Boutros v Santa Sabina College Ltd
[2011] FMCA 164
•28 February 2011
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| BOUTROS & ANOR v SANTA SABINA COLLEGE LTD | [2011] FMCA 164 |
| BANKRUPTCY – Sequestration order – review of registrar’s decision – whether applicants able to pay their debts. |
| Bankruptcy Act 1966, s.52 Federal Magistrates Act 1999, ss.103 & 104 Federal Court Rules |
| Harris & Caladine [1991] HCA 9 Vaucluse Hospital Pty Ltd v Phillips and Anor [2006] FMCA 44 Australia & New Zealand Banking Group Pty Ltd v Foyster [2000] FCA 400 |
| Applicants: | CHALITA BOUTROS & ANTOINETTE BOUTROS |
| Respondent: | SANTA SABINA COLLEGE LTD |
| File Number: | ADG 101 of 2010 |
| Judgment of: | Lindsay FM |
| Hearing date: | 28 February 2011 |
| Date of Last Submission: | 28 February 2011 |
| Delivered at: | Adelaide |
| Delivered on: | 28 February 2011 |
REPRESENTATION
| Counsel for the Applicants: | Mr Eardley |
| Solicitors for the Applicant: | Russo & Partners |
| Counsel for the Respondent: | Mr Mitchell |
| Solicitors for the Respondent: | Fox Tucker Lawyers |
| Counsel for the Trustee in Bankruptcy: | Ms Abela |
| Solicitors for the Trustee in Bankruptcy: | Cowell Clarke |
ORDERS
The Application for Review is refused.
The Respondent’s application that the Applicants pay their costs of the review on an indemnity basis is refused.
The review applicants pay the respondent’s costs of and incidental to the review application on a party/party basis as may be agreed within fourteen [14] days or as taxed in accordance with Order 62 of the Federal Court Rules.
The review applicants pay the trustee’s costs of an incidental to the review application on a party/party basis as may be agreed within fourteen [14] days or as taxed in accordance with Order 62 of the Federal Court Rules.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT ADELAIDE |
ADG 101 of 2010
| CHALITA BOUTROS & ANTOINETTE BOUTROS |
Applicants
And
| SANTA SABINA COLLEGE |
Respondent
REASONS FOR JUDGMENT
This is an application for review of a sequestration order made by Registrar Christie on 12 January 2011 made in respect of both review applicants. Section 52 of the Bankruptcy Act 1966 relevantly provides that:
(1) At the hearing of a creditor’s petition, the Court shall require proof of:
(a) the matters stated in the petition (for which purpose the Court may accept the affidavit verifying the petition as sufficient);
(b) service of the petition; and
(c) the fact that the debt or debts on which the petitioning creditor relies is or are still owing;
and, if it is satisfied with the proof of those matters, may make a sequestration order against the estate of the debtor.
…
(2) If the Court is not satisfied with the proof of any of those matters, or is satisfied by the debtor:
(a) that he or she is able to pay his or her debts; or
(b) that for other sufficient cause a sequestration order ought not to be made;
it may dismiss the petition. …
So it should be noted that even if the Court is not satisfied with proof of the matters referred to in subsection (1), or if it is satisfied that the debtor is able to pay his debts, or that there is other sufficient cause why the sequestration order ought not be made, it still retains a discretion as to whether or not the petition is dismissed.
Registrar Christie on 12 January, in making the sequestration order, was exercising a power which was delegated to her by Rules of Court made pursuant to section 103 of the Federal Magistrates Act 1999. The review of the sequestration order is brought to this Court pursuant to section 104 subsection (3) of the Federal Magistrates Act1999.
This review must be conducted as a hearing de novo. That requirement arises from the very ability of the Court to delegate the power to make the sequestration order to the Registrar. Such a delegation is only constitutionally sound if the court exercising Commonwealth judicial power is seen to exercise the major responsibility for the exercise of judicial power. In this regard I refer to the discussion of this issue in the High Court decision of Harris & Caladine [1991] HCA 9, by Mason and Deane JJ, as their Honours then were, at paragraph 11.
The position was summarised by Riethmuller FM in Vaucluse Hospital Pty Ltd v Phillips and Anor [2006] FMCA 44 at [36]:
The power to make a sequestration order is a judicial power that must be exercised by a justice under the Constitution: The Queen v Davison (1954) 90 CLR 353. The ability of a court to delegate power to make a sequestration order to registrars (despite registrars not being justices within the meaning of Chapter III of the Constitution) is now without doubt: see Harris v Caladine [1991] HCA 9 and Taylor v Deputy Commissioner of Taxation [1999] FCA 195.of Chapter III of the Constitution), is now without doubt.
Essentially, the hearing of the application for the sequestration order must be commenced afresh. That does not mean that the parties cannot agree to put before the court in evidence material that was before the Registrar, whether in documentary form or otherwise. Here, I received, in addition to matters that were not before Registrar Christie, material that was filed before her.
The de novo hearing aspect of the matter, and the fact that the order is a sequestration order, gives rise to some little degree of complexity as to precisely what the Court’s obligations are in terms, especially, of the formalities, if I can put it that way. This hearing, I should indicate, is proceeded upon the contention that the applicants are each able to pay their own debts.
It has not proceeded upon the basis of any quibble, if I may use that expression, with Registrar Christie’s satisfaction of the matters referred to in section 52(1)(a) and it has not proceeded with respect to the other sufficient cause remedy that subsection (2)(b) talks about, but, nevertheless, I think I need to be satisfied today of the matters the Registrar needed to be satisfied of when the matter was before her.
In making an order either dismissing the application or allowing the application I will be making an order that impacts upon the sequestration made in January and I think in those circumstances it is appropriate, giving the de novo nature of the hearing, for me to require proof of the fact that the debt is still owing and that is a matter that has been established by affidavit put before me today without objection. It is not the affidavit that really is the proof of that, it is an uncontroverted fact that the amount owing as detailed in the creditor’s petition is still owing. There is no controversy about that but it is a matter, I think, that I ought to be, and I am, satisfied has been proven before me.
In terms of the relevant legal principles relating to the issue of solvency each counsel has put before me manifestly relevant authorities in relation to the matter. I regard the position with respect to solvency in this context as being most conveniently described by Heeley J in Australia & New Zealand Banking Group Pty Ltd v Foyster [2000] FCA 400 at [17] to [19].
17 The onus of proving sufficiency of assets lies on the respondent. It is not sufficient for the respondent simply to establish that he has assets which exceed his liabilities in value. It must also be established that the assets are available to be realised and that they are capable of ready realisation. If a debtor is able to pay his or her debts, but is recalcitrant, the creditors may resort to other remedies, such as execution against property and garnishee proceedings, but not to sequestration…
And at 19:
Under s 52(2)(a) the respondent must satisfy the Court that he is "able to pay his ... debts", including liabilities: s 5(1). In my view, the subsection refers to a state of affairs which requires account to be taken of debts which will fall due in the reasonably immediate future pursuant to existing obligations: Bank of Australasia v Hall [1907] HCA 78; (1907) 4 CLR 1514, 1527-1528 as well as debts which are presently due and payable. However, whether that is so or not, for the reasons explained by Katz J in International Alpaca Management Pty Ltd account needs to be taken, if not in assessing solvency, then in the exercise of the discretion whether or not to dismiss the petition, of liabilities which will become payable in the reasonably immediate future.
Now, it is plain from reading Registrar Christie’s Reasons that she was in something of a dilemma on 12 January when the matter was before her in relation to the clarity of the information adduced in respect of the financial position of Mr and Mrs Boutros, and I do not propose to go into her Reasons in any detail. They are detailed, though, in terms of her pointing out the discrepancies and, in particular, the incompleteness associated with the picture that was presented to her by Mr and Mrs Boutros of their financial position.
She summarises, on page 7, of her Reasons the asset position and essentially that has not changed. There are one or two amendments to that but essentially the position has not changed and it was the case before her, and it remains the case before me, that the information that is made available by the applicant in respect of his assets and liabilities is, with one exception, simply in the form of assertion.
I suppose we have independent corroboration of the amount owing to Santa Sabina College Limited, of course, from the creditor’s petition itself, but apart from a valuation of the real property at Cosgrove Road, on which the waste recycle centre, as I understand it, is also present, the value of all of the other assets and all of the other liabilities which Mr and Mrs Boutros want me to have regard to are simply – the quantum of them - is simply put by assertion.
That might have been to a degree understandable in the way in which the proceedings came before Registrar Christie – and I only say “to a degree” because it is plain that the Registrar adjourned the matter on at least one occasion to enable Mr and Mrs Boutros to put additional affidavit material before her.
But, whatever justification for the incompleteness of the information then it is certainly not the case now as we deal with the matter at the end of February and I, at the risk of repeating myself, can only express my surprise that in an application of such importance to Mr and Mrs Boutros, and particularly where, theoretically at least, there remains the possibility of their net asset position being in excess of their net debt position, it is surprising in the extreme that they have not taken the opportunity to put before the Court with greater clarity information in relation to their financial position in terms of assets and liabilities.
Before I turn to the specifics of the asset and liability position on which they invite me to assess their contention that they are solvent I should note one matter that was put to me by Mr Mitchell in submissions, and that is that it remains the case, as it did before Registrar Christie, that I am just given no information about their income position.
This is not just a matter of looking at assets and liabilities on the question of solvency. It is the ability to service debt. The ability to meet debts as and when they arise. Some information relating to their income position it would have been thought would have been adduced, whether in the form of notices of assessment, taxation returns, other information in relation to wage and salary earnings, profit and loss statements of the company concerned, Boutros Constructions Pty Limited. They are content for me to assess their solvency position on the basis of giving me no information at all in relation to their income.
As far as assets and liabilities are concerned, as I say, we have the same valuation of the Crosgrove Road property as was put in evidence before Registrar Christie, which suggests a approximate value – there is a range of values given – of $2 million.
Other property in Lebanon is referred to; it is said to be worth one and a half million dollars. There is no information at all made available in relation to that property. The shares in the company, again that is just something that they are content to demonstrate by assertion and the value of the recycling business at two and a half million dollars is simply asserted.
Whereas at the hearing before the Registrar their lack of familiarity with the nature of these proceedings and their being unacquainted with the relevant tests for solvency and the fact that the onus is upon them might be matters that they could point to in mitigation of the absence of this material, that is not an excuse that it is available in the context of this review hearing that is proceeding before me.
Nothing at all in documentary form is produced in respect of any funds in the bank, investments or in relation to the value of their motor vehicles or household contents. In terms of liabilities there is an amount of – and I am working here as a base point off paragraph 10 of the affidavit of Ms Fleming, one of the two trustees. In terms of liabilities, Mr Boutros, to his credit with some candour, has indicated that the amount owing is more than is outlined in that paragraph of Ms Fleming’s affidavit and he puts the debt at approximately $1.1 million.
That debt, which is secured over the Cosgrove Road property, is also the subject of a collateral form of security in the form of a floating charge over the company’s assets and I am told that a receiver has been appointed in relation to that company. Mr Eardley gave me the background to that difficulty and it arises, apparently, in relation to some capitalisation of interest that was owing. The position remains that the debt to Nationwide Capital Group is something in excess of $1 million.
There is the debt to the petitioning creditor. There is a debt to Huntley Heritage Pty Limited in the amount of $12,708 and, again, we know this because of Mr Boutros’ candour, there is a debt to the National Australia Bank in respect of a credit card in the amount of $3,000.
Now, the authorities establish that the test for solvency is very much more than just looking at a balance sheet. One also has to have regard to the extent to which the assets are capable of realisation and realisation not necessarily in the immediate future but over a period of time which will accommodate and facilitate the orderly discharge of indebtedness. I have no information about that at all. I have no information in relation to the marketability of the property at Cosgrove Road. I can go further than that. I have no information at all indicating any proposal or willingness to sell that property on the part of either Mr or Mrs Boutros.
So it is not to the point for the applicants simply to point to what is, or what might be taken, to be a notional excess of assets over liabilities even if I work on the basis of the only asset in respect of which there is independent evidence of value, and that is the real property here in Australia. Even if I limit myself to that asset we have a notional excess of asset over liability and a marked excess of asset over liability but, in the absence of any evidence as to those assets being able to be liquidated in an orderly fashion in the immediate future or evidence of any willingness to do so, it does not take matters very far.
There is another asset that has not made its way into that table in Ms Fleming’s affidavit and it is money in Lebanon and that was a matter of some controversy before Registrar Christie, and is a matter of some controversy before me. Again, I am in the predicament of being left to speculate as to what the true position is in respect of these funds.
Registrar Christie was told about the existence of an account in Lebanon of, I am told, and I accept, the contention is that it has in Australian dollars, a value of about $71,000. The fact that it was something of which she was notified quite late in the proceedings before her was the subject of some remark but, in any event, information was made available to her about it. I am told that that is a sum of money that is still available. A document was tendered indicating that an amount equivalent to that in Lebanese currency was invested on 13 August 2010 and matured on 10 February 2011.
What complicates that though is another document to which Mr Boutros wants me to have regard today and that is a document from the Westpac Bank indicating that a sum of money was received from Lebanon through an entity that shares at least two of his names, (I am prepared to assume is an entity associated with him), and that is an equivalent amount in Australian dollars of $60,000. That is not a sum of money which Registrar Christie was told about and I am entitled to ask myself why she was not told about that.
One of the explanations might be that it is the same amount of money that is referred to in exhibit 1. I do not know that. It is part of the predicament I have been left in by the applicants but I am obliged to speculate about that. That remains a possibility. The other possibility which is that it is a separate sum of money and Registrar Christie was simply not informed about it. If I were to accept that explanation it raises as many concerns as it answers.
I am told that that money has not been accessed by the trustees. They say they have made efforts to procure it. That is not a fact upon which I think I can rely. I do not think it was an agreed matter and nothing was before me in any documentary or formal way in relation to that assertion. But the existence of this money, the amount of it, still remains, at the conclusion of the proceedings before me, as it did following the conclusion of proceedings before Registrar Christie, something of an enigma.
It is difficult for me to have any regard to it in the context of this assessment of solvency. The reference to that money was tied up though with a submission that was made that arises from some circumstances relating to the judgment debt. The judgment debt was obtained by summary judgment. That is not a matter of controversy, that it was the result of a summary judgment application.
I am told that there are proceedings afoot in the Supreme Court to set aside that summary judgment. Mr Mitchell makes the point that that ordinarily that would not be thought to be the appropriate remedy in respect of a summary judgment but, in any event, the fate of such an application is unknown. I am told that on the same day on which Registrar Christie made the sequestration orders there was faxed to the Court, (and I should emphasise it has not been suggested that it was tendered in evidence or handed up to her in a way short of a tender), was a document that evidenced an instalment order made by the Burwood Local Court.
Even there complications arose. There appeared to be an error in the form of the order that whereas it was intended that the formal order reflect an instalment amount of $5,500, the order, when it was produced, spoke of only $500 and, ultimately, the applicant, Mr Boutros, conceded that he was aware of that. However, as I understood the submission, it was a contention that as of 12 January when Registrar Christie made the order, and on the assumption that the order was made in the Burwood Local Court before Registrar Christie made her sequestration order, that there was some way in which that order impacted upon this issue as to whether or not Mr and Mrs Boutros were able to pay their debts. The contention was that the debt, as of the point at which the sequestration order was made, was less than the judgment debt.
I do not accept that. There has been nothing put to me about the order for payment by instalment that is indicative of it being even intended to operate as a stay of the judgment that was obtained in summary form in December of last year. So even making the assumption that the instalment order preceded the sequestration order in time – and I hasten to add that I do not know that there is necessarily any basis for making that assumption – but assuming that I am not satisfied that the making of that order by the Burwood Local Court impacted in any way upon the debt on which the petitioning creditor relied as still being owing. It did not transform it from the original judgment debt into a debt of $5,500 or $500 or any other amount. I am told, in any event, that the instalment order is a decision that has subsequently been set aside.
My remarks in relation to this aspect of the matter are somewhat hesitant because it was not entirely clear to me the basis upon which this matter was being advanced. For a time I thought it might be being advanced in relation to a proposition that it meant that I should not be satisfied of the matters pursuant to section 52(1)(a), but one of the matters being stated in the petition is that a debt in that amount – the amount of the judgment debt – is still owing.
But that ultimately was not promoted before me in any way. The de novo nature of today’s hearing would mean that the relevant date for the assessment of such an argument in any event would be today’s date and, as of today, the payment by instalment order, I am told, and I do not think this was controversial, has been set aside.
I thought, perhaps, it might have also been something that was being pursued pursuant to subsection (2)(b) of section 52, in that it indicated some other sufficient cause as to why the sequestration order ought not to have been made and, in fact, to be fair to the way in which the argument presented, it might have been a partial reliant on (a) to the extent that the argument was that had Registrar Christie been aware of the order she would have not made the sequestration order, which in turn would have facilitated the procuring of that money from Lebanon and the payment of the judgment debt. I think that is how it is being put.
For the reasons I have given there are far too many assumptions made within that argument for me to be able to rely on it. As far as the matter going to solvency it is difficult to see the significance of the events relating to that order of the Burwood Local Court. Ultimately the reasons why I do not regard that as a matter that assists me in allowing the application that Mr Boutros makes is because that I do not think that the order, even during the period for which it was current, had any impact upon the central question, which was the fact that the debt, which was the subject of that instalment order, remained due and owing throughout all the relevant periods of time.
In determining this matter I have tried to bear in mind that it is important to look at the underlying merits of the application and I have done my best to ensure that the applicants are not prejudiced by what must be said to be their very poor presentation of information in relation to their asset position.
Counsel for the applicants has done his best to put their position on the basis of the data that Mr and Mrs Boutros have seen fit to provide to him and to provide to the Court but the uncertainties associated with their financial position are really a function of the lack of detailed information they have provided in relation to their assets and liabilities and the complete absence of any information whatsoever in relation to their income.
I should add, for the sake of completeness, that, in an affidavit that was filed in November and was therefore before Registrar Christie, Mr Boutros explicitly indicated that he was then in the course of instructing someone, I take to be a chartered accountant, to prepare a detailed statement of his assets and liabilities. That has never been forthcoming; he says this omission is a function of the sequestration order but the affidavit was sworn on 24 November and the sequestration order was not made until 12 January.
In any event it is just symptomatic of the paucity of information that is available to me to assess this critical issue in relation to their solvency.
Having regard to the information that is available to me and for Reasons that I hope I have made plain in these ex tempore remarks, Mr and Mrs Boutros have not satisfied me that they are able to meet their debts and, accordingly, the application for review is refused.
I turn now to the application by the respondent for indemnity costs.
I certify that the preceding forty-five (45) paragraphs are a true copy of the reasons for judgment of Lindsay FM
Date: 15 March 2011
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