Bank of WA Ltd v Loiterton (No.2)
[2006] FMCA 821
•1 June 2006
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| BANK OF WA LTD & ANOR v LOITERTON (No.2) | [2006] FMCA 821 |
| BANKRUPTCY – Sequestration petition – grounds of opposition – petitioner’s obligations as hirer exercising early right of termination under hire‑purchase agreement – standing to petition in bankruptcy – debtor attempting to sell business – whether able to pay debts – whether other sufficient reason for dismissing petition – sequestration order made. |
Bankruptcy Act 1966 (Cth), ss.44, 52(1), 52(2), 52(2)(a), 52(2)(b), 52(3)
Adams v Lambert [2006] HCA 10
Australia & New Zealand Banking Group Pty Ltd v Foyster [2000] FCA 400
Bank of Western Australia Ltd & Anor v Loiterton [2006] FMCA 361
Cain v Whyte (1933) 48 CLR 639
Totev v Sfar [2006] FCA 470
Wren v Mahony (1972) 126 CLR 212
| First Applicant: | BANK OF WESTERN AUSTRALIA LTD (ACN 050 494 454) |
| Second Applicant: | LEASEBANK (AUSTRALIA) PTY LTD (ACN 078 312 302) |
| Respondent: | PHILLIP RONALD LOITERTON |
| File Number: | SYG2955 of 2005 |
| Judgment of: | Smith FM |
| Hearing date: | 1 June 2006 |
| Delivered at: | Sydney |
| Delivered on: | 1 June 2006 |
REPRESENTATION
| Counsel for the Applicants: | Ms R Diesner |
| Solicitors for the Applicants: | Jones King Lawyers |
| Counsel for the Respondent: | Mr B Dennis |
| Solicitors for the Respondent: | Dennis & Co Solicitors |
| Counsel for Citibank Pty Ltd (supporting creditor): | Ms D Woods |
| Solicitors for Citibank Pty Ltd: | Minter Ellison Lawyers |
| Counsel for Westlawn Finance Ltd (supporting creditor): | Mr M Stevens |
| Solicitors for Westlawn Finance Ltd: | Gordon & Johnstone Solicitors |
| Counsel for Device Technologies Australia Pty Ltd (supporting creditor): | Ms L Rees |
| Solicitors for Device Technologies Australia Pty Ltd: | Atkinson Vinden Heazlewoods |
ORDERS
A sequestration order be made against the estate of Phillip Ronald Loiterton.
The applicant creditors’ costs, including all reserved costs, be taxed and paid from the estate of the respondent debtor in accordance with the Bankruptcy Act 1966.
Note that the date of the act of bankruptcy is 26 September 2005.
Note that a consent to act as trustee has been signed by Scott Darren Pascoe and has been lodged with the Official Receiver in Sydney.
The applicants must within 2 days enter the sequestration order and give a copy to the Official Receiver in Sydney.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG2955 of 2005
| BANK OF WESTERN AUSTRALIA LTD |
First Applicant
| LEASEBANK (AUSTRALIA) PTY LTD |
Second Applicant
And
| PHILLIP RONALD LOITERTON |
Respondent
REASONS FOR JUDGMENT
(revised from transcript)
I have before me a petition filed on 14 October 2005 seeking a sequestration order against the respondent. The petition is brought in the name of the Bank of Western Australia Ltd (“Bank of Western Australia”) and LeaseBank (Australia) Pty Ltd (“LeaseBank”), and I have been invited to infer that they are related companies. This seems to be common ground. The petition is based upon a judgment debt obtained on 5 April 2005 by the first applicant, the Bank of Western Australia, in the District Court of New South Wales in the amount of $94,789.78.
I need not address the evidence in support of the petition, since I have already given a judgment in this matter, in which I upheld the validity of the bankruptcy notice relied upon (see Bank of Western Australia Ltd & Anor v Loiterton [2006] FMCA 361). My conclusions in that respect were probably rendered academic by the subsequent judgment of the High Court in Adams v Lambert [2006] HCA 10.
I heard argument on that issue and wrote my judgment relying on concessions by the then counsel of the respondent debtor, that the issue of the validity of the bankruptcy notice was the sole issue in contention going to the matters required to be addressed by s.52(1) of the Bankruptcy Act 1966 (Cth) (“the Bankruptcy Act”) including the existence of the debt relied upon by the petitioners (see [4] of my judgment). I concluded:
[30]For the above reasons, I am satisfied as to the validity of the bankruptcy notice in the present matter. I am satisfied that the creditor is entitled to a sequestration order, and that I should make such an order unless the debtor can persuade me to exercise my discretion under s.52(2) of the Bankruptcy Act.
The proceeding reveals a protracted history of many adjournments obtained by the respondent debtor. There had been several adjournments prior to the matter being referred to me by the Registrar on 7 March 2006, at which time I set the petition down for hearing on 9 March 2006. It was in the course of submissions on that day that counsel for the respondent debtor claimed not to have instructions to address the Court in relation to grounds of opposition which had been foreshadowed in a notice filed on 23 November 2005. It was common ground between him and counsel for the applicants that the issues raised by the notice of opposition could be separately heard at a subsequent time, after I had arrived at my conclusions in relation to the matters arising under s.52(1). On that basis I agreed to split the hearing of the petition and to give my first judgment. However, as I shall indicate, there has been what appears to be an unfocused attempt today by the respondent debtor to invite me to go behind the judgment debt obtained by the first‑named applicant.
On 17 March 2006, at the time of delivering my previous judgment, I directed the respondent to file any further affidavits in support of the notice of opposition by 24 March 2006, and ordered that the hearing of the petition would resume on 6 April 2006.
On 6 April 2006, no affidavits had been filed, but I allowed some evidence to be presented to the Court on that day in support of an adjournment application in circumstances I shall set out below.
The hearing was then further adjourned to 3 May 2006. On that occasion again evidence was presented by the respondent, without any notice to the applicants and other creditors, in support of a further adjournment. I gave the respondent an indulgence in acceding to that adjournment request, and adjourned the petition to today (1 June 2006) in circumstances I shall set out below.
At the hearing of the petition today, three supporting creditors appeared and, contrary to their position on the last occasion, opposed any further adjournment of the petition, thereby joining the unwavering position of the applicant petitioners that a sequestration order should be made forthwith and without any stay on its operation. I note that at least two of those supporting creditors have their own proceedings in bankruptcy waiting in the wings.
After considering further evidence that was led today, to which I shall refer below, I refused a further adjournment application, and heard full argument on all grounds of opposition sought to be presented on behalf of the respondent.
The notice of intention to oppose the petition filed on 23 November 2005 contained three grounds:
1.The Respondent debtor is solvent and will be able to pay his debts upon the sale of his business “ATM Quickcash”.
2.The Respondent debtor has agreed in principal to sell his business for the sum $400,000.00.
3.The Applicant Creditors hold security by ownership of five ATM machines the subject of a Commercial Hire Purchase Agreement.
It is convenient for me to deal with the third of these grounds first. It has been modified by a further notice of intention to oppose which was filed today, which provides as paragraph 4:
4.The Second Applicant, Leasebank (Australia) Pty Ltd, holds security over the property of the Respondent.
There is in evidence before me a hire purchase agreement which, it is common ground, gave rise to the liability upon which the judgment debt was obtained. The hire purchase agreement concerns five ATM machines physically present at five different locations in Sydney, which were used in a business conducted by the respondent debtor involving the provision and servicing of these ATMs, and other ATMs owned by another creditor, for providing cash and banking services to members of the public.
The hire purchase agreement is expressed to be made between the respondent, a corporate guarantor, and the second applicant to the present proceeding, LeaseBank (Australia) Pty Ltd. It does, however, contain a provision which recognised that LeaseBank could be an agent of an undisclosed principal. Clause 1.9 provided: “We may enter into this agreement as principal or agent”.
It has been suggested from the bar table that in fact LeaseBank did enter into this agreement as agent for the first applicant. The fact that the judgment debt was obtained in the name of the first applicant, the Bank of Western Australia Ltd, suggests that such an allegation may have been made in the District Court pleadings, but other bases for its title to sue may have been relied upon. Whatever that basis, it was either not contested or was unsuccessfully contested in those proceedings by the present respondent. I will return to this issue further below. As I have indicated above, the entitlement of the first applicant to obtain and enforce the District Court judgment was initially conceded before me.
Another relevant provision of the hire purchase agreement was clause 16, which required the respondent to pay all money due, and gave the hirer a right to give a notice of termination upon default by the respondent. Upon such termination the goods were required to be returned pursuant to clause 16.3(a). Clause 18 then took effect:
Part G – What happens when the goods are returned?
18.
18.1As soon as practicable after the goods are returned to us under clause 16.3(a), we must either:
(a) offer them for sale at a public auction or by tender or by private treaty and we need not include any warranty on the condition or suitability of the goods or our title to them; or
(b) attempt to re‑lease them.
18.2Subject to clause 25 we must pay you the gross proceeds we receive from selling or re‑leasing any of the goods up to their termination value less:
(a) all costs, charges and expenses (including legal fees and expenses) we incur in selling or re‑leasing;
(b) all amounts you owe to us (actually or contingently) under this agreement; and
(c) any GST payable by us in relation to selling or re-hiring of the goods.
Clause 17 made clear that title in the goods would not pass to the hirer until full completion of the agreement:
Part F – How you purchase the goods
17.
17.1On the last payment date you must purchase the goods by paying the last instalment and all other amounts due under this agreement.
17.2If you have done everything required under this agreement, when you pay us the amounts referred to in clause 17.1, title to the goods will pass to you.
There is evidence that a notice of early termination under clause 16 was served on the respondent. It is dated 5 July 2004, and it is reasonable to assume that its service was also a matter which formed a basis for the judgment debt obtained against the respondent.
The argument presented by the respondent in support of the contention that “the applicant creditors hold security by ownership of ‘the five ATM machines’”, or that LeaseBank holds such security, was developed by the respondent’s present counsel without clarity. He did not argue that the petitioners were secured creditors within the meaning of s.44 of the Bankruptcy Act, nor take any point relying upon that provision. It was not contended that, in fact, the respondent had ever acquired title in the ATMs.
As I understood it, his argument was that the applicants’ rights of ownership in the ATM machines gave them a benefit, which would make it unfair or unjust for them to proceed to recover on the judgment debt in relation to moneys owing under the hire‑purchase agreement, at least by enforcing their debt through proceedings in bankruptcy. No legal analysis or citation of authority was presented to me to explain this argument, although unclear reference was made to concepts of unjust enrichment. I understood it to be presented as a ground of “other sufficient cause” to justify the Court dismissing the petition under s.52(2)(b) of the Bankruptcy Act.
However, in my opinion clause 18.2 provides an answer to that contention. The very terms of the hiring agreement were, in my opinion, cast in terms which met any possible equitable objections to the petitioners seeking to recover the full amount which became owing to them upon termination. Any rights which the respondent currently has to receive benefits, if any, upon the resale of the ATMs under clause 18.2 will pass to his estate in bankruptcy.
I also do not consider that the mere existence of the applicants’ obligations under clause 18 provides a proper reason for declining to make a sequestration order. No evidence was led as to how the applicants have performed, or would perform, those obligations which persuades me that I should decline to do this. Such evidence as is before me reflecting upon the market value of the ATMs suggests that this may well be minimal. The evidence does not suggest to me that it would be unjust to allow the applicants to seek to enforce their judgment debt in the face of their duties under clause 18. I have not found substance in these grounds of opposition.
A related ground of opposition was also raised by the further notice of intention to oppose a petition which was filed today. This is:
3.The First Applicant, Bank of Western Australia Limited, has no standing in the proceedings.
Upon examination of this contention, this appears to me to be an invitation to the Court to go behind the judgment debt which was, as I have indicated, obtained by the Bank of Western Australia Ltd based on the hire‑purchase agreement. As I have found above, its right to enforce that agreement must have been pleaded in the statement of claim upon which judgment was entered, probably upon an allegation that it was an undisclosed principal under the hire purchase agreement.
I accept that there may be no direct evidence before me explaining its position in relation to the hiring agreement. However, the Court is entitled under s.52(1) to rely upon the affidavit verifying the petition in relation to the judgement debt owed to the first applicant, and, as I have explained, this was not contested before me at the hearing I conducted on 9 March 2006. In my opinion, the respondent has not presented proper cause for me to go behind the judgment debt and to form a view that the Bank of Western Australia was not a proper applicant in this bankruptcy petition (c.f. Wren v Mahony (1972) 126 CLR 212 at 224).
No basis in evidence has been presented to show an arguable issue as to the competence of the Bank of Western Australia to obtain the judgment debt, or otherwise to explore the reasons why any defence raising this issue was either not pursued or not taken in the District Court of New South Wales. Moreover, it has not been challenged that the second applicant, LeaseBank, would be entitled to petition for bankruptcy based on the same debt which the Bank of Western Australia also claims an entitlement to rely upon. In my opinion, this ground of opposition would not provide a proper reason for me to exercise my discretion to refuse to make a sequestration order.
The first two grounds of opposition in the notice of objection filed on 23 November 2005 (see above at [10]), require me to trace a long history of the evidence given by the respondent in relation to his solvency. This was presented, at all stages of this proceeding, to be dependent upon his having a readily saleable business asset in his ATM business. On the brief statements of assets and liabilities which he has filed this is uncontestable.
Since I have formed the opinion that the existence of this asset does not establish an ability to pay debts within a reasonable time after they fall due, it is not necessary for me to explore the inadequacies in those statements. I should, however, note that they have excluded amounts which the respondent now admits to being liable under judgment debts obtained by two different creditors on separate causes of action in sums exceeding $50,000 plus court costs. The respondent’s explanation for the omission of these liabilities from disclosure to the Court was that he was anticipating that third parties would make payments which would satisfy those liabilities. It is unnecessary for me to explore further whether any substance in those explanations has been shown. It is also unnecessary for me to explore the substance of his claim to have fees owing to him in the amount of $123,300 from the conduct of a legal practice. These fees were not explained, and the petitioner today led evidence raising a doubt as to their enforceability.
The respondent’s evidence attempted to establish the possession of a saleable asset in his ATM business, and prospects of an early liquidation of that asset in a sum exceeding the amounts owing to this petitioner and the other substantial financer of the ATMs used in the business. He admits that these debts total $490,000.
His affidavit sworn on 22 November 2005 in support of the notice of opposition and an adjournment said:
3.I have entered into an agreement in principal to sell my business ATM Quick Cash for the sum of $400,000.00 and to be employed on salary with the purchaser.
4.The formal contract is in the process of drafting and I anticipate that the agreement will be finalised in approximately 6‑8 weeks time.
5.I am bound by a confidentiality agreement as to the identity of the purchaser.
6.I have been requested to draft the sale contract and I anticipate that this will be finalised within 14 days.
His affidavit sworn on 21 December 2005 in support of a further adjournment, said:
3.Since [23 November 2005] I have actively been in discussions and negotiations with the party for the sale of my interest in the business ATM QuickCash under which I will receive $400,000 and maintain an ongoing interest and income.
4. I had hoped that by today’s date agreements would have been exchanged but I now expect that agreements will be completed and exchanged in January with completion in early February 2006.
5.As part of the transaction I am required to be a director of the purchasing company. If I am bankrupt I fear that the transaction will not proceed.
On the resumed hearing of the petition on 6 April 2006, no evidence had been filed in advance to bring the situation up to date. However, the respondent gave oral evidence and tendered an “Asset Sale Agreement” dated 6 February 2006 between himself “trading as ATM QuickCash” and “Brian Conrick, Solicitor, for and on behalf of IBIS ATM HOLDINGS LIMITED”.
This agreement defined the “assets” to be sold:
“Assets” means the goodwill of the business ATM QuickCash conducted by the Vendor and
(a)the trading name “ATM QuickCash” and all other trading and business names and intellectual property owned by Vendor relating to the business;
(b)all Plant and Equipment set out in the Schedule hereto;
(c)all Contracts Arrangements and Understandings relating to the business; and
(d)all books and records relating to the business.
In the Schedule the “plant and equipment” identifies twenty‑one ATM machines of which only one was claimed to be “Owned by the Vendor”, and the others were owned either by LeaseBank or Westlawn Finance Limited (“Westlawn Finance”), who is one of the creditors who have appeared before me, and who also has an outstanding petition.
An essential term of the sale of these assets was:
2.Sale and Purchase of Assets
(a)The Vendor agrees to sell and deliver to the Purchaser and the Purchaser agrees to purchase and accept the Assets free and unencumbered from all claims and interests for the purchase price on the terms and conditions contained in this Agreement.
(b)The Vendor and Purchaser agree that the supply made under this Agreement is of a going concern as defined within “A New Tax System (Goods and Services Tax) Act 1999 and if for any reason the Vendor does incur any liability to pay GST on any taxable supply pursuant to this Agreement, then the consideration that the Purchaser must pay to the Vendor for that taxable supply is increased by the GST amount.
The rest of the agreement provided for a purchase price which was made up of a “Goodwill Amount” of $100,000 and such other amount as was the total of the amounts owing to LeaseBank and Westlawn Finance. The agreement itself did not quantify that amount, but assumed that it could be arrived at by agreement with those creditors. The agreement provided that completion: “shall take place on or before 31st March, 2006”.
It is apparent from the terms that I have recited above that the respondent’s sale of the “assets” in this business included the sale of assets which were not his, and which would require the agreement of the owners, including as to the consideration for their transfer, before the agreement with Mr Conrick could be executed.
The respondent agreed that this was so, under cross-examination on 6 April 2006, but he expressed optimism that such agreements could be arrived at as then foreshadowed. He did not, however, give any evidence suggesting that discussions had even been initiated by him towards arriving at such agreement. In this respect his evidence given today was the same. I find that no real attempt has been made by the respondent to arrive at an agreement with the applicants, or with Westlawn Finance, which would allow a speedy completion of the assets sale agreement dated 6 February 2006.
Also tendered at the hearing on 6 April 2006 was a letter from Mr Conrick which said:
Settlement was originally intended for 31 March. My instructions are that it will be effected within this month.
The respondent in his evidence on that occasion was again optimistic that this settlement would occur. It was on the basis of that evidence that I indicated that, although I was not satisfied as to solvency, I was prepared to allow an adjournment to allow completion of the agreement that was evidenced.
At the adjourned hearing on 3 May 2006, I gave indulgence to the respondent to allow him to file an affidavit which had not been foreshadowed to the petitioners nor supporting creditors, notwithstanding a clear direction that I had given requiring evidence to be filed in advance.
The affidavit sworn by the respondent on 3 May 2006 said:
2.I respectfully request that the Court adjourns the hearing of this matter for a period of four weeks to enable the completion of the transaction referred to in evidence when the matter was last before the Court, in the circumstances set out in the letter dated 2nd May, 2006 of Mr. Brian Conrick who is the Australian representative of the Japanese purchaser. Annexed hereto is a copy of that letter and a copy of the Agreement made 22nd March, 2006 referred to in that letter. I seek such adjournment to permit the completion of the transaction and the payment out in full of my creditors.
3.Westlawn Finance Limited, the other Petition, has agreed to adjourn its proceedings for a period of four weeks.
4.I respectfully submit that it is in the interest of all creditors that the matter be adjourned for a period of four weeks.
Attached to the respondent’s affidavit was a further letter from Mr Conrick which said:
The transaction has not settled partly because a further agreement which was made on 22nd March for the provision of a minimum of $A2m. in capital is being finalised at the same time as the Asset Sale Agreement and partly because of an increase in the scope of the transaction to include other parties. I am happy for the Agreement to be made available to your Counsel.
I am to meet with a representative of the Japanese parties in Sydney on Friday of this week. I expect that completion arrangements for this transaction will be finalised at that time. I will then confirm to Mr. Loiterton the outcome of that meeting.
The anticipated changes to the scope of the agreement will be beneficial for all parties. They will, however, necessitate a further three to four weeks for settlement.
Also tendered was another agreement dated 22 March 2006, which had never been put into evidence previously. This was an agreement between “QuickCash ATM Holdings Limited” and a gentleman called Mr Hirayasu (Harry) Itoh of Japan. The respondent was not a party to that agreement, but he gave evidence that the agreement was anticipated to be the basis upon which Mr Itoh would provide funds for the completion of the asset sale agreement which I have referred to above. It is unnecessary for me to explore the contents of that agreement, although it raises many questions which have not been answered in the evidence before me.
In his evidence given on 3 May 2006, the respondent again gave an optimistic projection of the date of completion as being likely within the next week. He said:
Federal Magistrate: And why do you say I should be able to rely on your expectation that this will settle on Friday when I take into account your previous expectation has come to nought?
Mr Loiterton: As I said to your Honour, I do understand your question in the sense that I too have been frustrated. I have been expecting this matter to have been completed as I indicated when I was in the witness box on the last occasion four weeks ago. Since then the various Japanese people have been meeting in Japan. They arrive here, I understand, on Thursday night, meeting with me on Friday. I believe they’ve approved all of the parts of the transaction. They’re simply coming out to, as it were, touch the ground and sign it up. Sign up and then complete the funding. Mr Conrick has been to Japan three times over the last six or eight months. This has been coming for a long time.
The respondent again conceded that he had not entered into any discussions with the creditors who were the owners of the ATM machines which were part of the subject matter of the asset sale agreement. With considerable hesitation, but taking into account that a majority of creditors appearing before me were ready to give the respondent a further opportunity to complete the agreement, I agreed to adjourn the petition to today.
As I have noted, the position of all creditors now represented before me is uniformly against further adjournment and in support of sequestration. I gave significant weight to their change of position when deciding the matter today.
The adjournment was conditional upon affidavits being filed explaining the respondent’s assets position. I have referred to this evidence and some of its uncertainties above.
I also required an affidavit by Mr Conrick, and he swore an affidavit on 9 May 2006 which said:
2.The current position for the settlement of the transaction is as set out in my letter of 2 May, 2006 to Mr. Mike Stevens of Gordon & Johnstone except that I now am to meet with a representative of the Japanese parties on Thursday next, 11 May 2006, and not last Friday as mentioned in that letter.
3.Upon completion of the transaction I am happy to disburse funds directly to the creditors in accordance with Mr. Loiterton’s undertaking.
At today’s hearing further evidence was again presented by the respondent which had not been foreshadowed to the other parties nor the Court, and further oral evidence was received from the respondent.
His affidavit sworn on 29 May 2006 gave a hearsay account of a conversation, but I received it in evidence in support of a further adjournment application. It said:
3.I have had discussions with Mr. Conrick who has confirmed to me that his meeting with Mr. Sano, retired General Manager of Obayashi Corporation Australia and representative of the Japanese purchasers in Australia was positive. Mr. Conrick advised that Mr. Sano is communicating with Mr. Harry Itoh as to any matters to be completed before settlement of the transaction can take place. I have previously met with Mr. Sano.
4.Notwithstanding my expectancy that the matter will settle on or before Friday 16th June, I have been taking steps to raise capital funding in Australia pursuant to the Agreement with Mr. Itoh of 22 March, 2006 and hope that by this means the Applicant and all supporting creditors can be paid out in full before that date.
A further affidavit sworn by the respondent today again changed the projected completion of the agreement. It said:
2.I refer to my Affidavit sworn 29 May, 2006. I have just been informed by Mr. Conrick who has had further discussions with Mr. Sano that:
(a)Mr. Sano is leaving for Japan on 12th June next, and
(b)Mr. Sano informed Mr. Conrick that he is confident that during that week the transaction will settle and funds will be transmitted to the bank account of QuickCash ATM Holdings Pty. Limited.
3.QuickCash ATM Holdings Pty. Limited was incorporated on 29 May, 2006.
In his evidence today the respondent was optimistic that the transaction would be completed by 16 June 2006. However, he again agreed that he had not opened negotiations with the creditors who were the owners of the ATM machines which form part of the subject matter of the asset sale agreement. He did not contest evidence that was led by the petitioner’s solicitor in paragraph 6 of her affidavit sworn on 31 May 2006, that on her instructions the Bank of Western Australia had not been contacted by Mr Loiterton “at any time to obtain consent for Mr Loiterton to sell the ATMs the subject of the Hire Purchase Agreement”.
I declined to adjourn the proceedings further. My reasons must be apparent from what I have said above. It is now abundantly clear that the respondent’s projections of completion dates are optimistic and are made without apparent foundation. I accept that he has genuinely been seeking to sell these assets and to realise to the best of his ability the saleable value of his own experience, background and capacities in the ATM business as well as such assets of hardware and goodwill as it may possess. I also accept that he may have found purchasers expressing interest in acquiring those assets. However, their promises as to early completion are now clearly shown to be unreliable.
More significantly, it is clear on the evidence that an essential pre‑condition to any prospect of that agreement being completed is the agreement of the creditors appearing before me who have now lost patience with the respondent. I can see on the evidence before me no apparent prospect that the asset sale agreement will be able to be completed in the near future and without the making of a sequestration order.
Considering his financial position overall, the respondent has not made out any prospect of being able to pay his creditors within a reasonable period. As I have indicated, there are now a number of judgment debts outstanding. The respondent is still trading as a solicitor and possibly in the ATM business. He has creditors who are not represented here, and weighing up the public interests in the matter I considered that it was appropriate to refuse the further adjournment application.
The consequence of the above findings upon which I refused the adjournment application is also that I am unable to find that the respondent is “able to pay his debts” so as to allow me to dismiss the petition under s.52(2)(a). The grounds of opposition in paragraphs 1 and 2 of the notice filed on 23 November 2005 are therefore not accepted.
The authorities which have guided me in this decision include the principal that Allsop J has recently referred to in Totev v Sfar [2006] FCA 470:
[37]On proof of the matters in s 52(1) of the Act, the Court will generally proceed to make an order for sequestration. It is for the debtor to persuade the Court that the public interest in the dealing with the insolvent debtor and the rights of individual creditors are outweighed by other considerations. (citation omitted)
His Honour cites Cain v Whyte (1933) 48 CLR 639 at 645‑646, where the Full Court approved dicta of Henchman J which included:
I rule then that I am fully entitled to examine the contention put forward by Mr. Philp on behalf of the debtor that there is, in the present case, other sufficient cause sufficient to justify the dismissal of this petition. I approach that question with the full appreciation that, prima facie, on proof of the matters mentioned in sec. 56 (2), the Court will proceed to make an order for sequestration, and that it is for the debtor to show some cause overriding the interest of the public in the stopping of unremunerative trading, and the rights of individual creditors who are unable to get their debts paid to them as they become due. Something has to be put before the Court to outweigh those considerations before it can be said that sufficient cause is shown against the making of a sequestration order.
In Australia & New Zealand Banking Group Pty Ltd v Foyster [2000] FCA 400, Hely J considered the onus on a debtor to prove sufficiency of assets. His Honour said:
17The onus of proving sufficiency of assets lies on the respondent. It is not sufficient for the respondent simply to establish that he has assets which exceed his liabilities in value. It must also be established that the assets are available to be realised and that they are capable of ready realisation. …
19Under s 52(2)(a) the respondent must satisfy the Court that he is “able to pay his ... debts”, including liabilities: s 5(1). In my view, the subsection refers to a state of affairs which requires account to be taken of debts which will fall due in the reasonably immediate future pursuant to existing obligations: Bank of Australasia v Hall (1907) 4 CLR 1514, 1527‑1528 as well as debts which are presently due and payable. However, whether that is so or not, for the reasons explained by Katz J in International Alpaca Management Pty Ltd account needs to be taken, if not in assessing solvency, then in the exercise of the discretion whether or not to dismiss the petition, of liabilities which will become payable in the reasonably immediate future.
In the present case, the evidence led by the respondent before me does not satisfy that onus, but indeed satisfies me that the respondent is not able to satisfy in the reasonably foreseeable future debts arising from judgments which have been entered against him and other creditors likely to arise in the course of his business activities and private life.
Considering all the circumstances shown in the evidence, and taking into account the possibility that the effect of a bankruptcy order may render more difficult the sale of the assets and resources which the respondent has been endeavouring to sell, as well as other elements of hardship to him arising from the making of a sequestration order, I consider that the public interests referred to in the passages above and the prima facie entitlement of the petitioners in this case should be given more weight and should lead to the making of the sequestration order.
In exercising my discretions I have, in particular, taken into account the concern of the respondent that bankruptcy might give rise to disqualification as a company director as is envisaged in the asset sale agreement. However for reasons which I have pointed to above, the prospect of that agreement coming to fruition if the respondent is kept out of bankruptcy is, in my opinion, remote on current evidence. I am therefore satisfied that it is proper to make a sequestration order today, and to refuse the grounds of opposition raised by the respondent.
I raised with the representatives of the petitioners, the supporting creditors and the respondent whether the circumstances of the hoped for completion of the asset sale agreement would justify the exercise of the Court’s discretion under s.52(3) to “stay all proceedings under a sequestration order for a period not exceeding 21 days”. The respondent sought the making of such an order so as to allow him to proceed with his sale. The applicants opposed the making of any stay, and the representatives of the other creditors did not have instructions which allowed them to take a position.
I have considered carefully the exercise of that discretion. It has some attraction, but only if I were persuaded that there was a real prospect of enough money coming into the hands of the respondent within that 21 days to allow him to pay out all outstanding creditors.
For reasons I have explained above, I have been unable to be so satisfied. Indeed, I consider that the possibility of agreements being able to be reached with the owners of the ATM machines and the other parties who need to come together to achieve the transactions hoped for by the respondent are just as likely to be advanced, rather than retarded, by making a sequestration order with immediate effect. It may be that the mediation of a trustee, the revealing of facts by the respondent to his creditors, and the conduct of creditors’ meetings may achieve what the respondent hopes for quicker than his own present efforts. This is a matter of speculation, but it would support rather than be contrary to the making of an order with immediate effect.
In any event, the public interests in relation to the matter are in my opinion to be properly answered by an immediate sequestration order, taking into account the many long delays that have occurred at the request of the respondent in the final resolution of this petition.
I therefore decline to make an order under s.52(3). I have taken into account in that decision the possibility that costs of administration may be incurred which the respondent would hope otherwise to have avoided.
I certify that the preceding sixty‑seven (67) paragraphs are a true copy of the reasons for judgment of Smith FM
Associate: Lilian Khaw
Date: 13 June 2006
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