Burwell Technologies Pty Ltd v Hayward
[2007] FMCA 615
•2 May 2007
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| BURWELL TECHNOLOGIES PTY LTD v HAYWARD | [2007] FMCA 615 |
| BANKRUPTCY – Sequestration order – nature of the affidavit verifying the creditor’s petition raises the difficult issue of whether there has been adequate compliance with provisions of section 52(1)(a) of the Bankruptcy Act. |
| Bankruptcy Act 1966 (Cth) Evidence Act 1995 (Cth) |
| Re a debtor; Ex parte debtor [1935] Ch 353 Re Riggs; Ex parte Commissioner of Taxation (1986) 9 FCR 149 Trojan v Corporation of Hindmarsh (1987) 16 FCR 37 Re Lakatos; Ex parte Lakatos v Deputy Commissioner of Taxation (1996) 33 ATR 145 Sandell v Porter (1966) 115 CLR 666 Lewis (as liquidator of Doran Constructions Pty Ltd) v Doran [2005] NSWCA 243 Jones v Dunkel (1959) 101 CLR 298 Cain v Whyte (1933) 48 CLR 639 Re Noye; Ex parte Deputy Federal Commissioner of Taxation (1956) 18 ABC 77 |
| Applicant: | BURWELL TECHNOLOGIES PTY LTD ACN 001 262 013 T/AS BURWELL ABRASIVE BLASTING EQUIPMENT |
| Respondent: | ANTHONY HEATH HAYWARD T/AS ULTIMATE SPRAYED PROTECTIVE COATINGS & ANDREA LYNETTE TIDMARSH T/AS ULTIMATE SPRAYED PROTECTIVE COATINGS |
| File number: | BRG 959 of 2006 |
| Judgment of: | Burnett FM |
| Hearing date: | 14 February 2007 |
| Date of last submission: | 14 February 2007 |
| Delivered at: | Brisbane |
| Delivered on: | 2 May 2007 |
REPRESENTATION
| Solicitors for the Applicant: | Gregg Lawyers |
| The Respondent appeared on his own behalf |
ORDERS
A sequestration order be made against the estate of Anthony Heath Hayward T/A Ultimate Sprayed Protective Coatings and Andrea Lynette Tidmarsh T/A Ultimate Sprayed Protective Coatings
The Applicant’s costs of and incidental to the petition including reserved costs, if any, be taxed in accordance with the Federal Court Rules and paid from the estate of the Respondent in accordance with the Bankruptcy Act 1966.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT BRISBANE |
BRG 959 of 2006
| BURWELL TECHNOLOGIES PTY LTD T/A BURWELL ABRASIVE BLASTING EQUIPMENT |
Applicant
And
| ANTOHNY HEATH HAYWARD T/A ULTIMATE SPRAYED PROTECTIVE COATINGS & ANDREA LYNETTE TIDMARSH T/A ULTIMATE SPRAYED PROTECTIVE COATINGS |
Respondents
REASONS FOR JUDGMENT
In this application the petitioner creditor applies for sequestration of the estates of Anthony Heath Hayward and Andrea Lynette Tidmarsh who both trade as Ultimate Sprayed Protective Coatings. In the petition the Applicant alleges that the Respondents owe it a sum of $12,586.76 being monies owing under judgment given in the Townsville Magistrates Court on 22 May 2006. Further it alleges the Applicant does not hold security over the property of the Respondents and finally that at the time when the alleged act of bankruptcy was committed:
a)were personally resident in Australia;
b)were ordinarily resident in Australia;
c)had a dwelling house or place of business in Australia; and
d)were carrying on business in Australia either personally or by an agent or manager; and
e)were members of a firm or partnership carrying on a business in Australia by means of partners or agents or managers.
In the affidavit verifying the creditor’s petition sworn by Venerando Grasso deposes to those matters. However it also appears from Mr Grasso’s affidavit verifying the creditor’s petition that he is a credit manager in the employ of Austral Mercantile Collection Pty Ltd which is described as a mercantile agent for the Applicant. He says that as such he has access to the books and records of the Applicant and that he is authorised to make that affidavit.
It is well settled that in the exercise of the Court’s bankruptcy jurisdiction the Court is acting not merely inter partes but in the public interest and that being so the Court has a public function and duty to perform and is bound to perform it: InRe a debtor ex parte debtor[1].
[1] [1935] Ch 353 at 357 per Lord Hanworth MR
In saying that the court observed that in the context of the irregularity in the proceeding then before it, the parties by consent could not relax the duty or lessen the powers of the Court even if the debt and act of bankruptcy were admitted[2].
[2] Supra at 356.
The nature of the affidavit verifying the creditor’s petition raises the difficult issue of whether there has been adequate compliance with provisions of section 52(1)(a) of the Bankruptcy Act 1966 (Cth) which provision requires that the matters stated in the petition shall be proved and which would be proved by the affidavit verifying the petition. The matter of these affidavits was generally examined in Re Riggs; Ex parte Commissioner of Taxation[3] where Toohey J examined the adequacy of an affidavit sworn in verification of a petition to determine whether or not it met the requirements of the Act. In addressing the seminal question of what evidence the Court may accept His Honour observed at 150-151:
“Neither the Bankruptcy Act 1966 nor the Bankruptcy Rules requires in express terms that the traditional rules of evidence be observed. nevertheless there is long standing authority that those rules should be observed and in particular that hearsay evidence be rejected. In Re Roberts; Ex parte Mara (1958) 19 ABC 259 at 261 Manning J said:
“Evidence based on information and belief is admissible in certain interlocutory matters; it is never admissible in proceedings in which a final order may be made. I think it is essential that it should be remembered at all times, that the making of a sequestration order is a most serious matter which can have far-reaching consequences as far as the debtor is concerned, and that where allegations are sought to be proved, they must be proved by admissible evidence, otherwise orders will be refused.”
Manning J was echoing the views expressed in Re Cohen (A Bankrupt); Ex parte The Bankrupt v Inland Revenue Commissioners [1950] 2 All ER 36. At 37 Evershed MR said: “There is no special rule which entitles a petitioning creditor to depart, in seeking to establish his case, in any way from the ordinary rules of evidence.”
[3] (1986) 9 FCR 149.
There was in this case a question as to whether or not the affidavit by Mr Grasso constituted hearsay permitted by the Evidence Act 1995 (Cth). Accordingly to put the matter beyond doubt and given that the matter was one raised by me in the course of preparing reasons for judgment and not debated in open Court I allowed the Applicant an opportunity to address further submissions on the matter or alternatively to file additional material in support of the application. The Applicant chose to file further material and did so in the form of an affidavit by Warren Camage filed 16 March 2007. Mr Camage was authorised to swear to the matters alleged at paragraphs 1, 2, 3 and 4 of the Creditor’s Petition and did so.
In the circumstances I am satisfied of the proof of the matters required by s.5291 Bankruptcy Act and that prima facie the Court may make a sequestration order against the estate of the debtor.
s.52(1) Considerations
The Respondent who appeared for himself and for his wife swore in evidence in the course of the proceedings that whilst he acknowledged the indebtedness he did not consider himself to be insolvent. When examined he gave evidence concerning assets and liabilities as follows:
Assets:
Land with shed at Kelso $200,000
Motor vehicle – 1999 Prado wagon $20,000
Tools of trade $20,000 to $25,000
Accounts receivable $12,140 $257,140
Liabilities:
He listed his liabilities as mortgage
in respect of land $155,000
Loan in respect of shed on land $23,000
Chattel mortgage in respect of tools $8,000
Personal loan Gympie Credit Union $1,000
Dulux Protective Coatings $8,500
Era Polymers $12,000
Coates hire $5,000 $212,500
Surplus of Assets over Liabilities: $44,640
Concerning the receivable of $19,000 he gave evidence that he had performed $14,640 worth of work for a $47,000 contract (see exhibit 1) pursuant to a purchase order from Keenan Transport Group for $47,031.82) together with some other outstanding debt due from Keenan Transport approximating $4,500. Mr Hayward swore that the sum of $14,640 would not be due until the following Friday by which time he would have undertaken some additional works to perfect his entitlement to a part payment under his contract. In order to effect those additional works he anticipated further outlays of $1,500 together with generator hire of $1,000. In effect the immediate value of the receivable as at the date of his evidence was approximately $12,140.
In summary his net financial position was a surplus of $44,640. In addition to his general financial position he informed the Court that he conducted the business as an abrasive blastings and heavy industrial coatings applier. He stated that he had conducted such a business since September 2003. In broad terms the business was conducted from premises owned by Keenan Transport Group who appeared to be his principle customer. He swore that in the taxation year ending 30 June 2004 he paid no tax. He swore that he did pay tax in the financial year ending 30 June 2005 although he could not recall how much tax he paid or his gross taxable income. In the year ending June 2006 he swore that he made a loss. This had occurred because he was not able to work for a majority of the time because of the consequences of an injury which he had suffered. He claimed that the debt remained unpaid because of his physical incapacity.
Generally concerning his principle creditors, Esanda and Latrobe Credit, he confessed to being behind in respect of payments but stated that he had spoken to representatives of each of those companies who had afforded him some latitude concerning that indebtedness.
Under cross examination he conceded that he had no independent valuation evidence in respect of any of the assets to which he deposed to having owned. He stated that he was to undergo surgery the Monday following the hearing of the application and that as a consequence of that surgery he expected to be off work for a further six to eight weeks. His principle contention in response to those of Mr Gregg for the Applicant was that the other creditors had adopted a permissive approach to his indebtedness to them and he expected like concessions from the Applicant Creditor.
The onus lies upon the Respondent to satisfy the Court of his ability to pay his debts or that there is some other sufficient cause why a sequestration order should not be made: Trojan v Corporation of Hindmarsh[4].
[4] (1987) 16 FCR 37 at 48.
Further it is not sufficient merely to show that the debtor’s assets exceeded his liabilities as that matter alone would not satisfy the Court that the debtor is able to pay his debts as and when they fall due: Re Lakatos; Ex parte Lakatos v Deputy Commissioner of Taxation[5].
[5] (1996) 33 ATR 145
The widely accepted test of a person’s ability to pay his/her debts as and when they become due was stated by Barwick CJ in Sandell v Porter[6] His Honour stated[7]:
“- - insolvency is expressed … as an inability to pay debts as they fall due out of the debtor’s own money. But the debtor’s own monies are not limited to his cash resources immediately available. They extend to monies which he can procure by realisation, by sale or by mortgage or pledge of his assets within a relatively short time – relative to the nature and amount of the debts and to the circumstances, including the nature of the business, of the debtor. The conclusion of insolvency ought to be clear from a consideration of the debtor’s financial position in its entirety and generally speaking ought not to be drawn simply from evidence of a temporary lack of liquidity. It is the debtor’s inability, utilising such cash resources as he has or can command through the use of his assets, to meet his debts as they fall due which indicates insolvency.” (emphasis mine)
[6] (1966) 115 CLR 666
[7] at 670.
Likewise Giles JA in Lewis (as liquidator of Doran Constructions Pty Ltd) v Doran[8] noted:
“- - insolvency is, first and last, a question of fact “to be ascertained from a consideration of the company’s financial position taken as a whole. In considering the company’s financial position as a whole, the Court must have regard to commercial reality. Commercial realities will be relevant in considering what resources are available to the company to meet it’s liabilities as they fall due, whether resources other than case are realisable by sale or borrowing on security and whether such realisations are achievable.”[9]
[8] [2005] NSWCA 243
[9] At paragraph 80
In the present case it is apparent from the evidence given by the Respondent that his net asset position and that of his de facto is deteriorating. In saying that I was informed by the Respondent that the assets and liabilities detailed above were the collective body of assets and liabilities of the Respondents and that the Respondent, Andrea Lynette Tidmarsh had no other assets beyond those disclosed by Mr Hayward.
The only ameliorating consideration was the prospect of the debt due from Keenan Transport Group to the Respondents being paid within the foreshadowed fourteen days after the hearing of the application. If the debt were to be paid in full and those funds in turn disbursed to the Applicant it is possible that there would be sufficient funds to discharge the debt relied upon in support of the Creditor’s Petition together with the Petitioning Creditor’s costs and interest.
In the absence of any proper evidence concerning the value of the real estate and the motor vehicle it is difficult to form any conclusive view as to whether indeed the equity which the Respondents believe exist in those assets is indeed real or illusory. There was a tendency on the part of the Respondent Mr Hayward to maintain a position of “denial” in respect of his need to dispose of those assets in order to discharge his liability to the Applicant. I make that observation because Mr Hayward acknowledged his indebtedness and acknowledged his intention to repay the debt; however he failed to appreciate that perhaps the most effective way to achieve that outcome would have been to sell either of the principal assets which he owned and in respect of which the equity (from his analysis) appears to have been sufficient to discharge the indebtedness. Had the Respondents been legally represented I may have been prepared to infer upon the principles in Jones v Dunkell[10] that the reason no evidence was placed before the Court was because no positive evidence advancing the Respondents’ case on those matters could be put before the Court. However I am not prepared to draw such a conclusion in respect of an unrepresented litigant who has not sufficient insight into the nature of this application to appreciate the subtleties of such a legal principle. Equally however I am not affording his evidence concerning valuation of those assets any weight. In my view having regard to Mr Hayward’s overall position and in particular having regard to his recent history of unemployment by reason of injury; the prospect of a further extended period of unemployment by way of recovery time necessary following treatment in respect of that injury; and the nebulous evidence concerning his and Ms Tidmarsh’s general position of net worth on a notional “balance sheet” basis, I consider the Respondents are unable to pay their debts.
[10] (1959) 101 CLR 298
Other considerations
The classic statement concerning “other sufficient cause” was adopted by the High Court in Cain v Whyte[11] where the court approved a statement by Henchman J:
…That prima facie, on proof of the matters mentioned in section [52(1)], the Court will proceed to make an order for sequestration, and it is for the debtor to show some cause overriding the interest of the public in stopping of unremunerative trading, and the rights of individual creditors who are unable to get their debts paid to them as they become due. Something has to be put before the Court to outweigh those considerations before it can be said that sufficient cause is shown against the making of a sequestration order.”
[11] (1933) 48 CLR 639.
It appears apparent from the matters of which the Respondent informed the Court that there may be some prospect of the Applicant enforcing its judgment by other means. Whilst in some circumstances it may be sufficient cause for dismissing a petition to demonstrate the Petitioning Creditor has other equally good facilities for enforcing his or her judgment it is for the Court as a matter in its discretion to decide whether sufficient cause has been established: Re Noye; Ex parte Deputy Federal Commissioner of Taxation[12].
[12] (1956) 18 ABC 77.
The prospect of enforcement in this case by either enforcement proceedings taken in respect of real property or the chattels have not been explored by either the Applicant or Respondent. Such proceedings would not in any event be fanciful. Whilst I understood the Respondent’s evidence to be that the house was the subject of a mortgage it was not clear whether the motor vehicle was so charged. Although in giving his evidence Mr Haywood indicated the vehicle had a value of $20,000 he did not, at that time, indicate the prospect of it being subject to any loan obligation. He later indicated he had a number of personal loans, one being to Gympie Credit Union. To attribute those loans to any particular assets would involve mere speculation. As matters stand on the evidence I consider on balance that the vehicle is unencumbered but as I have earlier stated I am not entirely satisfied of its value.
Overall given the state of evidence proffered by the Respondent I am unable to do more but speculate as to whether or not there would in fact be more appropriate means of execution. In any event that matter itself is not determinative and when consideration is given to the broad and generally unsatisfactory way in which the Respondent has addressed the application with a paucity of evidence despite being afforded an opportunity to collect these matters together I am not satisfied that enforcement by other means has any realistic prospect of a successful outcome. I do not consider that this matter gives rise to other sufficient cause.
Summary
In conclusion I am satisfied that the Applicant has fulfilled the requirements section 52(1) for the making of a sequestration order against the estate of the Respondents. I am not satisfied that the Respondents at the time of the application or now are able to pay their debts. I am further not satisfied that the Respondents have demonstrated any other sufficient cause as to why a sequestration order ought not be made in terms of s.52(2). I allow the application.
I certify that the preceding twenty-four (24) paragraphs are a true copy of the reasons for judgment of Burnett FM
Associate: Bev Schmidt
Date: 2 May 2007
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