Australian Securities and Investments Commission v Hutchings

[2017] FCCA 1163

FEDERAL CIRCUIT COURT OF AUSTRALIA

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION v HUTCHINGS [2017] FCCA 1163

Catchwords:
BANKRUPTCY – Adjournment application – final costs order – sequestration order made.

Legislation:

Bankruptcy Act 1966, ss.27, 33, 43, 51, 52, 1317H

Cases cited:

Browne v Dunn (1893) 6 R 67
Endresz v Australian Securities and Investments Commission (No.2) (2015) 228 FCR 334
Re Gibbs; Ex p Treiscott (1995) 65 FCR 80

Applicant: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

Respondent: GUY HUTCHINGS

File Number: SYG 970 of 2017

Judgment of: Judge Street

Hearing date: 31 May 2017

Date of Last Submission: 31 May 2017

Delivered at: Sydney

Delivered on: 31 May 2017

REPRESENTATION

Counsel for the Applicant: Mr M T Brady QC

Solicitors for the Applicant: Corrs Chambers Westgarth

Counsel for the Respondent: Ms M Hall

Solicitors for the Respondent: Kennedys (Australasia) Pty Ltd

ORDERS

1. The estate of Guy Hutchings be sequestrated under the Bankruptcy Act 1966.

2. The Applicant creditor’s costs fixed in the sum of $3,871.00 be paid from the estate of the Respondent debtor in accordance with the Bankruptcy Act 1966.

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT SYDNEY

SYG 970 of 2017

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

Applicant

And

GUY HUTCHINGS

Respondent

REASONS FOR JUDGMENT

1. This is an application for a sequestration order within the Court’s jurisdiction under s.27 of the Bankruptcy Act 1966 (Cth) (“the Act”) in respect of a bankruptcy notice dated 31 October 2016 that was served on the respondent. The bankruptcy notice arises out of two final costs orders made in favour of the applicant (“ASIC”) in proceedings S12122 of 2009. The costs order, upon issue of the taxation certificate, became a final order in a proceedings for the purposes of s.40(1)(g) of the Act, see the learned Drummond J in Re Gibbs; Ex p Treiscott (1995) 65 FCR 80 at 93. The applicant has adduced evidence in support of the service of the bankruptcy notice and I am satisfied, based on the service of the notice, the act of bankruptcy occurred on 28 February 2017.

2. The applicant has read affidavits in support of the petition, service of the petition, an updated affidavit of debt, an affidavit of search, as well as an affidavit in response to alleged grounds by the respondent why a sequestration order should be made.

3. The respondent filed an affidavit on 2 May 2017 acknowledging that there was an application to set aside the bankruptcy notice that was unsuccessful and was determined on 28 February 2017. There was no suggestion that any application was made to the trial judge in the Queensland proceedings for a stay of the costs orders as a result of the service of the bankruptcy notice or in relation to the application to set aside or in relation to the bringing of the petition. The respondent identified himself as being the sixth defendant in Queensland proceedings in respect of which earlier orders were made in the Supreme Court of Queensland on 26 May 2017 reflecting declarations as a result of a decision in the Supreme Court of Queensland on 26 May 2017 and also reflecting pecuniary penalties, compensation, disqualification and costs orders made as a result of a subsequent hearing. Those orders identify a substantial penalty order in the sum of $350,000.00 being made against the respondent as well as a compensation order under s.1317H of the Act in the amount of $28,738,517.00 as well as an order to pay 70 percent of ASICs costs.

4. The respondent has sought an adjournment of the proceedings on the grounds of the intention to appeal the subject matter of the penalty and compensation orders, being the declarations and identified correspondence sent shortly after the judgment foreshadowing such an intention. The respondent tendered in evidence grounds of appeal drafted by counsel in support of the request for an adjournment. Those grounds identify what purport to be 19 grounds of appeal. It is not necessary for this Court to determine the merit of those grounds, albeit, on close scrutiny, the grounds appear to be ones that will face obvious difficulty in relation to challenges to credibility findings made by a trial judge and a misconceived ground in relation to Browne v Dunn (1893) 6 R 67. For the purpose of this application, the Court will accept that the respondent has a bona fide desire in his own interests to seek to challenge the decision the subject of the original foreshadowed declarations on 23 May 2017 and the decision that resulted in the final orders made on 26 May 2017.

5. The desire of the respondent to pursue those proceedings does not, of itself, identify any proper basis upon which the creditor’s petition should be adjourned. The statutory scheme in relation to the Act is one in respect of which bankruptcy proceedings are dealt with expeditiously. There is a public interest behind that requirement. In the present case, the evidence that has been adduced by the respondent through his solicitor on 21 September 2015, identifies an inability to pay the two costs orders.

6. On the face of the material before the Court, I find that the respondent has been insolvent since September 2015. It is of considerable significance in relation to determining whether or not an adjournment should take place that, on the face of the evidence before this Court, once the act of bankruptcy occurred in February 2017, the respondent has not been able to pay his debts as and when they fall due since September 2015.

7. Further, the respondent identified the intention to pursue the appeal with what was described to be an arrangement for funding to cover legal costs that would be incurred in the appeal however no details of particulars of the arrangement are identified. There is a statement that,

   “This is possible because family members have agreed to pay those legal costs for me.”

8. The nature of those payments do not, on their face, appear to be one of gifts. On the face of the respondent’s evidence, the respondent proposes to create further liabilities that would impact upon existing unsecured creditors. The respondent has not delved into identifying the respondent’s financial position in terms of other creditors beyond the statement,

   “Other than the Applicant, I have no significant creditors.”

9. The pursuit of the appeal assuming the grounds are bona fide is not one which is likely to give rise to a capacity of the respondent to meet the outstanding debts on the material before the Court. A suggestion that a favourable costs order against ASIC might do so is, on its face, highly unlikely and not a satisfactory basis upon which a person who, on the face of the evidence before the Court, is insolvent should be allowed to continue to incur liabilities. No evidence was adduced that there would be a refusal of family members or others to fund the trustee if the proceedings were proceedings that the trustee could be persuaded to pursue.

10. On the evidence before me, I accept that the family members may well be reluctant to fund the trustee, but the substantive proceedings in appeal are not proceedings that give rise to any likelihood of recovery of funds to meet the outstanding liabilities of the respondent the subject of these proceedings. This case is significantly different from Endresz v Australian Securities and Investments Commission (No.2) (2015) 228 FCR 334 where there were freezing orders in respect of property of the debtor.

11. I accept that the making of a sequestration order may well have an impact on the respondent’s ability to persuade a trustee to pursue an appeal. However, on the material before the Court, I am satisfied that the bringing of the creditor’s petition is for the proper purpose of seeking to enforce outstanding liabilities, which the respondent has acknowledged an inability to pay since September 2015. I do not regard the undertakings proffered by the respondent pending the determination of the Queensland proceedings as providing a proper basis upon which an adjournment should be granted in circumstances where the proceedings have no real likelihood of generating any asset that would meet the outstanding debts. A favourable cost order if obtained by the respondent in an appeal would be in respect of costs incurred and not create a fund from which other debts can be paid.

12. In the course of the hearing, the application for an adjournment was renewed on the basis that counsel who had appeared in the substantive proceedings was absent and might be able to further develop the argument in support of the bona fide nature of the appeal. In relation to the adjournment application, as I have said, I am willing to accept that the pursuit of the appeal is bona fide, but I am not satisfied in all the circumstances that an adjournment under s.33 of the Act is warranted. Further, I am not satisfied that an adjournment of the hearing of this case should take place because counsel who has acted for the respondent is overseas on the material before the Court. No adjournment is warranted in the interests of the administration of justice.

13. I am satisfied that the debtor has committed an act of bankruptcy. I am satisfied that under s.43, the debtor was present in Australia and that the requirements under s.43 for the making of a sequestration order against the stated respondent are satisfied.

14. I am satisfied that there has been adduced proof of the matters stated in the petition, service of petition, and that the debt relied upon is still owed, which enliven the power to make a sequestration order pursuant to s.52(1). I am also satisfied that the applicant complied with the bankruptcy rules in respect of the affidavit of search and affidavit of debt.

15. The respondent has submitted that the Court should find under s.52(2)(b) that there is other sufficient cause why a sequestration order ought not be made. The other sufficient course is, in substance, the respondent’s desire to pursue an appeal in the Queensland proceedings. For the reasons already given, I am not satisfied that any such appeal would give rise to the recovery of any asset that will permit the respondent to meet the outstanding debt. Further, I am concerned that on the face of the evidence before the Court, the applicant has been insolvent since September 2015. Moreover, the respondent has had ample opportunity, if the respondent so desired, to make an application in the Supreme Court of Queensland for a stay of the cost orders, and no such application has been made.

16. Counsel for the respondent has submitted that the appeal has been foreshadowed at the earliest opportunity and because orders were only made on 26 May 2017, the Court should approach the respondent as having moved expeditiously and promptly. The Court was informed that in the decision in 2016 in the proceedings in the Supreme Court of Queensland, the parties agreed to permit the pursuit of the penalties, compensation and other orders before the entering up of the declarations.

17. Had the declarations been entered up, they would have been final orders from which the respondent could have appealed. Nonetheless, I accept that the respondent has not engaged in any delay of the identification of an intention to pursue an appeal, and the Court has taken that into account in accepting that the respondent bona fide desires to appeal. That desire by the respondent does not, however, in the present case, identify even with the respondent’s proposed undertakings other sufficient cause why a sequestration order ought not be made. I am not satisfied that other sufficient cause for a sequestration order not to be made is made out under s.52(2). I am satisfied that this is an appropriate amount in which to make a sequestration order.

I certify that the preceding seventeen (17) paragraphs are a true copy of the reasons for judgment of Judge Street

Associate:

Date:  16 June 2017