Bakers Investment Group (Australia) Pty Ltd v Baker

[2013] FCCA 1245

FEDERAL CIRCUIT COURT OF AUSTRALIA

BAKERS INVESTMENT GROUP (AUSTRALIA) PTY LTD v BAKER [2013] FCCA 1245

Catchwords:
BANKRUPTCY – Creditor's petition – consideration of s.52(2) of the Bankruptcy Act 1966 (Cth) – evidence as to solvency deficient, selective and unsubstantiated – Supreme Court of Victoria proceeding not other sufficient cause – Sequestration Order made against the estate of the Respondent debtor.

Legislation:  

Bankruptcy Act 1966 (Cth), ss.52(1), 52(2)

Cases cited: 

St George Bank Ltd v Helfenbaum [1999] FCA 1337

Applicant: BAKERS INVESTMENT GROUP (AUSTRALIA) PTY LTD

Respondent: JEREMY BAKER

File Number: MLG 383 of 2013

Judgment of: Judge Hartnett

Hearing date: 20 August 2013

Delivered at: Melbourne

Delivered on: 30 August 2013

REPRESENTATION

Senior Counsel for the Applicant: Mr Scott

Counsel for the Applicant: Mr Stuckey

Solicitors for the Applicant: Ponte Earle

Counsel for the Respondent: Mr Minahan

Solicitors for the Respondent: Rigby Cooke Lawyers

THE COURT ORDERS ON 20 AUGUST 2013 THAT:

1. A Sequestration Order be made against the estate of Jeremy Leigh Baker.

2. The Applicant Creditor’s costs be taxed in accordance with the Federal Court Rules and paid from the estate of the respondent debtor in accordance with the Bankruptcy Act 1966 (Cth).

3. The monies held in a trust account operated and controlled by Rigby Cooke Lawyers and pursuant to order 3 of the Orders made 1 August 2013 be released to the Trustee in bankruptcy.

The Court notes that the date of the act of bankruptcy is 18 December 2012.

FEDERAL CIRCUIT COURT OF AUSTRALIA

AT MELBOURNE

MLG 383 of 2013

BAKERS INVESTMENT GROUP (AUSTRALIA) PTY LTD

Applicant

And

JEREMY BAKER

Respondent

REASONS FOR JUDGMENT

1. Before the Court was a Creditor’s Petition filed 25 March 2013, amended by Petition filed 8 August 2013, pursuant to an Order made 1 August 2013.

2. Paragraphs 1 to 4 of the Creditor’s Petition are as follows:-

   “1. The Respondent Debtor owes the Applicant Creditor the amount being $40,101.00 plus interest pursuant to statute being:

   a) $30,241.00 plus interest pursuant to statute, in accordance with the order of the Supreme Court of Queensland made on 5 October 2012 and registered in the Supreme Court of Victoria on the 11 October 2012; and

   b) a further amount of $9,860.00 plus interest pursuant to statute, in accordance with the order of the Supreme Court of Victoria in proceeding no. SCI 2012 04535 and dated 25 October 2012.

   2. The Applicant Creditor does not hold security over the property of the Respondent Debtor other than a lien over shares held by the Respondent Debtor in the Applicant Creditor created by Article 3.6(a)(2) of the Constitution of the Applicant Creditor for all amounts presently payable by the Respondent Debtor to the Applicant Creditor. The Applicant Creditor is willingly to surrender its security for the benefit of Creditors generally in the event of a sequestration order being made against the Respondent Debtor.

   3. At the time when the act of bankruptcy was committed, the Respondent Debtor:

   a) was personally present in Australia;

   b) was ordinarily resident in Australia;

   c) had a dwelling house or place of business in Australia;

   4. The following acts of bankruptcy were committed by the Respondent Debtor within 6 months before presentation of the petition:

   a) The Respondent Debtor failed to comply on or before 18 December with the requirements of a bankruptcy notice served on *him/*her on 27 November 2012 or 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, being a counter-claim, set-off or cross demand that he could not have set up in the action in which the judgment referred to in the bankruptcy notice was obtained.

   b) Furthermore, the Applicant Creditor has issued a Warrant foe (sic) execution against the Respondent debtor being Warrant No. SW130004000 and being issued on the 18 January 2013 and such warrant has been returned to the Court unsatisfied on the 21 March 2013.”

3. The Court is satisfied with the proof of matters as required pursuant to s.52(1) of the Bankruptcy Act 1966 (Cth)(‘the Act’). The Affidavit of Mr Ross Paul sworn 7 August 2013 is relied upon and accepted. It refers to an earlier Affidavit sworn by Mr Paul of 25 March 2013 at paragraph 5. Service of the Bankruptcy Notice was effected by Mr Allan Maxwell Tanner, Process Server, in the method set out in his Affidavit of Service sworn 30 November 2012. The Court is satisfied as to service of the Bankruptcy Notice despite the Respondent’s lack of recall in receiving it as set out in paragraph 14 of his Affidavit sworn 6 June 2013. An Affidavit of debt sworn by Mr Paul on 19 August 2013 is relied upon, as is an Affidavit of search sworn by Mr Chris Camillin on 19 August 2013. The Court is satisfied there has been service of the Petition in accordance with the Orders made by Registrar Allaway on 7 May 2013 and that it was deemed to be effected on 28 May 2013. Prima facie the petitioning creditor is entitled to the sequestration order sought.

4. The Respondent’s grounds of opposition to the petition are that:-

   a)he is solvent; and

   b)he has set off claims against the sums equal to or greater than the debt claimed by the Applicant.

   Thus, the Respondent seeks that the Court exercise its discretion pursuant to s.52(2) of the Act and dismiss the petition.

History

1. The Applicant was incorporated on 19 July 2006. At the time of its incorporation, Mr Ross Paul and the Respondent were both directors of the Applicant and had an equal shareholding. The Respondent was employed as the Managing Director and Chief Operating Officer of the Applicant from about 19 July 2006 until 31 August 2011 when the Respondent was dismissed from his employment by the Applicant. On 7 September 2011, he resigned as a director of the Applicant.

2. The chronology thereafter is accurately set out in the Applicant’s Outline of Submissions dated 20 August 2013 as follows:-

   a)In late September 2011, the Respondent served a statutory demand dated 29 September 2011 upon the Applicant for the amount of $222,470.06 the bulk of which was described as arrears of remuneration.

   b)On 18 October 2011, the Applicant commenced proceedings in the Supreme Court of Queensland to set aside the statutory demand. The Supreme Court of Queensland made orders on 1 November 2011 setting aside the statutory demand and ordering the Respondent to pay the Applicant’s costs of and incidental to that application, to be assessed on the standard basis.

   c)On 7 December 2011, the Respondent commenced proceeding No. SCI 2011 6636 in the Supreme Court of Victoria seeking relief against alleged oppression in his capacity as a shareholder in the Applicant.

   d)On 13 December 2011, at the first directions hearing, and at the Applicant’s request, the Supreme Court ordered the parties to jointly engage an accountant to examine the books of the Applicant and prepare a valuation. The Court ordered the parties to mediate the dispute on or before 29 February 2012.

   e)On 13 December 2011, the Applicant offered to purchase the Respondent’s shares at valuation.

   f)No response was made to that offer. The Respondent subsequently refused to join in appointing a valuer unless the Applicant gave general discovery.

   g)On 20 February 2012, the Respondent filed a summons seeking discovery in the Victorian Supreme Court proceeding.

   h)On 6 March 2012, Associate Justice Daly refused the application for discovery and ordered the Respondent to pay the Applicant and other Plaintiffs’ costs of that application.

   i)On 5 October 2012, the Supreme Court of Queensland made orders assessing the costs of the statutory demand proceeding in the sum of $30,241.00.

   j)On 25 October 2012, Supreme Court of Victoria Costs Registrar assessed the costs ordered by Associate Justice Daly on 6 March 2012 in the amount of $9,860.00.

   k)On 29 October 2012, the Applicant issued a bankruptcy notice against the Respondent in respect of the debt of $30,398.42, consisting of the Supreme Court of Queensland order of $30,241.00 together with accrued interest in the amount of $157.42.

   l)On 27 November 2012, the bankruptcy notice was served on the Respondent. The Respondent did not comply with the notice.

   m)On 18 January 2013, the Applicant issued a warrant of execution against the Respondent in respect of the Supreme Court of Victoria order for the payment of $9,860.00 in costs, being warrant No. SW130004000. The warrant was returned unsatisfied on 21 March 2013.

3. In these proceedings, the Respondent relied upon Affidavits sworn by him on 6 June 2013, 1 August 2013 and 12 August 2013. The Applicant relied upon (additional to the matters of proof as set out in paragraph 3 herein) Affidavits of Mr Paul Ross sworn on 8 July 2013 and 15 August 2013; Ms Lisa Lombardi sworn on 8 July 2013; Mr Stan Bates sworn on 8 July 2013; and Ms Chris Camillin sworn on 8 July 2013 and 16 August 2013. The Respondent was cross-examined as to his evidence.

4. Section 52(2) of the Act is as follows:-

   “(2)  If the Court is not satisfied with the proof of any of those matters, or is satisfied by the debtor:

   (a)  that he or she is able to pay his or her debts; or

   (b)  that for other sufficient cause a sequestration order ought not to be made;

   it may dismiss the petition.”

5. The Respondent bears the onus of establishing the facts which would give rise to a proper exercise of discretion by this Court. To discharge his onus of proof, the Respondent was required to lead evidence which enabled the Court to exercise its discretion after evaluating, as was said by Senior Counsel for the Applicant, “the nature, quantum and prospects of claims relied upon by him. This must be weighted up in the context of the debtor’s conduct of a relevant proceeding and the insolvency proceedings.” The Respondent has an offsetting claim in the Supreme Court of Victoria, but that is no reason in itself to exercise the Court’s discretion in his favour. The Respondent has no claim on foot for unpaid wages and entitlements. He has taken no steps in the oppression proceedings in the Supreme Court of Victoria since October 2012. The Applicant argues as a consequence that those proceedings do not constitute “other sufficient cause” for this Court to decline to make a sequestration order.

Consideration

1. The Respondent in his Affidavit sworn 12 August 2013 provided to the Court two schedules as contained in appendix 1 and 2 of annexure “JLB – 09” which he claimed were an accurate reflection of his financial position. In fact, the documents provided the income and expenses, assets and liabilities of his household comprising himself and his wife. The production of these documents was an attempt to mask the true facts that go to the Respondent’s solvency. The Respondent claimed to personally have earnt income in the financial year ended 30 June 2013 in the sum of $30,000. The sum of $20,000 was deposited into a Westpac account on 7 December 2012.  The Respondent claimed to have received a further $10,000 in consulting fees, but was unable to say when, or provide any documents as to receipt of such monies. From the monies received no tax was deducted and no allowance was made for payment of any taxation liability. The Respondent’s own evidence was that he has not filed a taxation return for a number of years. He claims to have accounting qualifications and yet has not explained to the Court by any corroborating document or probative evidence, what his position with the Australian Taxation Office is. The Respondent’s evidence was further that from the monies received by him, $10,000 had been paid to his lawyers. He did not include that amount as an expense in his calculations and claimed not to expect to have those type of expenses moving forward.

2. The Respondent’s evidence was that his income in the current financial year was perhaps $10,000 to date.  He claimed, in addition, to be owed $10,000 or $15,000 by clients whom he could not name. Nor when asked, could he produce any relevant documentation to support this claim. His evidence as to having earnt any income in this financial year was simply implausible. The Respondent’s affidavit and oral evidence to the Court was a wholly unreliable statement of his income.

3. The Respondent claimed to have a Masters of Business Administration qualification. He gave evidence that his present occupation is “consulting” but in oral evidence given at the hearing claimed that he was to start a new role as an accountant with Brighton Ford in a few days hence. His further evidence was that he had a verbal offer of employment and would be in receipt of a salary of $85,000 gross per annum. He claimed to have been given an employment contract, but he could not produce same to the Court. The lack of production of any corroborating evidence by the Respondent, of such a significant fact and a very recent one, going to the determination of his solvency, leads the Court to conclude that there is no such employment offer.

4. The Respondent estimated in appendix 1 to annexure “JLB-09” that he and his wife spent $4,160 annually on credit card payments. Yet, he claimed to have a credit card liability of $10,149, being approximately two years of his estimated credit card expense. Otherwise, the expenses as claimed by the Respondent were not supported by documentation over a 12 month period to enable a reliable projection of these expenses into the future. The Respondent’s evidence as to solvency was deficient, selective and unsubstantiated. If one half of such expenses as claimed are attributed to the Respondent, being a sum of approximately $25,000, then the Respondent is unable to meet his debts in a reasonable time.

5. The Respondent claimed to have joint (with his wife) cash assets of $56,298. From those joint assets he has deposited the sum of $45,000 in the trust account of his solicitors as claimed proof of his ability to pay the debts owed. But the money is not claimed by him in evidence to belong solely to him. Whilst it may have been in a bank account in his name, the Respondent’s evidence is that his wife will have a beneficial entitlement to whatever claim she makes.  The Respondent also claimed to have a motor vehicle with a small equity of perhaps $4,000, there being a debt owing to a secured lender.

6. The Respondent also claimed as an asset held by him, the sum of $222,470.06 in monies owed to him by the Applicant for unpaid wages and expenses. The Applicant denies he is indebted to the Respondent for $222,470.06. On 2 September 2011, the Respondent claimed $98,671 for wages plus $20,000 in unspecified expenses. This was rejected as unsubstantiated by the Applicant, but the Applicant did proceed to calculate the Respondent’s final entitlements. On 30 September 2011, a superannuation payment of $5,701.58 was made by the Applicant to the Respondent’s benefit. On 15 October 2011, outstanding wages of $23,777.82 were paid by the Applicant to the Respondent. On 28 October 2011, a final superannuation amount of $1,867.67 was paid to the Respondent’s benefit. The Respondent was also in October 2011 provided with a worksheet from the Applicant setting out all the payments that had been made to him. This was in addition to the provision to him of group certificates. At no time did the Respondent raise concerns with the Applicant that he was being under paid during the time of his employment. The Respondent now claims that the Group Certificates received by him from the Applicant were incomplete. No such concern was raised by him during his employment. No proceeding is presently on foot in respect of a claim for recovery by the Respondent, (and from the Applicant), of unpaid wages and expenses. Further, no deduction is made by the Respondent for an apportionment of any recovery sum to a litigation funder, given his claim in these proceedings, and of recent invention as the Court finds, to have an arrangement with a litigation funder. There has also been the earlier setting aside of the statutory demand with regard to this claim.

7. The Court prefers and accepts the evidence of Mr Paul, which is unchallenged, to that of the Respondent as to what occurred in meeting between he, the Respondent, Mr Bates and Ms Lombardo on 31 August 2011 when the Respondent was dismissed from his employment. Mr Paul’s evidence is that:-

   “On 31 August 2011 Stan Bates (director), Lisa Lombardi (Company Secretary) and I met with the Respondent at 333 Collins Street Melbourne. The purpose of the meeting was to dismiss him for cause from employment. We sat at a large table, over 4 feet wide and 8 feet long, with myself and Mr Bates on one side, and the Respondent and Ms Lombardi on the other. The sole purpose of the meeting was to discuss Mr Bakers’ behaviour, to inform him that he was dismissed with cause from employment, and to proffer both a dismissal letter and a settlement document, ie the “Resignation Letter”. When that was communicated to him, the Respondent left the meeting forthwith. He accepted and took with him the dismissal letter but left the “Resignation Letter” on the table.” (Affidavit of Mr Paul sworn 8 July 2013).

   This evidence is corroborated by Ms Lombardi in her Affidavit sworn 8 July 2013 and by Mr Bates in his Affidavit sworn 8 July 2013. Neither of these witnesses were cross-examined by the Respondent. Each denied the allegations made by the Respondent that Mr Paul was intimidatory in his behaviour towards him, made physical contact with him or that Mr Paul pursued the Respondent when he attempted to leave the meeting.

8. The Respondent also claimed, as an asset, a sum of $74,500 for the value of his shares in the Applicant. This is based upon him having a 38 per cent shareholding in the net assets of the Applicant company (as opposed to the 22.5 per cent shareholding claimed by the Applicant to be held by the Respondent) those net assets being valued by a Mr Denaro on 14 September 2012 in the sum of $196,052. The Respondent challenges the valuation of Mr Denaro but has taken no steps to obtain an updated valuation, either from Mr Denaro directly by the provision of further information to him, or by further approach to the Supreme Court of Victoria. This sum does not include an allowance for a litigation funder’s share, a matter to which I shall return. The Respondent when asked, believed that share to be about 30 per cent.  This claimed asset is uncertain in its quantum and receipt. Mr Paul was not cross-examined nor his evidence challenged as to the Respondent’s shareholding in the Applicant. Mr Paul refers to the valuation of Mr Denaro and claims the 22.5 per cent shareholding of the Respondent is in the sum of $44,111.70.

9. The Respondent has an untaxed costs order in an interlocutory proceeding in his favour in the Supreme Court of Victoria proceedings. He estimated that to have an asset value of $20,000. No order has been sought by him or made that such costs be taxed and paid forthwith. Mr Camillin, in his Affidavit sworn 16 August 2013 in paragraph 6 therein, swore as follows:-

   “I have been a qualified solicitor practising in the UK (and Jersey, Gibraltar and Hong Kong) since 1981 and I have been in practice in Australia (and Fiji) as well since 2002. During that time I have conducted numerous taxations of costs in civil litigation matters. I estimate the Respondent’s cost of the interlocutory process would be taxed at approximately $5,000. No Order has been sought or made that these costs be taxed and paid forthwith.”

   That evidence is unchallenged and accepted by the Court.

10. The Respondent, when asked in cross-examination about legal costs outstanding, claimed that he had received a number of bills, in small amounts “like $2,000 and $5,000” from a legal firm called Altus Lawyers whom he had previously engaged, which had all been paid, mostly by the claimed litigation funder. The litigation funder was also, he claimed, funding the bankruptcy proceeding.  The Respondent’s evidence as to his funding of litigating in the Supreme Court of Victoria was implausible and cannot be accepted. When asked how much he had allowed for legal fees in prosecuting the Supreme Court of Victoria proceedings initiated by him, the Respondent replied:-

    “I have other arrangements in place regarding my legal arrangements to fund the Supreme Court action.”

    Those “other arrangements” had not been earlier disclosed by him. The Respondent claimed to have made an arrangement in the “preceding couple of months” with a litigation funding company whose name he could not recall. The Respondent was evasive when answering questions put to him about the terms of the litigation funding, and the arrangements concerning it generally. Despite the claimed involvement of a litigation funder, no further steps have been taken in those proceedings by the Respondent since October 2012. The Respondent’s capacity to fund such litigation is a relevant matter. His evidence was such that the Court cannot be satisfied that the Respondent’s proceedings in the Supreme Court of Victoria will ever be carried through to judgment by him. The evidence, unchallenged, of Mr Camillin contained in Affidavit sworn by him on 16 August 2013 and in paragraph 7 therein, is that by way of estimation, the Respondent’s costs would fall within the range of $75,000 to $100,000. The Respondent himself in his evidence as to his financial position (as intermingled with that of his wife), made no provision for the payment of any such costs. Nor does he have any capacity to make such payment on the evidence before the Court. The Respondent was legally represented in the bankruptcy proceedings. He put before the Court no documentary evidence to support his claim to have an arrangement with a litigation funder. The Court finds the Respondent was not truthful in the giving of this part of the evidence, and that he does not in fact have an arrangement with a litigation funder to fund his Supreme Court of Victoria proceedings, nor these proceedings.

1. In the Supreme Court of Victoria proceedings, the Respondent claims that shares were issued in the Applicant in a way which oppressed him. The shares complained about included 75 preference shares issued to Mr Paul in March 2011 and before the Respondent’s termination from his employment. The evidence of Mr Camillin as contained in his Affidavit sworn 8 July 2013 attaches a resolution by the Applicant dated 8 March 2010 to which the Respondent’s signature appears on the document. The Respondent gave evidence that the signature is not his. Nowhere else in his evidence did he dispute the authenticity of the resolution. This was an extraordinary claim. Mr Paul was not cross-examined about this claim. Otherwise, the Respondent complains about the issuing of shares to another company (IQA) following his departure and at a time when the Respondent could not have provided to the Applicant the necessary working capital it required at that time.

2. The Applicant has made various offers of settlement to the Respondent in respect of the Supreme Court of Victoria proceedings. These were by correspondence dated 13 December 2011, 30 July 2012 and 13 May 2013. No response was forthcoming by the Respondent in respect of each and every offer and the Respondent’s evidence suggesting that he had so responded is rejected. Since 13 December 2011, the Applicant has incurred costs and disbursements in the Supreme Court of Victoria proceedings totalling $143,993.35. These costs have been incurred under the protection of the offers of settlement made. It is inherently unlikely that the Respondent could achieve a result better than that offered to him on the basis of the information contained in Mr Denaro’s valuation.

3. On 25 March 2012, Associate Justice Gardiner ordered the parties to obtain a valuation of Bakers Investment Group (Australia) Pty Ltd and to attend a mediation within 14 days following the parties receipt of the valuation. In the event there was a failure to obtain a valuation or the matter did not settle at mediation, then there was liberty to either party to have the matter further listed for hearing. A limited scope Independent Indicative Valuation of the Baker’s Investment Group (Australia) Pty Ltd was prepared by Mr Stephen Denaro of Trio Business Intermediaries Pty Ltd dated 14 September 2012 (and as referred to in paragraphs 17 and 21 herein). The Respondent has not sought to have the matter further listed for hearing despite no mediation having occurred.  It has been open to him to make application to compel the mediation if he was actively pursuing the proceeding. The Applicant’s position is that there has been no basis for concluding that mediation would be productively useful in the context of three offers of settlement to which there was no response.

4. No documentary or other corroborating evidence as to any future employment of the Respondent or funding by a litigation funder was put before the Court by the Respondent. His answers to questions asked were often irrelevant, evasive and in regard to central matters, implausible and/ or untruthful.  The Respondent has not established that he has, in the proceedings in the Supreme Court of Victoria, a “real claim that is likely to succeed” (St George Bank Ltd v Helfenbaum [1999] FCA 1337 at paragraph 13 per Sundberg J). The offers of compromise made by the Applicant make it likely the Applicant will recover costs which will far outweigh the value of any shareholding held by the Respondent. That proceeding, in practical terms, is unlikely to be further prosecuted.

5. The Respondent has not satisfied the Court that he is able to pay his debts. There is no “other sufficient cause” existing. There is no basis on which the Court should exercise its discretion in his favour. The Applicant is entitled to the Sequestration Order sought.

I certify that the preceding twenty-four (24) paragraphs are a true copy of the reasons for judgment of Judge Hartnett

Associate: 

Date:  30 August 2013