Biron Capital Limited v Anstee - [2005] FMCA 1100

FEDERAL MAGISTRATES COURT OF AUSTRALIA

BIRON CAPITAL LIMITED v ANSTEE

[2005] FMCA 1100

BANKRUPTCY – Creditor’s petition – petition opposed on the basis that the creditor holds security of greater value than the debt – creditor giving the security a nil value – that value a genuine one – petition granted.

Bankruptcy Act 1966 (Cth), s.44
Bankruptcy Regulations
Corporations Act 2001 (Cth)

Re Button; ex parte Voss (1905) 1 KB 602
Re O’Leary; ex parte Bayne (1985) 61 ALR 674
Re Scott; ex parte Moore [1892] 2 BCNSW 55

Applicant:

BIRON CAPITAL LIMITED

Respondent:

BARRY FRANCIS ANSTEE

File Number:

SYG876 of 2005

Judgment of:

Driver FM

Hearing date:

28 July 2005

Delivered at:

Sydney

Delivered on:

28 July 2005

REPRESENTATION

Counsel for the Applicant:

Mr M Cohen

Solicitors for the Applicant:

Gadens Lawyers

The respondent appeared in person

ORDERS

A sequestration order be made against the estate of Barry Francis Anstee.
The applicant creditor’s costs, including reserved costs if any, be taxed and paid in accordance with the Bankruptcy Act 1966 (Cth).
The Court notes that a copy of these orders is to be given to the Official Receiver in Sydney within two days after the orders are entered.
The Court notes that the date of the act of bankruptcy is 22 February 2005.
The Court notes that consent to act as trustee has been signed by Maxwell William Prentice and has been lodged with the Official Receiver in Sydney.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
SYDNEY

SYG876 of 2005

BIRON CAPITAL LIMITED

Applicant

And

BARRY FRANCIS ANSTEE

Respondent

REASONS FOR JUDGMENT

(revised from transcript)

I have before me a creditor’s petition filed on 10 June 2005 seeking a sequestration order against the estate of Barry Francis Anstee. The petition is supported by the following material: an affidavit by John Corr filed on 11 April 2005, a supplementary affidavit by Mr Corr filed by leave in court today, an affidavit of Michael McEwen also filed on 11 April 2005 with a supplementary affidavit by Mr McEwen filed in court by leave on 26 July 2005, affidavits of service of the bankruptcy notice and petition by Peter Miltenyi filed on 11 April 2005 and by leave in court on 26 July 2005, an affidavit by Jeremy David Shervington filed in court by leave on 26 July 2005 as to the continuing existence of the debt, an affidavit by Mark David Groben filed in court by leave on 26 July 2005, an affidavit by Martin David Hirst filed in court by leave on 26 July 2005 and an affidavit by Bryan Collis also filed in court by leave on 26 July 2005.
The petition is opposed by the debtor, Mr Anstee. He relies upon an amended notice of intention to oppose the petition filed in court by leave on 26 July 2005 with an affidavit in support filed in court by leave on the same day. Mr Anstee also relies upon five bundles of documents tendered during the course of argument today which are exhibits R1 to R5.
The background to these proceedings is that on 15 January 2003 Mr Anstee executed a guarantee and indemnity by which he assumed liability pursuant to a contract of guarantee for the debts due to the petitioning creditor by Velowing Pty Limited (in liquidation).
On 17 December 2003 the Supreme Court, in proceedings 4195 of 2003, ordered that Velowing be wound up in insolvency and that Biron's costs of the proceedings be costs of the winding-up. On 5 August 2003 the petitioning creditor commenced proceedings in the Supreme Court of New South Wales in proceedings 11963 of 2003 seeking judgment against Mr Anstee for a debt due on that guarantee. On 2 September 2004 the Supreme Court ordered, by consent, that judgment be entered for Biron against Mr Anstee in the amount of $2,822,500. On 22 November 2004 judgment was entered for Biron in the registry of the Supreme Court of New South Wales. On 25 November 2004 Biron received the amount of $22,000 from the liquidator of Velowing, being Biron's costs of the winding-up.
On 30 November 2004 the bankruptcy notice supporting the present creditor’s petition was issued. On 17 December 2004 Biron served the bankruptcy notice on Mr Anstee. On 7 January 2005 Mr Anstee filed an application to set aside the bankruptcy notice. On 1 February 2005 Biron filed a notice of intention to oppose that application. There was subsequently an adjournment and an amended application. The challenge to the bankruptcy notice was heard by me on 22 February 2005. I dismissed the application and gave ex tempore reasons. Relevantly, I did not take up an invitation from Mr Anstee to go behind the judgment debt.
Mr Anstee opposes the petition now before the Court on the following bases. He denies that as at 10 June 2005 he owes Biron the amount of $2,822,500 because it is not based on a real debt for the reason set out in his accompanying affidavit. Mr Anstee sought to agitate that issue further before me today but I ruled that I would not go behind the judgment debt. There was nothing in the limited material sought to be presented by Mr Anstee today that could have led me to a different view to that which I reached in the bankruptcy notice proceedings on 22 February 2005. I was fortified in that view because the bankruptcy hearing today was delayed by proceedings in the Supreme Court of New South Wales. Those were proceedings 11963 of 2003 in the common law division in which Mr Anstee, by notice of motion, challenged the judgment establishing the judgment debt in these proceedings. Mr Anstee was unsuccessful. If Mr Anstee was unable to persuade the Supreme Court to look behind its own judgment I was not minded to alter the view I had already taken not to do so in the earlier bankruptcy notice proceedings.
The purported second ground of opposition to the petition refers to proceedings 11963 in the Supreme Court of New South Wales, Biron particularised that as at 1 June 2003 Mr Anstee owed it $2,822,500. Biron claimed judgment against Mr Anstee for that amount and other orders for costs and interest. Mr Anstee filed a cross-claim in proceedings 11963 of 2003 on 3 September 2003. On 2 September 2004, by consent, the Supreme Court ordered judgment for Biron in the amount of $2,822,500 as claimed by the applicant creditor, being the amount owed as at 1 June 2003. Biron amended a notice of motion filed on 19 April 2004 which was dismissed. Mr Anstee's cross-claim was also dismissed. No order was made for interest and costs. The second ground is merely a statement of particulars of the first ground of opposition and it does not in itself advance the matter further.
The third ground of opposition is that securities owned by Bassoak Pty Limited, to which Biron appointed a receiver on 30 June 2003, were sold in August 2003 for $12,200,000 and were subject to a first mortgage of $9,000,000 to Permanent Trustees Limited and a second mortgage of $2,625,000 to Biron. The debt claimed against Mr Anstee is said to arise from the mortgage of Biron. Biron has allegedgly provided no accounting or credit to Mr Anstee in respect of the proceeds received on the sale of securities owned by Bassoak Pty Limited which allegedly could exceed the amount claimed by Biron of $2,822,500.
Further, Mr Anstee asserts that the records of Biron show that from the sale of securities owned by Bassoak Pty Limited Biron received $1,892,913 against the principal sum of the second mortgage of $2,625,000 leaving a debt of $732,087. Biron has foregone any claim for interest or costs in respect of its claim against Mr Anstee as ordered by the Supreme Court. I take this to be an assertion that Biron has or may have been able to recover some or all of the money due from Mr Anstee from Bassoak.
There are two problems at least with this argument. The first is that Biron has the benefit of a judgment debt independently of any liability of Bassoak. The second is that even if Mr Anstee is correct, there remains a debt of $732,087 which remains to be paid. The guarantee given by Mr Anstee was enlivened by the non-payment of the debt due from Bassoak. It cannot be said that any moneys which may have been recovered from Bassoak discharge the liability of Mr Anstee at least in relation to a minimum sum of $732,087.
Mr Anstee further asserts that, relying on s.44(2) of the Bankruptcy Act 1966 (Cth) (“the Bankruptcy Act”) Biron, in the creditor’s petition filed on 10 June 2005 in paragraph 2, values the security it holds as nil which bears no close relationship to the realities of the matter and is incorrectly valued. Mr Anstee notes that Biron does not rely on s.44(3) of the Bankruptcy Act. He further asserts that the property over which Biron holds security, being an equitable mortgage, is the land described in folio identifier 21/DP1029384, being lot 21 in deposit plan 1029384 known as The Maltings at Mittagong. That property is held by tenants in common with a one fifth share held by Mr Anstee and four-fifths by Velowing. Mr Anstee asserts that the property is subject to a deed of partition between the tenants in common dated 3 August 2000. Part of the deed of partition is covered by deposited plan 1056061 which creates lots 2 and 3 being a subdivision of lot 21 in deposited plan 1029384, such subdivision being consented to by the mortgagees, Southern Finance and Investment Pty Limited and CKM (Mortgages) Limited.
Mr Anstee asserts that the property is subject to a first registered mortgage to Southern Finance and Investment Pty Limited and a second registered mortgage to CKM (Mortgages) Limited, such mortgages being subject to a deed of priority dated 1 August 2002 and provisions in respect to subdivision of the property. Mr Anstee asserts that the effect of the deed of partition and the deed of priority and the first and second mortgages is that lot 2 in deposited plan 1056061 is held by the tenants in common and is subject to the deed of partition and is subject to a first mortgage to Southern Finance and Investments Pty Limited of $3,000,000. Mr Anstee also asserts that lot 3 is owned by him and is subject to a first mortgage to CKM (Mortgages) Limited of $150,000 and that CKM (Mortgages) Limited holds further collateral security for this amount being a first mortgage on property at Quakers Hill.
Mr Anstee further asserts that the market value of lot 21 in the deposited plan is not less than $6.5 million and therefore Biron holds security to the value of not less than $3.37 million after allowing for the first and second mortgages with a total of $3.13 million. He asserts that the market value of lot 2 in deposited plan 1056061 is not less than $3.37 million, therefore Biron, in Mr Anstee’s submission, holds security over this lot of not less than $370,000 after allowing for the first mortgage of $3 million. Mr Anstee asserts that the market value of lot 3 owned by him is not less than $3.1 million and therefore Biron holds security over this lot of not less than $2.9 million after allowing for the first mortgage of $150,000.
A further assertion by Mr Anstee that Biron had not verified the creditor's petition filed on 10 June 2005 by affidavit was met by the supplementary affidavit by Mr Corr. I note that the second sentence of the second paragraph of that supplementary affidavit was not read.

I also rejected objections as to the form of that affidavit and other affidavits relied upon by the petitioning creditor.
In the course of argument it became clear that the substance of Mr Anstee's opposition to the creditor's petition is that, on his analysis, value of the petitioning creditor's security is not less than the debt supporting the creditor's petition and that the value of nil given to that security by the petitioning creditor is wholly unreliable.
Section 44 of the Bankruptcy Act sets out the conditions on which a creditor may petition. Sub section (1) relevantly says:
(1)A creditor's petition shall not be presented against a debtor unless:
(a) there is owing by the debtor to the petitioning creditor a debt that amounts to $2,000 …
(b) that debt, or each of those debts, as the case may be:
(i) is a liquidated sum due at law or in equity or partly at law and partly in equity; and
(ii) is payable either immediately or at a certain future time; and
(c) the act of bankruptcy on which the petition is founded was committed within 6 months before the presentation of the petition.
On the basis of the material before me I am satisfied as to all of those matters.
Subsection (2) of section 44 provides that:
Subject to subsection (3), a secured creditor shall, for the purposes of paragraph (1)(a), be deemed to be a creditor only to the extent, if any, by which the amount of the debt owing to him or her exceeds the value of his or her security.
Subsection (3) provides:
A secured creditor may present, or join in presenting, a creditor's petition as if he or she were an unsecured creditor if he or she includes in the petition a statement that he or she is willing to surrender his or her security for the benefit of creditors generally in the event of a sequestration order being made against the debtor.
I sought to clarify at the outset of the hearing today whether the petitioning creditor petitions as a secured or an unsecured creditor. After taking instructions, Mr Cohen, on behalf of the petitioning creditor, informed me that the petitioning creditor petitioned as a secured creditor on the basis of the valuation of the security at nil. That was the reason for the deletion of the second sentence in paragraph 2 of Mr Corr's supplementary affidavit.
Subsection (4) of section 44 requires a secured petitioning creditor to set out in the petition particulars of his or her security. That is what Biron has purported to do. The assertion as to the nil value of the petitioning creditor's security is based more upon an absence of knowledge than knowledge. The affidavit of Bryan Collis filed in court on 26 July 2005 at paragraph 7 tells me that he has, despite several attempts, been unable to obtain a copy of any valuation of the subject land from the first mortgagee. The first mortgagee has not co‑operated with him. Mr Collis is one of the joint receivers and managers of Bassoak.
Mr Collis also states that he had, shortly before making his affidavit, spoken to a Mr Nick Malanos, a partner in the firm Star Dean‑Willcocks. Mr Malanos was then assisting the liquidator of Velowing and assisting Mr Dean-Willcocks’ conduct of investigations in relation to that liquidation. Mr Malanos told Mr Collis that after payment of the first mortgagee and the second mortgagee of the subject land, it was unlikely that there would be funds available for the applicant creditor. Bearing in mind that Biron's security is an unregistered equitable third mortgage, it is apparent why Biron formed the view that its security had a nil value.
As against that, Mr Anstee relies upon a statement he has received from a Mr Tony Cole, a registered valuer and also apparently a real estate agent. Exhibit R1 includes a purported valuation of the property by Mr Cole at a minimum value of $6.5 million as at 26 July 2005. Mr Anstee told me that he and Velowing purchased the property in August 2000 for $590,000. He explained that at that time the property was subject to negative values of approximately $6 million. In particular, there were derelict buildings on the property, there was no sewerage and the land was also contaminated.
Mr Anstee conceded in argument that the valuation from Mr Cole was on the basis of Mr Anstee's advice to Mr Cole that those negative values had been remediated. It does appear from the material submitted by Mr Anstee that some efforts have been made over the last five years to develop the subject land. There have been some improvements. There have also been efforts to enter into arrangements which would lead to the subdivision of the land for the purposes of the land being sold off either for development or in a developed state. It is reasonable to suppose that the land has increased in value over five years, although an increase to $6.5 million in that time would be a very substantial increase indeed.
Mr Cohen submitted that Mr Cole's valuation should be taken to be an on completion valuation. In other words, a valuation not of what the land would fetch in its present state at the present time but rather a valuation of what the land could fetch if the development plans for it come to fruition. There is considerable force in that submission, however, even if the value of the land were anything approaching the value given to it by Mr Cole, it would not follow that it is a fatal blow to the petition.
The valuation was not previously available to the creditor. Mr Anstee presented to me today a significant body of material which appears not previously to have been available to the petitioning creditor. Mr Anstee has also not been co-operative with the liquidator of Velowing, a state of affairs that has led to prosecutions under the Corporations Act 2001, as detailed in the affidavit of Martin David Hirst. Mr Anstee can hardly take advantage in these proceedings of a state of ignorance on the part of the petitioning creditor that he has played a large part in maintaining.
The learned authors of McDonald, Henry and Meek, at pages 2.2976 and 2797 deal with the question of the value of security in a petition by a secured creditor. The learned authors note, at paragraph 44.3.05, that if the creditor values the security as worthless or at nil, under the current version of s.44(3), he or she is not obliged to include a statement to the effect that he or she is prepared to surrender it for the creditors petition to be in appropriate form; see Re O'Leary; ex parte Bayne (1985) 61 ALR 674 at 682 to 683.
Of course, if there was evidence that the nil valuation was contrived in order to avoid the obligation to make the security available for the benefit of creditors generally, that would be a reason to dismiss the petition. However, it is not, in my view, necessary for me to determine that the petitioning creditor's estimate is more likely to be correct than the valuation placed on the property by Mr Anstee. It is only necessary for me to satisfy myself that the estimate is a genuine one. If the estimate is a genuine one, the court will not inquire into its correctness, although the result of the inquiry might be to show that the unsecured balance of the debt was not sufficient to support the petition: Re Button; ex parte Voss (1905) 1 KB 602, Re Scott; ex parte Moore [1892] 2 BCNSW 55.
The estimate relied upon by the petitioning creditor is reasonably based upon the advice of Mr Malanos, assisting the liquidator of Velowing. The facts are that the first mortgagee has entered into possession of the subject land and is unwilling to provide information to the liquidator of Velowing as to the mortgagee's valuation (if any) of the land.
The petitioning creditor is not in a position to make a reliable estimate itself. The petitioning creditor has relied upon the available advice from the liquidator of Velowing. It would be an optimistic assumption that as the holder of a third unregistered and equitable mortgage over land that appears to have been only partly developed, which may still be subject to obligations to remediate contamination and which appears to be subject to heritage orders, there could expect to be any recovery of money against that security. I find that the nil estimate made by the petitioning creditor in these circumstances was a genuine one and I will not further inquire into it.
I therefore reject the bases upon which the creditor’s petition is opposed and I make the following findings and orders. I am satisfied that the debtor committed the act of bankruptcy alleged in the petition. I am satisfied with the proof of the other matters of which sub-section 52(1) of the Bankruptcy Act requires proof. I make a sequestration order against the estate of Barry Francis Anstee. I order that the applicant creditor's costs, including reserved costs, if any, be taxed and paid in accordance with the Bankruptcy Act.

I note that under the Bankruptcy Regulations, a copy of these orders is to be given to the Official Receiver in Sydney within two days after the entry of the orders. I further note that the date of the act of bankruptcy was 22 February 2005. I further note that consent to act as trustee has been signed by Maxwell William Prentice and has been lodged with the Official Receiver in Sydney.

I certify that the preceding thirty-two (32) paragraphs are a true copy of the reasons for judgment of Driver FM

Associate:

Date: 9 August 2005