Baseline Constructions Pty Ltd v Chen

Baseline Constructions Pty Ltd (Baseline) sought a sequestration order against Mr Chen based on an alleged act of bankruptcy arising from Mr Chen's failure to comply with a bankruptcy notice. The bankruptcy notice demanded payment of $150,000, which Baseline contended was part of a larger judgment debt of $300,000 entered by consent in the District Court of New South Wales. Mr Chen opposed the sequestration order, arguing that he had discharged the judgment debt and that Baseline was therefore not a creditor.

The court was required to determine several legal issues. Firstly, it had to ascertain whether the District Court judgment constituted a single debt of $150,000 or two separate judgment debts totalling $300,000. Secondly, if there were two judgment debts, the court needed to decide whether a stay on the second judgment debt had lifted, rendering it payable. Thirdly, the court had to consider whether Mr Chen possessed an arguable offsetting claim that exceeded the amount of the second judgment debt, which would preclude him from being considered a creditor for the purposes of bankruptcy.

The court found that the District Court had made one order creating two judgment debts of $150,000 each. It determined that the stay on the second judgment debt had lifted, making it payable. Furthermore, the court concluded that Mr Chen had not established an arguable case for an offsetting claim that was equal to or in excess of the second judgment debt. Consequently, the court listed the matter for the making of a sequestration order, providing Mr Chen an opportunity to reach an agreement with Baseline.