Bank of Queensland Limited v Pascoe
[2014] FCCA 1394
•26 May 2014
FEDERAL CIRCUIT COURT OF AUSTRALIA
| BANK OF QUEENSLAND LIMITED v PASCOE | [2014] FCCA 1394 |
| Catchwords: BANKRUPTCY – Sequestration order – application for review – whether bankruptcy proceedings should be adjourned pending judgment in Family Court – prospects of success in Family Court – lack of evidence of material before Family Court – whether an award from the matrimonial pool would be sufficient to discharge the indebtedness – nature of a prospective asset – ability to readily realise prospective asset – sequestration order made – costs awarded. |
| Legislation: Bankruptcy Act 1966 (Cth), s.52 |
| Hall v Poolman [2007] NSWSC 1330 Sandell v Porter (1966) 115 CLR 666 |
| Applicant: | BANK OF QUEENSLAND LIMITED |
Respondent: Supporting Creditor: | MELINDA KATHRYN PASCOE INVESTEC PROFESSIONAL FINANCE PTY LTD |
| File Number: | BRG 59 of 2014 |
| Judgment of: | Judge Burnett |
| Hearing date: | 26 May 2014 |
| Date of Last Submission: | 26 May 2014 |
| Delivered at: | Brisbane |
| Delivered on: | 26 May 2014 |
REPRESENTATION
| Counsel for the Applicant: | Mr C. Johnstone |
| Solicitors for the Applicant: | Gadens Lawyers |
The Respondent appeared on her own behalf.
| Solicitors for the Supporting Creditor: | Cooper Grace Ward |
ORDERS
A sequestration order be made against the estate of MELINDA KATHRYN PASCOE.
The Respondent Debtor, Melinda Kathryn Pascoe, pay the Applicant Creditor and Supporting Creditor’s costs of and incidental to the application, including the costs of the application for review and adjournments, to be taxed and paid as first charge on the bankrupt estate.
The Court notes that the date of the act of bankruptcy is 8 January 2014.
| FEDERAL CIRCUIT COURT AT BRISBANE |
BRG 59 of 2014
| BANK OF QUEENSLAND LIMITED |
Applicant
And
| MELINDA KATHRYN PASCOE |
Respondent
| INVESTEC PROFESSIONAL FINANCE PTY LTD |
Supporting Creditor
REASONS FOR JUDGMENT
(Ex Tempore)
On 6 August 2013 a judgment was entered by the creditor against the debtor in the sum of $38,691.83 for claim, interest and costs. Ten days later, on 16 December 2013, a bankruptcy notice issued by the creditor against the debtor. It was served by express post forwarded on 16 December 2013. An Australia Post tracking report records that the bankruptcy notice was received by the debtor on 18 December 2013. On 8 January 2014 the debtor, she not having complied with the terms of the notice, thereby committed an act of bankruptcy. The creditor issued its petition on 22 January 2014 and caused the petition to be served on 11 March 2014 this year.
The formal requirements required under s.52(1) Bankruptcy Act 1966 (Cth) were subsequently addressed in proceedings which occurred on 9 April 2014. At that time the creditor demonstrated a prima facie entitlement to a sequestration order, having satisfied all the matters required by s.52(1), and the Registrar made that order. The order was made in the absence of the debtor. The debtor subsequently filed an application for review on 24 April 2014. Before me on 30 April 2014 the debtor demonstrated that there was a reasonable basis for her failure to appear on 9 April 2014. It appears that there was a genuine misunderstanding on her part concerning the return date.
Accordingly, on 30 April 2014 I set aside the Registrar’s order and otherwise adjourned the application to today to enable the debtor to place before the Court that material which she ought reasonably have put to address the matters flagged in her response to the creditor’s application, more particularly pursuant to s.52(2) Bankruptcy Act 1966 (Cth). That is, she had to demonstrate either that she was solvent or that there was other sufficient cause as to why a sequestration order ought not be made.
The creditor continues to demonstrate a prima facie entitlement to the relief that it seeks, particularly that it is entitled to a sequestration order. It has placed updated material evidencing that the debtor’s indebtedness continues and has otherwise addressed all the formal matters required. The question in the application today is whether the debtor is solvent or whether there is other sufficient cause as to why a sequestration order ought not be made. The two questions are largely intermingled.
The debtor has not put before me any material which would displace the presumption concerning the insolvency that has arisen from the act of bankruptcy. Nor has she put any detailed evidence to demonstrate her general financial position. There is no evidence of her gross or net asset position aside from the material placed before me by the creditor concerning her debts. The debtor has not provided any material which would allow me to properly quantify her total liabilities. It would seem, for reasons which follow, that she is still insolvent.
I should say this is consistent with the position that has previously been asserted either by her or by her representatives, for instance, in correspondence by her solicitors. As far back as May 2013 the debtor wrote to the creditor’s solicitors informing them that she was not in any position to address her overdraft facility because of her involvement in matrimonial proceedings in the Family Court of Australia. On 9 September 2013 she wrote personally to the creditor’s solicitors, stating:
“I wish to inform you that I am currently in the process of financial separation from my ex husband Dr Roess Pascoe and the matter is due to be heard in the Family Law Court in Brisbane on October 30th-31st with Judge Jenny [Hogan].
My ex husband holds all the matrimonial assets and income derived from same. I am currently living and working in Armidale and have limited financial resources.
I acknowledge the Judgment of August 6th 2013 handed down in the Brisbane Magistrates Court. I am currently unable to repay this amount and will not have the capacity to do so until such time as my financial settlement is complete and funds available to me.”
Matters did not improve. Earlier this year a Mr Ian Brookfield, who appears to have been writing on the debtor’s behalf, stated that:
“This is not a case where Dr Pascoe is refusing and or not willing to make payment to your client, it is a case that she is prevented from making payment in light of the circumstances which are beyond her control. As a consequence, I would enchourage [sic] your client not to incur further sunk cost and participate with me in resolving the affairs of Dr Pascoe to the mutual benefit of your client.”
That situation was affirmed on 6 August 2013 when Mr Brookfield wrote:
“In relation to a proposal for your client, Dr Pascoe is quite happy to consent to a priority charge by your client over the proceeds of her matrimonial settlement to fully discharge her indebtedness to your client. In the interim all efforts will be made by Dr Pascoe to discharge her indebtedness independently of the matrimonial settlement.”
There is quite a history of financial distress which has not been resolved, as is evident from the affidavit of debt filed today which demonstrates that the judgment sum remains outstanding. There is also other material before the Court which reveals that the debtor has other creditors. For instance, aside from the judgment debt to the Bank of Queensland, there is:
a)a further debt due of $31,195.17 to the Bank of Queensland;
b)a sum of $629,286.45 due to the supporting creditor, Investec Professional Financial Pty Ltd;
c)a sum of $20,907.00 due to Paul Pellandine in respect of a judgment debt; and
d)an amount of about $25,000.00 owing to the Australian Taxation Office.
The debtor’s total indebtedness approximates $745,000.00.
In the debtor’s favour there is one contingent asset, namely the prospect of some success in litigation currently before the Family Court, which I will address in a short time. There is also her personal income derived from medical practice, which seems to be something between $100,000.00 and $120,000.00 per annum. However, as the evidence and submissions made by the debtor clearly demonstrate, she is not able to leverage her income satisfactorily to encourage a bank or other financial institution to advance funds to address her indebtedness.
The test of insolvency is now well settled. While it does require a consideration of other realisable assets, the authoritative statement is that of Barwick CJ in Sandell v Porter (1966) 115 CLR 666 at 670. He stated that the test is not limited to a debtor’s immediately available cash resources, but may:
“… 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 onus for demonstrating that matter lies, of course, with the debtor. She must demonstrate that she has assets or other means which are sufficient to pay the debts and which will be available within a reasonable time to meet her debts. The debtor has failed to meet this onus. Apart from any other factor, even if she has some success in the matrimonial proceeding it seems unlikely that any money will be realised in the temporal sense required by the Court in Sandell v Porter.
On the subject of the matrimonial proceedings, the principal asset that is contended for by the debtor is an interest in a matter currently before the Family Court. The matter was the subject of a trial late last year and the debtor is currently awaiting the outcome of those proceedings. She was granted an adjournment on the last occasion in order to place material before this Court addressing those proceedings. Despite that adjournment nothing has been forthcoming. The debtor has not even placed before this Court copies of the primary evidence in that proceeding, which one assumes would have consisted of affidavits and/or other reports, including a report by Mr Box, a forensic accountant with Grant Thornton.
The absence of that material has placed the Court in a position where there is essentially no evidence concerning what has occurred in the Family Court. There are only the oral statements of the debtor from the bar table about what has transpired, which consists of emotive, disjointed and unauthoritative statements about those proceedings. In any event, the debtor states that there was essentially a contest about the value of the matrimonial estate. She contended that the estate was worth around $8,000,000.00. Her former husband’s contention seems to be that the estate had a value of about $200,000.00.
Perhaps most significantly the debtor concedes that the only evidence which went before the Family Court concerning valuation was the evidence of Mr Box. It would seem that his report, which was not challenged by another expert, assessed the value of the principal asset of the matrimonial estate, namely a medical practice, at about $900,000.00 which, having regard to the other assets and liabilities in the estate, left the net value of the matrimonial estate at about $214,000.00.
Of course the fact that Mr Box’s evidence might be subject to attack does not necessarily mean that the attack will be successful, particularly in the absence of alternate forensic evidence to challenge the authoritative expressions of opinion made by Mr Box. The debtor conceded there was no authoritative expert opinion to counter that of Mr Box and it seems, notwithstanding the attacks that were made upon his estimations, that the Family Court is almost certainly left in a position where it can do nothing but accept the opinion of Mr Box, for to do otherwise would appear to deny without foundation the objective expert evidence.
The fact remains that none of these issues have been adequately addressed in this proceeding. For instance, it would have been possible for the debtor to place before the Court that material which would have been relied upon in cross-examination, but that material has not been produced. The fact that there is no transcript is, in my view, not determinative or dispositive of this issue. What would have been dispositive is the alternate valuation evidence. That is the evidence that would have been before the Court on this issue, not the cross-examination of Mr Box. There is none before this Court, and so I am left in no better position but to accept the uncontested statement by the debtor that Mr Box’s evidence remained unchallenged expert evidence before the Family Court. Therefore it seems likely that Mr Box’s assessment will be adopted, leaving a matrimonial pool in the order of $200,000.00 to be divided between the parties. That is quite obviously a long way short of the approximately $745,000.00 sum which otherwise stands against the debtor.
In any event, one ought consider the value of the litigation asset. Some guidance in respect of that issue is provided in Hall v Poolman [2007] NSWSC 1330, where at [187] Palmer J noted:
“An asset cannot be taken into account in assessing solvency at a particular time without reference to the time it would realistically take to effect realisation and produce cash. It is no indication of solvency — indeed, it is the opposite — to point to property as available to meet debts falling due next month when, even with the utmost expedition, that property cannot be turned into cash for six months. Realisable property can only be taken into account in assessing solvency “if that property is in such a position as to title and otherwise that it could be realised in time to meet the indebtedness as the claims mature” …”
Even if there was to be a realisation of the $200,000.00 or some greater sum in the Family Court proceedings, it is unlikely that it would be available within a timeframe of assistance to the debtor. In particular, I am mindful of the enquiries made by the creditor’s solicitors of the Family Court. Mr Mitchell Grady, solicitor, was told on 16 May 2014 by Mr Stephen Bell, a Case Manager with carriage of the matter of Pascoe v Pascoe,[1] that no timeframe could be given as to when the judgment might be delivered, as the “Judge has a number of decisions reserved.”
[1] (P)6696/2010.
Even acknowledging the prospect of there being some award in the Family Court greater than $214,000.00, any such award would be so far into the future that, even allowing for the prospects of swift enforcement, it would unlikely to be of any real value in terms of the temporal requirements that must be considered in this particular circumstance.
The fact remains that insolvency is not merely a matter that affects the petitioning creditor. It is a matter that involves all creditors generally. In this instance, I am satisfied that the debtor here is both insolvent and has demonstrated no other sufficient cause as to why a sequestration order would not be granted. It is, I think, in the public interest that she be sequestrated.
I note that if I am wrong in respect of my views insofar as the Family Court proceeding is concerned, and the Family Court produces a judgment which awards a significant and readily realisable sum to the debtor that would enable her to discharge with expedition not only the sum due to the petitioning creditor, but to the other creditors, she would, of course, be eligible to bring an application for an annulment of this order, and that would be the appropriate course.
I will make an order for sequestration in the usual terms.
I certify that the preceding twenty-three (23) paragraphs are a true copy of the reasons for judgment of Judge Burnett
Associate:
Date: 3 July 2014
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