CCC Financial Solutions No 3 Pty Ltd v Ely
[2023] FedCFamC2G 1207
•15 December 2023
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 2)
CCC Financial Solutions No 3 Pty Ltd v Ely [2023] FedCFamC2G 1207
File number: ADG 22 of 2023 Judgment of: JUDGE BROWN Date of judgment: 15 December 2023 Catchwords: BANKRUPTCY – Application for review of a sequestration order made by a registrar – sequestration order sought on the basis of unsatisfied judgment debts – applicant asserts there is sufficient cause for the sequestration order to not be made – ability to pay debts as they fall due – act of bankruptcy – hearing de novo – nature of review of sequestration order Legislation: Bankruptcy Act 1966 (Cth) ss 40, 41, 43, 49, 52
Federal Circuit & Family Court of Australia Act 2021 (Cth) s 254, 256
Federal Circuit & Family Court of Australia (Division 2) (Bankruptcy) Rules 2021 (Cth) Schedules 1, 3, Div 13.2,
Pt 1, rr 2.02, 13.01
Federal Circuit & Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth) r 21.04
Federal Court Rules 2011 (Cth) Sch 3
Cases cited: Australia & New Zealand Banking Group Pty Ltd v Foyster [2000] FCA 400
Deputy Commissioner of Taxation v Bayeh (1999) 100 FCR 144
Re Svir; Ex parte Commissioner of Taxation (1998) 83 FCR 314
Robson as former trustee of the estate of Samsakopoulos v Body Corporate for Sanderling at Kings Beach CTS 2942 [2021] FCAFC 143
Sandell v Porter (1966) 115 CLR
Totev v Sfar [2008] FCAFC 35
Wren v Mahoney (1972) 126 CLR 212
Division: Division 2 General Federal Law Number of paragraphs: 123 Date of hearing: 5 December 2023 Place: Adelaide Solicitor for the Applicant: Ms Trebilcock, EMT Legal Solicitor for the Respondent: Mr Haddad, Marshalls Dent Wilmoth Lawyers Solicitor for the First Interested Party: Mr Sankey, Wallmans Lawyers Solicitor for the Proposed Trustee: Mr Ryder, O’Loughlins Lawyers ORDERS
ADG 22 of 2023 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
BETWEEN: CCC FINANCIAL SOLUTIONS NO 3 PTY LTD
Applicant
AND: PAUL ELY
Respondent
ORDER MADE BY:
JUDGE BROWN
DATE OF ORDER:
15 DECEMBER 2023
THE COURT ORDERS THAT:
1.The application for review of the Registrar’s decision filed on 29 June 2023 be dismissed.
2.The orders of Registrar Parkyn of 8 June 2023 are affirmed.
3.The sum of TWENTY THREE THOUSAND DOLLARS ($23,000.00) held in the Federal Court Official SPM Exempt Litigants Fund be released to the trustee.
4.The respondent is to pay the costs of the applicant and the trustee incurred in these proceedings as agreed or taxed, to be paid out of the estate of Mr Ely.
Note: The form of the order is subject to the entry in the Court’s records.
Note: The Court may vary or set aside a judgment or order to remedy minor typographical or grammatical errors (r 17.05(2)(g) Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 17.05 Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth).
REASONS FOR JUDGMENT
JUDGE BROWN:
INTRODUCTION
These proceedings arise under the provisions of the Bankruptcy Act 1966 (Cth).[1] Paul Ely lives at an address in Seabrook, in suburban Melbourne and has done so throughout the period of the various transactions described in these reasons for judgment. The petitioning creditor is CCC Financial Solutions No. 3 Pty Ltd.[2]
[1] Hereinafter referred to as ‘the Bankruptcy Act’ or ‘the Act’.
[2] Hereinafter referred to as ‘CCC’.
It is CCC’s position that Mr Ely is indebted in respect of two loan agreements CCC has with him, which relate respectively to a credit card debt and a personal loan. As a consequence of these debts, it secured a judgment debt, against him, in an amount of $24,295.03, together with interest accrued in an amount of $579.09, in the Magistrates’ Court of Victoria, on 14 February 2022.
This judgment debt remained unsatisfied and led to the issue of a bankruptcy notice, by the Official Receiver, on 12 May 2022, which was served on Mr Ely on 22 July 2022. The notice required the payment of $24,874.12, within 21 days of the service of the notice upon Mr Ely, otherwise bankruptcy proceedings would be instituted against him.
From CCC’s perspective, the bankruptcy notice was not satisfied. As a result, on 8 February 2023, it filed a creditor’s petition in the South Australian Registry of the Federal Circuit & Family Court of Australia,[3] which was made returnable on 21 March 2023.
[3] Hereinafter referred to as ‘the Court’.
The petition came before a registrar of the Court, who after a further adjournment of the petition on 12 April 2023, determined, on 8 June 2023, that Mr Ely had committed an act of bankruptcy and consequently ordered the sequestration of his estate and directed that the petitioner’s costs, in an amount of $7,893.00, be paid out of his estate. Mr Maris Rudaks was appointed the trustee.
On 30 June 2023, Mr Ely sought to review the decision of the registrar and have it set aside. In this context, he seeks the dismissal of the petition on two primary bases, which can be summarised in general terms as follows:
·He has been the victim of a fraud committed by his former wife, now deceased, who forged two applications for finance, of which he was unaware, using his name and signature; and
·He is not insolvent and is able to pay his debts, including those which precipitated the issue of the relevant bankruptcy notice against him.
As will be detailed in greater detail, in due course, the hearing before me is a hearing de novo or, in lay terms, one requiring a fresh hearing of the relevant petition. Accordingly, the success of the application does not depend on Mr Ely demonstrating some error of law in the approach of the registrar.
In these circumstances, it is his submission that he has demonstrated that there exists sufficient cause demonstrating why the sequestration order should not have been made pursuant to the provisions of section 52(2) of the Act in the context of the hearing de novo, which has taken place before me.
Involved in that hearing, besides CCC, was another creditor of Mr Ely, Pioneer Credit Solutions Pty Ltd.[4] Mr Rudaks also appeared at the hearing as an amicus curiae. Pioneer support CCC and have indicated that, if, for whatever reason CCC are unable to proceed with the current petition, it will seek to be substituted, as the petitioning creditor, for it, pursuant to the provisions of section 49 of the Act.
[4] Hereinafter referred to as ‘Pioneer’.
Mr Rudaks takes a neutral position in respect of Mr Ely’s application, neither supporting nor opposing it. He has provided evidence of the costs incurred by him thus far in administering Mr Ely’s estate.[5] These amount to just over $23,000.00. His evidence is that he has kept his cost to a minimum since the application for review has been filed.
[5] See affidavit of Maris Rudaks filed 30 November 2023.
Mr Rudaks has also deposed that Mr Ely is in default in respect of his obligations under the Act to provide him with a statement of his financial affairs, due to him utilising an outdated form. However, Mr Rudaks has been able to glean some information regarding Mr Ely’s current circumstances, which can be summarised as follows:
·Besides the debts to CCC and Pioneer, Mr Ely owes Credit Corp Services Pty Ltd the sum of $23,742.96;
·Mr Ely’s major asset is the Seabrook property, which has been estimated to be worth between $700,000.00 and $750,000.00;
·The Seabrook property is subject to a mortgage in favour of Westpac in an amount of $582,209.00;
·In August 2023, Westpac indicated to Mr Rudaks that the mortgage was in default with arrears of $12,474.19 and monthly instalments required of $4,330.00;
·Mr Rudaks has lodged a caveat on the property to safeguard the interests of Mr Ely’s creditors;
·At the date of the sequestration order, Mr Ely had cash in a bank account amounting to $5,759.00.
Mr Ely has provided evidence regarding his current circumstances. He has deposed to suffering depression, an anxiety condition and post-traumatic stress disorder. These relate to the tragic death of his mother in a motor vehicle accident in May of 2018. In addition, he has lost contact with his infant daughter, who was abducted by her mother to Thailand in December of 2018.
He claims that these various vicissitudes led to him being neglectful of his financial affairs, including those which found the current proceedings. Because of his various psychiatric impairments, he is currently in receipt of a Commonwealth disability pension and is otherwise dependent on his current wife, Benyada Ely for financial support. His pension is $320.00 per fortnight.
Mr Ely has recently deposed that he has been able to negotiate a payment plan with Westpac in respect of the mortgage default and arrears. This plan requires him to pay an amount of $1,800.00 per week from 24 November 2023 onwards. Necessarily, it is intended that Mrs Ely will attend to these payments from her income.
Mrs Ely has recently provided evidence regarding her financial affairs.[6] She is employed as a restaurant manager on an annual salary of $51,376.00. She operates two businesses Agon Australia and Data Transit Enterprises.
[6] See affidavit of Benyada Ely filed 4 December 2023.
She asserts that her average net fortnightly income from all sources is $6,200.00 or, on my calculations approximately $162,000.00. She has indicated her willingness to provide on-going financial support to Mr Ely including assisting him to defray the mortgage arrears and keep the required instalments in credit.
Counsel for CCC, Ms Trebilcock is critical of Mrs Ely’s evidence regarding the extent of income which she derives from these businesses characterising the figures provided by her as rubbery and unsupported by external accounting documents.
It is the potential for the sale of the Seabrook property and the dislocation, which would inevitably follow for Mr and Mrs Ely, which stalks these proceedings. In this context, I am well aware of relevant Federal Court authority, which remind courts, such as this one, exercising authority under the Act, of the human tragedy and personal ignominy which bankruptcy represents, and which place the act of sequestration beyond mere debt collection.
As Allsop CJ (as he then was) said, in Robson as former trustee of the estate of Samsakopoulos v Body Corporate for Sanderling at Kings Beach CTS 2942,[7] of the power of the court to render a person bankrupt:
[I]t is a “great power” that is being exercised: one that alters the rights of all creditors and that alters the status of the debtor. There is, and always has been in the history of bankruptcy, a human reality to the jurisdiction. The sequestration order can affect the lives of ordinary people very deeply … Whilst the process of bankruptcy administration may alleviate the position of the insolvent debtor allowing a return to normal life without the burden and oppression of creditors beyond his or her capacity to pay, if a solvent person is made bankrupt the costs and expenses of the administration may turn a solvent debtor into a financially diminished, if not penniless, person. The jurisdiction of bankruptcy is concerned with insolvency and its consequences, not mere debt collection…
[7] Robson as former trustee of the estate of Samsakopoulos v Body Corporate for Sanderling at Kings Beach CTS 2942 [2021] FCAFC 143 at [7].
In addition, in this particular matter, I am aware of the very great disruption which will be wrought on the personal circumstances of not only Mr Ely but also Benyada Ely. However, at the same time, I am not in a position to ignore the public interest. These proceedings remain focused on one primary issue – is Mr Ely insolvent. If so, it is in the public interest that his financial affairs be administered efficiently and expeditiously so both creditors and debtor can move on. It is not in anyone interests that an insolvent person should be, in effect, propped up, in denial of the inevitable.
BACKGROUND
The circumstances leading to the issue of the relevant bankruptcy notice are set out in an affidavit of Mark Robert Draper, who is the CEO of the controlling entity of CCC.[8] The notice relates to two loan agreements which on the face of documents provided by Mr Draper appear to have been executed by Mr Ely.
[8] See affidavit of Mark Robert Draper filed 26 September 2023.
Firstly, at some time in 2015 or thereabouts, an application was made, in Mr Ely’s name, for a credit card from ME Bank. The credit limit on the card in question was $9,000.00 and the underlying loan agreement required regular repayment by monthly instalments.
I have been provided with monthly accounts, sent by ME Bank, to Mr Ely’s Seabrook address between 21 October 2015 and 7 September 2017, along with claims for payment and details of attempts to contact Mr Ely by agents of ME Bank.
Although some payments were made in respect of the loan, it fell substantially into default and attracted interest. In these circumstances, in mid-2019, ME Bank assigned this debt of Mr Ely to CCC.
Secondly, on 2 November 2015, Mr Ely purported to apply for a personal loan from ME Bank in an amount of $8,000.00. The loan was advanced on 7 December 2015. Loan repayments were debited from a Westpac Bank account in Mr Ely’s name. It fell into arrears in March of 2018.
Mr Draper has access to the records of ME Bank in respect of its dealings with Mr Ely. He has deposed that a signature, purportedly that of Mr Ely, was attached at three places to the original loan agreement between Mr Ely and the bank.[9] This loan also was assigned to CCC by ME Bank.
[9] Affidavit of Mark Robert Draper filed 26 September 2023 at Annexure MRD 5 at pages 128-129.
On 2 November 2021, solicitors for CCC wrote to Mr Ely seeking payment from him of the sum of $12,644.78, which asserted was owed by Mr Ely to CCC pursuant to the assignment from ME Bank in respect of the credit card debt.[10] The letter further indicated that if payment was not received by CCC, it would institute proceedings, against Mr Ely, in the Magistrates Court of Victoria, seeking recovery of the debt together with interest.
[10] Affidavit of Mark Robert Draper filed 26 September 2023 at Annexure MRD 4 at page 114.
On the same date, the same solicitors wrote to Mr Ely seeking payment from him in an amount of $9,086.74 in respect of the personal loan and again threatening proceedings against him in the Magistrates’ Court of Victoria.[11]
[11] Affidavit of Mark Robert Draper filed 26 September 2023 at Annexure MRD 9.
As foreshadowed, in these letters of 2 November 2021, CCC commenced proceedings against Mr Ely in the Magistrates Court of Victoria at Melbourne, claiming a total amount of $22,196.80 from him. Judgment, in the sum of $24,505.58 was entered against Mr Ely by the Magistrates Court of Victoria in default of any defence or appearance by him, on 14 February 2022.
There is no controversy that the resulting bankruptcy notice was personally served on Mr Ely, as he filed an affidavit opposing the sequestration of his estate on 6 April 2023. As indicated above, he deposed that his former wife had impersonated him online and forged his signature in order to obtain the credit card from ME Bank. Mr Ely appeared before the court on 12 April 2023 and asserted to the registrar his view that he was solvent.
As a consequence of both this statement and the earlier affidavit, the registrar adjourned the further hearing of the petition to 8 June 2023 and directed that Mr Ely file any further submissions on which he wished to rely by 19 May. It is evident that he did not do so. This was the background to the making of the original sequestration order and the resulting appointment of Mr Rudaks.
RELEVANT LEGAL PRINCIPLES
The court’s jurisdiction to make a sequestration order is founded in section 43(1) of the Act. It depends upon the petitioning creditor establishing the commission of an act of bankruptcy by the debtor concerned.
In addition, the section provides a number of other conditions, which must be satisfied, which include residence in Australia, by the debtor concerned, at the time of the commission of the act of bankruptcy. It is also clear that the authority to make a sequestration order is discretionary in nature.
Section 40(1) of the Act provides an exhaustive list of matters which constitute acts of bankruptcy and so can serve as the basis for the issue of a creditor’s petition. Of particular application in the current mater is section 40(1)(g) which provides as follows:
(g)if a creditor who has obtained against the debtor a final judgment or final order, being a judgment or order the execution of which has not been stayed, has served on the debtor in Australia or, by leave of the Court, elsewhere, a bankruptcy notice under this Act and the debtor does not:
(i)where the notice was served in Australia--within the time specified in the notice; or
(ii)where the notice was served elsewhere--within the time fixed for the purpose by the order giving leave to effect the service;
comply with the requirements of the notice or satisfy the Court that he or she has a counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt or sum payable under the final order, as the case may be, being a counter-claim, set-off or cross demand that he or she could not have set up in the action or proceeding in which the judgment or order was obtained;
The power granted to the Official Receiver, to issue bankruptcy notices, arises pursuant to section 41(1)(a) of the Act, which reads as follows:
(1)An Official Receiver may issue a bankruptcy notice on the application of a creditor who has obtained against a debtor:
(a) a final judgment or final order that:
(i) is of the kind described in paragraph 40(1)(g); and
(ii) is for an amount of at least the statutory minimum;
At relevant times, the statutory minimum had been recently increased to $10,000.00, as part of the Commonwealth’s economic response to the coronavirus emergency.
As indicated above, the bankruptcy notice served on Mr Ely was referrable to the final judgment debt against him in the Magistrates’ Court of Victoria in the amount of $24,874.12. It was issued from the Official Receiver on 12 May 2022 and had attached to it a certified extract of the judgment debt entered against Mr Ely on 14 February 2022 in CCC’s favour.
As at the date of the presentation of the petition, there is no controversy that the bankruptcy notice remained unsatisfied, and Mr Ely had not taken any steps in the Magistrates’ Court of Victoria to challenge or set aside the judgment against him. Accordingly, section 52(1) of the Act was engaged and remains so engaged in the review proceedings before me.
Section 52(1) is in the following terms:
(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.
Mr Ely has not challenged the service of the petition upon him. As will be detailed in due course, issues have arisen as to whether the debt to CCC remains owing. In addition, Mr Ely, following the making of the sequestration order, which is subject to these proceedings, has deposed that he is in the process of taking steps to challenge the relevant judgment debt and given what he asserts are the fraudulent circumstances surrounding how it came about, the court should, in effect, look behind it. However, at the present juncture, he asserts that the sequestration ought not to be made.
It is clear from the use of the word may in section 52(1) that the court’s authority to make a sequestration order is discretionary. It is also subject to the considerations contained in section 52(2), which reads as follows:
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.
However, the onus is on the debtor concerned to establish that any other sufficient cause exists justifying that a sequestration order should not be made, if it is established that an act of bankruptcy has occurred. As was said in Deputy Commissioner of Taxation v Bayeh[12] the onus to establish other sufficient cause rests as a matter of form and substance upon the debtor.
[12] Deputy Commissioner of Taxation v Bayeh (1999) 100 FCR 144 at [12].
Although the Bankruptcy Act is concerned with issues of personal insolvency, it does not utilise such terminology, speaking rather of the ability to pay debts. The High Court, in Sandell v Porter,[13] provided the following elaboration on what is meant by the phrase:
Insolvency is expressed in s. 95 as an inability to pay debts as they fall due out of the debtor's own money. But the debtor's own moneys are not limited to his cash resources immediately available. They extend to moneys which he can procure by realization 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, utilizing 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. Whether that state of his affairs has arrived is a question for the Court and not one as to which expert evidence may be given in terms though no doubt experts may speak as to the likelihood of any of the debtor's assets or capacities yielding ready cash in sufficient time to meet the debts as they fall due
[13] Sandell v Porter (1966) 115 CLR 666 at 670 per Barwick CJ.
Accordingly, it would seem to me to be that the relevant test as to the ability of a person to pay his/her one’s debts requires the court to ascertain whether the debtor concerned is able to pay his or her debts from cash or realisable assets within a relatively short period - relative to the size and amount of the debts and to the circumstances, including the nature of the business, of the debtor. In other words, what is required is for the court to look at the objective fiscal circumstances of the debtor concerned. Significantly, insolvency is concerned with an assessment of a person’s capacity to pay all debt, with a level of expediency appropriate in the circumstances.
In this context, in my view, the court has an obligation to consider other aspects of insolvency practice, which centre on the public interest that individual creditors have the right to know, with some degree of promptness, what is that status of the person who is indebted to them and so what is likely to occur to the debts owed to them. In Re Svir; Ex parte Commissioner of Taxation[14] Burchett J said the following:
[The Act] requires the Court to keep in mind, not only the interests of the individual parties before it in the particular case, but also the public interest, which may be adversely affected by the propping up of insolvency.
[14] Re Svir; Ex parte Commissioner of Taxation (1998) 83 FCR 314 at 317.
In essence, it is in the public interest that issues to do with personal insolvency and the status of debtors be promptly dealt with by the court, not only for the benefit of creditors but also debtors, so that each (and indeed the community generally) can know what their status is and plan in accordance with it.
Pursuant to section 254 of the Federal Circuit & Family Court of Australia Act 2021 (Cth)[15] the Chief Judge of Division 2 of the court may make rules to delegate some aspects of judicial power to registrars appointed in Division 2. As a consequence of this power, the Federal Circuit & Family Court of Australia (Division 2) (Bankruptcy) Rules 2021[16] have been created.
[15] Hereinafter referred to as the FCFCOA Act.
[16] Hereinafter referred to as “the Bankruptcy Rules”.
Pursuant to rule 2.02(1)(b) of the Bankruptcy Rules and Part 1 of Schedule 1 made under it, one such power delegated to registrars is the power to make a sequestration order under section 52(1) of the Bankruptcy Act.
Pursuant to section 256(1) of the FCFCOA Act, any party to proceeding in which a registrar has exercised delegated power may apply to Division 2 of the court for a review of the exercise of such power according to any procedure detailed in the Federal Circuit & Family Court of Australia (Division 2) (General Federal Law) Rules 2021.[17]
[17] Hereinafter referred to as “the Rules.
Rule 21.04 of the Rules provides as follows:
(1)The review of an exercise of power by a Registrar must proceed by way of a hearing de novo.
(2) In the review, the Court:
(a)may receive as evidence any affidavit or exhibit tendered before the Registrar; and
(b) may with leave receive further evidence; and
(c) may receive as evidence:
(i) any transcript of the proceeding before the Registrar; or
(ii) if there is no transcript—an affidavit sworn by a person who was present at the proceeding before the Registrar as a record of the proceeding.
In Totev v Sfar[18] the Full Court described the nature of a hearing de novo, particularly in the context of a review of a registrar’s decision to make a sequestration order, in the following terms:
[18] Totev v Sfar [2008] FCAFC 35 at [13] – [14].
In the case of a hearing de novo, however, the judge reviewing the order begins afresh and exercises for himself or herself any discretion exercised by the registrar. The parties commence the proceeding again, subject to any rules concerning the use of evidence adduced before the registrar. The hearing de novo involves the exercise of the original jurisdiction and the petitioner, in the case of a bankruptcy petition, must start again, call witnesses and make out the petitioner’s case.
Because the hearing of an application for review of a sequestration order is a hearing de novo, it would not be sufficient for the reviewing judge to be satisfied that the registrar made no error and simply to dismiss the application for review. The judge who hears the review application must hear the petition afresh and must be satisfied as to the matters referred to in s52 of the Bankruptcy Act. Thus, the reviewing judge must herself or himself be satisfied with the proof of:
•the matters stated in the petition;
•the service of the petition; and
•the fact that the debt or debts on which the petitioning creditor relies is or are still owing.
The reviewing judge must also exercise afresh the discretions conferred by s 52(2).
Accordingly, on an application for review of a registrar’s decision, the court:
·is engaged in fresh proceedings;
·does not scrutinise the original reasons to ascertain error;
·makes its own decision on the merits of the case; and
·in an application for review of a sequestration order, where a sequestration order is still sought, the petitioning creditor is required to prove all necessary matters, including those specified in section 52(1) of the Act.
The review hearing arising is a hearing de novo. As specified by rule 21.04 of the Rules, the court is authorised to receive additional evidence. Accordingly, in my view, in the present matter, on the basis of the evidence presented by each of the parties, I am required to resolve the following matters:
·Has an act of bankruptcy occurred?
·Have the requirements of section 52(1) of the Act been met?
·Is there other sufficient cause, pursuant to section 52(2) of the Act that a sequestration order not be made?
As indicated above, it is Pioneer’s position that, if CCC does not proceed with its petition it will seek to be substituted for it pursuant to the provisions of section 49 of the Act, which reads as follows:
Where a creditor's petition is not prosecuted with due diligence or where for any other reason the Court considers it proper to do so, the Court may permit to be substituted as petitioner or petitioners another creditor or other creditors to whom the debtor is indebted in the amount required by this Act in the case of a petitioning creditor, and the petition may be proceeded with as if the substituted creditor or creditors had been the petitioning creditor.
The determination of costs in bankruptcy matters is determined by a combination of the Bankruptcy Rules and the Federal Court Rules 2011.[19]
[19] Hereinafter referred to as “the Federal Court Rules”.
Pursuant to rule 13.01 of the Bankruptcy Rules a person entitled to costs in a bankruptcy matter in this court is entitled to costs pursuant to Part 40 of the Federal Court Rules. More specifically, Division 13.2 of the Bankruptcy Rules makes provision for what are termed short form bills arising from bankruptcy petition proceedings. Again, this rule provides for the Federal Court Rules to specify a fixed sum of costs referrable to the occurrence of specified court events. These events are specified in Item 14 of Schedule 3 to the Federal Court Rules.
Section 256(2) of the FCFCOA Act provides that this court (Division 2) whilst exercising its power to review the delegated decision of a registrar may make any order or orders it thinks fit in relation to the matter in respect of which the power was exercised.[20]
[20] This is the successor to section 104(3) of the Federal Circuit Court Act 1999 and which was referred to in Robson as former trustee of the estate of Samsakopoulos v Body Corporate for Sanderling at Kings Beach CTS 2942 [2021] FCAFC 1909.
THE EVIDENCE
Mr Ely and his solicitor are in Victoria. They appeared throughout the review proceedings via electronic means. All the other parties and Mr Rudaks appeared in person in Adelaide and each was represented. None of the parties indicated an intention to cross-examine any of the deponents of the affidavits relied upon. In Mr Ely’s case, these were as follows:
(a)An affidavit of himself filed 30 June 2023;
(b)An affidavit of himself filed 3 October 2023;
(c)An affidavit of his legal representative, Mr Haddad filed 3 October 2023;
(d)An affidavit of himself filed 10 November 2023;
(e)An affidavit of his legal representative, Mr Haddad filed 14 November 2023;
(f)An affidavit of himself filed 1 December 2023; and
(g)An affidavit of his wife Benyada Ely filed 1 December 2023.
CCC relies on the following:
(a)An affidavit of Mr Draper filed 26 September 2023;
(b)An affidavit of their legal representative, Ms Trebilcock filed 29 November 2023;
(c)An affidavit of debt of Mr Draper filed 5 December 2023; and
(d)An affidavit of search of Mr Draper filed 5 December 2023;
Pioneer relies on the following:
(a)An affidavit of Mr Singh filed 6 November 2023; and
(b)An affidavit of Mr Singh filed 30 November 2023.
Lastly, the trustee Mr Rudaks relies on the following:
(a)An affidavit of himself filed 28 September 2023; and
(b)An affidavit of himself filed 30 November 2023.
In his first affidavit, Mr Ely reiterated his claim that his former wife, Nina Ely had fraudulent applied for both the ME credit card and personal loan, of which he had no knowledge. He reported this alleged fraud to Victoria Police on 29 June 2023, which is after the bankruptcy proceedings had come before. In support of his claim that his former wife was a dishonest person, he produced proof that she had prior convictions for dishonesty, which were recorded in 2009.
In addition, Mr Ely deposed that he had instructed his solicitors to apply for a re-hearing of CCC’s claim against him, which had been finalised in the Magistrates’ Court of Victoria, in February 2022 and which remains the basis for the current sequestration application. This application was made on 29 June 2023.
Mr Ely also provided evidence in respect of the debt owed by him to Pioneer. Again, he asserted that Nina Ely had fraudulently incurred this debt by applying for a loan, in his name, of which he was unaware, from the Westpac Bank, which had been later assigned to Pioneer, leading to another judgment debt being entered against him. He deposed that he was also in the process of applying to have this judgment set aside.
As previously indicated, Mr Ely further deposed to being in receipt of a disability pension and being largely financially dependent upon his current wife Benyada Ely. He provided some medical evidence to document the medical basis of his incapacity, which related to PTSD and a major depressive condition. The medical material seems to have been assembled in relation to proceeding arising from the tragic death of his mother in a motor vehicle accident in May of 2018.
Mr Ely also deposed to another significant debt which he owes to Credit Corp Services Pty Ltd[21] in an amount of $23,242.96. He asserted that he had agreed with Credit Corp to pay the debt of in weekly instalments of $50.00.
[21] Hereinafter referred to “Credit Corp”.
Mr Ely has owned the Seabrook property since 2012. He originally purchased vacant land and constructed a house on it. For obvious reasons, it would be extremely difficult for him if he has to leave the property. He values the property at $700,000.00, which is subject to a mortgage of $582,209.34. In these circumstances, in round terms, Mr Ely asserted that he had a surplus of assets over liabilities in an amount of approximately $22,000.00.
In his first affidavit, Mr Draper did not accept that Mr Ely had had no foreknowledge of the two ME Bank loans made in his name. In this context he deposed to the Bank having contacted Mr Ely personally, on multiple occasions regarding the credit card debt and the regular monthly statements having been sent, by mail, in his name to the Seabrook address. In addition, payments had been made from Mr Ely’s Westpac bank account.
In respect of the personal loan, Mr Draper deposed that it appeared to be the case that Mr Ely had signed the relevant letter of offer in three places as well as the loan disbursement authority, which directed payment to his Westpac bank account.
Mr Draper also acknowledged that, in early June of 2023, CCC had received and accepted a payment of $5,454.36, from Mr Ely, bringing its debt down to $18,840.67. Mr Draper also deposed that the title of the Seabrook property was subject to a warrant of seizure, in favour of Pioneer as a consequence of its judgment debt against Mr Ely.
Mr Rudaks became involved in these proceedings on 28 September 2023. He acknowledged receiving Mr Ely’s statement of affairs, which was not acceptable to the Official Receiver on the basis that an old form had been utilised and it did not contain Mr Ely’s date of birth.
Mr Rudaks does not dispute, as far as I can tell, the thrust of what Mr Ely has indicated to be his financial position other than his (Mr Rudaks) inquiries indicated that the mortgage payment on the Seabrook property were in arrears in an amount of $12,474.19. He does however question some of his evidence regarding the alleged fraud surrounding the ME credit card, noting that bank records indicate that Mr Ely requested the reinstatement of the card, after it had been cancelled because of default in provision of required minimum payments.
Mr Rudaks also acknowledged having received a proof of debt from Credit Corp in an amount of $23,742.96. In this context, Mr Rudaks deposed that it was his understanding that this was subject to a pending fraud investigation and was subject to payment arrangement.
Between the date of his appointment and the instigation of the review proceedings (July 4) Mr Rudaks indicated that his professional costs had amounted to $8,445.50 and thereafter he had incurred a further sum of $8,992.50 in respect of his engagement with these proceedings.
As of 3 October 2023, those advising CCC indicated that the crediting petitioner had incurred costs of $3,770.00 and disbursements of $4,860.00.
On 4 October 2023, Mr Ely deposed that his wife had been making the necessary mortgage payments on the Seabrook property and therefore the mortgage balance remained stable just under $580,000.00.
Pioneer became involved in the proceedings on 6 November 2023. Pioneer’s solicitor, Mr Singh provided a copy of the judgment entered in its favour in the Magistrates’ Court of Victoria on 5 February 2018 in an amount of $56,130.02. Mr Singh indicated further that no payments had been made to reduce the level of the debt.
The review application was first listed before me on 4 October 2023. On this day, the matter was set down for hearing on 14 November 2023.
THE HEARING OF 14 NOVEMBER 2023
On 10 November 2023, Mr Ely filed a further affidavit in which he responded to the assertions of Mr Draper regarding CCC’s difficulty with accepting his evidence that he had had no knowledge of the two loans, taken out in his name, from ME Bank. In this context Mr Ely deposed as follows:
At the time of making this statement, I believed it be accurate. However, I have since read the affidavit of Mark Robert Draper … which gives me reason to believe that the words without my knowledge may not have been accurate, and I take this opportunity to apologise to the court and correct the record in this regard. I struggle with memory loss, confusion and forgetfulness, as a result of chronic post-traumatic stress disorder and major depressive disorder … I have limited recollection of the relevant events. I maintain that the credit card and personal loan were applied for by my late ex-wife, who forged my signature … without my consent.[22]
[22] See affidavit of Mark Ely filed 10 November 2023 at [10].
On 14 November, Mr Haddad, Mr Ely’s solicitor filed an affidavit, in which he deposed as to the following events:
·He had obtained an appraisal of the Seabrook property which valued it at between $700,000.00 and $750,000.00;
·On 10 November 2023, Mrs Ely had paid the sum of $15,000.00 to the account of CCC;
·On 13 November 2023, CCC had refunded this amount to her;
·On 10 November 2023, Ms Trebilcock, CCC’s solicitor wrote to Mr Ely’s solicitor indicting that the payment was rejected and advising that CCC intended to proceed with the petition as it was evident to it that Mr Ely had:
[O]ther creditors that are not being paid (one of whom supports the sequestration order) and our client has no assurances that it has resolved matters with them or paid the costs of the bankruptcy trustee.[23]
·On 14 November 2023, immediately prior to the scheduled hearing Mr Haddad filed an affidavit confirming that Mr Ely had paid the sum of $23,000.00 to the account of CCC.
[23] See affidavit of Mr Haddad filed 14 November 2023 at Annexure RMH-7.
On 14 November 2023, Ms Trebilcock sought the dismissal of the review application submitting that Mr Ely had not raised any sufficiently cogent reason for the court to look behind the judgment debt or otherwise established his solvency. In this context, it was submitted that the fact that, in notional terms, Mr Ely’s assets exceeded his debts, was insufficient to establish solvency on its own.
Rather, Ms Trebilcock submitted that any equity Mr Ely had in the Seabrook property could not be approached on the basis that it was a readily available assets as he had not provided any evidence of an intention to sell it or demonstrated any capacity to borrow against its equity. In this context, she relied on the following authority of the Federal Court:
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. Bankruptcy is not a proceeding designed for the recovery of debts.[24]
[24] Australia & New Zealand Banking Group Pty Ltd v Foyster [2000] FCA 400 at [17] per Hely J.
In addition, Ms Trebilcock continued to rely on the evidence of Mr Draper. In this context, even if it was accepted that the late Nina Ely had applied for the two loans in question, without his knowledge, the evidence indicated ME Bank had contacted Mr Ely on numerous occasions personally in respect of the debts between 2019 and 2021 and correspondence, addressed to him, had been sent to the Seabrook address. No application had been made to set aside the bankruptcy notice. It had taken him seven years to report the alleged fraud to police. The Magistrates’ Court proceedings had not been defended.
In an affidavit of debt filed on 13 November 2023, Mr Draper confirmed receipt of a payment of $5,454.36 from Mr Ely. He also confirmed that CCC had not accepted the payment of $15,000.00 proffered by Mrs Ely. In these circumstances, it was his evidence that the debt currently owed by Mr Ely was $18,840.67.
Mr Haddad, for Mr Ely submitted that given the payment of $15,000.00, Mr Ely had either demonstrated a capacity to pay the debt or there existed sufficient other circumstances, of sufficient moment, to justify the court to exercise its discretion, on the re-hearing of the petition, to dismiss it and not make any order for costs against his client.
Mr Rudaks was represented by his counsel, Mr Ryder at the hearing of 14 November 2023. At this date, Mr Rudaks had calculated that Mr Ely’s unsecured creditors were owed $102,069.00 (as a consequence of the unaccepted statement of affairs) and his secured creditors (the Westpac mortgage) $582,209.00. Apart from the equity in the home, Mr Ely did not have other significant realisable assets. Mr Rudaks held the sum of $5,560.32 which was referable to a bank account held by Mr Ely.
As indicated earlier, Mr Rudaks had incurred costs amounting to $17,438.00 in administering the estate thus far. His evidence was that he had tried to minimise the costs since the review application had been made but otherwise the costs incurred by him had been unavoidable given his statutory obligations.
In this context, Mr Ryder was aware of potential controversies arising in the event that this court, on exercising its review functions, determined that the sequestration order made ought not have been in respect of any resulting application Mr Rudaks might make in respect of his professional costs both before and after the application for review was made.
These were issues examined by the Full Court of the Federal Court in Robson as former trustee of the estate of Samsakopoulos v Body Corporate for Sanderling at Kings Beach CTS 2942,[25] which was a case in which an earlier sequestration order was dismissed on review and later orders were made for the remuneration of the trustee concerned. In the case, Allsop CJ said as follows:
The immediate actors in the controversy, at the point of dismissal of the petition, are (here) the debtor, the creditor, and the trustee. The public represented by the creditors are also affected. The proper analysis of the superseding or overtaking of the registrar’s order by the order of the judge cannot simply mark the end of the existence of a temporary bankruptcy in which the debtor was, for a limited time, a bankrupt. The creditor’s petition on which the registrar acted has been dismissed. There can be but one outcome of the one overall exercise of judicial power by the Court. If the Constitutional imperative of a rehearing by a judge of the creditor’s petition is to have meaning, the consequence of the dismissal of the petition must include the eradication of the status of the debtor as a bankrupt. For any other position to obtain would permit the delegated exercise of power to have not only temporary, but lasting, if limited, effect notwithstanding that the same power has now been exercised in a contrary way. The order would remain on the Court record, potentially causing confusion. The procedure is sui generis; it is framed and given content by the Constitutional imperative. The appropriate way to vindicate the protection of the debtor is to set aside the sequestration order as a consequential order to ensure that the Court record has one result of the exercise of judicial power in respect of the one petition, not two diametrically opposed orders of the Court potentially affecting the status of the debtor. This ensures the elimination of the status, and the record of the status, of the debtor as a bankrupt. That does not mean that other orders cannot be made consequentially under s 104(3) of the FCCA Act (or s 35A(6) of the FCA Act) which protect the position of the trustee and third parties. Those consequential orders can proceed on the basis, as was the case, that there was a valid order of the Court in place such that those who acted upon the order are protected in what they did. Such not only accords with long-standing authority …
[25] See Robson as former trustee of the estate of Samsakopoulos v Body Corporate for Sanderling at Kings Beach CTS 2942 [2021] FCAFC 143 at [24].
Accordingly, although the effect of a successful review of a sequestration order made pursuant to power delegated to a registrar is that the person concerned must be considered never to have been a bankrupt, the reviewing court still has authority to deal with orders that arise as a consequence of the decision to allow the relevant review, particularly those which have the effect of affording protection to the positions of any trustee previously appointed and third parties. In the same case, Colvin J held that there is a power under section 104(3) of the FCCA Act (now section 256(2) of the FCFCOA Act) to make a consequential order dealing with the remuneration of the Trustee.
In this context, Mr Ryder was aware of the possibility that, in the event the review application was successful his client might not be reimbursed all the costs incurred by him in administering the estate, if it was ultimately found that the sequestration should not have been made. In addition, on the basis of Samsakopoulos he was aware that a different attitude had been taken to costs incurred after the review application had been launched.
As previously indicated, it is Mr Rudaks’ evidence that he has acted cautiously, in the not inconsiderable period since the review application was made and now and has incurred only costs which were unavoidable given his statutory obligations or arose as a consequence of the review proceedings themselves.
It was in these circumstances that Mr Ryder urged the court to take a middle or neutral course in respect of the controversy. On the basis that that there was at least the possibility of CCC’s debt being satisfied, given the rejected tender of the sum of $23,000.00, he proposed that each of the other of Mr Ely’s creditors be approached to ascertain their attitude to the proceedings, particularly, as Mr Haddad had stated each of them was open to being paid what was owed to them in instalments.
In addition, Mr Ryder, being mindful of the significant costs, both in emotional and financial terms, of a sequestration being made, proposed that the sum of $23,000.00 be paid into court pending these further inquiries being made. I acceded to his submission and made the following orders:
1.The monies that have been tendered today by Mr Ely be paid into the Court’s Litigants Fund.
2.Further consideration of the matter is Adjourned to 5 December 2023 at 10.00am (Adelaide time).
3.A Registrar of the Court inform the other creditors of Mr Ely (being Westpac Banking Corporation, Pioneer Credit Solutions Pty Ltd and Credit Corp Group) of the adjourned date and request that if they wish to be heard, they are to attend on that occasion.
4.Each party is at liberty to file and serve any further Affidavit on which it proposes to rely, including Mr Rudaks as to his costs, by close of business on 1 December 2023.
THE EVIDENCE PROVIDED ON 5 DECEMBER 2023
Pioneer formally appeared in the proceedings, via its solicitors, on 17 November 2023. It opposes the orders sought by Mr Ely in his review application. Mr Singh filed a further affidavit on 30 November 2023 in which he deposed that Pioneer was currently owed the sum of $90,487.56. This followed judgment being entered in its favour in 2018 for the original amount of approximately $54,000.00, in respect of which no payment had been received, leading to it to execute against the Seabrook property in 2019.
Thereafter, Mr Ely had applied to the Magistrates’ Court of Victoria for an instalment order which was granted by the court on 5 July 2019, pursuant to which Mr Ely was to pay monthly instalments of $1,700.00 commencing on 31 July 2019. Mr Singh deposed that only one instalment of $2,000.00 had been made on 30 July 2019 and, as a consequence, Pioneer had applied to have the instalment order set aside but this process had been interrupted by the bankruptcy proceedings.
It is the position of Pioneer that it has not and is unwilling to enter any agreement with Mr Ely to resolve its debt with him given the uncertainty surrounding his other creditors and the potential that any monies potentially received by it might be ultimately subject to the bankruptcy in any event. As previously indicated, counsel for Pioneer, Mr Sankey indicated to the court on 5 December 2023 that if CCC did not wish to proceed with the petition, Pioneer would seek to be substituted as the petitioning creditor.
Mr Rudaks filed an affidavit updating the situation surrounding the costs incurred by him. As previously indicated, he had incurred costs of $8,445.50 between the date of his appointment and the review application. I do not consider that he can be criticised for so doing. Between the date of receipt by him of the review application and 13 September 2023, the costs were $8,992.50, which related to the review application itself, preparation of a report to creditors and issues relating to protection of assets and liaising with Mr Ely and his representative.
It is Mr Rudak’s evidence that he was obliged to report to creditors and his other costs were also necessary given his duties as a court appointed trustee. Between 14 September and 28 November 2023, he had incurred further costs of $5,852.00. In addition, Mr Rudaks has deposed that his legal costs incurred in respect of these proceedings are approximately $9,000.00.
In his submissions to the court, Mr Ryder characterised the actions of Mr Rudaks as a prudent and careful trustee who has not incurred unnecessary cost and as one who had sought to take a minimalist approach to his statutory appointment. However, notwithstanding this approach, the administration had been delayed by the review proceedings, which have involved three appearances to date and incurred total costs of around $33,000.00 in the five months since Mr Rudaks’ appointment.
In Mr Ryder’s analysis, Benyada Ely’s net earnings as restaurant manager amounted to $918.00 per week and her gross income from self-employment to $2,331.00 per week. However, no accounting information had been provided in respect of any contractors utilised by her or any other details of expenses incurred in generating this income.
CCC paid the sum of $23,000.00 into the Litigant Fund on 17 November 2023. In the submission of Mr Haddad, this payment is evidence that Mr Ely is in a position to pay the debt to CCC, which Mr Ely asserts continues to be subject to an application for re-hearing. In his most recent affidavit, Mr Ely has not provided any details as to when this application will be heard and what evidence he has provided in support of it.
Mr Ely has further deposed that he, with the assistance of Benyada Ely, has honoured the payment arrangement between him and Westpac in respect of the Seabrook mortgage. He has further offered to pay the Credit Corp debt in fortnightly instalments of $150.00. Correspondence provided by Mr Ely, with Credit Corp, indicate that this rate of payment is unsatisfactory to it, but it is open to discussing a payment arrangement with him. What would be satisfactory to Credit Corp and what additional payment might be available remains opaque to me.
In her most recent affidavit, Ms Trebilcock has deposed as to the professional costs which she seeks in respect of the proceedings to date. These costs are calculated pursuant to the short form bill procedure specified in the Federal Court Rules. The costs and disbursements for the original petition hearing come to $9.0955.00. Since 4 July, she calculates her professional costs according to the Federal Court Rules to be $6,799.00.
Mr Ely remains in receipt of a disability pension, which provides him with $320.00 per fortnight. Clearly, this cannot sustain his debts. In this context, Benyada Ely has deposed that she is capable of allocating the sum of $3,700.000 per fortnight, from her various sources of income, to supporting her husband, which will reduce to $2,038.00 once the arrears on the mortgage have been brought up to date. She has indicated that she has modest grocery expenses because she receives free food from the restaurant where she is employed.
In his most recent affidavit, Mr Ely has summaries his current level of asset backing as being in the vicinity of $711,000.00 to $761,000.00. This includes two cars of modest value; cash in the bank of $3,600.00; and his tools of trade, which would not be subject to the bankruptcy. More significantly, he has provided the following analysis of his liabilities:
Description Amount
Westpac Mortgage (current balance) ~$580,000.00 Loan from friend (not due and payable) $23,000.00 Pioneer Credit Solutions Pty Ltd (alleged debt will be
subject of a re-hearing application, as it was incurred fraudulently)
$56,130.02 Credit Corp Services Pty Limited (payment arrangement to follow, as well as fraud investigation)
$23,742.96
CCC Financial Solutions No.3 Pty Ltd (alleged debt is
currently subject of a re-hearing application, as it was incurred fraudulently)
Paid in Court Costs for the Creditor's Petition ~$8,500.00 Total
~$690,569.78
CONCLUSIONS
Apart from his assertion regarding the three debts being subject to either a fraud investigation or a re-hearing application, Mr Ely has provided no objective evidence in support of such assertions. In this context, I note the period of time each of the debts have been outstanding and his recent, somewhat hedged concession, that it was an overstatement for him to depose that both the loans advanced to him by ME Bank occurred without his knowledge.
In this context, in my view, the evidence of Mr Singh is significant namely that Mr Ely reneged upon his obligation to repay the debt owed to Pioneer in instalments and since the relevant judgment debt was obtained, the debt itself has increased. I assume the increase is referrable to interest calculated on the relevant debt pursuant to the applicable rules of court.
In addition, it is clear from the evidence of Mr Ely himself that it is not correct that it can be guaranteed that a payment plan, with Credit Corp, is to follow. I am fearful that this is a case of wishful thinking on his part and the debt remains outstanding in its entirety and, as such, relevant to considerations of Mr Ely’s solvency.
More significantly, I am concerned that the summary of liabilities provided by Mr Ely has not factored in a proper consideration of the likely costs of these protracted proceedings, particularly those attributable to Mr Rudaks.
Rather Mr Ely’s construction relies on the assumption that the court will not make any order for costs in the trustee’s favour in respect of the costs incurred by him up to the date of the review application and thereafter, if his review application is successful, Mr Rudaks will not be entitled to obtain his costs, given there will be no estate for him to administer.
In my view, given the decision of Samsakopoulos the court must be alive to the fact that the costs of the petitioner and the trustee are relevant debts, which must be considered in assessing Mr Ely’s overall solvency or otherwise. I am satisfied that, even if the review application is successful, the court has the authority to award costs pursuant to its powers under section 256(2) of the FCFCOA Act and as such, these debts must be regarded as relevant to an overall consideration of solvency.
As a consequence, in my view, the costs of the proceedings to date, which are considerable and growing are a factor which must be taken into account in assessing Mr Ely’s level of solvency. In addition, the community as a whole, has an interest in seeing that the estates of insolvent individuals are expeditiously managed and costs kept to a minimum. I am fearful that to dismiss the petition will only deny the inevitable insolvency.
The danger demonstrated by this case is that Mr Ely, due to his straitened financial circumstances, is compelled to deal with his financial difficulties in a piecemeal fashion and the evidence provided to date indicates he has only dealt with individual debts when they have reached a point of crisis.
In my view, the evidence led by Mr Ely to date demonstrates the fact that he is constantly robbing Peter to pay Paul. In addition, in my view, there is evidence, on Mr Ely’s part of a denial of the debts in question, which is followed by an undertaking to pay them, which is not honoured.
True it is that the debt which founded the current petition has been paid by the payment into court. However, this payment is not acceptable to CCC because its costs remain outstanding. More significantly, Pioneer’s judgment debt, which is equally significant, remains outstanding and it stands ready to take up the petition. Other than suggesting a payment plan, Mr Ely has no proposals as to how it will be paid.
Clearly, Mr Ely personally has no capacity to pay any of the debts standing in his name. Rather, he relies on the assistance of his current wife to defray them, which, in legal terms, she has no obligation to do so. I appreciate, however, that the loss of the home which she currently shares with Mr Ely would be just as much a misfortune for her, as it would be for Mr Ely.
In my view, the court’s authority and the discretion, which rest upon it, to go behind a judgment debt is limited. Mr Ely is required to provide a substantial reason why this court, exercising its bankruptcy jurisdiction, should not regard the judgment debts as being valid. I do not consider that he has done so, given the time each such debt has been outstanding and the lack of documentary evidence that each such debt has been challenged and there are prospects of such challenges being successful.[26]
[26] See Wren v Mahoney (1972) 126 CLR 212.
In my assessment, the evidence available to me indicates that Mr Ely is not in a position to pay his debts as they fall due. Given the extent of his debts, the time during which they have been outstanding and his personal financial circumstances, it cannot be said that he is suffering a short-term liquidity problem. As indicated above, insolvency is concerned with an assessment of an individual’s capacity to pay with an appropriate level of expediency which is acceptable in the circumstance. In my view, Mr Ely has not demonstrated such a capacity.
Underpinning Mr Ely’s submission that he is solvent is his calculation of his balance sheet of assets and liabilities, which shows an excess of assets over liabilities in an amount of somewhere between $21,000.00 and $71,000.00 depending on the value of the Seabrook home. However, this figure does not include any costs arising from its sale and more importantly Mr Ely has no plans to sell the property. In fact, the object of these proceedings, from his perspective, is to do whatever can be done to avoid its sale.
Accordingly, in my view, Mr Ely’s assertion of solvency does not depend on the fact that he can realise assets to pay his debts. In addition, given his recent difficulties with Westpac, it is self-apparent that he is not in a position to borrow further against the property to pay down debt. In this context, what was said by Hely J in Foyster (supra) is germane. It is not sufficient for Mr Ely to point to a modest excess of assets over liabilities to establish an ability to pay his debts. Rather, he must provide a plan in which these debts can be paid in a reasonable time frame.
Given the fact the Pioneer stands in the wings with another significant judgment debt, I am not satisfied that Mr Ely has demonstrated a capacity to pay his debts as they fall due. In all these circumstances, I am satisfied that an act of bankruptcy has occurred and so the requirements of section 52(1) of the Act have been met. More significantly, I am satisfied that Mr Ely has not demonstrated any other sufficient cause as to why a sequestration order ought not be made.
For these reasons, the application for review of the petition is dismissed. I will direct that the costs of the petitioning creditor be paid out of the estate, along with the costs of Mr Rudaks in appearing in the review proceedings. I will also release the funds currently standing in the litigant’s fund to the trustee.
For all these reasons, the orders of the court will be as set out at the commencement of these reasons for judgment.
I certify that the preceding one hundred and twenty-three (123) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Brown. Associate:
Dated: 15 December 2023
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