Barry v Coshott (No.2)
[2011] FMCA 228
•31 March 2011
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| BARRY v COSHOTT (No.2) | [2011] FMCA 228 |
| BANKRUPTCY – Creditor’s petition – joint indebtedness with debtor’s spouse – pending proceedings in Federal Court concerning bankrupt estate of spouse – settlement providing for full payment of creditors and discharge of spouse before July 2011 – petition adjourned. |
| Bankruptcy Act 1966 (Cth), ss.52(2)(a), 153A |
| Barry v Coshott [2010] FMCA 930 Coshott v Barry & Board [2010] NSWSC 1324 Eykamp v Deputy Commissioner of Taxation [2010] FCA 797 |
| Applicant: | STEPHEN MICHAEL BARRY |
| Respondent: | LJILJANA COSHOTT |
| File Number: | SYG 1738 of 2010 |
| Judgment of: | Smith FM |
| Hearing date: | 31 March 2011 |
| Delivered at: | Sydney |
| Delivered on: | 31 March 2011 |
REPRESENTATION
| Counsel for the Applicant: | Mr J Johnson |
| Solicitors for the Applicant: | Sally Nash & Co |
| Counsel for the Respondent: | Mr S Bliim |
ORDERS
Any application to amend the petition and any affidavits in support must be filed and served no later than 4 pm on 28 June 2011.
Any affidavits in response, or in support of a further adjournment application must be filed and served no later than 4 pm on 1 July 2011.
The petition is adjourned for further hearing on 5 July 2011 at 10.15am.
Costs reserved.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 1738 of 2010
| STEPHEN MICHAEL BARRY |
Applicant
And
| LJILJANA COSHOTT |
Respondent
REASONS FOR JUDGMENT
(revised from transcript)
This is the resumed hearing of Mr Barry’s creditor’s petition against Mrs Coshott. The hearing of the petition commenced on 24 November 2010, and was adjourned for reasons which I explained in Barry v Coshott [2010] FMCA 930. It is unnecessary for me to recite the background of the matter or the reasons which led me to conclude that an adjournment was appropriate.
In short, on that occasion Mrs Coshott’s counsel conceded that she had no good ground of opposition to the petition. However, he submitted that there was a prospect that the debt relied upon by Mr Barry in the petition, which is jointly owed by Mr Coshott, would be paid in the course of a settlement of proceedings on foot before Rares J involving members of Mrs Coshott’s family and Mr Coshott’s trustee in bankruptcy. The envisaged settlement, which at that stage was being negotiated with the assistance of mediation in the Federal Court, contemplated the possibility of an annulment of Mr Coshott’s bankruptcy by force of s.153A of the Bankruptcy Act. The annulment would occur “If the trustee is satisfied that all the bankrupts’ debts have been paid in full”. This includes the trustee’s expenses and remuneration which would otherwise be payable out of the estate vested in him.
I had some scepticism as to that prospect, and considered that the evidence before me at that time pointed to “only a short adjournment” being granted for the petition. I also required that Mrs Coshott should demonstrate “a degree of candour in relation to her current financial circumstances”, and ordered her to file evidence which would be included in a statement of affairs under the Bankruptcy Act. I then adjourned the hearing until 17 February 2011.
Mrs Coshott filed an affidavit on 30 November 2010, attaching a statement of affairs. In this she revealed assets consisting of a motor car and small bank balances, plus a claimed entitlement to $300,000 arising from a half interest in legal fees due from the estate of Mr Lenin, deriving from legal services provided by Mr Coshott’s firm to Mr Lenin in years up to 1991.
Mrs Coshott’s statement of affairs claimed no interest available to unsecured creditors in relation to her family home at Bellevue Hill, whose title shows Mr and Mrs Coshott as registered co-owners. The true beneficial interests in that property are currently in dispute in the litigation before Rares J, between other members of the Coshott family claiming to be trustees of a family trust, and Mr Coshott’s trustee who is asserting that the title reflected the equities. The title shows no mortgage security, but caveats protecting the claims which are being disputed before Rares J.
Mrs Coshott filed an amended notice of opposition on 30 November 2010, which asserts:
1.The respondent is not insolvent.
2.The judgment debt relied on was invalid as the Certificate of Determination on which the judgment was entered was issued without jurisdiction.
I understand, and counsel for Mrs Coshott confirms, that the ground raised in paragraph 1 is an assertion that the provisions of s.52(2)(a) of the Bankruptcy Act apply, that is, that she is “able to pay her debts”. There is a body of authority explaining how a debtor establishes such an ability. Recently Buchanan J in Eykamp v Deputy Commissioner of Taxation [2010] FCA 797 accepted that it does not require the debtor to show funds immediately available to pay current debts within a reasonable time after they fall due. It allows a debtor to establish ownership of assets which could be used to raise such funds, provided that the funds will become available “in a realistic time scale”.
Mrs Coshott, through her husband, has now filed additional evidence attempting to give substance to that ground in relation to funds anticipated from the estate of Mr Lenin. However, in my opinion, it fails to do so. Her prospects of receiving funds from her claims against the estate of Mr Lenin appear to me on the evidence to be arguable at best, and certainly not likely to be fruitful in a reasonable or realistic time. Her claims have reached the stage only where there are hotly contested jurisdictional issues to be decided by the Supreme Court’s manager for legal referrals, as to the implications of time limits, amendments to legislation, and other jurisdictional issues in relation to the Supreme Court’s power to order any payment of taxed costs. The estate’s solicitors have foreshadowed taking these issues for judicial determination. They have also foreshadowed disputing the details of Mr Coshott’s bills, and appealing to a judge of the Supreme Court. Noting that the costs concern events decades in the past, it is difficult to see that the foreshadowed litigation will be resolved promptly, or within a time scale that it would be reasonable to expect creditors to wait.
Mrs Coshott’s counsel today conceded that, in terms of time scale, the prospects of this asset becoming available to creditors was not sufficient for the purposes of s.52(2)(a). The evidence shown by her statement of affairs does not, therefore, appear to support the first ground of her opposition to the petition.
Mrs Coshott’s counsel repeated his concession made on the last occasion, that paragraph 2 of the now amended grounds of opposition was not pressed. The prospects of that ground have not improved. Particulars of the contention have not been provided. It still appears to be answered by principles of issue estoppel in the manner recently accepted by Garling J in Coshott v Barry & Board [2010] NSWSC 1324 at [15]-[37], and Garling J’s judgment may give rise to additional estoppels.
Notwithstanding the lack of apparent merit in the amended notice of grounds of opposition to the petition, I granted a second adjournment of the petition when it was listed on 17 February 2011, once again, in the face of opposition from Mr Barry. I granted the further adjournment without continuing the hearing of the petition on that day, upon the basis of evidence suggesting that the settlement negotiations in the proceedings before Rares J had moved forward in December 2010. The parties had agreed that it would be facilitated by Mr Coshott’s trustee, Mr Bourke, initiating a process of assessment of his costs and expenses to allow the calculation of a total payout figure for the purposes of s.153A. I gave reasons for that adjournment, but they have not been revised and published.
Today, Mr Barry opposed any further adjournment, and the hearing of the petition resumed with the taking of further affidavit evidence, some of which related to Mrs Coshott’s assets and claims in relation to
Mr Lenin which I have addressed above.
Other evidence was tendered on behalf of Mrs Coshott, concerning the settlement negotiations in the proceedings before Rares J. These reached a stage of consensus late yesterday, when the parties signed consent orders containing terms of an agreement which would lead to a discharge under s.153A of Mr Coshott’s bankruptcy. This is contingent upon future processes which are noted in the orders being carried through successfully. However, the orders note agreements as to a total payout figure which would provide the creditors whose proofs of debt had been admitted in Mr Coshott’s bankruptcy with the full amount of their debts, plus any interest entitlements. The orders also note provisional agreements in relation to Mr Bourke’s remuneration and expenses, and a procedure for completing an assessment in relation to these.
The terms of settlement envisage money becoming available to
Mr Bourke by 30 June 2011 sufficient to pay all the creditors and to set aside a fund available for payment of his own fees and expenses. There is reference to documents being provided to the Commonwealth Bank, and funds becoming available from Mr and Mrs Coshott’s sons for this purpose. These parts of the agreement have not been explained by evidence as to the anticipated resources of the sons or of other members of the family, from which the settlement money is expected to be derived, but it seems reasonable to infer that it is hoped that all or some of it will be raised on a mortgage of the family home, including or superseding borrowings under an offer from the Commonwealth Bank which is in evidence before me relating to a loan offer of $1,800,000.
The schedule of Mr Coshott’s creditors, who would receive full recovery under the terms of the settlement, includes Mr Barry in relation to the whole amount of the joint indebtedness which is relied upon by him in the current petition. It also includes the full amount of the joint indebtedness owed to two supporting creditors, whose appearance has been noted in the present proceedings.
There is no evidence of Mrs Coshott owing any separate liability of substance which is currently accrued. There is evidence that Mr Barry is a creditor in relation to costs’ orders made in the past against
Mrs Coshott alone. However, that liability has not yet crystallised by way of costs’ assessments and judgments, and there is no evidence before me pointing to when that process is likely to be completed.
It was submitted by Mrs Coshott that the terms of yesterday’s settlement, if effected, would establish the first ground in her notice of opposition, and would lead to the dismissal of the petition because all the liabilities disclosed in her statement of affairs are liabilities owed jointly with Mr Coshott, and they will all be discharged if the settlement is completed. That appears to be the case on the evidence before me.
I am inclined to think, without deciding, that a prospect of this happening within three months might be regarded by creditors as a “realistic time scale” in the context of the complicated legal and financial affairs of Mr and Mrs Coshott. However, such a conclusion would also require satisfaction that there is some certainty in the prospect of completion of the settlement by way of the foreshadowed payments. However, I accept all the submissions made today on behalf of Mr Barry, that such certainty is not established on evidence before me today.
There are many aspects of uncertainty as to the likelihood of the settlement agreed yesterday being achieved before 30 June 2011. In its terms, if it is not achieved by that date, then nothing survives the settlement agreement, and the litigation before Rares J will continue. There is no evidence before me showing details of how the anticipated funds are intended to be raised, nor as to the likelihood that they will be raised, including by borrowings from financial institutions. There is no evidence as to the value of the family home, if it is intended to provide the major security for borrowings. Moreover, the terms of the settlement appears to make it contingent upon further investigations of Mr Coshott’s tax liabilities. There are also other aspects of uncertainty.
One area of uncertainty can be addressed by me today, being whether I make a sequestration order against Mrs Coshott today or defer the making of it until after June. If I make a sequestration order today, then I accept submissions made on behalf of Mrs Coshott that it is likely, if not certain, that her trustee will see a need to file a caveat over the family home and appear in the proceedings before Rares J, where issues of title are being litigated. I note that her trustee is unlikely to be Mr Coshott’s trustee, Mr Bourke, since Mr Barry has presented a different person as the proposed trustee of Mrs Coshott’s estate. In my opinion, the absence of that trustee as a party to yesterday’s settlement, and the presence of his or her caveats on the title, hold a strong prospect of preventing the necessary funds being raised using the family home as security. This consideration points towards adjournment of the present petition, but it also illustrates the need to be cautious when assessing the uncertainties attending yesterday’s settlement.
Taking into account all the submissions made to me by Mr Barry’s counsel concerning the absence of evidence giving real substance to a prospect that the settlement will be completed, I am prepared to make assumptions as to the bona fides and underlying substance of the negotiations which were conducted in front of Rares J, and have concluded that this can properly inform my decision about adjournment of the present petition.
It is true that there is a wealth of evidence which could have been tendered by Mrs Coshott, and which has not been tendered, to explain and add weight to the prospect of completion of yesterday’s settlement. However I am prepared to assume that Mr Bourke would not have been participating in the negotiations before Rares J, that his Honour would not have been repeatedly adjourning the proceedings and facilitating the negotiations, and that the settlement yesterday would not have been arrived at, without all the parties involved having satisfied themselves as to the reasonableness of entering into that settlement and of its prospects of completion. Upon that inference, I am prepared to continue the adjournment I granted in November, noting that the petition will not expire until August this year.
As with previous adjournments, I am not satisfied that there is any creditor of Mrs Coshott who will suffer material prejudice. I am conscious that Mr Barry has a prima facie right to a sequestration order. However, considering the matter purely in terms of the indebtedness of Mr and Mrs Coshott presented to the Court in
Mr Barry’s petition, and in terms of their joint indebtedness to the other supporting creditors, I consider that it is in the interests of these creditors and other joint creditors in achieving payment of their debts, that the settlement arrived at yesterday should be given an opportunity to come to fruition.
For that reason, I am persuaded by the submissions made to me today, in support of an adjournment until July. It appears to me that if the settlement has not been completed in accordance with the agreement, and if the litigation is back on foot in front of Rares J, then it will be almost inevitable that a sequestration order will be made against
Mrs Coshott. However, the situation will have to be addressed in the light of the evidence which will be before me on that occasion.
I certify that the preceding twenty-four (24) paragraphs are a true copy of the reasons for judgment of Smith FM
Associate:
Date: 13 April 2011
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