Baker v Remta
[2022] FedCFamC2G 1028
Federal Circuit and Family Court of Australia
(DIVISION 2)
Baker v Remta [2022] FedCFamC2G 1028
File number(s): PEG 169 of 2021 Judgment of: JUDGE STREET Date of judgment: 22 November 2022 Catchwords: BANKRUPTCY – application in a proceeding for review of a Registrar-made sequestration order – oral application for an adjournment dismissed –de novo hearing – whether the respondent has established solvency – whether the respondent has established other sufficient cause –Registrar-made sequestration order confirmed Legislation: Bankruptcy Act1966 (Cth) ss 5(2), 27, 43, 52
Corporations Act 2001 (Cth) s 206B
Cases cited: Bechara v Bates [2021] FCAFC 34
Liang v LV Property Investments Pty Ltd [2015] FCA 1057
Zdrilic v Hickie [2016] FCAFC 101
Division: Division 2 General Federal Law Number of paragraphs: 25 Date of hearing: 22 November 2022 Place: Perth Solicitor for the Applicant: Mr Barrett, Lavan Solicitor for the Respondent: Ms Gates, Taylor Smart Lawyers & Notaries ORDERS
PEG 169 of 2021 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
BETWEEN: TRACEY BAKER AS EXECUTRIX OF THE WILL OF GLENN WILLIAM BAKER
Applicant
AND: PETER JOHN AUGUSTIN REMTA
Respondent
order made by:
JUDGE STREET
DATE OF ORDER:
22 NOVEMBER 2022
THE COURT ORDERS THAT:
1.The Court confirms the sequestration order number two made on 31 October 2022 by Registrar Benter against the estate of Peter John Augustin Remta under the Bankruptcy Act 1966 (Cth).
2.The petitioning creditor’s further costs in the sum of $550.00 be paid out of the bankrupt estate with the priority to which it is entitled.
3.The Principal Registrar of this Court is to send a copy of the reasons for judgment of this Court to the Executive Director of the Office of Markets Enforcement of the Australian Securities and Investment Commission.
4.The application filed on 17 November 2022 seeking a stay of the proceedings under the sequestration order is dismissed.
THE COURT NOTES THAT:
A.The act of bankruptcy occurred on 10 June 2021.
Note: The form of the order is subject to the entry in the Court’s records.
Note: The Court may vary or set aside a judgment or order to remedy minor typographical or grammatical errors (r 17.05(2)(g) Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 17.05 Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth).
EX TEMPORE REASONS FOR JUDGMENT
JUDGE STREET:
introduction
On 31 October 2022, a Registrar of the Court make a sequestration order against the estate of the respondent. The Registrar also made a stay of proceedings under those orders for a period of 21 days. On 17 November 2022, the respondent filed two applications in a proceeding, the first one seeking an extension of the Registrar’s stay of proceedings under the sequestration order and a second seeking a review of the sequestration order.
The matter is within the Court’s jurisdiction under s 27 of the Bankruptcy Act1966 (Cth) (“the Act”). Bankruptcy proceedings are of considerable importance and are ones in respect of which the making of a sequestration order has a considerable and significant impact on a person. Ordinarily, it is the case that a registrar-made sequestration order is capable of review before a duty judge on the day of making that order. That is the ordinary way in which sequestration orders ought to be reviewed. However, it is the case that sometimes applications in a proceeding are filed for the sequestration order to be reviewed on a return date of an application in a proceeding, such has occurred in the present case. All matters involving the review of a sequestration order ordinarily should be heard with expedition.
On the filing of the application in a proceeding on 17 November 2022, it was given a review hearing date at 2:00pm today, 22 November 2022. The separate application in a proceeding for an extension of time in respect of the registrar’s stay of proceedings under the sequestration order was also given the same hearing date and time.
before the court
At the commencement of the hearing at 2:00pm, Ms Gates, solicitor on behalf of the respondent, indicated that she thought that she was here just to deal with the application for an extension of time in respect of the stay of proceedings under the sequestration order. In response to enquiry as to whether there was any basis for such belief, Ms Gates could identify no such basis. The application in a proceeding in respect of the application for review clearly made patent a return date and time for hearing. There was no rational basis why one of the two applications in a proceedings were somehow differently listed for hearing on the same day. The extension of time only arose if the Court decided to reserve or was for some reason unable to deal with the review application in a proceeding. The Court indicated to Ms Gates that it would give her an hour to prepare the matter.
After an hour, Ms Gates indicated that she still had not had adequate time to fully prepare the matter and sought an adjournment on the basis, initially, that there was still to be filed an affidavit of debt, an affidavit of search by the applicant, petitioning creditor. Where there has already been made a sequestration order, there is no need for the affidavit of debt or the affidavit of search because there is a sequestration order in place. No such steps were necessary, and that was initially identified as being the only basis upon which Ms Gates sought an adjournment. The Court would have exercised a discretion to dispense with the same in any event given the existing order by the Registrar absent some new relevant issue about search status or alleged post Registrar sequestration order payment.
Ms Gates then sought an adjournment on the basis that the expert in this case had filed an affidavit which contended that the respondent was solvent. That identified no proper basis why an adjournment should be granted, because the Court could permit that affidavit to be admitted into evidence. No other ground was identified in support of the adjournment application.
Ms Gates did indicate that she thought she had not had adequate time to obtain the whole of the material. However, it is apparent that Ms Gates was able to obtain material relating to the expert, and the file in this matter was not large or complex. The affidavits in the matter are relatively brief and the issues in respect of whether the Court should confirm the sequestration order are relatively confined. The Court is satisfied that there was fair and adequate time by the adjournment for an hour for the solicitor for the respondent to be able to prepare to meet the argument in respect of whether or not, on a hearing de novo, a sequestration order ought to be made. Further this is not a case where there was any request to adjourn the matter so as to put on any identified evidence. Ample opportunity was given to identify the grounds for an adjournment. From the submissions actually advanced it was apparent that the further preparation time given had permitted an adequate opportunity to fairly prepare the matter.
Mr Barrett on behalf of the petitioning creditor opposed an adjournment and in circumstances where the Court is satisfied that the proper notice of the intended hearing date has been given and where further adequate time was provided to prepare the matter the Court was not satisfied that a further adjournment was warranted in the interests of the administration of justice.
The Court is satisfied that it is in the interests of the administration of justice in this particular matter to proceed with the hearing de novo. The Court has also taken into account, ultimately, the lack of merit in the substantive case advanced by the respondent opposing the making of the sequestration order in refusing to grant an adjournment.
the law
The relevant law in relation to the legal principles is set out in [50] to [58] in the judgment of the learned Beach J in Liang v LV Property Investments Pty Ltd [2015] FCA 1057:
RELEVANT LEGAL PRINCIPLES
[50]A petitioning creditor has a prima facie right to a sequestration order once proof of the matters required by s 52(1) has been satisfied (Deputy Commissioner of Taxation v Cumins (2008) 101 ALD 78 (Cumins) at [14] per Gilmour J; Cain v Whyte (1933) 48 CLR 639 (Cain v Whyte) at 646 and 648, the Court agreeing with Henchman J; Russell v Polites Investments Pty Ltd [2012] FCA 11 (Russell v Polites) at [23] and [24] per Flick J; Rozenbes v Kronhill (1956) 95 CLR 407 at 414 per Dixon CJ and Webb and Fullagar JJ). There is no doubt that in the present case, LV Property put forward sufficient proofs to establish s 52(1). Nevertheless, there is a discretion to refuse such an order if the debtor is able to pay her debts (s 52(2)(a)) or for “other sufficient cause” (s 52(2)(b)). But the onus is on the debtor to establish either or both of the preconditions in s 52(2).
[51]I do not need to elaborate on the principles concerning s 52(2)(a). But elaboration is necessary in relation to the concept of “other sufficient cause” under s 52(2)(b).
[52]First, the circumstances which may constitute “other sufficient cause” are extremely variable, and it is inappropriate to catalogue or circumscribe them (Clyne v Deputy Commissioner of Taxation (1985) 5 FCR 1 at 5 per Fisher, Morling and Wilcox JJ; Cain v Whyte at 645).
[53]Second, even if “other sufficient cause” has been shown, that merely enlivens the Court’s discretion to refuse to make a sequestration order. The power in s 52(2) is permissive, not mandatory. Even if a debtor can bring herself within s 52(2)(b), that does not entitle her to have a sequestration order refused (Endresz v Australian Securities and Investments Commission (No 2) (2015) 228 FCR 334 at [37] per Edmonds, Gordon and Beach JJ; Russell v Polites at [24] per Flick J).
[54]Third, a court has a discretion to go behind a judgment. This may be exercised where the judgment was:
(a) obtained by default or compromise;
(b) procured by or tainted with fraud or collusion; or
(c)obtained following an adjudication on the merits where both parties appeared, but where there are substantial reasons for questioning whether there is in substance a debt.
[55]In each case a court may go behind the judgment to ascertain whether the judgment is founded on a real debt (Corney v Brien (1951) 84 CLR 343 at 347 per Dixon, Williams, Webb and Kitto JJ; Ahern v Deputy Commissioner of Taxation (Qld) (1987) 76 ALR 137 (Ahern) at 147 and 148 per Davies, Lockhart and Neaves JJ). Primarily, this is a s 52(1)(c) question (Ali v Retail Decisions Pty Ltd [2012] FCA 1130 at [17] to [20] per Bromberg J), although some authorities have also brought this within s 52(2)(b). In the present case, no reason has been shown by Ms Liang to go behind the judgment debt(s) of LV Property.
[56]Fourth, a court should not proceed to sequestrate the estate of a debtor where an appeal is pending against the judgment relied on as the foundation for the bankruptcy proceedings, provided that the appeal is based on genuine and arguable grounds (Ahern at 148 per Davies, Lockhart and Neaves JJ; Rigg v Baker (2006) 155 FCR 531 (Rigg v Baker) at [67] per French J; Adamopoulos v Olympic Airways SA (1990) 95 ALR 525 at 532 per Burchett and Gummow JJ; Council of the City of Sydney v Obeid [2013] FCA 149 at [37] to [39] per Robertson J). This is also a s 52(2)(b) question. At the least, the existence of an appeal or leave to appeal application based upon genuine and arguable grounds may provide a basis for adjourning the hearing of the creditor’s petition, even if it does not provide a basis for ultimately refusing a sequestration order. But none of this is the present case. There is no such outstanding appeal or application in relation to the judgment debt. There is no extant proceeding or application seeking to set aside the same; and even if there were, such an application would have little if any prospects of success.
[57]It should also be said that the mere fact that an appeal has been lodged does not without more avail a debtor in any event (Cumins at [17] per Gilmour J). The judgment debtor has to point to grounds having “a real chance of success on appeal” (Re Lewin; Ex parte Milner (1986) 11 FCR 312 at 318 per Pincus J). Mere assertion is not sufficient. The onus is on the judgment debtor to establish the substantial nature of the grounds of challenge (Re Verma; Ex parte Deputy Commissioner of Taxation (1984) 4 FCR 181 at 187 and 188 per Beaumont J; Cumins at [18] per Gilmour J).
[58]Fifth, the existence of a cross-claim may be a “sufficient cause” if the claim, if successful, well exceeds the judgment debt.
The nature of the hearing, as a matter of constitutional necessity, is one of a hearing de novo for reasons identified by the Full Court in Zdrilic v Hickie [2016] FCAFC 101 and, more recently, in Bechara v Bates [2021] FCAFC 34.
evidence AND REASONING
The petitioning creditor has read affidavit evidence, establishing verification of the petition, service of the bankruptcy notice, service of the creditor’s petition and also, prior to the making of the sequestration order, an affidavit of search, and an affidavit of debt as before the Registrar. As indicated, there is no requirement for such a fresh round of affidavits in circumstances where the sequestration order was made by the Registrar.
That is not because it is not a hearing de novo, but simply because there is no utility in a search and/or an affidavit of debt at a point of time when there is already in place a sequestration order and no suggestion was advanced of post Registrar sequestration order payment. The petitioning creditor’s evidence establishes an act of bankruptcy within the jurisdiction and satisfies the requirements of ss 43 and 52 of the Act, enlivening the Court’s powers to make a sequestration order.
The Court heard submissions from Ms Gates as to why there was other sufficient cause by reason of which a sequestration order ought not to be made. The first argument advanced was that, based on the expert’s report, it supported the conclusion that the respondent was solvent. The expert report supported no such conclusion; it was a conditional statement in respect of solvency. It was also one in respect of which the report applied the wrong statutory provisions, as it addressed the Corporations Act 2001 (Cth) (“the Corporations Act”).
It is also apparent that that report treated the assets of the company as if they were in some way assets available for use by the respondent. There is no supporting evidence in respect of the alleged receivables, albeit there was reference to alleged loans that the company owed the respondent. The evidence falls well short of establishing, under s 5(2) of the Act, that the respondent is able to pay his debts as they fall due.
The respondent also made an assertion of fact that he was solvent, but provided no proper evidence in support of his existing assets and liabilities. There was a statutory declaration next to the expert’s report in which the respondent identified having no substantial assets. The act of bankruptcy is, of itself, some evidence in support of the fact of a person being unable to pay their debts. The expert report in this case falls well short of establishing solvency in respect of the respondent, and the respondent’s own evidence does not establish that he is able to pay his debts as they fall due. Indeed, the respondent’s evidence identifies that he is treating with other creditors and seeking to make arrangements again related to the corporate entity in order to try and advance his own personal liabilities.
The affidavit filed by the respondent, dated 17 November 2022, asserted on oath that he is a director of the company. The respondent became immediately disqualified by way of automatic disqualification under s 206B of the Corporations Act on the making of the sequestration order by the Registrar. The Court infers from the affidavit of the respondent dated 17 November 2022 that he has continued to assert and utilise the office of director of the company, a matter which is of considerable concern given the automatic disqualification under s 206B of the Corporations Act.
The Court notes that Mr Remta, in material apparently provided for raising funds from the public in relation to the company or from private sources, identified himself as a former senior barrister with, it appears, expertise in corporate law.
The stay that was granted by the Registrar on no view was a stay of the sequestration order. The statute does not permit that. The terms of the stay made it clear it was a stay of proceedings under the sequestration order. There is no proper basis apparent to the Court why there should have been any misunderstanding by the respondent, with his corporate law expertise and being a former barrister, as to why he was not the subject of an automatic disqualification.
The Court makes these observations in the context of what appears to be very significant fundraising attempts by a person who, at least recently, has been disqualified from acting as a director and continuing to seek to do so after automatic disqualification. The Court will return to this issue in due course.
Ms Gates also submitted that there was other sufficient cause by reason of there being on foot an appeal in respect of the District Court’s refusal to set aside the judgment the subject of the sequestration order. Ms Gates informed the Court that there were no grounds available to the Court to assess whether there was a real chance of success on appeal because they were still being drafted. The Court raised with Ms Gates the fact that there is, in relation to the contention of a real chance of success, a written loan agreement annexed to the expert’s report that supports the existence of the loan as well as an admission in paragraph 11 of the respondent’s own affidavit, dated 10 March 2022 as to the existence of the loan. In these circumstances, no other evidence is before the Court to support a basis as to why there is a real chance of success on appeal.
Given the admission made by the respondent as to the existence of the loan in his own affidavit under oath, taken together with the written loan agreement annexed to the expert’s report, the Court can identify no basis upon which it could be said that there is a real chance of success on appeal. The Court does understand that, ordinarily, the Court should not proceed to make a sequestration order where there is an appeal on foot which is genuine and has arguable grounds. The Court is not satisfied that the appeal on foot is genuine and has arguable grounds. The Court finds that the appeal has no real chance of success in light of the existence of the admission under oath by the respondent of the loan and the existence of the loan agreement in writing attached to the expert’s report.
CONCLUSIONS
For the reasons already given, the Court is not satisfied that the respondent is solvent. In these circumstances, the Court is not satisfied that there is other sufficient cause why a sequestration order ought not to be made. The Court can see no reason in the present case why it would go behind the judgment. The loan agreement and the admission by the respondent identify not proper basis to do so.
The Court has also taken into account the evidence that refers to a cross-claim against the petitioning creditor. The cross-claim is not the subject of any evidence to support the same, and the Court is not satisfied that it is bona fide and discloses a reasonably arguable claim. Further as a matter of discretion the appeal on foot in this case does not warrant an adjournment or dismissal of the petition.
Accordingly, the Court is not satisfied that there is other sufficient cause why a sequestration order ought not to be made. The Court finds that the petitioning creditor is entitled to a sequestration order. On the hearing de novo, the Court would make a sequestration order against the estate of Peter John Augustin Remta. Given that there is already a sequestration order that has been made by the Registrar, the Court makes an order confirming the earlier sequestration order.
Aftr publishing these oral reasons the Court asked Ms Gates why an order should not be made referring the continued director steps to raise and utilise company funds after being automatically disqualified. The affidavit makes clear the continued assertion of being a director. It was not suggested that the respondent had not continued to conduct himself as if a director whilst in fact disqualified. The Court is satisfied that it is appropriate in this matter to make an order for the Registrar to send a copy of these reasons to the appropriate regulatory authority in respect of that conduct.
I certify that the preceding twenty-six (26) paragraphs are a true copy of the settled transcript of the published oral reasons for judgment of Judge Street delivered in open Court on 22 November 2022 and the parties were sent a sealed copy of the Court’s orders. Associate:
Dated: 8 December 2022
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