Australia and New Zealand Banking Group Ltd (in the matter of Demarco) v Demarco
[2000] FCA 640
•16 MAY 2000
FEDERAL COURT OF AUSTRALIA
Australia & New Zealand Banking Group Ltd (in the matter of Demarco) v Demarco [2000] FCA 640
IN THE MATTER OF GODFREY CHARLES DEMARCO
AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED v GODFREY CHARLES DEMARCON 7004 OF 2000
LEHANE J
16 MAY 2000
SYDNEY
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
N 7004 OF 2000
IN THE MATTER OF GODFREY CHARLES DEMARCO
BETWEEN:
AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED
(ACN 005 357 522)
APPLICANTAND:
GODFREY CHARLES DEMARCO
RESPONDENTJUDGE:
LEHANE J
DATE OF ORDER:
16 MAY 2000
WHERE MADE:
SYDNEY
THE COURT ORDERS THAT:
1. The estate of Godfrey Charles Demarco be sequestrated.
2.The petitioning creditor’s costs be taxed and paid in accordance with the Bankruptcy Act 1966 (Cth).
3.All proceedings under the sequestration order be stayed for a period of twenty one days from 16 May 2000.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
N 7004 OF 2000
IN THE MATTER OF GODFREY CHARLES DEMARCO
BETWEEN:
AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED
(ACN 005 357 522)
APPLICANTAND:
GODFREY CHARLES DEMARCO
RESPONDENT
JUDGE:
LEHANE J
DATE:
16 MAY 2000
PLACE:
SYDNEY
REASONS FOR JUDGMENT
The applicant creditor (the Bank) seeks, by its amended petition filed on 28 April 2000, a sequestration order against the estate of the debtor, Mr Demarco. The act of bankruptcy alleged is failure by Mr Demarco to comply with a bankruptcy notice, dated 27 October 1999, requiring payment (or the making of an arrangement for settlement) of a debt claimed to be due by Mr Demarco to the Bank under a judgment of the Supreme Court of New South Wales which took effect on 19 October 1999. The terms of the judgment were:
“JUDGMENT THAT
1. The plaintiff pays the first defendant’s costs of $54,439.65.”
The bankruptcy notice left no room for doubt as to the identity or nature of the debt claimed. The petition as originally presented correctly described the debt by reference to its amount and the date of the judgment of the Supreme Court but misdescribed it as “for financial accommodation provided by the applicant creditor to the respondent debtor.” At the hearing of the petition, the Bank sought leave to file an amended petition correcting that misdescription. Mr Demarco, who was not legally represented, did not oppose the amendment and I granted leave to file the amended petition in Court.
It is not in dispute that Mr Demarco has not complied with the bankruptcy notice. Thus, he committed the act of bankruptcy on which the petition was founded within six months before the presentation of the petition (Bankruptcy Act 1966 (Cth), s 44(1)(c)). Affidavit evidence was read at the hearing which establishes the matters specified in s 52(1)(a), (b) and (c) of the Bankruptcy Act. There was no dispute about those matters and I am satisfied with the proof of them.
Mr Demarco’s notice of intention to oppose the petition stated, as his intended grounds of opposition:
“1. I did not commit an act of bankruptcy.
2. I am solvent.
3.I was negotiating with the Bank to settle the matter starting on 9th November 1999. The official rejection did not come untill [sic] 29th Dec by which the time to comply with the bankruptcy notice had lapsed.”
Despite the terms of the first ground, however, Mr Demarco did not dispute that, as a matter of fact, he did not do either of the things which the terms of the bankruptcy notice required and it follows, as I have said, that he committed an act of bankruptcy. Mr Demarco relied principally on his second ground – that is, he claimed that he was able to pay his debts (s 52(2)(a)). In support of that ground Mr Demarco sought to read an affidavit which he had sworn on 2 April 2000, which had been filed in Court on 3 April 2000, and to which were annexed various documents said to be relevant to his financial position. Large parts of that affidavit, and several of its annexures, were inadmissible and were rejected. Mr Demarco sought an adjournment of the hearing on two grounds. One was that he had not been informed, before the hearing on 28 April 2000, of the objections to his affidavit and had therefore been deprived of an opportunity to give additional evidence to make good the deficiencies. The other ground on which he sought an adjournment was that, as he informed me from the bar table, negotiations between him and the Bank for the purpose of settling the Bank’s claim had continued until very shortly before the hearing, when the Bank had rejected his final offer. There was little, if any, factual dispute between Mr Demarco and the Bank as to the terms, or course, of the negotiations. Mr Demarco said, however, that the fact that the final rejection came only very shortly before the hearing meant that he was deprived of the opportunity to raise – as he claimed that he could – the funds necessary to pay in full the debt claimed by the Bank.
I declined to grant an adjournment. I did so, in relation to the point arising from the inadequacies of Mr Demarco’s evidence, on the basis that it was possible, at least in the first instance, to consider the question of Mr Demarco’s ability to pay his debts on the assumption that he could rely on the annexures to his affidavit (as will be seen, on that assumption I am not satisfied that Mr Demarco is able to pay his debts). Additionally – and this was relevant to both grounds on which an adjournment was sought – the Bank accepted that it was appropriate that, if a sequestration order were made, proceedings under it should be stayed for twenty one days pursuant to s 52(3) of the Bankruptcy Act: the period of twenty one days, together with any period during which judgment were reserved, would give Mr Demarco a sufficient opportunity to raise, if he could, the funds required to discharge the debt on which the Bank relied.
The relationship between the terminology of s 52(2)(a) (“able to pay his or her debts”), that of the definition of “solvent” in s 5(2) (“the person is able to pay all the person’s debts, as and when they become due and payable”) and that of earlier statutory formulations was considered by Katz J in International Alpaca Management Pty Limited v Ensor [1999] FCA 72. For the reasons given by his Honour (see especially par 17 and par 18), in my view it remains correct to apply, in relation to s 52(2)(a), the test of solvency stated by Barwick CJ in Sandell v Porter (1966) 115 CLR 666 at 670:
“Insolvency is expressed in s.95 as an inability to pay debts as they fall due out of the debtor’s own money. But the debtor’s own moneys are not limited to his cash resources immediately available. They extend to moneys which he can procure by realization 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, utilizing 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.”
Mr Demarco is a real estate agent and a builder. The annexures to his affidavit comprise a statement of assets and liabilities of Mr Demarco prepared by an accountant; a valuation of a property at North Bondi which Mr Demarco says he owns (and although he has not given evidence directly of that, I see no reason to doubt it); a facsimile transmission from Citibank, which apparently is the mortgagee of the North Bondi property, stating the amount required to discharge the mortgage as at 13 March 2000; a copy of a lease of part of the North Bondi property, to, apparently, a firm of engineers for use as an office; an unsigned lease of, apparently, the rest of the building at North Bondi together with two forms of application for lease, apparently signed by the intended lessees; an appraisal, or valuation, of Mr Demarco’s real estate business; a letter from Provident Capital Financiers to (apparently) a broker acting for Mr Demarco offering, subject to certain conditions, a loan on mortgage of the North Bondi property; a statement setting out a proposed application of a loan from Provident Capital Financiers; a letter from an accountant to Mr Demarco stating that Mr Demarco’s tax returns for the years from 1996 to 1999 “were completed this afternoon [31 March 2000] and have been made available to you immediately”; two letters from a firm of solicitors, R L Kremnizer & Co, to (apparently) another broker, each conveying an offer, subject to conditions, of a loan on the security of the North Bondi property – one a loan of $308,000 on a first mortgage, the other a loan of $72,000 on a second mortgage; and, finally, a copy of a letter from Citibank to Mr Demarco offering various alternative bases, as to term and interest rate, for a continuation of the existing secured loan.
The valuation of the North Bondi property is stated to have been prepared by a registered valuer on Mr Demarco’s instructions. It values the North Bondi property, as at 10 March 2000, at $525,000. The value is stated as a market value: that is, the estimated amount for which the property should exchange on the date of the valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion. The valuation also states an “anticipated gross realisation figure” of $1,150,000, based on separate sales of strata lots following a redevelopment. It was not suggested, however, that that aspect of the valuation should be taken into account for present purposes. The appraisal of Mr Demarco’s real estate business values it, on the basis of a rent roll with a management fee income of $33,690 per annum, at $116,000. In the statement of assets and liabilities, the assets and liabilities of Mr Demarco are listed as follows:
“Assets
1. 375A Old South Head Road North Bondi 525000.00
2. DeMarco’s Reality [sic] Bondi Beach
(Sole Proprietor) 116000.003. Godfrey C Demarco V Noga Maman
T/as Noga’s Cuisine District
Court Plaint No. 5914 of 1996
Claim for Building work carried out for
& on behalf of Noga Maman. 76560.094. Building Debtors & Work in Progress 61422.00
5. Motor Vehicles 20000.00
6. Computers & Office Equipment 15000.00
7. Builders Tools of Trade, Plant & Equipment 20000.00
8. Costs order against Tibor Thomas Glass
in District Court Plaint No. 9393 of 1995.
Plaintiff, Tibor & Helen Glass V Godfrey
Charles DeMarco Defendant. Plaintiff
Discontinued proceedings & agreed to pay
Defendants cost (Mulally Mylott Solicitors
Estimate) 10000.009. Cost order against ANZ Bank in Federal Court
Proceedings Plaint No. NG 7477/97 ANZ V
Godfrey DeMarco (Mulally Mylott Solicitors
Estimate) 10000.0010. Furniture & Fittings 15000.00 868982.09
Liabilities
1. Mortgage on 375A Old South Head
Road, North Bondi
Balance outstanding as at
March 8, 2000 292700.002. Building – Creditors 20000.00
3. Leases & Hire Purchase Agreements 9515.00
4. Commonwealth Bank Overdraft 16000.00
5. Installment [sic] Order File No 10858/99
TT Glass & G C DeMarco
Installment’s [sic] of $200.00 per week. 17000.006. Judgement by ANZ against DeMarco
Supreme Court proceedings 4050 of
1996 the subject of this Creditors Petition 54439.657. Judgement by T & H Glass Holdings
Pty Limited against G DeMarco Supreme
Court proceedings 1218/96 – 86% of costs
Holding Appeal lodged 31 January 2000 409654.65”The statement was prepared, the accountant notes, on the basis of information “provided primarily” by Mr Demarco. So far as the assets are concerned, the District Court proceeding against Noga Maman appears to have been commenced in 1996; there is no statement of the way in which the value of the claim has been computed, nor is any information given as to whether liability or quantum is seriously in dispute (it may well be that there is significant dispute, given that the proceeding has been on foot for over three years) or whether there is a cross‑claim against Mr Demarco. The two costs orders are, apparently, estimates: neither amount of costs has been taxed or assessed and neither, therefore, apparently is presently recoverable.
Two aspects of the list of liabilities should be noted. One is that Mr Demarco apparently has the benefit of an order that a judgment debt for $17,000 be paid by instalments of $200 per week. The other is that no amount is stated in respect of the liability listed as number 7: nor is it entirely clear what message is intended to be conveyed by the expression “holding appeal”. According to the statement, Mr Demarco’s assets exceeded liabilities by $459,327.44.
The amount of the loan offered by Provident Capital Financiers, according to the copy letter annexed to the affidavit, is $355,000 (or 75% of valuation, if less). The offered loan is for a term of two years; no reductions of principal would be required during the term and the interest rate is 14.9 per cent per annum reducing to 10.9 per cent per annum on prompt payment. Significant fees would be payable if the loan proceeded. The offer is subject to a number of conditions and, apart from Mr Demarco’s bald statement, it is not clear that they could all be met. Two of the conditions, for example, are:
“14.Satisfactory Asset and Liabilities Statements signed and dated by Borrower and Guarantor.
15.Confirmation from the Borrower’s accountant, in the format provided, of the Borrower’s capacity to service the debt.”
Whether the lender would be likely to regard the present statement of assets and liabilities as satisfactory may be a matter for speculation. The latter of those two conditions, however, might well give rise to difficulties. At the foot of the statement of assets and liabilities, Mr Demarco’s annual income from real estate management letting is stated as $33,690 and his annual income from leasing the North Bondi property as $20,020. The income from letting the North Bondi property appears, from the documents, to be that derived from the lease to the engineers; it may be that if the balance of the property were let there would be additional income. But if, as apparently one should (apart from the possibility of the additional lease) take what is listed as a statement of Mr Demarco’s total income, the sum of the two amounts is $53,710. That, apparently, is Mr Demarco’s gross income, before tax. According to my calculation, the annual interest on the amount proposed to be obtained from Provident Capital Financiers, at the lower rate, would be $38,695. Additionally, and significantly, the offer of Provident Capital Financiers expired, according to its terms, on 14 April 2000. Mr Demarco expressed (from the bar table) confidence that it would be renewed; but there is no evidence of that.
The statement of application of funds to be received from the proposed loan from Provident Capital Financiers is as follows:
“APPLICATION OF PROPOSED LOAN FUNDS FROM PROVIDENT
CAPITAL FINANCIERSLOAN FUNDS $355,000.00
DEDUCT
REPAYMENT OF CITIBANK LOAN – $293,000.00
MORTGAGE BROKER COMMISSION
AND LEGAL LEGAL’S – $ 8,000.00
ANZ BANK JUDGEMENT DEBT – $ 54,000.00
T & H GLASS HOLDINGS PTY LTD
DISTRICT COURT JUDGEMENT DEBT – $ 17,000.00
ADD
ALLOWANCE BY ANZ BANK FOR COST ORDER
FEDERAL COURT PROCEEDINGS PLAINT
No NG 7477/97 IN FAVOUR OF G.DEMARCO
ESTIMATE OF COST BY MULALLY MYLOTT
SOLICITORS $ 10,000.00
ADD
ALLOWANCE BY T & H GLASS HOLDINGS FOR
COST ORDER IN DISTRICT COURT PLAINT
No. 9393/95 IN FAVOUR OF G.DEMARCO
ESTIMATE OF COST BY MULALLY MYLOTT
SOLICITORS $ 10,000.00
SURPLUS $ 3,000.00”There are at least two obvious problems with that. One is that there are sufficient funds to pay the amounts which must be paid only by taking account of $20,000 to be received in satisfaction of the two costs orders; yet neither, apparently, is presently recoverable. Secondly, liability number 7 is simply ignored. (On the other hand, the judgment debt of $17,000 is treated as immediately payable, though apparently it is not).
It is true that the letters from R L Kremnizer & Co indicate that, if loans were made on the terms set out in those letters, the total amount borrowed might be somewhat greater and the total interest burden slightly less. But the differences are not great. The offers are conditional and in any event have expired. While Mr Demarco said that he regarded resuscitation of the offers as a possibility to be explored, he did not suggest that it was by any means certain that resuscitation on the stated terms would prove possible. Finally, while the letter from Citibank suggests that its loan might be extended, and at a rate of interest lower than those offered either by Provident Capital Financiers or by R L Kremnizer & Co, additional funds would be required and there is no evidence that those would be available from Citibank (or from others, subject to Citibank’s first mortgage).
In short, if the documents attached to Mr Demarco’s affidavit are taken at face value, and if questions of admissibility are ignored, nevertheless the documents suggest a number of questions to which they provide no answers; they indicate that, at the date of the affidavit, Mr Demarco had not yet filed tax returns for years commencing with that which ended on 30 June 1996; they throw real doubt on Mr Demarco’s ability to service a debt of the amount contemplated; and they make it by no means clear that, if Mr Demarco were able to borrow the amount contemplated, he would have funds sufficient to discharge his liabilities which must be discharged either immediately or in the near future. It follows that I would not be satisfied on that basis that, in the terms of s 52(2)(a) of the Bankruptcy Act as the courts have construed them, Mr Demarco is able to pay his debts. Taking account only of admissible evidence (that is, ignoring those parts of the affidavit and its annexures which I rejected during the hearing), a fortiori I am not so satisfied. Nor does any of the material before me suggest any other sufficient cause for refusing a sequestration order (s 52(2)(b)).
Accordingly, and taking account of the basis on which the application for an adjournment was refused, the orders of the Court are that:
1. The estate of Godfrey Charles Demarco be sequestrated.
2.The petitioning creditor’s costs be taxed and paid in accordance with the Bankruptcy Act 1966 (Cth).
3.All proceedings under the sequestration order be stayed for a period of twenty one days from 16 May 2000.
I certify that the preceding sixteen (16) numbered paragraphs are a true copy of the Reasons for Judgment herein of Justice Lehane.
Associate:
Dated: 16 May 2000
Counsel for the applicant creditor:
R S Hollo
Solicitor for the applicant creditor:
Minter Ellison
Counsel for the respondent debtor:
The respondent debtor appeared in person
Date of hearing
28 April 2000
Date of Judgment:
16 May 2000
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