Community Association Deposited Plan Number 270263 v Vu
[2010] FMCA 370
•22 June 2010
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| COMMUNITY ASSOCIATION DEPOSITED PLAN NUMBER 270263 v VU | [2010] FMCA 370 |
| BANKRUPTCY – Opposed creditor’s petition – whether there is a real debt considered – whether the debtor is solvent considered – debtor owning shares apparently worth more than the debts claimed by all known creditors – inappropriate to make a sequestration order. |
| Bankruptcy Act 1966 (Cth), s.52 Community Land Management Act 1989 (NSW) Federal Court Rules Federal Magistrates Court (Bankruptcy) Rules 2006 |
| Community Association Deposited Plan Number 270263 v Vu [2009] FMCA 150 Lewis v Doran (2004) 50 ACSR 175; (2004) 208 ALR 385 Re Sarina; ex parte Wollondilly Shire Council (1980) 32 ALR 596 |
| Applicant: | COMMUNITY ASSOCIATION DEPOSITED PLAN NUMBER 270263 |
| Respondent: | TRANG DOAN VU |
| File Number: | SYG 3099 of 2009 |
| Judgment of: | Driver FM |
| Hearing date: | 26 May 2010 |
| Delivered at: | Sydney |
| Delivered on: | 22 June 2010 |
REPRESENTATION
| Solicitors for the Applicant: | Ms N Wang Gilbert M Johnstone & Co |
| Counsel for the Respondent: | Mr Lange |
| Solicitors for the Supporting Creditor: | Mr T Hall |
ORDERS
The petition presented on 18 December 2009 is dismissed.
The respondent debtor is to pay the applicant creditor’s costs of and incidental to the petition which, if not agreed, are to be assessed and if necessary taxed in accordance with the Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth).
Ms Vu is to pay the costs of the supporting creditor, fixed in the sum of $2,000.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 3099 of 2009
| COMMUNITY ASSOCIATION DEPOSITED PLAN NUMBER 270263 |
Applicant
And
| TRANG DOAN VU |
Respondent
REASONS FOR JUDGMENT
Introduction and background
The applicant (“the Community Association”) presented a creditor’s petition on 18 December 2009. The petition is opposed by the respondent (Ms Vu).
Ms Vu is the owner of a lot in the Community Association deposited plan. The parties have been in dispute over several years concerning strata levies, administrative recovery costs, interest and, more recently, legal costs of earlier bankruptcy proceedings. The petition identifies as debts $4,170.16 for unpaid strata levies for which judgment was obtained in the Downing Centre Local Court[1] on 18 September 2008 and $8,752.50 for unpaid costs pursuant to an order made by this Court on 24 February 2009 in proceedings relating to an earlier petition[2].
[1] Proceedings number 69433/2008
[2] Community Association Deposited Plan Number 270263 v Vu [2009] FMCA 150
Ms Vu has also commenced proceedings in the NSW Consumer, Trader and Tenancy Tribunal (“the CTTT”) on 4 December 2009[3]. The Community Association has taken proceedings against Ms Vu on five occasions in the NSW Local Court for unpaid contributions levied in relation to her property, interest and recovery costs. On each occasion the Community Association was successful.
[3] Proceedings SCS 09/52208
In a Notice Stating Grounds of Opposition to the petition, Ms Vu asserts:
1. The debtor is not indebted to the creditor as alleged.
2. The debtor is a solvent person and has the capacity to pay the claims subject of the notice, but disputes the claims as made in the petition.
3. The debtor admits that the creditor has obtained default [judgments] and a Certificate of Taxation concerning her in the sums claimed.
4. The debtor does not admit the validity of the charges subject of the [judgments] and says that all levies and fees were paid and none remain outstanding.
5. The debtor says the initiating proceedings and the resulting default [judgments] obtained by the creditor should not have been filed by the creditor, nor granted, and that the [judgments] obtained are liable to an application by her that they be set aside.
6. On the grounds set out in the affidavit of Trang Doan Vu sworn on [14] January 2010 the respondent/debtor seeks that the Creditor’s Petition be set aside, or, in the alternative, that the Creditor’s Petition be stayed pending the final outcome of the debtor’s application to the Consumer Trader and Tenancy Tribunal, listed for directions on 22 January 2010 (File no. SCS 09/52208).
A supporting creditor, Mr Trevor Hall, filed a notice of appearance on 4 February 2010. Mr Hall (a solicitor) represented Ms Vu in the earlier proceedings in this Court in respect of the earlier creditor’s petition (which was dismissed).
The evidence and submissions
The petition is supported by five affidavits by Stephen Ecob made on 17 December 2009 (two affidavits verifying paragraphs 1-4 of the petition), 12 May 2010 (detailing factual material relevant to the petition and the grounds of opposition) and 25 May 2010 (providing updated affidavits of search and debt). The final affidavit of debt acknowledges that Ms Vu has paid $2,938.72 in reduction of the judgment debt and asserts that $12,585.14 remains owing. The petition is further supported by the affidavit of Jonathan Jackson made on 10 December 2009 verifying service of the bankruptcy notice and the affidavit of Peter Woodbury made on 13 May 2010 providing further factual material relevant to these proceedings. None of the deponents were examined.
Ms Vu relies upon her own affidavits made on 13 January 2010 and 27 April 2010. She was cross-examined on those affidavits.
Mr Hall relies upon his own affidavits made on 4 February 2010 and 26 May 2010.
I also received as exhibits a Consent to Act as Trustee by Richard Geoffrey Brett lodged with ITSA on 18 December 2009[4] and a letter from Mr Hall to Ms Vu dated 16 November 2009 enclosing an account for his fees[5].
[4] Exhibit A1
[5] Exhibit S1
The Community Association submits that it has met all the formal requirements for the making of a sequestration order and that it is entitled to a statutory presumption of insolvency. I was referred to a decision of this Court in Khan v Kerr & Anor [2007] FMCA 512. The Community Association submits that Ms Vu has demonstrated an incapacity to pay her debts as and when they fall due. The Community Association further submits that there is no reason for the Court to refrain from making a sequestration order as the petition has been filed as a last resort following unsuccessful attempts to execute the judgments obtained by the Community Association. The Community Association submits that Ms Vu has frustrated attempts to execute the judgments by keeping house.
Ms Vu submits that she has paid all levies due and payable by her (acknowledging one missed payment when her bank failed to transfer funds from her account pursuant to the electronic payments system used by Ms Vu) and that she should not have to bear the cost of administrative expenses, interest and legal costs flowing from precipitant action taken by the Community Association. She intends to pursue those arguments in the CTTT. I note, however, that on 4 June 2010 the proceeding in the CTTT was adjourned without a further hearing date being fixed.
Ms Vu asserts that she is solvent and that she could pay the debts claimed by the Community Association if she wished to. She does not wish to.
Mr Hall claims the sum of $6,600 due to him on his invoice dated 17 November 2009. Mr Hall anticipates lodging a proof of debt for that amount in the event that a sequestration order is made.
Consideration
I am satisfied that the Community Association has sufficiently complied with the formal requirements for the making of a sequestration order against Ms Vu. While Ms Vu has generally paid required strata levies as and when they fall due, she did fall into arrears (at least in part due to an error by her bank) and the Community Association was entitled to take the recovery action it did. Pursuant to the Community Land Management Act 1989 (NSW) the Community Association was entitled also to recover its administrative costs of recovery and interest. The judgment in the Local Court was properly obtained and there has been no appeal against that judgment. Neither has there been any stay of it. It does not appear to me that the CTTT is an appropriate forum to challenge that judgment.
Further, the Community Association obtained a costs order following the dismissal of the earlier petition in this Court and the costs have been assessed by a registrar. There has been no challenge to that assessment.
I reject Ms Vu’s contention that she is not indebted to the Community Association for the amounts claimed.
I make no finding in relation to the amount claimed by Mr Hall. I accept, however, that Mr Hall represented Ms Vu in the earlier proceedings in this Court and he is entitled to be paid a reasonable sum for his services.
Section 52(2) of the Bankruptcy Act 1966 (Cth) (“the Bankruptcy Act”) relevantly provides that if the Court is satisfied by the debtor that he or she is able to pay her debts or that, for other sufficient cause, a sequestration order ought not to be made, it may dismiss the petition. The principal question here is one of solvency. Ms Vu bears the onus of establishing that she is solvent and “able to pay her debts” within the meaning of s.52(2)(a). Solvency may now be established also by proving a capacity to borrow in order to discharge debts[6].
[6] Lewis v Doran (2004) 50 ACSR 175; (2004) 208 ALR 385
Ms Vu conceded in cross-examination that she works only intermittently and has no regular source of income. However, she owns her home for which she paid $525,000 and which is subject to a mortgage of approximately $70,000. Ms Vu stated that she is up to date on her mortgage payments. She claims she has no debts other than those identified in the petition and asserted by Mr Hall. Ms Vu gave evidence that she holds approximately $1,000 in her bank account and has a share portfolio, the value of which she was uncertain. However, annexure D to Ms Vu’s affidavit made on 13 January 2010 details her shareholdings and establishes a value as at January this year of $23,914.54. There is no evidence that Ms Vu has disposed of those shares and, while the value of those shares will undoubtedly fluctuate, depending on market conditions, it is unlikely that the value of her shareholding has declined below the amount due to the Community Association and claimed by Mr Hall. There appears to be no impediment to Ms Vu disposing of the whole or part of her shareholding in order to discharge those debts and claim should she wish to. She does not wish to.
A sequestration order is inappropriate where a debtor who is able to pay his or her debts, refuses to do so. The words “able to pay” do not mean “willing and able to pay”[7]. On the other hand, the authorities also establish that something more is necessary than a “sterile demonstration of an ability to pay”[8].
[7] See Re Sarina; ex parte Wollondilly Shire Council (1980) 32 ALR 596 applying Re Freeholders Oil Co Ltd (1953) 33 CBR 149 where Deane J held that there is no policy discernable in the legislation which allows a creditor to make a recalcitrant but solvent debtor bankrupt.
[8] See Re Eric Trojan v Corporation of the Town of Hindmarsh (1987) 16 FCR 37 and DCT v Keenan (1999) 99 ATC 4465. In the former case the funds said to be available were held subject to a discretionary trust. In the latter case, the public policy supporting the obligation to pay taxes was in issue.
In the present case I am satisfied that Ms Vu has the financial capacity to pay her debts. She has asserted a medical condition (depression and anxiety) which has, in the past, affected her ability to manage her affairs but it does not appear to me that she is under any current medical disability. She considers that the Community Association has acted unreasonably in its pursuit of unpaid levies and that it has unfairly applied moneys she has paid to administrative costs and interest rather than to the principal levies due and payable. However, Ms Vu has not taken appropriate steps to challenge the judgment obtained in the Local Court or the costs assessment of the registrar arising out of the earlier proceedings in this Court. I do not regard the proceedings instituted in the CTTT as appropriate steps.
The Community Association considers that it has been forced into bankruptcy proceedings by Ms Vu’s recalcitrance and her frustration of attempts to execute the judgments obtained. However, the solicitor for the Community Association conceded in argument that it had not exhausted all alternative remedies. She conceded that the Community Association has a caveatable interest in Ms Vu’s residence and that the Community Association had not taken any steps to lodge a caveat on the title.
This is, in my view, a case in which the debtor (Ms Vu) has a genuine, if misguided, grievance against the recovery methods adopted by the Community Association in respect of arrears of strata levies. Her objections have proven expensive but, to this point, she has demonstrated a capacity to pay her debts within a reasonable time. It is, in my view, inappropriate in the circumstances for the Court to make a sequestration order. It follows that the petition should be dismissed. I will so order.
Ms Vu should pay the costs of the petition. The Community Association has been put to considerable trouble and expense in pursuit of the debts due to it. Ms Vu has failed to pay the costs assessed in the earlier proceedings in this Court. Neither has she paid her own solicitor who represented her in those proceedings. Ms Vu needs to understand that her recalcitrance will prove increasingly expensive and that she needs to take appropriate steps to resolve matters between her and the Community Association and Mr Hall. The Community Association should recover its costs on the same basis as previously ordered by Raphael FM in the proceedings on the earlier creditor’s petition. Mr Hall should recover his costs consistently with rule 13.03(2) of the Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth) and item 43C of Schedule 2 to the Federal Court Rules. I will fix those costs at $2,000.
I certify that the preceding twenty-four (24) paragraphs are a true copy of the reasons for judgment of Driver FM
Date: 22 June 2010
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