Aurora Australis Holdings Pty Ltd v Connick
[2010] FMCA 308
•23 April 2010
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| AURORA AUSTRALIS HOLDINGS PTY LTD v CONNICK & ORS | [2010] FMCA 308 |
| BANKRUPTCY – Application to review decision of Registrar – debts arising from VCAT decisions – no appeals lodged against VCAT decisions – applicant not solvent – consideration of matters in s.52 of Bankruptcy Act. |
| Bankruptcy Act 1966, ss.52(1), 153B, 178 VCAT Act 1998, s.78 |
| Totev v Sfar [2008] FCAFC 35 Stankiewicz v Plata [2000] FCA 1185 Rigg v Baker [2006] FCAFC 179 |
| Applicant: | AURORA AUSTRALIS HOLDINGS PTY LTD |
| Respondent: | NOEL L. CONNICK & ORS |
| File Number: | MLG 1477 of 2009 |
| Judgment of: | Burchardt FM |
| Hearing dates: | 12 & 20 April 2010 |
| Date of Last Submission: | 20 April 2010 |
| Delivered at: | Melbourne |
| Delivered on: | 23 April 2010 |
REPRESENTATION
| Counsel for the Petitioning Creditor: | Ms M Portnoy |
| Solicitors for the Petitioning Creditor: | Coopers Lawyers |
| Counsel for First Supporting Creditor: | No appearance |
| Solicitors for First Supporting Creditor: | Mendelsons |
| Counsel for Second, Third and Fourth Supporting Creditors: | Mr A Brygel |
| Solicitors for Second, Third and Fourth Supporting Creditors: | Brygel Lawyers |
| Counsel for Fifth Supporting Creditor: | No appearance |
| Solicitors for Fifth Supporting Creditor: | Mills Oakley Lawyers |
| Counsel for Trustee | Mr R de Lemos |
| Solicitors for Trustee | Harris Carlson |
| Counsel for Respondent: | In person |
ORDERS
The decision of Registrar Luxton to make a sequestration order against the estate of Noel L. Connick be affirmed.
The application for review filed 4 March 2010 be dismissed.
To the extent that the application for review filed 4 March 2010 constitutes an application pursuant to s 153B of the Bankruptcy Act to annul Mr Connick’s bankruptcy, the application be dismissed.
The applicant creditor and supporting creditors’ and trustee’s costs be taxed pursuant to order 62 of the Federal Court Rules and paid in accordance with the statute.
The Court notes that the date of bankruptcy is 28 October 2009.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT MELBOURNE |
MLG 1477 of 2009
| AURORA AUSTRALIS HOLDINGS PTY LTD |
Applicant
And
| NOEL L. CONNICK & ORS |
Respondent
REASONS FOR JUDGMENT
(REVISED FROM TRANSCRIPT)
On 11 February 2010, Registrar Luxton made a sequestration order against the estate of Noel Connick. The petition then extant as against Katherine Connick was dismissed. I note, however, that a further bankruptcy notice has been put underway by a creditor against
Mrs Connick. On 4 March 2010, Mr Connick filed an application for review. In form, it is an application for review. If one looks at part B of the application, it sets out the orders sought to be reviewed. In substance, however, the question as to whether this is an application for review or an application for an annulment as such is made more complicated by the orders sought in part D. I will return to that aspect of the matter a bit later.
The application was not supported by any affidavit filed by
Mr Connick. Affidavits were filed, however, in opposition by two disputed creditors, namely Ronit Tauber for herself and her husband, and Tamara Israeli. Pursuant to my orders made on 12 April 2010,
Mr Connick filed an affidavit on 15 April 2010 and I take the following points from the text of the affidavit. First, it seeks – and I quote – “That the declaration of bankruptcy be set aside for a period of nine months so that the applicant has sufficient time to organise his affairs to satisfy the First Applicant’s claim.” The next aspect I should refer to is that it is made plain that Mr Connick disputes a number of debts, including those of the Taubers and Ms Israeli. The affidavit admits the debt to Aurora, which is the petitioning creditor. The affidavit indicates that Mr Connick intends to appeal the VCAT judgments in favour of the Taubers and Ms Israeli that have given rise to the alleged debts to them.
It goes on to say that Mr Connick intends to sell a townhouse to pay his creditors, that the subdivision is likely to be completed in May and then there would be 90 days for sale. The affidavit deposes that Mr Connick owns two townhouses, which together would be worth something of the order of $1million, but could be sold separately for $700,000 each. It follows– the affidavit says this – that Mr Connick would lose $300,000 at least if subdivision is not permitted. He asserts that he has more assets than creditors and is therefore solvent. He deposes that the main reason for his ongoing financial problems are disputes with the Taubers and Ms Israeli.
Annexure H is a list of his creditors which if added up come to near as makes no difference, $450,000. The disputed creditors are worth $350,000 plus two sets of costs ordered in favour of the Taubers and Ms Israeli by VCAT. As I understand it, those costs have not yet been taxed and quantified but they would be quite substantial.
Mr Connick’s statement of affairs, relevantly in my view, shows that there are no details of any income for the last 12 months, nor is there any estimate as to income in the next 12 months. Mr Connick is self-employed and describes himself as having – and I quote – “a small domestic construction company”. It appears that this is operated with his wife and is not incorporated. He says that he has had difficulties paying his debts since May 2008 and it seems relatively clear that that must interrelate with the problems that took place in the projects involving the Taubers and Ms Israeli. It is clear he has no assets of any significant value, apart from the two townhouses which he seeks to subdivide. I note that he and his wife live in one of them.
The townhouses are jointly owned with his wife and the debts are also, it would appear, joint and several, and I note from the statement of affairs that Mr Connick has no debtors.
The affidavit of Ronit Tauber filed on 8 April 2010 deposes that they – she and her husband – are still owed $120,000 of the $320,000 ordered to be paid by VCAT on 26 November 2009. The reduction is because QBE have paid $200,000 as an indemnity in the meantime. QBE are now a supporting creditor. The VCAT decision of 14 October 2009 which was, as it were, the decision antecedent to the quantification of damages that took place in November, is exhibited to the affidavit. Contrary to the submission of counsel for the Taubers, it is not a decision on the merits in the strict sense. It was an order made pursuant to s.78 of the VCAT Act 1998 because of Mr Connick’s failure to file his defence in a timely way and a variety of other interlocutory deficiencies set out in detail in the decision. I note a very serious finding was made by the Tribunal that Mr Connick gave false evidence in an endeavour to improve his position on an interim basis.
Quantum, as I say, was assessed on 26 November 2009 by consent and it should be pointed out that Mr Connick was represented throughout. That judgment has been registered in the County Court.
The affidavit of Ms Israeli filed on 8 April 2010 deposes to a VCAT hearing over three days at which Mr Connick was unrepresented, but represented himself. On 2 October 2009 a decision was given which involved detailed reasons. As a result of those reasons, judgment was entered for just over $30,000 plus interest and costs for Ms Israeli. That judgment has been registered in the Magistrates Court.
Exhibit K1, which is the report to creditors by the trustee, and which was admitted without objection by Mr Connick and in my view constitutes an admissible business record, confirms the picture already provided. The debtors in the report to creditors are essentially the same as the statement of affairs, subject to an unidentified possible liability to the Victorian Work-Cover Authority and an additional debt asserted to Citigroup of $9,200.
In submissions, Mr Connick said that he seeks time to put his affairs in order. He said this was a simple request. He confirmed he has made no applications to appeal the VCAT decisions to which I have referred as yet. He said he was solvent and can pay his debts. He said the subdivision is three-quarters of the way through and settlement would take place within 60 days. He said he would lose $300,000-plus if he was not permitted to proceed in this way. In submissions in reply,
Mr Connick said that the judgments in VCAT were not entirely correct but he confirmed that he had not attended to any question of appeals. He said he would do so if he was successful in this application.
The primary submission for the respondents was in fact made by counsel for the Taubers and Ms Israeli. Counsel treated the application as an application under s.153B of the Bankruptcy Act 1966 (“the Act”) to annul the bankruptcy. On consideration I think that is not correct. There is no mention of the words “annul” or “annulment” either in the application for review or in anything that Mr Connick has said, either on affidavit or before the Court. In fact, what I think Mr Connick seeks is what he ostensibly asks for; namely, a review of the exercise of power by Registrar Luxton. That therefore is a hearing de novo pursuant to the Act and the decision of the Full Federal Court in Totev v Sfar [2008] FCAFC 35. This requires the Court to consider first the matters set out in s.52(1) of the Act.
But those, in the context of this proceeding, are really simply not in issue. The debt to Aurora is admitted, service is not in issue and it is clear the debt is still owed. To the extent that it may be necessary, I will dispense with further compliance with Rule 4.06 of the Bankruptcy Rules. That then brings us to s.52(2). In substance,
Mr Connick says first that he is able to pay his debts. I would be prepared to assume in his favour that in the alternative, he submits that a sequestration order not be made for other sufficient cause and I will treat his case therefore as being both – first, that he is solvent and second, that he says the other sufficient cause is that he needs time to organise his affairs as he has described and pay his debts.
So far as the first issue of solvency is concerned, Mr Connick has debts of around about $800,000 of which he disputes approximately $350,000. The VCAT judgments were respectively on 26 November 2009 for the Taubers and 2 October 2009 for Ms Israeli. No appeal or order to review has been filed. No basis of appeal has been articulated by Mr Connick. It is clear in my view he has not turned his mind in any detail to any aspect of the appeal including the question as to what the grounds might be. He is of course well out of time, one would think, in such an application. Both VCAT decisions followed inter partes hearings. In the case of the Israeli matter, it involved a three day hearing. In respect of the Taubers, it involved an application under
s.78 of the VCAT Act 1998. It is clear that any application to appeal out of time would at the very least face very significant difficulties.
On the face of it, one would have to say indeed that any appeals would be hopeless, although one never knows what other material might emerge. It is clear that for these purposes, I should accept that Mr Connick owes $800,000-odd at the moment. In this regard, I refer to the case which counsel for the supporting creditors provided me, namely Stankiewicz v Plata [2000] FCA 1185 a decision of the Full Court. At paragraphs [29] –[30] the Court said the following and I quote:
“There are authorities which suggest that a bankrupt whose assets exceed his or her debts at the date of the sequestration order ordinarily will be entitled to an annulment of the bankruptcy, at least if the bankrupt gives undertakings to pay the costs of the petitioning creditor and the trustee's costs of administration.”
I should say I won’t refer to the various authorities in the text:
“This principle is said to follow from section 52(2)(a) of the Bankruptcy Act, which provides that if the court is satisfied that the debtor is able to pay his or her debts, “it may dismiss the creditor’s petition. In general, a debtor who so satisfies the Court will succeed in having the creditor’s petition dismissed. We are content to assume, without deciding, that the authorities to which we have referred correctly state the position.
In order to satisfy the Court that he or she is “able to pay his or her debts”, it is not necessary for the debtor to show that he or she has cash resources immediately available for this purpose. But the debtor must be able to realise assets, sufficient to pay the debt, within a relatively short time. As Barwick CJ said in Sandell v Porter, the resources to be considered –
a quote from the Chief Justice –
extend to moneys which the (debtor) can procure by realisation by sale or by mortgage or pledge of his assets within a relatively short time – relative to the nature and amount of the debts and to the circumstances, including the nature of the business, of the debtor. The conclusion of insolvency ought to be clear from a consideration of the debtor's financial position in its entirety and generally speaking ought not to be drawn simply from evidence of a temporary lack of liquidity. It is the debtor’s inability, utilising such cash resources as he has or can command through the use of his assets, to meet his debts as they fall due which indicates insolvency.”
Here the following matters seem to me to be relevant. The applicant has been in financial trouble since as long ago as May 2008. There is no indication as to what his income has recently been or will be. There are no assets that he can realise, save the townhouse or townhouses. Subdivision is not yet finally completed. Even after that, tenants would have to be evicted, although I note that one appears to be one of Mr Connick’s sons, and I suspect that may be less of an issue. He thereafter still has to sell. The best possible result asserted by Mr Connick is around about $700,000, which I note includes Mrs Connick’s share, but the debts seem to be joint and several. And that is still well short of the $800,000 plus that constitutes his debts. I note the trustee’s costs and the taxed VCAT costs still have to be added. He is not able to realise his asset within a relatively short time, as Barwick CJ described it in Sandell v Porter. What he in fact seeks is nine months – in other words, almost one third of the standard bankruptcy three year period. It is clear in all the circumstances that Mr Connick is not solvent.
That raises the issue of other sufficient cause. The applicant wants nine months to put his affairs in order, and he may well suffer loss if the sequestration order is not set aside, but I point out the trustee might well decide to sell the properties separately in the event that they would realise a substantially greater amount. But against that injustice, if that is what it is, is the fact that Mr Connick is insolvent; his creditors are entitled to be paid and the trustee can evaluate the desirability of separate sale of units. Any decision to sell the units together at a lesser price if unreasonable is susceptible of challenge under s.178 of the Act in any event.
The time that Mr Connick seeks is excessive. The applicant’s affidavits show that he has been in difficulty for two years and has not been able to sort his affairs out yet. He has not appealed the VCAT orders that stand at the forefront of his difficulties, and has not even contemplated doing so despite having had well over four months in which to consider his position. I have no confidence that Mr Connick would in fact sort his affairs out if I gave him a chance to do so. It is overwhelmingly clear that the sequestration order should be made.
I will turn now to deal briefly with the possible alternative position, that this is an application to annul under s 153B of the Act. Here, the arguments are even stronger. First, the applicant has the onus of proof, as is made clear by the decision of the Full Federal Court in Rigg v Baker [2006] FCAFC 179 in the decisions of Spender J at [11] and French J, as his Honour then was, at [63]. The applicant is not solvent. It is clear in all the circumstances I would exercise my discretion in favour of the petitioning creditor.
I certify that the preceding twenty (20) paragraphs are a true copy of the reasons for judgment of Burchardt FM
Associate: Ms B. Evans
Date: 23 April 2010
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