Black v Smith
[2005] FMCA 1420
•30 August 2005
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| BLACK & ORS v SMITH | [2005] FMCA 1420 |
| BANKRUPTCY – Petition for a Sequestration Order – where the respondent debtor seeks the Court’s discretion not to make a sequestration order pursuant to s.52(2) of the Bankruptcy Act – where the respondent debtor contends that his financial status is such that an order would have no utility – where the respondent debtor has no assets available for the unsecured creditor – whether it is appropriate for the court to make a decision regarding the strength of a security – whether the court should act on public policy grounds where the estate of the respondent debtor is clearly insolvent. |
| Bankruptcy Act 1966, s.52 McDonald Henry& Meek, "Bankruptcy Law and Practice” Federal Court Act and Rules Bankruptcy Regulations |
| Re Betts; Ex parte Betts (1897) 1 QB 50 Radich v Bank of New Zealand (1993) 45 FCR 101, 116 ALR 676 |
| Applicants: | STUART ALEXANDER BLACK, VAUGHAN LEE CHAPMAN & ANDREW PHILIP CARTER T/A CHAPMAN & EASTWAY |
| Respondent: | PETER LESTER SMITH |
| File Number: | SYG 3753 of 2004 |
| Judgment of: | Raphael FM |
| Hearing date: | 30 August 2005 |
| Date of Last Submission: | 30 August 2005 |
| Delivered at: | Sydney |
| Delivered on: | 30 August 2005 |
REPRESENTATION
| Solicitors for the Applicant: | Stephen Blanks & Associates |
| Counsel for the Respondent: | Mr F Assaf |
| Solicitors for the Respondent: | Brown Wright Stein |
ORDERS
A sequestration order be made against the estate of Peter Lester Smith.
The applicant creditor’s costs (including reserved costs) be taxed in accordance with the Federal Court Act and Rules and paid from the estate of the respondent debtor.
The Court notes that the date of the act of bankruptcy is 21 December 2004.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 3753 of 2004
| STUART ALEXANDER BLACK, VAUGHAN LEE CHAPMAN & |
Applicants
And
| PETER LESTER SMITH |
Respondent
REASONS FOR JUDGMENT
In this matter, which is the hearing of a petition for a sequestration order against the estate of Peter Lester Smith, the respondent debtor seeks the Court's discretion under s.52(2) of the Bankruptcy Act 1966 (the “Act”) not to make a sequestration order against him on the grounds that his financial status is such that such an order would have no utility. The debtor is a farmer who owns two properties, both of which have been put on the market for sale recently and one of which has sold. The debtor claims that he has debts of approximately $1.96 million and that, at best, these properties could be sold for approximately $1.4 million with a forced sale value of approximately $1,077,000. The debtor deposes to the fact that the properties are secured to a value of approximately $1.5 million.
Although some of the figures stated above are not accepted by the creditors I have accepted them for the purposes of this decision. There is authority to support the type of argument put by Mr Assaf on behalf of the debtor. Re Betts; Ex parte Betts (1897) 1 QB 50; Radich v Bank of New Zealand (1993) 45 FCR 101, 116 ALR 676; and the other cases cited in McDonald Henry& Meek, "Bankruptcy Law and Practice” at 2913.
The authorities make it clear that the Court will not exercise its discretion in this type of matter lightly. In particular, the Court should note that:
“It may only be after sequestration, with a full examination by a trustee in bankruptcy that, including a possible public examination of the bankrupt and other person, assets come to light.” [Radich]
In this case it is not a question of no assets; it is a question of no assets being available for unsecured creditors. This is not a case, as Betts was, where a sequestration order has already been made. The existence of assets and the possibility that those claiming security over them may not be in the position that they thought they were is, to my mind, a good reason for declining to exercise my discretion in the manner suggested by Mr Assaf.
In this case I am advised that there is a potential dispute between an alleged secured creditor for a figure of over $500,000 and if her debt is found to be unsecured then there will undoubtedly be some money available provided the properties are sold advantageously. It is not for this Court to make a decision about the strength or otherwise of a security. The very fact that there may be a dispute as to this would indicate that the court ought to act on public policy grounds to sequestrate the estate of a person who is so clearly insolvent.
For this reason I did not hear Mr Blanks for the applicant creditor or allow him to cross-examine the witnesses for the debtor because I felt that the case should be looked at on its highest level and if it did not pass the required tests on that level there was little point in going into evidence. I do not think it passes that test. I think it is more important that the debtor's affairs be investigated rather than that he be allowed to escape sequestration purely because he says that no unsecured creditor will recovery anything.
Mr Blanks has provided me with the required affidavits of final debt and search and 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 required by s.52 of the Act. I make a sequestration order against the estate of Peter Lester Smith. I order that the applicant's costs, including any reserved costs, be taxed and paid from the estate of the respondent debtor in accordance with the Federal Court Act and Rules. Under the Bankruptcy Regulations a copy of the sequestration order is to be given to the official receiver in Sydney within two days. The Court notes that the date of the act of bankruptcy is 21 December 2004.
I certify that the preceding seven (7) paragraphs are a true copy of the reasons for judgment of Raphael FM
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