Commonwealth Bank of Australia v Healey

[1999] FCA 833

FEDERAL COURT OF AUSTRALIA

Commonwealth Bank of Australia v Healey [1999] FCA 833

COMMONWEALTH BANK OF AUSTRALIA v

GREGORY HARRISON HEALEY

NG 7928 OF 1998

EMMETT J
SYDNEY
16 JUNE 1999

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NG 7928 OF 1998

BETWEEN:	COMMONWEALTH BANK OF AUSTRALIA ACN 123 123 124 Applicant
AND:	GREGORY HARRISON HEALEY Respondent
JUDGE:	EMMETT J
DATE OF ORDER:	16 JUNE 1999
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1.A sequestration order be made against the Estate of the respondent, Gregory Harrison Healey.

2.The applicant's costs, including reserved costs, be taxed and paid in accordance with the Bankruptcy Act 1966.

THE COURT NOTES THAT:

3.Maxwell William Prentice has consented to be appointed as trustee of the estate of the respondent, Gregory Harrison Healey, pursuant to s156A of the Bankruptcy Act 1966.

4.The date of the act of bankruptcy is 14 August 1998.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NG 7928 OF 1998

BETWEEN:	COMMONWEALTH BANK OF AUSTRALIA ACN 123 123 124 Applicant
AND:	GREGORY HARRISON HEALEY Respondent

JUDGE:	EMMETT J
DATE:	16 JUNE 1999
PLACE:	SYDNEY

EX TEMPORE REASONS FOR JUDGMENT

1. On 11 March 1999, I adjourned the creditor’s petition to 8 June 1999 on terms that the debtor consent to the appointment of Maxwell William Prentice as receiver, manager and controller of the debtor’s property pursuant to section 50 of the Bankruptcy Act 1966 (‘the Act”).  In the reasons which I gave on 10 March 1999 for foreshadowing those orders, I indicated that my intention was to give the debtor the opportunity of pursuing his application for special leave to appeal to the High Court from the judgment of the Court of Appeal dismissing the debtor’s appeal from the decision of Rolfe J directing the entry of judgment against the debtor in favour of the petitioner.

2. The date of 8 June 1999 was chosen for no particular reason other than that it was thought that, by that stage, the timing of the hearing of the application for special leave would be known.  The matter came before the Registrar on 8 June 1999 when the petitioner indicated that it desired to have the hearing of the petition brought on notwithstanding that the leave application had not yet been heard.  I am informed that the leave application has been fixed for September of this year.

3. I restored the matter for directions on Friday 11 June 1999 at which time I indicated that I would hear today the question of whether or not I should further adjourn the hearing of the petition until after the date fixed for the hearing of the special leave application.  When the matter came on today, I heard further evidence on the question of adjournment consisting of evidence from the debtor and evidence from Mr Ronald Lewis Mead who claims to be a creditor of the debtor.

4. Further adjournment was opposed by the petitioner on the basis that to adjourn the hearing of the petition would be futile since, even if leave were granted and some orders were ultimately made by the High Court along the lines sought by the debtor, the debtor is in any event insolvent because of the debt owing to Mr Mead and his wife. 

5. It is necessary to say something about the circumstances giving rise to the debt which appears to be owing by the debtor to Mr and Mrs Mead (“the Meads”).  The Meads owned a business comprising a caravan park which was conducted at or near the confluence of the Colo and Hawkesbury Rivers.  On 26 March 1986, the Meads sold that business to Piaski Holdings Pty Limited (“Piaski”), for the price of $825,000. 

6. The sale price was to be paid as to $325,000 in cash, and the balance was to be lent by the Meads to Piaski on the security of a second mortgage over the property which was the subject of the sale.  The first mortgage was to secure the sum of $325,000 intended to be advanced by the State Bank.  The obligation of Piaski to pay the balance outstanding of $500,000 was to be guaranteed by the debtor and Mr Robert Grace, barrister, who were apparently principals of Piaski. 

7. It appears that default occurred on the part of Piaski in the payment of the balance of the price of $500,000.  There were disputes between the Meads, Piaski and Mr Grace and the debtor that resulted in a compromise between the parties evidenced by an instrument dated 15 August 1994.  By that instrument, which was subsequently confirmed by a deed bearing the date 17 August 1994, the parties acknowledged the existence of the sale agreement and the second mortgage.  The instrument also recited a dispute as to the amount outstanding under the mortgage and representations alleged to have been made by the Meads to Piaski at the time of execution of the sale agreement (which representations were alleged to have induced Piaski to enter into the agreement and to have induced Mr Grace and the debtor to enter into the alleged guarantee).  The instrument also recited a dispute as to the effectiveness of the alleged guarantee contained in the second mortgage document.

8. By the instrument of 15 August 1994, amongst other things, it was agreed that, in consideration of the payment to the Meads by the debtor of $125,000, the Meads agreed to release the debtor from all liabilities, whether existing or contingent, which the debtor may have pursuant to the sale agreement or the mortgage.

9. The instrument also provided, in effect, that if any default occurred in payment of amounts to be paid by the debtor and such default remained outstanding for three calendar months, then the debtor was to be deemed to be in default.  In that event, the Meads had the option of either pursuing alleged rights arising from the sale agreement and the second mortgage or enforcing the payments due under the instrument. 

10. By Schedule 2 to the instrument, the terms upon which the debtor was to pay the sum of $125,000 were specified as being by 84 calendar monthly instalments paid monthly in advance.  The first instalment was to be $1,496, payable within three months of the date of the instrument and thereafter, instalments at the rate of $1,488 per month were to be paid, the first payment payable within four calendar months of the date of the instrument.  It appears that there was default on the part of the debtor in the payment of those instalments. 

11. On 29 October 1997, the Meads commenced proceedings against the debtor in the District Court of New South Wales at Bega.  In the statement of liquidated claim, the Meads sought to recover from the debtor, pursuant to the guarantee in the second mortgage, the sum of $688,510.  That sum was calculated as follows:

·    Amount of principal outstanding as at 20 June 1991:	$500,000.00
·    plus Interest payable up to 25 May 1993:	$38,575.34
·    plus Interest payable from 26 May 1993 to the date of the statement of claim:	$309,166.66
·    Total:	$847,742.00
·    less repayments secured by Mr Grace:	$125,000.00
·    Balance:	$722,742.00
·    less repayments by the debtor from 14 November 1994 to the date of the Statement of Claim:	$34,232.00
·    Balance claimed:	$688,510.00

1. The statement of claim sought, in the alternative, the moneys payable under the instrument of 15 August 1994, being $90,768. 

2. It appears that the statement of claim was served at premises at 141-143 Elizabeth Street, Sydney by being delivered to a female person at that address.  The debtor, it seems, did not receive the statement of claim when it was served and says that the address at which it was served was not his principal place of business as claimed in the affidavit of service.  In any event, no appearance or defence was filed and judgment was entered in favour of the Meads on 12 January 1998 for the sum of $688,510, together with costs which were subsequently allowed at $1093.

3. On 28 January 1998, a bankruptcy notice was issued, based on the Meads’ judgment against the debtor.  The bankruptcy notice was apparently not served although it appears to have come to the attention of the debtor.  In consequence, the debtor proposed to the Meads that, in consideration of the Meads not serving the bankruptcy notice, the debtor would pay the sum of $100 per week commencing on 1 May 1998 up to 30 June 1998.  The proposal provided for the amount of the payment to be reviewed on or by 30 June.  On 28 April 1998, that proposal was accepted on behalf of the Meads.

4. On 8 July 1998, the debtor proposed that the forbearance continue on the basis of payments of $400 per month.  The Meads insisted upon payment of $500 per month, and that was accepted by the debtor.  Payments pursuant to those arrangements were made by the debtor up to and including November 1998.   No further payment has been made since then.  A certificate of judgment, issued by the District Court of New South Wales at Bega Registry, records the judgment in favour of the Meads and information by the Meads that the sum of $3,500 has been paid in respect of the judgment.  In the meantime interest has accrued on the judgment debt.

5. The proposition advanced on behalf of the petitioner is that in the light of the matters which I have briefly outlined above, the estate of the debtor is insolvent irrespective of the outcome of the application for special leave.  That seems to me to be the inevitable conclusion to be drawn from the matters to which I have referred. 

6. It may be that the Meads would have some difficulty in establishing that the debtor is indebted to them in respect of the amount of the judgment debt.  Such a difficulty could only arise if the allegations of misrepresentation which have been made are, in fact, established.  I do not have any material before me at present which would enable me to form any view as to the prospects of any defence succeeding. 

7. However, the instrument of 15 August 1994 contemplated that the Meads would be entitled to rely, if they elected to do so, on the terms of that deed.  On that basis, the indebtedness of the debtor to the Meads is at least $90,000.  Assuming that I would be prepared to go behind the District Court judgment in order to determine whether or not the debtor is in fact indebted to the Meads, the material before me indicates that, while there could be some doubt, as I have said, as to indebtedness in the amount of the judgment, there cannot be any doubt as to the debtor's indebtedness in a sum in excess of $90,000.

8. The evidence before me as to the overall financial position of the debtor is somewhat confused.  I have a statement of assets and liabilities which was furnished by the debtor to his controlling trustee.  It shows some assets as follows, and I shall summarise them:

·    Partnership interest:	$25,000.00
·    Motor vehicle and personal items:	$12,500.00
·    Personal bank account:	$5487.40
·    Superannuation:	$36,000.00
·    Life insurance:	$40,000.00
·    Real property secured to the petitioner: Fullers Road, Chatswood:	$225,000.00 - $325,000.00
Whale Beach Road, Whale Beach:	$675,000.00 - $710,000.00
·    Claims as plaintiff in litigation:	$145,000.00

1. Liabilities that are shown in the statement can be summarised as follows:

·    Outstanding rent:

$3,000

·    Business bank accounts:

$321,775

·    Outstanding rent on city premises:

$6,000

·    Claim by Meads:

$150,000

·    Claim by VOP Mercantile Limited:

$250,000

·    Unpaid Group Tax:

$20,000

·    Unpaid Debts – 

Petitioner:

$4,000,000

      State Bank:

$3,000,000

·    Liabilities in respect of legal practice:

$1,205,962

The statement also refers to other miscellaneous creditors, although no amounts are disclosed. 

1. If the application for special leave was successful and the appeal succeeded, the most that the debtor could achieve, and this is what is sought, is an order for the proceeding to be remitted to the Commercial Division of the Supreme Court for the purposes of making orders whereby the so-called compromise between the debtor and the petitioner in relation to outstanding liabilities would be enforced. 

2. Counsel for the debtor was invited to indicate to me a basis upon which, assuming the appeal was totally successful, the debtor would be in a position to pay the undisputed liability to the Meads of in excess of $90,000.  Counsel did not take up that invitation on the basis, as I understand it, that it was not possible to do so.  That is to say, it is not possible to demonstrate that, even if the appeal is successful, the debtor would be in a position to pay the Meads the undisputed amount.

3. In those circumstances, it appears to me that further adjournment of the hearing of the petition would be futile and that it is appropriate that, if the petitioner is otherwise able to establish the grounds for making a sequestration order, the affairs of the debtor should be under the control of a trustee in bankruptcy.  It is, of course, possible that the trustee may be persuaded to pursue the appeal to the High Court.  That is a matter ultimately for any trustee.  In the circumstances, I do not consider that it is appropriate to adjourn any further the hearing of the petition.

4. I am satisfied that Gregory Harrison Healey committed the act of bankruptcy alleged in the petition dated 25 August 1998 which was filed on 26 August 1998. I am satisfied with the proof of the other matters of which section 52(1) of the Act requires proof. I make a sequestration order against the estate of Gregory Harrison Healey. I order that the petitioning creditor’s costs, including reserved costs, if any, be taxed and paid in accordance with the Act. I note that the date of the act of bankruptcy was 14 August 1998. I note that consent, pursuant to section 156A, has been signed by Maxwell William Prentice and has been lodged with the Official Receiver.

I certify that the preceding twenty-four (24) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett.

Associate:

Dated:             16 June 1999

Counsel for the Applicant:	G.K. Burton
Solicitor for the Applicant:	Shaw Mcdonald
Counsel for the Respondent:	L.J. Aitken
Solicitor for the Respondent:	G.H. Healey & Co with G.R. Jensen & Co
Date of Hearing:	16 June 1999
Date of Judgment:	16 June 1999