Connelly v McLaughlins Nominee Mortgage Pty Ltd

[1999] FCA 981

FEDERAL COURT OF AUSTRALIA

Connelly v McLaughlins Nominee Mortgage Pty Ltd [1999] FCA 981

GLEN MARTIN CONNELLY v McLAUGHLINS NOMINEE MORTGAGE PTY LTD

NO. Q 7111 of 1999

HEEREY J
2 JULY 1999
BRISBANE

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY	Q 7111 OF 1999

BETWEEN:	GLEN MARTIN CONNELLY Applicant
AND:	McLAUGHLINS NOMINEE MORTGAGE PTY LTD (ACN 010 668 845) Respondent
JUDGE:	HEEREY J
DATE OF ORDER:	2 JULY 1999
WHERE MADE:	BRISBANE

THE COURT ORDERS THAT:

1.        There be a sequestration order against the estate of the debtor.

2.The costs of the petitioning creditor and the supporting creditor, including reserved costs, be costs in the administration.

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

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY	Q 7111 OF 1999

BETWEEN:	GLEN MARTIN CONNELLY Applicant
AND:	McLAUGHLINS NOMINEE MORTGAGE PTY LTD (ACN 010 668 845) Respondent

JUDGE:	HEEREY J
DATE:	2 JULY 1999
PLACE:	BRISBANE

REASONS FOR JUDGMENT

1. The petitioning creditor McLaughlins Nominee Mortgage Pty Ltd seeks a sequestration order against the estate of the debtor. As a result of directions given by the District Registrar, the matter has been adjourned to enable the Court to consider whether there is material to raise an arguable case that a sequestration order should not be made because, in terms of s 52(2)(a) of the Bankruptcy Act 1966 (Cth), the debtor is able to pay his debts. The argument proceeded before me on the basis that if I found there were a triable issue raised as to the debtor's solvency, the matter would be adjourned for a full contested hearing.

2. Counsel cited the well-known formulation of Barwick CJ in Sandell v Porter (1966) 115 CLR 666 at 670:

   “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.”

3. Although obviously consideration of the assets and liabilities of the debtor are relevant, it is not sufficient for a debtor merely to show that his or her assets exceed liabilities: Re Lakatos (1996) 33 ATR 145 at 148.

4. It is accepted that the onus is on the debtor.  The various assets which are said to be available to the debtor are by no means easily assessable as sources of money to pay his debts.  I shall first turn to the evidence as to what those debts are.

5. The petitioning creditor’s debt of $1,517,879 is admitted.  Another creditor is Permanent Trustee Co Pty Ltd which mortgagee is in possession of a house property formerly occupied by the debtor and his wife as their home, although apparently more recently tenanted.  The affidavit of Mr Jake Jacovou who is employed by La Trobe Home Loans of Australia, the loans manager for the mortgagee, establishes that the current indebtedness is $332,643.57 (not $288,000 as alleged by the debtor).  The debtor swore that the loan was “approximately three months” in arrears.  In fact, according to Mr Jacovou, whose evidence I see no reason to disbelieve, the last loan repayment was made on 24 June 1998.  Thus the loan is over 12 months in arrears.

6. The debtor has sworn that the mortgagee “is prepared to wait for the sale of the property in an orderly fashion for repayment of its loan”.  Mr Jacovou deposes:

   “This is wrong.  La Trobe arranged for possession to be taken of the property in February, 1999 on behalf of the mortgagee and the mortgagee remains in possession.  La Trobe is not ‘prepared to wait for the sale of the property in an orderly fashion’.  The property is still listed for sale by the mortgagee in its capacity as mortgagee in possession.”

7. Mr Jacovou also disputes the debtor’s claim that the property “will sell quickly”.  Mr Jacovou deposes:

   “The property was auctioned on behalf of the mortgagee on 24 April 1999, but there were no genuine bids.  The property has been on the market since then.”

8. The next debt alleged is one owing to International Business Exchange for $180,325.  However, this is disputed in litigation in the District Court and I disregard it for present purposes.  A debt of $100,000 to Metway Bank is admitted.  There is a debt of $250,000 to Park Regis Proprietary Limited.  The amount of that debt is admitted but the debtor claims that it is not payable until January 2000.  While no detail is given in support of that assertion, I am prepared to treat that issue, in itself, as triable. 

9. There are substantial amounts owed to a firm called BXI International Proprietary Limited by way of guarantee for contracts for loans for the purpose of “barter dollars”.  It seems there is no dispute that the company guaranteed by the debtor is in default and that the gross amount due is $830,000. 

10. However, the debtor claims that the full amount is not payable.  He says that the amount owing is only approximately $86,000 on the basis that these "trade dollars" are not repayable at face value.  However, the loan agreement and guarantee, which was in evidence, contains the following cl 17.1:

    “The borrower acknowledges that as from the date of this agreement, it shall be liable to repay to the mortgagee the amount of $430,000 BXI trade dollars as advanced and/or outstanding from time to time.  The borrower acknowledges that in the event of default or repayment, then one BXI trade dollar shall be equivalent to $1 in Australian legal tender.”

    There has been no proper material, or any material to my mind, advanced as to why I should go behind that stipulation. 

11. One can infer that the debtor will incur day to day liabilities for living expenses, legal costs, interest commitments and the like.  However, no detail is proffered as to these. 

12. As to assets, again these are at best ambiguous.  The debtor claims to be the “beneficiary of a payment” due in July.  In support of that, he relied on an affidavit by a Mr Kostic who deposes that the debtor and his wife and their companies “are colleagues of mine and I have had business dealings with them over a period of approximately three years”.  Mr Kostic deposes that he is the purchaser of certain unimproved real estate under a contract which is due for completion in the first week of July 1999.  A copy of the contract is exhibited to Mr Kostic's affidavit.  It shows that the purchase price is $310,000 of which a deposit of $18,000 has been paid.  He continues:

    “As a result of the financial adjustments on the completion of that purchase, Mr and Mrs Glen Connelly will become entitled to receive $450,000 as their own personal unconditional property and I have undertaken to pay that sum to them or at their direction from the funds which will become available at the time of the settlement.”

13. It is completely unclear to me how the purchaser of a property who, according to the contract, has to pay $292,000 on settlement, will become entitled to $450,000 on settlement.  I place no reliance on this alleged “beneficiary” entitlement. 

14. Then the debtor claims to have sold "trade dollars" to a company called Nucorp Holdings Proprietary Limited.  The manager of that company, Mr Gregory Hall, deposes that he has acquired 5,000,000 “Barter Bank dollars”, from Mr Connelly for $1,000,000.  His affidavit states:

    “4.  Negotiations have taken place between me and Mr Connelly with respect to that acquisition, and an oral agreement has been reached and solicitors have been instructed to prepare a contract in writing pursuant to which Nucorp has agreed to purchase these trade dollars from him for the figure of 20 cents AUD for each trade dollar.  This document will be a complete and binding agreement subject however to legal advice which is being procured at the present time that the transaction may not be set aside in the event of Mr Connelly's bankruptcy.

    5.  The transaction will be completed in full no later than 90 days from the date hereof, and money will be paid to Mr Connelly progressively as transactions occur with respect to the disposal of Mr Connelly's trade dollars.”

15. Notwithstanding the argument of counsel for the debtor, I read that as meaning that the transaction, that is to say the contract, will not be completed until the period of 90 days, and that the payments received thereunder will thereafter occur at some unspecified future dates.

16. Finally, there is the house already mentioned.  I accept the evidence produced by an affidavit of an estate agent which puts the range of value at $350,000 to $375,000.

17. The petitioning creditor’s debt is secured over a property in Sussex Street, Sydney.  There is in existence a contract of sale, but the contract has not been signed by the vendor or exchanged, and the position, as to settlement, is dependent on various inquiries being made by the purchaser.  The debtor was a guarantor of the mortgage debt, and no surplus would be available to him on the sale.  At best, it might, at some time in the future, result in the discharge of his debt under the guarantee. 

18. Thus liabilities immediately payable total approximately $2.76 million.  Even if the house property could be turned into cash in the near future, and even if the “barter dollars” and the Kostic payment are assumed to be immediately payable, assets total only about $1.8 million. 

19. All in all I am not satisfied that there is any surplus of assets over liabilities, but in any case, I am not satisfied that the debtor is solvent.  I place particular emphasis on the fact that he has not paid debts which are unarguably due and in particular, the mortgage debt to Permanent Trustee Pty Ltd.

20. It not being an issue that the relevant formal matters have been established, there will be a sequestration order against the estate of the debtor.  I order that the costs of the petitioning creditor and the supporting creditor, including reserved costs, be costs in the administration. 

I certify that the preceding twenty (20) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Heerey.

Associate:

Dated:             2 July 1999

Counsel for the Applicant:	Mr P McQuade
Solicitor for the Applicant:	John M O’Connor & Company
Counsel for the Respondent:	Mr R A Myers
Solicitor for the Respondent:	McLaughlins Solicitors
Date of Hearing:	2 July 1999
Date of Judgment:	2 July 1999