Barry v Wallum Nurseries Pty Ltd

[2002] FMCA 323

FEDERAL MAGISTRATES COURT OF AUSTRALIA

BARRY v WALLUM NURSERIES PTY LTD [2002] FMCA 323

BANKRUPTCY – Review of Registrar’s decision to sequestrate – whether applicant is solvent – whether stay should be granted to allow refinancing – where neither petitioning nor supporting creditor wish to allow stay – application dismissed.

Federal Magistrates Act 1999, s.104(2)
Bankruptcy Act 1966 (Cth), ss.52, 52(2)(a), 109(1)(a), 153B

Martin v Commonwealth Bank of Australia (2001) FCA 87
Lawman v Queensland Building Services Authority [199] FCA 1781
International Alpaca Management Pty Limited v Ensor [1999] FCA 72

Applicant: EMMA JAYNE BARRY

Respondent: WALLUM NURSERIES PTY LIMITED
ACN 086 722 456

File No: SZ 1268 of 2002

Delivered on: 11 December 2002

Delivered at: Sydney

Hearing Date: 10 December 2002

Judgment of: Raphael FM

REPRESENTATION

Solicitors for the Applicant: Sally Nash & Co

Counsel for the Respondent: Mr J Deane

Solicitors for the Respondent: Jones King

ORDERS

1. Application for review dismissed.

2. Respondent’s costs to be paid from estate of the bankrupt pursuant to s.109(1)(a) of the Bankruptcy Act pursuant to the Federal Court Rules.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
SYDNEY

SZ 1268 of 2002

EMMA JAYNE BARRY

Applicant

And

WALLUM NURSERIES PTY LIMITED
ACN 086 722 456

Respondent

REASONS FOR JUDGMENT

1. On 22 November 2002 a sequestration order was made against the applicant by a Registrar of this court sitting in Brisbane. The applicant, who was not present at the hearing of the petition, seeks a review of the decision of the Registrar pursuant to s 104(2) of the Federal Magistrates Act. It is not disputed that the application for review is in time. The applicant sought as an alternative to a review an annulment of the sequestration order and as a further alternative a stay of the order for a period of twenty-one days from 22 November 2002.

2. At the commencement of the proceedings I made an order as follows:

   “Order that File BZ 520 of 2002 be transferred to Sydney and amalgamated with File SZ 1268 of 2002.”

3. The orders sought by the applicant are set out above in the order of priority put to me by the applicant’s advocate.  I informed the parties that I would treat the matter as a review because it appeared to me that this offered the most advantages to the applicant.  Firstly, the matter would be heard de novo (Martin v Commonwealth Bank of Australia [2001] FCA 87 and this would allow the applicant to put forward the evidence contained in her affidavit dated 5 December 2002 filed with the application. It would also relieve the applicant of the requirements contained in the rules for notification of creditors and obtaining of a trustee’s report that accompany an application for annulment under s 153B. So far as the creditor is concerned a review allowed it to make reference to the existence of a supporting creditor who had entered an appearance in these proceedings but not in the previous proceedings. As I understood the submissions being made by the applicant the grounds upon which she would rely in relation to an annulment were identical to the grounds upon which she would rely in a review.

History

1. The applicant is a partner in a business known as East Coast Revegetation with her husband.  She became indebted to the creditor (a supplier) by virtue of having failed to file a notice of intention to defend a statement of claim issued out of the Magistrates Court of Queensland on 3 July 2002 in the sum of $6,635.77.  This judgment was the subject of a bankruptcy notice which the debtor admits she received on 24 September 2002.  The applicant did not comply with the terms of the bankruptcy notice and so an act of bankruptcy was committed on 15 October 2002 which founded a creditor’s petition served upon her on 8 November 2002.  The petition had a return date of 15 November 2002 in Brisbane, although the debtor resides in Dungog in New South Wales.   The debtor did not attend at the hearing of the petition on 15 November 2002.  She did not contact the petitioning creditor’s solicitors.

2. The petition was not finalised on 15 November 2002.  It was stood over until 22 November.  The creditor, through its solicitors, informed the applicant of the new return date.  The applicant only received that notification on the return date and after the petition had been heard.  She says that if she had known about the return date she would have attended the court.  She would have told the court that she was in the process of refinancing a property in which she had a joint interest with her father and husband.  She would have said that the refinance of the property would have been sufficient to pay out the petitioning creditor and arrange her finances so that she would be able to pay her debts as and when they fell due.

3. Because this matter is a rehearing I am not required to consider whether or not the sequestration order should be set aside because of the applicant’s non-attendance.  She is present at this hearing through her advocate and I am seized of all the matters which she would have wished to have raised before the Registrar.  However, it is appropriate to note that the applicant did not comply with Federal Magistrates Court Rule 29.07 which applies to a person who intends to oppose an application or petition and requires that person, at least three days before the date fixed for the hearing, to:

   i)File an appearance;

   ii)File a notice in accordance with Form 149 stating the grounds of opposition;

   iii)File an affidavit in support of the grounds of opposition and;

   iv)Serve the notice and supporting affidavit on the applicant.

   The date for complying with that rule was 12 November 2002.

4. The applicant accepted that there was no contact between her and the solicitors for the creditor between the time of commencement of proceedings in the Local Magistrates Court and the initiation of the application before me.  The evidence does reveal that the applicant commenced making arrangements to refinance the property after she had received notice of the judgment on 23 August 2002.  She did not get around to signing the loan documentation until 21 November 2002.  The refinance did not go through because of the sequestration order made on 22 November.

The opposition to the sequestration order

1. The applicant does not seek to impugn the debt. It is her argument that a sequestration order ought not to be made under s.52 because, in accordance with s.52(2)(a), she is able to pay her debts. In Lawmanv Queensland Building Services Authority [1999] FCA 1781 a Full Bench of the Federal Court considered what was meant by that phrase and citing a decision of Katz in International Alpaca Management Pty Limited v Ensor [1999] FCA 72 said at [22]:

   “Nonetheless his Honour concluded (par 18) that the wording of s.52(2)(a) should generally be treated as requiring a consideration of the debtor’s capacity to pay his debts as and when they fall due, rather than the debts actually due at the date of hearing.”

2. The applicant in her affidavit, then proceeded to set out her financial position.  She has debtors of $202,500.00.  However, of this amount $127,000.00 is subject to an arbitration for which no date is available.  $42,000.00 is the subject of retentions in respect of contracts upon which no evidence has been provided and there is a final $27,000.00 in respect of which no evidence is provided as to the likelihood of recovery. 

3. As against these debtors the business has creditors which I total to be $193,275.00.  In paragraph 25 of her affidavit the applicant deposes to certain arrangements which have been put in place for payment by instalments of some of the debts and of payment of others in full out of the refinancing proceeds.

4. The applicant then deposes to her interest in real estate consisting of three properties in Dungog.  It is upon the security of one of these properties that the applicant claims to have raised finance in the sum of $210,000.00.  It is important to note that this finance will only release approximately $73,000.00 net, as the balance must be paid to the outgoing mortgagee.  More importantly, however, that property is not owned solely by herself.  The way it is deposed to in the affidavit would indicate to me that she has a 25% interest in the property.  Even though I accept that her co-owners have consented to her utilising the proceeds of the refinancing for payment of business debts, this would not alter their rights to contribution from her in respect of the money advanced if it was not repaid by her to the lender.

5. On the final page of the applicant’s affidavit she provides a cash flow projection for the months of November, December and January.  This indicates money to be paid to the business on sales and the expenses to go out of the business during those months.  The affidavit of the applicant indicates that the business is a landscaping one involving the supply and installation of native plants, particularly on roadways.  The affidavit also indicates that the business does not grow the plants supplied but purchases them from nurseries, such as that owned by the creditor.  The cash flow projection document does not contain any item for what is usually described as “cost of sales”.  I can understand that as a cash flow projection “cost of sales” might not need to be included for all cash likely to be received in the month of December 2002 (the projection is entitled November, December, January but in fact deals with the months December, January and February).  However, the nature of the business would appear to be such that it is unlikely to have yet paid for plants for which contractors would be paying her in January or February.  I should make it clear that whilst this matter does concern me, it is not the basis for my findings. 

6. I would also note that the supporting creditor Pohlmans Nursery Pty Ltd who issued a bankruptcy notice against the applicant on 7 May 2002 in the sum of $14,385.89 is not included in the applicant’s list of creditors.

Decision

1. I am not satisfied that the applicant can pay all her debts as and when they fall due. The applicant submits that she will utilise the net proceeds of the refinance to repay the petitioning creditor, pay out the trustee and pay the supporting creditor.  A further creditor, one Paul Sweeney, has also entered an appearance.  He is owed $4,571.00 and presumably will be required to be paid in full.

2. The position is therefore that certain creditors will be paid in full whilst other creditors are receiving instalment payments.  Some creditors, particularly GIO which is owed $23,450.00, are not the subject of any arrangements.  This is not an appropriate way to treat creditors.  It indicates an inability to pay debts as and when they fall due.  It also indicates the probability of preferential payments being made to the more demanding of the applicant’s creditors. 

3. I note in her affidavit the applicant makes reference to factoring arrangements.  I do have concern that more information is not provided about this.  Why, for example, has not the major debt due to her business from Abi Group, been factored?  What about the other debtors that she deposes to?

4. I am left with a sense of unease.  I am not satisfied that the money which she receives from the refinance will provide her business with sufficient cash flow to carry it over these difficult times.  Her creditors are substantial, her debtors do not appear to be promptly meeting their obligations to her.  Her expenses for the month of December are admitted at $102,947.00.  I have not been told what her relations are with her bankers.  There is no indication that they will support her.

5. I note that neither the petitioning creditor nor the proposed substituted creditor wish me to set aside the sequestration order even on terms which would see their debts being paid in full.  This would indicate that they are not satisfied that the applicant is solvent and that they would not have to disgorge any moneys received as a preference. 

6. I have considered the applicant’s request for a stay.  The purpose of the stay is to enable the refinancing to take place.  The basis of my decision is that I have come to the view that even if the applicant refinances she will not be able to pay her debts as and when they fall due.  The refinancing will not pay all her creditors in full.  I can therefore see no utility in such a stay.

7. When the matter was adjourned on 10 December 2002 I requested the petitioning creditor to provide me with the necessary affidavits required by the rules to be produced at the hearing of a petition. These have now been provided and together with the other affidavits already filed satisfy me of the matters required under s.52. I dismiss the application for review. I order that the respondent’s costs be paid from the estate of the bankrupt pursuant to s.109(1)(a) of the Bankruptcy Act pursuant to the Federal Court Rules.

I certify that the preceding twenty (20) paragraphs are a true copy of the reasons for judgment of Raphael FM

Associate: 

Date: