AMP Finance Limited v Burns (No.2)
[2005] FMCA 647
•20 May 2005
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| AMP FINANCE LIMITED v BURNS (No.2) | [2005] FMCA 647 |
| BANKRUPTCY – Application for a sequestration order – where the petition is opposed – whether applicant creditor’s failure to specify security that it holds over the principal borrower is a relevant matter for the purposes of the petition – whether the applicant is a secured creditor – whether the wording of an order attached to the Bankruptcy Notice clearly identifies the respondent as the judgment debtor – whether failure of the order to identify the debtor could be considered to be a formal defect – where there had already been proceedings directly involving the Bankruptcy Notice – whether the principal of Anshun estoppel applies – where the debtor claims to be able to pay his debt – whether a promissory note relied upon is prima facie invalid and does not indicate solvency of the debtor – whether actions of the creditor constituted use of the Bankruptcy Act for a collateral purpose – whether there are other sufficient causes why the court ought not make a sequestration order. |
| Bankruptcy Act 1966, ss.44(2),(3),(4), s.5; s.41(6A); s.52(2)(a); s.52 Federal Court Of Australia Act 1976 Federal Court Rules |
| Burns & Ors v AMP Finance Limited [2004] NSWSC 166 Burns & Ors v AMP Finance Limited [2004] NSWCA 469 Re Florance; Ex parte Turimetta Properties Pty Ltd (1979) 36 FLR 256 Re Debtor (No 21 of 1950), Ex parte The Debtor v Bowmaker Ltd [1951] Ch 313 Kleinwort Benson Australia Ltd v Crowl (1988) 165 CLR 71 Port of Melbourne Authority v Anshun Pty Ltd (1981) 157 CLR 589 Henderson v Henderson (1843) 3 Hare 100 Stuart v Sanderson and Ors (2000) 174 ALR 681 Ling v Commonwealth (1996) 68 FCR 180 Wong v Minister for Immigration and Multicultural and Indigenous Affairs [2004] FCAFC 242 S394 of 2003 v Minister for Immigration and Multicultural and Indigenous Affairs [2004] FCA 1421 Hassen v Minister for Immigration and Multicultural and Indigenous Affairs [2003] FCA 1036 Bal v Minister for Immigration and Multicultural Affairs [2001] FCA 1191 Deputy Commissioner of Taxation (Vic) v Boxshall (1988) 83 ALR 175 Re Sarina; Ex parte Council Of The Shire Of Wollondilly (1980) 43 FLR 163Brunninghausen v Glavanics (Unreported, Federal Court, Emmett J, 3 March 1998) Sandell v Porter (1966) 115 CLR 666 International Alpaca Management Pty Ltd v Ensor [1999] FCA 72 Rozenbes v Kronhill (1956) 95 CLR 407 Re Shaw (1901) 83 LT 754 Re Bebro (1900) 2 QB 316 |
| Applicant: | AMP FINANCE LIMITED |
| Respondent: | JOHN BURNS |
| File Number: | SYG 2624 of 2004 |
| Judgment of: | Raphael FM |
| Hearing dates: | 3 & 12 May 2005 |
| Date of Last Submission: | 12 May 2005 |
| Delivered at: | Sydney |
| Delivered on: | 20 May 2005 |
REPRESENTATION
| Counsel for the Applicant: | Peter Newton |
| Solicitors for the Respondent: | Foleys Solicitors |
THE COURT ORDERS
Sequestration Order is made against the estate of John Burns.
The applicant creditor’s costs (including any reserved costs) be taxed in accordance with the Federal Court Act and Rules and paid from the estate of the respondent debtor in accordance with the Act.
Scott Darren Pascoe of Level 24 Australia Square 264 George Street Sydney NSW 2000 be appointed trustee of the estate of the debtor.
The court notes the date of the act of bankruptcy is 18 August 2004.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 2624 of 2004
| AMP FINANCE LIMITED |
Applicant
And
| JOHN BURNS |
Respondent
REASONS FOR JUDGMENT
Introduction
The proceedings before me involve an application for a Sequestration Order against the debtor Mr Burns commenced by petition dated
24 August 2004. The petition is opposed. At the hearing on 3 May 2005 an amended notice of intention to oppose the petition was filed in court. The grounds of opposition are set out below:
1)That the Respondent Debtor formally objects to the validity of the Bankruptcy Notice and the Bankruptcy Notice and the Bankruptcy Petition documentation.
2)Further to Paragraph 1 above, that the wording of the Order attached to the Bankruptcy Notice does not specify that Judgment was obtained against the Respondent Debtor nor does it specify the particular Judgments or Orders that may apply to the Respondent Debtor other than one for Indemnity Costs.
3)That the Respondent Debtor is able to pay his debts (Section 52(2)(a)).
4)That the Applicant Creditor has failed to specify the security that it holds over the principal borrower and further that the Applicant Creditor, as the secured creditor, has failed to specify whether or not intends to rely on such security.
5)That upon the examination of the alleged debt, the value of the security which the Applicant Creditor holds, the recent course of conduct of both parties and the ability of Dolroy Pty Limited to discharge the Applicant Creditor’s debt in full; the Court will be satisfied that there are other sufficient causes why the Court ought not make a sequestration order against the Respondent Debtor (Section 52(2)(b)).
The circumstances surrounding the indebtedness of the respondent to the applicant can be found in two judgments of the New South Wales Surpeme Court, being the judgment of Justice Gzell in Burns & Ors v AMP Finance Limited [2004] NSWSC 166 and the decision on appeal therefrom Burns & Ors v AMP Finance Limited [2004] NSWCA 469. Gzell J opens his judgment as follows:
“1 In 1995 the plaintiffs entered into a facility agreement with the defendant then called GIO Finance Ltd. It lent the facility limit of $875,000 to the second plaintiff, Dolroy Pty Ltd. Dolroy and the third defendant, O’Malley’s Aquariums Pty Ltd granted registered first mortgages over land by way of a security. The first plaintiff, John Burns and O’Malley’s Aquariums guaranteed Dolroy’s performance of obligations under the facility agreement.
2 From time to time the facility limit was increased. In its cross claim, AMP alleged that Dolroy fell into arrears of interest in January 2003. In February 2003, a notice pursuant to the Real Property Act 1900, s 57(2)(b) was served on Dolroy. Thereafter, AMP declared the amount outstanding, interest and all other amounts payable under the facility agreement to be immediately due and payable pursuant to the default provision in that agreement.
3 As at 1 March 2004, the total amount outstanding under the facility agreement was $5,044,483.39. AMP claimed this amount together with interest from that date against Dolroy and against Mr Burns and O’Malley’s Aquariums as guarantors. It also claimed possession of the mortgaged properties.
4 The plaintiffs’ primary argument was that the facility was not in arrears when the demands were made or at trial. They claimed that the facility limit had been increased by an amount in excess of their entitlement to capitalise interest.
5 The land provided as security by Dolroy was situated at Dunns Creek in the Port Stephens Shire in New South Wales. Dolroy wished to develop it as a 26 lot residential subdivision. It was a term of the facility agreement that, upon registration of a consolidation and subdivision of the land, AMP on receipt of a written request would release from its security, portion of the land marked with an X on an attached plan. That area became lots 1 and 2 on DP 875533 which was registered in August 1998. The two lots were not released by AMP until November 2001. The plaintiffs claimed damages for breach of contract and, if their primary argument failed, estoppel against AMP alleging that the plaintiffs were in breach of the facility agreement.
6 The consolidated lot 3 on DP 875533 was crossed by a road, title to which Dolroy obtained from the Crown in early 2000. In June 2003, Port Stephens Council raised a concern with respect to the subdivision because some of the lots would be land-locked. Dolroy proposed to AMP that, as a boundary adjustment, the road reserve be consolidated into lot 3 in exchange for AMP releasing from its security, prospective lots 101 and 102 under the subdivision of lot 3. In October 2001, AMP agreed to this boundary adjustment. In June 2003, a different boundary adjustment was presented to AMP in a linen plan which it refused to endorse. The plaintiffs claimed damages for breach of contract and, again, if their primary argument failed, estoppel against AMP alleging that they were in breach of the facility agreement.”
Gzell J found in favour of the defendants and cross-claimants in the proceedings. His order which was entered on 31 March 2004, is annexed to the Bankruptcy Notice in the proceedings before me is relevantly in the following form:
IN THE SUPREME COURT OF
NEW SOUTH WALES
SYDNEY REGISTRY
EQUITY DIVISIONFile No.4194 of 2003
SHORT MINUTES OF ORDER
Filed for: the Plaintiffs
JOHN BURNS
First PlaintiffDOLROY PTY LIMITED
ACN 002 396 303
Second PlaintiffO’MALLEY’S AQUARIUMS PTY
LIMITED CAN 003 463
Third PlaintiffAMP FINANCE LIMITED
ACN 002 812 704
DefendantAMP FINANCE LIMITED
ACN 002 812 704
Cross-ClaimantJOHN BURNS
First Cross-DefendantDOLROY PTY LITMITED
Second Cross-DefendantO’MALLEY’S AQUARIUMS PTY
LIMITED ACN 003 462 191
Third Cross-DefendantJACKSON SMITH
Solicitors
Level 3, 48 Hunter Street
SYDNEY NSW 2000
DX10134 Sydney Stock Exchange
Tel: (02) 9233 5355
Fax: (02) 9233 2839
Ref: PJ/KP/mj 8190Ordered: 25 March 2004
In respect of the Plaintiff’s Further Amended Statement of Claim filed 11
November 2003, the COURT ORDERS
THAT:
1. There be Judgment for the
Defendant2. The injunction ordered against the Defendant dated 6 February 2004
and extended on 8 March 2004
until further orders be dissolved3. The Plaintiff’s pay the Defendants
costs from 1 March 2004 on an
indemnity basis.In respect of the Cross-Claim set out in the
Defendant’s Second Further Amended
Defence and Cross-Claim filed 11
November 2003 the COURT ORDERS
THAT:1. There be Judgment for the Cross- Claimant in the sum of
$5,044,483.39 (the “Judgment
Debt”).2. The Cross-Defendants pay the
Cross-Claimant’s costs from 1
March 2004 on an indemnity basis.
Entered by the Court: 31 MAR 2004
The Bankruptcy Notice itself was the subject of certain proceedings in the Federal Court in which Branson J gave judgement on 24 August 2004 in Burns v AMP Finance Limited [2004] FCA 1094.
Discussion on Amended Notice of Intention to Oppose
The grounds put forward in the Amended Notice of Intention to Oppose can be divided into the two matters of legal interpretation and the two matters which required evidence of fact. The former are covered by paragraphs 1, 2 and 4 of the notice and the latter paragraphs 3 and 5.
The paragraph 4 claim can be dealt with shortly. The argument that the applicant creditor has failed to specify the security that it holds over the principle borrower is not a relevant matter for the purposes of this petition. The requirements in relation to the identification of a secured creditors security are set out is section 44(2), (3), (4) Bankruptcy Act. If AMP Finance Limited was a secured creditor of Mr Burns then it would be necessary for the current petition to be amended; Re Florance; Ex parte Turimetta Properties Pty Ltd (1979) 36 FLR 256 at [49], but I am not satisfied that AMP Finance Limited is a secured creditor of the debtor. The definition of a secured creditor found at Section 5 Bankruptcy Act is as follows;
“Secured Creditor”, in relation to a debtor, means a person holding mortgage, charge or lien on property of the debtor as security for a debt due to him or her from the debtor
It is clear from the decisions of the New South Wales Supreme Court previously referred to that the property over which AMP holds mortgages is not property of the debtor but property of Dolroy Pty Limited. In Re Florance, Lockhart J considered the position of a creditor who held security over property which was the subject of a trust in favour of the debtor. He stated at [63]:
“The critical fact is that the mortgage confers upon the petitioning creditor the means to satisfy the debt owing by the debtor out of what is in truth the property of the debtor. For these reasons in my opinion Harvey’s case applies to the present case so the petitioning creditor is a secured creditor of the debtor.”
This is not the situation in the present case because it is not suggested that Mr Burns has any equitable or legal ownership of the properties charged to AMP. Ground 4 of the Amended Notice of Intention to Oppose is therefore not sustainable.
Ground two of the amended notice seeks to impugn the bankruptcy notice by suggesting that the wording of the order attached thereto does not clearly identify Mr Burns as the judgment debtor. This, he argues, constitutes a failure to comply with an essential requirement of the Bankruptcy Act which would have the effect of invalidating the bankruptcy notice. Alternatively, he states that the failure of the order to identify the debtor was a defect in the bankruptcy notice which could not be considered to be a formal defect or irregularity because it was of such a kind as could reasonably mislead a debtor upon whom it was served; Re Debtor (No 21 of 1950), Ex parte The Debtor v Bowmaker Ltd [1951] Ch 313, Kleinwort Benson Australia Ltd v Crowl (1988) 165 CLR 71. In order to succeed in this submission the applicant must navigate a number of dangerous shoals, not the least of which is the fact that the complaint about the bankruptcy notice is being raised in proceedings on the petition when there had already been proceedings directly involving the bankruptcy notice heard before Branson J. In Her Honour’s judgment she stated:
“[6] The Bankruptcy Notice in this matter is dated 24 June 2004. The Bankruptcy Notice requires payment of a judgment debt in the amount of $5,044,483.39. The judgment debt was created by an order of the Supreme Court of New South Wales made on 25 March 2004. The applicant is jointly and severally liable with proprietary limited companies to pay the judgment debt.
…[8] On 10 August 2004 the applicant, by his counsel, indicated that the application to set aside the Bankruptcy Notice was not pressed. He further indicated that, in the alternative to an order extending time to comply with the Bankruptcy Notice he sought an injunction restraining the respondent from presenting a petitioning reliance on any act of Bankruptcy committed by the applicant by failing to comply with the Bankruptcy Notice. ...
The respondent argues that I should apply the principle approved by the High Court in Port of Melbourne Authority v Anshun Pty Ltd (1981) 157 CLR 589 at [598] which was expressed by Wigram V.C. in Henderson v Henderson (1843) 3 Hare 100 at 115) in what Madgwick J described in Stuart v Sanderson and Ors (2000) 174 ALR 681 at [16] “In the following, now familiar, terms;”:
“…where a given matter becomes the subject of litigation in, and of adjudication by, a Court of competent jurisdiction, the Court requires the parties to that litigation to bring forward their whole case, and will not (except under special circumstances) permit the same parties to open the same subject of litigation in respect of matter which might have been brought forward as part of the subject in contest, but which was not brought forward, only because they have, from negligence, inadvertence, or even accident, omitted part of their case. The plea of res judicata applies, except in special cases, not only to points upon which the Court was actually required by the parties to form an opinion and pronounce a judgment, but to every point which properly belonged to the subject of the litigation, and which the parties, exercising reasonable diligence, might have brought forward at the time.”
At [17] of Stuart v Sanderson Madgwick J said:
“It is the substance of an issue sought to be raised in later proceedings rather than its form that is to be considered when applying the Anshun doctrine; Bryant v Commonwealth Bank of Australia (1995) 57 FCR 288.
Madgwick J also considered in Stuart v Sanderson the matter of special circumstances. As noted at [32]:
“There appear logically to be two broad considerations that might be relevant to the determination of whether special circumstances exist. First, circumstances may in some way account for the unreasonable conduct involved in not having pressed the matter in the earlier proceeding, so as to excuse it.
…Second, circumstances may mean that application of the Anshun rule would work such a degree of hardship or of injustice on a party as to justify the displacement of the prima facie rule.”
I have received no evidence from the respondent debtor as to why this matter was not raised in the proceedings before Branson J when the bankruptcy notice was otherwise sought to be set aside. Counsel at that hearing withdrew this part of the application, then said to be under Section 41 (6A) of the Act, which seems to place the failure to raise this particular point in the category of “negligence, inadvertence or even accident”. No other explanation is offered. On the other hand, the debtor says, that I should exercise my discretion to allow the matter to be argued because otherwise the application of the rule would work such a degree of hardship or injustice upon him to justify the displacement of the rule. Injustice or hardship presumably being the commission of an act of bankruptcy with all that entails. In Stuart v Sanderson, Madgwick J exercised his discretion in favour of the applicant, where she sought to raise questions that could have been raised in criminal proceedings or in earlier civil proceedings concerning a criminal process. His Honour stated:
“The court should be slower to shut her out than if merely civil rights or remedies were at issue throughout.”
Another instance where the discretion has been exercised in favour of an applicant is: Ling v Commonwealth (1996) 68 FCR 180. But on the other hand, the discretion has not been exercised in a number of cases involving the human rights of asylum seekers: Wong v Minister for Immigration and Multicultural and Indigenous Affairs [2004] FCAFC 242, S394 of 2003 v Minister for Immigration and Multicultural and Indigenous Affairs [2004] FCA 1421, Hassen v Minister for Immigration and Multicultural and Indigenous Affairs [2003] FCA 1036, Bal v Minister for Immigration and Multicultural Affairs [2001] FCA 1191. In my view this case falls the other side of the line drawn by Madgwick J and I would not exercise my discretion to allow the claim to be brought. The commission of an act of bankruptcy is a serious matter but not so serious that the court should overlook the precedent effect of allowing in a claim that the applicant clearly had an opportunity to raise earlier when he was fully represented.
It was argued for the debtor that Anshun did not really apply as the effect of the complaint made about the notice was to make that notice void. But the point about Anshun estoppel is that it prevents me hearing any argument upon the notice. I must be deaf to any such entreaties. To make a determination that the notice is void is to hear the cause. Once I have accepted that an Anshun estoppel operates I have no right to do that.
In case others may consider that I have wrongly applied the Anshun doctrine or that my discretion has miscarried I would say that I am not satisfied the notice is invalid for two reasons. The first is that the obligation of the creditor is to comply strictly with the requirements of the act and regulations which include complying with the form of the bankruptcy notice that the regulations have mandated. The regulations require that a copy of the judgment or order relied upon by the creditor is to be attached to the notice. A copy was attached to the notice. If there is any matter which is likely to mislead or confuse the debtor it is a matter within the judgment or order and not a matter within the notice itself. If there is a problem with the order it is for the applicant to indicate that the order does not apply to him. In fact, it is clear from the judgment of Branson J that the debt is acknowledged. The applicant was, in effect, seeking time to pay until after the hearing of the appeal which might have avoided it. The appeal has now been heard and the debt remains. My second reason for not accepting the submissions of the applicant is that the order makes clear reference to the cross-claim in respect of which the judgment is given and that cross-claim makes specific reference to the seeking of payment by the debtor to the creditor of the amount owing under the loan agreement [See item number 3 on page 14 of the second amended defence and cross-claim exhibit 1A]. In those circumstances I am satisfied that the order does identify the debtor and that it is not in any way likely to mislead or confuse the debtor as to the manner in which he can satisfy the notice: Deputy Commissioner of Taxation (Vic) v Boxshall (1988) 83 ALR 175.
I turn now to those matters upon which it was considered that evidence was required. The first ground upon which the debtor seeks dismissal of the petition is that he is able to pay his debt (Section 52(2)(a) of the Act). The authorities, Re Sarina; Ex parte Council Of The Shire Of Wollondilly (1980) 43 FLR 163; Brunninghausen v Glavanics (Unreported, Federal Court, Emmett J, 3 March 1998); Sandell v Porter (1966) 115 CLR 666 and International Alpaca Management Pty Ltd v Ensor [1999] FCA 72 make clear that the debtor should be given a reasonable time to pay all his debts and if he is able to do so should not be subject to a sequestration order. They also make it clear that the funds from which the debt can be paid extend to those which he can procure by realisation by sale or mortgage or pledge of his assets within a relatively short period. In this case the only evidence put up by the debtor is the existence of a promissory note. That promissory note can be found attached to Exhibit 6 of the affidavit of John Burns sworn 3 May 2005 and is the subject of a short judgment on an application for an adjournment. The promissory note was for a sum of $25,000,000 and was purported to be given by the principle obligor Delroy Pty Ltd although it was in fact signed by another company entirely, about which the court knows nothing. As I said in my judgment the promissory note appeared on its face to be an invalid document and was in any event subject to conditions. It had been drawn utilising what was clearly an American precedent. It was for a sum five times larger than the amount of the judgment debt. It made no reference to the debtor. To my mind the existence of this promissory note, far from indicating the solvency of the debtor, puts me on notice that the debtor may be prepared to take desperate measures to prevent the sequestration order being made against him. The existence of this promissory note and the absence of any other evidence whatsoever about the debtor’s means leaves me totally unsatisfied that the applicant is able to pay his debts. Thus I would decline to dismiss the application for the sequestration order on this ground.
The ways in which ground 5 in the debtor’s further submissions was articulated at the hearing were firstly, that the actions of the creditor constituted the use of the Bankruptcy Act for the collateral purpose of obtaining from the debtor additional sums. This is really a claim of abuse of process. The obtaining of money by what is described as ‘extortion’ was discussed by the High Court in Rozenbes v Kronhill (1956) 95 CLR 407. The court examined a number of English authorities on the subject opining that the cases were not free from difficulty; Rozenbes at [14]. One thing is clear and that is that the alleged attempt at extortion does not need to succeed, Re Shaw (1901) 83 LT 754. It is also clear that the High Court considered with favour the views of Webster M.R. in Re Bebro (1900) 2 QB 316 at [322] where the Master of the Rolls said:
“The court must be satisfied that the Bankruptcy proceedings were being used to extort or to get from the debtor a larger amount than the creditor lawfully could have received by means of the proceedings.”
The dicta in Rozenbes would appear to be contained in [20] where their Honours say:
“The question of what constitutes an abuse of the process was considered by Isaacs J. in Dowling v. Colonial Mutual Life Assurance Society Ltd.(1915) 20 CLR 509, at pp 521, 523 . His Honour distinguished between purpose and motive, and said: "Where it can be shown in a case of insolvency that the creditor is making his application not intending to pursue it to a recognized lawful end - whatever his motive may be for attaining that lawful end – but for the real purpose of attaining some other and improper end, such as extorting money as in Davies' Case, (1876) 3 Ch D 461 , where the petition was hung up while in existence and used as a means of extortion, there is an abuse of process" (1915) 20 CLR, at p 522 . (Italics are ours.) On this basis his Honour reconciled the cases cited with King v. Henderson (1898) AC 720. This appears to be in accord with the views expressed in In re a Debtor (1928) Ch 199 and In re Majory (1955) Ch 600. The two latest English cases and the observations of Isaacs J. in Dowling's Case (1915) 20 CLR, at pp 521-523, while they expressly accept Re Shaw; Ex parte Gill (1901) 83 LT 754, may be thought to suggest that that case and the case of In re Goldberg (1904) 21 TLR 139 , represent extreme examples of the application of the principle involved. The case of Ex parte Griffin; In re Adams (1879) 12 Ch D 480 , was a case of gross fraud, but the headnote seems to state correctly the general rule as conceived by the Court of Appeal in In re Majory (1955) Ch 600 , and by Isaacs J. in Dowling's Case (1915) 20 CLR, at p 522, 523. That headnote reads: - "When the court sees that a bankruptcy petition is presented, not with the bona fide view of obtaining an adjudication, but for a collateral purpose and with the view of putting pressure on the debtor, it will refuse to make an adjudication, even though there be a good petitioning creditor's debt, and an act of bankruptcy has been committed" (1879) 12 Ch D 480. (at p418)”
The evidence that I accept in this case is that the creditor sometime after obtaining judgment against the debtor on his guarantee, and upon the failure of the principal obligor to make payment, commenced these bankruptcy proceedings. The creditor was required to obtain substituted service of the petition. In his own affidavit dated 29 March 2005 the debtor states that “between November 2004 and up until the present time the parties have been negotiating a settlement that is satisfactory to both parties”. The essence of the settlement negotiations was that the debtor sought further time in which to bring the land which was held as a security by the AMP Society into a state where it could be sold at its maximum value. This value required a subdivision which had already been approved by council subject to conditions, to be formalised by the release of the linen plan. That would require the payment of some $75,000 and also an exchange of lands involving another company controlled by the debtor. Part of the overall agreement proposed that the creditor was to have these proceedings dismissed. Draft deeds of settlement passed between the solicitors of the creditor and the debtor. The creditor sought to obtain further security over land owned by a company in control of the debtor. This was resisted by the debtor. The debtor sought the release of certain lots in the subdivision to himself. This was resisted by the creditor. Eventually the negotiations broke down and these proceedings continued.
Although I can see that the obtaining of further security could be the obtaining of an advantage over other creditors I am not satisfied that the creditor commenced these bankruptcy proceedings in order to obtain such a secret advantage or that in presenting its petition to the court it had any other object in view than the due administration of the estate in bankruptcy. What then occurred was the to and fro of commercial negotiation instigated, as I understand it, by the debtor not the creditor. It is the debtor’s case that this land in its improved state is worth far more than the judgment debt against him. How can he be heard to argue that the AMP Society were extorting additional security and thus a secret advantage for themselves above his other creditors when he believes (and made clear in the draft documents and correspondence) that the AMP Society’s debt could be cleared from a sale of only a few of the subdivided units? Moreover, the creditor argues he is a solvent person. How can he at the same time argue that the creditor is seeking an advantage from his estate by the use of the bankruptcy process? It seems to me that what occurred here was nothing more than an expression of ordinary commercial negotiations. The debtor wanted the land sold at its most advantageous price so that the principal obligor could relieve him of his liability to the creditor. He controlled the principal obligor. The creditor realising that any arrangements for the sale of this land could be long and complex sought some further security. There is no evidence that the seeking of this further security was directly related to the abandonment of the bankruptcy proceedings. It could equally have been entirely related to the risks involved in the sale process. The creditor was entitled to take its own view as to the proper value of the land which may well have differed from that of the debtor.
The final argument put by the debtor is that upon proper examination of the debt, the value of the security, the recent course of conduct of both parties and the ability of Dolroy Pty Ltd to discharge the applicant creditor’s debt in full the court will be satisfied that there are other sufficient causes why it ought not make a sequestration order against the respondent (section52(2)(b)). At the commencement of the hearing the debtor sought to provide evidence of the value of the property. That evidence was rejected on the grounds that the makers of the valuations (these were by no means recent) were not available for cross-examination. The only evidence that has been lead is evidence of the debtor’s intent to obtain finance on the property. The first thing to be said about this evidence, which is in the form of letters annexed to
Mr Burns’ affidavit, is that none of the finance promised materialised. The second thing is that the letters revealed that the offers were always highly conditional and one particular condition was a valuation of the land. I believe that I am entitled to infer from the failure to provide an up to date valuation of the land that the debtor was unable to comply with such a condition. In other words I am able to infer that the value of the land may not be as great as the debtor seeks to persuade me it is and may well be less than the value of the judgment debt. These letters of offer were, of course, made to Dolroy Pty Ltd, the principal obligor and owner of the land. It is these documents which are said to establish that Dolroy can pay its debts as and when they fall due and relieve the debtor of his obligations. For the reasons stated above I am not so satisfied. The “recent course of conduct” between the parties was used during the submissions as a euphemism for the allegation of extortion, which I have dealt with above.
A court of bankruptcy will always proceed with caution when being asked to make a sequestration order against an individual who has guaranteed the debts of a company where the obligations of the principal obligor are secured by mortgage over land. The public interest element in the bankruptcy law requires that a person not be put unnecessarily into that perilous state. If there is a real prospect that the principal debt can be satisfied from the sale of the security, and the sale can take place within a reasonable period of time without putting the secured creditor to undue expense or other undue inconvenience, then a sequestration order should not issue. This is not one of those cases.
I am not satisfied that the value of the land is sufficient to pay the creditor’s debt, I am not satisfied that the land can be sold at its best price within a reasonable period of time and I have no evidence before me whatsoever about the debtor’s financial position. There is a supporting creditor, although I accept the argument of Mr Foley that the judgment obtained might be capable of being set aside or at least stayed on the grounds that it is a judgment indicating only what is the proper assessment of costs between the debtor and his former solicitor and not what might be owed by the debtor to his former solicitor.
On the first day of the hearing of this matter Mr Newton filed the required affidavits of debt and search. I am satisfied that the debtor committed the act of bankruptcy alleged in the petition. I am satisfied of the proof of the matters required by section 52 of the Bankruptcy Act 1966. I make a sequestration order against the estate of John Burns. I order that the applicant creditor’s costs, including any reserved costs, be taxed in accordance with the Federal Court Act and Rules and payed from the estate of the respondent debtor in accordance with the Act. Under the Bankruptcy regulations a copy of the sequestration order is to be given to the official receiver in Sydney within two days. The court notes that the act of the date of bankruptcy is the 18 August 2004. I note that a consent to act as trustee has been signed by Scott Darren Pascoe of Level 24 Australia Square 264 George Street Sydney NSW 2000. It has been lodged with the official receiver in Sydney.
I appoint Scott Darren Pascoe as trustee of the estate of the debtor.
I certify that the preceding twenty-three (23) paragraphs are a true copy of the reasons for judgment of Raphael FM
Associate: Michelle Cohen
Date:
0
18
3