Buchanan, K.R. v Esanda Finance Corporation Ltd

[1994] FCA 834

6 3 ~ j 7 9

JUDGMENT NO. ........ ....u.n rn.s.n-

IN THE FEDERAL COURT OF AUSTRALIA	) )
GENERAL DIVISION	) No.VP 1265 of 1993
BANKRUPTCY DISTRICT OF THE
)
STATE OF VICTORIA	)

RE:	KENNETH RAYMOND	and
WONNE RAE BUCHANAN

Judgment Debtors

- and -

EX PARTE:  ESANDA FINANCE CORPORATION LIMITED

Petitioning Credito

JUDGE :	Heerey J
DATE :	21 October 1994
PLACE :	Melbourne

EX TElWORE REASONS FOR JUDGMENT

The debtors seek an adjournment of the creditor's petitio
a month to pursue a further adjournment for 12 months for the
purpose of embarking on some litigation in the Supreme Court, to
which I will refer in a little more detail later.

The judgment debt on which the petition was founded was obtained in the Melbourne Magistrates Court on 5 March 1993 for

thelr assets."

$13,184.40. A bankruptcy notice was subsequently issued and

served, as a result of which an act of bankruptcy was committed on 19 July 1993. None of this is disputed, nor is there any dispute that the debtors are insolvent.

M r Kenneth Buchanan swore an affidavit on 9 June 1994, in which he stated that

"the liab~lities of both judgment debtors s~gniflcantly exceed

and further that he has

"negligible amount of property or assets and my wlfe's positlon

is the same."

A statement of affairs filed by the debtors disclosed that they

had unsecured creditors amounting to $543,622, of which only about $14,000 was disputed. It was further stated in the statement of affairs that there were contingent liabilities to Equus Financial Services Limited under contracts of guarantee in the sum of $15,678,236.

The proposed litigation to which I refer was put forward as a ground for the adjournment of the petltion when it came on before Deputy Registrar Agnew on 17 March 1994. The petition was then adjourned to 18 April, and amongst other things the Deputy Registrar ordered that during the adjourned period the debtors were to provide to the petitioning creditors solicitors:

"That during the period of adjournment the debtors satisfy the

petitioning creditor that

(a)	they have solicitors actlng for them m an action by Club Resorts Lim~ted Group against Equus Financial Servrces
Corporation; and

(b) such action has reasonable prospects of success."

The debtors were involved in the development of a time share resort. They owned, through their family trust company, Grange Lea Nominees Pty Limited, something over 50 per cent of the shares in Club Resorts Limited, which at one time was listed on the Stock Exchange but which was deregistered on 6 July 1994. That latter company had some operating subsidiaries, one of which was Vacation Ownership Pty Limited, which went into liquidation in August 1992. Its debts were guaranteed by the debtors.

There had already been proceedings in the Supreme Court, No 6824 of 1992, which were brought by Club Resorts Limited against Equus Financial Services Limited. On 11 May 1992 that pzoceedlng was

by consent dismissed and the plaintiffs were ordered to pay the

defendant $12,500 costs. The only other material about the merits of the claim against Equus Financial Services is on a memorandum of advice of M r B.W. Collis QC, and Mr D. Connell of counsel, which is undated but which from circumstantial evidence would appear to have been provided some time between 19 January and 2 May 1994.

The opinion discusses the pctential of a claim against Equus, which was a financier of the time share development. The problem seems to have been that more than the expected number of purchasers defaulted. The litigation seeks to make Equus liable for that. In the opinion of counsel (I note the singular pronoun is used although the names of both senior and junior counsel

appear at the end) it is said: 

"In my opinion, if the company organasation is to do anything constructave to reclaim the substantial losses that have been inflicted upon it, it must be able to prove that Eqllus set out deliberately to bring about a state of affaars whereby it was able to wind up the company's organisataons, corporations and then take over its busaness. Furthermore, it must prove in doing this it acted wrongfully and/or malacrously. Much work remains to be done but there are a number of salient factors which clearly assist the company organisat~on in the proof of such matters. "

There then appeared a number of matters relating to the conduct

by Equus of the lending and recovery of debts from customers, but

including the following:

"(g) The fact that the company's organrsatlon solrcitor, Mr

Burden-Smlth is now Equus' solicltor."

Counsel continues:

"Thrs rs a potential clarm rnvolvrng vast sums of money. Much work, collecting evidence, etcetera, needs to be done, but once done I can foresee the posslbrlrty of a number of successful claims which could be brought: breach of contract claims under the Trade Practices Act, torts involving the intentlonal inflictron of economic loss such as conspiracy, rnterference wrth contractual relations and an act~on for rnterference wrth a trade

or bua~ness by unlawful means."

-

No steps have been taken to commence such litigation, nor is there any evidence of the collection of material of the kind indicated by counsel. There is, as counsel for Equus points out, the more fundamental problem that quite apart from the obvious lack of certainty of such litigation, it could only be brought by companies who have been deregistered. Even assuming success in difficult, risky and expensive litigation, the prospects of any benefits flowing through to the debtors themselves as shareholders add another layer of contingency, doubt and speculation.	The application for the short adjournment of one month was based	largely on the fact that Burden-Smith had ceased to act for the
debtors on 5 October and their present solicitors did not come into the matter until 14 October.
I must say, frankly, my overall impression of this case is that there has been procrastination to the point of humbug and the
prospect of a serious litigation of a claim which mlght reinstate the debtors to a solvent state is quite hopeless. I do not think it is in anybody's interest to protract this matter any further. I will dismiss the application for an adjournment.
There will be a sequestration order against the estate of the debtors. Order that the petitioning creditors costs of and incidental to the petition in this matter, including reserve costs, be taxed and paid in accordance with the Bankruptcy Act

a	1966. The date of the commission and the act of bankruptcy is
19 July 1993. I direct that leave be granted to amend the
petition and I dispense with reservlce.

I certify that this and the

preceding four (4) pages are a true copy of the reasons for judgment of his Honour

Mr Justice Heerey.

ADDearances

a Counsel for the judgment debtors: D Connell

Solicitor for the judgment	Rigby Cook
debtors	r
Counsel for the petitioning	A W Ellis
creditor:
Solicitor for the petitioning	Mills Oakley McKay
creditor:
Counsel for supporting creditor:	J Nolan
Solicitor for the supporting	Alan Herskope
creditor:
Date of hearing:	21 October 1994

JUDGES' CHAMBERS
FEDERAL COURT OF AUSRALIA
450 LITTLE BOURKE STREET

MELBOURNE, 3000

11 November 1994

Sonia Cornale
Federal Court of Australia
Principal Registry
Law Courts Building
Queens Square

SYDNEY NSW 2000

Dear Sonia,

Re: K R Buchanan & Anor ex Darte: Esanda Finance Cornration

No. VP 1265 of 1993

I enclose a copy of the judgment delivered by his Honour Mr

Justice Heerey in the above matter on 21 October 1994.

A diskette record of the judgment is also enclosed.

This judgment is not for general distribution.

A

Associate to Heerey J