, the reference to “notice” is to the bankruptcy notice, which on my above findings had expired the previous day. Mr Kerr made no note suggesting that Mr Grieve said anything amounting to an acceptance of any proposal made by Mr Kerr. In my opinion, considering all the evidence given by Mr Kerr and Mr Grieve, Mr Grieve said no more than that Mr Kerr should discuss the situation with Amex’s solicitors at Kemp Strang. I am unable to find that any “arrangement”, or any legally binding agreement, was arrived at in that conversation bearing on Amex’s ability to proceed in bankruptcy relying on the bankruptcy notice.
Mr Kerr says that he telephoned a senior solicitor at Kemp Strang, Ms Roppolo, on the same day and said the same thing to her. Again, the balance of evidence is that she said no more to him than that he should speak to another solicitor in the firm, Ms Foley, who had carriage of the file.
Mr Kerr did speak to Ms Foley, and she made a file note that he was proposing “end of Feb 08 ‑ payout, give us a caveat over property”, and that he instructed her “don’t correspond with lawyer”. Her recollection is that she said to him that she would need to take instructions about any such proposal, and that meanwhile she would need to have Mr Kerr’s power of attorney to act for his wife. Corroboration of her recollection is given by the fact that Mr Kerr proceeded to email such a power to her on 30 November 2007. He did not claim that she agreed to anything on behalf of Amex on that day. I accept Ms Foley’s evidence as to what happened. It certainly did not reveal any arrangement or agreement being arrived at between representatives of Mrs Kerr and Amex on 29 November 2007.
There must have been some further contacts between Mr Kerr and Ms Foley before the end of January 2008, but the details of these are not clearly shown in evidence before me. On 31 January 2008, Ms Foley forwarded draft documents to Mr and Mrs Kerr by email, being a deed, a mortgage and mortgage covenants. These provided for Mr Kerr to join his wife in her indebtedness to Amex, and for them to provide security over their home. The deed contained a joint covenant by them “to repay the Debt to AMEX in its entirety on or before 10 March 2008” (see clause 5 of the draft deed).
On 13 February 2008, Mr Kerr responded:
Our lawyer asked that we request an extension of the date in Clause 5.1 as a matter of practicality.
We are in discussions with a cash buyer for our house now. He is proposing a 60 day unconditional contract.
We will be asking for a shorter time frame and hope to exchange contracts next week. The house is being sold; there is no doubt there.
Could we please add another month to the date given (10 March 2008) to say 18th April (or, better end April)?
Please advise. I will phone.
This was far from an acceptance of the documents proposed by Ms Foley, and reveals that the parties had not, at that time, arrived at any arrangement or agreement as to the terms under which Amex would hold its hand in bankruptcy proceedings.
Ms Foley responded on 27 February 2008, confirming that “our client has agreed to amend Clause 5.1 of the Deed as requested”. She attached amended documentation showing this, and requested the return of the deed and mortgage on or before 5 March 2008. Her email said: “If we do not receive the original Deed and Mortgage on or before 5 March 2008 we are instructed to enforce the Judgment without further notice”. The proposed amended deed now provided for a covenant by Mr and Mrs Kerr to repay the debt “in its entirety on or before 18 April 2008”.
However, Mr Kerr did not return the documents, nor accept their contents. He acknowledged receipt of the email on the same day, and said: “I will attend to the documents and return”. On 28 February 2008 he emailed Ms Foley, with a copy to Ms Roppolo:
I have reviewed the documents. Joye & I simply cannot get legal advice at present. I will sign under power of attorney.
Whilst I am extremely uncomfortable at being joined unconditionally to a business debt of Joye, I will do this if we can make some minor realistic adjustments as follows.
I have said before that I cannot give a definite settlement date for the house sale, so if we go past 18 April, we are technically in default. The house will be auctioned in March and settled April at dates not yet fixed. Two real estate agents went through the place earlier this week.
Please therefore review Clause 5.1 and delete 4.3 (c) and 6.1 (d) as per attached. I can then sign everything tomorrow.
Mr Kerr did not mention in his email to Ms Foley that possession of the house had been taken by a first mortgagee, and that the anticipated auction in March had been appointed by that creditor for 29 March 2008. Mr Kerr submitted to me that Ms Foley and Amex should have been aware of these facts from publicly available information. However, I accept Ms Foley’s evidence that she was not aware and, in particular, that she had not been made aware that Mr and Mrs Kerr’s practical ability to sell the house had passed into the hands of a mortgagee in possession.
The amendments to the documents which Mr Kerr proposed on 28 February 2008 included the removal of any specified date for the joint payment of the debt in clause 5.1, and the substitution of the words “within 3 days of funds becoming available following the settlement of the sale of the security property, such sale process now underway”. It also removed the reference to an act of default occurring by reason of “any action is taken by a mortgagee or chargee of the Property to enforce its rights with respect to the Property”. Plainly, in my opinion, Mr Kerr’s response to the documents amounted to a counter offer, and cannot be construed as an acceptance of documents forwarded by Amex.
Ms Foley asked for further information concerning the marketing of the property on 29 February 2008, and Mr Kerr responded: “I will source the requested info and advise”. It appears to me from this correspondence that Mr Kerr, as well as not informing Amex of the mortgagee possession and sale, was at this time deliberately avoiding communicating that fact to Ms Foley.
On 5 March 2008 at 12.24 pm, Ms Foley emailed Mr Kerr, referring to his amendments proposed on 28 February 2008. She said: “We advise our client does not accept those amendments and we are instructed to proceed with enforcement action without further notice”. That email, in my opinion, amounted to a communication from Amex which had the legal effect of withdrawing its previous offers, as well as refusing the counter offer made by Mr Kerr. At that point, there had been no acceptance by Mrs Kerr of any offer by Amex to take security and a joint covenant for the debt. No offer, therefore, subsequently remained open from Amex, able to be accepted unconditionally by Mrs Kerr.
Mr Kerr purported to do this in an email sent to Ms Foley on 5 March 2008 at 12.37 pm, in response to her email. He said: “Please resend the version of the agreement that they will accept so that I can sign and return it this week”. At most, in my opinion, that communication amounted to a new offer by Mr Kerr to execute and give the agreements previously offered and withdrawn by Amex. However, it was too late for him to undertake to do that. There is no evidence that, subsequent to Ms Foley’s email of 5 March 2008, Amex ever expressed any willingness to take the security and covenants which had been under discussion previously.
In my opinion, as a matter of basic contract law, there was no agreement arrived at between Mrs Kerr and Amex for the giving of security in exchange for its withholding bankruptcy proceedings. Nor, in my opinion, was there ever a meeting of minds giving rise to an “arrangement”, if it were relevant to determine this. No equitable security passed to Amex, so as to bring it within s.42 of the Bankruptcy Act. At March 2008, in my opinion, Amex had a bankruptcy notice which had not been complied with, and which it could rely on in a petition. It was not, and currently is not, subject to any legal or moral obligation which provides a ground of opposition to the petition.
Mr Kerr makes various criticisms of Amex’s conduct in the course of this proceeding, and I shall consider those submissions further below. However, for the above reasons I am satisfied that Amex is not a secured creditor for the amount relied upon in the petition and is, therefore, entitled to rely upon that debt in support of the petition.
The other matters required to support the making of a sequestration order identified in s.52(1) are made out on the evidence before me, and I am satisfied as to all the requirements of that section and the other provisions of the Bankruptcy Act and Bankruptcy Rules.
Mrs Kerr, also makes contentions under s.52(2) of the Bankruptcy Act. This subsection gives the Court a discretion to dismiss the petition, if satisfied that the debtor “is able to pay his or her debts” or that there is “other sufficient cause” not to make a sequestration order.
In relation to Mrs Kerr’s ability to pay her debts, evidence was presented by Mr Kerr in an incoherent fashion in support of submissions that I should be satisfied that she has a surplus of assets exceeding her liabilities. Counsel for Amex set out his understanding of the effect of the evidence as to her liabilities in para.25 of his submissions (numbering added):
25.Another reason why the Court should refuse the application for an adjournment is that Mrs Kerr is clearly insolvent. Her only asset is her interest in the Property, its contents and a small amount of cash: exhibit E. Even if the value of her assets is taken to be $3,712,000 (which is incorrect because she owns only half the Property), her debts clearly exceed this and are summarised below:
1
API (Provident Loan) as at 31 March 2008
$
2,835,583
2
API (interest on provident loan since 31 March @ 16.95%)
$
281,794
3
API (Business Bridging Finance) at September 2007
$
270,842
4
API (interest on above @ 3% per month)
$
105,628
5
Buckley loan ($150,000 less $1,000)
$
149,000
6
Daley loan
$
120,000
7
API (under Deed of Credit Terms) (interest @ 8% not included)
$
1,446,339
Total
$
5,227,186
It is noted that his table does not include the debt owing to Amex of $116,449.33. However, it provides the clearest tabulation of the evidence which is before me.
Mr Kerr challenges the inclusion of the second item in the table and also the liabilities listed under items 4, 5, 6 and 7. He invites me to investigate the circumstances of all of these claimed liabilities of his wife, to find that they do not exist. In particular, he claims that the debt claimed by API in item 7 is the subject of litigation which he has recently started in the District Court of Queensland.
I do not consider it necessary for me to investigate this evidence. On the uncontested evidence, Mrs Kerr has liabilities to the mortgagee of her home in an amount approaching $3 million. This exceeds her likely share in her home, and there is, in my opinion, a likely prospect that there are greater debts owing by her.
More significantly, in my opinion, the evidence is far from indicating that she is able to pay any of her liabilities of a substantial size within the reasonably foreseeable period, which the authorities require a debtor to establish. The authorities were referred to by the Full Court in Stankiewicz v Plata [2000] FCA 1185 at [29] and [30], and by Hely J in Australia & New Zealand Banking Group Pty Ltd v Foyster [2000] FCA 400. As his Honour pointed out at [17]:
The onus of proving sufficiency of assets lies on the respondent. It is not sufficient for the respondent simply to establish that he has assets which exceed his liabilities in value. It must also be established that the assets are available to be realised and that they are capable of ready realisation.
In my opinion, the material before me points clearly in one direction in relation to Mrs Kerr’s equity in her former home, now in the possession of the first mortgagee. This is that its realisation is out of her hands, and there is no evidence suggesting that it will occur within a reasonable time in the foreseeable future so as to give rise to any surplus that might flow through to her. I therefore am not satisfied that she has the ability to pay her debts as a reason for declining to make a sequestration order today.
Similarly, the evidence of solvency is so obscure, that it would not cause me to adjourn the petition in the hope that some clarification would be arrived at as to the timing of her ability to pay her debts, and the debt to Amex in particular.
Mr Kerr submitted that he and his wife have a number of choses of action which they are currently litigating against a variety of creditors, none of whom includes Amex. One of them is API, and some pleadings in relation to that claim are in evidence. However, on the evidence concerning that claim, I would be far from satisfied that it holds any prospects of a substantial verdict for Mrs Kerr. The other litigation remained unexplained on the evidence before me, and certainly its prospects of enhancing Mrs Kerr’s estate are obscure, to say the least.
In relation to other sufficient reasons for declining to make Mrs Kerr bankrupt today, Mr Kerr referred me to several considerations. The first somewhat inconsistently suggested that it would be futile to make Mrs Kerr bankrupt, due to the size of her liabilities being claimed by creditors. However, a prospect of a small or limited dividend flowing through to creditors is not regarded as a reason for declining to make a sequestration order.
Mr Kerr’s other submissions made many unfounded criticisms of Amex. In some cases, there may be reasons for doubting the proper motives of a creditor, but this is not such a case. In my opinion, Amex has conducted itself in the present proceedings in a manner no different than a creditor properly seeking to obtain a sequestration order as promptly as possible in the face of vociferous objections pursued by the debtor. I not persuaded that there was anything unreasonable in Amex ultimately declining to take the security offered by Mr Kerr, when it emerged that Mr and Mrs Kerr’s substantial asset had passed into the possession of a mortgagee. I do not consider that there was anything sinister or improper in the fact that Amex was unable in the course of the litigation this year in this Court and other Courts to produce more records of the underlying transactions, which had occurred several years earlier. I do not consider that there have been any delays on the part of Amex in its prosecution of this petition which would provide any proper grounds for refusing to make a sequestration order today. Overall, I do not accept the various criticisms made by Mr Kerr of Amex’s conduct in the course of the proceedings and previously, as reasons for declining to make a sequestration order.
In the present matter, Amex is in the position of a creditor referred to in Cain v Whyte (1933) 48 CLR 639, cited by Allsop J in Totev v Sfar [2006] FCA 470 at [37]:
On proof of the matters in s 52(1) of the Act, the Court will generally proceed to make an order for sequestration. It is for the debtor to persuade the Court that the public interest in the dealing with the insolvent debtor and the rights of individual creditors are outweighed by other considerations. (citation omitted)
In the present case, there is no claim by Mrs Kerr against Amex in pending litigation which could provide a reason such as is discussed in the authorities referred to by Allsop J. I have found above, that the litigation which is pending against other creditors by Mr and Mrs Kerr does not hold sufficient prospects of assisting Mrs Kerr’s estate to meet creditors in a timely fashion.
I can identify no public interest pointing against the making of a sequestration order today. To the contrary, in my opinion, on all the evidence it would be timely for a trustee to be appointed to Mrs Kerr’s estate so that the litigation being conducted on her behalf by Mr Kerr and by her can be objectively assessed. I, therefore, consider it appropriate to make a sequestration order today and not to further adjourn the petition.
Mr Kerr invited the Court, in the event that it decided to make a sequestration order, to consider the exercise of its powers under s.52(3) of the Bankruptcy Act to “stay all proceedings under a sequestration order for a period not exceeding 21 days”.
In support of that application, he informed me that a proceeding brought by his wife against a creditor was listed for a directions hearing at the end of November and before the 21 days would expire, and that he wished to appear on her behalf at that directions hearing. He considered that it would assist her in some unclear fashion if the operation of the sequestration order was suspended.
I am doubtful whether an order under s.52(3) would allow Mrs Kerr to continue her litigation pending a decision by the trustee whether to make an election under s.60(2). It seems to me that the stay under that provision would come into effect upon the making of the order, even if I stayed “all proceedings under it”. However, I was not taken to any authorities on this issue.
Moreover, in my opinion, the balance of public interest suggests that it would be desirable for a trustee to start considering the merits of that litigation, and the other litigation in which Mrs Kerr is involved, without any delays arising from an order under s.52(3). I can see no other good reason for suspending the operation of a sequestration order today.
I certify that the preceding sixty-two (62) paragraphs are a true copy of the reasons for judgment of Smith FM
Associate: Lilian Khaw
Date: 1 December 2008