ANZ Banking Group Ltd v Carpenter - [2007] FMCA 1589

FEDERAL MAGISTRATES COURT OF AUSTRALIA

ANZ BANKING GROUP LTD v CARPENTER

[2007] FMCA 1589

BANKRUPTCY – Creditor’s petition – application for an adjournment to allow for an appeal pending in the New South Wales Court of Appeal – adjournment granted.

Fair Trading Act 1987 (NSW), s.42
Trade Practices Act 1974 (Cth), s.52

Adamopoulos v Olympic Airways SA (1990) 95 ALR 525
Ahern v Deputy Commissioner of Taxation (1987) 76 ALR 137
Carpenter v Pioneer Park Pty Ltd (2001) 51 ACSR 299
Lewin & Glasson, Re; Ex parte Milner (1986) 67 ALR 591
McCollum, Re; Ex parte The Bankrupt (1987) 71 ALR 626
NRMA Insurance Ltd v Vale [2001] FCA 511
Pioneer Park Pty Limited (in Liquidation) v Australia and New Zealand Banking Corporation Limited [2006] NSWSC 883
Re Flatau; Ex parte Scotch Whisky Distillers Ltd (1888) 22 QBD 83
Westpac Banking Corp v Carver (2003) 126 FCR 113

Applicant:

AUSTRALIA & NEW ZEALAND BANKING GROUP LIMITED

Respondent:

CLIFFORD JOHN CARPENTER

File number:

SYG 492 of 2007

Judgment of:

Lloyd-Jones FM

Hearing date:

18 June 2007

Delivered at:

Sydney

Delivered on:

19 September 2007

REPRESENTATION

Counsel for the Applicant:

Mr J E Thomson

Solicitors for the Applicant:

Minter Ellison Lawyers

Counsel for the Respondent:

Mr Garnsy SC with Mr Lambert

Solicitors for the Respondent:

Somerset Ryckmans

Solicitors for Supporting Creditor:

The Argyle Partnership

ORDERS

The application for adjournment of the creditor’s petition until the appeal to the New South Wales Court of Appeal is resolved is granted.
Costs be reserved.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
SYDNEY

SYG 492 of 2007

ANZ BANKING GROUP LIMITED

Applicant

And

CLIFFORD JOHN CARPENTER

Respondent

REASONS FOR JUDGMENT

Introduction

By creditor’s petition filed, the Australia & New Zealand Banking Group Limited, ACN 005 357 522 (applicant creditor), seeks a sequestration order against the estate of Clifford John Carpenter (respondent debtor). The petition is based upon a debt of $647,413.18 being an unsatisfied judgment of the Supreme Court of New South Wales in proceedings number 50163 of 2004.
The respondent debtor failed to comply on or before 13 February 2007 with the requirements of bankruptcy notice NN4839/06 served on him on 19 December 2006. The time for compliance with the notice was extended by an order of the Federal Magistrates Court on 11 January 2007, 23 January 2007 and 30 January 2007. Alternatively, he failed 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.
On 22 May 2007, the respondent debtor’s solicitors filed a notice stating grounds of opposition to the petition on the following grounds:
The judgment which underlies the creditor’s petition was reached as a result of reversible error and is currently under appeal.
The matter currently before this Court is whether the creditor’s petition should be adjourned to allow for an appeal which is pending in the New South Wales Court of Appeal to proceed.

Background

The affidavit filed by Mr Carpenter on 22 May 2007 in support of his opposition to the petition indicates that the petition was founded on an act of bankruptcy, namely, a failure to comply with a bankruptcy notice, served on him on 21 December 2006. That notice relied on a final judgment obtained in the New South Wales Supreme Court (proceedings 50163 of 2004) given on 20 October 2006 and entered on 21 November 2006. Those proceedings form part of other Supreme Court proceedings which were commenced by Mr Carpenter and companies he was associated with, against the Australia and New Zealand Banking Group Limited (“ANZ Bank”). The proceedings were consolidated and heard together.
The consolidated proceedings allege that Pioneer Park Pty Limited (in liquidation) (“Pioneer Park”) was wrongfully placed in administration and then in liquidation, in breach of certain terms and conditions relating to bank facilities granted by ANZ Bank to Pioneer Park. In addition to Mr Carpenter as plaintiff, the corporate plaintiffs to the consolidated proceedings were Pioneer Park, Merlo Australia Pty Limited, Merlo Wholesale Pty Limited and Domino Hire Pty Limited (collectively the “Pioneer Park Group”). At all material times, Mr Carpenter was a director of each of the corporate plaintiffs.
On 20 September 2006, Einstein J delivered judgment in the consolidated proceedings and dismissed the plaintiff’s claims: Pioneer Park Pty Limited (in Liquidation) v Australia and New Zealand Banking Corporation Limited [2006] NSWSC 883. The specific judgment obtained by the ANZ Bank with respect to proceedings 50163 of 2004 related to an alleged debt owed by Mr Carpenter to ANZ Bank, pursuant to a guarantee given by Mr Carpenter to secure the obligations incurred by or at the request of Pioneer Park. The judgment of Einstein J held that the ANZ Bank was entitled to rely upon a certificate of debt dated 20 June 2006, which asserted that as at 20 June 2006, the amount owed to ANZ Bank by Pioneer Park was $647,413.18. This amount comprised of a principle debt as at 8 December 1999 in the sum of $399,769.60, and interest totalling $247,643.58.
On 8 December 2006, Mr Carpenter’s solicitors filed a holding summons in the Supreme Court registry, appealing from the whole of the judgment of Einstein J delivered on 20 September 2006, the supplementary judgment delivered on 20 October 2006, and the judgment and orders of the Court in all of the judgments which came into effect on 10 November 2006. On 2 March 2007, Mr Carpenter’s solicitors caused a Notice of Appeal to be filed in the Supreme Court registry.
Mr Carpenter’s affidavit of 15 May 2007 states that he does not have the financial capacity to satisfy the judgment debt as claimed in the creditor’s petition. He believes, however, that if his appeal is successful, he will owe any money to ANZ Bank under the guarantees which he provided to it. In the consolidated proceedings, Mr Carpenter seeks orders declaring void and unenforceable the guarantee under which ANZ Bank obtained its judgment debt. Further, if successful, Mr Carpenter believes that he may be entitled to relief sought in the consolidated pleadings, including damages for breach of contract, s.52 of the Trade Practices Act 1974 (Cth) and s.42 of the Fair Trading Act 1987 (Cth). The damages and costs, if awarded to Mr Carpenter and his corporate entity, would significantly exceed the judgment debt relied on by ANZ Bank under the bankruptcy notice and the creditor’s petition.

Evidence

ANZ Bank filed the following affidavits:
a)That of James Charles Beaton, sworn 18 May 2007 (“first affidavit of Mr Beaton”). Attached to this affidavit is Exhibit “JCB1”.
b)That of James Charles Beaton, sworn 18 May 2007 (“second affidavit of Mr Beaton”). Attached is Annexure “A”, which is a letter from the Supreme Court of New South Wales setting out a summary of payments.
Somerset Ryckmans, solicitors for Mr Carpenter, filled the following affidavits:
a)That of Clifford John Carpenter, sworn 15 May 2007. Attached and marked “A” is a “Statement Upon Publishing Reasons” of Einstein J and “B”, a “Position Statement” of Mr Carpenter.
b)That of Marc Ryckmans, sworn 17 April 2007. Attached and marked “A” is a copy of a notice of appeal from the whole of the judgment of Einstein J.
The Argyle Partnership on behalf of Gavin Thomas as Official Liquidator of Pioneer Park filled the following affidavits:
a)That of Gavin Thomas, sworn on 16 May 2007. Attached and marked “A” is a copy of the Supreme Court Order. Attached and marked “B” a Certificate as to Determination of Costs issued by the Supreme Court. Attached and marked “C” is a Supreme Court Order that Pioneer Park (in Liquidation) pay ANZ Bank. Attached and marked “D” are copies of letters sent by The Argyle Partnership.

Principle

Bankruptcy is a serious matter and the creditor bears the burden of having the right facts and being honest in its dealings with the Courts.
The Court does have the discretion, in an appropriate case, to adjourn a petition where there is a genuine and arguable appeal pursued with appropriate expedition which, if successful, would remove the basis on which the Court would otherwise order sequestration of a debtor’s estate, see Ahern v Deputy Commissioner of Taxation (1987) 76 ALR 137 at [39]-[40] per Davies, Lockhart and Neaves JJ:
39. It is also well established that in general a court exercising jurisdiction in bankruptcy should not proceed to sequestrate the estate of a debtor where an appeal is pending against the judgment relied on as the foundation of the bankruptcy proceedings provided that the appeal is based on genuine and arguable grounds: Re Rhodes; ex parte Heyworth (1884) 14 QBD 49; Bayne v. Baillieu (1907) 5 CLR 64 and Re Verma: Ex parte Deputy Commissioner of Taxation (1985) 4 FCR 181.
40. These cases rest on the broad principle that before a person can be made bankrupt the court must be satisfied that the debt on which the petitioning creditor relies is due by the debtor and that if any genuine dispute exists as to the liability of the debtor to the petitioning creditor it ought to be investigated before he is made bankrupt. Bankruptcy is not mere inter partes litigation. It involves change of status and has quasi-penal consequences.
In circumstances where other creditors exist and an adjournment lacks utility, this approach is inapplicable. The mere fact that an appeal from a judgment is pending is not sufficient ground for staying or adjourning proceedings upon a creditor’s petition: Re Flatau; Ex parte Scotch Whisky Distillers Ltd (1888) 22 QBD 83. This approach finds support in Bryant v Commonwealth Bank of Australia (1996) 70 ALJR 306 at [17] per Kirby J:
…it will be proper for the Federal Court to postpone making a sequestration order, founded ultimately upon a judgment in another court until that judgment, where challenged, is ultimately upheld. In my experience, such a course is often taken. But it cannot amount to an absolute rule. Otherwise, taking advantage of the notorious delays of the appellate process, a judgment debtor could simply postpone a sequestration order by filing a notice of appeal. It is therefore necessary that, in every case, some estimate should be made of the utility and possible outcome of the appeal. As Hill J observed in the Federal Court in this case, such estimates involve an element of embarrassment in predicting what another court, with full argument and analysis, might do. The applicant warned me about the dangers of jumping to conclusions about his appeal to the New South Wales Court of Appeal, without the benefit of the trial transcript and full argument. I agree that some caution is required. It is not feasible (nor would it be proper) for me to pre-judge the outcome of his appeal. The most that can be done is to secure a general impression of its prospects, having regard to the principal issues to be ventilated.
Justice Emmett also states in NRMA Insurance Ltd v Vale [2001] FCA 511 at [18]:
18. Accordingly, I do not consider there is any ground for refusing a sequestration order based on the currency of the appeal. Nor do I consider that the currency of the appeal is a ground for adjourning the hearing of the petition, particularly in view of the circumstance that it is clear that the Debtor does not intend to prosecute the appeal with all due diligence, having regard to her intended application to vacate the date for hearing.
In Adamopoulos v Olympic Airways SA (1990) 95 ALR 525 at 532, Burchett and Gummow JJ stated:
It will, of course, be observed that the principle is stated in terms which acknowledge the existence of exceptions; it operates “in general”.
See also Westpac Banking Corp v Carver (2003) 126 FCR 113. Mr Thomson, for the applicant, notes in his written submissions that a Court would not grant such an adjournment if the adjournment itself is likely to be futile and merely delays an inevitable sequestration order. Clearly, where a debtor has other creditors whose claims he cannot meet, it would usually be inappropriate to delay hearing the petition simply because the debtor wants to contest and appeal the judgment supporting the bankruptcy notice. Once the act of bankruptcy is committed, all creditors and the public are entitled to a determination of the debtor’s status.
Justice Pinkus stated in McCollum, Re; Ex parte The Bankrupt (1987) 71 ALR 626 at 628:
The fact that the judgment may be irregular or wrong in form is no sufficient reason for dismissing the petition … The object of going behind a judgment is not to inquire whether the proper procedure was followed to obtain it, but to determine whether the debtor in reality owed to the creditor the moneys which the judgment held that he owed. Once it is found that the debtor was really indebted to the petitioning creditor in the amount for which judgment was given, any irregularities of procedure, however important they may have been had they been relied upon in the proceedings in which the judgment was obtained, cease to be of importance … once the existence of the debt is found, it cannot be sufficient cause for refusing to make a sequestration order that a judgment for the correct amount, given by a court having jurisdiction, was obtained by the wrong procedure or given in the wrong form...
The onus in establishing a problem with the original judgment such that there is a real chance of success on an appeal was established in Lewin & Glasson, Re; Ex parte Milner (1986) 67 ALR 591 at 597 per Pinkus J:
…there is an onus on the judgment debtors to point to some aspect of the reasons which gives them a real chance of success on appeal …with respect to the three points listed above.

Respondent’s Submissions (Applicant in current adjournment application)

Mr Garnsy, for the respondent, submits that ANZ Bank acted prematurely and contrary to the terms of its security and sent a company, which was riding out a cyclic downturn in the coal mining market, into liquidation. The grounds of appeal to the New South Wales Court of Appeal include a review of the relevant factual evidence relating to material adverse change, insolvency, and the appeal seeks review of that evidence in relation to the company’s prospects.
Mr Garnsy argues that the appeal should be resolved prior to proceeding with the petition and relies on Adamopoulos. Mr Garnsy referred to the headnote of that decision in the Australian Law Reports:
(ii)     The governing principle is that a court in Bankruptcy should not proceed to sequestrate the estate of a debtor where an appeal is pending against the judgment founding the bankruptcy notice provided that the appeal is based on genuine and arguable grounds.
Ahern v DCT (QLD) 76 ALR 137, followed.
(iii)   A discretion operates whether to apply the general rule.
Re Verna; Ex parte DCT (1984) 4 FCR 181; Re Lewin and Glasson; Ex parte Milner (1986) 67 ALR 591, considered.
(iv)    In this case, the court’s discretion miscarried. There appeared to be a genuine dispute involved in the appeal from the decision in the Supreme Court. If the prosecution of the appeal had been dilatory, it has not been terminated in the obvious way by an application to the Court of Appeal for its dismissal.
In rejecting the trial judge’s approach, Pincus, Burchett and Gummow JJ stated at 531:
With respect, we do not think this view of the matter is consistent with authority. An appeal against the very judgment which founds the bankruptcy notice is a matter of significance requiring advertence to the possibility that the appeal may be justified. Nor is it realistic to entertain any confidence, in other than a special case, that a trustee in bankruptcy will decide to pursue an appeal with merit. The extremely experienced counsel who appeared for the respondents was unable to recall any instance where such a thing had happened. A much more likely consequence of a sequestration order is the abandonment of the appeal, whatever its merits, and its dismissal for non-prosecution.
Mr Garnsy submits that if the principle in Adamopoulos is followed by this Court, there is no prejudice to ANZ Bank or other creditors in adjourning this petition. Pioneer Park is not trading, Mr Carpenter is not running a business and there was substantial investigation into the alleged insolvency of the company and Mr Carpenter.
Mr Garnsy also contends that, in relation to the Dobbs certificate, ground 23 of the notice of appeal (first affidavit of Mr Beaton, Exhibit “JCB1”, tab 15) states:
XI THE GUARANTEE
23. The trial judge was in error in holding that the Respondent was able to rely on its certificate of moneys due under Mr Carpenter’s Guarantee and that the certificate was conclusive. [judgment para 621]
Mr Garnsy indicated that the trial judge reached the conclusion that the certificate could be relied upon: Pioneer Park Pty Limited (in Liquidation) v Australia and New Zealand Banking Corporation Limited at [613]-[621]. As was argued before His Honour and is sought to be raised on appeal, the first Dobbs certificate is not determinative because of the difference in wording in relation to the relevant clause. Dobbs v The National Bank of Australia (1935) 53 CLR 643 concerned a clause in a guarantee given to a bank provided that a certificate signed by the manager of the office at which the principal debtor’s account was kept should be conclusive evidence of his indebtedness at a particular date. The clause contained the following:
8. A certificate signed by the manager or acting manager for the time being at your head office or any other office of your bank at which the banking account of the customer shall for the time being be kept stating the balance of the principle and interest due to you by the customer shall be conclusive evidence of indebtedness at such date of the customer to you.(Dobbs at 645.9)
Mr Garnsy submits that the wording of ANZ Bank’s clause is different to that of a standard Dobbs certificate, and challenges the certificate on a number of grounds. First, Showmat v Rubinstein (1995) 124 FLR 248, considered a strict construction of the clause and the need for independent investigation by the giver of the certificate. It is submitted that in this matter, the certificate was not given by the person as required by the clause. Neither the bank nor the giver made the relevant inquiries or determined whether the calculations relied upon were prepared by a solicitor. The technicalities in relation to the Dobbs certificate are under challenge in the appeal.
Secondly, it is submitted that the certificate cannot be relied upon if it is not genuine. Thirdly, as Mr Carpenter was the guarantor of ANZ bank’s customer, Pioneer Park, if ANZ bank was not entitled to terminate its facilities concerning Pioneer Park and was liable for damages, there was no liability for Mr Carpenter under the guarantee. Mr Garnsy contends that Mr Carpenter’s personal liability is based on the validity of the Dobbs certificate and is central to the appeal.
Mr Garnsy submits that the main thrust of the appeal focuses on when the company was insolvent and how it became so. It is the appellant’s case it became insolvent because ANZ Bank was not entitled to give notice and the consequence of that notice was the demise of Pioneer Park. Also that the liability of the bank in damages would more than outweigh any claims against Pioneer Park and, in turn, against Mr Carpenter as a guarantor.
Mr Garnsy then identified the following six areas of appeal in respect of material adverse charge and insolvency:
a)The default by ANZ Bank to follow its own procedures for termination of facilities. This was governed by clauses 9, 10 and 11 of the bank’s terms and conditions. The applicant claims that the company was, without justification, deprived of a five-year fixed term facility for $2 million, which had another two years to run which would have given the company the ability to ride-out the temporary downturn in the coal market. The claim is that the company was not, contrary to the bank’s conditions, given a chance to rectify any material adverse charge: grounds one to four.
b)The failure of the trial judge to disqualify himself after an interlocutory application in which it is alleged that His Honour suggested that the company was in a hopeless situation, based on assertions of evidence.
c)Whether or not the $2 million fixed term facility was varied and became variable and on demand. A letter of 3 March 1997 offered a continuation of facility which, on one construction, charged the $2 million from five years to after annual review, or on demand. The offer was accepted by signing and returning the duplicate letter. However, the applicant did not return the letter. The trial judge found that the letter was accepted by conduct subsequent, which is challenged on appeal. Pioneer Park was a long establishing manufacturer of heavy mining machinery. However at the relevant time, the mining industry was going through a downturn and demand for machinery had declined. Consequently, the business was cyclical and need a fixed term facility: grounds 6 to 11.
d)Whether there was really a material charge in the circumstances and if the company was insolvent. There is also an associated ground in relation to the alleged effect of correspondence regarding the facilities in April, June and October 1998. The letters contain a phrase “subject to annual review”, and the question is whether the inclusion varied the term on the fixed-term facility.(grounds 12 to 15)
e)This relates to wrongful conduct of the bank. The claim concerns the alleged debiting of monies to the overdraft, namely the fixed term facility, when it was not entitled to do so. ANZ Bank claimed it had a right to do so because neither Pioneer Park nor Mr Carpenter had given any instructions to roll over certain bills: grounds 16 to 19.
f)This relates to gearing ratios and an appeal point is whether the defect could be remedied on notice under the bank’s general condition 10. This again goes to the question of solvency and that at the relevant date, the company was not insolvent and there was no default.(grounds 20 and 21)

Mr Garnsy submits that the following issues arise in respect of other creditors:
a)The liquidator of Pioneer Park claims an indemnity but does not challenge Mr Carpenter’s right to bring the appeal in the name of Pioneer Park, pursuant to an order of Barrett J in Carpenter v Pioneer Park Pty Ltd (2001) 51 ACSR 299 at [39]:
…Mr Carpenter obviously intends that he should finance the litigation in which he wishes the company to engage. With the company’s financial position as it is, he can have no other expectation. As a corollary, Mr Carpenter should be required to indemnify the company against not only costs and expenses he causes to be incurred through suing on the company’s behalf but also any liability for costs incurred by the company otherwise than at his behest by reason of the derivative action, but with the proviso that if the company succeeds in recovering damages or other moneys through the derivative action (including by compromise or settlement), he may apply to the court for reimbursement of expenses he has borne.
b)There is no prejudice to ANZ bank, other creditors of the company or Mr Carpenter because of the adjournment as the company is not trading and Mr Carpenter is not conducting any business.

Applicant’s Submissions (Respondent in current adjournment application)

Mr Thomson indicated that Mr Carpenter obtained leave under provisions of the Corporations Act 2001 (Cth) to bring proceedings in the name of Pioneer Park. The parties seeking leave were Mr Carpenter and Pioneer Park, represented by its liquidator. The liquidator expressed concern that the company may be ordered to pay indemnity costs in the course of those proceedings. Justice Barrett ordered that Mr Carpenter indemnify the liquidator against all costs. Gavin Thomas, the liquidator, sought to recover costs assessed against Pioneer Park amounting to $62,036.22 (“Interlocutory costs order”).
When the liquidator was advised that Mr Carpenter’s solicitors had filed a holding appeal against the decision of Einstein J in Pioneer Park Pty Limited (in Liquidation) & Ors v ANZ Banking Group [2006] NSWSC 883 (“the consolidated proceedings”), the liquidator’s solicitors, The Argyle Partnership, wrote to Mr Carpenter’s solicitors:
However, we note that on 1 November 2004 the Court ordered Mr Carpenter indemnify Pioneer in relation to its costs and expenses including adverse costs to which the company would or may become involved as a result of the institution of the proceedings in the company’s name (see also Carpenter v Pioneer Park Pty Ltd (in liquidation) [2004] NSW SC 1007 per Barrett J at [32]-[40].
These matters place our client in a difficult position.
In the circumstances, our client is concerned that Mr Carpenter may not be able to meet existing costs orders against the company. Should Mr Carpenter’s appeal prove unsuccessful, our client fears, he will be unable to indemnify the company with respect to the costs of the appeal.
We therefore invite your client to demonstrate his ability to indemnify the company with respect to its costs of the hearing below together with any appeal.
Further, we have been provided with a copy of a Certificate as to Determination of Costs in proceedings No. 2005/91603. Please regard this letter as a formal demand for Mr Carpenter to pay the assessed sum of $62,036.22 in accordance with the Orders made in proceedings.
On 10 November 2006, the Supreme Court ordered the unsuccessful parties in the consolidated proceedings to pay ANZ Bank’s costs on an indemnity basis. ANZ Bank is claiming costs of approximately $2.4 million (of which it has already received $675,000) being security of costs provided in the course of the consolidated proceedings. The costs of the consolidated proceedings do not incorporate the interlocutory costs order. Mr Carpenter’s liability, both directly and through indemnity, is in excess of $2.4 million.
In the course of preparing for the consolidated proceedings, a property search identified a property sold by Mr Carpenter in Tuggerah, New South Wales. The property was purchased in April 1997 for $130,000 and sold on 16 June 1999 for $140,000 to Julie Tassone who remains the registered proprietor. Ms Tassone is Mr Carpenter’s current partner. $80,000 of the consideration received was injected into one of the companies in the consolidated proceedings. The affidavit of Mr Carpenter deposed that he had cashed in his superannuation benefits so that he could pay $1 million in legal fees. ANZ Bank indicated that it would fund the liquidation to undertake investigations to determine whether those payments were preference payments. However, due to expiring time limits these investigations should not be delayed.
Mr Thomson submits that the appeal cannot succeed in reversing the findings on the liability of the bank under the facilities for the following reasons:
a)Justice Einstein found that under the security documents, bank officers had formed the opinion that the company suffered adverse material change and that was a default under the terms of the facility.
b)The ground of appeal which seeks to challenge the decision on insolvency, which is also a basis for default. Mr Thomson contends that it is apparent from Einstein J’s fact finding details that it was inevitable on the basis of unchallenged books and records maintained.
c)His Honour found that the business the company was running at that point was simply not viable. Mr Thomson argues that there can be no appeal against such a finding.
In respect to reason (a), Mr Thomson referred to Pioneer Park Pty Limited (In Liquidation) v ANZ Banking Corporation Limited at [20], [24], [221], [236] and [256]:
[20] The alleged events of default were: (a) insolvency; (b) material change in circumstances; (c) breach of contractual gearing covenant; and (d) failure to provide signed off accounts.
[24] adverse findings against Mr Carpenter on his credit, “it is generally not possible to accept his evidence is reliable unless it is corroborated by contemporaneous documents or by evidence given by another witness whose evidence, in turn, is accepted as reliable”. It is submitted that there is not appeal against those finding but adverse findings as to credit will impact on the question of damages.
[221] material adverse change findings – Mr Carpenter conceded the AMP transaction which resulted in an abnormal loss of $744,000 was a material adverse transaction for the company
[236] His Honour stated:
The finding is that in the days which followed 20 November 1998, officers of the Bank’s high risk department, … formed the view, based on 30 June 1998 accounts, an analysis of the company and a serviceability of security coverage calculation, that there had been a sharp deterioration in the position of Domino Mining and most disturbing deterioration of financial circumstances.
[256] His Honour then moved to early February 1999:
The finding was that on about 4 February 1999, [officer of the Bank], specifically turned his mind to whether there was material adverse change within clause 10(1)(k) of the general conditions, and formed the view there was, based on trading losses. This was communicated to the company in ANZs letter of 4 February 1999. Mr Carpenter brought it to the attention of Mr David Henderson, he was the other director.
Mr Thomson submits that this is a finding of a clear breach of facilities, which is not subject to any appeal. Further, Einstein J said at [352]:
The finding is that if, for any reason, the June demand cannot be sustained as valid in terms of the reasons already given, ANZ could and would have continued to form or separately form an opinion on material adverse change so as to trigger the clause. It was entitled to rely on all its rights pursuant to the terms and conditions of the subject of the letters of offer.
Mr Thomson submits that although this finding is not subject to appeal, it is relevant to liability and damages should the company seek to pursue in the event that it is able to have the liability finding reserved.
In respect of reason (b), it is submitted that Einstein J adopted the approach of Mr Hunter, the insolvency expert retained by Mr Carpenter, in His Honour’s assessment of solvency. Justice Einstein noted at [515] under the heading “Losses”:
Domino Mining Equipment had consistently made losses between July ’97 and May ’99. The total losses over the period were in excess of $2.3 million included in excess of $1.6 million on the trading account. Two-thirds of shareholders funds were lost in this period.
His Honour then considered the company’s trading losses over the period, creditors, a statutory demand by the Deputy Commissioner of Taxation, the cessation of production of new mining machines and the transfer of its component and parts business. After 17 May 1999, the company became Pioneer Park. The prospect of refinancing was considered. Mr Thomson submits that all of the underlying facts were based on uncontroversial evidence, many times from the company’s own books and records. Mr Thomson contends that in the face of all the evidence, it would be impossible to convince the Court of Appeal that the company is not insolvent. Mr Thomson refers to [560] of Pioneer Park Pty Limited (In Liquidation) v ANZ Banking Corporation Limited where His Honour comments on the evidence of Mr Hunter:
At most, even if the Court was to limit itself to approaching the matter from and only from his perspective, Mr Hunter’s evidence would, on his concessions given under cross-examination, suggest the following clear indicators of insolvency had been shown by 9 June 1999. One, a working capital deficiency of $1.4 million. Two, negative net assets of $400,000. Three, unavailability/absence of other cash resources.
Mr Thomson submits that the result of that analysis leads to a number of conclusions. Essentially, the appeal cannot overturn the adverse finding that Pioneer Park was liable under its faculties with the bank. The findings on solvency are not arguable and the finding of material adverse change was not appealed.
Mr Thomson contends that this Court should take a practical approach about what is appropriate in the circumstances. Mr Thomson argues that:
a)The appeal is hopeless; and
b)Even if the appeal is not hopeless, succeeding does not benefit the debtor in terms of removing a liability in excess of $2.4 million in costs. Another element to consider is that Mr Carpenter is unable to meet liabilities to third parties, namely:
i)His liability to the liquidator under the indemnity which he is obliged to honour as a term and condition of the prosecution proceedings;
ii)His liability to the Supreme Court to meet the filing fee.
Mr Thomson submits that the other aspect of the Court’s discretion relates to the public’s interest in having an investigation. Particularly, the interest of Mr Carpenter’s creditors concerning:
a)The transfer of the Tuggerah property in June 1999 to his de facto partner in circumstances where the distribution of the consideration was not adequately explained;
b)The recent payments and distribution of money from his superannuation fund towards legal fees and whether those were preferred payments.
Mr Thomson submits that the above aspects weigh against an extended ajournment.

Consideration

Counsel for both parties have made submissions to indicate a genuine dispute exists regarding the appeal from Pioneer Park Pty Limited (in Liquidation) v Australia and New Zealand Banking Corporation Limited [2006] NSWSC 883. I have been referred to a wide range of issues from that judgment, which, if subjected to detailed written and oral submissions, may confirm the submissions made to this Court as to the outcome and justification of that appeal.
There is no indication that Mr Carpenter does not intend to prosecute the appeal with all due diligence. He has demonstrated his commitment to this course by instructing solicitors since December 2006. It appears that Mr Carpenter has responded to each requirement. He retained counsel and instructed solicitors for the notice of motion before Registrar Schnell regarding security of costs in the appeal proceedings and in this adjournment application. This course of behaviour is clearly distinguishable from the actions of the respondent in NRMA Insurance Ltd v Vale (see [15] above).
An important consideration for this Court is whether ANZ Bank or other creditors would be prejudiced by an adjournment. Significantly, the company Pioneer Park is not currently trading. I am also advised that Mr Carpenter is not involved in the running of any business or corporate structure. Further the investigation into the alleged insolvency of Pioneer Park and Mr Carpenter has been undertaken and substantially completed. In the circumstances, an adjournment should result in minimal prejudice to the creditors (see [20]-[22] above).
I have not had the opportunity or benefit of examining the trial transcript, detailed submissions or full argument on each issue of appeal. However, there is no need as that is not the function of this application. I am not in a position to predict the findings of the New South Wales Court of Appeal, and again that is not the purpose of this application. I am limited to only being able to form a general impression of whether at least some grounds in the appeal would be successful if fully argued.
On the material before me and the submissions for both the supporting and counter claims I have formed the view that a genuine and arguable ground of appeal exists. On the authority of Ahern v Deputy Commissioner of Taxation, the creditor’s petition should be adjourned to accommodation Mr Carpenter’s appeal.

I certify that the preceding forty-five (45) paragraphs are a true copy of the reasons for judgment of Lloyd-Jones FM

Associate:

Date: 19 September 2007